Annual bond report 2014

Transcription

1 Annual bond report 2014 Published 29 April 2015 Silk Bidco AS (issuer) 455,000, % Senior Secured Notes due 2022 Hurtigruten AS Fredrik Langes gate 14, P.O. Box 6144 Langnes, 9291 Tromsø, Norway Booking: , Switchboard: Business register number: NO MVA

2 Table of contents Cautionary notice 3 Material differences between Silk Bidco AS and Hurtigruten AS 4 Summary 5 Risk factors 6 Management's discussions and analysis of our financial condition and results of operation 7 Business 21 Management 23 Principal shareholders 25 Related party transactions 26 Description of other indebtedness 27 Definitions key performance measures and key line items 28 Appendix Hurtigruten group Annual report 2014 Corporate governance Director's report 2014 Financial statements group Notes to the accounts group Financial statements Hurtigruten AS Notes to the accounts Hurtigruten AS Auditor's report 2

3 Cautionary notice This annual 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 annual 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 Material differences between Silk Bidco AS and Hurtigruten AS This annual bond report has been prepared presenting financials for Hurtigruten and its subsidiaries under the previous capital structure, since at 31 December 2014 the only transactions in Silk Bidco AS (the "Company"), was the foundation of the Company and the acquisition of Hurtigruten. Silk Bidco AS is a holding company that conducts no business operations of its own and has no significant assets other than the shares it holds in its direct subsidiary, Hurtigruten and the Proceeds Loan to Hurtigruten. Silk Bidco is the issuer of the notes and one of the lenders under the Revolving Credit Facility. Repayment of the Company s indebtedness, including under the Notes will be done by Hurtigruten making such cash available, by dividend distributions, intercompany loans, including the Proceeds Loan, or otherwise. For future quarterly and annual reports, the Company will be the reporting entity. For further information we refer to the offering memorandum published. 4

5 Summary Hurtigruten improved the consolidated Normalised Adjusted EBITDA by NOK 87.2 million to NOK million for the year ended 31 December 2014 from NOK million in the year ended 31 December Improved efficiency and increased commercial focus is the main driver for the Normalised Adjusted EBITDA improvement in all three products. Of special importance is the successful positioning of MS Fram in the Explorer segment with an EBITDA margin of 33.6%. The Hurtigruten Norwegian Coast segment increased its revenues by NOK million, or 6.8% to NOK million for the year ended 31 December 2014 from NOK million in year ended 31 December The overall increase in our Hurtigruten Norwegian Coast revenues was primarily driven by an increase of 3.5% in PCNs and an increase of 6.6% in Gross ticket revenues per PCN. The increase in Gross ticket revenues per PCN was principally 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 an increase in onboard spending. The Normalised Adjusted EBITDA for the Hurtigruten Norwegian Coast segment improved by NOK 40 million to NOK million for the year ended 31 December 2014 from NOK million in year ended 31 December MS Fram total revenues for the year ended 31 December 2014 increased by NOK 57.3 million, or 19.4%, to NOK million from NOK million in year ended 31 December 2013, primarily attributable to an increase of 10.2% in PCNs and an increase of 8.4% in Gross ticket revenues per PCN. The increase in PCNs was mainly attributable to the Antarctica season in the first and the fourth calendar quarter together with increased utilization with respect to our sailings in Europe and Greenland during the second calendar quarter. The increase in Gross ticket revenues per PCN was principally driven by an increase in ticket prices, in the first quarter of 2014 in particular, and a decrease of the relative value of the Norwegian kroner compared to the prior corresponding period. The foundation for Hurtigruten s future profitability was laid during the year of restructuring in 2013 and its continued implementation in As a result of our Efficiency Improvement Program, our operational costs have declined substantially since 2012, and for the year ended 31 December 2014, we achieved total efficiency improvements of NOK million in connection with the Efficiency Improvement Program. Combined with the revenue increase from the year ended 31 December 2013 to the year ended 2014, the underlying results improved. The strong performance in 2014 combined with a continued positive booking trend, creates a positive momentum in

6 Risk factors Other than the ones described below, there have been no material changes in the risk factors relating to our business and operations since the publication of the offering memorandum. 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, port authorities operating ports-of-call that we regularly visit have assessed new taxes, introduced new fees or raised existing taxes or fees charged for the use of such ports, including, but not limited to, 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 from NOK 77.9 million in the year ended December 31, 2011 to NOK 96.7 million in the year ended 31 December This amount includes a reversal of an accrual of NOK 3.7 million related to a dispute with Stranda Hamnevesen KF regarding an increase in port taxes and fees charged by Stranda Hamnevesen KF in relation to the port in Geiranger. 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. Pursuant to the Coastal Service Contract we are obliged to ensure 34 northbound and 33 southbound daily departures from ports along the coast from Bergen to Kirkenes throughout the year. See The Coastal Service Contract requires us to provide certain services and, accordingly, restricts our ability to offer other services that may be more profitable in the offering memorandum. Accordingly, we are more dependent on the ports along the coast from Bergen to Kirkenes compared to our competitors. Some of the operators of these ports have recently increased certain passenger handling and harbor-related fees. We are currently involved in a dispute with Stranda Hamnevesen regarding an increase in port taxes and fees charged by Stranda Hamnevesen KF in relation to the port in Geiranger. We successfully challenged the increase in port taxes and fees in both the District Court and the Court of Appeal. In December 2014, Stranda Hamnevesen KF appealed parts of the Court of Appeal s decision to the Supreme Court of Norway. Supreme court have decided to hear the case following the appeal from Stranda. The court case have been scheduled to 9-10 June If the Supreme Court ultimately decides in favor of Stranda Hamnevesen KF, we could be liable for an amount of approximately NOK 2 million for outstanding fees for the period from 2012 to 2014 as well as legal costs. The final outcome of the dispute is also likely to impact the amount of port fees we will be charged in future periods at the port in Geiranger and elsewhere. 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. Since the publication of the offering memorandum, 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. Capital expenditures with respect to the 305 Classification rebuild have therefore been reduced from a worst case scenario of approximately NOK 118 million to approximately NOK 30 million. For further information on the 305 Classification we refer to the offering memorandum. 6

7 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 Hurtigruten and its subsidiaries for the year ended 31 December 2014 compared to the year ended 31 December Accordingly, all references to we, us or our in respect of historical consolidated financial information in this discussion are to Hurtigruten and its subsidiaries on a consolidated basis. You should read this discussion in conjunction with the annual report for 2014 for Hurtigruten group included elsewhere in this bond report, 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, 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 year ended 31 December 2013 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 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 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 Travel 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 Our Other segment comprises non-core operations, the bus transport through TIRB and its Cominor subsidiary being the largest. Hurtigruten sold its shareholding in TIRB to Boreal Transport Nord in July 2014, with closing of the sale 4 September

8 Factors affecting our results of operations Factors affecting our results of operation which have not changed substantially since the publication of the offering memorandum at 30 January 2014 are not included here, but should nevertheless be considered. Pre-bookings We typically commence our marketing activities for our Hurtigruten Norwegian Coast and MS Fram voyages and our Spitsbergen hotels in the first quarter of the year before the voyage. 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 year ended 31 December 2014, 35.8% of our reservations in terms of PCNs were made at least six months in advance and 37.0% of our reservations in terms of PCNs were made at least six months in advance in the year ended 31 December As of the date this annual bond report is published, our pre-bookings in terms of revenue at constant currency for 2015 compared to the same date last year, for the Hurtigruten Norwegian Coast segment and MS Fram segment, has continued to develop positively. The current prebookings in terms of growth in revenue at constant currency are in line with the pre-bookings published in the offering memorandum. 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, with 64.4% our Hurtigruten Norwegian Coast revenues and 117.6% of our Hurtigruten Norwegian Coast Normalised Adjusted EBITDA for the year ended 31 December 2014 generated in the second and third calendar quarters of The first and fourth calendar quarters are weaker periods in terms of revenues and EBITDA 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 year ended 31 December 2014, we generated 47% of our operational revenues, which excludes losses with respect to our former foreign currency exchange swaps that were realized in the year ended 31 December 2014, as well as unrealized effects with respect to foreign currency exchange swaps and foreign currency effects with respect to trade receivables during the same period ( Operational Revenues ), in Norwegian kroner, 37% of our Operational Revenues in euros, 10% of our Operational Revenues in pound sterling, 5% of our Operational Revenues in U.S. dollars and 2% of our Operational Revenues in other currencies, and payroll and other operating costs, excluding bunker fuel costs (together, our Operating Costs ) incurred in Norwegian kroner accounted for 51% of our Operational Revenues, Operating Costs incurred in euros accounted for 13% of our Operational Revenues, Operating Costs incurred in pound sterling accounted for 4% of our Operational Revenues, Operating Costs incurred in U.S. dollars accounted for 2% of our Operational Revenues. We did not incur Operating Costs in other currencies. We terminated our former foreign currency exchange swaps as part of the Hurtigruten Acquisition Transactions at a cost of NOK million 1, resulting in an impairment charge of NOK 82.5 million. Following the issuance of the Notes, which will be denominated in euros, we intend to use the euros we generate to service our obligations under the Notes and the Revolving Credit Facility, to the extent it is drawn. A new strategy for managing currency risk is under development. Price of bunker fuel We are exposed to fluctuations in the price of bunker fuel, which is used to operate our ships. Historically, we hedged this exposure from time to time through quarterly rolling hedges. 1 The amount were included in the termination of Former hedging obligations of NOK million in the "Uses of funds" table on page 9 in the offering memorandum. 8

9 As part of the Hurtigruten Acquisition Transactions, we terminated the majority of our bunker fuel swaps at a cost of NOK 95.1 million 2, resulting in an impairment charge of NOK 78.0 million, and rolled over our remaining bunker fuel swaps. As a result, following the termination of the majority of our bunker fuel swaps, our remaining hedges cover approximately 4% of our expected bunker fuel consumption for We are currently re-evaluating our bunker fuel hedging policy and may change our policy going forward. Discontinued operations Net profits or losses after tax for discontinued operations are reported separately from income from continuing operations. Results from the previous periods for discontinued operations have been reclassified in order to obtain comparable figures. The Group's bus business was classified as a discontinued operation at 31 December In a stock market notification on 8 July Hurtigruten announced that it had entered into an agreement with Boreal Transport Nord AS to transfer Hurtigruten AS' 71.3 per cent shareholding in AS TIRB which operates the bus business through Cominor AS. The sale was implemented on 4 September The Group's bus business was recognised in the balance sheet as held for sale as of 31 December In addition, we sold our Fast Ferries Business in March Efficiency Improvement Program As a result of our Efficiency Improvement Program, our operational costs have declined substantially since 2012, and for the year ended 31 December 2014, we 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 Year Ended 31 December December 2014 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Norwegian Coast: PCNs APCNs Occupancy rate % 61.8% Gross ticket revenues (1) Less: Commissions, costs of goods for flights, hotels, transportation Food, beverage, shop, excursions and other passenger services 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 The amount were included in the termination of Former hedging obligations of NOK million in the "Uses of funds" table on page 9 in the offering memorandum. 9

10 For the Year Ended 31 December December 2014 (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 Food, beverage, shop, excursions and other passenger services 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 year ended 31 December 2013 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 year ended 31 December (2) The presentation of bunker swaps in the income statement for 2014 has changed. The comparative figures for the year ended 31 December 2013 have been restated accordingly. Net loss on bunker swaps totalling NOK thousand have been reclassified from other operating costs to other (losses)/gains for the year ended 31 December Key operating metrics for MS Fram For the Year Ended 31 December December 2014 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) MS Fram: PCNs APCNs Occupancy rate % 78.4% Gross ticket revenues Less: Commissions, costs of goods for flights, hotels, transportation Food, beverage, shop, excursions and other passenger services 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 Food, beverage, shop, excursions and other passenger services Net cruise costs Net cruise costs per APCN (NOK) Fuel consumption (liter/nautical mile) Fuel cost per liter

11 Results of Operations The following table presents, for the periods indicated, our operating results: For the Year Ended 31 December 2013 % Change 31 December 2014 (NOK thousands, except as otherwise indicated) Continuing Operations (1) : Operating revenues Contractual revenues (0.5) Total revenues Payroll costs... ( ) 14.8 ( ) Other operating costs... ( ) 8.3 ( ) Depreciation, amortization and impairment losses... ( ) 22.6 ( ) Other (losses)/gains net... (42 571) (93 487) Operating profit/(loss) (43.5) Finance income Finance expense... ( ) 44.5 ( ) Finance expenses net... ( ) 61.0 ( ) Share of profit/(loss) of associates (90.4) Profit/(loss) before income tax from continuing operations... 40,926 NM ( ) Income tax expense from continuing operations... (3 915) 28.5 (5 031) Profit/(Loss) for the period from continuing operations NM ( ) Discontinued Operations: Profit/(Loss) for the period from discontinued operations (11 589) (187.4) Profit/(Loss) for the Period NM ( ) 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 Year Ended 31 December 2013 % Change 31 December 2014 (NOK thousands, except as otherwise indicated) Continuing Operations: Total revenues: Hurtigruten Norwegian Coast (1) MS Fram Spitsbergen Travel Other Business (71.7) Eliminations... (17 068) (49.3) (8 656) Total revenues from continuing operations (1) Operating profit/(loss) for the period: Hurtigruten Norwegian Coast (53.0) MS Fram (34.2) Spitsbergen Travel Other Business... (29 647) 4.7 (31 033) Total operating profit/(loss) from continuing operation (43.5)

12 For the Year Ended 31 December 2013 % Change 31 December 2014 (NOK thousands, except as otherwise indicated) Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast MS Fram Spitsbergen Travel Other Business (50.0) Total continuing operations Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast (1) % % MS Fram % % Spitsbergen Travel % % Other Business... NM NM NM Total continuing operations (1) % % (1) The presentation of forward exchange contracts in the income statement for 2014 has changed. The comparative figures for the year ended 31 December 2013 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 year ended 31 December Comparison of the year ended 31 December 2014 with the year ended 31 December 2013 The financial information for the year ended 31 December 2013 discussed below has been derived from the comparative information for 2013 included in the audited consolidated financial statements of Hurtigruten and its subsidiaries as of and for the year ended 31 December Hurtigruten AS has changed the presentation of forward exchange contracts and bunker swaps in the income statement for The comparative figures 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. This change can be further review on Note 3B Restatement of comparative figures to the Financial statement for Hurtigruten group. Total revenues Our total revenues from continuing operations for the year ended 31 December 2014 increased by NOK million, or 8.6% to NOK million from NOK 3,350.8 million in year ended 31 December 2013, as a result of an increase in revenues from all operating segment. Hurtigruten Norwegian Coast total revenues for the year ended 31 December 2014 increased by NOK million, or 6.8% to NOK million from NOK million in year ended 31 December The overall increase in our Hurtigruten Norwegian Coast revenues was primarily driven by an increase of 3.5% in PCNs and an increase of 6.6% in Gross ticket revenues per PCN. The increase in Gross ticket revenues per PCN was principally 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 an increase in onboard spending. Contractual revenues amounted to NOK million for the year ended 31 December 2014, principally on par with the year ended 31 December MS Fram total revenues for the year ended 31 December 2014 increased by NOK 57.3 million, or 19.4%, to NOK million from NOK million in year ended 31 December 2013, primarily attributable to an increase of 10.2% in PCNs and an increase of 8.4% in Gross ticket revenues per PCN. The increase in PCNs was mainly attributable to the Antarctica season in the first and the fourth calendar quarter together with increased utilization with respect to our sailings in Europe and Greenland during the second calendar quarter. The increase in Gross ticket revenues per PCN was principally driven by an increase in ticket prices, in the first quarter of 2014 in particular, and a decrease of the relative value of the Norwegian kroner compared to the prior corresponding period. 12

13 Spitsbergen total revenues for the year ended 31 December 2014 increased by NOK 31.3 million, or 18.1%, to NOK million from NOK million in year ended 31 December 2013, principally due to increased RevPAR and increased sales of activities, expeditions, food and beverages. The increase in RevPAR is primarily due to a reduction in available capacity in the year ended 31 December 2014 due to the temporary closure of one of the buildings in the Spitsbergen Guest House for remodelling, together with higher average room rate achieved for the available number of rooms. Other business total revenues for the year ended 31 December 2014 decreased by NOK 5.7 million, or 71.7%, to NOK 2.2 million from NOK 7.9 million in year ended 31 December 2013, primarily due to a decline in rental revenue resulting from the disposal of one of our properties in Narvik as part of our Efficiency Improvement Program Payroll costs Payroll costs from continuing operations for the year ended 31 December 2014 increased by NOK million, or 14.8%, to NOK million from NOK million in year ended 31 December 2013, primarily 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 and an increase in the number of crew members on our Hurtigruten Norwegian Coast ships, corresponding to the increase in PCNs for the same period. Additionally the administrative personnel costs is affected by a NOK 50.1 million increase as a result of the acquisition of Hurtigruten ASA due to the existing option schemes for the corporate management were realised in We also incurred certain non-recurring payroll costs in connection with the implementation of the fourth phase of our Efficiency Improvement Program. Other operating costs Our other operating costs from continuing operations for the year ended 31 December 2013 and 2014 are set forth below: For the Year Ended 31 December 2013 % Change 31 December 2014 (NOK thousands, except as otherwise indicated) Other Operating Costs: Cost of goods sold Operating costs Sales and administrative costs Total Other operating costs from continuing operations for the year ended 31 December 2014 increased by NOK million, or 8.3%, to NOK million from NOK million in year ended 31 December Such increase was mainly due to an increase in cost of goods sold associated with higher revenues and an increase in expenses related to sales and marketing activities, which were primarily related to launching new products and increased marketing activities, particularly in the United States. Additionally the administrative costs is affected by a NOK 7.3 million increase as a result of the acquisition of Hurtigruten ASA mainly related to legal fees. We also recognized restructuring costs in connection with the reorganization of our management team and our Group in the year ended 31 December 2014, which included costs for consultants used to temporarily fill positions on an interim basis. The overall increase in our operating costs was partially offset by cost savings in the year ended 31 December 2014, as a result of certain initiatives we had implemented in connection with our Efficiency Improvement Program. Such initiatives included standardizing our procurement and purchasing processes and implementing our bunker fuel saving initiatives. Depreciation, Amortization and Impairment Losses Depreciation, amortization and impairment losses from continuing operations for the year ended 31 December 2014 increased by NOK 69.8 million, or 22.6%, to NOK million from NOK million in the year ended 31 December Such increase is principally due to the reversal of an impairment loss of NOK 78.1 million with respect to MS Fram to reflect its expected fair value as of 31 December The reversal was based on a value-in-use calculation for MS Fram and reflected improved earnings and an increase in pre-bookings in 2013 compared to This increase was also due to a reversal of an impairment charge in 2013 with respect to the disposal of our Fast Ferries Business. 13

14 Other losses net Other losses net from continuing operations for year ended 31 December 2014 increased by NOK 50.9 million, or 119.6%, to NOK 93.5 million from NOK 42.6 million in the year ended 31 December Other losses net from continuing operations includes a gain of NOK 0.6 million in the year ended 31 December 2014 primarily due to the disposal of our Fast Ferries Business in March 2014 and a gain of NOK 9.4 million in the year ended 31 December 2013 primarily due to the disposal of two properties in Narvik as part of our Efficiency Improvement Program. 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 year ended 31 December 2013 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 year ended 31 December 2014 includes losses on derivative financial instruments of NOK 94.1 million and the year ended 31 December 2013 of NOK 52.0 million. EBITDA Our EBITDA from continuing operations for the year ended 31 December 2014 decreased by NOK 43.9 million, or 7.7%, to NOK million from NOK million in the year ended 31 December This decrease is related to non-recurring items where the following are the major ones; i) a NOK 57.4 million increase in administrative expenses as a result of the acquisition of Hurtigruten ASA mainly due to the existing option schemes for the corporate management were realised in 2014; ii) a NOK 59.4 million unrealised loss on foreign exchange derivatives terminated in January These effects are partially offset by increased revenue from all operating segments. The Normalised Adjusted EBITDA does include the above mentioned non-recurring items among other smaller effects, and decreased by NOK 87.2 million to NOK million for the year ended 31 December 2014 from NOK million in the year ended 31 December Hurtigruten Norwegian Coast EBITDA for the year ended 31 December 2014 decreased by NOK 79.8 million, or 17.4% to NOK million from NOK million in the year ended 31 December 2013 related to the nonrecurring items. The EBITDA decrease is primarily driven by a NOK 52.2 million share of the increase in administrative expenses as a result of the acquisition of Hurtigruten ASA and NOK 42.1 million increase in losses on derivative financial instruments. These effects are partially offset by increased revenue net of variable operating expenses. MS Fram EBITDA for the year ended 31 December 2014 increased by NOK 36.6 million, or 47.9% to NOK million from NOK 76.4 million in the year ended 31 December 2013, primarily attributable to an increase in revenue, which was partially offset by an increase in costs including sales commissions, cost of goods sold and sales and administrative costs. Spitsbergen Travel EBITDA for the year ended 31 December 2014 increased by NOK 8.6 million, or 35.1% to NOK 33.1 million from NOK 24.5 million in the year ended 31 December 2013, principally due to an increase in revenues from accommodation, food and beverage and excursions, which was partially offset by an increase in costs, including payroll costs and other operating costs. Other business EBITDA for the year ended 31 December 2014 decreased by NOK 9.3 million, or 80.6% to NOK 2.2 million from NOK 11.6 million in the year ended 31 December 2013, primarily due to the non-recurring gain on the disposal of two properties in Narvik in the year ended 31 December EBITDA margin Our EBITDA margin from continuing operations for the year ended 31 December 2014 decreased by 2.6 percentage points, to 14.5% from 17.0% in the year ended 31 December 2013 due to the non-recurring items related to the acquisition of Hurtigruten ASA and the refinancing. However, Normalised Adjusted EBITDA margin for the year ended 31 December 2014 increased by 1.1 percentage points, to 17.9% from 16.9% in the year ended 31 December Hurtigruten Norwegian Coast EBITDA margin for the year ended 31 December 2014 decreased by 3.6 percentage points, to 12.2% from 15.8% in the year ended 31 December The Normalised Adjusted EBITDA margin for the year ended 31 December 2014 increased by 0.3 percentage points, to 16.1% from 15.9% in the year ended 31 December MS Fram EBITDA margin for the year ended 31 December 2014 increased by 6.2 percentage points, to 32.1% from 25.9% in the year ended 31 December The Normalised Adjusted EBITDA margin for the year ended 14

15 31 December 2014 increased by 7.3 percentage points, to 33.6% from 26.3% in the year ended 31 December Spitsbergen Travel EBITDA margin for the year ended 31 December 2014 increased by 2.0 percentage points, to 16.2% from 14.2% in the year ended 31 December The Normalised Adjusted EBITDA margin for the year ended 31 December 2014 increased by 1.8 percentage points, to 16.2% from 14.4% in the year ended 31 December Other business EBITDA margin for the year ended 31 December 2014 decreased by 45.9 percentage points, to 100.3% from 146.2% in the year ended 31 December Operating profit Operating profit from continuing operations for the year ended 31 December 2014 decreased by NOK million, or 43.5%, to NOK million from NOK million in the year ended 31 December 2013, primarily due to the reasons stated above with respect to EBITDA as well as reversed impairment losses on the MS Fram segment in the year ended 31 December Finance expenses net Finance expenses net from continuing operations for the year ended 31 December 2014 increased by NOK million, or 61.0%, to NOK million from NOK million in year ended 31 December Finance expense for the year ended 31 December 2014 increased by NOK million, or 44.5%, to NOK million from NOK million in the year ended 31 December The increase was principally a result of fees and termination costs related to the refinancing of the company following the acquisition of Hurtigruten ASA totalling NOK million. The fees and termination costs includes NOK 73.7 million related to termination of interest rate swaps. Excluding these special items our interest expense show a decrease due to the repayment of NOK million of existing indebtedness on bank borrowings, including the repayment of loans under our former revolving credit facility, drawings under our short-term seasonal credit facility, repayments of the facility in connection with our Fast Ferries Business that we sold in March 2014 and repayments of our Local Line Facilities, in the year ended 31 December We also experienced an increase in realized and unrealized gross losses of NOK 40.3 million, related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner. The finance expense was partially offset by finance income of NOK 89.5 million in the year ended 31 December 2013 and NOK 91.1 million in the year ended 31 December 2014, representing an increase of NOK 1.6 million, or 1.8%. Such increase in finance income was primarily due to an increase in realized and unrealized gross gains of NOK 20.2 million, related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner, in the year ended 31 December Share of profit/(loss) of associates Share of profit of associates from continuing operations for the year ended 31 December 2014 decreased by NOK 9.8 million, to NOK 1.0 million from NOK 10.8 million in the year ended 31 December 2013, primarily as a result of the sale of our office building in Tromsø that was sold in December 2013 and was owned by ANS Havnebygningen, in which we had a 50% ownership interest. Income tax expense from continuing operations Income tax expense from continuing operations for the year ended 31 December 2014 increased by NOK 1.1 million, or 28.5%, to NOK 5.0 million from NOK 3.9 million in year ended 31 December 2013, which was mainly driven by an increase in our profits before income tax for some of the subsidiaries. Profit/(loss) for the period from continuing operations As a result of the factors discussed above, profit from continuing operations for the year ended 31 December 2014 decreased by NOK million to a loss of NOK million from a profit of NOK 40.9 million in the year ended 31 December Substantial non-recurring items totalling NOK million related to the acquisition of Hurtigruten ASA are included in the 2014 accounts. These special items relate directly to refinancing the company s non-current debt and the termination of derivatives. As a result of the transaction, existing option schemes for the corporate management were realised in 2014 and are included in the special items. Adjusted for the above-mentioned special items, the normalised profit from continuing operations for 2014 was NOK 55.5 million an improvement of NOK 14.6 million from the year before. 15

16 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 year ended 31 December 2014, 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. Please refer to the relevant statements of cash flows in the Annual report for 2014 attached for more detailed information. For the Year Ended 31 December December 2014 (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 operating activities The following table reconciles our profit/loss to net cash flows from/(used in) operating activities for the periods indicated: For the Year Ended 31 December December 2014 (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... (9 484) (12 409) Unrealized foreign exchange (losses)/gains Unrealized (losses)/gains on derivatives held for trading purposes Dividends received... (1 416) (869) Interest expenses Share of profit/(loss) of associates from continuing and discontinued operations... (7 847) (1 039) Impairment of non-current shares Difference between expensed pension and payments (8 203) Change in working capital: Inventories... (9 338) (7 480) Trade and other receivables (54 861) Financial assets at fair value through profit or loss... (4 428) Trade and other payables... (65 592) Interest paid... ( ) ( ) Income tax paid... (10 264) (4 127) 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. 16

17 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 increased by NOK 33.8 million, or 7.3%, to NOK million in the year ended 31 December 2014 compared to NOK million in the year ended 31 December 2013 reflecting improved cash flow from underlying operations. This comes from higher PCNs and Gross ticket revenues per PCN in our Hurtigruten Norwegian Coast and MS Fram segment as well as higher revenue from the Spitsbergen segment from increased RevPAR and increased sales of activities, expeditions, food and beverages. Additionally interest payments are reduced as a result of debt redemption. Net cash flows used in investing activities The following table summarizes the principal components of our net cash flows from investing activities for the period indicated: For the Year Ended 31 December December 2014 (NOK thousands) Purchases of property, plant and equipment ( PPE )... ( ) ( ) Proceeds from insurance settlement Net proceeds from sale of PPE Purchases of intangible assets... (43 993) (45 473) Loans to associates and other companies... (1 500) 105 Purchase of shares and shareholdings Net proceeds from sale of shares and shareholdings Net liquid assets from purchase and sale of business... (69 997) Dividends received 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 85.2 million, or 36.5%, to NOK million in the year ended 31 December 2014 compared to NOK million in the year ended 31 December 2013, mainly as a result of proceeds we received from the sale of our Fast Ferries Business in March 2014 and the sale of a property used by our Bus Business in May 2014, as well as a decrease in our capital expenditures. Our capital expenditures decreased by NOK 76.2 million, or 25.7% from NOK million in the year ended 31 December 2013 to NOK million in the year ended 31 December 2014 due to a decline in expenses with respect to scheduled dry-docking of our ships during this period. Normalised adjusted capital expenditures decreased by NOK 36.0 million from NOK million in the year ended 31 December 2013 to NOK million in the year ended 31 December The Normalised Adjusted Capital expenditure includes insurance proceeds and excludes capital expenditure in the discontinued charter business in the year ended 31 December Additionally capital expenditure in the discontinued bus business, the rebuild related to the 305 Classification and the investments in Fidelio cruise management system is excluded in both periods presented. 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 17

18 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 Year Ended 31 December December 2014 (NOK thousands) Sale of treasury shares Proceeds from borrowings Repayments of borrowings... ( ) ( ) Dividends paid to non-controlling interests... (73 400) (44 622) 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. Dividends paid to non-controlling interests relates to dividends payable to the minority shareholder of our former subsidiary AS TIRB and to the limited partners in the SPEs. Net cash flows used in financing activities increased by NOK million, or 37.9%, to NOK million in the year ended 31 December 2014 compared to NOK million in the year ended 31 December This increase reflected the fact that the company redeemed NOK million in debt in the year ended 31 December 2014, NOK 99.2 million more than in the corresponding period. The redemption of debt in the year ended 31 December 2014 included the repayment of a short-term loan of NOK 150 million drawn down in December 2013, and the redemption of a NOK 40 million loan related to the two remaining fast ferries on the occasion of their sale in March We had also drawn down NOK 100 million on a short-term seasonal credit at 31 December Dividends paid to non-controlling owner interests declined by NOK 28.8 million from 2013 to Off-balance Sheet Arrangements Hurtigruten AS has deferred income tax assets recognised in the balance sheet of NOK million at 31 December 2014 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 December 2014, on an as adjusted basis after giving effect to the Hurtigruten Acquisition Transaction and the Refinancing Transactions: 18

19 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 the propulsion systems with respect to MS Kong Harald as part of our NOx saving projects in 2015 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 increase in the total contractual obligations from the publication of the offering memorandum is due to the foreign exchange rate. In the table above the daily rate at 31 December 2014 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 December 2014, on an as adjusted basis after giving effect to the Hurtigruten Acquisition Transactions and the Refinancing Transactions, we would have had total debt of NOK million and 37.3 million available under our Revolving Credit Facility. The increase in the total debt from the publication of the offering memorandum is due to the foreign exchange rate. The daily rate at 31 December 2014 as set by Norges Bank has been used for the conversion of debt. 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 this annual bond report 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. The main risk areas that may have a material influence on our business performance as well as our financial position and results of operations are described in note 4 to our financial statement for the year ended 31 December 2014 which is included in this annual bond report. 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 19

20 reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Our 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 our consolidated financial statement for the year ended 31 December 2014 which is included in this annual bond report. For information regarding significant accounting policies, see note 2 to our consolidated financial statement for the year ended 31 December 2014 which is included in this annual bond report. 20

21 Business 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. Our business is currently divided into three product segments: Hurtigruten Norwegian Coast, MS Fram and Spitsbergen Travel. 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 Our route between Bergen and Kirkenes is operated by 11 ships, 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. Updated KPIs for the segment for the year ended 31 December 2014 can be viewed under the "Management's discussions and analysis of our financial condition and results of operation" chapter. 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 consists of our MS Fram explorer ship, which takes our guests on distinct Polar voyages year-round in Antarctic, Spitsbergen and Greenland waters. Updated KPIs for the segment for the year ended 31 December 2014 can be viewed under the "Management's discussions and analysis of our financial condition and results of operation" chapter. Our Spitsbergen Travel 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 Efficiency improvement program As a result of our Efficiency Improvement Program, our operational costs have declined substantially since 2012, and for year ended 31 December 2014, we 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. Legal and Regulatory Registration of Our Ships For the past 10 years, we have been involved in ongoing discussions with the NMD regarding whether our single compartment ships are to be classified as car ferries or passenger ships. The two classifications are subject to different regulatory requirements regarding safety and have separate minimum capacity requirements. The ships in question were built prior to the time the current requirements came into effect and we have sought to have our ships classified as passenger ships, which, among other things, requires compliance with SOLAS requirements for such ships. If a reclassification of these ships as passenger ships is not approved, we may be required to reduce the passenger and crew count permitted to be transported on these ships. Alternatively, if the ships are classified as car ferries, we could be required to redesign our ships, 21

22 with estimated future rebuild costs of NOK 2.0 million to NOK 20.0 million per ship. The ongoing discussions with the NMD are related to the technical design solutions for these design modifications. The Ministry of Trade and Industry sided with us in our appeal, resulting that we in 2015 expect to incur capital expenditures of approximately NOK 30 million with respect to the 305 Classification rebuild. The latter amount have been reduced from approximately NOK 118 million since the publication of the offering memorandum. We are now in progress with implementation of our equivalent solution for dividing the car deck area for our one compartment ships. Legal Proceedings We currently are, and from time to time we may become, involved in various claims and lawsuits arising in the ordinary course of our business, such as employee claims and disputes with port authorities. We are currently involved in a dispute with Stranda Hamnevesen KF regarding an increase in port taxes and fees charged by Stranda Hamnevesen KF in relation to the port in Geiranger. We successfully challenged the increase in port taxes and fees in both the District Court and the Court of Appeal. In December 2014, Stranda Hamnevesen KF appealed parts of the Court of Appeal s decision to the Supreme Court of Norway. Supreme court have decided to hear the case following the appeal from Stranda. The court case have been scheduled to 9-10 June If the Supreme Court ultimately decides in favor of Stranda Hamnevesen KF, we could be liable for an amount of approximately NOK 2 million for outstanding fees for the period from 2012 to 2014 as well as legal costs. The final outcome of the dispute is also likely to impact the amount of port fees we will be charged in future periods at the port in Geiranger and elsewhere. 22

23 Management Board of Directors of the Company There have been no changes to the Board of Directors of the Company since the publication of the offering memorandum. Directors and Managers of Hurtigruten Board of Directors The Group s operations are conducted through Hurtigruten and its subsidiaries. Set forth below are the names, ages and positions of the members of the board of directors of Hurtigruten. The business address of each of the directors of Hurtigruten is Frederik Langesgate 14, 9008 Tromsø, Norway. Name Age Title Trygve Hegnar Chairman Helene Jebsen Anker Director Petter Stordalen Director Per-Helge Isaksen Director Regina Mari Aasli Paulsen Director Jonathan Rosen Director Matthew Lenczner Director Matthew Lenczner replaced Anastasia Ezhova in the board of directors of Hurtigruten at 17 February Below is a brief description of the experience of Matthew Lenczner. A brief description of the experience of each of the other members of the board of director can be viewed in the offering memorandum. Matthew Lenczner. Mr. Lenczner was appointed member of the board in January Mr. Lenczner is an investment director at TDR Capital. Prior to joining TDR Capital in 2008, Mr. Lenczner worked at Och Ziff Capital in the special investments team and previously at Lehman Brothers in leveraged finance. Mr. Lenczner graduated from Oxford University with a masters in Modern History and Modern Languages. Senior Management Team In addition to the board of directors, set forth below are the names, ages and positions of members of the senior management team of Hurtigruten: Name Age Title Daniel Skjeldam Chief Executive Officer Asta Lassesen Chief Financial Officer Oscar Engeli Senior Vice President ICT Svein Taklo Senior Vice President Maritime Operations Petri Schaaf Senior Vice President Commercial, acting Thomas Westergaard Senior Vice President Hotel Operations Anne Marit Bjørnflaten Senior Vice President Communications Marit Finnanger 40 Senior Vice President People & Organisational Development 23

24 There have been two changes in the senior management team of Hurtigruten since the publication of the offering memorandum. Marit Finnanger, Senior Vice President People & Organisational Development entered the senior management team at 9 March Our People and Organisational Development department will have an important strategic role in the group. It will be central in developing our global organization to meet future standards. At 20 April Chief Commercial Officer Magnus Wrahme left his position. Starting from 27 April 2015 Petri Schaaf is appointed as acting Senior Vice President Commercial Below is a brief description of the experience of Marit Finnanger and Petri Schaaf. A brief description of the experience of each of the other members of the senior management team can be viewed in the offering memorandum. Marit Finnanger. Ms. Finnanger joined Hurtigruten in November 2014 as Vice President HR Development. From March 2015 she joined the Senior Management Team as Senior Vice President People & Organizational Development. From 2011 to 2014 Ms. Finnanger was Vice President HR, Communication & Administration in EMAS AMC, from 2009 to 2011 she worked as Vice President HR for Aker Solutions, where she held various HR positions from Ms. Finnanger holds a MSc in Organisational Psychology and a BSc in Management from Norwegian Business School. Petri Schaaf. Mr. Schaaf joined Hurtigruten in April 2015 for an interim position as Senior Vice President Commercial. Mr. Schaaf comes from Finnair where he has held various positions within sales and development of the commercial operation since From he held the position as Vice President Global Sales in Helsinki. From Mr. Schaaf worked as Sales Director for UK & Ireland, London. From 1999 and up to 2002 he held the position as Vice President for Customer Relationship Strategies and from he worked with Client Management and Business Controlling. Mr. Schaaf holds a MSc ( Econ.) from the University of Aalto ( formerly Helsinki Business School). Committees Following the delisting of Hurtigruten from the Oslo stock exchange, we are no longer required to maintain an audit committee or a nomination committee. The nomination committee has been dissolved, while we have decided to keep the audit committee. The audit committee meets with the auditors at least annually to discuss the draft statutory accounts and recommends them, if appropriate, to the board for approval. It also checks that internal information collection and inspection procedures are complied with and examines the procedure for selecting the auditors. On the date of this annual bond report, the members of the audit committee were Helene Jebsen Anker, Marc Menuier and Regina Mari Aasli Paulsen. Compensation The aggregate compensation paid by us to our then-existing directors and senior management team for the year ended 31 December 2014 was NOK 77.9 million. This includes a NOK 50.1 million provision related to the termination of all options allocated to management following the Company's acquisition of Hurtigruten. A total of million options were terminated in connection with the individual option allocations and based on the offer price of NOK 7 per share. 24

25 Principal shareholders There have been no changes to the Principal Shareholders since the publication of the offering memorandum. 25

26 Related party transactions Except for the updated lease payment for the year ended 31 December 2014 below, there have been no material changes to the Related Party Transactions since the publication of the offering memorandum. Lease Agreement with Affiliate of Shareholder The Group leases its offices in Oslo, Norway from Home Invest AS, which is an affiliate of our shareholder, Home Capital. The agreement, which commenced in mid-2013, is on arms length terms. The amount of our lease payments to Home Capital was NOK 0.9 million in the year ended 31 December 2014 and NOK 0.6 million in the year ended 31 December

27 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 will be used 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. 27

28 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. 28

29 Key Line Items Total Revenues We record our revenues when we deliver the relevant goods and services. Total revenues comprise of the following: Operating Revenues We record certain operating revenues relating to sales of services and travel, sales of goods and other revenues. Such operating revenues include all revenues with respect to our Hurtigruten Norwegian Coast segment and our MS Fram segment and are recognized in the accounting period when the service is rendered or delivered. For ship voyages, this is based on the days when the passenger is on board. Revenues related to ship voyages are accrued on the basis of the number of days the voyage lasts before and after the end of the accounting period. Cash deposits from customers are accounted for as trade and other payables, and if the departure of travel is over twelve months in the future, then the deposit is classified as a long-term liability. Our other operating revenues include revenues for our Spitsbergen Travel segment as well. From time to time, we also have certain non-operational revenues such as proceeds received from insurance settlements. We record certain operating revenues relating to sales of goods, which primarily relate to sales of food, souvenirs and other kiosk products onboard our ships and at our hotels. Revenues from such sales are recognized in our income statement when the customer has received and paid for the goods. Contractual Revenues Revenues received as part of our fee from the Norwegian government under our Coastal Service Contract for our Hurtigruten Norwegian Coast segment are recognized in the income statement on a continuous basis over the year on the basis of such contracts. The government contract is based on a tender, where the company has a fixed contract sum for planned (annual) production. There are specific conditions and calculation methods for the indexation of the contract sum. Any changes beyond the planned production are compensated or deducted, as appropriate, utilizing agreed-upon rates set out in the agreements, and the fees recognized as revenue in the periods in which the services are provided. Payroll Costs Payroll costs consist of wages and salaries, payroll tax, pension costs and other benefits, as offset by certain tax credits we receive with respect to a number of Norwegian employees. Other Operating Costs Other operating costs primarily comprises cost of goods sold, operating costs, including bunker fuel costs, port related fees, repair and maintenance expenses, as well as commission paid to travel agents and other sales and administrative costs. Depreciation, Amortization and Impairment Losses Depreciation, amortization and impairment provides for the use of intangible assets and property, plant and equipment as these are employed over their useful economic lives, taking into account estimated residual values. Estimated residual values and useful lives are reviewed annually or more frequently if there are indications of impairment or where the book value may not be recoverable. Other (Losses)/Gains Net Other (Losses)/gains net primarily comprises gains or losses on the sale of property, plant and equipment as well as losses/gains from forward exchange contracts and bunker swaps. The presentation of forward exchange contracts and bunker swaps was changed in the income statement for The comparative figures for the year ended 31 December 2013 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. EBITDA EBITDA represents profit/(loss) from continuing operations for the relevant period before the share of profit/(loss) of associates, net finance expense, depreciation and amortization, impairment (loss)/reversal and income tax expense from continuing operations. EBITDA Margin EBITDA margin represents EBITDA divided by total revenue for the period. 29

30 Finance Expenses Net Finance expenses net represents finance expense offset by finance income. Finance expense principally comprises interest expenses on borrowings, foreign exchange losses on borrowings and cash balances, losses on sale of financial assets and impairments of financial non-current assets. Finance income comprises mainly interest income, foreign exchange gains on borrowings and cash balances as well as gains on the sale of financial assets and dividends. Share of Profit/(Loss) of Associates Our share of profit/(loss) from associates comprises mainly our portion of the profit/(loss) from (i) Green Dog Svalbard AS, in which we have a 50% ownership interest and which offers dog sledding-related tourist experiences on Spitsbergen, (ii) ANS Havnebygningen, in which we had a 50% ownership interest and which owned the office building we previously leased in Tromsø that was subsequently sold in December 2013 and (iii) Funn IT AS, which provided IT services to us and in which we had a 50% ownership interest and that was subsequently sold in February Associates are entities, other than subsidiaries, over which we exert significant influence, but over which we do not have control and are accounted for under the equity method. Income Tax Expense from Continuing Operations Income tax expense from continuing operations represents the sum of tax currently payable and deferred tax from continuing operations. Tax is recognized in the income statement unless it relates to an item recognized directly in equity, in which case the associated tax is also recognized directly in equity. Profit/(Loss) for the Period Profit/(loss) for the period reflects profit/(loss) for the period from continuing operations and discontinued operations. Profit/(Loss) for the Period Attributable to Owners of the Parent Profit/(loss) for the period attributable to owners of the parent reflects profit/(loss) for the period attributable to our shareholders. 30

31 Annual report 2014 Hurtigruten AS Fredrik Langes gate 14, P.O. Box 6144 Langnes, 9291 Tromsø, Norway Booking: , Switchboard: Business register number: NO MVA

32 Corporate governance The following directions for management and control principles have been existing until the company was de-listed from the Oslo Stock Exchange. On 29 October 2014 Silk Bidco AS submitted a public offer to purchase all the shares in Hurtigruten ASA. The public offer from Silk Bidco AS was accepted by per cent of the shareholders and the remaining shares were purchased in a compulsory purchase. The company was de-listed from the Oslo Stock Exchange with a final listing day of 10 February The company form was also changed from an ASA to an AS on 17 February The way the business is managed forms the basis for the company s financial progress and the development of the group s branded products. Good management and control mechanisms, open and honest communication and equal treatment of all shareholders are important cornerstones for public trust, positive value creation and a good reputation. Hurtigruten AS has a responsibility to conduct its business in a way which protects the interests of its owners. At the same time, it must take account of other stakeholder groups. Employees as well as customers, suppliers, lenders, players in the stock market and the authorities represent important target groups for Hurtigruten AS. Its overall reputation and public trust in the company are influenced by the governance of its business and the way it communicates with these stakeholders. 1. IMPLEMENTATION AND REPORTING The board of directors of Hurtigruten AS has adopted overarching management and control principles for governance of the business, and which will help to ensure that the company observes its ethical and quality obligations. These principles build on the Norwegian code of practice for corporate governance (hereafter the code), developed by the Norwegian Corporate Governance Board, and section 3, subsection 3c of the Norwegian Accounting Act. The company has decided to not incorporate the latest amendments to the code adopted on 30 October 2014 due to the change of shareholders mentioned introductorily. The code is available on the website of the Norwegian Corporate Governance Board at An overall account of the way Hurtigruten AS has complied with each point in the code is provided below. Any departures from the code are explained. The board and executive management will jointly ensure that the company s attitudes and behaviour are in conformity by enforcing compliance with the principles in all parts of the business. The company s principles for corporate governance are published annually in its annual report. The following aspects are fundamental to Hurtigruten AS s principles for corporate governance. Openness The company s external communication will be based on openness about conditions of significance for assessing its operations. Independence The board of directors will be independent of the executive management. This will ensure that decisions are taken on a neutral basis and without conflicts of interest. Equal treatment All shareholders will be treated equally. Management and control Good management and control mechanisms will contribute to predictability and reduce risk for owners and other stakeholder groups. Hurtigruten AS values base reflects its long history, its role as host for international guests, and the responsibility inherent in the social assignment performed by its ships along the Norwegian coast. The company s internal guidelines reflect this values base, and provide guidance on the way the organisation and individual employees will behave towards the world at large. The company, for example, gives priority to health, safety and the environment through defined and binding targets. Its environmental policy has a clear goal of minimising impacts on the natural environment. Furthermore, the company has established a joint programme for fire and rescue exercises with the special rescue commitment at sea (Rits) teams established along the Norwegian coast. Hurtigruten has been taking on trainees for its ships over many years. This trainee scheme has been and remains an important recruitment channel for the company, which also wants to accept a corporate social responsibility to educate new representatives for key vocational groups. 2

33 2. BUSINESS The business purpose of Hurtigruten AS is defined by its articles of association as the pursuit of all forms of transport and tourism activity, participation in businesses which relate naturally to these, engagement in shipping and offshore operations and participation in other companies. The company will concentrate its operations on the Hurtigruten service along the Norwegian coast and explorer products, including Spitsbergen. Its goals and strategies are described in this annual report. 3. EQUITY AND DIVIDENDS Equity Consolidated equity at 31 December 2014 was NOK 694 million, or 15.2 per cent of total capital. In January 2015 the share capital was increased by NOK 300 million in Hurtigruten AS. The group s equity is acceptable in relation to its goals, strategy and risk profile. Dividend policy When it finds itself in a position where it would be appropriate to pay a dividend, Hurtigruten will seek to maintain a stable level of dividend. The company will focus on its ability to generate growth in value-adjusted equity per share. Board mandates At the annual general meeting in 2014, the board was mandated to buy the company s own shares. The overall holding of own shares cannot exceed 10 per cent of the company s share capital. The board is free to decide how the purchase or sale of the company s own shares should be conducted. This mandate runs until the annual general meeting in 2014, and replaces all existing mandates on the purchase of the company s own shares. Should the board decide to waive the pre-emptive right of existing shareholders to subscribe to a capital increase, on the basis of a mandate from the general meeting, it will publish its reasons in a stock exchange announcement. 4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES Hurtigruten has one share class, and each share carries one vote at the general meeting. The board s mandate to purchase the company s own shares leaves it free to decide how possible purchase or sale of such shares will be conducted. The board will ensure that possible purchases or sales are carried out in a way which takes account of the need for equal treatment. In the event of not immaterial transactions between the company and shareholders, directors, senior executives or their close associates, the board will ensure that an independent valuation is made. An independent valuation will also be secured when transactions are conducted between Hurtigruten AS and subsidiaries which have minority interests. The company has guidelines which ensure that directors and senior executives report to the board if they have significant interests, directly or indirectly, in a contract concluded by the company. 5. FREELY NEGOTIABLE SHARES Pursuant to the articles of association, the company s shares are freely negotiable. 6. GENERAL MEETINGS The financial calendar with the date of the annual general meeting will be published on Hurtigruten AS s website before the end of the preceding calendar year. Normally, the annual general meeting will be held by the end of April at the latest. Notice of the meeting with supporting documentation must be available on no later than 21 days in advance. Weight is given to ensuring that accompanying documents, including the nomination committee s recommendations with reasons, contain all the information required for shareholders to form a view concerning every item on the agenda. According to the company s articles of association, the board can specify in the notice that shareholders wishing to attend the general meeting must notify this to the company by a deadline which cannot be earlier than five days before the general meeting. Notification of attendance is made in writing or electronically via the company s website at or via Investortjenester. The board wishes to facilitate the attendance of as many shareholders as possible. Shareholders unable to attend are encouraged to appoint a proxy. Information is provided on the company s website concerning the procedure for appointing a proxy, and the proxy form provided will be structured as far as possible in such a way that a vote can be cast for each item on the agenda and each candidate for election. The company will appoint a person who can act as the proxy for shareholders. 3

34 The general meeting will be attended by the chair of the board, the nomination committee and the auditor. The articles of association specify that the general meeting is chaired by the chair of the board or, in their absence, by the deputy chair. No routines have therefore been established to ensure an independent chair of the meeting. The board and the chair of the general meeting will make arrangements which give the general meeting the opportunity to vote on each individual candidate for office on the company s bodies. 7. NOMINATION COMMITTEE The articles of association specify that the company will have a nomination committee of three members, comprising a chair and two others elected by the general meeting. Members serve for two-year terms. They can be re-elected. Remuneration for members of the nomination committee is determined by the general meeting. The nomination committee makes recommendations on shareholder-elected directors and alternate directors and on remuneration for directors. Reasons for these recommendations must be provided to the general meeting, including relevant information on the candidates and an assessment of their independence. The committee s composition is intended to ensure that the interests of shareholders in general are taken care of. No director nor representative of the executive management sits on the nomination committee. All the committee s members are independent of the board and the executive management. The nomination committee per 31 December 2014 comprises the following members: Jon Tenden (chair) Westye Høegh Richard Sandnes After the company was de-listed from the Oslo Stock Exchange and the company form was also changed from an ASA to an AS, the nomination committee was disbandet. 8. CORPORARATE ASSEMBLY AND BOARD OF DIRECTORS: COMPOSITION AND INDEPENDENCE The corporate assembly was disbanded 24 April The board of directors comprises seven members and two observers, of which two members and two observers with the number of alternates specified by the regulations elected by and from among the employees. Directors, including the chair and deputy chair, are elected by the General Meeting. Up to eight alternates are chosen for those directors not elected by and from among the employees. Directors are elected for two-year terms. The board s composition is intended to ensure that it can take care of the interests of the shareholders in general and meet the company s need for expertise, capacity and diversity. Account is taken of the ability of the board to function well as a collective body. The board per 31 December 2014 has the following members: Trygve Hegnar, chair Helene Jebsen Anker, deputy chair Petter Stordalen, director Jonathan Barlow, director Anastasia Ezhova, director Regina Mari Aasli Paulsen, worker director Per Helge Isaksen, worker director Oddleif Engvik, observer Tore Kjøsnes, observer The board is composed in such a way that it can act independently of special interests. All the shareholder-elected directors are independent of the company s executive management and significant business partners, and at least two of them are independent of the company s principal shareholders. The board accordingly fulfils the requirements for independence. Shares owned by directors are specified in a note to the financial statements. Two of the directors are members of the company s audit committee. These are Helene Jebsen Anker (chair), and Regina Mari Aasli Paulsen. 9. THE WORK OF THE BOARD OF DIRECTORS The duties of the board are determined by Norwegian law and embrace the overall direction and control of the company. At regular intervals, the board discusses and adapts the organisation and execution of its work. It also adopts a specific meeting and work plan every year. This plan covers strategy work, other development issues and the exercise of control. The board plans to hold six-eight meetings per year. It appoints the chief executive. 4

35 Rules of procedure for the board and instructions for the chief executive have been adopted, with particular emphasis on the internal division of responsibilities and duties. The board makes an annual assessment of its work and expertise. Similarly, the executive management will be assessed annually. When dealing with significant issues where the chair personally is or has been actively involved, another director is elected to chair the discussion. This is intended to ensure a more independent consideration of such issues. The board acts as a single body. An audit committee has been appointed by the company. The majority of its members are independent of the business. The board has otherwise assessed the use of sub-committees, but has not found these to be appropriate. 10. RISK MANAGEMENT AND INTERNAL CONTROL The board ensures that the company has good internal control and appropriate systems for risk management in relation to the scope and nature of the company s business. Internal control and these systems also embrace the company s values base and guidelines for ethics and corporate social responsibility. A review of the company s most important risk areas and its internal control is conducted by the board at least once a year. The board and the executive management have focused on developing internal control related to financial reporting, including the control environment, risk assessment, control activities, information and communication, and follow-up. Relevant performance figures and reporting for the period are reviewed on a monthly basis with the responsible executives as part of measures to ensure reliable reporting. Risk management is intended to safeguard the attainment of Hurtigruten s goals by identifying the risk picture, assessing risk exposure and initiating measures. One goal is to integrate systematic risk management in the company s business processes. A key activity is accordingly to ensure that managers take responsibility for risk management in their area of responsibility, and to entrench risk management in the day-to-day business processes. The company s executive management updates the risk picture on a quarterly basis, and reports significant changes to the board and the audit committee. Management, monitoring, control and reporting are described for each risk. The company s internal audit function uses the risk picture as one of the bases for adopting control measures, and reports the results of these to the board. The company has structured its risks as strategic, operational, compliance and financial. 11. REMUNERATION OF THE BOARD OF DIRECTORS The General Meeting determines directors fees annually on the basis of a recommendation from the nomination committee. This remuneration will reflect the responsibilities of directors, their expertise, the resources they devote to the work and the complexity of the business. Directors do not receive performance-related remuneration or options. Directors or companies with whom they have a relationship will not normally undertake special assignments for the company in addition to their board appointment. Should they nevertheless do so, the whole board must be notified and must approve the remuneration involved. All remuneration to each director must be specified in the annual report. Fees paid to each director in 2014 are specified in a note to the financial statements. 12. REMUNERATION OF EXECUTIVE PERSONNEL The remuneration of the CEO is determined by the board at a meeting. Guidelines for the remuneration of other senior executives in the company were approved by the annual general meeting on 24 April Certain executive personnel have a bonus scheme which depends on the results achieved in relation to predefined thresholds. In accordance with the code, a ceiling has been set on the level of profit-related bonus that each individual can receive. The board awarded share options in 2013 and 2014 to the executive management and selected key personnel in the group. Due to the acquisition of the company's shares, the board of directors of Hurtigruten resolved to terminate all options awarded to management against cash settlement. A more detailed description of the share option agreement is provided in a note to the financial statements. Remuneration of the chief executive and the individual senior executives in 2014 is specified in a note to the financial statements. 13. INFORMATION AND COMMUNICATIONS Guidelines for reporting financial and other information from Hurtigruten AS are specified by the company s information policy. This policy also embraces guidelines for the company s contact with shareholders between general meetings. The policy has been formulated within the parameters set by Norwegian legislation on securities trading and accounting, and by the regulations of the Oslo Stock Exchange (hereafter the regulations). Hurtigruten AS s information policy is intended to help build and maintain trust among important stakeholder groups. The policy is based on openness and equal treatment of all shareholders. For the share price to reflect the underlying value of the 5

36 company, all price-relevant information must be made available to the market. Hurtigruten AS will accordingly give weight to keeping players in the securities market informed about the development of its financial results, prospects, key value drivers, risk factors and other conditions relevant to judging the company s position and to a correct market pricing of the share. Weight is given to providing information equally and simultaneously to all players in the securities market. A continually updated financial calendar, providing the dates of important events such as the annual general meeting, publication of interim reports, possible dividend payment and so forth, is available to shareholders at and on Hurtigruten s website. Open presentations are held over the internet in connection with the publication of annual and interim results for the company. These presentations are available on the website. An on-going dialogue is also maintained with, and presentations are provided for, analysts and investors within the framework of the regulations, including the rules on good stock exchange behaviour, and the general requirement for equal treatment. 14. TAKEOVERS In the event of a possible takeover bid for the company, the guiding principle for the board s response will be equal treatment of the shareholders. Should a takeover offer be made, the board and executive management have an independent responsibility to help ensure that shareholders are treated equally and that the business does not suffer any needless disruption. The board has a special responsibility for ensuring that the shareholders receive the information and time they need to be able to form a view of the offer. The articles of association make no provision for defence mechanisms against share purchases, nor have other measures been adopted which restrict the opportunity to buy shares in the company. Nor will the board seek, without particular grounds, to prevent or hamper anyone who wishes to present a bid for the company s business or shares. Possible use of share issue mandates or the implementation of other measures to prevent or hamper a bid must be approved by the general meeting after the bid has been announced. A possible agreement with a bidder to limit the company s opportunities to seek other offers for its shares will only be entered into if it can be clearly justified on the basis of the collective interests of the company and the shareholders. The same applies to agreements on compensation to a bidder should the offer fails to be implemented. Possible compensation should be limited to the costs incurred by the bidder in presenting its offer. A possible agreement between the company and the bidder which is significant for the market s assessment of the offer will be made public simultaneously with the announcement of the offer at the latest. In the event of a takeover bid, the board will issue a recommendation with reasons to the shareholders. This recommendation must specify whether it is unanimous and, if not, the reasons why certain directors have refrained from supporting the board s recommendation. The board will normally obtain an external valuation from independent experts before recommending whether the shareholders should accept or reject the offer. Transactions which in reality involve the disposal of the business will be submitted to the corporate assembly for its decision. 15. AUDITOR The auditor will present an annual audit plan to the board. The auditor always attends during the board s consideration of the annual financial statements, and briefs it on the financial statements and on any issues which particularly concern the auditor, including significant changes to the company s accounting principles, the assessment of significant accounting estimates and all significant conditions where disagreements have arisen between the auditor and the executive management. The board meets annually with the auditor to review a report from the latter on the company s accounting principles, risk areas and internal control routines. At least once a year, a meeting will be held between the auditor and the board without the presence of the chief executive or other members of the executive management. In addition, the company s audit committee will have a dialogue with the auditor as required. Guidelines have been established on the executive management s opportunities to use the auditor for services other than legally-required audit work. The board has not found it necessary to ask the auditor to produce an annual overview which specifies which services have been delivered in addition to legally-required auditing. The board will account to the general meeting on the auditor s remuneration, broken down between legally-required audit work and other specific assignments. Remuneration for the auditor in 2014 is specified in a note to the financial statements. 6

37 Hurtigruten AS Directors report 2014 Hurtigruten new vision and new owners World leader in exploration travel Hurtigruten provides travel experiences which no other player comes close to matching. Along the Norwegian coast, the company s characteristic ships bind communities large and small together while creating real experiences and lifelong memories for its guests. With the MS Fram explorer ship, Hurtigruten sails to some of the world s most unique destinations and takes its guests on unforgettable expeditions to Greenland, the Antarctic and Svalbard. International tourism trends show growth for the unique destinations. With its strong traditions and clear brand, Hurtigruten has an unrivalled basis for positioning itself as a world leader in this segment. The company will develop and renew itself. It will launch new excursions and new products. It will sail new routes and explore new terrain. Hurtigruten s new owners support the strategic direction established for the company. They have seen the value and potential inherent in the company, its employees and its products. A combination of history and adaptability are crucial if the desired renewal is to be achieved. Attention in 2013 and 2014 concentrated on restructuring. The company s efficiency improvement programme has been completed, and the results have manifested themselves in every quarter. Important cost components are under control, and the product portfolio is becoming ever more exciting. Hurtigruten has many free-spending guests, the volume of freight being carried is on the increase and a steadily growing number of local travellers are choosing it as a transport or short-break option. The revitalisation of Hurtigruten has gone according to plan, and the fourth phase of the efficiency improvement programme implemented measures related to vessel operation during 2014 in order to obtain substantial cost effects. Increased onboard sales also represent an important part of these efforts, and a stronger commercial focus has been a general theme throughout the turnaround. That yielded a 3.6 per cent increase in onboard sales per cruise night compared with New owners and better normalised results Silk Bidco AS made an offer of NOK 7 per share for all the shares in Hurtigruten AS in late October The offer price represented a premium of 55.9 per cent on the final traded price on 28 October, and of 76.6, 71.4, 64.0 and 66.8 per cent on the volume-weighted average price for the one-, three-, six- and 12-month periods respectively up to 28 October. Owned five per cent by Home Capital AS, five per cent by Periscopus AS and 90 per cent by investment funds managed by TDR Capital LLP, Silk Bidco received acceptances for per cent of the shares on 8 December. At 22 December, it became the owner of all the shares in the company, and a new board was elected at an extraordinary general meeting on 23 December. The board of Hurtigruten AS at 31 December 2014 comprised Trygve Hegnar (Periscopus), Helene Jebsen Anker, Petter Stordalen (Home Capital), Jonathan Rosen (TDR) and Anastasia Ezhova (TDR). The worker directors are Regina Paulsen and Per Helge Isaksen. Matthew Lenczner (TDR) replaced Ezhova as a director on 2 February The group achieved an accounting loss before tax of NOK 209 million for the year. Substantial special items totalling NOK 279 million related to the acquisition of Hurtigruten AS are included in the 2014 accounts. These special items relate directly to refinancing the company s non-current debt and the termination of derivatives. As a result of the transaction, existing option schemes for the corporate management were realised in 2014 and are included in the special items. Adjusted for the above-mentioned special items, the normalised profit for 2014 was NOK 70 million an improvement of NOK 44 million from the year before. Business and location Hurtigruten conducts global expedition tourism and transport activities along the Norwegian coast. Eleven of the 12 ships in its fleet are employed on the Norwegian coast, while MS Fram provides explorer voyages around Svalbard, Greenland and Antarctica. The company established its new corporate centre during 2013 in Tromsø, a strategic location for one of the world leaders with Arctic experience tourism. As the jumping-off point for many of the world s major Arctic expeditions, Tromsø occupies a key place in history. This city ranks today as a principal centre for Polar research, a centre of excellence for the high north and a natural base for Hurtigruten s continued commitment to expedition-based tourism both on land and at sea. The company is also represented by a sales office in Oslo and by a crewing company and 7

38 Hurtigruten AS reservation centre in Kirkenes. Hurtigruten s global sales organisation comprises wholly owned companies in Tallinn, Hamburg, London, Paris and the recent addition in Seattle. The Spitsbergen Travel AS subsidiary has its head office in Longyearbyen. Hurtigruten s principal activities in 2014 were international tourism, local transport and freight shipments along the Norwegian coast with 11 ships sailing between Bergen and Kirkenes. An important part of the company s business is MS Fram s explorer voyages around Svalbard, Greenland and Antarctica. The Hurtigruten group also embraces Arctic experience tourism and hotel operation in Svalbard through the wholly owned Spitsbergen Travel group. In addition, its operations for part of 2014 incorporated bus transport in Nordland, Troms and Finnmark counties through ownership of the TIRB group. 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. The latter primarily embraces Hurtigruten s 71.3 per cent holding in the AS TIRB group, which provides bus transport through Cominor AS. Hurtigruten entered into an agreement during July 2014 with Boreal Transport Nord AS on transferring the shareholding in TIRB. This sale was closed on 4 September Hurtigruten Norwegian coast represents the company s largest business, and comprises a fleet of 11 ships providing a scheduled service between Bergen and Kirkenes. These vessels call at 34 ports northbound and 33 southbound. Each port receives a daily call from Hurtigruten throughout the year, and the ships are thereby of vital significance as a carrier of local travellers and freight. At the same time, the company s 11 ships rank as one of Norway s most renowned tourist products and are positioned internationally as a world-class niche offer. Overall, the Hurtigruten ships achieved cruise nights in 2014, up by three per cent from the year before. Explorer products embrace the company s explorer operations in the Antarctic and around Greenland and Svalbard with MS Fram. Hurtigruten occupies a substantial position in Polar waters. MS Fram operates in the Antarctic from November to March, calling at such destinations as Deception Island in the South Shetland archipelago, the Lemaire Channel, Peterman Island and Wilhelmina Bay. During the summer season, the ship sails in Arctic waters to provide unique experiences around Greenland, Iceland and Svalbard. The Spitsbergen product area comprises year-round hotel and restaurant activities as well as Arctic experience tourism in Svalbard. From a base in Longyearbyen, active Arctic experiences are offered on snow-covered and snowfree terrain with an extensive portfolio of activities and excursions. These include short day trips on skis, dog sledding, snowmobile trips, boat or hiking excursions, and longer expeditions in the archipelago. Other business embraced bus transport through TIRB and its Cominor subsidiary. Hurtigruten sold its shareholding in TIRB to Boreal Transport Nord in July Business concept, objective and strategy Objective and vision 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. Differentiation and strategy Hurtigruten s primary strategy is profitable organic growth throughout its business. This will be achieved through operational initiatives to secure a substantial potential, expand the customer base to increase revenues, and strengthen the product range. The company believes its product portfolio differs significantly from the ones offered by the big cruise operators. This has been purposefully designed to reach a customer segment whose wishes fail to be met by others. Rather than offering cruises in the classic tourist locations with a floating hotel, Hurtigruten wants to give its guests an opportunity to visit areas of natural beauty and harshness in order to experience local culture and activities through expeditions to more remote Polar regions. Hurtigruten Norwegian coast appeals to guests who prefer to be close to nature and who value the experience of authenticity. Being smaller than conventionals cruise vessels, its ships are easier to manoeuvre and their Norwegian crews are very familiar with these waters. They can accordingly come closer to the coast and the small places sought by their guests than competing vessels. The service from Bergen to Kirkenes, with its 32 intermediate ports of call, gives guests an opportunity to encounter local culture and real people. They can enjoy a broad range of land-based excursions and activities. Hurtigruten allows them to experience being part of the destination rather than simply viewing it. 8

39 Hurtigruten AS The company also implemented Norway s Coastal Kitchen as its new cuisine concept in Ready-made pizza and frozen food have been replaced by short-travelled local raw materials, often loaded on board only hours before being served in the restaurant. This aims to reinforce the travel experience, while cuisine is an important encounter in itself. In addition to its 11 ships along the Norwegian coast, Hurtigruten operates the specially designed MS Fram (2007). This vessel conducts expeditions in unique Polar waters around Svalbard, Iceland, Greenland and the Antarctic. It has an ideal size, being small enough to access the really unique destinations but sufficiently large to provide optimum comfort for guests. Hurtigruten s hotel operations in Svalbard offer guests the opportunity to participate in snowmobile outings, dog sledding, skiing expeditions of varying length and duration, kayaking in Arctic waters and diving, as well as to enjoy local raw materials in the company s restaurants. Animal life in Svalbard is unique, and guests on all Hurtigruten s excursions can observe the archipelago s flora and fauna, including Polar bears, walruses, seals and Arctic birds. That appeals to the more adventurous guests, who are seeking to try new and exciting activities and experiences. Described by the New York Times as one of Norway s treasured national symbols, Hurtigruten s brand has been developed over the 120-year history of the company. It forms part of the country s cultural heritage, strengthening Hurtigruten s legitimacy with customers seeking authentic Norwegian experiences. It has a high level of recognition in the company s most important markets, such as the Nordic countries and Germany. Based on this strong, recognised brand and the authenticity of a product tailored for the adventurous, Hurtigruten believes that a voyage with a big cruise operator is not a relevant alternative for its guests. The company s competitive position is supported by substantial barriers to establishment in the market for expedition and nature-based tourism, particularly in the cruise business. Substantial sums have been invested in its fleet of 12 vessels, which are specially built to serve its unique product. Any new entrant wishing to offer expedition and nature-based travel services in Hurtigruten s market will need to invest heavily before it can compete with the company. Hurtigruten Norwegian coast The Hurtigruten service along the Norwegian coast is and will be a world-class product with a very high level of customer satisfaction. It also has an international reputation, including such accolades as the world s best sea voyage in the Lonely Planet Blue List 2006, the best specialist cruise company in the Travel Weekly Globe Awards of 2007, 2009, 2010 and 2012, and the best niche cruise in the British Travel Awards of 2008, 2009, 2011 and Hurtigruten was named Travel Product of the Year for 2013 in HSMAI s Grand Travel Awards. Chief executive Daniel Skjeldam was acclaimed as leader of the year in the Grand Travel Awards of 2014, while the company was named ferry company of the year. Hurtigruten aims to further develop and strengthen this international position. It still has a substantial development potential, which will be exploited through a continued commitment to: stronger differentiation Hurtigruten is the authentic sea voyage along the Norwegian coast impossible to imitate, impossible to copy market development greater customer knowledge, younger target audiences, new markets, and new e- commerce sales and distribution channels product development active experiences, shorter voyages and the development of seasonal concepts modernisation of business processes, with the emphasis on on-line solutions, the internet and in-house efficiency gains. As one of Norway s foremost tourist products, Hurtigruten will be the driving force in close collaboration with the travel trade and government agencies for developing Norwegian tourism and marketing the country internationally. That includes efforts to increase the number of direct flights from abroad to coastal destinations in Norway in order to exploit the growth in the short-break market and to make Hurtigruten s products along the Norwegian coast more easily accessible. Hurtigruten Norwegian coast collaborates with more than 45 different excursion providers, who offer seasonally appropriate activities to guests every day throughout the year. This portfolio of excursions is unique both for its size and its variety, and nobody else can offer such a range to their guests. Excursions have been a priority area for Hurtigruten over many years, and will form an important part of its differentiation strategy in the future. MS Fram and Spitsbergen The commitment to explorer cruises in Polar waters represents an important part of the company s business, with a continued potential for growth and profitability. That has been confirmed by the substantial improvement in results for MS Fram in 2013 and Hurtigruten is the clear market leader for experience tourism in Svalbard and the Antarctic, and has established a new standard for experience cruises around Greenland with the MS Fram explorer ship. This will be further developed. MS Fram offers voyages varying in length from nine days to three weeks, and unique activities on land. The company offers its guests the opportunity to participate in hikes, expeditions on Polarcirkel boats, kayaking and other excursions. These include sleeping on deck, ice bathing or camping in 9

40 Hurtigruten AS remarkable surroundings in the Antarctic or Svalbard. Expedition-based experiences, both on land and at sea, are defined as a very important strategic priority for the company. Hurtigruten s land-based activities in Svalbard, with three hotels, an equipment shop and experience products, are to be further developed through the wholly owned Spitsbergen Travel subsidiary. Attention will be concentrated on yearround expedition-based experiences for individual guests and not least for groups of travellers. The land products in Svalbard will be integrated better with the rest of Hurtigruten s product portfolio in terms of development, marketing and sales. Based on an extensive and varied product range, the position as the leader for experience cruises in Polar waters will continue to be developed towards an active, broad and affluent international public with a generally wider age range than has been typical for the traditional Hurtigruten service. Further work on explorer products, both in Svalbard and with MS Fram, will be characterised by: continued development of the existing product portfolio, the development of new experiences on board and ashore, and continuous assessment of new destinations constant evaluation of capacity requirements knowledge-building and increased commitment along the whole value chain through the development of logistics, destinations and excursions a focused marketing commitment, strategic brand-building and a strengthening of the sales organisation. Key risk and uncertainty factors Currency risk The company is exposed to currency risk in several foreign currencies. This risk is particularly relevant for the euro (EUR), the US dollar (USD) and the pound sterling (GBP). Currency risk arises from the sale of tickets in foreign currencies and from capitalised assets and liabilities. Fuel costs are also quoted in foreign currency (USD). To manage its currency risk, the group seeks to match revenue and costs in the same currencies and to hedge the difference in the forward market. The group s strategy is to hedge up to 80 per cent of its expected cash flow in EUR and GDP up to 18 months ahead through the use of transparent and liquid instruments, normally forward contracts combined with options. In connection with the refinancing of the company s debt in January 2015, the debt is nominated in EUR to achieve a natural hedge. With regards to the currency risk for the pound sterling, a new strategy for managing the risk is under development. Interest-rate risk The group s interest-rate risk relates to current and non-current loans. Loans with floating interest rates pose a risk to the group s cash flow. This is managed by the group with the aid of floating-to-fixed interest rate swaps. Such instruments involve converting loans with floating interest rates to fixed-interest loans. Through interest rate swaps, the group enters into contracts with other parties to swap the difference between the contract s fixed interest rate and the amount of the floating interest rate calculated on the agreed principal. The group s strategy has been to hedge interest payments corresponding to per cent of the group s total debt. That strategy was pursued until 31 December In connection with the refinancing of the company s debt in January 2015, all interest-rate hedges have been terminated. The new bond, which is the main portion of the new debt, is a fixed-rate instrument. Therefore, the company will not enter in to new interest-rate hedges. Rise in bunkers prices Bunkers represent a significant cost element in all transport operations. The effects of higher oil and fuel prices can be considerable, and will reduce the company s results. The development of bunkers costs is one component in the annual adjustment mechanism for the public procurement contract between Hurtigruten and the government. Nevertheless, the risk rests mainly with the company and it seeks to reduce this by entering into quarterly rolling contracts for zero to 100 per cent of its expected bunkers consumption one to six quarters ahead, whereby a larger proportion is hedged for the quarters immediately ahead and a smaller share for those further off in time. All bunkers hedges were terminated in connection with the refinancing of the company s debt in January However, efforts are being made to enter into new contracts in accordance with the existing strategy. Liquidity risk Hurtigruten s business is seasonal in nature, with just under 63 per cent of total revenues earned in the second and third quarters. However, a significant proportion of the expenses are incurred steadily over the year. The first and fourth quarters are therefore weaker periods in revenue terms. A cashpool arrangement ensures that part of the group s unrestricted liquidity is available to the parent company, and simultaneously optimises availability and flexibility in liquidity management. In addition, the group seeks to have sufficient credit facilities at all times, tailored to its operational and investment plans. 10

41 Hurtigruten AS Developments in the cruise industry and macro-economic conditions A large part of Hurtigruten s consolidated revenues derives from international guests seeking unique nature-based and active experiences along the Norwegian coast and with the MS Fram expedition ship. Generally speaking, the global cruise industry has a substantial exposure to fluctuations in the world economy, and that also applies to Hurtigruten as a niche provider in the world market. A number of Hurtigruten s markets have experienced economic uncertainty in recent years. That has also had consequences for the company because key markets such as Germany, the UK and the USA have suffered reduced purchasing power, including for holidays and travel. At the same time, calls by foreign cruise ships to Scandinavia, Norway and the west Norwegian coast are showing a marked increase. A new trend became visible from 2011, with ever more competitors choosing to continue north from western Norway. The number of cruise ships calling at Tromsø grew by 30 per cent from 2011 to 2013, while cruise passenger numbers in the same port rose by 55 per cent. The ships are increasing in number and size. In other words, the general competition facing Hurtigruten is no longer confined to the Bergen and Geiranger destinations but extends along the whole Norwegian coast. A supple, commercial and cost-effectively organised company is accordingly essential for meeting such competition as well as for tapping into a substantial unutilised potential. Hurtigruten will continue efforts to make real, active and nature-based travel products more easily available and on sale earlier, through new channels, to new markets and customer segments. Clearly differentiating Hurtigruten s unique and authentic product in the global cruise and tourism market will be essential. The company is paying careful attention to the macro-economic position, and additional measures have been taken in all key markets. Among other moves, tactical campaigns conducted in 2014 have proved effective, particularly those directed at markets with a shorter booking horizon. The EU sulphur directive came into force January 2015, and involves stricter sulphur limits in fuel for ships in the EU. In SECA (SOx Emission Control Areas) the new limits are set to 0.10%, and implies that operators in this area must either sail on marine diesel/marine gas oil, LNG or install scrubbers that cleans exhaust (or apply alternative methods in order to achieve the same effect). The European SECA area includes Baltic Sea, the English Channel and large parts of the North Sea, bordered in the north of the 62 parallel. Hurtigruten s itinerary on the Norwegian coast, relevant for 11 ships in the fleet, totals in distance to 1388 nautical miles (nm). 170 nm of the itinerary is South of the 62 parallel. Hurtigruten is in compliance with the EU sulphur directive by operating on marine special distillates (SDM) North of the 62 parallel, and on marine gasoil (MGO) when entering the SECA area. Hurtigruten s explorer vessel MS Fram operates on MGO only. The sulphur directive will have a possible impact on the competitive situation on the Norwegian coast. The financial benefits of burning low-priced heavy oil only are reduced. But the effect is difficult to quantify, as long as double fuel tank systems still is a possibility. Bergen-Kirkenes coastal service The Ministry of Transport and Communications, on behalf of the government, and Hurtigruten entered into a new contract in April 2011 on operation of the Bergen-Kirkenes coastal service for the period. This agreement ensures daily departures from 34 ports throughout the year. Coming into force on 1 January 2012, it runs for eight years. The government has an option for a one-year extension. This agreement has a total value of NOK million in 2011 value. The whole sum payable will be adjusted for price inflation every year. Public procurement revenues from the contract with the government accounted in 2014 for just under 21 per cent of the group s total income. Annual financial statements Hurtigruten AS reports in accordance with the International Financial Reporting Standards (IFRS) approved for use in the European Union. Discontinued business is an activity which has either been divested or is in the process of being sold. Pursuant to IFRS 5 on non-current assets held-for-sale and discontinued business, such operations must be classified separately from the other results as a separate item in the income statement. Similarly, assets and liabilities related to such operations must be presented (gross) separately from other assets and liabilities in the balance sheet. Income statement Total operating revenues for the Hurtigruten group came to NOK million in 2014 (2013: NOK million). Hurtigruten Norwegian coast, MS Fram and Spitsbergen all increased their revenues. Consolidated operating expenses before depreciation and impairment were NOK million (2013: NOK million). The rise primarily reflected sales-related costs resulting from increased activity, higher payroll costs for the vessels and realisation of the corporate management s option programme in connection with the change of ownership in December

42 Hurtigruten AS Consolidated EBITDA came to NOK 526 million (2013: NOK 570 million). Increased revenues and improved underlying operation in all three product areas were offset by special items in connection with the change of ownership for Hurtigruten AS, and contributed to a recognised EBITDA on a par with Depreciation and impairment totalled NOK 379 million (2013: NOK 309 million). The increase reflected a reversed impairment charge of NOK 78 million for MS Fram in Consolidated operating profit before interest and tax (EBIT) was NOK 147 million (2013: NOK 261 million). Net financial expenses amounted to NOK 372 million (2013: NOK 231 million. This increase primarily reflected special items related to the change of ownership for Hurtigruten AS. The share of profits from associated companies was NOK 1 million (2013: NOK 11 million). The consolidated pre-tax loss for the continued business was NOK 224 million (2013: profit of NOK 41 million). The bus operation was sold in July 2014, and was classified as discontinued business at 31 December Pre-tax profit for discontinued business came to NOK 15 million (2013: loss of NOK 15 million). The consolidated pre-tax loss came to NOK 209 million (2013: profit of NOK 26 million). Cash flow Cash and cash equivalents in the cash flow statement totalled NOK 266 million at 31 December, compared with NOK 383 million a year earlier. Net cash flow from operational activities amounted to NOK 498 million (2013: NOK 464 million). This NOK 36 million increase was primarily attributable to improved cash flow from underlying operations and reduced interest payments as a result of debt redemption. Net cash flow for investing activities came to NOK 148 million (2013: NOK 234 million). The reduction of NOK 86 million in 2014 reflects lower capital spending and higher cash flows from the sale of operating assets compared with the year before. The following are the most significant cash flows used for or received from investing activities in Capital spending related chiefly to planned investment in the ships as well as the continuing implementation of a new IT solution for the onboard hotel operation. Receipts from the sale of operating assets related chiefly to the disposal of the group s two remaining fast ferries, which occurred in March, and the sale of properties related to the bus business in May. The disposal of the TIRB subsidiary yielded a net negative cash flow of NOK 28 million because part of the sale sum is regulated through a seller credit agreement. A payment from an associated company was also received by the group following the sale of a building. Net cash flow for financing activities came to NOK 431 million (2013: NOK 313 million). This increase of NOK 120 million reflected the fact that the company redeemed more debt in 2014 than in the year before. A total of NOK 490 million in loans were repaid during the year. That included the repayment of a short-term loan of NOK 150 million drawn down in December 2013, and the redemption of a NOK 40 million loan related to the two remaining fast ferries on the occasion of their sale in March The company had drawn down NOK 100 million on a short-term seasonal credit at 31 December Dividend paid to non-controlling owner interests declined by NOK 29 million from 2013 to Balance sheet and liquidity Consolidated non-current assets totalled NOK million at 31 December (2013: NOK million). Property, plant and equipment declined from 2013 as a result of depreciation and impairment. Intangible assets increased during the period, reflecting continuing changes to the IT solution for the onboard hotel operation. Current assets totalled NOK 629 million (2013: NOK 845 million) at 31 December This reduction primarily reflected the sale of the group s bus business, which was classified as held for sale at 31 December The sale was implemented on 4 September Working capital was negative at NOK million at 31 December 2014 (2013: NOK 414 million). This reduction in working capital reflected a combination of reclassifying non-current bank loans as current, and a negative trend in the fair value of interest-rate swaps as well as currency and bunkers transactions. Liquid assets amounted at 31 December to NOK 336 million, or NOK 266 million excluding restricted assets (2013: NOK 404 million, or NOK 383 million excluding restricted assets). The group s total non-current liabilities amounted to NOK 95 million at 31 December (2013: NOK million). Existing non-current loans from a bank syndicate contained a change of control provision related to the company s ownership. The change of ownership at the end of 2014 meant the whole principal became due. On that basis, the non-current loan was reclassified as a current liability at 31 December As note 3C reports, the company had 12

43 Hurtigruten AS secured new long-term financing in advance. New loans raised during the first quarter of 2015 are accordingly noncurrent in nature. Current liabilities came to NOK million at 31 December (2013: NOK million). This increase primarily reflects reclassification of non-current bank loans as well as the negative trend in the fair value of interest-rate swaps as well as currency and bunkers transactions. Consolidated equity at 31 December was NOK 694 million (2013: NOK million). The equity ratio was 15.2 per cent (2013: 22.5 per cent). Transactions with close associates Transactions with close associates (related parties) have been conducted on market terms. Close associates in this context are key personnel in the company and associate companies. No significant changes occurred in 2014 in the type or size of transactions with close associates. Events after the balance sheet date Silk Bidco made a voluntary offer corresponding to NOK 7 per share for all the shares in Hurtigruten ASA on 29 October Silk Bidco is a joint venture owned indirectly by Home Capital, Periscopus and investment funds managed by TDR Capital. For further details of the offer and the transaction, see the offer document published on 6 November The voluntary offer from Silk Bidco was accepted by shareholders owning per cent of the shares, and the remainder were bought out compulsorily. The company has been delisted from the Oslo Stock Exchange, with 10 February 2015 as the last day of listing. Furthermore, the company changed its name from Hurtigruten ASA to Hurtigruten AS on 17 February In connection with the acquisition, a bridging loan was obtained on 6 October 2014 with Goldman Sachs as agent. This funding totalled EUR 455 million as well as EUR 65 million in a revolving credit facility. The bridging loan was replaced by a bond loan of EUR 455 million on 6 February 2015 at a fixed interest rate equivalent to 7.5 per cent and a settlement date of 1 February The bond loan has been issued by Silk Bidco and is listed in Luxembourg. The NOK 65 million revolving credit continues, with a settlement date of 29 October No financial covenants are attached to the bond loan. Financial covenants attached to the revolving credit facility require the Hurtigruten group to have an EBITDA of at least NOK 400 million on a rolling 12-month basis. As part of the acquisition and refinancing, Silk Bidco has provided a loan of NOK 2.6 billion to Hurtigruten AS related to the redemption of Hurtigruten s earlier financing commitments, including a syndicate loan, a bond loan and a shortterm credit facility. The bond loan was redeemed by Hurtigruten exercising its purchase option on 8 January 2015, and all outstanding bonds in the NOK 500 million loan were repaid at a price corresponding to per cent of their nominal value plus interest accrued but not paid. The settlement date for the redemption was 26 January In connection with the repayment of earlier loans, all outstanding currency and bunkers hedges and interest-rate swap agreements were terminated and settled. Both the redemption of earlier financing commitments and termination of hedging transactions were implemented during January All Hurtigruten s assets, including shares in subsidiaries, were provided as collateral for the above-mentioned loan. Hurtigruten has the same loan terms as Silk Bidco. It will pay interest and instalments to Silk Bidco in euros, corresponding to interest payments on Silk Bidco s outstanding bond loan. Hurtigruten s share capital was increased by NOK to NOK on 22 January 2015 through the issue of new shares with a nominal value of NOK 1 per share at a subscription price of NOK 100. The overall capital increase of NOK 300 million was implemented by converting part of the loan made by Silk Bidco to Hurtigruten. Product areas The company operates with three product areas: Hurtigruten Norwegian coast, MS Fram and Spitsbergen. Activities which do not fall naturally into these three areas are grouped in other business. The company comments on operating results before depreciation and impairment (EBITDA) for the three product areas. Hurtigruten Norwegian coast The Hurtigruten Norwegian coast product area is the largest activity in the group, accounting for about 85 per cent of its consolidated operating revenues in This product area embraces 11 ships sailing between Bergen and Kirkenes, calling at a total of 34 ports along this route. Hurtigruten s ships achieved an overall regularity of 96.9 per cent in 2014, 0.1 percentage points below the target of 97 per cent. Altogether 717 of a total of port calls were cancelled in 2014, primarily when weather conditions prompted the cancellation of relevant ports for safety reasons. 13

44 Hurtigruten AS Major safety-related challenges with the harbour facilities at Mehamn meant that calls in Gamvik-Nordkyn port were temporarily suspended from 6 January to 8 September Operating revenues for the product area came to NOK million (2013: NOK million). Growth in passenger revenues is driven by a 3.5 per cent rise in the number of cruise nights and a 6.6 per cent increase in gross passenger income per cruise night. Capacity utilisation for 2014 was 63 per cent (2013: 60 per cent). Operating expenses before depreciation and impairment totalled NOK million (2013: NOK million). This increase derived from both higher sales-related costs as a result of more cruise nights and growth in payroll costs. The latter rise was driven by both greater activity and higher costs because of the termination of differentiated employer social security contributions for the transport sector with effect from 1 July Fuel costs declined by NOK 9 million from This positive development reflected a combination of reduced fuel prices and paying constant attention to reducing consumption through operational measures. Hurtigruten works intensively to secure continued growth in important markets while searching simultaneously for new markets and segments. Spending on sales and marketing activities during 2014 accordingly boosted costs. Combined with higher payroll expenses, this contributed to a NOK 97 million increase in total administrative expenses compared with Realising the corporate management s option scheme in connection with the acquisition in December 2014 was the main reason for the rise in payroll costs for the year. EBITDA was NOK 378 million for 2014 (2013: NOK 458 million). MS Fram MS Fram cruised in the Antarctic as well as around Spitsbergen and Greenland during 2014, and conducted some cruises in European waters on its way from and to the Antarctic. MS Fram achieved a significant improvement in results for 2014 as a result of greater attention being paid in the sales organisation, attractiveness in the market and a strong onboard performance by crew. Operating revenues amounted to NOK 352 million (2013: NOK 295 million), while cruise nights totalled (2013: ) and capacity utilisation was 78.4 per cent (2013: 70.5 per cent). Operating expenses before depreciation and impairment totalled NOK 239 million (2013: NOK 219 million). The reduction for the year related primarily to lower commission payments. EBITDA for the MS Fram product area came to NOK 113 million, up by NOK 37 million from the year before. Spitsbergen This product area mainly embraces activities in Svalbard pursued by the Spitsbergen Travel group, a wholly owned subsidiary of Hurtigruten AS. It embraces year-round hotel operation with three venues, restaurants, snowmobile hire, retailing and an extensive portfolio of experience products in Svalbard. These include short day trips on skis, dog sledding, snowmobile trips, boat or hiking excursions, and longer expeditions in the archipelago. Spitsbergen Travel is based in Longyearbyen, where its whole organisation including, sales, products, marketing and administration is located. Results for Spitsbergen showed a substantial improvement in 2014 compared with the year before, following increased traffic for both group travel and individual visitors. Expanded flight capacity to Svalbard was an important reason why visitor numbers to the archipelago rose in 2013 and Operating revenues for the product area came to NOK 204 million (2013: NOK 173 million). Operating expenses before depreciation and impairment totalled NOK 171 million (2013: NOK 148 million). EBITDA came to NOK 33 million (2013: NOK 25 million). Other business Other business comprises the group s bus business through Cominor, which was classified as discontinued business at 31 December Hurtigruten entered into an agreement with Boreal Transport Nord on the transfer of the shareholding in TIRB during July In addition come the company s two remaining fast ferries, sold in March 2014, and some minor companies. Operating revenues for the product area came to NOK 2 million (2013: NOK 8 million). EBITDA was NOK 2 million (2013: NOK 12 million). 14

45 Hurtigruten AS Research and development activities The group conducts no research and development activities other than adaptations of ICT. Health, safety and the environment Highest priority Hurtigruten takes the view that solid and binding goals for safety and the environment are essential if it is to continue developing the business in the desired direction. Safe operation provides the basis for confidence in the company among guests customers and employees. The business and the company s profitability depend on a general concentration on safety in the fleet and the land organisation. The company s safety policy, revised most recently in 2013, incorporates zero tolerance of accidents and serious incidents including serious personal injuries and loss of human life. It is and will remain a secure company to travel with for guests and a safe and secure workplace for the employees. Hurtigruten has an established management system which includes all relevant processes related to health, safety and the environment. This system satisfies all international, national and internal requirements for ship operation, and is continuously being improved. That is done in part through formal risk assessment procedures, an efficient reporting system for nonconformities, and annual internal audits on all the ships and at every office. Following up registered nonconformities and all recommendations received is a very important process in Hurtigruten. All nonconformities and recommendations are dealt with through administrative processes and fed back into the management system as part of the continuous improvement process in the company. The company suffered one (1) serious personal injury to an employee in The victim was quickly given medical treatment, restored to health and returned to work. The incident was investigated and measures initiated to prevent a repetition. Five undesirable incidents related to the operation of the fleet were experienced by Hurtigruten in 2014, including quay collision and going aground. Three of these events were classified as having the potential to become a serious accident. Hurtigruten had no discharges to the sea in The 11 Hurtigruten ships sail annually just under a million nautical miles along the Norwegian coast and make more than port calls. The company s zero tolerance vision is ambitious but attainable. It accordingly works continuously on proactive improvement processes. Through such activities as the identification and registration of near misses, unsafe acts and unsafe conditions, the company aims to prevent and avoid undesirable incidents. Natural environment Hurtigruten s environmental policy sets a clear goal of minimising its impact on the natural environment. Like all other transport and tourist activities, Hurtigruten s operations have a direct influence on the natural environment through its fuel consumption. Hurtigruten is conscious of its responsibility for safe operation and environmental protection, and works continuously to enhance its environmental performance through improvements to both technical and operational solutions. The scope of the company s business and its consumption of fossil fuel are affected by the substantial production requirements in the public procurement contract for transport services with the Ministry of Transport and Communications for the Bergen-Kirkenes coastal service. Daily departures year-round and 11 ships in constant operation mean substantial fuel consumption and consequent discharges of greenhouse gases such as carbon dioxide (CO2) and nitrogen oxides (NOx). Choice of fuel is therefore a very important element in efforts to reduce emission risk. Hurtigruten has opted to use marine gas oil (MGO) for MS Fram and marine special distillate (MSD) on the ships serving the Norwegian coast. These are among the most environment-friendly fuel grades in the business, and exceed the requirements set for voyages in the most vulnerable areas served by the company. A higher price for these environmental fuels is offset by their positive environmental properties compared with heavier grades. Average fuel consumption in Hurtigruten per nautical mile along the Norwegian coast was 80.8 litres in 2014, down by one litre from the year before. Average greenhouse gas emissions in 2014 (2013): CO2: 227 kg/nm (228 kg/nm) NOx: 4.2 kg/nm (4.2 kg/nm) SO2: 0.01 kg/nm (0.01 kg/nm) 15

46 Hurtigruten AS The company continuously pursues improvement processes to reduce the environmental burden, and seeks to apply measures which yield genuine environmental gains. It has tried out new methods in its maritime activities to reduce emissions of the greenhouse gases SO2, CO2 and NOx. Hurtigruten is also affiliated to the Industrial Fund for Nitrogen Oxides, where the overall goal is a general reduction in NOx emissions by Norwegian industry and commerce. Through this fund, the company has applied for support for more than 20 NOx-related projects. A number of measures have been implemented and completed. The estimated annual gain in terms of emissions from these measures is about 330 tonnes of NOx. More such projects are under development in the company. Hurtigruten s explorer activities off Greenland, Svalbard and Antarctica are subject to guidelines from the International Association of Antarctica Tour Operators (IAATO) and the Association of Arctic Expedition Cruise Operators (AECO). The company plays an active role in both these organisations to champion a safe and environmentally conscious tourism industry in these unique and vulnerable areas. Organisation The company employed work-years at 31 December 2014, of which 801 were performed by permanent employees in Norway including subsidiaries. Temporary employees accounted for 548 work-years, with the remaining 240 work-years performed at the offices in Germany, London, Seattle, Tallinn and Paris. Hurtigruten is an expertise-based company, and training occupies a key place. The company had 170 apprentices and cadets on its ships at 31 December 2014, making it the largest apprentice company in the maritime sector of the Confederation of Norwegian Enterprise (NHO). Hurtigruten has also contributed for many years to the ability of other companies to provide better training by, for example, accepting apprentices and cadets from other shipping companies on its vessels for brief periods to gain experience with larger engines and more advanced navigation. The company takes its important role in the education of Norwegian seafarers seriously. Hurtigruten strongly emphasize professional expertise in the workforce, but also local knowledge in the recruitment processes. Our crew members are mainly recruited from the Norwegian coast and the places the 11 on route ships call at. Hurtigruten contribute through this to maintain local and regional employment, combined with objectives like ensuring knowledge, local expertise and flexible shift arrangements for employees. The MS Fram explorer ship also offers traineeships in the expedition team to newly qualified nature guides from selected institutions. Senior officers on Hurtigruten s 12 vessels have a collective experience of years. Their masters have sailed with the company s ships for an average of 13.2 years, and their unique knowledge of the Norwegian coast means that full provision has been made for safe and secure vessel navigation. The expedition team on MS Fram is also one of the most experienced in the industry. Its members have formal competence as scientists and are experts on the locations to be visited and the wildlife there. Hurtigruten requires that all expedition personnel for the Antarctic take and pass the IAATO field staff online assessment once a year. Working environment Hurtigruten is an inclusive workplace (IA) company. This scheme aims to reduce total sickness absence, and that objective is pursued actively throughout the organisation. Average sickness absence in 2014 was 6.6 per cent for seagoing personnel, down by 0.4 percentage points the year before. Purposeful work involving personal follow-up has been pursued with individuals on sick leave. Average sickness absence for personnel on land was 3.6 per cent, down by 1.2 percentage points from This reflected a decline in both short- and long-term absences. A company health service was instituted at 1 January 2014 in order to pay even greater attention to following up sick leave at sea and on land. The company also introduced health insurance for all permanent employees from 1 February, which will reduce long-term absence by cutting waiting times for treatment. The company will continue its intensive efforts to keep sickness absence as low as possible. Equal opportunities and discrimination Hurtigruten wishes to be an attractive employer for people with different backgrounds, regardless of ethnicity, gender, religion or age. Diversity is a desired and positive part of the corporate culture, which strengthens the company s ability to operate under varying conditions and operating parameters. Any and all forms of discrimination are incompatible with the company s base values. Women account for 36.2 per cent of Hurtigruten s permanent seagoing workforce, and are mostly employed in the hotel department. Of the senior officers on board master, first officer, hotel manager, chief engineer and first engineer five are female and 130 male. Women occupy 47.5 per cent of other onboard jobs with management responsibility. The company works continuously to create a better balance in seagoing management posts. 16

47 Hurtigruten AS Females account for 61.6 per cent of all land-based employees in Hurtigruten. Two of the seven members of the corporate management team were women, while the female proportion among other managers on land is 46.3 per cent. Corporate social responsibility (CSR) Basing work done in and on behalf of Hurtigruten on sustainable and responsible behaviour is vital for the company. Trust and good relations with partners and stakeholders are crucial for optimum operation and profitability. By virtue of its position in Norwegian tourism, its extensive business activities and its social significance, Hurtigruten relates to a great many stakeholders. The company s most important social function is the service related to the Bergen-Kirkenes coastal route. Every day throughout the year, Hurtigruten calls at 34 fixed ports along the Norwegian coast, carrying post, passengers and freight. The service is regulated through the public procurement agreement with the Ministry of Transport and Communications, which covers the carriage of local passengers on the Bergen-Kirkenes section and freight between Tromsø and Kirkenes. Hurtigruten contribute to local added value and environmental benefits, beyond company turnover and general business. Local ripple effects come for instance from strategic and selective choice of suppliers and which raw materials Hurtigruten use. Hurtigruten sells excursions and activities for approx NOK 201 million annually. All our 45 excursion suppliers are locally operated and owned. The cash flow Hurtigruten contributes to a significant number of year-round jobs, and added value for our many destinations. In 2014 Hurtigruten implemented a comprehensive local food concept, called Norway s Coastal Kitchen. Based on short traveled, locally produced ingredients and products all menues are designed from the areas the ships sail. Raw materials like fish, meat or vegetables are delivered as far as possible directly on board each ship when docked in the nearest port. This reduces transport length significantly by utilizing Hurtigruten port structure actively, and it enhances the travel experience for our guests. The company is also actively seeks to select commodities with a sustainable production. One example is the phasing out of scampi, a product that does not meet the company's requirements for sustainable production. This decision alone reduced the company CO2-emissions with approx 12 tons. Hurtigruten has been an important local transporter along the inaccessible Norwegian coast since This remains a very important part of the business and an important service for the local communities. The local passengers who travelled with Hurtigruten in 2014 on short port-to-port journeys represented an increase from the year before. Hurtigruten works continuously to increase the number of its guests, both local travellers and tourists. Enhancing capacity utilisation for the ships is an important measure, not only for the company s profitability but also for the environment. A space charter with Norlines covers freight handling. Through a purposeful and strategic collaboration, including better tailoring of timetables to freight requirements, Hurtigruten has become more attractive for freight shipments and has increased market shares. Traffic between Tromsø and Kirkenes grew from tonnes/ consignments in 2013 to /70 662, a weight rise of 21 per cent. Growth for the whole service area was from tonnes in 2013 to a total of tonnes, a weight increase of five per cent. Carriage of freight represents an important part of the service along the whole coast, and is invaluable for locations without alternative means of moving goods because rail links are lacking and road communications become unstable in winter. Freight shipments by Hurtigruten also have a significant environmental impact more than tonnes of goods in 2014 corresponded to fewer articulated lorry journeys on Norwegian roads. Eleven of the 12 ships in the fleet have a car deck, and the fleet transports some passenger cars along the Norwegian coast. These vehicles would otherwise have burdened the main highways and local roads. Through its constant presence with 11 ships along the coast from Bergen to Kirkenes, Hurtigruten represents an important part of Norwegian coastal preparedness and safety at sea. Share capital and shareholders Hurtigruten AS had one (1) shareholder at 31 December 2014, who is Norwegian. At the same date, its share capital was NOK , spread over shares with a nominal value of NOK 1 each. The shares are equal in every respect, and all confer the same voting rights. All the shares are issued pursuant to the Norwegian Public Limited Companies Act. They are registered in the Norwegian Central Securities Depository (VPS) and listed on the Oslo Stock Exchange with the ticker code HRG. The company does not hold any of its own shares. 17

48 Hurtigruten AS Corporate governance Hurtigruten AS will run its business in the best possible way for its shareholders while also taking account of other stakeholders. The company s reputation and the trust it enjoys in the wider community are influenced by the way the The company s corporate governance principles have been adopted by its board and build on the Norwegian code of practice for corporate governance (the code) from the Norwegian Corporate Governance Board (NCGB) and section 3, sub-section 3c of the Norwegian Accounting Act. Hurtigruten has incorporated the latest amendments to the code, dated 23 October A full presentation of the company s corporate governance is provided in this annual report. Going concern assumption With reference to the company s results and financial position, it is confirmed that the going concern assumption is realistic and the financial statements for 2014 have been prepared on that basis. Coverage of the net loss The net loss for Hurtigruten AS was NOK , which it is proposed to cover from other equity. Outlook The foundation for Hurtigruten s future profitability was laid during the year of restructuring in 2013 and its continued implementation in 2014, when vessel operation received special attention. The financial statements show that the change of course was correct and entirely necessary, with an improvement of NOK 44 million in the normalised financial result before tax for underlying operations. The first three phases of the far-reaching efficiency improvement programme were initiated and implemented in 2013, and have yielded the anticipated annual cost effect of NOK 60 million. Work in 2014 was devoted to implementing measures related to the fourth and final phase of the programme. Attention concentrated on vessel operation, with the realisation of cost effects, identification of income opportunities and development of crew as key components. At the same time, the restructuring work has identified a substantial potential for increased onboard spending. Great attention was paid to this aspect during 2014, and it remains a priority area. Hurtigruten will continually offer its guests more and better onboard products, including the portfolio of active excursions. Onboard spending in 2014 was up by 3.6 per cent from the year before. Pressure from international competitors on Scandinavia and the Norwegian coast is steadily growing. The big cruise fleet enjoys very different operating parameters from those which govern Hurtigruten. The company cannot compete on price with ships which have duty-free sales, foreign crews, lower bunkers costs and up to berths. Hurtigruten aims to be positively different, and will continue efforts in 2015 to differentiate its product from the cruise industry. Global travel trends show that authentic and active experiences are what guests want. With its unique history and authentic nature-based product, Hurtigruten will realise a substantial unrealised potential. The global marketing effort will support active sales work with campaigns presenting experiences nobody else can offer. Excursions on land, activities on board and food concepts will occupy a key place in the work of differentiating the authentic, active Hurtigruten voyage from a growing number of competitors, but will also be more important in boosting onboard spending. With new owners, Hurtigruten has implemented a complete refinancing and with a new capital structure in place opportunities have been created for continued growth. The company will further reinforce its position in the explorer business while strengthening capacity utilisation along the Norwegian coast. 18

49 Hurtigruten AS Oslo, 28 April 2015 The board of directors of Hurtigruten AS Sign. Sign. Sign. Trygve Hegnar Helene Jebsen Anker Petter Stordalen Chair Deputy chair Director Sign. Sign. Sign. Jonathan Barlow Rosen Matthew John Lenczer Regina Mari Aasli Paulsen Director Director Director Sign. Per-Helge Isaksen Director Sign Daniel A. Skjeldam Director CEO 19

50 Hurtigruten Group Consolidated income statement (in NOK 1 000) Note Operating revenues Payroll costs 24 ( ) ( ) Depreciation, amortisation and impairment losses 7, 8, 9 ( ) ( ) Other operating costs 26 ( ) ( ) Other (losses)/gains - net 27 (93 487) (42 571) Operating profit/(loss) Finance income Finance expenses 28 ( ) ( ) Finance expenses - net ( ) ( ) Share of profit/(loss) of associates Profit/(loss) before income tax from continuing operations ( ) Income tax expense from continuing operations 18 (5 031) (3 915) Profit/(loss) for the year from continuing operations ( ) Profit/(loss) for the year from discontinued operations (11 589) Profit/(loss) for the year ( ) Profit/(loss) for the year attributable to Owners of the parent 15 ( ) Non-controlling interests (5 861) (Expressed in NOK per share) Earnings per share From continuing operations 15 (0,61) 0,09 From discontinued operations 15 0,02 (0,02) Total earnings per share (0,59) 0,07 Diluted earnings per share From continuing operations 15 (0,61) 0,09 From discontinued operations 15 0,02 (0,02) Total diluted earnings per share (0,59) 0,07 Notes 1 to 30 are an integral part of these consolidated financial statements. 20

51 Hurtigruten Group Consolidated statement of comprehensive income (in NOK 1 000) Note Profit/(loss) for the year ( ) Other comprehensive income loss in subsequest periods Actuarial gain/(loss) on retirement benefit obligations 19 (31 111) (11 443) Tax Total items not to be reclassified to profit or loss in subsequest periods (28 879) (8 213) Other comprehensive income to be reclassified to profit or loss in subsequest periods Cash flow hedges 1 16, 28 (82 005) (5 762) Tax Currency translation differences 16 (10 745) Total items to be reclassified to profit or loss in subsequest periods (92 750) Other comprehensive income for the year, net of tax ( ) (26) Total comprehensive income for the year ( ) Attributable to: Owners of the parent ( ) Non-controlling interests (9 144) Total comprehensive income for the year ( ) ) The increase in the deferred income tax asset during the year in Hurtigruten AS has not been recognised in the balance sheet Notes 1 to 30 are an integral part of these consolidated financial statements. 21

52 Hurtigruten Group Consolidated balance sheet at 31 December (in NOK 1 000) Note ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in associates Deferred income tax assets Trade and other receivables Total non-current assets Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents Assets of disposal group classified as held-for-sale Total current assets Total assets EQUITY Equity attributable to owners of the parent Ordinary shares Share premium Other reserves 16 (24 047) Retained earnings ( ) ( ) Total equity attributable to owners of the parent Non-controlling interests Total equity LIABILITIES Non-current liabilities Borrowings Other non-current liabilities Derivative financial instruments Deferred income tax liabilities Retirement benefit obligations Provisions for other liabilities and charges Total non-current liabilities Current liabilities Trade and other payables Current income tax liabilities Borrowings Derivative financial instruments Provisions for other liabilities and charges Liabilities of disposal group classified as held-for-sale Total current liabilities Total equity and liabilities Notes 1 to 30 are an integral part of these consolidated financial statements. 22

53 Hurtigruten Group Oslo, 28 April 2015 The board of directors of Hurtigruten AS 23

54 Hurtigruten Group Consolidated statement of changes in equity (in NOK 1 000) Note Share capital including treasury shares Share premium Other equity not recognised in the income statement Retainted earnings Total paid-in equity and retained earnings Non-controlling interests Total equity Balance at 1 January ( ) Net profit/(loss) for the year (5 861) Other comprehensive income Currency translation differences Cash flow hedges, net of tax 16, (4 281) - (4 281) 133 (4 148) Actuarial gain/(loss) on retirement benefit obligations, net of tax 18, (4 797) (4 797) (3 416) (8 213) Total other comprehensive income, net of tax (4 797) (3 283) (26) Total comprehensive income for the year (9 144) Transactions with owners Distributions to owners (73 400) (73 400) Total transactions with owners (73 400) (73 400) Balance at 31 December ( ) Balance at 1 January ( ) Net profit/(loss) for the year ( ) ( ) ( ) Other comprehensive income Currency translation differences (10 745) - (10 745) - (10 745) Cash flow hedges, net of tax 1 16, (82 005) - (82 005) - (82 005) Actuarial gain/(loss) on retirement benefit obligations, net of tax 18, (28 879) (28 879) - (28 879) Total other comprehensive income, net of tax - - (92 750) (28 879) ( ) - ( ) Total comprehensive income for the year - - (92 750) ( ) ( ) ( ) Transactions with owners Sale of treasury shares 15, Disposal subsidiaries and non controlling interests (42 244) (42 244) Distributions to owners (44 622) (44 622) Total transactions with owners (86 866) (84 812) Balance at 31 December (24 047) ( ) ) The increase in the deferred income tax asset during the year in Hurtigruten AS has not been recognised in the balance sheet Notes 1 to 30 are an integral part of these consolidated financial statements. 24

55 Hurtigruten Group Consolidated cash flow statement (in NOK 1 000) Note Cash flows from operating activities Profit/(loss) before income tax from continuing and discontinued business 7 ( ) Adjustments for: Depreciation, amortisation and impairment for continuing and discontinued business 8, Other (losses)/gains - net 27, 28 (12 409) (9 484) Unrealised foreign exchange (losses)/gains Unrealised gains/losses on derivatives held for trading purposes Dividends received (869) (1 416) Interest expenses Share of profit/(loss) of associates 10 (1 039) (7 847) Impairment of long-term shares Difference between expensed pension and payments (8 203) Change in working capital: Inventories (7 480) (9 338) Trade and other receivables (54 861) Financial assets at fair value through profit or loss (4 428) Trade and other payables (65 592) Cash flows from (used in) operating activities Interests paid ( ) ( ) Income tax paid (4 127) (10 264) Net cash flows from (used in) operating activities Cash flows from investing activities Purchases of property, plant and equipment (PPE) 8 ( ) ( ) Proceeds from insurance settlement Proceeds from sale of PPE Purchases of intangible assets 9 (45 473) (43 993) Loans to associates and other companies 105 (1 500) Purchase of shares and shareholdings - 50 Proceeds from sale of shares and shareholdings Net liquid assets from purchase and sale of businesses (69 997) - Dividends received Change in restricted funds Net cash flows from (used in) investing activities ( ) ( ) Cash flows from financing activities Sale of treasury shares Proceeds from borrowings Repayments of borrowings ( ) ( ) Dividends paid to non-controlling interests (44 622) (73 400) Net cash flows from (used in) financing activities ( ) ( ) Net (decrease)/increase in cash, cash equivalents and bank overdrafts (81 640) (82 313) Cash, cash equivalents and bank overdrafts at 1 January Foreign exchange gains/(losses) on cash, cash equivalents and bank overdrafts (35 670) (264) Cash, cash equivalents and bank overdrafts at 31 December Notes 1 to 30 are an integral part of these consolidated financial statements. 25

56 Hurtigruten Group Note 1 General Information Hurtigruten ASA is a public limited liability company, which as of 31 December 2014 was registered and domiciled in Norway and headquartered at Fredrik Langes gate 14, Tromsø. At the Annual General Meeting of 17 April 2013 the decision was taken to relocate Hurtigruten ASA s head office from Narvik to Tromsø. The Group also has offices in Kirkenes and Oslo, wholly-owned foreign sales companies in Hamburg, London, Paris and Seattle, a reservations centre in Tallinn as well as activities in Longyearbyen. The company was listed on the Oslo Stock Exchange as of 31 December In connection with Silk Bidco AS' acquisition of all the shares in Hurtigruten ASA in December 2014, the company was de-listed on 10 February 2015, when the company also changed form from an ASA to an AS. Hurtigruten AS (the company) and its subsidiaries (together the Group) are engaged in tourism and transport activities in Norway and abroad. The company s core business consists of the Hurtigruten service along the Norwegian coast, with daily calls in 34 ports between Bergen and Kirkenes, and explorer activity in the Polar regions, along with activities in Svalbard organised under the Spitsbergen Travel Group. The Group s operating segments are organised into the following three product areas: Hurtigruten Norwegian Coast, MS Fram and Spitsbergen. Activities that do not naturally fall within these three segments are bundled in Other business. These operating segments are reported in the same way as internal reporting to the board of directors and Group management. The Group s presentation currency is NOK. The consolidated financial statements were adopted by the company s board on 28 April The following companies are included in the consolidated financial statements Registered office Ownership/voting share Owned by Hurtigruten AS (parent company) HRG Eiendom AS Tromsø, Norway 100,0 % Hurtigruten Estonia OÜ Tallinn, Estonia 100,0 % Hurtigruten GmbH Hamburg, Germany 100,0 % Hurtigruten Inc. Seattle, USA 100,0 % Hurtigruten Ltd London, UK 100,0 % Hurtigruten Pluss AS Tromsø, Norway 100,0 % Hurtigruten SAS Paris, France 100,0 % Hurtigruten Sjø AS Kirkenes, Norway 100,0 % Spitsbergen Travel AS gyearbyen, Svalbard, Norway 100,0 % Kirberg Shipping KS 1 Bergen, Norway 0,9 % Kystruten KS 1 Oslo, Norway 0,0 % Owned by Spitsbergen Travel AS Ingeniør G. Paulsen AS gyearbyen, Svalbard, Norway 100,0 % 1) SPE (Special Purpose Entity) Hurtigruten Pty. Ltd. was wound up in The company was wholly owned by Hurtigruten AS. AS TIRB was sold in The company was 71.3 per cent owned by Hurtigruten AS. Spitsbergen Travel AS was merged with the wholly owned subsidiaries Spitsbergen Travel Hotel AS and Svalbard Polar Hotel AS in

57 Hurtigruten Group Note 2 Summary of significant accounting policies The principal accounting polices applied in the preparation of the consolidated financial statements are described below. Unless otherwise stated in the description, these policies have been consistently applied to all periods presented. 2.1 Basic policies The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretation Committee (IFRIC), as established by the EU. The consolidated financial statements have been prepared on a historical cost basis, with the following modifications: financial derivatives at fair value through profit or loss The preparation of financial statements in accordance with IFRSs requires the use of estimates. It also requires management to exercise its judgment in the process of applying the company's accounting policies. Areas that involve a high degree of such judgments, or are highly complex, and areas where assumptions and estimates are of material importance for the consolidated financial statements are described in more detail in Note 3A. The Group s consolidated financial statements have been prepared according to uniform accounting policies for similar transactions and events under similar conditions. 2.2 Consolidation policies The consolidated financial statements include the financial statements of the parent company and its subsidiaries as of 31 December 2014 and 31 December a) Subsidiaries and consolidation Subsidiaries are all companies (including structured companies) over which the Group exercises control. Control over an entity arises when the Group is exposed to variability in the return from the entity and has the ability to impact this return by virtue of its influence over the entity. Subsidiaries are consolidated from the time a controlling influence is established and until such time as the controlling influence ceases to exist. b) Structured companies A sale-leaseback solution was carried into effect in 2002 with the Hurtigruten ship MS Richard With, whereby Kystruten KS acquired the ship and leased it back for a 15-year period. A similar sale-leaseback solution was carried into effect with the Hurtigruten ship MS Nordlys in 2003, whereby Kirberg Shipping KS acquired the ship and leased it back for a 15-year period. On the basis of established contracts and the Group s assessments of the control principle, Kystruten KS and Kirberg Shipping KS are deemed to be subsidiaries, which are therefore consolidated in the Hurtigruten Group. This has been achieved by recognising the ship s book value and external liabilities in the consolidated balance sheet. Previously recognised gains are corrected against equity in earlier periods. The KS s financial statements have been restated to apply the same accounting policies as used by the Hurtigruten Group. c) Associates Associates are all entities over which the Group has significant influence but not control. Significant influence normally exists for investments where the Group owns per cent of the voting capital. Investments in associates are initially recognised at cost and subsequently using the equity method. The Group s share of associates profit or loss is recognised in the income statement, and is added to the book value of the investments. The Group s share of associates other comprehensive income is recognised in the Group s other comprehensive income and is also added to the book value of the investments. The Group does not recognise any share of an associate s losses in its income statement if this results in the book value of the investment falling below zero (including unsecured receivables from the entity), unless the Group has assumed liabilities or made payments on behalf of the associate. 2.3 Summary of significant accounting policies a) Segment reporting An operating segment is a component of the business: i) that engages in business activities as a result of which the company receives operating revenues and incurs costs; 27

58 Hurtigruten Group ii) iii) whose operating results are regularly reviewed by the company s ultimate decision-maker with a view to determining which resources should be allocated to the segment and to assess its earnings, and for which separate financial information exists. The Group has three operating segments, called product areas: Hurtigruten Norwegian Coast, MS Fram and Spitsbergen. Activities that do not naturally fall within these segments are bundled in Other business. b) Translation of foreign currencies (i) Functional and presentation currency The financial statements of the individual entities in the Group are measured in the currency used in the economic area in which the entity primarily operates (the functional currency). The consolidated financial statements are presented in Norwegian kroner (NOK), which is both the parent company s functional currency and the Group s presentation currency. (ii) Transactions and balance sheet items Foreign currency transactions are translated into the functional currency using the transaction rate. Realised foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of exchange rates of monetary assets and liabilities denominated in foreign currencies at the balance sheet date are recognised in the income statement. If the currency position is considered a cash flow hedge, gains and losses are recognised as other comprehensive income until the hedged transaction is implemented, after which the currency position is transferred to the result on ordinary activities. Foreign exchange gains and losses on loans, cash and cash equivalents are presented (net) in the income statement as finance income or expenses. (iii) Group companies The income statement and balance sheets of Group entities whose functional currency differs from the presentation currency are translated in the following manner: The balance sheet is translated at the rate in force at the balance sheet date The income statement is translated at the transaction rate. Average rates are used as an approximation of the transaction rate. Translation differences are recognised in other comprehensive income and specified separately in equity as a separate item. c) Revenue recognition Revenue from the sale of goods and services is recognised at the fair value, net of VAT, returns, discounts, and rejects. Sales are recognised when revenue can be reliably measured, it is probable that the economic benefits associated with the transaction will flow to the Group and specific criteria related to the various forms of sale that are listed below are met. The Group bases its accounting estimates on historic income, an assessment of the type of customer and transaction concerned, as well as any specific conditions attached to the individual transaction. Revenues are recognised in the income statement as follows: (i) Sales of services and travel Sales of services are recognised in the accounting period when the service is rendered and/or delivered. For ship voyages, this is based on the days the passenger is on board. Revenues related to ship voyages are accrued on the basis of the number of days the voyage lasts before and after the end of the accounting period. (ii) Sales of goods The Group s sales of goods primarily relate to sales of food, souvenirs and other kiosk products onboard the ships. Sales are recognised in income when the customer has received and paid for the goods. Payment for retail transactions is usually made in the form of cash or by credit card. The revenue is recognised in the income statement including the credit card fees incurred for the transaction. The fees are recorded as costs to sell. (iii) Public procurement The Group has an agreement with the Ministry of Transport and Communications to operate the Bergen Kirkenes coastal route. Revenues received from public procurement are recognised in the income statement on a continuous basis over the year on the basis of existing contracts. These contracts are primarily based on a tender, where the company has a fixed contract sum for planned (annual) production. There are specific conditions and calculation methods for the indexation of the contract sum. Any changes beyond the planned production are compensated/deducted utilising agreed-upon rates set out in the agreements, and recognised in the periods in which they occur. 28

59 Hurtigruten Group d) Property, plant and equipment Property, plant and equipment consist primarily of ships (Hurtigruten ships), land and buildings (hotels, offices and workshops). Property, plant and equipment are recognised at cost less depreciation and any impairments. Cost includes costs directly associated with the acquisition of the asset. Periodic maintenance is recognised in the balance sheet and expensed over the period until the next periodic maintenance. Ongoing maintenance for all ship types is expensed continuously during the period in which the work is performed. Land is not depreciated. Other operating assets are depreciated on a straight-line basis, such that the cost is depreciated to residual value over the asset s expected useful life. Expected useful life is determined on the basis of historical data, as well as the standard useful economic lifetimes in the industry. Residual value is calculated on the basis of estimated sales values for operating assets at the end of their expected useful life. Expected useful life is: Ships Buildings Other years years 3 10 years The useful life and residual value of operating assets are assessed on every balance sheet date and amended as necessary. When material components of operating assets have different useful lives, these operating assets are recognised as their various components. These components are depreciated separately over each component s useful life. At the end of each accounting period operating assets are assessed for indications of lasting impairment and, in the event of such impairment, the asset s recoverable amount is estimated. When the book value of an operating asset is higher than the estimated recoverable amount, it is written down to the recoverable amount. Gains and losses on disposals are recognised in the income statement under Other (losses)/gains net, as the difference between the sales price and the book value. e) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill arising on the acquisition of subsidiaries is classified as an intangible asset. Goodwill is allocated to the cash-generating units or groups of cash-generating units that are expected to benefit from the acquisition at the time of acquisition (point f). Goodwill recognised in the balance sheet is tested annually for impairment. (ii) Other intangible assets Other intangible assets are largely directly associated with development costs for computer systems recognised in the balance sheet at cost, if the criteria for recognition in the balance sheet are met Expenses recognised in the balance sheet as custom developed computer systems largely comprise payroll costs and hired-in consultants in connection with the development. The criteria for recognising custom developed intangible assets in the balance sheet are: It is technically feasible to complete the development of the software so that it is available for use. Management intends to complete the development of the software and take it into use. It can be proved probable that the company will take the asset into use. Future economic benefits to the company associated with use of the asset can be calculated. Adequate technical, financial and other resources are available to complete the development and take the software into use. Development costs for the asset can be measured reliably. The intangible assets are considered to have a limited life span, and are amortised over their expected useful life. Assessments are made at the end of each accounting period to find any indications of impairment of intangible assets. If there are indications of impairment, the intangible assets are written down to their recoverable value when this is lower than the book value. Other development expenditures that do not meet the criteria for recognition in the balance sheet are expensed as they are incurred. 29

60 Hurtigruten Group f) Impairment of non-financial assets Intangible assets with indefinite useful life and goodwill are not amortised but are tested annually or more frequently if there are indications of impairment. Depreciated property, plant and equipment and amortised intangible assets are assessed for impairment when there is any indication that the book value may not be recoverable. An impairment loss is recognised for the amount by which the asset s book value exceeds its recoverable amount. The recoverable amount is the higher of the asset s fair value less costs to sell and its value in use. In assessing impairments, non-current assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). At each reporting date the possibility of reversing previous impairment of non-financial assets (except goodwill) is assessed. g) Discontinued operations and non-current assets held-for-sale Non-current assets and disposal groups are classified as held-for-sale if their book values will be recovered through sale rather than continued use. This condition is deemed to be fulfilled if a sale is highly probable and the asset (or disposal group) is available for immediate sale in its current condition. Management at the relevant level must have made a commitment to complete the sale and the transaction must be expected to be completed within one year of the classification date. Non-current assets (and disposal groups) that are classified as held-for-sale are measured at the lower of previous book value and net sales value, and are not depreciated. A discontinued operation is a segment that has been classified as held-for-sale, and which represents a material business area. Net profits or losses after tax for discontinued operations are reported separately in income from continuing operations. Results from the previous periods for discontinued operations are reclassified in order to obtain comparative figures. Assets and liabilities classified as held-for-sale are presented on separate lines in the balance sheet under current assets and current liabilities respectively. Previous periods are not restated in the balance sheet. h) Financial assets (i) Classification The Group classifies financial assets in the following categories: at fair value through profit or loss, as well as loans and receivables. The classification depends on the object of the asset. Management determines the classification of financial assets on initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held-for-trading. A financial asset is classified in this category if it was acquired primarily to provide a profit from short-term price fluctuations. Derivatives are categorised as held-for-trading unless they are designated as hedges. Assets in this category are classified as current assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed payments that are not traded in an active market. These are classified as current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the balance sheet (point l). (ii) Recognition and measurement Regular purchases and sales of investments are recognised on the trade-date, which is the day the Group commits to purchase or sell the asset. All financial assets that are not recognised at fair value through profit or loss are initially recognised at fair value plus transaction costs. Financial assets recognised at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Investments are derecognised when the rights to receive cash flows from the investment expire or when these rights have been transferred and the Group has substantially transferred all risks and rewards of ownership. Financial assets recognised at fair value in profit or loss are carried at fair value after initial recognition in the balance sheet. Loans and receivables are carried in successive periods at amortised cost, using the effective interest method. Gains or losses from changes in fair value of assets classified as financial assets at fair value through profit or loss, including interest income and dividends, are included in the income statement under financial items in the period in which they arise. Dividends from financial assets at fair value through profit or loss are included in finance income when the Group s right to receive payments is established. i) Offsetting of financial assets and liabilities Financial assets and liabilities are only offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 30

61 Hurtigruten Group j) Impairment of financial assets Assets recognised at amortised cost At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a loss event ) and the impact of that loss event (or events) on estimated future cash flows can be estimated reliably. The amount of the loss is measured as the difference between the asset s book value and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s book value is reduced and the amount of the loss recognised in the consolidated income statement. If the impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the fall in value was recognised (such as an improvement in the debtor s credit rating), the previous loss is reversed in the consolidated income statement. Impairment testing of trade receivables is described in point l. k) Derivatives and hedging Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value on an ongoing basis. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group classifies derivatives that are part of a hedging instrument as either: (i) (ii) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair-value hedge) or hedges of variable cash flows with a particular risk associated with a recognised asset, liability or a highly probable forecast transaction (cash flow hedge). At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents whether the derivatives that are used in hedging transactions are effective in offsetting changes in fair values or cash flows of hedged items. Such assessments are documented both at hedge inception and on an ongoing basis. The fair values of derivatives used for hedging purposes are presented in Note 11C. Changes in the equity item hedging are presented in Note 16. The fair value of a hedging derivative is classified as a non-current asset or noncurrent liability if the remaining term of the hedging item is more than 12 months and as a current asset or current liability if the remaining term of the hedging item is less than 12 months. Derivatives held for trading purposes are classified as current assets or liabilities. Cash flow hedging The effective portion of changes in the fair value of derivatives that are designated and qualify as hedging instruments in cash flow hedges is recognised directly in other comprehensive income. Losses and profits on the ineffective portion are recognised in the income statement. Hedge gains or losses recognised in other comprehensive income and accumulated in equity are recognised as income or expense in the period during which the hedged item affects the income statement (for example, when the planned sale is taking place). Gains or losses relating to the effective portion of interest rate swaps hedging variable rate loans are recognised in the income statement under financial expenses. When the forecast hedged transaction results in the recognition of a non-financial asset (such as inventories or property, plant and equipment), the gains and losses previously recognised within other comprehensive income are transferred to the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold or in depreciation of property, plant and equipment. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is recognised in the income statement. When a hedged transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. l) Trade receivables Trade receivables are amounts due from customers for merchandise or services sold in the ordinary course of business. If settlement is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are classified as non-current assets. Trade receivables are recognised and presented at the original invoice amount and written down following loss events which have an impact on the payment of the receivable that can be reliably estimated. Thus, trade receivables are recognised at amortised cost using the effective interest method. The interest element is disregarded if it is insignificant. 31

62 Hurtigruten Group m) Cash and cash equivalents Cash and cash equivalents comprise cash in hand, bank deposits and other short-term liquid investments with original maturities of three months or less. Bank overdrafts are included within borrowings in current liabilities in the balance sheet. Cash and cash equivalents are defined differently in the balance sheet and cash flow presentation. Restricted capital is included in the balance sheet presentation but not in the cash flow presentation. n) Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are classified as non-current liabilities. Trade payables are valued at fair value on first-time recognition in the balance sheet. Subsequently, trade payables are measured at amortised cost using the effective interest method. The interest element is disregarded if it is immaterial. o) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequently, borrowings are recognised at amortised cost using the effective interest method. The difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings as part of the effective interest. Borrowings are classified as current liabilities unless there is an unconditional right to defer payment of the liability for at least 12 months after the reporting date. Repayments due within one year are therefore classified as current liabilities. p) Borrowing costs Borrowing costs directly attributable to the acquisition of operating assets are recognised in the balance sheet until the asset is ready for its intended use. Other borrowing costs are expensed on an ongoing basis. q) Current and deferred income taxes The income tax expense comprises income taxes payable and deferred income tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In such case, the tax is also recognised in other comprehensive income or directly in equity. Current tax is calculated in accordance with the tax laws and regulations enacted or substantively enacted at the balance sheet date in the countries where the company s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax laws are subject to interpretation. Based on management s assessment, a provision is made for expected tax payments when necessary. Deferred tax is calculated on all temporary differences between the tax-written-down and consolidated financial values of assets and liabilities. Deferred income tax is determined using tax rates and tax laws which have been enacted or substantially enacted by the balance sheet date and which are expected to apply when the deferred income tax asset is realised, or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the tax-reducing temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences is controlled by the Group, and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and deferred income tax liabilities are recognised net to the extent that there is a desire and ability to settle the taxes within the same tax regime. r) Pension liabilities, bonus schemes and other employee remuneration schemes (i) Pension liabilities The Group s companies operate various pension schemes. The schemes are generally funded through payments to life insurance companies. The Group operates both defined contribution and defined benefit plans. The liability recognised in the balance sheet connected with the defined benefit schemes is the present value of the defined benefits at the balance sheet date less the fair value of the pension assets. The pension liability is calculated annually by an independent actuary using the projected unit credit method. The gross liability is discounted to present value applying the interest rate on high-quality corporate bonds issued in the currency in which the liability will be paid, 32

63 Hurtigruten Group and with approximately the same term as the payment horizon of the liability. In countries that have a liquid market for such bonds the market interest rate on government bonds in applied. The cost of pension entitlements for the period are recognised in payroll costs. This expense includes an increase in the pension liability due to earnings from previous years, changes, curtailments and settlements. The effect of previously earned rights as a result of changes in benefits under the scheme is immediately recognised in the income statement. The net interest expense is calculated by applying the discount rate to the net pension liability and the fair value of the pension assets. This cost is recognised in payroll costs in the income statement. Variances from estimates arising from experience adjustments or changes in actuarial assumptions are recognised in equity within other comprehensive income, in the period in which they arise. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as payroll costs when they are due. Prepaid contributions are recognised as a financial asset to the extent that a cash refund or a reduction in the future payments is available. (ii) Profit-sharing and bonus schemes The Group recognises a liability and an expense for bonuses and profit-sharing plans at the time the specific criteria for allocation are fulfilled. (iii) Share-value-based remuneration The Group has several share-based remuneration schemes where the company receives services from employees as consideration for share options in the Group. The fair value of options allocated during the period is calculated using the Black-Scholes option pricing model at the time of allocation. The fair value is expensed over the vesting period. At each balance sheet date the company reviews its estimates for the number of options expected to be entered into as a result of any changes in the number of employees covered by the scheme. The company recognises any effects of changes to the original estimates in the income statement over the residual vesting period. All share-based remuneration plans are settled by the allocation of shares. (iii) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. s) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination benefits. Provisions are not recognised for future operating losses; however, provisions for unprofitable contracts are recognised. t) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When the Group has substantially assumed all the risks and rewards of ownership of the underlying lease object, leases are classified as finance leases and the lease object and lease liability are recognised in the balance sheet. The Group has no material finance leases. u) Dividends Dividend distribution to owners of the parent is recognised as a liability in the Group s financial statements when the dividends are approved by the general meeting. v) Government grants The Group receives material grants in the form of grants for trainee schemes and net salary subsidies. These grants are recognised net (as a cost reduction) together with the other payroll costs. 33

64 Hurtigruten Group 2.4 Changes in accounting policies and disclosures (i) New and amended standards adopted by the Group The Group made changes to its accounting policies in Below are new standards, amendments and interpretations, which were adopted as of the 2014 financial year. IFRS 10 Consolidated Financial Statements is based on current principles which involve applying the control concept as the decisive criterion in determining whether a company should be included in the consolidated financial statements of a parent company. The amendment has not had a material impact on the consolidated financial statements. IFRS 11 Joint Arrangements. The standard regulates the accounting treatment of arrangements where the Group has joint control together with other entities. The standard focuses on the rights and obligations of parties covered by such arrangements other than with regard to the legal structure. The amendment has not had a material impact on the consolidated financial statements. IFRS 12 Disclosures of Interests in Other Entities contains disclosure requirements for financial interests in subsidiaries, joint ventures, associates, structured entities and other non-consolidated companies. While the change has increased the scope of disclosures, it has not resulted in any other material changes to the financial statements. Other issued standards and interpretations that have entered into force do not affect the Group and will have no impact on the financial statements. (ii) Standards, amendments and interpretations to existing standards that have not entered into force and which the Group has not early adopted: IFRS 9 Financial Instruments regulates the classification, measurement and accounting treatment of financial assets and liabilities, as well as hedge accounting. The full version of IFRS 9 was published in June This replaces sections of IAS 39 that deal with corresponding issues. In accordance with IFRS 9 financial assets are divided into three categories: fair value through other comprehensive income, fair value through profit or loss and amortised cost. The measurement category is established based the method used for the first-time recognition of the asset. Classification is contingent on the entity's business model for management of its financial instruments and the nature of the cash flows for the individual instrument. Equity instruments are essentially measured at fair value through profit or loss. The enterprise can elect to recognise changes in value through other comprehensive income; however the choice is binding, and on subsequent disposals gains/losses cannot be reclassified through profit or loss. Impairments attributable to credit risk are now recognised based on expected losses rather than the current model where losses must already have been incurred. The standard essentially continues the requirements of IAS 39 for financial liabilities. The greatest change lies in that in cases where the fair value option has been utilised for a financial liability changes in fair value that are attributable to changes in inherent credit risk are now recognised in other comprehensive income. IFRS 9 simplifies the requirements for hedge accounting by tying hedging efficiency more closely to management's risk management and providing greater scope for assessment. It also continues the requirement for hedging documentation. The standard enters into force for the financial year 2018, but may be early-adopted. The Group has still not reviewed the full impact of IFRS 9. IFRS 15 Revenue from Contracts with Customers deals with revenue recognition. The standard establishes that the customer contract be split into individual performance obligations. A performance obligation can be a product or a service. Revenue is recognised when a customer achieves control over a product or service, and thus has the opportunity to determine the use of, and can receive the benefits deriving from, the product or the service. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and associated interpretations. The standard enters into force for the financial year 2017, but may be early-adopted. The Group has still not reviewed the full impact of IFRS 15. There are no other IFRS standards or interpretations that have not yet entered into force that are expected to have a material impact on the consolidated financial statements. 34

65 Hurtigruten Group Note 3A Important accounting estimates and judgments Estimates and judgments are reviewed on an ongoing basis and are based on past experience, consultation with experts, trend analyses and a number of other factors, including forecast future events that are deemed probable under current circumstances. 3.1 Key accounting estimates and assumptions The Group makes estimates and assumptions about the future. By their very nature, the accounting estimates that are made as a result of the above processes will therefore rarely fully correspond with the final outcome. Estimates and assumptions that have a significant risk of causing a material adjustment to the book values of assets and liabilities within the next financial year are outlined below. (a) Estimated impairment of goodwill The Group performs annual tests to assess potential impairment of goodwill, cf. Note 2.3 point e. The estimated recoverable amount is determined using the present value of budgeted cash flows for the cash-generating units. These calculations require the use of estimates (Note 9) for the required rate of return for the period, cash flows and the growth factor of the cash flows. The Group does not apply a general growth factor beyond expected inflation for cash flows when testing goodwill for impairment. The total required rate of return used to discount cash flows is calculated as a weighted average return on equity and the required rate of return on interest-bearing debt. This calculation utilises an estimate of the risk-free interest rate, risk premium, beta and the liquidity premium. (b) Ships Useful economic lifetime The level of depreciation depends on the estimated economic lifetime of the ships. These estimates are based on history and experience relating to the Group s ships. The estimates are reviewed at regular intervals. A change in the estimate will affect depreciation in future periods. Estimated impairment of ships Where there are indications of such, the Group tests whether ships have suffered any impairment, see Note 2.3 point d. The estimated recoverable amount is determined using the present value of budgeted cash flows for the cashgenerating units. Ships are considered within their segment as a collective cash-generating unit. These calculations require the use of estimates of the total required rate of return for the period, cash flows and the growth factor of the cash flows. The Group does not apply a general growth factor beyond expected inflation for cash flows when testing ships for impairment. The required rate of return used to discount cash flows is calculated as a weighted average return on equity and the required rate of return on interest-bearing debt. This calculation utilises an estimate of the risk-free interest rate, risk premium, beta and the liquidity premium. (c) Fair value of derivatives and other financial instruments The fair value of financial instruments not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques and information from the contract counterparty. The Group uses its judgment to select a variety of methods and to make assumptions based mainly on market conditions existing at each balance sheet date. Please refer to Note 11A for further information. (d) Pension assumptions The Group operates both defined contribution and defined benefit pension schemes. Measurement of pension costs and pension obligations for defined benefit plans involves the application of a number of assumptions and estimates, including relating to the discount rate, future salary levels, expected employee turnover rate, the return on plan assets, annual pension increases, expected adjustments to G (the National Insurance Scheme basic amount) and demographic factors. The Group has pension obligations in Norway and Germany. The discount rate used to calculate pension obligations in Norway is based on 15-year corporate covered bonds, with an additional provision taking into account relevant terms to maturity for the pension obligations. Covered bonds are primarily issued by credit institutions to listed 35

66 Hurtigruten Group Norwegian commercial and savings banks and are secured against loans directly owned by the credit institution. The discount rate applied in Norway as of 31 December 2014 is 2.3 percentage points, which is in line with the recommendation of the Norwegian Accounting Standards Board on the determination of pension assumptions as of 31 December For obligations in Germany, the discount rate is determined based on the interest rates on highquality corporate bonds denominated in the currency in which the benefits will be paid, with terms to maturity approximating to the term of the related pension obligation. The discount rate applied in Germany as of 31 December 2014 is 2.0 percentage points. Changes in pension assumptions will affect the pension obligations and pension cost for the period. Pension obligations are significantly affected by changes in the discount rate, life expectancy and expected salary and pension adjustments. Please refer to Note 19 for more information about pensions. (e) Income tax Income tax is calculated based on results in the individual Group companies. The Group is subject to income taxes in several jurisdictions. Calculation of the period s tax expense and distribution of tax payable and deferred income tax for the period requires a discretionary assessment of complex tax regulations in several countries. Consequently, uncertainty attaches to the final tax liability for many transactions and calculations. Where there is a discrepancy between the final tax outcome and the amounts that were initially recognised, this discrepancy will impact the recognised tax expense and provision for deferred income tax assets and liabilities in the period in which such determination is made. Please refer to Note 18 for more information about income tax. (f) Deferred income tax assets The basis for recognising deferred income tax assets is based mainly on the utilisation of tax loss carryforwards against future taxable income in the Group. The assessment is made based on management s estimates of future profits in the Group and includes an assessment of the Group s future strategy, economic developments in the markets in which the Group operates, future tax regimes and the Group s ability to deliver forecast synergies. In preparing the financial statements, management has found the future taxable income to be sufficient to utilise the recognised deferred income tax assets. Please refer to Note 18 for more information on deferred income tax assets recognised in the balance sheet. (g) Disputes, claims and regulatory requirements The Group is a party to, or affected by, disputes, claims and regulatory requirements the outcome of which is to a large extent unknown. Management considers the probability of negative outcomes and opportunities for estimating any loss in the event of such negative outcomes. Unexpected events or changes to factors taken into consideration that have an impact on specific conditions, may result in increases or reductions to provisions. Such changes may also necessitate the recognition of provisions for conditions that were previously assessed as an unlikely outcome or for which it was previously not possible to make reliable estimates. 3.2 Key judgments affecting the entity s accounting policies (a) Discontinued operations The Group's bus transport operations are reported under Other business. The business has consequently been classified as a discontinued operation in the annual financial statements in accordance with IFRS 5. Please see Note 7 to the consolidated financial statements for further information. (b) Joint venture Spitsbergen Travel AS owns 50 per cent of the voting rights in a joint arrangement, where the agreement requires unanimity for all decisions on relevant activities. The joint arrangement is organised as a limited company (Green Dog AS) and gives participants the right to the net assets of the limited company. The above is therefore classified as a joint venture and recognised in accordance with the equity method. 36

67 Hurtigruten Group Note 3B Restatement of comparative figures Hurtigruten AS has changed the presentation of forward exchange contracts and bunker swaps in the income statement for The comparative figures 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. Effect of change in presentation of the consolidated financial statements (in NOK 1 000) Net profit/(loss) for 2013, before reclassification Presentation of forward exchange contracts and bunker swaps Net profit/(loss) for 2013, after reclassification Operating revenues Payroll costs ( ) - ( ) Depreciation, amortisation and impairment losses ( ) - ( ) Other operating costs ( ) ( ) Other (losses)/gains net (51 958) (42 571) Total operating profit Finance income Finance expenses ( ) - ( ) Finance expenses net ( ) - ( ) Share of profit/(loss) of associates Profit/(loss) before tax from continuing operations Income tax expense from continuing operations (3 915) - (3 915) Net profit/(loss) for the year from continuing operations Net profit/(loss) for the year from discontinued operations (11 589) - (11 589) Net profit/(loss) for the year The effect of the change in presentation does not affect the consolidated statement of total comprehensive income for 2013 The effect of the change in presentation does not affect the balance sheet as of 31 December 2013 The effect of the change in presentation does not affect the consolidated statement of changes in equity for 2013 The effect of the change in presentation does not affect the statement of cash flow as of 31 December

68 Hurtigruten Group Note 3C Events after the end of the reporting period On 29 October 2014 Silk Bidco AS submitted a public offer to purchase all the shares in Hurtigruten ASA at a price of NOK 7 per share. Silk Bidco AS is a joint venture indirectly owned by Home Capital AS, Periscopus AS and investment funds managed by TDR Capital LLP. For a more detailed description of the offer and transaction please refer to the offer document that was published on 6 November The public offer from Silk Bidco AS was accepted by per cent of the shareholders and the remaining shares were purchased in a compulsory purchase. The company was de-listed from the Oslo Stock Exchange with a final listing day of 10 February The company form was also changed from an ASA to an AS on 17 February In connection with the acquisition, on 6 October 2014 the company entered into a bridge financing agreement with Goldman Sachs as agent. The bridge financing was for EUR 455 million, as well as a EUR 65 million revolving credit facility. The bridge financing was replaced with a bond loan of EUR 455 million on 6 February 2015 at fixed interest equal to 7.5 per cent and a settlement date of 1 February The bond loan was issued by Silk Bidco AS and listed in Luxembourg. The revolving credit facility of EUR 65 million will continue with an expiry date of 29 October No financial covenants attach to the new bond loan. Financial covenants attaching to revolving credit facilities stipulate that the Hurtigruten Group must have minimum EBITDA of NOK 400 million on a 12- month rolling basis. As part of the acquisition and refinancing Silk Bidco AS extended a loan to Hurtigruten AS of NOK 2.6 billion that was used to repay Hurtigruten's previous financing obligations, including syndicate loans, bond loans and a short-term drawdown facility. The bond loan was redeemed on 8 January 2015 when Hurtigruten exercised a purchase option and redeemed all outstanding bonds totalling NOK 500 million at a price equating to per cent of the nominal value plus accrued unpaid interest. The payment date for the redemption was 26 January In connection with the redemption of previous loans, all outstanding forward foreign exchange contracts, forward bunker contracts and interest rate swaps were terminated and settled. The previous financing liabilities were redeemed and the hedge transactions were terminated in January Hurtigruten has pledged all assets, including shares in subsidiaries, as security for the above loans. Hurtigruten AS has the same loan terms as those of Silk Bidco AS. Hurtigruten AS shall pay interest and repayments to Silk Bidco AS in EUR corresponding to the interest payments on the outstanding bond loan to Silk Bidco AS. On 22 January 2015 the share capital of Hurtigruten AS was increased by NOK 3,000,000 to NOK 423,259,163 through the issue of 3,000,000 new shares with a nominal value of NOK 1 at a subscription rate of NOK 100. The total capital increase of NOK 300 million was implemented through the conversion of liabilities owed by Silk Bidco AS to Hurtigruten AS. 38

69 Hurtigruten Group Note 4 Financial risk management The following discussion concerning financial risk management relates to the policies adopted and applicable for the financial years 2013 and As a result of the Group acquiring new owners at the end of 2014 and the full Group refinancing implemented at the start of 2015, the board will establish new guidelines and strategies for this area with effect from the 2015 financial year. We also refer to Note 3C "Events after the end of the reporting period", which provides a more detailed description of the refinancing measures that have been implemented in The Group uses financial instruments such as bank loans and bond loans. In addition, the Group utilises financial instruments such as trade receivables, trade payables, etc., that are directly related to day-to-day operations. The Group has also utilised certain financial derivatives for hedging purposes. 4.1 Financial risk factors The Group s activities expose it to a variety of financial risks: market risk (including currency, price, fair-value interest rate and variable interest rate risk), credit risk and liquidity risk. The Group s overarching risk management goal is to increase predictability for the Group s operations and to minimise the impact of fluctuations in macro conditions on the Group s results and financial position. The Group has defined overarching principles for risk management which encompass guidelines for specific areas such as currency, interest rate and credit risk and the use of financial derivatives. The board of directors approves the Group s risk management strategy and reviews this annually. The CFO function is responsible, in consultation with the CEO, for conducting ongoing tactical risk management in line with the approved strategy, including exposure analyses and reporting. (a) Market risk (i) Currency risk The Group operates internationally and is exposed to currency risk in multiple currencies, in particular, EUR, USD and GBP. Currency risk arises from future ticket sales as well as recognised assets or liabilities. In addition, the bunker oil cost is quoted in USD. Currency risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency which is not the entity s functional currency. The Group s policy is to hedge up to 80 per cent of expected cash flows in EUR and GBP for up to the next 18 months, using transparent and liquid financial derivatives, normally futures contracts combined with options. For 2014 hedges have been made on around 75 per cent of expected cash flows in EUR and on around 60 per cent of expected cash flows in GBP. The price of oil, and thus bunker fuel, is internationally traded in USD, while the Group purchases bunker fuel in NOK. The risk can therefore be split into a currency element and a product element. The currency element is partially aligned with the Group s cash flow exposure in USD, and the product risk is hedged separately. Kystruten KS and Kirberg Shipping KS are consolidated in accordance with IFRS 10, Consolidated Financial Statements. Kystruten KS has portions of its debt in EUR and USD. The Group is therefore exposed to currency risk when paying interest and converting this debt to NOK. The debt in EUR and USD is partially hedged through the Group s net revenues in these currencies. Kirberg Shipping KS redeemed all its bank loans in August 2013, in the process significantly reducing foreign currency risk on the translation of liabilities in the KSs. The Group has some investments in foreign subsidiaries whose net assets are exposed to currency translation risk. The table below shows the Group s sensitivity to potential changes in the exchange rate for NOK against relevant currencies in relation to the exchange rate as of 31 December, with all other variables held constant. Changes mainly relate to foreign exchange gains/losses on translation of financial derivatives, borrowings, trade and other receivables, trade and other payables and cash and cash equivalents and other investments. Effect on net profit/loss after tax Effekt on equity (in NOK million) Change EUR/NOK 5% (12,4) (5,3) (5,6) (6,5) Change USD/NOK 5% 1,4 (2,6) 0,2 (2,2) Change GBP/NOK 5% (2,8) 3,6 3,0 3,2 Change AUD/NOK 5% 0,8 0,7 0,8 0,7 The calculations assume that the NOK depreciates by 5 per cent against the relevant currencies. With an equivalent appreciation of the NOK, the amounts would have an equal and opposite value. The effect on equity is different to the effect on profit/loss due to the fact that the foreign exchange and bunker derivatives are recognised as hedges, with related changes in value being recognised directly in equity. 39

70 Hurtigruten Group (ii) Price risk The Group is exposed to bunker fuel price risk, and the board of directors has approved a strategy of quarterly rolling hedges of per cent of estimated future consumption for one to six future quarters, where the Group hedges a larger share of consumption in the near future and a smaller share further ahead. In addition, the Group has a stoploss strategy where it attempts to hedge the unhedged amount if the price of oil rises above a predefined threshold. Hedges are made in the forward market on 87 per cent of expected bunker consumption for 2014, distributed with a higher proportion in the coming quarters, and a lower proportion towards the end of the year. The table below shows the Group s sensitivity to potential price increases of bunker fuel, with all other variables held constant. Effect on net profit/loss after tax Effekt on equity (in NOK million) Change bunker price 20% (15,0) (20,0) 6,6 28,0 These calculations are based on the average unhedged bunker volume, and indicate how an increase of 20 per cent in bunker prices would have had an impact on the 2013 and 2014 financial statements. The effect on equity is different to the effect on the income statement because these forward hedges fulfil the requirements for hedge accounting, and unrealised changes in value are recognised directly in equity. (iii) Cash flow and fair-value interest rate risk The Group s interest rate risk is associated with current and non-current borrowings. Loans subject to a variable interest rate present a risk to the Group s overall cash flow. Fixed interest rates expose the Group to fair-value interest rate risk. Over the course of 2013 and 2014, the Group s loans at variable interest rates were mainly in NOK. A portion of the loans assumed by Kystruten KS (SPE) and Kirberg Shipping KS (SPE) are in EUR and USD. The Group manages its variable interest rate risk through variable-to-fixed interest rate swaps. Interest rate swaps involve converting loans with variable interest rates to fixed-interest loans. Through interest rate swaps, the Group enters into contracts with other parties to swap the difference between the contract s fixed interest rate and the amount of the variable interest rate calculated on the agreed principal. In connection with the refinancing of the company s long-term debt in March 2012 a new strategy was adopted for hedging interest, under which per cent of the Group s total exposure is to be hedged. Non-amortising interest rate swaps have been entered into corresponding to 58 per cent of the Group s total debt on refinancing. As of 31 December 2013 around 60 per cent of the company s total debt was hedged. In connection with the refinancing of the company's debt in 2015, at the end of 2014 the board decided to terminate the current hedging transactions. Therefore, as of 31 December 2014, the company ceased hedging interest rate swaps. The table below shows the Group s sensitivity to potential changes in interest rate levels, with all other variables held constant. These calculations take all interest-bearing instruments and associated derivatives into consideration. Effect on net profit/loss after tax Effekt on equity (in NOK million) Change in interest rate level with +50 basis points (3,1) (4,4) 3,3 2,0 An increase of 0.5 per cent in the variable interest rate would increase the Group s interest expenses by approximately NOK 3.1 million after tax (NOK 4.4 million). Equity would have been NOK 3.3 million higher (NOK 2.0 million higher) as a result of the change in the fair value of interest rate swaps. (b) Credit risk The Group has no significant concentration of credit risk. Sales to end users are settled in cash or with recognised credit cards. Sales to external agents are made either through prepayment/credit cards or through invoicing. The Group has routines to ensure that credit is only extended to agents with a satisfactory credit rating. Individual risk exposure limits are set based on internal and external assessments of credit ratings. The counterparties to the derivative contracts and cash transactions are limited to financial institutions with high credit ratings. The Group has routines that limit exposure to credit risk relating to individual financial institutions. (c) Liquidity risk Liquidity risk management includes maintaining a sufficient level of liquid assets geared to operational and investment plans, and ensuring the availability of sufficient funding from committed credit facilities. The Group has a group account that ensures that part of the Group s unrestricted liquidity is available to the parent company, and which also optimises availability and flexibility in liquidity management. The Group s finance function has overall responsibility for managing the Group s liquidity risk. Rolling liquidity forecasts are prepared in order to ensure that the Group has sufficient liquidity reserves to satisfy the Group s obligations and financial loan covenants. The financial statements for 2014 were extensively impacted by non-recurring negative effects relating to the change in ownership structure and imminent refinancing due at the start of Based on underlying operations, the financial statements show that Hurtigruten successfully established a platform for future profitability in 2013 and The efficiency improvement programme that was implemented in December 2012 has radically changed the company and 40

71 Hurtigruten Group Group. By the reporting date the programme had contributed annual results improvements of NOK 96.5 million, primarily through cost reductions. The final phase of the programme is currently underway and is intended to generate further results improvements, both through increased on-board sales and cost-reducing measures. Reduced expenses and higher revenues from the extensive efficiency-improvement programme and encouraging advance bookings will all help to ensure that the company is able to service its future financial obligations. The table below outlines the maturity of the Group s financial liabilities. (in NOK 1000) Under one year One to three years Three to five years More than five years 31. December 2014 Bank loans Bond loans Trade payables and other current liabilities Total December 2013 Bank loans Bond loans Trade payables and other current liabilities Total The existing long-term loan with a bank syndicate, contained a change of control motion relating to the company's ownership. As a result of the company acquiring new owners at the end of 2014, the entire principal amount matured. Consequently, this long-term bank and bond loan was reclassified to current liabilities as of 31 December As stated in Note 3C, the company had already secured new long-term financing, with the result that the new loan taken out in the first quarter of 2015 was of a non-current nature. The following table specifies the Group s derivatives classified according to maturity. Items are classified in accordance with the maturity date in the contract; however, adjusted for the maturity date as a result of the termination as described above. Please refer to Note 3C for further information. Forward exchange contracts are settled gross, while interest rate swaps and forward contracts for bunker fuel are settled net. The amounts in the table are undiscounted cash flows. (in NOK 1000) Under one year One to three years Three to five years More than five years 31. December 2014 Forward exchange contracts - hedges - outflow ( ) inflow Interest rate swaps - terminated cash flow hedges - outflow (82 004) inflow Futures contracts bunker oil - hedges - outflow ( ) inflow December 2013 Valutaterminkontrakter - hedges - outflow ( ) ( ) inflow Interest rate swaps - hedges - outflow (23 816) (46 685) (6 710) - - inflow Futures contracts bunker oil - hedges - outflow inflow The company's asset management The Group s long-term goal for asset management is to ensure continued operations, and thereby secure future dividends for shareholders. A further goal is to maintain an optimal capital structure, and thereby reduce the Group s capital costs. There was no significant change in the Group s asset management from 2013 to The change in ownership could result in major changes in the Group's long-term goals for asset management, including investment propensity and financing. The board has started work on the above, but has not yet established a new strategy in this area. In order to maintain and improve the capital structure, the Group has no plans for declaring dividends or repaying capital to shareholders over the short term. In recent years the Group has prioritised divesting non-core activities. As stated in Note 3C, in 2015 there was a full refinancing of the company and the company received a capital injection of NOK 300 million. 41

72 Hurtigruten Group The Group monitors capital structure on the basis of, inter alia, the equity ratio. The above ratio is calculated as equity divided by total assets, and as of 31 December 2014 amounted to 15.2 per cent (22.5 per cent). 42

73 Hurtigruten Group Note 5 Contingencies As of 31 December 2014, the Group had contingent liabilities relating to bank guarantees and other guarantees, in addition to other matters in the course of ordinary operations. No significant liabilities are expected to arise with respect to contingencies with the exception of the provisions that have already been provided for in the financial statements (Note 20). Membership of the NOx Fund Hurtigruten AS is a member of the Confederation of Norwegian Enterprise s (NHO) NOx Fund. The main objective of the Environmental Agreement concerning reductions of NOx and the NHO s NOx Fund is to reduce emissions of nitrogen oxide. The Fund is a joint venture to which affiliated businesses can apply for support for emission-reducing measures. Payment to the Fund replaces the nitrogen oxide tax for affiliated businesses. The Environmental Agreement for was signed on 14 December 2010 by 15 industry organisations and the Ministry of the Environment and was approved by EFTA's Monitoring Body (ESA) on 19 May The Fund has reported that the targets for 2011, 2012 and 2013 were satisfied. The Norwegian Environment Agency monitors whether individual reduction targets have been achieved. Deviations of more than 10 per cent of reduction targets trigger a collective fine, under which businesses must pay the nitrogen oxide tax for the pro rata share of the target that has not been satisfied. However, the businesses will never pay more than the official government rate for nitrogen oxide tax. NOK 15.2 million in nitrogen dioxide tax was recognised in Hurtigruten s consolidated financial statements for 2014 (NOK 15.5 million). Dispute with Stranda Hamnevesen port authority In summer 2013 Stranda Hamnevesen instigated legal proceedings against Hurtigruten AS concerning non-payment of passenger handling and harbour-related fees in the total amount of NOK 4 million. On 6 January 2014 Sunnmøre District Court ruled that Stranda could not claim either docking fees or passenger-handling fees from Hurtigruten for 2012 and The ruling was appealed and the review was heard before the Court of Appeal and a final ruling issued on 26 November The ruling went in favour of Hurtigruten in all points. The ruling established that Stranda Hamnevesen had demanded unreasonable and arbitrary million fees from Hurtigruten. The ruling is not legally enforceable as Stranda Hamnevesen has appealed the case to the Supreme Court. The Supreme Court's review committee has announced that the case will be heard before the Supreme Court. Harbour costs in Hurtigruten's consolidated financial statements for 2013 were reduced by NOK 3.7 million following the District Court's ruling. 43

74 Hurtigruten Group Note 6 Segment information (a) Primary reporting format operating segments (product areas) The operating segments are identified based on the same reporting that Group management and the board apply to their evaluations of performance and profitability at a strategic level. The company s ultimate decision-maker, which is responsible for allocation of resources to and assessment of earnings generated by the operating segments, is defined as the board and Group management. The classification is broken down into the product areas Hurtigruten Norwegian Coast, MS Fram, and Spitsbergen. Activities that do not naturally fall within these three segments are bundled in Other business. (in NOK 1 000) Operating revenues (8 656) (17 068) Contractual revenues (Note 23) Total operating revenues (8 656) (17 068) Payroll costs ( ) ( ) (49 551) (41 326) (55 171) (52 016) ( ) ( ) Depreciation and impairment losses ( ) ( ) (25 759) (9 721) (10 607) (33 280) (41 204) - - ( ) ( ) Other operating costs ( ) ( ) ( ) ( ) ( ) (96 237) (512) (5 417) ( ) ( ) Other (losses)/gains net (94 049) (51 582) (93 487) (42 571) Operating profit/(loss) (31 033) (29 647) Finance expenses net ( ) ( ) (48 186) (32 763) (11 118) (4 629) - - ( ) ( ) Share of profit/(loss) of associates (64) Profit/(loss) before tax from continuing operations ( ) (50 173) (42 216) (23 912) - - ( ) Profit/(loss) before tax from discontinued operations (Note 7) (14 834) (14 834) Profit/(loss) before tax ( ) (50 173) (27 276) (38 746) - - ( ) Segment profit/(loss) Hurtigruten Norwegian Coast MS Fram Spitsbergen Other business Eliminations Hurtigruten Group Operating profit/(loss) before depreciation, amortisation and impairment losses (EBITDA) The reporting of segment assets and liabilities is not part of the internal management reporting in the Group. Material assets and liabilities are monitored at Group level, and individual key figures (e.g. trade receivables) are valued in the individual legal companies. Segment assets and liabilities are therefore not presented. Hurtigruten Norwegian Coast This product area comprises the company s operation of the Bergen to Kirkenes coastal service in accordance with the contract with the Norwegian government represented by the Ministry of Transport and Communications. This service is operated using 11 ships with daily calls to 34 ports between Bergen and Kirkenes. Although transport represents the greatest portion of the service, the cargo service is also substantial. MS Fram This product area includes the cruise activities in Polar waters Antarctica, Svalbard, Greenland and cruises between Antarctica and the Arctic. The cruises are operated by MS Fram, which was custom-built to operate in Polar waters. Spitsbergen The Spitsbergen product area includes Arctic adventure tourism on Svalbard. Activities in Svalbard are organised under the Spitsbergen Travel Group, a wholly owned subsidiary of Hurtigruten AS. The activities include overnight accommodation in the company s two hotels and one guest house, catering business, and excursions and expeditions. Other business The area includes the company s two fast ferries that were sold in March 2014, a minor portfolio of properties and smaller activities that cannot naturally be classified in the other areas. The Group s activities that are classified as discontinued are included in Other business. The Group's bus business was classified as held-for-sale and a discontinued operation as of 31 December In a stock market notification on 8 July Hurtigruten announced that it had entered into an agreement with Boreal Transport Nord AS to transfer Hurtigruten AS's 71.3 per cent shareholding in AS TIRB, which operates the bus business through Cominor AS. The sale was implemented on 4 September Eliminations Eliminations in 2013 and 2014 primarily consisted of the subsidiary Cominor AS s excursions for Hurtigruten. (b) Secondary reporting format geographical segments Operating revenues cannot be reliably allocated to separate geographical segments. Group management only monitors geographical segments for selected areas of consolidated sales. 44

75 Hurtigruten Group Note 7 Disposal groups held-for-sale and discontinued operations The Group's bus business was classified as a discontinued operation at the reporting date. In a stock market notification on 8 July Hurtigruten announced that it had entered into an agreement with Boreal Transport Nord AS to transfer Hurtigruten AS' 71.3 per cent shareholding in AS TIRB which operates the bus business through Cominor AS. The sale was implemented on 4 September The Group's bus business was recognised in the balance sheet as held for sale as of 31 December Assets in the disposal group classified as held-for-sale (in NOK 1 000) Property, plant and equipment (Note 8) Shares in associates (Note 10) Deferred income tax assets (Note 18) Total non-current receivables and investments (Note 12) Inventories (Note 13) Trade and other receivables (Note 12) Cash and cash equivalents (Note 14) Total assets Liabilities in the disposal group classified as held-for-sale (in NOK 1 000) Borrowings (Note 17) Derivative financial instruments (Note 11) Pension liabilities (Note 19) Trade payables and other current payables ( Note 22) Borrowings (Note 17) Total liabilities Profit/loss from discontinued operations (in NOK 1 000) Operating revenues (Note 23) Payroll costs (Note 24) (60 618) (93 786) Depreciation, amortisation and impairment losses (16 687) (32 324) Other operating costs (Note 26) (51 326) (70 441) Other (losses)/gains net (Note 27) Operating profit/(loss) (10 017) Finance income (Note 28) Finance expenses (Note 28) (4 596) (3 220) Finance expenses net (4 200) (1 827) Share of profit/(loss) of associates (Note 10) - (2 990) Profit/(loss) before tax (14 834) Income tax expense (Note 18) (4 808) Net profit/(loss) for the year (11 589) Net cash flow from discontinued operations (in NOK 1 000) Net cash flow from operating activities Net cash flow from investing activities (25 935) (8 875) Net cash flow from financing activities (4 850) (14 088) Total net cash flow (17 900)

76 Hurtigruten Group Note 8 Property, plant and equipment (in NOK 1 000) Land and buildings Ships Other property, plant and equipment Total 2013 financial year Book value as of 1 January Additions Disposals (13 786) (7 832) Depreciation (5 939) ( ) (35 768) ( ) Impairment losses (570) (13 996) Of which operating assets held-for-sale (Note 7) (11 952) - ( ) ( ) Book value as of 31 December As of 31 December 2013 Cost Accumulated amortisation and impairment losses (95 327) ( ) ( ) ( ) Of which operating assets held-for-sale (Note 7) (11 952) - ( ) ( ) Book value as of 31 December accounting year Book value as of 1 January Book value 1 January 2014 operating assets classified as held-forsale (Note 7) Additions Disposals (11 269) (43 141) ( ) ( ) Depreciation (5 428) ( ) (23 611) ( ) Book value as of 31 December As of 31 December 2014 Cost Accumulated amortisation and impairment losses ( ) ( ) ( ) ( ) Book value as of 31 December Indications of potential impairments in ships are assessed each quarter. An impairment test is carried out where indications of impairment are found to exist. The impairment test of the ships used for the Norwegian coastal service and for MS Fram for 31 December 2014 revealed the ships' respective recoverable values were higher than their book values. The assumptions applied in the impairment test have not materially changed. The Group's two remaining fast ferries were sold in The Group's bus business was classified as held-for-sale as of 31 December The sale was implemented on 4 September Please refer to Note 7 for further information. The following impairment losses and impairment loss reversals were recognised in 2013: An impairment loss of NOK 100 million was recognised in 2008 to reflect the expected fair value of the Explorer ship MS Fram. As a result of improved earnings and a healthy order book at the start of 2014, the impairment loss was reversed in its entirety as of 31 December The reversal was based on a value-in-use calculation for the Explorer segment. A discount rate of 9.3 per cent was used to determine the value-in-use calculation. After adjusting for amortisation for the period, the reversal of the net impairment loss amounts to NOK 78 million. The Group's two remaining fast ferries were sold in 2014, and 7.5 NOK million of previous impairment losses were therefore reversed as of 31 December 2013 to reflect fair value. The bus business recognised an impairment loss of NOK 5 million as a result of the loss of a driving contract for the Norwegian Armed Forces. Following ANS Havnebygningen's sale of the building where the company hired business premises in Tromsø, an impairment loss of NOK 9 million was recognised in respect of the upgrading of the premises in the consolidated financial statements. Leases In parts of 2013 the Group leased office premises and another building from the subsidiary HRG Eiendom AS, along with office premises from the associate ANS Havnebygningen. As part of the company's efficiency-improvement and reorganisation measures implemented in 2013 both an office building and a residence in HRG Eiendom AS were sold during The commercial building owned by ANS Havnebygningen was also sold. Consequently, the Group gradually started to lease a greater share of premises from external companies during 2013, and with full effect from The parent company and subsidiaries also incur external lease costs relating to premises. The parent company s charter of Hurtigruten ships has been eliminated in the consolidated financial statements (sale-leaseback agreement with two limited partnerships). Please see Note 20 concerning the details of this agreement. Furthermore, the parent company and subsidiaries have external costs related to the leasing of other equipment and means of transport. These are operating leases. 46

77 Hurtigruten Group Total leasing costs related to the above comprise (in NOK 1 000) Rent for premises Lease charges for other property, plant and equipment Total leasing costs

78 Hurtigruten Group Note 9 Intangible assets (in NOK 1 000) Goodwill Other intangible assets Total 2013 accounting year Book value as of 1 January Additions Depreciation - (27 712) (27 712) Impairment losses - (1 500) (1 500) Book value as of 31 December As of 31 December 2013 Cost Accumulated amortisation and impairment losses ( ) ( ) ( ) Book value as of 31 December accounting year Book value as of 1 January Additions Disposals Amortisation - (37 506) (37 506) Impairment losses - (471) (471) Book value as of 31 December As of 31 December 2014 Cost Accumulated amortisation and impairment losses ( ) ( ) ( ) Book value as of 31 December Goodwill has arisen in connection with business acquisitions. Other intangible assets primarily comprise capitalised development expenses related to ICT systems (booking, inventories, etc.) with a limited lifespan. The assets are amortised on a straight-line basis over 3 10 years. Amortisation is presented under amortisation in the financial statements. Impairment losses in 2014 relate to ICT systems that have been replaced. Goodwill relates to the following cash-generating unit (in NOK 1 000) Spitsbergen The recoverable amount of a cash-generating unit is calculated on the basis of budgets and liquidity forecasts for the units approved by management. Assumptions applied when calculating the recoverable amount Spitsbergen (in NOK 1000 unless otherwise indicated) Growth rate from ,0 % Discount rate before tax 8,9 % The recoverable amount has been recalculated based on budgeted EBITDA for The forecast period is five years. Subsequently the terminal value is used. 48

79 Hurtigruten Group Note 10 Investments in associates Group investments recognised in accordance with the equity method are specified below. All the companies only have ordinary shares and are not listed. Company Registered office Shareholding 2014 Green Dog Svalbard AS Svalbard 50,0 % 2013 Senja Rutebil AS Vangsvik, Norway 49,3 % ANS Havnebygningen Tromsø, Norway 50,0 % Green Dog Svalbard AS Longyerbyen, Svalbard 50,0 % Green Dog Svalbard AS offers dog-related activities on Svalbard. These include dog sleigh rides, overnight trips with teams of dogs and similar. Senja Rutebil AS has no connection with the Group, other than TIRB AS's shareholding in the company. Hurtigruten AS sold its shareholding in TIRB AS in ANS Havnebygningen owned and leased out the building in which the company previously hired offices in Tromsø. ANS Havnebygningen was wound up in Abridged financial information for associates The table below shows abridged financial information for Senja Rutebil AS, ANS Havnebygningen and Green Dog Svalbard AS, which are recognised in accordance with the equity method. The table shows the accounting results of the associates, and not the Hurtigruten Group's share of these results. Abridged balance sheet Senja Rutebil AS Havnebygningen Svalbard AS Total (in NOK 1 000) Current items Cash and cash equivalents Other current assets Total current assets Other current liabilities (incl. trade payables) - (1 001) - (236) (1 271) (907) (1 271) (2 144) Total current liabilities - (1 001) - (236) (1 271) (907) (1 271) (2 144) Non-current items Non-current assets Total non-current assets Financial liabilities (489) (489) Other liabilities - (218) - - (1 275) (2 241) (1 275) (2 458) Total non-current liabilities - (218) - (489) (1 275) (2 241) (1 275) (2 948) Net assets Abridged income statement Senja Rutebil AS Havnebygningen Svalbard AS Total (in NOK 1 000) Operating revenues Depreciation, amortisation and impairment losses - (1 357) - (832) (307) (254) (307) (2 443) Interest income Interest expenses - - (3) (45) (75) (26) (78) (71) Profit/loss from discontinued operations - (9 900) (236) (1 602) (5 506) (4 274) (5 742) (15 776) Income tax - - (438) (191) (438) (191) Profit/loss from continuing operations after tax - (2 259) (128) Comprehensive income - (2 259) (128) Dividend payment received from associate - - (22 979) (22 979) - 49

80 Hurtigruten Group Reconciliation with financial statements Senja Rutebil AS Havnebygningen Svalbard AS Total (in NOK 1 000) Net assets as of 1 January (13) Profit/loss - (2 259) (128) Dividend payment received from associate - - (22 979) (22 979) - Net assets as of 31 December The Group's share of net assets Goodwill Impairment losses - (852) - (13 671) (14 523) Disposals (3 008) - (14 732) (17 740) - Of which shares in associates classified as heldfor-sale (Note 7) - (2 640) (2 640) Amount recognised in balance sheet

81 Hurtigruten Group Note 11A Financial instruments by category The following principles have been applied for the subsequent measurement of financial assets and liabilities As of 31 December 2014 (in NOK 1 000) Loans and receivables Held for trading purposes Derivatives used for hedging Other financial liabilities Total Financial assets non-current Non-current receivables (Note 12) Shares in other companies (Note 12) Financial assets current Trade and other receivables (Note 12) Derivative financial instruments (Note 11C) Cash and cash equivalents (Note 14) Financial liabilities non-current Borrowings (Note 17) Financial liabilities current Trade and other payables (Note 22) Borrowings (Note 17) Derivative financial instruments (Note 11C) As of 31 December 2013 (in NOK 1 000) receivables purposes for hedging liabilities Total Financial assets non-current Non-current receivables (Note 12) Shares in other companies (Note 12) (Note 7) - (1 105) - - (1 105) Financial assets current Trade and other receivables (Note 12) Derivative financial instruments (Note 11C) Cash and cash equivalents (Note 14) Of which trade and other receivables classified as held-forsale (Note 7) (11 099) (11 099) Of which cash and cash equivalents classified as held-for-sale (Note 7) (55 765) (55 765) Financial liabilities non-current Borrowings (Note 17) Derivative financial instruments (Note 11C) Of which borrowings classified as held-for-sale (Note 7) (26 058) (26 058) Of which derivative financial instruments classified as held-forsale (Note 7) - - (1 439) - (1 439) Financial liabilities current Trade and other payables (Note 22) Borrowings (Note 17) Derivative financial instruments (Note 11C) Of which borrowings classified as held-for-sale (Note 7) (8 901) (8 901) Assessment of fair value The level hierarchy used for the measurement of fair value is based on the following categories: - Listed price in an active market for an identical asset or liability (Level 1) - Valuation based on observable factors, either directly (price) or indirectly (derived from prices), other than listed price (used in Level 1) for the asset or liability (Level 2) - Valuation based on factors not obtained from observable markets (unobservable assumptions) (Level 3) 51

82 Hurtigruten Group The following table shows the Group s assets and liabilities measured at fair value as of 31 December 2014 (in NOK 1 000) Level 1 Level 2 Level 3 Total Assets Shares in other companies Non-current receivables Trade and other receivables Derivatives held for trading purposes Other securities Cash and cash equivalents Total assets Liabilities Trade and other payables Borrowings (Note 17) Derivatives used for hedging Derivatives held for trading purposes Total liabilities The following table shows the Group s assets and liabilities measured at fair value as of 31 December 2013 (in NOK 1 000) Level 1 Level 2 Level 3 Total Assets Shares in other companies Non-current receivables Trade and other receivables Derivatives used for hedging Other securities Cash and cash equivalents Total assets Liabilities Borrowings (Note 17) Trade and other payables Derivatives used for hedging Derivatives held for trading purposes Total liabilities There were no transfers between Level 1 and 2 or between Level 2 and Level 3 during the year. The fair value of financial instruments that are traded in active markets is based on the market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and these prices represent actual and regularly occurring market transactions on an arm s length basis. The market price used for financial assets is the current bid price, while for financial liabilities it is the current sales price. These instruments are included in Level 1 and comprise the fair value of some forward bunker oil contracts and other securities. The fair value of financial instruments that are not traded in an active market is determined by means of various valuation methods. The Group uses various methods and makes assumptions based on the prevailing market conditions at the balance sheet date. If all the significant data inputs that are required to determine the fair value of an instrument are observable data, then the instrument will be included in Level 2. This includes the fair value of forward foreign exchange contracts, foreign exchange options and interest rate swaps and some forward bunker oil contracts. If one or more of the significant data inputs are not based on observable market data, the instrument will be included in Level 3. The nominal value minus impairment losses for incurred losses on trade receivables and other current receivables, and the nominal value of trade and other current payables are assumed to approximate the items' fair value. The fair value of non-current receivables and non-current liabilities are estimated by discounting the cash flow by applying a discount rate that is based on market expectations of future variable interest terms or fixed interest rates. The discount rate for 2014 is 5 per cent (from 5 per cent to 10.1 per cent). Particular valuation methods that are used to assess financial instruments include: Quoted market or trading price for corresponding instruments. - Fair value of interest rate swap contracts is calculated as the present value of the estimated future cash flow based on the observable yield curve. Fair value of forward contracts in a foreign currency is calculated as the present value of the difference between the agreed forward price and the forward price at the balance sheet date multiplied by the contract volume in a foreign currency. The relevant interest rate at the balance sheet date is used for calculation of the present value. Other methods, such as discounted cash flows, are used to determine the fair value of the remaining financial instruments. 52

83 Hurtigruten Group Note 11B Creditworthiness of financial assets Hurtigruten does not have a system that distinguishes between trade receivables and other receivables based on the counterparty s creditworthiness. Hurtigruten has long-standing partners, and it follows up their creditworthiness through periodic reconciliation of the trade receivables ledger and credit monitoring. (in NOK 1 000) Trade and other receivables Counterparties without external credit rating Total trade and other receivables Cash at bank 11 AA A Without external credit rating Total cash at bank Cash and cash equivalents Total cash at bank and on hand ) The remainder of the cash and cash equivalents in the balance sheet is market-based investments Market-based investments A Total market-based investments Derivative financial instruments AA A Without external credit rating Total derivatives None of the financial assets have been renegotiated during the last accounting year. 53

84 Hurtigruten Group Note 11C Derivative financial instruments All derivatives designated as cash flow hedges are recognised at fair value in the balance sheet, while changes in fair value are adjusted in other comprehensive income, and recognised in the income statement when the hedged cash flow is recognised in the income statement. Change in fair value of forward exchange contracts held for trading purposes and bunker oil options held for trading purposes are classified as Other (losses)/gains. Fair value is calculated based on the mid-price set by the contract counterparty based on current prices in the market on the reporting date. The table below illustrates the fair value of derivatives designated as cash flow hedges and derivatives held for trading purposes (in NOK 1 000) Assets Liabilities Assets Liabilities Forward foreign exchange contracts cash flow hedging Foreign exchange options held for trading purposes Interest rate swaps - terminated cash flow hedges Forward bunker oil contracts cash flow hedging Bunker oil options for trading purposes Of which interest rate swaps held-for-sale (Note 7) (1 439) Total fair value derivatives Of which non-current Forward foreign exchange contracts cash flow hedging Interest rate swaps cash flow hedging Of which interest rate swaps held-for-sale (Note 7) (1 439) Total non-current Of which current Derivatives held for trading purposes are classified as current assets or liabilities. The entire fair value of hedging instruments is classified as a non-current asset or liability if the remaining maturity of the hedging object is more than 12 months, and as a current asset or current liability if the remaining maturity of the hedging object is less than 12 months. No ineffectiveness was recordable for any of the cash flow hedges in 2013 or However, in connection with the refinancing of Hurtigruten AS' liabilities, all interest-rate swaps are forward contracts. Gains and losses on interest-rate swaps that were previously recognised in other comprehensive income were reversed in the income statement as of 31 December With the exception of the forward contracts, the interest rate swaps continue to qualify for hedge accounting. a) Forward foreign exchange contracts The nominal amount of outstanding forward exchange rates as of 31 December 2014 was NOK 967 million (as of 31 December 2013: NOK 1,157 million) The hedged, highly probable transactions in foreign currency are expected to occur at various dates over the next nine months. The forward foreign exchange contracts satisfy the requirements for hedge accounting in accordance with IFRSs and the changes in fair value are adjusted in other comprehensive income. Gains and losses on the contracts that were recognised in income in other comprehensive income as of 31 December 2014 will be recognised in income in the same periods in which the hedged transactions affect the income statement. Realised gains and losses are recognised in Other (losses)/gains. In 2014 an amount of NOK 25.3 million in realised losses were allocated to Other (losses)/gains (NOK 20.8 million). (b) Interest rate swaps In connection with the refinancing of all Hurtigruten As' liabilities, all outstanding interest rate swaps were terminated. Please refer to Note 3C on Events after the end of the reporting period for more information. The nominal principal on outstanding interest rate swaps as of 31 December 2014 amounted to NOK 1,750 million. (as of 31 December 2013: NOK 1,785 million.) As of 31 December 2014 the fixed interest rate varied from 2.7 per cent to 3.1 per cent (as of 31 December 2013: from 2.7 per cent to 4.5 per cent). The variable interest rates were NIBOR. Gains and losses on interest rate swaps that were previously recognised in other comprehensive income have been reversed in the income statement as of 31 December 2014 in connection with the termination of the interest rate swaps. Losses in connection with the termination of interest rate swaps have been allocated to interest expenses and amounted to NOK 73.6 million as of 31 December In addition, in 2014 realised losses totalling NOK 23.3 million were allocated to interest expenses (NOK 31.4 million). 54

85 Hurtigruten Group (c) Oil derivatives The nominal amount of outstanding forward bunker oil contracts as of 31 December 2014 was NOK 141 million (as of 31 December 2013: NOK 266 million). The hedged, highly probable transactions are expected to occur at various dates over the next 12 months. The forward contracts mature monthly. Forward bunker oil contracts satisfy the requirements for hedge accounting under IFRSs and changes in the fair value are recognised on an ongoing basis in other comprehensive income. Gains or losses on oil derivatives recognised in other comprehensive income as of 31 December 2014 (Note 16), will be recognised in the income statement in the same accounting periods that the hedged transactions affect the profit or loss. Realised gains and losses are recognised in Other (losses)/gains. In 2014 a net amount of NOK 17.7 million was recognised in realised losses allocated to Other (losses)/gains (approximately NOK 0). Transfers to and from equity The table below illustrates the movements in equity related to cash flow hedges have occurred during the year. (in NOK 1 000) Fair value of cash flow hedging for foreign currency opening balance (45 390) - Change in value during the year recognised in other comprehensive income (37 135) (45 390) Fair value of cash flow hedging for foreign currency closing balance (82 525) (45 390) Fair value of cash flow hedging for interest rates opening balance (55 130) (68 763) Change in value during the year recognised in other comprehensive income Disposals of interest rate swaps held-for-sale (Note 7) Fair value of cash flow hedging for interest rates closing balance - (55 130) Fair value of cash flow hedging for bunker oil opening balance (13 065) Change in value during the year recognised in other comprehensive income (98 560) Fair value of cash flow hedging for bunker oil closing balance (85 628) Total fair value of cash flow hedging opening balance (87 588) (81 828) Total change in value during the year recognised in other comprehensive income (82 005) (5 760) Disposals of interest rate swaps held-for-sale (Note 7) Total fair value of cash flow hedging closing balance ( ) (87 588) 55

86 Hurtigruten Group Note 12 Receivables and other investments (in NOK 1 000) Trade receivables Less provision for impairment of trade receivables (9 845) ( ) Trade receivables net Other receivables Of which current receivables held-for-sale (Note 7) - (11 099) Total current receivables (Note 11) Pension assets (Note 19) Prepayments Shares in other companies (Note 11A) Other non-current receivables (Note 11A) Of which non-current receivables and investments held-for-sale (Note 7) - (1 105) Total current receivables and investments With regard to the specification of receivables from related parties, please see Note 30. Ageing of overdue trade receivables (in NOK 1 000) Up to three months Three to six months Over six months Of which overdue trade receivables held-for-sale (Note 7) - (865) Total ageing of overdue trade receivables Change in the provision for impairment of trade receivables (in NOK 1 000) Provision for impairment of receivables as of 1 January Provision for impairment of receivables during the year Receivables written off during the year ( ) 862 Reversal of unused amounts (1 208) (1 330) Of which provisions for impairment of trade receivables held-for-sale (Note 7) - (109) Total change in provision for losses on trade receivables Losses on receivables recognised during the year primarily related to NOK 108 million recognised in 2012, relating to the Supplementary Agreement with the Norwegian government following the ruling by the EFTA Court on the ESA case. The other classes of trade and other receivables do not contain any impaired assets. 56

87 Hurtigruten Group Note 13 Inventories Inventories consist of the following types of goods (in NOK 1 000) Goods purchased for resale Spare parts Bunkers and lubrication oil Of which inventories held-for-sale (Note 7) - (909) Total inventories The cost of goods sold included in other operating costs amounted to NOK 591 million (2013: NOK 500 million). The inventories were measured at cost in accordance with the FIFO principle. If the fair value is deemed to be lower than the cost price, then the inventories will be written down. 57

88 Hurtigruten Group Note 14 Cash and cash equivalents (in NOK 1 000) Cash at bank and on hand (Note 11A) Market-based investments 1 (Note 11A) Of which cash, cash on hand and market-based investments held-for-sale - (55 765) Cash at bank, cash on hand and market-based investments in the balance sheet Cash and cash equivalents in the cash flow statement consist of the following (in NOK 1 000) Cash at bank and on hand Market-based investments Restricted bank deposits 2 (70 181) (76 990) Cash and cash equivalents in the cash flow statement Market-based investments consist of the following items (in NOK 1 000) Securities held for trading purposes Other securities Total securities held for trading purposes ) Funds owned by a foreign subsidiary. 2) Restricted bank deposits primarily comprise tax withholding funds, pledged bank deposits and guarantees to limited partnerships. 58

89 Hurtigruten Group Note 15 Share capital and premium (in NOK 1000 unless otherwise indicated) Number of shares Nominal value of ordinary shares Share premium Treasury shares Total As of 1 January (293) Sale of treasury shares As of 31 December Hurtigruten AS sold treasury shares to Silk Bidco AS in December All ordinary shares have equal rights. The Annual General Meeting was held on 24 April 2014 and granted the company s board authorisation to acquire treasury shares. The general meeting adopted the following resolution: I. Pursuant to sections 9 4 and 9 5 of the Norwegian Public Limited Companies Act, the board of Hurtigruten AS is hereby authorised to acquire treasury shares for a maximum nominal value of NOK 42,025,916, which corresponds to 10 per cent of the share capital. The overall holdings of treasury shares shall not exceed 10 per cent of the company s share capital. The shares may be acquired on the market over an exchange or otherwise. II. For the acquisition of shares in Hurtigruten AS, a minimum of NOK 1 and maximum of NOK 10 shall be paid for each share with a nominal value of NOK 1. If there is a change in the nominal value of the shares, the limits for the acquisition of the shares shall be adjusted correspondingly. III. The board is free to determine how the acquisition and sale of treasury shares shall take place. IV. This authorisation shall remain in force until the company s Annual General Meeting in The board does not have any power of attorney to increase the company s share capital. 20 largest shareholders as of 31 December 2014 Number of shares Shareholding (%) Silk Bidco AS ,00 Total no. of shares ,00 Shares held by elected officers in Hurtigruten AS as of 31 December 2014 (direct and indirect) Corporate assembly The corporate assembly was disbanded at the Annual General Meeting on 24 April Number of shares Board of directors Trygve Hegnar, Chair Helene Jebsen Anker, Deputy Chair - Anastasia Ezhova - Jonathan Barlow Rosen - Petter Anker Stordalen Per-Helge Isaksen, employee representative - Regina Mari Aasli Paulsen, employee representative - Management Daniel A. Skjeldam, CEO - Asta Lassesen, CFO - Anne Marit Bjørnflaten, SVP, Corporate Communications - Oscar Engeli, SVP, ICT - Svein Taklo, SVP, Maritime Operations from 2 June - Thomas Westergaard, SVP, Hotel Operations from 24 March - Magnus Wrahme, SVP, Global Sales - Sigurd Bay, SVP, Pricing and Revenue Management until 24 March - Kjell Christoffersen, SVP, HR Development until 24 March - Tor Geir Engebretsen, Acting SVP, Maritime Operations until 2 June - Vidar Engen, SVP, Product and Marketing until 24 March - Erik Hansen, Interim CFO from 2 June until 10 November - Chris Hudson, SVP, Hotel Operations until 24 March - 1) Periscopus AS owns 5 per cent of the shares in Silk Topco AS, which indirectly owns 100 per cent of the shares in Silk Bidco AS. 2) Home Capital AS owns 5 per cent of the shares in Silk Topco AS, which indirectly owns 100 per cent of the shares in Silk Bidco AS. The company s auditor does not own any shares in Hurtigruten AS. 59

90 Hurtigruten Group 20 largest shareholders as of 31 December 2013 Number of shares Shareholding (%) Periscopus AS ,13 Heidenreich Enterprise L.P ,49 MP Pensjon PK ,70 Skagen Vekst ,39 Home Capital AS ,00 Nordkraft AS ,58 Dahle, Bjørn ,81 J.M. Hansen Invest AS ,02 Berg-Larsen, Alexander ,62 Alta Invest AS ,48 Odin Maritim ,48 Warrenwicklund Norge securities fund ,47 Netfonds Liv ,44 Flisa Eiendomsinvest ,42 Warbo AS ,40 Widnes, Odd-Ingar ,35 Holger Invest I AS ,33 Narvik Local Authority ,33 Suveren AS ,26 Troms County Council ,25 20 largest shareholders ,95 Other shareholders ,05 Total no. of shares ,00 1) Heidenreich Enterprise Partnership owns per cent and ML Pierce Fenner owns 3.11 per cent. Shares held by elected officers in Hurtigruten AS as of 31 December 2013 (direct and indirect) Corporate assembly Number of shares Westye Høegh, Chair Bjørn Dahle, Deputy Chair Karen M. Kuvaas 699 Fay Hege Fredriksen - Richard Sandnes - Ingolf Marifjæren Jon Tenden - Tor Zachariassen - Asbjørn Larsen, employee representative - Mette Fredrikke Indrevik, employee representative 200 Oddleif Engvik, employee representative Jonny Johnsen, employee representative - Randi Heggelund, observer 611 Egil Johansen, observer - Board of directors Trygve Hegnar, Chair Helene Jebsen Anker, Deputy Chair Berit Kjøll Arve Giske - Guri Mai Elmar - Petter Anker Stordalen Tone Mohn-Haukland, employee representative - Per-Helge Isaksen, employee representative - Management Daniel A. Skjeldam, CEO Asta Lassesen, CFO Sigurd Bay, SVP, Pricing and Revenue Management 8 April Anne Marit Bjørnflaten, Senior Vice President, Corporate Communications from 11 September Kjell Christoffersen, SVP, HR Development from 15 August Tor Geir Engebretsen, Acting Senior Vice President Maritime Operations from 28 October Oscar Engeli, Senior Vice President ICT from 16 September 2013 Vidar Engen, Senior Vice President Product & Marketing from 1 July Chris Hudson, SVP, Hotel Operations from 8 April Magnus Wrahme, SVP, Global Sales from 2 May Ole Fredrik Hienn, SVP, Legal Affairs until 8 April Hans Rood, SVP, Global Sales until 8 April Torkild Torkildsen, SVP, Corporate Social Responsibility until 1 November Dag-Arne Wensel, SVP, Maritime Operations until 28 October ) The shares are owned through the company Periscopus AS 2 The shares are owned through the company Home Capital AS The company s auditor does not own any shares in Hurtigruten AS. 60

91 Hurtigruten Group Earnings per share The earnings per share are calculated by dividing the portion of the net profit or loss for the year that is attributable to the owners of the parent by a weighted average of the number of ordinary shares throughout the year, less the number of treasury shares. (in NOK 1 000) Net profit or loss for the year attributable to the owners of the parent from continuing operations Profit or loss from discontinued operations attributable to the owners of the parent Net profit or loss for the year attributable to owners of the parent ( ) (8 263) ( ) Weighted average number of outstanding shares Diluted earnings per share Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares. Dividend per share No dividend was paid for 2013 and no dividend has been proposed for the 2014 financial year. 61

92 Hurtigruten Group Note 16 Other equity not recognised in the income statement (in NOK 1 000) Treasury shares Hedging reserve Currency translation differences Total Book value as of 1 January Cash flow hedging after tax 1 - (4 281) - (4 281) Currency translation differences Book value as of 1 January Cash flow hedging after tax 1 - (82 005) - (82 005) Currency translation differences - - (10 745) (10 745) Sale of treasury shares Book value as of 31 December (39 180) (24 047) 1) The increase in the deferred income tax asset during the year in Hurtigruten AS has not been recognised in the balance sheet 62

93 Hurtigruten Group Note 17 Borrowings In 2015 Hurtigruten AS refinanced its entire mortgage debt. We refer to Note 3C on Events after the end of the reporting period for more information. The Hurtigruten Group's loans at the year-end are discussed in further detail in Note 17. (in NOK 1 000) Non-current borrowings Bank borrowings Bond loan Of which non-current borrowings classified as held-for-sale (Note 7) - (26 058) Total borrowings Current borrowings Bank borrowings, including first year s instalments on non-current borrowings Of which current borrowings classified as held-for-sale (Note 7) - (8 901) Total current borrowings Total borrowings The existing long-term loan with a bank syndicate, see below, contained a "change of control" motion relating to the company's ownership. As a result of the company acquiring new owners at the end of 2014, the entire principal amount matured. Consequently, this long-term bank and bond loan was reclassified to current liabilities as of 31 December As stated in Note 3C, the company had already secured new long-term financing, with the result that the new loan taken out in the first quarter of 2015 was of a non-current nature. The Group s buildings, ships, chattels, operating equipment, inventories, trade receivables and some bank deposits have been pledged as collateral for bank borrowings. (in NOK 1 000) Book value of pledged assets Of which pledged assets classified as held-for-sale (Note 7) - ( ) Book value of pledged assets for continuing operations The Group is exposed to interest rate changes with respect to borrowings based on the following re-pricing structure (in NOK 1 000) Six months or less Six to twelve months One to five years Over five years Of which borrowings classified as held-for-sale (Note 7) - (34 959) Total Book value and fair value of borrowings Book value Fair value (in NOK 1 000) Current borrowings Non-current bank borrowings Bond loan Total The Group primarily borrows at variable interest rates, and interest rate swap contracts (swaps) are used for the portion of the borrowings that are to have a fixed interest rate, as dictated by the Group's hedging policy. For further information on the hedging instruments, see Note 11C (Derivative financial instruments). The fair value is based on discounting cash flows from borrowings by a discount rate based on the market s expectations of the future variable interest rates or the agreed fixed rate. The discount rate for 2014 is 5.0 per cent (5.0 per cent to 10.1 per cent). The fair value of reclassified bank loans and bond loans to current loans in 2014 corresponds to the redemption amount, which is the best estimate of the fair value. 63

94 Hurtigruten Group The book value of the Group s borrowings in different currencies is as follows (in NOK 1 000) NOK EUR USD Total borrowings The company sold its two remaining fast ferries in the middle of March In connection with the transfer, loans relating to the fast ferries of NOK 43 million were redeemed in The loans were included in their entirety in the first year's instalments on non-current liabilities in As of 31 December 2014 Hurtigruten AS had drawn down NOK 100 million on a short-term drawdown facility that was included in the first year's instalments on non-current liabilities. As of 31 December 2013 Hurtigruten AS had used a short-term drawdown facility of NOK 150 million. The facility was repaid in its entirety in June The loan was included in first year's instalments on non-current liabilities as of 31 December Hurtigruten AS' liabilities as of 31 December 2014 were incurred in connection with a refinancing in the first quarter of 2012, and the loan agreement with the banks was dated 7 March The agreement for a total of NOK 2.6 billion was with a bank syndicate consisting of eight banks, two of which were foreign banks. The term of the loan was five years with annual instalments of NOK 260 million, where the first instalment was due in September The financial covenants were as follows: Minimum working capital At the end of each quarter the Group s current assets including unused credit facilities shall be greater than the Group s current debt excluding the first year s instalments on non-current liabilities. Minimum liquidity holding The Group was obliged to maintain unrestricted liquidity of at least NOK 200 million over the term of the loan. Minimum fixed charge coverage ratio/liquidity holding At the end of each quarter the consolidated EBITDA excluding gains/losses on the sale of assets must be equal to or greater than the Group s annual debt obligations and dividend payments, or the Group s unrestricted liquidity including unused credit facilities must be a minimum of NOK 350 million. Minimum equity ratio The Group s equity ratio must be measured on 30 June and 31 December each year, and shall be 22.5 per cent up to 31 December Thereafter until the expiration of the agreement term the equity ratio requirement will increase to 25 per cent. The convertible bond loan issued by Hurtigruten AS is regarded as equity in relation to the loan agreement. As part of its refinancing in 2012, Hurtigruten AS issued an unsecured bond loan of NOK 500 million. The loan had a term of five years and one month and was irredeemable until its final maturity date in April The financial covenants were as follows: Maximum senior debt facilities ratio The Group s hedged debt shall be less than 65 per cent of the Group s total assets until 30 June This percentage will be reduced annually by 5 per cent from 1 July From 1 July 2015 to the expiration of the term of the agreement, hedged debt shall be lower than 50 per cent of total assets. Maximum leverage ratio The Group s interest bearing debt shall be less than 6.5 per cent of the consolidated EBITDA, excluding gains/losses on the sale of assets from 31 December This percentage shall be reduced annually by 0.5 per cent from 31 December Minimum liquidity holding The Group must maintain unrestricted liquidity of at least NOK 200 million over the term of the loan. Minimum working capital At the end of each quarter the Group s current assets including unused credit facilities shall be greater than the Group s current liabilities excluding the first year s instalments on non-current liabilities. 64

95 Hurtigruten Group Note 18 Income tax The income tax expense for the year can be broken down as follows (in NOK 1 000) Income tax payable (12 448) (4 984) Change in deferred income tax liabilities/assets (800) Tax effect sold subsidiary (4 808) - Change in income tax payable for previous years (recognised in income) Total income tax expense (9 839) (670) Of which income tax expense for discontinued operations (Note 7) (4 808) Total income tax expense for continuing operations (5 031) (3 915) Discontinued operations Income tax payable - - Change in deferred income tax liabilities/assets (4 808) Total income tax expense for discontinued operations (Note 7) (4 808) The tax on the Group s profit or loss before tax deviates from the amount that would have applied if the Group s weighted average tax rate had been used. The difference can be explained as follows: (in NOK 1 000) Profit/(loss) before tax from continuing and discontinued operations ( ) Estimated income tax expense based on the tax rates in the various countries and the respective results (4 684) Change in the income tax expense as a result of: non-taxable income non-tax-deductible costs (8 889) (12 338) income tax on profit or loss attributable to companies assessed as a partnership utilisation of tax loss carryforwards effect of change in tax rate - (6 062) unrecognised deferred income tax assets (72 776) income tax repayable miscellaneous items (foreign exchange differences, SPE) (2 347) (1 193) Income tax expense for continuing and discontinued operations (9 839) (670) Weighted average tax rate 28,76 % 17,95 % The change in the weighted average tax rate is attributable to a change in the profitability of the Group s subsidiaries abroad and on Svalbard. Income tax expense for items recognised in other comprehensive income (in NOK 1 000) Before tax Income tax expense After tax Before tax Income tax expense After tax Actuarial gains/losses pensions (31 111) (28 879) (11 443) (8 213) Cash flow hedging (82 005) - (82 005) (5 761) (4 148) Currency translation differences (10 745) - (10 745) Other comprehensive income ( ) ( ) (4 869) (26) DEFERRED INCOME TAX LIABILITIES Deferred income tax liabilities are recognised on a net basis if the differences that are reversible can be offset. All differences are reversed over a period of 12 months due to the fact that all the companies are assessed in arrears. The following amounts have been recognised on a net basis (in NOK 1 000) Deferred income tax assets Gross deferred income tax assets that reverse after more than 12 months ( ) ( ) Total deferred income tax assets ( ) ( ) Deferred income tax liabilities Gross deferred income tax liabilities that reverse after more than 12 months Total deferred income tax liabilities Net deferred income tax liabilities/assets ( ) ( ) Of which deferred tax liabilities/assets classified as discontinued operations (Note 7) Net deferred income tax liabilities/assets for continuing operations ( ) ( ) Change in recognised net deferred income tax liabilities Book value as of 1 January Recognised in the income statement during the period 376 (2 474) Tax on current financial assets recognised in other comprehensive income Tax on estimate deviations pensions recognised in other comprehensive income - (4 631) Book value as of 31 December Of which discontinued operations - - Book value continuing operations as of 31 December

96 Hurtigruten Group Change in book value of deferred income tax assets net Book value as of 1 January ( ) ( ) Recognised in the income statement during the period (7 745) Tax on current financial assets recognised in other comprehensive income - (1 793) Disposal of subsidiaries (467) - Tax on estimate deviations pensions recognised in other comprehensive income (2 232) Book value as of 31 December ( ) ( ) Of which discontinued operations Book value continuing operations as of 31 December ( ) ( ) Change in deferred income tax assets and liabilities Tax effect of tax-increasing temporary differences (in NOK 1 000) Non-current assets Other differences Total 1. januar Recognised in the income statement during the period (11 332) (6 315) Equity adjustments - (1 613) (1 613) 31. desember Recognised in the income statement during the period (7 794) Equity adjustments desember Tax effect of tax-reducing temporary differences (in NOK 1 000) Provisions Tax loss carryforward Current items Total 1. januar 2013 (6 697) ( ) (81 327) ( ) Recognised in the income statement during the period Equity adjustments (3 230) - - (3 230) 31. desember 2013 (8 590) ( ) (75 905) ( ) Recognised in the income statement during the period (7 268) (40 536) (15 560) Equity adjustments (2 232) - - (2 232) 31. desember 2014 (18 090) ( ) ( ) ( ) The deferred income tax assets relating to tax loss carryforwards are recognised in the balance sheet to the extent that the Group can utilise the tax loss carryforward against future taxable income. The Group has significant tax-increasing temporary differences relating to the same tax authority as the tax loss carryforward. In preparing the financial statements, management has found the future taxable income to be sufficient to utilise the recognised deferred income tax assets. This assessment has been made based on conservative management estimates of future profits in the Group, in which particular importance has been attached, for example, to the Group s procurement contract with the government in effect until 2019 inclusive, as well as the effects of the Group's partly completed and partly ongoing restructuring measures. On grounds of prudence the Group has elected not to recognise the deferred income tax asset relating to the tax loss for the year. Tax losses may be carried forward for an indefinite period in Norway. Tax loss carryforwards as of 31 December 2014 amounted to NOK 3,098 million (NOK 2,861 million). Deferred income tax liabilities recognised directly in equity during the year are as follows (in NOK 1 000) Tax on estimate deviations related to pension plans (2 232) (3 230) Tax on current financial assets recognised in equity - (1 614) Total deferred income tax liabilities recognised directly in equity during the year (2 232) (4 844) 66

97 Hurtigruten Group Note 19 Pensions The Group operates both defined contribution and defined benefit pension schemes. For the defined contribution plans the cost is equal to the contributions to the employees pension savings during the period. The future pensions are dependent on the size of the contributions and the return on the pension plan. The Group has defined benefit plans in Norway and Germany. For the Norwegian defined benefit plans, the employer is responsible for paying an agreed pension to the employee based on his/her final salary. Future defined benefits are mainly dependent on the number of contribution years, salary level upon reaching retirement age and the size of the National Insurance benefits. These obligations are covered through an insurance company. In addition to the pension obligations that are covered through insurance schemes, the company has unfunded pension obligations that are funded from operations, primarily for former key management personnel. Pension fund assets managed by insurance companies are regulated by local legislation and practice. The relationship between the company and the insurance company is regulated by applicable legislation. The boards of the insurance companies are responsible for managing the plans, including making investment decisions and determining premium levels. An agreed fixed sum per month is paid as a pension for the German pension plan, where most beneficiaries receive the same agreed amount, while three former directors receive a considerably higher payment. The German plan is organised as a CTA (contractual trust arrangement), where the plan assets are earmarked for the pension fund, but the company's management determine how the assets are to be invested. The new Contractual Early Retirement (AFP) Scheme Act adopted by the Norwegian Parliament in 2010 entailed the derecognition and recognition in the income statement of provisions related to the old contractual early retirement scheme. Provisions were set aside to cover the assumed underfunding of the old contractual early retirement scheme. The new AFP early retirement scheme is based on a tri-party collaboration between employer and employee organisations, and the government. The government covers one-third of the pension expenses for the early retirement scheme, while affiliated enterprises cover the remaining two-thirds. The scheme is recognised as a defined benefit multi-entity plan in the financial statements. This means that each individual company shall account for its proportional share of the scheme s pension obligations, plan assets and pension costs. Until reliable and consistent information is available for allocation, the new contractual early retirement scheme will be accounted for as a defined contribution plan. This is consistent with the Ministry of Finance's conclusion concerning the new AFP early retirement plan published in connection with the presentation of the Norwegian state budget on 14 October The only members of the scheme are the Group's onshore employees, of whom there were 213 as of 31 December On exit an annual pension is calculated based on per cent of annual pensionable income up to 7.1G from the age of 13 to 61. In 2014 the premium amounted to 2.2 per cent of salary between 1G and 7.1G; for 2015 the premium will be 2.4 per cent. A total of NOK 0.8 million was paid into the scheme in The established pension plans cover 1,390 Group employees. The pension costs for the period illustrate the agreed future pension entitlements earned by employees in the financial year. Financial assumptions Norway Discount rate 2,30 % 4,10 % Expected annual wage adjustment 2,75 % 3,75 % Expected annual pension adjustment 0,00 % 0,60 % Expected annual National Insurance basic amount (G) adjustment 2,50 % 3,50 % Table book used for estimating liabilities K2013 K2013 Table book used for estimating disabilities IR02 IR02 Germany Discount rate 2,00 % 3,10 % Expected annual wage adjustment N/A N/A Expected annual pension adjustment 1,90 % 1,90 % Expected annual National Insurance basic amount (G) adjustment N/A N/A Average expected years of service until retirement age 13.6 years 14.1 years Average expected life (in years) for a person retiring when he/she reaches age 67 Women 20.3 years 19.9 years Men 17.1 years 16.6 years Average expected life (in years) 20 years after the balance sheet date for a person retiring when he/she reaches age 67 Women 20.7 years 20.7 years Men 17.7 years 17.7 years Pension costs recognised in the income statement for the year are as follows (in NOK 1 000) Present value of accrued pension entitlements for the year Defined contribution plan Interest expenses (income) Discontinuation and plan changes (1 049) - Net pension costs funded from operations Payroll tax Total pension costs included in payroll costs (Note 24)

98 Hurtigruten Group Specification of net plan assets/obligations (in NOK 1 000) Present value of accrued pension liabilities as of 31 December for funded defined benefit plans Estimated fair value of plan assets as of 31 December Total Present value of pension obligations for unfunded plans Present value of pension obligations funded from operations Net pension obligations Of which classified as discontinued operations Net pension obligations for continuing operations Defined contribution plan assets Net plan assets/obligations are classified as follows in the balance sheet (in NOK 1 000) Other non-current receivables Pension obligations Assets held-for-sale Net pension obligations Change in the defined benefit pension obligations during the year (in NOK 1 000) Pension obligations as of 1 January Present value of accrued pension entitlements for the year Interest expenses Effect of recalculation: Changes in financial assumptions Changes in demographic assumptions Estimate deviations (4 434) (11 435) Currency translation differences obligations Discontinuation of pension plans (plan changes) (1 157) (14 982) Exits on sale of subsidiary ( ) - Pension benefits paid (13 861) (18 395) Change in payroll tax on net pension obligations (38) (671) Pension obligations as of 31 December Change in the fair value of the plan assets (in NOK 1 000) Fair value as of 1 January Return on plan assets Actual return on assets re interest income recognised in income statement 529 (3 241) Paid-up policies and disbursements due to discontinuation of plans (plan changes) - (14 724) Employer contributions Exits on sale of subsidiary (90 700) - Currency translation differences assets Pension benefits paid (9 328) (13 433) Fair value as of 31 December Composition of pension fund assets Shares 15,1 % 13,6 % Current bonds 13,2 % 20,3 % Money market 24,7 % 12,7 % Non-current bonds 33,5 % 37,0 % Property 11,8 % 11,1 % Other 1,6 % 5,3 % Total 100,0 % 100,0 % Actual return on plan assets Norway 4,40 % 3,81 % Actual return on plan assets Germany 10,70 % 2,80 % 68

99 Hurtigruten Group The geographical allocation of the obligations and plan assets for the defined benefit plans is as follows Norway Germany Total Norway Germany Total Present value of obligations Fair value of plan assets Net pension obligations (assets) Risk The Group is exposed to several risks through the defined benefit pension schemes, the most significant of which are as follows. Investment volatility The pension obligations are calculated using a discount rate based on the interest rate on bonds. If the investment in the pension fund assets provides a lower return than the bond interest rate, this gives rise to a deficit. All the plans comprise shares that are expected to give a higher return than interest on bonds over the long term, but which may, however, result in increased volatility and risk over the short term. As the pension plans' obligations mature, the target will be to reduce the share of risky investments to better match the obligations. Changes in interest rates on bonds A reduction in interest rates on bonds would increase the pension plans' obligations. However, this would be partially offset by an increase in the return on the investments in bonds. Inflation risk The defined benefit pension plans' obligations are exposed to inflation risk. An increase in inflation could result in higher obligations. The key assets of the pension plans are either unaffected by inflation (fixed-interest bonds) or loosely correlated with inflation (shares). A rise in inflation could therefore increase deficits in the plans. Life expectancy The payment obligation only applies to the remaining life expectancy of the plan beneficiaries. A rise in life expectancy would increase the plans' obligations. This is particularly important for the Norwegian plan, where the adjustment for inflation results in higher sensitivity to changes in life expectancy. A new mortality table, K2013, was introduced in 2013 to reflect the rising average life expectancy of the Norwegian population. The effect of the above is shown under changes in demographic assumptions under recalculations of the change in the pension obligation. Asset management A basic intention of asset management of plans organised through pension insurance companies is to secure cover of the non-current obligations by delivering a competitive annual return at least equal to the guaranteed interest rate. Asset management is based on a long-term arrangement of the investment portfolios, tailored to the company's long-term obligations. Norwegian legislation imposes restrictions on concentration risk in the investment of all plan assets. The investments are made in collective portfolios with cautious, moderate risk. The assets in the German plan are currently invested in a listed fund that is managed by a professional asset manager. The fund follows a multi-asset strategy with a conservative risk profile. The composition of the fund is regularly changed to accommodate optimal returns and risk management. At the reporting date fifty per cent of the assets were invested in shares in various markets. Consequently, these shares are exposed to risk attaching to the performance of global equity markets. While company management cannot influence the fund's investments, it may at any time elect to exit fund investments. (in NOK 1 000) The company s expected contributions to funded plans in the next year The average weighted term of the pension obligation is 27.6 years. Expected maturity date of pension schemes as of 31 December 2014 < 1 year 1-2 years 2-5 years >5 years Total Defined-benefit pension The Group has established mandatory occupational pension plans in the companies where this is required. These plans satisfy the requirements stipulated in the Norwegian Mandatory Occupational Pension Act. Table of the historical present values of pension obligations and assets as of 31 December (in NOK 1 000) Present value of defined benefit pension obligations Fair value of plan assets Deficit/(surplus)

100 Hurtigruten Group Sensitivity analysis for changes in the assumptions Norway Germany Discount rate Discount rate + 1 per cent 1 per cent + 1 per cent 1 per cent Increase (+) reduction ( ) in the net pension costs for the period (1 053) (72) 99 Increase (+) reduction ( ) in the net pension obligations as of 31 December (3 787) Pension adjustment Pension adjustment + 1 per cent 1 per cent + 1 per cent 1 per cent Increase (+) reduction ( ) in the net pension costs for the period (1 751) 45 (36) Increase (+) reduction ( ) in the net pension obligations as of 31 December (4 073) (5 142) Change in the annual salary growth + 1 per cent 1 per cent Increase (+) reduction ( ) in the net pension costs for the period (2 883) Increase (+) reduction ( ) in the net pension obligations as of 31 December (5 043) National Insurance basic amount (G) a + 1 per cent 1 per cent Increase (+) reduction ( ) in the net pension costs for the period (2 531) Increase (+) reduction ( ) in the net pension obligations as of 31 December (4 323) The sensitivity analysis above is based on a change in one of the assumptions, with all other assumptions remaining unchanged. In practice this would not happen as more than one assumption could vary simultaneously. The sensitivity calculation is performed applying the same method as the actuarial calculation used to determine the pension obligation in the balance sheet. The method and the assumptions in the sensitivity analysis have not been changed compared with the previous year. The Group only has one open defined benefit plan under which beneficiaries have entitlements. Consequently, this is the only plan affected by changes in annual salary growth and adjustments to G. 70

101 Hurtigruten Group Note 20 Provisions (in NOK 1 000) Deferred revenue recognition Restructuring Share-value-based remuneration Bonuses Total Book value as of 1 January Provisions for the year Utilisation of provisions from the prior year (167) (10 300) (1 035) - (11 502) Book value as of 31 December Provisions for the year Utilisation of provisions from the prior year (167) (167) Book value as of 31 December Classification in the balance sheet as of 31 December 2014 Non-current liabilities (deferred revenue recognition) Non-current liabilities continuing operations Current liabilities Current liabilities continuing operations Deferred revenue recognition A line-by-line recognition has been carried out with respect to the investment contribution received, including a possible repayment obligation. Revenue recognition of the investment contribution occurs in conjunction with depreciation and amortisation of the associated asset. NOK 167,000 was recognised in revenue during the year. The residual investment grants as of 31 December 2014 amounted to NOK 5 million. Restructuring A provision was recognised in 2012 for costs relating to function duplication and the closing and relocation of offices in connection with the adopted efficiencyimprovement programme covering the onshore organisation in Hurtigruten Pluss AS. This provision was utilised in its entirety in Share-value-based remuneration In connection with Silk Bidco AS' acquisition of Hurtigruten AS, the board decided to terminate all options allocated to the company's CEO, Group management and selected key personnel with cash settlement. A total of 15 million options were terminated in line with the individual option allocations and based on an offer price of NOK 7 per share. Please see Note 21 for further details on the option schemes. Bonuses A performance-related bonus was introduced for the company's management from The bonus scheme includes the CEO and some of Group management. See Note 25 for further information. Investment obligations The company had no contractual investments at the balance sheet date. Operating lease commitments Group company as lessee The Group leases an office in Tromsø, in addition to some other offices. These leases have varying payment dates, price adjustment clauses and renewal rights. The Group also leases machinery and transport equipment. Leasing costs for the year are specified in Note 8. The Group has no non-cancellable leases. The parent company entered into contracts in December 2002 and June 2003 to sell and charter back the Hurtigruten ships MS Richard With and MS Nordlys. These ships were sold to Kystruten KS and Kirberg Shipping KS, respectively, and chartered back for a period of 15 years with an option for an additional 5 years on market terms. For the first 15 years the charter hire payments consist of three components: fixed hire in NOK, fixed hire in USD/EUR and a variable element in USD/EUR. Kystruten KS and Kirberg Shipping KS are consolidated in accordance with IFRS 10, Consolidated Financial Statements. Recognised bareboat charter hire payments in the income statement of the parent company have thus been eliminated against charter hire income in the limited partnerships on consolidation. Hurtigruten AS will undertake and pay for the operation, insurance and all necessary ongoing maintenance of the ships. In the charter agreements between the limited partnerships and Hurtigruten AS, identical requirements (financial covenants) have been stipulated for Hurtigruten AS for the term of the agreements, which the company has as a component of its long-term loan agreements linked to ships (existing loans as of 31 December 2014). Please see Note 17 with regard to these financial covenants. The loan agreements with the limited partnerships were not part of the refinancing measures implemented in the first quarter of 2015, meaning that all the financial covenants attaching to existing financing as of 31 December 2014 were not satisfied. However, only Kystruten KS had a loan as of 31 December 2014, in the amount of NOK 41 million including the first year's instalments. In connection with the financial restructuring in February 2009, an agreement was reached with the limited partnerships Kystruten KS and Kirberg Shipping KS, which entailed that the instalment component of the charter hire under the charter-party agreement with the two limited partnerships would not be payable for the period up to 31 December The postponed instalments would, however, be added to the instalments that were paid in 2012 and 2013, thereby reverting to the original repayment plan in August An increase in the charter hire was also agreed to compensate for the increased costs incurred by the limited partnerships under their loan agreements because of the changes in the repayment profile. In addition, it was agreed that Hurtigruten s option to buy back MS Nordlys and MS Richard With would be cancelled. 71

102 Hurtigruten Group Note 21 Share-value-based remuneration An option scheme was offered to all the permanent employees of Hurtigruten AS and wholly owned subsidiaries who owned shares in Hurtigruten AS as of 31 December The market price was the average weighted value for December in the respective years. The average market price for the second half of 2010, which was NOK 4.01, was to be used as the basis for calculating gains. The number of shares as of 31 December 2010 was to be kept until the options are exercised. Any gains would be distributed as an extraordinary bonus without any right to holiday pay after the end of each year. The employees would have paid ordinary income tax on the gain. The average price in December 2013 was NOK 3.57, and thus there was no calculation of a gain or distributions for This option scheme expired on 31 December Hurtigruten AS entered into an option agreement that grants the CEO the right to acquire up to three million shares. The options may not be exercised for fewer than one million shares at a time. The options mature on 30 April In 2013 the board of Hurtigruten AS allocated 12 million share options to Group management and selected key personnel in the Hurtigruten Group. The share option scheme can be exercised for the first time in three years and no later than within four years. In connection with Silk Bidco AS' acquisition of Hurtigruten AS, the board decided to terminate all options allocated to the CEO, Group management and selected key personnel with cash settlement. A total of 15 million options were terminated in line with the individual option allocations and based on an offer price of NOK 7 per share. Movements in the number of outstanding share options and the associated weighted average exercise prices are as follows Average exercise price in NOK per share Options (in thousands) Average exercise price in NOK per share Options (in thousands) As of 1 January Allotment this year - - 4, Forfeited Exercised 7,00 (15 050) - - Expired - - 4,01 (1 350) As of 31 December 7,00-4, There were no outstanding options at the end of the year. The fair value is recognised as an expense under payroll costs over the vesting period. An amount of NOK 48.8 million was expensed in 2014 (NOK 0.3 million). 72

103 Hurtigruten Group Note 22 Trade and other current payables (in NOK 1 000) Trade payables Public duties payable Other current liabilities Of which trade and other current payables held-for-sale (Note 7) - (29 099) Total trade and other current payables See Note 30 for information on trade payables and other current payables due to related parties. 73

104 Hurtigruten Group Note 23 Operating revenues (in NOK 1 000) Operating revenues Contractual revenues Of which classified as discontinued operations (Note 7) ( ) ( ) Total operating revenues Operating revenues in 2013 includes the accounting effect of the insurance settlement relating to the repair of the MS Nordlys of NOK 14 million. Recognition of income from the insurance settlement is in accordance with IAS The extent of the Group s revenues relating to public procurement of services are as follows (in NOK 1 000) Revenues relating to public transport from Nordland County Council Revenues relating to public transport from the government Revenues relating to public transport from Troms County Council Revenues relating to the Bergen to Kirkenes coastal service from the government Of which classified as discontinued operations (Note 7) (81 445) ( ) Total contractual revenues Public procurement of services is related to the purchase of Hurtigruten services along the Norwegian coast and bus transport operations. The existing agreement with the Norwegian state through the Ministry of Transport and Communications entered into force as of 1 January 2012, and applies to the Bergen-Kirkenes route for the period

105 Hurtigruten Group Note 24 Payroll costs (in NOK 1 000) Payroll costs Wages and salaries Payroll tax Pension costs (Note 19) Other benefits in kind (Note 21) Of which payroll costs classified as discontinued operations (Note 7) (60 618) (93 786) Total payroll costs Average number of full-time equivalents

106 Hurtigruten Group Note 25 Remuneration Figures for 2014 (in NOK 1 000) Position Salary 1 Pension cost 1 Other remuneration 1,2 Loans Fees 1,3 Daniel A. Skjeldam CEO Asta Lassesen CFO Anne Marit Bjørnflaten 4 SVP, Corporate Communications Oscar Engeli SVP, ICT Svein Taklo SVP, Maritime Operations from 2 June Thomas Westergaard SVP, Hotel Operations from 24 March Magnus Wrahme SVP, Global Sales Sigurd Bay SVP, Pricing and Revenue Management until 24 March Kjell Christoffersen SVP, HR Development until 24 March Tor Geir Engebretsen 5 Acting SVP, Maritime Operations until 2 June Vidar Engen SVP, Product and Marketing until 24 March Erik Hansen 6 CFO from 2 June until 10 November Chris Hudson SVP, Hotel Operations until 24 March Trygve Hegnar Chair Helene Jebsen Anker Deputy Chair Anastasia Ezhova Director from 23 December Jonathan Barlow Rosen Director from 23 December Petter Anker Stordalen Director Guri Mai Elmar Director until 23 December Arve Giske Director until 23 December Berit Kjøll Director until 23 December Per-Helge Isaksen Director, employee representative Regina Mari Aaslid Paulsen Director, employee representative from 3 June Tone Mohn-Haukland Director, employee representative until 3 June Deputy members Observers Corporate assembly Auditor's fees statutory auditing Assistance IFRSs, accounting and tax Other certification services Auditor's fees other assistance 3, ) Salaries and other remuneration are paid from the management company Hurtigruten Pluss AS, except the employee representatives salaries, and board fees, which are paid by Hurtigruten AS. 2) Including the estimated cost associated with the share-based remuneration scheme, and severance benefits for outgoing managers. 3) Fees exclusive of Value Added Tax. 4) Bjørnflaten was hired from Mørland og Johnsen Analyse og Kommunikasjon AS until 30 April. 5) Engebretsen is a hired-in consultant who has held several temporary positions at Hurtigruten during the year. The fee is invoiced by DHT Corporate Services AS. 6) Hansen was hired from the consultancy firm Finance People AS. 7) Other consultancy from the auditor applies to due diligence in connection with the refinancing prospectus. The company s CEO receives an annual salary of NOK 4 million. Other benefits include fixed car remuneration and an ordinary telephone, Internet, newspaper and home PC allowance. The CEO also has a time-limited agreement on a performance-related bonus linked to the operating result before depreciation, amortisation and impairments, where performance is indexed against the adjusted operating result before depreciation, amortisation and impairments for The bonus agreement confers the right to a maximum of two bonus payments of up to a total of NOK 7.5 million in addition to holiday pay. The agreement expires in The payment of the bonus is contingent on the CEO still being in office at the end of the year to which the bonus relates. A provision of NOK 2.8 million has been recognised for this bonus agreement for The CEO is included in the company s ordinary defined contribution pension scheme for salaries up to 12G and the defined contribution scheme that provides a pension basis for salaries over 12G. The CEO s conditions of employment do not include any personal pension obligations. In connection with Silk Bidco AS' acquisition of Hurtigruten AS, the board decided to terminate all options allocated to management with cash settlement. A total of million options were terminated in connection with the individual option allocations and based on the offer price of NOK 7 per share. Management's income in connection with the termination of the option agreements are included in the item Other remuneration above. A performance-based bonus scheme was introduced for the company s management from The bonus payments are established applying pre-determined targets/parameters, some of which relate to the Group's overall performance and others to results within managers' individual spheres of responsibility. The maximum bonus for an individual manager is NOK 0.6 million. The bonus scheme covers some members of Group management, with the exception of the CEO. The CEO has a separate performance-related bonus scheme as described above. A provision of NOK 0.2 million was recognised for the bonus for This bonus is recognised in the item other remuneration above. Figures for 2013 (in NOK 1 000) Position Salary 3 Pension cost 3 Other remuneration 3,4 Loans Fees 3,6 Daniel A. Skjeldam CEO Asta Lassesen CFO Sigurd Bay SVP, Pricing and Revenue Management from 8 April Anne Marit Bjørnflaten 1 SVP, Corporate Communications from 11 September Kjell Christoffersen SVP, HR Development from 15 August Tor Geir Engebretsen 2 Acting SVP, Maritime Operations from 28 October Oscar Engeli SVP, ICT from 16 September Vidar Engen SVP, Product and Marketing from 1 July Chris Hudson SVP, Hotel Operations from 8 April Magnus Wrahme SVP, Global Sales from 2 May Ole Fredrik Hienn SVP, Legal Affairs until 8 April Hans Rood 55 SVP, Sales and Markets until 8 April Torkild Torkildsen SVP, Coroprate Social Responsibility until 1 November Dag-Arne Wensel SVP, Maritime Operations until 28 October Trygve Hegnar Chaiman Helene Jebsen Anker Deputy Chair Berit Kjøll Director Arve Giske Director Guri Mai Elmar Director Petter Anker Stordalen Director Tone Mohn-Haukland Director, employee representative Per-Helge Isaksen Director, employee representative Deputy members Corporate assembly Auditor's fees statutory auditing Assistance IFRSs, accounting and tax Other attestations Auditor's fees other assistance ) Bjørnflaten is a hired-in consultant from Mørland og Johnsen Analyse og Kommunikasjon AS. 2) Engebretsen is a hired-in consultant who has held several temporary positions at Hurtigruten during the year. The fee is invoiced by DHT Corporate Services AS. 3) Salaries and other remuneration are paid from the management company Hurtigruten Pluss AS, except the employee representatives salaries, and board fees, which are paid by Hurtigruten AS. 4) Including the estimated cost associated with the share-based remuneration scheme, and severance benefits for outgoing managers. 5) Rood s salary is partially paid in USD and translated to NOK. 6) Fees exclusive of Value Added Tax. 76

107 Statement on the determination of the salary and other remuneration for senior executives at Hurtigruten AS Guidelines for determining the remuneration of senior executives at Hurtigruten AS The following guidelines have been specified with effect from 18 February 2014: 1. Definitions 1.1 Senior executives include the chief executive and other senior executives; cf. Proposition no. 55 ( ), which refers to the provisions of the Norwegian Accounting Act and Public Limited Liability Companies Act concerning senior executives. 1.2 In these guidelines, a compensation scheme means a remuneration package comprising one or more of the following elements: Fixed salary, variable pay (bonuses, share-based programs, options, etc.) and other benefits (pension schemes, pay guarantee schemes, fringe benefits, and similar). 1.3 Severance pay refers here to compensation related to departure from the company and may involve a pay guarantee, other financial benefits and payments in kind. 2. Main principles for determining compensation schemes 2.1 Remuneration paid to senior executives at Hurtigruten AS will be competitive but not market-leading compared with similar companies. 2.2 The main element in a compensation scheme should be the fixed salary. 2.3 Compensation schemes shall be formulated to avoid unreasonable benefits arising as a result of external circumstances which the executive management cannot influence. 2.4 The individual elements in a pay package shall be assessed from an overarching perspective, with fixed salary, possible variable pay and other benefits such as pension schemes and severance pay viewed as a whole. The board of directors shall maintain an overview of the total value of each executive s agreed compensation. 2.5 Determining guidelines for the remuneration of senior executives is the responsibility of the entire board of directors. Remuneration of the Group s chief executive is determined by the board of directors. 2.6 The board of directors shall ensure that remuneration schemes for senior executives do not have unfortunate effects for the company or weaken its reputation. 2.7 Senior executives shall not receive special remuneration for serving as directors of wholly-owned subsidiaries in the same group. 2.8 Agreements entered into before these guidelines came into effect may continue. 3. Variable pay Any variable pay shall be based on the following principles: 3.1 A clear connection shall exist between the underlying goals for the variable pay and the company s objectives. 3.2 Variable pay shall be based on objective, definable and measurable criteria. 3.3 These criteria shall be based on conditions which the executive in question can influence. 3.4 Several relevant measurable criteria should be applied. 3.5 A variable pay scheme shall be transparent and clearly understandable. Identifying the anticipated and the maximum payment for each participant in the programme is important when explaining the scheme. 3.6 The scheme shall be of limited duration. 77

108 3.7 Total variable pay received in any year should not exceed six months of fixed salary, unless exceptional circumstances dictate otherwise. 4. Pension benefits 4.1 Pension terms shall be equivalent to those enjoyed by other employees in the company. 4.2 To the extent that a retirement age lower than the National Insurance retirement age of 67 years is agreed, it should generally not be lower than Agreements on pensions shall be based on the same years of pensionable service as for other comparable employees in the company. 4.4 Pension entitlements earned in other positions shall be taken into account. 4.5 Pension entitlements should not exceed 66 per cent of salary. Retiring at an age younger than 65 shall result in a lower pension entitlement. 4.6 The board of directors shall obtain an overview of the total cost of a pension agreement before it is entered into. 5. Severance pay 5.1 Severance pay can be agreed when a senior executive waives his/her right in advance to the employment protection provisions in the Norwegian Working Environment Act. Severance pay should not be provided in the event of voluntary resignation except in special circumstances. 5.2 Severance pay should not exceed 12 months fixed salary in addition to possible pay during the period of notice. 5.3 Should the person concerned be appointed to a new position or receive remuneration from an enterprise in which they are an active owner, severance pay should be reduced by a proportionate amount calculated on the basis of the person s new annual income. Such a reduction should not be made until the normal period of notice has expired. 5.4 Severance pay may be suspended if conditions exist which would have justified dismissal or if, during the severance period, irregularities or acts of negligence are discovered which might lead to compensation claims or to criminal charges against the person concerned. 78

109 Hurtigruten Group Note 26 Other operating costs (in NOK 1 000) Cost of goods sold Operating costs Sales and administrative costs Of which other operating costs classified as discontinued operations (Note 7) (51 326) (70 441) Total other operating costs

110 Hurtigruten Group Note 27 Other (losses)/gains net Other (losses)/gains consist of the following items (in NOK 1 000) Gain on the sale of property, plant and equipment Loss on the sale of property, plant and equipment - (691) Losses on derivative financial instruments (94 053) (51 958) Of which (losses)/gains classified as discontinued operations (Note 7) (14 717) - Total other (losses)/gains (93 487) (42 571) The gain on the sale of property, plant and equipment in 2014 primarily relates to the sale of property in the bus business. In connection with refinancing of the liabilities all the outstanding forward foreign exchange contracts and forward bunker contracts were terminated and settled. Losses on derivatives of NOK 94.1 million (NOK 52 million) comprise losses on forward foreign exchange contracts of NOK 82.6 million (NOK 45.2 million) and losses on forward bunker contracts of NOK 11.5 million (NOK 6.7 million). See Note 3C for further information on the Group's refinancing. The gain on the sale of property, plant and equipment in 2013 primarily relates to the sale of property in HRG Eiendom AS. 80

111 Hurtigruten Group Note 28 Finance income and expenses (in NOK 1 000) Interest income on current bank deposits Foreign exchange gains Gains on sale of financial assets Dividends Other finance income Of which finance income classified as discontinued operations (Note 7) (396) (1 393) Finance income Interest expenses (incl. termination of interest hedges) Bank borrowings ( ) ( ) Bond loan ( ) (54 048) Interest expenses group account (517) (6 025) Other interest expenses (403) (2 576) Foreign exchange losses ( ) (85 357) Losses on sale of financial assets (2 874) (15) Impairment of financial non-current assets (2 137) (627) Other finance expenses (2 404) (994) Of which finance expenses classified as discontinued operations (Note 7) Finance expenses ( ) ( ) Finance expenses net ( ) ( ) In connection with refinancing of liabilities, all outstanding interest rate swaps were terminated. Gains and losses on interest rate swaps that were previously recognised in other comprehensive income were reversed in the income statement as of 31 December 2014 in connection with the termination of the interest rate swaps. Losses in connection with the termination of interest rate swaps were allocated to interest expenses and amounted to NOK 73.6 million at the reporting date. Realised gains and losses are allocated to interest expenses. In 2014 realised losses totalling NOK 23.3 million were allocated to interest expenses (NOK 31.4 million). See Note 3C for further information on the Group's refinancing. 81

112 Hurtigruten Group Note 29 Net foreign exchange gains/(losses) Foreign exchange differences are recognised on the following lines in the income statement (in NOK 1 000) Operating revenues (50 958) Other operating costs (1 402) (3 226) Net finance income/(expenses) (45 841) (5 547) Total foreign exchange gains (losses) (37 474) (59 732) 82

113 Hurtigruten Group Note 30 Transactions with related parties Transactions with related parties are carried out in accordance with the arm s length principle. Related parties in this respect are the key management personnel in the company and associates. Associates in 2014 include Green Dog Svalbard AS in which the Group has a 50 per cent shareholding. Green Dog supplies dog-related services on Spitsbergen to Spitsbergen Travel AS. The Group also owned 50 per cent of ANS Havnebygningen which in 2013 hired out office premises to the Group. The company was wound up in The Group also held a 49.3 per cent shareholding in Senja Rutebil AS. The shares were owned through the TIRB Group which was sold in The Group conducted the following transactions with related parties (in NOK 1 000) Sale of services to associates Accounting services 30 - Purchase of services from associates Rent for premises Dog racing services Total purchase of services from associates Remuneration paid to senior executives Salaries and other current benefits (incl. former senior executives) Pension costs (including former senior executives) Total remuneration paid to senior executives Balances with associates at year-end Non-current receivables Current liabilities Intercompany balances with associates as of 31 December Transactions with shareholders Transactions with the company s largest shareholders are conducted on the arm s length principle, and in 2014 and 2013 included the sale of public transport-related services to Troms County Council. Please refer to Note 23. The Group hires offices in Oslo from Home Invest AS which is a sister company of shareholder Home Capital AS, which is in turn owned by director Petter Stordalen. The lease is not of a material nature. 83

114 Hurtigruten AS Income statement (in NOK 1 000) Note Operating revenues Operating revenues Operating costs Payroll costs 17 - ( ) Depreciation, amortisation and impairment losses 3 ( ) ( ) Other operating costs ( ) ( ) Other (losses)/gains net (93 531) (51 582) Total operating costs ( ) ( ) Operating profit/(loss) Finance income Finance expenses 20 ( ) ( ) Finance expenses - net ( ) ( ) Profit/(loss) before income tax ( ) 649 Income tax expense 5 - (280) Profit/(loss) for the year ( ) 369 Transfers Transferred (from)/to other equity ( ) 369 Total transfers ( )

115 Hurtigruten AS Statement of comprehensive income (in NOK 1 000) Note Profit/(loss) for the year ( ) 369 Other comprehensive income Actuarial gains/(loss) on retirement benefit obligations, net of tax Cash flow hedges, net of tax 1 20 (82 005) (4 611) Currency translation differences (1) (1) Other comprehensive income for the year, net of tax (82 006) (722) Total comprehensive income for the year ( ) (352) Attributable to Owners of the company ( ) (352) Total comprehensive income for the year ( ) (352) 1) The increase in the deferred income tax asset during the year has not been recognised in the balance sheet 85

116 Hurtigruten AS Balance sheet at 31 December (in NOK 1 000) Note Assets Non-current assets Intangible assets Deferred income tax assets Land and buildings Ships Other tangible non-current assets Total tangible and intangible non-current assets Investments in subsidiaries Investments in associates Investments in other companies Derivative financial instruments Non-current trade and other receivables Total financial non-current assets Total non-current assets Current assets Inventories Current trade and other receivables Derivative financial instruments Cash and cash equivalents Total current assets Total assets Equity and liabilites Paid-in equity Other reserves ( ) ( ) Total equity Retirement benefit obligations Total provisions Borrowings 10, Other non-current liabilities Derivative financial instruments Total non-current liabilities Current liabilities Derivative financial instruments Total current liabilities Total liabilities Total equity and liabilities

117 Hurtigruten AS Statement of changes in equity (in NOK 1 000) Note Share capital including treasury shares Share premium Retained earnings Total equity Balance at 1 January ( ) Profit/(loss) for the year Other comprehensive income Currency translation differences - - (1) (1) Cash flow hedges, net of tax - - (4 611) (4 611) Actuarial gain/(loss) on retirement benefit obligations, net of tax Total other comprehensive income, net of tax - - (722) (722) Total comprehensive income for the year - - (352) (352) Balance at 31 December ( ) Balance at 1 January ( ) Profit/(loss) for the year - - ( ) ( ) Other comprehensive income Currency translation differences - - (1) (1) Cash flow hedges, net of tax (82 005) (82 005) Total other comprehensive income, net of tax - - (82 006) (82 006) Total comprehensive income for the year - - ( ) ( ) Transactions with owners Sale of treasury shares Total transactions with owners Balance at 31 December ( ) ) The increase in the deferred income tax asset during the year has not been recognised in the balance sheet 87

118 Hurtigruten AS Cash flow statement (in NOK 1 000) Note Cash flows from operating activities Profit/(loss) before income tax ( ) 649 Adjustments for: Depreciation, amortisation and impairment losses Gains/losses on sale of property, plant and equipment and shares (9 979) Unrealised gains/losses en derivatives held for trading purposes Dividends received 20 (12 359) (23 816) Proceeds from group contribution (53 414) (2 076) Interest expenses ( ) Impairment of non-current shares Difference between expensed pension and payments Change in working capital: Inventories (4 195) (5 294) Trade and other receivables Financial assets at fair value through profit or loss Trade and other payables 9 ( ) (37 352) Cash flows from operating activities Interest paid ( ) Income tax paid - - Net cash flows from (used in) operating activities Cash flows from investing activities Purchases of property, plant, equipment (PPE) and intangible assets 3 ( ) ( ) Proceeds from insurance settlement Proceeds from sale of PPE Proceeds from sale of shares and shareholdings Capital contribution in subsidiaries (44 900) - Dividends received Change in other investments and other receivables (539) (79 145) Change in restricted funds Net cash flows from (used in) investing activities ( ) ( ) Cash flows from financing activities Sale of treasury shares Proceeds from borrowings Repayments of borrowings ( ) ( ) Net cash flows from (used in) financing activities ( ) ( ) Net (decrease)/increase in cash and cash equivalents ( ) Cash and cash equivalents at 1 January (34 645) (46 521) Foreign exchange gains/(losses) on cash, cash equivalenets and bank overdrafts (36 934) - Cash and cash equivalents at 31 December 12 ( ) (34 645) 88

119 Hurtigruten AS General information Hurtigruten AS has elected to apply simplified International Financial Reporting Standards (IFRSs) for its single-entity financial statements, pursuant to Section 3 9, paragraph 5 of the Norwegian Accounting Act, cf. the Regulation of 21 January The application of simplified IFRSs in the single-entity financial statements means the consolidated and parent company's financial statements are based on the same measurement and accounting policies. See the Group accounting policies for further information. Application of simplified IFRSs enables the financial statements and note information to accord with the Norwegian Accounting Act (NGAAP). The financial statements and notes for the parent company have therefore been prepared in accordance with NGAAP, with the exception of the statement of comprehensive income, which has been prepared in accordance with IFRSs. Shares in subsidiaries and associates are recognised in accordance with the cost method in the single-entity financial statements. The company was a public limited liability company as of 31 December In connection with Silk Bidco AS' acquisition of all the shares in Hurtigruten ASA in December 2014, the company was de-listed on 10 February 2015, when the company also changed form from an ASA to an AS. The financial statements were adopted by the company s board on 28 April

120 Hurtigruten AS Note 1 Financial market risk The following discussion concerning financial risk management relates to the policies adopted and applicable for the financial years 2013 and As a result of the company acquiring new owners at the end of 2014, and the full refinancing of the company implemented at start of 2015, the board will prepare and establish new guidelines and strategies for the above with effect from the 2015 financial year. We also refer to Note 2C Events after the end of the reporting period, which provides a more detailed description of the refinancing that was implemented in The company uses financial instruments such as bank loans and bond loans. In addition, the company has financial instruments such as trade receivables, trade payables, etc., which are directly linked to day-to-day operations. For hedging purposes the company makes use of certain financial derivatives. As a result of its regular operations, the company is exposed to risks related, for example, to fluctuations in exchange and interest rates and bunker oil costs. Hurtigruten s overarching hedging strategy is to create predictability for the company s operations and reduce the impact volatility in macroeconomic conditions might have on the company s financial performance and standing. The primary management parameter is the expected cash flow. Extensive use is made of simple, transparent and liquid hedging instruments, mainly forward contracts, combined possibly with options. Foreign exchange risk The company operates internationally and is exposed to currency risk in multiple foreign currencies, in particular, EUR, USD and GBP. Currency risk arises from future ticket sales as well as recognised assets or liabilities. In addition, the bunker oil cost is quoted in USD. A currency risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency other than the entity s functional currency. The company s strategy is to hedge up to 80 per cent of the Group's expected cash flows in EUR and in GBP up to 18 months into the future through the use of transparent and liquid instruments, usually forward contracts combined with options. For 2014 hedges have been made on around 75 per cent of expected cash flows in EUR and on around 60 per cent of expected cash flows in GBP. As mentioned above, the company refinanced its liabilities in We refer to Note 2C Events after the end of the reporting period for more information. The company has not adopted a new strategy for managing foreign exchange risk. The existing strategy applied until 31 December Forward foreign exchange contracts The nominal amount of outstanding forward foreign exchange contracts as of 31 December 2014 was NOK 967 million (NOK 157 million) The hedged, highly probable transactions in foreign currency are expected to occur at various dates over the next nine months. The forward foreign exchange contracts satisfy the requirements for hedge accounting in accordance with IFRSs and the changes in fair value are adjusted in other comprehensive income. Gains and losses on the contracts that were recognised in income in other comprehensive income as of 31 December 2014 will be recognised in income in the same periods in which the hedged transactions affect the income statement. Realised gains and losses are recognised in Other (losses)/gains. In 2014, realised losses amounting to NOK 25.3 million were recognised under Other (losses)/gains (loss of NOK 20.8 million). Interest rate risk The company s interest rate risk is associated with current and non-current borrowings. Borrowings at variable interest rates entail an interest rate risk for the company s cash flow. Fixed-interest rate borrowings expose the company to a fair-value interest rate risk. In 2013 and 2014 the company s borrowings at variable interest rates were in NOK. The company manages variable interest rate risk by means of variable-to-fixed-interest rate swaps. Interest rate swaps involve converting loans with variable interest rates to fixed-interest loans. The company enters into a contract with other parties to exchange the difference between the contract s fixed interest rate and the amount of the variable interest rate calculated on the agreed principal through the interest rate swaps. A new strategy was adopted for hedging interest rates in connection with the refinancing of the company s non-current liabilities in March 2012, under which per cent of the company s total debt is to be hedged. Nonamortising interest rate swaps have been entered into equivalent to 56.5 per cent of the company s liabilities on refinancing. As of 31 December 2013, around 65 per cent of the company s total debt was hedged. In connection with the refinancing of the company s liabilities, all interest rate swaps were terminated as of 31 December For further information, please see Note 2C on Events after the end of the accounting period. The company has not adopted a new strategy to manage interest rate risk. The existing strategy applied until 31 December

121 Hurtigruten AS Interest rate swaps In connection with the refinancing of the company's liabilities, all outstanding interest rate swaps were terminated. Please also refer to Note 2C, Events after the end of the reporting period. The nominal amount of outstanding interest rate swaps as of 31 December 2014 was NOK 1,750 million (NOK 1,750 million). As of 31 December 2014, the fixed interest rate varied from 2.7 per cent to 3.1 per cent (from 2.7 per cent to 3.1 per cent). The variable interest rates were NIBOR. Gains and losses on interest rate swaps that were previously recognised in other comprehensive income have been reversed in the income statement as of 31 December 2014 in connection with the termination of the interest rate swaps. Losses in connection with the termination of interest rate swaps have been allocated to interest expenses and amounted to NOK 73.6 million as of 31 December In addition, in 2014 realised losses totalling NOK 23.3 million were allocated to interest expenses (NOK 31.4 million). Bunkers The company is exposed to fluctuations in bunker oil prices. The price of oil, and thus bunker oil, is determined in international trading in USD, while the parent company purchases bunker oil in NOK. The risk can therefore be split into a currency element and a product element. In its risk management strategy, the company has emphasised the need to coordinate risk, and has therefore chosen to reduce the bunkers risk while the currency risk is coordinated with the company s other currency exposures. The company enters into revolving quarterly forward contracts for the next one to six quarters to hedge per cent of the expected bunker oil consumption, with a greater share being hedged in the near future and less being hedged further into the future. In addition, the company has a stop-loss strategy where it attempts to hedge the non-hedged amount if the price of oil rises above a predefined threshold. Hedges are made in the forward market on 55 per cent of expected utilisation for 2015 and 87 per cent of expected bunkers consumption for 2014, distributed with a higher proportion in the coming quarters, and a lower proportion towards the end of the year. Oil derivatives The nominal amount of outstanding forward bunker oil contracts as of 31 December 2014 was NOK 141 million (as of 31 December 2013: NOK 266 million). The hedged, highly probable transactions are expected to occur at various dates over the next 12 months. The forward contracts mature monthly. Forward bunker oil contracts satisfy the requirements for hedge accounting under IFRSs and changes in the fair value are recognised on an ongoing basis in other comprehensive income. Gains or losses on oil derivatives recognised in other comprehensive income as of 31 December 2014 will be recognised in the income statement in the same accounting periods that the hedged transactions affect the profit or loss. Realised gains and losses are recognised in Other (losses)/gains. In 2014 a net amount of NOK 17.7 million was recognised in realised losses allocated to Other (losses)/gains (NOK 0). Credit risk and liquidity risk The company is exposed to credit and liquidity risks. The company has no significant concentration of credit risk. Sales to end users are settled in cash or with recognised credit cards. Sales to external agents are made either through prepayment/credit cards or through invoicing. The company has routines to ensure that credit is only extended to agents with a satisfactory credit rating. Individual risk exposure limits are set based on internal and external assessments of credit ratings. The counterparties to the derivative contracts and cash transactions are limited to financial institutions with high credit ratings. The company has routines that limit exposure to credit risk related to a single financial institution. The company s strategy with regard to liquidity is to have sufficient cash, cash equivalents or credit facilities to finance its ongoing operations and investments. The Group has a group account that ensures that some of the Group s unrestricted liquidity is available to the parent company. 91

122 Hurtigruten AS Note 2A Contingencies As of 31 December 2014, the company had contingent liabilities relating to bank guarantees and other guarantees, in addition to other contingencies arising in the course of ordinary operations. No significant liabilities are expected to arise with respect to contingencies with the exception of the provisions that have already been provided for in the financial statements. (Note 20 to the consolidated financial statements.) Membership of the NOx Fund Hurtigruten AS is a member of the Confederation of Norwegian Enterprise s (NHO) NOx Fund. The main objective of the Environmental Agreement concerning reductions of NOx and the NHO s NOx Fund is to reduce emissions of nitrogen oxide. The Fund is a joint venture to which affiliated businesses can apply for support for emission-reducing measures. Payment to the Fund replaces the nitrogen oxide tax for affiliated businesses. The Environmental Agreement for was signed on 14 December 2010 by 15 industry organisations and the Ministry of the Environment and was approved by EFTA's Monitoring Body (ESA) on 19 May The Fund has reported that the targets for 2011, 2012 and 2013 were satisfied. The Norwegian Environment Agency monitors whether individual reduction targets have been achieved. Deviations of more than 10 per cent of reduction targets trigger a collective fine, under which businesses must pay the nitrogen oxide tax for the pro rata share of the target that has not been satisfied. However, the businesses will never pay more than the official government rate for nitrogen oxide tax. An amount of NOK 15.2 million was recognised in respect of the nitrogen oxide tax in Hurtigruten AS s financial statements for 2014 (NOK 15.5 million). Dispute with Stranda Hamnevesen port authority In summer 2013 Stranda Hamnevesen instigated legal proceedings against Hurtigruten AS concerning non-payment of passenger handling and harbour-related fees in the total amount of NOK 4 million. On 6 January 2014 Sunnmøre District Court ruled that Stranda could not claim either docking fees or passenger-handling fees from Hurtigruten for 2012 and The ruling was appealed and the review was heard before the Court of Appeal and a final ruling issued on 26 November The ruling went in favour of Hurtigruten in all points and established that Stranda Hamnevesen had demanded unreasonable and arbitrary levies from Hurtigruten. The ruling is not legally enforceable as Stranda Hamnevesen has appealed the case to the Supreme Court. The Supreme Court's review committee has announced that the case will be heard before the Supreme Court. Harbour costs in Hurtigruten's consolidated financial statements have been reduced by NOK 3.7 million. 92

123 Hurtigruten AS Note 2B Restatement of comparative figures Hurtigruten AS has changed the presentation of forward exchange contracts and options and bunker swaps and options in the 2014 income statement. The comparative figures have been restated accordingly. Foreign currency transactions have been reclassified from operating revenues to other (losses)/gains. Bunker transactions have been reclassified from other operating costs to other (losses)/gains. Effect of change in accounting policies in the income statement (in NOK 1000) Net profit/(loss) for 2013, before reclassification Presentation of foreign exchange and bunker transactions Net profit/(loss) for 2013, after reclassification Operating revenues Operating revenues Payroll costs ( ) - ( ) Depreciation, amortisation and impairment losses ( ) - ( ) Other operating costs ( ) ( ) Other (losses)/gains net - (51 582) (51 582) Total operating costs ( ) (45 225) ( ) Operating profit/(loss) Finance income Finance expenses ( ) - ( ) Finance expenses net ( ) - ( ) Profit before income tax on ordinary operations Income tax expense on ordinary activities (280) - (280) Net profit/(loss) for the year The effect of the change in presentation does not affect the statement of comprehensive income for 2013 The effect of the change in presentation does not affect the balance sheet as of 31 December 2013 The effect of the change in presentation does not affect the statement of changes in equity for 2013 The effect of the change in presentation does not affect the statement of cash flow as of 31 December

124 Hurtigruten AS Note 2C Events after the end of the reporting period On 29 October 2014 Silk Bidco AS submitted a public offer to purchase all the shares in Hurtigruten ASA at a price of NOK 7 per share. Silk Bidco AS is a joint venture indirectly owned by Home Capital AS, Periscopus AS and investment funds managed by TDR Capital LLP. For a more detailed description of the offer and transaction please refer to the offer document that was published on 6 November The public offer from Silk Bidco AS was accepted by per cent of the shareholders and the remaining shares were purchased in a compulsory purchase. The company was de-listed from the Oslo Stock Exchange with a final listing day of 10 February The company form was also changed from an ASA to an AS on 17 February In connection with the acquisition, on 6 October 2014 the company entered into a bridge financing agreement with Goldman Sachs as agent. The bridge financing was for EUR 455 million, as well as a EUR 65 million revolving credit facility. The bridge financing was replaced with a bond loan of EUR 455 million on 6 February 2015 at fixed interest equal to 7.5 per cent and a settlement date of 1 February The bond loan was issued by Silk Bidco AS and listed in Luxembourg. The revolving credit facility of EUR 65 million runs until the expiry date of 29 October No financial covenants attach to the new bond loan. Financial covenants attaching to revolving credit facilities stipulate that the Hurtigruten Group must have minimum EBITDA of NOK 400 million on a 12-month rolling basis. As part of the acquisition and refinancing Silk Bidco AS extended a loan to Hurtigruten AS of NOK 2.6 billion that was used to repay Hurtigruten's previous financing obligations, including syndicate loans, bond loans and a short-term drawdown facility. The bond loan was redeemed on 8 January 2015, when Hurtigruten exercised its purchase option and redeemed all outstanding bonds totalling NOK 500 million at a price equivalent to per cent of the nominal value plus accrued unpaid interest. The payment date for the redemption was 26 January In connection with the redemption of previous loans all outstanding forward foreign exchange contracts, forward bunker contracts and interest rate swaps were terminated and settled. The previous financing liabilities were redeemed and the hedge transactions were terminated in January Hurtigruten has pledged all assets, including shares in subsidiaries, as security for the above loans. Hurtigruten AS has the same loan terms as those of Silk Bidco AS. Hurtigruten AS shall pay interest and repayments to Silk Bidco AS in EUR corresponding to the interest payments on the outstanding bond loan to Silk Bidco AS. On 22 January 2015 the share capital of Hurtigruten AS was increased by NOK 3,000,000 to NOK 423,259,163 through the issue of 3,000,000 new shares with a nominal value of NOK 1 at a subscription rate of NOK 100. The total capital increase of NOK 300 million was implemented through the conversion of liabilities owed by Silk Bidco AS to Hurtigruten AS. 94

125 Hurtigruten AS Note 3 Property, plant and equipment and intangible assets (in NOK 1000) Intangible assets Ships plant and Total Book value as of 1 January Additions Disposals - (43 141) - (43 141) Depreciation/amortisation for the year (7 276) ( ) (51) ( ) Impairment losses for the year (472) - - (472) Book value as of 31 December As of 31 December 2014 Cost Accumulated depreciation/amortisation as of 31 December 2014 (16 133) ( ) (2 091) ( ) Accumulated impairment losses as of 31 December 2014 (2 835) (61 538) - (64 373) Book value as of 31 December Useful economic lifetime 3 7 years years 5 10 years Intangible assets consist of internal/external development/adaptation of ICT systems and software related to the ships. Impairment losses in 2014 relate to ICT systems that have been replaced. The company's two remaining fast ferries were sold in

126 Hurtigruten AS Note 4 Non-current assets held-for-sale and discontinued operations The Group's bus business was classified as a discontinued operation as of 31 December In a stock market notification on 8 July Hurtigruten announced that it had entered into an agreement with Boreal Transport Nord AS to transfer Hurtigruten AS' 71.3 per cent shareholding in AS TIRB which operates the bus business through Cominor AS. The sale was implemented on 4 September The Group's bus business was recognised in the balance sheet as held for sale as of 31 December Assets in the disposal group classified as held-for-sale (in NOK 1000) Shares in subsidiaries Assets held-for-sale Profit/loss from discontinued operations (in NOK 1000) Operating revenues - - Payroll costs - - Depreciation, amortisation and impairment losses - - Other operating costs - - Other (losses)/gains net - - Operating profit/(loss) - - Finance income - - Finance expenses (2 874) - Finance expenses net (2 874) - Share of profit from associates - - Profit/(loss) before tax (2 874) - Income tax expense - - Net profit/(loss) for the year (2 874) - Net cash flow from discontinued operations (in NOK 1000) Net cash flow from operating activities - - Net cash flow from investing activities Net cash flow from financing activities - - Total net cash flow

127 Hurtigruten AS Note 5 Income tax (in NOK 1000) The income tax expense for the year can be broken down as follows Change in deferred income tax assets - - Deferred income tax liabilities/assets relate to transactions recognised in equity included in the change in deferred income tax assets Total income tax expense Calculation of tax basis for the year Profit/(loss) before tax ( ) 649 Permanent differences (3 414) Permanent differences relating to recognition in equity Change in hedging derivatives (82 005) (6 404) Change in temporary differences that affect the tax payable (65 014) Tax basis for the year ( ) (24 269) Summary of temporary differences (in NOK 1000) Current assets (91 379) ( ) Non-current assets Gains and losses account Pension obligations - (205) Other differences ( ) ( ) Tax loss carryforward ( ) ( ) Basis for unrecognised deferred income tax assets Total temporary differences ( ) ( ) Estimated deferred income tax assets ( ) ( ) Tax rate applied 27 % 27 % In preparing the financial statements, management has found the future taxable income to be sufficient to utilise the recognised deferred income tax assets. This view is based on management s estimates of future profits generated by the company, where particular importance has been attached to the company s procurement contract with the government which runs until 2019, as well as the effects of the company s ongoing restructuring measures. On grounds of prudence, the company has decided not to recognise the deferred income tax asset relating to the loss for the year. The is no restriction on the time tax losses may be carried forward. Reconciliation of the income tax expense for the year (in NOK 1000) Profit/(loss) before tax ( ) 649 Estimated tax on the profit/(loss) for the year 27%/28% (66 500) 182 Change in the income tax expense as a result of: non-taxable income (6 708) (9 153) non-tax-deductible expenses tax on profit or loss attributable to companies assessed as a partnership Deferred income tax liabilities/assets relate to transactions recognised in equity included in the change in deferred income tax assets (22 141) - unrecognised deferred income tax assets (17 731) - effect of change in income tax rate miscellaneous items - 14 Total income tax expense

128 Hurtigruten AS Note 6 Investments in subsidiaries Registered office Ownership/voting share Equity (in NOK 1000) Net profit/loss 2014 (in NOK 1000) Book value (in NOK 1000) HRG Eiendom AS Tromsø, Norway 100,0 % Hurtigruten Pluss AS Tromsø, Norway 100,0 % Hurtigruten Estonia OÜ Tallinn, Estonia 100,0 % Hurtigruten GmbH Hamburg, Germany 100,0 % Hurtigruten Inc. Seattle, USA 100,0 % (92 781) (9 233) 1 Hurtigruten Limited London, UK 100,0 % Hurtigruten SAS Paris, France 100,0 % Hurtigruten Sjø AS Tromsø, Norway 100,0 % Spitsbergen Travel AS Norway 100,0 % Total Hurtigruten Pty. Ltd. was wound up in The company was wholly owned by Hurtigruten AS. AS TIRB was sold in The company was 71.3 per cent owned by Hurtigruten AS. Please refer to Note 4 for further details. Please refer to Note 21 for additional information on the balances with subsidiaries. 98

129 Hurtigruten AS Note 7 Investments in associates ANS Havnebygningen was wound up in The company was 50% owned by Hurtigruten. Please refer to Note 21 for additional information on the company s transactions with associates. 99

130 Hurtigruten AS Note 8A Financial instruments by category The following principles have been applied for the subsequent measurement of financial assets and liabilities As of 31 December 2014 (in NOK 1000) Loans and receivables Held for trading purposes Derivatives used for hedging Other financial liabilities Total Financial assets non-current Shares in other companies Non-current receivables (Note 9) Financial assets current Trade and other receivables (Note 9) Derivative financial instruments Cash and cash equivalents (Note 12) Financial liabilities non-current Borrowings (Notes 10 and 21) Financial liabilities current Drawdowns on group account (Note 12) Trade and other payables (Note 9) Loans Derivative financial instruments As of 31 December 2013 (in NOK 1000) Loans and receivables Held for trading purposes Derivatives used for hedging Other financial liabilities Total Financial assets non-current Shares in other companies Non-current receivables (Note 9) Financial assets current Trade and other receivables (Note 9) Derivative financial instruments Cash and cash equivalents (Note 12) Financial liabilities non-current Borrowings (Notes 10 and 21) Derivative financial instruments Financial liabilities current Drawdowns on group account (Note 12) Trade and other payables (Note 9) Derivative financial instruments

131 Hurtigruten AS Note 8B Creditworthiness of financial assets Hurtigruten does not have a system that distinguishes between trade receivables and other receivables based on the counterparty s creditworthiness. Hurtigruten has long-standing partners, and it follows up their creditworthiness through periodic reconciliation of the trade receivables ledger and credit monitoring. (in NOK 1000) Trade and other receivables Counterparties without external credit rating Total trade and other receivables Bank deposits AA A Without external credit rating Total cash at bank Cash and cash equivalents Total cash and cash equivalents Derivative financial instruments AA A Without external credit rating Total derivatives None of the financial assets have been renegotiated during the last financial year. 101

132 Hurtigruten AS Note 9 Combined items (in NOK 1000) Other non-current receivables Non-current receivables from Group companies (Note 21) Other non-current receivables Total non-current receivables (Notes 8A, 10) Current receivables Trade receivables Total trade and other current receivables from Group companies (Note 21) Other current receivables Total current receivables (Note 8) Other current liabilities Drawdowns on group account (Note 12) Trade payables Public duties payable (8 176) (21 713) First-year instalments on non-current borrowings (Note 10) Trade payables and other current liabilities Group companies (Note 21) Other current liabilities Total other current liabilities Receivables and liabilities denominated in foreign currencies are translated to NOK at the rate in effect at the balance sheet date. Change in trade and other current payables are primarily attributable to the purchase of services from Hurtigruten Sjø AS and paid Group contributions. The increase in first year instalments is attributable to the fact that existing long-term loan with a bank syndicate, see below, involved a "change of control" motion relating to the company's ownership. The entire principal amount lapsed due the fact that the company acquired new owners at the of Against this background, the long-term bank and bond loan was reclassified to current liabilities as of 31 December As stated in Note 2C, the company had already secured new long-term financing, with the result that the new loan taken out in the first quarter of 2015 was of a non-current nature. 102

133 Hurtigruten AS Note 10 Receivables and liabilities (in NOK 1000) Receivables that mature in more than one year Other non-current receivables (Note 9) Total receivables that mature in more than one year Other non-current liabilities Other non-current liabilities Total liabilities that mature after more than one year Non-current liabilities that mature after more than five years Repayment profile for interest-bearing liabilities Total liabilities that mature after more than five years Deferred income tax and pension obligations are not included above. The company refinanced its liabilities in Please refer to Note 2C on Events after the end of the reporting period for more information. The company s non-current liabilities as of 31 December 2014 were assumed in connection with a refinancing in the first quarter of 2012, and the loan agreement with the banks was dated 7 March The agreement for a total of NOK 2.6 billion was with a bank syndicate consisting of eight banks, two of which were foreign banks. The term of the loan was five years with annual instalments of NOK 260 million, where the first instalment was due in September The financial covenants were as follows: Minimum working capital At the end of each quarter the Group s current assets including unused credit facilities shall be greater than the Group s current liabilities excluding the first year s instalments on non-current borrowings. Minimum liquidity holding The Group must maintain unrestricted liquidity of at least NOK 200 million over the term of the loan. Minimum fixed charge coverage ratio/liquidity holding At the end of each quarter the consolidated EBITDA excluding gains/losses on the sale of assets must be equal to or greater than the Group s annual debt obligations and dividend payments, or the Group s unrestricted liquidity including unused credit facilities must be a minimum of NOK 350 million. Minimum equity ratio The Group s equity ratio must be measured on 30 June and 31 December each year, and shall be 22.5 per cent up to 31 December Thereafter until the expiration of the agreement term the equity ratio requirement will increase to 25 per cent. The convertible bond loan issued by Hurtigruten AS is regarded as equity in relation to the loan agreement. As part of its refinancing in 2012, Hurtigruten AS issued an unsecured bond loan of NOK 500 million. The loan has a term of five years and one month and is irredeemable until its final maturity date in April The financial covenants are as follows: Maximum senior debt facilities ratio The Group s hedged debt shall be less than 65 per cent of the Group s total assets until 30 June This percentage will be reduced annually by 5 per cent from 1 July From 1 July 2015 to the expiration of the term of the agreement, hedged debt shall be lower than 50 per cent of total assets. Maximum leverage ratio The Group s interest bearing debt shall be less than 6.5 per cent of the consolidated EBITDA, excluding gains/losses on the sale of assets from 31 December This percentage shall be reduced annually by 0.5 per cent from 31 December Minimum liquidity holding The Group must maintain unrestricted liquidity of at least NOK 200 million over the term of the loan. Minimum working capital At the end of each quarter the Group s current assets including unused credit facilities shall be greater than the Group s current liabilities excluding the first year s instalments on non-current borrowings. 103

134 Hurtigruten AS Note 11 Inventories Inventories consist of the following types of goods (in NOK 1000) Goods purchased for resale Bunkers and lubrication oil Total inventories Cost of goods sold included in other operating costs amounted to NOK million (NOK million). Inventories are measured at cost. If the fair value is deemed to be lower than the cost, then the inventories will be written down. 104

135 Hurtigruten AS Note 12 Restricted funds and market-based financial current assets (in NOK 1000) Cash and cash equivalents (Note 8A) Drawdowns on group account (Notes 8A and 9) ( ) (47 237) Total cash and cash equivalents in the balance sheet ( ) (6 327) Cash and cash equivalents in the cash flow statement consist of the following Cash at bank and on hand ( ) (6 327) Restricted bank deposits (24 183) (28 319) Cash and cash equivalents in the cash flow statement ( ) (34 645) Restricted bank deposits consist of the following Cash at bank Total restricted funds ) Restricted bank deposits mainly comprise tax withholding funds, a licence guarantee to the Ministry of Transport and Communications and guarantees to limited partnerships. Hurtigruten AS is the Group account holder in the Group's group account scheme. Other Group companies are subaccount owners or participants. Cash at bank includes deposits both within and outside the group account scheme. Restricted funds are not included in the group account scheme. 105

136 Hurtigruten AS Note 13 Paid-in equity (in NOK 1000 unless otherwise indicated) Number of shares Nominal value of ordinary shares Share premium Treasury shares Total As of 1 January (293) Sale of treasury shares As of 31 December Hurtigruten AS sold treasury shares to Silk Bidco AS in December All ordinary shares have equal rights. The Annual General Meeting was held on 24 April 2014 and granted the company s board authorisation to acquire treasury shares. The general meeting adopted the following resolution: I. Pursuant to sections 9 4 and 9 5 of the Norwegian Public Limited Companies Act, the board of Hurtigruten AS is hereby authorised to acquire treasury shares for a maximum nominal value of NOK 42,025,916, which corresponds to 10 per cent of the share capital. The overall holdings of treasury shares shall not exceed 10 per cent of the company s share capital. The shares may be acquired on the market over an exchange or otherwise. II. For the acquisition of shares in Hurtigruten AS, a minimum of NOK 1 and maximum of NOK 10 shall be paid for each share with a nominal value of NOK 1. If there is a change in the nominal value of the shares, the limits for the acquisition of the shares shall be adjusted correspondingly. III. The board is free to determine how the acquisition and sale of treasury shares shall take place. IV. This authorisation shall remain in force until the company s Annual General Meeting in The board does not have any power of attorney to increase the company s share capital. 20 largest shareholders as of 31 December 2014 Number of shares Shareholding (%) Silk Bidco AS ,00 Total no. of shares ,00 Shares held by elected officers in Hurtigruten AS as of 31 December 2014 (direct and indirect) Corporate assembly The corporate assembly was dissolved by the Annual General Meeting of 24 April Number of shares Board of directors Trygve Hegnar, Chair Helene Jebsen Anker, Deputy Chair - Anastasia Ezhova - Jonathan Barlow Rosen - Petter Anker Stordalen Per-Helge Isaksen, employee representative - Regina Mari Aasli Paulsen, employee representative - Management Daniel A. Skjeldam, CEO - Asta Lassesen, CFO - Anne Marit Bjørnflaten, SVP, Corporate Communications - Oscar Engeli, SVP, ICT - Svein Taklo, SVP, Maritime Operations from 2 June - Thomas Westergaard, SVP, Hotel Operations from 24 March - Magnus Wrahme, SVP, Global Sales - Sigurd Bay, SVP, Pricing and Revenue Management until 24 March. - Kjell Christoffersen, SVP, HR Development until 24 March - Tor Geir Engebretsen, Acting Maritime Operations Director until 2 June. - Vidar Engen, SVP, Product and Marketing until 24 March - Erik Hansen, Interim CFO from 2 June until 10 November - Chris Hudson, SVP, Hotel Operations until 24 March - 1) Periscopus AS owns 5 per cent of the shares in Silk Topco AS, which indirectly owns 100 per cent of the shares in Silk Bidco AS. 2) Home Capital AS owns 5 per cent of the shares in Silk Topco AS, which indirectly owns 100 per cent of the shares in Silk Bidco AS. The company s auditor does not own any shares in Hurtigruten AS. 106

137 Hurtigruten AS 20 largest shareholders as of 31 December 2013 Number of shares Shareholding (%) Periscopus AS ,13 Heidenreich Enterprise L.P ,49 MP Pensjon PK ,70 Skagen Vekst ,39 Home Capital AS ,00 Nordkraft AS ,58 Dahle, Bjørn ,81 J.M. Hansen Invest AS ,02 Berg-Larsen, Alexander ,62 Alta Invest AS ,48 Odin Maritim ,48 Warrenwicklund Norge securities fund ,47 Netfonds Liv ,44 Flisa Eiendomsinvest ,42 Warbo AS ,40 Widnes, Odd-Ingar ,35 Holger Invest I AS ,33 Narvik Local Authority ,33 Suveren AS ,26 Troms County Council ,25 20 largest shareholders ,95 Other shareholders ,05 Total no. of shares ,00 1) Heidenreich Enterprise Partnership owns per cent and ML Pierce Fenner owns 3.11 per cent. Shares held by elected officers in Hurtigruten AS as of 31 December 2013 (direct and indirect) Number of shares Corporate assembly Westye Høegh, Chair Bjørn Dahle, Deputy Chair 699 Karen M. Kuvaas - Fay Hege Fredriksen - Richard Sandnes Ingolf Marifjæren - Jon Tenden - Tor Zachariassen - Asbjørn Larsen, employee representative 200 Mette Fredrikke Indrevik, employee representative Oddleif Engvik, employee representative - Jonny Johnsen, employee representative 611 Randi Heggelund, observer - Egil Johansen, observer Board of directors Trygve Hegnar, Chair Helene Jebsen Anker, Deputy Chair Berit Kjøll - Arve Giske - Guri Mai Elmar Petter Anker Stordalen 2 - Tone Mohn-Haukland, employee representative - Per-Helge Isaksen, employee representative Management Daniel A. Skjeldam, CEO Asta Lassesen, CFO Sigurd Bay, SVP, Pricing and Revenue Management from 8 April Anne Marit Bjørnflaten, SVP, Corporate Communications from 11 September Kjell Christoffersen, SVP, HR Development from 15 August Tor Geir Engebretsen, Acting SVP, Maritime Operations from 28 October Oscar Engeli, SVP, ICT from 16 September Vidar Engen, SVP, Product and Marketing from 1 July Chris Hudson, SVP, Hotel Operations from 8 April Magnus Wrahme, SVP, Global Sales from 2 May Ole Fredrik Hienn, SVP, Legal Affairs until 8 April Hans Rood, SVP, Global Sales until 8 April Torkild Torkildsen, SVP, Corporate Social Responsibility until 1 November Dag-Arne Wensel, SVP, Maritime Operations until 28 October ) The shares are owned through the company Periscopus AS 2) The shares are owned through the company Home Capital AS The company s auditor does not own any shares in Hurtigruten AS. 107

138 Hurtigruten AS Note 14 Pensions The company transferred all its employees and associated pension schemes to the subsidiary Hurtigruten Pluss ASA as of 31 July As of the same date, the company only had one unfunded plan through operations, which was discontinued as of 31 December Financial assumptions Discount rate 0,00 % 4,10 % Expected return on pension fund assets 0,00 % 4,10 % Expected annual wage adjustment 0,00 % 3,50 % Expected annual pension adjustment 0,00 % 0,20 % Expected annual National Insurance basic amount (G) adjustment 0,00 % 3,25 % Table book used for estimating liabilities K2013 K2013 Table book used for estimating disabilities IR02 IR02 The actuarial assumptions are based on the normal assumptions used in the insurance industry with respect to demographic factors and staff turnover. Average expected years of service until retirement age 0 years 1 years Pension costs for the year are calculated as follows (in NOK 1000) Present value of accrued pension entitlements for the year Defined contribution plans for maritime personnel Interest expenses on accrued pension obligations Expected return on plan assets - (1 081) Payroll tax Total pension costs included in payroll costs (Note 17) Actuarial gains/losses recognised in other comprehensive income (before tax) Specification of net plan assets/obligations (in NOK 1000) Present value of accrued pension liabilities as of 31 December for funded defined benefit plans - - Estimated value of plan assets as of 31 December - - Total - - Present value of pension obligations funded from operations Net pension obligations Net plan assets/obligations are classified as follows in the balance sheet (in NOK 1000) Pension obligations Net pension obligations

139 Hurtigruten AS Change in recognised pension obligations (in NOK 1000) Book value as of 1 January Present value of accrued pension entitlements for the year Interest expense Effect of recalculation: Changes in financial assumptions Changes in demographic assumptions Estimate deviations - (19 339) Pension benefits paid (205) (4 480) Reduction from the sale of businesses - (72 201) Change in payroll tax, net obligation - (583) Book value as of 31 December Change in the fair value of the plan assets (in NOK 1000) Book value as of 1 January Expected return on plan assets Employer contributions Actual return on assets re interest income recognised in income statement - (10 439) Pension benefits paid - (4 271) Assets transferred through the sale of businesses - (68 044) Book value as of 31 December - - Composition of pension fund assets Shares 0,0 % 0,0 % Current bonds 0,0 % 0,0 % Money market 0,0 % 0,0 % Non-current bonds 0,0 % 0,0 % Property 0,0 % 0,0 % Other 0,0 % 0,0 % Total 0,0 % 0,0 % Actual return on plan assets 0,00 % 0,00 % (in NOK 1000) The company s expected contributions to funded plans in the next year - - At the reporting date the company did not employ any staff and is therefore not obliged to establish a mandatory occupational pension in accordance with the Norwegian Mandatory Occupational Pension Act. Table of the historical present values of pension obligations and assets as of 31 December (in NOK 1000) Present value of defined benefit pension obligations Fair value of plan assets Deficit/(surplus) Actual estimate deviations pension obligations 0,00 % -49,16 % Actual estimate deviations pension assets 0,00 % 0,00 % 109

140 Hurtigruten AS Note 15 Provisions (in NOK 1000) Secured debt Assets pledged as security Ships Shares in subsidiaries (Note 6) Trade receivables (Note 9) Cash at bank Total pledged assets Guarantee liabilities, etc. Other companies Subsidiaries and associates Total guarantees In its ongoing business activities, the parent company Hurtigruten AS assumes a conditional liability through guarantees issued directly to or on behalf of its subsidiaries/associates. The amounts in the table above represent the maximum potential amount of future commitments the company could be obliged to meet under the guarantees. None of these amounts have been recognised in the balance sheet as of 31 December In 2012 Hurtigruten AS and the subsidiaries Hurtigruten Ltd. and Hurtigruten GmbH entered into a merchant establishment agreement with a card issuer. At the time of entering into the agreement Hurtigruten AS issued an unconditional and irrevocable guarantee for Hurtigruten Gmbh s and Hurtigruten Ltd. s current and future liabilities in connection with or under the agreement. 110

141 Hurtigruten AS Note 16 Operating revenues The reporting of operating segments at parent company level is not part of internal management reporting. Please see Note 6 to the consolidated financial statements for operating segment information. (in NOK 1000) Operating revenues Operating revenues Contractual revenues Total operating revenues

142 Hurtigruten AS Note 17 Payroll costs (in NOK 1000) Payroll costs Wages and salaries Payroll tax Pension costs (Note 14) Other benefits Total payroll costs Average number of full-time equivalents - - On 5 August 2013 the company s maritime employees were transferred to the wholly owned subsidiary Hurtigruten Sjø AS. Hurtigruten AS did not employ any staff following the above transfer. Other payments relate to costs associated with leasing of personnel. 112

143 Hurtigruten AS Note 18 Remuneration Figures for 2014 (in NOK 1000) Position Salary 1 Pension cost 1 Other remuneration 1.2 Loans Fees 1,3 Daniel A. Skjeldam CEO Asta Lassesen CFO Anne Marit Bjørnflaten 4 Director, Communications Oscar Engeli SVP, ICT Svein Taklo SVP, Maritime Operations from 2 June Thomas Westergaard SVP, Hotel Operations from 24 March Magnus Wrahme SVP, Global Sales Sigurd Bay SVP, Pricing and Revenue Management until 24 March Kjell Christoffersen SVP, HR Development until 24 March Tor Geir Engebretsen 5 Acting SVP, Maritime Operations until 2 June Vidar Engen SVP, Product and Marketing until 24 March Erik Hansen 6 CFO from 2 June until 10 November Chris Hudson SVP, Hotel Operations until 24 March Trygve Hegnar Chair Helene Jebsen Anker Deputy Chair Anastasia Ezhova Director from 23 December Jonathan Barlow Rosen Director from 23 December Petter Anker Stordalen Director Guri Mai Elmar Director until 23 December Arve Giske Director until 23 December Berit Kjøll Director until 23 December Per-Helge Isaksen Director, employee representative Regina Mari Aaslid Paulsen Director, employee representative from 3 June Tone Mohn-Haukland Director, employee representative until 3 June Deputy members Observers Corporate assembly Auditor's fees statutory auditing Assistance IFRSs, accounting and tax Other certfication services Auditor's fees other assistance ) Salaries and other remuneration are paid from the management company Hurtigruten Pluss AS, except the employee representatives salaries, and board fees, which are paid by Hurtigruten AS. 2) Including the estimated cost associated with the share-based remuneration scheme, and severance benefits for outgoing managers. 3) Fees exclusive of Value Added Tax. 4) Bjørnflaten was hired from Mørland og Johnsen Analyse og Kommunikasjon AS until 30 April. 5) Engebretsen is a hired-in consultant who has held several temporary positions at Hurtigruten during the year. The fee is invoiced by DHT Corporate Services AS. 6) Hansen was hired from the consultancy firm Finance People AS The company s CEO receives an annual salary of NOK 4 million. Other benefits include fixed car remuneration and an ordinary telephone, Internet, newspaper and home PC allowance. The CEO also has a time-limited agreement on a performance-related bonus linked to the operating result before depreciation, amortisation and impairments, where performance is indexed against the adjusted operating result before depreciation, amortisation and impairments for The bonus agreement confers the right to a maximum of two bonus payments of up to a total of NOK 7.5 million in addition to holiday pay. The agreement expires in The payment of the bonus is contingent on the CEO still being in office at the end of the year to which the bonus relates. A provision of NOK 2.8 million was recognised for the above bonus agreement for The CEO is included in the company s ordinary defined contribution pension scheme for salaries up to 12G and the defined contribution scheme that provides a pension basis for salaries over 12G. The CEO s conditions of employment do not include any personal pension obligations. In connection with Silk Bidco AS' acquisition of Hurtigruten AS, the board decided to terminate all options allocated to management with cash settlement. A total of million options were terminated in connection with the individual option allocations and based on the offer price of NOK 7 per share. Management's income in connection with the termination of the option agreements is included in the item Other remuneration above. The company's management are members of the company s defined contribution plan. In addition, a supplementary defined contribution pension plan has been established, which provides a pension for any salary in excess of 12 times the National Insurance basic amount (G). The scheme applies to the whole company and covers all employees with salaries over 12G, including members of the executive management and the CEO. The pension costs for the executive management have been included under pension costs above. A performance-based bonus scheme was introduced for the company s management from The bonus payments are established applying pre-determined targets/parameters, some of which relate to the Group's overall performance and others to results within managers' individual spheres of responsibility. The maximum bonus for an individual manager is NOK 0.6 million. The bonus scheme covers some members of Group management, with the exception of the CEO. The CEO has a separate performance-related bonus scheme as described above. A provision of NOK 0.2 million was recognised for the bonus for This bonus is recognised in the item other remuneration above. 113

144 Hurtigruten AS Figures for 2013 (in NOK 1000) Position Salary 3 Pension cost 3 Other remuneration 3,43,4 Loans Fees 3,6 Daniel A. Skjeldam CEO Asta Lassesen CFO Sigurd Bay SVP, Pricing and Revenue Management from 8 April Anne Marit Bjørnflaten 1 SVP, Corporate Communications from 11 September Kjell Christoffersen SVP, HR Development from 15 August Tor Geir Engebretsen 2 Acting SVP, Maritime Operations from 28 October Oscar Engeli SVP, ICT from 16 September Vidar Engen SVP, Product and Markets from 1 July Chris Hudson SVP, Hotel Operations from 8 April Magnus Wrahme SVP, Global Sales from 2 May Ole Fredrik Hienn SVP, Legal Affairs until 8 April Hans Rood 55 SVP, Sales and Markets until 8 April Torkild Torkildsen SVP, Coroprate Social Responsibility until 1 November Dag-Arne Wensel SVP, Maritime Operations until 28 October Trygve Hegnar Chair Helene Jebsen Anker Deputy Chair Berit Kjøll Director Arve Giske Director Guri Mai Elmar Director Petter Anker Stordalen Director Tone Mohn-Haukland Director, employee representative Per-Helge Isaksen Director, employee representative Deputy members Corporate assembly Auditor's fees statutory auditing Assistance IFRSs, accounting and tax Other attestations Auditor's fees other assistance ) Bjørnflaten is a hired-in consultant from Mørland og Johnsen Analyse og Kommunikasjon AS. 2) Engebretsen is a hired-in consultant and has held several temporary positions at Hurtigruten during the year. The fee is invoiced by DHT Corporate Services AS. 3) Salaries and other remuneration are paid from the management company Hurtigruten Pluss AS, except the employee representatives salaries, and board fees, which are paid by Hurtigruten AS. 4) Including the estimated cost associated with the share-based remuneration scheme, and severance benefits for outgoing managers. 5) Rood s salary is partially paid in USD and translated to NOK. 6) Fees exclusive of Value Added Tax. 114

145 Statement on the determination of the salary and other remuneration for senior executives at Hurtigruten AS Guidelines for determining the remuneration of senior executives at Hurtigruten AS The following guidelines have been specified with effect from 18 February 2014: 1. Definitions 1.1 Senior executives include the chief executive and other senior executives; cf. Proposition no. 55 ( ), which refers to the provisions of the Norwegian Accounting Act and Public Limited Liability Companies Act concerning senior executives. 1.2 In these guidelines, a compensation scheme means a remuneration package comprising one or more of the following elements: Fixed salary, variable pay (bonuses, share-based programs, options, etc.) and other benefits (pension schemes, pay guarantee schemes, fringe benefits, and similar). 1.3 Severance pay refers here to compensation related to departure from the company and may involve a pay guarantee, other financial benefits and payments in kind. 2. Main principles for determining compensation schemes 2.1 Remuneration paid to senior executives at Hurtigruten AS will be competitive but not market-leading compared with similar companies. 2.2 The main element in a compensation scheme should be the fixed salary. 2.3 Compensation schemes shall be formulated to avoid unreasonable benefits arising as a result of external circumstances which the executive management cannot influence. 2.4 The individual elements in a pay package shall be assessed from an overarching perspective, with fixed salary, possible variable pay and other benefits such as pension schemes and severance pay viewed as a whole. The board of directors shall maintain an overview of the total value of each executive s agreed compensation. 2.5 Determining guidelines for the remuneration of senior executives is the responsibility of the entire board of directors. Remuneration of the Group s chief executive is determined by the board of directors. 2.6 The board of directors shall ensure that remuneration schemes for senior executives do not have unfortunate effects for the company or weaken its reputation. 2.7 Senior executives shall not receive special remuneration for serving as directors of wholly-owned subsidiaries in the same group. 2.8 Agreements entered into before these guidelines came into effect may continue. 3. Variable pay Any variable pay shall be based on the following principles: 3.1 A clear connection shall exist between the underlying goals for the variable pay and the company s objectives. 3.2 Variable pay shall be based on objective, definable and measurable criteria. 3.3 These criteria shall be based on conditions which the executive in question can influence. 3.4 Several relevant measurable criteria should be applied. 3.5 A variable pay scheme shall be transparent and clearly understandable. Identifying the anticipated and the maximum payment for each participant in the programme is important when explaining the scheme. 3.6 The scheme shall be of limited duration. 115

146 3.7 Total variable pay received in any year should not exceed six months of fixed salary, unless exceptional circumstances dictate otherwise. 4. Pension benefits 4.1 Pension terms shall be equivalent to those enjoyed by other employees in the company. 4.2 To the extent that a retirement age lower than the National Insurance retirement age of 67 years is agreed, it should generally not be lower than Agreements on pensions shall be based on the same years of pensionable service as for other comparable employees in the company. 4.4 Pension entitlements earned in other positions shall be taken into account. 4.5 Pension entitlements should not exceed 66 per cent of salary. Retiring at an age younger than 65 shall result in a lower pension entitlement. 4.6 The board of directors shall obtain an overview of the total cost of a pension agreement before it is entered into. 5. Severance pay 5.1 Severance pay can be agreed when a senior executive waives his/her right in advance to the employment protection provisions in the Norwegian Working Environment Act. Severance pay should not be provided in the event of voluntary resignation except in special circumstances. 5.2 Severance pay should not exceed 12 months fixed salary in addition to possible pay during the period of notice. 5.3 Should the person concerned be appointed to a new position or receive remuneration from an enterprise in which they are an active owner, severance pay should be reduced by a proportionate amount calculated on the basis of the person s new annual income. Such a reduction should not be made until the normal period of notice has expired. 5.4 Severance pay may be suspended if conditions exist which would have justified dismissal or if, during the severance period, irregularities or acts of negligence are discovered which might lead to compensation claims or to criminal charges against the person concerned. 116

147 Hurtigruten AS Note 19 Leases Annual rent for operating assets not recognised in the balance sheet (operating leases) Lease expires Operating assets Charter of MS Nordlys 2018 Charter of MS Richard With 2018 (in NOK 1000) Future minimum lease payments as of 31 December Within one year Between one and five years Over five years - - 1) Of the amount that was paid in 2013, NOK 28 million was recognised as an expense during the period Hurtigruten AS entered into contracts in December 2002 and June 2003 to sell and charter back the Hurtigruten ships MS Richard With and MS Nordlys. These ships were sold to Kystruten KS and Kirberg Shipping KS, respectively, and chartered back for a period of 15 years with an option for an additional 5 years on market terms. For the first 15 years the charter hire payments consist of three components: fixed hire in NOK, fixed hire in USD/EUR and a variable element in USD/EUR. The variable element is linked to variable interest rates, and 6- month Euribor and Libor rates. Hurtigruten AS will undertake and pay for the operation, insurance and all necessary ongoing maintenance of the ships. In the charter agreements between the limited partnerships and Hurtigruten AS, identical requirements (financial covenants) have been stipulated for Hurtigruten AS for the term of the agreements, which the company has as a component of its long-term loan agreements linked to ships (existing loans as of 31 December 2014). Reference is made to Note 10 with regard to these financial covenants. In connection with the financial restructuring in February 2009, an agreement was reached with the limited partnerships Kystruten KS and Kirberg Shipping KS, which entailed that the instalment component of the charter hire under the charter-party agreement with the two limited partnerships would not be payable for the period up to 31 December The postponed instalments would, however, be added to the instalments paid in 2012 and 2013, thereby reverting to the original repayment plan in August An increase in the charter hire was also agreed to compensate for the increased costs incurred by the limited partnerships under their loan agreements because of the changes in the repayment profile. In addition, it was agreed that Hurtigruten s option to buy back MS Nordlys and MS Richard With would be cancelled. The annual rent and the instalments that accrue in accordance with the agreement are recognised as an expense in the financial statements. 117

148 Hurtigruten AS Note 20 Finance income and expenses (in NOK 1000) Interest income on current bank deposits Foreign exchange gains Group contribution received from subsidiaries Dividends Gains on sale of financial assets Total finance income Interest expenses Bank borrowings ( ) ( ) Bond loan ( ) (54 048) - Interest expenses group account (517) (6 025) Other interest expenses (272) (2 442) Foreign exchange losses ( ) (53 499) Impairment of financial non-current assets (2 137) (47 451) Losses on sale of financial assets (2 879) - Other finance expenses (1 581) - total financial expenses ( ) ( ) Finance expenses net ( ) ( ) In connection with refinancing of liabilities, all outstanding interest rate swaps were terminated. Gains and losses on interest rate swaps that were previously recognised in other comprehensive income were reversed in the income statement as of 31 December 2014 in connection with the termination of the interest rate swaps. Losses in connection with the termination of interest rate swaps have been allocated to interest costs and amounted to NOK 73.6 million at the reporting date. Realised gains and losses are allocated to interest expenses. In 2014 realised losses totalling NOK 23.3 million were allocated to interest expenses (NOK 31.4 million). See Note 2C for further information on the company's refinancing. Following the company s plan to sell non-strategic assets, the shares in the bus business AS TIRB were written down in the amount of NOK 47.2 million as of 31 December

149 Hurtigruten AS Note 21 Transactions with related parties and intragroup balances Transactions with related parties are carried out in accordance with the arm s length principle. Related parties in this respect are the key management personnel in the company and companies in the same Group. In a stock market notification on 8 July Hurtigruten announced that it had entered into an agreement with Boreal Transport Nord AS to transfer Hurtigruten AS' 71.3 per cent shareholding in AS TIRB, which operates the bus business through Cominor AS. The sale was implemented on 4 September The company has been involved in transactions with the following related parties (in NOK 1000) Remuneration paid to senior executives at Hurtigruten AS Salaries and other short-term employee benefits Pension costs (including former senior management personnel) Transactions with Group companies (in NOK 1000) Sale of goods and services to Group companies Hurtigruten GmbH Hurtigruten Ltd Hurtigruten Inc Hurtigruten SAS Hurtigruten Pluss AS Hurtigruten Sjø AS Hurtigruten Estonia OÜ Spitsbergen Travel AS 29 - Purchase of goods and services from Group companies Hurtigruten GmbH Hurtigruten Ltd Hurtigruten Inc Hurtigruten SAS Spitsbergen Travel AS Cominor AS Rental of premises from Hurtigruten Eiendom AS Purchase of administrative services from Hurtigruten Pluss AS Purchases of other services from Hurtigruten Pluss AS Purchase of services from Hurtigruten Sjø AS Bareboat charter hire from Kystruten KS Bareboat charter hire from Kirberg Shipping KS Interest income from Group companies Hurtigruten Estonia OÜ Hurtigruten Pluss AS Hurtigruten Ltd RezCenter OÜ Hurtigruten Inc Spitsbergen Travel AS 41 - Interest paid to Group companies Spitsbergen Travel AS Svalbard Polar Hotel AS

150 Hurtigruten AS Intragroup balances (in NOK 1000) Non-current receivables due from Group companies Hurtigruten Pluss AS Hurtigruten Estonia OÜ Hurtigruten Ltd Kystruten KS Kirberg Shipping KS Total non-current receivables from Group companies (Note 9) Trade and other current receivables from Group companies Hurtigruten Pty Ltd Hurtigruten GmbH Hurtigruten Ltd Hurtigruten SAS Hurtigruten Inc Hurtigruten Estonia OÜ Hurtigruten Pluss AS Hurtigruten Sjø AS Hurtigruten Eiendom AS Spitsbergen Travel AS Provisions for losses on trade receivables from Group companies (82 500) ( ) Total trade and other current receivables from Group companies (Note 9) Other non-current liabilities to Group companies Spitsbergen Travel AS Svalbard Polar Hotel AS Total non-current liabilities to Group companies (Note 10) Trade payables and other current payables to Group companies Hurtigruten Pluss AS Hurtigruten Sjø AS Hurtigruten Eiendom AS Spitsbergen Travel AS Hurtigruten GmbH 5 8 Hurtigruten Inc Hurtigruten Ltd Kirberg Shipping KS (53) (53) Kystruten KS (57) - AS TIRB Total trade payables and other current payables to Group companies (Note 9)

151 121

152 122