Annual bond report 2015

Transcription

1 Annual bond report 2015 Published 20 April 2016 Silk Bidco AS (issuer) 455,000, % Senior Secured Notes due 2022 Silk Bidco AS c/o Hurtigruten AS, Fredrik Langes gate 14, P.O. Box 6144 Langnes, 9291 Tromsø, Norway Booking: , Switchboard: Business register number: NO VAT

2 Table of contents Cautionary notice 3 Material differences between the Annual bond report 2015 and the Audited financial statements Summary 9 Risk factors 10 Management's discussions and analysis of our financial condition and results of operation 13 Recent developments in the business 29 Management 32 Principal shareholders 35 Related party transactions 36 Description of other indebtedness 37 Definitions key performance measures and key line items 38 Appendix Silk Bidco group Annual report 2015 Director's report 2015 Financial statements Silk Bidco group Notes to the accounts Silk Bidco group Financial statements Silk Bidco AS Notes to the accounts Silk Bidco 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 the Annual bond report 2015 and the Audited financial statements 2015 This annual bond report has been prepared presenting financials for Silk Bidco AS (the "Company") and its subsidiaries at 31 December 2015, referred to as the Silk Bidco group in this report. The bond report presents operational results for the past 12 months (1 January 2015 to 31 December 2015) for Silk Bidco group, and the comparable 12-month period in 2014 (1 January 2014 to 31 December 2014) for Hurtigruten group, since at 31 December 2014 the only transactions in Silk Bidco AS were the foundation of the Company and the acquisition of Hurtigruten. The consolidated financial statements in the Appendix include the audited financial statements of the Company and its subsidiaries as of 31 December Silk Bidco AS purchased the Hurtigruten group in 2014 and achieved control on 1 December 2014 when the group was established. The consolidated financial statements as of 31 December 2015 include the period between 1 September 2014 and 31 December 2015, with Hurtigruten figures consolidated from 1 December 2014 to 31 December For this reason the audited financial statements for 2015 does not include a comparison to the financial statements for the year ended 31 December Included in the Delta between the Twelve months ended 31 December 2015 and the Fiscal year ended 31 December 2015 is one change for the twelve months ended 2015 which relates to a re-evaluation since the fourth quarter 2015 bond report. A net loss of NOK million on foreign exchange and bunker derivatives designated as hedge instruments in a cash flow hedge terminated in January 2015 due to the acquisition of Hurtigruten AS has been re-evaluated. This loss included in Other losses/gains in the fourth quarter report is not recycled through the Income statement in Silk Bidco group, only in Hurtigruten group. This change has an effect on the Consolidated income statement and the Consolidated statement of comprehensive income of Silk Bidco group, but has no effect on the equity. For further information we refer to the Offering Memorandum and the 2014 bond report published. The following tables provide a reconciliation for operating results and cash flows between the 12 months ended 31 December 2015 as reported in the Bond report for the twelve months ended 31 December 2015 and the Audited 2015 accounts. 4

5 Results of Operations Bridge from 12 months ended 31 December 2015 to Audited 2015 accounts Twelve months ended Fiscal year ended 31 December December 2015 Delta (NOK thousands, except as otherw ise indicated) Continuing Operations: Operating revenues.. 3,311,068 3,484, ,095 Contractual revenues.. 754, ,866 63,276 Total revenues... 4,065,658 4,302, ,371 Payroll costs.. (975,197) (1,048,759) (73,562) Other operating costs (2,265,178) (2,447,479) (182,301) Depreciation, amotization and impairment losses.. (387,077) (410,312) (23,235) Other (losses)/gains - net.. (239,698) (115,112) 124,587 Operating profit/(loss).. 198, ,368 81,859 Finance income.. 156, ,394 24,691 Finance expense (935,852) (1,157,276) (221,424) Finance expenses - net (779,149) (975,882) (196,733) Share of profit/(loss) of associates 995 1, Profit/(loss) before income tax from continuing operations. (579,646) (693,831) (114,186) Income tax expense from continuing operations.. (22,026) (23,693) (1,666) Profit/(loss) for the period from continuing operations.. (601,672) (717,524) (115,852) Dicontinued Operations: Profit/(loss) for the period from discontinued operations Profit/loss for the period. (601,672) (717,524) (115,852) 5

6 Revenues, operating profit, Normalised adjusted EBITDA and Normalised adjusted EBITDA margin by reporting segment and for the group as a whole Bridge from 12 months ended 31 December 2015 to Audited 2015 accounts Twelve months ended Fiscal year ended 31 December December 2015 Delta (NOK thousands, except as otherw ise indicated) Continuing Operations: Total revenues: Hurtigruten Norwegian Coast. 3,414,219 3,601, ,043 MS Fram. 383, ,029 37,835 Spitsbergen 269, ,498 10,385 Other business. 1,880 2, Eliminations.. (2,747) (2,614) 133 Total revenues from continuing operations 4,065,658 4,302, ,371 Operating profit/loss for the period: Hurtigruten Norwegian Coast. 99, ,860 70,981 MS Fram. 61,458 74,780 13,322 Spitsbergen 36,756 37, Other business (2,545) (2,962) Total operating profit/(loss) from continuing operations.. 198, ,368 81,859 Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast.. 766, ,971 (12,489) MS Fram.. 103, ,916 16,171 Spitsbergen 51,362 52,376 1,015 Other business.. 1,553 2, Total continuing operations 923, ,806 5,685 Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast. 22.4% 20.9% (1.5%) MS Fram % 28.5% 1.4% Spitsbergen 19.1% 18.7% (0.4%) Other business.. NM NM - Total continuing operations % 21.6% (1.1%) 6

7 Liquidity and capital resources 12 months ended 31 December 2015 vs Audited 2015 accounts Summary consolidated cash flow statement Twelve months ended Fiscal year ended 31 December December 2015 Delta (NOK thousands) Net cash flows from/(used in) operating activities. 518, ,203 (53,558) Net cash flows from/(used in) investing activities.. (788,217) (3,280,799) (2,492,582) Net cash flows from/(used in) financing activities. 274,307 3,105,031 2,830,725 Cash, cash equivalents and bank overdrafts.. 256, ,436 32,985 Net cash flows from/used in operating activities Twelve months ended Fiscal year ended 31 December December 2015 Delta (NOK thousands) Profit/(loss) before income tax from continuing and discontinued operations.. (579,646) (693,831) (114,186) Adjustments for: Depreciation, amortization and impairment losses from continuing and discontinued business. 387, ,312 23,235 Other (losses)/gains - net Foreign exchange (losses)/gains - net.. 417, ,179 91,854 (Losses)/gains on derivatives 181,182 (29,634) (210,816) Dividends received (496) (641) (145) Interest expenses.. 364, , ,075 Share of profit/(loss) of associates from continuing and discontinued operations.. (995) (1,682) (687) Impairment on financial investments Difference between expensed pension and payments. 6,204 6,204 - Change in working capital: - Inventories (7,938) (9,158) (1,220) Trade and other receivables. (67,779) (188,729) (120,950) Financial assets at fair value through profit or loss Trade and other payables. 101, , ,280 Interests paid.. (269,370) (300,375) (31,005) Income tax paid.. (12,448) (12,448) - Net cash flows from/(used in) operating activities.. 518, ,203 (53,558) 7

8 Net cash flows from/used in investing activities Twelve months ended Fiscal year ended 31 December December 2015 Delta (NOK thousands) Purchases of shares in Hurtigruten. - (2,493,501) (2,493,501) Purchases of property, plant and equipment ( PPE ). (418,837) (460,240) (41,402) Net proceeds from sale of PPE Purchases of intangible assets. (79,654) (82,648) (2,994) Loans to associates and other companies. 9,006 9,006 - Proceeds from sale of shares and shareholdings Net liquid assets from purchase and sale of businesses Settlement of derivatives.. (311,109) (311,109) - Dividends received and payments from associates , Change in restricted funds.. 10,753 55,923 45,170 Net cash flows from/(used in) investing activities (788,217) (3,280,799) (2,492,582) Net cash flows from/used in financing activities Twelve months ended Fiscal year ended 31 December December 2015 Delta (NOK thousands) Issue of ordinary shares. - 1,826,825 1,826,825 Sale of treasury shares Proceeds from borrowings. 3,270,314 4,339,663 1,069,350 Repayments of borrowings (2,978,313) (3,043,763) (65,450) Proceeds from borrowings from group companies.. 23,000 23,000 - Dividend paid to non-controlling interests.. (40,694) (40,694) - Net cash flows from/(used in) financing activities.. 274,307 3,105,031 2,830,725 8

9 Summary Operational results for Silk Bidco AS and its subsidiaries developed as expected for the twelve months ended 31 December 2015 with an improvement of NOK million, or 41.5%, in Normalised Adjusted EBITDA to NOK million from NOK million in the twelve months ended 31 December The improvement in Normalised Adjusted EBITDA is driven by the three latest quarters. The fourth quarter improved by NOK 76.5 million, or 104.6%, and Normalised Adjusted EBITDA came to NOK 3.4 million in the fourth quarter 2015, positive for the first time in the history, from a loss of NOK 73.1 million in the fourth quarter The improvement for the fourth quarter is related to the Hurtigruten Norwegian Coast segment and mainly driven by revenue increase in all three months and from most markets. The macroeconomic environment continues to stay favourable with a weak Norwegian krone and low oil price. Increased commercial focus and increased operational efficiency has been important throughout the efficiency program and is materialising by increased Normalised adjusted EBITDA margin in the twelve months ended 31 December 2015 compared to twelve months ended 31 December On the Norwegian Coast segment the Normalised adjusted EBITDA margin came to respectively 22.4% from 16.1%. The Explorer segment Normalised adjusted EBITDA margin for the twelve months ended 31 December 2015 was affected by a planned docking in April which reduced the capacity in 2015 compared to the prior corresponding period. The Hurtigruten Norwegian Coast segment increased its total revenues by NOK million, or 10.5% to NOK million for the twelve months ended 31 December 2015 from NOK million in the twelve months ended 31 December The increase is both a result of an increase in PCNs of 4.1% driven by the Nordic market as well as an increase of 9.8% in Gross ticket revenue per PCN. The increase in Gross ticket revenues per PCN was partly driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar, among others, compared to the prior corresponding period, and partly by a significant increase in on-board spending of 13.0% per PCN. Underlying prices is principally on par with last year. The revenue increase combined with cost efficient operations is reflected in an improvement of NOK million or 53.7% in the Normalised Adjusted EBITDA for the twelve months ended 31 December 2015 which came to NOK million from NOK million in the twelve months ended 31 December MS Fram total revenues in the twelve months ended 31 December 2015 was NOK million, compared to NOK million in the twelve months ended 31 December The development is mainly driven by a 22.8% increase in Gross ticket revenue per PCN driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar combined with a significant increase in on-board spending and an increase in underlying prices by 5.5%. The latter is driven by three factors; in 2015 MS Fram had some sailings along the Norwegian Coast in April and May with higher yields than on the Europe sailings in the same period in 2014; the Spitsbergen sailings in 2015 had higher gross price per PCN than in 2014, partly offset by lower gross revenue per PCN in the Antarctica in the first quarter; and in 2015 we did not sell the crossings which contributed to lower gross revenue per PCN in PCNs decreased by 11.4% in the same period driven by lower volume in the Antarctica in the first quarter, a planned docking in April who reduced the capacity in the second quarter 2015 compared to the prior corresponding period combined with lower volumes in the fourth quarter due to different sailing plan in 2015 compared to 2014 with no sailings on the crossing from the Arctic to the Antarctica. The planned docking is also reflected in a lower Normalised Adjusted EBITDA in the twelve months ended 31 December 2015 compared to the twelve months ended 31 December 2014, which came to NOK million from NOK million, down NOK 14.7 million or 12.4%. 9

10 Risk factors You should carefully consider the risks described below, the other information contained in this document as well as in the Offering Memorandum before making an investment decision. Any of the following risks could materially adversely affect our business, financial condition or results of operations, and as a result you may lose all or part of your original investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations. EFTA Surveillance Authority State Aid Investigation The EFTA Surveillance Authority (ESA) announced 11 December 2015 they had decided to open an in-depth investigation in order to clarify whether Hurtigruten has received any over-compensation which goes against the state aid rules of the EEA Agreement. The Authority also investigates whether Hurtigruten ensures that everyone has access to the public service. The Ministry of Transport has prepared a letter to the ESA which was distributed mid-february. On the further process we do not expect any development until the ESA respond on the letter, and for the time being we have no indications on when to expect the response. As of today the investigation does not affect our ongoing operation and cash flow. Any proceeding would be made against the Ministry of Transport. However, to the extent that a formal proceeding is launched and the ESA finds that unlawful state aid has been granted to Hurtigruten, we may be required to modify our current practices, to agree to new terms and conditions or to pay a settlement amount, fee or penalty, in an amount representing the amount, which could be significant, of the illegal state aid received as determined by the ESA, plus interest, any of which may adversely impact our operations and financial position. 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 million in the twelve months ended 31 December 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 were 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, the Court of Appeal and on 25 June 2015 the Supreme Court also ruled in favour of Hurtigruten. 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. Following the Stranda case, Hurtigruten is continuing its fight against high fees in a number of other ports and has uncovered serious errors in accounts and practice in a number of other Norwegian ports. This has been brought to the attention of the Coastal Directorate, which is now reviewing accounts in several ports. However, the Coastal Directorate s powers are limited so we are also taking legal steps and has by November 2015 brought claims against 29 ports requesting refunds of excessive port fees charged in previous years. In total 10

11 the claims against the 29 ports sums up to NOK 120 million for the years These claims are fiercely contested by the ports and the legal issues are quite complex and only partly parallel to those successfully tested in the case regarding Geiranger. To protect against potentially high legal fees it has therefore been decided to try a limited number of cases before the courts first, while safeguarding the claims against the other ports against becoming time barred. The first court case, which is against Bodø Port, was heard by the District Court in early April The ruling from the District Court is expected at the end of April We are subject to complex laws and regulations, including environmental, health and safety laws and regulations, which could adversely affect our operations and any changes in the current laws and regulations could lead to increased costs or decreased revenue. We are directly and indirectly subject to various international and national laws, regulations, treaties and employee union agreements related to, among other things, the environment, health, safety, security and employment. Failure to comply with these laws and regulations could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claims and damages. We expect our normalised capital expenditures in 2015 and 2016 to be at about NOK 200 million per year based on our current operations. Such capital expenditure will be incurred primarily in relation to ongoing maintenance of our fleet including minor upgrades to public areas; NOx saving projects in 2015 and 2016 such as work on the engines with respect to MS Finnmarken and MS Trollfjord, the propulsion systems on MS Midnatsol and MS Trollfjord as well as new propellers on MS Kong Harald and MS Nordkapp; further development of our IT infrastructure, including our e-commerce channel; and the upgrade of our Spitsbergen hotels. In addition to this amount, in 2015 we have incurred capital expenditures of approximately NOK 19 million with respect to the 305 Classification rebuild. In 2016 we expect to incur another NOK 10 million related to the 305 Classification rebuild. The 305 Classification rebuild was reduced from a worst case scenario of approximately NOK 118 million since the publication of the Offering Memorandum, after the Ministry of Trade and Industry sided with us in our appeal. We are now in progress with implementation of our equivalent solution for dividing the car deck area for our one compartment ships, which can be done during operations. Our results of operations are susceptible to unseasonable changes in weather and we may be affected by adverse weather conditions. Extreme weather events, adverse weather and climate conditions may disrupt or require us to alter or cancel our cruise or hotel operations. Extreme weather events, adverse weather and climate conditions could also disrupt commercial airline flights that transport our guests to the geographies in which we operate. Our insurance does not cover additional cost related to delays or cancellations of ports due to weather conditions. In addition, we may incur costs in providing alternative transportation to those guests onboard our ships that need to get to the next port, and we may lose revenue from commissions paid to us by our excursion partners at ports where we cancel calls. We are not obliged to cover costs for transporting guests on their way to a ship if such ship service is cancelled unless the guest has booked a travel package including ancillary transportation such as flights through us. If the guest has booked such package and started their journey, we have to refund the purchase price for such package and in certain instances have to cover their costs associated with transporting such guests back to the point where they initiated their journey. In most cases with respect to our Hurtigruten Norwegian Coast product, where we have ships departing every day, we try to re-book such guests to a ship that is departing either the day before or the day after, however, if we are unable to re-book the guests, we would refund the cost of their tickets (including their deposit). In addition, inclement weather conditions may prevent or discourage our guests from electing our services altogether. In addition, extreme weather conditions could result in increased wave and wind activity, which would make it more challenging to sail and dock our ships and could cause sea/motion sickness among guests and crew. The risk of adverse weather is in particular high with respect to our MS Fram segment, which operates in Polar waters and our Spitsbergen Travel segment, which operates in Spitsbergen, where weather conditions are extreme. Weather events could have an adverse impact on the safety of, and our customers satisfaction with, our services and could have a material adverse effect on our business, financial condition, results of operations and prospects. 11

12 Extreme weather events or other adverse weather may also disrupt the supply chain from or to the impacted region and could disrupt our bunker fuel, food and shore power supplies. Finally, extreme weather conditions could cause property damage to our ships, port and related commercial facilities and other assets and impact our ability to obtain insurance coverage for operations in such areas at reasonable rates. If our services are delayed or cancelled, we may need to re-route our guests to other ports of call or cancel their bookings. As a result, we may face difficulty in maintaining consumer loyalty to our brand and our business, financial condition, results of operations and prospects may be adversely affected. Our services may be delayed, cancelled or disrupted due to conditions that are beyond our control. For example, if there are delays in the operations of the ports of call or if other ships staying in the port are delayed, we may not be able to moor alongside the pier and, as a result, our scheduled service may be delayed or we may be required to cancel stops or re-route our services. In addition, a delay at one port may result in ongoing delays to the remainder of our route and scheduled stops at other ports. Furthermore, as our MS Fram segment offers activities and voyages to remote Polar areas, where medical assistance is not immediately available, we are exposed to the risk of re-routing our itineraries due to medical emergencies onboard. As a result of re-routing or delays in our services, we may need to direct our guests to our other ports of call or cancel their bookings. In addition, such incidents may prevent or discourage our guests from selecting our services altogether and our business, financial condition, results of operations and prospects may be adversely affected. 12

13 Management's discussion and analysis of our financial condition and results of operation The following is a discussion of the consolidated financial condition and results of operations of Silk Bidco AS and its subsidiaries for the twelve months ended 31 December 2015 compared to the twelve months ended 31 December Accordingly, all references to we, us or our in respect of historical consolidated financial information in this discussion are to Silk Bidco AS and its subsidiaries on a consolidated basis. However, note that for Silk Bidco group the only transactions occurring during 2014 was the foundation of the company in September and the acquisition of Hurtigruten AS in December. These transactions are part of the audited annual accounts for 2015 for Silk Bidco AS and its subsidiaries which is attached to this bond report. According to the Norwegian Accounting Act the first financial year may be longer than 12 months. However, the financial year may not in any circumstances exceed 18 months. In the following discussions for the twelve months ended 31 December 2015 the comparable period of twelve months ended 31 December 2014 only includes Hurtigruten group. You should read this discussion in conjunction with the previous quarterly bond reports for 2015, the annual bond report for 2014 and the annual report 2014 for Hurtigruten group, as well as our historical consolidated financial statements included in the Offering Memorandum dated 30 January 2015 offering the % Senior Secured Notes due 2022 issued by Silk Bidco AS. The following presentation and analysis contains forward looking statements that involve risks and uncertainties. Our future results may differ materially from those expected or implied in these forward looking statements. The sections "Risk Factors" and "Factors affecting our results of operations" in the Offering Memorandum mentioned above as well as the update in the annual bond report for 2014 and the previous quarterly bond reports for 2015, should be regarded reading this Management s discussion and analysis of our financial condition and results of operations" Overview We are an exploration tourism operator, also providing local transport and cargo shipment on the Norwegian coast as well as Polar waters. Hurtigruten s vision is to be the world leader in exploration travel. It will lead the world for expedition-based tourism, a niche with substantial potential on an international basis. With a fleet of 13 ships specially built for expedition voyages in Polar waters, the company is already the front runner. Twothirds of the Bergen-Kirkenes route lies north of the Arctic Circle. Hurtigruten thereby has more than half its fleet in Arctic waters throughout the year. Its goal is to reinforce this position, differentiated from the rest of the cruise industry with authentic and active experiences on land and at sea. The group s business segments are divided into the following product areas: Hurtigruten Norwegian Coast, Explorer and Spitsbergen. Activities which do not naturally fall within these areas are grouped in Other business. Our Hurtigruten Norwegian Coast segment is our largest segment, accounting for 84.9% of our total revenues from continuing operations in the twelve months ended 31 December 2014 and 84.0% for the twelve months ended 31 December of our 13 ships provide services along the Norwegian coast under this segment, making 34 northbound and 33 southbound daily departures from ports located between Bergen in the south and Kirkenes in the north. Freight and passenger transport remain an important part of our offering, which includes basic transport infrastructure, carrying cargo and local residents across shorter distances, and for which we receive a fixed fee from the Norwegian government each year under the coastal service contract. We leverage this vessel schedule and infrastructure to offer distinct expedition based services and activities to leisure seekers through our cruise voyage products. The ships that we use to provide local transport services and cargo shipments are also used to offer exploration based voyages for leisure travellers, including a high proportion of international guests. Our second largest segment, the Explorer segment, accounted for 9.7% of our total revenues from continuing operations in the twelve months ended 31 December 2014 and 9.4% for the twelve months ended 31 December The segment consists of our MS Fram explorer ship, which takes our guests on distinct Polar voyages year-round in Antarctic, Spitsbergen and Greenland waters. Going forward the segment will expand its services with a second ship introduced in Antarctica from September 2016, the MS Midnatsol. Additionally the new ship acquired end of June 2015, given the name MS Spitsbergen Explorer, increases the capacity and gives opportunities to expand our services in Polar waters. 13

14 Our Spitsbergen segment comprises year-round hotel and restaurant activities as well as Arctic experience tourism in Svalbard. Spitsbergen Travel operates three hotels and an equipment store. Additionally, cruise with the former Hurtigruten ship MS Nordstjernen was introduced in the summer season This segment accounted for 5.6% of our total revenues from continuing operations in the twelve months ended 31 December 2014 and 6.6% for the twelve months ended 31 December Our Other business segment comprises non-core operations, the bus transport through TIRB and its Cominor subsidiary being the largest up through Hurtigruten sold its shareholding in TIRB to Boreal Transport Nord in July 2014, with closing of the sale on 4 September Factors affecting our results of operations Factors affecting our results of operation which have not changed substantially since the publication of our previous quarterly bond reports for 2015, annual bond report 2014 and the Offering Memorandum at 30 January 2015 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 twelve months ended 31 December 2015, 38.3% of our reservations in terms of PCNs were made at least six months in advance and 35.8% of our reservations in terms of PCNs were made at least six months in advance in the twelve months ended 31 December As of the date this 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. 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 65.4% our Hurtigruten Norwegian Coast revenues in the twelve months ended 31 December 2015 (64.4% in the twelve months ended 2014) and 101.2% of our Hurtigruten Norwegian Coast Normalised Adjusted EBITDA in the twelve months ended 31 December 2015 (117.6% in the twelve months ended 2014) generated in the second and third calendar quarters. 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 twelve months ended 31 December 2015, we generated 46% of our operational revenues, which excludes foreign currency effects with respect to trade receivables during the same period ( Operational Revenues ), in Norwegian kroner, 38% of our Operational Revenues in euros, 9% of our Operational Revenues in pound sterling, 6% 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 45% of our Operational Revenues, Operating Costs incurred in euros accounted for 13% of our Operational Revenues, Operating Costs incurred in pound sterling accounted for 3% of our Operational Revenues, Operating Costs incurred in U.S. dollars accounted for 2% of our Operational Revenues. We did not incur any material Operating Costs in other currencies. 14

15 Price of bunker fuel We are exposed to fluctuations in the price of bunker fuel, which is used to operate our ships. In order to reduce the risk related to the fuel price we have entered into hedges for the period of May 2015 to April The hedging was covered by a call option covering 100% of the expected fuel consumption from May 2015 to September 2015, as the period from October 2015 to April 2017 is hedged through a fuel swap covering 75% of the expected fuel consumption. The oil price has been volatile over the last months, and by buying a call for the first 6 months we have flexibility to take advantage of a potential decrease in the oil price. On the longer term the rationale behind using a swap, which is offering a fixed price, is that under the current environment the swap price was favourable and enables us to keep the fuel costs on a significantly lower level compared to 2013 and In April 2016, we have hedged 30% of the consumption for the May 2017 to October 2018 period through fuel swaps. The company will continue to monitor the price fluctuations and cover the risk through hedges in order to limit the impact on results. Efficiency Improvement Program Our Efficiency Improvement Programme has been important to reduce our operational costs, both ship operating and administrative costs. As of 31 December 2015 we have achieved total efficiency improvements of NOK million in connection with the Efficiency Improvement Program. The last phase of the program relating to cost effective ship operations have been fully implemented as of year-end 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. 15

16 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 twelve months ended 31 December December 2015 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Norwegian Coast: PCNs 1,074,278 1,118,028 APCNs. 1,738,160 1,757,854 Occupancy rate % 63.6% Gross ticket revenues. 2,273,404 2,597,510 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services , ,542 Food, beverage, shop, excursions. 265, ,299 Net ticket revenues. 1,599,861 1,865,669 Gross ticket revenues per PCN (NOK). 2,116 2,323 Net ticket revenues per PCN (NOK).. 1,489 1,669 Ship operating costs 2,092,517 2,109,049 Selling, general and administrative expenses 524, ,422 Gross cruise costs. 2,616,808 2,727,471 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services. 407, ,542 Food, beverage, shop, excursions. 265, ,299 Net cruise costs. 1,943,265 1,995,630 Net cruise costs per APCN (NOK) 1,118 1,135 Fuel consumption (liter/nautical mile) Fuel cost per liter

17 Key operating metrics for MS Fram For the twelve months ended 31 December December 2015 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) MS Fram: PCNs 69,370 61,460 APCNs. 88,436 86,069 Occupancy rate % 71.4% Gross ticket revenues 352, ,194 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services.. 69,359 82,408 Food, beverage, shop, excursions. 19,460 19,678 Net ticket revenues 263, ,108 Gross ticket revenues per PCN (NOK). 5,077 6,235 Net ticket revenues per PCN (NOK).. 3,797 4,574 Ship operating costs. 187, ,933 Selling, general and administrative expenses 51,997 67,418 Gross cruise costs.. 239, ,351 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services 69,359 82,408 Food, beverage, shop, excursions. 19,460 19,678 Net cruise costs.. 150, ,265 Net cruise costs per APCN (NOK). 1,701 2,234 Fuel consumption (liter/nautical mile) Fuel cost per liter

18 Results of Operations The following table presents, for the periods indicated, our operating results: Twelve months ended 31 December 2014 % Change 31 December 2015 (NOK thousands, except as otherw ise indicated) Continuing Operations: Operating revenues.. 2,883, ,311,068 Contractual revenues.. 755,072 (0.1) 754,590 Total revenues... 3,638, ,065,658 Payroll costs.. (925,770) 5.3 (975,197) Other operating costs (2,092,909) 8.2 (2,265,178) Depreciation, amotization and impairment losses.. (378,718) 2.2 (387,077) Other (losses)/gains - net.. (93,487) (239,698) Operating profit/(loss).. 147, ,509 Finance income.. 91, ,702 Finance expense (463,251) (935,852) Finance expenses - net (372,129) (779,149) Share of profit/(loss) of associates 1,039 (4.3) 995 Profit/(loss) before income tax from continuing operations. (223,596) (579,646) Income tax expense from continuing operations.. (5,031) (22,026) Profit/(loss) for the period from continuing operations.. (228,626) (601,672) Dicontinued Operations: Profit/(loss) for the period from discontinued operations.. 10,132 (100.0) - Profit/loss for the period. (218,494) (601,672) 18

19 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 twelve months ended 31 December 2014 % Change 31 December 2015 Continuing Operations: Total revenues: Hurtigruten Norwegian Coast. 3,088, ,414,219 MS Fram. 352, ,194 Spitsbergen 203, ,113 Other business. 2,240 (16.1) 1,880 Eliminations.. (8,656) 68.3 (2,747) Total revenues from continuing operations 3,638, ,065,658 Operating profit/loss for the period: Hurtigruten Norwegian Coast. 67, ,879 MS Fram. 87,218 (29.5) 61,458 Spitsbergen 23, ,756 Other business.. (31,033) Total operating profit/(loss) from continuing operations.. 147, ,509 Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast.. 498, ,460 MS Fram.. 118,449 (12.4) 103,746 Spitsbergen 33, ,362 Other business.. 1,896 (18.1) 1,553 Total continuing operations 652, ,121 Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast. 16.1% % MS Fram % (6.6) 27.1% Spitsbergen 16.2% % Other business.. NM NM NM Total continuing operations % % 19

20 Comparison of the twelve months ended 31 December 2015 with the twelve months ended 31 December 2014 The financial information for the twelve months ended 31 December 2015 discussed below has been derived from the unaudited consolidated financial statements of Silk Bidco group as of and for the twelve months ended 31 December The audited financial statements of Silk Bidco group comprise the 16 month period from 1 September 2014 to 31 December 2015, and elements of comparison have been noted in the earlier section, Material differences between the Annual bond report 2015 and the Audited financial statements There is only one material difference between the unaudited consolidated financial statements of Silk Bidco group as of and for the twelve months ended 31 December 2015, presented below, and the twelve month period consolidated into the Audited accounts for Silk Bidco group as presented in appendix of this report. A net loss of NOK million on foreign exchange and bunker derivatives designated as hedge instruments in a cash flow hedge, terminated in January 2015 due to the acquisition of Hurtigruten AS, have been re-evaluated. This loss included in Other losses/gains in the fourth quarter report is not recycled through the Income statement in Silk Bidco group, only for Hurtigruten group. This change has an effect to the Consolidated income statement and the Consolidated statement of comprehensive income of Silk Bidco group, but has no effect on the equity. The financial information for the twelve months ended 31 December 2014 discussed below has been derived from the audited consolidated financial statements of Hurtigruten group as of and for the year ended 31 December Total revenues Our total revenues from continuing operations for the twelve months ended 31 December 2015 increased by NOK million, or 11.7% to NOK million from NOK million in the twelve months ended 31 December 2014, as a result of an increase in revenues from all our business segments. Hurtigruten Norwegian Coast increased its total revenues by NOK million, or 10.5% to NOK million for the twelve months ended 31 December 2015 from NOK million in the twelve months ended 31 December The overall increase in our Hurtigruten Norwegian Coast revenues was driven by both an increase in PCNs of 4.1% and an increase of 9.8% in Gross ticket revenue per PCN. The increase in PCNs was mainly driven by the Nordic market. The increase in Gross ticket revenues per PCN was partly driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar, among others, compared to the prior corresponding period, and partly by a significant increase in on-board spending of 13.0% per PCN. Underlying prices is principally on par with last year. All markets except for the British market are providing a revenue growth year-on-year for the Norwegian Coast segment. Contractual revenue amounted to NOK million in the twelve months ended 31 December 2015, principally on par with the twelve months ended 31 December MS Fram total revenues in the twelve months ended 31 December 2015 was NOK million, compared to NOK million in the twelve months ended 31 December The increase of NOK 31.0 million, or 8.8%, is mainly driven by a 22.8% increase in Gross ticket revenue per PCN mainly driven by the decrease in the value of the Norwegian kroner in relation to the euro, pound sterling and U.S. dollar combined with a significant increase in on-board spending and an increase in underlying prices by 5.5%. The latter is driven by three factors; in 2015 MS Fram had some sailings along the Norwegian Coast in April and May with higher yields than on the Europe sailings in the same period in 2014; the Spitsbergen sailings in 2015 had higher gross price per PCN than in 2014, partly offset by lower gross revenue per PCN in the Antarctica in the first quarter; and in 2015 we did not sell the crossings which contributed to lower gross revenue per PCN in PCNs decreased by 11.4% in the same period driven by lower volume in the Antarctica in the first quarter due to a shortfall of group business which was not recovered by individual travellers, a planned docking in April which reduced the capacity in second quarter 2015 compared to same period last year combined with lower volumes in the fourth quarter due to different sailing plan in 2015 compared to 2014 with no sailings on the crossing from the Arctic to the Antarctica. Spitsbergen total revenues for the twelve months ended 31 December 2015 increased by NOK 65.3 million, or 32.0%, to NOK million from NOK million for the twelve months ended 31 December The increase is both due to 7.8% increase in guest nights and 22.3% increase in gross revenue per guest night. RevPAR increased as well as sales of activities and food & beverage per guest night. Additionally, cruises with the former Hurtigruten ship MS Nordstjernen was introduced in 2015 with a positive revenue effect, and a strengthening of the explorer product. 20

21 Payroll costs Payroll costs from continuing operations for the twelve months ended 31 December 2015 increased by NOK 49.4 million, or 5.3%, to NOK million from NOK million in the twelve months ended 31 December 2014, mainly due to an increase in payroll tax with respect to our crew and some of the administrative positions following a change in Norwegian tax legislation in July 2014 together with salary increase of 2.8%. Other operating costs Our other operating costs from continuing operations for the twelve months ended 31 December 2014 and 2015 are set forth below: For the twelve months ended 31 December 2014 % Change 31 December 2015 (NOK thousands, except as otherw ise indicated) Other Operating Costs: Cost of goods sold 591, ,867 Operating costs ,165,223 (1.0) 1,153,731 Sales and administrative costs.. 336, ,580 Total. 2,092, ,265,178 Other operating costs from continuing operations for the twelve months ended 31 December 2015 increased by NOK million, or 8.2%, to NOK million from NOK million in the twelve months ended 31 December The main reason for the increase is NOK 62.0 million in transaction and acquisition costs related to Silk Bidco buying the shares in Hurtigruten AS and an increase of NOK 60.5 million, or 10.2%, in Cost of goods sold related to the revenue increase. Additionally there has been investment in future growth reflected in the sales and administrative costs through increased marketing costs in the first quarter, which has materialized in increased pre bookings for second and third quarter In the third quarter additional marketing funds have been spend related to the introduction of MS Midnatsol in Antarctica from September Due to these two conditions, marketing costs are NOK 48.2 million higher for the twelve months ended 31 December 2015 compared to the twelve months ended 31 December Additionally various project costs has incurred related to the refurbishment of four Norwegian coastal ships, the acquisition and rebuild of MS Spitsbergen Explorer, introducing MS Midnatsol to Antarctica, introducing expedition teams on board some of our Coastal ships and other efficiency projects within some administrative functions. The project costs are expensed mainly as administrative costs, but a smaller part has been expensed as operating costs. Fuel costs decreased with NOK 75.1 million in the twelve months ended 31 December 2015 compared to the twelve months ended 31 December 2014, mainly due to the low oil price. Depreciation, Amortization and Impairment Losses Depreciation, amortization and impairment losses from continuing operations for the twelve months ended 31 December 2015 increased by NOK 8.4 million, to NOK million from NOK million in the twelve months ended 31 December Other losses net Other losses net from continuing operations for the twelve months ended 31 December 2015 ended at NOK million compared to a net loss of NOK 93.5 million for the twelve months ended 31 December These net losses are in principal related to forward exchange contracts and bunker swaps. Other losses net for the twelve months ended 31 December 2015 includes net losses on derivative financial instruments of NOK million and for the twelve months ended 31 December 2014 a net loss of NOK 94.1 million. For the twelve months ended 31 December 2015 net losses of NOK million is related to derivative contracts which was terminated as part of the refinancing of the company and NOK 7.5 million is related to the premium for a bunker call for the period May 2015 through September EBITDA Our EBITDA from continuing operations for the twelve months ended 31 December 2015 decreased by NOK 59.4 million, or 11.3%, to NOK million from NOK million in the twelve months ended 31 December Non-recurring items for the twelve months ended 31 December 2015 totals NOK million where the following are the major ones; i) a NOK 62.0 million in administrative expenses as a result of the acquisition of Hurtigruten AS and; ii) a NOK million net loss on foreign exchange and bunker derivatives terminated in January 2015 and NOK 38.0 million net loss on other foreign exchange and bunkers derivatives. The rest of the non-recurring costs are mainly related to legal fee on the harbour case and project costs. The revenue increase 21

22 on all our business segments together with increased operational efficiency and a favourable oil price results in an improved EBITDA adjusted for the non-recurring items incurred in the twelve months ended 31 December 2015 compared to the twelve months ended 31 December In the comparable period, the twelve months ended 31 December 2014, non-recurring items totalled NOK million. The Normalised Adjusted EBITDA from continuing operations does not include the above mentioned nonrecurring items among other smaller effects, and increased by NOK million, or 41.5%, to NOK million for the twelve months ended 31 December 2015 from NOK million in the twelve months ended 31 December Hurtigruten Norwegian Coast EBITDA for the twelve months ended 31 December 2015 increased by NOK 69.4 million, or 18.4%, to NOK million from NOK million in the twelve months ended 31 December The EBITDA increase is related to increased revenue and lower fuel costs partly offset an influenced by a NOK million share of the increase in non-recurring items where the major ones are the ones mentioned above. In the comparable period, the twelve months ended 31 December 2014, non-recurring items totalled NOK million. MS Fram EBITDA for the twelve months ended 31 December 2015 decreased by NOK 24.2 million, or 21.4% to NOK 88.8 million from NOK million in the twelve months ended 31 December The decrease is primarily attributable to a NOK 14.9 million share of the increase in non-recurring items and a planned docking in April In the comparable period, the twelve months ended 31 December 2014, non-recurring items totalled NOK 5.5 million. Spitsbergen EBITDA for the twelve months ended 31 December 2015 increased by NOK 15.2 million, or 45.9% to NOK 48.3 million from NOK 33.1 million in the twelve months ended 31 December The EBITDA increase comes from an increase in guest nights and gross revenue per guest night, partly offset by a NOK 3.1 million share of the increase in non-recurring items. Other business EBITDA for the twelve months ended 31 December 2015 decreased by NOK 1.0 million, or 46.4% to NOK 1.2 million from NOK 2.2 million in the twelve months ended 31 December EBITDA margin Our EBITDA margin from continuing operations for the twelve months ended 31 December 2015 decreased by 0.1 percentage points, to 14.4% from 14.5% in the twelve months ended 31 December 2014 due to the nonrecurring items related to the acquisition of Hurtigruten AS. However, Normalised Adjusted EBITDA margin for the twelve months ended 31 December 2015 increased by 4.8 percentage points, to 22.7% from 17.9% in the twelve months ended 31 December Hurtigruten Norwegian Coast EBITDA margin for the twelve months ended 31 December 2015 decreased by 0.9 percentage points, to 13.1% from 12.2% in the twelve months ended 31 December The Normalised Adjusted EBITDA margin for the twelve months ended 31 December 2015 increased by 6.3 percentage points, to 22.4% from 16.1% in the twelve months ended 31 December MS Fram EBITDA margin for the twelve months ended 31 December 2015 decreased by 8.9 percentage points, to 23.2% from 32.1% in the twelve months ended 31 December The Normalised Adjusted EBITDA margin for the twelve months ended 31 December 2015 decreased by 6.6 percentage points, to 27.1% from 33.6% in the twelve months ended 31 December Spitsbergen EBITDA margin for the twelve months ended 31 December 2015 increased by 1.7 percentage points to 18.0%, from 16.2% in the twelve months ended 31 December The Normalised Adjusted EBITDA margin for the twelve months ended 31 December 2015 increased by 2.9 percentage points, to 19.1% from 16.2% in the twelve months ended 31 December Other business EBITDA margin for the twelve months ended 31 December 2015 decreased by 36.2 percentage points, to 64.1% from 100.3% in the twelve months ended 31 December Operating profit Operating profit from continuing operations for the twelve months ended 31 December 2015 increased by NOK 51.0 million, or 34.6%, to NOK million from NOK million in the twelve months ended 31 December 2014, primarily due to the reasons stated above with respect to EBITDA. 22

23 Finance expenses net Finance expenses net from continuing operations for the twelve months ended 31 December 2015 increased by NOK million, or 109.4%, to NOK million from NOK million in twelve months ended 31 December Finance expense for the twelve months ended 31 December 2015 increased by NOK million, or 102.0%, to NOK million from NOK million in the twelve months ended 31 December The increase was principally a result of; i) increased interest expenses since the twelve months ended 31 December 2015 includes the financing of Silk Bidco group which is higher and at other conditions than in the comparable period of the twelve months ended 31 December 2014 for Hurtigruten group; which is partly offset by ii) a decrease in fees and termination costs related to the refinancing of the company following the acquisition of Hurtigruten ASA of NOK 88.1 which came to NOK 39.5 million in the twelve months ended 31 December 2015 from NOK million in the twelve months ended 31 December 2014; iii) a foreign exchange loss of NOK 32.9 million related to the repayment of the bridge financing and; iv) an unrealised foreign exchange loss on the fair value evaluation of the bond of NOK million due to weakening of the Norwegian kroner since the issuance of the bond; which is partly offset by v) a decrease in realised and unrealised gross losses of NOK 38.6 million, related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner, in the twelve months ended 31 December The finance expense was partially offset by finance income of NOK million in the twelve months ended 31 December 2015 and NOK 91.1 million in the twelve months ended 31 December 2014, representing an increase of NOK 65.6 million, or 72.0%. Such increase in finance income was primarily due to an increase in realised and unrealised gross gains of NOK 66.5 million, related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner, in the twelve months ended 31 December Share of profit/(loss) of associates Share of profit of associates from continuing operations for the twelve months ended 31 December 2015 came to NOK 1.0 million, principally on par with the twelve months ended 31 December Income tax expense from continuing operations Income tax expense from continuing operations for the twelve months ended 31 December 2015 came to NOK 22.0 million which related to a profit before income tax for some of the subsidiaries. In the twelve months ended 31 December 2014 the income tax expense was NOK 5.0 million. Profit/(loss) for the period from continuing operations As a result of the factors discussed above, loss from continuing operations for the twelve months ended 31 December 2015 decreased by NOK million to a loss of NOK million from a loss of NOK million in the twelve months ended 31 December 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 twelve months ended 31 December 2015, these sources of liquidity, together with existing available borrowings under our Revolving Credit Facility, will be sufficient to fund our operations, capital expenditures and debt service obligations for at least the next twelve months. The following table summarizes our consolidated statements of cash flows for the periods indicated. 23

24 Twelve months ended 31 December December 2015 (NOK thousands) Net cash flows from/(used in) operating activities. 497, ,761 Net cash flows from/(used in) investing activities.. (148,329) (788,217) Net cash flows from/(used in) financing activities. (475,590) 274,307 Cash, cash equivalents and bank overdrafts.. 265, ,450 Net cash flows from/used in operating activities The following table reconciles our profit/loss to net cash flows from/(used in) operating activities for the periods indicated: Twelve months ended 31 December December 2015 (NOK thousands) Profit/(loss) before income tax from continuing and discontinued operations.. (208,656) (579,646) Adjustments for: Depreciation, amortization and impairment losses from continuing and discontinued business. 395, ,077 Other (losses)/gains - net (12,409) 307 Foreign exchange (losses)/gains - net ,325 (Losses)/gains on derivatives 47, ,182 Dividends received (869) (496) Interest expenses.. 328, ,188 Share of profit/(loss) of associates from continuing and discontinued operations.. (1,039) (995) Impairment on financial investments 2,137 - Difference between expensed pension and payments. (8,203) 6,204 Change in working capital: Inventories (7,480) (7,938) Trade and other receivables. (54,861) (67,779) Financial assets at fair value through profit or loss. 41,057 - Trade and other payables. 155, ,152 Interests paid.. (174,973) (269,370) Income tax paid.. (4,127) (12,448) Net cash flows from/(used in) operating activities.. 497, ,761 The principal factors affecting our net cash flows from operating activities in the periods presented are the change in our operating profit, the impact of changes in our working capital, the amount of interest paid and the movement with respect to our income taxes. A number of our operating costs are fixed; however certain of our costs, such as costs of goods, vary on a seasonal basis in line with our peak season, which typically occurs in the second and third calendar quarters of each year. We also collect a portion of pre-booked revenues at the time of booking and our peak booking periods are from September to October and January to February. The amount of revenues collected in advance is approximately 10 to 30% of the total cost of the trip booked. Therefore, due to the seasonal nature of our business, we tend to have positive working capital during our peak season in the second and third calendar quarters, and negative working capital during the first and fourth calendar quarters (our non-peak period) when we collect less revenues. Our operating costs are generally lower during our non-peak season. However, in addition to our fixed costs, the phasing of certain of our expenses does not track the seasonality of our revenues. For example, we typically schedule dry-docking of our ships during the winter season, and this has a negative effect on our working capital during our non-peak period. 24

25 Net cash flows from operating activities increased by NOK 21.1 million, to NOK million in the twelve months ended 31 December 2015 compared to NOK million in the twelve months ended 31 December 2014 reflecting an increase in the cash flows from underlying operations. This increase is to a far extent offset by a decrease in a positive change in the working capital in the twelve months ended 31 December 2015 due to prepayments of NOK 57.8 million related to the first two ships in the refurbishment program and settlement of the terminated option schemes for the corporate management following the Company's acquisition of Hurtigruten of NOK 50.1 million. Additionally interests paid increased by NOK 94.4 million and came to NOK million in the twelve months ended 31 December 2015 compared to NOK in the twelve months ended 31 December 2014 as a result of the financing of Silk Bidco group which is higher and at other conditions than in the comparable period for Hurtigruten group. Net cash flows from/used in investing activities The following table summarizes the principal components of our net cash flows from/(used in) investing activities for the period indicated: Twelve months ended 31 December December 2015 (NOK thousands) Purchases of property, plant and equipment ( PPE ). (175,270) (418,837) Net proceeds from sale of PPE.. 67, Purchases of intangible assets. (45,473) (79,654) Loans to associates and other companies ,006 Proceeds from sale of shares and shareholdings 41,900 - Net liquid assets from purchase and sale of businesses. (69,997) - Settlement of derivatives.. - (311,109) Dividends received and payments from associates.. 26, Change in restricted funds.. 6,809 10,753 Net cash flows from/(used in) investing activities (148,329) (788,217) Cash flows used in investing activities principally relates to capital expenditures on property, plant and equipment and intangible assets, less any proceeds from the sale or disposal of property, plant and equipment and shares and shareholdings. Net cash flows used in investing activities decreased by NOK million to NOK million in the twelve months ended 31 December 2015 compared to NOK million in the twelve months ended 31 December The major items explaining this decrease is for the twelve months ended 31 December 2015; i) the settlement of almost all derivatives in relation to the refinancing, totalling NOK million and; ii) capital expenditure related to the investment in and rebuild of a new expedition ship totalling NOK million and investments to improve on-line booking totalling NOK 72.7 million. Additionally, the following positive cash flows from investing activities in the twelve months ended 31 December 2014 explains the decrease; i) proceeds we received from the sale of our Fast Ferries Business in March 2014 and the sale of property in May 2014 used by our bus business and; ii) proceed from an associated company following the sale of a property. In total our capital expenditure increased by NOK million in the periods discussed, and includes in the twelve months ended 31 December 2015 expenses with respect to scheduled dry-dockings of our ships during this period, NOK million related to the acquisition and rebuild of our new expedition ship MS Spitsbergen Explorer as well as investments to improve on-line booking totalling NOK 72.7 million. We expect our normalised capital expenditures in 2015 and 2016 to be at about NOK 200 million per year (2014 Norwegian kroner) based on our current operations. Such capital expenditure will be incurred primarily in relation to ongoing maintenance of our fleet including minor upgrades to public areas; NOx saving projects in 2015 and 2016 such as work on the engines with respect to MS Finnmarken and MS Trollfjord, the propulsion systems on MS Midnatsol and MS Trollfjord as well as new propellers on MS Kong Harald and MS Nordkapp; further development of our IT infrastructure, including our e-commerce channel; and the upgrade of our Spitsbergen hotels. In addition to this amount, in 2015 we have incurred capital expenditures of approximately NOK 19 million with respect to the 305 Classification rebuild. In 2016 we expect to incur another NOK 10 million related to the 305 Classification rebuild. The 305 Classification rebuild was reduced from a worst case scenario of approximately NOK 118 million since the publication of the Offering Memorandum, after the Ministry of Trade and Industry sided with us in our appeal. We are now in progress with implementation of our equivalent solution for dividing the car deck area for our one compartment ships, which can be done during operations. 25

26 In 2015 and 2016 we also expect capital expenditure of about NOK 350 million related to renewal of four Norwegian coastal ships of which NOK 57.8 million have been paid in 2015 and is included as prepayments in the balance sheet as of 31 December Additionally we will incur capital expenditure on the docking of these ships which is included in our normalised adjusted capital expenditure. We also expect about NOK 247 million related to the rebuild of MS Spitsbergen Explorer. The main part of the capital expenditure will incur in 2016, but NOK 42.4 million has been paid in 2015 and is included in the capital expenditure for the twelve months ended Net cash flows from/used in financing activities The following table summarizes the principal components of our net cash flows used in financing activities for the periods indicated: Twelve months ended 31 December December 2015 (NOK thousands) Sale of treasury shares 2,054 - Proceeds from borrowings. 100,000 3,270,314 Repayments of borrowings (488,399) (2,978,313) Proceeds from borrowings from group companies.. (44,622) 23,000 Dividend paid to non-controlling interests.. (44,622) (40,694) Net cash flows from/(used in) financing activities.. (475,590) 274,307 Cash from/used in financing activities reflects the repayment of our previously outstanding debt, including our senior facility, notes and revolving credit facility, as well as the indebtedness of the limited partners in the SPEs. Net cash flows from financing activities came to NOK million in the twelve months ended 31 December 2015 and reflect the refinancing of the company. The proceeds from borrowings includes the issuance of the bond reduced for repayment of the first draw of the bridge financing which was done in December 2014 and reduced for fees paid in relation to the refinancing. Additionally, the utilisation of the Revolving Credit Facility totalling NOK 650 million is included in Proceeds from borrowings. Repayment of borrowings reflects the repayment of our previously outstanding debt, including our senior facility, notes and revolving credit facility, repayment of NOK 400 million on the Revolving Credit Facility as well as the indebtedness of the limited partners in the SPEs and Spitsbergen Travel Group. The redemption of debt in the twelve months ended 31 December 2014 included the redemption of a NOK 40 million related to the two remaining fast ferries on the occasion of their sale in March 2014, the repayment of NOK 150 million on a short-term seasonal credit as well as instalments of our previously outstanding debt. 26

27 Off-balance Sheet Arrangements Hurtigruten AS has deferred income tax assets recognised in the balance sheet of NOK million at 31 December 2015 and NOK million in deferred income tax assets not recognised in the balance sheet. In the future when taxable profit is sufficient to utilise deferred income tax assets, Hurtigruten will first utilise deferred income tax assets that is not recognised in the balance sheet. Tax losses may be carried forward for an indefinite period in Norway. Except for 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 2015: Total Payments Due By Period Less than 1 year 1-5 years After 5 years (NOK equivalent in millions) Notes (1) Local Line Facilities Bareboat charter obligations (2) Capital expenditure commitments (3) Total (1) Represents million in aggregate principal amount of the Notes. (2) Bareboat charter obligations consist of charter hire agreements relating to our bareboat charter lease agreements with Kirberg Shipping KS and Kystruten KS for the MS Nordlys and MS Richard With, respectively. (3) Capital expenditure commitments are contractual commitments for dry-dockings, work on the engines with respect to MS Finnmarken and MS Trollfjord, replacement of the propulsion system on MS Midnatsol and MS Trollfjord, new propellers on MS Kong Harald and MS Nordkapp, installations on MS Midnatsol for operations in Antarctica, rebuilding the side gate on MS Spitsbergen Explorer, renewal of four Norwegian coastal ships, docking for two of these ships, rebuild of MS Spitsbergen Explorer, 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 and 2016 may be reimbursed by the Confederation of Norwegian Enterprise s NOx fund. See Net Cash Flows from/used in Investing Activities. The increase in the total contractual obligations from the publication of the 2014 Annual bond report is due to the foreign exchange rate and increased capital expenditure commitment related to renewal of four Norwegian coastal ships, docking for two of these ships as well as the rebuild of MS Spitsbergen Explorer. In the table above the period-end Bloomberg Generic rate at 31 December 2015 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 2015 we have a total debt of NOK million which includes NOK 250 million drawn on the Revolving Credit Facility. Additionally we had 39.0 million available under our Revolving Credit Facility at 31 December Quantitative and qualitative disclosure of market risks We are exposed to various market risks as part of our business activities, which are intrinsically linked to our business dealings. See Risk Factors in the annual bond report for 2014 and the "Risk Factors" chapter in the Offering Memorandum. We handle these risks using a risk management system, which forms an integral part of our business process and is a key factor in business decisions. It aims to identify potential risks in connection with our business activities at an early stage, to monitor them and to take suitable measures to limit them. The key elements of the risk management system include the planning system, internal reporting and integrated risk reporting. 27

28 Selected critical accounting policies The preparation of the consolidated financial statements requires management to make estimates and assumptions, based on historical experience and various other factors, including expectations of future events that are believed to be reasonable under the circumstances, and that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Our audited 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 3 to the audited consolidated financial statement for Silk Bidco group for the year ended 31 December 2015 which is included in the annual bond report for For information regarding significant accounting policies, see note 2 to the audited consolidated financial statement for Silk Bidco group for the year ended 31 December 2015 which is included in the annual bond report for

29 Recent developments in the business Business developments in 2015 EFTA Surveillance Authority State Aid Investigation The EFTA Surveillance Authority (ESA) announced 11 December 2015 they had decided to open an in-depth investigation in order to clarify whether Hurtigruten has received any over-compensation which goes against the state aid rules of the EEA Agreement. The Authority also investigates whether Hurtigruten ensures that everyone has access to the public service. The Ministry of Transport has prepared a letter to the ESA which was distributed mid-february. On the further process we do not expect any development until the ESA respond on the letter, and for the time being we have no indications on when to expect the response. As of today the investigation does not affect our ongoing operation and cash flow. Introducing MS Midnatsol to Antarctica in 2016/2017 MS Midnatsol will be introduced to Antarctica September 2016 and will until April 2017 do 10 spectacular sailings in Antarctica. In addition, the ship will do six unique sailings under south- and northbound crossings of the Atlantic. As MS Fram, MS Midnatsol will be registered in NIS flag (Norwegian International Ship Register) when sailing in Antarctica. Introducing MS Midnatsol into expedition voyaging in Antarctica is an important strategic decision for the company and supports our new vision "World leader in exploration travel." The expedition market is growing rapidly and the company wants to capitalize on the significant improvement of MS Fram. Following the introduction of Midnatsol to Antarctica, Hurtigruten doubles the capacity and become the largest operator with both MS Midnatsol and MS Fram in expedition voyaging in Antarctica. The itineraries for MS Midnatsol in Antarctica are adjusted to seasonal variations and follow the wildlife in the area, the ice conditions and the local cultural history. Through the choice of itinerary, landing sites and popular scientific lectures on board, guests will experience and explore this continent that has had such a lasting attraction on the world's polar explorers and scientists. MS Midnatsol will not compete with MS Fram. The MS Midnatsol Antarctica concept will have different itineraries, different landing sites, another turnaround port and not least another onboard program than MS Fram. MS Midnatsol will during the Antarctica season be replaced with MS Spitsbergen Explorer (see following note) in the traditional route along the Norwegian coast. Investment in a new expedition ship 30 June 2015 Hurtigruten announced the investment into a new expedition ship, given the temporary name MS Norway Explorer and subsequently named MS Spitsbergen Explorer. The ship will have a guest capacity of 320 and 200 berths, and will replace MS Midnatsol on the coast of Norway when she starts her transit to Antarctica in the fall of The ship will meet all requirements in the government agreement. During the previous months and the months to come the ship will be docked and undergo an extensive conversion before she will enter into service in the spring/early summer this year. The ship will meet our high quality standards and be well suited for expeditions in arctic waters. Comfortable guest cabins and public areas will be designed, and the crew areas will meet high standards. It is a modern and environmentally friendly ship and we will implement additional modifications in order to further reduce emissions and fuel consumption. The acquisition cost of the ship is EUR 17.0 million, which is financed through drawing on the Revolving Credit Facility and cash on the balance sheet. Increasing the capacity provides us with increased flexibility and an opportunity to increase and adapt our guest capacity. Further into the future we will also be able to utilize the ship for expeditions away from the Norwegian coast including destinations such as Greenland, Svalbard and Antarctica. 29

30 Ship facts, MS Spitsbergen Explorer The ship is built in 2009 in the Portuguese city Viana do Castelo. It features a modern and fuel efficient propulsion system and has great manoeuvrability properties. Gross tonnage: 7025 Length: m With: 18 m Draft: 5 m Propulsion system: 2x 360 graders Azimut thrusters Machinery: Diesel electric Speed: 17.4 knots New subsidiaries to Silk Bidco group During the fourth quarter 2015 two 100% owned subsidiaries have been included in to Silk Bidco group; Hurtigruten Explorer AS directly owned by Silk Bidco AS and Explorer I AS owned by Hurtigruten Explorer AS. The subsidiary Explorer I AS entered in to a memorandum of an agreement on 23 November 2015 with Hurtigruten AS to purchase MS Spitsbergen Explorer for EUR 17 million. The purchase price was financed by Hurtigruten providing an unsecured seller's credit in the principal amount of EUR 17 million to Explorer I which is to be repaid in full with interest accrued no later than 180 days after the date of delivery of the vessel to Explorer I. The seller credit will be repaid by an external financing in Explorer I AS. The bareboat charter between Hurtigruten AS and Explorer I AS will be entered in to on general market terms and conditions. Refurbishment of four Norwegian Coastal ships "New Arctic Interior" is the concept name of the largest fleet refurbishment ever in our long history of Hurtigruten and is very important to achieve our goals for increased capacity utilisation and increased earnings. Four of our 90-class ships will undergo total internal makeover during the year. From today's relatively heavy, cruise embossed interior design, we seek an open and informal, but high quality style to suit the casual atmosphere on board. The Norwegian shipyard Fosen won the contract in an international tender process and will be performing the refurbishment works. MS Polarlys, MS Kong Harald and MS Nordkapp are being refurbished in the first quarter of MS Nordnorge is planned to be refurbished in fourth quarter The rebuild is scheduled for 22 days for each vessel. Expected capital expenditure is in the range of NOK 350 million for four ships, of which NOK 57.8 million have been paid in 2015, and will be financed inside the restricted group through free cash flow combined with the Revolving Credit Facility. This fleet refurbishment is driven by increased earnings and will come on top of the normalised capital expenditure, which we expect to be at about NOK 200 million per year (2014 Norwegian kroner) in 2015 and 2016 based on our current operations. Hurtigruten Foundation Hurtigruten aims to be world leading in sustainable explorer travel in the polar regions. By establishing The Hurtigruten Foundation, the company seeks to enhance awareness and contribute to protect the vulnerable nature and unique culture in the regions Hurtigruten visits in the Arctic, in Antarctica, and along the Norwegian coast. The Foundation will raise funds to respectively exploit or reduce them through a number of initiatives worldwide. We want to offer travel with meaning. By having guests, staff, partners and Hurtigruten friends around the world joining forces. Our aim is to ensure future guests the same unique experiences in these areas as guests of today The first ambassador of the Hurtigruten Foundation is UN Patron of the Oceans Lewis Pugh. Pugh has made spectacular swims all around the world, also in freezing cold water on the North Pole and in Antarctica, all to create awareness about how important it is to safeguard the environment of these waters. By being one of the spearheads of the United Nations Environment Program, Lewis Pugh has won access to state leaders all over the world. He is appointed as Young Global Leader by the World Economic Forum and his many strenuous pioneer swims have resulted in National Geographic appointing him to one of their Adventurers of the Year. As ambassador, Lewis Pugh will be a part of selected Hurtigruten voyages, giving lectures and taking part in excursions. His first sailing will be with MS Midnatsol to Antarctica early winter

31 Legal and Regulatory 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. This can be employee claims, contract disputes or conflicts arising from challenging existing constraints relevant to our business. In 2015 Hurtigruten won in the Norwegian Supreme Court in a long running case regarding increased port fees in the port of Geiranger. This led to a reduction in the port fees in Geiranger of over 90 percent. Hurtigruten is continuing its fight against high fees in a number of other ports and has uncovered serious errors in accounts and practice in a number of other Norwegian ports. This has been brought to the attention of the Coastal Directorate, which is now reviewing accounts in several ports. However, the Coastal Directorate s powers are limited so we are also taking legal steps and have by November 2015 brought claims against 29 ports requesting refunds of excessive port fees charged in previous years. In total the claims against the 29 ports sums up to NOK 120 million for the years These claims are fiercely contested by the ports and the legal issues are quite complex and only partly parallel to those successfully tested in the case regarding Geiranger. To protect against potentially high legal fees it has therefore been decided to try a limited number of cases before the courts first, while safeguarding the claims against the other ports against becoming time barred. The first court case, which is against Bodø Port, was heard by the District Court in early April 2016 and the ruling is expected end of April

32 Management Directors and Managers of Hurtigruten Board of Directors The group s operations are conducted through Silk Bidco AS and its subsidiaries. Set forth below are the names, ages and positions of the members of the board of directors of Silk Bidco AS. The business address of each of the directors of Silk Bidco is c/o Hurtigruten AS, Frederik Langesgate 14, 9008 Tromsø, Norway. Name Age Title Trygve Hegnar 72 Chairman Petter Stordalen 53 Director Jonathan Rosen 45 Director Matthew Lenczner 37 Director Trygve Hegnar. Mr. Hegnar became chairman of the board in January Mr. Hegnar is the owner and the Chief Executive Officer of Hegnar Media AS and editor of both Finansavisen and Kapital. He is also chairman of the board and one of the owners of Periscopus AS. He is currently a member of the board of directors of Windy Boats, Hotel Vic and Hegnar Hotel (Holmen Fjordhotell). From 1988 to 1992, Mr. Hegnar was Chief Executive Officer at Kloster Cruise/Norwegian Cruise Line. From 1990 to 1992, he was chairman of the board at Ullevål Hospital and for seven years he was also chairman of the board of Larvik Line ferry operator. Larvik Line was incorporated in Vard Group AS at the time when Mr. Hegnar served as a board member of NCL Holding AS (formerly Vard AS). Over the course of his career, in addition to the aforementioned directorships, Mr. Hegnar has also served as chairman of the board of the Bennet Travel Agency Chain. He holds a degree in Business Administration from Mannheim University in Germany. Petter Stordalen. Mr. Stordalen became a member of the board in January Mr. Stordalen is the owner and CEO of Home Invest AS, which controls such companies as Nordic Choice Hotels, Home Properties and Home Capital. Home Invest AS is the Group s operating parent company, and Mr. Stordalen is the sole owner through Anker Holding AS. Mr. Stordalen has been the Owner and Chairman of Nordic Choice Hotels since In addition to the aforementioned directorships, Mr. Stordalen is also the Founder of Stordalen Foundation. Jonathan Rosen. Mr. Rosen was appointed member of the board in September Mr. Rosen has worked in private equity for over 20 years and joined TDR Capital in Prior to TDR Capital, Mr. Rosen was a Partner at Hampshire Equity Partners for nine years, and prior to that he worked at BT Capital Partners for five years. Over the course of his career, Mr. Rosen has sourced, managed and sat on the board of directors of many private equity investments. Mr. Rosen graduated from Duke University with degree in Economics and Public Policy. Matthew Lenczner. Mr. Lenczner was appointed member of the board in January 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. 32

33 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 40 Chief Executive Officer Asta Lassesen 34 Chief Financial Officer Arild Kaale 47 Chief Commercial Officer Robert Grefstad 44 Chief Information Officer Kjetil Bruun-Olsen 60 Senior Vice President Maritime Operations Thomas Westergaard 51 Senior Vice President Hotel Operations Anne Marit Bjørnflaten 46 Senior Vice President Communications Marit Finnanger 41 Senior Vice President People & Organisational Development There have been several changes to the Senior Management team since the publication of the Annual Bond Report Below is a brief description of the experience of each member of the senior management. Daniel Skjeldam. Mr. Skjeldam joined Hurtigruten in October 2012 when he was appointed Chief Executive Officer. He has since then led Hurtigruten through a major turnaround including a 145 change in strategy and the implementation of the Efficiency Improvement Program. From 2007 to 2012, Mr. Skjeldam worked as Chief Commercial Officer of Norwegian Air Shuttle ASA. He was a part of Norwegian s start up team in 2002 and from 2002 to 2007 he held the positions of Director of Station Services and Director of Network and Revenue Management. He is currently a board member of Norwegian Finans Holding ASA (Bank Norwegian) and has previous board experience in the aviation, public transport and shipping industries. Mr. Skjeldam holds a MSc. (Econ) degree from the Norwegian School of Economics and Business Administration (NHH) in Bergen. Asta Lassesen. Mrs. Lassesen joined Hurtigruten in April 2007 as Accounting Manager. From July 2010 to December 2011, Mrs. Lassesen worked as Treasurer. Mrs. Lassesen became Chief Financial Officer in January From 2004 to 2007, Mrs. Lassesen worked as an auditor at Ernst & Young in Tromsø. She holds a Masters of Business Administration from Bodø Graduate School of Business. Arild Kaale. Mr. Kaale joined Hurtigruten on 1 September 2015 as Chief Commercial Officer. Mr Kaale comes from the Telenor Group where he worked in various positions within sales, marketing and commercial development since From 2012 until 2015, he held the position of Chief Marketing Officer in Telenor Sweden. From he held the position of Chief Commercial Officer in GrameenPhone, in the period he was Chief Marketing Officer in Telenor Promonte, from he was CMO in Telenor Business Norway and from he held the position as Commercial Director in Telenor Zonavi. Prior to 2001, Mr. Kaale was working within marketing and sales in Scandinavian Airlines. Mr. Kaale holds a MSc in Marketing from BI Norwegian Business School. Robert Grefstad. Mr. Grefstad joined Hurtigruten on 1 November 2015 as Chief Information Officer. Mr. Grefstad comes from the Elkjøp Group where he has worked a cross a variety of ICT roles since From 2002 to 2015 he held the position of Chief Information Officer in Elkjøp Nordic AS. Prior to 2002, he worked as IT Infrastructure manager in Elkjøp ASA and IT Consultant in Elkjøp Norge AS. Mr. Grefstad holds a BSc from the University College of Sør-Trøndelag (HiST). Kjetil Bruun-Olsen. Mr. Olsen joined Hurtigruten on 11 January 2016 as acting SVP Maritime Operations. Mr Bruun-Olsen is hired in from the consultancy group Fram Marine AS, where he since 2010 has been working in various projects and positions within technology and operations for clients. From he held the position as Technical Director for Green Reefers ASA, in the period he was VP Projects and Operations for FPSOcean. Mr. Bruun-Olsen has in total more than 30 years of experience within shipping and oil & gas sector. Mr. Bruun-Olsen holds a MSc in Naval Engineering from NTNU and Business Economy from BI Norwegian Business School. 33

34 Thomas Westergaard. Mr. Westergaard joined Hurtigruten as Senior Vice President Hotel Operations and Product Development in March From 2012 to 2014, Mr. Westergaard was Managing Partner and owner of Stay Tuned Hospitality, a privately held consultancy company advising on hotel development projects in Scandinavia. From 2005 to 2012, he was Senior Vice President at Comfort Hotels, Nordic Choice Hotels. From 2003 to 2005, he held a position as Managing Director of Choice Hotels Denmark. Mr. Westergaard has worked in management positions in the hotel industry for the last 20 years and has served as General Manager at Scandic and Thon Hotels. From 2002 to 2003, Mr. Westergaard managed the Clarion Hotel Royal Christiania in Oslo. Mr. Westergaard holds an associate of science degree in Hotel and Restaurant Management from Johnson & Wales University. Anne Marit Bjørnflaten. Ms. Bjørnflaten joined Hurtigruten as Senior Vice President of Corporate Communications in September From 2005 to 2013, Ms. Bjørnflaten was a member of the Norwegian Parliament. From 2005 to 2013, she served as Chair of the Standing Committee on Justice, and from 2009 to 2013 as Deputy Chair of the Standing Committee on Transport. Ms. Bjørnflaten also was the Labor Party spokesperson on transportation and communications matters. From 2002 to 2003, she was Head of Communication at the Norwegian Centre for Integrated Care and Telemedicine. From 2000 to 2001, Ms. Bjørnflaten worked as political adviser to the Minister of Foreign Affairs at the Norwegian Ministry of Foreign Affairs. From 1999 to 2000, Ms. Bjørnflaten was a political adviser to the parliamentary leader and the Labor Party leader. From 1998 to 1999, she was a journalist at NRK Troms. Ms. Bjørnflaten has graduated with an undergraduate degree in History from Tromsø University, an undergraduate degree in Political Science from the University of Oslo and an undergraduate degree in Media and Communications from the University of Bergen. 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. Committees Following the delisting of Hurtigruten from the Oslo stock exchange early 2015, 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 Meunier and Regina Mari Aasli Paulsen. Compensation The aggregate compensation paid to the company s then-existing directors and senior management team for the fiscal year ended 31 December 2015 was NOK 23.1 million. 34

35 Principal shareholders There have been some changes to the Principal Shareholders since the publication of the Offering Memorandum. The structure as of the time of this report is illustrated below. (1) TDR Nominees Limited holds 100% of the shares in Silk Holdings Sarl as legal owner on behalf of 3 Partnerships constituting TDR Capital III. (2) The shares held by the management breaks down as follows: Hornsund Invest AS holds 0.9%, A.Y. Invest AS holds 0.4%, Stay Tuned Invest AS holds 0.2%, Infinite Invest AS holds 0.1%, Bjørnflaten Invest AS holds 0.1% and Mfortitude holds 0.1%. 35

36 Related party transactions Except for the updated lease payment for the year ended 31 December 2015 below, there have been no material changes to the Related Party Transactions since the publication of the Offering Memorandum. Management Incentive Programme In the second quarter of 2015, the management team in Hurtigruten have entered into a Management Incentive Program including buying shares in Silk Topco AS of a total of 1.8% of the total shares in Silk Topco AS. 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 1.4 million in the twelve months ended 31 December 2015 and NOK 0.9 million in the twelve months ended 31 December

37 Description of other indebtedness Revolving Credit Facility Agreement We are party to the Revolving Credit Facility Agreement which provides for a committed 65 million multicurrency senior revolving credit facility (the Revolving Credit Facility ), of which NOK million was drawn on 22 January 2015 to be used in connection with the Hurtigruten Acquisition Transactions. Another NOK 100 million was drawn on 11 February 2015 as well as NOK 100 million drawn on 13 March These funds have been used to pay fees related to the refinancing of the Company and to settle the terminated options allocated to management following the Company's acquisition of Hurtigruten. Additionally the first and the fourth quarter are the lowest in terms of revenue compared to the second and third quarter, and at the same time the first and the fourth quarters are the time of the year when the dry-dockings are carried through. Accordingly our liquidity is at its lowest at the end of the first quarter. On 22 May we repaid NOK 100 million and another NOK 150 million on 22 June Following the investment of a new expedition ship MS Spitsbergen Explorer, NOK 100 million was drawn on 1 July On 12 August we repaid NOK 100 million and on 13 August another NOK 50 million. On 23 December 2015 NOK 100 million was drawn. As of 31 December 2015 the drawn amount on the Revolving Credit Facility is therefore NOK 250 million, of which NOK 150 million have been used to fund the acquisition of MS Spitsbergen Explorer and NOK 100 million to prepayments on the renewal of four Norwegian coastal ships and the rebuild of MS Spitsbergen Explorer. In relation to the refurbishment of the four Norwegian coastal ships and the rebuild of MS Spitsbergen Explorer, the remaining amounts available under the RCF were drawn in 2016: NOK 100 million at 18 January, NOK 150 million at 28 January, NOK 100 million on 11 February and EUR 1.9 million on 22 March At the time of this report the RCF is fully drawn. As several tranches are NOK denominated whereas the facility is EUR denominated, the available amount in NOK may vary due to currency fluctuations. 37

38 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 Bond report 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. 38

39 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. 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. 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 39

40 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 Green Dog Svalbard AS, in which we have a 50% ownership interest and which offers dog sledding-related tourist experiences on Spitsbergen 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. 40

41 Annual Report 2015 Published 20 April 2016 Silk Bidco AS c/o Hurtigruten AS, Fredrik Langes gate 14, P.O. Box 6144 Langnes, 9291 Tromsø, Norway Booking: , Switchboard: Business register number: NO VAT

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43 Directors report 2015 Hurtigruten new vision and new owners World leader in exploration travel The Group provides travel experiences which no other player comes close to matching. Along the Norwegian coast, the Hurtigruten 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, and the introduction of MS Midnatsol to Antarctica as well as MS Spitsbergen in Svalbard, Hurtigruten will sail to some of the world s most unique destinations in 2016 and takes its guests on unforgettable expeditions to Greenland, the Antarctic and Svalbard. International tourism trends show growth in demand for unique destinations. With its strong traditions and clear brand, Hurtigruten has an unrivalled basis for positioning itself as a world leader in this segment. Hurtigruten will develop and renew itself. It will launch new excursions and new products. After a successful period of restructuring, Hurtigruten has turned its business around and achieved positive financial results. As a consequence, Hurtigruten decided to invest substantially in the fleet throughout Hurtigruten s first investment was the acquisition of MS Spitsbergen, representing Hurtigruten s first fleet expansion since contracting MS Fram in MS Spitsbergen will enter service in spring 2016 as part of the coastal route, after an extensive conversion to a modern explorer vessel equipped for polar waters. In addition, Hurtigruten launched a substantial refurbishment of four 90-class vessels in 2015, the MS Kong Harald, MS Polarlys, MS Nordkapp and MS Nordnorge. Fosen Yards in Norway was appointed as preferred yard for the work done on all of these vessels. Increasing capacity and refurbishing the existing fleet provides Hurtigruten with greater flexibility and an opportunity to tailor our offerings, attracting more guests and new segments. In the future the MS Spitsbergen will also be utilized for expeditions for destinations such as Greenland, Svalbard and Antarctica. New owners and better normalised results The annual accounts for 2015 for Silk Bidco AS and its subsidiaries include Silk Bidco Group transactions occurring during 2014 which mainly relate to the foundation of the company in September, the acquisition of Hurtigruten AS in December and the profit & loss statement for Hurtigruten Group at December Further information regarding the acquisition has been presented below. According to the Norwegian Accounting Act the first financial year may be longer than 12 months. However, the financial year may not in any circumstances exceed 18 months. In the following discussions for the period ended 31 December 2015, the comparable period of twelve months ended 31 December 2014 only includes Hurtigruten Group. 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 Hurtigruten, 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 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. The Group has adopted a term of Normalised Adjusted EBITDA in connection with the sale of the bond. This was done by excluding discontinued operations and removing non-recurring expenses and/or revenue from a standard financial metric EBITDA. The term of Normalised Adjusted EBITDA has been adopted in order to separate two different terms. Operational results for Silk Bidco AS and its subsidiaries developed as expected for the period ended 31 December 2015 with an improvement of NOK 274 million, or 42%, in Normalised Adjusted EBITDA to NOK 926 million from NOK 652 million in The improvement in Normalised Adjusted EBITDA is driven by the three latest quarters. Increased commercial focus and increased operational efficiency has been important throughout the efficiency program and is materialising by increased Normalised adjusted EBITDA margin in the twelve months ended 31 December 2015 compared to twelve months ended 31 December The macroeconomic environment also continues to stay favourable with a weak Norwegian krone and low oil price. 3

44 Business and location Hurtigruten conducts global expedition tourism and transport activities along the Norwegian coast. Eleven of the thirteen ships in its fleet are employed on the Norwegian coast, while MS Fram, as well as MS Midnatsol and MS Spitbergen from 2016, provide explorer voyages in Arctic and Antarctic waters, to Svalbard, Greenland, Iceland and Antarctica. Hurtigruten has its corporate centre in Tromsø, a strategic location for one of the world leaders in exploration travel in polar waters. As a historical hub 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. Hurtigruten is also represented by a sales office in Oslo and by a crewing company and 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 2015 were international tourism, local transport and freight shipments along the Norwegian coast with 11 ships sailing between Bergen and Kirkenes. An important part of Hurtigruten s business is MS Fram s explorer voyages around Svalbard, Greenland and Antarctica. The Hurtigruten group also embraces Arctic experience tourism and hotel operations in Svalbard through the wholly owned Spitsbergen Travel group. The group s business segments are divided into the following product areas: Hurtigruten Norwegian coast, MS Fram and Spitsbergen. Hurtigruten Norwegian coast represents Hurtigruten 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 northbound and southbound 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, Hurtigruten s 11 ships rank as one of Norway s most renowned tourist attractions and are positioned internationally as a world-class niche offering. Explorer products embrace Hurtigruten s explorer operations in the Antarctic and around Greenland and Svalbard with MS Fram, and in the future with MS Midnatsol and MS Spitsbergen. Hurtigruten is a major player 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. Additionally, seasonal cruises on the former Hurtigruten ship MS Nordstjernen were introduced in 2015, strengthening the explorer product. 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 13 ships specially built for expedition voyages in Polar waters, Hurtigruten 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. Hurtigruten believes its product portfolio differs significantly from the ones offered by other 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 regions. Hurtigruten Norwegian coast appeals to guests who prefer to be close to nature and who value the experience of authenticity. Being smaller than conventional 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, 4

45 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. After a successful period of restructuring, Hurtigruten has turned the business around and achieved positive financial results. As a consequence, Hurtigruten decided to invest substantially in the fleet throughout Hurtigruten s first investment was the acquisition of the first new ship since contracting MS Fram in The new ship, MS Spitsbergen, will enter service in spring 2016, after an extensive conversion to a modern explorer vessel adapted to sailings in polar waters. The investment was an important strategic decision, since unique destinations such as Antarctica and the Arctic are growing, and Hurtigruten aims to take part of this development and gain more flexibility in fleet utilization. The second investment was the decision to undergo the largest fleet refurbishment ever, and in its first phase, four 90- class vessels will be completely overhauled and redesigned by the end of Without becoming exclusive or extravagant, the interior is set out to give guests a consistently high quality experience. Hurtigruten has continued to improve the food concept on board, Norway s Coastal Kitchen. The concept of short travelled, local raw materials, often loaded on board only hours before being served in the restaurant, has been a major success. As expected, it has reinforced the travel experience for the guests on board. In addition to its 11 ships along the Norwegian coast and the new vessel MS Spitsbergen, Hurtigruten operates the specially designed MS Fram (2007). This vessel conducts expeditions in unique Polar waters by Svalbard, Iceland, Greenland and the Antarctic. Its small size allows access to 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 locally sourced products in Hurtigruten 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. This 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 its 120-year history. 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 key travel 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. Hurtigruten 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 13 vessels, which are purpose-built to deliver 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 Hurtigruten. 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 Chief executive Daniel Skjeldam was acclaimed as leader of the year in the Grand Travel Awards of Hurtigruten also won best ferry company, best cruise company under 1000 guest capacity, and the audience award for best travel product of the year for 2015, in HSMAI s Grand Travel Awards. Hurtigruten aims to further develop and strengthen this international positioning. 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. This includes efforts to increase the number of direct flights from abroad to coastal destinations in Norway in order to 5

46 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 60 different excursion providers, who offer seasonally appropriate activities to guests every day throughout the year. This portfolio of excursions is unique both in its size and its variety, and no other player comes close to offering 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. Exploring polar waters The commitment to explorer cruises in Polar waters represents an important part of Hurtigruten 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 2014, continuing in 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. Hurtigruten offers its guests the opportunity to participate in hikes, expeditions on Polarcirkel boats, kayaking and other excursions. These include sleeping on deck, ice bathing and camping in 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 Hurtigruten. In 2015 Hurtigruten further strengthened the world leading position in sustainable expedition travel. On 30 June, Hurtigruten announced its investment in a new expedition ship, MS Spitsbergen. The ship will have a capacity of 320 passengers / 200 berths, and offer expedition voyages to the international market. Hurtigruten is also tripling the capacity allocated tounique Antarctica by positioning MS Midnatsol in the area from the 2016/2017 Antarctica season. MS Spitsbergen will then replace MS Midnatsol on the Norwegian coast. Increasing capacity provides Hurtigruten with improved flexibility and an opportunity anticipate market changes. Further into the future we will also be able to utilize the new ship for expeditions not only on the Norwegian coast, but to destinations such as Greenland, Svalbard and Antarctica. 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 travelers. In addition Spitsbergen Travel operates the expedition vessel MS Nordstjernen on a charter agreement from June to September, offering six days voyages mainly on the west coast of Spitsbergen. The marked has responded very well to this product. Spitsbergen Travel also has this unique Svalbard product available for the 2016 and 2017 seasons. The land products in Svalbard will be better integrated 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-minded 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 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. 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. In 2015, 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 s exposure to variable interest rate risk is limited in 2015 and the Group has no specific hedging strategy to reduce variable interest rate risk. 6

47 Rise in bunker prices The Group is exposed to bunker fuel price risk, and the board of directors has approved a strategy of hedging 75% of estimated future monthly consumption. Liquidity risk The Group has no significant concentration of credit risk. Sales to end users are settled in cash or with recognised credit cards and are paid in full prior to the travel date. 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. 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 expedition ships. Generally speaking, the global cruise industry has a substantial exposure to fluctuations in the world economy, which 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. This has had consequences for Hurtigruten due to key markets such as Germany, the UK and the USA suffering from 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. Ships have in recent years increased in both 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. Hurtigruten is paying careful attention to the macro-economic environment, and additional measures have been taken in all key markets. The EU sulphur directive came into force in 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%, which implies that operators in this area must either sail on marine diesel/marine gasoil, LNG or install scrubbers that clean exhaust (or apply alternative methods in order to achieve the same effect). The European SECA area includes the Baltic Sea, the English Channel and large parts of the North Sea, bordered in the north by the 62 nd 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 nd parallel. Hurtigruten is in compliance with the EU sulphur directive, operating on marine special distillates (SDM) North of the 62 nd 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. However the effect is difficult to quantify, as long as double fuel tank systems still is a possibility. EFTA Surveillance Authority State Aid Investigation The EFTA Surveillance Authority (ESA) announced 11 December 2015 that they had decided to open an in-depth investigation in order to clarify whether Hurtigruten has received any over-compensation which goes against the state aid rules of the EEA Agreement. The Authority is also investigating whether Hurtigruten ensures that everyone has access to the public service. The Ministry of Transport, together with Hurtigruten, has prepared a letter to the ESA which was distributed mid- February We expect the ESA to publish part of this letter on the Authority's website and in the Official Journal of the European Union. We do not expect any further development until the ESA responds to the letter, and for the time being have no indications on when to expect this response. As of today the investigation does not affect ongoing operations or cash flow. Any proceedings would be made against the Ministry of Transport. However, to the extent that a formal proceeding is launched and the ESA finds that unlawful state aid has been granted to Hurtigruten, the company may be required to modify current practices and to agree to new terms and conditions. In addition, the company may be asked to pay a 7

48 potentially significant settlement, fee or penalty, for an amount representing the total illegal state aid received as determined by the ESA, plus interest, any of which may adversely impact operations and the financial position. Annual financial statements Silk Bidco Group reports in accordance with the International Financial Reporting Standards (IFRS) approved for use in the European Union. Income statement Total operating revenues for the Silk Bidco Group came to NOK million in 2015 (2014: NOK million). Hurtigruten Norwegian coast, MS Fram and Spitsbergen Travel all increased their revenues. Consolidated operating expenses before depreciation and impairment were NOK million (2014: NOK million). The rise primarily reflected sales-related costs resulting from increased activity, higher payroll costs for the vessels and other losses which occurred in connection with the refinancing of liabilities when all outstanding forward foreign exchange contracts and forward bunker contracts were terminated and settled. Consolidated EBITDA came to NOK 691 million (2014: NOK 526 million). Depreciation and impairment totalled NOK 410 million (2014: NOK 379 million). Consolidated operating profit before interest and tax (EBIT) was NOK 280 million (2014: NOK 147 million). Net financial expenses amounted to NOK 976 million (2014: NOK 372 million). The increase was principally a result of increased interest expenses during the year. The financial statements as of 31 December 2015 include the financing of Silk Bidco Group which is higher and at other conditions than in the comparable period of the twelve months ended 31 December 2014 for Hurtigruten Group, which is partly offset by a decrease in fees and termination costs related to the refinancing of the company following the acquisition of Hurtigruten ASA. In addition the increase reflected a foreign exchange loss related to the repayment of the bridge financing, and an unrealised foreign exchange loss on the fair value evaluation of the bond of NOK million due to weakening of the Norwegian kroner since the issuance of the bond. The share of profits from associated companies was NOK 1.7 million (2014: NOK 1 million). The consolidated pre-tax loss for the continued business was NOK 694 million (2014: NOK 224 million). Cash flow Cash and cash equivalents in the cash flow statement totalled NOK 256 million at 31 December (2014: NOK 266 million) Net cash flow from operating activities amounted to NOK 466 million (2014: NOK 497 million). Despite the increase in the cash flows from underlying operations the net cash flow from operating activities is to a far extent offset by a decrease in a positive change in the working capital ended 31 December 2015 due to prepayments of NOK 57.8 million related to the first two ships in the refurbishment program and settlement of the terminated option schemes for the corporate management following the Company's acquisition of Hurtigruten of NOK 50.1 million. Net cash flow used in investing activities decreased to NOK million (2014: NOK 148 million). The major items explaining this change relates to the purchase of shares in Hurtigruten totalling NOK million, settlement of almost all derivatives in relation to the refinancing totalling NOK 311 million and increase in capital expenditure related to the investment in and rebuild of a new expedition ship. Net cash flow from financing activities came to NOK million (2014: NOK -431 million). This change reflects the refinancing of the company though borrowings and an issue of ordinary shares. Balance sheet and liquidity Consolidated non-current assets totalled NOK million at 31 December (2014: NOK million). The major item explaining this increase relates to the acquisition of the outstanding shares of Hurtigruten Group. In connection with the acquisition of the subsidiary a goodwill of MNOK and an excess value of MNOK 590 have arisen. Current assets totalled NOK 682 million (2014: NOK 629 million) at 31 December Liquid assets amounted at 31 December to NOK 315 million, or NOK 256 million excluding restricted assets (2014: NOK 336 million or NOK 266 million excluding restricted assets). Group s non-current liabilities at 31 December 2015 are significantly higher than in the comparable period of the twelve months ended 31 December 2014 for Hurtigruten Group. Existing non-current loans from a bank syndicate in Hurtigruten Group 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 8

49 reclassified as a current liability at 31 December These non-current liabilities at 31 December 2014 amounted to NOK 95 million. The Group refinanced its liabilities in 2015 by replacing temporary bridge financing 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 on the Luxembourg Stock Exchange. The revolving credit facility of EUR 65 million will continue with an expiry date of 19 December Group s total non-current liabilities at 31 December 2015 was NOK million. Current liabilities came to NOK million at 31 December (2014: NOK million). This decrease primarily reflects the abovementioned reclassification of non-current bank loans by the end of Consolidated equity at 31 December was NOK million (2014: NOK 694 million). The equity ratio was 15.4 per cent (2014: 15.2 per cent). Transactions with close associates Transactions with close associates (related parties) have been conducted on market terms. Close associates in this context are associated companies. There were no significant transactions with close associates in Product areas Hurtigruten operates three main product areas: Hurtigruten Norwegian coast, MS Fram and Spitsbergen Travel. Activities which do not fall naturally into these three areas are grouped in other business. Hurtigruten 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 96.1 per cent in 2015, 0.9 percentage points below the target of 97 per cent. Altogether 926 of a total of port calls were cancelled in 2015, primarily when weather conditions prompted the cancellation of relevant ports for safety reasons. Operating revenues for the product area came to NOK million (2014: NOK million). Growth in passenger revenues is driven by rise in the number of cruise nights. Capacity utilisation for 2015 was 62 per cent (2014: 63 per cent). Operating expenses before depreciation and impairment totalled NOK million (2014: NOK million). This increase derived from both higher sales-related costs as a result of more cruise nights and growth in payroll costs. Additionally there has been investment in future growth reflected in the sales and administrative costs through increased marketing costs in the first quarter, which has materialized in increased pre bookings for second and third quarter In the third quarter additional marketing funds have been spend related to the repositioning of MS Midnatsol to Antarctica from September Fuel costs in 2015 declined by NOK 78 million from This positive development reflects a combination of reduced fuel prices, bunker fuel hedging policy and paying constant attention to reducing consumption through operational measures. EBITDA was NOK 330 million for 2015 (2014: NOK 378 million). MS Fram MS Fram cruised in the Antarctic as well as around Spitsbergen and Greenland during MS Fram achieved an improvement in results for 2015 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 421 million (2014: NOK 352 million), and capacity utilisation was 73 per cent (2014: 78.4 per cent). Operating expenses before depreciation and impairment totalled NOK 320 million (2014: NOK 239 million). EBITDA for the MS Fram product area came to NOK 71 million (2014: NOK 113 million). The decrease is primarily attributable to a NOK 14.9 million share of the increase in non-recurring items and a planned docking in April Spitsbergen Travel 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 9

50 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 2015 compared with the year before, following increased traffic for both group travel and individual visitors. Operating revenues for the product area came to NOK 279 million (2014: NOK 204 million). Operating expenses before depreciation and impairment totalled NOK 231 million (2014: NOK 171 million). EBITDA came to NOK 37 million (2014: NOK 33 million). Other business Other business consists of a minor portfolio of properties and other smaller activities that cannot naturally be classified in the other areas. Operating revenues for the product area increased by NOK 0.4 million from NOK 2.2 million to NOK 2.8 million as of 31 December EBITDA was NOK 1.2 million (2014: NOK 2 million). Research and development activities The group conducts no research and development activities other than adaptations of Informations and Communications Technology. Health, safety and the environment Highest priority It is Hurtigruten s opinion that a safe operation is one of the cornerstones in the process of developing in the desired direction. Hurtigruten has a robust Management System which provides the operational guidelines to employees onboard and ashore. The business and Hurtigruten s profitability depend on being in control of the safe operation of the ships. Hurtigruten s safety policy, revised most recently in 2014, incorporates zero tolerance for 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 employees. Hurtigruten s Management System is focusing on being proactive including good planning of all operations. Risk management is a fundamental part of the planning process to identify any dangers which may occur. Any such dangers shall be addressed, corrective and preventive actions shall be identified to ensure the risk is at an acceptable level. Reporting of any non-conformities is a main process in improving operations. It enables Hurtigruten to monitor and follow up on any deviations which may occur during operation with regards to Health, Safety and the Environment and is an important part of the continuous improvement process. The Company did not suffer any serious personal injuries during A number of minor injuries were reported during the year, such as cuts and bruises. 94 First Aid Cases were reported, where the person continued work after first aid treatment. 28 cases were reported where the person was unable to work one or more days following the injury. Hurtigruten is analyzing these reports to find effective preventive actions to ensure these numbers are reduced. Three undesired accidents related to the safe operation of the ships were reported. One is a minor collision between one of Hurtigruten s ships and a smaller high-speed ferry. No injuries or damages were reported following and event. The captain of the high-speed ferry admitted not to being in focus at the time and therefore ended up colliding with MS Lofoten. MS Kong Harald experienced a freak wave on the coast of the county of Finnmark early February, causing a window on the bridge and into a forward suite to collapse, resulting in a minor injury to a passenger requiring first aid and technical damages due to seawater entering through the windows. Lastly, in December MS Fram experienced an explosion in one of the vessel s main engines. The situation was brought under control very rapidly, no personal injuries were reported. A thorough investigation was initiated to find root causes and corrective and preventive actions are being developed. Hurtigruten had no discharges to the sea in

51 The 11 Hurtigruten ships sail just under a million nautical miles annually along the Norwegian coast and make more than port calls. Hurtigruten s zero tolerance vision is ambitious but attainable. Hurtigruten works continuously to ensure a proactive improvement processes is being addressed. Through such activities as the identification and registration of near misses, unsafe acts and unsafe conditions, Hurtigruten aims to prevent and avoid undesirable events. Natural environment Hurtigruten s environmental policy sets a clear goal of minimising its impact on the natural environment. This goal was strengthened with the establishment of the Hurtigruten Foundation, where Hurtigruten will gather our environmental and social efforts in a more structured and efficient way, and invite guests to contribute as well. 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. In 2015, Hurtigruten established a partnership with Bellona as a part of the mission to reduce emissions. The environmental organization Bellona will help Hurtigruten with a feasibility study that aims to explore opportunities that will reduce emissions in the fleet. Not long after the partnership, one major breakthrough occurred, and Hurtigruten has now started the process of implementing shore power access to the fleet. If ports can follow up with infrastructure, the environmental effect could be substantial. The scope of Hurtigruten s business and its consumption of fossil fuels 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 Hurtigruten. 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 80.1 litres in 2015, down with 0.7 litre from the previous year. Average greenhouse gas emissions in 2015 (2014) CO2: 224kg/nm (227 kg/nm) NOx: 4,1 kg/nm (4.2 kg/nm) SO2: 0,01 kg/nm (0.01 kg/nm) Hurtigruten 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, Hurtigruten 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 Hurtigruten. In 2015 Hurtigruten decided to modify several vessels in the fleet to shore power connection when docked in ports. Initially, three vessels operating the Norwegian coast are to be modified during first half Hurtigruten has an initial ambition to expand with three more vessels, in total six ships. Shore power connection is an important environmental initiative, both for Hurtigruten and the ports of call. A letter of intent was in 2015 signed with the Bergen port authorities to make Bergen the first Hurtigruten port with shore power connection facilities. Hurtigruten is continuously striving to reduce fuel consumption and greenhouse gas emissions from our operations. Shore power in Bergen port, where the Hurtigruten ships are at berth for 8 hours daily during winter and 5, 5 hours during summer, will reduce CO2 emissions annually by almost 130 tons per ship. Annual reduction of NOx is estimated at approximately 2.5 tons. Hurtigruten awaits other ports along the Norwegian coast to make shore power connection available. 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). Hurtigruten 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 2015, of which 934 were performed by permanent employees in Norway including subsidiaries. Temporary employees accounted for 524 work-years, with the remaining 261 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. Hurtigruten had 187 apprentices on its ships at 31 December 2015, making it one of the largest apprentice companies in the maritime sector of the 11

52 Confederation of Norwegian Enterprise (NHO). Hurtigruten has also contributed to the ability of other companies to provide better training for many years, 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. Hurtigruten takes its important role in the education of Norwegian seafarers seriously. Hurtigruten strongly emphasizes 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 contributes 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. The expedition team on MS Fram is 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 local wildlife. 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 organization. Average sickness absence in 2015 was 6.7 per cent for seagoing personnel. Purposeful work involving personal follow-up has been pursued with individuals on sick leave. Average sickness absence for personnel on land was 4.4 per cent. Hurtigruten 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 Hurtigruten s ability to operate under varying conditions and operating parameters. Any and all forms of discrimination are incompatible with Hurtigruten s code of ethics. Women account for 38.9 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 - three are female and 130 male. Women occupy 43.5 per cent of other onboard jobs with management responsibility. Hurtigruten works continuously to create a better balance in seagoing management posts. Females account for 50.7 per cent of all land-based employees in Hurtigruten. Three of the seven members of the corporate management team are women. Corporate social responsibility (CSR) Basing work done at and on behalf of Hurtigruten on sustainable and responsible behaviour is vital for Hurtigruten. 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. Hurtigruten 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 contributes 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 uses. Hurtigruten sold excursions and activities for approx NOK 224 million in All our 60 excursion suppliers are locally operated and owned. The cash flow Hurtigruten contributes results in 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 travelled, locally produced ingredients and products, all menus are designed from the areas in which the ships sail. Raw materials such as fish, meat or vegetables are delivered as much as possible directly on board each ship when docked in the nearest port. This reduces transport length significantly by utilizing the Hurtigruten port structure actively, and it enhances the travel experience for our guests. The initiative has been extremely well received among our guests and the Norwegian Coastal Kitchen concept has been further developed during Hurtigruten also actively seeks to select commodities with a sustainable production. One example is the phasing out of scampi, a product which does not meet Hurtigruten's requirements for sustainable production. Fuel reduction and 12

53 emissions from combustion is important, but other elements in the climate calculation are also essential. Hurtigruten has banned scampi as a produce on our ships. This small initiative represented a CO2 emission reduction of almost tons. We replaced the scampi harvested In South East Asia with locally harvested shrimps from Lyngen, just north of Tromsø. An amazing environmental effect, aligned with our product strategy and on top of it all - it tastes a lot better. Hurtigruten has been an important local transporter along the inaccessible Norwegian coast since This remains a very important part of the business and a vital service for the local communities. The local passengers who travelled with Hurtigruten in 2015 on short port-to-port journeys represented a significant increase from 2014 ( ). 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 Hurtigruten 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 share. 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. Twelve of the thirteen 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 Silk Bidco AS had one (1) shareholder at 31 December 2015 Silk Midco AS. At the same date, its total equity was NOK , spread over 30 shares with a nominal value of NOK each, other equity of and share premium of The shares are equal in every respect, and all confer the same voting rights. Going concern assumption With reference to Silk Bidco AS and the Group s results and financial position, it is confirmed that the going concern assumption is realistic and the financial statements for 2015 have been prepared on that basis. Coverage of the net loss The net loss for Silk Bidco AS was NOK , which it is proposed to cover from other equity. Outlook The foundation for Group s future profitability was laid during the year of restructuring in 2013 and its continued implementation in 2014 and 2015, when vessel operations received special attention. 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 remained a priority area throughout Hurtigruten will continually offer its guests more and better onboard products, including the portfolio of active excursions. In 2015 the Group delivered continuous improvements throughout the year, with all time high results in several quarters and for the first year in history where Normalised Adjusted EBITDA was positive in all quarters throughout the year. Normalised Adjusted EBITDA increased from NOK 652 million in 2014 to NOK 923 million in 2015, an increase of 42 percent. Growth is primarily driven by a continuous improvement throughout the year from higher revenues combined with more efficient operations. The improvement demonstrates that Hurtigruten is well positioned for future growth both on the Norwegian Coast and in Explorer. Onboard spending in 2015 was up by 13 per cent from the year before. 13

54

55 Consolidated income statement (in NOK 1 000) Note 2015 Operating revenues 21, 27, Payroll costs 22, 23 ( ) Depreciation, amortisation and impairment losses 6, 7 ( ) Other operating costs 24, 11 ( ) Other (losses)/gains - net 25 ( ) Operating profit/(loss) Finance income Finance expenses 26, 27, 28 ( ) Finance expenses - net ( ) Share of profit/(loss) of associates Profit/(loss) before income tax ( ) Income tax expense 16 (23 693) Profit/(loss) for the year ( ) Profit/(loss) for the year attributable to Owners of the parent ( ) Non-controlling interests Earnings per share (23 917) Notes 1 to 29 are an integral part of these consolidated financial statements. 15

56 Consolidated statement of comprehensive income (in NOK 1 000) Note 2015 Profit/(loss) for the year ( ) Other comprehensive income, net of tax: Items that will not be reclassified to profit or loss in subsequent periods: Actuarial gain/loss on retirement benefit obligations Tax 16 - Sum Items that will be reclassified to profit or loss in subsequent periods: Cash flow hedges, net of tax 1 14 ( ) Tax 16 - Currency translation differences 14 (1 442) Sum ( ) Total other comprehensive income, net of tax ( ) Total comprehensive income for the year ( ) Total comprehensive income for the year attributable to Owners of the parent ( ) Non-controlling interests Total comprehensive income for the year ( ) 1) Net increase in deferred tax in Hurtigruten AS is not recognized Notes 1 to 29 are an integral part of the consolidated financial statements. 16

57 Consolidated balance sheet at 31 December (in NOK 1 000) Note 2015 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in associates Deferred income tax assets Trade and other receivables 10, Total non-current assets Current assets Inventories Trade and other receivables 10, Cash and cash equivalents Total current assets Total assets EQUITY Equity attributable to owners of the parent Ordinary shares Share premium Other reserves 868 Retained earnings ( ) Total equity attributable to owners of the parent Non-controlling interests Total equity LIABILITIES Non-current liabilities Borrowings Other non current liabilities Deferred income tax liabilities Retirement benefit obligations 17, 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 18, Total current liabilities Total equity and liabilities Notes 1 to 29 are an integral part of these consolidated financial statements. 17

58

59 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 Retained earnings Total paid-in and retained capital Noncontrolling interests Total Equity Fair value of non-controlling interest acquired Profit/(loss) for the period ( ) ( ) - Other comprehensive income - Currency translation differences (1 442) (1 442) Cash flow hedges, net of tax ( ) ( ) Actuarial gain/loss on retirement benefit obligations, net of tax Other comprehensive income - - ( ) ( ) Total comprehensive income - - ( ) ( ) ( ) Transactions with owners Equity in opening balance Contribution of equity Debt conversion Paid in capital Distribution to owners (40 694) (40 694) - Total transactions with owners (40 694) Balance at 31 December ( ) ( ) Notes 1 to 29 are an integral part of the consolidated financial statements. 19

60 Consolidated cash flow statement (in NOK 1 000) Note 2015 Cash flows from operating activities Profit/(loss) before income tax ( ) Adjustments for: Depreciation, amortisation and impairment losses 6, Other gains/losses 25, Agio/disagio Gains/losses derivatives (29 634) Dividends received (641) Interest expenses Proceeds from group contribution 9 (1 682) Difference between expensed pension and payments Change in working capital: Inventories (9 158) Trade and other receivables ( ) Financial assets at fair value through profit or loss - Trade and other payables Cash flows from operating activities Interest paid ( ) Income tax paid (12 448) Net cash flows from (used in) operating activities Cash flows from investing activities Purchases of shares in Hurtigruten ( ) Purchases of property, plant, equipment (PPE) 6 ( ) Proceeds from insurance settlement - Proceeds from sale of PPE 629 Purchases of intangible assets 7 (82 648) Loan to associates and other companies Settlement of derivatives ( ) Dividends received Change in restricted funds Net cash flows from (used in) investing activities ( ) Cash flows from financing activities Issue of ordinary shares Proceeds from borrowings Repayment of borrowings ( ) Proceeds from borrowings from parent company Dividend paid to non-controlling interests (40 694) Net cash flows from (used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 September Foreign exchange gains/(losses) on cash, cash equivalenets and bank overdrafts (32 985) Cash and cash equivalents at 31 December Notes 1 to 29 are an integral part of the consolidated financial statements. 20

61 Note 1A General Information Silk Bidco AS is indirectly owned by Home Capital AS, Periscopus AS and investment funds managed by TDR Capital LLP. 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. 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 purpose of Silk Bidco As is holding a bond loan and direct ownership of Hurtigruten Explorer AS and Hurtigruten AS, which operates the main activity of the group. 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 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 at the Euro MTF market operated by the Luxembourg Stock Exchange. 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 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. The main group activities are run by a public limited liability company Hurtigruten AS, which as of 31 December 2015 was registered and domiciled in Norway and headquartered at Fredrik Langes gate 14, 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 Group is engaged in tourism and transport activities in Norway and abroad. Group'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, Explorer 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. Hurtigruten Explorer AS is Silk Bidcos AS' subsidiary which directly owns Explorer I AS. The subsidiary Explorer I AS entered in to a memorandum of an agreement on 23 November 2015 with Hurtigruten AS to purchase MS Spitsbergen for EUR 17 million. The purchase price was financed by Hurtigruten providing an unsecured seller's credit in the principal amount of EUR 17 million to Explorer I which is to be repaid in full with interest accrued no later than 180 days after the date of delivery of the vessel to Explorer I. The seller credit will be repaid by an external financing in Explorer I AS. The bareboat charter between Hurtigruten AS and Explorer I AS will be entered in to on general market terms and conditions. The Group s presentation currency is NOK. These consolidated financial statements are the initial reported results for the Group covering the 15 month period from 1 September 2014 to 31 December The consolidated financial statements were adopted by the company s board on 19 April

62 The following companies are included in the consolidated financial statements Registered office Ownership/voting share Owned by Silk Bidco AS (parent company) Hurtigruten AS Tromsø, Norway 100,0 % Hurtigruten Explorer AS Tromsø, Norway 100,0 % Owned by Hurtigruten AS 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 Longyearbyen, Svalbard, Norway 100,0 % Kirberg Shipping KS 1 Bergen, Norway 0,9 % Kystruten KS 1 Oslo, Norway 0,0 % Owned by Hurtigruten Explorer AS Explorer I AS 1 Tromsø, Norway 100,0 % 1) SPE (Special Purpose Entity) Ingeniør G Paulsen AS was merged with Spitsbergen Travel AS as of 1 January,

63 Note 1B Acquisition of subsidiary The group is established when control of Hurtigruten ASA is gained. Control was gained at 5 Desember 2014, and excess value analysis and and time of control is sat to 1 Desember The acquisition price is settled in cash. (in NOK millions) Hurtigruten ASA Share acquired in % 100 % Acquisiton cost Book value of equity at time of acquisition 982 Deducted book value of goodwill before time of acquisition (144) Net assets added through acquisition 838 Purchasing premium for distribution The following assets and liabilities were identified and recognised in the balance sheet through the acquisition Trademark 450 Order backlog 142 Actual value ships (233) Lialibities, pension and loan obligations (130) Deferred tax (62) Goodwill Total Non-controlling interest (176) Net assets identified in acquisition Goodwill is related to value in the workforce, earnings and sale to existing customers not included in fair value of order backlog. Information about Hurtigruten ASA group before and after acquisition Operating income after acquisition 236 Operating result after acquisition (34) Operating income before acquisition Operating result before acquisition

64 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 European Union. 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 3. 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 Silk Bidco AS purchased the Hurtigruten Group in 2014, achieved control on 1 December 2014 and the group as established. The group consolidated financial statements as of 31 December 2015 include the period between 1 September 2014 and 31 December 2015 and therefor no comparative period is presented. 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 Silk Bidco group. This has been achieved by recognizing the ship s book value and external liabilities in the consolidated balance sheet. The KS s financial statements have been restated to apply the same accounting policies as used by the Silk Bidco Group. 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; ii) 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 iii) for which separate financial information exists The Group has three operating segments, called product areas: Coastal (Norwegian coastal segment), Explorer (adventure cruises) and Spitsbergen (non-cruise operations on the isle of Svalbard). Activities that do not naturally fall within these segments are bundled in other business. b) Translation of foreign currencies 24

65 (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 krone (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. Realized 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 recognized in the income statement. If the currency position is considered a cash flow hedge, gains and losses are recognized 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 recognized 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 recognized at the fair value, net of VAT, returns, discounts, and rejects. Sales are recognized 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 recognized in the income statement as follows: (i) Sales of services and travel Sales of services are recognized 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 recognized 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 recognized in the income statement including the credit card fees incurred for the transaction. The fees are recorded as costs of goods. (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 recognized 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 utilizing agreed-upon rates set out in the agreements, and recognized in the periods in which they occur. 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 recognized at cost less depreciation and any impairments. Cost includes costs directly associated with the acquisition of the asset. Periodic maintenance is recognized 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 25

66 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 recognized 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 recognized 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 is tested annually for impairment. (ii) Trademark Trademarks acquired in a business combination are recognized at fair value at the acquisition date. The trademark Hurtigruten has an indefinite useful life and is tested annually for impairment. (iii) Other intangible assets Other intangible assets are largely directly associated with development costs for computer systems recognized in the balance sheet at cost, if the criteria for recognition in the balance sheet are met expenses recognized 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 recognizing 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 amortized 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. Contracts acquired in business combinations are recognized at fair value at the acquisition date and are amortized over the contracts useful life. f) Impairment of non-financial assets Intangible assets with indefinite useful life and goodwill are not amortized, but are tested annually or more frequently if there are indications of impairment. Depreciated property, plant and equipment and amortized 26

67 intangible assets are assessed for impairment when there is any indication that the book value may not be recoverable. An impairment loss is recognized 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) 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 categorized 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 recognized on the trade-date, which is the day the Group commits to purchase or sell the asset. All financial assets that are not recognized at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets recognized at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the income statement. Investments are derecognized 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 recognized 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 amortized 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. h) 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 recognized amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. i) Impairment of financial assets Assets recognized at amortized 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 recognized 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 recognized (such as an improvement in the debtor s credit rating), the previous loss is reversed in the consolidated income statement. 27

68 Impairment testing of trade receivables is described in point l. j) Derivatives and hedging Derivatives are initially recognized 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 recognizing 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) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair-value hedge) or (ii) hedges of variable cash flows with a particular risk associated with a recognized 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 9C. Changes in the equity item hedging are presented in Note 14. 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 recognized directly in other comprehensive income. Losses and profits on the ineffective portion are recognized in the income statement. Hedge gains or losses recognized in other comprehensive income and accumulated in equity are recognized 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). 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 recognized when the forecast transaction is recognized 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. k) 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 recognized 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 recognized at amortized cost using the effective interest method. The interest element is disregarded if it is insignificant. l) 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. m) 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 amortized cost using the effective interest method. The interest element is disregarded if it is immaterial. n) Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Subsequently, borrowings are recognized at amortized cost using the effective interest method. The difference between the proceeds (net of 28

69 transaction costs) and the redemption value is recognized 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. o) Borrowing costs Borrowing costs directly attributable to the acquisition of operating assets are recognized in the balance sheet until the asset is ready for its intended use. Other borrowing costs are expensed on an ongoing basis. p) Current and deferred income taxes The income tax expense comprises income taxes payable and deferred income tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In such case, the tax is also recognized 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 recognized 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 recognized net to the extent that there is a desire and ability to settle the taxes within the same tax regime. q) 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 recognized 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, and with approximately the same term as the payment horizon of the liability. The cost of pension entitlements for the period are recognized 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 recognized 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 recognized in payroll costs in the income statement. Variances from estimates arising from experience adjustments or changes in actuarial assumptions are recognized 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 recognized as payroll costs when they are due. Prepaid contributions are recognized 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 29

70 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 have share-based remuneration schemes where the company receives services from employees as consideration for a share based payment, (see note 19). The fair value at grant date, is amortized over the vesting period. Share-based remuneration plans are settled by the allocation of shares or cash. (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 recognizes 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. r) Provisions Provisions are recognized 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 recognized for future operating losses; however, provisions for unprofitable contracts are recognized. s) 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 recognized in the balance sheet. The Group has no material finance leases. t) Dividends Dividend distribution to owners of the parent is recognized as a liability in the Group s financial statements when the dividends are approved by the general meeting. u) Government grants The Group receives material grants in the form of grants for trainee schemes and net salary subsidies. These grants are recognized net (as a cost reduction) together with the other payroll costs (see note 22). 2.4 Changes in accounting policies and disclosures 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 amortized 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 recognized 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 recognized 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. 30

71 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 recognized 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 2018, 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. Neither IFRS 9 nor 15 are yet endorsed by the EU. 31

72 Note 3 Important accounting estimates and judgments Estimates and judgments are reviewed on an ongoing basis and are based on experience, consultation with experts, trend analyses and a number of other factors, including forecasting 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 because of the above processes will therefore rarely fully correspond with the 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 and trademark The Group performs annual tests to assess potential impairment of goodwill and trademark, cf. Note 2.3 point e. The estimated recoverable amount is determined using the present value of budgeted cash flows for the cashgenerating units. These calculations require the use of estimates (Note 8) 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 utilizes 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 book values of the ships are included in the yearly impairment test of goodwill and trademarks. (c) Deferred income tax assets The basis for recognizing deferred income tax assets is based mainly on the utilization 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 utilize the recognized deferred income tax assets. Please refer to Note 16 for more information on deferred income tax assets recognized in the balance sheet. (d) 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. (e) Pension assumptions The Group has 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 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 2015 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 32

73 interest rates on high quality 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 2015 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 17 for more information about pensions. (f) 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 recognized, this discrepancy will affect the recognized tax expense and provision for deferred income tax assets and liabilities in the period in which such determination is made. Please refer to Note 16 for more information about income tax. (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. 33

74 Note 4 Financial risk management The following discussion concerning financial risk management relates to the policies adopted and applicable for the financial year 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, bunker 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, bunker price 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 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. In 2015 Silk Bidco AS issued a bond with a face value of EUR 455 million. The bond is to be settled in 2022 and the group is exposed to currency risk when the bond is to be settled. Additionally there is a semi-annual coupon payment in EUR which also represents a currency risk. The semi-annual payment of the coupon in EUR is partially naturally hedged through the Group s net revenue in EUR, the principal of EUR 455 million in 2022 is not hedged. 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 naturally hedged through the Group s net revenues in these currencies 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. 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. 34

75 (ii) Price risk The Group is exposed to bunker fuel price risk, and the board of directors has approved a strategy of hedging 75% of estimated future monthly consumption. Data for the Group s sensitivity to potential price increases of bunker fuel is not available. (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. In 2015, 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 s exposure to variable interest rate risk is limited in 2015 and the Group have no specific hedging strategy to reduce variable interest rate risk. (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. 4.2 The company's asset management The group's objective for asset management is to ensure the ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital, including compliance with covenants in the loan agreements. 35

76 Note 5 Contingencies As of 31 December 2015, 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 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 18.4 million in nitrogen dioxide tax was recognised in Hurtigruten s consolidated financial statements for the calandar year 2015 compared to NOK 15.2 million in EFTA Surveillance Authority State Aid Investigation The EFTA Surveillance Authority (ESA) announced 11 December 2015 they had decided to open an in-depth investigation in order to clarify whether Hurtigruten has received any over-compensation which goes against the state aid rules of the EEA Agreement. The Authority also investigates whether Hurtigruten ensures that everyone has access to the public service. The Ministry of Transport has together with Hurtigruten prepared a letter to the ESA which was distributed mid-february The Group expects the ESA to publish part of this letter on the Authority's website and in the Official Journal of the European Union. On the further process the Group does not expect any development until the ESA respond on the letter, and for the time being there is no indications on when to expect the response. As of today the investigation does not affect an ongoing operation and cash flow of the Group. 36

77 Note 6 Property, plant and equipment (in NOK 1 000) Land and buildings Ships Other property, plant and equipment Total Acquisition of subsidiary 1 December Additions Disposals (8) (123) (12 467) (12 598) Depreciation (5 601) ( ) (9 582) ( ) Impairment losses Reversed depreciation on disposals Book value as of 31 December Cost Accumulated amortisation and impairment losses (5 601) ( ) (9 582) ( ) Reversed depreciation on disposals Book value as of 31 December Useful economic lifetime years years 5-10 years 1) Silk Bidco AS acquired 100 % of the outstanding shares of Hurtigruten Group. The assets are tested annualy for impairmemt as part of the impairment test of Goodwill, note 7. Total leasing costs related to the above comprise Minimum lease payments under non-cancellable operating leases of investment properties not recognised in the finacial statements are receivalbe as follows Within a year Later than one year but no later than 5 years Later than 5 years Total leasing costs

78 Note 7 Intangible assets (In NOK 1 000) Goodwill Other intangible assets Total Acquisition of subsidiary 1 December Exchange differences Additions Disposals (575) (1 603) (2 178) Reversed depreciation on disposals Depreciation - (68 097) (68 097) Impairment losses - (2 994) (2 994) Book value as of 31 December Cost Accumulated amortisation and impairment losses - ( ) ( ) Book value as of 31 December ) Silk Bidco AS acquired 100 % of the outstanding shares of Hurtigruten Group. The values were equivalent of book value of intangible assets in Hurtigruten Group which was identified at the time of acquisition. Goodwill of MNOK and and a excess value of MNOK 590 has arisen in connection with acquisition of subsidiary. 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. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annualy for impairment, or more frequently if events or changes in circumstances indicate that they migth be impaired Impairment losses in 2015 relate to an ICT project that have been replaced. Goodwill relates to the following cash-generating unit (In NOK 1 000) Norwegian Coastal Spitsbergen Travel Explorer Sum 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 Norwgian Coast Explorer Spitsbergen (in NOK 1000 unless otherwise indicated) Growth rate from % 2 % 2 % Discount rate before tax 14 % 14 % 10 % The recoverable amount has been recalculated based on budgeted EBITDA for The forecast period is five years. Subsequently the terminal value is used. Expected future cash flows is based on budgeted normalized adjusted EBITDA for 2016 deducted for investments, tax effects from depreciations and changes in net working capital (NWC). For the period 2017 to 2020, normalized adjusted EBITDA is based on forecasts that represent management s best estimate of the range of economic conditions that will exist over the period. For the period beyond 2020, the cash flow is estimated by extrapolating the projections based on the forecasts, using a steady growth rate for subsequent years. Definition Normalization of EBITDA is the processes of removing revenues or expenses that are classified as one-time, generated by redundant assets, non-arms-length or other income and expenses that remain uncategorized and are non-recurring. When this process is done, EBITDA will show the true earnings from operations. 38

79 Note 8 Investments in associates Set out below are the associates and joint ventures of the group as at 31 December 2015 which are material to the group. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. Company Registered office Shareholding 2015 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. 39

80 40

81 Note 9A Financial instruments by category The following principles has been used for subsequent measurement of financial assets and liabilities Pr. 31. december 2015 (in NOK 1 000) Loans and receivables Assets at fair value through profit and loss Derivatives used for hedging Assets as per balance sheet Long-term receivables Investments in other companies (Note 10) Trade receivables and other receivables (Note 10) Cash and cash equivalents (Note 12) Total Total Liabilities at fair value through profit and loss Derivatives used for hedging Other financial liabilities at amortised cost Liabilities as per balance sheet Long term borrowings (Note 15) - - ( ) ( ) Derivatives (Note 9C) - ( ) - ( ) Accounts payable and other short term payables (Note 20) - - ( ) ( ) Short term borrowings (Note 15) - - ( ) ( ) Total - ( ) ( ) ( ) Total Booked value against to fair value Carrying amount Fair value Assets Long-term receivables Investments in other companies (Note 10) Trade receivables and other receivables (Note 10) Cash and cash equivalents (Note 12) Total Liabilities Long term borrowings (Note 15) ( ) ( ) Derivatives (Note 9C) ( ) ( ) Accounts payable and other short term payables (Note 20) ( ) ( ) Short term borrowings (Note 15) ( ) ( ) Total ( ) ( ) Carrying amount of short term receivables, payables and borrowings is assessed to not differ materially from fair value. Classification by IFRS fair value hierarchy - Level 1: inputs are quoted prices in active markets for identical assets of liabilities. - Level 2: inputes are inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. - Level 3: inputs are unobservable inputs for the asset or liability. Fair value used in balance sheet (Figures stated in NOK 1000) Level 1 Level 2 Level 3 Sum Assets Investments in other companies (note 10) Total Liabilities Derivatives (note 9C) - ( ) Total - ( ) - ( ) Fair value used in disclosure notes (Figures stated in NOK 1000) Level 1 Level 2 Level 3 Sum Assets Long-term receivables Total Liabilities Long term borrowings (note 15) ( ) - ( ) Total ( ) - - ( ) There were no transferals between level 1, 2 or 3 in

82 Note 9B Credit quality of financial assets The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. (in NOK 1 000) 2015 Cash and cash equivalents (note 12) Counterparties without external credit ratings: Total trade receivables and other receivables The Group does not have a system that separates customers and other receivables by counterparty creditworthiness. The Group has in general long term relationships with it's partners, and follows up the creditworthiness through periodic reconciliation of outstanding balances and credit monitoring. The Groups historic loss statistics indicate a low counterparty default risk. Cash bank and short-term bank deposits A (S&P) Without external credit ratings Total bank deposits Cash on hand Total cash and short-term bank deposits The rest of this financial statement level line is market based investments, see market based investments below. Market based investments Money market fund (SICAV-France) Total market based investments

83 Note 9C Fair value of derivatives Derivatives are initially recognized at fair value on the date a derivative contact is entered into and are subsequently re-measured at fair value. 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. If the derivative is not classified as a hedging instrument subsequent re-measurements are recognised in profit or loss. In the acquisition of the Hurtigruten group, the group became part of several types of derivatives. These derivatives were terminated due to the acquisition, except for one forward bunker oil contract. This contract was designated as a hedge instrument in a cash flow hedge in Hurtigruten, and at acquisition the group also designated this as a hedge instrument. The contract expired in June At the end of 2015, the group only has bunker derivatives that are designated as hedge instruments in a cash flow hedge. The contracts are made for a given period of time, with settlement on monthly basis. (in NOK 1 000) Assets Liabilities Classification of derivatives Forward bunker oil contracts - cash flow hedge Total fair value of derivatives Classified as short term Forward bunker oil contracts - cash flow hedge Fair value of short term derivatives A hedging instrument is classified as long term if the major part of the instrument is settled in a period longer than 12 months from the balance sheet date. There are not recognised any prospective inefficiency regarding the hedging instruments in 2015 Bunkeroil swaps The hedged, highly probable purchase transactions of bunkers oil, are expected to occur at various dates over the next 16 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 2015 (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 the current period a net amount of NOK - 1,2 million was recognised in realised losses allocated to Other (losses)/gains The fair value of outstanding forward bunker oil contracts as of 31 December 2015 was a liability of NOK million. 43

84 Note 10 Receivables and other investments (in NOK 1 000) 2015 Trade receivables Less provision for impairment of trade receivables (9 568) Trade receivables net Other receivables Total current receivables (Note 9) Shares in other companies (Note 9A) Other non-current receivables (Note 9A) Total current receivables and investments With regard to the specification of receivables from related parties, please see Note 29. Ageing of overdue trade receivables (in NOK 1 000) 2015 Up to three months Three to six months Over six months Total ageing of overdue trade receivables Change in the provision for impairment of trade receivables (in NOK 1 000) 2015 Provision for impairment of receivables after the acquisition of subsidiary 1 December Provision for impairment of receivables during the year Receivables written off during the year ( ) Reversal of unused amounts (265) Provision for impairment of receivables as of 31 December

85 Note 11 Inventories Inventories consist of the following types of goods (In NOK 1 000) 2015 Goods purchased for resale Spare parts Bunkers and lubrication oil Total inventories The cost of goods sold included in other operating costs amounted to MNOK 714. 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. 45

86 Note 12 Cash and cash equivalents (in NOK 1 000) 2015 Cash at bank and on hand (Note 9A) Market-based investments 1 (Note 9A) Cash at bank, cash on hand and market-based investments in the balance sheet Restricted bank deposits in the cash flow statement (in NOK 1 000) 2015 Restricted bank deposits 2 (59 428) Total cash and cash equivalents in the cash flow statement ) Funds owned by a foreign subsidiary. 2) Restricted bank deposits primarily comprise tax withholding funds, pledged bank deposits and guarantees to limited partnerships. 46

87 Note 13 Share capital and premium (in NOK 1000 unless otherwise indicated) Number of shares Nominal value Nominal value of ordinary shares Share premium Total As of 31 December All ordinary shares have equal rights. Shareholder information Number of shares Shareholding (%) Silk Midco AS ,00 Shares held by elected officers in Hurtigruten AS as of 31 December 2015 (direct and indirect) The overview below presents the percentage of shares held indirectly by elected officers in Hurtigruten AS through Silk Topco AS: Board of directors Trygve Hegnar, Chair, through Persicopus AS 4,9 Petter Anker Stordalen, Director, through Home Capital AS 11,6 Jonathan Barlow, Director - Matthew Lenczner, Director - Management Daniel A. Skjeldam, CEO, through Hornsund Invest AS 0,9 Asta Lassesen, CFO, through A. Y. Invest AS 0,4 Anne Marit Bjørnflaten, SVP, Corporate Communications, through Bjørnflaten Invest AS 0,1 Thomas Westergaard, SVP, Hotel Operations & Product Development, through Stay Tuned Invest AS 0,2 Svein Taklo, SVP, Maritime Operations, through Infinite Invest AS 0,1 Marit Finnanger, SVP, People and Org. Development fra 9. mars, through Mfortitude AS 0,1 Arild Kaale, SVP, Commercial from 1st of September - Robert Grefstad, SVP, ICT from 1st of November - Magnus Wrahme, SVP, Commercial until 20th of April - Oscar Engeli, SVP, ICT until 1st of May - 47

88 Note 14 Other equity not in profitt or loss (In NOK 1 000) Derivatives Actuarial gain/loss Translation differences Sum Book value as of 1 December Cash flow hedges, net of tax ( ) - - ( ) Actuarial gain/loss on retirement benefit obligations, net of tax Currency translation differences - - (1 442) (1 442) Book value as of 31 December 2015 ( ) (1 442) ( ) 48

89 Note 15 Borrowings The group has an outstanding bond at Euro MTF market operated by the Luxembourg Stock Exchange with a face value of 455 million euro. (Figures stated in NOK 1000) 2015 Long term debt Bond Total Short term debt Revolving credit facility (Goldman Sachs) Total Total outstanding debt The bond and the revolving credit facility is secured with the groups assets. Book value of collaterized assets operations The group is exposed to interest rate fluctuations on borrowings based on the following default structure Less than 1 year More than 5 year Total Book value and fair value of borrowings Amortized cost Fair value Short term debt Bonds Sum

90 Book value of the group loans respective currencies NOK EUR Total The groups main source of financing is a bond noted on the Euro MTF market operated by the Luxembourg Stock Exchange, the bond has a face value of 455 million euro. In addition the group has a multicurrency revolving credit facility of 65 million euro from Goldman Sachs, which can be drawn on in different currencies. The draw on the facility as of was 250 million NOK. Covenants Minimum EBITDA The group EBITDA over a 12 month period measured by the end of each fiscal quarter shall never be lower than MNOK 400. Limitations to the application of borrowed funds The borrowed funds may not be used outside a restricted group consisting of Silk Topco AS, Silk Midco AS, Silk Bidco AS, Hurtigruten AS, Hurtigruten Pluss AS, Hurtigruten Sjø AS and Spitsbergen Travel AS. The borrowed funds may not be used to finance investments or other activites outside of this restricted group of companies. 50

91 Note 16 Income tax The income tax expense for the year can be broken down as follows (in NOK 1 000) 2015 Income tax payable (28 676) Change in deferred income tax liabilities/assets Tax effect sold subsidiary - Change in income tax payable for previous years (recognised in income) (1 336) Total income tax expense (23 693) Of which income tax expense for discontinued operations - Total income tax expense for continuing operations (23 693) 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) 2015 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 Change in the income tax expense as a result of: ( ) non-taxable income 862 non-tax-deductible costs (33 288) income tax on profit or loss attributable to companies assessed as a partnership utilisation of tax loss carryforwards effect of change in tax rate unrecognised deferred income tax assets income tax repayable - (13 087) ( ) (1 336) miscellaneous items (foreign exchange differences, SPE) (990) Income tax expense for continuing and discontinued operations (23 693) Weighted average tax rate 27,79 % 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) 2015 Before tax Income tax expense After tax Actuarial gains/losses pensions Cash flow hedging (1 198) - (1 198) Currency translation differences (3 275) - (3 275) Other equity adjustments Other comprehensive income

92 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) 2015 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 (84 500) Of which deferred tax liabilities/assets classified as discontinued operations - Net deferred income tax liabilities/assets for continuing operations (84 500) Change in recognised net deferred income tax liabilities Book value as of aqusition Recognised in the income statement during the period (5 372) Book value as of 31 December Of which discontinued operations - Book value continuing operations as of 31 December Change in book value of deferred income tax assets net Book value as of aqusition Recognised in the income statement during the period 947 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 As of aqusition Recognised in the income statement during the period (47 487) (6 213) 31 December Tax effect of tax-reducing temporary differences (in NOK 1 000) Provisions Tax loss carryforward Current items Total As of aqusition (3 705) ( ) (76 063) ( ) Recognised in the income statement during the period (19 737) (3 227) (106) 31 December 2015 (23 442) ( ) (53 205) ( ) 52

93 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 2015 amounted to NOK 4,022 million. Deferred income tax liabilities recognised directly in equity during the year are as follows (in NOK 1 000) 2015 Tax on estimate deviations related to pension plans - Tax on current financial assets recognised in equity - Total deferred income tax liabilities recognised directly in equity during the year - 53

94 Note 17 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 249 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 2015 the premium amounted to 2.4 per cent of salary between 1G and 7.1G; for 2016 the premium will be 2.5 per cent. A total of NOK 2.2 million was paid into the scheme in The established pension plans cover 1,822 Group employees. The pension costs for the period illustrate the agreed future pension entitlements earned by employees in the financial year. Financial assumptions 2015 Norway Discount rate 2,50 % Expected annual wage adjustment 2,50 % Expected annual pension adjustment 0,00 % Expected annual National Insurance basic amount (G) adjustment 2,25 % Table book used for estimating liabilities K2013 Table book used for estimating disabilities IR02 Germany Discount rate 2,10 % Expected annual wage adjustment N/A Expected annual pension adjustment 1,90 % Expected annual National Insurance basic amount (G) adjustment N/A Average expected years of service until retirement age 13.3 years Average expected life (in years) for a person retiring when he/she reaches age 67 Women 20.2 years Men 17.0 years Average expected life (in years) 20 years after the balance sheet date for a person retiring when he/she reaches age 67 Women 20.6 years Men 17.6 years Pension costs recognised in the income statement for the year are as follows (in NOK 1 000) 2015 Present value of accrued pension entitlements for the year Defined contribution plan Interest expenses (income) Discontinuation and plan changes - Net pension costs funded from operations - Payroll tax Total pension costs included in payroll costs (Note 22)

95 Specification of net plan assets/obligations (in NOK 1 000) 2015 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 0 Net plan assets/obligations are classified as follows in the balance sheet (in NOK 1 000) 2015 Other non-current receivables - Pension obligations Net pension obligations Change in the defined benefit pension obligations during the year (in NOK 1 000) 2015 Pension obligations as of 1 December Present value of accrued pension entitlements for the year Interest expenses Effect of recalculation: Changes in financial assumptions (5 729) Changes in demographic assumptions 58 Estimate deviations Currency translation differences obligations Discontinuation of pension plans (plan changes) - Exits on sale of subsidiary - Pension benefits paid (15 520) Change in payroll tax on net pension obligations (32) Pension obligations as of 31 December Change in the fair value of the plan assets (in NOK 1 000) 2015 Fair value as of 1 December Return on plan assets Actual return on assets re interest income recognised in income statement 260 Paid-up policies and disbursements due to discontinuation of plans (plan changes) - Employer contributions Exits on sale of subsidiary - Currency translation differences assets Pension benefits paid (11 059) Fair value as of 31 December

96 Composition of pension fund assets 2015 Shares 13,2 % Current bonds 12,6 % Money market 32,1 % Non-current bonds 26,4 % Property 10,9 % Other 4,8 % Total 100,0 % Actual return on plan assets Norway 4,70 % Actual return on plan assets Germany -7,50 % The geographical allocation of the obligations and plan assets for the defined benefit plans is as follows 2015 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. 56

97 (in NOK 1 000) 2016 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 2015 < 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) 2015 Present value of defined benefit pension obligations Fair value of plan assets Deficit/(surplus) 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 (1 387) (65) 91 Increase (+) reduction ( ) in the net pension obligations as of 31 December (2 973) (6 027) 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 (2 453) 42 (32) Increase (+) reduction ( ) in the net pension obligations as of 31 December (3 108) (5 395) Change in the annual salary + 1 per cent 1 per cent Increase (+) reduction ( ) in the net pension costs for the period (3 751) Increase (+) reduction ( ) in the net pension obligations as of 31 December (3 815) Change in National Insurance basic amount (G) adjustment + 1 per cent 1 per cent Increase (+) reduction ( ) in the net pension costs for the period (3 340) Increase (+) reduction ( ) in the net pension obligations as of 31 December (2 330) 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. 57

98 Note 18 Provisions (in NOK 1 000) Deferred revenue recognition Share-value-based remuneration Bonuses Total Acquisition of subsidiary 1 December Provisions for the year Utilisation of provisions from the prior year (167) (50 107) (3 721) (53 996) Book value as of 31 December Classification in the balance sheet as of 31 December 2015 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. 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. Bonuses A performance-related bonus was introduced for Hurtigruten AS management from The bonus scheme includes the CEO and some of Group management. A provision of NOK 6.4 million has been recognised for this bonus agreement for See Note 19 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 7. The Group has no non-cancellable leases. 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. 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 2015). Please see Note 15 with regard to these financial covenants. 58

99 Note 19 Share-based payment The management in Hurtigruten has entered into an agreement with the parent company of the Silk Bidco Group, Silk Topco AS. They have purchased shares in Silk Topco AS at the same price that Silk Bidco AS paid for the shares in Hurtigruten ASA in The agreement also contain an inscentive scheme that give management a right to bonusshares in different pre-defined exit senarios. Silk Topco AS may settle the bonus shares either with cash or with a private placing at no cost to the management. The insentive scheme has two market based vesting conditions: - the internal rate of return at the time of the sale must be more than 8%; and - the exit value must be at least 150% of the aggregated invested amount. The number of bonus shares depends on the aggregated exit value, and can give a range of bonus shares from 0,38 per share up to 12 times per share. Managements investment at was NOK 34 Millions. When estemating the fair value of the inscentive scheme at grant date, the main factors influencing the fair value that had to be estimated by management were: - the probability of different exit values that then give different levels of bonus shares, - the expected time to exit - and discount rate. Dividends are per the inscentive scheme included as part of aggregated exit value. No other features were incorporated into the measurement of fair value. The agreement was signed Expected life of the agreement: Fair value at initial recognition: Expected time to exit: Yearly amortization Amortized amount as of : 5 years NOK 15,5 millions 5 years NOK 3,1 millions NOK 1,5 millions 59

100 Note 20 Trade and other current payables (In NOK 1 000) 2015 Overdraft facility Trade payables Public duties payable Other current liabilities Total trade and other current payables See Note 28 for information on trade payables and other current payables due to related parties. 60

101 Note 21 Operating revenues (in NOK 1 000) 2015 Operating revenues Contractual revenues Total operating revenues The extent of the Group s revenues relating to public procurement of services are as follows (in NOK 1 000) 2015 Revenues relating to the Bergen to Kirkenes coastal service from the government Total contractual revenues Public procurement of services is related to the purchase of Hurtigruten services along the Norwegian coast. 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

102 Note 22 Payroll costs (In NOK Payroll costs Wages and salaries Payroll tax Pension costs (Note 17) Other benefits (Note 23) Total payroll costs Average number of full-time equivalents

103 Note 23 Remuneration Set out below is summarised information regarding fees paid to Group's board members and auditors. All figures presented in this note includes data related to the twelve months period starting from until Figures for 2015 (in NOK 1000) Position Fees Trygve Hegnar Chair 326 Petter Anker Stordalen Director 137 Jonathan Barlow Director - Matthew Lenczner Director - Auditor's fees statutory auditing Assistance IFRSs, accounting and tax Other certfication services Auditor's fees other assistance 1 97 CEO Remuneration paid from Hurtigruten Pluss AS: Salary Pension cost 803 Other remuneration 750 Loans - Fees - 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 6.4 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. 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. 1) Fees exclusive of Value Added Tax. 63

104 Note 24 Other operating costs (in NOK 1 000) 2015 Cost of goods sold Operating costs Sales and administrative costs Total other operating costs

105 Note 25 Other (losses)/gains net Other (losses)/gains consist of the following items (In NOK 1 000) 2015 Gain on the sale of property, plant and equipment 415 Loss on the sale of property, plant and equipment (253) Gains on derivative financial instruments - Losses on derivative financial instruments ( ) Total other (losses)/gains ( ) 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 million (NOK 94.1 million) comprise losses on forward foreign exchange contracts of NOK 82.2 million (NOK 83.6 million) and losses on forward bunker contracts of NOK 33.1 million (NOK 11.5 million). 65

106 Note 26 Finance income and expenses (in NOK 1 000) 2015 Interest income on current bank deposits Foreign exchange gains Dividends 641 Other finance income Finance income Interest expenses (incl. termination of interest hedges) Bank borrowings ( ) Bond loan ( ) Interest expenses group account (520) Other interest expenses (1 921) Borrowing fees (27 845) Foreign exchange losses ( ) Losses on sale of financial assets (474) Other finance expenses (1 078) Finance expenses ( ) Finance expenses net ( ) 66

107 Note 27 Net foreign exchange gains/(losses) Foreign exchange differences are recognised on the following lines in the income statement (in NOK 1 000) 2015 Operating revenues Other operating costs (2 876) Net finance income/(expenses) ( ) Total foreign exchange gains (losses) ( ) 67

108 Note 28 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 2015 include Green Dog Svalbard AS in which the Group has a 50 percent shareholding. Green Dog supplies dog-related services on Spitsbergen to Spitsbergen Travel AS. The Group conducted the following transactions with related parties (in NOK 1 000) 2015 Interest income from associates Green Dog Svalbard AS 52 Interest paid to associates Silk Topco AS 863 Sale of services to associates Sale of Accounting services to Green Dog Svalbard AS 99 Sale of Accounting services to Silk Midco AS 6 Sale of Accounting services to Silk Topco AS 6 Purchase of services from associates Dog racing services Total purchase of services from associates Balances with associates at year-end Current receivables 13 Non-current receivables Current liabilities (863) Intercompany balances with associates as of 31 December 350 Transactions with shareholders 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. 68

109 Note 29 Events after the balance sheet date No other events after balance-sheet date and before the date of the approval of the financial statements which provide new information about conditions that existed at the balance sheet date (that are not currently reflected in the financial statements), or significant event after the balance sheet date that require further disclosures. 69

110 70

111 Silk Bidco AS Income statement (in NOK 1 000) Note 2015 Other operating costs (1 981) Operating profit(loss) (1 981) Finance income Finance expenses 9 ( ) Finance expenses - net ( ) Profit/(loss) before income tax ( ) Income tax expense 3 - Profit/(loss) for the year ( ) 71

112 Silk Bidco AS Statement of comprehensive income (in NOK 1 000) Note 2015 Profit/(loss) for the year ( ) Other comprehensive income Currency translation differences - Other comprehensive income for the year - Total comprehensive income for the year ( ) Total comprehensive income for the year attributable to Owners of the parent ( ) Total comprehensive income for the year ( ) 72

113

114 Silk Bidco AS Statement of changes in equity (in NOK 1 000) Note Share capital including treasury shares Share premium Retained earnings Total Equity Profit/(loss) for the period - - ( ) ( ) - Other comprehensive income - Currency translation differences Cash flow hedges, net of tax Other comprehensive income Total comprehensive income - - ( ) ( ) Transactions with owners Equity in opening balance Contribution of equity Debt conversion Transaction cost - (77) - (77) Total transactions with owners Balance at 31 December

115 Silk Bidco AS Cash flow statement (in NOK 1 000) Note 2015 Cash flows from operating activities Profit/(loss) before income tax ( ) Adjustments for: Agio/disagio Interest expenses Change in working capital: Trade and other receivables 10 (527) Trade and other payables Cash flows from operating activities 92 Interest paid (74 964) Net cash flows from (used in) operating activities (74 872) Cash flows from investing activities Purchases of shares in subsidiaries 4 ( ) Borrowings to subsidiary 10 ( ) Repayment of borrowings to subsidiary Net cash flows from (used in) investing activities ( ) Cash flows from financing activities Issue of ordinary shares Proceeds from borrowings Repayment of borrowings ( ) Net cash flows from (used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 September Foreign exchange gains/(losses) on cash, cash equivalenets and bank overdrafts 586 Cash and cash equivalents at 31 December

116 Silk Bidco AS Note 1 Accounting principles The financial statements have been prepared in accordance with simplified application of international accounting standards according to the Norwegian Accounting Act 3-9. The financial statements have been prepared on a historical cost basis, with the modification of financial derivatives at fair value through profit or loss. Silk Midco AS owns 100 % of the shares in Silk Bidco AS. Parent company is Silk Topco AS. Consolidated group accounts is available at the accounting registry Brønnøysundregisteret. Silk Bidco AS was founded September 2014 and the financial statements have been prepared for September 2014 to Desember f) Financial assets (i) Classification The Company 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 categorized as held-for-trading. 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. (ii) Recognition and measurement Regular purchases and sales of investments are recognized on the trade-date, which is the day the Company commits to purchase or sell the asset. All financial assets that are not recognized at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets recognized at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the income statement. Investments are derecognized when the rights to receive cash flows from the investment expire or when these rights have been transferred and the Company has substantially transferred all risks and rewards of ownership. Financial assets recognized 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 amortized 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 Company s right to receive payments is established. 76

117 Silk Bidco AS Note 2 Financial risk As a result of ordinary operations expose the company to risk related to fluctuations in exchange and interest rates. The company is covered by the Groups hedging strategy. Further information can be found in the consolidated group accounts. Market risk a) Currency risk The company has significant loan receivables and payables in foregin currencies and is thus exposed to currency risk. b) Price risk The company have because of its limited business no significant price risk. c) Cash flow risk The company have because of its limited business no significant cash flow risk. d) Interest risk The companys loans and draws of the Group accounts are made at floating rates. No hedges are made to reduce interest risk. Credit and liquidity risk The company is exposed to credit and liquidity risk. The companys strategy is to have sufficient cash or credit facilities to fincance ongoing operations. 77

118 Silk Bidco AS Note 3 Income tax (in NOK 1000) 2015 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 ( ) Permanent differences - Internal intrest limitation - Change in hedging derivatives - Group contribution - Change in temporary differences that affect the tax payable - Tax basis for the year ( ) Summary of temporary differences (in NOK 1000) Tax loss carryforward ( ) Interest limitations carryforward - Basis for unrecognised deferred income tax assets Total temporary differences - Estimated deferred income tax assets - Estimated deferred income tax assets not booked Tax rate applied 25 % 78

119 Silk Bidco AS Note 4 Investments in subsidiaries (in NOK 1 000) Company Registered office Shareholding Book value Total equity Profit/(loss) Hurtigruten AS Tromsø, Norway 100 % ( ) Hurtigruten Explorer AS Tromsø, Norway 100 % (6) Sum ( ) 79

120 Silk Bidco AS Note 5 Receivables and liabilities (in NOK 1 000) 2015 Receivables that mature in more than one year Non current receivables intragroup Total receivables that mature in more than one year Liabilities that mature after more than one year Borrowings Total liabilities that mature after more than one year Repayment profile for interest-bearing liabilities that mature after more than five years Total liabilities that mature after more than five years Silk Bidco AS has issued a bond noted on the Euro MTF market operated by the Luxembourg Stock Exchange, the bond has a face value of 455 million euro. In addition to the bond Silk Bidco AS has a muliticurrency revolving credit (RCF) agreement with Goldman Sachs Ltd. which give them a credit facility of upwards of MEUR65. As of Silk Bidco AS has no draw on the RCF however its subsidiary Hurtigruten AS has a draw of MNOK 250. Collateralized assets Silk Bidco AS as well as its subsidiaries Hurtigruten AS, Hurtigruten Sjø AS and Hurtigruten Pluss AS 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. Booked value of collateralized assets Total assets

121 Silk Bidco AS Note 6A Financial instruments by category The following principles has been used for subsequent measurement of financial assets and liabilities Pr. 31. december 2015 (in NOK 1 000) Loans and receivables Held for trading purposes Other financial liabilities Total Financial assets non-current Non-current receivables Financial assets current Trade and other receivables Cash and cash equivalents Derivative financial instruments Financial liabilities non-current Borrowings Derivative financial instruments Financial liabilities current Trade and other payables Carrying amount of short term receivables, payables and borrowings is assessed to not differ materially from fair value. Note 6B Credit quality of financial assets The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. (in NOK 1 000) 2015 Cash and cash equivalents Counterparties without external credit ratings - Total trade receivables and other receivables - Cash bank and short-term bank deposits A Counterparties without external credit ratings - Total bank deposits Cash on hand - Total cash and short-term bank deposits

122 Silk Bidco AS Note 7 Paid-in equity Share capital Number of shares Share premium Nominal value Total Shares Shareholders Shares Shareholding (%) Silk Midco AS ,00 Total no. of shares ,00 All shares carry the same rights in the company. 82

123 Silk Bidco AS Note 8 Remuneration 2015 CEO - Board - Auditor, audit 1) Auditor, assistance 1) Total remunerations ) Figures is incl. VAT. The company has no employees and there is as such no obligation to establish an obligatory service pension plan according to the Norwegian service pension act. 83

124 Silk Bidco AS Note 9 Financial income and expenses (in NOK 1 000) 2015 Interest income intragroup Other interest income 189 Interest income on current bank deposits 299 FX gains, unrealised Total finance income Interest expenses - Bond loan ( ) - Bank loan (23 631) - Fees borrowings (20 245) FX losses, unrealised ( ) Other financial costs (24) Total financial expenses ( ) Finance expenses - net ( ) 84

125 Silk Bidco AS Note 10 Tansactions with related parties and intragroup balances Transactions with Group companies (in NOK 1 000) 2015 Purchase of services from Group companies Hurtigruten Pluss AS 300 Purchase of services from Group companies 300 Interest income from Group companies Hurtigruten AS Total interest income from Group companies Interest expenses to Group companies Hurtigruten AS Total interest expenses to Group companies Intragroup balances 2015 Non-current receivables due from Group companies Hurtigruten AS Total non-current receivables due from Group companies Trade and other current receivables from Group companies Hurtigruten AS Hurtigruten Explorer AS 50 Trade and other current receivables from Group companies Trade payables and other current payables to Group companies Silk Topco AS Hurtigruten AS 24 Total trade payables and other current payables to Group companies Related parties in this respect are companies in the same Group. 85

126 Silk Bidco AS Note 11 Equity (in NOK 1 000) Share capital Share Premium Other equity Total equity Equity 1 January Transaction costs (77) (77) Profit/loss for the year ( ) ( ) Equity 31 December ( )

127 To the Annual Shareholders' Meeting of Silk Bidco AS Independent auditor s report Report on the Financial Statements We have audited the accompanying financial statements of Silk Bidco AS, which comprise the financial statements of the parent company and the financial statements of the group. The financial statements of the parent company comprise the balance sheet as at 31 December 2015, income statement, statement of comprehensive income, changes in equity and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements of the group comprise the balance sheet as at 31 December 2015, income statement, statement of comprehensive income, changes in equity, and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. The Board of Directors Responsibility for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of the financial statements of the parent company in accordance with simplified application of international accounting standards according to 3-9 of the Norwegian Accounting Act and for the preparation and fair presentation of the financial statements of the group in accordance with International Financial Reporting Standards as adopted by EU and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers AS, Muségata 1, Postboks 6128, NO-9291 Tromsø T: 02316, org. no.: MVA, Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap

128 Independent auditor's report Silk Bidco AS, page 2 Opinion on the financial statements of the parent company In our opinion, the financial statements of the parent company are prepared in accordance with the law and regulations and present fairly, in all material respects, the financial position of Silk Bidco AS as at 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with simplified application of international accounting standards according to 3-9 of the Norwegian Accounting Act. Opinion on the financial statements of the group In our opinion, the financial statements of the group are prepared in accordance with the law and regulations and present fairly, in all material respects, the financial position of the group Silk Bidco AS as at 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by EU. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors' report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report concerning the financial statements, the going concern assumption and the proposal for coverage of the loss is consistent with the financial statements and complies with the law and regulations. Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements ISAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Tromsø, 19 April 2016 PricewaterhouseCoopers AS Rune Kenneth S. Lædre State Authorised Public Accountant (Norway) (2)