Bond report for the quarter ended 30 June 2017

Transcription

1 Bond report for the quarter ended 30 June 2017 Published 30 August 2017 Silk Bidco AS (issuer) 455,000, % Senior Secured Notes due 2022

2 Table of contents Cautionary notice 3 Summary 4 Risk factors 6 Management's discussions and analysis of our financial condition and results of operation 8 Recent developments 22 Description of other indebtedness 23 Definitions key performance measures and key line items 24 Appendix Silk Bidco Group Unaudited Consolidated Financial Statements for the second quarter Previous page: MS Fram in Qullissat, Greenland credit: Andrea Klaussner / Hurtigruten 2

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

4 Summary The performance of the Group in the first half of 2017 has been strong, with top-line growth in all segments. The company is continuing to develop and to optimize the deployment of its fleet. Investments in operations as well as sales and marketing are supporting the new products and enhanced offerings being added to the company s portfolio. The Norwegian Coast has seen significant development and growth in 2017, with growth in occupancy rates and ticket revenues. The Explorer segment has also performed well, with considerable revenue growth as MS Midnatsol completed the first full Antarctic season. The cruises were well received by passengers, with high levels of guest satisfaction. Strong demand is experienced for the upcoming seasons, as the growth in 2018 bookings compared to 2017 bookings is very high. There were no significant disruptions to operations in the period. The company is further investing in sales and IT initiatives which will help drive direct bookings, improve Client Relationship Management and enable Hurtigruten to easily access new or underrepresented markets. Total revenues in the first half of 2017 increased by 12.5% from the same period last year, to NOK 2,327 million. This is driven by revenue growth due to both capacity increases from the addition of MS Spitsbergen and the allocation of MS Midnatsol to some Explorer sailings, as well as occupancy and yield increases on the Norwegian Coast. Operating revenues increased by 15.5%, while reported contractual income decreased by 2.8% due to the contractual payment schedule. Reported EBITDA in the first six months of 2017 increased by 15.0% compared to the same period last year, to NOK 271 million from NOK 236 million. Normalized adjusted EBITDA in the first six months of 2017 decreased by 11.1% compared to same period last year, to NOK 349 million from NOK 393 million. Normalized adjusted EBITDA margin decreased to 15.0% in the first six months of 2017 from 19.0% in the first six months of The decrease in Normalised adjusted EBITDA was driven by i) Higher bunker costs due to increased underlying prices (+ NOK 46 million for the Coastal segment, + NOK 15 million for the Explorer segment), based on spot prices and including the introduction of the bunker tax on the Norwegian cost, ii) increased level of SG&A as a result of the strategic decision to invest in the sales and marketing organisation and support the capacity growth from our new build program (+ NOK 20m). We have already see the results of these investments in the booking development for H2 of 2017 and for 2018, quantified in the Outlook section of this report. Occupancy on the Norwegian Coast improved from 65.4% in the six months ended 30 June 2016 to 72.7% in the six months ended 30 June 2017, with an increase in passenger cruise nights of 7.2%. In the Explorer segment, occupancy dropped from 85.1% in the first half of 2016 to 63.3% in first half of 2017, due to the addition of MS Midnatsol and MS Spitsbergen alternating in the segment as well as new sailings for MS Nordstjernen, which increased capacity by c. 165%. Passenger cruise nights grew by 98.0% in the period and the additional capacity in the Explorer segment will allow Hurtigruten to absorb the high levels of demand for Expedition cruising. Norwegian Coast Hurtigruten Norwegian Coast increased its total revenue (excl. Contractual income from the State Agreement) by NOK 115 million, or 8.6% to NOK 1,455 million for the six months ended 30 June 2017 from NOK 1,340 million in the six months ended 30 June This was driven both by the increase in Passenger Cruise Nights and by increased yield. Contractual revenue amounted to NOK 338 million in the six months ended 30 June 2017 from NOK 348 million in the six months ended 30 June Normalized Adjusted EBITDA decreased from NOK 292 million in the six months ended 30 June 2016 to NOK 272 million in the six months ended 30 June Normalized vessel contribution (before SG&A Allocation and derivatives) decreased by NOK 36 million (-5.9%), from NOK 614 million for the six months ended 30 June 2016 to NOK 578 million for the six months ended 30 June

5 Explorer Explorer segment s total revenue in the six months ended 30 June 2017 was NOK 362 million, compared to NOK 216 million in the six months ended 30 June The development is mainly driven by the increase in PCN mentioned above. Normalized Adjusted EBITDA went from NOK 63 million in the six months ended 30 June 2016 to NOK 33 million in the six months ended 30 June The decrease is driven by the lower occupancy for some sailings on MS Midnatsol in its first year of operation, while the operating costs are largely fixed. The Antarctic cruises were highly successful, however the repositioning from the Antarctic to the Arctic was challenging. As some itineraries in the 2017 season have been less successful than expected, there is a high focus on ensuring optimal profitability on voyages where the demand is lower, particularly outside of Polar areas. In addition, the docking of MS Fram in Q (22 days out of service in April) resulted in a lower contribution than in the same period of Normalized vessel contribution (before SG&A Allocation and derivatives) increased by NOK 2 million (+2.1%), from NOK 95 million for the six months ended 30 June 2016 to NOK 97 million for the six months ended 30 June Hurtigruten Svalbard Hurtigruten Svalbard segment s total revenue for the six months ended 30 June 2017 increased by 2.2% to NOK 172 million. Normalized Adjusted EBITDA margins are increasing, as Normalized Adjusted EBITDA for the six months ended 30 June 2017 increased by NOK 6 million to NOK 44 million from NOK 37 million in the six months ended 30 June There is continued demand for the excursions and activities offered. Outlook At this date of this report, total bookings for the current year grew by 18% between August 2016 and August 2017, which will convert to future revenue growth. The growth on the Norwegian Coast is more pronounced in the second half of 2017, where pre-sold revenues are 17% ahead of the same period in 2016 (including a volume uplift of 14%), versus a growth of 11% pre-sold revenues in the first half of 2017 over the same period in All sailings for 2018 are now on sale, after the launch of the 2018/2019 Coastal season in April Overall booking trends are very strong, with pre-sold revenues in FY % ahead of the FY 2017 figures at the same period last year. Both segments are contributing to the growth year over year, with the Norwegian Coast growing by 46% in 2018 versus 2017 with a stable Available Passenger Cruise Night count. The Explorer segment is growing at 63% in 2018 versus 2017, which includes the addition of MS Amundsen in Q There has been a focus on driving demand earlier in the selling period, in order to optimize yield management, identify sailings with weaker demand and improve targeted commercial actions. The growth of the capacity in the Explorer segment will allow for the absorption of continued growth in demand. For the Norwegian Coast, flexible pricing and marketing initiatives are driving higher yields in peak seasons, and improved occupancy on the shoulder season. 5

6 Risk factors You should carefully consider the risks described below, the other information contained in this document as well as in the Offering Memorandum before making an investment decision. Any of the following risks could materially adversely affect our business, financial condition or results of operations, and as a result you may lose all or part of your original investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations. An increase in port taxes or fees or other adverse change of our terms of business with the authorities operating the ports in which we call could increase our operating costs and adversely affect our business, financial condition, results of operations and prospects. In recent years, authorities have assessed new taxes, introduced new fees or raised existing taxes or fees charged for the use of ports, raised value added taxes on tickets and onboard revenues and changes in the scope of income included in tonnage based tax regimes Our port costs for the Hurtigruten Norwegian Coast segment have increased significantly. Such increases are beyond the scope of the inflationary index covered under the Coastal Service Contract and to the extent that we are not able to pass on such additional costs to our customers, our operating costs will increase. In addition, an increase in the prices we charge our guests as a result of such increased operating costs could decrease the demand for our services, which could adversely affect our revenues. We are subject to complex laws and regulations, including environmental, health and safety laws and regulations, which could adversely affect our operations and any changes in the current laws and regulations could lead to increased costs or decreased revenue. We are directly and indirectly subject to various international and national laws, regulations, treaties and employee union agreements related to, among other things, the environment, health, safety, security and employment. Failure to comply with these laws and regulations could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claims and damages. We expect our normalised capital expenditures in 2017 to be at about NOK 200 million per year based on our current operations. Such capital expenditure will be incurred primarily in relation to ongoing maintenance of our fleet including minor upgrades to public areas; NOx saving projects such as work on the engines with respect to MS Finnmarken and MS Trollfjord, the propulsion systems on MS Midnatsol and MS Trollfjord as well as new propellers on MS Kong Harald and MS Nordkapp; further development of our IT infrastructure, including our e-commerce channel; and the upgrade of our Spitsbergen hotels. Further capital expenditure may be incurred based on new regulation or directives. The Group s inability to deploy new ships and carry out ship repairs, maintenance and refurbishments on terms and within timeframes that are favourable or consistent with the Group s expectations could result in revenue losses and unforeseen costs. The build and deployment of new ships and the repair, maintenance and refurbishment of the Group s ships are complex processes and involve risks similar to those encountered in other large and sophisticated construction, repair, maintenance and refurbishment projects. The Group could experience delays and cost overruns in completing such work. The delays can result in lost revenues as well as lost on-board revenues associated with cancelled bookings. Cancellation of a voyage or part of a voyage due to delays in the deployment of new ships or the repair, maintenance and refurbishment of existing ships may negatively impact the Group s reputation, and even if the Group is able to rebook customers on other ships, such rebookings may entail additional costs with respect to transportation and accommodation of rebooked passengers. In addition, as the Group s fleet ages, the Group s repair and maintenance expenses have increased due to additional repair and maintenance work required to be performed. In addition, other events, such as work stoppages and other labour actions, insolvencies, force majeure events or other financial difficulties experienced at the shipyards and among the subcontractors and suppliers that build, repair, maintain or refurbish the Group s ships could prevent or delay the completion of the refurbishment, repair and maintenance of the Group s ships. These events could adversely affect the Group s operations, including causing delays or cancellations of the Group s trips or unscheduled or prolonged dry-docks and repairs. Any termination or breach of contract on the Group s part following such an event may result in, among other things, 6

7 the forfeiture of prior deposits or payments made by the Group as well as potential claims by the Group s customers against it if the Group s ships are out of service and the Group cannot provide alternative services. A significant delay in the refurbishment or repair of one or more of the Group s ships, or a significant performance deficiency or mechanical failure of a ship, particularly considering decreasing availability of dry-dock facilities, could have an adverse effect on the Group s business, results of operations and financial condition. In addition, the consolidation of ownership of certain cruise shipyards, capacity reductions at shipyards or insolvencies could reduce competition and result in increased prices for new builds and repairs. The Group typically uses shipyards in close proximity to its routes, in particular for the Group s Hurtigruten Norwegian Coast segment, which limits its options for choosing shipyards and this could exacerbate the impact on the Group s business from any consolidations, capacity reductions or insolvencies. Finally, the lack of qualified shipyard repair facilities could result in the Group being unable to repair and maintain its ships on a timely basis, which could also result in reduced profitability. Any of the foregoing could have a material adverse effect on the Group s business, results of operations and financial condition. 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 must refund the purchase price for such package and in certain instances must cover their costs associated with transporting such guests back to the point where they initiated their journey. In most cases with respect to our Hurtigruten Norwegian Coast product, where we have ships departing every day, we try to re-book such guests to a ship that is departing either the day before or the day after, however, if we are unable to re-book the guests, we would refund the cost of their tickets (including their deposit). In addition, inclement weather conditions may prevent or discourage our guests from electing our services altogether. In addition, extreme weather conditions could result in increased wave and wind activity, which would make it more challenging to sail and dock our ships and could cause sea/motion sickness among guests and crew. The risk of adverse weather is in particularly high with respect to our Explorer segment, which operates in Polar waters and our Spitsbergen Travel segment, which operates in Spitsbergen, where weather conditions are extreme. Weather events could have an adverse impact on the safety of, and our customers satisfaction with, our services and could have a material adverse effect on our business, financial condition, results of operations and prospects. Extreme weather events or other adverse weather may also disrupt the supply chain from or to the impacted region and could disrupt our bunker fuel, food and shore power supplies. Finally, extreme weather conditions could cause property damage to our ships, port and related commercial facilities and other assets and impact our ability to obtain insurance coverage for operations in such areas at reasonable rates. If our services are delayed or cancelled, we may need to re-route our guests to other ports of call or cancel their bookings. Thus, 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, thus, our scheduled service may be delayed or we may be required to cancel stops or re-route our services. In addition, a delay at one port may result in ongoing delays to the remainder of our route and scheduled stops at other ports. Furthermore, as our Explorer segment offers activities and voyages to remote Polar areas, where medical assistance is not immediately available, we are exposed to the risk of rerouting our itineraries due to medical emergencies onboard. As a result of re-routing or delays in our services, we may need to direct our guests to our other ports of call or cancel their bookings. In addition, such incidents may prevent or discourage our guests from selecting our services altogether and our business, financial condition, results of operations and prospects may be adversely affected. 7

8 Management's discussion and analysis of our financial condition and results of operation The following is a discussion of the consolidated financial condition and results of operations of Silk Bidco AS and its subsidiaries for the three months ended 30 June 2017 compared to the three months ended 30 June 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. You should read this discussion in conjunction with the previous annual and quarterly bond reports for 2016, 2015 and 2014, the first quarterly report for 2017, and the annual report 2014 for Hurtigruten Group, as well as our historical consolidated financial statements included in the offering memorandum dated 30 January 2015 offering the % Senior Secured Notes due 2022 issued by Silk Bidco AS. The following presentation and analysis contains forward looking statements that involve risks and uncertainties. Our future results may differ materially from those expected or implied in these forward-looking statements. The sections "Risk Factors" and "Factors affecting our results of operations" in the offering memorandum mentioned above as well as the update in the annual and quarterly bond reports for 2015 and 2016 and the annual bond report for 2014, should be regarded reading this Management s discussion and analysis of our financial condition and results of operations". Overview We are an exploration 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 (14 including MS Nordstjernen) specially built for expedition voyages in polar waters, the company is already the front runner. Two-thirds of the Bergen-Kirkenes route lies north of the Arctic Circle. Hurtigruten thereby has more than half its fleet in Arctic waters throughout the year. Its goal is to reinforce 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 81.5% of our total revenues from continuing operations for the six months ended 30 June 2016 and 77.0% for the six months ended 30 June of our 14 ships provide services along the Norwegian coast under this segment, making 33 northbound and 32 southbound daily departures from ports located between Bergen in the south and Kirkenes in the north. Freight and passenger transport remain an important part of our offering, which includes basic transport infrastructure, carrying cargo and 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 10.4% of our total revenues from continuing operations for the six months ended 30 June 2016 and 15.6% for the six months ended 30 June The segment consists of vessels MS Fram, MS Spitsbergen and MS Midnatsol (the latter two vessels alternating between Norwegian Coast and Explorer segment) as well as MS Nordstjernen which is leased and operated in Svalbard in the summer season. In the period covered by this report, MS Fram and MS Midnatsol were sailing in the Explorer segment in 2017, while MS Fram was operating alone in the segment in Note that in order to better define our Explorer Cruise segment, we are reporting MS Nordstjernen as an Explorer product from 2016 (previously included in the Spitsbergen segment). Additionally, the Explorer segment shall be strengthened from 2018 and onward with two new polar cruise ships, the first of which is currently under construction. Our 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 2015 (which has been shifted to the Explorer segment in 2016). This segment accounted for 8.1% of our total revenues from continuing operations for the six months ended 30 June 2016 and 7.4% for the six months ended 30 June

9 Factors affecting our results of operations Factors affecting our results of operation which have not changed substantially since the publication of our previous bond reports including the latest for Full year 2016 may not be included here, but should nevertheless be considered. Pre-bookings We typically commence our marketing activities for our Hurtigruten Norwegian Coast and Explorer voyages and our Spitsbergen hotels in the first quarter of the year before the voyage at the latest; some Explorer voyages are sold up to 18 months before the beginning of the season. We typically require our guests to pay a non-refundable deposit ranging from 10% to 30% of the total amount payable at the time the booking is made. Our advanced customer bookings provide us with visibility into near term revenue across our business segments. Moreover, the payment of the non-refundable deposits reduces the risk of cancellation. As a result, in the twelve months ended 31 December 2016, 42.9% of our reservations in terms of PCNs were made at least six months in advance and 38.3% of our reservations in terms of PCNs were made at least six months in advance in the twelve months ended 31 December As of the date this quarterly bond report is published, our pre-bookings in terms of revenue at constant currency for 2017 and 2018 compared to the same date last year, for the Hurtigruten Norwegian Coast segment and Explorer segment, has continued to develop positively. Depending on the level of our pre-bookings, we adjust prices in order to maximize ticket sales as we approach the relevant travel date. Seasonality Our business is seasonal in nature based on demand for our services. Demand is strongest for our Hurtigruten Norwegian Coast product during the northern hemisphere s summer months and holidays. As Hurtigruten Norwegian Coast is our largest segment, this seasonality in demand results in fluctuations in our revenues and results of operations. The first and fourth calendar quarters are weaker periods in terms of revenues and EBITDA. With the introduction of more capacity in the Explorer segment, particularly MS Midnatsol in Antarctica in the southern hemisphere summer and the future growth of the fleet with the two new vessels, there will be significantly less seasonality in the business, with the Explorer segment contributing positively while the Hurtigruten Norwegian Coast is in its lower season. In addition, the Norwegian Coastal segment has seen strong improvement in occupancy year-round, with a strong demand for Northern Lights voyages from markets such as the UK and China. The results in the first half year of 2017 show positive EBITDA contribution and very strong growth in passenger volumes, in line with the company strategy. 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 six months ended 30 June 2017, we generated 43% of our operational revenues, which excludes foreign currency effects with respect to trade receivables during the same period ( Operational Revenues ), in Norwegian kroner, 39% of our Operational Revenues in euros, 8% of our Operational Revenues in pound sterling, 6% of our Operational Revenues in U.S. dollars and 4% in other currencies. The majority of Operating costs, excluding bunker fuel costs and crew for some Explorer voyages which are incurred in U.S. dollars, are incurred in Norwegian kroner. Commissions and office operating expenses are incurred in the currency of their Market. The company monitors inflows and outflows by currency, and will adopt hedging strategies as appropriate. Foreign Exchange rates We are exposed to different currencies in the normal course of business, and will from time to time enter into hedges to limit the risks associated with wide fluctuations. In the context of the construction of a new vessel, where c. 50% of the contract is denominated in NOK and longterm financing is expected to be EUR denominated, we have entered into a foreign exchange risk hedge in order to limit our exposure. On 18th July 2016 we entered into a zero premium collar contract of a notional amount of 60 million EUR, with a call strike at 9.86 NOK/EUR, a put strike at 9.20 NOK/EUR and a two-year maturity. 9

10 Price of bunker fuel We are exposed to fluctuations in the price of bunker fuel, which is used to operate our ships. In order to reduce the risk related to the fuel price we have entered into hedges. The period from November 2015 to April 2017 was hedged through a fuel swap covering 75% of the total fuel consumption in 2016 and until end of April In 2016, we have purchased additional derivatives contracts and have hedged approximately a level of 80% of the estimated bunker oil consumption for the period 2017 until December The company will continue to monitor the price fluctuations and cover the risk through hedges, in order to limit the impact on results. Key Performance Measures The following tables presents, for the periods indicated, certain key performance measures with respect to our Hurtigruten Norwegian Coast and Explorer segments: Key operating metrics for Hurtigruten Norwegian Coast NB. This report does not include the State Contract s revenue neither the goods and other115 operating revenue originated by the Norwegian Coast activity. For the quarter ended YTD 30 June June June June 2017 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Norwegian Coast: PCNs 316, , , ,950 APCNs. 428, , , ,770 Occupancy rate % 79.9% 65.4% 72.7% Gross ticket revenues. 869, ,524 1,311,078 1,428,260 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services , , , ,224 Food, beverage, shop, excursions. 97, , , ,453 Net ticket revenues.. 617, , , ,583 Gross ticket revenues per PCN (NOK).. 2,749 2,830 2,440 2,480 Net ticket revenues per PCN (NOK) 1,950 1,959 1,656 1,673 Ship operating costs. 612, ,827 1,129,368 1,221,881 Selling, general and administrative expenses 175, , , ,281 Gross cruise costs.. 787, ,521 1,473,270 1,553,162 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services. 155, , , ,224 Food, beverage, shop, excursions. 97, , , ,453 Net cruise costs.. 534, ,805 1,051,851 1,088,485 Net cruise costs per APCN (NOK). 1,248 1,368 1,280 1,375 Fuel consumption (liter/nautical mile) Fuel cost per liter

11 Key operating metrics for Explorer NB. In Q2 2016, operations include MS Fram, MS Nordstiernen and MS Spitsbergen (one sailing) only. In Q2 2017, operations include MS Fram, MS Nordstjernen, MS Spitsbergen and MS Midnatsol, which has increased capacity by c. 165% in the first six months. For the quarter ended YTD 30 June June June June 2017 (NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel cost per liter) Hurtigruten Explorer: PCNs 21,188 29,311 38,392 75,998 APCNs. 26,386 52,205 45, ,047 Occupancy rate % 56.1% 85.1% 63.3% Gross ticket revenues 113, , , ,214 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services.. 22,758 29,476 51,120 90,843 Food, beverage, shop, excursions. 8,165 12,688 14,060 26,853 Net ticket revenues 82,326 80, , ,518 Gross ticket revenues per PCN (NOK). 5,345 4,169 6,025 4,766 Net ticket revenues per PCN (NOK).. 3,886 2,731 4,328 3,217 Ship operating costs. 41, ,490 71, ,848 Selling, general and administrative expenses 18,829 23,625 35,329 68,941 Gross cruise costs.. 59, , , ,789 Less: Commissions, costs of goods for flights, hotels, transportation and other passenger services 22,758 29,476 51,120 90,843 Food, beverage, shop, excursions. 8,165 12,688 14,060 26,853 Net cruise costs.. 29, ,952 41, ,093 Net cruise costs per APCN (NOK). 1,101 1, ,800 Fuel consumption (liter/nautical mile) Fuel cost per liter Note: Q2 16 and YTD 16 have been restated to adjust for a calculation error in Ship operating costs, which impacted the Gross Cruise Costs, Net Cruise Costs and the net Cruise Cost per APCN lines. 11

12 Results of Operations The following table presents, for the periods indicated, our operating results: For the quarter ended YTD 30 June 2016 % Change 30 June June 2016 % Change 30 June 2017 (NOK thousands, except as otherw ise indicated) Continuing Operations: Operating revenues.. 1,084, ,178,319 1,721, ,988,775 Contractual revenues.. 174,232 (3.4) 168, ,857 (2.8) 338,143 Total revenues... 1,259, ,346,649 2,069, ,326,919 Payroll costs.. (274,210) 8.1 (296,496) (531,473) 9.1 (579,909) Other operating costs (671,774) 15.6 (776,261) (1,241,734) 15.5 (1,434,814) Depreciation, amortization and impairment losses.. (101,132) 37.7 (139,242) (201,220) 25.6 (252,659) Other (losses)/gains - net (23,726) 3.7 (24,600) (60,166) (31.7) (41,114) Operating profit/(loss).. 188,295 (41.6) 110,050 34,589 (46.7) 18,423 Finance income.. 54, , ,803 (49.5) 88,739 Finance expense (104,460) (326,393) (229,769) (480,223) Finance expenses - net (49,665) (261,382) (53,966) NM (391,484) Share of profit/(loss) of associates 762 (27.6) 551 1,670 (21.8) 1,306 Profit/(loss) before income tax from continuing operations. 139,392 (208.2) (150,780) (17,706) NM (371,754) Income tax expense from continuing operations.. (17,448) 34.5 (23,471) (17,448) 70.0 (29,657) Profit/(loss) for the period from continuing operations.. 121,944 (242.9) (174,251) (35,154) NM (401,411) Dicontinued Operations: Profit/(loss) for the period from discontinued operations Profit/loss for the period. 121,944 (242.9) (174,251) (35,154) NM (401,411) 12

13 The following table presents, for the periods indicated, the revenues, operating profit, Normalised adjusted EBITDA and Normalised adjusted EBITDA margin by reporting segment and for the Group as a whole: For the quarter ended YTD 30 June 2016 % Change 30 June June 2016 % Change 30 June 2017 (NOK thousands, except as otherw ise indicated) Continuing Operations: Total revenues: Hurtigruten Norwegian Coast. 1,058, ,123,269 1,687, ,792,860 Hurtigruten Explorer. 100, , , ,215 Hurtigruten Svalbard. 100, , , ,677 Other business. 1,023 (94.4) (83.7) 135 Eliminations.. (2,251) NM 16 (2,522) (101.3) 32 Total revenues from continuing operations.. 1,259, ,346,648 2,069, ,326,919 Operating profit/loss for the period: Hurtigruten Norwegian Coast. 158,033 (17.3) 130,729 (24,145) (84.9) (3,646) Hurtigruten Explorer. 2,636 NM (47,538) 29,225 (140.0) (11,683) Hurtigruten Svalbard. 26, ,835 28, ,661 Other business.. 1,599 NM (83.7) 92 Total operating profit/(loss) from continuing operations.. 188,295 (41.6) 110,050 34,589 (46.7) 18,424 Normalised Adjusted EBITDA: Hurtigruten Norwegian Coast.. 301,664 (6.1) 283, ,504 (6.6) 272,270 Hurtigruten Explorer. 24,782 (179.7) (19,740) 63,139 (47.8) 32,979 Hurtigruten Svalbard. 30, ,682 37, ,715 Other business.. 1,790 NM (64.3) 340 Total continuing operations 358,333 (17.6) 295, ,080 (11.1) 349,304 Normalised Adjusted EBITDA margin: Hurtigruten Norwegian Coast % (11.5) 25.2 % 17.3 % (12.1) 15.2 % Hurtigruten Explorer % (165.6) % 29.3 % (68.9) 9.1 % Hurtigruten Svalbard % % 22.3 % % Other business % NM % % NM % Total continuing operations % (22.9) 21.9% 19.0% (21.0) 15.0% Note: 2016 had many missed sailing days related to delays in planned dockings and material technical issues. This resulted in significant refunds to passengers, additional passenger costs and loss of State Contract revenue, as well as requiring the focus of the organization and extra internal costs. The normalized figures in this report reflect the company s assessment of earnings and operating profit had these one-off events not occurred, based on documented cancelled bookings, lost revenue, refund and other operating costs. 13

14 Comparison of the six months ended 30 June 2017 with the six months ended 30 June 2016 The financial information for the six months ended 30 June 2017 discussed below has been derived from the unaudited consolidated financial statements of Silk Bidco Group as of and for the six months ended 30 June Total revenues Our total revenues from continuing operations for the six months ended 30 June 2017 increased by NOK million, or 12.5% to NOK 2,326.9 million from NOK 2,069.2 million in the six months ended 30 June 2016, as a result of an increase in revenues from all our business segments, particularly in the Explorer segment. Hurtigruten Norwegian Coast increased its total revenue (excl. Contractual income from the State Agreement) by NOK 115 million, or 8.6% to NOK 1,455 million for the six months ended 30 June 2017 from NOK 1,340 million in the six months ended 30 June The overall increase in our Hurtigruten Norwegian Coast operating revenues was driven by both an growth in PCNs of 7.2% and an increase of 1.6% in Gross ticket revenue per PCN, also strengthened by solid non-ticket items sales (pre-booked or on-board sales, particularly food and beverages). The Trade channel share is stable, with growth in demand from all Hurtigruten s markets apart from Nordics, where revenues were flat year-over-year. Contractual revenue amounted to NOK million in the six months ended 30 June 2017 from NOK million (NOK million normalized for cancellations) in the six months ended 30 June The decrease of NOK 9.7 million is related to the contractual payment schedule. There were no material disruptions to the operations on the Coast in 2017 as there were in 2016 due to the significant docking and refurbishment plan, which resulted in a loss of Contractual Revenues in Explorer segment s total revenue in the six months ended 30 June 2017 was NOK million, compared to NOK million in the six months ended 30 June The increase of NOK million, or 68.1%, is mainly driven by a 98.0% increase in PCNs, offset by a 20.9% decrease in Gross ticket revenue per PCN. The decrease in the Gross Ticket revenue per PCN is due to the introduction of MS Midnatsol from Q to the Explorer segment, where this larger vessel can offer a lower price point while sustaining profitability thanks to economies of scale. This allows Hurtigruten to cater for new segments. Spitsbergen segment s total revenue for the six months ended 30 June 2017 increased by NOK 3.7 million, or 2.2%, to NOK million from NOK million for the six months ended 30 June The increase is due to higher gross revenue per guest night. Payroll costs Payroll costs from continuing operations for the six months ended 30 June 2017 increased by NOK 48.4 million, or 9.1%, to NOK million from NOK million in the six months ended 30 June 2016, mainly due to growth in capacity and investments in the Commercial organisation to facilitate further growth in the business. Other operating costs Our other operating costs from continuing operations for the six months ended 30 June 2018 and 2017 are set forth below: For the quarter ended YTD 30 June 2016 % Change 30 June June 2016 % Change 30 June 2017 (NOK thousands, except as otherw ise indicated) Other Operating Costs: Cost of goods sold 227, , , ,336 Operating costs , , , ,303 Sales and administrative costs.. 126,238 (2.0) 123, , ,175 Total. 671, ,261 1,241, ,434,814 Other operating costs from continuing operations for the six months ended 30 June 2017 increased by NOK million, or 15.5%, to NOK 1,434.8 million from NOK 1,241.7 million in the six months ended 30 June Cost of goods sold increased by NOK 71.5 million, or 17.7%. Operating costs increased by NOK million or 18.6%. The increase in Cost of goods sold corresponds to the increase in sales, and the increase in Operating costs reflects the addition of an extra vessel in the fleet as well as a higher bunker cost due to price increases and the introduction of the bunker tax on the Norwegian coast. Sales and administrative costs increased by NOK 10.7 million, or 4.4%, reflecting investments in the Commercial team to support the growth in capacity and prepare for the launch of the Newbuild vessels. The six months ended 30 June 2017 include some one-offs in relation to project costs and losses on derivatives. 14

15 Depreciation, Amortisation and Impairment Losses Depreciation, amortisation and impairment losses from continuing operations for the six months ended 30 June 2017 increased by NOK 51.4 million, to NOK million from NOK million in the six months ended 30 June The increase is primarily due to the addition of MS Spitsbergen to the fleet in late 2016, as well as a one-off amortization charge adjustment related to PPA from the purchase of the Hurtigruten Group in 2014, NOK 28 million. Other losses net Other losses net from continuing operations for the six months ended 30 June 2017 amount to a net loss of NOK 41.1 million compared to a net loss of NOK 60.2 million for the six months ended 30 June These net losses are mainly related to bunker oil derivatives. EBITDA Our Reported EBITDA from continuing operations for the six months ended 30 June 2017 increased by NOK 35.3 million, or 15.0%, to NOK million from NOK million in the six months ended 30 June Nonrecurring items for the six months ended 30 June 2017 amounted to NOK 78.2 million, of which: i) project costs of NOK 23.8 million and ii) NOK 41.3 million related to losses on Fuel derivatives. The non-recurring costs for the same period in 2016 were NOK million, of which NOK 80 million mainly related to the refurbishment of the Norwegian Coastal ships, the rebuild of MS Spitsbergen and the preparation of MS Midnatsol for Antarctica, none of which are recurring in The Normalised Adjusted EBITDA from continuing operations does not include the above mentioned non-recurring items among other smaller effects, and decreased by NOK 43.8 million, to NOK million for the six months ended 30 June 2017 from NOK million in the six months ended 30 June Hurtigruten Norwegian Coast s Normalized Adjusted EBITDA for the six months ended 30 June 2017 decreased by NOK 19.2 million, or 6.6%, to NOK million from NOK million in the six months ended 30 June Revenue growth, resulting from improved occupancy on the Coast, has been a focus for the Commercial organization in order to reduce the historical seasonality of the business. Occupancy went from 65.4% to 72.7% and the additional volume, combined with improved offerings for Food and Excursions on the Coastal vessels, has been a strategic driver for increased profitability. Bunker costs increased by NOK 46 million in the first six months of 2017 compared to same period last year, due to the introduction of the Bunker Tax as well as an increase in underlying prices, and contributed to lower EBITDA margins. Norwegian Coast s EBITDA is the most impacted by the normalizations mentioned earlier in this report; the underlying EBITDA increased by NOK 59.3 million from NOK million the six months ended 30 June 2016 to NOK million in the six months ended 30 June Explorer segment s Normalized Adjusted EBITDA for the six months ended 30 June 2017 decreased by NOK 30.2 million, or -47.8%, to NOK 33.0 million from NOK 63.1 million in the six months ended 30 June The decrease is largely driven by the Q2 performance where the Explorer vessels have left the Antarctic and sailings include crossings and repositionings from the Antarctic to the Arctic. The company is focused on the itinerary planning and marketing of this sailing area in order to maximize profitability, taking into account the fixed operating costs and the alignment of new destinations with the brand and target passengers. Compared to last year, MS Midnatsol offers voyages at a lower price than MS Fram due to its larger size and different landing options, which drives the change in the Net Ticket Revenue per PCN in the segment; this is compensated by significant economies of scale on the vessel which carries more than twice the number of passengers, while ship operating costs are around 20-25% higher than for MS Fram. MS Midnatsol has performed very well in its first season, and will see improved profitability as occupancy increases in future seasons. In the six months ended 30 June 2017 non-recurring items totalled NOK 19.6 million. Spitsbergen Adjusted Normalised EBITDA for the six months ended 30 June 2017 amounted to NOK 43.7 million, i.e. a 16.6% increase vs. last year. Non-recurring items were limited to NOK -0.1 million in the six months ended 30 June 2017 and related to losses on sales net. Other business EBITDA for the six months ended 30 June 2017 and 2016, are not material (NOK 1 million in 2016 and 0 million in 2017). 15

16 EBITDA margin Our reported EBITDA margin from continuing operations for the six months ended 30 June 2017 increased by 0.3 percentage points, to 11.6% compared to the six months ended 30 June. Normalised Adjusted EBITDA margin for the six months ended 30 June 2017 decreased by 4.0 percentage points, to 15.0% from 19.0% in the six months ended 30 June 2016 due to the non-recurring items adjustment. Hurtigruten Norwegian Coast reported EBITDA margin for the six months ended 30 June 2017 increased by 2.8 percentage points, to 11.9% from 9.1% in the six months ended 30 June The Normalised Adjusted EBITDA margin for the six months ended 30 June 2017 decreased by 2.1 percentage points, to 15.2% from 17.3% in the six months ended 30 June Explorer s reported EBITDA margin for the six months ended 30 June 2017 decreased by 16.4 percentage points, to 3.7% from 20.1% in the six months ended 30 June The Normalised Adjusted EBITDA margin for the six months ended 30 June 2017 decreased by 20.2 percentage points, to 9.1% from 29.3% in the six months ended 30 June Spitsbergen s reported EBITDA margin for the six months ended 30 June 2017 increased by 3.3 percentage points to 25.5%, from 22.2% in six months ended 30 June The Normalised Adjusted EBITDA margin for the six months ended 30 June 2017 increased by 3.1 percentage points, to 25.5% from 22.3% in the six months ended 30 June Operating profit/(loss) Operating results from continuing operations for the six months ended 30 June 2017 decreased by NOK 16.2 million, or -46.7%, to NOK 18.4 million from NOK 34.6 million in the six months ended 30 June 2016, primarily due to the reasons stated above with respect to EBITDA. Finance expenses net Finance expenses net (financial results) from continuing operations for the six months ended 30 June 2017 increased by NOK million, to a loss of NOK million from a loss of NOK 54.0 million in six months ended 30 June Finance expense for the six months ended 30 June 2017 increased by NOK million, or 109.0%, to NOK million from NOK million in the six months ended 30 June The increase was principally a result of the financing of the MS Spitsbergen in the summer of 2016, treated as a Financial Lease in Silk Bidco Group s accounts as well as the Shareholder Loan and increase of the Revolving Credit Facility in Q1 of In addition, unrealised losses related to the translation of monetary assets and liabilities in foreign currency to our functional currency, which is the Norwegian kroner, was NOK million in the six months ended 30 June 2017 as compared to NOK 37.3 million in the six months ended 30 June The finance expense was partially offset by a finance income of NOK 88.7 million in the six months ended 30 June 2017 vs. NOK million in the six months ended 30 June 2016, representing a decrease of NOK 87.1 million, or 49.5%. The high level of financial income in 2016 were primarily due to an unrealised foreign exchange gain in the fair value evaluation of the Euro-denominated bond due to strengthening of the Norwegian kroner since 31 December In first six months of 2017, the Euro strengthened against the NOK and resulted in an unrealized foreign exchange loss. Share of profit/(loss) of associates Share of profit of associates from continuing operations for the six months ended 30 June 2017 came to NOK 1.3 million compared to NOK 1.7 million in the six months ended 30 June Income tax expense from continuing operations Income tax expense from continuing operations for the six months ended 30 June 2017 came to NOK 29.7 million compared to NOK 17.4 million in the six months ended 30 June Income tax relates to tax on profits for some of the subsidiaries. Profit/(loss) for the period from continuing operations As a result of the factors discussed above, the loss from continuing operations for the six months ended 30 June 2017 was significantly increased by NOK million to a loss of NOK million from a loss of NOK 35.2 million in the six months ended 30 June