norway coastal cruises | hurtigruten - bond report for the quarter … · 2017. 9. 6. · the...

Bond report for the quarter

ended 30 June 2017

Published 30 August 2017

Silk Bidco AS (issuer)

€ 455,000,000 7.50% 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 2017…………………. 27

Previous page: MS Fram in Qullissat, Greenland – credit: Andrea Klaussner / Hurtigruten

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 2022. 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.

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 2016. 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 2016. 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 2016. 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 2017.

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

2017.

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 2016. 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 2017. 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 Q2 2017 (22 days out of service in April) resulted in a lower contribution than in the same period of

2016.

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 2017.

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 2016. 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 2016.

All sailings for 2018 are now on sale, after the launch of the 2018/2019 Coastal season in April 2017. Overall

booking trends are very strong, with pre-sold revenues in FY 2018 54% 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 Q4 2018.

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.

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,

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 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.

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 2016. 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 €455 000 000 7.50% 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 2017.

11 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 2017. 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 2016. 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 2017.

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 2015. 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 long-

term 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.

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 2017. 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 2018. 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.

30 June 2016 30 June 2017 30 June 2016 30 June 2017

Hurtigruten Norwegian Coast:

PCNs………………………………………………………………… 316,384 332,744 537,287 575,950

APCNs………………………………………………………………. 428,326 416,536 821,584 791,770

Occupancy rate…………………………………………………….. 73.9% 79.9% 65.4% 72.7%

Gross ticket revenues……………………………………………. 869,777 941,524 1,311,078 1,428,260

Less:

Commissions, costs of goods for flights, hotels,

transportation and other passenger services………..……. 155,706 177,642 259,228 279,224

Food, beverage, shop, excursions……………………….… 97,009 112,075 162,190 185,453

Net ticket revenues……………………………………………….. 617,062 651,808 889,660 963,583

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………………………………………………. 612,320 689,827 1,129,368 1,221,881

Selling, general and administrative expenses………………… 175,064 169,694 343,901 331,281

Gross cruise costs……………………………………………….. 787,384 859,521 1,473,270 1,553,162

Less:


transportation and other passenger services ……………. 155,706 177,642 259,228 279,224

Food, beverage, shop, excursions…………………….…… 97,009 112,075 162,190 185,453

Net cruise costs………………………………………………….. 534,669 569,805 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)……………………….…. 84.7 79.3 84.5 80.6

Fuel cost per liter …………………………………………………. 5.34 5.53 5.55 5.74

For the quarter ended YTD

(NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and 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.

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.


Hurtigruten Explorer:

PCNs………………………………………………………………… 21,188 29,311 38,392 75,998

APCNs………………………………………………………………. 26,386 52,205 45,108 120,047

Occupancy rate…………………………………………………….. 80.3% 56.1% 85.1% 63.3%

Gross ticket revenues…………………………………………… 113,248 122,210 231,324 362,214

Less:


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 80,046 166,144 244,518

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….…………………………………………… 41,145 120,490 71,687 264,848

Selling, general and administrative expenses………………… 18,829 23,625 35,329 68,941

Gross cruise costs..……………………………………………… 59,974 144,115 107,015 333,789

Less:


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….………………………………………………. 29,051 101,952 41,835 216,093

Net cruise costs per APCN (NOK)….…………………………… 1,101 1,953 927 1,800

Fuel consumption (liter/nautical mile)……………………….…. 65.2 87.9 72.1 90.8

Fuel cost per liter …………………………………………………. 4.20 4.64 5.58 5.22


(NOK thousands except for PCNs, APCNs, occupancy rate, fuel consumption and fuel

cost per liter)

12

Results of Operations

The following table presents, for the periods indicated, our operating results:

30 June 2016 % Change 30 June 2017 30 June 2016 % Change 30 June 2017

Continuing Operations:

Operating revenues…………………………….. 1,084,904 8.6 1,178,319 1,721,326 15.5 1,988,775

Contractual revenues ………………………….. 174,232 (3.4) 168,329 347,857 (2.8) 338,143

Total revenues...………………………………… 1,259,137 7.0 1,346,649 2,069,183 12.5 2,326,919

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………………………………….. 54,795 18.6 65,012 175,803 (49.5) 88,739

Finance expense………………………………… (104,460) 212.5 (326,393) (229,769) 109.0 (480,223)

Finance expenses - net………………………… (49,665) 426.3 (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)


(NOK thousands, except as otherwise indicated)

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:

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.


Continuing Operations:

Total revenues:

Hurtigruten Norwegian Coast…………………. 1,058,836 6.1 1,123,269 1,687,410 6.2 1,792,860

Hurtigruten Explorer……………………………. 100,576 21.5 122,210 215,518 68.1 362,215

Hurtigruten Svalbard……………………………. 100,953 0.1 101,096 167,950 2.2 171,677

Other business …………………………………. 1,023 (94.4) 57 828 (83.7) 135

Eliminations …………………………………….. (2,251) NM 16 (2,522) (101.3) 32

Total revenues from continuing operations.. 1,259,137 7.0 1,346,648 2,069,184 12.5 2,326,919

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)


Other business ………………………………….. 1,599 NM 23 566 (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) 283,202 291,504 (6.6) 272,270

Hurtigruten Explorer……………………………. 24,782 (179.7) (19,740) 63,139 (47.8) 32,979


Other business ………………………………….. 1,790 NM 164 954 (64.3) 340

Total continuing operations…………………… 358,333 (17.6) 295,307 393,080 (11.1) 349,304

Normalised Adjusted EBITDA margin:

Hurtigruten Norwegian Coast………………….. 28.5 % (11.5) 25.2 % 17.3 % (12.1) 15.2 %

Hurtigruten Explorer……………………………. 24.6 % (165.6) -16.2 % 29.3 % (68.9) 9.1 %

Hurtigruten Svalbard……………………………. 29.8 % 5.1 31.3 % 22.3 % 14.1 25.5 %

Other business ………………………………….. 175.0 % NM 285.1 % 115.2 % NM 251.7 %

Total continuing operations……………...……. 28.5% (22.9) 21.9% 19.0% (21.0) 15.0%



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 2017.

Total revenues

Our total revenues from continuing operations for the six months ended 30 June 2017 increased by NOK 257.7

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 2016. 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 338.9 million in the six months ended 30

June 2017 from NOK 347.1 million (NOK 363.4 million normalized for cancellations) in the six months ended 30

June 2016. 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 2016.

Explorer segment’s total revenue in the six months ended 30 June 2017 was NOK 362.2 million, compared to NOK

215.6 million in the six months ended 30 June 2016. The increase of NOK 146.7 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 Q4 2017 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 171.7 million from NOK 168.0 million for the six months ended 30 June 2016. 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 579.9 million from NOK 531.5 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:

Other operating costs from continuing operations for the six months ended 30 June 2017 increased by NOK 193.1

million, or 15.5%, to NOK 1,434.8 million from NOK 1,241.7 million in the six months ended 30 June 2016. Cost of

goods sold increased by NOK 71.5 million, or 17.7%. Operating costs increased by NOK 110.9 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.


Other Operating Costs:

Cost of goods sold……………………………… 227,044 17.3 266,274 403,852 17.7 475,336

Operating costs...……………………………….. 318,492 21.3 386,277 596,436 18.6 707,303

Sales and administrative costs.………………. 126,238 (2.0) 123,709 241,446 4.4 252,175

Total………………………………………………. 671,774 15.6 776,261 1,241,734 15.5 1,434,814



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 252.7 million from NOK 201.2 million in the six months ended 30 June

2016. 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 2016. 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 271.1 million from NOK 235.8 million in the six months ended 30 June 2016. Non-

recurring 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 157.3 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 2017.

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 349.3 million for the six months

ended 30 June 2017 from NOK 393.2 million in the six months ended 30 June 2016.

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 272.3 million from NOK 291.5 million in the six months ended 30 June 2016. 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

154.2 million the six months ended 30 June 2016 to NOK 213.5 million in the six months ended 30 June 2017.

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 2016. 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).

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 2016. 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 2016.

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 2016. 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 2016.

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 2016. 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 2016.

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 337.5 million, to a loss of NOK 391.5 million from a loss of NOK 54.0 million in six months ended

30 June 2016.

Finance expense for the six months ended 30 June 2017 increased by NOK 250.5 million, or 109.0%, to NOK 480.2

million from NOK 229.8 million in the six months ended 30 June 2016. 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 2017. 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 266.9 million in the six months ended 30 June 2017 as compared to NOK

37.3 million in the six months ended 30 June 2016.

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 175.8 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 2015. 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 2016.

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 2016. 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 366.3 million to a loss of NOK 401.4 million from a loss of NOK 35.2

million in the six months ended 30 June 2016.

17

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 six months ended 30

June 2017, 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 the coming

12-month period.

The following table summarizes our consolidated statements of cash flows for the periods indicated.

Note: Interest Paid has been reclassified from Net Cash Flows from/(used in) operating activities to Net Cash flows from/(used in)

financing activities.

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:

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 to a lesser

extent the movement with respect to our income taxes.


Net cash flows from/(used in) operating activities……………. 312,527 381,769 638,157 432,528

Net cash flows from/(used in) investing activities…………….. (321,653) (148,458) (926,772) (312,801)

Net cash flows from/(used in) financing activities……………. 47,725 (24,974) 235,418 75,896

Cash, cash equivalents and bank overdrafts……………….. 204,778 475,880 204,778 475,880


(NOK thousand)


Profit/(loss) before income tax from continuing and

discontinued operations……………………………………….. 139,392 (150,780) (17,706) (371,754)

Adjustments for:

Depreciation, amortization and impairment losses from

continuing and discontinued business………………………. 101,132 139,242 201,220 252,659

Other (losses)/gains - net……………………………………… 181 14 381 (176)

Foreign exchange (losses)/gains - net..……………………… (43,148) 154,013 (137,430) 184,492

(Losses)/gains on derivatives………………………………… - 13,655 - 15,032

Dividends received……………………………………………… - (153) - (248)

Interest expenses……………………………………………….. 95,621 103,831 191,183 204,626

Share of profit/(loss) of associates from continuing and

discontinued operations……………………………………….. (816) (551) (1,724) (1,306)

Impairment on financial investments………………………… - - (3,271) -

Difference between expensed pension and payments……. 1,148 2,005 - (3,203)

Change in working capital: - - - -

Inventories…………………………………………………… (15,539) 1,738 (3,202) 11,614

Trade and other receivables………………………………. (114,216) 20,602 (125,675) 20,041

Financial assets at fair value through profit or loss……. - - - -

Trade and other payables…………………………………. 150,643 101,533 549,439 130,152

Income tax paid………………………………………………….. (1,871) (3,382) (15,058) (9,400)

Net cash flows from/(used in) operating activities……….. 312,527 381,769 638,157 432,528


(NOK thousand)

18

A number of our operating costs are fixed; however certain of our costs, such as costs of goods, vary on a seasonal

basis in line with our peak season, which typically occurs in the second and third calendar quarters of each year.

We also collect a portion of pre-booked revenues at the time of booking and our peak booking periods are from

September to October and January to February. The amount of revenues collected in advance is approximately 10

to 30% of the total cost of the trip booked. Therefore, due to the seasonal nature of our business, we tend to have

positive working capital during our peak season in the second and third calendar quarters, and negative working

capital during the first and fourth calendar quarters (our non-peak period) when we collect less revenues. Our

operating costs are generally lower during our non-peak season. However, in addition to our fixed costs, the

phasing of certain of our expenses does not track the seasonality of our revenues. For example, we typically

schedule dry-docking of our ships during the winter season, and this has a negative effect on our working capital

during our non-peak period.

Net cash flows from operating activities decreased by NOK 205.6 million, to NOK 432.5 million in the six months

ended 30 June 2017 compared to NOK 638.2 million in the six months ended 30 June 2016. While the underlying

operations reflect an increase in cash generation, first six months in 2016 included a large change in Trade

payables which related to exceptional payables for the dockings on the Norwegian Coast.

Net cash flows from/used in investing activities

The following table summarizes the principal components of our net cash flows from/(used in) investing activities

for the period indicated:

Cash flows from investing activities principally relates to capital expenditures on property, plant and equipment and

intangible assets, less any proceeds from the sale or disposal of property, plant and equipment and shares and

shareholdings. The Advance payment for PPE relates to payments for the construction of the Newbuild vessels.

Net cash flows used in investing activities decreased by NOK 614.0 million to NOK 312.8 million in the six months

ended 30 June 2017 compared to NOK 926.8 million in the six months ended 30 June 2018. The variation relates to

Capital expenditures, where the first half of 2016 included exceptional docking and refurbishment programme on

the Norwegian Coast.

We expect our normalised capital expenditures for the fleet to be at NOK 200 million per year based on our current

operations.


Purchases of property, plant and equipment (“PPE”).……… (287,829) (62,815) (898,074) (202,954)

Net proceeds from sale of PPE……………………………….. 414 - 884 145

Advance payment for PPE…………………………………….. - (68,871) - (117,960)

Purchases of intangible assets………………………………. (2,886) (13,145) (10,463) (19,964)

Loans to associates and other companies…………………. 354 - 429 -

Dividends received and payments from associates..……… - 341 - 436

Change in restricted funds…………………………………….. (31,706) (3,968) (19,548) 27,496

Net cash flows from/(used in) investing activities………… (321,653) (148,458) (926,771) (312,801)


(NOK thousand)

19

Net cash flows used in financing activities

The following table summarizes the principal components of our net cash flows used in financing activities for the

periods indicated:

Cash used in financing activities reflects the repayment of our previously outstanding debt, including our senior

facility, notes and revolving credit facility, as well as the indebtedness of the limited partners in the SPEs.

Net cash flows from financing activities amounted to NOK 75.9 million in the six months ended 30 June 2017, a

decrease of NOK 159.5 million from the same period last year. The proceeds from borrowings reflect the new

Shareholder Loan and increase of the Revolving Credit Facility in the first half of 2017.

Shareholder loan

Silk Bidco’s shareholders, via the parent entity Silk Topco, extended a EUR 12 million facility accessible to the

Company from February 2017.

At the time of this report, the facility is fully drawn.

Accordion Increase under the Revolving Credit Facility Agreement

As permitted by the existing Revolving Credit Facility agreement, the Facility was increased by EUR 20 million,

drawn on 3 March 2017.

At the time of this report, the facility is fully drawn.


Proceeds from borrowings……………………………………. 74,407 6,834 442,239 290,652

Repayments of borrowings…………………………………… (13,470) (6,905) (24,107) (20,606)

Proceeds from borrowings from group companies……….. 10,500 - 10,500 -

Interests paid…..………………………………………………… (8,802) (14,903) (178,304) (184,150)

Dividend paid to non-controlling interests………………….. (14,910) (10,000) (14,910) (10,000)

Net cash flows from/(used in) financing activities……….. 47,725 (24,974) 235,418 75,896

YTD

(NOK thousand)

For the quarter ended

20

Off-balance Sheet Arrangements

Hurtigruten AS has deferred income tax assets recognised in the balance sheet of NOK 179.0 million at 30 June

2017 and NOK 334.5 million in deferred income tax assets not recognised in the balance sheet at 31 December

2016. 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 30 June 2017:

(1) Represents €455.0 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, as well as for MS Spitsbergen since 1 July 2016. (3) Capital expenditure commitments mainly relate to dry-dockings, Construction of the Newbuild Vessels, remodeling of the hotels in Svalbard, and

investments in IT Systems.

The changes in the total contractual obligations from the publication of the 2016 annual bond report are mainly due

to the foreign exchange rate variations, and the Notes due in February 2022 which now figure as due within 1-5

years in addition to an increase in the RCF of EUR 20 million.

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 30 June 2016, we have a net debt of

NOK 4,803.9 million which includes NOK 767.5 million drawn on the Revolving Credit Facility, which represents a

full utilisation of the Facility (EUR 85 million).

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. 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.

Less than After

1 Year 5 Years

Notes offered(1) ……………………. 4,354.9 - 4,355 -

RCF …………………….….….….…. 767.5 - 768 -

Shareholder loan….….….….….….…. 113.3 113 0 -

Local Line Facilities ……………….. 16.9 2 6 8

Bareboat charter obligations(2) …… 637.6 85 222 331

Capital expenditure commitments(3) 2,618.4 183 2,436 -

Total ……………………………….. 8,508.6 383.0 7,786.6 339.0

Payments Due By Period

Total 1 - 5 Years

(NOK equivalent in millions)

21

Selected critical accounting policies

The preparation of the consolidated financial statements requires management to make estimates and

assumptions, based on historical experience and various other factors, including expectations of future events that

are believed to be reasonable under the circumstances, and that affect the application of policies and reported

amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

Our unaudited consolidated financial statements included elsewhere in this report comply with IFRS as at the date

of such financial statements. In the future, the adoption of new or revised standards or interpretations relating to

the presentation of net assets, our financial position or results of operations may have a material effect on our

future consolidated financial statements. For example, new standards relating to the accounting for leases may

result in significant shifts between “administrative expenses,” “depreciation and amortization expenses” and

“financial expenses” in our consolidated income statement as well as between “property, plant and equipment” and

“financial liabilities” in our consolidated balance sheet.

For information regarding important accounting estimates and judgements, see note 3 to the audited consolidated

financial statement for Silk Bidco group for the year ended 31 December 2016 which is included in the annual bond

report for 2016.

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 2016 which is included in the annual bond report for 2016.

22

Recent developments

Legal and Regulatory

Legal Proceedings

At the time of publication of this report, there are no material Legal Proceedings to disclose.

Additional Information

Management There have been no changes in the management of Hurtigruten since the publication of the quarterly Bond Report

for Q1 2017.

Related party transactions

There have been no material changes in the related party transactions since the publication of the offering

Memorandum.

23

Description of other indebtedness

Revolving Credit Facility Agreement We are party to the Revolving Credit Facility Agreement which provides for a committed EUR 85 million

multicurrency senior revolving credit facility (the “Revolving Credit Facility”). This represents a EUR 20 million

increase from year-end, when the facility was increased and drawn on 3 March 2017.

The facility is utilized to finance the business’s cash flow needs, in particular in the first and fourth quarters of the

year which are lower-revenue season and periods where the company chooses to conduct the majority of its

dockings in order to limit the impact on profitability.

Shareholder loan Silk Bidco’s shareholders, via the parent entity Silk Topco, extended a EUR 12 million facility accessible to the

Company from February 2017.

Financial lease In 2016 Hurtigruten entered into a 12-year sale and lease-back contract for MS Spitsbergen with Bank of

Communications, the fifth largest bank in China. The transaction’s amount of EUR 55 million covered the full

acquisition and refurbishment cost of the vessel and is structured as a bareboat charter lease between Jiaye

International Ship Lease Co., Ltd, a leasing subsidiary of Bank of Communications Financial Leasing Co. Ltd, as a

Lessor and Explorer I AS, a 100 % owned subsidiary of Hurtigruten Explorer AS that is not a Restricted Group

entity, as a Lessee. MS Spitsbergen operates within the fleet, and earnings are recognized within the P&L of Silk

Bidco Group.

Consequently, Silk Bidco capitalizes the lease debt on its balance sheet, and at 30 June 2017 the balance was NOK

465 million.

24

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 litres per nautical mile and fuel costs per litre.

Our key performance indicators are not measurements of performance under IFRS. We have presented these non-

IFRS financial measures (i) as they are used by our management to monitor and report to our board members on

our financial performance and (ii) to represent similar measures that may be used by certain investors, securities

analysts and other interested parties as supplemental measures of financial performance. We believe these

measures enhance the investor’s understanding of our financial performance and our ability to fund our ongoing

operations, make capital expenditures and meet and service our obligations.

However, these non-IFRS financial measures are not measures determined based on IFRS, or other accepted

accounting principles, and you should not consider such items as an alternative to the historical financial

performance or other indicators of our cash flow and forward position based on IFRS measures. The non-IFRS

financial measures, as defined by us, may not be comparable to similarly titled measures as presented by other

companies due to differences in the way our non-IFRS financial measures are calculated. The non-IFRS financial

information contained in this offering memorandum is not intended to comply with the reporting requirements of

the SEC or any other regulatory authority and will not be subject to review by the SEC or any other regulatory

authority. Even though the non-IFRS financial measures are used by management to assess our financial

performance and these types of measures are commonly used by investors, they have important limitations as

analytical tools, and you should not consider them in isolation or as substitutes for analysis of our position or

results as reported under IFRS.

25

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 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 interest income,

foreign exchange gains on borrowings and cash balances as well as gains on the sale of financial assets and

dividends.

26

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.

27

Silk Bidco Group

Unaudited consolidated financial statements

for the second quarter 2017

28

Consolidated Income statement

Unaudited

(in NOK 1 000) Note 2nd quarter 2017 2nd quarter 2016 Year to date 2017 Year to date 2016

Operating revenues 1 178 319 1 084 904 1 988 775 1 721 326

Contractual revenues 168 329 174 232 338 143 347 857

Total Revenues 1 346 649 1 259 137 2 326 919 2 069 183

Payroll costs (296 496) (274 210) (579 909) (531 473)

Depreciation, amortisation and impairment losses (139 242) (101 132) (252 659) (201 220)

Other operating costs 3 (776 261) (671 774) (1 434 814) (1 241 734)

Other (losses)/gains – net (24 600) (23 726) (41 114) (60 166)

Operating profit/(loss) 110 050 188 295 18 423 34 589

Operating profit/(loss) before depreciation,

amortisation and impairment losses (EBITDA) 249 292 289 427 271 082 235 810

Finance income 65 012 54 795 88 739 175 803

Finance expenses (326 393) (104 460) (480 223) (229 769)

Finance expenses - net (261 382) (49 665) (130 102) (53 966)

Share of profit/(loss) of associates 551 762 1 306 1 670

Profit/(loss) before income tax (150 780) 139 392 (371 754) (17 706)

Income tax expense (23 471) (17 448) (29 657) (17 448)

Profit/(loss) for the period (174 251) 121 944 (401 411) (35 154)

Profit/(loss) for the period attribute to

Owners of the parent (181 799) 110 818 (415 765) (56 688)

Non-controlling interests 7 548 11 126 14 354 21 534

29

Consolidated statement of comprehensive incomeUnaudited

(in NOK 1 000) Note 2nd quarter 2017 2nd quarter 2016 Year to date 2017 Year to date 2016

Profit/(loss) for the period (174 251) 121 944 (401 411) (35 154)

Other comprehensive income, net of tax:

Items that will not be reclassified to profit or loss in subsequent periods:

Sum - - - -

Items that will be reclassified to profit or loss in subsequent periods:

Cash flow hedges, net of tax (12 645) 108 539 (38 365) 108 539

Currency translation differences (17 683) (5 258) (11 748) (1 594)

Sum (30 328) 103 281 (50 113) 106 945

Total other comprehensive income, net of tax (30 328) 103 281 (50 113) 106 945

Total comprehensive income for the period (204 579) 225 225 (451 524) 71 791

Attributable to

Owners of the parent (212 127) 214 099 (465 878) 50 257

Non-controlling interests 7 548 11 126 14 354 21 534

Total comprehensive income for the period (204 579) 225 225 (451 524) 71 791

30

Consolidated balance sheet

Unaudited

(in NOK 1 000) Note 30.06.2017 31.12.2016 31.12.2015

ASSETS

Property, plant and equipment 4 254 348 3 990 640 3 180 741

Intangible assets 2 806 345 2 859 453 2 904 354

Investments in associates 5 440 3 634 2 571

Deferred income tax assets 179 047 178 518 177 967

Derivative financial instruments - 24 855 -

Other long-term receivables 84 244 74 044 39 723

Total non-current assets 7 329 424 7 131 144 6 305 355

Inventories 118 231 129 845 100 895

Trade and other receivables 374 179 399 826 265 810

Derivative financial instruments - 7 119 -

Cash and cash equivalents 524 564 305 988 315 878

Total current assets 1 016 974 842 778 682 583

Total assets 8 346 399 7 973 922 6 987 938

EQUITY AND LIABILITIES

Ordinary shares 90 90 90

Share premium 1 826 694 1 826 694 1 826 688

Other reserves 868 868 868

Other equity not recognized in the income statement (53 773) (3 661) (166 002)

Retained earnings (1 231 829) (816 063) (762 696)

Total equity attribute to owners of the parent 542 050 1 007 928 898 948

Non-controlling interests 159 756 155 402 180 540

Total equity 701 806 1 163 330 1 079 488

Borrowings 5 439 594 5 053 209 4 469 815

Other non-current liabilities 83 881 36 731 30 382

Deferred income tax liabilities 124 766 84 899 93 467

Retirement benefit obligations 38 023 41 339 42 034

Derivate financial instruments 39 791 - -

Provisions for other liabilities and charges 4 722 4 631 4 784

Total non-current liabilities 5 730 778 5 220 809 4 640 482

Trade and other liabilities 1 574 969 1 500 564 1 059 958

Current income tax liabilities 32 625 29 787 16 228

Borrowings 142 512 27 188 16 033

Derivate financial instruments 19 243 17 655 169 352

Provision for other liabilities and charges 144 466 14 591 6 397

Total current liabilities 1 913 815 1 589 785 1 267 967

Total equity and liabilities 8 346 399 7 973 922 6 987 938

31

Consolidated cash flow statement

Unaudited

(NOK 1 000) 2nd quarter 2017 2nd quarter 2016 Year to date 2017 Year to date 2016

Cash flows from operating activities

Profit/(loss) before income tax from continuing and discontinued operations (150 780) 139 392 (371 754) (17 706)

Adjusted for:

Depreciation, amortisation and impairment losses 139 242 101 132 252 659 201 220

Other losses/gains - net 14 181 (176) 381

Exchange losses/gains - net 154 013 (43 148) 184 492 (137 430)

Losses/gains on derivatives 13 655 - 15 032 -

Dividends received (153) (54) (248) (54)

Interest expenses 103 831 95 621 204 626 191 183

Share of profit/loss of associates (551) (762) (1 306) (1 670)

Difference between expensed pension and payments 2 005 1 148 (3 203) (3 271)

Change in working capital: -

Inventories 1 738 (15 539) 11 614 (3 203)

Trade and other receivables 20 602 (114 216) 20 041 (125 675)

Trade and other payables 101 533 150 643 130 152 549 439

Interests paid (14 903) (8 802) (184 150) (178 304)

Income tax paid (3 382) (1 871) (9 400) (15 058)

Net cash flows from (used in) operating activities 366 865 303 726 248 378 459 852

Cash flows from investing activities

Purchases of property, plant and equipment (PPE) (62 815) (287 829) (202 954) (898 074)

Proceeds from sale of PPE - 414 145 884

Advance payment of property, plant and equipment (PPE) (68 871) - (117 960) -

Purchases of intangible assets (13 145) (2 886) (19 964) (10 463)

Loan to associates and other companies - 300 - 375

Dividends received and payments from associates 341 54 436 54

Change in restricted funds (3 968) (31 706) 27 496 (19 548)

Net cash flows from (used in) investing activities (148 458) (321 653) (312 801) (926 771)

Cash flows from financing activities

Proceeds from borrowings 6 834 74 407 290 652 442 239

Repayment of borrowings (6 905) (13 470) (20 606) (24 107)

Proceeds from borrowings from group companies - 10 500 - 10 500

Dividend paid to non-controlling interests (10 000) (14 910) (10 000) (14 910)

Net cash flows from (used in) financing activities (10 071) 56 527 260 046 413 722

Net (decrease)/increase in cash, cash equivalents and bank overdrafts

Net (decrease)/increase in cash, cash equivalents and bank overdrafts 208 336 38 600 195 622 (53 197)

Cash, cash equivalents and bank overdrafts at beginning of period 237 267 165 895 230 883 256 450

Exchange gains/(losses) on cash, cash equivalents and bank overdrafts 30 276 283 49 375 1 526

Cash, cash equivalents and bank overdrafts at end of period 475 880 204 778 475 880 204 779

Silk Bidco AS c/o Hurtigruten AS, Fredrik Langes gate 14, P.O. Box 6144 Langnes, 9291 Tromsø, Norway

Booking: +47 810 30 000, Switchboard: +47 970 57 030

Business register number: NO 914 148 324 VAT

Consolidated statement of changes in equity

Unaudited

(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

Non-

controlling

interestsTotal Equity

Balance at 1 January 2016 90 1 827 556 (166 002) (762 697) 898 947 180 541 1 079 488

Profit/(loss) for the year - - - (53 452) (53 452) 37 772 (15 680)

Other comprehensive income -

Currency translation differences - - (11 559) - (11 559) - (11 559)

Cash flow hedges, net of tax - - 176 552 - 176 552 - 176 552

Actuarial gain/loss on retirement benefit obligations,

net of tax - - (2 651) - (2 651) - (2 651)

Other comprehensive income - - 162 342 - 162 342 - 162 342

Total comprehensive income - - 162 342 (53 452) 108 890 37 772 146 662

Transactions with owners

Distribution to owners (62 820) (62 820)

Total transactions with owners - - - - - (62 820) (62 820)

Balance at 31 December 2016 90 1 827 562 (3 660) (816 063) 1 007 928 155 402 1 163 330

Balance at 1 January 2017 90 1 827 562 (3 660) (816 063) 1 007 928 155 402 1 163 330

Profit/(loss) for the period - - - (415 765) (415 765) 14 354 (401 411)

Other comprehensive income

Currency translation differences - - (11 748) - (11 748) - (11 748)

Cash flow hedges, net of tax - - (38 365) - (38 365) - (38 365)

Other comprehensive income - - (50 113) - (50 113) - (50 113)

Total comprehensive income - - (50 113) (415 765) (465 878) 14 354 (451 524)

Transactions with owners

Contribution of equity - - - - - - -

Distribution to owners - - - - - (10 000) (10 000)

Total transactions with owners - - - - - (10 000) (10 000)

Balance at 30 June 2017 90 1 827 562 (53 773) (1 231 829) 542 050 159 756 701 806

33

Notes to the accounts

Unaudited

Note 1 Accounting policies

The interim financial report for the Group includes Silk Bidco AS with subsidiaries and associated companies.

The interim financial report is prepared in accordance with IAS 34 Interim Financial Reporting. The interim

financial report does not include all information which will appear in the annual financial report which is

prepared in accordance with all effective IFRS-standards, and should therefore be read in connection with the

annual report for Silk Bidco Group for 2016.

The annual report 2016 for the company can be obtained through a request to the company’s main office. The

accounting policies applied in the interim financial reporting are described in the note of accounting policies in

the annual report for 2016.

In the preparation of the interim financial report, estimates and assumptions have been applied, which has

affected assets, liabilities, revenues and costs. Actual figures can deviate from estimates applied.

Note 2 Financial risk management

There are potential risks and uncertainties that can affect the operation of the companies in the Group. This

may lead to actual results deviating from expected and historical results. Information concerning the most

important risks and uncertainties is disclosed in the latest annual report.

The Group is exposed to fluctuations in the price of bunker fuel, which is used to operate the ships. In order to

reduce the risk related to the fuel price the Group has 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 2017. In 2016, the Group purchased additional derivatives contracts and hedged approximately a level of

80% of the estimated bunker oil consumption for the period 2017 until December 2018. The company will

continue to monitor the price fluctuations and cover the risk through hedges, in order to limit the impact on

results.

There have been no material changes in the financial risk management since the fourth quarter report for 2016

was published.

Note 3 Contingencies

Membership in the industrial fund for nitrogen oxides

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 2011–2017 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 2011. The

Fund has reported that the targets for the years 2011-2014 were met. The Fund had no specific targets for 2015,

but is on track to reach the targets for the period 2015-2016, according to the annual report for 2015. The annual

report for 2016 is not published at the time of this report. On 24 May 2017, an extension on the NOx Agreement

for the period 2018-2025 was signed between the business organizations and the Norwegian Authorities. The

extension must be approved by ESA before it enters into force.

The Norwegian Environment Agency monitors whether individual reduction targets have been achieved.

Deviations of more than 10% 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.

34

NOK 7.7 million in nitrogen dioxide tax was recognised in Silk Topco Groups consolidated financial statements as

of 30 June 2017, (as of 30 June 2016: NOK 7.5 million).

Note 4 Proceeds from and payments of borrowings

Silk Bidco Group are party to the Revolving Credit Facility Agreement which provides for a committed EUR 65

million multicurrency senior revolving credit facility (the “Revolving Credit Facility”). This was increased by EUR

20 million on 3 March 2017 to EUR 85 million. The Revolving Credit Facility is fully utilised as of 30 June 2017, in

connection with the substantial CAPEX program in 2016, including the four refurbished ships, prepayments for

the newbuilds, and the docking expenses and upgrades made during winter 2016-2017. As several tranches are

NOK denominated whereas the facility is EUR denominated, the available amount in NOK may vary due to

currency fluctuations.

On 7 February 2017, Hurtigruten AS incepted a EUR 12 million shareholder loan from Silk Holdings S.a.r.l. for

working capital purpose. This shareholder loan is unsecured and matures on 31 December 2017. The facility bears

an interest of 10% p.a. and can be prepaid in all or part.

Contractual Obligations – Payments due by Period

The following table summarizes certain categories of contractual obligations owed to third-parties at 30 June

2017:

Notes offered represents EUR 455 million in aggregate principal amount of the Notes. Bareboat charter obligations

consist of charter hire agreements relating to the bareboat charter lease agreements with Kirberg Shipping KS

and Kystruten KS for the MS Nordlys and MS Richard With, respectively, as well as for MS Spitsbergen since 1

July 2016. Capital expenditure commitments mainly relate to dry-dockings, construction of the newbuild vessels

and investments in IT Systems.

Note 5 Financial instruments by category and assessment of fair value

The following principles have been applied for the subsequent measurement of financial assets and liabilities at

30 June 2017:

Less than From After

(NOK 1000) 1 year 1-5 years 5 years Total

Notes offerred - 4 354 942 - 4 354 942

RCF - 767 516 - 767 516

Shareholder loan 113 265 0 - 113 265

Local Line Facilities 2 445 6 415 7 998 16 858

Bareboat charter obligations 84 693 221 860 331 033 637 586

Capital expenditure commitments 145 567 2 435 853 0 2 581 420

Total 345 970 7 786 586 339 031 8 471 587

35

Carrying amount of short term receivables, payables and borrowings is assessed to not differ materially from

fair value. The observed price of the Group's Senior Secured Notes at June 2017 implies that the fair value of

these long term borrowings is higher than the carrying amount.

The following principles have been applied for the subsequent measurement of financial assets and liabilities at

31 December 2016:

(NOK 1000)

Loans and

receivables

Assets at fair

value through

profit and loss

Derivatives

used for

hedging Total

Assets as per balance sheet

Long-term receivables 81 244 - - 81 244

Investments in other companies - 3 000 - 3 000

Trade receivables and other receivables 374 179 - - 374 179

Derivatives - - - -

Cash and cash equivalents 523 443 1 121 - 524 564

Total 978 865 4 122 - 982 987

Total

Liabilities as per balance sheet

Long term borrowings - - (5 439 594) (5 439 594)

Derivatives - (59 034) - (59 034)

Accounts payable and other short term payables - - (1 417 805) (1 417 805)

Short term borrowings - - (84 020) (84 020)

Total - (59 034) (6 941 419) (7 000 453)

Booked value against to fair value Carrying amount Fair value

Assets

Long-term receivables 81 244 81 244

Investments in other companies 3 000 3 000

Trade receivables and other receivables 374 179 374 179

Derivatives - -

Cash and cash equivalents 524 564 524 564

Total 982 987 982 987

Liabilities

Long term borrowings (5 439 594) (5 725 278)

Derivatives (59 034) (59 034)

Accounts payable and other short term payables (1 417 805) (1 417 805)

Short term borrowings (84 020) (84 020)

Total (7 000 453) (7 286 137)

Liabilities at

fair value

through profit

and loss

Derivatives

used for

hedging

Other financial

liabilities at

amortised cost

36

The carrying amount for short term receivables and payables has been assessed and does not differ materially

from fair value. The observed price of the Group's Senior Secured Notes at December 2016 implies that the fair

value of these long term borrowings is higher than the carrying amount.

Classification by IFRS fair value hierarchy

Level 1: inputs are quoted prices in active markets for identical assets of liabilities.

Level 2: inputs 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.

(NOK 1000)

Loans and

receivables

Assets at fair

value through

profit and loss

Derivatives

used for

hedging Total

Assets as per balance sheet

Long-term receivables 71 043 - - 71 043

Investments in other companies - 3 000 - 3 000

Trade receivables and other receivables 399 826 - - 399 826

Derivatives - 7 119 24 855 31 974

Cash and cash equivalents 304 924 1 064 - 305 988

Total 775 793 11 183 24 855 811 832

Total

Liabilities as per balance sheet

Long term borrowings - - (5 053 209) (5 053 209)

Derivatives - (17 655) - (17 655)

Accounts payable and other short term payables - - (1 500 423) (1 500 423)

Short term borrowings - - (27 188) (27 188)

Total - (17 655) (6 580 819) (6 598 475)

Booked value against to fair value Carrying amount Fair value

Assets

Long-term receivables 71 043 71 043

Investments in other companies 3 000 3 000

Trade receivables and other receivables 399 826 399 826

Derivatives 31 974 31 974

Cash and cash equivalents 305 988 305 988

Total 811 831 811 831

Liabilities

Long term borrowings (5 053 209) (5 326 650)

Derivatives (17 655) (17 655)

Accounts payable and other short term payables (1 500 423) (1 500 423)

Short term borrowings (27 188) (27 188)

Total (6 598 475) (6 871 916)

Liabilities at

fair value

through profit

and loss

Derivatives

used for

hedging

Other financial

liabilities at

amortised cost

37

The following table presents the Group's assets and liabilities measured at fair value at 30 June 2017:

There were no transferals between level 1, 2 or 3 year to date 2017.

The following table presents the Group's assets and liabilities measured at fair value at 31 December 2016:

Fair value used in balance sheet

Pr. 30 June 2017

(NOK 1000) Level 1 Level 2 Level 3 Sum

Assets

Investments in other companies 1 121 - 3 000 4 122

Total 1 121 - 3 000 4 122

Liabilities

Derivatives - (59 034) - (59 034)

Total - (59 034) - (59 034)

Fair value used in disclosure notes

Pr. 30 June 2017

(NOK 1000) Level 1 Level 2 Level 3 Sum

Assets

Long-term receivables - - 81 244 81 244

Total - - 81 244 81 244

Liabilities

Long term borrowings (5 725 278) - - (5 725 278)

Total (5 725 278) - - (5 725 278)

Fair value used in balance sheet

Pr. 31 December 2016(NOK 1000) Level 1 Level 2 Level 3 Sum

Assets

Investments in other companies 1 064 - 3 000 4 064

Derivatives - 31 974 - 31 974

Total 1 064 31 974 3 000 36 038

Liabilities

Derivatives - (17 655) - (17 655)

Total - (17 655) - (17 655)

Fair value used in disclosure notes

Pr. 31 December 2016(NOK 1000) Level 1 Level 2 Level 3 Sum

Assets

Long-term receivables - - 71 043 71 043

Total - - 71 043 71 043

Liabilities

Long term borrowings (5 326 650) - - (5 326 650)

Total (5 326 650) - - (5 326 650)

38

A new assessment of the derivatives has led to transferal from level 1 to 2. There were no other transferals

between level 1, 2 or 3 in 2016.

The fair value of financial instruments that are traded in active markets is based on the market prices at the

balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an

exchange, dealer, broker, industry group, pricing service, or regulatory agency, and these prices represent

actual and regularly occurring market transactions on an arm’s length basis. The market price used for financial

assets is the current bid price, while for financial liabilities is the current sales price. These instruments are

included in Level 1 and comprise the fair value of some forward bunker oil contracts and other securities.

The fair value of financial instruments that are not traded in an active market is determined by means of

various valuation methods. The Group uses various methods and makes assumptions based on the prevailing

market conditions at the balance sheet date. If all the significant data inputs that are required to determine the

fair value of an instrument are observable data, then the instrument will be included in Level 2. This includes

the fair value of forward foreign exchange contracts, foreign exchange options, interest rate swaps and some

forward bunker oil contracts.

If one or more of the significant data inputs are not based on observable market data, the instrument will be

included in Level 3.

The nominal value less impairment for losses incurred on trade receivables and the nominal value of trade and

other current payables are assumed to approximate the items’ fair value.

Particular valuation methods that are used to assess financial instruments include:

- Quoted market or trading price for corresponding instruments. - Fair value of interest rate swap contracts is calculated as the present value of the estimated future

cash flow based on the observable yield curve. - Fair value of forward contracts in a foreign currency is calculated as the present value of the difference

between the agreed forward price and the forward price at the balance sheet date multiplied by the contract volume in a foreign currency. The relevant interest rate at the balance sheet date is used for calculation of the present value.

- Other methods, such as discounted cash flows, are used to determine the fair value of the remaining financial instruments.

Note 6 Business influenced by seasonal factors

The Hurtigruten coastal service is influenced by seasonal factors with the main season traditionally from May

through August. In the recent years the company has developed seasonal concepts, "Hunting the light" for the

winter season, "Arctic Awakening" in the spring and "Autumn Gold" in the fall. This has increased the number of

cruise nights in the months outside the traditional main season. The itinerary and fleet of the company is

according to the Hurtigruten public procurement contract, which involves daily departures from Bergen all year

through.

Explorer cruises are cyclic because the cruises are concentrated around four geographic areas (different parts of

the year); the Antarctic, Svalbard, Greenland and cruise between the Antarctic and the Arctic. The land based

Svalbard operation has a main season reaching from March through August. This activity is operated by the

subsidiary Spitsbergen Travel Group.

norway coastal cruises | hurtigruten - bond report for the quarter … · 2017. 9. 6. · the...

Documents