Annual Report 2004
Annual Report 2004 Color Group ASA 2 The Group in Brief 3 Milestones 5 This is Color Group 9 The Tourist Industry 13 International Brand-Building 17 Other Contributions 19 Employees in Color Line 21 Principal Figures and Key Figures 22 Directors' Report 26 Income Statement 27 Balance Sheet 28 Cash Flow Statement 29 Notes to the Accounts 40 Auditor's Report 1
The Group in Brief Milestones THE COLOR LINE FLEET COMPRISES 11 SHIPS Operations: Transport of passengers and goods Hotel operation Restaurants M/S COLOR FANTASY Oslo - Kiel Year built: 2004 Register: NOR Tonnage: 75 027 BRT Length: 223,7 metres Max. speed: 22,3 knots Retailing Entertainment Organized tour production Passenger capacity: 2 750 Cabins: 966 Berths: 2 750 Freight capacity (lane metres): 1 270 Vehicles: 750 Color Group ASA operates in the fields of transport of passengers and goods, hotel operation, restaurants, retailing, entertainment and organized tour production. The Group is owned by O.N. Sunde AS, and its head office is located in Oslo. The Group recorded an overall sales figure of NOK 3 944 million in 2004. Color Group's wholly-owned subsidiary company, Color Line AS, is the main activity in the Group. Color Line is Norway's largest and one of Europe's leading cruise ferry companies. The Color Line fleet totals 11 ships, and as at 31 December 2004 the company operated six international services between eight ports in Norway, Germany, Denmark and Sweden. All the company's ships in year-round operation are registered in the Norwegian Ordinary Ship Register (NOR). In 2004, Color Line transported more than 4.2 million passengers. In addition, the ships transported more than 820 000 passenger cars and close to 160 000 trailers. M/S Prinsesse Ragnhild will be in operation on a newly established service between Bergen/Stavanger and Hirtshals from 27 April 2005. Color Hotel Skagen AS in Denmark is a wholly-owned subsidiary of Color Group and operates as an integral part of the Color Line business. Of the 3 268 permanent employees, 2 261 are employed onboard the ships. Most of those working onboard the ships are Norwegian nationals. There are 691 shore-based employees in Norway, 209 in Denmark, 80 in Germany and 27 in Sweden. In addition to the full time employees, the company employs a temporary staff of approx. 550 during the summer season and in other peak periods. Color Line is Norway's largest maritime training company. There are always about 50 trainees serving their apprenticeship onboard the company's ships. The company is the major contributor to the Foundation Norwegian Maritime Competence. This Foundation provides grants for competence enhancement and other measures to encourage recruitment of Norwegian maritime personnel. In connection with the opening of the new service from West Norway, the company's workforce will increase by approx. 200 crew members and approx. 50 shore-based personnel in Bergen and Stavanger during the first quarter of 2005. 5 January: For the ninth year running, Color Line was voted Best Ferry Company and Best Car Package Organizer in Norway by Norwegian travel agency employees. 9 January: Color Line received the award Travel and Tourism Marketer of the Year by the travel organization HSMAI. The company was also awarded a gold medal in the classes for advertising film and radio advertising. 12 March: M/S Color Traveller was registered with the Norwegian Ordinary Ship Register (NOR). The ship is part of the Color Line Transporter concept and started operation on the newly established service between Larvik and Hirtshals. Color Traveller meets the increased demand for sea freight capacity between the Continent and Norway, and has been adapted to meet the requirements of the EU and Norway's environmental and transport policies. 15 June: The Parliament ratified the Government's Shipping Bill. Although this clarifies several important factors for Norwegian shipping, it does not fully address the issue of the Norwegian ferry companies' requirement for long-term planning and equality in relation to competitors in the other Nordic countries and the EU. 13 September: Color Line announces its plans for the establishment of a new cruise ferry service between Bergen/Stavanger and Hirtshals in 2005. The new service which will start up on 27 April 2005 will have three weekly departures in each direction (four in the peak season). M/S Prinsesse Ragnhild will operate on this service. 10 December: M/S Color Fantasy, the world's largest cruise ship with a car deck was christened in Oslo and sailed on its maiden voyage to Kiel. The ship, which is registered in NOR, was built at Kværner Masa-Yards in Turku, Finland, at a total cost of approx. NOK 2.5 billion. The ship attracted great interest among the general public and the media both in Norway and abroad, particularly in Germany where it received wide coverage in the press. M/S KRONPRINS HARALD Oslo Kiel Year built: 1987 Register: NOR Tonnage: 31 914 BRT Length: 166,3 metres Max. speed: 23,5 knots M/S COLOR FESTIVAL Oslo - Hirtshals Year built: 1985 Register: NOR Tonnage: 34 694 BRT Length: 171,5 metres Max. speed: 22 knots M/S PRINSESSE RAGNHILD Bergen/Stavanger-Hirtshals Year built: 1981/1992 Register: NOR Tonnage: 35 855 BRT Length: 205,3 metres Max. speed: 22 knots M/S CHRISTIAN IV Kristiansand - Hirtshals Year built: 1982 Register: NOR Tonnage: 22 161 BRT Length: 154,5 metres Max. speed: 19 knots F/F SILVIA ANA Kristiansand - Hirtshals Year built: 1996 Register: Bahamas Tonnage: 7 895 BRT Length: 125 metres Max. speed: 41 knots M/S PETER WESSEL Larvik - Frederikshavn Year built: 1981/1988 Register: NOR Tonnasje: 30 316 BRT Length : 168,5 metres Max. speed: 19 knots M/S COLOR TRAVELLER Larvik - Hirtshals Year built: 1981 Register: NOR Tonnasje: 17 098 BRT Length : 140,8 metres Max. speed: 19,4 knots M/S SKAGEN Year built: 1975/1982 Register: NOR Tonnasje: 12 333 BRT Length : 129,8 metres Max. speed: 18 knots M/S COLOR VIKING Sandefjord - Strömstad Year built: 1985 Register: NOR Tonnasje: 19 763 BRT Length : 137 metres Max. speed: 18 knots Passenger capacity: 1 458 Cabins: 470 Berths: 1 458 Freight capacity (lane metres): 1 160 Vehicles: 730 Passenger capacity: 2 000 Cabins: 577 Berths: 1 900 Freight capacity (lane metres): 850 Vehicles: 650 Passenger capacity: 1 515 Cabins: 565 Berths: 1 515 Freight capacity (lane metres): 900 Vehicles: 600 Passenger capacity: 1 860 Cabins: 335 Berths: 800 Freight capacity (lane metres): 700 Vehicles: 530 Passenger capacity: 1 065 Cabins: 0 Berths: 0 Freight capacity (lane metres): 0 200 vehicles and 4 busses Passenger capacity: 2 138 Cabins: 518 Berths: 1 842 Freight capacity (lane metres): 750 Vehicles: 562 Passenger capacity: 1 100 Cabins: 80 Berths: 284 Freight capacity (lane metres): 1 150 Vehicles: 750 Passenger capacity: 900 Cabins: 133 Berths: 321 Freight capacity (lane metres): 400 Vehicles: 400 Passenger capacity: 1 720 Cabins: 0 Berths: 0 Freight capacity (lane metres): 525 Vehicles: 370 M/S BOHUS Sandefjord - Strömstad Year built: 1971 Register: NOR Tonnasje: 9 149 BRT Length : 123,4 metres Max. speed: 21 knots Passenger capacity: 1 165 Cabins: 0 Berths: 0 Freight capacity (lane metres): 462 Vehicles: 240 3
This is Color Group Group structure Color Group is the active holding company for the whollyowned subsidiaries Color Line and Color Hotel Skagen. All business in connection with ferry operations is operated by Color Line. Color Hotel Skagen in Denmark is an integral part of Color Line and is part of the Group's destination development program. The major part of all activities in Color Group is therefore handled by Color Line. In this Report we will therefore only refer to Color Group and Color Hotel Skagen when there is a requirement to emphasize these as separate commercial units. A leading player in European shipping and travel Color Line follows a forward-looking innovative policy by offering market-oriented and profitable services in the fields of travel and transport. The company's products and services shall maintain a high level with regard to quality, safety, service, environmental efficiency, adventure and dependability. Color Line's core value is engagement, and this is the positive keyword in the company's human relations policy and in interaction with employees, guests and cooperating partners. History Color Group ASA was established in 1990 and is a continuation of a 105-year old tradition of regular shipping line operations between Norway and the European Continent. The company stems from the two Kosmos companies Jahre Line and Norway Line. The new group expanded its business appreciably when it acquired the Fred. Olsen Lines ferry operations. At the same time Color Group ASA strengthened its strategic position. The takeover of the operations of Larvik Line in October 1996 and Scandi Line in September 1998 contributed towards further consolidation of the cruise ferry market in Norway. Color Group ASA acquired Color Hotel Skagen AS in September 1998. The organization The Group's head office is in Oslo. Joint group functions are located in Sandefjord, Kristiansand and Hirtshals. In the course of 2005, Color Line will operate seven services between Norway, Sweden, Denmark and Germany through three efficient line organizations in Oslo, Sandefjord and Kristiansand. The Group has divisional offices in Larvik, Stavanger, Bergen, Hirtshals, Frederikshavn, Kiel and Strömstad. Safety and the environment Color Line is committed to an ongoing improvement program with regard to safety and the environment. The safety of passengers, crew and the environment is Color Line's primary concern. Color Line participates in safety and environmental research and development both nationally and internationally. The company complies with all national and international statutory requirements, and in many cases the initiatives taken by the company exceed official requirements. ISO 14001 certification of the ships continued in 2004. ISO 14001 is an international standard adopted by companies all over the world wishing to improve their performance in environmental issues. The company works steadfastly to minimize the environmental impact of its operations and to increase energy efficiency. In July 2004, the ISPS Code (Ship and Port Facility Security Code) was introduced. The ISPS Code has been prepared by the UN's International Maritime Organization IMO. All Color Line ships have gone through vulnerability analyses and prepared action plans, and all ships have been duly ISPScertified by Det Norske Veritas. Color Line uses fuel oil with a sulphur content of less than 1 percent in order to reduce emissions to air. With effect from May 2006 for the Baltic Sea and November 2007 for the North Sea, IMO will require that the sulphur content in fuel oil does not exceed 1.5 percent. The company runs an ongoing improvement programme with regard to safety issues and operational management systems and has established a strong environmental and safety culture in the entire workforce, both at sea and ashore. All accidents, close calls and unintentional mishaps are reported and analysed, and measures are taken to prevent repetition. There were no major accidents in 2004 involving serious injury or pollution. 5 5
Maritime operations Color Line is one of the leading cruise ferry companies in Europe. The business comprises cruise operation and transport, freight and forwarding, hotel operation and retail trade. Color Line's maritime operations cover the operation and maintenance of the company's tonnage, and the development and management of tonnage. Operational responsibility for all Color Line ships lies with Color Line Marine AS in Sandefjord. Each year more than 4 million passengers travel by Color Line. In 2004, 74 percent of the passengers were Norwegian nationals, 11 percent German nationals, 8 percent Danish nationals and 7 percent were from other countries. The company has a declared goal of increasing international travel to Norway. On 12 March 2004 M/S Color Traveller commenced operation on the new service between Larvik and Hirtshals. M/S Color Traveller is part of the Color Line transporter concept. This concept is adapted to conform to the environmental transport policy of the EU and Norway, the aim of which is to encourage rail and seaborne transport instead of transport by road. On 10 December 2004, Color Line took over the world's largest cruise ship equipped with a car deck, M/S Color Fantasy built at Kværner Masa-Yards in Turku, Finland. The new ship is classified in the NOR register as a cruise ship with car deck. The ship thus represents a completely new category, combining the entertainment and activities of a cruise ship, high quality and standard with transport capacity for vehicles and freight. Dan/Kombiverkehr on the transhipment of goods from the company's ships to Duisburg in Germany for further distribution by the trans-european railway network. On 9 October 2004, a new motorway was opened, connecting Hirtshals directly to the European motorway network. Uniform freight services Transport of goods is a high engagement area for Color Line. The Color Line services comprise a comprehensive network of ports for loading and discharging. The transport of goods on all Color Line services is managed and coordinated by Color Line Cargo. ln this way the frequency and capacity of the ferries is fully utilised and freight customers are provided with an efficient and flexible service. Color Line Cargo's aim is to increase the total freight volume COLOR LINE AS 2004 An average of 23 daily departures, 32 in the peak season Daily capacity up to 50 000 passengers in the peak season Color Line is one of Norway's leading ro-ro operators providing up to 17.3 km daily freight capacity (17 282 lane-metres) in the peak season, the equivalent of 1 440 trailers Serving capacity and retail outlets ranks Color Line as Norway's third largest restaurant chain and one of the largest shopping centres in the country THE COLOR LINE SHIPS Guest capacity 17 671, distributed among 11 ships Cabins 3 644, distributed among 8 ships Berth capacity 10 919, distributed among 8 ships Passenger cars 5 782, distributed among 11 ships The number of bookings increased appreciably following the introduction of M/S Color Fantasy on 10 December 2004, and M/S Color Fantasy marks the start of the renewal program for the Color Line fleet. The company has an option for the in line with the increase in the transport market. In 2004, the freight volume of Color Line services increased by six percent. During the course of the year, the company's ships will Conference rooms 57, distributed among 8 ships Freight capacity (lane-metres) 8.2 km, distributed among 11 ships the ship has attracted completely new groups of guests. Public interest in Germany was considerable, and 55 percent more bookings were registered in Germany for the period January to August 2005 compared with the same period in 2004. In the spring of 2005, Color Line will start up a new cruise ferry service between Bergen/Stavanger and Hirtshals in Denmark. In Color Line's view, there is a market potential in West Norway. The population of Hordaland and Rogaland is almost the same as in Oslo/Akershus, but while the Oslo area is served by six passenger ferries and many daily departures, the counties in West Norway have no daily ferry service to Denmark and the Continent. M/S Prinsesse Ragnhild will operate on the Bergen/Stavanger Hirtshals service. building of a sister ship. The decision on whether the company will use this option will be taken in 2005. Color Line also plans to build a new generation of ships for the services between Norway and Denmark. Color Hotel Skagen AS With its 400 guest beds, Color Hotel Skagen is the largest hotel in Skagen. The hotel is located in one of the most attractive holiday areas in Denmark. For Color Line, the hotel features prominently in the development of Jutland, Denmark as an attractive destination for Scandinavian guests. Cost-efficient and environmentally efficient transport of goods Both the EU and the Norwegian authorities wish to transport transport approx. 160 000 trailers of 12-metres length. In number, this represents more than half of the heavy goods traffic crossing the Norwegian-Swedish border at Svinesund. 76 restaurants (including M/S Color Fantasy from 10 December 2004) PASSENGER TRANSPORT 2004 4.2 million guests Color Line carried 823 029 passenger cars, the equivalent of approx. 40% of all private vehicles in Norway Approx. 5 million guest days for the Norwegian tourist industry PASSENGERS BY NATIONALITY 2004 Norway 74 % Germany 11 % Denmark 8 % The ships more goods by rail and sea in order to reduce road transport. Sweden 2 % Color Line custom-builds its ships to meet anticipated changes in society and the markets. In recent years, the company has acquired new tonnage through newbuilding, purchase and chartering of ships in order to meet the demands of the market in a dynamic manner. All the ships in the company's fleet are registered in the Norwegian Ordinary Ship Register (NOR) and are manned for the most part by Norwegian crews. Color Line's engagement in the development of the port of Hirtshals is part of Color Line's adaptation process to the EU transport and environmental policy. In this connection, Color Line works in close cooperation with Hirtshals port and the Danish authorities. In recent years the port of Hirtshals has been developed into a modern port, custom-built for efficient transhipment from COLOR HOTEL SKAGEN 104 double rooms and 48 apartments a total of 400 beds Conference and banqueting hall, accommodating 250 persons Fitness centre, sauna and outdoor swimming pool 2 restaurants Bar and lounge Other 5 % ship to road and rail. Color Line cooperates with Kombi 7
The Tourist Industry The Norwegian tourist industry has considerable unutilised potential on the international market with particular emphasis on Germany, Denmark and the Be-Ne-Lux countries where there are interesting volumes. By means of projects and cooperation, Color Line will contribute towards the further development of the shore-based tourist industry in Norway, and will strengthen existing cooperation and cluster qualities. The Forum for the Tourist Industry was established in 2004 following an initiative on the part of the largest commercial players in the Norwegian tourist industry. This includes Color Line, contributing towards the cooperation with its experience from the Norwegian maritime cluster. The tourist industry is a major factor in society The tourist industry is one of Norway's largest industries employing a total of about 132 000 persons (6.7 percent of the total workforce) in 2002. Although the number of employees in the industry was reduced by 1 000 persons compared with 2001, there is an increase of 2 000 employees compared with the figure for 1996. In 2000, the total valuegeneration was NOK 18.7 billion, representing 2.9 percent of all value-generation in business and industry. Tourist industry enterprises are largely located in the different regions. The Norwegian tourist industry has lost market shares The tourist industry is one of the fastest growing industries in the world with a growth figure which is approx. 2.5 percent higher than the average growth in the gross national product in the OECD countries. The number of international tourist holidays reached approx. 760 million last year. This is an increase of 10 percent compared with 2003, and the highest figure ever registered by the World Tourism Organization. Growth in Europe was 4 percent. Increased prosperity, new technology and new types of holidays have created new international growth markets. The Norwegian landbased tourist industry has however continued to lose market shares since the middle of the 1990s. While international growth has increased steeply, the number of foreign tourists staying at Norwegian hotels has dropped in recent years. For example, the number of German tourists spending holidays in Norway shows a reduction from 750 000 in 1994 to 500 000 in 2004. Each year, about 1.2 million foreign passengers travel by Color Line. The company is therefore a major contributor to hotels and the tourist industry in general. The company has its own organized tour operation in Denmark and cooperates widely with travel agencies and tour operators in Germany and on other important markets. According to Statistics Norway, Norwegian and foreign tourist spending related to travel in Norway totalled NOK 77.8 billion in 2002. This is a reduction of NOK 0.7 billion compared with the preceding year. The amount spent on tourism by Norwegian households totalled NOK 37 billion, while foreign households spent NOK 22.6 billion and Norwegian business travellers NOK 18.2 billion. The development of the industry has followed the development of the Norwegian economy in general. Growth was buoyed up by the local services market, but the section of the industry competing internationally has lost ground in recent years. However, it is on the international markets where the growth potential is greatest. Color Line is one of the leading individual contributors to the marketing of Norway abroad. On average the company invests approx. NOK 50 million annually in marketing and corporate profiling in order to strengthen awareness and knowledge of Color Line and Norway in Europe. The aim is to strengthen the position of all services and to increase the number of foreign tourists travelling to Norway. It is expected that the new west coast service between Bergen/Stavanger and Hirtshals, which is due to start up on 27 April 2005, will be a further contribution that will attract still more foreign tourists to Norway. 9
GOODS TRANSPORT 2004 Goods traffic comprised 158 357 trailers of 12-metres length, corresponding to half the heavy traffic crossing the Norwegian-Swedish border at Svinesund If all the 158 357 trailers had been lined up nose to tail, the length of the line would be equivalent to the distance between Oslo and Florence, Italy. GOODS BY FERRY TO AND FROM NORWAY 2004 The transport of goods by ferry represents 3.3% of the total transport of goods by sea to and from Norway. Color Line 71,37 % Others 28,63 % In 2004, Color Line carried 1.66 million tons of cargo to and from Norway, an increase of 13.6% compared with the preceding year. The company's market share in ferry-based freight to and from Norway was 71.37%. MARKET SEGMENTS 2004 Transport 58 % Cruise 27 % Holiday & Leisure 11 % Conferences 2 % Commercial vehicle drivers 2 % GROWTH IN INTERNATIONAL FERRY TRAFFIC TO NORWAY 7 000 000 6 000 000 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000 0 1982 1985 1990 1995 2000 2004 11
International Brand-Building Traditionally, Color Line is perceived as a ferry company transporting passengers and cars between Norway and foreign ports. In this market, Color Line is a market leader. The company is ranked among Norway's leading brands, attaining 79 percent unaided brand recognition. This is underscored by the fact that in January 2005, for the tenth year running, the company was elected best ferry operator on the basis of market surveys carried out among employees of Norwegian travel agencies. In February 2005, Color Lines' advertising film "Neighbours" won the award for the best TV advertising film at the international HSMAI finals (Hospitality Sales and Marketing Association International) in New York, USA in competition with more than 1 300 entries from 45 countries. This recognition confirms that the company's marketing communications are of international format and that Color Line masters communications on international markets. Color Line and the Norwegian tourist industry have a large growth potential in Germany. The German tourist market is the largest in Europe and is in general a demanding market. The cruise sector is in a growth period, and this applies particularly to shorter cruises as provided by M/S Color Fantasy. From 1996, when the cruise concept from Germany was introduced, the market has shown stable growth. Annual growth has been between 5 and 10 percent. By the end of this decade it is expected that more than 1 million Germans will choose to go on a cruise for holiday and entertainment. Sponsorships In order to strengthen Color Line's position in society, its brand name and to create interest in Norway as a tourist attraction, the company has entered into several sponsorship agreements in Norway and Germany. The Independence centenary Color Line is one of the main sponsors of the official exhibition, celebrating that in 2005 it is 100 years since Norway gained its independence from Sweden. A 4 000 squaremetre German-Norwegian travelling exhibition will present the political, cultural and economic relations between Norway and Germany. The exhibition will open in October 2005 and will visit the major cities in Norway and Germany. The Norwegian Opera Color Line is one of the main sponsors of the Norwegian Opera. This sponsorship agreement has a value of NOK 4 million over a three-year period. Color Line wishes to contribute towards the Norwegian Opera's aim of promoting interest in opera and ballet to new target groups. The cooperation with the Norwegian Opera is also part of Color Line's engagement in promoting Oslo as an international city, offering a wide range of cultural events and entertainment and will further strengthen the cultural ties between Norway and Germany. In 2001, Color Line therefore started out on a long-term program to strengthen Color Line and Norway as a brand name in Germany and will be investing more than NOK 500 million in marketing in North Europe over a 10-year period. One of the initiatives is the company's sponsorship of the multi-purpose Color Line Arena in Hamburg. 13
Color Line Arena Color Line is the name sponsor for the Color Line Arena in Hamburg, a multi-purpose hall for cultural and sporting events. The hall is one of Europe's largest and most modern multi-purpose halls and is a venue for everything from icehockey and handball matches to rock concerts and opera. The sponsorship helps to market Color Line and Norway as a tourist destination. More than a million people visit Color Line Arena each year. Color Line Stadium 16 April 2005 marks the opening of the Color Line Stadium in Ålesund. This stadium will have a capacity of 11 000 spectators. The field will have under-heated synthetic turf, and this, combined with the lighting system, will make it possible to arrange football matches all year round. Aalesund Football Club plays in the Norwegian premier soccer division. The Norwegian Football Association Color Line has concluded an agreement with the Norwegian Football Association and will be one of the main sponsors in the 2005 season. Through this sponsorship, Color Line will support and contribute towards the development of Norwegian soccer at all levels. Soccer is a popular sport with wide appeal that crosses cultural, social and geographical divides, a healthy sport that Color Line wishes to encourage and support. 15
Other Contributions Color Line is keenly aware of its responsibilities in relation to its environment and works actively to carry out these responsibilities in an innovative and sustainable manner. The company shall conduct its business in a manner that is profitable and that takes proper regard to the interests and rights of its employees, cooperating partners and the environment. Color Line contributes significantly towards the maintenance of the infrastructure in fairways and ports. Last year the company paid a total of NOK 121 million in port dues, fairway fees and other fees in eight ports in four countries. Color Line attaches high importance to open cooperation with national and municipal authorities, organizations, customers and cooperating partners. The company is therefore deeply engaged in the development of the community and business and industry in Norway and in the other European countries where Color Line has operations. In this way, not only does Color Line contribute with valuegeneration, the company also participates actively in social development in areas where the company has natural advantages. Social awareness in Color Line is thus linked to operations and their improvement in the marine environment, in the ships, facilities and logistic functions, as well as in the travel industry. THE TEN LARGEST CONTRIBUTORS TO THE FOUNDATION NORWEGIAN MARINE COMPETENCE FROM AND INCLUDING THE 4TH ACCOUNTING PERIOD 2003 UP TO AND INCLUDING THE 6TH PERIOD 2004 14 000 000 12 000 000 10 000 000 8 000 000 6 000 000 4 000 000 2 000 000 0 Color Line AS Fjord Line AS Solstad Shipping AS Eidesvik AS Simon Møkster Shipping AS Knutsen OAS Shipping AS Trico Supply ASA OSM Ship Management AS Farstad Shipping ASA Bourbon Offshore Norway AS 17
Employees in Color Line Geographic distribution of maritime and shore-based employees in Norway: Finnmark 0 4 Troms 1 9 Nordland 1 5 Nord-Trøndelag 0 7 Møre og Romsdal 5 26 Sogn og Fjordane 0 14 Hordaland 5 35 Rogaland 8 16 Sør-Trøndelag 2 14 Oppland 4 28 Hedmark 2 27 Buskerud 17 57 Akershus 81 67 Oslo 129 151 Østfold 6 150 Vest-Agder 171 298 Telemark 8 118 Aust-Agder 10 193 Vestfold 241 852 RECRUITMENT AT SEA Norwegian onshore employees 691 Norwegian maritime employees 2 071 Color Line is Norway's largest marine Norske landansatte Color 615 Line Denmark Totalt landansatte 209 918 Other maritime employees 190 training company Color Line Germany 80 Total maritime employees 2 261 Color Line Danmark AS 210 Andre sjøansatte 185 As at 31.12.04 there were 49 trainees Color Line Sweden 27 Color Line Tyskland GmbH 70 Totalt sjøansatte working actively onboard Color Line ships Total onshore employees 1 007 1.894 TOTAL EMPLOYEES 3 268 Color Line Sverige 23 TOTALT ANSATTE 2.812 I tillegg har selskapet ca 1.000 deltidsansatte The company also employs approx. 550 temporary staff in peak seasons 19
Principal Figures and Key Figures CONSOLIDATED 2004 2003 2002 2001 2000 2004 DEVELOPMENT OF TRAFFIC Passengers, ferries 4 211 284 4 241 870 4 243 684 4 080 211 4 324 978 Cars 823 029 818 467 797 574 738 143 717 747 Freight units (12m-equivalents) 158 357 142 223 139 001 134 000 140 604 PROFIT/LOSS (in NOK million) 1) (in EUR mill.) Revenues 3 944 3 816 3 796 3 698 3 809 479 Operating expenses 3 151 2 963 2 901 2 948 2 992 382 EBITDA 2) 793 853 895 749 817 96 Depreciation 367 367 390 389 388 45 Charter expenses 79 37 37 53 59 10 Operating income before write-down/loss/gain 352 449 467 306 370 43 Gain and loss on sales, write-downs 1 8-150 -4-72 0,12 EBIT 353 457 317 302 298 43 Net financial items -89-107 12-134 -108-11 Income before taxes 263 349 329 168 190 32 Taxes -94-108 -106-60 -68-11 Net income 169 241 222 108 122 21 BALANCE SHEET (in NOK million) Current assets 769 549 880 619 589 93 Fixed assets 5 521 3 374 3 406 3 604 3 696 670 Total assets 6 290 3 923 4 285 4 223 4 284 764 Current liabilities 595 407 814 434 380 72 Long-term debt 3 270 1 361 1 478 1 784 1 874 397 Deferred taxes 512 432 471 516 489 62 Shareholders' equity 1 912 1 720 1 519 1 487 1 541 232 Total liabilities and shareholders' equity 6 290 3 923 4 285 4 223 4 284 764 LIQUIDITY (in NOK million)/solidity (%) Cash and cash equivalents as at 31 Dec. 3) 1 465 631 430 412 569 178 Cash flow 4) 714 816 858 696 758 87 Equity ratio % 31 44 35 35 36 Net interest-bearing debt 3 017 1 130 1 160 1 426 1 527 367 EBITDA Color Line 788 846 889 743 811 96 EBITDA Color Hotels 5 7 6 6 6 0,6 EMPLOYEES/SUNDRY EXPENSES Number of employees 3 268 3 065 2 812 2 925 2 897 Cost of wages 1 102 1 053 1 079 1 141 1 134 134 Port fees 121 114 92 78 64 15 Definitions: 1) Translated to Euro, exchange rate as at 31 Dec. 04 2) Operating profit/loss before ordinary depreciation and charter expenses 3) Including non-utilized credit facilities 4) EBITDA less charter expenses 21
Directors' Report PROFIT AND LOSS ACCOUNT The financial results for Color Group ASA in 2004 were somewhat weaker than in the preceding year, primarily due to lump sum start-up expenses for M/S Color Fantasy and increased hire costs in connection with the chartering of M/S Color Traveller. Revenues increased to NOK 3 944 million in 2004 compared with NOK 3 816 million in 2003. In 2004, the Group recorded an operating result before ordinary depreciation, gain/loss on sales, write-downs and charter expenses (EBITDA) of NOK 793 million compared with NOK 852 million in 2003. Operating profit in 2004 totalled NOK 352 million compared with NOK 457 million in 2003. The Group's net financial items showed a deficit of NOK 89 million in 2004 compared with a deficit of NOK 107 million in 2003. The accounts were closed with a pre-tax profit of NOK 263 million, and profit after tax of NOK 169 million. The equivalent figures for 2003 were NOK 349 million and NOK 241 million. The accounts are presented on the assumption of continued operation as a going concern. Color Group ASA is engaged in transport of passengers and goods, hotel operation, restaurants, retail trade, entertainment and organized tour production. Color Group's head office is in Oslo. Color Group ASA is the active holding company for the wholly-owned subsidiary companies Color Line AS and Color Hotel Skagen AS. Color Line has its head office at Hjortneskaien in Oslo and is responsible for all maritime-related operations. Color Hotel Skagen in Denmark is an integral part of Color Line, and forms part of the Group's destination development program. The number of guests travelling by Color Line's cruise ferries in 2004 decreased by 0.7 percent down to 4 211 284 guests. Freight showed an increase of 11 percent up to 158 357 freight units (12m-equivalents). The parent company Color Group ASA recorded a pre-tax profit of NOK 38 million compared with NOK 145 million in 2003. Profit after tax totalled NOK 21 million in 2004 compared with NOK 106 million in 2003. The directors propose that the profit be allocated to other equity. FINANCIAL MATTERS The Group focuses on long-term financial flexibility of action. In 2004, Color Group ASA took up two bond loans, NOK 360 million, maturity 3.5 years and NOK 327 million, maturity 5 years respectively. The bond loans are registered on the Oslo Stock Exchange. As at 31 December 2004, the outstanding amount on these bond loans totalled NOK 653 million. Color Group ASA has refinanced its existing ship mortgage with a new Reducing Revolving Credit Facility for a total of NOK 1 626 million. The facility is adjusted downwards annually over a 10-year period. The credit facility matures in 2012. The loan is secured by mortgages in the ships and by guarantee from Color Line AS. In 2004, the Group took delivery of a new ship built at Kværner Masa-Yards in Finland. The contract sum was approx. EUR 302.5 million. When the ship was contracted, financing agreements were concluded for 80 percent of the contract sum with a repayment period of 12 years. In its loan agreements, the Group has commitments linked to liquidity, equity and debt servicing ratio. All commitments were fulfilled as at 31 December 2004. In 2004, the Group's cash flow from operations (EBITDA) totalled NOK 793 million. Net cash flow from investments and financing activities was NOK 564 million. The Group's balance sheet as at 31 December 2004 totalled NOK 6 289 million. The Group's total liquidity reserves including granted drawing rights and liquid securities amounted to NOK 1 465 million as at 31 December 2004. Interest-bearing debt totalled NOK 3 270 million as at 31 December 2004, and shareholders' equity amounted to NOK 1 912 million which is 31 percent of the consolidated balance sheet. In 2004, shareholders' equity was increased by NOK 60 million. The Group is exposed to foreign exchange risk due to fluctuations in NOK against other currencies, particularly USD, EUR and DKK. The Group is also exposed to interest risk and fluctuations in the price of bunker products. Color Group practices an active financial risk management strategy. This strategy is embedded in the board-approved annual budgets. The Group makes use of financial instruments in order to curb the risk of fluctuations in the Group's cash flow. On balance sheet date, approx. 25 percent of the Group's interest-bearing debt was secured through fixed interest agreements. The Group's credit risk is monitored systematically. The Group has a limited market risk as its business relates to a large number of customers. WORKING ENVIRONMENT AND PERSONNEL As at 31 December 2004, the Group employed a workforce of 3 268 persons including 2 261 employees working onboard the ships. The number of employees will increase by approx. 200 persons onboard the ships and approx. 50 shore-based personnel during the course of the first quarter 2005 in connection with the start-up of the new West Norway service. In 2004, average absence due to illness in the Group was 5.8 percent for shore-based employees and 7.4 percent for offshore employees. High importance is attached to annual job assessments - which show a positive development. Annual assessments include fixed routines for the preparation of plans for improvement, which are subsequently carefully followed up. The directors consider that the working environment is good and will continue to focus attention on the environment and absence due to illness in respect of both onshore and offshore employees. EQUAL OPPORTUNITIES It is Color Group ASA's objective that there shall be full equality between women and men employees. The Group has taken steps to ensure that no discrimination takes place in this area. Of the 2 261 employees onboard the ships, 905 are women. There are 165 managerial positions of which 23 are held by women. The percentage of women in leading positions onboard the ships is relatively low as technical/marine jobs have traditionally been male dominated. Of the 1 007 shore-based personnel, 629 are women. There are 2 women in the Color Line AS group management. The percentage of women in management is approx. 50 percent of the total number of shore-based jobs. SAFETY AND THE ENVIRONMENT The Group works continuously to improve results with regard to safety and the environment. The safety of passengers, employees and the environment receives the highest priority in Color Line. Color Line participates in research and development in the field of safety and the environment both nationally and internationally. The company complies with both national and international statutory rules and requirements, and in many cases the company implements measures that exceed these requirements. The company's ISO 14001 certification program for the ships continued in 2004. ISO 14001 is an international standard applied by companies all over the world, wishing to improve their performance in environmental issues. The company works actively to minimize the environmental impact of its operations and to increase efficiency in the use of energy. In July 2004, the IMO ISPS Code (Ship and Port Facility Security Code) was introduced. All Color Line's ships have carried out vulnerability analyses and prepared action plans, and all ships are ISPS-certified by Det Norske Veritas. The fuel oil used by Color Line has a sulphur content of less than 1 percent in order to reduce emissions to air. IMO will be introducing a limit of 1.5 percent sulphur content in fuel oil with effect from May 2006 for Baltic Sea traffic and November 2007 for the North Sea. 23
The company works continuously to improve its safety and operating management systems and has introduced measures to stimulate a positive attitude towards environmental and safety issues in all the company's employees, both at sea and on land. All accidents, close calls and unintentional mishaps are reported and analysed, and measures are introduced to prevent repetition. There were no serious accidents in 2004 resulting in injury or pollution. THE BOARD OF DIRECTORS AND SHAREHOLDERS O.N. Sunde AS owns 100 percent of the company's 71 800 000 shares. O.N. Sunde AS is wholly-owned by director and Group President Olav Nils Sunde and his family. PROSPECTS The Group's net profit margin is in line with other comparable companies. The cruise and ferry industry is characterized by a high level of investment resulting from an ongoing requirement for development of existing tonnage and investment in new tonnage. This places strict demands on earning potential. It is expected that growth in the tourist industry in general will continue. Some of the main trends in this development include maritime leisure travel. In order to be able to meet future trends, the development of tonnage and the correct management of present tonnage is of decisive importance. From being a provider of transport services, Color Line has developed into a provider of leisure travel, adventure and entertainment, and is well equipped to take part in the anticipated growth in this area. The price harmonisation between the EU and Norway in respect of relevant products and increased competition on certain routes and from other forms of transport, has led to increasing pressure on profit margins. This places heavy demands on the organization in order to maintain the necessary level of earnings. In the time ahead it will be of vital importance to ensure that operations are rational and cost-effective by simplifying procedures and by increasing focus on economies of scale. In recent years there has been limited growth in passengers and sales. However, part of the reason for this is to be found in the present restrictions in capacity during the peak season. By increasing marketing efforts, product development and renewal of tonnage, the company is well positioned to meet these and other challenges. Color Line operates in a demanding competitive situation with regard to both passengers and freight. Competition is partially from the other ferry companies and partially from alternative forms of transport. The market is international, and Color Line is dependent on stable framework conditions that are in line with those that apply to foreign competitors within the EU in order to be able to further develop as a Norwegian company. Color Line works actively to establish terms for Norwegian maritime personnel that are equal with those of the company's competitors in the other Nordic countries and in the EU. This initiative takes place in cooperation with Color Line' maritime personnel and their unions, the Norwegian Shipowners' Association, the Maritime Forum and the Norwegian authorities. Color Line will be starting up a new cruise ferry service between Bergen/Stavanger and Hirtshals in the spring of 2005. Color Line has registered a considerable unutilised market potential in West Norway. The population of Hordaland and Rogaland is almost equal to that of Oslo/Akershus. However, while the Oslo area is served by 6 passenger ferries and many daily departures, the west coast counties have no daily ferry service to the European Continent. M/S Prinsesse Ragnhild will operate on the service between Bergen/Stavanger and Hirtshals. Color Line AS has signed a letter of intent with Aker Yards ASA in connection with an order for a new ship in the same class as M/S Color Fantasy. The letter of intent is subject to certain conditions, including board decisions by Color Group ASA and Aker Yards ASA. If a final contract is concluded, it is estimated that delivery of the newbuilding will take place in the last quarter of 2007. Color Line AS has negotiated the purchase of the high-speed ferry F/F Silvia Ana, which has been on charter on the Kristiansand Hirtshals service since 1997. The high-speed ferry is due to be taken over in June this year. Morten Garman Chairman of the Board Leif Klevan Oslo, 16 March 2005 Olav N. Sunde Group President Lars V. Petersen For 2005, the Group anticipates that profit after tax will show an improvement compared with 2004, primarily as a result of a full year of operation by M/S Color Fantasy. The directors are of the opinion that the company is well equipped to meet the challenges of 2005. Bjørn Paulsen Tommy Wedel 25
Income Statement Balance Sheet PARENT COMPANY GROUP PARENT COMPANY GROUP (Amounts in TNOK) (Amounts in TNOK) 2004 2003 2002 Note 2004 2003 2002 118 440 228 529 249 839 Revenues 15) 3 943 941 3 816 026 3 795 794 0 0 0 Cost of goods sold -1 272 539-1 174 266-1 112 240-6 575-5 899-6 011 Cost of wages 8,10) -1 101 771-1 053 226-1 079 459-15 825-20 771-22 647 Other operating expenses 9) -775 858-733 611-708 115 0 0 0 Bad debts -454-2 650-1 243-22 400 26 670-28 658 Total operating expenses -3 150 622-2 963 753-2 901 057 96 040 201 859 221 181 Operating income before depreciation and charter expenses (EBITDA) 793 319 852 273 894 737-22 289-22 297-22 293 Depreciation 7) -367 010-367 108-390 828 0 0 0 Charter expenses 9) -73 878-36 463-36 809 73 751 179 562 198 888 Operating income after depreciation and charter expenses 352 431 448 702 467 100 0 0 0 Profit/loss on sales, write-downs 7) 268 7 799-150 000 73 751 179 562 198 888 OPERATING INCOME (EBIT) 352 699 456 501 317 100 52 854 78 634 71 883 Interest from companies in the same Group 0 0 0 316 20 340 0 Other interest income 7 481 27 323 18 619 0-16 475-22 662 Changes in fair value of short-term shareholdings 0-16 475-22 662 1 597 4 788 95 396 Other financial income/expense 952 3 628 108 503 0-9 527 0 Interest costs to companies in the same Group 0 0 0-90 233-112 123-88 010 Other interest expenses -97 918-121 956-92 485-35 466-34 363 56 607 NET FINANCIAL ITEMS -89 485-107 480 11 975 38 285 145 199 255 495 INCOME BEFORE TAXES 263 214 349 021 329 075-17 719-39 132-71 935 Taxes 13) -94 247-107 917-106 240 20 566 106 067 183 560 NET INCOME 168 967 241 104 222 835 0 152 500 84 165 Paid dividend 76 793 252 314 215 166 Group contribution 2004 2003 2002 Note 2004 2003 2002 ASSETS Fixed assets Intangible assets 258 964 280 998 303 032 Goodwill 7) 738 030 808 760 879 490 258 964 280 998 303 032 Total intangible assets 738 030 808 760 879 490 Property and equipment 0 0 0 Land, buildings and other real estate 7) 317 205 269 778 277 866 358 712 975 Machines, furniture, fixtures and equipment 7) 45 320 50 361 80 025 0 0 0 Ships 7) 4 273 028 1 876 040 1 939 503 358 712 975 Total property and equipment 4 635 553 2 196 179 2 297 394 Financial assets 1 999 429 1 979 468 1 769 418 Investments in subsidiaries 2) 0 0 0 22 096 0 0 Shares and other participations 14) 22 096 0 0 0 0 122 398 Other receivables 3,8) 125 295 369 046 228 857 3 289 113 1 359 003 1 037 433 Intercompany loans 3) 0 0 0 5 310 638 3 338 471 2 929 249 Total financial assets 147 391 369 046 228 857 5 569 960 3 620 181 3 233 256 Total fixed assets 5 520 974 3 373 985 3 405 741 Current assets 0 0 0 Inventories 5) 133 429 120 909 118 923 0 0 0 Account receivable 5) 77 879 81 219 74 625 30 027 25 064 444 002 Prepaid other current assets 3) 304 668 141 019 490 288 0 4 487 179 404 Short-term shareholdings 0 4 487 179 404 57 361 101 124 0 Bank deposits and cash 252 556 201 587 16 480 87 388 130 675 623 406 Total current assets 768 532 549 221 879 720 5 657 348 3 750 856 3 856 662 TOTAL ASSETS 6 289 506 3 923 206 4 285 461 LIABILITIES AND SHAREHOLDERS EQUITY Contributed capital: 143 600 141 200 110 000 Share capital (71 800 000 shares, NOK 2.- per share) 11) 143 600 141 200 110 000 1 478 436 1 420 836 692 036 Premium fund 1 478 467 1 420 837 692 037 0 0 280 000 Other contributed capital 0 0 280 000 1 622 036 1 562 036 1 082 036 Total contributed capital 1 622 067 1 562 037 1 082 037 802 093 816 857 1 044 956 Other shareholders' equity 289 795 157 508 436 991 2 424 129 2 378 893 2 126 992 Total shareholders' equity 12) 1 911 862 1 719 545 1 519 028 Liabilities Provisions: 72 425 77 370 110 567 Deferred taxes 13) 512 085 432 023 471 681 544 638 237 Other provisions 0 3 403 2 357 72 969 78 008 110 804 Total provisions 512 085 435 426 474 038 Long-term debt 2 468 203 1 201 320 1 304 990 Debt to credit institutions 6) 2 617 290 1 361 282 1 428 507 653 000 Bond loan 6) 653 000 0 0 0 Other long-term debt 6) 0 0 50 000 3 121 203 1 201 320 1 304 990 Total long-term debt 3 270 290 1 361 282 1 478 507 Current liabilities 0 0 0 Trade creditors 215 271 153 374 148 253 1 162 1 118 1 354 Tax payable 1 192 3 037 1 616 0 0 0 Debt to credit institutions 42 059 0 0 37 885 91 517 312 522 Other current liabilities 4) 336 747 250 542 664 019 39 047 92 635 313 876 Total current liabilities 595 269 406 953 813 888 5 657 348 3 750 856 3 856 662 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 6 289 506 3 923 206 4 285 461 Oslo, 16 March 2005 Morten Garman Chairman of the Board Olav N. Sunde Group President Bjørn Paulsen Leif Klevan Lars V. Petersen 27 Tommy Wedel
Cash Flow Statement PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2002 2004 2003 2002 38 285 145 199 255 495 Income (loss) before taxes 263 214 349 021 329 076 Taxes 0-4 102-126 0-31 Loss/gain on sale of fixed assets -268-7 799-1 198 22 289 22 297 22 293 Depreciation 367 010 367 108 390 828 0 0 0 Write-downs of fixed assets 0 0 150 000-82 -308-487 Pension costs without cash flow effect 511-377 -10 519 14 745 4 788-94 333 Effect of currency fluctuations 15 390 465-94 333 0 0 0 Changes in inventories -12 520-1 986-6 334 0 0 0 Changes in accounts receivable 3 340-6 594 18 063 0 0 0 Changes in accounts payable 61 897 5 121 11 480-2 042 168 91 999-39 980 Changes in other accruals -83 578 30 544-186 603-1 967 057 263 975 142 957 Net cash flow provided by operations 614 996 731 401 600 460 225 0 266 Proceeds from sale of property and equipment 268 25 156 7 826 0 0-860 Purchases of property and equipment -2 735 654-212 494-159 951 0 0 0 Proceeds from sale of other investments 0 0 0-42 057 0 0 Purchases of other investments -22 096 0 0-41 832 0-594 Net cash flow used in investing activities -2 757 482-187 338-152 125 2 686 446 200 480 0 Proceeds from taking up of long-term debt 2 686 446 240 600 15 000-781 320-308 229-265 859 Repayments of long-term debt -796 231-307 244-274 917 0 97 398 7 153 Collection of long-term receivables 243 240-139 812 17 195 0 0-97 398 Payment long term receivables 0 0-194 959 0 0 487 003 Intercompany credits 0 0-45 580 0-152 500-84 165 Payments of dividends/share capital 0-152 500-84 165 60 000 0 0 Payment shareholders equity 60 000 0 0 0 0-266 271 Group contributions received/paid 0 0-111 624 1 965 126-162 851-219 537 Net cash flow from financing activities 2 193 455-358 956-679 050-43 763 101 124-77 174 Net change in liquid resources 50 969 185 107-230 715 101 124 0 77 174 Opening balance liquid resources as at 1 Jan. 201 587 16 480 247 195 57 361 101 124 0 Closing balance liquid resources as at 31 Dec. 252 556 201 587 16 480 NOTES TO THE ACCOUNTS NOTE 1. ACCOUNTING PRINCIPLES The annual financial statement has been prepared in accordance with the Accounting Act (Norway) of 1998 and generally accepted accounting principles in Norway. The company is wholly owned, directly and indirectly by O.N. Sunde AS. PRINCIPLES OF CONSOLIDATION The consolidated financial statements comprise Color Group ASA and subsidiaries in which the Group has directly or indirectly more than a 50% stake and has voting control. Shares in subsidiaries are eliminated according to the purchase method. Remuneration at time of acquisition in excess of book equity is allocated to identifiable assets. Amounts that cannot directly be attributed to identifiable assets are capitalised as goodwill. The financial statements have been prepared on the basis of uniform accounting principles for the entire Group. Intercompany transactions and balances are eliminated in consolidation. With regard to consolidated accounts in foreign currency, the income statement is translated using the average exchange rate for the financial year. Foreign businesses that can be defined as an extension of the Group s own business are translated according to the temporal method. For these businesses, historical exchange rates are applied in respect of fixed assets. Changes in exchange rates are recorded in the income statement. For independent businesses, the exchange rate on balance sheet date is applied for the translation of fixed assets. Translation differences are recorded directly to equity. REVENUE RECOGNITION The Group generates revenues from three principle business areas: Travel: primarily comprising ticket sales for passengers and vehicles, package tours etc. Sales on board: primarily comprising retail sales, restaurants etc. Freight: primarily comprising transport of goods by trailer, truck etc. Travel and freight revenues are registered when the service is implemented. Sales on board are registered at time of sale. MAIN PRINCIPLE FOR EVALUATION AND CLASSIFICATION OF ASSETS AND LIABILITIES Assets that are long-term in nature are classified as fixed assets. Other assets are classified as current assets. Receivables scheduled for repayment within one year are classified as current assets. Equivalent criteria are taken as a basis in the classification of current and long-term debt. Property and equipment are recorded at procurement cost and written down to actual value when the decrease in value is not expected to be of a temporary nature. Property and equipment having a limited economic life are subject to planned depreciation. Long term loan is recorded in the balance sheet at nominal amount received at time of establishment. Current assets are recorded at cost or actual value, whichever is the lowest. Short-term shareholdings are recorded in the balance sheet at actual value. Changes in value are recognised in earnings. Current liabilities are recorded in the balance sheet at the nominal amount received on date of transaction. Certain items are recorded according to other principles as explained below. FOREIGN EXCHANGE Items in foreign exchange are translated at the exchange rate on balance sheet date. Items in foreign exchange in the income statement are translated at the exchange rate on date of transaction. 29
RECEIVABLES Receivables are recorded at face value with a deduction for anticipated loss. INVENTORIES Inventories comprising trade goods and bunkers are recorded at cost (on FIFO-basis) or market value with a deduction for selling costs, whichever is the lowest. LEASED PROPERTY AND EQUIPMENT The Group has operational leases only. Charges associated with such leases are expensed as incurred. TAXES Tax costs for the year in the income statement comprise changes in deferred taxes and current taxes payable. Changes in deferred tax express future payable taxes based on business during the year. Deferred tax is the tax payable in future periods based on the accumulated result. Deferred tax is calculated on the basis of net temporary differences between financial reporting amounts and tax-related values after deduction of carry-forward loss. The ruling tax rate at year-end is applied in the calculation (see Note 13). Deferred tax and deferred tax benefit are presented as net amounts in the balance sheet. Taxes associated with capital transactions (e.g. group contributions) are recorded directly to shareholders equity. PRINCIPLES OF DEPRECIATION Ordinary depreciation is computed on a straight-line basis. Depreciable assets are capitalised at cost. The cost basis of the asset less a deduction for any anticipated residual value at the end of the economic life of the asset is depreciated over the estimated useful life of the asset. Replacements and renewals that materially increase the capacity or economic life of property and equipment are capitalised. Terminal buildings owned by the company on leased ground are depreciated over the remaining life of the lease. Investments in leased buildings are accrued over the remaining period of the lease. Writing-down takes place if actual value is lower than book value and a decline in value is not considered to be of a temporary nature. CLASSIFICATION EXPENSES, MAINTENANCE The ships are subject to regular classification and maintenance programmes. This involves annual docking, inspection and classification of all ships. Maintenance expenses for classification are expensed as incurred. SHARES IN SUBSIDIARIES Investments in subsidiary companies are evaluated according to the cost method. Group contributions from the parent company to subsidiary companies after tax are entered in the accounts as an increase in the investment in the subsidiary. Dividend and group contribution from subsidiaries are recorded in the income statement as proceeds from investments in subsidiaries. FINANCIAL INSTRUMENTS The company utilizes interest rate Swap agreements and other derivatives in interest risk and bunkers price risk management. The difference between interest paid and interest received is accrued over the relevant interest period. The company applies foreign currency hedging contracts in its currency risk management. Hedging contracts are valued at actual value on balance sheet date according to the portfolio principle. PENSION COMMITMENTS AND PENSION COSTS Group pension schemes provide employees with the right to agreed future pension benefits. Benefits are based on the number of earning years and the salary level of the individual employee. Pension schemes are mainly managed by an insurance company. Additionally, the Group has certain direct pension commitments that are included in the balance sheet under calculated net pension funds. Net pension costs are classified under wage costs in the income statement and comprise pension earnings during the period, including calculated future growth in wages and interest costs with the deduction of estimated yield on pension funds. In the balance sheet, net pension funds are presented as long-term receivables or other provisions for liabilities and charges. The figure also includes employer s tax which will be charged at ruling rates. The effect of changes in estimates and non-conformance between estimate and actual yield is taken to income over the average remaining earning period when the accumulated effect exceeds 10% of pension funds or pension commitments, whichever is the higher. GOODWILL Goodwill is related to the Group s ferry services. Goodwill is depreciated over estimated lifetime. The depreciation period on goodwill related to overnight ferry services is 20 years, 15 years on goodwill related to daytime ferry services. 31
NOTE 2. SUBSIDIARIES The Group comprises the parent company Color Group ASA and the following directly or indirectly owned subsidiaries (Amounts in TNOK): Name of subsidiary Location Share Holding as at Book value in of head office capital 31 Dec. 2004 balance sheet Companies owned directly: Color Hotels AS Oslo 100 100 100 Color Line AS Oslo 590 000 100 1 999 329 Total companies owned directly 1 999 429 Companies owned indirectly: Color Hotel Skagen AS Skagen DKK 5 700 100 8 457 Terminalbygget AS Oslo 100 100 50 Color Line GmbH Kiel EUR 26 100 474 Color Line Service Partner AS Oslo 100 100 100 Color Line Marine AS Sandefjord 7 250 100 4 646 Color Marine Verksted AS Sandefjord 4 000 100 4 000 M/V Color Ragnhild AS Oslo 1000 100 111 181 M/V Color Harald AS Oslo 1000 100 94 184 M/V Color Festival AS Oslo 1000 100 88 276 M/V Color Viking AS Oslo 1000 100 55 876 M/V Color Bohus AS Oslo 1000 100 21 839 M/V Color Skagen AS Oslo 1000 100 5 001 M/V Color Wessel AS Oslo 1000 100 51 924 M/V Color Christian AS Oslo 1000 100 25 643 Color Scandi Line AS Oslo 100 100 113 Color Line Danmark AS Hirtshals DKK 5 000 100 35 901 Hirtshals Skipsproviantering AS Hirtshals DKK 500 100 516 Additionally, Color Line AS owns directly and indirectly 100% of the company I/S Jahre Line. This company is included in both Color Line AS and the Group according to the straight-line method. NOTE 3. RELATED PARTIES All the shares in Color Group ASA are owned directly and indirectly by O.N. Sunde AS, a company wholly-owned by Olav Nils Sunde and his family. As at 31 December 2004, the Group s receivable against O.N. Sunde Group was TNOK 255 753 (a debt of TNOK 51 346 as at 31 December 2003). In connection with the reorganization of Color Group, the ferry business in Color Group ASA was assigned to Color Line AS with effect from October 1998. Rights linked to the use of name and trademarks and use of established services, quay rights etc. were not included in the assignment. Royalty agreements have been concluded between the companies governing Color Line s use of rights linked to the ferry business and remuneration for such use. Operating income in Color Group ASA is for the most part related to royalty agreements. NOTE 4. CURRENT LIABILITIES PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2004 2003 Public sector charges 848 635 74 627 64 558 Other current liabilities 37 037 90 882 262 120 185 984 Total 37 885 91 517 336 747 250 542 NOTE 5. ACCOUNTS RECEIVABLE, INVENTORIES The Group has allocated TNOK 4 934 for possible bad debts. The equivalent figure for 2003 was TNOK 5 272. The Group s inventories comprise trade goods for NOK 126 million and bunkers for NOK 7.5 million. Equivalent figures as at 31 December 2003 were NOK 115.9 million and NOK 5 million. NOTE 6. LONG-TERM DEBT, MORTGAGES, GUARANTEES AND FINANCIAL RISK Long-term interest-bearing debt is as follows: PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2004 2003 Debt to credit institutions 2 468 203 1 201 320 2 617 290 1 361 282 Bond loan 653 000 653 000 33
Scheduled repayments of long-term interest-bearing debt are as follows (contractual): Year (Amounts in NOK million) PARENT COMPANY GROUP 2005 166 178 2006 166 178 2007 486 498 2008 166 178 2009 493 505 After 2009 1 644 1 733 Total 3 121 3 270 In 2004, Color Group ASA took up two bond loans, the one for NOK 360 million, maturity 3.5 years, price: NIBOR + 1.70%, and the other for NOK 327 million, maturity 5 years, price: NIBOR + 1.75%. These bond loans are registered on the Oslo Stock Exchange. As at 31 December 2004, the amount outstanding on the bond loans totalled NOK 653 million. Color Group ASA has refinanced existing ship mortgages by means of a new reducing revolving credit facility for a total amount of NOK 1 626 million. The facility is reduced annually over a 10-year period. The facility matures in the year 2012. The loan is secured by first-ranking mortgage in 7 ships and a guarantee by Color Line AS. In 2004, the Group took delivery of a new ship from Kværner Masa-Yards in Finland. The contract sum was approx. EUR 302.5 million. Financing agreements were concluded at the time of contracting and cover 80 percent of the contract amount with a repayment period over 12 years. The company has commitments in the loan agreements linked to liquidity, shareholders' equity and debt service ratio. All commitments were fulfilled as at 31 December 2004. Color Group ASA has concluded fixed interest agreements in order to reduce the company's exposure to fluctuations in the interest rate. As at 31 December 2004, the Group had fixed interest agreements/fixed interest loans for NOK 809 million. Fixed interest agreements have an average duration of 4.36 years, an average interest rate of 5.4 percent, and are linked to NIBOR. The Group has also concluded two Swap agreements of NOK 250 million and NOK 100 million respectively. These agreements are valid up to August 2005 and April 2006. The agreements have been replaced by an agreement based on CHF LIBOR 3 months floating interest rate multiplied by a factor. The Group has entered into a Floor Swap agreement for NOK 200 million, valid up to August 2007, with floor 6.05%. Average interest rate for the entire loan portfolio for 2004 was approx. 5% (including fixed interest agreements). Long-term interest-bearing debt in Norwegian and foreign currency: PARENT COMPANY GROUP Currency Currency (1 000) TNOK Currency (1 000) TNOK NOK 1 858 423 1 858 423 1 916 324 1 916 324 EUR 153 250 1 262 780 153 250 1 262 780 DKK 0 82 150 91 186 Total 3 121 203 3 270 290 Book debt secured by mortgage etc.: PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2004 2003 Debt to credit institutions 2 468 203 1 201 320 2 617 290 1 361 282 The above debt is secured by mortgages in ships and other assets. Book value of assets pledged as security for debt as at 31 December 2004 is NOK 4 635 million for the Group and NOK 0.4 million for the parent company. The equivalent figures as at 31 December 2003 were NOK 2 196 million and NOK 0.7 million. There are also mortgages in the leases relating to terminal areas and there are negative mortgages in all ships, which cannot therefore be subject to further pledging without the agreement of the bank. The Group has concluded a framework agreement guaranteeing the Group's tax-withholdings of NOK 50 million. The Group is exposed to currency risk due to fluctuations in the exchange rates in NOK against other currencies, particularly USD, EUR and DKK. The Group is also exposed to interest rate risk and bunker product fluctuations. Color Group employs an active financial risk management strategy, making use of financial derivatives that are used mainly to reduce the risk of fluctuations in cash flow linked to repayment of debt, accounts receivable and other exposure, future contract commitments and current liquidity requirements in certain currencies as well as bunker products. The risk management strategy is based on board-approved annual budgets. In 2004, the Group concluded hedging contracts for the following net amounts in 2005: Product/Currency Volume/Total Rate Rate/Price per 31.12.04 USD 15 million 6,76 6,04 Fuel 1 % CIF 6 600 tonnes 180 USD/tonne 180 USD/tonne NOTE 7. PROPERTY AND EQUIPMENT / INTANGIBLE ASSETS (Amounts in TNOK) Ships Machines, Quay facilities, Goodwill Total FF&E etc. GROUP Cost as at 1 Jan. 4 188 150 386 669 489 140 1 391 144 6 455 103 Additions 2 640 020 19 650 76 715 0 2 736 385 Disposals 0 3 428 113 0 3 541 Cost as at 31 Dec. 6 828 170 402 891 565 742 1 391 144 9 187 947 Accum. depreciation and write-downs 31 Dec. 2 312 116 336 308 219 363 582 384 3 450 165 Depreciation 243 032 23 962 29 286 70 730 367 010 Disposals 0 2 699 113 0 2 788 Accum. depreciation and write-downs 31 Dec. 2 555 142 357 571 248 536 653 114 3 814 363 Book value as at 31 Dec. 4 273 028 45 320 317 205 738 030 5 373 583 Depreciation rate As described 10 25 % 3 5 % 5-20 % PARENT COMPANY (Color Group) Cost as at 1 Jan. 0 1 314 0 440 677 441 991 Additions 0 0 0 0 0 Disposals 0 455 0 0 455 Cost as at 31 Dec. 0 859 0 440 677 441 536 Accum. depreciation and write-downs 31 Dec. 0 602 0 159 679 160 281 Depreciation 0 255 22 034 22 289 Disposals 0 356 0 0 356 Accum. depreciation and write-downs 31 Dec. 0 501 0 181 713 182 214 Book value as at 31 Dec. 0 358 0 258 964 259 322 Depreciation rate 0 20 % 0 5 % 35
The depreciation rate for ships is calculated on the basis of a useful life of 30 years with a deduction for the estimated residual value. The depreciation period is reassessed in the case of major rebuilding work. Investments made in ships after delivery, which have a shorter lifetime than the ship, e.g. retail outlets, discotheque, safety equipment, etc., are depreciated over periods of 5 and 10 years. For 2004, this represents an average depreciation percent of 4.7% calculated on the basis of cost price and additional costs on all ships. The depreciation rate for the quay facilities at Hjortnes/Oslo is based on a clause in the Lease, which states that the facility shall pass to Oslo Port Authority free of charge in the year 2021 at the earliest. Color Line has a conditional option for extension of the Lease until 2036. NOTE 8. PENSIONS Net group pension costs for the year are as follows: PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2004 2003 Present value of pension earnings for the year 1 088 949 22 418 18 219 Interest costs on pension commitments 407 368 12 783 11 688 Expected yield on pension funds -415-400 -12 406-12 169 Expensed employer s tax 173 118 4 060 2 679 Book estimate deviation 146-83 3 787 1 262 Net pension costs 1 399 952 30 642 21 679 Pension commitments and pension funds Estimated commitments 10 634 7 460 314 208 229 210 Estimated value of pension funds 7 963 6 508 228 476 205 724 Estimated net pension commitments 2 671 952 85 731 23 486 Calculated employer's tax 377 134 12 088 3 336 Calculated pension over funding (commitment) 3 048 1 086 97 819 26 822 Unrecognised change in estimate (corridor) -2 503-448 -117 374-49 243 Calculated net pension assets in balance sheet 544 638-19 554-22 421 In the actuarial calculation carried out by an independent specialist, the following assumptions are taken as a basis for 2004: Discount rate 4,5 % Expected return 5,5 % Expected wage adjustment 3,3 % Expected increase in pensions 2,5 % Increase in inflation 2,5 % The discount factor has been changed from 6% in 2003 to 4.5% in 2004. In addition to pension commitments covered by the insurance scheme, the Group has unfunded pension commitments that are directly covered by the Group. These commitments apply to 19 members and are included in net pension commitments. Estimated values are applied in the valuation of pension funds and commitments incurred. These estimates are adjusted annually in accordance with a statement of the transfer value of the pension funds and an actuarial calculation of the commitments. NOTE 9. LEASES, OPTIONS TO PURCHASE AND OTHER COMMITMENTS The Group has current leases with the local port authorities in all the company's ports of call. These apply to buildings, outside areas and berthing quays. The Group pays both fixed lease amounts and variable fees, based on the number of calls, passengers and vehicles. The Group owns the terminal buildings in Oslo, Hirtshals and Strömstad. The Group has hire commitments for two ships. F/F Silvia Ana is on charter for a period of 53 months from April 2001 at an annual hire amount of TUSD 2 825. Color Line AS has negotiated purchase of the high-speed ferry F/F Silvia Ana. The highspeed ferry is due to be taken over in June 2005. For M/S Color Traveller the charter period is 3 years from December 2003. Annual hire amount is TEUR 4 320. In 2001, the Group concluded an agreement providing the right to use the Color Line brand name on the new multi-purpose arena in Hamburg, Germany. The agreement has a duration of 11 years after completion in November 2002. Annual payment is TEUR 750, adjusted for inflation. The Group has concluded an operational framework agreement for the leasing of IT equipment. Estimated total leasing cost for 2004 is TNOK 14 169. NOTE 10. FEES, WAGES AND SALARIES No remuneration was paid to the CEO in 2004. Directors' fees were charged in the amount of TNOK 480. Auditor's fees in 2004 to Deloitte totalled TNOK 225 for the parent company and TNOK 1 369 for the Group. Audit-related services have been charged in the amount of TNOK 350 for the parent company and TNOK 532 for the Group. Wage costs: PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2004 2003 Wage costs 4 327 3 984 761 602 738 066 National Insurance 1 014 848 144 319 139 861 Pension costs 1 234 1 045 50 106 47 501 Other benefits 0 22 145 744 127 798 Total 6 575 5 899 1 101 771 1 053 226 The average number of employees in 2004 was 6 in the parent company and 3 268 in the Group. Refunds of income tax, national insurance and employer's tax for seamen totalled TNOK 220 245 in 2004 and was entered in the consolidated accounts as a reduction in wage costs. The equivalent amount in 2003 totalled NOK 207 885. As at 31 December 2004, there were 500 members in the group pension scheme for shore-based personnel in Norway, 6 of these members being employed in the parent company. The group pension scheme for seamen comprises 1 246 members. In addition, the Group pays the shipowner's part of pension benefits for seamen in the amount of NOK 23.4 million, NOK 22.6 million in 2003. NOTE 11. INFORMATION ON SHAREHOLDERS The share capital of the company comprises 71 800 000 shares of NOK 2.- each. All shares carry equal rights. Director and Group President Olav Nils Sunde and family own all shares directly or indirectly through O.N. Sunde AS. 37
NOTE 12. SHAREHOLDERS' EQUITY (Amounts in TNOK) Share Share Other Contr. Other Share- Total Share- Capital Premium Fund Capital holders' Equity holders' Equity PARENT COMPANY Balance as at 31 December 2001 110 000 692 036 0 1 097 600 1 899 636 Dividends paid -84 165-84 165 Group contributions to related parties -152 039-152 039 Contributed equity 280 000 280 000 Net income 183 560 183 560 Balance as at 31 December 2002 110 000 692 036 280 000 1 044 956 2 126 992 Dividends paid -152 500-152 500 Group contributions to related parties -181 666-181 666 Contributed equity 31 200 728 800-280 000 480 000 Net income 106 067 106 067 Balance as at 31 December 2003 141 200 1 420 836 0 816 857 2 378 893 Dividends paid Group contributions to related parties -35 330-35 330 Contributed equity 2 400 57 600 60 000 Net income 20 566 20 566 Balance as at 31 December 2004 143 600 1 478 436 0 802 093 2 424 129 GROUP Balance as at 31 December 2001 110 000 692 037 0 685 558 1 487 595 Dividends paid -84 165-84 165 Group contributions to related parties -386 840-386 840 Contributed equity 280 000 280 000 Currency translation adjustments -397-397 Net income 222 835 222 835 Balance as at 31 December 2002 110 000 692 037 280 000 436 991 1 519 028 Dividends paid -152 500-152 500 Group contributions to related parties -368 087-368 087 Contributed equity 31 200 728 800-280 000 480 000 Net income 222 835 222 835 Balance as at 31 December 2003 141 200 1 420 837 0 157 508 1 719 545 Dividends paid Group contributions to related parties -35 330-35 330 Contributed equity 2 400 57 600 60 000 Currency translation adjustments 30-1 350-1 320 Net income 168 967 168 967 Balance as at 31 December 2004 143 600 1 478 467 0 289 795 1 911 862 Shareholders' equity is increased by payment of receivables. NOTE 13. TAXES PARENT COMPANY GROUP (Amounts in TNOK) 2004 2003 2004 2003 Taxes for the year are as follows: Tax payable 0 0 30 1 919 Tax element of group contribution to related parties 21 502 70 648 13 739 168 260 Tax refund 1 162 1 118 1 162 1 118 Effect of changes in tax regulations 10 177-743 Adjustment previous years' tax 0 563 0 563 Changes in deferred taxes -15 122-33 197 80 062-63 943 Tax expense (benefit) 17 719 39 132 94 250 107 917 Reconciliation from statutory tax rate to effective tax rate: Income (loss) before taxes including extraordinary result 38 285 145 199 263 214 349 021 Income (loss) before taxes 38 285 145 199 263 214 349 021 Estimated income tax at statutory rate (28%) 10 720 40 656 73 677 97 725 Taxation effect on following items: Non-deductible expenses 258 50 15 059 15 810 Effect of changes in tax regulations 4 598 0 3 334 0 Correction temporary differences, previous years 0 0 0 4 044 Tax refund 1 162 1 118 1 162 1 118 Tax element intercompany contribution 0 0 Other items 981-2 692 979-2 692 Tax expense (benefit) 17 719 39 132 94 247 107 917 Effective tax rate 46% 28% 41% 32% Specification of gross tax effects of temporary differences and net operating loss carry-forward: Fixed assets 224 144 237 512 1 763 667 1 492 405 Profit and loss account 52 502 65 627 73 535 65 381 Current assets -11 133-36 348-16 000-22 702 Debt -6 851 9 532 9 781 8 414 Net operating loss carry-forward 0 0-1 236-559 Total 258 662 276 323 1 542 939 1 542 939 Deferred tax liability in the balance sheet 72 425 77 370 512 085 432 023 Taxation rates are 28% in Norway and 30% in Denmark. NOTE 14. SHARES AND OTHER PARTICIPATIONS The company owns 39% of Aalesund Stadion AS and Aalesund Stadion KS. Committed capital in Aalesund Stadium KS is NOK 28.2 million, of which NOK 18.8 million has been paid. Paid up share capital totals NOK 3.3 million. NOTE 15. BUSINESS AREA The main business area is ferry operation. The Group's operating income is divided between the business areas Ferries (NOK 3 917 million) and Hotel (NOK 27 million). 39
Auditor's Report To contact us Information Director Helge Otto Mathisen, Color Line AS, tel.: +47 23 11 80 60, mob.: +47 992 23 330 e-mail: helge.otto.mathisen@colorline.no 40
42 Color Group ASA, Bryggegata 3, N-0250 Oslo, Norway, tel.: +47 23 11 86 00, fax: +47 23 11 86 01 Color Line AS, Hjortnes, N-0250 Oslo, Norway, tel.: +47 23 11 80 00, fax: +47 23 11 80 01 Booking: +47 810 00 811 www.colorline.no E-mail: kundeservice@colorline.no PUBLISHED BY: COLOR LINE/TRY Foto: Scanpix/www.pereide.no/Erik Berg/Arne Hagen