Critical Infrastructure in Norway

Equity Research – 26 October 2020 16:52 CET

Torghatten Reason: Initiating coverage

Endless sea of earnings visibility

 A key infrastructure provider in Norway  Government-backed earnings via long-term contracts

 Initiating coverage at BUY; TP NOK 200 (55% upside) Share price (NOK) 23/10/2020 128.0 Not a traditional transport company Target price (na) 200.0 Torghatten is the leading passenger transportation company in Norway. It is involved in Sea, Bus and Air transport, but Sea is by far the most Shipping & Transport, Norway important segment, accounting for 86% of EBIT (2021e) and ~75% of our TORG.OL/TORG NO SOTP value. Torghatten’s operations include key infrastructure services in Norway, backed by the Government through long-term contracts with MCap (NOKm) 5,774 no price and volume risk. In fact, within Sea and Bus ~80% of revenues MCap (EURm) 530 come from long-term contracts, which provides investors with unusually Net debt (EURm) 308 strong revenue and earnings visibility. Given the high contract coverage, Torghatten sits on a ~NOK 42bn order backlog of which ~NOK 20bn is in No. of shares (m) 45.1 Sea, representing nearly seven years of revenues. The contract-based Free float (%) 100 revenue model gives, in our view, low macro cyclicality earnings risk. Av. daily volume (k) na

Earnings growth and strong CF Torghatten has delivered impressive figures: 2015-2019 sales and EBIT CAGRs of 7.4% and 10.8%, respectively. This represents sales growth Performance materially above market growth (2-3%), which is explained by Torghatten 200 gaining market share through contract wins. In our forecasts we do not 180

assume that Torghatten will gain market share, as our estimates only 160

reflect market growth. We estimate stable margins for its Sea and Bus 140 segments, while we expect the Air segment (~3% of 2021e EBIT) to only 120 see ~3% EBIT margin in ’22e/’23e vs. 5.1% in ’14 -19 (average). We 100 expect that relatively low capex will yield strong FCF, with 48% cash 80 conversion/net debt down to NOK 1.8bn in ’22e (1.0x net debt / EBITDA). 60 18 19 20 17 18 19 18 19 20 18 19 20 18 19 20 17 18 19 20

Oct Oct Oct Oct Apr Apr Apr Jun Jun Jun Feb Feb Feb Dec Dec Dec Aug Aug Aug Discount to peers not warranted: BUY, TP NOK 200 Torghatten OSE GI Torghatten trades at ’21e and ’22e EV/EBIT of 11.7x and 8.5x, a ~30% 1m 3m 12m discount to peers despite higher earnings growth. Blending peer, SOTP Absolute (%) -4.5 2.4 5.8 and DCF valuations, we set the target price at NOK 200 per share. At OSE GI (%) -86.2 -86.1 -87.0 NOK 200, Torghatten would trade at an adj. P/E in ’21e and ’22e of Source: FactSet 17.4x and 13.9x, respectively. In our view, 2022 better reflects its 2020e 2021e 2022e earnings capacity as we expect the company’s Air segment to still feel P/E (x) 13.3 11.9 9.5 the effects of COVID-19 in ’21, before a return to more normality in 2022. P/E adj (x) 17.3 11.9 9.5 P/BVPS (x) 1.81 1.63 1.46 Analyst(s): [email protected], +47 22 01 61 35 EV/EBITDA (x) 7.1 5.7 4.5 [email protected], +47 22 01 61 60 EV/EBIT adj (x) 16.5 11.7 8.5 NOKm 2018 2019 2020e 2021e 2022e EV/sales (x) 0.94 0.79 0.67 Sales 10,209 11,401 10,032 11,000 11,655 ROE adj (%) 11.0 14.4 16.2 EBITDA 1,419 1,608 1,313 1,525 1,728 Dividend yield (%) 2.3 3.1 4.7 EBITDA margin (%) 13.9 14.1 13.1 13.9 14.8 FCF yield (%) 10.9 13.1 16.8 EBIT adj 684 826 568 747 926 Lease adj. FCF yld (%) 10.9 13.1 16.8 EBIT adj margin (%) 6.7 7.2 5.7 6.8 7.9 Net IB debt/EBITDA 2.5 1.7 1.0 Pretax profit 681 686 548 641 845 Lease adj. ND/EBITDA 2.0 1.3 0.6 EPS rep 11.84 11.02 9.62 10.73 13.43 EPS adj 9.05 10.44 7.40 10.73 13.43

Sales growth (%) 4.8 11.7 -12.0 9.6 6.0 EPS growth (%) 36.5 -6.9 -12.7 11.6 25.1

Source: ABG Sundal Collier, Company data

Please refer to important disclosures at the end of this report Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Company description Risks Torghatten is the leading transportation company in Loss of contracts within its Sea and Bus segment would hit Norway, with a history going back to 1978. It is involved in both sales and margins, in our view. Furthermore, if Sea, Bus and Air transport. Sea is the most important competitors are aggressive on price in upcoming tender segment, accounting for 87% of group EBIT, with Bus and processes, it might force Torghatten to accept lower Air at 13% and 3% respectably (2021e). Its operations are returns. Price pressure in its Air business will hurt company a key infrastructure service in Norway backed by the margins. Potential changes in regulation regarding new and government through long-term contracts (7+ years). In fact, more environmentally friendly assets might lift Torghatten’s for Sea and Bus, around 80% of revenues are from long- capex requirements. term contracts, providing unusually strong revenue and earnings visibility, in our view.

Annual sales and adj. EBIT margin Net debt and ND/EBITDA adj.

14,000 9.0 4,500 3.5 8.0 4,000 12,000 3.0 7.0 3,500 10,000 2.5 6.0 3,000 8,000 5.0 2,500 2.0

6,000 4.0 2,000 1.5 3.0 1,500 4,000 1.0 2.0 1,000 2,000 0.5 1.0 500 0 0.0 0 0.0

2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2020e 2021e 2022e Sales (LHS) Adj EBIT margin % (RHS) Net debt (LHS) ND/EBITDA (RHS)

. Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

26 October 2020 ABG Sundal Collier 2 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Table of contents

Investment summary...... 4 Sea: Critical infrastructure in Norway ...... 7 Bus: Urbanisation drives demand ...... 18 Air: Subsidised tender routes ...... 25 Estimates...... 29 Valuation ...... 31 Appendix: Corporate structure ...... 35 Appendix: Risks...... 40

26 October 2020 ABG Sundal Collier 3 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Investment summary Torghatten is the leading passenger transportation company in Norway, with a history going back to 1978. It is involved in Sea, Bus and Air transport. Sea is the most important segment as it accounts for 86% of group EBIT, with Bus and Air at 13% and 3%, respectively (2021e). The company’s operations include key infrastructure services in Norway, backed by the Government through long-term contracts (+7 years). In fact, within Sea and Bus ~80% of revenues come from long-term contracts, providing investors with unusually strong revenue and earrings visibility.

Torghatten: EBIT per segment (2021e) Torghatten: Revenue by form (2021e)

120% % of EBIT (2021e) 120% Segment revenue divided by form

100% 100% 3% -2% 13% 80% 80%

60% 60% 40% 40% 86% 20% 20% 0% Sea* Bus Air** 0% Sea Bus Air Other Contract "fixed" Passenger "variabel"

Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data. * Includes Moss –Horten. **Air: Includes passenger revenue on tender routes (ABGSC estimate).

The long-term contracts within Sea and Bus are tendered by the Norwegian government (municipalities, county councils or the Norwegian Public Roads Administration Statens vegvesen).1 Only a few multi-segment players compete on the tenders. Furthermore, most contracts are “gross contracts” which eliminate revenue risk (price and volume) as the operator is paid a fixed amount regardless of traffic volume. Furthermore, the contracts are also adjusted yearly, according to key cost drivers, resulting in relatively strong margin stability. Torghatten’s Air segment consists of 66% ownership in the regional domestic airliner Widerøe which operates both in the tender and commercial market. Tender routes are subsidised by the Government to secure flights between rural areas in Norway. We estimate that tender revenues account for ~40% of Widerøe’s revenues, highlighting a material difference between Widerøe and traditional airlines.

In total, Torghatten sits on an order backlog of NOK 42bn. Its most important segment, Sea, accounts for NOK 20bn (48%) representing almost seven years of revenues, indicating strong earnings visibility.

1 Norwegian Public Roads Administration (Statens vegvesen), URL https://www.vegvesen.no/

26 October 2020 ABG Sundal Collier 4 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten’s order backlog Years with contract coverage 45 NOKbn 8 Years

40 7 7 35 6 30 15 5 25 4 20 42 3 15 2 10 20

5 1

0 0 Sea Bus Air Total Sea Bus Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Robust and stable market with solid growth opportunities Given the high contract coverage and the fact that ~80% of revenues within Sea and Bus come from long-term contracts with no price and volume risk, we argue Torghatten’s earnings represent low macro cyclicality risk. In addition, the three segments, Sea, Bus and Air, all operate in a consolidated market with relatively few companies. The number of companies has been stable over time, probably driven by relatively high barriers to entry (the obvious barriers are capex, scale and local market knowledge). In addition, the high share of contract revenues makes it hard for new players to quickly gain market share as they cannot start on new routes / win new tenders before the current contracts expire. Finally, within Sea, many of the larger contracts have recently been awarded, resulting in a long time (~10 years) before a new entrant can bid on these contracts. In addition, as can be seen below, the key segments have seen relatively stable volume growth in recent years.

Ferry passenger volume Bus passenger volume Annual ferry passenger volume, M 50 # of passengers, M 450 425 387 394 45 44.0 400 43.0 43.3 43.7 359 42.4 42.1 42.4 350 41.9 331 335 41.1 41.0 41.2 40.5 350 323 39.7 305 313 40 38.3 291 37.6 300 36.9 36.1 36.5 250 35 200

30 150

100 25 50

20 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: ABG Sundal Collier, Ferjedatabanken, Statens Vegvesen, SSB Source: ABG Sundal Collier, SSB

Impressive earnings history looks set to continue Torghatten has gained market share in recent years within Sea and Bus through tender wins, but our estimates only reflect market growth, i.e. revenue growth of ~2% p.a.

26 October 2020 ABG Sundal Collier 5 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten: Historical and current estimates Group (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Sea revenue 2,087 2,162 2,289 2,354 2,483 2,567 3,186 2,933 3,172 3,319 3,448 8.6% 2.0% Bus revenue 1,704 1,826 1,847 2,100 2,450 2,606 2,773 2,637 2,737 2,850 2,919 10.7% 1.3% Air revenue 926 3,807 3,952 4,560 4,449 4,721 5,088 4,114 4,730 5,117 5,445 6.5% 1.7% Other revenue 389 393 487 373 358 316 355 348 361 369 377 -7.6% 1.5% Total revenue 5,106 8,187 8,574 9,386 9,740 10,209 11,401 10,032 11,000 11,655 12,189 7.4% 1.7% Contract revenue for Sea and Bus 71% 75% 79% 79% 80% 80% 82% 85% 83% 82% 82%

EBIT Sea 99 109 210 291 295 453 561 629 648 655 691 27.8% 5.4% EBIT Bus 77 96 107 102 104 111 118 48 95 124 129 2.5% 2.2% EBIT Air 101 243 207 367 237 106 172 -75 26 161 167 -4.6% -0.7% EBIT Other Maritime 18 11 33 7 2 26 -7 -12 -7 3 3 EBIT Other 0 4 -9 -34 -13 -13 -17 -23 -16 -16 -16 NA NA EBIT Group 296 462 548 733 625 685 827 568 747 926 974 10.8% 4.2% Sea and Bus EBIT in % of total 60% 44% 58% 54% 64% 82% 82% 119% 100% 84% 84%

Net result to majority 132 155 304 346 405 544 497 434 484 606 639 13.1% 6.5% EPS to majority 14.1 16.6 6.5 7.4 8.7 11.8 11.0 9.6 10.7 13.4 14.2 14.1% 6.5% Adj EPS to majority 14.1 16.9 5.1 7.1 6.5 9.0 10.4 7.4 10.7 13.4 14.2 19.7% 8.0%

Dividend per share (NOK) 4.5 4.5 2.5 1.0 1.5 2.0 2.0 3.0 4.0 6.0 8.0 Net debt 2,668 3,070 2,476 2,151 2,696 2,650 3,874 3,302 2,637 1,774 1,308 11.8% -23.8% Net debt / EBITDA 3.9x 2.9x 2.1x 1.6x 2.1x 1.9x 2.4x 2.5x 1.7x 1.0x 0.7x 3.8% -25.7% ROE 10.6% 12.1% 21.1% 19.7% 19.2% 22.4% 18.2% 14.4% 14.4% 16.2% 15.5% EBIT margin 5.8% 5.6% 6.4% 7.8% 6.4% 6.7% 7.2% 5.7% 6.8% 7.9% 8.0% Cash conversion (FCF in % EBITDA) -74% -42% 39% 8% -32% -1% 7% 48% 50% 56% 38% Source: ABG Sundal Collier, company data

Despite COVID-19, Torghatten looks set to deliver all-time-high EBIT within its Sea segment, highlighting, in our view, the strong earnings robustness of the segment. Its Air segment is set to experience an earnings hit given COVID-19 (see table above). However, we do expect the Air segment to deliver positive EBIT in 2021. Furthermore, the EPS growth in 2022 vs. 2021 of NOK 2.7, is 85% explained by the Air segment as EBIT goes from NOK 26m in ’21 to NOK 161m in 2021. On the back of this, we argue 2022 better reflects Torghatten’s earrings capacity.

We forecast strong FCF given a cash conversion of ~50% in our forecast period (see table above). The sharp improvement is driven by relatively low capex requirements over the coming years (from NOK 1.2bn p.a. to ~NOK 600m). This will take net debt materially down: NOK 3.3bn year-end 2020 to NOK 1.8bn year-end| 2023 despite our expectations of a growing dividend, highlighting materially-higher dividend capacity, in our view.

Valuation: Torghatten is trading well below peers Blending our peer group valuation, using peers’ P/E, EV/EBIT, in addition to our SOTP and DCF valuation, we set the target price at NOK 200. We estimate net debt at the end of 2021 of NOK 2.6bn and net debt/EBITDA of 1.8x. The share currently trades at a ’21e P/E of 10.6x adjusted for its ownership in the listed company NTS (valued at ~NOK 600m) while reported P/E is 11.9x. Looking at both P/E and EV/EBIT multiples, Torghatten trades at a ~30% discount despite superior earnings growth. The ’20e and ’21e dividend yields at the current share price are 2.3% and 3.1%, respectively. However, given Torghatten’s strong CF, we argue its dividend could be lifted materially.

Valuation summary (NOKm) P/E multiples for different share price

300 NOK / share 25.0x PE multiple for different share price

19.7x 250 20.0x ~240 17.4x ~220 15.7x ~210 TP: NOK 200 15.0x 200 15.0x 13.9x 12.0x 10.6x 150 10.0x 8.5x

100 5.0x 128 50 0.0x NOK 128 NOK 175 NOK 200 NOK 225 0 2021 PE 2022 PE Peers SOTP DCF Current share price Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 6 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Sea: Critical infrastructure in Norway Stable markets set to continue Sea-based passenger transport in Norway is performed by ferries and express boats, carrying a total of ~56 million passengers and 20 million vehicles yearly, split over ~200 routes. The Ferry market is by far the most dominant as it accounts for ~80% of total passenger volume and includes key infrastructure in Norway. We expect the current stable market dynamics to persist, driven by: 1) stable growth, 2) a highly consolidated market with high capex needs and regulatory requirements causing high barriers to entry, and 3) long-term contracts with limited volume exposure, causing predictable and recurring revenues.

Seaborne passenger volume Ferry transport represents key infrastructure in Norway and the services are vital for local mobility. Ferries assure quick, cheap and efficient transit that would otherwise be time consuming or expensive to complete using alternative solutions. Ferry passenger volume has historically been highly correlated with population growth. At a CAGR of 1.2% the last 20 years, the market environment is stable and predictable.

Express transport growth has mainly been driven by commercial route production over the last 6-7 years. Since 2015, the development has been flattish, as non- commercial route production has plateaued. The market is barely affected by cyclicality, and growth rates are expected to mirror population growth in the years to come.

Ferry passenger volume growth stable at 1.2% Express passenger volume development Annual ferry passenger volume, M Annual passenger volume, M 50 14

11.5 11.5 11.6 12 11.4 44.0 10.9 45 43.3 43.7 43.0 10.0 10.0 41.9 42.4 42.1 42.4 41.1 41.0 41.2 40.5 10 9.1 9.1 39.7 8.7 8.8 8.5 8.7 40 38.3 8.2 8.0 8.0 37.6 36.9 8 36.1 36.5 35 6

30 4

2 25

0 20 2004 2006 2008 2010 2012 2014 2016 2018 2001 2003 2005 2007 2009 2011 2013 2015 2017 Total Non-commercial Commercial Source: ABG Sundal Collier, Ferjedatabanken, Statens Vegvesen, SSB Source: ABG Sundal Collier, Ferjedatabanken, Statens Vegvesen, SSB Note: Express refers to passenger-only seaborne public transportation

Three major market players As seen below, the ferry market in Norway is highly consolidated and split between three large players: Fjord, Torghatten and Norled.

On aggregate, ~96% of the market in terms of numbers of PCE (Passenger Car Equivalents) is operated by the three Norwegian majors. However, on a revenue basis, and including passenger boat operations, we highlight Boreal as a fourth major competitor in the sea transportation market. The elevated market share on a revenue basis relative to PCE is mainly explained by higher compensation per PCE in the North region (low PCE-intensive passenger boat operations).

26 October 2020 ABG Sundal Collier 7 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Sea: Competitive overview Company Torghatten Fjord1 Norled

Ferry & Ferry & Ferry & Segment express boat express boat express boat Ferry market share, PCE, 2019 28% 47% 22% Revenue 2019, NOKm 3,186 2,724 2,330 Revenue grow th '19 24.1% -11.6% -1.8% EBITDA '19, NOKm 882 818 471 EBITDA margin, 19' 27.7% 30.0% 20.2% EBIT '19, NOKm 561 396 273 EBIT margin. 19' 17.6% 14.5% 11.7% Ferries (#) YE of 2021 71 83 70 EL/Hybrid percentage YE 2021e 22.5% 37.3% 28.6% Passenger boats (#) end of 2021 19 3 27 Employees 1,400 1,056 1,014 Ow ner type NOTC Publicly listed Private Source: ABG Sundal Collier, company data

Total market share – PCE (2019) Market share – Revenue (2019) Boreal Other Boreal 3% 1% 11% Norled Torghatten 20% 29% Torghatten 34% Norled 25%

Fjord1 Fjord1 47% 30% Source: ABG Sundal Collier, company data, Ferjedatabanken Source: ABG Sundal Collier, company data Note: Others are not included.

Torghatten is the only company present in all regions. It is dominant in the northern region as well as the eastern region through Bastø Fosen’s Moss-Horten operations. Fjord1 covers >50% of all routes in the ferry-intensive west and mid regions. Norled has a wide exposure while Boreal covers the mid and north region.

Regional areas Regional market share (PCE 2021) Hammerfest Vardø Regional market share, PCE 100% 4% 3% Tromsø 90% 18% 15% North region Middle region 80% 30% 19% West region Bodø 17% East region 70% 60%

50% 96% Trondheim 40% 52% 65% 62% 30% Ålesund 20% Florø 10% 13% Bergen 0% 4% Oslo Stavanger North Mid West East Torghatten Fjord1 Norled Boreal Other Kristiansand Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 8 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten has outgrown its core peers (>NOK 2bn revenue) over the last four years, with a CAGR close to double-digit territory (~9%), as seen below. More recently, Fjord1 has won several contracts, resulting in 13% y-o-y revenue growth in H1’20. Looking at margins, we see that Fjord1 margins have come down significantly in 2019 and 2020. There are three drivers behind this: 1) the loss of the Halhjem-Sandiksvåg contract to Torghatten, 2) significantly higher depreciation following delivery of nine new electric vessels in 2019 and six new deliveries in H1’20, and 3) higher costs of infrastructure for new contracts in 2020. On the other hand, Torghatten has been able to increase margins owing to strong operational improvement in all its subsidiaries and also due to a smaller need for investment in electric ferries on its routes (e.g. less environmental requirements on smaller routes in Northern Norway).

Revenue CAGR of peers (Sea) EBIT margin of peers (Sea)

14% '15-'19 revenue CAGR EBIT margin 30% 12% 12% 26.2% 25% 23.8% 24.0% 21.7% 10% 9% 20% 17.7% 17.6% 8% 14.5% 15% 12.4% 11.9% 11.7% 11.7% 6% 5% 11.6% 9.0% 4% 10% 8.0% 4% 3% 5% 2%

0% 0% Boreal Torghatten Torghatten Fjord1 Nordled 2016 2017 2018 2019 H1'20 ('excl'19) Torghatten (Sea) Fjord1 Nordled

Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Gross contracts provide recurring revenue with no volume risk The seaborne passenger market is characterised by the above-mentioned companies as they compete against each other to win tender contracts and market share. The contracts are tendered by the county council or Statens Vegvesen, depending on the road type. Net contracts, where the operators incur cost and revenue risk, have for all practical considerations been abandoned in favour of gross contracts. Gross contracts eliminate the revenue risk (volume and price) for the operator (like Torghatten) as the principal receives all ticket revenue. Thus, the operator is paid a fixed amount to operate the route regardless of traffic volume and vehicle distribution.

Furthermore, the fixed amount the operator is paid is adjusted on yearly basis, according to Nærsjøindeksen (The Ferry Index, see more in appendix). This means risks related to cost inflation/fluctuations are significantly reduced resulting in securing a relatively stable margin. The motivation for the transition from net to gross relates to weak tender competition and route economics (often not commercial profitable). Furthermore, as the principal is the county council or Statens Vegvesen, the latter organised under The Ministry of Transport, the counterpart risk is, in our view, zero.

26 October 2020 ABG Sundal Collier 9 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Ferry contract overview Gross / Net contract split

Ferry contracts Gross contract Net contract Share of all contracts 2010 3% 97% 100% Share of all contracts 2020e 82% 18% 90% Share of all contracts 2025e 98% 2% 80% Average length (2016-2018) 6.9 70% Normal option years 0-2 Normal contract value (NOK bn) 0.3-1.5 60% Principal Statens Vegvesen/County council 50% Tender Yes 40% Av. time from announcing to contract start ~2 years 30% Average bids 2.6 20% Grant to operator Yes Yes 10% Ticket revenue Principal Operator Ticket revenue risk Principal Operator 0% 2011 2012 2013 2014 2015 2016 2017* 2018* 2019* Costs Operator Cost risk Operator Gross Net Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

The tenders are on average announced roughly two years before commencement, with a contract duration of 7-10 years on average. In recent years, the trend has been more that the tenders involve several routes, and contracts last for up to 10-12 years. Historically, long contracts and long time to commencement have led to more players bidding as the current fleet composition becomes less important and access to capital increases with contract length. During 2016-2018, ferry tenders had 2.6 bidders on average while <7-year contracts only had 1.6 bidders. Tender bids are typically assessed as a weighted average of price (60-70%) and a set of ESG criteria (30-40%). The lowest bid is given a maximum score and competitors are punished by one point per percentage point deviation from the lowest bid.

Solid contract backlog Torghatten has gained market share since 2015, but we note that the uplift in 2019 is due to the new contract Halhjem-Sandvik, Norway’s third most trafficked route (was operated by Fjord1 until 2019) and Flakk-Rørvik in Trøndelag, Norway’s tenth most trafficked rout.

Market share (PCE) Potential contract roll off Market share (PCE) Potential number of ontract roll-offs 14 100% 2% 2% 2% 3% 90% 12 28% 26% 22% 20% 80% 10 70% 7

60% 21% 22% 29% 29% 8 50% 6 4 40% 1 30% 4 5 1 1 49% 49% 46% 47% 20% 4 2 10% 1 3 3 1 1 1 0% 0 2015 2017 2019 2020 Fjord1 Torghatten Norled Boreal Other Fjord1 Torghatten Norled Boreal Other 2021 2022 2023

Source: ABG Sundal Collier, company data, Fjord1, Ferjedatabanken Source: ABG Sundal Collier, company data, Ferjedatabanken, Statens Vegvesen

Obviously, all contracts expire and to the right above we have shown the companies and the number of contracts expiring divided by years. Torghatten has 13 contracts that will have expired by 2023. This might seem like a high number, but the contracts expiring over the next couple of years are not material, in our view. In fact, we estimate that the contracts that roll off in 2021-2022 account for less than 5% of Torghatten’s PCE (private car equivalents, i.e. capacity). The seven contracts that roll off in 2023 are somewhat larger (~10% of PCE). However, note that 70% of

26 October 2020 ABG Sundal Collier 10 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten’s PCE consist of only three contracts that run to 2028-2031: Moss- Horten (40% of PCE), Halhjem-Sandiksvåg (19% of PCE) and Flakk-Rørvik (11% of PCE).

Notably, Nordland (Northern Norway) recently auctioned seven smaller routes, all with tender deadlines by Oct 1st 2020 and previously operated by Torghatten and Boreal. Torghatten secured its four existing routes and also won a new contract, Finnvik – Digermulen (previously operated by Boreal).

Regarding upcoming tenders, the winning bid is, on average and based on history, won by the existing operator in the majority of tenders (56-77%) (see charts below). In our view, this is not surprising as the operator should have best knowledge of the specific route and be able to capitalize on this in a tender process. In addition to bid on existing routes, companies obviously participate on new routes. As seen below, Torghatten has a solid track record recent years: in 2016-2018, Torghatten had a win ratio of 55% of all tender bids delivered while simultaneously expanding the EBIT margin. Thus, we expect Torghatten to maintain its market share through tender wins going forward.

Contract winner on ferry routes 2016-2018 tender win ratio by company Contract winner (ferry) Tender w in ratio 60% 100% 55% 90% 77% 50% 80% 42% 70% 40% 60% 56% 50% 44% 30% 40% 25% 30% 23% 19% 20% 20% 10% 10% 0% 2004-2016 2016-2019 Exisiting operator New operator 0% Torghatten Fjord1 Norled Boreal Source: ABG Sundal Collier, Statens vegvesen, Oslo Economics Source: ABG Sundal Collier, company data, Oslo Economics, Statens Vegvesen

Barriers to entry are high We deem that the barriers to entry to the ferry market are high for several reasons. First, capex needs are high because the principals demand high quality, environmental friendly vessels. In fact, in recent years, Statens Vegvesen has required that ferries run on an electric motor along the Norwegian national roads (riksveg). Fjord1 has been the most active on these larger routes and has invested nearly NOK 5bn over the past five years on electrification, while Torghatten has also made large investments in electric vessels for Moss-Horten and Halhjem- Sandvikvåg. This means nearly all the larger routes have recently transitioned to electric ferries on long-term contracts. Thus it will take a long time before a new entrant can bid on these contracts and gain a significant portfolio of routes. In addition, the smaller routes are hard to compete with as they are often operated by older vessels with mainly operational expenses and low capex needs. Lastly, the existing operators have the best know-how of the costs and risk of operating the routes; this typically results in the existing operator winning the tender. In addition, although we do not see any risk in a ferry-free E39 in the near future, it might increase uncertainty for potential new entrants.

26 October 2020 ABG Sundal Collier 11 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten’s Sea: A market outperformer Torghatten’s Sea division accounts for only 29% of revenue but 86% of EBIT (2021e). Furthermore, 67% of revenues come from long-term contracts, which provides strong earnings visibility. However, we argue that ticket revenues from Norway’s most-trafficked route, Moss-Horten, could be included in contract revenues due to traffic/revenue stability. Including this, contract revenues stands at 83% of the segment’s revenue (2021e).

Torghatten has gained significant market share the last five years (from 21% PCE in 2015 to 29% in 2020) at accretive EBIT margins. As seen below, Torghatten did see a revenue uplift in ’19 due to two large contract wins: Halhjem-Sandvikvåg and Flakk-Rørvik. Furthermore, EBIT margins have also increased in recent years, due to strong underlying operations, cost focus and, in our view, a larger share of gross contracts.

7.3% revenue CAGR since 2013 Growth has been achieved at accretive margins

MNOK MNOK 1,000 27% 3,500 3,186 882 900 24% 3,000 800 742 2,483 2,567 21% 2,354 2,500 2,289 700 2,087 2,162 18% 600 561 561 2,000 502 15% 453 500 418 12% 1,500 400 286 300 291 295 9% 300 1,000 210 200 6% 109 500 99 100 3% 0 0 0% 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 Contract Revenue Ticket / Passenger Revenue Other EBITDA EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

EBIT has more than doubled since 2015 as a result of growth and a margin expansion from 9.2 to 17.6%. The relative share of ticket and passenger revenue has declined on the back of more gross contracts. Overall, we view Torghatten’s Sea revenues as low risk and non-cyclical, as its contract revenues are based on long-term contracts with county councils. Furthermore, of the NOK +700m ticket / passenger revenue, we estimate that ~70% comes from Norway’s most-trafficked route (Moss-Horten) which has had high and stable passenger volume growth historically (see p. 15). The margin uplift in 2020 is due to strong H1’20 margin development, up 5.5pp y-o-y. We are impressed that the company has been able to deliver all-time high margins despite COVID-19.

Sea segment: Historic and estimated earnings Sea (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Contract revenue 1,181 1,290 1,425 1,429 1,461 1,550 2,108 2,047 2,135 2,194 2,293 10.3% 2.1% Passenger revenue 710 658 657 718 778 717 719 650 716 762 777 2.3% 1.9% Other income 196 214 207 207 244 300 359 236 320 363 378 14.8% 1.3% Sea revenue 2,087 2,162 2,289 2,354 2,483 2,567 3,186 2,933 3,172 3,319 3,448 8.6% 2.0% Contract revenue in % of sea 57% 60% 62% 61% 59% 60% 66% 70% 67% 66% 67% Contract revenue incl. Moss-Horten 72% 75% 78% 77% 77% 79% 82% 84% 83% 82% 82% EBITDA Sea 286 300 418 502 561 742 882 882 936 966 1,007 20.5% 3.4% EBITDA margin 14% 14% 18% 21% 23% 29% 28% 30% 30% 29% 29% EBIT Sea 99 109 210 291 295 453 561 629 648 655 691 27.8% 5.4% EBIT margin 4.8% 5.0% 9.2% 12.4% 11.9% 17.7% 17.6% 21.4% 20.4% 19.7% 20.0% Sea % of Group EBIT 34% 24% 38% 40% 47% 66% 68% 111% 87% 71% 71% Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 12 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten currently operates ~35 ferry routes throughout the country, mostly in Northern Norway and Trøndelag. Below we show an overview of Torghatten’s ferry routes and contract details. We have highlighted the most important routes with light grey, as we estimate these routes to account for ~70% of capacity (measured by PCE). As can be seen, these contracts will not expire before year-end 2026/2028. In total for the segment, Torghatten sits on a NOK 20bn contract backlog, representing seven years of revenues.

In the medium-term, Torghatten has three fairly large contracts that we expect to be auctioned in 2021-2022 (in red below): Vennesund-Holm, Bodø-Værøy-Røst- Moskenes and Bognes-Lødingen. On the Bodø to Lofoten route, Statens Vegvesen (the principal) could require hydrogen ferries,2 resulting in relatively high investment costs (electric is unlikely due to the long distances). Note that many of the smaller routes are operated by older, depreciated ferries and we do not expect the county councils to require electrified/hydrogen ferries, as this would result in large capex requirements and higher costs for the consumer.

Torghatten contract overview (Sea) Contract Contract Option Contract Ferry route Operator start end (Years) type 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Festvåg-Misten Torghatten Nord 01.01.2012 31.12.2019 1 Net Fjord1 has won the contract for 2021-2023 Andenes-Gryllefjord Torghatten Nord 18.05.2018 01.09.2019 1 Gross Forøy-Ågskardet Torghatten Nord 01.01.2017 31.12.2020 1 Gross Contract Jektvik-Kilboghamn Torghatten Nord 01.01.2017 31.12.2020 1 Gross Option Sauren/Stortorgnes - Brønnøysund Torghatten Trafikkselskap 01.04.2016 30.03.2019 2 n.a. Old Torghatten contract Botnhamn-Brensholmen (Summer) Torghatten Nord 01.05.2019 05.09.2021 0 Gross Major contracts Småge - Orta - Finnøya - Sandøya Ona Torghatten Nord 01.01.2012 31.12.2021 0 Net New tender for 2022-2028. Offer deadline 01.10.2020 Refsnes-Flesnes Torghatten Nord 01.01.2019 31.12.2020 2 Gross Bognes-Skarberget Torghatten Nord 01.01.2018 31.12.2021 1 Gross Drag-Kjøpsvik Torghatten Nord 01.01.2018 31.12.2021 1 Gross Horn-Andalsvåg Torghatten Trafikkselskap 01.01.2019 31.12.2021 1 Gross Horn-Igerøy Torghatten Trafikkselskap 01.01.2019 31.12.2021 1 Gross Igerøy-Tjøtta Torghatten Trafikkselskap 01.01.2019 31.12.2021 1 Gross Vennesund-Holm Torghatten Trafikkselskap 01.01.2019 31.12.2021 1 Gross Bodø-Værøy-Røst-Moskenes Torghatten Nord 01.01.2013 31.12.2022 1 n.a. Bognes-Lødingen Torghatten Nord 01.01.2013 31.12.2022 1 n.a. Melbu-Fiskebøl Torghatten Nord 01.01.2015 31.12.2022 1 Gross Svolvær-Skrova-Skutvik Torghatten Nord 01.01.2021 30.01.2023 1 Gross Hansnes-Vannøy Torghatten Nord 01.05.2014 30.04.2020 3 Gross Storstein-Lauksundsskaret Torghatten Nord 01.05.2014 30.04.2020 3 Gross Levanger - Hokstad Fosen Namsos Sjø 01.01.2015 31.12.2022 2 Gross Rødøybassenget Torghatten Nord 01.01.2021 31.12.2024 1 Gross Skei - Gutvik Torghatten Trafikkselskap 01.01.2021 31.12.2023 1 Gross Hofles-Geisnes-Lund Fosen Namsos Sjø 01.01.2021 31.12.2023 1 Gross Ølhammeren-Seierstad Fosen Namsos Sjø 01.01.2021 31.12.2023 1 Gross Belvik-Vengsøy Torghatten Nord 01.01.2010 31.12.2019 5 Gross Mikkelvik Bromnes Torghatten Nord 01.01.2010 31.12.2019 5 Gross Rotsund-Havnes Torghatten Nord 01.01.2010 31.12.2019 5 Gross Borgan - Ramstadlandet Fosen Namsos Sjø 01.02.2020 31.01.2024 2 Gross Eidshaug - Gjerdinga Fosen Namsos Sjø 01.02.2020 31.01.2024 2 Gross Ørnes-Vassdalsvik-Meløysund-Bolga-Støtt Torghatten Nord 01.01.2021 31.12.2024 1 Gross Sund-Horsdal-Sørarnøy Torghatten Nord 01.01.2021 31.12.2024 1 Gross Moss-Horten Bastø Fosen 01.01.2017 31.12.2026 2 Net Flakk - Rørvik Fosen Namsos Sjø 01.01.2019 31.12.2028 0 Gross Hansnes-Stakkvik Torghatten Nord 01.01.2020 31.12.2024 5 Gross Halhjem-Sandvikvåg Torghatten Nord 01.01.2019 31.12.2026 5 Gross Finnvik - Digermulen Torghatten Nord 01.01.2021 31.12.2024 1 Gross Solfjellsjø-Vanved Torghatten Trafikkselskap 01.07.2021 30.06.2024 0 Gross Svelvik-Verket Bastø Fosen 01.01.2022 31.12.2031 0 Net Source: ABG Sundal Collier, company data, Statens Vegvesen

Torghatten’s ferry fleet Torghatten has a good mix of older and newer ferries, enabling it to be competitive on smaller routes with less environmental requirements where depreciated vessels can be used (or as back-up), while its modern electric ferries are used on larger routes.

Its share of electric ferries is currently ~20%, with three vessels set to be retrofitted with electric motors in 2020, in addition to three electric/hybrid newbuilds set to be delivered in 2020-2021. Following some years of higher investment from electrifying part of its fleet, the company now has a relatively low capex need for the next couple of years.

2 https://www.tu.no/artikler/statens-vegvesen-vil-ha-hydrogenferge-pa-vestfjorden-br/487257

26 October 2020 ABG Sundal Collier 13 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Ferry fleet by building year Express fleet by building year

# of vessles # of vessles 16 6 14 14 14 5

12 11 4 4 10 9 3 3 8 7 6 6 2 2 2 4 3

2 1 1

0 0 Pre 1980 '80-'85 '85-'90 '90-'95 '95-'00 '00-'05 '05-'10 '10-'15 '2015-'20 '90-'95 '95-'00 '00-'05 '05-'10 '10-'15 '2015-'20

Source: ABG Sundal Collier, Clarksons, company data Source: ABG Sundal Collier, Clarksons, company data

Torghatten subsidiaries (Sea) Torghattten’s Sea segment consists of four subsidiaries in addition to the asset subsidiary T-Finans. To get a better understanding of the diversification of Torghatten’s Sea division, we present the subsidiaries below. As can be seen, four geographically-diverse subsidiaries make up the Sea segment. The ferry routes in Trøndelag are mainly operated by Fosen Namsos Sjø, while Horten-Moss is operated by Bastø Fosen. The routes on the western coast and in the northern part of Norway are operated by the Torghatten Nord and Torghatten Trafikkselskap. As can be seen in this section, the subsidiaries are showing solid revenue growth and increasing margins (with the exception of Torghatten Nord). This highlights, in our view, the earnings robustness of Torghatten’s key segment.

Sea: Market share of Torghatten’s subsidiaries

Norled Boreal 2% 22% Other FosenNamsos 1% 6%

Torghatten Bastø Fosen 29% 5%

Torghatten TS 3% Fjord1 Torghatten 46% Nord 15%

Source: ABG Sundal Collier, company data, Ferjedatabanken

26 October 2020 ABG Sundal Collier 14 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten Nord Torghatten Nord was established in 2008 and is a fully-owned subsidiary, accounting for more than 50% of Torgatten’s sea revenue and EBIT. The company operates 46 ferries and passenger boats and employs ~680 people.

Notably, the commencement of the Halhjem-Sandviksvåg contract in 2019 had some hiccups, a contract worth NOK 4.7bn with annual revenue of ~NOK 350m- 400m. Operations were initially affected by bad weather and delays at Tersan Shipyard ship yard for two new builds. As a consequence, Torghatten was forced to enter temporary lease agreements with Fjord1 and Bastø Fosen. Nevertheless, revenues saw solid growth in ’19 y-o-y. Margins were down, mainly driven by the challenging start for the Halhjem-Sandviksvåg contract. However, the new vessels were delivered in February ’19 and operations are, according to the company, running as expected in 2020. We attribute some of the margin increase for the Sea segment in H1’20 (up 5.5pp y-o-y) to better performance in Torghatten Nord.

Revenue development (Torghatten Nord) EBIT and EBIT margin (Torghatten Nord) NOKm NOKm 2,000 350 35% 1,800 1,742 298 300 278 30% 1,600 1,359 250 25% 1,400 1,202 1,247 1,140 1,175 1,200 1,114 200 180 181 20% 1,000 20.5% 150 130 17.1% 15% 800 15.0% 14.5% 100 10% 600 71 58 11.1% 400 50 5% 6.4% 200 5.1% 0 0% 0 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

FosenNamsos Sjø FosenNamsos Sjø was established in 2008 as a merger between Fosen Trafikklag and Namsos Trafikkselskap. Torghatten has 66% ownership in the company while NTS owns the remaining share. Furthermore, Fosen Namsos has a 51% controlling stake in Partrederiet Kystekspressen – a company operating the Trondheim- Kristiansund route. The company commenced operation of the Flakk-Rørvik route in Trøndelag in 2019 (Norway’s tenth-most trafficked route, representing ~NOK 110m in annual revenue, explaining the revenue uplift in ’19).

Revenue development EBIT and EBIT margin (Torghatten Nord) NOKm NOKm 700 70 65 20% 599 18% 600 60 16% 484 484 491 50 500 466 453 14% 430 12% 40 400 34 32 10% 10.8% 30 28 27 300 8% 20 18 20 7.4% 6% 200 6.6% 5.7% 5.5% 4% 10 4.6% 100 4.0% 2% 0 0% 0 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data *Note: Flakk-Rørvik boosted EBIT in 2019

26 October 2020 ABG Sundal Collier 15 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Bastø Fosen Bastø Fosen is a fully-owned subsidiary established in 1994. The company operates only one route, the Moss-Horten transit south of Oslo. Moss-Horten is the busiest transit in Norway: Bastø Fosen registered ~3.7m passengers in 2019. The contract is net based. The company is expecting delivery of its new hybrid ferry in 2021 and retrofits of its two existing ferries will be completed in 2022. Despite the contract being a net contract, where Torghatten incurs cost and revenue risk, we argue that the earnings visibility is relatively solid. We base this assessment on the historical revenue growth and a ’07-’19 volume CAGR of 1.9% with limited volatility.

Revenue development (Bastø Fosen) EBIT and EBIT margin (Bastø Fosen) NOKm NOKm 600 80 74.4 20% 505 500 473 60 15% 451 48.2 14.7% 389 400 364 40 10% 330 341 22.2 10.2% 300 20 5% 5.7% 10.2 -1.6 2.3% 200 0 -2.9 0% 2013 2014 2015 2016 2017 2018 2019

100 -20 -5% -22.4 EBIT EBIT margin 0 -40 -10% 2013 2014 2015 2016 2017 2018 2019 Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

As seen in H1’20, the volume risk is relatively low for Torghatten’s Sea segment due to its high share of contract revenue. The key volume risk relates to the Moss- Horten transit, but as previously shown, revenues have historically shown solid growth with limited fluctuations (apart from the COVID-19 lockdown). As can be seen below, volumes did take a hit in April/March, but are gradually coming back.

PCE volumes in 2020 relative to 2019 Moss-Horten, daily PCE in 2020 vs 2019 120% PCE in % of last year 16000 PCE

97% 98% 97% 14000 100% 94% 87% 88% 83% 85% 12000 80% 72% 10000

60% 8000

40% 6000 4000 20% 2000 0% 0 Jan Feb Mar Apr May Jun Jul Aug Sep

2019 2020

Source: ABG Sundal Collier, Ferjedatabanken Source: ABG Sundal Collier, Ferjedatabanken

26 October 2020 ABG Sundal Collier 16 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten Trafikkselskap Torghatten Trafikkselskap (TTS) is the smallest subsidiary in Torghatten’s sea portfolio with 2019 revenue of NOK 283m. The company has 11 ferries and passenger vessels and ~110 employees.

Revenue development (Torg. Trafikkselskap) EBIT and EBIT margin (Torg. Trafikkselskap) NOKm NOKm 350 35 20% 32 18% 300 283 30 267 275 258 16% 24 250 25 223 22 14% 190 12% 200 20 17 16 10% 11.2% 15 150 8% 8.9% 8.5% 10 8.4% 10 6% 100 6.3% 4% 5 4.4% 50 2% 0 0% 0 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 17 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Bus: Urbanisation drives demand Urbanisation set to continue The bus-based passenger transport market in Norway has seen an average annual volume growth of 3.9% over the last ten years. The growth has primarily been driven by higher average number of trips per capita, up from 60 in 2009 to 80 in 2019. As with the sea transport market, the Norwegian bus market is highly consolidated: six players make up 96% of the market. The bus tender contracts are also similar to the ferry contracts, i.e. awarded long term, giving the companies predictable returns.

Market and competitive environment The total addressable market is determined by the population growth and frequency of trips per capita. As of 2019, the total number of annual passenger trips in Norway was ~425 million (the number per capita was ~80).

Passenger volume development

# of passengers, M 450 425 394 400 387 350 359 335 350 323 331 305 313 291 300

250

200

150

100

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: ABG Sundal Collier, SSB

While population growth has been relatively stable in recent years at ~0.7% p.a., trips per capita are accelerating, as seen below.

Fares per capita development Fares per capita – Geographical split Annual fares per capita Annual fares per capita 85 160 142 80 140 80 124 120 74 75 73 100 89 80 76 74 70 69 80 67 57 65 65 60 64 45 43 65 63 42 41 37 62 40 34 32 29 60 27 25 22 60 20 0 55

50 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, SSB (Old Norwegian county system)

There are significant regional differences, however. The number of trips per capita is accelerating in the larger cities but is muted in rural areas. We believe that urbanisation is likely to drive passenger volume growth going forward. On average,

26 October 2020 ABG Sundal Collier 18 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

a move from the countryside to an urban area will increase an individual’s number of journeys by ~70-120 trips p.a. Going forward, we expect yearly growth of ~3% p.a., slightly below the historical average of 3.9%. The growth is primarily driven by the growth in the number of trips, as we have estimated the population growth at ~0.5% p.a.

From 200 to 6 players in 25 years Until the early 1990s, the Norwegian bus market was mainly operated by dedicated entities under the control of municipalities and counties. The operations were concession-based, and limited competition encouraged a fragmented market with ~200 independent companies on the road. A reform in 1991 opened for the British tender-based model as commercialisation throughout the 1980s led to subsidy cuts. At the turn of the millennium, the number of bus companies was halved, as tender- based contracts became more widespread and economies of scale drove profit margins. Today, the Norwegian market is highly consolidated and six players make up ~96% of available route kilometres.

Competitive overview – Norwegian bus market Company Torghatten VY Tide Unibuss Boreal Nobina

Market share* 17% 31% 20% 11% 10% 7% Revenue '19, NOKm 2,773 4,316 2,886 1,798 1,307 1,098 Revenue growth, '15-'19 9.7% 3.5% 14.4% 2.9% 8.4% 5.3% EBIT '19, NOKm 118 109 -7 23 14 4 EBIT margin, '18 4.3% 2.5% -0.2% 1.3% 1.0% 0.3% Bus fleet (#) 1570* 3300* 2175* 725 n.a 3600** Government- Municipality- Owner type NOTC Private Private Equity Publicly listed owned owned Source: ABG Sundal Collier, company data, Kollektivtrafikkforeningen *Route km, **International fleet

Torghatten is the third-largest bus company in Norway, with a market share of ~17%.3 The competitors are typically dedicated to 1-2 regions while Torghatten, through its subsidiaries, is present in all major regions. Despite three large contract roll-offs in the Oslo region this year (Asker, Bærum and Hurum),4 Torghatten’s market share is up ~4pp since 2015.

Market shares – Norwegian bus market Market shares – Regional Market share, % 100% 35% 6% 31% 2015 90% 13% 14% 30% 28% 30% 28% 2018 80% 40% 7% 2020 22% 70% 49% 55% 25% 60% 21% 20% 32% 20% 50% 17% 65% 15% 40% 50% 42% 15% 14% 13% 15% 12% 13% 30% 30% 11%11% 11% 10% 24% 10% 10% 8% 20% 7% 7% 7% 28% 10% 15% 18% 15% 5% 4% 13% 12% 0% Mid North South West East Oslo region 0% VY Tide Torghatten Unibus Boreal Nobina Other Torghatten VY Tide Unibuss Boreal Nobina Other Source: ABG Sundal Collier, Kollektivtrafikkforeningen Source: ABG Sundal Collier, Kollektivtrafikkforeningen

3 Non-commercial and measured in route kilometres. 4 At the end of Q2’20, Norgesbuss lost the routes Bærum Øst, Bærum Vest/Skui and Asker (and Hurum) to Unibuss in Vy Buss.

26 October 2020 ABG Sundal Collier 19 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

As with the sea-based contracts, practically all new tender contracts are gross, plus additional bonuses linked to performance and customer satisfaction (5-8%).5 Thus, revenue risk under tendered contracts is mostly on the upside: Furthermore, visibility is high with an average contract length of ~6 years. Bus tender contracts are also similar to the ferry contracts because index regulation is present in most agreements. The contract value is typically increased according to the SSB Bus Index.

Scale drives profitability Stricter emissions and quality requirements in new tenders are typically in favour of the larger companies. A 60-70% weight on price seems to be new norm in large Norwegian tender contracts, while the balance is assessed on quality and environmental footprint. Higher complexity puts pressure on margins and economies of scale are key to winning tenders at healthy margins. The graph below shows there is a strong relationship between margins and size (revenue).

Economics of scale drives margins

3% n i g r a

m 2%

T I B E 1%

0% 0 1,000 2,000 3,000 4,000 5,000

-1% Revenue - NOKm

Source: ABG Sundal Collier, company data (average ’18 – 19 numbers)

Torghatten has shown persistent top tier margins as well as ~10% growth over the last five years. Prudent tender bids, a large but agile organisation, and decentralised decision making are key attributes here in our view. The market space remains highly competitive but we believe Torghatten is sitting in pole position to acquire an even greater market share going forward.

EBIT margin development Revenue CAGR ’15-’19 Revenue CAGR '15-'19 7.0% EBIT margin 16% 14.4% 6.0% 5.8% 14%

5.0% 4.8% 12% 4.3% 4.3% 4.2% 9.7% 4.0% 10% 8.4% 3.0% 8% 2.0% 6% 5.3% 2.0% 1.2% 1.3% 1.2% 1.0% 4% 3.5% 1.0% 2.9% 2% 0.0% 2015 2016 2017 2018 2019 0% Torghatten Average big 6 excl. Torghatten Tide Torghatten Boreal Nobina Vy Unibuss Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

5 Note: The bonuses can become negative (1-3%) if the operator fails to fulfill minimum quality requirements according to the tender contract. Source: NHO Transport.

26 October 2020 ABG Sundal Collier 20 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Scale drives profitability Torghatten’s bus division accounts for 25% of revenue and 13% of EBIT (2021e). Furthermore, 82% of revenues come from long-term contracts providing strong earnings visibility. The company is present in all major regions as the only player in market. Torghatten’s subsidiaries are mainly engaged in public route transportation as well as tour and express travel.

As seen below, Torghatten has seen materially-stronger revenue growth than the underlying market, with a 2013-2019 CAGR of over 8%. The EBIT margin has been relatively stable in recent years, at around ~4%. Note that the segment mainly consists of two key subsidiaries: Norgesbuss AS (~65% of segment revenues) and Trønderbilene AS (27% revenues). All subsidiaries lease most buses, thus the risk of stranded assets as a result of environmental regulation and development is low.

Torghatten revenue development EBIT and EBITDA development MNOK MNOK 250 8% 3,000 2,773 221 214 2,606 209 7% 2,450 191 193 2,500 200 186 186 2,100 6% 2,000 1,826 1,847 5% 1,704 150 118 111 4% 1,500 107 104 96 102 100 77 3% 1,000 2% 50 500 1%

0 0 0% 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 Contract Revenue Ticket Revenue Other EBITDA EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

In our forecasts we have assumed sales in line with market growth. However, Torghatten will be hit by three large contract roll-offs in the Oslo region this year (Asker, Bærum and Hurum), hurting yearly sales by NOK ~300m. Some of this will be compensated by the contract win in Lillehammer from H2’21 (yearly sales of NOK ~75m). As can be seen below we have assumed a fairly stable margin. The lower margin in 2020e is explained by lower passenger revenue due to COVID.

Bus segment: Historical and estimated earnings Bus (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Contract revenue 1,165 1,376 1,466 1,700 2,044 2,125 2,254 2,274 2,258 2,332 2,390 11.4% 1.5% Passenger revenue 469 353 294 297 309 356 407 263 377 414 423 8.5% 0.9% Other income 70 96 87 103 98 124 112 100 102 104 106 6.3% -1.2% Bus revenue 1,704 1,826 1,847 2,100 2,450 2,606 2,773 2,637 2,737 2,850 2,919 10.7% 1.3% Contract revenue in % of bus 68% 75% 79% 81% 83% 82% 81% 86% 82% 82% 82% EBITDA Bus 186 221 214 191 186 193 209 139 185 214 219 -0.6% 1.2% EBITDA margin 11% 12% 12% 9% 8% 7% 8% 5% 7% 8% 7% EBIT Bus 77 96 107 102 104 111 118 48 95 124 129 2.5% 2.2% EBIT margin 4.5% 5.2% 5.8% 4.8% 4.2% 4.3% 4.3% 1.8% 3.5% 4.3% 4.4% Bus % of Group EBIT 26% 21% 19% 14% 17% 16% 14% 9% 13% 13% 13% Source: ABG Sundal Collier, company data

Torghatten currently operates ~23 bus routes: below we show an overview of the details. We have highlighted the largest contracts; the first large contract to expire will be “Nord Trønderlag” in mid ’21, while the rest have several years left before maturity, providing solid earnings visibility in our view. Furthermore, given Torghatten’s strong position in Trønderlag, we would not be surprised if it wins the “Nord Trønderlag” tender.

26 October 2020 ABG Sundal Collier 21 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Contract backlog Contract Contract Option Annual Contract Route Operator start end (Years) Revenue (NOKm) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Balsfjord Torghatten Buss AS 01/10/2014 31/01/2021 0 3 Contract Nord-Trøndelag Trønderbilene AS 10/08/2019 31/07/2021 0 178 Option Sør-Trøndelag Trønderbilene AS 19/08/2013 18/08/2021 2 48 Nordfjord Norgesbuss AS 23/06/2014 22/06/2022 2 53 Kristiansand, Mandal, Lindesnes + Sørlandsruta AS 01/07/2012 30/06/2022 0 76 Lyngen Torghatten Buss AS 01/08/2019 31/12/2022 3 4 Storfjord Torghatten Buss AS 01/08/2019 31/12/2022 3 5 Nordreisa Torghatten Buss AS 01/08/2019 31/12/2022 3 5 Nord-Troms Torghatten Buss AS 01/08/2019 01/02/2023 3 46 Drøkbak Norgesbuss AS 21/06/2015 01/06/2023 2 94 Sunnfjord Norgesbuss AS 20/06/2016 18/06/2024 2 149 Valdres Trønderbilene AS 20/06/2016 23/06/2024 2 31 Nord-Jæren Norgesbuss AS 01/07/2016 30/06/2024 2 421 Søndre Helgeland Torghatten Buss AS 01/07/2017 30/06/2025 2 31 Øsdterdalen Trønderbilene AS 01/07/2015 30/06/2025 0 90 Sirdal, Flekkefjord, Kvinesdal Sørlandsruta AS 01/01/2016 31/12/2025 0 30 Hadeland Trønderbilene AS 25/06/2018 21/06/2026 2 56 Målelv Torghatten Buss AS 01/11/2019 31/12/2026 0 4 Nittedal and Lørenskog Norgesbuss AS 29/06/2019 30/06/2027 3 225 Sør-Troms og Harstad Torghatten Buss AS 01/01/2020 31/12/2028 3 65 Østersund, Krokom, Berg, Brekke + Trønderbilene AS 01/01/2020 01/01/2030 0 130 Ottadalen and Gudbrandsdalen Trønderbilene AS 01/01/2022 31/05/2031 0 113 Lillehammer Trønderbilene AS 01/06/2021 31/05/2031 0 75 Source: ABG Sundal Collier, company data

Torghatten buss – diversified Two geographically-diverse subsidiaries make up ~90% of Torghatten’s Bus segment: Norgesbuss (mainly operating in Oslo, Viken, Vestland and Rogland), and Trønderbilene (operating in Trøndelag).

Revenue split ’17-’19 – subsidiaries EBIT split ’17-’19 – subsidiaries

Torghatten Sørslandsruta Sørslandsruta Buss 4% Torghatten 9% 4% Buss 3%

Trønderbilene 27% Norgesbuss 51% Trønderbilene Norgesbuss 37% 65%

Source: ABG Sundal Collier Source: ABG Sundal Collier

Norgesbuss AS Norgesbuss is a leading player in the Norwegian bus market, operating ~800 buses. The company was established in 1995 and Torgatten gained full ownership in 2008. Its main activities include operating local routes in Oslo, Viken, Vestland and Rogland, including the NOK 4.2bn record tender contract in Nord-Jæren. Furthermore, Norgesbuss owns and operates four airport express routes in Oslo. The revenue CAGR of ~15% since 2012 has been driven by significant market share gains through major tender contract wins. The 3-4% EBIT margin is a reflection of the growth strategy, in our view, and the high asset turnover supports satisfactory profitability.

26 October 2020 ABG Sundal Collier 22 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Norgesbuss – Revenue development EBIT and EBIT margin development MNOK MNOK 80 10% 2,000 73 1,822 70 9% 1,800 1,649 1,569 8% 1,600 57 60 54 7% 1,400 1,252 49 50 44 6% 1,200 1,091 41 1,032 40 36 5% 1,000 909 28 4% 800 684 30 3% 600 20 2% 400 10 1% 200 0 0% 0 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Trønderbilene AS Trønderbilene operates major routes in Trøndelag and Innlandet. The company was established in 1920 and it has ~510 buses in the portfolio. The company is engaged in route operation as well as tour/express and bus maintenance activities. Torghatten acquired two-thirds ownership in 1998 and become the sole owner in 2011. Trønderbilene won a major contract in Lillehammer, Gudbrandsdalen and Ottadalen in July, adding more than NOK 1.1bn to the contract backlog. Trønderbilene has experienced sub-market growth rates over some time, mainly as a result of profitability focus and conservative tender bids. The EBIT-margin of 5-7% is market-leading, among players with revenue of more than NOK 500m.

Trønderbilene: Revenue development EBIT and EBIT margin development MNOK MNOK 800 60 12% 727 705 52 11% 700 655 50 10% 630 624 616 43 602 582 9% 600 39 40 37 40 35 8% 500 33 7% 30 26 6% 400 5% 300 20 4% 3% 200 10 2% 1% 100 0 0% 0 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Sørlandsruta AS Sørlandsruta operates two routes on contract with Agder Kollektivtrafikk, covering ~18% of the available route kilometres in the southern region. The company’s legacy goes back to 1951 when 13 bus companies came together as one entity. Torghatten acquired the company in 2009. The company won its second route in 2016 and contract is the main driver of growth since 2012. The 8-10% EBIT margin is among the best in this market space.

26 October 2020 ABG Sundal Collier 23 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Sørlandsruta – Revenue developement 8-10% EBIT margin is highly attractive MNOK MNOK 140 14 20% 12 18% 120 115 12 106 110 16% 10 10 100 10 9 14% 12% 77 76 8 80 71 74 7 6 10% 6 5 60 8% 4 6% 40 4% 2 20 2% 0 0% 0 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Torghatten Buss AS Torghatten Buss operates local and school routes in Nordland and Troms. The company history goes back to 1878, but bus activity was established in 1930. In H1, the company initiated operation of a major contract in Sør-Troms and Harstad, with a contract backlog of ~NOK 780m (i.e. NOK 65m in annual revenue). The contract should add solid foundations for growth and increased profitability in the coming years.

Torghatten Buss – Healthy revenue growth … but margins are slim MNOK MNOK 140 8 7 12% 11% 117 7 120 114 10% 106 110 103 6 9% 94 100 5 8% 84 86 5 7% 80 4 3 3 3 6% 5% 60 3 3 2 4% 40 2 2 3% 2% 1 20 1% 0 0% 0 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 EBIT EBIT margin Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 24 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Air: Subsidised tender routes Market and competitive environment Torghatten participates in the air transport market through its subsidiary Widerøe, of which it holds 66% ownership (Fjord1 holds the remaining 34%). Torghatten’s short-haul air business is mainly domestic, as 87% of revenues come from within Norway. The domestic market is dominated by Norwegian, SAS and Widerøe. However, Widerøe distinguishes itself from SAS and Norwegian as it operates tender routes. The tender routes are subsidised by the government in order to provide critical infrastructure service in Norway.

Compared to sea and bus travel, air travel is cyclical to a much larger extent, with a 63% correlation between GDP and passenger volume.

Passenger volumes – Domestic and Passenger volume growth vs. lagged real International Norwegian GDP Passenger volume, m Annualized growth rate Annualized growth rate 20 '09-'19 CAGR: 2.0% 20% 7% '13-'19 CAGR: 0.6% 18 15% 6% 16 5% 14 10% 4% 12 5% 3%

10 2% '09-'19 CAGR: 4.9% 0% 8 '13-'19 CAGR: 2.0% 1%

6 -5% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Domestic passenger volume International passenger volume Passenger volume (lhs) Real GDP, lagged 4Qs Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data Note: 4Q centred moving average. Note: 4Q centred moving average.

As seen below, airline market in Norway is highly consolidated. However, the market is changing rapidly and both SAS and Norwegian are currently doing larger restructurings with cuts to their route portfolios triggered by COVID-19. However, we do expect capacity cuts to primarily affect their international business. As can also be seen below, Widerøe is materially smaller than the two other companies with 3m passengers in 2019 compared to +30m for the two others.

Air: Overview of market Torghatten Company SAS Norwegian (Widerøe) Segment Air transport Entire group Entire group Estimated domestic market share, 2019 17% 45% 38% Revenue 2019, NOKm 5,088 49,063 43,522 Revenue growth '18 7.8% 4.5% 8.1% EBITDA '19, NOKm 515 3,244 7,314 EBITDA margin. '19 10.1% 6.6% 16.8% EBIT '19, NOKm 172 1,224 856 EBIT margin. '19 3.4% 2.5% 2.0% Fleet size (#) 45 158 156 Passengers (m) 3 30 36 Owner type NOTC Publicly listed Publicly listed Source: ABG Sundal Collier, company data

Widerøe dominates tender flights; SAS and Norwegian commercial flights Contrary to the ferry and the bus market, the majority of the airlines’ revenue is generated by passengers through tickets sold. Ticket revenues are therefore a

26 October 2020 ABG Sundal Collier 25 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

function of load and yield, both being fairly volatile for the industry. However, among the tender flights in Norway, Widerøe operates 58 of 59 flights. Tender flights are not profitable by themselves, but the government subsidises them in order to secure the availability of aviation services between rural areas, especially in the Northern parts of Norway. These contracts typically have a length of five years, and are formed as net contracts, meaning all the passenger revenue risk is within the operators. When a contract is won, the airline is the only one allowed to operate that route. The contracts usually feature set maximum prices, so the operator does not obtain a monopoly-like advantage. As there are no other competitors, prices are often high relative to others. The commercial aviation market differs from these described markets insofar as the airlines freely can choose which routes they want to operate, provided that they have the necessary landing slots.

26 October 2020 ABG Sundal Collier 26 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Torghatten’s Air: Not the normal airliner Torghatten entered into the air transport business when it, together with Fjord1 and Norlands Fylkeskommune, bought 80% of Widerøe from SAS in 2013. The remaining 20% was bought in 2016, and Torghatten now owns 66%. Given the 66% ownership, Torghatten consolidates Widerøe and this segment accounts for 43% of Torghatten’s revenue, but only 3% of group EBIT (2021e). However, earnings are obviously affected by COVID-19; using 2019 numbers, for instance, the Air segment accounted for 21% of group EBIT.

As can be seen below, Torghatten’s Air segment has delivered a 6% revenue CAGR (2014-2019). Even more important, margins have been relatively stable.

Revenue development EBITDAR and EBIT margin development MNOK Margin 6,000 20% 17.9% 5,088 18% 16.5% 5,000 4,721 15.5% 15.7% 4,560 4,449 16% 14.8% 13.7% 3,807 3,952 14% 4,000 12% 3,000 10% 8.1% 8% 6.4% 2,000 6% 5.2% 5.3% 4% 3.4% 1,000 2.3% 2% 0 0% 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Passenger revenue Contract revenue Other EBITDAR margin EBIT margin Source: ABG Sundal Collier, Company Source: ABG Sundal Collier, Company

We argue that Widerøe’s tender flights drive relatively stable margins, i.e. flights that are subsidized by the government as previously described. Widerøe says that 66% of its ~3m passengers come from commercial flights while the remaining 34% are tender flights. Assuming the same split on passenger revenues, some NOK 2.8bn is from commercial flights and NOK 1.5bn from tender flights. Furthermore, adding the NOK 600m in contract revenue to the tender ticket revenues, we calculate total tender revenues are NOK 2.1bn or ~42% of Widerøe’s revenues.

The high share of tender revenues explains, in our view, Widerøe’s relative margin stability compared to SAS and Norwegian. Looking at the COVID-19 period, Widerøe’s revenue has obviously been hit, as has the rest of the industry. However, while passenger revenues were down 32% y-o-y in H1’20, contract revenues showed stability, and were up 3.4% y-o-y.

Revenue - commercial vs. tender 2019 (MNOK) EBIT margin comparison 3,500 NOKm 10% 8% 3,000 8% 6% 2,500 6% 5% 5% 5%

2,000 4% 3% 3% 1,500 2% 2% 2% 1,000 0% 500 2014 2015 2016 2017 2018 2019 -2% -1% 0 -2% Commercial Tender -4% -3% Passenger revenue Contract revenue Other revenue Average SAS & Norwegian Widerøe Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 27 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Going forward, we expect a gradual recovery, but still weak profitability in 2021. In 2022 we expect EBIT to approach 2019 levels, as seen below.

Air segment: Historic and estimated earnings Air (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Contract revenue 172 629 661 719 655 606 598 617 642 693 735 -2.5% 5.3% Passenger revenue 753 3,178 3,291 3,840 3,793 3,987 4,271 3,060 3,642 3,969 4,246 6.7% -0.1% Other income 128 219 437 446 455 464 NA 20.7% Air revenue 926 3,807 3,952 4,560 4,449 4,721 5,088 4,114 4,730 5,117 5,445 6.5% 1.7% Contract revenue in % of air 19% 17% 17% 16% 15% 13% 12% 15% 14% 14% 13% Tender flight revenue in % of air* 46% 45% 45% 44% 44% 42% 42% 44% 43% 43% 43% EBITDA Air 162 487 507 646 548 441 515 302 403 538 545 0.4% 1.4% EBITDA margin 17% 13% 13% 14% 12% 9% 10% 7% 9% 11% 10% EBIT Air 101 243 207 367 237 106 172 -75 26 161 167 -4.6% -0.7% EBIT margin 10.9% 6.4% 5.2% 8.1% 5.3% 2.3% 3.4% -1.8% 0.5% 3.1% 3.1% Air % of Group EBIT 34% 53% 38% 50% 38% 16% 21% -13% 3% 17% 17% Source: ABG Sundal Collier, company data

At present there are 59 routes tendered by the government. All of these are operated by Widerøe, except for Oslo – Røros, which has been flown by Air Leap from 1 April 2020.

Widerøe’s tender and commercial routes

Widerøe’s tender routes

Widerøe’s commercial routes

Source: ABG Sundal Collier, company data

As Widerøe manly operates from secondary and smaller airports, its fleet differs materially from traditional airlines, as Widerø has smaller aircrafts with seat capacities ranging from 39 – 114.

Fleet overview

Dash-8 100 / Q200 Dash-8 300 Dash-8 Q400 E190-E2 # of aircrafts in fleet 26 7 10 3 Seats 39 50 78 114 Maximum speed 482-518 km/t 501 km/t 667 km/t 890 km/t Engine Pratt & Whitney PW121 Pratt & Whitney PW123 Pratt & Whitney PW150A Pratt & Whitney 1919G Length 22.3m 25.7m 32.8m 36.3m Wingspan 25.9m 27.4m 28.4m 33.7m Maximum take-off weight 15,966-16,466kg 19,500kg 29,574kg n.a Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 28 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Estimates Revenue estimates are based on our market analysis, i.e. a continuing stable market environment. Within Sea and Bus, we expect Torghatten to keep its market share, i.e. we have not assumed market share gains from tender wins.

P&L: Historic and estimates Sea (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Contract revenue 1,181 1,290 1,425 1,429 1,461 1,550 2,108 2,047 2,135 2,194 2,293 10.3% 2.1% Passenger revenue 710 658 657 718 778 717 719 650 716 762 777 2.3% 1.9% Other income 196 214 207 207 244 300 359 236 320 363 378 14.8% 1.3% Sea revenue 2,087 2,162 2,289 2,354 2,483 2,567 3,186 2,933 3,172 3,319 3,448 8.6% 2.0% Contract revenue in % of sea 57% 60% 62% 61% 59% 60% 66% 70% 67% 66% 67% Contract revenue incl. Moss-Horten 72% 75% 78% 77% 77% 79% 82% 84% 83% 82% 82% EBITDA Sea 286 300 418 502 561 742 882 882 936 966 1,007 20.5% 3.4% EBITDA margin 14% 14% 18% 21% 23% 29% 28% 30% 30% 29% 29% EBIT Sea 99 109 210 291 295 453 561 629 648 655 691 27.8% 5.4% EBIT margin 4.8% 5.0% 9.2% 12.4% 11.9% 17.7% 17.6% 21.4% 20.4% 19.7% 20.0% Sea % of Group EBIT 34% 24% 38% 40% 47% 66% 68% 111% 87% 71% 71%

Bus (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Contract revenue 1,165 1,376 1,466 1,700 2,044 2,125 2,254 2,274 2,258 2,332 2,390 11.4% 1.5% Passenger revenue 469 353 294 297 309 356 407 263 377 414 423 8.5% 0.9% Other income 70 96 87 103 98 124 112 100 102 104 106 6.3% -1.2% Bus revenue 1,704 1,826 1,847 2,100 2,450 2,606 2,773 2,637 2,737 2,850 2,919 10.7% 1.3% Contract revenue in % of bus 68% 75% 79% 81% 83% 82% 81% 86% 82% 82% 82% EBITDA Bus 186 221 214 191 186 193 209 139 185 214 219 -0.6% 1.2% EBITDA margin 11% 12% 12% 9% 8% 7% 8% 5% 7% 8% 7% EBIT Bus 77 96 107 102 104 111 118 48 95 124 129 2.5% 2.2% EBIT margin 4.5% 5.2% 5.8% 4.8% 4.2% 4.3% 4.3% 1.8% 3.5% 4.3% 4.4% Bus % of Group EBIT 26% 21% 19% 14% 17% 16% 14% 9% 13% 13% 13%

Air (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Contract revenue 172 629 661 719 655 606 598 617 642 693 735 -2.5% 5.3% Passenger revenue 753 3,178 3,291 3,840 3,793 3,987 4,271 3,060 3,642 3,969 4,246 6.7% -0.1% Other income 128 219 437 446 455 464 NA 20.7% Air revenue 926 3,807 3,952 4,560 4,449 4,721 5,088 4,114 4,730 5,117 5,445 6.5% 1.7% Contract revenue in % of air 19% 17% 17% 16% 15% 13% 12% 15% 14% 14% 13% Tender flight revenue in % of air* 46% 45% 45% 44% 44% 42% 42% 44% 43% 43% 43% EBITDA Air 162 487 507 646 548 441 515 302 403 538 545 0.4% 1.4% EBITDA margin 17% 13% 13% 14% 12% 9% 10% 7% 9% 11% 10% EBIT Air 101 243 207 367 237 106 172 -75 26 161 167 -4.6% -0.7% EBIT margin 10.9% 6.4% 5.2% 8.1% 5.3% 2.3% 3.4% -1.8% 0.5% 3.1% 3.1% Air % of Group EBIT 34% 53% 38% 50% 38% 16% 21% -13% 3% 17% 17%

Group (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e CAGR '15 - '19 CAGR '19 - '23 Sea revenue 2,087 2,162 2,289 2,354 2,483 2,567 3,186 2,933 3,172 3,319 3,448 8.6% 2.0% Bus revenue 1,704 1,826 1,847 2,100 2,450 2,606 2,773 2,637 2,737 2,850 2,919 10.7% 1.3% Air revenue 926 3,807 3,952 4,560 4,449 4,721 5,088 4,114 4,730 5,117 5,445 6.5% 1.7% Other revenue 389 393 487 373 358 316 355 348 361 369 377 -7.6% 1.5% Total revenue 5,106 8,187 8,574 9,386 9,740 10,209 11,401 10,032 11,000 11,655 12,189 7.4% 1.7% Contract revenue for Sea and Bus 71% 75% 79% 79% 80% 80% 82% 85% 83% 82% 82%

Net financials incl ass. Companies -94 -193 -130 -155 -167 -132 -167 -120 -106 -81 -84 6.3% -15.8% Value change NRS (shares) 0 -3 66 13 100 128 26 100 0 0 0 Pre-tax income 202 266 483 590 558 681 686 548 641 845 890 9.1% 6.7% Tax -29 -57 -100 -142 -90 -110 -144 -120 -147 -190 -200 Net result before minorities 173 209 383 448 468 571 542 428 494 655 690 9.1% 6.2% Net result to majority 132 155 304 346 405 544 497 434 484 606 639 13.1% 6.5% EPS to majority 14.1 16.6 6.5 7.4 8.7 11.8 11.0 9.6 10.7 13.4 14.2 14.1% 6.5% Adj EPS to majority 14.1 16.9 5.1 7.1 6.5 9.0 10.4 7.4 10.7 13.4 14.2 19.7% 8.0%

26 October 2020 ABG Sundal Collier 29 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Below, we have also shown half-year numbers. As can be seen, Torghatten delivered impressive H1’20 earnings for its Sea business with strong margin improvement. Its bus segment was, as expected, somewhat affected by COVID -19. Finally, Torghatten’s Air segment was the most impacted by COVID-19, delivering negative EBIT for the first time since 2013.

P&L: Historic and estimates Group (NOKm) 2018 2019 2020e 2021e 2022e 2023e H1'18 H2'18 H1'19 H2'19 H1'20 H2'20e H1'21e H2'21e Sea revenue 2,567 3,186 2,933 3,172 3,319 3,448 1,275 1,291 1,588 1,598 1,394 1,539 1,524 1,647 Bus revenue 2,606 2,773 2,637 2,737 2,850 2,919 1,265 1,341 1,378 1,395 1,385 1,252 1,339 1,398 Air revenue 4,721 5,088 4,114 4,730 5,117 5,445 2,236 2,485 2,481 2,606 2,018 2,097 2,304 2,425 Other revenue 316 355 348 361 369 377 113 203 151 204 159 189 166 194 Total revenue 10,209 11,401 10,032 11,000 11,655 12,189 4,889 5,320 5,598 5,803 4,956 5,076 5,334 5,665 Contract revenue for Sea and Bus 80% 82% 85% 83% 82% 82% 80% 80% 82% 82% 85% 85% 83% 83%

EBITDA Group 1,419 1,608 1,313 1,525 1,728 1,781 677 741 795 813 647 666 716 809 Depreciation -734 -782 -745 -779 -802 -808 -345 -372 -385 -396 -364 -381 -389 -390 0 0 0 0 0 0 0 0e 0e 0e 0e 0e 0e 0e 0e EBIT Sea 453 561 629 648 655 691 244 209 258 303 303 326 306 342 EBIT Bus 111 118 48 95 124 129 43 69 76 42 31 17 35 60 EBIT Air 106 172 -75 26 161 167 59 48 100 72 -33 -42 -4 30 EBIT Other Maritime 26 -7 -12 -7 3 3 -10 36 -13 7 -5 -6 -4 -3 EBIT Other -13 -17 -23 -16 -16 -16 -3 -10 -9 -8 -12 -11 -7 -9 EBIT Group 685 827 568 747 926 974 332 352 411 416 283 285 327 420 Sea and Bus EBIT in % of total 82% 82% 119% 100% 84% 84% 86% 79% 81% 83% 118% 121% 105% 96%

Net financials incl ass. Companies -132 -167 -124 -112 -88 -91 -39 -92 -52 -115 -68 -56 -60 -52 Value change NRS (shares) 128 26 100 0 0 0 52 77 25 2 68 32 0 0 Pre-tax income 681 686 543 634 838 883 344 336 384 302 282 261 266 368 Tax -110 -144 -119 -146 -189 -199 -56 -54 -76 -63 -45 -57 -61 -85 Net result before minorities 571 542 424 488 649 684 289 282 307 239 237 204 205 283 Net result to majority 544 497 431 480 601 635 289 255 307 194 237 211 205 275 EPS to majority 11.8 11.0 9.5 10.6 13.3 14.1 6.3 5.6 6.8 4.3 5.3 4.7 4.5 6.1

Sea Revenue growth y-o-y 3% 24% -8% 8% 5% 4% 8% 0% 25% 24% -12% -4% 9% 7% EBIT margin 17.7% 17.6% 21.4% 20.4% 19.7% 20.0% 19.1% 16.2% 16.2% 19.0% 21.7% 21.2% 20.1% 20.8% Bus Revenue growth y-o-y 6% 6% -5% 4% 4% 2% 4% 9% 9% 4% 1% -10% -3% 12% EBIT margin 4.3% 4.3% 1.8% 3.5% 4.3% 4.4% 3.4% 5.1% 5.5% 3.0% 2.2% 1.4% 2.6% 4.3% Air Revenue growth y-o-y 6% 8% -19% 15% 8% 6% 4% 8% 11% 5% -19% -20% 14% 16% EBIT margin 2.3% 3.4% -1.8% 0.5% 3.1% 3.1% 2.6% 1.9% 4.0% 2.8% -1.6% -2.0% -0.2% 1.2% Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 30 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Valuation Blending our peer group valuation using peers’ P/E and EV/EBIT, SOTP and our DCF valuation, we set the target price for Torghatten’s equity at NOK 200 per share (corresponding to NOK ~9.4bn in market cap). We calculate a net debt at the end of 2021 of NOK 2.6bn, giving net debt/EBITDA of 1.7x YE ‘21. Given that COVID-19 has impacted both Torghatten’s 2020 earnings as well as those of its peers, we argue investors should use 2021 or 2022 earnings for valuation. Torhatten is trading at a ‘21e and ’22e reported P/E of 11.9x and 9.5x. However, its stake in NTS, valued at NOK ~600m (based on the share price as of 23 October 2020), is not reflected in the PL and should therefore be adjusted for. Adjusted for this, ‘21e and ’22e PE would be 10.6x and 8.5x; EV/EBIT for 21e and ’22e is 11.7x and 8.5x. In our EV, we have treated Torghatten’s NTS stake as cash, but have also included the fair value of minorities as debt.

However, as previously described, ~80% of revenues in the Sea and Bus segment are long-term gross contracts with limited volume and price risk in addition to having the government as counterparty. We argue this gives strong earnings visibility and stability, justifying a high multiple. This is also the reason for our using a relatively low WACC, 6.8%, in our DCF which again explains why our DCF calculation yields the highest equity value.

Valuation summary (NOKm) Value range: Key multiples 300 NOK / share 25.0x PE multiple for different share price

19.7x 250 20.0x ~240 17.4x ~220 15.7x ~210 TP: NOK 200 15.0x 200 15.0x 13.9x 12.0x 10.6x 150 10.0x 8.5x

100 5.0x 128 50 0.0x NOK 128 NOK 175 NOK 200 NOK 225 0 Peers SOTP DCF Current share price 2021 PE 2022 PE Source: ABG Sundal Collier, company data Source: ABG Sundal Collier, company data

Peer valuation There are few comparable companies to Torghatten in the Nordics, i.e. companies with long-term contracts with limited earnings risk providing sea, bus and air transportation. That said, our peer group is presented below. To identify relevant peers, we have considered factors such as size, growth, stability, the nature of the business, EBIT margins, geographical exposure and customer contracts. We have selected two key peers for Torghatten:

 Fjord1: Sea transport in Norway (operates ferry and passenger boats)

 Nobina: Nordic region’s largest bus public transport provider

In addition to Fjord1 and Nobina, we have included another four companies we see as relevant (see table below). These companies are primarily exposed to the same industries as our key peers, but we have also included Orkla (on similarities concerning stability) and Entra (similar in terms of stability and long-term contracts). Nevertheless, four of the companies have the same nature of business, but we

26 October 2020 ABG Sundal Collier 31 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

argue that many of the companies possess some of the same characteristics as Torghatten: stability and underlying growth trends. We have not included any airlines in our peer group despite Torghatten being a majority owner in Widerøe (66%). We argue Torghatten’s airline exposure is limited, and that the majority of Torghatten’s earnings have material different characteristics than the airline industry.

Ranking of peers Sealink National Fjord1 Nobina Orkla Entra travel Express Size (EV) VV VV VV VV - - Earnings growth V V - VV - Stability / Cyclicality VV V VV VV Nature of Operations VV VV V V - - EBIT margins V V V V V - Geographical Exposure VV - - - V V Long term customer contracts VV V V V - V Ranking #1 #2 #3 #4 #5 #6 Source: ABG Sundal Collier, company data (VV: Comparable, V: Somewhat comparable, -: Not comparable)

Below, we summarise some key facts about our peers: as can be seen, average yearly sales growth is expected to be 3-4% for our peer group, in line with Torghatten. However, Torghatten is expected to have stronger EBIT growth vs. our peer group: ~9% vs peers at ~1.3%. Note that Sealink Travel expects material sales and earnings growth due to the acquisition of Transit Systems for USD 329m. Furthermore, we would argue investors should put less weigh on GO-Ahead given weak earnings development and very slim EBIT margins.

Torghatten: Peer group Rev. EBIT 2021e Main end Net debt/ Divi yield Peers Company EV PE Industry CAGR CAGR '18 - EBIT market EBITDA Key reason for being a peer (average ranking name EURbn 2021e '18-'21e 21e margin exposure 2021 '20 -21) Fjord1 Passenger transport (sea) 946 0.1% -5.2% 20.6% Norway 18.7x 3.3x Nature of business/ geography 3.3% Key peers Nobina Passenger transport (bus) 987 4.0% 3.6% 6.0% Sweden 10.8x 2.9x Nature of business / geography 7.6%

Sealink Travel Transport and tourism operator 958 75.3% 28.3% 6.2% Australia 20.2x 1.6x Nature of business 2.1% Relevant Go-Ahead Transportation group (bus & rail) 856 1.3% -24.9% 1.6% Nordics 7.9x 0.5x Nature of business 1.1% peers Orkla BCG 9,375 5.5% 10.4% 12.0% Nordics 18.9x 0.9x Stability/ growth / geography 3.0% Entra Real estate company (office) 4,220 2.6% -1.0% 87.1% Norway 17.7x 10.5x Stability/ growth/ geography 3.7%

Median 972 3.3% 1.3% 9.1% 18.2x 2.2x 3.1% Torghatten 912 3.7% 8.6% 7.7% Norway 11.6x 2.3x 2.6% Source: ABG Sundal Collier, Factset (23.10.2020).

Gearing measured by net debt / EBITDA is not materially different between the peers and Torghatten. However, Fjord1, the key peer, has a higher leverage ratio than Torghatten.

Relative valuation: trading multiples In the tables below, we summarise the P/E and EV/EBIT. We have also included the EBIT margin as well as the sales/EBIT CAGR together with dividend yield. These companies are normally valued on P/E and EV/EBIT. As can be seen, Torghatten trades at a ~30% discount to peers.

When calculating the implied share price for Torghatten, we have used net profit after minorities, while on EV/EBIT we have treated minorities as debt, reducing the equity value. Furthermore, we have used our fair value estimate on minorities – NOK 911m vs book value at NOK 484m (2020e). Furthermore, Torghatten owns 7.8m shares in NTS valued at NOK 14/Torghatten share. We have added this to our value as earnings from this holding are not included in our estimates

26 October 2020 ABG Sundal Collier 32 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Peer valuation and implied value for Torghatten Mcap EV P/E EV/EBIT EBIT margin Net debt/ EBITDA Sales CAGR EBIT CAGR Dividend yield Companies EURm EURm 20e 21e 22e 20e 21e 22e 2021 2021 18 -'21e 18 -'21e 18 -'21e Fjord1 395 946 65.5x 18.7x NA 21.2x 16.1x 14.6x 20.6% 3.3x 0.1% -5.2% 3.3% Nobina 455 987 12.0x 10.8x 9.2x 16.3x 15.2x 14.3x 6.0% 2.9x 4.0% 3.6% 7.6% Sealink Travel 777 958 24.3x 20.2x 17.0x 31.5x 19.0x 15.0x 6.2% 1.6x 75.3% 28.3% 2.1% Go-Ahead 278 856 11.7x 7.9x 5.2x 9.8x 8.3x 8.4x 1.6% 0.5x 1.3% -24.9% 1.1% Orkla 8,441 9,375 20.0x 18.9x 18.3x 18.6x 17.1x 16.6x 12.0% 0.9x 5.5% 10.4% 3.0% Entra 2,179 4,220 19.2x 17.7x 16.1x 21.5x 21.6x 19.9x 87.1% 10.5x 2.6% -1.0% 3.7% Average 25.5x 15.7x 13.1x 19.8x 16.2x 14.8x 22.2% 3.3x 3.4% -3.0% 3.5% Median 19.6x 18.2x 16.1x 19.9x 16.6x 14.8x 9.1% 2.2x 3.3% 1.3% 3.1% Torghatten 552 912 17.5x 11.6x 10.0x 17.4x 11.8x 9.8x 7.7% 2.3x 3.7% 8.6% 2.6% Discount to median -11% -36% -38% -12% -29% -34% Implied share price (median)* 145 196 215 156 197 242 Average implied share price using peers 192 Value of NTS per share 14 0.0x 1.8x Fair value per share incl NTS 206 Source: ABG Sundal Collier, Factset (23.10.2020). * using Factset multiples and ABGSC’s estimates on Torghatten. We have included fair value on minorities, NOK 911m, as debt when using EV/EBIT multiples.

The average FactSet 2021e P/E for selected key peers is 15.7x, while the median is 18.2x. Average EV/EBIT is 16.2x (median 16.6x). Using our estimates for Torghatten and peer multiples from FactSet, we arrive at an implied average share price of NOK 192. Adding the market value of the NTS stake leads to an implied value for Torghatten of NOK 206 / share.

SOTP valuation Below we present our SOTP valuation. We are using an EV/EBIT multiple for the Sea and Bus segment. For the Airline business, we use EV/EBITDA based on peers. As can be seen, the implied EV/EBIT multiple is high, at ~71x. However, 2021 is still a year impacted by COVID-19, i.e. if we were to use our 2022 EBIT estimate, the implied EV/EBIT multiple would be 11x. We have used our fair value estimate on minorities and net debt ending 2021. On the back of this, we arrive at a SOTP value of NOK 225 / share.

SOTP valuation of Torghatten Revenue EBITDA EBIT EV/EBITDA EV/EBIT EV SOTP Torghatten (NOKm) (NOKm) (NOKm) (x) (x) (NOKm) Sea 3,172 936 659 11.5x 16.3x 10,760 Bus 2,737 185 95 8.0x 15.6x 1,482 Air 4,730 403 26 4.5x 70.9x 1,812 NTS ASA** 612 Other 361 2 -22 5.0x 15x -336 Total 11,000 1,525 757 9.4x 18x 14,330

Enterprise value (2021e) 14,330 NIBD (2021e) 2,749 Minorities (2021)* 911 Equity value (2021e) 10,669

# of shares (m) 47.5 Per share (2021) 225 Source: ABG Sundal Collier, company data** market value based on share price, *estimated fair value.

26 October 2020 ABG Sundal Collier 33 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

DCF valuation Our discounted cash flow (DCF) valuation returns an equity value of NOK 243 per share for Torghatten (NOK 11.5bn). Our base calculation assumes:

 We use our estimates from 2020-25.

 An EBIT margin in the terminal value equal to 2025, i.e. 7.7%.

 In our forecasts, WC does not have any material impact on our equity value (net effect zero).

 Maintenance capex is set in line with Torghatten’s guidance, but we have set the capex in line with depreciation from 2023.

 A weighted average cost of capital (WACC) of 6.87%, assuming an 8.0% cost of equity and a 3.8% cost of debt. The equity as a percentage of total assets is assumed to be ~70% (given Torghatten’s balance sheet), with the beta assumed to be 1.0 (beta in line with the average of our peer group).

Given the assumptions above, we arrive at a fair equity DCF value of NOK 243 per share (market cap of NOK 11.5bn):

DCF value of Torghatten NOKm 2020e 2021e 2022e 2023e 2024e 2025e TV EBITDA 1,313 1,525 1,728 1,781 1,780 1,839 Tax -126 -166 -204 -214 -207 -220 Change in WC -218 73 50 40 20 37 Operating cash flow 969 1,432 1,574 1,608 1,593 1,656 CAPEX fixed assets -500 -500 -500 -808 -838 -838 Free cash flow 469 932 1,074 800 755 818 13,756 PV of FCF 463 863 931 650 575 583 11,172 Enterprise value 15,237 NIBD (2020e) 3,406 Minorities* 911 NTS ASA** 612 Equity value 11,531 Shares outstanding 47.5 Value per share 243 Source: ABG Sundal Collier, company data

26 October 2020 ABG Sundal Collier 34 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Appendix: Corporate structure Below we present the corporate structure of Torghatten.

Company structure Sea Bus Air Other maritime Other 68% of EBIT 14% of EBIT 21% of EBIT -1% of EBIT -2% of EBIT

Bastø Fosen Sørlandsruta WF Holding Maritime Venture Torghatten Servicesenter 9% of EBIT 1% of EBIT* (66%) (51%)

FosenNamsos Sjø Norgesbuss Widerøe Secora Fosen Verkstedservice 8% of EBIT 9% of EBIT

Kystekspressen Firda Billag (50%) Widerøe’s Flyveselskap NTS (6.5%) TTS Bil og Dekksenter

Torghatten Trafikkselskap Norgesbuss Ekspress Widerøe Ground Hand. 6% of EBIT North Sea Safety Berg-Hansen R.B. Tr.heim Trønderbilene Widerøe Technical (50%) (66%) Services 4% of EBIT Sør-Helgeland Torghatten Nord Vaktselskap 36% of EBIT Trønderbilene AB Widerøe Internett

T-Finans Torghatten Buss Widerøe Jet AS 9% of EBIT* 0.3% of EBIT

Source: ABG Sundal Collier, company data

From operating a single postal boat in the late 19th century, Torghatten has achieved remarkable growth on its way to becoming leading Norwegian transport group. This is the story about how the transport player has developed during the last 150 years, succeeding through innovating and expanding.

The history of Torghatten In 1878 the steamer “Torghatten” sailed into to the North of Norway, marking the foundation of the Torghatten group. Throughout the next 140 years, the company shifted to transporting people, both on sea, on land and in the air, becoming one of the leading Norwegian transport groups.

While the first single bus route started in 1930, it was not until the ‘50s that the company really started operating bus routes in the region. The first regular ferry route was established in 1957.

In the late ‘60s, when the airfield at Brønnøysund was built, Torghatten made its first connection to the aviation business. Air transport has become more central to Torghatten, particularly after the acquisition of a significant stake in Widerøe in 2013 (Widerøe then had an enterprise value of NOK 2.3bn6). The ownership share was later increased to today’s 66% after the follow-up acquisition in 2016.

During the late ’90s Torghatten geographically expanded within Norway through the acquisition of several sea- and land-based transport companies. In 2003, Torghatten secured the contract of the most popular ferry route in Norway: Horten- Moss. This contract has been renewed until 2026.

In 2009 Torghatten merged with Fosen, resulting in one of the major transport companies in Norway. The company has continued its expansion by being able to win the contracts ahead of its competitors. During the past six years, Torghatten has won several large contracts, including the first one outside of Norway, in Jämtland, Sweden.

Due to the government’s increasingly restrictive environmental regulations, Torghatten has shifted towards a more sustainable way of operating. It has

6 https://e24.no/boers-og-finans/i/WLPGjL/sas-har-solgt-wideroee

26 October 2020 ABG Sundal Collier 35 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

purchased several hybrid and electric ferries and buses, and in 2018 it acquired some of the most environmental friendly airplanes in the market (Embra E190-E2). In addition to transport, Torghatten has simultaneously participated in other businesses concerning repairs, travel and estates.

Torghatten: History 1907 1930 1957 1991 2003 2013 2016 2018 Second ship First bus First regular Enters aviation Wins Horten- Acquires large Now holds First contract “Heilhorn” is route ferry route business when Moss contract share in Widerøe, 66% share of outside of purchased starts established investing in with an EV of Widerøe Norway Widerøe NOK 2.3 bn

1878 1950’s 1968 1998 2009 2015 2016 2018 Torghatten Bus routes Connects to aviation Acquisition of Merge with Acquires SAS’ Wins Norway’s Three Embra is founded getting a boost business on the new Fosen Trafikklag Fosen ground largest bus E190-E2 Brønnøysund airport ASA services contract on airplanes North Jæren delivered Source: ABG Sundal Collier, company data

SEA segment Routes

Ferry: Torghatten’s geographical extent in terms of number of routes, split by county

Troms og Finnmark 9

16 Nordland

1 Trøndelag 7 Møre og Romsdal

Number of ferry routes operated by Torghatten (2020) 1 Number of ferry routes operated by others (2020) Vestland Innlandet 1 Viken

Rogaland Vestfold og Telemark

Agder Source: ABG Sundal Collier, company data, Statens Vegvesen

Gross contracts also secure margin predictability For a gross contract, the fixed amount the operator is paid is adjusted according to Nærsjøindeksen (The Ferry Index) on yearly basis. The Ferry Index is constructed to mimic the cost development of ferry and passenger boat operations. This means risks related to cost inflation/fluctuations are significantly reduced7. However, as the adjustments are typically conducted based on last year’s index development, short-

7 The contract cost adjustment is multiplied by a factor of 0.9.

26 October 2020 ABG Sundal Collier 36 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

term oil price volatility may not be compensated8. Torghatten engages in hedging activities to mitigate this fuel price volatility.

As seen below, crew and salary cost account for ~40% of the total cost base for the operators, and more than 50% of daily cash cost. Execution risk is obviously present, and mispriced tender bids are persistent due to long contracts

Cost split – the Ferry Index Ferry cost index Cost Index Interest Admin 200 Ferry Index '10-'20 CAGR: 3.1% 5% Core inflation '10-'20: 1.9% 5% 175 Maintenance 10% Crew 150 40% 125 Other 10% 100

75 Depreciation 11% 50 Fuel 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 19% Fuel Crew Maintenance Admin Other Depreciation Interest Ferry Index Source: ABG Sundal Collier, SSB Source: ABG Sundal Collier, SSB

Ferry free E39 is not likely in the foreseeable future The Norwegian parliament is continuously assessing the opportunity for a ferry-free E39 from Kristiansand to Trondheim (1100 km). By constructing tunnels and bridges, the 22-hour drive could be reduced by more than 50%. However, most of these construction projects are probably at least 10-30 years away due to rising project resistance and the fact that many of the fjord crossings require non-existing technology in order to handle the topological challenges. Resistance to this plan also concerns the enormous estimated investment costs of NOK 340bn as well as uncertainty regarding the environmental sensitivity of the required projects.9

Ferry: Six of the eight ferry routes on E39 are Ferry: Eight ferry routes can be among the top 10 most trafficked routes (2019) decommissioned

Flakk - Rørvik Torghatten 1,085

Oppedal - Lavik Norled 1,159

Sykkylven - Magerholm Fjord1 1,186

Solevåg - Festøya Fjord1 1,190

Hareid - Sulesund Fjord1 1,201

Fodnes - Mannheller Fjord1 1,282

Molde - Vestnes Fjord1 1,596

Sandvikvåg - Halhjem Torghatten 1,905

Mortavika - Arsvågen Fjord1 2,838

Moss - Horten Torghatten 3,741

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Source: ABG Sundal Collier, company data, Fjord1 Source: ABG Sundal Collier, company data, Statens Vegevesen

8 Non-diesel vessels are typically compensated based on the development of the underlying commodity price (e.g electricity). 9 https://samferdsel.toi.no/nyheter/bilferjer-i-100-ar-transport-i-stor-omlegging-article34168-2207.html

26 October 2020 ABG Sundal Collier 37 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

As seen above, Fjord1 would be most exposed to a ferry-free E39 due to its dominant market share in the West and Middle regions, while Torghatten only has one major route with exposure to E39.

At present, construction has only started around Boknafjorden (will affect the Mortavika-Arsvågen route), where it was recently delayed by three years; it will be finished by 2030 at the earliest. Statens vegvesen expressed in late 2019 that it has changed its goal from constructing an entirely ferry-free E39 to keeping some ferries and focusing on single fjord crossings. Given delays and uncertainty regarding the project, we see no impact on the ferry industry in the short to medium term.

Historical contract bids Torghatten was the player that won the most contracts from 2016-2018, with 11 contracts vs. Fjord1’s eight and Norled’s five. Notably, among the five large contracts signed from 2016 to 2018, Halhjem - Sandvikvåg was won by a hugr margin – 29% lower than the second-lowest bid of Fjord1.10 According to Torghatten, the large spread was likely due to Fjord1 not expecting Torghatten to bid on the contract, as it was trying to acquire Fjord1 at the time (a proposal that the competition authority eventually blocked). A few weeks earlier, Torghatten did not bid on the second-largest route (Mortavika – Årsvegen) during the attempted acquisition, which could have led Fjord1 to believe it would not have any competition on Halhjem-Sandiksvåg. Torghatten is confident that the contract will deliver healthy margins.

Bidding spread on five ferry contracts from 2016-2018 Bid (NOKbn) 7.0 6.1 6.0

5.0 4.7 3.9 4.0 3.7

3.0 2.6 2.6 2.6 2.6

2.0 1.1 1.1 1.0

0.0 Route package 1, Route package 2, Route package 5, Sulapakken Halhjem - Hordaland Hordaland Hordaland Sandvikvåg Winner bid (NOKbn) Second lowest bid

Source: ABG Sundal Collier, company data, Oslo Economics

10 Oslo economics, markedsvurdering ferjemarkedet januar 2019.

26 October 2020 ABG Sundal Collier 38 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Air segment and fleet transition Widerøe has long expressed an ambition to be a leader in technological development and innovation, and electric planes have been a focus for some time. The cancellation of the E-Fan X project in late May 2020, however, pushed the electric transition a little further into the future. Instead, it is biofuel’s time to shine. Widerøe has already changed its fuel to follow Norwegian requirements (minimum 0.5% advanced biofuel from 2020). Advanced biofuel is a second-generation biofuel product that could not have been used for food or animal feed. 11

Widerøe fleet overview # of aircrafts 7

0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 DHC-8 100/200 DHC-8 300 DHC-8 400 E2-190 Source: ABG Sundal Collier, company data, Airfleet

Rising aviation taxes One cost that has risen notably in recent years is the payment of aviation taxes. From 2012 to 2020, the aviation tax increased by 73% for commercial routes. However, the increase has now flattened after much resistance; for short-haul flights, the passenger tax has fallen from 84 to 76 NOK from 2018 to 2020. The aviation tax increase may result in stronger competition among the tender routes, as these flights are exempt from the passenger tax.

Average operating expenses Aviation taxes increase example: Svolvær-Tromsø (2012-2018) NOK 12,000 Other operating expenses, 20% 10,000

8,000

Leasing Payroll 6,000 expenses, 4% expenses, 45% 4,000 Aviation taxes, 10% 2,000

0 2012 2014 2016 2018 Take-off charge Passenger charge Fuel expenses, Security charge Terminal charge 21% Transfer passengers charge CO2-fee VAT Passenger tax Source: ABG Sundal Collier Source: ABG Sundal Collier, NRK

11 https://avinor.no/en/corporate/klima/biojetfuel/barekraft-og-avansert-biodrivstoff

26 October 2020 ABG Sundal Collier 39 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Appendix: Risks

COVID-19 COVID-19 is likely to affect Torghatten and in particularly its Air and Bus segments, given weaker demand.

Competition Torghatten operates in a competitive market, with other companies providing somewhat similar services. If competitors are aggressive on price in the upcoming tender process, it might force Torghatten to accept lower returns. Price pressure within its Air business will hurt company margins. Potential new entrants are also likely to affect Torghatten’s margins.

Loss of contracts Loss of contracts within its Sea and Bus segment will hit both sales and margins.

Execution risk If Torghatten, for any reason, prices a tender wrong, i.e. too low, it is likely to affect earnings for many years as the contract normally has a duration of +7 years.

Macroeconomic growth Slower macroeconomic growth could hurt demand for Torghatten’s services, particularly within its Air segment.

Regulation Potential changes in regulation regarding new and more environmental friendly assets might lift Torghatten’s capex requirements.

26 October 2020 ABG Sundal Collier 40 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Income Statement (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Sales 0 8,187 8,574 9,386 9,740 10,209 11,401 10,032 11,000 11,655 COGS 0 0 0 0 0 0 0 0 0 0 Gross profit 0 8,187 8,574 9,386 9,740 10,209 11,401 10,032 11,000 11,655 Other operating items 0 -7,118 -7,379 -8,040 -8,426 -8,790 -9,793 -8,719 -9,474 -9,926 EBITDA 0 1,069 1,195 1,345 1,314 1,419 1,608 1,313 1,525 1,728 Depreciation and amortisation 0 -607 -647 -612 -689 -734 -782 -745 -779 -802 Of which leasing depreciation 0 0 0 0 0 0 0 0 0 0 EBITA 0 462 548 733 625 684 826 568 747 926 EO items 0 0 0 0 0 0 0 0 0 0 Impairment and PPA amortisation 0 0 0 0 0 0 0 0 0 0 EBIT 0 462 548 733 625 684 826 568 747 926 Net financial items 0 -196 -64 -143 -167 -131 -166 -120 -106 -81 Pretax profit 0 266 483 590 558 681 686 548 641 845 Tax 0 -57 -100 -142 -90 -110 -144 -120 -147 -190 Net profit 0 209 383 448 468 571 542 428 494 655 Minority interest 0 -54 -79 -102 -63 -27 -45 6 -10 -49 Net profit discontinued 0 0 0 0 0 0 0 0 0 0 Net profit to shareholders 0 155 304 346 405 544 497 434 484 606 EPS 0 0 0 7.38 8.67 11.84 11.02 9.62 10.73 13.43 EPS Adj 0 0 0 7.38 6.53 9.05 10.44 7.40 10.73 13.43 Total extraordinary items after tax 0 0 0 0 100 128 26 100 0 0 Leasing payments 0 0 0 0 0 0 0 0 0 0 Tax rate (%) ns 21.4 20.8 24.1 16.2 16.1 21.0 21.9 23.0 22.5 Gross margin (%) nm 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 EBITDA margin (%) nm 13.1 13.9 14.3 13.5 13.9 14.1 13.1 13.9 14.8 EBITA margin (%) nm 5.6 6.4 7.8 6.4 6.7 7.2 5.7 6.8 7.9 EBIT margin (%) nm 5.6 6.4 7.8 6.4 6.7 7.2 5.7 6.8 7.9 Pretax margin (%) nm 3.3 5.6 6.3 5.7 6.7 6.0 5.5 5.8 7.3 Net margin (%) nm 2.6 4.5 4.8 4.8 5.6 4.8 4.3 4.5 5.6 Growth rates Y/Y 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Sales growth (%) na na 4.7 9.5 3.8 4.8 11.7 -12.0 9.6 6.0 EBITDA growth (%) na high 11.7 12.6 -2.3 8.0 13.4 -18.4 16.2 13.3 EBIT growth (%) na high 18.5 33.8 -14.7 9.5 20.8 -31.3 31.5 24.0 Net profit growth (%) na high 83.0 17.0 4.4 22.1 -5.0 -21.1 15.4 32.6 EPS growth (%) na na na high 17.5 36.5 -6.9 -12.7 11.6 25.1 Profitability 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e ROE (%) nm 23.5 21.1 19.7 19.2 22.4 18.3 14.4 14.4 16.2 ROE Adj (%) nm 23.5 21.1 19.7 14.5 17.2 17.3 11.0 14.4 16.2 ROCE (%) nm 8.2 7.3 9.5 9.0 9.2 8.2 6.5 7.8 10.8 ROCE Adj(%) nm 8.2 7.3 9.5 7.3 7.5 7.9 5.3 7.8 10.8 ROIC (%) na 13.1 7.7 10.2 9.3 8.6 8.7 5.8 7.8 10.2 ROIC Adj (%) na 13.1 7.7 10.2 9.3 8.6 8.7 5.8 7.8 10.2 Adj earnings numbers 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e EBITDA Adj 0 1,069 1,195 1,345 1,314 1,419 1,608 1,313 1,525 1,728 EBITDA Adj margin (%) nm 13.1 13.9 14.3 13.5 13.9 14.1 13.1 13.9 14.8 EBITDA lease Adj 0 1,069 1,195 1,345 1,314 1,419 1,608 1,313 1,525 1,728 EBITDA lease Adj margin (%) nm 13.1 13.9 14.3 13.5 13.9 14.1 13.1 13.9 14.8 EBITA Adj 0 462 548 733 625 684 826 568 747 926 EBITA Adj margin (%) nm 5.6 6.4 7.8 6.4 6.7 7.2 5.7 6.8 7.9 EBIT Adj 0 462 548 733 625 684 826 568 747 926 EBIT Adj margin (%) nm 5.6 6.4 7.8 6.4 6.7 7.2 5.7 6.8 7.9 Pretax profit Adj 0 266 483 590 458 553 660 448 641 845 Net profit Adj 0 209 383 448 368 443 516 328 494 655 Net profit to shareholders Adj 0 155 304 346 305 416 471 334 484 606 Net Adj margin (%) nm 2.6 4.5 4.8 3.8 4.3 4.5 3.3 4.5 5.6 Source: ABG Sundal Collier, Company data

26 October 2020 ABG Sundal Collier 41 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Cash Flow Statement (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e EBITDA 0 1,069 1,195 1,345 1,314 1,419 1,608 1,313 1,525 1,728 Net financial items 0 -196 -64 -143 -167 -131 -166 -120 -106 -81 Paid tax 0 0 0 0 0 0 0 -120 -147 -190 Non-cash items 0 66 -100 163 -22 -70 -58 0 0 0 Cash flow before change in WC 0 939 1,030 1,365 1,125 1,217 1,384 1,073 1,273 1,457 Change in WC 0 -449 -16 -150 -82 -120 -160 158 -16 14 Operating cash flow 0 490 1,015 1,215 1,043 1,096 1,224 1,231 1,256 1,471 CAPEX tangible fixed assets 0 -941 -659 -1,146 -1,593 -1,186 -1,227 -600 -500 -500 CAPEX intangible fixed assets 0 -53 0 -78 -12 -132 -42 0 0 0 Acquisitions and disposals 0 55 105 118 138 203 159 0 0 0 Free cash flow 0 -450 461 109 -425 -18 113 631 756 971 Dividend paid 0 -55 -51 -39 -70 -95 -104 -101 -152 -203 Share issues and buybacks 0 32 0 0 0 0 0 0 0 0 Lease liability amortisation 0 0 0 0 0 0 0 0 0 0 Other non cash items 0 -4,019 983 -931 -59 -966 -233 29 -20 -27 Balance Sheet (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Goodwill 0 165 141 120 100 82 68 59 59 59 Other intangible assets 0 0 0 0 0 0 0 0 0 0 Tangible fixed assets 0 5,272 5,219 5,651 6,429 7,604 7,952 7,807 7,528 7,226 Right-of-use asset 0 0 0 0 0 0 0 0 0 0 Total other fixed assets 0 571 392 128 126 125 124 138 138 138 Fixed assets 0 6,008 5,752 5,900 6,656 7,810 8,145 8,004 7,725 7,422 Inventories 0 175 173 222 221 231 251 228 250 265 Receivables 0 682 606 801 918 1,010 1,219 967 1,060 1,123 Other current assets 0 14 214 226 329 485 512 612 612 612 Cash and liquid assets 0 640 800 942 815 1,158 1,252 1,404 1,368 1,331 Total assets 0 7,519 7,546 8,091 8,938 10,694 11,380 11,214 11,015 10,754 Shareholders equity 0 1,319 1,558 1,954 2,259 2,592 2,852 3,191 3,533 3,949 Minority 0 485 548 447 490 501 501 485 494 524 Total equity 0 1,804 2,106 2,401 2,749 3,093 3,353 3,676 4,027 4,472 Long-term debt 0 3,724 3,490 3,319 3,840 4,293 4,451 4,030 3,330 2,430 Pension debt 0 40 29 20 22 24 111 0 0 0 Convertible debt 0 0 0 0 0 0 0 0 0 0 Leasing liability 0 113 97 55 55 711 675 675 675 675 Total other long-term liabilities 0 216 299 382 419 427 466 553 581 624 Short-term debt 0 845 938 0 0 0 0 0 0 0 Accounts payable 0 408 315 408 442 423 493 435 477 506 Other current liabilities 0 369 271 1,505 1,412 1,722 1,830 1,844 1,925 2,047 Total liabilities and equity 0 7,519 7,546 8,091 8,938 10,694 11,380 11,214 11,015 10,754 Net IB debt 0 3,511 3,362 2,324 2,976 3,746 3,986 3,302 2,637 1,774 Net IB debt excl. pension debt 0 3,471 3,333 2,304 2,954 3,722 3,874 3,302 2,637 1,774 Net IB debt excl. leasing 0 3,969 2,690 2,397 3,047 3,160 3,310 2,626 1,962 1,099 Capital invested 0 5,531 5,768 5,107 6,143 7,267 7,805 7,531 7,245 6,870 Working capital 0 94 408 -665 -386 -419 -340 -473 -480 -552 EV breakdown 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Market cap. diluted (m) 0 468 722 3,772 4,110 5,054 6,428 5,774 5,774 5,774 Net IB debt Adj 0 3,511 3,362 2,324 2,976 3,746 3,986 3,302 2,637 1,774 Market value of minority 0 0 0 0 0 724 824 924 924 924 Reversal of shares and participations 0 0 0 0 0 0 0 0 0 0 Reversal of conv. debt assumed equity 0 0 0 0 0 0 0 0 0 0 EV 0 3,980 4,084 6,095 7,086 9,038 10,726 9,387 8,723 7,860 Capital efficiency 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Total assets turnover (%) nm 217.8 113.8 120.0 114.4 104.0 103.3 88.8 99.0 107.1 Working capital/sales (%) nm 0.6 2.9 -1.4 -5.4 -3.9 -3.3 -4.1 -4.3 -4.4 Financial risk and debt service 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net debt/equity nm 1.95 1.60 0.97 1.08 1.21 1.19 0.90 0.65 0.40 Net debt/market cap nm 9.86 7.17 0.66 0.78 0.85 0.74 0.57 0.46 0.31 Equity ratio (%) nm 24.0 27.9 29.7 30.8 28.9 29.5 32.8 36.6 41.6 Net IB debt adj./equity nm 1.95 1.60 0.97 1.08 1.21 1.19 0.90 0.65 0.40 Current ratio nm 0.93 1.18 1.15 1.23 1.34 1.39 1.41 1.37 1.31 EBITDA/net interest na high high high high high high high high high Net IB debt/EBITDA nm 3.28 2.81 1.73 2.26 2.64 2.48 2.51 1.73 1.03 Net IB debt/EBITDA lease Adj nm 3.71 2.25 1.78 2.32 2.23 2.06 2.00 1.29 0.64 Interest cover nm nm nm nm nm nm nm nm nm nm Source: ABG Sundal Collier, Company data

26 October 2020 ABG Sundal Collier 42 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Valuation and Ratios (NOKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Shares outstanding adj. 0 9 9 47 47 46 45 45 45 45 Fully diluted shares Adj 0 9 9 47 47 46 45 45 45 45 EPS 0 0 0 7.38 8.67 11.84 11.02 9.62 10.73 13.43 Dividend per share Adj 0 4.5 2.5 1.0 1.5 2.0 2.0 3.0 4.0 6.0 EPS Adj 0 0 0 7.38 6.53 9.05 10.44 7.40 10.73 13.43 BVPS 0 140.84 166.21 41.70 48.36 56.42 63.23 70.74 78.32 87.53 BVPS Adj 0 123.19 151.14 39.13 46.21 54.64 61.72 69.44 77.01 86.22 Net IB debt / share na 435.8 297.3 52.3 66.4 84.2 88.4 73.2 58.5 39.3 Share price 41.00 50.00 77.00 80.50 88.00 110.00 142.50 128.00 128.00 128.00 Market cap. (m) 0 468 722 3,772 4,110 5,054 6,428 5,774 5,774 5,774 Valuation 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e P/E nm nm nm 10.9 10.1 9.3 12.9 13.3 11.9 9.5 EV/sales nm 0.49 0.48 0.65 0.73 0.89 0.94 0.94 0.79 0.67 EV/EBITDA nm 3.7 3.4 4.5 5.4 6.4 6.7 7.1 5.7 4.5 EV/EBITA nm 8.6 7.5 8.3 11.3 13.2 13.0 16.5 11.7 8.5 EV/EBIT nm 8.6 7.5 8.3 11.3 13.2 13.0 16.5 11.7 8.5 Dividend yield (%) 0 9.0 3.2 1.2 1.7 1.8 1.4 2.3 3.1 4.7 FCF yield (%) 0 0 0 2.9 -10.3 -0.4 1.8 10.9 13.1 16.8 Lease adj. FCF yield (%) nm nm nm 2.9 -10.3 -0.4 1.8 10.9 13.1 16.8 P/BVPS nm 0.36 0.46 1.93 1.82 1.95 2.25 1.81 1.63 1.46 P/BVPS Adj nm 0.41 0.51 2.06 1.90 2.01 2.31 1.84 1.66 1.48 P/E Adj nm nm nm 10.9 13.5 12.1 13.7 17.3 11.9 9.5 EV/EBITDA Adj nm 3.7 3.4 4.5 5.4 6.4 6.7 7.1 5.7 4.5 EV/EBITA Adj nm 8.6 7.5 8.3 11.3 13.2 13.0 16.5 11.7 8.5 EV/EBIT Adj nm 8.6 7.5 8.3 11.3 13.2 13.0 16.5 11.7 8.5 EV/cap. employed nm 0.6 0.6 1.1 1.1 1.1 1.2 1.1 1.1 1.0 Investment ratios 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Capex/sales nm 12.1 7.7 13.0 16.5 12.9 11.1 6.0 4.5 4.3 Capex/depreciation nm 163.9 101.8 199.9 233.0 179.4 162.2 80.5 64.2 62.3 Capex tangibles/tangible fixed assets nm 17.9 12.6 20.3 24.8 15.6 15.4 7.7 6.6 6.9 Capex intangibles/definite intangibles nm nm nm nm nm nm nm nm nm nm Depreciation on intangibles/definite intangibles nm nm nm nm nm nm nm nm nm nm Depreciation on tangibles/tangibles nm 11.5 12.4 10.8 10.7 9.7 9.8 9.5 10.3 11.1 Source: ABG Sundal Collier, Company data

26 October 2020 ABG Sundal Collier 43 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

Analyst certification I/We, Erlend Godager, Petter Nystrøm, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report. I/We further certify that I/We have not been, nor am/are or will be, receiving direct or indirect compensation related to the specific recommendations or views contained in this report. Stock ratings distribution ABG Sundal Collier Ratings and Investment Banking by 26/10/2020 Sell 7% Research Coverage Investment Banking Clients (IBC) % of % of % of Total of Rating Total Rating Total IBC Total Rating by Type

Hold Buy 58% 71% 26% 35% Buy Hold 35% 22% 14% 58% Sell 7% 7% 20%

IBC: Companies in respect of which ABG SC or an affiliate has received compensation fr investment banking services within the past 12 months

Analyst stock ratings definitions BUY = We expect this stock’s total return to exceed the market’s expected total return by 5% or more over the next six months. HOLD = We expect this stock’s total return to be in line with the market’s expected total return within a range of 4% over the next six months. SELL = We expect this stock’s total return to underperform the market’s expected total return by 5% or more over the next six months. Analyst valuation methods When setting the individual ratings, ABG Sundal Collier assumes that a normal total absolute return (including dividends) for the market is 8% per annum, or 4% on a 6-month basis. Therefore, when we rate a stock a buy, we expect an absolute return of 9% or better over six months. We have more rigorous guidelines for trading buys and trading sells on small cap stocks, defined as having a market capitalisation below USD 1.5 billion. For trading buys on small cap stocks, we must identify a potential absolute return of 15% or more over the next six weeks. This more rigorous guideline reflects the fact that the low trading volume for small cap stocks inhibits the ability to trade them within a narrow price band.

ABG Sundal Collier analysts publish price targets for the stocks they cover. These price targets rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company’s discounted cash flow (DCF). Another valuation method is the analysis of a company’s return on capital employed relative to its cost of capital. Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered. Price targets are changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of a company’s assets changes (in the cases of investment companies, property companies or insurance companies) or when factors impacting the required rate of return change. Stock price, company ratings and target price history Company: Torghatten Currency: NOK Current Recommendation BUY Date: 23/10/2020 Current Target price: 200 Current Share price: 128 TORGHATTEN - RATING: BUY, PRICE TARGET:

160 1,100

140 1,000 900 120 800 100 700 80 600 O-17 J-18 A-18 J-18 O-18 J-19 A-19 J-19 O-19 J-20 A-20 J-20 O-20

Torghatten (L Axis) OSE GI (R Axis) Data source: ABG Sundal Collier, FactSet

Important Company Specific Disclosure The following disclosures relate to the relationship between ABG Sundal Collier and its affiliates and the companies covered by ABG Sundal Collier referred to in this research report. Unless disclosed in this section, ABG Sundal Collier has no required regulatory disclosures to make in relation to an ownership position for the analyst(s) and members of the analyst’s household, ownership by ABG Sundal Collier, ownership in ABG Sundal Collier by the company(ies) to whom the recommendation(s) refer(s) to, market making, managed or co-managed public offerings, compensation for provision of certain services, directorship of the analyst, or a member of the analyst’s household, or in relation to any contractual obligations to the issuance of this research report.

mo ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst knows or has reason to know at the time of the publication of this report. Production of recommendation: 10/26/2020 16:53 CET. All prices are as of market close on 25 October, 2020 unless otherwise noted.

26 October 2020 ABG Sundal Collier 44 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

For full details of recommendation and target price history for the subject company, please see Company Page on Research on the Web. For details of recommendations and target prices for ABG Sundal Collier’s coverage universe, please see ABGSC Coverage Page on Research on the Web.

Disclaimer This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Collier ASA, ABG Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers, representatives and employees.

This report is provided solely for the information and use of professional investors, who are expected to make their own investment decisions without undue reliance on this report. The information contained herein does not apply to, and should not be relied upon by, retail clients. This report is for distribution only under such circumstances as may be permitted by applicable law. Research reports prepared by ABG Sundal Collier are for information purposes only. The recommendation(s) in this report has (have) no regard to specific investment objectives and the financial situation or needs of any specific recipient. ABG Sundal Collier accepts no liability whatsoever for any losses arising from any use of this report or its contents. This report is not to be used or considered as an offer to sell, or a solicitation of an offer to buy. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but ABG Sundal Collier makes no representation as to its accuracy or completeness and it should not be relied upon as such. All opinions and estimates herein reflect the judgment of ABG Sundal Collier on the date of this report and are subject to change without notice. Past performance is not indicative of future results.

The compensation of our research analysts is determined exclusively by research management and senior management, but not including investment banking management. Compensation is not based on specific investment banking revenues, however, it is determined from the profitability of the ABG Sundal Collier Group, which includes earnings from investment banking operations and other business. Investors should assume that ABG Sundal Collier is seeking or will seek investment banking or other business relationships with the companies in this report. The research analyst(s) responsible for the preparation of this report may interact with trading desk and sales personnel and other departments for the purpose of gathering, synthesizing and interpreting market information. From time to time, ABG Sundal Collier and its affiliates and any shareholders, directors, officers or employees thereof may (I) have a position in, or otherwise be interested in, any securities directly or indirectly connected to the subject of this report, or (II) perform investment banking or other services for, or solicit investment banking or other services from, a company mentioned in this report. ABG Sundal Collier relies on information barriers to control the flow of information contained in one or more areas of ABG Sundal Collier, into other areas, units, groups or affiliates of ABG Sundal Collier.

Norway: ABG Sundal Collier ASA is regulated by the Financial Supervisory Authority of Norway (Finanstilsynet); Sweden: ABG Sundal Collier AB is regulated by the Swedish Financial Supervisory Authority (Finansinspektionen); UK This report is a communication made, or approved for communication in the UK, by ABG Sundal Collier Partners LLP, authorised and regulated by the Financial Conduct Authority in the conduct of its business. US: This report is being distributed in the United States in accordance with FINRA Rule 1050(f)(3)(B) by ABG Sundal Collier Inc., a FINRA member which accepts responsibility for its content. Research analysts are not registered/qualified as research analysts with FINRA or the NYSE, and are not associated persons of ABG Sundal Collier Inc. and therefore not subject to FINRA Rule 2241, the research analyst conflict rules. Research reports distributed in the U.S are intended solely for “major institutional investors,” as defined under Rule 15a-6 of the Securities Exchange Act of 1934. Each U.S major institutional investor that receives a copy of this research report by its acceptance represents that it agrees it will not distribute this research report to any other person. Any U.S. major institutional investor receiving this report who wishes to effect transactions in any securities referred to herein should contact ABG Sundal Collier Inc., not its affiliates. Further information on the securities referred to herein may be obtained from ABG Sundal Collier Inc., on request.

Singapore: This report is distributed in Singapore by ABG Sundal Collier Pte Ltd, which is not licensed under the Financial Advisers Act (Chapter 110 of Singapore). In Singapore, this report may only be distributed to institutional investors as defined in Section 4A(1)(c) of the Securities and Futures Act (Chapter 289 of Singapore) (“SFA”), and should not be circulated to any other person in Singapore.

This report may not be reproduced, distributed or published by any recipient for any purpose whatsoever without the prior written express permission of ABG Sundal Collier. Additional information available upon request. If reference is made in this report to other companies and ABG Sundal Collier provides research coverage for those companies details regarding disclosures may be found on our website www.abgsc.com.

26 October 2020 ABG Sundal Collier 45 Document downloaded by Roger GRANHEIM (Torghatten ASA) Torghatten

ABGSC Research Department

Joint Global Head of Research John Olaisen +47 22 01 61 87 Christer Linde +46 8 566 286 90

Strategy Metals & Mining Christer Linde, Quant/Technical +46 8 566 286 90 Martin Melbye +47 22 01 61 37 Derek Laliberte +46 8 566 286 78 Bengt Jonassen +47 22 01 60 98 Bengt Jonassen +47 22 01 60 98 Oil & Gas Capital Goods John Olaisen +47 22 01 61 87 Olof Cederholm +46 8 566 286 22 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Karl Bokvist +46 8 566 286 33 Eirik Thune Øritsland +47 22 01 61 40 Oskar Vikström +46 8 566 286 63 Oil Service Chemicals John Olaisen +47 22 01 61 87 Martin Melbye +47 22 01 61 37 Haakon Amundsen +47 22 01 60 25 Bengt Jonassen +47 22 01 60 98 Lukas Daul +47 22 01 61 39 Petter Nyström +47 22 01 61 35 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Construction & Real Estate Eirik Thune Øritsland +47 22 01 61 40 Tobias Kaj +46 8 566 286 21 Online Gaming Bengt Jonassen +47 22 01 60 98 Aksel Øverland Engebakken +47 22 01 61 11 Daniel Vårdal Haugland +47 22 01 61 75 Erik Moberg +46 8 566 286 87 Staffan Bülow +46 8 566 286 39 Stefan Knutsson +46 8 566 286 37 Laurits Louis Kjaergaard +45 35 46 30 12 Jesper Birch-Jensen +46 8 566 286 13 Consumer Goods Petter Nyström +47 22 01 61 35 Pulp & Paper Fredrik Ivarsson +46 8 566 286 95 Martin Melbye +47 22 01 61 37 Øystein Elton Lodgaard +47 22 01 60 26 Credit Research Rikard Magnus Braaten +47 22 01 60 86 Renewable Energy Andreas Johannessen +47 22 01 60 31 Casper Blom +45 35 46 30 15 Haakon Amundsen +47 22 01 60 25 Petter Nyström +47 22 01 61 35 Glenn Kringhaug +47 22 01 61 62 Retail Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Fredrik Ivarsson +46 8 566 286 95 Financials Johan Brown +46 8 566 286 51 Magnus Andersson +46 8 566 294 69 Petter Nyström +47 22 01 61 35 Mads Thinggaard +45 35 46 30 18 Patrik Brattelius +46 8 566 286 64 Seafood Jan Erik Gjerland +47 22 01 61 16 Martin Kaland +47 22 01 60 67 Jonas Bru Lien +47 22 01 61 71 Services Food & Beverages Victor Forssell +46 8 566 286 92 Fredrik Ivarsson +46 8 566 286 95 Stefan Knutsson +46 8 566 286 37 Petter Nyström +47 22 01 61 35 Shipping & Transport Healthcare Dennis Anghelopoulos +47 22 01 60 37 Rickard Anderkrans +46 8 566 286 73 Casper Blom +45 35 46 30 15 Viktor Sundberg +46 8 566 286 41 Lukas Daul +47 22 01 61 39 Victor Forssell +46 8 566 286 92 Telecom Operators + Telecom equipment Jannick Lindegaard Denholt +45 35 46 30 13 Peter Kurt Nielsen +44 207 905 5631 Benjamin Silverstone +45 35 46 30 11 lnvestment Companies Utilities Derek Laliberte +46 8 566 286 78 Petter Nyström +47 22 01 61 35 Oskar Vikström +46 8 566 286 63 IT Aksel Øverland Engebakken +47 22 01 61 11 Small Caps/Others Daniel Thorsson +46 8 566 286 82 Daniel Thorsson +46 8 566 286 82 Simon Granath +46 8 566 286 32 Laurits Louis Kjaergaard +45 35 46 30 12 Edvard Hagman +45 35 46 30 31 Jesper Birch-Jensen +46 8 566 286 13 Media Aksel Øverland Engebakken +47 22 01 61 11 Derek Laliberte +46 8 566 286 78

Norway Sweden Denmark United Kingdom USA Germany Singapore Pb. 1444 Vika Regeringsgatan 25, 8th floor Forbindelsesvej 12, 10 Paternoster Row, 5th fl 850 Third Avenue, Suite 9-C Schillerstrasse 2, 5. OG 10 Collyer Quay NO-0115 OSLO SE-111 53 STOCKHOLM DK-2100 COPENHAGEN LONDON EC4M 7EJ NEW YORK, NY 10022 DE-60313 FRANKFURT Ocean Financial Center Norway Sweden Denmark UK USA Germany #40-07, Singapore 049315 Tel: +47 22 01 60 00 Tel: +46 8 566 286 00 Tel: +45 35 46 61 00 Tel: +44 20 7905 5600 Tel. +1 212 605 3800 Tel +49 69 96 86 96 0 Tel +65 6808 6082 Fax: +47 22 01 60 60 Fax: +46 8 566 286 01 Fax: +45 35 46 61 10 Fax: +44 20 7905 5601 Fax. +1 212 605 3801 Fax +49 69 96 86 96 99

26 October 2020 ABG Sundal Collier 46 Document downloaded by Roger GRANHEIM (Torghatten ASA)