Torghatten. Buy. Norway 14 October 2015

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1 Index Transportation Norway Torghatten Key Data Share price (NOK) 286. Target price (NOK) 33. Bloomberg TORG NO Market capitalisation (NOKm) 2,68m Enterprise value (NOKm) 5,841m Shares outstanding (m) 9.5m Shares fully diluted (m) 9.5m Average daily volume 3 Free float (%) 47.1 Share Price (12m) Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Analysts OSEBX Peder Nicolai Jarlsby [email protected] Carl Oskar Thoen [email protected] Lars-Daniel Westby [email protected] Torghatten Buy Transportation giant with strong growth prospects We initiate coverage of Torghatten with a Buy rating and NOK33 target price. We see stable growth in all of the segments Torghatten is exposed to and we argue the company is well-placed in all of them given strong market positions. We are impressed by Torghatten's track record with accretive growth, which we attribute to the company's decade-long experience and decentralised and responsive organisational setup. This has provided Torghatten with an attractive and fragmented backlog that is exposed to some of the fastest growing regions in Norway. The company keeps winning important contracts in all segments, cementing its positions and providing a strong base for future earnings and dividend growth. Stable growth outlook and strong positions in consolidated markets Based on population growth and travel frequency, we expect all of the markets in which Torghatten operates will grow steadily at 2-4% over the long term. The company is well-placed to absorb this growth with #2 or #3 market positions in each segment, competing only with a small number of established players. Impressive track record and attractive backlog With a sales CAGR of 2 over the last 25 years and stable margins in the last decade, Torghatten has an impressive history that we partly attribute to the decentralised organisational structure. The benefits of the setup is obvious with Torghatten outperforming avg. net profit margins in bus and sea transport industries by 2-3pp in recent years. Its backlog is exposed to some of the fastest growing regions, and based on the track record we are confident that the large, recently won contracts are profitable. Initiate with a Buy recommendation and TP NOK33 Our valuation is based on peer multiples for each segment, market values where available and otherwise book values. This gives us our NOK33 target price, implying a 15% upside on last close and a 216E EV/EBITDA of 7.4x. Company Overview (NOK) Year end: Dec E 216E 217E Total Revenues (m) 5,16 8,187 8,51 9,67 1,263 EBIT (m) Profit Before Tax (m) EPS (Reported) (NOK) EPS (Adjusted) (NOK) n.a. n.a. n.a. n.a. n.a. DPS (NOK) Balance Sheet Total assets (m) 7,318 7,519 7,6 8,277 8,326 Total liabilities (m) 5,632 5,715 5,576 5,83 5,494 NIBD 2,678 3,84 2,637 2,544 2,5 Margins & Profitability EBIT margin (adjusted) (%) n.a. n.a. n.a. n.a. n.a. ROE (annualised) (%) ROCE (%) Sales Growth (%) EBIT growth (%) Valuation P/E (adjusted) n/a n.a. n/a n.a. n.a. EV/sales (x) EV/EBITDA (x) P/BV (x) n/a.54 n/a Dividend yield (%) Custom assumption 1 Custom assumption 2 Custom assumption 3 Source: SpareBank 1 Markets and Company Data Important: All disclosure information can be found on page 37 of this document.

2 Contents Investment Summary... 3 Company profile... 6 Sea Transport... 7 Norwegian ro-pax/pax market... 9 Estimates Valuation Bus Transport Norwegian bus market Contract overview Estimates Valuation... 2 Air Transport Fleet Overview Norwegian airline market Estimates Valuation Other maritime Other activities Valuation Vital management team Ownership Important: All disclosure information can be found on page 37 of this document. 2

3 Market Share Market Share Market Share Share of passenger volume growth million Investment Summary We initiate coverage of Torghatten ASA with a Buy recommendation and target price NOK33, implying a 216E EV/EBITDA of 7.4x. We see stable growth in all of the segments Torghatten is exposed to and we argue the company is favourably placed in all of them given their #2 and #3 market positions. We are impressed by Torghatten's track record with accretive growth, which we attribute to the company's decade-long experience and decentralised and responsive organisational set-up. This has provided Torghatten with an attractive, fragmented, and long-lasting backlog that is exposed to some of the fastest growing regions in Norway. And the company keeps winning important contracts in all segments, cementing its market positions and providing a strong foundation for future earnings and dividend growth. Although the share price has increased significantly in last year, we are confident Torghatten has a further 15% upside and deserves a Buy rating. Stable growth outlook for all segments We expect all of the markets in which Torghatten operates will grow steadily in the years ahead, mostly due to population growth but also due to travel frequency. Historically, population growth has driven 24-52% of total passenger volume growth, as shown below, with journey frequency making up the balance. Thus, should this trend continue, one can multiply the population growth by ~2-4x to estimate the likely passenger growth. According to Statistics Norway, population growth is estimated at 1% per year through 23, meaning annual passenger growth should be in the 2-4% range in the coming years. Transport modes: Share of passenger growth Title driven by population Exhibit 1. Norway's Population and Growth Scenarios Title Exhibit % 52% % Air (23-13) Sea (25-14) Bus (25-14) Population Growth Source: Statistics Norway, Institute of Transport Economics, SpareBank 1 Markets E 22E 225E 23E Norway's Population Low High Mid Source: Statistics Norway, SpareBank 1 Markets CAGR Low:.6 Mid:.95% High: 1.4 Strong market positions in consolidated markets Torghatten is well-positioned to absorb the above-mentioned growth, in our view. Within ferry transport, it is the second-largest operator with 25% market share. In route bus transport, it is currently the third largest player, but after recently winning the largest ever contract in Norway, it will likely become #2 in 216. Within air transport, Widerøe is #3 carrying 17% of all domestic passengers in 213. All of the markets are consolidated with few competitors and public contracts are long-term in nature. Market shares, by transportation segment Exhibit 3. Ferry Transport Bus Route Production (on tender) Domestic Airline Passengers 3 35% 5 25% 2 15% 1 5% 3 25% 2 15% 1 5% Fjord1 Torghatten Norled (Tide) Boreal Other Nettbuss Tide Torghatten Boreal Unibuss Nobina Other SAS Norwegian Widerøe DAT Source: Company reports, Oslo Economics, Institute of Transport Economics, SpareBank 1 Markets. Note: Data for airlines from 213, for bus from 1Q15, for ferry based on 214 revenues. Important: All disclosure information can be found on page 37 of this document. 3

4 NOK billion Impressive track record with accretive growth In the early 199s, Torghatten's revenues barely reached NOK1m. As competition in the public transportation sector intensified with the entry of public tenders, however, Torghatten has grown rapidly at a 2 CAGR to the NOK8.2bn turnover transportation giant it is today. With a strong foundation in profitable operations, the company has made a number of acquisitions, building leading market positions in all transport segments apart from rail. Despite this expansion, Torghatten has impressively made no losses in this time period and EBITDA-margins have consistently exceeded 12.5% in the last decade. Torghatten: Revenue and EBITDA-margin development Exhibit % 6 12% 4 8% 2 4% Acquisitions: Hurtigruten's ferry boats Namsos TS Sørlandsruta Maritime Venture Secora SAS Flybuss Widerøe Firda Billag Widerøe Gaurdal-Østerdal Revenues EBITDA-margin Source: Torghatten, SpareBank 1 Markets Attractive backlog with exposure to fast-growing regions Torghatten's track record is no coincidence. We argue its decade-long experience and organisational structure makes it able to choose and win profitable public tenders. The whole organisation is heavily decentralised, allowing subsidiaries to take advantage of their strong local awareness and recognition to quickly respond to unforeseen circumstances and jump on attractive business opportunities. Interference from the sixperson strong top management team is kept at a minimum. Our take is that this feature is not the norm for transport companies. And the benefits are obvious; we estimate net profit margins in Torghatten's bus and sea subsidiaries have outperformed the industry by an average 3pp and 2pp in recent years. Going forward, Torghatten has a strong order backlog with relatively long durations and it has announced several significant contract wins this year. Torghatten's backlog is also exposed to the highest growing segments, such as bus transport in Rogaland, Vest-Agder, and Oslo/Akershus, and the ferry connection at Moss-Horten, all of which are regions that will see faster population growth than the national average in the next 15 years. Population Growth: E (mid-case) Exhibit 5. Legend 22% 28% 21% 25% 19% 22% 18% 2 16% 17% 14% 14% 12% 13% 9% 11% 6% 1 4% 8% 1% 6% Source: Statistics Norway, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 4

5 Valued at NOK33 per share, implying 15% upside We initiate coverage of Torghatten ASA with a Buy recommendation and target price NOK33, implying a 216E EV/EBITDA of 7.4x (adjusted for minorities). Our valuation is based on peer multiples for each segment, market values where available and otherwise book values. Torghatten: Sum-of-the-Parts Valuation Exhibit 6. Torghatten Valuation NOKm Methodology 216E EV/EBITDA EV NIBD Ownership Equity Value Per Share Sea Transport Relative (P/E) 9.3x 3,398 1, % 1, Bus Transport Relative (P/E) 3.9x % Air Transport Relative/DCF 7.7x 1,767 1,12 4.6% NTS ASA Market capitalisation 31.5% Investments in Associates/EAIs Book/Market value Other financial investments Book value 34 4 Total 7.4x 6,54 3,233 3, Upside (Downside) on last close 15.9% Source: SpareBank 1 Markets At 46%, sea transport makes up the largest part of our Torghatten valuation, as shown below, with bus and air transport representing roughly equal shares at 21-22%. Its 31% effective holding in NTS ASA is also not insignificant and its value is estimated at 5% of the total. Among its other investments, most them are valued using book values, even though we recognize that some of them may have higher intrinsic value based on their historical performance, such as Berg-Hansen Reisebureau Trondheim, an investment of only NOK3m (NOK.3/share) that has returned over NOK2m in dividends to Torghatten. Torghatten: Valuation Breakdown Exhibit 7. NTS ASA 5% Investments in Associates/EAIs 5% Other financial investments 1% Air 21% Sea 46% Bus 22% Source: SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 5

6 NOK billion Company profile Torghatten ASA is one of Norway's largest transportation companies, operating in the air, sea and road transportation segments. The company's roots date back to 1878 when Dampskibet Torghatten Aktieselskap was founded, shipping cargo and mail along the coast of Nordland with the region's first steamship. Over the next decades, the company expanded and entered bus operations in 193. After the government permitted counties to put public transportation services on tender in the 199s, the company experienced phenomenal growth, and it is today a leading Norwegian transportation company with revenues of NOK8.2bn (~USD1bn) in 214. Torghatten ASA Company structure Exhibit 8. Source: Torghatten, SpareBank 1 Markets In 1991, Torghatten became exposed to the airline industry through an investment in Widerøe. This holding was sold 11 years later, but Torghatten re-entered the airline industry in 213, once again through ownership in Widerøe. Being fully consolidated from 214, the airborne segment is now the largest source of revenue for Torghatten, followed by seaborne and bus transportation. Torghatten ASA - Revenue Development Exhibit 9. Title Sea Bus Air Other Maritime Other Source: Torghatten, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 6

7 Sea Transport Sea borne transportation has historically been the most important sub-segment in terms of revenue for Torghatten, but was in 214 overtaken by Air following the Widerøe acquisition. The sea transportation segment consists of four main subsidiaries: Bastø Fosen, FosenNamsos Sjø, Torghatten Trafikkselskap and Torghatten Nord. Through these companies, three of which are fully owned, Torghatten ASA operates 59 ferries and 26 boats and express boats on 4 different ferry routes in Norway. Torghatten Sea Transport Companies Exhibit 1. Source: Torghatten (excluding 1 ownership in T-Finans), SpareBank 1 Markets Bastø Fosen Bastø Fosen (est. 1995) is the third largest Torghatten subsidiary in the sea transportation segment. Bastø Fosen operates five RoRo/PAX ferries between Moss and Horten in eastern Norway, which is considered the country's busiest ferry route. The fleet currently consist of vessels with an average age of 2 years (national average is 24.4). The oldest is the 1986-built Bastø IV, while Bastø I and Bastø II are both built in The youngest vessel is Bastø III, built in 25. Bastø Fosen will receive 1x 6 PAX capacity ferry from Cemre Shipyard in 3Q/4Q15 and 2x 6 PAX ferries from Sefine Shipyard late 216. The new energy efficient diesel engine vessels are expected to substantially improve bunker cost by 25-3, but given the highly competitive nature of the business we are of the opinion that Torghatten will not be able to absorb all of this gain. The current Moss-Horten contract expires on 31 December 215 and will be replaced by a new 1-year contract worth NOK4.5bn (~USD55m) running from January 217. The time gap between expiry and when the new contract starts is covered by a one-year agreement. At contract start-up, the three newbuilds will replace three of the older vessels and thus provide a total car capacity of 1 units. Additionally, our understanding is that one of the older vessels will serve as a back-up and that there is an option for two additional ferries if traffic exceeds expectations. As this route is based on concession rights granted by the government, there will be no financial support and Bastø Fosen must take all cost and revenue risk in contrast to many other ferry routes. Bastø Fosen's new energy efficient diesel ferry Important: All disclosure information can be found on page 37 of this document. 7

8 NOKm NOKm EBIT-margin FosenNamsos Sjø FosenNamsos Sjø is the second largest company in Torghatten's sea portfolio with NOK466m in revenue and 1.7m passengers in 214. FosenNamsos Sjø has 23 vessels operating on 15 ferries and speedboat routes in central and west Norway. Torghatten ASA owns 66% of FosenNamsos Sjø, which also owns 51% of Partsrederiet Kystekspressen ANS, in which rival Fjord 1 owns the remaining 49%. Partsrederiet Kystekspressen ANS has a contract fixed through 221 to operate the Trondheim-Kristiansund route as well as routes in accompanying areas. Torghatten Trafikkselskap With revenues of NOK23m and 6, passengers, Torghatten Trafikkselskap is the smallest of the companies in Torghatten's sea transport operations. The 12-vessel strong company operates four express routes, and five ferry routes in Nord-Trøndelag and Sør- Helgeland, as well as one local ferry route in Brønnøy and another in Gildeskål. Torghatten Nord In 214 Torghatten Nord generated revenues of NOK1.1bn, making it the largest revenue generating unit in Torghatten's sea transportation division. Torghatten Nord was established in 28 after Torghatten acquired Hurtigruten's ferry and speedboat operations. Today, it runs 46 vessels along the Norwegian west coast. Torghatten Nord's revenues are mainly sourced from PSO's with the Norwegian Public Roads Administration (Statens Vegvesen) and Nordland and Troms counties. In 214, Torghatten Nord signed an agreement with Nordland county to operate the Fiskebøl-Melbu route in Torghatten Sea: Revenues by subsidiary Title Title Exhibit 11. Torghatten Sea: EBIT-margins by subsidiary Exhibit 12. 1,2 1, Bastø Fosen FosenNamsos Sjø* Torghatten Trafikkselskap Torghatten Nord Source: Torghatten, SpareBank 1 Markets. Note: *consolidated revenues 14% 12% 1 8% 6% 4% 2% Bastø Fosen FosenNamsos Sjø Torghatten Trafikkselskap Torghatten Nord Source: Torghatten, SpareBank 1 Markets (est. for Bastø) Contract vs ticket revenues While ticket revenues have been stable over the past four years, contract revenue is becoming an increasingly important part of Torghatten's sea borne revenues, accounting for 6 of total revenues in 214, up from 53% in 211. This compares to 69% for the whole industry, data from Statistics Norway suggest. EBITDA Bridge 214 Exhibit 13. 1,4 Sea Transport Revenues 18% 1,2 1, 17% 16% Ticket revenues Contract revenues Other EBITDA-margin 15% 14% 13% 12% 11% Source: Torghatten, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 8

9 EBIT-margin Norwegian ro-pax/pax market Being a part of the public road network, the Norwegian ro-pax industry serve as a crucial part in both passenger and vehicle transportation. As of today, there are 17 state highway ferry connections ("samband") operated by private companies. In addition to the 17 state highways, there are roughly 1 additional county and township ferry links. State highway ferry connections in Norway Exhibit 14. # Road nr Route Operator Parent 1 Rv. 19 Horten - Moss Bastø Fosen Torghatten ASA 2 E39 Arsvågen - Mortavika Fjord 1 Fjord 1 3 Rv. 13 Lauvik - Oanes Norled Norled 4 Rv. 13 Hjelmeland - Nesvik - Ombo Norled Norled 5 E39 Halhjem - Sandvikvåg Fjord 1 Fjord 1 6 Rv. 5 Mannheller - Fodnes Fjord 1 Fjord 1 7 Rv. 13 Hella - Vangsnes - Drahsvik Fjord 1 Fjord 1 8 E39 Lavik - Oppedal Fjord 1 Fjord 1 9 E39 Lote - Anda Fjord 1 Fjord 1 1 E39 Volda - Folkestad Norled Norled 11 E39 Solevåg - Festøy Fjord 1 Fjord 1 12 E39 Molde - Vestnes Fjord 1 Fjord 1 13 E39 Halsa - Kanestraum Fjord 1 Fjord 1 14 Rv. 827 Drag - Kjøpsvik Torghatten Nord Torghatten ASA 15 E6 Bognes - Skarberget Torghatten Nord Torghatten ASA 16 Rv. 8 Bodø - Værøy - Røst - Moskenes Torghatten Nord Torghatten ASA 17 Rv. 85 Bognes - Lødingen Torghatten Nord Torghatten ASA Source: SpareBank 1 Markets, Statens Vegvesen. A highly concentrated market Fjord 1, Nordled, Boreal Transport and Torghatten are the main players in a market that has been struggling with declining margins and low profit on the back of new regulation and new vessel requirements. Boreal Transport (previously Connex and Veolia) is a private operator of public transportation services in Norway and operates trams, buses, rail and ferries through its four subsidiaries. In the sea segment, Boreal operates 28 vessels. Fjord1 is the largest ferry company in Norway, operating 71 vessels from Rogaland in the South-West to Finnmark in the north. In addition to their sea borne transportation segment, Fjord1 effectively owns 29% of Widerøe through WF Holding. Norled (previously Tide Sjø) is a Norwegian ferry and express boat operator currently in control of 8 vessels from Oslo to Troms. Norwegian ferry operators EBIT margins Exhibit % 1 8% 6% 4% 2% -2% % Fjord 1 Torghatten (Sea Segment) Boreal Transport Nord* Nordled Source: SpareBank 1 Markets, company reports. *includes buses In Norway, the ferry routes are allocated following public tender offers. In the tendering process for the state highway ferry connections, the Norwegian Public Roads Administration (Statens Vegvesen) and local road authorities are the only customers and Important: All disclosure information can be found on page 37 of this document. 9

10 the tendering is offered both domestically and internationally before a final award is then given to the provider offering the best solution within the predefined requirements. In an analysis undertaken by economics consultancy Oslo Economics on behalf of the NPRA, the competitive environment of the Norwegian pubic ferry operators was investigated. The report concluded that after changing from a negotiating to tendering process, the ferry market has in general improved. However, the report also points towards the negative aspects of the net contracts vs gross contracts. A gross contract is where the charterer (public authority) takes on the market risk and the operators bid in relative to what they consider a decent margin. Conversely, a net contract is one in which the operator is responsible for generating sufficient revenues and each bidder in the tender must evaluate what they consider to be achievable in terms of revenues vs cost. In our view, we believe the net contract structure benefits the efficiency in the Ro-pax/ferry sector as well as we are of the opinion that a net contract offers larger upside potential for the operator as the operator is responsible for adjusting to supply/demand picture. Finally, we think the structure facilitates an environment where the most appropriate operator will get the contract award on more occasions than in a negotiation or gross contract. In Torghatten's case, we think the strong regional presence and decentralized leadership benefits more from a net structure as they would have a better possibility of bidding on the "right" contracts and achieve better margins. On the other side, we argue that the downside for operators in the case of unforeseen circumstances is substantial and adds unnecessary risk in a market where margins already have come under pressure. In terms of achieving an efficient ferry market, the use of net contracts also facilitates a market where the operator has an incentive to increase the number of passengers. In a gross contract, it would in theory be more beneficial for the operator to have a ferry without any passengers as the company would have lower operational costs but revenues would be fixed. In the Oslo Economics report it is argued that new tendering structures has participated in making contracts more expensive as well as well as it has imposed an additional risk element to the vessel owners. This, is in conjunction with the relatively short tender period and highly specific requirements for each route is potentially the reason why there are now only a small number of bidders in each tendering process, indicated by the report's findings that since 212 there have been on average only two bidders per competition. Important: All disclosure information can be found on page 37 of this document. 1

11 Costs follow inflation Fuel and wages moving in opposite directions According to statistics from Statistisk Sentralbyrå (Statistics Norway), the cost curve in the domestic sea segment has increased by roughly 2.5% p.a. since 29. While crude price has been cut in half to USD ~5/bbl, vessel owners are also benefiting from lower interest rate levels and overall costs have actually decreased by 2.3% over the last year. Looking at the past five years, the trend shows that wages and administrative costs have increased by roughly 4% p.a. since 29, leading to total average cost growth of a steady 2.5%. Going forward, we expect to see a reduction in the rate of wage growth simply due to more potential employees becoming available on the back of cost cutting in the oil industry. On the other hand, we see some downside for operators through higher fuel cost going forward as we expect the oil market to gradually improve towards the end of next year. Statistics Norway cost base for domestic sea borne transportation Exhibit 16. Source: Statistics Norway, SpareBank 1 Markets. Note: Rebased to 1 in 2Q 29 Growth in tonne-kilometre has been relatively sluggish over the past years. We expect this 2% growth trend to persist going forward. Vehicle tonne-kilometre growth Exhibit 17. Source: Statistics Norway, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 11

12 million passengers In terms of passenger numbers, the CAGR over the past 1 years have been 1 whilst km per passenger has decreased, pointing towards shorter freight distances but higher load per kilometre. This is further supported by the -.9% CAGR in vessel kilometre over the same period. With regards to revenues for the 1 year period, regular ticket revenues have experienced a modest annual increase of 1.8%, but ticket revenue per passenger has actually come down. The reason for the increase in total revenue per passenger is due to a large increase in public spending (5.8% CAGR); spiking after the financial crisis but have continued to increase over the last years. Based on our findings we do not see any major changes in margins going forward and find it reasonable to assume that operating margins will remain in high 6%/low 7% region. Statistics Norway data Public sea transportation Exhibit 18. Passengers - public sea transportation Ticket revenues - public sea transportation (thousand NOK) % % 6% 5% 4% 2% 2% 1% 1% -2% -3% -4% % 5% 6% 5% -2% -1% -9% -3% -7% % 1 5% -5% -1 Passengers (') YoY Growth Ticket revenues (') YoY Growth Operational costs - public sea transportation (NOK ') 22% 25% 2 15% Public purchases - public sea transportation(nok ') 14% 16% 14% 12% % % 4% -3% 5% 5% 2% Operational costs (') YoY Growth 5% -5% % 7% 6% 1% 5% 4% 3% 2% Public purchases (') YoY Growth 6% 4% 2% Source: Statistics Norway, SpareBank 1 Markets Internationalization and green focus could be further consolidation drivers Following a period of diminishing margins, Norled and Fjord1 initiated merger talks earlier this year talks that did not materialize. The rationales for the merger was to be better prepared for the developments in the sector; both in terms of environmental issues and the expected increase in international competition. We are of the opinion that it would make sense for some of the market participants to go down the consolidation route. Our take is that there will be an increasing number of international competitors that potentially could enter the market as well as we believe there will be an increased focus on renewal of the relatively old and inefficient Norwegian Ro-Pax fleet. One of the major developments in the Ro-Pax/Pax ferry segment is the increased focus on the environmental impact of the vessels. Compared to buses, sea borne transportation in general produce substantially higher CO 2 and NO X emissions in terms of gram/km. Over recent years there has been an increased emphasis towards the environmental footprint of the ferry industry and both electrical and LNG fuelled ferries have been introduced. Although more fuel efficient ferries will boost margins on the upside, we expect margins to remain relatively flat due to increased competition. We believe there is room for some consolidation in the market, which would 1) lead to greater bargaining power on the operator side and reduce the risk of larger international players wanting to enter the market, and 2) lead to some economies of scale although our understanding is that the route overlap between competitors is minimal. Thus, administration cost and flexibility would be the greatest drivers on the cost side. Important: All disclosure information can be found on page 37 of this document. 12

13 Estimates Our estimates for the sea segment are based on our outlook for the ferry segment in light of a shift towards a more eco-friendly fleet but also more competition. Our take is that margins will remain relatively flat going forward with the benefit of a modernization of the fleet will outweighed by tougher competition. Note that margins 213 and 214 were influenced by non-recurring events. In the recent year, ferry operator margins have generally been boosted by lower fuel cost, while higher wages and administrative cost have pulled in the opposite direction. We assume that current contracts are rolled at similar levels and that the cost curve continues to increase in line with the five year trend. Torghatten Sea: Estimates Exhibit 19. Torghatten - Sea (NOKm) E 216E 217E 218E 21 Revenues 1,583 1,874 1,957 2,87 2,162 2,325 2,395 2,511 2,562 2, Expenses -1,36-1,548-1,647-1,81-1,862-1,944-1,994-2,8-2,122-2, EBITDA EBITDA-margin 17.5% 17.4% 15.9% 13.7% 13.9% 16.4% 16.8% 17.2% 17.2% 17. DA&I EBIT Net financials Pre-tax profits Tax & Minorities Net income Source: Torghatten, Brønnøysundregistrene, SpareBank 1 Markets Valuation As with the bus segment, we have decided to take a relative valuation approach to TORG's sea transport segment. As opposed to the bus segment where a large part of the fleet is leased and a P/E multiple is the most fair, the sea segment to a larger extent has fully owned vessels and we have used an average equally weighted mix of P/E and EV/EBITDA multiples from in our valuation. Peers include the leading Irish ferry company Irish Continental Group, leading transportation company DFDS, Chinese RoRo/Ro-Pax company Bohai Ferry Co, Estonian cruise and Ro-Pax company Tallink and the Australian travel agency/passenger ferry company Sealink Travel Group. TORG Sea Transportation Peers Exhibit 2. Share Market NIBD EV Share price performance EV/EBITDA Historical EV/EBIT Historical P/E P/B price (local) cap (USDm) (USDm) (USDm) 1m 3m 6m Y avg Y avg NET_DEBT NET DEBT Sea Peers Median 2% 12% 9% 1.4x 8.5x 7.4x 8.4x 16.x 13.5x 13.2x 13.4x 15.7x 13.x 14.5x 2.1x IR5B ID IRISH CONTINENTAL GROUP PLC % 12% 9% 12.4x 11.5x 1.9x 9.7x 16.7x 15.2x 14.x 14.9x 17.5x 15.5x 14.5x 9.5x DFDS DC DFDS A/S % 16% 45% 8.4x 7.7x 7.4x 5.9x 15.2x 13.x 12.4x 11.9x 15.7x 13.x 11.9x 2.1x CH BOHAI FERRY CO LTD-A % -17% -4 n.a. n.a. n.a. 11.2x n.a. n.a. n.a. n.a. 14.5x 13.x 17.4x 1.5x TAL1T ET TALLINK GROUP AS % 1-1% 6.7x 7.x 6.8x 8.4x 12.1x 14.x 14.7x 15.6x 8.6x 8.8x 8.6x.7x SLK AU SEALINK TRAVEL GROUP LTD % 49% 31% 16.8x 9.3x 7.5x 8.2x 21.7x 11.8x 9.6x 1.6x 26.7x 19.x 15.9x 4.4x Source: SpareBank 1 Markets, Bloomberg Based on our estimates and five global peers, we find a fair value of TORG's sea transportation segment to be NOK 152/share, when adjusted for the 66% ownership stake in FosenNamsos Sjø. TORG Sea segment valuation: Equity value per TORG share Valuation: TORG sea transportation segment Exhibit 21. NOK 152 P/E EV/EBITDA Source: SpareBank 1 Markets NOK per TORG share Important: All disclosure information can be found on page 37 of this document. 13

14 Bus Transport Through its four fully owned subsidiaries, Torghatten runs around 1,25 buses, most of which are leased, throughout Norway, making it one of the largest bus operators in the country. Most of its revenues are generated from local route traffic, including school routes, but it is also active in the tour and express segments, i.e. routes that cross county borders, along with some regular goods transport and repair services. It is primarily present in 11 of Norway's 19 counties, with the largest share of its route production on contract generated in Oslo and Akershus at 35%. Trøndelag is Torghatten's second-largest region with 25% of its route production. Divisionally, while NorgesBuss makes up over half of Torghatten's revenues, its share of net profits is lower. Trønderbilene, meanwhile, makes up a third of revenues but nearly half of net profits. Torghatten: Revenue and EBITDA breakdown, by subsidiary Exhibit 22. Torghatten: Share of route production on public contracts, by county Exhibit 23. Revenue (214) Net Profits (214) 2% 4% 5% 6% 43% 34% 57% 49% NorgesBuss Trønderbilene Sørlandsruta Torghatten Buss Legend 28% 59% 35% 25% 53% 32% 22% 47% 28% 2 41% 25% 17% 35% 21% 14% 29% 18% 12% 24% 14% 18% 11% 9% 12% 6% 7% 6% 4% 1% Source: Brønnøysundregistrene, SpareBank 1 Markets Source: Kollektivtrafikkforeningen (Mar-15) adj. for 5 share in Firda, SpareBank 1 Markets Established in 1996, NorgesBuss is today one of Norway's largest bus operators. Torghatten became the sole shareholder in 28. The company has over 5 buses, producing revenues of over NOK1bn in 214. Although most of its turnover is generated in Oslo/Akershus, NorgesBuss recently won the largest ever bus contract in Norway. Starting in July 216, the contract with Rogaland county has an annual value of NOK42m, meaning southern Norway will become an increasingly important region for NorgesBuss. The contract will also make Torghatten the second largest bus operator in the country. NorgesBuss also owns 5 of Firda Billag, which operates in Sogn og Fjordane and recently won a notable contract worth NOK15m per year with start-up in June 216. On top of route bus operations, NorgesBuss also runs three of four airport express routes to Oslo Gardermoen, in addition to owning and operating SAS Flybussen, another airport express bus operator. Trønderbilene, established in 192, was run by Nord-Trøndelag county until 1998 when Torghatten acquired two thirds of the company. Torghatten acquired the remaining third in 211. Today, Trønderbilene has 43 buses and operates routes in Trøndelag and Hedmark counties. In 214, revenues reached NOK624m. In June next year, Trønderbilene will launch new routes on contract with Hedmark county with a value of NOK35m p.a. Sørlandsruta was established in 1951 in Vest-Ager as a merger between 13 individual bus companies and Torghatten acquired the company in 29. Sørlandsruta operates around 7 buses and generated revenues NOK74m in 214. Earlier this year, Sørlandsruta won a 1-year contract in Vest-Agder valued at NOK3 per year to be launched in January 216. Torghatten Buss traces its roots to the late 19 th century when Torghatten was first founded, but bus operations did not commence before 193. Today, the company runs 8 buses on routes in Nordland and Troms and revenues reached NOK94m in 214, NOK57m of which came from contracts with Troms county. Important: All disclosure information can be found on page 37 of this document. 14

15 Change in # of Bus Passengers (25-14) million passengers million passengers million passengers NOKm Contract revenues behind recent top line growth The past few years have seen a steady increase in Torghatten's contract revenues and they now make up 75% of its total revenues, up from 69% in 211. EBITDA-margins have averaged 11.5% over the last four years, as shown below. Torghatten: Revenue and EBITDA-margin development Bus Transport Revenues Exhibit 24. 1, ,4 1,2 1, 12.5% % % Ticket revenues Contract revenues Other EBITDA-margin Source: Torghatten, SpareBank 1 Markets Norwegian bus market Industry volume growth driven by Oslo and Akershus Passenger volume in Norway has increased 2% annually to a total of 335m in 214, driven by the Akershus/Oslo region, as indicated below. Title Norway: Passenger Volume Exhibit Akershus/Oslo Non Akershus/Oslo Source: Statistics Norway, SpareBank 1 Markets Population growth only explains half of the volume growth While population growth is an important driver of passenger growth, explaining roughly half of the national increase since 25, overall, Norwegians are also increasingly using bus transport. The average number of journeys per citizen has increased from 6 to 65, which explains the other half of the volume growth. As shown below, however, this development is also driven by the Oslo/Akershus region, where journey volume per capita explains almost two thirds of the total passenger growth since 25. In most of Norway's other counties, meanwhile, people are actually using bus transport less frequently. Norway: Change in Population vs. Bus Passengers (25-214) Exhibit 26. Norway: Change in Bus Passengers vs. Population (25-214) Exhibit Oslo/Akershus Total Buss Passenger Volume Development (25-14) Change in Journeys per Passenger (25-14) 4 Vestfold 3 Sør-Trøndelag 2 Troms 1 Hordaland Rogaland Finnmark Østfold -1 Møre og Romsdal Nord-Trøndelag -2 Nordland Aust-Agder -3 Hedmark -4 2% 4% 6% 8% 1 12% 14% 16% 18% 2 Change in Population (25-14) Bus Passengers 25 Population Growth Journeys per Passenger 335 Bus Passengers Bus Passengers 25 Population Growth 28% 25% 24 22% % 11 14% 7 12% 2 9% -2 6% % -15 1% Legend Journeys per Passenger 335 Bus Passengers 214 Source: Statistics Norway, SpareBank 1 Markets Source: Statistics Norway, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 15

16 NOKbn million passengers population growth (CAGR 214-3) Passenger volume growth going forward expected at 1-3% Based on Statistics Norway's three population growth scenarios and knowing that population growth has historically driven around half of the bus passenger growth, we expect the latter to grow 1-3% annually over the next 15 years. In the mid case scenario, population growth is expected at 1%, translating into 2% passenger growth. Not surprisingly, Oslo/Akershus is the region where we should expect the fastest growth. This is also the case in Rogaland and Vest-Agder, all of which are regions to which Torghatten is attractively exposed. Title Title Norway: Passenger volume growth forecast Exhibit 28. Norway: Annual population growth by county (Mid case, e) Exhibit % p.a. +1. p.a. 1.4% 1.2% 1..8%.6%.4%.2% E 217E 219E 221E 223E 225E 227E 229E Actual passenger volume Population Growth (Mid Case) Journeys/Passenger Growth Source: Statistics Norway, SpareBank 1 Markets. Source: Statistics Norway, SpareBank 1 Markets Industry barely profitable despite heavy public support Since 25, revenues for Norwegian route bus operators, which make up 92% of total bus revenues, have increased by 6% per year on average. The growth, however, is driven by rising public procurement, which has grown by 8% per year and now makes up over 6 of total bus revenues. On average, the public spent over NOK1,2 per Norwegian citizen in 214, or around NOK19 per passenger. Express bus operators, meanwhile, derive only 11% of revenues from public contracts. Route bus EBITDA-margins have trended up in the last decade, averaging 11., but in terms of the bottom line, net margins have rarely been positive. Generally, express bus operators have 4-6pp higher margins. So even with the current heavy public support, Norwegian route bus operators still make marginal profits. Although we see limited risk associated with this dependence on a national level after all, outsourcing bus transport has historically led to a 1 reduction in operating cost per vehicle kilometre strong competition for individual tenders does mean margins face continuous pressure, suggesting excessive margin expansion is not very likely. Revenue Mix: Route vs. Express Bus Operators Exhibit 3. Route Bus Operator Revenues vs. Margins Title Exhibit 31. Route Bus Operators (share of 214 revenues) Express Bus Operators (share of 214 revenues) 11% % 2 15% 39% % 61% 2 89% 1-5% Public Producrement Ticket Revenues Public Procurement Ticket Revenues Operating Margin Net Margin -1 Source: Statistics Norway, SpareBank 1 Markets Source: Statistics Norway, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 16

17 Market Share % of production on tender # of transactions Increasingly competitive industry spurring heavy consolidation The past 2 years have seen a great shift in how municipalities procure bus transport services. In the early 199s, absolutely all route production was operated directly by local authorities. But in 1994 the Norwegian government opened up for competitive tendering. So today, around 8 of all route production is sourced through this bidding process. By end-217, all counties apart from Nord-Trøndelag will likely procure most of its bus transport needs through such tendering. In particular, the Northwest, which represented around 1 of Norway's total route production in 214, will see strong growth in public procurement, thus opening up more of the Norwegian market for Torghatten and other bus operators. While there was over 2 individual bus operators in the 199s, as contracts were increasingly put on tender, competition intensified, spurring heavy consolidation, as indicated below. Today, six companies share around 9 of the market, measured in route kilometre production. Norway: Percentage of total route production Title on tender Exhibit 32. Norway: M&A Transaction Volume in Bus TitleSector Exhibit % 97% % 68% 6 51% 5 38% % 28% 2 17% 1 1% 7% 2% E 219E Source: NHO Transport (assuming flat route production), NorgesBuss, SpareBank 1 Markets Source: NHO Transport (Feb-14), SpareBank 1 Markets Torghatten is the third largest bus operator Of the total route production on public contracts in Norway today, Nettbuss (owned by NSB) is the largest bus operator with a 3 market share. Tide is second at 13.5%, followed closely by Torghatten at 13.1%. Boreal and Unibuss each have around 12% of the market, while Nobina holds 8%. Regionally, the hierarchy varies. Nettbuss has leading market positions in Central Norway, the South and East (excl. Oslo/Akershus), while Unibuss dominates in Oslo/Akershus. In the North, Boreal is the clear market leader, while Tide dominates in the West. Torghatten is present in most of Norway's counties, but its strongest positions are in Nord-Trøndelag (#1, 59%) and Sogn og Fjordane (#1, 36%). It also has meaningful #2 positions in Hedmark (31%), Sør-Trøndelag (26%), Vest-Agder (21%), and lastly but not least Oslo/Akershus (21%). Norway: Market Share by Bus Operator and County (1Q15) Exhibit 34. Norway: Torghatten Market Share by County (1Q15) Exhibit X X X X X X X X 4 Legend 28% 35% 59% 25% 32% 53% 22% 28% 47% 2 25% 41% 17% 21% 35% 14% 18% 29% 12% 14% 24% 11% 18% 9% 12% 6% 7% 4% 6% 1% Torghatten Nettbuss Tide Nobina Boreal Unibuss Other Source: Kollektivtrafikkforeningen (Mar-15) adj. for 5 share in Firda, SpareBank 1 Markets Source: Kollektivtrafikkforeningen (Mar-15) adj. for 5 share in Firda, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 17

18 million route kilometers % of current production % of current production maturing Over 5 of current contracts could mature over the next two years Excluding options, 52% of all Norwegian route production on contract today will mature by end-217. If all options are called, the figure is cut roughly by half. So, several new tender opportunities could surface for bus operators in the coming years. However, the share of contracts maturing by 217 is fairly similar for Torghatten, both including and excluding options. So, on top of competing for new contracts, Torghatten will need to defend the ones already in production, such as in Nord-Trøndelag where all production expires by 217. Still, the situation is worse for two other operators, Boreal and Unibuss, who risk around 7 of all production volume expiring in the next two years. Norway: Maturity schedule of total route production on contract Exhibit 36. Norway: Contract maturity by end-217, Expires by end-217 by operator Exhibit 37. Norway: Contract Maturity Schedule % % % Boreal Unibuss Torghatten Nettbuss Tide Nobina Contract Expiry (without options) Contract Expiry (with options) Without Options With Options Source: Kollektivtrafikkforeningen (Mar-15), SpareBank 1 Markets Source: Kollektivtrafikkforeningen (Mar-15), SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 18

19 Contract overview Based on data from Kollektivtrafikkforeningen, Torghatten currently has 19 public contracts in production, excluding express routes and other contracts. This summer, two of the public contracts Torghatten had with Ruter in Oslo/Akershus expired. These had an annual value of over NOK15m in public purchases. However, Torghatten started a new contract in Hedmark worth NOK9m per year in July, which will help compensate for some of this shortfall. Regardless, our take is that growth in 215 will be limited to underlying market growth, as discussed previously. In 216, two contracts expire (3% of public route production), if options are not called. Meanwhile, four new contracts will come on stream next year. Their total value is significantly higher than the ones that potentially expire, suggesting Torghatten should experience fairly strong growth next year. The estimated annual value is over NOK63m, of which we expect around NOK3m will be realised next year. In 217, eight public contracts with an annual value of over NOK34m expire, if options are not called. Early this year, these contracts represented nearly half of Torghatten's public route production, but the four contracts with start-up in 216 will have full-year effect in 217, which will help balance out the potential production loss. However, there are no indications the contracting authorities in question are dissatisfied with the service provided to date, and we believe an extension is more likely than the opposite. Torghatten: Contract Overview Exhibit 38. Existing Contracts Annual Value Contract Length (firm) Options Contracting Entity County Operator Company (NOKm) Route kmpa % Route Description Start End (in years) Nordland FK Nordland Torghatten Trafikkselskap AS 19 1,21, Søndre Helgeland 1/7/27 3/6/216 1 TFT - Troms Fylkestrafikk Troms Torghatten Buss AS 3 28,451.1% Lyngen - School 18/8/214 31/7/ Sogn og Fjordane FK Sogn og Fjordane Firda Billag AS 4,168,358 12% Flora, Naustdal, Førde, Askvoll ++ 1/1/21 3/4/217 2 Brakar Buskerud Norgesbuss AS 25 99, 3% Røyken, Hurum, Drammen 1/7/212 3/6/ Ruter Oslo/Akershus Norgesbuss AS 76 1,998, 6% Bærum East 6/2/211 3/6/217 3 Ruter Oslo/Akershus Norgesbuss AS 114 2,659,521 8% Asker and Hurum (Region 4) 1/7/21 3/6/217 3 Ruter Oslo/Akershus Norgesbuss AS 74 1,927, 6% Bærum West/Skui (Region 3) 1/7/21 3/6/217 3 TFT - Troms Fylkestrafikk Troms Torghatten Buss AS 27 1,127,35 3% Regional 1/8/21 31/7/ TFT - Troms Fylkestrafikk Troms Torghatten Buss AS ,27 2% North-Troms 1/8/21 31/7/ Nord-Trøndelag FK Nord-Trøndelag Trønderbilene AS 2,75,893 8% 1/1/28 31/12/217 None TFT - Troms Fylkestrafikk Troms Torghatten Buss AS 3 33,718 Balsfjord - School 1/1/214 31/1/ Agder Kollektivtrafikk AS Vest-Agder Sørlandsruta AS 75 2,1, 6% Kristiansand, Lista, Lindesnes, Mandal 1/7/212 3/6/218 4 AtB Sør-Trøndelag Trønderbilene AS 95 3,746,224 11% Trondheim, Klæbu (Region 1) 23/8/211 22/8/ Opplandstrafikk Oppland Trønderbilene AS ,215 3% Ottadalen and Gudbrandsdalen 1/1/214 31/12/219 2 Ruter Oslo/Akershus Norgesbuss AS 27 2,387,525 7% Oslo North/East 6/1/214 12/12/22 3 AtB Sør-Trøndelag Trønderbilene AS 34 1,363,926 4% Trondheim, Route and School (Region 2) 19/8/213 18/8/ Sogn og Fjordane FK Sogn og Fjordane Firda Billag AS 53 1,468,374 4% Stryn, Hornindal, Eid, Vågsøy ++ 23/6/214 19/6/222 2 Ruter Oslo/Akershus Norgesbuss AS 64 2,52,16 6% Follo (Drøbak) 21/6/215 1/6/223 2 Hedmark Trafikk FKF Hedmark Trønderbilene AS 9 2,661,255 8% Østerdalen 1/7/215 3/6/225 None Total (1) ,28,643 1 Total (adj. for 5 in Firda) 32,475,456 95% New Contracts Annual Value Contract Length (firm) Options Contracting Entity County Operator Company (NOKm) Route kmpa % Route Description Start End (in years) Kolumbus Rogaland Norgesbuss AS 421 Nord-Jæren 1/7/216 3/6/224 2 Agder Kollektivtrafikk AS Vest-Agder Sørlandsruta AS 3 Flekkefjord, Kvinesdal, Sirdal 1/1/216 1/1/226 Sogn og Fjordane FK Sogn og Fjordane Firda Billag AS 149 Extension of Flora, Naustdal, Førde contract 2/6/216 18/6/224 2 Opplandstrafikk Oppland Trønderbilene AS 35 Valdres 2/6/216 2/6/224 2 Source: Kollektivtrafikkforeningen, Public transport authorities, press releases, SpareBank 1 Markets Estimates Our estimates are based on the above contract overview. We expect options are called and that the top line will grow in line with the underlying market. We expect margins will normalise around the historical average 11.5%. Torghatten Bus Transport: Estimates Exhibit 39. Torghatten Bus Transport (NOKm) E 216E 217E 218E 219E 22E Revenues 1,43 1,446 1,74 1,826 1,898 2,19 2,54 2,592 2,645 2,699 Expenses -1,241-1,28-1,519-1,65-1,671-1,958-2,273-2,32-2,349-2,397 EBITDA EBITDA-margin 11.6% 11.5% 1.9% 12.1% % 1.5% 11.2% 11.2% 11.2% DA&I EBIT Net financials Pre-tax profit Tax & Minorities Net income Assumptions - Buses in operation 1, 1, 1,15 1,2 1,25 1,463 1,463 1,463 1,463 1,463 - Revenue Growth 3.1% 17.9% 7.1% % OpEx Growth 3.1% 18.7% 5.7% 4.1% 17.2% 16.1% 1.3% Source: Torghatten, Brønnøysundregistrene, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 19

20 Equity Vlalue per TORG Share Valuation We have decided to take a relative valuation approach to Torghatten's bus transport business. The company discloses limited information for this segment, which increases estimate risk sufficiently to warrant this methodology. Our peer group includes its rival, Nobina, which is listed in Stockholm and is predominantly active in the bus transport segment throughout the Nordics. We have also included London-listed peers, which also have some railway operations. Torghatten: Bus Transport Peer Group Exhibit 4. Share price performance EV/EBITDA Historical EV/EBIT Historical P/E P/B 1m 3m 6m Y avg Y avg Median -2% -6% 1% 6.9x 6.4x 6.1x 6.4x 11.5x 1.6x 9.3x 1.1x 13.1x 11.6x 1.9x 2.8x Nobina 9% 8% n.a. 8.2x 8.7x 6.3x 6.9x 24.x 19.x 14.x 15.4x 25.5x 11.5x 1.5x 2.8x Stagecoach Group -6% -15% -3% 6.9x 6.4x 6.1x 6.8x 11.5x 9.8x 9.3x 1.1x 13.1x 11.6x 1.9x 12.x National Express Group -2% -6% 1% 7.5x 7.2x 6.9x 6.4x 11.9x 11.3x 1.7x 1.4x 12.9x 12.2x 11.1x 1.7x Go-Ahead Group -1% -6% 3% 4.4x 4.1x 3.6x 4.7x 7.2x 6.1x 5.2x 7.4x 15.9x 13.7x 11.6x 13.9x FirstGroup -8% -19% 2% 4.5x 4.4x 4.2x 4.7x 1.7x 1.6x 9.1x 9.4x 1.3x 1.3x 8.2x 1.4x Source: Bloomberg, SpareBank 1 Markets Due to the many different financing options available to these operators, we believe the best multiple to use is P/E. Peers multiples for earnings are in the 11-12x range, which gives us a value of Torghatten's bus transport business of NOK69-76 per TORG share, or an average of NOK72. As shown below, NorgesBuss makes up over half of the value at NOK38per share, followed by Trønderbilene at NOK28 per share. Title Torghatten Bus Transport: Valuation Exhibit NorgesBuss Trønderbilene Sørlandsruta Torghatten Buss Total Bus Value Source: SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 2

21 Air Transport Founded in 1934, Widerøe's Flyveselskap ("Widerøe") is the oldest airline in Norway and today operates 41 aircraft on the Norwegian short-runway network. With 45 flights per day, Widerøe carried over 3m passengers in 214. It is the third largest airline in Norway and its market share has risen steadily from the early 2s to 17% in 213. It calls at 43 of Norway's 52 airports, along with four airports abroad. Widerøe was fully owned by SAS from 22 until 213, when Torghatten, Fjord1, and Nordland county acquired 8 of the company. Through Torghatten's 51% ownership in WF Holding, Torghatten today effectively owns 41% of Widerøe and it is now fully consolidated into its books. Our understanding is that under the shareholder agreement, Torghatten may acquire Nordland county's and SAS' shares at pre-defined terms, meaning Torghatten's ownership may very well reach 66% in the coming months. Widerøe: Flight network Exhibit 42. Source: Widerøe, SpareBank 1 Markets From 215, Widerøe is split into four business units. On top of the traditional airline, support services will now operate as individual companies. Widerøe Internet, which has operated as a stand-alone unit for many years, is responsible for online bookings. One quarter of all reservations made through Widerøe's website is also for flights operated by other airlines. Widerøe Ground Handling services all Widerøe's aircraft while grounded and with a potential agreement with SAS, it will also be responsible for ground handling for SAS' aircraft on all Norwegian airports apart from Gardermoen. If the agreement is signed, the unit will likely become a NOK1bn-turnover company. Finally, Widerøe Technical Services will handle repair and maintenance. With its lifetime-extension programme successfully completed, Widerøe is now able to market these upgrades to other airlines with similar aircraft, which could become an important revenue source for the unit in the years ahead. Widerøe: Organisational structure Exhibit 43. Source: Widerøe, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 21

22 NOKbn Revenues (NOKbn) Margin Revenues (NOKbn) Widerøe cements market position with recent PSO contract win Widerøe recently won PSO (Public Service Obligation) contracts on eight routes in southern Norway. This was effectively an extension of the earlier contract, except for three routes (Florø-Oslo/Bergen and Ørsta-Volda-Oslo) which were deemed profitable and in no need of public support. Procurement on these routes will subside next year. The only rival bid came from Danish Air Transport (DAT) on one route (Røros-Oslo), but this was rejected due mismatch with the contract specifications. The fact that only one other airline made a bid comes in stark contrast with the earlier tender on this route, when seven other airlines submitted bids. No losses in over 15 years Since 2, Widerøe's revenues have more than doubled, growing by an average 6% per year. With the share of passenger revenues growing from 66% in 214 to 81% in 214, Widerøe has become less dependent on state purchases over the last years. In 214, state purchases amounted to NOK.6bn of revenues totalling NOK3.8bn. EBITDA-margins have averaged 11% since 2, bottoming at 6% during the financial crisis and peaking at 17% in 211. On the bottom line, Widerøe has not made losses in over 15 years, averaging a net profit margin of 2.8%. Free cash flow wise, however, Widerøe is down a cumulative ~NOK1bn over the last 15 years, after significant investments in 213. Widerøe: Revenues vs. Margins Title Exhibit 44. Widerøe: Revenue Development, Revenue by Source Development Exhibit Revenues EBITDA-margin Net Profit-margin Source: Brønnøysundregistrene, SpareBank 1 Markets 18% 16% 14% 12% 1 8% 6% 4% 2% Passenger revenues State Purchases Other Source: Brønnøysundregistrene, SpareBank 1 Markets Personnel make up the largest share of cost base Although personnel expenses have decreased 2pp as a share of total operating costs since 26, they still represented the largest proportion at 41% in 214. Of Widerøe's nearly 1,5 employees, nearly 3 are pilots and 2 are cabin crew. The second largest cost component is aircraft and building expenses, which made up 21% of the cost base in 214, up from 15% in 26. Of these, we estimate 4-5 represented fuel costs in 213/14. Widerøe: Cost Development Cost Development Exhibit 46. Widerøe: Cost Breakdown Exhibit % 24% 43% 22% 3% 11% 41%.4 12% Personnel costs Aircraft/building expenses Fees and provisions Rent and leasing expenses Other operating expenses 15% 21% Personnel costs Aircraft/building expenses Fees and provisions Rent and leasing expenses Other operating expenses Source: Brønnøysundregistrene, SpareBank 1 Markets Source: Brønnøysundregistrene, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 22

23 Passengers ('s) Revenues/PAX (NOK) Load Factor Record number of passengers in 214, but multi-year low load factor Since 24, Widerøe has increased the total number of passengers carried by an annual average of 5%. Meanwhile, average revenue per passenger has increased by an average 2.5% per year, thereby helping boost the top line growth seen in the last decade. In 214, however, revenue per passenger dropped 9% YoY to NOK1,4. As Widerøe did not manage to grow the number of passengers carried sufficiently, this development caused over half of the yearly top line decline last year. In 214, Widerøe also had a multi-year low load factor of 56.3%, the lowest level seen since 25. As the fleet was unchanged from 213, our take is that the larger aircraft's share in the production mix increased during 214. Widerøe: Passengers vs. Yield per Passenger Exhibit 48. Widerøe: Load Factor Development Exhibit 49. Title Title 3,5 1,15 1,1 3, 1,5 1, 2, , 85 1, , Passengers ('s) Revenue/PAX 62% 6 58% 56% 54% 52% Load Factor Source: Brønnøysundregistrene, SpareBank 1 Markets Source: Brønnøysundregistrene, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 23

24 Fleet Overview Majority of fleet dedicated to Norwegian short-runway network Widerøe's fleet consists entirely of Dash-8 Q-Series aircraft of various specifications. Of the total 41 aircraft in operation, 23 are Q1/2 dedicated to the Norwegian shortrunway network, with runways down to 8m in length. These have low seat capacity relative to the Q3s and Q4s, of which Widerøe operates 7 and 11 aircraft, respectively. The company owns 31 aircraft and leases 1 with an average term of 4.2 years as of year-end 214, down from 17 leased aircraft with an average 8.9-year maturity in 212. During 215, Widerøe has planned to phase out two Q3s, one of which we believe has already been returned to a Kenyan airline (LN-WFD). Widerøe: Fleet Overview Exhibit 5. Widerøe: Fleet and Seat Capacity Exhibit 51. Aircraft Fleet (41 in total) Seat Capacity (2,15 in total) 11, 27% 41% 42% 7, 17% 23, 56% 17% Source: Bombardier, Wideøe, Airvectors, SpareBank 1 Markets Q1/Q2 Q3 Q4 Source: Widerøe (incl. two Q3 to be phased out in 215), SpareBank 1 Markets Fleet key to Widerøe's competitiveness Historically, Widerøe has been the only airline to submit bids on airports with runways shorter than 1,199m and when the seat requirement has been at least 3 per flight. To serve these airports, special aircraft like Q1/2 are needed and Widerøe is the European airline with the largest fleet of such aircraft. Indeed, it is one of the world's largest airline with these aircraft (behind Jazz Air and Piedmont). According to Avinor, only Dash-8 Q1/2, Fairchild Dornier 228, Twin Otter (Dash-6) and Dash-7 aircraft are able to sufficiently operate in this network. The ATR-42 3/5 would only be able to operate to a limited extent, mostly due to runway length and capacity specifications. Considering that 28 of Norway's 52 airports are shorter than 1,199m, Widerøe has a significant advantage. Although runway extensions are possible for all but nine of these airports, it is only commercially viable for four of them, according to Avinor. These are Førde, Sogndal, Namsos and Rørvik, and combined they represented only 1. of all passengers on domestic flights in 1H15. Widerøe is also one of the only bidding airlines with SCAT-1 installed in its aircraft, which has favoured Widerøe in earlier tenders. Hence, its aircraft are arguably key to its competitiveness and thus maintaining the current fleet as long as possible is crucial. Airport Runway Length Norway: Airport overview Exhibit 52. Norway: Airport breakdown by runway length Exhibit 53. < 1,2 m., 28, 54% > 1,2 m., 24, 46% Source: Avinor (April 215), SpareBank 1 Markets Source: The Norwegian National Transport Plan, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 24

25 # of aircraft Average Age # of aircraft Age Lifetime extension programme helps delay full Q1 phase-out to 223 Widerøe's Q1 fleet is nearly 22 years old and as the Q1/2 aircraft series are no longer in production, Widerøe has been forced to look for alternatives in order to maintain a sufficient fleet able to serve the Norwegian short-runway network. With its fleet approaching end-of-life and few other options in terms of newbuilds, Widerøe launched a lifetime extension programme in 29 as the only operator in the world licensed to do so. Aimed initially at 16 Q1 aircraft, they prolonged the lifetime from 8, flight cycles to 12,, enabling Widerøe to secure short-runway aircraft till the end of 223. Finished in April 215, total costs are estimated at NOK32m, thereby proving less costly than purchasing new, comparable aircraft. Either way, the closest commercially available alternative is the ATR-42, which is not ideal for the Norwegian short-runway network, according to the Institute of Transport Economics, as mentioned above. Title Widerøe Fleet Age Distribution Exhibit Q1 Q2 Q3 Q4 W. Average Source: Airfleets, Planespotters, SpareBank 1 Markets (excludes one Q3). Widerøe will also try to phase out at least one Q1 per year as they reach the new endof-life limit, swapping to less intensely used second-hand aircraft. In doing so, they hope to maintain the current fleet until Of the current active Q1/2 fleet worldwide, US and Canada together account for 144, or just over half, but the average age is 2.8 years higher than Widerøe's Q1/2 fleet, suggesting suitable aircraft can be hard to come by here. In 2.5 years' time, the current active Q1 fleet will have reached the average age of scrapped Q1 aircraft (27.6 years), meaning it will become increasingly difficult to find replacements. In terms of Q2, this is only one year away (18. years). Title Worldwide Active Q1 and Q2 Fleet Title Exhibit 55. Age Distribution of Active Q1 and Q2 Fleet Exhibit North America Source: Airfleets, SpareBank 1 Markets 3 3 Oceania Africa Norway Other Europe Asia Latin America Q1 Q2 Average Q1/2 Age 2 Unknown Q1 Source: Airfleet, SpareBank 1 Markets 4 4 Q2 > 3 years < 15 years Important: All disclosure information can be found on page 37 of this document. 25

26 Index (21=1) YoY Growth Share of Route Traddic Total Journeys (million) Norwegian airline market Half of all journeys business-related, of which half again are oil-related The last ten years have seen a fairly stable relationship in the share of leisure and business-related journeys in Norway, with each being the primary purpose of half of all domestic journeys. Growth in the leisure segment has been steady at 3-4% per year and was more or less unaffected by the financial crisis. This was not the case for business journeys, which declined in 28-1 and were barely above 27-levels in 213. Still, the number of business journeys has increased in the last decade, driven primary by growth in petroleum-related journeys. In 213, 26% of all business journeys were in this category, up from 21% in 23, according to the Institute of Transport Economics. In this subsegment, SAS had the largest market share at 59% in 213, followed by Widerøe with 23% and Norwegian Air Shuttle (NAS) with 17%. Purpose of domestic flight journeys Exhibit 57. Petroleum-related business journeys, by airline Exhibit 58. Purpose of Domestic Flight Journeys Purpose of Domestic Flight Journeys Business Leisure SAS NAS Widerøe Other Source: Institute of Transport Economics (213), SpareBank 1 Markets Source: Institute of Transport Economics (213), SpareBank 1 Markets Higher ticket prices and lower fuel costs After three years of airfare decline following the financial crisis, airfares in Norway have trended upward since mid-211. In 2Q15, the price index for domestic flights increased 6% YoY, reaching a 1-year high. Prices for international flights jumped a record-high 24% YoY and are now approaching peak levels. Meanwhile, jet fuel prices (in NOK) plummeted 2 YoY in 2Q15. This diverging trend in input cost versus airfares begun one year ago and means the operating environment for Norwegian carriers have improved significantly. Norway: Price index for domestic Price Index: and international Domestic and flights International Exhibit 59. Norway: YoY change in domestic airfares Change vs. fuel in Prices prices Exhibit Q6 1Q7 1Q8 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14 1Q Q7 1Q8 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14 1Q15 Domestic Flights International Flights Domestic Price Index Jet Fuel Spot (NOK) Source: Statistics Norway, SpareBank 1 Markets Source: Statistics Norway, Bloomberg (JET1NECC CIF NW Europe), SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 26

27 Passengers (million) million passengers YoY Change in 1H15 but lower passenger volumes After growing by more than 3% annually since 29, the number of passengers on domestic flights started falling one year ago and growth has been negative every month since then. This trend is by many expected to continue due to lower oil prices and the intensive cost-cutting that has followed throughout some of Norway's largest industries. This is evident in passenger figures from the most petroleum-exposed airports. As shown below, while the total number of passengers on domestic flights fell 3% YoY in first half 215, the decline was significantly greater at Stavanger and Bergen, along with the smaller offshore-linked airports. Although SAS has the largest share of business passengers travelling for the petroleum sector, Widerøe is also exposed, as mentioned above. It is the sole operator on several of the smaller airports showing decay and, according to the Institute of Transport Economics, among its business passengers, one in every three journeys relates to the oil and gas industry. So, like the other Norwegian airlines, we expect the company will be negatively affected by this trend. Passenger volume on domestic flights (Rolling 12m) Title Exhibit 61. Yearly Change in Domestic Passenger Volume in 1H15 (selected airports) Exhibit % % 15. 6% % 14. 2% % % Dec-9 Jul-1 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15-2% -4% -6% -8% -1-12% -14% -16% -18% Passengers (LTM) Source: Statistics Norway, SpareBank 1 Markets YoY Growth (RHS) Source: Statistics Norway, SpareBank 1 Markets Annual passenger growth on PSO routes expected at 1.1% through 22 Based on figures from the Institute of Transport Economics, we expect passenger volume growth on Norway's PSO routes (from 1 April 216) at 1.1% per year through 22. Strongest growth is expected in southern Norway (1.7%), where Widerøe has already secured an extension through 22, as mentioned above. In northern Norway, where growth is expected at.9% per year, Widerøe operates all PSO flights today and will do so through Q A new tender process for the contract period to 222 will commence in 216. But based on the bids submitted to the PSO tender in southern Norway, we expect Widerøe's position, fleet, and experience will be difficult to beat, once again. Hence, our take is that Widerøe will continue to operate these routes. Title Passenger Volume on PSO routes Exhibit % CAGR 1.1% CAGR % CAGR.2. South Norway North Norway Total E Source: Institute of Transport Economics, Møreforskning, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 27

28 Estimates In our estimates, we assume Widerøe's revenue per passenger will grow 3% this year, which is lower than the average for all domestic flights seen in 1H15 (+7%), according to Statistics Norway. From 216 onwards, we expect revenue to grow at the 1-year average 2-2.5%. Based on the passenger development mentioned above, we expect passenger volume will decline 4% this year and 2% next year. Even though Widerøe plans to phase out two Q3 aircraft in 215, we do not expect the load factor will increase from the multi-year low seen in 214. After 215, however, we anticipate the load factor will rise gradually towards the historical average towards 22, based on the passenger growth expected on PSO routes mentioned above and underlying market growth. In 216, we expect revenues will get a ~NOK7m boost as Widerøe takes over SAS' ground handling operations at 14 airports, but this also involves a ~1, headcount increase and hence higher payroll expenses. Regarding fuel costs, we expect a significant reduction due to the lower oil price. We assume a YTD average for 215 and today's spot price from 216 onwards. Other expenses are assumed to grow 2% annually. Widerøe: SB1M Estimates (at 1 ownership) Exhibit 64. Widerøe's Flyveselskap (NOKm) E 216E 217E 218E 219E 22E Revenues 4,176 3,87 3,826 4,624 4,742 4,84 4,94 5,44 Expenses -3,772-3,314-3,338-4,62-4,17-4,259-4,351-4,444 EBITDA EBITDA-margin 9.7% 12.9% 12.7% 12.1% 12.1% % 11.9% DA&I EBIT Net financials Pre-tax profit Taxes Net income Source: Assumptions Torghatten, Brønnøysundregistrene, SpareBank 1 Markets - Passengers ('s) 2,969 3,79 2,965 2,91 2,927 2,942 2,957 2,973 - Revenue / PAX (NOK) 1,16 1,4 1,34 1,53 1,79 1,11 1,123 1,146 - Load Factor 56.9% 56.3% % 56.7% % 57.6% - Fuel price (NOK per tonne) 5,88 5,686 4,435 3,95 3,95 3,95 3,95 3,95 - Fuel consumption (tonnes) 66,3 58,3 6,54 63,945 63,945 63,945 63,945 63,945 Valuation Our peer group includes most of Europe's listed airlines, including Norwegian Air Shuttle, SAS, Aer Lingus, Ryanair, and EasyJet. Widerøe: Peer Group Exhibit 65. Share price performance EV/EBITDA Historical EV/EBIT Historical P/E P/B 1m 3m 6m Y avg Y avg Median 3% 8% -4% 5.7x 5.5x 4.x 4.4x 9.7x 9.5x 7.8x 11.2x 14.9x 9.3x 7.4x 1.1x NORWEGIAN AIR SHUTTLE AS -4% 9% 42% 12.x 8.8x 6.4x 6.7x 22.1x 14.7x 9.7x 11.4x 18.9x 11.5x 9.x 4.2x SAS AB 3% 1% -2% 3.x 2.2x 2.1x 3.2x 4.6x 3.5x 3.5x 6.3x 14.9x 5.7x 5.x.8x AER LINGUS GROUP PLC 4% 7% n.a. n.a. n.a. 2.7x n.a. n.a. n.a. 6.5x 19.2x 2.8x n.a. n.a. RYANAIR HOLDINGS PLC 12% 14% 25% 12.1x 9.7x 8.4x 7.5x 16.6x 13.x 1.9x 11.x 21.7x 16.x 13.8x 5.1x EASYJET PLC 8% 11% -6% 8.x 7.3x 6.4x 6.1x 9.7x 9.x 7.8x 7.9x 12.9x 11.9x 1.2x 2.8x AIR FRANCE-KLM 13% 8% -12% 3.7x 3.1x 2.8x 4.3x 2.6x 1.x 8.2x 27.x n.a. 7.6x 4.7x n.a. AIR BERLIN PLC -3% -15% n.a. 77.9x 9.4x 3.2x n.a. n.a. 28.3x 188.2x n.a. n.a. n.a. n.a. TURK HAVA YOLLARI AO -9% -8% 6.6x 5.5x 4.8x 5.9x 14.2x 13.1x 12.1x 12.7x 7.x 7.7x 6.9x 1.x FLYBE GROUP PLC -2% 17% 32% 9.x 5.8x 2.7x 4.6x n.a. 22.9x 3.8x 32.2x n.a. 45.1x 7.9x 1.x DEUTSCHE LUFTHANSA-REG 1 2% -15% 2.5x 2.4x 2.2x 2.8x 5.4x 5.1x 4.5x 7.4x 5.7x 5.5x 4.7x 1.1x INTL CONSOLIDATED AIRLINE-DI 17% 18% 1% 4.9x 4.3x 4.x 3.8x 7.8x 6.5x 6.x 9.7x 11.4x 9.3x 8.2x 3.5x FINNAIR OYJ 2% 7% -8% 1.3x 1.1x 1.x 3.4x 4.5x 2.9x 2.3x 44.5x 174.7x 8.5x 6.5x.7x Source: Bloomberg, SpareBank 1 Markets Based on the estimates above, a DCF model with various assumptions (WACC 9-11% and terminal growth of 1-3%), and European peer multiples, we believe the fair value of Widerøe is around NOK7 per Torghatten share with today's effective 41% ownership. Widerøe Valuation: Equity value per TORG share Widerøe: Valuation Exhibit 66. NOK 7 DCF Peer P/E Peer EV/EBIT Peer EV/EBITDA Source: Bloomberg, SpareBank 1 Markets NOK per TORG share Important: All disclosure information can be found on page 37 of this document. 28

29 Revenues (NOKm) Other maritime Torghatten has meaningful ownership stakes in several companies active in other maritime industries. In 214, the combined turnover (attributable to Torghatten) from these holdings reached NOK336m, representing 4% of the total. We value this segment based on book values and market capitalisation for the stock-listed companies, with those being NTS ASA and Havila Shipping. Torghatten: Other Maritime Exhibit 67. Source: Torghatten, SpareBank 1 Markets Maritime Ventures AS (51%) Maritime Ventures has ownership interests in companies with a wide range of activities. Seløy Undervannservice (6) performs most types of maritime assignments, but is mainly commissioned by power companies (e.g. Statnett) and aquaculture companies. It also provides services related to submarine pipes, towing, shallow-sea drilling, searching and inspections, salvage and lifting, among others. Seløy Aquaservice (66%) was established in 214, targeting services to the fish-farming sector, such as cleaning and anchoring. Seløy Kystberedskap (6) operates within the offshore sector and Seløybase Sør (1) is active with repair and maintenance services. Revenue and EBIT breakdown of all Seløy companies (1) Exhibit 68. Revenues and EBIT-margins of all Seløy companies (1) Exhibit 69. Title Revenue Breakdown (214) Aquaservice 7% Seløybase Sør EBIT Breakdown (214) Aquaservice 6% Seløybase Sør % 2 Kystberedskap 17% Undervannservice 76% Kystberedskap 45% Undervannservice 49% % 1 5% Revenues EBIT-margin Source: Brønnøysundregistrene, SpareBank 1 Markets Source: Brønnøysundregistrene, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 29

30 Revenues (NOKm) Revenues (NOKm) Secora AS (1) Secora is a maritime contractor divested from the Norwegian Coastal Administration in 25 and acquired by Torghatten in 212. Its main activities involve harbour and shipping lane dredging, quay construction and maintenance, subsea inspections and surveying, along with environmental work. With revenues of close to NOK2m in 214, Secora is one of Norway s largest and most specialised provider of dredging and explosive demolition services. It is contracted by the Norwegian Public Roads Administration for repair and maintenance of all ferry quays in Nordland, Troms, and Finnmark. It is also active in Sweden through subsidiary Secora Sverige AB. Revenue and EBIT breakdown of all Secora companies (1) Exhibit 7. Revenues and EBIT-margins of all Secora companies (1) Exhibit 71. Title Revenue Breakdown (214) Secora Maskin 13% Secora AB 1 Secora AS 77% Secora AB -35% EBIT Breakdown (214) Secora Maskin -3% Secora AS Revenues EBIT-margin 3 25% 2 15% 1 5% -5% -1-15% Source: Brønnøysundregistrene, SpareBank 1 Markets Source: Brønnøysundregistrene, SpareBank 1 Markets NTS ASA (31%) Founded in 1879, Namsos Trafikkselskap (NTS) was initially active in passenger and cargo freight with steamships along the coast of northern Norway. Although it still operates one cargo vessel, today most of NTS NOK42m revenues are generated in the fish-farming sector. Through its fully-owned subsidiary Norsk Fisketransport, NTS is one of the leading wellboat operators in Norway, active along the coast of northern Norway, as well as Scotland. Wellboats are essentially fish carriers; transporting live fish from the floating farm enclosures at sea back to processing plants on the mainland. Norsk Fisketransport operates nine modern wellboats and will take delivery of its tenth in November 215. Customers include Marine Harvest and Cermaq. Most of the vessels are on time-charter, ranging from one to seven years in duration. NTS is also active in other services to the fishfarming sector through another subsidiary, KB Dykk. These range from diving assistance, mooring, cleaning, repair, and freight, and are performed from on the company s seven service boats. NTS also owns the remaining shares in FosenNamsos Sjø, which used to form part of the passenger freight business that was divested and sold to Torghatten. This 33.34% shareholding is of no strategic importance to NTS. NTS is listed on the Oslo Stock Exchange and has a market capitalisation of over NOK5m. NTS ASA: Consolidated revenues and EBITDA-margins Exhibit Title % 3 25% 2 15% 1 5% Revenues EBITDA-margin Source: Brønnøysundregistrene, SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 3

31 North Sea Safety KS (5) Established in 26, the company provides various services to the offshore industry and reached revenues of nearly NOK6m in 214. The company has been profitable since its inception, returning NOK7m in dividends to its shareholders since 212. Team Beredskap sp/f (3) The company was established in 27, registered on the Faroe Islands, as an operator of emergency vessels and provider of crew services. Revenues barely reached NOK4m in 214 and the company made a net loss of nearly NOK5m. This follows 213, when revenues topped NOK127m and the net loss came in below NOK1m. Namsos Invest (25%) Acquired in 214, Torghatten s ownership in Namsos Invest gives it indirect stakes in a number of companies, including NTS ASA, of which the investment company is the largest shareholder with 27% of all outstanding shares. Havila Shipping (4%) Havila Shipping is based in Fosnavåg and operates 27 vessels within subsea construction, anchor handling, platform supply and multi-field rescue recovery. It is listed on Oslo Stock Exchange and has a market capitalisation of NOK15m. Important: All disclosure information can be found on page 37 of this document. 31

32 Other activities Torghatten also has a number of stand-alone businesses in segments related to the operations mentioned before. In 214, revenues from these units were NOK57m, while EBITDA were NOK27m. Our estimates from these activitivies assume flat EBITDA-margins at 12% and stable top line growth of 2% annually. In terms of valuation, we have opted for book values in Torghatten's accounts, although we recognize that their intrinsic values are likely somewhat higher, at least for some of the companies. Torghatten Servicesenter AS (1) Established in 213 as a provider of administrative services for the companies in the Torghatten family. Its main responsibilities involve accounting, IT, receivable collection, and website operations. The company s revenues reached NOK11m in 214. Fosen Verkstedservice AS (1) The company traces its roots to the 195s, but the current organisation was established in It provides repair and maintenance services for cars, trucks, coaches, and oceangoing vessels within the Torghatten family, along with external customers including Boreal and various aquaculture companies, plus leisure boat owners, among others. The company s eight employees generated revenues of NOK14m in 214. Since 24, revenues have fluctuated in the NOK1-15m range and the company has not made operational losses since its establishment. TTS Bil og Dekksenter AS (1) Established in 1994, the company was initially an internal repair shop for Torghatten s many vessels and vehicles. As time passed, a need for services to external customers appeared, and today the company provides repair services on most kinds of vehicles and vessels, along with tyre storage, vehicle rescue, and gas delivery, among others. Its 24 employees generated revenues of NOK4m in 214. The company has been profitable since its inception, returning NOK1m in dividends to Torghatten since Berg-Hansen Reisebureau Trondheim AS (66%) Established in 1984, the Trondheim-based company is a franchisee of the Berg-Hansen travel agency chain, which traces its roots to the late 19 th century. Its main focus is business reservations and 7 of its NOK17m revenues are generated from online bookings. The company s 15 employees complete the remaining bookings manually. Torghatten acquired its 66% stake in 1987 for under NOK3m, an investment that has been highly rewarding. Since 1998, the travel agency has consistently been profitable, returning over NOK3m in dividends to its shareholders. Sør-Helgeland Vaktselskap AS (1) This is a security company operating in Brønnøy and Sømna municipalities, providing traditional guard services, emergency response, and other security-related services to businesses and individuals. Its four employees generated NOK4m in revenues last year, a level that has been more or less stable since 21. The company has been profitable since 2 and has returned around NOK14m in dividends to Torghatten since then. Sikkerhetssenteret Rørvik (23%) Established in 212, the company is involved in training and education within the offshore sector. Last year, revenues came in at NOK13m and the bottom line was barely positive. Torghatten acquired its 23% stake in 214 for NOK2m. NOR-WAY Bussekspress (37.5%) Established in 24, this is on of Norway s leading express coach brands with 17 routes in southern Norway transporting 2.5m passengers yearly. It is owned by several bus companies, including Torghatten s subsidiaries and its rivals, and its main responsibility is to act as a joint marketing and sales operation throughout Norway for all of its shareholders. Through its wholly-owned subsidiary, Flybussekspressen AS, NOR-WAY is in charge for four airport express routes to Oslo Gardermoen, three of which is operated by NorgesBuss. The company has been profitable since its inception and generated revenues of nearly NOK16m last year. Important: All disclosure information can be found on page 37 of this document. 32

33 Valuation We initiate coverage of Torghatten ASA with a Buy recommendation and target price NOK33, implying a 216E EV/EBITDA of 7.4x (adjusted for minorities). Torghatten: Sum-of-the-Parts Valuation Exhibit 73. Torghatten Valuation NOKm Methodology 216E EV/EBITDA EV NIBD Ownership Equity Value Per Share Sea Transport Relative (P/E) 9.3x 3,398 1, % 1, Bus Transport Relative (P/E) 3.9x % Air Transport Relative/DCF 7.7x 1,767 1,12 4.6% NTS ASA Market capitalisation 31.5% Investments in Associates/EAIs Book/Market value Other financial investments Book value 34 4 Total 7.4x 6,54 3,233 3, Upside (Downside) on last close 15.9% Valuation Metrics 215E 216E 217E EV/EBITDA 7.9x 7.4x 6.8x EV/EBIT 15.7x 15.3x 14.1x P/E 9.8x 8.5x 7.8x Source: SpareBank 1 Markets. Note: Multiples have been adjusted for minorities Torghatten: Valuation Breakdown Exhibit 74. NTS ASA 5% Investments in Associates/EAIs 5% Other financial investments 1% Air 21% Sea 46% Bus 22% Source: SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 33

34 Vital management team We believe a key strength in the Torghatten organisation is top management's approach to maintain a decentralized structure with autonomous business units and simple reporting procedures. All responsibility is delegated to regional leaders who frequently reports back to the six-man strong top management team. By operating under this decentralized system with frequent feedback, Torghatten is able quickly respond to poor performing subsidiaries. In addition, as many of the companies under the Torghatten umbrella have a strong local standing, we argue that it is wise to let each individual unit be led by someone who knows and understands the company and minimize interference from executive management. Chief Executive Officer Brynjar Forbergskog Mr. Forbergskog is the CEO of Torghatten ASA and has been in the company for the past 25 years. Educated as an accountant, Mr. Forbergskog started his Torghatten career as CFO for Torghatten Trafikkselskap and later took on the CEO role in 25. He has been a pivotal factor in developing the company from revenues of NOK9m to the leading transportation company Torghatten is today. Under Mr. Forbergskog's 25 years in Torghatten ASA, the company's revenue has had a CAGR of nearly 2. Executive Vice President Roger Granheim Mr. Granheim started out as CEO for Fosen Trafikklag in 24 and held the position until appointed EVP in Torghatten ASA in 21. Previous experience includes a director role in NSB, the Norwegian State Railways. Chief Financial Officer Grete Rekkebo Brovoll Ms. Brovoll is the head of budget at Torghatten ASA. Educated as an accountant she has previous experience from both KPMG and Inter-revisjon. She has held the position since 21 when she was recruited internally from another accounting role. Director HR May Kristin Salberg Ms. Salberg is educated as an engineer and was hired by Fosen Trafikklag ASA in 26, before moving to Fosen ASA in 28 and finally Torghatten ASA in 21. She has held the position of HR director since 21, with the exception of an 8-month gap during which she served as CEO of Bastø Fosen. Prior to joining this she held several leadership positions in other industries. Financial Manager Stein Andre Olsen In addition to his role as financial manager at Torghatten ASA, Mr. Olsen also holds the position of CEO in Torghatten Trafikkselskap. Mr. Olsen has been in the company since 27 and holds several board positions in Torghatten's subsidiaries. Head of Purchasing - Øyvind Grøttheim In addition to Mr. Grøttheim's role as Head of Purchasing, which he has held since 212, he also serves as Managing Director of Maritime Venture AS. On top of this, Mr. Grøttheim sits on the board of several of Torghatten ASA's subsidiaries. Important: All disclosure information can be found on page 37 of this document. 34

35 Ownership Torghatten's shareholder structure is fairly concentrated, with 13 of the largest shareholders owning 2/3 of the company. Some of the shareholders are investment companies owned by leading employees. Top Shareholders Exhibit 75. Shareholder Shares Ownership Voting Rights Christiania Skibs AS 1,537, % 16.4% Saturn Invest AS 1,298, % 13.9% Hifo Invest AS 1,25, % 12.9% Heidenreich Enterprise Ltd. 425, % 4.5% Intertrade Shipping AS 362, % 3.9% Uno Invest AS 327,45 3.4% 3.5% Jac. Moe AS 275, % 2.9% Tanja AS 234, % 2.5% Torgnes AS 232, % 2.5% Amble Investment AS 152, % 1.6% Etui Invest AS 112,36 1.2% 1.2% Skipsinvest AS 1, % 1.1% Brønnøy kommune 97, Top 13 6,36, % 67.9% Source: Torghatten (214 AR), SpareBank 1 Markets Notably, over half of all outstanding shares are owned by insiders. CEO Brynjar Forbergskog is the largest single shareholder with 26.3% ownership. He is followed by Board Member Tor Andenæs, with 18.6%, with the remaining four insiders owning less than 8% combined. Insider Shareholdings Exhibit 76. Shareholder Shares Ownership Brynjar Forbergskog (CEO) 2,53, % Tor Andenæs (Board Member) 1,771, % Torstein Moe (Board Member) 423, % Roger Granheim (EVP) 327,45 3.4% Kjell Inge Skaldebø (Chairman) 1,. Audhild Bang Rande (Board Member) 22. Total Insider Holding 5,27,2 52.9% Source: Torghatten (214 AR), SpareBank 1 Markets Important: All disclosure information can be found on page 37 of this document. 35

36 Income Statement (NOK) Year end: Dec E 216E 217E Net revenues (m) 5,16 8,187 8,51 9,67 1,263 Revenue growth (%) EBITDA (m) 682 1,69 1,158 1,258 1,334 EBITDA margin (%) Depreciation (m) Amortisation (m) EBIT (m) EBIT margin (%) Pre-tax profit (m) Net financials (total) (94) (196) (134) (137) (137) Taxation (m) (29) (57) (119) (137) (148) Minorities (m) Net income (m) Net income (adjusted) (m) Source: SpareBank 1 Markets and Company Data Balance Sheet (NOK) Year end: Dec E 216E 217E Deferred tax assets (m) Goodwill (m) Property, plant and equipment (m) 5,5 5,272 5,89 5,428 5,32 Other non-current assets Total non-current assets (m) 5,499 6,8 5,819 6,151 6,18 Inventory (m) Accounts receivables (m) Cash and equivalents (m) ,157 1,289 Other current assets Total current assets (m) 1,819 1,511 1,782 2,126 2,38 Total assets (m) 7,318 7,519 7,6 8,277 8,326 Shareholders equity (m) 1,244 1,319 1,54 1,989 2,347 Minority interest (m) Non-current interest bearing liabilities (m) 3,55 3,724 3,549 3,71 3,339 Deferred tax liabilities (m) Total non-current liabilities (m) 3,942 4,94 3,919 4,71 3,79 Current interest bearing liabilities (m) Accounts payables (m) Total current liabilities (m) 1,69 1,621 1,657 1,732 1,785 Total liabilities (m) 5,632 5,715 5,576 5,83 5,494 Total equity and liabilities (m) 7,318 7,519 7,6 8,277 8,326 NIBD (m) 2,678 3,84 2,637 2,544 2,5 Source: SpareBank 1 Markets and Company Data Cash Flow (NOK) Year end: Dec E 216E 217E EBIT (m) Change in working capital (m) (89) (151) Net interest paid/income (inc. divs received) (m) Net tax paid (m) (28) (14) (119) (137) (148) Cash flow from operating activities (m) ,142 1,129 Cash flow from investing activities (m) (927) (94) (432) (982) (552) Dividends paid (m) (56) (55) (42) (67) (83) Equity raised (share buybacks) (m) Change in debt and other items (m) (174) 152 (362) Cash flow from financing activities (m) (217) 85 (446) Net change in cash (m) (77) (188) Source: SpareBank 1 Markets and Company Data Valuation Year end: Dec E 216E 217E P/E (x) P/E (adjusted) (x) n/a n.a. n/a n.a. n.a. P/S (x) P/B (x) n/a.5 n/a.4.4 EV/sales (x) EV/EBITDA (x) EV/EBITDA (adjusted) (x) n.a. n.a. n.a. n.a. n.a. EV/EBIT (x) EV/EBIT (adjusted) (x) n.a. n.a. n.a. n.a. n.a. ROE (annualised) (%) ROCE (annualised) (%) Dividend yield (%) n.a. 4.4 n.a Source: SpareBank 1 Markets and Company Data Important: All disclosure information can be found on page 37 of this document. 36

37 IMPORTANT DISCLOSURES AND CERTIFICATIONS This document provides additional disclosures and disclaimers relevant to research reports and other investment recommendations ( Recommendations ) issued by SpareBank 1 Markets AS ( SpareBank 1 Markets ), cf. the Norwegian Securities Trading Act section 3-1 with further regulations. Standards and supervisory authorities SpareBank 1 Markets complies with the standards for recommendations issued by the Norwegian Securities Dealers Association ( and the Norwegian Society of Financial Analysts. The lead analyst (see front page) is employed by SpareBank 1 Markets, which is legally responsible for this report and is und er the supervision of The Financial Supervisory Authority of Norway (Finanstilsynet). 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