Terna — Interim / Quarterly Report 2020

Nov 11, 2020

RESULTS APPROVED AS OF 30 SEPTEMBER 2020

STRONG CAPEX ACCELERATION IN THIRD QUARTER TO THE BENEFIT OF THE NATIONAL ELECTRICITY SYSTEM AND ITALY'S RECOVERY

ALL ECONOMIC INDICATORS IMPROVED

• Revenues at € 1,780.6 million (€ 1,665.5 million in 9M19, +6.9%)
• EBITDA at € 1,323.3 million (€ 1,278.4 million in 9M19, +3.5%)
• Group net profit at € 569.1 million (€ 552.5 million in 9M19, +3.0%)
• Capex at € 749.5 million (€ 670.0 million in 9M19, +11.9%)
• Net debt at € 8,824.6 million (€ 8,258.6 million at 31 December 2019)
• 2020 Interim dividend of 9.09 eurocents per share, +8% compared to 2019

Rome, 11 November 2020 – The Board of Directors of Terna S.p.A. ("Terna"), at a meeting held today and chaired by Valentina Bosetti, examined and approved the results as of 30 September 2020.

During the first nine months of the year, characterised by the Covid-19 health emergency and by a continually changing scenario, Terna's all economic indicators improved: in particular, in the third quarter the Group further accelerated the deployment of investments which during the period from 1 July to 30 September 2020, totalled over € 321 million, with a 17% increase compared to the third quarter of 2019, to the benefit of the national electricity system and Italy's recovery.

"In the third quarter Terna recorded solid results, with a strong increase in investments in all the areas of the Country, confirming its key role in the energy transition and as a driver for economic growth. In this context, on 19 November we will present our new 2021-2025 Industrial Plan, with the goal of further contributing to the Italy's recovery", said Stefano Donnarumma, CEO and General Manager of Terna.

€ million	First 9 months 2020	First 9 months 2019	% change
Revenues	1,780.6	1,665.5	+6.9%
EBITDA (Gross Operating Profit)	1,323.3	1,278.4	+3.5%
EBIT (Operating Profit)	865.1	842.2	+2.7%
Group net profit	569.1	552.5	+3.0%
CAPEX	749.5	670.0	+11.9%

SUMMARY OF THE FIRST 9 MONTHS OF 2020 CONSOLIDATED RESULTS

Revenues in the first 9 months of 2020 amounted to € 1,780.6 million and registered an increase of € 115.1 million (+6.9%) compared to the same period in 2019. This result is mainly due to the increase in revenues from Regulated Activities and to the contribution from Non-Regulated Activities, which particularly reflects the contribution from the integration of Brugg Cables and from private interconnector projects. In the third quarter, revenues increased by 29.8 million compared to the same period of the previous year (+5.2%).

EBITDA (Gross Operating Margin) for the period stood at € 1,323.3 million, with an increase of € 44.9 million compared to € 1,278.4 million in the first nine months of 2019 (+3.5%), mainly due to better results from Regulated Activities and Non-Regulated Activities, also following the integration of Brugg Cables. The EBITDA for the third quarter of 2020 showed an increase of 3.5% to € 447.3 million (€ 432.2 million in the same period of 2019).

EBIT (Operating Profit) of the period, after amortisation, depreciation and impairment losses of € 458.2 million, stood at € 865.1 million, compared to the € 842.2 million of the first nine months of 2019 (+2.7%).

Net financial expenses for the period were € 70.4 million compared to € 61.1 million in the first nine months of 2019, reflecting a reduction in capitalised expenses and adjustments to the value of investments in some associates.

Profit before taxes stood at € 794.7 million, up by € 13.6 million compared to the same period in 2019 (+1.7%).

Income tax expense of the period amounted to € 222.9 million and decreased by € 3.6 million compared to the corresponding period of 2019 (-1.6%). The tax rate stood at 28%, slightly lower than the first nine months of 2019, due to the tax-exempt income recognised during the period.

Group net profit for the period was € 569.1 million, up by € 16.6 million (+3.0%) compared to € 552.5 million for the first nine months of 2019.

The consolidated statement of financial position showed equity attributable to owners of the Parent of € 4,333.5 million, compared to € 4,190.3 million at 31 December 2019.

Net debt at 30 September 2020 stood at € 8,824.6 million, compared to € 8,258.6 million at 31 December 2019 (+€ 566 million), supporting the increased Capex.

Terna Group Capex in first nine months of 2020 was € 749.5 million, compared to € 670 million of the same period of 2019 (+11.9%), in spite of the Covid-19 emergency. The main projects in the period includes works to increase the capacity for exchange between the various areas of the electricity market in Campania and Sicily; the rationalisation of the electricity grid in the Naples metropolitan area and the progress on the Italy- France interconnection.

At the end of September 2020, the Group's employees were 4,696, up by 406 compared to 31 December 2019.

MAIN EVENTS IN THE THIRD QUARTER OF 2020 AND AFTER THE REPORTING PERIOD

Business Development

On 30 July 2020 Terna started work in the Venetian Lagoon for the removal of reinforced concrete foundations for 19 electricity pylons demolished in 2019. This represents the final phase of the work to modernise the electricity grid in the Venetian Lagoon, which has enabled a total of 6.5 km of overhead power lines and 24 pylons, 5 of which were on land, to be removed.

On 4 August 2020 Terna presented a € 1.5 million investment plan to remove old electrical infrastructure from the town of Spoleto as part of the construction of the 150 kV Villavalle - Spoleto

power line. The initiative will bring important environmental benefits through the demolition of 19 pylons and of about 3.5 km of obsolete lines which currently overlook the town of Spoleto.

On 7 August 2020 Terna has begun works to move the 380 kV Lacchiarella-Chignolo Po power line for the stretch that runs through the Municipality of Chignolo Po. The project, which calls for a € 6.7 million investment, includes the demolition of 14 pylons near the town, for a total of 5.5 km of lines eliminated.

On 14 September 2020 FCA, Engie Eps and Terna presented the Vehicle-to-grid (V2G) electricmobility pilot project. The plant will allow for the interconnection of up to 700 electric vehicles that will engage in smart exchange of energy with the grid, making them a precious resource for the national electricity system managed by Terna.

On 22 September 2020 Terna started work to restructure five 132 kV electricity lines in the municipality of Magenta. This € 28 million investment by Terna will increase the reliability, efficiency and flexibility of the grid serving the town, the south western area of Milan and the entire Lombardy region generally.

On 29 September 2020 Terna launched the Public Consultation Plan for the new Italy-Tunisia undersea power line, which will allow residents to talk directly to Terna technicians and express their own opinions and preferences regarding two possible provisioned routes for the development project. The Covid-19 health emergency has made it necessary to identify new methods of carrying out meetings and dialogue with local communities. As well as traditional forms of communication, starting from this initiative, Terna has organised online meetings that will be able to reach a larger number of people.

On 14 October 2020, in the presence of Italian Prime Minister Giuseppe Conte, local authorities and Terna CEO Stefano Donnarumma, Terna's new power line connecting Capri to the mainland was officially opened. Terna has invested a total of € 150 million to complete a technologically advanced project able to supply Capri with renewable energy and eliminate polluting emissions thanks to the decommission of the current diesel generator plant located on the island, contemporaneously increasing the island's system safety. The new 'Capri - Sorrento' undersea power line is 19 km long

and completes the 160MW electricity link, the first section of which connects the island to Torre Annunziata and was completed in 2017.

On 22 October 2020 Terna filed an authorisation request for the rationalisation of the electricity grid between Dolo and Camin, which aims to improve the reliability and quality of the electricity service in the Veneto region. Terna has invested a total of € 140 million to bury 16.5 km of new lines and remove 32 km of old overhead power lines. A total of 123 pylons will disappear and 95 hectares will be freed from electricity infrastructure.

On 23 October 2020 Terna announced an investment of € 300 million in Sicily for the 380 kV Chiaramonte Gulfi-Ciminna power line. One of the most significant investments planned in Italy, to improve the reliability and quality of the electricity service in Sicily and promote generation from renewable sources. The power line will cross 6 provinces (Agrigento, Caltanissetta, Catania, Enna, Palermo and Ragusa) and 24 Municipalities. It will be the first extra high voltage connection in the west of the island, currently provided with a 150 kV grid.

On 26 October 2020, the new 150 kV Selegas electrical substation, in Croxideoni, in the South Sardinia province, entered service. The € 9 million investment aims to make the island's electricity grid more flexible and efficient, in particular for Trexenta, Ogliastra and in general, for the centraleastern area of Sardinia. Despite the difficulties due to Covid-19, the electrical substation was built in the 16 months planned.

International Activities

On 12 August, through its subsidiary Terna Plus, Terna has finalised the closing with Construtora Quebec for the acquisition of the Linha Verde I power line, the second of the two concessions acquired by Terna in the South American country. With this transaction, Terna has acquired the controlling stake in the company that is the subject of the transaction, holder of the concession for the construction of the 500 kV "Governador Valadares-Mutum" power line, approximately 150 km long, and located in the State of Minas Gerais, in central-eastern Brazil. The value of the transaction (including the development and construction costs) is worth approximately USD 50 million.

Finance

On 17 July 2020 Terna issued a green bond addressed to institutional investors for a nominal amount of € 500 million. The issuance has been very successful in the market with an oversubscription of € 2 billion, approximately 4 times the offered amount, and was made as part of Terna's € 8.000.000.000 Euro Medium Term Notes (EMTN) Programme. With a tenor of twelve years and maturity on 24 July 2032, the green bond will pay a 0.75% coupon.

On 3 and 6 August 2020, Terna signed two bilateral ESG-linked Term Loans, for an amount of € 200 million and € 100 million and a duration of 2 and 3 years respectively, both with an interest rate indexed to the EURIBOR, plus a margin linked to Terna's performance in relation to specific environmental, social and governance ("ESG") indices.

On 10 August 2020 the share buy-back programme launched on 29 June 2020, supporting the Performance Share Plan 2020-2023, was closed as it had reached the total maximum amount of € 9,499,998.75. Within the Programme, Terna purchased 1,525,900 treasury shares (equal to 0.076% of the share capital).

On 18 September 2020 Terna issued a bond for € 500 million addressed to institutional investors. The issue, which received a great market response with a demand of over 3 times the amount on offer, was made as part of Terna's € 8,000,000,000 Euro Medium Term Notes (EMTN) Programme. With a duration of 10 years and maturity on 25 September 2030, the bond will pay a 0.375% coupon.

On 30 September 2020 three green bond issues by Terna have been included in the ExtraMOT PRO segment of the Italian Stock Exchange.

On 27 October 2020 S&P Global Ratings (S&P) affirmed the long-term corporate credit rating on Terna at BBB+, one notch above Republic of Italy's rating. S&P has revised the outlook of Terna to stable from negative.

On 28 October 2020 Terna signed a bilateral ESG-linked Term Loan for a total amount of € 200 million. The credit line will have a term of 2 years and an interest rate linked to Terna's performance in relation to specific environmental, social and governance (ESG) indexes.

Sustainability

On 24 August 2020 Terna has been confirmed among the leading companies worldwide for sustainability performance on the FTSE4Good index for the 16th year in a row. The assessment, conducted twice a year, takes into consideration over 300 indicators which relate to topics including climate change, corporate governance and respect for human rights.

Innovation

On 22 September 2020, Terna, Avvenia the Energy Innovator (group company) and Digital Magics launched the EES - Energy Efficiency for Sustainability Call for Innovation aimed at start-ups, SMEs, micro-businesses and individuals. A jury will pick one start-up to receive the prize of € 15,000.

BUSINESS OUTLOOK

The global health emergency caused by the widespread outbreak of Covid-19 had a major impact on markets and on the Italian and global economies in the first nine months of 2020. The current situation, marked by a continually changing scenario and increased uncertainty linked to the potential development of the pandemic, also means that the outlook for the global economy in the last quarter of the year remains weak.

Against this backdrop, the Group will continue to be engaged in delivering new grid infrastructures, carrying out renewal work and boosting the security of its assets, confirming Terna's leading role for a sustainable energy transition. This will involve leveraging innovation, skills and distinctive technologies to the benefit of all stakeholders. Moreover, with a view to supporting initiatives essential to the Country's rapid recovery, Terna intends to revise its long-term plan with the aim of, wherever possible, further accelerating infrastructure development. The new plan will be presented on 19 November 2020.

Regarding Regulated Activities, the Group will continue to step up investments and to strengthen the core business. This will involve direct engagement across the Country, through listening and dialogue with all the key stakeholders, local communities, authorities and institutions. Following the Covid-19 health emergency, the Group is working hard to implement the action plan drawn up in order to make up for earlier delays. This will be done by bringing forward the timing of work (speeding

up activities and carrying them out in parallel) and by expediting suppliers (optimising the supplier base and monitoring performance).

Main projects under construction include the interconnection with France, as well as the start of work on the new SA.CO.I.3 project (strengthening the link between Sardinia, Corsica and the Italian mainland). In addition, the main projects to increase the exchange capacity between the various areas of the Italian electricity market include the Paternò-Pantano- Priolo power line, and the reorganisation of electricity grids in metropolitan areas, such as Naples.

In terms of Non-Regulated Activities, Terna will continue to consolidate its competence-based activities, developing high value-added services for corporate customers, including energy efficiency solutions, and taking advantage of market opportunities for traditional and renewable customers. Meanwhile, asset-based initiatives will pursue opportunities linked to connectivity, based on exploiting the Group's own fibre infrastructure. The Group also plans to take specific steps to compensate for the slowdown in activity in its non-regulated segment, with the aim of mitigating the negative impact of delays caused by the Covid-19 emergency. On this extent, Terna will benefit from the full integration of Brugg Cables that will continue in the last quarter of 2020.

For what concerns International Activities, they will continue to focus on managing and maintaining the power lines that have entered into service in Brazil and Uruguay, and on completing existing projects in Peru and Brazil. The process of scouting for further opportunities in overseas markets will continue. This may take the form of partnerships and will involve the careful selection of projects with a view to ensuring a low risk profile and avoiding the need to tie up large amounts of capital.

In spite of the above, the Covid-19 health emergency is not expected to have a significant financial impact on the Terna Group's performance, given the highly regulated nature of its business.

2020 INTERIM DIVIDEND OF 9.09 EUROCENTS PER SHARE

In the light of the financial and equity position, the income statement results and business outlook for the current financial year, the Board of Directors of Terna S.p.A, having today received the opinion from the auditing firm Deloitte & Touche S.p.A. required under Article 2433-bis of the Italian Civil Code, has resolved to pay an ordinary interim dividend for 2020 in the amount of 9.09 eurocents per share, with an increase of 8% as compared to the previous year, in line with the guidance communicated in the 2020-2024 Strategic Plan.

Taking into account the provisions of art.2357-ter paragraph 2 of the Italian Civil Code, the treasury shares acquired to service the 2020-2023 Performance Share Plan cannot contribute to the distribution of the interim dividend.

The total amount is € 182,708,272.80, calculated on 2,009,992,000 ordinary shares representing the share capital. The treasury shares in the portfolio at the "record date" indicated below do not contribute to this partial payment. The amount of the interim dividend for 2020 due to the treasury shares held by the Company at the "record date" will be allocated to the reserve known as "retained profit".

The interim dividend, gross of any withholding required by law, will be payable from 25 November 2020 (record date pursuant to Art. 83-terdecies of Italian Legislative Decree no. 58, "Consolidated Law on Finance" or CLF: 24 November 2020), with an ex-dividend date of coupon no. 33 on 23 November 2020.

ALTERNATIVE PERFORMANCE MEASURES

In this release, some "alternative performance measures" (EBITDA, Tax Rate and Net Debt) are used, which are not provided for in the IAS/IFRS accounting standards, whose meaning and contents are explained below pursuant to the ESMA/2015/1415 guideline published on 3 December 2015:

• EBITDA (Gross Operating Margin): this is a measure of operating performance; it is calculated as "Net profit for the year" before "Income taxes for the year", "Financial income/(expense)" and "Amortisation, depreciation and impairment losses";

• Tax rate: this expresses the proportion of tax with respect to the profit/(loss) and derives from the ratio between "Income taxes for the year" and "Profit/(loss) before taxes";

• Net Debt: this is a measure of the company's financial structure. It is determined as the sum of the short-term ("Short-term loans", "Current portion of long-term loans" and "Current financial liabilities") and long-term debt ("Long-term loans") and the related derivative instruments ("Non-current financial liabilities"), net of "Cash and cash equivalents", "Current financial assets" and "Non-current financial assets" for the value of hedging derivatives on bonds. It should be noted that the net financial debt of the Terna Group is in compliance with the provisions of ESMA Recommendation no. 319 of 2013 regarding the definition of the net financial position, less "Non-current financial assets".

Today, at 4pm, a meeting will be held to present the results of the first 9 months of 2020 to financial analysts and investors. The support material for the event will be made available on the Company's website (www.terna.it), in the Investors section, at the beginning of the meeting. The presentations will also be made available, via the "eMarket SDIR" circuit, on the website of Borsa Italiana S.p.A. (www.borsaitaliana.it) and filed with the authorised storage system (). Journalists will have the opportunity to follow the meeting without any right to speak. It will also be possible to follow the presentation by connecting to the audio webcast on the Company website (www.terna.it): following the live coverage, the file will be available in the section Investors.

The Financial Reporting Manager, Agostino Scornajenchi, pursuant to paragraph 2 of Art. 154-bis of the Consolidated Law on Finance, declares that the accounting information included in this press release corresponds to the evidence in the documents, books and accounting records.

The Terna Group's Consolidated Interim Financial Report as of 30 September 2020 has not been audited and was prepared voluntarily, pursuant to art. 82-ter of CONSOB Issuer Regulations (as amended by CONSOB Resolution no. 19770 of 26 October 2016). In continuity with the past, the compliance and correctness of the financial information provided to the public and the comparability of the related information with the corresponding data in the interim reports previously disclosed to the public is ensured. The document containing the Terna Group's Consolidated Interim Financial Report as of 30 September 2020 will be made available to the public before 14 November 2020 at the Company's registered office, published on the Company's website (www.terna.it) and on the website of the authorised storage service (), and filed at the stock exchange management company Borsa Italiana S.p.A. (www.borsaitaliana.it). The prescribed disclosure regarding the filing will be issued.

The reclassified Income Statement, Statement of Financial Position and Statement of Cash Flows of the Terna Group are attached. These represent the classification of the results used by management for a more efficient evaluation of the Terna Group's economic and financial performance. It is highlighted that, in compliance with Directive no. DME/9081707 of 16 September 2009, these reclassified statements are included in the Terna Group's Consolidated Interim Financial Report as of 30 September 2020, prepared in line with standard practices for the sector.

The Terna Group's reclassified income statement

Q3					(€m)
2020	2019	Change	% change		9M 2020	9M 2019	Change	% change
597.5	567.7	29.8	5.2%	TOTAL REVENUE	1,780.6	1,665.5	115.1	6.9%
519.7	513.2	6.5	1.3%	- Regulated revenue of which Revenue from construction services performed under	1,545.0	1,518.0	27.0	1.8%
5.5	5.9	(0.4)	(6.8%)	concession	13.8	10.9	2.9	26.6%
72.2	48.2	24.0	49.8%	- Non-Regulated revenue	217.7	130.4	87.3	66.9%
5.6	6.3	(0.7)	(11.1%)	- International revenue	17.9	17.1	0.8	4.7%
150.2	135.5	14.7	10.8%	TOTAL OPERATING COSTS	457.3	387.1	70.2	18.1%
63.3	59.6	3.7	6.2%	- Personnel expenses - Cost of services, leases and	206.7	189.2	17.5	9.2%
38.6	40.8	(2.2)	(5.4%)	rentals	114.7	115.8	(1.1)	(0.9%)
35.2	22.0	13.2	60.0%	- Materials	100.5	51.6	48.9	94.8%
4.4	7.0	(2.6)	(37.1%)	- Other costs	18.9	17.2	1.7	9.9%
3.2	0.2	3.0	-	- Quality of service - Cost of construction services	2.7	2.4	0.3	12.5%
5.5	5.9	(0.4)	(6.8%)	performed under concession	13.8	10.9	2.9	26.6%
				GROSS OPERATING PROFIT
447.3	432.2	15.1	3.5%	(EBITDA)	1,323.3	1,278.4	44.9	3.5%
155.9	147.5	8.4	5.7%	- Amortisation, depreciation and impairment losses	458.2	436.2	22.0	5.0%
291.4	284.7	6.7	2.4%	OPERATING PROFIT (EBIT)	865.1	842.2	22.9	2.7%
(31.3)	(22.3)	(9.0)	40.4%	- Net financial income/(expenses)	(70.4)	(61.1)	(9.3)	15.2%
260.1	262.4	(2.3)	(0.9%)	PROFIT/(LOSS) BEFORE TAX - Income tax expense for the	794.7	781.1	13.6	1.7%
67.9	76.2	(8.3)	(10.9%)	period	222.9	226.5	(3.6)	(1.6%)
192.2	186.2	6.0	3.2%	PROFIT FOR THE PERIOD	571.8	554.6	17.2	3.1%
0.6	0.3	0.3	100.0%	- Profit/(Loss) attributable to non controlling interests	2.7	2.1	0.6	28.6%
191.6	185.9	5.7	3.1%	PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	569.1	552.5	16.6	3.0%

The Terna Group's reclassified statement of financial position

			(€m)
	at 30 September 2020	at 31 December 2019	Change
Total net non-current assets	15,174.9	14,908.5	266.4
- Intangible assets and goodwill	547.0	542.7	4.3
- Property, plant and equipment	14,146.9	13,864.2	282.7
- Financial assets	481.0	501.6	(20.6)
Total net working capital	(1,832.6)	(2,207.8)	375.2
- Net energy-related pass-through payables	(405.0)	(575.8)	170.8
- Net receivables resulting from Regulated Activities	201.1	320.4	(119.3)
- Net trade payables	(549.5)	(899.1)	349.6
- Net tax liabilities	(112.2)	(5.3)	(106.9)
- Other net liabilities	(967.0)	(1,048.0)	81.0
Gross invested capital	13,342.3	12,700.7	641.6
Sundry provisions	(140.6)	(210.2)	69.6
NET INVESTED CAPITAL	13,201.7	12,490.5	711.2
Equity attributable to owners of the Parent	4,333.5	4,190.3	143.2
Equity attributable to non-controlling interests	43.6	41.6	2.0
Net debt	8,824.6	8,258.6	566.0
TOTAL	13,201.7	12,490.5	711.2

The Terna Group's cash flow

		(€m)
	Cash flow 9M 2020	Cash flow 9M 2019
- Profit for the period	571.8	554.6
- Amortisation, depreciation and impairment losses	458.2	436.2
- Net change in provisions	(69.6)	(101.1)
of which contributed by Brugg Cables	11.4	-
- Net losses/(gains) on sale of assets	(3.7)	(3.5)
Operating cash flow	956.7	886.2
- Change in net working capital	(374.4)	(82.8)
of which contributed by Brugg Cables	(44.4)	-
- Other changes in property, plant and equipment and intangible assets	7.2	23.3
of which contributed by Brugg Cables	(24.2)	-
- Change in investments	2.1	(3.4)
- Change in financial assets	18.5	(22.0)
Cash flow from operating activities	610.1	801.3
- Total capital expenditure	(749.5)	(670.0)
Free cash flow	(139.4)	131.3
- Dividends paid to the Parent Company's shareholders	(332.3)	(310.5)
- Cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent	(93.6)	(170.9)
- Other movements in equity attributable to non-controlling interests
Change in net debt	(0.7)	-
	(566.0)	(350.1)