Terna — Interim / Quarterly Report 2020

Jul 29, 2020

RESULTS APPROVED AS OF 30 JUNE 2020

ALL INDICATORS IMPROVED IN SPITE OF THE COVID-19 EMERGENCY

CAPEX ACCELERATION IN MAY-JULY PERIOD

• Revenues at € 1,183.1 million (€ 1,097.8 million in 1H19, +7.8%)
• EBITDA at € 876.0 million (€ 846.2 million in 1H19, +3.5%)
• Group net profit at € 377.5 million (€ 366.6 million in 1H19, +3.0%)
• Capex at € 428.0 million (€ 396.3 million in 1H19, +8.0%)
• Net debt at € 8,846.4 million (€ 8,258.6 million at 31 December 2019)

Rome, 29 July 2020 – The Chief Executive Officer and General Manager Stefano Donnarumma has presented the results of the first half of 2020, which were examined and approved by the Board of Directors of Terna S.p.A. ("Terna") at a meeting held on 29 July 2020 and chaired by Valentina Bosetti.

€ million	H1 2020	H1 2019	% change
Revenues	1,183.1	1,097.8	+7.8%
EBITDA (Gross Operating Profit)	876.0	846.2	+3.5%
EBIT (Operating Profit)	573.7	557.5	+2.9%
Group net profit	377.5	366.6	+3.0%
CAPEX	428.0	396.3	+8.0%

SUMMARY OF THE FIRST HALF 2020 CONSOLIDATED RESULTS

During the first half of the year, Terna's all indicators improved in spite of the COVID-19. In particular, starting in phase 2 of the health emergency, in spite of the lockdown period, the Group strongly accelerated construction activity, especially in June and July.

Revenues of the first half of 2020 amounted to € 1,183.1 million and registered an increase of € 85.3 million (+7.8%) compared to the same period in 2019. This result is mainly due to the growth in Regulated Activities, and to the contribution from Non-Regulated Activities, which particularly reflects the contribution from the integration of Brugg Kabel AG. In the second quarter, revenues increased by 9.8% to € 615.6 million (€ 560.8 million in the same period of the previous year).

EBITDA (Gross Operating Profit) stood at € 876.0 million, with an increase of € 29.8 million (+3.5%) compared to € 846.2 million in the first half of 2019. On the one side, this increase reflects better results from Regulated Activities due to the increase in the scope of assets managed and, on the other side, the growing contribution of Non-Regulated and International Activities, also following the integration of Brugg Kabel AG.

The EBITDA for the second quarter of 2020 showed an increase of 3.7% to € 441.8 million (€ 426 million in the same period of 2019).

EBIT (Operating Profit) of the period, after depreciation, amortisation and impairment, stood at € 573.7 million, compared to the € 557.5 million of the first six months of 2019 (+2.9%).

Net financial expenses for the period were € 39.1 million, substantially in line with the first half of 2019, thanks to the efficient management of debt during the period.

Profit before taxes stood at € 534.6 million, up by € 15.9 million compared to the first half of 2019 (+3.1%).

Income tax expense of the period amounted to € 155.0 million, up by € 4.7 million compared to the corresponding period of the previous year (+3.1%). The tax rate stood at 29.0%, substantially in line with the first half of 2019.

Group net profit for the period was € 377.5 million, up by € 10.9 million (+3.0%) compared to € 366.6 million of the first half of 2019. In the second quarter, net profit increased by 5.7% to € 190.9 million (€ 180.6 million in the same period of 2019).

The consolidated statement of financial position at 30 June 2020 showed equity attributable to owners of the Parent of € 4,166.0 million, compared to the € 4,190.3 million at 31 December 2019.

Net debt at 30 June 2020 stood at € 8,846.4 million, compared to the € 8,258.6 million at 31 December 2019, supporting the increased Capex.

Terna Group Capex in the first six months of 2020 was € 428.0 million, compared to the € 396.3 million of the same period of 2019 (+8%). This increase confirms Terna's ability to pursue its objectives, in spite of the suspension of activities at work sites caused by the restrictions linked to Covid-19 emergency. The main projects in the period, aimed at developing, renewing and increasing the security of the grid, include the Benevento III-Pontelandolfo power line that has entered into operation; the progress on the Italy-France interconnection; the rationalisation of the HV grid in Sicily, in the northern part of the Belluno province and in the Naples metropolitan area. In addition, during the first half of 2020, Terna continued the renewal of overhead lines and substation equipment, with the replacement of about 1,000 km of lines.

At the end of June 2020, the Group's employees were 4,668, up by 378 compared to 31 December 2019. This increase is due to a policy aimed at strengthening skills and developing Non-Regulated business activities, following the acquisition of Brugg Kabel AG on 29 February 2020.

MAIN EVENTS IN THE FIRST HALF OF 2020 AND AFTER THE REPORTING PERIOD

Business Development

On 22 May construction of the new Bisaccia-Deliceto power line has begun. The new 380 kV power line will support the optimisation of renewable energy from the South, in particular from Puglia and Campania.

On 6 June, the authorisation process for the restructuring of the power grid in Bologna started. The total value of the works plan is approximately € 40 million; the construction of approximately 39 km of underground power cables will allow for the demolition of 48 km of old overhead lines and the disposal of around 14 km of old underground cables.

On 8 June the authorisation process for the restructuring of the power grid in Teramo and Pescara started. The works plan, worth approximately € 20 million, aims to create a renewed and modern electricity system capable of ensuring greater resilience, quality and safety of the service for the grid in Abruzzo.

On 20 June 2020, Terna took part in the States General of the Economy organized by the Italian government in order to discuss plans for the Country's restart and recovery following the Covid-19 emergency.

On 1 July 2020 the authorisation process for the reorganisation of the power grid between Catanzaro and Calusia started. The works plan, worth approximately € 25 million, aims to renew the existing power grids while relocating them away from residential areas in order to ensure greater network resilience, as well improved quality and safety of the service for businesses and citizens.

On 15 July 2020 the authorisation process for the reorganization of the power grid in the municipalities of Novara province started. The works plan, worth approximately € 38 million, will allow for the demolition of about 24 km of overhead lines and over 100 pylons.

Finance

On 9 June 2020 Terna S.p.A. updated its € 8 billion Euro Medium Term Note (EMTN) Programme. Deutsche Bank and Citigroup were the joint arrangers of the programme, which has been rated "BBB+/A-2" rating by S&P, "(P)Baa2 /(P)P-2" by Moody's, "BBB+" by Fitch and "A-/S-1" by Scope.

On 29 June 2020, implementing the authorisation granted by the Shareholders' Meeting of 18 May 2020 and the subsequent board resolution of 17 June of the same year, a share buy-back programme was launched, for a total maximum amount of € 9.5 million and a maximum of 1.77 million ordinary shares of the Company, representing approximately 0.09% of Terna's share capital. As of 28 July 2020, 991,817 ordinary shares (corresponding to 0.05% of the company's share capital) were purchased for a total of € 6.18 million.

On 17 July 2020, Terna successfully launched a new Green Bond for a nominal amount of € 500 million with an actual rate of 0.78%: the lowest ever amongst Italian corporates, both for a green bond and, in general, for issues over 10 years. The Green Bond has been issued with a tenor of 12 years and it will pay a coupon of 0.75%.

Sustainability and Innovation

On 3 June 2020, Terna signed an agreement with the University of Padua regarding research, development and innovation activities within the Innovation Hub, as well as teaching, training and networking activities. The agreement was signed as part of the "Veneto Region Contamination Lab 2020" initiative promoted by the University of Padua.

On 10 June 2020, "Nemesys" won the fourth edition of Next Energy: the programme promoted by Terna, the Cariplo Foundation and Cariplo Factory aims to foster young graduates and individual talents, supporting the development of innovative projects, startups and companies focused on issues related to the development of the energy system.

TERNA AND COVID-19 EMERGENCY

The health and safe operation of all employees has been a top priority for Terna, which progressively introduced all the necessary measures to contain and reduce the risk of contagion from Covid-19.

For the so-called re-entry phase - from 4 May - a "Safe Together" campaign has been launched, aimed at providing "operating instructions" on behaviours to be adopted in the workplace. This involved placing posters containing behavioural guidance directly in the various workplaces. In addition, the application of a Smart Working regime to all the personnel in the Staff and business support areas was also confirmed. The second half of the year has begun with a gradual reopening of the offices which, through to the end of August, can operate at up to 40% capacity.

The lockdown, begun on 9 March and ended on 3 May, led to an unexpected, but equally important stress test of the transmission grid. Above all, the sharp fall in demand for electricity, accompanied by a rise in the volume of renewable energy produced, resulted in a significant increase in the percentage of overall demand met from renewable sources.

In the most critical phase of the health emergency, Terna supported Italy's Civil Protection Agency by making two donations of PPE (masks and gloves) and ventilators for intensive care units. Terna's employees voluntarily donated almost 3,000 hours of their salaries and the Company contributed by doubling the money raised by the workers. Additionally, on 13 March 2020, an insurance policy was signed to provide a package of guarantees and services benefiting all of

Terna's employees. The insurance provides employees with hospitalisation and convalescent benefits, as well as some assistance services after hospitalisation.

In the first half of 2020, during the Covid-19 emergency, Terna was recognized as an example of best practice for transmission operators who are members of the various trade associations. In particular, measures aimed at halting the spread of the virus among personnel and activities linked to operation of the grid against a backdrop of significant, abrupt changes in the structure of consumption, were appreciated.

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 part of 2020. The current situation, marked by a continually changing backdrop and increased uncertainty linked to the potential development of the infection, also means that the outlook for the global economy in the second half of the year remains weak.

In this context the Group will continue to be committed to the construction of new grid infrastructures, confirming Terna's leading role for a sustainable energy transition, 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.

Regarding Regulated Activities, the continuation of the acceleration of investment activities and the strengthening of the core business is confirmed. 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, which led to a slowdown in activity, firstly with the suspension of work (in mid-March) and then with the progressive restart (from the end of April), the Group has drawn up an action plan designed to make up for the resulting 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).

Regarding Non-Regulated activities, Terna will 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 and distributed computing and based on exploiting the Group's infrastructure. The Group also plans to take specific steps to compensate for the suspension of activity in its non-regulated segment, with the aim of mitigating the negative impact of delays caused by the Covid-19 emergency. The full integration of Brugg Cables within the Terna Group will also continue in the second half of 2020.

For what concerns International Activities, they will continue to be focused on the management and maintenance of the power lines in operation in Brazil and Uruguay and on the implementation of the ongoing projects in Peru and Brazil. We do not currently expect our international business to be significantly affected by the Covid-19 emergency.

The Group will also continue the process of scouting of further opportunities in overseas markets. 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 limited capital absorption.

As a consequence, the Covid-19 health emergency is not expected to have a significant financial impact on the Terna Group's performance, given the regulated profile of its business. Considering the current situation of progressive normalization of activities in Italy, the Group's results are currently expected to be in line with the previously announced guidance.

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 ("Noncurrent 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 "Noncurrent financial assets".

Today, at 4 pm, a meeting will be held to illustrate the results of the first half 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 presentation 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 Interim Financial Report at 30 June 2020, with the certification required by Article 154 bis, paragraph 5 of Italian Legislative Decree 58/98 (CLF) and the report by the audit company, will be filed and available to the public, by the deadline set out by law, at the Company's registered office, published on the Company's website (www.terna.it) and on the website of the authorized storage service (), and filed with the stock exchange management company Borsa Italiana S.p.A. www.borsaitaliana.it). Disclosure regarding 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 should be noted that, pursuant to Communication No. DME/9081707 of 16 September 2009, the reclassified statements are those included in the Interim Report on Operations at 30 June 2020, included in the interim financial report of the Terna Group at 30 June 2020, for which the Independent Auditing Company, in compliance with Article 14 of Italian Legislative Decree No. 39 dated 27 January 2010 will verify consistency with the Condensed Consolidated Interim Financial Statements.

The Terna Group's reclassified income statement

					(€m)
2020	Q2 2019	Cha nge	% change		H1 2020	H1 2019	Cha nge	% change
615.6	560.8	54.8	9.8%	TOTAL REVENUE	1,183.1	1,097.8	85.3	7.8%
508.6	504.9	3.7	0.7%	- Regulated revenue	1,025.2	1,004.8	20.4	2.0%
				of which Revenue from construction services
4.1	3.0	1.1	36.7%	performed under concession	8.3	5.0	3.3	66.0%
101.7	49.3	52.4	106.3%	- Non-Regulated revenue	145.6	82.2	63.4	77.1%
5.3	6.6	(1.3)	(19.7%)	- International revenue	12.3	10.8	1.5	13.9%
173.8	134.8	39.0	28.9%	TOTAL OPERATING COSTS	307.1	251.6	55.5	22.1%
76.8	64.4	12.4	19.3%	- Personnel expenses	143.4	129.6	13.8	10.6%
39.6	37.7	1.9	5.0%	- Cost of services, leases and rentals	76.1	75.0	1.1	1.5%
44.3	22.4	21.9	97.8%	- Materials	65.3	29.6	35.7	120.6%
8.8	6.5	2.3	35.4%	- Other costs	14.5	10.2	4.3	42.2%
0.2	0.8	(0.6)	(75.0%)	- Quality of service	(0.5)	2.2	(2.7)	(122.7%)
				- Cost of construction services
4.1	3.0	1.1	36.7%	performed under concession GROSS OPERATING PROFIT	8.3	5.0	3.3	66.0%
441.8	426.0	15.8	3.7%	(EBITDA)	876.0	846.2	29.8	3.5%
				- Amortisation, depreciation and
150.1	148.3	1.8	1.2%	impairment losses	302.3	288.7	13.6	4.7%
291.7	277.7	14.0	5.0%	OPERATING PROFIT (EBIT)	573.7	557.5	16.2	2.9%
(19.8)	(22.9)	3.1	(13.5%)	- Net financial income/(expenses)	(39.1)	(38.8)	(0.3)	0.8%
271.9	254.8	17.1	6.7%	PROFIT/(LOSS) BEFORE TAX	534.6	518.7	15.9	3.1%
78.6	72.4	6.2	8.6%	- Income tax expense for the period	155.0	150.3	4.7	3.1%
193.3	182.4	10.9	6.0%	PROFIT FOR THE PERIOD	379.6	368.4	11.2	3.0%
				- Profit/(Loss) attributable to non
2.4	1.8	0.6	33.3%	controlling interests PROFIT FOR THE PERIOD	2.1	1.8	0.3	16.7%
				ATTRIBUTABLE TO
190.9	180.6	10.3	5.7%	OWNERS OF THE PARENT	377.5	366.6	10.9	3.0%

The Terna Group's reclassified statement of financial position

			(€m)
	at 30 June 2020	at 31 December 2019	Change
Total net non-current assets	15,018.2	14,908.5	109.7
- Intangible assets and goodwill	541.6	542.7	(1.1)
- Property, plant and equipment	14,002.7	13,864.2	138.5
- Financial assets	473.9	501.6	(27.7)
Total net working capital	(1,801.8)	(2,207.8)	406.0
- Net energy-related pass-through payables	(390.4)	(575.8)	185.4
- Net receivables resulting from Regulated Activities	75.4	320.4	(245.0)
- Net trade payables	(471.5)	(899.1)	427.6
- Net tax liabilities	(11.7)	(5.3)	(6.4)
- Other net liabilities	(1,003.6)	(1,048.0)	44.4
Gross invested capital	13,216.4	12,700.7	515.7
Sundry provisions	(162.1)	(210.2)	48.1
NET INVESTED CAPITAL	13,054.3	12,490.5	563.8
Equity attributable to owners of the Parent	4,166.0	4,190.3	(24.3)
Equity attributable to non-controlling interests	41.9	41.6	0.3
Net debt	8,846.4	8,258.6	587.8
TOTAL	13,054.3	12,490.5	563.8

The Terna Group's cash flow

		(€m)
	Cash flow H1 2020	Cash flow H1 2019
- Profit for the period	379.6	368.4
- Amortisation, depreciation and impairment losses	302.3	288.7
- Net change in provisions	(48.1)	(69.6)
of which contributed by Brugg Cables	11.6	-
- Net losses/(gains) on sale of assets	(3.1)	(1.5)
Operating cash flow	630.7	586.0
- Change in net working capital	(405.5)	(160.0)
of which contributed by Brugg Cables	(45.1)	-
- Other changes in property, plant and equipment and intangible assets	(9.1)	17.1
of which contributed by Brugg Cables	(24.6)
- Change in investments	(2.5)	(2.2)
- Change in financial assets	30.2	(16.7)
Cash flow from operating activities	243.8	424.2
- Total capital expenditure	(428.0)	(396.3)
Free cash flow	(184.2)	27.9
- 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	(69.5)	(111.5)
- Other movements in equity attributable to non-controlling interests	(1.8)	-
Change in net debt	(587.8)	(394.1)