Terna — Interim / Quarterly Report 2021

May 12, 2021

We are one of Europe's leading electricity transmission grid operators.

We manage the high-voltage Italian transmission grid, one of the most modern and technologically advanced in Europe. We play a central role in driving the ecological transition, guaranteeing the secure and efficient supply of energy to households and businesses.

Terna's share price € 6.438 per share at 31 March 2021 versus € 5.770 per share at 31 March 2020

EMPLOYEES at 31 March 2021 4,814

(€m)

Financial highlights

About Terna

The Terna Group is the owner of the Italian national transmission grid (NTG) for high and extra-high voltage power and is the largest independent electricity transmission system operator (TSO) in Europe.

We conduct grid planning, development and maintenance activities,

bringing together expertise, technology and innovation to optimise electricity transmission (transmission operator). In operating the electricity system, we ensure that power supply and demand are balanced 24 hours a day throughout Italy, managing energy flows through the grid in our role as a provider of "dispatching" (system operator).

We have a public service role, crucial to ensuring the country's power supply and enabling the entire Italian electricity system to function.

We operate as a monopoly under the regulatory framework defined by the Italian Regulatory Authority for Energy, Networks and the Environment (ARERA) and in implementation of the guidelines established by the Italian Ministry for Economic Development.

Listed on the Italian Stock Exchange since 2004 and with a free float of around 70%, Terna is a company that focuses on efficiency, profitability and performance, as our results have shown.

What we do

The ecological transition we are going through will radically change the face of the electricity system. As transmission and system operators, located in Italy and the heart of Europe, we are working to bring about all aspects of this transformation. This is why our Industrial Plan is based around investment in the national transmission grid (€8.9 billion over the five years between 2021 and 2025), which will, among other things, enable us to boost transmission capacity between the different market areas and increase crossborder connections.

Our Regulated Activities represent approximately 86% of our business.

We also conduct Non-regulated Activities to support the ecological transition as an energy solutions provider. Through our International Activities, we also export our expertise and technological know-how, developed in Italy, making it available to international operators for the development of electricity grids and the management of complex systems, transmission, the integration of renewable sources and storage systems.

Terna and the Covid-19 emergency

One year on from the first confirmed case of Covid-19 in Italy and the rapid spread of the virus throughout the country, the nation is still in the midst of a "health emergency".

The difference in recent months is the large-scale vaccination programme, launched in January 2021 with the first doses given to healthcare workers. The aim is to achieve herd immunity for 80% of the Italian population by 30 September of this year, provided that sufficient quantities of vaccine are made available.

Against this backdrop, marked by ongoing difficulties caused by the health crisis and realistic hopes that we are coming to the end of the pandemic, Terna is continuing to apply all the measures adopted since February 2020. These include the creation of a Crisis Committee to take charge of our response, chaired by the Chief Executive Officer and consisting of the heads of key departments, with one member permanently seconded to the Civil Protection Agency's Operational Committee. This was done to ensure that the Company remained fully operational and able to provide the essential good represented by continuity of the electricity service throughout Italy, something that will also be necessary in order to restart the country's economy. At the same time, the Committee also oversaw protection of the health and safety of our operational personnel and of everyone who works for us.

During the first quarter of 2021, operating activities were conducted in full compliance with the measures implemented at the beginning of the pandemic for infrastructure and dispatching personnel. This was accompanied by careful management of the number of people using our offices, with an average 30% of the total coming into work, whilst the rest of our administrative staff continued to work from home, a measure that was extended from time to time in line with the various Cabinet Office decrees issued during the period.

A further element of continuity was provided by the care Terna has taken to keep people informed of developments in the health emergency and of the concrete steps put in place to protect the health and safety of all our employees. This has included continuation of the "Sicuri Insieme" campaign, enabling anyone who wishes to have a free molecular test once a month at their place of work.

In autumn, for the second time in only a few months, Terna has offered employees the possibility to get a flu jab at their place of work, extending the offer to include family members. Following the agreement reached with the labour unions and INAIL on 6 April this year, allowing companies to vaccinate their personnel against Covid-19 whilst at work, Terna launched an online survey on the Company's intranet to gauge the level of interest. This was followed by planning for the initiative, which has again been extended to family members.

Our commitment to enabling personnel to gain a full and clear understanding of the health situation resulted in a second live-streamed event at the beginning of April, which concluded with a Q&A session with those watching via video link. The speakers at the event, entitled "Covid-19: perché il vaccino? La parola agli esperti" ("Covid-19: why have the vaccine? What the experts think"), were Nicola Petrosillo (Head of the Department responsible for Clinical Studies and Research into Infectious Diseases at the "Lazzaro Spallanzani" National Institute for Infectious Diseases in Rome) and Marco Marchetti (Psychiatrist and Psychoanalyst, Professor of Forensic Medicine and Forensic Psychology at the University of Molise).

At the same time, the Company is already working on post-pandemic arrangements with the NexTerna initiative, which aims to bring about a cultural transformation of the way we work in the so-called "New Normal". This translates into concrete solutions that will enable us to rapidly identify and implement the New Ways of Working announced to the market by the Chief Executive Officer when presenting the "2021-2025 Industrial Plan" last November.

The first pilot projects forming part of the NexTerna initiative were launched in the first quarter of 2021. The Company is assessing how new technologies and the growing digitalisation of processes can help to boost workforce involvement, enhancing employees' sense of responsibility and ensuring a sustainable work-life balance.

Highlights

Terna's commitment to developing the grid continues, with progress on all the major investment projects supporting the current ecological transition.

The new 150 kV Porto Torres 2 substation (Sassari) in north-western Sardinia entered service on 10 February 2021.

Terna completed the digital public consultation on the EASTERN section of the Tyrrhenian Link, linking Sicily with the Campania region, at the end of March. This electricity infrastructure will consist of two submarine power lines connecting Sicily with Sardinia and the Italian mainland.

AWARDS AND SUSTAINABILITY

Terna is included for the third year in the Bloomberg Gender Equality Index (GEI).

For the third year running, Terna ranks as the number one Electric Utility in the Dow Jones Sustainability World Index; this led to our inclusion in the Gold Class in "The Sustainability Yearbook 2021" published by SAM – S&P Global.

Terna is the first Italian electric utility to join the Nasdaq Sustainable Bond Network, a platform focusing on sustainable finance.

Terna is acknowledged as one of the 50 most sustainable businesses in the world at the 2020 Seal Business Sustainability Awards. Standard Ethics has assigned the Company a rating of "EE-" in recognition of Terna's positive long-term vision.

The biannual ITAMS for 2020 judged Terna to be a global leader in asset management, setting an example of best practice and performance for the efficiency and effectiveness of its infrastructure planning and management process.

FINANCE

The ratings assigned to Terna by Moody's, Scope and S&P did not undergo any changes in

the first quarter of 2021 with respect to 2020.

Structure of the Group

The structure of the Terna Group at 31 March 2021 is shown below.

Compared with 31 December 2020:

• * On 26 January 2021, Terna, acting through its subsidiary, Terna Energy Solutions S.r.l., completed the acquisition of the remaining 30% of Avvenia the Energy Innovator S.r.l. from the minority shareholder, Avvenia S.r.l.. Avvenia the Energy Innovator S.r.l. has thus become a "sole shareholder" company wholly owned by Terna.
• ** On 1 February 2021, after APG (Austrian TSO) became the fifth European transmission system operator to take a stake in Equigy, Terna S.p.A.'s interest in Equigy decreased from 25% to 20%.
• *** The reorganisation of the Brugg Group, designed to take full advantage of the group's distinctive expertise in terrestrial cables and of synergies with the Terna Group's businesses, was completed on 31 March 2021. As a result, Terna S.p.A.'s interest in the Brugg Group, held through the subsidiary, Terna Energy Solutions S.r.l., has increased from 90% to 92.6%.

INTRODUCTION The Terna Group's consolidated interim financial report for the three months ended 31 March 2021, which has not been audited, has been prepared on a voluntary basis, pursuant to art. 82-ter of the CONSOB's Regulations for Issuers (as amended by CONSOB Resolution 19770 of 26 October 2016).

Contents

The Group's strategy 13 The Company and our strategy 14

Outlook	18
Our people	20
Innovation	24

The energy environment 29

and production in Italy 30

Electricity demand

The Group's business	33
Regulated Activities	34
Non-regulated Activities	40
International Activities	44

ALRES THE FIRST LIB.

Performance	47
Financial review for Q1 2021	48
Terna's shares	58
Declaration of the manager responsible for financial reporting in accordance to paragraph 2 of article 154-bis of Legislative Decree 58/1998	61

Annexes	63
Alternative performance measures (APMs)	64
Other information	65

The ecological transition is an obligatory, irreversible process. Reinforcing our central role in driving and enabling this transition is the aim of our Industrial Plan. Between 2021 and 2025, we will invest a record €8.9 billion in regulated activities in Italy. Our capital expenditure has a major multiplier effect in terms of both GDP growth and job creation, thus making a decisive contribution to Italy's post-Covid-19 recovery.

ecologicaltransition #TernaPlan #DrivingEnergy

1 The Group's strategy

The Company and our strategy

The exponential increase in global primary energy consumption, the increase in CO2 emissions and the impact on our planet's ecosystem are evidence of the fact that the energy model on which the planet's development has depended in recent years is no longer sustainable. It is, therefore, necessary for national and international institutions to commit to a progressive and as rapid as possible decarbonisation and improved efficiency across all forms of energy. In this context, the electricity sector has a central role to play, thanks to the intrinsic efficiency of electricity as an energy carrier compared with other forms of energy and the technological maturity of renewable energy sources (RES).

This transformation will present the electricity system with a series of challenges that we must meet in order to ensure decisive and effective delivery of the ecological transition, whilst maintaining the current high levels of service quality and, at the same time, avoiding an excessive increase in the cost to society.

The growing presence of renewable energy plants (intermittent sources of energy, not as flexible as traditional power plants and sometimes far away from centres of consumption, result in an increase in grid congestion, especially on sections connecting the south with the north), and the growing frequency of extreme climate events, allied with the structural nature of the Italian transmission grid, puts major demands on the TSO, which is called on to protect and manage the national grid in order to keep guaranteeing the security of electricity supply.

Contribution to EBITDA + € 200^m

Enablers

invested in digitalisation, innovation and new technologies

Enablers

Under Terna's approach, ensuring that the ecological transition provides the necessary security will require investment in the grid, the installation of renewable energy sources and storage systems, providing additional storage capacity for electricity that will allow the system to operate and minimize overgeneration.

With specific regard to investment in the grid, Terna's Plan focuses on efforts to significantly accelerate sustainable investment, the integration of non-programmable renewable sources and the strengthening of system security and resilience, thereby supporting the Ecological Transition and the gradual phase-out of coal. The aim of this strategy is to resolve grid congestion and upgrade the transmission backbones that play an essential role in linking places of production with consumption. This goal will be achieved by reinforcing connections between the north and south of the country and with the islands, and by boosting crossborder interconnection capacity. To achieve this, the Terna Group plans to invest a total of €9.2 billion over the next five years.

In terms of Regulated Activities, which continue to represent the Group's core business, Terna plans to invest €8.9 billion, a record level of investment for the country and up 22% compared with the target of €7.3 billion set in the previous Plan. This investment will bring major benefits for the entire system, well beyond their initial cost, and will focus on developing, modernising and strengthening the national transmission grid, confirming Terna's role as the enabler of an increasingly complex, sustainable and technologically advanced electricity system. In addition, 95% of this investment is classifiable as green under the criteria used in the EU Taxonomy currently being devised.

The most important projects include the Tyrrhenian Link, which will contribute to the decarbonisation of Sardinia, integrating different market areas with major benefits in terms of efficiency; the power line that will link the Colunga zone (Bologna) with the Calenzano zone (Florence), significantly boosting exchange capacity between south-central and north-central Italy; the power line that will connect southern and northern Sicily between Chiaramonte Gulfi (Ragusa) and Ciminna (Palermo), improving the quality and continuity of electricity supply in the region; and SA.CO.I.3.

As a result of this investment, the value of our regulated asset base (RAB) will rise to €21.8 billion in 2025, with a CAGR of 6% over the life of the Plan, a significant increase compared with the previous Plan.

The Group's strategy | The energy environment | The Group's business | Performance | Annexes

Non-regulated Activities will focus on the development of innovative, digital solutions to support the ecological transition, fully in line with the Group's core business. These activities include Energy Solutions (services for high-voltage infrastructure and smart grids, and energy efficiency services offered through Avvenia), Connectivity (the offer of connectivity, dark fibre and housing and hosting services for telecommunications providers) and Manufacturing (the production of power transformers and terrestrial cables carried out by Tamini and Brugg, whose growth will help to drive efficient delivery of Terna's existing strategy for insourcing distinctive capabilities).

Non-regulated Activities are expected to contribute a cumulative total of approximately €450 million to the Group's EBITDA over the life of the Plan, in return for limited investment and risk exposure.

In terms of International Activities, in addition to the projects currently underway in Latin America (Brazil, Peru and Uruguay), the 2021-2025 Industrial Plan envisages that we will take advantage of new opportunities capable of driving further EBITDA growth in return for low levels of risk and modest capital outlays. Terna expects to invest up to €300 million in new projects over the life of the Plan.

Terna thus expects that its International Activities will contribute a cumulative total of over €200 million to the Group's EBITDA over the life of the Plan.

To help drive delivery of the Plan and enable Terna to effectively transform our business processes, two strategic enablers have been identified: the development of new technologies and of our people.

In this regard, the Group has earmarked approximately €900 million of the total budget of €8.9 billion for expenditure on digitalisation and innovation, which will play an increasingly central part in keeping with their crucial role in enabling the ecological transition for the benefit of the entire system.

In addition, in order to optimise the working environment for our people, we have launched a project called NexTerna, with the aim of reengineering our processes through the use of digital technologies and by rethinking physical workplaces.

Finally, maintenance of a strong capital structure through robust cash generation will also help to support an attractive dividend policy.

Outlook

Despite the ongoing pandemic, 2021 will see the Group committed to delivering on its 2021- 2025 Industrial Plan, which aims to confirm and strengthen our central role in driving and enabling the Italian energy system and the ecological transition. Of the €9.2 billion to be invested over the next five years, approximately €1.4 billion will be invested in the current year.

The Group will continue to invest in our Regulated Activities and in strengthening 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.

The principal electricity infrastructure under construction includes the interconnection with France and the start-up of work on preliminary surveys for the new SA.CO.I.3 project (strengthening the link between Sardinia, Corsica and the Italian mainland). In addition, discussions with the various stakeholders involved in the Tyrrhenian Link will continue in the coming months in readiness for the start of the consents process. Work is also progressing on the main projects that will increase exchange capacity between the various areas of the Italian electricity market, including the Bisaccia-Deliceto and Paternò-Pantano-Priolo power lines.

In terms of the Security Plan, the planned installation of synchronous compensators will continue, with the aim of supporting the regulation of short-circuit voltage and power in areas of the country characterised by a high level of production from renewable sources and a significant reduction in traditional production.

Work on the reorganisation of electricity grids in metropolitan areas will also continue in 2021, primarily involving the renewal of existing infrastructure with new technologically advanced connections meeting the highest standards in terms of environmental sustainability (e.g., Naples, Rome and Turin).

In the coming months, the regulator, ARERA, will begin the process of establishing the methods and criteria for determining and revising the allowed WACC for the electricity and gas sectors from 2022.

With regard to Non-regulated Activities, Terna will continue to consolidate our role as a provider of both energy solutions, developing high value-added services for corporate customers, including energy efficiency solutions, and taking advantage of market opportunities for traditional and renewable customers, and connectivity, pursuing opportunities based on exploiting the Group's own fibre infrastructure.

In terms of manufacturing, the aim is to build on Tamini's performance and complete the integration of Brugg. In this regard, in the first quarter of 2021, the Brugg Group's restructuring resulted in the division of the company, Brugg Kabel AG, into three separate entities with a view to taking full advantage of the group's distinctive expertise in terrestrial cables and of synergies with the Terna Group's businesses.

International Activities in the South American Continent will continue to focus on managing and maintaining the power lines in service, and on continuing work on the projects launched in Brazil and on the completion of existing projects in Peru, expected to take place in the second quarter of 2021.

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.

Investment in innovation and digital solutions will continue in the coming months as part of the transformation that will enable us to manage the growing complexity of the system. Attention will also be paid to the development and insourcing of strategic competencies, to the strengthening of departments, and to optimising the working environment for our people through delivery of the NexTerna project.

Management of Terna's business will continue to be based on a sustainable approach and respect for the ESGs, ensuring that we are able to minimise our environmental impact, involve local stakeholders and meet the need for integrity, responsibility and transparency.

The above objectives will be pursued whilst maintaining our commitment to maximising the cash generation necessary to ensure a sound, balanced financial structure.

Our people

People are Terna's most important asset, one of the enabling factors in the 2021-2025 Industrial Plan. Each of us brings skills and experience that can help to increase the value of the Company.

			unit
WORKFORCE	AT 31 MARCH 2021	AT 31 DECEMBER 2020	CHANGE
Senior managers	83	80	3
Middle managers	688	672	16
Office staff	2,628	2,587	41
Blue-collar workers	1,415	1,396	19
Total	4,814	4,735	79

The increase in the workforce at 31 March 2021 is primarily linked to the requirements relating to delivery of the challenging investment programme provided for in the 2021-2025 Industrial Plan, and to the need to strengthen the Group's distinctive competencies.

The measures introduced in response to the Covid-19 emergency

In the first quarter of 2021, Terna continued to apply the specific organisational measures designed to reduce the risk of infection from Covid-19 introduced in 2020. As part of the "Sicuri Insieme" ("Safe Together") campaign, the offer of molecular testing to anyone making a request proceeded during the quarter. The tests conducted at our Rome offices were conducted under the agreement entered into with Rome's Agostino Gemelli Hospital.

The Group's strategy | The energy environment | The Group's business | Performance | Annexes

Initiatives in the first quarter of 2021

From the health emergency to New Ways of Working: launch of the "NexTerna" programme.

Terna's 2021-2025 Industrial Plan targets 10% growth in the workforce in the first three years: a goal linked to the "New Normal", the scenario imposed by the lengthy Covid-19 health emergency, which has led to the adoption of Remote Working as a key tool in guaranteeing our ability to remain operational.

The realisation that it was necessary to find new ways of working, heavily focused on the digitalisation of work, resulted in the Plan that sets out to redefine the Company's organisational model. The new model ensures the optimal organisation and use of office space in order to guarantee efficiency, productivity, logistical benefits and quality of life.

The answer to these new challenges is NexTerna, a multi-year programme designed to facilitate structural change management, based on a radically new approach to organising work and developing people.

The Chief Executive Officer is sponsoring the project, which is overseen by a Steering Committee consisting of all the executives reporting directly to him.

Launched in February 2021, NexTerna focuses on seven topic areas:

• Sustainable and inclusive leadership;
• People care and skills;
• Agile solutions applied to processes;
• Sustainability and communication;
• Technology and digitalisation;
• Virtual and physical spaces;
• New industrial relations.

The first phase, which will be concluded by the end of the second quarter of 2021, is focusing on the planning and delivery of the first pilot projects that, from the second half of the year, will be translated into structured, scalable initiatives.

NexTerna (New Ways of Working)

Approximately 25,000 hours of training were provided in the first quarter of 2021, covering Corporate, Technical and HSE & Compliance matters.

In the corporate sphere, the "MEET-UP RUO" project, which aims to prepare the Human Resources and Organisation department to play a central role in helping everyone at Terna adapt to the New Ways of Working, was launched.

The Role Model project, developed together with the ELIS Consortium, will see five colleagues act as role models in a selection of Italian schools in the second quarter of 2021. In addition, at the end of March, the "Advanced Digital Bootcamp" initiative took off. This aims to boost knowledge and use of the collaboration tools offered by the Office 365 suite and is one of the initiatives selected to receive funding from the New Skills Fund set up by the National Agency for Active Labour Policies (the Agenzia Nazionale Politiche Attive per il Lavoro).

During the first quarter of 2021, Terna continue to support the "Valore D" association and the Ready To Live project, developed together with Lifeed – Life Feed Education in order to train participants in parenting and caring skills, with the aim of putting them to use in a working environment.

The Virtual Language Learning project is also in progress.

In terms of Technical Training, courses for new hires designed to develop basic technical knowledge and skills and refresher courses focusing on regulatory changes involved 310 personnel.

HSE & Compliance training included initiatives in the following areas:

• a) compliance with the requirements imposed by the Consolidated Act 81/08 (involving 459 personnel);
• b) updated climbing procedures and techniques, developed with the support of in-house tutors from our infrastructure units who obtained specific certification (involving 455 personnel);
• c) training for members of the Avian Team with the aim of developing their ability to deal with the problems affecting Terna's assets caused by birds;
• d) compliance with the GDPR (involving 629 personnel);
• e) 231 legislation in relation to the new regulations covering tax fraud and other specific compliance issues.

During the first quarter of 2021, staff recruitment and selection activities focused on acquiring people with Industry 4.0 expertise, in keeping with the new organisational arrangements. The search for these new skills is taking place alongside our long-standing strategy of attracting engineering graduates and people to fill technical, operational and administrative roles. The Talent Attraction strategy has been expanded to include new partnerships with the STEM departments of leading Italian universities and our participation in masters programmes with major partners. We also take part in career day and employer branding events, a number of which exclusively aimed at women.

	The Group's strategy			The energy environment			The Group's business		Performance		Annexes

Work on the "Sicuri inTerna" project continued in the first quarter of 2021. This aims to promote a global approach to safety involving all the Company's staff, as well as people working at Terna's sites in various capacities. Through the definition of improvement and prevention plans, the project aims to ensure that safety becomes nothing less than a way of life. Thus aiming over the years, at a significant reduction in accident indicators relating to both Terna's own personnel and among workers employed by contractors.

Our commitment to the Plastic Free (the procurement of drinking fountains and the provision of personalised bottles) and Recycling (the creation of little "internal eco-islands") projects continued in the first quarter of 2021. The projects, launched in 2019, are close to completion.

Innovation

Innovation and digital transformation are essential in an increasingly complex energy sector. Decisions regarding future development focus on the technology trends most relevant to our business.

Innovation is one of the pillars of Terna's businesses. Indeed, in the new 2021-2025 Industrial Plan more than €900 million have been earmarked for innovation and digitalisation.

The innovation model, as set out in the 2021-2025 Innovation Plan drawn up by the new Management team in 2020, is geared towards meeting new needs and generating value for the Company and our stakeholders, via an approach that is:

Concrete: from needs to solutions, via a process that develops ideas and implements projects.

Open: with the involvement of external actors as enablers and beneficiaries.

Inclusive: with the involvement of the whole Company in the innovation process.

Distributed: with gathering of needs and development of ideas and projects in the various organisational departments.

The process starts with the identification of innovation needs, trends and enabling technologies. The conception and development of ideas takes place both in-house and in collaboration with external Partners and through technological scouting. The most promising solutions at the end of the experimental phase are then developed as projects. To ensure that our projects are scientifically valid, we have created two innovation factories: the TO Innovation Factory, which develops innovation projects relating to the transmission grid, and the SO Innovation Factory, which follows initiatives regarding innovative solutions for the electricity system.

2021-2025 INNOVATION PLAN

Our innovation thus takes the form of Open Innovation initiatives and Innovation Projects.

Open Innovation Initiatives

Academy

• Agreements with universities

Our partnerships with universities with whom we have entered into innovation agreements are continuing. These include agreements with the Polytechnic University of Turin, the University of Padua and Naples Federico II University;

• Startup Intelligence programme with the Polytechnic University of Milan

Terna is taking part in the seventh edition of the Start-up Intelligence Observatory (launched in September 2020 and due to end in June 2021), an innovative Research, Scouting and Community programme aimed at innovation Managers and people involved in corporate digital innovation;

• Data Girls programme

Between November 2020 and April 2021, Terna sponsored the Luiss Business School's "GROW-Generating Real Opportunities for Women" initiative, taking part in the "Data Girls" programme, in which various women students studying for a master's degree from Luiss worked on a challenge set by Terna-Avvenia relating to Energy Efficiency. Terna's team was declared the winner on 21 April 2021. The team had been set the challenge of optimising the competitive position of a bottling company, identifying areas or actions capable of boosting the company's competitiveness, and marketing initiatives designed to exploit and communicate the resulting environmental benefits;

• Maker Faire Hackathon – University of Naples

In April 2021, Terna acted as the corporate partner for the Maker Faire Hackathon organised by the University of Naples and the Apple Developer Academy. This is a code development marathon in which developers, hackers and IoT experts form teams in order to develop prototypes for hardware and software projects. Terna put forward a HR-related challenge that required participants to develop an application for use in the onboarding process for new hires.

Innovators

• Digital Scaleup Summit MENA

In March and April 2021, Terna took part in the Scaleup Summit organized by our partner, Mind The Bridge. This involved a session of digital meetings with innovative companies selected with the aim of meeting the Company's needs. The first summit in 2021, hosted virtually in Israel, focused on the search for mature Cybersecurity, System Operator, HR Tech and New Ways of Working solutions. More than 50 international scaleups were assessed and 15 in-depth meetings held, involving the relevant business lines.

Terna Community

• Workshop Innovation Landscaping

Terna is present within Silicon Valley's innovation ecosystem with an Innovation Antenna hosted by our partner, Mind The Bridge, in San Francisco. In March 2021, the Antenna was used to analyse the macro-trends emerging from Silicon Valley in relation to the "Future of work". The results of this scouting activity were then used as the basis for a digital workshop for the Company's HR and ICT departments most involved in training and the digital transformation.

Corporate

• Open Italy

Terna participates in the Open Italy programme, an ELIS Open Innovation initiative set up to encourage dialogue and collaboration between large companies, Italian start-ups/SMEs and innovation facilitators such as accelerators and research centres, regarding concrete innovation projects relating to eight areas of innovation. For the 2021 edition, Terna has identified four priority areas of innovation in readiness for the start-up selection days preceding the launch of the related co-innovation projects (Operational Improvements, Privacy & Cybersecurity, Change Management for New Ways of Working and Digital HR and Urban intelligence & Connections).

Innovation Projects

Innovation clusters

We have tracked changes in the technology scenario and identified emerging trends for the future of the Italian energy system. Based on their potential impact on the business, we have identified a number of clusters on which to focus our innovation efforts:

• Digital The growing need for digital technologies providing intelligent energy and capacity management solutions;
• Energy Tech The future energy market will require more efficient, greener technologies;
• Advanced Materials The need to reduce the system's environmental impact requires eco-compatible materials;
• Robotics Increased automation will enable us to offer services on a mass scale to a growing number of customers.

Project streams

Taking these clusters as the basis, innovation is centred around a number of project streams, consisting of projects developed by the System Operator and Transmission Operator Innovation Factories.

• System of systems

The current ecological transition requires major changes to all aspects of electricity supply chain, with regard to both the methods and the processes used in managing grids and markets. Innovation on a number of different fronts will thus be key to ensuring that we have an increasingly efficient single system of integrated systems.

• E-mobility lab

We are committed to developing smart charging and vehicle-to-grid applications with the various e-mobility stakeholders in order to enable the supply of grid services for electric vehicles;

• Equigy

Together with other European TSOs, we have developed a new platform based on blockchain technology that aims to facilitate the participation of new flexible resources in the system services market.

• Sustainable digital assets

Research and development of new technologies for use in electricity transmission plays an indispensable part in ensuring efficiency and quality of service. We aim to create sustainable digital assets offering solutions for use in managing the grid as part of efforts to achieve ongoing improvements in the service we provide.

• Drones

We use Visual Line Of Sight (VLOS) and Beyond Line Of Sight (BVLOS) technologies to perform remote monitoring surveys to enhance the efficiency of power line inspections;

• Advanced sensors

We are investigating new solutions for grid monitoring, such as the use of satellite technologies;

• SF6 free

High-voltage electrical equipment with insulation and circuit-breaking fluids offering an alternative to SF6 gas;

• Advanced Materials

We have completed a study into the use of rice waste to produce non-structural elements, with the aim of improving the energy efficiency and environmental performance of existing or new buildings.

• Enhanced system operation

Ensuring the safe performance of grid operations and improving the operation and interoperability of control centres are essential objectives for Terna. This is why we continually invest in grid management optimisation, using the most advanced energy operations and forecasting techniques

- OSMOSE

We test innovative flexibility services provided by wind farms, batteries, large industrial users and the grid itself; these are subject to coordinated management by central Energy Management System software;

- Monitoring of distributed generation

We are putting the finishing touches to a system designed to give real-time estimates of the main electrical data relating to load and to distributed generation, i.e., connected to distributor networks.

• Safety

Safety is something close to our hearts. Innovation also helps ensure a high level of safety for workers. Reviewing processes and innovative technologies (e.g., for personal protective equipment) allows us to constantly improve safety for people doing their normal jobs.

• New normal

This topic area involves the development of innovation projects and initiatives to advance the company's New Ways of Working strategy, involving a rethink of how we are going to work after the Covid-19 pandemic has ended.

INTELLECTUAL CAPITAL

We have developed a process for protecting and safeguarding our intellectual property (IP) in its various forms, creating a competitive advantage, as well as new business opportunities. In March 2021, Terna's IP pipeline consists of 9 patent applications, filed both in Italy and overseas, and 3 patents granted (including two patents and a design model). We are in the process of submitting 2 patent applications for industrial inventions, as well as assessing around ten further potential projects qualifying for patent protection.

We are living through a period of great complexity: the planet is growing at an increasingly rapid rate with an energy model that is no longer sustainable, whilst the world is crying out for a global commitment to progressive decarbonisation, to be achieved as quickly as possible. To meet this challenge means ensuring efficiency across all areas of the energy supply chain. The Paris climate accords and international decarbonisation and sustainable development goals form the basis for all our strategic decision-making.

ecologicaltransition #electricitysystem #DrivingEnergy

2 The energy environment

Electricity demand

and production in Italy

Demand for electricity in Italy

Demand for electricity in Italy amounted to 78,634 GWh in the first quarter of 2021, an increase of 2.2% compared with the same period of 2020.

ELECTRICITY BALANCE IN ITALY (GWh)**	Q1 2021**	Q1 2020**	CHANGE	% CHANGE
Net production	67,293	66,292	1,001	1.5%
From overseas suppliers (imports)	12,934	13,126	(192)	(1.5%)
Sold to overseas customers (exports)	(910)	(1,797)	887	(49.4%)
For use in pumping***	(683)	(661)	(22)	3.3%
Total demand in Italy	78,634	76,960	1,674	2.2%

* Does not include demand for energy for ancillary services related to electricity production.

** Provisional data.

*** Electricity used for pumping water, for sole subsequent use in electricity production.

Monthly demand for electricity in Italy in the first three months of 2021 performed differently in the months of January and February with respect to March. The first two months of the year actually witnessed a slight fall due partly to the calendar effect (fewer working days), whilst March registered a 12% increase in electricity demand compared with March 2020, reflecting the downturn in demand in March 2020 due to the total lockdown imposed in response to the Covid-19 emergency.

MONTHLY DEMAND FOR ELECTRICITY*

30 TERNA GROUP | CONSOLIDATED INTERIM FINANCIAL REPORT - 31 MARCH 2021

Meeting demand and energy production

NET ELECTRICITY PRODUCTION BY SOURCE

* Provisional data.

Electricity production in the first three months of 2021 is up 1.5% compared with the same period of 2020.

In the first quarter of 2021, approximately 34% of total energy demand was met from renewable energy sources, up on the same period of 2020. In terms of individual renewable sources, there were increases in hydro production (up 17%) and wind production (up 7%), slightly offset by reductions in photovoltaic (down 4%) and geothermal (down 6%) production. Biomass production is broadly in line.

With our projects and substantial investment in network infrastructure, we are laying the foundations to promote and support the current ecological transition with a fit-for-purpose electricity system that is safe, efficient and makes increasing use of renewables. Thanks to the unique skills of our people, constant dialogue with local communities and the adoption of innovative solutions, we contribute to the growth and development of sustainable projects for the benefit of Italy.

sustainability #innovation #DrivingEnergy

3 The Group's business

Regulated Activities

The National Transmission Grid

Transmission and dispatching

The Terna Group owns 99.7% of the NTG, which is among the most modern and technologically advanced transmission grids in Europe. We are the largest independent electricity transmission network operator in Europe and one of the world's leading operators, with around 75 thousand kilometres of high and very high-voltage lines. The Group is responsible for managing the flow of electricity through the grid in every part of Italy, with the aim of ensuring that there is a constant balance between the quantity of energy injected into the grid and demand, and guaranteeing continuity and accessibility of service for the population as a whole. We are also responsible for planning, construction and maintenance of the grid.

The Group's Capital expenditure

The Terna Group's total capital expenditure in the first quarter of 2021 amounts to €241.5 million, compared with the €217.5 million of the same period of the previous year (up 11.0%).

				(€m)
	Q1 2021	Q1 2020	CHANGE	% CHANGE
Development Plan	83.5	73.8	9.7	13.1%
Security Plan	32.6	39.0	(6.4)	(16.4%)
Projects to renew electricity assets	93.4	70.8	22.6	31.9%
Other capital expenditure	17.4	22.5	(5.1)	(22.7%)
Total Regulated assets	226.9	206.1	20.8	10.1%
Non-regulated assets (1)	12.2	9.3	2.9	31.2%
Capitalised financial expenses	2.4	2.1	0.3	14.3%
Total capital expenditure	241.5	217.5	24.0	11.0%

(1) Non-regulated assets primarily regard the private Italy-France interconnector and the re-routing of power lines for third parties.

The main regulated assets entering service in the first three months of 2021 are the Porto Torres 2 substation (5 additional bays) and the 220 kV Arenella-Astroni power line – a new section XLPE cable (up 1 km).

MAIN REGULATED WORKS CARRIED OUT DURING THE PERIOD

Development plan – €83.5 million

380kV Paternò-Pantano power line: work on construction of the foundations and assembly of the first pylons is continuing.

380kV Paternò-Priolo power line: the removal of unexploded war-time bombs and geological and archaeological surveys are in progress; the executive design for the various lots is nearing completion.

380/220/150kV Pantano substation: excavation work involved in preparation of the site is in progress.

Vizzini substation: work began at the end of February and excavation work involved in preparation of the site has started.

Piossasco converter station: installation of the command, protection and control system remains to be completed and this should take place in 2021.

Cable connection: final testing has taken place following the laying of the cable for bipoles 1 and 2.

Pianezza connections - phase 2: demolition of the section of the line not in service (2.3 km) has been completed. The civil works involved in re-routing the overhead lines and in installation of the Grugliasco-Pianezza cable connection (6.5 km) has begun.

132kV Rivoli-Paracca and Paracca-Collegno cables: laying of the cables for the Rivoli-Paracca connection (4.4 km) and of the pipes for 2 km out of 2.7 km of the Paracca-Collegno connection has been completed. Installation of the couplings has begun.

Pianezza substation - installation of 220kV reactor: the contract for the civil works has been awarded and work is due to begin in the second quarter of 2021.

220kV Castelluccia-Naples Primary Substation cable: activity is currently restricted by the changes requested by the distributor and secondary consents.

220kV Astroni-Naples Centre cable: 8.1 km of cable has been laid out of a total of 9.4 km. 220kV Castelluccia-San Sebastiano power line: removal of the old oil-filled cable is in progress.

Bisaccia-Deliceto power line: construction work is in progress, with 75% of the foundations completed, and 25% of the pylons assembled.

Expansion of the Bisaccia electricity substation and the installation of PSTs: the following the station's entry into service (December 2020), permission is awaited from the relevant authorities for transportation of the PSTs and the transformer to the site.

Paternò-Pantano-Priolo (€9.1 million)

Vizzini substation (€4.4 million)

Italy-France interconnector (€4.1 million)

Reorganisation in Turin (€2.9 million)

Reorganisation in Naples (€2.5 million)

Grid upgrades in the Foggia-Benevento area (€2.5 million)

Synchronous compensators (€10.6 million)

Security plan – €32.6 million

In implementation of the plan to install synchronous compensators in Sardinia and central and southern Italy, with the aim of supporting the regulation of short-circuit voltage and power in areas of the country characterised by a high level of production from renewable sources and a significant reduction in traditional production.

Garigliano, Fano and Foggia compensators: the civil works are nearing completion; the foundations for the synchronous compensator have been completed and transportation of machinery to the site is in progress.

Brindisi compensators: the civil works are nearing completion; the foundations for the synchronous compensator and the transformers have been completed; production of the related supplies is near to completion.

Maida compensators: the construction sites have been opened and the site-layout civil works have begun; permission is awaited from the relevant authorities for transportation of the machinery to the site.

Candia compensator: the construction sites have been opened and the site-layout civil works have begun; production of the related supplies is in progress.

Fiber for the Grid (€5.5 million)

This project aims to boost the availability of data on the grid in order to make it easier to monitor and manage the security of the electricity system, by increasing and expanding the fibre network.

A further 13 electricity substations on the NTG (making a total of 489 substations) have been connected and lit at 31 March 2021.

Renewal of electricity assets (€84.4 million, before functional separations)

Renewal Plan – €93.4 million

Delivery of the commitment to carry out works to renew electricity assets in order to improve the reliability and resilience of the NTG has continued.

The renewal of overhead lines and substation equipment continued during the first quarter of 2021: approximately 424 km of conductors and 2 items of equipment were replaced, 1 with "green" items of equipment, insulated using vegetable esters.

Consents processes in progress

Various consents processes for new works or projects were initiated in early 2021. These include those for:

• the Santa Teresa-Tempio-Buddusò power line, new infrastructure serving northern Sardinia;
• work on the 132kV grid in the Valle Stura in the province of Cuneo;
• reorganisation of power lines in the Cepagatti area in the province of Pescara.

Projects initiated

A number of projects were approved and initiated in early 2021. These include:

• work on modernisation of the 132kV Bulciago Lecco power line;
• a pilot project for the 132kV Quarto Isola Ridracoli power line that crosses the Apennines between Tuscany and Emilia;
• the new plan for Terna's offices in Tuscany regarding the new site for the Suvereto Infrastructure Unit;
• preparatory work for the laying of submarine fibre cable between Italy and Montenegro;
• modernisation of the old 132kV San Giuseppe Portoferraio power line on the island of Elba;
• demolition of the 132kV Lizzana-Pista overhead power line;
• the Adriatic Link, the new submarine power line that, with an investment of €1 billion, will link the Abruzzo and Marche regions and for which Terna has launched the participatory design process.

Quality of service

Each segment of the electricity system (generation, transmission and distribution) plays a role in ensuring the availability of electricity in Italy, guaranteeing adequate quality standards and keeping the number of outages below pre-set thresholds.

Terna monitors service continuity through various indicators defined by ARERA (Resolution 567/19) and in Terna's Grid Code.

These continuity indicators are significant for the system, as they monitor the frequency and impact of events that have occurred on the electricity grid as a result of faults or due to external factors, such as weather events. In all cases, the period of observation is the previous three years, a period in which annual targets have not been exceeded, testifying to the high quality of service achieved.

CONTINUITY INDICATORS

RENS*

What it measures

Energy not supplied following events affecting the relevant grid**

How it is calculated

The sum of the energy not supplied to users connected to the NTG (following events affecting the relevant grid, as defined in the ARERA regulations governing quality of service).

* Regulated Energy Not Supplied. ** The "relevant grid" refers to all of the high-voltage and very high-voltage network.

ASA***

What it measures Availability of the service provided by the NTG.

How it is calculated

Based on the ratio of the sum of energy not supplied to users connected to the NTG (ENS) and energy fed into the grid.

*** Average Service Availability.

NTG RENS INDICATOR PERFORMANCE 1

* Provisional data.

The "NTG RENS" indicator for the period from January to March 2021 based on preliminary data, amounts to 28 MWh (compared with an annual target of approximately 820 MWh set by ARERA).

As regards the ASA indicator, availability was 99.99925% in the first quarter of 2021, compared with 99.99908% in the 2020. The operating performance shows that ASA has remained stable at a high level over the years (the higher the indicator, the better the performance). This indicator shows that the energy not supplied following a fault on the owned grid represents a minimal part of the total quantity of energy supplied to users of the grid.

Existing regulations (set out in Resolution 567/2019/R/eel) envisage a series of mechanisms designed to regulate and encourage improvements in the quality of service provided by Terna. The overall economic effects of these mechanisms are accounted for at year end (including RENS). With regard to costs, which are determined periodically on the basis of events that have occurred, Terna recognised costs of €1.3 million in the first three months of 2021 (€0.7 million in the first three months of 2020).

¹ The targets for 2016–2023 have been set as an average of the 2012–2015 RENS indicator, referred to in ARERA Resolution 567/19/R/eel, with a 3.5% improvement in performance required for each year compared with the previous one. Since 2016, Terna's NTG RENS indicator also takes into account the performance of the grid operated by Terna Rete Italia S.r.l. (merged with Terna S.p.A. on 31 March 2017).

Electricity cost trends

Terna uses the Dispatching Services Market (DSM) to procure dispatching resources to guarantee the security and adequacy of the electricity system.

Dispatching Services Market (DSM)

The net charge for using the DSM was €574 million in the first quarter of 2021 (provisional data), up on the same period of the previous year (€534 million).

The increase is primarily due to an increase in the months of January and February 2021 (due to a rise in the average cost accepted on the DSM), partly offset by a reduction in the amount payable for March, after this month in 2020 saw high costs incurred following the restrictions set out in the Cabinet Office Decree of 8 March 2020, as amended, and to the conditions arising from the Covid-19 health emergency.

MONTHLY DSM COSTS (€m)

Monthly DSM charge 2020 Monthly DSM charge 2021

Cost of procuring resources on the Dispatching Services Market (Uplift)

The total Uplift was €579 million in the first three months of 2021 (provisional data), up on the same period of the previous year (€543 million). This reflects an increase in the cost of using the Dispatching Services Market and a reduction in congestion revenue.

MONTHLY PERFORMANCE OF REVENUE AND UPLIFT COSTS (€m)

* Provisional data.

^* Provisional data.

Non-regulated Activities

Energy market solutions

Using our distinctive competences, we develop value added services as an Energy Solutions Provider for businesses. Our Non-regulated Activities are always designed to support the ecological transition, in keeping with our core business.

The main areas of business in this segment are:

• INDUSTRIAL
  • TRANSFORMERS TAMINI GROUP
  • TERRESTRIAL CABLES BRUGG GROUP
• CONNECTIVITY
• ENERGY SOLUTIONS
• PRIVATE INTERCONNECTORS PURSUANT TO LAW 99/2009

Revenue for the first quarter of 2021 is slightly down on the first quarter of 2020, but the volume of new transformers being produced and tested is significantly up compared with the first quarter of the previous year. A number of major items of equipment will be produced and tested in 2021, including six step-up transformers of between 215 MVA and 290 MVA for compensators.

The production of vegetable oil transformers for the Power sector will continue in 2021. A number of 250 MVA and 400 MVA vegetable oil autotransformers are being built at the Legnano plant and a 250 MVA autotransformer was tested during the first quarter of 2021.

Results

Vegetable oil transformers

TERRESTRIAL CABLES – BRUGG GROUP

The Brugg Group operates in the terrestrial cable sector, specialising in the design, development, construction, installation and maintenance of electrical cables of all voltages and accessories for high-voltage cables.

In line with the Terna Group's strategic objectives, in order to improve the Brugg Group's ability to respond to market needs and limit operational complexity, on 22 January 2021, the board of directors of Brugg Kabel AG approved the company's planned demerger. The reorganisation process, which aims to streamline the Brugg Group's activities, consisted of an initial step, on 11 March 2021, involving the establishment of two new companies: Brugg Kabel Services AG and Brugg Kabel Manufacturing AG, both 90%-owned by Terna Energy Solutions S.r.l., to which certain activities of Brugg Kabel AG have been transferred. This was followed by the partial takeover in the Brugg Group and the transfer by Terna Energy Solution S.r.l. of its controlling interests in Brugg Kabel Manufacturing AG and Brugg Kabel AG to Brugg Kabel Services AG. The transaction, completed on 31 March 2021, has further simplified the corporate structure, with Brugg Kabel Services AG now heading the Brugg Group with 100% control of Brugg Kabel Manufacturing AG and a 90% interest in Brugg Kabel AG. The remaining 10% interest continues to be held by noncontrolling shareholders (the Brugg Group).

CONNECTIVITY

Open Fiber Project The rollout of fibre infrastructure is continuing, with around 1,013 km due to be delivered in 2021.

^C ENERGY SOLUTIONS

SMART GRID

Sacred Convent of Saint Francis

This memorandum of understanding regards collaboration between the General Custody of the Sacred Convent of Saint Francis of the Friars Minor Conventual, with the aim of implementing sustainability initiatives meeting shared needs.

The system completed in December 2020 will be powered up in May 2021, following the customer's receipt of the necessary permit, which has been applied for.

Avvenia has played an active part in installation of the DIANA platform, which plays a key role in enabling the assessment designed to detect any malfunctions and, therefore, areas for improvement, and provide quantitative analysis of the performance of the Convent's electricity consumption and heating needs.

Revamp of Photovoltaic Plants

a contract with the customer, EF Solare, was completed in the first quarter of 2021. Revamping work on inverters for the same customer, EF Solare (lot 2 – total capacity of approximately 15 MW) and the revamp of units at the Ozieri and Latina 2 plants is scheduled for 2021.

The revamp of inverters at a number of plants with total capacity of 16 MW (lot 1), carried out under

Tratos HV Preparation and approval of the executive design relating to the turnkey construction contract for a heat recovery cogeneration system, entered into with the customer, Tratos HV, in 2018, was completed in the first quarter of 2021. Work on the project is due to begin in the second quarter of 2021.

HIGH VOLTAGE

Energia Emissioni Zero 4 S.r.l. (EDPR group)

Framework agreement with RFI

Acciaierie Venete An EPC contract was awarded by the customer, Acciaierie Venete, in February 2021 for the supply of three reactive energy compensation systems (using STATCOM technology). Onsite surveys and procurement have been completed and design work is in progress.

A contract was entered into in January 2021 with the customer, Energia Emissioni Zero 4 S.r.l. (an EDPR group company), regarding the supply of the energy service system for the Monte Mattina HV/MV user to connect the Aquilonia wind farm to the NTG (25.2 MW). Work is due to begin in the second quarter of 2021.

Under the Framework Agreement entered into with RFI in December 2018, relating to the "Design, supply, installation, certification and entry into service of metering devices", during the first quarter of 2021, the customer has issued executive contracts for a further 14 devices, whilst work has begun on the delivery of a further 11, with work on 9 in progress and work on 2 completed.

PRIVATE INTERCONNECTORS PURSUANT TO LAW 99/2009

Terna is responsible for managing routine and special maintenance activities and operating the interconnector in return for an annual fee. The infrastructure was completed on 28 December 2019 and is owned by Monita Interconnector S.r.l., which was sold to the private backers on 17 December 2019.

Out of a total of approximately 95 km of cable for the Italian end of the interconnection, at 31 March 2021, the laying of cable for the entire section running along the A32 motorway, through the Frejus motorway tunnel and along other roads outside the A32 motorway have been completed. The remaining work on the power line, including the laying of fibre and installation of monitoring systems, will continue through to mid-June 2021. The civil works for the Piossasco converter station and assembly of all the electromechanical equipment has been completed at 31 March 2021. Preparation and testing of the protection system and checks of the functioning of the converter are, on the other hand, still in progress.

Given the delays to work on both the Italian and French sides in 2020, as a result of the Covid-19 emergency, the interconnector's entry into service is currently expected to take place in the fourth quarter of 2021.

The Italy-Austria interconnector (the Reschenpass project) involves construction of a new 220kV AC interconnection between the Glorenza (Italy) and Nauders (Austria) substations. This will consist of 28 km of underground cable, including 26 km on the Italian side, and the necessary upgrade of the domestic grid. The project will increase cross-border interconnection capacity between Italy and Austria by around 300 MW, practically doubling the currently available capacity. The cost of the project is expected to be approximately €85 million.

On 16 March 2020, the exemption process formally began with Resia submitting an exemption application to the Ministry for Economic Development. The Ministry for Economic Development subsequently submitted the exemption application to ARERA to enable the regulator to issue its opinion. On 17 November 2020, ARERA granted its approval for the issue of the exemption decree to Resia.

The project involves the development of new transmission lines between Italy and Switzerland, with the aim of increasing interconnection capacity between the two countries.

The creation of a direct current line is planned, partly in undersea cable, between the substations of Salgareda (IT) and Divaça/Beričevo (SL), together with work on upgrading the domestic grids in Italy and in Slovenia. The project is currently awaiting the necessary consents on the Italian side. The expected increase in cross-border capacity of approximately 1 GW will raise the interconnection capacity to more than double the current level.

Italy–Montenegro Interconnector project

Italy–France Interconnector project

Italy–Austria Interconnector project

Italy-Switzerland Interconnector project

Italy-Slovenia Interconnector project

International Activities

Overseas initiatives of interest to the Terna Group are:

Operation of concessions: this model envisages the acquisition and operation of transmission systems abroad by taking part in international concession and/or secondary market awards, leveraging the core competencies and experience developed in the international arena;

Energy solutions: this includes all high value-added non-traditional activities aimed at exporting the experience Terna has acquired in Italy in the fields of energy storage and smart solutions;

Technical assistance: this involves the provision of consulting and technical assistance services regarding a TSO's core activities, as well as the definition and implementation of regulatory and market frameworks in the local energy context, with a view to exporting and taking advantage of the distinctive expertise acquired in Italy;

Project management: Project Management (EPCM) activities enable the Group to leverage its expertise in managing overseas projects and in infrastructure management.

Latin America continued to witness a worsening of the situation brought about by Covid-19 in the first quarter 2021. At 31 March 2021, a number of countries are still in the throes of a full-blown health emergency. Progress on projects in Brazil and Peru has been affected by the emergency.

Construction work is proceeding in Brazil thanks to the implementation of specific health protocols. Operation and maintenance activities are taking place under measures introduced in line with Terna's standards and local requirements.

In Peru, after the suspension of work in response to measures introduced by the government in 2020, onsite activity has restarted in line with local regulations and the best practices applied by the Terna Group.

Initiatives in progress in South America

Activities connected with the line that has entered service continued in the first quarter of 2021.

Operation and maintenance of the Santa Maria Transmissora de Energia (SMTE) power line in the State of Rio Grande do Sul and the Santa Lucia Transmissora de Energia (SLTE) power line in the State of Mato Grosso continued in the first quarter of 2021.

In addition, onsite activity and engineering work and the acquisition of rights and easements for the SPE Transmissora de Energia Linha Verde II S.A. project continued. This is the first of the two concessions covered by the preliminary agreement with Construtora Quebec, regarding the construction of a 160-km 500kV power line in the State of Minas Gerais.

Engineering work and the acquisition of rights and easements for the second concession covered by the above agreement, SPE Transmissora de Energia Linha Verde I S.A., also continued. This project involves construction of a 150-km long 500kV power line dubbed the "Governador Valadares-Mutum" in the State of Minas Gerais. The consents process and related design engineering work is underway.

Work, which began in 2017, on construction of 132 km of new 138kV lines between Aguaytìa and Pucallpa is continuing.

Construction of the Aguaytìa–Pucallpa line was completed at the end of March 2021 and trial operation of the line was also then completed.

The line is due to enter service by the end of the second quarter of 2021, following the period of trial operation.

Other international initiatives

In March 2021, Terna launched the EUROBAR initiative in partnership with six other European transmission system operators from Belgium, France, Germany, Norway, Spain and Sweden. The project aims to connect offshore wind farms throughout Europe by efficiently and securely integrating the farms within the European electricity grid, starting with regulation and current and future projects in order to arrive at an interconnected offshore network. The partnership was formalised with the signature of a memorandum of understanding and a confidentiality agreement at the end of March. The seven partners have committed to widespread cooperation and to the exchange of expertise in the connection of offshore platforms.

Via ELMED Etudes SARL2 work continued on development of the electricity interconnector project between Italy and Tunisia.

During the first quarter of 2021, the Italo-Tunisian consortium, RINA S.p.A. – Comete Engineering, was contracted to carry out the survey for the submarine section. The award of contracts for surveys for the overland section and the environmental and social impact assessment is close to completion. Work on the above surveys is expected to be completed by the end of the first quarter of 2022.

Funding for the surveys is being provided under two World Bank programmes, the Global Infrastructure Facility (GIF) and the Energy Sector Management Assistance Program (ESMAP), as part of the planned provision of technical assistance for the Tunisia-Italy electricity interconnector. ELMED Etudes has been appointed the implementing agency on behalf of the Tunisian government.

The Group's strategy | The energy environment | The Group's business | Performance | Annexes

BRAZIL

PERU

² This is the 50/50 Tunisian joint venture between Terna S.p.A. and STEG (Tunisia's vertically integrated, state-owned electrical utility) established in 2009 with the role of conducting studies and providing technical assistance for the Tunisia-Italy electricity interconnector.

As a major transmission and dispatching operator, we invest in the skills, technologies and innovation needed to ensure that we are well equipped to plan, develop and maintain the grid (Transmission Operator) and to guarantee a stable, secure and high-quality electricity service (System Operator).

Italy and Terna are at the centre of a system that includes 26 interconnections with neighbouring countries: this means we have a leading role to play in driving energy integration in Europe and the Mediterranean area. We also put our know-how to use in our Non-regulated and International activities.

electricitysystem #ecologicaltransition #DrivingEnergy

Performance

Financial review for Q1 2021

In order to report on the Terna Group's operating performance and analyse its financial position, this section includes management accounts prepared in line with industry best practice. These reclassified statements contain Alternative Performance Measures (APMs, as defined in the guidance provided by ESMA/2015/1415), which management considers to be useful in assessing the performance of the Group and representative of the business's operating results and financial position.

The criteria used in constructing these indicators are the same as those used in the annual report. Details are provided in the Annex, "Alternative performance measures (APMs)".

Basis of presentation

The measurement and recognition criteria applied in this Interim Report are consistent with those adopted in the consolidated financial statements for the year ended 31 December 2020.

It should be noted that Brugg Cables, acquired on 29 February 2020, was valued at cost in the first quarter of 2020 due to the time required to align them with the Terna Group's consolidation procedures and the immateriality of the amounts involved. The subsidiary's contribution has not been included in the comparative operating results.

In addition, a number of comparative amounts in the income statement have been reclassified in order to improve presentation, without changing the comparative result.

The Group's reclassified income statement

The Terna Group's operating results for the first quarter of 2021, compared with those for the same period of the previous year, are summarised in the following reclassified income statement.

			(€m)
Q1 2021	Q1 2020	CHANGE	% CHANGE
621.8	567.5	54.3	9.6%
536.7	516.6	20.1	3.9%
6.5	4.2	2.3	54.8%
78.8	43.9	34.9	79.5%
6.3	7.0	(0.7)	(10.0%)
168.2	133.3	34.9	26.2%
72.7	66.6	6.1	9.2%
40.7	36.5	4.2	11.5%
39.4	21.0	18.4	87.6%
7.6	5.7	1.9	33.3%
1.3	(0.7)	2.0	-
6.5	4.2	2.3	54.8%
453.6	434.2	19.4	4.5%
162.8	152.2	10.6	7.0%
290.8	282.0	8.8	3.1%
(21.8)	(19.3)	(2.5)	13.0%
269.0	262.7	6.3	2.4%
78.3	76.4	1.9	2.5%
190.7	186.3	4.4	2.4%
0.3	(0.3)	0.6	(200.0%)
190.4	186.6	3.8	2.0%

			(€m)
EBITDA BY OPERATING SEGMENT	Q1 2021	Q1 2020	CHANGE
Regulated Activities	433.1	418.4	14.7
Non-regulated Activities	16.5	10.5	6.0
International Activities	4.0	5.3	(1.3)
EBITDA	453.6	434.2	19.4

Gross operating profit (EBITDA) for the first quarter of 2021 amounts to €453.6 million, up €19.4 million on the €434.2 million of the first quarter of 2020. This primarily reflects an improvement in EBITDA from Regulated Activities.

Revenue

			(€m)
REGULATED ACTIVITIES	Q1 2021	Q1 2020	CHANGE
Tariff revenue	525.9	502.3	23.6
- Transmission revenue	498.4	474.9	23.5
- Dispatching, metering and other revenue	27.5	27.4	0.1
Other regulated revenue	4.3	10.1	(5.8)
Revenue from construction services performed under concession in Italy	6.5	4.2	2.3
TOTAL	536.7	516.6	20.1

Revenue from Regulated Activities is up €20.1 million compared with the same period of the previous year, primarily reflecting the impact on transmission revenue (up €23.5 million) following an increase in the RAB and the accrued amount due as a return on digital substation systems (up €6.4 million) in accordance with ARERA Resolution 565/20. These increases were partially offset by recognition, in the first quarter of 2020, of accrued revenue in the form of the bonus receivable under the RENS (Regulated Energy Not Supplied) incentive mechanism for the 2016-2019 sub-period (€5.1 million), compared with the amount recognised in the first quarter of 2021 as result of the RENS performance in the 2020-2023 sub-period (€1.4 million).

			(€m)
NON-REGULATED ACTIVITIES	Q1 2021	Q1 2020	CHANGE
Industrial	52.5	23.5	29.0
- Brugg Group	30.8	-	30.8
- Tamini Group	21.7	23.5	(1.8)
Services for third parties (Connectivity, Energy Solutions, other)	23.5	16.9	6.6
Private interconnectors	2.8	3.5	(0.7)
TOTAL	78.8	43.9	34.9

The increase in revenue from Non-regulated Activities, amounting to €34.9 million, primarily reflects the contribution from integration of the Brugg Group (up €30.8 million) and increased revenue from the provision of Connectivity services (up €6.6 million, primarily revenue from IRU contracts for fibre).

Revenue from International Activities is broadly in line with the figure for the same period of the previous (down €0.7 million) and primarily reflects the one-off impact in the first quarter of 2020 of a penalty applied to a supplier in Uruguay in connection with work on a contract concluded in October 2019. The increase in revenue in Brazil reflects the growth in operations resulting from development of the lines in Minas Gerais, largely offset by the overall impact of the worsening exchange rate between the Brazilian real and the euro.

Costs

Operating costs, excluding the cost of construction services performed under concession (up €2.3 million), are up €32.6 million compared with the first quarter of the previous year. This broadly reflects the contribution of the Brugg Group (up €31.1 million) and an increase in costs for quality of service (up €2.0 million, primarily due to the increased costs incurred in order to mitigate the impact of backfeeds at a number of primary substations due to repairs carried out during the period). Operation and maintenance (O&M) costs remained constant, despite the increase in assets managed.

Amortisation, depreciation and impairment losses for the period amount to €162.8 million, an increase of €10.6 million compared with the first quarter of 2020, primarily due to the entry into service of new infrastructure.

Operating profit (EBIT), after amortisation, depreciation and impairment losses, amounts to €290.8 million, an increase of €8.8 million (3.1%) compared with the first quarter of 2020.

Net financial expenses for the period total €21.8 million and primarily regard the Parent Company (€17.3 million). The figure is up €2.5 million on the €19.3 million of the first three months of 2020, due primarily to the adjustment to the value of investments in associates.

After net financial expenses, profit before tax amounts to €269.0 million, compared with €262.7 million for the first quarter of 2020 (up 2.4%).

Income tax expense for the period totals €78.3 million, an increase of €1.9 million (2.5%) compared with the same period of the previous year, essentially due to the increase in pre-tax profit. The tax rate of 29.1% is in line with the same period of the previous year.

Profit for the period amounts to €190.7 million, up €4.4 million (2.4%) compared with the €186.3 million of the first quarter of 2020.

Profit for the period attributable to owners of the Parent (after excluding the share attributable to non-controlling interests) amounts to €190.4 million, up €3.8 million (2.0%) compared with the €186.6 million of the first quarter of 2020.

Cash flow

Operating cash flow for the first quarter of 2021 was used to finance investing activities. Growth in working capital during the period, linked to trade payables arising in 2020, has led to an increase in net debt.

		(€m)
	CASH FLOW Q1 2021	CASH FLOW Q1 2020
- Profit for the period	190.7	186.3
- Amortisation, depreciation and impairment losses	162.8	152.2
- Net change in provisions	(14.6)	(31.8)
- Net losses/(gains) on sale of assets	(6.2)	(0.9)
Operating cash flow	332.7	305.8
- Change in net working capital	(282.0)	(228.9)
- Other changes in property, plant and equipment and intangible assets	12.0	9.5
- Change in investments	1.9	(26.1)
- Change in financial assets	3.0	54.4
Cash flow from operating activities	67.6	114.7
- Total capital expenditure	(241.5)	(217.5)
Free cash flow	(173.9)	(102.8)
- Cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent	33.0	(47.1)
- Other movements in equity attributable to non-controlling interests	(7.5)	-
Change in net debt	(148.4)	(149.9)

CHANGE IN NET DEBT (€m)

The Group's reclassified statement of financial position

The Terna Group's financial position at 31 March 2021 and 31 December 2020 is summarised below in the reclassified statement of financial position.

			(€m)
	AT 31 MARCH 2021	AT 31 DECEMBER 2020	CHANGE
Total net non-current assets	15,713.8	15,645.9	67.9
- Intangible assets and goodwill	576.8	577.9	(1.1)
- Property, plant and equipment	14,633.6	14,559.7	73.9
- Financial assets	503.4	508.3	(4.9)
Total net working capital	(1,654.1)	(1,936.2)	282.1
- Net energy-related pass-through payables	(291.6)	(385.0)	93.4
- Net receivables resulting from Regulated Activities	234.7	230.9	3.8
- Net trade payables	(502.0)	(818.0)	316.0
- Net tax liabilities	(107.5)	40.5	(148.0)
- Other net liabilities	(987.7)	(1,004.6)	16.9
Gross invested capital	14,059.7	13,709.7	350.0
Sundry provisions	(106.7)	(121.3)	14.6
NET INVESTED CAPITAL	13,953.0	13,588.4	364.6
Equity attributable to owners of the Parent	4,593.2	4,369.8	223.4
Equity attributable to non-controlling interests	38.8	46.0	(7.2)
Net debt	9,321.0	9,172.6	148.4
TOTAL	13,953.0	13,588.4	364.6

The €67.9 million increase in net non-current assets compared with 31 December 2020 primarily reflects a combination of the following:

• total capital expenditure of €241.5 million, as described in the section on "Regulated Activities";
• a reduction of €4.9 million in financial assets, broadly due to collection of the fees due on infrastructure under concession in Brazil (down €6.3 million) and the adjustment of the Group's share of the equity of the associate, CESI S.p.A., at 31 March 2021 (down €1.9 million), partially offset by an increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €3.1 million);
• amortisation and depreciation for the period, totalling €162.8 million;
• disposals, impairment losses and other changes during the period, amounting a reduction of €5.9 million.

The Terna Group's total capital expenditure during the first quarter of 2021, amounting to €241.5 million, is up 11% compared with the €217.5 million of the same period of 2020.

* Amounts include financial expenses.

Net working capital of -€1,654.1 million resulted in a cash outflow of €282.1 million compared with 2020. This reflects the combined effect of:

Cash outflows

• a reduction of €316.0 million in net trade payables, largely reflecting the greater volume of capital expenditure carried out towards the end of the previous year;
• a decrease in net energy-related pass-through payables of €93.4 million compared with the end of the previous year, primarily reflecting the combined effect of:
  • a reduction amounts payable as a result of transactions on the Dispatching Service Market – DSM (€82.4 million) compared with the figure for the end of 2020, which reflected costs linked to the need to meet localised technical limitations and an increase in selections;
  • an increase in the amount receivable for the Uplift component of (€90.9 million), essentially due to the impact of factoring transactions completed at the end of 2020 (€78.7 million);
  • an increase of €56.2 million in the net amount due from the Fund for Energy and Environmental Services (Cassa per i Servizi Energetici e Ambientali - CSEA), primarily due to the recovery of additional charges for 2020 paid during the quarter to interruptible users;

partially offset by

• a decrease in net payables relating to essential plants for the security of the electricity system - UESS (€88.6 million), reflecting items collected during the period after payments made in 20213 , which reflect both the increase in the unit tariff from 2021 and increased consumption;
• an increase in payables relating to capacity payments (€35.1 million), deriving from items covering the amount due collected in the first quarter;

³ ARERA ordered payments to the owners of essential plants via Resolutions 9-20-30-42-52-67-94-95/2021.

The Group's strategy | The energy environment | The Group's business | Performance | Annexes

• an increase of €3.8 million in net receivables resulting from Regulated Activities, primarily reflecting an increase in amounts receivable for transmission services (up €27.8 million) as a result of revised tariffs and an upturn in volumes (amounting to approximately €14 million), and to a difference in the volume of receivables assigned during the two periods (up €13.8 million); partly offset by the impact of items relating to quality of service, the RENS bonus collected from the CSEA for 2019 (down €13.6 million) after the recognition of revenue attributable to the first quarter of 2021 (€1.4 million for the prorata amount due as a result of the RENS performance for 2020), and recognition of the amount payable for mitigation services in 2020 (€9.1 million);;
• the reduction in other net liabilities of €16.9 million, primarily due to a decrease in guarantee deposits received from operators participating in the capacity market and electricity market operators to guarantee the obligations undertaken regarding dispatching and virtual interconnection contracts (down €25.7 million), after an increase in incentives payable to employees during the year (up €7 million);

Cash inflows

• an increase of €148.0 million in net tax liabilities, broadly due to the increased amount of income tax payable (€85.5 million) and the net amount payable as VAT (€67.8 million) in line with the reduction in trade payables.

Gross invested capital thus amounts to €14,059.7 million, an increase of €350.0 million compared with the previous year.

Sundry provisions are down €14.6 million, primarily due to:

• net uses of provisions relating to quality of service (down €8.3 million), early retirement incentives (down €3.1 million), staff incentives plans (down €2.8 million) and to fund urban and environmental redevelopment schemes (down €1.1 million);
• the net release of deferred tax assets (€1.4 million), primarily due to the effect on taxation of movements in derivative financial instruments held by the Group, amortisation and depreciation and movements in provisions for risks and charges.

Net invested capital of €13,953.0 million is up €364.6 million compared with 31 December 2020 and is financed by equity attributable to owners of the Parent, totalling €4,593.2 million (compared with €4,369.8 million at 31 December 2020), equity attributable to non-controlling interests of €38.8 million (€46.0 million at 31 December 2020) and net debt of €9,321.0 million (up €148.4 million compared with the €9,172.6 million of 31 December 2020).

Debt

The Terna Group's financial management is based on an approach that aims to maximise efficiency and achieve and maintain a solid financial structure, whilst adopting a highly prudent stance towards mitigation of the potential financial risks. The key aspects of the Group's financial policy are diversification of the sources of funding, a balance between short- and medium/long-term forms of debt and the proactive management of debt.

Gross debt at 31 March 2021 amounts to approximately €12 billion, consisting of approximately €8 billion in the form of bond issues and approximately €4 billion in bank borrowings. The average term to maturity of debt, which is almost all fixed rate, is approximately 5 years.

Sustainable finance Fully in line with Terna's strategy, which aims to combine investment and sustainability to drive growth and value creation, it is Terna's ambition to play a leading role in the sustainable finance market. This strategy was confirmed in the first quarter of 2021. From January 2021, Terna in fact became the first Italian electric utility to join the Nasdaq Sustainable Bond Network, the sustainable finance platform operated by Nasdaq that brings together investors, issuers, investment banks and specialist organisations. Terna's leadership in sustainable finance is widely acknowledged by the market which, since 2018, has given a warm welcome to the green bonds issued by Italy's national grid operator.

In addition, from February 2020, Mr. Scornajenchi is a member, on behalf of Terna, of the CFO Taskforce for the SDGs, an initiative launched by the UN Global Compact to develop sustainable finance. Through the implementation of standards and guidelines, the Taskforce aims to align corporate finance and investment with the sustainable development goals promoted by the United Nations.

Further confirmation of our commitment to playing an active role in developing sustainable finance, Terna is taking part in the Corporate Forum for Sustainable Finance, a network of major European businesses committed to the development of sustainable finance as a means to promote a more sustainable and responsible society.

Finally, Terna, both individually and as a member of the above Corporate Forum on Sustainable Finance, will continuously monitor developments in European legislation, with particular regard to the impact of the EU's sustainable finance taxonomy.

The Group's net debt at 31 March 2021 amounts to €9,321.0 million, an increase of €148.4 million compared with 31 December 2020.

			(€m)
NET DEBT (BY TERM TO MATURITY)	31 MARCH 2021	31 DECEMBER 2020	CHANGE
Total medium/long-term debt	9,253.9	10,019.8	(765.9)
- Bond issues	6,427.0	7,485.7	(1,058.7)
- Borrowings	2,662.4	2,374.5	287.9
- Derivative financial instruments	164.5	159.6	4.9
Total short-term debt/ (funds)	67.1	(847.2)	914.3
- Bond issues (current portions)	999.7	1,258.8	(259.1)
- Short-term borrowings	1,155.5	1,002.2	153.3
- Borrowings (current portions)	129.8	129.2	0.6
- Other current financial liabilities net	32.1	80.4	(48.3)
- Financial assets	(625.5)	(628.8)	3.3
- Cash and cash equivalents	(1,624.5)	(2,689.0)	1,064.5
Total net debt	9,321.0	9,172.6	148.4
NET DEBT (BY TYPE OF INSTRUMENT)
- Bond issues	7,426.7	8,744.5	(1,317.8)
- Borrowings	2,792.2	2,503.7	288.5
- Short-term borrowings	1,155.5	1,002.2	153.3
- Derivative financial instruments	164.5	159.6	4.9
- Other financial liabilities net	32.1	80.4	(48.3)
GROSS DEBT	11,571.0	12,490.4	(919.4)
- Financial assets	(625.5)	(628.8)	3.3
- Cash and cash equivalents	(1,624.5)	(2,689.0)	1,064.5
Total net debt	9,321.0	9,172.6	148.4

Changes in the Group's net debt are as follows:

• a reduction in bond issues (down €1,317.8 million), primarily following repayment of the bond issue launched by Terna S.p.A. in March 2011, totalling €1,250 million;
• an increase in bank borrowings (up €288.5 million), primarily as a result of the drawdown of new bank facilities, amounting to €343.0 million, after repayments of existing borrowings;
• an increase in short-term borrowings (up €153.3 million) primarily due to the Parent Company's use of short-term credit facilities;
• an increase in the fair value of derivative financial instruments (up €4.9 million), primarily due to movements in market interest rates;
• a reduction in other net financial liabilities (down €48.3 million) following payment, in the first quarter of 2021, of accrued interest on financial products;
• a reduction in financial assets (down €3.3 million), primarily due to movements in the prices of Italian government securities held by the Group;
• a decrease in cash and cash equivalents (down €1,064.5 million). Cash amounts to €1,624.5 million at 31 March 2021, includes €1,259.1 million invested in short-term, readily convertible deposits and €365.4 million held in bank current accounts and in the form of cash in hand.

Terna's shares

Terna S.p.A. has been listed on Borsa Italiana's screen-based trading system (Mercato Telematico Azionario) since 23 June 2004. From the date of floatation to the end of March 2021, the share price has risen 279% (a capital gain), providing a Total Shareholder Return (TSR4 ) of 829%, ahead of both the Italian market (the FTSE MIB, up 59%) and the relevant European sector index (DJ Stoxx Utilities), which is up 281%.

Europe's leading stock markets ended the first quarter of 2021 in positive territory, driven by the post-Covid-19 economic recovery. Milan rose 10.9%, Paris and Frankfurt were up 9.3% and 9.1%, respectively, whilst Madrid rose 6.3% and London 3.9%.

Performance of Terna's shares

Terna's shares closed the quarter at €6.438 per share, having risen 3% and outperforming the relevant European sector index (DJ Stoxx Utilities), which fell 0.61%. The daily average volume traded during the period amounted to approximately 5.9 million units.

PERFORMANCE OF TERNA'S SHARES (price from 1 January to 31 March 2021)

⁴ Total Shareholder Return (TSR): total return on an equity investment, calculated as the sum of:

I. capital gain: the change in the share price (difference between the price at the end and at the beginning of the relevant period) as a percentage of the price at the beginning of the period;

II. reinvested dividends: the ratio between dividends per share paid out during the period and the share price at the beginning of the period. Dividends are assumed to have been reinvested in the shares.

TERNA'S SHARES, THE FTSE MIB AND DJ STOXX UTILITIES (price from 1 January to 31 March 2021)

Source: Bloomberg

TOTAL SHAREHOLDER RETURN ON TERNA'S SHARES AND THE FTSE MIB AND DJ STOXX UTILITIES (from the otation to the end of March 2021)

Source: Bloomberg

WEIGHTING OF TERNA'S SHARES	Q1 2021	Q1 2020
> on the FTSE MIB	2.21%	2.98%

Terna Ftse Mib DJ Stoxx Utilities

Source: Borsa Italiana

Ratings

	SHORT-TERM	MEDIUM/LONG-TERM	OUTLOOK
Terna S.p.A.
Standard & Poor's	A-2	BBB+	Stable
Moody's	Prime-2	Baa2	Stable
Scope	S-1	A-	Stable
Italian state
Standard & Poor's	A-2	BBB	Stable
Moody's	Prime-3	Baa3	Stable
Scope	S-2	BBB+	Negative

Terna's ratings were unchanged in the first quarter 2021 compared with 2020. In addition, the Company's long-term ratings are all higher than those assigned to the Italian state.

It should be remembered that, in November 2020, following the presentation of the 2021-2025 Industrial Plan, which targets a significant acceleration in investment, the rating agencies, Standard & Poor's (S&P), Moody's, Fitch Ratings (Fitch) and Scope Rating (Scope) confirmed their long-term ratings of the issue as "BBB+", "Baa2", "BBB+" and "A-", respectively, acknowledging Terna central role in driving and enabling the ecological transition.

As part of efforts to optimise overheads, in December 2020, the Company requested Fitch to cease rating the Group. In response, the agency withdrew its ratings on 4 March 2021.

Declaration

of the manager responsible for financial reporting in accordance with paragraph 2 of art. 154-bis of Legislative Decree 58/1998

The manager responsible for financial reporting, Agostino Scornajenchi, declares, pursuant to paragraph 2 of article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this Consolidated Interim Report for the three months ended 31 March 2021 is consistent with the underlying accounting records.

Alternative performance measures (APMs)

In accordance with the guidelines in ESMA/2015/1415, the APMs used in this Consolidated Interim Report are described below.

MEASURE	DESCRIPTION
OPERATING RESULTS
Operating profit/(loss) - EBIT	is an indicator of operating performance obtained by adding Net financial income/(expenses) to Profit/(Loss) before tax.
Gross operating profit/(loss) – EBITDA	is an indicator of operating performance obtained by adding "Amortisation, depreciation and impairment losses" to Operating profit/(loss) (EBIT).
TAX RATE	is the amount of tax paid as a proportion of pre-tax profit and is based on the ratio of "Income tax expense" to "Profit/(Loss) before tax".
FINANCIAL POSITION
Net working capital	is an indicator of financial position, showing the Group's liquidity position; it is based on the difference between Current assets and Current liabilities of a non-financial nature, as presented in the statement of financial position.
Gross invested capital	is an indicator of financial position, showing the Group's total assets and is obtained by adding Net non-current assets and Net working capital.
Net invested capital	is calculated by deducting Sundry provisions from Gross invested capital.
CASH FLOW
Net debt	is an indicator of the Group's financial structure and is obtained by deducting Cash and cash equivalents and Financial assets from Short- and long-term financial liabilities and the related derivative instruments.
Free cash flow	is the cash generated by operating activities less capital expenditure and is the difference between Cash flow from operating activities and Cash flow for investing activities.

The criteria used in preparing the reconciliation of the above APMs with the IFRS financial statements are described in the Annual Report for the year ended 31 December 2020.

Other information

Additional information is presented below in accordance with specific statutory or industry requirements.

Treasury shares

The Parent Company holds 1,525,900 treasury shares (equal to 0.076% of the share capital). These shares were purchased, in the period between 29 June 2020 and 6 August 2020, in implementation of the buyback programme linked to the Performance Share Plan 2020-2023. The Company does not hold any additional treasury shares with respect to those purchased under the above programme, including though subsidiaries5 .

The Parent Company did not directly or indirectly purchase or sell its own shares or the shares of CDP Reti S.p.A. or Cassa Depositi e Prestiti S.p.A. during the first quarter of 2021.

Related party transactions

Information on related party transactions is provided in the Annual Report for the year ended 31 December 2020.

Participation in the regulatory simplification process introduced by CONSOB Resolution 18079 of 20 January 2012

Information on participation in the simplified process introduced by the CONSOB is provided in the Annual Report for the year ended 31 December 2020.

⁵ In this regard, see the press release published on 10 August 2020, available at the following link: https:// download.terna.it/terna/2020.08.10_CS%20TERNA%20operazioni%20su%20azioni%20proprie%20 CHIUSURA%20ITA__8d83d42cfd43cb6.pdf