Terna — Interim / Quarterly Report 2021

May 12, 2021

RESULTS AS OF 31 MARCH 2021 APPROVED

FURTHER BOOST TO CAPEX IN FIRST QUARTER, TO THE BENEFIT OF THE ELECTRICITY SYSTEM AND ITALY'S RECOVERY

ALL ECONOMIC INDICATORS IMPROVED

• Revenues at €621.8 million (€567.5 million in Q1 2020, +9.6%)
• EBITDA at €453.6 million (€434.2 million in Q1 2020, +4.5%)
• Group net profit for the period at €190.4 million (€186.6 million in Q1 2020, +2.0%)
• Capex at €241.5 million (€217.5 million in Q1 2020, +11.0%)
• Net debt at €9,321.0 million (€9,172.6 million at 31 December 2020)

Rome, 12 May 2021 – Today's meeting of the Board of Directors of Terna S.p.A. ("Terna"), chaired by Valentina Bosetti, has examined and approved the results for the three months ended 31 March 2021 ("Q1 2021").

During the first three months of the year, marked by continual changes in the operating environment, Terna recorded an improvement in its results and further accelerated investment, to the benefit of the electricity system, Italy's economic recovery and the Group's growth. Terna's total capital expenditure in the first three months of 2021 amounted to €241.5 million, an 11.0% increase compared with the first quarter of 2020.

"Our first quarter results confirm Terna's role in leading the energy transition and driving the economic recovery: the significant increase in investment was accompanied by a robust performance across all our financial indicators. The period saw us register progress on all our key projects, in line with the 2021-2025 Industrial Plan, "Driving Energy". Furthermore, the NexTerna programme, which aims to transform the way we work and enable us to take advantage of the opportunities offered by the new scenario, officially kicked off," said Stefano Donnarumma, Terna's CEO and General Manager.

€m	Q1 2021	Q1 2020	% change
Revenues	621.8	567.5	+9.6%
EBITDA (gross operating profit)	453.6	434.2	+4.5%
EBIT (operating profit)	290.8	282.0	+3.1%
Group net profit for the period	190.4	186.6	+2.0%
Capital expenditure	241.5	217.5	+11.0%

CONSOLIDATED FINANCIAL HIGHLIGHTS FOR Q1 2021

Revenues for the first quarter of 2021 amount to €621.8 million, an increase of €54.3 million (+9.6%) compared with the same period of 2020. The result primarily reflects an improvement in revenues from Regulated Activities thanks to the increase in the RAB, combined with the contribution from Non-regulated Activities, mainly due to the integration of Brugg Cables (acquired on 29 February 2020).

EBITDA (gross operating profit) for the period amounts to €453.6 million, marking growth of €19.4 million (+4.5%) compared with the €434.2 million of the first three months of 2020. This primarily reflects the improved performance of Regulated Activities.

EBIT (operating profit) for the period, after amortisation, depreciation and impairments of €162.8 million, amounts to €290.8 million, compared with the €282.0 million of the first three months of 2020 (an increase of 3.1%).

Net financial expenses for the period amount to €21.8 million, an increase of €2.5 million compared with the €19.3 million of the first quarter of 2020. This is primarily due to adjustments to the value of investments in associates.

Profit before taxes is €269.0 million, an increase of €6.3 million (+2.4%) compared with the same period of 2020.

Income tax expense for the period totals €78.3 million, an increase of €1.9 million compared with the first three months of 2020. The tax rate of 29.1% is in line with the same period of 2020.

Group net profit for the period of €190.4 million is up €3.8 million (+2.0%) on the €186.6 million of the first quarter of 2020.

The consolidated statement of financial position shows equity attributable to owners of the Parent of €4,593.2 million, compared with €4,369.8 million at 31 December 2020.

Net debt of €9,321.0 million compares with €9,172.6 million at the end of 2020 (up €148.4 million), reflecting increased capital expenditure during the period.

The Terna Group's total capital expenditure during the period amounts to €241.5 million, an 11.0% increase on the €217.5 million of the same period of 2020. The main projects carried out during the period include those designed to boost exchange capacity between different areas of the electricity market in Campania and Sicily, the work progress on the interconnection with France and the continuation on the installation plan of synchronous compensators in Sardinia and central and southern Italy.

The Group's employees at the end of March 2021 are 4,814, an increase of 79 compared with the amount of 31 December 2020. The increase 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.

KEY EVENTS IN Q1 2021

Business

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

Terna completed the digital public consultation on the Eastern section of the Tyrrhenian Link between Sicily and the Campania region at the end of March, whilst the consultation on the Adriatic Link, the new undersea cable between Abruzzo and Marche to be installed at a cost of €1 billion, was launched on 17 February.

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;
• 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.

Various authorization processes for new works or projects were initiated in the first quarter of 2021. These include those for:

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

Sustainability

During the period, for the third year running, Terna was ranked as the number one electric utility in the Dow Jones Sustainability World Index; this led to the inclusion in the Gold Class in "The Sustainability Yearbook 2021" published by SAM – S&P Global.

Terna was also named one of the 50 most sustainable businesses in the world at the Seal Business Sustainability Awards.

Terna is the first Italian electric utility to join the Nasdaq Sustainable Bond Network, a platform focusing on sustainable finance and has also been included for the third year running in the Bloomberg Gender Equality Index (GEI).

OUTLOOK

Despite the ongoing pandemic, 2021 will see Terna committed to delivering on its 2021-2025 Industrial Plan, "Driving Energy", which aims to confirm and strengthen the Group's 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 its 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 infrastructures under construction include 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, so to start with the authorization 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 Colunga-Calenzano 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 the power in those areas of the country, which are 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 its 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 solutions, pursuing opportunities based on exploiting the Group's own fibre infrastructure.

As far as the industrial segment is concerned, 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 parent, Brugg Kabel Ag, into two 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 will continue to focus on managing and maintaining the power lines in service in South America, on continuing the work on projects launched in Brazil and on the completion of

the existing project in Peru, expected to take place in the second quarter of the year. 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 Terna 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 Terna is able to minimise its environmental impact, involve local stakeholders and meet the need for integrity, responsibility and transparency.

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

ALTERNATIVE PERFORMANCE MEASURES

This release includes a number of "alternative performance measures" (EBITDA, the tax rate and net debt) not required by IAS/IFRS. A description of these measures is provided below in accordance with the ESMA/2015/1415 guidelines published on 3 December 2015:

• EBITDA (Gross Operating Profit): an indicator of operating performance, representing "Profit for the period" before "Income tax expense for the period", "Net financial income/(expenses)" and "Amortisation, depreciation and impairment losses";

• Tax rate: the amount of tax paid as a proportion of pre-tax profit, based on the ratio of "Income tax expense" to "Profit/(Loss) before tax";

• Net debt: an indicator of the financial structure, calculated by deducting "Cash and cash equivalents", "Current financial assets" and "Non-current financial assets", as they relate to the value of the derivatives hedging bond issues, from short-term financial liabilities ("Short-term borrowings", the "Current portion of long-term borrowings" and "Current financial liabilities") and long-term financial liabilities ("Long-term borrowings") and the related derivative instruments ("Non-current financial liabilities"). The net debt of the Terna Group complies with the requirements of ESMA Recommendation 319 of 2013 with regard to the definition of net debt or funds, which does not include "Non-current financial assets".

A meeting will be held at 4.30pm today to present the results for the three months ended 31 March 2021 to financial analysts and investors. Back-up material for the event will be made available in the Investors section of the Company's website (www.terna.it) as the meeting starts. The presentation will also be made available via "eMarket SDIR", on the website of Borsa Italiana S.p.A. (www.borsaitaliana.it) and through the authorised storage service (). Journalists will have the opportunity to follow the meeting by telephone without any right to speak. It will also be possible to follow the presentation by connecting to the audio webcast on the Company website (www.terna.it): following the live broadcast, the file will be available in the Investors section of the website.

The Manager Responsible for Financial Reporting, Agostino Scornajenchi, declares that, pursuant to section two of article 154-bis of the Consolidated Law on Finance, the information contained in this release is consistent with the underlying accounting records.

The Terna Group's consolidated interim financial report for the three months ended 31 March 2021 has not been audited and was prepared voluntarily, pursuant to art. 82-ter of CONSOB Issuer Regulations (as amended by CONSOB Resolution 19770 of 26 October 2016). As in the past, the compliance and correctness of the financial information provided to the public and the comparability of the related information with the corresponding data in previously published interim reports is ensured. The document containing the Terna Group's consolidated interim report for the three months ended 31 March 2021 will be made available to the public by 15 May 2021 at the Company's registered office, published on the Company's website, (www.terna.it) and on the website of the authorised storage service (), and filed at the stock exchange management company Borsa Italiana S.p.A. (www.borsaitaliana.it). The required announcement of the filing will also be published.

The Terna Group's reclassified income statement and statement of financial position and statement of cash flows, prepared on the basis of the classifications used by management in order to more effectively assess the Terna Group's operating and financial performance, are attached. Pursuant to Communication DME/9081707 of 16 September 2009, the above reclassified financial statements are those included in the Terna Group's consolidated interim financial report for the three months ended 31 March 2021, prepared in accordance with usual market practices.

The Terna Group's reclassified income statement

				(€m)
	Q1 2021	Q1 2020	Change	% change
TOTAL REVENUES	621.8	567.5	54.3	9.6%
- Regulated revenue of which Revenue from construction services	536.7	516.6	20.1	3.9%
performed under concession	6.5	4.2	2.3	54.8%
- Non-regulated revenue	78.8	43.9	34.9	79.5%
- International revenue	6.3	7.0	(0.7)	(10.0%)
TOTAL OPERATING COSTS	168.2	133.3	34.9	26.2%
- Personnel expenses	72.7	66.6	6.1	9.2%
- Cost of services, leases and rentals	40.7	36.5	4.2	11.5%
- Materials	39.4	21.0	18.4	87.6%
- Other costs	7.6	5.7	1.9	33.3%
- Quality of service	1.3	(0.7)	2.0	-
- Cost of construction services performed
under concession	6.5	4.2	2.3	54.8%
GROSS OPERATING PROFIT (EBITDA)	453.6	434.2	19.4	4.5%
- Amortisation, depreciation and impairment losses	162.8	152.2	10.6	7.0%
OPERATING PROFIT (EBIT)	290.8	282.0	8.8	3.1%
- Net financial income/(expenses)	(21.8)	(19.3)	(2.5)	13.0%
PROFIT/(LOSS) BEFORE TAX	269.0	262.7	6.3	2.4%
- Income tax expense for the period	78.3	76.4	1.9	2.5%
PROFIT FOR THE PERIOD	190.7	186.3	4.4	2.4%
- Profit/(Loss) attributable to non-controlling interests	0.3	(0.3)	0.6	(200.0%)
PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	190.4	186.6	3.8	2.0%

The Terna Group's 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 Terna Group's cash flow

		(€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 Change in net debt	(7.5) (148.4)	- (149.9)