Terna — Interim / Quarterly Report 2022

May 11, 2022

2022 CONSOLIDATED INTERIM FINANCIAL REPORT – 31 MARCH

Contents

	Terna's role in the energy transition	4
	Highlights	6
	Structure of the Group	8
1	The energy environment Electricity demand and production in Italy	11 12
2	The Group's strategy The Company and our strategy Innovation Our people	15 16 22 25
3	The Group's business Operating activities Financial review for Q1 2022 Terna's shares Outlook Declaration of the manager responsible for financial reporting in accordance with paragraph 2 of article 154-bis of Legislative Decree 58/1998	29 30 42 54 56 57

Annexes 59 Alternative performance measures (APMs) 60 Other information 61 4

Terna's role in the energy transition

The electricity system supply chain is made up of several segments: production, transmission, distribution and the sale of electricity. Tasked with transmission and dispatching, Terna is responsible for the key transmission segment. As Transmission System Operator (TSO), Terna must on the one hand design a grid capable of handling the progressive decarbonisation of the sources of production and the growing integration of renewables ("transmission operator"), whilst on the other guaranteeing that, at all times, energy demand from consumers is always balanced by the amount produced through socalled "dispatching" ("system operator").

This is an extremely complex task, requiring an independent central coordinator capable of taking an overall view and controlling a high number of actors, both on the supply and the demand side: this is why we refer to ourselves as "driving the transition".

An extremely complex challenge. Economic growth is based on an energy model that is no longer sustainable, whilst the world is crying out for a collective commitment to cutting greenhouse gas emissions as quickly as possible. Taking up (and meeting) this challenge means proposing a new approach to efficiency, sustainability and security in all areas of the economy, starting with the energy sector.

Terna plays a central role in this major transition process, as we enable the integration of renewables and the electrification of consumption. Development of the electricity grid is the main enabling factor in achieving decarbonisation of the entire energy system.

Under the European Green Deal, the net zero emissions target is to be achieved in two main ways: by increasing use of renewables and through growing electrification of consumption. In this sense, an essential role in all the various scenarios designed to arrive at "carbon neutrality" is played by the key tool of energy efficiency.

The key consideration, in this sense, is that electricity will be the main energy carrier and the electricity grid will operate as the "backbone" for decarbonisation for all the other energy sectors. This reflects the carrier's intrinsic efficiency and the technological maturity of renewable energy sources (RES).

To fully exploit this potential, the proportion of total energy demand met by electricity needs to grow progressively, involving what is defined as electrification of the system.

This factor, together with the growing penetration of renewables (which are projected to cover over 85% of the electricity generation mix by 2050, under the European Commission's long-term strategy and excluding nuclear power), will help to fully decarbonise energy consumption by 2050, starting with light transport, housing and services.

Highlights

On 24 March 2022, Terna presented the update of the Company's 2021-2025 Industrial Plan, "Driving Energy".

(€m)

644.4 % change +4.7% vs Q1 2021 Revenue

461.3 % change +2.9% vs Q1 2021 EBITDA

191.8 % change +0.7% vs Q1 2021 Profit attributable to owners of the Parent 8,683.1

293.3 % change +21.4% vs Q1 2021 Capital expenditure Net debt

Terna's share price

€7.786 per share at 31 March 2022 versus €6.438 per share at 31 March 2021

ALL-TIME HIGH

€8.264 per share recorded on 11 April 2022.

Successful launch of Italy's first ever non-convertible, perpetual, subordinated hybrid green bonds for institutional investors, amounting to a nominal value of

€1billion

Agreement for bilateral ESG linked Term Loan amounting to

S&P and Scope have reiterated Terna's ratings, acknowledging the solid nature of the updated 2021-2025 Industrial Plan.

On 29 April, an agreement was signed with CDPQ for the sale of all the Group's power line located in Brazil, Peru and Uruguay for a value of over €265 million.

On 10 March 2022, Terna, Lazio Regional Authority and Rome City Council signed a Memorandum of Understanding for the deployment of four "invisible" connections extending for a total of around 25 km, involving investment of

over €60 million

In April, Terna's public consultation on the Western section of the Tyrrhenian Link, the submarine interconnector linking Sicily with Sardinia and Campania at a cost of €3.7 billion, came to an end.

ELECTRICITY SYSTEM

Demand 80* TWh % change +2.6% vs Q1 2021

RENS quality 71* MWh

vs target 791

Performance well below targets set by ARERA

* Provisional data.

Percentage of demand met from RES 29* % % change -14.7% vs Q1 2021

Cost of quality €1.0^m % change -23.1% vs Q1 2021

54 new people added in the first quarter of 2022 in implementation of the investment programme including in the Driving Energy Industrial Plan for the period 2021-2025.

Launch of the second edition of the "Terna Ideas" initiative in April, with a greater focus on sustainability and including training in innovation.

Terna becomes the first company internationally to adopt the Envision protocol, a rating system used in the design and deployment of sustainable infrastructure that measures, determines and certifies how "green" and resilient the assets are.

International indices and ESG ratings

In January 2022, Terna's membership of the Bloomberg's Gender Equality Index (GEI) was reconfirmed for the fourth consecutive year. This is an international index that measures companies' performance regarding gender equality issues and the quality and transparency of their public reporting.

In February 2022, Terna was confirmed as one of the best companies for inclusivity and commitment to gender equality. This led to the inclusion of Italy's national grid operator in the Standard & Poor's Gender Equality & Inclusion Index.

Structure of the Group

The structure of the Terna Group at 31 March 2022 is shown below.

Scope of assets held for sale*

The voluntary liquidation of PI.SA. 2 S.r.l., which began on 10 December 2021, was completed on 27 January 2022.

* Companies involved in the planned sale of subsidiaries operating in Latin America, classified as assets held for sale.

Scope of assets held for sale*

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 and 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 economy. International decarbonisation and sustainable development goals, given renewed impetus by the last COP26 in Glasgow, play a key role in our strategic thinking.

Ternapeople #DrivingEnergy

Electricity demand and production in Italy 12

1 The energy environment

Electricity demand and production in Italy

Demand for electricity in Italy

Demand for electricity in Italy amounted to 80,310 GWh in the first quarter of 2022, an increase of 2.6% compared with the same period of 2021.

ELECTRICITY BALANCE IN ITALY (GWH)*	Q1 2022**	Q1 2021**	CHANGE	% CHANGE
Net production	71,420	66,954	4,466	6.7%
From overseas suppliers (imports)	10,825	12,937	(2,112)	(16.3%)
Sold to overseas customers (exports)	(1,273)	(911)	(362)	39.7%
For use in pumping***	(662)	(683)	21	(3.1%)
Total demand in Italy	80,310	78,297	2,013	2.6%

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

** Provisional data.

*** Electricity used for pumping water for subsequent use in the production of electricity or as a way of immediately balancing overproduction.

Monthly demand for electricity in Italy continued to grow in the first quarter of 2022, compared with the same period of the previous year. This reflects the decline in demand in early 2021 due to the measures introduced by the Law Decree of 14 January 2021, which extended the state of emergency until 30 April 2021 and imposed new lockdowns that had a significant impact on consumption.

MONTHLY DEMAND FOR ELECTRICITY*

Meeting demand and energy production

* Provisional data.

Electricity production in the first quarter of 2022 is up 6.7% compared with the same period of 2021.

In the first quarter of 2022, approximately 29% of total energy demand was met from renewable energy sources, down on the same period of 2021. In terms of individual renewable sources, hydro production fell sharply (down 46%), linked to low water levels, partly offset by increases in wind (up 11%) and photovoltaic (up 11%) production. Geothermal and biomass production are broadly in line.

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 €9.5 billion in regulated assets 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.

Ternapeople #DrivingEnergy

The Group's strategy

The Company and our strategy

The updated 2021-2025 Industrial Plan, "Driving Energy", was approved by the Board of Directors on 24 March 2022. The Plan provides for total capital expenditure of €10 billion, through which Terna will accelerate its commitment to the country's ecological transition, energy independence and decarbonisation. This will strengthen our role in driving the Italian electricity system, in keeping with the challenging objectives set in the National Integrated Energy and Climate Plan ("PNIEC") and the targets in the EU's Green Deal, which aim to cut greenhouse gas emissions by at least 55% by 2030.

The key driver in the 2021-2025 Industrial Plan is sustainable investment, a concept embedded in the Company's value creation process and in the benefits for the system and the environment. Terna's capital expenditure, 99% of which is classified as sustainable based

on the EU Taxonomy, targets the development of renewable sources. The transmission backbones that transport energy from points of production, which are increasingly located in Italy's southern regions, to where demand is highest in the north of the country, will be boosted by resolving existing issues caused by grid congestion and further development of cross-border interconnections. Thanks to its strategic geographical location, Italy will be able to reinforce its role as a European and Mediterranean electricity transmission hub, becoming a leading player at international level.

The Terna Group's development initiatives will focus on three strategic areas: Regulated Activities in Italy, Non-regulated Activities and International Activities.

In terms of Regulated Activities in Italy, which continue to represent the Group's core business, Terna plans to invest €9.5 billion in developing, modernising and strengthening the national transmission grid, confirming our role in driving the energy transition and enabling an increasingly complex, sustainable and innovative electricity system. This investment, focused on increasing the country's energy security, will generate major benefits for the system as a whole, with a significant multiplier effect.

The planned investment will increase the value of our RAB to €22.7 billion in 2025, with a CAGR of 7% over the life of the Plan. By the end of 2022, the value of the RAB will be €17.9 billion, compared with €16.9 billion at the end of 2021.

Contributing over €450m to EBITDA NON-REGULATED ACTIVITIES Technological, innovative and digital solutions to support the ecological transition Sale of LatAm assets Scouting for new opportunities in international markets INTERNATIONAL ACTIVITIES Putting our competencies and know-how into grids worldwide PEOPLE Approx. 5,900 Number of employees in 2025 NexTerna continues first major project milestones achieved in 2021 INNOVATION AND DIGITALISATION €1.2bn invested in digitalisation, innovation and new technologies

Enablers

Enablers

The updated 2021-2025 Industrial Plan targets increased investment in development of the national transmission grid, which is due to total €5.6 billion. This is primarily linked to the construction of high-voltage direct current lines with the aim of resolving grid congestion, boosting transmission capacity between the various market areas, fully integrating renewable sources and improving quality of service. This type of investment will also involve the construction of undersea cable connections. The most important project is the Tyrrhenian Link, the power line that will connect Sardinia, Sicily and Campania and that will contribute to the development of renewable energy production and the phase-out of the most polluting coal- and oil-fired power stations. The other projects include Sa.Co.I.3, the interconnector linking Sardinia with Corsica and Tuscany, and the "Colunga-Calenzano" power line between Emilia-Romagna and Tuscany.

Investment in renewing and improving the efficiency of assets, covering the reorganisation of existing infrastructure, with the replacement – where technically feasible – of overhead lines with underground cable, will amount to €2.6 billion.

Finally, Terna plans to invest a total of €1.3 billion in the Security Plan, over the life of the Industrial Plan, with the aim of boosting the system's technical and technological capabilities to increase system functionality.

Non-regulated Activities will help to generate new business opportunities thanks to the development of innovative, digital solutions in keeping with Terna's public service role in supporting the energy transition. These activities will include:

• industrial activities in the field of transformers, thanks to the consolidation of Tamini, and in underground cables, leveraging the distinctive expertise in terrestrial cables acquired with Brugg Cables, to respond to the system's growing needs in both sectors;
• connectivity offerings, including within the context of partnerships, involving the provision of housing and hosting services to enable telecommunications providers to use our fibre network, and the installation of telecommunications equipment at Terna's existing sites;
• energy solutions and energy efficiency services for industrial customers and O&M activities for photovoltaic plants, taking into account the skills acquired with the LT Group and including through the use of innovative data collection and analysis technologies.

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

Turning to our International Activities, following the decision to extract value from our South American assets, we will continue with the strategic assessment of opportunities. These may take the form of partnerships, involving 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.

Terna will look to exploit new opportunities in low-risk markets with attractive growth potential, such as the United States, where the Company can make available our experience and expertise in the design and management of infrastructure, in line with our business strategy.

Over the coming years, innovation, new technologies and digitalisation will acquire ever greater importance, playing an increasingly central part in enabling the energy transition for the benefit of the entire system. In response to the growing complexity of the system, Terna intends to invest approximately €1.2 billion from the total of €10 billion earmarked for capital expenditure in the 2021-2025 Industrial Plan in digitalisation and innovation. We will concentrate our efforts on the use of advanced technology to remotely control electricity substations and transmission infrastructure. The Plan identified four technology clusters around which the new initiatives and projects will be focused, taking into account global technological trends and Terna's requirements: Digital (intelligent energy and capacity management solutions); Energy Tech (innovative solutions using more efficient, greener technologies); Advanced Materials (research and development resulting in eco-compatible materials to reduce our environmental impact); and Robotics (process automation).

Terna's people, with their unique, distinctive, world-leading technical expertise, are a key asset in enabling the Group to achieve the challenging goals we have set ourselves. The Company has launched an ambitious cultural transformation called NexTerna, involving the definition of a new leadership model and new ways of working and operating that are a response to the current scenario. This innovative approach is based on the digitalisation of processes and tools to increase people's efficiency and productivity, bringing logistical benefits and, above all, improving quality of life for all our workers. Terna's people-centric approach is also reflected in the creation of jobs: over the life of the Plan, we expect the number of employees to rise to approximately 5,900 by 2025.

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

ESG goals for the 2021-2025 Industrial Plan

In March 2022, together with the presentation of the "2021-2025 Industrial Plan" to the market, the ESG objectives were updated and - in line with the overall presentation of the Group's operations adopted with effect from the Integrated Report 2021 - reorganised in terms of types of capital.

In particular, the process of embedding sustainability within our business takes the form of setting objectives aimed at increasing intangible capital and respecting natural capital.

THE CONTRIBUTION OF ESG CRITERIA TO THE CREATION OF VALUE

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

These objectives help to leverage certain enablers of full implementation of the Industrial Plan and mitigate the ESG risks associated with the Group's activities. They are aimed at ensuring the sustainability of our business, creating value in the medium and long term, further embedding sustainability within the Group's value proposition and maintaining Terna's attractiveness for investors, who increasingly take these issues into account.

Innovation

In an expanding and highly complex electricity system, innovation and digitalisation play an increasingly important role, forming the two pillars that underpin Terna's virtuous growth path.

Terna's innovation is aimed at developing new solutions to meet the growing needs and challenges arising from the ecological transition, in line with the role of driver and enabler set out in the Company's strategy. Digitalisation is the prime enabler of innovation and ecological transition, to be implemented in the areas of connectivity, synchronous and asynchronous data management and "NexTerna".

Innovation projects

Initiatives in the first quarter of 2022 relating to high value-added projects in the innovation portfolio include:

Work continues on the creation of a prototype drone to perform surveying and maintenance tasks, specifically regarding measurement of the electric field (using a POSITRON sensor), and measurement of electrical resistance (using an OHMSTIK sensor). The benefits include reduced risks when carrying out live-line inspections high above the ground and the introduction of new specialised measurements. This project is part of a programme of innovation initiatives regarding the development of occupational safety solutions and technologies. Drones for specialised activities

In the period, development of the platform's personal data management functions regarding distributed flexibility resources was launched, as well as the design phase for using the platform to support structural innovation project initiatives. Equigy

This solution involves digitalisation of communications between operations rooms and field personnel during the securing of high-voltage installations - which were previously carried out by telephone - via the exchange of phonograms. Phonograms 2.0

In the first quarter of 2022, the identified solution was successfully trialled at four Infrastructure Units and their respective Local Control and Remote Control Centres, and the set-up phase was launched with a view to adopting the project.

Idea generation and scouting

innovation requirements in all the different areas of the Company.

The main Open Innovation initiatives carried out in the first quarter of 2022, in collaboration with large companies, Italian start-ups, SMEs and innovation facilitators, are described below.

This is the corporate entrepreneurship programme designed to promote a culture of innovation within the Company. This initiative enables the Company to gather innovative ideas (and subsequently develop some of them), whilst also providing an unprecedented overview of Terna Ideas

In the first quarter of 2022, a proof-of-concept development process was launched for the three winning ideas of the first edition of the programme, relating to concept design and feasibility studies for the proposed solution. Work also began on setting up the second edition of the programme, launched in April. One of the main innovations for 2022 is sustainability, which has assumed a more central role by becoming one of the key, crosscutting criteria for proposing and assessing ideas. This edition focuses on three new challenges: the evolution of training and working methods; boosting grid management efficiency via digital tools; and the exploitation of data and solutions that consolidate the Company's commitment to circular economy initiatives.

This initiative promoted by Terna in collaboration with the Cariplo Foundation and the Cariplo Factory, is aimed at developing young talent and supporting the growth of start-ups and companies with innovative projects. Next Energy 5

On 17 February 2022, a digital selection day was held for the Call for Solutions, aimed at scouting for innovative solutions among start-ups, SMEs and companies connected with "NexTerna" in the smart office and smart collaboration areas. Of the 88 applications received, four companies were selected ("AnotheReality", "CloudVision, "Coderblock" and "Pedius") and a proof of concept was launched in April.

Terna participates in the ELIS Open Italy programme, within which three solutions were identified: two in the field of Digital HR & New ways of working - SkillGymXTerna and JumpInTerna - in collaboration with the start-ups Skillgym and Another Brick, respectively, and one in the field of Cybertech - Terna CyberPalace - in collaboration with the start-up

In the first quarter of 2022, the two trial phases of the solutions tested in the field of Digital HR & New ways of working (SkillGymXTerna and JumpInTerna) were completed. In April, the trial phase of the Cybertech solution - Terna CyberPalace - was launched.

As part of the International Innovation project, a workshop entitled "Neuroscience applications for employee wellbeing" was held on 25 January 2022, which dealt with macro-trends in neuroscience, possible applications in the field of wellbeing, and an overview of successful

Another Brick.

start-ups and scale-ups in the sector.

Open Italy

International Innovation

Start-up Intelligence programme	In the first quarter of 2022, as part of the innovative Start-up Intelligence programme at the Polytechnic University of Milan, which focuses on research, scouting and community activities aimed at innovation managers and other people involved in digital innovation at companies, nine discussion and collaboration round tables were held during the latest edition of Startup Intelligence S08.
Luiss Data Girls	In the sixth edition of this programme, which began in November 2021 and ends in April 2022, Terna set a challenge, in collaboration with the subsidiary, Terna Energy Solutions S.r.l., regarding the avoidance of emissions and environmental and social externalities through the use of a photovoltaic system integrated with a storage system.

An increasingly "intelligent" grid

Electricity data is undoubtedly Terna's most important content asset, and one of the cornerstones of our intellectual capital.

The TSO collects and processes this data for the purposes of managing the electricity system (by the Dispatching department, the nerve centre of the System Operator) and as the basis for statistics, scenarios and analyses, as well as processes, maintenance activities and strategic asset development, which are vital in the context of the energy transition.

The mass of data that is processed contributes to the preparation of essential reports (Energy Forecast Scenarios, Italy Fitness for Purpose Report, Resilience Plan) relating to grid management and development. The purpose of these reports is to evaluate the interventions needed to boost the ability of power lines to withstand increasingly frequent extreme weather events, and to identify sufficient available capacity to achieve the national decarbonisation objectives within the set timeframe and, consequently, be able to scale Capacity Market auction requirements.

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

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
THE WORKFORCE	AT 31 MARCH 2022	AT 31 DECEMBER 2021	CHANGE
Senior managers	101	92	9
Middle managers	783	765	18
Office staff	2,836	2,815	21
Blue-collar workers	1,470	1,464	6
Total	5,190	5,136	54

The increase of 54 in the workforce at 31 March 2022 compared with 31 December 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.

Management of the health emergency

In the first quarter of 2022, Terna continued to apply the specific organisational measures designed to reduce the risk of infection from Covid-19 undertaken in 2020 and 2022. As part of the Sicuri Insieme ("Safe Together") campaign, the offer of molecular testing to anyone making a request proceeded during the first three months of the year.

Main initiatives in the first quarter of 2022

The NexTerna projects started in 2021 continued in the first quarter of 2022. This longterm programme for Terna's people is aimed at bringing about cultural change in every area of the Company, starting with the promotion of an inclusive leadership model to achieve real work-life balance through optimisation of workplaces and their use, in order to guarantee efficiency, productivity, logistical benefits and quality of life.

NexTerna (New Ways of Working)

Compensation, welfare and policies

In the first quarter of 2022, Terna pursued various work-life balance initiatives, in response to corporate welfare needs highlighted by staff. In particular, agreements providing staff benefits were reviewed, wellness initiatives were further improved, including nationwide amateur competitions and tournaments, and green mobility services were supported and promoted.

Training and engagement

27,330 hours of training were provided in the first three months of 2022, covering Sustainability, Compliance and HSE, Energy Transition and Technical Specialisation, New Ways of Working and Acceleration matters.

Talent Acquisition

During the first quarter of 2022, staff recruitment and selection activities focused on acquiring graduates from universities and vocational schools with Industry 4.0 expertise, in keeping with the new organisational arrangements.

The Talent Attraction strategy also involves working with the academic world and business schools with the aim of recruiting the best candidates.

During the first quarter of 2022, we also continued our commitment in partnership with the University e-Business School as part of its pre- and post-graduate training programmes for young people. Starting this year, candidates can look for vacancies on the Terna.it website and send their applications directly to the Talent Acquisition database.

Health, Safety & Environment

Work on the "Sicuri inTerna" project continued in the first quarter of 2022. 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.

Regarding environmental matters, circular economy projects continued, with a focus on reduction, reuse and recycling initiatives. Initiatives in the first quarter of 2022 included: (i) the Terna circular computer reuse community project, which aims to reuse IT assets no longer in service by donating them to schools once they have been restored; (ii) the recovery of used PPE, which aims to transform materials from discarded clothing used by operational personnel (apparel, shoes and helmets) into a secondary raw materials; and (iii) the green procurement project, which introduces procurement circularity criteria involving application of minimum environmental criteria (MEC) in procurement processes for certain product categories.

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 are contributing to the growth and development of sustainable projects for the benefit of Italy.

Operating activities	30
Financial review for Q1 2022	42
Terna's shares	54
Outlook	56

Declaration of the manager responsible for financial reporting in accordance with paragraph 2 of article 154-bis of Legislative Decree 58/1998 57

3 The Group's business

Operating activities

The Terna Group's business model is divided into three areas of business. The main area is Regulated Activities, which coincides with the obligations deriving from the government concession, together with Non-regulated Activities and International Activities.

Regulated Activities: The National Transmission Grid

The Terna Group owns 99.9% of the NTG, one of the most modern and technologically advanced 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 2022 amounts to €293.3 million, marking a sharp increase compared with the €241.5 million of the same period of the previous year (up 21.4%).

				(€m)
	Q1 2022(1)	Q1 2021	CHANGE	% CHANGE
Development Plan(2)	106.3	82.7	23.6	28.5%
Security Plan(2)	42.2	32.8	9.4	28.7%
Projects to renew electricity assets(2)	101.3	94.5	6.8	7.2%
Other capital expenditure(2)	31.0	16.9	14.1	83.4%
Total regulated assets	280.8	226.9	53.9	23.8%
Non-regulated assets(3)	9.0	12.2	(3.2)	(26.2%)
Capitalised financial expenses	3.5	2.4	1.1	45.8%
Total capital expenditure	293.3	241.5	51.8	21.4%

(1) The figures for non-regulated assets do not include assets held for sale reclassified in accordance with IFRS 5. (2) The figures for the first quarter of 2021 have been restated following changes to the purposes of investment, without modifying the overall value of investment in regulated assets.

(3) Non-regulated assets primarily regard private interconnectors and the re-routing of power lines for third parties. It should be noted that the figure for the first quarter of 2021 includes the amount reclassified to assets held for sale in the first quarter of 2022.

The following main regulated assets entered service in the first quarter of 2022:

New cable connections:

• Udine South Udine FS (adding 7.3 km);
• Rozzano primary substation first connection (adding 1.2 km);
• Rogoredo primary substation connection (adding 2.1 km).

Reactors plan:

• Maida;
• Deliceto.

The strategic 380kV connection between Bisaccia and Deliceto (35.8 km) entered service in April.

MAIN REGULATED WORKS CARRIED OUT DURING THE PERIOD > DEVELOPMENT PLAN – €106.3 million

380 kV Paternò-Pantano power line: work on construction of the foundations (49 out of a total of 50) and assembly of the first pylons (47 out of a total of 50) is nearing completion.

Paternò-Pantano-Priolo (€11.2 million)

380 kV Pantano-Priolo power line: work is continuing on construction of the foundations (45 out of a total of 115) and assembly of the first pylons (19 out of a total of 115).

380/220/150 kV Pantano substation: site preparation is nearing completion and construction of the foundations has begun.

Consents: the consents process for the Campania-Sicily section (East Link) of the connection has begun, and the public consultation for the Sicily-Sardinia section (West Link) has been completed. Tyrrhenian Link (€7.7 million)

Cable connection: the framework contracts regarding the executive design, and the supply and laying of marine and terrestrial cables have been formalised. The preliminary marine survey for the East Link and the West Link has been completed.

Converter stations: the call for tenders has been issued, and procurement for both sections of the connection is in progress.

Construction of the foundations and the new prefabricated building is in progress.	Magenta substation
Electromechanical assembly and secondary cable laying activities have begun.	(€2.4 million)

Vizzini substation: installation of general systems, auxiliary systems and the monitoring system, as well as site preparation civil works, are in progress. (€2.0 million)

Vizzini substation connections: work is continuing on construction of the 380 kV connections for the foundations (9 out of a total of 16) and assembly of the pylons (5 out of a total of 16).

Vizzini substation

The marine survey and geotechnical surveys regarding the terrestrial section, as well as production of the marine cable, are in progress, following the award of the contract last year.

Elba-mainland connection (€1.7 million)

Commissioning trials for the connection are in progress, with entry into service scheduled in 2022.

Italy-France interconnector (€1.4 million)

> SECURITY PLAN – €42.2 million

Maida compensator: machinery and step-up transformers have been transported to the site. Assembly of the equipment is in progress. Villanova and Rosara compensators: machinery production has been completed. Civil works are in progress in preparation for assembly of the equipment. Codrongianos compensators: the civil works involved in site preparation have begun. Suvereto compensators: preparatory activities have begun. Synchronous compensators (€9.0 million) Latina, Galatina and Villanova: production of supplies has been completed, and civil works are nearing completion. Electromechanical assembly has begun at the Latina and Galatina sites. STATCOM (€8.7 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 optic network. In March 2022, the target of 5 substations connected via proprietary fibre was reached, adding to a total of 515 substations covered. Fiber for the Grid (€3.6 million) Maida and Deliceto: the reactors have been completed and energised and have entered service. Reactors (€5.0 million)

> PROJECTS TO RENEW ELECTRICITY ASSETS – €101.3 million

The commitment to the renewal of electricity assets in order to improve the reliability and resilience of the NTG continues. Renewal of electricity assets

The renewal of overhead lines and substation equipment continued during the first quarter of 2022: approximately 150 km of conductors and 3 items of equipment insulated using mineral oil were replaced.

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

CONSENTS PROCESSES

Completed processes

In the first quarter of 2022, the issue of a Decree by the Ministry for the Ecological Transition marked the conclusion of the consents process regarding the planned modernisation of the 132kV electricity grid in the city of Brescia.

The conclusion of the consents processes has enabled several projects to enter the construction phase in the first quarter of 2022, including works relating to the new "Colunga-Calenzano" power line between Emilia-Romagna and Tuscany; construction of the 150kV Pettino - Torrione (AQ) underground cable line; initial steps in the plan to rationalise and modernise the electricity grid in the metropolitan area of Catania; replacement of the underground cable line connecting the "Naples Centre" primary substation with the "Doganella" primary substation; and work on installing the synchronous compensator at the Suvereto electricity substation. Work also began on upgrading the 150kV section of the infrastructure connecting a new E-distribution primary substation to the NTG.

Consultation

Projects in the consultation phase include the Adriatic Link. This new direct current undersea power line, entailing capital expenditure of over €1 billion, will link together Abruzzo and Marche. After a participatory design phase, Terna concluded the public consultation, which was carried out pursuant to Legislative Decree no. 76/2020, and included application of Regulation (EU) no. 347/2013 procedures. When submitting the single consent application, presumably by June 2022, Terna will send the outcomes of this consultation to the Ministry for the Ecological Transition for approval.

After discussions with local communities, analysis of the comments received and the outcomes of the supplementary surveys conducted in the affected areas, in the first quarter of 2022, Fano, in the province of Pesaro and Urbino, was chosen as the site for construction of the new Marche converter station for the Adriatic Link. Cepagatti was also confirmed as the location for construction of the Abruzzo converter station.

Continuity and 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 three years, a period in which there have been no significant changes, 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.

* Provisional data.

NTG RENS INDICATOR1

The "NTG RENS" indicator for the period from January to March 2022, based on preliminary data, amounts to approximately 71 MWh (compared with an annual target of approximately 791 MWh set by ARERA).

As regards the ASA indicator, availability was 99.99991% (provisional figure) in the first quarter of 2022, compared with 99.99993% in the previous year (provisional figure). 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 €1.0 million in the first three months of 2022 (€1.3 million in the first three months of 2021).

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 €437 million in the first quarter of 2022 (provisional data), down on the same period of the previous year (€580 million).

This decrease primarily reflects a reduction in costs for January and February 2022, due to a decline in selections made on the market.

MONTHLY DSM COSTS (€m)

Monthly DSM charge 2021 Monthly DSM charge 2022

* Provisional data.

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

The total Uplift was approximately €457 million in the first three months of 2022 (provisional data), down compared with the same period of the previous year (€579 million). This reflects reductions in the cost of using the Dispatching Services Market and in the cost of contracts providing an alternative to essential providers and an increase in domestic and overseas congestion revenue, partly offset by a sharp rise in the cost of virtual interconnections.

* Provisional data.

Non-regulated Activities: Energy market solutions

Our Non-regulated Activities are designed to support the ecological transition, in keeping with our core business. We use Terna's know-how for the design, engineering, operation and maintenance of complex solutions, including the integration of telecommunications networks and proprietary systems. Our aim is to serve commercial and industrial customers with our expertise and experience in a wide range of solutions.

The main areas of business in this segment are:

• INDUSTRIAL
• CONNECTIVITY
• ENERGY SOLUTIONS
• PRIVATE INTERCONNECTORS PURSUANT TO LAW 99/2009

Via two leading companies in their fields, Terna is able to control expertise and supplies in two key areas for grid development:

• Transformers Tamini Group: a world leader in the production of industrial transformers and in after-sales service;
• Terrestrial cables Brugg Cables Group: a centre of excellence for research, development and testing in the field of terrestrial cables, the Brugg Cables Group is based in Switzerland and has several overseas subsidiaries.

TRANSFORMERS – TAMINI GROUP

Order book Tamini received orders for transformers worth approximately €44 million in the first three months of 2022, in line with annual targets.

Orders in the Power sector amount to approximately €34 million, linked to the award of major orders placed by utility companies in Italy, while orders in the Industrial sector amount to approximately €10 million. Orders for Services amount to approximately €4.5 million, marking a sharp increase compared with 2021 (up 51%).

The value of factory backlogs is up compared with the end of 2021 at approximately €144 million (up 7%).

Results Revenue rose in the first three months of 2022 compared with the same period of 2021 (up 6.5%), due to the increased value of transformer production. Several very important items of equipment were also tested, including two 400MVA power transformers for a major TSO in northern Europe and four 125MVA step-up transformers for compensators.

Vegetable oil transformers Once again, Tamini plans to produce vegetable oil transformers for the Power sector in 2022. Four 250 MVA and 400 MVA vegetable oil autotransformers will be built at the Legnano plant.

TERRESTRIAL CABLES – BRUGG CABLES GROUP

Orders acquired in the first quarter of 2022 amount to approximately CHF50 million. The High Voltage System segment made a major contribution (CHF27 million). The Low Medium Voltage segment also made a significant contribution (CHF14 million), as did the High Voltage Accessories segment (CHF9 million). Compared with the same period of 2021, production of high voltage cables is up 6%, whilst the volume of low and medium voltage cables produced is stable.	Order book
Revenue is up 9% compared to the first quarter of 2021, mainly due to higher sales in the Low Medium Voltage segment.	Results
In the High Voltage Accessories segment, cooperation with cable manufacturers was stepped up and agreements were signed with new partners during the quarter. In the offshore segment, important type tests (demonstration and validation of product compliance with required characteristics and performance) are planned for the product range currently under development. The industrialisation project regarding the dry-type outdoor gel-insulated composite terminal has been launched and is in the design phase. With regard to high and very high-voltage systems, a first major EPC (Engineering, Procurement, Construction) order was placed in the United Arab Emirates. In Germany, an important order with cables manufactured in-house was placed. The first Extended Repair Joint (a new accessory developed for emergency work on high-voltage systems) was also successfully installed during the quarter. In the low and medium voltage segment, the volume of orders in the first quarter of 2022 reached an all-time high compared to previous years. Contracts were signed for two major tunnel projects and the award of a new five-year framework agreement was announced, which will enable even more effective market penetration. CONNECTIVITY FIBRE	Operating activities
Under the framework agreement with Open Fiber regarding the provision of fibre infrastructure forming a national and regional backbone, in the first quarter of 2022 activation letters were signed regarding a further 240 km, which is scheduled for delivery	Open Fiber project - fibre IRU and ancillary services (housing and maintenance)

The contract signed with Eolo in 2021 provides for the delivery of a further 393 km in 2022 (Lot 2).

by the end of 2022.

Eolo - fibre IRU and ancillary services (housing and maintenance)

RENEWABLES - LT GROUP

The LT Group operates in the design and implementation of revamping and repowering projects for existing plants and in the construction of new photovoltaic plants for third parties. Turnover in the first quarter of 2022 is in line with the projected turnover for 2022. This is significantly up on the first quarter of 2021, primarily reflecting routine maintenance activities, which have increased by approximately 60%.

OTHER PROJECTS

Eni New Energy – fast reserve storage	Under the contract signed in 2021 regarding the design and construction of an electrochemical storage unit in Assemini (approximately 14 MW), design and system integration activities are in progress, and batteries from China have been procured and cleared through customs. Construction work is scheduled to start by the end of the first quarter of 2022.
EF Solare – Revamping FTV	As part of the revamping/repowering contracts signed in 2021, work was completed at the Focomorto 2 plant in the first quarter of 2022, and repowering activities are underway at the Latina 2 plant. Work will soon begin at the Alfonsine 2, Priolo and Martignone sites.
	HIGH VOLTAGE
Vetrerie Riunite - construction of new MV cable duct and replacement of transformer	With regard to the contract entered into in 2021 with Vetrerie Riunite for revamping the plant's connection infrastructure, the first phase of design and construction of the new cable duct has been completed.
Acciaierie Venete - Implementation and supply of 3 STATCOM systems	The contract, signed in February 2021, regards EPC implementation of three reactive energy compensation systems (STATCOM technology). Commissioning of the three STATCOM compensation systems has been completed, as well as installation at two of the customer's three sites (Padua and Sarezzo). Installation at the Borgo Valsugana site is scheduled for completion by the end of the first half of 2022.
NLMK Verona - HV cabling and installation of compact module	With regard to the contract signed in 2021, development of the detailed design for the entire project and procurement have been completed. Construction work will begin in the second quarter of 2022.
EDPR – Construction of Aquilonia electricity substation	As part of the contract regarding construction of the Monte Mattina HV/MV electricity substation to connect the Aquilonia wind farm (25.2 MW) to the NTG, ancillary activities and civil works are to be completed after the plant's entry into service.
RFI – Metering equipment	As part of the framework agreement, which was signed in December 2018 and relates to the "Design, supply, installation, certification and commissioning of metering equipment", during the first quarter of 2022 one application contract was signed and five installations were completed.
RIVA ACCIAI - Turnkey implementation of STATCOM system	In the first quarter of 2022, a contract was signed regarding implementation of a reactive energy compensation system (STATCOM technology). Planning, procurement and design activities are in progress.

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

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. Italy – Montenegro interconnector project The project involves the development of new transmission lines between Italy and Switzerland, with the aim of increasing interconnection capacity between Italy and Switzerland. Italy – Switzerland interconnector project Out of a total of approximately 95 km of cable for the Italian end of the interconnection, the laying of cable for the entire section running along the A32 motorway and through the Frejus motorway tunnel, has been completed. The remaining activities to complete the power line, including the laying of fibre and the installation of monitoring systems, were completed in 2021. The civil works for the Piossasco converter station, as was assembly of all the electromechanical equipment, have been completed. Given the delays to work on both the Italian and French sides in 2020, as a result of the Covid-19 emergency, the works were completed during 2021. In February 2022, after the approval issued by the European Commission in January, ARERA accepted the request Terna made in 2021 for an 11-month extension of the exemption. The process of resolving certain commissioning issues relating to the electronic part of the project is currently in progress with the aim of enabling entry into service by the end of 2022. Italy–France interconnector project 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 €80 million. The interconnector is due to enter service in 2023. Italy – Austria interconnector project

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 – Slovenia interconnector project

International Activities

As part of our overseas initiatives, the plan to extract value from our activities in South America proceeded. Launched in the last part of 2021, the plan involves the sale of up to 100% of our Latina American assets.

On 29 April 2022, Terna S.p.A., Terna Plus S.r.l. and Terna Chile S.p.A. signed an agreement with CDPQ, a global investment group, for the sale of all their power line assets, extending for approximately 1,200 km, in Brazil, Peru and Uruguay. The value of the assets being sold (the equity value) is more than €265 million. Transaction closing is due to take place in phases, for the most part in the second half of 2022.

Initiatives in progress in South America

Project included in the assets currently in the process of being sold Activities connected with contract management of the line that has entered service continued in the first quarter of 2022. URUGUAY

BRAZIL

Projects included in the assets currently in the process of being sold 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 2022.

Onsite activity for the SPE Transmissora de energia Linha Verde II S.A., regarding the construction of a 160-km 500kV power line in the State of Minas Gerais, continued. The project is scheduled for completion in the first half of 2022.

Engineering work and the acquisition of rights and easements for the SPE Transmissora de Energia Linha Verde I S.A. project 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.

Project included in the assets currently in the process of being sold Operation and maintenance of the 132-km 138kV power line between Aguaytìa and Pucallpa continued, following the line's entry into commercial service on 16 May 2021.

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

Other international initiatives

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

The field work for the marine section survey has been completed, and the terrestrial section survey for the Tunisian side is underway. Work continues on the environmental and social impact study, which under the new EU regulations will also analyse the climate proofing of the infrastructure.

Consent for the work to take place on the Italian section was received from the Ministry for the Ecological Transition and the Ministry for Economic Development at the end of April.

The European Commission proposed that the Italy-Tunisia project be included in the fifth list of Projects of Common Interest, which is essential for accessing the Connecting Europe Facility European funding programme. The list was published by the Commission on 19 November 2021 and subsequently approved by the Parliament and the Council.

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

Financial review for Q1 2022

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 2021.

Therefore, given that the requirements of IFRS 5 have been met, the total results for the first quarter of 2022 and 2021 attributable to the South American subsidiaries included in the planned sale of assets have been classified in the item "Profit/(Loss) for the period from assets held for sale" in the Group's reclassified income statement. Likewise, the attributable assets and liabilities at 31 March 2022 have been reclassified to the item "Net assets held for sale" in the Group's reclassified statement of financial position, in line with the comparative amount.

The Group's reclassified income statement

The Terna Group's operating results for the first quarter of 2022, compared with those for the same period of the previous year, are summarised in the following reclassified income statement.

				(€m)
	Q1 2022	Q1 2021	CHANGE	% CHANGE
TOTAL REVENUE	644.4	615.7	28.7	4.7%
- Regulated revenue	562.0	536.7	25.3	4.7%
of which Revenue from construction services performed under concession	9.8	6.5	3.3	50.8%
- Non-Regulated revenue	82.4	78.8	3.6	4.6%
- International revenue	-	0.2	(0.2)	(100.0%)
TOTAL OPERATING COSTS	183.1	167.3	15.8	9.4%
- Personnel expenses	81.3	72.4	8.9	12.3%
- Cost of services, leases and rentals	42.2	40.2	2.0	5.0%
- Materials	41.1	39.4	1.7	4.3%
- Other costs	7.7	7.5	0.2	2.7%
- Quality of service	1.0	1.3	(0.3)	(23.1%)
- Cost of construction services performed under concession	9.8	6.5	3.3	50.8%
GROSS OPERATING PROFIT (EBITDA)	461.3	448.4	12.9	2.9%
- Amortisation, depreciation and impairment losses	167.6	162.8	4.8	2.9%
OPERATING PROFIT (EBIT)	293.7	285.6	8.1	2.8%
- Net financial income/(expenses)	(24.4)	(18.0)	(6.4)	35.6%
PROFIT/(LOSS) BEFORE TAX	269.3	267.6	1.7	0.6%
- Income tax expense for the period	76.2	77.7	(1.5)	(1.9%)
PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS	193.1	189.9	3.2	1.7%
- Profit/(Loss) for the period from assets held for sale	(1.1)	0.8	(1.9)	-
PROFIT FOR THE PERIOD	192.0	190.7	1.3	0.7%
- Profit/(Loss) attributable to non-controlling interests	0.2	0.3	(0.1)	(33.3%)
PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	191.8	190.4	1.4	0.7%

			(€m)
EBITDA BY OPERATING SEGMENT	Q1 2022	Q1 2021	CHANGE
Regulated Activities	448.4	433.1	15.3
Non-regulated Activities	14.0	16.5	(2.5)
International Activities	(1.1)	(1.2)	0.1
EBITDA	461.3	448.4	12.9

Gross operating profit (EBITDA) for the first quarter of 2022 amounts to €461.3 million, up €12.9 million on the €448.4 million of the first quarter of 2021. This primarily reflects an improvement in EBITDA from Regulated Activities.

Revenue

			(€m)
REGULATED ACTIVITIES	Q1 2022	Q1 2021	CHANGE
Tariff revenue	543.4	525.9	17.5
- Transmission revenue	485.0	498.4	(13.4)
- Dispatching, metering and other revenue	58.4	27.5	30.9
Other regulated revenue	8.8	4.3	4.5
Revenue from construction services performed under concession in Italy	9.8	6.5	3.3
TOTAL	562.0	536.7	25.3

Revenue from Regulated Activities is up €25.3 million compared with the same period of the previous year. This primarily reflects the impact on tariff revenue (up €17.5 million) of the accrued effect of the output-based incentive mechanisms introduced by Resolution 699/2018 during the quarter (€29.4 million), after the impact of the cut in the transmission charge (down €13.4 million) due to the reduction in the WACC recognised for 2022 (Resolution 614/21), partially offset by the increase in the RAB during the period. There was also an increase in revenue resulting from recognition of pro rata quality of service bonus for 2021 (up €1.5 million, based on the estimated overall performance in the 2021-2023 regulatory period) and an increase in compensation received for damage to infrastructure (up €2.1 million) and in revenue from connections to the NTG (€1.8 million).

			(€m)
NON-REGULATED ACTIVITIES	Q1 2022	Q1 2021	CHANGE
Industrial	52.8	52.5	0.3
- Brugg Cables Group	29.7	30.8	(1.1)
- Tamini Group	23.1	21.7	1.4
Services for third parties (Connectivity, Energy Solutions, other)	27.5	23.5	4.0
Private interconnectors	2.1	2.8	(0.7)
TOTAL	82.4	78.8	3.6

The increase in revenue from Non-regulated Activities, amounting to €3.6 million, primarily reflects the contribution following integration of the LT Group (up €4.7 million) acquired in October 2021, after the reduced contribution from private interconnector projects pursuant to Law 99/2009 (down €0.7 million), essentially due to the differing states of progress of works on the Italy-France interconnector.

Revenue from International Activities amounts to zero following the above reclassification carried out in accordance with IFRS 5.

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

Costs

Operating costs, excluding the change in the cost of construction services performed under concession (up €3.3 million), are up €12.5 million compared with the first quarter of the previous year. This reflects an increase in personnel expenses, primarily due to a larger workforce and the contribution from the LT Group (up €5.2 million).

Amortisation, depreciation and impairment losses for the period amount to €167.6 million, an increase of €4.8 million compared with the first quarter of 2021, primarily due to the entry into service of new infrastructure.

Operating profit (EBIT), after amortisation, depreciation and impairment losses, amounts to €293.7 million, an increase of €8.1 million (2.8%) compared with the first quarter of 2021.

Net financial expenses for the period total €24.4 million and primarily regard the Parent Company. The figure is up €6.4 million on the €18.0 million of the first three months of 2021, due primarily to inflation during the first quarter of 2022, after the positive adjustment to the value of investments in associates.

After net financial expenses, profit before tax amounts to €269.3 million, compared with €267.6 million for the first quarter of 2021 (up 0.6%).

Income tax expense for the period totals €76.2 million, a decrease of €1.5 million (1.9%) compared with the same period of the previous year. This is essentially due to the higher amount of tax-exempt expenses recognised in the same period of the previous year. The tax rate of 28.3% compares with the 29% of the same period of the previous year.

The profit for the period from continuing operations amounts to €193.1 million, an increase of €3.2 million (1.7%) compared with the €189.9 million of the first quarter of 2021.

The loss for the period from assets held for sale totalling €1.1 million an reduction of €1.9 million compared with the first quarter of 2021. This essentially reflects deployment of the infrastructure under construction in Brazil.

Profit for the period amounts to €192.0 million, up €1.3 million (0.7%) compared with the €190.7 million of the first quarter of 2021.

Profit for the period attributable to owners of the Parent (after excluding the share attributable to non-controlling interests) amounts to €191.8 million, up €1.4 million (0.7%) compared with the €190.4 million of the first quarter of 2021.

Cash flow

Operating cash flow for the first quarter of 2022 was used to finance investing activities. The impact on working capital of movements in trading and tax assets and liabilities compared with 2021, and repayment of a bond issue in the first quarter (replaced by the hybrid green bond issued on 2 February 2022 and worth €1 billion), have resulted in a reduction in net debt.

		(€m)
	CASH FLOW Q1 2022	CASH FLOW Q1 2021
- Profit for the period	192.0	190.7
- Amortisation, depreciation and impairment losses	167.6	162.8
- Net change in provisions	11.8	(14.6)
- Net losses/(gains) on sale of assets	(0.2)	(6.2)
Operating cash flow	371.2	332.7
- Change in net working capital	195.4	(282.0)
- Other changes in property, plant and equipment and intangible assets	7.9	12.0
- Change in investments	-	1.9
- Change in financial assets	(52.8)	3.0
Cash flow from operating activities	521.7	67.6
- Total capital expenditure	(293.3)	(241.5)
Free cash flow	228.4	(173.9)
Net assets held for sale	(16.2)	-
- Reserve for equity instruments, cash flow hedge after taxation and other movements in equity attributable to owners of the Parent	1,107.1	33.0
- Other movements in equity attributable to non-controlling interests	0.1	(7.5)
Change in net debt	1,319.4	(148.4)

The Group's reclassified statement of financial position

The Terna Group's financial position at 31 March 2022 and 31 December 2021 is summarised below in the reclassified statement of financial position.

			(€m)
	AT 31 MARCH 2022	AT 31 DECEMBER 2021	CHANGE
Total net non-current assets	16,524.0	16,352.9	171.1
- Intangible assets and goodwill	669.5	656.5	13.0
- Property, plant and equipment	15,421.9	15,316.6	105.3
- Financial assets	432.6	379.8	52.8
Total net working capital	(1,902.4)	(1,706.7)	(195.7)
- Net energy-related pass-through payables	(429.7)	(209.1)	(220.6)
- Net receivables resulting from Regulated Activities	472.3	448.4	23.9
- Net trade payables	(557.0)	(737.5)	180.5
- Net tax liabilities	(180.9)	(50.6)	(130.3)
- Other net liabilities	(1,207.1)	(1,157.9)	(49.2)
Gross invested capital	14,621.6	14,646.2	(24.6)
Sundry provisions	(60.2)	(48.4)	(11.8)
Net invested capital	14,561.4	14,597.8	(36.4)
Net assets held for sale	133.9	117.7	16.2
TOTAL NET INVESTED CAPITAL	14,695.3	14,715.5	(20.2)
Equity attributable to owners of the Parent	5,980.8	4,681.9	1,298.9
Equity attributable to non-controlling interests	31.4	31.1	0.3
Net debt	8,683.1	10,002.5	(1,319.4)
TOTAL	14,695.3	14,715.5	(20.2)

The €171.1 million increase in net non-current assets compared with 31 December 2021 primarily reflects a combination of the following:

• total capital expenditure of €293.3 million, as described in detail in the section on "Regulated Activities";
• an increase of €52.8 million in financial assets, mainly due to an increase in guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel, as amended (up €47.6 million) and an increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €5.3 million);
• amortisation and depreciation for the period, totalling €167.3 million;
• other movements during the period, resulting in a reduction of €7.1 million, including grants related to assets (primarily in relation projects financed by the Ministry for Economic Development and the EU and the re-routing of power lines at the request of third parties) and disposals and impairment losses resulting in a reduction of €0.6 million.

The Terna Group's total capital expenditure during the first quarter of 2022, amounting to €293.3 million, is up 21.4% compared with the €241.5 million of the same period of 2021.

MAIN INVESTMENT IN THE NTG* (€m)

* Amounts include financial expenses.

Net working capital (net current liabilities) of -€1,902.4 million resulted in a cash inflow of €195.7 million compared with 2021. This reflects the combined effect of:

Cash inflows

• an increase in net energy-related pass-through payables of €220.6 million compared with the end of the previous year, primarily reflecting the combined effect of:
  • an increase in net payables linked to the virtual import service (€250 million), resulting from the settlement of amounts due to the financial backers of interconnector projects, applied on a transitional basis via the shippers selected by Terna3 ;
  • an increase in the net amount payable in the form of capacity payments (€155.5 million) due to the method of raising funds (introduced by Resolution 365/2019) to cover the cost of procuring capacity;
  • an increase in net payables relating to essential plants for the security of the electricity system - UESS (€129.6 million), reflecting items collected during the period after payments made in early 2022 to the owners of essential plants4 ;
  • a reduction in net amounts receivable in relation to imbalances (€201.1 million);

partially offset by

• a reduction in amounts payable as a result of transactions on the Dispatching Service Market – DSM (€511.6 million) compared with the figure for the end of 2021, primarily due to the steps taken by Terna to contain and reduce dispatching costs5 ;
• an increase of €130.3 million in net tax liabilities, broadly due an increase in the net amount payable in taxation (€83.9 million) and an increase in net VAT payable (€48.9 million), in keeping with the reduction in trade payables;

³ ARERA revised the procedures for settlement of virtual imports in resolutions 49/2022 and 93/2022.

⁴ ARERA ordered payments to the owners of essential plants via resolutions 42-43-67-76-92/2022.

⁵ In resolutions 597/2021 and 132/2022, ARERA has established an output-based incentive scheme to be applied to Terna with the aim of cutting dispatching costs.

• an increase in other net liabilities of €49.2 million, primarily due to the above increase in guarantee deposits received from operators participating in the capacity market and from electricity market operators to guarantee the obligations undertaken regarding dispatching

Cash outflows

• a reduction of €180.5 million in net trade payables, largely due to the increase in capital expenditure during the last part of the previous year;

and virtual interconnection contracts (up €43.5 million and €8.3 million, respectively).

• an increase in net receivables resulting from Regulated Activities of €23.9 million, primarily reflecting the combined effect of assessment of the reward accruing in the quarter linked to the output-based incentive mechanism introduced by Resolution 699/2018 (€29.4 million), recognition of the amount receivable in the form of revenue linked to quality of service in the first quarter of 2022 (€2.9 million) and a reduction in amounts receivable for transmission services (€8.3 million) following the revision of tariffs.

Gross invested capital thus amounts to €14,621.6 million, marking a reduction of €24.6 million compared with the previous year.

Sundry provisions are up €11.8 million, primarily due to:

• the net release of deferred tax assets (up €25.0 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 uses of provisions relating to quality of service (down €5.2 million), to fund urban and environmental redevelopment schemes (down €3.2 million) and to fund early retirement incentives (down €1.9 million).

Net assets held for sale, totalling €133.9 million at 31 March 2022, are up €16.2 million compared with 31 December 2021. This primarily reflects an increase in investment in infrastructure operated under concession in Brazil, in part offset by the resulting increase in net debt.

Total net invested capital, including assets held for sale of €133.9 million, amounts to €14,695.3 million, marking a decrease of €20.2 million compared with 31 December 2021. This is financed by equity attributable to owners of the Parent, totalling €5,980.8 million, which includes the reserve for the hybrid green bonds issued, amounting to €989.4 million (compared with €4,681.9 million at 31 December 2021), equity attributable to non-controlling interests of €31.4 million (€31.1 million at 31 December 2021) and net debt of €8,683.1 million (down €1,319.4 million compared with the €10,002.5 million of 31 December 2021).

Debt

Financial policy and gross 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, taking 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 2022 amounts to approximately €11 billion, consisting of approximately €7 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.

Bonds have been issued in the form of both public and private placements under the €9 billion Euro Medium Term Notes (EMTN) Programme (in which a large number of Italian and overseas banks participate), in addition to a stand-alone issue of €800 million dating back to 2004. Focused specifically on qualified investors and listed on the Luxembourg Stock Exchange, Terna's bonds have a very diverse investor base, in terms of both sector and geographical profile.

The main provider of Terna's bank loans is the European Investment Bank (EIB). Total borrowings from the EIB at 31 March 2022 amount to approximately €2.0 billion (including €210 million yet to be drawn on). Thanks to its strong credit ratings, Terna is able to obtain financing from banks on extremely good terms, as shown by the €1 billion hybrid green bond issue launched in the first quarter of 2022 and the amount raised in the form of bank borrowings. In this regard, the first €90 million was disbursed in January 2022 under a €300 million credit facility agreed with the EIB in 2021, whilst a further €300 million bank facility was agreed and disbursed in the first half of 2022. Terna also has access to two committed revolving credit facilities, amounting to approximately €3.2 billion.

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

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 also followed in early 2022.

On 28 February 2022, Terna agreed a bilateral ESG-linked Term Loan amounting to €300 million with Intesa Sanpaolo's IMI Corporate & Investment Banking division, acting as Original Lender and Sustainability Coordinator. The credit facility has a two-year term, with the interest rate linked to Terna's ESG performance. The transaction provides Terna with a level of liquidity appropriate to its current rating and confirms the Group's strong commitment to introducing a model that increasingly reinforces the role of sustainability as a strategic driver of value creation for all our stakeholders.

On 2 February 2022, Terna became the first Italian company to successfully launch a hybrid green bond with a nominal value of €1 billion. The non-convertible, perpetual, subordinated green bonds are non-callable for six years and will pay coupon interest of 2.375% until 9 February 2028, the first reset date. After this date, the bonds will pay annual interest equal to the 5-year Euro Mid-Swap rate plus a spread of 212.1 basis points. This will be increased by a further spread of 25 basis points from 9 February 2033 and by an additional 75 basis points from 9 February 2048. The issue, aimed at institutional investors, saw extremely high demand, with applications topping €4 billion and the issue being four times oversubscribed. The high quality of the hybrid bonds and the wide geographical diversification of investors mean that the issue was assigned ratings of "BBB-" by Standard and Poor's, "Ba1" by Moody's and "BBB" by Scope.

At 31 March 2022, the green bonds (senior and subordinated) issued by Terna amount to €3.6 billion.

The net proceeds from the issues are used to finance the Company's eligible green projects, identified on the basis of Terna's Green Bond Framework, published by Terna in compliance with the "Green Bond Principles" (GBP) drawn up by the ICMA (International Capital Market Association) and the EU Taxonomy.

Terna's leadership in sustainable finance is widely recognised in the market which, since 2018, has shown a strong appetite for the green bonds issued. In addition to its inclusion in the main ESG indices, from January 2021, Terna is 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 continues to be a member of the CFO Taskforce for the SDGs, after joining in February 2020. This is 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 Taxonomy on sustainable finance.

Net debt

The Group's net debt at 31 March 2022 amounts to €8,683.1 million, marking a reduction of €1,319.4 million compared with 31 December 2021.

			(€m)
NET DEBT (BY TERM TO MATURITY)	31 MARCH 2022	31 DECEMBER 2021	CHANGE
Total medium/long-term debt	9,120.4	8,917.1	203.3
- Bond issues	6,784.8	6,925.6	(140.8)
- Borrowings	2,236.0	1,909.4	326.6
- Derivative financial instruments	99.6	82.1	17.5
Total short-term debt/(funds)	(437.3)	1,085.4	(1,522.7)
- Bond issues (current portions)	-	999.9	(999.9)
- Short-term borrowings	820.9	1,947.0	(1,126.1)
- Borrowings (current portions)	642.4	640.1	2.3
- Other current financial liabilities net	47.3	23.6	23.7
- Derivative financial instruments	0.1	0.1	-
- Financial assets	(26.6)	(958.5)	931.9
- Cash and cash equivalents	(1,921.4)	(1,566.8)	(354.6)
Total net debt	8,683.1	10,002.5	(1,319.4)
NET DEBT (BY TYPE OF INSTRUMENT)
- Bond issues	6,784.8	7,925.5	(1,140.7)
- Borrowings	2,878.4	2,549.5	328.9
- Short-term borrowings	820.9	1,947.0	(1,126.1)
- Derivative financial instruments	99.7	82.2	17.5
- Other financial liabilities net	47.3	23.6	23.7
Gross debt	10,631.1	12,527.8	(1,896.7)
- Financial assets	(26.6)	(958.5)	931.9
- Cash and cash equivalents	(1,921.4)	(1,566.8)	(354.6)
Total net debt	8,683.1	10,002.5	(1,319.4)
Net debt attributable to net assets held for sale	187.2	161.8	25.4

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

• a reduction in bond issues of €1,140.7 million, primarily following the repayment of bonds worth €1,000 million;
• an increase in borrowings of €328.9 million, primarily as a result of the drawdown of new bank facilities totalling €390.0 million, after repayments of portions of existing borrowings;
• a reduction in short-term borrowings (down €1,126.1 million), essentially due to the Parent Company's repayment of amounts obtained under short-term credit facilities;
• an increase in the fair value of derivative financial instruments (up €17.5 million), primarily due to movements in the derivatives held and in market interest rates;
• an increase in other net financial liabilities (up €23.7 million), essentially due to the recognition of accrued interest on financial products;
• a reduction in financial assets (down €931.9 million) following the repayment of Italian government securities held;
• an increase in cash and cash equivalents of €354.6 million. Cash amounts to €1,921.4 million at 31 March 2022, including €1,371.3 million invested in short-term, readily convertible deposits and €550.1 million held in bank current accounts and in the form of cash in hand.

Net debt attributable to assets held for sale, amounting to €187.2 million at 31 March 2022, essentially includes the value of bond issues, totalling €48.6 million and bank borrowings of €206.6 million, after the short-term portion of investment in infrastructure operated under concession in Brazil, recognized in application of IFRIC 12, totalling €27.7 million, and cash and cash equivalents of approximately €40.3 million. The increase of €25.4 million compared with 31 December 2021 is primarily due to movements in exchange rates.

3. The Group's business

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 2022, the share price has risen 358% (a capital gain), providing a Total Shareholder Return (TSR6 ) of 1,072%, ahead of both the Italian market (the FTSE MIB, up 66%) and the relevant European sector index (DJ Stoxx Utilities), which has risen 307%.

Europe's leading stock markets fell during the first quarter of 2022, except for London which recorded an increase of 1.8%, with the war between Russia and Ukraine weighing on the overall performance. Milan lost 8.5% during the period, with Paris and Frankfurt down 6.9% and 9.5%, respectively, and Madrid declining 3.1%.

Performance of Terna's shares

Terna's shares closed the quarter in positive territory, having risen 9.4% to €7.786 after outperforming the relevant European sector index (DJ Stoxx Utilities), which fell 3.7%. The daily average volume traded during the period amounted to approximately 5.0 million. The share price reached a high for the first quarter of €7.786 on 31 March 2022, achieving a new all-time high of €8.264 on 11 April 2022.

PERFORMANCE OF TERNA'S SHARES (Price from 1 January to 31 March 2022)

Source: Bloomberg.

TERNA'S SHARES, THE FTSE MIB AND DJ STOXX UTILITIES (price from 1 January to 31 March 2022)

⁶ 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.

TOTAL SHAREHOLDER RETURN ON TERNA'S SHARES AND THE FTSE MIB

AND DJ STOXX UTILITIES (from the otation to the end of March 2022)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

	Source: Bloomberg.	Terna	Ftse Mib	DJ Stoxx Utilities
--	--------------------	-------	----------	--------------------

WEIGHTING OF TERNA'S SHARES	Q1 2022	Q1 2021
> on the FTSE MIB	2.57%	2.21%

Source: Borsa Italiana.

Ratings

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

Terna's ratings, assigned by S&P, Moody's and Scope, were unchanged in the first quarter of 2022 compared with December 2021, remaining one notch above the rating assigned to the Italian state.

On 25 March 2022, S&P and Scope confirmed the Company's ratings. The agencies' assessments followed the presentation of the updated 2021-2025 Industrial Plan. This aims to strengthen Terna's central role in driving the energy transition and enabling an increasingly complex, sustainable and innovative electricity system by significantly stepping up investment, due to total €10 billion over the period covered by the Plan.

3. The Group's business

Outlook

Against a backdrop marked by the geopolitical crisis caused by the war between Russia and Ukraine and continued commodity price pressures that are having a negative impact on the pace of the post-Covid economic recovery, 2022 will see the Group continue to focus on delivering on our "Driving Energy" 2021-2025 Industrial Plan. The updated Plan, approved on 24 March of this year, confirms and strengthens Terna's central role in driving the Italian energy system and enabling the ecological transition, with the Group planning to invest a total of €10 billion in the five years from 2021 to 2025, including approximately €1.7 billion in 2022.

In line with the 2021 National Transmission Grid Development Plan presented in July, which targets investment of €18.1 billion over the next ten years (up 25% on the previous plan), expenditure on Regulated Activities will be stepped up. Investment will focus on enabling the energy transition and facilitating the development and integration of renewable sources, making a major contribution to achieving the ambitious goals set out in the Green Deal and helping to drive the country's economic recovery.

In terms of the Group's most important investment projects, work is progressing on the Tyrrhenian Link, with the consents process for the West Link section expected to begin in the coming months, following the launch of the process for the East Link section in November 2021. The consents process for the Adriatic Link project, the new submarine cable that will connect the Abruzzo and Marche regions, is also expected to begin during the year. The principal electricity infrastructure under construction includes the interconnection with France, expected to enter service in 2022. In addition, the main projects designed to increase exchange capacity between the various areas of the Italian electricity market include the Colunga-Calenzano and Paternò-Pantano-Priolo power lines, with work having started on the former in February and work on the latter due to continue during the year.

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 during the year, primarily involving the renewal of existing infrastructure with new technologically advanced connections meeting the highest standards in terms of environmental sustainability (e.g., Florence, Rome and Turin).

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

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

In the industrial segment, the aim is to build on Tamini's performance and, with regard to Brugg Cables, take full advantage of its distinctive expertise in terrestrial cables and of synergies with the Terna Group's other businesses.

Following the completion of due diligence activities and the agreement entered into with CDPQ on 29 April, International Activities will focus on closing the sale of the South American assets. This is due to take place in phases, for the most part in the second half of 2022, as certain conditions are met. Within the scope of the assets being sold, work on the construction of the two Linha Verde I and Linha Verde II power lines in Brazil will continue, with the lines due to enter service in 2023 and 2022, respectively.

The strategic assessment of further opportunities in overseas markets will continue. This may take the form of partnerships and will involve the careful selection of projects with a view to ensuring a low risk profile and avoiding the need to tie up large amounts of capital.

In line with our approach in 2021, the Group will focus on stepping up investment in innovation and digital solutions in order to continue the transformation that will enable us to manage the growing complexity of the electricity system. In addition, increasingly central roles will be played by people development and the insourcing of strategic competencies, to the strengthening of departments, and to optimising the working environment for our people through delivery of the NexTerna project, which has already achieved the first important milestones in the seven areas into which it is divided.

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 ensure a sound, balanced financial structure.

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 Financial Report for the three months ended 31 March 2022 is consistent with the underlying accounting records.

Alternative performance measures (APMs) 60

Other information 61

4 Annexes

Alternative performance measures (APMs)

In accordance with the guidelines in ESMA/2015/1415, the APMs used in this Consolidated Interim Financial 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 energy environment The Group's strategy The Group's business Annexes

Other information

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

Treasury shares

7

The Parent Company holds a total of 3,095,192 treasury shares (equal to 0.154% of the share capital). These shares were purchased in implementation of two separate buyback programmes to service (i) the Performance Share Plan 2020-2023, in the period between 29 June 2020 and 6 August 2020, and (ii) the Performance Share Plan 2021-2025, in the period between 31 May 2021 and 23 June 2021. The Company does not hold any additional treasury shares other than those purchased under the above programmes, including through subsidiaries7 .

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 2022.

Related party transactions

Information on related party transactions is provided in the Annual Financial Report for the year ended 31 December 2021.

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 Financial Report for the year ended 31 December 2021.

In this regard, see the press release published on 10 August 2020 and 28 June 2021, available at the following links: https://download.terna.it/terna/2020.08.10_CS%20TERNA%20operazioni%20su%20azioni%20proprie%20 CHIUSURA%20ITA__8d83d42cfd43cb6.pdf

https://download.terna.it/terna/Terna_operazioni_su_azioni_proprie_conclusione_programma_8d93a651f5f9ffb.pdf.