Terna — Interim / Quarterly Report 2022

Nov 9, 2022

RESULTS AS OF 30 SEPTEMBER 2022 APPROVED

CAPEX EXCEEDS €1 BILLION IN THE FIRST NINE MONTHS (€1,033 MILLION): UP 12% ON SAME PERIOD OF 2021

CAPEX OF OVER €372 MILLION IN THE THIRD QUARTER

IMPROVEMENT ACROSS KEY PERFORMANCE INDICATORS

• Revenues €1,992.4 million (€1,889.9 million in 9M 2021, +5.4%)
• EBITDA €1,412.2 million (€1,365.0 million in 9M 2021, +3.5%)
• Group net profit for the period €586.9 million (€580.4 million in 9M 2021, +1.1%)
• Capex €1,033.1 million (€922.7 million in 9M 2021, +12.0%)
• Net debt €8,651.4 million (€10,002.5 million at 31 December 2021)
• Interim dividend for 2022 of 10.61 euro cents per share, up 8% on interim dividend for 2021, in line with Group's current Dividend Policy
• Thanks to the initiatives aimed at further increasing benefits for the system and efficiency, the guidance for 2022 is improved: Terna expects an EBITDA of 2 billion euro and an EPS of 0.42 euro

Rome, 9 November 2022 – Today's meeting of the Board of Directors of Terna S.p.A. ("Terna"), chaired by Valentina Bosetti, has examined and approved the results for the nine months ended 30 September 2022.

The first nine months of the year were marked by the impact of the war in Ukraine, which has led to rising commodity prices, energy price pressures and, as a result, higher inflation. In this complex scenario, Terna has responded by boosting investment for the benefit of the country's energy security: capital expenditure in the third quarter exceeded €372 million, bringing the total investments for the first nine months of the year to over €1 billion (€1,033.1 million).

"In line with its mission, Terna, in recent months, has further accelerated investment to boost the efficiency and reliability of the electricity system. For the first time in the Group's history, capex exceeded €1 billion in the first nine months of the year," said Stefano Donnarumma, Terna's CEO and General Manager. "The grid is and will increasingly be the enabling factor for the growth of renewable sources, which will play a key role in our Country's energy security."

€ m	9M 2022*	9M 2021*	% change
Revenues	1,992.4	1,889.9	+5.4%
EBITDA (gross operating profit)	1,412.2	1,365.0	+3.5%

EBIT (operating profit) 896.3 874.0 +2.6%

Group net profit for the period 586.9 580.4 +1.1%

Capital expenditure 1,033.1 922.7 +12.0%

CONSOLIDATED FINANCIAL HIGHLIGHTS FOR 9M 2022

* Given that the requirements of IFRS 5 have been met, the total results for the first nine months of 2022 and 2021 attributable to the South American subsidiaries included in the planned sale of assets, launched at the end of 2021, have been classified in the item "Profit/(Loss) for the period from assets held for sale" in the Group's reclassified income statement.

Revenues for the first nine months of 2022, amounting to €1,992.4 million, show a growth of €102.5 million (5.4%) compared to the same period of 2021. The result primarily reflects an improvement in revenues from Regulated Activities, thanks to the effect of the output-based incentive mechanisms net of the WACC reduction recognised for 2022, combined with the contribution from Non-regulated Activities, which reflect, above all, the LT Group's contribution to revenues from smart grids. Revenues rose 4.4% to €661.6 million in the third quarter of the year (€633.6 million in the same period of the previous year).

EBITDA (gross operating profit) for the first nine months of 2022 amounts to €1,412.2 million, with an increase of €47.2 million (3.5%) compared to the €1,365.0 million of the first nine months of 2021. The increase reflects the improved result from Regulated Activities. EBITDA for the third quarter of 2022 is up 2.2% to €465.3 million (€455.1 million in the same period of 2021).

EBIT (operating profit) for the period, after amortisation, depreciation and impairments, amounts to €896.3 million, compared to €874.0 million for the first nine months of 2021 (an increase of 2.6%).

Net financial expenses for the period amount to €56.3 million, broadly in line with the €57.5 million of the first nine months of 2021. Higher inflation during the period was more than offset by an increase in capitalised costs and the positive impact of exchange rate movements.

Profit before tax amounts to €840.0 million, an increase of €23.5 million (2.9%) compared to the first nine months of 2021.

Income tax expense for the period totals €236.8 million, an increase of €8.2 million (3.6%) compared to the same period of 2021. This reflects the increase in pre-tax profit after taking into account the greater amount of contingent tax assets recognised during the previous year. The resulting tax rate of 28.2% is broadly in line with the rate for the first nine months of 2021 (28.0%).

Group net profit for the period of €586.9 million is up €6.5 million (1.1%) compared to the €580.4 million of the first nine months of 2021.

The consolidated statement of financial position shows equity attributable to owners of the Parent of €6,094.9 million at 30 September 2022, compared to €4,681.9 million at 31 December 2021.

Net debt of €8,651.4 million compares with the €10,002.5 million of 31 December 2021. The significant increase in equity attributable to owners of the Parent and the accompanying reduction in net debt primarily reflect the issue in February of a hybrid green bond worth €1 billion, accounted for as an equity instrument, and the improvement in working capital in the period.

The Terna Group's total capital expenditure during the period amounts to €1,033.1 million, an increase of 12.0% compared to the €922.7 million of the same period of 2021.

The Group's workforce at the end of September 2022 totals 5,400, with a growth of 264 employees compared to 31 December 2021. The increase is linked to the need of strengthening the pool of expertise and the growth of the business, in line with the "Driving Energy" 2021-2025 Industrial Plan.

KEY EVENTS IN THE PERIOD

The delivery of Terna's construction projects continued and intensified in the first nine months of the year.

In particular, among other, the new connections between Bisaccia (AV) and Deliceto (FG), Vaglio (PZ) and Oppido (RC), Fiume Santo and Porto Torres in Sardinia and Udine South and Udine FS entered into operation.

Construction of the new power lines included in the 2021-2025 Industrial Plan continued, including the Paternò-Pantano-Priolo line (in Sicily) and the Colunga-Calenzano line between the provinces of Bologna and Florence. Work also continued on the line linking the island of Elba with the mainland.

During the period, the Ministry for the Ecological Transition has signed the authorization decree for the East branch of the Tyrrhenian Link, connecting Sicily and Campania, and formally began the authorization process for the West branch between Sicily and Sardinia.

There was further investment of €65 million in statcom devices, reactors and synchronous compensators that will benefit grid security. The renewal of overhead lines and substation equipment also continued, with the replacement of approximately 1,376 km of lines and 17 items of equipment.

In execution of the agreement signed last April and following the fulfillment of certain customary conditions set forth by the same deal, the Terna Group's companies Terna Plus S.r.l. e Terna Chile S.p.A. on 7 November completed the first closing for the sale to CDPQ, a global investment group, of the companies "SPE Santa Maria Transmissora de Energia S.A.", "SPE Santa Lucia Transmissora de Energia S.A." and "SPE Transmissora de Energia Linha Verde II S.A.", that own three power lines in Brazil for a total of 670km, for an equity value of over 145 million euros, in line with the terms of the agreement.

On 24 October, Terna USA, a recently established Terna Group's company, Meridiam and Boundless Energy signed a Joint Development Agreement aimed at joint business ventures in the United States in the electricity-transmission field. The partnership, which will benefit from the three partners' distinctive competencies, will enable Terna, applying a capital-light approach, to capture business opportunities linked to the acquisition, development, and implementation of major onshore and offshore electricity transmission infrastructure projects in the United States.

In terms of financing for construction projects, on 8 November 2022, Terna signed a loan agreement with the European Investment Bank (EIB) amounting to €500 million, with a term to maturity of approximately 22 years. The loan will be used to fund construction and commissioning of the East

branch of the Tyrrhenian Link. This financing marks the first tranche of the overall €1.9 billion made available by the EIB to fund the above project.

In addition, in line with Terna's strategy, which aims to combine investment and sustainability to drive growth and value creation, Terna intends to play a leading role in the sustainable finance market. This strategy was also confirmed in the third quarter of 2022. Terna signed four three-year ESGlinked Credit Facilities, amounting to a total of €600 million, on 3 August, 22 September and 11 October 2022. The interest rate applied to the ESG-linked Credit Facilities is linked to Terna's performance in relation to specific environmental, social and governance (ESG) indicators. The agreed facilities provide 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 its stakeholders.

On 15 September 2022, Terna launched a fixed rate, single tranche bond, in Euro - through a private placement procedure – for an overall amount of euro 100 million. The issue was carried out under the Company's Euro Medium Term Notes (EMTN) programme, which has been rated "BBB+" by Standard & Poor's, "(P)Baa2" by Moody's and "A-" by Scope. The notes, with a duration of 5 years, will pay a coupon of 3.44%, issue price at par and a spread of 91 basis points over the midswap. The notes have been admitted to trading on the Luxembourg Stock Exchange.

The senior green bonds issued by Terna at 30 September 2022 amount to €2.6 billion, in addition to the perpetual, subordinated green bonds issued on a standalone basis in February 2022, amounting to €1 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" drawn up by the ICMA (International Capital Market Association) and the EU Taxonomy.

OUTLOOK

Despite the geopolitical crisis caused by the prolonged conflict between Russia and Ukraine and continued commodity price pressures, the last quarter of the year will see the Group continue to focus on delivering on the updated "Driving Energy" 2021-2025 Industrial Plan. The updated Plan 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 Plan period, including approximately €1.7 billion in 2022.

In line with the 2021 National Transmission Grid Development Plan presented in July, which foresees investment of €18.1 billion over the next ten years (up 25% on the previous plan), the strong acceleration in Regulated Activities is confirmed. Investments 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 European 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 abovementioned Tyrrhenian Link. The authorization process for the Adriatic Link, the new submarine cable between the Abruzzo and Marche regions, is also expected to begin in the last quarter.

In terms of the Defence 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 generation.

Work on the rationalization of electricity grids in metropolitan areas will also continue during the last part of 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 and Rome).

Finally, the Group will continue to make progress towards meeting the requirements resulting from output-based incentive mechanisms introduced by ARERA. These regard work designed to provide additional transmission capacity between market areas (interzonal incentives), resolve grid constraints due to voltage regulation and improve conditions for essential service provision (intrazonal incentives) and reduce dispatching costs (DSM incentives). On the latter point, important results are expected already in the fourth quarter of 2022. Thanks to the initiatives aimed at further increasing benefits for the system and efficiency, Terna expects for 2022 an EBITDA of 2 billion euro and an EPS of 0.42 euro.

With regard to Non-regulated Activities, Terna Group will continue to consolidate its role as a provider of both connectivity and energy solutions, developing high value-added services for corporate customers and exploiting market opportunities for traditional and renewable customers, also thanks to the acquisition of the LT Group.

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

Following completion of the due diligence and the agreement signed with CDPQ on 29 April, International Activities will focus on closing the sale of South American assets, which is due to take place in multiple steps - the first of which already took place on 7 November - for the most part in the last quarter of the year, following the fulfilment of certain customary conditions. Within the scope of the assets being sold, work on the construction of the Linha Verde I power line in Brazil will continue, with the line due to enter operation in 2023 and to be sold in 2024.

The strategic assessment of further opportunities in overseas markets will continue, with particular reference to the US market. This may take the form of partnerships and will involve the careful selection of projects with a view to ensuring a low risk profile and limited capital absorption.

In line with previous months, the Group will focus on accelerating investments in innovation and digital solutions in order to continue the transformation that will enable the Company 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 the Terna people through delivery of the NexTerna project.

Management of Terna Group's business will continue to be based on a sustainable approach and respect for the ESGs, ensuring that the Company is able to minimise its environmental impact, involve local stakeholders and meet the need for integrity, responsibility and transparency. The above objectives will be pursued whilst maintaining the commitment to maximising the cash generation necessary to ensure a sound, balanced financial structure.

INTERIM DIVIDEND FOR 2022 OF 10.61 EURO CENTS PER SHARE

In consideration of the operating and financial performance and the guidance and outlook for the rest of the current year, Terna S.p.A.'s Board of Directors has decided to pay an ordinary interim dividend for 2022 of 10.61 euro cents per share, an increase of 8% compared to the previous year. This is in line with the policy set out in the updated 2021-2025 Industrial Plan and follows today's receipt of the opinion from the independent auditors, Deloitte & Touche S.p.A., required by art. 2433 bis of the Italian Civil Code.

As required by art.2357-ter, paragraph 2 of the Italian Civil Code, the treasury shares purchased to service the 2020-2023, 2021-2025 and 2022-2026 Share Performance Plans may not participate in the distribution of the interim dividend.

The total distribution of € 213,260,151.20 has been calculated on the basis of the 2,009,992,000 ordinary shares representing the Company's share capital. Treasury shares held at the record date shown below will not participate in the distribution. The interim dividend for 2022 payable on the treasury shares held by the Company at the record date, amounting to € 464,283.94, will thus be taken to the "Retained earnings" reserve.

The interim dividend, before any withholdings required by law, will be payable from 23 November 2022 (the record date, as defined by art. 83-terdecies of Legislative Decree 58/1998, the "CLF", is 22 November 2022), with an ex-dividend date for coupon no. 37 of 21 November 2022.

ALTERNATIVE PERFORMANCE MEASURES

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

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

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

• Net debt: an indicator of the financial structure, calculated by deducting "Cash and cash equivalents", "Current financial assets" and "Non-current financial assets", as they relate to the value of the derivatives hedging bond issues and bank borrowings, from short-term financial liabilities ("Short-term borrowings", the "Current portion of long-term borrowings" and "Current financial liabilities") and long-term financial liabilities ("Long-term borrowings") and the related derivative instruments ("Non-current financial liabilities"). The net debt of the Terna Group complies with the requirements of ESMA Recommendation 32-382-1138 of 2021 with regard to the definition of net debt or funds, which does not include "Non-current financial assets".

With respect to the structure of the Terna Group at 31 December 2021, the following should be noted:

On August 2, 2022, the American company Terna USA LLC. was incorporated. Its capital is entirely held by Terna Plus S.r.l. The company is responsible for overseeing the development of activities in North America.

On January 27, 2022, the voluntary liquidation process of the company PI.SA. 2 S.r.l., launched on 10 December 2021, ended.

A meeting will be held at 4.00pm today to present the results for the nine months ended 30 September 2022 to financial analysts and investors. Back-up material for the event will be made available in the Investors section of the Company's website (www.terna.it) as the meeting starts. The presentation will also be made available via "eMarket SDIR", on the website of Borsa Italiana S.p.A. (www.borsaitaliana.it) and through the authorised storage service (). Journalists will have the opportunity to follow the meeting by telephone without any right to speak. It will also be possible to follow the presentation by connecting to the audio webcast on the Company's website (www.terna.it): following the live broadcast, the file will be available in the Investors section of the website.

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

The Terna Group's Consolidated Interim Financial Report for the nine months ended 30 September 2022 has not been audited and was prepared voluntarily, pursuant to art. 82-ter of CONSOB Issuer Regulations (as amended by CONSOB Resolution 19770 of 26 October 2016). As in the past, the compliance and correctness of the financial information provided to the public and the comparability of the related information with the corresponding data in previously published interim reports is ensured. The document containing the Terna Group's Consolidated Interim Financial Report for the nine months ended 30 September 2022 will be made available to the public by 14 November 2022 at the Company's registered office, published on the Company's website, (www.terna.it) and on the website of the authorised storage service (), and filed at the stock exchange management company Borsa Italiana S.p.A. (www.borsaitaliana.it). The required announcement of the filing will also be published.

The Terna Group's reclassified consolidated income statement and statement of financial position and statement of cash flows, prepared on the basis of the classifications used by management in order to more effectively assess the Terna Group's operating and financial performance, are attached. Pursuant to Communication DME/9081707 of 16 September 2009, the above reclassified financial statements are those included in the Terna Group's Consolidated Interim Financial Report for the nine months ended 30 September 2022, prepared in accordance with usual market practices.

The Terna Group's reclassified income statement

								(€m)
2022	2021	Q3 Change	% change		9M 2022*	9M 2021*	Chang e	% change
661.6	633.6	28.0	4.4%	TOTAL REVENUE	1,992.4	1,889.9	102.5	5.4%
566.6	550.1	16.5	3.0%	- Regulated revenue of which Revenue from construction	1,720.2	1,643.5	76.7	4.7%
13.9	11.9	2.0	16.8%	services performed under concession	36.4	27.1	9.3	34.3%
94.4	83.5	10.9	13.1%	- Non-Regulated revenue	271.6	246.1	25.5	10.4%
0.6	-	0.6	-	- International revenue	0.6	0.3	0.3	100.0%
196.3	178.5	17.8	10.0%	TOTAL OPERATING COSTS	580.2	524.9	55.3	10.5%
72.7	70.5	2.2	3.1%	- Personnel expenses	236.4	214.9	21.5	10.0%
44.6	40.7	3.9	9.6%	- Cost of services, leases and rentals	135.3	124.9	10.4	8.3%
55.5	49.0	6.5	13.3%	- Materials	149.2	135.1	14.1	10.4%
8.9	5.0	3.9	78.0%	- Other costs	20.9	18.2	2.7	14.8%
0.7	1.4	(0.7)	(50.0%)	- Quality of service - Cost of construction services performed	2.0	4.7	(2.7)	(57.4%)
13.9	11.9	2.0	16.8%	under concession	36.4	27.1	9.3	34.3%
465.3	455.1	10.2	2.2%	GROSS OPERATING PROFIT (EBITDA)	1,412.2	1,365.0	47.2	3.5%
176.4	165.5	10.9	6.6%	- Amortisation, depreciation and impairment losses	515.9	491.0	24.9	5.1%
288.9	289.6	(0.7)	(0.2%)	OPERATING PROFIT (EBIT)	896.3	874.0	22.3	2.6%
(20.1)	(23.4)	3.3	(14.1%)	- Net financial income/(expenses)	(56.3)	(57.5)	1.2	(2.1%)
268.8	266.2	2.6	1.0%	PROFIT/(LOSS) BEFORE TAX	840.0	816.5	23.5	2.9%
76.3	72.1	4.2	5.8%	- Income tax expense for the period	236.8	228.6	8.2	3.6%
192.5	194.1	(1.6)	(0.8%)	PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS	603.2	587.9	15.3	2.6%
(4.6)	2.2	(6.8)	-	- Profit/(Loss) for the period from assets held for sale	(14.7)	(5.6)	(9.1)	162.5%
187.9	196.3	(8.4)	(4.3%)	PROFIT FOR THE PERIOD	588.5	582.3	6.2	1.1%
(0.9)	0.5	(1.4)	-	- Profit/(Loss) attributable to non controlling interests	1.6	1.9	(0.3)	(15.8%)
188.8	195.8	(7.0)	(3.6%)	PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	586.9	580.4	6.5	1.1%

*Given that the requirements of IFRS 5 have been met, the total results for the first nine months of 2022 and 2021 attributable to the South American subsidiaries included in the planned sale of assets, launched at the end of 2021, have been classified in the item "Profit/(Loss) the period from assets held for sale" in the Group's reclassified income statement.

The Terna Group's reclassified statement of financial position

			(€m)
	at 30 September 2022	at 31 December 2021	Change
Total net non-current assets	16,978.3	16,352.9	625.4
- Intangible assets and goodwill	718.1	656.5	61.6
- Property, plant and equipment	15,729.1	15,316.6	412.5
- Financial assets	531.1	379.8	151.3
Total net working capital	(2,354.0)	(1,706.7)	(647.3)
- Net energy-related pass-through payables	(944.1)	(209.1)	(735.0)
- Net receivables resulting from Regulated Activities	565.6	448.4	117.2
- Net trade payables	(528.6)	(737.5)	208.9
- Net tax liabilities	(215.0)	(50.6)	(164.4)
- Other net liabilities	(1,231.9)	(1,157.9)	(74.0)
Gross invested capital	14,624.3	14,646.2	(21.9)
Sundry provisions	(54.0)	(48.4)	(5.6)
Net invested capital	14,570.3	14,597.8	(27.5)
Net assets held for sale	209.1	117.7	91.4
TOTAL NET INVESTED CAPITAL	14,779.4	14,715.5	63.9
Equity attributable to owners of the Parent	6,094.9	4,681.9	1,413.0
Equity attributable to non-controlling interests	33.1	31.1	2.0
Net debt	8,651.4	10,002.5	(1,351.1)
TOTAL	14,779.4	14,715.5	63.9

The Terna Group's cash flow

		(€m)
	Cash flow 9M 2022	Cash flow 9M 2021*
- Profit for the period	588.5	582.3
- Amortisation, depreciation and impairment losses	515.9	491.4
- Net change in provisions	5.6	(43.1)
- Net losses/(gains) on sale of assets	(2.3)	(10.5)
Operating cash flow	1,107.7	1,020.1
- Change in net working capital	646.9	(175.2)
- Other changes in property. plant and equipment and intangible assets	45.8	45.5
- Change in investments	1.0	2.1
- Change in financial assets	(152.3)	(33.8)
Cash flow from operating activities	1,649.1	858.7
- Total capital expenditure	(1,033.1)	(925.3)
Free cash flow	616.0	(66.6)
Net assets held for sale	(91.4)	-
- Dividends paid to the Parent Company's shareholders	(387.7)	(359.0)
- Cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent
	1,213.8	48.2
- Other movements in equity attributable to non-controlling interests	0.4	(23.2)
Change in net debt	1,351.1	(400.6)

* Figures published in the Consolidated Interim Report for the nine months ended 30 September 2021.