Terna — Interim / Quarterly Report 2023

Nov 8, 2023

2023 CONSOLIDATED INTERIM FINANCIAL REPORT – 30 SEPTEMBER

INTRODUCTION

The Terna Group's Consolidated Interim Financial Report for the nine months ended 30 September 2023, 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).

2 TERNA GROUP | CONSOLIDATED INTERIM FINANCIAL REPORT – 30 SEPTEMBER 2023

Contents

Terna's role in the just transition	4
9M 2023 overview	6
Structure of the Group	10
Conflict in Ukraine: risk assessment and prevention for the Terna Group	12
1 The reference scenario Electricity demand and production in Italy	15 16
2 The Group's business Operating activities People Financial review for the first nine months of 2023 Share price performance Outlook Declaration of the manager responsible for financial reporting in accordance with paragraph 2 of art. 154-bis of Legislative Decree 58/1998	19 20 35 36 49 52 53

Annexes 55

Alternative performance measures (APMs)	56
Other information	57

Terna's role in the just transition

The electricity system 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 so-called "dispatching" (system operator).

This is a complex task, requiring an independent central coordinator capable of having an overall view of a high number of actors involved in both production and consumption. This is why Terna refers to itself as driving the energy transition towards a new decarbonised model.

Terna is aware of the fact that the goal of decarbonisation must be addressed by taking into account not only the environmental aspects, but also the social dimension in order to deliver a just transition that is as fair and inclusive as possible. In this sense, it is of fundamental importance to involve all the players affected by the transition (including, for example, trade bodies, civil society and stakeholders), through partnerships, roundtable discussions and engagement initiatives.

The transition to a distributed production system based on renewable sources is rapidly altering the electricity system, resulting in exponential growth in active resources connected to the grid. Managing requests for connection to the HV grid, coming from entities proposing renewable initiatives, enables Terna to have a systematic view of the current situation and future scenarios. In this way, the TSO can monitor the system's ability to meet demand for electricity whilst satisfying security and quality of service requirements: in a word, ensuring the system's "adequacy".

The European Union (Regulation (EU) 2021/1119) has targeted net zero by 2050, with an intermediate target of cutting greenhouse gas emissions by at least 55% by 2030. The EU's new legislative package, Fit for 55, has set new challenges for the electricity sector: at national level, by 2030 it will be necessary to install approximately 70 GW of additional renewable capacity so that renewable sources account for at least 65% of final consumption.

Market operators are responding to the challenge with major investment programmes: the level of renewable plant development projects being put forward by private investors is extremely encouraging. At 30 September 2023, Terna had received applications for connection to the national transmission grid (NTG) for over 315 GW of new renewable capacity (onshore and offshore wind and photovoltaic). Most applications are from southern Italy and the islands, locations renowned for being windier and sunnier. To continuously monitor all these initiatives, Terna, in collaboration with the Ministry of the Environment and Energy Security, launched the new digital platform called Econnextion¹ in February 2023. This an important new consultation tool enabling operators in the sector to share information on the regional and local distribution of requests for the connection of renewables to the HV grid, broken down by source (onshore and offshore wind and photovoltaic).

The data on applications for the connection of new renewable plants to the electricity grid reveal that we are one right track: it would be sufficient to complete 20% of the currently proposed initiatives to reach the targets set. Differences in the geographical distribution and technology mix compared with earlier forecasts make this a very tough challenge: from the point of view of transmission, to achieve this fresh injection of renewable energy into the grid will require a major effort to plan, approve and carry out investment projects on a scale not seen in recent decades in Italy.

¹ https://www.terna.it/it/sistema-elettrico/rete/econnextion

An extremely complex challenge. Terna plays a central role in this energy transition, both in enabling the electricity system's transition towards renewable sources and in coordinating this transformation process. The electricity grid is in fact the main enabling factor in achieving the global goal of decarbonisation.

What does this mean? Achieving the ambitious European and international goals will obviously require the participation of all members of Society, but the energy sector must take the lead, given that it is by a long way the biggest producer of emissions at global level. Just to have an idea, the sector accounts for approximately 82% of Europe's total greenhouse gas emissions.

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.

Introducing the "energy efficiency first" principle, the European Commission invited member states to take energy efficiency into account in all their policy, planning and investment decisions. In this way, in keeping with the EU's longterm strategy, final energy consumption in Europe is expected to fall by (at least) 35% by 2050 compared with 2019 levels.

The key consideration, in this sense, is represented by the fact 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).

Climate targets also play a key role in the United Nations 2030 Agenda for Sustainable Development, not only because SDG 13 focuses explicitly on the climate, but above all because dealing with the climate crisis and guaranteeing, therefore, a healthier planet for the future, is key to enabling the world to achieve all the other goals contained in the Agenda. This means delivering truly prosperous, long-lasting development as part of a just transition.

Awareness of the Company's role as a driver and enabler of the current ecological transition coincides with Terna's wish to further strengthen its environmental strategy, already intrinsically green. Adoption of a Science Based Target (SBT) with the aim of cutting its CO2 emissions based on measurement of the existing situation and the planning of concrete actions, validated by a third-party entity, turns a good intention into a real, tangible contribution to containing the rise in the global temperature, in line with the Paris Climate Accords of 2015. Terna has thus committed to cutting its CO2 emissions by 46% by 2030 compared with 2019.

9M 2023 overview

New Board of Directors 2023-2025

Terna S.p.A.'s new Board of Directors elected on 9 May 2023.

CHAIRMAN Igor De Biasio

CHIEF EXECUTIVE OFFICER Giuseppina Di Foggia

DIRECTORS

Jean-Michel Aubertin Regina Corradini D'Arienzo Enrico Tommaso Cucchiani Angelica Krystle Donati Marco Giorgino Gian Luca Gregori

Karina Audrey Litvack Francesco Renato Mele Qinjing Shen Simona Signoracci Anna Chiara Svelto

(€m)

Profit attributable to

1,433.6 +38.8% vs 9M 2022

Terna's shares price

€7.128 per share at 30 September 2023

The shares reached a nine-month high of €8.100 per share on 12 May.

New Chief Financial Officer and Manager Responsible for Financial Reporting

Appointment of Francesco Beccali, previously Terna's Head of Finance, with effect from 1 September 2023.

Two tranches totalling €900 million agreed in March with the European Investment Bank under the €1.9 billion loan facility obtained to finance the Tyrrhenian Link (the East and West sections).

Successful launch in April, as part of the Euro Medium Term Notes (EMTN) programme, of a fixed-rate bond issue in a single tranche, amounting to €750 million and with a six-year term.

Renewal of the

€9 billion Euro Medium Term Note Programme (EMTN) in June.

An ESG-linked Revolving Credit Facility worth a total of

€1.8 billion agreed in May to refinance the ESG Revolving Credit Facility of €1.5 billion obtained on 23 April 2019.

Successful launch on 17 July, under the Euro Medium Term Notes programme, of a green, single-tranche, euro-denominated, fixed-rate bond with a total nominal value of

€650 million. The market showed a strong appetite for the bonds, with the issue approximately four times oversubscribed and attracting interest from high-quality investors from throughout the world.

Expansion of the NTG with

addition of 115 km of power lines and two new substations and acquisition of

36 km of power lines and two substations in Alto Adige as part of the Group's strategy for unifying Italy's electricity transmission infrastructure.

Consent obtained on 5 September 2023 for the final design for the West section of the Tyrrhenian Link, a direct current, undersea cable to connect Sardinia, Sicily and Campania, approximately 970 km long and providing capacity of 1,000 MW.

Consent obtained for the final design for Sa.Co.I. 3,

Terna's 200kV direct current, undersea cable that will link Sardinia, Corsica and Tuscany, with total transport capacity of up to 400 MW.

ELECTRICITY SYSTEM

Demand 232* TWh -4% vs 9M 2022

RENS quality 475* MWh vs target 763 MWh

* Provisional data.

Demand met from RES 37* % +5% vs 9M 2022

Cost of quality 6.2 €m +4.2 €m vs 9M 2022

9M 2023 overview

+265 new personnel added

in the first nine months of 2023, with growth in line with the Driving Energy Industrial Plan for the period 2021-2025.

Terna is "Italy's Best Employer 2024" in the energy

sector, according to the survey conducted by the international research company, Statista. Scoring 8.83, Terna is "highly recommended" by its employees to friends, acquaintances and family members, as well as to other workers in the energy sector.

Terna Forward, set up to accelerate development of the Terna Group's high-impact technologies, has so far invested

approximately €2 million in the Energy Tech segment of Cassa Depositi e Prestiti Venture Capital's Corporate Partners I fund.

Terna is one of the first Italian companies to receive certification for all its compliance activities. The Company has obtained ISO (International Standards Organization) 37301:2021 certification, awarded by Accredia, extended to all the key compliance obligation of a number of Group companies (Terna Rete Italia S.p.A., Terna Energy Solutions S.r.l. and Terna Plus S.r.l.).

Terna Ideas - Corporate Entrepreneurship: conclusion of the first phase of the Incubation Pathway for the third edition and launch of the second phase of "Ideas Development", to conclude with the "Pitch Day" at year end. The Terna Ideas Platform has been opened up to external participants: the first Data Science for Resilience call was completed with the selection of two start-ups to work on experiments focusing on grid resilience and predictive maintenance.

Launch of the second edition of the Master's course on Digitalisation of the Electricity System for the Energy Transition, organised by Terna in collaboration with the universities of Cagliari, Palermo and Salerno as part of the Tyrrhenian Lab project.

Presentation, at an event in Venice in September, of Passaggi a Nord-Est, a book collecting the results of the underwater archaeological project, led by the Ministry of Culture operating in synergy with Terna, that coincided with the laying of two submarine cables under the Venetian Lagoon. The joint project led to the discovery of new archaeological sites, extending the knowledge of pre-Roman and Roman age settlements in the Lagoon area and allowing archaeologists to delve deeper into the methods, problems and medium and long-term prospects for scientific research in the area.

September saw the conclusion of the second edition of Driving Energy Award 2023 – Contemporary Photography, the free competition open to all photographers in Italy with the aim of promoting the country's cultural development and nurturing new talent in the sector. There were five winners, whose works were put on show at the Palazzo Esposizioni in Rome.

Terna has strengthened its commitment to combatting climate change by setting a new Science Based Target (SBT). The Company has committed to cutting its direct (Scope 1) and indirect (Scope 2) CO2 emissions by 46% by 2030 compared with 2019. Terna has also introduced a target to reduce Scope 3 indirect emissions, such as those relating to employee mobility or the supply chain.

International indices and ESG ratings

Terna is again leading the way on sustainability: having scored 91 out of 100, it has been ranked the best company out of the 250 global electricity utilities rated as part of S&P Global's Corporate Sustainability Assessment 2022. In addition, for the eighth time in 14 years of inclusion in the Dow Jones Sustainability index, the Company is among the Top1%, the highest ranking in the latest Sustainability Yearbook, published in February 2023.

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

Terna's inclusion in the MIB ESG, Euronext Vigeo, FTSE4Good, S&P Developed 100 Gender Equality & Inclusion and STOXX "Global ESG Leaders"

indices was also confirmed in the first nine months of 2023. Finally, Terna's triple A rating from MSCI was also confirmed during the third quarter.

Structure of the Group

The structure of the Terna Group at 30 September 2023 is shown below.

Scope of assets held for sale*

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

Compared with 31 December 2022:

• ¹ On 7 February 2023, the acquisition of shares in SEleNe CC S.A. was completed following the withdrawal of the Romanian TSO, National Power Grid Company Transelectrica S.A., from the company's shareholder base. The company's stake has thus increased from 25% to 33.33%.
• ² On 29 March 2023, through its subsidiary LT S.r.l., Terna completed the acquisition of a 100% stake in Omnia S.r.l., a company providing O&M services for photovoltaic plants. The acquisition helps to consolidate the LT Group's position as an Italian market leader in the construction and operation of photovoltaic plants.
• ³ On 22 June 2023, Terna completed the acquisition of a 100% stake in Edyna Transmission S.r.l., at the same time renamed Rete Nord S.r.l., a company that owns two electricity substations and approximately 70 km of circuits (amounting to approximately 36 km of power lines) in Alto Adige already forming part of the National Transmission Grid. The transaction is part of the Group's strategy of unifying Italy's electricity transmission infrastructure with the aim of further boosting grid efficiency and reliability.

Conflict in Ukraine: risk assessment and prevention for the Terna Group

The Terna Group is constantly committed to monitoring the potential impact/risks of the ongoing crisis involving Russia and Ukraine, in view of the related geopolitical developments and the related legislation regarding international sanctions introduced following the outbreak of the conflict.

To this end, the Group both monitors any new sanctions and has strengthened due diligence procedures and ordinary controls. The main potential areas of concern to be monitored continuously by the taskforces are cyber security, the economic and financial effects, the electricity system and the impact on procurement.

Since the start of the conflict between Russia and Ukraine, there has been an increase in cyberattacks on Italian government and corporate websites. These events have not led to major upheaval or data breaches, with disruption being short-term in nature.

Thanks to the continuous sharing of information with government bodies and priority access to information from Cyber Threat Intelligence providers, a series of rules and atures have been implemented as part of Terna's cyber protection systems with the aim of preventing any malicious acts. Checks confirmed that Terna does not use any cybersecurity products or services linked to the Russian Federation. Work has also been successfully completed on further raising the level of cybersecurity for the data flows required by ENTSO-E to monitor the defence systems used by the Ukrainian national grid.

On the economic and financial front, the current crisis has led to significant movements in a number of macroeconomic variables. The rise in inflation over recent years was initially caused by the impact of the Covid-19 pandemic on the supply of goods and services and then by higher energy prices following the outbreak of war in Ukraine. Under Terna's existing regulatory framework, which indexes allowed operating costs and the RAB (the latter revalued on the basis of the deflator applied to investment), it is not expected that there will be a negative economic impact due to price pressures, even if the above indexation of allowed costs will be reflected in the accounts with a time lag of approximately one year.

The increase in inflation has, on the other hand, led central banks and, specifically, the European Central Bank to accelerate and extend their plans to tighten monetary policy, with the aim of mitigating the effect of rising prices. This has resulted in a sudden increase in interest rates, which will have an impact on Terna's cost of debt in the coming years. The effect will, however, be gradual in view of the average duration of existing debt and the current high proportion of fixed rate borrowing (87.5%).

Major movements in the macroeconomic parameters to which the Group is exposed (interest rates, inflation, the yield on Italian government bonds and European cost of debt indices) in recent times could, in 2024, lead to a change in the allowed cost of capital that would offset the impact of movements in the variables themselves. In this regard, the regulator has introduced a mechanism for revising the WACC if, following the update of certain parameters, the WACC rises or falls by more than 50bps. In addition, there will be a further overall review of the parameters used to calculate the WACC in 2025, in accordance with the resolution published by ARERA at the end of 2021. In this case, the review process does not provide for thresholds for adjustments to the cost of capital.

Finally, it should be noted that the Terna Group currently has access to funding represented by liquidity and committed lines of credit (thus immediately available). This, together with the ability to generate cash, will enable the Group to meet its funding requirements for the next 18/24 months and respond to any further capital market tensions.

There has so far been little evidence of any impact on the adequacy of the electricity system. However, given the shortage of natural gas and the fact that gas-fired plants account for approximately 37% of the power generated (down as a result of the efforts made to maximise production from other sources), it is necessary to evaluate if, were there to be a shortfall in natural gas supply next winter, it can only partially be offset by maximizing production from other energy sources.

In terms of procurement, as a result of international sanctions, the Terna Group has suspended the qualification of its sole Russian supplier, which has now expired, and activated all other contractual remedies. The related effect has been offset by increasing the use of other available suppliers. Steps have been taken to address issues regarding the supply of power lines, substation equipment and power systems by:

• i) the conclusion of additional contracts after new calls for tenders, including indexation mechanisms (using tools such as online tenders that can be carried out quickly, such as for the supply of pylons) and
• ii) the negotiation of claims on non-indexed supply contracts. Steps have been taken to manage the most significant effects of price movements on supplies of metals (steel, aluminium, nickel and semiconductors).

As regards major projects (e.g., the Tyrrhenian Link and SACOI 3), where substation supply contracts are about to be fulfilled or negotiated as part of the tender process, etc., Terna may see an impact of the uncertainty surrounding increases in commodity prices and possible delays to contract delivery due to force majeure. In any event, it should be noted that, from 2022, legislation has been introduced requiring the inclusion of price adjustment mechanisms in contracts. As a result, the main indices used are constantly monitored by the Company.

Electricity demand and production in Italy 16

1 The reference scenario

CONSOLIDATED INTERIM FINANCIAL REPORT – 30 SEPTEMBER 2023 | TERNA GROUP 15

Electricity demand and production in Italy

Electricity demand

Demand for electricity in Italy amounted to 232,456 GWh in the first nine months of 2023, a reduction of 4.0% compared with the same period of 2022.

ELECTRICITY BALANCE IN ITALY (GWh)*	9M 2023**	9M 2022**	CHANGE	% CHANGE
Net production	196,716	211,506	(14,790)	(7.0%)
From overseas suppliers (imports)	39,852	35,508	4,344	12.2%
Sold to overseas customers (exports)	(2,441)	(2,930)	489	(16.7%)
For use in pumping***	(1,671)	(1,950)	279	(14.3%)
Total demand in Italy	232,456	242,134	(9,678)	(4.0%)

* 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 in the first nine months of 2023 continued to fall compared with the same period of the previous year. This reflects average temperature trends in the period (higher in the winter months and in September and lower in early summer), but above all a reduction in industrial consumption.

Annexes

Meeting demand and energy production

Electricity production in the first nine months of 2023 is down 7.0% compared with the same period of 2022.

In the first nine months of 2023, approximately 37% of total energy demand was met from renewable energy sources, an increase compared with the same period of 2022 (+5%). In terms of individual renewable sources, biomass (-3.8%) and geothermal (-5.8%) production are down, offset by increases in hydro (+26.7%), solar (+9.6%) and wind (+3.1%) production.

Operating activities	20
People	35
Financial review for the first nine months of 2023	36
Share price performance	49
Outlook	52
Declaration of the manager responsible for financial reporting in accordance with paragraph 2 of art. 154-bis
of Legislative Decree 58/1998	53

2 The Group's business

CONSOLIDATED INTERIM FINANCIAL REPORT – 30 SEPTEMBER 2023 | TERNA GROUP 19

(€m)

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 almost the entirety of the NTG, one of the most modern and technologically advanced in Europe. The Group is 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. It 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, whilst guaranteeing continuity and accessibility of service for the population as a whole. Terna is 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 nine months of 2023 amounts to €1,433.6 million, marking an increase compared with the €1,033.1 million of the same period of the previous year (up 38.8%).

	9M 2023	9M 2022	CHANGE	% CHANGE
Development Plan	760.5	399.9	360.6	90.2%
Security Plan(1)	158.3	143.8	14.5	10.1%
Renewal of electricity assets	316.4	317.8	(1.4)	(0.4%)
Other capital expenditure(1)	124.4	123.4	1.0	0.8%
Total regulated assets	1,359.6	984.9	374.7	38.0%
Non-regulated assets(2)	38.5	31.3	7.2	23.1%
Capitalised financial expenses	35.5	16.9	18.6	110.4%
Total capital expenditure	1,433.6	1,033.1	400.5	38.8%

(1) The figures for the first nine months of 2022 have been restated following changes to the purposes of investment, without modifying the overall value of investment in regulated assets.

(2) Investment in non-regulated assets primarily regards the re-routing of power lines for third parties and private interconnectors.

The following main regulated assets entered service in the first nine months of 2023:

Power lines and cables:

• Italy-France Interconnector (regulated pole) (+95 km) (TO);
• Elba-Mainland connection Colmata PS Portoferraio PS (+37.5 km) (LI);
• Salandra PS Grottole SE power line (+8.2 km) (MT);
• 150kV Salandra PS San Mauro Forte PS power line (+3.4 km) (MT).

Substations – new and expanded:

• Partanna 2 (+5 bays) (TP);
• Vetropack (new, +4 bays) (MI);
• Foggia (+2 bays) (FG);
• Ciminna (+3 bays) (PA);
• Brindisi Pignicelle (+1 bay) (BR);
• Lacchiarella (+1 bay) (MI);
• Piossasco (new, +1 bay) (TO).

Reactors Plan:

• Partinico (+1 bay) (PA);
• Casuzze (+1 bay) (RG);
• Fulgatore (+1 bay) (TP);
• Bari West (+1 bay) (BA);
• Rome East (+1 bay) (RM);
• Portoferraio (+1 bay) (LI);
• Montecorvino (equipment) (SA).

Compensators Plan:

• Codrongianos (equipment) (SS).

STATCOM:

• Montalto (VT).

MAIN REGULATED WORKS CARRIED OUT DURING THE PERIOD

DEVELOPMENT PLAN €760.5 million

East section: Tyrrhenian Link

• Cable connections: the detailed marine survey has been completed; production of the detailed design and qualification testing of the cable and the related accessories are in progress. (€204.1 million)
  • Converter stations: the geognostic surveys have been completed; work on the detailed design is in progress; the areas for the Eboli Converter Station have been handed over to the contractor.

West section:

• Consents: obtained in September 2023.
• Cable connections: work on the detailed design and qualification testing of the submarine cable and the related accessories are in progress.
• Converter stations: design work is under way.

Adriatic Link (€109.6 million) Consents: the consents process is under way.

Cable connections and converter stations: the contract for supply and production of the HVDC cable connections has been awarded. The tender process for the supply and construction of the converter stations is in progress.

132kV Colmata-Portoferraio power line: the line entered service in July; the marine protections are close to completion. Elba-Mainland connection (€40.7 million)

Portoferraio reactor: energised and ready to enter service in July.

380kV Paternò-Pantano power line: construction has been completed pending the conclusion of work on the relevant part of the substation. Paternò-Pantano-Priolo (€16.6 million)

380kV Pantano-Priolo power line: validity of the EIA was extended in October after its expiry had led work to be interrupted.

380/220/150kV Pantano substation: construction of the foundations for the 150kV section has been completed, as have the oil collection tanks and the ATR foundations. Electromechanical assembly on the 380kV and 220kV sections and installation of the auxiliary services has been completed. Testing of the high-voltage equipment and the control system is in progress.

CONSOLIDATED INTERIM FINANCIAL REPORT – 30 SEPTEMBER 2023
The reference scenario The Group's business	Annexes
Site preparation has been completed, as has work on construction of the foundations for the 380kV section, the first 150kV section and the prefabricated buildings. HV electromechanical assembly and installation of auxiliary and general services and of the control system are in progress.	Cerignola substation (€16.0 million)
380kV Colunga-Calenzano power line: work has begun at the Emilia-Romagna end and construction of the new 380kV overhead line and the cable connections has begun; at the Tuscan end, confirmation of compliance with requirements imposed during the consents process is awaited from the relevant agencies before work can begin.	Colunga-Calenzano power line (€13.1 million)
Re-routing of the 380kV Bolano-Annunziata line: construction is in progress, with approximately 1.8 km of civil works completed out of a total of 3.4 km for the line.	Sorgente-Rizziconi connection (€11.9 million)
Assembly of the transformers, control systems and auxiliary systems is nearing completion. Work on installing the 380kV connections has been completed, with a shutdown planned for the last quarter of 2023 to enable the new 380kV section to be energised.	Magenta substation (€9.8 million)
The regulated pole entered service in August.	Italy-France

Interconnector (€7.0 million)

> SECURITY PLAN €158.3 million

Synchronous compensators	Codrongiano compensators: energised and ready to enter service from the beginning of May.
(€43,7 million)	Rosara compensators: testing of the 380kV cable has been carried out. Connection of the armoured bay with the busbars is in progress. Cold commissioning of the synchronous compensation system has begun.
	Suvereto compensators: cold testing of the auxiliary systems is in progress.
Reactors (€9.1 million)	Montecorvino, Partinico, Casuzze, Bari West, Fulgatore and Roma East: energised and in service.
STATCOM	Montalto: commissioned, energised and ready to enter service from August.
(€8.8 million)	Aurelia: commissioning and energisation close to completion and handover ready to enter service scheduled for the last quarter of 2023.
Fiber for the Grid (€9.6 million)	This project aims to boost the availability of data on the grid to make it easier to manage the security of the electricity system, by increasing and expanding the fibre optic network.
	In the first nine months of 2023, a further 12 substations were connected via proprietary fibre, making a total of 547 substations remotely managed.

> RENEWAL OF ELECTRICITY ASSETS €316.4 million

Work on fulfilling the commitment to carry out the renewal of electricity assets to improve the reliability and resilience of the NTG has continued. Renewal of electricity assets

The renewal of overhead lines and substation equipment has continued in 2023, with the replacement of approximately 879 km of circuits and 11 items of equipment (5 TRs/ ATRs, 6 reactor units, including 2 used as replacement stock) in the first nine months of the year.

Consents processes in the first nine months of 2023

CONSULTATIONS

• 380kV Montecorvino (SA) Benevento power line;
• New Italy-Greece link (GRITA2) (LE).
• 380kV Caracoli (PA) Ciminna (PA) power line;
• Restructuring of the Ferrara grid (FE); • 150kV Foggia-Orsara (FG) – Accadia (FG) power line;
• 132kV Murazzi ES connection (TO);
• 132kV cable in Trieste area (TS);
• 132kV Dobbiaco Sesto cable connection (BZ);
• 132kV Giustino Monclassico cable connection (TN);
• 132kV Grigno PS (TN) Arsiè ES (BL) cable connection;
• 132kV Asiago Conco cable connection + New Conco ES (VI); • 132kV Villaverla-Schio Industrial Zone cable (Malo phase 2) (VI).

PROCESSES INITIATED

• Porta Romana PS connection (MI);
• Comasina PS connection (MI);
• Microsoft Settimo Milanese (MI);
• Partinico (PA) substation and the related connections to the 150kV Castellammare (TP) Alcamo (TP) line for electrification of the Palermo – Trapani railway line;
• Alcamo substation (TP) and the related connections to the 150kV Partinico 2 (PA) Partinico PS (PA) line for electrification of the Palermo – Trapani railway line;
• Melilli (SR) Erg Nuce;
• Undergrounding of the 220kV Patria Sant'Antimo line (NA);
• T.085/T.086 undergrounding for the Gorla PS (MI);
• 150kV connections for the Pantano substation (SE) and related works and demolitions (CT);
• Rome West-Primavalle La Storta-Flaminia (RM);
• New 132kV Acquara Porto Potenza Picena power line (MC);
• Volpago ES (TV);
• Guarcino PS (FR);
• Carsoli ES (AQ);
• Collarmele electricity substation (AQ);
• Caracciolo PS connection (MI);
• Violino PS connection (BS);
• Milan South receiver (refurbishment and undergrounding) (MI);
• Replacement of fluid oil for the Misterbianco-Villa Bellini cable (CT);
• Falciano electricity substation connection (NA); • Re-routing of the Chiaramonte Gulfi (RG) – Ciminna (PA) line
• Borgone Susa PS connection (TO);
• NTG works for 150kV connection for RFI's Marianopoli electricity substation (CL);
• 150kV RFI Villarosa link (EN);
• 150kV Bernalda ES connection and mixed overhead/cable connections (MT);
• Rationalisation at San Giovanni Teatino (CH);
• 380kV connection to the Manfredonia ES (FG);
• 380kV re-routing between Monfalcone and Redipuglia (GO).

COMPLETED PROCESSES

• Moena Campitello link (TN);
• Vandoies Brunico (BZ);
• 150kV Ciampino Rome South power line (RM);
• Tyrrhenian West link (PA and CA);
• SA.CO.I.3 (LI and SS);
• 150kV Paternò Belpasso power line (CT);
• 150kV underground cable connection SE. Orte A. Flaminia resolution of the Morlupo rigid T-rail (RM);
• Ponte PS connection (BG);
• Replacement of fluid oil for the Zaule Broletto connection (TS);
• New 150kV supply line for the Acquedotto Cassano PS and restructuring of the 60kV grid (AV);
• New 150kV Maddaloni ES (CE).

WORK INITIATED

• Work on laying the 132kV submarine cable between the island of Elba and Piombino (LI);
• La Casella (PC) substation connection to Enel BESS;
• Rationalisation of the 380-132kV grid in Brescia (BS);
• Caselle primary substation connection (TO);
• Restructuring Trento grid Naturno connections (BZ);
• Removal of Glorenza-Castelbello limitation (activity relating to Italy-Austria Interconnector) (BZ);
• 66kV Livigno-Premadio link (SO) Milan/Cortina Olympics 2026 cluster;
• 132kV Laion-Corvara link (BZ) Milan/Cortina Olympics 2026 cluster;
• 132kV Moena-Campitello link (TN) Milan/Cortina Olympics 2026 cluster;
• 380kV Colunga (BO) Calenzano (FI) power line lot 1;
• 380kV Colunga (BO) Calenzano (FI) power line lot 2;
• 380kV Cassano Chiari power line (BS);
• Enlargement of 380/150kV Melfi ES (PZ);
• Catania Industrial Zone ES STMicroelettronics connection (CT);
• Resurfacing of roads involved in laying of underground cable for the "San Giuseppe Portoferraio" link (LI);
• Replacement of fluid oil cable with XLPE cable for the "Naples Centre PS Doganella PS" connection (NA).

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 used

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 highvoltage 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.

The NTG RENS indicator for the period from January to September 2023, based on preliminary data, amounts to approximately 475 MWh (compared with an annual target of approximately 763 MWh set by ARERA).

As regards the ASA indicator, availability was 99.99979% (provisional figure) in the first nine months of 2023, compared with 99.99982% in the previous year. 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 €6.2 million in the first nine months of 2023, compared with €2.0 million in the first nine months of 2022.

² 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.

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 approximately €705 million in the first nine months of 2023 (provisional data), sharply down (61%) on the same period of the previous year (approximately €1,790 million).

This decrease primarily reflects a sharp reduction in costs throughout the period of selections3 made on the DSM.

³ The process by which Terna procures the necessary resources on the Dispatching Service Market (DSM) to enable the electricity system to function.

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

The total uplift was approximately €316 million in the first nine months of 2023 (provisional data), sharply down compared with the same period of the previous year (€1,542 million). This reflects reductions in the cost of using the Dispatching Services Market, in the consideration due for Goodwill and Change of Structure Tokens4, in the cost of virtual interconnection services5 and of congestion revenue in Italy and a rise in congestion revenue in overseas market areas6, partly offset by a fall in imbalance revenue7.

⁴ Goodwill and Change of Structure Tokens are payments made to production plants who have the right to receive them when Terna requests them to fire up the plant or change their structure.

⁵ Virtual interconnection is a net cost: Terna plans, builds and operates new cross-border interconnection infrastructure, the cost of which is partly covered by revenue from auctions in which third party finance providers take part and who will then have access to the available transport capacity.

⁶ Congestion revenue is generated when there are differences in the balanced prices in the energy markets in the various market areas.

⁷ The imbalance charge paid/received, under Resolution 111/06, from all users based on the lower/higher volume of energy injected/withdrawn compared with the related plan.

Non-regulated Activities: Energy market solutions

Non-regulated Activities are designed to support the ecological transition, in keeping with the core business. Terna uses its know-how in the design, engineering, operation and maintenance of complex solutions, including the integration of telecommunications networks, and proprietary systems and RES expertise in the production of cables and transformers. The aim is to serve commercial and industrial customers with the Group's expertise and experience across 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

Industrial

Via two leading companies in their fields, Terna is able to oversee 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 Group is based in Switzerland and has several overseas subsidiaries.

Transformers – Tamini Group

Orders for transformers worth approximately €242 million were received, marking a sharp increase of 80% compared with the same period of the previous year. Order book

Orders amounted to approximately €58 million in the Industrial sector and to approximately €184 million in the Power sector, up 46% and 95%, respectively, on the same period of 2022.

Orders for Services amounted to approximately €11 million, an increase of 18.5% compared with the same period of the previous year.

The value of factory backlogs is significantly up compared with the end of 2022, at approximately €300 million (up 79%).

Revenue rose in the first nine months of 2023 compared with the same period of the previous year (up 7.8%), due to the increased value of transformer production. Results

Several very important items of equipment were also tested, including three 400 MVA autotransformers and five 250 MVA autotransformers in Italy, five 500 MVA transformers for a TSO in Finland and one 500 MVA transformer in Ireland.

Tamini continues to be committed to the production of vegetable oil transformers for the Power sector in 2023. A 400 MVA/400kV autotransformer and two 250 MVA/400kV autotransformers were tested at the Legnano plant in the first nine months of 2023, in addition to testing of a further 30 MVA transformer. Vegetable oil transformers

Terrestrial cables – Brugg Cables Group

Orders acquired in the first nine months of 2023 amount to approximately CHF232 million (up 31% on the first nine months of 2022). The High Voltage System segment made a major contribution (CHF160 million). The Low Medium Voltage segment also made a significant contribution (CHF41 million), as did the High Voltage Accessories segment (CHF31 million). Compared with the same period of 2022, production of high voltage cables is up 26%, whilst the volume of low and medium voltage cables produced is down 13%. Order book

Revenue for the first nine months of 2023 amounts to approximately CHF162 million, up 14% compared with the same period of the previous year. Results

In the High Voltage Accessories segment, orders continue to perform extremely well, and the order book is set to enable achievement of the targets for 2023. The production plant is working at full capacity. Operating activities

The high and very high voltage systems segment saw strong growth in orders. There is a clear trend towards higher margins for orders obtained and positive growth in the European market.

The low and medium voltage segment has recorded an improvement in margins, thanks to the renegotiation of certain contracts (above all framework agreements) following the continuous monitoring of procurement and production costs, with prices simultaneously aligned.

Fibre

Since 2017, indefeasible right of use (IRU - Indefeasible Right of Use) has been granted to primary telecommunications operators for a total of approximately 34,000 km of fibre pairs, for which Terna also provides maintenance and housing services for regeneration.

A total of 1,044 km of fibre pairs were delivered during the first nine months of 2023.

A further 2,474 km of fibre pairs are due to be delivered in the last quarter of the year, including 2,376 km of fibre pairs for E-distribuzione under the framework agreement signed in February 2023 regarding the granting of indefeasible right of use (IRU) for the construction of infrastructure to connect the primary substations to the operating centre. The agreement envisages delivery of approximately 42,000 km of fibre between 2023 and 2027 to connect 1,923 E-distribuzione plants via 153 rings.

Smart Grids

Renewables – LT Group

The LT Group provides O&M services for photovoltaic plants, designs and implements revamping and repowering projects for existing plants and builds new photovoltaic plants for third parties. Turnover in the first nine months of 2023, amounting to approximately €53 million, is up approximately €31 million compared with the first nine months of 2022, primarily due to EPC, revamping and repowering activities, which have grown by approximately 300%.

On 29 March 2023, LT S.r.l. completed the acquisition of a 100% stake in Omnia S.r.l., a company providing O&M services for photovoltaic plants. The acquisition helps to consolidate the LT Group's position as an Italian market leader in the construction and operation of photovoltaic plants.

Other projects

In the third quarter of 2023, the construction and commissioning of two STATCOM systems for two different steel production plants in Lombardy and Veneto was completed, whilst the civil works for a storage plant being built on the island of Pantelleria were also completed as part of the Smart Island projects.

With regard to revamping/repowering contracts for photovoltaic plants, work was completed on the Alfonsine II plant, as was construction of roof-top photovoltaic systems for a major industrial plant in Emilia. Module revamping and inverter repowering activities continued at the other plants involved.

High voltage

Installation of a new transformer bay and the related control system for an industrial operator in Veneto was completed, as was installation of a new bay and the revamping of an low voltage section for an industrial operator in the Romagna region. Design work in preparation for the consents process (PTP8 ) was completed in relation to the construction of infrastructure connecting to the NTG for an industrial customer in Tuscany.

Work also continued on the framework agreement with RFI regarding the design, supply, installation, certification and commissioning of metering equipment, with 82 application contracts agreed and 7 installations carried out in the first nine months of 2023.

Work on the detailed design for construction of an electricity substation in Puglia was completed, with work on the design and construction of another electricity substation in Sardinia under way (both to be used to connect utility-scale photovoltaic plants). Design work has also begun in preparation for construction of a similar electricity substation in the Lazio region.

Work on a "provisional" electricity substation in Sicily to enable the connection of a further utility-scale photovoltaic plant under construction is also in progress.

8 Project Technical Plan.

Private Interconnectors pursuant to Law 99/2009

Terna is responsible for managing routine and special maintenance activities and operating the interconnector that 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 Terna Group is responsible for managing routine and special maintenance activities and operating the interconnector. The infrastructure was completed on 7 November 2022 and is owned by Piemonte Savoia S.r.l., which was sold to the private backers on 4 July 2017, pursuant to Law 99/2009. 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. Italy-Austria interconnector project

The interconnector is due to enter service by the end of 2023.

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

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

South America – sale of the Latin American assets

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

Transaction closing, due to take part in stages, for the most part took place in November and December 2022, with the sale to CDPQ of SPE Santa Maria Transmissora de Energia S.A., SPE Santa Lucia Transmissora de Energia S.A., SPE Transmissora de Energia Linha Verde II S.A. and Difebal S.A.

Work on construction of the SPE Transmissora de Energia Linha Verde I S.A. project in Brazil continued in the first nine months of 2023. This project involves construction of a 150-km long 500kV power line dubbed the Governador Valadares-Mutum in the State of Minas Gerais, which is scheduled to be sold in 2024.

In Peru, the operation and maintenance of the 132-km 138kV power line between Aguaytìa and Pucallpa also continued, following the line's entry into commercial service on 16 May 2021.

North America

Development of the North American business continued in the first nine months of 2023, through Terna USA LLC and BMT Energy Transmission Development LLC, with a view to taking advantage of business opportunities relating to the acquisition, development and construction of large onshore and offshore electricity transmission infrastructure projects in the United States.

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

AT 30 SEPTEMBER 2023	AT 31 DECEMBER 2022	CHANGE
108	94	14
890	841	49
3,225	3,090	135
1,539	1,472	67
5,762	5,497	265

The increase of 265 in the workforce at 30 September 2023 compared with 31 December 2022 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.

Financial review

for the first nine months of 2023

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 accounting standards and 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 2022.

Given that the requirements of IFRS 5 have been met, the total results for the first nine months of 2023 and 2022 attributable to the South American subsidiaries included in the planned sale of assets, initiated at the end of 2021, have been classified in the item "Profit/(Loss) for the period from discontinued operations and assets held for sale" in the Group's reclassified income statement. Likewise, the attributable assets and liabilities at 30 September 2023 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 nine months of 2023, compared with those for the same period of the previous year, and for the third quarter of 2023 and 2022, are summarised in the following reclassified income statement.

		Q3						(€m)
2023		2022 CHANGE	% CHANGE		9M 2023		9M 2022 CHANGE	% CHANGE
761.8	661.6	100.2	15.1%	TOTAL REVENUE	2,247.1	1,992.4	254.7	12.8%
641.2	566.6	74.6	13.2%	- Regulated revenue	1,904.4	1,720.2	184.2	10.7%
18.1	13.9	4.2	30.2%	of which Revenue from construction services performed under concession	45.1	36.4	8.7	23.9%
120.6	94.4	26.2	27.8%	- Non-Regulated revenue	342.6	271.6	71.0	26.1%
-	0.6	(0.6)	(100.0%)	- International revenue	0.1	0.6	(0.5)	(83.3%)
224.8	196.3	28.5	14.5%	TOTAL OPERATING COSTS	690.9	580.2	110.7	19.1%
81.2	72.7	8.5	11.7%	- Personnel expenses	262.5	236.4	26.1	11.0%
49.9	44.6	5.3	11.9%	- Cost of services, leases and rentals	164.4	135.3	29.1	21.5%
65.9	55.5	10.4	18.7%	- Materials	187.1	149.2	37.9	25.4%
8.6	8.9	(0.3)	(3.4%)	- Other costs	25.6	20.9	4.7	22.5%
1.1	0.7	0.4	57.1%	- Quality of service	6.2	2.0	4.2	210.0%
18.1	13.9	4.2	30.2%	- Cost of construction services performed under concession	45.1	36.4	8.7	23.9%
537.0	465.3	71.7	15.4%	GROSS OPERATING PROFIT (EBITDA)	1,556.2	1,412.2	144.0	10.2%
196.3	176.4	19.9	11.3%	- Amortisation, depreciation and impairment losses	576.5	515.9	60.6	11.7%
340.7	288.9	51.8	17.9%	OPERATING PROFIT (EBIT)	979.7	896.3	83.4	9.3%
	(22.1) (20.1)	(2.0)	10.0%	- Net financial income/(expenses)	(81.2)	(56.3)	(24.9)	44.2%
318.6	268.8	49.8	18.5%	PROFIT/(LOSS) BEFORE TAX	898.5	840.0	58.5	7.0%
93.1	76.3	16.8	22.0%	- Income tax expense for the period	261.6	236.8	24.8	10.5%
225.5	192.5	33.0	17.1%	PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS	636.9	603.2	33.7	5.6%
4.3	(4.6)	8.9	193.5%	- Profit/(Loss) for the period from discontinued operations and assets held for sale	0.8	(14.7)	15.5	105.4%
229.8	187.9	41.9	22.3%	PROFIT FOR THE PERIOD	637.7	588.5	49.2	8.4%
(0.5)	(0.9)	0.4	44.4%	- Profit/(Loss) attributable to non-controlling interests	(4.0)	1.6	(5.6)	(350.0%)
230.3	188.8	41.5	22.0%	PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	641.7	586.9	54.8	9.3%
								(€m)
		EBITDA BY OPERATING SEGMENT			9M 2023		9M 2022	CHANGE
	Regulated Activities				1,508.4		1,376.3	132.1
		Non-regulated Activities			50.5		39.9	10.6

Gross operating profit (EBITDA) for the first nine months of 2023 amounts to €1,556.2 million, up €144.0 million compared with the €1,412.2 million of the first nine months of 2022. This reflects the improvement in EBITDA from Regulated Activities.

International Activities (2.7) (4.0) 1.3 EBITDA 1,556.2 1,412.2 144.0

Revenue

			(€m)
REGULATED ACTIVITIES	9M 2023	9M 2022	CHANGE
Tariff revenue and incentives	1,810.0	1,656.5	153.5
- Transmission revenue	1,564.2	1,485.0	79.2
- Dispatching. metering and other revenue	245.8	171.5	74.3
Other regulated revenue	49.3	27.3	22.0
Revenue from construction services performed under concession	45.1	36.4	8.7
TOTAL	1,904.4	1,720.2	184.2

Revenue from Regulated Activities is up €184.2 million compared with the same period of the previous year. This primarily reflects:

• the impact on transmission revenue (up €79.2 million) of the increase in the RAB (Regulatory Asset Base) after the volume effect and in the output-based incentive mechanisms relating to the efficiency of investment costs incurred in providing additional transmission capacity in 2022 (up €12.9 million, pursuant to Resolution 567/2019, art. 46 of Annex A);
• recognition of accrued revenue generated by the incentive mechanism introduced by Resolution 597/2021, designed to cut DSM costs and ease the shortfall in wind production and essential plants (€149.6 million), after final calculation in the first nine months of 2022 of the share of the incentive provided for in Resolution 699/2018 (down €84.3 million) and an increase in the dispatching service charge due to revised tariffs (up €7.9 million).

Revenue is also up due to recognition of the accrued amount receivable as a result of the quality of service performance in 2022 (up €8.7 million, based on an estimate of the overall results expected to be achieved in the 2022-2023 regulatory period), increased gains on the sale of assets (up €9.8 million, essentially scrap, transformers and motor vehicles) and an increase in compensation received for damage (up €2.2 million).

			(€m)
NON-REGULATED ACTIVITIES	9M 2023	9M 2022	CHANGE
Industrial	217.8	182.0	35.8
- Brugg Cables Group	121.0	91.2	29.8
- Tamini Group	96.8	90.8	6.0
Services for third parties (Connectivity, Energy Solutions, other)	110.9	82.0	28.9
Private interconnectors	13.9	7.6	6.3
TOTAL	342.6	271.6	71.0

The increase in revenue from Non-regulated Activities, amounting to €71.0 million, primarily reflects increased revenue from the Industrial segment, with revenue from the Brugg Cables Group up €29.8 million, the Tamini Group up €6.0 million and the LT Group in the Energy Solutions segment up €27.4 million. The private Italy-France Interconnector also recorded an increase in revenue (up €6.3 million, essentially following the asset's entry into service in November 2022).

Revenue from International Activities, relating above all to the Latin American assets in the process of being sold, is classified in "Profit/(Loss) for the period from discontinued operations and assets held for sale", in application of IFRS 5.

Revenue was up €100.2 million in the third quarter of 2023 compared with the same period of the previous year, primarily due to tariff movements and the recognition of output-based incentives, in addition to increased contributions from the LT Group and the Brugg Cables Group.

Costs

Operating costs are up €110.7 million compared with the first nine months of the previous year, primarily due to the increased cost of procuring materials and services at the Brugg Cables Group (up €22.9 million), at the LT Group (up €24.7 million) and for regulated activities (up €16.4 million, due essentially to an increase in activity and new initiatives implemented by the Group). The increase in costs also reflects increased personnel expenses (up €26.1 million due to expansion of the workforce and provisions for staff incentives, after an increase in capitalised expenses). There were also increases in quality of service costs (up €4.2 million, linked primarily to the higher costs incurred as a result of the events in Sicily in February and in Molise in April) and in provisions for litigation and disputes (up €2.1 million), due to the positive settlement of certain disputes in the comparative period.

In the third quarter of 2023, costs were up €28.5 million on the same period of the previous year, in line with the above performance.

Amortisation, depreciation and impairment losses for the period amount to €576.5 million, an increase of €60.6 million compared with the first nine months of 2022, primarily due to the entry into service of new infrastructure.

Operating profit (EBIT), after amortisation, depreciation and impairment losses, amounts to €979.7 million, compared with €896.3 million for the first nine months of 2022 (up 9.3%).

Net financial expenses for the period total €81.2 million and primarily regard the Parent Company (€79.5 million). The figure is up €24.9 million compared with the €56.3 million of the first nine months of 2022, due essentially to new borrowings and rising interest rates, partially offset by falling inflation in the period, an increase in capitalised expenses and greater income from the investment of cash, reflecting an improvement in market conditions.

After net financial expenses, profit before tax amounts to €898.5 million, an increase of €58.5 million compared with the same period of 2022 (up 7.0%).

Income tax expense for the period totals €261.6 million, up €24.8 million compared with the first nine months of 2022 (up 10.5%). This primarily reflects the increase in pre-tax profit and the greater amount of net contingent tax assets recognised in the same period of 2022. The resulting tax rate of 29.1% thus marks an increase compared with the figure for the first nine months of 2022 (28.2%).

The profit for the period from continuing operations amounts to €636.9 million, an increase of €33.7 million (5.6%) compared with the €603.2 million of the first nine months of 2022.

The profit for the period from assets held for sale, totalling €0.8 million, marks an improvement of €15.5 million compared with the same period of the previous year, reflecting the adjustment to the value of the assets recognised in accordance with IFRS 5 after the operating results of the assets in question, partly in view of the difference in scope.

Profit for the period amounts to €637.7 million, up €49.2 million (8.4%) compared with the €588.5 million of the first nine months of 2022.

Profit for the period attributable to owners of the Parent (after excluding the share attributable to non-controlling interests) amounts to €641.7 million, up €54.8 million (9.3%) compared with the €586.9 million of the first nine months of 2022.

Cash flow

Cash flow from operating activities and the change in net debt covered the cash needs linked to capital expenditure and to payment of the final dividend to shareholders.

		(€m)
	CASH FLOW 9M 2023	CASH FLOW 9M 2022
- Profit for the period	637.7	588.5
- Amortisation, depreciation and impairment losses	576.5	515.9
- Net change in provisions	(34.2)	5.6
- Net losses/(gains) on sale of assets	(12.4)	(2.3)
Operating cash flow	1,167.6	1,107.7
- Change in net working capital	(204.1)	646.9
- Other changes in property, plant and equipment and intangible assets	26.7	45.8
- Change in investments	(2.7)	1.0
- Change in financial assets	7.8	(152.3)
Cash flow from operating activities	995.3	1,649.1
- Total capital expenditure	(1,433.6)	(1,033.1)
Free cash flow	(438.3)	616.0
Net assets held for sale	(19.4)	(91.4)
- Dividends paid to the Parent Company's shareholders	(418.7)	(387.7)
- Reserve for equity instruments, cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent	(27.7)	1,213.8
- Other movements in equity attributable to non-controlling interests	(5.8)	0.4
Change in net debt	(909.9)	1,351.1

The Group's reclassified statement of financial position

The Terna Group's financial position at 30 September 2023 and 31 December 2022 is summarised below in the following statement.

			(€m)
	AT 30 SEPTEMBER 2023	AT 31 DECEMBER 2022	CHANGE
Total net non-current assets	18,322.8	17,485.3	837.5
- Intangible assets and goodwill	807.1	775.8	31.3
- Property, plant and equipment	17,012.2	16,200.9	811.3
- Financial assets	503.5	508.6	(5.1)
Total net working capital	(2,528.5)	(2,732.8)	204.3
- Net energy-related pass-through payables	(1,236.8)	(1,332.6)	95.8
- Net receivables resulting from Regulated Activities	992.4	778.7	213.7
- Net trade payables	(821.6)	(775.5)	(46.1)
- Net tax liabilities	(178.6)	(50.5)	(128.1)
- Other net liabilities	(1,283.9)	(1,352.9)	69.0
Gross invested capital	15,794.3	14,752.5	1,041.8
Sundry provisions	(34.0)	(68.2)	34.2
Net invested capital	15,760.3	14,684.3	1,076.0
Net assets held for sale	80.5	61.1	19.4
TOTAL NET INVESTED CAPITAL	15,840.8	14,745.4	1,095.4
Equity attributable to owners of the Parent	6,337.3	6,142.0	195.3
Equity attributable to non-controlling interests	17.3	27.1	(9.8)
Net debt	9,486.2	8,576.3	909.9
TOTAL	15,840.8	14,745.4	1,095.4

The €837.5 million increase in net non-current assets compared with 31 December 2022 primarily reflects a combination of the following:

• total capital expenditure of €1,433.6 million, as summarised below and described in detail in the section on "Regulated Activities";
• the contribution of NTG assets from the acquisition of Edyna Transmission S.r.l. (renamed Rete Nord S.r.l.), totalling €13.3 million;
• amortisation and depreciation for the period, totalling €574.8 million;
• other movements during the period, resulting in a reduction of €24.9 million, including grants related to assets (primarily in relation projects financed by the Ministry for Economic Development and the EU) and disposals and impairment losses resulting in a reduction of €5.4 million;
• a reduction of €5.1 million in financial assets, broadly due to a decrease in guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel, as amended (down €23.6 million), after an increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €13.8 million), the recognition of the investment by the subsidiary Terna Forward S.r.l. (up €2.1 million) in the Energy Tech segment of CDP Venture Capital's Corporate Partner I fund and the increase in the stake held in the joint venture, SEleNe CC S.A., which rose from 25% to 33.33% in February (up €2.2 million).

The Terna Group's total capital expenditure during the period, amounting to €1,433.6 million, is up 38.8% compared with the €1,033.1 million of the same period of 2022.

Net working capital of -€2,528.5 million resulted in a cash outflow of €204.3 million compared with 31 December 2022. This reflects the combined effect of:

Cash outflows

• an increase in net receivables resulting from Regulated Activities of €213.7 million, primarily reflecting recognition of the incentives introduced by Resolution 597/2021 (designed to cut DSM costs) and by Resolution 567/2019 (interzonal incentives), which will be collected in accordance with the timing set out in the resolution9 ; the incentives regard:
  • the DSM incentive: up €165.210 million, representing the bonus for the first nine months of 2023;
  • the interzonal incentive: up €47.3 million for bonuses awarded by ARERA in connection with investment in boosting transmission capacity on specific sections of the grid;
• a reduction in net energy-related pass-through payables of €95.8 million, primarily reflecting the combined effect of:
• a decrease in net payables relating to essential plants for the security of the electricity system UESS (€281.9 million), reflecting payments made in the first nine months of 2023, which also take into account the maximisation programme introduced by Resolution 430/202211. Partially offset by an increase in amounts payable in the form of capacity payments (€102.1 million) due to the increase in cumulative amounts collected during the period, to be returned to the system in the coming months via the specific price revision mechanism;

⁹ In terms of DSM incentives, Resolution 132/2022 (amending Resolution 597/2021) establishes that bonuses/penalties accruing in the three-year period 2022-2024 covered by the incentives shall be disbursed as follows:

^- the bonus/penalty for 2022 over three years starting from 1 January 2024;

^- the bonus/penalty for 2023 over two years starting from 1 January 2025;

^- the bonus/penalty for 2024 over one year starting from 1 January 2026.

With regard to interzonal incentives, Resolution 23/2022 provides for disbursement of the bonus provided for in art. 44, annex A of Resolution 567/2019 in two tranches, the first of which was collected at the end of 2022, with the second to be collected in December 2023.

¹⁰ The sum of €165.2 million includes the portion relating to financial income from discounting, totalling €15.7 million, in view of the timing of collection under the Resolution.

¹¹ Law Decree 14/2022 (art. 5-bis) introduced certain preventive measures designed to reduce natural gas consumption in the thermoelectric sector, under which Terna adopted a plan to maximise the use of coal- and oil-fired electricity generating plants with a nominal thermal capacity in excess of 300 MW under normal operating conditions.

• a reduction in net receivables (€55.9 million) linked to the Uplift component and related items due to a significant decline in dispatching costs (in particular DSM and imbalance costs). This decline reflects a decrease in price differentials on the DSM and a reduction in the quantities procured by Terna on the services market, linked above all to efficiency improvements made in 2022 and 2023 with the aim of cutting the services procured on the DSM;
• an increase in net payables linked to items deriving from charges settled with the CSEA (€25.7 million);
• a reduction in other net liabilities of €69.0 million, primarily due to a reduction in guarantee deposits received from operators participating in the capacity market and from electricity market operators to guarantee the obligations undertaken regarding dispatching and virtual interconnection contracts (down €23.6 million and €66.6 million, respectively), partially offset by an increase in the Interconnector Guarantee Fund set up by the 2016 Stability Law, in order to fund investment in interconnections by art. 32 of Law 99/09 (up €13.0 million).

Cash inflows

• an increase of €46.1 million in net trade payables, largely due to the different performance of payments and collections;
• an increase of €128.1 million in net tax liabilities, broadly due to a €53.8 million increase in net VAT payable and an increase in the net amount of tax payable (€78.7 million), reflecting the recognition of income tax for the period after the settlement of tax due for the previous year and payments on account made in June.

Gross invested capital thus amounts to €15,794.3 million, an increase of €1,041.8 million compared with 31 December 2022.

Sundry provisions are down €34.2 million, primarily due to:

• net provisions for net deferred tax assets (down €25.4 million), primarily due to the effect on taxation of movements in derivative financial instruments held by the Group, amortisation and depreciation and movements in provisions for risks and charges;
• net uses of provisions to fund staff incentives (down €9.5 million) and early retirement incentives (down €4.2 million), partially offset by net provisions for urban and environmental redevelopment schemes (up €4.9 million).

Net assets held for sale, totalling €80.5 million at 30 September 2023, are up €19.4 million compared with 31 December 2022. This primarily reflects increased investment in the infrastructure operated under concession in Brazil and a reduction in trade payables, after an increase in inventories.

Total net invested capital, including assets held for sale, amounts to €15,840,8 million, marking an increase of €1,095.4 million compared with 31 December 2022. This is financed by equity attributable to owners of the Parent, totalling €6,337.3 million (compared with €6,142.0 million at 31 December 2022), equity attributable to noncontrolling interests of €17.3 million (€27.1 million at 31 December 2022) and net debt of €9,486.2 million (up €909.9 million compared with the €8,576.3 million of 31 December 2022).

Debt

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

Gross debt at 30 September 2023 amounts to approximately €11 billion, consisting of approximately €6.5 billion in the form of bond issues and approximately €3.8 billion in bank borrowings. The average term to maturity of debt, 87% of which is fixed rate, is approximately 6 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 the role of dealer), 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 30 September 2023 amount to approximately €3.0 billion. Thanks to its strong credit ratings, Terna is able to obtain financing from banks on extremely good terms, as shown by the issues carried out in April and July 2023, amounting to €650 million. In addition, in March 2023, Terna agreed loans from the EIB of €900 million, of which €450 million was drawn down in June 2023. Finally, Terna also has access to two committed revolving credit facilities, amounting to approximately €3.5 billion.

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 the first nine months of 2023.

On 17 July 2023, Terna successfully launched a green, single-tranche, euro-denominated, fixed-rate bond with a total nominal value of €650 million under its €9,000,000,000 Euro Medium Term Notes (EMTN) programme. The green bonds were issued at a price of 99.107%, with a spread of 90 basis points above the midswap rate, and pay annual coupon interest of 3.875%. The bonds have a term of 10 years and will mature on 24 July 2033. In common with earlier green senior issues, the new bonds are listed on Borsa Italia's ExtraMOT PRO market, created to offer investors the opportunity to identify instruments where the proceeds are used to fund projects providing specific environmental and social benefits. At 30 September 2023, outstanding green senior bonds issued by Terna under its Euro Medium Term Notes (EMTN) programme amount to €2.25 billion, in addition to the perpetual, subordinated green bonds issued on a standalone basis in February 2022, amounting to €1 billion.

These green issues are used to finance or refinance Eligible Green Projects. These are projects producing environmental benefits that meet certain criteria listed in the 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.

Specifically, the net proceeds from the issues will be used to finance:

• projects that aim to increase renewable energy production for example, infrastructure enabling renewable energy plants to be connected to the national grid or that allow for a larger volume of renewable energy to be injected into the grid;
• projects designed to cut carbon emissions by reducing grid losses for example, infrastructure designed to boost the efficiency of the electricity transmission grid;
• projects designed to ensure the quality, security and resilience of grid infrastructure;
• projects that aim to reduce land use and protect biodiversity.

At 30 September 2023, Terna has also agreed a number of ESG-linked Credit Facilities amounting to €900 million, two ESG-linked Revolving Credit Facilities amounting to a total of approximately €3.5 billion (of which one agreed in May 2023 with an increase in size from €1.5 to €1.8 billion), and a €1 billion Euro Commercial Paper (ECP) programme.

The share buyback programme to service the Performance Share Plan 2023-2027 was completed on 10 July 2023 at a total cost of approximately €7 million and with the acquisition of 917,611 of the Company's ordinary shares (representing approximately 0.046% of the share capital). In keeping with Terna's commitment to sustainability and social and environmental responsibility, the programme includes a mechanism linked to the Company's achievement of specific ESG objectives.

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 Coalition for the SDGs, which is building on the work of the CFO Taskforce for the SDGs, the initiative launched by the UN Global Compact at the end of 2019 to develop sustainable finance and of which Terna was one of the founding members. The Coalition aims to continue to promote sustainability, scale up its global community and follow the example set by the CFOs that founded the Taskforce.

Further confirmation of the 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 taxonomy on sustainable finance.

Further financial resources

With regard to bank debt, as regards the Tyrrhenian Link project, in connection with part of the overall amount made available to fund the project by the European Investment Bank (EIB), amounting to €1.9 billion, in addition to the first tranche obtained in 2022, on 30 March 2023, the Company reached agreement on a further two tranches amounting to €900 million, to be used to fund construction and commissioning of the East and West sections of the Tyrrhenian Link. The tranches were drawn down in June and October 2023.

The above three loans have terms of approximately 22 years from the date of disbursement, have durations that are longer and more competitive costs than those available in the market and form part of the policy for optimising Terna's financial structure.

Furthermore, on 14 April 2023, a single tranche, euro-denominated fixed rate bond issue amounting to a total of €750 million was successfully launched, as part of Terna's Euro Medium Term Notes (EMTN) programme. The bonds, issued at a price of 99.281%, with a spread of 70 basis points above the midswap rate, have a term of 6 years and will mature on 21 April 2029. The bonds pay annual coupon interest of 3.625%.

On 8 June 2023, Terna S.p.A. renewed its Euro Medium Term Notes (EMTN) programme totalling €9,000,000,000, being the maximum amount that may be subscribed. IMI – Intesa Sanpaolo and UniCredit acted as Joint Arrangers of the programme, which has been assigned a "BBB+/A-2" rating by S&P and a "(P)Baa2 /(P)P-2" rating by Moody's.

In addition, with regard to the Italy–Tunisia Interconnector project, in December 2022, the European Commission informed Terna that it had been awarded a non-repayable grant from the CEF Connecting Europe Facility, amounting to a total of €307 million for the project. 50% of the grant has been allocated to Terna and 50% to STEG (the Tunisian grid operator). Following signature of the Grant Agreement between Terna and CINEA (the EU agency), in August 2023 the European Commission paid Terna an advance equal to 25% of the approved amount, totalling approximately €77 million (of which 50% allocated to Terna).

Net debt

The Group's net debt at 30 September 2023 amounts to €9,486.2 million, marking an increase of €909.9 million compared with 31 December 2022.

			(€m)
	AT 30 SEPTEMBER 2023	AT 31 DECEMBER 2022	CHANGE
NET DEBT (BY TERM TO MATURITY)
Total medium/long-term debt	9,925.7	8,588.4	1,337.3
- Bond issues	6,462.6	5,078.9	1,383.7
- Borrowings	3,257.9	3,337.8	(79.9)
- Derivative financial instruments	205.2	171.7	33.5
Total short-term debt/ (funds)	(439.5)	(12.1)	(427.4)
- Bond issues (current portions)	-	1,658.8	(1,658.8)
- Short-term borrowings	17.5	444.1	(426.6)
- Borrowings (current portions)	552.6	250.5	302.1
- Other current financial liabilities, net	121.9	40.6	81.3
- Derivative financial instruments	0.7	0.6	0.1
- Financial assets	(220.5)	(251.6)	31.1
- Cash and cash equivalents	(911.7)	(2,155.1)	1,243.4
Total net debt	9,486.2	8,576.3	909.9
NET DEBT (BY TYPE OF INSTRUMENT)
- Bond issues	6,462.6	6,737.7	(275.1)
- Borrowings	3,810.5	3,588.3	222.2
- Short-term borrowings	17.5	444.1	(426.6)
- Derivative financial instruments	205.9	172.3	33.6
- Other financial liabilities, net	121.9	40.6	81.3
GROSS DEBT	10,618.4	10,983.0	(364.6)
- Financial assets	(220.5)	(251.6)	31.1
- Cash and cash equivalents	(911.7)	(2,155.1)	1,243.4
Total net debt	9,486.2	8,576.3	909.9
Net debt attributable to net assets held for sale	(12.7)	(17.9)	5.2

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

• a reduction in bond issues of €275.1 million, primarily following the repayment of two bonds, partially offset by the issue launched by Terna on 21 April 2023, totalling €750 million, and the later issue dated 24 July 2023, with a nominal value of €650 million;
• an increase in borrowings of €222.2 million, primarily as a result of the drawdown of a new EIB facility amounting to €450 million, after repayments of existing EIB bank loans and the extinguishment of a bank loan amounting to €100 million;
• a reduction in short-term borrowings (down €426.6 million), essentially due to the Parent Company's repayment of short-term credit facilities;
• an increase in the fair value of derivative financial instruments (up €133.6 million), reflecting a combined effect primarily due to movements in market interest rates;
• an increase in other net financial liabilities (up €81.3 million), essentially due to the recognition of accrued interest on financial products and the advance payment received from the European Commission in relation to the Italy-Tunisia Interconnector project (up €38.5 million) attributable to the Tunisian operator, STEG;
• a reduction in financial assets (down €31.1 million), following movements in the Italian government securities held (a reduction of €51.8 million), partially offset by further deposits during the period (up €17.0 million) and a change in interest accruing on investments (up €4.0 million);
• an decrease in cash and cash equivalents of €1,243.4 million. Cash amounts to €911.7 million at 30 September 2023, including €829.3 million invested in short-term, readily convertible deposits and €82.4 million held in bank current accounts and in the form of cash in hand.

Net debt attributable to assets held for sale, amounting to €12.7 million at 30 September 2023, essentially relates to the short-term portion of investment in infrastructure operated under concession in Brazil, recognised in application of IFRIC 12, totalling approximately €6.0 million, and cash and cash equivalents of approximately €6.7 million. The change of €5.2 million compared with 31 December 2022 essentially reflects the reduction in cash and cash equivalents.

Share price performance

Terna S.p.A. has been listed on Borsa Italiana's screen-based trading system (Mercato Telematico) since 23 June 2004. From the date of floatation to the end of September 2023, the share price has risen 319% (a capital gain), providing a Total Shareholder Return (TSR12) of 1,048%, ahead of both the Italian market (the FTSE MIB, up 103%) and the relevant European sector index (DJ Stoxx Utilities), which has risen 303%.

Europe's leading stock markets rose during the first nine months of 2023. Milan, which continues to be the best performing European index, gained 19.1%, Paris and Frankfurt rose 10.2% and 7.0% respectively, whilst Madrid was up 14.6% and London 2.1%.

Terna's shares closed the period in positive territory at €7.128, having risen 3.3% and outperformed the relevant European sector index (DJ Stoxx Utilities), which was down 1.0%. The daily average volume traded during the period amounted to approximately 3.7 million. It should also be noted that the ex-dividend date for the final dividend for 2022, amounting to 20.83 euro cents per share, was 19 June. In addition, the share price reached a nine-month high of €8.100 on 12 May.

¹² 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.

Weighting of Terna's Shares

	9M 2023	9M 2022
> on the FTSE MIB	2.3%	2.6%

Source: Bloomberg.

Ratings

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

The rating agencies (Standard & Poor's and Moody's) have reaffirmed the Company's ratings at 30 September 2023. Terna's long-term ratings, unchanged with respect to 31 December 2022, are one notch above Italy's sovereign rating.

Outlook

During the final part of the year, the Group will continue to focus on delivering on the "Driving Energy" 2021-2025 Industrial Plan. This will be done despite:

• the highly volatile macroeconomic environment, marked by high global inflation and a tightening of monetary policies by central banks, resulting in rising interest rates;
• the geopolitical problems resulting from the prolonged conflict between Russia and Ukraine, which has resulted in the growing financial involvement of NATO member countries, and the potential outbreak of new conflicts in other parts of the world (e.g., the Middle East);
• a significant rise in the price of oil, which could drive renewed increases in commodity prices.

All of the above are having a negative impact on the outlook for global economic growth.

The sharp acceleration in expenditure on Regulated Activities will continue with the goal of enabling the energy transition, facilitating the development and integration of renewable sources and making a major contribution to achieving the ambitious goals set out in the Green Deal, which aims to transform the European Union into a carbon-free economy by 2050, with an intermediate target of cutting emissions by approximately 55% by 2030 compared with 1990 levels.

In terms of the most important investment projects, work is progressing on the Tyrrhenian Link. All the preliminary activities prior to the start-up of work on the East section are under way and delivery of the terrestrial cables is due to begin by the end of the year. In addition, the principal NTG assets due to enter service by the end of the year include the Paternò-Pantano power line and the Pantano substation.

Work on the new electricity grid for the "Milan-Cortina 2026" Olympic and Paralympic Games will continue in the last quarter of 2023 with the aim of increasing the reliability of energy supply in the locations hosting the event, with infrastructure having a reduced impact on the landscape.

In terms of the Security Plan, the planned installation of synchronous compensators and STATCOMs will continue with the aim of supporting the regulation of short-circuit voltage and power. Three new items of equipment are due to enter service by the end of the year (a STATCOM and two compensators).

Finally, the Group will continue to make progress towards meeting the requirements resulting from output-based regulatory mechanisms introduced by ARERA. These regard work designed to provide additional transmission capacity between market areas (interzonal incentives) and reduce dispatching costs (DSM incentives). The Group will also be engaged in the consultation process in preparation for ARERA's definition of application criteria for the Totex/Output-based approach and updates to Infrastructure Regulation and incentives for the next regulatory period from 2024 to 2027.

With regard to Non-regulated Activities, in the last part of the year, the Terna Group will continue to consolidate its role as a provider of both connectivity, through the offer of housing and hosting services for fibre infrastructure, including in the form of partnerships, and energy solutions, developing high value-added services for corporate customers and exploiting market opportunities for traditional and renewable customers. This will include exploitation of the LT Group's know-how.

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

In terms of International Activities, the strategic assessment of further opportunities in overseas markets will continue, 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. In addition, as regards the assets being sold, the process of selling the Peruvian assets will continue, whilst work will proceed on construction of the Linha Verde I power line in Brazil.

In the last part of 2023, the Group will focus on stepping up investment in innovation and digital solutions to continue the transformation that will enable it to manage the growing complexity of the electricity system. In addition, the Group's activities will focus on people development and the insourcing of strategic competencies, the strengthening of departments and optimisation of the working environment for all personnel.

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

Partly thanks to the above initiatives, including those designed to further increase the efficiency of the electricity system, Terna confirms the guidance for 2023 previously announced on 22 March of this year. This includes expected revenue of €3.11 billion, EBITDA of €1.12 billion and EPS of €0.43. With specific reference to the Investment Plan, the Group has targeted capital expenditure of approximately €2.2 billion in 2023. The above objectives will be pursued whilst maintaining a commitment to maximising the cash generation necessary to 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, Francesco Beccali, declares, pursuant to paragraph 2 of article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this Consolidated Interim Report for the nine months ended 30 September 2023 is consistent with the underlying accounting records.

Alternative performance measures (APMs) 56 Other information 57

3 Annexes

CONSOLIDATED INTERIM FINANCIAL REPORT – 30 SEPTEMBER 2023 | TERNA GROUP 55

Alternative performance measures (APMs)

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

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

Other information

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

Treasury shares

The Parent Company holds a total of 4,213,660 treasury shares (equal to 0.210% of the share capital).

The above total number of shares held by the Company represents the sum of those purchased in implementation of four separate buyback programmes to service:

• (i) the Performance Share Plan 2020-2023, in the period between 29 June 2020 and 6 August 2020,
• (ii) the Performance Share Plan 2021-2025, in the period between 31 May 2021 and 23 June 2021,
• (iii) the Performance Share Plan 2022-2026, in the period between 27 May 2022 and 13 June 2022 and

(iv) the Performance Share Plan 2023-2027, in the period between 22 June 2023 and 6 July 2023,

less the 1,079,860 treasury shares allocated by the Company, in the period between 9 May 2023 and 1 June 2023, to the beneficiaries of the Performance Share Plan 2020-2023.

The Company does not hold any additional treasury shares other than those purchased under the above programmes, including through subsidiaries13.

The Parent Company does not directly or indirectly hold any shares in CDP Reti S.p.A. or Cassa Depositi e Prestiti S.p.A., nor has it purchased or sold any such shares during the first nine months of 2023.

Related party transactions

Information on related party transactions is provided in the Annual Report – Integrated Report 2022.

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

Information on participation in the simplified process introduced by the CONSOB is provided in the Annual Report – Integrated Report 2022.

¹³ In this regard, see the press release published on 10 August 2020, 28 June 2021, 13 June 2022 and 6 July 2023, available at the following links: https://download.terna.it/terna/2020.08.10_CS%20TERNA%20operazioni%20su%20azioni%20proprie%20CHIUSURA%20ITA__8d83d42cfd43cb6.pdf https://download.terna.it/terna/Terna_operazioni_su_azioni_proprie_conclusione_programma_8d93a651f5f9ffb.pdf https://download.terna.it/terna/Terna_concluso_programma_acquisto_azioni_proprie_8da4d5856032b0b.pdf https://www.terna.it/it/media/comunicati-stampa/dettaglio/concluso-programma-acquisto-azioni-proprie-2023

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