Terna — Interim / Quarterly Report 2023

May 5, 2023

2023 CONSOLIDATED INTERIM FINANCIAL REPORT AT 31 MARCH

Driving Energy

We are Europe's largest independent electricity transmission system operator.

We are engaged in driving and enabling the ecological transition in order to create a new development model based on renewable sources and respect for the environment.

Sustainability, innovation and distinctive competencies are behind everything we do, with the aim of providing the generations to come with a clean, accessible and emission-free energy future.

We have the major responsibility for providing the country with energy, ensuring security, quality and cost-effectiveness over time.

We manage Italy's high-voltage electricity transmission grid, one of the most modern and technologically advanced in Europe, which we are working to develop and integrate with the European grid, guaranteeing secure and equal access to all grid users.

We are developing Non-regulated Activities and new business opportunities, making our expertise and experience available in Italy and overseas.

Contents

	Q1 2023 overview	4
	Structure of the Group	8
1	The energy sector Electricity demand and production in Italy	11 12
2	The Group's business Operating activities People Financial review for Q1 2023 Terna's shares Outlook Declaration of the manager responsible for financial reporting pursuant to paragraph 2 of article 154-bis of Legislative Decree 58/1998	15 16 27 28 39 42 43

	Annexes	45
	Alternative performance measures (APMs)	46
3	Other information	47

Q1 2023 overview

(€m)

712.5 +10.6% vs Q1 2022 Revenue

500.0 +8.4% vs Q1 2022 EBITDA

200.2 +4.4% vs Q1 2022 Profit attributable to owners of the Parent 8,847.2

314.9 +7.4% vs Q1 2022 Capital expenditure

Net debt

Terna's share price

€7.566 at 31 March 2023

Two tranches totalling €900 million,

agreed 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, 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.

Terna's long-term rations are unchanged with respect to 31 December 2022 at one notch above Italy's sovereign rating.

Presentation of Terna's 2023 Development Plan for the NTG: investment of over

€21 billion

in the next 10 years to accelerate the energy transition.

Launch of Econnextion, the first digital platform in Italy for requesting the connection of renewable energy plants to the grid, providing an important, innovative form of consultation for all operators in the electricity sector.

Inauguration of Terna's new Suvereto (LI) office,

the new eco sustainable building that will play a central role in preparations for the construction of Sa.Co.I 3, the submarine connection that will link Tuscany, Sardinia and Corsica, and its converter substation.

ELECTRICITY SYSTEM

Demand 77* TWh -4.0% vs Q1 2022

RENS quality 304* MWh vs target 763 MWh

Performance well below the targets set by ARERA

* Provisional data.

Demand met from RES 30* %

Cost of quality €3.4^m

Q1 2023 overview

+104 new personnel added

in the first quarter of 2023, with the increase in line with the objectives set in the Driving Energy Industrial Plan for the period 2021-2025.

NexTerna: the maintenance phase of the programme of cultural change has been launched, with four macro-areas to be monitored: People, Process, Platform and Place.

Terna Forward enters CDP Venture Capital's Corporate Partner I fund, which

involves a number of leading companies from Italy and beyond through collaboration and investment in start-ups in the industrial, energy, services and infrastructure sectors, with the aim of driving the growth of Italy's venture ecosystem.

Signature of a five-year cooperation agreement with the Italian Technology Institute, with the aim of studying and producing innovative robotic solutions for use in the field.

Launch of the third edition of Terna Ideas

• Corporate Entrepreneurship, the innovationfocused corporate entrepreneurship programme for Terna's people. Since 2022, the platform has been transformed into an example of Open Innovation and extended to include the ecosystem outside the Company to build a community of start-ups, scaleups, innovative firms, researchers and solvers.

Terna is among the first companies in Italy 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 obligations of a number of Group companies (Terna Rete Italia S.p.A., Terna Energy Solutions S.r.l. and Terna Plus S.r.l.).

Launch of the call for applications for 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, in which the Company plans to invest €100 million between 2022 and 2026.

TV launch, in January, of the corporate advertising campaign called Noi Siamo Energia, created by Terna in consultation with the Ministry of the Environment and Energy Security with the aim of raising awareness among the public and businesses of the need for the conscious use of electricity in Italy.

Launch of the Driving Energy Award 2023 – Contemporary Photography, the second edition of the free competition open to all photographers in Italy, aimed at promoting the country's cultural development and nurturing new talent in the sector.

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'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 is again leading the way on sustainability: having scored 91 out of a 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 Top 1%, the highest ranking in the latest Sustainability Yearbook, published in February 2023.

Structure of the Group

The structure of the Terna Group at 31 March 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.

Electricity demand and production in Italy 11

1 The energy sector

CONSOLIDATED INTERIM FINANCIAL REPORT AT 31 MARCH 2023 | TERNA GROUP 11

Electricity demand and production in Italy

Electricity demand

Demand for electricity in Italy amounted to 77,419 GWh in the first quarter of 2023, a decrease of 4.0% compared with the same period of 2022.

ELECTRICITY BALANCE IN ITALY (GWh)*	Q1 2023**	Q1 2022**	CHANGE	% CHANGE
Net production	64,309	71,748	(7,439)	(10.4%)
From overseas suppliers (imports)	14,466	10,826	3,640	33.6%
Sold to overseas customers (exports)	(773)	(1,274)	501	(39.3%)
For use in pumping***	(583)	(662)	79	(11.9%)
Total demand in Italy	77,419	80,638	(3,219)	(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 three months of 2023 continued to fall compared with the same period of the previous year. This reflects higher average temperatures and a reduction in industrial consumption.

Monthly demand for electricity*

Annexes

Meeting demand and energy production

Electricity production in the first quarter of 2023 is down 10.4% compared with the same period of 2022.

In the first quarter of 2023, approximately 30% of total energy demand was met from renewable energy sources, marking a slight increase compared with the same period of 2022. In terms of individual renewable sources, hydro (-12%), geothermal (-5%), biomass (-4.8%) and wind (-3%) production are down, slightly offset by an increase in solar production (+4%).

Operating activities 16 People 27 Financial review for Q1 2023 28 Terna's shares 39 Outlook 42 Declaration of the manager responsible for financial reporting pursuant to paragraph 2 of article 154-bis

of Legislative Decree 58/1998 43

2 The Group's business

CONSOLIDATED INTERIM FINANCIAL REPORT AT 31 MARCH 2023 | TERNA GROUP 15

(€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 99.9% of the NTG, one of the most modern and technologically advanced in Europe. We are the largest independent electricity transmission network operator in Europe and one of the world's leading operators, with around 75 thousand kilometres of high and very high-voltage lines. The Group is responsible for managing the flow of electricity through the grid in every part of Italy, with the aim of ensuring that there is a constant balance between the quantity of energy injected into the grid and demand, whilst guaranteeing continuity and accessibility of service for the population as a whole. We are also responsible for planning, construction and maintenance of the grid.

The Group's capital expenditure

The Terna Group's total capital expenditure in the first quarter of 2023 amounts to €314.9 million, marking an increase compared with the €293.3 million of the same period of the previous year (up 7.4%).

THE GROUP'S CAPITAL EXPENDITURE	Q1 2023	Q1 2022	CHANGE	% CHANGE
Development Plan	123.0	106.3	16.7	15.7%
Security Plan (1)	38.1	42.6	(4.5)	(10.6%)
Projects to renew electricity assets	89.8	101.3	(11.5)	(11.4%)
Other capital expenditure (1)	37.2	30.6	6.6	21.6%
Total regulated assets	288.1	280.8	7.3	2.6%
Non-regulated assets (2)	12.6	9.0	3.6	40.0%
Capitalised financial expenses	14.2	3.5	10.7	305.7%
Total capital expenditure	314.9	293.3	21.6	7.4%

(1) The figures for Q1 2022 have been restated following changes to the purposes of investments, without modifying the overall value of investment in regulated assets.

(2) Non-regulated assets primarily regard the re-routing of power lines for third parties and private interconnectors.

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

Substations and connections:

• Vetropack (adding 3 bays);
• Brindisi-Pignicelle (adding 1 bay).

Reactors plan:

• Partinico (adding 1 bay);
• Casuzze (adding 1 bay).

Annexes

MAIN REGULATED WORKS CARRIED OUT DURING THE PERIOD

> DEVELOPMENT PLAN €123.0 million

East section: • Cable connections: the detailed marine survey and production of the executive design are in progress; • Converter stations: agreements were signed with contractors in February 2023. West section: • Consents: talks with the Ministry of the Environment and Energy Security are underway with a view to concluding the Services Conference; • Cable connections: qualification testing of the submarine cable and the related accessories supplied by Nexans is in progress; • Converter stations: the same activities have been carried out as for the East section.	Tyrrhenian Link (€17.7 million)
132kV Colmata-Portoferraio power line: • laying of the cable for the marine section has been completed and controlled horizontal drilling at the landfall sites has been carried out; • all the civil works (3 km of line) on the Tuscan side have been completed and installation of the cable is in progress; • civil works for 400 metres of line (out of an expected total of 600 metres) on the Elba side have been carried out. Portoferraio reactor: work began in January 2023 and the foundations are nearing completion.	Elba-mainland connection (€6.6 million)
380kV Paternò-Pantano power line: construction has been completed pending the conclusion of work on the relevant part of the substation. 380kV Pantano-Priolo power line: work is continuing on construction of the foundations (54 out of a total 115) and assembly of the pylons (50 out of a total 115), with the stringing of a first section of approximately 16.3 km out of a total 45 km completed. 380/220/150kV Pantano substation: work is nearing completion on construction of the foundations for the 150kV section and the ATRs, and electromechanical assembly on the 380kV section is in progress.	Paternò-Pantano-Priolo (€5.1 million)
380kV Colunga-Calenzano power line: confirmation of compliance with requirements imposed during the consents process is awaited from the relevant agencies before work can begin, with activity at the Emilia-Romagna end due to start by the end of the first half of 2023.	Colunga-Calenzano (€3.8 million)
Site preparation is nearing completion and work has begun on construction of the foundations.	Cerignola substation (€3.7 million)
Assembly of the transformers, control systems and auxiliary systems is in progress.	Magenta substation (€3.4 million)
Re-routing of the 380kV Bolano-Annunziata line: construction is in progress, with approximately 1 km of civil works completed out of a total of 3.4 km for the line.	Doubling of Sorgente Rizziconi connection (€2.7 million)

> SECURITY PLAN €38.1 million

Synchronous	Codrongianos compensators: commissioning is in progress.
compensators (€12.0 million)	Rosara compensators: the upgrade of the armoured bay for the link to the 380kV section is in progress.
	Suvereto compensators: the civil works are at an advanced stage and delivery of the equipment is in progress.
STATCOM (€1.9 million)	Aurelia and Montalto: the civil works are at an advanced stage and the main supplies have been produced (step-up convertors and transformers), with assembly underway.
Reactors (€3.5 million)	Montecorvino, Partinico and Casuzze: energised and commissioned. Bari West and Fulgatore: the reactors have been delivered on site and assembly completed.
Fiber for the Grid (€2.5 million)	This project aims to boost the availability of data on the grid in order to make it easier to monitor and manage the security of the electricity system, by increasing and expanding the fibre optic network.
	By March 2023, a further 3 substations were connected via proprietary fibre, making a total of 538 substations covered.

> RENEWAL OF ELECTRICITY ASSETS €89.8 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 311 km of circuits and 2 transformers.

Consent processes of Q1 2023

Annexes

Continuity and quality of service

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

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

These continuity indicators are significant for the system, as they monitor the frequency and impact of events that have occurred on the electricity grid as a result of faults or due to external factors, such as weather events. In all cases, the period of observation is three years, a period in which there have been no significant changes, testifying to the high quality of service achieved.

Continuity indicators

RENS*

What it measures

Energy not supplied following events affecting the relevant grid. **

How it is calculated

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

* Regulated Energy Not Supplied.

** The "relevant grid" refers to all of the 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 March 2023, based on preliminary data, amounts to approximately 304 MWh (compared with an annual target of approximately 763 MWh set by ARERA).

As regards the ASA indicator, availability was 99.99935% (provisional figure) in the first quarter of 2023, compared with 99.99990% in the previous year (provisional figure). The operating

performance shows that ASA has remained stable at a high level over the years (the higher the indicator, the better the performance). This indicator shows that the energy not supplied following a fault on the owned grid represents a minimal part of the total quantity of energy supplied to users of the grid.

Existing regulations (set out in Resolution 567/2019/R/eel) envisage a series of mechanisms designed to regulate and encourage improvements in the quality of service provided by Terna. The overall economic effects of these mechanisms are accounted for at year end (including RENS).

With regard to costs, which are determined periodically on the basis of events that have occurred, Terna recognised costs of €3.4 million in the first three months of 2023, compared with €1.0 million in the first three months of 2022.

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

Electricity cost trends

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

Dispatching Services Market (DSM)

The net charge for using the DSM was €232 million in the first quarter of 2023 (provisional data), sharply down (45%) on the same period of the previous year (€426 million).

This decrease primarily reflects a sharp reduction in the cost of selections made on the DSM (the volume effect).

Annexes

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

The total uplift was approximately €202 million in the first quarter of 2023 (provisional data), sharply down compared with the previous year (€493 million). This reflects reductions in the cost of using the Dispatching Services Market, in the consideration due for Goodwill and Change of Structure Tokens2, in the cost of virtual interconnection services3 and a rise in congestion revenue in Italian and Overseas market areas4, partly offset by a reduction in imbalance revenue5.

² 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.

³ 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.

⁴ Congestion revenue is generated when there are differences in the balanced prices in the energy markets in the various market areas.

⁵ 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

Annexes

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

Tamini received orders for transformers worth approximately €109 million in the first quarter of 2023, marking a sharp increase of 148.2% compared with the previous year. Order book

Orders amounted to approximately €31 million in the Industrial sector, and to approximately €78 million in the Power sector, up 208.2% and 130.3%, respectively, on the first quarter of 2022.

Orders for Services amounted to approximately €5 million, an increase of 9.3% compared with the first quarter of 2022.

The value of factory backlogs is significantly up compared with the end of 2022, at approximately €246 million (up 41%).

Revenue rose in the first three months of 2023 compared with the same period of 2022 (up 8.9%), due to the increased value of transformer production. Results

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

Tamini continues to be committed to the production of vegetable oil transformers for the Power sector in 2023. A 400 MVA/400 kV autotransformer was tested in the first quarter of 2023, and the production of two 250 MVA/400kV autotransformers is in progress in Italy. Vegetable oil transformers

Terrestrial Cables – Brugg Cables Group

Orders acquired in the first quarter of 2023 amount to approximately CHF82 million (up 64% on the first quarter of 2022). The High Voltage System segment made a major contribution (CHF53 million). The Low Medium Voltage segment also made a significant contribution (CHF14 million), as did the High Voltage Accessories segment (CHF15 million). Order book

Compared with the first quarter of 2022, production of high voltage cables is down 14%, whilst the volume of low and medium voltage cables produced is up 9%.

Revenue for the first quarter of 2023 amounts to approximately CHF47 million, in line 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 achieve 2023 targets. The production plant is working at full capacity and efforts are also underway to select projects in strategic markets, whilst with regard to development projects, new products are being launched for the offshore wind segment, with a view to enabling participation in the renewable energy market. Operating activities

The high and very high voltage systems segment saw strong growth in orders, with the volume of contracts awarded for orders almost doubling compared to the same period of the previous year, partly due to the contribution of orders received directly from subsidiaries based in the Middle East for EPC (Engineering, Procurement and Construction) projects.

The low and medium voltage segment continues to record a high and stable volume of orders. Procurement and production costs are constantly monitored, so that prices can be simultaneously aligned. The prices of low and medium voltage accessories were already increased in the first quarter of the year.

Fibre

Since 2017, indefeasible right of use (IRU) has been granted to primary telecommunications operators for a total of approximately 32,500 km of fibre, for which Terna provides maintenance and housing servicing for regeneration.

A total of 239 km was delivered during the first quarter of 2023, and activation letters were signed for 392 km.

Finally, in February 2023, a framework agreement was signed with E-distribuzione regarding the granting of indefeasible right of use (IRU) for the construction of infrastructure to connect the primary substations to the operating centre. Between 2023 and 2027, the agreement envisages delivery of approximately 42,000 km of fibre that will connect 1,923 E-distribuzione plants via 153 rings.

Annexes

Smart grid

Renewables – LT Group

The LT Group operates in the design and implementation of the revamping and repowering of existing plants and in the construction of new photovoltaic plants for third parties. Turnover in the first quarter of 2023, amounting to approximately €9 million, is broadly in line with previous guidance for 2023. Compared with the first quarter of 2022, the figure is up approximately €3 million, due primarily to EPC, revamping and repowering activities, after growth of approximately 100%.

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 first quarter of 2023, the construction of an electrochemical storage plant in Assemini (approximately 14 MW) was completed; communication testing activities with the TSO, ahead of plant commissioning, are in progress. With regard to revamping/repowering contracts for third-party photovoltaic plants, module revamping and inverter repowering activities continued at the Troia, Deliceto, Alfonsine and Brindisi plants.

High voltage

The turnkey construction of two STATCOM systems at two large industrial plants is nearing completion, while the executive design for a new transformer bay and control system for another industrial operator is in progress and will be completed by the end of the third quarter of 2023.

Work also continued on the agreement with RFI regarding the "Design, supply, installation, certification and commissioning of metering equipment", and procurement initiatives were launched in relation to the turnkey design and construction of a third-party HV cable duct.

Finally, in April 2023, a revamping contract was signed regarding an HV/MV substation at another industrial site, and the project design and procurement of the HV components and transformer were started.

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 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 Italy-Austria interconnector (the Reschenpass project) involves construction of a new 220kV AC interconnection between the Glorenza (Italy) and Nauders (Austria) substations. This will consist of 28 km of underground cable, including 26 km on the Italian side, and the necessary upgrade of the domestic grid. The project will increase cross-border interconnection capacity between Italy and Austria by around 300 MW, practically doubling the currently available capacity. The cost of the project is expected to be approximately €80 million. The interconnector is due to enter service in 2023. Italy–Austria interconnector project

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

International Activities

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 quarter 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 the second half of 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. The company is scheduled to be sold in the first half of 2023.

North America

Development of the North American business continued in the first quarter 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.

Annexes

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.

			(Unit)
THE WORKFORCE	AT 31 MARCH 2023	AT 31 DECEMBER 2022	CHANGE
Senior managers	107	94	13
Middle managers	890	841	49
Office staff	3,114	3,090	24
Blue-collar workers	1,490	1,472	18
Total	5,601	5,497	104

The increase of 104 in the workforce at 31 March 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 Q1 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 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.

Therefore, given that the requirements of IFRS 5 have been met, the total results for the first quarter of 2023 and 2022 attributable to the South American subsidiaries included in the planned sale of assets, a process that began 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 31 March 2023 and 31 December 2022 have been reclassified to the item "Discontinued operations and net assets held for sale" in the Group's reclassified statement of financial position.

Annexes

The Group's reclassified income statement

The Terna Group's operating results for the first quarter of 2023, compared with those for the same period of the previous year, are summarised in the following reclassified income statement.

	Q1 2023	Q1 2022	CHANGE	% CHANGE
TOTAL REVENUE	712.5	644.4	68.1	10.6%
- Regulated revenue	613.9	562.0	51.9	9.2%
of which Revenue from construction services performed under concession	10.2	9.8	0.4	4.1%
- Non-Regulated revenue	98.6	82.4	16.2	19.7%
TOTAL OPERATING COSTS	212.5	183.1	29.4	16.1%
- Personnel expenses	88.9	81.3	7.6	9.3%
- Cost of services, leases and rentals	52.7	42.2	10.5	24.9%
- Materials	49.4	41.1	8.3	20.2%
- Other costs	7.9	7.7	0.2	2.6%
- Quality of service	3.4	1.0	2.4	-
- Cost of construction services performed under concession	10.2	9.8	0.4	4.1%
GROSS OPERATING PROFIT (EBITDA)	500.0	461.3	38.7	8.4%
- Amortisation, depreciation and impairment losses	186.6	167.6	19.0	11.3%
OPERATING PROFIT (EBIT)	313.4	293.7	19.7	6.7%
- Net financial income/(expenses)	(32.1)	(24.4)	(7.7)	31.6%
PROFIT/(LOSS) BEFORE TAX	281.3	269.3	12.0	4.5%
- Income tax expense for the period	81.3	76.2	5.1	6.7%
PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS	200.0	193.1	6.9	3.6%
- Profit/(Loss) for the period from discontinued operations and assets held for sale	(0.5)	(1.1)	0.6	(54.5%)
PROFIT FOR THE PERIOD	199.5	192.0	7.5	3.9%
- Profit/(Loss) attributable to non-controlling interests	(0.7)	0.2	(0.9)	-
PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	200.2	191.8	8.4	4.4%
				(€m)
EBITDA BY OPERATING SEGMENT		Q1 2023	Q1 2022	CHANGE

EBITDA BY OPERATING SEGMENT	Q1 2023	Q1 2022	CHANGE
Regulated Activities	485.9	448.4	37.5
Non-regulated Activities	15.2	14.0	1.2
International Activities	(1.1)	(1.1)	-
EBITDA	500.0	461.3	38.7

Gross operating profit (EBITDA) for the first quarter of 2023 amounts to €500.0 million, up €38.7 million compared with the €461.3 million of the first quarter of 2022, reflecting an improvement in EBITDA from Regulated Activities.

Revenue

			(€m)
REGULATED ACTIVITIES	Q1 2023	Q1 2022	CHANGE
Tariff revenue and incentives	588.3	543.4	44.9
- Transmission revenue	508.3	485.0	23.3
- Dispatching, metering and other revenue	80.0	58.4	21.6
Other regulated revenue	15.4	8.8	6.6
Revenue from construction services performed under concession in Italy	10.2	9.8	0.4
TOTAL	613.9	562.0	51.9

Revenue from Regulated Activities is up €51.9 million compared with the same period of the previous year. This primarily reflects the impact on tariff revenue (up €23.3 million) of the increase in the RAB after the volume effect and the effects of output-based incentive mechanisms (up €20.6 million, including an increase of €49.7 million attributable to Resolutions 597/2021 and 132/2022 designed to cut DSM costs and a reduction of €29.1 million relating to revenue recognised in the first quarter of 2022 based on Resolution 699/2018). There was also an increase in revenue resulting from recognition of pro rata quality of service bonus for 2022 (up €2.9 million, based on the estimated overall performance in the 2022-2023 regulatory period) and an increase in gains on the sale of assets (up €4.0 million, essentially scrap and motor vehicles).

			(€m)
NON-REGULATED ACTIVITIES	Q1 2023	Q1 2022	CHANGE
Industrial	63.6	52.8	10.8
- Brugg Cables Group	36.9	29.7	7.2
- Tamini Group	26.7	23.1	3.6
Services for third parties (Connectivity, Energy Solutions, other)	30.7	27.5	3.2
Private interconnectors	4.3	2.1	2.2
TOTAL	98.6	82.4	16.2

The increase in revenue from Non-regulated Activities, amounting to €16.2 million, primarily reflects the increased contributions from the Industrial segment, with revenue from the Brugg Cables Group up €7.2 million and from the Tamini Group up €3.6 million, from the Energy Solutions segment, with the LT Group recording an increase of €2.2 million, and from the private Italy-France Interconnector (up €2.2 million), essentially following its entry into service in November 2022.

Costs

Operating costs are up €29.4 million compared with the first quarter of the previous year, broadly as a result of the cost of procuring raw materials and semi-finished goods incurred by the Brugg Cables Group, the Tamini Group and the LT Group (up €6.1 million, €2.4 million and €1.1 million, respectively), increased personnel expenses (up €7.6 million, primarily due to an increase in the workforce), an increase in service costs (up €10.5 million, due to increased activity and new initiatives carried out by the Group) and quality of service costs (up €2.4 million, caused by the occurrence of exceptional events in Sicily at the beginning of 2023).

Amortisation, depreciation and impairment losses for the period amount to €186.6 million, an increase of €19.0 million compared with the first quarter of 2022, primarily due to the entry into service of new infrastructure.

Annexes

Operating profit (EBIT), after amortisation, depreciation and impairment losses, amounts to €313.4 million, an increase of €19.7 million (6.7%) compared with the first quarter of 2022.

Net financial expenses for the period total €32.1 million. The figure is up €7.7 million on the €24.4 million of the first three months of 2022, due primarily to inflation and rising interest rates, partially offset by capitalised financial expenses and increased income from cash investments.

After net financial expenses, profit before tax amounts to €281.3 million, compared with €269.3 million for the first quarter of 2022 (up 4.5%).

Income tax expense for the period totals €81.3 million, an increase of €5.1 million compared with the same period of the previous year. This is essentially due to the growth in pre-tax profit. The tax rate of 28.9% compares with the 28.3% of the same period of the previous year.

The profit from continuing operations amounts to €200.0 million, an increase of €6.9 million (3.6%) compared with the €193.1 million of the first quarter of 2022.

Profit for the period, after the loss from discontinued operations and assets held for sale, amounts to €199.5 million, up €7.5 million (3.9%) compared with the €192.0 million of the first quarter of 2022.

Profit for the period attributable to owners of the Parent (after excluding the share attributable to non-controlling interests) amounts to €200.2 million, up €8.4 million (4.4%) compared with the €191.8 million of the first quarter of 2022.

Cash flow

Operating cash flow for the first quarter of 2023 was used entirely to finance investing activities. Growth in working capital in the period, linked to the settlement of trade payables from 2022, led to an increase in net debt.

		(€m)
	CASH FLOW Q1 2023	CASH FLOW Q1 2022
- Profit for the period	199.5	192.0
- Amortisation, depreciation and impairment losses	186.6	167.6
- Net change in provisions	(13.8)	11.8
- Net losses/(gains) on sale of assets	(4.0)	(0.2)
Operating cash flow	368.3	371.2
- Change in net working capital	(333.8)	195.4
- Other changes in property, plant and equipment and intangible assets	33.1	7.9
- Change in investments	(1.5)	-
- Change in financial assets	(6.8)	(52.8)
Cash flow from operating activities	59.3	521.7
- Total capital expenditure	(314.9)	(293.3)
Free cash flow	(255.6)	228.4
Net assets held for sale	(4.0)	(16.2)
- Cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent	(10.8)	1,107.1
- Other movements in equity attributable to non-controlling interests	(0.5)	0.1
Change in net debt	(270.9)	1,319.4

The Group's reclassified statement of financial position

The Terna Group's financial position at 31 March 2023 and 31 December 2022 is summarised below in the reclassified statement of financial position.

			(€m)
	AT 31 MARCH 2023	AT 31 DECEMBER 2022	CHANGE
Total net non-current assets	17,592.6	17,485.3	107.3
- Intangible assets and goodwill	776.8	775.8	1.0
- Property, plant and equipment	16,298.9	16,200.9	98.0
- Financial assets	516.9	508.6	8.3
Total net working capital	(2,398.8)	(2,732.8)	334.0
- Net energy-related pass-through payables	(1,228.3)	(1,332.6)	104.3
- Net receivables resulting from Regulated Activities	853.5	778.7	74.8
- Net trade payables	(598.4)	(775.5)	177.1
- Net tax liabilities	(160.9)	(50.5)	(110.4)
- Other net liabilities	(1,264.7)	(1,352.9)	88.2
Gross invested capital	15,193.8	14,752.5	441.3
Sundry provisions	(54.4)	(68.2)	13.8
Net invested capital	15,139.4	14,684.3	455.1
Net assets held for sale	65.1	61.1	4.0
TOTAL NET INVESTED CAPITAL	15,204.5	14,745.4	459.1
Equity attributable to owners of the Parent	6,331.4	6,142.0	189.4
Equity attributable to non-controlling interests	25.9	27.1	(1.2)
Net debt	8,847.2	8,576.3	270.9
TOTAL	15,204.5	14,745.4	459.1

The €107.3 million increase in net non-current assets compared with 31 December 2022 primarily reflects a combination of the following:

• total capital expenditure of €314.9 million, as summarised below and described in detail in the section on "Regulated Activities";
• an increase of €8.3 million in financial assets, mainly due to an increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €4.5 million) and increased investment by the subsidiary Terna Forward S.r.l. (up €2.6 million) in the EnergyTech segment of CDP Venture Capital's Corporate Partner I fund;
• amortisation and depreciation for the period, totalling €186.8 million;
• other movements during the period, resulting in a reduction of €29.1 million, including grants related to assets (primarily in relation projects financed by Ministry of the Environment and Energy Security and the EU and the re-routing of power lines at the request of third parties) and disposals and impairment losses resulting in a reduction of €0.8 million.

The Terna Group's total capital expenditure during the first quarter of 2023, amounting to €314.9 million, is up 7.4% compared with the €293.3 million of the same period of 2022.

Net working capital (net current liabilities) of €2,398.8 million resulted in a cash outflow of €334.0 million compared with 31 December 2022. This reflects the combined effect of:

Cash outflows

• a reduction of €177.1 million in net trade payables, largely due to the increase in capital expenditure during the last part of the previous year;
• a reduction in net energy-related pass-through payables of €104.3 million, primarily reflecting the combined effect of:
• a decrease in net payables relating to essential plants for the security of the electricity system UESS (€123.2 million), reflecting items collected during the period after payments made in early 2023 to the owners of essential plants6 ;
• recognition of a net amount receivable from the Fund for Energy and Environmental Services (Cassa per i Servizi Energetici e Ambientali – CSEA) (€63.2 million), primarily due to the recovery of outstanding charges for 2022, paid during the quarter to providers of the interruptibility service;
• a reduction in amounts payable in connection with capacity payments (€46.1 million) due to the increased number of items relating to collection linked to peak electricity hours7 in the first quarter of 2023;

⁶ ARERA ordered payments to the owners of essential plants via resolutions 43-57-58-59/2023.

⁷ The term peak electricity hours refers to times of the year when there is a greater likelihood of the electricity system having inadequate capacity. For each year of performance of capacity market contracts, the unit charge applied to dispatching users for withdrawals during peak electricity hours is fixed on the basis of the ratio between 70% of the expected net charge for procuring capacity for the relevant year and the total estimated amount of energy withdrawals during peak hours.

partially offset by

• a reduction in net receivables (€330.9 million) linked to the Uplift component receivable in return for the procurement of energy on the Dispatching Services Market, reflecting a decrease in the cost of energy for dispatching purposes, above in DSM costs (a total reduction in payables at the end of the quarter of €233.9 million);
• an increase in net payables linked to the virtual import service (€30 million), following the application, from January 2023, of regulation "for differences", alternative to the standard regulation of the virtual import service provided for in Resolution 179/098 ;
• an increase in net receivables resulting from Regulated Activities of €74.8 million, primarily reflecting the recognition of the DSM incentive introduced by Resolution 597/2021 (as amended by Resolution 132/2022) for the first quarter of 2023, amounting to €54.99 million, relating to the three-year incentive scheme (2022-2024) designed to cut DSM costs and the shortfall in wind production and essential plants and an increase in amounts receivable for transmission services (€19.5 million) following the revision of tariffs;
• a reduction in other net liabilities of €88.2 million, primarily due to a reduction in guarantee deposits received from electricity market operators to guarantee the obligations undertaken regarding dispatching and virtual interconnection contracts (down €49.7 million), a decrease in dividends payable (down €18.5 million) and a reduction in amounts payable to shareholders as interest on the hybrid bond (down €17.9 million following the payment made in February 2023).

Cash inflows

• an increase of €110.4 million in net tax liabilities, broadly due an increase in the net amount payable in taxation (€88.3 million) and an increase in net VAT payable (€22.6 million), in keeping with the reduction in trade payables.

Gross invested capital thus amounts to €15,193.8 million, an increase of €441.3 million compared with 31 December 2022.

Sundry provisions are down €13.8 million, primarily due to:

• the net release of deferred tax assets (up €9.1 million), primarily due to the effect on taxation of movements in derivative financial instruments held by the Group, amortisation and depreciation and movements in provisions for risks and charges;
• net uses of provisions relating to quality of service (down €1.8 million) and to fund early retirement incentives (down €1.2 million).

Net assets held for sale, totalling €65.1 million at 31 March 2023, are up €4.0 million compared with 31 December 2022. This primarily reflects the reduction in trade payables after the change in the related net debt.

Total net invested capital, including assets held for sale, amounts to €15,204.5 million, marking an increase of €459.1 million compared with 31 December 2022. This is financed by equity attributable to owners of the Parent, totalling €6,331.4 million (compared with €6,142.0 million at 31 December 2022), equity attributable to non-controlling interests of €25.9 million (€27.1 million at 31 December 2022) and net debt of €8,847.2 million (up €270.9 million compared with the €8,576.3 million of 31 December 2022).

⁸ During the period when standard regulation is suspended, selected entities (those financing the interconnectors) can ask Terna to activate, on a monthly basis, alternative regulation, receiving from Terna the difference, if positive, between the SNP and the wholesale price on the overseas market for the quantity of electricity for which they are requesting activation of the service. ARERA Resolution 92/2023 has, from May 2023, restored the application of Resolution 179/09 to regulation of the virtual import service.

⁹ The sum of €54.9 million includes the portion relating to financial income from discounting, totalling €5.2 million, in view of the timing of collection under the Resolution.

Annexes

Debt

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

Gross debt at 31 March 2023 amounts to approximately €11 billion, consisting of approximately €7 billion in the form of bond issues and approximately €4 billion in bank borrowings. The average term to maturity of debt, which is almost all fixed rate, is approximately 5 years.

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

The main provider of Terna's bank loans is the European Investment Bank (EIB). Total borrowings from the EIB at 31 March 2023 amount to approximately €2.5 billion. Thanks to its strong credit ratings, Terna is able to obtain financing from banks on extremely good terms. In this regard, in March 2023, Terna agreed loans from the EIB of €900 million, yet to be drawn down. Finally, Terna also has access to two committed revolving credit facilities, amounting to approximately €3.2 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 early 2023.

The senior green bonds issued by Terna at 31 March 2023, under its €9,000,000,000 Euro Medium Term Notes (EMTN) programme amount to €2.6 billion, in addition to the perpetual, subordinated green bonds issued on a standalone basis in February 2022, amounting to €1 billion.

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.

Terna has also agreed a number of ESG-linked Credit Facilities, two sustainability-linked Revolving Credit Facilities and a Euro Commercial Paper (ECP) programme.

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 on sustainable finance.

Annexes

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 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%.

Net debt

The Group's net debt at 31 March 2023 amounts to €8,847.2 million, marking an increase of €270.9 million compared with 31 December 2022.

			(€m)
	31 MARCH 2023	31 DECEMBER 2022	CHANGE
NET DEBT (BY TERM TO MATURITY)
Total medium/long-term debt	8,143.9	8,588.4	(444.5)
- Bond issues	5,086.5	5,078.9	7.6
- Borrowings	2,899.6	3,337.8	(438.2)
- Derivative financial instruments	157.8	171.7	(13.9)
Total short-term debt/ (funds)	703.3	(12.1)	715.4
- Bond issues (current portions)	1,675.6	1,658.8	16.8
- Short-term borrowings	491.8	444.1	47.7
- Borrowings (current portions)	652.1	250.5	401.6
- Other current financial liabilities net	46.2	35.8	10.4
- Derivative financial instruments	(0.1)	0.6	(0.7)
- Financial assets	(344.8)	(246.8)	(98.0)
- Cash and cash equivalents	(1,817.5)	(2,155.1)	337.6
Total net debt	8,847.2	8,576.3	270.9
NET DEBT (BY TYPE OF INSTRUMENT)
- Bond issues	6,762.1	6,737.7	24.4
- Borrowings	3,551.7	3,588.3	(36.6)
- Short-term borrowings	491.8	444.1	47.7
- Derivative financial instruments	157.7	172.3	(14.6)
- Other financial liabilities, net	46.2	35.8	10.4
GROSS DEBT	11,009.5	10,978.2	31.3
- Financial assets	(344.8)	(246.8)	(98.0)
- Cash and cash equivalents	(1,817.5)	(2,155.1)	337.6
Total net debt	8,847.2	8,576.3	270.9
Net debt attributable to net assets held for sale	(14.3)	(17.9)	3.6

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

• an increase in bond issues of €24.4 million, primarily following adjustment of the amortised cost of the bonds;
• a decrease in borrowings of €36.6 million, primarily as a result of repayments of existing bank loans;
• an increase in short-term borrowings (€47.7 million), essentially due to the Parent Company's drawdown of amounts under short-term credit facilities;
• a decrease in the fair value of derivative financial instruments (down €14.6 million), primarily due to movements in the derivatives held and in market interest rates;
• an increase in other net financial liabilities (up €10.4 million), essentially due to the recognition of accrued interest on financial products;
• an increase in financial assets (€98.0 million), following an increase in Italian government securities held;
• a decrease in cash and cash equivalents of €337.6 million. Cash amounts to €1,817.5 million at 31 March 2023, including €1,615.6 million invested in short-term, readily convertible deposits and €201.9 million held in bank current accounts and in the form of cash in hand.

Net debt attributable to assets held for sale, amounting to €14.3 million at 31 March 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 €3.2 million and cash and cash equivalents of approximately €11.1 million. The change of €3.6 million compared with 31 December 2022 reflects reductions in the short-term portion of investment in infrastructure operated under concession in Brazil, recognised in application of IFRIC 12 and in cash and cash equivalents.

Annexes

Terna's shares

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 March 2023, the share price has risen 345% (a capital gain), providing a Total Shareholder Return (TSR10) of 1,086%, ahead of both the Italian market (the FTSE MIB, up 89%) and the relevant European sector index (DJ Stoxx Utilities), which has risen 319%.

Europe's leading stock markets rose during the first quarter of 2023. Milan gained 14.4%, Paris and Frankfurt 13.1% and 11.9%, respectively, whilst Madrid rose 12.2% and London 2.4%.

Terna's shares closed the quarter in positive territory at €7.566, having risen 9.7% compared with 31 December 2022 and outperforming the relevant European sector index (DJ Stoxx Utilities), which rose 6.8%. The daily average volume traded during the period amounted to approximately 3.4 million. The share price reached a high for the first quarter of €7.694 on 29 March 2023.

¹⁰ 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.

Annexes

Weighting of Terna's Shares

	28 FEBRUARY 2023	Q1 2022
> on the FTSE MIB	2.33%	2.57%

Source: Borsa Italiana.

Ratings

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

Terna's long-term ratings, unchanged with respect to 31 December 2022, are one notch above Italy's sovereign rating.

Outlook

2023 will see the Group continue to focus on delivering on the updated 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 rapidly rising interest rates, in addition to the geopolitical problems resulting from the prolonged conflict between Russia and Ukraine and continued tensions in the commodity markets, which 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 Group's most important investment projects, work is progressing on the Tyrrhenian Link, with consent for the East Link, due to connect Campania with Sicily, already received in 2022 and the consents process for West Link, connecting Sicily and Sardinia, formally initiated. This latter consent is expected to be received by the end of 2023. At the end of 2022, the consents process for the Adriatic Link, the new submarine cable that will connect the Abruzzo and Marche regions, was launched. The principal NTG assets due to enter service in 2023 include the interconnection with France and the submarine connection between Elba and the mainland.

Work on the reorganisation of electricity grids in metropolitan areas will also continue during the year, primarily involving the renewal of existing infrastructure with new technologically advanced connections meeting the highest standards in terms of environmental sustainability.

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

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).

With regard to Non-regulated Activities, 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.

Annexes

In terms of International Activities, the strategic assessment of further opportunities in overseas markets, focusing above all on the US market, will continue. This may take the form of partnerships and will involve the careful selection of projects with a view to ensuring a low risk profile and avoiding the need to tie up large amounts of capital. In addition, as regards the assets being sold, the process of selling the Peruvian assets will continue, with a sale expected to be completed in the first half of 2023, whilst work on the construction of the Linha Verde I power line in Brazil will continue.

In line with the approach adopted in 2022, 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 optimising the working environment.

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 above all those designed to further increase the efficiency of the electricity system, is confirmed that Terna expects revenue for 2023 to be €3.11 billion, EBITDA to be €2.12 billion and an EPS of €0.43. With specific reference to the Investment Plan, due to total €10 billion over the five years from 2021 to 2025, 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 ensure a sound, balanced financial structure.

Declaration

of the manager responsible for financial reporting pursuant to paragraph 2 of article 154-bis of Legislative Decree 58/1998

The manager responsible for financial reporting, Agostino Scornajenchi, declares, pursuant to paragraph 2 of article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this Consolidated Interim Financial Report for the three months ended 31 March 2023 is consistent with the underlying accounting records.

Alternative performance measures (APMs) 46 Other information 47

3 Annexes

CONSOLIDATED INTERIM FINANCIAL REPORT AT 31 MARCH 2023 | TERNA GROUP 45

Alternative performance measures (APMs)

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

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

Other information

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

Treasury shares

The Parent Company holds a total of 4,375,909 treasury shares (equal to 0.218% of the share capital). These shares were purchased in implementation of three 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, and (iii) the Performance Share Plan 2022-2026, in the period between 27 May 2022 and 13 June 2022. The Company does not hold any additional treasury shares other than those purchased under the above programmes, including through subsidiaries11.

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 quarter of 2023.

Related party transactions

Information on related party transactions is provided in the Annual Report for the year ended 31 December 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 for the year ended 31 December 2022.

¹¹ In this regard, see the press releases published on 10 August 2020, 28 June 2021 and 13 June 2022 available at the following links: https://download.terna.it/terna/2020.08.10_CS%20TERNA%20operazioni%20su%20azioni%20proprie%20CHIUSURA%20 ITA__8d83d42cfd43cb6.pdf https://www.terna.it/it/media/comunicati-stampa/dettaglio/operazioni-su-azioni-proprie-conclusione-programma https://www.terna.it/it/media/comunicati-stampa/dettaglio/concluso-programma-acquisto-azioni-proprie

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