Terna — Investor Presentation 2016

Feb 17, 2016

Delivery and Growth

CATIA BASTIOLI CHAIRWOMAN

MATTEO DEL FANTE CHIEF EXECUTIVE OFFICER

PIERPAOLO CRISTOFORI CHIEF FINANCIAL OFFICER

Agenda

OVERVIEW

2016-2019 STRATEGIC PLAN 88

FINAL REMARKS

The environment ahead of us Key Trends

Efficient use of resources

Circular economy

CO2 reduction

Transport sector electrification

Economy decarbonization 2030 A global deadline

COP21

United Nations Sustainable Development Goals

Towards high standards for a reduced environmental impact

What Terna has done so far

Main Achievements

Replacement of old lines

• higher integration of renewables
• reduction in soil consumption
• 600km of old lines removed in the last 6 years

Reduced Emissions

A reduction¹ of 15 mn tons of CO² emissions expected yearly thanks to investments included in the National Development Plan

Maximize energy efficiency

Dispatching optimization Recycle materials used for investments and maintenance of the Grid

Reduction of service costs

R&D as a catalyst for innovation, contributing to value creation

Open approach to innovation leveraging also on external resources and partnerships

What's next in Corporate Governance

Agenda

OVERVIEW

2016-2019 STRATEGIC PLAN

FINAL REMARKS

European electricity market trends

A New Role for the Transmission System Operator

A technology frontrunner through innovation

Italian electricity market trends

Execution Excellence

Strong delivery in 2015

A solid base for the future

Delivery and Growth

THE NEW ENVIRONMENT

4 years regulatory visibility 4 years Plan period

Change in perimeter due to RHV Grid acquisition

A NEW FOCUS ON CORE BUSINESS

A stronger asset base to start from

• Shorter Time-lag
• RHV Grid

+1.6€bn RAB

effect

• A new wave of growth low risk profile
• RHV Grid capex integration
• Capex acceleration in domestic regulated

Opex efficiency

Higher visibility with

The New Framework

STRATEGIC MATRIX

	REGULATED Capex Driven	NON – REG Capital Light
DOMESTIC	Integration of RHV Grid Project delivery acceleration	Services Interconnectors Tamini
INTERNATIONAL	New Approach	EPC

Sustainable growth focused on value creation

2016-2019 Key Targets – Capital Allocation and Results

EPS CAGR 2016-2019 ∼3% Free Cash Flow 2€bn cumulated Net Debt reduction starting from 2018/2019

Regulated Capex Plan 2016-2019

Capex plan build-up due to:

• RHV Grid Acquisition, requiring investments for overall network connection
• Acceleration program in accordance with the new regulatory schedule

CAPEX

Grid Expansion – Integration of RHV Grid

Capex 2016-2019: ∼300€mn o/w 70% for integration within Terna's grid €mn 0 40 80 120 2016 2017 2018 2019 2020 Integration Renewal & Other

EFFICIENCY TARGETS

Operational Activities Optimization

Insourcing & synergies on top of allowed opex

Headcount for O&M:

• rationalization from current ∼400* to less than 200 incremental headcount

EPS accretion starting from 2017

Regulated Capex Plan 2016-2019

WIP 2016-2019 mostly below the regulatory Cap

(equal to stock WIP at 2015YE net of Sorgente-Rizziconi: ∼1.4€bn)

Grid Expansion

TARIFF RAB EVOLUTION

.

Non Regulated - Capital Light

DIVERSIFIED PORTFOLIO ALREADY CONTRACTED

Based on our Core Capabilities

International Growth Our Approach

ENGAGEMENT RULES CAPITAL ALLOCATION CRITERIA

No change in Group's risk profile

Savings on Regulated Opex (excl. RHV Grid)

Total headcount ∼3,400 in 2019 (∼3,600 incl. RHV Grid )

Further effort on Cost Saving vs Old Plans

Group Targets P&L

BOTTOM LINE

EPS CAGR 2016-2019 ∼3%

Summary Targets Free Cash Flow

NET DEBT AND CASH FLOW CUMULATED 2016-2019

Net Debt reduction from 2018/2019

Maintain a solid financial structure

• Average kd in the period ∼2%
• Average Net Debt/RAB at 58%

MAIN FINANCIAL RATIO UNDER THE RADAR OF RATING AGENCIES

Preliminary 2015 and Guidance 2016

	FY2015		FY2016
	Guidance	Preliminary1	Guidance
REVENUES	~ 2.05 €bn	> 2.07 €bn	2 ~ 2.09 €bn
EBITDA	~ 1.52 €bn	> 1.53 €bn	~ 1.52 €bn
CAPEX	~ 1.0 €bn	~ 1.1 €bn	~ 0.9 €bn
EPS			~ 28 €cents
Net Debt		~ 8.0 €bn

Dividend Policy Consistent and Sustainable

CAGR 2015-2019 +3% starting from DPS 2015

Consistent with EPS and RAB evolution

Sustainable implied payout ratio: <75% at the end of the Plan period

Agenda

OVERVIEW

2016-2019 STRATEGIC PLAN

Final Remarks

Low Risk Profile and Solid Cash flow

Solid Cash flow to serve yield and growth

THANK YOU. QUESTIONS?

Matteo Del Fante Chief Executive Officer Pierpaolo Cristofori Chief Financial Officer

Disclaimer Notes

SUBSIDIARIES. CONTENT OF THIS DOCUMENT HAS A MERELY INFORMATIVE AND PROVISIONAL NATURE AND THE STATEMENTS CONTAINED HEREIN HAVE NOT BEEN INDEPENDENTLY VERIFIED. NEITHER THE COMPANY NOR ANY OF ITS REPRESENTATIVES SHALL ACCEPT ANY LIABILITY WHATSOEVER (WHETHER IN NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY FROM THE USE OF THIS DOCUMENT OR ITS CONTENTS OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT OR ANY MATERIAL DISCUSSED DURING THE PRESENTATION. THIS DOCUMENT MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON. THE INFORMATION CONTAINED HEREIN AND OTHER MATERIAL DISCUSSED AT THE CONFERENCE CALL MAY INCLUDE FORWARD-LOOKING STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT THE COMPANY'S BELIEFS AND EXPECTATIONS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES, PROJECTIONS AND PROJECTS, AND CANNOT BE INTERPRETED AS A PROMISE OR GUARANTEE WHATSOEVER NATURE. HOWEVER, FORWARD-LOOKING STATEMENTS INVOLVE INHERENT RISKS AND UNCERTAINTIES AND ARE CURRENT ONLY AT THE DATE THEY ARE MADE. WE CAUTION YOU THAT A NUMBER OF FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND PROVISIONS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO: TRENDS IN COMPANY'S BUSINESS, ITS ABILITY TO IMPLEMENT COST-CUTTING PLANS, CHANGES IN THE REGULATORY ENVIRONMENT, DIFFERENT INTERPRETATION OF THE LAW AND REGULATION, ITS ABILITY TO SUCCESSFULLY DIVERSIFY AND THE EXPECTED LEVEL OF FUTURE CAPITAL EXPENDITURES. THEREFORE, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. TERNA DOES NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN TERNA'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGES IN EVENTS. EXECUTIVE IN CHARGE OF THE PREPARATION OF ACCOUNTING DOCUMENTS "PIERPAOLO CRISTOFORI" DECLARES, PURSUANT TO PARAGRAPH 2 OF ARTICLE 154-BIS OF THE CONSOLIDATED LAW ON FINANCE, THAT THE ACCOUNTING INFORMATION CONTAINED IN THIS PRESENTATION, FOR WHAT CONCERNS THE ACTUAL FIGURES, CORRESPONDS TO THE DOCUMENT RESULTS, BOOKS AND ACCOUNTING RECORDS. THE SORGENTE-RIZZICONI PROJECT AND THE ITALY-FRANCE INTERCONNECTION ARE CO-FINANCED BY THE EUROPEAN UNION'S EUROPEAN ENERGY PROGRAMME FOR RECOVERY PROGRAMME. THE SOLE RESPONSIBILITY OF THIS PUBLICATION LIES WITH THE	MAY	IT BE INTERPRETED AS AN OFFER OR INVITATION TO SELL OR PURCHASE ANY SECURITY ISSUED BY THE COMPANY OR ITS
	THE
	OR
	OF

Disclaimer Notes

SUBSIDIARIES. CONTENT OF THIS DOCUMENT HAS A MERELY INFORMATIVE AND PROVISIONAL NATURE AND THE STATEMENTS CONTAINED HEREIN HAVE NOT BEEN INDEPENDENTLY VERIFIED. NEITHER THE COMPANY NOR ANY OF ITS REPRESENTATIVES SHALL ACCEPT ANY LIABILITY WHATSOEVER (WHETHER IN NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY FROM THE USE OF THIS DOCUMENT OR ITS CONTENTS OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT OR ANY MATERIAL DISCUSSED DURING THE PRESENTATION. THIS DOCUMENT MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON. THE INFORMATION CONTAINED HEREIN AND OTHER MATERIAL DISCUSSED AT THE CONFERENCE CALL MAY INCLUDE FORWARD-LOOKING STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT THE COMPANY'S BELIEFS AND EXPECTATIONS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES, PROJECTIONS AND PROJECTS, AND CANNOT BE INTERPRETED AS A PROMISE OR GUARANTEE WHATSOEVER NATURE. HOWEVER, FORWARD-LOOKING STATEMENTS INVOLVE INHERENT RISKS AND UNCERTAINTIES AND ARE CURRENT ONLY AT THE DATE THEY ARE MADE. WE CAUTION YOU THAT A NUMBER OF FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND PROVISIONS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO: TRENDS IN COMPANY'S BUSINESS, ITS ABILITY TO IMPLEMENT COST-CUTTING PLANS, CHANGES IN THE REGULATORY ENVIRONMENT, DIFFERENT INTERPRETATION OF THE LAW AND REGULATION, ITS ABILITY TO SUCCESSFULLY DIVERSIFY AND THE EXPECTED LEVEL OF FUTURE CAPITAL EXPENDITURES. THEREFORE, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. TERNA DOES NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN TERNA'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGES IN EVENTS. EXECUTIVE IN CHARGE OF THE PREPARATION OF ACCOUNTING DOCUMENTS "PIERPAOLO CRISTOFORI" DECLARES, PURSUANT TO PARAGRAPH 2 OF ARTICLE 154-BIS OF THE CONSOLIDATED LAW ON FINANCE, THAT THE ACCOUNTING INFORMATION CONTAINED IN THIS PRESENTATION, FOR WHAT CONCERNS THE ACTUAL FIGURES, CORRESPONDS TO THE DOCUMENT RESULTS, BOOKS AND ACCOUNTING RECORDS. THE SORGENTE-RIZZICONI PROJECT AND THE ITALY-FRANCE INTERCONNECTION ARE CO-FINANCED BY THE EUROPEAN UNION'S EUROPEAN ENERGY PROGRAMME FOR RECOVERY PROGRAMME. THE SOLE RESPONSIBILITY OF THIS PUBLICATION LIES WITH THE	MAY	IT BE INTERPRETED AS AN OFFER OR INVITATION TO SELL OR PURCHASE ANY SECURITY ISSUED BY THE COMPANY OR ITS
	THE
	OR
	OF

Disclaimer

THIS DOCUMENT HAS BEEN PREPARED BY TERNA S.P.A. (THE "COMPANY") FOR THE SOLE PURPOSE DESCRIBED HEREIN. IN NO CASE MAY IT BE INTERPRETED AS AN OFFER OR INVITATION TO SELL OR PURCHASE ANY SECURITY ISSUED BY THE COMPANY OR ITS SUBSIDIARIES.

THE CONTENT OF THIS DOCUMENT HAS A MERELY INFORMATIVE AND PROVISIONAL NATURE AND THE STATEMENTS CONTAINED HEREIN HAVE NOT BEEN INDEPENDENTLY VERIFIED. NEITHER THE COMPANY NOR ANY OF ITS REPRESENTATIVES SHALL ACCEPT ANY LIABILITY WHATSOEVER (WHETHER IN NEGLIGENCE OR OTHERWISE) ARISING IN ANY WAY FROM THE USE OF THIS DOCUMENT OR ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT OR ANY MATERIAL DISCUSSED DURING THE PRESENTATION.

THIS DOCUMENT MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON. THE INFORMATION CONTAINED HEREIN AND OTHER MATERIAL DISCUSSED AT THE CONFERENCE CALL MAY INCLUDE FORWARD-LOOKING STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT THE COMPANY'S BELIEFS AND EXPECTATIONS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES, PROJECTIONS AND PROJECTS, AND CANNOT BE INTERPRETED AS A PROMISE OR GUARANTEE OF WHATSOEVER NATURE.

HOWEVER, FORWARD-LOOKING STATEMENTS INVOLVE INHERENT RISKS AND UNCERTAINTIES AND ARE CURRENT ONLY AT THE DATE THEY ARE MADE. WE CAUTION YOU THAT A NUMBER OF FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND PROVISIONS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO: TRENDS IN COMPANY'S BUSINESS, ITS ABILITY TO IMPLEMENT COST-CUTTING PLANS, CHANGES IN THE REGULATORY ENVIRONMENT, DIFFERENT INTERPRETATION OF THE LAW AND REGULATION, ITS ABILITY TO SUCCESSFULLY DIVERSIFY AND THE EXPECTED LEVEL OF FUTURE CAPITAL EXPENDITURES. THEREFORE, YOU SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. TERNA DOES NOT UNDERTAKE ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN TERNA'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGES IN EVENTS.

EXECUTIVE IN CHARGE OF THE PREPARATION OF ACCOUNTING DOCUMENTS "PIERPAOLO CRISTOFORI" DECLARES, PURSUANT TO PARAGRAPH 2 OF ARTICLE 154-BIS OF THE CONSOLIDATED LAW ON FINANCE, THAT THE ACCOUNTING INFORMATION CONTAINED IN THIS PRESENTATION, FOR WHAT CONCERNS THE ACTUAL FIGURES, CORRESPONDS TO THE DOCUMENT RESULTS, BOOKS AND ACCOUNTING RECORDS.

THE SORGENTE-RIZZICONI PROJECT INTERCONNECTION IS CO-FINANCED BY THE EUROPEAN UNION'S EUROPEAN ENERGY PROGRAMME FOR RECOVERY PROGRAMME. THE SOLE RESPONSIBILITY OF THIS PUBLICATION LIES WITH THE AUTHOR. THE EUROPEAN UNION IS NO RESPONSIBLE FOR ANY USE THAT MAY BE MADE OF THE INFORMATION CONTAINED THEREIN.