Terna — Investor Presentation 2019

Mar 21, 2019

Agenda

Global Trend	3
Scenario	7
Strategy	13
FY 2018 Results	28
2019 – 2023 Group Targets	35
Dividend Policy and Closing Remarks	40
Annexes	43

Global Trend

Major worldwide environmental problems

Greenhouse gases emissions are destroying the Earth's climate equilibrium

• CO2 concentrations are 145% of pre-industrial levels
• Increasing global temperature could destroy ecosystems on around 13% of the world's land area
• 2015 Paris Agreement sets out a global action plan to avoid dangerous climate change
• Exceeding the 1.5°C threshold will cause severe risks for our planet according to 2018 IPCC report

Health of soils and waters increasingly at risk

• About 50% of worldwide lubricants is left in the environment
• The use of herbicides has become unsustainable for ecosystems
• Every year around 300 million tons of plastic are produced:
• 12 million tons are thrown into the sea
• 78 million tons are packaging
• Less that 14% of plastic packaging is recycled

Global Trend

Terna's Sustainable Management Approach

Pillars	KPIs
Human Resources	▪ Safety Index ▪ Employees with performance valuation (%) ▪ Employees with digital competences (n.) ▪ Health & Safety training for operative employees (%)	≤1 Plan period 85% at 2020 700 at 2020 100% at 2021
Local and central stakeholders	▪ Local Stakeholders: change of sentiment (%)	+15% in 2019 (vs 2018)
Integrity, responsibility, transparency	▪ Suppliers with ISO 14001 and OHSAS 18001 certifications (%) ▪ Green Capex (% of '19-'23 cumulated capex)	100% from 2020 Over 20%
	▪ Incidence of SF6 leakages (%)	0.45% from 2020
Environment	▪ Km of new underground and undersea lines (% on total '19-'23 new lines)	~60%
	Environmental, Social and Governance risk mitigation

Global Energy Trends – Demand and Generation evolution

Increasing electricity demand and RES generation…

Source: World Energy Outlook 2018 (IEA) and internal elaborations Note: Electricity demand equals total generation minus own use and transmission and distribution losses

Global Energy Trends – Power Sector Investments up until 2040

…imply higher capex on infrastructures

Italy

CONVENTIONAL THERMAL INSTALLED CAPACITY² RESERVE MARGIN³

Increasing challenges for the system

Source: Terna, 2018 provisional data * "Piano Nazionale Integrato per l'Energia e il Clima" estimates

• 1. 2018 provisional data. Including Hydro
• 2. Net thermal capacity (including geothermal)
• 3. Reserve Margin in stressed conditions = Available Capacity in stressed conditions - Demand in stressed conditions

Key pillars for the system's management

Playing a leading role for a sustainable energy transition…

International

Playing a leading role in energy transition

Developing value-added solutions

Leveraging Terna's industrial know-how

Domestic Regulated

Domestic Non Regulated

People

Innovation & Digitization Enabling energy transition

Strengthening core competences and innovation openness

ENABLING FACTORS

Strategy Domestic Regulated: playing a leading role in energy transition (1/3) STRATEGY	ACTIONS
Grid reinforcement	Further acceleration of investments driven by growing system needs
Manage system complexity	Play a proactive role in system design and roll-out
Enhance core competences	Optimize project control and guarantee process efficiency
Caring local communities	Establish proactive and effective relationships with local stakeholders

Focus on core business leveraging the interaction with local communities

Domestic Regulated: playing a leading role in energy transition (2/3)

Highest Capex Plan ever

1. Net of EU contributions 2. Calendar RAB including WIP Note: RAB inflation at 1.3% on average during plan period

Domestic Regulated: playing a leading role in energy transition (3/3)

CATEGORY	CUMULATED CAPEX	MAIN PROJECTS
Development	~3.3 €bn	▪ SA.CO.I 3 ▪ Critical areas debottlenecking ▪ Rationalization of major Metropolitan Areas
Asset Renewal and Efficiency	~2.2 €bn	▪ Quality of Service increase ▪ Digitization of the grid
Defence	~0.9 €bn	▪ Synchronous compensators ▪ Dispatching processes improvement ▪ Grid stabilization devices
Strong focus on security, resiliency and quality of service

Domestic Regulated: focus on Main Development Projects Strategy

Reliable Capex Plan

Domestic Non Regulated: developing value added solutions (1/2)

STRATEGY	ACTIONS
Energy Solutions Provider	Develop high value-added services leveraging digitization
Connectivity	Pursue new business opportunities based on dark fiber infrastructure
Tamini	Developing high value-added technologies and strengthening profitability

Innovative services to support core activities

Milan, March 21st 2019

Domestic Non Regulated: developing value added solutions (2/2) Strategy

Robust EBITDA generation

International: leveraging Terna's industrial know-how (1/3)

STRATEGY	ACTIONS
Europe	Active role on governance at EU level
LatAm	Completion of existing projects leveraging core skills
Other Geographies	Consulting services, technical assistance and Capital light activities with high value-added

Exploiting of core skills abroad

International: leveraging Terna's industrial know-how (2/3)

IN OPERATION

• October 2018: commissioning of the first of the two lines in Brazil (fully operational two months ahead of schedule)
• Line located in Rio Grande do Sul, in Southeastern Brazil: 230 kV line of 158 km
• Strategic for integrating renewable sources in the southern part of the Country
• Further 500 kV 350 Km line to be completed by 2Q 2019

International: execution on track

International: leveraging Terna's industrial know-how (3/3)

IN EXECUTION		TO BE IDENTIFIED
Brazil	▪ Second line in Mato Grosso, in Central Brazil ▪ 500 kV, 350 km	2019-2023 Cumulated Capex
Uruguay	▪ BOT concession ▪ > 200 km ▪ P&L full contribution from 2020 (on PBT)	Lower than 300 €mn
Perù	▪ BOOT concession ▪ > 130 km ▪ P&L full contribution from 2021
	EBITDA	150 €mn cumulated in 5 years*

Low capital absorption and low risk profile

Enabling Factors – Innovation & Digitization

Enabling Factors – People Strategy

HR STRATEGIC PRIORITIES MAIN PROJECTS

Learning & Recruiting to close skills gap

Quantify Skills & Mobilize Talents

Engagement & Welfare

HR Digitization

• Focus on Safety
• Employer branding & Talent Attraction
• Skills mapping
• Excellence centers
• Smart working
• Welfare for our People

▪ Digital Academy

▪ Talent Management platform

Coping with new scenarios: transforming Terna and upskilling people

Projects execution as a key driver

Guidance 2019 and 2023 Strategy

	FY 2018	FY 2019	FY 2023	2023 vs 2018
€bn	Actual	Guidance	Guidance	∆%
Revenues	~ 2.2	~ 2.3	~ 2.7	+ 23%
EBITDA	~ 1.65	~ 1.72	~ 2.0	+ 21%
Capex1	~ 1.1	~ 1.2	~ 6.8 Cumulated 2019-2023
EPS €cents	~ 35	~ 36	~ 42

Solid growth during the Plan period

FY 2018 results Key Numbers

	FY 2018		FY 2017	Δ FY17 vs
€mn	Actual	Guidance
Revenues	2,197	~ 2.20	2,163	+2%
EBITDA	1,651	~ 1.61	1,604	+3%
Group Net Income1	707		688	+3%
EPS2	35	~ 34	34
Capex	1,091	~ 1.1	1,034	+6%
Net Debt	7,899		7,796

Capex acceleration delivered and Net Debt under control

Revenues FY 2018 results

Higher contribution from Regulated, Insourcing attività di O&M Rete FS Tamini and International

Costs FY 2018 results

€mn NON REGULATED AND INTERNATIONAL

Keeping cost discipline Insourcing attività di O&M Rete FS

EBITDA FY 2018 results

NON REGULATED AND INTERNATIONAL

€mn

EBITDA increase driven by domestic regulated activities Insourcing attività di O&M Rete FS

From EBITDA to Net Income FY 2018 results

€mn

Robust shareholders value creation

FY 2018 results Cash Flow & Net Debt Evolution

Strong cash flow generation to support Capex plan

Regulatory Assumptions 2019 – 2023 Group Targets

P&L 2019 – 2023 Group Targets

EPS CAGR >3%

Operational Efficiency 2019 – 2023 Group Targets

Increasing efficiency level

2019 – 2023 Group Targets Financial Efficiency and Financial Structure

▪ Average Cost of Net Debt 2019-2023 @ 1.6% back end loaded

• Gross Debt as of YE 2018 @ 100% Fix rate
• Net Debt / RAB <60% over the Plan¹
• Average Duration in line with previous year

RATING
		Terna		Sovereign
	Rating	Outlook	Rating	Outlook
S&P	BBB+	Negative	BBB	Negative
Moody's	Baa2	Stable	Baa3	Stable
Fitch	BBB+	Stable	BBB	Negative

Robust financial structure

Dividend Policy and Closing Remarks

Dividend Policy

€ cents

Enhancing shareholders value

Closing Remarks

Domestic Regulated: focus on execution

Domestic Non Regulated: value added solutions

International: leveraging on Terna's core competences

Operational efficiencies: driven by digitization

Financial Structure: rock-solid structure with strong ratios

Dividend Policy: value creation for shareholders

Energizing a valuable future

Strategic Annexes

2019 Total Grid Fee update*

Financial Annexes (1/5)

FY 2018 results - Consolidated Income Statement¹

€ mn	FY18	3 FY17	Δmn	Δ %
Total Revenue	2,197	2,163	34	1.6%
Regulated Activities	1,990	1,967	22	1.1%
Transmission	1,789	1,804	-15	-0.8%
Dispatching	143	112	31	27.9%
2 Other	32	31	1	4.2%
IFRIC12	26	21	4	20.9%
Non Regulated Activities	195	189	6	3.1%
International Activities	13	7	6	92.3%
Total Costs	546	559	-13	-2.2%
Regulated Activities	403	426	-22	-5.3%
Labour Costs	203	218	-14	-6.6%
External Costs	156	155	1	0.5%
2 Other	19	32	-13	-41.4%
IFRIC12	26	21	4	20.9%
Non Regulated Activities	134	127	8	6.1%
International Activities	9	7	2	32.8%
EBITDA	1,651	1,604	47	2.9%
D&A	554	527	28	5.2%
EBIT	1,097	1,077	19	1.8%
Net Financial Charges	89	89	0	0.0%
Pre Tax Profit	1,008	989	19	1.9%
Taxes	296	294	2	0.6%
Tax Rate (%)	29.4%	29.8%	-0.4 pp
Total Net Income	712	694	17	2.5%
Minority Interest	5	6	-1	-15.3%
Group Net Income	707	688	18	2.7%

2. Including Quality of Service

Financial Annexes (2/5)

FY 2018 results - P&L Quarterly Analysis

€ mn	1Q18	1 1Q17	Δ	2Q18	1 2Q17	Δ	3Q18	3Q17	1 Δ	4Q18	1 4Q17
Total Revenue	538	524	14	542	522	20	546	525	21	572	592
Regulated Activities	488	490	-2	492	477	14	501	490	11	509	510
Transmission	451	451	1	447	444	3	450	453	-3	441	457
Dispatching	29	29	0	31	27	5	43	29	14	40	27
2 Other	5	8	-4	10	4	7	3	4	-2	15	15
IFRIC12	3	2	1	3	3	0	6	4	1	14	11
Non Regulated Act.	47	34	13	47	44	3	44	34	10	57	77
3 International Activities	3	0	3	2	0	2	1	1	0	7	5
Total Costs	129	121	7	137	130	7	129	113	17	152	196
Regulated Activities	95	93	2	99	97	2	94	82	12	115	154
Labour Costs	54	53	0	55	54	1	48	46	1	48	65
External Costs	34	31	3	37	35	2	34	30	4	50	59
2 Other	4	7	-3	4	5	-1	6	1	5	4	19
IFRIC12	3	2	1	3	3	0	6	4	1	14	11
Non Regulated Act.	32	27	5	36	32	4	33	29	4	33	39
International Activities	2	1	1	2	1	1	2	2	1	3	3
EBITDA	409	403	7	405	392	13	416	412	4	421	397
D&A	133	130	2	135	131	4	133	129	3	154	137
EBIT	277	273	4	270	261	8	284	283	0	267	260
Net Financial Charges	25	21	4	17	19	-2	25	29	-4	22	21
Pre Tax Profit	252	252	0	253	242	10	258	254	4	245	240
Taxes	69	74	-5	74	70	4	76	78	-2	78	72
Tax Rate (%)	27.2%	29.2%	-2.0%	29.4%	29.0%	0.4%	29.2%	30.6%	-1.4%	31.9%	30.2%
Total Net Income	184	179	5	178	172	6	183	177	6	167	167
Minority Interest	1	-1	2	1	0	1	2	-1	3	2	8
Group Net Income	183	179	3	178	172	5	181	178	4	165	159

1. Unaudited Managerial Accounting

2. Including Quality of Service

3. Construction margin, including IFRIC 12

Financial Annexes (3/5)

FY 2018 results - Consolidated Balance Sheet

€ mn	Dec. 31,2018	Dec. 31,2017	Δmn
PP&E	13,244	12,753	492
Intangible Asset	519	506	14
Financial Inv. and Other	320	208	112
Total Fixed Assets	14,084	13,466	617
Net WC	-1,822	-1,485	-337
Funds	-308	-356	48
Net Capital Invested	11,954	11,625	328
Financed by:
Consolidated Net Debt	7,899	7,796	103
Total Shareholder's Equity	4,054	3,829	225
Total	11,954	11,625	328
D/E Ratio	1.9	2.0
D/D+E Ratio	0.7	0.7
Number of Shares (mn)	2,010	2,010

Financial Annexes (4/5)

FY 2018 results - Consolidated Cash Flow

€ mn	FY18
Total Net Income	712
1 D&A	551
Net Change in Funds	-48
Operating Cash Flow	1,214
2 Δ Working Capital & Other	261
Cash Flow from Operating Activities	1,474
Capital Expenditures	-1,091
Free Cash Flow to Equity	383
3 Dividends & Equity	-486
Change in Net Cash (Debt)	-103

Financial Annexes (5/5)

FY 2018 results - Capex

€ mn	FY173	FY18	Δ mn	Δ %
Incentivized Investments1	123	100	-23	-19%
Other Regulated	840	889	49	6%
Regulated Capex	963	989	25	3%
2 Other	71	103	0 32	45%
Total Group Capex	1,034	1,091	57	6%

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