Terna — Management Reports 2022

Mar 24, 2022

TERNA APPROVES THE UPDATE OF THE 2021-2025 INDUSTRIAL PLAN "DRIVING ENERGY"

FURTHER CAPEX ACCELERATION: €10 BILLION FOR THE ENERGY TRANSITION AND THE COUNTRY'S DEVELOPMENT

STRATEGY CENTRED ON INFRASTRUCTURE DEVELOPMENT, INTEGRATION OF RENEWABLE SOURCES, STORAGE SYSTEMS AND CROSS-BORDER INTERCONNECTIONS

REVENUES AT €3.08 BILLION IN 2025

EBITDA OF €2.14 BILLION IN 2025

DIVIDEND POLICY CONFIRMED

Rome, 24 March 2022 – Terna S.p.A.'s Board of Directors, chaired by Valentina Bosetti, met today to examine and approve the update of the 2021-2025 Industrial Plan "Driving Energy", presented by the Company's Chief Executive Officer, Stefano Donnarumma.

With total capex of €10 billion, Terna is accelerating its commitment to the Country's energy transition, energy independence and decarbonisation. The Company will strengthen its role in driving the Italian electricity system, in accordance with the challenging objectives set in the National Integrated Energy and Climate Plan ("PNIEC") and the targets in the EU's Green Deal, which aim to cut at least 55% greenhouse gas emissions by 2030.

The key driver in the 2021-2025 Industrial Plan is sustainable investment, a concept embedded in the Company's value creation process and in the benefits for the system and the environment. Terna's capital expenditure, 99% of which is classified as sustainable, based on the eligibility criterion introduced by the EU Taxonomy, targets the development of renewable sources, with

transmission backbones to transport energy from points of production, increasingly located in Italy's southern regions, to where demand is highest in the north of the Country. This will be made possible by resolving existing issues caused by grid congestion and further development of cross-border interconnections. In this regard, Terna has plans to build new interconnectors with France, Austria, Tunisia and Greece. These will join the 26 existing cross-border power lines and will enable Italy, thanks to its strategic geographical location, to reinforce its role as a European and Mediterranean electricity transmission hub, becoming a leading player at international level.

The ambitious decarbonisation goals set in the European Green Deal require the installation of approximately 60-70 GW of wind and photovoltaic capacity by 2030. This will increase to 65% the proportion of gross electricity consumption met by renewables sources. A key to achieving this will be the accelerated deployment of renewable energy plants, including offshore, simplifying as much as possible the authorisation processes. As set out in the PNIEC, it will also be necessary to step up the development of hydroelectric and electrochemical storage systems to provide approximately 10 GW of additional capacity by 2030.

Redefinition and rationalisation of the scope of the Company's transmission activities will also play an important role, entailing a shift in the way energy is generated and consumed. This will also involve the use of technologies that until now have been typical of medium voltage (36kV) systems, to be incorporated into the high-voltage transmission grid. This will simplify and speed up the process of developing renewable sources, increasing the energy system's overall efficiency.

"A major increase in investment in developing and modernising the electricity grid, further strengthening Terna's role in driving the energy transition. An even more sustainable future with zero emissions. A plan to make the Country more energy independent thanks to more rapid development of renewable energy. These are the goals we have set ourselves and that form the basis for the update of the 2021-2025 Industrial Plan. Goals that mark a concrete commitment both as a business and as a public service provider. Terna is, in fact, a company that provides a public service for the Country and the community, for the benefit of all the geographical areas in which we operate and the environment. Our capital expenditure, which has a key role to play in enabling Italy and Europe to meet the goals that have been set, will allow us to integrate renewable sources and electrify consumption and to guarantee ever greater security and efficiency of supply, a system that is fit for purpose and improved quality of service, whilst cutting costs for consumers and businesses," said Stefano Donnarumma, Terna's Chief executive Officer.

The Terna Group's development initiatives will focus on three strategic areas: Regulated Activities in Italy, Non-regulated Activities and International Activities.

REGULATED ACTIVITIES IN ITALY

In terms of regulated activities in Italy, which continue to represent the Group's core business, Terna plans to invest €9.5 billion in developing, modernising and strengthening the national transmission grid, confirming its role in driving the energy transition and enabling an increasingly complex,

sustainable and innovative electricity system. This investment, focused on increasing the Country's energy security, will generate major benefits for the system as a whole, with a significant multiplier effect.

The planned investment will increase the value of regulated asset base (RAB) to €22.7 billion in 2025, with a CAGR of 7% over the period of the Plan. By the end of 2022, the value of the RAB will be €17.9 billion, compared to €16.9 billion at the end of 2021.

The updated 2021-2025 Industrial Plan targets increased investment in development of the national transmission grid, which is due to total €5.6 billion. This is primarily linked to the construction of highvoltage direct current lines with the aim of resolving grid congestion, boosting transmission capacity between the various market areas, fully integrating renewable sources and improving quality of service. This type of investment will also involve the construction of submarine cable connections. The most important project is the Tyrrhenian Link, the power line that will connect Sardinia, Sicily and Campania and that will contribute to the development of renewable energy production and the phase-out of the most polluting coal- and oil-fired power stations. The other projects include Sa.Co.I.3, the interconnector linking Sardinia with Corsica and Tuscany, and the 'Colunga-Calenzano' power line between Emilia-Romagna and Tuscany.

Investment in renewing and improving the efficiency of assets, covering the reorganisation of existing infrastructure, with the replacement – where technically feasible – of overhead lines with underground cable, will amount to €2.6 billion. These projects also include work designed to strengthen and expand the ability to manage electricity flows through the digitalisation of substations and the use of technologies for the predictive maintenance of infrastructure. The phase-out of fluidoil cables, which Terna will carry out via the installation of devices equipped with more advanced and even more sustainable technologies, will result in extremely positive benefits for the environment.

Terna plans to invest a total of €1.3 billion in the Defence Plan, over the period of the Industrial Plan, with the aim of boosting the system's technical and technological capabilities to increase system functionality. The Company has planned a series of projects primarily designed to improve voltage regulation and the stability of the system, including the installation of synchronous compensators, resistors and statcoms at critical points on the grid. The Defence Plan also covers all the steps necessary to respond to the risks linked to the occurrence of increasingly extreme weather events, the frequency of which has intensified in recent years as a result of climate change. This involves targeted investment and innovative solutions designed also to boost the electricity system's resilience.

Efficiency and benefits for the system

Thanks to the innovative, capital-light technological solutions developed internally in 2020 and 2021, Terna has accelerated the implementation of solutions designed to resolve congestion in certain areas of the grid. This has involved a series of interventions that have enabled to boost transmission capacity up and down the Country by 400 MW, helping to optimise the flow of electricity from south to north. Some of the solutions adopted are "physical" in nature such as, for example, the resolution of interferences that can reduce the grid's transmission capacity, without having to redesign power

lines. Other solutions are of the "software" type, including those based on digital and engineering innovations linked to artificial intelligence: for example the use of algorithms and sensors enabling Terna's engineers to check cables by measuring their temperature, improving the effectiveness of transmission operations.

Projects aimed at creating benefits for the entire system relating to the Dispatching Services Market, for which the regulator has introduced incentives, will also be important: the activities planned by Terna could generate savings of €1 billion over 3 years for the system.

NON-REGULATED ACTIVITIES

Non-regulated Activities will help to generate new business opportunities thanks to the development of innovative, digital solutions in keeping with Terna's public service role in supporting the energy transition. These activities will include:

• connectivity offerings, including in partnership, involving the provision of housing and hosting services to enable telecommunications providers to use the Company's fibre network, one of the best in terms of coverage and quality, and the installation of telecommunications equipment at Terna's existing sites;
• industrial activities both in the field of transformers, thanks to the consolidation of Tamini, and in underground cables, leveraging the distinctive expertise acquired with Brugg Cables, to respond to the system's growing needs in both sectors;
• energy solutions and energy efficiency services for industrial customers and O&M activities for photovoltaic plants, even through the use of satellite technology and innovative data collection and analysis.

Terna expects Non-regulated Activities to contribute a cumulative total of over €450 million to the Group's EBITDA over the life of the Plan, in return for limited investment and risk exposure.

INTERNATIONAL ACTIVITIES

Turning to the International Activities, following the decision to extract value from the South American assets, Terna will continue with the strategic assessment of opportunities that may take the form of partnerships, involving the careful selection of projects with a view to ensuring a low risk profile and limited capital absorption.

In particular, Terna will look to exploit new opportunities in low-risk markets with attractive growth potential, such as the United States, where the Company can make available its experience and expertise in the design and management of infrastructure, in line with the business strategy.

INNOVATION AND DIGITALISATION

Over the coming years, new technologies and digitalisation will acquire ever greater importance, playing an increasingly central part in enabling the energy transition for the benefit of the entire system. In response to the growing complexity of the system, Terna will invest approximately €1.2 billion in digitalisation and innovation, from the total of €10 billion earmarked for capital expenditure in the 2021-2025 Industrial Plan. The Company will concentrate its efforts on the use of advanced technology to remotely control electricity substations and transmission infrastructure. This will involve continuing with the installation of sensor, monitoring and diagnostic systems, including predictive solutions, to improve the security, reliability and resilience of the grid, whilst also benefitting local areas. There were 70 ongoing innovation projects in 2021, with 70% of them focusing on the core business and, therefore, on maintenance of the national grid and dispatching, including the use of robots, drones and virtual and augmented reality. The Plan also identified four technology clusters around which the new initiatives and projects will be focused: Digital (intelligent solutions for the energy and capacity management); Energy Tech (innovative solutions using more efficient, greener technologies); Advanced Materials (research and development resulting in ecocompatible materials to reduce the environmental impact); and Robotics (process automation). Definition of the technology clusters to be applied throughout the life of the Plan considered global technology trends, the particular nature of the electricity sector, the challenges presented by the energy transition, the growing emphasis on digitalisation, the United Nations' SDGs and Terna's own operating environment and needs.

NEXTERNA: PUTTING PEOPLE AT THE HEART OF WHAT WE DO

Terna's people, with their unique and distinctive, world-leading technical expertise, are a key asset in enabling the Group to achieve the challenging goals set for itself. The Company has launched an ambitious cultural transformation called NexTerna, involving the definition of a new leadership model and new ways of working and organization that are a response to the current scenario. This innovative approach is based on the digitalisation of processes and tools in order to increase people's efficiency and productivity, bringing logistical benefits and, above all, improving quality of life for all employees. Terna's people-centric approach is also reflected in the creation of jobs: over the period of the Plan, the number of employees is expected to rise to approximately 5,900 by 2025.

PERFORMANCE OUTLOOK IN THE UPDATED 2021-2025 INDUSTRIAL PLAN

In 2021, ARERA revised the WACC for the period 2022-2024, setting it at 5% for electricity transmission grids after a long period of low interest rates. Over the period of the Plan, however, it is forecasted a scenario marked by expectations of higher inflation and potential increases in interest rates.

Against this backdrop, the Group's revenue is expected to rise to €3.08 billion in 2025, whilst EBITDA is expected to be €2.14 billion, with a CAGR over the period of the Plan of more than 4% for revenue and more than 3% for EBITDA.

In 2022, in particular, revenue is expected to rise to €2.74 billion and EBITDA to €1.9 billion.

Earnings per share (EPS) will be 39 eurocents in 2022 and 45 eurocents in 2025, after taking into account the international deconsolidation.

The dividend policy confirms its forecast of a CAGR for dividend per share (DPS) of 8% in 2022 and 2023, compared to the dividend paid for 2021. For 2024 and 2025 expectations for the payout ratio are confirmed to be 75%, with a guaranteed minimum dividend equal to the dividend paid for 2023.

The Group expects to invest a total of €10 billion in the period 2021-2025, of which €1.7 billion in 2022.

Despite the acceleration in investment to meet the needs of the system, Terna aims to maintain a solid and sustainable financial structure over the period of the Plan, with the goal of retaining the current ratings, an average cost of net debt of 1.3% during the Plan period and a ratio of net debt on RAB of approximately 60% in 2025.

SUSTAINABILITY GOALS AND TARGETS

The pivotal role played by sustainability in the business takes the form of a series of specific goals in the 2021-2025 Industrial Plan, aimed at creating value over the medium to long term. The targets break down into four dimensions: Human Capital (human resources); Social and Relationship Capital (stakeholders and local communities); Intellectual Capital (integrity, responsibility and transparency) and Natural Capital (the environment). These consist of 14 goals linked to over 100 initiatives distributed over the period of the Plan.

Among the most significant of the goals, with regard to human capital, the Group has made a further commitment to health and safety through the initiatives planned as part of the "NexTerna" programme, which aims to transform the way of working by giving people greater responsibility and involving them more in meeting the goals and responding to the challenges set in the Industrial Plan.

In terms of the environment, Terna has adopted a Science-Based Target (SBT) to reduce the Group's carbon intensity. The Company continue to be committed to minimising the visual impact of electricity infrastructure on the landscape, including the removal, over the period of the Plan, of over 400 km of power lines made obsolete by new investment in development of the grid.

ANNUAL GENERAL MEETING

In accordance with the Company's event calendar, published on 15 December 2021, the Board of Directors has also called the Annual General Meeting ("AGM") of shareholders for 11.00am on 29 April 2022. The AGM, to be held in single call, will deliberate on the following agenda:

1. Integrated Report 2021: approval of financial statements for the year ended 31 December 2021; Reports of the Board of Directors, the Board of Statutory Auditors and the Independent Auditor. Presentation of the consolidated financial statements for the year ended 31 December 2021; presentation of the consolidated non-financial statement for the year ended 31 December 2021.

2. Deliberate on the proposed allocation of profit for the year

With regard to items 1) and 2) on the agenda, reference should be made to the announcement published by the Company on 17 March 2022, following the decisions taken by the Company's Board of Directors on that date.

1. Election of a member of the Board of Directors pursuant to art. 2386 of the Italian Civil Code. Related and resulting deliberations

The current Board of Directors was elected on 18 May 2020 for a period of three financial year, with its term of office expiring with the Annual General Meeting called to approve the financial statements for the year ended 31 December 2022. Following the resignation of the Director, Yunpeng He, on 11 January 2022, at its meeting on 26 January 2022, the Board of Directors co-opted Qinjing Shen as a new non-executive Director. The new Director's term of office will expire at the Annual General Meeting, which will thus be invited to elect new Director according to the majorities required by law and the Articles of Association and, therefore, without holding a slate vote. The Board of Directors has decided to propose the confirmation of Director Qinjing Shen.

4. A long-term incentive plan based on Performance Shares for the period 2022-2026 for the management of Terna S.p.A. and/or its subsidiaries, as defined by art. 2359 of the Italian Civil Code

This is an equity-based Plan, involving the grant of the right to receive a certain number of Terna S.p.A.'s shares (the Performance Shares) free of charge if, at the end of the vesting period, the performance targets to which the Plan is linked have been met. In particular, the targets break down as follows:

Operating performance

• cumulative EBITDA in the three years ended 31 December 2024 (weighting 40%)
• cumulative regulated investment in the three years ended 31 December 2024 (weighting 15%)

Market performance

• relative Total Shareholder Return (weighting 20%)

Sustainability performance

• Inclusion in the following indices: Bloomberg GEI, STOXX ESG, DJSI World and MIB ESG (weighting 25%)

At the end of the vesting period, 30% of the shares awarded will be subject to a further twoyear lock-up period, during which time the shares are non-transferable (meaning that they cannot be transferred and/or sold for a period of 24 months).

Clawback provisions also apply to the Plan, as required by the Corporate Governance Code and best market practices.

The beneficiaries of the Plan are the General Manager, who is also the Chief Executive Officer, key management personnel and other senior and middle managers of the Company and/or its subsidiaries, pursuant to art. 2359 of the Italian Civil Code.

In consideration of its features, its structure, and the performance objectives identified, the Plan is designed to ensure the alignment of management's interests with the priority objective of creating value for shareholders over the medium to long term.

For a full description of the plan, please see the Information Document prepared pursuant to Article 114-bis of the Consolidated Law on Finance, which will be made accessible to the public within the legal terms.

5. Authority to buy back and dispose of the Company's own shares, subject to prior revocation of the authority granted by the AGM of 30 April 2021

The Board of Directors has decided to request the AGM of 29 April to approve the proposed authority to buy back and subsequently dispose of, in one or more transactions, the Company's own shares at a total cost of up to €10 million and involving up to a maximum of 1.95 million ordinary shares, representing approximately 0.10% of Terna's share capital.

This request aims to grant the Board of Directors the option of purchasing and disposing of own shares, in compliance with the current regulations and procedures indicated below, to service the Performance Share Plan and/or any share-based incentive plans for the Directors and/or employees of the Company and/or its subsidiaries and/or associates.

The authority to buy back own shares is requested for the maximum period permitted by art. 2357, paragraph 2 of the Italian Civil Code, and therefore for eighteen months from the date of the General Meeting granting the authority. There is no time limit for the subsequent disposal of the shares.

The authorisation request provides that purchases can be made at a price that must not be more than 10% higher or lower than the price of the shares on the Mercato Telematico Azionario (screen-based trading system) organised and operated by Borsa Italiana S.p.A., as recorded during the previous day's session for each individual transaction. Additionally, market purchases of own shares shall be carried out in accordance with the terms, conditions and requirements established by current regulations and, where applicable, with the market practices from time to time prevailing.

The sale or other use of the resulting treasury shares will be made to service the Performance Share Plan and/or any share-based incentive plans for the Directors and/or employees of the Company and/or its subsidiaries and/or associates, in accordance with the terms and

conditions indicated in the applicable rules, without prejudice to current regulations, and, where applicable, the market practices from time to time prevailing. Buybacks will be carried out in compliance with the provisions of art. 132 of the Consolidated Law on Finance and art. 144-bis of the Regulations for Issuers and all other applicable regulations and, where applicable, with the market practices from time to time prevailing.

More specifically, pursuant to art. 132.1 of the Consolidated Law on Finance, share buybacks must be made in a way that ensures the equal treatment of all shareholders, according to the procedures established by the CONSOB. In this latter regard, among the procedures provided for in art. 144-bis of the Regulations for Issuers, Terna's share buybacks may also be carried out under the conditions indicated in art. 5 of Regulation (EU) 596/2014, except for the procedures provided for in letters d and d-bis of art. 144-bis.

It should be noted that, in cases where the option referred to in art. 144-bis, section 1(c) of the CONSOB Regulations for Issuers is to be exercised, purchases and sales of derivative instruments must be carried out through authorised financial intermediaries, specially appointed for this purpose.

In conclusion, it should be noted that, in implementation of the share buyback programme launched on 31 May 2021, and concluded on 28 July 2021, to service the Performance Share Plan 2021-2025, Terna has purchased 1,569,292 own shares (equal to 0.078% of the share capital) at a total cost of €9,999,998.19. The total number of shares purchased is in addition to the 1,525,900 own shares already purchased by the Company in 2020. To date, therefore, Terna holds a total of 3,095,192 treasury shares (equal to 0.154% of the share capital). The Company does not hold any additional treasury shares with respect to those purchased under the above programmes, including though subsidiaries.

6. Approve the Report on the Remuneration Policy and Remuneration Paid

The AGM will be invited to hold:

• a binding vote on the first section of the Report, which explains the policy on remuneration of the members of Terna S.p.A.'s Board of Directors and the Board of Statutory Auditors, the General Manager and key management personnel, as well as the procedures used in adopting and implementing the Policy;
• a non-binding vote on the second section of the Report, which explains the remuneration paid to the members of the Board of Directors and the Board of Statutory Auditors, the General Manager and, on an aggregate basis, key management personnel.

A detailed description of the Remuneration Policy and remuneration paid is provided in the relevant document, prepared in accordance with art. 123-ter of the Consolidated Law on Finance, which will be made available to the public within the deadline required by law.

*****

With regard to the Annual General Meeting, in view of the ongoing health emergency linked to COVID-19, and considering the legislation enacted in order to contain the disease, the Company intends to take advantage of the option provided for in art. 106, paragraph 4 of Law Decree 18 of 17 March 2020 and subsequent modifications. This means that attendance at the AGM may only take place through the representative designated by the Company pursuant to art. 135-undecies of Legislative Decree 58 of 24 February 1998 (the "CLF"), namely Computershare S.p.A.

The notice of call will be published according to the procedures and the deadline required by law, as will the documentation relating to agenda items.

ALTERNATIVE PERFORMANCE MEASURES

A number of "alternative performance measures" (EBITDA and net debt) not provided for under IFRS are used in this press release. The meaning and content of these measures are described below in line with the guidelines in ESMA/2015/1415, published on 3 December 2015:

• EBITDA (gross operating profit): this is an indicator of operating performance, calculated as "Profit for the year" before "Income tax expense", "Financial income/(expenses)" and "Amortisation, depreciation and impairment losses";
• Net debt: this is an indicator of the financial structure, calculated by deducting "Cash and cash equivalents", "Current financial assets" and "Non-current financial assets", represented by the value of the derivatives hedging bond issues, from short-term financial liabilities ("Short-term borrowings", "Current portions of long-term borrowings" and "Current financial liabilities"), long-term financial liabilities ("Long-term borrowings") and the related derivative instruments ("Non-current financial liabilities"). The Terna Group's net debt is compliant with ESMA Recommendation 319 of 2013 as regards the exclusion of "Non-current financial assets" from the calculation of net debt or net funds.

The updated 2021-2025 Industrial Plan will be presented today at 11.30am during a web presentation for financial analysts, institutional investors and members of the media. The presentation can be accessed from the "Investors" section of the Company's website (www.terna.it). Back-up material for the event will be made available on the website to coincide with the start of the presentation. The presentation will also be made available on the "eMarket SDIR" platform, on Borsa Italiana S.p.A.'s website (www.borsaitaliana.it) and on the authorised storage system ().

The contents related to the 2021-2025 Industrial Plan will be available at the following link:

https://www.terna.it/en/media/news-events/detail/2021-2025-industrial-plan-update

and on the renewed Terna app

Apple Store: https://apps.apple.com/it/app/terna/id1458535498

Google Play Store: https://play.google.com/store/apps/details?id=it.terna.energia