2014 Annual Report Integrated Report Terna S.P.A

2014 Annual Report Integrated Report Terna S.p.A. and the Terna Group Mission Terna is a leading grid operator for energy transmission. The Company manages electricity transmission in Italy and guarantees its safety, quality and affordability over time. It pursues electricity grid development, ever-increasing operating efficiency and integration with the European grid. It ensures equal access conditions for all grid users. It develops market activities and new business opportunities with the experience and technical expertise it has acquired in managing complex systems. It also creates value for shareholders thanks to continual commitment to professional excellence, and a responsible approach to the community, fully respecting the environment and the areas in which it operates. 2014 Annual Report Integrated Report Terna S.p.A. and the Terna Group (This is a translation of the original Italian text. For any difference in the meaning between the original Italian text and its translation, the Italian text prevails) transmitting ENERGY A USEFUL GRID FOR THE COUNTRY transmitting VALUE A USEFUL GRID FOR THE COUNTRY 6 Annual Report 2014 Table of Contents Letter to the Shareholders 9 Notice of Call - Call of ordinary Shareholders’ Meeting 10 Proposal for the allocation of profits for the year 14 Corporate administration and control bodies 15 Terna Group’s management 16 The Terna Group, briefly 18 Highlights 19 Report on Operations 21 Consolidated financial statements at 31 December 2014 159 Separate financial statements at 31 December 2014 243 Report on corporate governance and ownership structures 329 Table of Contents 7 8 Annual Report 2014 Letter to the Shareholders 9 Letter to the Shareholders Dear Shareholders, The 2014 Annual Report, the tenth since Terna’s listing, further consolidates a longstanding trend of positive results. But this is also the first Annual Report that we present as the new Top Management, after taking office one year ago. We are therefore particularly proud to present continued growth in the company’s results, but also the virtuous change necessary to design a Terna of the future, in a rapidly developing environment at both European and global level. Over the past months, we have improved our understanding of a strong company, among the top European network operators, that strives to achieve excellence in the sustainable development of infrastructures, in innovation and in services for users, with consequent benefits for the electricity system, without overlooking attractive remuneration for shareholders. 2014 represents a solid starting point, both from an economic and financial point of view, as well as from the equally important perspective of sustainability performance. Regarding the first point, results reflect the positive contribution of both Regulated and Non-Regulated Activities. Compared to 2013, revenues increased by 5.3%, almost reaching 2 billion euro, EBITDA reached almost one and a half billion euro and Net Profit increased by 6%, well above 500 million euro. Capex, in line with the Development Plans, stood at approximately 1.1 billion and during the year new strategic infrastructures have become operational, such as the “Trino-Lacchiarella” and “Foggia-Benevento” lines, significant projects for the Country’s safety and energy efficiency. Regarding technological innovation, we carried on with our efforts to develop energy storage systems. Despite high investment levels, the Group generated 260 million in Free Cash Flow and Net Debt has been kept below 7 billion euro, confirming close attention to the management of the financial structure. Within Non-Regulated Activities, during 2014 we have worked hard to incorporate the Tamini Group into the Terna Group. Progress has also been considerable in terms of sustainability performance. The per capita training hours have been increased to 43, involving 91% of employees; the number of occupational injuries has decreased, with the injury rate down to 1.27%. On the environmental front, containment programs have enabled us to reduce the impact of SF6 leakage – the Group’s main source of direct greenhouse gas emissions – down to 0.55%, below our target of 0.60%. Grid development has continued to provide an indirect but significant contribution to the growth of electricity production from wind and solar systems, that in 2014 reached 14.3% of total production. Research activities have been focused on the development of new sustainable technologies. The commitment to continuous improvement of processes has focused on relations with the stakeholders: the new map presented in this Report is the first step towards better organisation of involvement methods. These results represent an important reference to explore and seize new opportunities that may arise, as well as to face the challenges posed by the general market conditions, the evolution of the European electricity sector and the new regulation expected in 2015. For this reason the new 2015-2019 Strategic Plan foresees specific management actions focused on a further strengthening of the electricity system, with a view to an increasingly interconnected European grid; on a more selective approach to investments, with lower impacts on electricity tariffs and debt; on the development of Non-Regulated Activities, with particular reference to Tamini and the Interconnectors; and finally, on increased operating efficiency, also thanks to the new organisational structure and the launch of an important voluntary generational turnover programme. To sum up, starting from the results achieved and from a track record of value creation, we believe the Group is well positioned to positively face and overcome future challenges, leveraging the competence, willingness and strong values of all members of the Terna team. The Chairwoman The Chief Executive Officer CATIA BASTIOLI MATTEO DEL FANTE 10 Annual Report 2014 Notice of Call - Call of ordinary Shareholders’ Meeting The ordinary Shareholders’ Meeting of TERNA S.p.A. has been convened in Rome, at TERNA’s Auditorium in Piazza Giuseppe Frua no. 2, on a single call, for its ordinary session on June 9, 2015 at 11 a.m. to discuss and resolve on the following AGENDA 1. Separate Financial Statements at December 31, 2014. Reports by the Board of Directors, the Board of Statutory Auditors and the Independent Auditors. Related resolutions. Presentation of the consolidated financial statements at December 31, 2014; 2. Allocation of the profit for the year; 3. Appointment of a member of the Board of Directors and relative resolutions; 4. Annual Remuneration Report: consultation on the Remuneration Policy pursuant to Art. 123 ter, paragraph 6 of Italian Legislative Decree No. 58/1998 (Consolidated Law on Finance). Reports and documentation The illustrative reports by the Directors on the items on the agenda, required by current legislation, will be made available to the public at the Company head office by May 9, 2015. Documents submitted to the Shareholders’ Meeting will be made available to the public at the Company head office in the terms provided for by current legislation. The reports and documents relative to the Shareholders’ Meeting will be published on the Company website (www.terna.it - Investor Relations) and on the website of the authorised storage system “1Info” (www.1info.it), and filed with the Borsa Italiana S.p.A. stock exchange. They will also be accessible from the Borsa Italiana S.p.A. website. (www.borsaitaliana.it). Shareholders and non-shareholders entitled to participate in the Shareholders’ Meeting have the right to obtain copies. Right to supplement the agenda and presentation of additional resolution proposals Shareholders who represent at least a fortieth of the share capital with voting rights, also jointly, may, pursuant to and according to the procedures detailed in art. 126-bis of Italian Legislative Decree 58/1998 (Consolidated Law on Finance), within ten days of the publication of this notice (by May 8, 2015) ask for additional items to be included in the agenda, indicating in the request the additional items proposed, or present further resolution proposals on matters already included in the Meeting’s agenda (without prejudice to the possibility, for those with voting rights, of individually present resolution proposals at the Shareholders’ Meeting). The request must be submitted in writing, may be made via hard-copy or e-mail, and must be accompanied by information making it possible to identify the party presenting the request, and indicating further, wherever possible, a telephone contact. It must reach TERNA S.p.A. by the deadline set out above (i.e. May 8, 2015), either by being brought to TERNA S.p.A. at its head office (FAO: Legal and Corporate Affairs Management - TERNA S.p.A. Group Corporate Affairs), or sent by mail or fax to +39 06 8313 8218, or by e-mail or certified electronic mail to the following certified e-mail address: [email protected]. Within the same deadline and using the same methods indicated to present the request, the Board of Directors of TERNA S.p.A. must also receive a report that indicates the motivation for the resolution proposal on the new subjects that are being proposed to be dealt with, or the motivation relating to the additional resolution proposals presented on matters already included on the agenda. Please remember that pursuant to law, additions to the agenda are not allowed for subjects, which the Shareholders’ Meeting will be resolving upon according to the law and based on Directors’ proposals or on the basis of a project or a report prepared by them that is different from the one dealing with the subjects in the agenda. In the event of supplements to the agenda and/or the presentation of new resolution proposals, notice shall be given with the same methods of publication as this notice, at least fifteen days before the date scheduled for the Shareholders’ Meeting (May 25, 2015). At the same time – with the same methods indicated for the Reports of the Directors on the subjects on the Agenda – the report presented by the shareholders is made available to the public, together with any assessments of the Board of Directors.

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