Annual Report 2019 CDP Reti SUMMARY CORPORATE BODIES ........................................................................................................................... 3 1. REPORT ON GROUP OPERATIONS ..................................................................................................... 5 1. PRESENTATION OF THE GROUP .................................................................................................... 6 2. SIGNIFICANT EVENTS TAKING PLACE IN THE YEAR BY SECTOR/COMPANY ...................... 13 3. ORGANISATIONAL STRUCTURE ................................................................................................... 20 4. GROUP BALANCE SHEET AND INCOME STATEMENT FIGURES .............................................. 29 5. BUSINESS OUTLOOK FOR 2020 .................................................................................................... 43 6. SIGNIFICANT EVENTS AFTER 31 DECEMBER 2019 .................................................................... 46 7. OTHER INFORMATION .................................................................................................................... 49 8. REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE OF CDP RETI PURSUANT TO ART. 123-BIS, PARAGRAPH 2, LETTER B) OF THE CONSOLIDATED LAW OF FINANCE .......................................................................................... 52 2. 2019 CONSOLIDATED FINANCIAL STATEMENTS ........................................................................... 61 CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2019 ........................................... 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................................................... 74 ANNEXES ........................................................................................................................................... 156 REPORT OF THE INDEPENDENT AUDITORS ................................................................................. 160 CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ART. 154 BIS OF LEGISLATIVE DECREE 58/1998 .................................................................... 165 3. REPORT ON OPERATIONS OF CDP RETI S.P.A. ............................................................................ 167 1. OPERATING PERFORMANCE OF CDP RETI S.P.A. ................................................................... 168 2. REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE OF CDP RETI PURSUANT TO ARTICLE 123-BIS, PARAGRAPH 2, LETTER B) OF THE CONSOLIDATED LAW ON FINANCE ....................................................................................... 175 4. 2019 SEPARATE FINANCIAL STATEMENTS ................................................................................... 177 SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2019 .................................................. 182 NOTES TO THE FINANCIAL STATEMENTS .................................................................................... 189 CERTIFICATION OF THE SEPARATE FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154 BIS OF LEGISLATIVE DECREE NO. 58/1998 ..................................................... 219 PROPOSAL ON THE ALLOCATION OF NET INCOME FOR THE YEAR ........................................ 220 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’ MEETING . 221 REPORT OF THE INDEPENDENT AUDITORS ................................................................................. 225 ANNEXES ........................................................................................................................................... 229 5. RESOLUTION OF THE SHAREHOLDERS’ MEETING ...................................................................... 239 3 CORPORATE BODIES BOARD OF DIRECTORS (*) Giovanni Gorno Tempini (**) Chairman Fabrizio Palermo (***) Chief Executive Officer Sabrina Coletti (****) Director Yanli Liu Director Yunpeng He Director BOARD OF STATUTORY AUDITORS (*) Guglielmo Marengo Chairman Benedetta Navarra Standing Auditor Paolo Sebastiani Standing Auditor Independent auditors (*****) PriceWaterhouseCoopers S.p.A. (*) Appointed by the Shareholders' Meeting of 4 May 2017 and in office up to the date of the Shareholders' Meeting called for the approval of the financial statements for the year ended 31 December 2019. (**) Appointed by co-optation by the Board of Directors on 28 November 2019 to replace the previous Chairman Massimo Tononi, who submitted his resignation. The latter, in turn, was appointed by co-optation by the Board of Directors on 20 February 2019 (and confirmed by the Shareholders' Meeting of 6 March 2019) to replace Carlo Baldocci. (***) Appointed by co-optation by the Board of Directors on 20 February 2019 to replace Leone Pattofatto, the previous Chief Executive Officer, who submitted his resignation. The Shareholders' Meeting held on 6 March 2019 renewed the appointment of Mr. Palermo as a member of the Board of Directors with term of office aligned with that of the other Directors in office. (****) Appointed by co-optation by the Board of Directors on 4 March 2020 to replace Cristiana Procopio, who submitted her resignation. (*****) Engagement granted by the Shareholders' Meeting of 24 June 2015 for the period 2015 - 2023. The Shareholders' Meeting, which met in ordinary session on 10 May 2019, then approved the mutually agreed termination of the auditing agreement between CDP RETI and PwC, in accordance with the agreement for the mutually agreed termination signed by the parties and with effect from the date of approving the financial statements at 31 December 2019. In the same session on 10 May 2019, the Meeting also awarded the audit engagement for the period 2020-2028 to Deloitte & Touche Spa. Annual Report 2019 04 1. Report on Group Operations 01 Report on Group Operations 6 1. Report on Group Operations 1. PRESENTATION OF THE GROUP 1.1 ROLE AND MISSION OF THE GROUP PARENT COMPANY CDP RETI S.p.A. is an investment vehicle established in October 2012 and converted from an Italian law limited liability company into an Italian law joint-stock company in May 2014, whose shareholders are Cassa Depositi e Prestiti S.p.A. - CDP - (59.1%), State Grid Europe Limited - SGEL - (35%), a company within the State Grid Corporation of China group, and certain Italian institutional investors (5.9%, attributable to Cassa Nazionale di Previdenza e Assistenza Forense and 33 Foundations of banking origin). The Company is subject to management and coordination by CDP. The share capital is 161,514.00 euro fully paid up and represented by 161,514 special shares (Cdp: 95,458 category A shares, SGEL: 56,530 category B shares, Others: 9,526 category C shares), without indication of nominal value. The corporate purpose of CDP RETI is the holding and ordinary and extraordinary management, directly and/or indirectly, of equity investments in SNAM (31.04%), ITALGAS (26.04%) and TERNA (29.85%), with the Company acting as a long- term investor with the objective of supporting the development of transport, dispatching, regasification, storage and distribution infrastructures for natural gas, as well as electricity transmission. More specifically, in 2012 the Company, as a result of the provisions contained in the Italian Prime Minister’s Decree (“DPCM”) of 25 May 2012 which defined the procedures and terms for the ownership unbundling1 of SNAM S.p.A. from ENI S.p.A. (aimed at making the market more open and thus creating the conditions for greater competition), acquired an equity investment in SNAM from ENI, representing 30% of the voting capital less one share, for 3.47 euro per share (overall purchase value of approximately 3.5 billion euro). As a result of the sale, SNAM is no longer subject to the control, management and coordination by ENI and operates under the ownership unbundling regime in accordance with the Italian Prime Minister’s Decree of 25 May 2012. Subsequently, on 27 October 2014, with the objective of pooling, within the assets of one party, the equity investments in the companies that manage infrastructural networks of strategic national interest, and within the context of opening the share capital of CDP RETI to third-party investors (SGEL and Italian institutional investors), CDP RETI was assigned the entire equity investment held by CDP in TERNA, representing 29.851% of the share capital. The assignment of this equity investment, recorded by ENEL S.p.A. in 2005, was carried out in accordance with the pooling of interest method, at the same carrying value (around 1.3 billion euro) at which it was entered on the CDP financial statements at 31 December 2013, enabling CDP RETI to assume the role of sub-holding of reference for the Cdp group as regards the energy infrastructure sector. On 7 November 2016, following the partial and proportional Spin-off of the equity investment held by SNAM in ITALGAS and the admission to trading on the MTA (Italian Equities Market) of the ITALGAS shares2 (Beneficiary Company), CDP RETI was assigned 202,898,297 ITALGAS shares, in proportion to those already held in SNAM on the effective date of the Spin-off. The assignment was one ITALGAS share for every five SNAM shares owned. Lastly, on 19 May 2017, the sale of the equity investments in Snam S.p.A. (1.12%) and Italgas S.p.A. (0.97%) from CDP to CDP RETI was finalised. The overall sale price agreed was 187.6 million euro, of which 155.9 million euro for the 1.12% equity investment in Snam and 31.7 million euro for the 0.97% equity investment in Italgas. 1 Separation