The Strategic Plan

On March 20, 2012, the Strategic Plan was presented for the 2012-2016 period, approved by the Company’s Board of Directors. The following points provide the plan’s summary.

The grid of the future for a new electricity system

In the next 5 years, 4.1 billion euro will be invested for the safety and modernization of the electricity grid, of which 82% will be used for grid development. Considering also the 1.2 billion euro already invested in 2011, the investment plan reaches 5.3 billion euro, exceeding the 5 billion euro of the previous Plan.

Up to nearly 1 billion euro should also be added to 4.1 billion euro, for implementing energy storage systems for 240 MW, still not yet authorized and subject to obtaining adequate remuneration. Developing the electricity grid remains a top priority also in the new Plan.

By enhancing the Company’s strong technical and engineering skills, in addition to one billion euro for implementing batteries, up to 900 million euro of investments both in Italy and abroad could be included among non-traditional activities for projects for private customers where the expected returns are higher than those from regulated activities. In this way, the total expenditure for non-traditional activities is doubled (up to 1.9 billion euro) compared to one billion euro established in the previous Plan. Therefore, during the Plan period, investments up to 6 billion euro are expected.

Terna will have over 300 building sites open throughout Italy for a value of 2.9 billion euro and in 2012 works will begin for three strategic projects: the 380 kV Foggia-Benevento power line between Puglia and Campania; the 380 kV Trino-Lacchiarella power line between Lombardy and Piedmont; the 380 kV Dolo-Camin power line between Venice and Padua. Work that began in 2011 will continue for the “Sorgente-Rizziconi” electricity bridge between Sicily and Calabria for over 730 million euro of investments and the modernization and upgrading plan of the large metropolitan areas will continue involving the cities of Rome, Milan, Naples, Turin, Palermo and Genoa for an overall investment of approximately 1 billion euro .

Improved margins

Increased revenues and cost control will result in an increase of approximately 19% of the EBITDA accrued during the 2012-2016 Plan period, compared to the previous five-year Plan. The average annual EBITDA growth will increase from 5% to 7.5%, with a significant improvement in the operating cash flow. The EBITDA margin at the end of the period will be higher than 80%, increasing with respect to 78% of the old Plan.

Stronger financial structure

Efforts continue for improving the equity ratios. During the Plan period, the net financial debt is expected to increase by 1.6 billion euro to 6.7 billion euro leading to the significant reduction of 1 billion euro compared to the previous Plan.

Capital structure remains solid: during the Plan period, the ratio between net financial debt and RAB will continue to be lower than 55% in all the Plan’s years and the ratio between net financial debt and the EBITDA will improve compared to 4.2 at the end of 2011, remaining 4 times lower.

New dividend policy

As of 2012, a base dividend is expected from traditional activities equal to 19 euro cents per share, to which the contribution from non-traditional activities will be added (60% payout on proceeds and/or gains).

Revised tariff system

The new tariff system for the 2012-2015 period has revised the remuneration level of investments and also the type of investments that fall into the different categories. The Electricity and Gas Authority has planned for the end of 2013 a review of the “Risk Free” component in determining the WACC, considering the annual average return of the BTPs with 10 year maturity for the period November 2012 - October 2013.

Financial flexibility

To increase its financial flexibility, Terna may possibly examine the sale of a group of assets to reinvest the proceeds in new development investments, without risking the stability of the capital structure in the long term.

New organizational structure

The distinction between traditional activities and non-traditional activities is reflected on the new organizational structure, operational as of April 1, 2012.