Letter to the Shareholders

Dear Shareholders,

Flavio Cattaneo

We close 2012 with important results; the record level of investments and the proposed dividend, which not only testify to the professional excellence of the Terna team but also to a constant attention to the creation of value, which assumes a particular significance in today’s challenging economic climate.

This eighth consecutive year of growth is very gratifying for the work performed to the benefit of the electrical system, the country and our shareholders.

Thanks to an innovative strategic approach and a level of competence unique in the sector, we were able to combine the traditional business, oriented towards producing concrete benefits for the Italian electrical system, with an entrepreneurial spirit which has enabled the development of Non-Traditional Activities that have a positive contribution to the Group’s results.

The milestones which were reached also received important recognition abroad. On 11 March, Terna received the prestigious "International Utility Award 2013" from the American Edison Electric Institute, a recognition which crowned us the best of the European companies in the sector in terms of Total Shareholder Return in the last three years. This award allows Terna, which already in 2010 had earned the same recognition for the 2007-2009 three-year period, to be at the top of the European electrical utilities classification during the 2007-2012 period. This success proves the capacity to create value for the Terna shareholders, in addition to excellence in the management of the Electrical Transmission Grid in Italy.

Electrical infrastructures are a priority for the country, also from the European and Mediterranean standpoint, and constitute a fundamental driving force for growth, development and employment. With 6.5 billion already invested in concrete projects by Terna since 2005, there is tangible proof that we can benefit both the community our own company and shareholders. The 2012 results are increasing in all the principal indicators.

Consolidated revenues total Euro 1,806 million, representing an increase of 10.4% compared to 2011, partly thanks to the contribution of the Non-Traditional Activities worth Euro 86 million. The Gross Operating Margin reached Euro 1,390 million, of which Euro 64 million referable to Non Traditional Activities, an increase of 13% compared to the preceding financial year. The Group Net Profit came to Euro 464 million, an increase of 5.5% compared to the 2011 result which included Euro 113 million resulting from discontinued operations. Consolidated investments of the Group came to Euro 1,235 million, an increase of 0.5% compared to the 1,229 million in 2011, and set a new record level in the history of Terna.

In line with the dividend policy, and thanks also to the contribution of the Non-Traditional Activities, we propose a total dividend for the 2012 financial year of 20 euro cents per share.

We have established ambitious objectives again in the new 2013-2017 Strategic Plan, which involve the development of the grid also by introducing new technologies, such as accumulation systems.

In the next 5 years, we anticipate investing Euro 4.1 billion in Traditional Activities, regulated by the Authority for Electricity and Gas, to improve safety and modernise the Electricity Grid, of which about 300 million will be allocated to the construction of accumulation systems.

Looking at the medium-long term future, the 2013 Development of the National Transmission Grid confirms investments of Euro 7.9 billion. The priorities of the Plan are directed at increasing the interconnection capabilities of the foreign electric borders and the reduction of inter zone congestion, between the market zones or resulting from the use of renewable plants.

As regards Non Traditional Activities, we anticipate completing the business model, through the consolidation and the development of service activities in the context of engineering, O&M and fibre optic housing, to which an additional potential could be added, not included in the Plan forecasts.

The objectives of the next five years also anticipate a reinforcement of profitability and maintenance of a solid capital structure, as a guarantee of sustainable growth over time.

The dividend policy has been confirmed in the new Plan, which anticipates a basic coupon resulting from Traditional Activities, amounting to 19 euro cents per share, in addition to the contribution of Non-Traditional Activities (payout of 60% on results).

Completing the renewal and the strengthening of the National Transmission Grid, and exploring new business opportunities in Non-Traditional Activities: on this double strategic track we will continue to pursue efficiency, safety and lowering the cost of the electricity system, to the benefit of all, businesses and citizens, and the creation of value for our shareholders to whom, we are certain, we will continue to give satisfaction after almost a decade of success.



Flavio Cattaneo