Events after the reporting date

Continuing operations

Acquisition of the investment in CGES and agreement for the construction of the electrical connection between Italy - Montenegro
On 23 November 2010, Terna undersigned the definitive agreement for the strategic partnership with the transmission operator of Montenegro, CrnoGorski Elektroprenosni Sistem AD (“CGES”), and the government of Montenegro, acting in the capacity of majority shareholder of CGES; this agreement refers to the construction of the new electrical connection between Italy – Montenegro and the strategic Terna-CGES partnership. The transaction was completed in January following the occurrence of the conditions precedent. The stipulation was completed following the approval, on the part of the Shareholders’ Meeting of CGES, of the share capital increase for Terna and the adoption of new Bylaws. Terna therefore became the shareholder of CGEs with 22.09% of the share capital and, in its capacity as the new shareholder, undersigned the shareholders’ agreement relative to the new governance system and the industrial contract for investments.
The agreement represents the end point of a process of industrial and country cooperation and is part of the intergovernmental agreements between Italy and
Montenegro which were initiated on 19 December 2007 with the start-up of activities of the Italy-Montenegro Work Group and consolidated on 6 February 2010 by means of the contract which ratified the commitment at an institutional level for the construction of a new submarine electrical connection and the implementation of partnerships with national transmission operators. It is expected that the overall investment of Terna for the first “electrical bridge” to the Balkans will amount to
approximately € 760 million. The investment of CGES for the connection of the existing network and the reinforcement of the local network will total circa € 100 million.

2011-2015 Business Plan
On 14 February 2011, Terna presented to financial analysts the Company’s 2011-2015 business plan, after approval of the plan by the Board of Directors on that same date. The 2011-2015 plan of the Terna Group follows five main guidelines:

  • traditional regulated activities: Increase of investments from € 4.3 to approx. 5 billion (+15%) in order to modernise the grid; development investments for which incentive-based remuneration is planned represents circa 82% of the total and increased from € 3.3 billion to 4 billion;
  • non-traditional activities. Investment activities were tripled for these activities, with planned allocations of up to € 1 billion. In particular, the development of an additional set of photovoltaic projects of circa 50 MWp is planned for the course of 2011. In addition, other investment opportunities will also be assessed, including within the sector of energy efficiency, for the construction and management of grid infrastructures for connecting renewable energy source plants in the Balkans area to the local grid and for storage and battery systems in the Italian grid;
  • improved margins (EBITDA margin): increasing revenue and containing costs will improve Group profitability from the mcurrent 74% to 78% at the end of the period covered by the plan;
  • a sound capital structure: during the period of the plan, commitment to maintain the ration between debt and regulated invested capital (RAB) under 60%;
  • confirmation of dividend policy: the 2011-2015 Strategic Plan confirms the dividend policy. As had previously occurred with the sale of Terna Participações, part of the capital gains attained with the sale of non-traditional assets may integrate the above-mentioned policy which provides for an annual growth of 4%, assuming the year 2008 as the year of reference.

 

Founding of new companies of the Group
On 8 March 2011, the subsidiary SunTergrid S.p.A. formed “Nuova Rete Solare S.r.l.” (“NRTS S.r.l.”) with a share capital of € 10,000. The corporate purpose of this new company is to design, install, manage, develop and maintain grids and other infrastructure connected to such grids, as well as plant and equipment for the transmission and dispatching of electricity, and for other segments of the energy sector and similar, related or connected sectors, together with plant for the generation of electricity from renewable or other sources, for self consumption or for sale.

10-year bond issue for €1.25 billion
On 8 March 2011 Terna launched a bond issue on the market in euros, at a fixed rate, with expiry in 10 years, for a total of € 1.25 billion under the scope of its Euro Medium Term Notes (EMTN) programme. This has been assigned an A+ rating for Standard and Poor’s, A2 for Moody’s and A+ for Fitch. The bond expires on 15 March 2021, has an annual coupon of 4.750% and issue price of 99.245. The security has thus been priced with a spread of 130 basis points as compared with
the mid swap. Securities are listed on the Luxembourg Stock Exchange.
The transaction, destined for Institutional Investors, has been placed by a syndicate of banks comprising Banca Akros S.p.A., MPS Capital Services S.p.A., Natixis, UniCredit Bank AG and WestLB AG as joint-lead managers and joint-bookrunners. The transaction is intended to finance the grid development investments envisaged in the Parent’s business plan.

The new “SA.PE.I.” power line uniting Sardinia and mainland Italy is opened
On 17 March 2011 Terna was proud to open the new SA.PE.I. power line. SA.PE.I. is an acronym for SArdegna-PEnisola- Italiana (Sardinia – Italian - Peninsula) and this is the first ever direct electrical connection to be created between Sardinia and mainland Italy, and the most important and technologically advanced high voltage power line ever to be developed in Italy. The infrastructure has achieved a great many records, in fact, which include: the world’s longest “electrical bridge”,
with a power of 1,000 megawatts; the world’s deepest, as it extends for 435 km from Fiumesanto (Sardinia) to Latina (Lazio), reaching depths of 1,640 m; and the greatest investment: worth a grand total of € 750 million, it is the most important investment ever to be made in Italy in a single electrical infrastructure.
More than 50% of the work was funded by Terna's own means with the remainder financed by grant of € 373 million awarded by the European Investment Bank (EIB) due to the high strategic value at hand. The result boasts a great many economic, electrical and environmental benefits. The work allows for annual savings of € 70 million for the electrical system, thanks to the elimination of “bottlenecks” between Sardinia and the rest of the electricity market, in addition to increased safety of the Sardinian electrical system and a more secure coverage of the demands of Lazio and central Italy, thanks to use of more efficient energy, partly originating from Sardinia.

 

Assets held for sale

Financing Contract
On 28 January 2011 the company RTR, in view of the sale, signed a refinancing contract with a term of 18 years. The total maximum value of the refinancing transaction amounts to € 593.8 million (of which € 521.3 for cash and € 72.5 for signature) and aims to refinance the investments sustained to develop the photovoltaic plant portfolio held by Rete Rinnovabile on a project financing no recourse basis. The transaction was concluded with a pool of 7 banks consisting of Banca Popolare di Milano, Gruppo Credito Valtellinese, Meliorbanca e Banca Popolare dell’Emilia Romagna, MPS Capital Services (which will also act as Facility Agent), Natixis, Unicredit Corporate Banking and West LB.

Capital contribution payment in favour of Valmontone Energia S.r.l.
On 4 February 2011, RTR completed a payment of € 10.0 million to Valmontone Energia S.r.l. as a capital contribution payment in order to complete the photovoltaic plant.

Sale of Rete Rinnovabile S.r.l. completed
In implementation of the agreement signed on 18 October 2010 by Terna S.p.A., SunTergrid S.p.A. and Terra Firma Investments (GP) 3 Limited (wholly owned by Terra Firma Capital Partners III, L.P.), on 31 March 2011, the transfer to RTR Acquisition S.r.l. (an indirect subsidiary of Terra Firma Investment (GP) 3 Limited) of 100% of the share capital of Rete Rinnovabile S.r.l. (“RTR S.r.l.”) was completed. RTR S.r.l. owns 62 photovoltaic plants, located in 11 different regions of Italy,
for a total capacity of 143.7 MWp, of which 101.6 MWp will benefit from the 2010 Energy Account tariffs for the 1st quarter 2011. The sale of the investment in RTR S.r.l. has resulted in total net income of around € 204 million and a reduction in the effective net financial debt of continuing operations of the Terna Group for more than € 200 million. The completion of the sale confirmed the effect on the 2010 consolidated income statement, booked as the contract margin in terms as compared with total costs sustained during the year, on the basis of works progress, as described in full previously, amounts to € 147 million. The difference will instead be recognised on an accruals basis in 2011.
It is also specified that in addition to renting the land, Terna will also provide RTR S.r.l. with plant maintenance, surveillance and monitoring services, according to multiyear contracts defined in the context of the sale. At the end of the individual rental contracts, Terna will regain possession of the leased areas.