Significant events

Corporate

Appointment of new Board of Directors and Board of Statutory Auditors

On 13 May 2011, the Shareholders’ Meeting of Terna S.p.A. in addition to approving the separate financial statements at 31 December 2010 and resolving a dividend for the whole of 2010 of €0.21 per share, also appointed the new Board of Directors, whose term of office will expire upon the approval of the financial statements for the year ending 2013. The new Board consists of:

  • Luigi Roth (Chairman);
  • Flavio Cattaneo (Chief Executive Officer);
  • Andrea Camporese[1];
  • Paolo Dal Pino;
  • Matteo Del Fante;
  • Michele Polo;
  • Romano Minozzi;
  • Fabio Buscarini;
  • Salvatore Machì.

Standing auditors were also appointed for the three-year period:

  • Luca Aurelio Guarna (Chairman);
  • Alberto Luigi Gusmeroli;
  • Lorenzo Pozza.

The alternate auditors appointed are Stefania Bettoni and Flavio Pizzini.

The Shareholders’ Meeting appointed PricewaterhouseCoopers S.p.A. to carry out the statutory audit of the accounts for the nine-year period from 1 January 2011 to 31 December 2019.

(1) Resigned on 20 June 2011. In its meeting of 29 July 2011, the Terna Board of Directors resolved the appointment by co-option of Francesco Pensato.

 

Core business

The new “SA.PE.I” power line linking Sardinia to mainland Italy is opened

On 17 March 2011, Terna opened the new SA.PE.I. electric main - acronym for SArdinia-PEninsula-Italian - the first direct electrical connection between Sardinia and the continent.

Terna Rete Italia-Terna transfer of plants for the development and upgrading of the NTG

On 28 April 2011 Terna Rete Italia S.r.l. sold certain transmission plants to the Parent Company Terna, in order to complete a series of strategic development and renewal investments in the NTG in the operational territories of Milan, Rome, Padua, Florence, Naples and Turin. The total price paid for the transaction amounted to €19.3 million.

Terna purchases additional shares in the associate CESI S.p.A.

During the financial year, Terna finalised the purchase of further equity interests in CESI S.p.A., corresponding to 1.5% (on 23 May 2011) and 1% of the share capital (on 15 November 2011), respectively from Tirreno Power S.p.A. and SO.G.I.N. - Società Gestione Impianti Nucleari S.p.A..
Following these transactions, the total equity interest of Terna in the associate stood at 42.406% of the share capital.
CESI S.p.A. develops and manages plants and laboratories for tests, studies and experimental research.

Additional IRES

The “corrective manoeuvre-bis” approved by Italian Law Decree no. 138 of 13 August 2011, converted into Law by Parliament on 14 September, amongst other matters, amended regulations of the “Robin Hood Tax”, establishing an increase for three financial years, from the current additional IRES rate of 6.5% to 10.5% as well as the extension of this additional rate to include companies from the electricity and gas distribution and transmission sector and companies in the renewable energies sector.
It therefore follows that for Terna and the subsidiary Terna Rete Italia, the total IRES tax rate comes to 38%.
This tax increase for the Terna Group has also entailed an overall recalculation of the net provision for deferred tax liabilities of the start of the financial year for approximately €78 million.

New 2012-2015 tariff system

By Resolutions nos. 199/11, 204/11 and 197/11 for the regulatory period 2012-2015, the Authority for Electricity and Gas (AEEG) has established remuneration for the supply of electricity transmission, distribution and measurement services, prices for dispatching and the regulation of the quality of the transmission service for the fourth regulatory period (2012-2015) in addition to the ways in which they are updated in subsequent years. In this regard, please refer to the attachment named “Italy’s regulatory framework” on AEEG Resolutions.

 

International

Acquisition of the shareholding in CGES and agreement for the construction of the electrical interconnection linking Italy to Montenegro

Terna has fully paid-in the capital increase reserved, thereby becoming the shareholder of CGES with 22.09% of the share capital and, as new shareholder, signed the shareholders’ agreement for the new governance system and the industrial contract for investments.

The agreement, which was finalised on 25 January 2011, 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 agreement for the start-up of activities of the Italy-Montenegro work group and confirmed 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 interconnection 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 some €760 million. The investment by CGES for the connection to the existing network and the reinforcement of the local grid will total some €100 million.

Incorporation of new company in Montenegro

On 22 June 2011 Terna incorporated Terna Crna Gora d.o.o. in Montenegro, a limited liability company organised under the laws of Montenegro with an initial share capital of €2 million.

The new company will construct and subsequently run the local transmission infrastructures comprising the Italy-Montenegro electrical interconnection.

 

Non-core business

Photovoltaic project

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 was completed  to RTR Acquisitions 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..

Rete Rinnovabile S.r.l. (including the subsidiary Valmontone Energia S.r.l.), at the date of the sale, held 62 photovoltaic plants - located in 11 different regions of Italy - for a total capacity of 143.7 MWp, of which 101.6 MWp benefit from the Feed-In Tariffs 2010 whilst the remaining 42.1 MWp take advantage of the Feed-In Tariffs of the first quarter 2011.

The sale of the equity interest in Rete Rinnovabile S.r.l. generated total net income of approximately €196 million (of which €147 million recognised in the 2010 consolidated net profit, as contract margin) and the reduction in actual net financial debt of continuing operations of the Terna Group for more than €200 million.

In addition to renting the land, Terna will also provide Rete Rinnovabile S.r.l. with plant maintenance, surveillance and monitoring services, according to multiyear contracts made as part of sale. When the individual rental contracts expire, Terna will regain possession of the leased areas.

Sale of Nuova Rete Solare S.r.l. completed

In implementation of the agreement signed on 29 July 2011, on 24 October 2011, SunTergrid S.p.A. and RTR Holding III S.r.l. (the “Buyer”), a subsidiary of Terra Firma, completed the transfer to the Buyer of 100% of the share capital of Nuova Rete Solare S.r.l.

The company Nuova Rete Solare S.r.l., incorporated on 8 March 2011, by the subsidiary SunTergrid S.p.A. had been vested, under the scope of the Terna Group, to develop the new investment programme in renewable energies (“New photovoltaic project”), which, inter alia, took tangible form through the acquisition of the entire shares in three companies operating under the scope of the non-conventional energy sector: on 18 May 2011, Reno Solar 2 S.r.l.; on 1 June 2011, Lira PV S.r.l.; on 7 June 2011, Solar Margherita S.r.l.. In September, the three companies were merged into the subsidiary NRTS.

As at the sale date, NRTS owns a photovoltaic portfolio (10 sites) with a total capacity of approximately 78.5 MWp, developed and connected but not currently producing. These plants are able to benefit from the incentive tariffs envisaged by the various Energy Accounts, insofar as they had started up by 31 August 2011.

The price agreed in terms of Enterprise Value amounts to €264 million.

Terna provides NRTS with maintenance, surveillance and monitoring services on the plants according to multiyear contracts defined in the context of the sale transaction.

Incorporation of Terna Plus S.r.l.

On 15 December 2011, Terna incorporated the company named “Terna Plus S.r.l.” of limited liability and with share capital amounting to €50,000. The company object is the design, construction, management, development, operation and maintenance of plants, equipment and infrastructures also on the grid and systems, including the diffused accumulation of energy and pumping and/or storage.

 

Finance

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 matures on 15 March 2021 with annual coupon of 4.750% and issue price amounting to 99.245. The share has therefore been priced with a spread of 130 basis points with respect to the mid swap.

The bonds 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 Company’s business plan.

Repayment of syndicate loan

On 8 April 2011 the syndicated bank loan originally taken out on 13 December 2004 and subsequently renegotiated on 10 April 2006 with Banco Bilbao Vizcaya Argentaria S.A., Mediobanca, Intesa Sanpaolo, BNL, Unicredit and Monte dei Paschi di Siena S.p.A. for a total amount of €750 million was repaid.

Use of credit line

Also, on 8 April 2011 the credit line of €500 million signed with Cassa Depositi e Prestiti (CDP) on 2 February 2009 and amended on 22 June 2009 was used.

Renewal of EMTN Programme worth €4 billion

On 20 May 2011, Terna renewed its bond issue programme named the “Euro Medium Term Note Programme” (EMTN) worth €4 billion.

Deutsche Bank and Citigroup were the Joint Arrangers for the programme, which obtained ratings of A+ from Standard & Poors, A2 from Moody’s and A+ from Fitch.

Loan from the European Investment Bank (EIB) to finance a four-year investment plan 2011-2014

On 25 July 2011, Terna S.p.A. signed an agreement with the European Investment Bank (EIB) for a loan of €325 million aimed at strengthening and enhancing the Italian electricity transport system in order to guarantee the safety and efficiency standards required of the transmission service. The loan was disbursed on 1 August 2011.

The loan matures in 2030 and will be repaid in semi-annual instalments as from the sixth year; the annual cost amounts to the 6-month Euribor with a spread of 50 basis points.

Terna rating

On 23 May 2011, in compliance with the criteria of the Agency for “government-related entities”, S&P reviewed Terna outlook from stable to negative, to reflect the action taken on the Italian Government.

On 21 September 2011, the Agency further reduced the long-term rating of Terna S.p.A. from A+ to A with negative outlook, reflecting the downgrading of the Italian Republic, in compliance with S&P criteria for government-related entities.

On 13 December 2011, the agency set the long and short-term rating of Terna to A/A-1 under observation with negative implications, as a consequence of the similar decision made with regard to the rating of the Republic of Italy and the risk that political and social pressure deriving from a worsening of tax and economic restrictions could entail a worsening of the regulatory framework for the company’s transmission business.

On 5 October 2011, Moody’s reduced the long-term rating of Terna of its non-subordinate debt from A2 to A3. The outlook assigned to the rating is negative. At the same time, Moody’s lowered the short-term rating from Prime-1 to Prime-2. This concludes the review begun by Moody’s on 20 June 2011 and follows the agency’s downgrading of Italy’s credit rating from Aa2 to A2 with negative outlook.

On 18 November 2011, Fitch revised the outlook of the rating of Terna S.p.A. from “stable” to “negative” due to uncertainties linked to the Company’s long-term financial profile, in consideration of the evolution of the scenario for Italy’s sovereign rating and the final result of the regulatory review for 2012-2015.

On 19 December 2011, the agency put the A+ rating of Terna’s unsecured senior debt under observation for possible downgrading, as a consequence of the same decision recently made by the Agency with regard to the rating of the Italian Republic.At the same time, Fitch has confirmed both the short-term rating of Terna as F1 and the long-term rating of the issuer as A.