The 2011-2015 Terna Group Strategic Plan, presented to the financial community on February 14th 2011, propose a new strategy, that combines the traditional regulated activities with other non traditional initiatives. The new Plan is based on the most updated macro-scenario assumptions, taking into account also long-term sector trends. In terms of:
 

- capex acceleration - in the next five years Terna will invest approximately 5 billion euros in traditional regulated activities (15% more compared to the previous Plan). The annual average RAB growth is expected at 6.6%. Almost 1 billion euro could be invested in non traditional activities;


- margin enhancement - l’EBITDA margin will raise from 74% (2010 preliminary figure) to 78% at the end of the Plan, mainly driven by regulated revenues increase; 


- sustainability of capital structure - during the Plan period Terna is committed to maintaining the debt on RAB ratio always below 60%. This ratio is compatible with the huge capex plan, the dividend policy and will allow to preserve Group high credit rating;


- dividend policy - the new Plan confirms the 4% annual dividend growth (2008 as reference year) and on top the distribution of a part of non traditional activities disposal proceeds.

Growth drivers and Financial Targets


Traditional Regulated Activities




National Grid Development Plan


The new National Grid Development Plan foresees 7.5 billion euro development capex for 2011-2020 period (up by 600 mn versus the previous plan). 3.8 billion euro of these will be spent in the first 5 years.




Terna’s Capex Plan
 

In the next 5 years, approximately 5 billion euro will be invested in the National Grid, 700 million euro or 15% more compared to the previous Plan (4.3 billion euro).
Development investments eligible to receive incentives are nearly 82% of the total capex and increased to 4 billion euro (from 3.3 billion of the previous plan).

This is an important but sustainable challenge for Terna, as already demonstrated by the significant results obtained in the last few years. Implementing all the projects is expected to involve 200 companies for a total work force of 10,000 people.

The Plan includes important projects realization, among which the Italy-Montenegro interconnection, the new Sardinia-Corsica-Italia (Sa.Co.I) cable and the Sorgente-Rizziconi connection (between Sicily and Calabria). The Plan also foresees the electricity grid rationalization in the country’s largest metropolitan areas (Milan, Turin, Genoa, Rome, Naples and Palermo), and new power stations for collecting and inputting renewable energy into the Grid. Overall, more than half of the capex foreseen in the National Development Plan will be invested in Central-South Italy, and another 15% in the Islands.




Main Financial Targets/Traditional Regulated Activities/RAB Evolution


The investments acceleration is reflected on the RAB, that will growth from 9 billion euro to 12.4 billion euro at the end of the Plan, with a compound annual growth of 6.6%. The increase in development capex will bring an improvement in RAB remuneration rate, that at the end of the Plan will reach 8%.




Main Financial Targets/Traditional Regulated Activities/Operational Efficiency


In the period the regulated revenues annual growth will be 6%, mainly driven by increase in capex. During the plan EBITDA will grow by 5% and core opex will remain under control despite the significant increase in investments. These factors will allow to improve Terna profitability from the current 74% to 78% at the end of the Plan period.
 



Main Financial Targets/Traditional Regulated Activities/Non Traditional Activities


Terna, taking into account as priority the maintenance of its financial solidity profile, is analyzing investment opportunities for about 1 billion euro in non-traditional activities during the Plan period, relying on its expertise and know-how acquired in managing big infrastructures and on its extensive knowledge of the electricity market. The strategic option to investigate non traditional activities comes from the analysis of the structural sector trends. The need to reduce greenhouse gas emissions, the focus on energy savings and low-carbon innovation, are leading to a gradual reshape of the energy market, creating new business opportunities for Terna.

Among these:
 

- Renewable generation capacity - The boost in renewable generation capacity is the first tangible response to the decarbonisation. In 2011 Terna will develop 50 MWp additional portfolio of photovoltaic projects. Moreover, the strong increase in renewables generation (mainly in South of Italy) implies an increase in volatility and bottlenecks, that will be reduced through new infrastructures and storage systems.


- Infrastructural Needs - In addition to the National Grid reinforce, Terna will examine investments opportunities in the Balkan area regarding building and managing grid infrastructures for the renewable capacity connection to the local Grid.


- Storage Systems - In case of supportive regulatory regime, Terna could invest in the energy storage sector. These investments will improve grid efficiency and safety in the most congested areas.


- Energy Efficiency - Local municipalities are studying energy efficiency programs. This gives Terna the opportunity to support Public Administrations by adopting an integrated business model known as ESCO (Energy Service Company).

Main Financial Targets/Capital Structure
 

Cash absorption generated by the investment plan and by the dividend policy will lead to a 2.6 billion euro increase in the net financial debt at the end of the Plan, lower than what indicated in the previous industrial Plan.
Capital structure will remain solid: during the Plan period, the ratio between debt and the RAB will remain below 60%.
Debt conditions, also linked to the Group’s excellent rating, will remain highly competitive.
 


Main Financial Targets/Dividend Policy



The dividend policy announced in November 2009 is confirmed, that foresees a 4% annual growth (with 2008 as reference years) semi-annual coupons, divided into interim and final dividends. As already occurred with the sale of Terna Participações, a part of the capital gains related to non-traditional activities disposal may integrate the above-mentioned policy, to guarantee the stability of the dividends in the coming years.

- Sustainable growth
Since 2005 Terna invested 4 billion euro on the National Transmission Grid, almost double the amount promised in the first Strategic Plan presented in 2006. As a consequence, the Regulated Asset Base (RAB) is almost twice, increasing from the initial 5.3 billion euro to 9.7 billion euro. The growth in km of circuit lines under management (from 39,000 to 63,000 km) allows Terna to rank as the 1st independent TSO in Europe and the 7th in the world;


- Operational efficiency
Margins improved from 66% to 74%, mainly driven by the increase of revenues and cost control;


- Financial discipline
The strong cash flows generation, the selective M&A and the optimization of the capital structure allowed Terna to preserve a solid credit profile;


- Shareholder value
During these years Terna returned 1.7 billion euro to shareholders, with a 10% dividend per share annual compound growth.