A letter to our stakeholders

Luigi Roth, ChairmanFlavio Cattaneo, Chief Executive Officer

In 2010 Ternai recorded excellent results from the economic point of view. Continuing along the same path as in the previous years, we ended the year with the twentieth quarter in a row of continuous growth, with two-figure increases in revenue, gross margin, and net income. In a nutshell, these are the best numbers ever, the fruit of both advances on the front of traditional activities and new initiatives. These results materialized during the year and were recognized by the financial markets.
In 2010, Terna’s shares appreciated by more than 5 percentage points, bucking the negative trend of the Italian blue chips. Terna was the only European utility to achieve in 2010 its highest value ever. Our satisfaction in presenting these results would not be complete without the awareness of having worked to create value not only for our shareholders, but also for our other stakeholders and for society in general. Therefore, we are anxious to emphasize that – as we had foreseen and promised – 2010 was the year of construction sites. The activities of Terna’s 300 construction sites determined a sharp increase in investment – from 900 million euro in 2009 to 1,162 million euro in 2010, about 30% – in our core activities. In 12 months we constructed more than 1,000 kilometers of new electric lines and 48 new stations. This is an important achievement, because Terna’s infrastructure construction means increased security and better service to the benefit of the entire country, as well as a positive impact on the economy and employment. In 2010, Terna’s construction sites provided employment amounting to that of almost 2,000 full-time employees.

Our revenue in 2010 benefitted from, among other things, the bonuses obtained on the basis of the incentive schemes designed by the regulatory Authority, mainly with regard to the dispatching-service market. These incentives were conceived to generate multiple benefits for the electric system and society through positive performances. With our photovoltaic investment, which was developed and sold in only a few months, we not only earned extra revenue and profits, but also made a concrete contribution to Italy’s environmental objectives through a 10% increase in the generating power of the country’s photovoltaic plants and – when they are operating at full capacity – a reduction of the system’s CO2 emissions by about 135,000 tons a year.

This Report explains clearly our commitment to responsible management of the electricity service and the economic, social, and environmental impacts of our business. An important role is played by our approach to local communities, which we have followed consistently over time and is marked by receptiveness to the needs of stakeholders, our objective of implementing the Grid Developmenti Plan expeditiously being understood. In 2010 we continued to seek agreement on the location of new lines and stations through discussion with the Regions and other local governments concerned by our development projects. One of the new agreements signed was with the regional government of Sicily for the development of the island’s electric grid. Our willingness to discuss did not falter, but on the contrary was intensified, in the presence of protests by local committees, as it was in the case of Friuli-Venezia Giulia, where we also tried out new forms of listening and communicating, characterized, as always, by transparency. In the same spirit, we have also provided all our stakeholders a complete picture of the state of these activities through a dedicated section of our website, called “Terna’s construction sites for Italy”, where we show the works that have been completed and those that are in progress, as well as any that have been held up by delays in the authorization process.

With regard to the environment, in 2010 we continued our active cooperation with the WWF, which led, among other things, to work that enhanced three nature reserves, and with the LIPU in studying the interactions between electric lines and birdlife. In the International Year of Biodiversity, we boosted the installation of nesting boxes on our towers, thus encouraging the nesting of new protected species, such as the European roller, in addition to the traditional presence of raptors. We tried out new, less cumbersome towers with a lighter impact on the landscape and speeded up our plan for eliminating equipment containing oil with PCB, achieving results that exceeded the obligations of the law.

As usual, our people were involved in a training program aimed at the optimal integration of newly hired employees and, especially, at the continuing development of those already working at the Company. A comparison with other large listed companies – an innovation in this Report, which we intend to extend in the future, so that readers can compare the Company’s performance with an external benchmark – shows that Terna is well above average in this respect.

Among the many initiatives in which our people were involved, particularly significant were the meetings – in both local offices and with the central departments – regarding sustainability, and especially the experiences shared by several colleagues who, as volunteers, made a decisive contribution to the construction of an electric line in the Bolivian Andes and thus to the development of the local communities. This was a philanthropic project for sustainable development that Terna supported in partnership with NGO Coopi. The return of value to society was the motive for organizing the Terna Prize 03, an initiative that for the third year promoted Italian artists in their professional development and relations with the international market.

The year 2010 also abounded in recognitions of our commitment to sustainability. Among many others, we would like to mention in particular Terna’s confirmation in the Dow Jones Sustainability Index World and its inclusion in the Index Europe, which numbers us among the most highly capitalized companies with the best sustainability performances. This is a credential that distinguishes us positively in the eyes of the increasingly numerous investors who include non-financial performances in their investment decisions and constitutes an incentive that strengthens our determination to achieve increasingly significant results from the economic, environmental, and social points of view.


          LUIGI ROTH                                                                                                                                                                                                                                  FLAVIO CATTANEO
           Chairman                                                                                                                                                                                                                                     Chief Executive Officer