A2A, Annual report 2021: growth of all economic and financial indicators confirmed ecological transition effort continues

A2A, ANNUAL REPORT 2021:

GROWTH OF ALL ECONOMIC AND FINANCIAL INDICATORS CONFIRMED

ECOLOGICAL TRANSITION EFFORT CONTINUES

• Net profit of 504 million euro, +38% compared to last year (364 million euro in 2020)
• Dividend proposed to the shareholders' meeting of 0.0904 euro per share (of which 0.0824 as ordinary dividend and 0.0080 as extraordinary dividend)
• Ebitda at 1,428 million euro up 228 million euro, +19% compared to 2020 (1,200 million euro) thanks to significant organic growth and M&A operations
• Revenues at 11,549 million euro: +69% compared to the 2020 financial year
• Capex and M&A amounted to 1,790 million euro, roughly double the previous year's figure.
• Net Financial Position of 4,113 million euro, up 641 million euro compared to December 31, 2020. Net of changes in the scope of consolidation and the impact of the new ESMA guidelines (totalling 747 million euro), the NFP improved by 106 million euro to 3,366 million euro.
• 313 GWh production from new photovoltaic and wind energy renewables (129 GWh in 2020)

Sustainability

• 10,732 million euro economic value distributed to stakeholders (+75% compared to 2020)
• +28% green energy sold (5TWh in 2021 compared to 3.9TWh in 2020)
• 44,000 students and teachers involved in environmental education and sustainability projects at national and local level (+78% compared to 2020)
• -5%compared to 2020 weighted accident index
• best sustainability report in the "Energy&Utilities" category, first place in the "ESG Reporting Awards 2021" by ESG Investing Global Markets Media Ltd and second place in the "Best Climate-Related Reporting" category for climate change reporting
• Entry into the MIB ESG Index

The Group's commitment to sustainable finance continues: A2A closed a record 2021 in terms of sustainable finance transactions (Sustainability-LinkedBond for 500 million euro, Green Bond for 500 million euro and RCF Sustainability-Linkedfor 500 million euro), bringing the percentage of sustainable debt over total debt to 44%, above expectations. In addition, in a complex macroeconomic context, A2A successfully issued its second Sustainability-LinkedBond for 500 million euro on 9 March, linked to the achievement of a 2024 sustainability target for installed capacity from renewable sources.

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Milan, 17 March 2022 - The Board of Directors of A2A S.p.A. met today and, under the chairmanship of Marco Patuano, examined and approved the drafts of the separate financial statements and the consolidated annual financial report as at 31 December 2021.

"An unprecedented volatility in energy prices earmarked 2021 and it is still presently unsettling the market - comments Renato Mazzoncini, CEO - The A2A Group has confirmed its solidity in facing changes in the scenario, growing in all economic and financial indicators. We have achieved for the first time an ordinary profit of 400 million euro, not so much because of the higher profitability of renewables, but due to contingent factors such as the excellent performance of the ancillary services market.

These conditions made it possible a proposal of total dividend of 0.0904 euro per share, equal to 283 million euro, adding, on top of the planned growth, an extraordinary dividend component of 0.008 euro per share (equal to 25 million euro)".

The results recorded in 2021 showed significant and solid economic and industrial growth thanks to the contribution of all the Group's Business Units and to the M&A transactions finalized.

In 2021 the A2A Group operated in a context characterised by an increase in energy consumption driven by the post-pandemic economic recovery and by strong turbulence on the commodities market, with the upward trend in energy prices becoming more pronounced, reaching record values, in the final months of the year.

In particular, Italy's net electricity demand in the year under review was 318,075 GWh, an increase of 5.6% compared to 2020.

Moreover, in 2021, the average PUN (Single National Price) for the year more than tripled (+221.3%) compared to the average value for 2020, standing at €125.0/MWh and peaking in December at 281.2 €/MWh. The increase in the PUN price reflects a similar escalation in gas prices at the PSV (Virtual Trading Point) and CO2. In fact, the average cost of gas at the PSV in the year under review was 45.8 €/MWh, up 342.8% compared to the same period last year. CO2 prices stood at an average price of €53.4/mt in 2021 (€24.7/mt in 2020, +116%). This price dynamic contributed significantly to the increase in turnover (+69%). As in 2020 and as early as 2019, A2A has adopted a prudent commodity price hedging policy, aimed at containing risk and volatility in the medium term with hedges of around 90% for fixed-price productions, considerably reducing the effects that a price surge could have had.

However, the Group ensured excellent results in terms of operating margins thanks to the excellent performance of all Business Units and the contribution of the newly acquired companies.

In 2021, A2A also recorded significant industrial growth, in line with the company's strategy based on energy transition and circular economy thanks to:

• Record Capex (1,074 million euro), up 46% on the previous year. In particular, a strong boost was given to development investments (+70% compared to 2020) aimed at recovering energy and materials, upgrading distribution networks, water and sewage networks, purification plants,

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measures to contribute to the adequacy and safety of the national electricity network and the digitalisation of the Group.

• M&A transactions for a total of 716 million euro (145 million euro in 2020) relating to the bioenergy field (acquisition of Agripower, a company managing and developing biogas power generation plants), industrial waste treatment (acquisition of TecnoA, a leading company in southern Italy in this sector) and the increase in installed power from renewable sources (acquisition of 17 photovoltaic plants from Octopus for a total installed capacity of 173MW).

The following are the main economic indicators:

Million euro	12M 2021	12M 2020		Δ%
Revenues	11,549	6,848	+4,701	+68.6%
Gross Operating Margin -	1,428	1,200	+228	+19.0%
EBITDA
Net Operating Income -	660	554	+106	+19.1%
EBIT
Group net profit	504	364	+140	+38.5%

In 2021, the Revenues of the A2A Group amounted to 11,549 million euro, up 69% on the previous year. The increase is attributable to:

• more than 60% to the wholesale energy markets for electricity and gas, mainly due to price increases; to a lesser extent, growth in the volumes sold and brokered in the markets, particularly in electricity, also played a role;
• 25% to the retail markets thanks to the increased quantities sold to customers in the free market and in particular to higher electricity and gas unit prices;

Lastly, new companies acquired in the last quarter of 2020 (AEB Group, Flabrum and Fragea) and in 2021 (Octopus, Agripower) contributed over 6% to the positive change.

EBITDA equalled 1,428 million euro, a rise of 228 million euro compared to 2020 (+19%).

Excluding non-recurring items (+31 million euro in 2021, +13 million euro in 2020), Ordinary EBITDA increased by 210 million euro. Excluding the incremental contribution from the consolidation of AEB and the other companies acquired (around 55 million euro), growth amounted to 155 million euro (+13%).

EBIT amounted to 660 million euro increased by +106 million euro (+19%) compared to 2020 (554 million euro). This change is due to:

• increase in EBITDA, as described above (+228 million euro);
• increase in depreciation and amortisation (119 million euro) mainly related to the investments made by all Business Units in 2021 and the amortisation of the assets of the acquired companies described above;
• a decrease in provisions, net of reversals of provisions for risks and bad debt amounting 5 million euro.

Group Net Profit in 2021 was 504 million euro, an increase of 38% compared to 2020.

This positive change of 140 million euro is due, in addition to the increase in the Net Operating Result, to:

• lower taxes recognised in 2021 compared with the previous year, for a total of 63 million euro,

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resulting from the following factors:

1. a decrease of 145 million euro. As already reflected in the half-yearly report, in application of Decree Law 104/2020, A2A realigned, for certain Group companies, the differences between the higher carrying amount of tangible and intangible assets and their lower value for tax purposes: the net economic effects in 2021 of this transaction, amounting to a total of 145 million euro, are determined by the payment of a substitute tax of approximately 23 million euro and the simultaneous benefit arising from the one-

off reversal of deferred tax liabilities recognised in the financial statements on the differences in carrying amount/tax basis, amounting to 168 million euro;

• 1. an increase of 82 million euro related to higher taxable income and 51 million euro to extraordinary positive items recognised in 2020 (tax recoveries relating to previous years)
• a decrease of 9 million euro in net financial expense, due mainly to the improved conditions in the capital markets when refinancing maturing bonds;
• growth in the share of profit allocated to third parties by 42 million euro due to both the consolidation of the AEB group and the better results recorded during 2021 by the consolidated companies, including the positive effects of the statutory and tax realignment.

Excluding extraordinary items affecting 2021 (mainly reversal of deferred taxes net of the substitute tax on the realignment of assets and extraordinary provisions) and the previous year (tax recoveries relating to previous years and extraordinary provisions), the organic growth of the Group's Ordinary Net Profit is 65 million euro (+19%).

The Consolidated Net Financial Position at 31 December 2021 amounted to 4,113 million euro (3,472 million euro as at 31 December 2020). Excluding perimeter changes in 2021 and the application of the new ESMA (European Securities and Markets Authority) guideline - totalling 747 million euro - the NFP stands at 3,366 million euro, recording cash generation of 106 million euro, after total investments of 1,074 million euro and dividends of 248 million euro.

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A2A Group - Results by Business Unit

The following table shows the composition of the Gross Operating Margin by Business Unit:

It should be noted that with effect from 1 January 2021, following a change in the organisation, the Public Lighting segment, previously included in the Market Business Unit, is represented in the Networks Business Unit; in order to ensure full comparability, the values relating to the Market Business Unit and the Networks Business Unit have therefore been restated.

Million euro	12.31.2021	12.31.2020	Change	Change %
Generation and Trading	368	269	99	36.8%
Market	214	202	12	5.9%
Waste	341	282	59	20.9%
Smart Infrastructures	538	471	67	14.2%
Corporate	-33	-24	-9	37.5%
Total	1,428	1,200	228	19.0%

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Generation and Trading Business Unit

Revenues amounted to 8,095 million euro, an increase of 4,234 million euro (+109.7%) compared to the previous year. The change was due to the increase in electricity and gas prices and, to a lesser extent, to higher volumes sold and brokered, particularly on the electricity market.

EBITDA of the Business Unit amounted to 368 million euro, an increase of 99 million euro compared to the previous year. Net of the non-recurring items recorded in the two periods (+10 million euro in 2021 and +8 million euro in 2020), ordinary EBITDA increased by 97 million euro.

The positive change is mainly attributable to:

• extraordinary results achieved in the ancillary services market ("MSD"), thanks to the opportunities that emerged as a result of Terna's requests because of exceptionally critical grid conditions in the last few months of 2021;
• excellent performance of the trading portfolio;
• the contribution of newly acquired photovoltaic and wind power plants (+184 GWh of photovoltaic and wind power production compared to 2020).

The change in the wholesale price of electricity (PUN), which characterised both 2021, with an upward trend, and 2020, with a downward trend, did not produce significant results for the margins of the industrial electricity portfolio following the hedging policies adopted by the Group, which significantly mitigated the effects.

The positive impacts were partly offset by:

• lower hydroelectric production (-177GWh compared to 2020);
• negative effects of the energy scenario on the gas portfolio;
• higher charges for hydroelectric fees due to both the variable portion and free energy to be paid and the fixed component for some plants.

Capex in 2021 amounted to approximately 144 million euro and included extraordinary maintenance work of 87 million euro, of which 64 million euro at thermoelectric plants and 19 million euro at the Group's hydroelectric plants.

Furthermore, in 2021, development work totalling 54 million euro was carried out, mainly aimed at guaranteeing the coverage of peak demand and the balancing of fluctuating energy requirements in the electricity grid (gas turbines at the combined-cycle plants in Cassano and Chivasso and the start-up of projects for endothermic engines in Cassano) in order to contribute to the adequacy and safety of the national electricity system.

Market Business Unit

Revenues amounted to 3,885 million euro (2,515 million euro at 31 December 2020), up 54.5% following the consolidation of the AEB Group and the increase in unit prices and higher quantities sold of both electricity and gas.

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