Edison : closes first half with revenues of 5 billion euros and EBITDA showing strong growth at 426 million euros

PRESS RELEASE

Net loss of 140 million euros (-67 million euros in first half of 2016) due to the volatility related to hedging. Debt further improved to 780 million euros from 1,062 million euros as at December 31, 2016.

Milan, July 26, 2017 - The Edison Board of Directors, met today, examining the Semiannual Report at June 30, 2017, which recorded a significant increase in EBITDA thanks to the good performance booked by all business areas. The increase in demand and prices of gas and electricity, coupled with the contribution made by the new energy and environmental services area, which as from April 2016 includes the results of Fenice, made for a great improvement in the company's industrial performance during the half-year. Edison estimates EBITDA for 2017 to increase to around 700 million euros, taking into account the performance of the first half and seasonal effects.

The Board of Directors approved the merger by incorporation into Edison Spa of Edison Trading Spa, the subsidiary operating in energy management, optimizing the Group's power plants portfolio on wholesale energy markets. The transaction responds to a need for corporate simplification thanks to the integration in Edison Spa of all the activities of the electric power operations: from the purchase of gas for production, to the generation and sale of electricity on energy wholesale markets.

Edison Spa

Foro Buonaparte, 31

20121 Milan

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Group performance at June 30, 2017

During the first half of 2017, demand and prices of gas and electricity significantly increased compared with the same period of last year. This was a consequence of two different phenomena: on the one hand, the difference in temperatures from the seasonal average in January and June and on the other, the lesser availability of electricity from abroad recorded at the beginning of the year. Both these phenomena resulted in the increase in prices.

In particular, in the first half of the year, Italian electricity demand increased by 1.4% to 154.6 TWh from

152.4 TWh in the same period of 2016. The increase in consumption derived also from climate factors, together with the decline in net imports (-18% to 18.4 TWh), supported the increase in thermoelectric production (+11% to 94.5 TWh), which balanced out the downturn to the hydroelectric sector due to the less water available in the period (-14% to 18.5 TWh). The Single National Price (PUN) grew 38% to 51.2 euros per MWh from 37 euros per MWh in the first half of 2016, as a result of the significant increase in thermoelectric generation and the related rise of gas costs.

The trend in demand for electricity has had a significant impact on gas consumption and prices. Gas demand jumped 9.7% to 39.2 billion cubic meters in the first half of the year compared to the same period of 2016 driven by higher thermoelectric power consumption (+21% to 12.3 cubic meters). Consumption for industrial use (+6% to 9.1 billion cubic meters) and residential use (+4% to 16.8 billion cubic meters) also grew as a result of more rigid temperatures in January. This increase in demand resulted in an increase in spot gas prices in Italy coming in at 20.4 cents per cubic meter, up 32% on the same period of last year.

Also positive was the oil price trend that in the first half of the year stood at an average value of 52.8 USD/barrel compared to 41 USD/barrel in the same period of 2016, albeit with a downward trend over the six months. Oil price was impacted by opposite phenomena. The increase was supported by the agreements reached between the OPEC countries and other 10 producing countries on production ceilings, which reduced the availability of raw material on the market and the unplanned interruption of some extraction fields. The greater US production, the disappointing start of the driving season and the definition of measures below market expectations at the May meeting between OPEC countries balanced the upwards trend.

In this context, Edison closed the first half of the year with sales revenues of 4,968 million euros, compared to 5,468 million euros in the same period of 2016. This decline is mainly connected with the lesser proceeds1 from derivative hedging contracts in relation to price dynamics that resulted in an impact particularly on the hydrocarbons operations. Revenues in this business sector came in at 2,821 million euros, recording a decline of 9.3% on the same period of 2016 despite the increase in sales. Revenues from the electric power operations decreased slightly by 4% to 2,544 million euros in the half-year compared to the same period of 2016 due to a decrease in volumes sold as a result of a different portfolio optimization, that more than compensated the increase in average sales prices and the contribution of Fenice2 for 184 million euros (94 million euros in the first half of the previous year).

1. The reduction in revenues on derivative contracts corresponded to a similar reduction in the relative cost item.

2. Fenice has been consolidated since April 1, 2016.

   EBITDA grew by 25.3% reaching 426 million euros from 340 million euros in the first half of 2016 thanks to the good performance of all business areas. In particular, the Adjusted EBITDA3 of the hydrocarbons operations increased significantly to 347 million euros (+33.5% from 260 million euros recorded in the first half last year), thanks to the recovery of the oil scenario, which has resulted in greater profitability of the exploration and production of hydrocarbons. Growth was also recorded in the gas purchases and sales activities that contributes to the Adjusted EBITDA of the business segment for about two-thirds. The Adjusted EBITDA3 of the electric power operations recorded a progression of 7.4% to 131 million euros (122 million euros in the first half of 2016, which included a positive non-recurring item linked to the transaction with SEL for the plants on the Cellina river), mainly benefiting from the increased margins recorded in thermoelectric generation and the contribution of Fenice.

   EBIT was positive for 19 million euros (21 million euros in first half of the previous year). The result was affected by the change in the fair value of the hedging activities of commodities and foreign exchange4, which was negative for 161 million euros (- 77 million euros in the first half of 2016). This change is mainly linked to the realization of hedging derivatives that, as a result of economic hedging strategies to protect margins and of the significant commodities prices fluctuations, determined in past years, starting from 2014, a positive Fair Value that is necessarily reversed in the profit and loss accounts of the following years.

   The before taxes result was negative for 57 million euros (-36 million euros in the first half of 2016), as a result of the aforementioned dynamics and despite the improvement in the cost of debt that had recorded non-recurring charges the previous year. The result has been affected by the disposal transactions communicated so far that have had a negative impact of 48 million euros in the first half of the year (Adriatic LNG, ITG and Istituto Europeo di Oncologia). Edison closed the first half of the year with a loss of 140 million euros (-67 million euros in the same period of 2016) as a result of the aforementioned dynamics. As at June 30, 2017, net financial debt amounted to 780 million euros, a further improvement compared with the 1,062 million euros recorded at the end of 2016, thanks to the positive industrial activity and the improvement of the working capital. Debt falling due within the next 18 months includes the bonds issued in 2010 and maturing in November 2017, for a total nominal amount of 600 million euros. Edison is already considering the terms and conditions for refinancing this expiring date.

   Outlook

   Edison upgrades its EBITDA guidance for 2017 to about 700 million euros.

3. The Adjusted EBITDA is calculated by reclassifying gains/losses on commodities and currency hedges associated with natural gas import contracts in Hydrocarbons Operations and Electric Power Operations, considering only the portion of such gains and losses that refer to the latter. Gross operating profit is adjusted to give readers a fairer understanding of results of operations. The Adjusted EBITDA includes central staff and technical services.

4. Measuring the difference in Fair Value of financial instruments calculated as difference between the expected Fair Value at closing of each financial report and that at closing of the previous year. Realized result is included in EBITDA

Result s of t he G roup' s parent company

The parent company Edison Spa closed the first half of 2017 with a negative net result of 145 million euros (net loss of 20 million euros in the first half of 2016). The result was affected by the negative effect of the disposal of the stakes in Adriatic LNG and ITG and the net change in the fair value of the hedging activities of commodities and foreign exchange (-161 million euros), which is expected to be negative at year end.

Merger by incorporation into Edison of Edison Trading

The Board of Directors approved the merger by incorporation into Edison Spa of Edison Trading Spa (100% owned). The transaction responds to a need for corporate simplification thanks to the integration in Edison Spa of all the activities of the electric power operations: from the purchase of gas for production, to the generation and sale of electricity on energy wholesale markets. The documentation relating to the transaction, as required by current legislation, will be made available to shareholders and the public at the places and under applicable regulatory terms.

Main events of first half of 2017

In April 2017, to cover the financial requirements and the necessary cash flow, Edison was granted two revolving credit facilities maturing in two years. The first, with EDF Sa and for 600 million euros, actually renews an identical one that has reached maturity, the second, with the sole back-up function, has been subscribed by a small number of banks and amounts to 300 million euros.