Avio S p A : Corporate Governance and ownership structure report 2023

CORPORATE GOVERNANCE AND OWNERSHIP

STRUCTURE REPORT

FY 2023

IN ACCORDANCE WITH ARTICLE 123-BIS OF THE CFA AND 89-BIS OF THE CONSOB ISSUERS' REGULATION

(traditional administration and control model)

Issuer: Avio S.p.A.

website:www.avio.com

Report approval date: March 13, 2024

Contents

GLOSSARY .................................................................................................................................... 4

INTRODUCTION ........................................................................................................................ 8

1. ISSUER PROFILE .............................................................................................................. 9

• 2. INFORMATION ON THE OWNERSHIP STRUCTURE .................................... 11

• 2.1 Share capital structure (as per Article 123-bis, paragraph 1, letter a) CFA ................ 11

• 2.2 Restrictions on the transfer of shares (as per Article 123-bis, paragraph 1, letter b),

  CFA) .................................................................................................................................... 12

• 2.3 Significant share holdings (as per Article 123-bis, paragraph 1, letter c), CFA) ....... 12

• 2.4 Special control rights (as per Article 123-bis, paragraph 1, letter d), CFA) ............... 13

• 2.5 Voting rights mechanism for any employee share ownership system (as per Article

  123-bis, paragraph 1, letter e) of the CFA) .................................................................... 13

• 2.6 Voting rights restrictions (as per Article 123-bis, paragraph 1, letter f), CFA) ......... 13

• 2.7 Shareholder agreements (as per Article 123-bis, paragraph 1, letter g), CFA) .......... 13

• 2.8 Change of control clause (as per Article 123-bis, paragraph 1, letter h), CFA) and

  statutory provisions concerning Public Purchase Offers (Article 104, paragraph 1-

  ter and 104-bis, paragraph 1, CFA) .................................................................................. 13

• 2.9 Power to increase the share capital and authorization to purchase treasury shares

  (as per Article 123-bis, paragraph 1, letter m), CFA) .................................................... 14

• 2.9.1. Share capital increases ............................................................................................................ 14

• 2.9.2. Treasury shares ...................................................................................................................... 15

• 2.10 Management and co-ordination activities (as per Article 2497 of the Civil Code).. 16

• 3. COMPLIANCE (AS PER ARTICLE 123-BIS, PARAGRAPH 2, LETTER A),

  CFA) .................................................................................................................................... 16

• 4. BOARD OF DIRECTORS ............................................................................................ 16

• 4.1 Appointment and replacement (as per Article 123-bis, paragraph 2, letter l), CFA) 17

• 4.2 Composition (as per Article 123-bis, paragraph 2, letter d) of the CFA) .................. 23

• 4.2.1. Members of the Board of Directors ......................................................................................... 23

• 4.2.2. Diversity policies .................................................................................................................... 34

• 4.2.3. Maximum number of offices permitted in other companies ....................................................... 35

• 4.2.4. Induction Programme ............................................................................................................. 38

• 4.3 Role of the Board of Directors (as per Article 123-bis, paragraph 2, letter d), of the

  CFA) .................................................................................................................................... 38

• 4.4 Self-assessment .................................................................................................................. 43

• 4.5 Executive bodies ............................................................................................................... 44

• 4.5.1. Chief Executive Officer .......................................................................................................... 44

• 4.5.2. Chairperson of the Board of Directors ..................................................................................... 51

• 4.5.3. Vice-Chairperson of the Board of Directors ............................................................................ 51

• 4.5.4. Executive Committee ............................................................................................................. 51

• 4.5.5. Reporting to the Board of Directors ......................................................................................... 52

• 4.6 Other Executive Directors .............................................................................................. 52

• 4.7 Independent Directors ..................................................................................................... 52

• 4.8 Lead Independent Director ............................................................................................. 52

• 5. PROCESSING OF CORPORATE INFORMATION ............................................. 53

• 6. INTERNAL COMMITTEES TO THE BOARD OF DIRECTORS .................... 57

• 7. APPOINTMENTS AND REMUNERATION COMMITTEE ............................. 58

• 8. CONTROL AND RISKS COMMITTEE ................................................................... 59

• 9. SUSTAINABILITY COMMITTEE ............................................................................. 61

• 10. REMUNERATION OF DIRECTORS ....................................................................... 62

• 11. INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM ..................... 62

• 11.1 Executive Director in charge of the Internal Control and Risk Management System

  66

• 11.2 Internal Audit Manager .................................................................................................... 67

• 11.3 Organisational model as per Legislative Decree No. 231 of 2001 ............................. 68

• 11.4 Independent audit firm ..................................................................................................... 69

• 11.5 Executive Officer for Financial Reporting .................................................................... 69

• 11.6 Co-ordination of the parties involved in the Internal Control and Risk Management

  System ................................................................................................................................. 71

• 12. DIRECTORS' INTERESTS AND RELATED PARTY TRANSACTIONS ....... 71

• 13. APPOINTMENT OF STATUTORY AUDITORS .................................................. 73

• 14. COMPOSITION AND FUNCTIONING OF THE BOARD OF STATUTORY

  AUDITORS ....................................................................................................................... 75

• 15. SHAREHOLDER RELATIONS .................................................................................. 82

• 16. SHAREHOLDERS' MEETINGS ................................................................................ 83

• 17. ADDITIONAL CORPORATE GOVERNANCE PRACTICES .......................... 85

• 18. CHANGES SUBSEQUENT TO THE YEAR-END ............................................... 86

• 19. CONSIDERATIONS ON THE LETTER OF DECEMBER 18, 2023 OF THE

  CHAIRPERSON OF THE CORPORATE GOVERNANCE COMMITTEE... 86

GLOSSARY

The main terms used in the Report are presented below. These terms, except where otherwise specified, are defined as follows:

Shareholders' Meeting	The Shareholders' Meeting of the Issuer
Borsa Italiana	Borsa Italiana S.p.A., a London Stock Exchange Group company, with registered office at Piazza degli Affari No. 6, Milan.
Civil Code	Royal Decree No. 262 of March 16, 1942 - XX and subsequent amendments and supplements.
Code or CG Code	The Corporate Governance Code for listed companies approved in January 2020 by the Corporate Governance Committee.
Inside Information Processing Policy	The Inside Information Processing Policy aimed at regulating, in accordance with Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, market abuse conduct and related delegated and executive regulations. The Code was last updated and approved at the September 9, 2022 Board meeting.
Board of Statutory Auditors	The Board of Statutory Auditors of the Issuer.
CG Committee	The Italian Committee for the Corporate Governance of listed companies, promoted by Borsa Italiana S.p.A., ABI, ANIA, Assogestioni, Assonime and Confindustria.
Control and Risks Committee	Internal committee to the Board of Directors set up in accordance with Article 6 of the Corporate Governance Code.
Appointments and Remuneration Committee	Internal committee to the Board of Directors set up in accordance with Articles 4 & 5 of the Corporate Governance Code.
Planning and Scenarios Committee	Internal committee to the Board of Directors set up in accordance with Article 12.2 of the company By-Laws.
Board or Board of Directors	The Board of Directors of the Issuer.
Sustainability Committee	Internal committee to the Board of Directors set up in accordance with Article 6 of the Corporate Governance Code.
Consob	The National Commission for Companies and the Stock Exchange, with registered office

Group company,

XX and subsequent

The National Commission for Companies and the Stock

in Rome, Via G.B. Martini No. 3.
Effective Merger Date	April 10, 2017.
Listing Date	The trading commencement date of ordinary shares and warrants of Space2 on the MIV professional segment, i.e. July 31, 2015.
NFS	The 2023 Consolidated Non-Financial Statement, as required by Legislative Decree No. 254/2016, by the Issuer for the purpose of reporting on the Group's performance for the year ended December 31, 2023.
Issuer, Avio or Company	Avio S.p.A., with registered office at via Leonida Bissolati No. 76, Rome, enrolled at the Rome Companies Registration No. 27 and Tax No. 09105940960.
ESA	European Space Agency.
Year	The fiscal year 2023.
EXM (STAR segment)	The Euronext Milan market, STAR segment, in which the shares of mid-cap companies are traded which fulfil particular disclosure and corporate governance requirements. STAR stands for Segmento Titoli con Alti Requisiti (Securities with High Requirements Segment).
DPCM 24/11/2016	Prime Ministerial Decree of November 24, 2016 on the exercise of special powers for the defence and national security system with respect to the significant transaction regarding the merger between Space2 and Avio, approved by Space2's Shareholders' Meeting on December 1, 2016.
Merger	The merger by incorporation of the Incorporated Company into Space2, approved by the Extraordinary Shareholders' Meeting of Space2 and that of the Incorporated Company on December 1, 2016, and completed on the Effective Merger Date.
Avio Group or Group	Collectively, Avio S.p.A. and its subsidiaries pursuant to Article 2359 of the Civil Code and Article 93 of the Consolidated Finance Act and IFRS 10 - Consolidated Financial Statements.
In Orbit	The Company In Orbit S.p.A., with registered office at via Latina SP 600 Ariana Km 5.2 SNC, Colleferro (Rome), Rome Companies Registration Office No. 14029441004.
Stock Exchange Instruction Regulation	The Instructions to the Regulation for Markets organised and managed by Borsa Italiana, in force at the reporting date.
Leonardo	Leonardo S.p.A., a joint-stock company governed by Italian law, with registered office at Piazza Monte Grappa No. 4, Rome.
Golden Power Regulation	Refers to Decree-Law No. 21 of March 15, 2012, converted

The Instructions to the Regulation for Markets organised and

or Decree-Law 21/2012	with Italian Law No. 56 of May 11, 2012 setting forth "Provisions on special powers concerning the ownership structure of companies in the defence and national security sectors, as well as strategic activities in the energy, transport and communications sector" and relative implementing provisions.
Transaction	The significant transaction approved by Avio S.p.A.'s Shareholders' Meeting on December 1, 2016, principally the Merger.
SMEs	Small and medium-sized issuers of listed shares pursuant to Article 1, paragraph 1, letter w-quater), of the CFA.
Shareholder Engagement Policy	The Policy approved - upon proposal of the Chairperson in agreement with the Chief Executive Officer, as well as subject to the favourable opinion of the Control and Risks Committee - by the Issuer's Board of Directors on March 3, 2022, also taking into account the commitment policies adopted and notified to the public by institutional investors and active managers and in line with Recommendation No. 3 of the CG Code.
Policy on qualitative and quantitative criteria	The Policy on qualitative and quantitative criteria for assessing the independence requirements of Directors and Statutory Auditors, adopted by the Issuer on March 14, 2022, pursuant to Recommendation 7, first sentence, points c) and d) of Article 2 of the CG Code.
RPT Policy	The Related Party Transactions Policy adopted by the Issuer in compliance with the provisions of Article 2391-bis of the Civil Code and the Related Parties Regulation.
Stock Exchange Regulation	The Regulation of Markets organised and managed by Borsa Italiana, approved by the Borsa Italiana Board of Directors, in force at the reporting date.
Issuers' Regulation	The enacting regulation of the CFA concerning the governance of issuers, adopted by Consob with motion No. 11971 of May 14, 1999 and subsequent amendments and supplements.
MAR Regulation	Regulation (EU) No. 596/2014 of the European Parliament and Council of April 16, 2014 on market abuse which nullifies Directive 2003/6/EC of the European Parliament and Council and Directives 2003/124/EC, 2003/125/EC and 2004/72/EC of the Commission.
Consob Market Regulation	The Market Regulation issued by Consob Resolution No. 20249 of December 28, 2017.
RPT Regulation	The regulation incorporates the related party transactions provisions adopted by Consob Resolution No. 17221 of March 12, 2010 (as subsequently amended

The regulation incorporates the related party transactions

and supplemented).
Report	This Corporate Governance and Ownership Structure Report, prepared in accordance with Article 123-bis of the CFA.
Remuneration Report	The Remuneration Policy and Report that companies are required to prepare and publish in accordance with Article 123- ter of the CFA and Article 84-quater of the Consob Issuers' Regulation.
Subsidiary Companies	The companies directly or indirectly controlled by the Company pursuant to Article 93 of the CFA. "Control" and "to control" have the corresponding meanings.
Independent audit firm	The independent audit firm listed in the special register of independent audit firm managed by the Ministry for the Economy and Finance, pursuant to Legislative Decree No. 39 of January 27 2010, tasked with the independent audit of the Issuers' accounts.
Incorporated Company	Avio S.p.A., with registered office at via No. Leonida Bissolati No. 76, Rome, operating office at SP Ariana Km 5.2, Colleferro (RM), Tax, VAT and Rome Companies Office Registration No. 05515080967, REA No. 1177979.
Space2	Space2 S.p.A., with registered office in Milan, Via Mauro Macchi, No. 27, Milan Companies Registration Office and Tax No. 09105940960.
Space Holding S.r.l.	Space Holding S.r.l., with registered office at Piazza Cavour No. 1, Milan, the Company establishing Space2 as sole shareholder on May 28, 2015, promoting its listing on the MIV.
By-Laws	The By-Laws of the Company in force at the reporting date.
CFA	The "Consolidated Finance Act", adopted under Legislative Decree No. 58 of February 24, 1998, as subsequently amended and supplemented.

INTRODUCTION

This Report, approved by the Board of Directors on March 13, 2024, provides a comprehensive overview on the Issuer's Corporate Governance at March 13, 2024, pursuant to Article 123-bis of the CFA and in light of the Code's provisions, as well as the "Format for the Corporate

Governance and Ownership Structure Report" document (IX Edition, January 2022) prepared by Borsa Italiana.

On April 10, 2017, the Merger became effective - i.e. the merger by incorporation of the Incorporated Company into Space2 (now Avio S.p.A.), as a result of which Space2 (now Avio S.p.A.), assumed all rights and obligations of the Incorporated Company and was renamed "Avio S.p.A.". The definitions "Company", "Avio" and "Issuer" refer in this Report to the Company resulting from the Merger.

On March 29, 2017, Borsa Italiana approved, effective as of April 10, 2017, the listing of ordinary

Avio shares on the EXM market, STAR Segment (formerly "Mercato Telematico Azionario"),

with the simultaneous discontinuation of trading on the MIV market.

* * *

1.

ISSUER PROFILE

The Avio Group is the leader in the manufacturing and development of solid and liquid propulsion systems for launchers, acting as sub-contractor and prime contractor for the Ariane and Vega space programmes, both funded by the ESA. These space programs seek to develop and manufacture launchers to position useful loads in geostationary and low orbit, respectively.

Avio intends to contribute to precise ESG - Environmental, Social and Governance - objectives through a progressive improvement of its performance, correlated to business objectives and in line with the SDGs.

In this regard, during the Board meeting of July 22, 2021, Avio approved the Sustainability Policy, initiating a concrete path to strengthen and implement the values of ethics, integrity and responsibility in respect of people, the environment and society as a whole, and in order to integrate sustainability in the strategy and management of its business, defining with the different Company departments, the Sustainability Committee and the Board of Directors, the objectives to be enhanced in a Sustainability Plan aligned to the Strategic Plan and the Audit Plan. Based on the aforementioned Sustainability Policy, the Sustainability Plan was prepared, founded upon qualitative and quantitative ESG indicators to be developed over a five-year timeframe, subject to monitoring by the relevant corporate owners, who report at least semi-annually to the Sustainability Committee.

Moreover, it is committed to managing dialogue with all its shareholders through fair, transparent and differentiated forms of engagement, believing that establishing and maintaining a constant and ongoing relationship with all the main stakeholders is in its own specific interest, as well as a duty towards the market.

In this sense, on March 3, 2022, Avio's Board of Directors approved an ad hoc policy in order to conform the rules of corporate governance and the management of the dialogue with the Shareholders to the principles established by the Corporate Governance Code. In fact, the Policy intends to pursue the objective of raising the level of transparency and involvement of investors, as promoted by the Shareholder Rights Directive II with reference to institutional investors and asset managers, as a functional instrument to guarantee the sustainable success of Avio, which is substantiated by the creation of long-term value to the benefit of Shareholders, taking into account the interests of all other stakeholders and the impacts that its operations may have at an environmental, social and economic level.

Pursuant to Legislative Decree No. 254/2016, the Company published the 2023 Non-Financial Statement included in the Directors' Report of Avio's Annual Financial Report (available atwww.avio.com).

Pursuant to the provisions of Article 1, paragraph 1, letter w-quater.1) of the CFA and Article 2-ter of the Issuers' Regulation, the Company was an SME

from the year 2015 to-date. The existence of the requisites to qualify as an SME, as required by the CFA, are confirmed on the basis of:

- the unweighted average of the daily capitalisations calculated with reference to the official price, and recorded during the financial year; and

-the turnover in the same year's consolidated financial statements calculated in compliance with the criteria envisaged in the Annex, paragraph 1.1, of the Regulation on

Sanctions Procedures adopted by Consob with Resolution No. 18750 of December 19, 2013 and subsequent amendments.

We note that:

• - the value of the Company's average capitalisation in 2023 was approx. Euro 230,000 thousand.

• - the turnover in 2023 was Euro 339,813 thousand. The components that contributed to the value of turnover were (i) revenues from the sale of goods and services Euro 31,503 thousand; (ii) the change in contract work-in-progress Euro 308,310 thousand.

Pursuant to Article 2-ter, paragraph 4 of the Issuers' Regulation, these data will be published on the website of Consob which will also publish the list of SME issuers of listed shares.

It should also be noted that the Company does not fall within the Corporate Governance Code's definitions of "large company" and "concentrated ownership company."

Avio's corporate governance system is structured according to a traditional management and control model and consists of the following bodies:

• − the Shareholders' Meeting;

• − Board of Directors, and

• − Board of Statutory Auditors.

Avio's Governance also consists of the following internal committees of Avio's Board of Directors: (i) the Control and Risks Committee; (ii) the Sustainability Committee; (iii) the Appointments and Remuneration Committee; and (iv) the Planning and Scenarios Committee.

Accounting control is required, as per the applicable regulations, by an independent audit firm enrolled in Consob's special register. In accordance with Legislative Decree No. 231/2001, a Supervisory Board was also appointed to oversee the correct functioning of the Organisation, Management and Control Model of the Company, pursuant to Legislative Decree No. 231/2001 and subsequent amendments.

Avio implements and complies with the Corporate Governance Code, approved by the Corporate Governance Committee of Borsa Italiana in January 2020, with the supplements and adjustments for Groups with the features indicated in this report (available on Borsa Italiana's website:http://www.borsaitaliana.it).

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