Consolidated Report

2014

01 Financial review 4 02 Business performance 14 03 Employees 19 04 Main events 20 05 Qualified holdings 28 06 Outlook 30 07 Corporate governance 31 08 Board of Directors statement 50

Consolidated financial statements 51 Independent Auditor's report 141 Supervisory Board's report 147 Remunerations policy 152 Glossary 156 Additional information 159

The term “PT Portugal”, refer to PT Portugal SGPS, SA and its subsidiaries or any of them as the context.

PT Portugal

Telecommunications businesses in Portugal

Customer segment Revenues (Euro million) Residential 708 Personal 622 Enterprise 750 Wholesale and Other 375 Total 2,455

Other telecommunications businesses

Unitel 25% (a) > Angola > Mobile MTC 34% (a) > Namibia > Mobile CVT 40% (a) > Cape Verde > Wireline, mobile Timor Telecom 41% > East Timor > Wireline, mobile CST 51% (a) > São Tomé e Príncipe > Wireline, mobile

(a) These stakes are held by Africatel, which is controlled 75% by PT Portugal.

Other businesses

Innovation, research and development and Service Systems and IT [PT Inovação e Sistemas 100%]; Cloud and Data Centers [PT Cloud and Data Centers, SA 100%] Backoffice and shared services [PT PRO 100%]; Call centers and telemarketing services [PT Contact 100%]

01 Financial review

The financial statements of PT Portugal were presented for the first time on a consolidated basis in 2014, as up to December 2013 only standalone financial statements were available. Consequently, these consolidated financial statements are not comparable to the annual financial statements reported in previous years. As a part of the internal restructuring of Portugal Telecom Group for the purpose of Oi’s share capital increase, PT Portugal acquired a group of companies in 2014, namely PT Finance, the company financing vehicle, PT Centro Corporativo, an entity that provides corporate services to companies of PT Portugal, and PT Participações, the company that controls international businesses in Africa and Timor. Additionally, on 2 May 2014, PT Portugal disposed the investment in Bratel BV, an entity that owned indirectly the investment in Oi. For these reasons, the consolidated financial statements for the year 2014 are not entirely comparable with the consolidated financial statements for the year 2013.

On 5 May 2014, Portugal Telecom subscribed a share capital increase of Oi through the contribution in kind of its 100% interest in PT Portugal, as a result of which PT Portugal is since that date a wholly-owned subsidiary of Oi.

In September 2014, the Board of Directors of Oi decided to sale the investments and businesses held in Africa and Timor, as a result of which those businesses were presented as held for sale assets as at 31 December 2014.

On 8 December 2014, the Board of Directors of Oi accepted the proposal from Altice, S.A. for the disposal of total shares of PT Portugal to Altice Portugal, S.A., a wholly-owned subsidiary of Altice, S.A. On 22 January 2015, this disposal was approved at the General Meeting of shareholders of Portugal Telecom, although is still pending the approval of competition authorities. Under the terms of the agreement between Oi and Altice, the total shares of PT Portugal should be transferred for an amount of Euro 7.4 billion (enterprise value), which includes a deferred payment of Euro 500 million related to PT Portugal future revenues, and that should be deducted from unfunded pension obligations and other net financial liabilities recorded at the entities to be transferred to Altice upon the conclusion of the transaction. This transaction only includes the operations in Portugal and Hungary, and does not include PT Portugal’s investments in Africa and Timor, held by its subsidiary PT Participações, and the investments in Rio Forte Investments SA, which will continue to be held by Oi, S.A..

In 2014, Portuguese telecommunication businesses customer base continued to grow on the back of the success of its convergent offers, namely M4O and M5O, having surpassed 3.6 million RGUs, allowing PT Portugal strengthen its leadership in the converging market reaching a market share of 44% (more 6pp compared to the second operator). In the fixed segment, PT Portugal leads in broadband and voice (total accesses), with market shares of 49% and 54%, respectively. On television, PT Portugal strengthened its position reaching 42% of market share, approaching the leading operator (2pp difference). In the mobile segment, customers in Portugal reached 8 million and MEO maintained its leadership in this segment with 47% market share, despite high penetration of mobile services. Postpaid customers already represent 49% of total customer base, increasing 12pp y.o.y.

PT Portugal | Consolidated Report | 2014 4

01 Financial review

Revenues from Portuguese telecommunications businesses amounted to Euro 2,455 million, EBITDA amounted to Euro 1,030 million, equivalent to a margin of 42.0%, and capex amounted to Euro 328.6 million, equivalent to 13.4% of revenues.

In 2014, consolidated revenues amounted to Euro 2,718 million. PT Portugal consolidated EBITDA stood at Euro 1,053 million, equivalent to a margin of 38.7%, and capex amounted to Euro 384 million, equivalent to 14.1% of revenues. Consolidated operating income amounted to Euro 233 million compared to Euro 191 million in 2013. Excluding the effect of the acquisition of businesses in Africa and Timor in May 2014, consolidated operating income would have increased circa 5% y.o.y.

Notwithstanding operational performance, net income of PT Portugal in 2014 includes certain non-recurring accounting effects related to the business combination between Oi and PT SGPS and the sale by Oi of operations in Portugal to Altice, including (1) a loss of Euro 950 million related to the sale of the indirect investment in Oi to PT SGPS occurred in 1H14; (2) a loss of Euro 69 million related to the transfer of PT Participações to PT Portugal; (3) a loss of Euro 517 million recorded to adjust carrying value of the investment in debt securities of Rio Forte to the corresponding recoverable amount based on the exchange agreement for Oi’s shares, and (4) an estimated loss of Euro 867 million to adjust the carrying value of Portuguese assets to an amount based on Altice offer. These effects, plus financial expenses of Euro 324 million, related mainly to debt service, contributed to a net loss amounting to Euro 2,580 million.

PT Portugal | Consolidated Report | 2014 5

01 Financial review

Consolidated income statement

Euro million 2014 2013 ∆14/13 Unaudited Operating revenues 2,717.8 2,628.3 3.4% Portugal 2,455.1 2,559.6 (4.1)% Residential 707.9 708.8 (0.1)% Personal 622.3 662.3 (6.0)% Enterprise 750.0 796.1 (5.8)% Wholesale, other and eliminations 374.9 392.5 (4.5)% Other and eliminations 262.7 68.7 282.2% Operating costs 1,664.4 1,603.1 3.8% Wages and salaries 372.8 334.4 11.5% Direct costs 472.2 443.6 6.4% Commercial costs 241.4 299.0 (19.3)% Other operating expenses 578.0 526.1 9.9% EBITDA 1,053.4 1,025.2 2.7% Post retirement benefits costs 42.2 40.5 4.3% Depreciation and amortisation 778.3 794.6 (2.0)% Income from operations 232.8 190.2 22.4% Curtailment costs (29) 118 (124.6)% Gains on disposal of fixed assets, net (2) (37) (94.2)% Other cost (gains), net 1,495.4 (81.3) n.m. Income (loss) before financial results and taxes (1,231.3) 190.5 (746.3)% Net interest expenses 286.5 261.4 9.6% Net losses (gains) on financial assets and other investments 976.2 (31.9) n.m. Net other financial losses 41.0 13.8 197.9% Loss before taxes (2,535.1) (52.7) n.m. Income taxes 51.2 78.5 (34.8)% Income before non-controlling interests (2,586.3) (131.2) n.m. Losses (income) attributable to non-controlling interests (6.7) 1.7 (493.9)% Consolidated net income (2,579.6) (132.9) n.m.

Consolidated operating revenues

In 2014, consolidated operating revenues increased by Euro 89 million (3.4% y.o.y) to Euro 2,718 million, as compared to Euro 2,628 million in 2013, reflecting higher contribution from international operations (Euro 203 million), namely African businesses, consolidated as from May 2014, following the acquisition of PT Participações by PT Móveis. This effect was partially offset by revenue decline in Portuguese telecommunication businesses (Euro 104 million), penalised primarily by Personal (Euro 40 million) and Enterprise (Euro 46 million) customer segments.

In 2014, revenues from Portuguese telecommunication businesses decreased by 4.1% (Euro 104 million) to Euro 2,455 million, penalised by (1) the Enterprise customer segment (-5.8% y.o.y), impacted by strong cost cutting initiatives, significant reduction in investments in new projects by the private sector and competitiveness of the

PT Portugal | Consolidated Report | 2014 6

01 Financial review

market, (2) revenue decline in the Personal customer segment (-6.0% y.o.y), as a result of lower customer revenues, reflecting lower and volatile recharges as a result of difficult economic conditions, price competition and migration to lower tariff plans, and (3) a reduction in revenues from wholesale and other businesses (-4.5% y.o.y), as a result of lower accesses and traffic revenues and lower revenues from the directories business against a backdrop of increased popularity of alternative online tools. Revenues from Residential customer segment continue to be impacted by pricing and competitive dynamics, nevertheless remained broadly stable, benefitting from continued market share gains of MEO’S quadruple and quintuple-play offers.

In 2014, other revenues, including intra-group eliminations, increased by 282.2% y.o.y (Euro 194 million) to Euro 263 million, reflecting mainly a higher contribution from international operations (Euro 203 million), namely African businesses, which were consolidated as from May 2014.

In 2014, according to the information released by telecom operators in Portugal, PT Portugal’s revenues in its telecommunications business in Portugal have had a lower reduction over last year when compared to the Portuguese telecommunications market.

Consolidated operating costs (excluding PRBs and depreciation and amortisation)

Consolidated operating costs excluding depreciation and amortisation costs and post retirement benefits increased by Euro 61 million (3.8% y.o.y) to Euro 1,664 million in 2014, as compared to Euro 1,603 million in 2013, reflecting primarily a lower contribution from Portuguese telecommunications business (Euro 44 million), explained by: (1) lower commercial costs, due to lower costs of goods sold and lower marketing expenses, notwithstanding the marketing campaigns supporting the rebranding of the domestic mobile business from TMN to MEO started in 2013, and (2) lower third party services and other operating expenses, primarily explained by a relentless focus on cost cutting and profitability and also an increase in maintenance productivity due to the implementation of new generation access networks (FTTH). These effects were partially offset by the contribution of international operations, namely Africatel businesses, that were consolidated as from May 2014 following the acquisition of PT Participações.

Wages and salaries increased by Euro 38 million (+11.5% y.o.y) to Euro 373 million in 2014, as compared to Euro 334 million in 2013, explained primarily by the contribution of international operations and PT Centro Corporativo that were consolidated as from May and April 2014 (Euro 42 million). Wages and salaries from Portuguese telecommunication businesses increased by Euro 14 million in 2014 compared to 2013, mainly due to the consolidation of a support company as from January 2014, nothwithstanding higher efficiency levels at certain processes and lowers costs due to the restructuring plans implemented in 2Q13 and 3Q14. These effects were offset by a lower contribution from Portuguese support companies, benefitting from the transfer of PT Cloud e Data Centers to the Portuguese telecommunications businesses, as from January 2014, which had personnel costs of Euro 18 million in 2013.

Direct costs increased by Euro 29 million (+6.4% y.o.y) to Euro 472 million in 2014, as compared to Euro 444 million in 2013, reflecting the consolidation of international businesses as from May 2014 (Euro 17 million) and a higher contribution from the Portuguese telecommunications business, explained by higher traffic costs that were partially offset by a reduction in programming expenses and lower costs associated with the directories business.

PT Portugal | Consolidated Report | 2014 7

01 Financial review

Commercial costs, which include costs of products sold, commissions and marketing and publicity, decreased by 19.3% y.o.y (Euro 58 million) in 2014 to Euro 241million, as compared to Euro 299 million in 2013, reflecting primarily a reduction in Portuguese telecommunications businesses, as a result of lower costs of goods sold and also lower marketing expenses, notwithstanding the marketing campaigns supporting the rebranding of the domestic mobile business from TMN to MEO started in 2013.

Other operating costs, which mainly include support services, supplies and external services, indirect taxes and provisions, increased by 9.9% y.o.y (Euro 52 million) in 2014 to Euro 578 million, as compared to Euro 526 million in 2013, reflecting primarily a lower contribution from Portuguese telecommunications business, mainly as a result of PT Portugal focus on cost cutting and profitability.

EBITDA

EBITDA Euro million 2014 2013 y.o.y Telecommunications in Portugal 1,030.1 1,091.0 (5.6)% Other 23.3 (65.8) n.m. EBITDA 1,053.4 1,025.2 2.7% EBITDA margin (%) 38.8% 39.0% (0.2pp)

In 2014, consolidated EBITDA increased by Euro 28 million (+2.7% y.o.y) to Euro 1,053 million, as compared to Euro 1,025 million in 2013, explained primarily by the consolidation of international operations as from May 2014 (Euro 91 million), effect that was partially offset by a decline in Portuguese telecommunications businesses (Euro 61 million) mainly due to lower revenues.

EBITDA from Portuguese telecommunication businesses amounted to Euro 1,030 million in 2014 (-5.6% y.o.y). This performance is the result of the decline in service revenues (Euro 75 million), which have high operating leverage, and also lower margin in new services provided by the Enterprise segment, effects that more than offset cost cutting efforts and increased efficiency that translated into lower opex (Euro 44 million), namely: (1) lower commercial costs mainly due to lower costs of goods sold and marketing expenses, and (2) lower third party services and other operating expenses, primarily explained by a relentless focus on cost cutting and profitability, an increase in maintenance productivity due to the implementation of new generation access networks (FTTH) and also benefitting from the adverse weather conditions in 1Q13 that led to an increase in maintenance expenses in that period.

Notwithstanding the strong competition in Portuguese telecommunications market in 2014, based on information disclosed by the main domestic telecom operators, PT Portugal's EBITDA from its telecommunications business segment have registered a better performance compared to the Portuguese telecommunications market. This performance is largely explained by an increase in maintenance productivity and the effort to contain operating costs.

PT Portugal | Consolidated Report | 2014 8

01 Financial review

Net Income

Depreciation and amortisation costs amounted to Euro 778 million in 2014, as compared to Euro 795 million in 2013, a reduction of Euro 16 million that reflects mainly lower depreciation and amortisation expenses in the Portuguese telecommunications business (Euro 59 million), explained by the continuous decline in capex occurred in recent years against the backdrop of the investments in future proof technologies and networks undertaken previously, namely in FTTH and 4G-LTE coverage. These effects were partially offset by the contribution from other international operations (Euro 44 million) that were consolidated as from May 2014.

Net other losses amounted to Euro 1,495 million in 2014 as compared to net other gains of Euro 81 million in 2013. In 2014, this caption includes mainly: (1) an impairment loss amounting to Euro 867 million recorded to adjust the carrying value of portuguese telecommunications businesses to Altice’s offer; (2) an impairment loss of Euro 517 million recorded to adjust carrying value of the investment in debt securities of Rio Forte for the corresponding market value of Oi’s shares to be received under the exchange agreement entered into with PT SGPS; (3) a loss of Euro 69 million related to the acquisition of PT Participações. In 2013, this caption includes: (1) a gain resulting from the settlement of contractual obligations related to the acquisition of the investment in Oi in 2011, by a lower amount than the liability initially recognised; (2) a gain related to the wireline Concession Agreement, and (3) certain provisions and adjustments recognised in order to adjust the carrying value of certain assets to the corresponding recoverable amounts.

The above mentioned impairment of Euro 867 million reflects the difference between (1) the enterprise value of Altice’s offer (Euro 7.4 billion), less the deferred payment related to future revenues (Euro 0.5 billion), post retirement benefits obligations (Euro 0.9 billion) and other financial liabilities (Euro 0.3 billion), resulting in an estimated receivable of Euro 5.7 billion, and (2) the carrying value of portuguese telecommunications businesses amounting to Euro 6.6 billion, which does not include net debt, investments in debt securities of Rio Forte and investments in international operations, as provided in Altice’s offer.

Net interest expenses increased from Euro 261million in 2013 to Euro 286 million in 2014, reflecting primarily a higher cost of debt associated with certain financings, namely bonds and bank loans, that were consolidated as from May 2014 following the acquisition of PT Finance.

Net losses in affiliates, which include PT Portugal’s share in the earnings of associated companies and joint ventures and losses recorded related to the disposal of these affiliated companies, amounted to Euro 976 million in 2014, as compared to a net gain of Euro 32 million in 2013. In 2014, this caption includes a loss of Euro 950 million related to the disposal of the investment in Bratel BV, which consists of a capital gain of Euro 50 million, reflecting the difference between the proceeds obtained from this sale (Euro 4,195 million) and the carrying value of the investment, and a loss of Euro 1,000 million corresponding to the cumulative amount of negative foreign currency translation adjustments, which were generated since the acquisition of Oi in March 2011 and transferred to net income upon the disposal of this investment in May 2014. In 2013, this caption includes a gain of Euro 33 million related to the disposal of the 3% interest held by PT Comunicações in CTM, for an amount of Euro 36 million. Adjusting for these effects, net losses in affiliates would have amounted to Euro 26 million in 2014 and Euro 62 million in 2013, reflecting primarily a reduction in PT Portugal’s share in losses of joint ventures.

PT Portugal | Consolidated Report | 2014 9

01 Financial review

Net other financial losses, which include net foreign currency gains, net losses on financial assets and net other financial expenses, increased from Euro 14 million in 2013 to Euro 41 million in 2014, reflecting primarily fees incurred by PT Finance in May and June 2014 related to the change of the terms and conditions of the Eurobonds and other financings following the transfer of PT Finance from Portugal Telecom to PT Portugal, and also recurring bank commissions and expenses recorded by PT Finance related to its Eurobonds and other financings, as this entity was consolidated as from May.

Income taxes decreased to Euro 51 million in 2014 as compared to Euro 78 million in 2013 due to lower taxable earnings across domestic businesses, which more than offset the provision for income taxes of international operations consolidated as from May 2014.

Losses attributable to non-controlling interests amounted to Euro 7 million in 2014 as compared to income attributable to non-controlling interests of Euro 2 million in 2013, reflecting mainly the net losses attributable to non-controlling interests of Africatel holding company and its subsidiaries as from May 2014.

Notwithstanding improvement in operating results (+22.4% y.o.y), net income was negative Euro 2,580 million in 2014 as compared to Euro 133 million in 2013, reflecting primarily: (1) the loss recorded related to the sale of the indirect investment in Oi to PT SGPS (Euro 950 million), as referred above, which reflects mainly a loss of Euro 1,000 million corresponding to the cumulative amount of negative foreign currency translation adjustments that were generated and recorded directly in shareholder’s equity since the acquisition of Oi in March 2011 and transferred from reserves to net income upon the disposal of this investment in May 2014, and thus not impacting the total shareholders’ equity of PT Portugal on that date; (2) an impairment loss amounting to Euro 867 million recorded to adjust the carrying value of portuguese telecommunications businesses to Altice’s offer; (3) a loss of Euro 517 million to adjust carrying value of the investments in debt securities of Rio Forte to the corresponding market value of Oi’s shares receivable under the exchange agreement entered into with Portugal Telecom; (4) a loss related to PT Participações (Euro 69 million); (5) the capital gain recorded related to the disposal of CTM (Euro 33 million) in June 2013, and (6) an increase in the Group's share in the losses of joint ventures (Euro 36 million), reflecting mainly the deterioration of Oi’s results.

Capex

CAPEX Euro million 2014 2013 y.o.y Telecommunications in Portugal (i) 328.6 490.0 (32.9)% Other 55.8 19.7 183.2% CAPEX 384.4 509.7 (24.6%) Capex as % of revenues 14.1% 19.4% (5.2pp) (i) (This item does not include an amount of Euro 55 million capitalised in 2014 related to the acquisition of exclusive access to Vodafone PON network, under the capacity-sharing agreement with this entity.

In 2014, capex amounted to Euro 384 million, equivalent to 14.1% of revenues, as compared to Euro 510 million in 2013. This decrease is explained by a lower contribution from Portuguese telecommunications business (Euro 106 million), which stood at Euro 329 million in 2014, reflecting primarily lower IS / IT related capex, following the

PT Portugal | Consolidated Report | 2014 10

01 Financial review

implementation of the transformation programme systems and consolidation of IT applications, lower infrastructure and technology related capex, as a result of the strong investments made in the past years, both on FTTH and 4G-LTE networks, and lower customer related capex. Capex from other businesses increased to Euro 56 million in 2014 from Euro 20 million in 2013, reflecting mainly higher contributions from other international operations that were consolidated as from May 2014, following the acquisition of PT Participações.

Consolidated Statement of Financial Position

Total assets decreased to Euro 10.8 billion as at 31 December 2014 compared to Euro 14.2 billion as at 31 December 2013, reflecting the decrease in financial investments (Euro 4.8 billion) and goodwill (Euro 0.9 billion). The reduction in goodwill is explained by the impairment loss of Euro 867 million related to Portuguese businesses. The reduction in financial investments is explained by: (1) the sale of the investments in joint ventures (Euro 2.4 billion as at 31 December 2013) related to the sale of indirect investment in Oi, and (2) the investment in commercial paper issued by PT Finance subscribed indirectly by PT Portugal as at 31 December 2013 (Euro 2.4 billion), as PT Finance was acquired and consolidated as from 5 May 2014. These effects were partially offset by the acquisition of international business through PT Participações, which were classified as assets held for sale as at 31 December 2014 (Euro 2.3 billion). As at 31 December 2014, other assets include an amount of Euro 388 million corresponding to the recoverable value of the investments in debt securities of Rio Forte. The notional value of those investments amounted to Euro 897 million, which were not repaid in the maturity dates during July 2014. As a result, Oi reached an agreement with PT SGPS for the exchange of the Rio Forte debt securities amounting to Euro 897 million for 47,434,872 ordinary shares and 94,869,744 preferred shares from Oi (after the reverse stock split undertaken by Oi in December 2014). Following the approval of the exchange agreement at the Annual General Meeting of Portugal Telecom on 8 September 2014, the definitive agreements were concluded and therefore the Company remeasured the value of Rio Forte investments to the fair value of Oi’s shares receivable under the exchange agreement.

Total liabilities stood at Euro 9.2 billion as at 31 December 2014 compared to Euro 9.6 billion as at 31 December 2013, a reduction explained primarily by a decrease in gross debt (Euro 0.9 billion) which reflects mainly intercompany debt outstanding as at 31 December 2013 following the acquisition of PT Finance and transfer of debts from PT SGPS that are no longer reflected in the consolidated financial statements as at 31 December 2014. This effect was partially offset by liabilities classified as held for sale on 31 December 2014 (Euro 0.3 billion) related to international businesses acquired on 2 May 2014 through PT Participações.

Shareholders’ equity excluding non-controlling interests amounted to Euro 1,190 million as at 31 December 2014, compared to Euro 4,479 million as at 31 December 2013, a decrease of Euro 3,289 million primarily explained by: (1) the repayment of paid-in capital contributions (Euro 2,895 million); (2) negative net income recorded in the period adjusted for the Euro 1,000 million foreign currency translation adjustments transferred from reserves to net income (Euro 1,580 million), and (3) net actuarial losses recorded in the period (Euro 209 million, after-tax). These effects were partially offset by a share capital increase of Euro 1,250 million subscribed by Oi and the positive foreign currency translation adjustments generated 2014, which relate mainly to the impact of the appreciation of the Brazilian Real against the Euro on the investment in Oi up to 2 May 2014, date the investment in Oi was indirectly sold to Portugal Telecom through the sale of Bratel BV.

PT Portugal | Consolidated Report | 2014 11

01 Financial review

Consolidated gross debt amounted to Euro 6,460 million as at 31 December 2014, of which 81% was medium and long-term and 80% was set at fixed rates. Net debt (gross debt minus cash, cash equivalents and short-term investments) amounted to Euro 6,284 million as at 31 December 2014.

Projected post retirement benefits obligations (PBO) related to pensions and healthcare amounted to Euro 525 million and market value of assets under management amounted to Euro 251 million as at 31 December 2014, compared to Euro 494 million and Euro 386 million as at 31 December 2013, respectively. In addition, PT Portugal had liabilities in the form of salaries due to suspended and pre-retired employees amounting to Euro 762 million as at 31 December 2014 and Euro 843 million as at 31 December 2013, which are not subject to any legal funding requirement. These monthly salaries are paid directly by PT Portugal to the beneficiaries until retirement age. As a result, total gross unfunded obligations amounted to Euro 1,035 million (Euro 802 million after-tax) compared to Euro 951 million as at 31 December 2013, an increase of Euro 85 million explained mainly by: (1) net actuarial losses recognised in the period (Euro 267million), related to the reduction in discount rates and the negative difference between actual and estimated return on assets, and (2) post retirement benefits costs (Euro 22 million) and workforce reduction costs (Euro 26 million) recorded in the period. These effects were partially offset by payments of salaries to pre-retired and suspended employees (Euro 150 million) and by a gain related to the reduction in benefits granted under the healthcare plan (Euro 55 million). PT Portugal’s post retirement benefits plans for pensions and healthcare are closed to new participants.

PT Portugal | Consolidated Report | 2014 12

01 Financial review

Euro million 31 December 2014 31 December 2013 Unaudited ASSETS Cash and Equivalents 176.0 168.7 Short-term investments 6.9 112.7 Accounts receivable 920.8 981.9 Inventories, net 60.8 69.7 Financial investments 51.5 4,904.1 Goodwill 2,856.7 3,723.7 Intangible assets 621.0 702.1 Tangible assets 3,065.2 3,277.9 Deferred taxes 258.3 175.8 Assets held for sale 2,297.6 4.7 Post retirment benefits 2.0 1.8 Other assets 516.1 37.7 Total assets 10,833.0 14,160.6 LIABILITIES Gross debt 6,459.6 7,382.8 Accounts payable 584.6 669.6 Accrued expenses 469.3 361.9 Post retirement benefits 1,037.6 952.5 Liabilities held for sale 263.8 - Other liabilities 367.5 282.9 Total liabilities 9,182.4 9,649.7 Equity excluding non-controlling interests 1,190.0 4,478.8 Non-controlling interests 460.5 32.2 Total equity 1,650.5 4,511.0

Total liabilities and shareholders' equity 10,833.0 14,160.6

PT Portugal | Consolidated Report | 2014 13

02 Business performance

Portuguese Telecommunications Businesses

In 2014, the Portuguese telecommunications businesses continued to show customer growth, with the fixed retail customers growing by 2.0% y.o.y to 5,261 thousand (net additions reached 103 thousand in 2014), and mobile customers up by 1.2% y.o.y to 7,989 thousand (93 net additions in 2014, notwithstanding postpaid performance, reaching 963 thousand net additions in 2014), on the back of the success of PT Portugal’s convergent offers, namely M4O and M5O. This new offer was launched in 2H12 and include mobile internet. Convergent offers, namely

M40 and M5O, continued gaining momentum, having reached 3.6 million RGUs in the end of 2014. Since its launch, in January 2013, circa 65% customers have one or two SIM cards, 20% three and 15% four SIM cards.

Growth of fixed retail customers was underpinned by a solid performance of MEO, namely pay-TV customers, up by 7.4% y.o.y to 1,412 thousand (net additions of 98 thousand in 2014), confirming the continued success and the attractiveness of MEO in the Portuguese market, even against a backdrop of intense competitive environment and already high penetration of pay-TV. PT Portugal’s triple-play customers (voice, broadband and pay-TV) accounted for 156 thousand net additions in 2014, reaching 1,108 thousand customers (up by 16.4% y.o.y), showing a resilient performance throughout the year.

In 2014, mobile customers continued to benefit from the performance of postpaid customers, which grew by

32.9% y.o.y to 3,888 thousand (963 thousand net additions in 2014), benefiting from convergent offers M4O and

M50, which continue leading to a prepaid to postpaid migration in mobile customer base.

Portuguese operating data 2014 2013 y.o.y Fixed retail accesses ('000) 5,261 5,158 2.0% PSTN/ISDN 2,475 2,549 (2.9%) Broadband customers 1,373 1,294 6.1% Pay-TV customers 1,412 1,315 7.4% Mobile Customers ('000) 7,989 7,896 1.2% Postpaid 3,888 2,925 32.9% Prepaid 4,101 4,971 (17.5%) Net additions ('000) Fixed retail accesses 103 105 (2.1%) PSTN/ISDN (74) (55) (34.3%) Broadband customers 79 69 14.9% Pay-TV customers 98 91 7.0% Mobile Customers 93 298 (68.8%) Postpaid 963 456 111.0% Prepaid (870) (158) n.m. Data as % of mobile service revenues (%) 39.9 36.5 3.4pp

PT Portugal | Consolidated Report | 2014 14

02 Business performance

MEO will continue to focus on a convergence strategy for the consumer segment, based on triple, quadruple, and quintuple-play offers and on mobile broadband and flat fees, underpinning on convergent offers success. For the enterprise segment and businesses the focus will continue to be mainly on a cloud strategy, anchored on its extensive network of data centers, and also on BPO and IT services.

Residential

In 2014, residential RGUs increased by 3,2% y.o.y, reaching 3,953 thousand, with pay-TV and broadband accesses already accounting for 58.8% of total residential retail accesses as at 31 December 2014. In 2014, fixed retail accesses reached 123 thousand net additions reflecting: (1) 19 thousand PSTN/ISDN net disconnections; (2) 69 thousand fixed broadband net additions, and (3) 73 thousand pay-TV net additions.

Pay TV reached 1,231 thousand customers in 2014 (+6.3% y.o.y) while fixed retail broadband reached 1,095 thousand customers (+6.7% y.o.y), underpinned by PT Portugal’s bundled offers, M4O and M5O, which are still gaining momentum. Unique customers in the residential segment reached 1,766 thousand. Triple-play customers stood at 951 thousand (+15.4% y.o.y), equivalent to 53.8% of PT Portugal’s residential customers, thus extending its leadership in the market. The continued and sustainable growth of bundles offers also underpinned ARPU growth of 1.8% y.o.y to Euro 32.2 and the increase of RGU’s per unique customer from 2.11 in 2013 to 2.24 in 2014.

Residential operating data ⁽¹⁾ 2014 2013 y.o.y Fixed retail accesses ('000) 3,953 3,830 3.2% PSTN/ISDN 1,627 1,646 (1.2%) Broadband customers 1,095 1,027 6.7% Pay-TV customers 1,231 1,157 6.3% Unique customers 1,766 1,818 (2.9%) Net additions ('000) Fixed retail accesses 123 50 147.6% PSTN/ISDN (19) (22) 13.7% Broadband customers 69 29 136.4% Pay-TV customers 73 43 71.3% ARPU (Euro) 32.2 31.6 1.8% Non-voice revenues as % of revenues (%) 68.7 65.7 3.0pp

As a result of the higher penetration of triple, quadruple and quintuple-play offers, the contribution of non-voice services in Residential service revenues reached 68.7% (+3.0pp y.o.y) in 2014.

Personal

In 2014, Personal Mobility customers, including voice and broadband customers, decreased 0.1% y.o.y to 6,380 thousand. The focus is in increasing postpaid customers on the back of convergence offers. In 2014, postpaid had an excellent performance and already accounts for 48.7% of the personal mobility customer base. The solid performance in postpaid customers (824 thousand net additions in 2014) is anchored on the strong commercial success of M4O and M5O, which is supporting the transformation of the Portuguese mobile market by introducing

PT Portugal | Consolidated Report | 2014 15

02 Business performance

convergence which allows additional differentiation, while at the same time is shifting the focus from prepaid to postpaid.

Personal operating data ⁽¹⁾ 2014 2013 y.o.y Mobile Customers ('000) 6,380 6,390 (0.1%) Postpaid 2,394 1,570 52.5% Prepaid 3,987 4,820 (17.3%) Net additions ('000) (9) 312 (103.0%) Postpaid 824 441 86.7% Prepaid (833) (129) n.m. MOU (minutes) 106 98 9.1% ARPU (Euro) 7.1 7.6 (6.0%) Customer 6.5 7.1 (8.7%) Interconnection 0.6 0.5 35.6% SARC (Euro) 23.8 24.6 (3.4%) Data as % of service revenues (%) 39.1 35.8 3.3pp

Personal Mobility segment ARPU declined by 6.0% y.o.y to Euro 7.1. The weight of non-voice revenues in service revenues stood at 39.1% in 2014 (+3.3pp y.o.y), reflecting the solid performance of data packages “internetnotelemovel”.

Enterprise

PT Portugal has maintained a solid leadership, both in large corporate and in small and medium size businesses, anchored on its distinctive and broad products and services offering to both market segments, leveraged in its state-of-the-art network.

In 2014, the Enterprise segment presented a positive operational performance with RGUs increasing by 3.0% y.o.y, reaching 2,676 thousand, with pay TV and broadband accesses already accounting for 40.1% (+3.3pp y.o.y) of total enterprise retail accesses. In 2014, fixed retail accesses reached 79 thousand net additions, reflecting: (i) 85 thousand mobile net additions; (ii) 41 thousand PSTN/ISDN net disconnections; (iii) 11 thousand fixed broadband net additions, and (iii) 24 thousand pay TV net additions.

Aimed at improving its share of wallet and the resilience of the business, IT, Data and Cloud remain a key focus, aimed at leveraging PT Portugal’s network and investments in technology. Enterprise customer segment ARPU declined 7.4% y.o.y to Euro 20.2, impacted by strong cost cutting initiatives and significant reduction of investments in new projects from the public and private sector and competitiveness of the market. In 2014, non- voice services from Enterprise segment represented 59.1% of Enterprise retail revenues, up by 4.1pp y.o.y.

PT Portugal | Consolidated Report | 2014 16

02 Business performance

Enterprise operating data ⁽¹⁾ 2014 2013 y.o.y Fixed retail accesses ('000) 1,133 1,139 (0.5%) PSTN/ISDN 679 720 (5.7%) Broadband customers 275 264 4.0% Pay-TV customers 179 155 15.7% Retail RGU per access 2 2 5.6% Mobile Customers ('000) 1,542 1,457 5.9% Net additions ('000) Fixed retail accesses (6) 60 (110.3%) PSTN/ISDN (41) (28) (44.6%) Broadband customers 11 40 (73.2%) Pay-TV customers 24 48 (49.7%) Mobile Customers 85 (4) n.m. ARPU (Euro) 20.2 21.8 (7.4%) Non-voice revenues as % of revenues (%) 59.1 55.0 4.1pp

Consolidated financial performance in Portugal

In 2014, revenues from Portuguese telecommunications businesses amounted to Euro 2,455 million, decreasing by 4.1% y.o.y, penalised by Residential (-5.8% y.o.y) and Personal (-6.0% y.o.y) segments. Revenues from Residential customer segment continue to be impacted by pricing and competitive dynamics, nevertheless remained broadly stable, benefitting from continued market share gains of MEO’S quadruple and quintuple-play offers.

Residential revenues amounted to Euro 707.9 million, decreasing by 0.1% y.o.y. MEO continued to gain share in convergent offers. Personal Mobility segment revenues amounted to Euro 622.3 million, decreasing by 6.0% y.o.y, mainly impacted by lower sales and higher competitive and pricing pressure on the prepaid business. The Enterprise segment was also penalised by competitive dynamics that are impacting pricing environment, namely on mobile services. Enterprise revenues amounted to Euro 750.0 million, decreasing by 5.8% y.o.y. In 2014, revenues from Wholesale, other and eliminations amounted to Euro 374.9 million, decreasing by 4.5% y.o.y, reflecting lower accesses and lower capacities.

In 2014, operating costs excluding D&A, declined by 3.0% y.o.y (Euro 43.6 million), to Euro 1,425 million. This performance is explained by: (1) lower third-party services; (2) decreasing commercial costs, explained by the commercial effort in 1H13 following the launch of M4O and despite the marketing campaigns supporting the rebranding of PT Portugal’s mobile business from TMN to MEO occurred during 1H14, and (3) lower other operating expenses, primarily explained by a relentless focus on cost cutting and profitability and also an increase in maintenance productivity due to the implementation of new generation access networks (FTTH) as referred to in the past. This performance is underpinned by several initiatives developed as part of the extensive operational transformation programme also referred to in the past, such as: (1) development of convergent CRM and self-care platform; (2) reengineering of sales support process, and (3) IP transformation and consolidation of all IT applications.

PT Portugal | Consolidated Report | 2014 17

02 Business performance

Portuguese telecommunications businesses financial information⁽¹⁾ Euro million 2014 2013 y.o.y Operating revenues 2,455.1 2,559.6 (4.1%) Residential 707.9 708.8 (0.1%) Personal 622.3 662.3 (6.0%) Entreprise 750.0 796.1 (5.8%) Wholesale, other and eliminations 374.9 392.5 (4.5%) Opex 1,425.0 1,468.6 (3.0%) EBITDA (2) 1,030.1 1,091.0 (5.6%) EBITDA margin (3) 42.0% 42.6% (0.7 pp) Capex 328.6 490.0 (32.9%) Capex as % of revenues 13.4% 19.1% (5.8 pp)

EBITDA minus Capex 701.5 601.0 16.7%

(1) Following the rollout of the convergent CRM, PT Portugal has changed its segmentation criteria of customers that are entrepreneurs in an individual basis, with impact in the Residential, Personal and Enterprises segments. 2013 figures were restated accordingly. (2) EBITDA = income from operations + post retirement benefits + depreciation and amortisation. (3) EBITDA margin = EBITDA / operating revenues.

In 2014, EBITDA from the Portuguese telecommunications businesses amounted to Euro1,030 million (-5.6% y.o.y), equivalent to a 42.0% margin. This performance is the result of the decline in service revenues (Euro 74.5 million), which have high operating leverage, and also lower margin in new services provided by the Enterprise segment, effects that more than offset the cost cutting efforts and increased efficiency that translated into lower opex.

Capex from the Portuguese telecommunications businesses decreased by 32.9% y.o.y to Euro 328.6 million in 2014 and stood at 13.4% of revenues (-5.8pp y.o.y), mainly due to lower investments in IT/IS projects, following the IP transformation and consolidation of all IT applications, lower infrastructure and technology related capex, as a result of the strong investments made in the past years, both on FTTH and 4G-LTE networks and lower customer related capex. As a result, EBITDA minus capex in 2014 increased to Euro 701.5 million, up by 16.7% y.o.y.

This offer is only possible given the strong strategic investments that have been made in recent years in new technologies and in the modernisation of IT systems, namely in: (1) its FTTH network, which now will reach 1.7 million homes; (2) its 4G-LTE network, which offers speeds up to 150 Mbps and covers 93% of the Portuguese population; (3) strengthening of its data centers, namely through the investment in the data center in Covilhã, and (4) the implementation of a CRM (customer relationship management) system at the consumer segment, allowing for the treatment of a convergent customer as a single customer, with a single bill and a single customer care service.

In July 2014, PT Portugal announced that entered into an agreement to deploy, exchange of capacity and share its fibre network with Vodafone Portugal, enabling a higher dynamism in the retail market through an enhanced ability to distribute broadband and TV offers with high speeds and quality, thus benefiting all citizens and companies. This agreement includes sharing of dark fibre in circa 900 thousand homes, in which each party shares approximately 450 thousand homes, strengthening PT Portugal’s position as the Operator, in Portugal, with a truly integrated and convergent offer, reaching up to 2 million homes, and started in December 2014.

PT Portugal | Consolidated Report | 2014 18

03 Employees

On 31 December 2014, PT Portugal’s employees were 10,701, of which 75% were in the Telecommunication businesses.

PT Portugal has a structured recruitment process for young talents – Trainees, the best students from the best Portuguese universities – and Operational and Technology Teams with the objective to rejuvenate its workforce. In the 2014, were integrated 59 Trainees and 69 Operational and Technology Teams. These are a two year and four year programmes that involves several departments of the company.

Focusing on resident talents, PT Portugal implemented the 3rd edition of Talent Management program, for employees of technical and management career, maintaining the two assessment perspectives:

 Developing future leaders;  Retaining specific know-how.

This 3rd edition includes more than 500 employees with an excellent performance, across the different career layers. The development actions were defined in 2014 and will be implemented in 2015 for high potential employees.

PT Portugal | Consolidated Report | 2014 19

04 Main events

Events of 2014

Bondholder’s remuneration

17. January.14 | PT SGPS, SA, former issuer of the bonds, informed the holders of PT EUR 400,000,000 6.25 per cent. Notes due 2016 (ISIN PTPTCYOM0008) that the following interest relating to the mentioned issue was paid as from January 27, 2014 as follows (per Calculation Amount of Euro 1,000.00):

IRC 25% IRS 28%

Gross Interest Eur31.2500 Eur31.2500 Income Taxes Eur7.8125 Eur8.7500 Net Interest Eur23.4375 Eur22.5000

21. July.14 | PT Portugal informed the holders of PT EUR 400,000,000 6.25 per cent. Notes due 2016 (ISIN PTPTCYOM0008) that the following interest relating to the mentioned issue was paid as from July 28, 2014 as follows (per Calculation Amount of Euro 1,000.00):

Corporate Income Tax Personal Income Tax IRC 25% IRS 28%

Gross Interest Eur31.2500 Eur31.2500 Income Taxes Eur7.8125 Eur8.7500 Net Interest Eur23.4375 Eur22.5000

Corporate Bodies

11. July.14 | Luís Pacheco de Melo has communicated the cessation of his duties as member of the Board of Directors and Vice President of PT Portugal SGPS S.A. and as a member of the Board of Directors Africatel Holdings B.V. by resigning from the offices above mentioned.

2. December.14 | PT Portugal, SGPS, S.A announced that, by letters dated of 10 November 2014 and 27 October 2014, respectively: Ascenção, Gomes, Cruz & Associado – SROC has resigned as Sole Statutory Auditor of the Company, and Deloitte & Associados, SROC, S.A. has resigned as Alternate Sole Statutory Auditor of the Company. It is further announced that, pursuant to the General Shareholders Meeting that took place on 28 November 2014, a Supervisory Board, composed of 3 effective members and 1 alternate member, is now in charge of the

PT Portugal | Consolidated Report | 2014 20

04 Main events

supervision of PT Portugal’s corporate activity, having been elected as members of such Board in the aforementioned General Shareholders Meeting: Vitor Manuel Ferreira Lúcio da Silva Chairman, Óscar Manuel Machado Figueiredo Member José Manuel Gonçalves de Morais Cabral Member, António Manuel Mendes Barreira Alternate Member, Furthermore, it was also elected in the aforementioned General Meeting of Shareholders for the office of Chartered Accountant, under and pursuant to article 22 of the Company’s articles of association, KPMG & Associados – Sociedade de Revisores Oficiais de Contas, S.A., represented by Paulo Alexandre Martins Quintas Paixão. PT Portugal announced the current composition of its corporate bodies, which are in office.

Debt

7. February.14 | PT SGPS, SA, former issuer of the bonds, announced that it had made available a consent solicitation memorandum regarding the solicitation of consents from the holders of its €400 million 6.25% per cent. Notes due 2016 issued under its Euro Medium Term Note programme and the €750 million 4.125% per cent. Exchangeable Bonds due 2014 issued by Portugal Telecom International Finance B.V. (“PTIF”). The consent solicitation was being made related to the transaction between PT and Oi that was announced on 2 October 2013.

19. June.14 | Moody’s announced its review of the credit rating attributed to the senior unsecured bonds issued by PT International Finance B.V., a fully owned subsidiary of PT Portugal SGPS, SA, upgrading the long-term rating from Ba2 to Baa3. The outlook remains negative.

25. June.14 | S&P announced its review of the credit rating attributed to the senior unsecured bonds issued by PT International Finance B.V., a fully owned subsidiary of PT Portugal SGPS, SA, upgrading the long-term rating from BB to BBB-. The outlook remains negative.

CMVM

9. May.14 | PT Portugal, SGPS, S.A. informed that it had appointed Nuno Manuel Teiga Luís Vieira as representative for the relations with the market and the CMVM.

Business Combination with Oi

20. February.14 | PT SGPS, SA and Oi announced the execution of definitive agreements relating to the combination of their businesses, that govern the steps necessary to implement the transaction that will culminate in the business combination of Portugal Telecom, Oi S.A., Telemar Participações S.A. and the Brazilian controlling shareholders of TmarPart, with a view to creating a single, integrated Brazilian listed company, CorpCo, which the Definitive Documents have determined to be TmarPart.

21. February.14 | PT SGPS, SA informed that, as an update to the press release dated February 20, 2014, the Euro/Brazilian Real exchange rate for purposes of determining the amount in Brazilian Reais equivalent to Euro 1.9979, as at February 20, 2014, was 3.2628. Therefore, for each PT SGPS, SA share held, shareholders will receive: Brazilian Reais 6.5188 shares of CorpCo (at the same price per share of Oi’s capital increase), plus 0.6330 shares of CorpCo. In addition, and subject to approval by the General Meeting, PT shareholders received, prior to the completion of the Business Combination, a dividend of Euro 10 cents per share.

PT Portugal | Consolidated Report | 2014 21

04 Main events

18. March.14 | PT, SGPS, S.A. (the "Issuer") announced, on 7 February 2014, a solicitation of consents from the holders of its €400,000,000 6.25 per cent. Notes due 2016 (ISIN PTPTCYOM0008 – hereinafter referred to as the "PT Notes"), in accordance with the terms and conditions set out in the Consent Solicitation Memorandum dated 7 February 2014 (the "Consent Solicitation Memorandum"). This announcement should be read together with the Consent Solicitation Memorandum and the announcements made on 24 February 2014 and 3 March 2014.

The Issuer announced that, at an adjourned meeting of the holders of the PT Notes (as the initial meeting held on 3 March 2014 was adjourned due to being inquorate), at the Issuer’s registered office, at Avenida Fontes Pereira de Melo, 40, in Lisbon, the Extraordinary Resolution relating to the Consent Solicitation has passed. Details of the aggregate principal amount of PT Notes represented at the adjourned meeting, including the proportion which was in favour of the Extraordinary Resolution, are set out below:

Amount of PT Notes outstanding Aggregate principal amount Aggregate principal amount in Percentage in favour of the in respect of the adjourned represented at adjourned favour of the Extraordinary Extraordinary Resolution meeting meeting Resolution €400,000,000 €188,123,000 €187,394,000 99.96%*

*An aggregate principal amount corresponding to € 646,000 abstained from voting. This amount does not count for the purposes of determining the percentage in favour of the Extraordinary Resolution

27. March.14 | PT SGPS, SA announced that its shareholders, at the General Meeting, approved PT’s participation in Oi, S.A. capital increase, through the contribution of assets representing all of the operating assets held by the Portugal Telecom Group and the related liabilities, with the exception of the shares of Oi, the shares of Contax Participações S.A. and the shares of Bratel B.V.

28. March.14 | Oi, S.A. disclosed a material fact on the suspension of the public offering.

31. March.14 | Oi, S.A. informed on the announcement made by on the result of this company’s General Shareholders’ Meeting and the approval by the Brazilian National Telecommunications Agency of the corporate reorganisation which will allow the consolidation of the industrial alliance between Oi and PT.

3. April.14 | Oi, S.A. disclosed a material fact by on the revocation of the suspension of the public offering.

3. April.14 | Oi, S.A. disclosed a material fact by on the maximum number of shares that may be issued in the primary offering of shares of Oi.

3. April.14 | PT SGPS, SA informed on the material fact disclosed by Oi, S.A. on the interactions between Oi and the underwriters of the public offering.

3. April.14 | Oi, S.A. disclosed a material fact by on the prospectus of the public offering of shares of Oi.

29. April.14 | Oi, S.A. announced that the period for the subscription of shares under the share capital increase of Oi S.A.

5. May.14 | PT SGPS, SA announced that it had transferred to a securities account in the name of Oi, S.A,. with the settlement of Oi’s share capital increase, all the shares it held representing PT Portugal, SGPS, S.A.’s share capital. Additionally, pursuant to the agreements implementing the changes approved at the meeting held on 18 March

PT Portugal | Consolidated Report | 2014 22

04 Main events

2014 by the holders of the €400,000,000 6.25 per cent Notes due 2016, issued by PT under its €7,500,000,000 Euro Medium Term Note Programme (“Notes”), PT Portugal becames the issuer and principal obligor of such Notes.

6. May.14 | Oi, S.A. announced the closing of public offering of shares and exercise of over-allotment option.

3. July.14 | Oi S.A. disclosed a material fact related to the financial investments of Portugal Telecom in commercial paper of Rio Forte Investments S.A. (“Rioforte”), a member of the Portuguese Espírito Santo group (“GES”), as well as newspaper articles published about the matter. According to this announcement:

“PT subscribed, through its former subsidiaries PT International Finance BV and PT Portugal SGPS, a total of Euro 897 million in commercial paper of Rioforte with an average annual remuneration of 3.6%. All treasury applications in commercial paper of Rioforte will mature on 15 and 17 July 2014 (Euro 847 million and Euro 50 million, respectively). Treasury operations are carried out in the context of analysis of various short-term investment options available in the market and taking into account the attractiveness of the remuneration offered and are monitored and approved by the Executive Committee. (...)

As at this date the total sum of investments in commercial paper of GES amounted to Euro 897 million, related to the investment in the commercial paper Rioforte. Since 28 April 2014 no applications and/or renewals of such investments were made.

Additionally, as at this date, PT International Finance BV and Portugal Telecom, SGPS, S.A. maintain bank deposits with BES totaling Euro 22 million and Portugal Telecom, SGPS, S.A. maintains bank deposits of Euro 106 million. The figures above represent the total exposure to GES / BES.”

Oi was not informed, nor did it participate in the decisions that led to the implementation of this financial investment, which was made prior to the acquisition of Oi’s shares by Portugal Telecom in Oi’s recently completed capital increase.

Oi has requested additional clarification from Portugal Telecom, and will analyse the information it receives, take any actions necessary to protect its interests and keep its shareholders and the market informed about developments regarding this matter.

16. July.14 | Oi S.A. and PT SGPS, SA announce that they remain committed to the full completion of their business combination and have signed a new Memorandum of Understanding (“MOU”). The MOU has been signed following the non-repayment today by Rio Forte Investments SA (“Rioforte”), a company of Grupo Espírito Santo (“GES”), of the Euro 847 million matured portion of the outstanding Euro 897 million treasury applications (“Rioforte debt”) subscribed to by the PT group. The Rioforte debt is currently held in subsidiaries that were contributed to Oi on 5 May 2014 in the context of the business combination announced on 2 October 2013.

PT Portugal | Consolidated Report | 2014 23

04 Main events

16. July.14 | Oi, S.A. disclosed a material fact by Oi, S.A. with the following itens:

Rio Forte Securities

On this date, commercial paper in the amount of 847 million euros issued by Rio Forte Investments S.A. (“Rio Forte”) matured and was not paid. This commercial paper was the object of financial investments made by Portugal Telecom SGPS S.A. (“PT SGPS”) that were transferred to Oi in Oi’s capital increase of Oi on May 5, 2014 and are currently held by Oi’s subsidiaries, PT Portugal, SGPS, S.A. and Portugal Telecom International Finance B.V. (which we refer to as “Oi’s Subsidiaries”). The unpaid commercial paper establishes a cure period of seven business days for Rio Forte to make such payment. On July 17, 2014, additional commercial paper of Rio Forte in the amount of 50 million euros will mature, which is also subject to the same cure period.

Signing of MOU with PT SGPS

On this date, Oi entered into a Memorandum of Understanding (“MOU”) with PT SGPS to establish the basis of an agreement between them in relation to financial investments in Rio Forte commercial paper (the “Securities”) made by the Oi Subsidiaries.

Principal Terms of the MOU

PT SGPS and the Oi Subsidiaries will conduct an exchange through which PT SGPS will deliver to Oi 474,348,720 Oi common shares and 948,697,440 Oi preferred shares (the “Exchanged Shares”), representing 16.6% of the voting capital and 16.6% of the total capital of Oi, and Oi, in return, will deliver the Securities to PT SGPS, for 100% of its face value, without additional payments (the “Exchange”). The number of shares to be delivered by PT SGPS to Oi, which will be held in Treasury, was agreed as the equivalent to the face value of the Securities. The consummation of the Exchange and the execution of definite agreements to be concluded within twenty (20) days from the date hereof (“Definitive Agreements”) are subject to the negotiation of definitive documents governing the Exchange, in addition to approval by an extraordinary general shareholders meeting of PT SGPS, approval by a Previous Meeting (reunião previa) of Telemar Participações S.A. (“TmarPart”), and approval by the Board of Directors of Oi. Because this is a transaction involving Oi treasury stock, the implementation of the Exchange is subject to the approval of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).

Oi (and/or the Oi Subsidiaries) will grant to PT SGPS a personal and nontransferable option (the “Option”) to purchase shares of Oi in the same amount and type as the Exchanged Shares (or, after the previously announced merger of shares between TmarPart and Oi, the shares of TmarPart issued to replace the Exchanged Shares), and the amount shall be adjusted to reflect changes that may result from any split or reverse split of the shares (the “Option Shares”).

The Option may be exercised in whole or in part, at any time, in accordance with the following terms and conditions:

PT Portugal | Consolidated Report | 2014 24

04 Main events

(i) Term: 6 (six) years, subject to the reduction of the number of Option Shares as follows:

Reduction Date % of the Option Shares which will cease to be subject to the Option annually From the 1st anniversary of the completion of 10% the Exchange From the 2nd anniversary of the completion 18% of the Exchange From the 3rd anniversary of the completion of 18% the Exchange From the 4th anniversary of the completion of 18% the Exchange From the 5th anniversary of the completion of 18% the Exchange From the 6th anniversary of the completion of 18% the Exchange

(ii) Exercise Price: R $ 1.8529 per Oi preferred share and R $ 2.0104 per Oi common share (and, as the case may be, R$2.0104 per TmarPart common share), restated by the CDI rate plus 1.5% per annum, calculated on a pro rata basis from the completion of the Exchange until the date of payment of the exercise price for the Option Shares for which the Option is exercised. The exercise price of the Option shall be paid in cash.

The terms and conditions of the Exchange and of the Option shall be established in the Definitive Agreements.

Other terms, corporate approvals and operation of the business combination of Oi and Portugal Telecom

As a result of the transactions contemplated in the Definitive Agreements, the agreements entered into on February 19, 2014 that regulate the operation of the business combination and of the shareholder bases of Oi and PT SGPS (the “Transaction”) will be amended to provide for, among other things: (i) the extension of deadlines for the completion of the Transaction; (ii) the necessary adjustment in the structure of the merger of PT SGPS into TmarPart (as previously disclosed to the market), so that the shareholders of PT SGPS have the opportunity to receive, as soon as possible, the TmarPart shares, in accordance with a legally valid structure to be determined by mutual agreement of the parties; and (iii) the limitation of voting rights of PT SGPS in the by-laws of TmarPart to a maximum of 7.5% (seven and a half percent). Such arrangements will be set out in the Definitive Agreements. The MOU will remain in effect until the first to occur of (i) the date of execution of the Definitive Agreements, and (ii) September 8, 2014.

Other Information

Oi emphasises that the conclusion of the MOU will enable the Transaction, as announced in October 2013 and in February 2014, to continue to be implemented, aiming to migrate TmarPart to the Novo Mercado segment of the BM&FBOVESPA, with the highest standards of corporate governance, to increase liquidity of the shares, with dispersion of ownership in the market, and accelerating the synergies created by the Transaction.

PT Portugal | Consolidated Report | 2014 25

04 Main events

With the transfer of Securities to PT SGPS, PT SGPS will be solely responsible for negotiating payment terms with Rio Forte and for decisions relating to the Securities. Oi, as the parent company of PT Portugal, will lend documentary support to PT SGPS to enable it to take the measures necessary for it to recover debts represented by Securities.

28. July.14 | Oi S.A. and PT SGPS, SA announced that they had reached an agreement on the final terms of the key contracts following the Memorandum of Understanding (“MOU”) announced on 16 July 2014.

The execution of the definitive documentation is subject to the approval by the General Shareholders Meeting of PT SGPS and the Board of Directors of Oi. The documentation establishes that:

 PT SGPS will exchange (“Exchange”) with Oi the Euro 897 million treasury applications in Rio Forte Investments SA (“Rioforte debt”) for 474,348,720 Oi ON shares plus 948,697,440 Oi PN shares (the “Oi Call Shares”);  PT SGPS will be granted a non-transferrable American-type call (“Call”) to repurchase the Oi Call Shares (strike prices of R$2.0104 ON and R$1.8529 PN), which will be adjusted by the Brazilian CDI rate plus 1.5% per year;  The Call on the Oi Call Shares will become effective on the date of the Exchange, will have a 6-year maturity, and the Oi Call Shares that PT SGPS has the right to call will be reduced by 10% at the end of the 1st year and by 18% per year thereafter;  Any proceeds received as a result of a monetisation of the Call through the issuance of derivatives or back to back instruments must be used to exercise the Call;  PT SGPS can only acquire Oi or CorpCo shares through the exercise of the Call;  The Call would be cancelled should (i) PT SGPS’s bylaws be voluntarily amended to remove the 10% voting limitation, (ii) PT SGPS act as a competitor to Oi, or (iii) PT SGPS breach certain obligations under the definitive documentation, and  The contracts will be executed as soon as all corporate approvals have been obtained and the Exchange is subject to the approval of Comissão de Valores Mobiliários in Brazil and should be executed on or before March 2015.

8. September.14 | PT SGPS announced that its shareholders have voted today to accept the proposal submitted by the Board of Directors within the single item on the agenda of the General Meeting, convened on 8 August 2014 to deliberate on the terms of the agreements to be executed between PT and Oi, SA within the business combination of these two companies. Following this approval, the agreements that execute the Memorandum of Understanding disclosed on 16 July 2014 were signed. Their effectiveness was subject to the approval by Comissão de Valores Mobiliários.

17. September.14 | Oi S.A. informed its shareholders and the market in general that the Board of Directors of Oi resolved to authorise the management of Oi to take the necessary measures for the sale of Oi’s holdings in Africatel Holdings B.V., representing 75% of the capital stock of Africatel, and/or its assets.

1.December.14 | PT Portugal, SGPS informed on the material fact disclosed by Oi, S.A., regarding the conclusion of an exclusivity agreement with Altice S.A. targeting the sale of PT Portugal assets, starting this day and valid for 90 days. The objective of this agreement is to allow: (i) Oi and Altice to negotiate and agree on the final terms of the sale of PT Portugal, and (ii) Oi to obtain the necessary corporate approvals to finalise the sale of PT Portugal. Altice’s

PT Portugal | Consolidated Report | 2014 26

04 Main events

proposal sets the enterprise value of the assets at Euro7.4 billion, excluding cash and debt. It includes an earn-out of Euro 500 million related to PT Portugal’s generation of future revenues.

8.December.14 | The Board of Directors of Oi finalised the formalities to approve the general terms and conditions for the sale of all of the shares of PT Portugal SPGS S.A. to Altice Portugal S.A. a wholly-owned subsidiary of Altice S.A.. The sale substantially involves PT Portugal’s operations in Portugal and Hungary.

MEO

21. July.14 | MEO, through PT Portugal, SGPS, S.A., entered into an agreement to deploy, swap of capacity and share its Fibre Network with Vodafone Portugal. This agreement includes sharing of dark fibre in circa 900 thousand homes, in which each party shares approximately 450 thousand homes. The sharing model is materialised with the acquisition of Indefeasible Rights of Use (IRU), through a 25 years contract.

Subsequent events

Business Combination with Oi

18. January.15 | PT Portugal, SGPS, S.A. (“PT Portugal”), pursuant to the request of the Portuguese Securities Commission (“CMVM”) and within the projected sale transaction between Oi, S.A. (“Oi”) and Altice, informs as follows: According to the terms agreed with Altice, notes named €400,000,000.00 6.25 per cent Notes due 2016 (ISIN PTPTCYOM0008), initially issued by Portugal Telecom, SGPS, S.A. (“PT SGPS”) and currently of responsibility, as issuer and principal debtor, of PT Portugal, which are admitted to trading on a regulated market that operates in Portugal (“Notes”) shall stay at the universe of Oi companies, benefiting from the guarantee of Oi. This operation shall entail the replacement of the current issuer, PT Portugal, for Portugal Telecom International Finance, B.V., a company which will be wholly owned by Oi.

22. January.15 | PT SGPS’s shareholders have approved the sale of the whole share capital of PT Portugal SGPS, S.A., by Oi, S.A. to Altice, S.A., under the proposal of Oi, S.A.

6. March.15 | Oi S.A. informed that CVM unanimously authorised the completion of the Exchange and the Option, in accordance with the terms of the definitive agreements signed among Oi, Telemar Participações S.A. and PT SGPS on 8 September 2014, subject to the following conditions: (1) the approval by the shareholders of Oi in a general meeting (other than PT SGPS, which cannot vote); and (2) the granting of voting rights to the preferred shareholders in this shareholders’ meeting.

CMVM

23. January.15 | PT Portugal, SGPS, S.A. announced the appointment of Marco Norci Schroeder, currently PT Portugal CFO, as the new representative for the relations with the market and CMVM.

PT Portugal | Consolidated Report | 2014 27

05 Qualified holdings

Qualified holdings

On 31 December 2014, Oi S.A. held 100% of the share capital and voting rights in PT Portugal SGPS S.A.

PT Portugal | Consolidated Report | 2014 28

06 Outlook

PT Portugal will continue to be a growth-oriented company, aiming at exploring the full potential of its portfolio of assets, by taking advantage of existing and future opportunities in the telecommunications, multimedia, cloud and IT services. PT Portugal aims to continue to leverage convergence opportunities, following the launch of its quadruple and quintuple-play offers, by bundling traditional voice and data services with new and sophisticated multimedia and IT services, leveraging on PT Portugal’s investment in advanced networks, namely FTTH and 4G- LTE, and in cloud solutions.

Following the restructuring of its Portuguese businesses along customer segments, PT Portugal will continue to focus its efforts on the development of fixed-mobile, IT-telecoms, cloud and multimedia convergent products and services and integrated offers aimed at acquiring new customers, improving customer loyalty and, ultimately, increasing market share and share-of-wallet. In the consumer segment, PT Portugal will maintain the focus on boosting its quadruple-play offering, already with traction in the market, and its quintuple-play already launched in July 2014, concluding the transformation of residential service offering from a fixed telephone legacy to a convergent customer base and, on the personal segment, shifting the focus from prepaid to postpaid on the portuguese mobile market. Convergent offers are more competitive and more resilient to adverse economic conditions due to its distinctive and differentiated features customised to meet customer needs. Additionally, in the personal segment, PT Portugal will continue to contribute to increase the penetration of smartphones, to develop new services and tariff plans and to differentiate further its mobile offering, benefiting from its deployment of 4G-LTE and leading the roll-out of advanced mobile networks in the Portuguese market. In the enterprise segment, PT Portugal will continue to provide advanced one-stop-shop IT/IS solutions focusing on BPO and on the marketing of machine-to-machine solutions, on the back of cutting-edge solutions for companies, leveraging on the new Data Center in Covilhã to meet demand for high bandwidth services and virtualisation. These offers leverage on PT Portugal's investment in networks, including FTTH and 4G-LTE, and cloud computing solutions, which allow the offering of cloud-based services in partnership with software and hardware supliers.

PT Portugal will continue to invest in innovation, research and development aiming at enhancing its services with new, distinctive and customised features, functionalities and content tailored to meet customer needs.

PT Portugal will continue to leverage on close partnerships with its suppliers in order to reduce time-to-market and further differentiate its value proposition to its customers. Furthermore, PT Portugal will continue to rationalise its cost structure through productivity increases and business process reengineering. In effect, the focus on cost rationalisation will continue to play a key role at PT Portugal as a means to allow increased competitiveness in the market while allowing the company to continue to invest in the business namely throughout continued investment in customer acquisition that is seen as the sustainable growth path.

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1. Internal Control System and Risks Management

a) Internal Control System

The Internal Control System implemented at PT Portugal was based on an internationally acknowledged model - COSO (Committee of Sponsoring Organisations of the Treadway Commission) - making use of the layers established according to such model, notably: (i) Entity Level Controls; (ii) IT Level Controls; and (iii) Process Level Controls. In addition, were identified the necessary objectives to ensure that the processes, systems and business units impacting the amount of financial reporting have appropriate operational controls.

The responsibility of the Internal Control Unit, consists in promoting a vision of an internal control system that is structured, sustainable and pointing towards the management of risks as identified by the organisation, not exclusively focused on compliance with applicable rules.

The identification of business units and processes on which existing controls are designed, implemented and improved is based on the identification of financial risks made by the key managers of PT Portugal, the results of the risk management process, the materiality of the processes at a financial reporting level, and finally any legal requirements.

Internal control manuals are designed and controls are implemented for the most representative business units within the PT Portugal, and as to smaller size units and within the framework of improvement of internal control and risk management environment.

The PT Portugal has implemented controls for each business cycle and classes of transactions thereof, all of which is described on the internal control manuals.

The identification and design of the controls that are relevant to financial reporting, whether preventive or detective or corrective, are documented on proper manuals according to the layers established by COSO. Manuals are revised where changes in the processes occur or periodically, in order to attest their adhesion to the reality of the Company’s operations.

Process description as set out on internal control manuals is composed, among other, of a detailed description of procedures carried out, identification of those responsible for their execution, identification of control objectives for each activity, periodicity of control execution and evidence supporting the same, identification of User Development Applications (UDAs), and whether control is aimed at mitigating a fraud risk or ensures segregation of duties (SoD). In this way, other than ensuring general awareness of existing controls, it is possible to guarantee audits as to control effectiveness.

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Entity Level Controls

Control Environment Information and Comunication Risk Evaluation Monitoring

Revenue and Purchases and Fixed Assets Inventory Personnel Treasury Financial Receivables Payables

Controls over Managing Order Managing Managing Management of Tangible Assets Purchases payments and Entry Inventory Personnel funding deposits Delivery of Accounts Managing Managing products and Intangible Assets Pension Fund Payables Treasury financial riscks services

Billing Other Assets Health Plan

Managing Accounts Financial Information Systems Receivables Investments

Fiscal and legal Function

Fiscal Function Legal Function Financial Reporting

Currently, the PT Portugal has already identified around 147 processes and 1,892 critical controls for financial reporting. As to information systems, the PT Portugal has identified 28 critical systems, among which the billing systems, the SAP and the consolidation system.

The Internal Control Unit follows up, on a quarterly basis, the deficiencies reported and situations detected, either by the internal auditor or by the external auditor, to the various processes, and ensures the definition of action plans for mitigation and resolution of risks detected.

Additionally, the Company has designed a specific manual to address one of the identified operational risks: fraud risk. The purpose of this manual is documenting usual frauds in the business sector where PT Portugal is inserted, in order to permit a better management of this specific risk. Such manual, other than describing fraud procedures, contains an identification of controls and persons responsible for their implementation at PT Portugal level. The manual is revised when deemed necessary, taking into account inputs from the works carried out by the Internal Auditing pursuant to its activity, as well as from whistle blowing, if any, and benchmarking with other companies of the same sector.

PT Portugal has also implemented an Integrated Management System (IMS) based on Quality (ISO 9001), Environment (ISO 14000) and Safety, Hygiene and Health at Work (OHSAS 18001) standards in which the PT Portugal is certified.

The IMS management policy emphasises the significance of the organisation at the level of compliance with the strategic commitment, both at quality, environment and health, hygiene and safety at work level, and at sustainability level, through the implementation of social responsibility policies or policies of dissemination of an excellence culture and quality that is transversal to all processes in the organisation. Such practices are, at all times,

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focused in exceeding the expectations of all PT Portugal stakeholders, notably its customers, shareholders, society, partners and other persons related to the organisation.

The PT Portugal has also implemented a methodology for analysis, evaluation and compliance with the legislation applicable to our certifications, and acts proactively in continuously improving its processes, taking into account the mitigation of operational, environmental and safety, hygiene and health at work risks as identified in the course of its current operation. The PT Portugal is also committed to disseminate the best practices with its suppliers and partners, thus ensuring a sustainable conscience for the business in the surrounding society.

Internal control system evaluation

The Internal Audit Department is responsible, at corporate structure level, for the evaluation of the PT Portugal internal control system and for existing risk management procedures.

In the performance of its duties, this Department hierarchically reports to the Chairman of the Board of Directors. The internal audit plan prepared by the Internal Audit Department is annually approved by Board of Directors of PT Portugal, wherein are defined the audits to be performed and scope of internal control reviews. The objective of the audit assignments is to assess the internal control mechanisms in place to ensure the reliability and integrity of the financial and operational reports, operational efficiency and compliance with applicable laws and regulations.

The results of the Risk Management process are integrated in the Annual Audit Plan, in order to ensure that audits carried out address the main areas and risk factors that might materially affect the Company’s ability to comply with its strategic plan.

Within this context, operational, compliance, financial and information system audits are carried out, all along the year, in the main business and operations units of the Company worldwide, in order to ensure the following goals:

 Operational Audits – assessment of operational risk management procedures and of mechanisms that guarantee operational efficiency and that have a relevant impact on the pursuance of the Company’s strategy and on key value drives, in the different geographies where the Company operates;  Compliance Audits – ensures that the Company's activities comply with relevant laws and regulations;  Financial Audits – ensuring the effectiveness of control mechanisms associated with the collection, processing and disclosure of financial and accounting information;  Information Systems Audits – verification of the effectiveness of the controls addressing the risks associated to Information Systems, and which allow for ensuring security, integrity and availability of information that is critical for the business and recovering the systems in the event of interruption of operations.

The progress of the execution of the Internal Audit Plan as defined, as well as the aggregate results of audits carried out, are reported each quarter to the Board of Directors for the follow-up of the progress of the internal control and risk management system.

Internal control reviews are based on the COSO Framework (Committee of Sponsorship Organisations of the Treadway Commission) and COBIT Framework (Control Objectives for Information and Related Technology).

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Internal Audit activities are performed in accordance with Internal Audit Professional Standards issued by the Institute of Internal Auditors (IIA). During 2011, Internal Audit was submitted to an external quality assessment through which it renewed its quality certification, issued by IIA.

Main economic, financial and legal risks

Following the management process for risks that might adversely affect the business of PT Portugal, the following should be highlighted:

Relevant Risks PT Portugal is subject to the risk of regulatory changes or actions from national, European Union or international regulatory entities that may create growing competitive pressure and affect its capacity to conduct its business in an effective manner. The Regulation Department is in charge of the management of regulatory risk and must be up to date on new regulations applicable to the sector with an impact on PT Portugal. The risk management strategy and response is coordinated between the Regulation Department and the Regulation different operational areas. Within the monitoring of the various risks and opportunities related to regulation, we highlight the following matters: (i) Next Generation Networks; (ii) Network Security, resilience; and Data Privacy (iii) Retail offers and pricing; (iv) Wholesale reference offers; (v) Universal Service; (vi) Radio-electric spectrum; (vii) Relevant Broadband Markets; (viii) Roaming regulation; (ix) Digital Dividend; (x) Cloud computing; (xi) Cinema Law and (xii) Digital Copy Law. Strategic There is a possibility of a decline in PT Portugal revenues due to an Risks increase in competition by other operators or new players in the market, notably through (i) development of new products and services; (ii) aggressive marketing and sales policies; (iii) improvements in product or service quality; (iv) increase in productivity and cost reduction; (v) operator mergers and consolidations; and (vi) re-configuration of the value chain from the customer’s standpoint. The entrance of a pure mobile player in the fixed market and the Competition consolidation of the largest cable operator with the third mobile operator, thus creating a new integrated telecom operator in Portugal has significantly impacted the Portuguese telecommunications competitive landscape. The new landscape will further increase the focus on quadruple-play offers, but will also drive increased pricing pressure.

PT Portugal is a customer-centric company focused on innovation and execution to deliver on the needs of the digital consumer. PT Portugal is organized along customer segments, promoting cross functional and

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cross-platform collaboration to deliver the best customer experience. PT Portugal aims to create value sustainably across customer segments in Portugal, aiming to:

1) Consumer: Explore convergence to grow market share based on simplicity, convenience and value-for-money. PT Portugal’s core priority on the business-to-consumer segment is convergence, with focus on boosting its quadruple-play offering, already with traction in the market, and its quintuple- play already launched in July 2014, concluding the transformation of residential service offering from a fixed telephone legacy to a convergent customer base. In recent years PT Portugal invested in four areas in order to gain a position as the natural leader of consumer convergence in Portugal, namely: (1) state-of-the-art network with integrated management of fixed and mobile platforms; (2) distinctive storage and processing capacity, leveraging on one of the most efficient data centers in Covilhã and a set of strategic partnerships to deliver the best cloud solutions and thus ensure a seamless experience across devices; (3) convergent customer touch points, with the integration of fixed and mobile stores under a unique concept and a single CRM software with a 360º customer vision, and (4) ecosystem of multi-platform apps, allowing customers to have access to TV on all devices and everywhere, through MEO GO!, unlimited music streaming, with MEO Music, and seamless access to personal contents on the cloud, with the offering of 16GB of free storage space in MEO Cloud

 Residential: Reshaping TV experience. PT Portugal has been leveraging on the increased capacity of its new generation access networks to provide a differentiated and sophisticated TV experience across all devices anchored on exclusive and differentiated content, advanced functionalities and interactive customer experience, which is used by 65% of our TV customers. PT Portugal strategy of bundled offers in the Residential segment is now complemented with a convergent, quadruple-play offer available on all platforms: fiber, ADSL and satellite. PT Portugal will continue to invest in innovation to further develop the features of its bundles and thus continue to set apart its offer.

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 Personal: Driving growth through mobile data, innovative flat-fee offering and convergence. The Personal segment strategy is focused on promoting mobile data usage, improving customer experience with simple and easy to choose tiered pricing plans on voice and leveraging on convergence to grow in mobile market share. In order to promote data usage, PT Portugal has focused on fostering on two axis: (1) First, increase in Smartphone adoption through a broad portfolio of handsets, including own-branded devices with a significantly lower price point vs. branded alternatives, (2) Second, increase in perceived value from data usage with the development of innovative and value-added data applications. PT Portugal’s simplification of tariff plans has reinforced post-paid value proposition, and promoted customer migration towards data and higher value voice plans. The success of PT Portugal M4O offer, its quadruple-play offer, is leading to a migration of the mobile customer base from pre-paid to post-paid.

2) Enterprise: Increase penetration of cloud and IT/IS services. PT Portugal has a three tiered approach to the B2B market reflecting the different needs of each sub-segment, and delivering the best technological solutions encompassing core telecommunications products, cloud and IT/IS solutions and additional value-added services such as Business Process Outsourcing (BPO). PT Portugal’s value proposition for the B2B market is based on attributes such as robustness, security, quality and proximity. Through investments in infrastructure, namely in the new Data center in Covilhã, and telecom-IT convergence, PT Portugal intends to develop and market advanced integrated solutions for the Enterprise segment aimed at promoting the penetration of IT/IS and BPO services, thus increasing customer share of wallet and loyalty. PT Portugal will also leverage on its new leading-edge data center to underpin a differentiated cloud computing offering for enterprises of all dimensions, in close cooperation with its leading industry partners, in order to crystallize the benefits of consolidation, virtualization and standardization for customers.

Non Domestic The investment in Unitel is subject to specific risks that are described in Operations Note 30 of the Consolidated Financial Statements.

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With a background of quick technological changes of the business sector in which PT Portugal operates, the company is subjected to the risk of failing to leverage technological advances and developments in its business model, in order to obtain or maintain competitive advantages. Innovation continued to be a top priority for PT Portugal, given its key role in ensuring sustained growth, particularly in a difficult economic context which forces higher competitiveness in product offering and simultaneously demands a higher efficiency in its development and go- to-market processes. The continuous investment in innovation has proved to be essential for enhancing the leadership and competitiveness of the company in the various segments and markets it serves. In response to changing consumer habits, the company focused its offer towards convergence, mobility and virtualization of content and services. Aware of its role in the Technological society, which is reflected in PT Portugal’s strategy, these solutions were Innovation designed with sustainability in mind, focusing on efficiency and reduction of environmental footprints.

PT Portugal developed a structured that cuts across the entire organization and is based on a methodology of innovation management that ensures diversified capital allocation, control and monitoring of results and participation of all employees and partners. In accordance with this model, innovation is organized into three time horizons: (1) Incremental Innovation - short term actions focused on continuous improvement, (2) Planned Innovation - development of technological and product roadmaps for the medium term, and (3) Exploratory Innovation – analysis of the main technological trends which influence the future of the ICT sector in the long term. To develop a winning go-to-market strategy and reduce investment risks we work with a broad network of partners in leading edge companies, abroad and in Portugal. The financial crisis began nearly five years ago and its effects continue to be visible in the financial markets and in the real economy. Global economic growth remains weak and there is still some degree of uncertainty which might have an impact on the level of product and service demand, and as a result on the level of the operational and financial performance of PT Portugal. In this sense, management Economic continuously monitors impacts on the operational and financial environment performance of PT Portugal.

The management team acts proactively in identifying threats and opportunities at the level of the industry, sector and geographies were it is present, in order to diversify the asset portfolio and ensure the growth and profitability of the business. Foreign currency exchange rate risks mainly relate to PT Portugal on Financial Exchange foreign operation Exchange rate fluctuations of those currencies against Risks rates the Euro affect the translation of the results attributable to PT Portugal,

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and therefore impact PT Portugal results and asset position. Additionally PT Portugal is also exposed to exchange rate risks as regards debt in a currency other than Euro. Interest rate risk basically impacts the Group’s financial expenses and income on the floating interest rate debt and cash applications. PT Portugal is exposed to this risk primarily in the Eurozone, as its debts are Interest rates subject to floating interest rates based on the Euribor rate. Interest rate risks also result from the exposure to changes in the fair value of PT Portugal’s long term fixed-rate debt due to changes in market interest rates. Credit risk relates mainly to the risk that a third party fails on its contractual obligations, resulting in a financial loss to the Group. PT Portugal is subject to credit risks in its operating and treasury activities.

Credit risks in operations relate basically to outstanding receivables from services rendered to our customers The Group does not have any significant credit risk exposure to any single customer, since trade receivables consist of a large number of customers, Credit spread across several businesses and geographical areas. These risks are monitored on a business-to-business basis, and PT Portugal’s management of these risks aims to: (a) limit the credit granted to customers, considering the profile and the aging of receivables from each customer; (b) monitor the evolution of the level of credit granted; (c) perform an impairment analysis of its receivables on a regular basis; and (d) assess the market risk where the customer is located. Accordingly, the criteria used to compute adjustments for doubtful accounts receivable is based on these factors. This risk may occur if the sources of funding, including cash balance, operating cash inflows, divestments, credit lines and cash-flows obtained from financing operations, do not match the Group’s financing needs, such as operating and financing outflows, investments, shareholder remuneration and debt repayments.

In order to mitigate liquidity risks, the company seeks to maintain a liquidity position and an average maturity of debt that allows it to repay its short-term debt and, at the same time, pay all its contractual Liquidity obligations. The capital structure of PT Portugal is managed in order to ensure that its businesses will be able to continue as a going concern and maximise the return to shareholders.

Regarding the investment on commercial paper of Rio Forte, we highlight that on 28 July 2014, following the non-repayment by Rio Forte of the Euro 897 million treasury applications, subscribed by Portugal Telecom and PT Finance, prior to its acquisition by PT Portugal, Portugal Telecom and Oi reached an agreement on the final terms of the key contracts following the new MoU signed in 16 July 2014. The execution of the

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definitive documentation is subject to the approval by Oi Shareholders Meeting, scheduled for 26 March 2015, regarding the Exchange Agreement and the Call Option Agreement.

The capacity and availability of network infrastructures are essential features for PT Portugal to ensure continued critical operations within high quality parameters, aimed not only at customer satisfaction but also in compliance with regulatory requirements. In this way, PT Portugal has strongly emphasised the management process of this risk, not only at infrastructure availability and resilience level but also in the increase of infrastructure capacity, in such a way as to support new product and service offers to its customers. Additionally, PT Portugal’s ownership of a network infrastructure located in the public domain increases PT Portugal’s exposure to the occurrence of breakdowns and incidents. Within this scope, follow-up and risk mitigation actions are carried out as follows:

 Securing the telecommunications core network;  Preparation of risk maps for the various technological platforms, identifying dependencies and single failure points;

 Definition and implementation of disaster recovery plans;

 Implementation of systems and procedures aimed at ensuring Infrastructure determined QoS (Quality of Service) and QoE (Quality of End capacity user Experience) levels;

Operational  Investment in new generation networks and preventive Risks maintenance actions;  Investment in information systems to support the activity of technical teams;  Investment in a new state-of-the-art Data Centre in order to ensure the resilience and capacity of the infrastructure.

Increased resilience of PT Portugal’s core services, through the work of the Business Continuity should also be highlighted, in particular the company ability to respond to incidents and disaster in the following areas:  Prevention: planning and preparation in order to reduce the impact of incidents in the critical processes that support the business;  Emergency Response and Recovery: business continuity and disaster recovery plans that reduce the time of recovery of critical processes in case of catastrophic events Pursuing an appropriate environmental policy has been a concern to PT Portugal, in order to reduce the Company’s exposure to environmental damages that might consist in: (i) liability towards third parties for any Environmental material damage caused; (ii) liability towards governments or third parties for the cost of waste removal, added by possible compensations. This way, PT Portugal has reinforced its environmental management

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principles and actions, thus ensuring the certification of associated systems according to ISO 14001 standard. Environmental management policies and systems cover the following areas of intervention: (i) Resource consumption; (ii) Waste production and routing; (iii) Atmospheric emissions; (iv) Noise and electromagnetic fields; (v) A supplier’s sustainability programme; (vi) Awareness and training campaigns. Furthermore, it should be stressed that the management models are subjected to periodic audits, both internal and external, and a continuous assessment of any impacts and improvements to be implemented. PT Portugal’s capacity to obtain and retain talent is a fundamental vector for the pursuance of the Company’s strategic goals, particularly within the competitive context where PT Portugal operates, both at national and international level. In this way, the Company has paid special attention to the management of this risk, at the charge of the Human Resources Talent Office, which acts: retention  In the recruitment of new employees having the profile and knowledge necessary to ensure the key skills required for the present and future development of PT Portugal;  In the identification of key-elements of PT Portugal, and then implement retention strategies as appropriate for the segments defined for its management.

b) Risk Management

PT Portugal’s priority commitment consists in the implementation of mechanisms for assessment and management of risks that might affect its operations, the execution of the plan and the compliance with the strategic goals defined by the Board of Directors. Such mechanisms are based on an integrated transversal risk management model, which seeks to ensure, inter alia, implementation of good corporate governance practices and transparency in communication to the market and shareholders.

As a structured and systematised approach, risk management is integrated in the Company’s strategic planning and operational management procedures, and relies on the commitment of all employees to adopt risk management as an integral part of their duties, notably by identifying, reporting and implementing risk mitigation measures and behaviours.

Risk Management is sponsored by the Board of Directors in articulation with the management teams for the various businesses, in such a way as to identify asses and manage uncertainties, threats and opportunities that might affect the pursuance of the plan and compliance with strategic goals.

The Internal Audit and Risk Management functions, support the Company in implementing the risk management system and permanently assessing risk management procedures in place, in order to ensure the following goals:

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 Implementation of a corporate risk management model in line with the PT Portugal strategic goals;  Identification and analysis of the main risks to which PT Portugal and its subsidiaries are exposed within the framework of the conduct and pursuance of their business;  Identification and analysis of the main risk factors and events that may significantly affect operation in the normal course of PT Portugal and its subsidiaries in terms of:  Impact;  Probability of occurrence;  Associated control level and response capacity in a crisis;  Speed at which the risk or event may materialise;  Identification of improvements in control and follow-up of mitigation plans associated to critical risk factors;  Improve the quality of information supporting the decision-making procedure;  Reporting the results of the risk management process and warnings in the event of occurrence or identification of new critical risks.

Risk management procedure

The Risk Management procedure implemented in PT Portugal is based on an internationally acknowledged methodology – COSO II, developed by the Committee of Sponsorship Organisations of the Treadway Commission. This approach is based on the identification and analysis of key value drivers and uncertainty factors that might affect value generation and compliance with the plan and strategic goals.

Considering PT Portugal need for clear assessment and management mechanisms for the risks affecting its businesses, the following components were defined in the implementation of the risk management procedure:

 Risk Dictionary to ensure the description, in a clear objective manner, of a common risk language to be used both internally and in the various disclosures made to the market on this matter;  Risk Management Methodology, which formalises the relevant risk identification, analysis, mitigation and report processes and procedures;  Centralised Risk Record of all information associated to each relevant risk, which simplifies the correlation analysis between the various risk factors recorded, as well as the ranking of the priority for each risk response and the identification of synergies between the various risk mitigation actions.

Risk dictionary

The Risk Dictionary defines the risk factors that might generally affect PT Portugal and its subsidiaries, contributing to a common and transversal risk language, through the whole organisation. However, such dictionary is not intended to be deterministic, since new risks may be identified and it is updated in a systematic manner and where justifiable. This component of the risk management procedure is structured in three major risk categories according to the risk’s nature:

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 Strategic Risks: These correspond to risks that depend on external factors to the PT Portugal that might affect its performance, strategy, operations and organisation. Due to their nature, the origins of environment risks imply that their associated impact must be appropriately anticipated and the materialisation of their associated risk factors and mitigation strategy in the event of a crisis must be timely identified.  Operational Risks: These result from and are inherent to business activities and internal processes, and management may ensure their control at their origin, in a preventive manner.  Financial Risks: Associated to the PT Portugal financial performance and to the transparency in its communication to the market.

The table below shows the risks currently identified at the level of the Risk Management Model of the PT Portugal on which all the risk management procedure is developed.

Risks    Politics / Sovereignty  Competition  Business Sector  Economic Environment  Governance  Innovation  Reputation & Image  Shareholder Expectations Strategic Risks  Licence / Concession  Legal Management  Tax  Business / Investment Portfolio  Regulation  Social Environment &  Customer Needs Stakeholder Relationship  Service Quality  Environmental  Purchases  Sales channel and customer  Partner Management / support Outsourcing  Network/Platform Infrastructure  Revenue Assurance / Billing  IS/IT Infrastructure  Authority / limits  Development of Products and  Communication Services  Leadership Operational  Brand Erosion  Performance Incentives Risks  Service Failure / Product  Information Security, Data Deficiency Privacy and Asset Protection  Logistics  Fraud  Hygiene and Safety  Organisation Structure  Inefficiency  Performance Evaluation  Business Interruption  Pricing  Talent procurement /  Contractual commitments / development and retention contractual management

 Credit  Financial Instruments  Equity  Access to Funding Financial Risks  Exchange  Financial Reporting  Interest rates  Stock Value  Cash-flow / Liquidity  Guarantees

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Risk management methodology

The risk management methodology formalises procedures and responsibilities that are properly aligned with the strategy and exposure level/risk tolerance determined for the PT Portugal. This tool identifies:

 Responsible for the evaluation and approval of risks and risk factors that affect the business;  The persons responsible for the management of identified risks and the manner in which such risk should be analysed and mitigated;  Monitoring procedures for mitigation actions for each risk, according to the risk management strategy adopted by the Board of Directors;  Disclosure and reporting procedures for information issued from the risk management procedure.

Operational implementation of the risk management methodology is an interactive cyclical process that may be summarised on the following table and diagram:

Risk Management Methodology

 Identify main risks affecting PT Portugal Board of  Define Risk Managers Directors  Decide on action and prioritisation of mitigation actions

 Support the definition and implementation of a risk management model in line

with best practices Risk  Monitor risk management model and ensures that the information from different Management business operations and units Function  Support the Board of Directors in defining key relevant risks

 Follow up on the action plans required to guarantee correct treatment of identified

risks

 Manage materially relevant risks Business  Implement actions required to ensure appropriate control Management  Evaluate and quantify residual risk to which the company is exposed

 Identify critical areas of risk exposure and propose mitigation actions Risk  Provide feedback regarding the Risk Management Model, and warn about new risk Managers exposures or control environment degradation

Internal  Evaluate the effectiveness of control mechanisms at reliability and integrity level of Audit financial and operational reports, efficiency of operations & compliance with laws Function and regulations.

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Integrated Methodology Monitoring and Response Risk and Opportunity Management Risk Factors – Residual Risk Evaluation + Controlled Risk Excessive Risk Board of Directors Monitor Risk Response

Relevant Risks for analysis Negligible Risk Acceptable Risk Optimize Controls Monitor

Risk Management Team Exposure Risk Inherent

- Control Vulnerability + Risk Factor Identification Risk Managers Risk exposure Assessment

Following this analysis, relevant risks were ranked for analysis and detailed assessment, which involved 41 departments/operational areas charged with the management of such risks, in order to identify events and factors that might affect the PT Portugal operations and activities, as well as the control procedures and mechanisms associated thereto.

The impact and probability of occurrence was measured for each of the 270 identified risk factors, and, according to the level of exposure or residual risk, a risk response strategy was defined, notably: (i) to reduce the risk through implementation of controls reducing the probability of risk occurrence or its impact in case the risk materialises; (ii) to accept the risk in situations where the residual risk is deemed acceptable and the cost of implementation of additional controls exceeds the expected benefits; (iii) to share the risk, by reducing the exposure of the PT Portugal Group through the total or partial transfer to other entities, resorting to insurance, derivatives or joint- ventures; or (iv) to avoid the risk, by abandoning the business or procedures generating such risk (e.g.: abandoning a geographical area or a business). It should be stressed that an analysis was made to the implementation status of the mitigation measures planned for 2012, and it was observed that all actions classified with high priority in terms of risk mitigation were timely implemented.

Centralised risk record

Implementation of a centralised compilation of all information associated to each risk that is relevant to the PT Portugal is a critical factor for an appropriate analysis and ranking of response actions to relevant risks. Risk recording as currently implemented associates to each risk:

 Risk factors that, in case they materialise, might relevantly affect the PT Portugal;  Potentially affected strategic goals;  Existing control structures, procedures and indicators to monitor and mitigate risk factors;  Qualitative evaluation of control and residual risk associated to each risk factor;  Quantitative evaluation of impact, probability of occurrence and speed at which the risk factor might materialise;  Improvement and mitigation plans or critical risks response actions.

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2. Powers and duties of the Board of Directors

a) The Board of Directors shall pursue the general interests of the Company and ensure the management of its business, specifically:

 approving the signing of financing contracts and loan contracts, including medium and long term contracts, in Portugal or abroad, as well as the provision of the guarantees;  representing the Company in judicature and thereout, actively and passively, and waiving, compromising and confessing in any legal proceedings, as well as entering into arbitration agreements;  establishing the technical and administrative organisation of the Company and the internal working rules;  appointing attorneys, legal or other, with such powers as it may deem fit, including powers of delegation;  co-opting directors to replace those definitively absent, up to the end of the term of office for which the replaced directors had been elected, without prejudice to ratification at the first General Meeting;  approving the annual plan of activities and the investment and operating budgets;  approving the Internal Regulations of the Board of Directors  performing such other duties as may be assigned to it by the General Meeting.

b) The Board of Directors may approve the setting up of committees, with or without the presence of their members, to permanently monitor certain issues to be specified in the act of their constitution, and may also grant them powers of decision-making and representation. c) The Board of Directors shall submit itself to the decisions of the General Meeting on management matters, provided that they are taken at the request of the Board within the legal terms. d) The consecutive or non-consecutive absence of any director in more than half of the ordinary meetings of the Board held in one calendar year, without their respective justifications being accepted by that body, imply the definitive absence of the respective director. The definitive absence of a director should be declared by the Board of Directors. e) Where the definitively-absent director is the chair, he or she shall be replaced by the deputy-chair and, should two deputy-chairs have been elected, the Board of Directors shall decide which is to replace the chair. If there are no deputy-chairs, the chair shall be replaced by election by the General Meeting. f) Resolutions of the Board of Directors shall be passed by majority vote, the chair having the casting vote. g) At least, 4/5 (four fifths) of the votes cast in favour by the members of the Board of Directors is needed for the approval of the following matters, with reference to the Company or any of its companies, controlled directly or indirectly:  the making of capital expenses over the amount allowed for in the budget, on a pro rata temporis basis, or the making of capital expenses of a significantly lower amount than that allowed for in the budget, on a pro rata temporis basis;  the making of any transaction, the assumption of any commitment, or assumption of any obligation or liability (including any contingent liability) the total value of which exceeds Eur. 1,000,000.00 (one million Euros);

PT Portugal | Consolidated Report | 2014 45

07 Corporate governance

 the assumption of any commitment for a value over Eur. 1,000,000.00 (one million Euros) for a period of over three months or which cannot be cancelled or terminated upon prior notice of three months or less;  the imposition or creation of any onus or encumbrance on any part of its assets the total value of which is greater than Eur. 1,000,000.00 (one million Euros), or on assets related with the electronic communications network and related equipment;  the concession or alteration of any guarantee, bond, indemnity, letter of comfort or any commitment of a similar nature for the benefit of third parties that might result in the disbursement of amounts that exceed Eur. 1,000,000.00 (one million Euros), by the Company and/or of any of the companies controlled directly or indirectly by it;  the cancellation or waiver without just cause of any receivables, with the exception of insignificant receivables, or the concession of any additional payment period for any receivables;  the assumption, conclusion, extinction or modification of any agreement or contract that is relevant, this being understood to be all and any contracts or agreements to which the Company and/or any of the companies controlled directly or indirectly by it, are party, and which (i) involves the payment or other obligations before third parties of an amount of over Eur. 2,000,000.00 (two million Euros) per year or Eur. 5,000,000.00 (five million Euros) during the whole duration of the contract or agreement in question, (ii) involves non-compete commitments in relation to the counterparty or restrictions on operations in certain branches of activity or business, (iii) involves the concession of rights of exclusivity to third parties, or, even, (iv) relate to the ownership or operation of the electronic communications network and equipment related or to the sale or promotion of electronic communications services, provided that, in any of the cases, they are worth Eur. 3,000,000.00 (three million Euros) per year;  the assumption, conclusion, extinction or modification of any property rental or lease agreement or contract that is relevant in accordance with the criteria established in the previous line;  except in the cases allowed for in the budget, the acquisition or agreement with a view to the acquisition of assets, the total value of which exceeds Eur. 1,000,000.00 (one million Euros);  the concession of any loan or advance of any amount to any third party other than the Company or any of its companies, controlled directly or indirectly;  the assumption or modification of indebtedness, except if (i) it is to replace already existing indebtedness which does not exceed the total value of Eur. 10,000,000.00 (ten million Euros), within terms and conditions that are in accordance with common market practices when this occurs, or (ii) for short-term overdrafts in the normal course of the business and in accordance with the practices of the past, which do not exceed the total value of Eur. 10,000,000.00 (ten million Euros);  the alteration of the maturity date of commercial paper that has been issued by the Company or by any of its companies, controlled directly or indirectly;  the conclusion or alteration of the terms of any contract or any other financial or commercial agreement with companies that undertake competing activities or with shareholders or affiliates of such companies;  the declaration, making or payment of dividends, capital subscriptions, reserves, premiums or other distributions, in cash or in kind, or the reduction, repurchase or redemption of all or part of the share capital, or, even, the capitalisation of any debt;

PT Portugal | Consolidated Report | 2014 46

07 Corporate governance

 the making of any alteration in the accounting policies or practices adopted, with the exception of those which arise from a legal imposition;  the opening, alteration or closure of any place where the business or activity is undertaken, branch, office of representation or permanent establishment, except if in the normal course of the business, or the acquisition or sale of any business, by any means, including via operations involving the availability of assets or of shareholdings;  the conclusion or extinction of any collective labour agreement;  the hiring of any new employee, unless s/he is taken on due to an increase of less than 50 (fifty) employees in the overall total number of employees of the Company and/or of the companies controlled directly or indirectly by it;  the appointment, recruitment or hiring of any new director or member of the Board of Directors or of the Executive Committee, when this matter is within the competence of the Board of Directors;  an increase of the annual level of remuneration of any of the members of the Board of Directors or of the Executive Committee, of any of the directors, or of the workers in aggregate, except if it is consistent with past practices and in the ordinary course of the business, when this matter is within the competence of the Board of Directors;  the extinction or alteration of the terms of any contract with any director or member of the Board of Directors or of the Executive Committee, except if due to just cause, when this matter is within the competence of the Board of Directors;  the resolution or conclusion of a transaction relating to any lawsuit in which the Company and/or any of the companies controlled directly or indirectly by it, are involved as the defendant or accused and the value of the lawsuit or disputed amount is greater than Eur. 1,000,000.00 (one million Euros);  the creation, distribution, issuance, concession, purchase or conversion of any category of shares or other instrument related the shareholding, including, namely, options, guarantees, or other acquisition rights or availability of securities, when this matter is within the competence of the Board of Directors;  submission of matters for the deliberation of the shareholders of the Company and/or of any of the companies controlled directly or indirectly by it, and already approved by the Board in accordance with the quorum established herein;  the voluntary liquidation or any corporate reorganisation, including mergers, incorporations and de-mergers, when this matter is within the competence of the Board of Directors;  an increase in the rate of commission of any agent or commercial representative or of any service provider, including call center services, except if it is in the ordinary course of the business and is consistent with past practices;  modification of the pricing policy or of the standard pricing policy of products and services offered to clients, except if allowed for in the budget, or alteration of any of the standard terms and conditions negotiated with clients, except in the case of everyday initiatives adopted in relation to specific clients with the objective of keeping them in the portfolio; and  alteration or resubmission of any tax declaration.

PT Portugal | Consolidated Report | 2014 47

07 Corporate governance

3. Remunerations of Corporate Bodies

Pursuant to Law no.28/2009 of 19 June 2009, individual and global remunerations received by corporate bodies in 2014 are presented in the table below: (Euro) Remuneration Board of Directors Fixed Variable 2013 ARMANDO RODRIGUES CABRAL ALMEIDA (a) 392,857 - MARCO NORCI SCHROEDER (b) 91,021 - NUNO JOSÉ PORTEIRO CETRA 210,000 150,000 CARLOS ANTÓNIO ALVES DUARTE (c) - - MANUEL FRANCISCO ROSA DA SILVA (c) - - PEDRO HUMBERTO MONTEIRO DURÃO LEITÃO (c) - - FLAVIO NICOLAY GUIMARÃES (d) - - EDUARDO FELIPPE MICHALSKI (e) - - ABILIO CESARIO LOPES MARTINS (f) 19,636 - DAVID JOSE FERREIRA LOPES (f) 15,805 - FRANCISCO JOSE MEIRA SILVA NUNES (f) 15,000 - JOSÉ CARLOS DE OLIVEIRA BALDINO (f) 15,000 - LUIS FILIPE SARAIVA CASTEL-BRANCO DE AVELAR (f) 16,292 - ZEINAL ABEDIN MAHOMED BAVA (g) - - LUIS MIGUEL DA FONSECA PACHECO DE MELO (h) - - ALFREDO JOSE SILVA DE OLIVEIRA BAPTISTA (i) - - BAYARD DE PAOLI GONTIJO (j) - - 775,611 150,000

(a) The director Armando Almeida was elected on 8 August 2014 (b) The director Marco Schroeder was elected on 8 August 2014 (c) No remuneration was paid to this director in PT Portugal (d) The director Flávio Guimarães was elected on 8 August 2014 and no remuneration was paid in PT Portugal to this director (e) The director Eduardo Michalski was elected on 8 August 2014 and no remuneration was paid in PT Portugal to this director (f) The director resigned on 31 de January 2014 (g) The director resigned on 8 August 2014 and no remuneration was paid in PT Portugal to this director (h) The director resigned on 16 July 2014 and no remuneration was paid in PT Portugal to this director (i) The director resigned on 31 de January 2014 and no remuneration was paid in PT Portugal to this director (j) The director was elected on 16 July 2014, resigned on 8 August 2014 and no remuneration was paid in PT Portugal to this director

Variable remuneration included in the table above relates to the year 2013 and was paid in 2014.

The Company adopted the Supervisory Board model in December 2014, and the remunerations received by its members in 2014 were as follows: (Euro) Fixed Supervisory Board remuneration VITOR MANUEL FERREIRA LUCIO DA SILVA 4,500 OSCAR MANUEL MACHADO FIGUEIREDO 3,500 JOSÉ MANUEL GONÇALVES DE MORAIS CABRAL 3,500 11,500

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07 Corporate governance

The Statutory Auditor Ascenção, Gomes, Cruz & Associados - SROC, Lda, represented by Dr. José Manuel D'Costa Ascenção, resigned on 28 November 2014. The remuneration received during the year 2014 amounted to Euro 8,500, plus Value Added Tax.

PT Portugal | Consolidated Report | 2014 49

08 Board of Directors statement

For the purposes of subparagraph 1, c) of article 245 of the Portuguese Securities Code, the members of the Board of Directors of PT Portugal, SGPS, SA identified hereunder declare, in the capacity and within their functions as described therein, that, to the best of their knowledge and grounded on the information to which they had access within such Board of Directors and/or Executive Committee, as applicable, while in office:

 The management report, the financial statements, the auditor’s opinion and the other financial statements and documents required by law or regulation concerning the financial year ended 31 December 2014 were prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of PT Portugal, SGPS, SA and the undertakings included in the consolidation taken as a whole;

 The management report concerning such financial year includes a fair review of the development of the business and the performance and position of PT Portugal, SGPS, SA and the undertakings included in the consolidation taken as a whole, including an accurate description of the principal risks and uncertainties that they face.

Lisbon, 24 March 2015

Armando Rodrigues Cabral de Almeida, Chairman of the Board of Directors

Marco Norci Schroeder, Vice-Chairman

Carlos Alves Duarte, Director

Eduardo Felippe Michalski, Director

Flávio Nicolay Guimarães, Director

Manuel Francisco Rosa da Silva, Director

Nuno José Porteiro Cetra, Director

Pedro Humberto Monteiro Durão Leitão, Director

PT Portugal | Consolidated Report | 2014 50

Consolidated financial statements

PT Portugal | Consolidated Report | 2014 51

PT PORTUGAL, SGPS, S.A.

CONSOLIDATED INCOME STATEMENT YEARS ENDED 31 DECEMBER 2014 AND 2013 Euro 2013 Notes 2014 Unaudited REVENUES Services rendered 6 2,557,283,535 2,456,808,360 Sales 6 128,595,592 126,405,378 Other revenues 6 31,892,386 45,122,987 6 2,717,771,513 2,628,336,725 COSTS, LOSSES AND (INCOME) Wages and salaries 8 372,798,270 334,407,512 Direct costs 9 472,167,838 443,572,632 Costs of products sold 10 97,466,971 124,242,461 Marketing and publicity 51,678,380 45,651,358 Supplies, external services and other expenses 11 609,038,867 603,640,687 Indirect taxes 13 44,742,455 29,211,388 Provisions and adjustments 41 16,521,272 22,363,050 Depreciation and amortisation 35 and 36 778,328,005 794,563,654 Post retirement benefits costs 14 42,202,779 40,458,320 Net curtailment costs (gains) 14 (29,078,735) 118,057,059 Gains on disposal of fixed assets, net 36 (2,140,808) (37,000,000) Net other losses (gains) 15 1,495,377,860 (81,340,327) 3,949,103,154 2,437,827,794 Income (loss) before financial results and taxes (1,231,331,641) 190,508,931 FINANCIAL LOSSES AND (GAINS) Net interest expenses 16 286,483,425 261,361,892 Net foreign currency exchange losses (gains) 17 (8,102,203) 3,452,352 Net losses on financial assets and other investments 18 12,650 1,115,042 Losses in joint ventures, net 31 977,076,231 (37,042) Earnings in associated companies, net 32 (847,111) (32,969,600) Net other financial expenses 19 49,144,535 10,326,347 1,303,767,527 243,248,991 Loss before taxes (2,535,099,168) (52,740,060) Income taxes 20 51,200,825 78,483,948 NET LOSS (2,586,299,993) (131,224,008) Attributable to non-controlling interests 21 (6,736,175) 1,709,953 Attributable to equity holder of PT Portugal 22 (2,579,563,818) (132,933,961)

Loss per share 22 (51,591) (2,659)

The accompanying notes form an integral part of these financial statements.

PT Portugal | Consolidated Report | 2014 52

PT PORTUGAL, SGPS, S.A. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEARS ENDED 31 DECEMBER 2014 AND 2013

Euro 2013 Notes 2014 Unaudited

Net loss recognised in the income statement (2,586,299,993) (131,224,008) Income (expenses) recognised directly in shareholders' equity Items that may be reclassified subsequently to the income statement Foreign currency translation adjustments Translation of foreign investments (i) 159,216,627 (542,929,970) Transfers to income statement (ii) 999,908,890 927,038 Items that will not be reclassified to the income statement Post retirement benefits Net actuarial losses 14 (267,005,696) (139,474,542) Tax effect 20 56,629,544 21,431,268 Other gains (expenses) recognised directly in shareholders' equity, net (723,513) (2,687,443) Share in other comprehensive income of joint ventures (iii) (4,925,223) (7,045,792) Total income (expenses) recognised directly in shareholders' equity 943,100,629 (669,779,441) Reserves recognised directly in shareholders' equity Revaluation reserve Change in the deferred tax liability related to the revaluation of assets 20 847,510 12,879,404 847,510 12,879,404 Total earnings (losses) and reserves recognised directly in shareholders' equity 943,948,139 (656,900,037) Total compreensive loss (1,642,351,854) (788,124,045) Attributable to non-controlling interests 1,388,016 (4,854,461) Attributable to the equity holder of PT Portugal (1,643,739,870) (783,269,584)

(i) Gains recorded in the year ended 31December 2014 relate mainly to the impact of the appreciation of the Brazilian Real against the Euro on PT Portugal's former investment in Oi, up to 2 M ay 2014when PT Portugal disposed to PT SGPS the subsidiary that held the investment in Oi (Note 1). Losses recorded in the year ended 31 December 2013 relate mainly to the impact of the depreciation of the Brazilian Real against the Euro on the investment in Oi.

(ii) In the years ended 31 December 2014 and 2013, this caption corresponds to the cumulative amounts of foreign currency translation adjustments relatingtothe investments in Oi (Note 32) and CTM (Note 30) that were reclassified to the income statement upon the completion of the disposal of these investments on 2May 2014 and 20 June 2013, respectively. (iii) Share in other comprehensive loss of joint ventures include primarily hedge effects from Oi's financial instruments and net actuarial gains (losses) from Oi's defined benefit pension plans, until the disposal of participation.

The accompanying notes form an integral part of these financial statements.

PT Portugal | Consolidated Report | 2014 53

PT PORTUGAL, SGPS, S.A. CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 DECEMBER 2014 AND 2013 AND 1 JANUARY 2013 Euro 31 Dec 2013 1 Jan 2013 Notes 31 Dec 2014 Unaudited Unaudited ASSETS Current Assets Cash and cash equivalents 46.i 176,008,785 168,673,360 321,259,777 Short-term investments 23 6,857,791 112,663,516 56,793,798 Accounts receivable - trade 24 714,980,803 738,777,656 763,326,218 Accounts receivable - other 25 204,294,769 242,927,693 159,278,378 Inventories 26 60,800,273 69,654,713 82,921,883 Taxes receivable 27 85,410,035 8,755,939 18,788,589 Prepaid expenses 28 41,127,715 28,292,109 28,182,853 Other current assets 29 388,936,098 653,030 - Non-current assets held for sale 30 2,297,612,140 4,653,741 5,069,882 Total current assets 3,976,028,409 1,375,051,757 1,435,621,378 Non-Current Assets Accounts receivable - trade 24 667,319 204,316 380,879 Accounts receivable - other 25 828,540 - - Taxes receivable 27 21,123 22,356 28,275 Investments in joint ventures 31 1,811,412 2,439,454,453 2,990,776,352 Investments in associated companies 32 19,228,549 8,260,086 - Other investments 33 30,499,087 2,456,361,095 2,303,025,816 Goodwill 34 2,856,664,751 3,723,664,750 3,723,664,750 Intangible assets 35 621,034,575 702,051,066 874,320,339 Tangible assets 36 3,065,198,801 3,277,927,123 3,398,352,479 Post retirement benefits 14 2,025,000 1,834,000 1,632,840 Deferred taxes 20 258,313,267 175,796,701 120,295,949 Other non-current assets 635,613 - - Total non-current assets 6,856,928,037 12,785,575,946 13,412,477,679 Total assets 10,832,956,446 14,160,627,703 14,848,099,057 LIABILITIES Current Liabilities Short-term debt 37 1,204,471,273 507,084,071 1,712,799,596 Accounts payable 38 565,118,147 654,621,342 637,284,328 Accrued expenses 39 469,313,098 361,867,756 319,816,423 Deferred income 40 228,789,996 160,984,105 163,282,269 Taxes payable 27 60,001,145 62,053,444 58,398,617 Provisions 41 58,233,713 40,122,359 51,758,430 Other current liabilities 42 198,520 - 979,829 Non-current liabilities held for sale 30 263,797,411 - - Total current liabilities 2,849,923,303 1,786,733,077 2,944,319,492 Non-Current Liabilities Medium and long-term debt 37 5,255,134,700 6,875,751,705 5,568,501,936 Accounts payable 38 19,512,220 14,940,169 19,182,848 Provisions 41 1,209,436 1,250,770 1,953,025 Post retirement benefits 14 1,037,391,769 952,539,580 835,044,284 Other non-current liabilities 42 19,275,797 18,446,530 180,007,554 Total non-current liabilities 6,332,523,922 7,862,928,754 6,604,689,647 Total liabilities 9,182,447,225 9,649,661,831 9,549,009,139 SHAREHOLDERS' EQUITY Share capital 43 3,450,000,000 2,200,000,000 100,000,000 Capital contributions 43 310,940,482 3,206,050,000 5,306,050,000 Legal reserve 43 10,000 10,000 10,000 Revaluation reserve 43 486,860,579 516,587,428 524,724,045 Other reserves and accumulated earnings 43 (3,057,846,031) (1,443,833,009) (668,700,041) Equity excluding non-controlling interests 1,189,965,030 4,478,814,419 5,262,084,004 Non-controlling interests 21 460,544,191 32,151,453 37,005,914 Total equity 1,650,509,221 4,510,965,872 5,299,089,918 Total liabilities and shareholders' equity 10,832,956,446 14,160,627,703 14,848,099,057

The accompanying notes form an integral part of these financial statements.

PT Portugal | Consolidated Report | 2014 54

PT PORTUGAL, SGPS, S.A. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEARS ENDED 31 DECEMBER 2014 AND 2013 Euro Other Equity reserves and excluding Non- Share Capital Legal Revaluation accumulated non-controlling controlling Total capital contributions reserve reserve earnings interests interests equity Balance as at 31 December 2013 2,200,000,000 3,206,050,000 10,000 516,587,428 (1,443,833,009) 4,478,814,419 32,151,453 4,510,965,872 Repayment of paid-in capital contributions (Note 43.2) - (2,895,109,518) - - - (2,895,109,518) - (2,895,109,518) Share capital increases (Note 43.1) 1,250,000,000 - - - - 1,250,000,000 - 1,250,000,000 Changes in consolidation perimeter related to the acquisition of the investment in PT Participações (Note 1) ------453,559,853 453,559,853 Dividends (Note 21) - - - - (26,555,131) (26,555,131) Realization of revaluation reserve (Note 43.4) - - - (30,574,359) 30,574,359 - - - Remeasurement of the deferred tax liability related to the revaluation reserve of assets (Note 20) - - - 847,510 - 847,510 - 847,510 Income (expenses) recognized directly in equity - - - - 934,976,438 934,976,438 8,124,191 943,100,629 Loss recognized in the income statement - - - (2,579,563,818) (2,579,563,818) (6,736,175) (2,586,299,993) Balance as at 31 December 2014 3,450,000,000 310,940,482 10,000 486,860,579 (3,057,846,031) 1,189,965,030 460,544,191 1,650,509,221

Euro Other Equity reserves and excluding Non- Share Capital Legal Revaluation accumulated non-controlling controlling Total capital contributions reserve reserve earnings interests interests equity Balance as at 31 December 2012 100,000,000 5,306,050,000 10,000 524,724,045 (668,700,042) 5,262,084,003 37,005,914 5,299,089,917 Share capital increase (Note 43.1) 2,100,000,000 - - - - 2,100,000,000 - 2,100,000,000 Repayment of paid-in capital contributions (Note 43.2) - (2,100,000,000) - - - (2,100,000,000) - (2,100,000,000) Realization of revaluation reserve (Note 43.4) - - - (21,016,021) 21,016,021 - - - Remeasurement of the deferred tax liability related to the revaluation reserve of assets (Note 20) - - - 12,879,404 - 12,879,404 - 12,879,404 Income (expenses) recognized directly in equity - - - - (663,215,027) (663,215,027) (6,564,414) (669,779,441) Loss recognized in the income statement - - - - (132,933,961) (132,933,961) 1,709,953 (131,224,008) Balance as at 31 December 2013 2,200,000,000 3,206,050,000 10,000 516,587,428 (1,443,833,009) 4,478,814,419 32,151,453 4,510,965,872 The accompanying notes form an integral part of these financial statements.

PT Portugal | Consolidated Report | 2014 55

PT PORTUGAL, SGPS, S.A.

CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED 31 DECEMBER 2014 AND 2013

Euro 2013 Notes 2014 Unaudited

OPERATING ACTIVITIES Collections from clients 3,323,402,835 3,057,781,596 Payments to suppliers (1,637,057,459) (1,495,693,768) Payments to employees (401,259,008) (372,855,820) Payments relating to income taxes (82,210,903) (116,139,742) Payments relating to post retirement benefits, net 14 (195,598,752) (181,249,590) Payments relating to indirect taxes and other 46.a (227,621,622) (221,654,135) Cash flows from operating activities (1) 779,655,091 670,188,541

INVESTING ACTIVITIES Cash receipts resulting from: Short-term financial applications 46.b 66,549,762 917,069 Financial investments 46.c 4,400,897,534 36,475,260 Tangible and intangible assets 1,168,826 48,896,241 Interest and related income 46.d 80,984,331 126,322,974 Dividends 46.e 2,700,419 90,267,617 Other investing activities 292,830 156,025 4,552,593,702 303,035,186 Payments resulting from: Short-term financial applications 46.b (45,332,832) (75,333,996) Financial investments 46.f (1,902,674,065) (226,077,106) Tangible and intangible assets (433,241,563) (559,731,732) Other investing activities 29 (200,012,736) (16,559,336) (2,581,261,196) (877,702,170) Cash flows from investing activities (2) 1,971,332,506 (574,666,984)

FINANCING ACTIVITIES Cash receipts resulting from: Loans obtained 46.g 5,960,486,160 1,493,806,942 Increases in share capital and paid-in surplus 46.h 1,250,000,032 2,100,000,000 Subsidies 2,563,169 1,671,740 Other financing activities 68,036 - 7,213,117,397 3,595,478,682 Payments resulting from: Loans repaid 46.g (6,544,077,042) (1,414,577,485) Reductions in share capital and paid-in surplus 46.h (2,895,109,518) (2,100,870,030) Interest and related expenses 46.d (445,853,230) (303,510,736) Dividends (23,864,201) - (9,908,903,991) (3,818,958,251) Cash flows from financing activities (3) (2,695,786,594) (223,479,569)

Cash and cash equivalents at the beginning of the period 168,673,360 321,259,777 Change in cash and cash equivalents (4)=(1)+(2)+(3) 55,201,003 (127,958,012) Effect of exchange differences 2,518,848 (24,628,405) Cash and cash equivalents held for sale 30 (50,384,426) - Cash and cash equivalents at the end of the period 46.i 176,008,785 168,673,360

The accompanying notes form an integral part of these financial statements.

PT Portugal | Consolidated Report | 2014 56

PT Portugal, SGPS, S.A.

Notes to the Consolidated Financial Statements

As at 31 December 2014

(Amounts expressed in Euros, except where otherwise stated)

1. Introduction a) Parent company PT Portugal, SGPS, S.A. (“PT Portugal”) and its subsidiaries (“Group”, “PT Portugal Group”, or “the Company”) are engaged in rendering a comprehensive range of telecommunications and multimedia services in Portugal, Brazil and other countries in Africa and Asia.

PT Portugal was incorporated by Portugal Telecom, SGPS, S.A. (“Portugal Telecom” or “PT SGPS”) on 28 March 2006 following a reorganization of the various businesses of the group by geographical areas. On 5 May 2014, as explained in more detail below, Portugal Telecom subscribed a share capital increase at Oi, S.A. through the contribution in kind of its 100% interest in the Company and, as a result, PT Portugal is since then a wholly-owned subsidiary of Oi, S.A., the leading provider of telecommunication services in the Brazilian market and the largest fixed telecommunications operator in South America in terms of active clients.

On 1 December 2014, Oi entered into an exclusivity agreement with Altice, S.A. to allow both entities to negotiate and agree on the final terms of the sale of PT Portugal. On 8 December 2014, the Board of Directors of Oi finalized the formalities to approve the general terms and conditions for the sale of all shares of PT Portugal to Altice Portugal, S.A., a wholly-owned subsidiary of Altice, S.A.. On 22 January 2015, this sale was approved at the shareholders meeting of Portugal Telecom and therefore is pending only the approval by the competition authorities. The terms agreed between between Oi and Altice correspond to the transfer of all shares issued by PT Portugal for an enterprise value of Euro 7.4 billion, an amount that includes a deferred payment of Euro 500 million related to PT Portugal’s generation of future revenue, that shall be reduced by total net debt (gross debt minus cash), unfunded pension obligations and other financial liabilities recorded at the entities to be transferred Altice on the date of the conclusion of the transaction, and that shall by adjusted for other common adjustments in these type of transactions. The Altice offer relates only to PT Portugal’s operations in Portugal and Hungary, not including the Company’s businesses in Africa and Timor, held through the subsidiary PT Participações, and the investments in Rio Forte Investments SA ("Rio Forte"), which are subject of an exchange agreement entered into between Oi and Portugal Telecom (Note 29).

b) Investments in Portugal On 30 September 2006, following the strategic direction above group organization by geographic area, PT Portugal acquired the investments previously held by Portugal Telecom in PT Comunicações, S.A. (“PT Comunicações”) which was renamed in December 2014 to MEO – Serviços de Comunicações e Multimédia, S.A. ("Meo Comunicações"), and TMN – Telecomunicações Móveis Nacionais, S.A. (“TMN”), which was renamed in December 2014 to Meo – Serviços de Comunicações e Multimédia, S.A. (“Meo, S.A.”). In 2009, Portugal Telecom continued the reorganization of the group by geographic by transferring to PT Portugal the Portuguese support companies that render services mainly to PT Comunicações and Meo, S.A., with the purposes of improving the corporate structure of the group and obtaining efficiency gains in the businesses managed by PT Portugal. Under this reorganization, PT Portugal acquired in 2009 from Portugal Telecom the investments in PT Cloud e Data Centers, S.A. (“PT Cloud e Data Centers”), PT

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Inovação e Sistemas, S.A. (“PT Inovação”), PT Pro - Serviços Administrativos e de Gestão Partilhados, S.A. (“PT Pro”), PT Sales - Serviços de Telecomunicações e Sistemas de Informação, S.A. (“PT Sales”) and PT Contact – Telemarketing e Serviços de Informação, S.A. (“PT Contact”).

On 29 December 2014, Meo, S.A. (former TMN) was incorporated in PT Comunicações which was renamed to MEO – Serviços de Comunicações e Multimédia, S.A. This merger produced effects as from 1 January 2014.

PT Comunicações renders fixed line services, initially under the provisions of the Concession Contract entered into with the Portuguese State on 20 March 1995, in accordance with Decree-Law 40/95, for an initial period of thirty years, subject to renewal for subsequent periods of fifteen years. On 11 December 2002, according to the terms of the Modifying Agreement to the Concession Contract, PT Comunicações acquired the property of the Basic Network of Telecommunications and Telex (“Basic Network”). Both these contracts were revoked by the Decree-Law 35/2014 of 7 March 2014, producing effects as from 1 June 2014, and on 9 May 2014, Anacom issued to PT Comunicações a declaration that allows it to continue providing those fixed line services. PT Comunicações also renders Pay-TV services, through IPTV, FTTH and DTH platforms, Internet Service Provider (“ISP”) services to residential and small and medium size companies, as well as data transmission services and is also an ISP for large clients.

Mobile services were rendered by Meo, S.A. (incorporated in PT Comunicações in December 2014), former TMN – Telecomunicações Móveis Nacionais, S.A., through (1) a mobile communications global system (“GSM”), the license of which was granted by the Portuguese State in 1992 for an initial period of 15 years and renewed in 2007 until 16 March 2022, (2) an universal mobile telecommunications system (“UMTS”), the license of which obtained on 19 December 2000 for an initial period of 15 years, renewable for an additional period of another 15 years, (3) the Long Term Evolution (“LTE”) system through the fourth generation mobile license (“4G license”) acquired in 2011for an initial period of 15 years, renewable for an additional period of another 15 years.

In January 2013, PT Comunicações launched the first quadruple play offer, through the brand name M4O, representing a fixed- mobile convergent service, including television, internet, and fixed and mobile telephone services.

c) Investments in Brazil On 28 March 2011, through Bratel Brasil, a company indirectly wholly-owned by Meo, S.A., Portugal Telecom concluded the acquisition of a direct and indirect interest of 25.3% in Oi for a total cash consideration of R$8,256 million (Euro 3,647 million). Under this transaction, Portugal Telecom entered into a shareholders’ agreement with AG Telecom Participações (“AG Tel”) and LF Tel, S.A. (“LF Tel”), two of the main shareholders of Telemar Participações, the controlling shareholder of Oi, the terms of which were contained mechanisms to produce unanimous voting by these parties in meetings of the board of directors of Telemar Participações on strategic financial and operating decisions relating to the activity of the Oi Group. Consequently, in accordance with the provisions of IFRS 11 Joint Arrangements (“IFRS 11”), the Company concluded that it contractually shared the control of Telemar Participações and that therefore both Telemar Participações and Oi were classified as joint ventures and thus accounted for by the equity method given the provisions of IFRS 11.

On 1 October 2013, Portugal Telecom, Oi S.A., AG Tel, LF Tel, Bratel Brasil S.A., Pasa Participações S.A. (“Pasa”), EDSP 75 Participações S.A. (“EDSP75”) (which together with Telemar Participações S.A. ("Tpart") are defined as “Oi Holding Companies”), Banco Espírito Santo (“BES”) and Nivalis Holding B.V. (“Ongoing”) signed a memorandum of understanding setting out the basis for a proposed merger of Portugal Telecom, Oi and the Oi Holding Companies (the “Business Combination”) into a single Brazilian incorporated listed entity (“CorpCo” or “Telemar Participações”).

One of the steps necessary to implement the Business Combination consisted of a share capital increase undertaken by Oi, S.A. on 5 May 2014, totalling R$13,960 million, composed of (1) R$5,710 million (Euro 1,750 million) in assets contributed by Portugal Telecom, corresponding to the valuation carried out by Banco Santander (Brasil), S.A. of PT Portugal as of the date of the share capital increase,

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and (2) R$8,250 million in cash proceeds obtained from investors other than Portugal Telecom. With the purpose of concentrating under PT Portugal all operating assets and related liabilities of Portugal Telecom Group, except for the investment in Oi, Portugal Telecom and PT Portugal and its subsidiaries realized the following main corporate transactions prior to the Oi share capital increase:  On 31 March 2014, PT Portugal acquired for total amounts of Euro 1.5 million (Note 46) and Euro 4.7 million (Note 46) the 100% interests in PT Centro Corporativo and Portugal Telecom Investimentos, respectively, both of which provide consultant services to group companies and were previously held by Portugal Telecom.  On 30 April 2014, PT Móveis subscribed a share capital increase of Bratel BV in an amount of approximately Euro 1,303 million.  On 2 May 2014, PT Móveis, SGPS, S.A. , an indirect wholly-owned subsidiary of PT Portugal, disposed to PT SGPS, for a total amount of Euro 4,195 million (Note 46), its 100% interest in Bratel BV, a holding entity that basically held the investment in Oi indirectly. As a result of this transaction, PT Móveis recognized a total loss of Euro 950 million (Note 31), including (1) a capital gain of Euro 50 million reflecting the difference between the sale price and the carrying value of the investment in Bratel BV, and (2) a loss of Euro 1,000 million corresponding to the cumulative amount of negative currency translation adjustements generated since the acquisition of the investment in Oi that were transferred to net income upon the sale of this business. This net loss was included under the caption “Equity in losses of joint ventures, net” in the Consolidated Income Statement.  On 2 May 2014, PT Móveis acquired, for a total amount of Euro 2,240 million (Note 46), the 100% interest in PT Participações, SGPS, S.A. previously held by Portugal Telecom. Additionally, in December 2013, PT Participações, indirectly through Africatel GmBH, had acquired Portugal Telecom’s 75% stake in Africatel Holdings BV for a total amount of Euro 1,791 million, which both parties agreed in 2014 to adjust to Euro 1,141 million, a reduction of Euro 650 million that was subtracted from the purchase price of PT Participações, resulting in a net amount of Euro 1,590 million (Note 46) paid by PT Móveis. PT Participações holds, directly or indirectly, the investments in África and Ásia, the most relevant of which are listed further below.  On 5 May 2014, PT Portugal acquired, for a total amount of Euro 255 million (Note 46), the 100% interest in PT Finance previously held by Portugal Telecom. PT Finance is responsible for obtaining financing in international financial markets for the group’s businesses and owner, at that date, of the Rio Forte debt securities amounting to Euro 897 million (Note 29).  On 5 May 2014, Portugal Telecom transferred to PT Portugal, for their respective notional amounts, the majority of its outstanding assets and liabilities that were included in the valuation of PT Portugal for purposes of the Oi share capital increase, including mainly the investments in Rio Forte, amounting to Euro 200 million (Note 29), external financings and intercompany loans granted to affiliated companies. The cash flows and amounts due associated with the transfer of these assets and liabilities are detailed in Notes 29, 37 and 46.

d) Investments in Africa and Asia Since 2 May 2014, PT Portugal, through PT Participações and its affiliated companies, renders fixed and mobile telecommunication services and other related telecommunication services, mainly at Namibia, Mozambique, Cape Verde and São Tomé, among other countries, primarily through its subsidiaries Mobile Telecommunications Limited (“MTC”) (direct interest of 34%), LTM – Listas Telefónicas de Moçambique (“LTM”) (direct interest of 50%), Cabo Verde Telecom (“CVT”) (direct interest of 40%) and CST – Companhia Santomense de Telecomunicações, SARL (“CST”) (direct interest of 51%), respectively. These African entities are directly or indirectly owned by Africatel Holdings BV, a subsidiary where PT Portugal has a 75% economic interest. PT Portugal also renders mobile telecommunications services since 2 May 2014 in East Timor, through its subsidiary Timor Telecom, S.A. (economic interest of 44.2%).

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With regard to the investment in Cabo Verde Telecom, it should be noted that PT Ventures received on 4 December 2014 one notification of the Cape Verde State on the extinction of the CVT’s Shareholders Agreement, due to the change of control PT Ventures and Oi's decision to sell its stake in Africatel Holdings BV. As of the date of this report, the Company is negotiating with the other shareholders the resolution of this matter.

In addition to the investments mentioned above and also following the acquisition of PT Participações on 2 May 2014, PT Portugal Group holds through PT Ventures a direct interest of 25% in Unitel, an entity that renders mobile telecommunication services in Angola. PT Ventures is a wholly-owned subsidiary of Africatel Holdings BV, which in turn is only 75% owned by PT Portugal, thus resulting in an effective interest of 18.75% held by Group in Unitel.

In September 2014, Oi announced its intention to sell all international assets, as a result of which the investments mentioned above, including the businesses in Africa, Timor and its respective parent holding companies were classified as non-current assets held for sale. As required, these investments are measured at the lower of carrying value and the sale price, if known, net of transaction costs. In the specific case of Unitel, as there is no available information regarding about a possible sale price of this investment, it continued to be measured as available for sale, although presented as a non-current asset held for sale in the Consolidated Statement of Financial Position.

It should also be noted that although the above mentioned investments were classified as held for sale on 31 December 2014, the Company concluded that these businesses do not meet the requirements to be classified as discontinued operations as they do not represent a major line the Group's businesses and are not disclosed as a reportable segment. For this reason, although the assets and liabilities of these businesses have been presented in specified captions of assets and liabilities held for sale in the Consolidated Statement of Financial Position as at 31 December 2014, the earnings and losses of these businesses were consolidated line by line in the Consolidated Income Statement as from 2 May 2014, following the acquisition of PT Participações.

On 20 June 2013, following the preliminary agreement reached in January 2013, Portugal Telecom concluded the sale of its 28% stake in Companhia de Telecomunicações de Macau, S.A.R.L. (“CTM”), to CITIC Telecom International Holdings Limited (CITIC Telecom), for a total amount of USD 443.0 million, equivalent to approximately Euro 335.7 million. CITIC Telecom and Portugal Telecom also entered into a strategic alliance agreement for capitalizing on their respective expertise in certain areas of collaboration in the telecom sector and in the identification of ICT investment opportunities in order to create value for their respective shareholders. Pursuant to this strategic alliance agreement, CITIC Telecom will select Portugal Telecom as the CITIC Telecom Group’s strategic ICT service provider. The 28% stake in CTM was split between PT Participações (25%) and PT Comunicações (3%) and since PT Participações was acquired by PT Portugal only on 2 May 2014, through PT Móveis, the impact on consolidated financial statements of PT Portugal resulted only from the sale by PT Comunicações for a total amount of Euro 36 million (Note 46, in connection with which a gain of Euro 33 million in 2013 (Note 32).

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2. Basis of presentation

The consolidated financial statements for the year ended 31 December 2014 were approved by the Board of Directors and authorized for issue on 24 March 2015.

PT Portugal did not prepare consolidated financial statements for the period ended 31 December 2013, since under paragraph 3 of Article 7 of Decree-Law No. 158/2009, of 13 July, was not required to do so, given that its financial statements were included in the consolidated financial statements of PT SGPS.

The consolidated financial statements are presented in Euros, which is the functional currency of PT Portugal and of a significant part of the Group’s operations. Financial statements of foreign subsidiaries are translated to Euros according to the accounting principles described in Note 3.q.

In preparing the accompanying consolidated financial statements, PT Portugal has adopted for the first time in 2014 International Financial Reporting Standards ("IAS / IFRS") as adopted by the European Union, applying for this purpose IFRS 1 - First Time Adoption of Accounting Standards and Financial Reporting ("IFRS"). IFRS have been applied retrospectively for all periods presented. The transition date is 1 January 2013, and PT Portugal prepared its opening balance sheet as of that date.

Prior to 2014, PT Portugal presented only standalone financial statements, which are prepared based on Decree-law nº. 158/2009, dated 13 July, and in accordance with the Conceptual Structure, Accounting and Financial Reporting Standards (“NCRF”) and Interpretative Standards, as approved by Notifications nr 15652/2009, 15653/2009 and 15655/2009 of the General-Secretary of the Ministry of Finance, dated 27 August, which established the New Portuguese accounting system, named “Sistema de Normalização Contabilística” (“SNC” or “local GAAP”). The main difference applicable to these financial statements between the SNC and IFRS regards the recognition of investment subsidies, non-refundable, related to tangible fixed assets. According to the SNC, these subsidies must be initially recognized in equity and subsequently allocated on a systematic basis in the income over the useful lives of the assets to which they relate. Under IFRS, PT Portugal records these subsidies as a reduction of the carrying value of tangible fixed assets for which those subsidies were granted for and subsequently recognizes in income those subsidies in the same proportion that related assets are depreciated. The impact of this difference in shareholder’s equity on 31 December 2014 and 2013 amounted to approximately Euro 7 million and Euro 10 million, respectively.

The consolidated financial statements have been prepared assuming the continuity of operations.

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses during the reported periods (Note 3).

As mentioned in Note 1, in connection with the internal restructuring of Portugal Telecom Group for purposes of the Oi share capital increase, PT Portugal acquired several companies in 2014, including mainly PT Finance, PT Centro Corporativo and PT Participações that controls the international operations in Africa and Timor, and disposed of its investment in Bratel BV on 2 May 2014, which held indirectly the investment in Oi. As a result, the 2014 consolidated financial statements are not entirely comparable with the 2013 consolidated financial statements, since the entities acquired were consolidated as from May 2014 (April for PT Centro Corporativo), while the entities disposed of are no longer consolidated also since May 2014. It should also be mentioned that the financial statements of 31 December and 1 January 2013 were included in this report only for comparative purposes, as those financial statements were not approved by the Board of Directors and therefore not audited.

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a) Consolidation principles Controlled entities (Exhibit I) PT Portugal has fully consolidated the financial statements of all controlled entities. Control is achieved whenever the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In any case, where the Group does not have the majority of the voting rights but in substance controls the entity, the financial statements of the entity are fully consolidated.

The interest of any third party in the equity and net income of fully consolidated companies is presented separately in the Consolidated Statement of Financial Position and in the Consolidated Income Statement, under the caption “Non-controlling interests” (Note 21).

Assets, liabilities and contingent liabilities of an acquired subsidiary are measured at fair value at acquisition date. Any excess of the acquisition cost over the fair value of identifiable net assets is recognised as goodwill. If the acquisition cost is lower than the fair value of identifiable net assets acquired, the difference is recognised as a gain in the net income. Non-controlling interests are presented proportionally to the fair value of identifiable net assets.

The results of subsidiaries acquired or sold during the period are included in the Consolidated Income Statement as from the effective date of the acquisition or up to the effective date of disposal.

All intra-group transactions and balances are eliminated in the consolidation process. Gains obtained in intra-group transactions are also eliminated in the consolidation process.

When necessary, adjustments are made to the financial statements of subsidiaries to adjust their accounting policies in line with those adopted by the Group.

Investments in associated companies (Exhibit II) An associated is an entity over which the Group has significant influence. Significant influence is the power to participate in the decision process regarding financial and operating policies of the entity but not to control or jointly control those policies.

Financial investments in associated companies are accounted for under the equity method adjusted, when applicable, to comply with Portugal Telecom’s accounting policies. Under this method, investments in associated companies are carried at cost in the Consolidated Statement of Financial Position, adjusted periodically for the Group’s share in the results of the associated company, recorded under the caption “Earnings in associated companies, net“ (Note 32), and for the Group’s share in other changes in shareholders’ equity of those same associated companies, recorded as gains or losses directly in the Consolidated Statement of Comprehensive Income. In addition, these financial investments are adjusted for any impairment losses that may occur.

Losses in associated companies in excess of the cost of acquisition are not recognised, except where the Group has assumed any commitment to cover those losses.

Dividends attributed by associated companies are recorded as a reduction to the carrying value of financial investments when they are declared.

Investments in jointly controlled entities Financial investments are classified as jointly controlled entities if the respective shareholders and other agreements clearly demonstrate the existence of joint control. As required by IFRS 11, interests in joint ventures are accounted for by the equity method.

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Assets, liabilities and contingent liabilities of a joint venture resulting from the acquisition of investments in other companies are measured at fair value at acquisition date. Any excess of the acquisition cost over the fair value of identifiable net assets is included in the carrying amount of the investment.

Where necessary, adjustments are made to the financial statements of joint ventures to adjust their accounting policies in line with those adopted by the Group.

Goodwill Goodwill represents the excess of the acquisition cost over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at acquisition date, in accordance with IFRS 3 Business Combinations (“IFRS 3”).

Goodwill related to foreign investments is carried at the reporting currency of the investment, being translated to Euros at the exchange rate prevailing at the statement of financial position date. Exchange gains or losses are recognised in the Consolidated Statement of Comprehensive Income under the caption “Foreign currency translation adjustments”.

Goodwill related to subsidiaries is recognized under the caption “Goodwill” (Note 34) and is not amortised, but tested, at least on an annual basis, for impairment losses, which are recognised in net income in the period they occur, and cannot be reversed in a subsequent period. Goodwill related to joint ventures and associated companies are classified together with the related financial investments under the captions “Investments in joint ventures” (Note 31) and “Other investments” (Note 32), respectively. These investments are also tested for impairment losses.

On disposal of a subsidiary, joint venture or associate, the goodwill allocated to that investment is included in the determination of the gain or loss on disposal.

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b) Changes in consolidated Group As mentioned in Note 1, between March and May 2014, PT Portugal and its subsidiaries acquired from Portugal Telecom a set of financial investments, among which the main are (i) PT Participações, which owns directly or indirectly the Group's international businesses, (ii) PT Finance, the Group's financing vehicle, (iii) PT Investimentos, an entity that provides management services to certain international businesses of the Group, and (iv) PT Centro Corporativo, an entity that provides management and business services to all Group companies located in Portugal, namely accounting, financial, logistical, administrative and human resources services. The detail of the fair value of assets and liabilities acquired associated with these transactions is as follows:

Euro million 2-May-2014 5-May-2014 31-Mar-14 31-Mar-14 PT PT PT PT Centro Participações Finance Investimentos Corporativo ASSETS Cash and cash equivalents 60 73 0 0 Accounts receivable (i) 1,072 - 10 18 Intangible assets 233 - - 8 Tangible assets 155 - 0 32 Available for sale investments - Unitel (ii) 1,328 - - Intercompany loans (iii) - 7,230 - - Other current assets (iv) 48 709 7 7 Total assets 2,896 8,012 17 65 LIABILITIES Debt (v) 33 7,637 6 44 Accounts payable 44 0 5 11 Accrued expenses 16 111 1 8 Deferred taxes 83 - - - Other non-current liabilities 61 13 0 1 Total Liabilities 238 7,762 13 64 Net assets 2,658 250 5 1 Non-controlling interests 487 - - - Total 2,171 250 5 1 (i) In PT Participações, this caption includes an amount of Euro 342 million related to dividends receivable from Unitel and an amount of Euro 650 million receivable by Africatel GmBH from PT SGPS related to the acquisition of Africatel Holdings BV in December 2013 (Note 1). (ii) PT Portugal believes that the minority stake in Unitel does not provide it significant influence over this entity, as a result of which this investment was classified as available for sale and measured based on the evaluation made by Banco Santander (Brasil) for the purposes of the capital increase of Oi (Note 1). (iii) This caption refers mainly to intercompany loans granted by PT Finance to Group companies, mainly through the subscription of commercial paper issued by those companies. (iv) In PT Finance, this caption includes primarily Euro 697 million related to the investments in securities of Rio Forte (Note 29). (v) In PT Finance, this caption includes financing obtained in external markets, mainly non-exchangeable bonds.

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3. Significant accounting policies, judgments and estimates

Significant accounting policies a) Current classification Assets to be realized within one year from the date of the Consolidated Statement of Financial Position are classified as current. Liabilities are also classified as current when they are due to be settled, or there is no unconditional right to defer its settlement, for a period of at least twelve months after the date of the Consolidated Statement of Financial Position.

b) Inventories Inventories are stated at average acquisition cost. Adjustments to the carrying value of inventories are recognised based on technological obsolescence or slow moving, and even when the market price net of selling expenses is less than the book value. c) Tangible assets PT Portugal uses the revaluation model to measure real estate properties, since it believes this method better reflects the economic value of those asset classes, given the nature of the assets revalued, which are not subject to technological obsolescence. The increase in tangible assets resulting from the revaluation reserves, which are non-distributable reserves, is being amortised in accordance with the criteria used to amortize the revalued assets. Based on the exception provided for in IFRS 1, all other revaluations made in years prior to 1 January 2013 by Group companies, either for legal purposes of free revaluations, were considered as deemed cost value for IFRS purposes.

Remaining tangible assets are stated at acquisition cost, net of accumulated depreciation, investment subsidies and accumulated impairment losses, if any. Acquisition cost includes: (1) the amount paid to acquire the asset; (2) direct expenses related to the acquisition process; and (3) the estimated cost of dismantling or removal of the assets (Notes 3.g and 42).

Tangible assets are depreciated on a straight-line basis from the month they are available for use, during its expected useful life. The amortization period of tangible assets is monitored annually and adjusted whenever necessary to reflect its economic useful life. The amount of the asset to be depreciated is reduced by any residual estimated value. The depreciation rates used correspond to the following estimated average economic useful lives:

Years Buildings and other constructions 3-50 Basic equipment: Network installations and equipment 7 - 40 Ducts infra-structure 40 Telephones, switchboards and other 3 - 10 Submarine cables 15 - 20 Satellite stations 5 - 7 Other telecommunications equipment 4 - 10 Other basic equipment 4 - 20 Transportation equipment 4 - 8 Tools and dies 4 - 8 Administrative equipment 3 - 10 Other tangible fixed assets 4 - 8

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Estimated losses resulting from the replacement of equipments before the end of their economic useful lives are recognised as a deduction to the corresponding asset’s carrying value, against results of the period, as well as any impairment of these assets. The cost of recurring maintenance and repairs is charged to net income as incurred. Costs associated with significant renewals and betterments are capitalized if any future economic benefits are expected and those benefits can be reliably measured.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the assets, and is recognised in the Consolidated Income Statement under the caption “Gains on disposals of fixed assets, net” when occurred. d) Intangible assets Intangible assets are stated at acquisition cost, net of accumulated amortisation and accumulated impairment losses, if any. Intangible assets are recognised only if any future economic benefits are expected and those benefits as well as the cost of the asset can be reliably measured.

Intangible assets include mainly the acquisition of the Basic Network, telecommunications licenses, and software licenses.

Intangible assets are amortised on a straight-line basis from the month they are available for use, during the estimated economic useful life’s or contractual periods if lower (including additional renewal periods if applicable), as follows:

Property of the Basic Network held by Meo Comunicações Period of the former concession (until 2024) Telecommunications licenses: - UMTS license owned by Meo Comunicações Period of the license plus one renewal period (until 2030) - LTE license owned by Meo Comunicações Period of the license plus one renewal period (until 2042) Satellite capacity rights Period of the contract (until 2015) Right of use of PON Network Period of the contract (until 2040) Software licenses 3 years Other intangible assets 3 – 5 years

The renewal period of the licenses depends basically on the companies meeting certain pre-defined goals or obligations set out in the agreements under which those licenses were initially obtained. e) Real estate investments Real estate investments, which are included under the caption “Other investments” (Note 33), consist primarily of buildings and land held to earn rentals and/or capital appreciation and not for use in the normal course of business (exploration, service render or sale).

These investments are stated at its acquisition cost plus transaction costs and reduced by accumulated depreciation (straight-line basis) and accumulated impairment losses, if any. Expenditures incurred (maintenance, repairs, insurance and real estate taxes) and any income obtained are recognised in the Consolidated Income Statement of the period.

Real estate investments are depreciated on a straight-line basis, during their expected useful lifes (Note 3.c).

f) Impairment of tangible and intangible assets The Group performs impairment tests for its tangible and intangible assets if any event or change results in an indication of impairment. In case of any such indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

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Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less cost to sell and the value in use. In assessing fair value less cost to sell, the amount that could be received from an independent entity is considered, reduced by direct costs related to the sale. In assessing the value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the specific risk to the asset.

If the recoverable amount of an asset is estimated to be less than its carrying amount, an impairment loss is recognised immediately in the Consolidated Income Statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised immediately in net income. g) Provisions, liabilities and contingent liabilities Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where any of the above mentioned criteria does not exist, or is not accomplished, the Group discloses the event as a contingent liability, unless the cash outflow is remote.

Provisions for restructuring are only recognised if a detailed and formal plan exists and if the plan is communicated to the related parties.

Provisions are updated on the date of the Consolidated Statement of Financial Position, considering the best estimate of the Group’s management.

Obligations for dismantling and removal costs are recognised from the month the assets are in use and if a reliable estimate of the obligation is possible (Notes 3.c and 42). The amount of the obligation is discounted, being the corresponding effect of time value recognised in net income, under the caption ”Net interest expense”.

h) Pension supplement benefits Under several defined benefit plans, Meo Comunicações is responsible to pay pension supplements to a group of employees. In order to finance these obligations, various funds were incorporated by Meo Comunicações (Note 14).

The amount of the Group’s liabilities with the defined benefit plans described above is estimated based on actuarial valuations, using the “Projected Unit Credit Method”. The Group recognises actuarial gains and losses directly in the Consolidated Statement of Comprehensive Income, namely those resulting from changes in actuarial assumptions and from differences between actual data and actuarial assumptions.

Plan amendments related to the reduction or increase of benefits granted to employees and gains arising from the settlement of any plan are recognized when incurred under the caption “Curtailment costs, net”.

Liabilities recognized in the Consolidated Statement of Financial Position represent the difference between the Projected Benefit Obligation (“PBO”) and the fair value of plan assets.

For the plans that report an actuarial surplus, assets are recorded when there is an express authorization for offsetting them against future employer contributions, or if a reimbursement of the excess finance is expressly authorized or permitted.

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Contributions made under defined contribution pension plans are recognised in net income when incurred. Under these plans, in the event the fund lacks sufficient assets to pay all employees the benefits related to the services provided in the current and prior years, the sponsor does not have the legal or constructive obligation of making additional contributions.

The Company provides certain discounts on telecommunications services provided to retired and active employees. The Company does not record discounts granted to retired employees as a post retirement benefit obligation because it believes that these discounts are similar to promotion campaigns offered to general customers in the normal course of business, thus not representing an additional charge to the Company.

i) Post retirement health care benefits Under a defined benefit plan, Meo Comunicações is responsible to pay, after the retirement date, health care expenses to a group of employees and its relatives. This health care plan is managed by Portugal Telecom – Associação de Cuidados de Saúde (“PT-ACS”). In 2004, the Group established PT Prestações – Mandatária de Aquisições e Gestão de Bens, S.A. (“PT Prestações”) to manage an autonomous fund to finance these obligations (Note 14).

The amount of the Group’s liabilities with respect to these benefits after retirement date is estimated based on actuarial valuations, using the “Projected Unit Credit Method”. The Group recognises actuarial gains and losses in the Consolidated Statement of Comprehensive Income, namely those resulting from changes in actuarial assumptions and from differences between actual data and actuarial assumptions.

Accrued post retirement health care liabilities stated in the Consolidated Statement of Financial Position correspond to the present value of obligations from defined benefit plans, reduced by the fair value of fund assets.

j) Pre-retired and suspended employees In connection with the programs related to employees that are under a suspended contract agreement or that have been pre- retired, the Group recognizes a liability in the Consolidated Statement of Financial Position equivalent to the present value of salaries payable up to the retirement age. The correspondent cost is recorded in the Consolidated Income Statement under the caption “Curtailment costs, net” (Note 14).

In order to estimate these obligations, the Group periodically obtains actuarial valuations, using the "Projected Unit Credit Method". These obligations are recorded for the corresponding present value.

k) Grants and subsidies Grants and subsidies from the Portuguese Government and from the European Union are recognised at fair value when the receivable is probable and the Company can comply with all requirements of the subsidy’s program.

Grants and subsidies for training and other operating activities are recognised in net income when the related expenses are recognised. Grants and subsidies to acquire assets are deducted from the carrying amount of the related assets (Note 3.c).

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l) Financial assets and liabilities Financial assets and liabilities are recognised in the Group’s Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

(i) Receivables (Notes 24 and 25) Trade receivables, loans granted and other receivables that have fixed or determinable payments and that are not quoted in an active market are classified as receivables or loans granted.

Trade receivables do not have any implicit interest and are presented at fair value, net of allowances for estimated non- recoverable amounts, which are mainly computed based on (a) the aging of the receivables and (b) the credit profile of specific customers.

(ii) Financial liabilities and equity instruments Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Equity instruments issued by the Group are recognised based on their proceeds, net of any issuance costs.

(iii) Financings (Note 37) Financings are recognised as a liability based on the related proceeds, net of any transaction cost. Interest and other financial costs, which are computed based on the effective interest rate and include the recognition of upfront fees, are recognised when incurred.

(iv) Accounts payable (Note 38) Trade payables are recognised at nominal value, which is substantially similar to their fair value.

(v) Cash and cash equivalents (Note 46.i) and short term investments (Note 23) Cash and cash equivalents comprise cash on hand and demand bank deposits, due within three months or less from the date of acquisition, which are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash and cash equivalents also includes deposits from customers and other entities that have not yet been cleared. In the Consolidated Statement of Cash Flows, cash and cash equivalents also include overdrafts recognised under the caption “Short- term debt”, when applicable.

Short-term investments comprise investments for the purpose of generating investment returns, and they are therefore not classified as cash equivalents.

m) Own work capitalized Certain internal costs (materials, work force and transportation) incurred to build or produce tangible assets are capitalized only if: - the tangible assets are identifiable; - the tangible assets will generate future economic benefits which can be reliably estimated; and - development expenses can be reliably measured.

The amounts capitalized are deducted from the corresponding operating costs incurred and no internally generated margin is recognised. When any of the above mentioned criteria is not met, the expense is recognised in net income.

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Expenses incurred during investigation are recognised in net income when incurred.

n) Leasings (the company as a lessee) Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases (Note 12). The classification of leases depends on the substance of the transaction and not on the form of the contract.

Assets acquired under finance leases and the corresponding liability to the lessor are accounted for using the finance method, in accordance with the lease payment plan (Note 37). Interest included in the rents and the depreciation of the assets are recognised in net income in the period they occur.

Under operating leases, rents are recognised on a straight-line basis during the period of the lease (Note 12).

o) Taxation Income tax expense is recognised in accordance with IAS 12 Income Taxes (“IAS 12”) and represents the sum of the tax currently payable and deferred tax.

PT Portugal adopted the Special Taxation Regime for Groups of Companies (“RETGS”), in connection with which income taxes is computed based on taxable profits of all companies in which it holds since the beginning of the year, directly or indirectly, at least 75% of the share capital and that, simultaneously, are located in Portugal and are subject to corporate income tax. In connection with the corporate transactions occurred in 2014 (Note 1), PT Portugal requested to the tax authorities, under the legal terms, the maintenance in 2014 of the RETGS of PT SGPS and the replacement of this entity by PT Portugal as the parent company of the tax consolidation group. PT Portugal has not yet received an answer to this request. For purposes of these financial statements, income tax was computed based on the assumption that the tax authorities will authorize the tax consolidation regime as from 1 January 2014, including in the tax consolidation perimeter all entities in which the Company holds at least a 75% interest since the beginning of the year, as a result of which the entities acquired in 2014 from PT SGPS, directly or indirectly, were excluded from that tax consolidation perimeter. In 2013, PT Portugal and its subsidiaries were included in the RETGS of PT SGPS and thus paid income taxes directly to this entity. Any gain generated by the RETGS applied by PT SGPS, resulting from the tax losses recorded by the entities included in the tax consolidation group, was recorded directly in the earnings of the holding company PT SGPS and not in the entity that had generated the tax loss. Notwithstanding, eventual benefits or tax credits were maintained in the entities where those were originated.

The remaining Group companies not covered by the tax consolidation regime of PT Portugal are taxed individually based on their respective taxable income, at the applicable tax rates.

The current tax payable is based on taxable income for the period, and deferred taxes are based on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is reasonably likely that taxable income will be available against which deductible temporary differences can be used, or when there are deferred tax liabilities the reversal of which is expected in the same period in which the deferred tax assets reverse. The carrying amount of deferred tax assets is reviewed at the date of the Consolidated Statement of Financial Position and is

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reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow for all or part of the asset to be recovered.

Deferred tax is charged to net income, except when it relates to items charged or credited directly to shareholders’ equity, in which case the deferred tax is also recognised directly in shareholders’ equity. Accordingly, the impact of changes in tax rate is also charged to net income, except when it relates to items charged or credited directly to shareholders’ equity, in which case that impact is also recognised directly in shareholders’ equity.

p) Revenue recognition Revenues from fixed line telecommunications are recognised at their amounts when services are rendered. Billings for these services are made on a monthly basis throughout the month. Unbilled revenues or revenues by other operators but accrued or incurred as of the date of the financial statements are recorded based on estimates. Differences between accrued amounts and the actual unbilled revenues, which ordinarily are not significant, are recognised in the following period.

Revenues from international telecommunications services are divided with the operators of the transit countries and the operators of the country in which calls are terminated based on traffic records of the country of origin and rates established in agreements with the various telecommunications operators. The operator of the country of origin of the traffic is responsible for crediting the operator of the destination country and, if applicable, the operators of the transit countries.

Revenues from rentals of terminal equipment are recognised as an operating lease in the period to which they apply, under operating revenues.

Revenues from Pay-TV and mobile telephony services result essentially from and are recognised as follows:

Nature of the revenue Caption Moment of recognition Monthly subscription fees for the use of the service Services rendered When the service is rendered Rental of equipment Services rendered The period of rental Use of the network Services rendered In the month the service is rendered Interconnection fees Services rendered In the month the service is rendered Roaming Services rendered In the month the service is rendered Pre-paid cards Services rendered When the service is rendered Wireless broadband Services rendered When the service is rendered Terminal equipment and accessories Sales When the sale occurs Penalties imposed to customers Other revenues When received

Revenues from bundling services or products are allocated to each of its components based on its fair value and are recognised separately in accordance with the methodology adopted to each component.

The Group operates loyalty programmes for some of its customers, under which, based on certain levels of mobile traffic, these customers receive loyalty points that can be exchanged for equipments, accessories and discounts on subsequent purchases of telecommunications services. PT Portugal splits the consideration received in the initial transaction between the revenue related to traffic and the loyalty points earned by the customer, recognizing a deferred income measured at fair value for the award credits, taking into consideration the expected points to be redeemed. Deferred income is then recognized as revenue when award credits are redeemed or expire. q) Foreign currency transactions and balances

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Transactions denominated in foreign currencies are translated to Euros at the exchange rates prevailing at the time the transactions are made. At the date of the Consolidated Statement of Financial Position, assets and liabilities denominated in foreign currencies are adjusted to reflect the exchange rates prevailing at such date. The resulting gains or losses on foreign exchange transactions are recognised in net income. Exchange differences on non-monetary items, including goodwill, and on monetary items representing an extension of the related investment and where settlement is not expected in the foreseeable future, are recognized directly in shareholder’s equity under the caption “Cumulative foreign currency translation adjustments”, and included in the Consolidated Statement of Comprehensive Income.

The financial statements of subsidiaries operating in other countries are translated to Euros, using the following exchange rates: - Assets and liabilities at exchange rates prevailing at the date of the Consolidated Statement of Financial Position; - Profit and loss items at average exchange rates for the reported period; - Cash flow items at average exchange rates for the reported period, where these rates approximate the effective exchange rates (and in the remaining cases, at the rate effective on the day the transaction occurred); and - Share capital, reserves and retained earnings at historical exchange rates.

The effect of translation differences is recognised in shareholder’s equity under the caption “Cumulative foreign currency translation adjustments” and is included in the Consolidated Statement of Comprehensive Income. In accordance with IAS 21, when a reduction of PT Portugal investment in a foreign entity occurs, through the sale or reimbursement of share capital, the accumulated effect of translation differences is transferred to the net income, considering the proportion of the reduction occurred.

r) Borrowing costs Borrowing costs related to loans are recognised in net income when incurred. The Group does not capitalise any borrowing costs related to loans to finance the acquisition, construction or production of any asset, where the construction period of its tangible and intangible assets is relatively short.

s) Consolidated Statement of Cash Flows The Consolidated Statement of Cash Flows is prepared under IAS 7, using the direct method. The Group classifies as “Cash and cash equivalents” all highly liquid investments, with original maturity of up to three months and an insignificant risk of change in fair value. The “Cash and cash equivalents” item presented in the Consolidated Statement of Cash Flows also includes overdrafts, classified in the Consolidated Statement of Financial Position under “Short-term debt”.

Cash flows are classified in the Consolidated Statement of Cash Flows according to three main categories, depending on their nature: (1) operating activities; (2) investing activities; and (3) financing activities. Cash flows from operating activities include primarily collections from clients, payments to suppliers, payments to employees, payments relating to post retirement benefits and net payments relating to income taxes and indirect taxes. Cash flows from investing activities include primarily acquisitions and disposals of financial investments, dividends received from associated companies and purchase and sale of property, plant and equipment. Cash flows from financing activities include primarily borrowings and repayments of debt, payments relating to interest and related expenses, and payments of dividends to shareholders.

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t) Subsequent events (Note 49) Events occurring after the date of the Consolidated Statement of Financial Position that could influence the value of any asset or liability as of that date are considered when preparing the financial statements for the period. Those events are disclosed in the notes to the financial statements, if material.

Critical judgments and estimates The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances on which the estimate was based, or as a result of new information or more experience. The main accounting judgments and estimates reflected in the consolidated financial statements are as follows:

(a) Post retirement benefits – The present value of post retirement obligations is computed based on actuarial methodologies, which use certain actuarial assumptions. Any changes in those assumptions will impact the carrying amount of post retirement obligations. The key assumptions for post retirement obligations are disclosed in Note 14. The Company has the policy to review key assumptions on a periodic basis, if the corresponding changes have a material impact on the financial statements.

(b) Goodwill impairment analysis – PT Portugal annually tests goodwill for impairment. In 2014, goodwill related to the Portuguese telecommunications business was tested based on the agreement entered into between Oi and Altice for the disposal of the Portuguese businesses (Note 1). For this purpose, the recoverable amount was computed based on the enterprise value attributed by Altice to the Portuguese businesses (Euro 7.4 billion), which was deducted from (1) the deferred payment that depends on PT Portugal’s future revenues (Euro 500 million), and (2) net debt (gross debt minus cash and cash equivalents), unfunded pension obligations and other financial liabilities recorded as at 31 December 2014 at the entities to be transferred to Altice. These adjustments were estimated based on the best available information as of the date of these financial statements and will necessarily be updated on the date that the sale is effectively completed.

(c) Valuation and useful life of intangible and tangible assets – PT Portugal has made assumptions in relation to the potential future cash flows resulting from separable intangible assets acquired as part of business combinations, which include expected future revenues, discount rates and useful life of such assets. PT Portugal has also made assumptions regarding the useful life of tangible assets (Note 3.c).

(d) Assessment of the fair value of revalued assets – PT Portugal uses the revaluation model to measure the carrying value of real estate property, as described in Note 3.c. The use of this method involved the use of specific indicators related to the housing market, as explained in more detail in Note 36.

(e) Recognition of provisions and adjustments – PT Portugal is party to various legal claims for which, based on the opinion of its legal advisors, a judgment was made to determine whether a provision should be recorded for these contingencies (Note 48). Adjustments for accounts receivable are computed based primarily on the aging of the receivables, the risk profile of the customer and its financial condition. These estimates related to adjustments for accounts receivable differ from business to business.

(f) Deferred taxes - The Group recognizes and settles income taxes based on the results of operations determined in accordance with the local corporate legislation, taking into consideration the provisions of the tax law, which are different from the amounts calculated for IFRS purposes. In accordance with IAS 12, the Company recognizes deferred tax assets and liabilities based on the differences between the carrying amounts and the taxable bases of the assets and liabilities. The Company

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regularly assesses the recoverability of deferred tax assets and recognizes an allowance for impairment losses when it is probable that these assets may not be realized, based on the history of taxable income, the projection of future taxable income, and the time estimated for the reversal of existing temporary differences. These calculations require the use of estimates and assumptions. The use of different estimates and assumptions could result in the recognition of an allowance for impairment losses for the entire or a significant portion of the deferred tax assets.

(g) Revenues – The fair value of each product or service that is part of multi-element packages is complex due to the nature of the telecommunications business. A review of these estimates can affect the allocation of the total amounts received by the various components and the timing of revenue recognition.

(h) Available for sale investments – As referred in Note 1, the investment in Unitel, acquired in connection with the acquisition of PT Participações on 2 May 2014 (Note 1), was initially classified as available for sale and accordingly measured at fair value. The fair value of this investment was estimated based on the valuation carried out by Banco Santander (Brasil), which required the use of several estimates and assumptions, including cash flow projections for a four-year period, the choice of a growth rate to extrapolate those cash flow projections and the estimate of a suitable discount rate. On 31 December 2014, the Company updated the relevant assumptions and estimates and determined the fair value of this investment through a similar methodology to the one adopted by Banco Santander (Brazil).

Estimates used are based on the best information available during the preparation of the consolidated financial statements, although future events, neither controlled nor foreseeable by the Company, could occur and have an impact on those estimates. In accordance with IAS 8, changes to the estimates used by management that occur after the date of the consolidated financial statements are recognised in net income, using a prospective methodology.

4. Changes in accounting policies and estimates

As mentioned earlier, PT Portugal presented for the first time in 2014 consolidated financial statements, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the European Union. Previously, the Company presented only standalone financial statements, prepared in accordance with the SNC and complementary legislation.

The adjustments made to the financial statements on 1 January 2013 for the conversion from SNC to IFRS were computed retrospectively. As mentioned in Note 2, the only difference applicable to these consolidated financial statements between SNC and IFRS relates to the accounting for non-refundable investment subsidies related to tangible fixed assets. The impact of this difference on shareholders’ equity as at 1 January and 31 December 2013 amounted to approximately Euro 8 million and Euro 10 million, respectively.

In addition, in connection with the adoption of IFRS in the consolidated financial statements, PT Portugal chose not to apply the exception included in IFRS 1 regarding the purchase price allocation, and as such applied the purchase price allocation method for all acquisitions occurred in previous years, including the acquisitions from PT SGPS of the investments in PT Comunicações and TMN in 2006 and the investments in support companies in 2009. The impact of this purchase price allocation, with retrospective effects as at 1 January 2013, translated into a reduction of goodwill by Euro 1,015 million against the recognition of intangible assets identified under the above mentioned acquisitions, which were amortized retrospectively since the respective acquisition dates and are fully amortized since 30 September 2014.

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Accounting standards and Interpretations recently issued IAS 19 (Revised) – Defined Benefit Plans: Employee Contributions The IASB issued this amendment on 21 November 2013, effective (with retrospective application) for annual periods beginning on or after 1 July 2014. These amendments were endorsed by EU Commission Regulation 29/2015, 17 December 2014 (defining entry into force at the latest, as from the commencement date of first financial year starting on or after 1 February 2015). The Amendment clarifies the guidance on attributing employee or third party contributions linked to service and requires entities to attribute the contributions linked to service in accordance with paragraph 70 of IAS 19 (2011). Therefore, such contributions are attributed using plan’s contribution formula or on a straight line basis. The amendment addresses the complexity by introducing a practical expedient that allows an entity to recognise employee or third party contributions linked to service that are independent of the number of years of service (for example a fixed percentage of salary), as a reduction in the service cost in the period in which the related service is rendered. The Group expects no impact from the adoption of this amendment on its financial statements.

IFRS 9 – Financial instruments (issued in 2009 and revised in 2010, 2013 and 2014) IFRS 9 (2009) and IFRS 9 (2010) introduce new requirements for the classification and measurement of financial assets and financial liabilities. Under this new approach, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IASB published IFRS 9 (2013) addressing new requirements for hedging accounting. It was also published IFRS 9 (2014) that introduced limited amendments to the classification and measurement requirements of IFRS 9 (including enlarge the instruments measured at fair value with the changes present in other comprehensive income, from some investments in equity instruments to other investments such as bonds) and add new requirements to address the impairment of financial assets, under the expected loss model. The mandatory effective date of IFRS 9 is 1st January 2018 (with option for early application). The Group has not yet proceeded with a complete analysis of both the impacts of the adoption of this standard and the future developments of this standard, namely the impairment and hedging models. Considering the change undertaken in the accounting treatment of financial instruments, material impacts might occur in the Company’s financial statements in the future.

IFRS 15 – Revenue from Contracts with Customers The IASB issued on 28 May 2014 IFRS 15 Revenue from Contracts with Costumers, effective (with early application) for annual periods beginning on or after 1 July 2017. This standard will revoke IAS 11 Construction Contracts, IAS 18 – Revenue, IFRIC 13 – Customer Loyalty Programs, IFRIC 18 – Transfers of Assets from Customers and SIC 31 – Revenue- Barter Transactions Involving Advertising Services. IFRS 15 provides a model based on 5 steps of analysis in order to determine when revenue should be recognized and the amount. The model specifies that the revenue should be recognized when an entity transfers goods or services to the customer, measured by the amount that the entity expects to be entitled to receive. Depending on the fulfilment of certain criteria, revenue is recognized either (i) at a time when the control of the goods or services is transferred to the customer or (ii) over the period, to the extent that represents the performance of the entity. The Company is still evaluating the impact from the adoption of this standard.

IFRS 14 – Regulatory Deferral Accounts The IASB issued on 30 January 2014 a standard that defines interim measures for those adopting IFRS for the first time and has activity with regulated tariff. This standard is not applicable to the group.

IAS 27 – Equity Method in Separate Financial Statements IASB issued on 12 August 2014 amendments to IAS 27, with an effective date of application for periods beginning on or after 1 January 2016, introducing an option for the measurement of subsidiaries, associates or joint ventures the equity method in the separate financial statements. As standalone financial statements of Portuguese companies are prepared in accordance with local accounting standards, the SNC, this amendment is not applicable.

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5. Exchange rates used to translate foreign currency financial statements

As at 31 December 2014 and 2013, assets and liabilities denominated in foreign currencies were translated to Euros using the following exchange rates to the Euro:

Currency 31 Dec 2014 31 Dec 2013 Argentine peso 10.38 8.99 Australian dollar 1.48 1.54 Botswana pula 11.55 12.06 Brazilian real 3.22 3.26 British pound 0.78 0.83 Canadian dollar 1.41 1.47 Cape Verde escudo 110.27 110.27 CFA franc 655.96 655.96 Chinese Yuan Renmimbi 7.54 8.35 Danish krone 7.45 7.46 Hong Kong dollar 9.42 10.69 Hungarian forint 315.54 297.04 Japanese yen 145.23 144.72 Kenyan shilling 109.94 119.02 Macao pataca 9.70 11.01 Moroccan dirham 10.95 11.26 Mozambique metical 38.53 41.24 Namibian dollar 14.04 14.57 Norwegian krone 9.04 8.36 São Tomé dobra 24,500.00 24,500.00 South African rand 14.04 14.57 Swedisk krone 9.39 8.86 Swiss franc 1.20 1.23 Ugandan shilling 3,356.99 3,479.47 US dollar 1.21 1.38

During the years ended 31 December 2014 and 2013, income statements of subsidiaries, associated companies and joint ventures expressed in foreign currencies were translated to Euros using the following average exchange rates to the Euro:

Currency 2014 2013 Argentine peso 10.72 7.31 Botswana pula 11.88 11.17 Brazilian real 3.12 2.87 Cape Verde escudo 110.27 110.27 CFA franc 655.96 655.96 Chinese Yuan Renmimbi 8.19 8.16 Hungarian forint 308.71 296.87 Kenyan shilling 116.53 114.54 Macao pataca 10.61 10.61 Moroccan dirham 11.15 11.17 Mozambique metical 40.71 39.63 Namibian dollar 14.40 12.83 São Tomé dobra 24,500.00 24,500.00 Swiss franc 1.21 1.23 Ugandan shilling 3,449.44 3,442.79 US dollar 1.33 1.33

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6. Revenues

The contribution of reportable segments to consolidated revenues in the year ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Telecommunications in Portugal (Note 7.a)(i) 2,438,047,805 2,549,692,671 Services rendered (Note 3.p) 2,315,578,608 2,392,464,799 Sales 93,949,847 114,679,759 Other revenues 28,519,350 42,548,113 Other businesses (ii) 279,723,708 78,644,054 Services rendered 241,704,927 64,343,561 Sales 34,645,745 11,725,619 Other revenues 3,373,036 2,574,874

2,717,771,513 2,628,336,725 (i) For information on this operating segment performance, including explanations for changes in operating revenues, see Note 7.a). (ii) The increase in this caption reflects primarily, the higher contribution from international businesses in 2014 (Euro 203 million) as these were consolidated only as from May 2014 following the acquisition of PT Participações.

Revenue is recognized in accordance with principles referred to in Note 3.p). Services rendered include mainly revenue derived from (1) fixed line and international telecommunications services, including billed and interconnection revenues, (2) Pay-TV services, including monthly subscription fees and rental of equipment, (3) mobile telecommunications services, including usage of network, interconnection fees, roaming, pre-paid cards and wireless broadband, and (4) advertising in directories. Sales correspond mainly to the disposals of terminal equipment, including fixed telephones, modems and terminal mobile equipment. Other revenues include mainly Portal’s advertising revenues, benefits from contractual penalties imposed to customers, rental of equipments and other own infra-structures and revenues resulting from consultancy projects.

Revenues in the years ended in 2014 and 2013 by geographic area are as follows:

Euro 2014 2013 Portugal 2,492,048,664 2,604,588,700 Other (i) 225,722,849 23,748,025

2,717,771,513 2,628,336,725 (i) The change in this caption as mentioned above, reflects the contribution of international business (EUR 203 million), which were consolidated from May 2014, following the acquisition of PT Participações.

7. Segment reporting

Based on the manner the Board of Directors reviews and assesses the performance of the Group’s businesses to make decisions about resources to be allocated, PT Portugal has identified only one operating segment as at 31 December 2014, which corresponds to Telecommunications in Portugal, including Meo Comunicações (former PT Comunicações), Meo, S.A. (former TMN and merged into PT Comunicações in December 2014), PT Cloud and Data Centers and PT Data Center.

In addition to the above mentioned reportable segments, the Group has other businesses that do not comply individually or in aggregate with any of the quantitative thresholds that would require a disclosure as a reportable segment. These businesses relate primarily to the following Group companies: (1) Mobile Telecommunications Limited in Namíbia, Cabo Verde Telecom, Companhia Santomense de Telecomunicações, Listas Telefónicas de Moçambique, Elta – Empresa de Listas Telefónicas de Angola and Timor Telecom, which were consolidated as from May 2014 and render fixed and mobile telecommunications services and directories services; and (2) certain Portuguese support companies, namely PT Inovação e Sistemas, PT Pro, PT Contact and PT Sales.

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a) Telecommunications in Portugal In preparing the financial information in this reportable segment, the transactions between the companies that comprise it are eliminated. Financial information of this reportable segment for the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 REVENUES (i) Services rendered - external customers (Note 6) 2,315,578,608 2,392,464,799 Services rendered - inter-segment 6,825,589 4,445,252 Sales - external customers (Note 6) 93,949,847 114,679,759 Sales - inter-segment 1,197,684 355,616 Other revenues - external customers (Note 6) 28,519,350 42,548,113 Other revenues - inter-segment 9,045,257 5,115,725 2,455,116,335 2,559,609,264 COSTS, EXPENSES, LOSSES AND (INCOME) Wages and salaries (Note 8) 246,671,359 232,725,936 Direct costs (Note 9) 470,737,384 458,496,422 Commercial costs (ii) 248,230,387 294,349,511 Supplies, external services and other expenses (iii) 459,376,686 483,000,838 Depreciation and amortisation (iv) 710,141,026 780,156,260 Post retirement benefits, net 42,157,712 40,295,822 Curtailment costs, net (v) (31,397,290) 116,922,120 Net gains on disposals of fixed assets (2,089,858) (3,500,398) Net other costs (vi) 886,750,391 19,043,737 3,030,577,797 2,421,490,248 Income before financial results and taxes (575,461,462) 138,119,016 (i) The composition of total revenues by customer segment for the years ended 31 December 2014 and 2013 is as follows:

Euro million 2014 2013 Residential 708 709 Personal 622 662 Enterprise 750 796 Wholesale, other and eliminations 375 393

2,455 2,560 The reduction in total revenues is primarily explained by: (1) lower revenues driven by the Enterprise customer segment (Euro 46 million), impacted by strong cost cutting initiatives, significant reduction in investments in new projects by the private sector and competitiveness of the market; (2) revenue decline in the Personal customer segment (Euro 40 million), reflecting lower and volatile recharges as a result of difficult economic conditions, price competition and migration to lower tariff plans; and (3) a reduction in revenues from wholesale and other businesses (Euro 18 million), as a result of lower accesses and traffic revenues and lower revenues from the directories business against a backdrop of increased popularity of alternative online tools. Revenues from residential customer segment continue to be impacted by pricing and competitive dynamics, but nevertheless remained broadly stable, benefitting from continued market share gains of Meo’s triple play offers and quadruple play offers. (ii) This caption includes costs of products sold, commissions and marketing and publicity expenses. The decrease in 2014 is primarily explained by lower costs of goods sold reflecting lower equipment sales, and lower costs with commissions, which benefited from the focus on cost control and profitability as well as lower operating revenues. (iii) This caption includes supplies and external services, provisions, indirect taxes and other expenses. The decrease occurred in 2014 reflects mainly a relentless focus on cost cutting and profitability and also an increase in maintenance productivity of maintenance activities due to the implementation of new generation access networks (FTTH). (iv) The reduction in this caption reflects primarily (1) a decrease in investments in tangible and intangible assets over the past few years, particularly in 2014 as explained below, which translated into a reduction of depreciation and amortization, and (2) lower amortization expenses (reduction of Euro 33 million) related to the intangible assets identified by PT Portugal under the price allocation of investments in PT Comunicações and TMN, acquired in October 2006, since the respective 8-year amortization period ended on 30 September 2014. (v) In 2014, as explained in Nota 14, this caption includes a past service gain of Euro 55 million corresponding to the effect of the decrease in benefits granted under healthcare plans, and a cost of Euro 13 million corresponding to a worke force reduction programme in the third quarter of 2014. In 2013, this caption reflects a worke force reduction programme implemented in the second quarter, covering approximately 400 employees.

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(vi) Other costs recorded in the year ended 31 December 2014, as mentioned in Notes 15 and 34, include mainly an impairment loss of 867 million recognized in order to adjust the carrying value of the assets to be disposed to Altice (Note 1) to the corresponding recoverable amount provided in the Altice offer. For the year ended 31 December 2013, this caption includes non-recurring provisions and adjustments that were recognized to adjust the carrying value of certain assets to the respective recoverable amounts, were partially offset by a gain related to the wireline Concession Agreement previously in place.

Capital expenditures in tangible and intangible assets for this reportable segment decreased to Euro 384 million in the year ended 31 December 2014, including Euro 55 million related to the infrastructure sharing agreement entered into with Vodafone (Note 35.2), from Euro 490 million in the same period of last 2013, reflecting: (1) lower infrastructure and technology related capital expenditures, as a result of the strong investments made in the past years, both on FTTH and 4G-LTE networks; (2) lower IS / IT related capital expenditures, primarily explained by the investment made in a data centre in 2013, and (3) lower customer related capital expenditures, explained by lower unitary equipment costs and lower churn across the pay-TV and broadband services.

As at 31 December 2014 and 2013, the total staff in this segment was 7,990 and 7,526 employees, respectively, an increase reflecting the contribution of PT Cloud e Data Centers as at 31 December 2014, as this business was included in this reportable segment as from January 2014.

b) Reconciliation of revenues and net income and information by geographic area In the years ended of 31 December 2014 and 2013, the reconciliation between revenues of the telecommunications segment Portugal and consolidated revenues is as follows: Euro 2014 2013 Revenues relating to Telecommunications in Portugal 2,455,116,335 2,559,609,264 Revenues relating to other businesses (i) 588,583,533 418,821,667 Elimination of intragroup revenues (ii) (325,928,355) (350,094,206) Total consolidated revenues 2,717,771,513 2,628,336,725 (i) As mentioned above, other businesses include primarily MTC, CVT, Timor Telecom and certain Portuguese support companies, the performance of which is monitored by the management on a standalone basis. The increase in revenues relating to other businesses is primarily explained by the contribution of international business from May 2014, following the acquisition of PT Participações (Note 1), partially offset by the effect of PT Cloud e Data Centers contribution in 2013, since this entity was included in the Telecommunications business in Portugal from January 2014; (ii) The reduction in this caption reflects mainly the elimination of intra-group revenues of PT Cloud e Data Centers in 2013, an entity that provide services primarily to the Telecommunications operating segment in Portugal and is included in that segment as from January 2014. This effect was partially offset by an increase in eliminations resulting from the consolidation of international business as from May 2014, since several companies in Portugal provide services to such entities.

PT Portugal | Consolidated Report | 2014 79

In the years ended 31 December 2014 and 2013, the reconciliation between net income before financial results and taxes of telecommunications segment in Portugal and Group’s consolidated net income is as follows: Euro 2014 2013 Income before financial results and taxes: Telecommunications in Portugal (575,461,462) 138,119,016 Other businesses (i) (655,870,179) 52,389,915 Consolidated income before financial results and taxes (1,231,331,641) 190,508,931 Financial gains (losses): Net interest expenses (Note 16) (286,483,425) (261,361,892) Net foreign currency exchange losses (gains) (Note 17) 8,102,203 (3,452,352) Net losses on financial assets and other investments (Note 18) (12,650) (1,115,042) Losses in joint ventures, net (Note 31) (977,076,231) 37,042 Earnings in associated companies, net (Note 32) 847,111 32,969,600 Net other financial expenses (Note 19) (49,144,535) (10,326,347) Income taxes (Note 20) (51,200,825) (78,483,948) Net loss (before non-controlling interests) (2,586,299,993) (131,224,008) (i) The change in this caption reflects (1) an impairment of Euro 517 million recorded in 2014 in order to adjust the carrying value of the investments in Rio Forte to the corresponding recoverable amount based on the quote price of Oi shares (Note 29), (2) a loss of Euro 69 million recorded under the acquisition of PT Participações, and (2) a gain o Euro 134 million recorded in 2013 resulting from the settlement of contractual obligations that had been assumed upon the acquisition of the investment in Oi. More detailed information about these losses and gains are disclosed in Note 15.

Total assets, liabilities and tangible and intangible assets by geographic area as at 31 December 2014 and 2013 and capital expenditures for tangible and intangible assets in the years ended 31 December 2014 and 2013 are as follows:

Euro 2014 Tangible Intangible Capital expenditures for Total Total assets assets tangible and assets liabilities (Note 36) (Note 35) intangible assets (ii) Portugal 8,160,800,889 3,571,586,859 3,064,466,068 620,295,647 397,326,221 Other (i) 2,672,155,557 5,610,860,366 732,733 738,928 42,081,007 10,832,956,446 9,182,447,225 3,065,198,801 621,034,575 439,407,228 Euro 2013 Tangible Intangible Capital expenditures for Total Total assets assets tangible and assets liabilities (Note 36) (Note 35) intangible assets (ii) Portugal 11,519,556,928 9,642,460,895 3,277,131,500 701,380,297 508,793,905 Other (i) 2,641,070,775 7,200,936 795,623 670,769 896,860 14,160,627,703 9,649,661,831 3,277,927,123 702,051,066 509,690,765 (i) Total assets as at 31 December 2013 relate mainly to the investment in Bratel BV that was disposed on 2 May 2014 (Note 1), entity that held indirectly the investments in Oi and its controlling shareholders. Total assets and liabilities as at 31 December 2014 include primarily (1) non-current assets and liabilities held for sale relating to international businesses (Note 1), amounting to Euro 2,297 million and Euro 264 million, respectively, and (2) assets and liabilities of PT Finance, entity acquired in May 2014 (Note 1), amounting to Euro 324 million and Euro 5,331 million, respectively, which relate to Rio Fort investments and external loans obtained by this entity, respectively. (ii) Total capital expenditures in 2014 and 2013 include capital expenditures for tangible assets, amounting to Euro 312 million and Euro 459 million (Note 36), respectively, and capital expenditures for intangible assets amounting to Euro 127 million and Euro 51 million (Note 35), respectively.

PT Portugal | Consolidated Report | 2014 80

8. Wages and salaries

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Salaries 298,940,354 266,998,043 Social security 58,832,593 54,794,655 Health care benefits related to active employees 4,566,639 4,283,030 Training 3,159,994 1,199,798 Other 7,298,690 7,131,986 372,798,270 334,407,512

In 2014, the increase in this caption reflects primarily the impact of the (1) consolidation of international businesses and PT Centro Corporativo as from May and April 2014 (Euro 42 million), following the acquisition of PT Participações and PT Centro Corporativo (Note 1), respectively, and (2) increased costs in the telecommunications segment in Portugal (Euro 14 million - Note 7.a), which essentially results from the inclusion of PT Cloud e Data Centers in this operating segment as from January 2014, the effect of which more than offset lower variable compensation and overtime, better efficiency levels in certain internal processes and lower staff costs arising from the restructuring plans implemented in the second quarter of 2013 and third quarter of 2014. These effects were offset by a lower contribution from Portuguese support companies, benefiting from the fact that PT Cloud e Data Centers, which had personnel costs of Euro 18 million in 2013, is included in the Telecommunications in Portugal operating segment as from January 2014.

9. Direct costs

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Telecommunications costs (i) 271,144,971 247,918,160 Programming costs (ii) 129,189,845 127,947,120 Leasings of sites (i) 22,750,686 21,287,425 Directories (iii) 17,354,222 20,672,485 Other (iv) 31,728,114 25,747,442 472,167,838 443,572,632

(i) In the years ended 31 December 2014 and 2013, these captions include costs related to operating leases amounting to Euro 41,941,122 and Euro 34,295,107 respectively (Note 12). (ii) This caption relates basically to the programming costs incurred by the Pay-TV operation in Portugal, reflecting the continued growth of these services partially offset by a decline in costs per customer, as Pay-TV reached critical mass. (iii) The decrease in this caption is directly related to the decline of the directories business. (iv) This caption includes primarily mobile contents.

The increase in this caption reflects primarily (1) the impact of the consolidation of international businesses as from May 2014 (Euro 17 million), following the acquisition of PT Participações (Note 1), and also (2) an increase of direct cost at the Portuguese telecommunications business (Euro 12 million – Note 7.a), as a result of higher costs associated with the provision of IT/IS solutions and higher traffic costs, effects that more than offset lower costs associated with the decrease in services rendered and lower expenses related to the directories business .

PT Portugal | Consolidated Report | 2014 81

10. Costs of products sold

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Costs of products sold 106,362,001 123,267,383 Increases in adjustments for inventories (Note 41) 534,205 3,338,294 Decreases in adjustments for inventories (Note 41) (9,429,235) (2,363,216) 97,466,971 124,242,461

The reduction of Euro 27 million under this caption reflects mainly a lower contribution from the Telecommunications business Portugal (Euro 29 million), which is explained by lower equipment sales, lower unitary costs, and reductions in adjustments for depreciation of inventories. The reduction in the telecommunications business in Portugal was partially offset by the consolidation of international business as from May 2014 (Euro 9 million).

11. Supplies, external services and other expenses

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Support services (i) 151,074,143 194,004,203 Maintenance and repairs 102,317,727 92,372,490 Commissions 92,265,077 86,282,290 Specialized work 92,252,308 100,410,785 Electricity 48,381,442 47,226,702 Operating leases (Note 12) 28,569,992 26,469,854 Communications 12,374,985 11,812,711 Travelling 10,242,883 7,801,511 Other (ii) 71,560,310 37,260,141 609,038,867 603,640,687

(i) This item includes costs incurred with administrative, financial and other management services provided by PT Centro Corporativo during the year ended 31 December 2013 and the first quarter of 2014, which explains the reduction occurred between the two years. Following the acquisition of PT Centro Corporativo on 31 March 2014 (Note 1), these costs are now eliminated and, since then, that entity’s operating costs, including mainly personnel expenses and third party services, are consolidated in these financial statements. (ii) The increase in this item reflects, among other things, a gain of Euro 15 million recognized in 2013 corresponding to the partial reduction in the liability for dismantling and removal of antennas installed in third party’s property.

The increase of Euro 6 million in total of supplies and services and other expenses is mainly explained by the impact of the consolidation of international businesses as from May 2014 (Euro 36 million). This effect was partially offset by (1) a lower contribution from Portuguese support companies, benefiting from PT Cloud e Data Centers have been included in the Telecommunications segment in Portugal as from January 2014, and (2) a lower contribution from the Portuguese telecommunications business (Euro 24 million) reflecting the benefits from Portugal Telecom’s FTTH and 4G-LTE networks and the extensive operational transformation programme, which continue to be visible through improved quality of service and lower cost structure, and the increased maintenance expenses in the first quarter of 2013 due to adverse weather conditions in that period.

PT Portugal | Consolidated Report | 2014 82

12. Operating leases

In the years ended 31 December 2014 and 2013, operating lease costs were recognised under the following captions: Euro 2014 2013 Direct costs (Note 9) (i) 41,941,122 34,295,107 Supplies, external services and other expenses (Note 11) (ii) 28,569,992 26,469,854 70,511,114 60,764,961 (i) This caption relates mainly to costs incurred with the lease of capacity and network management. (ii) This caption relates mainly to rentals of property and leases of transportation equipment.

As at 31 December 2014, the Company’s obligations under non-cancellable operating lease contracts mature as follows: Euro 2015 30,504,349 2016 18,578,522 2017 16,291,698 2018 14,275,530 2019 12,135,251 2020 and following years 28,750,862 120,536,212 13. Indirect taxes

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Spectrum fees (i) 30,215,100 24,545,383 Other (ii) 14,527,355 4,666,005 44,742,455 29,211,388 (i) This caption includes primarily spectrum fees from Portuguese mobile operation. (ii) The increase in this caption reflects primarily the impact of the consolidation of international businesses as from May 2014 (Euro 6 million), following the acquisition of PT Participações, and certain taxes, including primarily non-deductible VAT and stamp taxes, supported by PT Portugal under the corporate transactions performed for the purposes of the share capital increase of Oi, namely the transfer of financings from PT SGPS to PT Portugal.

14. Post retirement benefits

14.1. Description of plans and assumptions used As referred to in Note 3, Meo Comunicações sponsor defined benefits plans under which these companies grant pension supplements to retired and active employees, healthcare services to retired employees and eligible relatives and salaries to suspend and pre-retired employees until retirement age. The actuarial valuations of PT Portugal defined benefits plans as at 31 December 2014 and 2013, were computed based on the projected unit credit method and considered the following main financial and demographic actuarial assumptions:

PT Portugal | Consolidated Report | 2014 83

2014 2013 Financial assumptions Discount rate: Pension supplements 1.50% 3.00% Salaries to suspended and pre-retired 0.50% 2.00% Healthcare 2.00% 4.00% Salary growth rate for responsabilities with: Pension supplements and healthcare 0% - 1.75% 1.75% Salaries to suspended and pre-retired (i) 0% - 1.75% 0% - 1.75% Pension growth rate GDP linked GDP linked Social Security sustainability factor Applicable Applicable Inflation rate 2.00% 2.00% Healthcare cost trend growth rate 3.00% 3.00% Demographic assumptions Mortality tables for active and non-active beneficiaries: Males PA (90)m adjusted PA (90)m adjusted Females PA (90)f adjusted PA (90)f adjusted Retirement age (ii) 66 65-66 Disability table (Swiss Reinsurance Company) 25% 25% Active employees with spouses under the plan 35% 35% Turnover of employees Nil Nil

(i) For salaries payable between 2015 and 2017, the salary growth rate ranges from 0% to 1% depending on the amount of the salary. As from 2018, the salary growth rate is 1.75% for all situations. (ii) In 2013, the Portuguese retirement age changed from 65 to 66 years old, applicable for the majority of PT Portugal beneficiaries under post retirement benefit plans, and applicable for the remaining beneficiaries as from 2014.

The main actuarial assumptions detailed above were defined based on the following:  The discount rate was computed based on long-term yield rates of Euro Zone high-rating corporate bonds as of the date of the Consolidated Statement of Financial Position for durations comparable to the liabilities for pension supplements, salaries and health care benefits (between 3 and 14 years).  The rate of return on long-term fund assets is the same as the discount rate used, as required by the revised IAS 19 Employee Benefits.  Salary growth rate was established in accordance with Group policy for wages and salaries and pension growth rate and the sustainability factor was established in line with Portuguese Government information.  Demographic assumptions considered by the Company are based on mortality tables generally accepted for actuarial valuation purposes, with these tables being periodically adjusted to reflect the mortality experience occurred in the closed universe of the plan participants.

In the years ended 31 December 2014 and 2013, the total impact of changes in actuarial assumptions was net losses of Euro 267,005,696 and Euro 139,474,542 (Note 14.5), respectively, and was recognized directly in the Consolidated Statement of Comprehensive Income.

The impact of an increase (decrease) by 25 bp on the average discount rate actuarial assumption would be a decrease of the responsibilities for post retirement benefits by approximately Euro 25 million as at 31 December 2014.

The impact of an increase (decrease) by 1% in the discount rate actuarial assumption would be an increase (decrease) of post retirement benefit costs in the year 2014 by approximately Euro 9 million, corresponding to the increase (decrease) in net interest cost.

PT Portugal | Consolidated Report | 2014 84

The impact of an increase (decrease) in the health care cost trend rate by 1% would be an increase (decrease) of the responsibilities for post retirement benefits by approximately Euro 99 million (Euro 78 million) as at 31 December 2014.

14.1.1 Supplement benefits Responsibilities for the payment of pension supplements to retired and active employees are as follows:  Retirees and employees of Companhia Portuguesa Rádio Marconi, S.A. (“Marconi”, a company merged into Meo Comunicações in 2002) hired prior to 1 February 1998 are entitled to a supplemental pension benefit (“Marconi Complementary Fund”). In addition, PT Comunicações contributes to the fund “Fundo de Melhoria Marconi” with 1.55% of salaries paid to these employees, which is responsible to pay the additional pension supplement.  Retirees and employees of TLP and TDP hired prior to 23 June 1994 are entitled to receive a pension supplement from Meo Comunicações, which complements the pension paid by the Portuguese social security system.  On retirement, Meo Comunicações pays a lump sum gratuity of a fixed amount which depends on the length of service completed by the employee and its salary.

Employees hired by Meo Comunicações or any of its predecessor companies after the dates indicated above are not entitled to these benefits, as they are covered by the general Portuguese Government social security system.

As at 31 December 2014 and 2013, plans from Meo Comunicações covered 19,859 and 19,841 beneficiaries, respectively, of which approximately 63% and 64% were non-active, respectively.

Based on the actuarial reports, the defined benefit obligations and the fair value of the pension funds as at 31 December 2014 and 2013 were as follows: Euro 2014 2013 Projected benefits obligations 124,010,002 117,220,407 Pension funds assets at fair value (92,162,000) (94,660,571) Unfunded pension obligations (Note 14.2) 31,848,002 22,559,836

During the years ended 31 December 2014 and 2013, the movement in the projected benefits obligations related to pensions supplements was as follows: Euro 2014 2013 Opening balance of the projected benefits obligations 117,220,407 127,330,646 Payments of benefits and contributions Benefits paid by the Company (Note 14.3) (1,562,217) (812,663) Benefits paid by the funds (8,693,601) (9,008,398) Post retirement benefits Service cost 489,000 584,471 Interest cost 3,211,000 3,484,351 Prior year service gain - (2,168,000) Work force reduction costs (Note 14.4) (127,000) 787,000 Net actuarial losses (gains) 13,472,413 (2,977,000) Closing balance of the projected benefits obligations 124,010,002 117,220,407

PT Portugal | Consolidated Report | 2014 85

As at 31 December 2014 and 2013, the fair value of the portfolio of pension funds was as follows: Euro 2014 2013 Amount % Amount % Equities (i) 19,335,186 21.0% 19,300,270 20.4% Bonds (i) 58,445,278 63.4% 57,294,887 60.5% Property 2,270,149 2.5% 2,314,224 2.4% Cash, treasury bills, short-term stocks and other assets (ii) 12,111,387 13.1% 15,751,190 16.6% 92,162,000 100.0% 94,660,571 100.0% (i) The fair value of equity investments and bonds is quoted on active markets. (ii) This caption includes term deposits amounting to Euro 5.6 million and Euro 5.4 million as at 31 December 2014 and 2013, respectively.

PT Portugal is exposed to risks related to the changes in the fair value of the assets associated to PT Portugal post retirement defined pension supplement plans. The main purpose of the established investment policy is capital preservation through five main principles: (1) diversification; (2) stable strategic asset allocation and disciplined rebalancing; (3) lower exposure to currency fluctuations; (4) specialized instruments for each class of assets; and (5) cost control.

During the years ended 31 December 2014 and 2013, the movement in the plan assets was as follows: Euro 2014 2013 Opening balance of the plan assets 94,660,571 99,529,441 Actual return on assets 4,952,030 3,660,130 Payments of benefits (8,693,601) (9,008,398) Contributions made by the Company (Note 14.3) 1,243,000 479,398 Closing balance of the plan assets 92,162,000 94,660,571

A summary of the components of the net periodic pension cost recorded in the years ended 31 December 2014 and 2013 is presented below: Euro 2014 2013 Service cost 489,000 584,471 Net interest cost 498,000 631,351 Prior years' service gains - (2,168,000) Current pension cost (Note 14.4) 987,000 (952,178) Work force reduction costs (127,000) 787,000 Curtailment cost (Note 14.4) (127,000) 787,000 Total pension cost 860,000 (165,178)

Actuarial gains and losses, which result from changes in actuarial assumptions and from differences between those actuarial assumptions and actual data, are recognised directly in Shareholders’ Equity, and presented in the Consolidated Statement of Comprehensive Income. During the years ended 31 December 2014 and 2013, the movement in net actuarial losses was as follows: Euro 2014 2013 Opening balance 122,090,614 125,874,744 Change in actuarial assumptions (Note 14.5) 13,995,000 (1,059,000) Differences between actual data and actuarial assumptions (Note 14.5): Pension benefits obligations related (i) (522,587) (1,918,000) Assets related (2,239,030) (807,130) Closing balance 133,323,997 122,090,614 (i) Differences between actual data and actuarial assumptions related to the PBO results mainly from updated information regarding beneficiaries.

PT Portugal | Consolidated Report | 2014 86

14.1.2 Health care benefits Meo Comunicações sponsored the payment of post retirement health care benefits to certain suspended employees, pre-retired employees and retired employees and their eligible relatives. Health care services are rendered by PT-ACS, which was incorporated with the only purpose of managing the Company’s Health Care Plans. These plans, sponsored by Meo Comunicações, include all employees hired by PT Comunicações until 31 December 2000 and by Marconi until 1 February 1998. The financing of the Health Care Plan comprises defined contributions made by participants to PT-ACS and the remainder by Meo Comunicações, which incorporated an autonomous fund in 2004 for this purpose.

As at 31 December 2014 and 2013, healthcare plans from Company covered 22,987 and 23,503 beneficiaries related to employees and former employees, of which approximately 77% were non-active, respectively. In addition, as at 31 December 2014 and 2013, these plans also covered 9,488 and 10,268 beneficiaries related to relatives of employees and former employees.

Based on the actuarial reports, the defined benefit obligations and the fair value of the health care plan assets as at 31 December 2014 and 2013 are as follows:

Euro 2014 2013 Projected benefits obligations 401,030,826 376,483,029 Plan assets at fair value (159,239,986) (291,667,071) Unfunded obligations (Note 14.2) 241,790,840 84,815,958

During the years ended 31 December 2014 and 2013, the movement in the projected benefits obligations was as follows: Euro 2014 2013 Opening balance of the projected benefits obligations 376,483,029 375,360,964 Benefits paid by the Company (Note 14.3) (20,851,174) (18,864,011) Post retirement benefits costs Service cost 3,388,000 3,640,669 Interest cost 14,741,000 14,706,407 Work force reduction costs (Note 14.4) (105,000) 1,336,000 Changes in benefits (Note 14.4) (55,188,000) - Net actuarial losses 82,562,971 303,000 Closing balance of the projected benefits obligations 401,030,826 376,483,029

PT Portugal | Consolidated Report | 2014 87

As at 31 December 2014 and 2013, the fair value of the portfolio of the Company’s autonomous fund to cover post retirement health care benefits obligations was as follows: Euro 2014 2013 Amount % Amount % Equities (i) - 0.0% 87,389,300 30.0% Bonds (ii) - 0.0% 57,595,149 19.7% Cash, treasury bills, short-term stocks and other assets (iii) 159,239,986 100.0% 146,682,622 50.3% 159,239,986 100.0% 291,667,071 100.0% (i) As at 31 December 2013, this caption corresponds to investments in shares of Banco Espírito Santo (“BES”), the fair value of which is quoted on an active market. On 3 August 2014, the Portuguese government announced a corporate restructuring of Banco Espírito Santo through which the shareholders of BES that date became shareholders of an entity that includes assets not related to the banking activity and with no quote price in an active market. As a result of these events, the Company fully adjusted its entire investment in BES shares. Nevertheless, it should be mentioned that the payment of healthcare benefits after retirement continue to be provided by the Company within a 30-year period, with no legal obligation to anticipate this financing. (ii) As at 31 December 2013, this caption includes mainly investments in bonds of Portugal Telecom (Note 48), the fair value of which is quoted on an active market. These bonds were settled in 2014. (iii) As at 31 December 2014 and 2013, this caption includes investments in the private equity funds “Ongoing International Capital Markets” and “Ongoing International Private Equity” totalling Euro 79 million and Euro 95 million, respectively, which are managed by Global investment Opportunities SICAV. In addition, as at 31 December 2014 and 2013, this caption includes investments in other private equity funds, amounting to Euro 22 million in both dates, term deposits, amounting to Euro 11 million and Euro 14 million, respectively, and receivables from customers of PT Portugal Group companies totalling Euro 46 million and Euro 15 million, respectively, following agreements entered into with those companies for the transfer of those receivables to the fund assets.

During the years ended 31 December 2014 and 2013, the movement in the plan assets was as follows: Euro 2014 2013 Opening balance of the plan assets 291,667,071 299,865,329 Actual return on assets (i) (120,926,637) 13,840,743 Refunds (Note 14.3) (ii) (11,500,448) (22,039,001) Closing balance of the plan assets 159,239,986 291,667,071 (i) The devaluation in 2014 reflects primarily the impact of the reorganization of Banco Espírito Santo described above. The investment in BES shares amounted to Euro 87 million as at 31 December 2013, and the Company subscribed a share capital increase of BES during the second quarter 2014 for Euro 25 million. (ii) This caption corresponds to refunds of expenses paid on account by PT Comunicações.

A summary of the components of the net periodic post retirement health care cost (gain) in 2014 and 2013 is presented below: Euro 2014 2013 Service cost 3,388,000 3,640,669 Net interest cost 2,702,000 2,711,407 Current cost (gain) (Note 14.4) 6,090,000 6,352,076 Work force reduction program (gains) costs (105,000) 1,336,000 Changes in benefits (55,188,000) - Curtailment (gains) cost (Note 14.4) (55,293,000) 1,336,000 Health care cost (gain) (49,203,000) 7,688,076

PT Portugal | Consolidated Report | 2014 88

Euro 2014 2013 Opening balance 246,330,286 247,873,029 Change in actuarial assumptions (Note 14.5) 104,153,000 (1,116,000) Differences between actual data and actuarial assumptions (Note 14.5): Health care benefits obligations related (21,590,029) 1,419,000 Assets related 132,965,637 (1,845,743) Closing balance 461,858,894 246,330,286

14.1.3 Salaries PT Portugal is also responsible for the payment of salaries to suspended and pre-retired employees until the retirement age, which result from agreements between both parties. These liabilities are not subject to any legal funding requirement and therefore the monthly payment of salaries is made directly by each of the subsidiaries of PT Portugal.

As at 31 December 2014 and 2013, there were 4,891 and 5,330 suspended and pre-retired employees, respectively.

During the years ended 31 December 2014 and 2013, the movement in the projected benefits obligations was as follows: Euro 2014 2013 Opening balance of the projected benefits obligations 843,329,786 730,114,603 Benefits paid by the Company (Note 14.3) (149,658,147) (157,454,475) Interest cost (Note 14.4) 15,203,586 13,274,915 Work force reduction costs (Note 14.4) 12,556,096 112,593,328 Net actuarial (gains) losses 40,243,705 144,801,415 Changes in consolidation perimeter 52,901 - Closing balance of the projected benefits obligations (Note 14.2) 761,727,927 843,329,786

Actuarial gains and losses, which result from changes in actuarial assumptions and from differences between those actuarial assumptions and actual data, are recognised directly in the Consolidated Statement of Comprehensive Income. During the years ended 31 December 2014 and 2013, the movement in accumulated net actuarial losses was as follows: Euro 2014 2013 Opening balance 309,695,620 164,894,205 Change in actuarial assumptions (Note 14.5) 51,768,000 103,586,000 Differences between actual data and actuarial assumptions (Note 14.5) (11,524,295) 41,215,415 Closing balance 349,939,325 309,695,620

PT Portugal | Consolidated Report | 2014 89

14.2. Responsibilities for post retirement benefits

The movements occurred in the responsibilities for post retirement benefits during the years ended 31 December 2014 and 2013 were as follows: Euro Salaries due to pre-retired and Pension Health care suspended supplements benefits employees (Note 14.1.1) (Note 14.1.2) (Note 14.1.3) Total Balance as at 31 December 2012 27,801,205 75,495,635 730,114,603 833,411,443 Net periodic pension cost (gain) (Note 14.4) (952,178) 6,352,076 13,274,915 18,674,813 Work force reduction costs (Note 14.4) 787,000 1,336,000 112,593,328 114,716,328 Payments, contributions and refunds (Note 14.3) (1,292,061) 3,174,990 (157,454,475) (155,571,546) Net actuarial losses (gains) (Note 14.5) (3,784,130) (1,542,743) 144,801,415 139,474,542 Balance as at 31 December 2013 22,559,836 84,815,958 843,329,786 950,705,580 Transfers between plans - - 52,901 52,901 Net periodic pension cost (gain) (Note 14.4) 987,000 6,090,000 15,203,586 22,280,586 Work force reduction costs (Note 14.4) (127,000) (55,293,000) 12,556,096 (42,863,904) Payments, contributions and refunds (Note 14.3) (2,805,217) (9,350,726) (149,658,147) (161,814,090) Net actuarial losses (gains) (Note 14.5) 11,233,383 215,528,608 40,243,705 267,005,696 Balance as at 31 December 2014 31,848,002 241,790,840 761,727,927 1,035,366,769

Certain post retirement benefit plans have a surplus position and therefore were presented in the Consolidated Statement of Financial Position separately from those plans with a deficit position. As at 31 December 2014 and 2013, net post retirement obligations were recognized in the Consolidated Statement of Financial Position as follows: Euro 2014 2013 Plans with a deficit position: Pension supplements 33,873,002 24,393,836 Healthcare 241,790,840 84,815,958 Salaries to pre-retired and suspended employees 761,727,927 843,329,786 1,037,391,769 952,539,580 Plans with a surplus position: Pensions (2,025,000) (1,834,000) (2,025,000) (1,834,000) 1,035,366,769 950,705,580

PT Portugal | Consolidated Report | 2014 90

14.3. Cash flows relating to post retirement benefits plans Net cash out flows relating to post retirement benefits in the years ended 31 December 2014 and 2013 are as follows:

Euro 2014 2013 Pensions supplements Contributions to the funds (Note 14.1.1) 1,243,000 479,398 Payments of premiums to pre-retired and suspended employees (Note 14.1.1) 1,562,217 812,663 Sub total (Note 14.2) 2,805,217 1,292,061 Health care Refunds (Note 14.1.2) (11,500,448) (22,039,001) Payments of health care expenses (Note 14.1.2) 20,851,174 18,864,011 Sub total (Note 14.2) 9,350,726 (3,174,990) Other payments Payments of salaries to pre-retired and suspended employees (Notes 14.1.3 and 14.2) 149,658,147 157,454,475 Termination payments (Note 14.4) 13,785,169 3,340,731 Service cost related to liabilities transferred to the Portuguese State (i) 19,999,493 22,337,313 Sub total 183,442,809 183,132,519 195,598,752 181,249,590 (i) This caption corresponds to the contribution paid by PT Portugal to the Portuguese Social Security System, relating to the annual service of active employees that were entitled to pension benefits under the Company’s post retirement benefits plans transferred to the Portuguese State in December 2010.

14.4. Responsibilities for post retirement benefits The detail of post retirement benefits costs in the years ended 31 December 2014 and 2013 is as follows:

Euro 2014 2013 Post retirement benefits Pension supplements (Notes 14.1.1 and 14.2) 987,000 (952,178) Health care benefits (Notes 14.1.2 and 14.2) 6,090,000 6,352,076 Salaries (Notes 14.1.3 and 14.2) 15,203,586 13,274,915 Service cost related to liabilities transferred to the Portuguese state (i) 19,922,193 21,783,507 42,202,779 40,458,320 Curtailment costs Pensions supplements (Notes 14.1.1 and 14.2) (127,000) 787,000 Health care (Notes 14.1.2 and 14.2) (ii) (55,293,000) 1,336,000 Salaries (Notes 14.1.3 and 14.2) (iii) 12,556,096 112,593,328 Termination payments (Note 14.3) (iii) 13,785,169 3,340,731 (29,078,735) 118,057,059 (i) This caption relates to a contribution to the Portuguese Social Security System, regarding the annual service of active employees that were entitled to pension benefits under the Company’s post retirement benefits plans transferred to the Portuguese State in December 2010. (ii) In 2014, this caption relates to the total impact of a set of amendments to the healthcare plan agreed between the Company and the Company’s unions. The impact of these changes resulted in a reduction of obligations by Euro 55.3 million, which was recognized under this caption as a past service gain. The changes to the plan include primarily the reduction of contributions and ceilings and the reduction of some exemptions. (iii) In 2014, the costs recorded under these captions, totalling approximately Euro 26 million, relate to a worke force reduction programme implemented in the third quarter of 2014. The cost recorded in 2013 relates to a worke force reduction programme implemented in second quarter of 2013, covering about 400 employees.

14.5. Net actuarial losses (gains) In the years ended 31 December 2014 and 2013, net actuarial losses (gains) recorded in the Consolidated Statement of Comprehensive Income were as follows:

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Euro 2014 2013 Changes in actuarial assumptions Pension supplements (Note 14.1.1) 13,995,000 (1,059,000) Health care benefits (Note 14.1.2) 104,153,000 (1,116,000) Salaries (Note 14.1.3) 51,768,000 103,586,000 Sub-total 169,916,000 101,411,000 Differences between actual data and actuarial assumptions Pension supplements (Note 14.1.1) (2,761,617) (2,725,130) Health care benefits (Note 14.1.2) 111,375,608 (426,743) Salaries (Note 14.1.3) (11,524,295) 41,215,415 Sub-total 97,089,696 38,063,542 Total (Notes 14.2 and 43.4) 267,005,696 139,474,542

Net actuarial losses resulting from changes in actuarial assumptions relate to the changes in financial and demographic actuarial assumptions detailed in Note 14.1, reflecting primarily the following:  The actuarial losses recognized in 2014, amounting to Euro 170 million, include the impact of changes in financial actuarial assumptions in the amount of Euro 148 million, basically explained by the effect of the reduction in discount rates, and the impact of changes in demographic assumptions in the amount of Euro 21 million, corresponding to the change in retirement age from 65 to 66 for the beneficiaries of the plans for which that change was not applicable in 2013;  The actuarial losses recognized in 2013, amounting to Euro 101 million, include mainly the impact of the change in the retirement age from 65 to 66 years of age for most beneficiaries of the plans.

The detail of net actuarial gains and losses resulting from differences between actual data and actuarial assumptions is as follows:  The actuarial losses recognized in 2014, amounting to Euro 97 million, include (1) a loss of Euro 131 million related to the difference between the actual return and the expected return on fund assets computed using the discount rates used in the calculation of projected obligations, a loss that is basically explained by the devaluation of the investment in shares of Banco Espírito Santo mentioned above, and (2) a gain of Euro 34 million related to the difference between actual data and actuarial assumptions related to the projected benefits obligations, which reflects, among other things, lower health spending compared to estimated amounts and also lower beneficiaries.  Net actuarial losses recognized in 2013 amounting to Euro 38 million include (1) a gain of Euro 3 million related to the difference between actual return on plan assets (+4.5%) and expected return on plan assets calculated based on discount rates used to compute PBO, and (2) a loss of Euro 41 million related to the difference between actual data and actuarial assumptions related to projected benefits obligations, namely those assumptions related to the salary, pension and healthcare cost trend growth rates.

14.6. Other disclosures The tables below include the present value of projected benefits obligations, the fair value of the plan assets, the surplus or deficit in the plans and the net actuarial gains and losses for all the plans previously mentioned above as at 31 December 2014, 2013, 2012, 2011, and 2010 and for the years then ended:

Euro 2014 2013 2012 2011 2010 Projected benefits obligations 1,286,768,755 1,337,033,222 1,232,806,213 1,256,627,527 1,396,705,310 Plan assets at fair value (251,401,986) (386,327,642) (399,394,770) (344,695,390) (448,145,688) Responsibilities for post retirement benefits, net 1,035,366,769 950,705,580 833,411,443 911,932,137 948,559,622

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Euro 2014 2013 2012 2011 2010 Changes in actuarial assumptions 169,916,000 101,411,000 136,624,616 (19,426,453) 441,787,345 Differences between actual data and actuarial assumptions: Projected benefits obligations related (33,636,911) 40,716,415 (22,644,314) (6,997,663) (67,472,319) Plan assets related 130,726,607 (2,652,873) (68,046,416) 92,782,990 72,411,885 Total net actuarial losses (gains) 267,005,696 139,474,542 45,933,886 66,358,874 446,726,911

15. Other costs (gains), net

Net other costs amounted to Euro 1,495.4 million in the year ended 31 December 2014, as compared to net other gains of Euro 81.3 million in the same period last year.

In 2014, this caption includes primarily: (1) an impairment loss of Euro 867 million recorded to adjust to the carrying value of the Portuguese businesses for the corresponding recoverable amount provided in the Altice offer (Note 1); (2) an impairment of Euro 517 million recorded to adjust the carrying value of the investments in securities of Rio Forte for the respective recoverable amount based on the quote price of Oi shares receivable under the exchange agreement entered into with PT SGPS (Note 29); (3) a loss of Euro 69 million recognized in connection with the acquisition of PT Participações; and (4) expenses with donations, fines and fixed asset write-offs.

In 2013, this caption includes primarily (1) a gain of Euro 134 million resulting from the settlement of contractual obligations related to the acquisition of the investment in Oi in March 2011, by a lower amount than the liability initially recognized, (2) a gain of Euro 26 million related to a receivable from the Portuguese State for the revocation of the wireline Concession Agreement previously in place, in connection with the attribution of the universal service to another operator, compensation that was received in September 2014; (3) a loss of Euro 28 million recognized by PT Comunicações within the acquisition from PT SGPS of the investment in Sportinveste, in order to adjust the carrying value of this investment to the corresponding recoverable amount; (4) several provisions and adjustments recognized in order to adjust the carrying value of certain assets to the corresponding recoverable amounts; and (5) expenses with donations, fines and write-off of fixed assets.

16. Net interest expenses

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Interest expense Related to loans obtained and financial instruments 322,439,602 361,677,913 Other 5,728,018 1,902,099 Interest income Related to cash, short-term investments and financial instruments (37,989,319) (98,811,202) Other (3,694,876) (3,406,918) 286,483,425 261,361,892

The change in this caption reflects primarily interest expenses of PT Finance, an entity that was consolidated as from May 2014 (Note 1), and interest expenses associated with certain financings transferred from PT SGPS to PT Portugal on May 5 2014, for purposes of the Oi share capital increase. These effects were partially offset by interest expenses previously incurred by PT Portugal and PT Comunicações relating to intercompany loans obtained from PT Finance and PT SGPS that were either repaid or eliminated in the consolidation process following the acquisition of PT Finance.

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17. Net foreign currency exchange losses

Net foreign currency exchange gains amounted to Euro 8.1 million for the year ended of 31 December 2014 as compared with losses of Euro 3.5 million in the year ended of 31 December 2013. In 2014, this caption includes gains of Euro 5.5 million recorded by international businesses that were consolidated as from May 2014, following the acquisition of PT Participações (Note 1).

18. Net losses (gains) on financial assets and other investments

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Real estate investments (i) 346,876 1,115,042 Other, net (ii) (334,226) - 12,650 1,115,042

(i) This caption includes the amortization of real estate properties owned by PT Comunicações (Note 33) that are currently not used in its operating activities, net of rents received from the lease of these real estate properties to third parties. In 2013, this caption includes a provision of Euro 0.6 million recognized in order to adjust the carrying value of these investments to the respective fair value. (ii) In 2014, this caption includes a gain of Euro 0.3 million recorded by PT Participações corresponding to dividends received in connection with the investment in Seguradora Internacional de Moçambique, S.A., which is recorded at cost as the Company does not have significant influence over this entity.

19. Net other financial expenses

The composition of this caption in the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Bank commissions and expenses 46,195,719 6,734,622 Other 2,948,816 3,591,725 49,144,535 10,326,347

The increase in this caption reflects primarily fees incurred by PT Finance in May and June 2014, amounting approximately Euro 24 million, in connection with the change of conditions and covenants associated with bonds and other loans, required following the business combination between PT SGPS and Oi. In addition, the increase is also explained by recurring bank commissions and expenses recorded by PT Finance in connection with its bond loans and financings, as this entity was acquired by PT Portugal on 5 May 2014 and consolidated since then.

20. Income taxes

In 2013, companies located in mainland Portugal were subject to Corporate Income Tax at a base tax rate of 25%, increased (1) up to a maximum of 1.5% of taxable income through a municipal tax, and (2) by a state surcharge levied at the rate of 3.0% on taxable income between Euro 1.5 million and Euro 7.5 million and at the rate of 5.0% on taxable income in excess of Euro 7.5 million, resulting in a maximum aggregate tax rate of approximately 31.5% for taxable income higher than Euro 7.5 million.

In 2014, following a legislative amendment approved in December 2013 that reduced the base rate by 2.0% and created a new level of state surcharge, companies located in mainland Portugal are subject to Corporate Income Tax at a base rate of 23%, increased (1) up to a maximum of 1.5% of taxable income through a municipal tax, and (2) by a state surcharge levied at the rates of 3.0% on taxable income between Euro 1.5 million and Euro 7.5 million, 5.0% on taxable income between Euro 7.5 million and Euro 35.0

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million and 7.0% on taxable income in excess of Euro 35.0 million, resulting in a maximum aggregate tax rate of approximately 31.5% for taxable income higher than Euro 35.0 million.

As from 1 January 2015, following a legislative amendment in December 2014 that reduced the base rate by 2.0%, companies located in mainland Portugal are subject to Corporate Income Tax at a base rate of 21%, increased (1) up to a maximum of 1.5% of taxable income through a municipal tax, and (2) by a state surcharge levied at the rates of 3.0% on taxable income between Euro 1.5 million and Euro 7.5 million, 5.0% on taxable income between Euro 7.5 million and Euro 35.0 million and 7.0% on taxable income in excess of Euro 35.0 million, resulting in a maximum aggregate tax rate of approximately 29.5% for taxable income higher than Euro 35.0 million.

As mentioned in Note 3, PT Portugal has adopted the tax consolidation regime in Portugal (currently known as the special regime for the taxation of groups of companies), under which the provision for income taxes was computed on the assumption that the tax authorities will authorize the use of that tax consolidation regime as from 1 January 2014, including in the tax consolidation perimeter all entities in which the Company holds at least a 75% interest since the beginning of the year, as a result of which the entities acquired in 2014 from PT SGPS, directly or indirectly, were excluded. Up to 2013, PT Portugal and its subsidiaries were included in the tax consolidation regime of Portugal Telecom and thus paid income taxes directly to this entity. Any gain generated by the former Portugal Telecom Group as a result of the adoption of this regime, resulting from tax losses of the companies included in the tax consolidation, was recorded in earnings of the holding company Portugal Telecom and not in the company that had generated the tax loss. Notwithstanding, eventual benefits or tax credits were maintained in the entities where those were originated.

In accordance with Portuguese tax legislation, income tax returns are subject to review and adjustment by the tax authorities during a period of four calendar years (five years for social security) except when there are tax losses, tax benefits were granted, or when tax inspections, claims or appeals are in progress, in which case the time periods are extended or suspended. In Brazil, income tax returns are subject to review and adjustment by the tax authorities during a period of five calendar years. The Board of Directors of Portugal Telecom, based on information from its tax advisors, believes that any adjustments which may result from such reviews, as well as other tax contingencies, will not have a material impact on the consolidated financial statements as at 31 December 2014, considering the provisions recorded by the Company (Note 41).

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20.1. Deferred taxes During the years ended 31 December 2014 and 2013, the movements in deferred tax assets and liabilities were as follows:

Euro Increases and reductions Change in tax rate (iii) Other Other Foreign Changes in the reserves and reserves and currency Transfers Balance consolidation Net accumulated Net accumulated translation and other Balance 31 Dec 2013 perimeter (i) income earnings (ii) income earnings adjustments movements (iv) 31 Dec 2014 Deferred tax assets Post-retirement benefits 288,158,721 - (68,877,854) 61,309,021 (1,823,959) (4,679,477) - (18,913) 274,067,539 Tax losses carryforward (v) - 364,931 71,052,490 - (6,227,905) - - 203,481 65,392,997 Provisions and adjustments 55,635,513 44,283 1,056,849 - (10,462,900) - 11,901 455,801 46,741,447 Other 8,352,401 - (44,577) - (158,200) - 4,637 70,315 8,224,576 352,146,635 409,214 3,186,908 61,309,021 (18,672,964) (4,679,477) 16,538 710,684 394,426,559 Deferred tax liabilities Revaluation of fixed assets 148,113,148 - (9,415,602) - (2,167,654) (847,510) - - 135,682,382 Other (iv) (vi) 28,236,786 82,756,403 (28,338,889) 3,071,989 (38,283) - (1,311,396) (83,945,700) 430,910 176,349,934 82,756,403 (37,754,491) 3,071,989.0 (2,205,937) (847,510) (1,311,396) (83,945,700) 136,113,292 Deferred taxes, net 175,796,701 (82,347,189) 40,941,399 58,237,032 (16,467,027) (3,831,967) 1,327,934 84,656,384 258,313,267

(i) This caption reflects the deferred tax assets and liabilities of the companies acquired from Portugal Telecom during the year ended 31 December 2014, in connection with the transfer to PT Portugal of all businesses to be contributted by Portugal Telecom to the Oi share capital increase. (ii) This caption includes primarily the tax effect on net actuarial losses recognized in the period and was included in the Consolidated Statement of Comprehensive Income (Note 43.4). (iii) This caption reflects the effect of changes in tax rate occurred during the period, including (1) the impact of the reduction of 2.0% in the base tax rate applicable as from January 2015 onwards, as a result of which deferred tax assets and liabilities were properly remeasured at 31 December 2014, and (2) the impact of the merger of Meo, SA (formerly TMN) in PT Comunicações, a result of which the deferred tax assets and liabilities of Meo, S.A., previously computed based on the maximum tax rate, were remeasured based on the tax rate applicable to PT Comunicações that corresponds to the base rate plus the municipal tax. (iv) Transfers and other movements includes primarily the transfer of deferred taxes of the companies classified as held for sale (Note 30), mainly deferred tax liabilities amounting to Euro 83.5 million related to unpaid profits and other temporary differences recorded at PT Ventures and MTC, respectively. (v) The increase occurred in the period relates to the tax loss generated by PT Portugal’s tax consolidation, estimated based on the assumption that it will be authorized to apply this tax consolidation regime as from 1 January 2014, as referred to above. These tax losses can only be used up to a limit of 70% of taxable profits for each period and have a maturity of 12 years. On 31 December 2014, PT Portugal had additionally tax losses of Euro 115 million that were not recorded as deferred tax assets, the tax effect of which amounts to Euro 24 million (Note 20.2). (vi) As at 31 December 2013, this caption includes primarily an amount of Euro 27 million corresponding to the tax effect on the net carrying value of customer lists recognized in 2006 as part of the purchase price allocation of the investments in PT Comunicações and Meo, S.A. (Note 4), which became fully amortized as at 30 September 2014. Changes in the consolidation perimeter include the deferred tax liabilities related to unpaid dividends and other temporary differences recorded mainly at PT Ventures and MTC, both of which were consolidated as from 2 May 2014 following the acquisition of PT Participações (Note 1), and classified as held for sale as ar 31 December 2014 (Note 30).

Euro Increases and reductions Change in tax rate (ii) Other Other Foreign reserves and reserves and currency Transfers Balance Net accumulated Net accumulated translation and other Balance 31 Dec 2012 income earnings (i) income earnings adjustments movements 31 Dec 2013 Deferred tax assets Post retirement benefits 282,558,913 (4,377,513) 34,979,446 (11,355,174) (13,548,178) - (98,773) 288,158,721 Provisions and adjustments 68,951,771 (11,920,126) - (1,792,375) - 22,326 373,917 55,635,513 Other 9,297,048 (827,493) - (531,343) - 5,939 408,250 8,352,401 360,807,732 (17,125,132) 34,979,446 (13,678,892) (13,548,178) 28,265 683,394 352,146,635 Deferred tax liabilities Revaluation of fixed assets 171,519,487 (10,526,935) - - (12,879,404) - - 148,113,148 Gains on disposals of investments 1,053,237 (520,214) - (42,642) - - - 490,381 Other (iii) 67,939,059 (40,009,798) (182,856) - - - - 27,746,405 240,511,783 (51,056,947) (182,856) (42,642) (12,879,404) - - 176,349,934 Ativos por impostos diferidos, líquidos 120,295,949 33,931,815 35,162,302 (13,636,250) (668,774) 28,265 683,394 175,796,701 (i) This caption corresponds to the tax effect on net actuarial losses recognized in the period and was included in the Consolidated Statement of Comprehensive Income. (ii) This captions refects mainly the impact of the reduction by 2.0% in the base tax rate applicable as from January 2014, as a result of which deferred tax assets and liabilities were properly remeasured as at 31 December 2013, as mentioned above. (iii) As mentioned above, this caption relates basically to the tax effect on the intangible assets recognized in 2006 in connection with the purchase price allocation of the investments in PT Comunicações and Meo, S.A.

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As mentioned in Note 3.o), deferred tax assets are recognised to the extent that it is reasonably likely that taxable income will be available against which deductible temporary differences can be used, or when there are deferred tax liabilities the reversal of which is expected in the same period in which the deferred tax assets reverse. PT Portugal believes that deferred tax assets recorded in the Consolidated Statement of Financial Position are recoverable either through its future taxable income, based on the Group’s budget for the full year 2015 and projections of results for the subsequent years adjusted for differences between the accounting and taxable earnings and for certain financial operations to be undertaken in the future, or through the reversal of deferred tax liabilities.

20.2. Reconciliation of income tax The reconciliation between the nominal and the effective income tax expense for the years ended 31 December 2014 and 2013 is as follows: Euro 2014 2013 Income before taxes (2,535,099,168) (52,740,060) Statutory tax rate (i) 23.0% 25.0% (583,072,809) (13,185,015) Permanent differences (ii) 569,789,690 (43,492,244) Difference in tax rates (iii) 4,102,415 28,020,873 Provisions for income tax contingencies 10,790,837 1,871,987 Adjustments to the income taxes of previous years 9,073,710 (2,250,839) Change in tax rate (iv) 16,467,027 13,636,250 Deferred tax assets not recgnised in the period (Note 20.1) 24,049,955 - Tax consolidation gain recorded directly at PT SGPS (v) - 93,882,936 51,200,825 78,483,948 Income tax Income tax-current 75,675,197 98,779,513 Deferred taxes (24,474,372) (20,295,565) 51,200,825 78,483,948

(i) The tax rate applied for purposes of the tax rate reconciliation corresponds to the tax rate applicable to the major portion of the results included in the consolidated financial statements, which in both years corresponds to the tax losses recorded by PT Comunicações (taxable at the base tax rate applicable in each year), which in 2014 already include the earnings of Meo, S.A. (former TMN) and in 2013 exceed the profits recorded by Meo, S.A. (ii) In the year ended 31 December 2014, this caption includes primarily the tax effect over the following non-deductible losses (Notes 15 and 31): (1) the net loss recorded in connection with the disposal of Bratel BV (Euro 950 million); (2) the impairment loss recorded on the Portuguese businesses (Euro 867 million); (3) the portion of the impairment loss on Rio Forte investments recorded by PT Finance (Euro 402 million), because the remaining portion recorded by PT Portugal is tax deductible; (4) the loss recorded in connection with the acquisition of PT Participações (Euro 69 million); (5) PT Portugal share’s in the losses of joint ventures (Euro 36 million); and (6) certain financial expenses (interest expenses and foreign currency losses) non-deductible for tax purposes. In the year ended 31 December 2013, this caption reflects primarily the tax effect on the non-taxable gain of Euro 134 million related to the settlement of contractual obligations assumed in connection with the acquisition of the investment in Oi (Note 15). (iii) In 2013, this caption corresponds mainly to the impact of the difference between the base tax rate applicable in Portugal of 25% and other higher tax rates applicable to certain Portuguese entities that presented taxable profits, namely Meo, S.A. (former TMN) that recorded a taxable profit higher than Euro 35 million that was therefore taxable at the maximum tax rate of 31.5%. In 2014, as a result of the merger of Meo, S.A. (former TMN) in PT Comunicações, both apply the same tax rate that was used in the presentation of this tax rate reconciliation, as a result of which this caption has lower amounts. (iv) This caption includes the impacts of changes in tax rate resulting from (1) legal changes approved in December 2014 and 2013, as explained above, and (2) the merger of Meo, S.A. in PT Comunicações, as a result of which the first remeasured its deferred taxes based on the tax rate applicable to the second. (v) This caption corresponds to the tax losses recorded by several subsidiaries of PT Portugal (mainly PT Comunicações), which were recorded as a gain resulting from the tax consolidation in the standalone financial statements of PT SGPS, the parent-company of the tax consolidation regime in 2013. Therefore, these gains were not recorded by the entities that originated those losses.

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21. Non-controlling interests

During the years ended 31 December 2014 and 2013, the movements in non-controlling interests were as follows:

Euro Acquisitions (disposals) and share capital Currency Balance increases Net translation Other Balance 31 Dec 2013 (reductions) (i) income Dividends adjustments movements 31 Dec 2014 Africatel - 362,741,635 (25,706,451) - 1,213,997 736,226 338,985,407 MTC - 56,024,238 16,931,942 (23,700,242) 2,815,481 (209,845) 51,861,574 Cabo Verde Telecom - 37,981,629 718,750 (1,476,262) - (738,131) 36,485,986 Timor Telecom - 12,180,687 477,616 - 1,759,590 10,996 14,428,889 CST - 8,291,784 107,049 - - - 8,398,833 TPT - 3,687,024 138,146 - - 531,444 4,356,614 ELTA - 2,537,822 387,467 - 393,740 (8,263) 3,310,766 LTM - 2,431,417 818,882 (1,378,627) 293,070 (11,744) 2,152,998 Kenya Postel Directories - 680,456 (584,010) - 28,614 (1,250) 123,810 Previsão - 451,000 853 - - (12,539) 439,314 Bratel Brasil (ii) 32,105,727 (33,470,179) - - 1,364,452 - - Infonet Portugal 45,726 22,340 (26,419) - - (41,647) - 32,151,453 453,559,853 (6,736,175) (26,555,131) 7,868,944 255,247 460,544,191 (i) Except in relation to Bratel Brasil, this caption corresponds to the non-controlling interests of the businesses acquired by PT Portugal during the period in connection with the acquisition of PT Participações, which controlls African and other international businesses but does not have a 100% interest of those businesses. (ii) As at 31 December 2013, the shareholders of Bratel Brasil were Bratel BV (98.8%), which as of that date wholly-owned by PT Portugal indirectly through PT Móveis, and Portugal Telecom (1.2%). The reduction in this caption is basically related to the disposal of Bratel BV completed on 2 May 2014 (Note 1).

Euro Currency Balance Net translation Other Balance 31 Dec 2012 income adjustments movements 31 Dec 2013 Bratel Brasil 36,873,807 1,796,335 (6,485,463) (78,952) 32,105,727 Infonet Portugal 132,108 (86,382) - 45,726 37,005,915 1,709,953 (6,485,463) (78,952) 32,151,453

22. Loss per share

Earnings per share for the years ended 31 December 2014 and 2013, were computed as follows: Euro 2014 2013 Net income attributable to equity holders of the parent (1) (2,579,563,818) (132,933,961) Weighted average common shares outstanding in the period (2) 50,000 50,000

Earnings per share attributable to equity holders of the parent (1)/(2) (51,591) (2,659)

There are no situations that create a dilutive effect, so the diluted losses per share are the same as basic losses per share.

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23. Short-term investments

This caption consists of short-term financial applications which have terms and conditions previously agreed with financial institutions. As at 31 December 2014 and 2013, the composition of this caption is as follows: Euro 2014 2013 Debentures (i) - 112,663,516 Other short-term investments 6,857,791 - 6,857,791 112,663,516 (i) This caption corresponds to debentures subscribed by Bratel Brasil that had a maturity of approximately one year. Following the disposal of Bratel BV on 2 May 2014, PT Portugal no longer consolidates Bratel Brasil as from that date.

24. Accounts receivable - trade

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Accounts receivable - trade: Accounts receivable from customers 876,051,329 840,956,374 Unbilled revenues 54,886,696 113,954,555 Sub-total 930,938,025 954,910,929 Adjustments for doubtful accounts receivable - trade (Note 41) (215,957,222) (216,133,273) 714,980,803 738,777,656 Non-current accounts receivable - trade: Other non-current accounts receivable 667,319 204,316 667,319 204,316

25. Accounts receivable - other

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Current accounts receivable - other Advances to suppliers 12,429,932 10,573,717 Receivables from related parties (i) 4,376,245 89,351,552 Other (ii) 197,903,698 151,369,712 Sub-total 214,709,875 251,294,981 Adjustments for other current accounts receivable (Note 41) (10,415,106) (8,367,288) 204,294,769 242,927,693 Non-current accounts receivable - other Other non-current accounts receivable 828,540 - 828,540 -

(i) As at 31 December 2013, this caption includes mainly balances receivable from PT Group companies that were acquired by PT Portugal from PT SGPS in 2014, entities that therefore were not consolidated in the Company’s 2013 consolidated financial statements. (ii) On 31 December 2014, this caption includes (1) receivables totalling Euro 88 million relating to the compensation for the negative margin supported by Meo Comunicações under the provision of the universal service between 1 January 2007 and 1June 2014, date as from which the universal service has been assigned to another operator, (2) accrued income with Fundação das Comunicações Móveis related to the programme e-escolas, amounting to approximately Euro 49 million, which primarily relate to 2010 and prior, and (3) government grants to be received amounting to Euro 16 million.

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26. Inventories

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Merchandise (i) 47,323,353 72,066,627 Raw materials and consumables 32,963,500 26,836,054 Work in progress 1,136,733 (413,916) Sub-total 81,423,586 98,488,765 Adjustments for obsolete and slow-moving inventories (Note 41) (20,623,313) (28,834,052) 60,800,273 69,654,713 (i) This caption includes mainly mobile terminal equipments and fixed telephones, modems (internet access through ADSL) and set-top boxes from the telecommunications business in Portugal.

27. Taxes receivable and payable

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Receivable Payable Receivable Payable Current taxes Value-added tax 11,128,900 35,027,635 6,644,547 38,816,150 Income taxes (i) 66,685,233 6,502,504 619,380 774,349 Personnel income tax witholdings - 8,807,062 - 9,052,410 Social Security Contributions - 10,354,452 - 10,545,930 Other 534,628 1,732,869 - 637,371 78,348,761 62,424,522 7,263,927 59,826,210 Taxes in foreign countries 7,061,274 (2,423,377) 1,492,012 2,227,234 85,410,035 60,001,145 8,755,939 62,053,444 Non-current taxes Taxes in foreign countries 21,123 - 22,356 -

(i) The increase in this caption is primarily explained by income tax receivable related to investment tax incentives, which were previously recorded at Portugal Telecom in connection with its tax consolidation group and were transferred for each entity that realized those investments upon the termination of the tax consolidation group of Portugal Telecom (Note 47).

28. Prepaid expenses

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Interest paid in advance (i) 14,812,254 6,050,419 Rentals 5,543,831 5,860,647 Maintenance and repairs 2,793,910 3,288,777 Direct costs 5,802,255 5,841,850 Marketing and publicity expenses paid in advance (ii) 4,425,350 67,025 Other 7,750,115 7,183,391 41,127,715 28,292,109

(i) The increase in this caption is primarily explained by the contribution from PT Finance, an entity that was acquired by PT Portugal on 5 May 2014 and consolidated since then. (ii) This caption relates mainly to sponsorships paid in advance to football clubs that are recognized in the Income Statement during the period for which those sponsorships were attributed. These sponsorships are recorded at PT Centro Corporativo, which was acquired in March 2014 by PT Portugal from PT SGPS.

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29. Other current assets

As at 31 December 2014 and 2013, other current assets amounted to Euro 388.9 million and Euro 0.7 million, respectively. The balance as at 31 December 2014 includes primarily a total amount of Euro 387.6 million corresponding to the fair value of Oi shares to be received by PT Portugal and PT Finance under the agreement entered into with PT SGPS for the exchange with the debt securities issued by Rio Forte Investments, SA ("Rio Forte") held by these two entities. The notional value of debt securities issued by Rio Forte amounted to Euro 897 million, including: - Euro 200 million subscribed by Portugal Telecom on 15 April 2014 and with maturity date on 15 July 2014, which were transferred to PT Portugal on 5 May 2014 as part of PT Assets to be contributed to the Oi share capital increase (Note 1), and included as payments resulting from other investing activities in the Consolidated Statement of Cash Flows; - Euro 647 million and Euro 50 million subscribed by PT Finance on 15 and 17 April 2014 and with maturity date on 15 and 17 July 2014, which were consolidated as from 5 May 2014 following the acquisition of PT Finance by PT Portugal (Note 1).

The above mentioned commercial paper was not repaid by Rio Forte on the respective maturity dates and as a result Oi, PT Portugal and PT Finance reached an agreement with Portugal Telecom for the exchange of the Rio Forte debt securities totalling Euro 897 million for 47,434,872 ordinary shares and 94,869,744 preferred shares from Oi (after the reverse stock split undertaken by Oi in December 2014) held by PT SGPS. Following the approval of this exchange agreement at the General Shareholders Meeting of PT SGPS held on 8 September 2014, the definitive agreements were concluded between the parties involved and therefore the Company chose to remeasure the investments in debt securities of Rio Forte at the fair value of Oi shares to be received under the exchange agreement, based on the corresponding market quote of those shares. On 31 December 2014, under that agreement, the recoverable value of these investments amounted to Euro 387.6 million, as a result of which an impairment loss of Euro 516.9 million (Note 15) was recorded, corresponding to the difference between the fair value and the notional value of these investments plus accrued interests amounting to Euro 7.6 million.

In connection with the exchange agreement mentioned above, PT Portugal and PT Finance granted to PT SGPS a call option on Oi shares that allows PT SGPS to repurchase the shares of Oi delivered under the exchange agreement (with an exercise price of R$20.1 for ON shares and R$18.5 for PN shares). The main features of this call option are: - The option is an American-type call (“Call”) and will be adjusted by the Brazilian CDI rate plus 1.5% per year; - The Call on the Oi Call Shares will become effective on the date of the Exchange, with a 6-year maturity, and the Oi Call Shares that PT SGPS has the right to call will be reduced by 10% at the end of the first year and by 18% per year thereafter; - Any proceeds received as a result of a monetization of the Call through the issuance of derivatives or back to back instruments must be used to exercise the Call; - PT SGPS can only acquire Oi or CorpCo shares through the exercise of the Call; - The Call would be cancelled should (i) PT SGPS’s bylaws be voluntarily amended to remove the 10% voting limitation, (ii) PT SGPS act as a competitor to Oi, or (iii) PT SGPS breach certain obligations under the definitive documentation.

Under the terms of the call option agreement mentioned above, Oi is jointly liable for all the obligations included in the agreement. The purchase and sale agreement entered into between Oi and Altice excludes from its object the Rio Forte debt securities, the exchange agreement and the call option agreement. PT Portugal thus believes that eventual obligations resulting from the call option agreement are outside its scope, and consequently did not record any liability in these financial statements. As at 31 December 2014, the estimated market value of this call option amounted to Euro 35 million, which was determined based on the “Black-Scholes” model and the theoretical assumptions regarding share volatility, using the valuation Income Approach included in item B10 and B11 of IFRS 13 Fair Value Measurement.

On 31 December 2014, the execution of both the exchange and the call option agreements mentioned above was pending the approval by Brazilian Securities Commission, Comissão de Valores Mobiliários (“CVM”). On 4 March 2015, CVM approved both

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agreements provided that those agreements should be approved at Oi’s General Shareholders Meeting, scheduled for 26 March 2015. Based on the exchange agreement entered into on 8 September 2014 and on the assumption such agreement will be approved at the Oi’s General Shareholders Meeting to be held on 26 March 2015, the Company decided to measure the investments in debt securities of Rio Forte based on the fair value of Oi shares to be received under that agreement.

After the approval and execution of the exchange agreement, PT SGPS will be the only responsible for negotiations with Rio Forte and the decisions on these investments. Oi, as controlling shareholder of PT Portugal, will provide to PT SGPS any necessary supporting documentation to allow this entity to adopt the measures necessary for the recovery of claims relating to these investments.

30. Non-current assets held for sale

As at 31 December 2014, this caption amounts to Euro 2,297,612,140 and corresponds to the book value of the investments in Africa, Timor and the respective parent holding companies. These investments were classified as held for sale following the decision took by the Board of Directors of Oi in September 2014 to authorize Oi’s management to undertake the necessary measures for the disposal of interests in international businesses. On 31 December and 1 January 2013, this caption amounts to Euro 4,653,741 and Euro 5,069,882, respectively, corresponding to the carrying value of the investments in Sportinveste and CTM, as explained below.

These investments were recorded by the corresponding carrying value, since the Company believes that the carrying value is lower than market value less cost to sell.

a) CTM On 13 January 2013, as mentioned in Note 1, PT SGPS entered into a definitive agreement for the sale to CITIC Telecom of its 28% equity stake held in CTM and as such this investment was classified as a non-current asset held for sale as at 31 December 2012. The 28% stake in CTM was held by PT Participações (25%) and PT Comunicações (3%). Since PT Participações was only acquired by PT Portugal on 2 May 2014, through PT Móveis, the impact of this transaction on these consolidated financial statements resulted only from the sale realized by PT Comunicações for a total amount of Euro 36 million (Note 46), in connection with which a gain of Euro 33 million (Note 32) was included in the Consolidated Income Statement for the year ended 31 December 2013.

b) Sportinveste On 20 December 2012, Portugal Telecom reached an agreement on a number of transactions that would allow Portugal Telecom to have a 25% stake in a joint-venture that would combine Sport TV Portugal S.A. (“Sport TV”), Sportinveste Multimédia SGPS, S.A. (“Sportinveste Multimédia”) and P.P. TV - Publicidade de Portugal e Televisão, S.A. (“PPTV”). As a result of this agreement, the investment in Sportinveste, which was transferred from Portugal Telecom to PT Comunicações in December 2013, was classified in these consolidated financial statements, as a non-current asset held for sale only as at 31 December 2013, as the investment in this entity was still recorded at PT SGPS on 31 December 2012.

These corporate transactions were subject to the approval of the respective authorities, particularly the Competition Authority. On 1 August 2014, the Competition Authority notified the Company that it had rejected this business combination, as a result of which this investment is no longer classified as held for sale on 31 December 2014, and instead is included under the caption "Investments in associates".

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c) Investments in Africa and Asia Following the decision of the Board of Directors of Oi taken in September 2014 (Note 1) to authorize the Oi’s management to undertake the necessary measures for the disposal of the interests in international businesses, these investments were classified as held for sale on 31 December 2014. The investments classified as held for sale include:  Controlled entities in Africa, namely the entities Mobile Telecommunications Limited based in Namibia, Cabo Verde Telecom based in Cape Verde, Companhia Santomense de Telecomunicações based in São Tomé, Lista Telefónicas de Moçambique based in Mozambique and ELTA – Empresa de Listas Telefónicas de Angola;  Non- controlled entities in Africa, namely the investment in associated company Multitel and the investment in Unitel, which is measured as available for sale but presented as held for sale;  The investment in Timor Telecom, a controlled entity in East Timor.  The investments in controlling holdings of the above businesses, namely PT Participações, Africatel Holdings BV, Africatel GmBH, PT Investimentos and Directel.

Exhibits I contains further information on the above investments, including direct and effective interests of PT Portugal in each entity classified as held for sale as well as the activity of each of these companies.

As at 31 December 2014, the detail of assets and liabilities classified as held for sale by class is as follows:

Euro million Total Assets held for sale Cash and cash equivalents 50 Accounts receivable 95 Dividends receivable from Unitel (i) 390 Investment in Unitel (i) 1,328 Goodwill (ii) 122 Intangible assets 117 Tangible assets 157 Other assets 39 Total 2,298 Liabilities held for sale Loans and Financings 26 Suppliers 32 Accrued expenses 17 Deferred income 44 Taxes payable 56 Deferred taxes 84 Other liabilities 5 Total 264 Net assets 2,034 Non-controlling interests 460 Total equity 1,574

(i) As mentioned in Note 1, this investment continues to be measured as available for sale and the corresponding the fair value at 31 December 2014 is based Banco Santander (Brasil) valuation report (Note 1). In order to assess the fair value of Unitel as at 31 December 2014, the Company considered a discount rate of approximately 13% and a growth rate in perpetuity of 1.5%. As at 31 December 2014, the investment in Unitel, amounting to Euro 1,328 million, plus dividends receivable from this entity in the amount of Euro 390 million, amount to Euro 1,718 million, which, net of the 25% share of non-controlling interests, results in a net exposure of Euro 1,288 million. (ii) For the purpose of impairment analysis, goodwill was allocated to cash-generating units that correspond to several entities the acquisition of which generated this goodwill. The recoverable amount was determined from the respective value in use through a discounted cash flows methodology, using projected cash flows internally prepared for a 4-year period. No impairment losses were recorded as a result of this analysis. For the most relevant investments, the discount rates applied to projected cash flows, which were determined taking into account the risk associated with each business, and the growth rates used to extrapolate cash

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flow projections beyond the horizon time covered by the forecasts determined internally (terminal value), were as follows (the figures correspond to the minimum and maximum rates considered in the tests performed for each investment): Discount rate Growth rate in perpetuity MTC 12.5% - 14.5% 2.5% - 3.0% CVT 14.5% - 16.5% 1.5% - 2.0% Timor Telecom 10.9% - 12.9% 3.0% - 3.5%

Risks relating to the investments in Unitel and other international operations The investment in Unitel, entity that renders mobile telecommunication services in Angola, is held by PT Ventures through a 25% direct interest. PT Ventures is a wholly-owned subsidiary of PT Portugal’s 75% owned subsidiary Africatel Holdings B.V., thus resulting in an economic interest of 18.75% held by the Group in Unitel (Note 1).

Following the acquisition of PT Participações on 2 May 2014, entity that holds indirectly the investment in Unitel, PT Portugal concluded that its minority interest in Unitel does not provide it significant influence over the financial, operational and strategic policies, as PT Ventures does not have representativeness in the Board of Directors of Unitel that allows it to participate in the process of setting those policies, including decisions about dividend payments, relevant trade relations or exchange of key personnel. Accordingly, the Company recognized the investment in Unitel as available for sale at fair value, in accordance with IAS 32 and IAS 39.

As from September 2014, as mentioned above, the businesses in Africa, including Unitel, were classified as held for sale and presented as such in these consolidated financial statements. According to the provisions of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the investment in Unitel was measured on 31 December 2014 as an asset available for sale, and a fair value of Euro 1,328 million was recorded, corresponding to the valuation of this business undertaken by Banco Santander in connection with the complete valuation as of the 21 February 2014 of all businesses to be contributed to the Oi share capital increase of 5 May 2014 (Note 1), since the Company concluded that there was no significant difference between the fair value based on that valuation report and the fair value as at 31 December 2014 calculated based on the same methodology using updated assumptions.

Following the acquisition of PT Participações, PT Portugal is subject to the risks inherent to the operations and investments of PT Participações, including those risks relating to the investment in Unitel and other foreign operations described below.

The carrying value of the indirect investment in Unitel in PT Portugal’s financial statements represents a majority of the purchase price of PT Participações. Any reduction in the value of this investment could have a material adverse effect on the Company’s business, financial condition and results of operations. The fair value of the investment in Unitel (Euro 1,328 million) and the dividends receivable from this entity (Euro 390 million), net of the 25% non-controlling interest of Africatel Holdings, represents a major portion of the total amount paid for the acquisition of PT Participações and is higher than the Company’s shareholders’ equity. Subsequently, the carrying value of the Company’s indirect investment in Unitel will be measured at fair value and tested for impairment, when events or changes in circumstances indicated that the carrying value of the indirect investment in Unitel might be lower. Regarding the recoverable amount in December 2014, the Company assessed changes in certain assumptions of the initial valuation, namely related to the depreciation of the Kwanza against the Dollar occurred in the beginning of 2015, the revision in March 2015 of the credit rating assigned by Moody’s to Angola, from “stable” to “negative” outlook, although the overall rating was maintained at Ba2, and the introduction of a new contribution over foreign currency operations to outside Angola. Other economic measures applicable in Angola and out of the Company’s

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control might result in the change of the carrying value of the investment in Unitel. Any change in the fair value of the indirect investment in Unitel could have a material adverse effect on the Company’s businesses, financial position and operating results.

PT Portugal cannot assure that PT Ventures will realize the amounts receivable recorded with respect to the declared and unpaid dividends owed to PT Ventures by Unitel or be able to obtain dividends that may be declared with respect to 2013 or succeeding fiscal years. Since November 2012, PT Ventures has not received any payments for outstanding amounts owed to it by Unitel with respect to dividends declared by Unitel for fiscal years 2012, 2011 and 2010. Unitel declared dividends in an aggregate amount of US$190.0 million with respect to its 2012 fiscal year, US$190.0 million with respect to its 2011 fiscal year and US$157.5 million with respect to its 2010 fiscal year. As of the date of these consolidated financial statements, PT Ventures has not received US$93.8 million of the dividends declared by Unitel with respect to Unitel’s 2010 fiscal year, and has not received any of the dividends declared by Unitel with respect to Unitel’s 2011 and 2012 fiscal years. Consequently, as at 31 December 2014, PT Ventures has dividends receivable from Unitel totalling US$474 million, equivalent to Euro 390 million.

At a general meeting of Unitel held on 4 November 2013, the other shareholders discussed the financial statements as well as the payment of dividends with respect to the fiscal year of 2013. PT Ventures was unable to attend that meeting because the financial statements and the other rele vant information about the meeting were not included in the prior notice for the meeting, nor were they made available to PT Ventures, despite the fact that PT Ventures requested those materials on several occasions. In addition, PT Ventures has not received the minutes of the meeting nor has it been informed about the decisions taken, in spite of PT Ventures’ several requests.

As of the date of this annual report, Unitel has not declared dividends with respect to the fiscal year ended 31 December 2014.

On 25 March 2014, Unitel issued a statement claiming that PT Ventures is not listed on the shareholders’ register of Unitel, and that the board of directors of Unitel had notified PT SGPS about the existence of an irregularity, which purportedly resulted in Unitel being unable to distribute dividends to PT Ventures until the resolution of this irregularity. In June 2014, PT Ventures (formerly known as Portugal Telecom Internacional, SGPS, S.A.) resolved the alleged irregularity with the Angolan Foreign Investment Institute. On 3 June 2014, PT Ventures was issued a Foreign Investment Certificate endorsing its current name.

PT Ventures has demanded an explanation from Unitel on several occasions regarding its failure to pay to PT Ventures its portion of declared dividends. As of the date of this annual report, PT Ventures has not received a satisfactory explanation regarding this failure to pay, nor has PT Ventures received reliable indications as to the expected timing of the payment of the accrued dividends.

The Company has no assurance about the timing of the payment of these dividends. The Company’s inability to receive these dividends could have a material adverse impact on PT Portugal’s financial position and results of operations.

The other shareholders of Unitel have indicated to PT Ventures that they believe that Portugal Telecom’s sale of a minority interest in Africatel did not comply with the Unitel shareholders’ agreement. The Unitel shareholders’ agreement provides a right of first refusal to the other shareholders if any shareholder desires to transfer any or all of its shares of Unitel, other than transfers to certain affiliated companies. The agreement also provides that if any shareholder is proven to be in breach of a material obligation under the Unitel shareholders’ agreement, the other shareholders will have a right to purchase that shareholder’s stake in Unitel at its net asset value.

The other shareholders of Unitel have asserted to PT Ventures that they believe that Portugal Telecom’s sale of a minority interest in Africatel during 2007 was in breach of the Unitel shareholders’ agreement. PT Ventures disputes this interpretation of the relevant

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provisions of the Unitel shareholders’ agreement, and PT Portugal, based on external legal advice, believes that the relevant provisions of the Unitel shareholders’ agreement apply only to a transfer of Unitel shares by PT Ventures itself.

As of the date of this annual report, and to the best knowledge of the Company, no lawsuits have been initiated in relation to the sale of a minority interest in Africatel by Portugal Telecom. If the other shareholders of Unitel were to assert this right in an appropriate forum and a binding decision to this effect were to be rendered in favour of those shareholders, PT Portugal could be required to sell the interest in Unitel at a price significantly less than the amount recorded in these consolidated financial statements with respect to the indirect investment in Unitel. The sale of PT Ventures’ interest in Unitel in these circumstances could have a material adverse impact in PT Portugal’s financial condition and results of operations.

Other shareholders of Unitel aledge that, as a result of the inability of Portugal Telecom to offer its indirect interest in Unitel to those shareholders before the transfer of PT Portugal to Oi, those shareholders would have the right to acquire PT Portugal’s investment in Unitel for the carrying value of its net assets. On 25 March 2014, Unitel issued a public statement in which Unitel implied that its shareholders had a right of first refusal related to PT SGPS’ then-pending sale of its indirect interest in Unitel to our company. Subsequently, the other shareholders of Unitel delivered a notice to PT SGPS in which they claimed that our indirect acquisition of PT Ventures’ interest in Unitel as part of the Oi capital increase would trigger this right. The Company believes that the relevant provisions of the Unitel shareholders’ agreement would apply only to a transfer of Unitel shares by PT Ventures itself.

As of the date of this annual report, we have not been notified of any proceedings initiated with respect to PT SGPS’s failure to offer its indirect interest in Unitel to the other shareholders of Unitel prior to our acquisition of PT Portugal. If the other shareholders of Unitel were to claim that PT SGPS’ failure to offer its indirect interest in Unitel to those shareholders resulted in a breach of the Unitel shareholders’ agreement, and if a binding decision by an appropriate forum to this effect were to be rendered in favor of those shareholders, PT Ventures could be required to sell for its interest in Unitel for its net asset value, which is significantly lower than the amount that we record in our financial statements with respect to our indirect investment in Unitel. The sale of PT Ventures’ interest in Unitel under these circumstances would have a material adverse impact on our financial condition and results of operations.

The other shareholders of Unitel have prevented PT Ventures from exercising its governance rights to nominate the managing director and a majority of the board of directors of Unitel. Under the Unitel shareholders’ agreement, PT Ventures is entitled to nominate three of the five members of Unitel’s board of directors, including the managing director of Unitel. Under the Unitel shareholders’ agreement, the appointment of the managing director of Unitel is subject to the approval of the holders of 75% of Unitel’s shares. However, the other shareholders of Unitel have failed to vote to elect the directors nominated by PT Ventures at Unitel’s shareholders meetings, and as a result, PT Ventures’ representation on Unitel’s board of directors has been reduced to a single director since June 2006, and the managing director of Unitel has not been a nominee of PT Ventures since June 2006.

On 22 July 2014, the only member of Unitel’s board of directors that had been appointed by PT Ventures resigned from his position, and the other shareholders of Unitel have not permitted PT Ventures to appoint a replacement. In November 2014, the other shareholders of Unitel notified PT Ventures that its rights as a shareholder of Unitel had been purportedly suspended in October 2012, although these other shareholders have not indicated any legal basis for this alleged suspension. At a general shareholders meeting on Unitel held on 15 December 2014, an election of members of the board of directors of Unitel was held. At this meeting, Unitel’s other shareholders claimed that PT Ventures was not entitled to vote as a result of the alleged suspension of its rights as a shareholder of Unitel in October 2012, and they refused to elect the member nominated by PT Ventures to Unitel’s board of directors.

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PT Ventures has filed a suit in Angolan court to annul the results of the election of members of the Unitel board of directors on 15 December 2014. As of the date of this annual report, no nominee of PT Ventures serves on the Unitel board of directors.

Unitel has granted loans to a related party and entered into a management contract with a third-party without the approval of PT Ventures. Under the Unitel shareholders’ agreement, Unitel is not permitted to enter into any contracts with its shareholders or any of their affiliates unless approved by a resolution of its board of directors adopted by at least four members of its board of directors. As a result of the inability of PT Ventures to appoint its additional two members of the Unitel board of directors, PT Ventures is unable to exercise its implied veto right over related party transactions of Unitel.

Between May and October 2012, Unitel made disbursements to Unitel International Holdings B.V. of Euro 178.9 million and US$35.0 million under a “Facility Agreement” entered into between Unitel and Unitel International Holdings B.V., an entity that competes with Portugal Telecom in Cabo Verde and in São Tomé and Principe, or Unitel Holdings. Unitel Holdings is controlled by Mrs. Isabel dos Santos, an indirect shareholder of Unitel, and according to information made public by NOS, one of the indirect controlling shareholders of ZOPT, SGPS, S.A. (which holds a majority of the voting and total share capital of NOS), one of the principal competitors of Portugal Telecom in Portugal. PT Ventures’ representative on the Unitel board of directors voted against these transactions at the time of their proposed execution by Unitel, and PT Ventures abstained when the consolidated financial statements of Unitel that included these transactions were approved by the other Unitel shareholders at a shareholders meeting.

Unitel has made additional loans to related parties during 2013. The Company has been unable to obtain information with respect to the existence of similar transactions during 2014.

Any failure by Unitel International Holdings B.V. to make timely payment under this Facility Agreement could have a material adverse effect on the financial condition and results of operations of Unitel and the value of the Compny’s indirect investment in Unitel.

In addition, Unitel has recorded a management fee of US$155.7 million payable to a third-party in its unaudited stand-alone financial statements for the year ended 31 December 2013 prepared under Angolan GAAP. This management fee was not presented to the board of directors or shareholders’ meeting of Unitel for approval and was not approved by PT Ventures. The payment of this management fee by Unitel could have a material adverse effect on the financial condition and results of operations of Unitel and therefore the value of our indirect investment in Unitel.

The Company cannot assure that will be able to successfully appoint additional members to the Unitel board of directors and therefore prevent Unitel from taking actions that would require the approval of the members of the Unitel board of directors nominated by PT Ventures, including approving related party transactions with the other shareholders that we believe are detrimental to the financial condition and results of operations of Unitel. The use of the resources of Unitel in this manner could have a material adverse impact on Unitel, as well as the value of the Company’s investment in Unitel and its financial position and results of operations of Unitel and therefore the value of our investment in Unitel.

The other shareholders of Unitel have attempted to dilute our indirect ownership of Unitel through a capital increase in which we could be technically unable to participate, and have called meetings at which they have indicated the desire to unilaterally amend the bylaws of Unitel and the Unitel shareholders’ agreement. At a general shareholders meeting of Unitel held on December 15, 2014, the other shareholders of Unitel voted to increase Unitel’s share capital and alter the nominal value of its shares. Although PT Ventures requested the proposal and other relevant information in respect with this and other items in the agenda of the meeting on several occacions, PT Ventures has never been provided with such documents and information. The details of this capital increase are obscure as they were not included in the prior notice for

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this meeting nor were they discussed in detail during this meeting. Additional details of this capital increase have been included in draft minutes of this meeting provided to PT Ventures and it appears that, although PT Ventures has determined to subscribe to its pro rata share of this capital increase to avoid dilution of its interest in Unitel, payment of the subscription price will be due on an accelerated timetable that would not permit PT Ventures to obtain the necessary foreign exchange approvals prior to the date on which payment would be due. PT Ventures has filed a suit in Angolan court to annul the approval of the Unitel capital increase at this shareholders meeting.

The agenda of this general shareholders meeting of Unitel included amendments to Unitel’s by-laws and the purported amendments to Unitel shareholders’ agreement, in addition to other matters that may have been raised at the shareholders’ meeting itself, which inluded investments by Unitel in Zimbabwe and a study in order to implement a corporate reorganization of Unitel. PT Ventures has not been provided of the details of the proposed bylaw amendments nor of any purported amendments to the Unitel shareholders’ agreement, despite its several requests before, during and after the meeting held on 15 December 2014. The meeting was suspended without any action taken on these items and is expected to be reconvened on 9 April 2015. PT Ventures has filed a suit in Angolan court to annul the approval of investments by Unitel in Zimbabwe and a study in order to implement a corporate reorganization of Unitel.

The Company cannot assess the impact to Unitel or to the Company of the matters considered at the 15 December 2014 general shareholders meeting of Unitel or the proposed amendments to Unitel’s by-laws and purported amendmnets to the Unitel shareholders’ agreement as we have not been provided with sufficient details to appropriately analyze these matters. In addition, we note that there appears to be no legal authority for the other shareholders of Unitel to amend the Unitel shareholders’ agreement through actions taken at a meeting of shareholders, as this agreement is an agreement among the parties thereto. Should the other shareholders approve actions detrimental to Unitel or our investment in Unitel, these actions could have a material adverse impact on the financial position and results of operations of Unitel and therefore the value of the Company’s investment in Unitel.

Unitel’s concession to operate in Angola has expired and has not yet been renewed. Unitel’s concession to provide mobile telecommunications services in Angola expired in April 2012. The Company has no assurances regarding the terms under which the Angolan National Institute of Telecommunications (Instituto Angolano das Comunicações), or INACOM, would grant a renewal of this concession, if at all. A failure of Unitel to obtain a renewal of this concession could have a material adverse effect on the ability of Unitel to continue to provide mobile telecommunications services in Angola, which could have a material adverse effect on PT Portugal’s financial position and results of operations the value of our investment in Unitel.

Adverse political, economic and legal conditions in the African and Asian countries in which PT Portugal has investments may hinder the Company’s ability to receive dividends from its African and Asian subsidiaries and investments. The governments of many of the African and Asian countries in which the Company have investments have historically exercised, and continue to exercise, significant influence over their respective economies and legal systems and may enact legal or regulatory measures that restrict the ability of our subsidiaries and investees to make dividend payments to us. Similarly, adverse political or economic conditions in these countries may hinder our ability to receive dividends from our subsidiaries and investees. Historically, PT SGPS has received dividends from the African and Asian subsidiaries and investees, however, a limitation on the Company’s ability to receive a material portion of those dividends could adversely affect our cash flows and liquidity.

In addition, our investments in these regions are exposed to political and economic risks that include, but are not limited to, exchange rate and interest rate fluctuations, inflation and restrictive economic policies and regulatory risks that include, but are not limited to, the process for the renewal of licenses and the evolution of regulated retail and wholesale tariffs. In addition, our ventures in African and Asian markets face risks associated with increasing competition, including due to the entrance of new competitors and the rapid development of new technologies.

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The development of partnerships in these markets raises risks related to the ability of the partners to jointly operate the assets. Any inability of our company and our partners to operate these assets may have a negative impact on our strategy and all of these risks may have material effects on our results of operations.

Joint ventures and partnerships that may not be successful and may expose our company to future costs. The Company is partner to several joint ventures and partnerships in Africa and Asia. The Company’s partnering arrangements may fail to perform as expected for various reasons, including an incorrect assessment of our needs or the capabilities or financial stability of our strategic partners. The Company’s share of any losses from or commitments to contribute additional capital to such partnerships may also adversely affect our results of operations or financial position.

The Company’s ability to work with these partners or develop new products and solutions may become constrained, which could harm our competitive position in the markets served by these joint ventures and partnerships. The Company may have disputes with its partners in these joint ventures, and may have difficulty agreeing with its partners on actions that it believes would be beneficial to those joint ventures and partnerships. In addition, the joint ventures and partnerships in African and Asian countries are typically governed by the laws of those countries, and the Company’s partners are often established participants in those markets and may have greater influence in those economies than we will. To the extent we experience difficulties with our joint venture partners, the Company may encounter difficulties in protecting its investments in those countries.

Any of these factors could cause these joint ventures and partnerships not to be profitable and could cause the Company to lose all or part of the value of its investments in those ventures.

The minority shareholder of Africatel has asserted that our acquisition of PT Portugal triggered its right to require us to purchase its shares of Africatel under the Africatel shareholders’ agreement. The Company indirectly owns 75% of the share capital of Africatel. Samba Luxco S.à.r.l., an affiliate of Helios Investors LLP, or Samba Luxco, owns the remaining 25%. PT SGPS, Africatel GmbH & Co. KG, or Africatel GmbH, and PT Ventures, and Samba Luxco are parties to a shareholders’ agreement.

On 16 September 2014, our subsidiary, Africatel GmbH, which directly holds our interest in Africatel, received a letter from Samba Luxco in which Samba Luxco claimed that Oi’s acquisition of PT Portugal was deemed a change of control of PT SGPS under the Africatel shareholders agreement, and that this change of control entitled Samba Luxco to exercise a put right under the Africatel shareholders’ agreement at the fair market equity value of Samba Luxco’s Africatel shares. In the letter, Samba Luxco purported to exercise the alleged put right and thereby require Africatel GmbH to acquire its shares in Africatel.

On 26 September 2014, Africatel GmbH responded to Samba Luxco stating that there had not been any action or event that would trigger the right to exercise the put option under the Africatel’s shareholders’ agreement and that Africatel GmbH intended to challenge Samba Luxco’s purported exercise of the put option. On the same date, we issued a Material Fact disclosing Samba Luxco’s purported exercise of the put option, our understanding that the exercise of the put option is not applicable, and that our board of directors had authorized our management to take the necessary actions to sell our interest in Africatel.

On 12 November 2014, the International Court of Arbitration of the International Chamber of Commerce notified Africatel GmbH that Samba Luxco had commenced arbitral proceedings against Africatel GmbH to enforce its purported put right or, in the alternative, certain ancillary rights and claims. Africatel GmbH presented its answer to Samba Luxco’s request for arbitration on 15 December 2014. The arbitral tribunal was constituted on 12 March 2015. The Company intends to vigorously defend Africatel GmbH in these proceedings.

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31. Investments in joint ventures

On 2 May 2014, in connection with the ongoing business combination between Portugal Telecom and Oi (Note 1), PT Móveis sold to Portugal Telecom its 100% interest in Bratel BV, the holding company that basically held the investments in Oi and in its controlling shareholders. Consequently, as from 2 May 2014, PT Portugal no longer accounts for the investments in Oi and in its controlling shareholders and its share in the losses of these joint ventures in 2014 relates only to the four months period ended 30 April 2014, while in 2013 corresponds to the year ended 31 December 2013. As at 31 December 2014 and 2013, the detail of the investments in jointly controlled entities is as follows:

Euro 2014 2013 Oi - 2,118,787,696 Financial investment (i) - 1,359,733,793 Goodwill - 759,053,903 Telemar Participações (ii) - 77,257,222 LF (iii) - 118,957,901 AG (iii) - 122,920,481 EISA (iv) 1,811,412 1,531,153 1,811,412 2,439,454,453 (i) As at 31 December 2013, this financial investment reflects the Company’s 15.4% direct interest in Oi’s net assets amounting to Euro 8,162 million. (ii) As at 31 December 2013, PT Portugal held a 12.1% direct interest in Telemar Participações. The investment in Telemar Participações reflected its net assets composed by (1) this company’s investment in Oi through a 18.8% direct interest, and (2) its outstanding gross debt amounting to Euro 942 million. (iii) As at 31 December 2013, PT Portugal held a 35% direct interest in both AG and LF. The investments in these companies reflected their net assets composed by (1) their investments in Telemar Participações through a 19.4% direct interest each and in Oi through a 4.25% direct interest each, and (2) their outstanding gross debt, amounting to Euro 196 million for AG and Euro 199 million for LF. (iv) Ericsson Inovação, S.A. (“EISA”) is an entity providing information system services and is jointly controlled by PT Portugal, through its subsidiary PT Inovação Brasil, and Ericsson, S.A..

The detail of PT Portugal’s share in the earnings and losses of jointly controlled entities in the years ended 31 December 2014 and 2013 is as follows:

Euro 2014 2013 Equity in gains (losses) of joint ventures Oi (i) (13,711,148) 27,955,512 Telemar Participações (ii) (7,648,457) (9,832,620) LF (ii) (9,566,831) (10,415,106) AG (ii) (9,548,587) (9,988,842) EISA 2,491,936 2,318,098 Other 1,550,195 - (36,432,892) 37,042 Net losses related to the disposal/acquisition of investments Disposal of Bratel BV (iii) (949,908,593) - Acquisition of a 6.5% interest in Bratel Brasil (iv) 9,265,254 - (977,076,231) 37,042

(i) A explained above, this caption corresponds to PT Portugal 15.4% direct share in Oi’s losses in the four months period ended 30 April 2014 and in the year ended 31 December 2013. The negative evolution in the results of Oi reflects essentially a gain recognized by Oi in the fourth quarter of 2013 in connection with the sale of the investment in GlobeNet (submarine cable operation), lower operating revenues and higher interest costs and other financial expenses, effects that more than offset the capital gain recorded by Oi in March 2014 in connection with the disposal of mobile telecommunication towers. (ii) PT Portugal’s share in net losses from these entities reflect primarily interest expenses recorded by these holding companies in connection with their outstanding debt and also these entity’s share in the results of Oi. The change in these captions reflect the fact that PT Portugal only accounted for four months of these entity’s interest expenses in 2014, as compared to twelve-months period in 2013, effect partially offset by the negative performance of Oi’s results, as explained above. (iii) As mentioned above, on 2 May 2014, PT Portugal, through its subsidiary PT Móveis, completed the disposal of the 100% interest in Bratel BV to Portugal Telecom (Note 1). Bratel BV, through its subsidiary Bratel Brasil, basically held the investments in Oi and its controlling shareholders. Accordingly, the total net loss recorded by PT Móveis in connection with this transaction was included under this caption as basically reflects the disposal of PT Portugal’s investment in Oi. This total net

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loss amounting to Euro 950 million (Note 1) includes (1) a capital gain of Euro 50 million reflecting the difference between the sale price (Euro 4,195 million) and the carrying value of the total investment in Bratel BV (Euro 4,145 million, already reflecting the share capital increase realized by PT Móveis in Bratel BV prior to the sale, amounting to Euro 1,303 million), and (2) the cumulative amount of negative currency translation adjustments, amounting to Euro 1,000 million, which were generated since the acquisition of the investment in Oi in March 2011 and transferred to net income upon the sale of this investment on 2 May 2014. (iv) As at 31 December 2013, the shareholders of Bratel Brasil were Bratel BV (98.8%) and Portugal Telecom (1.2%). In March 2014, following the contribution in kind of the investments in CTX and Contax to Bratel Brasil, Portugal Telecom increased its interest in Bratel Brasil to 6.5% and, still in March, Bratel BV acquired from Portugal Telecom this 6.5% interest for Euro 172 million (Note 46) and recorded a capital gain of Euro 9 million corresponding to the difference between the carrying value of this investment and the purchase price.

32. Investments in associated companies

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Investments in associated companies 10,876,396 5,142,876 Loans granted to affiated companies 8,352,153 3,117,210 19,228,549 8,260,086

As at 31 December 2014 and 2013, the caption “Investments in associated companies” consists of: Euro 2014 2013 Siresp (i) 4,665,480 - Janela Digital 3,261,730 2,048,674 INESC (ii) 2,992,787 - Hungaro Digitel KFT (i) 2,554,644 - Multicert 260,511 734,468 Other 134,031 2,359,734 13,869,183 5,142,876 Adjustments for investments in associated companies (Note 41) (2,992,787) - 10,876,396 5,142,876 (i) These investments are held direct or indirectly through PT Participações, which was acquired by PT Móveis from PT SGPS on 2 May 2014 in connection with the business combination between PT SGPS and Oi. (ii) As at 31 December 2014, this investment is fully provided.

The purpose of loans granted to associate and other companies is basically to finance its operations and develop new businesses. As at 31 December 2014 and 2013, the detail of these loans, which do not have a defined maturity date, is as follows: Euro 2014 2013 Sportinveste Multimédia (i) 32,618,668 - Yunit 2,228,328 2,228,328 Siresp 1,159,997 - INESC - Instituto de Engenharia de Sistemas e Computadores (ii) 757,758 888,882 Other 150,001 - 36,914,752 3,117,210 Adjustments related to the equity accounting on financial investments (i) (28,562,599) - 8,352,153 3,117,210 (i) On 31 December 2013, the investment in Sportinveste Multimedia was classified as held for sale (Note 30). Adjustments related to the equity accounting on financial investments relate only to the investment in Sportinveste Multimedia and corresponds to accumulated losses resulting from the equity method of accounting that exceed the initial investment, which were accordingly recorded as a reduction of loans granted to this entity. (ii) These loans will be settled through the contribution in kind by INESC of 61,000 shares of Taguspark.

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In the years ended 31 December 2014 and 2013, the detail of the profit and loss caption “Earnings in associated companies, net” is as follows: Euro 2014 2013 Janela Digital 1,213,056 - Multitel 771,530 - Siresp (493,899) - CTM (i) - 32,729,421 Other (643,576) 240,179 847,111 32,969,600 (i) This caption corresponds to gain recorded by PT Comunicações in connection with the sale of its 3% interest in CTM for Euro 36 million (Notes 1, 30 and 46).

33. Other investments

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Real estate investments, net of accumulated amortisation (i) 10,866,760 13,858,289 Other financial investments 20,570,070 2,443,375,292 31,436,830 2,457,233,581 Adjustments for real estate investments (Note 41) (936,496) (871,239) Adjustments for other investments (Note 41) (1,247) (1,247) 30,499,087 2,456,361,095 (i) Real estate investments relate to real estate properties owned by Meo Comunicações that are not used in its operating activities. These assets are recorded at acquisition cost net of accumulated amortization and impairment losses, if any. Meo Comunicações periodically performs impairment analysis on these assets.

On 31 December 2014 and 2013, other financial investments presented above, which for accounting purposes are recognized at cost less impairment losses, are as follows: Euro 2014 2013 FibroGlobal (i) 14,764,000 5,000,000 Tagusparque (ii) 5,380,767 - Notes issued by PT Finance (iii) - 2,438,000,000 Other 425,303 375,292 Sub-total 20,570,070 2,443,375,292 Adjustments for other investments (1,247) (1,247) 20,568,823 2,443,374,045

(i) PT Portugal, through Meo Comunicações, holds a 5% stake in this entity, the activity of which consists of the construction of next generation networks in remote areas and explore these networks through an wholesale offer to all operators and service providers interested. On 31 December 2014, this caption includes a financial investment of Euro 1 million, corresponding to the initial share capital subscription of this entity, and loans granted to this entity, totalling Euro 13,764,000, in order to finance the construction of such networks. (ii) The investment in this entity is held directly by PT Investimentos, a company that was acquired by PT Portugal from PT SGPS during the year 2014 (Note 1). (iii) This item corresponds to debt securities issued by PT Finance and subscribed by CV TEL, as PT Finance was still not consolidated in these financial statements as of 31 December 2013. During the period between1 January and 5 May 2014 , PT Finance repaid a total amount of Euro 1,603 million (Note 46), and, on 5 May 2014, PT Finance was acquired by PT Portugal in connection with the share capital increase of Oi (Note 1) and consolidated in these financial statements since the financial.

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34. Goodwill

On 31 December 2014 and 2013, this caption amounted to Euro 2,856,664,751 and Euro 3,723,664,750 and is related to the goodwill recorded by PT Portugal in 2006 in connection with the acquisition of the investments in PT Comunicações and TMN. As a result of the merger of TMN into PT Comunicações completed in December 2014, the Company believes that its interest in Meo Comunicações represents the lowest level of assets that generate cash flows, and thus it monitors goodwill only at this level, which basically represents the Telecommunications segment in Portugal.

The Company performed the annual impairment test on the goodwill mentioned above based on the Altice offer for the acquisition from Oi of PT Portugal’s domestic businesses (Note 3). Under this analysis, an impairment loss of Euro 867 million (Note 15) was determined as a result of which goodwill was reduced from Euro 3,724 million to Euro 2,857 million. This impairment loss reflects the difference between (1) the value assigned by Altice offer to the enterprise value of domestic businesses (Euro 7.4 billion) reduced by the deferred payment related to future revenues (Euro 0.5 billion), post retirement benefit obligations (Euro 0.9 billion) and other financial liabilities (Euro 0.3 billion), resulting in a total net amount of Euro 5.7 billion, and (2) the carrying value of these same domestic businesses amounting to Euro 6.6 billion, which does not include net debt, investments in debt securities of Rio Forte and investments in international operations, as provided in the Altice offer.

35. Intangible assets

During the years ended 31 December 2014 and 2013, movements in intangible assets were as follows:

Euro Changes in the Foreign currency Transfers Balance consolidation translation and other Balance 31 Dec 2013 perimeter Increases adjustments Helf for sale assets movements 31 Dec 2014 Cost Industrial property and other rights 2,447,709,076 239,311,778 116,699,252 7,182,843 (252,322,702) (25,265,671) 2,533,314,576 Other intangible assets 14,371,572 50,406,206 914,640 (697) (53,131,435) 4,796,143 17,356,429 In-progress intangible assets 12,910,193 6,218,340 9,763,169 45,077 (2,821,837) (19,194,315) 6,920,627 2,474,990,841 295,936,324 127,377,061 7,227,223 (308,275,974) (39,663,843) 2,557,591,632 Accumulated depreciation Industrial property and other rights 1,762,161,793 142,560,871 204,303,797 3,578,600 (153,061,347) (34,662,840) 1,924,880,874 Other intangible assets 10,777,982 35,483,563 8,449,857 17,830 (38,561,268) (4,491,781) 11,676,183 1,772,939,775 178,044,434 212,753,654 3,596,430 (191,622,615) (39,154,621) 1,936,557,057 Total (Note 7.b) 702,051,066 117,891,890 (85,376,593) 3,630,793 (116,653,359) (509,222) 621,034,575

Euro Foreign currency Transfers Balance translation and other Balance 31 Dec 2012 Increases adjustments movements 31 Dec 2013 Cost Industrial property and other rights 2,421,451,582 39,116,641 (135,060) (12,724,087) 2,447,709,076 Other intangible assets 11,825,495 461,462 (28) 2,084,643 14,371,572 In-progress intangible assets 5,262,076 11,230,706 (72,891) (3,509,698) 12,910,193 2,438,539,153 50,808,809 (207,979) (14,149,142) 2,474,990,841 Accumulated depreciation Industrial property and other rights 1,556,333,260 219,380,803 (105,815) (13,446,455) 1,762,161,793 Other intangible assets 7,885,554 2,892,433 (5) - 10,777,982 1,564,218,814 222,273,236 (105,820) (13,446,455) 1,772,939,775 Total (Note 7.b) 874,320,339 (171,464,427) (102,159) (702,687) 702,051,066

35.1 Changes in the consolidated Group and assets held for sale For the year ended 31 December 2014, changes in the consolidation perimeter relate mainly to intangible assets of international businesses, following the acquisition of PT Participações, and PT Centro Corporativo. Additionally, following the decision of the Board of Directors of Oi to sell the international operations (Note 1), intangible assets from those international operations were

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presented under the caption "Non-current assets held for sale" in the Consolidated Statement of Financial Position as of 31 December 2014.

35.2 Increases During the years ended 31 December 2014 and 2013, investments in intangible assets amounted to Euro 127 million and Euro 51 million, respectively. This increase reflects primarily an amount of Euro 55 million capitalized in 2014 relating to the value of the agreement entered into Vodafone for the exclusive access to its PON network.

35.3 Other information regarding intangible assets The net carrying value of the caption “Industrial property and other rights” includes mainly the following items:  Euro 325 million and Euro 343 million as at 31 December 2014 and 2013, respectively, related to 3G and 4G licenses obtained by Meo, S.A. in 2000 and 2011, respectively, corresponding to a gross amount of Euro 500 million net of accumulated depreciation of Euro 175 million. The gross amount includes primarily:

(i) Euro 133 million related to the acquisition of the UMTS license in 2000;

(ii) Euro 242 million capitalized in 2007, following the commitment assumed in 2000 by Meo, S.A. and the other mobile operators of making contributions to the information society during the period through the maturity of the license, and Euro 11.5 million capitalized in 2009 related to additional commitments under the terms of the UMTS license; and

(iii) Euro 106 million related to the 4G license acquired by Meo, S.A. in 2011.  Euro 155 million and Euro 170 million as at 31 December 2014 and 2013, respectively, related to the acquisition of the Basic Network from the Portuguese State, regarding the gross amount capitalised in 2002 amounting to Euro 339 million;  Euro 55 million as at 31 December 2014 related to the agreement entered into with Vodafone for the exclusive access to its PON network, which is being amortized as additional capacity is made available to Meo Comunicações;  Euro 33 million as at 31 December 2013, corresponding to the carrying amount of the value attributed to customer lists of PT Comunicações and Meo, S.A. in 2006, in connection with the purchase price allocation of these investments, which were amortized over a 8-year period that ended on 30 September 2014;  Euro 16 million and Euro 15 million as at 31 December 2014 and 2013, respectively, related to software licenses;  Euro 23 million and Euro 24 million as at 31 December 2014 and 2013, respectively, related to the cost incurred with loyalty contracts with post-paid customers of mobile businesses, which are being amortised over the period of the related rental contracts, corresponding to a two year period;  Euro 21 million and Euro 22 million as at 31 December 2014 and 2013, respectively, related to the commitments assumed by PT Comunicações under the TDT license; and  Euro 2 million and Euro 9 million as at 31 December 2014 and 2013, respectively, related to contracts signed by PT Comunicações in 2007 and 2009 for the acquisition of satellite capacity until 2015, which were recorded as capital leases.

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36. Tangible assets

During the years ended 31 December 2014 and 2013, movements in tangible assets were as follows:

Euro Changes in the Foreign currency Transfers Balance consolidation translation and other Balance 31 Dec 2013 perimeter Increases adjustments Helf for sale assets movements 31 Dec 2014 Cost Land 181,736,438 5,373 1,247 - (8,401) 1,652,788 183,387,445 Buildings and other constructions 913,703,220 27,202,738 11,815,933 2,848,939 (31,156,399) 373,273,400 1,297,687,831 Basic equipment 9,860,627,393 237,470,731 220,592,471 12,880,440 (247,362,230) 507,245,186 10,591,453,991 Transportation equipment 66,191,132 9,765,428 5,908,728 352,094 (7,690,725) (14,648,794) 59,877,863 Tools and dies 19,838,311 1,581,663 108,471 67,403 (1,666,014) (5,879) 19,923,955 Administrative equipment 1,227,209,053 58,966,830 33,237,980 697,055 (21,213,278) (32,779,636) 1,266,118,004 Other tangible assets 47,186,617 16,291,623 896,769 36,395 (16,043,077) 193,100 48,561,427 In-progress tangible assets 148,637,716 7,565,118 39,468,568 91,007 (3,397,584) (107,134,720) 85,230,105 Advances to suppliers of tangible assets 562,661 - - - - 9,577 572,238 12,465,692,541 358,849,504 312,030,167 16,973,333 (328,537,708) 727,805,022 13,552,812,859 Accumulated depreciation Land 9,803,584 - - - - 32,477 9,836,061 Buildings and other constructions 378,027,142 7,658,391 42,381,604 834,382 (9,608,977) 359,186,884 778,479,426 Basic equipment 7,560,020,885 130,045,619 433,853,504 7,377,656 (136,870,437) 464,619,862 8,459,047,089 Transportation equipment 44,435,164 6,435,462 8,196,119 249,834 (4,955,169) (14,259,668) 40,101,742 Tools and dies 19,536,638 1,292,955 234,884 41,994 (1,407,469) (7,482) 19,691,520 Administrative equipment 1,131,590,842 23,325,663 79,495,410 488,668 (16,496,778) (82,729,779) 1,135,674,026 Other tangible assets 44,351,163 2,167,201 1,412,830 35,010 (2,289,576) (892,434) 44,784,194 9,187,765,418 170,925,291 565,574,351 9,027,544 (171,628,406) 725,949,860 10,487,614,058 Total (Note 7.b) 3,277,927,123 187,924,213 (253,544,184) 7,945,789 (156,909,302) 1,855,162 3,065,198,801

Euro Changes in the Foreign currency Transfers Balance consolidation translation and other Balance 31 Dec 2012 perimeter Increases adjustments movements 31 Dec 2013 Cost Land 180,662,809 1,885,579 9,477 - (821,427) 181,736,438 Buildings and other constructions 859,313,160 9,032,430 32,625,284 (48,109) 12,780,455 913,703,220 Basic equipment 9,734,310,404 6,601 298,852,666 (151,795) (172,390,483) 9,860,627,393 Transportation equipment 68,483,758 - 9,844,907 (43,217) (12,094,316) 66,191,132 Tools and dies 19,745,303 - 96,277 - (3,269) 19,838,311 Administrative equipment 1,186,750,301 98,044 32,818,735 (49,985) 7,591,958 1,227,209,053 Other tangible assets 47,310,760 2,614 475,586 (104) (602,239) 47,186,617 In-progress tangible assets 189,799,540 31,338 84,159,024 (19,536) (125,332,650) 148,637,716 Advances to suppliers of tangible assets 562,661 - - - - 562,661 12,286,938,696 11,056,606 458,881,956 (312,746) (290,871,971) 12,465,692,541 Accumulated depreciation Land 9,732,669 - - - 70,915 9,803,584 Buildings and other constructions 338,270,789 3,511,236 47,274,584 (24,481) (11,004,986) 378,027,142 Basic equipment 7,351,331,642 4,367 439,120,901 (100,845) (230,335,180) 7,560,020,885 Transportation equipment 47,863,687 - 6,667,185 (17,768) (10,077,940) 44,435,164 Tools and dies 19,327,574 - 212,332 - (3,268) 19,536,638 Administrative equipment 1,078,012,036 93,762 77,974,372 (33,344) (24,455,984) 1,131,590,842 Other tangible assets 44,047,820 - 1,041,044 (41) (737,660) 44,351,163 8,888,586,217 3,609,365 572,290,418 (176,479) (276,544,103) 9,187,765,418 Total (Note 7.b) 3,398,352,479 7,447,241 (113,408,462) (136,267) (14,327,868) 3,277,927,123

36.1 Changes in the consolidated Group and assets held for sale For the year ended 31 December 2014, changes in the consolidation perimeter relate mainly to intangible assets of international businesses, following the acquisition of PT Participações, and PT Centro Corporativo. Additionally, following the decision of the Board of Directors of Oi to sell the international operations (Note 1), intangible assets from those international operations were presented under the caption "Non-current assets held for sale" in the Consolidated Statement of Financial Position as of 31 December 2014.

36.2 Revaluations PT Portugal applies the revaluation model to account for real estate properties (Note 3) that are included under the asset classes "Land" and "Buildings and other constructions". The Company performed the first revaluation of real estate properties on 30 June 2008, which resulted in a revaluation of the assets by Euro 208,268,320.

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The determination of the fair value of real estate properties was made by an independent appraiser based primarily on: (i) observable prices in an active market of recent market transactions; (ii) profitability method for commercial and administrative real estate; and (iii) the cost of acquiring or producing a similar real estate with the same purpose for technical buildings. Under the first methodology, the main assumptions used in 2008 were the discount rate (average of 8%) and the monthly rent per square meter (average of Euro 6).

PT Portugal performed another revaluation of real estate properties in the year ended 31 December 2011, through the same methodology described above. This revaluation was effective as at 31 December 2011 and resulted in a net increase of tangible assets amounting to Euro 57,953,576. Since then, PT Portugal has assessed annually the fair value of real estate properties through the valuation of external valuation experts and concluded that such fair value does not differ significantly from the respective carrying value, and accordingly did not perform any new revaluation.

The amortization of the surplus resulting from the revaluation of real estate properties amounted to approximately Euro 8 million for the years ended 31 December 2014 and 2013. If these assets had been carried under the cost model, as at 31 December 2014, the carrying amount of the real estate properties would have been reduced by approximately Euro 171 million, corresponding to Euro 132 million net of tax effect.

36.3 Other situations regarding intangible assets

The following situations regarding tangible assets should be mentioned:  Basic equipment includes primarily network installations and equipment, including the ducts infra-structure, switching equipment, telephones and switchboards and submarine cables;  In-progress tangible assets correspond primarily to telecommunications network equipments and are recorded during the installation period of those equipments, which normally lasts for 2 to 3 months, thus explaining the significant amounts recorded under this caption, although with reduced maturities;  PT Portugal recognized own work capitalized in tangible assets amounting to Euro 88 million and Euro 96 million in the years ended 31 December 2014 and 2013, respectively, which include Euro 71 million in both years related to personnel expenses and the remainder relates to materials and other expenses;  Meo Comunicações owns tangible assets located outside Portugal, including participations in submarine cable consortiums, which amounted to Euro 9 million and Euro 12 million as at 31 December 2014 and 2013, respectively; and  Meo Comunicações owns tangible assets that are installed in properties of third parties or on public property, amounting to Euro 5 million and Euro 8 million as at 31 December 2014 and 2013, respectively, relating mainly to antennas.

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37. Debt

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Short-term Long-term Short-term Long-term Bonds - 4,735,376,187 - - Bank loans External loans 42,688,299 495,697,951 - - Domestic loans 24,730 - 2,020,915 - Commercial paper Domestic 396,250,000 - - - External - - 20,000,000 5,054,700,000 Leasings 15,506,517 24,060,562 23,849,700 14,851,705 Intercompany loans with Oi 750,000,000 - - - Intercompany loans with Portugal Telecom - - - 1,806,200,000 Other financings 1,727 - 461,213,456 - 1,204,471,273 5,255,134,700 507,084,071 6,875,751,705

Total gross debt amounted to Euro 6,460 million and Euro 7,383 million as at 31 December 2014 and 2013, a decrease of approximately Euro 923 million that primarily reflects certain loans and commercial paper outstanding due to PT SGPS and PT Finance on 31December 2013, as these entities were not consolidated in the financial statements of PT Portugal on this date. This effect was partially offset by bonds, bank loans and other loans that were consolidated as from May 2014 following the acquisition of PT Finance or through the transfer of commercial paper and other financings from Portugal Telecom, as part of the internal restructuring of Portugal Telecom Group held for the purpose of the contribution to the share capital increase of Oi.

37.1. Exchangeable bonds On 28 August 2007, PT Finance issued exchangeable bonds totalling Euro 750,000,000, exchangeable into fully paid ordinary shares of Portugal Telecom, as follows: - Exchange price of Euro 13.9859 per ordinary share of PT SGPS, which was adjusted to Euro 11.60 on 30 October 2007, following the spin-off of PT Multimedia, and to Euro 11.06 on 28 December 2010, Euro 9.4 on 31 May 2011 and Euro 8.91 on 22 May 2012, following the dividends paid in December 2010, June 2011 and May 2012, respectively, according to the terms and conditions of these bonds; - Nominal value of each bond: Euro 50,000; - Maturity: 28 August 2014 unless previously redeemed, acquired, cancelled or converted; and - Fixed interest rate: 4.125% per annum, paid semi-annually.

Following the acquisition of PT Finance on 5 May 2014, in connection with the internal restructuring of Portugal Telecom Group (Note 1), these exchangeable bonds were consolidated as from May 2014 in PT Portugal’s Consolidated Statement of Financial Position, and are no longer exchangeable into shares of PT SGPS but instead convertible into an amount of cash equivalent to the market value of those shares, as approved by the bondholders at a meeting held on 3 March 2014. These bonds were fully repaid at maturity on 28 August 2014 (Note 46).

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37.2. Bonds The following table provides detailed information about the non-exchangeable bonds outstanding as at 31 December 2014:

Issuer (i) Debt Euro Issue date Expected maturity (ii) Interest rate PT Finance Eurobond 1,000,000,000 May-13 2020 4.625% PT Finance Eurobond 750,000,000 Oct-12 2018 5.875% PT Portugal (iii) Retail bond 400,000,000 Jul-12 2016 6.25% PT Finance Eurobond 600,000,000 Feb-11 2016 5.625% PT Finance Eurobond 750,000,000 Nov-09 2019 5.00% PT Finance Fixed rate notes 250,000,000 Jul-09 2017 5.242% PT Finance Eurobond 500,000,000 Jun-05 2025 4.50% PT Finance Eurobond 500,000,000 Mar-05 2017 4.375% Transaction costs (iv) (14,623,813) 4,735,376,187 (i) All PT Finance and PT Portugal issuances were made under the Euro Medium Term Note Programme (“EMTN”). (ii) Bonds are repayable on final maturity except where otherwise indicated. (iii) This retail bond was originally issued by Portugal Telecom in July 2012 and transferred to PT Portugal on 5 May 2014 (Note 46) in connection with the internal restructuring of Portugal Telecom Group and following the approval by the bondholders at a meeting held on 18 March 2014. (iv) This caption corresponds to expenses incurred at the date these bonds were issued, which relate to (i) rounding’s in defining the coupon rate; and (ii) prepaid commissions. These expenses are recognized in earnings through the life of the bonds.

Effective on 5 May 2014, all notes issued under the EMTN and Retail bond benefit from an unconditional and irrevocable guarantee from Oi.

As at 31 December 2014, the maximum possible nominal amount of outstanding notes issued under the EMTN Programme established by PT Finance and PT Portugal amounted to Euro 7,500,000,000, of which Euro 4,750,000,000 were outstanding as at 31 December 2014, as detailed above.

37.3. Bank loans As at 31 December 2014 and 2013, bank loans denominated in Euros amounted to approximately Euro 538,410,980 and Euro 2,020,915, respectively.

As at 31 December 2014, PT Finance and PT Portugal had a standby credit facility amounting to Euro 800 million, maturing in June 2016, under which no amount had been used as of that date. PT Finance and PT Portugal also entered into an export credit facility, comprising two tranches, one in the amount of Euro 80 million agreed in 2011, and another in the amount of Euro 100 million agreed in January 2013.

As at 31 December 2014, bank loans outstanding include primarily the following: - An amount of Euro 62 million used by PT Finance under the export credit facility agreed in 2011, maturing until 2023. - Loans obtained from the European Investment Bank (“EIB”) totalling Euro 466 million, maturing up to 2021 and including primarily: (1) two loans obtained in 2010 for the purpose of investing in the PT Portugal’s next generation network, the outstanding amounts of which amounted to Euro 100 million and Euro 87.5 million, the first maturing in 2018 and the second with annual repayments up to 2021; (2) a loan obtained in 2011 amounting to Euro 140 million for the purpose of investing in research and development, which matures in 2019; and (3) a loan secured in 2012 amounting to Euro 100 million in order to finance the investment in next generation network, maturing also in 2019. These loans were initially obtained by Portugal Telecom and transferred to PT Portugal on 5 May 2014 (Note 46) in connection with the internal restructuring of Portugal Telecom Group.

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As at 31 December 2014, outstanding bank loans of PT Portugal and its group companies bear interest at annual interest rates that vary between approximately 1% and 3%. Bank loans entered into by PT Portugal benefit from an unconditional and irrevocable guarantee from Oi.

37.4. Commercial paper a) Domestic On 16 April 2014, PT Portugal entered into a new commercial paper programme with a maximum underwritten amount of Euro 200,000,000, maturing on 16 April 2017. On 5 May 2014, under the Portugal Telecom Group reorganization, PT Portugal replaced PT SGPS in the following commercial paper programmes: (i) a programme entered into by Portugal Telecom in 2007 and maturing on 11 May 2015, with a maximum amount of Euro 300,000,000, of which Euro 200,000,000 is underwritten; and (ii) a programme entered into by Portugal Telecom in 2013 and maturing on 8 January 2016, with a maximum amount of Euro 400,000,000, of which Euro 200,000,000 is underwritten.

As at 31 December 2014, PT Portugal had issued a total amount of Euro 396,250,000, maturing between January and February 2015. In addition, as at 31 December 2014, PT Portugal had available under these commercial paper programmes an underwritten amount of Euro 248,750,000.

b) External On 25 June 1999, PT SGPS established a commercial paper program, which following subsequent amendments had a maximum amount of Euro 4,400 million as at 31 December 2014. This program is in place until 7 July 2015, and is automatically renewable for two year periods, until 7 July 2025, unless one of the parties objects to it. On 1 June 2000, PT SGPS entered into another commercial paper program, which following subsequent amendments had a maximum amount of Euro 3,000 million as at 31 December 2014. This program is in place until 1 June 2016, and is automatically renewable for two year periods, until 1 June 2020, unless one of the parties objects to it. Under previous amendments, PT Portugal, PT Comunicações and Meo, S.A. became issuers under both commercial paper programs. Since 5 May 2014, PT SGPS is not a party under these programs.

As at 31 December 2013, PT Portugal, PT Comunicações and Meo, S.A. had issued a total amount of Euro 5,074,700,000 under these programmes, which were fully subscribed by PT Finance. Following the acquisition of PT Finance on 5 May 2014, there are no outstanding amounts due under these commercial paper programmes on a consolidated basis.

37.5. Leasings Financial lease obligations recorded as at 31 December 2014 relate mainly to satellite capacity and transportation equipment acquired under finance lease contracts. Satellite capacity acquired under finance lease contracts is currently being used by Meo Comunicações for the direct-to-home offer of its television service. Transportation equipment under finance lease contracts, under which there are generally purchase options at the end of their term, was acquired by several Group companies and is currently being used in their normal course of business.

As at 31 December 2014, the carrying amount of assets acquired under finance leases is as follows:

Euro Gross Accumulated Carrying amount depreciation amount Industrial property and other rights 61,426,071 52,716,782 8,709,289 Transportation equipment 28,619,508 9,854,117 18,765,391 Other 3,890,972 2,571,606 1,319,366 93,936,551 65,142,505 28,794,046

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As at 31 December 2014, the detail of future minimum lease payments related to finance lease contracts is as follows: Euro Present Finance value costs Total 2015 15,506,517 1,106,137 16,612,654 2016 6,298,077 914,444 7,212,521 2016 4,787,635 710,432 5,498,067 2017 3,710,254 575,843 4,286,097 2018 and following years 9,264,596 355,314 9,619,910 39,567,079 3,662,170 43,229,249

37.6. Intercompany loan with Oi On 26 August 2014, PT Finance BV issued Floating Rate Notes fully subscribed by Oi, SA amounting to Euro 750 million, with a 1 year maturity and bearing interest at 6 months Euribor interest rate plus a spread 2.50%.

37.7 Intercompany loan with Portugal Telecom As at 31 December 2013, this caption corresponds to intercompany loan obtained by PT Portugal from its former shareholder PT SGPS. As at 5 May 2014, PT Portugal repaid this loan to PT SGPS, amounting to Euro 1,806 million (Note 46).

37.8. Other financings As at 31 December 2013, this caption corresponds to intercompany loans obtained by PT Portugal and its subsidiaries from PT SGPS in connection with the centralized cash management system implemented by PT SGPS in 2006 for its subsidiaries in Portugal, under which the companies that were included in this system could finance its cash requirements through PT SGPS. Following the internal restructuring of PT SGPS Group (Note 1), PT Portugal replaced PT SGPS as the parent company of the Group in Portugal and implemented a new the centralized cash management system, as a result of which, on 5 May 2014, the Company settled its outstanding amounts due to PT SGPS, totalling Euro 625 million (Note 46).

37.9. Medium and long-term debt As at 31 December 2014, medium and long-term debt matures as follows: Euro 2016 1,044,293,492 2017 785,836,648 2018 867,958,930 2019 1,010,243,940 2020 and following years 1,546,801,690 5,255,134,700

37.10. Covenants As at 31 December 2014, PT Portugal and its group companies have certain credit facilities with some banks that require the accomplishment of financial covenant with respect to the group resulting from the business combination between Portugal Telecom and Oi. This financial covenant, measured in a quarterly basis, requires that Consolidated Gross Debt to EBITDA should not exceed four times.

Additionally, the group financing include, among others, contractual clauses that provide for consequences in the case of: change of control of PT Portugal, PT Finance and/or Oi, significant part of sale of assets, loss of control of relevant subsidiaries, failure to other financing agreements and negative pledge on assets of the group companies. The penalties applicable in case of their occurrence,

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and in the case of default of the financial constraints, are reflected generally the early payment of the loans obtained or the termination of available credit lines.

As at 31 December 2014, PT Portugal complied with the financial covenants that were directly applicable to it.

38. Accounts payable

As at 31 December 2014 and 2013, this caption consists of: Euro 2014 2013 Current accounts payable Accounts payable-trade (i) 362,680,022 433,569,406 Fixed asset suppliers 130,650,964 120,211,258 Licenses and concessions (ii) 6,000,000 6,000,000 Accounts payable to employees 690,590 1,059,128 Other 65,096,571 93,781,550 565,118,147 654,621,342 Non-current accounts payable Licenses and concessions (ii) 10,319,261 14,840,169 Other (iii) 9,192,959 100,000 19,512,220 14,940,169 (i) The reduction in these captions reflects, among other things, amounts payable to PT Centro Corporativo as at 31 December 2013, an entity that provides management services to most Group companies in Portugal and that was consolidated only as from April 2014 following the acquisition of the investment in this entity form PT SGPS (Note 1). (ii) This caption reflects accounts payable by Meo Comunicações to the Portuguese telecommunications regulator regarding the 4G license acquired in December 2011 (Note 35). (iii) The increase in this caption reflects payables by PT Brazil to PT SGPS as at 31 December 2014, since none of these entities was a subsidiary of PT Portugal on 31 December 2013 and PT Brazil was acquired by PT Portugal from PT SGPS in March 2014 and consolidated since then.

39. Accrued expenses

As at 31 December 2014 and 2013 this caption consists of: Euro 2014 2013 Interest and other financial expenses (i) 160,134,976 66,560,377 Supplies and external services 98,139,146 92,871,639 Vacation pay and bonuses 85,687,233 74,635,099 Direct costs 74,712,470 69,016,781 Discounts to clients 21,981,801 34,150,191 Other 28,657,472 24,633,669 469,313,098 361,867,756 (i) The increase this caption reflects mainly (1) a higher contribution from PT Portugal, as a result of the bank loans transferred from PT SGPS on 5 May 2014, as already mentioned above, and (2) accrued expenses recorded at PT Finance in connection with its bonds and other financings, which were consolidated as from 5 May 2014 following the acquisition of this entity by PT Portugal.

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40. Deferred income

As at 31 December 2014 and 2013 this caption consists of: Euro 2014 2013 Advance billing: Traffic 26,646,649 53,081,397 Other advance billing 12,713,850 14,829,223 Contractual penalties imposed to customers (Note 3.p) 73,036,924 74,997,684 Customer retention programs (Note 3.p) (i) 7,906,459 12,077,899 Other (ii) 108,486,114 5,997,902 228,789,996 160,984,105 (i) This caption relates to deferred revenues in connection with loyalty programmes of mobile operations, which are recognized as revenue when award credits are exchanged. (ii) As at 31 December 2014, this caption includes mainly (1) an amount of Euro 55 million related to the agreement for the exclusive access to its PON network granted by PT Comunicações to Vodafone, and (2) an amount of Euro 38 million recorded by PT Finance on interest received in advance as part of investments in commercial paper issued indirectly by the Group companies.

41. Provisions and adjustments

During the years ended in 31 December 2014 and 2013, movements in provisions and adjustments were as follows:

Euro Foreign Changes in the currency Balance consolidation translation Liabilities held Other Balance 31 Dec 2013 perimeter Increases Decreases adjustments for sale movements 31 Dec 2014 Adjustments For doubtful accounts receivable (Notes 24 and 25) 224,500,561 24,925,367 26,705,585 (645,500) 791,102 (27,940,497) (21,964,289) 226,372,328 For inventories (Note 26) 28,834,052 661,129 1,204,891 (9,614,026) 67,518 (450,155) (80,095) 20,623,313 For financial investments (Note 33) 3,865,273 2,703,040 615,994 (365,248) - (2,890,104) 1,576 3,930,530 257,199,886 28,289,536 28,526,470 (10,624,774) 858,620 (31,280,757) (22,042,809) 250,926,171 Provisions for risks and costs Litigation (Note 48) 18,038,803 41,458 896,286 (1,590,539) 2,885 (37,912) (270,920) 17,080,061 Taxes (Note 48) 13,810,751 452,798 11,629,520 (505,451) - (1,552,687) 16,547,182 40,382,113 Other 9,523,575 1,309,113 502,561 (6,351,813) 66,476 (1,307,853) (1,761,084) 1,980,975 41,373,129 1,803,369 13,028,367 (8,447,803) 69,361 (2,898,452) 14,515,178 59,443,149 298,573,015 30,092,905 41,554,837 (19,072,577) 927,981 (34,179,209) (7,527,631) 310,369,320

Euro Foreign currency Balance translation Other Balance 31 Dec 2012 Increases Decreases adjustments movements 31 Dec 2013 Adjustments For doubtful accounts receivable (Notes 24 and 25) 258,251,043 35,600,582 (2,827,584) (11,175) (66,512,305) 224,500,561 For inventories (Note 26) 27,810,712 3,589,108 (2,474,250) (91,518) - 28,834,052 For financial investments 1,317,212 2,827,170 (193,499) - (85,610) 3,865,273 287,378,967 42,016,860 (5,495,333) (102,693) (66,597,915) 257,199,886 Provisions for risks and costs Litigation (Note 48) 21,219,755 186,315 (3,576,656) 13,305 196,084 18,038,803 Taxes (Note 48) 24,775,013 13,572,392 (12,547,157) - (11,989,496) 13,810,752 Other 7,716,687 3,796,991 (667,985) (267,884) (1,054,235) 9,523,574 53,711,455 17,555,698 (16,791,798) (254,579) (12,847,647) 41,373,129 341,090,422 59,572,558 (22,287,131) (357,272) (79,445,562) 298,573,015

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As at 31 December 2014 and 2013, the caption “Provisions for risks and costs” was classified in the Consolidated Statement of Financial Position in accordance with the expected settlement date, as follows:

Euro 2014 2013 Current provisions Litigation 17,080,061 18,038,803 Taxes 39,251,647 13,810,751 Other 1,902,005 8,272,805 58,233,713 40,122,359 Non-current provisions Taxes 1,130,466 - Other 78,970 1,250,770 1,209,436 1,250,770 59,443,149 41,373,129

41.1. Changes in the consolidation perimeter and liabilities held for sale Changes in the consolidation perimeter in 2014 relate mainly to provisions and adjustments from African and other international operations that were consolidated as from May 2014 following the acquisition of PT Participações. Additionally, as at 31 December 2014, these provisions and adjustments were transferred to the captions of assets and liabilities held for sale.

41.2. Increases and reductions Increases in provisions and adjustments in the years ended in 31 December 2014 and 2013 were recognised in the Consolidated Income Statement as follows: Euro 2014 2013 Provisions and adjustments 28,361,667 30,131,577 Income taxes 11,295,866 13,479,652 Costs of products sold (Note 10) 534,205 3,338,294 Other 1,363,099 12,623,035 41,554,837 59,572,558

Decreases in provisions and adjustments in the years ended in 31 December 2014 and 2013 were recognised in the Consolidated Income Statement as follows: Euro 2014 2013 Provisions and adjustments 8,481,037 4,788,680 Income taxes 505,029 11,607,665 Costs of products sold (Note 10) 9,429,235 2,363,216 Other 657,276 3,527,570 19,072,577 22,287,131

In the years ended in 31 December 2014 and 2013, the profit and loss caption “Provisions and adjustments” consists of: Euro 2014 2013 Increases in provisions and adjustments for doubtful receivables and other 28,361,667 30,131,577 Decreases in provisions and adjustments for doubtful receivables and other (8,481,037) (4,788,680) Direct write-off of accounts receivable 517,445 31,835 Collections from accounts receivable which were previously written-off (3,876,803) (3,011,682) 16,521,272 22,363,050

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41.3. Other movements In the years ended in 31 December 2014 and 2013, other movements of provisions and adjustments include primarily the write-off of trade receivables that were previously fully adjusted. Other movements in provisions for taxes reflect the recognition of tax contingencies in PT Portugal that up to 5 May were recognized directly in the statement of financial position of PT SGPS. A portion of this amount relates to the matters described in Note 27.

42. Other current and non-current liabilities

As at 31 December 2014 and 2013, these captions consist of: Euro 2014 2013 Other current liabilities Dividends payable to non-controlling shareholders 198,520 - 198,520 - Other non-current liabilities Assets retirement obligation (Note 3.g) 19,275,797 18,366,291 Other - 80,239 19,275,797 18,446,530

43. Shareholders’ Equity

43.1. Share capital As at 31 December 2014 and 2013, PT Portugal fully subscribed share capital amounted to Euro 3,450,000,000 and Euro 2,200,000,000, respectively.

On 5 May 2014, PT SGPS contributed its 100% interest in PT Portugal to the Oi share capital increase and as a result Oi became the only shareholder of PT Portugal. Subsequently, on the same date, Oi subscribed and realized a share capital increase of the PT Portugal amounting to Euro 1,250,000,000 (Note 46) and as a result the Company’s share capital was increased from Euro 2,200,000,000 to Euro 3,450,000,000, and is represented by 50,000 shares with a nominal value of Euro 69,000 each.

As at 27 December 2013, PT SGPS realized and subscribed a Company’s share capital increase of Euro 2,100,000,000, by increasing the nominal value of all shares representing the share capital from Euro 2,000 to Euro 44,000 per share. Following this share capital increase, share capital was increased to Euro 2,200,000,000.

43.2. Capital contributions Balances as at 31 December 2014 and 2013 amounted to Euro 310,940,482 and Euro 3,206,050,000 respectively. On 5 May 2014, in connection with the internal restructuring of Portugal Telecom Group and prior to the Oi share capital increase, PT Portugal repaid to Portugal Telecom paid-in capital contributions amounting to Euro 2,895,109,518 (Note 46).

During the year ended 31 December 2013, PT Portugal repaid capital contributions to PT SGPS amount to Euro 2,100,000,000.

43.3. Legal reserve Portuguese law provides that at least 5% of each year's profits must be appropriated to a legal reserve until this reserve equals the minimum requirement of 20% of share capital. This reserve is not available for distribution to shareholders but may be capitalized or

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used to absorb losses, once all other reserves and retained earnings have been exhausted. As at 31 December 2014 and 2013, the legal reserve amounted to Euro 10,000.

43.4. Revaluation reserve and other reserves and accumulated earnings

During the years ended 31 December 2014 and 2013, movements in these captions were as follows: Euro Balance Comprehensive Other Balance 31 Dec 2013 income movements 31 Dec 2014 Income and expenses recognized directly in equity Actuarial losses Net actuarial losses (Note 14) (678,116,520) (267,005,696) - (945,122,216) Tax effect (Note 20) 156,114,410 56,629,544 - 212,743,954 Cumulative foreign currency translation adjustments ("CTAs") (i) (1,121,030,790) 1,151,256,573 - 30,225,783 Other 45,865,161 (5,903,983) - 39,961,178 (1,597,167,739) 934,976,438 - (662,191,302) Reserves recognized directly in equity Revaluation of tangible assets (ii) 640,584,876 - (39,706,879) 600,877,997 Tax effect (123,997,448) 847,510 9,132,520 (114,017,418) 516,587,428 847,510 (30,574,359) 486,860,579 Total income, expenses and reserves recognized directly in equity (1,080,580,311) 935,823,948 (30,574,359) (175,330,723) Retained earnings 286,268,691 - (102,359,602) 183,909,089 Net income attributable to the equity holder of PT Portugal (132,933,961) (2,579,563,818) 132,933,961 (2,579,563,818) (927,245,581) (1,643,739,870) - (2,570,985,452) Euro Balance Comprehensive Other Balance 31 Dec 12 income movements 31 Dec 13 Income and expenses recognized directly in equity Actuarial losses Net actuarial losses (Note 14) (538,641,978) (139,474,542) - (678,116,520) Tax effect (Note 20) 134,683,142 21,431,268 - 156,114,410 Cumulative foreign currency translation adjustments ("CTAs") (i) (581,542,705) (539,488,084) - (1,121,030,789) Other 51,548,830 (5,683,669) - 45,865,161 (933,952,711) (663,215,027) - (1,597,167,738) Reserves recognized directly in equity Revaluation of tangible assets (ii) 685,541,216 - (44,956,340) 640,584,876 Tax effect (160,817,171) 12,879,404 23,940,319 (123,997,448) 524,724,045 12,879,404 (21,016,021) 516,587,428 Total income, expenses and reserves recognized directly in equity (409,228,666) (650,335,623) (21,016,021) (1,080,580,310) Retained earnings 265,252,669 - 21,016,021 286,268,690 Net income attributable to the equity holder of PT Portugal (132,933,961) - (132,933,961) (143,975,997) (783,269,584) - (927,245,581)

(i) These captions relate to the translation adjustments of financial statements of foreign entities. As at 31 December 2013, the cumulative foreign currency translation adjustments were related primarily to the impact of the depreciation of the Brazilian Real against the Euro on the investment in Oi, since its acquisition in March 2011, investment that was held directly through Bratel Brasil. On 2 May 2014, as a result of the disposal of Bratel BV (Note 1), which holds 100% of Bratel Brasil, the cumulative amount of the negative foreign currency translation adjustments related to the investment in Bratel Brasil, amounting to Euro 1,000 million (Note 31), was transferred to net income. (ii) The revaluation surplus included under this caption include not only (1) the revaluation surplus related to the asset classes that are still measured in accordance with the revaluation model as at 31 December 2014 (Note 36), which correspond to land and buildings, but also (2) the revaluation surplus related to the asset classes revalued in previous years, either through legal of free revaluations, but that as at 31 December 2014 are no longer recorded in connection with the revaluation model, since the Company, upon the adoption of IFRS and as allowed by IFRS 1, adopted the cost model for these asset classes. PT Portugal chose to maintain both revaluation surplus under this caption because both correspond to non-distributable reserves to shareholders. Revaluation reserves can only be used in future share capital increases, to adjust the carrying amount of revalued assets that at a certain date exceed its fair value, or to absorb accumulated losses.

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44. Financial instruments

44.1. Financial risks PT Portugal is primarily exposed to (i) market risks related to changes in foreign currency exchange rates and interest rates, (ii) credit risks and (iii) liquidity risks. The main objective of PT Portugal financial risk management is to reduce these risks to an acceptable level.

44.1.1. Foreign currency exchange rate risk Foreign currency exchange rate risks relate mainly to PT Portugal investments in Angola, namely in Unitel and in other foreign operations, such as MTC and Timor Telecom. As at 31 December 2014, the investment in Unitel and dividends receivable from this entity amounted to Euro 1,328 million and Euro 390 million, respectively. As at 31 December 2014, investments in MTC and Timor Telecom amounted to Euro 27 million and Euro 15 million, respectively. Until 2 May 2014, these risks were related also to the investments in Brazil, namely the investment in Oi, which was sold to PT SGPS following the disposal of the investment in Bratel BV (Notes 1 and 31).

44.1.2. Interest rate risk Interest rate risk basically impact the Group’s financial expenses and income on the floating interest rate debt and cash applications. As at 31 December 2014 and 2013, PT Portugal is exposed to this risk primarily in the Euro zone, as its debts are subject to floating interest rates based on the Euribor rate.

Interest rate risks also result from the exposure to changes in the fair value of long term fixed-rate debt due to changes in market interest rates.

44.1.3. Credit risk Credit risk relates mainly to the risk that a third party fails on its contractual obligations, resulting in a financial loss to the Group. PT Portugal is subject to credit risks in its operating and treasury activities.

Credit risks in operations relate basically to outstanding receivables from services rendered to our customers (Notes 24 and 25). The Group does not have any significant credit risk exposure to any single customer, since trade receivables consist of a large number of customers, spread across several businesses and geographical areas. These risks are monitored on a business-to-business basis, and the Group’s management of these risks aims to: (a) limit the credit granted to customers, considering the profile and the aging of receivables from each customer; (b) monitor the evolution of the level of credit granted; (c) perform an impairment analysis of its receivables on a regular basis; and (d) assess the market risk where the customer is located. Accordingly, the criteria used to compute adjustments for doubtful accounts receivable is based on these factors. The movement of these adjustments for the years ended 31 December 2014 and 2013 is disclosed in Note 41. As at 31 December 2014, the Group’s consolidated trade receivables not adjusted for totalled Euro 660 million (Note 25), including Euro 451 million due with maturities up to ninety days, Euro 25 million due with maturities between ninety and one hundred and eighty days, Euro 38 million due with maturities between one hundred and eighty days and one year and Euro 147 million due with maturities over one year, with this latter amount including Euro 101 million for which the Group has either deferred the related revenues or has accounts payable to the same entities and regarding the same matter, which offset the related credit risk. As at 31 December 2014, the Group believes that there was no further credit adjustment required in excess of the adjustments for accounts receivable included in Note 41.

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44.1.4. Liquidity risk This risk may occur if the sources of funding, including cash balance, operating cash inflows, divestments, credit lines and cash flows obtained from financing operations, do not match the Group’s financing needs, such as operating and financing outflows, investments, shareholder remuneration and debt repayments. Based on the cash flows generated by operations and on the available cash plus undrawn committed standby facilities and underwritten commercial paper agreements, as detailed below, PT Portugal concluded that the Group is able to meet its estimated obligations.

The following table presents PT Portugal maturity of expected contractual obligations and commercial commitments as at 31 December 2014, on a consolidated basis: Euro million Less than One to Three to More than Total one year three years five years five years Indebtedness 6,474.2 1,208.1 1,833.8 1,881.9 1,550.5 Interest on indebtedness (i) 1,204.9 288.0 445.0 280.9 190.9 Post retirement benefits payments (ii) 1,073.8 154.7 268.9 223.7 426.5 Licenses and concessions (iii) 16.3 6.0 10.3 - - Unconditional financial commitments (iv) 43.3 43.3 - - - Operating leases (Note 12) 120.5 30.5 34.9 26.4 28.8 Total contractual obligations 8,933.1 1,730.7 2,592.9 2,412.9 2,196.6 (i) PT Portugal expected obligations related to interest on indebtedness are based on the Company’s indebtedness at 31 December 2014 assuming that repayments will be made on scheduled dates and considering assumptions regarding interest rates on floating rate debt. Therefore actual interest obligations could vary significantly from these amounts depending on future refinancing activities and market interest rates. These obligations relate exclusively to interest expenses on gross debt and as such do not include any interest income on cash and cash equivalents and short-term investments. (ii) This caption includes primarily amounts corresponding to the undiscounted payments to be made by Meo Comunicações related to salaries due to pre-retired and suspended employees and to expected contributions to the funds. For the unfunded portion and for calculation purposes, PT Portugal has assumed a linear contribution over the coming years. The total amount differs from the net accrued post retirement liability recognized in the Consolidated Statement of Financial Position primarily because the latter amount relates to the discounted unfunded obligations. (iii) This caption corresponds to payments due to Anacom as at 31 December 2014 for radio frequency licenses (Note 39). (iv) Unconditional purchase obligations relate basically to contractual agreements with suppliers for the acquisition of tangible fixed assets (Euro 12 million) and stocks (Euro 31 million), including all amounts related to the acquisition of network assets, telecommunications equipment and terminal equipments.

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44.2. Other disclosures on financial instruments

As at 31 December 2014 and 2013, the carrying amounts of each of the following categories of financial assets and liabilities, as defined in IAS 39, were recognized as follows (amounts in millions of Euros):

Euro million 2014 2013 Fair value Carrying Fair Carrying Fair Caption hierarchy (i) value value value value Financial assets carried at amortised cost: Cash and cash equivalents (Note 46.i) 176.0 176.0 168.7 168.7 Short-term investments (Note 23) 6.9 6.9 112.7 112.7 Accounts receivable - trade (ii) (Note 24) 715.6 715.6 739.0 739.0 Accounts receivable - other (Note 25) (ii) 205.1 205.1 242.9 242.9 Investments in group companies - loans granted 42.7 42.7 7.3 7.3 1,146.3 1,146.3 1,270.5 1,270.5 Financial assets at fair value: Rio Forte investments (Note 15) (vi) Level 1 387.6 387.6 - - Investment in Unitel classified as available for sale (Note 30) (vii) Level 3 1,327.7 1,327.7 - - 1,715.3 1,715.3 - - Financial liabilities carried at amortised cost: Debt - bonds (Note 37) (iii) Level 1 4,735.4 4,936.1 - - Debt - bank loans (Note 37) (iv) Level 2 538.4 514.9 2.0 2.0 Debt - other loans (Note 37) (v) Level 2 1,146.3 1,151.4 7,342.1 7,342.1 Accounts payable (ii) 584.6 584.6 669.6 669.6 Accrued expenses (ii) 469.3 469.3 361.9 361.9 Other current liabilities 0.4 0.4 - - Other non-current liabilities --0.10.1 7,474.4 7,656.7 8,375.6 8,375.6 Financial liabilities recorded according to IAS 17 Debt - finance leases (Note 37) 39.6 39.6 38.7 38.7 39.6 39.6 38.7 38.7

(i) IFRS 7 Financial Instruments: Disclosures require that the fair value of financial assets and liabilities must be based on the assumptions that market participants would consider in pricing an asset or a liability, and establishes a hierarchy that prioritizes the information used to build such assumptions, named fair value measurement hierarchy. This hierarchy attaches more importance to available market inputs (observable data) and less weight to inputs based on data without transparency (unobservable data), ranging from Level 1 to Level 3, respectively. (ii) Accounts receivable, accounts payable and accrued expenses have generally short-term maturities and therefore their fair values is considered to be similar to the respective carrying amounts. (iii) Fair value of non-convertible bonds was obtained based on quoted prices in active markets. (iv) Fair value of bank loans was determined based on a discounted cash flow methodology using inputs that are observable in the market. (v) Other loans include mainly amounts due under commercial paper programmes, the maturity of which is lower than 3 months, and intercompany loans. For commercial paper programmes, since its maturity is lower than 3 months, the Company assumed that its fair value is similar to the carrying amount. For the remaining instruments, the fair value was determined based on a discounted cash flow methodology using inputs that are observable in the market. (vi) These securities were measured based on the consideration for the shares of Oi receivable under the exchange agreement entered into with PT SGPS (Note 29). The fair value corresponds to the quote market prices of these shares . (vii) The investment in Unitel was determined based on a discounted cash flow methodology using the assumptions described in Note 3 and 30.

45. Guarantees

As at 31 December 2014 and 2013, the Company has presented guarantees and comfort letters to third parties, as follows: Euro 2014 2013 Bank guarantees presented by PT Portugal to EIB (i) 470,700,505 491,428,571 Bank and other guarantees presented by Portuguese companies to courts and tax authorities (ii) 12,151,590 12,971,529 Bank and other guarantees presented to other entities by: PT Comunicações (iv) 41,509,472 21,153,349 Meo, S.A. (iii) - 26,023,980 Other companies 5,597,490 8,465,010 Total 529,959,056 560,042,438

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(i) These bank guarantees were presented by PT Portugal to the European Investment Bank in connection with loans obtained from this bank (Note 37.3). (ii) In accordance with Portuguese tax legislation, the Company has presented these guarantees and submitted a claim or an appeal to the tax authorities in order to be able to hold open discussions with the tax authorities and avoid the payment of a given tax assessment. In Portugal, these two conditions are required and must be complied with before the process can continue, regardless of the amount of the tax assessment or the likelihood of success of the appeal or the claim. (iii) Bank guarantees given on behalf of Meo, S.A. include primarily a bank guarantee presented to Anacom amounting to Euro 24 million in 31 December 2013 related to the total instalments due under the acquisition of the LTE license completed in December 2011. On 31 December 2014, this guarantee amounted to Euro 18 million given and is from Meo Comunicações, following the merger between the two entities. (iv) Bank guarantees given on behalf of Meo Comunicações were presented essentially to the following entities: (1) Municipal Authorities, which relate mainly to the payment of taxes and other fees in connection with the use of public rights-of-way; and (2) Anacom, which relate mainly to an open contest for granting the right of use national frequencies for the television service and with the acquisition of the LTE license mentioned above.

46. Consolidated Statement of Cash Flows

Regarding the Consolidated Statement of Cash Flows and as mentioned in Note 2, it should be highlighted that the statement for the year ended 31 December 2014 includes the consolidation of cash flows from international businesses as from May 2014 as well as from other entities acquired during the year 2014, as a result of which the statement for the year ended 31December 2014 is not entirely comparable with that for the year ended 31December 2013, which explains the increases in most captions of cash flows from operating activities.

(a) Payments relating to indirect taxes and other This caption includes primarily payments related to the expenses recorded in the caption “Indirect taxes” (Note 13) of the Consolidated Income Statement, and also payments and collections of Value-Added Tax in Portugal.

(b) Short-term financial applications These captions include basically cash payments from new short-term financial applications entered into and cash receipts from the short-term applications matured. In 2014, net cash receipts amounted to Euro 21,216,930, as compared to net cash payments of Euro 74,416,927 in the same period of last year.

(c) Cash receipts resulting from the disposal of financial investments In the year ended 31 December 2014, this caption includes primarily (1) the proceeds from the sale of the investment in Bratel BV on 2 May 2014, amounting to Euro 4,195 million (Notes 1 and 31), net of cash and cash equivalents of both Bratel BV and its subsidiary Bratel Brasil as of that date, amounting to Euro 1,404 million, and (2) an amount of Euro 1,603 million (Note 33) received by CV TEL from PT Finance, before the acquisition of this last entity by PT Portugal, regarding the repayment by PT Finance of debt securities previously issued by this entity and subscribed by CV TEL.

In 2013, this caption includes basically the proceeds obtained by PT Comunicações from the disposal of its 3% interest in CTM, amounting to Euro 36 million (Notes 1 and 30).

(d) Cash receipts (payments) resulting from interest and related income (expenses) In the years ended 31 December 2014 and 2013, cash payments resulting from interest and related expenses net of cash receipts resulting from interest and related income amounted to Euro 364,868,899 and Euro 177,187,762, an increase reflecting primarily the consolidation of PT Finance as from May 2014 (Note 1), and the transfer of financings from PT SGPS to PT Portugal (Note 1).

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(e) Dividends received During the years ended 31 December 2014 and 2013, cash dividends received were as follows:

Euro 2014 2013 Ericsson Inovação, S.A. 2,130,487 - Oi - 86,439,663 CTM - 2,363,444 Other 569,932 1,464,510 2,700,419 90,267,617

(f) Payments resulting from financial investments During the years ended 31 December 2014 and 2013, payments resulting from financial investments were as follows:

Euro 2014 2013 Acquisition of financial investments PT Participações (Note 1) (i) 1,590,000,000 - PT Finance (Note 1) (i) 255,000,000 - Bratel Brasil (ii) 172,000,000 - PT Investimentos (Note 1) (i) 4,702,322 - PT Centro Corporativo (Note 1) (i) 1,482,662 - PT Brasil (i) 2,662,714 - INESC (i) 2,884,074 - Sportinveste (i) - 32,618,669 PT Imobiliária (i) 12,159,672 Yunit (i) - 2,228,329 Cash and cash equivalents of entities acquired on the transaction date (iii) (136,589,931) - Notes granted by CV TEL to PT Finance - 168,000,000 Loans granted to FibroGlobal 10,414,000 9,015,000 Other 118,224 2,055,436 1,902,674,065 226,077,106

(i) These captions relate to the acquisition of financial investments from PT SGPS in connection with the transfer to PT Portugal of all businesses that were part of the PT Assets to be contributed by Portugal Telecom in the Oi share capital increase of 5 May 2014, as explained in Note 1. (ii) This caption relates to the acquisition by Bratel BV of a 6.5% interest in Bratel Brasil held by PT SGPS, as mentioned in Note 31. (iii) This caption corresponds to the total cash and cash equivalents of each entity acquired on the respective transaction dates, including mainly PT Finance and the African and international operations acquired through PT Participações.

(g) Loans obtained and repaid These captions relate basically to commercial paper and other bank loans which are regularly renewed.

During the year ended 31 December 2014, cash payments resulting from loans repaid, net of cash receipts from loans obtained, amounted to Euro 583,590,882 and, as mentioned in Note 37, include primarily the repayment of the intercompany loan obtained from PT SGPS (Euro 1,806 million) and the acquisition of outstanding amounts due under the centralized cash management system (Euro 625 million). These effects were partially offset by the amounts received from Portugal Telecom regarding the transfer from that entity to PT Portugal of the financings obtained from the European Investment Bank (Euro 527 million), the retail bond (Euro 400 million) and the commercial paper issued by PT SGPS and subscribed by PT Finance (Euro 920 million).

During the year ended 31 December 2013, cash receipts from loans obtained, net of cash payments resulting from loans repaid, amounted to Euro 79,229,457 and reflected proceeds obtained from an increase in the intercompany loan obtained from Portugal Telecom by Euro 979 million, from Euro 827 million to Euro 1,806 million, and an increase in the amounts due under the centralised cash management system. These effects were partially offset by repayments of the amounts due under the external commercial paper programmes, totalling Euro 1,069 million.

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(h) Share capital increase and repayment of capital contributions On 5 May 2014, as mentioned in Note 43, PT Portugal repaid to Portugal Telecom paid-in capital contributions amounting to Euro 2,895,109,518. On the same date, Oi, S.A. subscribed a share capital increase of PT Portugal amounting to Euro 1,250,000,000.

During the year ended 31 December 2013, as mentioned in Note 43, a PT Portugal repaid to Portugal Telecom paid-in capital contributions to PT SGPS amounting to 2,100,000,000 and PT SGPS subscribed a PT Portugal’s capital increase by the same amount.

(i) Cash and cash equivalents As at 31 December 2014 and 2013, the composition of this caption is as follows:

Euro 31 Dec 2014 31 Dec 2013 Cash 7,998,512 4,463,533 Demand deposits 24,178,215 13,243,800 Time deposits 131,307,754 80,649,229 Other bank deposits 12,524,304 70,316,798 176,008,785 168,673,360

47. Related parties a) Associated companies and shareholders

Balances as at 31 December 2014 and 2013 and transactions occurred during the years ended 31 December 2014 and 2013 between the Group and its associated companies and shareholders are as follows:

Euro Accounts receivable Accounts payable Loans granted Company 31 Dec 2014 31 Dec 2013 31 Dec 2014 31 Dec 2013 31 Dec 2014 31 Dec 2013 International companies: Unitel (i) 424,962,891 15,611,368 459,988 2,638,599 - - Multitel 6,586,320 1,807,846 377,022 229,884 938,444 - Outras 739,270 - - - - - Domestic companies: Páginas Amarelas (ii) - 173,050 - 1,325,856 - - PT-ACS 4,683,549 3,371,064 185,570 3,095,427 - - Fundação PT 2,289,128 324,000 490 - - - Sportinveste Multimédia 71,735 49,161 90,303 226,993 32,618,667 32,618,669 Siresp 12,339 54 1,938 5,860 - - Fibroglobal 1,151,989 6,931,072 2,963,742 1,134,579 13,764,000 4,000,000 Other 204,065 91,660 650,092 1,129,313 2,986,086 3,117,210 440,701,286 28,359,275 4,729,145 9,786,511 50,307,197 39,735,879

(i) As at 31 December 2014, accounts receivable from Unitel relate primarily to dividends receivable from this entity totalling Euro 390 million, which are presented as assets held to sale (Note 30). (ii) The investment in Páginas Amarelas was disposed in January 2014.

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Euro Costs Revenues Interest charged Company 201420132014201320142013 International companies: Unitel 7,148,458 6,726,006 13,418,078 13,793,167 - - Multitel 326,254 722,536 1,354,624 849,166 - - CTM (i) - 74,739 - 76,954 - - Outras 14,040 125 45,969 - - - Domestic companies: Páginas Amarelas (ii) - 21,179,202 - 2,754,786 - - PT-ACS 4,469,492 4,512,248 691,770 2,764,715 - - Sportinveste Multimédia 466,194 908,541 147,186 172,728 58,269 177 Siresp - - 18,297,529 15,397,196 33,995 - Fibroglobal 8,531,311 1,545,082 1,440,913 1,590,969 630,835 299,164 Fundação PT - - 2,870,720 2,854,418 - - Other 649,392 724,091 1,331,637 1,352,306 120,375 668 21,605,141 36,392,570 39,598,426 41,606,405 843,474 300,009 (i) The investment in CTM was disposed in June 2013. (ii) The investment in Páginas Amarelas was disposed January 2014.

On 31 December 2014, in addition to associated and other affiliated companies mentioned above, PT Portugal also classified as related parties (1) Oi as the Company’s only shareholder, (2) Oi’s controlled entities in Brazil that are not consolidated in these consolidated financial statements, (3) Oi’s shareholders that have a position of joint control over Oi, namely PT SGPS, AG and LF together with their respective controlled entities, and (4) related parties identified by board members. During the period of four months and five days ended on 5 May 2014, under the corporate restructuring of Portugal Telecom Group for the purposes of Oi’s capital increase (Note 1), PT Portugal and its subsidiaries acquired from PT SGPS a set of financial investments in entities that were consolidated in these consolidated financial statements only as from their acquisition dates. For this reason, Consolidated Statement of Financial Position on 31 December 2013 and the Consolidated Income Statement for the period of four months ended 30 April 2014 and the year ended 31 December 2013 presents balances and transactions with these entities that were not consolidated in the Consolidated Financial Statements of PT Portugal. The table below shows the balances on 31 December 2014 and 2013 and transactions during the years ended on those dates with the above entities (not including financial investments computed in accordance with the equity method of accounting nor gains and losses from the sale of financial investments):

Euro million 2014 2013 PT SGPS (i) Oi (ii) PT Group (iii) Oi (ii) Asset balances Accounts receivable 1 12 106 4 Tax receivable from PT SGPS 47 - - - Other movements (Note 33) - 2,438 - 48 12 2,544 4 Liabilities balances Loans granted - 750 7,342 - Accounts payable 9 3 132 0 Accrued expenses - 7 35 - Other liabilities - - 1 9 760 7,510 0

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Euro million 2014 2013 PT SGPS (i) Oi (ii) PT Group (iii) Oi (ii) Operating revenues 9 19 34 10 Operating costs (26) 1 (75) - Financial expenses (45) 7 (21) - (62) 28 (62) 10

(i) Includes the balances and transactions with PT SGPS on 31 December 2014 and the year then ended, respectively, and the transactions made during the period of four months and five days ended 5 May 2014 with the entities of PT Group that were not yet consolidated in the financial statements of PT Portugal prior to the corporate restructuring carried out for the purposes of the share capital increase of Oi. (ii) This caption respect of balances and transactions with the Oi and its subsidiaries not consolidated in these financial statements. (iii) This captions relates to balances as at 31 December 2013 and transactions for the year then ended with PT SGPS and the entities of the PT Group that were not yet consolidated in the financial statements of PT Portugal prior to the corporate restructuring carried out in 2014 for the purpose of capital increase of Oi.

b) Other

During the year ended 31 December 2014, fixed remunerations paid to board members and key employees amounted to Euro 3.3 million and variable remunerations paid amounted to Euro 2.1 million. In 2014, some board members and key employees received remunerations through Portugal Telecom.

In addition to the above mentioned remunerations, executive board members are entitled to fringe benefits primarily utilized in their daily functions, in connection with a policy defined for the Group.

In 2014, terminations payments to former board members and key employees amounted to 2.5 million.

In addition to the amounts mentioned above, there are certain responsibilities resulting from management agreements entered into on 13 November 2014 by the Remunerations Committee with board members.

To comply with the article 508 of the Portuguese Companies Act, the Company’s auditor, KPMG & Associados – SROC, billed PT Portugal Group during the year ended 31 December 2014 a total amount of Euro 839 thousand regarding tax consultancy services and a total amount of Euro 671 thousand regarding assurance and reliability services other than those related the financial statements audit. During the year ended 31 December 2014, KPMG & Associados – SROC did not bill any amount related to the financial statements audit, because it became the Company’s auditor only as from 2 December 2014.

48. Litigation

As at 31 December 2014 and 2013, there were several claims, legal actions and tax contingencies against certain subsidiaries of the Group for which the risk of loss is considered probable in accordance with the definitions of IAS 37 Provisions, Contingent Assets and Contingent Liabilities. Based on the opinion of its internal and external legal counsels, the Group recorded provisions (Note 41) for those claims, legal actions and tax contingencies to cover its probable future cash outflows, as follows: Euro 2014 2013 Civil claims 10,442,342 11,618,137 Labor claims 3,052,713 2,868,316 Other 3,585,006 3,552,350 Sub-total (Note 41) 17,080,061 18,038,803 Tax (Note 41) 40,382,113 13,810,751 Total 57,462,174 31,849,554

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As at 31 December 2014 and 2013, there were several claims, legal actions and tax contingencies against certain subsidiaries of the Group for which the risk of future cash outflows was considered possible, based on the information provided by its legal counsels, and that therefore are not provided for. The nature of these contingencies is as follows: Euro 2014 2013 Civil claims 76,591,893 71,078,646 Labor claims 445,377 982,904 Other 48,621,968 16,496,924 Sub-total 125,659,238 88,558,474 Tax 3,522,678 4,285,758 Total 129,181,916 92,844,232

The following litigation processes relate to the main claims, legal actions and tax contingencies against Portuguese subsidiaries of the Group, some of which the Company considers, based on the opinion of its internal and external legal counsels and in accordance with the definitions of IAS 37, that related losses are remote, which therefore are not included in the amounts disclosed above but are described below due to its materiality.

a) Claims for municipal taxes and fees Pursuant to a statute enacted on 1 August 1997, as an operator of a basic telecommunications network, PT SGPS was exempt from municipal taxes and rights-of-way and other fees with respect to its network in connection with its obligations under the Concession. The Portuguese Government has advised the Company in the past that this statute confirmed the tax exemption under our Concession and that it will continue to take the necessary actions in order for Meo Comunicações to maintain the economic benefits contemplated by the former Concession.

Law 5/2004, dated 10 February 2004, established a new rights-of-way regime in Portugal whereby each municipality may establish a fee, up to a maximum of 0.25% of each wireline services bill, to be paid by the customers of those wireline operators which network infra-structures are located in each such municipality. This regime was implemented in 2005 but does not affect the lawsuit described above, based on the former statute. Meanwhile, Decree-Law 123/2009, dated 21 May 2009, clarified that no other tax should be levied by the municipalities in addition to the tax established by Law 5/2004. This interpretation was confirmed by the Supreme Administrative Court of Portugal in several legal actions.

Some municipalities however, continue to persive that the Law 5/2004 does not expressly revoke other taxes that the municipalities wish to establish, because Law 5/2004 is not applicable to the public municipality domain. Currently, there are legal actions with some municipalities regarding this matter.

b) Regulatory Proceedings PT Portugal Group companies are regularly subject to regulatory inquiries and investigations involving their operations. In addition, ANACOM (the telecoms regulator), the European Commission, and the Autoridade da Concorrência (the Portuguese competition authority) regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations. Current inquires and investigations include several investigations by Autoridade da Concorrência related to Meo, S.A. for alleged anti- competitive practices in the public mobile telephone markets. PT Portugal considers that Group companies have consistently followed a policy of compliance with all relevant laws. The Group continually reviews commercial offers in order to reduce the risk of competition law infringement. However, if group companies are found to be in violation of applicable laws and regulations in these

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or other regulatory inquiries and investigations, they could become subject to penalties, fines, damages or other sanctions. It is however permitted under Portuguese law to appeal any adverse decision to the Courts.

In April 2007, Autoridade da Concorrência accused PT Comunicações of alleged abuse of dominant position for granting discriminatory discounts on leased lines. In response to this accusation, PT Comunicações contested the alleged by Autoridade da Concorrência. However, on 1 September 2008, Autoridade da Concorrência imposed a fine of Euro 2.1 million on PT Comunicações. On 29 September 2008, PT Comunicações appealed to the Commerce Court of Lisbon and, on 29 February 2012, the Commerce Court of Lisbon cleared PT Comunicações on the fine imposed by Autoridade da Concorrência. PT Portugal, based on the opinion of its internal and external legal counsels, had not recorded any provision for this matter.

On 19 January 2011, the European Commission opened an investigation into an agreement between Telefónica and PT SGPS allegedly not to compete on the Iberian telecommunications markets. In October 2011, Portugal Telecom was notified of a Statement of Objections sent by the European Commission to Portugal Telecom and Telefonica on this matter, which only covered the alleged cooperation between the two companies after the Vivo transaction. In response to the Statement of Objections, PT SGPS contested the alleged by the European Commission. In January 2013, the European Commission adopted a decision condemning the Company, together with Telefónica, S.A., for infringement of article 101 of the TFEU, with reference to the alleged non-compete commitment with impact in the Iberian market included in the agreement of 28 July 2010 concerning the acquisition by Telefónica of PT SGPS’s stake in Brazilian operator Vivo. Under this decision, PT SGPS was fined by an amount of Euro 12,290,000. PT SGPS had appealed.

c) Other Legal Proceedings In March 2004, TV TEL Grande Porto - Comunicações, S.A. (“TV TEL”), a telecommunications company based in Oporto, filed a claim against PT Comunicações in the Lisbon Judicial Court. TV TEL alleged that, since 2001, PT Comunicações has unlawfully restricted and/or refused access to its telecommunication ducts in Oporto, thereby undermining and delaying the installation and development of TV TEL’s telecommunications network. TV TEL alleges that PT Comunicações intended to favour both itself and CATVP—TV Cabo Portugal, S.A, subsidiary of PT-Multimédia and at the time a direct competitor of TV TEL. TV TEL is claiming an amount of approximately Euro 15 million for damages and losses allegedly caused and yet to be sustained by that company as a result of the delay in the installation of its telecommunications network in Oporto. In addition, TV TEL has demanded that PT Comunicações be required to give full access to its ducts in Oporto. PT Comunicações submitted its defence to these claims in June 2004, stating that (1) TV TEL did not have a general right to install its network in PT Comunicações’s ducts, (2) all of TV TEL’s requests were lawfully and timely responded to by PT Comunicações according to its general infra-structure management policy, and (3) TV TEL’s claims for damages and losses were not factually sustainable. In February 2013, the court decided a compensation related to increased costs of financing incurred and a value regarding loss of clients to be liquidated by TV TEL. Both parties have appealed. On 5 June 2014, the court issued a favourable decision to PT Comunicações that extended the facts, as a result of which both parties are waiting for the schedule of a new trial date.

In March 2011, Optimus - Comunicações S.A. (“Optimus”) filed a claim against PT Portugal in the Judicial Court of Lisbon for the payment of approximately Euro 11 million related to a proceeding of the Autoridade da Concorrência that terminated in 2011 for prescription reasons, in relation to which Autoridade da Concorrência had imposed a fine to PT Portugal of approximately Euro 45 million. Optimus sustained is position by arguing that it suffered losses and damages as a result of PT Portugal’s conduct.

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d) Tax contingencies

There are some tax claims against certain Portuguese subsidiaries of the Group which relate primarily to the deductibility of certain financial costs incurred between 2004 and 2010 (Euro 243 million). The Group received tax assessments regarding these matters for all the years mentioned above. As at 31 December 2014, the Company strongly disagrees with these assessments and based on the opinion of its tax advisors, considers that there are solid arguments to oppose the position of the tax authorities, and therefore, did not consider the losses related to these tax contingencies as either probable or possible.

49. Subsequent events

On 4 March 2015, CVM approved the exchange and call option agreements entered into with PT SGPS related to the investments in debt securities of Rio Forte (Note 29). This approval is still subject to the approval of these contracts at the General Shareholders Meeting, which was convened for 26 March 2015.

As a result of the devaluation of Oi’s shares since 31 December 2014, the recoverable amount of the investments in debt securities of Rio Forte based on the price of Oi’s shares on 20 March 2015 amounted to Euro 264 million, a reduction of Euro124 million compared to 31 December 2014.

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EXHIBITS

I. Subsidiary companies

II. Associated companies, joint ventures and other entities

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I. Subsidiaries

Subsidiaries located in Portugal

PERCENTAGE OF OWNERSHIP

Dec 14 Dec 13 Company Notes Head office Activity Direct Effective Effective PT Portugal, SGPS, SA Lisbon Management of investments. Directel - Listas Telefónicas (a) (f) Lisbon Publication of telephone directories and operation of related data Africatel BV (100%) 75.00% - Internacionais, Lda. (“Directel”) bases. Infonet Portugal – Serviços de Valor Lisbon Commercialization of value addedproducts and services in the Meo Comunicações (90%) 90.00% 90.00% Acrescentado, Lda área of information and communication by computer through access to the Infonet world network. Openideia - Tecnologias de Aveiro Provision of IT systems and services. PT Inovação e Sistemas (100%) 100.00% 100.00% Telecomunicações e Sistemas de Informação, S.A. Portugal Telecom Data Centre, SA Covilhã Provision of services and product supply in the area of information PT Portugal (100%) 100.00% 100.00% systems and technologies, including data processing, hosting and related aspects.

PT Pay, SA Lisbon Providing payment services. PT Portugal (100%) 100.00% 100.00%

Portugal Telecom Inovação e Aveiro Innovation, research, development and integration of PT Portugal (100%) 100.00% 100.00% Sistemas, SA (“PT Inovação e telecommunications services and engineering solutions and Sistemas”) training services in telecommunications. Postal Network – Prestação de Lisbon Providing postal network services. Meo Comunicações (51%) 51.00% 100.00% Serviços de Gestão de Infra-estrutura de comunicações ACE Previsão – Sociedade Gestora de (b) Lisbon Pension fund management. PT Portugal (82,05%) 82.05% - Fundos de Pensões, SA PT Centro Corporativo, SA (b) Lisbon Providing consultant service to Group companies. PT Portugal (100%) 100.00% - MEO – Serviços de Comunicações e (c) Lisbon Provision of fixed network services and mobile telecommunications PT Portugal (100%) 100.00% 100.00% Multimédia, S.A. services and the establishment, management and operation of ("Meo Comunicações") telecommunications networks. PT Contact - Telemarketing e Lisbon Production, promotion and sale of information systems, including PT Portugal (100%) 100.00% 100.00% Serviços de Informação, SA ("PT information products and services and related technical Contact") assistance. PT Imobiliária, SA Lisbon Administration of real estate assets, real estate investment PT Pro (100%) 100.00% 100.00% consultancy, management of property developments, purchase and sale of real estate. PT Investimentos SA (“PT I”) (b) (f) Lisbon Business advisory board service installment, consultation, PT Portugal (100%) 100.00% - administration and business management. Elaboration of projects and economic studies and manage investments.

PT Móveis, SGPS, SA (“PT Móveis”) Lisbon Management of investments in the mobile business. Meo Comunicações (100%) 100.00% 100.00%

PT Participações, SGPS, SA (d) (f) Lisbon Management of investments. PT Móveis (100%) 100.00% -

PT Prestações-Mandatária de Lisbon Acquisition and management of assets. Meo Comunicações (100%) 100.00% 100.00% Aquisições e Gestão de Bens, SA (“PT Prestações” )

PT Pro, Serviços Administrativos e de Lisbon Shared services center. PT Portugal (100%) 100.00% 100.00% Gestão Partilhados, SA PT Sales - Serviços de Lisbon Provision of telecommunications services and IT systems and PT Portugal (100%) 100.00% 100.00% Telecomunicações e Sistemas de services. Informação , SA ("PT Sales") PT Ventures, SGPS, SA (a) (f) Madeira Management of investments in international markets. Africatel BV (100%) 75.00% -

PT Cloud e Data Centers, SA (“PT Oeiras Provision of IT systems and services. PT Portugal (99,8%); Meo Comunicações (0,2%) 100.00% 100.00% Cloud”)

MEO – Serviços de Comunicações e (c) Lisbon Provision of fixed network services and mobile telecommunications Meo Comunicações (100%) - 100.00% Multimédia, S.A. services and the establishment, management and operation of telecommunications networks. TPT - Telecomunicações Publicas de (a) (f) Lisbon Purchase, sale and services rendering of telecommunications PT Participações (76,14%) 76.14% - Timor, SA (“ TPT” ) products and information technologies in Timor

Use.it® - Virott e Associados, Lda. (e) Lisbon Provision of research, design, programming, information and PT Investimentos (52,50%) 52.50% - support systems. PT BlueClip Lisbon Providing consultant service to Group companies. Meo Comunicações (100%) 100.00% 100.00% (a) These entities were consolidated as from 2 May 2014, following the acquisition of PT Participações. (b) These entities were acquired by PT Portugal from PT SGPS in the first half of 2014. (c) Meo, S.A. (former TMN) was merged into PT Comunicações, S.A. on 29 December 2014, and the latter was renamed to MEO - Comunicações and Multimedia Services, SA.. (d) As mentioned in Note 1, PT Móveis acquired the investment in this company on 2 May 2014. (e) This company is currently not developing any activity. (f) These entities are classified as held for sale since September 2014 (Note 30). Notwithstanding, these entities are still consolidated in these financial statements and its assets and liabilities are presented under specific captions of assets and liabilities held for sale in the Consolidated Statement of Financial Position.

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Other subsidiaries

PERCENTAGE OF OWNERSHIP

Dec 14 Dec 13 Company Notes Head office Activity Direct Effective Effective Carrigans Finance S.A.R.L (a) (b) Luxembourg Management of investments. PT Móveis (100%) 100.00% -

Bratel BV (c) Amsterdam Management of investments. PT Móveis (100%) - 100.00%

Bratel Brasil, SA (c) São Paulo Management of investments. Bratel BV (98,77%) - 100.00%

PTB2, S.A. (former Istres, S.A.) (c) São Paulo Management of investments. PT Inovação Brasil (90%); PT Brasil (10%) - 100.00%

Portugal Telecom Brasil, S.A. (d) São Paulo Management of investments. PT Portugal (100%) 100.00% -

Portugal Telecom Inovação Brasil, São Paulo Development of information technologies and telecommunications PT Inovação e Sistemas (100%) 100.00% 100.00% Ltda. services. PT Multimédia.com Brasil, Ltda. (d) São Paulo Management of investments. PT Brasil (100%) 100.00% - (“ PTM.com Brasil” ) Cabo Verde Móvel, S.A. (a) (e) Praia Mobile telecommunications services in Cabo Verde. Cabo Verde Telecom (100%) 30.00% -

Cabo Verde Multimédia, S.A. (a) (e) Praia Multimedia telecommunications services in Cabo Verde. Cabo Verde Telecom (100%) 30.00% -

Cabo Verde Telecom, SARL (a) (e) Praia Provides telecommunications services. PT Ventures (40%) 30.00% - Cellco - Ste Cellulaire du Congo SARL (f) Congo Telecommunications services in Congo PT Investimentos (61%) 61.00% -

Contact Cabo Verde – Telemarketing Praia Call and contact center services. PT Contact (100%) 100.00% 100.00% e Serviços de Informação, SA CST – Companhia Santomense de (a) São Tomé Fixed and mobile telecommunication services in São Tomé e Africatel BV (51%) 38.25% - Telecomunicações, SAR.L. Príncipe. Directel Cabo Verde – Serviços de (a) Praia Publication of telephone directories and operation of related Directel (60%); Cabo Verde Telecom (40%) 57.00% - Comunicação, Lda. databases in Cabo Verde Directel Uganda – Telephone (a) Uganda Publication of telephone directories. Directel (100%) 75.00% - Directories, Limited Elta - Empresa de Listas Telefónicas (a) Luanda Publication of telephone directories. Directel (55%) 41.25% - de Angola, Lda. Openideia Marrocos, S.A. Casablanca Provision of IT systems and services. PT Inovação e Sistemas (100%) 100.00% 100.00%

Openideia Angola, S.A. Luanda Provision of telecommunications services and IT systems and PT Inovação e Sistemas (100%) 100.00% 100.00% services. Kenya Postel Directories, Ltd. (a) Nairobi Production, editing and distribution of telephone directories and Directel (60%) 45.00% - other publications. LTM - Listas Telefónicas de (a) Maputo Management, editing, operation and commercialization of listings Directel (50%) 37.50% - Moçambique, Lda. of subscribers and classified telecommunications directories.

Mobile Telecommunications Limited (a) (g) Namíbia Mobile cellular services operator Africatel BV (34%) 25.50% -

TMM - Telecomunicações Móveis de (a) (b) Maputo Mobile cellular services operator PT Participações (97,5%) 97.50% - Moç ambique, S.A. Africatel GmBH (a) Germany Management of investments PT Participações (100%) 100.00% -

Africatel Management, GmBH (h) Berlin Management of investments PT Participações (100%) 100.00% -

Africatel Holdings, BV (a) Amsterdam Management of investments Africatel GmbH (75%) 75.00% -

STP Cabo, SARL (a) São Tomé e Submarine cable manager CST (74,5%) 28.50% - Principe CVTEL, BV Amsterdam Management of investments. PT Móveis (100%) 100.00% 100.00%

Portugal Telecom Internac ional (i) Amsterdam Obtaining financing for the group in international markets. PT Portugal (100%) 100.00% - Finance B.V Timor Telecom, SA (a) Timor Provider of telecommunications services in Timor TPT (54,01%); PT Participações (3.05%) 44.17% -

Open Labs Pesquisa e (h) Rio de janeiro Development and licensing of computer customizable programs PT Inovação Brasil (99,8%) 99.80% - desenvolvimentos, Lda

(a) These companies were consolidated as from 2 May 2014 following the acquisition of PT Participações (Note 1). As at 31 December 2014, these same entities are presented as held for sale (Note 1). (b) These companies are currently not developing any activity. (c) These companies are no longer part of the Group following the disposal of the investment in Bratel BV completed on 2 May 2014 (Note 1). (d) PT Portugal acquired from Portugal Telecom the investment in PT Brasil in the first half of 2014, an entity that holds a 100% interest in PT Multimédia.com Brasil. (e) PT Portugal fully consolidated the financial statements of this entity because it had the majority of board members of Cabo Verde Telecom and therefore was able to control its financial and operating policies. (f) The investment in this entity was acquired through the acquisition of the 100% interest in PT Investimentos previously held by Portugal Telecom (Note 1). (g) Under the shareholders agreement entered into with the remaining shareholders of MTC, PT Portugal has the power to set and control financial and operating policies of this company. (h) These entities were incorporated in 2014. Africatel GmbH is classified as held for sale since September 2014. (i) The investment in this entity was acquired on 5 May 2014, as mentioned in Note 1.

PT Portugal | Consolidated Report | 2014 139

II. Associated companies, joint ventures and other entities

Associated companies located in Portugal

PERCENTAGE OF OWNERSHIP

Dec 14 Dec 13 Company Notes Head office Activity Direct Effective Effective Janela Digital - Informativo e Caldas da Development of IT solutions to the real state market. Meo Comunicações (50%) 50,00% 50,00% Telecomunicações, Lda Rainha Caixanet – Telemátic a e Lisbon Provision of e.banking services. Meo Comunicações (10%); PT Cloud e Data Centers 15 , 0 0 % 15 , 0 0 % Comunicações, SA (5%) Capital Criativo - SCR, SA Loures Management of investments. Meo Comunicações (20%) 20,00% 20,00% Entigere – Entidade Gestora Rede (a) Lisbon Networks management. PT Participações (25%) 25,00% - Multiserviços, Lda. INESC – Instituto de Engenharia de Lisbon Scientific research and technological consultancy. Meo Comunicações (41,38%) 41,38% 41,38% Sistemas e Computadores, SA ("INESC") Multicert – Serviços de Certificação Lisbon Supply of electronic certification services. Meo Comunicações (20%) 20,00% 20,00% Electrónica, SA PT P&F ACE Lisbon Consultancy services, advice and support to the implementation of Meo Comunicações (49%) 49,00% 49,00% printing & finishing processes. Yunit Serviços, SA Lisbon Provision of development and consultancy services in the areas of Meo Comunicações (33,33%) 33,33% 33,33% electronic commerce, contents and information technology.

Siresp – Gestão de Rede Digitais de (a) Lisbon Networks management. PT Participações (30,55%) 30,55% - Segurança e Emergência, SA Sportinvest Multimédia, SGPS, SA Lisbon Management of investments. Meo Comunicações (50%) 50,00% 50,00% Tradeforum-Soluções de Comercio Lisbon Provides solutions for e-commerce business-to-business on the Yunit Serviços (50%) 16,67% 16,67% Electronico, A.C.E. domestic market and solutions for automate the purchase process. Vantec – Tecnologias de Vanguarda (a) Lisbon Solutions and equipments for the audiovisual sector. PT Investimentos (25%) 25,00% - Sistemas de Informação, S.A. Auto Sapo Venda Já Lisbon Acquisition and sale of vehicles. Meo Comunicações (50%) 50,00% 50,00% (a) The investments in these companies were obtained following the acquisition of PT Participações on 2 May 2014, previously held by Portugal Telecom (Note 1).

Associated companies outside Portugal, jointly controlled entities and other entities:

PERCENTAGE OF OWNERSHIP

Dec 14 Dec 13 Company Notes Head office Activity Direct Effective Effective Multitel - Serviços de (a) Luanda Provision of data communications services and digital information PT Ventures (40%) 30.00% - Telecomunicações, Lda. communication services, in Angola. Unitel, SARL. (a) (b) Luanda Provision of mobile telecommunications services in Angola. PT Ventures (25%) 18.75% - Hungaro Digitel KFT (a) Budapest Provision of telecommunications services. PT Participações (44.62%) 44.62% -

Ericsson Inovação, SA (c) São Paulo Development and licensing of computer non-customizable PT Inovação Brasil (49%) 49.00% 49.00% programs (a) The investments in these companies were obtained following the acquisition of PT Participações (Note 1) on 2 May 2014. (b) As mentioned in Note 1, the investment in Unitel was initially acquired on 2 May 2014 in connection with the acquisition of PT Participações, and was classified on this date as available for sale as the Company concluded that its minority interest did not provide it significant influence over the financial, operational and strategic policies of this entity. As at 31 December 2014, this investment, together with the remaining international businesses, is presented as held for sale (Note 1). This company is jointly controlled.

PT Portugal | Consolidated Report | 2014 140

Independent auditor's report

PT Portugal | Consolidated Report | 2014 141

Supervisory Board's report

PT Portugal | Consolidated Report | 2014 147

SUPERVISORY BOARD’S REPORT AND OPINION

(CONSOLIDATED FINANCIAL STATEMENTS) 2014 FINANCIAL YEAR

(Free translation into English from the original document issued in Portuguese. In case of doubt or misinterpretation the Portuguese version will prevail)

To the Shareholders,

In accordance with the mandate assigned to us and the legislation in force, namely Article 420 (1) (a) of the Companies Commercial Code, as well as the Company’s statutory articles of association, we hereby present our report on the supervisory activity we carried on since we were elected and give our opinion on the Management Report and the consolidated financial statements presented by the Board of Directors of PT PORTUGAL, SGPS, S.A., with respect to the year ended 31 December 2014.

INICIAL STATEMENT

This Supervisory Board was elected at the General Assembly held on 28 November 2014 to complete the mandate 2012-2014. Consequently, our activity during the year of 2014 did not include some of the legal and statutory duties assigned to us, namely (a) we did not accompanied the Company’s activity during the first eleven months of the year, (b) we did not report on the 2015 Company’s budget and (c) we did not make any proposal for the appointment of the Independent Auditor witch was also elected in the aforementioned General Assembly held on 28 November 2014.

Under these circumstances, our supervisory activity was focused mostly on obtaining an understanding and make the monitoring of the financial statements closing process. Nevertheless, since the aforementioned date, we had the opportunity to hold several meetings with the Board of Directors, the Company’s departments and the Statutory /Independent Auditor in order to obtain and evaluate the internal control systems and business risks, and to understand and evaluate the effects of the most relevant business transactions made by the Company which we summarise below.

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ACTIVITIES UNDERTAKING

Under the legal and statutory competencies and the related Supervisory Board rules, all the Supervisory Board members have attended several meetings and have taken further actions, which are dully summarised in the respective minute’s book. The following is a summary of the most relevant meetings:

 Meetings with the Board of Directors aiming to obtain an understanding and knowledge of the businesses evolution in general and, particularly, the effects on the consolidated financial statements of the transactions undertaken during the year between related parties following the business arrangements agreed between the sole shareholder Oi, S.A. and the Companies Altice, S.A. and Altice Portugal, S.A., which are detailed in the Management Report and the notes to the consolidated financial statements.  Meetings with the Internal Audit Department with the objective of having knowledge of the planned works and actions to be carried on during the year and accompanying the work done and the conclusion reached based on such work which included the companies, processes and applications selected for testing.  Meetings with Accounting, Reporting and Taxation Department to assess the regular process of the accounting books and records, the appropriate and consistent application of the accounting principles and policies under the applicable accounting framework, and the most relevant accounting effects of the transactions made and the financial statements closing process.  Meetings with the Statutory / Independent Auditor to accompany the audit works carried on and the conclusions reached and to discuss the most relevant audit issues and the related draft audit report.

NON RECURRING EVENTS

As it is dully reported in detail in the Management Report and the notes to the consolidated financial statements, a series of transactions have occurred during the financial year of 2014 which the Supervisory Board considers should be highlighted given its relevance and impact in the consolidated financial statements of PT Portugal, SGPS, S.A.:

 Acquisition by PT Portugal, SGPS, S.A. to Portugal Telecom, SGPS, S.A. of the total shares of the companies PT - Centro Corporativo, S.A., Portugal Telecom Investimentos, S.A., Portugal Telecom International Finance, B.V. and Portugal Telecom Brasil, S.A..

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 Sale by the undertaken PT Móveis – Serviços de Telecomunicações, SGPS, S.A., to Portugal Telecom, SGPS, S.A. of BRATEL, BV (an holding company that holds the investment in Oi, S.A. and in CONTAX).  Acquisition by PT Móveis – Serviços de Telecomunicações, SGPS, S.A. of PT Participações, SGPS, S.A.. At the date of this acquisition the main asset of PT Participações, SGPS, S.A. was an indirect interest of 18,75% in the share capital of UNITEL, S.A. (a company under the Angolan law).  Transfer of other assets and liabilities (loans) from Portugal Telecom, SGPS, S.A. to PT Portugal, S.A. and reimbursement by the later to Portugal Telecom, SGPS, S.A. of supplementary capital.

OTHER RELEVANT EVENTS

At the date of this report, and as it is also dully reported in detail in the Management Report and the notes to the consolidated financial statements, the following operations are pending approval:

 The execution of the contract to exchange Rioforte, S.A. debt securities for Oi, S.A. ordinary and preferred shares, which is pending decision from the General Assembly of Oi, S.A. to be held on 26 March 2015.  The conclusion of the process of the sale of PT Portugal, SGPS, S.A. to ALTICE, S.A. is pending decision from regulators.

COMPARABILITY OF 2013 AND 2014 FINANCIAL STATEMENTS

Following the changes in the consolidation perimeter of PT Portugal, SGPS, S.A., resulting mainly from the transactions between related parties, dully highlighted and detailed in the Management Report and summarised in the heading “NON RECURRING EVENTS” above, the consolidated financial statements of 2014 are not directly comparable to 2013 since these were prepared only on a pro forma basis.

OPINION ON THE MANAGEMENT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

We consider that the Management Report and consolidated financial statements for the year ended 31 December 2014, read as a whole, explain with sufficient detail and clarity the evolution of businesses, the consolidated financial position and performance and the

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consolidated cash flows in compliance with the requirements of the law and the Company’s statutory articles of association.

Accordingly, taking into consideration the activities carried on by the Supervisory Board as well as the conclusions set out in the auditor’s report issued by the Statutory / Independent Auditor, with which we agree, we are of the opinion that:

(a) The Management Report should be approved; (b) The consolidated financial statements should be approved.

Lastly, the Supervisory Board wish to express its gratitude to the Board of Directors, the Statutory /Independent Auditor, and the Company’s services directors for all the cooperation and assistance given to our work.

Lisboa, 26 March de 2015

Vitor Manuel Ferreira Lúcio da Silva (President)

José Manuel Gonçalves de Morais Cabral (Member)

Óscar Manuel Machado Figueiredo (Member)

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Remunerations policy

REMUNERATION COMMITTEE STATEMENT ABOUT THE REMUNERATION POLICY OF THE BOARD OF DIRECTORS AND SUPERVISORY MEMBERS OF PT Portugal SGPS

Regarding the provisions of Law 28/2009, from June 19th, the Remuneration Committee hereby submits to the approval of the Shareholders’ General Meeting the following statement on the remuneration policy of the governing members of PT Portugal SGPS.

I. Executive Directors' Remuneration Policy

A) Mechanisms to line up the interests of the Board of Directors members with the interests of the company

Remuneration systems are one of the main mechanisms available to a Company to attract, retain and motivate the best professionals, being able to maximize the value of a company and to achieve efficiently strategic goals set for it, so that the Company can meet its strategic objectives within the increasingly competitive and globalized scenario in which develops its activity.

The experience of recent years has shown, however, that the structure of remuneration of the Directors of a company must also ensure the alignment of their interests with the interests of the company and, in particular, with their long-term interests and, also, be based on an effective performance assessment of the members of the Board of Directors.

Having this in mind, and considering national and international best practices, remuneration of PT Portugal SGPS Executive Directors has a fixed and a variable component.

Fixed Remuneration The fixed remuneration corresponds to a monthly salary, being paid 14 times per year, which amount is determined by the Remuneration Committee, taking into account the responsibilities assigned and the practices in the market regarding similar positions in national and international companies.

Variable Remuneration

PT Portugal | Consolidated Report | 2014 152

PT Portugal SGPS‘s variable remuneration policy is governed by the following guiding principles:

 Pursuing and achieving goals through quality, work capacity, dedication and business know-how;  Implementation of a professionalized management philosophy based on the definition and control of achievement of measurable goals;  Pursuing excellence in management, through a set of business practices of reference, enabling the company to obtain the balance and the corporate sustainability, that is, developing its activity not only on the economic front, but also on the social and environmental front;  Consistency of the remuneration policy with an effective risk management and risk control to avoid excessive exposure to risk and potential conflicts of interests. Risk management and risk control should be consistent with the goals, long-term values and interests of PT Portugal SGPS.

In this context, Executive Directors’ variable remuneration is set annually by this Remuneration Committee, considering their performance in the previous period, and the company’s goal achievement.

Other conditions Executive Directors of the Board shouldn’t sign contracts with PT Portugal SGPS neither with other companies in order to mitigate the risk of remuneration variability that has been fixed by the company.

B) The existence of company stocks assignments or stock purchase options by the Board of Directors and Supervisory members

Not in force in PT Portugal SGPS any stock assignment plan or stock purchase options by the members of its Board of Directors.

C) The possibility of the variable remuneration payment, if it exists, to be made, in whole or in part, after the clearance of the annual accounts corresponding to the entire term of office.

Executive Directors’ variable remuneration is annually paid after the clearance of the annual accounts of the company, regarding the previous term of office, in a General Meeting.

PT Portugal | Consolidated Report | 2014 153

II. Supervisory Board Members’ Remuneration Policy

A) Mechanisms to line up the interests of the Supervisory Board members with the interests of the company

According to n.º 1 of Article 422-A of the Companies Code, the remuneration of members of the Supervisory Board of PT Portugal SGPS is exclusively composed by a fixed component.

The amount of remuneration of Supervisory Board members is fixed by the following items, set by random order:

(i) Remuneration practices of other companies from the same industry and size of PT Portugal SGPS; (ii) Qualification levels, skills and experience required; (iii) Nature and complexity of the responsibilities assigned; (iv) The need to ensure an adequate level of independence and impartiality of the members of the Supervisory Board in the performance of their duties.

B) Criteria for definition of the variable remuneration

Not applicable.

C) The existence of company stocks assignments or stock purchase options by the Board of Directors and Supervisory members

Not applicable.

D) The possibility of the variable remuneration payment, if it exists, to be made, in whole or in part, after the clearance of the annual accounts corresponding to the entire term of office

Not applicable.

III - Payments for the dismissal or termination by agreement of members of the corporate Board of Directors

PT Portugal | Consolidated Report | 2014 154

The Company is no defined general policy on payments related to dismissal or agreed termination of corporate board of directors. However, in each case and by agreement between the company and the director, the company can set the compensation amounts due to the directors leaving the company.

Lisbon, 25th february 2015

The Remuneration Committee

PT Portugal | Consolidated Report | 2014 155

Glossary

ARPU Average Revenue per User. Monthly average service revenues per average number of users in the period.

Capex Capital expenditure. Investments in tangible and intangible assets.

Cash flow The difference between cash inflows and cash outflows for a specific period.

CCPU Cash Cost Per User. CCPU = monthly average operating costs minus provisions, depreciation and amortisation, and cost of equipment sales, per average number of users in the period.

Cloud services Services delivering virtual and centralised IT/IS resources, that differentiate from traditional IT approach due to the availability through a network on “as a service” and on demand model, offering a pay as you use pricing to the customer. Cloud services usually include infrastructure (IaaS), software (SaaS) and plataforms (PaaS), and are growing to other portfolio areas like communication (CaaS) and security.

CRM Customer Relationship Management.

Curtailment costs Work force reduction programme costs.

Diluted earnings per Earnings per share computed using net income excluding the costs associated with the share convertible bonds divided by the diluted number of shares.

EBITDA EBITDA = income from operations + PRBs + depreciation and amortisation.

EBITDA margin EBITDA Margin = EBITDA / operating revenues.

Enterprises Customer segment that includes all SOHOs, SMEs and corporate customers that subscribe wireline and wireless products and services. All figures are gross of intercompany eliminations.

Free cash flow Free cash flow = operating cash flow +/- acquisitions/sales of financial investments +/- net interest paid – payments related with PRB – income taxes paid +/- dividends paid/received +/- other cash movements.

FTTH Fibre-to-the-home. Next generation network that brings fibre to the customer premises.

GSM Global System for Mobile.

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Glossary 7

HDTV High Definition Television. Transmission of the television signal with a higher resolution than the traditional formats.

IAS/IFRS International Accounting Standards/International Financial Reporting Standards. The new international accountancy standards introduced as of 1 January 2005.

Income from Income from operations = income before financials and taxes + workforce reduction costs operations + losses (gains) on disposal of fixed assets + net other costs.

IP Internet Protocol. Standard that specifies the exact format of packets of data as they are transmitted through an Internet network.

IPTV Internet Protocol Television. Digital television service available over a fixed telephony line, through a broadband connection.

ISDN Integrated Services Digital Network. Digital telecommunications network that allows simultaneous voice and data transmission over an access line.

ISP Internet Service Provider. Company that provides access to the Internet.

MMS Multimedia Message Service.

MOU Minutes of Usage. Monthly average of outgoing and incoming traffic in minutes per average number of users in the period.

NGAN Next generation access network

Net Debt Net debt = short-term debt + medium and long-term debt - cash and equivalents

Net debt to EBITDA Net debt to EBITDA = Net debt / EBITDA

Non-voice revenues Percentage of retail service revenues related to data, video or other non-voice services. as % of revenues

Operating cash flow Operating cash flow = EBITDA - capex +/- change in working capital +/- non-cash provisions. Pay to basic ratio Pay to basic ratio = total premium subscriptions per number of Pay TV customers.

Personal Customer segment that includes all consumer customers that subscribe to wireless products and services on an individual basis. All figures are gross of intercompany eliminations.

PBO Post Retirement Benefits Obligations.

PRB Post Retirement Benefits Costs.

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Glossary 7

PSTN Public Switched Telephone Network. Traditional telephone system that runs through copper lines.

Residential Customer segment that includes all consumer customers that subscribe to wireline products and services at home on an individual basis. All figures are gross of intercompany eliminations.

Retail RGU per access Retail accesses per PSTN/ISDN line.

SARC Subscriber Acquisition and Retention Cost. SARC = (70% of marketing and publicity costs + commissions + subsidies) / (gross additions + upgrades).

SMS Short Message Service. Short text messages service for mobile handsets, allowing customers to send and receive alphanumerical messages.

Triple-play Offer Integrated offer of voice, television and Internet services.

VoD Video-on-demand. System that allows users to select and watch videos.

Wholesale, Other and Customer segment that includes all the wireline and wireless wholesale business for, the Eliminations other businesses (e.g. directories) and all intercompany eliminations that are related to the Portuguese telecommunications businesses.

3G 3Generation. Third generation is a generic term, covering several technologies for mobile networks (UMTS, W-CDMA and EDGE), that integrate mobile multimedia services and allows a higher data transmission rates than GSM technology.

4G-LTE 4Generation. Fourth generation is a generic term, covering technologies for mobile access network (LTE/LTE Advanced) with high spectral efficiency, high peak data rates, short round trip time and frequency flexibility allowing enhanced broadband and multimedia services.

Quadruple-play Offer Integrated offer of voice, television mobile and Internet services.

Quintuple-play Offer Integrated offer of voice, television mobile and fixed and mobile Internet services.

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Additional information

Contacts

Investor relations

Marco Norci Schroeder Investor Relations Director PT Portugal Avenida Fontes Pereira de Melo, 40 1069 - 300 Lisboa, Portugal Tel: +351 21 500 7979 Fax: +351 21 500 8000

Website

All publications and communications, in addition to information on the company’s products, services and business are also available at www.telecom.pt

Registered office

PT Portugal, SGPS, SA Avenida Fontes Pereira de Melo, 40 1069-300 Lisboa, Portugal Tel: +351 21 500 2000

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