Nos, Sgps, S.A

NOS, SGPS, S.A.

Primary Credit Analyst: Thibaud Lagache, Paris + 33 14 420 6789; [email protected]

Secondary Contact: Xavier Buffon, Paris + 33 14 420 6675; [email protected]

Table Of Contents

Credit Highlights

Outlook

Our Base-Case Scenario

Company Description

Peer Comparison

Business Risk

Our assessment of NOS' business risk is balanced by:

Financial Risk

Liquidity

Covenant Analysis

Issue Ratings - Subordination Risk Analysis

Ratings Score Snapshot

Related Criteria

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 1 NOS, SGPS, S.A.

Business Risk: SATISFACTORY Issuer Credit Rating Vulnerable Excellent

bbb- bbb- bbb-

BBB-/Stable/-- Financial Risk: INTERMEDIATE

Highly leveraged Minimal

Anchor Modifiers Group/Gov't

Credit Highlights

Overview

Key strengths Key risks Leading position in Portugal's pay-TV market, a well-established Direct competition with two other strong brands (Altice, owned by presence in fixed broadband as the close no. 2 operator, and a distant Portugal Telecom [PT] and Vodafone), that operate overlapping no. 2 position in the postpaid mobile services market. platforms and offer converged services within Portugal's small service area. Well-invested fixed networks provide over 100 megabits per second Mature, highly penetrated market, and ongoing fiber deployment will (Mbps) to more than 73% of broadband customers, supporting higher further limit network and speed differentiation. fixed average revenue per user than for competitors. Flexible fixed-mobile offering, strong local content, and a Heavy capital expenditure (capex), including spending on networks, well-established brand have fueled solid organic growth of about 2.9% satellite capacity, subscriber acquisitions costs, and catching up with over 2014-2019. competitors in terms of 4g mobile coverage. A strong balance sheet and sound financial policy with targeted Entrance of Masmovil (via Nowo) in the Portuguese market, together leverage of about 2.0x. The ability to monetize its mobile network with the rising penetration of over-the-top (OT) providers intensify infrastructure provides additional flexibility. competition.

The COVID-19 pandemic did not materially affect NOS, SGPS, S.A.'s (NOS) telecom operations and overall credit metrics. NOS' telecom segment, which represents about 95% of total revenues (pre-COVID-19), has been relatively resilient to the pandemic. Revenues declined by 2.6% year-on-year (excluding the diposal of NOS' international Voice Carrier unit) as lower roaming revenues--which have been negatively impacted by pandemic-related travel restrictions--were partially offset by increased revenues from broadband services, as contract upgrades to faster internet speeds were fostered by remote working and stay-at-home orders. Lockdowns and delayed movie production severely limited cinema and audiovisuals operations in 2020 which declined by 55%. As the cinema and audiovisual segment only account for a small part of total revenue and roaming is a low margin activity, group EBITDA (IFRS 16) only declined by about 6% (including the disposal of NOS' international Voice Carrier unit) to €603 million, from €641 million in 2019, while margins rose slightly above 44%, from about 40% in 2019. As a result, and despite adjusting for NOS' provisions for losses due to the impact of the pandemic (about €43 million), impact on credit ratios in 2020 were contained.

S&P Global Ratings expects that NOS will continue to show low organic single-digit revenue growth supported by improving macroeconomic conditions and a sustained pace of growth in more value-added convergent bundles, despite tough competition. We anticipate NOS' telecom revenues to grow by about 2.0% on average per year over 2021-2023,

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 2 NOS, SGPS, S.A. combined with flat growth for the audiovisual and cinemas segment in 2021 and progressive recovery by 2022. We believe this will be driven by a recovery in roaming revenues and sustained demand for broadband services and high-margin convergent bundles. NOS' integrated and convergent subscribers represented about 62% (977,000) of the total fixed customer base, leaving additional room for growth. We expect this growth will also be supported by the increasing coverage of its 4G+ mobile network and the ongoing upgrade of its fixed network. This follows two reciprocal network sharing agreements it concluded in the past: fixed-network sharing agreement reached with Vodafone in 2017, and DS Telecom in 2019. We expect that, by 2022, about 70% of NOS' footprint (3.3 million Portuguese households) will use fiber to the home (FTTH) technology compared with 40% today. In 2020, NOS signed a mobile network sharing agreement with Vodafone that encompasses passive infrastructure (towers and poles) across Portugal and active mobile network elements (i.e. radio equipment, antennas, and amplifiers) in low-density areas only. Additionally, we believe NOS' margins and cash flow will likely improve further thanks to the reduction of future operating costs and network investments, which will increase its operating leverage.

The competitive landscape is set to evolve, but we do not expect a material impact in the medium term. The terms and conditions of the 5G spectrum auction in Portugal allowed the entrance of Masmovil via Nowo (Masmovil raised its stake to 100% from 49.99% in November 2020). However, we see only a limited risk in the medium term, as this will require significant investments and costs to compete against the three established players. This is because Nowo is operating through an underinvested, small cable network (docsis 3.0) covering only about 0.9 million homes in medium-density areas, has sold its business-to-business activities (Oni) and has no mobile network, except small spectrum holdings for now. Mobile and fixed network accesses are available in the market, but at a cost: both PT and NOS sold their tower portfolio to Cellnex, and PT sold a 49.99% stake in its FTTH network to Morgan Stanley Infrastructure, for a combined amount of €3.0 billion. In addition, Nowo has only limited pay-tv offerings and no access to major sport events. Sport rights are equally shared among the established players and Global Media Group, through a joint venture and secured until 2028. Given that pay-tv offering is fundamental in Portugal--because of the relatively poor Free to Air offer--and that the telecom market is mostly convergent (households penetration of mobile and fixed bundled service, or 4/5 play (p), is at around 51%), competition would most likely start on the lower-margin, single, or dual play market. We believe NOS' strong brand recognition , pay-TV offering (sport, local contents), outside of over-the-top services, and strong share of convergent customers (NOS 4/5P customers represented 62% of its fixed access customer base) will continue to provide solid protection against competition. NOS has set ambitious targets and sought partnerships to deploy fiber and to remain broadly independent from Altice's FTTH network. We believe this will continue to support solid pay-TV net customer additions, which are the basis for upselling its convergent offers.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 3 NOS, SGPS, S.A.

Chart 1

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 4 NOS, SGPS, S.A.

Chart 2

NOS is Portugal's second-largest national and converged operator. The company's historically strong pay-TV offering and its no. 1 position in the pay-TV market has resulted in a solid share of net adds across all services since mid-2014, thanks to a nationwide next generation network (NGN) covering over 90% of households through FTTH (about 40%) and Docsis3.1 cable (about 60%) as of Dec. 31, 2020. NOS' well-invested fixed networks, which provides broadband speed of over 100Mbps to more than 73% of broadband customers, strong local content, and very flexible "pick and mix" tariff plans have led to high revenue generating units (RGU) per subscribers, supporting higher fixed average revenue per customer (ARPU) than competitors.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 5 NOS, SGPS, S.A.

Chart 3

Chart 4

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 6 NOS, SGPS, S.A.

Chart 5

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 7 NOS, SGPS, S.A.

Chart 6

Outlook: Stable

The stable outlook reflects our expectation that NOS will continue to leverage its attractive brand and solid market position, deliver organic revenue growth, and gradually increase margins. We think this will position the company comfortably at our 'BBB-' rating level, with S&P Global Ratings-adjusted leverage comfortably below 2.5x and free operating cash flow (FOCF) to debt over 10%, steadily rising on moderating investments and increasing absolute EBITDA.

Downside scenario

We could take a negative rating action if adjusted leverage increased for a prolonged period above 2.75x, or if FOCF to debt deteriorated significantly below 10%. In our view, this could occur from a more aggressive financial policy than we foresee, if NOS experienced declining revenue, or if margins started to deteriorate, for example as a result of a market-wide price decline, which seems unlikely at this stage.

Upside scenario

We could raise the rating if NOS' performance is stronger than our base-case expectation and translates into FOCF to debt significantly above 15%, and adjusted leverage sustainably reducing toward 2.0x.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 8 NOS, SGPS, S.A.

Our Base-Case Scenario

Assumptions • The Portuguese telecom market will expand primarily from price increases and rising convergence adoption or service migration (vDSL/FTTB to FTTH), rather than from subscriber or household growth, which we expect will increase in line with inflation. We believe this is due to the already high penetration of telecom services (about 170% mobile penetration per population, about 87% and 91% of broadband and pay-TV penetration per household, respectively).

• NOS' total revenue will increase by about 3.0% per year on average over 2021-2023, driven by business, wholesale, and telecom services.

• We anticipate consumer revenue will increase by 1.0% on average per year over 2021-2023, driven by yearly price increases (slightly above the inflation rate) in convergent packages, further adoption of quad-play packages, with convergent customers reaching around 65% of the pay-TV base by 2021, and NOS' network expansion. We expect this will in turn support continuous, although moderate, RGU growth (1% on average per year) and fixed ARPU growth.

• Wholesale revenue will increase by around 20% on average per year over 2021-2022, on a gradual recovery in roaming revenues.

• We expect audiovisual revenues to remain negatively impacted in 2021, before rebounding by 90% to pre-COVID-19 levels in 2022.

• Adjusted EBITDA margins will improve to around 44% in 2021, from 38%-40% in 2019-2020, stemming from revenue growth and an improved customer mix.

• Total reported capex (including long-term contracts) will increase at about €510 million per year over 2021–2023, from around €476 million in 2020, excluding spectrum costs for 5G. Capex will mainly stem from the continuing FTTH upgrade and 5G network roll-out, together with NOS' mobile network overhaul that it initiated in late 2017 to optimize spectrum utilization.

• Spectrum payments (excluded from FOCF) of about €57 million in 2021, and €8 million per year from 2022 onward.

• Our expectation of a stable shareholder remuneration of about €140 million per year over 2021-2023.

Key metrics NOS, SGPS, S.A.--Key Metrics*

(Mil. €) 2019a 2020a 2021f 2022f 2023f Revenue 1,599 1,368 1,399 1,482 1,500 EBITDA margin (%) 38.29 39.43 43.97 43.97 44.17 Funds from operations (FFO) 566 478 560 594 604 Capital expenditure (438) (476) (510) (510) (511) Free operating cash flow (FOCF) 205 181 194 228 237 Reported FOCF after leases 144 123 106 136 144 Dividends (180) (143) (143) (143) (143) Debt to EBITDA (x) 2.3 2.6 2.6 2.4 2.3 FFO to debt (%) 40.8 34.0 35.6 37.7 39.0

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 9 NOS, SGPS, S.A.

NOS, SGPS, S.A.--Key Metrics* (cont.)

(Mil. €) 2019a 2020a 2021f 2022f 2023f FOCF to debt (%) 14.8 12.9 12.3 14.5 15.3

*All figures adjusted by S&P Global Ratings. a--Actual. e--Estimate. f--Forecast.

We expect solid reported cash flow (after leases) driven by network expansion and continued subscriber migration, helped with recovering roaming and cinema revenues. We forecast reported FOCF after leases will increase to about €144 million by 2023.

We believe sound financial policy and recovering cash flow generation will support deleveraging. Recurring EBITDA growth will improve leverage below 2.5x by 2022, in our opinion, despite moderately increasing revenue, higher capex, and shareholder distributions. Our adjusted leverage includes estimated 5G spectrum liabilities of around €57 million for 2021 (decreasing by around €8 million annually, assumed €125 million in total) as well as lease liabilities of around €600 million.

Company Description

NOS is the no.2 largest telecom operator in Portugal, behind the incumbent PT (acquired by Altice in January 2015) and ahead of Vodafone Portugal. Both in terms of revenue and subscribers, NOS is the no.1 in pay-TV, close no.2 in fixed broadband, and no.2 in postpaid mobile.

Its services include mobile and fixed broadband, as well as video production, sales and distribution, and cinema exhibitions (about 7% of total revenue pre-pandemic, 4% in 2020), for the consumer segment, which greatly contributes to its solid brand recognition. NOS has about 208 screens in its own network, and enjoys an above 62% cinema exhibition market share in Portugal.

NOS' footprint extends across Portugal through a nationwide NGN network covering over 90% of households (4.8 million) through two technologies: FTTH (about 40%) and Docsis3.1 cable (about 60%), as of Dec. 31, 2020.

NOS was formed in 2013 from the merger between Portugal's no.1 cable and audiovisual company Zon Multimedia (owned by Isabel Dos Santos), and the no.3 mobile operator Optimus (owned by Sonae, no.1 retailer in Portugal), in response to PT's launch of convergent offers (packages that include fixed and mobile services). This was the first convergent merger in Europe.

Isabel Dos Santos and Sonae equally own 52.15%, via a common holding vehicle Zopt, with the rest in free float. In August 2020, Sonae acquired a further 7.38% stake. At the same time, both parties announced their intentions to dissolve Zopt.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 10 NOS, SGPS, S.A.

Chart 7

Peer Comparison

Table 1 NOS, SGPS, S.A. -- Peer Comparison

Industry sector: Cable Tv

Hellenic Altice NOS, SGPS, Koninklijke Telecommunications Telekom Austria International S.A. KPN N.V. Organization S.A. DNA PLC AG S.a.r.l. Ratings as of April BBB-/Stable/-- BBB/Stable/A-2 BBB-/Stable/A-3 BBB+/Stable/-- BBB+/Stable/A-2 B/Negative/-- 1, 2021 --Fiscal year ended--

Dec. 31, 2020 Dec. 31, 2020 Dec. 31, 2020 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2019

(Mil. €) Revenue 1,367.9 5,285.0 3,258.9 928.5 4,565.2 3,901.5 EBITDA 539.3 2,453.0 1,159.1 334.7 1,553.2 1,402.6 Funds from 477.9 2,211.2 1,001.7 308.2 1,371.6 678.1 operations (FFO) Interest expense 23.4 222.8 62.3 8.5 109.7 687.8

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 11 NOS, SGPS, S.A.

Table 1 NOS, SGPS, S.A. -- Peer Comparison (cont.) Cash interest paid 27.5 241.8 69.2 5.5 111.5 563.7 Cash flow from 636.1 2,056.2 1,140.3 295.2 1,346.5 797.1 operations Capital 455.2 1,147.0 664.3 172.1 870.7 727.2 expenditure Free operating 180.9 909.2 476.0 123.1 475.9 69.9 cash flow (FOCF) Discretionary cash 32.7 367.0 75.8 123.1 335.8 57.8 flow (DCF) Cash and 143.5 867.0 516.2 7.6 140.3 395.5 short-term investments Debt 1,403.9 6,674.0 1,523.5 607.6 3,781.7 10,979.1 Equity 956.2 2,603.5 2,139.8 657.2 2,595.9 (542.1)

Adjusted ratios EBITDA margin 39.4 46.4 35.6 36.0 34.0 36.0 (%) Return on capital 6.0 9.9 8.8 12.8 10.1 3.2 (%) EBITDA interest 23.1 11.0 18.6 39.2 14.2 2.0 coverage (x) FFO cash interest 18.3 10.1 15.5 57.2 13.3 2.2 coverage (x) Debt/EBITDA (x) 2.6 2.7 1.3 1.8 2.4 7.8 FFO/debt (%) 34.0 33.1 65.7 50.7 36.3 6.2 Cash flow from 45.3 30.8 74.8 48.6 35.6 7.3 operations/debt (%) FOCF/debt (%) 12.9 13.6 31.2 20.3 12.6 0.6 DCF/debt (%) 2.3 5.5 5.0 20.3 8.9 0.5

Business Risk: Satisfactory

Our assessment of NOS' business risk is supported by:

• The company's 4G mobile network, which covers 99% of the Portuguese territory, combined with its well-invested next generation fixed network, which covers about 4.8 million domestic households through FTTH and Docsis3.1 cable. The company's fixed network provides speeds of 100Mbps to more than 73% of its fixed broadband customers, which supports higher consumer fixed ARPU (€44 per month on average) than competitors.

• Fixed network overbuild in Portugal allows a certain degree of independence and sound network competition.

• NOS owns a hybrid fiber-coaxial network (fully upgraded eurodcosis 3.1) covering about 2.9 million households and covers 1.4 million homes in FTTH. It has also entered shared FTTH network and radio access network-sharing agreements with Vodafone and DST to upgrade its coverage at lower cost.

• NOS' no. 1 position in pay-TV and its attractive brand, which successfully supported the upselling of fixed and mobile services with competitive convergent offerings. NOS has a strong track record of net customer gains,

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 12 NOS, SGPS, S.A.

translating into subscriber market shares of above 35% in fixed broadband (PT 40%), about 39% in pay-TV (PT 40%), and about 3.0 million of total postpaid mobile customers, which is well above the no. 3 operator Vodafone's 2.1 million, although behind PT's 3.2 million business-to-client postpaid customers.

• NOS' leading convergent position in terms of multiplay and quad-play bundles (revenue market shares over 40% and slightly ahead of PT).

• NOS' good customer service, which is illustrated by its relatively low churn, mitigating a more difficult network differentiation in a mature and highly penetrated market.

• Limited exposure to content cost inflation, as the rights for broadcasting major sporting events are equally shared among players through a joint venture and costs are frozen until 2027-2028, which is a unique model compared with the rest of Europe.

• Likely absent onerous regulatory risks, other than the recent roaming policy across Europe. Lower mobile termination rates (namely the fee one telecommunications operator charges another for terminating calls on its network) are largely offset by annual price increases.

Our assessment of NOS' business risk is balanced by:

• NOS having to compete with two other large players that operate overlapping platforms and also offer converged services, within Portugal's relatively small service area (10.3 million inhabitants, about 5.5 million households).

• The company's relatively limited scale and operations compared with market incumbent PT, which has a slightly larger network footprint of 5.4 million households versus NOS' 4.8 million, and with 5.2 million households connected to FTTH against 1.6 million for NOS. PT has a larger business and wholesale segment than NOS, although NOS has gained market share in recent years from PT.

• NOS' S&P Global Ratings-reported EBITDA margin (after leases), which is lower than that of PT and other European cable players.

• The uncertain impact of Altice's full and partial network disposals on competition.

• The entrance of Masmovil (via Nowo) in the Portuguese market. A fourth mobile operator may intensify competition in the long term.

Financial Risk: Intermediate

Our view of NOS' financial risk profile is supported by its solid balance sheet, with relatively low leverage of below 2.5x on average (despite a slight spike at 2.6x in 2020 due to the pandemic), sound and resilient FOCF generation, and a conservative financial policy targeting about 2.0x net reported leverage. Despite our forecast that NOS will distribute most of its FOCF to shareholders, we expect its adjusted leverage will slightly improve thanks to EBITDA growth, and will remain well at or below 2.5x over our forecast horizon through 2021-2022.

Financial summary

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 13 NOS, SGPS, S.A.

Table 2 NOS, SGPS, S.A.--Financial Summary

Industry sector: Cable TV --Fiscal year ended Dec. 31--

2020 2019 2018 2017 2016

(Mil. €) Revenue 1,367.9 1,599.2 1,576.2 1,561.8 1,515.0 EBITDA 539.3 612.4 618.8 596.8 560.9 Funds from operations (FFO) 477.9 565.5 576.0 537.2 497.5 Interest expense 23.4 22.4 32.4 33.0 33.1 Cash interest paid 27.5 28.0 39.2 42.3 42.1 Cash flow from operations 636.1 617.5 658.7 507.9 491.9 Capital expenditure 455.2 412.6 425.2 355.9 398.0 Free operating cash flow (FOCF) 180.9 205.0 233.5 152.1 93.9 Discretionary cash flow (DCF) 32.7 18.7 76.5 49.4 (8.9) Cash and short-term investments 143.5 2.8 2.2 3.0 2.3 Gross available cash 143.5 2.8 2.2 3.0 2.3 Debt 1,403.9 1,387.6 1,344.6 1,444.3 1,479.3 Equity 956.2 1,012.3 1,083.9 1,086.4 1,053.1

Adjusted ratios EBITDA margin (%) 39.4 38.3 39.3 38.2 37.0 Return on capital (%) 6.0 8.9 8.3 7.6 6.7 EBITDA interest coverage (x) 23.1 27.4 19.1 18.1 17.0 FFO cash interest coverage (x) 18.3 21.2 15.7 13.7 12.8 Debt/EBITDA (x) 2.6 2.3 2.2 2.4 2.6 FFO/debt (%) 34.0 40.8 42.8 37.2 33.6 Cash flow from operations/debt (%) 45.3 44.5 49.0 35.2 33.3 FOCF/debt (%) 12.9 14.8 17.4 10.5 6.3 DCF/debt (%) 2.3 1.3 5.7 3.4 (0.6)

Reconciliation Table 3 NOS, SGPS, S.A.--Reconciliation Of Reported Amounts With S&P Global Ratings' Adjusted Amounts (Mil. €) --Fiscal year ended Dec. 31, 2020--

NOS, SGPS, S.A. reported amounts

S&P Global Ratings' Cash flow Shareholders' Operating Interest adjusted from Capital Debt equity EBITDA income expense EBITDA operations expenditure Reported 955.3 949.5 547.2 137.3 22.5 539.3 680.2 475.8

S&P Global Ratings' adjustments Cash taxes paid ------(33.9) -- -- Cash interest paid ------(26.6) -- --

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 14 NOS, SGPS, S.A.

Table 3 NOS, SGPS, S.A.--Reconciliation Of Reported Amounts With S&P Global Ratings' Adjusted Amounts (Mil. €) (cont.) Reported lease 575.3 ------liabilities Accessible cash and (143.5) ------liquid investments Capitalized interest ------0.9 (0.9) (0.9) (0.9) Capitalized -- -- (19.7) 3.8 -- -- (19.7) (19.7) development costs Share-based -- -- 4.3 ------compensation expense Asset-retirement 16.7 ------obligations Nonoperating income ------(6.0) ------(expense) Reclassification of ------(23.5) -- interest and dividend cash flows Noncontrolling -- 6.7 ------interest/minority interest EBITDA: Gain/(loss) -- -- (0.3) (0.3) ------on disposals of PP&E EBITDA: Other -- -- 7.9 7.9 ------Total adjustments 448.6 6.7 (7.8) 5.4 0.9 (61.4) (44.1) (20.6)

S&P Global Ratings' adjusted amounts

Cash flow Interest Funds from from Capital Debt Equity EBITDA EBIT expense operations operations expenditure Adjusted 1,403.9 956.2 539.3 142.7 23.4 477.9 636.1 455.2

PP&E--Property, plant, and equipment.

Liquidity: Adequate

We assess NOS' liquidity as adequate, based on our view that the company has a satisfactory standing in credit and equity markets, sound relationships with banks, and generally prudent risk management. We also expect that sources will cover uses by more than 1.2x over the 12 months from Dec. 31, 2020.

Principal liquidity sources Principal liquidity uses

• Cash flow from operations (after leases) of about • Debt maturities of about €183 million within the €615 million. next six months, including €20 million of amortization under the EIB loan and €78 million of • Availability under undrawn committed lines of €325 commercial paper. million. • Capex of about €510 million. • Cash on balance sheet of €153 million.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 15 NOS, SGPS, S.A.

• Dividend distributions of about €143 million. • Share repurchases of around €6 million.

Debt maturities No meaningful debt maturity before 2022 and 2023.

Covenant Analysis

12% of total contracted debt require that Net Financial Debt/ EBITDA after leases remain under 5.0x and 4% of total contracted debt require that Net Financial Debt/ EBITDA after leases remain under 3.5x, tested annually. NOS' remaining debt does not have financial maintenance covenants.

Issue Ratings - Subordination Risk Analysis

Capital structure NOS' capital structure consists of public and private unsecured debt issued at the company's level.

Analytical conclusions The rating on the debt is at the same level as our long-term issuer credit rating on NOS, reflecting the absence of significant subordination risk, further supported by NOS' low leverage.

Ratings Score Snapshot

Issuer Credit Rating BBB-/Stable/--

Business risk: Satisfactory • Country risk: Intermediate • Industry risk: Intermediate • Competitive position: Satisfactory

Financial risk: Intermediate • Cash flow/leverage: Intermediate

Anchor: bbb-

Modifiers • Diversification/portfolio effect: Neutral (no impact) • Capital structure: Neutral (no impact)

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 16 NOS, SGPS, S.A.

• Financial policy: Neutral (no impact) • Liquidity: Adequate (no impact) • Management and governance: Satisfactory (no impact) • Comparable rating analysis: Neutral (no impact)

Related Criteria

• Criteria - Corporates - General: Reflecting Subordination Risk In Corporate Issue Ratings, March 28, 2018

• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

• Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014

• Criteria - Corporates - Industrials: Key Credit Factors For The Telecommunications And Cable Industry, June 22, 2014

• Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

• General Criteria: Group Rating Methodology, Nov. 19, 2013

• General Criteria: Methodology: Industry Risk, Nov. 19, 2013

• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

• Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013

• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012

• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Business And Financial Risk Matrix

Financial Risk Profile Business Risk Profile Minimal Modest Intermediate Significant Aggressive Highly leveraged Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+ Strong aa/aa- a+/a a-/bbb+ bbb bb+ bb

Satisfactory a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+ Fair bbb/bbb- bbb- bb+ bb bb- b Weak bb+ bb+ bb bb- b+ b/b- Vulnerable bb- bb- bb-/b+ b+ b b-

Ratings Detail (As Of April 22, 2021)* NOS, SGPS, S.A. Issuer Credit Rating BBB-/Stable/-- Senior Unsecured BBB- Issuer Credit Ratings History 14-Mar-2018 BBB-/Stable/--

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 22, 2021 17 NOS, SGPS, S.A.

Ratings Detail (As Of April 22, 2021)*(cont.)

*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.

Additional Contact: Industrial Ratings Europe; [email protected]

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating- related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.