Consolidated Management Report 20151 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 2 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 “I am firmly of the conviction that we have gathered together all the conditions to achieve our ambition of being the best telecommunications and entertainment company in Portugal and that we have the best people to do so” 3 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 Message from the Chief Executive Officer The results we have achieved in 2015 are a cause of great pride and reflect our capacity to outperform the goals that we set out at the time of the merger in late 2013. We have grown in all business areas, we have gained market share in customers and revenues, we have consolidated our competitive position and we have increased our financial results. These successes were possible thanks only to the enormous commitment and skills of the NOS team. In 2015, we added 833 thousand new services, twice the figure for the previous year and an absolute record in our history. We have grown in convergent services, customer numbers having risen by more than 54% to 591 thousand subscribers and, at the year-end, 42% of our fixed customers subscribe to integrated fixed and mobile bundles. We have definitively consolidated the trend of growth of our Pay TV base, having added 67 thousand new customers throughout the year, bringing the total to 1.54 million, strengthening our position as market leader. We have attracted 480 thousand more mobile customers, increasing our market share by 5.2 percentage points in just one year, and rapidly approaching the second position in the mobile market. In the business segment, we were also able to meet goals that we had set up. We have increased the number of services by 18.7%, with a sharp increase of market position in all segments. 4 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 Also underscored is the best year of results, since 2010, for our cinema and audiovisual area, the result of the good times for the industry worldwide and of the success of films shown and distributed, with ticket sales up 22% compared with the previous year. To sustain this powerful operational moment we have increased investment and the focus on innovation, and we have continued to improve user experience of our services, thereby generating more value for our customers. Always looking to be the leader in service quality and customer experience, we have maintained the strong pace of enlargement and strengthening of our new-generation fixed network, which reached 3.6 million homes in Portugal at the end of 2015, having achieved very good penetration levels in the new geographies covered. We have strengthened the focus on development of our people and on the creation of exemplary working conditions for our teams. We have also created more opportunities for growth and development for our business partners and suppliers. These results were achieved while we went ahead with the NOS integration plan, which has taken place in an exemplary way and, in many instances, beyond our best expectations. We want to assume a leading position in the satisfaction and experience of our customers, a path that we have known how to follow and has earned us recognition with the award of the “Consumer Choice” for the second year in a row, “Trusted Brand” and “Product of the Year by Consumers”, the only telecom operator to win in five categories. The financial results that we have achieved in 2015 reflect the excellent operational performance, with Revenue up 4.4%, the only market operator to have grown. EBITDA, the operational profitability, accompanied the growth of Revenue and also increased by 4.4%, providing a 37% margin. Net Profit increased by 10.7% to €82.7 million and as a sign of confidence in the sustainability of results, a 100% distribution of profits to shareholders will be proposed. The market has also clearly recognised the company’s good results and the soundness of our strategy, in that it is the right path to growth, sustainability and value creation for all stakeholders. In 2015, NOS shares appreciated 38.4%, thus rewarding our shareholders who believe in this project and make it possible. On the other hand, our lenders have also shown their recognition of the success of the strategy and performance with the grant of increasingly favourable financing terms and costs, on a par with those of the best national and international companies. The challenges we face going forward are also very considerable – consolidate growth, continue to surprise the market with innovative products and services, enhance the quality of the services we provide and deliver the best customer experience at all times. And all this without losing sight of the path of efficiency we still have to travel to increase our agility. I am firmly of the conviction that we have gathered together all the conditions to achieve our ambition of being the best telecommunications and entertainment company in Portugal and that we have the best people to do so. Miguel Almeida 5 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 6 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 table of contents Annual Report Management Report 9 Consolidated Financial Statements 117 Individual Financial Statements 226 Corporate Governance Report 295 7 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 8 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 Management Report 2015WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 table of contents Management Report 1 5 Management Team and Creating basic conditions to support Corporate Structure 12 strategic ambitions 42 1.1 NOS’ Executive Committee 14 5.1 Network expansion and technological strengthening 1.2 Corporate Structure 15 underpinning growth ambitions and service delivery 43 5.2 Excellence of systems 2 and processes driving the Strategy 16 development and integration of operations 52 3 5.3 Implementing a single brand Strengthening the competitive market strategy throughout the chain position in the residential segment 20 ensuring better experience for customers 56 4 5.4 Developing a common culture of Growing market share in success and ambition 64 the business segment 36 10 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 6 10 Consolidate the leading position in the More about NOS 110 audiovisual and cinemas segment 68 10.1 Group companies 111 7 10.2 Highlights of 2015 114 Implementing the synergies plan 74 10.3 Glossary of Terms 116 8 Consolidating the soundness of the capital structure 76 9 Analysis of the NOS operational and financial results in 2015 80 9.1 Macroeconomic and sector framework in 2015 81 9.2 The telecommunications sector in Portugal 85 9.3 Regulatory Framework 86 9.4 NOS operational and financial results in 2015 90 11 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 1 Management Team and Corporate Structure 12 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 1.1 NOS’ Executive Committee President of APRITEL (Association of the Operators of Miguel Almeida Electronic Communications); NOS’ Chief Executive Officer Head of Marketing and Sales of the Personal Mobile Business Unit of Optimus; Qualifications: Head of Marketing and Communication of Optimus; Degree in Mechanical Engineering by the College of Head of The Data Business Unit of Optimus Engineering of the University of Porto and an MBA by INSEAD. Started her career at the Marketing Department of Procter & Professional Experience: Gamble. CEO of Optimus – Comunicações, S.A.; Executive Director of Sonaecom, SGPS, S.A.; Executive Board Member of Optimus Comunicações S.A. with responsibility for Marketing, Sales and Operations; André Almeida Head of Marketing of Modelo Continente, SGPS. Qualifications: Degree in Engineering and Industrial Management by the Superior Technical Institute of Lisbon (IST) and an MBA by José Pedro Pereira da Costa INSEAD, Henry Ford II Award. Chief Financial Officer Professional Experience: Executive Member of the Board of ZON TVCabo, ZON Qualifications: Lusomundo Audiovisuais, ZAP Angola and ZAP Moçambique, Degree in Business Management and Administration by the responsible for Business Development, International Portuguese Catholic University and an MBA by INSEAD. Business, Planning and Control and Corporate Finance of Professional Experience: ZON Multimédia; Executive Member of The Board of Directors – CFO of ZON Executive Board Member of ZON TVCabo responsible for Multimédia, SGPS; Product and Marketing; Board Member of the Portugal Telecom Group, CFO of PT Head of Business Development of Fixed Business at PT; Comunicações, PT.COM and PT Prime; Head of Strategy and Business Development at PT and Head Executive Vice-President of Telesp Celular Participações; of Project at PT SGPS; Member of the Executive Committee of Banco Santander de associate of The Boston Consulting Group. Negócios Portugal, as Head of Corporate Finance; Began his professional activity at McKinsey & Company in Portugal and Spain. Manuel Ramalho Eanes Qualifications: Ana Paula Marques Degree in Business Management by the Portuguese Catholic University and an MBA by INSEAD. Qualifications: Professional Experience: Degree in Economics by the College of Economics of the Executive Board Member of Optimus – Comunicações, University of Porto and an MBA by INSEAD. SA with responsibility over the areas of Corporates and Professional Experience: Operators; Executive Board Member of Optimus – Comunicações Headed at Optimus the areas of Residential Fixed Business, with responsibility over Residential, Customer Service and Central Marketing and Data Services, Personal Sales, Small Operations; Businesses and Business Development; Started his career at McKinsey & Co. 14 WorldReginfo - f503128f-dff1-4abe-9123-1a7877c18010 NOS’ Executive Committee 1.2 Corporate Structure 100% 100% 100% 100% 100% NOS NOS NOS NOS NOSPUB Comunicações, Lusomundo Lusomundo Lusomundo TV, Publicidade e S.A. Audiovisuais, S.A. Cinemas, S.A. S.A. Conteúdos, S.A. 100% 100% 100% 100% NOS NOS NOS NOS Technology, S.A. Towering, S.A. Sistemas Inovação 84% 78% 50% 50% 30% NOS NOS SPORT TV DREAMIA ZAP Açores Madeira S.A.