PORTUGAL. Buy (Medium Risk) Target ( ) Y E13 : 3.20 Price ( ): E 2013E S N A P S H O T

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1 TELECOMS PORTUGAL 9 Nov 2012 ZON Multimédia Pressured Cinema EBITDA offset by Angola (II) 3Q12 Earnings Comment S N A P S H O T Alexandra Delgado, CFA alexandra.delgado@millenniumbcp.pt Buy (Medium Risk) Target ( ) Y E13 : 3.20 Price ( ): 2.57 Upside: 25% No. Shares (mn): 309 Financials Market Cap ( mn): 794 Turnover ( mn) Avg Daily Vol 3m (k): EBITDA ( mn) Reuters: ZON.LS Net Income ( mn) Bloomberg: ZON PL EPS ( ) Prices as at CEPS ( ) DPS ( ) Ratios 130 RoIC (%) RoE (%) Net Debt/EBITDA (x) Net Debt/EV (%) Valuation 80 P / E (x) EV / Revenues (x) ZON Multimédia 60 EV / EBITDA (x) PSI20 Dividend Yield (%) Nov-11 Feb-12 May-12 Aug-12 Source: Millennium investment banking Zon Multimédia disclosed its 3Q12 earnings today, before the market opening. Revenues and EBITDA were slightly above our estimates, on the back of a better performance by the African business. A conference call was held at 12:00. Consolidated revenues reached mn in 3Q12 (+0.8% YoY) and EBITDA reached 79.7 mn (+0.2% YoY). Margin EBITDA was 37.0%, -0.2pp YoY. In Portugal: Pay TV, Broadband and Voice revenues are experiencing building pressure (- 12k Pay TV subs, -4.6% YoY ARPU) but EBITDA stays resilient (+0.6% YoY, 29.9% mg). However, EBITDA from Audiovisual & Cinema is declining fast (- 5.7 mn in 9M12). Consolidation of Angolan Zap (30% stake): 9.1 mn revenue in 3Q and 2.1 mn in EBITDA, ahead of our estimates. We highlight the extremely positive 23.5% margin in the quarter (vs. 8.3% in 2Q12) and the fact that Zap has reached net income break even in 3Q12. Zon is adjusting its cost structure in order to compensate for pressure on domestic topline: -3.1% opex in Portugal in 3Q12. Staff level in cinema has already been reduced. Zon announced that it intends to increase retail prices in January, in line with inflation (+3%), as in previous years, meaning an extra 1 in ARPU. In terms of capex, Zon was projecting between 120 and 130 mn in the full-year. Given that capex was 25 mn this quarter, the company says it is on track to beat the lower end of the guidance interval (our estimate is 125 mn). Management says the company is fully in line with key target to reach c. 100 mn free cash flow in 2012 (FCF was 60 mn in 9M12). In summary, we remain comfortable with our estimates. We maintain the price target for Zon Multimédia at 3.20 (YE13), with a Buy, Medium Risk recommendation. Page 1 of 7 All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the last page.

2 3Q12 Earnings Zon Multimédia announced today its 3Q12 earnings. Revenues and EBITDA were slightly above our estimates, on the back of a better performance by the African business. Consolidated revenues reached mn in 3Q12 (+0.8% YoY) and EBITDA reached 79.7 mn (+0.2% YoY). Margin EBITDA was 37.0%, -0.2pp YoY. Portugal Revenues in Portugal dropped 3.5% YoY in 3Q12 reaching mn (-2.8% in 9M12). Pay TV, Broadband and Voice revenues dropped 3.2% YoY, deteriorating vs. a very positive previous quarter (-0.3% YoY in 2Q12). According to the company, basic ARPU triple play revenues 1 dropped 1.5% in 3Q12 (+1.0% in 2Q12), while ARPU premium revenues 2 fell 13.0% in 2Q12 YoY, slightly worse than previous quarter (-12.5% in 2Q12). In 3Q12, unlike the previous quarters, the analogue switch-off impact did not offset the sharp decline of premium revenues. Cinema revenues were much better than in 2Q12, dropping only 2.1% YoY in 3Q12; revenues in 9M12 dropped 10.5% due to macroeconomic environment and VAT increase in the beginning of the year. Audiovisuals performance was worse in 3Q12 (-10.7% YoY in 3Q12, -3.7% YoY in 9M12) due to the decline of content sale to FTA channels. In terms of subscriber net adds, Pay TV subscribers decline was negative but Broadband net adds were positive. Pay TV basic clients fell by 12k to 1,574k subs, both in cable (-7k) and in DTH (-5k), on the back of austerity measures and competition. Out of 1,574k subs, 1,204k are cable customers and the remaining 370k are DTH customers. Fixed voice reached 960k subs, +13k in the quarter, impacted by the analogue switch-off. Broadband subs reached 766k, + 15k new clients, much better than in previous quarter (+3k). By the end of 2Q12, circa 38% of Broadband customers (circa 291k customers) subscribed to services of 30Mb or higher (35% by the end of 2Q12). Fixed voice penetration on cable base is at 79.7% (+1.5% vs. 2Q) and broadband penetration on cable base is 63.6% (+1.6% vs. 2Q). ARPU 3 declined by 4.8% YoY in 3Q12 to 34.3 (vs. -3.2% YoY in 2Q12), due to pressure on premium channel revenues and the dilution effect of entry level bundles take-up (analogue switch-off). According to data disclosed by the company, basic ARPU dropped 3% YoY in 2Q12, worse than -1% YoY registered in 2Q12 (exc. dilution caused by take-up of entry-level offers related to switch-off, basic ARPU dropped 0.9% in 3Q12). Premium ARPU is dropping sharply, -14.3% YoY in 2Q12, but shows some stabilization vs. previous quarter trend (-14.2% YoY in 2Q12). EBITDA in Portugal was 77.6 mn, declining 2.5% YoY. EBITDA decline is driven by a 40.4% drop in Audiovisuals & Cinema EBITDA (11.2% mg); Pay TV, Broadband and Voice EBITDA maintains resilience (+0.6% YoY, 39.9% mg). Domestic operating costs came down 4.0% in 3Q12 (-3.9% YoY in 9M12). Wages & salaries in Portugal declined 6.7% YoY, which resulted from a reduction in the number of employees (-87 employees), mainly in the cinema business. 1 Consumer revenues from Pay TV, Broadband and Voice, excluding revenues from premium channels subscription. 2 Premium channels subscription revenues received from customers 3 Average Revenue per User Page 2 of 7

3 Angola Consolidation of Angolan Zap (30% stake): 9.1 mn in revenues and 2.1 mn in EBITDA, ahead of our estimates. We highlight the extremely positive 23.5% margin in the quarter (vs. 8.3% in 2Q12) underpinned by very strong subscriber growth diluting opex, and the fact that Zap has reached net income break in 3Q12. Consolidated Net profit was 9.6 mn in 3Q12, a YoY increase of 5.1%. Net Income expansion was driven by lower D&A, despite higher financial expenses and higher taxes. Below the operating line we highlight that net financial expenses were 11.9 mn in 3Q12. Net interest costs rose 41% in 3Q12 led by higher average cost of debt and higher interests as a result of refinancing. The all-in average cost of debt in 9M12 was 4.87%. Capex was 25.2 mn in 3Q12, 82.5 mn in 9M12 which compares to 125 mn full-year guidance. Capex related to infrastructure was 15.9 mn, -20.4% YoY in 3Q12 (-9.8% YoY in 9M12) and capex related to equipment decreased 35.8% YoY (-37.6% YoY in 9M12) to 6.6 mn. Free cash flow was 59.8 mn in 9M12 (vs mn in 9M11). FCF in 3Q12 was impacted by a negative 20.6 mn of Working Capital (and other EBITDA non-cash adjustments) that the company says that should be substantially reverted in 4Q12. Net financial debt 4 increased by 13.0 mn in 9M12 (to mn), with positive free cash flow ( 59.8 mn) being offset by dividends payment ( 49.5 mn) and by proportional consolidation of Zap s net debt ( 23.4 mn). Net debt was 774 mn by the end of the quarter ( mn by YE11). Net debt/ EBITDA reached 2.5x by the end of the quarter and Net Financial Debt/ EBITDA 2.1x. We remind that refinancing needs are covered up until the end of 2014 following the 200 mn bond issue for the Portuguese retail market. In conclusion, Pay TV, Broadband and Voice revenues are experiencing building pressure (Pay TV subs loss, ARPU with higher drop) but EBITDA stays resilient. EBITDA from Audiovisual & Cinema is declining fast (- 5.7 mn in 9M12); the company has reduced employees in the cinema business by the equivalent of 87 full-time workers. Angola s performance continues to pleasantly surprise us. Capex is controlled ( 82.5 mn in 9M12 vs. 125 mn full-year guidance) giving strength to free cash flow target of 100 mn this year. Main topics discussed during the Conference Call: The CEO maintains confidence in the quarters ahead, despite very challenging macro environment. The company stated that it considers Iris to be the best triple play product in the market, given its features (e.g. last 7 days PVR over the cloud - Timewarp), broadband over 100 Mb and access to largest Wi-Fi network. 4 Net Debt deducted from long-term contracts recorded as liabilities in the BS. Page 3 of 7

4 Zon announced that it intends to increase retail prices in January, in line with inflation (+3%), as in previous years, meaning an extra 1 in ARPU. Zon is adjusting its cost structure in order to compensate for pressure on domestic topline: opex in Portugal dropped 3.1% YoY in 3Q12. In terms of capex, Zon was projecting between 120 and 130 mn in the full-year. Given that capex was 25 mn this quarter, the company says it is on track to beat the lower end of the guidance interval. We remind that our estimate for 2012 is 125 mn 5, in line with previous guidance. FCF was 60 mn in 9M12; it was impacted by a 20 mn net working capital investment that according to the company will be largely reverted in 4Q; thus management says the company is fully in line with key target to reach close to 100 mn free cash flow in Our free cash flow estimate for both 2012 and 2013 is 95 mn. Regarding the new Cinema Law, management clarified that the law still needs to be published and that Zon will issue a formal position only after publication. Law must be published until the beginning of February and then Zon can challenge it (and probably will). Cinema business: revenue evolution going forward requires a conservative stance, so the company is reducing overall cost base (staff level was reduced by 15% in multiplexes). Zap (Angola & Mozambique): achieved net income and free cash flow breakeven in 3Q12, ahead of schedule (target was end of 2012, beginning of 2013). Very strong quarter operationally. ARPU is between $25 and $30. Margin in 4Q12 should be lower than in 3Q12 given the strong commercial activity (set-top-boxes are expensed when they re sold). The CFO believes it could reach 30% in 2013/2014. Income Statement 9M11 9M12 YoY 9M12E Dev 3Q11 2Q12 3Q12 YoY QoQ 3Q12E Dev Revenues % % % 0% % Portugal % % % 0% % Pay TV + Internet + Voice % % % -3% % Audiovisuals Segment % % % 8% % Consolidation Adjustments nm % nm nm % Africa % % % Cash Costs % % % 0% % EBITDA % % % 1% % Portugal % % % -1% % Africa % % % Margin 37.2% 37.0% -0.2pp 36.9% 0.1pp 37.2% 36.8% 37.0% -0.2pp 0.3pp 36.7% 0.3pp Portugal 37.2% 37.9% 0.7pp 37.9% 0.0pp 37.2% 37.8% 37.6% 0.4pp -0.2pp 37.6% 0.0pp Africa 12.9% 8.4% 4.6pp 8.3% 23.5% 15.2pp 12.5% 11.0pp D&A % % % 2% % Income from Operations % % % -1% % Margin 11.5% 12.1% 0.7pp 11.8% 0.4pp 11.3% 12.7% 12.6% 1.3pp -0.1pp 11.5% 1.1pp EBIT % % % 4% % Income before Taxes % % % -1% % Net Profit % % % -1% 9.8-3% Margin 4.5% 4.6% 0.1pp 4.6% 0.0pp 4.3% 4.5% 4.4% 0.2pp -0.1pp 4.6% -0.2pp Page 4 of 7

5 KPIs k subs 9M11 9M12 YoY 9M12E Dev 3Q11 2Q12 3Q12 YoY QoQ 3Q12E Dev Portugal Pay TV Subs 1,554 1,574 1% 1,583-1% 1,554 1,586 1,574 1% -1% 1,583-1% Premium % 620 5% % 2% 620 5% Internet % 755 1% % 2% 755 1% Voice % 964 0% % 1% 964 0% Mobile voice % 132 5% % 7% 132 5% Premium-to-basic 42.9% 41.3% -1.6pp 39.2% 2.1pp 42.9% 40.1% 41.3% -1.6pp 1.2pp 39.2% 2.1pp Internet-to-basic (cable) 62.4% 63.6% 1.3pp 62.4% 1.2pp 62.4% 62.1% 63.6% 1.3pp 1.6pp 62.4% 1.2pp Voice-to-basic (cable) 72.6% 79.7% 7.1pp 79.7% 0.1pp 72.6% 78.2% 79.7% 7.1pp 1.5pp 79.7% 0.1pp Blended ARPU ( ) % % % -1% % Decomposition of EBITDA Growth 9M11 9M12 YoY 9M12E Dev 3Q11 2Q12 3Q12 YoY QoQ 3Q12E Dev Revenues % % % 0% % Direct Costs % % % 5% % Net Revenues % % % -1% % Net Service Margin 71.3% 72.0% 0.7pp 72.8% -0.7pp 71.4% 72.3% 71.1% -0.3pp -1.3pp 73.3% -2.2pp Growth -1.6% 1.7% 3.3pp 2.5% -0.7pp -3.2% 3.0% 0.4% 3.6pp -2.6pp 2.6% -2.2pp Operation Costs % % % -4% % Acquisition/Retention Costs % % % -5% % EBITDA % % % 1% % Growth 3.8% 0.2% -3.5pp -0.4% 0.6pp 0.0% 0.4% 0.2% 0.2pp -0.2pp -1.6% 1.8pp Evolution of EBITDA nm % nm -48% % o.w. Net Service Revenues nm % nm -88% % o.w. Operation Costs nm % nm 291% % o.w. Net Acquisition/Retention Costs nm % nm nm % Check Cash Flow Items 9M11 9M12 YoY 9M12E Dev 3Q11 2Q12 3Q12 YoY QoQ 3Q12E Dev Revenues % % % 0% % EBITDA % % % 1% % Margin 37.2% 37.0% -0.2pp 36.9% 0.1pp 37.2% 36.8% 37.0% -0.2pp 0.3pp 36.7% 0.3pp Capex % % % -9% % As % of Revenues 17.1% 12.8% -4pp 13.6% -0.8pp 16.4% 12.9% 11.7% -4.7pp -1.2pp 14.1% -2.4pp EBITDA - Capex % % % 7% % As % of Revenues 20.1% 24.2% 4.1pp 23.3% 0.9pp 20.8% 23.8% 25.3% 4.5pp 1.5pp 22.6% 2.7pp Page 5 of 7

6 Income Sta tement Operating Revenues EBITDA D&A Net Financials Taxes Minority Interests Net Income Margins (%) EBITDA EBIT EBT Effective Tax Rate Net Income Sourc e: Company data and Millennium investment banking Financial BS Fixed Assets 1, , , Working Capital Invested Capital 1, Net Debt Minority Interests Equity Capital Employed 1, Sourc e: Company data and Millennium investment banking Cash-Flow Statement Cash Flow from Operations Cash Flow from Investing Cash Flow from Financing EBITDA - Capex* Sourc e: Millennium investment banking Leverage EBITDA Capex* EBITDA - Capex* EBITDA - Capex* - Dividends Financial costs, Net Net Debt Net Debt / EBITDA 2.6 x 2.4 x 2.4 x 2.2 x Net Debt / Equity 3.3 x 3.4 x 3.4 x 3.3 x Net Debt / Capital Employed 0.8 x 0.8 x 0.8 x 0.8 x EBITDA / Financial costs 13.1 x 12.3 x 8.4 x 8.8 x Sourc e: Millennium investment banking * Capex figures exclude LT contracts (content rights) Page 6 of 7

7 DISCLOSURES This report has been prepared on behalf of Millennium investment banking (Mib), a registered trademark of Banco Comercial Português, S.A. (Millennium bcp). Millennium bcp is regulated by Comissão de Mercado de Valores Mobiliários. This report was not shown to the company. Recommendations: Buy means more than 10% absolute return; Neutral means between 0% and +10% absolute return; Reduce means between -10% and 0% absolute return; Sell means less than -10% absolute return. Unless otherwise specified, the time frame for price targets included in this report is current year-end or next year-end. Risk is defined by the analyst s view in a qualitative way (High, Medium, Low). Usually we update our models and price targets in between 3 and 9 months. Millennium bcp prohibits its analysts and members of their households to own any shares of the companies covered by them. BCP group may have business relationships with the companies mentioned in this report. Millennium bcp expects to receive or intends to seek compensation for investment banking services from the companies mentioned in this report. The views expressed above, accurately reflect personal views of the authors. They have not and will not receive any compensation for providing a specific recommendation or view in this report. There were not any agreements between the companies covered and the analysts regarding the recommendation. Analysts are paid in part based on the profitability of BCP group, which includes investment banking revenues. ZON Multimedia Buy Neutral Reduce Sell (Unrated) Oct/11 Nov/11 Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 May/12 Jun/12 Jul/12 Aug/12 Sep/12 Oct/12 Nov/12 Recommendation Stock Price Price Target DISCLAIMER This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or of opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not allowed without permission from the BCP group. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Page 7 of 7