SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

For the month of May 2015

Commission File Number 1-13758

PORTUGAL TELECOM, SGPS, S.A.

(Exact name of registrant as specified in its charter)

Av. Fontes Pereira de Melo, 40

1069 - 300 Lisboa, Portugal

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F o

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No x

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Annual Report

2014

Portugal Telecom, SGPS, S.A.

Public Company - Avenida Fontes Pereira de Melo, 40 ·1069-300 Lisbon - Share Capital: Euro 26,895,375

Registered in the Conservatory of the Commercial Registry of Lisbon and Collective Person under no. 503 215 058

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Annual Report

2014

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Management Report

Introduction

On May 5, 2014, Portugal Telecom SGPS S.A. (“PT SGPS”) subscribed and participated in Oi, SA’s (“Oi”) capital increase paid by means of a contribution in kind corresponding to the PT Assets, which consisted of PT SGPS Group’s entire business operation with the exception of the holdings Bratel BV (“Bratel”), Bratel Brasil (“Bratel Brasil”), S.A., PTB2, S.A. (“PTB2”) and Marnaz, S.A. (“Marnaz”) and the investments in Oi, Contax Participações, S.A. (“Contax”) and their controlling shareholders. As a result of the contribution to Oi’s capital increase on May 5, 2014:

·              PT SGPS increased its effective interest in Oi from 23.2%, previously held through Bratel Brasil, to an economic interest of 39.7%, held through a total direct interest of 35.8% (32.8% in PT SGPS and 3.0% in Bratel Brasil) and an indirect interest of 3.9% held through the controlling shareholders of Oi;

·              As a result of all transactions that were required to be implemented in the context of the contribution of PT Assets in the capital increase of Oi (as described in detail in chapter 4), and the low book value of those assets in the consolidated accounts of PT SGPS, PT SGPS recorded a gain of approximately 699 million euros (included in the results of discontinued operations), in the context of the capital increase of Oi, which primarily reflects (1) the difference between the fair value of the shares that PT SGPS received for the subscription of the capital increase of Oi (1,854 million euros) and the carrying value of the PT Assets (negative 2,676 million euros) contributed in kind in the capital increase, which was partially offset by (2) the dilution effect on the previous investment in Oi held through Bratel Brasil and the effect of the remeasurement of the previous investment in Oi to the fair value implicit in the capital increase.

·              The results from all businesses that were contributed in Oi’s capital increase were presented as discontinued operations and, accordingly, the consolidated statements of income and cash flows for the year 2013 have been restated.

Included in the PT Assets contributed by PT SGPS in the Capital Increase of Oi were short-term investments in commercial paper of Rio Forte, held by its former subsidiaries PT Portugal SGPS, SA (“PT Portugal”) and Portugal Telecom International BV (“PT Finance”) amounting to 897 million euros (see chapter 4). On July 15 and 17, 2014, these instruments matured without the issuer having settled its obligations.

Following the above events, on July 28 PT SGPS and Oi announced they had reached an agreement on the final terms following the new Memorandum of Understanding announced on July 16, 2014. As part of this agreement, it was stated that PT SGPS would exchange (“Exchange”) with Oi the Rio Forte Instruments amounting to 897 million euros, in exchange for 474,348,720 common shares and 948,697,440 preferred shares of Oi (“Oi Shares Subject to the Exchange”) - adjusting for the effect of grouping the shares of Oi (reverse stock split) on December 22, 2014, this corresponds to 47,434,872 common shares and 94,869,744 preferred shares - and PT SGPS would be granted an American type, non-transferable option (“Call Option”) to repurchase the Oi Shares Subject to the Exchange (with an exercise price for the common shares of 2.0104 reais and 1.8529 reais for the preferred shares) - adjusting for the effect of grouping the shares of Oi, the price corresponds to 20.104 Reais per common share and 18,529 Reais per preferred share, which would be adjusted by the Brazilian interest rate CDI plus 1.5% per year. The exchange was concluded on March 30, 2015.

The stake in Oi that will not be object of the Exchange (22.8%) is classified as per NCRG 13 as a joint venture, and registered in accordance with the equity method. The remaining stake (16.9%) is classified as a non-current asset held for sale.

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Business Overview

Apart from management of investments, the Company did not conduct directly any other business activity.

Legal Information

There are no outstanding amounts overdue to the Portuguese State and the Portuguese Social Security System.

The Company did not enter into any material businesses or transactions with the members of its Board of Directors and the Audit Committee, except for those mentioned in Note 41 and 42 to the Consolidated Financial Statements as at December 31, 2014.

2014 events and recent developments

The main events of the year ended December 31, 2014 and recent developments are described in the Consolidated Annual Report of Portugal Telecom, SGPS, S.A..

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Proposal for Application of Profits

Considering that:

a)            Net loss for the year ended December 31, 2014 amounted to Euro 175,082,979;

The Board of Directors proposes that:

a)            The net loss for the year, amounting to Euro 175,082,979, be transferred to retained earnings.

Lisbon, April 30, 2015

João Manuel de Mello Franco, Chairman of the Board of Directors

Alfredo José Silva de Oliveira Baptista, Board Member

Eurico de Jesus Teles Neto, Board Member

Francisco Ravara Cary, Board Member

Gerald Stephen McGowan, Board Member

João Manuel Pisco de Castro, Board Member

Jorge Freire Cardoso, Board Member

José Guilherme Xavier de Basto, Board Member

Marco Norci Schroeder, Board Member

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Maria Helena Nazare, Board Member

Mário João de Matos Gomes, Board Member

Milton Almicar Silva Vargas, Board Member

Nuno Rocha dos Santos de Almeida e Vasconcellos, Board Member

Rafael Luís Mora Funes, Board Member

Rolando António Durão Ferreira de Oliveira, Board Member

Shakhaf Wine, Board Member

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Standalone Financial Statements

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INDEX

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PORTUGAL TELECOM, SGPS, S.A.

BALANCE SHEET

31 DECEMBER 2014 AND 31 DECEMBER 2013

Euro

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PORTUGAL TELECOM, SGPS, S.A.

INCOME STATEMENT

FOR THE YEARS ENDED 31 DECEMBER 2014 AND 2013

Euro

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PORTUGAL TELECOM, SGPS, S.A.

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE PERIODS ENDED 31 DECEMBER 2013 AND 31 DECEMBER 2014

Euro

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PORTUGAL TELECOM, SGPS, S.A.

STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED 31 DECEMBER 2014 AND 2013

Euro

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PORTUGAL TELECOM, SGPS, S.A.

Notes to the Standalone Financial Statements

as at December 31 2014

(Amounts in Euro)

1.                                      Introduction

a)                                     Company Identification

PT SGPS was founded on June 23, 1994 pursuant to Decree -Law No. 122/94, through the merger of the following companies: Telecom Portugal, S.A., Telefones de Lisboa e Porto (TLP), S.A. (“TLP”) and Teledifusora de Portugal, S.A. (“TDP”), with reference to January 1, 1994. As a result of the privatization process, between June 1, 1995 and December 4, 2000, PT SGPS’ share capital is mainly owned by private shareholders. On December 12, 2000, Portugal Telecom, S.A. changed its name to Portugal Telecom, SGPS, S.A. and its operation to a capital management company.

b)                                     Oi Cash Capital Increase

On May 5, 2014, Oi underwent a capital increase amounting to 13,960 million reais, composed of: (1) 5,710 million reais (Euro 1,750 million based on the exchange rate as of February 21, 2014) corresponding to 1,045,803,934 ordinary shares and 1,720,252,731 preferred shares subscribed by PT SGPS, through a  contribution in kind of the PT Assets, defined as a stake of 100% of the Company in PT Portugal, which as of that date included all operational businesses of PT SGPS Group, with the exception of the subsidiaries Bratel BV, Bratel Brasil, PTB2 and Marnaz. and of the investment in Oi, Contax and their controlling shareholders; and (2) 8,250 million reais in cash resources obtained by investors other than PT SGPS. The valuation of PT Assets of 5,710 million reais was determined on the basis of the valuation of PT Portugal by Banco Santander (Brasil), SA on the date of the share capital increase. As a result of PT SGPS’ contribution for the capital increase of Oi:

·                  PT SGPS increased its effective interest in Oi from 23.2%, previously held through Bratel Brasil, to an economic interest of 39.7%, held through a total direct interest of 35.8% (32.8% in PT SGPS and 3.0% in Bratel Brasil) and an indirect interest of 3.9% held by Bratel Brasil through the controlling shareholders of Oi;

·                  On December 31, 2014, and as of this date, PT SGPS holds only the above-mentioned investment in Oi, stakes in the controlling shareholders of Oi (which essentially hold only shares of Oi) and directly or indirectly, 100% of the holding companies Bratel BV, Bratel Brasil, PTB2 and Marnaz.

Until May 5, 2014, PT SGPS and its subsidiaries and joint ventures operated primarily in the telecommunications and multimedia sectors in Portugal, Brazil and other countries in Africa and Asia.

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c)                                      Initial acquisition of investment in Oi

On March 28, 2011, PT SGPS completed the initial acquisition of investments in Telemar Norte Leste, S.A. (“Telemar”), which belongs to the Oi Group, and Contax, for the amount of 8,437 million reais, and concluded several agreements with the controlling shareholders of these companies. As a result of this transaction, PT SGPS acquired an effective stake of 25.3% in TmarPart (parent company of the Oi group on that date) and 14.1% in Contax. Within the scope of this acquisition, PT SGPS, AG Telecom Participações (“AG”) and LF Tel, SA (“LF”), two of the main shareholders of TmarPart, a controlling shareholder in Oi, concluded a shareholders’ agreement with unanimous voting procedures for their representatives in the Board of Directors of TmarPart regarding the strategic financial and operating decisions relating to the activity of the Oi Group. Therefore, in accordance with the provisions of NCRF 13 Interests in Joint Ventures and Investments in Associates (“NCRF 13”), the Company concluded that it contractually shares the control of TmarPart, therefore the Oi investment was classified as a joint venture and thus accounted for in accordance with the equity method.

d)                                     Corporate transactions made within the Oi capital increase

On October 1, 2013, PT SGPS, Oi, AG, LF, Bratel Brasil, Pasa Participações S.A. (“Pasa”), EDSP 75 Participações (“EDSP75”), (which jointly with TmarPart are referred to as “Oi Holdings”), Banco Espírito Santo, S.A. (“BES”) and Nivalis Holding B.V. (“RS Holding”) signed a memorandum of understanding outlining the key principles for a proposed merger between PT SGPS, Oi and the Oi Holdings (the “Business Combination”), in order to constitute a single, integrated Brazilian listed company.

On February 19, 2014, PT SGPS and Oi signed final contractual instruments related to the Business Combination between the parties. These documents defined and regulated the stages necessary to complete this Business Combination, that include the main transactions described below, some of which have since been concluded:

·                  On May 5, 2014, Oi made effective a capital increase with a total issue of 2.142.279.524 common shares at 2.17 reais per share and  4.284.559.049 preferred shares at 2.00 reais per share, and, on that same date, BTG Pactual, acting as the Stabilizing Agent of the Public Offering and in accordance with the provisions of Article 24 of the CVM Instruction 400, partially exercised the option to place more than 120,265,046 common shares and 240,530,092 preferred shares issued by Oi; the total amount of the capital increase, including the option exercised by BTG Pactual, amounted to 13,960 million reais, consisting of (1) 5,710 million reais (1,750 million euros at the exchange rate on February 21, 2014) carried out in assets contributed by PT SGPS, based on the evaluation of the PT Assets made by Banco Santander (Brasil), S.A., and PT SGPS subscribed to 1,045,803,934 common shares and 1,720,252,731 preferred shares issued by Oi, and (2) 8,250 million reais in cash obtained from other investors who subscribed the remaining 1,216,740,636 common shares and 2,804,836,410 preferred shares issued by Oi; the PT SGPS stake in the capital increase of Oi, carried out through the contribution in kind of all operating assets directly or indirectly held by the PT SGPS Group and of the corresponding liabilities,

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except for the shares of Oi, Contax and of Bratel BV (PT Assets), valued at the amount of 5,710 million reais (1,750 million euros), was approved by a majority of 99.87% of the votes present in the General Shareholders’ Meeting of PT SGPS held on March 27, 2014.

·                  On May 5, 2014, PT SGPS, through its subsidiaries Bratel Brasil and PTB2, subscribed to 4,788 million reais (1,555 million euros at the exchange rate on 5 May, 2014) of bonds convertible into shares of certain companies that control directly or indirectly AG and LF. This amount was used by AG and LF to repay their debt and to subscribe to convertible bonds issued by TmarPart, which, in turn, also used these funds to repay its own debt; also on May 5, 2014, PT SGPS exchanged its shares in CTX and Contax for an additional stake in the companies that control directly or indirectly AG and LF, which at that time held only shares of Oi and TmarPart; as a result of these transactions, PT SGPS increased its economic stake in AG and LF from 35% to 85.1% and in TmarPart from 25.6% to 68.4%, thus it indirectly obtained an additional stake in Oi of 2.4%.

·                  Pending the approval of the holders of common shares of Oi and TmarPart , the Oi shares not held by TmarPart would be exchanged for common shares of TmarPart and Oi would become a wholly owned subsidiary of TmarPart.

One of the necessary steps required to implement the business combination consisted of the capital increase of Oi, S.A. on May 5, 2014, as explained above. As part of this capital increase, PT SGPS began, in late 2013, a process of restructuring its investments with the goal of concentrating them directly or indirectly in PT Portugal. To this end, PT SGPS and PT Portugal realized the following corporate transactions before the capital increase of Oi:

·                  On March 31, 2014, PT SGPS sold to PT Portugal, for a total amount of Euro 4.7 million, Euro 2.7 million and Euro 1.5 million (Notes 4 and 7), 100% interests in Portugal Telecom Investimentos, PT Brasil and PT Centro Corporativo, respectively.

·                  On April 30, 2014, PT Móveis, SGPS, S.A. (“PT Móveis”) an indirect wholly-owned subsidiary of PT Portugal, subscribed a share capital increase of Bratel BV, in an amount of approximately Euro 1,303 million.

·                  On May 2, 2014, PT SGPS acquired from PT Móveis, for a total amount of Euro 4,195 million (Notes 4 and 7), its 100% interest in Bratel BV, the company that holds indirectly through Bratel Brasil the investment in Oi, as this investment was not included in the net assets to be transferred to Oi in the share capital increase

·                  On May 2, 2014, PT SGPS sold to PT Móveis, for a total amount of Euro 2,240 million (Note 7), the 100% interest in PT Participações, SGPS, S.A. (“PT Participações”), a company that indirectly held a 75% stake in the Africatel Holdings BV Group, which in turn held (directly or indirectly) the Group’s business in Africa. Additionally, on December 2013, PT Participações, indirectly through Africatel GmBH, acquired from PT SGPS its 75% stake in Africatel Holdings BV for an amount of Euro 1,791 million. In 2014 the parties agreed to correct the selling price to Euro 1,141 million, an Euro 650 million reduction which was deducted from the sale price of PT Participações, therefore PT SGPS received a net amount of Euro 1,590 million (Notes 4 and 7) within the scope of the disposal of PT Participações.

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·                  On May 5, 2014, PT SGPS sold to PT Portugal, for a total amount of 255 million euros (Notes 4 and 7), its 100% stake in PT Finance.

·                  On May 5, 2014, in addition to the investments, PT SGPS transferred to PT Portugal, at the corresponding nominal values, most of its assets and liabilities that were part of the evaluation of PT Portugal for the Oi capital increase, which essentially includes investments in Rio Forte debt securities amounting to Euro 200 million (Note 1.e), and financings obtained that were due at that date.

The impacts of these operations in terms of cash flows, capital gains and changes in financial investments are discriminated in Notes 4, 7, 13 and 19.

e)                                      Investment in Rio Forte debt securities

On May 5, 2014, directly and indirectly, PT SGPS held investments in debt securities issued by Rio Forte Investments, S.A. (“Rio Forte”, a holding company of the Espírito Santo Group with registered address in Luxembourg essentially for their non-financial services) amounting to Euro 897 million, which formed part of the PT Assets and were contributed in the capital increase of Oi. The composition of the outstanding amount as of May 5, 2014 was as follows:

·                  200 million euros subscribed by PT SGPS on April 15, 2014, and transferred to PT Portugal on May 5, 2014, in connection with the corporate reorganization of the Group, the maturity of which occurred on July 15, 2014;;

·                  647 million euros subscribed by PT Finance on April 15, 2014, the maturity of which occurred on July 15, 2014;

·                  50 million euros subscribed by PT Finance on April 17, 2014, the maturity of which occurred on July 17, 2014.

On July 15 and 17, 2014 the maturity of these instruments occurred, but the issuer did not settle its obligations.

Rio Forte requested the adoption of the controlled management regime in accordance with the Luxembourg legislation, although it was their understanding that they did not have the financial capacity to meet their financial commitments, a situation which was thought to be the most protective of their creditors’ interests, and that was rejected by the Luxembourg court. As a result of that rejection, Rio Forte was declared insolvent by the Luxemburg Court on December 8, 2014, and went into liquidation on the same date.

On July 28, 2014, following the default by Rio Forte, PT SGPS and Oi agreed on the main terms for the exchange of debt securities of Rio Forte held on that date by PT Finance and PT Portugal, amounting to Euro 897 million for 47,434,872 common shares and 94,869,744 preferred shares of Oi (after the reverse stock split done by Oi in December 2014) held on that date by PT SGPS. On September 8, 2014, this agreement was approved in the General Shareholders’ Meeting of PT SGPS and following such approval the parties involved concluded the respective final contracts, the terms of which established that:

·                  PT SGPS would exchange with Oi in Rio Forte in exchange for 47,434,872 common shares plus 94,869,744 preferred shares of Oi, representing 16.9% of its share capital;

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·                  An American non-transferable purchase option (“Call Option”) would be attributed to PT SGPS in order to reacquire the Oi Shares that are the Objective of the Exchange (with the exercise price of 20.104 reais for common shares and 18.529 reais for preferred shares after Oi reverse stock split), which would be adjusted by CDI  plus 1.5% per year;

·                  The Call Option on the Oi Shares that are the Objective of the Option would enter into effect on the data of the Exchange, would have a maturity of six years, with the possibility of exercising the option by PT SGPS terminating at 10% at the end of the first year and 18% at the end of each subsequent year;

·                  Any amount received as a result of monetization of the Call Option through issue of derived instrument would have to be used for the exercise of the Call Option;

·                  PT SGPS could only acquire Oi or TmarPart shares through exercise of the Call Option;

·                  The Call Option would be canceled if (i) the bylaws of PT SGPS were to be voluntarily altered to remove the 10% vote limitation; (ii) PT SGPS were to act as a competitor of Oi or (iii) PT SGPS were to violate certain obligations arising from definitive documentation; and

·                  The contracts were signed on September 8, 2014, subject to approval by the CVM and would be executed by March 31, 2015.

On December 31, 2014, as stated above, execution of the exchanges and the purchase option were pending approval by the CVM. On March 4, 2015, the CVM approved the above contracts, conditional upon their approval at Oi’s General Shareholders’ Meeting, which occurred on March 26, 2015. The exchange has been executed on March 30, 2015.

On March 24, 2015, PT SGPS came to an agreement with Oi, PT Portugal, PT Finance and TmarPart for the Private Instrument of Assignment of Rights and Obligations and Other Fees (“Assignment Agreement”), by means of which PT Portugal transferred the Rio Forte Instruments to PT Finance, and conceded to PT Finance all pertaining rights and obligations in the terms of the Exchange Agreement (“Assignment”).

The Assignment Agreement also stipulated that the delivery of the Oi shares in the Exchange could be implemented by means of the transfer, by PT SGPS, of Oi’s shares object of the Exchange, or ADSs (American Depositary Shares), representative of Oi’s shares object of the Exchange, at PT SGPS’s criteria. Oi’s ADR Program is regulated by (1) the Deposit Contract (Ordinary Shares), signed on February 17, 2012, as amended, between Oi, the Bank of New York Mellon, in the quality of depositary, and all periodical holders of ADSs, issued in the terms of the abovementioned Agreement; and (2) by the Deposit Contract (Preferential Shares) signed on February 27, 2012, as amended, between Oi, the Depositary, and all periodical holders of ADSs, issued in the terms of the abovementioned Agreement.

On March 30, 2015, the Exchange was concluded, by means of which PT SGPS (1) deposited Oi’s shares object of the Exchange with the Depositary; and (2) instructed the Depositary to register the transfer of 47.434.872 ADSs ON and 94.896.744 ADSs PN to PT Finance, representing Oi’s shares object of the Exchange.

Therefore, on March 30, 20115, PT SGPS transferred the ADSs Object of the Exchange to PT Finance, and PT Finance transferred to PT SGPS the Rio Forte Instruments in the total main amount of Euro 897 million.

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Additionally,  on March 30, 2015, the Call Option was effective.

On March 31, 2015, the Board of Directors of PT SGPS concluded negotiations with the other shareholders pertaining to Oi to the extent of signing a new agreement between the parties in relation to the company structure and the administration of Oi. In view of the impossibility of implementing migration from CorpCo to the segment called Novo Mercado [New Market] of the BM&FBovespa by March 31, 2015, the deadline stipulated in the agreements signed on September 8th 2014, and it became essential to sign a new agreement, which allowed Oi to anticipate the principal benefits distributed to the shareholders at the time that Oi’s capital increase was realized on May 5, 2014, without, however, failing to make every effort to migrate to the Novo Mercado. Thus, the parties agreed to a new company structure model and administration of Oi (“New Structure”), that in addition to the benefits and objectives disclosed before, are characterized by the following:

·                  All company and corporate administration transformation will be done at Oi with elimination of the necessity of creating CorpCo.

·                  Approval of new Corporate Bylaws for Oi, as well as signing of an amendment to the provisional voting commitment from its shareholders, in effect until implementation of the New Structure (“Vote Commitment”) that will enable: (i) implementation of a voluntary conversion program for preferred shares to ordinary shares issued by Oi at a rate of 0.9211 ordinary share per each preferred share, subject to a minimum buy-in of 2/3 of the preferred shares in order to give all of the shareholders the possibility of exercising the voting right and to maximize the possibility of existence of a single class of shares; (ii) implementation of the principle of one share, one vote. However, to preserve the equilibrium between shareholders and the distribution of desired control at the time of the Capital Increase of Oi, inclusion of a 15% limit on the voting right in Oi’s Corporate Bylaws, applicable to all of its shareholders was agreed upon; this limitation will cease to exist through verification of certain events, namely in the case of capital increase, operation of company reorganization or public offering of shares, in any case that results in the dilution of the current shareholder base (or acquisition of a stake, where applicable) greater than 50%; (iii) leveraging increase in liquidity, eliminating subjection to lock-up agreements of any shareholder; (iv) the election of a new Board of Directors at Oi with significant participation of independents, where the previously existing parity in CorpCo between the PT SGPS representatives and those of the Brazilian shareholders will be maintained; (v) extinction of TmarPart by incorporation into Oi, which will determine the end of the TmarPart and other controlling companies’ shareholders’ agreements, thus ensuring-the distribution of Oi’s shareholder control; (iv) possibility of using financial synergies through incorporation of Oi’s controlling companies, directly and indirectly; and (vii) the New Structure must be implemented as soon as possible and before October 2015. Thus, Oi will anticipate a new administration model that will cover the principal characteristics of the Novo Mercado.

·                  All of these significant changes will be subject to the approval at Oi’s general shareholders meeting and will be implemented as soon as possible after approval of ANATEL.

A change (“Amendment”) was signed to the Share Purchase Option Contract and Other Agreements entered into on September 8, 2014 such as the above, that will enable PT SGPS to liquidate its Oi share purchase option through sale on the market, giving Oi the right of first refusal in the acquisition of the Option if PT SGPS

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decides to sell it to third parties without previous consent by Oi. The Amendment is subject to approval of Oi’s general shareholders’ meeting and, if applicable, to the CVM’s approval. Oi is committed to call a general meeting to decide on the Amendment and Oi’s benchmark shareholders are committed to vote favorably for approval of the Amendment until August 31st 2015, to be completed until September 30th 2015.

After signing the new agreement with Oi and the execution of the Exchange on March 30, 2015, PT SGPS has as main asset investment 27.5% (direct and indirect interest) in Oi. PT SGPS still holds the Rioforte Instruments, and the Call Option on 47,434,872 common shares and 94,869,744 preferred shares of Oi.

f)                                       Bases of presentation

These financial statements pertain to the Company individually and were prepared according to the generally accepted accounting principles in Portugal (Note 2), and the financial statements are recorded according to the equity equivalence method, as referred to in Note 3.4. These individual financial statements considered the effect of equity and result consolidation of PT SGPS’s holdings, as at December 31, 2014 and 2013, on PT SGPS’s equity and net profit of the fiscal years ended on those dates, based on the respective financial statements, but not the effect of full consolidation of assets, liabilities, expenses and income.

In accordance with current legislation, the Company prepared consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”), published separately. These consolidated financial statements include the financial statements of the companies in which Portugal Telecom holds management control.

The financial statements for the year ended December 31, 2014 were approved by the Board of Directors and authorized for issue on April 30, 2015 and are still subject to approval by the General Meeting of Shareholders under the commercial legislation in Portugal.

2.                                      Accounting standards for preparing the financial statements

These financial statements were 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 Notices nº 15652/2009, 15653/2009 and 15655/2009 of the General-Secretary of the Ministry of Finance, dated 27 August, which make up the New Portuguese accounting system, named “Sistema de Normalização Contabilística” (“SNC”).

The Company adopted NCRF for the first time in 2010 and applied for this purpose the “NCRF 3 Adoption For The First Time of NCRF” (“NCRF 3”), with the transition date being 1 January 2009 for the purposes of the presentation of these financial statements. As permitted by Decree-Law nº. 158/2009, the Company also applies the International Financial Reporting Standards (“IAS/IFRS”) and related interpretations (“SIC/IFRIC”) issued by the International Accounting Standards Board (“IASB”), in order to fill in the gaps or omissions in SNC regarding specific situations of certain transactions.

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The consolidated financial statements of Portugal Telecom are prepared, since 1 January 2005, in accordance with IFRS as adopted by the European Union, which are applicable to the listed companies in the European Union.

On December 31, 2014, there is no difference between equity reported in these individual financial statements and equity attributable to the Company shareholders reported in the consolidated financial statements. The net income for the fiscal year ended on December 31, 2014 reported in these individual accounts (in accordance with NCRF) and that reported in the consolidated accounts (in accordance with IFRS) was negative in Euro 175 million and Euro 303 million, respectively, corresponding to a difference of 128 million euros that reflects (1) reversal of the existing differences regarding equity on December 31, 2013, of Euro 88 million, and (2) adjustments for negative cumulative currency translation adjustments amounting to Euro 40 million that were recycled to net income in the consolidated financial statements only in 2014, when these adjustments were realized upon the contribution to the capital increase in Oi. Both amounts were adjusted to net income assessed within the scope of Oi’s capital increase.

3.                                      Main Accounting Policies, judgments and estimates

These standalone financial statements were prepared on a going concern basis of accounting. The main accounting policies used in the preparation of these standalone financial statements are described below and were applied consistently.

Some accounting policies described below ceased to be directly applicable to the Company as of May 5, 2014, the date on which Portugal Telecom contributed the majority of its business and remaining assets and liabilities that were part of PT Assets to Oi’s capital increase (Note 1). However, these policies were applicable until that date, namely, in the preparation of the 2013 financial statements.

3.1.                            Tangible fixed assets

Tangible fixed assets are stated at acquisition cost, which includes the amount paid to acquire the asset and any expenses directly attributable to bringing the assets to the location and condition necessary for their operation.

Tangible fixed assets are depreciated on a straight-line basis from the month they are available for use. The depreciation rates reflect the useful life of each class of assets, as follows:

The gains and losses resulting from any write-off or disposal are determined by the difference between the amount received and the carrying value of the asset, and are recognized in the income statement when the write-off or disposal occurs.

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3.2.                            Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. The remaining lease contracts are considered operating leases. 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 liabilities are accounted for at the beginning of the contract as the lower amount between the fair value of the assets and the present value of minimum lease payments. Rents include the reimbursement of the liability and interest expense, with interest being recognized in the income statement based on a periodic interest rate over the remaining liability.

Under operating leases, rents are recognized on a straight-line basis during the period of the lease.

3.3.                            Concentration of business activities and goodwill

Acquisitions of subsidiaries are accounted for based on the purchase method. On the acquisition date, the purchase price includes the following components: (a) the fair value of assets acquired; (b) the fair value of liabilities incurred; (c) the fair value of equity instruments issued by the Company in exchange for the control of the subsidiary; and (d) expenses directly attributable to the acquisition. When applicable, the purchase price includes the effect of contingent payments agreed upon under the terms of the transaction, with subsequent changes in those payments being recorded as an adjustment to goodwill.

Any excess of the acquisition cost over the fair value of net assets acquired and contingent liabilities of the acquired company, at the date of acquisition, is recorded as goodwill, in accordance with “NCRF 14 Business Combinations” (“NCRF 14”). If the acquisition cost is lower than the fair value of identifiable net assets, the difference is recorded as a gain in net income. As provided for in NCRF 3, the Company applies NCRF 14 only to acquisitions occurred after 1 January 2009.

Goodwill is not amortized, but tested for impairment losses on an annual basis or whenever there is evidence of a potential loss of value. For impairment test purposes, goodwill is allocated to cash generating units. Any impairment loss is recognised in the income statement of the period, and cannot be reversed in a subsequent period.

3.4.                            Financial investments

Subsidiaries are those entities over which the Company has the power to govern the financial and operating policies of the entity, generally represented by the majority of the voting rights. Associated companies are entities over which the Company has a significant influence but not control, generally represented by stakes between 20% and 50% of voting rights. Joint venture: is an economic activity with the engagement of two or more partners subject to joint control based on a contractual agreement.

Financial investments in subsidiaries, associated companies and joint ventures are recorded under the equity method of accounting. Under this method, financial investments are initially recorded at acquisition cost and subsequently adjusted for the changes, after the acquisition date, in the Company’s share in the net assets of those entities. Portugal Telecom’s earnings include its share in the earnings of its subsidiaries and associated companies.

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Financial investments in foreign entities are translated to Euros using the exchange rates prevailing at the balance sheet date, while the Company’s share in the earnings of those entities is computed based on the average exchange rates for the reported period. The effect of translation differences is recognised in shareholders’ equity under the caption “Adjustments to financial assets”, and is transferred to net income upon the disposal of a foreign entity or the transmission of the investment through another way. The exchange rates used in the translation of the main foreign entities (held directly or indirectly by Portugal Telecom) are as follows:

Financial investments are evaluated whenever there is evidence they may be impaired and the related impairment losses are recorded in the income statement.

Gains obtained in transactions with subsidiaries, associated companies and joint ventures are eliminated proportionally to the Company’s share in those entities, against a reduction in the financial investment.

Capital gains resulting from the disposal of subsidiaries and associated companies within the Group are deferred or reversed until the date these investments are disposed of to a third party. Whenever these gains are deferred, their recognition in earnings is made under the caption “Equity in earnings/(losses) of affiliated companies”, on the proportion that goodwill or assets and liabilities identified in the allocation of the purchase price recorded by the acquirer is recognized in earnings.

Additional capital contributions and loans granted to subsidiaries, associated companies and joint ventures are recorded at nominal value, reduced by adjustments for estimated losses, if applicable.

3.5.                            Accrual basis

The Company records its revenue and expenses as they are generated or incurred, regardless of when they are received or paid, respectively.

3.6.                            Income tax

Income tax expense corresponds to the sum of current and deferred taxes. Deferred taxes are recognized in earnings except when they relate to items recorded directly in shareholders’ equity, in which case they are also recorded in shareholders’ equity.

The current income tax is computed based on the estimated taxable income for corporate income tax purposes, based on the statutory tax rate in Portugal, which is increased through a municipal tax and/or through an additional state surcharge depending on the collectible profit of the year (Note 10).

The income tax expense recorded in the financial statements was determined in accordance with “NCRF 25 Income Taxes”. In determining income tax expense for the year, besides the current tax based on profit before-tax adjusted in accordance with the tax legislation, it is also considered the effects of temporary differences between income before tax and taxable income originated in the year or in preceding years.

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Deferred taxes correspond to the temporary differences between assets and liabilities for accounting purposes and the related amounts for taxable purposes. Deferred tax assets and liabilities are computed and evaluated annually, using the tax rates which are expected to be in force at the date of reversal of these temporary differences.

Deferred tax assets are recorded only when there is a reasonable expectation of sufficient future tax profits which allow for their use. As at the balance sheet date the Company conducts a reassessment of the temporary differences originating deferred tax assets, in order to record deferred tax assets not recognized previously and/or to reduce the amount of deferred tax assets that are recognized, based on the current estimate of its recoverable amount.

3.7.                            Accounts receivable

Accounts receivable are initially recognized at fair value, and subsequently measured at amortized cost, based on the effective interest rate method, reduced by impairment losses.

Impairment losses for doubtful accounts receivable are computed based on the evaluation of the estimated risks resulting from the non-collection of receivables and are recorded in the income statement.

3.8.                            Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered primarily through a sale transaction rather than through continuing use. This condition is regarded as met only when the subject transaction is highly probable and the asset or group of assets is available for immediate sale in its present condition. The sale should be completed within one year as from the date the asset was classified as held for sale.

Non-current assets classified as held for sale are measured at the lower of the assets’ previous carrying amount or the fair value less costs to sell.

3.9.                            Provisions and contingent liabilities

The Company recognizes provisions when there is 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 is not accomplished, the Company discloses the event as a contingent liability, unless the cash outflow is remote.

Provisions are recognized for an amount corresponding to the present value of the best estimate, at the reporting date, of the resources needed to settle the obligation. That estimate is determined considering the risks and uncertainties associated with the obligation. Provisions are reviewed at the end of each year and adjusted for in order to reflect the best estimate as of that date.

3.10.                     Loans obtained

Loans obtained are initially recognized at fair value, net of transaction costs incurred, and subsequently presented at amortized cost, based on the effective interest method.

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Exchangeable bonds issued by Portugal Telecom are recognized as compound instruments, comprising the following two components: (i) the present value of the debt, estimated through the prevailing market interest rate for similar non-convertible debt, which is recorded as a financial liability; and (ii) the fair value of the embedded option for the holder to convert the bond into equity, which is recorded directly in shareholders’ equity. As of the balance sheet date, the debt component is recognized at amortized cost and the shareholders’ equity component is recognized at the initial value.

3.11.                     Treasury shares

Equity swap contracts on own shares that include an option exercisable by Portugal Telecom for physical settlement are recognised as a financial liability and a corresponding reduction of shareholders’ equity, and are accounted for as an acquisition of treasury shares on the inception date of the contract.

3.12.                     Balance sheet classification

Realizable assets and liabilities due over a period greater than one year from the balance sheet date are classified under non-current assets and non-current liabilities, respectively, at present value.

3.13.                     Foreign currency transactions and balances

Transactions denominated in foreign currencies (different from the Company´s domestic currency) are translated to Euros at the exchange rates prevailing at the time the transactions are made. Assets and liabilities in foreign currency for which there is no agreement for fixing an exchange rate are translated to Euros using the exchange rates prevailing at the balance sheet date. Favourable or unfavourable exchange rate differences arising from the differences between exchange rates in force at the date of the respective transactions and those applying on the date of collection or payment or at the balance sheet date are recorded as gains and losses in the income statement.

Assets and liabilities as at December 31, 2014 and 2013 were translated into Euros using the following exchange rates to the Euro reported by the Portuguese Central Bank:

3.14.                     Financial Assets and Liabilities

Financial assets and liabilities are recognized in the balance sheet when the Company becomes part of the corresponding contractual terms, and are classified in the following categories: (a) at cost or amortized cost; and (b) at fair value, with the respective changes being recorded in the income statement.

(a)                             Financial assets and liabilities at cost or amortized cost

Assets and liabilities are classified at cost or amortized cost if they: (a) have a defined maturity; (b) have a fixed or determined income; and (c) do not represent or include a derivative financial instrument.

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Assets and liabilities classified in this category are measured at amortized cost reduced by accumulated impairment losses (for financial assets) and correspond primarily to the following asset and liability captions included in the Company’s balance sheet:

·                  Loans included under the caption “Financial investments - equity method of accounting”

·                  Loans obtained

·                  Balances with Group companies

·                  Suppliers

·                  Accrued expenses

·                  Advances to suppliers

·                  State and other public entities

·                  Other accounts receivable and payable

·                  Other financial assets and liabilities

·                  Cash and bank deposits

Amortized cost is determined through the effective interest method. The effective interest rate is the one that discounts the estimated future payments and receipts, during the term of the financial instrument, to the carrying value of the financial asset or liability.

(b)                                 Financial assets and liabilities at fair value

All the remaining financial assets and liabilities not included in the category “cost or amortized cost” are recognized at fair value. These financial assets and liabilities correspond primarily to interest and exchange rate derivative financial instruments.

The changes in the fair value of these derivatives are recognized through shareholders’ equity or profit and loss, depending on whether those derivatives meet or not the criteria for hedge accounting, respectively. These changes in fair value are recorded under the caption “Increases/(reductions) in fair value” (Note 22).

(c)                              Impairment of financial assets

Financial assets included under the caption “cost or amortized cost” are subject to impairment tests by the end of each year. Such assets are impaired when there is clear evidence that, as a result of one or more events occurred after their initial recognition, their future estimated cash flows will be affected.

For assets measured at amortized cost, the impairment loss corresponds to the difference between the carrying amount of the asset and the present value of the revised future estimated cash flows discounted using the initial effective interest rate. For financial assets measured at cost, the impairment loss corresponds to the difference between the carrying amount of the asset and the best estimate of the asset’s fair value.

Subsequently, if there is a reduction in the impairment loss as a result of an event occurred after the initial recognition of the loss, the impairment should be reversed through earnings. The reversal is recognized up to the limit of the amount that would be recorded (at amortized cost) if the loss had not been initially recognized.

(d)                             Derecognition of financial assets and liabilities

The Company derecognizes financial assets when its contractual rights to obtain the asset’s cash flows expire, or when it transfers to another entity all the significant risks and rewards associated with the ownership of those

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assets. The Company derecognizes financial liabilities only when the corresponding obligation is settled, cancelled or expires.

3.15.                     Main accounting estimates and judgments

When preparing the financial statements in accordance with the NCRF, the Company’s Board of Directors uses estimates and assumptions that affect the application of accounting policies and reported amounts. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are considered probable under the circumstances on which the estimates are based, or as a result of new information or more experience. The most significant accounting estimates reflected in the financial statements are as follows:

(a)         Valuation of the investment in Oi. On May 5, 2014, the Company valued its new stake in Oi based on the price of the Oi shares in the capital increase realized on that date, having as of that date, appropriated its stake in Oi’s profit and loss using the equity method. In addition, starting on September 8, 2014, the portion of the investment in Oi to be delivered within the scope of the Exchange Agreement was classified as a non-current asset held for sale, and measured at fair value from thereonwards.

(b)         Recognition of provisions and adjustments . PT SGPS is party to various ongoing legal claims for which, based on the opinion of its legal advisors, a judgment was made to determine the recognition of a possible provision for these contingencies. Adjustments for accounts receivable are calculated based primarily on the aging of the accounts receivable, the risk profile of the customers and their financial situation.  Regarding the provisions for other risks and costs concerning the impact of the Exchange Agreement, the Company made the best estimate regarding the financial impact of the Exchange Agreement entered into with Oi. Due to the short time frame, the company did not adjust the provision for the time value of money.

(c)          Deferred taxes. The Group recognizes and settles income taxes based on the results of operations calculated in accordance with the local corporate legislation, taking into consideration the provisions of the tax law, which are significantly different from the amounts calculated in accordance with the NCRF. In accordance with NCRF 25, the Company recognizes deferred tax assets and liabilities based on the difference between the carrying amount and the tax bases of the assets and liabilities. The Company periodically assesses the recoverability of deferred tax assets and recognizes an impairment loss whenever it is probable that these assets are not realizable, based on the historical information regarding taxable income, the projection of future taxable income, and the time estimated for the reversal of the temporary difference. These calculations require the use of estimates and assumptions and the use of different estimates and assumptions could result in the recognition of a provision for impairment losses for all or a significant portion of the deferred tax assets.

Estimates used are based on the best information available during the preparation of financial statements, although future events, neither controlled nor foreseeable by the Company, could occur and have an impact on those estimates. In accordance with “NCRF 4 Accounting Policies, Changes in Estimates and Errors” (“NCRF

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4”), changes to these estimates that occur after the date of the financial statements are recognized in net income, using a prospective methodology.

3.16.                     Events that occurred after the balance sheet date

Events occurred after the balance sheet date that provide additional information about conditions existing at the balance sheet date are reflected in the financial statements. Events occurred after the balance sheet date that provide information about conditions that occur after the balance sheet date are not reflected in the financial statements, but are disclosed in the notes to the financial statements, if material.

4.                                      Cash Flows

The caption “Cash and cash equivalents” of the statement of cash flows includes cash on hand and bank deposits readily convertible to a known amount of cash.

The Company is exposed to a liquidity risk if its sources of funding, including cash balances, operating cash inflows, divestments, credit lines and cash flows obtained from financing operations, do not match its financing needs, such as operating and financing outflows, investments, shareholder remuneration and debt repayments.  The Company understands that it has the ability to fulfill its obligations.

The cash flow statement was prepared in accordance with “NCRF 2 Statement of Cash Flows”, with the following aspects being worth mentioning.

(a)                                 Cash receipts (payments) relating to income taxes

In years ended December 31, 2014 and 2013, this caption has the following composition:

(a)                                 In 2014, this item includes (1) receipts from affiliated companies related to payments on account of tax payable the following year, in the sum of Euro 53,506,615, net of (2) payments to affiliated companies in the sum of Euro 16,538,217. In 2013, this item includes (1) receipts from affiliated companies related to payments on account of tax payable the following year, in the sum of Euro 96,821,779 (Note 8), (2) receipts of Euro 18,641,756 euros for the fourth and last installment regarding the previous year income tax, and (3) a receipt of Euros 3,393,473 related to additional payments for prior years made by affiliated companies.

(b)                                 In 2013, PT SGPS made three additional payments on account of Euro 5.5 million each, for a total of Euro 16.4 million.

(c)                                  This item corresponds to reimbursements obtained as a result of overpayments on account made the previous year for tax collection determined in the scope of the tax consolidated regimes of PT SGPS.

(d)                                 In 2014, this item includes essentially (1) one value of 12,732,641 euros, received from the State for amounts unduly charged in the past related to municipal levy, tax benefits and international taxation, and (2) an additional tax payment for 2010, in the sum of 4,830,139.

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(b)                                 Cash receipts and payments resulting from short-term financial applications

In 2014, this item is the sum received from PT Portugal for the transfer to that entity of investments in Rio Forte debt securities with a nominal value of 200 million euros (Note 1.e), which had initially been subscribed by PT SGPS on April 15, 2014.

In 2013, PT SGPS subscribed to debt securities issued by Espírito Santo International in the sum of 200 million.

(c)                                  Cash receipts resulting from financial investments

The composition of this caption in the 2014 and 2013 financial years is as follows:

Euro