No. 0202.239.951 Proximus PLC

No. 0202.239.951 Proximus PLC

Report by the Board of Directors to the annual general meeting of shareholders on 18 april 2018 on the annual accounts of Proximus PLC under Belgian Public Law as at 31 december 2017

Dear Shareholders,

We are pleased to report on the operations of the 2017 financial year and to submit for your approval, the annual accounts per 31 December 2017.

Comments on the annual accounts

Balance sheet

Intangible assets decreased with € 294 million The cash and cash equivalent are approximately € down to € 3,065 million mainly as a consequence 9 million higher end of December of 2017 at € 39 of the amortization of the goodwill from the 2010 million compared to December 2016. merger by absorption, partly offset by important investments in IT assets and broadcasting rights. The equity decreases by € 177 million mainly due to the Net Income being lower than the distributed The net book value of the “plant, machinery and profit. equipment” increased by € 88 million up to € 2,514 million, as investments exceeded the The provisions for liabilities and charges depreciation cost of 2017. On the one hand, there decreased with € 44 million mainly as a are the investments made in the mobile network consequence of payments for the voluntary early to maintain the mobile leadership in the Belgian leave plan that started mid 2016. market; on the other hand, there are the important investments made in the fixed network The total carrying value (long term and short term to roll-out fiber and vectoring in order to increase parts) of the unsubordinated debentures the broadband speed. increased by € 500 million compared to 2016, as a consequence of the issuance of €500 million The amounts receivable after one year (€ 144 Senior Unsecured Notes in March 2017. million) include a loan granted to BICS in the context of the acquisition of Telesign. Credit institutions payable after more than one year are composed of intercompany borrowings. The inventory remained fairly stable at € 96 In 2017 two borrowings were concluded: in June million. one of € 600 million and one for € 1.300 million in March. The amounts receivable within one year increased with € 23 million up to € 657 million mainly as a Per 31 December 2017, the current liabilities consequence of the increase in recoverable VAT exceed the current assets. However, Proximus and tax prepayments. benefits from different sources of financing, such as the use of readily available excess cash within the Group, the issuance of short term notes under its commercial paper program, the use of existing

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credit facilities and/or the use of its existing Euro Medium Term Notes program.

Income statement

2017 operating income amounts to € 4,489 leave plan and collective agreement for which the million. The turnover increased with € 24 million cost was recognized in 2016. partially offset by the decrease in own construction capitalized with € 17 million and the As a result, the operating profit increased with € decrease of work and contracts in progress with 7 215 million up to € 421 million. million. The 2017 and 2016 non recurring operating income (2017:€ 8 million and 2016: The net financial income decreased with € 245 €10 million) relate to income recognized with million down to € 53 million due to lower respect to the compensation mechanism for dividends received partly offset by lower interest statutory retirees foreseen in the transfer of the expenses. obligation of legal pensions to the Belgian State in 2003. The 2017 earnings before income tax amount to € 475 million (vs. € 504 million in 2016). The amount of operating charges decreased with € 218 million down to € 4,068 million. The non Corporate income taxes increased with € 115 recurring operating charges decreased with € 275 million up to € 141 million as 2016 benefitted million partly offset by an increase of depreciation from higher tax deductions. and amortization with € 59 million and other operating charges with € 18 million . As a consequence the profit of the year before appropriation of the result amounted to € 335 The decrease of non recurring operating charges million compared to € 479 million for 2016. is mainly the consequence of the voluntary early

Appropriation of the account

We propose the following appropriation (in €):

2017

Profit of the financial year to be appropriated + 334,766,320 EUR

Accumulated profits + 304,501,233 EUR

Profit to be appropriated = 639,267,553 EUR

Transfers from capital and reserves + 3,708,700 EUR

Transfers to capital and reserves - 1,289,844 EUR

Profit to be distributed (Dividends) - 487,730,988 EUR

Other beneficiaries (personnel) - 23,725,183 EUR

Profit to be carried forward = 130,230,238 EUR

On December 8th 2017 an interim dividend of € 161.4 million has been paid.

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Right and commitments not included in the balance sheet

Proximus has the right to issue Commercial Paper issue Euro Medium Term Notes for a total of € for a total of € 1,000 million, of which € 163.5 3,500 million, of which € 2,254.8 million has been million has been issued end 2017, and the right to issued as of end 2017.

Taking risks is inherent to doing business and strength but also to protect Proximus’ reputation. successfully managing risks delivers return to A structured risk management process allows Proximus stakeholders. Proximus believes that management to take risks in a controlled manner. risk management is fundamental to corporate Financial risk management objectives and policies governance and the development of sustainable are reported in Note 33 of the consolidated business. financial statements, published on the Proximus website. Risks related to important ongoing claims The Group has adopted a risk philosophy that is and judicial procedures are reported in Note 35 of aimed at maximizing business success and these statements. The enterprise and financial shareholder value by effectively balancing risk reporting risks are detailed below, together with and reward. Effective risk management is a key the related mitigating factors and control success factor for realizing our objectives. The measures. Note that this is not intended to be an motivation of risk management is not only to exhaustive analysis of all potential risks Proximus safeguard the Group’s assets and financial might be facing.

Enterprise-wide risks

Proximus’ Enterprise Risk Management (ERM) is a relevant risks and opportunities are prioritized in structured and consistent framework for terms of impact and likelihood, considering assessing, responding to and reporting on risks quantitative and/or qualitative aspects. The that could affect the achievement of Proximus’ bottom up identification and prioritization process strategic development objectives. The Group’s is supported by a self-assessment template and ERM covers the spectrum of business risks validation sessions. The resulting report on major (“potential adverse events”) and uncertainties that risks and uncertainties is then reviewed by the Proximus could encounter. It seeks to maximize Executive Committee, the CEO and the Audit and value for shareholders by aligning risk Compliance Committee. The main findings are management with the corporate strategy. It does communicated to the Board of Directors. Among so by assessing emerging risk (e.g. from the risks identified in the ERM exercise of 2017, regulation, new technologies on the market) and the following risk categories were prioritized (in developing mitigating strategies in line with its risk the following order): tolerance.  Competitive market dynamics Proximus ERM framework has been reviewed and  Business model evolution updated in 2017 in order to be aligned with the  Customer experience market best practices. This risk assessment and  Human Resource cost flexibility evaluation takes place as an integral part of  Employee skills & motivation Proximus’ annual strategic planning cycle. All

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Competitive market dynamics

Proximus’ business is primarily focused on Proximus has built up an advantageous and solid Belgium, a small country with a few large telecom competitive position providing the company with players, among which Proximus is the incumbent. other levers than just price, reducing the risk to Proximus is operating in growing (e.g. churn and price disruption exposure. smartphones, mobile data, security, IOT, smart mobility, API platforms), maturing or saturated Proximus is also responding through a convergent (e.g. Fixed Internet, postpaid mobile, fixed voice) or and bundled approach and by offering new even declining (e.g. prepaid mobile, accelerated by services and opting for an aggregator model, registration obligation mid 2017) markets. putting at disposal the best content to its customers (e.g. Netflix). The market is in constant evolution, with competitive dynamics at play that might impact The price-sensitive segment, on the rise in 2017 market value going-forward. as more consumers seek ‘no frills’ offers at a lower price, is successfully addressed via its Substitution by OTT services of fixed line services subsidiary Scarlet. The latter offers attractively (e.g. by apps and social media like Skype, priced mobile and triple-play products. Facebook, WhatsApp, etc.) and TV content could put further pressure on revenues and margins as In the corporate large-company market, the these over the top services are further gaining scattered competitive landscape drives price ground. competition, which might further impact revenue and margins. As a result of its long-term strategy and continued network investments (Fiber, Here also, Proximus intends to respond to VDSL/Vectoring, 4G/4G+) Proximus has been increasing competition by strengthening its voice- consistently improving its multi-play value data-IT convergence strategy, leveraging propositions by putting more customers on the unmatched sales reach, broad portfolio and latest technologies, keeping the lead in mobile expertise. Addressing customer business needs innovation, structurally improving customer through solutions combining core assets with service, partnering with content and OTT players innovation like IoT, Cloud, Security and big data to offer a broad portfolio of content (Sports, will help preserving the value. The acquisitions of Netflix, families & kids with e.g. Studio 100 Davinsi Labs (cyber security) and Unbrace agreement) , developing an omnichannel strategy (application development) aim at increasing our and improving digital customer interfaces, … expertise in these growth domains.

Business model and servicing evolution

Proximus’ business model and financial For ultra-broadband fibre based connectivity, performance have been and will be impacted by Proximus operates a local marketing approach, (disruptive) technologies, such as eSIM joining forces of our sales and the one of technical smartphones and OTT (over-the-top) services. forces and of local partners for its fibre Proximus’ response to new technologies and deployment project. market developments and its ability to introduce new competitive products or services, meaningful Proximus also continues to develop capabilities to to its customers, will be essential to its support business customers in their digital performance and profitability in the long run. transformation with its industry-tailored support and convergent products combining connectivity, Proximus will also pursue its positioning as smart hybrid cloud and managed security solutions (e.g. aggregator. acquisition of Davinsi Labs).

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Proximus continuously explores ways to diversify subsidiary among others). In those adjacent revenues streams outside the classical domains Proximus explores new partnership connectivity business. Examples include smart models and considers inorganic growth paths. advertising and smart mobility (via B-Mobile

Customer experience

For Proximus, delivering a superior customer  maximizing usage satisfaction of products experience is a core strategic mission – but also an and services with focus on in-home and ongoing risk domain, considering: in-office experience  designing or redesigning interactions with  the fast evolution of market expectations the customer, ensuring a personalized  the large & complex offer of product & and effortless interaction with the services Proximus brand  the process /legacy IT application  creating and maintaining a continuous complexity dialogue with our customers to engage with them and evolve towards a real Proximus is committed to meet its brand Promise customer centric company ‘Always close’ by transforming into a digital  reacting quickly when things are not going service provider while delivering superior in the right direction from the customer customer experience: a consistent and intuitive perspective experience across interactions, high quality and stable network, easy-to-use products and A few examples of what has already been services, a good recommendation index and low achieved in 2017: effort on all interactions in all customer journeys.  massive upgrading of customers to latest Proximus’ transformation strategy holds a key technology focus on ‘customer experience’ which is  ‘Happy House’ visits to improve in-home materialized in a company-wide program. Via this experience program it manages different initiatives  ‘Safety nets’ for customers at risk via companywide: 360° transversal teams  ‘MyProximus’ app upgrade and new  ensuring products & services are ‘Home optimizer’ app designed to match customer expectations  ‘Everything for your smartphone’ servicing before launching campaign

Human resource cost flexibility

Even though Proximus is back on the path of Moreover, Belgium applies automatic inflation growth since 2015, strong competition, the impact based salary increases, leading to higher costs, not of regulation and fast market evolution require only of Proximus’ own employees but also of the that it needs to further reduce costs in order to outsourced workforce, with the outsourcing remain competitive and preserve EBITDA. A companies being subject to the indexation as well. significant part of Proximus’ expenses is still driven by the cost of the workforce (whether internal or At Proximus Group level, about one in three outsourced, expensed or capitalized). Expressed employees is statutory. The application of HR as a ratio of turnover, Proximus total cost of rules as defined during successive Collective workforce still lies above the average of Agreements is quite strict and doesn’t allow high international peers and main competitors, even if flexibility and even more for statutory employees. progress is steadily made over the past years. This may restrict Proximus’ ability to improve

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efficiency and increase flexibility to levels employer brand is definitely helping to attract and comparable to those of its competitors. retain the right talents.

Major efforts will be needed to increase flexibility In 2017 the next wave of the voluntary early leave and mobility within the organization. Business plan that was agreed by the unions in 2016 has complexity is continuously increasing, creating a left the company. However, the need remains to need for upgraded skills and up-staffing mainly in get unions approval on new measures to enhance customer-facing functions on the one hand and agility in the company. Discussions with unions are digital oriented functions on the other hand. aimed to simplify the current social model, to enhance functional & geographical mobility within In the digital era, knowledge workers are a the organisation and to increase employability. competitive asset if they have the right skills and mind-set. Proximus could face a shortage of Proximus will continue to adapt and simplify the skilled resources in very specific domains like organizational structure in order to evolve security, digital front-ends, data science, agile towards a high-performance organization and as IT,…This shortage could hamper the realization of such transforming the way we work. our convergent and customer-centric strategy and delay some of our ambitions in innovation. Different initiatives are ongoing to safeguard the This is why the company is putting so much balance between workforce and workload (both in attention on training programs, internal mobility, numbers and competencies), to optimize in- and and selective hiring of young graduates from outsourcing, to stimulate (internal) mobility, and relevant fields of knowledge Proximus’ attractive to drastically simplify and/or automate Proximus’ products, services, processes and systems.

Employee skills and motivation

Companies in the technology sector face growing helping people to develop new skills to be ready pressure to attract, retain & manage talented for the future. employees; the challenge even grows when it goes over high qualified workforce, especially top Considering the imperative to align skills vs. experts, who have new digital and analytical skills customer & business needs, Proximus Human that are critical to respond to the challenges Resources department has taken the necessary Proximus faces to prepare for the future. In this steps to identify what skills and skill groups are matter, it is also essential for Proximus to adapt critical to face tomorrow’s challenges. Proximus her way of working to the needs and requirements HR department is also working to spread a talent of the new generation – “the millennials” - and culture throughout the organization that this way manage all talents within an inclusive encourages to know, develop and share each multigenerational environment. In these other’s talents to have the right talent at the right challenging conditions, the Human Resources place. department within Proximus plays a key role in the company to ensure business success by .

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Operational risks

Operational risk relates to risks arising from Proximus is covered by extended general and systems, processes, people and external events professional liability, property damage and that affect the operation of Proximus businesses. business interruption insurance as well as by a It includes product life cycle and execution; dedicated cyber security insurance program. product safety and performance; information Nevertheless, those insurance programs may not management, data protection and cyber security; provide indemnification if the traditional insurance business continuity; supply chain; and other risks, exclusions (non-accidental event) should apply. including human resources and reputation. Depending on the nature of the risk involved and The most prominent examples of operational risk the particular business or function affected, factors are stipulated below: Proximus is using a wide variety of risk mitigation strategies, including adverse scenario stress tests,  Resilience & business continuity back up/business continuity plans, business  Legacy network infrastructure process reviews, and insurance. Proximus’  Security ( confidentiality, integrity, operational risk measurement and management availability) relies on the AMA (Advanced Measurement  Sourcing & supply chain reliability Approach) methodology. A dedicated “as-if”  Data protection & privacy adverse scenario risk register has been developed in order to make stress tests relevant.

Business Continuity

Interruptions to our ICT and telecom Per critical product & services, relevant Recovery infrastructure that supports our businesses Time Objectives (RTO) have been defined in line (including those provided by third-party vendors with the sales business units requirements. such as power suppliers) could seriously impact our revenues, our liabilities and our brand Proximus is closely following the Business reputation. Continuity Institute (BCI) best practices guidelines. The level of preparedness (relevant KPIs and Therefore, building and ensuring resilience of our score cards) is submitted annually to the Audit & products and services is and remains a top priority. Compliance Committee. We are convinced that our business continuity plans will keep our company up and running In case of a major adverse event, Proximus has through interruptions of any kind: power failures, put in place and is continuously testing a crisis IT system crashes, natural disasters, supply chain management process called PERT (Proximus problems and more. Emergency Response Team).

For each critical business function, business continuity plans have been developed in order to:

 identify and prevent risks where possible  prepare for risks that we can't control  respond and recover if an incident or crisis occurs

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Legacy network infrastructure

The systems need to talk to each other over a copper will cease to be maintained at all and connected information highway that can deliver outages on the lines will become more frequent. information at high speed and without distortion. There is no doubt that in the coming years there Considering those elements, Proximus was in will be a continuing demand for ever-increasing 2004 the first operator in Europe to start building quantities of data at ever-increasing speeds. a national Fiber network. And today, Proximus is There is a widely held belief that the increased use among the world’s top five operators for the of wireless and fiber optic technology will render proportion of Fiber in its VDSL network with over copper wire obsolete. 21,000 kilometers of optical fiber connecting its street cabinets. The problems with services over copper are speed, reliability and value for money. All too In 2017, Proximus has accelerated the roll-out of often, legacy systems are costly to operate and Fiber on its fixed network thanks to its ‘Fiber for maintain. Copper has been around for 140 years Belgium’ € 3 Bio investment plan over the next and has far out-lived any guarantee period. Soon, 10 years.

Cyber Security

Increased global cyber security vulnerabilities, We are taking the necessary actions & threats and more sophisticated and targeted investments to mitigate those risks by employing cyber related attacks pose a risk to the security of a number of measures, including employee Proximus as well as its customers’, partners’, training, monitoring testing, and maintenance of suppliers’ and third-party service providers’ protective systems and contingency plans. products, systems and networks. The confidentiality, availability and integrity of Proximus and its customers’ data are also at risk.

Sourcing & Supply chain

Proximus depends on key suppliers and vendors  Top critical suppliers or their sub- to provide equipment needed to operate its suppliers under constant watch business.  Stock management  Consideration of alternative sourcing Supply chain risk management (SCRM) is defined arrangements as “the implementation of strategies to manage  Business interruption / contingency plans both every day and exceptional risks along the  Risk assessments and Audits supply chain, based on continuous risk  Awareness campaigns and training assessment with the objective of reducing programs vulnerability and ensuring continuity”.  Strict follow up of critical suppliers contractual liability & Service level The following actions have been taken into Agreement (SLA) clauses account in order to keep an acceptable supply  Data protection & privacy chain risk level:

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Data protection & privacy

Data protection laws exist to strike a balance established, which reports to the between the rights of individuals to privacy and Executive Committee and consists of C- the ability of organizations to use data for level members from all business units. business purposes. Keeping personal data The Committee decides on the framework confidential, private, safe and secure is for and conditions for new and privacy Proximus a top priority. sensitive use cases (“privacy by design”) and provides recommendations on all General Data Protection Regulation (GDPR) ‘s other pertinent aspects related to privacy. unification of data protection standards across the  A Proximus Privacy Charter, adopted in European Union has raised the privacy bar on 2016, describes the Proximus’ approach personal data by requiring organizations to locate, to privacy and serves as an internal understand its purpose and appropriately secure compass to assess use cases and to it. respect our stakeholders’ privacy, ….  In view of the EU General Data Protection Our objective is to ensure compliance with the EU Regulation, Proximus performed a GDPR General Data Protection Regulation (GDPR) readiness assessment and developed a without costly disruptions to Proximus data flow compliance roadmap. and business operations.  Mid 2016, Proximus has made a gap analysis between the GDPR requirements Proximus is committed to protect personal data & the existing situation. In order to ensure and privacy, and the company has taken the a structured implementation, a following actions: multidisciplinary and cross-functional project team has been set up under the supervision of a project manager. Twelve  Appointment of a Data Protection Officer work packages have have been defined in (DPO) for Proximus (& subsidiaries) who order to meet the May 2018 reports to EXCO and the Audit & implementation deadline. The progress of Compliance Committee and who is the implementation is monitored through responsible for privacy compliance & internal project governance and quarterly implementation of privacy laws, e.g. reporting to the Risk Management GDPR. Committee (RMC) and the Audit &  Since end of 2015, a Proximus Privacy Compliance Committee. Council Committee (PPC) has been

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Risk Management & Compliance Committee

In 2017, the Risk Management & Compliance The RMC objectives are: Committee (RMC) has held 4 sessions. The related decisions have been reported to EXCO & the Audit 1. To oversee the company's most critical & Compliance Committee. RMC meetings give enterprise & operational risks and how opportunity to review files where decisions have management is monitoring and mitigating those to be taken by finding the balance between risk risks. taking and cost in line with the Group risk appetite. 2. To enhance pending/open internal Audit action Proximus has general response strategies for points where significant resources have to be re managing risks, which categorize them according allocated. to whether the company will avoid, transfer, reduce or accept the risk. These response A disciplined approach to risk is key in a fast- strategies are tailored to ensure that risks are moving technological and competitive within acceptable Proximus risk and compliance environment, in order to ensure that we only guidelines. accept risk for which Proximus is adequately compensated (risk/return optimisation).

Internal Audit

Proximus internal audit function is– in line with 3. The compliance with laws, regulations and the European best practices requirements – an policies. integral part of the Internal Risk Management and Control System and provides assurance to the 4. The reliability & the accuracy of the Audit and Compliance Committee concerning the information provided. “in control status” of the Proximus Group segments/units/entities and processes. Internal Internal Audit helps Proximus to accomplish those Audit provides to both the Audit and Compliance objectives by bringing a systematic, disciplined Committee and Proximus Management analyses, approach to evaluate and improve the appraisals, recommendations, counsel, and effectiveness of risk management, control and information. governance processes. Internal Audit conducts its activities in a manner based on a continuous Therefore, internal audit objectives using the evaluation of perceived business risks, and has full COSO and other professional standards are to and unrestricted access to all activities, ensure: documents/records, properties and staff. The Chief Auditor has a reporting line to the Chairman 1. The effectiveness & adequacy of internal of the audit Committee. Quarterly Audit activity controls. reports are submitted and discussed with the Audit and Compliance Committee. 2. The operational effectiveness (doing it right) and/or efficiency (doing it well).

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Financial reporting risks

In the area of financial reporting, in addition to the accounting standards, changes in tax law and general enterprise risks also impacting the regulations and the financial statement closing financial reporting (e.g. personnel), the major risks process. identified include: new transactions and evolving

New transactions and evolving accounting standards

New transactions could have a significant impact are identified and the impact on the Proximus on the financial statements, either directly in the financial reporting is proactively analyzed. income statement or in the notes. An inappropriate accounting treatment could result in For every new type of transaction (e.g. new financial statements which do not provide a true product, new employee benefit, business and fair view any more. Changes in legislation (e.g. combination), an in depth analysis from a financial pension age, customer protection) could also reporting, risk management, treasury and tax significantly impact the reported financials. New point of view is performed. In addition, the accounting standards can require the gathering of development requirements for the financial new information and the adaptation of complex systems are timely defined and compliance with (billing) systems. If not timely and adequately internal and external standards is systematically foreseen, the timeliness and reliability of the analyzed. Emphasis is on the development of financial reporting could be put at risk. preventive controls and setting up reporting tools that enable a posteriori controls.On a regular It is the responsibility of the Corporate Accounting base, the Audit & Compliance Committee (A&CC) department to follow the evolution in the area of and the Executive Committee are informed about evolving standards (both local General Accepted new upcoming financial reporting standards and Accounting Principles (GAAP) and International their potential impact on the Proximus’ financials. Financial Reporting Standards (IFRS)). Changes

Changes in tax law and regulations

Changes in tax laws and regulations (corporate well as interpretations of existing tax laws by the income tax, VAT,...) or in their application by the tax authorities. Based on laws, doctrine, case law tax authorities could significantly impact the and political statements as well as draft laws financial statements. To ensure compliance, it is available etc., an impact analysis is made from a often required to set up, in a short timeframe, financial perspective and from an operational additional administrative processes to collect point of view. The outcome of the analysis is relevant information or to implement updates to reflected in the corresponding financial existing IT systems (e.g. billing systems). statements in accordance with the applicable framework. The tax department continuously follows potential changes in tax law and regulations as

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Financial statement closing process

The delivery of timely and reliable financial systems are locked, validation meetings and statements remains dependent on an adequate reporting deliverables. financial statement closing process. For every process and sub-process, different Clear roles and responsibilities in the closing controls are performed, including preventive process of the financial statements have been controls, where information is tested before being defined. During the monthly, quarterly, half- processed, as well as detective controls, where yearly and annual financial statement closing the outcome of the processing is being analyzed processes, there is a continuous monitoring on the and confirmed. Specific attention is given to different steps. In addition, different controls are reasonableness tests, where financial information performed to ensure quality and compliance with is being analyzed against more underlying internal and external requirements and guidelines. operational drivers and coherence tests, where financial information from different areas is For Proximus and its major affiliates, a very brought together to confirm results or trends, etc. detailed closing calendar is established, which Tests on individual accounting entries are includes in detail cross-divisional preparatory performed for material or non-recurrent meetings, deadlines for ending of specific transactions and on a sample basis for others. The processes, exact dates and hours when IT sub- combination of all these tests provides sufficient assurance on the reliability of the financials.

There are no events that occurred after 31 December 2017 that have not been reflected in the financial statements.

Circumstances that can significantly influence the development of Proximus are listed in caption ‘Most important risks and uncertainties’.

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In 2017, the RD&I (Research, Development & linked to technology as well as the outcomes from Innovation) of Proximus continued activities, standardization & industry policies bodies and started a number of new studies and introduced continuously feeds innovation programs with new technologies & services in numerous relevant elements that fit the targeted chapter of domains, in quite some cases in co-operation with Proximus long term company strategy: Build the other innovation actors. Proximus makes sure to Future. capture major trends in innovation & venturing

Build the future

The network of the future

Optical fiber

Optical Fiber is the ultimate broadband network has been established relying on several for both residential and business customers. construction companies contractually organized in 2 consortia, GO4Fiber and 5thNet. About 450 With optical Fiber, every member of a household employees are currently involved in this program can browse the Internet, watch streamed content, in addition to the people in these consortia (300 – and play games online simultaneously, with no 500). This will grow exponentially with the fiber latency or loss in quality. They’ll also benefit from roll-out bringing a major scale up challenge. the sharpest of images on all their screens. Proximus has decided to take the next leap in Thanks to its high reliability and increased data bringing the capabilities of Fiber right up to the protection, Fiber is the perfect solution for existing customer’s home or business (brownfield) business customers as well, further enabling by launching a major investment plan “Fiber for remote collaboration and the move to cloud Belgium” with the ambition to cover more than applications. 85% of businesses and over 50% of households. In 2017 we started the roll out in different cities For years Proximus had extended its Fiber Antwerp, Brussels, Charleroi, Ghent, Hasselt, network: as backbone for the VDSL network, Liège and Namur and we recently signed an covering already 94% of Belgium, offering agreement with the city of Roeselare to start the dedicated Fiber solutions to enterprises, and by deployment of our Fiber network over there as launching greenfield (new construction) projects. well.

The Fiber roll-out is extremely transversal, and Besides point-to-point Fiber connections, in 2017, almost all divisions of Proximus are impacted to we started offering GPON technology based on some extent. We have launched internally a shared Fiber to our business customers to specific program to maximize all Fiber increase our reach and make Fiber more opportunities, Fiber+. In order to support the Fiber affordable. To the Home mass roll-out a new sourcing model

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The next generation technologies on copper

Proximus also continues to invest in new years, we have set up no fewer than 26,500 ROP technologies on the copper network to bring high cabinets in the streets, offering VDSL to 90% of speeds to all its customers. the population. In fact, we’ve exceeded 2 million active VDSL2 users in October 2017. Thanks to this, Proximus now has the largest vectoring coverage worldwide. Over the last 3

Roll-out of 4.5G

Proximus has been the first to launch 4.5G mobile Sint-Niklaas. High business activity zones (e.g. technology in Belgium. This technology, that large parts of the port of Antwerp and a number offers 2 to 3x faster download speeds, has already of industrial zones) and areas with a large student been rolled out in different areas in Aalst, population have been designated as the first to Antwerp, Bruges, Ghent, Leuven, Nieuwpoort and receive this technology.

VoLTE

With more than 600,000 users already, the possibility to surf at 4G speeds while making a Proximus was also the first operator in Belgium to call. launch VoLTE. This technology, first available on compatible Samsung devices, is now also With those innovations, Proximus is once again available on iPhone. VoLTE ensures we continue taking the lead to provide its customers with the to offer the “Best Mobile Experience” in the best possible user experience. It’s technology at country by delivering a faster call set up time and the service of the customer. significantly higher voice quality. It also gives users

5G

In November 2016, Proximus was the first Belgian With 5G on the horizon, Proximus has been operator to start testing 5G.Together with a series readying itself for this hyper-fast mobile network of other innovations, this unstoppable by doing tests (already in 2016) and working on development will lead to a drastic increase in the European Trials Roadmap definition of 5G in download speeds and reduction of latency. With the first half of 2017. We also became member of 5G Proximus will be able to adress the changing the 5GAA. This association’s mission is to develop, needs of the customers in a wide variety of use test and promote communications solutions to cases, on top of the existing 4G capabilities. address society’s connected mobility and road safety needs.

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Meaningful innovation

Our ambition is to become a digital service technologies like the Internet of Thing (IoT), the provider bringing new technologies in an easy way Cloud, Big Data, Security into solutions with to our customers and improving their lives and positive impact on people and society such as work environment. Our focus is not only tech- smart advertising, smart home, smart mobility or oriented, but on how we can transform smart city.

The Internet of Things (IoT): exponential growth in the future

The Internet of Things (IoT) represents the next sensors …) and an openness to open our assets to step towards the digitisation of our society and partners, utilizing our ecosystem (of nearly 200 economy, whereby objects and people are partners). interconnected through communication networks and report about their status and/or the The LoRaWAN® network surrounding environment. The LoRaWAN® network offered by Proximus Proximus is taking the opportunity to provide positions itself on a mobile level on the long range objects such as buildings, machines, cars as well / low power network. This network is a key- as other assets with the appropriate sensors in element in the Internet of Things (IoT) order to connect them with each other and the architecture and enables an automatic and Internet. accurate transmission of small packages of data.

Proximus confirms market leadership for By the end of 2017, Proximus had rolled-out its connected objects in Belgium by connecting (close nationwide commercial Internet of Things network to) 1.3 million things to its IoT networks through (using LoRaWAN technology) in Belgium and LoRaWAN and Cellular networks. Luxemburg and added geo-localization functionality. By collecting valuable information about their condition and/or environment, the sensors LoRaWAN® in action exchange information over the IoT networks, allowing the objects to be monitored, operated Thanks to the LoRaWAN® network of Proximus and controlled remotely. Proximus plans to grow and the expertise of SilentSoft, , Antargaz has its LoRaWAN network still further and is chosen to equip its gas meters with connected IoT developing partnerships with users and sensors. Once the LoRaWAN® sensor has been established IT application integrators to embed connected to an Antargaz gas meter in their IoT in new customers’ applications. Furthermore propane gas network, consumption readings are we will launch narrowband-IoT, in order to transmitted regularly and can be consulted at any provide the widest range of networks and given point in time on SilentSoft's online platform. solutions that best meet the needs of our customers. TVH is a global market leader in replacement parts for handling materials, industrial vehicles Proximus continuously invests in new products and agricultural machines. Thanks to machine which address applications in a wide variety of connectivity, they gather pertinent data pertaining verticals. Key ingredients to success are always to their use. After the data collected is analysed, similar: customer centricity by the involvement of they can advise their customers on how to industry experts as of the conception phase, re- efficiently put their machines to better use. But usage of our existing modular assets (platforms, the primary objective is to optimise maintenance

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and servicing. Real-time data-analysis makes it possible to plan pre-emptive maintenance programmes based on statistical models.

Value of the data - Artificial Intelligence

2017 was also the year in which worldwide example for implementation of Dutch language attention grew for artificial intelligence (AI). NLP models). Proximus believes strongly that AI in its various applications can bring great value, being it to One concrete example is the implementation of a enhance products and services, optimise its collaboration with the Belgian start-up Real operations or enable new ways of interacting with Impact Analytics. Together Proximus and RIA customers. In these different areas several proofs develop next generation applications using of concept are launched, with the first analytics & predictive models in order to prioritize implementations of predictive models build via the future network (mobile & fixed) investments. machine learning and chatbots for interacting with Those applications use high number of our customers. To achieve this Proximus partners commercial & technical data sources integrated its own competences in the field of data science into business logics. Encouraging "better customer with technologies from the large OTT players and experience & convergent" investments. specific knowledge from Belgian start-ups (for

The Proximus Enabling Company (EnCo)

The Proximus Enabling Company (EnCo) is a fine Belgian data exchange expert with deep logistics example of Proximus becoming a provider of expertise. Together we have delivered a state-of- digital services and encouraging software the-art platform that enables data to be shared developers to co-create new solutions using securely and new solutions to be built quickly. Proximus assets. The EnCo platform gives developers and companies’ easy access to the The NxtPort platform makes it possible to technologies of Proximus and its partners so they integrate a vibrant ecosystem of companies, can create solutions and applications in a fully developers and IT players. Proximus has been digital way. The Proximus EnCo platform was built able to offer digital assets including its IoT over the past year in an agile and digital manner, sensors, SMS services and mobility data and in constant interaction with target customers via deliver new solutions. In this way Proximus is not hackathons and workshops. only building a platform with its partners but also enabling other companies to enrich the Port’s NxtPort, a digital data platform for the Antwerp digital transformation journey. Port Community One of the first commercial API services on EnCo In January 2017, the Antwerp Port Community involves SMS. Senso2me, a company committed launched its data utility platform NxtPort. This has to provide safe and simple care technology ensured that the Port of Antwerp is ready for a solutions that support individual and assisted world in which every object and every process can living, allows message alerts to be sent to carers be made intelligent and in which data can be and family members in case of unusual situations. turned - in real time - into relevant insights for better decisions. EnCo also makes it easier to combine SMS with other services like IoT and Data analytics. Proximus was part of the consortium that won the bid, in partnership with Microsoft and Nallian, a

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Security, a key domain for Proximus

From its existing strong position on the Benelux Cyber security is of vital importance to everyone cyber security market, the acquisition of Davinsi particularly as cyber threats are rapidly increasing Labs in May 2017 gives Proximus a 360° cyber and today’s threat actors are ever more security portfolio, covering the prevention and sophisticated. In such a context, trustworthy detection of cyber-attacks as well as prediction collaboration between major players is key. For and response to breaches. several years already, the Proximus Cyber Security Incident Response Team (CSIRT) has The Belgian authorities now have a new 24/7 been exchanging cyber threat information with its public warning system if ever there is a crisis. It’s European peers, to protect Proximus’ called BE-Alert. As one of the partners in the infrastructure and its customers. This has now Crisis Center, we have created a tool to easily been extended through the Cyber Partnership inform the population through different channels. Agreement with the NATO Communications and BE-Alert can broadcast news and information in Information (NCI) Agency. the event of a crisis via SMS, fixed voice, email and social media. Telindus in Luxembourg itsme Telindus Luxembourg completed its existing range of services in Cyber Security with a Cyber itsme is the product of a unique collaboration in Security & Intelligence Operation Center (CSIOC) Belgium between the four major banks and its for the detection and management of cyber three leading telecom operators. They provide the incidents. user with a unique and secure mobile identity. The Federal Government certified the application, As a recognition for its determination to innovate making itsme a totally secure key that’s useful, and its multi-domain expertise, Telindus has 100% safe, simple, and yet respectful of digital received in 2017 the following awards: "FinTech privacy. Login access to a MyProximus account via Solution Provider of the Year", “Awareness the itsme app is also possible. Security Initiative of the Year”, "Security Provider of the Year", and "Telecom Provider of the Year".

Smart Mobility

Be-Mobile

Be-Mobile has an unique market position in the Be-Mobile provides road traffic information in real Smart Mobility ecosystem, offering solutions to time. Be-Mobile developed an innovative system road users, companies, cities, municipalities and which supplements traditional sources of traffic government services, using the Internet of Things information, such as loop-based traffic counters in and Big Data. the road surface, with anonymous data collected via global positioning systems and mobile Be-Mobile offers its expertise to increase the applications. accessibility of cities, manage and optimize traffic flows through services such as mobility The data that Be-Mobile collects is very valuable monitoring, dynamic traffic control, electronic toll for mobility studies and provides good insights for charging, and mobile mobility payment services businesses. like parking. Be-Mobile is further expanding its business in an international context.

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Connect my car

ConnectMy.Car is an all-in-one connected car and other information about the vehicle as well as solution designed to help car drivers and fleet driving behaviour. In agreement with the driver managers gather and exchange information. It and in function of the services required, this data is enables an Internet connection within the car, and shared via an open yet secure platform with offers the flexibility of an open platform and the application service providers, proposed by comfort of roadside assistance. Proximus and Touring. The solution is a new telematics approach offering maximum ConnectMy.car is an integrated system based on a transparency yet respecting the privacy of the device that is simple to plug in and which collects driver. useful real-time data such as location, technical

Finding and embracing strong partnerships & ecosystems

In the growing digital economy, a company’s domain: the recent acquisitions of companies such success is increasingly founded on partnerships, as TeleSign, Davinsi Labs and Unbrace ; the co- while innovation is becoming more and more open creation initiatives with other companies and local and collaborative. start-ups to set up new ecosystems such as Co.Station; and our tradition of collaborating with The following strategic initiatives are testament to universities. the commitment Proximus is making in this

Strategic acquisitions

Davinsi Labs, a cyber security company

The acquisition of Davinsi Labs in May 2017 is in protect all EU citizens from privacy and data line with our Fit for Growth strategy and our breaches in an increasingly data-driven world (the ambition to invest in key strategic domains in order General Data Protection Regulation); the to become a Digital Service Provider. Thanks to detection and prediction of security threats - this acquisition Proximus will have the most which are Davinsi Labs’ main areas of expertise - complete cyber security offering on the Belgian will become even more important. market. With the upcoming regulation to better

Partnership & ecosystem

We acknowledge that we, as a telecommunication with true impact on people’s life and work. operator, can’t be successful alone. It’s important Therefore, in this journey of Open Innovation, we to build strong partnerships to be able to move up steadily evolve towards partnership and the value chain and create end-to-end solutions ecosystems.

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New shareholder of Co.Station

Co.Station is a Belgian community that unites working with a number of external parties to some 2,000 entrepreneurs, start-ups, scale-ups, jointly develop the products of tomorrow. corporates, investors and influencers and Proximus is therefore a catalyst in stimulating materialized in 2 co-working spaces in Brussels entrepreneurship and helping new digital and Ghent with the ambition to further expand. companies in Belgium innovate and grow. In September 2017, Proximus became a Proximus has been collaborating with Co.Station shareholder in the community – a logical next since September 2016 and in so doing has been step.

B-Hive

B-Hive is a start-up community of which Proximus infrastructure together, thereby supporting is a founding partner. This European fintech startups and entrepreneurs who develop platform, promoting collaborative innovation, solutions for financial markets. brings major banks, insurers and market

Call-for-Innovation

Call for Innovation (call-for-innovation.com) is a services for our customers. Two calls have been platform where Proximus and partner companies organized: (Swisscom, Telia) are reaching out to find the leading startups and innovators around specific  Next Generation Virtual Telco Functions & topics / challenges to co-create products and Services Startups (SDN/NFV 2.0)  Business Cases leveraging Big Data in Telcos

Collaboration with Universities

A partner to universities for many years already, middleware platforms as well as technical and we have intensified collaboration still further by legal building blocks. The project is executed initiating joined RD&I projects. For example, under the framework of the ICON.IMEC research Proximus participates to the BoSS project program and involves the following partners: KU (Blockchain for online Service Security). This Leuven (DistriNet, COSIC and CiTiP), Up-nxt, cooperative research project enables online Thanksys, EURid, Noesis Solutions and Agfa service providers to leverage improved blockchain Healthcare. The project starts in October 2017 technology to enhance the security and privacy of and has a duration of 24 months. their application services by providing appropriate

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Cooperation agreement with the University of Ghent

Proximus and UGent announced their intention to Together, they also expressed the intention to jointly create research projects in the telecom and help build the “embassy of ingenuity” to promote ICT fields and will also to cooperate on doctoral “Belgian ingenuity”. Furthermore, they would research and theses in subjects such as “big data cooperate more closely to align training courses analytics”, “process engineering”, “artificial with the fast evolving employment market in intelligence” and “behavioural analytics”. today’s and tomorrow’s new digital economy, and bring the corporate and university worlds closer together.

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Proximus has an Audit & Compliance Committee Demuynck, holds a degree in Applied Economics. which consists of five non-executive directors, the Mrs. Catherine Vandenborre holds a degree in majority of whom must be independent. In line Business Economics as well as degrees in Tax and with its charter, it is chaired by an independent Financial Risk Management. Mr. Paul Van de Perre director. holds a Master’s degree in Economics and several postgraduate degrees. The Chairman and the A majority of the members of the Audit & majority of the members exercised several board Compliance Committee have extensive expertise or executive mandates in large Belgian or in accounting and audit. The Chairman of the international companies. Audit & Compliance Committee, Mr. Guido J.M.

Proximus governance model

As a limited liability company under public law,  a Chief Executive Officer (CEO) who takes Proximus is governed by the Law of 21 March primary responsibility for operational 1991 on the reform of certain autonomous management including, but not limited to, economic public companies (“the 1991 Law”). For day-to-day management; matters not explicitly regulated by the 1991 Law,  an Executive Committee which assists the Proximus is governed by Belgian Company Code CEO in the exercise of her duties. and the 2009 Belgian Corporate Governance Code. On 16 December 2015, a new law was adopted to modernize the 1991 Law in order to create a level The key features of Proximus’ governance model playing field with competing companies, by are: aligning corporate governance to the normal rules for listed companies in Belgium and by defining  a Board of Directors, which defines the framework for the government to decrease its Proximus’ general policy & strategy and participation below 50%. At the General supervises operational management; Shareholders’ meeting of 20 April 2016, a  an Audit & Compliance Committee, a number of changes were made to the bylaws in Nomination & Remuneration Committee, order to incorporate the amendments made to and a Strategic & Business Development the 1991 Law and to improve the corporate Committee created by the Board within its governance of the company. structure;

Designation applicable 2009 Code on Corporate Governance

Proximus designates the 2009 Belgian Code on Corporate Governance as the applicable Code (www.corporategovernancecommittee.be).

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Deviations from the 2009 Belgian Corporate Governance Code

Proximus complies with the 2009 Belgian as prescribed by the former article 18, paragraph Corporate Governance Code, with the exception 3, of the 1991 Law. As from 2016, all Directors of two deviations, which were imposed under the are appointed for a term of four years. former 1991 Law. These deviations will cease to exist as from the expiry of the mandate of the last The 2009 Belgian Corporate Governance Code Director appointed by the Belgian State. states that the Board of Directors appoints its Chairman. The current Chairman was appointed The 2009 Belgian Corporate Governance Code by the Belgian State by Royal Decree deliberated states that the term of a board mandate should in the Council of Ministers in accordance with the not exceed maximum four years. However, the former article 18, paragraph 5, of the 1991 Law. mandates of the Directors who were appointed by The next Chairman will be appointed by the Board the Belgian State in the past expire after six years of Directors.

Most important characteristics of the internal control and risk- management systems

The Proximus Board of Directors is responsible for cannot guarantee that this internal control will be the assessment of the effectiveness of the sufficient in all circumstances as risks of misuse of systems for internal control and risk management. assets or misstatements can never be totally eliminated. However, Proximus organizes a Proximus has set up an internal control system continuous review and follow-up of all the based on the COSO model, i.e. the integrated components of its internal controls and risk internal control and enterprise risk management management systems to ensure they remain framework published by the Committee of adequate. Sponsoring Organisation of the Treadway Commission (“COSO”) for the first time in 1992 Proximus considers the timely delivery to all its and updated in May 2013. This COSO internal and external stakeholders of complete, methodology is based on five areas: the control reliable and relevant financial information in environment, risk analysis, control activities, conformity with International Financial Reporting information & communication and monitoring. Standards (IFRS) and with other additional Belgian disclosure requirements as an essential element Proximus’ internal control system is characterized of management and governance. Therefore, by an organization with a clear definition of Proximus has organized its internal control and responsibilities, next to sufficient resources and risk management systems over its financial expertise, and also appropriate information reporting in order to ensure this objective is met. systems, procedures and practices. Proximus

Control environment

Organization of internal control

In accordance with the bylaws, Proximus has an accounting and audit domain of at least one Audit & Compliance Committee (A&CC) (see member of the Audit and Compliance caption ‘Independence and expertise in the Committee’). Its role is to assist and advise the

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Board of Directors in its oversight on (i) the Group’s auditors and the assessment and financial reporting process, (ii) the efficiency of the monitoring of the independence of the auditors, systems for internal control and risk management (vi) Proximus compliance with legal and of Proximus, (iii) the Proximus’ internal audit regulatory requirements, (vii) the compliance function and its efficiency, (iv) the quality, integrity within the organization with the Proximus’ Code of and legal control of the Proximus statutory and Conduct and the Dealing Code. the consolidated financial statements, including the follow up of questions and recommendations The A&CC meets at least once every quarter. made by the auditors, (v) the relationship with the

Ethics

The Board of Directors has approved a Corporate the above-mentioned principles, and aims to Governance Charter and a Code of Conduct “A inspire each employee in his or her daily behaviour Socially Responsible Company”. All employees and attitudes. The ethical behaviour is not limited must perform their daily activities and their to the text of the Code. The Code is a summary of business objectives according to the strictest the main principles and is thus not exhaustive. ethical standards and principles, using the Group values (Collaboration, Agility and Accountability) In addition, Proximus in general, and the Finance as guiding principle. department in particular, has a tradition of a high importance to compliance and a strict adherence The Code “A Socially Responsible Company”, to a timely and qualitative reporting. which is available on www.proximus.com, sets out

Policies and procedures

The principles and the rules in the Code “A Socially In the financial reporting domain, general and Responsible Company” are further elaborated in more detailed accounting principles, guidelines the different internal policies and procedures. and instructions are summarized in the accounting These Group policies and procedures are available manuals and other reference material available on the Proximus intranet-sites. Every policy has on the Proximus intranet-sites. In addition, the an owner, who regularly reviews and updates if Corporate Accounting department regularly necessary. Periodically, and at moment of an organizes internal accounting seminars to update update, an appropriate communication is finance and non-finance staff on accounting organized. policies and procedures.

Roles & responsibilities

Proximus’ internal control system benefits from decision making, to monitor the business the fact that throughout the whole organization, profitability and to manage effectively corporate roles and responsibilities are clearly defined. Every financial services. business unit, division and department has its vision, mission and responsibilities, while on The team of the Corporate Accounting individual level everybody has a clear job department assumes this accounting description and objectives. responsibility for the mother company Proximus and the major Belgian companies. They also The main role of the Finance Division is to support provide the support to the other affiliates. For this the divisions and affiliates by providing accurate, centralized support, the organization is structured reliable and timely financial information for according to the major (financial) processes.

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These major processes include capital Consolidation department defines and distributes expenditures and assets, inventories, contracts in information relating to the implementation of progress & revenue recognition, financial accounting standards, procedures, principles and accounting, operational expenditures, provisions rules. It also monitors changes in regulations to & litigations, payroll, post-employment benefits ensure that the financial statements continue to and taxes. This centralized support, organized be prepared in accordance with IFRS, as adopted around specific processes and IFRS standards, by the European Union. The monthly instructions allows for in depth accounting expertise and for consolidation set forth not only the schedules ensures compliance with group guidelines. for preparing accounting information for reporting purposes, but also includes detailed deadlines and The consolidation of all different legal entities into items requiring particular attention, such as the Consolidated Financial Statements of the complex issues or new internal guidelines. Proximus Group is done centrally. The

Skills & expertise

Adequate staffing is a matter to which Proximus mandatory. These internally and externally pays careful attention. This requires not only organized accounting seminars cover not only sufficient headcount, but also the adequate skills IFRS but local accounting rules & regulations, Tax and expertise. These requirements are taken into and Company law & regulations as well. In account in the hiring process, and subsequently in addition, the knowledge and expertise is also kept the coaching and formation activities, facilitated up to date and extended for more specific and organized by the Proximus Corporate domains for which staff is responsible (revenue University. assurance, pension administration, financial products, etc.) through attendance to seminars For financial reporting purposes, a specific and self-study. Furthermore, employees also formation cycle was put in place, whereby junior attend general formations session on Proximus as well as senior staff have to participate new business products & services.

Risk analysis

Major risks and uncertainties are reported in the caption ‘Most important risks and uncertainties.’

Risk mitigating factors and control measures

Mitigating factors and control measures are reported in the caption ‘Most important risks and uncertainties’.

Information and communication

Financial reporting IT systems

The accounting records of Proximus and most of integrated in the same system (e.g. supply chain its affiliates are kept on large integrated IT management, payroll). For the billing systems, systems. Operational processes are often which are not integrated, adequate interfaces and

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a monitoring system have been developed. For adequate segregation of duties, prevent the consolidation purposes, a specific unauthorized access to the sensitive information consolidation tool is used. and prevent unauthorized changes. The set-up of the system is regularly subject to the review by The organizational set-up and access the internal audit department or external auditors. management are designed to support an

Effective Internal communication

Most of the accounting records today are kept controlling activities is established under IFRS. A under IFRS as well as local GAAP. In general, common financial language used throughout the financial information delivered to management organization positively contributes to an effective and used for budgeting, forecasting and and efficient communication.

Reporting and validation of the financial results

The financial results are internally reported and comparison with historical figures, as well as validated on different levels. On the level of budget-actual and forecast-actual analysis. processes, there are validation meetings with the Validation requires (absences of) variances to be business process owners. On the level of the analyzed and satisfactorily explained. major affiliates, a validation meeting is organized with the accounting and controlling responsible. Afterwards, the financial information is reported On Proximus group level, the consolidated results and explained to the Executive Committee are split per segment. For every segment, the (monthly) and presented to the A&CC (quarterly). analysis and validation usually includes

Supervision and assessment of internal control

The effectiveness and efficiency of the internal compliance towards the applicable laws or control are regularly assessed in different ways rules. and by different parties :  The A&CC reviews the quarterly interim reporting and the specific accounting  Each owner is responsible for reviewing and methods. The main disputes and risks facing improving its business activities on a regular the Group are considered; the basis: this includes a.o. the process recommendations of internal audit are documentation, reporting on indicators and followed-up; the compliance within the Group monitoring of those. with the Code of Conduct and Dealing Code is  In order to have an objective review and regularly discussed. evaluation of the activities of each  Except for some very small foreign affiliates, organization department, Proximus’ Internal all legal entities of the Proximus Group are Audit department conducts regular audits subject to an external audit. In general, this across the Group’s operations. The audit includes an assessment of the internal independence of Internal Audit is ensured via control, and leads to an opinion on the its direct reporting line to the Chairman of the statutory financials and on the (half-yearly A&CC. Audit assignments performed may and annual) financials reported to Proximus have a specific financial processes scope but for consolidation. In case the external audit will also assess the effectiveness and reveals a weakness or identifies opportunities efficiency of the operations and the to further improve the internal control,

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recommendations are made to management. plan and implementation status are at least These recommendations, the related action annually reported to the A&CC.

Composition and functioning of the governing bodies and their committees

Board of Directors

Prior to the amendment of the 1991 Law by the Company Code and of the Belgian law of 16 December 2015, the Board of Directors Corporate Governance Code; was mandatorily composed of:  The Board is composed of maximum fourteen members;  Directors directly appointed by the  Directors are appointed for a maximum Belgian State via royal decree, in term of four years. Mandates are proportion to its shareholding; renewable but there is a maximum term  Directors appointed by a separate vote of in total twelve years for independent among the other shareholders for the Directors. remaining Board seats;  The Board of Directors was composed of The modified 1991 Law does not impact the a maximum of sixteen members, including current mandates. the person appointed as CEO. Today, the Board is composed of fourteen Since the modified 1991 Law and the changes to members. Seven Directors are appointed by the the bylaws in April 2016, the following principles Belgian State in accordance with the previous will apply: version of the 1991 Law. Their mandates expire at the end of their term, except in case of early  All Directors are now appointed by the termination by the Shareholders’ Meeting. The Shareholders’ Meeting with 50% + one other seven Directors are independent as per vote, upon proposal by the Board from article 526ter of the Belgian Company Code and those candidates withheld by the of the Belgian Corporate Governance Code. Nomination & Remuneration Committee;  Any shareholder holding at least 25% has Proximus is proud of a substantial female the right to propose a number of representation on its Board of Directors. This Directors proportionate to its composition and the complementary expertise shareholding; and skills of all Directors create a dynamic which  All Directors other than the CEO and benefits the good management of the company. those appointed through the aforementioned nomination right are Composition of the Board of Directors: independent. In any case there must be three independent Directors according to On 19 April 2017 Mr. Pierre Demuelenaere was the criteria of article 526ter of the Belgian reappointed as independent director for a new term of four years.

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Members of the Board of Directors appointed by the Belgian State under the previous version of the 1991 Law:

Name Age Position Term Stefaan De Clerck 66 Chairman 2013 – 2019 Dominique Leroy 53 Chief Executive Officer 2014 – 2020 Karel De Gucht 64 Director 2015 – 2021 Martine Durez 67 Director 1994 – 2019 Laurent Levaux 62 Director 2013 - 2019 Isabelle Santens 58 Director 2013 - 2019 Paul Van de Perre 65 Director 1994 - 2019

Members of the Board of Directors appointed by the General Shareholders’ Meeting:

Name Age Position Term Pierre Demuelenaere 59 Independent director 2011 - 2021 Guido J.M. Demuynck 67 Independent director 2007 - 2019 Martin De Prycker 63 Independent director 2015 - 2019

Tanuja Randery 51 Independent director 2016 - 2020 Agnès Touraine 63 Independent director 2014 - 2018

Catherine Vandenborre 47 Independent director 2014 - 2018 Luc Van den hove 58 Independent director 2016 - 2020

Functioning of the Board of Directors

The Board of Directors meets whenever the dialogue between directors. Files on important interests of the company so require or at the decisions are prepared by standing or ad hoc request of at least two directors. In principle, the Board Committees with significant representation Board of Directors holds five regularly scheduled of non-executive, independent directors within the meetings annually. The Board of Directors also meaning of Article 526ter of the Belgian yearly discusses and evaluates the strategic long- Company Code. term plan in an extra meeting. In general, the Board’s decisions are made by simple majority of In February 2014, the Board decided to give a the directors present or represented, although for broader interpretation to the notion “conflict of certain issues a qualified majority is required. The interest”. Besides the legal clauses applicable to Board of Directors has adopted a Board Charter Proximus, the extra-legal obligations included in which, together with the Charters of the Board the Charter of the Board of directors stipulate that Committees, reflects the principles by which the directors commit to avoid any appearance of Board of Directors and its Committees operate. conflict of interest by, amongst other, but not The Board Charter stipulates, among other things, limitative: that important decisions should have broad support, understood as a qualitative concept  Not exercising any position, mission or indicating effective decision-making within the activity in a private or public-sector body Board of Directors following a constructive that, as important part of its business,

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offers for profit telecommunications competitor of Proximus or of one of its services or goods in Belgium or in any affiliates; country in which Proximus realizes at  Not to assist, remunerated or not, any least 5 % of its turnover; party in its contract negotiations with or  Not exercising any position, mission or procedures against Proximus or one of its activity on behalf of a direct or indirect affiliates.

Committees of the Board of Directors

Proximus has an Audit & Compliance Committee, Perre and Mrs. Catherine Vandenborre are the a Nomination & Remuneration Committee and a members of the Audit & Compliance Committee. Strategic & Business Development Committee. Messrs. Stefaan De Clerck (Chairman), Pierre The Board of Directors decided at its meeting of Demuelenaere, Guido J.M. Demuynck, Martin De September 22, 2017 to rename and refocus as of Prycker and Mrs. Martine Durez are the members 2018 the ‘Strategic & Business Development of the Nomination & Remuneration Committee. Committee’ into ‘Transformation & Innovation Committee’. Messrs. Stefaan De Clerck (Chairman), Karel De Gucht, Martin De Prycker, Luc Van den hove, Mrs. Messrs. Guido J.M. Demuynck (Chairman), Stefaan Tanuja Randery and Mrs. Agnès Touraine, are the De Clerck, Pierre Demuelenaere, Paul Van de members of the Strategic & Business Development Committee.

Related Party Transactions

On 24 February 2011, the Board adopted a Proximus has contractual relationships and “related party transactions policy” which was provides also telephony, Internet, digital and/or updated in September 2016, which governs all ICT services to many of the companies in which transactions or other contractual relationships Board members have an executive or non- between the company and its board members. executive mandate. These transactions take place in the ordinary course of business and at arm’s length.

Evaluation of the Board

At the end of 2016, the Board of Directors started decision-making in the interest of the company an external Board evaluation together with and an excellent leadership by the Board’s chair. Guberna. The Board members were invited to answer an extensive questionnaire, followed by an As a result of the evaluation, the Board reflected interview between Guberna and each individual on the role of the ‘Strategic & Business Board member. The Board members were asked Development Committee’ and decided to change their opinion on corporate governance at this as of 2018 into a ‘Transformation & Proximus, the functioning of the Board and of the Innovation Committee’, which is a permanent committees. Guberna concluded in 2017 that the committee of the Board, discussing those selected assessment was overall positive and identified as files of diverse nature that need preparatory main strengths a well-balanced composition of reflection and need to mature before being the Board, the high quality of information flow to brought to the Board for decision. This Committee the Board, a Board culture stimulating the will be convened at the request of the Chairman

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or the Board whenever required by the interest of update the delegation from the Board to the CEO the company. which was last published in 2006. The Board also decided to table certain topics at its meetings in As a further action point from the Board the course of 2017, such as competitive analysis, evaluation, the Board decided to strengthen the innovation, branding/marketing, investments and reporting from the committees and to review and assessment of past acquisitions.

Executive Committee

The members of the Proximus Executive Proximus has appointed members of the Committee, other than Mrs. Dominique Leroy, the Executive Committee and of its staff to exercise CEO, are Mrs. Sandrine Dufour, Messrs. Dirk mandates in companies, groups and organisms in Lybaert, Geert Standaert, Renaud Tilmans, Jan which it has participations and is involved. Such Van Acoleyen, Bart Van Den Meersche and mandates are not remunerated. A list of the Guillaume Boutin. persons concerned is given in section ‘Mandates exercised in companies in which Proximus Mr. Phillip Vandervoort, Chief Consumer Market participates’ of this report. Officer, left the company on 1 March 2017.

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In accordance with article 3 of the Law of 3 The statement on other non-financial information September 2017 on the disclosure of non- is included in a separate report which is annexed financial and diversity information by certain large to this Management Report. companies and groups, Proximus’ diversity policy, its purpose and results are described below.

Strategic orientation about diversity & inclusion

Proximus believes that a diverse workforce,  Creating an open and welcoming work through employees’ unique capabilities, environment that encourages contributions experiences and characteristics, will help to reach from people of all backgrounds and a more diverse marketplace and will create experiences. sustainable business. It is also important to reflect  Promoting a mind-set of respect and the diversity of our customers and markets in our openness throughout all levels of the workforce. organisation and treating all employees fairly and equally. Therefore, Proximus has a Charter on diversity  Demonstrating behaviour free from any form and equal rights, which applies to all employees of of racism, intolerance, discrimination, the Proximus Group. harassment or other attitude that could negatively affect the dignity of men and With this policy Proximus wants to enable women at the workplace. conditions, where these differences are  Incorporating diversity in all aspects of the recognized and respected, and where all way we do business without any form of employees are given equal opportunities. For intolerance. Proximus, diversity and equality mean: Within Proximus specific teams are in charge of  Treating all applicants and employees monitoring the compliance with the Charter and of equally, based only on relevant competencies taking the correct measures in case of non- and objective criteria. compliance.

Diversity & inclusion in our management and employees communities

Proximus is particularly conscious about the culture, the satisfaction of its employees and their importance of diversity at all levels of the creativity towards the future challenges of a organisation and concentrates on attracting and digital world. retaining highly talented leaders and employees, people considered as strong role models who are With regards to gender diversity, this approach is high performers and ambassadors of our also reflected in the female representation at the company values. different levels of our company:  43% of the Board of Directors While taking care of putting in place well-  25% of the Executive Committee balanced mixed teams, Proximus reinforces its  24% of the members of the Leadership Team capacity for innovation and fosters its learning  32% of all employees’ population

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In certain technical units with activities such as AfroPean network (APN) and WinC (women welding, female representation is relatively low, network). We have a Diamond Sponsorship in the whereas other business units have a more organisation “Women on Board”. Our CEO gender-equal representation. participates in events regarding women at the top. Proximus also ensures ad hoc presence to Proximus also has a very diverse workforce in external events such as “Yes she can” in order to terms of culture with 58 nationalities. encourage young girls to choose for engineering studies and a technical career. Proximus supports internal and external diversity network activities and initiatives such as the

Creation of a culture that allows to reconcile activities during the different life phases

Proximus wants to create conditions to allow its workforce to be optimally present, supported and personnel to reconcile the different aspects of motivated. their professional and private life during their different life phases by offering opportunities for Proximus is founding partner of internal job change and development “Experience@Work”. Thanks to this company, opportunities, homeworking, part-time schedules, experienced talents from organisations can be home child care, … These measures allow our deployed in other organisations which are looking for specific experience and/or talent.

Diversity as part of Proximus code of conduct

Proximus’ mission consists in connecting everyone Proximus expects its employees to respect the and everything so people live better and work Code of Conduct and use it as a reference in their smarter. This also means that we have to earn day-to-day way of working. and keep the trust of our customers, our employees, our suppliers, our shareholders, our Human rights partners and the company as a whole. People are entitled to be treated with respect, Successful business must go hand in hand with care and dignity. Proximus business practices can honest and ethical behaviour. Each employee has only be sustainable if we respect basic human a crucial role to play in this matter. This is the rights and value diversity, cultural and other reason why the Code of Conduct is in place, differences. Our Code of Conduct, values and representing our corporate culture and values. behaviour are inspired by fundamental principles This Code of Conduct reflects the fundamental such as those of the Universal Declaration of principles and rules which are the foundations of Human Rights, the European Convention on our engagement to be a socially responsible Human Rights and the United Nations Convention company. The Code of Conduct applies to on the Rights of the Child. everyone: Board Directors, managers and all employees. Although the Code of Conduct cannot Working conditions directly be imposed to our business partners, we seek to always work with partners respecting the Proximus is committed to creating working same ethical standards. conditions which promote fair employment practices and where ethical conduct is recognized

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and valued. We maintain a professional workplace fundamental conventions. Moreover, we are with an inclusive working environment, and we are opposed to discriminatory practices and do our committed to respecting Belgian legislation and utmost to promote equality and diversity in all the International Labour Organisation’s (ILO) employment practices. fundamental conventions. Proximus recognizes and respects the right to Our working environment standards shall be freedom of association and the right to collective extended to every member of our diverse bargaining within national laws and regulations. community and are exemplified by all managers, We will not contract child labour or any form of team leaders and employees. forced or compulsory labour as defined by ILO

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The remuneration policies of the Directors and of level of remuneration of the members of the the Executive Committee are inspired by current Board of Directors and of the Executive legislation, by the corporate governance code and Committee, as well as an overview of the key by the market practices and trends. Our company elements of the remuneration policy of the is taking particular care to provide relevant and Proximus Group. transparent information on the principles and the

Remuneration of the members of the Board of Directors

Directors’ remuneration policy

The principle of continuity with the past has been These amounts, defined in 2004, have remained maintained. The policy adopted by the General unchanged since then and are not subject to Assembly of 2004 has remained applicable in indexation. 2017 and no substantial change of the policy is expected for the coming two years. The members also receive EUR 2,000 per year for communication costs. For the Chairman of the The CEO, Mrs. Dominique Leroy, who is the only Board of Directors, the communication costs are executive Director, is not remunerated for the also doubled. exercise of her mandate as member of the Board of Directors and of the Committees, nor for any These remunerations are granted on an annual other mandate within the Group subsidiaries basis pro rata temporis of the duration of the Boards of Director. mandate during the year in question and are paid semi-annually. The remuneration policy of the non-executive Directors foresees an annual fixed compensation For the execution of their Board mandates, the of EUR 50,000 for the Chairman of the Board of non-executive Directors do not receive any Directors and of EUR 25,000 for the other variable performance-based remuneration such members of the Board of Directors. All members as bonuses or stock options, nor do they receive of the Board of Directors have the right to an benefits linked to complementary pension plans attendance fee of EUR 5,000 per attended or any other group insurance. meeting of the Board of Directors. This fee is doubled for the Chairman. Attendance fees of The Chairman of the Board of Directors is also EUR 2,500 are foreseen for each member of an Chairman of the Joint Committee and of the advisory committee of the Board of Directors. For Pension Fund. Mrs Catherine Vandenborre is the Chairman of the respective advisory member of the Board of the Pension Fund. They committee, these attendance fees are doubled. do not receive any fees for these board mandates.

Overview of Directors’ Remuneration

The total amount of the remunerations granted in The individual Directors’ gross amounts paid out 2017 to all the members of the Board of to the Directors in 2017, based on their activities Directors, Chairman included, is amounting to and attendance to Board and Committee gross 1.080.244 EUR. meetings, is presented in the following table.

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These amounts have been granted based on eight Board meetings, one being an extraordinary and remunerated Board meeting, and eleven Committee meetings.

Table 1: Activities report and attendance to Board and Committee meetings

Total yearly Board ACC NRC SBDC Name gross (total 8*) (total 5) (total 4) (total 2) remuneration** Stefaan De Clerck 8/8 5/5 4/4 2/2 186.244 € Dominique Leroy 8/8 2 /2 0 € Karel De Gucht 8/8 2 /2 72.000 € Pierre Demuelenaere 8/8 5/5 4/4 89.500 € Guido Demuynck 8/8 5/5 4/4 102.000 € Martin De Prycker 8/8 4/4 2/2 82.000 € Martine Durez 8/8 4/4 77.000 € Laurent Levaux 6/8 57.000 € Tanuja Randery 7/8 2/2 67.000 €

Isabelle Santens 7/8 62.000 € Agnès Touraine 7/8 2/2 67.000 € Catherine Vandenborre 7/8 5/5 74.500 € Luc Van den hove 7/8 1/2 64.500 € Paul Van de Perre 8/8 5/5 79.500 €

ACC: Audit & Compliance Committee; NRC: Nomination & Remuneration Committee; SBDC: Strategic & Business Development Committee * One extraordinary remunerated Board meeting on 30/01/2017 ** Total remuneration: gross amounts on a yearly basis for all Directors, this amount is telecom advantage included for the Chairman of the Board, this amount also includes the benefit in kind related to the private use of a company car

Global reward policy and principles

Our Group has an innovative remuneration policy and adaptable programs to deal with its which is regularly assessed and updated through obligations related to the statutory employment close cooperation with external human resources status of some of its workforce, and introduced fora and universities. The remuneration policies of new elements that harmonized policies between our employees are defined in a process of civil servants and contractual employees. dialogue with the Board of Directors and with the social partners. To accomplish our company goals within a highly and fast changing competitive global telecom Because of our history as a public-service market, we need qualified, talented and engaged company, there are some differences in our employees working in close cooperation in a high dynamics and structure, compared to the private performance culture. To foster this culture, it is sector. This has a considerable influence on how critical to have a market attractive Global Rewards our remuneration policy has evolved. Our Human Program for both the Executive Committee Resources department has developed creative

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members and all other members of the Top  To enable our company to attract and retain Management, as well as for the entire workforce. market’s talents at all levels;

The main objectives of our Global Rewards  To combine the needs and responsibilities of Program are: employees and their families with those of the company and society as a whole.  To drive performance that generates long- term profitable growth; Our company also maintains -and modernises- powerful public sector instruments, such as work-  To stimulate empowerment that reinforces life benefits (e.g. sick child care, hospitalisation,…) the business strategy and desired culture; and social assistance. It is the responsibility of our Work-Life department to combine the needs and  To offer a fair and equitable remuneration to responsibilities of employees and their families our staff (both to civil servants and to the with those of the company and society as a whole. contractual employees), and competitive on Over the years, we have won several awards for the market; the continuous efforts of our company to create a balanced working environment for its staff.  To recognize and reward high performance and the promotion of the company values and The Global Rewards Program keeps up and culture; supports this goal and mission.

 To link pay to both individual performance and the overall success of our company;

Executive Remuneration

Procedure for drafting of the remuneration policy and defining of the remuneration level of the members of the Executive Committee

Both the executive remuneration policy and the Like the rest of the top management of our individual remuneration packages for the CEO and company, the members of the Executive the other members of the Executive Committee Committee benefit from dedicated reward are set by the Board of Directors upon programs which focus on the principles of our recommendations from the Nomination & strategy to consistently reward high performance Remuneration Committee. The individual of individuals and of the company. A significant remuneration packages are defined according to part of their total remuneration is variable, based the individual responsibilities and skills. on stringent quantitative and qualitative performance criteria, and is driven by our It consists of a balanced executive remuneration company’s objectives in terms of performance and policy rewarding executives competitively and at growth. This way, our company wants to rates which are attractive in the market, aligning encourage its executives to deliver a long-term, the interests of management and shareholders sustainable profitable growth, in line with our and complying with the governance rules Group’s strategy and the expectations of our applicable in Belgium. Our company wants to shareholders. attract and retain high performing top executives for its Executive Committee and wants to The market positioning of these remuneration recognize clear role models, who deliver a high packages is reviewed on a regular basis by level of performance and promote the company benchmarking the remuneration of the members values. of our Executive Committee against both the BEL 20 companies (financial sector excluded) and a

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set of peer companies in the European Telecommunications and ICT sector. This analysis aims to ensure that the global remuneration of To distinguish ourselves from other employers, each member of the Executive Committee our company seeks to excel in the total package remains adequate, fair and in line with market offered, by providing not only a cash practices and consistent with the evolution of both remuneration but also numerous other benefits. his/her responsibilities and the market situation of the Proximus Group in terms of size, scope of A fundamental principle of our company’s activities and financial results. remuneration policy is the degree of freedom for the top management, the CEO and the other Current remuneration policy does not provide for members of the Executive Committee included, a specific contractual claw back stipulation in with regard to the choice of pay out mean of their favour of our company for the variable variable remuneration. remuneration of the members of the Executive Committee, CEO included, allocated on the basis All the amounts mentioned in this report are gross of incorrect financial information. amounts before employer’s social contribution.

Executive Committee’s remuneration structure

The remuneration of the members of the  Group insurance premiums and other benefits Executive Committee is built upon the following components: The relationship between the distinct remuneration components of the CEO and of the  Basic remuneration other members of the Executive Committee is illustrated in the graphs below. These graphs  Short-term variable remuneration show the relative importance of the various components of on-target remuneration.  Long-term variable remuneration

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Relative importance of various components of the on-target remuneration before employer's social contribution (end 2017)

Basic remuneration Basic remuneration

Direct short-term Direct short-term variable remuneration variable remuneration

CEO Deferred short-term Executive Long-term variable variable remuneration Committee remuneration

Group insurance Group insurance premiums premiums

Other benefits Other benefits

As per her contract, the CEO is only entitled to a made recommendations to the Board of Directors short-term variable remuneration which payment aiming to secure our Group’s attractiveness and is spread over 3 years. The variable remuneration competitiveness and to ensure retention. In of the other members of the Executive September 2015, the Board of Directors Committee consists of a short-term part and a consequently decided to take action to evolve long-term part, with equal target amounts which towards an alignment of the variable are set up as percentages of the basic remuneration of the members of the Executive remuneration. This remuneration policy therefore Committee on market median practices. fully complies with the article 520ter of the Belgian Company Code and with the Belgian law Therefore, since the performance year 2016 and of 6 April 2010. as per decision of the Board of Directors, the minimum target short- and long-term variable Further to a review of our company organization, remuneration for the members of the Executive which took place in 2014, and to the resulting Committee others than the Chief Executive significant changes in terms of roles and Officer has been increased and aligned, and the responsibilities within the Executive Committee, members not yet at this minimum have thus seen the Nomination and Remuneration Committee their short- and long-term variable remuneration ordered an external benchmark in 2015, aiming to target increase. This increase is reflected in the assess the market positioning of the members of variable remuneration which has been allocated in the Executive Committee, Chief Executive Officer 2017 to the members of the Executive Committee included, in terms of pay against both the BEL 20 others than the Chief Executive Officer for the companies (financial sector excluded) and a set of performance year 2016. peer companies in the European Telecommunications and ICT sector. Except this variable remuneration alignment of the other members of the Executive Committee, Based on the results of this external benchmark, no substantial change of the remuneration policy the Nomination and Remuneration Committee is expected for the coming two years.

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Basic remuneration

The basic remuneration consists of a basic salary Basic remuneration in kEUR before employer earned by Chief Executive Officer and by the other social contribution members of the Executive Committee for the reported year in such respective roles. This remuneration is defined by the nature and the specificities of the function, is allocated regardless of the results and is contractually subject to the index 2.497 applicable to Proximus. 2.254

The basic remuneration of the Executive Committee members is regularly reviewed by the Nomination & Remuneration Committee, based on an extensive review of performance and assessment of potential provided by the Chief Executive Officer, as well as on external benchmarking data on market practices. Thereby, the evolution of the basic remuneration depends on the competency level of the Executive 515 505 Committee member, of his or her continued performance level, of the evolution of his or her responsibilities, as well as of the evolution of the CEO Executive Committee market. Possible adjustments are always submitted to the Board of Directors for approval. 2017 2016

Year-to-year variations in the amounts are resulting from the 2% index of July 2017 on the one hand and on the other hand from the changes operated in the composition of the Executive Committee, i.e. the nomination of a new Chief Human Resources Officer in 2016 and of a new Chief Consumer Market Officer end August 2017.

Short-term variable remuneration

Short-term variable remuneration components

Our short-term variable remuneration system has all efforts need to be focused and aligned towards been designed to support the strategy and the Group success. values of our Group and to enhance a performance-based management culture. Group results are therefore highly impacting (for 60%) the short-term variable remuneration of Our company indeed considers close the members of the Executive Committee, on top collaboration of all employees to be imperative, of individual performance (for 40%), and this in line with our company values.

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Group performance - Key Performance Indicators (KPIs)

Short-term annual variable remuneration is thus  the Simplification and the Customer partly calculated – for 60% – in relation to Experience, measuring our progresses versus performance against Key Performance Indicators our ambition in these domains; (KPI’s) set by the Board of Directors upon recommendation of the Nomination &  the “employee engagement index”, measuring Remuneration Committee. on a yearly basis our employees’ engagement, agility and strategic alignment. These performance indicators include financial indicators as well as non-financial indicators at The achievement of these KPI’s are regularly Group level. followed-up and communicated. Operational cash flows are based on audited reported financial The performance indicators at Group level are as figures that are adjusted to obtain ‘underlying’ follows: financial figures after exclusion of ‘incidentals’. Non-financial indicators are measured by internal  the operational cash flow; and external agencies specialized in market and customer intelligence, of which the processes are  the number of new customers in voice, fix, audited on a regular basis. internet and TV businesses, as well as churn reduction; The result at Group level is based on a predefined formula taking these key performance indicators into consideration according to a predefined weight per indicator.

Individual performance

On top of the Group results, the individual The individual performance is taken into account performance is annually evaluated in the course for 40% in the short-term variable remuneration. of the first quarter following the end of the year Besides the individual differentiation in terms of by the Board of Directors. This evaluation is based talent, performance and impact on the Group on the recommendations made by the Nomination performance, the Board of Directors ensures the & Remuneration Committee versus pre-defined consistency between the total allocated amount measurable objectives and versus the promotion for the individual performance and the Group of our company values and culture. results.

Short-term variable remuneration allocation

The Chief Executive Officer receives a target Remuneration Committee. The amount short-term variable remuneration amounting to effectively allocated to the Chief Executive Officer gross 150.000 EUR. This amount is subject to the and to the other members of the Executive index applicable to Proximus. For the other Committee varies according to the Group results members of the Executive Committee, the target and to the evaluation of the individual short-term variable remuneration is expressed in performances by the Board of Directors. a percentage of the basic remuneration. In case of objectives realisation at 100%, the As explained above, the short term variable Chief Executive Officer or the other member of remuneration is allocated by the Board of the Executive Committee gets 100% of his short- Directors upon proposal of the Nomination & term variable remuneration target amount.

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In case of sustained excellent performance at on top of a direct short-term variable Group and individual level, the short-term variable remuneration for the performance indicators remuneration can go above the 100% of the related to 2015. target amount, with a cap at 200%, according to a linear allocation curve. Conversely, this As the CEO started her mandate in January 2014, percentage can drop down to 0% in case of it is thus the first time she received a complete severe underachievement. short-term variable remuneration (50% direct short-term related to 2016, 25% related to As per her contract and in accordance with article performance indicators pertaining over 2015 and 520ter of the Belgian Company Code, the 25% related to performance indicators pertaining payment of the short-term variable remuneration over 2014). of the CEO is currently spread over 3 years. Indeed, 50% of her variable remuneration is In the last couple of years, the Board of Directors related to performance indicators of the did a positive evaluation of the realizations of the accounting year (= direct short-term variable Chief Executive Officer, given the remuneration) while the other 50% will be overachievement of her objectives and the long deferred: 25% is related to performance term value she has created since her nomination indicators pertaining over a period of 2 years and in this role. 25% is related to performance indicators pertaining over a period of 3 years (= deferred In 2017, a direct and deferred short-term variable short-term variable remuneration). remuneration were allocated to her for respectively gross 108.020 EUR (performance In 2017, a deferred short-term variable indicators related to 2016) and gross 119.175 remuneration, for the performance indicators EUR (59.700 EUR linked to performance related to the 2014 and 2015 years has been indicators related to 2015 and 59.475 EUR linked allocated to the CEO on top of a direct short-term to performance indicators related to 2014). variable remuneration, for the performance indicators related to 2016. The total short-term variable remuneration effectively allocated in 2017 to the other In 2016, a deferred short-term variable members of the Executive Committee (2016 remuneration, for the performance indicators performance year) amounts to gross 1.105.537 related to 2014, has been allocated to the CEO, EUR.

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Short-term variable remuneration in kEUR before employer social contribution.

 Chief Executive Officer : - Given the CEO started her mandate in January 2014, it is the first time she 1.583 received 50% deferred short-term variable remuneration (25% related to performance indicators pertaining over 2015 and 25% related to performance 1.106 indicators pertaining over 2014). - Impact of the KPI results which decrease for performance year 2016 compared to performance year 2015.

 Other members of the Executive Committee: 227 179 - Impact of the KPI results which decrease for performance year 2016 CEO Executive Committee compared to performance year 2015. - Impact of changes within the 2017 2016 composition of the Executive Committee. - Impact of the alignment of the short- term variable remuneration for the members of the Executive Committee since the performance year 2016 as per decision of the Board of Directors.

Long-term variable remuneration

The Chief Executive Officer is not eligible to long- Nomination & Remuneration Committee. term variable remuneration. Various factors are considered for the decisions The other members of the Executive Committee taken by the Board of Directors in terms of receive a long-term variable remuneration effective allocation, such as the retention of expressed as a percentage of the annual basic talents, the individual performance evaluations remuneration. This percentage is the same as the or/and the Group results. This allocation is made percentage of their short-term variable through long term incentives plan, currently remuneration. The long-term variable consisting of a long-term Performance Value Plan remuneration is allocated to the other members which has been adopted by our company since of the Executive Committee by the Board of 2013. Directors upon recommendations of the

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Long-term Performance Value Plan

The long-term incentive plan offered by our Telecommunications companies. company to its executives currently consists of a “Performance Value Plan”. This plan has been The performance criterion of this plan is the Total designed as to keep our executive remuneration Shareholder Return. Our Total Shareholder policy balanced and attractive, as well as Return is measured against the respective Total compliant with the shareholders’ expectations. It Shareholder Return of a basket of 12 other aims to ensure that the actions and initiatives European telecom operators. taken by the executives are guided by long-term interests. Therefore, this remuneration clearly Under this Performance Value Plan, the granted constitutes a long-term incentive. awards are blocked for a period of 3 years, after which the Performance Values vest. After this Our Performance Value Plan is based on a period, the beneficiaries may exercise their balance between the individual and the Group Performance Values and the amounts effectively performances. This plan is transparent, fully allocated will depend on the performance of our driven by mid- and long-term performance, Total Shareholder Return compared to the group aligned on market best practices and inspired by of peer companies at the exercise time. long-term incentive plans used by other European

Peer companies currently included in the basket  BT  Orange  Telefonica  Deutsche Telekom  Swisscom  Telekom Austria Group  OTE  TDC  Telenor  KPN KON  Telecom Italia  Telia Company

The current CEO, who started her mandate in The total long-term variable remuneration January 2014, is not eligible to long-term variable effectively granted to the members of the remuneration. As a consequence, no long- term Executive Committee others than the CEO was variable remuneration has been granted to her in amounting to gross 982.000 EUR in 2016 and to 2015, 2016 and 2017. gross 1.005.000 EUR in 2017.

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Long-term variable remuneration in kEUR before employer social contribution

The changes in the composition of the Executive Committee over the last two years and the alignment of the long-term variable remuneration for the members of the Executive Committee 1.005 982 since the performance year 2016 as per decision of the Board of Directors have impacted the total long-term variable remuneration granted.

0 0 CEO Executive Committee

2017 2016

Former long-term variable remuneration plan: Stock Options Plan

Stock options have been granted to the senior their evolution in the course of 2017 is presented executives from 2004 until 2012, members of in below chart. the Executive Committee included. In 2016 and 2017, the CEO and the other The remaining stock options of current members members of the Executive Committee did not of the Executive Committee, CEO included, and receive any Proximus shares nor Proximus stock options.

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Table 2: Overview of the stock options still held by the members of the Executive Committee

Dominique Dirk Geert Bart VAN DEN LEROY LYBAERT STANDAERT MEERSCHE

STOCK OPTIONS

on January 1st, 2017 12.665 1.834 3.000 15.000

Number 12.665 1.834 3.000 0 Exercised in 2017 Year of grant 2012 2012 2012 -

Number Lapsed in 2017 Year of grant

Number Forfeited in 2017 Year of grant

on December 31, 2017 0 0 0 15,000

Sandrine Dufour, Renaud Tilmans, Jan Van Acoleyen and Guillaume Boutin do not hold stock options.

Group insurance premiums and other benefits

Group insurance premiums

The CEO and the other members of the Executive They also benefit from other group insurances in Committee are participating in a complementary line with market practices, such as life and pension scheme. This complementary pension invalidity insurances. scheme consists of a “Defined Benefit Plan” offering rights which are in line with market practices.

Other benefits

Our Group wants to stimulate its executives by including medical insurance, the use of a company offering a portfolio of benefits and advantages car, welfare benefits and other benefits in kind. that are competitive in the market place and Comparative assessments are regularly made on consistent with the Group’s culture. The CEO and these benefits which are adapted according to the the other members of the Executive Committee common market practices. receive benefits on top of their remuneration,

General overview

Below chart reflects the remuneration and other It should be noted that the global remuneration benefits allocated directly or indirectly to the has been affected by the index of July 2017, by members of the Executive Committee in 2017 and the allocation of 50% deferred short-term 2016 by the company or any other undertaking remuneration to the CEO for the first time in 2017, belonging to the Group (benefit based on gross or by the alignment of the short-term and long-term net remuneration, depending on the type of variable remuneration for the members of the benefit). Executive Committee since the performance year 2016 as per decision of the Board of Directors, by the impact of the KPI results which decrease for

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performance year 2016 compared to last two years, i.e. the nomination of a new Chief performance year 2015 and by the changes in the Human Resources Officer in 2016 and of a new composition of the Executive Committee over the Chief Consumer Market Officer in 2017.

Table 3: Remuneration overview of the members of the Executive Committee

Other members of the Executive CEO Committee REMUNERATION 2016 2017 2016 2017

Basic remuneration 505.005 € 515.108€ 2.497.345 € 2.253.540€ Direct short-term variable remuneration 119.400 € 108.020€ 1.583.327 € 1.105.537 € Deferred short-term variable remuneration 59.475 € 119.175€ 0 € 0 € Long-Term variable remuneration 0 € 0€ 982.000 € 1.005.000 € Retirement and post-employment benefits 169.666 € 181.243€ 919.496 € 516.193 € * Other benefits 12.463 € 13.357€ 107.605 € 108.433 €

SUBTOTAL (excl. employer’s social contribution) 866.009 € 936.903€ 6.089.773 € 4.988.703 €

Termination benefits 0 € 0€ 0 € 0 € TOTAL (excl. employer’s social contribution) 866.009 € 936.903€ 6.089.773 € 4.988.703 €

* Year-over-year decrease related to the retirement of an ExCo member All these amounts are gross amounts before employer’s social contribution.

Main provisions of the contractual relationships

Contractual agreement related to the mandate of the CEO

In January 2014, Mrs. Dominique Leroy has company, she would receive an amount equal to started her six-year mandate as CEO. She has a one year’s base salary as compensation. The CEO contract as a self-employed executive and is thus is also bound by exclusivity and confidentiality not subject to employers’ social security charges. obligations and is liable for respecting the company codes and policies, like the Code of The CEO is bound by a non-competition clause, Conduct and the Dealing Code. prohibiting her for 12 months after leaving the Group from working for a competitor of our If the CEO mandate is revoked before the end of company in Belgium and in those countries where the six-year term, our company will pay her a the Group generates at least 5% of its contractual termination indemnity equal to one consolidated revenues. If activated by our year’s base salary.

Main contractual terms of the other Executive Committee members

All other members of the Executive Committee, amount equal to six months’ base salary as who are all bound by a non-competition clause compensation. prohibiting them for 12 months after leaving the Group from working for any other mobile or fixed Just like the CEO, the other members of the licensed operator active on the Belgian market. If Executive Committee are also bound by activated by our company, they would receive an exclusivity and confidentiality obligations and is

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liable for respecting the company codes and They have a contractual termination clause which policies, like the Code of Conduct and the Dealing foresees an indemnity of one year’s remuneration. Code.

A general policy on conflict of interest applies The Chairman informs that the Committee within the company. It prohibits the possession of assessed the performance of the CEO in 2016 financial interests that may affect personal and concluded that the CEO delivered an overall judgment or professional tasks to the detriment of great performance in 2016. the Proximus Group. The Board confirms this assessment and thanks In accordance with article 523 of the Belgian the CEO for a great job delivered in 2016. Company Code, Mrs. D. Leroy, CEO, declared during the Board of Directors of 23 February 2017 Short Term Variable Remuneration for the CEO to have a conflict of interest in connection with her performance evaluation for 2016, item on the Upon the Committee’s recommendation, the agenda of that Board meeting. Board :

In accordance with article 523 of the Belgian  decides that the percentage of 200% Company Code, the minutes of this meeting are reflects at best the individual included below. performance of the CEO for the Performance Year 2016. Overall bonus “In accordance with article 523 of the Belgian of 2016 performance is 216,040 € Companies Code, the CEO, Mrs. D. Leroy, declares (93,638€ Group KPI + 122,402€ having a conflict of interest in connection with her Individual Performance); performance evaluation for 2016. She requests  confirms its assessment for the the Board to take note of her statement and to performance 2015-2016 and 2014- include the necessary statements in the 2016. management report of Proximus relating to the year 2017. She also informs the auditor of This closes the item on the conflict of interest.”. Proximus of this conflict of interest and leaves the meeting.

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No. 0202.239.951 Proximus PLC

Mandates exercised in companies in which Proximus participates

The mandates exercised by members of the participates or to which it contributes to the management of Proximus within companies, functioning, are not remunerated. groups and organisations in which Proximus

Participations Members on 31/12/2017

S. Dufour PROXIMUS GROUP SERVICES S.A. G. Kerremans L. Kervyn de Meerendré H. Wampers

PROXIMUS OPAL S.A. O. Moumal D. Lybaert

D. Leroy BELGACOM INTERNATIONAL CARRIER SERVICES (BICS) S. Dufour D. Lybaert S.A. M. Gatta J. Van Acoleyen D. Kurgan

J. Joos S. De Clerck CONNECTIMMO S.A. S. Dufour P. Delcoigne

S. Dufour G. Hoffmann R. Tilmans TANGO S.A. J. Van Acoleyen B. Van Den Meersche G. Boutin

S. Dufour G. Hoffmann M. Lindemans TELINDUS S.A. (Luxembourg) A. Meyers B. Van Den Meersche B. Watteeuw J-F. Willame

G. Degezelle TELINDUS-ISIT BV P. Van Der Perren B. Watteeuw

SKYNET iMOTION ACTIVITIES S.A. P. Verdingh

BELGIAN MOBILE ID S.A. B. Van Den Meersche

L. Kervyn de Meerendré PXS RE S.A. O. Moumal A. Meyers

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No. 0202.239.951 Proximus PLC

D. Leroy BE-MOBILE S.A. S. Dufour B. Van Den Meersche

S. Bovy G. Hoffmann B. Van Den Meersche PROXIMUS SpearIT S.A. P. Van Der Perren D. Van Eynde B. Watteeuw

K. De Man (permanent representative of Proximus SpearIT S.A.) S. Bovy (permament representative of Proximus Opal S.A.) PROXIMUS ICT-EXPERT COMMUNITY (PIEC) S.C.R.L. B. Watteeuw (permanent representative of Proximus S.A.) D. Van Eynde (permanent representative of Telindus S.A. Luxembourg)

B. Watteeuw S. Bovy CLEARMEDIA S.A. D. Van Eynde O. Malherbe S. Huijbrechts

G. Boutin J. Casteele O. Crucq SCARLET BELGIUM S.A. C. Deltenre V. Licoppe S. Röckmann K. Vandeweyer

AWINGU S.A. B. Watteeuw

C. Crous DAVINSI LABS S.A. B. Watteeuw P. Van Der Perren

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No. 0202.239.951 Proximus PLC

Branches

The branch in the Grand Duchy of Luxembourg Luxembourg. was established in 2002 and is responsible for the The Strategic Committee established at the level management of the Luxembourg subsidiaries and of the branch supervises the implementation of the implementation of the group strategy in the Fit-for Growth strategy in Luxembourg.

Use of financial instruments

Proximus is exposed to market risks, including Proximus’ currency exposure relates to financial interest rate risks and foreign exchange rate risks, debts in foreign currency and to operational associated with underlying assets, liabilities and activities in foreign currencies that are not anticipated transactions. Based on analysis of “naturally” hedged. In order to hedge such these exposures, Proximus selectively enters into exposures, Proximus uses derivatives, mainly derivatives to manage the related risk exposures. forward foreign exchange contracts and occasionally currency options. Proximus manages its exposure to changes in interest rates and its overall cost of financing by As a result Proximus is exposed to counterparty occasionally using interest rate swaps (IRS) as risks relative to potential failure by counterparty well as interest rate and currency swaps (IRCS). on derivatives. In general, Proximus does not These financial instruments are used to transform require collateral or other security from the interest rate exposure from a fixed to a counterparties as these are highly rated financial floating interest rate or vice versa. institutions.

Members of the Joint Auditors

The mandate of Deloitte Statutory Auditors SC audit mandate of Proximus S.A. will expire at the sfd SCRL, Gateway Building, Luchthaven Annual General Meeting of 2022. Nationaal 1J, 1930 Zaventem, represented by Mr. Michel Denayer and of CDP Petit & Co SPRL Mr. Jan Debucquoy has been appointed on 1 April represented by Mr. Damien Petit, for the statutory 2015. The mandate of Mr. Pierre Rion has been renewed on 10 February 2016.

Auditor responsible for certifications of the consolidated accounts of Proximus Group

The mandate of Deloitte Statutory Auditors SC mandate of Proximus S.A. of public law will expire sfd SCRL represented by Mr. Michel Denayer and at the annual general meeting of 2019. Mr. Nico Houthaeve for the consolidated audit

50 I Management Report 2017