Nancy Goossens - Director, IR Dominique Leroy - CEO Phillip Vandervoort - Chief Consumer Market Officer Bart Van Den Meersche - Chief Enterprise Market Officer Daniel Kurgan - CEO, BICS SA/NV

Stefaan Genoe - Degroof Petercam Emmanuel Carlier - ING Nawar Cristini - JPMorgan Daniel Morris - Barclays Luis Prota - Morgan Stanley Vikram Karnany - UBS Usman Ghazi - Berenberg Nicolas Cote-Colisson - HSBC

Thank you. So, good afternoon to all of you and welcome to this conference call.

With me today are Dominique Leroy, the CEO; Sandrine Dufour, the CFO, as well as other members of the Executive Committee of Proximus for the Q&A session. So we have Phillip Vandervoort for your questions on the Consumer Market, Bart Van Den Meersche for the Enterprise Market.

We have Geert Standaert, our CTO of the Company and we have Daniel Kurgan for your questions on BICS. As per usual, the quarterly report as well as our presentation has been published on the IR website this morning.

So I trust you had a chance to go through the numbers. The time available for this call will be mainly spent on your questions.

So before we get to that, I'll let first Dominique take you through a few highlights of the quarter.

Yes. Thank you, Nancy.

Good afternoon, everyone and welcome to our conference call. So today, I'm happy to announce a good start of the year in which we continued to deliver solid customer growth while we have enhanced our profitability.

Let me first zoom in for a moment on our domestic business, meaning our business excluding BICS Carrier Services. For Domestic, we posted nearly stable revenue, while improving the EBITDA by a solid 3.8% compared to the previous year.

We achieved this sustained growth by consistently executing on our Fit for Growth strategy, enhancing our customer experience and focusing on value accretive customer growth. We succeeded in growing our customer base further in the first quarter for Fixed Internet TV and Mobile Postpaids, leading to a favorable evolution on our market shares.

End March 2016, our Fixed Internet market share was 46.2%; for TV, 35.4% and for Mobile Postpaid 47.2%, thanks to a larger customer base and sound ARPU trends. We posted a sustained solid revenue increase for these products with Fixed Data growing by 6.5%, TV by 10.5% and Mobile Services growing by 1.7%.

As this is high quality revenue, this resulted in stronger direct margins. The domestic EBITDA was also supported by the strong focus we keep on improving our cost structure.

Our first quarter domestic expenses were down, thanks to the efficiency gain from lowering bad volumes to our call centers and increasing internal productivity. The strong EBITDA of our domestic business was partly offset by a lower EBITDA for BICS.

BICS achieved further growth of its direct margin, thanks to the ongoing progress in higher margin data revenue. This was, however, more than offset by higher expenses, partly as a consequence of the supports needed for new geographies and for some new growth domains.

Domestically and BICS EBITDA combined lets to a 2.5% increase over underlying Group EBITDA. As announced during our Capital Market Day in February, we also have a strong focus on free cash flow.

Some structural actions that have been implemented are reflected in the lower cash needed for working capital. This combined with the growth in EBITDA and lower cash paid for CapEx, resulted in a strong free cash flow for the first quarter at €133 million.

With this sound start of the year, we re-confirm our full-year guidance with 2016 underlying domestic revenue and Group EBITDA expected to grow slightly. We also reconfirm our CapEx estimation for the year to be around €950 million.

Our EBITDA objective will be supported by ongoing efforts to reduce costs. In this context, I'm pleased that our social partners very recently approved our proposal for a voluntary early leave plan prior to retirement which will come into force on July 1, 2016.

This was the final point I wanted to put forward and I'm therefore happy to turn to your questions now. Thank you.

Operator, can we open the line for questions, please.

Three questions from my side. One on the Consumer segment, so in Q1, the customer growth was a bit weaker than previous quarters, could you maybe provide a little bit more color on the reasons behind that and if you believe this is structural?

Secondly, on the Enterprise segment. On the fixed voice lines, we saw an acceleration in the number of line losses and then in the press release, you've referred to exceptional cancellations.

Could you quantify them and maybe also explain if you've seen acceleration in the losses and if you believe that is structural? And then thirdly on the early leave plan.

Here I would like to have a little bit more color on how these elements will be booked in the coming quarters in terms of restructuring charges, but also how you will book it in the underlying EBITDA?

This is Phillip Vandervoort speaking. So, starting with the overall CBU net adds lower compared to last quarters, let me split that into various components.

On mobile, we indeed had less growth gains than the years before. We saw quite aggressive promos in January from our competitors when we were not in the market with promos.

We saw that trend reverse in February and March when we had our value focused, not volume focused promotions and joint offers in place. We do have on mobile less churn year-over-year and quarter-over quarter which underlies our value-based approach on our acquisitions and our joint offers.

And despite our lower net adds than other quarters, we gained market share year-over-year and quarter-over quarter. If you go to fixed broadband, we added 23,000 lines that is in line with other quarters, but if you compare to Q1 2015, it's a little bit skewed to that quarter, because that was with the addition of Snow.

Our churn decreased year-over-year and we gained also their market share on fixed broadband year-over-year and quarter-over quarter. If you look at fixed TV, we added 35,000 subscriptions, that is again in line with other quarters, if you compare quarter one 2016 to quarter one 2015, again that's skewed by Snow acquisition.

Again, we decreased our churn year-over-year and we gained all also on fixed TV market share year-over-year and quarter-over quarter. Fixed voice, we had more lesses than previous quarters.

Again, quarter over, Q1 2015 to Q1 2016 that would be skewed by Snow, but still that market trend is not reversing and we were doing some [indiscernible]. So despite lower net adds, we're gaining market share on mobile, on fixed broadband and on fixed TV.

Okay. Then for enterprise, indeed we have in this quarter a higher number of, I would say, a higher erosion in terms of fixed voice lines, so we're at 13.5000 lines, most of that is driven by line rationalization and move to the Voice over IP.

But indeed this quarter we have an exceptional number of cancelations, above 3.4000 linked -- actually fresh line cancellations for the European Summit. So that if you take that out, we're back at the, I would say, normal running rates, so it's not structural, it's a one-time and it's been through that cancelation.

Emmanuel, on your question regarding the early leave plan. Well, first in our IFRS consolidated accounts, what we will book as Q2 this year is the cost of people who will leave the Company July 1st this year.

It will be booked in the non-recurring elements and all employees who will be leaving us at the later stage which is January 1st next year 2018/2019/2020, we will accrue the cost for the period the employee are still active. To be more concrete, an employee who will leave on the January 1st, 2017, the cost will be spread over Q2, Q3, Q4 this year, for someone leaving us January 1st, 2018, the cost will be spread over seven quarters et cetera, et cetera, so that's what you should think of it.

Now, in terms of quantum, as you know, we've just announced to the eligible employee that they can opt for this early departure plan. They still have till early June to make the decision, so we do not know yet what is going to be the rates, the exact rates.

We, I think, said last quarter that the closed target group was 3700 or so. If we work on an assumption of 80% rate, we're talking 1300 leaving us over the next three years.

So it's a bit early to give a precise total euro amount in terms of costs, but our best assumptions so far, globally between €400 million and €450 million for the entire period. So please expect this to be refined when we come back to you on the Q2, because we'll have the more precise result of who has been opting for the plan.

And from an accounting point of view, you should expect that more than half would be accounted for in 2016.

As a follow-up on the last point, could you indicate to us or give more color on how you see the economies from the savings from the departures, timing-wise this year, next year? And on the assumption of the people that you assume will leave?

So and second to that, I also have the impression that in the CBU, the natural attrition on the fixed voice lines was higher in Q1. Is there a particular reason and how do you see this trend in the coming quarters?

Okay. So on your first question, well, do not expect to see any benefit as of Q2, because it will be just the beginning.

In terms of cash, remember what we said, we're going to pay people leaving the Company 75% of their salary excluding additional elements that they were receiving. So that's how you should see the cash benefit being accrued over the next quarters as of Q3.

It would be small numbers, but in terms of cash, we'll pay the people departing a 75% of what they were receiving, so it will be profitable cash wise as of Q3.

On the fixed voice lines, if you exclude the impact of Snow, if you compare Q1 2015 over Q1 2016, the decline is very much in line. It is a structural decline of fixed voice lines in households, but it's not that it's accelerating year-over-year.

My first question is a follow-up on the mobile KPIs, it would be good if you can give us some color about your expectations for the rest of the year. In particular, should we expect to get back to the 30,000 to 40,000 run rate in mobile that we've seen over the last three years?

And then, I have a question regarding Mobistar rebranding that is expected to be launched soon. Are you expecting any impacts on that front?

And my last question is on the B2B market, clearly we're seeing a number of signals of the increase of the competitive environment in the -- both from Telenet, but also from Mobistar, it would be interesting to know whether you have started any proactive actions on your client base to anticipate this?

Well, on the mobile net adds, as I said, we've seen the trend reverse in February, March, where we had our -- again, value focused joint offers in the market and we will continue to drive that value based approach. Indeed, we had less net adds, but as I mentioned, we did gain market share and we will continue our approach.

Also, if you look at mobile services revenue, we did reverse that trend from the Q4 2015. So yes, I mean, we will not change our approach dramatically, we will use all our sales engines and we will use our value-based joint offer approach to get back to the net adds that we could expect before.

So, on the Mobistar rebranding, I think it's quite early to give any indication on that. I think the Orange brand is indeed known more in the south of the country than the north of the country, there is some overflow in terms of TV viewing, we know that's approximately 30% of TV viewing in the south of Belgium is done on French channels.

So I think that's certainly a benefit that Mobistar will get for the rebranding and potentially they could get some more traction on the TV and B2B, but to be very honest, I think it's very early to give any indication. It will be more a challenge in the north of the country, where the brand is not known and we know that for us the north of the country is quite important, as it is also an area where we're a challenger.

So in that sense, very early to see, we will see more nest quarter when we will be able to see what they do in terms of also the offer linked to Orange. And for B2B I give over to Bart.

Yes, then on your question on the signals on competition activity in the B2B market, yes, indeed we see increased activity which is not a surprise. I mean, they have announced it everywhere, so that is indeed happening.

You see that there is -- for business it has been announced. So as I said, it's not a surprise.

Are we doing proactive actions? Yes, we have already been driving actions from the beginning, because we expected this and so our strategy remains the same, that is have the best network experience.

I mean that is definitely the case, but supported by a wide range of managed services. And then in the case of mobile managed services, of which some are unique in Belgium like mobile SLA, but also further innovation, competitive tariffs and further rely on conversion offers.

And then next to that, it's especially our proximity, so Proximus is the main leader of proximity, we have a coverage with our account management, so we're really working on this, yes, indeed to anticipate.

My question is from the expected trend on a quarterly basis. For underlying domestic revenues which were slightly down in the first quarter, the guidance is for a slightly up for the full-year.

I know it was just 0.3% down, so no big difference related to handset sales. But what I would like to get your thoughts is on the special impact in the third quarter and fourth quarter from roaming, so whether most of the negative roaming implications on revenue and EBITDA should be seen maybe in the third quarter and fourth quarter?

And also whether you are expecting increasing competition from Mobistar and also Telenet/BASE in the second half relative to the first half? As following up on the previous question, the rebranding of Mobistar is just happening now and the integration of Telenet and BASE is progressing, so maybe second half should be -- we should see competition heating up or not?

I would like to get your thoughts on this, please.

I will start and if necessary, it can be complemented by Phillip or Bart. But I think you are right, I mean roaming will -- the impact of roaming will be seen indeed mainly in the second half of the year, but that's for everybody.

I think domestic revenue, we're flat this quarter, it's indeed mainly driven by device sales. We expect to meet the guidance for the full year with a slight growth on domestic revenue.

We still see some very good traction on the fixed area. We see very good traction so far on the mobile area.

The increased competition, I think there was already quite a strong competition on the Q1, certainly in the mobile area, you saw quite a lot of aggressive joint offer from competition. We have historically also quite strong competitive actions during the year for -- and certainly at the end of the year.

So, the only thing I can say is, despite potentially a competitive context or whatever roaming impact, we iterated our guidance of slight revenue growth for the full year.

But if I can follow-up, are you seeing already anything from the Telenet/BASE integration which is different in terms of a strategy or products or something or not yet really?

I think so far, they have not changed their strategy in the residential market, Bart had said that we have launched indeed the [indiscernible] for business which is a more aggressive offer on mobile for the business. We have announced in the last CMD that they would come in potentially with some new convergent offer without precising any timing, but we have also, as Bart said, anticipated increased competition certainly on the Enterprise and for the rest, we will also not be inactive.

So I think our plans are strong enough to be able to descend ourselves into new competitive market. And also on roaming, we will have a price impact that we also are working on quite a lot of activities to make sure that we can compensate some of it by a volume increase.

So the market will of course change, but I think we had anticipated that and it is reflected in our plans and it should be re-reflected in our guidance.

I wondered if you could give us a little bit more color on the quad-play churn rates. So they are still extremely low and in fact declining year-on-year in Q1 which is impressive to see.

And I suppose I'd expect that as your base grows in the quad-play product and maybe some of your few best customers go first and more churning customers might come a bit later. And I guess, I would expect the churn to start-ticking up maybe on the quad-play.

So I wondered if you see -- is it sustainable to keep quad-play churn at the kind of 3% level over the medium term or are there stuffs -- are there things you're seeing with the older customers that suggest that may or may not shift up?

Yes, indeed our multiple-play strategy and our convergence approach is really showing to be quite beneficial. Not only do we see a really nice increase in customers that take all their Packs with us, we see that gradually shifting from single-play to double-play, from double-play to triple-play and triple-play to quadruple-play.

The way we've structured our Packs is in a way that every single service is not just a one plus one equals two, but it's a one plus one equals three, because there is an additional functionality that add some. So that makes it really if the customer takes away a service, it really becomes a lot less.

So we do see that churn rate stay very stable and we don't expect that to change. Next to that, we increase, as I said, we increased the households that are fully converged year-over-year, increased the households that are in triple-play and quadruple-play Packs, both almost double-digits for several quarters in a row.

And we see an RGU growth, so I think it's a confirmation of the right strategy.

I've got a couple of questions. Firstly, a clarification on the Group expenses, the Q1 OpEx was driven by BICS, it was significantly up versus last year.

Is this investment kind of one-off and how should we think in terms of the payback period going to come through in terms of those investments? And secondly, on mobile data monetization, your average 4G usage was for the first time over 1 gig and looking at your Smart Plus portfolio and it seems to be like a significant potential in terms of upselling from your 15 year offer to the 25 with just €10 additional for 1 gig of data or is the strategy over here from your side going to be to increase the allowance maybe for a small price increase?

Just want to get your thoughts around data monetization, how you think about it?

I will answer for BICS on the OpEx. I guess two main parts.

First, I remind you that if you compare to last year Q1, it was favorably impacted by a foreign exchange gain that we don't expect this time. And then on the other hand, we're investing to expand the business, to grow the business, to extend the portfolio, the segments, in various areas, in people, in network, in systems and this is also partly reflected in the OpEx increase that you see year-over-year.

So it's a balance of these different elements, where we feel comfortable that we keep improving the mix, we diversified value added services above the core transport and that's going to payback already over the next month and certainly over the next years, but we're not talking about a massive amount. Well, that's for the BICS piece.

I mean, perhaps just a compliment on the Group expenses for the domestic market, I think there you really see a different strategy and for BICS there are some one-offs, but for the rest, there is also a key strategy, a growth strategy in new geographies, a new product lines for the domestic business, we know that our cost structure is more expensive than our peers. So on the domestic market, we have clearly the ambition to decrease our costs.

The early leave plan, where we have received agreement upon from the unions recently, is one part of it, but we will also make sure that we continue to simplify our business, to rationalize the business, to digitalize the business and therefore, be really aggressive in terms of cost reduction. So globally, you should see decrease on OpEx for the domestic business and you will see an increase on expenses for BICS to fuel the growth in new geographies and new product lines.

On the mobile services revenues, there's two components in your question. One is whether we're incentivizing today and the other one is whether we see upselling potential.

We're not incentivizing through any means today to data usage on mobile. So the growth that we see to above 1 gigabyte today is organic.

So that's still upside potential for later. And if you look at how we're monetizing it and the upselling potential, I think you can see that, if you compare Q4 mobile service revenue to Q1, 2016 mobile services revenue, where we see that nicely taking up, again, in August of last year, we increased the data volumes in our Packs, in our mobile offer.

And so we've reduced the out of bundle, but we see that growth and we see it monetizing, we see our monetizing capability there again through joint offers we're continuously driving higher steering. And there is the postpaid, prepaid switch that also make sure that the customer stays longer with us.

So there is still many opportunities to monetize data and to incentivize the use of data.

If I can just follow-up, in terms of clarifying within your packages, the four popular ones. The Smart 25 is the one that you highlight in the website is the most popular one where you have a majority of the customer base or is it Smart 15?

So on the Smart 15 we have 1 gigabyte and of course that's a large amount of the customers on there. Then we have the Smart 25 where we have 2 gigabyte, we have the Smart 45 with a 4 gigabyte and Smart 65 with 10 gigabyte.

Yes, but it's more skewed towards Smart 15. Okay, that's very helpful.

Of course yes, the market is skewed toward Smart 15. Our joint offers are skewed towards driving up-tiering and that's quite successful.

I've got a few question on Scarlet, please. If you can give us an indication where Scarlet is more predominant currently with 18 Flanders or Wallonia.

And do you see any internal churn with Proximus plans upgrading to Scarlet or downgrading to Scarlet to saving their bills? And I've got another question on MVNO competition now that JIM Mobile and Vikings are changing hands.

How do you see this MVNO market and do you see that as a threat, generally speaking?

So Scarlet popularity is something that with communication above the line and different communications in north-south and Brussels, different actions were really to drive up across the country, so we have a national approach. Well, we have a regional approach, but that is across the various regions and to drive the brand awareness and brand preference.

On your second question from the churn from Proximus, we see very little churn from Proximus customers to Scarlet. And MVNO competition, I think you're talking JIM Mobile Vikings, we see that quite stable and not changing that much, probably the change of ownership is, it has something to do with that.

But for the moment we do not see that as a threat, but we're watching very closely how they evolve their Packs or their offers.

I just have one question please. In Mobile, going back to Vikram's question.

If the majority of the customer base is sitting on a Smart 15 tariff, I mean the next price point, there is almost a €10 difference, I mean, do you see a risk that people have been happy using a lot of data and then suddenly now if they, a world of customers that need to decide to spend €10 to upgrade to the next tier, now instead of upgrading, they suddenly start cutting down on the data usage or doing more Wi-Fi substitution or something. I mean why not lower the gap between these price points to continue to encourage people to use data with or without any worrying and monetize it better?

Well, I would like to link that to one of the previous questions on our convergence strategy. If you take your up-tiered mobile into your Pack, you get the discounts.

So that is the way we bring, that's the reason why we have to bridge and that's the reason -- that's what drives our convergence impacts, that's also what drives the revenue generating units in Packs. So, that is our strategy on that and we have not seen and the data, the 4G data consumption rates come from that, we have not seen that people cut down on data usage.

We see a steady increase in data usage and a steady increase in mobiles in Pack.

Okay, thank you very much for participating in this call to everybody. If anybody would have follow-up questions, you can obviously contact the Investor Relations team.

Thank you very much. Bye-bye.