Annual report 2019

Clean

Annual Report 2019

Foreword

2019 was a successful year for Aquafin in which all of our waste water treatment plants met all applicable discharge standards. 2020 promises to be just as exceptional. The new Flemish Government has given us a very important additional role in the water industry. Aquafin will be in charge of coordinating the asset management of the waste and stormwater networks across the whole of Flanders. We are focussing fully on achieving efficiency gains, for example by aligning investments as closely as possible at local and supralocal level, in close consultation with all stakeholders. We are also ensuring that the entire sewer infrastructure is kept in good condition, so as to avoid unexpected and superfluous expenditure. This leaves more room for other investments to reduce the pollution load on our watercourses.

As chairman, I am naturally proud that the company has earned the trust of the Flemish Government in this way. Although it will take time to implement the entire action plan, I am convinced that we will soon make great progress, together with the other actors. Time is therefore running short, if we are to achieve the objectives of the Water Framework Directive. This will mean putting the available knowledge, expertise and resources to optimum use for the greatest possible impact on the environment.

This knowledge and expertise is available in abundance at Aquafin and we continually invest in developing this, through innovation, for example. Our shareholder’s decision to invest part of the profits in innovation projects as from 2019 has created a new dynamic and already led to concrete results, which will be rolled out further in 2020.

They will all contribute in their own way to Aquafin’s mission and sustainable business operations.

As will the projects delivered to the Flemish Region in 2019, totalling 166 million euros, including 29 million euros for asset management projects. We not only comfortably met our target, but also managed to spread the deliveries as requested by the customer.

As far as new projects are concerned, last year Aquafin put 129 million euros’ worth of contracts for infrastructure works for the Flemish Region and 73 million euros’ worth of projects for towns, cities and municipalities out to tender. In addition, there were 31 million euros’ worth of contracts relating to asset management. As a result, we not only created employment for more than 1,100 of our own staff, but also continuous, indirect employment in the Flemish construction industry for an estimated 2,600 full-time equivalents. Construction site safety always comes first, for our employees, our contractors and the public. It is an integral part of our vision on sustainable entrepreneurship.

Alain Bernard Chairman

About Aquafin

History

Aquafin was established by the Flemish Region in 1990 in order to implement the EU Urban Waste Water Directive. Since the treatment of waste water in Belgium is a regional matter, Aquafin is responsible for the development, management and funding of the regional sewage treatment infrastructure. The company was established under the Law of 26 March 1971 on the protection of surface waters against pollution (Wet op de bescherming van de opper vlaktewateren tegen verontreiniging), which was converted into the Decree on Integrated Water Policy of 18 July 2003, coordinated on 15 June 2018

Supervision

The Flemish Environment Agency (VMM) supervises Aquafin’s activities through two regulators. The Financial Regulator provides advice on the investment and optimisation programmes and budgets. It also checks the reasonableness of the cost of delivered projects. The Ecological Regulator audits Aquafin’s operating results and checks these results against the applicable treatment standards.

Finance and invoicing

Every year, the Flemish Region funds projects for implementation by Aquafin under the Optimisation Programme. Following delivery to the contractor, Aquafin submits the project to the Financial Regulator from the Flemish Environment Agency for delivery to the Flemish Region. Delivery to the Flemish Region means that the costs incurred are approved and Aquafin has a contractual right to their repayment, spread over the next 15 (electro mechanics) or 30 years (construction engineering). In the coming years, the proportion of replacement investments (asset management) will rise, so that the proportion repaid over 15 years will gradually increase.

The water companies are obliged by decree to treat the water they supply. They enter into an agreement for this with Aquafin, which assumes the task of treatment for them. Aquafin invoices the water companies for the investment costs over the specified term, along with the company’s operating costs. The water companies pay part of Aquafin’s invoices via a grant from the MINA fund, funded by general tax revenue. They pass on the remainder, currently around 70% of the total bill, to drinking water consumers according to the principle of “the polluter pays”.

In this formula, the budget for operating costs, excluding financing costs, under the Management Agreement is related to factors including the pollution load treated, the assets managed, the flows handled and the investment budgets. A series of fixed packages are added to this. The budget calculated is a total budget for Aquafin, without creating partitions between packages, or between personnel costs and other operating costs. This gives Aquafin the freedom to focus on the areas it considers important and to allocate the performance budget internally according to these areas.

An efficiency gain is assigned to several packages from the performance budget each year. The size of the efficiency gain aimed for is defined in the course of the Budget Consultations with the Flemish Region. The agreed percentage of 1.5% was achieved in 2019.

The Flemish Region is a co-debtor in the invoice flow between Aquafin and the water companies. As Aquafin’s investment expenditure is repaid spread over a period of time, the company has to raise financing for this. Longterm financing for a project is only possible once it has been delivered to the Flemish Region, because only then is the company sure of spread repayment. These long-term investments therefore involve no construction risk for the investor. Aquafin covers short-term financing during the implementation of a project with commercial paper, lines of credit and general corporate purpose financing.

Management Agreement and allocation agreement

Aquafin’s tasks are set out in a Management Agreement between the company and the Flemish Region. This is a 20-year rolling agreement which specifies that, besides developing, managing and operating the treatment infra structure, Aquafin is also responsible for financing this.

An allocation agreement exists between the Flemish Region, Aquafin, the European Investment Bank and Belfius Bank, with Belfius Bank acting as agent. The agreement stipulates that, should Aquafin find itself in financial difficulties, the water companies will no longer have to pay Aquafin for the treatment of the drinking water supplied by them, but Belfius Bank. As the agent for the allocation agreement, Belfius Bank will then pass on the sums to the investors on the (interim) maturity dates of the financing agreements. According to the allocation agreement, the outstanding credit balance Aquafin has with the water companies must always be greater than the debt under the allocation agreement (the allocation ratio). The statutory auditor checks this ratio before each arrangement of finance under the agreement and confirms this to Belfius Bank. In turn, the agent communicates this allocation ratio to the investors. It is also important for these investors to know that, according to the allocation agreement, any changes to the Management Agreement with a financial impact must first be submitted to them for approval.

In order to participate in the allocation agreement, the investor first signs an agency agreement with Aquafin and Belfius Bank.

Innovation is in our DNA

Aquafin has set up a structure for capturing innovative ideas from employees from the entire organisation and assessing them at an early stage for relevance, feasibility and viability. Ideas that meet these criteria can be developed further into a service or product with added value for the company and society.

In 2018, Aquafin agreed with its shareholder, the Flemish Environmental Holding, to make part of the profits available for innovation. Instead of distributing 95% of the profits, Aquafin now allocates a proportion to the available reserve. This can be made available for innovation projects. In 2019, 0.8 million euros were invested in innovation.

The following innovation projects were developed in 2019:

• The company worked on a prototype for a drone which can be deployed for the inspection of sewers to make the activity more cost-effective. This prototype should be ready for test flights in 2020.

• Aquafin registered the trademark Aqtiput® for the concept in which private rainwater cisterns are controlled smartly to create extra buffer capacity for intense local showers. This smart control is made possible by installing sensors and valves or pumps, controlled by an algorithm developed in house. Several cities have already expressed an interest, along with companies wishing to work with us.

• We currently convert the biogas we produce by digesting sludge into heat and electricity via a cogeneration plant (CGP) before using them in the treatment plant. However, since the biogas contains 70% methane, we can also make biomethane from it by extracting carbon dioxide, for example. Biomethane makes an excellent fuel for CNG cars or, as a ‘green gas’, can easily be injected into the natural gas grid.

• Domestic waste water always contains a certain amount of residual heat from showers and washing machines. Aquafin is researching techniques to exploit the potential of this heat in the sewer and then bring it up to a suitable level so that it can be used to help heat homes, for example, (sewer thermal energy).

The majority of the innovation budget went to projects that are already in the demo phase, namely the test setup for decentralised treatment technologies in the Kruitfabriek (former gunpowder factory) in Vilvoorde and a test setup for Bluebloqs. This is a circular water system for the collection, treatment and recycling of stormwater runoff in public spaces. The system uses a biofilter and in the pilot installation at our treatment plant in Aartselaar, we are investigating which forms of pollution this biofilter can remove. The project is a partnership with TU Delft and Field Factors and is funded by EIT Climate-KIC.

Our expertise

Read more www.aquafin.be/en/what-we-do

Smart with water

As a result of climate change, we are experiencing short-term heavy rainfall and long-term drought more and more often in Flanders. Aquafin has the knowledge and tools in house to work out scenarios offering sustainable solutions that go beyond simply adapting. We devise total concepts centred around making efficient use of every single drop of water. Our designs also focus on offering a high natural and amenity value.

Cost-efficient finance

All of the projects we carry out on behalf of the Flemish Region are also financed by us. This makes finance part of Aquafin’s core business and expertise. Thanks to an excellent credit rating and a diversified investment portfolio, we manage to raise the finance for our projects.

Project management

Every year, the Flemish Region awards us new projects for the development and optimisation of the treatment infrastructure for domestic waste water. We manage each project right through from the feasibility phase to implementation, with the necessary respect for safety, the environment and the community.

Asset management for infrastructure

The infrastructure we build and manage has to be reliable and perform well. Aquafin pursues an asset management strategy focussed on an optimal lifespan for the assets and the management of risks. We are ISO 55001 certified for the way in which we manage our assets.

Transporting and treating waste water

Every day, Aquafin treats the domestic waste water of about 5 million Flemings. Via the municipal sewers, it goes into large collector sewers which transport it to a waste water treatment plant (WWTP). It is then treated, first mechanically and then biologically, until it meets the necessary standards for it to be discharged into a watercourse.

Key figures

AMOUNTS IN THOUSANDS OF EUROS 2015 2016 2017 2018 2019

Operating income 466,958 488,082 499,349 575,226 577,431

Profit available for appropriation 8,848 8,202 9,752 11,100 12,204

Balance sheet total 3,382,599 3,392,755 3,430,448 3,568,524 3,661,385

Capital and reserves 232,346 270,252 271,248 273,597 276,808

Short-term financing 217,690 207,869 158,124 203,912 218,653

Long-term financing 1,914,592 1,880,094 1,939,215 1,979,036 2,011,632

NUMBER

Aquafin employees 970 1,008 1,057 1,087 1,095

Flemish Environment Agency employees 69 63 60 56 55

Total employees 1,039 1,071 1,117 1,143 1,150

Projects in portfolio for the Flemish Region

AS AT 31 DECEMBER 2019:

Number of projects Value (millions of euros)

Delivered 3,332 4,139.81

Tendered and awarded 346 465.76

In design phase 997 1,187.08

Total 4,675 5,792.65

Municipal activities

Besides the projects Aquafin carries out for the Flemish Region, as specified in the Management Agreement, the company also uses its know-how for Flemish towns, cities and municipalities which must fulfil their environmental obligations. In this market, Aquafin competes with other sewer operators, water companies and intermunicipal partnerships. Aquafin invoices the municipality with which it has an agreement for the cost of municipal projects. In accordance with the provisions of the Management Agreement, the charges and revenues for activities for the Flemish Region and those for the municipalities are separated.

Infrastructure managed on behalf of the Flemish Region as at 31 December 2019: 321 waste water treatment plants 1,852 pumping stations and storage settlement tanks 6,587 km of pipes

100% of waste water treatment plants assessed complied with all applicable standards at the end of 2019.

Report of the Board of Directors

In our project designs we integrate natural and amenity value.

Balance sheet and income statement

BALANCE SHEET IN THOUSANDS OF EUROS

ASSETS Codes 31-12-2019 31-12-2018

FIXED ASSETS 20/28

Tangible assets 22/27

Land and buildings 22 Plant, machinery and equipment 23

Furniture and vehicles 24

Other tangible assets 26 Assets under construction and advance payments 27

Financial fixed assets 28

Affiliated enterprises 280/1

Participating interests 280 Other financial fixed assets 284/8 Shares 284 Amounts receivable and cash guarantees 285/8

CURRENT ASSETS 29/58

Stocks and contracts in progress 3 Contracts in progress 37

Amounts receivable within one year 40/41 Trade debtors 40 Other amounts receivable 41

Short-term investments 50/53 Other investments 51/53 Cash 54/58

Deferred charges and accrued income 490/1

TOTAL ASSETS 20/58

3,359,680 3,356,359 235,457 2,806,901 1,260 179 312,563 3,321 3,242 3,242 79 78 1 301,705 214,297 214,297 30,871 22,444 8,427 74 74 12,890 43,572

3,661,385

3,317,635 3,314,381 232,790 2,774,628 2,101 275 304,588 3,254 3,175 3,175 79 78 1 250,888 162,944 162,944 35,256 29,735 5,521 80 80 10,738 41,870 3,568,524

BALANCE SHEET IN THOUSANDS OF EUROS

LIABILITIES Codes 31-12-2019 31-12-2018

EQUITY 10/15 Capital 10

Issued capital 100 Reserves 13

Legal reserve 130 Available reserve 133 Profit carried forward 14 Investment grants 15

PROVISIONS AND DEFERRED TAXES 16

Provisions for liabilities and charges 160/5

Pensions and similar obligations 160 Other liabilities and charges 163/5

AMOUNTS PAYABLE 17/49

Amounts payable after more than one year 17 Financial debts 170/4 Credit institutions 173 Other amounts payable 178/9

Amounts payable within one year 42/48

Current portion of amounts payable after more than one year 42 Financial debts 43 Credit institutions 430/8 Trade debts 44

Suppliers 440/4

Advances received on contracts in progress 46

Taxes, remuneration and social security 45 Taxes 450/3

Remuneration and social security 454/9

Other amounts payable 47/48

Accrued charges and deferred income 492/3

TOTAL LIABILITIES 10/49

1,097,185 248,400 248,400 28,408 14,908 13,500 5 820,372 4,496 4,496 488 4,008 2,559,704 1,718,109 1,717,886 1,717,886 223 830,041 293,745 231,356 231,356 76,474 76,474 204,444 15,028 5,269 9,759 8,994 11,554 3,661,385

1,095,078 248,400 248,400 25,197 14,297 10,900 7 821,474 4,328 4,328 628 3,700 2,469,118 1,826,706 1,826,487 1,826,487 219 630,101 152,549 217,329 217,329 83,519 83,519 151,532 16,428 6,918 9,510 8,744 12,311 3,568,524

BALANCE SHEET IN THOUSANDS OF EUROS

Codes 31-12-2019 31-12-2018

Operating income 70/74 Turnover 70

Increase or decrease in stocks of finished goods, work and contracts in progress 71 Other operating income 74

Operating charges 60/64

Raw materials, consumables and goods for resale 60 Purchases 600/8 Services and other goods 61 Remuneration, social security costs and pensions 62 Depreciation and other amounts written off formation expenses, intangible and tangible fixed assets 630

Amounts written down stocks, contracts in progress and trade debtorsappropriations (write-backs) 631/4

Provisions for risks and charges - appropriations (uses and write-backs) 635/7 Other operating charges 640/8

Operating profit 9901

Financial income 75 Income from current assets 751 Other financial income 752/9

Financial charges 65 Debt charges 650 Other financial charges 652/9

Profit on ordinary activities before taxes 9902

Extraordinary income 76

Non-recurring financial income 76

Profit for the period before tax 9903 Income taxes 67/77 Taxes 670/3

Adjustment of income taxes and write-back of tax provisions 77 Profit for the period 9904

PROFIT FOR THE PERIOD AVAILABLE FOR APPROPRIATION

9905

577,431 512,435 51,353 13,643 488,621 99,386 99,386 116,786 83,570 182,667 -213 167 6,258 88,810 56,391 56,367 24 126,997 69,742 57,255 18,204 67 67 18,271 6,067 6,472 405 12,204 12,204

575,226 508,364 54,082 12,780 485,910 102,074 102,074 121,859 79,707 176,507 378 -2,014 7,400 89,315 30,813 30,773 40 103,064 71,230 31,834 17,064 72 72 17,136 6,036 6,254 219 11,100 11,100

Statutory auditor’s report

LEGAL DISPUTES

• Deurne waste water treatment plant - collapse of dividing wall

In September 2012, a dividing wall between two basins collapsed at our waste water treatment plant in Deurne. Besides major property damage, the collapse also resulted in additional operating costs (sludge treatment, extra chemicals, etc.).

Aquafin took the initiative of requesting the involvement of a court-appointed expert. In his final report in the spring of 2016, the expert assigned the liability. Aquafin was also assigned partial liability (inadequate design guidelines and working with too high a water level during operation). The damage was estimated at around 2.7 million euros.

Aquafin disputed its liability and brought an action in 2016 requesting the court to pronounce a different liability regime.

In 2018, Aquafin’s insurer indemnified the company for the loss covered by the policy, amounting to approximately 2.1 million euros.

In 2019, the court issued a judgment further reducing Aquafin’s liability. No appeal was lodged against this judgment. In the meantime, the parties have reached a mutually agreed settlement and part of the remaining amount - not covered by the insurance - has already been paid to Aquafin. With the assistance of our insurer, Aquafin has been able to close this case with no financial disadvantage.

INSURANCE CLAIMS

• Waste water treatment plant Deurne - insufficient concrete reinforcement

At the water treatment plant in Deurne, it was discovered in 2007 that, due to a design error, the walls of certain aeration basins were insufficiently reinforced. This loss is partially covered by Aquafin’s CAR (Contractors’ All Risks) insurance policy and partially by the professional indemnity insurance policy of the engineering company concerned. Both insurers actually paid out. The amount that was not covered by the CAR insurer was recouped in 2011, partly from the engineering company that made the design error and partly from the inspection body operating on the site. In 2013 a substantial part of the remaining amount was recouped from the engineering company and its insurer. The inspection body and its insurer stated that they were prepared to provide compensation for part of the remaining loss, with no admission of liability. So far, Aquafin has not accepted this offer, since this payment is conditional on Aquafin waiving all other claims against the inspection body on this site. In view of the aforementioned legal action concerning the collapse of the dividing wall, Aquafin was not prepared to do so.

Following the judgment issued in the above case, absolving the body of all liability, Aquafin will claim the amount offered from the inspection body after all. Aquafin will ultimately be left at a very slight financial disadvantage.

DELIVERIES

In 2019, Aquafin delivered 80 supra-municipal investment projects with a total contract value of 137.6 million euros and a total project value of 161 million euros. Due to a number of administrative reasons, delivery of 12 projects was postponed, for a contract value of 14.1 million euros and a total project value of 16.9 million euros. The reasons are administrative in nature or the return on the project is too small as yet because of a delay in the connection of (municipal) projects. These projects are complete and ready. The administrative file will be prepared for delivery once more in 2020.

FLEMISH GOVERNMENT ASSIGNS AQUAFIN A KEY ROLE

In the Coalition Agreement for the new Flemish Government published at the beginning of October, Aquafin was put in charge of coordinating the asset management of the waste and stormwater networks across the whole of Flanders. This marked the acceptance of our proposal for achieving greater integration between the management of the municipal and supra-municipal infrastructure. We intend to achieve this partly by aligning the respective investments. We will also coordinate the actual asset management of the sewer infrastructure. We assess the state of the infrastructure and draw up maintenance and repair programmes based on up-to-date data for towns, cities and municipalities so that they can keep their systems in good condition. Aquafin is also taking the initiative to construct a measurement matrix for combined overflows together with the sewer operators and the Flemish Environment Agency. All proposals from Aquafin’s action plan aim to achieve maximum impact on the environment with the resources available.

2020 OPTIMISATION PROGRAMME ASSIGNED

Every year, the Flemish Government assigns a new Optimisation Programme to Aquafin for the continued development and optimisation of the supra-municipal treatment infrastructure. Last year, the OP2020 was assigned. This is worth a total of 230 million euros, of which 100 million euros are reserved for new supra-municipal projects and 130 million euros for projects under the Local Pact with the municipalities. These new orders help to fill up Aquafin’s order book.

A further 50 million euros were made available for investment and renewal programme overruns from programme years up to and including 2009.

MOODY’S CONFIRMS LONG-TERM RATING

Moody’s annual rating visit, during which the company was examined from a financial and strategic point of view, took place in September Following an in-depth analysis, Moody’s confirmed Aquafin’s long-term rating of Aa2 with a stable outlook as well as the short-term rating of P-1.

SIGNATURE OF ELEVENTH EIB LOAN

At the end of 2019, the eleventh financing agreement was signed between the European Investment Bank (EIB) and Aquafin, for the sum of 100 million euros. Under this agreement, the EIB commits to a second loan of a further 100 million euros, creating a total framework agreement for 200 million euros. This brings the investments by the EIB to a total of 1.9 billion euros. The projects financed by this loan are subject to thorough screening by the EIB for their impact on and mitigation of the consequences of climate change. With a total impact rating of 51%, the EIB is presenting Aquafin as a showcase for the financing of waste water treatment infrastructure.

FLEMISH GOVERNMENT APPROVES CLOSURE OF 2017 FINANCIAL YEAR

In May 2019, the Flemish Government reached a final decision regarding the closure of the 2017 financial year. This decision has an impact on the recognition of both operating costs under the remuneration model and approval of invoices received after project completion for that year. Based on this decision, some 195 thousand euros (or 0.07% of the budget) were rejected. Aquafin had made provision for this amounting to 300 thousand euros.

MUNICIPAL CUSTOMERS

At the end of 2019, Aquafin had 106 Flemish towns, cities and municipalities as customers, either directly or via a joint venture with drinking water companies De Watergroep (Riopact) or water-link. Compared to the previous year, two municipalities have switched their sewer management to the company, which is now also their new drinking water supplier. Two more municipalities went into partnership with Aquafin in 2019.

events during the financial year

Main events after the financial year

The outbreak of coronavirus (Covid-19) in the spring of 2020 and the subsequent government measures aimed at combatting its further spread will have an impact on Aquafin’s activities in 2020 (e.g. closure of construction sites) and therefore potentially on the risks to which the company is exposed and its results. This means that, depending on future government measures and their duration, Aquafin may have to make material adjustments to its financial statements during the 2020 year of operation. However, based on the facts as known to Aquafin at present, there is no impact on the figures and financial statements for 2019.

Research and development

In its research department, Aquafin develops the expertise required to tackle current and future challenges in the waste water sector. The research strategy we adopt consists of three pillars: integrated water management, recovery of energy and raw materials and improvement of the reliability and performance of the treatment infrastructure.

As far as the recovery of raw materials is concerned, in 2019, the focus lay mainly on research matters around technologies for decentralised treatment and possibilities for recovering water and nutrients via separate collection of grey water from washbasins and showers and brown water from toilets. The necessary equipment has also been purchased for realistic measurement of emissions of N2O (laughing gas) and methane. Some representative treatment plants have been selected for this, from whose results we can extrapolate. The equipment has already been installed at one plant. The further rollout and initial findings, which may lead to mitigating measures, are expected in 2020.

The focus of the research into the removal of micro pollutants from waste water is increasingly shifting from chemical analyses alone to biological effect measurements. This is because removal efficiency is not a conclusive parameter for the impact of residual concentrations on life in the watercourse. The biological effect measurements are included in the research plan for a full-scale installation for the removal of micropollutants at the treatment plant in Aartselaar.

In 2019, the research department also worked intensively on effluent as an alternative water source for various applications and focussed strongly on the accumulation of knowledge around the soaking away of rainwater. In addition, there is an increasing focus on big data, which can give us a great deal of information about the infrastructure, through the installation of sensors, for example.

Both nationally and internationally, Aquafin is a valued research partner for academic institutions and research institutes in these areas. The research budget that Aquafin receives from the Flemish Region covers small-scale research studies with small pilot plants and the necessary measuring equipment. For certain projects, we can also rely on subsidies under programmes such as Interreg, H2020 and Vlaio. However, once a research project moves from the pilot phase to full-scale application, Aquafin has to call on appointment of the project under the Optimisation Programme or the asset management programme.

Energy fund for energy-saving or producing investments

The energy fund is administered by the Flemish Region and offers Aquafin the possibility of investing in energy saving or production within the scope of the Management Agreement. Although these investments do not have a direct impact on the treatment of waste water, they do have an impact on the organisation’s energy profile.

At present, the energy fund is financed by two sources. Firstly, it is financed by recouping income tax deducted at source for R&D employees. Secondly, contributions to the fund arise from differences between the energy costs actually recorded and the final energy calculation in the performance budget. Such differences occur when actual energy consumption is lower than what was estimated based on the model approved by the Flemish Government. For 2019, this difference stood at 0.8 million euros.

In 2019, Aquafin invested the resources of the energy fund in connection to a heating grid, energy-efficient equipment such as replacement of mixers and blowers, modifications to controls, replacement of fluorescent lighting by LED lighting and facilitation of the injection of electrical energy from our CGPs into the national grid. By far the largest investment of the energy fund (almost 6 million euros) was in the installation of solar panels on the sites of several treatment plants. All investments of the resources of the energy fund combined in 2019 should lead to an annual energy saving/production of 11,616 MWh.

Key features of the company’s internal controls and risk management systems

The Audit Committee plays a key role in the operation of the internal control system and the financial reporting process. More details of the tasks and role of the Audit Committee can be found in this committee’s activity report under the ‘Corporate Governance Statement’.

The Management Committee is also aware of the importance of the good operation of the internal control system and risk management. Risk-related matters are a permanent item on the agenda and discussed at the weekly meetings. The internal auditor receives an overview of the risks discussed.

A range of control measures are implemented in all departments as part of risk management. These control measures comprise policies, procedures, specified signing authorities, segregation of duties, built-in early warning indicators, management reporting, actual/budget comparison and so on. There is also an integrity policy, including a procedure for reporting integrity violations. The necessary measures have also been taken to ensure information security.

New or amended legislation is noted and communicated. At the same time, the necessary steps are taken to comply with it. Processes and procedures are updated if necessary.

Since 2015 the company has held ISO 55001 certification for asset management. Inherent in this standard is management based on risks and opportunities. In this context, the risk matrix is an objective tool.

The company has also defined critical performance indicators, which are used as a measurement tool but also as a reporting system.

Auditing of the company

In 2017, Ernst & Young was appointed as statutory auditor by the General Meeting – based on nomination by the Board of Directors – for a period of three years, specifically for the 2017, 2018 and 2019 financial years.

The fees paid to the statutory auditor for the statutory audit of the financial statements of the company amount to 52,736 euros (excluding VAT) and are index-linked annually.

In 2018, the services of the statutory auditor were requested in connection with the audit of our EMIR reporting – required by the FSMA. A fee of 4,250 euros (excluding VAT) was paid for these services. A number of special tasks were also assigned to the statutory auditor or persons with whom he collaborates. The total fees for this amounted to 133,422 euros (excluding VAT).

Shareholder structure and cross-shareholdings

The Flemish Environmental Holding holds all the shares of Aquafin. There are no cross-shareholdings.

Branch offices

There are no branch offices.

TANGIBLE ASSETS

The cumulative investment per category is shown below at book value:

IN THOUSANDS OF EUROS

TANGIBLE ASSETS 2019 2018

Supra-municipal infrastructure 3,336,024 3,293,657

Water treatment infrastructure 2,681,298 2,630,102

Flemish Environment Agency assets purchased 286,658 301,688

Hydronaut studies 26,068 25,685

Investments in head office and operations 14,812 17,284

Projects not yet delivered, including land 327,188 318,899 Municipal infrastructure 20,335 20,725 3,356,359 3,314,381

As stipulated in the Management Agreement, Aquafin collects domestic waste water in Flanders in collectors and transports it to treatment plants. First of all, Aquafin developed the necessary supra-municipal infrastructure: collector sewers for waste water, pumping stations and waste water treatment plants. Secondly, Aquafin carries out the projects assigned by the Flemish Region under the Local Pact with the municipalities. These local pact projects follow the same procedures as the supra-municipal projects.

Water treatment infrastructure includes the aforementioned collector sewers for waste water, pumping stations and waste water treatment plants. This relates to all investment projects already delivered from the first delivery in 1992 to the end of the last financial year.

In 1994, under the Management Agreement, Aquafin acquired the right to use plants built in the period preceding Aquafin’s establishment and owned by the Flemish Environment Agency. In subsequent years, these plants were not only operated by Aquafin, but also extended and renovated. Since the management of the same assets by both Aquafin and the Flemish Environment Agency is inefficient, the Flemish Government decided – on Aquafin’s recommendation – to allow Aquafin to buy out the plants and associated land. These purchases took place from 2010 onwards and are recognised under tangible assets as Flemish Environment Agency assets purchased.

Hydronaut studies are studies that are carried out in order to ensure the correct design of the related supra-municipal investment project and are consequently capitalised. These studies are also carried out in relation to the management of existing infrastructure.

Investments in head office relate to investments in hardware, software, laboratory equipment, furniture, materials and equipment required for the functioning of the head office. Investments in Operations are similar investments not intended for a specific plant, but for operating activities as a whole.

Projects not yet delivered, including land comprises all costs incurred for supra-municipal projects in progress. This includes projects in the design phase, projects for which tendering has taken place or projects already awarded. The costs incurred are mostly recorded under accounting category 27 – assets under construction and advance payments – but also partly under accounting category 22 – land and buildings – for the land element. Assets under construction are not depreciated.

Projects not yet delivered in category 27 increased by 3% in 2019 to 312 million euros. This slight increase is the result of the further rise in contract prices and the commencement of energy investments. Several projects were also ready to be delivered in 2020. The prefinancing costs of work in progress up to delivery to the Flemish Region are accepted by the regulator as reasonable costs.

IN THOUSANDS OF EUROS

PROJECTS NOT YET DELIVERED

2019 2018

Projects not yet delivered in category 27 312,439 304,481

Supra-municipal and other projects 279,375 277,633

Energy fund 4,832 1,608

Asset Management 28,232 25,240

Projects not yet delivered in category 22 14,748 14,418 327,188 318,899

The increase in tangible assets is due to a net growth of investments in the water treatment infrastructure, carried out on the instructions of the Flemish Region. In 2019, 80 investment and optimisation projects with a total contract value of 137.6 million euros were delivered. Over 29.2 million euros’ worth of investments were also made within the Asset Management portfolio and 718 thousand euros’ worth of energy fund investments.

Under the contracts with the municipalities, Aquafin may assume responsibility for transport services. Under these contracts, Aquafin provides the necessary investment and the company offers the municipality or intermunicipal cooperative society the opportunity to transport waste water via these sewers for the duration of the contract (15 years). Investments made in this context are shown under municipal infrastructure

IN THOUSANDS OF EUROS

FINANCIAL FIXED ASSETS

FINANCIAL FIXED ASSETS

The financial fixed assets mainly consist of Aquafin’s majority stake in Aquaplus. The valuation in Aquafin’s books is adjusted annually based on Aquaplus’ equity.

2019 2018

Participating interest in Aquaplus 3,242 3,175

Other participating interests 78 78

Guarantees 1 1 3,321 3,254

STOCKS AND CONTRACTS IN PROGRESS

Towns, cities and municipalities can outsource sewerage tasks to Aquafin, which has developed a specific offer for this purpose. They can either enter into a concession arrangement directly with Aquafin or use Aquafin’s services indirectly via one of the partnerships which Aquafin has formed with water-link or De Watergroep.

Works in this context which have been started but not yet completed are included under contracts in progress

Due to the switch to completed contract, a municipal project is not taken into income until after delivery, so that the item contracts in progress has increased to 214 million euros.

Since the completed contract method will be used as from the 2018 financial year, contracts in progress are recognised at the cost of self-produced assets only.

AMOUNTS RECEIVABLE WITHIN ONE YEAR

The decrease in receivables from 35.2 million euros to 30.8 million euros is explained by the cessation of preparation of sales invoices to be drawn up following the adoption of completed contract.

IN THOUSANDS OF EUROS

Due to a backlog in invoicing resulting from IT problems, this amount was exceptionally high in 2018. The balance is also determined by the timing of invoicing to and payment by our customers.

CURRENT INVESTMENTS AND CASH

In view of the low interest rates, cash is mainly kept in the savings account.

DEFERRED CHARGES AND ACCRUED INCOME

Under the contracts with the municipalities, Aquafin assumes responsibility for transport services, for which a payment system can be designed at the request of the municipalities. The municipal projects item reflects the positive difference between depreciation on municipal projects and the repayment part of the underlying loans. This balances out charges and income in the interim.

The item purchases of Flemish Environment Agency assets with equity covers the composition of the receivable arising from assets acquired by Aquafin from the Flemish Environment Agency since 2010 (for more information, see under tangible assets). Aquafin finances these purchases partially with external funds and partially with equity.

STOCKS AND CONTRACTS IN PROGRESS 2019 2018

Riopact (partnership with De Watergroep) 66,614 57,798 Rio-link (partnership with water-link) 83,726 55,295

Direct contracts with municipalities 63,957 49,851 214,297 162,944

IN THOUSANDS OF EUROS

DEFERRED CHARGES AND ACCRUED INCOME 2019 2018

Municipal projects 1,841 1,760

Purchases of Flemish Environment Agency assets with equity 27,441 24,324

Accrued interest - management of interest rate risk 12,445 11,872

Refinancing costs to be transferred 1,179 4,009

Accrued revenue 625 35

Negative interest charges to be transferred -30 -250

Other costs to be transferred 71 120 43,572 41,870

Purchases using equity are not rebilled to the water companies, but will be billed all at once should the Management Agreement entered into on a rolling basis for 20 years come to an end. The resulting receivable is increased annually by 1/20th of the acquisition price of the assets and recorded under accrued income.

Aquafin uses interest rate hedging instruments to hedge the interest rate risk on certain loans, in line with the policy approved by the Board of Directors. In order to enable the results of the hedging to be measured, a benchmark is set for each hedging strategy. Where the interest charges for the benchmark are lower than the total of the interest charges for the underlying loan and the fixing of the associated hedging instruments, this difference is recorded as a financial charge. Since the interest rate is fixed six months before the payment date, so that the result of the hedging instrument is also known and recorded, pro-rata entry takes place at the time of arrangement under accrued interest - management of interest rate risk. The financial charges, which represent the difference between the interest charges for the loan and the benchmark and are recorded in the result as an interest correction for the management of the interest rate risk, are also recorded on a pro rata basis under deferred charges and accrued income.

The balance for refinancing costs to be transferred relates to the remaining negative market value of a hedging structure which Aquafin had to pay in 2013 following the counterparty’s decision not to convert a swaption into a swap. The cost of the negative market value is spread over the term of the swap provided, i.e. over the period of 2013-2020. Consequently, part of the deferred charges are transferred to financial charges on a monthly basis. As at 31 December 2019, the remaining negative market value, not yet included in the result, amounted to 1 million euros.

The Accrued revenue includes 479 thousand euros for the profit for 2019 under a partnership for municipal sewerage activities between Aquafin and De Watergroep.

The negative interest charges to be transferred relate to the interest applying to issues of commercial paper. Due to Aquafin’s good rating and the negative short-term interest rates, these issues are still placed at negative interest rates. As this is still debt with associated financing costs rather than an investment with associated financing revenues, these interest charges are deducted from the financing costs.

EQUITY

The issued capital is unchanged from the previous financial year and amounts to 248.4 million euros. The capital consists of 1,001,613 shares, which are unlisted, and is fully paid-up.

The reserves consist of the legal reserve and the available reserves.

The legal reserve is topped-up annually until it reaches a level equal to 10% of the capital. In accordance with Article 7:211 of the Companies Code, 5% of the after-tax profit is added to the reserve annually.

If the General Meeting accepts the proposed appropriation of profits for the 2019 financial year, the legal reserve will be increased by 611 thousand euros to 14,908 thousand euros. The available reserve will also be increased by 2,600 thousand euros to 13,500 thousand euros.

INVESTMENT GRANTS

In 1992, Aquafin received a notice from the Belgian Accounting Standards Board granting permission to interpret the investment grants item differently from the usual interpretation. This item reflects the difference between the repayment and depreciation periods for delivered supra-municipal projects. Since the rate of repayment for these projects does not always correspond exactly to the rate of depreciation, a mismatch arises between charges and related income.

To clarify:

• in accordance with Addenda 5 and 6 to the Management Agreement (2009), the repayment term for the construction engineering element of investment projects is 30 years, while the depreciation period remains at 33 years.

• the land acquired by Aquafin is not depreciated and is repaid immediately.

The difference between the repayment and depreciation periods is broken down as follows:

IN THOUSANDS OF EUROS

DIFFERENCE BETWEEN THE REPAYMENT AND DEPRECIATION PERIODS

2019 2018

Land 93,043 89,578

Construction engineering 638,252 652,359

Electromechanics 32,652 30,448

Easements 10,222 9,953

Flemish Environment Agency assets 37,432 31,871

Other 8,771 7,265 820,372 821,474

PROVISIONS FOR LIABILITIES AND CHARGES

The main changes in the provisions for liabilities and charges can be broken down into those for bridging pensions, legal disputes, sludge buffers and supra-municipal project costs.

IN THOUSANDS OF EUROS

PROVISIONS FOR LIABILITIES AND CHARGES

2019 2018

Bridging pensions 488 628

Legal disputes 668 522

Insurance claims 6 6

Severance payments 524 640

Supra-municipal project costs 2,700 2,280

Sludge buffers 110 252 4,496 4,328

Provisions for bridging pensions have decreased since fewer employees qualify for this scheme due to stricter government regulations.

As advised by the accounting standards, every year, provision is made for the processing costs of the sludge in the buffers. These are the provisions for sludge buffers. The processing of the sludge is a reasonable cost, offset by revenue with regard to the drinking water companies.

Provision is made for legal disputes based on a reasonable estimate of the claim where it is probable that Aquafin may lose the case. As at 31 December 2019, the provision for legal disputes amounted to 668 thousand euros for 81 disputes. In 2019, we recorded 29 new cases and 39 files could be closed.

The provision for supra-municipal project costs relates firstly to projects that have not yet been delivered due to administrative reasons and delayed/postponed execution of municipal projects (2,193 thousand euros) and secondly to the deduction of project costs recorded after delivery, known as subsequent costs (508 thousand euros). In 2019, there was an increase in relation to projects submitted because additional provision was made for six projects. Four projects for which provision was made in 2018 have been delivered. Funds of 375 thousand euros were also set aside with regard to subsequent costs in view of difficult economic conditions for consultants.

We also refer in this connection to the notes on main risks and uncertainties earlier in this annual report.

AMOUNTS PAYABLE AFTER MORE THAN ONE YEAR, INCLUDING THE CURRENT PORTION

An additional sum of 185 million euros was allocated in 2019 to finance our supra-municipal investment expenditure, whose repayment by the water companies is spread. The resulting ratio, in which the remaining claims against the water companies are set against financial debt under the allocation agreement, stands at 1.19 at the end of the current financial year.

At the request of the municipalities, a payment system can be designed with regard to our municipal activities. In 2019, new finance was taken out, over a period of 15 years, amounting to 1.8 million euros with quarterly repayments.

FINANCIAL DEBTS PAYABLE WITHIN ONE YEAR

The short-term financing was used primarily to fund work in progress before delivery. Within the commercial paper programme worth 500 million euros, of which 380 million euros are available for short-term finance, 208 million euros were taken up as at 31 December 2019.

IN THOUSANDS OF EUROS

AMOUNTS PAYABLE AFTER MORE THAN ONE YEAR

The rise in outstanding commercial paper is due to an increase in assets under construction for supra-municipal projects.

Under the existing credit lines worth 485 million euros – including the syndicated loan – as at 31 December 2019, a straight loan was in place to finance municipal work in progress.

During 2019, two municipal projects were delivered, for which long-term finance amounting to 1.8 million euros was taken up as of 30 December 2019. However, it was not possible to reduce the amount of short-term finance (straight loan) by this amount as of 31 December 2019 since the straight loan did not mature until 31 January 2020.

For the purpose of the management of the interest rate risk, fixing always takes place six months before the payment date. During this period, the balance of debts and receivables resulting from these fixings is recorded as a short-term financial debt.

2018 new loans repayments 2019

Bank borrowings - under allocation 1,730,344 185,000 -151,683 1,763,661

Bank borrowings - general purpose 226,242 -395 225,847

Long-term commercial paper 120,000 120,000 Purchase of building at Dijkstraat 8 - Aartselaar 6,242 -395 5,847

Other loans 100,000 100,000

Bank borrowings - municipal activities 22,450 1,811 2,138 22,124 1,979,036 186,811 -154,216 2,011,632

IN THOUSANDS OF EUROS

FINANCIAL DEBTS PAYABLE WITHIN ONE YEAR 2019 2018

Commercial paper 208,000 193,000

Credit lines 10,652 10,912

Fixings - management of interest rate risk 12,703 13,417 231,356 217,329

TRADE DEBTS

IN THOUSANDS OF EUROS

TRADE DEBTS 2019 2018

Supplier debts 33,140 41,854

Invoices to be received 30,895 38,312

Credit notes to be prepared - water companies current financial year 8,102 427

Other 4,337 2,926 76,474 83,519

The fall in supplier debts is the result of the decrease in operating costs and costs in relation to services and other goods, but is also determined by the timing of invoicing by and payment to our suppliers.

Estimates of goods and services already supplied but not yet billed are also included under this heading as invoices to be received. For investment projects, for example, almost 15 million euros’ worth of certificates of practical completion have already been received, but were not yet billed at year-end. A further 2.7 million euros in electricity costs have also been assigned to the financial year.

The item credit notes to be prepared - water companies reflects the difference between the budget estimates for operating costs – estimates on which our advance invoices to the water companies are based – and Aquafin’s final invoice, based on services actually performed. As part of the final settlement of accounts for the 2019 remuneration model and several other budgets (e.g. energy) settled at actual cost, Aquafin will send an additional credit note for 8.1 million euros to the water companies in 2020.

ADVANCES RECEIVED ON CONTRACTS IN PROGRESS

Rebilling for services provided by Aquafin for municipal customers which are not yet completed is included under the heading of advances received on contracts in progress and evolves along the same lines as contracts in progress.

TAXES, REMUNERATION AND SOCIAL SECURITY

Outstanding liabilities with respect to taxes relate to payable corporate tax, regional, provincial and municipal taxes and levies.

Since sufficient payments on account have been made, we expect a reduction in the amount of corporate tax payable for the 2019 financial year.

Taxes, remuneration and social security mainly relates to the provision for holiday allowance.

OTHER AMOUNTS PAYABLE

The dividends payable are recognised here.

If the General Meeting approves the proposed appropriation of profits, a gross dividend of 8,994 thousand euros will be paid to the Flemish Environmental Holding on 28 April 2020.

ACCRUED CHARGES AND DEFERRED INCOME

IN THOUSANDS OF EUROS

ACCRUED CHARGES AND DEFERRED INCOME 2019 2018

Accrued interest on loans 6,843 7,038

Accrued interest - management of interest rate risk 4,582 3,193

R&D revenue to be carried forward 0 1,976

Other accrued charges 129 104 11,554 12,311

Accrued interest on loans includes interest on both our short and long-term finance which is allocated to the relevant financial year on a pro rata basis at the time of arrangement. This amount has decreased further compared to the end of 2018 due to lower interest rates on new financing.

Transactions relating to the hedging of interest rate risks for the future period are also recorded under accrued charges and deferred income. Aquafin uses hedging instruments in particular to hedge the interest rate risk on certain loans. In order to enable the results of the hedging to be measured, a benchmark is set for each hedging strategy. If the interest charges for the benchmark are higher than the total of the interest charges for the underlying loan and the fixing of the associated hedging instruments, this difference is recorded in a revenue account. Since the interest rate is fixed six months before the payment date, so that the result of the hedging instrument is also known and recorded, pro-rata entry takes place at the time of arrangement under accrued interestmanagement of interest rate risk

In view of the recouping of the income tax deducted at source for research and development projects, an exemption has been requested for the 2018 financial year. These are no longer carried forward, but taken into income immediately.

Notes on the income statement

The Management Agreement with the Flemish Region stipulates that Aquafin’s remuneration is based on the rebilling of all reasonable costs, plus remuneration for the shareholder(s) based on the contribution to the company’s equity. This means that charges and income broadly mirror one another.

On 7 June 2013, the Flemish Government approved a new budget model, whereby Aquafin’s budget for operating costs for activities falling under the Management Agreement was made dependent on a series of packages, the assets and the pollution load treated. Therefore, as from the 2014 financial year, the Flemish Government no longer intended to remunerate Aquafin based on the rebilling of all reasonable costs as specified in the Management Agreement, but according to the services provided – as defined in the new budget model – known as the performance budget, where the result of the outcome of the formula is considered reasonable. This performance budget actually relates to head office overheads and operating costs of the operating assets.

Since the calibration of the performance budget is complete and the final formula was approved by the Flemish Government on 20 October 2017, the use of the performance based budget as a remuneration model from 2017 has been confirmed. The difference between the result according to the performance based budget formula on the one hand and the actual charges recorded for this financial year on the other has a positive impact of 3,300 thousand euros on the accounting result as at 31 December 2019.

IN THOUSANDS OF EUROS

TURNOVER

Aquafin realises the majority of its turnover from supramunicipal activities under the Management Agreement with the Flemish Region. Article 43 of the Management Agreement stipulates that Aquafin is entitled to remuneration from the Flemish Region. Within this remuneration, a distinction can be made between payments relating to construction activities and payments relating to services, which, in view of the constantly growing activities, evolve along the same lines. Payments for construction activities – investment costs – concern repayment for the sewage treatment infrastructure delivered. The repayment terms for this infrastructure take the expected life of the underlying assets into account. Remuneration for services mainly concerns the rebilling of operating expenses for head office and operations and interest charges, plus a payment for equity, as stipulated in the Management Agreement. This remuneration for equity – the equity remuneration – is designed, with due regard for the risks taken, to ensure a minimum acceptable return for the shareholders.

Turnover also includes the rebilling of charges made for the treatment of cross-regional waste water by the Brussels Region, via de Brussels Water Authority.

The turnover invoiced is spread between the various Flemish water companies, based on an allocation formula annually updated by Aquaflanders and approved by the Flemish Environment Agency.

TURNOVER 2019 2018

Supra-municipal activities 447,009 449,109

Rebilling - investment costs 166,993 162,806

Rebilling - operating costs 183,240 187,640

Rebilling - interest charges 70,606 72,251

Remuneration - equity 15,242 15,442

Contracts - Brussels Water Authority 10,928 10,970

Correction to invoicing of investment costs after depreciation 4,600 3,285 Municipal activities 59,638 54,733

Other 1,188 1,237 512,435 508,364

Due to a timing difference between the depreciation and rebilling of supra-municipal investments – as explained under the investment grants item – a correction is made to the result in order to bring the depreciation into line with the related turnover.

Services rendered by Aquafin to the towns, cities and municipalities not covered by the Management Agreement resulted in a turnover of almost 60 million euros and a profit of 1 million euros for 2019. As from the end of 2018, the result is calculated based on the completed contract accounting method.

CHANGE IN STOCKS OF FINISHED GOODS, WORK AND CONTRACTS IN PROGRESS

This item reflects the change in the item stocks and contracts in progress on the asset side of the balance sheet, current period versus previous period.

Under the completed contract accounting method, a project cannot be taken into income until it is completed.

IN THOUSANDS OF EUROS

STOCKS AND CONTRACTS IN PROGRESS

OTHER OPERATING INCOME

In 2019, an exemption was obtained from income tax deducted at source concerning research and development for the 2017 and 2018 financial years, totalling 3,948 thousand euros.

Moreover, this mainly relates to recovery of costs that cannot be treated as part of normal sales.

Examples of this include rebilling to third parties of costs of incidents, income from green power certificates, recovery of costs relating to research projects, etc.

RAW MATERIALS, CONSUMABLES AND GOODS FOR RESALE

The main items under this heading are broken down below.

Despite the growth of the infrastructure developed and operated by Aquafin at both municipal and supra-municipal level, costs under this item decreased by 3% compared with the previous financial year due to a sharp fall in electricity costs as a result of lower energy consumption and a fall in average unit prices.

Balance Sheet Impact on result 2019 2018 change

Capitalised personnel costs 25,241 16,060 9,181

Capitalised other costs 189,056 146,884 42,172 214,297 162,944 51,353

IN THOUSANDS OF EUROS

RAW MATERIALS, CONSUMABLES AND GOODS FOR RESALE

2019 2018 Electricity costs for operating activities 27,620 32,619 Costs of removal of sludge, sand and screenings 24,853 23,257

Operation by the Brussels Region 10,928 10,970

Mechanical, electrical and architectural maintenance 11,690 11,414

Chemicals for water and sludge treatment 10,589 9,647

Other 13,706 14,167 99,386 102,074

SERVICES AND OTHER GOODS

This item decreased by 5 million euros compared with the previous year and comprises costs relating to the maintenance of buildings, office and ICT costs, car fleet costs, fees, training costs, etc.

This heading also covers engineering company and construction engineering costs in the context of municipal activities.

The decrease is due to

• 1.8 million euros of capitalised costs as a result of the start of payment terms for a transport service contract with a municipality.

• exceptional one-off costs in 2018 in relation to a regularisation entry for Dijkstraat 8 (Head Office) in the sum of 1.5 million euros

• decrease in fees by 918 thousand euros compared with 2018 as a result of factors including external assistance with the exercise for the optimisation of property tax in 2018.

REMUNERATION, SOCIAL SECURITY COSTS AND PENSIONS

The increase in personnel costs is due to the growing workforce and is therefore in line with the growth of the infrastructure operated and developed by Aquafin, at both municipal and supra-municipal level. Due to the final phase of the tax shift, there was a slight increase in employer’s social insurance contributions.

IN THOUSANDS OF EUROS

REMUNERATION, SOCIAL SECURITY COSTS AND PENSIONS

DEPRECIATION AND OTHER AMOUNTS WRITTEN OFF FORMATION EXPENSES, INTANGIBLE AND TANGIBLE FIXED ASSETS

The constant growth in assets also explains the continuous increase in depreciation.

The net impact of the change in valuation rules approved by the Board of Directors amounts to 827 thousand euros extra depreciation charges in 2019, made up of 1.2 million euros of extra depreciation for the Dijkstraat 8 buildings as a result of the application of a higher rate of depreciation on the one hand and 408 thousand euros less depreciation for materials and equipment due to the application of a lower rate of depreciation on the other.

AMOUNTS WRITTEN DOWN STOCKS, CONTRACTS IN PROGRESS AND TRADE DEBTORS – PROVISIONS FOR LIABILITIES AND CHARGES

The table opposit shows the connection with changes to the related balance sheet accounts. The main changes have already been explained in the notes to the balance sheet items.

2019 2018

Salaries and direct social benefits 59,809 56,949

Employer’s social insurance contributions 16,080 15,314

Employer's premiums for non-statutory insurance 4,907 4,611

Other personnel costs 2,774 2,833 83,570 79,707

IN THOUSANDS OF EUROS

DEPRECIATION AND OTHER AMOUNTS WRITTEN OFF FORMATION EXPENSES, INTANGIBLE AND TANGIBLE FIXED ASSETS 2019 2018

Buildings 2,740 2,080

Plant, machinery & equipment 178,730 173,182

Furniture and vehicles 1,101 1,134

Other 96 111 182,667 176,507

IN THOUSANDS OF EUROS

AMOUNTS WRITTEN DOWN STOCKS, CONTRACTS IN PROGRESS

Balance Sheet Impact on result AND TRADE DEBTORS 2019 2018 change

Receivables - Management Agreement 301 513 -212

Receivables - municipal activities 8 9 -1

Receivables - industry 174 174 0 483 696 -213

PROVISIONS FOR LIABILITIES AND CHARGES 2019 2018 change

Bridging pensions 488 628 -140

Legal disputes 668 522 146 Insurance claims 6 6 0

Severance payments 524 640 -116

Sludge buffers 110 252 -142

Supra-municipal project costs 2,699 2,280 419 4,495 4,328 167

OTHER OPERATING CHARGES

This heading mainly covers indirect taxation and taxes at regional, provincial and municipal level.

In view of Aquafin’s activities, this mainly concerns property tax levied on plants.

FINANCIAL CHARGES AND INCOME

This heading covers charges on short and long-term financing and charges and income relating to active interest rate management.

• The current favourable short and long-term market interest rates are having a significant impact on debt charges.

• Aquafin aims to optimise financial charges by active management of the interest rate risk.

NON-RECURRING FINANCIAL INCOME

This comprises the recovery of part of the reduction in value recorded in the past for the participation in Aquaplus, following Aquaplus’ positive result in 2019.

INCOME TAXES

Income tax amounts to 6 million euros.

Proposal to the General Meeting

Taking into account the profit after taxes for the financial year of 12,203,832.72 euros, as well as profit brought forward of 6,913.15 euros, the profit available for appropriation amounts to 12,210,745.87 euros.

• transfer to the legal reserve: 611,000.00 euros

• transfer to the other reserve: 2,600,000.00 euros

• dividends: 8,994,484.74 euros

• profit carried forward: 5,261.13 euros

If the General Meeting approves the proposed appropriation of profits, a gross dividend of 8.98 euros per share will be paid to the Flemish Environmental Holding on 28 April 2020.

Extra information

Hedge accounting

In view of the level of Aquafin’s long-term debt, in 2006, the Board of Directors agreed to manage the interest rate risk actively. The framework stipulates that the interest rate risk associated with borrowings may be hedged as follows:

a) Long-term debt (initial maturity of more than 10 years)

• a maximum of 10% of the long-term debt may have an unlimited floating rate;

• a maximum of 35% of the long-term debt may be floating, but with interest costs being limited (via caps).

• a minimum of 65% of the long-term debt must have a fixed rate.

b) Medium-term debt (initial maturity of 1-10 years)

• A maximum of 50% may be hedged

c) Short-term debt

• not hedged

d) Budgeted long-term debt (maximum 5 years forward)

• 50% may be hedged

A hedging transaction is fully documented on arrangement and linked to a (budgeted) underlying loan.

IN THOUSANDS OF EUROS

The table below shows the distribution of the outstanding capital balance for long and medium-term loans based on the type of rate, hedged or otherwise.

Several hedging contracts were restructured during 2019. This led to a reduction in the amount of floating rate loans hedged with caps and floors and an increase in the amount of floating rate loans.

As at 31 December 2019, the market value of the instruments used to hedge the interest rate risk amounts to -336.2 million euros. This represents a decrease in the market value of 94.2 million euros compared with 31 December 2018. This is due to a sharp fall in long-term rates and negative shortterm rates.

Cash flow relating to interest rate hedging instruments has always been interpreted by Aquafin and the various government cabinets as part of the interest budget in accordance with the provisions of the Management Agreement. Aquafin had this formally confirmed by the Minister in early 2019 so as to be able to present an unequivocal interpretation to third parties. This provides additional certainty regarding the treatment of these cash flows in future.

DISTRIBUTION OF THE OUTSTANDING CAPITAL 2019 2018

Fixed rate 1,603,715 1,592,369

Floating rate (hedged with caps and floors) 290,417 342,500

Floating rate 117,500 44,167 2,011,632 1,979,036

Pension liabilities

There are two types of pension plans within the company.

Employees joining before 1 January 2007 have a defined benefit plan. Employees joining after 1 January 2007 have a defined contribution plan.

These survival and death plans are managed by AG Insurance nv. They are underwritten in the form of a group insurance scheme managed for each individual member.

Every employee with a temporary or permanent contract is signed up for the ‘survival’ and ‘death’ cover immediately upon joining the company.

For the current population of employees, the upper age limit of the plan is 65 years (the first day of the month following the 65th birthday). If a member remains in the employer’s service after the specified end date, this is postponed for successive periods of one year.

The employer has to pay all of the contributions.

No problem of underfunding arises for the group insurance. For both plans, the balance of the financing fund is considerably larger than the shortfall on the contract for active members and ‘sleepers’ (former employees who have left the amount of their supplementary pension in the plan).

Cash flows

The table below shows the cash flows for 2019 compared with 2018.

The cash flow table shows significant changes in operating activities. Revenue from customers rose sharply due to the increase in turnover combined with the timing of payment of customers. Compared with previous years, a lower amount of projects was put out to tender in 2018 and 2019.

IN THOUSANDS OF EUROS

CASH FLOW TABLE 31-12-2019 31-12-2018

OPERATING ACTIVITIES

Payments to suppliers -229,475 -230,833

Payments to employees -83,321 -79,122

Revenue from customers 582,485 557,950

Corporate tax paid -7,716 -4,507

Net operating cash flow 261,973 243,487

INVESTING ACTIVITIES

Investments -224,644 -246,523

Net investment cash flow -224,644 -246,523

FINANCING ACTIVITIES

Interest paid -126,997 -103,064

Interest revenue 56,391 30,813

New disbursements & repayment of debt 46,623 85,827

Revenue from capital increase

Dividends paid -8,744 -8,764

Other investment transactions (net) -2,456 1,480

Net financing cash flow -35,183 6,292

Net total cash flow 2,146 3,257

Short-term investments and cash at the start of the period 10,818 7,561

Short-term investments and cash at the end of the period 12,964 10,818

This has an impact on the cash out for investments, since the majority of expenses are generated by investment projects for tendered projects.

Where financing activities are concerned, we note an increase in outstanding financing. This is due to a rise in outstanding commercial paper of 14 million euros and long-term debt of 32.6 million euros.

This rise is the result of 186.8 million euros’ worth of new finance, disbursed over 2019, along with 154.2 million euros of repayments.

Non-financial

VACANCIES

Corporate Governance Statement

We innovate in all our activities and we anticipate new challenges.

In line with the provisions of the Belgian Corporate Governance Code of 9 December 2004, the first charter was approved by the Board of Directors on 26 January 2006. The corporate governance charter was reviewed in the light of general developments in the area of corporate governance and the Board of Directors approved a new charter on 6 February 2014. Following the appointment of a General Manager, the corporate governance charter was brought into line with this decision. The Board of Directors approved this new charter on 15 September 2016. The latest version – applying from 1 November 2016 –is available at www.aquafin.be. The latest composition of the Board of Directors can also be found on that website.

Board of Directors

COMPOSITION

A new Board of Directors was appointed during the General Meeting held on 16 April 2019. A further change subsequently took place to the Board. Kathleen Depoorter’s position fell vacant. In this situation, the Articles of Association (Art. 13) permit the remaining directors to fill the position temporarily. The next General Meeting will decide on the final appointment. Once the appointment is confirmed, this director completes the term of the person she replaces.

Nathalie Heremans was appointed according to this procedure during the meeting of the Board of Directors held on 17 October 2019.

The latest composition of the Board of Directors is as set out below.

In 2019, the Aquafin Board of Directors had ten nonexecutive directors who meet the criteria set out in the Companies Code. Eight directors also meet the independence criteria stated in Schedule A to the Belgian Corporate Governance Code. As such, the Board of Directors complies with Section 2.3 of the Corporate Governance Code, which states that at least three Board members must be independent.

The Board of Directors is assisted by its secretary, Mr Alain Vanden Bon.

Name Type of directorship/Independent/ (Non-)executive

End of term of office

Alain Bernard non-executive 2024

Marleen Evenepoel, as permanent representative non-executive 2024 of the Flemish Environmental Holding

Koen Helsen Independent, non-executive 2024

Renaat De Sutter Independent, non-executive 2024

Jef Wittouck Independent, non-executive 2024

Dirk Lybaert Independent, non-executive 2024

Jochen Bultinck Independent, non-executive 2024

Katrien Desomer Independent, non-executive 2024

Katrijn Faket Independent, non-executive 2024

Nathalie Heremans Independent, non-executive 2024*

* subject to approval at the next meeting of shareholders

REPORT OF ACTIVITIES AND ATTENDANCE

As well as exercising the powers defined in the charter, in the last financial year, the Board of Directors once again paid close attention to the subjects of safety and well-being.

During each meeting, the directors were informed of occupational accidents which had occurred in the period under review, among both employees and contractors. Substantial progress has been made, for instance by setting up a long-term safety programme with the ultimate goal of zero occupational accidents.

The various long-term, annual and permanent objectives were also reviewed in order to realise Aquafin’s vision within the context of the corporate values and the policy around corporate social responsibility.

The impact of the Flemish Coalition Agreement with the new coordinating role for Aquafin as asset manager with respect to the sewer operators and municipalities was discussed at length. The implementation of Aquafin’s longterm strategy for sludge treatment continues. Some time ago, the Board of Directors approved a strategy focussing on recovery of raw materials and energy, which is also in keeping with the company’s energy policy: reducing the CO2 footprint through annual energy saving, phasing out and eventually ceasing the use of fossil fuels and producing (more) green energy.

During 2019, the Board of Directors met six times. The meetings in January and March took place with the previous composition. All directors were present at these meetings.

The meetings in June and September took place with Kathleen Depoorter as director. The last two meetings went ahead with Nathalie Heremans as co-opted director. There were two meetings at which one director was absent and one meeting at which two directors were absent. There was one meeting at which all directors were present.

Due to the changes in the composition of the Board of Directors, the composition of the Audit Committee and the Appointments and Remuneration Committee has also altered.

Audit Committee

Following the change of director, the Board of Directors also deliberated on the composition of the Audit Committee and its chairman. In view of his experience with his employer and his status as independent director, Jochen Bultinck was appointed as chairman of this committee. Nathalie Heremans also joined this committee.

COMPOSITION SINCE 17 OCTOBER 2019:

Chairman Jochen Bultinck

Katrien Desomer

Katrijn Faket

Koen Helsen

Nathalie Heremans

REPORT OF ACTIVITIES AND ATTENDANCE

The main function of the Audit Committee is to assist the Board of Directors in the fulfilment of supervisory responsibilities concerning the financial reporting process, the internal control system and risk management, the internal and external audit process, the business process for monitoring compliance with laws and regulations. The Audit Committee is the main link between the Board of Directors, the internal auditor and the statutory auditor.

In 2019, the Audit Committee dealt with the usual matters: supervision of financial reporting, the accounts and budgets, follow-up of management of interest rate risk, monitoring of the effectiveness of the systems of internal controls and risk management, monitoring of internal audit activities, approval of the internal audit plan, discussion of the management letter of the statutory auditor and review of the nature and scope of the non-audit services provided by the statutory auditor.

After each meeting of the Audit Committee, the chairman of the committee gives a brief account of its findings and/or recommendations during the next meeting of the Board of Directors. The Audit Committee also reports on its activities to the Board of Directors annually.

The financial reporting was discussed in depth at all meetings. The annual and interim results were discussed at the March and September meetings respectively. At the March meeting, the Audit Committee also evaluated the Corporate Governance section of the annual report.

In the 2019 financial year, the Audit Committee also focussed in particular on the following points:

• the impact of the change of accounting method from percentage of completion to completed contract for municipal projects;

• points for attention raised by the statutory auditor regarding the monitoring of municipal activities and subsequent costs and, following on from this, the internal approach for organising the effective control and monitoring of project administration;

• the issue of delivery and the fact that deliveries are still proving tricky;

• the provision for rejected costs for projects submitted for delivery;

• the monitoring of the performance budget;

• the credit risk for Aquafin with regard to counterparties as a result of the management of interest rate risk.

Based on the internal controls components of COSO methodology, the committee evaluated the internal control system and risk management within the organisation.

The Audit Committee met three times in 2019. Four of the five directors took part in all meetings, one director was absent from one meeting. This represents average attendance of 93%.

RESPONSIBILITY OF THE AUDIT COMMITTEE FOR INDEPENDENCE AND COLLECTIVE EXPERTISE IN THE FIELD OF THE ACTIVITIES OF THE AUDITED COMPANY

All members of the Audit Committee are independent directors. In view of their qualifications, professional experience and/or experience with Aquafin, the members of the Audit Committee possess ample knowledge of the activities of the company audited by them.

Appointments and Remuneration Committee

COMPOSITION SINCE APRIL 2019:

Chairman

Flemish Environmental Holding, represented by Marleen Evenepoel

Renaat De Sutter

Dirk Lybaert Jef Wittouck

REPORT OF ACTIVITIES AND ATTENDANCE

During the meetings in the past financial year, the objectives of the Management Committee for 2018 were reviewed. The committee then decided on the objectives for 2019. Besides the overall remuneration for 2019, the remuneration of the Management Committee was also discussed.

The Appointments and Remuneration Committee advised on the acceptance of applications for new independent directors. As at 1 January 2018, Aquafin’s organisational model was radically overhauled. Since then, the various managerial members and departments have been subjected to a growth analysis, generally with external assistance. The completed growth analyses led to additional organisational adjustments and management changes below senior management level.

The Appointments and Remuneration Committee met five times during the past financial year. Three meetings took place under the previous composition. All directors were present at each of these meetings.

Management Committee

COMPOSITION

The composition of the Management Committee remained unchanged in 2019:

General Manager Jan Goossens

Asset Management Bart Van Eygen

Finance & Procurement

Project Management

Johan Maes

Dirk De Waele

Business Development & Innovation Danny Baeten Operations Hans Bruynooghe

HR & Organisational Development Sabine Schellens

The Management Committee meets on a weekly basis. As part of his training for the role of Finance & Procurement director, Glenn Van Olmen, Finance & Procurement manager, attends the meetings.

The Management Committee also meets once a quarter to review progress towards the objectives contained in the Strategic Aquafin Management Plan.

Key elements of the evaluation process of the Board of Directors, the committees and the individual directors

The members of the Board of Directors regularly evaluate the size, composition and functioning of this body. The current composition is evaluated in terms of the desired composition. The relationship and interaction with the Management Committee are also reviewed. In this respect, the directors were provided with an analysis of the Appointments and Remuneration Committee.

The following elements are discussed during the evaluation process for the Audit Committee: internal regulations, composition and appointments, meetings, training of members and resources available for this, the integrity reporting procedure and relations with the Board of Directors. The Audit Committee evaluates its effectiveness and efficiency once every two years. An evaluation is also made of the responsibilities with respect to the company’s financial reporting, internal controls and risk management systems and both internal and external audits.

The Appointments and Remuneration Committee evaluates its own effectiveness and efficiency once every two years. For the purpose of this self-evaluation, an individual questionnaire is sent to each member of the committee. The results are discussed at a meeting of the committee and submitted to the Board of Directors. An analysis is also carried out of the interaction between the Management Committee and the Board of Directors. Finally, the committee issues an opinion on the performance of the individual directors, with a view to their possible reappointment, focussing in particular on the evaluations of the various chairmen.

Remuneration Report

NON-EXECUTIVE DIRECTORS

Aquafin applies the following remuneration model for directors:

Remuneration from Remuneration from 01/01/2019 to 16/04/2019 16/04/2019 to 31/12/2019

Total remuneration 2019

Jochen Bultinck (C) 5,200 5,200

Katrien Desomer 5,140 5,140

Renaat De Sutter 5,140 5,140

Katrijn Faket 5,140 5,140

Koen Helsen 2,320 4,820 7,140

Alain Bernard (C) 2,960 9,640 12,600

Dirk Lybaert 5,140 5,140

Jef Wittouck 5,140 5,140

Marleen Evenepoel (C) 3,140 5,260 8,400

Nathalie Heremans 2,818 2,818

Kathleen Depoorter (C) 2,380 3,158 5,538

Francine Swiggers 2,320 2,320

Ludo Suy 2,960 2,960

Jean Vandecasteele 2,320 2,320

Marijke Mahieu 2,320 2,320

VOF Luga Consult 2,960 2,960

VOF Materie (C) 5,280 5,280

Total 28,960 56,596 85,556

On the one hand, there is an annual flat fee for attending meetings of the Board of Directors. This flat fee stands at 6,500 euros for directors and 13,000 euros for the chairman. Payment of the fee is conditional on attending at least two thirds of the total number of meetings, barring force majeure. In addition, a fee is paid per meeting of the Audit Committee and the Appointments and Remuneration Committee amounting to 380 euros for the chairmen and 320 euros for the members of these committees.

MANAGEMENT COMMITTEE

The total gross remuneration paid for 2019 to the members of the Management Committee amounts to:

• basic salary: 1,174,828.39 euros

• variable part: 206,844 euros

• pension entitlements: 199,308.06 euros

• other remuneration components: 168,992.69 euros

The variable remuneration for the 2019 financial year will be paid in 2020 in the form of warrants.

GENERAL

Based on the advice of the Appointments and Remuneration Committee, the Board of Directors determines the remuneration policy for the executive management team. The aim of this policy is to attract, retain and motivate knowledgeable people. The amount of the remuneration takes into account the individual tasks and responsibilities of the members of the Management Committee.

The performance of the Management Committee is evaluated once a year in the presence of the General Manager. The appraisal of the General Manager takes place in his absence. The Appointments and Remuneration Committee closely monitors the entire procedure, which is also approved by the Board of Directors. Individual and collective objectives are set each year, based on the regulations. A certain weighting is assigned to each objective within the evaluation in advance. For 2019, the elements of the evaluation related to organisational, budgetary, economic and environmental aspects and/or results, among other factors. The overall performance of each member of the Managing Committee is also evaluated, in addition to the evaluation based on the objectives set. The period during which this performance is evaluated extends from 1 January 2019 to 31 December 2019 inclusive.

REMUNERATION FOR MAYORS’ ADVISORY BODY

As part of its municipal activities, Aquafin has set up an advisory body for mayors. This group meets several times a year to exchange views about a variety of water-related subjects or Aquafin puts a range of questions to this group. The mayors sitting on this advisory body receive a gross remuneration of 250 euros for every meeting they actually attend. A total of 2,000 euros was paid for this in 2019. Here is an overview of the meetings:

Date Location

20/06/2019 De Kruitfabriek, Vilvoorde

Notes on deviations from the Code

Aquafin applies the provisions contained in the “Belgian Corporate Governance Code” for listed companies. Deviations are made from the Code in certain instances, due to the specific nature of the company’s share ownership. Further details of the provisions of the Code with which the company does not comply are given below.

SECTION 8.8: CONVENING OF/SUBMISSION OF MOTIONS FOR GENERAL MEETINGS

The company’s Articles of Association stipulate the statutory threshold of 20% for convening a General Meeting. In view of the specific shareholdership characteristics of the company, there is no reason to lower the threshold for submitting motions for the General Meeting at this point.

Insider dealing and market abuse

As Directive 2003/6/EC on insider dealing and market manipulation applies to the company since the debenture loan was issued, measures were taken in the charter to comply with the provisions of this directive. The role of the Compliance Officer concerning compliance with relevant provisions and the necessary provision of information is defined. If necessary, the Board of Directors will draw up a dealing code.

Alain Vanden Bon, Secretary to the Board of Directors, has been appointed as the Compliance Officer.

06/09/2019 Overijse

Matters discussed

Presentation on Aquafin Decentralised treatment

Compact forms of housing Demo installation on site

Climate and water management for tomorrow Blue/green networks Case of Southern flank Overijse

AQUAFIN NV

Colophon

Publisher : Jan Goossens, Dijkstraat 8 - 2630 Aartselaar Graphic design: altera Photography : Misjel Decleer, Frederik Beyens, Frank Resseler, Shutterstock and Aquafin NV

The 2019 annual report is also available in Dutch. Additional paper copies can be ordered via info@aquafin.be

Aquafin NV, Dijkstraat 8, B-2630 Aartselaar tel. 03 450 45 11 l whatsapp 0474 56 39 12 e-mail: info@aquafin.be l www.aquafin.be

To develop reliable waste water and stormwater management, tailored to our customers’ requirements, with respect for those around us and the environment.