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. 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.

IN THOUSANDS OF EUROS

TURNOVER

Supra-municipal activities Rebilling - investment costs Rebilling - operating costs Rebilling - interest charges Remuneration - equity Contracts - Brussels Water Authority Correction to invoicing of investment costs after depreciation Municipal activities Other

2019 2018

447,009 449,109 166,993 162,806 183,240 187,640 70,606 72,251 15,242 15,442 10,928 10,970 4,600 3,285 59,638 54,733 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

Capitalised personnel costs Capitalised other costs

IN THOUSANDS OF EUROS

RAW MATERIALS, CONSUMABLES AND GOODS FOR RESALE

Electricity costs for operating activities Costs of removal of sludge, sand and screenings Operation by the Brussels Region Mechanical, electrical and architectural maintenance Chemicals for water and sludge treatment Other 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

25,241 16,060

9,181 189,056 146,884 42,172 214,297 162,944 51,353

2019 2018

27,620 32,619 24,853 23,257 10,928 10,970 11,690 11,414 10,589 9,647 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. 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.

IN THOUSANDS OF EUROS

REMUNERATION, SOCIAL SECURITY COSTS AND PENSIONS

Salaries and direct social benefits Employer’s social insurance contributions Employer's premiums for non-statutory insurance Other personnel costs

IN THOUSANDS OF EUROS

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

Buildings Plant, machinery & equipment Furniture and vehicles Other

2019 2018

59,809 56,949 16,080 15,314 4,907 4,611 2,774 2,833 83,570 79,707

2019 2018

2,740

2,080 178,730 173,182 1,101 1,134 96 111 182,667 176,507