40 minute read
Financial report
from Annual report 2021
by Aquafin
General information
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 oppervlaktewateren 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 departments. The Financial Regulator provides advice on investment expenditure and budgets. The Ecological Regulator audits Aquafin’s operating results and checks these results against the applicable treatment standards.
FINANCE AND INVOICING
On the one hand, the Flemish Region funds projects for implementation by Aquafin under the Optimisation Programme. Following delivery by 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 10, 15 (electromechanics) or 30 years (construction engineering). On the other hand, Aquafin draws up the asset management programme itself, based on LCP analyses (lifecycle plans). 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 operating budget for Aquafin, based on what is known as the performance budget formula. This gives Aquafin the freedom to focus on the areas it considers important and to allocate the performance budget internally according to these areas.
A cumulative annual 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 and has amounted to 1.5% every year since implementation.
The Flemish Region is a co-debtor in the invoice flow between Aquafin and the water companies. 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. As Aquafin’s investment expenditure is repaid spread over a period of time, the company has to raise financing for this. Long-term financing for a project is only possible once it has been delivered to the Flemish Region, because only then is the company sure of repayment spread over time. These long-term investments therefore involve no construction risk for the financiers. Aquafin covers funding during the projects’ construction phase 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 entered into between the company and the Flemish Region. This is a 20-year rolling agreement which specifies that, besides developing, managing and operating the treatment infrastructure, 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 financiers 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 after each disbursement of financing under the agreement and confirms this to Belfius Bank. In turn, this bank communicates this allocation ratio to the financiers. It is also important for them 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 financier first signs an agency agreement with Aquafin and Belfius Bank.
Report of the Board of Directors
BALANCE SHEET AND INCOME STATEMENT
BALANCE SHEET (IN THOUSANDS OF EUROS)
ASSETS
FIXED ASSETS Tangible assets Land and buildings Plant, machinery and equipment Furniture and vehicles Other tangible assets Assets under construction and advance payments Financial fixed assets Affiliated enterprises Participating interests Other financial fixed assets Shares Amounts receivable and cash guarantees
CURRENT ASSETS Stocks and contracts in progress Contracts in progress Amounts receivable within one year Trade debtors Other amounts receivable Short-term investments
Cash Other investments
Deferred charges and accrued income
TOTAL ASSETS
Codes
20/28 22/27 22 23 24 26 27 28 280/1 280 284/8 284 285/8
29/58 3 37 40/41 40 41 50/53 51/53 54/58 490/1
20/58
31-12-2021 31-12-2020
3,434,319 3,430,752 237,645 2,860,090 859 22 332,135 3,567 3,482 3,482 85 81 3
281,764 167,356 167,356 50,656 42,093 8,563 1 1 14,514 49,237
3,716,083 3,419,229 3,415,776 236,825 2,848,107 977 89 329,777 3,454 3,370 3,370 84 81 2
267,556 185,311 185,311 23,367 15,653 7,715 122 122 13,252 45,503
3,686,786
BALANCE SHEET (IN THOUSANDS OF EUROS)
LIABILITIES
EQUITY Capital
Issued capital Revaluation surplus Reserves Legal reserve Available reserve Profit carried forward Investment grants
PROVISIONS AND DEFERRED TAXES Provisions for liabilities and charges Pensions and similar obligations Other liabilities and charges
AMOUNTS PAYABLE Amounts payable after more than one year Financial debts Credit institutions Other amounts payable Amounts payable within one year Current portion of amounts payable after more than one year Financial debts Credit institutions Trade debts Suppliers Advances received on contracts in progress Taxes, remuneration and social security Taxes Remuneration and social security Other amounts payable Accrued charges and deferred income
TOTAL LIABILITIES
Codes
10/15 10 100 12 13 130 133 14 15
16 160/5 160 163/5
17/49 17 170/4 173 178/9 42/48 42 43 430/8 44 440/4 46 45 450/3 454/9 47/48 492/3
10/49
31-12-2021 31-12-2020
1,137,553 298,400 298,400 1,780 29,347 15,847 13,500 4,079 803,948
5,906 5,906 272 5,635
2,572,623 2,047,997 2,047,736 2,047,736 261 502,908 159,968 85,815 85,815 73,866 73,866 162,608 16,144 5,112 11,032 4,507 21,718
3,716,083 1,142,751 298,400 298,400 0 29,014 15,514 13,500 2,263 813,073
5,673 5,673 489 5,184
2,538,362 1,915,096 1,914,871 1,914,871 225 615,000 118,761 214,718 214,718 79,950 79,950 177,681 14,655 4,630 10,025 9,234 8,266
3,686,786
INCOME STATEMENT (IN THOUSANDS OF EUROS)
Codes
Operating income Turnover 70/74 70
Increase or decrease in stocks of finished goods, work and contracts in progress Other operating income Operating charges Raw materials, consumables and goods for resale Purchases
71 74 60/64 60 600/8
Services and other goods Remuneration, social security costs and pensions 61 62
Depreciation and other amounts written off formation expenses, intangible and tangible fixed assets 630
Amounts written down stocks, contracts in progress and trade debtors appropriations (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 financial fixed assets 750
Income from current assets Other financial income Financial charges Debt charges Other financial charges Profit on ordinary activities before taxes Extraordinary income Non-recurring financial income Profit for the period before tax Income taxes Taxes Profit for the period
751 752/9 65 650 652/9 9902 76 76 9903 67/77 670/3 9904
PROFIT FOR THE PERIOD AVAILABLE FOR APPROPRIATION 9905
31-12-2021 31-12-2020
583,273 594,814 566,087 584,892
-17,955 6,414 512,764 115,727 115,727 104,331 89,963
193,708
107 233 8,695 70,509 36,638 33 36,602 3 96,987 58,891 38,095 10,160 112 112 10,272 3,617 3,617 6,655
6,655 -28,986 10,181 482,621 100,659 100,659 101,703 86,063
188,022
-34 1,178 5,030 83,467 33,901 0 33,871 30 100,107 64,933 35,174 17,260 128 128 17,389 5,290 5,290 12,099
12,099
STATUTORY AUDITOR’S REPORT
Statutory auditor’s report to the general meeting of Aquafin NV for the year ended 31 December 2021 The Financial Statements can be found via the Central Balance Sheet Office of the National Bank of Belgium.
Main risks and uncertainties
DELIVERIES
In 2021, Aquafin delivered 77 supra-municipal investment projects with a total contract value of 138.5 million euros and a total project value of 165.2 million euros. For return-related reasons, the delivery of several projects (11.7 million euros) was postponed. The return on the projects is too small as yet because of a delay in the connection of (municipal) projects. However, the supra-municipal projects are complete and ready. Aquafin is following the schedule for municipal investment projects and has made provision for these projects where necessary.
Main events during the financial year
IMPACT OF COVID-19 ON OPERATING RESULTS
In 2020, there was a slight impact on operating results due to the temporary shutdown of sites. These were restarted relatively quickly and cooperation with partners continued in 2021. This had no material impact on operating results in 2021.
SIGNING OF SECOND TRANCHE OF ELEVENTH EIB LOAN
In 2019, Aquafin and European Investment Bank (EIB) signed an eleventh loan agreement representing a framework agreement worth a total of 200 million euros. After signing a first tranche of 100 million euros in 2019, the two parties also signed the second loan of 100 million euros in March 2021.
RENEWAL OF LOCAL PACT
Towns, cities and municipalities can claim subsidies from the Flemish government for the (re)laying of their sewer systems. Since 2008, the Flemish Region has taken over additional investments from local authorities via the Local Pact. Under this arrangement, by the end of 2021, the Region had invested 1.3 billion euros via Aquafin in sewerage projects required for the EU Water Framework Directive.
At the end of December 2021, the Flemish Government decided to renew the Local Pact for a further five-year period with an investment mandate of 700 million euros.
FLEMISH SUPPORT FOR DIGITALISATION
The Vlaamse Veerkracht (Flemish Resilience) recovery plan was launched in 2020 to strengthen Flemish prosperity and the well-being of the Flemish people. Good water quality and quantity are crucial ecological and social factors that have an impact on Flanders’ resilience. In view of this, the Flemish Government is making 11 million euros available to Aquafin under the recovery plan for the conversion of waste water and stormwater infrastructure into a smart grid with real-time measurements, high-quality open data and connection of assets. A further 9 million euros are released under the recovery plan for the development of forward-looking Asset Management for Flanders. These funds will be used for the development of a digital platform which is essential for the implementation of the investment and maintenance strategy for the assets.
LONG-TERM RATING FOLLOWS FLEMISH REGION ASSESSMENT
In 2021, rating agency Moody’s downgraded Flanders’ credit rating from a score of Aa2 – negative outlook to a score Aa3 – stable outlook. The downgrading of the region was the result of a higher debt ratio during the coronavirus crisis. The downgrade also had an impact on the assessment of Aquafin, which tracks the rating of the Flemish Region in view of the strong connections. The short-term rating remains at P-1.
NEW CORPORATE GOVERNANCE STATEMENT
The new Belgian Companies and Associations Code which came into effect in 2020 contains a number of important changes for companies. It offers the possibility to opt for a single or two-tier governance model. Aquafin has amended its articles of association in accordance with the new code and opted for single-tier governance. Accordingly, the management team is responsible for the day-to-day management of the company.
The 2009 Corporate Governance Code was also revised. The 2020 Code is in line with the new Companies and Associations Code and places the primary emphasis on value creation. As a result, Aquafin adapted its Corporate Governance Charter, which was approved by the Board of Directors on 22 January 2021.
Main events after the financial year
EN ROUTE TO A NEW COOPERATION AGREEMENT BETWEEN THE FLEMISH REGION AND AQUAFIN
On 11 February 2022, the Flemish Government approved the draft decree updating Aquafin’s tasks in principle. This decision marks a milestone en route to a new cooperation agreement. The current Management Agreement between Aquafin and the Flemish Region dates from the ‘90s and is not adapted to the issues arising from the coalition agreement. A new cooperation agreement is being written in consultation with Aquafin.
The main principles of this new cooperation agreement, also enshrined in the decree, are:
• Retention of the strong points of the existing Management Agreement: • Continuity in how Aquafin is remunerated and obtains funding. • Retention of the rolling term. • Aquafin determines the investment programme autonomously within the boundaries set by the Government. • The strong administrative follow-up of projects is to be phased out and replaced by result-oriented goals based on key performance indicators. • A self-monitoring system is to be set up whereby the Flemish Environment Agency oversees correct operation.
The allocation agreement dating from 1994 will also be updated to reflect the adaptation of the cooperation agreement and the current reality. The established procedures regarding investors will be followed prior to this.
Auditing of the company
In 2020, 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 2020, 2021 and 2022 financial years.
The fees paid to the statutory auditor for the statutory audit of the financial statements of the company amount to 47,000 euros (excluding VAT, excluding the usual charges) and are index-linked annually.
In 2021, the services of the statutory auditor were requested in connection with the audit of our EMIR reporting – required by the FSMA. A fee of 3,500 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 104,000 euros (excluding VAT).
Branch offices
There are no branch offices.
Shareholder structure and cross-shareholdings
Participatiemaatschappij Vlaanderen (PMV) holds all the Aquafin shares. There are no cross-shareholdings.
Notes to the balance sheet
TANGIBLE ASSETS
The cumulative investment per category is shown below at book value:
IN THOUSANDS OF EUROS
TANGIBLE ASSETS
Supra-municipal infrastructure Water treatment infrastructure Flemish Environment Agency assets purchased Hydronaut studies Investments in head office and operations Projects not yet delivered, including land Municipal infrastructure
As stipulated in the Management Agreement, Aquafin collects domestic waste water in Flanders in collectors and transports it to treatment plants. Firstly, Aquafin develops 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.
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. 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. Aquafin delivered 195.9 million euros’ worth of new projects in 2021. This year, 167 million euros’ worth of depreciation was also recorded and 2.7 million euros were invested in land.
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. In 2021, €15 million in depreciation was recorded on Flemish Environment Agency assets. In addition, part of the sites of Beersel and Antwerpen-Zuid WWTPs was sold, further reducing the fixed assets to €0.9 million.
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. In 2021, €3,372k were invested on the one hand and €3,339k depreciated, on the other.
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.
2021 2020
3,412,131 3,394,675 2,770,721 2,739,103 255,705 26,348 18,392 340,965 271,652 26,315 15,105 342,500 18,621 21,101 3,430,752 3,415,776
In connection with the redevelopment of the Campus, the depreciation of the residual value of the Dijkstraat 10 and Ingberthoeveweg buildings was accelerated. For Dijkstraat 8, the reusable part was estimated and the difference between the residual book value and the estimated residual value written off. In 2021, this led to an extra €0.7 being depreciated in addition to the normal amount of €0.4 million. The residual value of Dijkstraat 8 was estimated at €2.3 million and was transferred to assets under construction until full delivery of the new building in 2022. The Dijkstraat 10 and Ingberthoeveweg buildings were removed from the fixed assets for the sum of €9.7 million. The land in Dijkstraat and Ingberthoeveweg was revalued, resulting in a revaluation surplus of 1.8 million euros. At the end of 2021, assets under construction for the Campus amounted to 4.3 million euros.
In 2021, a further 1.5 million euros were invested in hardware and software, 2.7 million euros in materials and equipment and 0.2 million euros in fitting out and renovating existing buildings. €0.7 million worth of furniture from Dijkstraat was disposed of and removed from the fixed assets. This had no financial impact as it was fully depreciated. A further 3.8 million in depreciation was recorded.
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 decreased slightly by 0,6% in 2021 to 328 million euros. There was a structural increase of 15.16% in the asset management budget, in line with the obsolescence of assets. There was a decrease of 3.6% in calls for tenders for development projects. This was due to frequent requests from contractors in 2021, following approval, not to start work or to start later as a result of Covid-19. This reduces the number of works in progress and thus also the number of purchase invoices. In 2021, 1.9 million worth of energy fund projects were delivered and 4.9 million euros’ worth of new purchases were processed.
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. The decrease in 2021 is due to 2.5 million euros of depreciation recorded on municipal infrastructure.
IN THOUSANDS OF EUROS
PROJECTS NOT YET DELIVERED
Projects not yet delivered in category 27
Development and other projects
Asset Management
Energy fund Projects not yet delivered in category 22
2021 2020
327,822 329,767
282,677 40,558 4,587 13,143
292,954 35,220 1,593 12,733 340,965 342,500
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. The shares held by Aquafin in Synductis and Riopact are included in Other participating interests.
STOCKS AND CONTRACTS IN PROGRESS
Apart from the tasks under the Management Agreement, which make up 90% of our activities, 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.
In 2020, the internal procedures for recognition on the income statement were revised so that a relatively larger proportion of projects were delivered. In 2021, we saw this trend continue, leading to a further decrease in contracts in progress.
In 2021, 122 projects were delivered, so that the contracts in progress item decreased to 167 million euros. Since the completed contract valuation method has been used since the 2018 financial year, contracts in progress are recognised at the cost of self-produced assets only.
AMOUNTS RECEIVABLE WITHIN ONE YEAR
Amounts receivable within one year comprise trade debtors and other receivables.
The balance for Trade debtors is determined by the timing of invoicing of our customers and the time of payment by our customers. As at the end of 2021, trade receivables increased from 15.6 million euros to 42 million euros, including 15 million euros in outstanding receivables and 11.2 million for invoices to be issued. Of this, 10.7 million euros relate to the final settlement of accounts for the 2021 remuneration model and a number of other budgets (e.g. financing costs) settled at actual cost with the drinking water companies. High energy costs in particular mean that Aquafin will send an additional invoice for 2021.
Other amounts receivable comprises recoverable VAT, recoverable taxes and reclassification of social debt. These increased slightly from 7.7 million euros to 8.5 million euros.
IN THOUSANDS OF EUROS
FINANCIAL FIXED ASSETS
Participating interest in Aquaplus Other participating interests Guarantees
IN THOUSANDS OF EUROS
STOCKS AND CONTRACTS IN PROGRESS
Riopact (partnership with De Watergroep) Rio-link (partnership with water-link) Direct contracts with municipalities
2021
3,482 82 3 3,567
2020
3,370 82 2 3,454
2021 2020
53,720 69,157 66,317 76,146
44,479
42,848 167,356 185,311
SHORT-TERM INVESTMENTS AND CASH
In view of the low interest rates, cash is mainly kept in the savings account. The amount of cash is kept as low as possible to avoid incurring negative interest.
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 invoiced to the municipalities. This balances out charges and income in the interim.
The item purchases of Flemish Environment Agency assets with equity covers the component 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. Purchases using equity are not invoiced to the water companies, but will be invoiced 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 approvead 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 deviation from the benchmark 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.
IN THOUSANDS OF EUROS
DEFERRED CHARGES AND ACCRUED INCOME
Municipal projects Purchases of Flemish Environment Agency assets with equity Accrued interest - management of interest rate risk Accrued revenue Negative interest charges to be transferred Other costs to be transferred Accrued revenue includes the 2021 profit under a partnership for municipal sewerage activities between Aquafin and De Watergroep.
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 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.
Costs to be transferred are costs incurred by Aquafin in 2021 but relating wholly or in part to 2022. These mainly relate to maintenance contracts, licence fees or prepaid rent or interest.
2021
1,643 33,677 10,758 808 101 2,250 49,237
2020
1,710 30,559 10,795 711 -360 2,088 45,503
EQUITY
Aquafin’s capital currently stands at 298 million euros. The capital consists of 1,001,613 shares, which are unlisted, and is fully paid-up.
Following the revaluation of Dijkstraat and Ingberthoeveweg, a revaluation surplus of 1.8 million euros was recorded (see also Tangible assets).
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 2021 financial year, the legal reserve will be increased by 333 thousand euros to 15,847 thousand euros and the remaining profit of 1.8 million euros added to profit carried forward.
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.
The land acquired by Aquafin is not depreciated and is repaid immediately.
We note that all items have increased apart from construction engineering and electromechanics. Up to 2008, construction engineering was invoiced over 15 years and depreciated at 33 years. As of 2009, the construction engineering category is invoiced over 30 years and the repayment term for the outstanding amounts adjusted, halving the annual invoice amount. This means that in time more and more projects will be invoiced in full and only depreciated so that the amount reduces.
The difference between the repayment and depreciation periods is broken down as follows:
IN THOUSANDS OF EUROS
DIFFERENCE BETWEEN REPAYMENT AND DEPRECIATION PERIODS
Land Construction engineering Electromechanics Easements Flemish Environment Agency assets Other
2021
99,337 599,723 32,739 10,630 48,571 12,948 803,948
2020
96,652 618,773 33,346 10,444 43,002 10,856 813,073
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 those relating to supra-municipal project costs.
Provision for bridging pensions has decreased by 217 thousand euros. This is partly because fewer employees qualify for this scheme due to stricter government regulations, and partly because the gap between SWT (bridging pension) and actual pension narrows each year for those who remain eligible for this.
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 2021, the provision for legal disputes amounted to 232 thousand euros for 81 disputes. In 2021, we recorded 24 new cases and 29 files could be closed.
The provision for supra-municipal project costs (4,725 thousand euros) relates firstly to risks for works in progress and projects that cannot be delivered due to delayed/postponed execution of municipal projects because they would generate an insufficient return as yet (4,166 thousand euros). Secondly, provisions are made in relation to the deduction of project costs recorded after delivery, known as subsequent costs (559 thousand euros).
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.
AMOUNTS PAYABLE AFTER MORE THAN ONE YEAR, INCLUDING THE CURRENT PORTION
An additional sum of 195 million euros was allocated in 2021 to finance our supra-municipal investment expenditure, whose repayment by the water companies is spread. The resulting allocation ratio, in which the remaining claims against the water companies are set against financial debt under the allocation agreement, stands at 1.21 (must always be greater than one) at the end of the current financial year.
For our day-to-day business operations, Aquafin relies firstly on medium-term finance so as to limit interest rate movements, and secondly on short-term loans so as to be able to respond to fluctuations in work in progress for investment projects. The amount of these general purpose borrowings rose by nearly 100 million euros following the taking out of a bilateral loan for 100 million euros. This is set against the phasing-out of short-term debt paper (see Financial debts payable within one year).
At the request of the municipalities, a payment system can be designed with regard to our municipal activities. No new long-term finance was taken up in this respect in 2021.
IN THOUSANDS OF EUROS
PROVISIONS FOR LIABILITIES AND CHARGES
Bridging pensions Legal disputes Insurance claims Severance payments Supra-municipal project costs Sludge buffers
2021
272 232 0 567 4,725 110 5,906
2020
489 363 6 346 4,359 110 5,673
IN THOUSANDS OF EUROS
AMOUNTS PAYABLE AFTER MORE THAN ONE YEAR
Bank borrowings – under allocation Bank borrowings - general purpose Long-term commercial paper Purchase of building at Dijkstraat 8 - Aartselaar Other loans Bank borrowings - municipal activities
IN THOUSANDS OF EUROS
FINANCIAL DEBTS PAYABLE WITHIN ONE YEAR
Commercial paper Credit lines Fixings - management of interest rate risk
2020 new loans repayments 2021
1,710,338 300,423 195,000 - 117,915 1,787,423 100,000 - 456 399,967
70,000 5,423 225,000 22,871 0 0 100,000 0 0 - 456 0 - 2,557
70,000 4,967 325,000 20,314 2,033,632 295,000 -120,928 2,207,704
2021 2020
69,000 2,005 14,810
198,000 1,783 14,935 85,815 214,718
IN THOUSANDS OF EUROS
TRADE DEBTS
Supplier debts Invoices to be received Credit notes to be prepared - water companies current financial year Other
2021
38,700 30,068 2,692 2,406 73,866
2020
37,261 33,297 7,055 2,337 79,950
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 430 million euros are available for short-term finance, 69 million euros were taken up as at 31 December 2021. This reduction in finance taken up is due to the taking out of the aforementioned loan for 100 million euros, maturing in 2022, 2023 and 2024.
As at 31 December 2021, under the existing credit lines worth 485 million euros – including the syndicated loan – as at 31 December 2021, a straight loan for 2 million euros was in place to finance municipal work in progress. 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.
TRADE DEBTS
There is no significant change in supplier debts year on year.
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 11.3 million euros’ worth of certificates of practical completion have already been received, but were not yet billed at year-end.
The difference of 3.2 million euros between the two financial years is mainly due to the fact that the provision for certificates of practical completion decreased by 7 million and the provisions for electricity and sludge increased by 2.5 million and 1.1 million euros respectively.
The item credit notes to be prepared - water companies reflects the difference between the budget estimates for operating costs – estimates on which the advance invoices to the water companies are based – and Aquafin’s final invoice, based on services actually performed. In 2021, the final settlement of accounts for the remuneration model resulted in a further credit note for 4.2 million euros. However, in 2022, Aquafin will send another invoice for 10.7 million euros to the drinking water companies (see Trade receivables). The balance of 2.7 million euros comprises a reserve of 2.5 million euros set up by Aquafin to carry out the restructurings of the interest rate management programme. This is the maximum permitted amount.
The other item includes firstly a reclassification between assets and liabilities of customers with a credit balance and suppliers with a balance owing to Aquafin (890 thousand euros). Secondly, this includes provision for credit notes to be prepared for the Flemish Region and De Watergroep among others regarding the settlement of profits within the Undisclosed Partnership (1.5 million euros).
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, Aquafin expects to recover the amount of corporate tax payable for the 2021 financial year and part for the 2020 and 2019 financial years as well.
The item Taxes, remuneration and social security increased by 14.6 million euros to 16.1 million euros. Regional, provincial and municipal taxes and levies increased by 0.5 million euros. The provision for holiday allowance, group insurance and luncheon vouchers increased by 1 million euros, in line with the growth of the workforce.
OTHER AMOUNTS PAYABLE
The dividends payable are recognised here.
If the General Meeting approves the proposed appropriation of profits, a gross dividend of 4,507 thousand euros will be paid to PMV on 19 April 2022.
ACCRUED CHARGES AND DEFERRED INCOME
IN THOUSANDS OF EUROS
ACCRUED CHARGES AND DEFERRED INCOME
Accrued interest on loans Accrued interest - management of interest rate risk Other accrued charges
Accrued interest on loans includes interest on both short and long-term finance which is allocated to the relevant financial year on a pro rata basis at the time of arrangement. These are stable compared with 2020.
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 deviation from the benchmark is known and recorded, pro-rata entry takes place at the time of arrangement via accrued interest management of interest rate risk. Other accrued charges includes firstly revenue to be carried forward including 52 thousand euros of revenue relating to future maintenance of IWTPs and 323 thousand euros of subsidies received for current research projects. Since 2021, this item also includes 12 million euros of budgets for Flanders already received but not yet allocated for the rollout of the digitalisation programme and 1.5 million euros for performing the role of Asset Manager for Flanders. In future, this income will be recorded as turnover in proportion to the related costs.
Secondly, the other accrued charges item includes several bank charges such as the commitment fee payable and negative interest CP receivable.
2021
6,663 1,079 13,976 21,718
2020
6,894 1,120 252 8,266
Notes to 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 20 October 2017, the Flemish Government approved the calibrated remuneration 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, known as the performance budget, where the result of the outcome of the formula is considered reasonable. This performance budget actually covers all operating costs excluding financing costs.
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 negative impact of 2,962 thousand euros on the accounting result as at 31 December 2021.
TURNOVER
Aquafin realises the majority of its turnover from supra-municipal 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 (investment costs) and payments relating to services (operating costs), which, in view of the constantly growing activities, evolve along the same lines.
Payments for 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.
Payments for operating costs concern invoicing for the budget set by the performance budget formula. The change in operating costs is due to the rise in the output parameters and indices for the remuneration model. This budget has increased due to an increase in activities: including the future delivery volume, the increase in assets and the pollution load treated. Rising energy costs are another important factor here.
The remuneration for equity – the equity remuneration – is designed, with due regard for the risks taken, to ensure a minimum acceptable return for the shareholder(s).
Turnover also includes the rebilling of charges made for the cleanup of cross-regional waste water by the Brussels Region, via the Brussels Water Authority.
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
2021 2020
468,588 171,936 447,714 166,236
211,720 60,349 14,913 9,670 191,255 66,221 14,471 9,531
10,986 10,462
114,247
125,740 993 976 594,814 584,892
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 muni cipalities not covered by the Management Agreement resulted in a turnover of almost 114,2 million euros for 2021.
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 valuation method, a project is recognised on the income statement when the project is fully completed.
OTHER OPERATING INCOME
Other operating income decreased by 3.7 million euros year on year due to the negative result on the performance budget. In 2021, similarly to previous years, an exemption was obtained from income tax deducted at source concerning research and development for the 2020 financial year. The sum of 2,332 thousand euros was recovered or 0.4 million euros more than for the 2019 financial year.
Other operating income also includes primarily 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.
The increase of almost 15% compared with 2020 is mainly the result of high electricity prices in 2021. Compared with 2020, electricity costs rose by 11.6 million euros or 40%. On the other hand, electricity consumption at high-voltage WWTPs decreased by 2% compared with 2020. Electricity costs for High-voltage WWTPs account for around 75% of our total electricity costs.
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
Balance Sheet Impact on result 2021 2020 mutatie
23,253 20,481 144,103 164,830 167,356 185,311
2,772 -20,727 -17,955
2021 2020
40,625 27,693 9,670 12,378 10,963 14,398
29,024 25,754 9,531 12,318 10,217 13,815 115,727 100,659
The increase in sludge, sand and screenings and chemicals is due to an exceptionally wet year. This led to more sand and screenings being deposited. Higher pollution load and quantities of sludge combined with price rises led to an increase in costs.
SERVICES AND OTHER GOODS
This item comprises costs relating to the maintenance of buildings, office and ICT costs, car fleet costs, fees, training costs, etc. These increased by 1.5 million euros year on year.
This item also includes costs relating to municipal activities such as consultancy and contracting costs. Compared with 2020, these rose by 1.1 million euros.
Following the decline in municipal projects in 2020 due to Covid-19, we now see tentative signs of recovery.
The impact of the municipal activities described above has a limited impact on results. This is because these activities are neutralised via contracts in progress on the balance sheet and are not recognised on the income statement until the project or service is fully complete.
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
REMUNERATION, SOCIAL SECURITY COSTS AND PENSIONS
The increase in personnel costs reflects the growing workforce. This increase is in line with the growth of the infrastructure operated and developed by Aquafin, at both municipal and supramunicipal level.
The constant growth in assets also explains the continuous increase in depreciation.
In connection with the redevelopment of the Campus, the depreciation of the Dijkstraat 10 and Ingberthoeveweg buildings was accelerated, fully and partially respectively (see also tangible assets). In 2021, this led to an extra €0.7 being depreciated in addition to the regular depreciation of €0.4 million. In addition, 280 thousand euros less was depreciated on compensation payments for land.
2021
64,919 17,468 5,612 1,964 89,963
2020
61,893 16,221 5,314 2,635 86,063
IN THOUSANDS OF EUROS
DEPRECIATION AND OTHER AMOUNTS WRITTEN OFF ON FORMATION EXPENSES, INTANGIBLE AND TANGIBLE FIXED ASSETS
Buildings Plant, machinery & equipment Furniture and vehicles Other
2021 2020
1,808 191,248 585
1,411 185,758 763
67
90 193,708 188,022
Under the heading of plant, machinery and equipment, there was primarily an increase of 6.3 million euros in construction engineering and asset management projects as a result of the constantly growing assets. A decrease in depreciation of 1.3 million euros was recorded for municipal infrastructure, due to the accelerated write-down of two municipal projects last year. Depreciation on the majority of the assets has no impact on the result since this can be rebilled to the drinking water companies – over a period of time.
AMOUNTS WRITTEN DOWN ON STOCKS, CONTRACTS IN PROGRESS AND TRADE DEBTORS – PROVISIONS FOR LIABILITIES AND CHARGES
The table below shows the connection with changes to the related balance sheet accounts. The main changes are explained above in the notes to the balance sheet items.
A number of our industrial customers went into liquidation or ceased trading in 2021. As a result, the related balance sheet positions were written off and industry receivables decreased by 174 thousand euros to 37 thousand euros. There is no impact on the result since full provision had already been made for these outstanding receivables in the past.
Provisions for liabilities and charges have already been discussed in relation to the balance sheet positions concerned.
OTHER OPERATING CHARGES
This heading mainly covers direct taxation and taxes levied on Aquafin’s installations. This mainly comprises property tax and regional, provincial, municipal and environmental taxes.
Other operating charges also include the deficit on the performance budget.
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 can 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 2021.
IN THOUSANDS OF EUROS
AMOUNTS WRITTEN DOWN ON STOCKS, CONTRACTS IN PROGRESS AND TRADE DEBTORS
Receivables - Management Agreement Receivables - municipal activities Receivables - industry
PROVISIONS FOR LIABILITIES AND CHARGES
Bridging pensions Legal disputes Insurance claims Severance payments Sludge buffers Supra-municipal project costs
Balance Sheet Impact on result 2021 2020 change
374 8 37
267 8 174 418 449 107 0 0 107
2021 2020
272 233 0 566 489 363 6 346
110
110 4,725 4,359 5,906 5,673
change
-217 -130 -6 220 0 366 233
INCOME TAXES
Income tax amounts to 3.6 million euros.
Specifically 4.2 million tax owed for the 2021 financial year and an adjustment of 0.6 million euros for previous financial years.
Proposal to the General Meeting
Taking into account the profit after taxes, the profit available for appropriation amounts to 6,655,486.75 euros:
• transfer to the legal reserve: • transfer to the other reserve: • dividends: • profit carried forward:
332,774.34 euros 0 euros 4,507,258.50 euros 1,815,453.91 euros
If the General Meeting approves the proposed appropriation of profits, a gross dividend of 4.5 euros per share will be paid to PMV on 19 April 2022.
