Report of the Board of Directors

Balance Sheet And Income Statement

STATUTORY AUDITOR’S REPORT

Statutory auditor’s report to the general meeting of Aquafin NV for the year ended 31 December 2022. The Financial Statements can be found via the Central Balance Sheet Office of the National Bank of Belgium.

Main risks and uncertainties

There are no substantial risks and uncertainties with regard to the financial year.

Main events during the financial year

MOODY’S CONFIRMS CREDIT RATING

Following its annual screening in October 2022, rating agency Moody’s confirmed the long-term rating of Aquafin as Aa3 – stable outlook. The short-term rating remains at P-1. Aquafin’s credit rating tracks the maximum rating of the Flemish Region in view of the strong connections.

Revolving Credit Facility Renewed

In November 2022, Aquafin renewed its revolving credit facility with a consortium of banks. Aquafin succeeded in both reducing the commitment fee and increasing the amount of credit available. Aquafin now has a syndicated line of credit worth 235 million euros instead of the previous 100 million euros. This transaction is part of a general review of the credit lines that will continue to be rolled out in 2023.

Investors Approve Adapted Allocation Agreement

Parallel with the new cooperation agreement between the Flemish Region and Aquafin, the allocation agreement was also changed. This involved relaxing the approval mechanism for validating a change to the cooperation agreement from total unanimity for all provisions to a majority principle for most provisions and total unanimity only for a limited number of provisions that are crucial for the financiers. Thanks to good preparations and extensive dialogue, Aquafin retained the confidence of its financiers and they approved this change unanimously.

DBFMO CONTRACT FOR SLUDGE MONO-PROCESSOR ASSIGNED

Aquafin is planning to build a sludge mono-processor at the Arcelor Mittal site in Ghent that will enable maximum recovery of energy and raw materials from the biomass. In 2022, Aquafin awarded the contract for the design, construction, financing and maintenance of the plant until 2046 to the BESIX/Indaver consortium. The mono-processor should be operational by 2026 and from then on, it will carry out the final processing of two thirds of the sludge from the treatment of domestic waste water in Flanders while Arcelor Mittal will use all the steam produced in its production process. The project fits in with Aquafin’s ambition to cease using fossil fuels by 2030 and evolve into a climate-neutral operation.

Auditing of the company

In 2020, EY 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 2022, the services of the statutory auditor were requested in connection with the audit of EMIR reporting – required by the FSMA. A fee of 5,000 euros (excluding VAT) was paid for these services.

The task of attesting the financial covenants in the credit documentation was also entrusted to EY, for a fee of 1,000 euros (excluding VAT).

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 102,500 euros (excluding VAT).

Shareholder structure and cross-shareholdings

Participatiemaatschappij Vlaanderen (PMV) holds all the Aquafin shares. There are no cross-shareholdings.

Branch offices

There are no branch offices.

Notes to the balance sheet

Tangible Assets

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

In Thousands Of Euros

As stipulated in the Management Agreement, Aquafin collects domestic waste water in Flanders in collectors and transports it to treatment plants where it is treated. 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 208.2 million euros’ worth of new projects in 2022. This year, 171.6 million euros’ worth of depreciation was also recorded and 2 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 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 2022, €15 million in depreciation was recorded on these assets. In addition, part of the sites of Sint-Niklaas and Antwerpen-Zuid WWTPs was sold, further reducing the fixed assets by €0.2 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 2022, €3.4 million were invested on the one hand and €3.3 million depreciated, on the other.

Investments in head office and operations relate to investments in hardware, software, lab equipment, furniture, materials and equipment required for the operation of the main office and/or overarching operational activities, not intended for one specific plant. In September 2022, the new Campus was commissioned. 15.8 million euros were capitalised and 0.3 million euros depreciated in relation to buildings and equipment, bicycle parking and solar panels. The 15.8 million euros also includes a carryforward of 4.3 million euros which was recorded under assets under construction with regard to the Campus at the end of 2021.

In 2022, a further 2.4 million euros were invested in hardware and software, 1.9 million euros in materials and equipment, 0.4 million euros in furniture and 0.2 million euros in a new CNG truck. 1.3 million euros’ worth of furniture from the old head office which had already been fully written off was decommissioned and removed from fixed assets. The installation costs for leased buildings and historic renovation works at the old head office were also deactivated (1.9 million euros). Both the decommissioning and the deactivation have no financial impact since they have been fully written off. A further 0.7 million in depreciation was recorded.

In the context of the role of Asset Manager of Flanders, Aquafin’s task package was expanded with the takeover of the overflow measurement matrix from VMM among other things. To this end, a number of overflow measurement devices were purchased in 2022 worth 0.4 million euros, of which 16,000 euros were depreciated.

Projects not yet delivered, including land comprises all costs incurred for supra-municipal projects in progress. It covers projects in the design phase, contracted projects or projects already awarded where the costs incurred mostly relate to 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 14% in 2022 to 372 million euros. There was an increase of 10% in calls for tenders for development projects. There was a structural increase of 39% in the asset management budget. These increases are partly in line with the obsolescence of assets and partly due to price increases. In 2022, 4 million worth of energy fund projects were delivered and 3.3 million euros’ worth were added to assets under construction.

As well as supra-municipal infrastructure, a small part of Aquafin’s assets is made up of municipal infrastructure. Under the contracts with the municipalities, Aquafin may assume responsibility for socalled 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), after which the assets will be transferred to the municipality or intermunicipal cooperative society. The decrease in 2022 is due to 2.5 million euros of depreciation recorded on municipal infrastructure. No new contracts were started in 2022.

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. In 2022, the method of recognising profits or losses on projects changed from percentage of completion to completed contract. According to the old valuation method, Aquaplus had closed with a positive result of 122,000 euros but according to the new valuation method, Aquaplus finished with a negative result of 39 thousand euros. The reason for this is that the historical margin of the projects not yet delivered was reversed and will only be recognised as a profit or loss at the time of delivery. As a result, an additional loss of 39 thousand euros on the participating interest was recognised in Aquafin.

On 1 October 2022, Aquafin purchased 4 shares from Luc Bossyns at a value of 26 euros per share. With the purchase of these 4 shares, Aquafin now holds all the shares in Aquaplus.

The shares held by Aquafin in Synductis and Riopact are included in Other participating interests

In 2022, a guarantee of 14 thousand euros was deposited with the deposit and consignment office in connection with Call Groene Stroom. Aquafin receives a subsidy for the support of medium-sized installations based on solar energy and small and medium-sized wind turbines. In return, Aquafin must deposit a guarantee in the amount of 7.5% of the support granted and at least 2,000 euros.

Stocks And Contracts In Progress

Apart from the tasks on behalf of the Flemish Region (which make up 85% of our activities) assigned via the Management Agreement, 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 2022, 115 projects were delivered worth 73.8 million euros.

The increase in contracts in progress is due to the relatively constant refilling of the order book and the sharp increase in contracting costs due to the war in Ukraine among other things.

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 2022, trade receivables increased from 42.1 million euros to 94.2 million euros, a combination of an increase of 62.1 million euros in outstanding receivables and a decrease of 10.8 million for invoices to be issued. These 11 million euros related to the final settlement from 2021 which was estimated at the time and were primarily due to the high energy costs that will be settled at actual cost. For 2022, Aquafin will create a credit note for the water companies.

The increase of 62.1 million euros (including VAT) for customers is mainly due to the extra rebilling of operating costs relating to 2022 for 54.7 million euros and the invoicing of the settlement of operating expenses relating to 2021 for 12.6 million euros. Both rebilling items were invoiced to the water companies in December and consequently not yet settled as at 31 December 2022.

In 2022, the provision for Possibly rejected operating costs was reclassified from Amounts receivable within 1 year to Provisions for liabilities and charges (363 thousand euros). This relates to the limited share of costs where there is a possibility of them not being eligible for reimbursement according to the principles of the management agreement.

Other amounts receivable comprises recoverable VAT, recoverable taxes and reclassification of social debt. These decreased from 8.5 million euros to 3.7 million euros.

The main reason for this is recoverable VAT of 4.2 million euros in 2021, where the VAT payable in 2022 is 5 million euros, due to the extra sales invoicing in December of operating costs and investment expenditure to water companies to the value of 67.3 million euros including VAT.

SHORT-TERM INVESTMENTS AND CASH

In view of the low interest rates during 2022, cash was mainly kept in the savings account. The amount of cash was kept as low as possible to avoid incurring negative interest.

Deferred Charges And Accrued Income

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 on this, see under Tangible assets –purchases of Flemish Environment Agency 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 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 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.

Other costs to be transferred are costs incurred by Aquafin in 2022 but relating fully or partially to 2023. These mainly relate to maintenance contracts, licence fees or prepaid rent or interest.

Under the contracts with the municipalities, Aquafin assumes responsibility for transport services (cf. Tangible assets – municipal activities) 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.

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.

Accrued revenue includes the 2022 profit under a partnership for municipal sewerage activities between Aquafin and De Watergroep called Riopact. In this, both parties cede 50% of their result to each other. Aquafin ended the financial year with a profit of 1.3 million euros and De Watergroep achieved a result of 52 thousand euros. Profit distribution is processed as a credit note for 1.3 million euros to be prepared and payment of 676 thousand euros to be received.

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 in 2021.

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 2022 financial year, the legal reserve will be increased by 253 thousand euros to 16,100 thousand euros and the remaining profit of 595 thousand 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. 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

Provisions For Liabilities And Charges

The main changes in the provisions for liabilities and charges can be broken down into those for personnel-related costs, sludge buffers and possibly rejected operating costs.

In 2022, rejected operating costs were reclassified from Amounts receivable within 1 year to Provisions for liabilities and charges.

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 (4,082 thousand euros). Secondly, provisions are made in relation to the deduction of project costs recorded after delivery, known as subsequent costs (643 thousand euros).

Possibly rejected operating costs are operating costs where there is a possibility of them not being reimbursed according to the management agreement. In 2022, an existing provision of 363 thousand euros relating to the financial years 2017 to 2019 was reclassified from Amounts receivable within 1 year to Provisions for liabilities and charges and an additional provision of 632 thousand euros was made.

Between The Repayment And Depreciation Periods

In Thousands Of Euros

Specifically 532 thousand euros relates to the payment for transport and processing costs due to the shutting down of the dryer from Leuven and the switching from gas to fuel oil in Houthalen within the gas shutdown plan initiated by Flanders.

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 2022, the provision for legal disputes amounted to 286 thousand euros for 66 disputes. In 2022, we recorded 15 new cases and 30 files could be closed.

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

Provision for bridging pensions has decreased by 146 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.

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

An additional sum of 190 million euros was allocated in 2022 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 1.19 (this 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 and commercial paper so as to be able to respond to fluctuations in work in progress for investment projects. The amount of these general-purpose bank borrowings decreased due to the repayment of 3 bullet loans totalling 45 million euros and a smaller repayment of 487 thousand euros as provided for in the repayment schedule.

At the request of the municipalities, a payment system can be designed with regard to our municipal activities. No new longterm finance was taken up in this respect in 2022. The reduction is due to 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 440 million euros are available for short-term finance, 110 million euros of this debt security were outstanding as at 31 December 2022. The outstanding balance depends on various factors and is only a snapshot. However, the increase can largely be attributed to the repayment of a tranche of 25 million euros of a bilateral loan of 100 million euros taken out at the end of 2021.

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. The decrease is due to the short-term interest rate that became positive again during the course of 2022. In swap contracts, Aquafin is the receiving party of this floating rate and the payer of the long-term interest rate. In a period of negative interest rates, Aquafin has to pay the negative floating leg too on account of certain modalities.

As at 31 December 2022, under the existing credit lines worth 485 million euros – including the syndicated loan – as at 31 December 2021, a straight loan for 3.7 million euros was in place to finance municipal work in progress.

Trade Debts

Invoices to be received includes estimates for goods and services already provided, the invoice for which has not been received or processed yet. The difference of 9.7 million euros between the two financial years is mainly due to the fact that the provision for certificates of practical completion received – for which no invoice was available yet – increased by 3.7 million and the provisions for electricity and gas and insurance increased by 1.5 million and 1 million euros, respectively due to increased energy prices. There are also a number of other provisions for IT, telecoms, communication, security materials and HR.

There is no significant change in supplier debts year on year.

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 and settlement of the remuneration model for operating costs. In 2022, the final settlement of accounts for the 2021 remuneration model resulted in a further invoice for 11 million euros (see Trade debtors). The balance comprised a maximum permissible reserve set up by Aquafin to carry out the restructurings in the interest rate management programme.

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 (1.5 million euros). Secondly, this includes a provision for credit notes to be prepared for the Flemish Region and De Watergroep among others regarding the settlement of profits within Riopact (1.4 million euros combined). In this, both parties cede 50% of their result to each other. Aquafin ended the financial year with a profit of 1.3 million euros and De Watergroep achieved a result of 52 thousand euros. Profit distribution is processed as a credit note for 1.3 million euros to be prepared and payment of 676 thousand euros to be received (see also Accrued revenue).

Advances Received On Contracts In Progress

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

TAXES, REMUNERATION AND SOCIAL SECURITY

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

The item Taxes, remuneration and social security increased by 16.1 million euros to 24.6 million euros. The main reason for this is the VAT payable: in 2022, the balance of the VAT payable was 5.1 million euros due to the extra invoicing, in December, of operating costs and investment expenditure to water companies to the value of 67.3 million euros including VAT. In 2021, there was still recoverable VAT of 4.2 million euros:

In the context of the payment of holiday pay in 2023, acquired based on performances from 2022, an additional provision was made as a result of the high wage index and growth in 2023. That is because holiday pay was accrued in 2022 and will be paid in 2023. As a result, the provision for holiday pay increased by 2.2 million euros compared to 2021.

The increase in the provision for group insurance is 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 4,207 thousand euros will be paid to PMV on 18 April 2023.

Accrued Charges And Deferred Income

Other accrued charges include 26.9 million euros of revenue to be carried forward. Since 2021, this item also includes budgets for Flanders already received but not yet allocated for the roll-out of the digitalisation programme Digital 4Us and for performing the role of Asset Manager for Flanders.

In 2022, these were cumulated to give 23.2 million euros and 2.8 million euros respectively. This income will be recorded as turnover in proportion to the related costs. The other elements are shown in the table below.

In addition, the other accrued charges item includes several bank charges such as the commitment fee payable and negative interest CP receivable which together amount to 28 thousand euros.

Accrued interest on loans includes interest on both short and longterm finance which is allocated to the relevant financial year on a pro rata basis at the time of arrangement. These increased significantly due to a rise in interest rates.

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. Because the short-term interest rate is no longer negative, Aquafin is again the receiving party of the floating legs of the swaps, benefiting performances compared with the benchmark.