Notes to the income statement

The Management Agreement with the Flemish Region which contains provisions regarding Aquafin’s supra-municipal activities stipulates that Aquafin’s remuneration for supra-municipal activities 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 for these activities broadly mirror one another.

The reasonableness of the operating costs – excluding financing costs and excluding fluctuations in energy prices – is determined based on the so-called performance budget formula where Aquafin’s budget for operating costs is dependent on a number of parameters including assets and the pollution load treated and specific indices.

The difference between the result according to the performance budget formula on the one hand and the actual charges recorded for this financial year on the other has a positive impact of 1.1 million euros on the accounting result as at 31 December 2022.

Turnover

Aquafin realises the majority of its turnover from supra-municipal activities under the Management Agreement with 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.

In Thousands Of Euros

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 prices are another important factor here.

The staggered invoicing of 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.

The settlement of interest charges relates to the rebilling of the interest charges which are due to Aquafin’s prefinancing role.

Turnover also includes the rebilling of charges made for the clean-up of cross-regional waste water by the Brussels Region, via Hydria.

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). In 2022, the Flemish Region reduced the rate of return expected on equity capital from 3.5% to 1.95%.

Services rendered by Aquafin to the towns, cities and municipalities not covered by the Management Agreement resulted in a turnover of almost 95,8 million euros for 2022. In 2021, turnover was higher due to the optimisation of the delivery process.

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.

Changes In 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 not recognised on the income statement until the project is fully completed. This heading reflects the growth of purchases linked to commercial projects not yet delivered. The increase 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.

Other Operating Income

Other operating income rose by 965 thousand euros year on year.

In 2022, similarly to previous years, an exemption was obtained from income tax deducted at source concerning research and development activities for the 2021 financial year. 2.3 million euros were recovered which is in line with the amount recovered in the 2021 financial year.

Other operating income also includes primarily recovery of costs that cannot be treated as part of normal sales. The main increases relate to activities within structural maintenance (392 thousand euros), subsidies for solar panels (101 thousand euros), dewatering (148 thousand euros) and green energy certificates (130 thousand euros).

RAW MATERIALS, CONSUMABLES AND GOODS FOR RESALE

The main items under this heading are shown below.

The increase of almost 40% compared with 2021 is mainly the result of high electricity and gas prices in 2022.

Compared with 2021, energy costs increased by 42.8 million euros – which means that they almost doubled – in spite of the 6% reduction in electricity consumption at high-voltage WWTPs (75% of the total consumption) compared with 2021.

After an exceptional year with heavy rainfall in 2021, the amount of sludge production returned to normal again and dropped slightly from 101,000 tonnes of dry matter in 2021 to 94,300 tonnes of dry matter in 2022. The relative increase in the cost per tonne of dry matter is mainly due to the high price increases and shortage of raw materials, and the shutdown of the dryers in the fourth quarter in order to reduce gas consumption and thus contribute to the minimum availability of gas for households in Flanders. In addition, there was then another downturn in sludge production in the summer period so extreme that we had to shut down 2 dryers.

We also see a strong increase in the case of Chemicals due to the extreme price increases on the market.

Services And Other Goods

87% of the increase under this heading is due to the increase in costs relating to municipal activities such as consultancy and contracting costs which saw an increase compared with 2021 of 25 million euros or 40%. This increase is due to the expansion of the portfolio in conjunction with price increases on the market.

Although this increase is very high, it has a limited impact on the result. This is because these costs 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 completed.

The remaining increase (+3.6 million euros or an increase of 6%) has been recorded within the supra-municipal activities and relates, among other things, to fees for legal support provided during the process towards a new cooperation agreement with Flanders and laboratory and research costs because the contract for sampling and analyses has been carried out by Aquafin instead of VMM since 2022. In addition, there were increases within vehicle leasing costs and IT support.

REMUNERATION, SOCIAL SECURITY COSTS AND PENSIONS

The increase in personnel costs follows the increase in the workforce from 1,094 FTEs to 1,110 FTEs. This increase is in line with the growth of the infrastructure operated and developed by Aquafin, at both municipal and supra-municipal level.

Holiday pay was accrued in 2022 and will be paid in 2023. In view of the high wage index, an additional provision for holiday pay of 1.6 million euros was made in 2023. This was included under Salaries and direct social benefits

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

Depreciation can be subdivided into the four headings above. Given the steady expansion of Aquafin’s assets – the value of Aquafin’s assets continues to increase year on year – the depreciation on Plant, machinery & equipment also increased.

By contrast, the depreciation on buildings decreased in 2022, mainly due to an exceptional depreciation in 2021 of the head office in the context of its renovation, to the value of 0.7 million euros.

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.

In 2022, the provision for Receivables Management Agreement was transferred to Provisions for liabilities and charges (363 thousand euros). In addition, a number of balance sheet positions were reversed without any impact on the result since full provision had already been made for the 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 which together amount to 5.0 million euros.

In addition, this item contains the cover for the residual balances relating to invoices to be prepared for operating costs for the financial years 2018-2021 (0.8 million euros) and energy fund costs not accepted for 2021 and 2022 (0.3 million euros).

In 2021, the deficit on the performance budget was also included under Other operating charges which was no longer applicable in 2022.

Financial Charges And Income

This heading covers interest charges on short- and long-term financing, charges and income relating to active interest rate management and the commitment fee for Aquafin’s credit lines.

Both the short- and the long-term interest rates have risen since the beginning of 2022 but through active management of the interest rate risk, Aquafin is able to keep its financing costs well under control.

The decrease in both income and costs is due to the lower amount of restructurings of hedges required which also had a lower market value than in 2021.

NON-RECURRING FINANCIAL INCOME AND CHARGES

This comprises the adjustment of the loss recorded for the participating interest 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 or completion to completed contract. According to the old valuation method, Aquaplus had closed with a positive result of 122,000 euros which reflects the healthy financial position of this subsidiary 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.