Consolidated financial statement 2011 - Aquafin

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Consolidated financial statement 2011
EXPLANATION 5.9 OTHER LONG-TERM FINANCIAL LIABILITIES
n
Hedge accounting - financial derivative instruments
(in €000) 2011 2010 At 1 January 2010
Financial instruments to hedge the interest risk at market value 135,267 44,571 19,992
Other liabilities 133 120 104
TOTAL OTHER LONG-TERM FINANCIAL LIABILITIES 135,401 44,691 20,096
n
Interest policy
Care must always be taken to ensure that:
Aquafin has significant interest burdens. They are
accompanied by interest risks due to possible changes in the
interest rates, which is both a disadvantage if the interest rate
increases and a missed benefit if the interest rate drops.
Aquafin wants to optimise the cost of financing through
the active management of the interest risk by using financial
instruments to have the cash flows be such that the risk
is limited.
In May 2006, the Board of Directors of Aquafin approved
the implementation of a dynamic management procedure
for interest rate risks. An interest policy was devised with
the outlines of interest rate management set out; the policy
was then approved by the board of directors.
At 31 December 2011, Aquafin had outstanding long-term
debt of €1.7 billion. The active interest management system
can be applied to a maximum of 35% of that debt, with the
aim of achieving interest savings for Aquafin. The interest
management may be built up as follows:
• minimum of 65% of the debt with fixed-rate interest
• maximum of 35% of the liquid debt, of which:
- 25% with limited risk (cap)
- 10% fully liquid
Aquafin not only has an existing debt that can be actively
managed, but the future budgeted debt can also be hedged.
On the basis of the investment programmes imposed on
Aquafin by the Flemish Region, Aquafin can look several years
into the future and make a reasonable assessment of its
future financing needs. To cover future financing needs,
the interest rate policy results in a dynamic interestmanagement
programme up to 50% of the future long-term
debts, with a 5-year horizon.
• the risks are covered
• an underlying loan is always budgeted against a hedging
structure
For 2011, interest savings of €2 million have been achieved
through the active management of the interest risk.
That financial result is the difference of the financing burden
that Aquafin has as a result of the interest management
and the financing burden that Aquafin would have had if it
were subject to fixed interest without active management.
This comparison is based on the so-called benchmark.
The benchmark is the interest rate in effect, the fixed interest
at which the underlying long-term loan would have been
taken out at in accordance with the characteristics (term,
repayment schedule) at the moment of finalising the financial
instruments. Different financial instruments combined
constitute the structure. The interest cost of the underlying
loan is then seen together with the cash flows from the
matching structure, resulting in the ultimate financing
burden for Aquafin.
The savings are settled with the drinking-water companies.
At least 50% of that was immediately deducted from the
invoice to the drinking-water companies. For 2011, €1.2 million
has been credited. The remaining €0.8 million serves as a
buffer for possible optimisations. At 31 December 2011, a total
of €2 million was set aside for optimisations. That amount
was built up in 2011 and previous years.
Aquafin established some new structures in 2011, with
an eye to the future financing needs. Existing strategies were
also optimised. During 2011, an additional €195 million in loans
were hedged. That allows Aquafin to stay within the 35%
to 50% range.