3 Statement of significant accounting policies

General

The consolidated annual accounts and company annual accounts are shown in euros. The euro is the presentation currency as well as the functional currency of Q-Park NV. Each entity within the group records transactions and balance sheet items in its own functional currency.

Consolidation

The financial data of Q-Park NV and of the group companies are recognised in the consolidated annual accounts over which control is exercised. A statement of the group companies and the company’s other participating interests is set out in note group companies and participating interests.

Of the companies qualifying for consolidation, the assets and liabilities as well as the income and expenses are recognised for 100%. Results from participating interests that have been acquired are booked to the consolidated statement of comprehensive income as from the date of take-over by the group.

Foreign currencies

Assets and liabilities of a group company incorporated abroad are converted at the foreign exchange rates prevailing at the balance sheet date for the purposes of consolidation. Foreign exchange rate differences so arising are booked directly, positively or negatively, to shareholders' equity (statutory exchange rate differences reserve).

Foreign exchange rate differences on loans in foreign currency which qualify as part of the investment in foreign operations are accounted for, after deduction of deferred tax assets, in the shareholders' equity (statutory exchange rate differences reserve).

Other receivables, liabilities and cash and cash equivalents in foreign currency are converted at the prevailing exchange rates as per balance sheet date. Foreign exchange rate differences so arising are incorporated in the consolidated statement of comprehensive income.

The income statements from the group companies registered abroad are converted at the average exchange rate for the period for the consolidated statement of comprehensive income. The net result from these group companies is converted at the exchange rate prevailing at balance sheet date. The difference between these two conversions is accounted for in the shareholders' equity (statutory exchange rate differences reserve).

Overview of the exchange rates used for drawing up the annual accounts:

Estimates in the annual accounts

It is necessary to make estimates and evaluations for the purpose of preparing these annual accounts. These estimates and evaluations have consequences for the amounts reported for assets and liabilities, income and expenditure. The most important of these estimates are explained below.

At least once a year Q-Park determines whether goodwill impairment is applicable. This requires an estimate of the realisable value of the cash generating units to which the goodwill is allocated. Additionally, for its other intangible fixed assets as well as tangible fixed assets, Q-Park determines to what extent there are lasting movements in value at balance sheet date. This requires an estimation of the realisable value of these fixed assets.

The value of the investment property is based on the basic principles set down by Q-Park as well as on the estimates and calculations provided by external valuation experts. The estimates and calculations made by external valuation experts mainly concern the discount rate to be used, the determination of the ‘exit yield’ and the development of the expected revenue and expenses based on the specific circumstances of each location.

The fair value of the interest rate derivatives recognised in the balance sheet is based on internal assumptions and calculations on the one hand, and on the providers of the derivatives on the other. The calculations and statements include estimates of interest rate developments, as well as estimates concerning modifications for 'debit valuation' and 'credit valuation'.

There is some uncertainty regarding the explanation of complex tax regulations and the level and timing of future taxable profits. Considering the wide range of international business relationships and the long-running and complex nature of existing contractual agreements, differences may arise between the assumptions made and the actual results, or future changes in such assumptions may result in future changes.

Deferred tax assets related to compensating tax losses not offset are formed in so far as it is probable that profit for tax purposes will be available against which this can be offset. In order to determine the value of the deferred tax assets arising from tax losses not offset, a management assessment is required regarding the probable timing and level of the future taxable profits, combined with future fiscal planning strategies.

Goodwill

The goodwill arising from a business combination is, on initial recognition, valued at cost price, this being the value whereby the acquisition price exceeds the interest of the acquiring party in the net fair value of the identifiable assets, obligations and contingent liabilities. After this initial valuation, goodwill is stated at cost price less any accumulated impairments. When testing for impairments, goodwill arising from a business combination is allocated to the cash generating unit that is expected to derive benefit from the synergy in the business combination. Q-Park has defined its cash generating units at region level, the goodwill is also determined at this level.

Goodwill is tested annually as per 31 December for impairments or more frequently if events or changes in circumstances indicate that the book value may well have suffered impairment. The goodwill arising from the acquisition of business combinations concerning the adjustment of the deferred tax liabilities from fair value to face value is not part of the goodwill included in the impairment test. The presence of any goodwill impairments is determined by assessing to what extent the book value of the cash generating unit exceeds the realisable value of this unit. When the realisable value of the cash generating unit is lower than the book value of the cash generating unit to which the goodwill has been allocated, impairment is booked. Impairments in respect of goodwill may not be reversed in future periods.

Other intangible fixed assets

The other intangible fixed assets consist of costs associated with expenditure related to software and with the development of new ICT systems. Depreciation is based on the expected useful economic life.

The following depreciation periods are used for the other intangible fixed asset classes:

• Software 3 - 5 year
• New ICT systems 3 - 5 years

Investment property

Q-Park qualifies its investment property, including financial and operating leases in accordance with IAS 40.5 and IAS 40.6 as property investment because this investment property (property and/or leases) is held to generate rental income and/or to increase in value. The parking revenues received are allocated to the use of the parking spaces and parking facilities owned or leased, with which Q-Park complies with IAS 40.7. Q-Park does not offer other significant additional services further to the provision of parking capacity. This fulfils the constraints set by IAS 40 on the qualification of investment property as a property investment. For the sake of uniform processing within the Group all of the Group's parking facilities qualify in the same manner and are processed in accordance with the provisions in IAS 40.

Investment property is considered to be all legally owned property, concessions and ground lease constructions, financial lease contracts and operational lease contracts in which parking activities are conducted, where the classification is determined as follows:

• Legally owned property is all investment property which is fully owned by Q-Park (including the land).
• Ground lease constructions are all investment property involving a (finite) ground lease or a similar construction (e.g. right of superficies/building rights).
• Concessions are all French objects involving a (finite) concession for the use of the ground.
• Lease contracts include all investment property which is leased for a predetermined period. Lease contracts can be subdivided into contracts with and without protective constructions.

On acquisition, investment property is recognised at purchase price, including any transaction costs, with fair value as subsequent valuation after the first recognition. This fair value of investment property is determined annually by independent external valuers (in 2015 and 2014: DTZ), with the exception of the lease contracts with an initial term to maturity of less than 15 years and contracts added to the portfolio during the financial year. Divestments are recognised on sales or permanent decommissioning.

The annual movements in value of the investment property as well as any results associated with disposals or contract termination, are recognised in the consolidated statement of comprehensive income as part of the indirect result.

Due to the nature of the investment property and the lack of sufficient comparable market information, the fair value is not determined based on observable market transactions. Instead, the independent external valuers use a model in accordance with international valuation guidelines. A rental value capitalisation calculation is performed for all legally owned property and ground lease constructions to determine the investment property element in the fair value. Additionally, for each property investment, the operational element included in the fair value is determined based on the future revenues, expenses (excluding ground rents) and investment directly attributable to the property investment, which are discounted based on an object-specific discount rate. With respect to the lease contracts, the minimum lease obligations are added to the valuation to determine the fair value recognised. In this model, the contract duration is maximised at 15 years, and is supplemented with a residual value. Where the actual remaining contract period is less than 15 years, this actual remaining contract period is processed in the model. Lease contracts with an initial duration of less than 15 years are valued internally based on a similar discounted value model.

Investment property under construction is also stated at fair value. In so far as an estimate of future cash flow for investment property under construction during the development or preparatory phase an estimate of future cash flow cannot be made and thus the fair value cannot be calculated reliably, the fair value is determined as the cumulative acquisition costs incurred up to the balance sheet date.

Interest on building finance charges incurred during the construction phase is capitalised. Investment property is not depreciated.

Tangible fixed assets

Tangible fixed assets are stated at the cost price less linear depreciation based on the expected useful economic life and taking the expected residual value into account. A depreciation period of 5 – 15 years is applied for the tangible fixed assets.

Participating interests and prepaid expenses

Participating interests in which significant influence can be exercised are valued based on the equity method by applying the Q-Park valuation and accounting policies. It is presumed that significant influence can be exercised where Q-Park has 20% or more of the voting rights in the general meeting of shareholders.

The valuation of participating interests where significant influence can be exercised is calculated according to the accounting policies applicable to these annual accounts. If the valuation according to the equity method of a participating interest comes out negative, this is valued at zero. A provision is formed if and in so far as Q-Park NV in this situation is fully or partially liable for the debts of the participating interest or has the firm intention to guarantee its participating interest's liabilities. The first valuation of acquired participating interests is based on the fair value of the identifiable assets and liabilities at the moment of acquisition.

Participating interests on which no significant influence can be exercised, are classified as financial instrument and stated at fair value.

The prepaid expenses are valued at amortised cost.

Deferred tax assets

Receivables with respect to tax-deductible losses are recognised with respect to this line item and are valued at the tax rates expected to apply to these entries in the future. Receivables with respect to tax-deductible losses are only recognised if and to the extent that sufficient fiscal benefit is expected as compensation of the deferred tax assets or if sufficient deferred tax liabilities arising from temporary taxable differences.

Deferred tax assets and liabilities will be offset against each other if these fall within a tax group for corporate tax and in so far as the periods within which realisation is expected coincide.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same taxable entity and the same tax authority.

Fixed assets held for sale

In so far as fixed assets are formally indicated as ‘Fixed assets held for sale’, these are shown separately in the balance sheet as part of the current assets. Investment property held for sale is valued based on fair value less transaction costs. Other fixed assets held for sale are valued at the lower value of the book value and the fair value after deduction of transaction costs.

Receivables

Receivables are stated at amortised costs, if applicable after having deducted the provisions for bad debt considered necessary.

Cash and cash equivalents

Cash and cash equivalents include cash balances and freely callable deposits. Cash equivalents are highly liquid short-term instruments that can be converted immediately into certain cash amounts for which there is no risk.

Shareholders' equity

General

Shares are deemed shareholders' equity. External costs that can be directly allocated to the issuance of new shares are deducted from the other reserves.

Hedging reserve

Changes in the fair value of the interest rate derivatives up to and including 2013 which were identified as cash flow hedges and that satisfied the hedge accounting criteria, were, until 2013, recognised directly in the shareholders' equity (hedging reserve) in so far as the hedge was effective. In line with the company's decision, from the 2014 financial year, to no longer apply hedge accounting to the changes in the fair value of interest rate derivatives, the cumulative reserve accumulated up to and including 31 December 2013 will be amortised at the expense of the indirect result from the 2014 financial year based on the term to maturity of the interest rate derivatives.

Exchange rate differences reserve

The foreign exchange rate differences arising from the conversion of the annual accounts of foreign subsidiaries are accounted for in the exchange rate differences reserve. In addition, the results not yet realised on currency derivatives held in the past are recognised in the exchange rate differences reserve.

Non-current liabilities

Provisions

Provisions are made if Q-Park has a current obligation (contractual or actual) resulting from a past event. A provision is only taken in so far as a reliable estimate of the liability can be made and it is probable that such a liability will have to be paid. However, the exact size and timing of the outgoing cash flow is uncertain. The burden associated with a provision is recognised in the comprehensive income statement. If the effect of the time value of money is significant, the provisions will be discounted at a discount rate (pre-tax). The increase in a discounted provision due to the passage of time is recognised as financial result.

Deferred tax liabilities

The deferred tax liabilities with respect to temporary differences between the tax base and commercial valuation of assets and liabilities are stated at the tax rates against which these differences are expected to be settled in the future. In so far as the deferred taxes with respect to temporary differences result in an asset, these will not be accounted for as part of the deferred tax liabilities, but as part of the deferred tax assets.

Lease obligations

Long-term liabilities arising from ground leases and/or lease obligations for investment property are stated in the balance sheet at the discounted value, only in so far as they are fixed, irreversible liabilities. This discounted value is determined based on the effective interest rate for these liabilities. The interest expenses related to these liabilities are recognised in the direct result as part of investment property costs arising from operational and financial lease.

The minimum lease obligations recognised in the balance sheet are based on the most up-to-date estimates of these future lease obligations, taking annual changes due to inflation into account.

The variable (revenue-related) component of the lease obligations is not accounted for in the balance sheet according to the method stated above, but is accounted for directly in the statement of comprehensive income in the year that this obligation is finalised.

Loans

Loans are booked at their amortised cost price. The costs of concluding loans, prepaid interest charges and financing charges are deducted from the loan and are charged to the result according to the effective interest method over the duration of the loans. Repayments within a year after balance sheet date are presented as a separate item under current liabilities.

Financial instruments

Q-Park uses derivative financial instruments (derivatives) such as Interest Rate Swaps (IRS) to hedge against the risk of changing interest rates. When concluding contracts for these derivatives Q-Park formally specifies and documents the hedging relationship. When concluding contracts Q-Park also documents the objectives in terms of risk management and the strategy according to which the different hedging transactions are performed.

Financial derivatives are initially recognised on the balance sheet at fair value and are valued at their fair value at every subsequent balance sheet date. The manner in which the revenues and expenses so arising are booked depends on the nature of the entry that is hedged. Hedges relate to the risk of possible variability of cash flows attributable to a recognised asset, or obligation, or an expected transaction, or the currency risk of an off-balance obligation for which a contract has been undertaken.

In line with the company's decision, from the 2014 financial year, to no longer apply hedge accounting to the changes in the fair value of interest rate derivatives, the cumulative reserve accumulated up to and including 31 December 2013 will be amortised at the expense of the indirect result from the 2014 financial year based on the term to maturity of the interest rate derivatives. As from the 2014 financial year, changes in the fair value of interest rate derivatives are also recognised in favour of or at the expense of the indirect result.

Current liabilities

Current liabilities are recognised at amortised cost price. This is usually in line with the nominal amount.

Direct and indirect result

In the consolidated statement of comprehensive income Q-Park makes a distinction between direct and indirect result.

The direct result before taxes concerns the result calculated as the net revenue minus operating expenses (including investment property costs arising from operational and financial lease) and financial income and expenses.

The indirect result before taxes mainly comprises revaluation results of investment property, sales results, results related to the termination of property investments (concessions, lease contracts), goodwill impairments, changes in the fair value of interest rate derivatives and the effect of amortisation of the cumulative accrued hedging reserve.

Determining the result

Costs are determined by reference to the accounting policies set out above and are allocated to the appropriate reporting year. Profits are reported in the year in which the services are provided. Losses are deemed as such in the year in which they are known.

Revenue recognition

The net revenues (excluding value added tax) for the amounts invoiced in the reporting year to third parties for services provided are booked to the revenue. The revenue recognised consists of:

• Parking revenues: parking revenues (short stay parking and season tickets) from parking facilities operated by Q-Park.
• Control fees: income in favour of Q-Park arising from enforcement of paid parking (parking fines) on or in parking facilities owned by Q-Park and/or third parties.
• Management and consultancy fees: concerns the fixed and variable allowance for the operational management of parking facilities for third parties.
• Rental income: rental income from parking facilities owned by Q-Park but operated by third parties, as well as income from renting specific areas in car parks.
• Other income: concerns all other income not included in the above-mentioned categories.

Depreciation

Depreciation is performed proportionately based on the expected useful economic life of the assets concerned.

Financial result

The financial result consists of both the financial expenses as well as the financial income. Interest costs on loans and interest rate derivatives, as well as amortised refinancing costs are accounted for under financial expenses.

Interest income on outstanding cash and cash equivalents is accounted for under financial income.

Taxes

Corporation tax is calculated based on the result before taxes after taking account of the components not included in the tax calculation and of partially or wholly non-deductible tax costs. Income tax receivables are only taken into account if it may be reasonably expected that the losses will be compensated. The current tax is the amount expected to be paid or to be received in respect of pre-tax earnings at the tax rates prevailing at balance sheet date including changes regarding taxes to be paid in respect of previous years.

Cash flow statement

The cash flow statement has been prepared using the indirect method, whereby the basis after deriving movements in cash and cash equivalents is based on the net result. Asset/liability transactions are stated as acquisitions and divestments in the year of payment. As a consequence, the cash flows stated do not correspond to the movements as stated in the consolidated balance sheet.