25 Risk management with regard to financial instruments

Policy concerning financial risk management

The policy regarding managing financial risks is determined by the executive board. The key financial risks to which Q-Park is exposed are the market risk, the liquidity risk and the credit risk. The market risk can be further split into the interest exposure and the currency risk, and these risks are closely monitored internally. Instruments for managing these risks include financial derivatives. The company does not take speculative positions with financial instruments.

Interest exposure

Interest rate variations influence Q-Park's direct result and return on investment property. The group interest policy is designed to limit risks and can be explained as follows:

• interest-bearing debts have a fixed-interest rate part and a variable interest rate part, where the interest from the variable interest part is partly fixed by means of interest rate swaps. Hedge accounting is applied;
• overall, at least 75% of the interest-bearing liabilities should be protected from interest rate fluctuations.

At the end of 2013, loan positions were hedged by means of IRS worth EUR 1,064.6 million (2012: EUR 1,050.7 million). The following table shows the hedging of the loan positions further specified by time to maturity of the interest rate derivatives.

Of the total (explained in note 13 of these annual accounts) interest-bearing liabilities amounting to EUR 1,521.4 million (2012: EUR 1,595.5 million), EUR 1,335.9 million (2012: EUR 1,162.2 million) is insensitive to interest rate fluctuations because there is either fixed-interest financing (EUR 271.3 million; 2012: EUR 111.5 million), or because the interest exposure is hedged by means of IRS (EUR 1,064.6 million; 2012: EUR 1,050.7 million).

This means that 87.8% (2012: 72.8%) of the total interest-bearing debts is protected from interest rate fluctuations. In October 2013, a portion of the total loan portfolio of EUR 300 million was refinanced with institutional loans with Pricoa (EUR 240 million, of which EUR 190 million is fixed-interest) and Insight (GBP 35 million of which 75% is hedged by means of IRS).

On balance, this means that Q-Park runs an interest rate risk for loans amounting to EUR 185.5 million (2012: EUR 433.3 million). A summary of the exposure to interest rate fluctuations is given in the following table.

Currency risk

Q-Park is exposed to exchange rate fluctuations with respect to its activities in Great Britain, Sweden, Norway and Denmark. Up to October 2012, the currency risk, for the part that was not financed with shareholders' equity, was hedged with CCIRS. Hedge accounting was applied. In October 2012, Q-Park agreed with its shareholders to cease hedging currency risk from November 2012. This action terminated the net investment hedge in place until October 2012.

The following table shows a sensitivity analysis of the shareholders' equity to currency exchange rate differences.

Liquidity risk

The following tables indicate the time to maturity of the contractual liabilities at the close of 2013 and 2012.

With the exception of the financial instruments, which are recognised at balance sheet value due to lack of information, all items stated in the previous tables are stated at nominal value, taking account of the redemption or settlement year as agreed per item with the other party.

Liabilities arising from loans – with the exception of the local bilateral loans – will be refinanced. The refinancing of the EUR 300 million CLN transaction was achieved in the fourth quarter of 2013 with institutional loans amounting to EUR 280.0 million.

All other liabilities stated in the table are financed from working capital and operational cash flows. At balance sheet date, the lease obligations related to investment property have an average time to maturity of more than ten years.

Credit risk

Credit risk is the risk that a counterparty fails to meet its obligations arising from a financial instrument or contract with a client, causing financial damage. Q-Park is exposed to credit risk in connection with its operating activities (trade receivables in particular) and in connection with its financing activities, including deposits at banks and financial institutions, currency transactions and other financial instruments.

On the reporting date, the maximum exposure to credit risk is the book value of the receivables as explained in note 9 and the cash and cash equivalents as explained in note 10. Q-Park considers the credit risk to be limited. The concentration of risks concerning trade receivables is low, as the customers are widely dispersed. Assets held at the bank concern only assets at reputable banks.

Fair value of financial instruments

Q-Park’s financial instruments mainly consist of financial instruments (receivables, cash and cash equivalents, monetary loans from third parties, other long-term liabilities and current liabilities) and of derived financial instruments (interest and currency derivatives).

Considering the short maturity of the current liabilities and the receivables and cash and cash equivalents stated under current assets, the book value is approximately equal to the fair value. The fair value of the other long-term liabilities is assumed to be equal to the book value. The fair value of the derivatives and monetary loans is based on (discounted value) calculations or third party quotations.

Given the above, in combination with the lack of an additional credit risk and the market conformity of interest charged, with the exception of the fixed-interest part of the monetary loans from third parties (EUR 271.3 million; 2012: EUR 111.5 million), the fair value at the end of the financial year can be set equal to the book value. The fair value of the fixed-interest part of the loans from third parties amounted to EUR 229.9 million (2012: EUR 118.6 million) and is determined by discounting the future cash flows using current market rates appropriate to market players similar to Q-Park. The determination of the fair value of the fixed-interest part of the monetary loans belongs to level 2 in the fair value hierarchy.

Hierarchy in fair values

As per 31 December 2013, Q-Park held the financial instruments at fair value as explained in the following table, whereby the following hierarchy is applied when stating and determining the financial instruments, distinguished by valuation method:

• Level 1: Listed (not revised) rates on active markets for identical assets or liabilities;
• Level 2: Other methods whereby all variables have a significant effect on the fair value recognised and are directly or indirectly observable;
• Level 3: Methods whereby variables are applied that have a significant effect on the fair value recognised, yet are not based on observable market information.

The interest rate derivatives are placed in level 2 (not listed in an active market, but the key variables are observable, either directly or indirectly). In 2013, there were no transfers between valuations at fair value in level 1 and 2, nor were there transfers in or out of valuations at fair value in level 3.

The following table shows an overview of the book value of the financial derivatives, subdivided per type.

The value of the financial instruments is calculated by using prevailing interest rates to discount the expected future cash flows to their present value.

The movement in value of the interest rate swaps in 2013 amounted to EUR 49.1 million (2012: EUR -15.3 million). Of this, EUR 2.1 million before taxes (2012: EUR -0.8 million before tax) was charged to the result for reasons of ineffectiveness. The remainder has been recognised charged directly in the shareholders' equity after deduction of taxes.

Capital management

The primary objective of Group capital management is to maintain good creditworthiness and to ensure that the operating activities are optimally supported, so that these operating activities can be conducted effectively, efficiently and profitably and so that shareholder value is created. Q-Park manages its capital structure and adjusts this to changes in economic circumstances. In order to maintain or modify the capital structure, Q-Park may adjust dividend payments to shareholders, repay capital or issue new shares.

The primary financing ratios as agreed with the financiers are the ‘interest coverage ratio’ (ICR), the ratio ‘net debt : EBITDA’ and a healthy solvency (primary parameter is ‘gearing’). These ratios are monitored closely to support Q-Park's activities and to maximize shareholder value.

No significant modifications were made to the policy or processes in the financial years 2013 and 2012. At the close of 2012 the minimum ICR was set at 1.9. At the close of 2013 the minimum ICR is set at 2.0. At the close of 2013 the ratio ‘net debt : EBITDA’, was 7.5 (2012: 8.2). The upper limit for 31 December 2013 was set at 8.0 and will be adjusted downwards each year by 0.5 to 7.0 in 2015. The decrease in this ratio to under 8.0 will result in a lower spread on the interest. If, and in so far as, Q-Park is unable to comply with the ratios set, repayment of the financing is to be made up to an amount which brings the ratios back into the ranges set in the period concerned.

The ICR over the years 2013 and 2012 is as shown in the following table.

The ratio ‘net debt : EBITDA’ over the years 2013 and 2012 is shown in the following table.

Q-Park monitors its solvency using a gearing ratio. Q-Park's policy is designed to maintain the gearing ratio under 1.25. The gearing ratio over the years 2013 and 2012 is shown in the following table.