2 Statement of significant accounting policies

Consolidation

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.

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.

Foreign currencies

Assets and liabilities of a group company incorporated outside the Netherlands 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 recognised 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 in the balance sheet 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:

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 cluster 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 nominal 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 recognised. Impairments in respect of goodwill will 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.

Investment property is stated at fair value. This fair value of investment property is assessed each year by independent external valuers, with the exception of the lease contracts with a term to maturity of less than 15 years. The annual movements in value of the investment property are recognised in the consolidated statement of comprehensive income as part of the indirect result, as well as the results of any sales of investment property. 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, a model is deployed in accordance with international valuation guidelines, in which for each investment property the future income, direct costs (excluding ground rents) and future investments are discounted based on an object-specific discount rate (net present value calculation), and where the minimum lease obligations are added to the lease contracts in order to calculate the effective fair value.

The time span in the model is maximised at 15 years. This is supplemented by a residual value equal to the standardised cash flow in the 15th year divided by the ‘exit yield’ (the discount rate which is used to recalculate the normalised cash flow in the 15th year to the residual value). Where the actual remaining contract period is less than 15 years, this actual remaining contract period is processed in the model.

Investment property under construction is also stated at fair value. If during the construction phase of investment property under construction an estimate of future cash flow cannot be made reliably and therefore the fair value based on ‘net present value’ calculations is not sufficiently reliable, 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

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.

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 are recognised.

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 provision 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.

Statutory hedging reserve

The statutory hedging reserve is a revaluation reserve obligatory under Dutch legislation. Changes in the fair value of the interest rate derivatives which are identified as cash flow hedges and that satisfy the hedge accounting criteria, are recognised directly in the shareholders' equity (hedging reserve) in so far as the hedge is effective.

Statutory 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 statutory foreign 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.

Revaluation reserve

The revaluation reserve is held for positive unrealised movements in the fair value of the investment property. Additions to this reserve are made from the profit appropriation of the indirect result after taxes. When investment property is sold, the revaluations hidden in the revaluation reserve for the object concerned are released to the other reserves. Negative unrealised movements in the fair value are withdrawn from other reserves directly.

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 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 recognised 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. Q-Park also documents its assessment of the effectiveness of the derivatives, which is tested quarterly.

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 recognised depends on the nature of the entry that is hedged.

The hedges are classified as cash flow hedging as these 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 entered into. Changes in the fair value of derivatives that are deemed cash flow hedges are recognised in the shareholders' equity as a hedging reserve in so far as the hedge is considered effective. If the expected transaction or fixed pledge is not expected to be realised, the cumulative profit or the cumulative loss that was initially recognised in the shareholders' equity will be transferred to the result. If the hedging instrument expires or is sold, terminates or is exercised (without replacement or roll-over) or if the indication for the hedge is withdrawn, a possible cumulative profit or cumulative loss that was initially recognised in the unrealised results will remain part of this reserve, until the expected transaction or fixed pledge is realised.

The income or expenses in respect of the non-effective element of the cash flow hedges is incorporated in the result immediately.

Current liabilities

The trade creditors and other liabilities are recognised at amortised costs. 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 includes valuation differences, results from disposals, goodwill impairments and changes in the fair value of derivatives in so far as these changes are to be accounted for in the comprehensive income statement.

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

• Parking revenues; parking revenues (short stay parking and season tickets) from parking facilities operated by Q-Park.
• 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.
• Management and consultancy fees; concerns the fixed and variable allowance for the operational management of parking facilities for third parties.
• 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.
• 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.

Financial result

The financial result consists of both the financial expenses as well as the financial income. Interest costs on loans 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-tax deductible 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 for 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.