Executive Board report

Economic developments

The development of Q-Park's operating result has a close relationship with the development of GDP. In 2014, GDP rose in the Eurozone by 0.9 per cent and throughout the European Union by 1.4 per cent (source: Eurostat). These are signs of a cautious recovery in the European economy. The ECB predicts an average growth of GDP in 2015 in the European Union of 1.6 per cent.

Consumer confidence remained negative, but showed an upward trend for the first time in years. Spending increased slightly, but consumers remain cautious. The share of online sales showed continued strong growth. In the European Union, online sales increased by an average of 15 per cent.

At 1 per cent, inflation in the Eurozone remains low and thus far from the level sought by the ECB of just under 2 per cent. The primary causes given by the ECB are the sharp fall in the price of oil, low prices for food and slow economic growth. The situation will improve now that most countries and businesses in the Eurozone are starting to get their finances straightened out, and activity and the associated employment opportunities are beginning to increase. The question remains as to what extent the ECB's monetary policy (QE programme in which government bonds worth EUR 1,100 billion are being bought) will act as an additional boost to economic growth.

Interest on government bonds is extremely low, with some banks even charging a negative interest rate. This has a positive effect on the attractiveness of property as an investment category, which yields a higher return than fixed-interest securities.

Developments in the car parking market

Growth in parking revenue

Together, the 28 EU member states have more than 440.0 million parking spaces at their disposal, in the form of on-street parking and in purpose-built parking facilities. According to the EPA report Scope of Parking in Europe, of these, 20 million spaces are regulated in the countries where Q-Park is active. Q-Park's market share is 4.2 per cent with 836,473 parking spaces. The total parking revenue across all European Union countries is estimated at more than EUR 29 billion (Source: EPA).

Q-Park focuses on the larger cities; together these account for 20 to 30 per cent of the total parking market. These cities attract more customers, and private parties can charge higher tariffs.

More cars

The number of passenger car registrations grew again this year for the first time since 2007. Throughout 2014, just over 12.5 million new cars were registered, an increase of 5.7 per cent. Car sales dropped only in the Netherlands and Belgium.

In the United Kingdom car sales grew by as much as 9.3 per cent, and in Germany this almost 3 per cent. The French market is stable, with 0.3 per cent growth.

Competition and scale

The scale of operation is becoming increasingly important in the parking market, at both national and local levels. Customers expect more technology-driven services such as paying by mobile phone, pre-booking online and 24/7 support. Larger participants can offer such services more quickly and efficiently, being able to spread investments across multiple locations.

A larger local market share is also becoming more important. This makes it possible to handle an optimal pricing policy and to employ staff more efficiently. Moreover, it offers opportunities for cooperation with service providers such as Yellowbrick, who offer mobile reservation or payment services on the parking market.

Q-Park has a number of large competitors on the European parking market who also operate on an international scale. Among these parties we see a wide range of strategic shifts, partly due to these parties having new shareholders. Some of these strategic shifts increase the pressure on our revenues and cash flow, but also show the correctness of our chosen direction – that of customer focus and quality.

Developments at Q-Park

Financial policy

Q-Park has closed 2014 with good prospects for the coming year. Revenue rose from EUR 742.2 in 2013 to EUR 768.8 in 2014. The operational result before depreciation is EUR 184.7 million (2013: EUR 185.2). The direct result after taxes came to EUR 49.7 million (2013: EUR 63.8 million).

The indirect result after taxes came to EUR -277.4 million (2013: EUR -210.3 million) as a result of a renewed downward revaluation of the investment property and goodwill impairment. The net result amounted to EUR -227.7 million (2013: EUR -146.5 million).

The GDP in the European Union rose by an average 1.4 per cent. From this financial year onwards, we will relate Q-Park's growth to this indicator. Revenue from parking increased by 4.7 per cent.

Our indirect result is largely determined by future cash flows from investment property. We have revised our growth forecast for the coming years based on the current economic climate. The annual valuation of our investment property portfolio (conducted by DTZ), has resulted in a significantly lower valuation. Furthermore, the revised growth forecast has led to a depreciation of the goodwill. This is also related to a decrease in revenue from the enforcement activities in the Northern European countries.

Nevertheless, Q-Park has a good starting position. This is mainly due to the locations of Q-Park's facilities and the large proportion high-quality real estate in the portfolio. The attractiveness of shopping areas is one of the most important factors that determine the revenue from our parking business. With the exception of Great Britain and Norway, retail revenues are stagnating, except for online sales, which, in contrast, have shown solid growth.

Before and after transformation, Hart van Zuid parking facility entrance, shopping centre in the south of Rotterdam

Stimulating domestic spending is a challenge for all European governments. Unfortunately, this growth, which is driven by consumer spending, will remain at a low level in the coming years. This means that in the short term, Q-Park will have to realise improved results on its own strength.

Strategy

Q-Park has analysed the opportunities in the market to optimise the existing portfolio and, where possible, to take advantage of economies of scale. The results of these analyses and the accompanying strategic guidelines have been incorporated in the Q-Park Business plan. Our strategy for the coming years is also based on a number of megatrends which will affect at the future of the car parking market. The trends include digitisation, urbanisation, shopping experience, sustainability developments and changes in car usage.

Value creation

Q-Park endeavours to generate more value for its shareholders. To achieve this, the key assignment for senior management is to increase free cash flows from the existing portfolio. New contracts will be assessed based on portfolio management and must meet stringent return requirements. An internal investment committee assesses all investment applications before being submitted, together with a recommendation, to the executive board. The primary objective from the customer perspective remains to offer the parking customer an even better service.

Investment property results

Divestment programme

During the past few years we have implemented a divestment programme in order to improve our debt ratio. The last transactions in this programme were completed in 2014. In Norway this was for our Bankplassen parking facility in Oslo, via a sale-and-leaseback transaction. In addition, three facilities were sold in the Netherlands and Finland. The divestment programme, as agreed with the shareholders, was completed with Mahler in Amsterdam, the largest of these transactions. In 2014, these amounted to EUR 189.3 million. Compared to the situation at the start of this programme in 2012, the debt position has been significantly reduced. This means that the Net Debt / EBITDA ratio now comes out at 6.5 and remains well within the limits stated in the covenants agreed with the banks.

Focus on predictable returns

From now on, the focus is on increasing the free cash flows, modernising the investment property portfolio and differentiating between ongoing and new contracts. It goes without saying that we continue to seek effective solutions for contracts with obligations, often legally bound, which are too high. When the expected return on investment is no longer realistic, considering the current economic expectations, we seek a solution to modify a contract or to dispose of it. A determined approach appears to provide faster results than waiting for the contract to expire.

We want to increase future revenues, on the one hand, by reducing interest expenses, and on the other, by making realistic forecasts of expected revenue and the investment budget allocated. Investment programmes must meet strict criteria.

Operational result

Cost reduction on track

The cost reduction programme is on track and detailed plans to further reduce costs into 2016 have been worked out. Deploying mobile teams in cities where Q-Park has several parking facilities, has resulted in further operational efficiency. Furthermore, we continue to connect more parking facilities to our Q-Park Control Room (QCR). Other initiatives that contribute to cost reduction include lowering maintenance costs, lower costs for money management and the energy saving plan which also encompasses LED lighting.

Efficiency with the QCR

These days we mainly close lease contracts. In this contract form, we manage the parking facility under our name and with our quality characteristics. Such contracts usually have a medium-long duration. To make our operation as customer-friendly and efficient as possible, we endeavour to connect as many of these parking facilities as possible to our QCR.

Further enhance customer focus

Q-Park wants to meet the highest customer expectations. We make it easy to find our facilities and easy to drive in and out, and we ensure that they are clean, safe and well-lit. In addition, we are offering more and more payment and pre-booking options. In the Netherlands, we have conducted a successful experiment with payment cards which also serve as access and exit cards. In Great Britain, Ireland and France various online services, including pre-booking, have been successfully introduced in the market. Motorists find it particularly desirable to book a parking space in advance if they want to be sure they can park their car quickly. This is particularly relevant when parking is part of the mobility chain, for example, if someone is going to fly, catch a train or visit an event. We also see that online pre-bookings are particularly successful when we work together with local or national parties who want to include parking in their offering. For this reason we are working proactively with existing and new customers and inform them via apps and e-mails as well as through our partners' information services, such as event agencies, and hotel and retail chains.

Investing in digital platforms

We invest in the development of digital solutions for more effective marketing campaigns. In 2014, we made progress with the development of a broad customer relationship management system. This also incorporates the online pre-booking experiences gained in France, Ireland and Great Britain. This system will help us tailor our marketing efforts more directly to specific target groups and so bring us into closer contact with motorists.

We are also investing in an information system that contains details about all our parking facilities. With this information, we will be even better equipped to analyse the performance of our parking facilities to propose targeted improvements. We can also pass on information about the occupancy to public route guidance systems, both on the street and in the car.

Organisation

Opco-Propco

Internally, the split of the company into an operational division (Opco) and an investment property division (Propco) is a fact. In 2015, we will be able to make a good comparison of the income and expenses involved in these activities and thus be better able to manage on these parameters.

As from 1 January 2015, the countries are grouped into four regions:

Each region is headed by a regional director who is also the country director of the largest country in the region. With this regional structure, we want to increase the learning capacity within our organisation. This structure enables us to respond better to the specific differences and requirements of each market area, while we can still benefit from our scale of operation in terms of investments, reporting, information provision, communication and positioning the brand.

Governance

As announced last year, Ward Vleugels resigned as CEO on 30 June 2014. We are grateful to Mr Vleugels for his unremitting commitment and enthusiasm. His interest in investment property and the parking industry, supplemented with the time and attention he paid to maintaining valuable business relationships, and his dedication to quality have paid off. Under his leadership, Q-Park has expanded to become a successful player in the North-West European car parking market.

On 1 August 2014, Frank De Moor took up the position of CEO.

Executive board. From left to right; Mr Thuis, Mr De Moor, Mr Vroom.

Executive board

Frank De Moor - CEO

Theo Thuis - COO

Rob Vroom - CFO

Maastricht, 31 March 2015