There were two major financial themes in 2014. Q-Park has had a very stable operational year and has realised an operational result (before depreciation) of EUR 184.7 million. This result is in line with the previous year and is above the forecast issued for 2014.
However, the downward revision of forecasts for economic inflation and income growth have led to a significant downward revision of the cash flow forecasts as stated in the business plan. These adjustments had a significant effect on the valuation of the goodwill and investment property recognised in the balance sheet, resulting in an Indirect result before taxes of EUR -332.7 million.
Stable operational performance
The revenue of EUR 768.8 million has risen by more than 3% compared to 2013. The increased costs involved in operational and financial lease, a consequence of the additional lease costs arising from the sale-and-leaseback transactions conducted in 2013 and 2014, have resulted in a rise in the costs of investment property with respect to financial and operational lease amounting to more than EUR 19 million. On balance, this means that the operational result before depreciation amounts to EUR 184.7 million. This result is in line with the previous year (EUR 185.2 million) and is above the forecast issued for 2014.
The associated cash flow from operating activities amounted to EUR 89.9 million, more than EUR 12 million above the operational cash flow in 2013. The improvement is mainly due to lower interest costs as a result of lower bank debts and the interest rate movements in 2014.
The revised forecasts for inflation and income growth have had considerable influence on in the cash flow forecasts stated in the business plan. In addition, the forecast for results from control fees has been adjusted taking into account the (legal) developments in this regard in Northern Europe and also the expectations of results from new contracts to be acquired. This latest adjustment is mainly related to Q-Park's choice to not participate in the ‘price competition’, because, in our view, this would result in insufficient return and too high a risk. Furthermore, we must also conclude that there are simply fewer new contracts available in the market.
The cash flow forecasts were therefore revised downwards compared to the forecasts used in 2013, resulting in lower outcomes from the goodwill impairment calculations. The overall goodwill impairment in 2014 amounted to EUR-133.1 million. After impairment, the book value of the goodwill amounts to EUR 84.6 million, of which EUR 56.8 million concerns the North Region. The book value includes an amount of EUR 27.8 million protected goodwill.
Downward revaluation investment property
The market value of the investment property, including the legally owned property, the concessions, the ground lease constructions and leases, is determined annually by DTZ. Important elements in this valuation process are the parameters determined by DTZ; these include discount rate and initial yield as well as the cash flow forecast. Therefore, the cash flow forecast adjustment, referred to earlier, has considerable influence in the valuation of the investment property. The key DTZ parameters show a different picture per investment. The discount rate has dropped slightly for the entire portfolio and the initial yield has increased marginally. On balance, this resulted in a revaluation of the investment property of EUR -161.2 million, more than 5% compared to the (net) market value on 31 December 2013.
Because Q-Park is present in ten different countries, we have to deal with many different tax regimes. Q-Park endeavours to organise its tax affairs in such a manner that these are optimal for Q-Park from a fiscal perspective, taking into account what is fiscally permitted based on legislation and legal precedents.
Q-Park conforms to taxation legislation. Nevertheless, it is possible that the tax authorities think otherwise. This may result in an increased tax risk.
Tax on profits
The tax on profits over the comprehensive income in 2014 amounted to EUR 7.6 million (income) compared to a tax on profits of EUR 61.4 million (income) for 2013. The 2014 tax on profits includes a charge of EUR -42.9 million for the direct result (2013: EUR -19.8 million), an income of EUR 55.4 million for the indirect result (2013: EUR 88.8 million) and an amount of EUR -4.9 million that was charged directly to the shareholders' equity (2013: EUR-7.6 million).
The effective tax burden on the direct result for 2014 amounted to 46.3% which is higher than the effective tax burden in 2013 (23.7%), despite a further reduction of the statutory tax on profit rates in a number of jurisdictions. The higher effective tax burden is mainly due to a lower notional interest deduction in Belgium and a change in the estimate of non-deductible interest expenses for the Group in a number of jurisdictions. The changed estimates are mainly based on the stricter fiscal legislation regarding the deductibility of these interest expenses in various jurisdictions.
In 2014, in four of the countries the statutory rates for corporate income tax were further reduced compared to 2013. In two countries, this reduction will continue until 2015. On the other hand, in many countries the tax base has increased due to measures designed to restrict deductions, which mainly focus on the internal charging of interest expenses.
The global, widely supported continued focus on the objectivity of transfer pricing systems applied, stricter national anti-abuse provisions and due to further developments on the use of the differences in taxation systems, otherwise known as Base Erosion and Profit Shifting (BEPS), has meant that Q-Park's Transfer Pricing (TP) has also attracted the interest of the tax authorities. With the changes made in 2012 and 2013, Q-Park believes that is current TP policy complies with national and international legislation.
Q-Park Financial Services NV (QFS), Q-Park's internal bank, coordinates the financing strategy and international cash flows. QFS is also responsible for managing all our interest-bearing assets and liabilities, and the execution of foreign currency transactions. QFS has offices in Maasmechelen, Belgium.