Notes to the Balance Sheet

in Euros

1 Fixed Assets

Fixed assets are depreciated over their estimated life time. The assets are held for use in our day to day operations.

Intangible fixed assets

Intangible fixed assets were newly acquired in 2018 and relate to the development of War Child’s new website. The other intangible fixed assets relate to custom developed software for the new CRM system.

Tangible fixed assets

Tangible fixed assets acquired during the year are mainly ICT equipment and vehicles. We divested old ICT equipment that is not in use anymore. The assets under land and buildings are an apartment close to our office in Amsterdam in which we host employees who are visiting from country programmes, saving hotel accommodation costs. At head office our tangible assets are equipment and furniture for our office and for our training and event space “the Playground”. Tangible assets that we hold for our programmes are mainly office equipment, vehicles and generators.

2 Receivables

All accounts receivable originated in 2017, except a number of legacies totalling €120,379 originating from 2016 and 2017. All receivables are expected to be received within one year and relate to our day to day operations. Sometimes legacies may take longer to be settled, especially when the sale of property is involved. Our best estimate is to classify all receivables as short-term.

A provision for doubtful receivables is deemed unnecessary.

Legacies due consist of 12 legacies, of which the largest legacy due is €124,500.

Prepayments to partners are amounts paid to implementing partner organisations, for which War Child has not received liquidation reports from those partners.

Other receivables include, for example, prepayments to creditors, unrestricted donations to be received, deposits and project advances.

Specification of receivables from donors

Receivables from donors relate to projects that have been implemented by War Child, for which the funds from donors are committed in a grant contract but had not yet been received on the balance sheet date. The funds are expected to be received within one year. The amount receivable from donors at the balance sheet date can be broken down as follows. The largest amount, relating to the Dutch National Postcode Lottery, was received in March 2019.

3 Cash and cash equivalents

War Chid’s cash and cash equivalents balance is at a healthy level of €19.0 million, against €17.3 million short term liabilities. War Child’s high balance of available resources can be explained by its continuity reserve and by the grants received in advance from important donors such as the European Commission, the IKEA Foundation and the National Postcode Lottery. The projects related to these subsidies are partly to be implemented in 2019 and beyond. For more information, see the notes to the balance sheet item 'Grants Received in Advance'.

Availability of cash and cash equivalents

The balance of cash and cash equivalents is readily available to War Child, except for a bank guarantee related to the rental agreements for War Child's office in The Netherlands, released at the end of the rental contract in 2023. The balance of one savings account with Rabobank is available to War Child, although on part of the balance a withdrawal penalty applies, as specified below.

Balances in foreign currencies

War Child aims to hold its cash positions as much as possible in Euros and in the Netherlands. At the balance sheet date, 90 per cent of cash was kept in bank accounts in The Netherlands. For expensess in programme countries, foreign currency accounts are held. War Child head office and some country offices have a US Dollar bank account when contracts with donors and expensess are in US Dollars. Country offices request funds to be transferred by head office on a monthly basis, based on forecasted expenses. War Child aims to minimise funds held abroad, but due to the nature of War Child's work, each country needs to hold a buffer amount for operational expenses and unforeseen events.

4 Reserves and Funds

Continuity reserve

War Child does not keep more reserves than reasonably necessary to realise the organizational goals and to be able to continue its operations in situations of sudden lack of funding or of excessive expenses. War Child’s Supervisory Board determines the desired size of its continuity reserve based on risks perceived, taking into account a number of adverse incidents that might happen. In 2018 the minimum desired level of the continuity reserve was left unadjusted at €5.0M, which was approved by the Supervisory Board at the end of 2017. The desired level of the continuity reserve is also the actual size of the continuity reserve as per the balance date. The general reserve holds a €1.4M surplus which is not necessary for War Child’s continuity and in 2019 War Child will aim to spend this amount on its objective. War Child’s continuity reserve is in compliance with the requirements of the sector organisation Goede Doelen Nederland as stipulated in its policy for financial management of NGOs ("Financieel Beheer Goede Doelen"): The operational costs multiplied by 1.5 amount to a maximum continuity reserve of €26M.

General reserve

The general reserve is formed from the surplus of reserves above the target level for the continuity reserve. War Child will spend its general reserve to the benefit of children affected by war in accordance with its objectives.

Earmarked reserve

The earmarked reserves are funds with a designated purpose determined by the board. There is no external obligation.

Legal reserve

The legal reserve is related to funds reserved in accordance with accounting regulations. War Child has created a legal reserve for the book value of the capitalized development costs of its intangible fixed assets (€388,245). The legal reserve will be released as and when the book value of the website decreases.

Earmarked funds

The earmarked funds are designated by the donor and must be spent on a specific purpose. War Child sees an increase in the amount of earmarked funding, which is reflected in the outstanding amount at balance date of €439,468 (2017: €95,156). The earmarked funds that existed end of 2017 for the Uganda and TeamUp programmes were fully spent in 2018 and therefore the earmarked funds were released. The funds earmarked in 2017 for Lebanon were not yet spent in 2018 due to programme delays. New earmarked funds were added in 2018 for projects in Lebanon, DR Congo, R&D and Colombia. War Child expects to spend these amounts in 2019.

5 Provisions

The entire provision is short term. All employees have a notice period of less than one year and it is possible that authorities will impose tax on War Child within one year.

The significant decrease of the provision year-on-year is related to the release of the provision for ineligible grant expenses. During the year, the decision made by the donor was more favorable than War Child had estimated at the end of 2017.

Provision for end-of-service benefits

A provision for end-of-service benefits is established when War Child has the obligation by local labour law to pay an amount of benefits to each of its employees at the end of their service, no matter how and by whom the employment contract was ended. The provision represents the cumulative amount of benefits built up by each employee up to the balance sheet date. The calculation is in accordance with the local law and is usually a formula such as: numbers of years in service x gross monthly salary x fixed percentage. The amount of obligation up to the balance sheet date can therefore be determined with a high degree of certainty. The amount is, however, payable at an uncertain date, namely at the end of service of the employee.

Provision for local taxation

A provision for local taxation is established when local laws and regulations contain a tax obligation for non-governmental organisations, although the authorities have not (yet) imposed those taxes on War Child. The provision represents the best estimate of the amount of tax expected to be imposed on War Child in relation to the period up to the balance sheet date. However, since in many such cases the authorities have to date not imposed these taxes, the calculation method might be uncertain. For example, income tax might be applicable to all residents, but it is unclear which benefits shall be included in the taxable amount. In some countries, NGOs are jointly lobbying for a tax exemption. The amount, likelihood and timing of the future payment obligation are therefore often quite uncertain and the provision reflects War Child's best estimate.

Provision for local social security

This provision is similar to the provision for taxation. In some countries a law exists for employers to provide social security to its staff. As long as the governments have not yet set up an authority in charge of collecting those payments, War Child keeps a provision for its best estimate of the amount to be paid.

Provision for ineligible grant expenses

This provision is related to expenses that might need to be paid back to institutional donors because some of their requirements were not met. Some of War Child’s programmes are implemented in particularly difficult, unsafe and instable contexts where it is not always possible to guarantee that the strictest of donor requirements are followed in each of its (partner’s) transactions. War Child still implements those projects because especially those children need its support. At the end of 2017, War Child provided for expenses that were at specific risk of repayment to the donor. Based on further justification provided and an exchange of arguments with the donor, the donor ruled favorably and requested War Child to pay back only a small portion of the amount provided for. In 2018, War Child has no indications that specific expenses are at risk of ineligibility and therefore no such provision exists. War Child is continuously striving to improve its procedures to ensure compliance with increasingly strict donor requirements, in order to decrease the risk of ineligible expenses.

6 Long term liabilities

All long term liabilities are due after one year and within five years. The amount as per the balance sheet date relates to rental discounts of War Child’s Amsterdam office that were already received, but that are spread over the total length of the rental contract in accordance with the accounting principles. This amount is the part that will be recognized as a deduction of rental expenses in the financial years from 2020 onwards.

7 Short term liabilities

All short term liabilities are due within one year. The accounts payable decreased by 30 per cent mainly because the amount payable at the 2017 balance date was extraordinary high due to a number of large invoices received.

The accounts payable to implementing partners decreased by 12 per cent because War Child prepays most of the partner’s activities due to lack of own funding of small local organisations. With larger international organisations such as War Child United Kingdom or Save the Children, payable amounts may occur.

Other liabilities increased by 16 per cent compared with 2017, which is mainly related to expected invoices relating to the financial year, which were not yet received at the balance sheet date. Personnel liabilities are part of other liabilities and relate to the 8 per cent holiday allowance built up for head office personnel during the year, which is due to be paid out in May and to holiday leave days pending at the balance sheet date.

'Grants Received in Advance' increased by 2 per cent year-on-year. It consists of earmarked funding that was received by War Child in the financial year, while the related project expenses have not yet been incurred. Due to the nature of the grant contract, income is not accounted for in the period that the funds are received, but in the period in which the related expenses are recognised. The expenses related to grants received in advance are expected to be realised within one year.

The institutional donors with the largest amounts paid in advance are shown in the table. Comparison between the current and previous financial year reveals substantial fluctuations between donors. Large grant instalments were received in advance from the European Commission related to our Syrian Response programme, from IKEA Foundation and from the National Postcode Lottery, mainly in relation to the expansion of War Child's succesful "Can't wait to learn" programme. The Netherlands government has prefinanced two large projects in Lebanon.

The IKEA Foundation is an important donor which generously supported four of War Child’s programmes in 2018, as specified below.

Financial Risks and Financial Instruments

During its normal operations, War Child is exposed to currency, interest, cash flow, credit and liquidity risks. To control these risks, War Child has instituted policies and procedures that are intended to limit the risks of unpredictable adverse developments in the financial markets and thus for the ability of War Child to fulfil its objectives.

War Child does not apply nor trade in financial derivatives, such as interest rate swaps, forward exchange contracts or options to control its risks. Its main risk mitigation measures are described below.

Credit risk- banks

Credit risk arises principally from War Child's substantial cash position. It holds large bank balances and the main risk is that of a bank defaulting. The maximum amount of credit risk with one bank that War Child incurs is €11.5 million, which is its balance with Rabobank at the balance sheet date. War Child also holds bank accounts with ASN bank (€1.7 million), with ABN AMRO (€3.1 million), Triodos bank (€0.5 million) and with ING (€0.9 million). Furthermore, it has balances with foreign banks in potentially unstable states. The largest bank balance abroad is with Bank Audi in Lebanon (€0.5 million).

The probability and impact of financial loss to War Child due to a bank going bankrupt is mitigated by spreading the balances over a number of banks, by limiting the outstanding balances abroad and by strict bank assessment procedures when opening a bank account.

Credit risk- receivables

Credit risk also arises from War Child's receivables totalling €5.0 million. The credit risk is concentrated at five counterparties for a total amount of €2.4 million. These are large donors and governments with whom War Child has a long standing relationship and that have always in time satisfied their obligations to pay. The highest receivable amounts to €1.4 million from the National Postcode Lottery. In addition, €1.2 million receivables relate to prepayments to partners. This balance is spread over more than 20 partners, the largest balance being €0.5 million with UNICEF.

Foreign exchange rate risk

War Child is exposed to currency risk on project obligations that are denominated in a currency other than the contractual currency of the grant contract that relates to such a project. The currencies in which these project transactions primarily are denominated are EUR and USD, whereas a minority of transactions take place in amongst others COP, UGX and SSP. The currencies in which War Child’s donor grant contracts are denominated are primarily EUR and USD, whereas a minority of grants are denominated in amongst others CAD, GBP, BIF and SSP. War Child's policy is to denominate its contractual obligations as often as possible in the same currency as the donor's currency and to hold bank balances in the donor currency, so that the real exchange rate is closest to the reporting exchange rate. War Child does not hedge with any derivative instruments its estimated foreign currency exposure in respect of forecasted purchases over a future period, because management believes this brings new risks and costs, while War Child's current employment of practical risk mitigation measures serves its purpose.

Interest and cash flow risk

War Child has no interest bearing loans, therefore the interest and cash flow risk is limited. There is a risk of interest rates decreasing, resulting in reduced interest income deviating from the planned income.

Liquidity risk

The management monitors War Child's cash position and ensures that it is sufficient to meet the financial obligations towards creditors, employees and partners. War Child's level of reserves ensures a sufficient balance is available to cover financial obligations for a period of three years. Although the potential impact of extreme circumstances that cannot reasonably be predicted is hard to take into account, War Child believes that its liquidity risk is limited.

Fair value

The fair value of the financial instruments stated on the balance sheet, including receivables, cash and cash equivalents and current liabilities, is approximately equal to their carrying amount.

Off-balance sheet obligations and rights

War Child's global off-balance sheet obligations and rights are as follows and are further explained in the text below the table.

Operational obligations

The main operational obligation is the office and training space rental obligation in The Netherlands for the period until 30 September 2023. Total remaining rental obligation including service and utilities charges is €1.3 million. The remaining obligations of €0.4 million mainly consist of rental obligations in programme countries.

Implementing Partners

War Child works with many implementing partners globally. War Child enters into agreements with partner organisations to execute projects related to War Child's objectives. The contributions in these contracts are disbursed to partners in several instalments. All contributions are conditional. War Child has off balance sheet obligations to its partners totaling €6.4 million. War Child’s largest expected future payments are to War Child UK and UNICEF, with which conditional funding agreements are in place with an amount of approximately €1.8 million due to both organisations in the coming 4 years. This relates to the implementation of part of the Can’t wait to learn and Time to be a child projects.

Off balance sheet rights

Grants from donors are recognised as income when the related expenses are recognised. Instalments received from donors are recognized on the balance sheet under Grants received in advance, for the part that is not yet spent. The remaining instalments due in accordance with contracts signed with donors are reported as off-balance sheet rights. The total amount of instalments to be received by War Child under existing donor contracts is €10.5 million. The largest total amounts to be received in the coming 5 years are €4.9 million from the European Commission, €1.6 million from the Dutch Government and €1.5 million from United Nations agencies.