Notes to the Statement of Income and Expenses

in Euros

10 Fundraising Income from individuals

Income from individuals includes structural and one-off donations from individuals as well as legacies.

Developments 2018

War Child aims to develop long-term relationships with individual donors to ensure stability in income and the continuity of projects. The large majority of the income generated by individual donors came from approximately 90,000 Friends, as War Child calls its structural donors. We did not reach our ambitious income target from individuals of €9.7 million. Instead we raised €9.3 million income from individuals in 2018 (4 per cent below budget), which is however 5 per cent higher than the previous year (2017: €8.8 million). While the gifts and donations are stable year-on-year, this growth is fully attributable to income from legacies, which more than doubled compared to previous year. More information is provided in the “Where our funds come from” section in our annual report.

11 Fundraising Income from companies

Income from companies includes periodical donations from our Business Friends, one-off gifts from actions, donations in kind as well as restricted subsidies.

Developments 2018

In 2018 we raised €2.9 million from the business sector, 18 per cent above our target for the year, but 7 per cent below the income in 2017. It remains a challenge to secure long-term commitments from companies. Main business donors supporting us already for years with monetary funding are Rituals Cosmetics, ASN Bank and Tommy Hilfiger. We saw a growth of 17 per cent in gifts in kind – which with a value of €1.2 million were 81 per cent above budget. Over 40 per cent of income from businesses comes from the value of donations in kind. War Child has a low cost policy and tries to find donors for every purchase it makes at head office. This ranges from free software licenses to free legal advice. Thanks to our good reputation that our donors recognize, we are quite successful in this, raising free goods and services. More information is provided in the “Where our funds come from” section in our annual report.

12 Fundraising Income from lotteries

Income from lotteries consists of contributions from the Dutch National Postcode Lottery. Since 2009, War Child receives an annual unrestricted contribution and since 2014 we have received various contributions designated to specific projects.

Developments 2018

Income from lotteries has decreased in comparison with the previous year (-22 per cent). The National Postcode Lottery contributes structurally to our organisation with an impressive €1.4 million. In addition, the National Postcode Lottery awarded the “Dreamfund” to War Child for its Can’t wait to learn programme, which was however in 2018 significantly underspent by 63 per cent under the budget for the year. This was due to allocation of programme costs to other grants with shorter period as well as to delays in programme implementation. War Chid also received funding from the National Postcode Lottery for its TeamUp programme with refugees in the Netherlands. The income under this grant was 14 per cent under budget for the year and the remaining funding will be spent in 2019, when the grant ends. War Child had planned €0.6 million income in 2018 from other lotteries, specifically the Swedish Postcode Lottery. This ambition has unfortunately not materialized in 2018. The underspending on programmes as well as the unsuccessful application of new grants from foreign lotteries explains why income from lotteries stayed behind on target. More information is provided in the “Where our funds come from” section in our annual report.

13 Fundraising Income from government grants

Income from governments includes income from individual governments, as well as from governmental bodies and from organisations that receive the vast majority of their funding from governments. In cases where the back-donor is a government and War Child has a contract with equal conditions with another party, this income is categorized as income from governments. All War Child’s income from governments is incidental, although part of the income is related to multiyear grants. All grants have an end date.

Developments 2018

The income from governments is €16.0 million in 2018, which is 24 per cent above the income of 2017 (€12.9 million). Our ambitions were even higher than the substantial growth that was realized. We budgeted a 53 per cent increase in this income category, which although it seemed possible, turned out to be unrealistic in 2018. The income was 19 per cent below the high budget (€19.8 million). Although many new grants were awarded to us, we had counted on getting even more governmental funds for amongst others our Syria response, which unfortunately did not materialize. European Union funding was 31 per cent under budget, even though it was 63 per cent above previous year’s income from the European Union.

The Netherlands Government is our largest donor with a contribution in 2018 of as much as €4.9 million. This represents 12 per cent of our total income, which is below our limit of maximum 15 per cent from one donor. War Child has this target in order to remain independent from any one donor and to maintain a well balanced donor portfolio. The United Nations and the European Commission continue to contribute to War Child's programmes in various countries through its subsidiaries and affiliates such as UNICEF, UNHCR, DG ECHO and Europe Aid. Global Affairs Canada (GAC) contributes to our educational programme in Colombia. More information is provided in the “Where our funds come from” section in our annual report.

14 Fundraising Income from other organisations

The income from other organisations includes income from foundations, educational institutions, religious institutions and associations. This is a mix of unrestricted as well as restricted funding.

Developments 2018

The income from other non-profit organisations in 2018 totalled €7.8 million which was a growth of 13 per cent compared with the previous year (2017: €6.9 million), and it was 17 per cent below budget 2018. The largest donor in this income category ois the IKEA Foundation, which is responsible for 50 per cent of income from other non-profit organisations. IKEA Foundation funds four of War Child’s projects in various countries: the Can’t wait to Learn programme in amongst others Sudan and Lebanon, the Time to be a Child project in Jordan, the Building Sustainable Futures project in South Sudan and the TeamUp project in the Netherlands. These projects are in the finalization stages, which explains the decrease of income compared with 2017, in addition to underspending in the Can’t wait to learn programme. More information is provided in the “Where our funds come from” section in our annual report.

Expenses

Total expenses increased by a total of €1.2 million to €39.5 million, a growth of 3 per cent (2017: €38.2 million). War Child’s aim is to spend at least 85 per cent of its resources on its objectives – project activities, preparation and awareness raising. In 2018 War Child met this target. The ratio of Expenses on the objective and Sum of expenses was 87 per cent. War Child aims to spend maximally 4 per cent of its costs on management and administration. It met this target (2018: 4 per cent; 2017: 4 per cent), but it was not able to decrease its fundraising expenses to below 8 per cent of its income (2018: 9 per cent; 2017: 9 per cent). The main reason was that the number of Friends at the start of the year was below target and remained lagging behind, requiring additional investments in fundraising. More information is provided in the below notes.

Cost Allocation

One of War Child’s core values is transparency. In our annual accounts this translates to openness about where our funds come from and how we spend them. Specifically, we are transparent about the cost allocation of general expenses. Thanks to the implementation of a new accounting system in 2018, War Child is able to allocate most of its head office expenses directly to the relevant cost category. In previous years, all support costs were allocated to cost categories using a general cost allocation methodology. In 2018, almost all expenses are directly recognized in a cost category. Only general facility costs in the Netherlands are allocated based on a cost allocation methodology that takes into account the distribution of salary costs of employees in the Netherlands. General facility costs include amongst others office rent, furniture, cleaning, reception and canteen costs. The expenses related to general management roles, such as the managing director, the director of finance, the director of HR and the manager ICT are fully attributed to the cost category for management and administration.

All employees with a fundraising role are fully attributed to the cost category for fundraising, even though the projects that they run sometimes have an awareness raising component. The out of pocket costs for mixed fundraising and awareness raising projects are attributed to each of those categories on the basis of a percentage as justified by the objectives and activities of each mixed project.

15 Project activities

Expenses towards project activities are costs related to the implementation of War Child’s programmatic interventions. War Child's projects are amongst others providing psychosocial support, child protection, education and advocacy. War Child implements its projects itself as well as by partner organisations. Costs of project activities include expenses such as staff costs, materials purchased, location rent, transport costs and office expenses. Costs of the country offices are fully attributed towards project activities. Costs of the head office are attributed to project activities if the costs are directly related to implementing projects, which in most cases means that those expenses are funded by a grant. This includes our Can’t wait to learn and our TeamUp programmes, as well as our research and development programmes funded by grants, such as the Horizon 2020 grant from the European Union.

Developments 2018

Total expenses on project activities are €30.8 million in 2018, or 4 per cent above previous year (2017: €29.6 million) and 26 per cent under budget. The significant underspending compared with budget is mainly due to grant ambitions not awarded to us and due to delays in the start up of new projects. Our budget for the year consists of ensured funding from signed grants as well as of ambitious projects that we will try to raise funds for in the various countries. In 2018, our fundraising targets were set too high at as much as 40 per cent above the level of project activities in 2017. War Child was however able to realise a growth of €1.2 million in project activities meaning that we were able to implement more projects.

The growth of €1.2 million compared with previous year is explained by the growth of some countries and the decrease in size of other countries. The largest growth in absolute terms was established in the Netherlands (+€2.1 million), Lebanon (+€0.8 million), Syria (+€0.6 million), Uganda (+€0.5 million), and South Sudan (+€0.5 million). This growth can for a large part be explained by the availability of grant funding for projects in War Child’s areas of expertise. The countries that showed the largest decrease in size were Jordan (-€1.2 million), Sudan (-€0.9 million), Central African Republic (-€0.7 million) and Iraq (-€0.7 million). These are all countries where War Child does not have its own offices. Our fundraising efforts have focused on programmes that we can closely monitor

The largest programme country is Lebanon with €7.3 million project expenses, which is an increase of 13 per cent compared with 2017. The Netherlands is the second largest programme country with €5.4 million project expenses. From Amsterdam, we manage our global Can’t wait to learn programme with €2.8 million expenses in the Netherlands and we implement our TeamUp programme in Dutch asylum seekers centres (€1.4 million).

The only country that showed project activities exceeding its 2018 budget was Jordan. During 2018, we further defined and finalised the scope of the research study and implementation with the Ministry of Education and War Child UK. The Ministry made a number of stipulations with the aim to ensure third party oversight of the study. In addition, there was a request for a number of additional implementation sites outside the research areas and a later semester was chosen as a commencement date for the study. These revisions incurred additional implementation costs. IKEA Foundation and USAID, in support of the revisions, provided additional funding in 2018 to cover the increased activities and revised schedules in Jordan.

16 Preparation and coordination

Costs for preparation and coordination include for example costs for the evaluations of our programmes, security measures and security trainings, quality assurance, programme management from head office, travel to country offices, internal audits and monitoring activities.

Developments 2018

The majority of costs for preparation and coordination originate in the International Programmes department at War Child’s head office. Total costs in 2018 have increased year on year by 2 per cent and are 27 per cent above 2018 budget. The costs increase because of War Child’s strategic focus on quality and on improving monitoring and evaluation in a learning organisation.

17 Awareness raising

Awareness raising includes the costs of raising awareness of people in general and of certain focus groups and networks in particular. Direct costs include those costs related to lobbying, War Child's website, conferences, campaigns and the awareness raising component of events and actions.

Developments 2018

Awareness raising costs are 9 per cent under budget and at a similar level as the previous year. Costs of activities which have a mixed objective of fundraising and awareness raising are allocated to each of these cost categories based on the estimated weight of each of those two components, depending on the nature of the activity. For each mixed activity, the project leader provides a justified weight of each component. For example, the costs of the TV show are split 50%-50% between fundraising and awareness raising. During those activities, new Friends are acquired and many individuals are being informed about the children affected by conflict.

The allocation percentages are consistently determined and applied in consecutive periods. War Child intends to apply percentages which are realistic and which are in line with those that are applied by similar organisations for similar projects. The allocation percentages used by other organisations are however not transparent. War Child would be in favour of more transparency and clearer guidelines on the subject. Below is a table with the applied percentages and resulting amounts of awareness raising in our largest mixed projects. Some projects were not budgeted because at the time of planning it was unsure if those would take place in 2018. Vice versa, not all other projects in the budget took place in 2018.

18 Fundraising

Costs of fundraising are incurred for activities which aim to persuade people, businesses and other organizations to become Friends of War Child, to donate money or to enter into grant contracts with War Child.

Developments 2018

Total fundraising costs divided by total fundraising income in 2018 is 9 per cent, similar to 2017. In 2018, total costs of fundraising increased with 3 per cent in comparison with previous year, and the costs were 16 per cent above the budget of 2018. The year on year increase of €0.1 million is related to an increase in unrestricted fundraising costs of €0.2 million and a decrease of €0.1 million of fundraising costs for restricted grants. The unrestricted fundraising costs are 25 per cent above budget because the television show was not budget for and because the number of Friends lagged behind target, requiring additional investments. Raising unrestricted funds is important to War Child, because without it we will become too dependent on large institutional donors. War Child wants to implement projects where the needs are highest, which is not always similar to where large governments wish to spend their development budgets.

Costs for setting up fundraising offices in new markets increased slightly in comparison with 2017 because of preparations to open an office in Germany. War Child contributed to the running costs of War Child Sweden, which is an independent foundation that raises funds for War Child in the Swedish market. These expenses remained well within budget.

19 Management and administration

War Child strives to spend as much on its objective as possible and it is continuously pursuing cost savings opportunities. On the other hand, it realizes that the lowest management costs are not necessarily desirable. Laws, regulations and donor requirements as well as risks of fraud and child safety contribute to a complex environment that require an adequate governance structure, a professional ICT infrastructure and an accurate administrative organisation and internal controls. If management and administration would not get proper attention, then the continuitity of the organisation could be at risk.

War Child aims to keep its percentage for management and administration below 4 per cent. In 2018 it reached 4 per cent, which is similar to 2017 despite necessary expenses for new systems. In the coming years War Child strives to further decrease this percentage, since operational excellence and efficiency are an important part of its strategic objectives. It is however difficult to compare the ratios of organisations that have a different group structure and that implement very diverse types of activities.

Developments 2018

The costs for management and administration in 2018 (€1.7 million) is 6 per cent under budget (€1.8 million) and is similar to the level of 2017 (€1.7 million). This is despite the overall growth of the organisation with 9 per cent in total income. The slight growth in 2018 can be explained by increased ICT expenses related to the implementation of Office 365, higher license fees for our CRM and ERP systems and depreciation of software development for our new CRM system.

20 Financial gains / (losses)

Developments 2018

War Child does not invest the funds it is trusted with by its donors. Interest income is related to interest received on War Child's bank accounts. The year 2018 saw an exchange rate loss of €0.4 million. This is mainly related to the revaluation of outstanding grant award balances in US Dollar. War Child does not budget these gains or losses since those are unpredictable. War Child does not hedge this risk, but takes appropriate measures to mitigate the risk as far as possible. Also se the notes to the balance sheet.

Personnel costs

War Child’s total personnel expenses are specified below. The growth of 19 per cent is mainly attributable to growing teams for programmes in the Netherlands, Lebanon and Uganda. Approximately half of total staff expenses originate in the Netherlands, while less than a quarter of our full time equivalent employees are located in the Netherlands. This is explained by higer average salaries. Almost one third of the staff costs in the Netherlands is related to programme implementation, and those staff are funded by grants. The category other personnel expenses includes costs for amongst others commuting transport, insurance, training, recruitment, interns, canteen and team building.

Independent Auditor's costs

War Child’s financial statements 2018 are audited by KPMG Accountants N.V.. In 2018, expenses in War Child’s financial statement as related to the global KPMG group totalled €155,000. War Child’s group audit 2018 is done for a fee of €112,000. The additional work charged in 2018 related to the group audit 2017 totalled €16,000. The component audit for Lebanon was performed by KPMG against a fee of €9,000 and project audits were conducted for €6,000. A soft controls survey was conducted globally by KPMG for €12,000. All amounts are including VAT.

Attribution of expenses

The above clarification of the attribution of expenses towards expense categories is in accordance with Annex 3 of the accounting guideline RJ650. The attribution towards cost types is done consistently throughout the years. War Child attributes expenses as per the following guidelines:

• Contributions includes expenses by implementing partners;

• Procurement includes all goods en services procured from third parties excluding outsourding;

• Outsourcing includes services that are rendered by third parties executing a normal business operation of War Child, not being the implementation of project activities. An example is the outsourced acquisition of donors;

• Publicity includes advertising and visibility of War Child or its donors to the general public;

• Staff includes all personnel expenses;

• Housing includes rental, utilities and cleaning of office and accommodation;

• Office includes IT, communication, small equipment and postal mail;

• General includes bank costs, audits, value of gifts in kind and other general costs;

• Depreciation equals depreciation costs.

Appropriation of the Result

On May 17 2019, the Supervisory Board of Stichting War Child discussed the annual report and the financial statements 2018. In accordance with article 8.1.a of the articles of association of War Child, the Supervisory Board adopted the annual report and the annual accounts of War Child, including the proposed appropriation of the surplus. The members of the Supervisory Board as per 17 May 2019 are Peter Bakker (President), Willemijn Verloop (Vice-President), Rob Theunissen (Treasurer), Raymond Cloosterman, Edith Kroese and Arjan Hehenkamp.

The articles of association provide guidance about the appropriation of the surplus in stating that the foundation shall not keep more reserves than reasonably necessary for its continuity, as determined by the Managing Director. Art. 3.4: "De stichting houdt niet meer vermogen aan dan naar het oordeel van de directie redelijkerwijs nodig is om de continuïteit van haar werkzaamheden ten behoeve van haar doelstelling te waarborgen."

Events after the balance sheet date

No events have occurred between the balance sheet date and the date on which the Supervisory Board adopted the annual accounts, which would affect the 2018 annual accounts or the condition of War Child at the end of the financial year or thereafter.