NOTES TO THE BALANCE SHEET

in Euros

1 Fixed Assets

Fixed assets are depreciated over their estimated life time.

Intangible fixed assets were newly acquired in 2017 and relate to custom developed software for the new CRM system. In 2016 there were no intangible fixed assets.

Tangible fixed assets that were acquired in 2017 are an apartment close to our office in Amsterdam in which we will amongst others host employees who are visiting from country programmes, saving hotel accommodation costs. We also acquired furniture for our new training and event space 'the Playground' and we divested old ICT equipment and cars in programme countries that were not in use anymore.

2 Receivables

All accounts receivable originated in 2017, except for one legacy of €86,500 originating from 2016. All receivables are expected to be received within one year. 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 seven legacies, of which the largest is €86,500 and the other legacies are below €40,000.

Prepayments in project countries include, for example, rental prepayments for offices abroad.

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

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 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:

3 Cash and cash equivalents

The balance of cash and cash equivalents is related to large prepayments from institutional donors including the IKEA Foundation and the National Postcode Lottery.

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, 97 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 determines the desired size of its continuity reserve annually based on risks perceived, and the analysis is approved by its Supervisory Board. The 2017 analysis took into account a number of adverse incidents that might happen, as well as a comparison of continuity reserves that are held by other international non-governmental organisations. The result of this recent analysis is a decrease of the minimum desired level of the continuity reserve from €6.0M to €5.0M, which was approved by the Supervisory Board in 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 €1.9M surplus which is not necessary for War Child’s continuity and in 2018 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 control of NGOs ("Financieel Beheer Goede Doelen"): The operational costs multiplied by 1.5 amount to a maximum continuity reserve of €26 million. War Child has taken into account the following adverse events:

Reputational damage

An undefined cause such as a child safety incident or insufficient quality of one of War Child's projects, might attract negative media attention leading to donors cancelling their structural donations. This will negatively impact on War Child's unrestricted funds (assumption worst case: -25 per cent in three years).

Recession

In an economic recession it will become more difficult for War Child to raise both restricted and unrestricted funds. Governments will cut their development budgets and individuals and businesses will be more reluctant to donate to a good cause (assumption worst case: -30 per cent in three years).

Evacuation

A worsening security situation in one of War Child's programme countries or cancellation of registration certificates by a local authority make it impossible for War Child to implement its programmes in a country. This will result in one-off expenses (assumption worst case: € 0.8 million in the first year).

Ineligible grant expenses

The obligation to pay back part of a grant, based on the results of an audit revealing financial mismanagement by War Child or one of its implementing partners, such as missing justifying documentation, non-compliance to donor requirements or a fraud incident (assumption worst case: 5 per cent per year).

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. The earmarked reserves at the previous year’s balance sheet date contained funds reserved for the depreciation of project assets and funds reserved for an internal call for proposal. All reserved funds were spent in 2017 in accordance with approved project plans.

Earmarked funds

The earmarked funds are designated by the donor and must be spent on a specific purpose. In 2017, the earmarked funds that existed end of 2016 for the TeamUp programme and the subsidy by Adessium for War Child’s Research and Development were fully spent and therefore the earmarked funds were released. New earmarked funds were added in 2017 for a project in Lebanon funded by the Medische Missie Zusters, for a new TeamUp activity and for a project in Uganda funded by Rotary Club Amsterdam. War Child expects to spend these amounts in 2018.

5 Provisions

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 multiplied by gross monthly salary multiplied by a 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.

Besides withdrawals from the provisions related to its use, during 2017 an amount of €72,129 was released from the provision of local taxation because there was sufficient evidence that the specific provision would not be used. This was based on a confirmation by local tax authorities.

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 contexts where the safety of its (partners’) staff is at risk. Under such circumstances it is not possible to guarantee that the strictest of donor requirements are always followed. War Child still implements those projects because especially those children need its support. War Child is continuously striving to improve its procedures and the compliance thereto, in order to decrease the risk of ineligible expenses. The amount that is at risk of repayment to the donor is provided for.

The entire provision is short term. All employees have a notice period of less than one year, it is possible that authorities will impose tax on War Child within one year, and the ineligible grant expenses might be claimed from War Child within one year.

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 2019 onwards.

7 Accounts Payable

All accounts payable are due within one year.

The accounts payable at head office increased mainly because of a number of large invoices received relating to project activities and to the implementation of two new systems.

The accounts payable to implementing partners increased mainly because War Child United Kingdom has prefinanced a number of large programmes. When War Child collaborates with partner organisations, War Child normally prepays their activities because the small local organisations have limited own funds. With larger international organisations such as War Child United Kingdom, payable amounts may occur.

8 Grants Received in Advance

'Grants Received in Advance' 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 largest institutional donors paying 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 IKEA Foundation and the National Postcode Lottery, mainly in relation to the expansion of War Child's successful 'Can't wait to Learn' programme. The Netherlands government has prefinanced a large project in Lebanon.

The IKEA Foundation is an important donor which supports War Child in 2017 with three grants, as specified below.

9 Other Liabilities

All Other Liabilities are short term. Personnel liabilities 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 2018 and to holiday leave days pending at the balance sheet date.

Other liabilities are expected invoices relating to the financial year, which were not yet received at the balance sheet date. It also includes rental discounts spread over the total duration of the rental contract, and to be recognized within one year.

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 €13,8 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 (€3.7 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 Itaú in Colombia (€0.1 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 €3.7 million. The credit risk is concentrated at four counterparties for a total amount of €2.3 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, €0.5 million receivables relate to prepayments to partners. This balance is spread over more than 10 partners, the largest balance being approximately €0.1 million with War Child Canada.

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 USD and EUR, 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, USD and CAD, whereas a minority of grants are denominated in amongst others SEK, GBP 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.

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 rental obligation in The Netherlands for the period until 30 September 2023. Total remaining rental obligation including service and utilities charges is €1.6 million. The remaining oligations of €0.5 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 €4.5 million. War Child’s largest partner is War Child UK, with which funding agreements are in place with an amount of in total €2.2 million due in the coming 5 years. War Child UK implements part of the Can’t wait to Learn programme as well as the Time to be a Child project in Jordan.

Off-balance sheet rights

Grants from donors are recognised as income when the related expense is 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 €16.0 million. The largest total amounts to be received in the coming 5 years are €4.1 million from the European Commission, €2.7 million from the Dutch Government and €2.1 million from the IKEA Foundation.