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 relate to the development of War Child’s new website and custom developed software for the new CRM system.

Tangible fixed assets acquired during the year are mainly ICT equipment and vehicles. The assets under land and buildings consist of an apartment close to our office in Amsterdam in which we host employees who are visiting from country programmes - saving on hotel accommodation costs. The market value of this apartment at balance date is approximately €425,000. This estimate is based on actual sales prices of similar apartments in the same building. The estimated market value is about €165,000 higher than its book value of €259,268. 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.

Financial fixed assets relate to the value of participation in War Child Deutschland gGmbH. The organisation was officially registered and launched in the first quarter of 2019 as a German fundraising foundation.

2. Receivables

All accounts receivable originated in 2020 (EUR 103,700), except legacies due from seven legacies totalling €384,154 originating from 2019. 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 14 legacies, of which the largest legacy due is €98,000.

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 per the table below. The amount relating to the Dutch National Postcode Lottery was received in March 2021.

3. Cash and Cash Equivalents

War Child’s cash and cash equivalents balance is at €9.2 million, compared with €12.0 million in the previous year. This decrease can be explained mainly by the decrease in reserves and also by grants received in advance. 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, 75 per cent of balances were kept in bank accounts in The Netherlands. For expenses 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 expenses 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. The largest bank balance outside the Netherlands is held in South Sudan (€0.3 million). See also our notes about credit risk.

4. Reserves and Funds

Continuity Reserve

War Child does not keep more reserves than reasonably necessary to realise its organisational 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 2019 the minimum desired level of the continuity reserve was left unadjusted at €5.0M, which was approved by the Supervisory Board in their meeting on 20 December 2020. 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 €0.7M surplus which is not necessary for War Child’s continuity and in 2021 War Child will aim to spend part of 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 €37M.

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.

Legal reserve

The legal reserve is related to funds reserved in accordance with accounting regulations. War Child has a legal reserve for the book value of the capitalized development costs of its intangible fixed assets (€53,336). The legal reserve will be released as and when the book value of the intangible assets decreases.

Earmarked funds

The earmarked funds are designated by the donor and must be spent on a specific purpose. The earmarked funds that existed end of 2019 were spent, except for an amount of €127.617. Additional earmarked funds were added in 2020 for the amount of €123.581. Earmarked reserves are spent on the objective and mainly realised within one year after occurrence. Next to several smaller amounts, the largest earmarked funds are: 

• Jacob Foundation to Research & Development for € 111.000 

• Donations related to Beirut Blast for Lebanon for € 99.000  

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.

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.

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 2022 onwards.

For remainder of the term period decrease is expected to zero exposure, majority is less than one year.

During the year 2020 the long term liabilities decreased with €8,404 (2019: €8,404). An amount of €8,404 (2019: 8,404) is recognized as a deduction of the rental expenses.

7. Short Term Liabilities

All short term liabilities are due within one year.

The short term liabilities decreased mainly due to the 8 per cent decrease of 'Grants Received in Advance', as further detailed in the next table. It consists of restricted 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 accounts payable to implementing partners decreased by 16 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.

Payable to participating interests is related to liability to War Child Germany.

Other liabilities are 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, as well as to holiday leave days pending at the balance sheet date.

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 for several grants to amount of 3.5 million, from the The Netherlands Government to amount of 1.3 million, and United Nations to amount of 1.2 million.

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 €6.1 million, which is its balance with Rabobank at the balance sheet date. War Child also holds bank accounts with ASN bank (€0.2 million), with ABN AMRO (€0.2 million), Triodos bank (€0.5 million) and with ING (€0.6 million). Furthermore, it has balances with foreign banks in potentially unstable states. The largest bank balance abroad is with Cooperative Bank in South Sudan (€0.3 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.  Given the precarious situation, there still are concerns about the fragile banking situation in Lebanon. Lebanese banks restricted transfers abroad and dollar withdrawals from deposit accounts since 2019. At year end a total amount of €0.3 million is held with banks in Lebanon. The situation is closely monitored and management decided a provision is not necessary based on information available on 10 June 2021.

Credit risk- receivables

Credit risk also arises from War Child's receivables totalling €8.9 million. The credit risk is concentrated at for counterpartiesfrom outstanding amounts with donors for a total amount of €6.3 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 receivables amount to €2.5 million from the European Commission and €1.4 million from 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 €0.2 million with Plan International.

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, CHF and SSP. War Child's policy is to denominate its contractual obligations as much 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 or becoming negative, resulting in reduced interest income or increased costs, deviating from the budget.

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. The liquidity position ensured by War Child's level of the reserves to cover financial obligations are adequate. 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 €0.9 million. The remaining obligations of €0.4 million mainly consist of rental obligations in programme countries.

The most important operational lease objects are Office rent and rent of the Playground in Amsterdam, NL. The principal provisions from these operational lease agreements are:

Agreement Playground with Merin

• Term 6 years and 3 months, starting 1 juli 2017 until 30 sept 2023

• After this period, 5 year extension without notice

• Cancellation period 12 months before end of term

Agreement Office Amsterdam with Merin

• Term 10 years, starting 1 oct 2013 until 30 sept 2023

• After this period, 5 year extension without notice

• Cancellation period 12 months before end of term

Agreement Office Amsterdam with Alliantie

• Term 10 years, starting 1 oct 2013 until 30 sept 2023

• After this period, 5 year extension without notice

• Cancellation period 12 months before end of term

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 €4million. War Child’s largest expected future payment is to Lebanese Organization for Study and training and Plan international with which a conditional funding agreement is in place with an amount of approximately €0.8 million due to the organisations until June 2021. This relates to the implementation of part of the European Union Funded Project.

Off balance sheet rights

Grants from donors are recognized as income when the related expenses are recognized. 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 € 25 million. The largest total amounts to be received in the coming 5 years are € 10.8 million from the LEGO Foundation, € 3.6 million from UNICEF and € 5.1 million from The European Union.

Risks for Ineligible Grant Expenses

Potential risks are 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. In 2020, 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.