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 2019

We met our ambitious income target from individuals of €9.7 million. We even raised €9.9 million income from individuals in 2019 (3 per cent above budget) which is 7 per cent higher than the previous year (2018: €9.3 million). While the gifts and donations increased 4 per cent year-on-year, those were 5 per cent under budget (€8.9 million realized against a budget of €9.4 million). The growth in income from individuals is mainly attributable to income from legacies, which grew by 33 per cent compared to previous year and which was more than triple the budget for the year. 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. 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 2019

In 2019 we raised €2.8 million from the business sector, 12 per cent above our target for the year, but 3 per cent below the income in 2018. 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 and ASN Bank. We saw a decrease of 26 per cent in gifts in kind – which with a value of €0.9 million were however 19 per cent above budget. Over 30 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 paper to free legal advice. Thanks to our good reputation that our donors recognize, we are quite successful in 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 2019

Income from lotteries has increased by 32 per cent in comparison with the previous year. 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. The income under this grant increased by 35% as additional funding allowed for scale up of activities. War Child also received funding from the National Postcode Lottery for its TeamUp programme with refugees in the Netherlands. 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 2019

The income from governments accounts for 45 per cent of War Child’s total income. It is €20.7 million in 2019, which is 30 per cent above the government income of 2018 (€16.0 million). The substantial growth that was realized is in line with the ambitious budget for the year (€20.4 million) which was achieved.

With €7.8 million the European Union was War Child’s largest donor and funding was 65 per cent above previous year’s income (2018: €4.7 million). This represents 17 per cent of our total income, which is slightly above 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 Netherlands Government is our second largest donor with a contribution in 2019 of €6.6 million. The United Nations agencies continue to contribute to War Child's programmes in various countries through its subsidiaries and affiliates such as UNICEF, UNHCR, UNESCO and UN OCHA. Global Affairs Canada (GAC) contributed to our educational programme in Colombia, which ended in 2019. More information is provided in the “Where our funds come from” section in our annual report.

14. Fundraising Income from Affiliated Parties

Income from affiliated parties includes the contributions of national and international parent and sister organisations of War Child.

War Child worked to further expansion of its presence in Europe and during the first quarter of 2019 officially registered and launched War Child Deutschland GmbH, as a German fundraising foundation.

War Child Deutschland GmbH fundraised 59,586 income from sales and private donations, collected at galas and from corporates, to be used for our programs.

15. 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 2019

The income from other non-profit organisations in 2019 totalled €6.9 million which was a decrease of 12 per cent compared with the previous year (2018: €7.8 million), and in line with the budget 2019. The largest donor in this income category is the IKEA Foundation, which is responsible for 40 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 were all finalized in 2019, which explains the decrease of income compared with 2018. More information is provided in the “Where our funds come from” section in our annual report.

16. Fundraising Income from Sale of Products

The income raised from sale of products are presented as net figures. The gross income is deducted with the direct costs and reported as net income.

The net income raised from sale of products in 2019 totalled €0.32 million.  The gross income from the sale of products totalled €0.36 million and the cost of goods sold €0.04 million. This income was raised during special events for War Child mainly through selling of auction items, concert tickets, and event dinners. More information is provided in the “Where our funds come from” section in our annual report.

Expenses

Total expenses increased by a total of €4.9 million to €44.3 million, a growth of 13 per cent (2018: €39.3 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 2019 War Child met this target. The ratio of Expenses on the objective and Sum of expenses was 88 per cent. War Child aims to spend maximally 4 per cent of its costs on management and administration. It met this target (2019: 3 per cent; 2018: 4 per cent) and it was able to maintain its fundraising expenses at 9 per cent of its income (2018: 9 per cent). The main reason was that even though the amount of fundraising expenses increased, the fundraising income increased even more, relatively. More information is provided in the below notes.

Cost Allocation of General Expenses

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. War Child allocates most of its head office expenses directly to the relevant cost category, meaning that if and when possible, each expense is recognized under the relevant cost category. 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.

As a result, a general cost allocation methodology is applied to general facility costs in the Netherlands only. The amount of allocated general costs is €550,886 and includes amongst others office rent, furniture, cleaning, reception and canteen costs. The basis of the allocation is the distribution of salary costs of employees in the Netherlands, resulting in 29 per cent of €550,886 is allocated to project activities, 13 per cent to preparation and coordination, 9 per cent to communication and awareness raising, 23 per cent to fundraising, and 25 per cent to general management and administration expenses.

Cost Allocation of Fundraising and Awareness Raising Expenses

War Child’s events and activities for public engagement in the Netherlands may have a fundraising as well as an awareness raising component. The out of pocket expenses related to such mixed activities are attributed to each of the two categories on the basis of a percentage as justified by the objectives and activities of each mixed project. For each mixed activity, the project leader provides a justified weight of each component. For example, the costs of engaging the public face to face are split 75%-25% 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. If percentages change year on year, management justifies this based on a changed nature of the activities. For instance in 2019 War Child has a new director of fundraising who steered the activities of the department more to fundraising than previously, hence percentages applied shifted more towards fundraising. For instance, the costs of face to face engagement were previously split 50%-50% between fundraising and awareness raising, whereas this percentage has been adjusted to 75%-25% in the current year due to more emphasis on the donor conversion rate. All employees with a fundraising role are fully attributed to the cost category for fundraising.

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. Above 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 2019. Vice versa, not all other projects in the budget took place in 2019.

17. 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 TeamUp programmes, as well as our research and development projects.

Developments 2019

Total expenses on project activities are €36.0 million in 2019, or 17 per cent above previous year (2018: €30.8 million) and 2 per cent over budget. 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 2019, our fundraising targets were achieved. War Child was able to realise a growth of €5.2 million in project activities meaning that we were able to implement more projects.

The growth of €5.2 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 Lebanon (+€2.6 million), Syria (+€2.0 million), South Sudan (+€0.7 million), Uganda (+€0.8 million), and Democratic Republic of Congo (+€0.7 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 Colombia (-€1.0 million), Yemen (-€0.8 million), and Jordan (-€0.6 million). This decrease is attributable to completion of grant funded projects

The largest programme country is Lebanon with €10.0 million project expenses, which is an increase of 35 per cent compared with 2018. Syria and The Netherlands are the next largest programme countries with €5.8 million and €5.3 million project expenses respectively. From Amsterdam, we manage our global Can’t wait to learn programme with €4.1 million expenses in the Netherlands and we implement our TeamUp programme in Dutch asylum seekers centres (€1.4 million).

18. 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 2019

The majority of costs for preparation and coordination originate in the International Programmes department at War Child’s head office. Total costs in 2019 have increased year on year by 3 per cent to €1.6 million and are 20 per cent above 2019 budget (€1.3 million).

19. 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 as described earlier under Cost Allocation.

Developments 2019

Awareness raising costs (2019: -€1.6 million) are 12 per cent under budget and 21 per cent under the level of the previous year (2018: -€2.0 million).

20. 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 2019

Total fundraising costs divided by total fundraising income in 2019 is 9 per cent, similar to 2018. In 2019, total costs of fundraising increased with 12 per cent in comparison with previous year, and the costs in line with the budget of 2019. The total amount of fundraising costs of €3.8 million consists of costs for raising unrestricted funds –for example from our Friends-, restricted funds –for example from institutional donors- and costs for setting up new fundraising offices –War Child’s contributions to War Child Sweden and War Child 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. It also contributed to the operational costs of War Child Deutschland gGmbH, which is a legal entity established in March 2019 of which the shares are fully owned by Stichting War Child. Costs for setting up fundraising offices in new markets increased in comparison with 2018 because of the new office in Germany. These expenses remained within budget.

21. 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 continuity of the organisation could be at risk.

War Child aims to keep its percentage for management and administration below 4 per cent. In 2019 it reached 3 per cent, while in 2018 it was 4 per cent due to necessary expenses for new systems. In the coming years War Child strives to keep this percentage as low as possible, 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 2019

The costs for management and administration in 2019 (€1.4 million) are 1 per cent above budget and 19 per cent below the level of 2018 (€1.7 million).

This is despite the overall growth of the organisation with 15 per cent in total income. The decrease in 2019 can be explained by high ICT expenses in the previous year related to the implementation of Office 365 and our new CRM and ERP systems.

22. Financial Gains / (Losses)

Developments 2019

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 2019 saw an exchange rate loss of €1,621. This is mainly related to the revaluation of outstanding grant award and bank 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 see the notes to the balance sheet.

Personnel Costs

War Child’s total personnel expenses are specified below. The growth of 16 per cent is mainly attributable to growing staff for programmes. Approximately half of total staff expenses originate in the Netherlands, while 20 per cent of our full time equivalent employees are located in the Netherlands. The higher staff costs in the Netherlands is explained by higher 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 2019 are audited by KPMG Accountants N.V. In 2019, expenses in War Child’s financial statements as related to the global KPMG group totalled € 114,753. War Child’s group audit 2019 costs € 109,203. The component audit for Lebanon was performed by KPMG against a fee of €5,550. 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 and services procured from third parties excluding outsourcing;

• 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 28, 2020, the Supervisory Board of Stichting War Child discussed the annual report and the financial statements 2019. 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 28 May 2020 are Peter Bakker (President), Hans van den Noorda, Willemijn Verloop (Vice-President), Rob Theunissen (Treasurer), Raymond Cloosterman, Edith Kroese, Arjan Hehenkamp and Stef Oud.

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

In December 2019 the novel coronavirus pandemic broke out in the Wuhan region of China. Within just a few months’ time, the virus had expanded to touch nearly every corner of the globe - including the Netherlands. Since its emergence here, the Dutch government - like many governments worldwide - has taken urgent measures to limit the spread of the virus. In War Child’s Financial Statements, consequences of the coronavirus pandemic are classified as events that have taken place after the balance sheet date and do not provide insight into the actual situation as per the balance sheet date. Therefore, they are not included in War Child’s 2019 Financial Statements.

 The 2020 coronavirus pandemic has had and will continue to have a significant impact on the economy, both at home and abroad. These impacts affect War Child as well. Some of the main consequences for us will be:

• Difficulties in conducting our activities for conflict-affected children worldwide: The coronavirus pandemic will negatively impact our ability to operate as planned;

• As a result of restrictive measures by governments around the globe, from February 2020 onwards, War Child was forced to either halt or adjust a number of key activities;

• So far, institutional donors have responded positively to our request to adhere to the budgeted costs, despite a decline in our activities. As a result, there has not been a significant decrease in revenue compared to the same period in 2019. However, despite the stable revenues to date, the pandemic has led to a decrease in War Child’s expected benefits in 2020, compared to our annual budget.

Due to the decrease in expected benefits, a larger deficit is anticipated. This will have a negative effect on War Child’s liquidity position. The liquidity position of War Child is very adequate at the reporting date. It is, however, difficult to foresee the full impact of the corona crisis on our liquidity throughout the remainder of 2020. This has to do with the high degree of uncertainty regarding the spread and impact of the coronavirus, and the nature, scale and effectiveness of further restrictive government measures. Based on our scenario-analysis, we have calculated that our current liquidity will be sufficient. Based on current knowledge and available information, we do not expect COVID-19 to have an impact on our ability to continue our activities in the future.

In response to the coronavirus pandemic, War Child composed an Emergency Response Team in March 2020 to take immediate action for continued War Child-activities wherever possible, through adapting or re-engineering our interventions.