ActionAid International Annual Report 2006

Financial Review

Review of financial performance

ActionAid International and its affiliates’ total income in 2006 was €178.1 million, an increase of 7% on the €166.3 million raised in 2005. Income raised for emergencies was €22.8 million, compared with 2005’s €27.4 million, a fall that was expected following that year’s exceptional response to the tsunami in the Indian Ocean. Underlying income for longer term development and policy advocacy and campaigning work therefore rose by 12%.

The income that we raise is shown in these accounts broken into three categories.

We receive committed giving income from supporters in Europe, mostly individuals, who make regular contributions to support our work. This income stream grew by 14% to €95.7 million, which was 54% of our total income. We saw the strongest growth in Italy where ActionAid International Italy was the main beneficiary of a television series that encouraged viewers to sponsor children in developing countries. There were also good increases in committed giving income in all other European affiliates. ActionAid in the UK remains by far the most important source of this income, generating 55% in 2006 and 68% of the unrestricted fund portion. Including the 51,000 supporter links to our work from our sister organisation in Spain, Ayuda en Accion, the total number of supporter links rose to 466,000.

2006 also saw the first income contribution from our newly established associate in Sweden, and work has also begun on raising committed giving income from the public in India and Brazil. The recently announced reduction in the basic rate of UK income tax will mean that we will begin to lose some €1.2 million a year on committed giving from UK supporters from next year.

Other donations, representing 25% of our total income, have remained largely level in 2006. Included in these is the contribution from the UK Disasters Emergency Committee (DEC), which fell by €2.1 million to €16.6 million, and other emergency appeals, which fell by €2.8 million. We expect to receive some €15 million from the DEC this year and next in respect of our work following the tsunami and the South Asia earthquake of October 2005. Meanwhile, other donations from companies, trusts, foundations and other organisations grew by 92% to €9.4 million, boosted by €1.4 million from the Bill and Melinda Gates Foundation for health policy and advocacy work in Europe. This is the first instalment in a five year project with a potential value of €10 million. Ayuda en Accion’s contribution to our programmes in Africa and Asia increased by 20% to €9.7 million; this includes committed giving income (shown in note 1b), emergency appeals and grants from the Spanish government.

Official income, which represents grants from governments and multi-lateral institutions, including the United Nations (UN) and the European Union (EU), rose just 1% to €35.3 million, which was 20% of our total income. This included €4.6 million of emergency-related income (€4.3 million in 2005). The UK government contributed 56% of our official income, with UN agencies and the EU being the next two biggest sources of funds. The growing number and value of grant agreements entered into with official donors in recent months should mean that this category of income will grow substantially in the near future.

Investment income has grown 24% in the year to €2.3 million. Approximately one third of this income has arisen from our portfolio of shares and bonds which saw strong growth in equity dividends in the year.

Other income reduced to €0.3 million from €1.1 million. The major component of this was foreign exchange differences when country programmes' net assets at the beginning of the year, denominated in currencies other than Euros, are re-translated at the year-end rate. The local currencies of the developing countries where we work tend to depreciate against the Euro, which was again the case in 2006 in many countries concerned. The loss in value to ActionAid International of the assets held in these countries was some €1.1 million.

The split of our total income between restricted and unrestricted funds was unchanged at a ratio of approximately three-quarters to one-quarter respectively. It has been part of our fundraising strategy for some time to try to increase the proportion of our unrestricted income so that we are better able to optimise its allocation. We expect to see marked progress on this from 2008 when we plan to ask many of our Italian supporters to allow us to use their donations more freely.

The cost of raising our voluntary and official income was €25.8 million, up 18% on 2005’s €21.8 million. This represented 15% of this income, compared with 13% in the previous year. A breakdown of fundraising costs by income category is given in note 2 to the accounts. The committed giving cost ratio increased slightly to 19% while the costs of other donations rose from 13% to 15%. This was almost entirely due to the lower level of emergency income received; raising emergency income has very low fundraising costs attached.

Programme expenditure increased by 9% to €123.2 million. This included €25.4 million spent on emergency interventions compared with €21.4 million in 2005. The underlying growth in longer term development, policy advocacy and campaigning work was therefore 6%, which was lower than planned. This was partly due to slower than expected progress on a number of projects funded by official income. Emergency-related interventions continued in response to the tsunami in India, Sri Lanka, Thailand, the Maldives and Somaliland, to the south Asia earthquake in Pakistan and India, to climate-related crises in Africa, in Niger (through ActionAid in Ghana), Kenya, Burundi, Tanzania, Rwanda and Uganda.

Note 3 to the accounts shows this expenditure categorised according to the six key thematic areas of our work set out in our strategy, Rights to End Poverty. We have also added a new category in 2006, “cross-cutting policy and campaigns”, to capture the costs of policy-related work that straddles several themes. Included in this is our expenditure on the Global Campaign for Action against Poverty and on preparing for our own international campaign being launched in 2007. Food Rights and Human Security remain the themes with the greatest expenditure, reflecting the incidence of food aid and the high level of other emergency interventions. Work under “Other” themes includes work with the disabled, with young people and with dalits or “untouchables” in South Asia.

On a geographical basis, 83% of our programme expenditure was carried out by our country programmes, 11% through the ActionAid International Secretariat, including our regional offices and thematic teams based in the regions, Johannesburg and London, and the remainder by the affiliates in the North, primarily ActionAid in the UK.

Although our financial controls are good, we become aware through audit and whistle-blowing processes of losses suffered by our programmes from time to time from fraud or other financial irregularities. We estimate that the total amount reported lost in this way in 2006, net of recoveries, was some €145,000. This was higher than in the previous year and was affected by particular cases of poor management control in Mozambique and extortion by staff from partners in Sri Lanka. Fourteen members of staff were dismissed last year and four partner relationships were terminated for fraud and related activities.

Support costs rose by 14% to €28.8 million and governance costs by 30% to €1.7 million, both significantly faster than programme expenditure. This is not a trend that we would wish to see continuing, but it was not unexpected given that we have a number of new country programmes that have yet to build up the levels of income that they need, that the ActionAid International Secretariat has been building up to its full complement of staff and that the volume of audit work, including audits for official donors, increased. We are also expecting our governance costs to continue to grow as more country programmes seek to become affiliates and as new associates join ActionAid International from outside.

Overall, of our total spend, 68% was on programmes, 17% was on support and governance and 15% was on fundraising. We would not want to see our programme expenditure fall below two-thirds of the total.

At the end of the year, the total funds of the organisation had risen marginally by €0.4 million to €67.8 million. Within this, reserves of restricted funds had fallen and reserves of unrestricted funds had risen, which was in line with plans. Balances of cash and short-term deposits fell by €2.9 million to €55.4 million.

Reserves policy and performance

ActionAid International’s reserves represent funds which are invested in the group's fixed and working capital, or are expected to be spent in the short-term or held in reserve to protect the long-term future of its operations.

Restricted fund reserves are maintained on a project by project basis or in accordance with the agreed restrictions on their use. For convenience, the restricted fund reserves and the movements on them are shown on a country by country basis in the notes to the accounts.

ActionAid International’s policy in relation to its restricted fund reserves is that each country programme that benefits from committed giving income should aim to maintain total reserves of not less than one sixth of its total planned expenditure for the following year. Any plans showing reserves of more than one third of the following year’s spend should only be approved in exceptional circumstances. Restricted reserves for these purposes are balances of funds from individual supporters, typically committed givers, excluding funds invested in fixed assets. The financial risks of country programmes whose committed giving income is less than 20% of their total income are covered by ActionAid International’s unrestricted fund policy.

We are broadly satisfied that country programme reserves of restricted fund are in line with this policy and that, where they are not, plans are in place for them to be brought into line within three years. We had been concerned for several years about the trend for country programme reserves to increase. This trend has now reversed owing to improved reserves management and to the first steps being taken in a programme of seeking supporters’ permission to use any excess of accumulated reserves on other work where there is a more immediate need.

ActionAid International’s unrestricted reserve policy is that such reserves, excluding funds invested in plant, property and equipment, should cover at least 10% of the aggregate of country programme shortfalls below the minimum required under the restricted fund policy. It should also cover 10% of the following year’s spend of those country programmes that have low levels of committed giving income and of other planned restricted expenditure, as well as certain defined risks to the organisation’s future unrestricted income and expenditure. ActionAid International expects that those of its members that raise unrestricted income will aim to keep in reserve at least one quarter of their planned expenditure of unrestricted fund for the following year.

The unrestricted fund reserves of €17.5 million at the end of 2006 represented a margin of some €2.5 million over the minimum required under this policy, which is satisfactory.

Investment policy and performance

The trustees’ policy in relation to ActionAid International’s long term investments is that they should achieve a higher income than is achieved on the group’s liquid resources while over time benefiting from the capital growth available from equities. In 2006, the total return (income and capital growth) achieved on the equity portfolio was 29.2%, ahead of the FTSE All-Share Index benchmark (16.8%), and on the bond portfolio was 0.5%, behind the FTA Government All Stocks Index benchmark of 0.7%. Total income on these investments represented 5.1% of the sterling value of the portfolio at the beginning of the year, or 6.1% of the amount originally invested. This latter figure compares with the average income on ActionAid’s sterling bank deposits of 4.86%. The capital value of the portfolio measured in sterling rose by 12% during the year.

All investments were made in line with ActionAid International’s ethical investment policy.

Home Introduction Mission, Vision, Values Message from Chair and CE Message from Treasurer Strategic Overview Strategic Objectives Women's Rights Education Rights Food Rights Human Security HIV/AIDS Governance Other Initiatives Organisational Objectives Governance & Audit Financial Review Review Auditors' report Policies Financial Accounts Income statement Balance Sheet Cash Flow Note 1 Notes 2 & 3 Note 4 Note 4c Notes 5 & 6 Note 7 Note 8 & 9 Note 10 Note 11 Note 12 Note 13 Note 14 Note 15 Notes 16 & 17 Board-Trustees/Directors Photo Galleries Get on board 2006 South Asia Earthquake Global Action Week Video Gallery Contact Us		Financial Review Review of financial performance ActionAid International and its affiliates’ total income in 2006 was €178.1 million, an increase of 7% on the €166.3 million raised in 2005. Income raised for emergencies was €22.8 million, compared with 2005’s €27.4 million, a fall that was expected following that year’s exceptional response to the tsunami in the Indian Ocean. Underlying income for longer term development and policy advocacy and campaigning work therefore rose by 12%. The income that we raise is shown in these accounts broken into three categories. We receive committed giving income from supporters in Europe, mostly individuals, who make regular contributions to support our work. This income stream grew by 14% to €95.7 million, which was 54% of our total income. We saw the strongest growth in Italy where ActionAid International Italy was the main beneficiary of a television series that encouraged viewers to sponsor children in developing countries. There were also good increases in committed giving income in all other European affiliates. ActionAid in the UK remains by far the most important source of this income, generating 55% in 2006 and 68% of the unrestricted fund portion. Including the 51,000 supporter links to our work from our sister organisation in Spain, Ayuda en Accion, the total number of supporter links rose to 466,000. 2006 also saw the first income contribution from our newly established associate in Sweden, and work has also begun on raising committed giving income from the public in India and Brazil. The recently announced reduction in the basic rate of UK income tax will mean that we will begin to lose some €1.2 million a year on committed giving from UK supporters from next year. Other donations, representing 25% of our total income, have remained largely level in 2006. Included in these is the contribution from the UK Disasters Emergency Committee (DEC), which fell by €2.1 million to €16.6 million, and other emergency appeals, which fell by €2.8 million. We expect to receive some €15 million from the DEC this year and next in respect of our work following the tsunami and the South Asia earthquake of October 2005. Meanwhile, other donations from companies, trusts, foundations and other organisations grew by 92% to €9.4 million, boosted by €1.4 million from the Bill and Melinda Gates Foundation for health policy and advocacy work in Europe. This is the first instalment in a five year project with a potential value of €10 million. Ayuda en Accion’s contribution to our programmes in Africa and Asia increased by 20% to €9.7 million; this includes committed giving income (shown in note 1b), emergency appeals and grants from the Spanish government. Official income, which represents grants from governments and multi-lateral institutions, including the United Nations (UN) and the European Union (EU), rose just 1% to €35.3 million, which was 20% of our total income. This included €4.6 million of emergency-related income (€4.3 million in 2005). The UK government contributed 56% of our official income, with UN agencies and the EU being the next two biggest sources of funds. The growing number and value of grant agreements entered into with official donors in recent months should mean that this category of income will grow substantially in the near future. Investment income has grown 24% in the year to €2.3 million. Approximately one third of this income has arisen from our portfolio of shares and bonds which saw strong growth in equity dividends in the year. Other income reduced to €0.3 million from €1.1 million. The major component of this was foreign exchange differences when country programmes' net assets at the beginning of the year, denominated in currencies other than Euros, are re-translated at the year-end rate. The local currencies of the developing countries where we work tend to depreciate against the Euro, which was again the case in 2006 in many countries concerned. The loss in value to ActionAid International of the assets held in these countries was some €1.1 million. The split of our total income between restricted and unrestricted funds was unchanged at a ratio of approximately three-quarters to one-quarter respectively. It has been part of our fundraising strategy for some time to try to increase the proportion of our unrestricted income so that we are better able to optimise its allocation. We expect to see marked progress on this from 2008 when we plan to ask many of our Italian supporters to allow us to use their donations more freely. The cost of raising our voluntary and official income was €25.8 million, up 18% on 2005’s €21.8 million. This represented 15% of this income, compared with 13% in the previous year. A breakdown of fundraising costs by income category is given in note 2 to the accounts. The committed giving cost ratio increased slightly to 19% while the costs of other donations rose from 13% to 15%. This was almost entirely due to the lower level of emergency income received; raising emergency income has very low fundraising costs attached. Programme expenditure increased by 9% to €123.2 million. This included €25.4 million spent on emergency interventions compared with €21.4 million in 2005. The underlying growth in longer term development, policy advocacy and campaigning work was therefore 6%, which was lower than planned. This was partly due to slower than expected progress on a number of projects funded by official income. Emergency-related interventions continued in response to the tsunami in India, Sri Lanka, Thailand, the Maldives and Somaliland, to the south Asia earthquake in Pakistan and India, to climate-related crises in Africa, in Niger (through ActionAid in Ghana), Kenya, Burundi, Tanzania, Rwanda and Uganda. Note 3 to the accounts shows this expenditure categorised according to the six key thematic areas of our work set out in our strategy, Rights to End Poverty. We have also added a new category in 2006, “cross-cutting policy and campaigns”, to capture the costs of policy-related work that straddles several themes. Included in this is our expenditure on the Global Campaign for Action against Poverty and on preparing for our own international campaign being launched in 2007. Food Rights and Human Security remain the themes with the greatest expenditure, reflecting the incidence of food aid and the high level of other emergency interventions. Work under “Other” themes includes work with the disabled, with young people and with dalits or “untouchables” in South Asia. On a geographical basis, 83% of our programme expenditure was carried out by our country programmes, 11% through the ActionAid International Secretariat, including our regional offices and thematic teams based in the regions, Johannesburg and London, and the remainder by the affiliates in the North, primarily ActionAid in the UK. Although our financial controls are good, we become aware through audit and whistle-blowing processes of losses suffered by our programmes from time to time from fraud or other financial irregularities. We estimate that the total amount reported lost in this way in 2006, net of recoveries, was some €145,000. This was higher than in the previous year and was affected by particular cases of poor management control in Mozambique and extortion by staff from partners in Sri Lanka. Fourteen members of staff were dismissed last year and four partner relationships were terminated for fraud and related activities. Support costs rose by 14% to €28.8 million and governance costs by 30% to €1.7 million, both significantly faster than programme expenditure. This is not a trend that we would wish to see continuing, but it was not unexpected given that we have a number of new country programmes that have yet to build up the levels of income that they need, that the ActionAid International Secretariat has been building up to its full complement of staff and that the volume of audit work, including audits for official donors, increased. We are also expecting our governance costs to continue to grow as more country programmes seek to become affiliates and as new associates join ActionAid International from outside. Overall, of our total spend, 68% was on programmes, 17% was on support and governance and 15% was on fundraising. We would not want to see our programme expenditure fall below two-thirds of the total. At the end of the year, the total funds of the organisation had risen marginally by €0.4 million to €67.8 million. Within this, reserves of restricted funds had fallen and reserves of unrestricted funds had risen, which was in line with plans. Balances of cash and short-term deposits fell by €2.9 million to €55.4 million. Reserves policy and performance ActionAid International’s reserves represent funds which are invested in the group's fixed and working capital, or are expected to be spent in the short-term or held in reserve to protect the long-term future of its operations. Restricted fund reserves are maintained on a project by project basis or in accordance with the agreed restrictions on their use. For convenience, the restricted fund reserves and the movements on them are shown on a country by country basis in the notes to the accounts. ActionAid International’s policy in relation to its restricted fund reserves is that each country programme that benefits from committed giving income should aim to maintain total reserves of not less than one sixth of its total planned expenditure for the following year. Any plans showing reserves of more than one third of the following year’s spend should only be approved in exceptional circumstances. Restricted reserves for these purposes are balances of funds from individual supporters, typically committed givers, excluding funds invested in fixed assets. The financial risks of country programmes whose committed giving income is less than 20% of their total income are covered by ActionAid International’s unrestricted fund policy. We are broadly satisfied that country programme reserves of restricted fund are in line with this policy and that, where they are not, plans are in place for them to be brought into line within three years. We had been concerned for several years about the trend for country programme reserves to increase. This trend has now reversed owing to improved reserves management and to the first steps being taken in a programme of seeking supporters’ permission to use any excess of accumulated reserves on other work where there is a more immediate need. ActionAid International’s unrestricted reserve policy is that such reserves, excluding funds invested in plant, property and equipment, should cover at least 10% of the aggregate of country programme shortfalls below the minimum required under the restricted fund policy. It should also cover 10% of the following year’s spend of those country programmes that have low levels of committed giving income and of other planned restricted expenditure, as well as certain defined risks to the organisation’s future unrestricted income and expenditure. ActionAid International expects that those of its members that raise unrestricted income will aim to keep in reserve at least one quarter of their planned expenditure of unrestricted fund for the following year. The unrestricted fund reserves of €17.5 million at the end of 2006 represented a margin of some €2.5 million over the minimum required under this policy, which is satisfactory. Investment policy and performance The trustees’ policy in relation to ActionAid International’s long term investments is that they should achieve a higher income than is achieved on the group’s liquid resources while over time benefiting from the capital growth available from equities. In 2006, the total return (income and capital growth) achieved on the equity portfolio was 29.2%, ahead of the FTSE All-Share Index benchmark (16.8%), and on the bond portfolio was 0.5%, behind the FTA Government All Stocks Index benchmark of 0.7%. Total income on these investments represented 5.1% of the sterling value of the portfolio at the beginning of the year, or 6.1% of the amount originally invested. This latter figure compares with the average income on ActionAid’s sterling bank deposits of 4.86%. The capital value of the portfolio measured in sterling rose by 12% during the year. All investments were made in line with ActionAid International’s ethical investment policy.


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