Better Cotton Initiative, Geneva. Financial Statements for the year ended December 31, 2015 and Report of the Statutory Auditor

Transcription

1 Better Cotton Initiative, Geneva Financial Statements for the year ended December 31, 2015 and Report of the Statutory Auditor

2 Deloitte SA Pré-de-la-Bichette 1 CH-1202 Genève Tel: +41 (0) Fax: +41 (0) Report of the Statutory Auditor To the General Assembly of the Members of Better Cotton Initiative, Geneva Report on the financial statements As statutory auditor, we have audited the accompanying financial statements of Better Cotton Initiative which comprise the statement of financial position as at December 31, 2015, statement of income and expenditure and notes for the year then ended. Council of the Association s responsibility The Council of the Association is responsible for the preparation of these financial statements in accordance with the requirements of Swiss law and the Association s statutes. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Council of the Association is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Audit.Fiscalité.Conseil.Corporate Finance. Member of Deloitte Touche Tohmatsu Limited

3 Better Cotton Initiative Report of the statutory auditor for the year ended December 31, 2015 Opinion In our opinion, the financial statements for the year ended December 31, 2015 comply with Swiss law and the Association s statutes. Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 69b Civil Code (CC) in connection with article 728 Code of Obligations (CO)) and that there are no circumstances incompatible with our independence. In accordance with article 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of the Association. We recommend that the financial statements submitted to you be approved. Deloitte SA Jürg Gehring Licensed Audit Expert Auditor in Charge Matthias Bapst Licensed Audit Expert Geneva, March 29, 2016 Enclosure : Financial statements (statement of financial position, statement of income and expenditure and notes)

4 FINANCIAL REPORT 2015 FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2015 Cotton boll Better Cotton Initiative Page 1 of 12

5 STATEMENT OF FINANCIAL POSITION as of 31 December (in Euros) ASSETS Notes Cash 5.1 2,084,725 1,106,858 Receivables ,254 1,290,985 Current accounts ,443 Accrued income ,593 75,754 Deferred expenses 35,796 16,627 Total current assets 3,039,369 2,496,667 Financial assets ,753 40,961 Intangible assets , ,486 Total non-current assets 191, ,447 Total Assets 3,231,160 2,803,113 LIABILITIES & FUNDS Payables 128,485 91,638 Provision for VAT ,533 Deferred income 5.8 2,503,789 1,718,276 Accrued expenses 143, ,278 Total current liabilities 2,776,077 2,339,725 Retained surplus from previous years 463, ,142 Net result of the year -8,306 57,247 Total funds 455, ,389 Total Liabilities & Funds 3,231,160 2,803,113 Page 2 of 12

6 OPERATING INCOME STATEMENT OF INCOME & EXPENDITURE (in Euros) Notes Membership fees 6.1 2,988,542 2,224,186 Event & Training income 46,233 19,221 Grants from institutional donors , ,733 Traceability system income 96,121 26,024 Project credibility income , ,677 Partnership income 14,479 12,866 User fees ,625 - Other operating income ,850 32,215 Total Operating Income / BCI operations 4,993,834 3,801,921 Farmer Support / Field Investment 46,711 - Total OPERATING INCOME 5,040,545 3,801,921 OPERATING EXPENSES BCI staff in Geneva headquarters 6.6-1,666,950-1,364,986 BCI agents based outside Switzerland 6.6-1,056, ,388 Other third-party consultants & service providers - 1,046, ,828 Office running - 233, ,016 Travel & meetings - 424, ,990 Other operating expenses - 360, ,600 Total Operating Expenses / BCI operations -4,789,091-3,757,809 Provision for VAT - 98,837 Total Operating Expenses / BCI operations including provision for VAT -4,789,091-3,658,972 Farmer Support / Field Investment - 46,711 - Total OPERATING EXPENSES -4,835,802-3,658,972 OPERATING RESULT 204, ,949 Financial income 6,896 5,932 Financial expenses - 73,443-43,654 Foreign exchange gains & losses - 146,502-47,981 NET RESULT -8,306 57,247 Page 3 of 12

7 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, ACTIVITY The Better Cotton Initiative (BCI) is a global private and not-for-profit initiative founded in July 2009 and established as an association under Article 60 et seq. of the Swiss Civil Code. The BCI secretariat is located in Geneva, Switzerland. The Better Cotton Initiative exists to make global cotton production better for the people who produce it, better for the environment it grows in and better for the sector s future. BCI aims to transform cotton production worldwide by developing Better Cotton as a sustainable mainstream commodity. To achieve this mission, BCI works with a diverse range of stakeholders across the cotton supply chain to promote measurable and continuing improvements for the environment, farming communities and the economies of cotton-producing areas. Our four specific aims: - Reduce the environmental impact of cotton production - Improve livelihoods and economic development in cotton producing areas - Improve commitment to and flow of Better Cotton throughout supply chain - Ensure the credibility and sustainability of the Better Cotton Initiative 2. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted by BCI in the preparation of the financial statements are set out below Accounting conventions BCI financial statements have been prepared in accordance with the articles of association of BCI, and the applicable provisions of the Swiss code of obligations. The financial statements have been prepared using historical cost principles. The accrual method of accounting has been used for all revenue and expenses incurred. The accounting periods are determined by the transaction date principle; expenses as well as revenues are booked to the period they relate to. All amounts are expressed in Euros. The financial statements are presented exclusively in Euros, as authorized by the Swiss Federal Tax Authorities (AFC) in a letter dated 14 February 2013 (until tax year 2019) Valuation principles Monetary assets and liabilities are stated at their nominal value and any foreign (non-euro) balances are converted at the year-end exchange rates. Any non-monetary assets and liabilities are stated at their nominal value less amortisation Scope of the financial statements These financial statements present the consolidated activities of BCI worldwide. They include the accounts of: - BCI secretariat, Geneva, an Association governed by Swiss law - this incorporates income and expenses for program activities at field locations in production countries, for which operational control is maintained through the secretariat. Page 4 of 12

8 - The affiliate local entity in Shanghai, China, which is legally registered as Resident Representative Office of a Foreign Enterprise since October Foreign currency conversion The functional currency of BCI is the Euro (EUR). Operations in currencies other than Euro are converted at the official average exchange rate of the accounting month, as per the Swiss Federal Department of Finance. At year end, the monetary assets and liabilities denominated in foreign currency of the balance sheet are converted into Euros at the year-end rate. Any loss or gain on revaluation is accounted for as an unrealised loss or gain Cash Cash includes cash holdings (kept in petty cash boxes and safes) and bank account holdings, both at the secretariat and abroad Tangible assets BCI owns few tangible assets beyond office furniture, copiers, computers and printers. As a consequence, BCI has elected not to treat acquisition costs for such items as capital expenditure and accordingly does not present them in the balance sheet. Instead, BCI follows an expense asset method, i.e. tangible assets purchased during the year are shown at full acquisition cost on the Statement of Income & Expenditure, under the relevant charge heading. However, for individual or consolidated asset purchases above EUR, BCI policy is to capitalise the cost, and depreciate it over its estimated useful economic life. It will be amortised over 3 years (refer to section 5.6) 2.7. Provisions A provision is recognised in the balance sheet when BCI has a present legal or constructive obligation as a result of past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions may be booked against arrears of some members related to outstanding membership fees. These are calculated on an individual basis, after review of their specific situation. That specific provision is updated at every year-end and deducted from the receivables Restricted vs unrestricted funds Restricted funds represent contributions received from donors along with restricted conditions on their use, in particular in terms of eligibility dates and specific purpose. They are dispersed in compliance with the requirements of the donors, and are the subject of specific financial reporting to the donors to this effect. Restricted funds at BCI include all grants received from institutional donors (excluding unconditional funding grants, where no reporting is required), as well as a funds received for delivery of Project Credibility Services from the Better Cotton Fast Track Program (BCFTP). (Refer to section 6.2. for details about the BCFTP.) Restricted funds also include donations received from Retailer & Brand members for farmer support (compulsory field investment). Income and allocated expenses on restricted funds are traceable and monitored via specific analytic coding in the accounting system. All other sources of funding, including membership fees, event & training fees, credibility service fees paid to BCI from parties other than the BCFTP, partnership income & other income, are considered as unrestricted funds. BCI has discretionary control over the use of those funds, which can be for investment or program development, to bridge the gap for any under-funded program activity, or to fund core costs of BCI headquarters. Page 5 of 12

9 2.9. Revenue recognition Membership fees are recognised on an accrual basis, and recognized over the period of that firm s membership. Donor grants (financing contracts) Donor grants are recorded as revenue at time of invoicing. However only the restricted income which is actually spent (i.e. expenses allocated as per donor requirements) during the current year is recognised as current year revenue: at year-end, the difference between income recognised and the cumulative expenses allocated is accounted for as income deferred to the following year, with approval of the donor. In cases where approval is not granted for a deferral, funds are returned to the donor. No funds were returned to donors during 2015 as a result of this policy. 3. TAX STATUS 3.1. Exemption of direct taxes BCI is exempt from Swiss cantonal income tax and capital tax as well as Swiss direct federal tax, in accordance with a decision from the Department of Finance, Canton of Geneva, dated 2 September 2011 (and valid up to tax year 2019). The exemption of federal tax is an official recognition by the Swiss federal authorities that BCI is an Association of public interest VAT & acquisition tax In 2015 BCI decided to opt for Swiss Value Added Tax (VAT). As a consequence, BCI revenues are subject to VAT according to Swiss VAT law. 4. MANAGEMENT OF FINANCIAL RISKS Financial risks identified by management include: 4.1. Foreign exchange risk BCI is exposed to exchange rate fluctuations as most of its incomes are in Euros but its expenses are in several currencies. In January 2015 the Euro weakened materially against the Swiss Franc (CHF). For this reason it was decided to cover around 80% of our estimated our CHF needs again EUR with the purchase of options. Other currency risks remain uncovered Banking risk BCI in Switzerland works with UBS, a major international bank, with experience in global operations and offering services appropriate for a not-for-profit entity. In the field, the BCI representative office in China holds an account at Bank of Shanghai, a large Chinese bank offering e-banking services, which is also the only bank in Shanghai with which UBS has agreements and corresponding accounts in hard currency. In Pakistan, BCI s fund management service provider has opened an account on behalf of BCI, exclusively for BCI operations. BCI will open a bank account in Pakistan when a local BCI entity will have been registered. At the end of 2015 we received authorization from the Indian authorities to open a BCI entity in India. A bank account was opened in January BCI has not contracted any loans. Page 6 of 12

10 4.3. Reserve policy BCI policy is to ensure a sufficient level of liquidity for its commitments and operations at all times. Consequently, funds are held in liquid form. In 2015, there was a policy to maintain at all times a minimum of EUR cash reserve available ( EUR in 2014). For 2016, this level will be raised to EUR. 5. DETAILS ON 2015 BALANCE SHEET ACCOUNTS 5.1. Cash Small amounts of petty cash are kept at the Geneva and Shanghai offices. Almost all of BCI s cash is held in EUR, in Bank accounts in Geneva, Switzerland Total EUR CHF CNY GBP USD Petty Cash Bank in Geneva 2,053,049 2,023,632 14,839 3,199 5,893 5,486 Bank in China 31, , Total 2,084,725 2,023,632 14,855 34,859 5,893 5, Total EUR CHF CNY Petty Cash Bank in Geneva 1,090,832 1,097,356-18,808 12,284 Bank in China 15, ,286 Total 1,106,858 1,097,356-18,071 27, Receivables Receivables are presented at invoiced value, less a provision for bad debts. The provision is established based on management analysis that BCI is unlikely to recover the full invoiced amount. Receivables Membership fees 584,597 1,139,667 Provision on bad debts /membership fees -24,408-53,200 Credibility fees 49, ,951 Farmer support / Volume Based Fee 151,390 21,488 Donor grants 18,882 17,000 Traceability fees 5,395 8,875 General receivable 15,900 8,380 Operational advances to country offices 11,880 22,548 Operational advances to suppliers 17,324 9,532 Pension Fund (for Geneva staff) 13,015 6,729 Withholding tax (on bank income) 1,015 1,015 Total 844,254 1,290, Current accounts This amount represents one advance of GBP which was extended to BCI UK in 2012 as operating expense reserve. In 2015, this amount was fully refunded to BCI secretariat in Geneva Accrued income Accrued income mainly consists of: Page 7 of 12

11 Agreed grants where cost was incurred in 2015, but was not invoiced to the donor at year end Traceability income invoiced during 1 st quarter of the following year as the fee is based on annual cotton consumption but final figures are not know before February of the following year. Donor EU (via WWF Pakistan) 23,611 15,908 SIDA (via WWF Sweden) 0 39,604 WWF UK 0 4,598 Sub-total Donor 23,611 60,110 Traceability income 47,851 15,644 Other income 3,131 0 Total 74,593 75, Financial assets Security deposits have been paid in favour of third parties, in Geneva and field offices, to guarantee payments for office premise rents. Guarantee deposits Office rent Delhi INR 4,554 4,285 Office rent Geneva in CHF 27,037 21,458 Office rent Lahore in PKR Office rent London in GBP 0 1,915 Office rent Shanghai in CNY 13,397 12,588 Total 45,753 40, Intangible assets Intangible assets Research & Development / IT 358, ,318 Depreciation on R&D / IT -212,280-92,832 Total 146, ,486 IT development costs for the traceability system ( Cotton Tracer ) were capitalised in 2013 and In 2015, there was no further capitalisation of the system. These costs will be amortised over a 3 year period Provision for VAT In mid-january 2014 BCI management discovered that it is liable to self-declare and pay every year the Swiss VAT acquisition tax (refer to section 3.2.). The detailed accounting extracts of BCI for the past 5 years were analysed line-by-line to assess the taxable amounts as well as the interest for late payment due for the period The result of this assessment was communicated to the Swiss federal authorities, and the 2013 provision adjusted to reflect this accounting oversight. For 2014 tax reporting, a new assessment was conducted and a provision (revised downward) booked accordingly to reflect certain changes in BCI operating and tax reporting processes. All VAT Acquisition Tax has been fully paid in Page 8 of 12

12 5.8. Deferred income Income stream Membership fees 1,530,844 1,634,652 Donor grants 290,990 1,913 Cotton tracer user 99,875 0 Farmer support / Volume Based Fee 582,080 81,711 Total 2,503,789 1,718,276 Deferred income consists mainly of Membership fees invoiced in 2015 where a portion of the benefit relates to 2016 or even The same applies for the Cotton tracer user fee. Deferred income also includes a portion of one donor grant for which BCI has not yet met all donor requirements, and which are carried over to Farmer Support and Volume based Fee are automatically deferred at time of invoicing. BCI only recognise revenue to match expenses of direct field projects. In 2015, EUR 46,711 was invested directly into field projects. There were none in That task is traditionally managed by the independently operated Better Cotton Fast Track Program reason why BCI has very little direct field investment. 6. DETAILS ON 2015 INCOME & EXPENDITURE ACCOUNTS 6.1. Membership fees Over the course of 2015, membership increased from 468 members at end the end of 2014 to 706; this is a 50% increase in number. Number of members as of 31/12 Member category Retailers & brands Civil society Producer organizations Associate members 9 7 Suppliers & manufacturers Total members As a consequence of the increase in number, the income generated from membership fees has also significantly increased in 2015 reducing again our dependence on grant funding. Income recognised - Member category Retailers & brands 857, ,718 Civil society 19,748 18,955 Producer organizations 9,707 6,072 Associate members 12,964 15,702 Suppliers & manufacturers 2,088,953 1,369,739 Total membership fees 2,988,542 2,224, Grants from institutional donors The total amount of grants from institutional donors financing BCI secretariat remained stable when all other revenue increased. This evolution is in line with BCI s strategic objective to become financially independent of philanthropic support by Page 9 of 12

13 Income recognised, by grant type - Grant type BCFTP Core line 400, ,000 BCFTP Restricted lines 250, ,430 Donor grants /partnerships 6,913 43,058 Donor grants /other 204, ,245 Total grants from institutional donors 861, ,733 The Better Cotton fast Track Program (BCFTP) is an independently operated coalition of public (ICCO, IDH, FSP & RABOBANK) and private organisations (BCI Retailer & brands members and supply chain actors) which provides funding directly to farmer capacity building programs designed to enable production of Better Cotton. In addition to providing substantial funding for field implementation projects (ca. 11 million EUR in 2015, not included in BCI s financial statements), the BCFTP also provides financial support for various BCI secretariat costs that are reflected in BCI financial statements (itemised below). Other donor grants to fund BCI support for partnership countries include DEG grant for work with ATBF/CMIA. Other institutional donor grants that do not come from BCFTP are classified as Donor grants / other. Income recognised by donor - Donor IDH Netherland 350, ,430 BCFTP (via IDH Netherland) 300, ,000 SIDA (via WWF Sweden) 162, ,921 EU (via WWF Pakistan) 26,585 37,064 FSP (via Solidaridad LatinAmerica) 15,000 25,000 DEG - Deutsche Investitions- und Entwicklungsgesellschaft 6,913 23,086 GIZ Germany 0 12,472 International finance Corporation ( IFC) 0 7,500 FSP/JFS (via Solidaridad S.Africa) 0 5,260 Total grants from institutional donors 861, , Project credibility service income All farm-level projects (farmer capacity building programs) are supported by the BCI secretariat, which provides second-party monitoring, carries out field visits, develops Corrective Action Plans for noncompliances and organises and pays for small-holder third-party verification. BCI also collects data from all projects, analyses them, and consolidates them into global results for external reporting. In 2015, EUR 2,600 was charged per producer units participating in the BCI programme to cover the costs of these secretariat services. In 2014, the fee was 1.2 EUR for each farmer. Project credibility service income also includes third-party verification fees charged to participating large farm owners and collected to contribute to the cost of third-party verification. Credibility service Credibility fees - via BCFTP 776, ,999 Credibility fees - direct to BCI 59, ,678 Total project credibility income 836, , User fees BCI offers access to the Cotton Tracer traceability system to Fabric Mills since February The fee charged is EUR 750 for 12 months. The portion of the fee relating to 2016 has been deferred. Please refer to 5.8 Deferred income for more details. Page 10 of 12

14 6.5. Other income Other income Refunds from Swiss social allowances 23,931 17,068 Other income 74,919 15,147 Total other income 98,850 32,215 Refunds from Swiss social allowances are primarily refunds for staff in Geneva, associated with salaries while on maternity leave. Other income primary come from sponsorship income during several BCI events BCI staff in Geneva & BCI agents outside Switzerland BCI works with a number of agents working full-time for BCI but based outside Switzerland, either under consultancy contract or employed by a subcontracted payroll service provider (in China and Pakistan in particular). Those individuals based outside Switzerland are independent, but contracted by BCI for specified services. BCI cost and FTE per contract type - Contract type cost EUR avg FTE cost EUR avg FTE BCI direct employees in Geneva 1,662, ,350, BCI interns in Geneva 4, , Sub-total staff in Geneva 1,666, ,364, Subcontracted staff 715, , Regular consultants 341, , Sub-total agents outside CH 1,056, , Total 2,723, ,029, OTHER COMPULSORY INFORMATION 7.1. Rental commitments Rental commitments as of 31 December 2015 are listed below: Office location end Geneva, Switzerland ,691 82,962 Shanghai, China ,724 33,568 Delhi, India ,098 41,421 Lahore, Pakistan ,388 1,180 Total commitment 76, , Debts to pension institutions There are no debts of BCI to pension institutions as of 31 December Balance is in favour of BCI for 13,015 EUR in 2014 (6,729 EUR in 2014) Swiss Franc presentation of key figures The Foundation maintains its accounting records in Euro. The key figures below have been translated into Swiss franc for information purposes only, using a closing rate of CHF per EUR (2014: ) Page 11 of 12

15 Key figures in CHF Total assets 3,513,563 3,370,324 Total funds (accumulated result) 494, ,155 Total Operating Income 5,481,089 4,571,240 Total Operating Expenses -5,258,451-4,399,365 Net result -9,032 68, Subsequent events No significant subsequent event took place since 31 December 2015 Page 12 of 12