AVSI Foundation Financial statements as at December 31, 2017 Independent auditor’s report EY S.p.A. Tel: +39 02 722121 Via Meravigli, 12 Fax: +39 02 722122037 20123 Milano ey.com Independent auditor’s report (Translation from the original Italian text) To the Bord of Directors of AVSI Foundation Report on the Audit of the Financial Statements Opinion We have audited the financial statements of AVSI Foundation (the Foundation), which comprise the balance sheet as at December 31 2017, the income statement and statement of cash flows for the year then ended, and explanatory notes. In our opinion, the financial statements of AVSI Foundation have been prepared, in all material respects, in accordance with the principles and criteria described in the paragraph "Accounting principle and valuation criteria" of the explanatory notes. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Foundation in accordance with the regulations and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matters This report is not issued pursuant to the provisions of the Italian law, as the Foundation is not subject to the statutory audit pursuant to the Italian Civil Code, for the year ended December 31, 2017. Responsibilities of Directors and Those Charged with Governance for the Financial Statements The Directors are responsible for the preparation of the financial statements in compliance with the principles and criteria described in the paragraph "Accounting principle and valuation criteria" of the explanatory notes, and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors are responsible for assessing the Foundation’s ability to continue as a going concern and, when preparing the financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure thereof. The Directors prepare the financial statements on a going concern basis unless they either intend to liquidate the Foundation or to cease operations, or have no realistic alternative but to do so. The statutory audit committee (“Collegio dei Revisori”) is responsible, within the terms provided by the law, for overseeing the Foundation’s financial reporting process. EY S.p.A. Sede Legale: Via Po, 32 - 00198 Roma Capitale Sociale Euro 2.525.000,00 i.v. Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di Roma Codice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904 P.IVA 00891231003 Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998 Iscritta all’Albo Speciale delle società di revisione Consob al progressivo n. 2 delibera n.10831 del 16/7/1997 A member firm of Ernst & Young Global Limited Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skepticism throughout the audit. In addition: we have identified and assessed the risks of material misstatement of the financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; we have obtained an understanding of internal control relevant to the audit 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 Foundation’s internal control; we have evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors; we have concluded on the appropriateness of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Foundation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to consider this matter in forming our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Foundation to cease to continue as a going concern. We have communicated with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Milan, June 26, 2018 EY S.p.A. Signed by: Luca Pellizzoni, Partner This report has been translated into the English language solely for the convenience of international readers. 2 AVSI REGISTERED OFFICE: CESENA (FC) Via Padre Vicinio da Sarsina, 216 Tax code (Italian fiscal code): 81017180407 GOVERNING BODIES Board of Directors President Patrizia Savi Vice President Alfredo Mantica Directors Daniele Contini, Michele Faldi, Lorenzo Ornaghi, Giampaolo Silvestri, Alda Vanoni Secretary General Giampaolo Silvestri Board of Auditors President Michele Grampa Auditors Delia Gatti, Alfredo Tradati Independent Audit Company EY S.p.A. 1 INDEX DIRECTORS' REPORT - Economic and financial summary of the Foundation 4 - Relationships with foreign subsidiaries 7 - Performance of the early months of 2018 9 BALANCE SHEET, INCOME STATEMENT, CASH FLOW - Balance Sheet – Assets 11 - Balance Sheet – Liabilities 12 - Income Statement 13 - Cash Flow 14 NOTES TO THE FINANCIAL STATEMENTS - Structure and content of the Financial Statements 15 - Accounting principles and valuation criteria 17 - Comments on the main items of Assets 23 - Comments on the main items of Liabilities 31 - Memorandum accounts 39 - Comments on the main items of the Income Statement 40 2 DIRECTORS' REPORT Dear Founding members, We submit herewith to your attention the Annual Report for fiscal year 2017, prepared under the responsibility of the Board of Directors in compliance with Art. 2423 of the Civil Code of Italy. As it is better clarified in the notes to the Financial Statements, the Income Statement is reclassified by function rather than by nature as this approach provides a clearer and more representative overview of the Foundation’s economic standing. In order to obtain a global overview of the activities implemented over the year in facts and figures, please refer to the Foundation's social report. As usual, at the end of a year of hard work we wish to express our wholeheartedly gratitude and thank to all those who have joined us in our work: our expatriate staff, our staff in Italy and our local staff; all volunteers and supporters, who have all freely contributed with their valuable work and expertise; all private donors, individuals and companies, national Institutions, international Agencies, local Agencies and the Founding Members, that with their significant contributions make it possible for us to keep sharing the needs and the very meaning of life with the poorest in the world. 3 ECONOMIC AND FINANCIAL SUMMARY OF THE FOUNDATION The summary of the economic and financial data as of December 31, 2017 is presented below following two different descriptive criteria (amounts in thousands of Euros): Summary of Economic data for fiscal year 2017 (Table 1) 2017 2016 - Contributed income for projects 24,125 18,240 - Project expenses (23,791) (17,699) Operating results of projects 334 541 - Contributed income for the organization 3,883 3,573 - Organization expenses (4,055) (3,967) Operating results of the organization (172) (394) - Revenue from ancillary activities 233 124 - Expenses for ancillary activities (76) (115) Operating results of ancillary activities 157 9 Operating results 319 156 - Financial income (charges), net (130) (35) - Extraordinary income (charges), net (83) 8 - Project adjustments 0 (74) Income before taxes 106 55 - Taxes of the year (23) (23) Net result 83 32 The first table highlights the operating result for project management determined as the difference between the contributions received for projects and the related costs and expenses incurred for project implementation, equal to EUR 334 thousand. Next, there is the contributed income for the organization. It is accounted for when received and is represented by that part of contributed income from state agencies and private donors which is expressly devoted to cover organization expenses. Contributions for the organization less organization expenses give a negative operating result of EUR 172 thousand in 2017.