R4 Waste Collection & Recycling Limited

Additional practice exam marking guide

ES Req 1 Req 2 Req 3 Overall Total

CC

SC

IC

ID

NA

Total 6 10 10 10 4 40

ID = Insufficiently Demonstrated 1

IC = Insufficiently Competent 2

SC = Sufficiently Competent 3

CC = Clearly Competent 4

 EXECUTIVE SUMMARY
FINANCIAL PERFORMANCE TRUCK INVESTMENT

Comment on total revenue AND GP/GP% (with figures)
States revenue for mixed AND general waste (figures)

Comment on stream revenue AND GP/GP% (with figures)
States gross profit for mixed AND general waste (figures)

Comments on changes in recyclates / MRF costs
Professional scepticism on working assumptions

OP/OP%: significant decline / % decline / getting close to BE
Comments on operations issues / cash flow issues

NA ID IC SC CC NA ID IC SC CC

Explains change in revenue / costs / margins
Anticipated increase in work is significant / unrealistic

Comments on achievement of Local Authority target
Concludes on way forward

Concludes on profitability of 3rd party collectors
Concludes/recommends on ethical/business trust issues

Makes commercial recommendations
Makes commercial / ethical recommendations

NA ID IC SC CC NA ID IC SC CC
SEWCO OPPORTUNITIES

Identifies financial impact of music festival (figure)

Identified financial impact of cycling event (figure)

Comments on strategic/operational issues for music festival

Comments on strategic/operational issues for cycling event

NA ID IC SC CC

Considers opportunities for future events / collaborations

Concludes on way forward

Concludes/recommends on ethical/business trust issue

Other commercial recommendations

CC
NA ID IC SC CC SC
IC
ID
NA
Total 6
 REQUIREMENT 1 - Review of financial statements
ASSIMILATING & USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS

Uses relevant AI & EP information (report / appendix) Financial analysis on revenue (report)

Total revenue: down £966k AND 1.9%
Mixed: revenue down £983k / 5.2% AND comment

Total GP: down £484k AND 6.0%
General: revenue up £17k / 0.1% AND stable

Total OP: down £218k AND 3.4%
Tonnes: calculates increase in total / mixed / general tonnes

GP%: 15.1% v 15.8%
Sales mix: Mixed 35.6% v 36.8% / General 64.4% v 63.2%

OP%: 2.0% v 3.3%
Volume mix: Mixed 40.9% v 39.4% / General 59.1% v 60.6%

NA ID IC SC CC NA ID IC SC CC

Identifies business issues and wider context Financial analysis on GP/OP (report)

Industry: forecast growth of 4.9% per annum / competitive
Total COS: down £482k AND 1.1%

Recycling: Local Authority target of 40% / 41%
Mixed: GP down £305k / 6.7% OR GP% 23.9% v 24.2%

Public: falling rates in recycling / increased fly-tipping
General: GP down £179k / 5.1% OR GP% 10.3% v 10.8%

MRF: capacity 120,000 units per annum / mostly fixed costs
MRF costs: down £87 v £91 OR < recyclates per tonne

R4 targets: 40:60 mixed vs general / 25% mixed waste margin
Operating costs: up £218k / 3.4% AND comment

Own research with source

NA ID IC SC CC

Analysis of 3rd party waste collectors

Tonnes: increased by 6,434 tonnes OR 15.6%

NA ID IC SC CC

Revenue: total revenue £4,336k (£953k + £3,383k)

Revenue: total revenue down £34k / 0.8% vs 2016

Gross profit: total gross profit £190k (£4,336k - £4,146k)

Gross profit: GP down £429k / 69.3% vs 2016

Gross margin: fallen to 4.4% (vs 14.2% in 2016)

NA ID IC SC CC
APPLYING JUDGEMENT CONCLUSIONS AND RECOMMENDATIONS

Evaluation of revenue analysis Draws conclusions (under a heading)

Revenue fell despite growth in prior year / industry forecast
Revenue: comment on total AND by stream (figures)

Lack of I&C growth due to limited vehicle capacities
GP/GP%: comment on total AND by stream (figures)

Loss of regular SEWCO customers is a cause for concern
OP/OP%: significant decline / only just covers finance costs

Recyclates down from 2016 due to price AND mix changes
Comments on profitability of 3rd parties (figure)

Considers non-recyclable mixed waste impact on LA target

NA ID IC SC CC NA ID IC SC CC

Evaluation of GP / OP Makes recommendations

Costs fell at a lower rate than revenue / impact of fixed costs
SEWCO: revise fees / research competitors prices

Impact of lower recyclates on mixed waste GP / GP%
Recycling target: review impact of non-recyclable waste

General waste impacted by increase in WDF charges
Security: encourage clients to review security / cyber-security

MRF costs per tonne have fallen due to economies of scale
3rd parties: reject inappropriate loads / charge higher fees

Only just covering interest / low operating profit / low OP%
Customers: identify less profitable 3rd party / I&C contracts

Other recommendations

NA ID IC SC CC

Evaluation of 3rd party waste collectors

Tonnes from 3rd parties help towards recycling target

NA ID IC SC CC

Fall in recyclate revenue per tonne due to quality problems

Revenue has fallen despite increase in volume / customers CC

SC

Work from 3rd parties contributes to profit / MRF costs
IC
ID
NA

Recyclate revenue is an average / might actually be worse
Total 10

Critically low margins / some contracts may be unprofitable

NA ID IC SC CC
 REQUIREMENT 2 - Evaluation of investment in trucks
ASSIMILATING AND USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS

Uses relevant AI & EP information (report / appendix) Calculation of mixed waste revenue and gross profit

Volumes: 4 AND 6 trucks AND 300 lifts AND 225 days
Volume: 270,000 lifts OR 18,900 tonnes per annum

Collection fees: £13 mixed waste AND £18 general waste
Revenue: total £5,135k (£3,510k collection + £1,625k recyclates)

Collection costs: £9 mixed waste AND £16 general waste
COS: total £4,074k (£2,430k collection + £1,644k MRF costs)

Recyclates: £86 per tonne of mixed waste ONLY
Calculate GP (own figure)

MRF costs: £87 per tonne of mixed waste ONLY
Calculates GP% (own figure)

NA ID IC SC CC NA ID IC SC CC

Describes business issues and wider context Calculation of general waste revenue and gross profit

I&C collections: restricted growth / vehicles at full capacity
Volume: 405,000 lifts OR 28,350 tonnes per annum

Mixed: revenue £17,803k / GP% 23.9% / 25% GP% target
Revenue: collection fees £7,290k

General: revenue £32,229k / GP% 10.3%
COS: collection costs £6,480k

MRF capacity: currently under utilised / 120,000 tonnes pa
Calculate GP (own figure)

Cash position: year end OD £1,219k / OD limit £1,500k
Calculates GP% (own figure)

Own research with source

NA ID IC SC CC

Comments on ethical and business trust issues

NA ID IC SC CC
Price: should not take advantage of sellers difficult situation

Payment: lack of transparency of cash-in-hand payment

Emissions: built to Euro-6 standards / older vehicles / larger vehicles

Noise: vehicles may be excessively noise / impact on local community

CPP: believed to be trying to circumvent China's import ban

NA ID IC SC CC
APPLYING JUDGEMENT CONCLUSIONS AND RECOMMENDATIONS

Evaluation of assumptions Draws conclusions (under a heading)

Mix of trucks differs to existing split of I&C work
Revenue for mixed AND general waste (figures)

Vehicles are unlikely to reach 300 lifts per day initially
GP/GP% for mixed AND general waste (figures)

Number of vehicle days may be less due to break downs
Concludes on operational/cash flow impact

Potential changes to cost per lift (e.g fuel, manpower etc)
Concludes on ethical/business trust issues

Recyclate price fluctuations / MRF economies of scale
Concludes on way forward

Changes in assumptions will affect actual profit

NA ID IC SC CC NA ID IC SC CC

Evaluates operational and cash flow impact Makes recommendations

Reliability of used vehicles / R4 engineers maintain fleet
Negotiate with RWD final price / option to buy less trucks

Impact of size of trucks / compatibility with road lay out
Investigate other trucks for sale / consider vehicle leasing

Municipal waste trucks may not be compatible for I&C
Investigate compatibility of trucks with road lay out / I&C waste

Significant volume increase / additional manpower needed
Research I&C demand / review impact on MRF capacity

R4 has £200k available / would be close to OD limit
Research costs (e.g. manpower, fuel, overheads, MRF costs)

Impact on working capital of anticipated increase in work
Other recommendations

NA ID IC SC CC

Evaluation/recommendations: ethical/trust issues

Corporate responsibility at the heart of R4's business

NA ID IC SC CC

Sale of the vehicles must be formally recorded

Actual emission levels are unknown / need to be checked

CC

Noise levels are unknown / need to be checked SC
IC
ID

Discuss concerns with CPP / investigate the facts
NA
Total 10

NA ID IC SC CC
 REQUIREMENT 3 - SEWCO opportunities
ASSIMILATING AND USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS

Uses relevant AI / EP in calculation Music festival - financial, strategic and operational issues

Music festival: collection fee £250 per tonne
F - expected gross profit of £300k / GP% 31.6%

Music festival: recyclates 1,500 tonnes AND £450k
F - impact of family-based audience on the mix of waste / recyclates

Cycling event: collection fee £200 per tonne
S - annual event / opportunity for long-term relationship

Cycling event: recyclates 3,000 tonnes AND £900k
O - deadline for tender submission is in two weeks

Comparison to festival example / average SEWCO figures
O - festival takes place in Barnsley / minimal distances to travel

O - event takes place in both indoor and outdoor locations

NA ID IC SC CC NA ID IC SC CC

Describes business issues and wider context Cycling event - financial, strategic and operational issues

SEWCO: R4 is a specialist / low fee key to winning work
F- expected gross profit of £400k / GP% 21.1%

SEWCO: work typically between April and Sept / seasonality
F - impact of coffee cups sales on the mix of waste / recyclates

Waste mix: typically 75:25 for SEWCO / 40%-45% targets
F - ZQ recycling revenue £960k / gross profit own figure

Recyclates: impact of weather / commodities / £295 in 2016
S - one-off cycling event / strengthen relationship with ZQ

CSR: corporate responsibility is at the heart of the business
O - distance of the event will have an impact on collection logistics

Own research with source
O - part of the work will be Monday-Friday and may clash with I&C work

NA ID IC SC CC

Business trust and ethical issues

NA ID IC SC CC
Music festival: dispute with previous waste collectors over unpaid fees

Music festival: unknown ethical standards of organisers

Music festival: impact on local community of traffic congestion

Cycling event: ZQ are offering R4 less than half of the £3m fee

Cycling event: ZQ have been accused of fly-tipping

Cycling event: coffee cups are difficult to recycle / may end up in landfill

NA ID IC SC CC
APPLYING JUDGEMENT CONCLUSIONS AND RECOMMENDATIONS

Evaluation of music festival Draws conclusions (under a heading)

Comparison of gross margin to existing SEWCO work
Concludes on financial impact of music festival (figure)

75% is typical ratio of SEWCO mixed waste
Concludes on financial impact of cycling event (figure)

Festival popularity is growing / uncertain attendances
Concludes on music festival strategic/operational/ethical issues

Impact on management time of negotiating tender
Concludes on cycling event strategic/operational/ethical issues

Short distance will help to keep costs low
Concludes on which opportunity to choose

Use of indoors minimises the weather impact on recyclates

NA ID IC SC CC NA ID IC SC CC

Evaluation of cycling event Makes recommendations

Comparison of gross margin to existing SEWCO work
Research festival waste / compare to other festivals

60% is less than the SEWCO average of mixed waste
Negotiate with music festival a higher fee / lower fee / flexible fee

ZQ may use other local MRF operators
Research cycling waste / investigate Tour de France statistics

Risk of collaborations
Negotiate fee with ZQ / negotiate use of R4's MRF facilities

Need to locate WDF operators / rubbish train opportunity
Investigate resources needed (e.g. MRF capacity, local WDFs)

MRF operating at full capacity some weeks
Other recommendations

NA ID IC SC CC

Evaluates ethical issues (and recommendations)

Delayed payment would impact R4 cash flow

Need due diligence on festival organisers

NA ID IC SC CC

R4 avoids local opposition / discuss with organisers

CC

ZQ does not benefit from the recyclate revenue SC
IC
ID

Investigate the facts / avoid collaboration with fly-tippers
NA
Total 10

Rubbish train service could minimise landfill usage

NA ID IC SC CC
 APPENDICES MAIN REPORT

Appendices R1: Content and style Report: Structure

Well presented table of £s AND %s
Sufficient appropriate headings

Overall analysis: revenue AND GP/GP% AND OP/OP%
Appropriate use of paragraphs / sentences

Mixed waste: revenue AND GP/GP%
Legible

General waste: revenue AND GP/GP%
Correctly number pages

NA ID IC SC CC NA ID IC SC CC

Appendices R2: Content and style Report: Style and language

Well presented, labelled and numbers clearly derived
Relevant disclaimer AND addressed from the firm

Mixed waste: calculation of revenue AND gross profit
Formal language for the board

General waste: calculation of revenue AND gross profit
Tactful / ethical comments

Other relevant calculations eg sensitivity
Reasonable spelling / grammar

NA ID IC SC CC NA ID IC SC CC