Case study july 2010 marks plan ICAEW

EXAMINERS’ COMMENTS AND MARK PLANContents Page Part 1: Executive summary Part 2: The Case Study examination Part 3: Commentary on candidates’ performance Requirement 3: Discussion of

EXAMINERS’ COMMENTS AND MARK PLAN

Contents

Page Part 1: Executive summary

Part 2: The Case Study examination

Part 3: Commentary on candidates’ performance

Requirement 3: Discussion of diversification of packaging supplies 16

Part 4: Appendices

Appendix 1: Financial statement analysis: Review of Kreem’s financial performance 19

Appendix 2: Financial data analysis: Analysis of proposals 22

Part 5: Marking key

PART 1: EXECUTIVE SUMMARY

Introduction

This report covers the July 2010 Case Study (CS) exam It is issued in conjunction with two other

documents, comprising two illustrative scripts and related Examiners’ commentaries The first script was

well within the top 25% of all assessed scripts; the second failed the exam In reviewing these documents, it

is important to be aware that it is rare for a script to be uniformly ‘bad’ or uniformly ‘good’: a successful

script will often present detailed coverage of all requirements but include errors of calculation, spelling or

logic, and an unsuccessful script may contain one very strong section or several excellent points but be let

down by poor or incomplete text elsewhere Unsuccessful candidates will also find helpful guidance in the

July 2009 and November 2009 Examiners’ Reports, as well as the Case Study Manual, which forms part of the ICAEW Learning Materials and includes specific chapters on Introductory Financial Analysis and Ethics

Attached to the report are two appendices with examples of financial analysis work that candidates did, or

might have done, for Requirements 1 and 2 The two illustrative scripts offer further insights into financial

analysis

Overview of performance

78.6% of all candidates sitting the paper passed, compared with 73.3% in November 2009 and 77.7% in

July 2009 Successful candidates provided structured attempts at the requirements, approaching the tasks methodically and including less irrelevant material, whether in the body of their reports or in the

appendices One notable feature was the small number of NA grades awarded, indicating that candidates

were more conscientious in addressing the key parts of each requirement The higher pass rate also

reflects a rise in the number of candidates who delayed their sitting from November 2009, thereby

affording themselves invaluable extra professional experience before tackling the very real-life exam that is the Case Study

The subject of the case is Kreem Ltd, a company formed in 2005 when the production of two toiletries

products and pre-production of two others were divested by a cosmetics multinational to four members of

the management team Key goods and services are mostly sourced from a range of external UK-based

suppliers (with one supplier per activity), so that Kreem is effectively just a sales and marketing operation,

whose main asset is its brand This brand embraces the four products, each of which is ranked in the top 15 Customers are served from two distinct divisions, both profitable: Retail, accounting for around 80% of total revenue; and HCC (hotels, conference centres and cruise ships) In January 2010, Retail began a contract with its first-ever supermarket customer, Wychdean There are ongoing problems with the packaging

supplier, Jugson, with the suggestion of a possible move to ‘multi-sourcing’, perhaps even overseas

The exam requirements followed on from the Advance Information (AI) They comprised: (i) analysis of the

30 June 2010 accounts against actual results for the prior year (30 June 2009) and 30 June 2010 forecasts; (ii) a comparison between the proposal for Kreem to supply a new HCC customer and renewal of an existing contract; and (iii) discussion of a proposal to transfer some packaging work to a French supplier In the

rubric, candidates were specifically told to provide an executive summary and that the report should be

balanced between the three elements

As always, each requirement contained several parts Candidates had to identify these and then tackle them

in an orderly manner:

• At Requirement 1, the captions to be analysed – and bases for comparison – were clearly set out

• At Requirement 2, candidates needed to carry out calculations and then discuss them

• At Requirement 3, they had to integrate a range of areas (benefits and risks, operational, ethical) into a cohesive narrative

In broad terms, all three requirements necessitated skilful integration of AI and Exam Paper (EP) material

Also, as indicated by (i) the instruction to candidates to balance their report and (ii) the marking key, the

three main elements of the report were broadly equal in importance: any candidate spending too much

time on any one section was likely to have missed the opportunity to gain competent grades in others

Successful candidates produced well-balanced, relevant answers to the three main requirements, clear

appendices and succinct, focused executive summaries The majority of scripts were 25-30 pages long

(including around 3-5 pages of appendices) Many had an even spread of good competency grades

(“grades”), revealing an ability to assimilate the case material into an appropriate, commercial report With

reference to the four skills areas, candidates generally made good use of the case material (both AI and

EP) and achieved Clearly Competent and Sufficiently Competent grades for Assimilating & Using

Information Successful candidates then ensured that their scripts followed a clear progression from here

to the other three skills areas and thus achieved uniformly high grades across a requirement They were

able to demonstrate both ‘range’ and ‘depth’ in certain critical areas of the marking key Overall, there was

a major improvement in candidates’ treatment of ethical issues, resulting in a higher than average number

of candidates achieving competent grades for Applying Judgement than has often been the case

Candidates who failed did so for a variety of reasons High among these was poor exam technique –

generally a lack of time management, resulting in unbalanced answers (incomplete section for Requirement

3 or rushed executive summary) For others, the reasons for failure rested within each requirement

Requirement 1 assessed financial statement analysis skills, and candidates should have expected this As in

November 2009, performance was pleasing but there were features that clearly marked out weaker

candidates Typically, they either (i) compared 2010 actuals with only one of the two prescribed comparators, namely actual 2009 figures and 2010 forecasts (some even went out of their way to compare 2009 actuals

with 2010 forecasts); (ii) did not address all the elements of the financial statements that they were asked to cover (working capital was the most common omission); or (iii) calculated changes in key figures without

giving explanations for the changes

Requirement 2 was the weakest requirement overall It involved financial data analysis (including sensitivity

analysis) and the ability to discuss underlying assumptions – in the Examiners’ traditional adage, “make the numbers talk” – with due professional scepticism so as to arrive at a considered answer While the basic

calculations were generally well done, weaker candidates were unsure as to how to approach the sensitivity analysis and/or what they wanted it to tell them Scripts towards the bottom of the cohort were also

characterised by poor calculations, a blind acceptance of the figures presented and/or a thin discussion of

the business issues surrounding the proposal

Requirement 3 tested candidates’ skills in strategic analysis and ethical considerations Answers of

weaker candidates typically revealed a lack of ideas, either through poor planning and/or a failure to use

the relevant material from the AI with the new exhibits in the EP to create an integrated assessment of the

proposed change in supplier

In summary, as tutor firms have remarked, this was a fair paper, and candidates who covered all aspects of the requirements, managed time effectively, applied the processes learnt in their studies and demonstrated

their understanding of Kreem’s current business and finances should certainly have been able to pass

PART 2: THE CASE STUDY EXAMINATION

Scenario for the paper (Advance Information)

The case relates to Kreem Ltd (Kreem), one of the UK's leading toiletries companies, with a range of four

products: Kreemee (bar soap), Liquee (liquid soap), Gellee (shower gel) and Foamee (bath foam)

Kreem's annual revenue had reached £30 million by 2009, and it is planning further growth over the

coming years

You, the candidate, are Robin Tyler, a final-year trainee Chartered Accountant You have been working at

Kreem for the duration of your training contract and have had a broad variety of experience across this time You currently report to Rameet Sharma, Director of Finance and Business Planning

Four weeks prior to the examination, candidates were provided with a 53-page package of information,

containing a series of exhibits relating to Kreem and the industry in which it operates, comprising:

1 About you (Robin Tyler) and your employer (Kreem Ltd)

2 The cosmetics and toiletries industry: Background

3 The cosmetics and toiletries industry: Business models

4 The cosmetics and toiletries industry: Regulation

5 All about Kreem Ltd

6 Memo from Rameet Sharma to all members of the board: Business review for the year ended 30 June 2009

7 Kreem Ltd: Management accounts for the year ended 30 June 2009

8 Kreem Ltd: Summary of arrangements with Retail Division customers

9 Kreem Ltd: Summary of arrangements with HCC Division customers

10 Kreem Ltd: Supplier profiles

11 Kreem Ltd: Financial forecasts

12 Email from Henry Johnstone (Product Director) to Rameet Sharma: Packaging arrangements

13 Recent press articles

Analysis of Advance Information (AI)

By carefully studying and analysing the AI, candidates should have formed a comprehensive picture of

Kreem and the industry, using facts and figures from across the AI They were not required to carry out any significant research of their own: the AI was, as always, intended to be self-contained However, as usual,

close monitoring of the media in the run-up to the exam was advised Key findings from the AI are

summarised below Additional commentary by the examiners is provided in bracketed italics

Exhibit 1 sets out the background to the candidate’s role and areas of work, stressing the need to keep

up-to-date with industry issues, and the primacy of ethics in Kreem’s business

(Exhibit 1 was designed to alert candidates at the outset to potential ethical issues in the case material –

reinforcing the message of the rubric that around 10% of grades in the exam are available for ethical issues

As usual, some of these issues were obvious – such as Exhibits 13a-c (see below) – but others had to be

identified eg misleading advertising and health scares, both with several references across the material.)

Exhibits 2-3 give an overview of the cosmetics industry, with emphasis on the UK and on toiletries, and

explain the business model and finances of a typical toiletries company The key messages that candidates

should have extracted from these exhibits are as follows:

• Cosmetics comprise a wide range of products; the largest UK sector is toiletries (eg soap, toothpaste)

• The industry is dominated by major companies with large product development and advertising

expenditure

• Familiar toiletries names are PZ Cussons (Imperial Leather / Carex) and Unilever (Dove / Radox)

• In 2009 the total market was worth over £7.5bn at retail sales prices, up 3.3% on 2008

• In 2009, toiletries grew in value (up 2.3% to £2.0bn) and volume Growth was mainly in liquid soaps

(partly arising from anxiety about infections) and shower products, offsetting declining sales of bath

additives and bar soaps

• Toiletries are now widely available at supermarkets as well as traditional outlets such as Boots

• With toiletries seen as essentials, the UK market has so far weathered the economic downturn, but only modest growth is expected in 2010

• Faced by more competition, higher consumer expectations and rising commodity / energy costs,

companies are looking to increase sales volumes, through product development, advertising and

customer interaction

• The maturity of the market makes constant innovation and investment essential

• Some companies carry out all activities themselves, but many now source some or all from specialist

suppliers, whether in the same country or abroad, usually under service level agreements (SLAs)

• Such external sourcing brings with it the inherent risk of loss of control over key processes

• Some toiletries are sold as ‘dual-branded’ products to hotels etc for use by their guests

• However, with hotels becoming more environmentally conscious, order quantities are starting to drop

• Established brands can sell for long periods with no major change in composition, packaging or size

• Regulation – and the risk of reputational damage – helps ensure health & safety throughout the

production process Products must be clearly labelled, and packaging must be free from hazards

• Diversification by customer, product, supplier or geography (notably into Russia, China, India and the

Middle East) is key, spreading risk and protecting companies from changes in consumer tastes

• Scientific and legal expertise, plus efficient IT at all parts of the supply chain, is also essential

• With regard to finances:

• Companies typically use performance measures such as like-for-like sales, market share, EBITDA

• Cash / working capital management is critical, as is (for those trading abroad) forex management

• For companies like Kreem (ie brand owners and sales / marketing operations), most costs will be

payments to external suppliers These vary with suppliers’ own raw materials / energy costs

• Such companies also closely monitor the size and effectiveness of their advertising spend

• Many companies now also measure performance against corporate responsibility (CR) criteria

(Where detailed industry exhibits are provided, they are intended to ‘set the scene’ and to provide an

important context for the case and exam requirements They are also intended to create a ‘level

playing-field’ so that candidates do not have to carry out extensive research of their own One key to a full

appreciation of the AI is an ability to relate these general industry issues to the company’s circumstances

Thus, for example: investment in R&D and advertising is critical for a company such as Kreem with a

relatively mature product range (Exhibit 5); the growing importance of hand hygiene is key to the

performance of Liquee (Exhibit 6); the risks of external sourcing are of particular significance for Kreem’s

business model (Exhibits 10 and 12); the main components of costs will strongly influence its financial

results (Exhibit 7); and the environmental ethos of hotels could impact the future of HCC division (Exhibits 5 and 9) While candidates are not expected to commit every sentence of these exhibits to memory, they

should ensure that they are aware of the main contents and that they can easily locate key topics in the

exam hall Thus mention of eg diversification of supermarkets (p8), the move towards refillable products (p9) and the availability of grants in France (p13) would in turn have enhanced candidates’ answers to each of

the three requirements.)

Exhibit 4 sets out the EU regulatory framework within which Kreem operates, with reference to such issues

as animal testing, ingredients, product testing and labelling

(Again, candidates were expected to notice linkages to other parts of the AI to enhance their understanding of Kreem, such as the product development cycle (p15) and the example product label (p53).)

Exhibit 5 is a pivotal exhibit, documenting the history and current position of Kreem:

• It was formed in 2005, when a cosmetics multinational, KdK, divested the production of Kreemee and

Liquee and pre-production of Foamee and Gellee to four members of KdK's UK management team

• These four set up the new company Kreem, and all have stayed with Kreem

• The consideration (funded by a 10-year KdK loan) was £32.5m, the value placed on the Kreem brand

• Kreem sourced its key goods and services from KdK after the buyout but then began to source

externally from a network of (UK) suppliers it had built up

• It is now a sales / marketing operation with 90 employees, working to protect its main asset – its brand

• The brand is held in Kreem's accounts as an intangible asset and being amortised over 20 years

• Kreem is outperforming the UK market, with all four products in the top 15; this is expected to continue

• Sales values and volumes grew by 11.4% and 11.7% to £30.7m and 36.2m units respectively in 2009

• Kreem sells exclusively to UK customers, in two distinct business segments:

• Retailers (‘Retail Division’) – around 80% of the total

• In 2009, Retail had three major customers, the largest accounting for half of its sales

• Sales growth was 12.1% by value and 12.8% by volume

• Wychdean, a supermarket chain, became a customer on 1 January 2010

• Hotels, conference centres and cruise ships (‘HCC Division’)

• Guests receive one ‘dual-branded’ bundle (small sizes of the four products) per room per venue

• In 2009, HCC had four customers Sales growth was 8.9% by value and 8.0% by volume

• By selling gift sets via customer shops and websites, Kreem could add 5% to revenue

• Kreem spends 9-10% of revenue on advertising It is about to launch its 2010 World Cup campaign

• Finished goods held at suppliers are shown as inventory in Kreem’s accounts until physically transferred

to Kreem's customers, when they are treated as revenue

• Prices are based on quantity requirements agreed with customers, subject to trade discounts

• There can be large trade receivable / payable balances in Kreem's accounts (often over 60 days old)

• Key risks include demand risk and reputational risk (failure to meet safety / CR / ethical standards)

• Strategic goals include: European expansion; review of external sourcing; improving the product range

• Any prospective new product or customer is appraised at a discount rate of 9%

(Some of these points link back to the earlier industry information, as illustrated in the notes to Exhibits 2-3

They also provide an obvious connection to the next two exhibits – 2009 business review and management

accounts.)

From Exhibits 6-7, we learn that:

• In a difficult economy, Kreem has done well in 2009 across all product ranges and both divisions,

continuing into 2010

• Liquee has been boosted by increased hand hygiene awareness, and growth is expected to continue

• Kreemee’s image has ensured continued growth despite the general decline in popularity of bar soap

• In addition to the sales data given in Exhibit 5:

• Cost of sales rose from £10.0m to £11.3m across all captions (including manufacture and

packaging)

• Gross profit rose from £17.5m to £19.4m, up £14.0m to £15.2 in Retail, £3.5m to £4.2m in HCC

• Other costs rose from £10.5m to £11.8m, partly from one-off expenditure on two R&D projects

• EBITDA rose from £7.0m to £7.6m

• Inventories rose by £0.3m to £1.6m; trade receivables by £0.4m to £5.5m; and trade payables by

£0.6m to £3.5m; while cash increased from £2.6m to £4.9m

(The financial information in any Case Study should be read and fully analysed – by candidates themselves – ahead of the exam itself, so as to form a detailed financial picture of the business For Kreem, they should have recognised the need to understand the relative size and importance of each product, customer and

division and the reasons behind the results They had to appreciate the major components of all three

primary statements and the links between them The next group of exhibits added to this information, with

additional detail on Kreem’s principal business partners, both customers and suppliers, as well as forecasts for the next two years.)

Exhibits 8-9 are summaries of arrangements with customers in each division:

• Quoted list prices are subject to trade discounts (historically 15% for Retail, 10-12% for HCC)

• Wychdean has had encouraging sales volumes for the first three months of its contract with Kreem

• Kreem’s contract with one HCC customer, Mangold, is renewable on 1 January 2011

• Mangold has around 5,400 rooms and 65% average occupancy All hotels are open every day, and one bundle is provided per day per room Bundle price is currently £1.02 before trade discounts

• The contract excludes public washrooms and sales of Kreem products from Mangold’s shops / website

• Wychdean's 2009 revenue and profit before tax rose from 2008, while Mangold's fell by 12%

Exhibit 10 provides more background on Kreem’s key suppliers: Chicon (R&D); Cosmotest (testing);

Beautical (ingredient manufacture); Klingley (manufacture); Jugson (packaging); Oloros (distribution);

Rosebud / Utellus (advertising / market research) All are based in the UK and each arrangement is

governed by an SLA and a code of conduct There is currently one supplier for each service, but Exhibit 12

reveals that Kreem may start to “multi-source” packaging in view of problems in the relationship with Jugson, which seems to be losing focus on Kreem It is considering other providers, both in the UK and abroad, who would have to meet 10 key objectives

Exhibit 11 (prepared in May 2009 – before Wychdean and before the final 2009 results) presents the

forecasts for the years to 30 June 2010 and 2011 They assume no major changes in customer or supplier

base and reflect revenue growth to £33.0m in 2010 (above market average), with EBITDA of £8.2m; then

5% revenue / EBITDA growth in 2011 Volumes are forecast to rise to 36.9m and 37.9m units in 2010 and

2011 respectively

Exhibits 13a-c are recent press articles on: the move to refillable dispensers by some companies; trends in

hotel occupancy rates, rebranding and expansion plans; and a warning that shower gels could carry health

risks, from a recent case of wrong labelling Exhibit 14 is an example Kreem label bearing a number of

symbols and stating that “all our products are made in the UK, so as to keep our carbon footprint as small as possible”

Candidates should have found this an industry to which they could relate at a personal level, though some of the detail on business models (eg external sourcing) may have been less familiar and required closer study

As always, time spent on the financial information would have been invaluable The management accounts and related commentary, together with 2010-11 forecasts – plus divisional and customer figures at Exhibit 5 – gave students ample material on which to carry out in-depth financial and operational analysis on Kreem

prior to the exam While no information was given on competitors, the industry background and KPIs (eg

typical levels of R&D and advertising spend) should have helped in developing candidates’ wider knowledge

of Kreem’s sector, enabling them to produce value-added analysis of the company’s performance

Information provided in the Exam Paper (EP)

The Exam Paper contained five new exhibits:

15 Email from Rameet Sharma to you: Review of results and business planning

16 Kreem Ltd: Management accounts for the year ended 30 June 2010

17 Fax from Edwina Michaels (Longmore Hotels) to Roddy Ryan (Kreem Ltd)

18 Email from Henry Johnstone to Rameet Sharma: Packaging arrangements – update

19 Recent press articles

Examination requirements

Candidates were required to prepare a draft report to the board of Kreem, to include:

1 An analysis of the company's performance for the year to 30 June 2010

2 A comparison between (i) the proposal for Kreem to become exclusive toiletries supplier to a new HCC customer, Longmore, and (ii) renewal of the existing contract with Mangold, on the basis that (owing to a conflict of interest) Kreem is not able to undertake both contracts

3 A discussion of the proposal to diversify our packaging supplies by transferring a proportion of our

annual requirement from Jugson to Tryphik in 2011

Additional guidance drew candidates’ attention to the expected approach for each requirement:

• Their analysis at Requirement 1 was to cover (i) revenue, costs and EBITDA compared with actual

figures for the year to 30 June 2009 and forecasts for the year to 30 June 2010; and (ii) changes in

working capital

• Their comparison at Requirement 2 was to cover the contract period (1 January 2011 – 31 December

2013) It should include sensitivity analysis on selling price and a discussion of the assumptions

affecting the other elements in their calculations They were also to set out the risks to Kreem of each

contract and their recommended option

• Their discussion at Requirement 3 was to consider the general benefits and risks to Kreem of having

multiple sources rather than a single source for its packaging supplies It should also address the

specific operational and ethical (including corporate responsibility) aspects of transferring some of the

packaging work to a new supplier based outside the UK

Candidates were also told to include an executive summary and to balance their report across the three

detailed requirements They were given a suggested time allocation, unchanged from recent Case Study

exams, as well as other guidance that should now be familiar in relation to executive summaries, the

discussion of ethical issues within their answer to the requirements, the need to attempt all requirements and, for each of these, to address all four skills areas: Assimilating and Using Information (A&UI), Structuring

Problems and Solutions (SP&S), Applying Judgement (AJ) and Conclusions & Recommendations (C&R)

The time allocation suggested to candidates was:

With only seven new pages, candidates should have spent time studying Exhibit 15 carefully so as to

understand the requirements and to identify the key elements of each; digesting the other new exhibits

(management accounts, proposals in relation to Longmore and Tryphik and latest press articles); and

identifying the related AI exhibits to integrate into their answers

For Requirement 1, candidates should then have begun a more detailed review of Exhibit 16, enabling them

to assess the 2010 accounts in the light of their analysis of past results and forecasts carried out in

preparation for the exam For Requirement 2, it was essential to recognise that the data for Longmore at

Exhibit 17 had to be reread in parallel with Exhibit 9 from the AI Finally, for Requirement 3, candidates had

to read Exhibits 18 and 19 and relate these to Exhibit 12 (to which Exhibit 18 is cross-referenced) as well as other relevant (but not cross-referenced) material within the AI on the subject of external sourcing and

Kreem’s own supply chain

With proper time allocation, candidates should have been able to complete these tasks within the four hours available to write a well-balanced report A danger, as often, may have been to spend too long on

Requirement 1 – where the figures could be dissected in a number of ways – so that work on the other

requirements was rushed and thus unstructured, short of content or littered with careless errors (or, in the

worst cases, all three)

Analysis of Exam Paper information

From an initial reading of the new exhibits, candidates should have established the following (references in brackets are to the key AI exhibits to which this new information should be directly related):

ƒ Kreem’s 2010 results showed strong absolute growth in revenue and profits, both apparently due to the

new Retail customer, Wychdean (Exhibit 8)

ƒ Kreem had been approached by a chain of hotels looking to change its toiletries supplier The chain was

a direct rival of Mangold (Exhibit 9)

ƒ A potential new packaging supplier based in France had been identified, as the problems with Jugson

(the existing supplier) had not been resolved (Exhibit 12)

A more detailed review of the EP should then have elicited the key facts to be addressed in the exam

From the June 2010 management accounts at Exhibit 16 (in similar format to Exhibits 7 / 11), we learn that:

• Revenue has risen to £37.4m, up 13.3% on forecast and 21.8% on the prior year

• Revenue from each major customer has risen, with the exception of Mangold (down 2%)

• Sales volumes are 41.6m units, up 12.6% on forecast and 15.0% on 2009

• Growth has occurred across both divisions, but in particular Retail, as a result of the Wychdean contract

• Cost of sales and other costs have respectively risen by 32.5% and 18.9% to £15.0m and £14.0m

• All components of costs have risen, with the exception of R&D (back to its 2008 level of £0.6m)

• As a result, gross profit and EBITDA are 15.6% and 10.5% higher, at £22.4m and £8.4m respectively

• Inventories, trade receivables and trade payables have all risen significantly, but cash by only £0.2m

(Candidates should have expected to be presented with, and be asked to analyse, 2010 management

accounts Detailed analysis of the AI figures – 2009 accounts and 2010 forecasts – was essential preparatory work in helping them understand key relationships within the accounts and the main drivers of Kreem’s

performance In particular, they should not have been surprised to see Wychdean having a significant impact

on the 2010 results.)

Exhibit 17 presents the Longmore proposal, providing key financial information that will enable a comparison

with the equivalent data previously provided for Mangold at Exhibit 9 This shows in particular that:

• Longmore has 3,750 bedrooms – a figure set to grow between now and 2013 as the company expands

• The proposed 3-year contract price from 1 January 2011 is £1.00 per bundle, subject to negotiation

• Under its ‘green’ policy, a 20% non-replacement allowance is used to calculate annual purchases

• The contract excludes public washrooms

• Product sales from Longmore’s shops / website could add 10% to Kreem’s annual revenue

• Longmore's 2009 revenue and profit before tax were up 7% on 2008

(Although this new information was not in the same format as Exhibit 9, it should have been evident to prepared candidates that the contents were directly comparable To assist with the more discursive part of

well-the requirement, one tactic might have been to produce a matrix highlighting well-the similarities and differences between the two proposals eg inclusion of website revenue or public washrooms.)

From Exhibit 18 (an update of, and in a similar format to, Exhibit 12), we learn that:

• With the Jugson issues ongoing, Kreem has continued to consider transferring its packaging supplies

• The preferred choice is Tryphik, to whom 25% of supplies would move in 2011 for a one-year 'trial'

Tryphik has capacity, suitable design processes, a good understanding of toiletries and strong

environmental ethos

• With Tryphik being located in France, prices, invoices and payments would be set in euro

(Again, candidates may have predicted a development in multi-sourcing in general and the Jugson situation

in particular, though they may not necessarily have been prepared to assess the pros and cons of taking on

a named new supplier For a full understanding of this proposal, they had to assimilate facts from a series of

AI exhibits, not all immediately obvious – such as the reference to France (p13) and the arrangements with other Kreem suppliers at Exhibit 12 (notably Oloros and Klingley), as well as Exhibit 19 (see below.)

Exhibit 19 is a series of news items, relating directly or indirectly to the two packaging suppliers:

• One UK cosmetics company has cut 150 jobs by moving production from its Scottish supplier to Asia

• Tryphik has denied claims that it knew of animal testing at a company to which it supplies bottles

• Jugson’s directors have allegedly been misrepresenting the company and bribing prospective customers

(Candidates may well have expected to see some ethical ‘vignettes’ presented in this way, following the

wide coverage of ethics in the AI and the specific matters highlighted in similar format at Exhibits 13a-c The key here was to work out how important all of these issues were to the decision at Requirement 3 and how

to integrate them into the wider discussion.)

The EP develops a number of features of Kreem’s business from the AI, each needing a different technique

for advising the board: The management accounts require a clear focus on financial statement analysis; the hotel proposal involves financial data analysis together with a broader business perspective and a strong

element of professional scepticism; while the Tryphik proposal entails a clear overview of Kreem’s supply

chain and its underlying risks to the company’s performance Exhibit 15 sets out the route to be followed in

writing the report

The analysis of Kreem’s accounts at Requirement 1 had to cover the items specified at Exhibit 15 It should

have been apparent that full coverage involved not just the company as a whole but also the two divisions

and the customer mix within each and sales volumes Segmental data was given in all cases, just as it had

been in the AI The vital fact to establish – as the vast majority did – was that the accounts were significantly

affected by the new customer Wychdean Stronger candidates appreciated that it was the entire set of

accounts, ie not only the income statement but also working capital, that was affected With a methodical

approach, the numerical analysis (to a large extent, calculations of percentage variations and traditional

working capital ratios) could have been carried out quickly, leaving time to produce a sensible commentary

on this analysis

For Requirement 2, candidates had to perform a series of calculations (including sensitivity analysis) on two

proposals, and then apply a healthy degree of professional scepticism in order to reach a conclusion that

took account of both quantitative and qualitative considerations A logical approach would again have paid

dividends

Finally, Requirement 3 involved a structured assessment of a different sort of proposal – to transfer some

supply work overseas While candidates could have prepared in broad terms for such a discussion, merely reproducing such pre-prepared material would not earn much credit unless it was expanded into an

integrated piece of writing that addressed the key elements of the requirement (‘benefits and risks’,

‘operational and ethical aspects’ and ‘outside the UK’) In relation to ethics, candidates had to read carefully the (brief) new press articles so as to understand the potential impact on Kreem of the issues raised

Summary of grades available

The Examiners identified five topic headings under which grades would be awarded, corresponding to the

Candidates were rewarded according to how well they demonstrated, under each of these topics, their

application of four skills:

• A&UI Assimilating and Using Information

• SP&S Structuring Problems and Solutions

• AJ Applying Judgement

• C&R Conclusions & Recommendations

For each topic, there were a number of ‘boxes’ under each of the four skills, representing specific areas in

which the skill was to be demonstrated Within each box, candidates were awarded one of five available

The total number of boxes for each topic and skill was as follows:

This reflects (i) an even balance between the three main requirements and (ii) a greater weighting towards

SP&S and AJ, both of which were indicated to candidates in the rubric to the Exam Paper

PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE

Professional skills

Assimilating and Using Information (A&UI)

In each requirement, candidates had to integrate the AI with the new EP material in order to build their

answers Most assimilated the numerical information well at Requirements 1 and 2, and so achieved high

A&UI grades They also made good use of other facts, for example by presenting their own research on

hotel occupancy rates (which was relevant for both Requirements 1 and 2) They did less well at

Requirement 3, with only a few candidates noting the importance of packaging or providing examples of

multi-sourcing in other companies

The AI contained (mainly, but not exclusively, at Exhibit 5) extensive background material on Kreem’s

history, current position and strategic aims Most candidates had clearly appreciated that there were two

distinct divisions whose financial results were influenced by a number of factors, some common to both and some peculiar to one or the other Many had also applied familiar techniques to recognise that Kreem’s

products were mature and in need of refreshment With this prior understanding, they would have been placed to assimilate the 2010 management accounts and would have known how to approach the required analysis Perhaps significantly, no interim accounts were included this time in the AI, so that candidates

well-were not distracted by the complexities of half-year figures

For Requirement 2, the source information was mainly in two exhibits, one each in the AI (Exhibit 9) and EP (Exhibit 17) However, other material – such as the suite of documents at Exhibit 13 – was also important for

a wider understanding of the two customer proposals, and these were more likely to be missed by

candidates

For Requirement 3, most candidates had considered the arguments for and against multi-sourcing in their

preparation, led by the pointers at the very beginning of Exhibit 3 and in Exhibit 10 but also taking account of other material throughout the AI The challenge in the exam was to relate this preparation to one activity on the supply chain (packaging) and to the specifics of a potential new business partner (Tryphik) In the case

of ethics, success depended on linking the new press articles (Exhibit 19) to those seen previously (Exhibit 13) and to more general information eg on animal testing (Exhibit 4) and bribery (Exhibit 10)

In general, with ‘Identifies business issues’ or ‘Describes wider context’ grades available in each of the three main requirements, a clear differentiator on this paper was between those candidates who had familiarised themselves with the AI and had done some reading around it and those, generally weaker, candidates who had not

Structuring Problems and Solutions (SP&S)

Candidates generally demonstrated good SP&S skills, though some boxes yielded higher grades than

others

For Requirement 1, most candidates produced a quality analysis of the 2010 accounts by including all

elements specified at Exhibit 15 and integrating their preparatory work effectively The vast majority

recognised the impact of Wychdean, which meant that some time had to be spent in adjusting the figures to produce a like-for-like comparison – and then comment on it The most common omission was working

capital As always, the weakest candidates produced long lists of percentages and ratios but could not see how to use them

For Requirement 2, there was a progression down the marking key, with candidates typically scoring well for the first two boxes (initial financial analysis), less well for the third (sensitivity analysis) and worst for the

fourth (commentary on analysis) Those who took the time to plan and to identify the key numbers to use

and who then took care in performing their calculations were able to achieve a CC grade for their

figure-work on each customer Planning would also have been well rewarded for sensitivity analysis, where

competent grades could be achieved primarily for a sound technique (no precise numbers were specified on the marking key) Finally, candidates who sat back to consider what their calculations actually meant should have been able to gain an SC or CC for the fourth box

For Requirement 3, those who had prepared well and had familiarised themselves with multi-sourcing should have been able to earn competent grades for their discussion of the related benefits and risks Those who

then also read carefully the new information on Tryphik should also have been able to secure competent

grades for the third of the three boxes in the marking key at Requirement 3

Applying Judgement (AJ)

A feature of this case – and one reason for the higher pass rate – was a strong performance for AJ, notably (but not only) in respect of the ethical issues at Requirement 3 Throughout, candidates made reasonable,

balanced and appropriate judgements built on their analysis They displayed the ability to make the links

between Kreem, its customers and suppliers, the toiletries industry and the wider economy Their answers

demonstrated a logical flow of decision-making showing a real understanding of the case

The number of candidates achieving competent grades for AJ was lowest in Requirement 1, where weaker candidates struggled to develop their analysis, both (i) for Kreem as a whole and (ii) in respect of

Wychdean In (i), many failed to understand fully the implications of the working capital figures or the

relationships between price, discounts, volumes and margins At (ii), they ignored the impact of Wychdean

on Kreem’s margins and cash cycle: their simplistic view was that it had produced a large increase in

revenue and profits and so Kreem should seek other, similar new customers Weaker candidates spent time calculating key numbers and commenting on them (possibly recognising that Wychdean had not been

included in the 2010 forecast), but they did not allow themselves enough time – or lacked the expertise – to

go beyond that and consider what it all meant and how one figure might relate to another, or to other

aspects of the case

A crucial part of Requirement 2 was an ability to demonstrate professional scepticism on the assumptions

underlying Longmore’s proposal, and most answers did indeed challenge the integrity of its unrealistic

expansion plans in the light of factual evidence from independent sources Weaker candidates took the

Conclusions and Recommendations (C&R)

Strong candidates presented clear conclusions and sound commercial recommendations for all three

requirements, derived from their analysis and judgement In addition, their executive summaries contained

conclusions to each requirement and key recommendations Though Exhibit 15 specified a recommendation only for Requirement 2, the general exam rubric makes it clear that C&R grades are available throughout

the exam Most candidates have now internalised this instruction and make sure that they have a C&R

section for each requirement – though some unnecessarily include one for each part of each requirement

The differentiator thus lies in the quality and relevance of these sections As usual, those of weaker

candidates were indecisive or misdirected

At Requirement 1, they tended to be quite thin on the ground and lacking in imagination Aside from basic

comments arising from financial analysis (“good results at a time of recession”), they were normally

restricted to one or more of “revise 2011 forecasts for Wychdean”, “review investment in R&D” and “keep

working capital under control” A sizable minority continue to request audited accounts for the subject

company as they do not accept the reliability of management accounts The Examiners reiterate that

management accounts are used in the Case Study because they enable information to be presented in a

way that is most helpful to candidates and not obscured by mandatory technical disclosures that are not

pertinent to the exam

At Requirement 2, weaker candidates sat on the fence over Longmore / Mangold, being unable to

disentangle their numerical findings from their intuition In practice, most candidates probably concluded

according to their position on a scale of risk-averseness

At Requirement 3, C&R competent grades were variable, though most candidates came to a conclusion on multi-sourcing in general and about using Tryphik in particular A solution favoured by many was to look for

another UK supplier to overcome many of the potential risks with Tryphik

Executive summary

The overall quality of executive summaries was the highest since July 2008 Virtually all scripts included

executive summaries, and those of the best candidates were, as ever, excellent – of a sensible length

(around 10% of the total report), covering the three main requirements evenly, integrating the key numbers and providing clear analysis that led seamlessly to conclusions and recommendations with an appropriate

commercial focus They were able to present their key findings succinctly eg for Requirement 2: “HCC

division saw increases in both price and volume and has been less affected by the recession than

anticipated However, this masks the fact that revenue from Mangold fell by a further 2%.” A particularly

pleasing feature was the quality of judgement, with many candidates achieving good grades under

“Evaluates key points”

Where ID/NA grades were awarded, this was typically because candidates had not offered any of the

recommendations, restated the main numbers or shown any depth of thought – all failings noted by the

examiners on previous occasions The worst summaries continue to be little more than enlarged contents

sections or restatements of the requirements – or make points that are not relevant to the requirements, as though they had been practised beforehand and were going to be rewritten in the exam at any cost, such as:

“Exporting to overseas markets where there would be a high demand can be considered Markets like India

and China can be looked into.” The most frequent omission was that of ethical issues from Requirement 3

Candidates continue to appreciate the importance of a brief context-setting paragraph Pleasingly, the tone

of these has improved, with fewer candidates telling the directors either (i) nothing of any consequence or

(ii) something of which they would be well aware – or both However, these introductions sometimes appear

to have been pre-prepared, without adaptation to the particular needs of the exam Weaker candidates

waste further time by including introductions to each section of the main report

Requirement 1: Review of Kreem’s financial performance

As noted earlier, candidates should have expected the 2010 management accounts and so been

well-prepared for this requirement It was relatively straightforward and indeed – as for the equivalent in the past few sittings – it produced the highest number of candidates achieving competent grades Most tackled it

methodically, using the headings given (revenue, costs, EBITDA and working capital) to ensure coverage of all main elements The AI gave clear indications as to the key performance indicators of the business (eg

advertising spend as a percentage of revenue), and good candidates included these in their review

A vast majority developed their review into a like-for-like analysis ie excluding Wychdean figures to enable a proper comparison However, too many (forgetting the section in Exhibit 2 on supermarkets as one-stop

shops) failed to identify the key fact that a portion of Wychdean’s sales had probably transferred from

existing customers, which in turn distorted the like-for-like analysis

Better candidates ensured that they covered all numbers relevant to Kreem’s financial performance,

overlaid with appropriate commentary on the two divisions and their key customers ie not just Wychdean:

Mangold was highlighted by a pleasing number, revealing a good linkage to Requirement 2 Fewer dealt

satisfactorily with the relationship between sales value and volumes: while only limited volume

information was given in the exam, candidates should have been in a position to develop their

preparatory work on Kreem’s historical product prices and the effect of discounts into a reasoned

assessment of the 2010 figures Although clearly not required to look beyond EBITDA, a few wasted

effort by commenting on depreciation and amortisation

Some candidates looked just at the two divisions and not the overall company; they still tended to score

adequately but deprived themselves of some straightforward competent grades under A&UI and SP&S

Successful candidates, as they tended to have better knowledge of the AI, were able to support their

findings with own research, whether on the industry as a whole; major companies (eg PZ Cussons

results announced the previous day); Kreem’s target sectors (eg trends in hotel insolvencies) or its cost

base (eg movements in palm-oil prices) This was universally missing in failing candidates’ scripts

Many referred to the maturity of Kreem’s products, and did so professionally ie without using consulting

jargon ("cash cow" etc) that has often haunted scripts in the past Inevitably, almost all candidates

referred to the recession, and this was mostly done in a measured way ie understanding that in general it

had a positive impact on Kreem’s business although it meant that some consumers were “trading down”

Some suggested that Kreem consider the customer base further, with observations such as: “It should

look to acquire further supermarkets to expand revenue and market share.” While commercial on the

face of it, this fails to take account of Wychdean’s impact on margins

Coverage of costs was generally good Candidates typically seized on the one caption that had shown a

decline (R&D) and related it effectively to industry norms and to the maturity of Kreem’s product range

eg: "Without spending on R&D, Kreem runs the risk of losing market share Johnson and Johnson had

an 8% share of the toiletries market in 2008 which fell to 6% in 2009 Commentators believe that this fall

was due to a lack of innovation …” Of those categories showing increases, advertising was the most

popular choice, usually with a reference to the World Cup – though most of those who made such a

reference did not appreciate that the related costs would have been incurred towards the end of the June

2010 year or even at the start of the June 2011 year and that in any case the benefits would scarcely be

apparent in 2010 revenue

A distinguishing feature of the better scripts was their treatment of working capital They calculated

changes in the three main components (receivables, inventories and payables) and in the “days” ratios

for each of these, taking account where appropriate of the Wychdean effect They then related this to the

modest cash movement for the year and were thus able to provide a balanced conclusion on Kreem’s

performance as a whole and on the overall impact of Wychdean Candidates usually computed the ratios

in a simple manner; while this was a sound exam technique, it ignored the fact that some elements of

costs (especially internal salaries) had to be excluded for a strictly correct payables days figure

Very few made any reference to the “other” customers in Retail division (accounting for 10% of Kreem’s

total revenue) – for example, in relation to trade receivables: “It may be that this includes some small

retailers that have experienced trading problems during the recession, and that some of the related

balances will have to be provided against or even written off.”

Appendices were generally well-presented and at a sufficient level of detail, showing movements in key

figures both with and without Wychdean (see Appendix 1 to this Examiners’ Report) There has been a

further improvement here, with appendices continuing to be more focused than used to be the case, with

fewer meaningless or unexploited ratios However, weaker candidates still just present percentages

without showing how they were derived, thereby running the risk of achieving low grades under A&UI (if

their ratios are incorrectly calculated), as well as for ‘Overall Paper’ (appropriate appendices: clear

calculations) The weakest of all did not use any appendices, choosing instead to insert % growth rates

and other such measures directly into the report as they went along

Requirement 2: Evaluation of proposals

This requirement had the largest number of grades allocated to it (12 skills boxes) There were in effect

three parts to it:

• Financial data (NPV) analysis – base calculations

• Sensitivity analysis

• Discussion of risks and assumptions

With two references in the AI to Kreem’s discount rate for project appraisal, candidates may well have

predicted an NPV requirement and may indeed have practised NPV techniques beforehand However, they would not have known what sort of calculation to expect Equally, the need for sensitivity analysis – a

common feature of recent exams and an area in which weaker candidates often flounder – should not have been a surprise but the precise requirement could not have been anticipated

In general, while the financial data analysis was better than in the previous session, this was a section in

which weaker candidates struggled, whether by making basic errors in their calculations, by not explaining

their figures (eg gross profit percentages) or by finding little to say about the underlying figures

Financial data (NPV) analysis – base calculations

Overall, the basic calculations were done well and easy to follow, working through the key elements for each customer for each year and producing two totals which could then be compared, sensitised and discussed Around half of candidates performed their calculations at the revenue level (see Appendix 2 to this

Examiners’ Report) The majority of others applied a profit percentage (usually the actual 2010 gross profit for HCC division) to this – see both Illustrative Scripts – but, as it was the same percentage for both

companies, there was no impact on the relative outcome

A sizable minority of candidates took a different approach on Mangold, either just repeating the actual

2010 revenue of £1,039k across the renewal period or (a little more sophisticated) extrapolating for the

three years the 2% revenue decline seen in 2009 and 2010 Such candidates could not demonstrate

their understanding of this revenue or apply a sensitivity to Mangold’s price and thus missed some

opportunities for competent grades in the A&UI and SP&S columns However, as an exam technique,

this was a valid shortcut, allowing more time to discuss the underlying assumptions and risks, which

many did and thus still achieved a good set of grades overall

Among candidates who adopted a more structured approach to Mangold, most correctly adjusted the list

price for a trade discount They generally used a figure in the range 10-12% given in the sentence below

the table at Exhibit 9, without noting the continuation of that sentence (“though market pressures have in

some cases led to higher discounts in recent months”) and the fact that the actual discounts given in

2010 to HCC division and Mangold itself could be derived from the case material and shown to be rather

more than 12% Some candidates also applied a trade discount for Longmore but this was unnecessary

as Exhibit 17 referred to a contract price not a list price A few candidates did not do any calculations for

Mangold

For Longmore, a pleasing majority of candidates took account of the 20% non-replacement factor A

smaller majority correctly adjusted the revenue for Longmore’s estimate of 10% for website and shop

sales: others used the 5% industry norm from Exhibit 5 or made no adjustment at all Another common

error was to make a deduction for the 2-month closure when this was already clearly factored into the

quoted occupancy rate Some candidates made even more fundamental mistakes, such as multiplying

the number of hotels by the average number of rooms (resulting in hotels of monumental proportions and

a revenue stream that dwarfed Kreem’s entire existing portfolio); or not multiplying the daily requirement

by the number of days in a year (resulting in a very low revenue stream bearing no resemblance to

figures previously achieved for Mangold) The most common error of all – almost universal – was to treat

the Mangold list prices as applying to the calendar years of the contract rather than to Kreem’s financial

years (as per Exhibit 9)

Sensitivity analysis

For weaker candidates, sensitivity analysis was a step too far For those whose basic calculations were

muddled – and for the few who did no base calculations for Mangold at all – this was inevitable However,

for those who had completed the first stages successfully, many simply could not work out what was

expected of them, or what they wanted the analysis to tell them, even though on this occasion they were

asked to deal with only one variable (price)

Of those who did make a reasonable attempt, most did so by reference to Longmore’s proposed price

(which was, after all, “subject to negotiation”), working out by how much it would need to fall before the

contract was equal in value to Kreem’s This was easier than adjusting the Mangold price upwards –

which, to be done properly, involved a complex calculation on the trade discount

Discussion of risks and assumptions

Even for those who did the base calculations and sensitivity analysis, the job was not yet complete

Candidates were expected to discuss the numbers in the context of other relevant information, apply

professional scepticism to Longmore’s assumptions and consider the factual evidence of both customers’

own recent financial history A majority challenged Longmore’s bold expansion plans and/or expectations

from its refurbishment programme by referring to hotel sector trends, whether from the AI or from their

own research Very few seemed to notice that the expansion plans were even more ambitious than first

met the eye: the quoted room numbers were averages, meaning that by the end of 2013 the total would

be considerably more than 3,750

Around half considered the commercial impact of Longmore’s 20% non-replacement policy, realising

that, while this conformed to Kreem’s ‘green’ ethos, it would at the same time limit revenue Better

candidates went on to assess whether Mangold might also propose such a policy as this would be an

obvious area in which to make savings while its results were declining

Despite multiple references in the AI, only a small number of candidates discussed the potential impact

of extending either contract to cover public washrooms or another possible green initiative – the use of

refillable products (on which Kreem had after all incurred significant R&D costs – Exhibit 6) The very

best candidates are often distinguished by an ability to incorporate such linkages in their scripts

Candidates were asked to conclude on which option to choose, and most did so, with around half for

each customer There was no right or wrong answer, as long as it was argued by reference to the key

findings from earlier work A pleasing number made use here of the brief sentences in Exhibits 9 and 17

about the two companies’ latest accounts For those in favour of Longmore, it was mostly because of

both Longmore’s future financial promise and Mangold’s weakening financial performance but

occasionally because they felt that Mangold might not renew or because Longmore was a closer ethical

match Some said that Longmore would fulfil Kreem’s strategic objective of obtaining a new HCC

customer, without recognising that it would merely be replacing an existing customer

Those in favour of Mangold argued that there was an established relationship and/or that Longmore was

too risky, even though in many cases their base calculations showed a higher NPV for Longmore Some

also suggested trying to make the Mangold contract more beneficial eg by introducing shop and website

sales

It was very gratifying to see candidates not letting themselves be unduly influenced by their figures

Indeed, the best conclusions were those balancing the qualitative aspects with the quantitative, backed

by sound financial advice, such as: “Though the Longmore contract has a higher NPV than the existing

Mangold contract, this is mainly due to the anticipated 10% increase in revenues from shop sales, which

appears unrealistic The Longmore contract is highly dependent on the company being able to gain

access to new finance to enable it to expand its occupancy rates.” Few recognised the practical aspects

of shop sales: “These might entail changes in production runs and packaging designs, as the new items

would probably be in Kreem’s regular sizes (ie as currently sold via Retail division) rather than the HCC

sizes.”

The most common recommendation was to find out more about the Longmore proposal / assumptions,

with many glibly advising “due diligence” Some were rightly keen to know why Longmore’s existing

supplier was not re-tendering, or thought that the conflict of interest between the two customers was a

distraction and anyway there were still plenty of other hotel companies (or indeed cruise lines and

conference centres) that were not yet Kreem customers

Requirement 3: Discussion of diversification of packaging supplies

Overall performance on Requirement 3 was better than for recent sittings, especially for the AJ skill Those who dealt with all the main aspects generally obtained a good number of competent grades However, as is often the case, less organised candidates overran on the rest of the exam, resulting in sparse answers to

Requirement 3 – frequently the difference between a pass and a fail

As for Requirement 2, there were three broad areas to cover, all relating to the specific proposal to

transfer some packaging to a new supplier (Tryphik) based in France:

• Benefits and risks of multi-sourcing

• Operational issues

• Ethical issues (including corporate responsibility)

There were also a number of AI documents to which candidates needed to refer, notably Exhibit 10

(supplier code of conduct) and Exhibit 12 (initial note on the possibility of changing supplier)

Benefits and risks of multi-sourcing

This area was covered best, probably because candidates had been able to do some preparation for it It

should have been clear from the AI that external sourcing and single sourcing were key to Kreem’s

existing business It was also apparent that Kreem was looking to start multi-sourcing and that packaging

– where there were ongoing problems with the current supplier, Jugson – could be the first activity to be

multi-sourced

As a result, most candidates discussed the overall benefits (eg opportunity for economies of scale) and

risks (dangers of relying on single suppliers), and were rewarded for doing so, with many achieving

competent grades for the first two boxes under SP&S Better ones considered the benefits and risks in

relation to both packaging in general and the two suppliers in particular Thus, for example, they

recognised the need for consistency in design and the balance between an established but fractious

relationship and one that would have to be newly created Few, however, seemed to appreciate the

centrality of packaging to the whole supply chain: “While only one part of the overall product and cost

structure, in many ways it is the most important part as it provides the initial visual impact to consumers

and is a key component of Kreem’s overall marketing.” Weaker candidates deprived themselves of

competent grades by writing about the benefits and risks of single sourcing – either not reading the

requirement clearly or perhaps not adapting pre-prepared treatises (in fact, this time there was less

evidence of pre-prepared content than has often been the case for Requirement 3)