November 2010 Case Study: Eastern Energy Experts Ltd List of exhibits 1 About you Adie Maynard, your firm Gunter Jensen LLP and your client Eastern Energy Experts Limited 2 The Kyoto ac
Trang 1Wednesday 3 November 2010
(4 hours)
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Trang 3November 2010 Case Study: Eastern Energy Experts Ltd
List of exhibits
1 About you (Adie Maynard), your firm (Gunter Jensen LLP) and your client (Eastern
Energy Experts Limited)
2 The Kyoto accord and its implications for UK carbon emission control
3 Eastern Energy Experts Limited client file extracts: history and structure
4 Eastern Energy Experts Limited client file extracts: operations
5 Letter from Jo Carey (EEE MD) to Sukanta Woolf (GJ)
6 EEE management accounts: Summary for the 4 years ended 30 September 2009
7 Email from Bernie Zhang (EEE Call Centre Director) to Kristoff Hughes (GJ) : EEE call centre and customer development
8 EEE operational activity data in the 4 years to 30 September 2009
9 Email from Len Wozniak (EEE Operations Director) to Kristoff Hughes: Insulation
installation
10 Average insulation costs per job
11 Website extracts
− The arguments for and against the Kyoto accord
− Extracts from UK government information re energy efficiency incentives
− How the Feed in Tariff (FIT) scheme works
12 Housing Investor Chronicle: UK government “Feed in Tariff” proposal (April 2010)
13 Email from Jo Carey to Sukanta Woolf: EEE future plans and opportunities in the UK and abroad
14 News articles
The following items are newly provided:
15 Email from Sukanta Woolf to you: Report for EEE board
16 Email from Jo Carey to Sukanta Woolf: EEE results to 30 September 2010 and future opportunities
17 EEE management accounts for the year ended 30 September 2010
18 Email from Dany Parker (EEE FD) to Jo Carey: Review of GPS proposal for EEE and other future opportunities
19 Email from Len Wozniak to Jo Carey and all board members: EEE’s solar panel business
20 Recent news articles
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Trang 5EASTERN ENERGY EXPERTS LIMITED
Case Study requirement
You are Adie Maynard, a final-year trainee Chartered Accountant working for Gunter Jensen LLP You are a member of the business advisory services department and report to Sukanta Woolf Your current client assignment relates to Eastern Energy Experts Ltd (EEE), which provides insulation
installation services to households in the East of England
Requirement
You are required to prepare a draft report for the EEE board, as set out in the email dated
3 November 2010 from Sukanta Woolf to you (Exhibit 15) Your report should comprise the
following four elements:
• An executive summary
• Your responses to the three detailed requirements set out in Exhibit 15, including financial
appendices (as required)
State clearly any assumptions that you make All workings should be attached to your answer
Your report should be balanced across the three detailed requirements, and the following time allocation
is suggested:
Reading and planning 1 hour
Performing calculations and financial analysis 1 hour
Drafting report 2 hours
Marks allocation
All of the marks in the Case Study are awarded for the demonstration of professional skills, allocated broadly as follows:
Applied to the four elements of your report (as described above)
• Assimilating and using information 20%
• Structuring problems and solutions 30%
• Applying judgement 25%
• Drawing conclusions and making recommendations 20%
95%
Applied to your report as a whole
• Demonstrating integrative and multidisciplinary skills 5%
100%
Approximately 15% of the marks are awarded for the executive summary and 10% for the
appropriate discussion of ethical issues within your answer to the requirements
In planning your report, you should be aware that not attempting one of the requirements will have a significantly detrimental effect on your chances of success, as will not submitting an executive
summary In addition, as indicated above, all four skills areas will be assessed under each of the four elements of your report Accordingly, not demonstrating your judgement and failing to include
appropriate conclusions and/or recommendations in each element of your report will affect your
chances of success
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Trang 7EXHIBIT 15
To: Adie Maynard
Yesterday I received an email from Jo Carey of EEE (Exhibit 16) which I am forwarding to you
together with the following items:
• EEE’s management accounts for the year to 30 September 2010 (Exhibit 17)
• Some detailed figures prepared by Dany Parker regarding an opportunity for EEE to work with
Victoria Power Supply (VPS) in Australia (Exhibit 18)
• An email from Len Wozniak about EEE’s solar panel business (Exhibit 19)
• Two news articles concerning solar panels (Exhibit 20)
I have spoken with Jo, and she has asked us to produce a report to the EEE board dealing with a number of matters I would like you to prepare a draft of this report, comprising the following:
1 A review of EEE’s management accounts for the year to 30 September 2010 so that the
members of the board understand the company’s financial performance
You should cover revenue, gross profit and operating profit, evaluating these figures against the actual results for the year to 30 September 2009 You should discuss the results for each of the business activities and also comment on the cash flow statement
2 An analysis of Dany Parker’s proposal for the board to consider expanding into Victoria state in Australia, where there is an opportunity for EEE to repeat its UK success
In your analysis, you should include a calculation of the project’s profitability for the total 5-year period and comments on the assumptions made by EEE You should prepare a sensitivity analysis evaluating the effect of a change in the estimated success rate on calls being converted
to contracts You should also consider the opportunities for, and threats to, EEE of this proposed expansion into Australia, including movements in the Aus $:£ exchange rate
3 An assessment of the economic benefits and risks relating to EEE’s proposed strategy to
develop its business from solar panel sales and solar panel installation in the UK
Your assessment should consider how EEE might deal with these risks, and also address
Jo Carey’s and Len Wozniak’s concerns over, and the ethical issues relating to, the
development of EEE’s solar panel business
I look forward to receiving your draft report
Sukanta
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Trang 9EXHIBIT 16
To: Sukanta Woolf
I am attaching a copy of the management accounts for the year to 30 September 2010 for your
information and analysis (Exhibit 17) I would appreciate your analysis for the EEE board of the
income and cash flow statements
Victoria Power Supply
The board would also welcome your review of the Global Power Supply (GPS) proposal for a
project in Victoria, Australia set out in Dany Parker’s email (Exhibit 18) In particular we would like
an overall calculation of the project’s profitability for the total 5-year period, together with your consideration of our assumptions for this project
The proposal is to work with GPS’s Australian operation – Victoria Power Supply (VPS) – to
provide an insulation installation programme similar to that in the UK The project will be located near Melbourne in the state of Victoria, in south-east Australia, which has a similar climate to the
UK It appears that the regional authorities in Australia have decided to use the same method as in the UK to attempt to reduce regional carbon dioxideemissions by using power companies to entice households to insulate their homes
The Australian market presents an interesting opportunity for us, not only because there is no problem with the language, but we can also use our UK call centre with a new work pattern to take advantage of the time difference (Australia is 9-11 hours ahead of the UK) In addition, Bernie Zhang was born in Melbourne and Len Wozniak did his MBA programme there Both of them are entitled to work in Australia, which makes it an easy market in which to transfer our expertise
In terms of size of project for EEE, the overall market is similar to the one in East England
However, we believe that we have learnt from our experience in the UK and because of that we hope that we will be able to achieve a better contract conversion rate in Australia than here
Solar panel business
In the UK, EEE needs to decide whether to expand significantly its solar panel business, and in what way, in order to take advantage of the increasing number of opportunities It is apparent that the solar panel industry is facing a number of important issues as identified by Len Wozniak in his
email (Exhibit 19) and in various newspaper articles concerning solar panel supply and power generation (Exhibit 20)
The public demands to be more informed on the details of any new industry Some statements made by promoters of the installation of solar panels about the savings to be made may have been overly optimistic, or obscure We are aware of the risks of being tarnished by the general public scepticism and we would welcome your professional views on how we might address them
Jo Carey
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Trang 11EXHIBIT 17
Eastern Energy Experts Limited Management Accounts
Income statement
For the year ended 30 September 2010
Notes £000s
Cost of sales 2 (6,602)
Overheads/administrative 3 (2,127)
Depreciation 4 (290)
Loss on disposal of non-current assets (42)
Net finance expenses (15)
Statement of financial position
As at 30 September 2010
£000s Non-current assets
Tangible assets 4 350
Current assets
Cash and cash equivalents 1,658
2,638
Shareholders' equity
Ordinary share capital 100
Retained earnings 2,164
Current liabilities 724
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Eastern Energy Experts Limited Management Accounts
Cash flow statement
For the year ended 30 September 2010
£000s
Cash flows from operating activities
Profit before tax 873
Adjustments for:
Loss on disposal of non-current assets 42
Net finance expenses 15
1,220
Change in receivables 305
Change in inventories 81
Change in payables (116)
Net finance expenses (15)
Investing activities
Purchase of equipment and vehicles (54)
Proceeds from disposal of equipment and vehicles 18
Financing activities
Cash and cash equivalents at start of year 791
Trang 13Eastern Energy Experts Limited Management Accounts
Notes to the accounts
Year ended 30 September 2010
£000s Note 1 Revenue
Commission from AEPS 1,354
Installation projects 5,259
Alternative energy products
− Solar panels 2,510
− Alternative energy stoves 826
Note 2 Cost of sales
Call centre direct costs
Telephone, internet 31
225
Installation project costs
EEE installation engineers & supervisors 1,165
Subcontractors 2,470
4,875
Alternative energy products
Alternative energy stoves 413
1,502
Note 3 Overheads/administrative
Staff costs including directors 933
Motor, travelling & subsistence 91
Other establishment costs 265
Repairs & maintenance 90
General administration & other costs 129
Run-off insurance 145
The run-offinsurance premium paid is to cover any remedial work necessary in the next 3 years
relating to problems concerning insulation installations already completed by EEE
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Eastern Energy Experts Limited Management Accounts
Notes to the accounts
Note 4 Non-current assets
equipment vehicles equipment
Cost
At 1 October 2009 523 726 216 1,465
Disposals (28) (252) (21) (301)
At 30 September 2010 529 474 215 1,218
Depreciation
At 1 October 2009 290 447 82 819
On disposals (18) (209) (14) (241)
Charge for the year 121 118 51 290
At 30 September 2010 393 356 119 868
Average number of staff during the year was:
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To: Jo Carey
Further to our discussions about the GPS proposal for the project in Victoria, Australia working with Victoria Power Supply (VPS), please find below a summary of the key information and my
estimates and assumptions for that work, based on information supplied by GPS:
1) Victoria has a total population of 5.5 million, with 2 million households/properties
2) 75% of the population of Victoria live in one city area, Melbourne The overall profile of
properties in this region is very similar to the East Anglian region in the UK
3) VPS has 20% of the total market of households/properties in this region for EEE to contact 4) 25% of these properties (mainly in Melbourne) are not suitable for insulation as they are
apartment blocks or were built to appropriate insulation standards
5) Using EEE call centre statistics and local advisors, the conversion rate of calls to contracts for the remaining potential market may be as high as 1 in 3
6) The reasons for this 1 in 3 expected conversion rate are:
• Based on independent market research, owners of 20% of houses and apartments claim that their property has had loft and/or cavity wall insulation installed since construction
• 25% of those called will refuse to consider the scheme and will dislike unsolicited contact
• In Australia 20% of this potential market will want to do the work themselves – they can claim a fixed fee ‘grant’ for doing this from the authorities in Victoria if they can produce the appropriate receipts for materials
• The remainder have indicated a high willingness to participate in an insulation scheme 7) Because of the very high incidence of households with internet connections in Australia (more than 80%), EEE should be able to market its insulation work via this medium – which may make the success rate even higher
8) The timing of the work and the contract/work profile is:
Customers
Signed contracts 12,000 24,000 28,000 22,000 14,000 Installations completed 10,000 20,000 24,000 30,000 16,000
9) Forecast income and related costs:
• VPS will pay EEE Aus $200 commission revenue per signed contract plus Aus $600 per completed installation
• Call centre costs would be the same percentage of commission revenue as in the UK in
2009
• Only local subcontractors would be used for this work; the total installation cost (including materials and supervision) is estimated at Aus $578 per contract
• There will be fixed costs relating to the installation work in Australia estimated at
Aus $400,000 per annum
• Annual fixed costs in the UK of £1,300,000 per annum will be attributed to the project 10) For project planning purposes, an exchange rate of Aus $2 = £1 has been assumed, being the average rate for the past two years