Case study illustrative script 2 november 2012 ICAEW

SECOND ILLUSTRATIVE SCRIPT AND EXAMINERS’ COMMENTS In the commentary below extracts from the script are shown in quotation marks and italics; spelling, grammar, sentence construction and punctuation from the original script have been retained The commentary follows the order and numbering of the script with references to the topics in the marking key It should be read in conjunction with the review of the First Illustrative Script and also the full Examiners’ Report for this session Examiners’ comments – overview This script failed the assessment It is slightly above average length (but as always this depends on the actual handwriting), addresses some of the key issues and contains some stronger sections In terms of professional skills this candidate achieved competent grades across the script as follows – Clearly Competent (CC) and Sufficiently Competent (SC) – in out of grade boxes for Assimilating and Using Information; in out of 12 for Structuring Problems and Solutions; out of 12 for Applying Judgement and out of for Conclusions and Recommendations The original 29-page length of the manuscript version was broken down as follows:  Cover and contents – page  Terms of reference and executive summary – pages  Report (main body) – 18 pages  Appendices/workings – pages The 18 pages of the main body of the report address the issues in the case in a variable way and although there is adequate material in the appendices to provide a starting point for the report there was an imbalance in answering the main requirements This candidate did not achieve sufficient competent grades in the Executive Summary and the script was marginal in terms of competent grades in Requirement (financial analysis), weak in Requirement (assessment of Banbury rental proposal), and just below standard in terms of competent grades in Requirement (evaluation of new business opportunities) For Appendices and Overall the script was awarded a majority of passing grades but the work had weaknesses Terms of reference and executive summary This report starts with a brief terms of reference section The remainder of the executive summary (ES) is written in a slightly staccato fashion which is indicative of time pressure at the end of the assessment The ES covers all three areas of the report but there is a decline in adequacy over the three topics The five main pages of the ES are split: three pages to Topic 1; one page to Topic 2; and just over one page to Topic The summary of the financial analysis of the FS management accounts contains some appropriate numerical analysis covering the key areas which need to be considered and the comparative analysis is expressed in both absolute terms and percentages However the commentary contains both banal and somewhat irrelevant phrases which the FS board may have found patronising: on the FS foreign language training (FLT): “Revenue has grown which is good We recommend maintaining the relationship with the motor industry” The section on the impact of translating and interpreting (T&I) services on movements in cash and accounts receivable, and the Myanmarpic2012 (MP) problem, had no numerical information to provide any context for the commentary In the section dealing with the Banbury rental proposal the ES contains a “contribution” figure which has been calculated in a most bizarre way (by subtraction of a 2012 figure from a 2013 figure in the last line of the appendix) and by a piece of good fortune this coincides with the additional revenue to be earned from running the English language training (ELT) semester programme (It is hard not to be amazed by this lucky coincidence.) This section of the ES is both short and light on Copyright ©The ICAEW 2012 Page of 18 content In the evaluation of new business opportunities the candidate presents a very bland summary of the benefits and risks of these opportunities but does include an ethical issue However, it is a scattered piece of writing which concludes with the advice that “FS needs to ensure that it employs a PR/media savvy spokesperson to ensure no further outbursts from Edwin.” It would be hard to imagine sitting nearby whilst this member of the board read this extraordinary recommendation To score better grades on this section, the candidate needed to have given themselves more time, through better planning, which would then have resulted in a more adequate coverage of the topics and would have allowed better judgement, conclusions and recommendations to be made FS financial analysis / Myanmarpic2012 [Requirement 1] The financial statement analysis in this section is accompanied by Appendix (see detailed commentary below) This appendix supports the comparative analysis of revenues, gross profit, and the revenue streams, in both percentage and absolute terms – it is a good starting point from which the report can be written The appendix is weak on the details concerning the T&I analysis although the Myanmarpic2012 (MP) information is more adequate The review starts with an analysis of overall revenue and then overall gross profit comparing 2012 against 2011 but the discussion (which is somewhat wasteful) starts by considering the impact of the change in sales mix before the actual detailed analysis of these components in the following sections The following analysis does discuss the three primary revenue streams, again in both absolute and percentage terms, but the analysis is light The figures for the analysis of gross profit are also in absolute and percentage terms but this section includes comments on what is not known rather than commenting on what is available: “There has been a trend towards more profitable revenue streams however without knowing how many students have attended courses in the year it is not possible to establish exactly which have grown” Previous preparatory AI contribution analysis should have helped with this commentary The written analysis on T&I performance is a mixture of relevant facts “FS has been paying the Burmese translators 75% of the fee which has squeezed margins even further” and irrelevant facts “Specialists are used for these services as the tutors don’t enjoy the work They need experience and these specialists cost a lot FS has paid its Burmese translators on time” Unfortunately, the analysis of the impact of T&I services on movements in cash and accounts receivable starts with an irrelevant discussion of the impact of deferred income on cash balances This scattered approach to the analysis of cash indicates a lack of focus in answering the requirement The analysis of the impact of the MP work is more relevant The candidate’s conclusions are consistent with the analysis but are bland However the candidate does show some sensible insight such as “Cash has decreased by £343 but FS still hold a strong cash position” Although the candidate provides a list of recommendations they are not all commercially possible or relevant To score better grades on Requirement 1, the candidate could have:  Focussed their work and avoided imprecise commentary to prevent an overrun on time  Provided analysis based on the numerical work and not on missing information  Provided more focussed analysis in all sections and eliminated extraneous details  Provided tighter conclusions and more precise recommendations in the report Copyright ©The ICAEW 2012 Page of 18 Assessment of Banbury rental proposal [Requirement 2] The financial data analysis in this section is a mixture of muddled thinking and good fortune After two pages of convoluted (and time-consuming) calculations the candidate arrives at a final figure for “contribution” in the appendix (which happens to equal the revenue for one semester of the Banbury programme [£155,520]) and proceeds to use that partially correct (and possibly plausible) figure in the report In the first main section of this topic, entitled “cash implications”, this candidate starts by discussing the broad timing of cash flows for ELT programmes However, the candidate then strays into a muddled combination of cash issues and some rare breakeven discussion This failure to focus logically on the point to be made is a common weakness in this script The second section of this topic, entitled “other important factors”, also contains a variety of factors – some of which are not important but simply vague comments drawn from the AI The candidate identifies some generally relevant factors: “in order to maintain its UKBA Tier status, FS needs to ensure that it maintains its quality control (QA) processes and standards” but fails to lace these into the analysis which has been requested The next section is entitled “Edwin’s assumptions” which contains three paragraphs: the first one contains an “assumption” concerning the new rental figure of £120k; the second is a repeat paragraph from the section above; and the third is an irrelevant discussion concerning the scarcity of skilled linguists which lapses into a repeat of the quality control issue In the very short section entitled “our assumptions” the candidate provides two sentences both of which contain some relevant information concerning the assumptions made There is no conclusion at the end of this section and the two recommendations made by the candidate are both so general and banal that if this report were to be handed to FS by Griffiths Brett the firm would probably end up paying the client compensation for wasting their time Inevitably this candidate’s scatter-gun approach does collect some positive marks but it is insufficient for a passing grade in this requirement To score better grades on Requirement 2, the candidate could have:  Carefully followed the instructions in the requirement to provide a structured answer  Performed a simple contribution calculation for the ELT programme which could be run at the Banbury location  Provided a more comprehensive and logical review of the assumptions suggested by Edwin Sanguine  Provided more comprehensive and focussed recommendations Evaluation of new business opportunities [Requirement 3] This candidate starts this section with the conclusion that “FS should not go ahead with the business opportunity once it has considered all the risks” From this negative starting point the analysis continues as per the requirement, to consider the benefits that might accrue under each revenue stream starting with the ELT programmes: “with an increase in the market in Brazil there is an opportunity for an increase in English language students as relationships develop and corporate clients send their employees to England” This is a sensible piece of analysis because it takes account of the fact that FS is based in the UK and does not Copyright ©The ICAEW 2012 Page of 18 currently have any overseas operations so the only way in which the ELT programme might benefit is along the lines suggested here Under the consideration of FLT revenue the candidate also refers to one of the three companies identified in the news article and by Paz Trans, which is an important piece of commentary The analysis of T&I revenue correctly identifies FS experience in big event work such as the Olympics However, the candidate offers no opinion as to where the real opportunity lies between these revenue streams The risks are also considered in the above logical order, by revenue stream, but instead of linking the risks to the actual opportunities offered by the named companies the candidate discusses broad risks currently associated with the revenue streams: UKBA visa restrictions for ELT programmes; quality of tutors for FLT programmes; local competition for T&I work for the future World Cup and Olympic events in Brazil A review of the current opportunities which might be possible by working with the companies who have contacted FS may have quantified and then eliminated these risks In the section headed “ethics” the candidate mentions the issue that the use of European-Portuguese linguists would be a problem The candidate also states “we have also been made aware of “commissions” which need to be paid in order to gain introduction” but then does not develop a solution The candidate provides some general conclusions but also, somewhat surprisingly, identifies the lack of technical (product) skill, and touches on the ethics involved in having to be able to deal with financial services products: “it is possible that as the Brazilians are less informed about financial products and pensions that they will need more advice and specially trained translators in order to help them understand FS does not currently have this technical knowledge of expertise and therefore would not be best placed to go ahead with this at present time” – a piece of clear relevant thinking which was all too rare in this script The section finishes with a list of recommendations, some of which repeat recommendations from elsewhere in the script, while others are simply broad bland statements not tied to the context provided – “establish links and promote FS in Brazil” and “diversify into Brazilian Portuguese” – which add very little to the current FS situation To score better grades on Requirement 3, the candidate could have:  Developed a more disciplined approach to answering the requirement as per the request made by FS  Provided a more comprehensive analysis of the benefits and risks of this new business opportunity in relation to the three businesses that have already contacted FS  Provided a more useful analysis of the opportunities by considering which revenue streams might be positively affected and how significantly Appendices Appendix This relates to the financial statement analysis (Requirement 1) and provides a series of well laid out columnar analyses of the summarised FS income statement extracts for 2012 compared with 2011 with the analysis of revenue and gross profit provided overall and then by primary revenue stream The analysis of movements between the years is made in both absolute and percentage terms The analysis of the MP problem provides a detailed reconciliation but the T&I analysis is confined to a calculation of days receivable for 2012 and 2011; there is no analysis of cash Overall this is an adequate, relevant working document which provides a basis for the analysis provided in the body of the report Copyright ©The ICAEW 2012 Page of 18 Appendix This short appendix relates to the Banbury rental proposal (Requirement 2) This candidate used two columns to attempt to calculate the contribution: (1) based on total ELT revenue in 2012 (per Exhibit 10) and then proceeding to a proportional 2013 calculation based on that approach; (2) based on an individual student’s “contribution” Although the numerical calculations of the contribution are incorrect the candidate has labelled what has been done and so a reader (and the examiner) can, at least, follow these incorrect approaches The candidate does not really extend their calculation to cover breakeven or margin of safety This appendix is not correct but it is well explained to its audience (By an extraordinary piece of good fortune a figure on the final line of the calculations in this appendix is the correct ELT revenue for one semester at the Banbury location which the candidate then uses in the report – but it is not the correct contribution figure.) This incorrect appendix must have cost the candidate a lot of time Overall paper This was a legible clearly written answer which followed a logical format in answering the detailed requirements There were some lapses in style and grammar – including the use of a series of twoline sentences in the ES – but overall the language was mostly appropriate with clear financial explanations in the body of the report However the report was not appropriately balanced between the three sections – it was evident that too much time was spent on Requirement and the appendices There were instances of unnecessary facts being provided to the board about their business but the structure of the report was satisfactory although style and language were of variable quality Copyright ©The ICAEW 2012 Page of 18 ILLUSTRATIVE SCRIPT Draft Report To: Fluent Speech Limited From: Griffiths Brett Chartered Accountants Date: November 2012 Subject: A financial review of Fluent Speech’s performance for the year to 30.9.12, an assessment of the BBP rental and an evaluation of Brazil new business opportunities Disclaimer: This report has been written for the Board of FS Ltd and should not be disclosed to third parties without the express permission of Griffiths Brett Griffiths Brett accept no liability for actions taken based on the contents of this report Copyright ©The ICAEW 2012 Page of 18 Executive Summary Review of Fluent Speech Ltd’s performance for the year ended 30.9.12 Revenue has grown by £1,798k (20.7%) which is good This is a better performance than 2011 There has been an increase in demand for translation and interpreting services in the 12m build up to and following the Games There has also been an increase in foreign language revenue which FS has explicitly focussed on recently This is also linked to the success of the motor industry Revenue has grown which is good We recommend maintaining the relationship with the motor industry Gross profit overall has decreased by £1,105k (22.3%) and the margin has fallen to 36.6% This is due to changes in the sales mix More translation and interpreting services have been provided but at a lower margin to FS GP is down which is not good It would be useful to be able to determine the true profitability of each course and so we recommend that FS apportions its OHs proportionately English language revenue has fallen by £161k (6.5%) which is not good, but expected This is due to visa restrictions being imposed by UKBA and therefore fewer students English language GP has decreased by £24k (2.1%) and the margin increased to 48.7% This is down to a trend of more profitable courses being run We recommend establishing number of students on courses for further analysis Foreign language revenue has increased by £295k (17%) which is good There has been more focus placed on these courses by FS and they are also linked to the success of the motor industry GP has also grown by £159k (18.8%) and margin to +9.6% There are less costs involved as the work generally takes place @ the client’s work We recommend further analysis into the sales mix within courses Translating and interpreting revenue has increased by £1536k (85.2%) This is due to more work generated by the Games and through public sector requests GP has risen by £20k (2.6%) but GPM fallen massively to 23.7% This is because of a potential change in the mix of the services and also the rise in costs paid to the Burmese translators Cash and accounts receivable have both been impacted by translation and interp services Cash has not been received in a timely fashion although cash position is still strong Copyright ©The ICAEW 2012 Page of 18 AR are high and debtors are very slow to pay, particularly within T&I clients MP has made a large impact on this by failing to pay their due accounts on time Executive Summary An assessment of the new rental proposal with BBP Additional contribution of £155,520 Cash implications is that English students will pay in advance and this will enable better cashflow for FS When it has to pay its rental in advance FS needs to maintain its Tier Status and ensure that it keeps its quality control checks in place in order to ensure it can continue to keep the students Edwins assumptions are based on maintaining the standards which is very important Our assumptions are based on same costs as previously and minimum numbers remaining the same FS should the rental as it will increase their contribution Executive Summary Evaluation of business opp in Brazil FS should go ahead with business opportunities in Brazil but it should first ensure that it has considered all risks Benefits to FS are that there would likely be an increase in both English language and foreign language courses Translation and interpreting would be likely to rise too as a result of more work through more Games However risks include that it is more likely that any increase in courses would be for corporate clients and these provide a much lower margin There is also the likelihood that the Games opportunities could be less than anticipated due to potentially being offered to local workers before FS Ethically there are many issues The main issue is that FS is considering using European Portuguese instead of Brazilian – Portuguese for freelance work initially This is unethical as it does not provide the correct translation and not only will the end user be affected, but FS will run a major risk of damaging its own reputation Compliance is key to ensure FS remains accredited and QC standards are also key to maintain Tier status FS needs to ensure that it employs a PR/media savvy spokesperson to ensure no further outbursts from Edwin Copyright ©The ICAEW 2012 Page of 18 Analysis of revenue and gross profit both in total and by stream; impact of translation and interpreting on cash and accounts receivable; also the MP issue For all calculations, please see Appendix Revenue – total Revenue has grown by £1,798k (20.7%) in 2012 This is good This is a better performance than 2011 This is due to the steady demand which rose in the 12m before the Games in translation and interpreting services There has also been an increase in foreign language course revenue; FS has been concentrating on this over the past few years The motor industry remains a large client particularly for foreign language courses It is important to keep this relationship strong as many other courses are fed through to FS from their motor industry corporate clients The success of foreign language courses is heavily dependent on the motor industry which is currently doing well Translation and interpreting has spiked in 2011/12 because of the Games Gross Profit – total Gross profit has decreased by £1,105k (22.3%) and the margin has fallen from 43.2% to 36.6%, a fall of 6.6 percentage points This is likely due to changes in the sales mix Previously FS was delivering more of its higher margin courses such as foreign ‘days per week’ courses The move to more translation and interp work in the past year has seen a shift in the sales mix to lower margin work It would be useful for FS to be able to calculate the true profitability of its courses; in order to this we would need to apportion overheads consistently As GPM has fallen quite significantly and this is due to the sales mix, FS will need to change going forward: translation and interp work is likely to have spiked following the Games and this is the majority of the revenue also However paying 75% of the fees to translators leaves FS a much smaller margin overall There should be a change made in the sales mix Revenue – by stream English Language This has fallen by £161k (6.5%) This is worse than 2011 Historically this has always been the highest revenue stream in the sales mix but has been steadily falling This is due to tighter UKBA visa restrictions and fewer English language students There has also been increased competition for foreign language schools Copyright ©The ICAEW 2012 Page of 18 Foreign language Revenue has increased by £295k (17%) This is good This is better than 2011 There has been more focus placed on FL courses by FS recently, and the success of the courses are also linked to the successful client relationship with the motor industry The revenues for FL peak and trough with the motor industry The motor industry is currently doing well and as such this is reflected in FL course revenue 65% of FL is from motor clients Translation and Interpreting Revenue has increased significantly by £1,536k (85.2%) This was anticipated following the successful run up to the Games however would not be expected to continue FS broke the £1m barrier in 2010 due to this and it appears this has continued since There has also been an increase in motor and public sector requests for these services, together with increased work from the Olympics has really pushed up the revenue Gross Profit – by stream English language GP has decreased by £24k (2.1%) yet the margin has increased by 2.2 percentage points to 48.7% This is a mixed result FS refurbished in 2010 in anticipation of an increase of student before the visa restrictions were increased Therefore numbers didn’t materialise and have continued falling since Costs may still be being incurred There has been a trend towards more profitable revenue streams however without knowing how many students have attended courses in the year it is not possible to establish exactly which have grown Foreign language GP has grown by £159k (18.8%) and margin also by 0.8 percentage points to 49.6% These take place generally at the clients’ place of work and as such incur less costs This is the highest GPM within the streams In order to explain why the increase has happened we would need to know the sales mix within each course type Translation and Interpreting GP has risen by £20k (2.6%) but GPM has fallen by a massive 19.1 percentage points to 23.7% from 42.8% Translation and interpreting services have both risen as a result of the Olympics and further public sector and motor industry work However the interpreters are paid between 65% and 75% historically, and translators from approx £40 per page Copyright ©The ICAEW 2012 Page 10 of 18 This squeezes the margins but FS has been paying the Burmese translators 75% of the fee which has squeezed margins even further Specialists are used for these services as the tutors don’t enjoy the work They need experience and these specialists cost a lot FS has paid its Burmese translators on time Impact of T & I on cash Cash is overstated in effect at each year end due to deferred income which is received from English students in advance of their courses This has declined as expected due to fewer students because of visa restrictions However translation and interpreting have also had an impact on cash FS invoiced a total of £872k to MP during Qtrs 2,3 and Only £192,000 of this has been received in cash since However FS has continued to pay the Burmese translators their 75% on time; ie within 30 days This has put constraints on cash as there has been a larger outflow of £654k paid out than the inflow of £192k FS has been very strong in its cash position historically The balance last year of £935k however has been eroded by £343k to £592k at the end of 2012 Therefore FS still has cash but could improve its situation Currently it pays all AP by the end of the year; certainly within 30 days This should be reviewed so that FS uses the credit terms available to it and manages its working capital better This way there will be less of an outflow before the cash inflow FS must however ensure it does this whilst retaining good relationships with its suppliers and translators Impact of T & I on AR FS’s policy for receivables is 30-90 days which is quite broad A debtor is unlikely to pay in 30 days when they can pay in 90 However this couldn’t be changed overnight and so FS could gradually reduce it Generally the worst offenders on receivables days are public sector clients such as the NHS, police and courts Focussing specifically on translation and interpreting services, other translation clients have historically been terrible at paying on time This has vaguely improved at 301 days in 2012 compared to 307 days in 2011 Still extremely over the 90 day limit though There has been no bad debt provision put in for this class of client however with the obvious history of bad payment this is advisable Also MP should have paid Qtrs and by now, mid November This is a total of £865k but they have only paid £192k Also, they recently sent a letter disputing the quality of some FS work which suggests they may not pay They represent a large amount of the AR balance On the other hand, other interpreting clients receivable days have increased massively to 266 days vs 61 days in 2011 Copyright ©The ICAEW 2012 Page 11 of 18 This is a cause for concern It may be that they are struggling to pay or it may be something even more serious This should be reviewed and a plan put in place – see recommendations Conclusion Revenue has grown which is good Translating and interpreting revenue has grown significantly and foreign language also grown English language has decreased Gross profit has decreased in total but only for English language by stream; Foreign language and T&I services have both grown Cash has decreased by £343 but FS still hold a strong cash position T&I services have had a large impact on Revenue, GP and cash and AR Recommendations We recommend Maintain good relationship with motor industry clients Apportion OHs to calculate time profitability Run x ‘Days Per Week’ courses consecutively to increase GPM Establish student numbers to gauge better understanding of change in GP mix Further information re sales mixes by course to further explain growth in GPM for FL courses Increase payables’ days by paying later than 30 days where possible Better control over trade receivables; better credit control to improve wc mgt Decrease credit terms to 30-60 days max Increase bad debt provision in relation to increases in receivables’ days Review other interpreting clients to establish why paying so late Arrange stage payments where possible Maintain Tier sponsor status to keep Eng lang courses going An assessment of the new rental proposal with BBP For all calculations, please see Appendix The additional contribution to be earned through reinstating the lease and continuing with the courses is £155,520 Cash implications English course students pay in advance and so FS would expect to receive their payments before the end of Qtr This would significantly increase the cash flow of FS and also the deferred income balance Copyright ©The ICAEW 2012 Page 12 of 18 This would reduce the negative effect on the cashflow in the first quarter of 2013 when the rental of £120k was due Cash would increase overall for FS as there is an increase in the contribution There are better margins on non-corporate courses and this will improve FS’s performance overall In order to break even the long semester courses require students There is a max of on each course and FS assumes that it will continue to be oversubscribed This indicates that it should be successful and that in future there is potential for increasing the number of courses Other important factors In order to maintain its UKBA Tier status, FS needs to ensure that it maintains its quality control (QA) processes and standards It is very good at this and has always maintained this accreditation Without it, it would lose English students which are one of its main income streams, and the potential reputation damage would probably lead to other students opting not to come to FS FS would have cut their operating gearing through the closure of Banbury This is because like most language schools, they have a high fixed cost base However not by taking on the new lease, at a higher cost than previously, this will now increase their operational gearing once more, making them much more sensitive to changes in student numbers as a % of revenues Once they break even however, profits will soar and FS expects to achieve this Admin costs have decreased in 2012 however suggesting potentially good cost control FS has a history of good cost control and the ability to cut costs when required The cost of the rental has increased by £30k (33%) on previous cost FS will have to find the extra cost but from the calculations it looks like this should be covered by the additional contribution Edwin’s assumptions Edwins’ assumptions are that FS will continue to meet the UKBA requirements and that the rental will be reinstated at £120k In order to continue to maintain UKBA requirements FS will need to ensure that it continues to follow its QC programmes and maintain high standards However as Art has pointed out in his email, there were a shortage of skilled linguists to work for additional translation and interpreting This raises the question as to whether tutors used are sufficiently trained and have the relevant experience – FS needs to ensure that it follows all its QC procedures to maintain its high quality standards Our assumptions We have assumed the same number of minimum students and same costs We have also assumed the same costs for tutors Recommendations Maintain excellent QC standards Maintain Tier sponsor status Copyright ©The ICAEW 2012 Page 13 of 18 Evaluation of the new business opp in Brazil FS should not go ahead with the business opportunity, once it has considered all risks Benefits English language With an increase in the market in Brazil there is an opportunity for an increase in English language students as relationships develop and corporate clients send their employees to England Foreign language XL Auto-components could also provide a benefit for FS as they are an existing client and considering expanding to Brazil This would increase the employees to FS to learn the language better on corporate courses Translating and interpreting The 2016 Games and 2014 World Cup will require further work in these areas and FS has shown that it is capable of and good at delivering this There could be massive opportunities for growth in this area and FS could further take advantage of this Other The BRIC countries are an area of expansion and this is something that FS can take advantage of Diversification is key to success due to all of the external committing factors such as visa restrictions and this will give FS more comfort Risks English language If further government visa restrictions were to come in, this would have a great impact on English language courses Less students would be able to come to FS and there would be the risk of FS losing its Tier status Compliance is a major risk for FS and should be ensured that this is adhered to in order to retain accreditations Mostly corp clients which have lower margin Need pension experience Foreign language Although there is likelihood of an increase in students to FS if more courses were on offer eg Brazilian Portuguese as well, it is very important that the quality of tutors is also maintained This would involve FS doing a lot of advertising and recruitment which would be expensive There is also a risk that suitable tutors may not be found, in Brazil Corp courses again also have lower margin than individuals Translating and interpreting Whilst the 2016 Games and 2014 FIFA world cup will be beneficial to FS in terms of potential extra work, FS must also consider that the work done in Brazil will likely go to the locals first rather than imported services Copyright ©The ICAEW 2012 Page 14 of 18 Other Brazil is as yet unknown to FS and so it would need to ensure that it is aware of culture and custom Ethical It would be unethical to use European- Portuguese translators initially This is because the language is different, and it will not be possible to provide any kind of decent service Also it is not ethical because it would affect those FS were translating for It is likely it would be incorrectly done and this would also then impact on FS’s reputation, which is key to FS’s success We have also been made aware of “commissions” which need to be paid in order to gain introduction In conclusion There are many potential benefits of the new market opportunities in Brazil, however there are also many risks involved Therefore we would advise that any news items are substantiated and any identified risks carefully considered before going ahead It is possible that as the Brazilians are less informed about financial products and pensions that they will need more advice and specially trained translators in order to help them understand FS does not currently have this technical knowledge of expertise and therefore would not be best placed to go ahead with this at present time Recommendations We recommend Establish links and promote FS in Brazil Diversify into Brazilian Portuguese Do not use European – Portuguese translators Compliance officer to maintain compliance with UKBA / other accreditors PR officer to be used regarding any public comment Advice from BIS re “commissions” Substantiate article Need technical pension / financial translators who speak B-P to this Copyright ©The ICAEW 2012 Page 15 of 18 Appendix Revenue £total ∆ %∆ £’000 2012 10,503 1,798 20.7% £’000 2011 8,705 Gross profit £total ∆ %∆ GPM% 3,841 (1,105) -22.3% 36.6% 4,946 By Stream: Revenue English language £ ∆ %∆ 2,314 (161) -6.5% 2,475 Foreign language £ ∆ %∆ 2,029 295 17% 1,734 Translation & Interp £ ∆ %∆ 3,339 1,536 85.2% 1,803 By stream : GP English language £ ∆ %∆ GPM 1,128 (24) -2.1% 48.7% 1,152 By stream : GP Foreign language £ ∆ %∆ GPM 1,006 159 18.8% 49.6% 847 791 20 2.6% 23.7% 771 Translation & Interp £ ∆ %∆ GPM Copyright ©The ICAEW 2012 43.2% 46.5% 48.8% 42.8% Page 16 of 18 MP Quarter Invoiced Paid Balance Paid £240,000 £625,000 £ 7,000 £872,000 (£92,000) (£100,000) (£192,000) (£680,000) £654,000 78% of balance still outstanding 60 day payment term: £240,000 + £625,000 = £865,000 s/be paid by Qtr4 £654,000 paid to translators £192,000 cash in £462,000 cash outflow AR Days 2012 2011 Other translation clients 1617/1958 x 365 301 days 307 days Other interpreting clients 373/511 x 365 266 days 61 days Translation & Interp Appendix Based on minimum numbers Fees → annual intake x fee per week x no weeks Costs → wage/hour x tutor weeks/year x hours / week + 10% prep & monitoring costs Semester long Originally : 2011 Fees (720 x £180 x 12 wks) Tuition (£25 x 1,440 x 25 hrs) + Prep @ 10% Contribution / GP GPM £ 1,555,200 (900,000) (90,000) 565,200 36.1% students /12 wks Per week £ x 180 1,080 (625) (62.50) 392.50 Per course £4,710 Rentals £120,000 pa in advance Were £90k In 2011 Qtr was reduced by 12 groups individuals in each group therefore – 72 720 was annual intake therefore 648 was actual in 2011 Copyright ©The ICAEW 2012 Page 17 of 18 Actual 2012: Fees (648 x £180 x 12 weeks) Tuition (£25 x 1,440 x 25 hrs) + 10% prep GP / Cont / 12 weeks Per week £ 1,080 (625) (62.50) 392.50 £ 1,399,680 (900,000) (90,000) 409,680 GPM 29.3% per course £4,710 Fees for English courses received in advance in Qtr of previous year → deferred income Fees to receive for 2013: 720 x £180 Students per week Tuition to be paid: £25/hr x 1,440wks £ 1,555,200 x 12wks x 25hrs + 10% prep fee Contribution (900,000) 655,200 (90,000) 565,200 Rental to be paid in advance: £120,000 Cash rec’d Qtr Less rental paid Qtr £1,555,200 £(120,000) Cash net inflow £1,435,200 No rental was paid in 2012 as Banbury was not rented For 2014 same fees to be received and rental paid in advance again Additional contribution earned: 2013 2012 Copyright ©The ICAEW 2012 £565,200 £409,680 £155,520 2014 2013 £565,200 £565,200 – Page 18 of 18 ... actual in 20 11 Copyright ©The ICAEW 20 12 Page 17 of 18 Actual 20 12: Fees (648 x £180 x 12 weeks) Tuition ( 25 x 1,440 x 25 hrs) + 10% prep GP / Cont / 12 weeks Per week £ 1,080 ( 625 ) ( 62. 50) 3 92. 50... 20 2. 6% 23 .7% 771 Translation & Interp £ ∆ %∆ GPM Copyright ©The ICAEW 20 12 43 .2% 46.5% 48.8% 42. 8% Page 16 of 18 MP Quarter Invoiced Paid Balance Paid 24 0,000 £ 625 ,000 £ 7,000 £8 72, 000 (£ 92, 000)... £1,435 ,20 0 No rental was paid in 20 12 as Banbury was not rented For 20 14 same fees to be received and rental paid in advance again Additional contribution earned: 20 13 20 12 Copyright ©The ICAEW 20 12