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For examinations on Tuesday 26 February 2013 and on Thursday 23 May 2013
PRE-SEEN MATERIAL, PROVIDED IN ADVANCE FOR PREPARATION AND STUDY FOR THE EXAMINATIONS IN MARCH AND MAY 2013 INSTRUCTIONS FOR POTENTIAL CANDIDATES This booklet contains the pre-seen case material for the above examinations. It will provide you with the contextual information that will help you prepare yourself for the examinations. The Case Study Assessment Criteria, which your script will be marked against, is included on page 17. You may not take this copy of the pre-seen material into the examination hall. A fresh copy will be provided on the examination day. Unseen material will be provided on the examination day; this will comprise further context and the examination question. The examination will last for three hours. You will be allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, make annotations on the question paper. However, you will not be allowed, under any circumstances, to either begin writing or using your computer to produce your answer or to use your calculator during the reading time. You will be required to answer ONE question which may contain more than one element. For PC examinations only: Your computer will contain two blank files – a Word and an Excel file. Please ensure that you check that the file names for these two documents correspond with your candidate number.
Contents of this booklet: Pre-seen material – BVS – Fleet maintenance case Pre-Seen Appendices Case Study Assessment Criteria 2 12-16 17
© The Chartered Institute of Management Accountants 2013
T4 Test of Professional Competence – Part B Case Study Examination
JAR had always managed its own in-house fleet which was then split into two separate subsidiary companies. fuel management and health and safety management. Background on JAR Fleet Maintenance (JAR FM) A large telecoms company. There is a range of large multi-national companies which operate their own fleet maintenance departments. it is more important than ever for vehicle fleet costs to be better managed. there are many specialised fleet maintenance companies which offer services to small fleets of 30 or fewer vehicles. as its facilities were under-utilised and badly managed. JAR owned and operated a large fleet of vehicles. although this can be out-sourced. As part of the March & May 2013 2 T4 Part B Case Study . the vehicle fleet is managed by its own in-house fleet management department. are severe. as well as to larger fleet operators with over 5. improving the efficiency of their fleet and providing compliance with respective regulations on vehicle safety and road-worthiness. specialised fleet maintenance companies. With the pressure on companies to reduce operational costs and to increase efficiency. efficient and cost effective transportation operation. Many companies operate their own in-house fleet management department but choose to outsource the maintenance of their vehicles to one. The types of vehicles they operate range from executive cars to large articulated trucks and lorries. Within most companies. was a state-owned industry in its home European country until it was privatised in 1994. A well maintained vehicle will breakdown far less often and therefore provide a greater degree of operational efficiency. These needs are typically routine servicing of vehicles. To support the telecoms business. JAR FM had been loss-making for many years. JAR then established separate fully-owned subsidiary companies for the various parts of its business. For this reason most companies choose to outsource their fleet maintenance requirements to specialised fleet maintenance companies. Fleet maintenance is crucial in order to run a safe. Within Europe alone. The fleet maintenance subsidiary company. This includes vehicle acquisition and de-fleeting. The penalties for a company failing to meet regulations. such as the cost and selection of vehicle acquisition. Some of these large companies offer a maintenance service to other companies. Fleet maintenance This case study concerns fleet maintenance specifically and does not encompass the many other aspects of fleet management. fleet management is a function which companies undertake in order to reduce the risks and the costs associated with a range of activities including vehicle investment. irrespective of whether they are leased or owned vehicles. JAR. JAR FM maintained only JAR‟s own fleet of vehicles at this time. One was fleet procurement and the other was fleet maintenance. or more. vehicle financing. which are becoming increasingly more complex. the number of commercial vehicles deployed in company fleets is forecast to grow to four million vehicles by 2014.000 vehicles. vehicle maintenance.BVS – Fleet maintenance case Industry background Many companies worldwide operate and manage a fleet of vehicles. Therefore. speed management. called JAR FM. which are able to deliver a one-stop service to meet all their needs. All vehicles need to be maintained in order to meet regulations as well as to maintain operational efficiency and to reduce running costs. operated a large number of vehicle workshops throughout this European country and it also outsourced a small proportion of its maintenance to a range of smaller workshops in certain areas of this country. In addition. The fleet management department is responsible for all aspects of the vehicle fleet. mechanical repairs and tyre replacement. driver management.
This led to the Board of JAR making the decision in June 2009 to sell off. the level of operating losses continued at around the same level as previously. particularly after the significant improvements that had taken place over almost 2 years since Toby Baum was appointed. Operating profit for the year ended 31 March 2009 was €0. By 31 March 2008. Toby Baum also informally approached some of the members of the Board of JAR to establish whether it would be receptive to a MBO for JAR FM. the lowest level for many years. He started a review of business activities and made changes in the way the company operated. The Board of JAR announced in June 2009 that it would be seeking a trade buyer for JAR FM. or close. JAR FM had reduced its operating losses to €3. This prompted the main Board of JAR to recruit a more experienced Chief Executive for JAR FM. or whether it had already identified a trade March & May 2013 3 T4 Part B Case Study . Toby Baum identified an experienced accountant. were given profit targets to meet over the 5year period ending 31 March 2010. and received confirmation from both colleagues that they would be prepared to go ahead. by 31 March 2010. During the year ended 31 March 2009.0 million. in addition to the JAR fleet of vehicles. Leo Willems and Phillip Beck. He was instrumental in marketing JAR FM‟s vehicle maintenance facilities in order to generate revenues from new customers. Additionally. However. due to opposition from trade unions. Management Buy-Out in April 2010 Toby Baum was not totally surprised at the JAR Board‟s decision to sell off the fleet maintenance business and he considered that this would be a good opportunity for a Management Buy-Out (MBO) by some of the current management team of JAR FM. Operations Director and the newly recruited Sales and Customer Support Director.500 vehicles being maintained. including JAR FM. He was trying to improve the quality of the service the workshops provided to JAR‟s fleet of vehicles. Toby Baum considered that a particular area of weakness was the lack of management information and financial control of the business due to a weak and ineffective Finance Director who had worked in JAR FM for many years. Toby Baum was able to secure vehicle maintenance contracts with a further 6 vehicle fleet operators. and in order to improve company-wide profitability.800 vehicles. Toby Baum was appointed to this role in August 2007. he had confidence in Leo Willems. in order to help to prepare a business plan and to try to identify a private equity provider. he needed to increase the revenues for JAR FM. Employee reaction in JAR FM to this news was one of disbelief. This resulted in an end of financial year (31 March 2010) figure of 47. including Head Office staff and employees based at the 260 workshops across its home country. They also agreed that the new company (post MBO) would require a new Finance Director with strong financial skills. At this stage JAR FM had just 2 new fleet maintenance customers. a number of its subsidiary companies. all of JAR‟s subsidiary companies. This was the first time JAR FM had been profitable for many years.re-structuring of JAR during 2005. Phillip Beck. However. which helped to improve workshop utilisation levels and generate substantial revenues. Despite the operating profit targets that had been set for JAR FM. At 30 June 2009 JAR FM employed almost 1. Toby Baum had been recruited from outside the JAR group as he had extensive knowledge of the fleet maintenance industry. and appointed her as a consultant. through a recruitment advisor. The Board of JAR wished to dispose of the selected subsidiary companies within 9 months. to work for him personally. He discussed his ideas of a MBO with his 2 key operational colleagues. he considered that if he could not cut costs in the short-term. bringing in maintenance work for a further 2.500 employees. All employees feared that they would lose their jobs and some of the administration staff sought to transfer to another company within the JAR group. The Board of JAR was under pressure to increase group profits and to concentrate on its core activities. Therefore. offset by a fall in JAR‟s fleet size. he met much opposition and was unable to reduce headcount.5 million. During the year ended 31 March 2010 some further contracts were signed with new customers. the business had closed some of its workshops. including JAR FM. However.
at 1 April 2010. There was also a clause for the fixed price to be index linked to inflation each year. Each of BVS‟s 4 executive directors purchased their shares in cash and all of them had to raise personal loans secured against their homes to generate the required level of financing for the MBO. Following approaches to.50 was agreed. The new MBO company was to be called BVS. News of the impending MBO was announced in January 2010 to all employees in JAR FM. providing that the required finance could be raised. JAR was able to reduce its total fleet maintenance costs and BVS would commence trading with a guaranteed 5-year contract for JAR‟s fleet of vehicles. Negotiations then took place as to which employees would transfer into BVS and which employees would transfer elsewhere within JAR or be made redundant.000 shares. and negotiations with. When the company was established. and which staff he wished to employ in the new company. However. a share premium of €4. Inventory of materials and spare parts. This net valuation included: 120 specified workshops that would be transferred and managed by BVS (some owned workshops and some leased). Toby Baum‟s business plan for BVS. The company has an authorised share capital of 1. which met its quality and customer service requirements.0 million.50 par value. together with his confident charismatic personality. Toby Baum knew the company well. due to the history of losses. A 5-year maintenance agreement was also agreed for JAR‟s fleet of vehicles. JAR was also responsible for all of the remaining employees of the JAR FM subsidiary company. each of €0. After much negotiation an agreement for a valuation of the JAR FM business was reached. JAR FM had operated 260 workshops at 30 June 2009. based on vehicle type. JAR was responsible for the closure costs of the other 140 workshops that BVS was not acquiring. It has 400.100 vehicles at 1 April 2010.000. The 5-year maintenance agreement for JAR‟s fleet had benefits for both parties. He was informed that no buyers had yet been found. Negotiations took place with JAR on the valuation of the business. Toby Baum did not want BVS to be overly burdened with the employee and other running costs associated with operating such a large number of workshops. Therefore they are all personally very committed to making a success of BVS and to see the company grow and achieve the business plan. All shareholders purchased shares at a cost of €5. persuaded a private equity investor.buyer for the JAR FM business. and that a MBO would be possible. who were not employed by BVS. as it planned to outsource the remaining volume of the maintenance work to a range of carefully selected outsourced workshops. A summary of BVS‟s key personnel is shown in Appendix 1 on page 12.000 shares in issue. The price would vary by the size of JAR‟s fleet. which is always a distinct advantage with MBO‟s. PIE. to take a 60% stake in the company. which covered 34. The agreed valuation was €4. March & May 2013 4 T4 Part B Case Study .00 per share. Liabilities for 860 employees that would transfer to the new MBO company. BVS would be totally responsible for all future staff costs and liabilities for the 860 employees transferred into BVS. banks and private equity providers in late 2009 and early 2010. a deal was finally reached. Structure of BVS BVS is a private limited company and not listed on any stock exchange. workshop facilities. Raising funds for a MBO was especially difficult during this period due to the economic environment and restrictions on lending. The agreement was to be at a fixed price per vehicle. and had already identified which assets. which was forecast to reduce over the 5-year business plan period. BVS chose to acquire only 120 workshops from JAR FM. its assets and employee liabilities.
0 The Board of BVS has not yet declared any dividends.2 million Bank loan financing €1. Once PIE was signed up for its 60% equity stake.400. March & May 2013 5 T4 Part B Case Study .000.The shareholdings are as follows: Number of shares held at 31 March 2012 Toby Baum Leo Willems Phillip Beck Annika Larsen PIE (private equity provider) Total 70. 3 further instalments of €0.0 100. payable to JAR in 4 instalments: €2.000 30.000 30. This loan is secured against the assets of the company.0 million. at an interest rate of 12% per year. Underpinning BVS‟s plan is for BVS to provide a seamless one-stop service to fleet managers operating vehicle fleets across three countries.5 7. and the last instalment is payable on 31 March 2013. The agreed acquisition price was €4.5 million each. 1 April 2010. The bank also agreed to an overdraft facility to help meet the peak demands in working capital. Toby Baum was able to negotiate and obtain a bank loan for €1. The bank loan is repayable on 31 March 2015.000 Percentage shareholding % 17.000 30.5 7.000 240. of which 2 instalments were payable on 31 March 2011 and 31 March 2012.000 400. The overdraft interest rate is 14% per year.8 million PIE private equity €1.4 million The business plan The business plan was to grow the existing vehicle fleet maintenance business and to expand its geographical coverage of maintenance workshops to two neighbouring European countries.5 60. Therefore. The Board planned to deliver this service through the use of managed and outsourced workshops which would all deliver a high quality of service.5 million on the date of acquisition.5 7. excellent customer care as well as the provision of management information on the fleet vehicles through BVS‟s new IT systems. the overall structure of the book value of finance provided at 1 April 2010 was as follows: Management €0.
and the associated risk to its fleet safety. 4. which are: 1. Furthermore. for which BVS charges its customers based on labour time as well as the cost of bought in parts. Extracts from BVS‟s business plan are shown in Appendix 2 on page 13. Other factors include the vehicle manufacturer‟s recommended service frequency and the need for more frequent servicing in different geographical regions and for harsher environmental conditions. considered that this is challenging.The principles behind BVS‟s business plan are shown in the following diagram: Develop the strategy Vision Strategic analysis Business strategy Monitor performance Profitability analysis Strategy reviews Operating reviews Customer responses Operational planning Sales planning Resource planning Capacity limits Planned improvements Adapt and change The business plan includes a growth in revenues from €84 million to almost €140 million by 31 March 2015. Additional fleet management services. Replacement tyres. Mechanical repairs. as detailed on the next page. BVS‟s customers require that their vehicles are serviced on time. Revenues are generated from four streams. depending on the mileage and type of vehicle. per type of vehicle. or its outsourced. Fixed price maintenance service (for which minor parts are not chargeable to customers) 2. particularly for safety-critical elements such as brakes and tyres. so as to minimise the risk of breakdowns and failures. March & May 2013 6 T4 Part B Case Study . The core business that BVS offers to its customers is a fixed annual price. they require that BVS‟s maintenance work should be of a high standard and that quality replacement parts should be used. with a small mark-up on parts. workshops. BVS‟s customers have differing requirements for the frequency of vehicle servicing. The price per vehicle varies depending on the type of vehicle and its expected mileage. BVS also makes a charge for the labour costs associated with replacing tyres and balancing the vehicles wheels to ensure safe and accurate steering of all vehicles. BVS does not provide vehicle crash repairs at its own. 3. for vehicle servicing. Toby Baum. Managing Director. such as during winter months. but achievable.
as it can also provide data on how the vehicle has been driven. However. generates information on all vehicles. Toby Baum recognised that many company fleet managers wanted to outsource much of their fleet operational work and BVS‟s customer were under pressure to control and reduce their fleet operating costs. lights and tyres. These additional services are at an extra cost to customers. BVS offers the following additional services: Fleet administration services and provision of vehicle management information. Management of vehicle road testing certificates. March & May 2013 7 T4 Part B Case Study . This enables BVS to ensure that its customers‟ fleet vehicles are maintained to minimise breakdowns and to ensure that all vehicles meet all of the legal and safety requirements. Furthermore. (see page 9) helps provide information to BVS‟s customers‟ fleet managers for them to closely monitor their fleet vehicles. Fleet managers are under increasing pressure to reduce their operating costs but also to meet increasingly demanding vehicle safety compliance measures. Breakdown recovery service. Reporting of vehicle mileage and carbon emissions. BVS has had to adapt to the changing needs of its customers‟ fleet vehicles and offer a wider range of maintenance services. The flow of data to the fleet manager. This IT system identifies the need for regular checks to be undertaken and provides reports on vehicles that are due for any safety related maintenance work. This information can be gathered using new “telematic” technology. Some of BVS‟s customers‟ fleets include vehicles which use alternative fuel sources. market research and contact with potential customers identified that they were seeking a “one-stop” outsourcer which could not only service and maintain their vehicles. concerning brakes. vehicle repair work and tyre replacement. Current operations of BVS The majority of BVS‟s work is generated from vehicle servicing. FLIS. Furthermore. to gather a range of data on each vehicle‟s operation. For example. operating costs. BVS‟s Fleet Maintenance IT system. This has enabled BVS to expand its skills and it has provided training for some of its employees in the maintenance work required for these alternative vehicle types. which are capable of running on electric power or alternative fuel. This includes data on mileage. This information is far more sophisticated than merely providing information on vehicle location. but also provide key management information on each vehicle‟s operating efficiency. Therefore. these additional services have been instrumental in BVS winning several large fleet maintenance contracts from competitors over the last few years. electric vehicles and hybrid vehicles. the mileage driven and helps BVS to plan its customers‟ vehicles maintenance requirements. A telematic device is defined as a piece of electronic equipment which is installed in each vehicle which allows the vehicle‟s fleet management department. it can report on whether speed limits have been observed. These services are currently offered at workshops located near major cities. as BVS is able to monitor and report to its customers‟ fleet managers on carbon emissions for those customers who have selected to subscribe to this additional fleet management service. tyre usage and carbon emissions. but many fleet managers want to outsource them to a specialised company. and also to BVS. how aggressively a vehicle has been driven round corners and the usage of brakes. the additional fleet management services are a growing area of BVS‟s revenues. especially in respect of the 3 key areas of vehicle safety. Accident management and arranging for vehicle repairs at specialist repair facilities. These include vehicles which use a mix of fuels including bio-diesel. Management of vehicle insurance claims. and its outsourced maintenance supplier (such as BVS).Additional fleet management services offered by BVS BVS also offers a range of administrative services to help its customers manage their fleets. An added opportunity exists for the use of data from vehicles fitted with telematic devices.
BVS‟s customers want their vehicles off the road for the shortest possible time and they choose where to book their vehicles for maintenance and repair work. Additionally. This ensures that BVS‟s customers would not necessarily be able to distinguish between any of BVS‟s own managed workshops and an outsourced workshop. the contracted hourly rate with BVS is lower than these outsourced companies charge their other customers. These outsourced workshops have BVS‟s signage and BVS‟s logo on all paperwork. These outsourced costs are invoiced to BVS at the end of each calendar month. Only 120 workshops were retained by BVS after the MBO and with BVS‟s expansion into two neighbouring countries. (see page 9). in which they choose to have their vehicles maintenance work undertaken.000 hours in the year ended 31 March 2011 to over 1. BVS’s new IT systems Toby Baum recognised the lack of operational and management information provided by JAR FM‟s IT systems. or workshops. and are analysed by vehicle and by outsourced workshop. These outsourced suppliers are presented to BVS‟s customers as “BVS‟s partners”. However. The volume of work allocated to outsourced workshops depends on a number of factors. and much of this increased volume of work was planned to be undertaken by its outsourced workshops. The number of vehicle hours planned to be outsourced was forecast to rise from fewer than 300. BVS‟s contracts with these outsourced suppliers are based on BVS paying an agreed fixed hourly rate plus an agreed mark up on parts bought and used for customers‟ vehicles. rising to 92% by Year 5. FLIS. As BVS is utilising a significant proportion of the 5 outsourced company‟s total workshop capacity. Toby Baum chose to acquire only 120 workshops from JAR in April 2010 and to outsource the remainder of the maintenance work to gain greater flexibility. The business plan assumed that the 120 managed workshops would have utilisation levels of 90%. Customers‟ selection of the workshop. the business plan included a high growth in the number of vehicles being maintained.Outsourced suppliers Leo Willems was responsible for selecting and appointing a range of outsourced workshops to undertake BVS‟s customers‟ vehicle maintenance in the geographical areas where BVS did not retain its own managed workshop. These outsourced suppliers are independent chains of garages and workshops which have spare capacity. BVS has appointed 5 outsourced suppliers for vehicle maintenance. BVS March & May 2013 8 T4 Part B Case Study .000. This IT system therefore reflects all of the work that has been undertaken for all of BVS‟s customers‟ vehicles irrespective of whether the work occurs at an outsourced workshop or in one of BVS‟s managed workshops. By 31 December 2012 these 5 outsourced suppliers undertake maintenance work for BVS‟s customers‟ vehicles at over 320 locations. JAR allowed BVS to use its existing IT systems for a small licence fee. BVS was able to reduce the implementation time for these new systems. which had not been updated for many years. The first task that he undertook when the MBO was approved was to appoint a global IT consultancy company to select and implement new IT systems for BVS. until these new IT systems were operational. These include: Geographical location. it was necessary to appoint reliable outsourced companies which have the vehicle capacity and experience to meet BVS‟s strict criteria for maintenance and repair work. However.000 vehicle hours forecast in the year to 31 March 2015. all work undertaken by all of the outsourced workshops is updated on BVS‟s Fleet Maintenance IT system. The overall number of vehicles BVS is responsible for maintaining. to undertake maintenance work which meets the strict criteria for quality of work and spare parts fitted as well as excellent levels of customer service. or can provide increased capacity. By selecting the best available software solutions and integrating these systems together. at various dates during BVS‟s first year of trading. Availability and utilisation levels at BVS‟s 120 managed workshops.
Jonas Kral. This cost was net of the agreed payment received from outsourced suppliers. This comprised 34.400 vehicles for other customers‟ fleets. analysed by vehicle.3 million. and by managed workshop or outsourced workshop. by each engineer. Head Office staff. At 1 April 2010. “Other” vehicles. FLIS incorporates detailed reporting with the capability to track the maintenance needs for all of BVS‟s customers‟ vehicles. When BVS commenced operations on 1 April 2010. by customer. Additionally. it was responsible for 47. with less than 10% of the total vehicles that BVS maintains being articulated lorries and “other” vehicles. its quality of service and maintenance standards as well as the range of management information that BVS can provide to help each fleet manager run his or her fleet as cost effectively and efficiently as possible. irrespective of whether the vehicle is maintained by one of BVS‟s managed workshops or by an outsourced workshop. Customers’ fleet profile BVS maintains four categories of vehicles. FLIS is installed at all workshops. both BVS‟s managed workshops and outsourced workshops. a fleet maintenance IT system. He has been promoting the services that BVS offers to its customers. PIE‟s representative on the BVS Board. vehicle downtime. mileage and maintenance and repair data as well as carbon emission monitoring data. Cars. to meet the agreed business plan vehicle and sales revenue targets. This allows a seamless interface for customers. for both hardware and software licencing costs.0 million.now incurs annual software licencing fees of €0.500 vehicles. This is included in administrative expenses. the senior management team as well as for BVS‟s customers. the final cost was €2. provides management information tailored for the needs of workshop managers. The planned implementation cost for all of these new IT systems was €2. During the year ended 31 March 2011. they all receive regular annual training in respect of FLIS system updates and any new features it offers. a cash flow forecasting modelling system. FLIS. BVS‟s new IT systems include: a multi-currency nominal ledger including integrated sales and purchase ledgers and a fixed assets register. Phillip Beck has been actively involved with meetings and presentations to many fleet managers. Phillip Beck has had a real challenge to achieve the high growth in new sales. mileage data and more. which are: Vans. called Fleet Information System (FLIS). However. but was re-assured by Toby Baum that the IT systems were robust and that they were all fully operational by the planned completion date. It provides BVS‟s customers with improved reporting on fleet repair costs. which was charged in full (in Administrative expenses) against profits in the year ended 31 March 2011.24 million each year. all employees and outsourced workshop personnel were trained extensively in the use of these new IT systems. FLIS holds statutory data. these 13. was not happy with this cost over-run. FLIS also provides a range of management information reports. The majority of the vehicles maintained are vans and cars. for installing FLIS at all of the outsourced workshops. FLIS can also be remotely accessed by BVS‟s customers for them to book their vehicles for maintenance and repairs and to access information on vehicle status whilst in for servicing or repair.100 vehicles in JAR‟s fleet and 13. Articulated lorries. including vehicle taxes. The Fleet Maintenance IT system.400 vehicles comprised: March & May 2013 9 T4 Part B Case Study . for example street lighting trucks and earth-moving plant vehicles.
as well as small. JAR‟s fleet size is forecast to reduce. 84 different customers. is very important. which is usually the same day as the order is placed. The reduced tyre cost is passed onto BVS‟s customers. each of which operates a fleet size of more than 300 vehicles.500 vehicles.200 vehicles (see Appendix 5 on page 16). BVS does not offer any maintenance services to the general public. employee numbers had grown slightly to 890 employees. and maintenance work commenced from 1 October 2012. BVS has in operation a large number of contracts with large. March & May 2013 10 T4 Part B Case Study . Phillip Beck has worked closely with regional and central government departments in BVS‟s home country over the last year in order to try to win the fleet maintenance work for some of the government‟s fleet of vehicles. Procurement Leo Willems is responsible for all areas of procurement. BVS also has contracts in place with a range of specialist tyre manufacturers. These suppliers are normally able to meet the time-critical demands for getting spare parts delivered to BVS‟s managed and outsourced workshops in the shortest possible time. He considers that BVS offers a competitive service. as well as the quality of these tyres. Phillip Beck was pro-active in speaking to company fleet managers to win new business. Head Office: 166 employees. However. whereas other customers leave the choice of tyre to BVS‟s expertise based on quality and value for money. to 26. The speed of delivery of spare parts for repairs is of great importance as the “down time” of customers‟ vehicles whilst being repaired is crucial for its customers‟ businesses. JAR had signed a 5-year contract with BVS for maintaining its entire vehicle fleet. BVS has a contract with a large European tyre manufacturer which attracts a good volume discount. BVS employees BVS took on responsibility for 860 employees at 1 April 2010. including emergency vehicles such as police cars. By 31 December 2012. due to additional work carried out by Head Office staff. vehicle parts suppliers. clearly priced with good levels of service and quality of work. as well as its home country. which included 34. The forecast for 31 March 2013 is that other customers‟ fleets will have grown to comprise 33. BVS fitted over 500.000 tyres in the year to March 2012 for its customers.800 vehicles was signed with the central government department in June 2012. A contract for 20. also enabled it to attract fleet managers who were looking for a single outsourced fleet maintenance company across these 3 countries. in order to provide an efficient service to its customers. each of which has a fleet size of 300 vehicles or fewer.000 vehicles to be added in future.100 vehicles at 1 April 2010. 10 customers. including negotiations of prices with outsourced suppliers as well as procurement contracts with a range of suppliers of vehicle parts and tyres.000 vehicles by 31 March 2015. BVS considers that the cost. BVS‟s geographical expansion to cover 2 neighbouring countries. Over the first 2 years of trading. giving them a reduction in their fleet maintenance costs. as included in BVS‟s business plan. The split of employees between BVS‟s 120 managed workshops and Head Office is as follows: Workshop based: 724 employees. as part of JAR‟s planned cuts and efficiency improvements. The contract was for a rolling annual contract with the possibility for a further 12. Some customers specify which manufacturer‟s tyres they require to be fitted. This 5-year contract gave JAR assurances that its vehicle fleet would continue to be maintained (as it had been previously by JAR FM) and it also generated a large revenue stream for BVS. Therefore. including 1 large fleet operator with 4.
assessment of the quality of work carried out within each of BVS‟s managed workshops based on customers‟ assessment of their maintenance work at each workshop. assuming that the assessment of their work has shown them to be satisfactory or better. compared to the business plan for this year.2 million in the year ended 31 March 2011 rising to €10. An extract from BVS‟s accounts for the year ended 31 March 2012 is shown in Appendix 3 on page 14.6 million. 3. in its second year. BVS‟s operating profit was lower than planned at €0. the business plan annual operating profit. which commenced halfway through the current financial year. especially those customers which have small vehicle fleets. The latest forecast for the year ended 31 March 2013 has higher than planned operating profit at €6. The latest forecast for the year ended 31 March 2013 is shown in Appendix 5 on page 16. or better. However. although there are some customer service issues still to resolve. In its first year of trading. March & May 2013 11 T4 Part B Case Study . if BVS meets. Any employee with a poor assessment will not receive any PRP. all of the sales and customer account managers received PRP for the higher than planned levels of new customers‟ vehicles to be maintained by BVS. Sales employees and customer account managers – the achievement of high levels of customer satisfaction as well as the number of new customers‟ vehicles for which BVS acquires the maintenance work for each year. Most of BVS‟s managed workshops met the satisfactory assessment requirement and the employees at these workshops received PRP.Toby Baum and the rest of the BVS Board recognise the important role all employees contribute towards the company‟s success and the need to deliver high quality of service to customers. Financials The planned level of operating profit was for €1. All employees – the achievement of the annual business plan operating profit. PRP relates to BVS‟s employees at the 120 managed workshops only. specific objectives which are: 1. In order to try to ensure goal congruence and to help BVS to succeed. BVS‟s Statement of cash flows for the year ended 31 March 2012 is shown in Appendix 4 on page 15. but it was paid in respect of the year ended 31 March 2012.0 million by the year ended 31 March 2015. or exceeds.6 million due to an increase in the vehicle numbers compared to the business plan. who has a small support team. an increase from plan of €0. Regular customer surveys are carried out and the general feedback is positive. Additionally. Workshop based employees – the achievement of a “satisfactory”. It is forecast that PRP will be paid in respect of the current year ending 31 March 2013. This also includes revenues and costs relating to the new government contract. then a proportion of the annual profits will be paid to all employees.5 million. Some of BVS‟s account managers provide support to many customers. operating profit was higher than planned at €4.4 million. 2. BVS has not lost any of its customers to date. Toby Baum established performance related pay (PRP) for all employees from 1 April 2010. Therefore. PRP based on operating profit was not paid for BVS‟s first year. The account manager and the team provide support and management information on their customers‟ vehicles and they try to ensure customer satisfaction. Each of BVS‟s customers has an account manager as a point of contact. PRP is linked to the achievement of different.
Non-executive Director – PIE’s representative Jonas Kral.5% of the shares in BVS. He borrowed funds to invest in 7. immediately after BVS was established. He is extremely experienced in helping newly established businesses and MBO‟s to achieve their business plans.Managing Director. She borrowed funds to invest in 7. This has helped generate large levels of revenues with a relatively small impact on fixed costs. aged 32. As a fleet manager. when the company recruited a number of senior managers to improve operational efficiency and profitability. is a qualified accountant. Leo Willems . March & May 2013 12 T4 Part B Case Study . BVS (since 1 April 2010) Toby Baum. aged 55. Whilst working directly for Toby Baum as a consultant. She was recruited by Toby Baum initially as a business consultant to help him arrange and establish the MBO. She had no specialised knowledge of the vehicle maintenance industry but Toby Baum considered that her financial skills were excellent. the JAR Board decided to sell off JAR FM. was recruited to the newly established company in April 2010 and was given a remit to ensure that all employees understood the importance of creating value in the business and to deliver outstanding levels of customer service. Despite reducing the losses that the subsidiary company made. many large customers with fleets of thousands of vehicles. PIE owns 60% of BVS‟s shares. He was instrumental in preparing the business plan and for identifying an interested private equity investor. He had previously worked as the Fleet Maintenance Operations Director of a smaller. the role of Finance Director in the newly established company.5% of the shares in BVS. was recruited in November 2007 by Toby Baum to identify new external customers and to market and sell JAR FM‟s fleet maintenance services.Sales and Customer Support Director Phillip Beck. in order to help implement and manage the newly created IT systems. Annika Larsen . he knew what service he wanted to provide. He has also established good relations with many of the workshop managers. aged 55. aged 40. He borrowed funds to invest in 17. He has brought in. Phillip Beck . fleet maintenance company. Jan Grein . she was offered. has spent his whole career in the vehicle industry. aged 40. She had previously worked in an international business consultancy firm. In his previous role he had been dissatisfied with the outsourced maintenance service and had changed the outsourced service provider twice. in order to establish BVS on 1 April 2010. Carmen Kemp . was selected to be PIE‟s representative on the BVS board. He borrowed funds to invest in 7.5% of the shares in BVS. and his previous experience of running a fleet helps him understand the needs from a fleet manager‟s perspective. aged 48. It is his role to ensure that BVS delivers the levels of cash flow and profitability that are included in BVS‟s business plan. and retained.Human Resources Manager Carmen Kemp. He has undertaken a Board representative role many times before and brings management experience to BVS. It is also his role to steer BVS towards a flotation so that PIE can exit and realise its investment. PIE. Jonas Kral .Finance Director Annika Larsen. was recruited by Jonas Kral in April 2010. who consider that he is approachable and helpful when they experience IT problems or are confused about any aspects of the new IT systems. He has worked for several companies in middle management positions involved in fleet management and also fleet maintenance.IT Manager Jan Grein.5% of the shares in BVS. He joined JAR in 2005. but had held senior finance roles in the retail and distribution industries. Jan Grein previously worked as an IT manager in a competitor‟s fleet maintenance company and understands the business well. responsible for a large fleet of vehicles. aged 45. but highly profitable.Appendix 1 BVS’s key personnel Toby Baum .Operations Director Leo Willems. He had previously worked as a fleet manager for eight years. was recruited as the new Chief Executive of JAR FM in August 2007 to try to improve profitability. and accepted.
300 60.0 0.100 24.1 91.700 49.100 90.9 0.034 € million 139.0 4.7 7.0 10.1 0.2 3.2 16.0 0.600 64.0% 274 € million 84.9 Business Plan .950 91.000 20.000 10.800 90.Number of vehicles .0 0.0 6.0 3.000 55.200 60.6 2.600 50.600 91.2 17.6 20.100 18.0 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 5.0 8.Appendix 2 BVS’s Business Plan Year ended 31 March 2011 31 March 2012 31 March 2013 31 March 2014 31 March 2015 Business statistics: No.2 7.4 27.2 2.Operating profit Operating profit (€ million) 12.000 40.0 10.7 22.9 3.000 69.8 0.5 30.000 75.2 9.0 1.5 28.7 1.2 0.100 32.End year Number of vehicles (end year) 90.7 30.000 81.900 52.900 60.300 92.8 6.0 10.3 0.000 47.0% 1.6 5.1 0.000 54. of vehicles – End year: JAR Other customers Total vehicles No.500 50.6 3.800 54.6 79.000 42.700 50.3 18.000 30.2 1.9 26.8 109. of vehicles – average for year Utilisation level at managed workshops Outsourced vehicle hours „000 hours Financial plan: Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit Finance costs Profit before tax Profit after tax 32.600 69.2 71.000 80.1 7.0% 736 € million 118.2 0.0 64.9 26.9 19.000 81.300 57.000 0 Mar Mar Mar Mar Mar Mar 2010 2011 2012 2013 2014 2015 Business Plan .2 March & May 2013 13 T4 Part B Case Study .2 4.0% 516 € million 102.2 17.8 4.600 70.0% 385 € million 92.3 20.2 0.6 0.
50 each at 31 March 2012.000 shares of €0.2 2.4 0 0.1 5.2 1.2 As at 31 March 2011 € million € million 3.1 0.9 0 3.4 17.1 Total € million 2.9 72.6 1.9 13.8 0 0 1.1 Balance at 31 March 2011 Profit Dividends paid Balance at 31 March 2012 March & May 2013 14 T4 Part B Case Study .8 3.2 16.2 0 0 0.4 22.5 0.3 0.8 0.3 16.2 2.7 0. Statement of Changes in Equity For the year ended 31 March 2012 Share capital € million 0.2 1.5 0 12.0 0.8 0.8 Retained earnings € million 0.9 As at 31 March 2012 € million € million 3.2 1.5 Note: Paid in share capital represents 400.3 2.9 66.8 0.2 4.2 Share premium € million 1.1 0.1 0.2 0.2 2. Statement of Financial Position and Statement of Changes in Equity Statement of Comprehensive Income Year ended 31 March 2012 € million 93.4 0.7 22.4 0 1.3 19.8 21.9 0 5.Appendix 3 Extract from BVS’s Statement of Comprehensive Income.6 17.5 4.1 13.5 0.4 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit Finance income Finance expense Profit before tax Tax expense (effective tax rate is 30%) Profit for the period Statement of Financial Position Non-current assets (net) Current assets Inventory Trade receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities Equity Issued share capital Share premium Retained earnings Total Equity Non-current liabilities Long-term loan Liability for acquisition (to JAR) – due over 1 year Current liabilities Liability for acquisition (to JAR) – due within 1 year Bank overdraft Trade payables and other liabilities Tax payables Total current liabilities Total equity and liabilities 1.1 0.2 18.1 17.9 0.2 Year ended 31 March 2011 € million 84.1 14.5 0 0.5 0 14.2 18.2 1.9 0.
1) (0.6 (Increase) / decrease in inventories (Increase) / decrease in trade receivables Increase / (decrease) in trade payables (excluding taxation) (0.2 € million 0.3) Cash generated from operating activities Cash flows from investing activities: Purchase of non-current assets (net) Cash used in investing activities Cash flows from financing activities: Payment of instalment for acquisition Dividends paid Cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 31 March 2011 0.3 March & May 2013 15 T4 Part B Case Study .2 0.7) 1.2) (0.Appendix 4 Statement of Cash Flows Year ended 31 March 2012 € million Cash flows from operating activities: Profit before taxation (after Finance costs (net)) Adjustments: Depreciation Finance costs (net) 4.5) 0.6) Finance costs (net) paid Tax paid (0.8 (3.5) 0 (0.2) (0.1 Cash and cash equivalents at 31 March 2012 0.4 0.2) (0.9 (0.2 0.7) (4.
100 32.2 17.2 4.9 0.4 4.4 0.100 20.0% 516 € million 102.4 End of Pre-seen material March & May 2013 16 T4 Part B Case Study .5 28.end year JAR Government contract (from October 2012) Other customers Total vehicles .800 33.5 24.200 60.5% 851 € million 122.9 3.average for year Utilisation level at managed workshops Outsourced vehicle hours Financial plan: Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit Finance costs Profit before tax Profit after tax („000 hours) Year ended 31 March 2013 Plan 28.100 69.2 6.600 91.7 22.000 91.6 0.6 6.2 17.6 79.200 82.1 0.6 5.Appendix 5 Latest forecast for year ended 31 March 2013 compared to Business Plan Year ended 31 March 2013 Forecast Business statistics: No of vehicles .9 98.end year No of vehicles .300 57.
Criterion Analysis of issues (25 marks) Technical Application Diversity Strategic choices (35 marks) Focus Prioritisation Judgement Ethics Recommendations (40 marks) Logic Integration Ethics Total 30 5 5 100 5 5 20 5 5 15 5 Maximum marks available March & May 2013 17 T4 Part B Case Study .ASSESSMENT CRITERIA Your script will be marked against the T4 Part B Case Study Assessment Criteria shown below.
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