7. Plan Performance 7.1 7.2 7.3 7.4 TABLE OF CONTENTS 7 PLAN PERFORMANCE The movement of containers and how the money flows through the Return-It network. Revenue and Expenditure detail. Purpose of operating reserves, how they are determined, and why they’re important. Container recycling fees by product type. BACK NEXT In this section: DOWNLOAD SECTION 7 DOWNLOAD FULL REPORT 7.1 HOW MONEY FLOWS The arrows show the direction of payments for deposits and container recycling fees (CRF) and the movement of beverage containers. Back to top 7.2 FOLLOW THE MONEY Revenues Container Recycling Fees When the revenue from unclaimed deposits and from sales of collected material are insufficient to cover the cost of recovering and recycling a specific container type, a non-refundable recycling fee is added to the container to make up for the shortfall. Other Fees Revenues from service provider contracts. Sale of Processed Containers A portion of the cost of recovering aluminum and plastic containers, the two largest product categories, is covered by the value of the commodity collected. The prices for aluminum declined while the prices for plastic increased slightly in 2019 compared to the original forecast. The lower prices for aluminum partially contributed to the decline in our operating reserve levels in 2019. The average price for aluminum was $0.85 per pound ($1.05 in 2018) and plastic was $0.19 per pound ($0.18 in 2018). Unredeemed Deposits Encorp is paid a deposit on every container sold. Deposits unclaimed are used to fund the system. Where the money comes from Container Recycling Fees $43.9 Million 52.2% Other Fees and Income* 12.7 Million 15.1% Sale of Processed Containers 14.8 Million 17.6% Unredeemed Deposits 12.7 Million 15.1% Total Revenues 84.1 Million 100% *Other Fees includes Electronics, Packaging & Printed Paper, MARR, Textiles and interest income. Note: Calculations may show slight variances due to rounding. Expenditures Transportation and Processing Contracted trucking companies collect containers from depots and grocery retailers and take them to processors where they are compacted for shipment. Administration Management of contracts, collection of revenues and payment of expenses. Consumer Education & Awareness Programs that encourage consumers to return containers for recycling. Container Handling Fees Per-unit fees paid, in addition to deposit reimbursement, to depots for collecting containers. Deposit Refunds Paid to depots and grocery retailers to reimburse them for the deposits they have refunded to consumers. Where the money is spent Operations Expenses $30.7 Million 32.0% Administration Expenses 5.5 Million 5.7% Consumer Awareness 4.7 Million 4.9% Handling Fees 54.2 Million 56.4% Other Expenses** 0.9 Million 1.0% Total Expenditures 96 Million 100% **Other Expenses include amortization and foreign exchange gain/loss. Back to section 7.1 Back to top 7.3 OPERATING RESERVES Purpose of the Operating Reserves Encorp’s reserves are built upon the corporation’s fundamental principles of no cross-subsidization of container types and equitable treatment of brand owners. The operating reserves are required to provide stability to the system over the long-term, to avoid cross-subsidization of container types, and to facilitate and stabilize the frequency of Container Recycling Fee (CRF) changes. CRF's may be raised, reduced or even eliminated in any given year to keep reserves within their targeted ranges. Reserves can also be reduced by increasing spending on activities designed to improve the recovery rate for a specific container type. The table shows the levels of reserves over recent years. Slide the table left and right. (Scroll bar is below table.) 2016 BALANCE 2017 YEAR 2017 BALANCE 2018 YEAR 2018 BALANCE 2019 YEAR 2019 BALANCE Operating Reserve / (Deficit) $24,955,738 $7,438,787 $32,394,525 $743,243 $33,137,768 $(11,902,129) $21,235,639 Restricted Reserve / (Deficit) 1,281,521 (215,477) 1,066,044 (236,429) 829,615 47,623 877,238 Total Reserve / (Deficit) $26,237,259 $7,223,310 $33,460,569 $506,814 $33,967,383 $(11,854,506) $22,112,877 Management of the Operating Reserves Encorp’s financial model requires a reasonable level of operating reserves to provide stability to the system. When these reserves rise above the amount deemed to be reasonable, measures are taken to reduce them to the appropriate level. These reserves have been used to fund system costs that may otherwise have been reflected in consumer prices. Encorp’s operating reserves are maintained to meet the corporation’s cash flow requirements, recognizing normal business volatility balanced over a period of three to five years. On average, we pay about $3 million per week to customers, depots, transporters and processors. Experience shows that our reserve level needs to be based on the cash flow requirements for six weeks during the peak season. This year, the operating reserve was reduced by 11.8 million. Slide the table left and right. (Scroll bar is below table.) Gross Revenue Including Deposits (millions) Total Expenses Including Deposit Refunds (millions) Results / (Deficit) (millions) Operating Reserves Year end (millions) 2014 162.7 159.6 3.1 33.8 2015 162.0 163.3 (1.3) 32.5 2016 155.4 161.7 (6.3) 26.2 2017 171.5 164.3 7.2 33.4 2018 167.2 166.7 0.5 33.9 2019 161.7 173.5 (11.8) 22.1 Back to section 7.2 Back to top 7.4 CONTAINER RECYCLING FEES CRF stands for Container Recycling Fee. This is the fee Encorp charges to cover the net cost of recycling a beverage container type after any unredeemed deposits and commodity revenues for that container type have been used. CRFs have been in place for beverage containers in British Columbia for more than 18 years. The CRF varies for each beverage container category. As a not-for-profit product stewardship agency, Encorp Pacific only charges the net cost for recovering and recycling beverage containers. The CRF reflects current economic conditions such as commodity prices and beverage volumes. Container Type 2018 2019 Aluminum 1.0 cent – Plastic ≤ 1L 3.0 cents 3.0 cents Plastic > 1L 4.0 cents 5.0 cents Polystyrene 3.0 cents 3.0 cents Glass ≤ 1L 8.0 cents 6.0 cents Glass > 1L 16.0 cents 17.0 cents Bi-Metal ≤ 1L 5.0 cents 4.0 cents Bi-Metal > 1L – – Bag-In-Box 5.0 cent 7.0 cents Drink Boxes ≤ 500 ml 1.0 cent – Drink Boxes 501 ml - 1L 5.0 cents 5.0 cents Drink Boxes > 1L – – Gable Top ≤ 1L – – Gable Top > 1L 6.0 cents 5.0 cents Drink Pouches – – Glass Wine & Spirits ≤ 1L 12.0 cents 13.0 cents Glass Wine & Spirits > 1L 16.0 cents 17.0 cents Non-Refillable Beer, Cider, Cooler Glass ≤ 1L 9.0 cents 9.0 cents Non-Refillable Beer, Cider, Cooler Glass > 1L 16.0 cents 17.0 cents Liquor Plastic ≤ 1L 4.0 cents 4.0 cents Liquor Plastic > 1L 9.0 cents 7.0 cents Liquor Bag-In-Box 5.0 cents 7.0 cents Back to section 7.3 Back to top DOWNLOAD THIS SECTION DOWNLOAD FULL REPORT SECTION 6 SECTION 8 Encorp Pacific (Canada) 2019 Annual Report HELP 100 - 4259 Canada Way, Burnaby, BC V5G 4Y2 Tel: 1-800-330-9767 Fax: 604-473-2411 Email: returnit@returnit.ca