Prima Benzoa

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Primo Benzina AG-Case Study
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Submitted by
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Vaqas Jawed-B025
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Karunya Reddy-B048
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Afaan Ullah Khan-B056

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Primo Benzina AG-Case Study
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|

-------------------------------------------------
Submitted by
-------------------------------------------------
Vaqas Jawed-B025
-------------------------------------------------
Karunya Reddy-B048
-------------------------------------------------
Afaan Ullah Khan-B056

What are the key elements of Primo Benzina’s business strategy? What are the implications of this strategy for its financial performance?

There are broadly 2 major market policies which have impact on the firm’s profitability and growth, namely financial market policies and product market strategies as shown in the Figure 1.

Figure 1: Factors affecting growth strategies of a firm
The firm can alter their Financing decisions in order to manage their liabilities and equity. They can also decide the payout ratio for the shareholder which in turn has a direct impact on the growth rate of a firm. Similarly a firm can also work upon their product market strategies where in the operating management helps to manage their revenue abilities. Firm can also manage its investments in order to maintain required working capital.

The company’s strategy had several important elements:
1. The company provided outstanding service form its station attendants, who provided a range of services a. Filling petrol
b. Checking tire pressure and oil levels
c. Cleaning customers windows
d. Laundry services
This helped the company in retaining its customers and hence staff identified the customers and provided them the special services they expected. 2. Spotlessly clean service stations, well lit, and attendants came to the customer’s car which enhanced the sense of security for the customers. Also an armed security service with a response time of less than 10 min to any of the company’s locations 3. The delis and restaurants at the service stations provided high quality food. 4. The company maintained a loyalty program which added mile on Lufthansa for every Euro spent by the customer at Primo Benzina outlets. 5. Credit to customers who chose to use the Primo Benzina visa credit card. 6. Relied heavily on STL

7. The interest on STL is 200 basis points above the nominal interest rate 8. They were looking for expanding by opening 3 new outlets in Switzerland. 9. They have given a dividend of € 800000 for the past 2 years. 10. Finally , one of the main strategy of Primo Benzina was to differentiate from the current market leaders by way of their services.

Financial implications of the business strategy followed by Primo Benzina:

Impact of dividend policy:
The firm has given high dividend payout for the past 2 years which has approximately reduced the sustainable growth rate by 50% when the firm was actually heavily dependent on the short term and long term borrowings.

Impact of Financing Decisions:
* The firm has raised short term loans at 200 base points higher than the nominal interest rate * The amount receivable tenure was stretched so as to attract more customers. * The firm relied on short term loans to finance its long term expansion.

Benchmarking Competitors: (To compare the effect of Primo Benzino’s strategy’s with industry competitors) | Primo Benzina | Zip AG | Schnell AG | Spar Petrol AG | Day’s Receivable | 75 | 35 | 32 | 40 |

Day’s Inventory | 65 | 42 | 39 | 35 |
Day’s Payable | 45.4 | 31 | 35 | 27 |
Gross Profit Percentage | 27% | 28% | 26% | 30% |
Return on Sales | 4.37% | 8% | 10% | 6% |
Return on Invested Capital | 7% | 12.5% | 14% | 11% |
Return...
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