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Background of the Study Primo Benzina AG which provides outstanding products and service to retail petrol customers was founded by Otto Schooder in 2006. It offers variety of fuels including super premium, premium, regular petrol and diesel as well as an in-store deli market which sold snacks, drinks, grocery items and ready-to-eat meals and salads. Primo Benzina also operated as full-service restaurants with a limited set section of breakfast, lunch and dinner menu items. Primo’s mission is to be the best petrol, convenience and fresh food retailer in the eyes of their customers, competitors, and employees. From its humble beginnings of being a single retail station, Primo Benzina was able to expand up to 24 stores in Germany and Switzerland by 2009. With its strategies of providing outstanding service, spotlessly clean and well-lit service stations, high quality meals with outstanding sevice, loyalty program and credit offer to customers, the company was able to have an excellent sales performance. In spite of this, Primo Benzina had experienced a substantial decline in its cash flows requiring to increase its credit limit and affecting the execution of expansion plans including the construction of three new retail patrol stations in Germany.

Statement of the Problem Would the new credit limit of $12 million from $10 million permit the company to execute its expansion plans including the construction of three new petrol stations in Heilbronn, Germany?

Objective To evaluate Primo Benzina’s financial statement and analyze substantial effect to the profitability of the company and to provide recommendation regarding its expansion plan.

Analysis

Strength  Outstanding service and high quality meals  High quality gasoline from reliable refineries Weaknesses  Primo Benzina relies too heavily on short-term loans  The rate at which their receivables are converted to cash is really slow  It has too many debts, which it may not be able to pay  At the rate its going, it could go bankrupt in a couple of years Opportunities  Competitors of the company in premium segment did not provide restaurants or laundry services.

Threats  It may not be able to push through with its expansion plans, which include the three new retail stations in Germany.  Price where often higher than those of its competitors.

 Investors, shareholders are unwilling to increase their investments and commitments to the business.

Benchmarking (2009) Primo Benzina Zip AG Day’s Receivables 75 35 Day’s Inventory 40 42 Day’s Payable 45 31 Financial Ratios Gross Profit Percentage 27% 28% Year 2006 2007 Return on Sales 8% 8% Working Capital 343 805 Return on Invested Capital 7% 12.5% Current Ratio 2.37 3.25 Return on Assets 6% 9% Return on Equity 18% 23% Year

Total Assets Total Liabilities Debt Ratio

Year

Schnell AG 32 39 35 26% 2008 10% 1184 14% 1.46 12% 19%

Sparpetrol AG 40 35 27 30% 2009 6% 2718 11% 1.21 10% 22%

2006

2007

2008

2009

1102 351 32%

2031 678 33%

6571 4169 63%

28678 19201 67%

2006

2007

2008

2009

28% 42%

28% 46%

22% 45%

10% 28%

Operating Margin Petrol Food, snacks, and drinks Sales Petrol Food, Snacks, and Drinks Total Sales Operating Income

Income Statement (in thousands) for year end dec 31 Sales

1458 972 2430 410

2411 1477 3888 685

2006 2,430.0

2007 3,888.0

60%

7295 3592 10887 1604

180

2008 10,887.00

28197 9906 38103 2782

250

2009 38,103.0

0 Cost of Goods Sold

0

%

%

0

156%

(7,403. 00) 3,484.0 0

276 % 195 %

(27,815. 00) 10,288.0 0

138.00

304 %

557.00

(1,580. 00)

60%

Gross profit Depreciati on expense Other operating expenses Operating income Interest expense Income before income tax expense Income tax expense

850.00

60%

(2,527. 00) 1,361.0 0

100.00

-46%

54.00

156%

340.00

83%

622.00

180%

410.00

67%

685.00

134%

150.00

-76% 150 %

36.00

353%

649.00

122%

162.00

122%

Net Income

195.00

487.00

122%

260.00 65.00

149 % 150 %

2009 Sales Cost of Goods Sold

38,103.00 (27,815.00)

193%

1,742.0 294 0 % 1,604.0 0 79% 301 163.00 % 1,441.0 0 54% 360.00 54% 1,081.0 0 54%

6,859.00 2,872.00 653.00 2,219.00 555.00 1,664.00

Forecast 47628.75 (34,768.75)

Available Cash

(6,953.75) 3,136.00

Conclusion  In spite of its increasing sales, the company had experienced a substantial decline in its cash flow, requiring it to request an increase in its credit limit from 10-12 mil Euros.  Weak Profitability  Increasing debt load

Recommendation  Heurman should tell Schroder not to push through with the expansion.  Reduce service stations, which cannot financially maintain.

PRIMO BENZINA AG -GRAEME RANKINE, THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT

dela Torre, Mary Aissel E. Diwa, Airra Shaine S. Marquina, Mary Crisel Y. Padlan, Le-Anne C. BSA-4D