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ASSESSMENT OF BUSINESS PERFORMANCE

PT TIMAH TBK AND SUBSIDIARIES1


EDUARDUS TANDELILIN

Following the declaration of Independence in Indonesia in 1945, the tin


mining industry gradually came under Indonesian control as Dutch mining
concessions ran out. This transfer of control culminated in 1960 with the passing
of Law No. 19 which established a State Tin Enterprise Coordinating Board and
State Enterprises for the three tin producing units on the islands of Bangka,
Belitung and Singkep. In 1968, the four entities were brought under one single
controlling state enterprise by Government Regulation number 21, coordinating
tin operations under the State company PN Tambang Timah which was given
control of the known tin deposits in Indonesia.
The status of that enterprise was changed in 1976 to PT Tambang Timah
(Persero), a limited liability corporation, with the Government of Indonesia as the
sole shareholder. The company's main operations were historically centered
around the islands of Bangka, Belitung and Singkep. The company operates a
large fleet of bucket line dredges and controls other mining activities, primarily
using hydraulic mining methods.
Beginning in 1991, a major restructuring program commenced which
included the closure of mining operations on Singkep and the relocation of the
corporate head office to Bangka. The restructuring also included a program of
modernization and the reconstruction of production facilities and a concentration
on core business activities. The conclusion of the restructuring program of Timah
was listed on the Jakarta, Surabaya, and London Stock Exchanges on 19 October
1995. The name PT Tambang Timah Tbk was changed to PT Timah Tbk on July
29, 1998. The government of Indonesia owned 65 percent of the companys
shares; domestic and international investors owned the remaining 35 percent.
BACKGROUND
PT Timah Tbk was the only state enterprise active in tin mining. Timah's
competitive edge was a result of the integration of each step in the process of
producing and marketing tin. The company was a cost leader. Control over
substantial reserves, ownership of the largest dredge fleet in the world and the use
of computer systems and satellite communications helped to minimize Timah
mining costs. The use of production systems ensured Timahs smelting operations
1

This case was written by Dr. Eduardus Tandelilin of Master of Management Program
Gadjah Mada University, Yogyakarta, Indonesia. The author wishes to acknowledge
research funding from Master of Management Program, Gadjah Mada University. This
case is intended as a basis for class discussion rather than to illustrate either effective
or ineffective handling a financial matter at the firm. Any interpretation of the data as
well as any errors or omission is the responsibility of the author. Research assistance
was provided by I Wayan Nuka Lantara and Lukas Purwoto.
Copyright 2001. Allright reserved. This publication is protected by Copyright and
permission should be obtained from MM GMU.

were highly efficient. The results claimed by management were that Timah
customers received the highest-quality tin available worldwide.
Geographically and geologically, Indonesia was a wealthy country. Across
the inland and offshore tin reserves controlled by Timah, the mineral deposits
were some of the best in the world. The company held tin exploration and mining
rights until 2025 of more than 10,000 square kilometers spread across several
islands and offshore areas in the Java Sea. Timah had secured rights for gold
exploration in North Sumatra, Kalimantan and Java. These rights extended over
27,000 square kilometers. Even after a long history of tin mining, a large portion
of Timah's mining rights were as yet unexplored and untapped. The future
appeared to hold vast potential for further mining.
At Mentok, in the northwest corner of Bangka, Timah established the
largest tin smelting operation in the world. Completed in 1967, the plant
underwent further increases in capacity with the addition of a seventh furnace,
which raised capacity to 50,000 tons in 1997. Adjacent to the smelting operations
was the largest of five washing plants operated by the company. The central
washery received tin concentrate from both offshore and onshore mining
operations. Using a number of different processes the tin concentrate was
upgraded to approximately 74% tin content. A small amount of heavy mineral
byproducts were generated by these operations and sold. Smelting at Mentok
produced crude molten tin and generated recyclable by-products known as dust
and hardhead. Crude tin was further refined in a smelting kettle. Waste from
refining, known as tin dross, was also recycled.
Since 1995 until the present, Timah has been achieving ISO-9001 and
ISO-14001 in several production units. This effort would be continued for other
production units. Management considered that such certification was a must to
strengthen their global position as a world-class company.
SUBSIDIARIES OF TIMAH
As a Holding Company, Timah formed a center for the formulation and
control of corporate strategy, and ensured that synergy existed between the
operations of the various subsidiary companies in the process of creating and
adding value. Timah determined the overall corporate structure of the Group,
overall marketing strategies, budgets and allocation of funds. It managed
corporate finances and the financial affairs of its subsidiaries, it set the Group's
values and norms, and it determined the course of corporate development of its
subsidiaries through alliances and/or acquisition.
PT TAMBANG TIMAH
Tambang Timah is established in June 1998. It is the largest World
Company in area of integrated tin mining. The scope of the business is in the
mining of tin and other minerals, extractive of industry, trade, and service. The
company claimed that the production cost was still categorized in lower cost. In
1999, Tambang Timah established two units of large mining for project try-out to
explore the deep alluvial deposit.

PT TIMAH INDUSTRI
Timah Industri was established in June 1998. It conducts trade, reengineering, engineering of industry, and service. At this time, the customers were
separated into two markets: a tin market and a non-tin market. The tin market was
the largest. Management was intended to expand the non-tin market incrementally
in the future. One of the strategic chances was the development of a dockyard
industry.
Timah Industri achieved certification of ISO 14001 in 1998 and ISO 9001
in 1999. By achieving of these quality standards, the company became more
competitive in the free market.
PT TIMAH EKSPLOMIN
Timah Eksplomin was also founded in June 1998. The business provides
services in investigation of mining, mining, analysis of laboratory, conducting a
feasibility study, and investigation of technical geological and geohydrology.
Exploration of the areas of Banka and Belitung was conducted. The other
effort was finding the deep alluvial deposit. Moreover, core competence in the
exploration of the sea also opened a new market to Timah Explomin.
PT TIMAH INVESTASI MINERAL
Timah Investasi Mineral was established in 1997. This company was
intended to conduct mining, investment activities, and services of
recommendation and consultation in the mining area. For these purposes, the
company got licenses and mining authority in several provinces. The director
stated that the company began operations in September 1996. It had not yet
resulted in operational revenue; however, the company was doing some
exploration of gold, diamond, and coal mining possibilities.
FINANCIAL PERFORMANCE
Table 1 shows the summary of financial statement of Timah from 1997 to
1999. Management confessed that 1999 was a year full of challenges. Net profit
increased 191% to Rp518.8 billion in 1998, and then experienced windfall
profit in 1999. One factor to explain this is that the financial performance in
1998 was not real, but maybe just a result of the decline in rupiah value.
Meanwhile in 1999, the increase in rupiah value appeared to negatively affect
Timahs performance. However, management commented that the bad
performance in 1999 had been caused by external factors such as economic
conditions.2
The financial performance of the four subsidiaries of Timah also failed to
show satisfactory results. Highlights of the four subsidiaries financial conditions
in 1999 are shown in table 2. Although three subsidiaries, Tambang Timah, Timah
Eksplomin, and Timah Industri, showed an increasing trend in sales, they did not
exhibit increases in net income. This was caused by the increase in the
subsidiaries costs. For example, Timah Eksplomin had experienced an increase
from Rp 33.9 in 1998 to Rp 63,605 in 1999. However, the net income decreased
from Rp 1, 943 million in 1998 to Rp 0,807 million in 1999.
2

From annually report, 1999.

Timah Investasi Mineral even experienced a decline in its financial


performance. The company did not make a sale in 1998 and 1999 but still suffered
large operational costs. This condition caused the company to lose Rp 16,809
million in 1998 and Rp 16,028 million in 1999.
The results of the financial performance of Timah and its subsidiaries in
following two years motivated management to evaluate the companys
achievement. Evaluation was intended to analyze Timahs performance and the
contribution of the subsidiaries to that overall performance. Besides that, this
analysis allowed management to identify an alternative solution that would
improve Timahs performance as a corporation and also improve the subsidiaries
performance.
Unfortunately, there are so many tools for doing performance assessment.
It is important to analyze trends in ratios as well as their absolute levels, for trends
give clues as to whether the financial situation is likely to improve or deteriorate.
In common size analysis, all income statement items are divided by sales, and all
balance sheet items are divided by total assets. In the percentage change analysis,
growth rates are calculated for all income statement items and balance sheet
accounts. The financial ratios are also interrelated as a system. The Du Pont
method is one of the first to segregate into their components and focus on the
linkages to return on equity as the key result. It represents a model of its
business as in figure 1.
Performance assessment via financial statement analysis is based on past
data. Any insight data gained will be relative, because business and operating
conditions vary so much form company to company and industry to industry.
Table 3 shows several ratios of similar companies listed on the Jakarta Stock
Exchange in the mining industry. The Government of Indonesia also has
determined an indicator to assess the health of state owned company (SOC). The
main indicator is shown in appendix 1 and 2. Ratios are not absolute criteria: they
serve best when used in selected combinations to point out changes in financial
conditions or operating performance over several periods and as compared to
similar businesses, industry norms, or other potential standard comparisons.

Table 1. Summary of Financial Statement for PT Timah Tbk


BALANCE SHEETS (million rupiah)
1997
1998
1999
Current Assets:
584,638
970,754
838,432
Cash on hand and in banks
24,957
255,704
216,845
Time deposits
37,844
17,854
25,483
Trade receivables
96,215
96,310
73,445
Inventories
149,426
406,144
357,933
Investments
55,042
130,802
121,580
Fixed Assets-Net
369,161
444,101
572,025
Other Assets
141,317
151,327
204,460
Total Assets
1,150,15
1,696,98
1,736,49
8
4
7
Current Liabilities:
Bank borrowings
Trade payable
Taxes payable
Long-term Liabilities
Minority Interests in
Subsidiaries
Total Liabilities
Paid-up capital
Additional Paid-up capital
Retained earnings
Total Shareholders Equity

326,413
167,562
31,038
22,895
11,118
2,632

415,567
8,483
82,544
151,051
13,993
2,384

326,842
4,709
59,051
97,394
17,465
2,007

340,163
251,651
120,792
437,552
809,995

431,944
251,651
120,792
892,597
1,265,04
0

346,314
251,651
120,792
1,017,740
1,390,18
3

396,395
295,219
98,386
196,833
59,672
256,505
177,813

2,034,56
1
672,975
1,361,586
256,748
1,104,838
(364,532)
740,306
518,828

1,694,83
9
944,244
750,595
240,684
509,911
(25,412)
484,499
318,039

353
1,609
141
5,900

1,031
2,513
409
5,375

632
2,762
247
4,875

INCOME STATEMENTS
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Profit
Other Income (Expenses)
Profit before Taxes
Profit after Taxes
Per Share Data (Rp)
Earnings per Share
Equity per Share
Dividend per Share
Closing Price

691,614

Sources: Indonesian Capital Market Directory 2000

TABLE 2. SUMMARY

OF

FINANCIAL STATEMENTS FOR SUBSIDIARIES, DECEMBER


31, 1999
(THOUSAND RUPIAH)
BALANCE SHEETS
PT TAMBANG PT TIMAH
TIMAH
EKSPLOMIN

PT TIMAH
INDUSTRI

1,201,007,5
45
7,465,132

13,996,369
106,456

487,996,82
8
341,564

Trade receivables

61,194,556

4,574,022

70,787,354

Inventories

252,329,40
3
-

105,341,13
3
39,451,982

337,642,25
4
93,749,116

17,390,511

Total Assets

1,632,398,
915

Current Liabilities:

Current Assets:
Cash on hand and in banks

Investments
Fixed Assets-Net

PT TIMAH
INVESTASI
MINERAL

829,748
544,098

71,000

226,636,92
2
-

25,271,133

31,386,88
0

754,085,7
32

28,390,64
8

24,171,379
1,741,892

536,238,54
6
30,047,038

479,508

Trade payable

618,838,46
7
21,948,491

Taxes payable

91,504,236

835,548

4,712,471

28,169

21,070,405

242,023

1,122,864

13,419,831

Other Assets

Long-term Liabilities
Minority Interests in Subsidiaries

2,218,767

449,245

Total Liabilities

639,908,8
72

24,413,40
2

537,361,4
10

13,907,07
8

Paid-up capital

500,000,00
0
492,490,04
3
992,490,0
43

5,000,000

200,000,00
0

43,000,000

1,973,478
6,973,478

16,724,322
216,724,3
22

Retained earnings (accumulated


loss)
Total Equity

7,739

(28,516,431
)
14,483,56
9

INCOME STATEMENTS
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Unsuccessful Exploration
Operating Profit (loss)
Other Income (Expenses)
Profit (loss) before Taxes
Profit (loss) after Taxes

Additional information:

1,664,589, 63,605,571 320,800,86


743
7
920,729,04 55,863,182 310,043,39
3
6
743,860,70
7,742,389 10,757,471
9
155,835,75
7,103,573
7,227,529
5
588,024,95
4
(68,746,776
)
519,278,17
8
353,946,20
9

638,816

3,529,942

998,584

2,559,752

1,637,400

6,089,694

807,156

921,781

0
0
0
1,591,128
14,508,102
(16,099,230
)
68,636
(16,030,594
)
(16,030,594
)

Capital stock in shares

500,000

5,000

200,000

43,000

Sources:
1. PT Tambang Timah, Financial Statement, December 31, 1999.
2. PT Timah Eksplomin, Financial Statement, December 31, 1999.
3. PT Timah Industri, Financial Statement, December 31, 1999.
4. PT Timah Investasi Mineral and Subsidiary, Consolidated Financial Statement,
December 31, 1999.

Table 3. Financial Ratios of Metal and Mineral Mining Companies on


the JSX
PT Aneka
TambangTbk
Earning (loss) per Share (Rp)
Equity per Share (Rp)
Dividend per Share (Rp)
Closing Price (Rp)
PER (x)
PBV (x)
Dividend Payout (%)
Dividend Yield (%)
Current Ratio (x)
Debt to Equity (x)
Leverage Ratio (x)
Gross Profit Margin (x)
Operating Profit Margin (x)
Net Profit Margin (x)
Inventory Turnover (x)
Total Assets Turnover (x)
ROI (%)
ROE (%)

1997
56
913
1325
23.46
1.45
2.78
0.43
0.30
0.44
0.33
0.15
2.40
0.28
4.34
6.19

1998
243
1118
104
1625
6.68
1.45
42.71
6.39
2.99
0.44
0.30
0.56
0.47
0.29
3.44
0.52
15.14
21.75

PT International
Nickel Indonesia Tbk
1999
183
1195
79.19
1400
7.65
1.17
43.28
5.66
2.46
0.42
0.29
0.43
0.33
0.23
2.99
0.46
10.81
15.31

1997
178
4549
6800
38.17
1.49
1.77
0.74
0.42
0.25
0.23
0.14
2.24
0.16
2.26
3.92

1998
45
4594
2800
61.79
0.61
1.00
0.99
0.50
0.06
0.06
0.04
2.51
0.12
0.50
0.99

1999
156
4750
6300
40.45
1.33
0.72
1.02
0.51
0.18
0.17
0.10
2.99
0.16
1.62
3.28

Source: Indonesian Capital Market Directory 2000.

Figure 1. Modified Du Pont Chart for Timah Tbk and Its Subsidiaries

Return on
Equity
Return on
Assets
(ROA)
Profit Margin:
Net income/Sales

Sales

Total
Costs

Divided
into

Subtracte
d from

Multiplied by

Multiplied by

Net
income

Sales

Costs of
good
sold

Taxes

Operatin
g costs

Other
expenses

Equity multiplier:
Assets/Equity

Total Assets
Turnover:
Sales/Total assets

Sales

Divided
by

Fixed
Assets

Added
to

Total
Assets

Current
Assets

Time
deposits

Cash on
hand and
in banks

Trade
receivabl
e

Inventori
es

Questions:
8

1. Calculate some financial ratios for Timah Tbk for the last three years.
(Include

the

ratios

of

liquidity,

asset

management,

leverage,

profitability, and market value.)


2. Evaluate the financial condition of Timah Tbk using trend analysis.
3. Evaluate the financial condition of Timah Tbk using benchmark analysis
(Antam Tbk., PGas Tbk.).
4. Construct a Du Pont system for Timah Tbk to show how some key
variables interact to determine the rate of return on equity. More
important, use your Du Pont system to analyze ways of improving the
firms performance. How does Du Pont differ from the previous ratio
analysis?
5. Give suggestions to improve the subsidiaries performance and the
performance of the overall company.

10

Profitability

Liquidity

Solvability

Very Healthy
Healthy

>12%
>8% - 12%

Less Healthy

>5 8%

Poor

<= 5%

>150%
>100%
150%
>75%
100%
<= 75%

Weight

75%

12.5%

12.5%

Conversion Value
Maximum Value

12%
-

150%
300%

200%
200%

>200%
>150%
200%
>100%
150%
<= 100%

Weighted
Value
>100%
>68%
100%
>44%
68%
<= 44%

Notes:

Profitability is calculated as profit before taxes divided by total assets.

Liquidity is calculated as current assets divided by current liabilities.

Solvability is calculated as total assets divided by total liabilities.

The stipulation is also for SOCs subsidiary.

Appendix 2. Performance Assessment for BUMN


According to Financial Minister Decree No. 198 / kmk.016 / 1998
A. Health Level of SOCs
Healthy:
AAA : total score (TS) > 95
AA : 80 < TS <= 95
A
: 65 < TS <= 80
Less Healthy:
BBB : 50 < TS <= 65
BB
: 40 < TS <= 50
B
: 30 < TS <= 40
Poor:
CCC : 20 < TS <= 30
CC
: 10 < TS <= 20
C
: TS <= 10
B. Aspect and Weight of Assessment
1. Financial aspect
Total weight: Infrastructure
: 50
Non-infrastructure : 70
2. Operation aspect
Total weight: Infrastructure
: 35
Non-infrastructure : 15
3. Administration aspect
Total weight: Infrastructure
: 15
Non-infrastructure : 15
11

C. Financial Indicators and Its Weight


Indicators
1.
2.
3.
4.
5.
6.
7.
8.

Return on equity (ROE)


Return on investment (ROI)
Cash ratio
Current ratio
Collection periods
Inventory turnover
Total assets turnover
Common equity to total assets

Weight
Infrastructure
15
10
3
4
4
4
4
6

Noninfrastructure
20
15
5
5
5
5
5
10

12

D. Methods and Scores of Assessment


1. ROE = (Earning after tax / Common equity) x 100%
Score
ROE (%)
Infrastructure
Non-infrastructure
15 < ROE
15
20
13 < ROE <= 15
13.5
18
11 < ROE <=13
12
16
10 < ROE <= 11
10.5
14
7.9 < ROE <= 9
9
12
6.6 < ROE <= 7.9
7.5
10
5.3 < ROE <= 6.6
6
8.5
4 < ROE <= 5.3
5
7
2.5 < ROE <= 4
4
5.5
1 < ROE <= 2.5
3
4
0 < ROE <= 1
1.5
2
ROE <= 0
1
0
2. ROI = ((EBIT + Depreciation) / Total assets*) x 100%
Score
ROI (%)
Infrastructure
Non-infrastructure
18 < ROI
10
15
15 < ROI <= 18
9
13.5
13 < ROI <=15
8
12
12 < ROI <= 13
7
10.5
10.5 < ROI <= 12
6
9
9 < ROI <= 10.5
5
7.5
7 < ROI <= 9
4
6
5 < ROI <= 7
3.5
5
3 < ROI <= 5
3
4
1 < ROI <= 3
2.5
3
0 < ROI <= 1
2
2
ROI <= 0
0
1
* Total assets are an approximately of capital employed.
3. Cash ratio = ((Cash + Bank + Short-term investments) / Current
liabilities) x 100%
Score
Cash ratio = X (%)
Infrastructure
Non-infrastructure
X >= 35
3
5
25 <= X < 35
2.5
4
15 <= X < 25
2
3
10 <= X < 15
1.5
2
5 <= X < 10
1
1
0 <= X < 5
0
0

13

4. Current ratio = (Current assets / Current liabilities) x 100%


Score
Current ratio = X (%)
Infrastructure
Non-infrastructure
125 <= X
3
5
110 <= X < 125
2.5
4
100 <= X < 110
2
3
95 <= X < 100
1.5
2
90 <= X < 95
1
1
X < 90
0
0
5. Collection periods = (Receivables / Sales) x 365
Collection
Improvement = X Score
periods
=
X (days)
Infrastructure
(days)
X <= 60
X > 35
4
60 < X <= 90
30 < X <= 35
3.5
90 < X <= 120
25 < X <= 30
3
120 < X <= 150 20 < X <= 25
2.5
150 < X <= 180 15 < X <= 20
2
180 < X <= 210 10 < X <= 15
1.6
210 < X <= 240 6 < X <= 10
1.2
240 < X <= 270 3 < X <= 6
0.8
270 < X <= 300 1 < X <= 3
0.4
300 < X
0 < X <= 1
0

Noninfrastructure
5
4.5
4
3.5
3
2.4
1.8
1.2
0.6
0

6. Inventory turnover = (Inventories / Sales) x 365


Inventory
Improvement =
Score
turnover = X X (days)
Infrastructure
(days)
X <= 60
35 < X
4
60 < X <= 90
30 < X <= 35
3.5
90 < X <= 120
25 < X <= 30
3
120 < X <= 150 20 < X <= 25
2.5
150 < X <= 180 15 < X <= 20
2
180 < X <= 210 10 < X <= 15
1.6
210 < X <= 240 6 < X <= 10
1.2
240 < X <= 270 3 < X <= 6
0.8
270 < X <= 300 1 < X <= 3
0.4
300 < X
0 < X <= 1
0

Noninfrastructure
5
4.5
4
3.5
3
2.4
1.8
1.2
0.6
0

7. Total assets turnover = (Sales / Total assets) x 100%


Score
Total assets
Improvement =
Infrastructure
turnover = X (%) X (%)
120 < X
105 < X <= 120
90 < X <= 105
75 < X <= 90
60 < X <= 75
40 < X <= 60
20 < X <= 40
X <= 20

20 < X
15 < X <= 20
10 < X <= 15
5 < X <= 10
0 < X <= 5
X <= 0
X=0
X<0

4
3.5
3
2.5
2
1.5
1
0.5

Noninfrastructure
5
4.5
4
3.5
3
2.5
3
1.5
14

8. Common equity to total assets = (Common equity / Total assets) x 100%


Common equity to Total Score
assets (%) = X
Infrastructure
Non-infrastructure
X<0
0
0
0 <= X < 10
2
4
10 <= X < 20
3
6
20 <= X < 30
4
7.25
30 <= X < 40
6
10
40 <= X < 50
5.5
9
50 <= X < 60
5
8.5
60 <= X < 70
4.5
8
70 <= X < 80
4.25
7.5
80 <= X < 90
4
7
90 <= X < 100
3.5
6.5

15

Notes:

State

enterprises

(BUMN)

and

its

subsidiaries

must

apply

this

assessment of the health level.

Because this case just assesses the financial aspect, the total score
should be adjusted by considering the financial aspect only. For example,
the level of health AAA is achieved if the total score is larger than 95. So,
this total score can be changed to 95 x 0,70 = 66.5 for the noninfrastructure business. Doing this, it means the criteria are adjusted.
Alternatively, the criteria are not adjusted, but each calculated total
score are adjusted by dividing 0.70.

For the calculation of the collection periods, inventory turnover and total
assets turnover, the chosen score is the best between the both scores.
For example: PT A (BUMN Non-Infrastructure) has a collection periods
of 120 days in 1999 and 127 days in 1998. The scores in 1999 are
according to a) the level of the collection periods is 4, and b) the
improvement (7 days) is 1.8. Thus, the chosen score is the largest, that
is, 4.

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