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
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
TABLE 2. SUMMARY
OF
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
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:
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
)
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.
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
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,
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:
Weight
Infrastructure
15
10
3
4
4
4
4
6
Noninfrastructure
20
15
5
5
5
5
5
10
12
13
Noninfrastructure
5
4.5
4
3.5
3
2.4
1.8
1.2
0.6
0
Noninfrastructure
5
4.5
4
3.5
3
2.4
1.8
1.2
0.6
0
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
15
Notes:
State
enterprises
(BUMN)
and
its
subsidiaries
must
apply
this
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.
16