I N S T I T U T T E K N O LO G I B A N D U N G

SCHOOL OF BUSINESS AND MANAGEMENT

INDONESIA BUSINESS CASE CENTER (IBCC)
082-0503-12

Krakatau Steel (A): Financial Performance

Bambang Supriyatno has been diving in capital market for several years. He is an
investor with a moderate risk profile and has to be sure whether he is investing on
the right stocks. Checking the background and the financial record of a company
are several things that he always do before deciding to invest his money on certain
stocks. Currently Bambang has been considering on investing a big amount of
money on Krakatau Steels stock. What he knows is that this company is the largest
steel manufacturer in Southeast Asia. So he intends to do a background check on
the company.
Company Background
PT Krakatau Steel Tbk is an extremely well-known steel company in Indonesia. In
2009 this company has become a market leader with domestic market share of 57%
in HRC (Hot Rolled Coil), 32% in wire rod and 33% in CRC (Cold Rolled Coil). PT
Krakatau Steel Tbk which was established in 1970 (officially opened by the
Indonesias President in 1977) has ten subsidiaries. Those subsidiaries which have
been raised under PT Krakatau Steel Tbk are PT KHI Pipe Industries, PT Krakatau
Wajatama, PT Meratus Jaya Iron & Steel, PT Krakatau Daya listrik, PT Krakatau Tirta
Industri, PT Krakatau Bandar Samudera, PT Krakatau Industrial Estate Cilegon, PT
krakatau Enginering, PT Krakatau IT and PT Krakatau Media.
PT Krakatau Steel Tbk has a long history of doing business in Indonesia, supported
by the diversity and quality of steel products produced. During the operation, PT
Krakatau Steel Tbk has been building a loyal relationship with its customers for
more than 20 years. For a big company who has added great value to the nationals
economy, PT Krakatau Steel Tbk is definitely an asset for Indonesia.

This case was written by Raharsi Dethirafuri under the supervision of Subiakto Soekarno
from School of Business and Management Institut of Teknologi Bandung. It was prepared
solely to provide material for class discussion. The author does not intend to illustrate either
effective or ineffective handling of a managerial situation. The author may have disguised
certain names and other identifying information to protect confidentiality.
IBCC prohibits any form of reproduction, storage or transmittal without its written
permission. To order copies or request permission to reproduce materials, contact IBCC at
School of Business and Management ITB Bulding. Jl. Ganesha No. 10, Bandung. P. +62222531923 F. +6222-2504249 or e-mail to ibcc@sbm-itb.ac.id

Copyright 2012, Indonesia Business Case Center (IBCC)

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082-05-03-12

First Initial Public Offering (IPO)

In November 2010 PT Krakatau Steel Tbk took a big step. PT krakatau Steel Tbk has
been officially listed in BEI (Bursa Efek Indonesia) with a stock code KRAS. PT
Krakatau Steel Tbk offers 3.155.000.000 shares to public which is 20% of the paidup capital. This step is taken in order to expand its production capacity. PT Krakatau
Steel Tbk is planning to use 35,8% of the IPO (Initial Public Offering) income to add
more production machine for achieving the production target of 3,5 million-ton Hot
Rolled Coil per year.
Beside adding more production machine, PT Krakatau Steel Tbk is also planning to
use 24,2% of the IPO income to buy the raw materials (iron ore pellet, scrap, billet
and slab), 25% to finance maturation of 388 hectares land for integrated steel mills
project with POSCO) and 15% to increase the capital investment in two PT Krakatau
Steel Tbk subsidiary, PT Krakatau Bandar Samudera and PT Krakatau Daya listrik.
But during the IPO there has been conflicts going on, the share price was claimed
too low. At first offering (2-4 November 2010), 3.155.000.000 shares were offered at
price Rp 850,- per share. This incident disappointed lots of people. People were
outraged by the price that was deemed inappropriate.
At the same time Ministry of State Owned Enterprises, Mustafa Abubakar and the
underwriter denotes the price of its initial public offering of shares (initial public
offering / IPO) of PT Krakatau Steel is already optimal. President Director of PT
Mandiri Sekuritas, Harry M Supoyo, said, the stock pricing Krakatau Steel cannot
only be seen from the absolute value. Stock prices of steel producers should also be
compared with similar companies.
This issue triggers Bambang to do a financial performance measurement of
Krakatau Steel compare to other local steel companies. Bambang decides to
compare it to the financial performance of PT Gunawan Dianjaya Steel and PT Jaya
Pari Steel as the steel companies which were already settled in BEI before PT
Krakatau Steel. To assess the financial performance, Bambang will use several
methods.
Trend Analysis
Bambang believes that growth is important for any company. A positive growth rate
shows the capability of the company to maintain the performance of the company.
He believes that a company which has a continuous growth will potentially bring
more profit to the investors in the future. To assess the growth rate each year, a
calculation named Compound Annual Growth Rate (CAGR) is invented. CAGR is the
year-over-year growth rate of an investment over a specified period of time
(Investopedia: 2011). CAGR can be calculated through dividing the ending value to
beginning value, raised to the power of 1/(number of years) then subtract it by 1.

V(tn) = Ending Value

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V(t0) = Beginning Value

tn-t0 = Number of years
In analyzing the performance trend of a company, Bambang will use several ratios
which can be classified into four main aspects. Those aspects are revenue, return,
market and debt performance.
Revenue
Gross Profit margin
Operating Profit
Margin
Net Profit Margin
COGS to Revenue
Operating Expenses to
Revenue
Market
Earnings per share
-

Book value per share

Return
Return on Assets
Return on Equity
Debt
Debt to Equity
Debt to Capital

Formula
Gross Profit / Revenue
Operating Profit / Revenue
Net Income / Revenue
COGS / Revenue
Operating expenses /
Revenue
Net Income / Revenue
Equity / Shares
Outstanding
Net Income / Asset
Net Income / Equity
Debt / Equity
Debt / Capital

For the trend analysis Bambang is goint to use year 2007 2010 for the three steel
companies (PT Krakatau Steel, PT Gunawan Dianjaya Steel and PT Jayapari Steel). In
this trend analysis Bambang will compare the CAGR of Krakatau Steel to other two
local steel companies mentioned above.
Note: For several ratios the CAGR will use years 2008-2010 due to the CAGR
inability to generate valid data when one value (either ending value or beginning
value) has a negative amount.
BUMN Financial Scoring
Beside Trend analysis Bambang will analyze the financial performance of the three
steel companies through BUMN Financial Scoring framework. This BUMN Financial
Scoring framework is a new framework introduced by the government and based on
Keputusan Menteri Badan Usaha Milik Negara, KEP-100/MBU/2002. Through BUMN
Financial Scoring Framework, performance of company can be classified into three
categories such as healthy, less healthy and unhealthy.
In BUMN Scoring Framework, performance of company is based on three aspects,
financial aspect which contributes 70% of the total score, Operational and
administration aspect with contribution of 15% each. For the financial aspect, the
ministry of state-owned company has approved several financial ratios that are
considered to be important in assessing a financial performance of a company.

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There are 8 financial ratios where each of ratios has specific weight contributed to
the overall score.
Financial Indicators
Return on Equity (ROE)
Return on Investment
(ROI)
Cash Ratio

Weig
ht
20
15
5

Current Ratio

Collection Period

Inventory Turnover
Total Asset Turnover
Total Equity/Total Asset

5
5
10

Total Score

70

Formula
Net Income / Equity
Ebitda / (Total Asset Net
Fixed Asset)
Cash / Current Liability
Current Asset / Current
Liability
Account Receivable x 365 /
Revenue
Inventory x365 / Revenue
Revenue / Asset
Equity / Asset
(Total score is represented
as TS)

Note: For
the
EBITDA, it is gotten from EBIT + Depreciation
Here, the EBIT can be derived from (Income before tax + Interest Expense Interest
Income)
Since Bambang only wants to do a measurement on the financial aspect, Bambang
readjusted the score for health classification as displayed below:
Ratin
g
AAA
AA
A

BBB
BB
B

CCC
CC
C

TS >95
80< TS
95
65< TS
80

Adjusted
Score
TS >66.5
56< TS
66.5
45.5< TS
56

50 < TS
65
40< TS
50
30< TS
40

35< TS
45.5
28< TS
35
21 < TS
28

20< TS
30
10< TS
20
TS 10

14< TS
21

Scoring

Classificati
on

Healthy

Less
Healthy

Unhealthy
7 < TS 14
TS 7

INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

For the specific score of each ratio will be displayed on Exhibit 1.

Note: The BUMN measurement will be only using the latest year which is year 2010.

DuPont Formula
To analyze the financial performance of these steel companies Bambang tries to
apply the DuPont analysis. DuPont formula is a common model to measure a
companys financial performance. DuPont analysis calculates the ROE where in
business world it is one of the important ratios for investors since it gives a brief
look on how profitable the company to the investors interest. The higher the ROE,
the more attractive the company in the eye of the investors.
-

ROE is affected by three things:

Operating Efficiency (represented by the Profit Margin Ratio)
Asset used efficiency (represented by Total Asset Turnover)
Financial Leverage (represented by the Equity multiplier)
ROE = Profit Margin x Total Asset Turnover x Equity Multiplier

DuPont's
Component
Profit Margin Ratio
Total Asset
Turnover
Equity Multiplier

Formula
Net Profit /
Revenue
Revenue / Asset
Asset / Equity

Note: The DuPont Analysis will be only using the latest year which is year
2010.

INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

Exhibit 1

ROE %
ROE > 15

Cash Ratio
CR 35

ROI %
2
0
1
8
1
6
1
4
1
2
1
0
8.
5

15
13.
5

25 < CR 35

15 < CR 25

10 < CR 15

12 < ROI 13

12
10.
5

5 < CR 10

10.5 < ROI 12

0 < CR 5

9 < ROI 10.5

7.5

Current Ratio

7 < ROI 9

5 < ROI 7

2.5 < ROE 4

7
5.
5

3 < ROI 5

1 < ROE 2.5

0 < ROE 1
ROE < 0

4
2
0

1 < ROI 3
0 < ROI 1
ROI < 0

3
2
1

CuR 125
5
110 CuR <
125
4
100 CuR <
110
3
95 CuR <
100
2
90 CuR < 95
1
CuR < 90
0
Total Equity/Total
Asset
TEA < 0
0
0 TEA < 10
4

13 < ROE 15
11 < ROE 13
9 < ROE 11
7.9 < ROE 9
6.6 < ROE 7.9
5.3 < ROE 6.6
4 < ROE 5.3

Collection Periods
CP
CP 60
5
4.
60 < CP 90
5
90 < CP 120
120 < CP 150
150 < CP 180
180 < CP 210
210 < CP 240

4
3.
5
3
2.
4
1.
8

ROI > 18

15 < ROI 18
13 < ROI 15

Inventory Turnover
IT
IT 60
5
60 < IT 90

4.5

10 TEA < 20

90 < IT 120

20 TEA < 30

6
7.2
5

120 < IT 150

150 < IT 180

3.5
3

30 TEA < 40
40 TEA < 50

10
9

180 < IT 210

2.4

50 TEA < 60

8.5

210 < IT 240

1.8

60 TEA < 10

INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

240 < CP 270

270 < CP 300
CP > 300

1.
2
0.
6
0

240 < IT 270

1.2

270 < IT 300

0.6
IT > 300
0
Total Asset Turnover
TATO
TATO > 120
5
105 < TATO
120
4.5
90 < TATO 105
4
75 < TATO 90
3.5
60 < TATO 75
3
40 < TATO 60
2.5
20 < TATO 40
2
TATO 20
1.5

70 TEA < 80

7.5

80 TEA < 90
90 TEA < 100

7
6.5

Exhibit 2
Income statement and Balance Sheet of Krakatau Steel 2007 2010
Income Statement Krakatau Steel 2007-2009 in millions

INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

Balance Sheet of Krakatau Steel 2007-2009 in millions

INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

Balance Sheet of Krakatau Steel 2007-2009 (cont) in millions

INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

Income Statement Krakatau Steel 2009-2010 in millions

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For the EPS in 2009 use the one which is stated in this income statement (39
IDR/share)
Balance Sheet of Krakatau Steel 2009-2010 in millions

Note: Depreciation in 2010 is as much as 255.412 million IDR

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Balance Sheet of Krakatau Steel 2009-2010 (cont) in millions

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082-05-03-12

Exhibit 3
Income Statement and Balance Sheet of Gunawan Dianjaya Steel
2007-2010

For 2007 and 2008, the number of shares outstanding is 4.050.000 and
3.376.000 shares.

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Income Statement of Gunawan Dianjaya Steel 2009-2010

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Balance Sheet of Gunawan Dianjaya Steel 2009-2010

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Note: Depreciation in 2010 is as much as 28.298.719.186 IDR

Exhibit 4
Income Statement and Balance Sheet of Jaya Pari Steel 2007-2010
Income Statement of Jaya Pari Steel 2007-2008

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Balance Sheet of Jaya Pari Steel 2007-2008 in millions

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INDONESIA BUSINESS CASE CENTER (IBCC)

082-05-03-12

Balance Sheet of Jaya Pari Steel 2009-2010 in millions

Note: Depreciation in 2010 is as much as 2.014.064.189 IDR

Income Statement of Jaya Pari Steel 2009-2010

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