ASSESSMENT OF BUSINESS PERFORMANCE

PT TIMAH TBK AND SUBSIDIARIESI

EDUARDUS T ANDELI LIN

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 199 I, 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 company's
shares; domestic and international investors owned the remaining 35 percent.

BACKGROU:'IlD
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
substantia I reserves, ownersh ip 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 Timah's smelting operations
1

This case was written by Dr. Eduardus TandeWin of Master of Management Program Gadjah
Mada University, Yo!:''Yakarta, 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-900 I and
ISO-1400 I 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 subsid\aries, 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 T AMBANG

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, re

engineering, 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 19 I % 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 tlppeared to negatively affect Timah' s
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 fOl,lr 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.

'From annually report, 1999.

Timah Investasi Mineral even experienced a decline in its financial

_ fonnance. The company did not make a sale in 1998 and 1999 but still suffered
:;~ operational costs. This condition caused the company to lose Rp 16,809
millJon in 1998 and Rp 16,028 million in 1999.
The results of the financial perfonnance of Timah and its subsidiaries in
following two years motivated management to evaluate the company's
achievement. Evaluation was intended to analyze Timah's 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 Timah's perfonnance as a corporation and also improve the subsidiaries'
perfonnance.
Unfortunately, there are so many tools for doing perfonnance 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 re"sult. It represents a "model" of its
business as in figure 1.
Perfonnance 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
detennined an indicator to assess the health of state owned company (SOC). The
main indicator is shown in appendix I 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
10.:
584,638
970,754
838,432
Current Assets:
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
1,150,158
1,696,984
1,736,497
Total Assets

Current Liabili ties:

Bank borrowings
Trade payable
Taxes payable
Long-term Liabilities
Minority Interests in Subsiclirlrips
Total Liabilities
Paid-Up capital
Additional Paid-up capital
Retained earnings
Total Shareholders' Equity

326,413

lc~223

31,038
22,895
11,118
_ 2,632
340,163
251,651
120,792
437,552
809,995

415,567
8,483
82,544
151,051
13,993
2,384
431,944
251,651
120,792
892,597
1,265,040

326,842
4,709
59,051
97,394
17,465
2,007
-346,314
251,651
120,792
1,017,740
1,390,183

INCOME STATEMENTS
691,614
2,034,561 /
1,694,839
396,395
672,975
944,244
295,219
1,361,586
750,595
98,386
256,748
240,684
-.-------------------------------------_.-------------------------- .. _.. _---_ .. ----_.-._- .. --.--.
196,833
1/104,838
509,911

Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Profit
Other Income (Expenses)
Profit before Taxes
Profit after Taxes

-------_._----------~------------------------------------.--.--.--.---.-----.---------_.-------.

_______________?-~~~?~

(~~~~?-~_~)

256,505
177,813

740,306
518,828

484,499
318,039

353
1,609
141
5,900

1,031
2,513
409
5,375

632
2,762
247
4,875

Per Share Data (Rp)

Earnings per Share
Equity per Share
Dividend per Share
Closing Price

J~~!_~}?L

Sources: Indonesian Capital Market Directory 2000

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TABLE 2. SUMMARY OF FINANCIAL STATEMENTS FOR SUBSIDIARIES, DECEMBER 31, 1999

(THOUSAND RUPIAH)
BALANCE SHEETS
PT TAMBANGI PT TIMAH
TIMAH ; EKSPLOMIN.

1,201,007,545

Current Assets:
Cash on hand and in banks
Trade receivables
Inventories

--

,..

MINERAL

13,996,369

487,996,828

829,748

7,465,132

106,456

341,564

544,098

61,194,556

4,574,022

70,787,354

252,329,403

105,341,133

Investments
Fixed Assets-Net

PT TIMAH
PTTIMAH
INQUSTRI _ iNvESTASI

337,642,254

17,390,511

39,451,982

71,000

226,636,922

2,218,767

Other Assets

93,749,116

Total Assets

1,632,398,915

31,386,880

754,085,732

28,390,648

"Current Liabilities:

618,838,467

24,171,379

536,238,546

479,508

Trade payable

21,948,491

1,741,892

449,245

Taxes payable

91,504,236

835,548

30,047,038
4,712,471

21,070,405

242,023

1,122,864

13,419,831

Total Liabilities

639,908,872

24,413,402

537,361,410

13,907,078

Paid-Up capital

500,000,000

5,000,000

200,000,000

43,000,000

Retained earnings (accumulated loss)

492,490,043
992,490,043

1,973,478
6,973,478

16,724,322
216,724,322

(28,516,431)
14,483,569

Long-term Liabilities

25,271,133

7,739

Minority Interests in Subsidiaries

Total Equity

28,169

INCOME STATEMENTS
Net Sales
Cost of Goods Sold

1,664,589,743

63,605,571

320,800,867

920,729,043

55,863,182

310,043,396

---------.----~-

.. --------.--_.-----_. __ . __ ._----_._----._--.----.---_.-_.-----.--.--.--._-----."-----

Gross Profit

743,860,709

7,742,389

10,757,471

Operating Expenses

155,835,755

7,103,573

7,227,529

1,591,128
14,508,102

Unsuccessful Exploration
Operating Profit (loss)

Other Income (Expenses)

Profit (loss) before Taxes
Profit (loss) after Taxes

-----588:b-i4~954-------------638:8i6-----------j:529~942-------(16;099j30y

(68,746,776)

998,584

2,559,752

519,278,178

1,637,400

6,089,694

._---------.--------.---.-----._-._------------------.------._--._-. __

68,636

._------~---------------------------

(16,030,594)

-----3s3:94-6;209--------------so7j-s6---------------92i'78i-------(16;030:5-94)-

Additional information:
Capital stock in shares

500,000

5,000

200,000

43,000

'---~

Sources:
1. PT Tambang Timah, Financial Statement, December 31,1999.
2. PT Tinlah Eksplomin, Financial Statement, December 31,1999.
3. PT Timah Industri, Financial Statement, December 31, 1999.
4. PT Tinlah Investasi Mineral and Subsidiary, Consolidated Financial Statement, December
L - ~,1999___ _
..
_

Table 3. Financial Ratios of Metal and Mineral Mining Companies on the JSX
PT AnekaTambangTbk
~.

~r-'

" '(.. ,

.'
1997

Earning (loss) per Share (Rp)

56
913
Equity per Share (Rp)
Dividend per Share (Rp)
1325
Closing Price (Rp)
23.46
PER (x)
1.45
PBV(x)
Dividend Payout (%)
Dividend Yield (%)
Current Ratio (x)
278
0.43
Debt to Equity (x)
Leverage Ratio (x)
0.30
0.44
Gross Profit Margin (x)
Operating Profit Margin (x)
0.33
0.15
Net Profit Margin (x)
2.40
Inventory Turnover (x)
0.28
Total Assets Turnover (x)
4.34
ROI(%)
6.19
ROE(%)
Source: Indonesian Capital Market Directory

1998
243
1118
104
1625
6,68
1.45
42,71
6.39
2.99
0,44
0,30
056
0.47
0.29
3.44
052
15.14
21.75

1999
183
1195
79.19
1400
7.65
1.17
43.28
5.66
246
0.42
0.29
0.43
0.33
0.23
2.99
0.46
10.81
15.31

PT International Nickel
Indonesia Tbk
1997
178
4549

1999
156
4750

1998
45
4594

6800
38.17
1.49
-

2800
61.79
0.61
-

6300
40.45
1.33
-

177
074
0.42
0.25
0.23
0.14
2.24
0.16
2.26
3.92

1.00
0,99
0,50
0.06
0.06
0.04
2.51
0.12

072
1.02
051
0.18
0,17
0.10
2.99
0.16
162
3.28

Q')()

099

2000.

'7

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

Return on Equity
(ROE)
I
Return on Assets
(ROA)

Equity multiplier:

Assets/Equity

Multiplied by

Profit Margin:
Net income/Sales

Total Assets Turnover:

SalesfTotal assets

Multiplied by

I
I
Sales

Divided
into

Net income

"Divided

Sales

by

Subtracted

from

Sales

Fixed
Assets

Added
to

f-

Taxes

Time
deposits

Cash on
hand and in
banks

I
Operating
costs

Current

Assets

I
Costs of
good sold

Total Assets

I
Total
Costs

f-

Other
expenses

Trade
receivable

Inventories

Questions:
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 Tintah 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 Tintah 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 firm's 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.

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