FINANCIAL ANALYSIS ON PT.

KRAKATAU STEEL PERFORMANCE

Yogo Prihandoko 29319107

Ihya Ulumuddin SY 29319069

Abstract
Krakatau Steel first established as the Trikora Iron Steel Project by President Soekarno, PT.
Krakatau Steel which constructed at 1970 has grown to be the largest steel producer in Indonesia.
Within 10 years of its establishment, Krakatau Steel has shown a significant progress with the
addition of a number of production facilities such as Sponge Iron Plant, Steel Billet Plant, Wire
Rod Plant, as well as the supporting infrastructure including power plant generator, water
treatment plant, ports and telecommunication system. Since then, Krakatau Steel has been
known as the prominent steel producer in Indonesia. Infrastructure readiness has made
Krakatau Steel as an integrated steel industry, which does not only supplying steel product, but
also supporting the growth of national industry.
In this article we would shown the analyze of financial report on PT. Krakatau Steel (persero) Tbk
from the year 2014 – 2018 to determine the financial condition based on Validation Testing. This
study aims to measure the level of financial performance by investigating return on equity, return
on investment, cash ratio, current ratio, collection period, inventory turnover, total asset turnover
and total equity to total asset ratio. The result shows that the industry has an unwell financial
health condition which achieved level B. Further improvement and solution will shown in the
conclusion and suggestion. Therefore, this study can be useful for the manager to tackle the
challenge and improve its efficiency.

1. Introduction
Initiating Transformation To Maximize Performance
Amidst the increasing competition in steel industry, PT. Krakatau Steel (Persero) Tbk continuously
strives to develop its excellence and competitiveness. Equipped with experience in the national
steel industry for more than 4 (four) decades, the Company began to echo the spirit of
transformation in every aspect of its business, starting from increasing cost competitiveness,
increasing steel production capacity, increasing labor productivity, to increase synergy relations
with all subsidiaries. This strategic effort was implemented by the Krakatau Steel throughout 2018
in order to maximize its performance as the largest and leading steel producer in Indonesia and
in the world, in order to achieve sustainable business growth.
With a production capacity of 3,15 million tons per year, Krakatau Steel produced a number of
major products such as Hot Rolled Coil, Cold Rolled Coil and Wire Rod. Through its subsidiaries,
the Company produces stell products with specific requirements, including Spiral Pipe, Electrical
Resistance Welding Pipe, Reinforcing Bars and Section Steel.
This Report of PT. Krakatau Steel (Persero) Tbk serves as a comprehensive source of information
on the Company’s performance in a year specially between 2014 – 2018. Futhermore, this report
aims to build understanding about and trust in the Company by providing accurate, balanced, and
revelant information. The shareholders and all stakeholders may obtain adequate information
related to the policies that have been and will be implemented as well as the success recorded
by the Company throughout the year.
2. Development of National Steel In Indonesia
National Steel Industry Overview
The national steel industry faced heavy pressure throughout the year due to the issuance of the
regulation of Minister of Trade no. 22 of 2018 regarding Provisions on the Import of Iron or Steel,
Alloy Steel and Devirative Product. This regulation, which has been running since February 1,
2018, facilitates the entry of imported products by implementing changes to several mechanisms
that have been in effect so far, particularly in relation to the implementation of post border
audit/inspection and elimination of recommendation from the Ministry of Industry. The objective
of this regulation is to improve the effectiveness of import of steel or iron, alloy steel and derivative
products implementation, as well as to support the import commercial activity through the
acceleration of raw material import process.
Indonesia has consistently been a net importer of steel mill products. According to the Badan
Pusat Statistik (BPS), processed by the Center for Data and Information Systems, Ministry of
Trade Indonesia. Since 2014, Indonesia’s steel imports have trended upwards. Between 2014
and 2018, steel imports increased 123 percent, while exports in 501 percent. Indonesia’s steel
trade deficit grew between 2014 and 2018, peaking at – 178 percent in 2018. Between 2017 and
2018 Indonesia’s trade deficit increase from USD $ 7.985,20 million - $ 10,246,70 million in
Imported Iron and Steel goods, comparison to the exported Iron and Steel goods from USD $
3.336,10 million - $ 5,756,50 million.

*Source : BPS, processed by the Center for Data and Information Systems, Ministry of Trade Indonesia

Figure 1 : Import and Export Data of Iron and Steel in Indonesia

Top Sources by Steel Product Category
Indonesia’s top import sources by volume vary across types of steel products, though China took
the first spot for three producta. In 2018, China accounted for the largest share of Indonesia’s
imports of long products at 56 percent (980 thousand metric tons), pipe and tube products at 43
percent (233 thousand metric tons, and stainless products at 29 percent (134 thpusand metric
tons)
Japan accounted for the largest share of Indonesia’s flat product imports in 2018 at 31 percent
(1.6 million metric tons), followed by China at 28 percent (1,4 million metric tons). Japan was also
the second largest source for long products at 17 percent (306 thousand metric tons) and the
second largest source for pipe and tube products at 20 percent (107 thousand metric tons).
Russia was the largest source of semi-finished steel at 26 percent (968 thousand metric tons),
followed by Pakistan at 13 percent (486 thousand metric tons). India and Japan were the second
and third largest sources for Indonesia stainless steel imports, accounting for 18 percent (81
thousand metric tons) and 17 percent (81 thousand metric tons).
Exhibit 1 : Indonesia’s Top 5 Import Sources by Product – 2018
Sales of Iron and Steel on PT. Krakatau Steel (persero) Tbk
Exhibit 2
(In thousand USD)
Description 2014 2015 2016 2017 2018
Sales
Domestic Sales 1.553.520 1.039.469 1.063.800 1.217.518 1.482.972
Export Sales 53.986 13.664 47.079 16.500 40.876
Sales of service 261.339 268.690 233.836 215.002 215.687
Total Sales 1.868.845 1.321.823 1.344.715 1.449.020 1.739.535
Sales Volume (ton) 2.316.121 1.941.844 2.237.920 1.900.075 2.142.133
Production Volume 2.212.684 1.793.482 2.017.237 1.689.324 2.034.399
(ton)
*Source : Annual Report of PT. Krakatau Steel (persero) Tbk in 2018

Based on the table above, total sales of iron and steel in PT. Krakatau Steel (persero) has been
decreased from 2014 until 2018. In the 2014, the amount of total sales was USD $ 1.868,84
million, sales volume was 2.316.121 ton in line with production volume was 2.212.684 ton. Those
amount decresed dramatically to the amount of total sales USD $ 1.321,82 million, sales volume
1.941.844 ton and production volume 1.793.482 ton in the year of 2015. In the year 2016 it slightly
increase the amount of total sales was USD $ 1.344,72 million, sales volume was 2.237.920 ton
and production volume was 2.017.237 ton. Moreover, the amount of total sales, sales volume and
production sales in 2018 was increase dramatically from 2015 about USD $ 1.739,54 million in
sales, 2.142.133 ton in volume and 2.034.399 ton in production volume.

3. Research on Finansial Performance

According to Charliepaul et al. (4), the financial ratio is a good evaluation method to measure the
company performances. The company usually uses this method to compare their performance
with other competitors. There are two methods to measure the financial performances which are
accounting and market measurement. There are many researchers who prefer to use accounting
measurement (5, 6), rather than market measurement (7, 8), and some of them adopt both
methods (9). There are few differences between accounting and market measurement method.
In accounting, the company uses the historical aspects to measure their financial performance
(10) and it contains a bias which leads to managerial manipulation. On the other hand, the market
measurement method is straight forward, focus on performance and represent the ability of a
company to generate future income (9). There have been a large number of empirical studies on
the financial ratio in different industries around the world (11, 12). However, there are limited
resources which evaluate the financial performance of Iron and Steel Company in Indonesia.

4. Methodology
To accomplish this study, descriptive financial ratio analysis used to measure, describe and
analyze the financial performance of Iron and Steel Company in Indonesia during the period of
2014 – 2018. PT. Krakatau Steel (persero) Tbk. was selected because it is the first Iron and Steel
company in Indonesia with their extensive experience in the industry. In this research, data were
collected from Annual Report (audited) from 2014 to 2018. The variables are consists of
profitability ratio, liquidity ratio, activity ratio, and solvency ratio.
5. Result and Discussion
Exhibit 3 : Key Performance Indicator

Description 2014 2015 2016 2017 2018 Unit

ROI -7,62 -19,81 -11,85 -5,61 -4,25 %
ROE -17,66 -18,33 -9,81 -4,63 -4,15 %
Cash Ratio 16,75 9,05 21,64 21,28 10,84 %
Current Ratio 74,9 60,89 81,45 75,02 61,91 %
Collection Period 49 63 53 48 42 days
Inventory Turn Over period 87 90 113 130 112 days
Total Asset Turn Over 177,64 73,93 73,10 78,21 96,63 %
Total Equity to Total Asset 40,40 48,30 46,73 45,03 41,88 %
*Source : Annual Report PT. Krakatau Steel (persero) Tbk

5.1. Profitability Performance

Return on Return On Equity = (Net Income/Shareholder's Equity) x 100%

Equity ROE indicates the bank's profitability and growth potential.
Return on Investment = ((Total Revenue - Total Cost)/Total Cost) s 100%
Return on
Investment ROI show the ability of the company to measure the income generated
on investment relative to the amount of money invested

The percentage of return on equity (ROE) and return on investment (ROI) in PT. Krakatau Steel
(persero) Tbk. between 2014 and 2018 was decrease from 2014 to 2015 and increased sharply
from 2015 to 2018. The highest percentage was ROI and ROE was in the year 2018 and the
lowest percentage ROI and ROE was in the year 2015. Between 2014 and 2015, the percentage
of ROI was decreased from -7,62% to -19,81%. Then it increased to -11,85% in 2016 and a further
increase to -4,25% in 2018. In ROE, there was decreased from -17,66% to -18,33%. Then it
increased to -9,81% in 2016 and a further increase to -4,15% in 2018 (see exhibit 3)
The huge declined happened in 2015 because the total sales, sales and production volume was
low but in the year 2016 to 2018 it increased slightly because the number of sales and production
volume was high as explained by PT.Krakatau Steel Annual Report in year 2014 - 2018. (see
exhibit 2)

Figure 2: Profitability Performance

5.2. Liquidity Performance

Cash Ratio = (Cash + Cash Equivalent/Current Liabilities) x 100%

Cash ratio measures the liquidity of the company to pay the current
Cash Ratio liabilities with only cash and cash equivalents. If the cash ratio above 1, it
means that company has the ability to pay its current liabilities with only
cash and cash equivalents. If the cash ratio below 1, the company needs
more than cash and cash equivalents to pay its current liabilities.
Current ratio = (Current Asset/Current Liabilities) x 100 %
Current Ratio The current ratio measures the company ability to pay it's short-term and
long-term liabilities using their short-term assets.
Collection Period = (Average Accounts Receivables/Sales Revenue) x
365 days
Collection Collection period is a good indicator to measure the problem of the
Period company to collect a debt from customers. If the companies have high
collection period, they should communicate with their customers
regarding their debts.

The percentage of Cash Ratio, Current Ratio and Collection Period in PT. Krakatau Steel
(persero) Tbk. between 2014 and 2018 was decrease from 2014 to 2015 and increased sharply
in 2016 but there was a set back from 2017 to 2018. In Collection Period there was problem
collecting debt from customer in the year of 2015 but it keep improving from 2016 until 2018.
Between 2014 and 2015, the percentage was decreased from 16,75% - 9,05% in Cash Ratio,
74,9% - 60,89% in Current Ratio and Collection period was higher from 49 – 63 days. Then it
increased to 21,64% in Cash Ratio, 81,45% in Current Ratio and 53 days in Collection Period at
the year 2016, but in 2018 there was a decreased in the number of Cash Ratio and Current Ratio
but increased in Collection Period. (see exhibit 3)
Figure 3 : Liquidity Performance
5.3. Activity Performance

Inventory Turn Over = Cost of goods sold/Average Inventory

Inventory Turn Inventory turn over describes how many times the inventory is sold or
Over replaced by the company. If the ratio is high, it indicates that the
inventory level is inadequate. If the ratio is low, it indicates that the
company is overstocking and deficiencies in the marketing effort.
Total Asset Turn Over = (Revenue/Capital Employed) x 100 %

Total Asset Turn TATO ratio indicates the company ability to generate revenue from
deploying its asset. A Higher ratio indicates that company using its assets
Over (TATO)
more efficiently and lower ratio indicate that company is using its asset
deficiently.

The percentage of Inventory Turn Over and Total Asset Turn Over in PT. Krakatau Steel (persero)
Tbk. between 2014 and 2018 was increasing rapidly from 2014 to 2017 but decrease at 2018 in
Inventory Turn Over. The TATO was high in 2014 but low in 2016 and make an improving in 2017
– 2018. In Inventory Turn Over was increasing from 87 – 130 days in 2014 – 2017 but decrease
to 112 days in 2018 and TATO was decreased from 2104 – 2016 the percentase was 117,64% -
73,10% and improve about 78,21% - 96,63% in 2017 – 2018. (see exhibit 3)
The TATO relatively high in 2014 because of the higher number of Total Sales, Sales and
Production Volume, its about USD $1.868,84 million in Total Sales, 2.316.121 tons in Sales
Volume and 2.212.684 tons in Production Volume, its number very higher than other year in 2015
until 2018. (see exhibit 2)

Figure 4 : Activity Performance

5.4. Solvency Performance

Total equity to total asset = (Total equity/Total asset) x 100 %

Total Equity to
It is a good indicator to measure the financial health of the company.
Total Asset
Equity to asset ratio measures the percentage of company’s asset owned
by investors and the leverage level of the company with its debt.

The percentage of Total Equty to Total Asset in PT. Krakatau Steel (persero) Tbk. between 2014
and 2018 was increasing from 2014 to 2015 but it start to decrease slowly from 2015 to 2018.
The percentage was 40,40% - 48,30% from 2014 – 2015 and 48.30% - 41,88% from 2015 - 2018.
(see exhibit 3)

Figure 5 : Solvency Performance

6. Validation Testing
To examine the level of financial assessment for two enterprises under Ministry of Energy and
Mineral Resources (EMR) whether, in healthy or less healthy or unhealthy position from 2014 -
2018, the decree of Ministry of State Owned Enterprises No. KEP100/MBU/2002 is employed to
test the validation. Overall, based on Exhibit 4 and 5, there was a slightly decrease in the total
score. It decreased slightly from 27,50 in 2014 to 24.00 in 2015 and a further increased to 26.50
In 2017. Next, the total score converted to the total weight by the calculation formula .The highest
weight score was 39.29 in 2014 with level B or consider as unwell financial condition. The lowest
weight score was 34.29 in 2015 with level B or consider as unwell financial condition.

Exhibit 4
Description 2014 Weight 2015 Weight 2016 Weight 2017 Weight 2018 Weight
ROI -7,62 1,00 -19,81 1,00 -11,85 1,00 -5,61 1,00 -4,25 1,00
ROE -17,66 0,00 -18,33 0,00 -9,81 0,00 -4,63 0,00 -4,15 0,00
Cash Ratio 16,75 3,00 9,05 1,00 21,64 3,00 21,28 3,00 10,84 2,00
Current Ratio 74,90 0,00 60,89 0,00 81,45 0,00 75,02 0,00 61,91 0,00
Collection
Period 49 5,00 63 5,00 53 5,00 48 5,00 42 5,00
Inventory Turn
Over period 87 5,00 90 5,00 113 5,00 130 5,00 112 5,00
Total Asset Turn
Over 177,64 4,50 73,93 3,00 73,10 3,00 78,21 3,50 96,63 4,00
Total Equity to
Total Asset 40,40 9,00 48,30 9,00 46,73 9,00 45,03 9,00 41,88 9,00
Total 27,50 Total 24,00 Total 26,00 Total 26,50 Total 26,00
 Exhibit 5

Total Total
Years Score Weight Weight Value Level Category
2014 27,50 70 39,29 30 < TS <=40 B Unwell
2015 24,00 70 34,29 30 < TS <=40 B Unwell
2016 26,00 70 37,14 30 < TS <=40 B Unwell
2017 26,50 70 37,86 30 < TS <=40 B Unwell
2018 26,00 70 37,14 30 < TS <=40 B Unwell

7. Limitation
This study has expanded the literature about financial performance in the real working world. In
near future, it is suggested to carry out research with many companies from oil and gas industry
to get more generalizes result. Since the focus is on one industry, it isworth to explore it on a
wider scale and find out if different company yields the same result. In addition, the study only
focuses on financial aspects. It is suggested to measure the financial performance of SEOs in
other aspects such as operational and administration.

8. Conclusion and Suggestion

The purpose of this research is to measure the financial performance of Iron and Steel Company
in Indonesia and to examine the significance differences between financial performance before
the decline in Iron and Steel production (2014 – 2018). The research found that the financial
performance of PT. Krakatau Steel (persero) Tbk. for five years period is relatively unwell financial
condition, although there was a decline in the production which forced the government to import
more iron and steel. In addition, two ratios have different significance such as current ratio and
return on equity in the period of before and after the decrease in iron and steel production.
Manager in PT. Krakatau Steel (persero) Tbk. should consider these factors when analyzing the
strategy and decision. This research also found that other ratios have insignificant differences on
financial performance in the period of before and after the decrease in Iron and Steel production
in Indonesia. They are cash ratio, total equity to total asset, return on investment, investment
turnover, collection period, and total asset turnover. This research has extent the knowledge in
the theory of financial ratio analysis from Iron and Steel industry. This is also beneficial for the
academicians and student to understand the financial ratio and help them to apply it into real
working life. In addition, this study gives huge contribution for managers before investor making
a decision.

To fixed and improving financial performance of lose for five years in a row, PT. Krakatau Steel
(persero) Tbk must do restructuring with the organization, portfolio and finance. Restructuring
must be done because the number of work units that exist today is too large and burdensome
operating costs for the company, the reduction in work units is certainly accompanied by a
reduction in the number of its workforce. In addition to these efforts, the company plans to develop
cooperation with business partners through its subsidiaries, also the company should to sell non-
core assets that are not directly related to the company's core business, such as land. Some of
the business transformation steps that will be carried out include restructuring the company's
debt, implementing operational excellence, divesting the company's shareholding in its subsidiary
companies, issuing convertible bonds, and issuing new shares (Rights Issue). To continue boost
the domestic steel sales volume accompanied by an increase in the target for exports of steel
products starting this year, especially now that Indonesia can freely export steel products to
Malaysia.

9. Reference

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Ministry of Trade Indonesia
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