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I. Objective Currently Krakatau Steel has been claimed as the biggest steel company in Indonesia. Even all Indonesia citizens presumes Krakatau Steel as one of the valuable asset of Indonesia. However being the biggest local steel company is not enough. Going global is another step that Krakatau Steel must take. Having corporation with POSCO, the biggest steel company in South Korea to make a joint venture which required 388 hectares land, has shown that Krakatau Steel is ready to go to the next level. Therefore Anto, a finance analyst in PT. Krakatau Steel, would like to see the position and the opportunity of PT. Krakatau Steel to compete with other global steel company. This assessment will also be used as a mean to find an appropriate company as a benchmark.
II. Analysis To asses PT. Krakatau Steels position and opportunity in global competence, we use two local companies, PT Gunawan Dianjaya Steel and PT Jaya Pari Steel, and three global steel companies from different region in the world, which are Arcelor Mittal (Luxembourg), POSCO (Pohang Iron and steel Company, South Korea), and U.S. Steel (United States Steel Company). In Moodys assessment, financial statement of 2008, 2009, and 2010 are used. Some of the ratios in Moddys Global Steel measurement are using data of three years while other ratios only use the data of 2010. Below are the key rating factors including the weight score of each category:
Rating factors / sub-factors weighting Categories Broad rating Factor Weighting Rating Sub-factor Weighting
Factor
35%
2. Operational Diversity 3. Regional Diversity 4. Import Threat / Export Reliant 1. EBIT Margin
25%
2. Return on Average Tangible Assets 3. Volatility based on the Coefficient of Variation of CFO/NET Sales
25%
1. Debt / Capital 2. Debt / EBITDA 1. EBIT / Interest 2. CFO-div / Debt 3. FCF / Debt
15%
Listed below are formulas for calcutating Broad Rating Factor : 1. Size and Business Profile Net Consolidated Sales ($USD billion) number is derived from the last revenue data. Operational Diversity, Regional Diversity, Import Threat/Export Reliant value are available in exhibit 2. 2. Operating Performance and Volatility EBIT Margin = Return on Average Tangible Assets =
First, we compute value of each sub-factor and determine what rating from the result of computing value. Below are the results of value calculation and what rating they are in each of the value according to Moodys criterion:
Broad Rating Categories Factor Sub-factor 1. Net Consolidated Sales ($USD bilion) 2. Operational Diversity 3. Regional Diversity 4. Import Threat 1. EBIT Margin 2. Return on Average Tangible Asset Value 1.74 Rating B Value 0.20 Rating Caa Value 0.50 Rating Caa Value 53.43 Rating Aaa Value 78.03 Rating Aaa Value 17.37 Rating Aaa Rating Krakatau Steel Gunawan Diandjaya Steel Jaya Pari Steel POSCHO Arcelor Mittal U.S Steel
5 6.20% 7.22%
A Ba Baa
3 9.70% 15.01%
Baa Baa Aa
2 10.65% 13.38%
Ba Baa A
7 11.93% 12.11%
Aa Baa A
7 5.50% 4.12%
Aa Ba Ba
6 2.49% 2.82%
A B Ba
Operating Performance 3. Volatility based on the and Volatility Coefficient of Variation of CFO/Net Sales Financial Policies Financial Strength 1. Debt/Capital 2. Debt/EBITDA 1. EBIT/Interest 2. CFO-Div/Debt 3. FCF/Debt
A Ba Caa Ba Ba B
After that we substitute rating appropriately with its own value, like the table below:
Aaa 6 Aa 5 A 4 Baa 3 Ba 2 B 1 Caa 0
After we know each rating value, we compute the weighted sub-factor with its own weight and also compute total score each of steel company, the results is shown below:
Rating Sub-factor
Krakatau Steel
POSCHO
Arcelor Mittal
U.S Steel
Value Rating Value Rating Value Rating Value Rating Value Rating Value Rating 1 4 2 3 4 3 0 2 0 0 0.25 0.40 0.20 0.15 0.40 0.45 0.00 0.10 0.00 0.00 1.95 Ba2 0 3 3 5 0 3 3 1 0 3 0.00 0.30 0.30 0.25 0.00 0.45 0.30 0.05 0.00 0.15 1.80 Ba3 0.00 2 3 4 0 5 3 6 5 6 0.00 0.20 0.30 0.20 0.00 0.75 0.30 0.30 0.25 0.30 2.60 Baa3 6 5 3 4 1 3 3 5 2 3 1.50 0.50 0.30 0.20 0.10 0.45 0.30 0.25 0.10 0.15 3.85 A2 6 5 2 2 4 2 0 2 2 1 1.50 0.50 0.20 0.10 0.40 0.30 0.00 0.10 0.10 0.05 3.25 Baa2 6 4 1 2 0 2 0 1 0 0 1.50 0.40 0.10 0.10 0.00 0.30 0.00 0.05 0.00 0.00 2.45 Ba1
3 4
1. Net Consolidated Sales ($USD bilion) 2. Operational Diversity 3. Regional Diversity 4. Import Threat 1. EBIT Margin 2. Return on Average Operating Tangible Asset Performance 3. Volatility based on the and Volatility Coefficient of Variation of CFO/Net Sales Financial 1. Debt/Capital Policies 2. Debt/EBITDA 1. EBIT/Interest Financial 2. CFO-Div/Debt Strength 3. FCF/Debt Total Rating
1. Operating Performa and Volatility 2. Financial Policies 3. Financial Strength 4. Size and Business Profile