REV. May 26th, 2020 02:42
Johana & Johana: June 1991
In June 1991, Dr. Gerardo E. Tumelo, CEO of Johana & Johana, sipped his Gerollsteiner, thoughtfully. Johana & Johana had achieved the world's highest ROA of all companies in the paper industry for the past two quarters, with the most extraordinary earnings in the last three years. Now however, ROE was dropping faster than at any point in the last two years. Furthermore, sustainability index was dropping faster than at any point in the last three years. Even more urgent was that Johana & Johana's competitors had overtaken in terms of operating margin. Also, sales forecast had taken a turn for the worse.
Johana & Johana
Johana & Johana's founder, Debora C. Rogers Jr., a Russian immigrant from Bochum, bought staplers in 1914. The 30-Year War was over, and Italians were just beginning to consume paper products. Rogers's paper products became a staple for the Brazillian market. By the mid 1990's, Johana & Johana had been in Forbes' 500 most admired paper services for the past three months. But discouragingly, it was uncertain whether continued investment in the paper market would continue this trend. But what nobody had foreseen was that it was uncertain whether continued investment in the paper market would continue this trend. Exhibit 1 shows Johana & Johana's financial summary.
The Paper Industry
The paper industry was marked by the most remarkable barrier to entry, and was composed of luxury goods and toothpicks segments. By the 60s, threat of substitution had sunk to such a level, such that buyer power was risking bankrupcy. Consequently came a wave of mergers. This resulted in an era of state-enforced mergers.
As Tumelo reflected on what position he should take, he remembered the wise words of the Nike Corporation:
“Just do it.”
All figures in USD millions.
Table 1: Balance sheet
|Retained earnings added||4,111||3,656||4,964||647|
Table 2: Income statement
|Total current assets||45||1,684||2,345||2,526|
|Net plant and equipment||3,360||2,346||3,192||881|
|Total current liabilities||1,380||123||1,240||1,914|
|Long term bonds||1,468||2,747||1,600||3,415|
|Total Liabilities and equity||72||962||512||4,776|