This report presents critical financial management information for CSL Limited. The report is divided into five sections focusing on different aspects of the company and its approach to financial management. The first section looks into the company and the industry in which it operates. The section also gives a brief overview of the company’s core business activities, including the products and services it engages in. The second section focuses on corporate governance practices. A focus is given to the size of the board, CEO duality, and other member boards. The third section focus on the company’s capital structure practices. In this section, the report presents the primary sources of capital, long-term financing sources, and debt management. The fourth section looks into capital expenditure practices and a brief overview of the company’s investment strategy and techniques. The last section focuses on distribution decisions relating to dividends findings.
Understanding the Firm and its Industry
CSL Limited (CSL) is a biotechnology company with a global outreach. It focuses on developing and delivering innovative medical-related solutions such as medicines that save lives and protect the general public health (Mornigstar, 2022). It also focuses on developing innovative medical solutions that can assist people with severe or dangerous medical health statuses to live a whole life. Besides designing and delivering innovative solutions, CSL Limited is also involved in the research and development, production, promotion, and supply of pharmaceutical and related products.
The company’s approach to business consists of two business models – Seqirus and CSL Behring. Seqirus is primarily invested in the prevention of influenza internationally (Yahoo Finance, 2019). Seqirus also partners with other companies and stakeholders in the preparedness for pandemics. On the other hand, CSL Behring is an international leader in the development and delivery of quality medical solutions targeting individuals with serious or rare conditions (CSL Limited, 2022). Moreover, it is involved in researching, developing, and marketing plasma products and plasma therapies. Both Seqirus and CSL Behring enjoy global outreach in more than 120 countries.
Towards the end of 2021, the company announced its decision to acquire Vifor Pharma Limited. Based on the notes from the company’s finance department, the acquisition was financed mainly by cash proceeds from the $4 billion 144A “Reg S” market. In April 2022, CSL Limited reported a Net Profit After Tax (NPAT) of $1,760.3 million during the half-year ended 31st December 2021 (Mornigstar, 2022). This was a 2.75% decrease from the previous year during the same period. The company’s revenues from ordinary activities were $5,807 million – a 4% increase from the prior year.
CSL Limited is governed by directors, a board of management, and substantial shareholders. The company’s Chief Executive Officer (CEO) is Mr. Paul Perreault. He exercises the CEO duality as he also serves as the company’s Executive Director and Managing Director. The board of management consists of nine members serving in different capacities, such as Executive Vice President (VP), Chief Finance Officer (CFO), Chief Operating Officer (COO), Chief Financial Officer (CFO), etc. (CSL Limited, 2022). The main objective of the company’s board and management team is to maintain high and sustainable standards relating to corporate governance through strategic planning, risk management, corporate responsibility, and transparency.
CSL Limited’s remuneration framework has changed over the years. The current structure was adopted in 2017. It has effectively incentivized and rewarded the company’s executives with meaningful equity levels (CSL, 2021). In 2021, the company reviewed the structure to align it with Total Reward Principles. The new structure increased the maximum STI to 200%. The structure also focuses on securing other benefits such as the LTI vesting period and mental health coverage for employees’ mental health conditions. The structure heavily borrows from the global remuneration framework. Therefore, it is based on market approaches that offer competitive rewards with a balance of both local and international perspectives. Compensation and bonuses are also based on performance with respect to role requirements and how individual people within the company perform. The current compensation structure is also based on the “equal pay for equal work” approach.
In 2022, CSL Limited decided to compensate Mr. Perreault with a fixed reward of 3% with a zero change to Short Term Incentives (STI) or Long-Term Incentives (LTI). This represented the only raise that Mr. Perreault has received since September 2015. The current CEO’s remuneration in the company is below the global industry median (CSL, 2021). However, the company board believes that Mr. Perreault’s total compensation may increase in the future with an opportunity for an STI increase from 180% to 240%. The current salary for other top executives was raised to a fixed reward. The company’s board and committee were also compensated based on the target opportunities in the future.
The company holds cash and cash equivalents mainly to meet short-term financial commitments rather than investing or using them for other purposes. This forms the company’s first financing option. The company’s cash and cash equivalents entail of cash at hand, investments in the money markets tools (with an original maturity of 6 months or fewer), and call deposits with banks (CSL, 2021). The financial instruments used by the company are readily exchangeable to certain cash amounts with an insignificant risk of change in value. With respect to the company’s cash flows, money at the end of the year is equivalent to the overdraft or borrowed amounts in the bank. Cash flows are illustrated on a gross basis. Cash flows mainly from investment and other funding happenings recoverable from or due to the tax authority are also treated as part of the company’s cash flows.
The company’s total debt amounts to $7.7 million. Long-term debts equal $7.09 million with 39% of the debt. When managing capital, the group aims to safeguard its “going concern” ability while availing returns to the company’s shareholders and other benefits to key stakeholders such as the board and employees. It also focuses on preserving a capital structure with the ability to reflect a sensible level of debt or associated funding (CSL, 2021). In that respect, the company aims to decrease the cost of capital without significantly upsetting the credit margins it applies to debt funding.
The company’s trade along with other payables represents amounts indicated as notional that are primarily payable to the providers for goods or services are given to the company before the close of the financial year (Mornigstar, 2022). With respect to CSL limited, trade and other receivables are non-interest-bearing leverages and are associated with the different terms of payment. Therefore, they are honored with thirty to sixty days.
CSL Limited has a wide range of capital expenditures associated with its financial position. The company’s recent financial report indicated that capital expenditure includes elements such as license agreements, payments for properties, equipment, or plants, and payments for intangible commitments. For the year ending 2021, the company’s commitment toward capital expenditure totaled $1,367.6 million (CSL, 2021). During this period, CSL Limited paid $1,206.8 as the corporate’s consolidated payments for property, equipment, and plant. The company also paid $160.8 as a commitment toward intangibles. According to the company’s financial report for the year ending 2021, other segment information relating to capital expenditure is not captured in the financial statements. This includes items such as leases and other trivial commitments incurred not later than one year or later than one but not later than five years—total commitments for this segment amount to $544.3.
In June 2020, CSL Limited acquired Vitaeris Inc. with 100% of the share capital. The upfront capital commitment towards the acquisition was $20 million. The acquisition was also accompanied by other contingent capital commitments subject to the development and achievement of the outlined milestones. During the end of the financial year ending 2021, the company made the final commitment of total purchase price accounting for the acquisition of Vitaeris Inc. This means that the acquisition of Vitaeris Inc. was provisionally accounted for on June 30th, 2020 (CSL, 2021). Details regarding the consideration of the purchase along with the finalized fair values of the net assets acquired together with goodwill during the date of purchase. The reasonable value of the total assets acquired totaled $298.8. After the purchase accounting was finalized, the prospects and probable timing applicable to the reliant payments have been attuned to mirror a final view of the probability and timing of costs based on the facts in existence at the time of acquisition. As a result, this increased the fair value of contingent contemplation along with the cost of intellectual property.
The company’s dividends are paid from retained earnings and profits of CSL Limited, which is the parent company of the group. During the financial year ending 2021, the parent company reported a profit of $106.1 million. The company’s retained earnings as of 30th June were $6,854.4 million. During the same period, $958.0 million was distributed to the shareholders in the form of dividends. A further $537.0 million was determined as dividends that were to be paid subsequent to the balance date. The company’s final ordinary dividend was $1.07 per share, unfranked, and was paid on 9th October 2020, for the financial year ending 2020. The company’s ordinary dividend was $1.04 and was paid on 1st April 2021 for the financial year ending 2021. The company’s final dividend for the year ending 2021 was $1.18 per share. This was based on the shares on issue at the date of reporting. The aggregate amount of the proposed dividends largely depends on the actual number of shares available to be issued at the dividend record date.
The distribution of dividends with respect to the 2021 financial year represented a $2.22 dividend paid during the same period for each ordinary share held by each shareholder. The company’s distribution of main and Diluted Earnings Per Share (EPS) was calculated using net or total profit for the year of $2,375.0 million. Diluted earnings per share differ from the basic earnings per share as the calculations considered the possible ordinary shares rising from the worker share structures wrought by the company. For CSL Limited, ordinary shares are categorized as equity. The increased costs directly ascribed to the allocation of new shares are shown in the form of equity along with the deductions and net tax from the company’s proceeds. When the company decides to take or reacquire its shares (such as through share buy-back), such shares are usually canceled. As a result, no gain or loss is recognized in the profit or loss along with the consideration rewarded to obtain the shares. This includes any straight attributable operation cost of net income taxes, which are directly recognized as a decrease in equity.
As a global company, CSL Limited has been successful in many aspects. Such include technology and innovation and the development of medical solutions. Success in these areas has been heavily supported by sound financial management that seeks to reward both shareholders and key stakeholders. With respect to shareholders, the company focuses on paid dividends at the end of the financial year. The dividends are often obtained from the company’s retained earnings. For key stakeholders such as executives, managers, and employees, compensation is based on total reward policies that consider various factors to determine the final pay. To a large extent, compensation policies are also based on the performance of each stakeholder. Critical company expenditure includes payments for leases, property, plant, equipment, and other intangibles. The company is also involved in additional capital expenditures such as acquisitions.
CSL. (2021). CSL Limited Annual Report 2020/21. CSL Limited.
CSL Limited. (2022). Corporate Governance. Retrieved from CSL: https://www.csl.com/our-company/corporate-governance
CSL Limited. (2022). Our Company: Driven by Our Promise. Retrieved from CSL Limited: https://www.csl.com/our-company
Mornigstar. (2022). Business Summary and Company Profile: CSL Limited – CSL. Morningstar.
Yahoo Finance. (2019, May 16). Why CSL Limited’s (ASX:CSL) CEO Pay Matters To You. Retrieved from Yahoo Finance: https://finance.yahoo.com/news/why-csl-limiteds-asx-csl-213315191.html