csl to rebound, page-18

FX rate movement turns tragedy into triumph for CSL

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Bryan Frith | August 20, 2009
Article from: The Australian

NOTHING, it seems, can halt the unstoppable CSL.

The US Federal Trade Commission may have put a dent in CSL's growth ambitions with its recent surprise decision to block the company's proposed $US3.1 billion ($3.97bn) purchase of Talecris Biotherapeutics, but it didn't hold it back operationally.

In fact, even there the stars were in alignment for CSL. The company had placed $US1.5bn on deposit in anticipation of FTC approval and during that time the Australian dollar fell against the greenback. When the funds were converted back to Aussie dollars after the transaction was blocked, CSL was up $156 million, which meant that instead of booking losses of $77m in relation to Talecris it actually made a profit of $79m on what was a failed deal.

CSL yesterday reported a 63 per cent jump in net profit to $1.15bn. After adjusting for the $79m gain on Talecris and a $47m relating to non-operational tax items, the underlying operational profit was $1.02bn, a gain of 45 per cent. On constant currency terms, removing the impact of foreign exchange movements, the result was still up 23 per cent.

Group revenue jumped 52 per cent to $5bn, and was up 16 per cent in constant currency terms. Operating cashflow rose 49 per cent to $1.03bn.

That's extraordinary given the economic crisis and the distractions of the Talecris exercise. CSL is one of a select few companies to have come through the GFC with a gain in 2009 profit.

It was better than the consensus forecast of $1.02bn. Analysts' forecasts ranged from $996m to $1.11b.

And the company expects to do even better this year. It's forecasting revenue of $5.2bn to $5.5bn and net profit in the range of $1.16bn to $1.26bn. That's based on the 2008-09 exchange rates. If the Australian dollar stays around US84c it will wipe around $90m off the profit forecast.

Talecris was to be the last piece in the jigsaw to complete CSL's drive to become a leading global producer of plasma products. CSL has now been denied the growth it would have achieved from the acquisition of Talecris, but that doesn't mean it won't continue with smaller, targeted purchases, probably concentrating on the acute care sphere.

CSL's acquisition strategy has always been more about getting bigger and better in the markets in which it has the most expertise, rather than diversifying into complementary areas.

But CSL's result and its forecasts also shows it is achieving organic growth. Moreover, the company has demonstrated an ability to grow by continuing to find new uses for its products.

The company invests heavily in R&D, expecting to spend $340m in the current year, and is set to wheel out new products around Christmas.

The 2009 result equated to earnings per share of $1.93, which was up 51 per cent. The underlying EPS was $1.71, up 34 per cent.

CSL has declared an unfranked final dividend of 40c a share, lifting the full year's payout from 46c a share to 70c, equal to 36 per cent of the reported profit.

CSL raised $1.9bn in August last year, through an institutional share placement and an SPP to retail holders, both at $36.75 a share, to help pay for the Talecris acquisition.

Those funds are surplus following the FTC rejection of the Talecris proposal, so in June CSL announced it would return about $1.6bn to shareholders, through the on-market buyback of up to 54.8 million shares, or 9 per cent of the capital. To date the company has bought back 8.5 million shares, or 15 per cent of the target, at a cost of $268m.

The 2010 profit forecast would generate EPS of $1.94 to $2.10 on the existing capital. Assuming completion of the buyback, EPS would increase to $2.09 to $2.27.

There's clearly scope for a further increase in dividend, or some other capital management benefit. Continuation of a 36 per cent payout ratio would indicate a dividend of 76c a share on existing capital and 80c a share assuming the buyback is completed.