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Great article in "The Australian" re CSL on the weekend.......

Blood, sweat and tears: how CSL went from
‘terrible’ to terrific over 25 years

Biotech CSL’s future was in doubt when it listed on the market 25 years ago but the “quiet
Australian” silenced its doubters to become a $110bn global company, amassing small fortunes for
local investors.
The company will mark 25 years since listing on Monday, when its remarkable success will be
recognised. It debuted on the Australian Securities Exchange at a price of $2.30, and while many
questioned its future, its young chief executive Brian McNamee was prepared to have a crack.
His global growth strategy has seen it become a $244 stock, making it the second-largest publicly
listed company in Australia. (This does not include BHP’s London-listed shares.)
Dr McNamee, who is now chairman of CSL, says a lot of “very decent” people who put their
money in CSL, probably not understanding what it did, had been well rewarded. A $1000
investment at listing would be worth $483,591 today.
“We have helped them create wealth for themselves and their family,” Dr McNamee says.
“Occasionally I get people come up to me and tell me they have brought their kids a house with
the money they have made from CSL.”
Upon listing, the company had 38,000 shareholders — approximately 70 per cent were private
investors, 20 per cent global institutions and 10 per cent Australian institutions. CSL now has
over 160,000 shareholders.
The company, originally the Commonwealth Serum Laboratories, has a long history. It was set up
by the Australian government on April 25, 1916, as the country was cut off from medical supplies
during World War I.
By SARAH-JANE TASKER, REPORTER
EXCLUSIVE
12:00AM OCTOBER 12, 2019 • H 24 COMMENTS
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In 1993, three years after Dr McNamee had taken the top job at CSL at the age of 33, the Keating
government said it would sell the company.
“They were going to chop us up and sell us off … Canberra thought we had no future,” Dr
McNamee says.
He pitched to the government to keep the company together — including its sprawling
Broadmeadows labs in Melbourne’s north — but get it out of government ownership.
“Arthur Andersen did a scoping study that said ‘this is a terrible organisation’ and it valued the
company at $23m,” Dr McNamee says.
He says the listing process was a mechanism by which the federal government could get the
funds back that it had paid to build a facility for CSL, which was not yet completed.
“The price was established to do that and the rest of the business was so close to worthless, it was
thrown in at the IPO,” Dr McNamee says.
“When people say it was obvious CSL would be a success, that is utterly incorrect. We were a -
typically under-scaled, low-tech, technology-dependent-on-others organisation.
“We had no export and we had a very limited future, except ambition. We refused to roll over
and be another company that essentially, for good or bad reasons, gets acquired as part of a
global roll-up.
“We were very determined not to see that happen without at least having an attempt to give us a
future.”
Dr McNamee says growth was uncertain at the time of listing, as was the future of CSL’s products.
“To some degree the commonwealth always wanted to get out of the sector because they were
fearful it wasn’t going to be very successful and they were completely unimpressed with the rest
of our business,” he says.
Dr McNamee added that what CSL had to offer the market to get its listing away was the “price
of freedom” to be released from government control.
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“The wise men of the market said although CSL was forecasting to make a few million dollars,
they wanted a 60 per cent payout,” he said.
“They said to me, to get this away, where no one really believes you have much of a future, we
have to actually pay a high yield. We were priced as a yield stock at the time of the float.
Internally, we called that the price of freedom.”
Brett Paton was working for Potter Warburg — which later went on to become UBS — when it
was hired to be the independent adviser to the commonwealth on the CSL float.
At the time of CSL’s listing, the government was going through a period of selling public assets.
Mr Paton says while Qantas was not listed until 1995, a public float had been contemplated
before that, which was aborted. Commonwealth Bank had also been listed around that time.
“CSL was interesting as it was relatively little compared to the ones that were contemplating an
IPO or had listed,” he says.
Mr Paton, former vice-chairman at UBS and Citi, says CSL was not a “must have” for investors at
the time. He added that prior to CSL’s listing, a company called Private Blood Bank suffered from
a product scare.
“Investors looked to CSL and said they didn’t know much about it but knew it involved blood
and the issues at Private Blood Bank had contaminated the investor thinking a little bit,” Mr
Paton says. Mr Paton, now the chairman of Escala Partners, says when CSL was to be listed, it
had new plant and equipment and the net tangible asset value was likely around $2 a share,
while the government was asking for $2.30.
“You were able to buy a company close to NTA. Most good industrial companies were quite often
at a multiple of NTA,” he says.
“For people who could see through the blood scare, CSL being a small company and the element
of risk, it was a good investment on basic fundamentals.”
Mr Paton adds that Dr McNamee and his management team took on a business that was heavily
dependent on one single government contract and diversified it through global expansion. CSL
now generates more than 90 per cent of its revenue from offshore.
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Dr McNamee says when he took the helm CSL’s mantra became about trying to have a future,
not just a past.
He says the company was good at celebrating its history, which he adds was a rich history.
“But the world moved by and it was left really as a redundant facility and business model,” Dr
McNamee says.
Mr Paton, who calls CSL the “quiet Australian”, says the biotech’s acquisition of plasma
therapeutics company Aventis Behring in 2003 was transformational for the company.
“There was a surplus of blood supply, the price of blood was coming down, CSL’s share price was
coming down, there were some big fund managers having to liquidate their positions … it was a
really challenging time,” Mr Paton says.
“In that environment, Brian took the bold step to make that acquisition and it was transforming.
He bought it for negative goodwill and years later they reversed that goodwill back through the
P&L.
“They were like the smartest private equity firm in the street. They were very good at M&A, very
disciplined at disposals and disciplined at capital management.”
Dr McNamee, who didn’t attend the ASX in Sydney 25 years ago for the official listing, says the
company has been “staggeringly successful” compared to what he and the team originally
thought.
He says his early view of success was whether the company could ever develop its own products
and internationalise them.
“We were not a group of ex-public servants, we were people who were very determined and very
competitive. We believed that we could create an organisation that could succeed,” he says.
“We at least tried to give ourselves a chance, and that is the whole premise of the IPO, giving us a
sustainable model that we might have a future.”
Mr Paton, who has been involved with CSL throughout its life as a public company, largely
credits Dr McNamee for the biotech’s success since listing.
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“If I did a straw poll of all the institutions I used to speak to, and still speak to, there is no doubt
that Brian would rank as the leading CEO of the last 25 to 30 years,” he says.
“Brian was laser-focused on execution and took no prisoners.
“He was not interested in entertaining a lot of investment banking proposals — he was very
much his own man and had his own research team.
“He has a strong bullshit detector.”
CSL’s share price might be one of the great stories of the ASX but Dr McNamee says he wasn’t a
CEO who watched the share price. He adds that people who watched the scoreboard did not
realise how to play the game.
“If you try to play the scoreboard, you miss opportunities to do really great things,” he says.
CSL, which now has more than 25,000 employees and sales in nearly 70 countries, has returned
$US7bn ($10.3bn) in cash to shareholders via share buybacks since listing. When it listed as a
small-cap, it had revenue of $193m. It recorded revenue of $US8.5bn in 2019.
CSL has also gone from a limited portfolio to a major R&D pipeline, with R&D spend of
$US832m in 2019.
Dr McNamee says to be successful, a management team has to have a clear view of how to be
competitive in the sectors it wants to lead in.
“I’m a great believer in narrow specialists, rather than broad conglomerates,” he says.
“You have a better chance of the entire organisation making insightful judgments when you are
superbly knowledgeable and have a clear understanding of what you are trying to achieve.”
He says when he started at CSL, he was trying to create a great Australian company but soon
dropped that from his mantra.
“We wanted to create a great company, not just an Australian company,” he says.
“If you are not global, you may as well put up your hand and say ‘I want to be bought’.
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“All Australian businesses are under-scale, so you better work out how you are going to work
with the scale problem and globalisation pressures, because you cannot survive on the domestic
market.”
SARAH-JANE TASKER, REPORTER
Sarah-Jane Tasker has been a journalist for more than 20 years, having started her career on
The Sunday Times in Perth. Her previous roles include deputy editor of the Kalgoorlie Miner
in regional Western Austr... Read more