CSL is a multinational biotechnology company engaged in manufacturing, marketing, research and development of medical products to cure and heal serious health ailments. The COMMON WEALTH SERUM LABORATORIES established in 1916 for manufacturing of vaccines. The product range of the company is inclusive of various vaccines, antivenom, cell culture reagents and blood plasma derivatives used for the purpose of manufacturing applications and genetic and medical research (Zack, 2013). The headquarters of the company in Parkville, Victoria situated in the inner suburb of Melbourne. At present, the company is having more than 16000 employees operating in more than 30 countries. It is a public company, and the stocks are traded on the Australian Securities Exchange, and also a part of S&P/ASX 50 Index with the stock code is CSL.
CSL is a leading manufacturer in plasma industry with the worth of US$24 billion. The key to future growth is their continuous focus on innovation; manufacturing know-how and improving products. The important achievements or activities of CSL are the production of insulin, tetanus vaccine, other combined vaccines like diphtheria, tetanus and whooping cough, polio vaccine, multi-purpose animal vaccine, production of Rhesus (D), heat treatment to protect from HIV and world’s first human papillomavirus vaccine.
CSL established in Melbourne is the biggest biotechnology player of Australia and presently the fourth largest biotechnical enterprise in the world on the basis of sales and also has a market capitalization of approximately $20 billion. Significant expertise areas of CSL are inclusive of vaccines, products of blood plasma, recombinant biotechnology and antibodies.
CSL serves products of plasma and recombinant worldwide. With the help of CSL Plasma, the company operates the largest collection of plasma networks. CSL Behring is considered to be the most preferred plasma fractionators among Australia, Hong Kong, New Zealand, Singapore, Malaysia and Taiwan.
In 2015 July, biotech CSL and Novartis influenza vaccines combined together in order to construct Seqirus. Seqirus is the 2nd largest seller of influenza vaccine having operations in maximum 20 countries in the United States$ billion international industry (Lovell, 2014). It is the provider of a varied portfolio of product having the strong plague and are epidemic managers and franchisees and the largest manufacturing networks of influenza vaccine with sales on over three continents that are Australia, Europe and North America. Also, it provides influenza vaccines all around the world. It produces, distributes and sells a wide range of antivenoms vaccines and products of pharmaceutical in New Zealand and Australia
CSL Limited is considered to be a growing business as it is the only one listed among top 20 as traditional growth stock industry. The number of CSL retail investor has increased from 10000 to 130000 over last five years (Annual report of CSL, 2017). CSL is one of the high priced major drug company stocks in the world. CSL became a world largest and leading plasma company from a small plasma plant due to their major contribution of Brian McNamee (CEO) (Zhuang, 2016). In present financial year, the company had increased their operating profits by 12% and attained growth of 22% in sales over the past two which is comparatively 14% higher than the industry as a whole. CSL’s largest competitor is Baxter who had to close its Los Angeles fractionating facility because of supply bottleneck.
Table 1: Key financial ratios of CSL health care
|
2016 |
2015 |
2014 |
||||
|
CSL |
Baxter |
CSL |
Baxter |
CSL |
Baxter |
|
|
Net margin ratio |
20.15% |
48.85% |
19.54% |
9.71% |
18.53% |
14.98% |
|
Return on assets |
18.07% |
27.19% |
23.94% |
4.13% |
21.17% |
9.64% |
|
Return on invested capital |
24.38% |
38.06% |
30.93% |
6.61% |
27.19% |
14.91% |
|
Asset Turnover |
.86 |
.56 |
.95 |
.43 |
.86 |
.64 |
However, efficiency of company has been reduced despite of increased profit. Further, Baxter had attained significant growth in terms of revenue, net profit and return on invested capital which can create threat of competition for CSL. Although, this fact can be compensated with the available opportunities in the market and synergy benefits in terms of operational efficiency. It is because; company is having various growth prospects as Australia is considered to be leading location of Biotechnology among Asia Pacific region and having 6th rank regarding largest biotechnology industry (Seay, 2014). This approach provides expansion opportunity to the company as they have favourable currency exchange rates, proximity to emerging markets and a booming economy. In this aspect, Annual report of CSL, 2017 shows their expansion project for future growth and success. In this aspect accounting provisions of AASB110 for events after reporting period has been considered to report significant accounting transactions occurred after completion of reporting period but prior to publish of annual report. In addition to this, they are having the benefit of synergy through which they are able to maintain their leading position in the market.
In accordance with the annual report of the company, consolidated financial statements are prepared on the basis of consistent accounting policies supported by Australian Accounting framework having same reporting period. While preparing financial statements, various estimations and judgements are made by management and disclosure of the same is provided in notes to accounts in an appropriate manner (Isberg & Pitta, 2013). The Group has implemented some amendments and standards on the basis of provisions of AASB 108 – Accounting Policies, Changes in Accounting Estimates and Errors. These changes don’t effect of accounting policies and neither had they needed any of the restatement.
New and reviewed standards of accounting presented by the AASB that are assessed appropriate to the Group, but same are not said to be effective. The group not even finished its consideration of influences of new and revised standards. Valid to the Group for 30th 2019 year end changes are related to AASB 9 financial instruments, AASB 15 contractual revenue with customers’ and IFRS 2- sorting and measurement payments regarding share transactions (Rahman, 2013). Further, Valid to the Group for 30th June 2020 year end changes are related to AASB 16 standard of leasing. Appropriate disclosure and impact of the change have been provided by the company.
Carrying amount of each class of property, plant and equipment
Figure 1: Carrying amount of each class of property, plant and equipment
(Source: Annual report of CSL, 2017)
Capital, land in working progress and assets like property and equipment are recongnised at historical cost less amortisation and depreciation as per applicability by considering provisions of AASB116 for Plant property and equipment. Depreciation is based on straight line method over the following estimated asset life:
|
Buildings |
5-40 years |
|
Plant and equipment |
3-15 years |
|
Leasehold improvements |
5-10 years |
The lasting or scrap value of assets and their useful life are reassessed and adjusted if valid at each date of reporting. Property items, equipment and plants are neither longer applicable for disposal, nor added benefits of the economy are estimated from their disposal or use.
Evaluation of assets regarding impairments takes place if there is the identification of impairment triggers (Adibah Wan Ismail and et al., 2013). In the current year, there is actually no impairment triggering. Profits and loss on the asset disposals are identified by making a comparison between proceeds and amount carrying and are inclusive in comprehensive income statements during realisation.
Holy spring facility’s 40% obtained with the business of Novartis Influenza and is legally authorized by the Government of United States. The complete permissible title will be transferred to CSL after the full achievement of the last Closeout Technical Report, predicted in upcoming 3 to 5 years (Annual report of CSL, 2017). CSL contains total manipulation of assets, and 100% value of the facility is inclusive in the combined financial statements.
Building, plants and equipment leases in which the group as a lessee has considerably rewards, as well as risks of the ownership, are considered as financial leases. A financial lease is said to be capitalised at the inception of the lease of the cited property at the fair value. Further, in case if it is less than the current value of the lowest lease payments. Net financial charges, related obligations of rent are inclusive in bearing of interest liabilities and debts. Each of the payment of lease is allotted with in the financial costs and liabilities (Li, Sougiannis & Wang, 2017). The financial costs were charged to the comprehensive income statement on the leasing period in order to generate a perpetual interest periodical rate upon the remaining balance of the obligation for each accounting period. Assets obtained beneath financial leases are depreciated over the shorter-term estimated useful life and the terms of leases of assets. Amortizations are done so as to improve the costs of leasehold properties over the terminated period of leases or the predicted period of life of improvements selecting which has a minimum level.
Figure 2 Intangibles reported by the company
(Source: Annual report of CSL, 2017)
Intellectual property:
In accordance with the provisions of AASB 138 for the intangible assets, Intellectual property obtains particularly, or business merger is primarily evaluated at cost, i.e. on the fair value of acquisition date. By following primary recognition, it can be carried at fewer costs of any impairments and amortizations (Camfferman & Zeff, 2015). Intellectual property carrying fair value $31.6m was obtained along with vaccine business of Novartis Influenza. Intellectual property relating to the technology of adjuvant is utilized in the generation of a vaccine called Seqirus’ adjuvanted influenza and is also authorized to the third party. Every intellectual property has its own limited life.
Purchased consideration of acquired business is determined on the basis of fair value method to identify net assets minus subsidiary expenses are referred as goodwill. With reference to provisions of AASB 138 for the intangible assets allocation of goodwill is done at each cash generating unit as the business units that shows the minimum level in the Group by which there will be monitoring of goodwill likely to be benefitted from the merger (Weil, Schipper & Francis, 2013). The aggregate driving goodwill amounts are allocated to the business unit is mentioned as below: Amortization of goodwill is not there while it is evaluated at less cost at any added losses of impairment. Impairment takes place if there is a unit of business recovery amount declines under the carrying worth of net assets.
Assets containing limited life are liable to amortization and are reassessed for impairments on any event or change in certain circumstances indicating the carrying amount that is unrecoverable (Annual report of CSL, 2017). Intangibles having imprecise useful life inclusive of goodwill are liable to amortization and are examined yearly for impairments or on a regular basis if events or change in certain circumstances is indicating impairments (Christodoulou, Clubb & Mcleay, 2016). The loss in impairments can be recognized in the comprehensive income statement by the amount on which carrying asset is recorded if it is exceeding its recovery amount. In the case where recovery value of assets is comparatively higher than its fair value then costs to sell and value in use is considered. Purposely for considering impairments, assets are classified separately at the minimum levels.
The procedure of impairments needs management to formulate considerable judgement and decisions. By making identification either the goodwill is impaired or not, needs a prediction of recovery amount regarding units of cash-generating by making use of inexpensive cash flow method (Annual report of CSL, 2017). This measurement utilizes projections of cash flow on the basis of budgets of operations and strategic plan of three years, the further terminal value is considered according to the viewpoint of management of long-term of business growth profile (Schaltegger & Zvezdov, 2015). Cash flows are discounted by using an indirect pre tax rate of discount of 8.9% that can be evaluated with respect to views of outer analyst and longer term bond rates of government also the pre-tax debt costs of the company. In subject to an imprecise life of intangibles , there is need of prediction of cash inflows that are discounted and are produced by the sale or use of intangibles.
Conclusion
In accordance with the present study, conclusion can be drawn that CSL Limited is leading company in the global biotechnology industry. Further, the company is performing financially and ethically well to provide commendable returns to stakeholders. The study shows that company had complied with the relevant accounting standards and had provided justified disclosure for accounting practices in the annual report. Further; company is recommended to show impact of each amended standard on operational activities to provide better understanding of financial statements. In addition to this, they are required to closely monitor performance of their competitors to ensure their operational efficiency in order to maintain leading position. With this approach they will be able to survive long term in market with effective growth and sustainability.
References
Books and Journals
Adibah Wan Ismail, W., Anuar Kamarudin, K., van Zijl, T., & Dunstan, K. (2013). Earnings quality and the adoption of IFRS-based accounting standards: Evidence from an emerging market. Asian Review of Accounting, 21(1), 53-73.
Camfferman, K., & Zeff, S. A. (2015). Aiming for global accounting standards: the International Accounting Standards Board, 2001-2011. Oxford University Press, USA.
Christodoulou, D., Clubb, C., & Mcleay, S. (2016). A structural accounting framework for estimating the expected rate of return on equity. Abacus, 52(1), 176-210.
Isberg, S., & Pitta, D. (2013). Using financial analysis to assess brand equity. Journal of Product & Brand Management, 22(1), 65-78.
Li, S., Sougiannis, T., & Wang, I. (2017). Mandatory IFRS Adoption and the Usefulness of Accounting Information in Predicting Future Earnings and Cash Flows.
Lovell, H. (2014). Climate change, markets and standards: the case of financial accounting. Economy and Society, 43(2), 260-284.
Rahman, A. R. (2013). The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. Routledge.
Schaltegger, S., & Zvezdov, D. (2015). Expanding material flow cost accounting. Framework, review and potentials. Journal of Cleaner Production, 108, 1333-1341.
Seay, S. S. (2014). The economic impact of IFRS-a financial analysis perspective. Academy of Accounting and Financial Studies Journal, 18(2), 119.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
Zack, G. M. (2013). Financial Statement Analysis. Financial Statement Fraud: Strategies for Detection and Investigation, 209-213.
Zhuang, Z. (2016). Discussion of ‘An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136’. Accounting & Finance, 56(1), 289-294.
Online
Annual report of CSL. (2016). [PDF]. Available through < https://www.csl.com.au/docs/580/987/CSL_AR16_Fins_Sec.pdf>. [Accessed on 4th September].
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