CSL Limited – Annual Report 2016

Directors

As per the annual report of year 2016 there are nine independent directors in the company (Annual Report 2016, CSL Group).

Directors who belong to male category are seven and director who belong to female category are three (Annual Report 2016, CSL Group).

Qualification of Director 1: John Shine AO, B Sc (Hons.), PhD, DSc, FAA, FRCPA, FAHMS and his age is 70 years. Qualification of Director 2: Paul Perreault, BA Psychology, Age 59. Qualification of Director 3: Marie McDonald, BSc (Hons), Age 60 (Annual Report 2016, CSL Group).

Experience of these three directors is as under:

Director 1: John Shine AO: John Shine was appointed as director in June 2006 in CSL Group and he became chairman in October 2011. Currently he is professor of molecular biology and professor of medicine in university of NSW. Professor John Shine is also the chairman of the nomination committee and a member of Innovation and development committee (Annual Report 2016, CSL Group).

Director 2: Paul Perreault: Paul was appointed in this company in Feb 2013 and in July 2013 he has been moved to the position of Chief Executive officer and managing director in this company. As an experience Mr. Paul has also worked with Wyeth, Ceneteon, Aventis Bio-services and Aventis Behring (Annual Report 2016, CSL Group).

Director 3: Marie McDonald: She has been appointed as director in CSL Group in August 2013. She has been practiced in the company for many years as company and commercial law. She was also a partner of Ashurst until July 2014 (Annual Report 2016, CSL Group).

All these directors are not on other boards.

Current Profitability Level of the company

Profitability can be measured with various financial ratios and trends in these ratios help to know the profitability position of the company in last few years. In order to express view about the profitability position of the company, net profit margin and return on equity ratio has been calculated for last 5 years (Annual Report 2016, CSL Group).

Financial data for last five years
Particulars	2012	2013	2014	2015	2016
Net Revenue	$    4,444.00	$    5,358.00	$    5,663.00	$    7,108.00	$    7,958.00
Profit after tax	$        983.00	$    1,311.00	$    1,387.00	$    1,796.00	$    1,673.00
Shareholder’s Equity	$    3,428.00	$    3,242.00	$    3,357.00	$    3,577.00	$    3,457.00

Profitability Ratio	2012	2013	2014	2015	2016
Net Profit Margin	22.12%	24.47%	24.49%	25.27%	21.02%
Return on Equity	28.68%	40.44%	41.32%	50.21%	48.39%

(Annual Report 2016, CSL Group)

Looking at the net profit margin for last five years it can be analyzed that company has tried to maintain the net profit margin above 20 % which is the good sign for the company. The only problem that strike is that there is no stable increase in the profit margin of the company during these years. Return on equity provides the percentage of profit earned on the total shareholder’s fund. There has been incredible increase in the return on equity during last two years that shows company’s profitability position was sound and has been stable during last five years (Annual Report 2016, CSL Group).

Profitability

Financial data for last five years
Particulars	2012	2013	2014	2015	2016
Earning per share	$          1.972	$          2.429	$          2.701	$          2.923	$          2.689
Dividend Paid per share	$          0.865	$          1.020	$          1.130	$          1.240	$          1.260
Value of Shareholder’s Equity	$    3,428.00	$    3,242.00	$    3,357.00	$    3,577.00	$    3,457.00

CSL Limited has been consistent in paying the dividend to the equity shareholder’s. It can be seen through above chart and graph that company provide almost 50 % of EPS as the dividend to their shareholder’s in order to provide them with better returns (Annual Report 2016, CSL Group).

Looking at the equity portion of the company it can be said that there has not been major change in the value of equity during last few years. The value of equity has remained between $3,200 to $3,600 million AUD $.

There are many research and development project going in pipelines that are likely to be completed in near future. All these projects are important for the health and safety of peoples. All the research and developments projects can be seen in the below picture:

The main competitors of the CSL Limited are Baxter International Inc., Sanofi and Grifols SA (Hoovers, 2017). All these competitors provides the tough competition to the CSL Group and looking at this vast industry it can be said there is scope of vast improvements and it depends upon on how much companies invest in the research and development work. There have been many challenges in this industry as medical industry totally depends upon the success of research and development initiatives carried out by the company. Competitor of CSL Group are rising very fast due to vast emerging market in Australia (Annual Report 2016, CSL Group).

CSL aims to promote the diversity at the workplace through incorporating the culture values and retaining the top talent to have the competitive advantages. Company believes that peoples serve as the foundation stone for progress of any company. CSL also strongly promotes gender diversity and it can be seen through the composition of board of directors.  As the purpose of corporate governance company believes in code of responsible business practices, internal whistleblower, and Anti-Bribery and Anti-Corruption. CSL Group is strongly concern on the environmental issues and sorts them with priority. The main object of the company is to avoid any issues that are harming the environment due to working of the company (Annual Report 2016, CSL Group).

Spotless Group Holdings use operating leases for their offices with time-period of 1 month to 15 years and use finance leases for their equipment with time-period of 4 to 5 years (Spotless: Annual Report, 2016).

The long-term assets related to office facilities are taken with operating lease as it only involves the right from lessor to the company to use the assets for a specified period of time. The operating lease does not involve the risk of ownership and the lease expense is reflected as an operating expense and thus does not impact the balance sheet. The equipment are financed through financing lease as company have to not purchase the assets by themselves and they only hire the asset for an agreed period from leasing company who purchase the asset on the company behalf. It is done as buying equipments will involve a huge cost and thus the company instead selects the option of financing lease for equipments (Spotless: Annual Report, 2016).

Competitors

The assets held under finance leases are recognized at the lower than their fair value and re represent value of the minimum lease payments. The liability is represented as finance lease obligation in the statement of financial position of the company. The operating lease payments are stated as expense through the use of straight-line method over the lease term (Spotless: Annual Report, 2016).

Lease financing is regarded as a major source of gaining medium and long-term funds which involves providing an asset by the owner to other entity in return of periodical payments. The owner of asset is lessor and the user is known as lessee. The main advantage of lease financing is that lessor obtains higher rate of return and for the lessee it is regarded as one of the cost efficient type of financing. It also help in improving the economic growth as its potentiality of growth is much greater as compared with other type of business financing. The main disadvantage of this type of financing is that businesses are required to pay the lease rentals even of it is not using the asset (Qantas Annual Review 2016, 2016). 

The lease standard AASB 117 has been introduced in order to ensure that adequate accounting policies and standards are applied for disclosing the information related to leasing in the annual reports of business corporations. As per the standard, business corporation should properly account and provide appropriate information about the operating and finance leasing in its financial statements (Compiled AASB Standard: AASB 117, 2010).

Non-controlling interest (NCI) refers to the proportion of equity ownership in a subsidiary that does not belong to the parent company. The equity ownership under NCI is regarded greater than 50% but less than 100% (IFRS 10 and IAS 32, 2013).  The main objective of incorporating non-controlling interests as equity instrument by AASB is to ensure that shareholder’s does not possess the entire control of the company. As per AASB 10 standards, some type of instruments that impose obligations on the entity should be classified as equity instruments. This is, however, an exception with the AASB principles that are applied during classification of an instrument as equity or liability. The exception is done to separate a portion of equity from the control of shareholders of an entity (AASB Standard 10, 2013).

The term ‘Mezzanine financing’ refers to the type of funds that is regarded as mixture of equity and debt financing used by a business entity. These types of funds are used by a business to gain cash for a leveraged buyout or for corporate restructuring. The business entities that are not publicly traded often utilize the option of mezzanine financing as they do not possess access to public markets as a steady source of cash. It is represented in the equity section on the balance sheet of a company. The company gaining financing from mezzanine treatment should reflect its good track record with established product lines and brand image. This is done to ensure that company have good profitability and acquire credibility in the eyes of lenders for gaining mezzanine funds. The interest rate in this type of financing is usually higher and ranges from 12 to 20% and also lenders may acquire a significant portion of equity in the company that may later increase the investor rate of return (Bloomsbury Publishing, 2015).

The NCI’s classification in the consolidated financial statements would be useful for the parent company as they can retain a proportion of equity that does not belong to shareholders (AASB Standard 10, 2013). As such, the classification of NCI’s in the consolidated financial statement and mezzanine funds representation in the balance sheet would be beneficial for the investors to gain an appropriate evaluation and examination of the financial position of a company before taking decision relating to the investment (Bloomsbury Publishing, 2015). 

References

AASB Standard 10. 2013. Consolidated Financial Statements. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed on: 14 May 2017].

Annual Report 2016. CSL Group. [Online]. Available at: www.csl.com.au/docs/527/647/CSL_AR16_Sec,0.pdf [Accessed on: 14 May, 2017].

Bloomsbury Publishing. 2015. Financing and Raising Capital. Bloomsbury Publishing.

Compiled AASB Standard: AASB 117. 2010. [Online]. Available at: https://www.aasb.gov.au/admin/file/content102/c3/AASB117_07-04_ERDRjun10_07-09.pdf [Accessed on: 14 May 2017].

Hoovers. 2017. Top Competitors for CSL LIMITED. [Online]. Available at: https://www.hoovers.com/company-information/cs/competition.csl_limited.aeba17572070ef89.html [Accessed on: 14 May, 2017].

IFRS 10 and IAS 32 — Puttable instruments that are non-controlling interests. 2013. [Online]. Available at: https://www.iasplus.com/en/meeting-notes/ifrs-ic/2013/ifrs-interpretations-committee-meeting-16-17-july-2013/ifrs10-ias32 [Accessed on: 14 May 2017].

Qantas Annual Review 2016. 2016. [Online]. Available at: https://www.qantas.com/infodetail/about/corporateGovernance/2016AnnualReview.pdf [Accessed on: 14 May 2017].

Spotless: Annual Report. 2016. [Online]. Available at: https://www.spotless.com/docs/default-source/investors/spotless-annual-report-2016-web.pdf?sfvrsn=2 [Accessed on: 14 May 2017].