Dona Ferentes
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Sally Warneford, (analyst at Schroders): , .... I wrote my very first report on CSL back in 1994 for the IPO and the share price was $2.30 and the market cap was about $130 million. Since then, it split its shares three times. So, that share price was actually $0.77. Now, it's something like $270 and its market cap is something like $130 billion, which makes it about the 18th largest pharmaceutical company in the world. That's been an extraordinary journey and it's been an incredible performance by the company and the management team over time.
But if we have a look at the chart where the dark blue shows the share price performance, and it's been marking time for a number of years now. And then, the green line shows us the return, so the earnings before interest and tax that you get for the invested capital, which is the net assets plus the net debt.
Source: Schroders
You can see where they've made large capital raisings and acquisitions. For example, in 2000, they bought the Swiss Red Cross, and they raised equity then. And then, again in 2003-2004, they bought Aventis Behring, and they raised equity then. And then, going forward, it took another many years before they made another acquisition which was the flu vaccine business of Novartis in about 2015. So, you can see some step changes in returns when you have some new equity coming in or a loss-making new business. But that doesn't get away from that steady downwards trend in returns despite the great success of the flu vaccine business.
And this is where you're seeing the problem of being such a large company. New investments have come with large amounts of goodwill and also intangible assets in the form of intellectual property. So, it's getting a lot harder for CSL to grow. And people invest in CSL for its growth, and that growth is coming at a cost, and that cost is more acquisitions, more goodwill in the balance sheet and more intangible assets in the balance sheet. And CSL has to try and generate a meaningful return on those investments for shareholders in order to justify being the number 18 market cap pharmaceutical company in the world.
But if we have a look at the chart where the dark blue shows the share price performance, and it's been marking time for a number of years now. And then, the green line shows us the return, so the earnings before interest and tax that you get for the invested capital, which is the net assets plus the net debt.
Source: Schroders
You can see where they've made large capital raisings and acquisitions. For example, in 2000, they bought the Swiss Red Cross, and they raised equity then. And then, again in 2003-2004, they bought Aventis Behring, and they raised equity then. And then, going forward, it took another many years before they made another acquisition which was the flu vaccine business of Novartis in about 2015. So, you can see some step changes in returns when you have some new equity coming in or a loss-making new business. But that doesn't get away from that steady downwards trend in returns despite the great success of the flu vaccine business.
And this is where you're seeing the problem of being such a large company. New investments have come with large amounts of goodwill and also intangible assets in the form of intellectual property. So, it's getting a lot harder for CSL to grow. And people invest in CSL for its growth, and that growth is coming at a cost, and that cost is more acquisitions, more goodwill in the balance sheet and more intangible assets in the balance sheet. And CSL has to try and generate a meaningful return on those investments for shareholders in order to justify being the number 18 market cap pharmaceutical company in the world.