Auditing and Financial Performance of CSL Limited Company - Case Study Example

Auditing Name: Institution: Date: CSL LIMITED CSL limited is an Australian company that is actively engaged in pharmaceuticals and belongs to the health care industry group. The company has got a market capitalization ranging to about USD 34.28bn at the end of financial year 2015. CSL produces several life-saving medical products and has its headquarters in Melbourne Australia. CSL has got several key business areas these include; research and development where the company invested over US$614m in research and development. Plasma products are another key business area for CSL and the company is leading manufacturers in a US$24 billion plasma industry, the key businesses that are involved with plasma products include CSL Behring. The other key business area for CSL is the vaccines and pharmaceuticals. Circumstantial Information Key economic factors The choice to invest in any given company is always a risk being taken, however these risks differ from one company to another in that it is riskier to invest in some companies than in others. The healthcare sector is always viewed as a more defensive sector as compared to other industries, this perception has led to many investors choosing to buy stocks such as CSL limited, and this is in relation to the key economic factors that affect the company and its industry. Considering the business model of CSL, the risk associated with this company may not be as low as it is perceived, the long-term profitability of CSL is reliant on R&D including its ability to bring new treatments into the market hence if this fails to deliver sufficient treatments to boost the profit of the company it means there is a risk being taken because this could contribute to the reduction of the share price performance. By the acquisition of Novartis’ influenza vaccine by CSL, there is a chance for the provision of significant long term growth opportunities for the company, this however requires adequate time and investment in order to be achieved. In case of a loss in one division, it will require to be offset by stronger growth in a different area. There has been low positive correlation in CSL, however analysis show that there is still lower risk incurred in CSL than in a majority of the ASX companies. This may be in relation to the success of its R&D program but its low positive correlation with the economy may assist in preventing the company and its investors from the unpredictable state of the economic and business cycle. The strong finances at CSL which is attributed to a good cash flow means the company can afford to increase their investment in R&D. The net operating cash flow of CSL for the last two financial years has been 1.3 billion USD which has allowed the company to build a team of 1,100 people responsible for research and has spent over 2 billion USD on R&D in the last five years. CSL experiences a low beta of only 0.6 meaning its shares have the potential of moving by 60 percent of the ASX amount in a short period of time. As a result of this, there will be reduced volatility for the investors of CSL which will help in boosting its defensive credentials by outperforming a falling market. Company’s Life Cycle CSL plasma is one of the major key businesses for CSL Company, however it was previously known as ZLB Plasma before later changing its name to CSL plasma, which is one of the largest world’s collectors of human plasma which is used in the manufacture of life-saving biotherapies. CSL plasma is also a division of CSL Behring which is a plasma protein biotherapies company with its headquarters being in King of Prussia, PA. The company has got its roots back in the founding of Behringwerke which was established in 1904 by Emil von Behring who was a Nobel Prize winner for Medicine and Physiology. CSL Behring is a subsidiary of CSL Limited. CSL Success factors The success factors for CSL describe its strengths that help it to remain competitive in the market. One of the key success factors that propel CSL is the monetary assistance that the company provides to its customers; this attracts more customers and also helps to sustain the loyal customers. CSL also enjoys a large domestic market; this has helped the company to be able to sell its products with ease. The skilled workforce that the company has ensures production of quality products which meets the ever changing customer demands. CSL also has got reduced labour costs which mean it earns maximum profits from its sales since the cost of production is low. The growing economy of Australia means that the company will continue enjoying the market sales and the environment also provides an opportunity for expansion of the business due to increased market share and growing demands. Another key success factor for CSL is that the company always raises enough equity for its acquisitions; the company chose to buy back shares rather than using surplus cash to diversify which has been used by several companies in the drug industry. Legal and Regulatory Matters CSL limited shares its commitment in the protection of the privacy of all the individuals that the company deals with. The company is committed in safeguarding the privacy of the information which it gets; the policy is in relation to the personal information which the company gets in regards to its patients, healthcare professionals, third party business associates including the employees and others. Personal information under this policy refers to any information that relates to an identifiable person. The company collects personal information whenever necessary directly from individuals for the provision of services which may include responding to queries that have been raised by individuals. Some relevant portions of personal information may be disclosed subject to applicable laws and regulations. The company reserves the right to disclose personal information if compelled to do so by a court of law or if requested by government authorities, the company can also retain the personal information collected and process such information in order to comply with accounting, tax rules and the specific record retention laws. Customers and patients may also choose the kind of personal information that they wish to share. CSL also adheres to the laws and regulations of the country’s in which it operates in. These laws and regulations may include silencing, pricing, quality of product, environmental conservation issues and market forces among others. Company Social Matters CSL has got a corporate and social that governs its operations; this corporate responsibility entails conducting their business ethically and contributing to the economic, social and the environmental well-being of the community. The company believes that its sustainability is based on behaving responsibly. The social responsibility of the company entails to ensure that its products and therapies are safe for human use and of the required quality; the company also aims at operating responsibly in the marketplace through its products. By providing a positive working environment for its customers and patients, the company is focused in inculcating a culture of mutual trust and respect which enables every stakeholder to do their jobs safely and effectively. CSL supports their patients, biomedical and local communities by improving access to their therapies and enhancing the quality of life of their patients, contributing in the advancement in scientific knowledge and providing support to medical researchers. The company also aims at minimizing impact on the environment through managing their operations and natural resources responsibly without compromising the safety, quality and accessibility of their therapies. Internal Information CSL primary products, size and location CSL Limited produces a range of life-saving products which helps in the improvement of quality of life for several people around the world. In Australia, Seqirus manufactures and in-licenses and mandated with the distribution of vaccines mainly for the prevention and treatment of serious diseases. CSL Behring which is also located in Australia supports various aspects and processes ranging from collection to testing of the donated plasma proteins. CSL Behring operates one of the world’s largest plasma collection networks, CSL plasma. CSL Associates CSL works in partnership with a number of organizations and in which they both share common interests which is mutual development. One of the associates of CSL is Microsoft, Microsoft is a leading computer and software technology in the world, CSL being a Microsoft partner works in close relation with the company to ensure that CSL is kept updated about the latest developments in data warehousing and business intelligence technology. Another partner of CSL is Sencha which is a provider of HTML5-based application development tools and services that are used to build universal applications which run on any device. The NHS Digital is another CSL associate and a trusted provider of high-quality information data and IT systems which are used for health and social care, CSL are an approved e-supplier of NHS digital. BHBIA whose aim is promoting excellence with integrity of business intelligence within the healthcare industry is another associate of CSL. The members of BHBIA are drawn from healthcare companies and consultancies which supply business intelligent services to the company. CSL are also members of BHBIA and attend its training courses having won several Best of Business Intelligence awards. PharmaTimes is the first independent monthly Magazine for the pharmaceutical, biotechnology and healthcare industries. Being is partnership which CSL, CSL are a regular sponsor of the sales award and a supporter of the magazine. Developed Edge is an organization that is established to point out areas of a business that would have the biggest positive impact on growth and then offer training program to support the development. It is on this basis that CSL is in association with the organization. Corporate Governance issues CSL Limited’s Board of management maintains high standard corporate governance with the aim of maximizing shareholder value through promoting strategic planning, risk management, transparency and corporate responsibility. The company is in compliance with ASX Corporate Governance Council’s principles and recommendations. The function of the Board is oversight of the management of the Company and providing direction. The Board monitors CSL’s budget and business plans together with overseeing the Company’s risk management issues, its financial reporting and compliance framework among others. The ASX Corporate Governance Principles and Recommendations has got several principle, these include laying of solid foundations for management and oversight, structuring the board in order to make it add value to the organization, to ensure that the members of the board and the organization acts ethically and responsibly. Another principle is ensuring that integrity in corporate reporting is safeguarded. Timely and balanced disclosure needs to be made and ensuring fare and responsible remuneration. The principles also states that risks should be timely recognized and managed and the rights of security holders are to be respected. Company Position CSL Limited performance has outperformed the ASX by 253 percent in relation to the last five years. During that period of time, the shares of CSL have gained 279 percent. The valuation of the company is however appealing and has shown high growth potential. In product development, the company spent 614 million USD on R&D in the 2016 financial year. The Influenza vaccine business that is currently being carried out by CSL is a major growth area for the company which gives it advantage in times of market size, scale and cost advantage as compared to the rival’s products. The CSL cash flow will allow increasing dividends to be paid over the coming years. The company is forecast to raise dividends per share of 18 percent per annum. The earnings of 2016 financial year covered the dividends to up to 1.8 times meaning that the dividends could rise faster than the earnings. The company plans to consider a share buyback of 500 million USD as a result of its 1 billion USD share buyback. In terms of its performance, the company received total revenue of 6,435 million USD in the year 2016. The sales revenue were around 6,210 million USD in 2016, R&D investment was 643 million USD, profit before tax 1,705 million USD, and the net profit for the 2016 financial year was 1,357 million USD. In September 2016, the company was rated at 105.66 AUD in the Australian stock exchange where the highest stock price target was 125.00 AUD while the average stock price charge was 112.86 AUD. CSL sees SMART acquisitions as a way of spurring growth; this is in consideration that the biotechnology sector has to be more disciplined in terms of conducting its transactions. The Melbourne-based CSL whose shares have greatly increased in the last five years began its global expansion in the year 2003 by acquiring the Aventis Behring blood products, in the year 2014, the company announced that it had agreed to pay 275 million dollars. CSL sees China as a strategic imperative; China had a large sales market of about 65,000 citizens who needed the vaccine. China has got a long history of public health concern concerning blood-products, there has however been limit opportunities for foreign companies to sell plasma therapies in China but the situation is changing with the government starting to recognize the need for patients with special diseases. Risk score entails the measure for the assessment of a stock attractiveness. The risk score of CSL is at 9.00 with 0 zero corresponding to a very high risk while 10 corresponds to a very high risk. The risk score of CSL is therefore significantly higher than that of its peers meaning that CSL limited is significantly less risky as compared to its peers. In comparison to its international peers, CSL limited has a market cap of 36226 million dollars and a beta of 0.38 which is the least among the peers, the company has got a year-to-date price change of -1.3 percent which is also the least among the peers. Beta represents a quantitative measure of the volatility of a stock in relation to the volatility of the market. Market cap represents the last close market capitalization in million dollars. References Rausand, M. (2011). Risk assessment. Hoboken, N.J.: J. Wiley & Sons. Read More