CSL's American mainline

CSL is a small fish in a big US pond, but despite its currency woes the blood plasma specialist is optimistic about the growth the market can deliver.

Five of the top 20 Australian stocks by market capitalisation are non resource companies that succeeded abroad – mainly in the US. None is more remarkable than CSL.

The top management of CSL see the company's operations totally differently to Australian institutions and even private investors – they believe that while CSL might be one of the top 25 global pharmaceutical companies, it is in some respects a remarkable resource stock.

Unlike iron ore mined by BHP, Rio and OneSteel, or Newcrest gold, CSL is ‘mining’ a renewable resource in the US and processing it for a vast number of countries. It is the global leader in this sort of renewable resource mining in the US.

The CSL equivalent of iron ore and gold is the blood plasma it extracts from tens of thousands of Americans each year. The plasma extracted from the American blood is the world’s greatest source of the raw material for most of CSL’s global products.

Whereas in Australia people donate blood via the Red Cross, in the US they go into 70 plasma centres (or their rivals) and sell their blood and that sales process has effectively become part of the US social service pattern. The resource is renewable because in two months the Americans have replaced the plasma and can return to the CSL sales point.

CSL Behring president Paul Perreault describes blood plasma as a "precious resource". While it's seen as unseemly to talk about the healthcare industry in terms of profitability – at least in Australia – CSL's US operations amount to something of a gold mine.

"Ninety plus per cent of our plasma collection is in the US,” Perreault says. "That’s a huge part of our organisation, without plasma we can’t make most of our products.”

There is good reason why CSL generates so much of its plasma in the US as opposed to everywhere else.

"In a lot of countries you can’t move plasma outside or you can’t move it in,” Perreault says. "But a lot of them accept US plasma, because they see it as a reliable source of this precious raw material. We have the capacity in the US to really gain the plasma to supply the demand.”

CSL uses US plasma to make its pharmaceutical products in the US but also sends some to Europe to make products there. This creates a currency nightmare when everything is converted back into Australian dollars (next year CSL will report its figures in US dollars).

Those currency movements are obscuring the success CSL is having generating more revenue from the products that come from its blood plasma gold mine. So while local CSL investors can do nothing but celebrate the current seven-week lows the Australian dollar is touching, the 27 per cent surge in revenue to $US1.9 billion ($1.8 billion) that Behring booked last month was largely forgotten thanks to the currency losses.

There’s a lot more to CSL’s business in the US than a sizable slice of its footprint caught behind unfavourable currency differentials. Yet as long as the Australian dollar remains high, it’ll be the first thing investors and commentators think of.

The latest set of half-yearly results included a $95 million impairment from the Australian dollar, which was about $10 million more than expected. It’s a hard pill to swallow, given the currency’s strength stems from the mining industry, something CSL has little to do with.

"The US is the single most important economy that we do business in at the moment,” Perreault says, adding that CSL is immune to most of the ailments that are currently afflicting the US economy,.

With the changes in the healthcare environment there are more public sectors that are becoming strong players. It’s a good time to be in business when the federal government is opening the purses.

"We see long term growth still here, despite the fatalist commentaries on the US economy.”

As for skills, CSL is based in the healthcare sciences headquarters in King of Prussia, Pennsylvania, where talent isn’t hard to come across.

"You look at the concentration of employers in this sector, just around the medical, pharmaceutical and biotech area. There’s a lot of people that we draw on and we get a very broad candidate slate.”

If CSL needs to draw candidates from Europe, being within striking distance of New York, Washington DC and Boston doesn’t hurt.

What Perreault wishes is that CSL was a bit better known in the land that's so crucial to it.

"Even though we’re in the top 25 pharmaceutical companies globally when you look at assets, the listing in Australia doesn’t have as much notoriety as a say a Genzyme [now owned by Sanofi] on the US exchange.”

So why not list in the US? Perreault says CSL has had more than a fleeting look at a dual-listing, which is only reasonable given the strategic significance. However, CSL already has enough access to willing investors in Australia and greater exposure in the US is hardly a good enough reason to subject the company to the regulations that would go with a NYSE code.

While investors back home might not like the currency differentials and most Americans don’t know of it, CSL knows why it’s there.

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