Perreault's CSL is a picture of health

Paul Perreault has continued CSL's very disciplined management, with strong top-line growth and yet another buyback flagged.

Paul Perreault was given one of the most daunting tasks in business when he was anointed the successor to arguably the best-performed chief executive in the country. The handover from Brian McNamee to Perreault, however, appears to have been seamless and CSL’s performance in his first year as chief executive ticks all the boxes that McNamee ticked over his 23 years at the helm.

The reported result -- an 8 per cent rise in earnings to $US1.3 billion -- understated how solidly CSL performed and how consistent its performance is with the latter years of McNamee’s tenure.

The result included a $US64 million anti-trust litigation settlement. If it were excluded, underlying earnings before interest and tax were up 14 per cent and after-tax earnings 11 per cent.

Over his 23 years at CSL McNamee generated annualised total shareholder returns of more than 25 per cent by being very disciplined.

The business was managed tightly, acquisitions were few but strategic and company re-shaping and excess cash and balance sheet capacity -- after continuing  heavy investment in research and development -- was handed back to shareholders through dividends and, more particularly, share buybacks.

Under Perreault CSL is still generating strong top-line growth from its portfolio of plasma-dominated products, with sales up 8.6 per cent. It has held its EBIT (earnings before interest and tax) margin at about 30 per cent, indeed edged it up slightly. It is still investing heavily in R&D, which was 9 per cent higher at $US466m. It has increased its final dividend by 15 per cent. It has foreshadowed yet another share buyback.

Having previously bought back about $5.5bn of its shares it said its board would consider another buyback of up to $950m, which has been the size of its previous few buybacks.

The $950m buyback is becoming an annual CSL event and is a demonstration of its commitment to balance sheet and financial discipline and to shareholder value.

With free cash flow rising from $US767m to $US961m, net debt of $US1.3bn and cash on hand of $US609m, CSL has a lot of under-utilised balance sheet capacity which, instead of chasing growth by acquisition (which Perreault has previously said he’s not averse to), it has consistently used to buy back its capital -- to the point where quite some time ago it had more than bought back its entire ordinary share contributed equity base.

Given that its earnings are mostly generated offshore and therefore its dividends are unfranked, however, buy-backs are a more efficient way of returning value to shareholders than increased dividends. Over nearly a decade they have impacted earnings per share, positively, by 19 per cent.

CSL’s outlook is for more of the same, with the group saying it expects revenue growth of about 8 per cent this financial year, EBIT growth of about 15 per cent and after-tax profit growth of about 12 per cent, with the buybacks leveraging earnings per share growth.

In other words, despite the handover from McNamee to Perreault it is very much business-as-usual for CSL and the game plan, and quality of execution hasn’t changed in any obvious or material way.

Mind you, it didn’t need to and Perreault, an internal appointment who had previously led CSL’s core CSL Behring business and therefore had played a major role in developing and executing the strategies that have under-pinned CSL’s success, has delivered on the promise of a continuity of strategy and approach that he articulated when he took up the role.

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