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CSL Net Income Misses Analyst Estimates on Currency Impact

CSL Ltd., the world’s second-biggest maker of blood-derived therapies, reported a worse-than-expected 11 percent drop in annual profit after the Australian dollar’s strength eroded the value of overseas sales.

Net income fell to A$941 million ($984 million), or A$1.74 a share, in the 12 months ended June 30, from A$1.05 billion, or A$1.86, a year earlier, CSL said in a statement today. Earnings were expected to drop to A$952 million, according to the average of nine estimates compiled by Bloomberg.

Revenue increased 8.6 percent last fiscal year, helped by a recall of Octapharma AG’s immune therapy in September that spurred demand for CSL products. The Melbourne-based company predicted profit this year may jump as much as 10 percent to A$1.04 billion in constant currency terms, and said current exchange rates may reduce growth to 1.5 percent to A$955 million after the dollar fell against Swiss and Australian currencies.

“We have been caught up in a perfect storm of currencies,” Managing Director Brian McNamee, 54, told reporters on a conference call today. “The current weakening of the U.S. dollar is a significant impost on the company.”

CSL is the world’s second-biggest maker of medical treatments derived from blood, behind Deerfield, Illinois-based Baxter International Inc. So-called blood plasma products are used to treat patients with immune deficiency disorders, hemophilia, wounds and burns.

CSL fell 2.7 percent to A$29.07 at the 4:10 p.m. close of trading on the Australian stock exchange in Sydney. The stock, the 13th-biggest member of the S&P/ASX 200 Index by weighting, has declined 20 percent this year, versus a 9.3 percent slide in the Australian benchmark.

Octapharma Recall

Octapharma, a closely held company based in Lachen, Switzerland, recalled its immune therapy, Octagam 5%, in the U.S. in September, and European regulators recommended halting sales after reports of heart attacks and strokes that may be tied to a manufacturing flaw. Octapharma has resumed Octagam 5% sales in Europe, but not in the U.S., McNamee said.

“Clearly we benefited from that last year,” he said. “As they withdrew from the market, we certainly expanded into some of their customers.”

The expansion probably added A$60 million to A$80 million in revenue, contributing 4-5 percentage points to the 25 percent growth in CSL’s immunoglobulin sales last fiscal year, McNamee said.

Favorable Dynamics

“CSL will benefit from increasingly favorable industry dynamics,” David Stanton, a health-care analyst with Nomura Holdings Inc. in Sydney, said in a report today in which he reiterated a “buy” recommendation on the stock. A switch by patients to CSL’s subcutaneously administered immunoglobulin products is also buoying growth, he said.

Group revenue increased to A$4.58 billion in the 12-month period, from A$4.46 billion. CSL, which gets 89 percent of sales outside Australia, said foreign exchange rate fluctuations wiped A$175 million from profit last fiscal year and may trim A$85 million from net income in the current year.

CSL recorded A$25 million in expenses related to losses on receivables in southern European countries, the company said. Most of the losses arose from the sale of Greek government bonds which were issued to CSL in settlement of debts that hospitals had racked up over four years not paying for medicines it bought.

Slow Payers

“Over a number of years, we have been selling important, arguably life-saving medicines to the Greek population through government-owned hospitals,” McNamee said. “They seem to have a habit of not paying very rapidly.”

Excluding the writedown, CSL’s earnings would have beaten the average estimate of analysts, Andrew Goodsall, a health-care analyst with UBS AG in Sydney, said in a report.

CSL plans to take on new debt of about A$1 billion to replace maturing loans before the end of the year. After that, the company may buy back A$900 million of its own stock, it said.

Capital expenditure of about A$250 million over the next four years is anticipated as CSL starts building a production plant in the Melbourne suburb of Broadmeadows to make as much as 15 million grams a year of the immune disorder treatment Privigen, McNamee said.

“There will be many hundreds of jobs, we think, created through the construction and long term operations of this plant,” McNamee said. The plant will add to the 35 million to 45 million-gram combined capacity of its two Swiss plants, he said.

John Shine will take the role as chairman following CSL’s annual shareholder meeting on Oct. 9, the company said.

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