CSL Limited

Ladies and gentlemen, good morning and welcome to CSL's first half results call for fiscal 2023. It's Mark Dearing speaking and joining me online is Paul Perrault, CSL's chief executive officer, Paul McKenzie, CSL's incoming chief executive officer, and Joy Linton, CSL's chief financial officer. Paul Perrault and Joy will shortly provide an overview of the results and then we'll move to Q&A. And as with past practice, could you please limit your questions to two? And of course, if you have further questions, you can rejoin the queue. Please note this briefing is being webcast. And lastly, before we start, I draw your attention to the forward statement disclaimer contained in the slide deck. I'll now pass you over to Paul Perreault. Paul.

Thank you, Mark, and good morning, everyone, and thank you for joining the call today. Before I get into the results, I would like to take an opportunity to just say a few words about our upcoming leadership change at CSL. As you know, back in December, I advised the board of my intention to retire after 10 years as CEO and more than 25 years with CSL. It really has been a privilege to lead this great organization, and I'm immensely proud of what we've achieved at CSL over the last decade. the sustainable growth and innovation with a patient-focused culture. I want to congratulate Paul McKenzie, who's here with us today, on being appointed CSL's next CEO. Paul is an experienced biotech leader with an excellent track record of delivering outstanding results. I am confident that Paul will continue to innovate and lead CSL to its next level of sustainable and profitable growth for our shareholders and the patients that we serve around the world. I thank you all for your support over the years. I look forward to watching CSL continue to be a global leader, deliver shareholder value, and most importantly, keep our promise to patients and provide them with our life-saving medicines. So now turning to the result, as per usual, I will provide an overview of our first half results. Then I'll hand over to Joy, who will go into more detail on the financials. And I'll conclude with our outlook. And of course, we'll be happy to take your questions at the end of the presentations. Also, with the addition of CSLV4, you will notice that we've adopted a new format and pushed some of the detail by product to the appendix. This allows me to really focus on the drivers of each business, but also provides investors with more detail as well as leave more time for questions. I trust you find this an improved approach, but as always, we welcome any feedback. You all have Mark's number. So, on to performance. CSL has delivered a solid result for the first half of fiscal year 23, and I think this demonstrates the strong fundamentals of the company and the disciplined execution of our patient-focused strategy. As we emerge from the COVID pandemic, the continued investment that we have made is now starting to deliver positive momentum, and it highlights the resilience and the potential of our broadened portfolio. So first, the headline numbers. Revenue is up 25%. This includes approximately five months' of contribution from CSL v4. Net profit after tax was $1.62 billion, which was steady on the previous half. However, this does include the one-off cost associated with the acquisition of CSL v4. Adjusting for this on an underlying or NPAT-A basis, which is the measure of what we're now focusing on, this was $1.82 billion for the half, up 10%. In terms of the major highlights for the first half, In the CSL bearing business, our IG franchise grew very strongly, and plasma collections are now at record levels. The impacts of COVID are largely behind us at this point. CSL Securus has continued to deliver strong sales growth driven by its high-value differentiated products. CSL Securus also announced a license agreement with Arcturus Therapeutics for access to their late-stage self-amplifying mRNA vaccine technology. For CSLV4, we successfully closed the acquisition on the 9th of August and had approximately five months' contribution in this half. The integration is well advanced, and delivery of our cost synergy objectives are on track. In R&D, we were very excited to receive FDA approval for HemGenX in the U.S. This is the very first gene therapy product approved for patients with hemophilia B, an important new therapy that will change people's lives and potentially be a cure for many patients. Turning to the next slide and focusing on CSL Bearing and its sales by therapeutic area. Overall, CSL Bearing's revenue is up 11% to constant currency. As I mentioned, our IG franchise grew strongly with sales up 19%. This was driven by a significant increase in plasma supply with strong growth recorded in both our leading IG brands, Privagen and Hyzentra, across all geographies, especially in Europe and the emerging markets. The increase in plasma supply also saw our albumin portfolio grow by 11%, with strong growth in both the U.S. and Europe, whereas albumin growth in China was constrained by the COVID environment. Hemophilia was up 12%, where once again the standout performer was Adelvion, which was up 22%. This was driven by higher patient demand with increased in-person doctor visits and and increased utilization in Japan. Specialty products were up an encouraging 5 percent, with strong growth in Kcentro, which increased by 8 percent as hospital demand returns to pre-pandemic levels. The other category for CSL bearing was down 31 percent, and this was due to the fact that the revenue we received from the manufacturer of AstraZeneca's COVID vaccine was minimal in the current half, as we had completed the contract of 50 million doses for Australia and other nations. Moving on to the next slide, which is our operating highlights for CSL Barron. As I mentioned at the beginning, plasma collections are now at record levels. The strong improvement in collections we achieved last financial year has continued and, in fact, is accelerating. For the six months to December 2022, our plasma collections were up 36 percent, and compared to the same period before the pandemic, our collection levels are now 10 percent higher. This is a remarkable achievement and is a testament to the focus and dedication of all of our employees at CSL Plasma and the commitment of our wonderful donors. We've seen a continued increase in the use of the CSL Plasma donor app, which has undergone additional enhancements. And the downloads for the app are now exceeding two and a half million. And the continued adoption of the online self-administered health history questionnaire is saving donors time from waiting at the in-center kiosks. In September 2022, we welcomed back the Mexican donors to our plasma centers after the U.S. District Court in Washington granted a preliminary injunction reversing the ban on Mexican donors entering the U.S. to donate plasma. The centers on the border are recovering strongly. We continue to invest in opening new plasma collection centers, with seven opened in the U.S., as well as one new center in Germany. and others are close to opening. During the half, we commenced the rollout of the new Ricoplasma paresis devices in a number of our centers. So far, the results have been in line with our expectations of faster collection times, meaning less time on the bed for the donors. The rollout has gone slower than we would have liked due to supply chain issues with soft goods, the tight employment environment, and some teething issues that we're working to overcome. We are committed to the rollout of our program and want to ensure we get it right in light of the increased pace of collections. On the manufacturing side for CSL bearing, we officially opened the new plasma fractionation facility at Broadmeadows. This facility gives us the capacity to process up to 9.2 million plasma equivalent liters a year and prepares us for the initial launch of CSL 112. We also added new base fractionation capacity at Marburg. Both of these expansions will help us meet the increasing demand for our plasma-based therapies. We have also continued to invest in yield initiatives. As you know, yield has always been a key and important focus for us, and we have multiple programs underway in both collections and manufacturing. We'll update you when we have some more meaningful things to share with you in this particular area. Moving on to the next slide in CSL Securus, our vaccines business, Securus delivered another strong result with total revenues of 1.738 billion, up 9% at constant currency. Seasonal influenza vaccines, which make up 90% of Securus's revenue, was up 9%, achieved against a backdrop of reduced rates of vaccination. Whilst there are low levels of influenza, were low levels of influenza circulating during the pandemic, This has reversed, and we're seeing the highest and earliest prevalence of influenza-like illness in nearly a decade. Population immunity against influenza is also low, increasing the importance of vaccination. Despite the decline in immunization rates, Seqirus maintained a record volume of doses and continued to grow revenue through its differentiated product portfolio. Continuing with CSL Seqirus and some of the operational highlights, This northern hemisphere season was the first time we began selling into the pediatric segment of the market since Flucelvax was approved in the U.S. for six months' age indication. This resulted in an increase in demand for Flucelvax, and we expect this growth to continue over coming years, with approvals also received in Argentina, Canada, and Taiwan, with Australia and New Zealand currently under evaluation. For Fluad, the CDC adopted the Advisory Committee on Immunization Practices, or ACIP's, recommendation for it to be one of the preferentially recommended seasonal vaccines for adults aged over 65 in the United States. This preferential recommendation provides us with the opportunity to better educate health care professionals, pharmacy partners, and patients on the benefit of adjuvanted influenza vaccines, which are really designed to protect the immune systems of the elderly. On the pandemic side of the business, CSL Securus was awarded a barter task order for the manufacture of H5N8 clinical trial material. We also supplied Aflunov pre-pandemic stockpile, which is H5N1, to Singapore. CSL Securus completed the contract for the manufacture of the 50 million doses of AstraZeneca's COVID-19 vaccine in Australia, which I mentioned before was a tremendous achievement. And finally on manufacturing, the additional fill and finish that we've been working on at Holly Springs and Liverpool were completed. And building works are well advanced for the new cell culture influenza facility in Melbourne at Tullamarine where I visited earlier last week. Turning to the next slide in CSL V4, as I mentioned at the beginning, our acquisition of V4 Pharma successfully closed on August 9th last year. So we had approximately five months of financial contribution from the new member of the CSL family or CSLv4. CSLv4 sales for the period were $889 million. We don't have a prior period to report against as we didn't own the business in the previous half, but based on unaudited management accounts, CSLv4 performed well with a revenue growth of approximately 15%. The main contributors to this growth were Mercera in the dialysis segment, and the continued progress of the launch of Corsuva in the U.S. The introduction of step-edit measures in the iron market in the U.S. had a positive impact on Venefer, CSLV4's low-dose iron product, but put pressure on the high-dose iron product, Injectifer. We continue to work with health care providers to ensure the optimal outcome for patients. The integration of CSLV4 is well advanced, and the cost synergies that we identified at the announcement of the acquisition are well on track. You know, there were some other highlights in the period, and they included for the iron business, the heart failure label variation for the U.S. has been submitted with a response expected very shortly. In dialysis, the agreement with a large kidney care provider in the U.S. for the ESA portfolio is now effective from December 2022. And Corsuva Capruvia was approved in Australia, Canada, Singapore, and Switzerland, with a long-term licensing agreement also signed for Corsuva in China. In the non-dialysis part of the nephrology business, Tavneos, a treatment for patients with severe active ankle-associated vasculitis, was approved in Great Britain, Switzerland, and the UAE. And just last week, it was approved here in Australia. Moving on to the next slide and the R&D portfolio, the slide shows the forward-looking R&D portfolio events for fiscal year 23 as presented at the R&D investor briefing in November 2022. So let me talk about some of the highlights in the R&D portfolio, which are shown in the green words on the slide. In immunology, we will be presenting the GERDASIMAB HAE Phase III study data for the first time at the 2023 American Academy of Allergy, Asthma, and Immunology Annual Meeting in San Antonio, Texas. These data are consistent with the positive top-line results announced in August last year, and we plan to begin regulatory submission to global health authorities later this calendar year. Baronert SubQ for HAE received PMDA approval and was launched in Japan. This approval of the at-home subcutaneous therapy for patients suffering from hereditary angioedema advances treatment options for patients in Japan. In hematology, I mentioned hemogenics. The first and only one-time gene therapy for appropriate adults with hemophilia B was approved by the FDA in November and will be launched very soon. In addition, results from the HOPE-B study demonstrated that after two years of follow-up, adults with severe or moderately severe hemophilia B treated with a one-time infusion of hemogenics generated elevated and sustained mean factor IX activity levels and durable hemostatic protection. In the cardiovascular metabolic space, enrollment in the CSL112 Aegis II trial was completed in November 2022. There is a 12-month follow-up after which the data will be unblinded and analyzed prior to the release of the final results in early 2024. We initiated a combined Phase 2b3 study, possible six, in October to evaluate clasikizumab for prevention of major adverse cardiovascular events in MACE in hemodialysis patients. In vaccines, our adjuvanted cell culture vaccine, or AQIVC program is on track to go into the Phase 3 trial. For CSLV4, the Phase 3 study for SNF472, which is being developed for calciflaxis in patients on hemodialysis, was completed in late 2022 with top-line data expected in Quarter 2, calendar year 2023. Also in the CSLV4 portfolio, EMA accepted for review the conditional marketing approval application for sparsentin. for the treatment of IgA nephropathy. The EMA will review the application under the centralized marketing authorization procedure, and a review decision on a potential approval is expected in the second half of calendar year 2023. We also received approval for Farinjec to treat patients in China with iron deficiency, and approvals for Corsuva and Capruvia in multiple countries, as I mentioned, including Switzerland, Canada, Singapore, and Australia. So before I finish up and hand over to Joy to go into the financials in a little bit more detail, I wanted to share this slide with you, which shows the significant launch dates that are being targeted with our advanced R&D pipeline over the next few years. In this financial year, we are all set to launch Emgenics in the U.S. We'll also be launching Haygardo, or as it's known, to be known, Barronerd SC in Japan. And as I mentioned, we are expecting to receive response to the heart failure label in the U.S. any day now. In terms of the other launches expected over the following year, I won't go through all of them, as many of them will be familiar to you, such as Garidacimab, CSL112, Clasikizumab, or our AQIVC program for CSL securus. Plus, we've added some new projects to the impending pipeline for CSLv4, including SNF472 for the treatment of vascular calcification and Sparsetin for the treatment of scar tissue developing in the kidney for CKD patients. Furthermore, CSL Securus has signed a licensing agreement with Arcturus for their self-amplifying vaccine technology. So we have a multitude of late-stage programs that are well advanced and coming to fruition over the next few years, which will be a super exciting time for CSL. In all of my time at CSL, I have never seen the pipeline in such a strong position, and it really sets the company up for sustainable and profitable growth into the future. I'll now hand over to Joy.

Thank you, Paul, and good morning to everyone. Before I make a start, I do want to publicly recognize Paul's tenure at CSL. He's overseen transformation, business excellence, and incredible growth. It's been a huge privilege for me to work alongside Paul for the past two years and to observe and learn from his leadership in action. Paul's focus on people, whether it be our patients or our employees, is legendary inside CSL. And I'm sure many of you on the call can relate to this when I say that Paul is a people person. As we've announced at the CSL v4 market briefing in October, guidance is now provided at statutory net profit after tax attributable to CSL shareholders before impairment and amortization of acquired intellectual property or NPAT-A in abbreviated form. It also excludes the one-off costs relating to business acquisition and integration costs and inventory fair value uplift adjustments. On a reported basis, first half NPAT-A was $1.818 billion, up 2%. On a constant currency basis, NPAT-A was $1.957 billion, up 10% after adjusting for a currency headwind of $138 million. And I'll talk to FX in more detail shortly. As you have heard me say before, we believe NPAT-A better reflects the underlying performance of the company. Net statutory profit after tax measure is, of course, provided as usual. I do want to highlight that unless otherwise called out, references to NPAT-A are attributable to CSL equity holders only. As you know, part of the CSL V4 business includes the majority-owned joint venture company, V4 Fresenius Medical Care Renal Pharma. As CSL V4 controls this joint company, 100% of the joint company result is consolidated into the financials. So 100% of the revenue from the joint company is included in the CSL group revenue. The earnings are then attributed according to the ownership structure of the joint company's earnings. 55% in favour of CSL v4 and 45% in favour of the non-controlling interest. And also, just as a reminder, the financials in this presentation are inclusive of approximately five months' contribution from CSL v4, which of course affects every line item of the financials. On this slide, we do provide a reconciliation between NPAT A and NPAT at constant currency. And so starting with NPAT A of $1.957 billion, the following adjustments are included. There's $96 million attributable to the amortisation of acquired intellectual property. Other one-off acquisition costs of $190 million, and this is made up of the unwinding of the inventory fair value uplift recognised on acquisition. This is a non-cash item, with the remaining balance of $85 million relating to the acquisition, transaction and integration costs. After adjusting for non-controlling interests and tax, NPAT attributable to CSL shareholders for the first half is $1.753 billion. So turning to the group financial highlights on slide 14 and looking in a bit more detail. On a constant currency NPAT A basis, total revenue for the group was up 25% to $7.575 billion. with a corresponding gross profit of $4.275 billion, up 24%. And I'll talk to margins shortly. Sales and marketing costs increased by 65%, which was driven by the marketing and commercial activities for the Hemgenics launch, as well as the incorporation of CSLV4. The group operating result was up 18%, or $3.563 billion. Research and development costs were up 25% as we advanced assets such as Garidacimab, CSL112 and Hemgenics, along with the inclusion of the CSLV4 R&D activities. We do expect that for the FY23 full year, total spend for R&D will be in line with the 10% to 11% guidance envelope of total revenue as we continue to invest in innovation, and have a number of exciting programs to come to fruition that Paul has already outlined. General and administration costs, excluding CSL V4 acquisition-related costs, adjustments of $85 million was up 26%, and this was largely driven by the CSL V4 five-month contribution. Net finance costs increased as a result of the debt associated with the CSL V4 acquisition, and rising interest rates. On debt, our weighted average cost of debt at December 21 was 2.43%, and at December 22, it was 3.85%. As previously mentioned, NPAD A, attributable to shareholders of CSL, was up 10% at constant currency. The reported effective tax rate for the half year 23 declined to 16%, mainly due to the geographic profit mix and CSL V4's lower statutory tax rate. We do expect the effective tax rate to be within the range of 18% to 20% at constant currency for fiscal year 23. Cash flow from operations was $981 million, a decrease of 31%, This was largely reflecting the strong growth in plasma collections. Another contributing factor was the higher finance costs paid primarily due to the debt financing arrangements entered in to fund the acquisition for CSLV4. And on a reported basis, NPAT-A EPS was down 3%. However, at constant currency, it was up 4%. Finally, we have increased our interim dividend to US $1.07 per share, representing a 3% growth against the $1.04 per share paid in the prior corresponding period. And for Australian shareholders, this translates to approximately $1.55 Australian, up 9%. So turning to the segment results on slide 15. As we detailed at the CSLV4 market briefing in October, The new segment reporting shows gross profit less sales and marketing expenses as managed by the business units. Our new segment reporting reflects the way that the chief executive officer, who is the chief operating decision maker, monitors and assesses performance of the business in accordance to make decisions about resource allocation. And this is in accordance with the accounting standards. Furthermore, R&D and G&A expenses are no longer allocated to individual segments. As the centralisation of the management and reporting of R&D is reflective of the portfolio approach, we are now taking to our R&D investments. General and admin costs, this follows the work that we've done over the last few years to bring together our enabling functions into a single global structure. Excluding the five-month CSL V4 contribution, total revenue was up 10% at constant currency, and the strong IG sales in CSL Bearing and the ongoing shift to differentiated products in CSL Securus were both significant contributors to this top line. With the addition of CSL V4, where Macera performed exceptionally well, total group revenue was up 25% at constant currency. As you know, COVID has impacted the cost of collecting plasma right across the industry. And of course, this has impacted CSL Bearing's gross margin. And I'll talk to this in more detail in the next slide. Fundamentally, however, today's margins reflect the cost of plasma nine to 12 months ago, as that cost of plasma works its way through inventory until it is sold a year or so later when it is reflected in the cost of goods. CSL's securus margin expanded with the continued success in the product differentiation strategy and improved manufacturing efficiencies. And lastly, the addition of CSL V4 has had a modest but positive impact on the group's margin. Looking now at the segment operating result excluding CSL V4, it was up 4%. However, when you adjust for the first half fiscal 22 contribution, received for the manufacturing of the AstraZeneca COVID-19 vaccine, the segment operating result is up 8% on a comparable basis. So turning to the next slide, CSL bearing gross margin graphic. The red line is the total cost per litre or CPL for the US and the grey line being the gross margin percentage. The largest components within the CPL are donor compensation and direct labour. And these two combined equate to approximately 65% of the total CPL. The remaining is a mix of leasing costs, consumables and other costs associated with the, including fixed costs. The initial decline in margin that you can see on the chart arises from the sharp drop in plasma collected a year earlier when the pandemic first started to take hold in the US. Early in the pandemic, the industry hadn't yet raised donor fees or wages, but you can see clearly the effect of the higher fixed cost allocation because of the reduced volume of plasma working its way through the manufacturing process. The peak in CPL occurred midway through the second half of fiscal 22, with the heightened red line reflecting such. The main driver being the increase in donor compensation, as the industry worked hard to attract donors in a difficult COVID environment, along with inflationary pressures, particularly labour and supply chain costs. With the nine to 12 month inventory cycle time, These costs are now filtering through the financial statements and are contributing to the downward pressure on the CSL bearing gross margin. Now that that has happened, what we are currently seeing is a gradual reduction in CPL. To put that into context, from the peak in fiscal year 22, CPL at the end of December has reduced by approximately 10%. and we can expect to see this benefit in gross margin in the next financial year as the cost of inventory phases through the P&L. While we do expect further softening of the CPL, managing it downwards is not an easy task, especially when you overlay the many macroeconomic factors in play. The CSL Plasma team have been extremely diligent in evaluating and executing initiatives to continue to grow plasma volumes and we are now starting to reap the benefits of that hard work and focus. Now on to the next slide, which talks through currency. As I'm sure you can all appreciate, there's been significant volatility in world currency markets, and CSL being a global company, we are not immune to this. In the first half of this fiscal year, we incurred NPAD-A currency headwinds of about US$138 million, and it was largely driven by a stronger US dollar. This is a function of both realised and unrealised losses. Two significant realised losses amounting to approximately $50 million were a function of, firstly, realised losses accrued, which related to the US dollar against the Chinese yuan, and that relates to albumin. And in addition, the movement of the pound sterling against the US dollar as a result of production of Fluad in Liverpool in sterling, which was subsequently sold into the US. The balance of the losses relate to the movement of the US dollar against the euro, the Chinese yuan, as well as a basket of emerging market currencies, primarily from the CSL-bearing sales in these currencies. And this headwind was partially offset by a significant cost base in Swiss francs. Our currency exposure has improved since the last update in October 22, and if currencies were to remain stable from now until the end of fiscal 23, the total FX impact is anticipated to be a headwind of approximately $175 million at NPAT-A, noting that we have reflected $138 million of that in the first half. And with that, I will hand back to Paul, who will finish up with some comments on the outlook.