CSL Limited

Ladies and gentlemen, good morning and welcome to CSL's full year results call for fiscal 2023. It's Mark Dearing speaking, and joining me online is Paul McKenzie, CSL's Chief Executive Officer, Joy Linton, CSL's Chief Financial Officer, and Bill Campbell, CSL's Chief Commercial Officer. As with past practice, Paul will provide an overview of the results and operations, and then Joy will provide some additional detail on the financials. We'll then move to Q&A. With the view to giving everyone an opportunity to ask a question, could you please limit your questions to two? If you do have a further question, you are, of course, welcome to 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 McKenzie. Paul.

Thank you, Mark, and good morning, ladies and gentlemen. Before I get into the results, I'd like to thank the entire CSL team and our partners for continuing to deliver for our patients. It is truly an honor to be given the opportunity to lead and continue to grow CSL. Our company has an important purpose to develop and deliver innovative medicines that help people with serious conditions live a fuller life and protect the health of our communities. I look forward to continuing to focus on executing our 2030 strategy, investing in innovation, and serving our patients around the world. I also look forward to seeing many of you over the coming weeks and months, and again at our Capital Markets Day in October. We have a lot to cover today, and I'm sure there will be plenty of questions at the end of the briefing. So now, turning to the results. I'm pleased to report that CSL has delivered an excellent result for fiscal year 23, driven by strong performance across all of our businesses. First, the headline numbers. Revenue was up 31% at constant currency. This includes approximately 11 months' contribution from CSL v4. NPAT-A, which is the measure we focus on as it reflects the underlying performance of the business, was $2.6 billion, up 20% at constant currency. Net profit after tax was $2.2 billion, up 8% at constant currency, and includes the one-off cost associated with the acquisition of CSLV4. In terms of the major highlights for the year, in the CSL bearing business, our IG franchise grew very strongly. Plasma collections are now at record levels, and we dosed our first patients in the U.S. with our gene therapy product, Hemgenix, a transformational treatment for those patients with hemophilia B. CSL Securus has continued to deliver strong sales growth, driven in particular by flu-cell vacs. CSL Securus also announced a license agreement with Arcturus Therapeutics to access their next generation mRNA vaccine technology. For CSL v4, we successfully closed the acquisition in August 2022 and had approximately 11 months contribution to this fiscal year. The integration of CSL v4 is well advanced and our cost synergy objectives are on track. In R&D, we achieved a significant milestone with the last patient enrolled in our CSL112 Phase III trial. And preparations are well underway for global regulatory submissions for Gardadecimab, our homegrown monoclonal antibody for the treatment of HAE. Now we'll focus on CSL bearing. Overall, CSL Bearings revenue was up 12% at constant currency. As I mentioned, our IG franchise grew strongly. Sales were up 21%, with strong growth recorded across all geographies as global supply recovered significantly. Our IV product, Privagen, was up 29%, and our subcutaneous product, Hisentra, was up 12%. Underlying demand for IG continues to be robust, and patient diagnosis rates have been growing in core indications. We received approval and are actively prepping for the launch of our 50ml pre-filled syringe for Hisentra, which is another advancement for our market-leading subcutaneous product. The increase in supply also saw our albumin portfolio grow by 11%, with strong growth in China as the COVID restrictions there eased and hospital operations started to return to more normalized levels. We have also had solid demand growth in both Europe and the U.S. Hemophilia was up 8%, where once again the standout performer was Adelvion, which was up 13%. This was driven by increased patient interactions with our healthcare providers. Adelvion also saw increased uptake in Japan. Specialty products were up 6%, led predominantly by K-Centra, which increased by 10% as social mobility increased post-COVID. The other category for CSL Bearing was down 15%, largely due to the prior period, including COVID vaccine sales. Let's get to the operating highlights for CSL Bearing. We have continued to achieve strong growth in plasma collections with volumes up 31% for the year and now at record levels. The other pleasing aspect of our plasma collections is that during this growth period, the CSL plasma team have carefully been reducing collection costs. our cost per liter, or CPL, over the year has been managed down by approximately 14% from June 2022 to June 2023. CPL, which is largely made up of donor fees and labor costs, has reduced by approximately 17% from the peak in March 2022. This is a great achievement and reflects the focus and dedication of all of our employees in CSL Plasma and the commitment of our donors around the globe. While significant progress has been made to grow our plasma collections to record levels, reduce our costs, and improve our efficiency, there is still a lot more to do, and we will be driving hard to continue this positive momentum. We have continued to invest in new plasma centers with 12 new centers open during the year. As you know, the Mexican border was reopened to donors in September 2022, and our centers near the border have been recovering strongly. We have also continued to embrace and advance digital technology in our plasma collection centers to improve the donor experience. The CSL Plasma Donor App has undergone further enhancements with over 3 million user downloads and more than half a million users logging on each month. We have used digital marketing campaigns with targeted messages to attract new donors, reactivate lapsed donors, and encourage donors to return. As mentioned at our half-year results, we have commenced the rollout of our new Ricca plasmapheresis devices. These are now installed at a limited number of centers, and we continue to work through supply chain challenges with Tarumo. We remain committed to the rollout of this program. However, it is taking us longer than originally thought as we iron out these issues. On the manufacturing side for CSL Behring, we opened a new plasma fractionation facility at Broadmeadows and added new base fractionation capacity at our Marburg facility in Germany. Both of these expansions will help us meet the increasing demand for our plasma-based therapies and improve manufacturing efficiencies over time. We also have a number of initiatives underway to increase our manufacturing yields in the plasma production processes, and I will talk more to this later in the presentation. Moving on to the next slide and our CSL Seqirus vaccines business. CSL Securus delivered another strong result, with total revenue exceeding $2 billion for the first time, a growth of 9% at constant currency. Seasonal influenza vaccines, which make up 90% of CSL Securus sales revenue, was up 9%, driven by the outstanding performance by flu cell vacs, which was up 30%. This growth by CSL Securus was achieved against a backdrop of reduced rates of vaccinations as communities around the world adjust to a post-pandemic environment. Considering this broader environment, CSL Securus' growth has been extraordinary, and we continue to benefit from our differentiated product portfolio. Here are a few of the operational highlights for CSL Securus. Flu Selvax has now been approved in U.S., Argentina, Canada, Taiwan, and most recently Australia and New Zealand for six months plus age indication. For Fluad, the CDC adopted the Advisory Committee on Immunization Practices, or ACIPS, recommendation for it to be one of the preferentially recommended seasonal vaccines for adults aged over 65 in the U.S. This preferential recommendation provides us with the opportunity to better educate healthcare professionals, pharmacy partners, and patients on the benefit of adjuvanted influenza vaccines, which are designed to protect the immune system of older patients. On the pandemic side of the business, CSL Securus was awarded a bar to order for the manufacture of avian influenza clinical trial material. We renewed or extended advanced purchase agreements with Finland, Canada, Austria, and Sweden. And we also supplied our pre-pandemic stockpile of avian flu to Singapore. In relation to mRNA, we signed a licensing and collaboration agreement with U.S.-based Arcturus Therapeutics, which gives us access to their next-generation vaccine technology platform. This includes their late-stage COVID-19 vaccine and gives us an R&D development program beyond influenza capability. On the manufacturing side, our innovative cell reassortment technology is delivering high yields in our manufacturing processes. Our additional fill and finish capacities we built at Holly Springs and Liverpool are now fully operational. Building works are well advanced for the new cell culture influenza facility in Telemarine, which is expected to be operational in 2026. Turning our attention to CSL V4. As I mentioned at the beginning, our acquisition of V4 Pharma successfully closed in August last year, which means approximately 11 months contribution from CSL V4 in fiscal year 23. The integration of CSL V4 is well advanced and the cost synergy targets are well on track. CSL V4's revenue for the period was just shy of $2 billion. We don't have a prior period to report against, but based on unaudited management accounts, CSL V4 performed in line with our expectations, with revenue growth of approximately 14%, reflecting solid growth across all key product areas. The growth in fiscal year 23 was driven by strong performance of pharyngect outside the U.S., strong growth in mesera following an agreement with a large kidney care provider in the U.S., which took effect in January 2023. The step-edit measures introduced by payers in the U.S. iron market had a positive impact on Venifer, CSLV4's low-dose IV iron product, but put pressure on the high-dose IV iron product, injectifer. However, there are signs that this pressure is starting to stabilize. Other highlights for the period include... For the iron business, Injectifer was approved in the U.S. for the treatment of iron deficiency in adult patients with heart failure, categorized as New York Heart Association Class 2-3 to improve exercise capacity. Ferrinject also gained marketing approval and was launched in China, with patient reimbursement expected in early 2024 following the national reimbursement drug list submission. For Veltassa, we have signed agreements with both Humana and CVS in the U.S., Capruvia, which is used to treat itching in patients with chronic kidney disease on dialysis, was successfully launched in Germany and other European countries, as well as a long-term licensing agreement signed for Kursuva in China. In the non-dialysis part of the nephrology business, Tavanos, a treatment for patients with severe active ANCA-associated vasculitis, saw strong sales growth, especially in Germany and the UK. It gained reimbursement in France, and we have seen continued uptake in Japan. Moving on to our R&D outcomes. This slide shows the key R&D portfolio events which were achieved in fiscal year 23. In immunology, we presented Gardadecimab's HAE Phase III study data for the first time at the 2023 American Academy of Allergy, Asthma, and Immunology Annual Meeting in February. These data are consistent with the positive top-line results announced in August last year, and we have also commenced regulatory submissions to global health authorities. Baronert subcutaneous for HAE received PMDA approval and was launched in Japan. This approval of the at-home subcutaneous therapy for patients suffering from HAE advances treatment options for patients in Japan. In hematology, Hemogenics, as mentioned earlier, the first and only one-time gene therapy for appropriate adults with hemophilia B was launched in the U.S. with the first patients receiving commercial product in June. Kcentra trauma phase three study, first patient in, was achieved in March 2023. In our respiratory therapeutic area, CSL 787 phase one study is complete without any emerging safety findings and some promising efficacy trends. CSL 787 is a novel approach to use IG via inhalation. This is a potential novel therapeutic option for patients living with bronchiectasy. In cardiovascular and metabolic, enrollment in the CSL112 AGES II trial was completed in November 2022. There is a 12-month follow-up after which data will be unblinded and analyzed prior to the release of the final results in early 2024. In vaccines, we have completed our AQIVC Phase II dosing studies. and are on track to commence phase three with the Northern Hemisphere season. Arcturus 154 COVID vaccine global submissions commenced in May 2023. For CSLV4, as mentioned on our previous slide, we received approvals for injectifer in the U.S. for heart failure. Ferrinject and Valforo have been approved in China. We have also received approvals for Kursuva and Capriva in multiple countries, including Switzerland, Canada, Singapore, Australia, United Arab, and Kuwait. I hope you share our enthusiasm for the progression of the R&D pipeline. I will now hand over to Joy for some more in-depth details of the financials.

Thank you, Paul, and good morning, everyone. As Paul indicated in his introductory comments, CSL has delivered a strong performance, slightly above the top end of our guidance. On a reported basis, full year NPAT A was $2.61 billion, up 10%. On a constant currency basis, NPAT A was $2.855 billion, up 20% after adjusting for a currency headwind of $245 million. I'll talk to FX in more detail shortly. As you've heard me say before, we believe NPAT-A provides shareholders with greater transparency as to the underlying performance of the company. Once the one-off V4 transaction-related costs have washed through the P&L, the acquired IP amortisation will, for the most part, be the only reconciling item between NPAT and NPAT-A. The statutory net 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, and the financials in this presentation are inclusive of approximately 11 months' contribution from CSL v4, which of course affects almost every line item. On this slide we provide a reconciliation between NPAT-A and NPAT at constant currency. Starting with NPAT-A of $2.855 billion, the following adjustments are included. $239 million attributable to amortisation of acquired intellectual property. Other one-off acquisition costs of $346 million, which is made up of the acquisition transaction and integration costs and the unwinding of the inventory fair value uplift recognised on acquisition. This is a non-cash item and a result of the PPA exercise. Each contribute to approximately half of the overall balance. After adjusting for non-controlling interests and tax, NPAT attributable to CSL shareholders for the full year is $2.441 billion. Just a couple of observations before turning to the next slide. If you'd refer to note one of the financial statements, we have provided additional commentary on the NPAT A to NPAT adjustments. And while we're on the financial statements, I'd like to draw your attention to notes two, and node 8 and here we show the V4 goodwill allocation across the CSL group. This simply reflects where the value will be created by the V4 acquisition with the allocation following where the actual benefit will be realised. Now turning to the group financial highlights on slide 13 and looking at the financials in more detail. On a constant currency NPAT A basis, with strong growth in the IG franchise and the inclusion of approximately 11 months of CSLV4 financials, total revenue for the group was up 31% to $13.826 billion. And we provide a breakdown of our major products in Appendix A and B of this presentation. Gross profit of $7.587 billion was up 32%, and I will talk to gross margin shortly. The 58% increase in sales and marketing costs is largely attributable to the incorporation of CSL V4 into the group, with CSL bearing and CSL at securest costs as a percent of revenue largely in line with the prior year. Group operating result was up 27% or $6.072 billion, and the segment split follows on the next slide. Research and development costs were up 22% as we advanced assets such as Garidacimab, CSL112, Hemgenics, along with the inclusion of the CSLV4 R&D activities. We expect that F524 total spend for R&D will be in the 10% to 11% guidance envelope of total revenue as we continue to invest in innovation and have a number of exciting programs coming to fruition that Paul has already outlined. General and administration costs excluding CSLV4 acquisition-related adjustments of $177 million was up 27%. And again, this is primarily driven by the 11-month contribution of CSLV4. Net finance costs increased due to the debt associated with the CSLV4 acquisition, as well as rising interest rates. On debt, our weighted average cost of debt increased by 73 basis points to 4.11%. As previously mentioned, NPAT A attributable to shareholders of CSL was up 20% at constant currency. Of note, this does include a 49 million NPAT A contribution from the sale of a property. This contribution is largely the reason that NPAT A was over the top end of our profit guidance provided last year. The reported effective tax rate for the fiscal year 23 declined to 15.5%, mainly due to the geographic profit mix and the CSLV for lower statutory tax rate. We do expect for fiscal year 24 the effective tax rate to be in the range of 18% to 20% at constant currency. ROIC decreased to 12.2%, primarily related to the acquisition of V4, with the benefits materialising over the coming years. Cash flow from operations was $2.601 billion and remained relatively flat year on year. The strong cash earnings growth was offset by the growth in plasma collections, one-off V4 transaction costs, along with a currency headwind. NPAD-A EPS was up 17% at constant currency or 6% reported and in line with our total dividend of US dollar $2.36 per share which also grew 6%. This translates to approximately $3.59 Australian which is up 13% on the previous year given the strength of the US dollar. Turning to the segment results on slide 14. Fiscal year 23 is the first full year of our new segment reporting. And as we have previously communicated, this reflects the way that the Chief Executive Officer, who is the Chief Operating Decision Maker, monitors and assesses business performance in order to make decisions around resource allocation. And this is in accordance with the accounting standards. There are very sound operational reasons as to why we've made this move. It reflects our organisation structure and we garner valuable expertise, scale and efficiency benefits by amalgamating the basic frameworks of what we call our enabling functions as well as our R&D organisation. This includes our scientists, lawyers, accountants, HR professionals, etc. And I'll talk to the financial benefit of this a little more shortly. As you can see on the slide, total revenue for CSL Bearing and CSL Securus was up 12% at constant currency from strong IG sales in CSL Bearing and the ongoing shift to differentiated products in CSL Securus. With the addition of the 11 months contribution from CSL V4, where both Ferenject and Mocera performed strongly, total group revenue was up 31% at constant currency. As you know, the total cost of collecting plasma right across the industry has risen significantly over the past few years. And together with an inflationary environment and a currency headwind, all of these factors have adversely impacted the CSL bearing gross margin. And I will talk to this in more detail on the next slide. Fundamentally, however, today's margins reflect the cost of plasma 9 to 12 months ago as the cost of that plasma works its way through inventory until it is sold a year or so later when it is reflected in the cost of goods. Switching over to CSL Securus, gross margins expanded due to the continued success of our product differentiation strategy and the improved manufacturing efficiencies driven by the cell reassortment technology delivering higher yields. And lastly, the addition of CSL V4 has a modest but positive impact on the group's margin. The group segment operating result was up 27%, with the integration of CSL v4 into the CSL group now substantially complete. Turning to the next slide and the CSL bearing gross margin. We continue to expect the CSL bearing gross margin to return to pre-COVID levels in the medium term. The path to margin recovery, however, is different to the COVID-driven margin decline. And the key contributors to this margin recovery are depicted on the slide. You can see each chevron has a different size and is broadly representative of their contribution to margin improvement. With the bigger the chevron, the greater the contribution. But please do not take your rulers out as this is not to scale. Let's start with the largest contributor to gross margin improvement, CPL reduction. The largest components of CPL are donor compensation and direct labour. These two combined equate to approximately 65% of total CPL. The remaining is a mix of leasing costs, consumables, testing costs and other costs associated including fixed infrastructure. Some of the major initiatives that we have implemented include optimising the structure for donor payments, testing of different fee schedules, improving labour, planning and initiatives to drive increased centre level productivity. And as Paul stated, CPL is about 17% off the peak, so we are making genuine inroads, but there is more to do and it is just going to take some time. New products. We have and will continue to be an innovative company. The R&D portfolio is progressing extremely well and we believe it's the best shape it's ever been in. There are a cluster of late stage programs coming to fruition and these are high value products meeting patient needs. Hemgenics is Exhibit A, and Garadasabab is not far behind. Notably, our modelling on this slide, we are excluding any contribution from CSL 112. Moving to the next chevron, ASP Mixshift, and this is both geographic and by-product presentation. We have seen over the last few years is a geographic mix shift. The difference between US and ex-US pricing has been declining for several reasons, and we expect this dynamic to continue. I don't want to over-index on this point, as we don't expect this gap to close completely, given the different nature of the various markets around the world. But it is a trend we expect to continue. Another ASP mix shift dynamic is that of product presentation. There is a long-term shift towards subcutaneous IG, a premium product with a higher price. And while we haven't seen this in fiscal year 23, we do expect this trend to return over the medium term. Yield improvements. IG yield improvement has and continues to be important. It is highly value-creating and an enterprise-wide focus. And Paul will talk to our IG yield maximisation strategy in greater detail in a few moments. And lastly, scale and efficiency measures. When compiling our long-range planning, we think of high single-digit IG demand growth. And this is essentially why we have maintained investment in our manufacturing capability and we continue to have confidence in this. Plasma collections are now comfortably exceeding pre-pandemic levels. Our manufacturing facilities are now operating at higher utilisation rates reducing the fixed cost per unit. Of course there are possible headwinds to margin expansion that are not detailed on this slide. For example, all else being equal, growth in IG and albumin for that matter, deliver valuable gross profit in a dollar sense, however they are a drag on the gross margin percentage. But broadly speaking, the last litre of plasma we collect is the most expensive and the last gram of IG and albumin sold is at the lowest price. These products are marginal litre products and we do expect them to continue to remain in balance over the medium term. Whilst FX has been a margin headwind in FY23, going forward, of course, this could be a headwind or a tailwind as currency pairs move. But bringing this all together and keeping in mind the nine to 12 month inventory cycle, we anticipate modest improvement in the CSL bearing gross margin in fiscal years 24 and 25 with a return to the pre-COVID margin in the subsequent three years. So moving on to the next slide. I alluded earlier to the rationale as to why as a business we have moved to a new segment reporting. And I think this slide clearly illustrates the value that our new organisational structure creates. As you can see, even as we grow revenue, G&A expenses as a percentage of revenue have been declining. This follows the work we have done over the past few years to bring together our enabling functions into a single global structure and this has precipitated the move to our new segment reporting. The journey to transform our enabling functions across the enterprise started about three years ago and it is now a centralised and globally managed. This removes duplication, it improves the ability to automate, improves our corporate governance and has been deployed among multiple functions such as INT, finance, communications, human resources, legal and procurement. And we anticipate being able to drive further operating leverage as we embed these progressive changes deeper within the CSL group. Moving to slide 17 and inventory. Here you can see the various components that make up our inventory levels, split between raw materials, work in progress and finished goods. It's important to note that CSL V4 is included for the first time in the fiscal year 23 breakdown. While the graph clearly shows the growing value of inventory, which is consistent with the growth in the overall business, it also reflects the increase in our cost per litre of plasma. Despite the growth in inventory you can see as a percentage of revenue, inventory has essentially remained flat for many years. Focusing on the last couple of years, you may recall that we have had to judiciously manage the tension between patient demand and balancing our supply chain. This has resulted in us having a lower cover of finished goods than we would like, which largely remains the case. Turning to capital expenditure on slide 18. For many years now, CSL's capital investment has been significantly orientated towards supporting company growth, with our major capacity projects completed at both CSL Bearing and CSL Securus manufacturing facilities. And I know many investors had a firsthand opportunity to visit some of these facilities at our recent European site tour. Albeit we will continue to need to reinvest into the company, CSL is currently well placed to meet demand growth in the near term. for capacity on both collections and on the manufacturing front. We have worked hard to continue to build new manufacturing capacity at all our facilities to support product launches and meet future demand, while continuing to balance both capital investment and yield improvement initiatives. CapEx as a percentage of revenue has dropped considerably since fiscal year 20 and will further reduce in fiscal year 24. Fiscal year 24 CapEx is expected to be circa $800 million, around a 30% reduction on fiscal year 23. We are strongly focused on the return on our capital projects as we aim to extract as much value as we can from our investments. Next year, the reduction in CapEx combined with the expected profit growth will obviously help improve our ROIC and I will be giving some more granularity on this at our Capital Markets Day in October. Innovation also plays a key part in managing capex. The IG yield improvement initiatives underway both in collections and finishing reduces the need for future capital. And it's also worth noting that yield innovation goes beyond IG with initiatives for yield improvement in albumin as well as cell culture for influenza production also in flight. So moving to the next slide, foreign currency. There has and remains significant volatility in world currency markets, and CSL, being a global company, is not immune to this. For fiscal year 23, the NPAT-A currency headwind of $245 billion was largely driven by the stronger US dollar and is a function of both realised and unrealised losses. To the left of the slide, the waterfall chart highlights the currency pairs contributing to the headwind, with the Chinese yuan, the pound sterling and the euro all weakening against the US dollar and contributing the most to the $245 million headwind. The US dollar against the Chinese yuan relates to albumin. The US to the euro reflects the full range of plasma products sold into the EU, but particularly IG inventory being built back post-COVID. The adverse movement of the pound sterling against the US dollar is different, as our UK's securest business is a pound sterling functional currency entity. The currency headwind is a by-product of the production of Fluad in Liverpool, which is then sold into the US and then settled at a later date back into pound sterling. Remaining on the left, the currency average rate table highlights the volatility in the major currency pairs, with the US dollar strengthening against most currency pairs upwards of about 8%. Switching to the right-hand side of the slide, the 245 million FX headwind is broken down into FX impact by type. And here you can see that transaction FX has been the largest contributor. The realised, unrealised FX, where realised is the difference in the FX rate from the date of transaction to the date of settlement, or in the case of unrealised, the closing rates as at 30 June. This contributed significantly to the FX headwind with the US dollar strengthening against most currencies during the year. There was also a modest translation impact. You will also see that we have included a footnote on the outlook slide to provide you with the current estimated FX impact for FY24 should rates remain steady for the remainder of the financial year. And at this stage, we see no material impact on our NPAD-A guidance. And we will continue to provide updates to you during the year, such as at our AGM and the half-year result. And with that, I will hand back to Paul, who will finish up with some comments on our IG yield maximization strategy and the fiscal year outlook for 24.