CSL avoids strike on remuneration report as investors take board to task on share price fall

The third-largest company on the ASX narrowly avoided a first strike as investors took the biotechnology player to task on plans to award performance rights to the CEO.

Biotechnology behemoth CSL has narrowly avoided a first strike against its remuneration report at its annual meeting in Melbourne, as shareholders hit out against the pay of chief executive Paul McKenzie amid a sharp reversal in the share price.

The adoption of the remuneration report was rejected by 23 per cent of all shareholders with 24.95 per cent against the awarding performance units to Dr McKenzie after seven-months in the top job.

A first strike occurs when a company’s remuneration report has a no vote of 25 per cent, which would have required the board to respond at the following year’s annual meeting. A second strike at that meeting would see all directors forced to stand for re-election.

CSL chairman Brain McNamee told investors that board was “not thrilled” to have had a high vote against the report and that it would look to listen to concerns from shareholders.

A number of shareholders and proxies were against the remuneration after CSL removed the impact of the $US11.7bn ($18.2bn) acquisition of Vifor Pharma from the report.

“I’m not sure we explained well enough that the board were taking into account the performance of Vifor and that if it didn’t perform to our expectations, that would have had a material impact on the level of vesting that would have occurred,” Dr McNamee said.

“We all knew that, but we didn’t explain that very well. We just said no it’s not included because we would have had to change the targets.”

“We’re in the listing mode. We’re not thrilled with that percentage.”

Dr McKenzie’s reported pay this year was $US4.4m, which Dr McNamee said was lower than former CEO Paul Perreault, but investors took issue with performance grants worth as much as $US7.7m to Dr McKenzie.

CSL is focused on improving margins. Picture: Paul Jeffers/NCA NewsWire

“We are a pay for performance culture. We want to be competitive in the marketplace, which we have to be to recruit and retain staff,” he said.

“I think we’ve got the balance right, but we need to do a better job explaining the targets and how they’ve been set and what they represent.”

Shareholders also took CSL to task for its Vifor Pharma acquisition, which coincided with shares falling 10 per cent in the past 12 months. Dr McNamee said share performance was “close to everyone’s heart”, blaming macroeconomic factors and equity valuations for “growth companies”

“Whilst our share price has been weaker than we would like, the underlying performance of our company is very strong — profit grew 21 per cent this past year and we are expecting profit growth of 13 to 17 per cent next year,” he said.

Dr McNamee said that CSL had a history of doing deals that were not popular, but he was confident that Vifor Pharma would be a success.

“It is appropriate that people worry about corporate M&A and it has significant chance to weaken you. I accept that we have a lot of work to do and I am confidence that this will be seen a significant growth corridor in a number of years.”

At his first meeting of ASX’s third-largest company, Dr McKenzie said CSL had to navigate a difficult macroeconomic environment as it looked to improve margins.

“There has and remains significant volatility in world currency markets, and CSL being a global company is not immune to this,” he said.

“We anticipate modest improvement in the CSL Behring gross margin in fiscal years 24 and 25 with a return to pre-Covid margin in the subsequent 3 years

CSL Behring, one of the world’s largest plasma collection networks, expected gross margin to return to pre-Covid levels in the medium term as it tries to reduce costs per litre.

CSL’s annual net profit dipped 3 per cent to $US2.19bn, with the company also hit by inflation and currency swings from a strengthening US dollar. Overall revenue soared 31 per cent to $US13.31bn.

Shareholders also voted in favour of appointing Deloitte as the company’s new auditor after EY Australia opted against reapplying for the position. CSL said that it looked to the understanding the auditors have of the business, their international standing and the quality of the partners and team that they put forward.

CSL also announced that former Aurizon non-executive director Samantha Lewis would join its board in January.

Shares in CSL fell 0.3 per cent to $254.27 on Wednesday.