CSL profit dips 8pc on Vifor takeover costs, rebound in plasma collections fuel underlying growth

All of the key divisions at Australia’s biggest health company have generated solid growth as plasma collections rebound from the pandemic.

CSL chief executive Paul Perreault said the company delivered a “solid result” in the six months to December. Picture: Aaron Francis

PAUL Perreault is leaving CSL in the best shape it’s been in years, with all divisions humming along in the black, as he declares Covid-19 is now behind the $148.4bn company.

But Mr Perreault warns the risk of severe illness from respiratory viruses remains – with influenza infections soaring to 10 year highs – and it would be foolish to view much-hyped mRNA vaccines as a silver bullet.

CSL shares advanced as much as 7 per cent on Tuesday before easing to trade 1 per cent higher, pushing deeper beyond the $300 mark. Some analysts are forecasting it to trade near $350 in coming months.

The company’s overall half-year profit dipped 8 per cent to $US1.62bn ($2.3bn) after it completed its $16.4bn takeover of Swiss renal treatments company Vifor Pharma and was hit by higher plasma collection costs. But Mr Perreault said the drag on gross margins was temporary and the company has “positive momentum”.

“The impacts of Covid are largely behind us at this point,” he said.

“The CSL Behring business, our IG (immunoglobulin) franchise grew very strongly and plasma collections are now at record levels. CSL Seqirus has continued to deliver strong sales growth driven by its high value differentiated products.

“For CSL Vifor, we successfully closed the acquisition on August 9. The integration is well advanced and delivery of our cost, synergy objectives are on track.”

The CSL factory at Broadmeadows. Picture: Tim Carrafa

Stripping out costs associated with the Vifor acquisition, CSL’s net profit firmed 10 per cent to $US1.82bn. Meanwhile, revenue jumped 19 per cent to $US7.19bn.

Collections of plasma – the key ingredient for its lifesaving therapies – surged 36 per cent after being constrained during the pandemic from stay at home orders.

Demand for seasonal influenza vaccines remained high, with CSL Seqirus generating 9 per cent sales growth, while the company received US Food and Drug Administration approval for Hemgenix, the world’s first one-time only gene therapy treatment for adults with haemophilia B.

“It takes a while to figure out CSL – we’re complex – it’s kind of like your Facebook page. It’s complicated,” said Mr Perreault who finishes as chief executive on March 6 after more than a decade at the helm.

“You just have to make sure you’re doing the right things all the time and pushing the hundreds of thousands of levers in this business to get your margins, your price … all the things that go into plasma, plus biotech, plus gene therapy.

“I mean, who would have thought CSL would be the first one with a gene therapy for haemophilia? I can tell you, a decade ago, nobody thought we would.”

The company opened a near $1bn plasma fractionation plant in Melbourne in December, extending its processing capacity to 9.2 million litres – a nine-fold increase. It is also building an $800m cell-based influenza vaccine factory in Tullamarine, while expanding its fill and finish capacity at Holly Springs in the US and Liverpool in the UK.

Despite the hype around mRNA – the technology behind the jab of choice for Covid-19 – Mr Perreault said cell-based shots were the next generation of influenza vaccines.

“It’s early days. The mRNA have not been, I would say, convincing on their flu vaccines so far. Everyone thinks it’s easy because it says mRNA but flu is difficult.

“You have shift and drift of viruses and you have four antigens going in. Everybody thinks they want to make a universal flu. The mRNA is a delivery system and the first generation and still has issues … we need to solve for stability.”

Mr Perreault also said most people took flu vaccines for granted despite the virus killing about 30,000 people in the US each year alone.

“We saw low levels of influenza circulating during the pandemic. This has reversed and we are 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.”

CSL will pay an interim dividend of $US1.07 a share – a 3 per cent increase on the same period last year – on April 5. It reaffirmed full-year profit guidance of $US2.7bn to $2.8bn, based on constant currency.

Sam Playfair, an analyst at ratings agency S&P, said strong growth in plasma supply and increased patient demand should continue to support CSL‘s earnings.

“Additional earnings contributions from recently acquired CSL Vifor and solid performance from CSL‘s influenza business, Seqirus, are also helping to improve credit metrics,” he said.

“We believe EBITDA margins at the company‘s plasma division, CSL Behring, remain constrained. Higher donor compensation and labour costs, along with the nine- to 12-month inventory life cycle of plasma, have kept the cost per litre of plasma collected elevated.

“However, donor fees, the largest cost item involved in plasma collection, have been showing signs of normalising.”

Mr Playfair also expected CSL’s fixed cost absorption per plasma unit collected to continue to improve, supporting further margin appreciation.

Josh Gilbert, Market Analyst at eToro, said the half-year result was a “positive end to Paul Perreault’s reign”.

“With the current macro environment still uncertain, investors will be looking towards healthcare for a defensive stance on their portfolio. CSL has rewarded investors with a robust set of results, a healthy dividend, and sound guidance, meaning investors can expect a solid end to the fiscal year,” Mr Gilbert said.

“Perreault leaves his tenure having served as CEO for ten years, and he has delivered for investors in that time, with shares climbing by more than 400 per cent.

Wilsons and Royal Bank of Canada have respective share price targets of $345 and $347 for CSL.

“1H23 earnings were 8 per cent ahead of our forecasts which were set at the low end of guidance implying modest upgrades,” Wilsons analyst Shane Storey said.

“The key observation in the 1H23 result is the rebound in IG (immunoglobulin) sales to $US2.2bn and early evidence that scale benefits are returning to (CSL) Behring’s gross margin.”

After a strong performance in morning trade, CSL shares eased to close 0.9 per cent higher at $307.75. This compared with a 0.2 per cent gain across the broader share market.

Chief operating officer Paul McKenzie will succeed Mr Perreault as chief executive.