CSL shares hit as profit slides

CSL chief Paul Perreault has pushed aside concern about its new flu business, saying it is well positioned for growth.

CSL chief executive Paul Perreault in Melbourne yesterday. Picture: Aaron Francis.

CSL chief executive Paul Perreault has pushed aside investor concern about its new flu business, arguing that the biotech giant has never been better positioned to sustain growth.

The Australian-listed company yesterday reported a 10 per cent slide in annual profit to $US1.24 billion ($1.6bn) on the back of costs associated with the takeover of Novartis’s loss-making influenza vaccine business. On an underlying basis, excluding the purchase of the Novartis business, net profit was up 5.2 per cent to $US1.47bn.

Despite the company hitting its guidance, reviewing a new $500 million share buyback and lifting its dividend, investors punished the stock. The shares closed 5 per cent lower at $110 after recovering from a sharper slump in early trade.

Mr Perreault was keen to point out that the company’s flu division, Seqirus, accounted for only about 10 per cent of the overall business.

He said CSL’s net profit after tax was expected to grow about 11 per cent next year and earnings before interest, tax, depreciation and amortisation were expected to grow 14 per cent.

“The 14 per cent increase on the EBITDA line shows the underlying strength of the bulk of the business — outside of Seqirus, it really is a strong number,” Mr Perreault said.

“CSL Behring, our core business, continues to perform well, delivering double-digit sales growth in all biotherapy groups.”

Investors and analysts yesterday rejected the CSL chief’s focus on the core business and instead put the spotlight on Seqirus.

CSL formed Seqirus after integrating the Novartis business into CSL’s flu segment.

The mergers created the world’s second-largest flu vaccine manufacturer. Sales from the flu business were $US652m, and the company stressed that sales were adversely affected by a mild influenza season in the northern hemisphere.

“We still believe we will turn that (flu) business around but it’s not a straight line — it is a hockey stick,” Mr Perreault said. “We gave our guidance on what we thought those losses would be from the acquisition and we were in that guidance, it was just at the higher end.

“The turnaround of Seqirus is on track and is expected to break-even in 2018. Consistent with previously announced plans, Seqirus is expected to report a loss in the current fiscal year.”

Mr Perreault said in five years he would expect the flu business to be generating $1bn in sales and margins of about 20 per cent.

“The main thing is to continue to drive volume out of our sites and that is well on track. Give us a couple of years and we will be competing well,” he said.

The annual results also revealed that total group revenue for the year was up 8.9 per cent to $US6.13bn.

Sales also increased 8.3 per cent to $US5.9bn.

CSL said it had invested $US614m in research and development, an increase on the previous year’s spend.

The ratio was previously 8 per cent of sales invested into R&D but that has been lifted to 10 per cent.

“You have to continue to innovate or you may as well hang up your coat and go home,” Mr Perrault said.

The boss of the Australian biotech leader, which is celebrating its 100th year, also said he remained positive about the Australian economy, which he said “looks healthy”.

“The Australian economy has its ups and downs because the mining industry has an impact … but on the CSL side it has gone well. We grew in Australia in the past year,” Mr Perrault said.