Earnings Transcript for CSL.AX - Q2 Fiscal Year 2021

Mark Dehring: Ladies and gentlemen, good morning, and welcome to CSL's Half Year Results Call for fiscal 2021. It's Mark Dehring speaking, and joining me online is Paul Perreault, CSL's Chief Executive Officer; and John Levy, who is our Interim Chief Financial Officer. As with past practice, Paul will provide an overview of the results and operations and then John will provide some additional detail on the financials. We'll then move to Q&A. With a view to giving everyone an opportunity to ask questions, could you please limit your questions to two, if you do have further questions, you are, of course, welcome to rejoin the queue. And 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 CEO, Paul Perreault. Over to you, Paul.

Paul Perreault: Thanks Mark and good morning and thank you for joining today's review of CSL's first half year results for 2021. As usual, I will provide, as Mark said, an overview of the results and the highlights, and I'll hand over to John, our Interim Chief Financial Officer, who will provide more on the detailed financials and conclude with an update on our outlook and as Mark mentioned, of course, always happy to take your questions. So with that, let's move on to the slide three, which is our first half 2021 performance. And I'm very pleased to report that CSL delivered a very strong first half with revenue up 15% at constant currency and net profit after tax up 44% at constant currency. This is an excellent performance, especially given the difficult and uncertain environment we have all faced with COVID-19. This result is not only a reflection of CSL's diversified and resilient business model, but mostly our dedicated employees who remain focused on delivering on our promise to patients and to public health around the world. Some of the first half highlights are for CSL Behring, earnings before tax and interest was up 24%. This was driven by strong performance of HIZENTRA, our market-leading subcutaneous Ig product, which was up 19%. Albumin sales grew 93% due to the successful transition to our own distribution model in China. HAEGARDA continues to show solid growth and increased 16%. CSL Behring has also been very busy manufacturing COVID-19 vaccine for the Australian government at our broad metals facility. Our influenza's vaccine business, Seqirus, delivered an exceptionally strong performance with its EBIT more than doubling to $693 million. Sales of seasonal influenza vaccines were exceptionally strong at 44%, and the business achieved a strong increase in its gross margin due to its high-value and differentiated product portfolio. We also announced Escuris to construct a new world-class biotech manufacturing facility in Melbourne, Australia. COVID-19 has certainly presented us and our industry with some challenges. However, we ensured our critical operations were well-managed and maintained, a real credit to our people that are right across the CSL Group. Later, I'll review details on how COVID-19 impacted our business, but at a high level, I would say the pandemic has tempered the performance of CSL Behring whilst boosting the performance of Seqirus. Plasma collections have continued to be challenging. However, we have actively put multiple initiatives in place and starting to see monthly improvements. Despite this challenging environment, CSL is well placed to emerge even stronger when the COVID-19 crisis recedes. On to the next slide, where we have CSL Behring sales by therapeutic areas. The portfolio recorded overall sales growth of 11% at constant currency. Immunoglobulins, our core franchise, was up 7%. As I mentioned earlier, albumin was up 93%, hemophilia was up 1%, with specialty products up 3%. I'll go into more detail with each of these shortly. In terms of the geographic split, you can see the broad reach of CSL Behring sales with our two key markets, North America and Europe. All regions recorded solid growth with Asia-Pacific up 79% as a result of the strong growth in albumin in China. Immunoglobulin, on slide five, demand for Ig, continues to be robust, driven by chronic indications, primary immune and secondary immune deficiencies as well as CIDP. And despite those challenges that I mentioned associated with COVID-19, our Ig franchise still grew at 7%. This was led by strong growth in HIZENTRA, which I mentioned earlier, was up 19%. In August last year, I said we were seeing early signs that COVID-19 was driving increased usages of HIZENTRA. This has really come through strongly in the 6 months to December given the preference for home treatment, and the innovative nature of this product. HIZENTRA is an attractive option for patients. It gives them the convenience to self-administer at home. And with its other features such as flexible dosing and prefilled syringes, HIZENTRA assist patients to better control their disease state, even more so than with the COVID-19 restrictions. HIZENTRA has also seen a continued uptake for the treatment of CIDP in the US. HIZENTRA continues to build its leadership position. Its relatively new orphan drug exclusivity for CIDP makes it the only subcu product with a CIDP label in the United States. More than 60% of our priority target physicians have now adopted HIZENTRA to treat CIDP patients. On the IVIG side, PRIVIGEN grew modestly. Disruptions and delays in infusion centers as a result of stay-at-home orders and preference for home treatments such as HIZENTRA and the tightness of plasma supply have all tempered PRIVIGEN's growth. As many of you know, Ig supply was tight even before the pandemic. As global Ig demand remains strong, this tightness of supply is intensified during COVID. Accordingly, we are closely managing our supply chain and have taken steps to avoid any significant supply disruptions. For example, we implemented a customer order fulfillment process to ensure fair and equitable supply to current customers. Further, we are not opening any new accounts or taking new customers, but are focusing on supplying products to current customers, as I've always said, that once we have patients on product, we want to continue to supply those patients. Turning now to Albumin. On slide 6, where sales growth was up 93%. This reflects the successful transition to our own distribution model in China, where albumin sales have now returned to a more normalized level after the one-off impact we saw in the previous year. Having our own distribution model now in place will help improve our participation in the value chain and strengthen our sales and marketing efforts in China. Excluding this change, our in-market sales of albumin in China grew in the high single-digits, and we have maintained our market leadership. There has been some impact to hospital operations as a result of COVID-19 in China, but this has now returned to about 90% of normal. Whilst the competitive environment in China has increased, demand for albumin is still expected to be in the mid- to high single-digits. Outside of China, we have achieved strong growth in Europe and emerging markets, whereas in the mature US market, sales have been steady. Overall, excluding the GSP impact in China, sales of albumin were up modestly. Looking ahead, we expect an increase in albumin utilization in the treatment of liver cirrhosis and a preference for albumin over artificial colloids. On slide 7 is hemophilia. Overall, growth in the hemophilia portfolio was tempered by reduced doctor visits in patient consultations during COVID-19, simply a function of lower societal movement. However, against this challenging backdrop at IDELVION, our long-acting recombinant Factor IX product for hemophilia B recorded an impressive 6% growth. Its compelling clinical profile continues to drive patient demand, with new patients and patients switching from other Factor IX products contributing to its growth. In a very competitive hemophilia A market, sales of our other recombinant coagulation products are still were steady and the market competitiveness also impacted our plasma-derived hemophilia products. This was offset by some extent to a 6% increase in Humate, which is a leading product in the US for the treatment of von Willebrand disease. On to slide 8 and specialty products. Overall, specialty product sales grew 3%. The standout performer was HAEGARDA, our transformational therapy for treating patients with HAE or Hereditary Angioedema. HAEGARDA grew strongly up 16% as new patients continue to take up therapy. Also contributing were new launches in Europe, and Australia, which exceeded our expectations. BERINERT has steady -- was steady as patients switched to more effective prophylactic products, including HAEGARDA. Despite this, BERINERT continues to play an important role in the HAE market, providing a safe and efficacious option for patients to treat acute attacks. The other main specialty product to record solid growth was KCENTRA, which is up 6%. And I think really impressive, but somewhat tempered by the current COVID environment. Generally speaking, the pandemic has caused a reduction in surgery and fewer incidents of trauma both affecting the utilization of KCENTRA. So in this COVID environment, the 6% was, I think, a really great result. This dynamic has also impacted other hospital products. Sales of wound healing products were down 26% and RIASTAP was flat. For ALPHA-1, in total, ALPHA-1 sales were down 7%. Sales of ZEMAIRA were down in the U.S. following a supply interruption at Kankakee. The root cause of the issue has been identified and a plan is in place that has been approved by the regulator to move ahead to resume supply. For RESPREEZA, growth has been very strong following successful launches of the product in Europe. Turning now to plasma collections. As I mentioned earlier, COVID has presented us and continues to present us the many challenges, including our ability to collect plasma. All of our plasma collection centers have remained open and operational in the United States during the pandemic. However, the incidence and the spread of the virus in the U.S. has led to measures such as social distancing, stay at home orders, restricted mobility of donors. Combined, these have had an adverse impact on our plasma collection volumes. Additionally, the U.S. government stimulus packages have also influenced plasma collection. As a result, our collection volumes in December 2020 were around 80% of what we collected a year earlier in December '19. Various COVID-related hygiene measures also added pressure on the cost per liter of plasma collected. To address the lower collection rates, we have implemented a number of initiatives to increase plasma collections. I'm pleased to say they have been effective and month-on-month improvements are underway, which I'll show you on the next slide. First, I'd like to share some detail around the initiatives that CSL Plasma has been undertaking to increase plasma collections. We've enhanced our marketing efforts, and these include increased plasma donation awareness and education to promote the importance of plasma donation, retention and reactivation campaigns for previous owners and referrals for family and friends. We've adopted new technologies such as a donor app, mobile phone video consent and self-administered health history questionnaire kiosks. Usages of these technologies are growing and providing donors with a better user experience as they enter the centers. As the rollout of COVID-19 vaccines becomes more widespread, mobility is expected to increase and lead to more foot traffic at our collection centers. CSL also led an industry initiative, which has been introduced and approved by the FDA. Now the whole period for plasma reduced by 15 days, providing accelerated way to provide patients with the life-saving medicines they need. We've been managing our supply chain very carefully and utilizing the available finished goods wherever possible. We continue to lead the industry in new plasma collection centers. We opened 17 new centers in the first half and plan to open another 12 in the second half. We now have a network of over 280 centers globally and our centers are the largest and the most efficient in the industry. And finally, as our volumes recover, our cost per liter will reduce, in line with the fixed cost distribution that we have across the business. So if I move to Slide 10 and the plasma collections graph. You can see what's happened with the plasma collections and how our initiatives have been driving growth in donors. On the graph, we have the number of donors that have come into our centers on a weekly basis. The black line is calendar '19, the red line is 2020. As you can see, there is normally a seasonal dip in February, March as tax refunds are distributed in the U.S.. Then you can see where the pandemic hits and the lockdown begins in March, April, causing donor numbers to significantly fall. From here, we see the numbers starting to stabilize. In May and then in June, our initiatives are launched we see an improving upward trend for the 6 months to December. There is a typical dip at the end of December, which is consistent with previous years, and this is due to the holiday season. In summary, plasma collections have been challenging and will continue to be challenging. We have a range of initiatives in place to counter, and we're focused on ensuring our plasma collections keep going in the right direction. As you've heard me say before, collecting plasma is one of the hardest things we do at CSL. We're determined to get our plasma collection volumes back to where we want them to be. They're improving, but they're not there yet, and we'll keep striving because our patients depend on us. Moving on to slide 11 and our influenza vaccines business, Seqirus. Seqirus delivered an exceptionally strong performance. For the first half, Seqirus reported revenue of over $1.4 billion, a growth of 38%. This was driven by very strong sales and seasonal influenza vaccines of some 44%. The Northern Hemisphere continues to be the dominant market for Seqirus, with the US and Europe accounting for over 90% of Seqirus sales and the period with both regions delivering strong growth. Sales in Asia Pacific were down 9% or $8 million due to lower in-licensed vaccine sales as a result of COVID-19. Garda sales declined since there was less international students in Australia, and also the sales of travel vaccine Dukoral was impacted by the international travel bans. Continuing with Seqirus on the next slide, the operating highlights included the significant growth in seasonal influenza vaccines, seeing a record number of more than 100 million doses sold in the Northern Hemisphere. COVID has been responsible for driving high demand for influenza vaccines as governments around the world look to protect their populations from influenza, so that the healthcare systems are not burdened or stretched further during the crisis. Seqirus has continued to benefit from the ongoing shift in the portfolio to our differentiated and high-value influenza products such as the cell-based vaccine FLUCELVAX produced at Holly Springs and our adjuvanted vaccine for the elderly market FLUAD. Some other key milestones for Seqirus included the successful launch of FLUAD QIV in the US and the relaunch of business in Germany. To cope with the increased demand, all operations were maintained during the pandemic and capacity expansions at Holly Springs and Liverpool are well advanced. Finally, Seqirus has been instrumental in providing support for COVID-19 vaccine efforts and supplying our MF59 adjuvant to various vaccine candidates around the world. Moving over to R&D on slide 13. Now there's a lot on this slide. And it shows that we have a deep pipeline in R&D, underpinning our company's future growth. In the interest of time, just a couple of highlights beginning with immunology. PRIVIGEN for this treatment of CIDP was launched in Japan. This is a great achievement and a tough market to get new indications. In hematology, uniQure announced late-breaking preliminary data from their pivotal Phase III trial of EtranaDez. As you know, a product that we're in the process of acquiring. In cardiovascular and metabolic, the Phase III for CSL-112 continues to progress well with now over 11,800 patients enrolled. In influenza vaccines -- so it says 11,500, but I just gave you the most recent number. So just -- so there's no confusion. In influenza vaccines, we have commenced the Phase II study for our adjuvanted QIV cell vaccine and we're undertaking preclinical assessment of mRNA technology for influenza. R&D COVID-19 response on slide 14. Right from the beginning of the pandemic, we have really been focused at CSL on using our capabilities and expertise to respond to this COVID crisis. This has led us to reprioritizing our R&D projects at some significant disruption to the company's normal activities. We've redeployed and recruited 400 personnel, and we've paused clinical trials, which are all now back up and running. One of the major programs that we were working on was the development of a COVID-19 vaccine with University of Queensland. This involves substantial activity across the company, including advanced preparation for the planned Phase III trial, extensive retooling of our facilities, scaling up and producing and material to produce 11 million doses to support the contract with the Australian government. Although the vaccine was progressing well due to testing issues, the program was ultimately halted and orders from the Australian government were canceled. In parallel to the UQ program, CSL entered into an agreement with the Australian government to manufacture 30 million doses of the Oxford University Astrazeneca COVID-19 vaccine, Canada. With the UQ Canada vaccine halted, CSL pivoted quickly and our attention was focused on accelerating the manufacture of the Oxford University Astrazeneca COVID vaccine, Canada and supply an additional 20 million doses ahead of the original schedule. Manufacturing is well underway and the first doses are planned for release in late March, having just received TGA approval. In addition to our work on vaccines, we've also been working on COVID treatments. As a founder of the COVID-19 – COVID-19 Plasma Alliance, CSL has made good progress with its partners on developing a plasma-derived hyperimmune for treating among the most severe complications resulting from COVID-19. Phase III clinical trials are underway, and CSL is producing trial lots at our Swiss facility. If successful, this will become one of the earliest treatment options for hospitalized COVID-19 patients. I'm going to now hand over to John to go through some of the financials in more detail. John?

John Levy: Thank you, Paul. Good morning, everybody. It's a pleasure to be talking to you and reporting this really strong half year result. So turning to the financials. As we've reported, profit has increased both from $1.248 billion to $1.810 billion, an increase of 45%. At constant currency, profit was $1.794 billion, an increase of 44% after adjusting for an FX tailwind of $16 million. Included in the panel on the right, are a number of areas that Paul has already touched on, the transition is complete to our GSP, China business and sales of albumin have normalized. Seqirus had an unbelievably strong first half growth of differentiated products, together with some manufacturing efficiencies and we have responded to the COVID-19 pandemic in a number of ways, and that's impacted on our financial statements through a number of different ways. We've had impact on R&D costs. We've incurred some costs on the reengineering of our facilities to be able to manufacture. There have been some cost savings driven by just the changing environment in which we operate, and we obviously also have received some funding from government here in Australia in respect of the manufacturer of the COVID vaccines. In total, that represents a one-off impact on net profit for the first half of around about US$80 million. Turning to more detail on the financials. Total revenue was up 15% on a constant currency basis to $5.653 billion. Gross profit of $3.423 billion at constant currency was up 20%, reflecting a 270 basis point improvement in gross margin. EBIT was up 42% on a constant currency basis, with an associated EBIT margin expansion of 790 basis points improvement over the prior year. The margin expansion is largely a function of secure sales of new generation products. This flows down to net profit after tax and EPS, both up 44% at constant currency. Turning to cash flow. Cash flow from operations was $2.3 billion, an 87% improvement on last year, albeit positive in terms of percentage growth, this really is a reflection of the collections environment that Paul's just covered with a smaller pool of plasma donors, resulting in lower cash payments for plasma, although these are at a higher unit cost in the short term. We've also implemented ongoing cost control initiatives across the business, and that has favorably impacted cash flow from operations for the period. Capital expenditure was down 13%. That's largely due to restrictions on-site access around the number of – the major projects that we have across the globe, driven by the COVID pandemic. The interim dividend is US$1.04 per share, an increase of 9%. For Australian shareholders, this translates to a dividend of approximately AUD 1.34, which is down 9% on the prior comparative period, driven by the strength of the Australian dollar over the past 12 months. A little more detail on the segment results. Behring revenue was up 9%, gross profit up 10% and EBIT up 24%, all at constant currency. This reflects the demand that Paul has talked about for ongoing demand for our therapies, but also reflects the management of costs during the pandemic period. You'll notice a 54% reduction in other revenue. This is largely attributable to lower GARDASIL royalties driven by lower sales of GARDASIL by Merck, largely in the United States, and a one-off favorable legal settlement that was reflected in the prior comparable period. For Seqirus, total revenue was up 38% and EBIT up 112%, reflecting the strong demand for products that Paul talked about, the continued success of our product differentiation strategy and the manufacturing efficiencies that we've realized through that increased production volume. These drivers are also reflected in gross profit, which saw an increase of 64% of constant currency and an expansion of gross margin of over 1,000 basis points. As was mentioned in August at the full year, the business -- the Seqirus business has exceeded the long-range financial targets when Seqirus was first formed five years ago. And I think everybody is now familiar with the seasonal nature of the business. The majority of sales are into the Northern Hemisphere and therefore, reflected in the first half, whereas a lot of the costs of the business are more evenly spread throughout the year. The upshot is that Seqirus, as it has in the past, will record a loss in the second half. So turning to expenses. Walking through each of these items. R&D expense was down $24 million or 5%. It's largely due to the impact of COVID on the R&D portfolio. As Paul highlighted, we had amended some of the -- the projects slowed them down, reprioritized in order to redirect activity to COVID vaccines. However, with respect to the full year, we are still anticipating an R&D spend in the range previously guided of 10% to 11% of sales. Sales and marketing expenses are down 6%, largely due to lower travel and marketing expenditure, again due to the COVID outbreak. This is offset by an increase within Seqirus to support current and future growth as well as entry to new market channels. In general and admin down 18%, largely a function of initiatives to control expenditure that were put in place to -- in the environment of COVID uncertainty. The effective tax rate remains relatively steady at 20%, although, for the full year, we do expect that to tick up to 22%. As a closing comment, while the group's expenses have been contained, as the global pandemic recedes, we would expect to see a lift in costs as societal mobility resumes, and the business returns to some semblance of normal operations. With that, I'll hand back to Paul.

Paul Perreault: Thanks, John. Returning now to slide 20. I'll make a few comments on our outlook for 2021 and beyond before taking questions. The first point to note is that the full year result will be heavily skewed to the first half. For the second half of 2021, the seasonality of the Seqirus business means that we'll make a loss, as John mentioned. 80% of our sales are made in the first half and the cost of goods, as John mentioned, are sold are relatively evenly spread throughout the duration of the year. Sales of albumin will continue to normalize following the transition to the new business model in China and the rate of growth in the second half on the first half will not be as strong. Plasma products sold in the second half, arised from plasma collected last year in a COVID environment. The higher cost of this plasma is expected to put some pressure on our margins. The additional work we've been doing on COVID-19 vaccines has resulted in the reprioritization of R&D projects and subsequently, there will be an increase in R&D spend in the second half as we restart the projects and build them back to scale. For the full year, we do anticipate a return to our long-term guidance of the 10% to 11% of revenue, as John mentioned. Lastly, once COVID recedes and restrictions around social mobility recedes, we anticipate an increase in SG&A expenses. In terms of 2021 -- fiscal 2021 guidance, we affirmed that profit after tax to be approximately $2.17 billion to $2.265 billion in constant currency. As per our usual practice, we'll be providing guidance for fiscal 2022 at our full year results announcements. So I'd like to finish up by making some general comments about the longer-term outlook for CSL. We continue to believe the underlying demand for IG will remain strong. As with the second half of 2021, plasma collected today drive our 2022 sales for IG and Albumin. We expect our collections to grow as the pandemic recedes and society returns to the more normal social mobility norms, particularly noting that global community is on the cusp of a broad-based COVID vaccine rollout. However, this takes time, which means the impacts from COVID, both positive and negative, at a pretty heavy layer of complexity and uncertainty to our earnings profile until we get through this pandemic. COVID restrictions on social mobility have also inhibited patients' ability to visit doctors, access emergency services, and once these restrictions ease, we expect there will be an increase in product demand in general. And lastly, our multiple large late-stage R&D programs underway provide potential new growth opportunities. I really do believe CSL is well positioned to emerge strongly when this pandemic recedes. So with that, Mark, I think we'd be happy to start with questions.

A - Mark Dehring: Thanks, Paul. Thanks, John. Ladies and gents, we'll open the lines up to questions. Operator, if you could do that for me, please. I note the first person in the queue is Lyanne Harrison from the Bank of America. Go ahead, Lyanne.

Lyanne Harrison: Good morning, all. Thank you for taking my question. The first question I have is in relation to plasma collection. I guess, we saw the chart up until December. Can you give us some color on where or how plasma collections trended in January and February of this year?

Paul Perreault: Thanks, Lyanne. Look, I don't have all of the exact numbers as February is just coming to a close, but I would say that in January, there was a dip, because the new incentives were rolled out from the government in terms of the stimulus, and we've seen that repeatedly when there's a stimulus or payment, even the tax payments on an annual basis, you see these dips. So there's a little bit of a dip in January, although it was better than we had forecasted. We also, in February, just recently this past week – February started quite well, but as you might have seen in the news, we've had some very serious winter storms across the United States. And that is impacting all the collection centers for all of us and our competitors at the moment. So it's a short-term issue, but every week counts, every day is when it comes to our donors.

Lyanne Harrison: Okay. Thank you. And then if I think about the sales going into, whether it's second half of 2021 and then into finance year of 2022, you spoke about potential constraints on sales given collection volumes to what extent would – if I think about the impact on IG and albumin sales. To what extent will collections have to fall to that it will start to impact those two products?

Paul Perreault: Thanks, Lyanne. As you know, I'm not going to give you guidance to 2022 as of yet, but you can do the math, right? I mean, it's about nine months from collections till the product hits the market. So what we're collecting now will really be placed into 2022. So it really depends on how collections go, but I'd say we're managing our supply chain, both in terms of finished goods, inventories quite carefully. And that's why sales will moderate in the second half. That's why you're not going to see the – you can't double the first half profit, obviously, and move into the second half. And that's why we're still guiding to the same guidance that we had for the full year of 2021, but I should say that we're doing everything in our power to continue to increase collections. And we do have other products that are non-plasma products that are contributing to our growth as well. So we think we have a balanced approach, and I think we'll come out of this well.

Lyanne Harrison: Okay. Thanks very much.

Mark Dehring: Thanks, Lyanne. Our next question comes from David Low at JPMorgan. Go ahead, David.

David Low: Thanks very much and thanks for taking the questions. Paul, you just mentioned managing plasma and managing inventory. I see the finished good inventory was pretty flat in the account. Just wondering what – how much inventory has been released and how you're thinking about that over the next 12 months?

Paul Perreault: Thanks, David. I'd say the answer is carefully. We're – it's one of those things where we're monitoring, I've never had so many calls, I think, in my career on inventory. So it's really a managed on a daily basis between our operations group and our commercial group, and we have multiple calls just to make sure that we're looking through the inventory. So what we've done is we've put some measures in place, with customers to monitor their ordering patterns, making sure that they're not loading up or overstocking. We're making sure that we have enough to come through in emergencies, for people that are looking for product that are patients of ours as well. It's a constant endeavor, at this particular point, because there's just not a lot of excess inventory. So, you might remember in the first half, we talked about months of inventory that we had. I mean, that's been reduced, as we continue to supply patients, because we continue to grow the business, right? I mean, the business grew in the first half. And now we have to supply that as well. So sales will moderate in the second half. And then, we have to manage the inventories moving into 2022.

David Low: Great. Thank you. Just my other question is we've heard some anecdotes about prices for immunoglobulins going up quite a lot in some markets outside the US. Just wondering if you could talk to the mix between price and volumes in the sales results to-date, please?

Paul Perreault: Look, in the results today, you can look at Ig up 7% figure, somewhere around near half is -- price near half as volume, and the rest is mix. So, it's mostly price volume with some mix contributing to that as well.

Mark Dehring: Good. Thanks, David. …

David Low: Great. Thanks very much.

Mark Dehring: Next question comes from Andrew Goodsall at MST. Go ahead, Andrew.

Andrew Goodsall: Thanks very much. That was a good segue to my question, which was just around HIZENTRA, obviously, that heavy demand in terms of your manufacturing, what sort of percentage of production is that now, as the potential of the mix?

Paul Perreault: So thanks, Andrew. Look, it's trending up. So it's somewhere around -- Mark, correct me if I am wrong, but I think it's around 25%, of our production now.

Mark Dehring: Yeah. That's right, Paul. It's actually, north of that for HIZENTRA.

Andrew Goodsall: Okay. And would that be sort of up on a sort of 20% level, I guess, in previous times?

Mark Dehring: It has moved up, Andrew, yes.

Paul Perreault: Yeah. We had said about 20% last year. And it's moved up. So you saw that growth of 17%. And it's being driven, again, a lot of the COVID responses of people treating at home, because these infusion centers and hospitals have been very reluctant to have immunocompromised patients coming in during COVID, at the same time.

Andrew Goodsall: And just a second question on pandemic within the Seqirus piece. That was only up 4% this half, but is your expectation that reserving policies or even, whether you're going to make some money on COVID that that would see sort of an increase in the pandemic piece within Seqirus, second half?

Paul Perreault: Well, the pandemic piece was -- the pandemic piece was really around pandemic-flu, as opposed to pandemic-COVID.

Andrew Goodsall: Okay. I think you signed some contracts during the period and so on. Are they more second half weighted, though?

Paul Perreault: Yeah.

Andrew Goodsall: Okay. Got it. Thank you very much.

Mark Dehring: Good. Thanks, Andrew. Our next question comes from Steven Wheen at Jarden.

Steven Wheen: Thanks Mark. Morning Paul, I just wanted to start with you your guidance. Given the extraordinary first half number, certainly relative to our expectations, it seems difficult to hold on to the current guidance. And I'm not just missing the comments you made around costs going forward, if we start to normalize. But you've got a pretty good line of sight around what your finished goods looks like, for the full year given that nine-month time lag. So is it because you're just not taking on new patients, just from a prudence point of view that's causing that conservative. I'm just wondering if you can help us understand that. Because if you look at, what you've done historically in previous half years, you're basically suggesting, you're going to do half of what you've historically done, in the second half of 2021?

Paul Perreault: Yeah. Look, I guess, Steve, thanks for the question. I think there's clearly a lot of complexity in this result. And I would say that, the Seqirus first half has been significant compared to what we've done in other halves. And as we pointed out, that's not repeated in the second half. There's not that revenue coming in the second half. And that's been very profitable. And you saw the EBIT numbers that are being generated in Seqirus in that first half. So that's one we had to account for the payments on the UQ vaccine, because the contracts were canceled in the first half. So that was a one-off that John mentioned. We have the GSP license, which is a one-off, so there are some things that are driving that profitability in the second half, but you're right, in my comments that we -- growth will moderate in the second half. There's no doubt that we're not taking on the new patients and the new customers, because we're going to be managing inventory. You all know the business well and can see what we -- where the plasma collections are today. So we're going to manage that very carefully, because the last thing I want to do is not supply patients that have started on our products. So we are being very, I would say, prudent. You might say conservative, but I'd say we're being very prudent in terms of managing the inventories and making sure that we can continue to supply these life saving, life extending products to the patients. So there are a few things that are moving around in those numbers, not the least of which was just a stellar Seqirus result and some of the one-offs that we've had in the first half. Expenses are also going to increase, and I think we've talked about that in R&D. And we've got some major retooling to do, still, and some expenses are going to hit within our business that we're going to have to account for. So even though we had some benefit from that we booked in the first half on the COVID piece, those expenses will continue to be put through the P&L in the second half, because those -- that money was for actually, the retooling and the disruption that we've had in the business. We've had quite a disruption in the business. So there's a lot happening there in terms of the expense lines. We really are still trying to understand in some respects, what can we continue to do without overcooking on that expense line, because that has also helped us significantly in the first half, where we thought we'd be returning to more "normal" type expense, even in the SG&A line in the second half. And we've now, again, limited anybody returning to work, where we thought we'd, by the second quarter, be doing that, and we've now put things in place to prevent that from happening. So there's expense moving around on all the lines at the moment. And so, we just want to make sure that we're managing it appropriately.

Steven Wheen: Right. Fair enough. Can I, just as a second question, pick up on the inventory comments? Have you dipped into the 2.5 to 3 months worth of safety inventory yet? Or is that still up your sleeve? And then just finally, with regards to flu shot returns, are you still providing a provision given the extraordinary uptake of that -- of flu shots in the Northern Hemisphere? Thanks.

Paul Perreault: Well, yes. First, I don't -- my sleeves aren't big enough. So, yes, there's -- we have been selling down inventory as well, of course, because you look at the plasma collections from COVID last year, and you would see the increases that we've had. So, again, it's all part of the inventory management. We don't have three months of inventory sitting around, that's for sure. In terms of the returns from Seqirus, it's interesting, people say, well, look, it is a stellar first half, you're not going to have all those returns. You have to understand that what you sell does come back, if it doesn't get used. A lot of the sales did come in the second half. So we still are holding the placeholder for the returns still in that double-digit. We've always said it runs between 8% and 16%, but it's usually in the low teens that we look at and say, okay, is that something that makes sense? And based on customers and what we saw -- and even though there were a lot of late sales into the flu season, because people continue to buy, when there was less disease around because with COVID, people were social distancing. They were wearing masks, they were having stay at home orders, there was less disease circulating. So there will be returns. You can't assume that just because we had that strong first half, that it's all gone. It wasn't all put into arms.

Mark Dehring: Good. Thanks, Steve.

Steven Wheen: Thanks, Paul.

Mark Dehring: We'll move on to next question from Saul Hadassin at UBS. Go ahead Saul.

Saul Hadassin: Thanks Mark, and good morning. Just a question on IG, and particularly the PRIVIGEN performance. And again, apologies if you covered this in your prepared remarks, but yes, 7% growth, the revenue line, you said half -- effectively volume half price. Just on that volume side, it's a bit below what we were expecting across the IG portfolio. Can you talk to where patients skipping doses, do you think or is there lower diagnosis for people not turning up to physicians globally because of COVID?

Paul Perreault: No, I'd point you to the 17% increase in HIZENTRA, Saul. As you know, we have an ability to, at the end of the production cycle, make a decision to go to PRIVIGEN or HIZENTRA, we were prioritizing HIZENTRA as well. And it was because we did see less PRIVIGEN, because people were not getting into their infusion centers. And there was a higher demand for the HIZENTRA. So, it was really that mix between the two in terms of where that fell with the two products. And that's why PRIVIGEN was not up as much as from an IV perspective. We also saw, as I mentioned, a much stronger uptake in CIDP with HIZENTRA in the subcu space. So that was a good growth driver for us as well from the HIZENTRA side of things.

Saul Hadassin: Great, thanks. And just a question on COGS per liter. And the mention of some degree of inflation coming through, I guess is there any ability to quantify what to expect as we go into second half 2021 in terms of what you're seeing on growth in cost per liter plasma?

Paul Perreault: John, do you want to handle that or you want me to take it?

John Levy: No, no, I'm happy to handle it Paul. Look, we will see higher costs, it's difficult to quantify. To some extent, it's a function of volumes that we manufacture. So there are two impacts on cost of goods sold. One is the higher plasma cost. The other is throughput volumes through our facilities. So, we're seeing those two impacts, margin will tick down, but not by a material amount in the second half. We'll still be reporting strong margins, but it won't be as high as in the first half.

Saul Hadassin: Thank you. That’s great.

Mark Dehring: Thanks, Saul. Next question comes from Chris Cooper at Goldman Sachs. Go ahead, Chris.

Chris Cooper: Thanks Mark. So, look, again, on your guidance, so presumably, at this stage, you do have very good visibility on end product availability. And if I do hear your comments around having to be selective over new customers, but I'd just be curious to know, does your guidance, as it stands, does that assume you're going to have to be -- to have to limit volumes towards any existing customers at all?

Paul Perreault: We're managing our current customer base. I think I've said that already, Chris. I mean, we're not really taking on new customers at the moment, and we're managing the inventories within our customer base. So making sure that the ordering patterns are not increasing beyond what they would normally be ordering for the patients who are on therapy.

Chris Cooper: Okay. And just on collection, if I could just ask it maybe in a slightly different way.

Paul Perreault: And just -- sorry, Chris, if I could just jump in, just finish off. I know everybody is focused on IG and somewhat albumin, because this is one, because KCENTRA. When you look at KCENTRA, when you look at IDELVION, when you look at HAEGARDA, these are not constrained in the same way. So it's not all patients across the portfolio, right? I mean, I know everybody is focused on IG, which is a big part of our business, for sure, but I just want to point out that it's not all products that are having this impact.

Chris Cooper: Understood. And just on collection, I'd just be curious to know, if we roll forward that chart in your slide deck, would January show a continued sort of narrowing of that delta or has it been double given development with COVID everything everywhere? And then, just part of the question, I'd just be curious to know how much of the role the equipment suppliers might be able to play there, but still -- it’s because some of your suppliers, they're claiming up to a double-digit advantage in yield, and if we're talking about collection volumes being down 20% year-over-year in the month of December and potentially doing some very modest improvement from that point. Today, maybe a double-digit yield advantage it would also be very beneficial in the current time. I just love to hear your thoughts on that, please? Thank you.

Paul Perreault: So January was showing the same trends. When the stimulus came, there was a dip, but then it's starting to recover again. So I think that's coming along. In terms of yield, it's always important. And I would say that we are and have been getting increases in our yields over the past couple of years. And so we're doing just fine. I'd say that switching out equipment is not easy, and so it takes time. We're evaluating, right now, the Haemonetics platform in our European centers. So we'll see how we go.

Mark Dehring: Thanks, Chris. Next question comes from David Stanton at Jefferies. Go ahead, David.

David Stanton: Good morning, and thanks very much for taking my questions. First question, please. We see that you had $50 million impairment within Behring. Can you give us some color as to what that pertains to, please?

John Levy: That -- it results from a reprioritization of what was a pretty complex set of capital investments going on at the Kankakee site. So as part of the reprioritization, which itself will drive future value. By repurposing some equipment, we are -- unfortunately, we're left with some equipment that we couldn't use. A lot of it is actually not tangible equipment. It's design costs for facilities that we won't now build. So we've taken the prudent decision to write-off those costs in the first half.

David Stanton: Understood. Thank you. And I guess my second question is, it relates to slide 10, I think it is. You've got plasma collection pictures there, and thank you very much for those, but can you tell us; firstly, part A of my question seems everybody seems to have a part A and a part B. Part A of my question would be, is that -- does that same-store collection centers or does that include new collection centers; and then part B of my question would be, given that decline, you haven't called out in collections, you haven't called out albumin being at risk of lower supply dynamics in the first half of 2021, should we be thinking that that maybe -- is going to be more of an issue than it has in 2022 than it has been for 2021? Thank you.

Paul Perreault: Thanks. Yeah, this is all collection centers, but I would say that as we've opened 17 in the first half, they're very low production. So it wouldn't account for much of the increase in these numbers. In terms of albumin, albumin is a direct correlate to really IG. They are the two main products that we get out of each, but we do have a little bit more inventory on the albumin side, and so it shouldn't have as much of an impact as the IG business.

David Stanton: Understood. Thank you

Mark Dehring: Thanks, Dave. Next question comes from John Deakin-Bell at Citigroup. Go ahead, John. Can you speak up?

John Deakin-Bell: I can't have that. Apologies. Paul, my question is just on the -- just -- I'm just trying to understand the Behring margins. So I think you've recorded a record margin. I think the last half margin as good as that was at the first half of 2018. And I get -- so your EBIT is up about $380 million, it sounds like there's $180 million of impacts from cost out plus some one-offs from the government, but is there some impact -- margin impact from the China change that I'm not understanding that's benefited you because, notwithstanding, that nine-month lead time, I would have thought that margins -- it would have been very difficult for margins to expand 600 basis points in this environment?

John Levy: I mean, I can answer the China.

Paul Perreault: Really no impact from…

John Levy: Sorry, go on, Paul.

Paul Perreault: Really no impact from China. But John, go ahead and speak about…

John Levy: No. I was just going to make the point that the weighting of greater sales in China actually -- sorry, Paul, I don't mean to contradict. It has a modest impact because of pricing. So our average selling price for albumin is slightly higher with the weighting back of sales back to a normal level in China. So it has a modest impact, but it's only modest.

John Deakin-Bell: Okay. And then just going forward, I understand what you're talking about limiting new customers, et cetera, but when I look at that slide on page 10 of your presentation that you're collecting for the average for the kind of nine months to three months prior is down 20-plus percent. Is it feasible that volumes in Ig, for example, aren't materially impacted? I mean, I get that's what you're driving to in the second half, but I mean, I'm just trying to understand the disruption -- potential disruption for the industry because this is the same for all of your competitors. And I'm just trying to project forward how the physicians are going to fuel this in three or four months' time when it really starts to impact?

Paul Perreault: Yes. Look, I think it's going to be an interesting time in the industry, and that's why we want to make sure that patients that are currently on product are being served. I think Ig has been tight. In the past, CSL is been able to step in and really fill gaps for competitors that had some -- their own gaps that were created due to either lack of collections or manufacturing difficulties, and we're all in the same boat at the moment. So there's nobody that has enough inventory that can just come in and be the super hero of the day. I think we're all working extremely hard in the plasma collection industry with our donors and with the communities to try to get to where we need to be. I think there will be tightness in the market, and I think you've seen some of the reaction in terms of that, in terms of European pricing and tenders and things going up because it is a supply-constrained situation at the moment. The demand for Ig is still there. Patients still need Ig. And so, there will be a time when I think you, in the future or at least in the near term, when you could see some physicians really starting to think about the dosing and the recommendations and what they -- and how they're going to treat their patients because at the end of the day, we all want the patients to be okay. And so it's really going to be everybody working together on this issue.

John Deakin-Bell: Thanks Paul.

Mark Dehring: Next question comes from Sean Laaman at Morgan Stanley. Sean?

Sean Laaman: Thank you, Mark, and good morning, Paul. Maybe just more of a macro question, it kind of relates to some of the question has already been asked, but we're looking at the situation where collections are, let's say, broadly down 20% to 30% a [Indiscernible] now. And it probably, but who knows, it extends to the one-year period, so it's the end of the quarter. Is there any way, Paul -- I mean, you talked about looking after existing patients that -- is there any way that we won't be in a situation where there will be a 20% to 30% shortfall of production? And therefore, there has to be some meaningful, for example, dose tapering for patients' disease prioritization that kind of thing would be the first question?

Paul Perreault: Yes. Thanks, Sean. I think, again, we're talking Ig mostly here. And I think that it really depends. And I know that sounds like a copout answer, but there are a lot of variables, and we've developed a very strong tool to really monitor and predict what we think is going to happen. The collections based on previous modeling that we've done in the industry. And so, depending on the Biden administration and what happens with additional stimulus, how long they extend the unemployment benefits for, this all has an impact on plasma collection. And you can pay as much as you'd like, and we've seen a lot of people really raise donor fees significantly with no material impact. It's really about -- still a lot of it is the safety of the donors in the center. And so we're making a big push to make sure that we do the right things for all of the cleaning and sanitation and making sure that donors feel safe, but you're on the right track, thinking that, okay, if collections are down, there's a long lead time. Yes, it could have a material impact, but it does depend on how quickly things return, how quickly the vaccinations get rolled out in the US, I mean, they're doing millions a week now of sending vaccines to retailers. And -- but there's 350 million people here in the US. It's not an easy thing to roll out that many vaccines to people. So it's going to take time, and we're trying to anticipate all these things, which is why we're carefully monitoring every single thing we do in the business from plasma, to collection, to inventories, to cost, to investments as well as working on COVID vaccines, which quite frankly is a full-time job on top of the full-time job we already had in this business. So it's a lot of work at the moment. And I think we'll -- if we all work together, we can solve it, but it's going to take everyone working together. It's going to take the government, it's going to take the patient organizations, it's going to take the physicians, it's going to take industry to really make this work through this pandemic until we're most of the way through.

Sean Laaman: Thank you, Paul. And second question, I probably just simply missed it, but is there any reason that I haven't seen the 6% to 10% revenue growth guidance?

John Levy: So we are still expecting to be consistent with the previously provided revenue guidance.

Sean Laaman: Great. Thank you. That's all I have.

Mark Dehring: Thanks, Sean. And next question comes from David Bailey at Macquarie. Go ahead, David.

David Bailey: Yes. Thanks, Mark. Sean, just on my question, but just following up on Saul question around COGS. Just wanting to understand the fixed variable split within your cost per liter, just trying to figure out what you might see if volumes decline, what that means, but then also on the back of that, how you're seeing donor fees change at the moment compared to last year, for example?

John Levy: We have a substantial fixed cost component to our cost of sales, you're aware and have been, I'm sure, on plant tours, you see the scale of the investments we need to make in facilities. So we do suffer a margin penalty as volumes through our facilities reduce. So that is going to have an impact on COGS in the second half and into FY 2022. Cost per liter of plasma, is up around about 20% on prior comparative period. So that will have an impact, but as Paul flagged earlier, as we see a return to more normality, we would expect the cost of plasma to come down on a unit basis. So hopefully, that's a short-term impact, but both of those factors will impact on margins in the immediate future.

David Bailey: Okay. That's helpful. And then just within the HAE portfolio, it sounds like the additional capacity is allowing you to put more patients on the HAEGARDA to rest of world expansion. Just within the BERINERT chunk of people, you're seeing those patients potentially shipped on to HAEGARDA or are they moving off to other treatments as well?

Paul Perreault: No. Well, we've seen a move on to HAEGARDA, for sure. And I think there's still a lot of patients that will be on BERINERT that are not what you would consider really the prophylactic patients more on demand. So we still have the patience on BERINERT. But we have seen a number of those BERINERT patients be cannibalized, if you will buy HAEGARDA. There's a few that have moved to other problem, but clearly, we're trying to manage them because they've been CSL patients along the way.

Mark Dehring: Thanks, David. Ladies and gents, we've got one more question in the queue. We'll take that, and then we'll draw the briefing to a close. The last question comes from Gretel Janu [ph] or should I say, the last two questions. Over to you, Gretel.

Unidentified Analyst: Thanks, Mark. And thanks for taking my question. Just on the guidance. I just want to be clear on this. What's the FX effects that you would expect to happen in the second half? And then also what kind of government benefit do you expect in the second half from any COVID vaccine as well?

John Levy: So the FX is very modest in the second half, which is why we didn't include it in the materials, similar to the first half. I mean, $1.8 billion profit, $16 million of FX tailwind in the first half. At current rates, we're expecting a similar impact on the second half about the same quantum. There are currency pairs that are favorable, currency pairs that aren't unfavorable, they just happen to balance out this year.

Unidentified Analyst: And then on the government? Yeah.

Paul Perreault: And then on the COVID. Yes. We don't expect to see -- that was included in our guidance, any benefit that we expected to see there, we are maintaining the guidance.

Unidentified Analyst: Okay, can you quantify the amount at all?

Paul Perreault: No. It really depends on how many doses get out and how many we make, but there's all the costs that we have being associated with that. So we're manufacturing this for Astrazeneca and Oxford, it isn't the vaccine that we were developing. So not quantified at this point.

Unidentified Analyst: Understood. And then just on flu, a bit of more of a longer-term question. So clearly, a big step-up in blue demand this year, I guess, going forward into the next flu season and beyond. Do you still expect demand to remain at these levels or would you expect volume decline into next year?

Paul Perreault: Well, I'll tell you what, Gretel. I would expect that volumes should increase, at least from what they've been in previous years. So if you look at the first half this year, my hope would be, and this is my hope from a human health perspective, that we would at least be at the same level next year in terms of demand because what's going to happen is later this year as the COVID vaccines continue to roll out, they don't protect against influenza. And as people get out and start more, I believe next year will be -- you'll see more disease than you saw this year in terms of influenza. So I've been urging public health officials and governments to be wary about not supporting the influenza vaccinations where they did this year when they were worried about a twindemic and overloading the system. They could run into a major problem next year. So I think there's good medical reasons to continue these vaccination rates. I think it was great that we're actually getting these vaccination rates up against influenza, which is a very severe disease. So we'll see.

Unidentified Analyst: Thanks very much.

Mark Dehring: Good. Thanks, Gretel. Ladies and gents, we've got no further questions in the queue. So I'll draw the briefing to a close and finish with a thank you for your interest in CSL. Thank you, and goodbye.