Earnings Transcript for CSL.AX - Q2 Fiscal Year 2022

Mark Dehring: Ladies and gentlemen, good morning, and welcome to CSL's first half results call for fiscal 2022. It's Mark Dehring speaking. And joining me online today is Paul Perreault, CSL's Chief Executive Officer; Joy Linton, CSL's Chief Financial Officer; and Paul McKenzie, CSL's Chief Operating 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 into Q&A. [Operator Instructions] 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 Perreault. Paul?

Paul Perreault: Thank you, Mark, and good morning, everyone, and thank you for joining today's review of CSL's half year results for 2022. This reporting period feels a bit more like it used to be than in the last couple of reporting periods. And for the first time in about 2 years, I've managed to find my way back to Melbourne. So that's very exciting for me because it's been exceptionally exciting to be here and work with the local CSL team and the Board in person. I must say I really missed this kind of interaction. I'm cautiously optimistic that we're edging closer to a place where pandemic considerations aren't such a feature in doing business, and there's a greater balance to normality. Additionally, I would like to call out our 25,000 CSL employees. They've shown enormous resilience, agility, adaptability and they continue to remain focused on delivering on our promise to patients and to public health around the world. This is really a true testament to the values of CSL and to the people at CSL. Now moving on to the matter at hand. I will provide an overview of our first half results, which were delivered in an extremely interesting and difficult global environment. I'll then hand over to our -- my Chief Financial Officer, Joy Linton, who will provide more details on the financials. And I will then conclude with an update on our outlook. And as usual, we're happy to take questions at the end of the presentation. So moving on to Slide 4 in the deck. At the full year result in August, we guided that we expected COVID to continue to have an impact on some aspects of our operations. That's been the case, and the results we present today are in alignment with our expectations. In the CSL Behring business, our sales of immunoglobulins and albumin, the major 2 products we extract from plasma collected, have been constrained in terms of the volume of plasma collected last year and the plasma we've collected has come at a higher cost. The plasma products have a long manufacturing cycle, as you're all aware, impacting margin 9 to 12 months after we collect the plasma when the product sale is finally made. I'm pleased to report those products not limited in this way. Our specialty products, IDELVION and also royalties from HPV, have performed very well. I'm also encouraged by the growth in plasma collections during the first half. In CSL Plasma, we continue to be innovative in our approach. We implemented multiple initiatives that have either seen or are starting to see enablers of driving improvements in the collections. These increased collection volumes will underpin future sales growth. And later in the presentation, I'll provide further detail on these initiatives and how the plasma volumes are tracking against prior periods. And yet again, I have to say Seqirus delivered another very impressive result during the period. The end to 2021 was a busy one as we announced an agreement to acquire Vifor Pharma, and I'll recap the transaction highlights later and how the acquisition is strategically aligned with our 2030 strategy. Moving to the numbers and the first half performance. CSL delivered a first half result in line with our expectations and guidance. Revenue was up 4% at constant currency, and net profit after tax was down 5% in constant currency. In terms of performance for CSL Behring, a very strong performance from IDELVION, our market-leading hemophilia B product, which was up 17% and continues to be the standard for patients that need hemophilia B therapies. Our major specialty products showed extremely strong growth with KCENTRA up again 15% and HAEGARDA up 7%. HPV royalties revenue rebounded strongly by 134%, and our core franchise in immunoglobulin declined 9%. As many of you are aware, the plasma products do have, as I mentioned, a long manufacturing cycle. And given that we extract Ig from all plasma liters collected, this decline reflects the lower plasma volumes that we collected last financial year when COVID was having a major impact to the industry in terms of plasma collections. We continue to invest in our plasma collection network and adding 18 new centers in the first half. Investment continues in a number of digital transformation initiatives, which have expanded our flexibility and really enhanced our customer-facing interactions, both from a commercial aspect but also from a donor aspect. Our influenza vaccine business, Seqirus has delivered another exceptional performance, as mentioned earlier. And sales of seasonal influenza were up 20%, with exceptional growth recorded in Europe and the U.K. Seqirus distributed a record number of Northern Hemisphere doses, some 110 million doses for the '21/'22 season. There have also been significant developments in product innovation, which I'll discuss more later. However, a particular note is the U.S. and Argentinian approval for FLUCELVAX indicated for 6 months old and older. Construction has commenced on our new world-class cell culture influenza vaccine facility here in Melbourne. On Slide 5, in CSL Behring, we look at the sales by therapeutic area. Overall, the Behring portfolio recorded flat growth. Ig, our core franchise, had declined 9% at constant currency and albumin was flat. Hemophilia was up 5% and specialty products were up 2%, inclusive of strong performances by KCENTRA and HAEGARDA. You'll note that 97% growth in other, which largely reflects the strong rebound of HPV royalties. In terms of the geographic split of CSL Behring revenue, despite declining 4%, North America continues to be our largest market, accounting for 48% of the total bearing revenue. Our next biggest market in Europe declined 11% in revenue. This is where we really felt the impact of Ig supply tightness. Asia Pacific was up 42%, primarily as a result of Ig tender extension in Australia and strong albumin demand in China. On Slide 6, in immunoglobulins. As an industry, collecting plasma during the global pandemic has been challenging. That's not a surprise to any of you on the call. I think probably the #1 question for most of you. As I mentioned earlier, sales has been constrained by plasma collected last year supplying is the core limiting factor to the revenue or the sales that we had in the first half. Despite this challenging environment, however, HIZENTRA remains the clear leader in the subcu market with approximately 60% market share in the U.S., performing consistently with our expectations. CIDP patient uptake remains on a steady trajectory with roughly 3/4 of targeted physicians having now utilized HIZENTRA to treat CIDP patients. A recent development has been the combination of the Medicare Part B reimbursement approval and updated Peripheral Nerve Society, PNS, the treatment guidelines, which now recommend subcu Ig for maintenance treatment in CIDP and enhanced labeling, dosing and long-term efficacy information from the path extension data update that we had from the trial. This advancement is expected to support continued strong CIDP growth along with increased health care provider-patient interactions and improved promotional access. Importantly, HIZENTRA will now offer an improved patient experience with faster and easier administration options of prefilled syringes. PRIVIGEN and HIZENTRA remain market leaders in the IVIg and subcu segments despite a volume decline in Europe fueled by constrained supply. We are optimistic that the tide is beginning to turn in spite of the current challenges the industry is facing. There is sufficient evidence to suggest the industry is moving through a recovery phase. Plasma collections are increasing, and we firmly believe that supply tightness will begin to ease as COVID starts to recede even further. Turning now to Slide 7 and albumin, where sales were up 1%. Despite increased competition in China, we've maintained our market leadership position through brand differentiation and effective health care practitioner engagement. It has just been on 1 year since the GSP license transfer was completed. And even though there's more work to do, we feel that we're now starting to extract greater effectiveness having increased market transparency. And that's where that engagement with the health care practitioner has really helped. Similar to our competitors who are increasing their footprint in China by adding sales and marketing head count, we have also strengthened our on-the-ground infrastructure. We have expanded our geographic coverage and distribution network, generating greater demand and increased penetration into retail pharmacies and the lower-tier cities and hospitals. Hospital operations and overall demand are reverting back to pre-pandemic levels, with volume growth anticipated to be in the mid to high single digits, while competition will be continuing to try to gain that share as well. Outside of China, volume growth declined in Europe and emerging markets following increased competition from local manufacturers who have access to local plasma sources. In the U.S., volume also declined as supply constraints continue, the direct effect of plasma collection downturn in the previous financial year. More broadly, across the markets, clinicians use are using albumin and preference to artificial colloids as well as increased usage of albumin in sepsis and liver patients. On Slide 8, where we start to talk about CSL products not impacted by plasma collections is hemophilia, where sales were up 5%. IDELVION continued to be a standout performer, up 17%. IDELVION is the clear market leader for hemophilia B patients with a compelling clinical profile that continues to drive patient demand and market share. We continue to explore further opportunities with IDELVION, having recently completed an extension study, which evaluated patients for up to 4 years and confirmed the long-term efficacy and safety profile of IDELVION, which, of course, no surprise to us. We maintain leadership positions in several key markets, including the U.S., Germany, Italy, Spain, Switzerland and Japan and have also gained 21-day dosing, 3-week dosing approval in Europe, Switzerland, Japan and Canada. In the hemophilia A market, sales of AFSTYLA declined 13%. This was primarily driven by the continued competitive market pressures. Despite the challenges, high levels of market share were still achieved in Italy, Germany and Taiwan. Competitive market pressures have also had a negative impact on our plasma-derived hemophilia products. This was offset to some extent by 2% growth in HAEMATE and HUMATE underpinned by tender success in Russia. We also saw a decline in BERIATE due to the continued competitive market forces. But overall, we are seeing increased movements to the new-generation products within the hemophilia space, and we do expect that this trend will continue going forward. On to Slide 9 and specialty products. Overall, specialty products grew 2%. HAEGARDA, our transformational therapy for treating patients with hereditary angioedema, or HAE, continues to perform strongly, up 7%. Despite increased competition, we continue to add new patients. Recent launches in the EU and Australia have exceeded expectations with the share in the Australian prophylaxis market quickly surpassing competitors to gain a peak patient share of around 60%. In the U.S., HAEGARDA was a -- has a stable patient base with more than 80% of patients either long-term users, which we define as a minimum of 1 year on therapy or switchbacks from alternative therapies. Demand is driven by the shift from on-demand to prophylaxis, where we continue to have the highest share of on-demand to prophylaxis switches. And that's why you see BERINERT was down 8%. This does reflect patients shifting to HAEGARDA. KCENTRA sales were up 15%. Unbelievable, really, and underscoring the unique medical benefit that KCENTRA brings. It's profile of small volume, fast infusion is very appealing to the target market and commonly known to be a real gold standard for warfarin reversal. Sales of RiaSTAP were down 7% as we faced competitive pressures primarily out of the EU. And activities are in place to increase differentiation and development of a customer segmentation strategy, and the early signs have been quite positive. Wound healing products were up 10%. And lastly, ALPHA 1 sales were down 31% following supply interruptions at Kankakee. Our commitment to patient care continues to be a priority, and we are taking several steps to ensure the future supply stability, giving us confidence these supply constraints have now been resolved. Turning to Slide 10 and plasma collections, probably of interest to people. COVID has presented the plasma industry with many challenges, and the ability to collect plasma having been the most adversely impacted in the industry. In response, CSL Plasma has continued to implement a number of targeted initiatives focusing on growing plasma collections. The plasma team's resilience, dedication and focus has been quite incredible. And we've seen a volume improvement of 18% first half '22 versus first half '21. And the following slide will illustrate how we are progressing. But before we get there, I'd like to share some of the initiatives we have undertaken to support the collections growth. First, donor fees have increased industry-wide. Our redesigned donor fee structure has assisted to capture new -- more new donors, and it's also helping to retain donors, including those who donate at lower frequencies. The vaccine rollout has undoubtedly increased social mobility and individuals are more willing to adapt to the new norm as we exit the major COVID restrictions. This is on a state-by-state basis. And you know we have plasma collection centers in many states across the U.S. So it does vary by geography. We have enhanced our operating and marketing efforts to attract not only new donors, but also lapsed donors, both of which are an important source of future donations. And for example, we're providing flu vaccination vouchers to U.S. plasma donors following the completion of 2 plasma donations made within a calendar month. We introduced new technologies to improve the donor experience. Our new donor app has been a success, and we continue to evolve and improve with updates and enhancements. Self-service kiosks and the ability for donors to register online are other components of our digital offering, all of which are dedicated to ensuring a best-in-class donor experience. Continued work with the industry bodies, such as the PPTA, and promoting the importance of plasma donation and to modify regulations that currently result in unnecessary donor referrals. We continue to lead the industry in the opening of new plasma collection centers, opening 18 new centers in the first half, and we expect to open up around 35 new centers in fiscal year 2022. I'd like to think the worst is behind us. Our numbers indicate that this might be the case. However, industry-wide issues remain. The pandemic is ongoing. New variants are most likely going to come and go. We've seen some impact by Omicron more recently, but that also seems to be receding. Staffing centers for them to remain open and to operate at optimum levels is a real challenge in the industry. Like most industries around the world, our employees and, therefore, the resourcing levels have been impacted by COVID infection as well. And the U.S. employment environment is very, very competitive. While we have introduced retention schemes for enhanced compensation for staff, attracting and retaining remains a challenge as people continue to offer incentives for people to switch and move to new locations or new jobs. The cost of collecting plasma has increased. Donor fees and employee labor costs have increased in the industry. Lower volumes being processed through the manufacturing plant means they were left with a greater fixed cost absorption going through the cost of goods sold. Joy will talk to this in more detail on the financial section of the presentation. And a brief update on the Mexican border closure to donors. Litigation is still ongoing. We have appealed the initial decision, which was really a non-decision and was unfavorable on a technicality, if you look at it in that perspective. In addition, a new complaint has been filed by people who have been adversely affected by the border closure. Finally, in our collaboration with Terumo to deliver a new plasmapheresis device, Terumo have submitted their 510(k) to the FDA. And while it's difficult to estimate, we're hopeful of regulatory clearance in the first half of calendar 2022. Turning to the next slide to the donors per week graphic. It's a busy slide, but I think quite informative. So let me take just a minute to walk through it with you. The red line is calendar year 2021, the black line 2020 and the gray 2019. Let's focus on the red line for a minute and giving it is the strongest indicator to the extent of our plasma volume recovery growth measuring the most current periods. You can clearly see the improvement on the prior corresponding period, which was plus 18% overall. As I mentioned before, the plasma team have left no stone unturned when executing initiatives to grow plasma volumes. From period July '21 to early November '21, we experienced solid growth. We then saw the usual effect of the annual holiday season in December, but with an overlay of the latest COVID variant, Omicron, as I mentioned earlier, particularly in our ability to staff our centers. Unlike this time last year, growth in the new year has been encouraging. I will, of course, update you at our next results. Moving on to Slide 12 and our influenza vaccines business, Seqirus. Seqirus delivered an exceptionally strong performance in the first half of 2022. Total revenue was over $1.7 billion, up 17% at constant currency, with seasonal influenza vaccines up 20%. The increase reflects an ongoing shift to Seqirus' differentiated products, particularly FLUAD, our adjuvanted product, which was up almost 50%. The Northern Hemisphere continues to be the dominant market for Seqirus, with the EU and the U.K. delivering particularly strong growth. Continuing with Seqirus on Slide 13 and the operational highlights. Seqirus continues to achieve significant growth in its seasonal influenza vaccines, which, as I mentioned earlier, saw a record volume of 110 million doses distributed into the Northern Hemisphere for the '21/'22 season. In Europe and the U.K., the successful launch of FLUAD in Ireland, the continued growing support for our cell-based vaccines with increased FLUAD and FLUCELVAX sales in the U.K. as the Joint Committee on Vaccination and Immunization recognize the incremental value these products have to offer. Product differentiation is still a key driver for growth in our industry. Our Fill & Finish capacity expansion at the Liverpool site is now complete. And in the U.S., for Seqirus, they delivered vaccine revenue in excess of $1 billion for the first time. We were also awarded a new pandemic contract by the U.S. government through BARDA for the development of 2 influenza A virus vaccine candidates using both our cell-based adjuvanted combination technology platform and our self-amplifying mRNA technology. So looking forward, there's a great deal of opportunity for us. The pandemic has seen the acceleration, clearly, of mRNA technology. And we are undertaking preclinical assessment of our next-generation self-amplifying mRNA vaccine in seasonal and pandemic flu, including in Phase I, which is expected to commence in calendar year '22. The construction has commenced on the clinical GMP mRNA facility in Holly Springs, North Carolina, to supply clinical trial material for this program. Construction has also commenced on our new world-class cell culture influenza vaccine facility here in Melbourne. The pipeline is, of course, far more broader than sa-mRNA. FLUCELVAX for infants aged 6 months and over is scheduled to be launched in the U.S. Northern Hemisphere '22/'23 season. FLUCELVAX for children aged 2 years and over to be launched in the private market here in Australia, in the Southern Hemisphere in the 2022 season. And the Holly Springs Fill & Finish expansion will be operational in the Northern Hemisphere '22/'23 season. So exciting opportunities for Seqirus going forward. And I have to say just a tremendously great job by the whole team. Moving on over to R&D on Slide 14, just a few highlights since Dr. Bill Mezzanotte and his team updated the market on the portfolio in October this past year. Beginning with immunology, Garadacimab for hereditary angioedema, the Phase III study enrollment was completed with the last patient in. The FDA confirmed that they had assigned designated fast track eligibility for Garadacimab in HAE and the EMA also had orphan drug designation granted for the product. BERINERT subcu for HAE was submitted to the PMDA in Japan. In hematology, CSL888 or Haptoglobin also had U.S. orphan drug designation granted. And the primary endpoint was achieved in EtranaDez for hemophilia B gene therapy in the HOPE-B study. In respiratory, Garadacimab for IPF has started with the Phase II study being initiated. And in cardiovascular and metabolic, the Phase III trial for CSL112 continues to progress well, and we now have over 80% of the patients enrolled. In influenza vaccines, most of these I mentioned on the previous slide, except for the ones I didn't, are aQIVc, our cell antigen plus MF59 adjuvant Phase II study is complete. And for FLUAD quadrivalent, adults 50 to 64 years old, the Phase III study enrollment has also been completed. We also maintain multiple partnerships and alliances with many global biotech companies like ourselves. We also have recently formed a partnership with a globally renowned Walter and Eliza Hall Institute and the University of Melbourne to create an incubator biotech start-up, which will be located at our new global headquarters here in Melbourne. We are also expanding our R&D capacity. And in Melbourne, the new headquarters and R&D facility is under construction and on track for completion in early 2023. In Marburg, a new 7-story R&D campus to house over 500 researchers is set to open later this calendar year in 2022. And in Boston, a new Seqirus facility in Waltham, Massachusetts to be operated in 2022, which will host approximately 300 employees supporting CSL's R&D portfolio. Moving on now to Slide 15. In December, we were thrilled to enter into an agreement to acquire Vifor Pharma, a global specialty pharmaceutical company with leadership in renal disease and iron deficiency and associated anemia and revenues in excess of CHF 1.7 billion. We indicated at the time of announcement that we expected to fund the acquisition through an institutional placement, which we are pleased to say was oversubscribed and completed. And we thank many of you on the call for your participation. An additional source of funding was a share purchase plan for CSL's private shareholders in Australia and New Zealand, which raised AUD 750 million. We are also working to establish new debt facilities in quarter 4 of this fiscal year. The tender offer for Vifor shareholders is underway and will close on the second of March. Integration planning is also underway and we anticipate regulatory approvals and deal closure to occur by the end of this fiscal year. Turning to Slide 16. Just to review a bit, the acquisition of Vifor really presented a rare opportunity for CSL to augment our business with successful products in attractive pipeline and underscores the complementary and adjacent areas to the existing areas of focus and interest to CSL. In addition to the strong strategic merit of the transaction, the acquisition fits strongly with our disciplined financial approach, significantly enhances our revenue and free cash flow generation. This combination of CSL and Vifor Pharma brings us the following

Joy Linton: Thank you, Paul, and good morning, everyone. As Paul said at the beginning, CSL has delivered the first half result in line with our expectations. And on Slide 19, you'll see reported net profit after tax declined from $1.81 billion to $1.76 billion, a fall of 3%. On a constant currency basis, net profit after tax was $1.72 billion, a decline of 5% after adjusting for a currency tailwind of $38 million. The main drivers of this result are the lower Ig sales due to the constrained plasma collections in FY '21, largely offset by the strong performance in IDELVION and our specialty products along with the continued growth in Seqirus. While we're still experiencing some impacts of the pandemic, we have benefited from diversification in our product ranges with growth in parts of our business not affected by lower plasma collections. Consistent with the second half of the last financial year, the lower plasma volumes and the increased collection costs have continued to put downward pressure on the group's gross margin. This pressure will continue in the second half but only to a modest extent as the collection volumes have been increasing and our absorption of fixed costs per unit is coming down, which in turn will benefit the gross margin looking further out. It's also worth noting that the first half result included transaction costs of $17 million relating to the agreement to acquire Vifor Pharma. So looking at the financials in more detail on Slide 20. Total revenue was up 4% on a constant currency basis to $6 billion. Gross profit of $3.4 billion at constant currency was down 2%, reflecting the decline in gross margin that I talked about on the previous slide. EBIT was down 8% on a constant currency basis to $2.2 billion, and I'll talk about this a little more shortly. Both NPAT and EPS were down 5% at constant currency. Cash flow from operations was $1.4 billion, down 39% from the prior year. And factors driving this include an increase in inventory due to the higher cost of plasma and improved plasma volumes, an increase and receivables for Seqirus arising from the timing of shipments with a relatively late Northern Hemisphere flu season as well as some one-off items in the prior year. We have maintained our interim dividend consistent with the prior year at USD 1.04 per share despite the softening in net profit after tax. And for Australian shareholders, this translates to approximately AUD 1.46, up 8%. So turning to the segment results on Slide 21. For CSL Behring, total reported revenue was up 1%, essentially flat at constant currency. The increase in other revenue, as already indicated, is largely due to a significant rebound in HPV or Gardasil royalties. Gross profit was down 8% at constant currency. And as already mentioned, the higher collection costs and lower volume driven manufacturing variances have resulted in the compression of the Behring gross margin to 54%. EBIT was down 22% at constant currency, and I will talk to this further on the next slide. For Seqirus, total revenue was up 17%, gross profit up 17% and EBIT up 24%, reflecting the strong demand for influenza vaccines and the continued success of our product differentiation strategy as well as improved manufacturing efficiencies. And I'm sure everyone is now familiar with the seasonal nature of the Seqirus business with in excess of 80% of our sales in the first half, while costs are spread more evenly throughout the year. So Seqirus will make a loss in the second half. On Slide 22, the group's expenses with changes for the period shown on a constant currency basis. Firstly, R&D expenses increased 13% to $486 million, largely reflecting a pause in clinical trials in the prior comparable period given the COVID environment. Trials have now all resumed, and we expect R&D expenses for the full year to come in between 10% to 11% of revenue, in line with our stated guidance. Sales and marketing expenses were up a modest 4% as we prepare for the upcoming commercial launches, most notably EtranaDez. And general and admin expenses were up 24%, and the main factors contributing to this increase were

Paul Perreault: Well, thank you, Joy. And now on to the outlook, looking specifically at CSL Behring. Plasma collections are improving, and that is expected to underpin our future sales growth for our marginal liter products of Ig and albumin. The seasonality trend continues with an excess of 80% of sales in the first half for Seqirus, yet expenses are spread more evenly over the course of the year. As usual, Joy mentioned the seasonality. So that will result in a second half loss for the Seqirus business. For fiscal year '22, guidance is reaffirmed with net profit after tax expected to be an approximately $2.15 billion to $2.25 billion at constant currency. And included within the guidance is approximately $90 million to $110 million of Vifor transaction costs. Of course, our forward-looking statements, as outlined in the front of the presentation, are subject to the usual disclaimers as mentioned at the start of the presentation. I would like to finish today with a couple of thoughts. First of all, I'd say the first half business performance is in line with expectations and a real credit to the people at CSL for continuing to be resilient, adaptable, focused to get us to where we are today. Secondly, I'd just reiterate that CSL is a growth company. Despite the challenges we faced during the pandemic, our strategy through 2030 and beyond remains intact. Nothing has changed in terms of our focus and where we see the company heading. Our purpose on serving our patients and delivering innovative products still holds true. That's why we exist. And we're here to make sure that these nondiscretionary products and the protection of human health across all the countries we serve is maintained. The fundamentals of the business are strong. The demand has not gone away. Demand for our products remains. Supply has been the issue. You all know the issue with plasma collection for Ig and albumin, but you could see the growth even in our specialty products with IDELVION and HIZENTRA -- or KCENTRA. And as we look out to these, HAEGARDA, these products, you can see that the demand is still there because those products were not constrained by plasma. So the growth is there, the demand is there. And as COVID continues to improve and people are out more and getting more diagnosis, we will see continued increased diagnosis for patients served by our product portfolio. And I can tell you that the demand for Ig is still there. People are waiting for Ig. So we're really looking forward to the continued growth of CSL and the continuation of our strategy, which is only enhanced by the Vifor acquisition that we finished up at the end of the calendar year. So the fundamentals of the business are really strong. And I think the support that we received from the investment community on the raising, initially with Vifor as well as the SPP, has just been fantastic. We were oversubscribed on both. And it just shows, I think, the confidence that you all have and the investors have in our company. And certainly, it really enhances my confidence that we're going to continue to grow. We're going to continue to invest as we have in our facilities, in our R&D, in our manufacturing and our plasma collection. We wouldn't be doing all this if we thought we were going ex-growth. So just to reassure all of you, the plan is solid. We have great demand, we have great support, and we're looking forward to the future. So happy now to take your questions.

Mark Dehring: Thank you, Paul. Operator, if you could open the line up for -- lines up for questions, please.

Operator: [Operator Instructions]

Mark Dehring: Thank you. And we do have some questions in the line. Lyanne Harrison at Bank of America.

Lyanne Harrison: I might start with guidance. So you've got guidance there at $2.15 billion to $2.25 billion unchanged, but that includes the one-off Vifor cost. Is it fair to say that those transaction costs have not been factored in when you announced guidance last August? And can we imply the upgrade to underlying operations? And if so, which segments?

Paul Perreault: They weren't included when we gave guidance, Lyanne, because we didn't know we were going to do the acquisition. And of course, we saw at the close. So we announced that we intend to acquire. And of course, we're raising the money, so we're fully confident it will close. But they were not included in the guidance at the beginning. I would just say that it underpins the strength of the business, but there are a lot of moving pieces in the second half, especially the seasonality of Seqirus and our continued investment in the other areas. So we're maintaining our guidance range.

Lyanne Harrison: Okay. And then if I could go to margins, obviously, an NPAT beat and operating cost controls and leverage. But if I look at Slide 21, there's significant leverage at the EBIT level with Seqirus. So how much of that Seqirus EBIT margin is sustainable? And how should we think about it going forward, particularly given the high flu vaccine demand we're seeing through this pandemic?

Joy Linton: I'll pick up that one. So the gross margins in Seqirus, we think, are very sustainable. And it's really driven off the differentiated products that we have and, in particular, FLUAD has had an exceptionally strong period. And as Paul has outlined, we see continued growth. So I think the -- I think we've been saying all along that there was a bit more to go in gross margin. I'm not sure how much more there will be in gross margin growth, but certainly, it's a sustainable level.

Lyanne Harrison: Sorry, Joy. I was trying to clarify on EBIT margin sustainability because that expanded quite significantly for Seqirus in this half.

Joy Linton: Yes. And reflect similar comments, right, really driven by the improved efficiencies that we get off the additional volume. So we would call it a sustainable margin. We are reinvesting. We will need to continue to reinvest in Seqirus, particularly in R&D and with self-amplifying mRNA and our aQIVc program, but they are all in the R&D guidance of 10% to 11% of revenue.

Mark Dehring: Thanks, Lyanne. Next question comes from David Low at JPMorgan.

David Low: Perhaps, Joy, just on the gross margins. I mean we've had some issues with gross margins in half by half in the past. But could you talk a little bit of the trajectory you see in gross margins in the Behring business? When do you expect that they'll bottom out, given that clearly are higher plasma costs coming through? And perhaps I could get you to comment on cost per liter and the dynamics there as well, please.

Joy Linton: Yes, sure. Thanks, David. So we think -- we see a little bit of softness still to come in the second half. And if we were to guide you across the full year, you should think about a 2% to 3% reduction year-over-year. But we're going to bottom out in this next half and then it will continue to -- then the margins will continue to recover from there. In terms of costs, I think we've been quite clear that donor fees were up 30%. But if you think about the overall plasma cost per liter, we are starting to see the benefit of the manufacturing efficiencies as volume improves. And so we're more at around that 10% is what we would be guiding for the full year FY '22.

David Low: And perhaps if I could touch on guidance as well. I mean we really are seeing an unprecedented decline in the second half in the implied guidance. We've obviously seen lower second half, and we understand the seasonality of the Seqirus business. And Joy, you talked about gross margins softening a little bit in the second half. But frankly, in the absence of the dramatic drop in sales, I can't quite see how the second half is only going to be 1/4 of the first half. Am I missing something on operating costs or some of the drivers?

Paul Perreault: I think it's a full year again, David. You saw last year it was the same question with Seqirus in the second half. And there was a huge drop off in the second half in the profitability because everybody thought we can just double it and move ahead. But there is a seasonality, which is huge. I mean Seqirus was $1.7 billion in the first half. I mean there's a lot of just $1 billion in the U.S. alone, which is the first time ever we could hit that level. We have returns coming. We have operational efficiencies that we're still implementing. We have new programs we're still implementing. We're integrating Vifor. I mean there's a lot to do in the second half. And I'd say it would be a little bit premature just to say that we're going to improve guidance that significantly. All I would say is that we've guided to the number. We're absorbing a lot of those costs in terms of transaction costs with Vifor. There were some one-off nonrecurring items from last year and so -- in the second half, which we're not going to see this year. So I just think overall, I'd say, take what we say and look at the guidance. We're going to do as best as we can, but we feel comfortable where we sit at the moment given everything else we're taking on. So let's see how we go. And if there's an update to give, we will.

Mark Dehring: Thanks, David. Next question comes from Chris Cooper at Goldman Sachs.

Chris Cooper: Could I just start with the donor fees and just thinking a little bit longer term. I mean, now we've kind of got some good light at the end of the tunnel. I know you and your competition has been experimenting with different fees at different centers. Are you finding much scope to taper? And should we be thinking about this as holding steady from here? Or do we think about donor fees continuing to grow off this elevation in base through the coming years?

Paul Perreault: I would not assume that donor fees will continue to grow. I think as the economy continues to improve in terms of mobility for people and getting out as Omicron starts to wane a bit and we see the movement of the population going around, I think the donor fees can stabilize. And we are, as you say, experimenting. I'd say we're -- we've got a strategy around as opposed to experimenting sounds like we're not sure where to go. But I think we are. It's just a matter of trying to make sure that the number of new donors that come into the system support the growth in the base of the donor base. And what we've seen is a lot of new donors because a lot of the higher fees were in what we call applicant donors or new donors. And that's overwhelmed the system in terms of new donors that then were not being necessarily retained for future donations that were coming in for the onetime hit. So we're really focusing more now on retention because we're getting new donor flow. But it's about the retention and the sustainability, the adherence of plasma donations that we're working on. And so I think we're looking at how that happens and what are the right incentives to keep people coming back because that's the main thing. We need a sustainable donor base that continues to return, not just a one-off for the initial applicant donors that come in the door. We still need new donors, and you need a certain percentage to fuel growth in your donor base completely. So that's really where we're focused. It's the retention and really the experience because that's a lot about the retention is. And that has to do with employment in the U.S. as well because if you're understaffed, people wait longer. So we put a lot of effort into our employee base and making sure that we can even maintain our staff because the environment in the U.S. is quite dynamic for workers in the retail space and in this type of environment. So there's a lot of incentives by other companies, not plasma companies necessarily, but other companies, in general, trying to recruit people to work. So we have to work across the ecosystem of plasma, its employees, its donors, its cost, its experience. It's all of that, that we're working together to reduce. But the donor fees themselves, I think, will moderate, and I don't think we're going to see a huge increase in donor fees.

Chris Cooper: And just on inventories, I noticed a reasonably large provision you've taken there in the half, $181 million. Could you just talk, Joy, to what's driven that? And perhaps just a clarification question. The raw material balance is up 20%. Is that all cost? Or is there a little bit of volume in there, too?

Joy Linton: Thanks, Chris. So to your second question, the raw materials will include both cost and volume as both volumes coming back, but at a higher cost. I don't think there's anything particularly to be concerned about in provision. The flu season was in the Northern Hemisphere was quite a bit later than previously. And so there'll be some of it will reflect in that. And then, of course, the cost for -- back on plasma, the cost per liter at the end of the year will be -- will reflect the higher cost, right? So I think it's more of a -- that's more of the revaluation of inventories that we do. So -- but nothing to be particularly concerned about.

Paul Perreault: Delayed flu season, as Joy alluded to, is really about the uncertainty around returns is what we're talking about for the second half as well.

Joy Linton: That's correct.

Mark Dehring: Thanks, Chris. Next question comes from Gretel Janu at Credit Suisse.

Gretel Janu: I just wanted to touch on the new Terumo plasmapheresis device. So we heard from Haemonetics that you have extended a contract with them. So can you provide any further details here? How quickly do you anticipate to roll out this remote device once approved? And will you potentially be running at double cost during the rollout?

Paul Perreault: No, there won't be double cost. You're replacing equipment as you go. And really, the extension is just to ensure we've had a very good relationship and still do with Haemonetics, and we're still using their machines in Europe, in our European centers as well, and we're still using them in all of our centers today. But it's really about the 510(k) and making sure we have the approval. And of course, the one thing you don't want to do is to stop with the machines and go. There's nothing sinister about it. It's just planning to make sure that we have what we need when we need it. The machine itself is great. There's no problems there, but we have to think carefully about the rollout because you're basically changing the engines on the plane while you're flying when you're implementing this type of a broad change in your plasma centers. So it's really a matter of caution and making sure that we've got everything lined up, but nothing sinister about it.

Gretel Janu: Okay, understood. And then just going back to the gross margins for Behring. So I understand the comments you just made before there, Joy, that it will bottom out in this next half. But when will we return back to pre-COVID levels? Or will it stabilize at a much lower level going forward?

Joy Linton: Well, it's a good question, but I'm not sure we know the answer to it, Gretel. So it will be dependent on a whole range of variables, including how quickly plasma collections continue to return, what the overall donor fees stabilize at going forward? That will be the biggest drivers. So, yes, time will tell.

Gretel Janu: But do we expect gross margin improvement in FY '23?

Joy Linton: We're not -- I mean, I'm not -- we're not going to provide too much guidance on FY '23 today, Gretel, but I think what we would say is we can see the bottom of the gross margin for Behring in the second half of this year. And compared with last year, it will be between 2 and 3 percentage points lower than last year. And then next year, we'll -- when we get closer to it, we'll let you know.

Mark Dehring: Thanks, Gretel. Next question comes from Andrew Goodsall at MST.

Andrew Goodsall: Welcome back to Australia. I'm just going to try and understand in your Ig business just a sense of where volumes were versus price. So just understand that mix and what HIZENTRA formed as a percentage of the volume?

Paul Perreault: Yes. Most of the decline was in volume, yes. So it's clearly because of the plasma collection. So when you look at the volume, I think it was around 15%?

Joy Linton: 15%.

Paul Perreault: 15%, 16%, somewhere in that range. And so when you look at the 9% down, a lot of it is the shift and mix shift. So obviously, we've continued to highlight our benefit on HIZENTRA because there's benefit there and then really the shift in terms of pricing in some of the markets. So as we've looked at Europe and move there, we've seen better price in Europe and Asia Pac. Australia was a big contributor compared to last year because we've renegotiated contracts here. And it's a developed market here in Australia, and they understand the value of the medicine that they're purchasing. So that was a big lift for us as well, which helped a lot. So the intercontinental region, there is also good price appreciation. So some of the other markets that have been short of Ig, knowing that the U.S. is not tremendously short of Ig at the moment. We're making sure that all of our markets are taken care of. So price overall, when you take a look at price, you can figure globally, we had an increase in kind of the mid-single digits, but that varied country to country.

Andrew Goodsall: I'm sorry. Just I missed the 15% reference there.

Paul Perreault: That was on volume.

Andrew Goodsall: Volume, okay. So yes, so between that and the sales gives us a sense where price was. And then the follow-up question, just China albumin. I know you were constrained. You said I think it was the U.S. on albumin. Was that constrained in this period? Or are you able to redirect supply to China and take advantage of the price there?

Paul Perreault: Yes. Look, we're always looking at the various markets, Andrew, and I would say that we were able to get the product over to China. So we're in good shape there. The demand is clearly still there.

Andrew Goodsall: And probably just to clarify, was that -- I guess, would you have been a point where you could have supplied more as supply comes back on?

Paul Perreault: Well, sure. I think both albumin and Ig, there's high demand for both of these products. Now trying to reconcile the numbers between albumin and Ig, they never are in lockstep. We always talk about balanced leader, but they're never percentage-wise because of the volume you're extracting of each is not never 1

Mark Dehring: Thanks, Andrew. Next question comes from Saul Hadassin at Barrenjoey.

Saul Hadassin: And if I start, Joy, just to pressure the -- or pursue the guidance question again. I fully appreciate your comments about seasonality with Seqirus and also the Vifor transaction costs, a larger component in second half. But just working backwards from the full year guidance, it still suggests that Behring will have a particularly weak second half as well. And I just wanted to get a sense of how much is that OpEx phasing, particularly around sales and marketing costs falling in the second half versus a further decline of revenue for Behring into second half versus first half because liters are still below where they might have been in the first half if you go back 6 to 9 months. Can you just clarify, let's say, cost pressure issue? Or if it's actually still revenues are yet to bottom out in Behring?

Joy Linton: Yes. Thanks. And the answer is a bit of both, actually. So I mean, I think on revenue, broadly flattish, I think, is what we would say for Behring. And on costs, and you got to remember we're investing in EtranaDez in sales and marketing, we're continuing to invest quite heavily across the R&D portfolio. So more broadly, the cost structure is heavier in the second half than the first half, which I think is pretty consistent with the prior year. I mean I would have thought the prior year split is not a bad way to think about it.

Saul Hadassin: Okay. Thanks for clarifying that, Joy. And just one other follow-up for you. Some very big movements in some of the working capital accounts, which leads a big working capital headwind. And I know we see this in first half historically because of Seqirus. But is that all was the very strong Seqirus result and that should wash through in the second half?

Joy Linton: I think it will wash through. It is more than Seqirus. Seqirus is a big chunk of it, particularly in the receivables line. Are we still on? Yes. Okay. On the inventory, that is -- that will -- that's as we've been talking about, that's higher cost of plasma and also returning volumes. And then we just had some one-off things last year that haven't repeated this year. So a little bit of a triple whammy there. I think what you'll find is the full year working capital number will make some more sense for you.

Mark Dehring: Thanks, Saul. Next question comes from David Stanton at Jefferies.

David Stanton: If you could talk to collections in January, February 2022? I noticed that you said growth in the new year has been encouraging. I wonder if you could give us a bit more color as to how -- exactly how encouraging compared to pre-COVID levels, please?

Paul Perreault: Thanks, David. Look, clearly, a bit better than pre COVID, but I would say that -- I mean than last year. But back -- not back to pre-COVID yet. So exactly when those lines were crossed, it's hard to say. We did see a little dip, not only seasonality in December, but Omicron not only from donors, but our employee base, people being out. And of course, that impacts the ability to move people through the centers faster. So we also had some big weather issues in January. So as we started through the first part of January and the end of December, there was a bit of a downturn, but that's all recovered. And we've seen in the last number of weeks more and more collections coming back and gaining on where we were prior. So we're very optimistic. All of the measures we've taken -- I mean you always have these things, especially in December, January and February. We also have the tax refund checks coming back in February, which is always a bit of a headwind for plasma collections because people have additional cash that's come in. But all in all, everything that we see in the centers in terms of the improvement in donor flow, getting our employee base back stabilized, Omicron starting to wane, all of that has been encouraging to us. The new marketing and the digital work that we're doing with the donor app and really getting donors prepared to donate prior to coming into the center so that they can fill out their information and their donation pre-application, getting them into the beds and out has been going very well. So we're very encouraged by it all. And again, the plasma team has just been working night and day to make sure that this happens. We all understand the importance of it.

David Stanton: Understood. And if I could talk about the recalls that you may be assuming for Seqirus into the second half, usually, we hear sort of mid-teens recalls of the -- in volume, sorry, I'm getting a bit of feedback here, but mid-teens recalls in terms of volume. What should we be thinking really for the second half of FY '22? Should it be above that, below that or in line with that sort of mid-teens number going forward, please?

Paul Perreault: I wish I knew, David. The returns, not recalls. So we don't -- we haven't had recall problems, but returns. I would say we always are looking at that 11% to 14%-ish. It could -- some years, it's been more. But it was a late season, right? So in terms of delivery. And in fact, some of our competitors were late in delivery or down in delivery in the U.S. as well. So we saw Sanofi really have some problems delivering in the Northern Hemisphere in the U.S., particularly. So that was interesting. So we're just trying to understand how much actually got into arms, which we don't know the answer to yet. But people were still buying late in the season, which told us that there was a good demand. So we always kind of hedge a little bit because it's never an exact science, but we are trying to -- I would say that low double digits in terms of -- is kind of where we're thinking.

Mark Dehring: Thanks, David. Next question comes from Steve Wheen at Jarden.

Steven Wheen: I just had a follow-on on that flu provisioning. Paul, you had mentioned in the past that you've been making some efforts to re-contract or at least change the terms of contracting with your customers with flu shots as to the amount that they can return. Just wondering if you've had any success with that, particularly given how successful you've been with FLUCELVAX and FLUAD.

Paul Perreault: Yes. Thanks, Steve. We have made some inroads there. It's not transformative yet because these contracts take time to negotiate through. And it's hard to do in 6 months prior to the season. So we have made some strides with some customers that have been very helpful, at least at lowering the amounts, but not necessarily all of it. So we're continuing to look. A lot of it is really the channel. So if you're in more in physician offices, there's very little returns versus the large-scale big-box pharmacies. And so when you're dependent on Walgreens, CVS, Rite Aid, these types of groups, it's a bit more difficult. However, if you're in more of the private market, if you're in DoD, they're in CDC, there's no returns. So it depends on where you are in the market. But those prices are also lower. And so we also want to be in the higher priced markets because of the differentiation of the product. So we're making progress, but it won't be transformational this year.

Steven Wheen: Got it. I think I had a second question. Just on the Terumo device that's been -- the 510(k) has been submitted. I'd assume you have had a look at that. In sort of comparison to what Haemonetics is offering with its Persona platform, where they talk to 9% to 12% type yield enhancements, is this your time for catching up on the yield front given you've stayed on the PCS2 platform with this Terumo device? Is that what you're looking forward to once that's approved?

Paul Perreault: I'd say there's more to be put out on what exactly we're gaining with Terumo. But I would say that, again, we've worked very closely with Haemonetics and even though we've been on PCS2, we've seen yield improvements on PCS2 because we worked with Haemonetics on some of the initial work on some of their chips and devices themselves. So I wouldn't say we're behind. You can read all the data and you can read all of the things in the news, but I can tell you I don't think we're behind on yield. I think there are other things we need to focus on besides just that piece of the yield out of the machine per se. So there are things we've done in our process as well with sampling and other things that we've been able to get good recoveries, not just the plasmapheresis machine itself.

Mark Dehring: Thanks, Steve. Next question comes from Sean Laaman at Morgan Stanley.

Sean Laaman: First question, Paul, if you could just help me square this up. I was just wondering what might be happening on patient numbers with respect to immunoglobulin. I mean, ultimately, if demand can't grow faster than supply, but volumes are quite negative, is that having an impact on patient numbers? Unless there's, I guess, sort of a big bunch of inventories in around the industry, which I don't understand is the case. So if you could help us understand what's happening, how are patients managing in a demand-supply environment is the question.

Paul Perreault: So you'd have to take it -- and thanks for the welcome back, Sean, and I hope you're well, too. But I would say that the -- in the U.S., so if you take it market by market, in the U.S., there's really not a shortage of product in the U.S. today of Ig. From what we've seen in the channels, from what we've seen in terms of the supply from all of the manufacturers of Ig, right? So when you look at that and you say, okay, because that would be the biggest noise, right, coming out of the U.S. They're the largest user. They have the largest volume. And that's because, as you know, over the last 2 years, people have moved a lot of product to the U.S., right? And so from that perspective, I'd say the demand is still there and the patients are being fairly well taken care of. And there's also supply in the channel, right? When you look at the distributors and the home care companies, it's not like they don't have any inventory. They do have inventory. It's not a massive supply, but it's enough to cover the patients and actually add new patients as well. Part of what's going on in the U.S. is there has been less diagnosis of some aspects of PID particularly, so primary immune deficiency, because these patients have not been getting infections because they've been locked up or very afraid to go out as infection is one of the main things that they worry about. And I would say that we're starting to see more patients going back and being diagnosed. And so that will continue the growth and the demand. Obviously, SID as more patients are -- and we've seen kind of the movement in the cancer areas of, again, patients not necessarily during COVID getting everything they needed from a treatment perspective and the hospital is overwhelmed with COVID patients and so surgeries and diagnosis rates have dropped a bit in some of those areas for SID. So that's something we look at. CIDP, the new guidelines and the actions there, again, you need patients coming into the office to get diagnosed and to get movement. But we are seeing new patients getting treated. And we have seen that the supply that we're putting into the market in the U.S. is getting utilized. So it's not like people are hoarding it or it's overwhelming the supply chain in terms of inventory. Now having said that, when you go to other places in Europe and Asia and intercontinental, they're all asking for more Ig. And the patients probably there are not getting all of the amount that they want. The underlying demand, we think, is still very, very strong in that high single digits in terms of Ig growth globally. And a lot of that is obviously still in the U.S., but a lot of it is outside of the U.S. So I feel very confident that Ig and the demand is there. It's really a supply issue from a global perspective that we need to address. But of course, everybody wants to talk about the U.S. because there's more data, there's more interest, it's the largest market. And so that's where everybody focuses, but I think we need to think more globally here.

Sean Laaman: Great, great. Second question in relation to that. You used to talk about, I guess, sort of people in the industry used to talk about normal growth in a normal environment for volume, I think, in the range of 6% to 8%. And then I step back and look at the industry and everyone has rolled out a lot of collection centers. It doesn't seem that the pandemic has really slowed that down at all. I guess donor fees are elevated and some might be more attractive to people as economies open up. And so the industry is set up to collect a truckload of plasma and therefore potentially produce a truckload of immunoglobulin once all that washes through. So what that leads me to question is what's the shape of the recovery? You've seen a volume demand has kind of led to -- and we just mentioned not in the U.S. but has led to some depression in patient utilization. Would you be more thinking that we'd see a return to that 6% to 8% growth of this lower level? Or do you think that because the industry is set up to collect so much more plasma that it might get back to a level in the next year or 2 years?

Paul Perreault: Sean, look, my view, and this is -- you can talk to all the competitors and the other folks. But I'm doing this a long time. Prior to COVID, people were not collecting enough plasma, right? We were opening up 40 new centers a year. We were trying to keep up with the demand that was out there. As I said, I don't believe that demand has fundamentally gone away. And people are now behind in terms of plasma collection. So to catch up and then continue to grow, it's going to be a number of years before we reach any kind of issue in terms of supply. There's a lot of companies saying they're opening new centers. I'd say if you go out and you take a look at what's actually being opened, they've improved, but they're not opening as many as we are, right? So I would just say that if you see me stop opening centers, that's when you should start thinking that there could be a problem with that underlying growth rate. And remember, my comment has always been, if it's growing at 8% to 9% and with the 9- to 11-month lag time, you better be collecting at about 12% if you want to be a leader and grow in the industry because just keeping up is hard enough. So I hear what you say about the truckload of plasma, but then you have to look at their manufacturing capacity, their fill-finish capacity. The other things they're involved in. I mean, certainly, Grifols and ourselves and Okta are very big on the plasma side. Takeda is a very good competitor, but they have a whole another business they're working on as well. But we're still looking to innovate so that if there is something to look at in the future in terms of other ways of extracting Ig and our yield programs and everything else, there's more to do here. And there's more from a technology standpoint. It's not my father's plasma business anymore. We have to think -- from an innovation standpoint, we have to think of the demand that's underlying and we have to think about what the future will bring. Because you could take what you said, Sean, and just say, okay, you're right. Everybody's lined up for plasma and maybe we should start cutting back. But that's -- I don't think that's the answer. Patients are still waiting.

Mark Dehring: Thanks, Sean. Next question comes from Craig Wong-Pan at RBC.

Craig Wong-Pan: So I just wanted to clarify the comment that was made about new donors not being retained? Did that occur in the first half '22 period? Or was that occurring before that? And then during first half '22, you're focused on retaining those new donors?

Paul Perreault: I think it occurred when you started raising applicant donor fees to the levels that you saw the industry go to. When donors are coming in for the first 8 donations, they're getting $1,100, they're kind of moving around a bit because they'll shop the price. Because after that, those first 8 donations, which could be in 1 month, some of it was 2 months, but you could actually get to 8 donations in a month, if you donate twice a week. They would then -- the donor fees came down. And so we had to really think long and hard about how quickly do we drop that donor fee for somebody to continue to donate. And part of that is the experience, as I mentioned, and some of it is the fees themselves. And so if they went to another center, they're a new donor in that new center the next month. And so there was some of that going on as well, and that was some of the retention issues. Some of it was because they didn't have the right experience. And so if your staffing was lower and the wait times were too long, and they went down the street and they were better staffed then maybe they felt the experience was better. So there were multiple things that were affecting it. But it really is about the retention. I mean you have to get them in the door to start with, and you need that new donor base to build your base, but you do have to think about the long-term retention. And that's a thousand different things that you have to do right in the center to retain those donors.

Craig Wong-Pan: So the donors that are on adding throughout that first half '22 period, do you think that is sort of a good base now that you can rely on going forward? Or is there still that sort of trend occurring? I guess what I was trying to get at.

Paul Perreault: Look, there's always a new donor rate where donors leave. And that happens no matter. It's happened in my whole career. So you have retention problem when you have what I would call naive donors coming in because they've never donated. A lot of the donors that we see now have donated in the past, but they've lapsed so they come back as an applicant donor. And they know what the donation process is about. In the past, we had to worry about educating people about plasma donation. And so I think the donors are a little bit more in tune with what we're -- what the plasma donation process is. And some we're looking at the fees and saying, "Okay. This is a good opportunity in the gig economy to donate plasma as opposed to other ways of generating revenue." So I think it's a combination of things, but I see this as a new start and a new base, and I think we're doing a good job now at the retention of these donors coming through.

Craig Wong-Pan: Okay. And just the next topic. On the Mexican donor ban, just if that appeal fails, what are the avenues from there for further appeal? Like are there further opportunities there? Or what could be the potential implications if that appeal fails?

Paul Perreault: Look, I don't want to put the cart before the horse. I think we have a very strong case. So I think we're very optimistic about our ability to push on this. We've had discussions at higher levels in government and FDA about plasma collection and opportunity for patients and those sorts of things. So I think we're looking at all avenues. We're looking at other avenues as well to see what ways we can attract donors in those local towns as opposed to just rely across -- the Mexican folks with their crossing cards coming in to donate. But there's a number of things I can't really talk too much about at the moment but -- because of where we are right now with the litigation.

Mark Dehring: Next question comes from David Bailey at Macquarie.

David Bailey: Yes. Just wanted to follow up on the quick comments around the additional collection centers being added. If you look at Slide 11, you highlighted some issues there around staffing, collection centers, but we are approaching kind of pre-COVID levels. I was just hoping to understand in a bit of detail just of the 18% year-on-year improvement. How much of that was from new centers and what like-for-like trends might be doing?

Paul Perreault: Yes. I mean some of it is new centers from last year. I mean when you open a new center in the first half, you're not going to have anything that's coming through the pipeline in terms of massive volumes out of 18 centers in the fleet because you have to look at each individual center. We've had some centers that were -- that we staffed that had a couple of hundred donors in the first month. They were able to get a couple of hundred donors coming. That's really good. But typically, it's bits and pieces, and it takes about 2.5 to 3 years to get it full up to speed in terms of where we're trying to get to from a donor population within a particular center. So they all contribute. But as a whole, it's more of our established centers and getting them back to the donation levels that they were at before.

David Bailey: Got it. Okay. And then just further on the gross margin aspect. Apologies. But you've got donor fees being elevated, but higher throughput into through the collection centers and through your vaccination facilities would imply a better gross margin for '23. Just following up on Steve's question earlier. To the extent that Terumo is approved and there are yield benefits to be had, are we thinking about that as a benefit for fiscal '24?

Paul Perreault: So look, I would say when you look at the gross margins, as we talked about, and you don't have to apologize for the question, David. But I would say that we expect that we will bottom out this year and that things will start to improve next year. Now we can't tell you exactly how much because we're not going to guide to '23. But I can tell you that we are looking at overhead recoveries, both through the plants, through the plasma collection centers, through our cost base. And it won't be any worse. And we've got many initiatives across the organization, not just in plasma and manufacturing to improve the margins, right? So we have to be more efficient in a lot of areas. That includes our I&T work that we're doing in terms of our digital transformation. That includes really the -- looking at our G&A, making sure that we're staffed appropriately. The partnerships that we've established with other companies like Capgemini. All of these things are going to come into play, and there's costs right now that we have to absorb going through that. I also think that as Vifor comes on that will be included in results as well, and so there's going to be probably some mixed and additional questions that you'll have next year about what's driving what. So stay tuned. We'll get all those ready for you.

Mark Dehring: Thanks, David. Ladies and gents, we are coming up close to time, but we should have enough time for a couple more questions. John Deakin-Bell at Citi.

John Deakin-Bell: Paul, a slightly longer term question. You talked about growth in the business going forward is still a growth company. And one of the big drivers of growth over the last 10 years has been the specialty business. I think averaging kind of 15%-odd growth per annum for 10 years. But the last 3 halves have been 2%. And you've got, obviously, the HAEGARDA and BERINERT kind of wash each other out. So that part is not growing. You've had some manufacturing problems and KCENTRA has been growing. But can you just give us a sense longer term whether we should expect the growth rates to get back to where they were? Or is this now going to be a lower growth segment of the business?

Paul Perreault: It's a good question, John, but I would take the segment and break it apart because, as you say, I think there are different pieces of specialty. It's kind of a catch-all in terms of some of these product portfolio. So when you take a look at, for instance, HAEGARDA and BERINERT, you're absolutely right, it kind of bottoms out. But we're going from on-demand to prophylaxis. So the value proposition for growth is still quite robust in terms of the trade-off between the patients they are going from on-demand to prophylaxis. And so I think the value proposition for HAEGARDA, obviously, is much higher. KCENTRA continues to impress. I have to say it continues to expand, continues to grow. We haven't had manufacturing issues with KCENTRA. It's still growing in double digits. I can remember back in 2013 or '14 people were worried that we'd go ex-growth on specialty within 2 years, and it just continues to deliver from KCENTRA and HAEGARDA. ZEMAIRA has been an issue. We had manufacturing problems. It was a good driver, a good contributor, and it went off the rails when we had the manufacturing issues because we couldn't supply. And so that's been fixed. We're moving into the second half. Now it's really up to the commercial team to get back in and regain patients. And so I see that, that will assist us in terms of growing because we'll be off of very small levels of ZEMAIRA where we were before. So I think the specialty continues to grow. And when you look at things like Garadacimab, you're going to, again, see a change in the portfolio of products for HAE, for IPF or other things for a XIIa inhibitor that can potentially be a game changer for us in that. So we almost have to disrupt ourselves at times, and I think that's part of what you are not afraid of doing when you're an innovative company. So look, I think there is plenty of room for growth, John, going forward, and I'm really excited about what we're doing with the company from many, many standpoints.

John Deakin-Bell: Paul, just maybe just to clarify on albumin. I'm slightly confused. You said kind of overall plasma volumes down 15%, and you managed to grow your sales 1%. So I'm just wondering, obviously, price could be an impact, but just explain the difference. And then just this talk now you've had for a few halves about China volume growth mid to high single digits. It used to be double digit. Can you just give us a sense of whether that's changed?

Paul Perreault: Sure. Well, it's off a bigger base, right? So it's still really good growth. I mean it's kind of like when the China economy and people said, well, it's dropped to 6%. Well, it's still a pretty big place. And so there's still good growth. So that's number one. I think that the movement in China has been severely impacted by COVID. So people have not been able to get to the hospitals and get infusions and that. So we think it's going to return back to that level quite readily as COVID subsides. The 15% was not in plasma. It was in Ig, right? And so you don't get the same grams of Ig as you get out of albumin from plasma. So what I was saying is that you can't look at Ig and say, "Well, why is it different than albumin?" It's never been the same. But the plasma was not the 15%. It was the Ig was down 15% in volume, not plasma itself.

Mark Dehring: Thanks, John. Ladies and gentlemen, unfortunately, we have run out of time. I recognize there are a few more questions online. Feel free to give me a call afterwards, and we can have a chat. So we'll need to draw to a close. Thank you for your interest in CSL. And I'll now close the meeting. Bye, bye.