CSL FY25--Starting to take the initiative.

 CSL FY25

I've been a bit critical of CSL recently, due to the Vifor acquisition and sort of being carried by the events, not being proactive. management has now started to make some significant moves. Overall I think they are positive.

the result was 1% below my revenue and NPATA numbers, so no big shacks for me there, but a lot is going on with this one.

1. Demerging Seqirus, can't disagree since I've been arguing for this for a while. CSL made an opportunistic acquisition when the biz was a mess under Novartis. CSL then fixed it up (after a lot of effort), now it is, imo, a high-return biz but with little growth, so divest/demerge makes sense.
2. I have been a bit neutral/neg on Vifor; this result was ok for them, but I'm still not convinced of the strategy and don't like the Vifor CEO commentary-dismissive and arrogant imo. too soon to divest it. Probably a misallocation of capital, CSL now proposes a multi-year buyback program, so marginally better.
3. CSL withdrew timing on the CPL improvements they have been flagging to get back to pre-COVID-19 margins for Behring. Didn't withdraw the result, but non-committal on timeline. these savings were a big driver of profit, very big, so withdrawing the timeline, the market will hate. and probably understandable. so that is poor.
4. There are small changes in disclosure that usually mean issues in various products, ie losing share, and I think we see that, but not life-threatening. Guidance was not great, again, not poor, just disappointing, which puts me right at the top end for 2026.
5. The really interesting thing is the change in R&D. My view is that CSL went through a real purple patch about 10 years ago with a string of outstanding products. there was always a risk that they were batting above average, and that has proven the case. now, CSL is addressing the issue. big changes to the R&D process, save costs and reinvest to generate better returns. align R&D with product development and commercialisation. Read into this, CSL thinks R&D has been poorly directed and is attempting to address this issue. now the big question is, will this improve results, or is the former glory gone, and it was always just a lucky streak? That is the big question for me. it will take a while to get answers (years).
6. CSL states that reinvestment could go to R&D, S&M, acquisitions, pushing favourable products, etc, looks like optimising the product portfolio, prioritising and managing the drug life cycle better etc.
7. All this ties into the pricing; long gone are the days CSL could do no wrong (remember, CSL was going to cure C19....lol). what should a big pharma trade on? the comps can be priced very poorly, mid-teens PE for big pharma is not uncommon, but i think CSL is a better business because it is less exposed to EOL patents to the same extent. so 20-22X is a good entry IMO.

Valuation CSL continues to exhibit earnings growth and is expected to continue to do so. ROC as seen below has fallen and growth has been slower than expected. The PE had declined. From a valuation standpoint, identifying a suitable PE for a lower-growth company in a sector where valuations swing about is the challenge. Below $230, CSL offers 10% compound returns, assuming 22X exit PE and 9% earnings growth.

 

FCF is starting to turn after a few years of going backwards.

 

 

 

Transcript : CSL Limited, 2025 Earnings Call, Aug 19, 2025

Paul McKenzie   MD, CEO & Executive Director

You have seen that CSL has made key announcements today that I believe will drive growth for the company into the future. Growth was once again a key feature of our results for fiscal year '25. On a constant currency basis, all 3 business units grew sales, resulting in 5% growth in the CSL Group revenue. NPATA grew 14%. NPAT increased by 17%. Leverage improved to 1.8x net debt-to-EBITDA basis. Free cash flow increased by 58%, and we increased our final dividend by 12% to USD 1.62 per share. We are pleased with this performance. But we know we must rapidly adapt to position ourselves well into the next decade, given a constantly evolving operating environment. It is from this position of strength, and I am excited to announce major transformational changes today. Significant operating model changes that will improve CSL's clinical and commercial pipeline execution, while reducing cost and simplifying decision-making across the organization.

The financial benefit is twofold. Firstly, we will target more than USD $0.5b in savings by the end of fiscal year '28. Secondly, we will look to balance the reinvestment of these savings in high-priority opportunities with the need to deliver sustainable, profitable growth. As always, we will be disciplined in allocating these funds with sustainable value creation as our guide, and we remain committed to delivering double-digit earnings growth over the medium term. We have also announced an intent to demerge CSL Seqirus as an independent ASX-listed entity in fiscal year 2026. CSL's management team and Board believe there is a clear strategic benefit to the demerger. Both ASX-listed entities will be able to focus on their core capabilities and realize simplification benefits, which will drive growth and each will have a sustainable capital structure and access to funding to pursue distinct growth strategies.

Finally, we are reintroducing a multiyear share buyback program starting this financial year.

CSL Behring, where revenue increased by 6% at constant currency. Demand for our core products remain strong with PRIVIGEN and HIZENTRA growing 8% and 6%, respectively. I would remind everyone that the second half of the year was impacted by the implementation of the IRA Part D reform. Importantly, though, we are seeing increasing demand from core indications such as CIDP, PID and SID, which reinforces our confidence that there is a significant growth path in the demand for our products. Our albumin portfolio grew by 7%, driven by a strong performance in China. We are very proud that CSL's hemophilia franchise once again demonstrated market leadership with growth of 13% at constant currency. IDELVION remains to standard of care, achieving 10% growth for the year. The uptake of HEMGENIX continues to increase, and we remain positive on this therapy. In particular, the recent 4-year post-infusion data demonstrated durable efficacy and safety in adults with hemophilia B. Aligned with our new strategic focus on diseases, you will see the bottom of the slide looks different this year with HAE and perioperative bleeding products reported separately. The HAE franchise grew 4% and but our new ANDEMBRY product was only approved and launched in the U.S. in the closing weeks of the fiscal year. And ANDEMBRY offers the promise of eliminating HAE attacks for the majority of patients. with a simple once-monthly dosing being an easy-to-use prefilled auto-injector.

Finally, perioperative bleeding was impacted by a tender loss in the U.S. We are now past the first full year of this event and saw positive growth from the first half to the second half of the financial year. As market leader, we continue to view this as a highly attractive market with significant unmet need. During the period, we also made progress on our plans for label expansions for both KCENTRA and RiaSTAP.

CSL Seqirus. Revenue for CSL Seqirus was up 2%, which was a robust result given the decline in vaccination rates for in this weak market back drop has been disappointing, and we view the softness in the U.S. seasonal category as highly irrational based on the vaccine risk/reward profiles and the scale of disease burden which this year reached a 15-year high. I will talk more about the outlook for Seqirus later, but we do see cause for optimism in the global seasonal influenza market. In the U.S., for example, we are encouraged by the recent positive universal recommendation by ACIP, a clear sign that influenza is not going away, and it still has a severe impact on public health. During the year, we delivered on our exciting geographical expansion plans earlier than expected when we received preferential recommendations in Germany and France for our flu ad product. We also launched this product in Taiwan and South Korea. Another positive was recognition of our pre-pandemic capability. The majority of Avian flu contracts globally were awarded to CSL, which was a strong recognition of our best-in-class differentiated platforms.

CSL Vifor, where revenue was up 8%, and we delivered global volume growth in iron. We maintained strong positions in EU markets, holding iron volumes despite generic entrants. Injectafer continues to be the leading branded high-dose IV iron product by market share and sales in the United States. Our Ferinject launch in China is progressing well. with hospital listings and demand generation ahead of targets.

For nephrology, Velphoro was the standout with sales growing significantly in the U.S. as a result of its inclusion in the TDAPA scheme. Tavneos delivered significant growth across all launch markets, helping patients with a rare and serious autoimmune disorder called AAV. FILSPARI was successfully launched in Germany, Austria and Switzerland. It is the only therapy in Europe that has demonstrated clinically meaningful kidney function preservation in adults with IGAN, a rare and progressive renal disease that is the leading cause of kidney failure.

Joy Linton   CFO

NPATA was $3.3 billion, up 14% after adjusting for a currency headwind of $84 million. The net gain of $30 million primarily reflects the disposal of our China manufacturing business, after adjusting for tax and the noncontrolling interest, group NPAT grew 19% to $3.2 billion, while NPAT attributable to CSL shareholders grew 17% to $3.1 billion.

Research and development costs were down 5% as we did discontinue some clinical programs. We expect a similar level of expenditure for R&D in FY '26 with a focus on prioritizing growth opportunities. For FY '26, we expect G&A costs to be held flat, providing operating leverage through the P&L. Cash flow from operations increased strongly by 29% to $3.6 billion reflecting the growth in the business and working capital management initiatives. And for FY '26, CapEx is expected to be around $800 million, plus or minus $100 million, and our future plans include expanding our IG capacity in the U.S. over the medium term. NPATA, EPS was up 10%, and the total dividend was up 11% to USD 2.92 per share.

Gross margin for CSL Behring improved 130 basis points over the prior year from 49.7% to 51%. We are confident that the gross margin will continue to show year-on-year improvement. However, we will no longer guide to a specific time frame. When we set the gross margin target, we shared the key factors that would drive the recovery. They remain the levers we are focused on to return the Behring gross margin to its historical highs. However, a couple of uncontrollables are impacting timing. To begin with, as you will be aware, FX has not worked in our favor. And you also know we've taken deliberate action to reduce cost per liter with improved efficiencies and a gradual decline in donor fees. We are delighted with the successful rollout of the RIKA and iNomi platforms, and it is delivering as planned. However, we did make the decision to bolster labor costs in the centers to ensure that we could deliver this significant change. We now need to reduce those costs and have announced the closure of 22 centers as part of this. While we have been pleased to offer innovative new products to our patients, in some cases, this has been slower than our expectations. And Denbury was impacted by the delayed approval in the U.S. and HEMGENIX take-up has been slower than anticipated despite the excellent 4-year data. The strength of our intravenous IG product PRIVIGEN has been pleasing but it is a lower margin product compared with HIZENTRA. We are targeting double-digit growth in HIZENTRA in FY '26, driven by our convenient prefilled syringe formulation which will drive margin improvement. Finally, we've made strong progress on yield, and we'll continue to focus on manufacturing efficiencies going forward, and these are very much progressing to plan. To reiterate, we are confident in consistent year-on-year improvements in the CSL Behring gross margin, and we believe that these are the levers that will get us there.

CSL Seqirus' margin did come under pressure due to the competitive nature of the market. Sales and marketing costs for CSL Seqirus were up as the business prepares to launch into new markets of Germany, France and Korea.

For CSL Vifor, revenue was up a solid 8%, demonstrating the resilience of the iron portfolio and the strong uptake of the new product launches in nephrology. CSL's operating result was up 14% as we continue to find ways to make the business more efficient.

we have announced a multiyear on-market share buyback program, which we anticipate will start with AUD 750 million in FY '26. We expect this will progressively increase over the medium term. We are targeting a leverage range of 1.5 to 2x net debt to EBITDA.

Paul McKenzie   MD, CEO & Executive Director

Over the past few years, I observed several changes. Operational model complexity has increased as CSL has scaled. We have seen a more uncertain macro environment as demonstrated by the implementation of policies such as the IRA (inflation reduction act), then the threat of sector-specific tariffs and most-favoured-nation pricing, and our R&D output has not been where we had hoped it would be.

Firstly, we are making our organizational structure simpler and more effective. We will make significant changes to our R&D organization. removing fixed costs and redirecting that spend to important clinical portfolio work. We want to double down on the pace and quality of our innovation and increase the productivity of our pipeline, both in the speed of translational research and maximizing life cycle management opportunities for our portfolio. To enhance clinical and commercial pipelines, a distinctive new portfolio development and commercialization operating model, will seamlessly integrate efforts across research and development, business development and commercial. CSL Behring and CSL Vifor will combine medical and commercial capabilities. delivering further synergies and additional revenue growth opportunities across our multiple commercial channels. And we have taken the hard but necessary decision to reduce headcount across the entire organization.

With the rollout of the RIKA plasmapheresis system and inomigram, our donor collection network has become more efficient with improving yields. So we are able to optimize our network and have closed 22 of our underperforming centers, representing 7% of our U.S. footprint. This does not signal an end to new center openings, but a continued focus on reducing our collection costs. In aggregate, these changes will result in an annual pretax savings of over $0.5 billion by the end of financial year 2028. They will be delivered progressively over the next 3 years with the majority achieved by the end of financial year 2027 and full run rate savings by the end of financial year 2028. As I mentioned earlier, we will incur one-off restructuring cost of approximately $700 million to $770 million on a pretax basis and $560 million to $620 million on a post-tax basis, all to be recognized in financial year 2026. The cash flow impact in fiscal year '26 will be $400 million to $450 million.

We are targeting completion of the demerger before the end of financial year 2026. It will be subject to third-party consents, regulatory approvals, and we will conduct a voluntary shareholder vote.

OUTLOOK. In CSL Behring, we anticipate continued robust demand for our core therapies as well as the uptake of newer products such as  Amdenbury and HEMGENIX. With the rollout of the RIKA and iNomi platforms now complete, gross margin is expected to continue to improve. This will also be helped by strengthening our growth profile for our higher-margin HIZENTRA product. In financial year 2026, CSL Seqirus expect seasonal influenza revenue to stabilize year-over-year, driven by improved performance in both the U.S. and other key geographies. We expect a substantially lower contribution from avian influenza and COVID-19 in fiscal year '26.

CSL Vifor is well positioned to maintain a strong market-leading position despite new entrants into the iron market. The nephrology franchise will continue to benefit from the ongoing launch excellence of therapy such as Tavneos and FILSPARI. At the group level, FY '26 revenue growth is anticipated to be approximately 4% to 5% over fiscal year '25 at constant currency. CSL's NPATA for fiscal year '26, excluding the nonrecurring restructuring costs is anticipated to be in the range of approximately $3.45 billion to $3.55 billion at constant currency, representing growth over fiscal year '25 of approximately 7% to 10%. Please be aware that this guidance assumes no impact from pharmaceutical sector tariffs. It is our current expectation that any such policy would not impact our ability to deliver on the strategic initiatives outlined today. has significant operations in the U.S. and the majority of our commercial portfolio is drug sourced from there.

Q&A

Behring

We did see the full year impact of some tender losses, low-margin tenders that we chose not to participate in. and that is what you're seeing as a reflection in the second half.

Look, our IG business is up a healthy 7% over the year, and we're really proud of our sustained leadership in IG, and we look forward to continued mid- to high single-digit growth over the next several years, and that accounts for emerging competition. That said, it's really more competitive than ever before, and we're being very purposeful in where we play and in how we play. We're not going to chase tenders where it doesn't make sense. There is some variability in purchasing patterns and then there's the impact of the U.S. Part D reform. So if you take that Part D reform into account, our IG portfolio revenue grew 9% this year on a like-for-like basis. So underlying demand continues to be strong, and we're ready to compete to grow.

But I want to be clear, we remain confident to get back to the 57% gross margin, we have not lost conviction at all on returning our margins to historical highs. All we're doing today is saying we're not going to put a time line on it. And there's things that invariably end up being a bit outside our control. The FX -- the cumulative impact of the FX headwinds we've had to date is not insubstantial. There's been some headwinds in our product mix, which we talked through. And we're still on the cost per litre journey, the yield improvements are terrific and going actually probably ahead of plan, but they are creating some shorter-term fixed cost absorption in the centers, which is why we made the call to close some centers to keep getting that fixed cost down. So they're kind of like the 3 areas. We're absolutely committed to returning to historical highs. We can see our way there. What we're doing today is saying we're not putting a time line on it

we look at the demand as robust, and I'll ask Andy to go through very specific details. And look, our whole plan is to balance the demand in the marketplace with appropriate supply. And now we just have more levers to do that. The yield increases in plasma, the yield increases in manufacturing allow us to be a bit more picky in terms of how we execute, where we put our IG across the globe and what kind of tenders we participate in. And that's really important for us as we move forward because we want to both drive top line revenue as well as margin in the business.

for the impact of this new entrants with FcRn specifically, look, this is good for patients in CIDP, of course. That said, the benefit risk profile of the FcRn class really isn't fully characterized, and it does appear to be quite different than that for IG. The reality is, of course, that FcRns are not in the consideration mix for when IT replacement is needed. So not for PID, not for SID, and that's more than half our current business. We're confident that IG will remain the first line leader in CIDP. And FcRns are going to be good for patients who are intolerant to or who don't respond to IG. So we really look forward to continued CSL, IG portfolio growth with PRIVIGEN with HIZENTRA. And that kind of mid- to high single-digit growth profile over the midterm takes into account any possible impact from FcRn

But if you take into account the tenders that we did not win, and again, it's not regrettable. That's about 3% or 4% of IG growth that we could have had in '26 that we chose not to get. And were okay with that because we're in this for the long haul, and we're being very purposeful in where we play. So the bottom line is there are spots where there's price competition, and we're going to be purposeful in where and how it choose to engage.

It's quite competitive now. We're holding our share in the U.S. I mean, look, with HIZENTRA, we were the first and only subcutaneous offering, and now there's competition. So share is being challenged a little bit, but that's what you would expect when you have new entrants into a marketplace. But with HIZENTRA, we still have approaching 60% share of the business. So we're growing well

To comment on fixed cost absorption. The yield benefits in the centers means you're exactly right, we're collecting more plasma from the donors. And then it's going into our Horizon 1 or into the manufacturing network, and we're extracting more IG from every litre of plasma we're collecting. That then means we don't need to collect quite as much plasma as we otherwise did all other things being equal. We have been sitting on underperforming centers. And you could say, well, why didn't you close them earlier? So we needed the plasma, whereas now we have a cheaper, more effective way to get that plasma which is via the yield initiatives, but we're still sitting on the fixed cost of those centers. So that's why we've gone ahead and announced the closure of 22 centers. That will go a long way to getting rid of that sort of unfavorable absorption. And as I mentioned in talking points, we've also got a bit of extra labor sitting in the centers that we put in to really make sure that RIKA worked well, which it did. But again, we need to take that labor out of those centers now. So it just enables us to do that next level of cost reduction going forward.

 

Restructure to grow

And look, our change in operating model is really important for our clinical and commercial portfolio success. And that change in operating model is really bringing together research and development, business development and commercial and in lockstep. And it's really those 3 groups that have to work hand-in-hand to develop not only our clinical portfolio, but to maximize our commercial portfolio. And it's really this is what we're going after. And we've had some disappointments in the last couple of years in R&D, and our footprint became quite dispersed and very fixed from an overall cost viewpoint. And as those fixed costs are what we're trying to bring back down so that we can invest back in our clinical portfolio and commercial LCM progress. So our goal is to continue to source key clinical assets, both internally and externally, which will help us continue to grow the top line. But top line comes from both clinical progression as well as indication expansion and life cycle management.

But when we really look at the savings, we want to look at opportunities to enhance our clinical and commercial portfolios, particularly our clinical portfolios and that Phase I and Phase II part of the business where we can ensure that, one, we can bring the right disease knowledge and insights; and two, we can move them rapidly to -- from decision point to decision point in terms of how we invest. So right now, we're saying we look to reinvest about 50% of the savings, but again, we'll be disciplined in our approach to do that.

it takes 12 months from when we collect the plasma to when it's -- when you see it in the P&L. We turned the individual nomogram on or around Christmas. And so it will be the second half of FY '26 before you see that in the P&L. Similarly, the plasma centers that we are closing now. You won't see that in the P&L until FY '27 is another reason the savings tend to be a little more back ended just because of the length of time it sits in inventory. Interestingly, you can start to see it in the cash because that's the inventory, but it will take a little while to come through the P&L.

So in these reductions, we have an active plan where we work through all parts of the organization of where we think we need to surgically apply cost reductions in fixed costs, site locations, capabilities that we built that were fit for purpose a few years ago when we were, say, executing a CSL112 trial more operational skill sets, which aren't as appropriate from a capability as you're looking to rebuild your clinical portfolio overall. So these fixed cost savings, particularly the people side, it takes time, given a lot of our footprint is in Europe where you need to work through the appropriate works councils and social plans to be able to deliver the savings. So the tail ending of that is really a reflection of our best estimate for the timing of those as we work through them.

G&A higher--Consulting costs in order to start delivering some of the savings.

 

Tariffs

So again, for tariffs, I just wanted to reiterate that we don't see tariffs at this point based on what we understand to be impacting our fiscal year '26 and our ability to deliver on these guidances.

Guidance

I mean the other comment I would make on the guidance, if you haven't got around to reading the footnotes yet. If you were to take out the Part D reform, that 7% to 10% becomes 10% to 13%. So FY '26 does, it is impacted by the second part of the first full year impact of Part D reform. And it's also reflective that the Seqirus business, while we're starting to see some positive signs influenza seasonal influenza. We're not going to get the benefit again of the pandemic business, which was largely a '25 story. So there's a couple of reasons there why that guidance at the low end is single-digit.

Vifor

So first, we are overall very pleased with our Ferinject performance in fiscal year '25. We are indeed facing generic competition in the EU and in certain markets ex U.S. In EU, in particular, we still see limited competition so far. Just to give you an example, Sandoz and Teva are commercially active in about 10 countries across the region despite the fact that they have been approved 20 countries, which does suggest that they have some significant supply limitations. We have also seen an approval for Viatris, but so far, they are not commercially active. So our focus, is really on tendering excellence. We are very much focused on price preservation because we are here for the long run. Iron is really for us critical franchise, and it's a long-term play. We're also leveraging nonpricing criteria. For example, we are clearly differentiated in terms of supply reliability versus generic competition. We have a longer shelf life. We are trying to optimize our carbon footprint, which is more and more criteria in some of the tenders. Our administration time is shorter than generic competition. So we are leveraging all these things to try to differentiate ourselves, not just based on price, but based on some other factors. And in Europe, despite this increasing competition, we have been able to hold volume almost flat, with targeted investments in countries where we do not face generic competition, we are clearly investing and growing the business double digit in volume and value. And in countries where we do face generic competition, we invest when we intended to drive demand. So we try to be flexible, agile. And so far, I think the strategy has really paid off.

The ex EU, ex U.S. business, where we see extremely strong growth because a big part of our Ferinject strategy is market expansion worldwide. And here, we are extremely successful just to give you a sense. This region ex U.S. ex EU in terms of volume is bigger than EU and U.S. combined, and the revenue generated by this region is 3x higher than the U.S. revenue.

Andembry

We're very excited by what it can do with its once-a-month dosing, auto-injector, patients are waiting for it, and we're seeing strong demand as we come out of the gate, We're really excited about the prospects for ANDEMBRY for hereditary angioedema patients. Outside the U.S., which launched first tier given the delay by the FDA, we've seen strong uptake in the first 5 months out of the gate in both Germany and Japan.

In the U.S., specifically, HAEGARDA has about a 25% share in the prophylaxis space. And so we would expect that AnDenbry would take no more than 1 in 4 patients who may switch from HAEGARDA.

 

Seqirus

In terms of the seasonal stabilization, it's really about the channels that we compete in. So we've been investing over the last couple of years in the pediatric segment. So if you looked at our share of the pediatric segment a couple of years ago it was a big zero. And since then, we've moved up into the double digits. And we're looking to end the year around circa 20% as we included in our fiscal year '26. So it's really about really how you look at the channels. For us, it's both pediatric and IDN as well as competing and faring well in the retail segment. So where we see the stabilization is our ability to compete actively across these channels. And in these channels, as you know, most of the vaccine fatigue is in that 18 to 64 category. So the pediatric channel which represents about 35 million doses is a pretty significant portion of growth for us. That said, we're also, for the first time into Germany and France. Germany is a $100 million-plus market. We've had 0% opportunity there because we did not have the STIKO recommendation. We now have the STIKO recommendation and are looking to expand. So I think it's really our differentiated portfolio and our surgical precision around the channels that we're in.

Pricing- I would say, as you have more capacity in the market, we did see for certain retail contracts, competitive pressures present themselves. And given the diversity of our portfolio, we're able to satisfy that and go after that in different ways. So we do not chase, as you know, we're transitioning out of egg. A lot of the price pressures that you saw were specifically in egg, some more limited price pressures in what I'll call the higher-value segment of flu. But we've been able, given our profile to look at those price pressures less from an egg viewpoint, which I think has been the predominant push down of the prices.

However, I just need to be thoughtful that the pandemic revenue that we saw in '25 doesn't repeat at the same level in '26, and that is particularly high margin. And the second timing factor is we're still moving from Parkville to Tullamarine production, and there's a bit of duplicated costs still sitting in those numbers in '26. So look, there's some ups and downs from Parkville to Tullamarine production, and there's a bit of duplicated costs still sitting in those numbers in '26. So look, there's some ups and downs, I would have thought if we could go out of flat, that would be a good outcome.