CSL posts a 17 percent net profit increase to US$1.9B for December half-year

About CSL Limited

CSL Limited (CSL, the Group, ASX: CSL) is global biotechnology business that provides lifesaving products to patients in 100 countries and employs 32,000 people. Originally known as Commonwealth Serum Laboratories, CSL was established in 1916 by the Commonwealth Government to manufacture vaccines like insulin and penicillin and vaccines against influenza, polio, and other infectious diseases. These vaccines were necessary to service Australia’s health needs when the nation was isolated from the rest of the world during the first World War. In June 1994, under a Keating-led government, CSL was publicly floated on the ASX at $2.30 per share.

CSL has three business units – CSL Behring, CSL Seqirus and CSL Vifor. CSL Behring develops and delivers therapies for people living with conditions in the immunology, hematology, cardiovascular, respiratory and transplant therapeutic areas. CSL Seqirus is one of the largest influenza vaccine providers in the world. CSL Vifor focuses on the treatment areas of iron deficiency, dialysis, nephrology and heart failure, kidney disease, gastroenterology and patient blood management.

Higher profit and dividend on 11 percent revenue increase

CSL has reported a 17 percent increase in after-tax profit to US$1.9 billion for the half-year to 31 December 2023 on a 11 percent increase in total revenue to US$$8.05 billion. The strong result was driven by CSL Behring’s exceptional performance especially in immunoglobulins, which are used to treat infectious, autoimmune, and inflammatory conditions by normalising a compromised immune system. This business unit delivered US$5.2 billion, or 65 percent of Group revenue.

The profit result is equivalent to earnings per share of US4.18, from which a dividend of US$1.19 per share will be paid on 3 April. This amount is equivalent to about A$1.81 per share.

As is the case with healthcare businesses generally, and particularly drug manufacturers, CSL’s gross profit margin was 55 percent of Group revenue. Sales and marketing costs were 2 percent of revenue.

AEGIS – II trial conclusion

In a disappointing outcome the Phase 3 results of the AEGIS – II trial fell short of the primary efficacy standard necessary to enable a near-term regulatory filing with the US Food and Drug Administration (FDA). Surprisingly, CSL shares fell almost 5 percent immediately following release of this announcement to the ASX. The AEGIS – II study focused on heart attack patients who had experienced an acute myocardial infarction and found no improvement with the drug compared to placebo at 90 days.

The reason for the sizeable share price sell-off was that shareholder expectations of success of the Phase 3 trial were high in that it is the most ambitious study in CSL’s history and involved tests on 18,000 patients. Phase 3 is the final phase of testing before the drug’s details and clinical trial results are submitted to the FDA for approval of the drug’s release on the market. CSL has indicated that there are no plans for a regulatory filing with the FDA in the near-term.

Importantly, CSL stated that it had excluded any financial contribution from the AEGIS – II trial in its forward-looking estimates and statements. Accordingly, there is no direct material financial impact following conclusion of the AEGIS – II trial conclusion. It is reasonable for rational investors to consider the 5 percent share price sell-off on the back of the announcement to be an over-reaction.

The Future

Full-year 2024 earnings guidance has been reaffirmed in the range of a net profit after-tax of US$2.9 billion to US$3 billion, representing earnings growth of 13 to 17 percent compared to FY2023.

R & D investment is set to continue at 10- 11 percent of revenue.

Looking to the medium term, CSL anticipates double digit earnings growth, with particularly strong growth in CSL’s immunoglobulins franchise buoyed by ongoing strong patient demand. Patient demand is particularly strong for the separation of blood plasma into components which are turned into therapies to treat chronic immunodeficiency and bleeding diseases.

CSL’s other businesses include Seqirus, one of the world’s largest vaccine manufacturers, and Vifor, a Swiss maker of kidney disease and iron deficiency therapies.

The non-discretionary nature of expenditure by consumers and governments on healthcare, vaccines and immune deficiency issues should continue to support strong demand at high profit margins for CSL’s products.

The Group’s conservative debt level with net debt/EBITDA at approximately 2.5 times, a strong investment grade credit rating at A- by Standard and Poor’s, and growing demand for it’s products, management’s forecast of double-digit earnings growth over the medium term appears eminently achievable.