CSL Limited (CSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to CSL's full year results call for fiscal 2021. It's Mark Dehring speaking, and joining me online is Paul Perreault, CSL's Chief Executive Officer; and Joy Linton, CSL's Chief Financial Officer. As with past practice, Joy will provide an overview of the results and operations, and then Joy will provide some additional details on the financials. We'll then move to 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?

Thanks, Mark. Good morning, and thank you, everyone, for joining today's review of CSL's full year results for 2021. Today, I will provide an overview of a strong set of results achieved in an extremely tough global environment. And then I'll hand over to our new Chief Financial Officer, Joy Linton, as Mark said. It gives me great pleasure to introduce Joy today. She's been with us since March and has quickly assimilated into CSL. Joy is already having a very positive impact across the organization. And Joy has met many of you on this call, and I'm sure she looks forward to spending more time with our investors in the coming weeks. She comes to us from Bupa in the U.K., where she was Group CFO and Executive Director for the past 5 years. Joy will be providing more details on the financials, and I will then conclude with an update on our strategy and our outlook. And then we'll be happy to take your questions at the end. So for some of our highlights on Slide 4. I'm pleased to report that CSL has delivered a strong result for fiscal year 2021, with revenue up 10% at constant currency and net profit after tax also up at a constant currency. This is an excellent performance given the very challenging conditions in the environment that we have faced through the global pandemic. Despite all the complexities that we've had, our CSL Behring and Seqirus businesses maintained all critical operations, demonstrating what I can say is real resilience and agility across the organization. This is a testament to not only our dedicated employees, but also to the CSL values. Our employees have remained dedicated and focused on delivering on our promise to patients and to public health around the world. In terms of the highlights for CSL Behring, we achieved strong growth in many of our core products. This included another strong performance from HIZENTRA, our market-leading subcu Ig product, which was up 15%. Two of our leading specialty products also showed solid growth. HAEGARDA was up 14%, and KCENTRA up 7%. Albumin sales grew 61% as our sales in China normalized from the change in business model. And in the CSL Behring business, we implemented a number of digital transformation initiatives, which has expanded our flexibility and enhanced our customer-facing interactions. Our influenza business, Seqirus, delivered an exceptional performance. Sales of seasonal influenza vaccines were up a very strong 41%. Seqirus distributed a record number of doses globally of some 130 million. And we announced a new world-class biotech manufacturing facility to be constructed in Melbourne, Australia. Since COVID-19 hit in early 2020, it has had an impact on many aspects of our operations. In our CSL Behring business, plasma collections have been challenged. However, we put a number of initiatives in place and are starting to see the improvements. I'll go into more detail on this later in the presentation. And for Seqirus, COVID has provided a tailwind as demand for influenza vaccines has increased, but also because of our positioning of our enhanced product portfolio. So despite the challenging environment, we've continued to invest in the business, and we remain focused on executing our long-term strategy. I am confident that CSL is well positioned to emerge from this stronger than we've ever been in the past. Turning to the next slide and CSL Behring sales by therapeutic area. Overall, the Behring portfolio recorded revenue growth of 6% at constant currency. Immunoglobulins, our core franchise, was up 3%, with HIZENTRA growing an impressive 15%, while PRIVIGEN came under pressure. Albumin was up 61%, hemophilia was down 4%, and specialty products overall was up 2%, all at constant currency. And I will go into more of this detail shortly. In terms of the geographic split of the CSL Behring revenue. North America continues to be our largest market, where revenue grew 5%. Our next biggest market is Europe, which was down 6% in revenue, and this is where we felt the supply tightness in IVIg. Asia Pacific was up 44% as a result of strong growth in albumin in China. Moving on to Slide 6 in immunoglobulins. The first thing I would say is that underlying demand for Ig continues to be extremely strong. This is due to significant patient needs in our core indications, namely primary immune deficiency, secondary immune deficiency and CIDP. Despite the supply challenges caused by COVID-19, we still managed to grow our Ig franchise by 3%, led by strong growth in our market-leading subcutaneous product, HIZENTRA, which was up 15%. Since the start of the pandemic, we have seen an increased preference for HIZENTRA, with its convenience and benefit of home treatment. With its flexible dosing, patients could administer HIZENTRA at home and better control their disease state, which is an attractive option, especially during these COVID times. HIZENTRA has also seen a continued steady uptake for the treatment of CIDP in the United States. CSL is still the only company with approved subcutaneous and IVIg treatments for CIDP. HIZENTRA also continues to have orphan drug exclusivity for CIDP in the U.S. 2/3 of targeted physicians have now adopted HIZENTRA to treat CIDP, and the European Academy of Neurology has just released new guidelines on CIDP, which includes evidence-based recommendations for the use of subcutaneous Ig for maintenance treatment in CIDP. Overall, HIZENTRA remains the clear leader in the subcu market with around 60% market share in the United States. Our IVIg product, PRIVIGEN, was impacted by the accelerated shift to HIZENTRA as well as the tightness of supply in plasma resulting from COVID. Across the industry, the supply of immunoglobulins tightened further in the second half of the year and was felt in markets outside the U.S. As a result, we have been managing our supply chain carefully, and we have taken steps to avoid any major disruptions to supply and ultimately to our patients. For example, we implemented a customer order fulfillment process to ensure fair and equitable supply to current customers, and we have not been opening new accounts or taking on new customers. Moving on to Slide 7 in albumin, where sales grew 61%. Our new distribution model in China has been operating now for 12 months, with sales for fiscal year '21 now reflecting a more normalized level. The new model is working well and gives us direct management of over 180 distributors in China. This has expanded our geographic coverage and given us increased penetration into retail pharmacy in the lower-tier cities and hospitals. In the first half, there were reduced hospital operations as a result of COVID-19. However, the second half saw more of a return to the normal levels. And whilst the competitive environment in China has increased, the demand outlook for albumin is for volume growth in the mid- to high single digits. Outside of China, we achieved volume growth for albumin in Europe and the emerging markets, whereas sales in the U.S. declined as supply constraints started to emerge. On Slide 8 is hemophilia, where sales were down 4% for the year. This portfolio was impacted by reduced doctor visits and patient consultations during COVID-19. Against the backdrop however, IDELVION, our long-acting recombinant Factor IX products achieved modest growth, remains the clear market leader for hemophilia B patients. Its compelling clinical profile continues to drive patient demand and market share. IDELVION continues to be launched in new markets, and this year, included France, Argentina and Singapore. In the hemophilia A market, sales of AFSTYLA declined by 9% due to continued competitive market pressures. This competition has also had a negative impact on our plasma-derived hemophilia products. However, this was offset to some extent by a 13% growth in Humate, which was underpinned by increased market share in the U.S. for the treatment of von Willebrand disease. We also saw a decline in Mononine, our Factor IX plasma product, as patients continued to switch over to IDELVION. On to Slide 9, in specialty products. Overall, specialty products grew 2%. The standout performer continues to be HAEGARDA, our transformational therapy for treating patients with hereditary angioedema or HAE. HAEGARDA grew strongly, up 14%, due to strong patient demand. We now have the most patients on HAEGARDA since launch. Demand is being driven by the shift from on-demand to prophylaxis treatment. Also contributing to the increase in patient numbers were new launches for HAEGARDA in Europe, Australia and Canada. BERINERT was down 5%, reflecting also patients shifting to HAEGARDA. The other main specialty product to record solid growth was KCENTRA, which was up 7%. I feel this is a very strong result given sales have been tempered by the reduction in elective procedures and incidence of trauma during the pandemic. KCENTRA's growth underscores the unique medical benefit of this therapy. The reduction in hospital visits also impacted other hospital products, with RiaSTAP down 1% and wound healing products down 19%. For Alpha-1, sales were down 26% following supply interruptions at our Kankakee facility in the U.S., which we mentioned at the half year. Turning to Slide 10 in plasma collections. It think this is a topic that is on people's minds. And as has been well documented, COVID-19 presented the industry with many challenges in plasma collections, is one such area of our business that has been adversely affected and impacted by the pandemic over the past 18 months. Not only were we impacted by quarantines, stay-at-home orders, restricted movement of donors, fear of disease, but also the unprecedented government stimulus programs and continued unemployment benefits provided by the U.S. government, as a result, our plasma collection volumes for fiscal year '21 were down around 20% on the previous year. And these liters were all collected at a higher cost per liter, including factors such as additional PPE, cleaning requirements, social distancing, labor costs and higher compensation paid to donors, particularly in the last quarter of the year. But in response to these challenging conditions, CSL Plasma implemented a number of targeted initiatives to focus on growing plasma collections. As a result of our efforts, I am pleased to say we have seen sustainable improvement in our collections over the course of the past year, and the following slide will show how we've been tracking. First, I would like to share some of the initiatives that CSL Plasma has undertaken. We've enhanced our operating and marketing efforts to attract not only lapsed donors, but also new donors, which are an important source of future donations. We've seen a strong adoption of new technologies introduced to improve the donor experience, such as a donor app, self-serve kiosks and the ability for donors to register online. At last count, we had over 0.5 million downloads of our new donor app. We continue to lead the industry in the opening of new plasma collection centers. We opened 25 new centers in fiscal year '21, despite COVID, and plan to open up to -- we plan to open up to another 40 centers in fiscal year '22. We now have a network of over 300 collection centers globally, which we believe to be the most efficient in the industry. We led the industry change in reducing the plasma hold period from 60 days down to 45 days, and we continue to manage our supply chain carefully and optimize the finished goods inventory in order to take care of our patients. And finally, we've entered into a collaboration with Terumo to deliver a new plasmapheresis platform. Trials are progressing, and we anticipate regulatory clearance for this new technology in early 2022. Turning to the next slide, and this is the graph that shows our donor numbers on a weekly basis. It's a busy slide, so let me try to walk you through it. The red line is calendar year 2021 thus far. Black is 2020; and gray is 2019. If we go back to the start of our fiscal year 2021, which is July 2020, this is when we launched our first series of initiatives, and we saw collections start to improve over the 6 months to December, which we showed at our half-year results. Then if we turn to January 2021 in the most recent months, the red line, you'll see that collections declined [ to all ] as a result of another round of U.S. stimulus and some really damaging weather events in the United States. From this point in mid-April up to today, we see the promising rebound. We introduced additional initiatives, including higher donor fees, which really started in the April time frame. The stimulus effect began to wear off, and the rapid rollout of COVID vaccines in the U.S., which has seen increased movement and more donors coming into our centers. You will note a slight reduction in late June and then the resumption of growth. This was the effect of the U.S. Mexican border closure for the purposes of plasma donation. Despite this, growth has resumed and continues into the new financial year. In the meantime, we are pursuing a retraction of the new Customs and Border Control Director. With just 6 centers close to the border and a further 7 within reasonable proximity, investors should see the centers on the border in the context of the larger CSL franchise, over 300 centers globally. Whilst we are still not back to pre-COVID levels, we are encouraged by the continued upward trend and look forward to getting back to that previous level soon. Moving on to Slide 12, and Seqirus revenue. Moving -- the performance that Seqirus delivered was exceptionally strong in 2021 total revenue was over $1.7 billion, up 30% at constant currency. This was driven by very strong growth in seasonal influenza vaccines of some 41%. The increase reflects the ongoing shift to secure differentiated products such as FLUAD, which was up 60%, and increased demand due to COVID-19. The Northern Hemisphere continues to be the dominant market for Seqirus, with the U.S. and Europe accounting for approximately 80% of Seqirus' revenue for the full year, with both regions delivering strong growth. You will note that [ Asia Pacific ] was down 6% or $15 million. This is due to the lower in-license vaccine sales following the completion of the Zostavax catch-up program in Australia. Continuing with Seqirus on Slide 13 and operational highlights. As I mentioned, Seqirus achieved significant growth in its seasonal influenza vaccines, which saw record volume of 130 million doses distributed across the globe. FLUAD QIV was launched in the U.S., contributing to very strong sales growth for this high-value product, which is used in the elderly market. Flucelvax was launched in Australia this past season. And Seqirus also entered into new and extended influenza [ pandemic ] agreements with the U.K., Sweden, Switzerland and Canada, and we provided support for the company's COVID-19 efforts. Looking forward, the pandemic has seen the acceleration of mRNA technology, and Seqirus is leveraging this by accelerating our own program. Ours is a next-generation technology, self-amplifying mRNA, which aims to address some of the challenges experienced with current-generation mRNA vaccines. Preclinical studies have been promising, and human trials for influenza are expected to commence with a Phase I study in 2022. FLUAD QIV will be launched in Europe in the upcoming Northern Hemisphere season, and Flucelvax for infants, age 6 months and over, is expected to be approved in the U.S. this year. The Fill and Finish expansion projects in both Liverpool and Holly Springs are well advanced and will be operational in the next couple of years. Moving on now to Slide 14 and some of the R&D highlights. There's been a lot of activity and achievements in R&D over the past year. And while some programs were disrupted by COVID-19 in the first half of the year, everything is back up and running, and we're trying to move at full pace. We have a number of exciting programs underway in each of the 6 therapeutic areas, and in the interest of time, I'll highlight just a few. But before I do, I would encourage all of you to listen in to our annual R&D briefing to be held in October again this year, when we will go into a lot more detail on the pipeline. So beginning with immunology, PRIVIGEN for the treatment of CIDP, was launched in Japan. And the first patient was enrolled for our Phase III study for Garadacimab for the treatment of HAE. In hematology, we closed the uniQure transaction to commercialize the gene therapy product, EtranaDez, and the BLA for that product is being prepared for submission to the FDA following [ completion ] of that Phase III trial. In cardiovascular, metabolic, the Phase III trial for CSL112 continues to progress well, with over 13,000 patients now enrolled, and successfully completed the first and second futility analysis. The next milestone will be the readout expected in 2022, where we hope to have a readout on first efficacy. In influenza vaccines, we commenced the Phase II study for our adjuvanted QIV cell vaccine. And as I mentioned, we have undertaken preclinical assessment of the self-amplifying mRNA technology for influenza and are expected to commence a Phase I study in 2022. I'm now going to hand over to Joy to go through the financials in a bit more detail. Joy?

Thank you, Paul, and hello, everyone. Before I get into the numbers, I want to say how pleased I am to be here presenting my first set of results as Chief Financial Officer. I joined the company in March and have already had the opportunity to tour a number of our operations around the world. And what stood out to me was the strong sense of purpose and commitment to our values that everyone takes into their work every day, particularly against the difficult backdrop of the pandemic. As Paul said at the outset, this commitment was reflected in a strong result for CSL. On Slide 16, you will see that our reported net profit after tax has increased from $2.103 billion to $2.375 billion, an increase of 13%. On a constant currency basis, the net profit after tax was $2.307 billion, an increase of 10% after adjusting for a foreign currency tailwind of $68 million. The FX tailwind is attributable to U.S. dollar weakening against most major currencies, notably against the euro, the Chinese yuan and the Australian dollar. You will note as foreshadowed at the half year, the second half result is more modest than the first half, reflecting the seasonality of the Seqirus business and the COVID-related impacts on the Behring business. Included in the panel on the right side of the slide, you will see some of the key drivers of the result. And these include the completion of the transition of our new business model in China, which now reflects a more normalized sales number and profit number. As Paul mentioned, we are proud of the resilience CSL has shown in responding to the pandemic, but our financials have been impacted in a number of ways. For example, R&D programs have been reprioritized, additional costs have been incurred through the reengineering of manufacturing processes, the business has implemented numerous cost-containment strategies as we have adapted to this new normal, and we have been manufacturing COVID vaccines. As Paul detailed, the stay-at-home orders and strict lockdowns have not only tempered demand for some therapies, but have also adversely impacted plasma collections. Seqirus had yet another exceptional performance driven by strong demand for our differentiated products and improved manufacturing facilities. And this highlights the benefit of a diversified portfolio for the group. On gross margin, lower volume throughput in Behring has led to a greater fixed cost per unit negatively impacting gross margins, while at Seqirus, the opposite has occurred as we have benefited from improved manufacturing efficiencies from higher volume and a favorable product mix. I'd also like to draw your attention to a few accounting items that have impacted the result. Firstly, you should be mindful of the long manufacturing cycle of plasma products. Any change in the sales price of our therapies is reflected almost immediately through the P&L, whereas any increase in the input cost sits in inventory on the balance sheet to be released many months later with the [ resultant ] compression on margin. We have seen some of that effect in the second half of FY '21, and we will continue to see this into FY '22. This year, we've only had one change in accounting policy, that being that we've adopted an updated methodology to account for our cloud computing arrangements or Software-as-a-Service. We now expense rather than capitalize and amortize these implementation costs. The financial impact, however, is relatively modest. And lastly, included in the result is a one-off impairment charge of $74 million to certain assets at Kankakee and Langnow in Switzerland, which are now surplus to our requirements. Looking at the financials in more detail on Slide 17. As Paul has already said, total revenue was up 10% on a constant currency basis to $10 billion. Gross profit of $5.7 billion at constant currency was up 9%, reflecting a 50 basis point gross margin compression. EBIT was up 11% on constant currency to $3 billion and EBIT margin grew 50 basis points, reflecting the proactive management of costs. I'll talk about this a little bit more shortly. Both NPAT and EPS were up 10% at constant currency. Cash flow from operations was $3.6 billion, a 46% improvement. Factors driving this growth include improvement in working capital management across the business, our ongoing cost control initiatives, timing differences between cash receipt and activity, for example, a prepayment in relation to the new biosecurity facility that we will be building in Melbourne. And lastly, we've highlighted at the half the benefit of cash flow of a reduced number of donors. However, 6 months on, it's worth noting that this has been largely offset by the higher per unit cost of plasma in inventory. The final dividend declared of USD 1.18 per share is an increase of 10%, with the total FY '21 dividend also up 10% to USD 2.22. For Australian shareholders, this final dividend translates to approximately AUD 1.61, up 9% and franked to 10%. Turning to the segment results on Slide 18. For CSL Behring, total revenue was up 6%; gross profit up 3%; and EBIT up 2%, all at constant currency. You will notice a 25% reduction in other revenue. This is largely attributable to lower Gardasil royalties. Higher collection costs and lower manufacturing efficiencies are contributing factors to the gross margin compression. It is expected further margin erosion will impact financial year 2022, given the 9- to 12-month plasma manufacturing cycle. For Seqirus, total revenue was up 30% with corresponding EBIT up 95%, reflecting strong demand and the continued success of our product differentiation strategy as well as improved manufacturing efficiencies. These drivers are also reflected in gross profit with an increase of 43% at constant currency and importantly, a margin uplift of 520 basis points also at constant currency. On Slide 19 is a table showing the group's expenses with the changes for the period shown on a constant currency basis. Before walking through each line item, you will remember at the half year, we highlighted that the profile of our full year expenditure would be skewed to the second half as there would be an uplift in second half expenses, the social mobility resumed, and this is what has transpired. We don't manage the business in halves. However, the global pandemic has required most of our functions to make adjustments. In direct comparison to the prior year, our expenses are a percentage of total operating revenue and may have actually declined. Now moving to each line item. Firstly, R&D an increase of $47 million or 5%, with total spend within the guidance range of 10% to 11% of revenue. CSL112 resumed in the second half following a COVID pause and have been -- we have been working very hard to restart all our clinical programs. We do expect that for the financial year 2022, R&D expenditure will continue to be in the range of 10% to 11% of revenue. Sales and marketing expenses were up 7%, driven by commercial launch activities, including that relating to EtranaDez, partially offset by cost containment initiatives as well as lower travel expenses driven by COVID restrictions. General and admin expenses increased 5%, a function of a number of small items, including the SaaS accounting policy update that I mentioned earlier. Finally, the group's effective tax rate increased to 19.8%, reflecting movements in the geographic profit split. Looking forward, we anticipate that the rate will once again be in the high teens for financial year 2022 and likely to be around 20% if the proposed U.S. tax reforms are implemented. Moving to Slide 20. This chart shows our inventory levels over the past 5 years and the various components split between raw materials, work in progress and finished goods by value. You will see the active management of working capital. As revenue has grown, we have maintained a steady inventory level as a percentage of revenue, and this is indicated by the red line across the bars. Prior to 2021, the categories were fairly evenly split. However, you will note in 2021 a higher proportion of raw materials. This is a little counterintuitive given our lower plasma collections, however, has been driven by the higher cost per liter of plasma collected. There has been a small reduction in finished goods inventory, reflecting the lower level of inventory cover we are holding as we seek to manage the demand for plasma-derived products with our existing customers and patients. Turning to capital projects. We've worked hard to continue to build new manufacturing capacity at all our facilities to support product launches and meet future demand. For FY '22, we expect total CapEx to be around $1.4 billion, again, with a focus on growth and capacity. Some of these key capital projects include: the expansion of our base fractionation capacity in Broadmeadows, here in Melbourne and Marburg in Germany, where we continue to harmonize design and process across each of site for efficiencies of use; the expansion of our Ig modules in Bern, in Switzerland, now in validation ahead of regulatory approval and have further modules planned; the construction of Lengnau, which is nearing completion. As previously announced, we have entered into a long-term partnership with Thermo Fisher to optimize the utilization of this site; new plasma collection centers, as we ready ourselves for a return to normalization post-COVID; our facilities to support CSL112 production in anticipation of a successful trial outcome and launch; and a new R&D campus in Marburg, which will open its doors in mid-2022. For Seqirus, the more immediate CapEx program involves the fill and finish project at the Holly Springs site in the U.S. and longer term, the next-generational biotech facility located here in Melbourne. And as we evolve and continue to grow as a global leader, there is an ongoing requirement for us to continue to invest in our ERP systems and processes to support our people and patients, and this will deliver process improvement on multiple levels and support our digitization programs in the years to come. And with that, I will hand back to Paul, who will take you through the company's outlook for financial year 2022.

Thanks, Joy. It seems like you've been doing this forever, very good. Before I move on to fiscal year '22 outlook, I would like to touch on our strategy. So on Slide 22 that you should see on the screen, this is our 2030 strategy that we put in place a few years ago before COVID came along. And despite the challenges that we faced with the pandemic, our long-term strategy remains intact. Nothing's changed -- well, there's a few things that have changed, but the strategy hasn't changed. Our purpose on serving our patients and delivering innovative products still holds true to today, and our employees and purpose-driven culture are at the heart of our strategy. And our values are going to continue to guide us in everything that we do. Throughout the challenges of pandemic, our people and our business model have shown great resilience and agility. I've been incredibly proud of their performance. The fundamentals of our business have never been stronger, and the diversity of our pipeline is as robust as ever. This sets up CSL to build on our track record of sustainable growth for many years to come. This year, we have also developed a new sustainability strategy, which was recently endorsed by the Board. And on this slide, you can see our sustainability vision, which captures our commitment to a healthier world. To deliver on this vision and further support the execution of our 2030 strategy, we have identified 3 key sustainability strategic pillars, environmental, social and sustainable workforce. We've identified a number of focus area for each of these pillars and a series of actions across these focus areas to deliver over the medium term. I look forward to keeping you updated on the progress of these initiatives. Turning to our -- the outlook for fiscal year '22. Looking specifically at CSL Behring. Underlying demand for our core product, Ig, is expected to remain strong. Ig and albumin sales are reliant on our current plasma collections and the manufacturing cycle times. Plasma collections are expected to continue improving with the initiatives we've implemented and with the rollout of COVID vaccines. For Seqirus, product differentiation in COVID-19 are expected to continue driving strong demand for influenza vaccines. At a CSL Group level, gross margin is expected to come under some pressure following the increased cost of plasma collections, but offset by some modest margin expansion arising from the growth in Seqirus and their differentiated influenza vaccine portfolio. In terms of guidance for fiscal '22, we expect revenue growth to be in the range of approximately 2% to 5% over fiscal year '21 at constant currency, with net profit after tax to be approximately $2.15 billion to $2.25 billion at constant currency. Of course, our forward-looking statements are subject to the usual disclaimers as mentioned at the start of the presentation. I'd like to finish [Audio Gap] COVID-19 is a once-in-a-lifetime event, and I'm very proud of CSL's response. CSL is a growth company, and although the impact of COVID on plasma collections last year puts '22 behind this year's profit number continue to invest in the business, and we look forward to returning to the growth all of you expect from CSL. Mark, with that, I think we'd be happy to start opening up for questions.

Thanks, Paul. And we have a first question here from Lyanne Harrison at Bank of America.

I'm going to start with guidance given that we've finished on that. With the 2% to 5% top line revenue growth that you're expecting, if I think about immunoglobulin, what are your expectations for the immunoglobulin pipeline?

So obviously, Lyanne, thanks for the question. Part of that is continued to manage the immunoglobulin portfolio, especially the patient supply. So remembering that there's this 9- to 12-month lag time on lead time and lag time on plasma collections. Inventory is tight, and you can see that in the inventory and finished goods number. So it's going to be lower growth than probably where we were this year, which is contributing to the profit being slightly below where we are this year. But that will continue to improve, and I expect a strong return to growth as we move through the year.

I'm sorry. When you say lower growth, is there a risk that in immunoglobulin's revenue will decrease for financial year '22? Or will that be supported by, I guess, HIZENTRA provision and whatever inventory you have?

Well, I think it's a combination of all those factors, Lyanne, as you know. So it will be inventory, it will be mix, it will be geographic mix shift. It will also be some pricing as we move through the year. So I don't expect it to be lower, but I wouldn't expect major growth coming from that segment.

Okay. And just to, I guess, the second question. Obviously, we're seeing increase within coronavirus Delta variant cases in the United States. What sort of impact are you seeing that have on collections, particularly in those states with a higher Delta [ case load ]?

Look, thanks for the question, Lyanne. We haven't seen a big impact as of this point on the -- with the Delta variant on plasma collections. I think when you look at the hundreds of millions of people that have had at least one vaccination, the Delta variant has been shown to be covered by most of the current vaccines to some extent. People are still out there. There are more masks being mandated and our centers were back to full masking for that. But other than that, we continue to see the flow of donors improve, as you saw from the slide that we put up in terms of plasma donors coming through the system?

Our next question comes from Steve Wheen at Jarden. Steve?

I wonder if we could start by looking back at Slide 11, just on the plasma collection. It looks like it goes through to the first week of July, and it would, based on some [ channel ] checks within collections, it would seem like this has improved since then. I'm wondering if you're all seeing that. Is that something that you can comment on to sort of a date more recent to today?

Look, Steve, thanks for the question, and good to chat. I think we have been seeing the same. So this was a results presentation for last financial year, and so that's why we ended at the end of the financial year. Clearly, we're encouraged by what we're seeing and that -- with the enhanced marketing and business development initiatives that we have, the increased plasma donation awareness and education, leading to new donor acquisitions, the retention and reactivation campaigns that we have, the enhanced referrals for friends and families, the outreach to activate donors following deferrals, the new donor app, as I said. So all of this is contributing. And I think your channel checks are fine because we are seeing continued improvement.

Right. And then just secondly, you had highlighted around the middle of this half that the cost of plasma was up around -- plasma collection was up around 30%. Any change to that, and how that might look going into '22?

So yes, the donor fees, which are, as you know, a large component of some of the costs in the plasma collection space, really, were implemented in the last quarter of the year. So it wasn't a full-year effect, but we did start to see, from April onwards, a larger impact on CPL, or cost per liter, as we increased the donor fees from a competitive standpoint. But that is being -- starting to be offset slightly by the overhead recoveries as we improve collections. The hours per donation and the overhead recovery against fixed cost is also a big driver of cost in this business. So we are starting to see that moderate some, but I would expect that the higher donor fees will be in place for a bit.

Next question comes from Chris Cooper at Goldman Sachs.

Just following up on that last question, Paul, if you don't mind. So look, I mean, I recognize there's a lot of uncertainty right now, but when you [ come up with higher donor fee, should be in place for a vaccine ]. Could you give us some degree of expectation around how long that might be and how, indeed, you would managed to reduce that level over time without sacrificing the ability to get hold of collections in a period of scarcity? And then just secondly, just commenting on your comment as well that you hope to return to pre-COVID levels of collection soon. And it sounds as though from your commentary to the previous questions that the line on Slide 11 has continued to narrow towards fiscal '19 levels as time has gone on through the middle of August. Would it be your expectation at this stage that we can return to fiscal '19 levels of collection at some point through fiscal '22? And if so, could you give us some expectation about when that might be?

A lot in that question. And certainly, when I say a bit, it really depends on the multitude of factors, right? I mean, the continued COVID variants, if it does start to impact us, donor fees may be a big driver for maintaining donor collections. So I don't have -- the exactness of my comments are vague by design, only because it's not a one-to-one effect on any of one of these factors. So with trying to get as certain as I can, what we're seeing is more donors returning. The stimulus is starting to wane. We don't expect another stimulus, but unemployment benefits have not dropped off as quickly as we had expected either. And so there's still unemployment reimbursement coming at some pretty good levels, and we're seeing people not returning to work and/or other ways to supplement income as they might with plasma collection. So the donor fees, at a certain level, of driving that. It's also the competition because in many of -- most of our cities, we have competition. But remembering that with the increase that we've seen, it's -- donating is about getting people into the habit of donating. And so the more people we bring back from the [ lapsed position ], we expect to drive that line forward into '22. Exactly when in this fiscal year we'll cross over, it's very hard to predict. But when I say soon, for me, it's sometime this fiscal year because that's really what our plans have in terms of returning to growth post fiscal year '22. And what's going to drive that is more plasma and more Ig that drives the demand for our collection of plasma. Also, with the opening of new centers, the 25 centers we opened last year are part of that growth. So that's factored in. And that's also assisting us in terms of driving forward. Many of our competitors have talked about opening additional plasma centers, but nobody has been able to get to the numbers we have, and we're planning on opening another 40 this year. That's also in our planning, and so we expect to see some benefit from that. So all of the initiatives together -- I can't give you the exact date when all of this will happen, but I would say we're looking through to the first half of this year, and that will pretty much tell the tale, would be my guess.

That's helpful. And perhaps I must give you some respite from the collection discussion. Just moving on to mRNA, if you don't mind. I know you called out the program again today. Sorry if I missed it, can you confirm if the clinical program that you're starting in '22, that's going to be in flu? Or are you going to be looking at other viruses, too? And I was just hoping to push you to narrow that range slightly as well. I mean it's a fairly wide range in the context of a lot of recent progress from other companies in the market and obviously a highly dynamic area right now.

Yes. So currently, we're looking at influenza as the candidate. So that is the plan. Another COVID mRNA vaccine is going to take a while to develop. Although if there is another candidate that works within this space, we'll certainly take a look at other vaccine candidates. And over time, I would expect that our mRNA vaccines could be useful in multiple areas outside of these 2 areas. There's a lot of talk about advancements in other areas. I would say, wait to be seen. We did have some press out this weekend around some of our time lines for the clinical development and really having a candidate driving forward as quickly as we can moving into Phase I this fiscal year. So I think we're in good shape. It is a new technology with self-amplification versus the vaccines that are currently available. So we hope to, as I said, solve for some of the difficulties in terms of dosing and stability and other things that go with this. There's also some question currently around the current vaccines and really the sustainability of the effect of immunogenicity. I was reading some articles today in the U.S. around some data that they're looking at, but -- and initiating additional booster shots for a third dose for those that have received the vaccine. So we'll see how it goes. Vaccine development takes time in, and this is -- we -- this has been an accelerated process with a lot of effort by a lot of people, and it's great, but there's still some issues to work through. Science, you know.

Our next question comes from Andrew Goodsall at MST Marquee.

I was just going to ask you, Paul, if you wouldn't mind just breaking out or giving us, I think, price versus volumes within the 3% Ig growth.

Yes. So thanks, Andrew. I think as we take a look at the space, there was certainly a shift mix with HIZENTRA and PRIVIGEN, right? So you saw that as we took a look at the Ig franchise we had in HIZENTRA volume from fiscal '20 to fiscal year '21 move from about 21% or 25% of volume in subcu to 28% of our volume in subcu. So when you look at volume versus price versus revenue, I would say that you probably have somewhere in North America Asia Pacific and Intercontinental all up globally somewhere around 6% price, but that includes market mix shift in that pricing with revenue accounting for about 3% on a global basis. North America, the U.S., again, it was really driven more by HIZENTRA than anything else. And across Europe, it was kind of split between both PRIVIGEN and HIZENTRA.

And just thinking about albumin, you had a stunning developing number, just thinking about the outlook there with the China -- just with or with lower collection or the slower collections, your expectations on albumin seems to be quite strong, driven by that China factor?

No, I think it will be. And of course, the China growth is driven by a lower result last year with the increase -- the huge increase this year just because of the shift in operating model so it's normalized. But we still see the demand for albumin in China growing kind of the mid- -- upper mid-single digits at this point. So we don't think it's slowing down anytime soon. That's off of a huge base, as you know. So we still think there's quite a market and demand for albumin in China.

Is that mix relying on more imported just to make up -- just in terms of the domestic production?

Look, there -- in China, the domestic production is still -- has the same problems that we have here, which is the hardest thing we do is collect plasma, and it's the same there. So it's really imports that's driving it at this particular point. So I don't see that slowing down anytime soon. They can't supply all the needs, and not at that growth rate, not any time soon.

Next question comes from Saul Hadassin at Barrenjoey Capital.

Can you hear me?

Yes.

Great. Can I just ask, Paul, just following up on that question on albumin and the outlook for growth in China. I was wondering if you can comment on growth, ex China, particularly U.S. and Europe? And I guess thinking about medium to long-term outlook for Ig demand, presumably remaining at that sort of high single-digit level, is there any concerns internally about albumin sustainability in terms of that demand profile and balancing last [ liter ]?

Not that we can see in the near future, Saul. I mean our outlook is very bullish on balanced [ liters ] over the next number of years. So -- and that's driven by both Europe and by China and emerging markets and intercontinental. So we're still seeing things. U.S. is really not driving the growth in albumin, I would say. And so we actually saw some weakness in the albumin market. But a lot of that was also due to just the hospitals being filled up in COVID in the U.S. and people bringing albumin to the U.S. along with Ig. I think most of the channel checks that people have relayed to me, Ig, for instance, in the U.S., which is where everybody likes to take a dartboard at, is really that there haven't been major shortages in the U.S., but we have seen in other countries some issues with Ig, and some of the folks are also bringing their albumin there. But the lower plasma collections are impacting everyone and that includes albumin production as well as Ig production.

And maybe just a quick one for Joy. Joy just looking at the operating cost profile of the business of CSL over the last 3 years to 4 years. There has been a significant increase in both sales and marketing and general admin costs. In terms of the sort of more medium-term outlook, do you expect any potential for better operating leverage through either of those 2 cost lines?

Thanks, Saul, for your question. So if I take sales and marketing first, I think we would see, as a percent of revenue, about where we've been, which is sort of that sort of high single digits. We will continue to invest in new product launches, and we do have quite a strong R&D pipeline coming to market in the next few years. So that’s probably what will drive any increase in that cost. In terms of G&A, we actually expected to be slightly lower than where we've been. You saw that through the pandemic, we've made quite a number of structural changes and we think we will be able to hold the growth of G&A to a lower level than where you saw it pre-pandemic.

Thanks, Saul. Next question comes from David Low at JPMorgan.

Perhaps a question, Joy, as well. Joy, you commented on margins a few times in the presentation and talked about that being remaining under pressure. Just wondering if we should be thinking about that from the second half of the year or whether that's an FY '21 comment because it -- frankly, the guidance does imply in FY '22 that you'll be 4x as much profit relative to the second half of the year. I'm just trying to understand how we square a very sort of soft second half number with the guidance for FY '22, please.

Well, thank you, David, for the question. The first thing I would say is we don't really manage our business half-on-half. So that's probably the first thing I would say. We are still expecting margin expansion in Seqirus. So you need to distinguish Behring from Seqirus in that sense. But if I talk Behring for a moment, the increased plasma costs have really come in the back part of FY '21, and that's all still sitting in inventory. So that's what's going to contribute to some additional margin compression into FY '22. If that helps...

So gross margins presumably continue to weaken relative to what I mean, frankly, should we just ignore the half years because they don't have any meaning?

Your first comment, I think, is a valid one, which is there will be continued margin compression into FY '22 off the back of what we've seen in terms of plasma collections in FY '21.

Okay. Just my second question, [ just managing ] topics. The loss in the Seqirus division in the second half was quite a lot larger than we've seen in the past, at $210 million. Can I just get you to talk a little bit to what the drivers there are? I mean from my thought process would be that the Southern Hemisphere sales were presumably quite low. Just wondering whether there was a return -- high-return cost in this year than we've seen in previous years? Or are there other variables we should think about looking forward?

I can take that.

So...

Sorry. You go, Paul.

Do you want to take that, Joy? So I was just going to say that part of this is that we're doing unprecedented work in the second half as we switched to AstraZeneca and the Seqirus business is incurring all those costs. So rolling out already close to 16 million doses and retooling our facilities and moving people has cost us quite a bit of money on that side of the business as well. So that's a big part of where some of the cost is coming from because we've had to incur these costs.

So that would reoccur then? It'd be back to sort of more -- closer to what we've seen?

Not until we -- it's still going on into this first half for sure because we haven't finished making all the doses.

And my only build would be the seasonality of the Seqirus business has probably strengthened, given the strong Northern Hemisphere sales we've had, and expect to continue to have. And so that's actually driving more seasonality, not less.