CSL (CSL) reported their full year 2023 profit results, which confirmed a range of our investment theses for owning the company and were better than expected; as discussed in June, the only negative was a stronger USD, which is a positive for Australian investors and one of the reasons why we own the stock. The Core Portfolio holds a 9% weighting to CSL.
Record Profits: up +10% to US$2.6 billion, however profits were up 20% using constant currency (i.e. backing out USD strength over the past year). Overall a consistent result from CSL’s main divisions, immunotherapies, flu vaccines and now Vifor. The key news was the substantial recovery in plasma collection up +31% combined with the 14% reduction in payments paid to donors. Here the weakening USD economy and ending of stimulus payments have been a strong benefit for CSL that will flow through into 2024. New acquisition Vifor was on the books for 11 month delivered sales of US$1,957 million and US$921M of profits, a high-profit margin (46%) and a high-growth business with an interesting suite of mainly renal (kidney) drugs in the pipeline.
Dividends up +15% for the full year A$3.60. payout remains low (30%) as CSL are expensing a current heavy R&D spend through the P&L and not the Balance Sheet, the cleaner option.
R&D: The study enrolment for CSL112 is now completed – CSL’s new therapy, it hopes, will prevent secondary heart attacks by attacking the build-up of cholesterol in fatty deposits on the artery walls, which blocks the blood supply to the heart and thus prevent secondary heart attacks. 2024 will see the results of the study. CSL112 is a potential game-changer for heart attack patients; about 10% have a second cardiovascular event within 90 days of their first attack, and many are fatal. CSL estimates that there are around 1.2 million heart attack discharges annually across the US, France, Germany, Italy, Spain and the UK, meaning there is a potential pool of 200,000 to 270,000 patients annually for CSL112 in those markets alone. Elsewhere CSL has a strong pipeline of new drugs particularly with the renal drugs with the company receiving approvals for a number of new drugs.
Guidance: management gave guidance for FY24 of net profit growth between 13-17%, but generally conditions are improving for CSL in plasma collection which has been a problem in 2020 and 2021 as shutdowns impacted their access to CSL’s key resource – blood plasma.
Portfolio Strategy: CSL is a world leader in manufacturing medicines from human blood and flu vaccines and, along with Sonic Health, are the Portfolio’s core healthcare positions. The business enjoys substantial barriers to entry with stable margins and in Australia, enjoys exclusive rights to the production of blood plasma-derived medicines. The company earns over 90% of its profits offshore and benefits from a falling AUD. Key catalysts over the next 12 months will be news around the clinical trials of CSL 112, a new treatment aimed at preventing secondary heart attacks. If CSL 112 is approved, this is expected to add ~ $450 million annually to CSL’s profits. CSL has been weak over the past few months mainly due to temporary currency issues that are outside the company’s controls.
CSL finished up +3.7% to $272.80.