00:02Gordon Aylor, welcome to the business.
00:05Well, it's been a good day for CSL's share price, but it has plummeted by more than 40%
00:09over the past year.
00:11What do you put that down to?
00:12I think it's pretty simple, really.
00:15The market lost confidence in the company and the management of the company.
00:20We had a series of, I guess, missteps.
00:24And, I mean, to a degree, I think, share price is a reflection of the confidence that investors
00:35have in the organisation, and to some extent that was squandered.
00:42Alright, so you said this morning there were substantial accounting consequences for past
00:47decisions.
00:48So, I suppose, which was the biggest offending decision?
00:52The biggest one would have been around the price that was paid for the V4 acquisition.
00:59And so that was a number of years ago.
01:02And when I came in, I took the opportunity to re-evaluate the balance sheet.
01:07And part of it was to reconsider the various assets that comprised the V4 acquisition.
01:13It didn't, I don't think I'd really challenge the strategic rationale for the acquisition.
01:19It was a fairly straightforward matter of the price, or the company having paid too much
01:25for the business.
01:26So, V4 came with an US$11.7 billion price tag.
01:30Was that a good investment?
01:31Well, clearly not, at least not at that quantum.
01:35However, I would just say that that doesn't challenge our view of the long-term prospects
01:43of that part of the organisation.
01:44So, in the short run, we're seeing that a number of the products are facing significant
01:52headwinds.
01:52And in fact, we've guided to a 25% year-on-year reduction in the revenue from V4.
02:00But it's worth putting that into a little context, which is that that is a relatively
02:05capital-light operation.
02:08It's efficiently run.
02:09And so it generates substantial free cash flows, which are important to us.
02:14That's part of the reason why we've been able to maintain the dividend and why we've
02:19been able to actually, or part of the reason why we've been able to have a new buyback, which
02:26is at a higher level than the previous one.
02:28And the other thing I'd say about V4 is that it gives us exposure to another part of the
02:35market, the nephrology market, which provides us with another avenue for growth.
02:40You said earlier that you're expecting a 25% revenue decline for V4, your iron deficiency
02:45treatment division.
02:46When do you expect it will finally turn around?
02:49Well, we do think that we're experiencing the worst of the decline now.
02:54So it's been driven by the genericisation of some of the products by the end of a US
03:04subsidy program called Tadapa, but also with the withdrawal of one of our products from
03:11the market.
03:12So we think we're in the worst of it now.
03:14We don't give guidance looking further forward.
03:18But in the longer run, we expect that that part of the business will make a significant
03:23contribution to the group.
03:24Now, CSL has announced a number of asset write downs since the year began.
03:28There are some shareholders who feel they're being drip fed the bad news.
03:33Just to be clear, we've only announced it once.
03:36That was on May 11th.
03:37And that's the only time in which we've announced any significant impairments, of any major ones
03:46anyway.
03:46And in fact, what we announced today was simply the accounting consequences of our announcement
03:51back in May.
03:53So it's certainly not our intention to drip feed information.
03:58We've looked to do a reset of the business.
04:00We're looking to get that information out there, be clear and transparent about the current
04:06situation of the company, and then to look forward.
04:10Anti-vaxxer sentiment at the White House has been a big problem for vaccine makers.
04:14The US Defence Secretary, Pete Hexer, announced the flu vaccine would no longer be compulsory
04:19for military personnel.
04:20So how much do you think that will affect CSL's earnings going forward?
04:24So we're very familiar with the US vaccine market and particularly influenza.
04:30And we certainly recognise that there's a headwind upon the industry.
04:35And in fact, we're very familiar with that narrative around the US Armed Forces.
04:39We actually are one of the suppliers of vaccines.
04:42I just note that a level of outbreak amongst the armed forces we were actually able to help
04:50them with in more recent times, somewhat after that announcement by the Defence Secretary.
04:57But I guess the broader point is that we do see that the rate of decline is slowing.
05:04In the US, there's many different groups who are involved in providing public advice.
05:12And it's not just HHS.
05:16And so we do see that rate of decline dropping.
05:19And I'd also say that in a challenging environment like this, what we've noted is that superior
05:29vaccines, which are more innovative and use more modern technology, are in fact favoured.
05:35And so our market share has actually been growing.
05:38And I think at some point this market will recover.
05:43And I think our business, Securus, will be well positioned for that time.
05:46And CSL has pledged to invest billions of dollars in US manufacturing.
05:51Do you think that's going to be enough to protect CSL from being hit with any future tariffs
05:56from President Trump?
05:56Yeah.
05:57So let me just separate those a little.
06:00So first of all, we have a substantial operating footprint in the US already.
06:07We've got two major manufacturing operations and we have 300 plasma collection centres scattered
06:14across the country, plus various commercial and business offices.
06:20So we have a significant commercial footprint, capital footprint in the US.
06:27And so over many years, we've continued to invest in the US in the ordinary course.
06:32The particular investment you're referring to is at Kankakee, which is an operation just
06:38south of Chicago.
06:39And the primary driver for that investment is for a new manufacturing process, which we
06:45think is going to be transformational in terms of the operation and has significant potential
06:53to improve our economics in the longer term.
06:56So that's a big asset.
06:57It will also give us capacity to support the growth in demand for our finished products.
07:07So that's an important decision, similar to many others which we would make in the ordinary
07:16course.
07:17On your point about tariffs, so we run quite a sophisticated global supply chain.
07:25And so we are moving plasma, we're moving intermediates, we're moving finished products all around the
07:33world.
07:33We have multiple fractionation facilities, we have multiple plasma collection centres, and
07:39we have patients in many different parts of the world.
07:41And so we're highly sensitive to geopolitics and to any sort of, if you like, restrictions
07:48or complexities around trade globally.
07:51That's our bread and butter.
07:53We've been doing that for many, many years.
07:55And so this particular situation you're referring to is the US and the current administration's
08:05interest in various mechanisms.
08:08There's many of them that do affect us.
08:12What I'm pleased to say, and this has come out of my review of the business in the last
08:17few months, is that our teams have been able to work very closely with government, and that's
08:24just the case for the US and governments in many different parts of the world, such that
08:29the actual net economic impact of these various changes in the geopolitical environment will
08:39have quite a modest impact upon the company.
08:41Gordon, thanks a lot for taking the time to chat with us.
08:44Thanks so much, Dave.
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