CSL Limited (CSL) Earnings Call Transcript & Summary

Fellow shareholders and colleagues, and welcome to CSL's 2023 AGM. We're very good at starting meetings right on time at CSL. Before we commence to the formal proceedings of the meeting, we'd like to play a short introductory video. [Presentation]

For those of you don't know me, my name is Fiona Mead, and I'm the Company Secretary of CSL Limited. It's a pleasure to welcome you all to our 2023 Annual General Meeting. I'm going to run through the procedural aspects of the meeting shortly. But to start, as an organization with a purpose and promise to save and protect lives, I would like to acknowledge and pay my respects to Aboriginal and Torres Strait Islander peoples and cultures whose deep connection to land and waters, enable innovation in the practice of healing and the protection of human health for millennia. I would also like to pay my respects to the traditional owners of the land that we are here on today, the Wurundjeri Woiwurrung people of the Kulin nation. My colleagues and I pay respects to their elders past and present and all Aboriginal and Torres Strait Islander Peoples and cultures. This year, for the first time, we're holding our AGM in a hybrid format. Thank you to those of you that are here today, and we'd also like to welcome our shareholders, proxy holders and guests who couldn't make it in person, but who are participating in the meeting through the online platform. For those in the room, I'd like to take a moment to make sure that you're familiar with the evacuation procedures to be followed in the unlikely event of an emergency. If you do hear an alarm sound, the venue's fire wardens will enter the room and they will tell us where to go to get to the emergency evacuation points. Please follow their instructions. Shareholders and proxy holders present in the room can ask questions during the meeting by lining up at one of the microphones located in the aisles when the chair invite questions. Please advise the Computershare representative of your name and show them your red or green voting card to indicate you are a shareholder or a proxy holder. If you are a shareholder or proxy holder participating in the meeting using the online forum, you can also submit a written question online by clicking the messaging tab at the top of the Lumi platform. Just type your question in the box towards the top of the page and press the arrow symbol to send. A copy of your submitted questions, along with any written responses from our meeting team can be viewed by selecting, My Messages. Online written questions can be submitted at any time. In fact, we do encourage you to start asking them now. If you're online and would like to ask a verbal question, please click on the request to speak button at the bottom of the broadcast window. You'll be prompted to confirm your name and enter the topic of your question. Submit your request and follow the instructions to allow your access to the microphone and join the queue. I do note that while you can submit questions from now on, they will not be [ addressed ] until the relevant time of the meeting. If you have any troubles, just call that AGM help line number, which you'll have on your screen now. And I will say that questions may be moderated for inappropriate language. Also, if we have a few questions that cover the same issues, we may answer them as one. Also, if they're too lengthy, we may need to summarize them in the interest of time. To make sure that all shareholders in attendance have the opportunity to ask questions, we ask that you restrict yourselves to no more than 2 questions initially. Dr. McNamee will take questions from shareholders here in the room, followed by written questions through the online platform and then finally, the verbal questions. Now moving on to the voting aspect of today's meeting. If there's anyone here who believes they can vote, but they don't have a card or they haven't registered, please just see 1 of our very friendly Computershare staff and they can help you. Subject to the voting exclusions specified in the Notice of Meeting, the persons entitled to vote today are all our shareholders, representatives and attorneys of shareholders, and proxy holders who have a red admission card. On the reverse of that card, you'll see your voting paper, which details the motions being put today at the meeting. Relevant instructions are also printed on the reverse of your admission card. I'll now quickly run through the procedures for filing the voting papers. Proxy holders have attached to their admission card a summary of proxy votes, which details the voting instructions, if any, for business items on the appointment documents in your favor. By completing the voting paper, when instructed to vote in a particular manner, you are deemed to having voted in accordance with those instructions. In respect of any open votes, a proxy holder may be entitled to cast, you need to mark a box beside the motion to indicate how you wish to cast your open votes. Shareholders and representatives and attorneys of shareholders also need to mark a box beside the resolution to indicate how you wish to cast your votes. Please ensure that you print your name where indicated and sign the voting paper. When you have finished filling all of that out, please put it in 1 of the ballot boxes before you leave to make sure that we can count your votes and Computershare will -- staff will be at the exits with the boxes. There will be time at the end of each resolution to mark your red voting paper, and voting will close 10 minutes after the close of the meeting. And you will have an opportunity to finalize your voting paper and lodge it. Please raise your hand if you need any assistance and one of our Computershare staff will come and help you. For online shareholders, once we declare voting is open and Dr. McNamee will do that, on all items of business, and you'll be eligible -- and you are eligible to vote, a new voting tab will appear on the screen. If you select this tab, it will bring up a list of resolutions and it will present you with voting options. To cast your vote, simply select one of the options, your vote is automatically recorded and there's no need to press submit or enter button. You do have the ability to change your vote up until the time we declare voting closed. All right. That covers the logistics of the meeting, and I'll now hand over to our Chair, Dr. Brian McNamee.

Thank you, Fiona. Good morning, ladies and gentlemen. Thank you for joining us today. There is a quorum present, and I'm delighted to open the meeting. I would now like to introduce your Board of Directors and our Company Secretary. To my right, Ms. Fiona Mead, our company's Secretary, who you have already heard from; Ms. Marie McDonald; Mr. Bruce Brook; and Dr. Megan Clark. And to my left, Dr. Paul McKenzie, our Chief Executive; Ms. Carolyn Hewson, Professor Andrew Cuthbertson; Ms. Alison Watkins; and Professor Duncan Maskell. Ms. Hewson will be standing for reelection at this meeting, and you will have an opportunity to hear from her later in the meeting. Voting on the items of business will be conducted by a poll, and I'm declaring the poll open now, so shareholders and proxy holders who cannot stay for the whole meeting, can vote at any time. The poll will close 10 minutes after I declare the business of the meeting to be closed. Before we move to the formal business of the meeting, I will first provide some observations about your company and the environment in which we operate. I'll then hand over to CSL's CEO and Managing Director, Dr. Paul McKenzie, who will provide a review of the business and our financial performance in the year 2023. We'll then move on to the procedural matters of today's meeting. And finally, as Fiona mentioned, we will take questions from those in the room and online. Before I speak more broadly about [ your ] company, I'd like to inform you about a few Board and management changes. There were no changes to the CSL's non-executive Board members this year. However, today, Bruce Brook will retire as a Director. On behalf of the Board, I'd like to thank Bruce for his service over the last 12-years. His guidance has been an immense favor to us and our shareholders. Thank you, Bruce. Alison Watkins will become Chair of the Audit and Risk Committee following Bruce's retirement. I'm also pleased to announce that Ms. Samantha Lewis will join our Board of Directors effective 1st of January 2024. Samantha is a diligent and experienced board member. She recently stepped down from her position as a Non-executive Director at Aurizon Holdings after nearly 9-years of service. She currently holds 2 non-executive positions at leading Australian-listed entities. These include Nine Entertainment Co Holdings, where she's Chair of Audit and Risk Management Committee; and Orora Limited, where she's Chair of Audit and Risk and Compliance Committee. Samantha's responsibilities are a reflection of a deep financial audit and risk management knowledge. This, along with her cross-sector expertise will be a great benefit to CSL's Board of Directors. We're looking forward to her joining us in January. Board composition is a constant priority for us, and we are focused on recruiting top-tier global pharmaceutical experience to add to the CSL Board. As you all know, Dr. Paul McKenzie commenced in the role of CEO and Managing Director of CSL in March this year. Paul brought an exceptional track record of success at some of the world's largest pharmaceutical companies when he joined CSL in 2019. Since then, he has demonstrated strong leadership in helping your company navigate the pandemic in his role as Chief Operating Officer. My fellow board members and I are impressed and completely unsurprised at how well Paul has adapted to the role of CEO. His extensive technical knowledge complements his personable leadership style well. He has an obvious passion for problem solving and bringing out the best in both our people and in our operations. The Board is delighted that we have Paul and his global leadership group steering our company through this next phase of growth. As your Chair and as someone who's been involved with CSL for more than 3 decades, I'm in a good position to observe what has been a rapidly changing global environment. At the same time, I've been able to see how CSL's strategy allows it to continue to deliver for patients against this backdrop. I'd like to share a few observations on these topics with you, my fellow shareholders. The last 4-years have been disruptive in many ways. There have been several ongoing changes that have challenged us all in the post-pandemic world. One such area has been persistent cost inflation. Fragmented supply chains have not yet recovered, and the result has been higher costs for many of the goods and services we rely on. We've also seen other challenges. Currency headwinds with the strengthening U.S. dollar have impacted our financial performance and interest rates have risen substantially, and in doing so, have impacted consumers and the way in which business operate. With these factors in mind, I'd like to address CSL's recent share price performance, which is a topic close to everyone's heart. There are several reasons for the weaknesses we've seen. The macro factors I mentioned have impacted financial markets around the world and CSL has not been immune. The cost of capital for companies like CSL has risen in line with interest rates. And equity valuations, particularly for growth companies, have been negatively impacted. As I mentioned, inflation has affected our cost base, temporarily reducing margins. Whilst our share price has been weaker than we would have liked, the underlying performance of our company is very strong. With operating profit growing some -- 21% last year, and we're expecting profit growth this year of 13% to 17%. Paul will talk more about this shortly. Your Board of Directors and management team have kept a laser-like focus on the things we can control. Our 2030 strategy was designed to be resilient and deliver sustainable, profitable growth over the long run. This has been and will continue to be the focus of our management team. Our strategy has allowed us to invest in operations to improve unit economics and ultimately increase our ability to deliver more therapies and vaccines. A great example of this is our new cost base Fractionation facility in Broadmeadows which opened in December and represents a ninefold increase on -- in capacity on the -- from the previous site. This investment we've made back into the company, have set us up with world-class infrastructure to grow. The other half of the equation is the capability required to bring up the best in operations. The start to the top where Paul McKenzie's expertise in engineering has been clear. I speak regularly to Paul and his passion for operational efficiency and realizing the full potential of CSL is clear. Paul and his team are the right leaders to bring up the best of our 32,000 people around the world. I know they are focused on executing on our growth path regardless of economic challenges. A second observation I'd like to make relates to innovation. In short, I've never seen more potential for innovation in CSL and in our industry. There are several reasons for my optimism. The first is the technology that's available to us. Innovation is based on testing ideas. This can take many years and often decades. But with advances in technology, we have been able to slowly close the time taken from the hypothesis to experimentation to conclusion. During the year, the Board visited Marburg in Germany and Waltham, Massachusetts. Both locations are home to new R&D centers. We saw firsthand, our sites using new technology like robotics, automation and new data analytics, tools that will undoubtedly help our people as they look to make the next scientific discoveries. Another signal that causes me optimism is our ability to collaborate. Traditional competitive lines have been redrawn as business, academia and research institutions more readily come together to solve problems. This is why we chose to locate our new significant headquarters in the heart of Parkville's Biomedical Precinct here in Melbourne. We are close to our key partners such as the University of Melbourne, The Walter and Eliza Hall Institute, Royal Melbourne Hospital, the Doherty Institute, the Murdoch Children's Research Institute and many others. We have also allocated 2 levels in the facility to Jumar Bioincubator, which offers space for up to 40 Australian biotech startups to progress the commercialization of their research. The Board toured these facilities in April, and we're excited to see the scientific and commercial developments, that will no doubt to come from this. My third and final observation relates to why companies like CSL exist and how we operate. There are many items for this, but for me, it comes down to purpose and performance. And as I meet with stakeholders around the world, it is clear that these 2 elements are increasingly important. Our purpose is on the slide now. But having these words in an annual report on the slide is never enough. They must guide what we do every day, whether we, or the Board of Directors or a manufacturing site or any of our sites around the world. We are lucky to have a purpose like this, and it gives us extra meaning in everyday work. This vital role we play in society does not make us exempt from doing it in a most responsible way we can. Sustainable growth is a key pillar of CSL's strategy. And again, both words matter equally to us and our stakeholders. I'd like to take a moment to talk about our history of growth. Because together, we should be proud of this journey. The CSL that listed on the stock exchange in 1994, seems a long time ago, was vastly different to our company today. The metrics you can see on the slide partly tell this story. Through an intense and unrelenting focus on our strategy, we have grown from a small domestic entity who is arguably irrelevant on the global stage. To a truly global biotech company that leads in the sectors in which we operate. The formula that led to this exceptional growth is no less relevant today. We still aim to be the industry leader in the markets in which we operate, disciplined capital allocators and efficient operators. With this front -- in the center in our minds, I believe we will continue the superior performance that our shareholders have come to expect of CSL. Growth has been good for our scientists, our employees and our shareholders. It has been good for society and allows us to achieve our purpose to serve more patients. If we aren't growing responsibly though, we lose trust. And when we lose trust, our ability to serve those patients is severed. Your Board has a key role to play in maintaining trust through governance and risk management. One step we've taken over the last few years to build greater trust with stakeholders is to launch a new sustainability strategy. Last year, we announced new carbon targets, and this year, our teams will also be focusing on advancing the social pillar of this strategy. I look forward to sharing more with you on this next year. This morning, I've spoken about 3 observations that I believe are relevant to your company. The need for long-term and resilient strategy and the focus on execution in a challenging macro environment. Compelling conditions in an era of innovation and the ever-increasing importance of genuine purpose to go along with superior business performance. It is the role of the Board to remain cognizant of such risks and opportunities. We aim to have the right skills and expertise to navigate our industry and the broader macro environment. I'd like to reiterate that our strategy is our contract with you, our shareholders, to grow in a sustainable and profitable manner. Your board has complete confidence in Paul McKenzie and his management team to execute on this strategy, and we look forward to continuing to share our progress with you. I would now like to hand over to Paul to give some more commentary on CSL's performance. Thank you.

Thank you, Brian, and good morning, everyone. Thank you for joining us at today's CSL's 2023 AGM. I am honored to be addressing you at my first AGM as CEO and Managing Director of CSL. This particular location is now close to my second home in South Melbourne. For those of you who are wondering, I have chosen my AFL team, and it is the Saint Kilda, saints. Thank you. Thank you. And although the Saints did not come marching in to the grand final, I do look forward to bigger and better things next year. Before I go into detail about our strategy, financial and operating performance for fiscal year '23. I would like to add a few comments to what Brian said regarding our purpose. Many organizations talk about purpose. But at CSL, we have a clear and tangible purpose. For me, it all comes down to our patients. I travel a lot, but I always try to meet with patients and donate plasma whenever I can. I often [ drawl ] on these experiences when I am in my [ dally ] work and feel lucky to be able to make that connection between donor and patient. Bringing people, science and innovation together has been my passion since I was a student. And it is a great thing to be able to do this at an iconic company like CSL. Today, I'll speak briefly about our financial and operating performance for the 2023 financial year. As a reminder, our annual report is available and has a wealth of information about our financial and operating performance, strategy and sustainability approach. Before I move on, I need to let you know that in this presentation, we have forward-looking statements, which reflect CSL's expectations at the time of this presentation. You can read more about our approach to forward-looking statements inside the cover of our annual report. CSL delivered excellent results for fiscal year '23, driven by strong performance across all 3 of our businesses. In CSL Behring, our immunoglobulin or IG franchise grew very strongly. Plasma collections are now at a record level, and we dosed our first patients in the U.S. with our gene therapy product, HEMGENIX, a transformational treatment for those patients with hemophilia B. CSL Seqirus has continued to deliver strong sales growth, driven by a differentiated portfolio and in particular, FLUCELVAX. We announced an exciting license agreement with Arcturus Therapeutics to access their next-generation mRNA vaccine technology. And for CSL Vifor, we successfully closed the acquisition and approximately 11 months contribution to the fiscal year '23 year. The integration of CSL Vifor is well advanced, and our cost synergy targets are on track. The headline financial figures reflect a great deal of passionate work delivered by our 32,000 dedicated colleagues around the world. Revenue was up 31% at constant currency. NPATA, which is the measure we focus on as it reflects the underlying performance of the business, was $2.6 billion, up 20% at constant currency. Net profit after tax was $2.2 billion, up 8% at constant currency and this includes the one-off costs associated with the Vifor acquisition. As Brian said, we have had to navigate a difficult macroeconomic environment. There has and remains significant volatility in the world currency markets. And CSL being a global company is not immune to this. For fiscal year '23, the NPATA currency headwind of $245 million was largely driven by the stronger U.S. dollar. Margins have been impacted by donor fees as we look to attract our donors back post the pandemic. I'd now like to take a few minutes to talk about the steps we are taking to improve margins in our largest business unit, CSL Behring. We expect CSL Behring gross margin to return to pre-COVID levels in the medium term. The path to recovery, however, is different than the COVID-driven margin decline. The key contributors to this margin recovery are depicted on the slide. Let's start with the largest contributor to gross margin recovery, improvement in reduction in our Cost per Liter. The biggest components within the Cost per Liter are donor fees and direct labor costs. Some of the major initiatives we have implemented include optimizing the structure of our donor payments, testing of different fee schedules across the globe, improve labor planning and initiatives, driving increased center level productivity and the digitalization of our business, including the donor experience. Cost per Liter is around 17% off its peak. So we are making genuine inroads but there is more to do, and it's just going to take some time. New products, there are numerous exciting opportunities across CSL's R&D pipeline. We have a number of late-stage R&D programs that are approaching their final stages. These are potentially high-value medicines that drive the improvement in our margin. Moving to the next Chevron, average selling price. This essentially means the geographic and product mix across our portfolio. We have seen over the last several years, a geographic change in where we are selling our products and the price in each market. The difference between U.S. and ex U.S. pricing has been declining for several reasons, and we expect this dynamic to continue. I don't want to over index on this point as we don't expect this gap to close completely given the nature of the various markets around the world. Another selling price dynamic is product presentation. There has been a gradual long-term shift towards subcutaneous IG, a premium product with a higher price. We haven't seen this specifically in fiscal year '23, but we do expect this trend to return over the medium term. As a leader in scale, increasing the amount of IG that we extract from every leader of plasma has been and will always be an area of high focus for CSL. Theoretically, this means producing more products for patients from the same level of inputs. Today, we believe this is our competitive advantage, but we won't stop there. We have a yield maximization strategy that aims to extract even more IG from each leader of plasma collected. We will target a 5% improvement over the next 5-years and then a further 10% improvement as we exit the decade. Finally, scale and efficiency measures. When compiling our long-range planning, we think of high single-digit IG demand growth. This is essentially why we've maintained our investment in our manufacturing capability, and we continue to have great confidence in this. Plasma collections now comfortably exceed pre-pandemic levels. Our manufacturing facilities are now operating at higher utilization rates, reducing the fixed cost per unit. Bringing this all together and keeping in mind the 9- to 12-month inventory cycle, we anticipate modest improvement in the gross margin in the year -- fiscal year '24 and '25. With a return to the pre-covid margins in the 3 subsequent years. Our R&D portfolio underpins the future of CSL. And our pipeline has several exciting late-stage opportunities. These will now finish their clinical trials and be filed with the appropriate regulatory agencies. A few highlights. We've achieved a significant milestone in our CSL112 clinical trial with the last patient enrolled in our Phase III trial. This therapy seeks to reduce the risk of a reoccurring cardiac event that survivors experience in the first 90-days after their initial heart attack. We expect early results on CSL112 in early 2024. Preparations are well underway for global regulatory submissions for garadacimab, our homegrown in Australia, monoclonal antibody for the treatment of HAE. On the CSL Seqirus side, we have completed our aQIVc, Phase II dose-ranging studies and are on track to commence our Phase III clinical trial in calendar year 2023. And CSL Vifor received approvals for INJECTAFER in the U.S. for heart failure. CSL is all about commercializing R&D. And I think you have a clear view of why we are so excited about our future. Now on to the outlook. The company continues to have a strong midterm outlook. Looking specifically at CSL Behring. The strong growth in IG is expected to continue following the record level of plasma collections. We look forward to introducing HEMGENIX to more patients in the U.S. and Europe. And as I just outlined, we have numerous initiatives underway to improve our efficiencies from donor to patients, which will help us guarantee the recovery of CSL Behring's margin. For CSL Vifor, our focus is on unlocking the value and growth within the business, a business we are yet to fully leverage, the full value of across the broader CSL network. The iron and nephrology markets are evolving and growing. Certainly, there will be challenges for CSL Vifor growth, but the unmet patient need within these markets is significant, and CSL is well placed in an agile and purposeful way. One initiative that leverages both CSL Behring and CSL Vifor is our work in patient blood management. Our GM Herve Gisserot will be talking more about this initiative at our forthcoming Capital Markets Day next week. For CSL Seqirus, we expect another strong year with continued growth driven by the demand for its differentiated portfolio of innovative products. CSL Seqirus is also progressing, global registrations for a next-generation mRNA COVID vaccine. In terms of our guidance for fiscal year '24, we expect revenue growth to be approximately 9% to 11% over fiscal year '23 at constant currency. With NPATA expected to be in the range of approximately $2.9 billion to $3 billion at constant currency, a growth of between 13% and 17% year-on-year. This percentage growth rate excludes the one-off gain made on property sale in fiscal year '23. Behind me, you will see our 2030 strategy. This is largely the same framework that has underpinned the long-term success of CSL that Brian mentioned earlier. The strategy is proven and resilient. CSL will continue to follow this strategy under my leadership with the aim of delivering sustainable profitable growth well into the future. The world around us is complex and ever-changing. So we must balance our long-term path our strategy guides us on with our short-term tactical priorities. I see the following near-term priorities: leverage our scale and execute on our excellent commercial portfolios and exciting innovation agenda. Evolve and differentiate our vaccine platform, unlock and grow the value of CSL Vifor and drive further improvements in CSL Behring margins. And finally and very importantly, be the employer of choice and a strategic partner of choice. The global leadership group and I, are extremely optimistic on the prospects of our company moving forward. I look forward to keeping you, our shareholders apprised of our progress. Finally, thank you for all of your support, and I will pass back to Brian.

Well thank you, Paul. Good job. Okay. We'll now move forward to the formal part of the meeting. The items of business for consideration today are described in the notice of meeting, which I will take as read. In terms of running the AGM efficiently, we will read through all of the items of business set out in our notice of meeting first. Following which we'll address all shareholder questions at one time. All resolutions to be put to the meeting will be determined by means of a poll. I confirm that I'm holding available undirected proxies in my capacity as Chair of the meeting and will vote all of these available proxies in favor of each resolution. The Board recommends that shareholders vote in favor of each resolution with interested directors, of course, abstaining from making a recommendation in respect of resolution that they have an interest in. In order to conduct a poll, I appoint Mr. Michael Hutchison of Computershare Investor Services to act as returning Officer and Ms. Kylie Bodenham, and Mr. Vincent Lim of Ernst & Young to act as scrutineers. We will now come to Item 1 in the notice of meeting, which is to receive and consider the financial statements and the reports of Directors and Auditors for the year 30th of June 2023. This item of business does not require shareholder approval. However, shareholders have an opportunity to ask questions on the reports and about the management of the company. Ms. Kylie Bodenham of the company's -- is retiring auditor from Ernst & Young, is also present today and is available to answer questions in relation to the conduct of the audit, the preparation and content of the audits report, the accounting policies adopted by the company in relation to the preparation of the financial statements and the audit's independence in relation to the conduct of the audit. Representatives of Deloitte Touche are also present at the meeting. As there is no resolution required to be put to the meeting in respect of item 1, I will move to the second item of business, which is the Re-election of Directors. Moving to Item 2 of the notice of meeting, we ask shareholders to consider and if thought fit to pass the resolution to a appoint Deloitte Touche as the auditor of CSL Limited. To help me if nothing else from this point forward, I will refer to the new auditor as Deloitte. The law in Australia requires shareholders to approve the appointment of a new auditor. As previously disclosed, following a tender process and a subsequent recommendation from the Audit and Risk Committee, the Board selected Deloitte to be the to be appointed a CSL's auditor from the conclusion of the 2023 AGM, subject to shareholder approval. As stated in the notice of meeting, the Board considered good corporate governance to rotate the audit appointment and sought proposals from leading audit service providers. As the company's incumbent auditor at the time of the tender process, Ernst & Young did not participate in the tender process. The period between the conclusion of the tender process and the planned commencing date has provided adequate time for Deloitte to meet all relevant independence criteria before the appointment commences. In accordance with Section 328B of the Corporations Act, Limited has received notice from a shareholder, the Company Secretary, nominating Deloitte as the new auditor of the company and a copy of the notice is contained in Appendix 1 to the notice of meeting. Deloitte has given its written consent to act as auditor subject to shareholder approval and the Australian Securities and investment commissions consent to Ernst & Young's resignation. I'm pleased to share with you that ASIC has provided its consent to the resignation of Ernst & Young. The Board recommends that shareholders vote in favor of appointing Deloitte. I refer behind me -- I refer to the screen behind me that has details of the proxy position for this resolution. Voting on this item of business is open, and you may vote using the paper voting or the online platform. On behalf of CSL, I'd like to extend my personal thanks to Kylie Bodenham and Vincent Lin, and the Ernst & Young team for the pivotal role they played to CSL as I vote this. Thank you. We now move on to Item 3, which relates to the re-election of Ms. Carolyn Hewson, who is an existing Director of the Board and is submitting herself for re-election issuing to clause 67a of the CSL constitution. Carolyn retires at this meeting under the company's constitution and is eligible and willing to stand for re-election. Ms. Hewson has been a director of CSL since December 2019, and is the Chair of the Corporate Governance and Nomination Committee, a member of the Audit and Risk Committee and the Human Resources and Remuneration Committee. Ms. Hewson's experience and biographical details are contained in the notice of AGM. The Board has determined that Ms. Hewson is an independent director and Ms. Hewson's skills and experience to date supports her re-election. I will now ask Carolyn to make a brief presentation to the meeting.

Thanks very much, Chair. Good morning, everyone, shareholders and colleagues. Today, I stand for reelection as a director of CSL. Brian has already said that I've been on the Board for 4 years, but it's probably for at least 30 years that I have followed CSL, respected its outstanding growth and admired its culture and management. During my 4 years of service, you've already been told the committees that I'm on, but quickly, the member of the Audit and Risk Management Committee, the Human Resources and Remuneration Committee, and I've chaired the Corporate Governance and Nominations Committee. Being part of this company has confirmed to me that CSL is a values-driven organization with a very strong sense of purpose. It's an organization that deeply understands and manages the complexities of research and development, manufacturing and ultimately delivering life-saving medicines to patients globally. Importantly, in all that it does, CSL acts with integrity and in the interest of patients, its employees and shareholders. It is an absolute honor to be considered for reelection to the CSL Board. And I come to this, most mindful of the responsibility that it requires to help guide one of Australia's largest companies and leading global biotech in a very dynamic and highly competitive industry. Appropriately, all our directors bring a wide range of skills, experience and background, and we are absolutely united in our focus on the CSL corporate objectives and building long-term value. My background is, first as an economist, a long time ago. And then 16 years as an investment banker with experience in capital markets, investment management, risk management and more recently, I've spent nearly 30 years as a Non-executive Director working across a number of different sectors. This provides a helpful base from which to contribute to CSL in the areas of overall governance, audit and risk management, ESG and human resources. These are important matters as we grow and aim to appropriately allocate capital and add value, attract and retain talented employees and deliver profitable and sustainable growth while providing life-saving medicines. I consider it an honor and a responsibility to be a Director of CSL. It's a role I take very seriously. And if re-elected, I will work diligently with my fellow Board members to advance CSL's outstanding record of making a meaningful contribution to our patients, our employees and shareholders. Thank you.

Thank you, Carolyn. The Board with Ms. Hewson abstaining, recommends that shareholders vote in favor of the re-election of her. I refer to the screen behind me that has details of the proxy position for this resolution. Voting this item of business is open, and you may vote using the paper voting form or the online platform. Quite a good result, I would have thought there. So, to deliver on our promise to patients and to protect public health, we rely on our people and the need to ensure a strong global talent supply. Our executive remuneration framework enables us to attract, engage and retain talent, provides us with the flexibility to address talent challenges in various markets and allows us to compete with larger global pharmaceutical companies. The Board is committed to an executive remuneration framework that is focused on driving a performance culture and linking pay to the achievement of CSL's long-term business objectives. This, in turn, drives long-term shareholder value. Item 4 of the notice of meeting is an advisory vote on the Remuneration Report. Under the Corporations Act, the company is required to include in the directors' report a detailed remuneration report setting out certain prescribed information relating to director and executive remuneration. The company is also required to submit this for adoption by resolution of shareholders at the Annual General Meeting today. The vote on this resolution in this item is advisory and will not bind the directors of CSL. However, the Board will take the outcome of the vote into consideration when reviewing remuneration practices and policies of the company. The screen below -- the screen behind me displays details of the proxy position for this resolution. As I've mentioned, talent is a critical factor in driving company performance and remuneration is a key component of this. We have just met the requisite 75% support for remuneration report this year. I want to be clear. The company, the Board takes the views of shareholders very seriously, and we are disappointed that we didn't achieve higher support. We'll continue to listen and respond to feedback in relation to our remuneration approach. The Board unanimously recommends that a shareholder vote in favor of the adoption of the remuneration report. Voting on this item of business is open, and you may vote again using the paper voting form or the online platform. We now come to Item 5, which seeks approval for the purpose of ASX Listing Rule 10.14, and other purposes for the grant of 44,095 performance share units under the company's executive performance and alignment plan to Dr. Paul McKenzie, the Chief Executive and Managing Director of the company. The Board believes it is in shareholders' interest to provide Dr. McKenzie with an equity-based incentive to ensure there is alignment between satisfactory returns for shareholders and Dr. McKenzie's reward. It also considers it important to obtain shareholder consent to the grant of these performance share units. The Board, with Dr. McKenzie abstaining, recommends that shareholders vote in favor of the grant of performance share units to Dr. McKenzie. I refer to the screen behind me that has the details of the proxy position for this resolution. Voting on this item of business is open, and you may vote using the paper voting platform or the online platform. That completes the items of business and will now move to shareholder questions. Please remember to cast your votes on each resolution. To our shareholders extra time to submit their questions, we'll move to address questions from shareholders here at the venue. Next, we'll address written questions received from the online platform, noting that written questions may be moderated for appropriate language, et cetera, as I have mentioned -- as Fiona mentioned earlier. Following this, we'll hear from shareholders with verbal questions from the online platform. So with that, we're open for questions.

Chairman introducing Michael Muntisov of Australian Shareholders Association.

Good morning. My name is Mike Muntisov. I'm a volunteer representing the Australian Shareholders' Association. Today, I hold proxies from 742 shareholders, accounting for approximately 1.3 million [ votes ], which in aggregate is equivalent to the 15th largest shareholder in CSL. If it's in order, Mr. Chairman, I have a question for the new CEO, who's had the chance to cast his eyes deeper into the business over the last 6 months. As this new CEO, what does he see as the single biggest opportunity and the single biggest risk for CSL right now?

Well, thank you, Michael, very much for your question, and I appreciate it very much. In terms of our biggest opportunity, it's the continued journey of our sustainable growth across all 3 businesses, as I've shared, we are in a great position to continue to grow and continue the great history of CSL to deliver back to our shareholders. Our gross margin recovery has been a challenge, and we need to solve that over the next couple of years, particularly in the Behring business. Biggest risk, I would say we found during COVID, the fragility of the supply chain and particularly in the businesses we're in, and we need to respond and be well protected for the world events that are unfortunately occurring all around us.

I have another question, but I'll let others speak.

You're allowed a second question, Michael.

Yes. Well, it's on remuneration. So I don't want to -- I'll get back to that. I'll let others ask their questions.

Okay. Chairman introducing Ray [indiscernible]

I'm also a member of [ Teaminvest ] which quite a lot of -- it was holding back virtually every member I think [ also ] chasing CSL. Paul spoke about maximizing the extraction of products that can be used from plasma. I picked up an article a while ago, and you can't believe everything you read in the media. But a company called Aegros -- describes itself as Australia's newest plasma fractionator. It says that its [ hemovac ] offering can disrupt the market by halving the cost, reducing the environmental impact and enhancing product safety. Are you able to comment on that technology or make any other comments about that media report, Paul?

Ray, do you have any other questions, just in case?

Yes, just 1 more. CSL has made a number of large -- 2 very large acquisitions over reasonably recent times in Seqirus and Vifor. Can it be expected that CSL will make similarly large acquisitions to diversify product range within the medium to long term?

Look, thanks, Ray. I mean, to some degree, I mean, it's not our business to comment on other companies, to be honest. I mean, what we do know is we are and will remain best in class from a scale, capability, yield and performance in plasma. Others may say things. We know the reality. That's all we'll say. And the other comment would be on -- from an M&A perspective, look, I think we have a history of buying companies that take an effort to transform to durable, high-value, high-quality businesses. If you look back at the journey of CSL, we have really -- it took us years to transform the plasma business, and we're still reinventing it in many ways. The Seqirus team have done a fabulous job, but we're not finished. There's so much more to do in reinventing that business. And I think, Vifor, what we see there is a business that has potential in areas that we think significant unmet medical need is there. There is an ability to create a sort of competitive -- strong competitive capability, but it takes time and it takes investment. You never buy something that's perfect. I can assure you. And so that's the reality. So we take our time. We only do things, I think, very carefully. So my view would be, by the way, we think the partnering arrangements we've done, whether it be with UniQure on HEMGENIX or with Arcturus in the respiratory vaccine areas. It's also an extremely good model for highly complementary product portfolios. So I would say our job is not done still on plasma, on vaccines, on what we want to do with the iron franchise in the renal area. And similarly, we see lots of adjacencies to those things beyond what we can do. So we're not a company that sets out to want to doing continued large acquisitions. I think that's not likely to be seen for a number of years while we digest and improve what we have.

Chairman, introducing Chris Maxworthy, shareholder and ACA member.

ASA member. Okay. Right. Thank you. First of all, Mr. Brook, thank you very much for your 12 years of service. It's a great company. We're all very proud of CSL, and I've been there from the beginning as well. And I'm thankful for the work of the Board and the staff, but we're not always perfect. So in the last 12 months, we've seen foreign exchange difficulties. That, I think, has blemished the record of CSL as a high achieving company, and we have suffered as a result because it also introduces the question about what are the other things that might not be out there. So Mr. Chair, firstly, the dividend statement, it's now 10 years since we moved to U.S. denominated currency for dividend statements. As an Australian retail shareholder, I'd be grateful if the dividend statement that I received last week could also include the franked and unfranked amounts in Australian dollars. At the moment, all I'm getting is the amount. And given that it's declared to the ATO, I am believing that it's not a difficult process for that to happen, and that would be a small request on my part. And I think if you got to ask people here, you'll call on whether you want to do a show of hands, most people would say they'd like to see the full amount. 10 years ago, I raised the topic at this AGM that the move to U.S. denominated currency shouldn't take away from us our Australian culture and style of doing things. So therefore, if we could do that, I'd be grateful.

Is that your only question? I'll come back to that?

No, no, The second part. Okay. The second part of it is congratulations to the new CEO, now 6 months into his job. Looking at the -- what we call it, the performance share units. I'm looking at it and going, that's over a 3-year period. So the rate, as I calculated, it was about 4.2% for improvements in return on invested capital and also the earnings per share. Although I'm not against performance pay. You are a beneficiary of that, and it does motivate. I just wonder if the threshold might be set a little low. And I know you might say that Vifor is the reason. But given that we did the acquisition, given that we had a business case as to why we're doing it, I just think that I'd like to see something a little bit more of a stretch.

Thank you. I think they're all valid points. If I go to the USD denomination thing. I mean, I think you make an interesting -- and the company second to me, which has been noted, Yes, that was that interesting. So I can understand that from a tax perspective, that may be very useful for us to ensure that you it's crystal clear what your franking credit is in AUD from the ATO perspective. So I think that's noted and we'll see. And I'm sure we'll come back to you on that. I mean I think currency is complex. Well, we're in 100 countries now. We have operations in 40. At the macroeconomic environment, I mean, I'm no economist, but the U.S. seems to be running huge deficits, at one level you think why is the currency going strengthening. Well, its a whole of other complex macro environments. Interest rates are very high now in the U.S. because really, it's been -- they've been arguably stimulating their economy and doing it very well. So to some degree, we're having to think long and hard. But remember, 50% of our revenues are in North America. I think we've done a good job keeping our Australian DNA, by the way. So merely reporting in U.S. dollars doesn't mean we're an Americanized company, we have phenomenal international people, including a lot of Americans. We have, I think, a great culture as a company that we try to -- we're also then trying to Australian-ize the rest of all heaven forbid. But we do try to have a consistent CSL culture. So I think we've done a good job keeping our DNA. Currency is a vagary of life that's proved quite difficult. And yes, it did compress our margins last year. I'm not a currency trader by the way, but I'm not sure the currency trader has got it right either, predicting where the U.S. dollar would go. And look, so I think that's fine. With regard to Paul and the performance rights, I think if you look at what's the embedded growth that sits behind that, we are forecasting as a growth company. I'm happy for you to meet possibly after the meeting with Megan Clark, our Chair of HR, she's very across all these details. I think you -- I'm not sure I agree with your math the way you've described it for the audience. I don't think that's correct. But I'm not sure we need to go in a technical detail, but we are a pay-for-performance culture. And I think that and we want to be competitive in the marketplace, which we have to be to retain and recruit and retain staff. So I think we've got the balance right, but we need to do a better job possibly explaining the targets of how they've been set and what they represent. And I really would suggest to catch you up with Megan at the end, and she's...

Chairman, introducing Rex McKenzie.

I also am a member of the ASA, but that's incidental. My question is about clarity. I've always enjoyed coming to the CSL Annual General Meeting for 20-years on. And it's always been the clearest AGM I go to. And I appreciate the honesty of the meeting and today is no exception. But there is one thing that I know 86-year olds don't have as good an eyesight as 20 year olds or 40, 60 year old. But I think mine's reasonable, but I struggle to read the print in the annual report. Now it maybe looks better than most based off the page. But if it were a little clearer I could read the small print. And I was pleased that for a few seconds, the small print on the screen went up. And I could read it. I won't comment further. I'll leave it with you. Thank you.

We're all wanting to be an 86-year-old like you. I'll be honest. So thank you for coming. Thank you for having interest in the company. I wish the annual report was a little simpler between you and me. It has a lot of stuff that is necessary, is a legal requirement. It's part of the accounts. Good job of footnotes. You can go to sleep reading it all half the time, really. So I think -- but we have to do it. We have to do it. So it's a good point. We don't make things like simpler to people. So thank you.

Mike Muntisov, again. Just as a project to this comment, the ASA is supporting the remuneration report, our CSL's remuneration report. But we do notice that in your scheme, your long-term incentive payment measures performance over 3 years. You, yourself and Mr. Chair, are quoted in the annual report of saying, "the nature of our business is that we have to look decades ahead. and the CEO says we unashamedly operate with long-term success in mind. The ASA advocates for a measurement period of not less than 4 years. And right now in the ASX, we have long-term developer Transurban using 4 years and another very successful company, you've all heard of Macquarie Group also uses 4 years. In the past, you've argued that a 3-year performance period is typical in the global market. However, we see CSL as a leader, not a follower. So we ask that you consider aligning long-term performance measures to something other than typical and move to a 4-year or even longer measurement period.

Look, thank you, Michael. I have to say your comments are heard. And we're not unaware of the evolving trend. We just try to get the balance right in the environment in which we operate where we have to explain to when we try to retain or recruit staff and et cetera, why our scheme is competitive with what they see across the road. The problem is none of our staff are ever going to work for Transurban. I don't think they might. Not many anyhow. And I think if we look at before -- I think the banks have really an interesting question. I mean I was on the financial inquiry, the [indiscernible] financial inquiry, where banks are very complicated beasts. And often, many of the things that happen in banks you don't see for a number of years. And so I know the CommBank is also looking at extending those things, which probably are quite reasonable. But I think we hear you and if we can do it in such a way that it's fair to our executives, competitive in the market we operate. We're open to considering these matters, but we don't want to rush them. We're in a listing mode. We sort of get it. But we're also not in the stage of saying, well, we want to really impose something that really is uncompetitive in the market in which we operate in. So we're trying to get the balance right.

Can I follow up? I mean you've had -- as you've mentioned, you had quite a fare against both for the remuneration report, which I presume it means that 1 or more of the proxy advisers has recommended against the remuneration report. I wonder whether you are aware of what was the basis of their recommendation.

Look, I think we -- well, if we look at the -- some of the proxy advisers and some of the larger shareholders, I think we had a number of changes, the way we changed the LTI. I'm not sure we explained that well enough certainly. And similarly, how we are handling the Vifor acquisition in the equities that will in flight was not explained as well as it should have been. But clearly, the board would take into account the performance of Vifor and that if it didn't perform to our expectations, that would have had a material impact on the level of vesting that would have occurred. We all knew that, but we didn't explain that very well. We just sort of said, no, it's not included because we would have to change the targets. We didn't want to change the targets. But clearly, we took it into consideration. With the benefit of hindsight, I don't think we explained that very well. So there are a number of factors, but there are a couple, I think, that were most material. And we're in the listing mode. Yes, we're not thrilled with that percentage. Next year, we certainly intend to do better. But we also don't want to jump at every suggestion we get, whether it be from the floor or elsewhere. So that's we're in the listing mode. I'm going to get a look at that. Thank you.

Chairman introducing Brendan Wilkinson.

Yes. So I've got a question regarding the auditors. What criteria does CSL use to evaluate the performance of its auditor? And what is that frequency? Is that done every year or at the end of 4- or 5-year term?

I think that's a really interesting question. And I'm not sure we've had the retiring chair of our audit community get up and talk about this thing. So given this is his last AGM, I'd love Bruce respond to that question. So thank you for the question. Bruce to you.

Thank you, Chair, and I'm delighted to be able to respond. Excellent question. It is always audit quality. That is the criterion that we focus on. The quality of the auditor, their international reach, their ability to understand our business, and to understand the accounting standards that they need -- we need to report under. So it's always been audit quality. We've reviewed every 5 years, we've had consideration as to the ongoing tenure. A couple of years ago, we took the view that they've been a very long tenure by Ernst & Young, excellent auditors but there's an issue with -- when do 20 years become 30 years, become 40 years. And that was the reason when we undertook the review and our criterion for appointing Deloitte was quality, always audit quality.

So when you talk about audit quality, is it -- is there some sort of performance criteria that you use for audit quality?

Audit quality, so there's regulators undertake reviews. We feed that in as part of the overall process. But we look to the understanding the auditors have, the people that the auditors put forward, the quality of the partners, the quality of their teams, the processes that they go through. It is -- look, we could run a tutorial on this. It's something that you require an audit committee, a depth of experience, and I've had wonderful colleagues on the Audit Committee. We're all widely experienced in commerce and accounting. So we've gone through a process to review all of those issues, and that's really the -- it comes down to that audit quality perspective. So happy to engage with you further on this, but that's the criterion we use.

Chairman introducing Sue [ Fong Chong ].

I have a question. May I ask why the newly appointed CEO has doubled the pay of the previous CEO?

Okay. We -- I think when we announced the pay of Paul McKenzie, my recollection was when we put -- we went -- we put out a stable ASX. And my recollection is Paul's pay was 85% of the of the incumbent or 90%, I can't remember, but.