CSL Ltd. — Annual Report 2016

Aug 16, 2016

CSL Limited

ABN: 99 051 588 348

ASX Full-year information 30 June 2016

Lodged with the ASX under Listing Rule 4.3A.

Contents

Results for Announcement to the Market

Additional Information

Directors’ Report

Financial Report

CSL Limited ABN: 99 051 588 348 Appendix 4E

ABN: 99 051 588 348

Full-year ended 30 June 2016

(Previous corresponding period: Year ended 30 June 2015)

Results for Announcement to the Market

	2016	2015
	US$m	US$m
Sales revenue	5,909.5	5,458.6
Total other revenues	219.7	169.4
Total revenue and other income	6,129.2	5,628.0
Profit before income tax expense	1,555.9	1,714.0
Income tax expense	(313.5)	(335.0)
Reported Net profit after tax attributable to members of theparent entity	1,242.4	1,379.0

Reported

• Sales revenue up 8.3% to US$5.90 billion.

• Net profit after tax for the year attributable to members of the parent entity down 10.0% to US$1.24 billion.

Underlying Net Profit after Tax at Constant Currency[1]

• Underlying sales revenue at constant currency up 8.6% to US$5.9 billion.

• Underlying net profit after tax for the year at constant currency up 5.2% to US$1.47 billion.

• 1 Excludes the impact of foreign exchange movements in the period under review and the financials related to the Novartis influenza vaccine business acquired during the year. Refer to the footnotes on page 2 of the Directors’ Report for further detail.

Dividends

dends
	Amount per	Franked amount per
	security	security
Final dividend (determined subsequent to balance date#)	US$0.68	Unfranked *
Interim dividend (paid on 15 April 2016)	US$0.58	Unfranked
Final dividend (prior year, paid on 2 October 2015)	US$0.66	Unfranked
#Record date for determining entitlements to the dividend:	14 September 2016

• Under Australian law non-resident withholding tax is not payable on the unfranked component of this dividend as that

• portion will be declared to be wholly conduit foreign income.

Explanation of results

For further explanation of the results please refer to the accompanying press release and “Operating and Financial Review” in the Directors’ report that is within the Full year report.

Other information required by Listing Rule 4.3A

The remainder of the information requiring disclosure to comply with Listing Rule 4.3A is contained in the attached Additional Information, Directors’ Report, Financial Report and media release.

Additional Information

NTA Backing

TA Backing
	30	June 2016	30 June 2015
Net tangible asset backing per ordinary security		US$3.56	US$3.92

Changes in controlled entities

The Parent Company did not dispose of any entities during the year. The Group acquired the Novartis influenza vaccines business on 31 July 2015. Refer to Note 1b of the June 2016 Financial Statements for details of the acquisition.

Audit report

The audit report is contained in the attached Financial Report.

E H C Bailey Company Secretary

17 August 2016

Directors' Report

The Board of Directors of CSL Limited ( CSL ) has pleasure in presenting their report on the consolidated entity for the year ended 30 June 2016.

1. Directors

The following persons were Directors of CSL during the whole of the year and up to the date of this report:

Professor J Shine AO (Chairman) Mr P R Perreault (Chief Executive Officer and Managing Director)

2. Company Secretaries

Mr E H C Bailey, B.Com/LLB, FGIA, was appointed to the position of Company Secretary on 1 January 2009 and continues in office as at the date of this report. Mr Bailey joined CSL in 2000 and had occupied the role of Assistant Company Secretary from 2001. Before joining CSL, Mr Bailey was a Senior Associate with Arthur Robinson & Hedderwicks. On 16 August 2011, Mr J A G Levy, CPA, was appointed as Assistant Company Secretary and continues in office as at the date of this report. Mr Levy has held a number of senior finance positions within the CSL Group since joining CSL in 1989.

Mr J H Akehurst

Mr D W Anstice

Mr B R Brook Ms M E McDonald Ms C E O’Reilly Mr M A Renshaw

Dr M E Clark AC was appointed as a Director on 16 February 2016 and continues in office as at the date of this report.

Particulars of the directors’ qualifications, independence, experience, all directorships of public listed companies held for the past three years, special responsibilities, ages and the period for which each has been a director are set out in the Directors’ Profiles section of the Annual Report and on CSL’s website, www.csl.com.

1. Directors’ Attendances at Meetings

The table below shows the number of directors’ meetings held (including meetings of Board Committees) and number of meetings attended by each of the directors of CSL during the year. In addition, a Capital Structuring Committee was set up to oversee the up to US$500 million (or equivalent in foreign currency) private placement offering in the US and the re-financing of existing and new debt facilities of up to US$1.25 billion. The Capital Structuring Committee comprised Mr B R Brook (Chair), Ms M E McDonald and Ms C E O’Reilly and met on three occasions during the year. The directors also visited various of the CSL Group’s operations inside and outside Australia and met with local management.

	Board of Directors	Board of Directors	Audit & Risk Management Committee	Audit & Risk Management Committee	Securities & Market Disclosure Committee	Human Resources & Remuneration Committee	Human Resources & Remuneration Committee	Innovation & Development Committee	Innovation & Development Committee	Nomination Committee	Nomination Committee
	A	B	A	B	A	A	B	A	B	A	B
J Shine	8	8	3 1		12	6 1		4	4	9	9
J H Akehurst	7	8				8	8	3 1		7	9
D W Anstice	8	8			2	6	8	3	4	7	9
B R Brook	8	8	5	5		3 1		4 1		9	9
M E Clark	3 2	2						1	1	4 2	3
M McDonald	8	8	5	5		3 1		4 1		9	9
P R Perreault	8	8	5 2		13	8 2		4	4
C E O’Reilly	8	8	5	5		8	8	3 1		9	9
M A Renshaw	8	8				2 1		4	4	9	9
1Attended for at least part in ex officio capacity 2Attended for at least part by invitation					A B	Number of meetings (including meetings of Board Committees) attended during the period. Maximum number of meetings that could have been attended during the period.

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Directors' Report

4. Principal Activities

The principal activities of the consolidated entity during the financial year were the research, development, manufacture, marketing and distribution of biopharmaceutical and allied products.

1. Operating and Financial Review and Future Prospects

(a) Financial Review

The CSL Group announced a net profit after tax of US$1, 242.4 million for the twelve months ended 30 June 2016, down 10% when compared to the prior comparable period. Underlying Net Profit after Tax at constant currency 12grew 5.2% when compared to the

1 Constant currency removes the impact of exchange rate movements to facilitate comparability of operational performance for the Group. This is done in three parts: a) by converting the current year net profit of entities in the group that have reporting currencies other than US Dollars, at the rates that were applicable to the prior comparable period ( translation currency effect ); b) by restating material transactions booked by the group that are impacted by exchange rate movements at the rate that would have applied to the transaction if it had occurred in the prior comparable period ( transaction currency effect ); and c) by adjusting for current year foreign currency gains and losses ( foreign currency effect ). The sum of translation currency effect, transaction currency effect and foreign currency effect is the amount by which reported net profit is adjusted to calculate the result at constant currency.

Summary NPAT adjusted for currency effects

Reported net profit after tax US$1,242.4m Translation currency effect (a) US$85.5m Transaction currency effect (b) US$(7.7m) Foreign Currency losses (c) US$37.2m Constant currency net profit after tax * US$1,357.4m

a) Translation currency effect NPAT $85.5m

Average Exchange rates used for calculation in major currencies (twelve months to June 16/June 15) were as follows: USD/EUR (0.90/0.82); USD/CHF (0.98/0.94).

b) Transaction currency effect NPAT $(7.7m)

Transaction currency effect is calculated by reference to the applicable prior year exchange rates. The calculation takes into account the timing of sales both internally within the CSL Group (ie from a manufacturer to a distributor) and externally (ie to the final customer) and the relevant exchange rates applicable to each transaction.

c) Foreign currency effect NPAT $37.2m

Foreign currency losses during the period as recorded in the financial statements.

• Constant currency net profit after tax and sales have not been audited or reviewed in accordance with Australian Auditing Standards.

prior comparable period. Sales Revenue was US$5,909.5 million, up 8.6% on an underlying constant currency basis when compared to the prior comparable period, with research and development expenditure of US$613.8 million. Cash flow from operations was US$1,178.6 million.

(b) Operating Review

CSL Behring product sales of US$5,245 million increased 10% at constant currency when compared to the prior comparable period.

Immunoglobulin product sales of US$2,457 million grew 11% at constant currency.

2 Underlying Net Profit after Tax at constant currency

At the time of the 2015 results CSL provided guidance to the market excluding the Novartis Influenza business (NVS-IV) that was acquired by the Group on 31 July 2015. Guidance to the market was presented excluding the anticipated financial performance of NVS-IV given the uncertainty around that performance at the time of the publication of the 2015 results.

There are three elements that bridge the constant currency result noted above to the Underlying Net Profit after Tax at constant currency:

a) Operational Performance NVS-IV NPAT ($205.0m)

Operational performance of the NVS-IV business – the business recorded a Net Loss after Tax of $205.0m

b) One off items NPAT ($86.1m)

One off items comprise acquisition and integration costs that were incurred during the year. Acquisition costs include professional fees and travel. Integration costs are those costs incurred in bringing the acquired business into the CSL Group, these include salary costs, professional fees and travel. Together acquisition and integration costs are $86.1m after tax – these costs have been charged to the income statement of the Group.

c) Gain on acquisition NPAT $176.1m

The acquisition gave rise to a gain as the fair value of net assets acquired was greater than the consideration paid. Full details of the gain are included in the financial statements in Note 1b.

Constant currency net profit after tax * US$1,357.4m Operational performance of NVS-IV (d) US$205.5m One-off items (e) US$86.6m Gain on acquisition (f) US$(176.1m) FY16 underlying constant currency NPAT US$1,473.4m Summary Sales Reported sales US$5,909.5m Currency effect US$300.1m Constant currency sales (Group) US$6,209.6m NVS-IV sales US$283.8m Underlying FY16 Sales US$5,925.8m

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The key growth driver has been Hizentra®, CSL Behring’s subcutaneous immunoglobulin product where demand has been strong in both the US and Europe. Hizentra® grew sales 31% at constant currency. New patient starts, selective partnering in the Specialty Pharmacy segment and the increase in home treatment contributed to the strong performance.

Demand for intravenous immunoglobulin has also been solid led by Privigen®, which delivered sales growth of 7% at constant currency. In the US, market share was maintained in the highly competitive hospital setting. In Europe, Privigen® saw strong growth, especially in France and UK, driven by Privigen’s® expanded indication to include its use in the treatment of chronic inflammatory demyelinating polyneuropathy (CIDP). The introduction of IG IsoLo®, a manufacturing step to reduce isoagglutinin levels which contributes to further improving the product safety profile, has been well received. In Australia, Privigen® was introduced into the market following a successful tender with Australia’s National Blood Authority.

Haemophilia product sales of US$1,000 million grew 4% at constant currency. Plasma derived haemophilia sales grew 14% at constant currency. This increase was largely driven by solid demand for Beriate®, led by Poland and Germany and successful tenders in Russia and Iran. Strong demand for Humate® in the US also contributed.

The strong growth in plasma derived therapies was offset to a large extent by the decline in sales of Helixate®, CSL’s licensed recombinant factor VIII product. Competition in this market continues to increase with the launch of new generation recombinant FVIII products including CSL’s recently approved Afstyla®.

Specialty products sales of US$977 million grew 11% at constant currency. Sales of Kcentra® (4 factor pro-thrombin complex concentrate) in the US were strong driven by our fully established sales force and greater brand awareness.

Berinert® (C1-esterase inhibitor concentrate) was another solid contributor. Berinert is used for the treatment of acute attacks in patients with hereditary angioedema (HAE). Berinert® has seen strong growth in Europe due to the increased awareness and diagnosis of HAE.

Respreeza® (Alpha-1 Proteinase Inhibitor) was launched in a number of European countries following the granting of marketing authorisation. Respreeza® is a maintenance treatment for severe Alpha-1 Antitrypsin Deficiency patients and has been shown to slow the progression of emphysema. Following the initial launch, Respreeza will be rolled out more broadly in Europe this year.

Albumin sales of US$811 million rose 12% at constant currency, driven by ongoing significant global demand particularly in China and the US. In China, demand for albumin is exceptionally strong and is expected to continue. CSL is well positioned with a broad portfolio of products and an extensive distribution network that is focused on the fast growing second and third tier cities in China.

Seqirus sales of US$652 million reflect 11 months of sales since the acquisition of Novartis’ influenza vaccines business on 31 July 2015. Sales of influenza vaccine were adversely

impacted by a mild influenza season in the northern hemisphere. The Seqirus business 3 turnaround program remains on track .

CSL Intellectual Property revenue of US$123 million declined 10% at constant currency. The prior comparable period included a payment from CSL’s licensee Janssen Biotech Inc. to develop and commercialise CSL362, a product used to treat patients with acute myeloid leukaemia.

Set out below is a summary of the key information disclosed to the Australian Securities Exchange (ASX) during the period under review:

• On 28 July 2015, CSL announced that the US FDA had accepted a Biologics License Application for its recombinant FVIII;

• On 3 August 2015, CSL announced the closing of the acquisition of the Novartis’ global influenza vaccine business for US$275 million;

• On 12 August 2015, CSL announced its full year results for the year ending 30 June 2015;

• On 9 October 2015, CSL announced the closing of the US$500 million (or its foreign currency equivalent) private placement offering in the US;

• On 9 October 2015, CSL announced Mr David Lamont had been appointed as the new Chief Financial Officer of CSL;

• On 15 October 2015, CSL announced its intention to conduct an on-market buyback of up to A$1 billion;

• On 10 December 2015, CSL announced its Research and Development Day briefing to Analysts;

• On 21 December 2015, CSL announced that it had put in place new debt facilities up to US$1.25 billion;

• On 16 February 2016, CSL announced its half year results for the half year ending 31 December 2015;

• On 7 March 2016, CSL announced that Idelvion® (rFIX-FP) had been approved by the US FDA;

• On 12 May 2016, CSL announced that Idelvion® (rFIX-FP) had been approved by the European Commission;

• On 24 May 2016, CSL announced that Flucelvax Quadrivalent™ (Influenza Vaccine) had been approved by the US FDA; and

• On 26 May 2016, CSL announced that Afstyla® (rFVIII-Single Chain) had been approved by the US FDA.

3 The Group has recognised a deferred tax asset relating to current year Seqirus losses in the UK on the expectation that the business will generate future taxable profits.

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Full details of all information disclosed to the ASX during the period under review can be obtained from the ASX website (www.asx.com.au).

(c) Future Prospects (including Key Risks)

In the medium term CSL expects to continue to grow through developing differentiated plasma-derived and recombinant products, receiving royalty flows from the exploitation of the Human Papillomavirus Vaccine by Merck & Co, Inc, and the commercialisation of CSL’s technology. Over the longer term CSL intends to develop new products which are protected by its own intellectual property and which are high margin human health medicines marketed and sold by CSL’s global operations.

This is underpinned by CSL’s research and development strategy that comprises four main areas:

• Immunoglobulins – support and enhance the current portfolio with improved patient convenience, yield improvements, expanded labels and new formulation science;

• Haemophilia Products – support and enhance the current portfolio with new plasma-derived products, recombinant coagulation factors and coagulation research;

Description of Key Risk

• Speciality Products – expand the use of speciality plasma-derived products through new markets, novel indications and new modes of administration; and

• Breakthrough Medicines – develop new protein-based therapies for significant unmet medical needs and multiple indications.

Further comments on likely developments and expected results of certain aspects of the operations of the consolidated entity and on the business strategies and prospects for future financial years of the consolidated entity, are contained in the Year in Review in the Annual Report and in section 5 (b) of this Directors’ Report. Additional information of this nature can be found on CSL’s website, www.csl.com.au. Any further information of this nature has been omitted as it would unreasonably prejudice the interests of CSL to refer further to such matters.

In the course of CSL’s business operations, CSL is exposed to a variety of risks that are inherent to the pharmaceutical industry, and in particular the plasma therapies industry. The following details some of the key business risks that could affect CSL’s business and operations but are not the only risks CSL faces. Key financial risks are set out in Note 11 to the Financial Statements. Other risks besides those detailed below or in the Financial Statements could also adversely affect CSL’s business and operations, and key business risks below should not be considered an exhaustive list of potential risks that may affect CSL.

Key Risk Management

Healthcare Industry Risk

• CSL faces competition from pharmaceutical companies and biotechnology companies. The introduction of new competitive products or follow-on biologics by our competitors, may impact our ability to access fast-growing/strategic markets, and may result in reduced product sales and lower prices. In addition, industry wide shifts in demand for our products may affect our business and operations.

• Accessing fast-growing or strategic markets and executing on value-creating business development deals are key growth opportunities for CSL. If these activities are unsuccessful our business and financial performance could be adversely affected.

• CSL operates in many countries and changes in the regulatory framework under which we operate in these countries, particularly with regard to the reimbursement of healthcare expenses, could have a negative impact on our business and results of operations.

• Along with regular reviews of key markets and geographies of strategic value and potential, CSL monitors our competitive markets to understand what new competitive products may be emerging and the ongoing demand for our products. We ensure a diverse product pipeline with a focus on product lifecycle development, and seek to ensure that the pricing of our products remains competitive.

• CSL identifies and assesses new business development and market expansion opportunities that align with our long term strategic objectives. Broader input from a variety of functions is engaged when opportunities reach specific points in the due diligence process, to ensure appropriate evaluation, integration and business continuity in operations should we enter fast-growing strategic markets or make an acquisition.

• CSL seeks to understand the current and emerging regulatory frameworks and looks to adapt, where possible, our product development to meet any changes or additional requirements. Internal audit processes and Government liaison activities also serve to identify areas of regulatory compliance needs.

Manufacturing & Supply Risk

• The manufacture of CSL’s products, in accordance with regulatory requirements, is a complex process including fractionation, purification, filling and finishing. Any challenges experienced in the continuity of this process, and/or the quality of supply, could have a

• CSL has a robust management process to ensure that any process is well is maintained through our strategy to operate large, long-life and efficient manufacturing facilities. This includes adoption of, and compliance with, a broad suite of internationally recognised

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negative impact on our business results.

• CSL depends on a limited group of companies that supply our raw materials and supply and maintain our equipment. If there is a material interruption to the supply or quality of a critical raw material or finished product, this could disrupt production or our commercial operations. If the equipment should malfunction or suffer damage, the repair or replacement of the machinery may require substantial time and cost, which could disrupt production and other operations.

• • CSL also depends on plasma donors for the supply of plasma. Ineffective management of donors has the potential to impact supply and may also have reputational consequences.

• Research and Development/Commercialisation Risk

• Our future success depends significantly on our ability to continue to successfully develop new products. The success of such development efforts involves great challenge and uncertainty. To achieve this, we must conduct, at our own expense, early stage research and clinical trials to demonstrate proof of concept and the safety and efficacy of the product candidates. Clinical trials are expensive, difficult to design and implement, can take multiple years to complete and are uncertain as to outcome.

• Commercialisation requires effective transition of research and development activities to business operations.

standards (GxP) including Good Manufacturing Practice (GMP).

• CSL seeks to maintain appropriate levels of inventory and safety stock and ensures that, where practicable, we have alternative supply arrangements in place. We have a robust preventative maintenance program and access to remedial maintenance when necessary. We undertake quality audits of suppliers and maintain and review business continuity plans which can be actioned in the event of any significant event.

• CSL responsibly sources plasma from donors, complying with voluntary and regulatory standards. The donor experience is closely monitored to ensure the comfort, health and safety of donors.

• CSL seeks to ensure that our development programs, including our early stage research and clinical trials, are undertaken responsibly and ethically within an appropriate governance framework that includes multiple decision points where the science and commercialisation opportunities are robustly analysed and risk-assessed.

• CSL undertakes extensive advance planning and transitioning work to ensure research and development activities and technologies are effectively transitioned to business operations. We also actively source partners/subcontractors, where necessary, to ensure business continuity in product development or general operations.

Business Combination Risk

• Potential business combinations could require significant management attention and prove difficult to integrate with CSL’s business.

• CSL may not realise the anticipated benefits, or it may take longer to do so than anticipated, from any business combination we may undertake in the future and any benefits we do realise may not justify the acquisition price.

• CSL takes a disciplined approach to acquisitions. We focus on strategically aligned opportunities, including those where we can derive synergies through our substantial existing knowledge and expertise. We also seek to ensure that a detailed review and assessment of potential business combinations occurs prior to any acquisition.

• CSL seeks to ensure that integration activities are well planned and executed, leveraging our existing capabilities and knowledge base, as well as those of highly qualified and reputable advisors.

Information Security, including Cybersecurity

• Most of CSL’s operations are computer-based and information technology (IT) systems are essential to maintaining effective operations.

• CSL’s IT Systems are exposed to risks of complete or partial failure of IT systems or data centre infrastructure, the inadequacy of internal or third-party IT systems due to, amongst other things, failure to keep pace with industry developments and the capacity of existing systems to effectively address growth, unauthorised access and integration of existing operations.

• CSL has developed numerous security controls for our IT systems and data centre infrastructure that are based on our understanding of known threats and best practice industry knowledge. We continually reassess the appropriateness of, and seek to continuously improve, these controls in light of the evolving nature of such threats, and through regular training and awareness campaigns ensure our employees can respond appropriately to relevant threats.

• • CSL employs robust IT Disaster Recovery planning, as well as Business Continuity planning to mitigate operational interruptions. We also seeks to continuously improve, update and implement new IT systems, in part to assist us to satisfy regulator demands, ensure information security, enhance the manufacture and supply of our products and integration of our operations.

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Intellectual Property Risk

• CSL relies on an ability to obtain and maintain protection for our intellectual property (IP) in • CSL seeks appropriate patent and trademark protection and manages any specifically the countries in which we operate. identified IP risks. Along with dedicated IP personnel to manage IP opportunity and risk,

• • CSL’s products or product candidates may infringe, or be accused of infringing, on one or we use specialist advisors by jurisdiction to inform this approach. more claims of an issued patent, or may fall within the scope of one or more claims in a • CSL ensures that our projects, products and related activities include an appropriate published patent application that may be subsequently issued and to which we do not hold assessment of any third party IP profile and our IP profile. a licence or other rights.

• Personnel Risk • Providing a safe and rewarding work environment for CSL’s employees is critical to our • CSL has in place a robust workplace health and safety management system in line with sustainability. industry best practice. Incident prevention, monitoring and reporting, along with early

• • CSL is dependent on the principal members of our executive and scientific teams. The loss injury intervention, assist in mitigating risks to employee health and safety. of the services of any of these persons might impede the achievement of our research, • CSL seeks to ensure that our remuneration and retention arrangements are competitive development, operational and commercialization objectives. in the employment markets in which we operate. We have plans and processes in place to develop our future leaders, such as succession planning and talent development.

• Unexpected Side Effects Risk • As for all pharmaceutical products, the use of CSL’s products can produce undesirable or • CSL seeks to maintain processes and procedures that meet good pharmacovigilance unintended side effects or adverse reactions (referred to cumulatively as “adverse events”). practice standards. We ensure that our product information is up to date and contains The occurrence of adverse events for a particular product or shipment may result in a loss, all relevant information to assist healthcare practitioners to appropriately use our and could have a negative impact on our business and reputation, as well as results of products. operations.

• Market Practice Risk • CSL’s marketplace is diverse and complex, presenting many opportunities and challenges. • CSL ensures our employees, contractors and suppliers are aware of our expectations in Breach of regulations, local or international law, or industry codes of conduct, may subject relation to their interaction with stakeholders. We undertake relevant training and us to financial penalty and reputational damage. Such instances may invite further monitoring of our Code of Responsible Business Practice. We undertake internal audits of regulation that may negatively affect our ability to market therapies. functions, processes and activities across our operating geographies.

CSL has adopted and follows a detailed and structured Risk Framework to ensure that risks in the CSL Group are identified, evaluated, monitored and managed. This Risk Framework sets out the risk management processes and internal compliance and control systems, the roles and responsibilities for different levels of management, the risk tolerance of CSL, the matrix of risk impact and likelihood for assessing risk and risk management reporting requirements.

The risk management processes and internal compliance and control systems are made up of various CSL policies, processes, practices and procedures, which have been established by management and/or the Board to provide reasonable assurance that:

  - any material exposure to risk is identified and adequately monitored and managed;

  - significant financial, managerial and operating information is accurate, relevant, timely and reliable; and

• there is an adequate level of compliance with policies, standards, procedures and applicable laws and regulations.

• Further details of CSL’s risk management framework are contained in CSL’s corporate governance statement.

• established corporate and business strategies are implemented, and objectives are achieved;

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6. Dividends

The following dividends have been paid or determined since the end of the preceding financial year:

2014-2015 An interim dividend of US$0.58 per share, unfranked, was paid on 10 April 2015. CSL’s Directors determined a final dividend of US$0.66 per ordinary share, unfranked, for the year ended 30 June 2015 that was paid on 2 October 2015.

2015-2016 An interim dividend of US$0.58 per share, unfranked, was paid on 15 April 2016. CSL’s Directors have determined a final dividend of US$0.68 per ordinary share, unfranked, for the year ended 30 June 2016.

In accordance with determinations by the Directors, CSL’s dividend reinvestment plan remains suspended.

Total dividends for the 2015-2016 year are:

On Ordinary shares US$m Interim dividend paid on 15 April 2016 285.6 Final dividend payable on 7 October 2016 310.5

1. Significant changes in the State of Affairs

On 15 October 2015, CSL announced its intention to conduct a further on-market buyback of up to A$1 billion, representing approximately 2% of shares then on issue. Up to 30 June 2016, CSL purchased 8,913,732 shares under this announced buyback, returning A$908.5 million to shareholders. From 1 July 2016 to 11 July 2016, an additional 143,412 shares were purchased, bringing the total returned to shareholders to A$924.5 million. Since 11 July 2016 up to 16 August 2016, no further shares have been bought back. On 3 August 2016, CSL announced that it had on 31 July 2015 closed the acquisition of the Novartis’ global influenza vaccine business for US$275 million. The business has been combined with CSL’s subsidiary bioCSL to create the number two player in the global influenza vaccine industry, with manufacturing operations in the US, UK, Germany and Australia.

There were no other significant changes in the state of affairs of the consolidated entity during the financial year not otherwise disclosed in this report or the financial statements.

8. Significant events after year end

Other than as disclosed in the financial statements, the Directors are not aware of any other matter of circumstance which has arisen since the end of the financial year which has significantly affected or may significantly affect the operations of the consolidated entity, results of those operations or the state of affairs of the consolidated entity in subsequent financial years.

9. Environment, Health, Safety & Sustainability Performance

CSL has an Environment, Health, Safety and Sustainability (EHS2) Strategic Plan which ensures its facilities operate to internationally recognised standards. This strategy includes compliance with government regulations and commitments to continuously improve the health and safety of the workforce as well as minimising the impact of operations on the environment. CSL utilises an overall integrated management systems approach with several manufacturing sites maintaining individual certifications to relevant external Environment, Occupational Health and Safety, and Energy management systems which include: the EU Eco-Management and Audit Scheme (EMAS); ISO 14001 Environmental Management Systems; AS/NZ4801 & OHSAS 18001 Occupational Health and Safety Management Systems; and the ISO 50001 Energy Management Systems.

The Global Total Recordable Incident Rate continues to demonstrate an improving trend in performance. Our Australian operations maintain a Tier 3 status in regards to CSL Limited’s self-insurance licence as granted by the Safety, Rehabilitation and Compensation Commission

No environmental breaches have been notified by the Environment Protection Authority in Victoria, Australia or by any other equivalent Australian interstate or foreign government agency in relation to CSL’s Australian, European, North American or Asia Pacific operations during the year ended 30 June 2016. Non-compliances with requirements for wastewater quality discharged to the sewer system from both the Broadmeadows and Parkville, Australian sites identified during the year have subsequently been resolved to the satisfaction of the relevant water authorities.

Environmental obligations and waste discharge quotas are regulated under applicable Australian and foreign laws. Environmental performance is monitored and subjected from time to time to government agency audits and site inspections. The EHS2 function continues to refine standards, processes and data collection systems to ensure we are well prepared for new regulatory requirements.

As part of compliance and continuous improvement in regulatory and voluntary environmental performance, CSL continues to report on key environmental issues including energy consumption, emissions, water use and management of waste as part of CSL’s annual Corporate Responsibility Report and submission to the Carbon Disclosure Project. CSL has met its reporting obligations under the Australian Government’s National

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Greenhouse and Energy Reporting Act (2007) and Victorian Government’s Industrial Waste Management Policy (National Pollutant Inventory).

Globally, EHS2 continues to evaluate potential risks to CSL and its operations associated with climate change. To date, studies indicate that climate change, and measures introduced or announced by various governments to address climate change, do not pose a significant risk or financial impact to CSL in the short to medium term. Climate change risks and control measures continue to be monitored to ensure compliance to new and emerging regulatory requirements.

Further details related to Environment, Health, Safety and Sustainability performance can be found in CSL’s sustainability report, Our Corporate Responsibility, available on CSL’s website, www.csl.com.au.

CSL has entered into a Director's Deed with each director regarding access to Board papers, indemnity and insurance. Each deed provides:

• (a) an ongoing and unlimited indemnity to the relevant director against liability incurred by that director in or arising out of the conduct of the business of CSL or of a subsidiary (as defined in the Corporations Act 2001) or in or arising out of the discharge of the duties of that director. The indemnity is given to the extent permitted by law and to the extent and for the amount that the relevant director is not otherwise entitled to be, and is not actually, indemnified by another person or out of the assets of a corporation, where the liability is incurred in or arising out of the conduct of the business of that corporation or in the discharge of the duties of the director in relation to that corporation;

10. Directors' Shareholdings and Interests

At the date of this report, the interests of the directors who held office at 30 June 2016 in the shares, options and performance rights of CSL are set out in the Remuneration Report – Tables 10 and 14 for executive Key Management Personnel (KMP) and Table 15 for NonExecutive Directors. It is contrary to Board policy for KMP to limit exposure to risk in relation to these securities. From time to time the Company Secretary makes inquiries of KMP as to their compliance with this policy.

11. Directors' Interests in Contracts

Section 13 of this Report sets out particulars of the Directors Deed entered into by CSL with each director in relation to access to Board papers, indemnity and insurance.

12. Performance Rights and Options

As at the date of this report, the number of unissued ordinary shares in CSL under options and under performance rights are set out in Note 18 of the Financial Statements.

Holders of options or performance rights do not have any right, by virtue of the options or performance rights, to participate in any share issue by CSL or any other body corporate or in any interest issued by any registered managed investment scheme.

The number of options and performance rights exercised during the financial year and the exercise price paid to acquire fully paid ordinary shares in CSL is set out in Note 18 of the Financial Statements. Since the end of the financial year, 18,586 shares were issued under CSL’s Performance Rights Plan.

13. Indemnification of Directors and Officers

During the financial year, the insurance and indemnity arrangements discussed below were in place concerning directors and officers of the consolidated entity:

• (b) that CSL will purchase and annually renew a liability insurance program which covers all past, present and future directors and officers against liability for acts and omissions in their respective capacity on behalf of CSL. Coverage will be maintained for a minimum of seven years following the cessation of office for each director appointment for acts or omissions during their time served; and

• (c) the relevant director with a right of access to Board papers relating to the director's period of appointment as a director for a period of seven years following that director's cessation of office. Access is permitted where the director is, or may be, defending legal proceedings or appearing before an inquiry or hearing of a government agency or an external administrator, where the proceedings, inquiry or hearing relates to an act or omission of the director in performing the director's duties to CSL during the director's period of appointment.

In addition to the Director's Deeds, Rule 95 of CSL’s constitution requires CSL to indemnify each “officer” of CSL and of each wholly owned subsidiary of CSL out of the assets of CSL “to the relevant extent” against any liability incurred by the officer in the conduct of the business of CSL or in the conduct of the business of such wholly owned subsidiary of CSL or in the discharge of the duties of the officer unless incurred in circumstances which the Board resolves do not justify indemnification.

For this purpose, “officer” includes a director, executive officer, secretary, agent, auditor or other officer of CSL. The indemnity only applies to the extent CSL is not precluded by law from doing so, and to the extent that the officer is not otherwise entitled to be or is actually indemnified by another person, including under any insurance policy, or out of the assets of a corporation, where the liability is incurred in or arising out of the conduct of the business of that corporation or in the discharge of the duties of the officer in relation to that corporation.

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Directors' Report

CSL paid insurance premiums of US$796,734 in respect of a contract insuring each individual director of CSL and each full time executive officer, director and secretary of CSL and its controlled entities, against certain liabilities and expenses (including liability for certain legal costs) arising as a result of work performed in their respective capacities, to the extent permitted by law.

14. Indemnification of auditors

To the extent permitted by law, CSL has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year.

1. Auditor independence and non-audit services

CSL may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with CSL and/or the consolidated entity are important.

Details of the amounts paid or payable to the entity’s auditor, Ernst & Young, for non-audit services provided during the year are set out below. The directors, in accordance with the advice received from the Audit and Risk Management Committee, are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure that they do not impact the impartiality and objectivity of the auditor; and

Ernst & Young and its related practices received or are due to receive the following amounts for the provision of non-audit services in respect to the year ended 30 June 2016:

	US$
Due diligence and completion audits	-
Compliance and other services	607,405
Total fee paid for non-audit services	607,405

The signing partner for the auditor is normally to be rotated at least every five years, and the auditor is required to make an independence declaration annually. CSL notes that, in accordance with the requirements of the Corporations Act, the Board and the Audit and Risk Management Committee approved Mr Glenn Carmody to act as the signing partner for Ernst & Young for a sixth year in 2015-16 (as a result of some changes in personnel at Ernst & Young which directly affected the transition plans for the replacement of Ernst & Young's signing partner). Mr Rodney Piltz has been approved to act as the signing partner for Ernst & Young for the 2016-2017 financial year.

16. Rounding

The amounts contained in this report and in the financial report have been rounded to the nearest $100,000 (where rounding is applicable) unless specifically stated otherwise under the relief available to CSL under ASIC Corporations Instrument 2016/19. CSL is an entity to which the Instrument applies.

• none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision making capacity for CSL, acting as an advocate for CSL or jointly sharing economic risks and rewards.

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A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 accompanies this Report.

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Directors Report

1. Remuneration Report

Remuneration key messages

Dear Shareholder,

Sustained value creation for shareholders requires focus on both short and long term objectives. Within CSL, this includes the immediate challenges of the efficient running of a complex global supply chain which manufactures and delivers life saving products to customers in over 30 countries and the planning and execution of sophisticated research programs with very long lead times to bring new products into the portfolio on an ongoing basis in the future. For success, teamwork is essential. Our remuneration framework is designed to support shareholder value creation by recognising and rewarding individual and team performance in achieving CSL’s annual business plans and longer term strategic goals.

We aim to provide remuneration which is fair, equitable and market competitive in the countries in which we operate in order to attract and retain highly talented people. We believe that the remuneration outcomes for our executive Key Management Personnel (KMP), and the fees paid to our Non-Executive Directors, reflect this in 2016.

There have been no fundamental changes to executive KMP remuneration framework in 2016 and details of this framework are provided in the body of this report. The Board is confident that our current remuneration framework is well aligned with our strategy and aligns the remuneration interests of our executive KMP and shareholders.

• As shown in the Operating and Financial Review, 2016 was a year of solid performance for CSL with business growth in our key markets outpacing our competitors’;

• To maintain fixed remuneration alignment with market benchmarks, an average increase of 5% was applied to executive KMP fixed remuneration;

• The targets set for the financial component of Short Term Incentive (STI) awards, related to growth in Net Profit after Tax (NPAT) and Revenue at constant currency. For 2016, performance at constant currency as reported in section 5 of the Directors’ Report, shows NPAT growth was 5.2% against a guidance of 5%, and Revenue was 8.2% against a guidance of 7%. These measures excluded the results for the Novartis Influenza business (NVS-IV) given the uncertainty of the transaction at the time scorecards were set;

• In 2016, the Board has decided to no longer require mandatory deferral of a portion of STI. This will bring us more in line with the remuneration practices of our global peers. Details are provided on page 16 of this Report;

• The Earnings per Share (EPS) measurement period for long term incentives (LTI) issued in 2011 (50% of Tranche 2) and 2012 (50% of Tranche 1) ended during the year, with strong EPS growth leading to 100% vesting of the awards; the relative Total Shareholder Return measurement period for long term incentives issued in 2011 (50% of Tranche 2) and 2012 (50% of Tranche 1) ended during the year, with 100% vesting of the 2011 award and 0% vesting of 2012 award. The 2012 award will be retested in 2017;

• Awards were made under our LTI and Executive Deferred Incentive Plan in line with our remuneration framework; and

• As disclosed in our 2015 Annual Report, CSL Board and Committee fees were increased by 3% effective 1 July 2015.

We welcome feedback on this Report and our remuneration practices.

John Akehurst John Shine AO Chairman Chairman Human Resources and Remuneration Committee CSL Limited

This letter does not form part of the audited Remuneration Report

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Format of the Remuneration Report

Section		Page
1.	Introduction	13
2.	Executive Remuneration	13
2.1	Framework	13
2.2	Fixed Remuneration	16
2.3	Short Term Incentives	16
2.4	Long Term Incentives	20
2.5	Executive Deferred Incentive Plan	23
2.6	Statutory Remuneration Disclosure	24
3.	Non-Executive Director Remuneration	25
3.1	Framework	25
3.2	Non-Executive Director Fees	25
3.3	Statutory Remuneration Disclosure	26
4.	Remuneration Governance	27
4.1	Human Resources and Remuneration Committee	27
4.2	Use of external remuneration consultants	27
5.	Additional Information	28
5.1	How remuneration is measured	28
5.2	Contractual requirements	28
5.3	Shareholdings	29
5.4	Other transactions with Executive KMP and Non-	29
	executive Directors
5.5	Further information on Performance Rights and	30
	Performance Options

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1 Introduction

This report describes CSL’s remuneration framework and details the remuneration outcomes for the 2016 financial year.

This Report sets out remuneration information for Key Management Personnel (KMP) which includes Non-Executive Directors (NEDs), the Executive Director (i.e. the Chief Executive Officer (CEO) and Managing Director) and those key executives who have authority and responsibility for planning, directing and controlling the major activities of CSL during the financial year (executive KMP). Within our executive KMP, there is a sub-set of executives called the Strategic Leadership Group (SLG). Mr Paul Perreault, Dr Andrew Cuthbertson, Mr David Lamont 4, Mr Gordon Naylor, Mr Robert Repella and Mr Val Romberg were executive KMP members of the SLG for the 2016 financial year.

driving team work. The direct link between the Company’s long term strategy, business plans and individual performance objectives and the mix of short and long term incentives ensures that executive remuneration and sustained shareholder value creation are closely linked.

In summary, CSL’s remuneration framework is designed to:

• Align rewards to business outcomes that create value for shareholders;

• Provide fair and equitable rewards that are competitive in each of our global employment markets;

• Drive a high performance culture by rewarding the achievement of strategic and business objectives;

• Encourage collaboration;

• Ensure an appropriate pay mix to balance our focus on both short term and longer term performance; and

• Attract, retain and motivate high calibre employees in a competitive industry.

How remuneration information has been measured is explained in detail in section 5.1 of the report.

Independent audit of the report

The remuneration report has been audited by Ernst & Young. Please see page 50 of the Financial Statements for Ernst & Young’s report.

Changes in KMP

• Dr Megan Clark AC was appointed as a NED effective 16 February 2016;

• Mr Gordon Naylor, previously Chief Financial Officer (CFO), was appointed President for Seqirus (the combined bioCSL/Novartis Influenza business) and remains an executive KMP; and

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• Mr David Lamont was appointed CFO to replace Mr Naylor, effective 4 January 2016.

2 Executive Remuneration

2.1 Framework

CSL’s executive remuneration framework reflects the global nature of the research, manufacturing and commercial activities which the Company undertakes and the many markets in which we operate. Our international footprint requires global leadership and, with executives based in different countries, it is essential that as well as achieving their individual objectives, they work closely together to achieve shared outcomes. Our executive reward seeks to be locally competitive for our employees in different geographies and functional groups, while achieving internal fairness and

4 D Lamont was an executive KMP member of the SLG for the period 4 January 2016 to 30 June 2016.

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Remuneration framework

The diagram below provides a snapshot of our framework and the way in which each element of remuneration has been structured to support our remuneration objectives.

	Remuneration Element How it is set Performance conditions Vesting period Objective
Fixed	Fixed remuneration (FR) (comprising salary, superannuation and non-monetary benefits) Reviewed annually by the Board None None - Determined based on the scope, complexity and responsibility of role ensuring internal consistency; - Set at competitive levels, to attract, retain and engage key talent; and - Regularly compared against external benchmarks.
Performance	Short term incentive (STI) (cash ‘at risk’ component awarded for performance over a 12 month period) % of Fixed Remuneration (see section 2.3.1 for executive KMP) Targets for - Financial performance; - Business performance; and - Individual performance None - Rewards performance that creates value for shareholders; - Drives a high performance culture; - Threshold financial targets must be met for an award to be granted; - Business targets focus on overall financial performance and encourage collaboration between divisions; and - Individual targets focus on leadership within the business and functionallyfocused targets.
Long term performance	Long Term Incentive (LTI) (equity related ‘at risk’ component) - Performance Rights - Performance Options % of Fixed Remuneration (see section 2.4.1 for list by executive KMP) Number of Performance Options and Performance Rights calculated based on independent valuation Performance Rights - Relative Total Shareholder Return (rTSR); - Earnings Per Share growth (EPSg) targets; and - Individual performance targets Performance Options - Share price appreciation from grant date; and - Individual performance targets Three years and nine months 5 Performance Rights - Link remuneration to long term shareholder value, including shareholder returns and consistent profitable growth. Performance Options - Provided to executive KMP to align with typical local remuneration structures; and - Increase the proportion of remuneration linked to long term share price growth and consistent achievement of individual performance metrics.
	Executive Deferred Incentive Plan (EDIP) % of Fixed Remuneration (see section 2.5.1 for list by executive KMP) Converted into Notional Shares at grant date - Continued employment (retention) - Individual performance targets Three years - Common discretionary award scheme in which all senior managers in CSL are eligible to participate (much broader than executive KMP); - Award intended to attract talent and encourage retention; - Requires the consistent achievement of individual performance metrics; and - Value of the award is linked to the share price, further encouraging a focus on long term shareholder value.

5 The vesting period is from the date of grant to test date. The performance period is four years.

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How the framework is applied

To meet our objectives, the remuneration of executive KMP is structured with:

• A high proportion of variable (i.e. ‘at risk’) remuneration compared to fixed components;

• Short and long term ’at risk’ components, with long term incentives generally given greater weighting in the total remuneration mix; and

• The opportunity to achieve additional rewards if targets are exceeded in both STI and LTI.

The focus on ’at risk’ elements reinforces the strong link to shareholder value and has been used to align the executive KMP’s total target remuneration to the markets where CSL operates and the executive KMP is based.

Each executive KMP’s remuneration is structured to reflect both their role and their geographic location. The components of total target remuneration (on award) for each executive are shown in the chart below. Note that the subsequent ‘take-home’ amounts will depend on individual and company performance over the short and long term.

In 2016 Mr Lamont was awarded both commencement benefits and a 2016 award under the LTI and EDIP programs. Performance Rights were granted under the 2015 and 2016 LTI programs of 15,278 and 12,266 respectively. Notional Shares were granted under the EDIP with 7,400 Notional Shares vesting on 30 September 2016, 10,500 Notional Shares vesting on 30 September 2017 and 2,010 Notional Shares vesting on 30 September 2018.

The details of Mr Lamont’s components of total target reward and both LTI and EDIP as a percentage of fixed remuneration displayed in the tables and graphs ahead, reflect the awards related to the 2016 year as a serving employee and exclude Mr Lamont’s commencement benefits.

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Components of total target reward
Fixed STI Rights Options EDIP
9% 8% 7% 8% 6% 13% 3% 8% 11% 11%
17% 16% 24% 16% 24% 15% 13% 12%
22%
21% 21% 21% 20% 20%
26%
32% 32%
23% 23% 28% 23% 26% 26%
26%
32% 37% 32% 38% 34% 33% 30% 31%
22%
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The maximum potential of ‘at risk’ components are described in the table below.

Executive	Total ‘At Risk’	STI	LTI
P Perreault	82%	34%	48%
G Boss	72%	30%	42%
A Cuthbertson	69%	40%	29%
K Etchberger	72%	30%	42%
D Lamont	68%	40%	28%
G Naylor	71%	36%	35%
L Reed	71%	30%	41%
R Repella	74%	34%	40%
V Romberg	73%	34%	39%

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Directors Report

Benchmarking

CSL benchmarks executive KMP remuneration against the local market in which it competes to attract and retain talent. When benchmarking, consideration is given to size and responsibilities of the specific job role, the norm for the mix of remuneration components and the quantum of total remuneration in that market. Market Data for executive KMP based in Australia utilises benchmarks from the ASX Top 30. Benchmarks for most other executive KMP are based on peer data from international biomedical and pharmaceutical companies obtained from a number of market surveys, including the Radford Global Life Sciences Survey.

or other significant discovery which, had it been known at the time of the award, would have made a difference to the offer or quantum of the award, the Board in its absolute discretion may adjust or forfeit any incentive award, including LTI and EDIP. The Board may also reduce, including to zero, the STI outcome for the future performance year.

The Board believes that this change will bring CSL more in line with the remuneration practices of its global peers and that the mechanisms described above are appropriate to protect CSL.

How potential awards are determined

2.2 Fixed Remuneration (FR)

How it is determined

FR comprises base salary, superannuation and non-monetary benefits. Reviewed on an annual basis by the Board with the assistance of external consultants, FR is determined based on the scope, complexity and responsibility of the role and benchmarking against similar roles in the local external market. Internal relativities, qualifications and experience are also considered.

Outcome in 2016

In 2016, all executive KMP received an increase to their FR, reflecting either a change in role or to maintain their FR at market competitive levels. The average increase across this group was 5%.

2.3 Short Term Incentives (STI)

2.3.1 Summary

The STI for the financial year ended June 2016 is awarded to executive KMP after the full year performance review (September 2016). It is a cash bonus.

Target and maximum potential STI awards are defined as a percentage of FR for each executive KMP. These percentages are shown in the chart below. In each case, the maximum STI percentage is 150% of target.

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Potential maximum STI as a percentage of
fixed remuneration
Target Maximum
60%
35% [43% ] 35% [43% 43% ] 35% [43% 43% ]
120%
70% [85% ] 70% [85% 85% ] 70% [85% 85% ]
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In 2016 mandatory deferral of STI for the SLG has been removed. Were an executive KMP to commit any act of fraud, defalcation, gross misconduct, dishonesty or have been in breach of their obligations, or in the event of a material misstatement of financials

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Directors Report

2.3.2 STI performance targets

Personal and group performance metrics derived from the Company’s business plan are set for each executive KMP at the start of the financial year. These targets are set by the Board for the CEO and by the CEO in conjunction with the Human Resources and Remuneration Committee (HRRC) for all other executive KMP. All targets are approved by the Board. A summary of these targets, their weightings, the rationale for their selection and information on performance in the 2016 year is shown on the following page.

In 2016, the financial performance targets have been set as follows:

NPAT: At a target of 5% growth in NPAT at constant currency (excluding the NVS-IV business given the uncertainty of the transaction at the time scorecards were set), 100% of the NPAT component of financial performance will vest. Maximum vesting of 150% will occur where growth at constant currency is 5% above target. Threshold vesting of 50% of the potential award will occur where NPAT growth at constant currency is 4% below target. There is no vesting of the award if performance is below threshold and there is straight line vesting between the threshold and target and target and maximum.

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Revenue: Revenue growth of 7% at constant currency has been set as the target which would result in 100% vesting of the Revenue component of financial performance. Similar to NPAT, there is no vesting of the Revenue component of financial performance where Revenue growth does not meet threshold. 50% vesting will occur where threshold Revenue at constant currency is 4% below target with the maximum of 150% vesting at growth of 6% above target at constant currency. There is straight line vesting between the threshold and target and target and maximum.

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2016 STI performance targets and achievements

Performance hurdle/weighting	What is it?	Why is it important?	Achievements
Financial performance - CEO: 40% Executive KMP: 30% G Naylor: 30%	CEO - Net Profit after Tax (NPAT); and Executive KMP and G Naylor - Revenue and NPAT.	- Top line growth is the foundation of long term sustainability and evidences our competitive advantage; - Ensuring such growth is profitable aligns employee and shareholder objectives; and - Measurement at constant currency encourages our executive KMP to focus on factors within their control.	- NPAT US$1,242.4m - Total Revenue US$6,129.2m - The financial performance outcomes resulted in a STI outcome of 44.17% for Mr Perreault, 33.06% for executive KMP excluding Mr Repella, and 32.99% for Mr Repella; and - Discussed in more detail in the Operating and Financial Review.
			- Approvals received for Idelvion® (rFIX-FP) in the US and Europe,
			Afstyla® (rFVIII-SC) approved in US and Respreeza® approved
Business performance – CEO: 30% Executive KMP: 20% G Naylor: N/A	(i) Research and development (R&D) investment and achievement of key research milestones; and (ii) Operational targets representing key outcomes supporting achievement of CSL's long-term strategy	- Setting all executive KMP targets related to overall business performance encourages teamwork and collaboration; and - Our focus is on R&D and operational efficiency as these are fundamental to CSL's success.	in Europe; - Strong manufacturing performance, including the opening of 22 new plasma collection centres (20 in the US and 2 in Hungary); approval of the Turner Privigen Facility, Broadmeadows, Melbourne, including distribution of the first IgIV products from the facility; and ground breaking for CSL’s recombinant manufacturing facility in Lengnau, Switzerland; - Successful system upgrades in our Human Resources and
			Operations groups; and
			- Additional details are discussed in the Operating and Financial
			Review.
			A broad range of successful strategic initiatives were achieved
			during the year, including:
Individual performance – CEO: 30% Executive KMP: 50% G Naylor: 70%	Targets based on individual responsibilities across the following categories: (i) Divisional performance; (ii) Achievement of strategic objectives; (iii) Improvement in operations, risk management, compliance, health and	- Individual performance targets enable us to align executive KMP incentives to the strategic priorities most relevant to that individual's role: and - Encourage the right behaviours within the organisation, including teamwork and collaboration; and - Balances performance in areas that do not have a direct	- Solid performance across the business, as shown in the segment analysis in the financial statements; - Successful debt raising and private placement take up during the year; - Seqirus, the number two global influenza vaccines manufacturer, successfully formed and successful approval of Fluad® by US FDA;
	safety and quality; and	impact on financial outcomes.	- Significant progress in market access, including the opening of a
	(iv) Leadership performance.		Country Office in Russia, operations expansion, and HR systems
			implementation; and
			- Diversity and health and safety targets met or exceeded.

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Directors Report

STI award mechanism

For each executive KMP, awards are structured as follows: if the performance outcome for a particular metric falls below a minimum threshold, there is a zero contribution to STI from this component; if the threshold is exceeded but target not achieved, a proportional award is made; if target is achieved, 100% of STI for this component is awarded; and if target is exceeded, up to a maximum of 150% of the target award may be granted. The Board retains ultimate discretion with respect to all STI awards.

2.3.3 Outcome in 2016

The STI awarded to each executive KMP is set out below. The table also shows each executive KMP’s

performance across the three performance hurdles and the relative weighting of each.

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STI Award % of Financial Business Individual
Executive Cash6 Maximum Performance Performance Performance
P Perreault 2,472,413 78%
40% 30% 30%
G Boss 420,309 68%
30% 20% 50%
A Cuthbertson 609,215 74%
30% 20% 50%
K Etchberger 389,697 69%
30% 20% 50%
D Lamont 7 386,517 69%
30% 20% 50%
G Naylor 794,217 63%
30% 70%
L Reed 304,328 66%
30% 20% 50%
R Repella 633,779 80%
30% 20% 50%
V Romberg 537,891 69%
30% 20% 50%
Below Between Between Maximum
threshold threshold and target and
target maximum
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67 The Australian Dollar (AUD), British pound (GBP) and Swiss franc (CHF) awards during the year ended 30 June 2016 have been converted to US Dollars (USD) at an average rate for the year. The STI payment for D Lamont reflects payment for the period as executive KMP being 4 January 2016 to 30 June 2016.

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Directors Report

2.4 Long Term Incentives

2.4.1 Summary of the plan

Long term incentives (LTI) are in the form of either Performance Rights or Performance Options and are granted in October (Mr Lamont’s award was granted on his commencement in January 2016). Each Performance Right and Performance Option is to acquire one share in the Company. An executive KMP must pay an exercise price when electing to exercise the Performance Options (being the five day Volume Weighted Average Price from 24 – 30 September 2015 of A$89.52). There is no payment on the exercise of Performance Rights.

Performance Rights are issued in tranches with hurdles based on relative Total Shareholder Return (rTSR), measured against a cohort of global Pharmaceutical and Biotechnology companies (listed in section 5.5.2) and growth in Earnings per Share (EPSg). These performance hurdles were chosen as the Board believes they reflect performance and relative wealth creation and therefore provide a direct link between executive KMP reward and shareholder return. Performance Options only have value where the share price on exercise exceeds the exercise price.

They have the following key features:

	Feature	Performance Rights	Performance Options
	Performance Period	A four year performance period applies.
		Tranche 1: Vesting of tranche 1 is subject to CSL’s rTSR
	Performance Hurdle	performance hurdle. Tranche 2: Vesting of tranche 2 is subject to CSL achieving its “Target” EPSg performance hurdles. Tranche 3: Vesting of tranche 3 is subject to CSL achieving its “Upside” EPSg performance hurdles. The executive KMP must also meet their performance	Share price growth hurdle (exercise price) of A$89.52 for the awards granted in 2016. In addition an executive KMP must meet their performance expectations as defined in their work plan or the grant is forfeited.
		expectations as defined in their work plan.
		For those Performance Rights in Tranche 1 (subject to the
		rTSR Performance Measure):
		- No Performance Rights will vest if CSL’s TSR performance is
		less than the 50th percentile;
		- If performance is at the 50th percentile, then 50% of the
		Performance Rights will vest; and
		- An additional 2% of Performance Rights will vest for each
		one percentile increase above the 50 thpercentile up to the 75 th
	Vesting Schedule	percentile at which 100% will vest. For those Performance Rights in Tranche 2 (subject to the “Target” EPSg Performance Measure):	If the performance hurdle is met the award will vest 100%.
		- No vesting if CSL’s EPSg is less than 8%; and
		- Vesting for the EPSg “Target” Performance Rights will occur
		on a straight line scale from 35% vesting where EPSg is at 8%
		through to 100% where EPSg is at 13%.
		For those Performance Rights in Tranche 3 subject to the EPSg
		“Upside” Performance Measure:
		- Vesting will occur on a straight line scale from 0% vesting at
		EPSgof 13% through to 100% at 15%.
	Retesting	There is no retesting of LTI awarded under the current scheme (grants from 2014 onward).
		A “good leaver” (such as retirement) will retain a pro-rata number of Performance Options and Performance
	Cessation of Employment	Rights based on time elapsed since the grant date, held subject to original terms and conditions including test date. Vested Performance Options and Performance Rights have an expiry date of six months from vesting. For
		other leavers, Performance Options and Performance Rights lapse on cessation of employment.
	Dividends	No dividends are paid on unvested LTI awards.

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How potential awards are determined

LTI is set as a proportion of FR, with the relative proportions for each executive KMP shown in the chart below. Note that the Board has flexibility in the amount awarded up to these levels. For Performance Rights, Tranches 1 and 2 represent Target (each 50% of the Target award) and Tranche 3 Maximum (Maximum is 25% of Tranche 2).

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LTI as a percentage of fixed remuneration
LTI Performance Rights - Target LTI Performance Rights - Maximum
LTI Performance Options - Target
80%
15%
50% 50% 40% 45% 45% 40%
8% 8% 8% 8% 8% 8% 8% 8%
120%
65% 65% 65% 65% 65% 65% 65% 65%
----- End of picture text -----

To determine the number of Performance Options or Performance Rights to issue, CSL engages an external provider (PricewaterhouseCoopers) to assess the fair value of the awards. The proportion of FR earned for each element of the LTI is divided by the calculated fair value to determine the number of awards. The number and fair value (as determined by accounting standards) of Performance Rights and Performance Options awarded to executive KMP in 2016 is shown in section 2.4.3.

Use of Performance Options

practice. This is not the case in Australia and so Performance Options are not currently included in the LTI mix for Australian based executive KMP.

CSL currently has a capital management strategy to improve the efficiency of the balance sheet through buybacks. This strategy has been in place each year since 2010 and has entailed buying back approximately A$900m of CSL shares on an annual basis. Therefore the EPS growth target upon which executive KMP are rewarded is based off a year that included the impact of the buyback and will require a four year annual compound growth rate to be achieved. We have not adjusted the EPS growth target in any year that the buyback has been undertaken.

2.4.2 Overview of performance in the year

The performance measures for the LTI Plan, namely Earnings per Share growth (EPSg) and relative Total Shareholder Return (rTSR) provide a direct link between executive KMP reward and the long term creation of shareholder wealth. The table below illustrates CSL’s share price at the beginning and end of the relevant year and dividend payments over the past five years in Australian Dollars, along with Earnings per Share in US Dollars over the same period.

Financial Year	Dividends Paid during the year (A$)	Share Price 1 July (A$)	Share Price 30 June (A$)	EPS (US$)
2016	1.71	86.47	112.18	2.689
2015	1.39	66.55	86.47	2.923
2014	1.15	61.58	66.55	2.701
2013	0.95	39.42	61.58	2.429
2012	0.81	33.06	39.42	1.972

Compound growth for Performance Right vesting purposes are as follows:

		Compound EPS Growth to end of financialyear	Compound EPS Growth to end of financialyear	Compound EPS Growth to end of financialyear
Year of Grant	Test Currency	2013	2014	2015	2016
2012	USD	23.2%	17.0%	14.0%	4.0%
2013	USD		11.2%	9.7%	-1.7%
2014	USD			8.2%	-7.6%
2015	USD				-21.0%

Performance Options form part of LTI for executive KMP based on market benchmarks. It is market practice outside of Australia that a higher proportion of the total remuneration package be “at risk” and related to share price performance. Performance Options are widely used for this purpose and CSL is aligned with this

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Vesting outcomes in 2016

For awards measured in 2016 (i.e. those vesting this year) rTSR and EPSg outcomes are shown below. Indicative rTSR measurements of unvested awards are provided in section 5.5.4.

Performance Options	Performance Options
Grant Date	Vesting Outcome	Exercise Price(A$)	Annual EPS growth	Relative TSR Percentile Ranking
5 October 2011	EPSg- 100% vested	29.34	19%
	rTSR – 100% vested			95%
Performance Rights
Grant Date	Vesting Outcome	Exercise Price (A$)	Annual EPS growth	Relative TSR Percentile Ranking
5 October 2011	EPSg- 100% vested	-	19%
	rTSR - 100% vested			95%
1 October 2012	EPSg- 100% vested	-	14%
	rTSR - 0% vested			Below MSCI Gross Pharmaceutical Index

2.4.3 Awards granted and vested in 2016

The table below summarises the number and fair value of awards granted and vested in the 2016 year for each executive KMP and is presented in US Dollars. Mr D Lamont received two grants of Performance Rights on commencement of employment. The first award reflects the grant made to executive KMP in October 2014 and the second grant the October 2015 grant. The LTI target for Mr Lamont was 65% of fixed remuneration for each award.

Granted	Granted	Granted	Granted	in 2016 8	in 2016 8	in 2016 8	Vested	Vested	in 2016	in 2016
Performance Rights				Performance Options			Performance Rights		Performance Options
Executive Number			Value 9	Number	Value 10		Number	Value 11	Number	Value 11
Current executive KMP
P Perreault		47,138	2,455,877	147,911	1,455,389		15,255	992,172	9,310	406,569
G Boss		8,536	444,721	30,909	304,133		7,460	485,192	4,730	206,560
A Cuthbertson		9,098	474,007	-	-		12,195	793,152	7,600	331,893
K Etchberger		7,801	406,435	28,245	277,920		5,720	372,024	3,610	157,649
D Lamont		27,544	1,761,150	-	-		-	-	-	-
G Naylor		14,748	768,365	42,717	420,319		15,200	988,594	9,460	413,120

8 The Performance Rights and Performance Options had a grant date of 1 October 2015 and a vesting date of August 2019. Mr Lamont’s grants were made in January 2016.

9 The number of Performance Rights is calculated based on an assessment of the fair market value of the instruments in accordance with the accounting standards (refer to Note 18 in the Financial Statements). The fair value of each Performance Right granted was Tranche 1: A$60.92; Tranches 2 and 3: A$83.12 for all executive KMP excluding D Lamont. For D Lamont the fair values were T1 (2014 award); A$79.58; T1 (2015 award): A$75.97; Tranches 2 and 3 (2014 award): A$99.69 and Tranches 2 and 3 (2015 award): A$97.73. 1011 The number of Options is calculated based on an assessment of the fair market value of the instruments in accordance with the accounting standards (refer to Note 18 in the Financial Statements). The fair value of each Performance Option granted was A$13.51. Performance Options (less exercise price) and Performance Rights vested during the year, multiplied by the share price at the date of vesting. The AUD value was converted to USD at an average exchange rate for the year.

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		Granted	Granted	in 2016 8	in 2016 8	in 2016 8		Vested	Vested	in 2016	in 2016
		Performance Rights		Performance Options				Performance Rights		Performance Options
Executive		Number	Value 9	Number	Value 10			Number	Value 11	Number	Value 11
L Reed		6,415	334,219	20,907	205,717			-	-	-	-
R Repella		9,098	474,007	29,649	291,735			-	-	-	-
V Romberg		9,056	471,820	26,233	258,123			4,700	305,684	2,870	125,333

How potential awards are determined

2.5 Executive Deferred Incentive Plan (EDIP)

EDIP awards are at the absolute discretion of the Board, but are typically awarded as a proportion of FR. The proportion of FR and the number of Notional Shares it represented that were awarded in 2016 is set out below. The Notional Shares were granted on 1 October 2015 with a 30 September 2018 vesting date and were calculated using a weighted average share price (WASP) of A$89.52. For Mr Lamont, Notional Shares were granted in January 2016 and the average WASP was A$76.09.

2.5.1 Summary of the plan

The EDIP is our Group-wide incentive scheme for senior management, with approximately 1,900 employees eligible to participate. The plan is designed to attract key talent and encourage retention, through its three year vesting period (subject to the same ‘good leaver’ provisions as the LTI). The award also links participant’s outcomes to shareholder returns via share price growth through the use of Notional Shares (participants receive the cash equivalent of those shares value at the vesting date, based on a five day weighted average of the CSL share price at that time). In addition the employee must continue to meet their performance expectations as defined in their work plan through the vesting period or the grant is forfeited.

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2016 EDIP grant details
EDIP target as a percentage of fixed remuneration
40%
35% 35%
25% 25% 25%
20%
15%
10%
Notional 11,161 2,332 1,988 2,131 19,910 1,611 1,752 3,480 3,464
Shares granted
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The EDIP is used in our executive KMP framework as a discretionary award where there is additional retention risk or a gap between that executive KMP’s remuneration and local market benchmarks (particularly in relation to the mix of LTI).

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2.6 Statutory Remuneration Disclosure - executive KMP Remuneration

See section 5.1 for more information on the measurement of executive KMP remuneration. All amounts are presented in US Dollars.

Executive	Year 12	Short term benefits	Short term benefits			Post-employment	Other long term	Other long term	Share Based Payments 13	Share Based Payments 13		Total	% of remuneration performance related
		Cash salary and fees	Cash bonus	Cash sign on	Non- monetary	Superannuation	LSL	Deferred STI 14	Performance Rights	Performance Options	EDIP 15
P Perreault CEO & Managing Director	2016	1,855,579	2,472,413	-	56,327	18,550	-	635,425	1,222,419	687,485	1,221,451	8,169,649	76%
	2015	1,771,920	1,139,000		45,660	18,550	-	639,633	829,501	201,991	1,160,222	5,806,477	68%
G Boss EVP Legal & Group General Counsel	2016	585,362	420,309	-	35,134	18,499	-	-	295,106	149,182	291,407	1,794,999	64%
	2015	564,041	397,889		19,287	22,768	-	-	274,113	51,595	337,185	1,666,878	64%
A Cuthbertson Chief Scientific Officer	2016	679,995	609,215	-	29,944	25,491	25,527	261,546	407,762	-	90,865	2,130,345	64%
	2015	718,337	410,552		-	29,339	17,965	335,684	429,031	16,877	30,720	1,988,505	61%
K Etchberger EVP Quality & Business Services	2016	524,359	389,697	-	38,739	16,783	-	-	258,138	133,307	220,410	1,581,433	63%
	2015	492,308	350,000		19,513	15,500	-	-	227,902	44,053	228,748	1,378,024	62%
D Lamont 16 Chief Financial Officer	2016	467,025	386,517	436,993	14,747	12,746	10,733	-	251,002	-	1,232,906	2,812,669	67%
	2015	-	-		-	-	-	-	-	-	-	-	-
G Naylor President, Seqirus	2016	1,001,918	794,217	-	104,019	25,491	95,676	324,667	541,470	299,150	74,079	3,260,687	62%
	2015	851,059	504,296		11,814	29,339	17,339	407,892	532,471	20,920	25,024	2,400,154	62%
L Reed 17 SVP Human Resources	2016	449,633	304,328	-	21,330	19,950	-	-	131,962	103,322	167,902	1,198,427	59%
	2015	398,790	240,000		11,963	20,136	-	-	52,344	28,635	211,533	963,401	55%
R Repella EVP Commercial Operations	2016	628,474	633,779	-	47,683	18,505	-	59,093	300,546	151,610	231,893	2,071,583	66%
	2015	613,869	341,700		19,167	34,883	-	42,075	202,561	42,951	215,597	1,512,803	56%
V Romberg EVP Manufacturing Operations & Planning	2016	597,959	537,891	-	331,277	21,332	-	33,354	165,644	110,480	166,082	1,964,020	52%
	2015	282,316	149,677		50,008	15,768	-	21,238	106,024	27,172	80,809	733,012	53%
M Sontrop 18 EVP Manufacturing Operations & Planning	2016	-	-		-	-	-	-	-	-	-	-	-
	2015	329,852	156,476		48,844	(9,638)	5,924	70,882	119,172	7,363	230,204	959,079	61%

12 The AUD, GBP and CHF compensation paid during the years ended 30 June 2015 and 30 June 2016 have been converted to USD at an average exchange rate for the year. Both the amount of remuneration and any movement in comparison to prior years may be influenced by changes in the AUD/USD, GBP/USD and CHF/USD exchange rates.

13 The Performance Rights and Performance Options have been valued using a combination of the Binomial and Black Scholes option valuation methodologies including Monte Carlo simulation as at the grant date adjusted for the probability of hurdles being achieved. This valuation was undertaken by PricewaterhouseCoopers. The amounts disclosed have been determined by allocating the value of the Performance Options and Performance Rights evenly over the period from grant date to vesting date in accordance with applicable accounting standards. As a result, the current year includes Performance Options and Performance Rights that were granted in prior years.

14 The fair value of the deferred incentive (STI deferral) has been measured by reference to the CSL share price at reporting date, adjusted for the dividend yield and the number of days left in the vesting period.

1516 The fair value of the EDIP cash settled deferred payment has been measured by reference to the CSL share price at reporting date, adjusted for the dividend yield and the number of days left in the vesting period. D Lamont was executive KMP for the period 4 January 2016 to 30 June 2016.

17 L Reed was reported in 2015 as L Cowan.

18 M Sontrop was the former EVP Manufacturing Operations & Planning and retired from this role 31 December 2014.

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3 Non-Executive Director Remuneration

3.1 Framework

Feature	Description
	CSL’s NED remuneration strategy is designed to enable CSL to attract and
Strategy	retain suitably qualified directors with appropriate experience and
objective	expertise and remunerate them appropriately for their Board
	responsibilities and activities on Board committees.
	The current fee pool for NEDs of A$3,000,000 was approved by
Aggregate fees approved by shareholders	shareholders on 15 October 2014 and has applied from 1 July 2014. The annual total of NED fees including superannuation contributions is within this agreed limit. NEDs may be reimbursed for reasonable expenses incurred by them in the course of discharging their duties and this
	reimbursement is not included within this limit.
	The Board reviews NED fees on an annual basis in line with general
Remuneration	industry practice. Fees are set with reference to the responsibilities and
reviews	time commitments expected of NEDs along with consideration to the level
	of fees paid to NEDs of comparable companies.
Independence of	To ensure independence and impartiality is maintained, NEDs do not
NEDs	receive any performance related remuneration.
	NEDs participate in the Non-Executive Directors’ Share Plan (the NED Share
	Plan) approved by shareholders at the 2002 Annual General Meeting
	(AGM), as amended. The NED Share Plan requires that each NED takes at
NED Share Plan	least 20% of their after-tax director’s base fee (excluding superannuation
	guarantee contributions) in the form of shares in CSL Limited. Shares are
	purchased by NEDs on-market at prevailing share prices, twice yearly, after
	the announcement of CSL’s half and full year results.
Post-	Superannuation contributions are made in accordance with legislation and
Employment	are included in the reported base fee. NEDs are not entitled to any
Benefits	compensation on cessation of appointment.
Employment	There are no specific employment contracts with NEDs. NEDs are
Contracts	appointed under a letter of appointment and are subject to ordinary
	election and rotation requirements as stipulated in the ASX Listing Rules
	and CSL Limited’s constitution.

3.2 Non-Executive Director Fees

The table below provides details of current Board and committee fees from 1 July 2015. Committee fees are not payable to the Chairman and to members of the Nomination and Securities & Market Disclosure Committees.

Board Chairman Base Fee	A$680,000
Board NED Base Fee	A$205,000
Committee Fees	Committee Chair	Committee Member
Audit & Risk Management	A$52,000	A$27,000
Human Resources &	A$52,000	A$27,000
Remuneration
Innovation & Development	A$52,000	A$27,000

In 2016, following an external review by KPMG of fees paid by ASX Top 25 companies of similar market capitalisation and consideration of eight Global Biopharmaceutical companies of similar market capitalisation, the Board determined to increase NED fees for the 2017 financial year. From 1 July 2016 the Board Chairman fee will increase to A$700,000 and the Board NED base fee to A$212,000; Committee Chair fees will increase to A$54,000 and Committee Member fees to A$28,000. The review indicated that CSL’s committee fee structure varies when compared with many companies in so far as CSL has elected to pay the same fees for each of the three remunerated committees recognising their equal importance and impact. CSL targets Board and Committee fees at market midpoint based on market capitalisation. At the 2016 AGM, shareholders will be asked to approve an increase to the Non-Executive Director pool from A$3,000,000 to A$4,000,000 to, amongst other things, allow for Board succession opportunities.

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3.3 Statutory Remuneration Disclosure – Non-Executive Director Remuneration

See section 5.1 for more information on the measurement of KMP remuneration. All amounts are presented in US Dollars.

Non-Executive Director	Year 19	Short term benefits	Post-employment		Total
		Cash salary and fees 20	Superannuation	Retirement benefits
Current NED
J Shine Chairman	2016	469,767	25,491	-	495,258
	2015	489,206	29,339	-	518,545
J Akehurst Non-Executive Director	2016	173,117	14,062	-	187,179
	2015	186,191	15,745	-	201,936
D Anstice Non-Executive Director	2016	172,270	16,366	-	188,636
	2015	184,416	17,520	-	201,936
B Brook Non-Executive Director	2016	173,117	14,062	-	187,179
	2015	186,191	15,745	-	201,936
M Clark Non-Executive Director	2016	57,866	5,497	-	63,363
	2015	-	-	-	-
M McDonald Non-Executive Director	2016	154,311	14,660	-	168,971
	2015	168,187	15,978	-	184,165
C O’Reilly Non-Executive Director	2016	174,573	14,062	-	188,635
	2015	186,191	15,745	-	201,936
M Renshaw Non-Executive Director	2016	170,940	16,239	-	187,179
	2015	184,417	17,520	-	201,937

[balance of page intentionally left blank]

19 The AUD compensation paid during the years ended 30 June 2015 and 30 June 2016 have been converted to USD at an average exchange rate for the year. Both the amount of remuneration and any movement in comparison to prior years may be influenced by changes in the AUD/USD exchange rates.

20 As disclosed in the section titled “Non-Executive Director Remuneration”, NEDs participate in the NED Share Plan under which NEDs are required to take at least 20% of their after-tax base fees (excluding superannuation guarantee contributions) in the form of shares in the Company which are purchased on-market at prevailing share prices. The value of this remuneration element is included in cash, salary and fees.

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4 Remuneration Governance

4.1 Human Resources and Remuneration Committee (HRRC)

Remuneration for CSL is overseen by the Human Resources and Remuneration Committee (HRRC) of the Board. The HRRC is responsible for reviewing and making recommendations to the Board with regard to:

• Executive remuneration design and approval of awards to the CEO and executive KMP;

• Senior executive succession planning;

• The design and implementation of any incentive plan (including equity based arrangements);

• The remuneration and other benefits applicable to NEDs; and

• The CSL diversity policy and measurable objectives for achieving gender diversity.

Full responsibilities of the HRRC are outlined in its Charter, which is reviewed annually. The Charter is available on CSL’s website at http://www.csl.com.au/about/governance.htm

The HRRC comprises three independent NEDs: John Akehurst (Chairman), David Anstice and Christine O’Reilly. The HRRC may invite the Chairman of the Board, members of the management team and external advisers to attend its meetings.

HRRC Activities

4.2 Use of external remuneration consultants

The Board and the HRRC engage the services of independent consultants for the provision of market remuneration data and to advise on the remuneration of executive KMP and NEDs.

In 2016, KPMG was selected as a Remuneration Consultant to provide advice in respect to the market competitiveness of CSL’s NED fees. KPMG was commissioned and instructed by the Chairman of the HRRC.

Aon Hewitt was engaged to provide benchmarking data in respect of all executive KMP and to provide information on global pharmaceutical and biopharmaceutical market remuneration practice, trends and data. The engagement of, and provision of instructions to Aon Hewitt was undertaken by the Chairman of the HRRC.

The terms of engagement with our Remuneration Consultants required a declaration of independence from the executive KMP and NEDs to whom their recommendations related, to be provided with their report to ensure that the HRRC and Board may be satisfied the remuneration advice and recommendations were made free from undue influence from CSL’s executive KMP and NEDs.

Neither KPMG or Aon Hewitt made any ‘remuneration recommendations’ as defined in the Corporations Act 2001 during the 2016 financial year.

During 2016, the HRRC met on eight occasions, with remuneration and talent matters key agenda items for discussion. The Committee’s activities included:

• Annual review of the remuneration structure and policy;

• Appointment of external remuneration consultants;

• Review of senior executive appointments and remuneration arrangements;

• Review of STI and LTI arrangements, and reward outcomes for key senior executives;

[balance of page intentionally left blank]

• Review of the CSL diversity report and gender pay review and progress against diversity objectives;

• Review of talent and succession planning for senior executives;

• Review of the Human Resource strategy and key achievements;

• Review of NED remuneration; and

• Review of the HRRC Charter.

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5 Additional Information

5. 1 How remuneration is measured

Remuneration of KMP is measured based on the requirements of Australian Accounting Standards and the Corporations Act 2001. These requirements measure remuneration based on when the service is performed for the company, rather than when the benefit is received by the executive. This is readily comparable with other companies but presents some elements of remuneration based on their value when awarded, rather than the value (if any) that the executive actually receives.

Examples of how this impacts upon CSL’s remuneration disclosures are as follows:

• For 2014 and 2015, 33% of STI awards for the SLG are deferred into Notional Shares for three years. These are recognised as an expense over four years, being the year of the award and the three year deferral period. While the number of Notional Shares is determined based on the share price when granted, because they are eventually settled in cash the amount expensed each year changes as the share price moves. These changes can increase or decrease remuneration in a given year and may be significant if there are large movements in the share price. This is also the case for Notional Shares issued under the EDIP, which are recognised over a three year period;

• Performance rights issued under the LTI scheme are recognised over their respective performance period based on their market value on the day they are granted to the executive. The value attributed to each performance right at the time they are granted incorporates the risk that the performance targets may not be met and may be significantly different to the value of the rights if and when they vest to the executive. The accounting value of these rights is set on the day they are granted and is not revisited; and

• In some circumstances, amounts are recorded as LTI remuneration when no shares vest to the executive and in other cases there can be negative remuneration from LTIs in a given year if performance or service conditions are not met.

In addition, remuneration amounts are presented in US Dollars, consistent with the rest of the report. Remuneration levels are set and remuneration is paid in the currency of the country in which the executive is based. In addition, CSL shares are traded in Australian Dollars, so all share based incentives are determined in Australian Dollars. Changes in exchange rates can therefore lead to fluctuations in remuneration.

5. 2 Contractual requirements

Contractual provisions for executive KMP

The CEO and executive KMP are employed on individual service contracts that outline the terms of their employment, which include:

Duration of	Notice Period	Notice Period CSL*	Termination
contract	Employee		Payment
No Fixed Term	Six months	Six months	12 months

*CSL may also terminate at any time without notice for serious misconduct and/or breach of contract.

Clawback / Cancellation / Reduction

Were an executive KMP to commit any act of fraud, defalcation, gross misconduct, dishonesty or have been in breach of their obligations, or in the event of a material misstatement of financials or other significant discovery which, had it been known at the time of the award, would have made a difference to the offer or quantum of the award, the Board in its absolute discretion may adjust or forfeit any incentive award, including LTI and EDIP. The Board may also reduce, including to zero, the STI outcome for the future performance year. In the event of CSL being faced with a material misstatement or similar situation the Board’s response and the actions taken will be detailed in the remuneration report.

Change of Control Provisions

In the event of a change of control, the Board, in its absolute discretion, may determine that some or all of the awards made under the LTI Plan and the EDIP vest having regard to the performance of CSL during the vesting period to the date of the change of control event. Vesting may occur at the date of the change of control event or an earlier vesting date as determined by the Board.

Securities Dealing

The CSL Group Securities Dealing Policy prohibits employees from using price protection arrangements (e.g. hedging) in respect of CSL securities, or allowing them to be used. The Policy also provides that no CSL securities can be used in connection with a margin loan. Upon vesting of an award an employee may only deal in their CSL securities in accordance with the Policy. A breach of the Policy may result in disciplinary action. A copy of the Policy is available on the CSL Limited website at http://www.csl.com.au/about/governance.htm.

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5.3 Shareholdings

It is the expectation of the Board that all NEDs and executive KMP hold CSL Limited shares. The Board encourages all NEDs and executive KMP to accumulate significant holdings over time subject to individual circumstances. No minimum for the number of shares held is specified.

Executive KMP Shareholdings

Executive	Balance at 1 July 2015	Shares acquired on exercise of Performance Options during year	Shares acquired on exercise of Performance Rights during year	(Shares Sold) / Purchased	Balance at 30 June 2016
P Perreault	36,071	9,310	15,255	(18,965)	41,671
G Boss	7,367	18,820	7,460	(26,182)	7,465
A Cuthbertson	111,948	7,600	12,195	(17,600)	114,143
K Etchberger	22,087	29,640	5,720	(50,509)	6,938
D Lamont 21	775	-	-	-	775
G Naylor	37,865	47,320	-	(69,846)	15,339
L Reed	-	-	-	-	-
R Repella	-	-	-	-	-
V Romberg 22	592	-	-	108	700

Non-executive Director Shareholdings

Non-executive Director	Balance at 1 July 2015	(Shares sold) / purchased	Balance at 30 June 2016
J Shine	9,387	664	10,051
J Akehurst	31,532	204	31,736
D Anstice	10,864	2,254	13,118
B Brook	4,300	202	4,502
M Clark 23	-	524	524
M McDonald	1,003	1,213	2,216
C O’Reilly	2,670	202	2,872
M Renshaw	8,788	202	8,990

There have been no movements in shareholdings of executive KMP or NEDs between 30 June 2016 and the date of this report.

5.4 Other transactions with Executive KMP and Non-executive Directors

There have been no loans made to executive KMP or NEDs during 2016. Executive KMP, NEDs and their related entities have conducted the following transactions with CSL. These transactions occur as part of a normal supplier relationship on ‘arm’s length’ terms.

• Corporate accounts with CityLink, operated by Transurban Group of which Christine O’Reilly is a Director.

• CSL has entered into a number of contracts with Monash University, including collaborative research agreements. Megan Clark is a member of the Council of Monash University.

• Supply of commercial energy from Origin Energy Limited of which Mr John Akehurst is a Director.

• Labour hire contracts with Skilled, a business operated by Programmed Maintenance Services Limited, of which Mr Bruce Brook is a Director.

During 2016, CSL completed two on-market purchases of shares for the purposes of Non-Executive Directors’ Share Plan. A total of 1,954 shares were purchased during the reporting period and the average price paid per share was A$91.93.

2122 The opening balance for D Lamont is 4 January 2016 being the date D Lamont became executive KMP. Restated opening balance to include related party holdings.

23 The opening balance for M Clark is 16 February 2016 being the date M Clark became a NED.

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5.5 Further information on Performance Rights and Performance Options

5.5.1 Cap on Issue of Equity to Employees

The Performance Rights Plan Rules, governing the LTI Plan, approved by shareholders at the 2003 AGM require that, at any point in time, the aggregate number of CSL shares that:

• a) have previously been issued to employees under the Company’s employee equity plans and which remain subject to the rules of the relevant plan (e.g. a disposal restriction); and

• b) would be issued if all outstanding share options under such plans (whether or not vested at the time) were to be exercised, must not exceed 7.5% of the total number of CSL shares on issue at that time.

As at 30 June 2016, the aggregate number of CSL shares under a) and b) above was 0.55% of the total number of CSL shares on issue.

In addition, to satisfy a condition of the exemption granted by the Australian Securities and Investments Commission from certain prospectus and licensing laws, CSL must ensure that, at the time of each offer of shares or share options under an employee equity plan, the aggregate number of CSL shares which are:

• the subject of outstanding offers of shares or share options to, or outstanding share options held by employees in Australia; and

• issued to employees in Australia under the Company’s equity plans in the five year period preceding the offer, in each case, after disregarding offers to or holdings of exempt offer recipients, must not exceed 10% of the total number of CSL shares on issue at the time of the offer.

5.5.2 Total Shareholder Return calculations for unvested Performance Rights

Shown below is CSL’s indicative Total Shareholder Return (TSR) performance over the relevant performance periods up to 30 June 2016 for as yet unvested Performance Rights. Vesting is solely dependent on the formal relative TSR calculations undertaken at the relevant test dates, with these calculations for information purposes only.

Relative TSR Performance from Grant Date to 30 June 2016 – Selected Peer Group

Performance Rights Issue	Peer Group	Indicative Relative TSR Percentile Ranking
October 2014	Selected global Pharmaceutical and Biotechnology companies	76.1%
October 2015	Selected global Pharmaceutical and Biotechnology companies	86.2%

Relative TSR Performance from Grant Date to 30 June 2016 – MSCI Gross Pharmaceutical Index (“Index”)

Performance Rights Issue	Index TSR Outcome	CSL TSR Outcome
October 2012	65.7%	86.9%
October 2013	28.7%	43.9%

Members of the Selected Peer Group for 2016 Grant (1 October 2015 award)

AbbVie, Acadia; Actelion; Alexion; Alkermes; Alnylam; Amgen; Astellas; AstraZeneca; Bayer; Biogen; Biomarin; Bristol-Myers-Squibb; BTG; Celgene; Celldex; Chugai; Daiichi; Daiinippon Sumitomo; Eisai; Eli Lilly; Endo; Gilead; Grifols; GlaxoSmithKline; Incyte; Innoviva; Ipsen; Ionis Pharmaceuticals; Jazz; Johnson & Johnson; Kyowa; Meda; Medivation; Merck; Merck KGaA; Mesoblast; Mitsubishi-Tanabe; Morphosys; Novartis; Novo Nordisk; Ono Pharmaceutical; Orion; Pfizer; Regeneron; Roche; Sanofi; Sawai Pharmaceutical; Seattle Genetics; Shionogi; Shire; Swedish Orphan; Takeda; Teijin; UCB; United Therapeutics; Valeant; and Vertex.

Page 30

Directors Report

5.5.3 Unvested LTI schemes of previous years

Terms and conditions of Options and Performance Rights granted in 2014 and 2015

Grant Date 24	Instrument	Tranche	Value per Instrument at Grant Date (A$) 25	Exercise Price (A$)	First Test Date	Exercise Period	Expiry Date
1 October 2014	Rights	1	47.69	-	1 July 2018	August 2018 – 30 September 2019	30 September 2019
1 October 2014	Rights	2 & 3	68.64	-	1 July 2018	August 2018 – 30 September 2019	30 September 2019
1 October 2014	Options	1	12.29	73.93	1 July 2018	August 2018 – 30 September 2019	30 September 2019
1 October 2015	Rights	1	60.92	-	1 July 2019	August 2019 – 30 September 2020	30 September 2020
1 October 2015	Rights	2 & 3	83.12	-	1 July 2019	August 2019 – 30 September 2020	30 September 2020
1 October 2015	Options	1	13.51	89.52	1 July 2019	August 2019 – 30 September 2020	30 September 2020

Key Characteristics of prior financial year Performance Option and Performance Right grants

Feature	2008 – 2010	2011 - 2012	2013 – 2014	2015
Instrument	60% Performance Options and 40% Performance Rights	20% Performance Options and 80% Performance Rights	Performance Rights	Performance Options and Performance Rights
Tranches	Three tranches: T1 - 25% of grant, T2 - 35% and T3 - 40%	Two tranches: T1 - 50% of grant and T2 - 50%		One tranche of Performance Options and three tranches of Performance Rights
Performance Period	T1 – 2 years, T2 – 3 years; T3– 4 years	T1 – 3 years and T2 – 4 years		4 years
Performance Hurdle	Performance Options - EPSg Performance Rights - rTSR	50% - EPSg 50% - rTSR		Performance Options - Individual performance targets Performance Rights T1 – rTSR and T2 and T3 - EPSg
Peer Group	Selected ASX Top 100	Selected ASX Top 100	MSCI Gross Pharmaceutical Index	Selected global Pharmaceutical and Biotechnologycompanies
Vesting Schedule	EPSg10% or above – 100% vesting	EPSg10% or above - 100% vesting	EPSg< 8% – 0% vesting	Consistent with section 2.4.1
	rTSR at or above 50 thpercentile – 100% vesting	rTSR below 50 thpercentile - 0% vesting	EPSg 8% to 12% - Straight line vesting from 50% to 100%
		rTSR at 50 th percentile - 50% vesting	EPSg12% or above – 100% vesting
		rTSR between 50 thand 75 thpercentile - Straight line vestingfrom 50% to 100%	rTSR at or below performance of Index – 0% vesting
		rTSR≥75 th percentile - 100%	rTSR exceedsperformance of Index – 100%
Retesting Opportunities	T1 – 3 retests, T2 – 2 retests and T3 – 1 retest	1 retest per tranche, after an additional 12 months		No retest

24 For D Lamont the 2014 and 2015 Performance Rights awards were granted January 2016.

25 For D Lamont the fair values for the 2014 award were T1 A$79.58 and Tranches 2 and 3 A$99.69. The fair values for the 2015 award were T1 A$75.97 and Tranches 2 and 3 A$97.73.

Page 31

5.5.4 Performance Rights and Performance Options Holdings

Executive	Instrument	Balance at 1 July 2015	Number Granted	Number Exercised	Number Lapsed / Forfeited	Balance at 30 June 2016	Number Vested during year	Balance at 30 June 2016	Balance at 30 June 2016	Value of LTI Exercised during year (US$) 26	Average Price Paid per Share
								Vested	Unvested
P Perreault	Options	104,138	147,911	9,310	-	242,739	9,310	-	242,739	412,672	29.34
	Rights	88,040	47,138	15,255	-	119,923	15,255	-	119,923	1,002,171	-
G Boss	Options	39,957	30,909	18,820	-	52,046	4,730	-	52,046	972,594	31.40
	Rights	29,029	8,536	7,460	-	30,105	7,460	-	30,105	506,194	-
A Cuthbertson	Options	7,600	-	7,600	-	-	7,600	-	-	354,090	29.34
	Rights	45,568	9,098	12,195	-	42,471	12,195	-	42,471	821,041	-
K Etchberger	Options	48,233	28,245	29,640	-	46,838	3,610	-	46,838	1,429,098	32.37
	Rights	24,004	7,801	5,720	-	26,085	5,720	-	26,085	411,476	-
D Lamont 27	Options	-	-	-	-	-	-	-	-	-	-
	Rights	-	27,544	-	-	27,544	-	-	27,544	-	-
G Naylor	Options	80,960	42,717	47,320	-	76,357	9,460	33,640	42,717	2,393,716	35.80
	Rights	89,441	14,748	2,992	-	101,197	15,200	45,060	56,137	239,705	-
L Reed	Options	14,875	20,907	-	-	35,782	-	-	35,782	-	-
	Rights	5,819	6,415	-	-	12,234	-	-	12,234	-	-
R Repella	Options	22,312	29,649	-	-	51,961	-	-	51,961	-	-
	Rights	17,144	9,098	-	-	26,242	-	-	26,242	-	-
V Romberg	Options	22,579	26,233	-	-	48,812	2,870	2,870	45,942	-	-
	Rights	18,780	9,056	-	-	27,836	4,700	4,700	23,136	-	-

26 The value at exercise date has been determined by the share price at the close of business on exercise date less the Performance Option/Performance Right exercise price (if any) multiplied by the number of Performance Options/Performance Rights exercised during 2016. The AUD value was converted to USD at an average exchange rate for the year.

27 The opening balance for D Lamont is at 4 January 2016 being the date D Lamont became executive KMP.

Page 32

This report has been made in accordance with a resolution of directors.

John Shine AO Chairman Melbourne 17 August 2016

Paul Perreault Chief Executive Officer and Managing Director

This report has been made in accordance with a resolution of directors.

[balance of page intentionally left blank]

• ® Registered trademark of CSL or its affiliates.

Page 33

Page 34

1 CSL Financial Statements 30 June 2016

CSL Limited

CSL Financial Statements 30 June 2016

2 CSL Financial Statements 30 June 2016

Consolidated Statement of Comprehensive Income For the Year Ended 30 June 2016

For the Year Ended 30 June 2016
		Consolidated Entity
		2016	2015
	Notes	US$m	US$m
Continuing operations
Sales revenue	2	5,909.5	5,458.6
Cost of sales		(3,034.8)	(2,605.9)
Gross profit		2,874.7	2,852.7
Other revenue	2	219.7	169.4
Research and development expenses	6	(613.8)	(462.7)
Selling and marketing expenses		(620.9)	(498.3)
General and administration expenses		(408.3)	(287.5)
Finance costs	2	(71.6)	(59.6)
Gain on acquisition	1b	176.1	-
Profit before income tax expense		1,555.9	1,714.0
Income tax expense	3	(313.5)	(335.0)
Net profit for the period		1,242.4	1,379.0
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss
Exchange differences on translation of foreign
operations, net of hedges on foreign	12	(126.9)	(444.1)
investments
Items that will not be reclassified
subsequently to profit or loss
Actuarial gains/(losses) on defined benefit plans, net of tax		(71.9)	(64.3)
Total of other comprehensive income/(expenses)		(198.8)	(508.4)
Total comprehensive income for the period		1,043.6	870.6
Earnings per share (based on net profit for the period)		US$	US$
Basic earnings per share	10	2.689	2.923
Diluted earnings per share	10	2.683	2.914

The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated Balance Sheet As at 30 June 2016

			Consolidated Entity
			2016 2015
		Notes	US$m US$m
	CURRENT ASSETS
	Cash and cash equivalents	14	556.6 556.8
	Trade and other receivables	15	1,107.2 1,003.7
	Inventories	4	2,152.0 1,755.6
	Current tax assets		1.6 20.4
	Other financial assets		0.6 2.6
	Total Current Assets		3,818.0 3,339.1
	NON-CURRENT ASSETS
	Other receivables	15	15.6 11.2
	Other financial assets		2.9 0.5
	Property, plant and equipment	8	2,389.6 1,841.3
	Deferred tax assets	3	389.0 274.4
	Intangible assets	7	942.6 926.9
	Retirement benefit assets	18	5.0 7.6
	Total Non-Current Assets		3,744.7 3,061.9
	TOTAL ASSETS		7,562.7 6,401.0
	CURRENT LIABILITIES
	Trade and other payables	15	996.1 700.8
	Interest-bearing liabilities	11	62.3 3.2
	Current tax liabilities		207.3 143.9
	Provisions	16	99.6 84.3
	Deferred government grants	9	3.1 2.1
	Derivative financial instruments		6.0 1.8
	Total Current Liabilities		1,374.4 936.1
	NON-CURRENT LIABILITIES
	Other non-current liabilities	15	18.8 17.2
	Interest-bearing liabilities	11	3,081.0 2,277.7
	Deferred tax liabilities	3	119.2 138.2
	Provisions	16	40.5 31.9
	Deferred government grants	9	35.0 31.9
	Retirement benefit liabilities	18	326.6 221.1
	Total Non-Current Liabilities		3,621.1 2,718.0
	TOTAL LIABILITIES		4,995.5 3,654.1
	NET ASSETS		2,567.2 2,746.9
	EQUITY Contributed equity	12	(4,213.0) (3,560.4)
	Reserves	12	187.9 306.5
	Retained earnings	19	6,592.3 6,000.8
	TOTAL EQUITY		2,567.2 2,746.9

The consolidated balance sheet should be read in conjunction with the accompanying notes.

3 CSL Financial Statements 30 June 2016

Consolidated Statement of Changes in Equity For the year ended 30 June 2016

	Consolidated Statement of Changes in Equity For the year ended 30 June 2016
	Consolidated Entity Contributed Equity US$m Foreign currency translation reserve US$m Share based payment reserve US$m Retained earnings US$m Total US$m 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 As at the beginning of the year (3,560.4) (2,797.8) 155.4 599.5 151.1 138.8 6,000.8 5,221.5 2,746.9 3,162.0 Profit for the period - - - - - - 1,242.4 1,379.0 1,242.4 1,379.0 Other comprehensive income - - (126.9) (444.1) - - (71.9) (64.3) (198.8) (508.4) Total comprehensive income for the full year 1,043.6 870.6 Transactions with owners in their capacity as owners Share based payments - - - - 8.3 12.3 - - 8.3 12.3 Dividends - - - - - - (579.0) (535.4) (579.0) (535.4) Share buy back (670.0) (798.6) - - - - - - (670.0) (798.6) Share issues - Employee share scheme 17.4 36.0 - - - - - - 17.4 36.0 As at the end of the year (4,213.0) (3,560.4) 28.5 155.4 159.4 151.1 6,592.3 6,000.8 2,567.2 2,746.9

The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

4 CSL Financial Statements 30 June 2016

Consolidated Statement of Cash Flows For the year ended 30 June 2016

The consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows For the year ended 30 June 2016	Consolidated Statement of Cash Flows For the year ended 30 June 2016	Consolidated Statement of Cash Flows For the year ended 30 June 2016
Consolidated Entity
	2016	2015
	US$m	US$m
Cash flows from Operating Activities
Receipts from customers (inclusive of goods and services tax)	5,982.7	5,640.6
Payments to suppliers and employees (inclusive ofgoods and services tax)	(4,417.0)	(3,957.0)
	1,565.7	1,683.6
Income taxes paid	(326.2)	(281.0)
Interest received	14.1	15.0
Borrowingcosts	(75.0)	(54.0)
Net cash inflow from operating activities	1,178.6	1,363.6
Cash flows from Investing Activities
Proceeds from sale of property, plant and
equipment	0.1	0.3
Payments for property, plant and equipment	(495.1)	(347.8)
Payments for intangible assets	(70.6)	(66.0)
Payments for business acquisition (Net of cash acquired)	(244.6)	-
Receipts from other financial assets	0.1	0.2
Net cash outflow from investing activities	(810.1)	(413.3)
Cash flows from Financing Activities
Proceeds from issue of shares	17.4	34.7
Dividends paid	(579.0)	(535.4)
Proceeds from borrowings	1,564.3	494.2
Repayment of borrowings	(716.9)	(3.0)
Payment for shares bought back	(648.2)	(818.6)
Net cash outflow from financing activities	(362.4)	(828.1)
Net increase (decrease) in cash and cash equivalents	6.1	122.2
Cash and cash equivalents at the beginning of the financial year	555.5	606.3
Exchange rate variations on foreign cash and cash equivalent balances	(6.3)	(173.0)
Cash and cash equivalents at the end of the financial year	555.3	555.5

5 CSL Financial Statements 30 June 2016

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Contents

Contents
About this Report	6
Notes to the financial statements:	6
Our Current Performance	7
Note 1: Segment Information and Business Combinations	7
Note 2: Revenue and Expenses	11
Note 3: Tax	12
Note 4: Inventories	15
Note 5: People Costs	15
Our Future	18
Note 6: Research & Development	18
Note 7: Intangible Assets	19
Note 8: Property, Plant and Equipment	22
Note 9: Deferred Government Grants	23
Returns, Risk & Capital Management	24
Note 10: Shareholder Returns	24
Note 11: Financial Risk Management	25
Note 12: Equity and Reserves	32
Note 13: Commitments and Contingencies	33
Efficiency of Operation	35
Note 14: Cash and Cash Equivalents, Cash Flows	35
Note 15: Trade Receivables and Payables	36
Note 16: Provisions	37
Other Notes	38
Note 17: Related Party Transactions	38

Note 18: Detailed Information – People Costs	39
Note 19: Detailed Information – Shareholder Returns	44
Note 20: Auditors Remuneration	45
Note 21: Deed of Cross Guarantee	45
Note 22: Parent Entity Information	47
Note 23: Subsequent Events	48
Note 24: New and Revised Accounting Standards	48
Directors’ Declaration	49

6 CSL Financial Statements 30 June 2016

About this Report

Notes to the financial statements:

Corporate information

CSL Limited (“CSL”) is a for-profit company incorporated and domiciled in Australia and limited by shares publicly traded on the Australian Securities Exchange. This financial report covers the financial statements for the consolidated entity consisting of CSL and its subsidiaries (together referred to as the Group). The financial report was authorised for issue in accordance with a resolution of directors on 17 August 2016.

A description of the nature of the Group’s operations and its principal activities is included in the directors’ report.

a. Basis of preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, International Financial Reporting Standards (IFRS) and the Corporations Act 2001. It presents information on a historical cost basis, except for financial assets and liabilities (including derivative instruments), which have been measured at fair value. Amounts have been rounded off to the nearest hundred thousand dollars.

The report is presented in US Dollars, because this currency is the pharmaceutical industry standard currency for reporting purposes. It is the predominant currency of the Group’s worldwide sales and operating expenses.

b. Principles of consolidation

The consolidated financial statements comprise the financial statements of CSL and its subsidiaries as at 30 June 2016. CSL has control of its subsidiaries when it is exposed to, and has the rights to, variable returns from its involvement with those entities and when it has the ability to affect those returns. A list of significant controlled entities (subsidiaries) at year-end is contained in Note 17. During the year ended 30 June 2016 CSL assumed control of entities acquired as part of the acquisition of the Novartis Influenza business. Details of the acquisition are contained in Note 1b.

The financial statements of the subsidiaries are prepared using consistent accounting policies and for the same reporting period as the parent company.

In preparing the consolidated financial statements, all intercompany balances and transactions have been eliminated in full. The Group has formed a trust to administer the Group’s employee share scheme. This trust is consolidated as it is controlled by the Group.

c. Foreign currency

While the presentation currency of the Group is US dollars, entities in the Group may have other functional currencies, reflecting the currency of the primary economic environment in which the relevant entity operates. The parent entity, CSL Limited, has a functional currency of Australian dollars.

If an entity in the Group has undertaken transactions in foreign currency, these transactions are translated into that entity’s functional currency using the exchange rates prevailing at the dates of the transactions. Where the functional currency of a subsidiary is not US dollars, the subsidiary’s assets and liabilities are translated on consolidation to US dollars using the exchange rates prevailing at the reporting date, and its profit and loss is translated at average exchange rates. All resulting exchange differences are recognized in other comprehensive income and in the foreign currency translation reserve in equity.

d. Other accounting policies

Significant accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements.

7 CSL Financial Statements 30 June 2016

e. Key judgements and estimates

In the process of applying the Group’s accounting policies, management has made a number of judgements and estimates of future events. Material judgements and estimates are found in the following notes:

Note	1b:	Business Combination	Page 10
Note	3:	Tax	Page 12
Note	4:	Inventories	Page 15
Note	5:	People Costs	Page 15
Note	7:	Intangible Assets	Page 19
Note	15:	Trade Receivables & Payables	Page 37

f. The notes to the financial statements

The notes to these financial statements have been organised into logical groupings to help users find and understand the information they need. Where possible, related information has been provided in the same place. More detailed information (for example, valuation methodologies and certain reconciliations) has been placed at the rear of the document and cross-referenced where necessary. CSL has also reviewed the notes for materiality and relevance and provided additional information where it is helpful to an understanding of the Group’s performance.

g. Significant changes in the current reporting period

There were no changes in accounting policy during the year ended 30 June 2016, nor did the introduction of new accounting standards lead to any change in measurement or disclosure in these financial statements. See Note 24 for details of new accounting standards introduced this financial year.

Our Current Performance

Note 1: Segment Information and Business Combinations

The Group’s segments represent strategic business units that offer different products and operate in different industries and markets. They are consistent with the way the CEO (who is the chief operating decision-maker) monitors and assesses business performance in order to make decisions about resource allocation. Performance assessment is based on EBIT (earnings before interest and tax) and EBITDA (earnings before interest, tax, depreciation and amortisation). These measures are different from the profit or loss reported in the consolidated financial statements which is shown after net interest and tax expense. This is because decisions that affect net interest expense and tax expense are made at the Group level. It is not considered appropriate to measure segment performance at the net profit after tax level.

The Group’s operating segments are:

• CSL Behring – manufactures, markets, and develops plasma therapies (plasma products and recombinants).

• Seqirus – manufactures and distributes non-plasma biotherapeutic products. The Seqirus segment is the combination of the previously disclosed bioCSL segment and the acquired Novartis influenza business which are now managed as a single business.

• CSL Intellectual Property – revenue and associated expenses from the licensing of intellectual property generated by the Group to unrelated third parties, and research and development expenses on projects where the Group has yet to determine the ultimate commercialisation strategy.

8 CSL Financial Statements 30 June 2016

	CSL Behring Seqirus CSL Intellectual Property Intersegment Elimination Consolidated Entity US$m US$m US$m US$m US$m
	2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Sales to external customers Other revenue / Other income(excl interest income)	5,257.4 5,046.7 652.1 411.9 - - - - 5,909.5 5,458.6 2.4 2.3 79.4 13.4 122.9 136.9 - - 204.7 152.6
Total segment revenue Interest income Unallocated revenue/income	5,259.8 5,049.0 731.5 425.3 122.9 136.9 - - 6,114.2 5,611.2 13.9 15.6 1.1 1.2
Consolidated revenue Segment EBIT Unallocated revenue/income less unallocated costs	6,129.2 5,628.0 1,802.6 1,776.5 (335.7) 15.5 27.9 41.1 - - 1,494.8 1,833.1 (57.3) (75.1)
Consolidated EBIT Gain/(Loss) on Business Acquisition Interest income Finance costs	1,437.5 1,758.0 176.1 - 13.9 15.6 (71.6) (59.6)
Consolidated profit before tax Income tax expense	1,555.9 1,714.0 (313.5) (335.0)
Consolidated net profit after tax Amortisation Depreciation	1,242.4 1,379.0 27.0 24.2 9.4 0.8 - - - - 36.4 25.0 145.9 131.8 23.0 6.2 6.3 7.1 - - 175.2 145.1
Segment EBITDA Unallocated revenue/income less unallocated costs Unallocated depreciation and amortisation	1,975.5 1,932.5 (303.3) 22.5 34.2 48.2 - - 1,706.4 2,003.2 (57.3) (75.1) 8.7 11.2
Consolidated EBITDA	1,657.8 1,939.3
Segment assets Other unallocated assets Elimination of amounts between operatingsegments and unallocated	6,763.4 6,089.0 1,129.9 366.5 25.6 23.5 (100.9) (42.2) 7,818.0 6,436.8 1,968.9 1,259.8 (2,224.2) (1,295.6)
Total assets	7,562.7 6,401.0
Segment liabilities Other unallocated liabilities Elimination of amounts between operatingsegments and unallocated	2,505.6 2,320.0 1,035.8 106.2 3.8 3.5 (100.9) (42.2) 3,444.3 2,387.5 3,775.4 2,562.2 (2,224.2) (1,295.6)
Total liabilities	4,995.5 3,654.1
Other information – capital expenditure excluding Business Acquisition Payments for property, plant and equipment Unallocated payments for property, plant and equipment Payments for intangibles	449.2 321.8 38.2 8.5 4.1 7.8 - - 491.5 338.1 3.6 9.7 56.7 32.3 13.9 33.7 - - - - 70.6 66.0
Total capital expenditure excluding Business Acquisition	565.7 413.8

Inter-segment sales

Inter-segment sales are carried out on an arm’s length basis and reflect current market prices.

9 CSL Financial Statements 30 June 2016

Geographical areas of operation

The Group operates predominantly in Australia, the USA, Germany, Switzerland and the UK. The rest of the Group’s operations are spread across many countries and are collectively disclosed as ‘Rest of World’.

Geographic areas	Australia United States Germany Switzerland UK Rest of world Total US$m US$m US$m US$m US$m US$m US$m
	2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
External sales revenue Property, plant, equipment and intangible assets	513.6 553.5 2,407.8 2,135.5 680.4 739.0 200.7 163.7 274.7 198.1 1,832.3 1,668.8 5,909.5 5,458.6 541.1 535.5 1,203.9 825.8 377.8 340.2 1,020.0 1,024.7 179.3 33.9 10.1 8.1 3,332.2 2,768.2

10 CSL Financial Statements 30 June 2016

Note 1b: Business Combination

On 31 July 2015 CSL completed the acquisition of Novartis’ global influenza vaccine business. The acquiring entity was Seqirus Inc. (a 100% owned subsidiary of CSL Limited) for the US business and Seqirus UK Limited (a 100% owned subsidiary of CSL Limited) for the business excluding the US. The acquired business has been combined with CSL’s existing influenza business to create Seqirus, one of the top influenza businesses globally.

The acquirer has assumed control of 100% of the acquired business with effect from 31 July 2015. The transaction involved the acquisition of shares in a number of entities and assets for the remaining parts of the business. Certain entities are subject to a delayed legal close for employee and/or regulatory reasons however CSL exercises control over those business and is exposed to, and has the ability to affect, the variable returns associated with its involvement with those entities.

The consideration was paid 100% in cash and there is no contingent consideration in this transaction.

The fair value of assets and liabilities acquired are:

Asset Class	US$m
Cash	35.9
Trade and other receivables	81.7
Inventory	193.8
Land	7.8
Buildings	48.6
Plant & equipment	227.8
Intangible assets	31.6
Deferred tax assets	22.6
Other non-current assets	2.6
Trade creditors & accruals	(183.7)
Non-current liabilities	(12.1)
Fair Value of Net Assets Acquired	456.6
Consideration paid	280.5
Gain on acquisition	176.1

Since the publication of the CSL Group half year accounts for the period ended 31 December 2015 a number of changes have been made to the asset allocation in the acquisition balance sheet.

The total fair value of the acquired business at $456.6m and the gain on acquisition at $176.1m are unchanged.

The changes in asset allocation are a $3.6m increase in the fair value of inventory; a reallocation between land (reduced from $45m to $7.8m), buildings ($48.6m) and plant & equipment (increased from $210.1m to 227.8m); a reduction in deferred tax assets from $49.8m to $22.6m; a decrease in other current assets of $0.2m; and an increase in trade creditors and accruals of $5.3m.

These changes were required because additional information was available that permitted an improved allocation between asset classes.

The gain on acquisition arises due to the bargain purchase nature of the transaction. Novartis had previously announced the sale of their entire vaccine business to GSK, a competitor in the influenza business. Under the arrangement, Novartis had a put option to sell the influenza vaccine business to GSK for $250m. We believe that competition regulators were unlikely to approve the acquisition of the influenza business by GSK and as a result Novartis conducted a separate sale process for the influenza business. CSL was able to negotiate a purchase price below the fair value of the business in light of Novartis’ intention to fully exit vaccines.

The gain is recognised in the Statement of Comprehensive Income. The gain on acquisition is the difference between the fair value of net assets acquired and the consideration paid or payable. Fair value has been determined by generating a long term financial model of the acquired business and discounting the resultant cash flows to a present value using an appropriate discount rate. The construction of such a model requires the exercise of considerable judgement in areas such as future sales volume and price, cost of sales, operating expenses and levels of working capital and capital expenditure. In determining an appropriate discount rate consideration has been given to the different risk profile of the acquired business when compared to the broader CSL business and a higher discount rate than historically applied to the Group’s impairment tests has been used to reflect a higher level of risk. The model was also used to allocate fair value to asset classes and geographies.

The acquired business has contributed $344m of revenue and $306.6m of net losses after tax, excluding the gain on acquisition, in the period from 31 July 2015 to 30 June 2016. Due to the seasonal nature of the influenza business it is not practicable to reliably estimate the revenue and profitability for the month of July 2015 and we have been unable to obtain this information from the vendor.

11 CSL Financial Statements 30 June 2016

Note 2: Revenue and Expenses

Revenue	2016 2015 US$m US$m
Sales Royalties Finance revenue Licence revenue Pandemic facility reservation fees Other	5,909.5 5,458.6 119.9 106.8 13.9 15.6 3.1 29.6 68.7 7.5 14.1 9.9
Total revenue from continuing operations	6,129.2 5,628.0

Recognition and measurement of revenue

Revenue is recognised and measured at the fair value of the consideration that has been or will be received. The Group recognises revenue when the amount of revenue can be reliably measured and it is probable that the future economic benefits will flow to the Group.

Further information about each source of revenue and the criteria for recognition follows.

Sales: Revenue earned (net of returns, discounts and allowances) from the sale of products. Sales are recognised when the significant risks and rewards of ownership of the goods have passed to the buyer.

Royalties: Income received or receivable from licensees of CSL intellectual property, where the amount payable is based on sales of product, is recognised as it accrues which is when the Group has a legally enforceable claim.

Other: Rent, proceeds from sale of fixed assets and other income is recognised as it accrues.

Expenses	2016 2015 US$m US$m
Finance costs Depreciation and amortisation of fixed assets Amortisation of intangibles	71.6 59.6 183.7 156.2 36.6 25.1
Total depreciation and amortisation expense	220.3 181.3
Write-down of inventory to net realisable value Rental expenses relating to operating leases Employee benefits expense Net foreign exchange loss	57.3 57.1 47.4 40.7 1,454.3 1,247.6 47.5 32.0

Recognition and measurement of expenses

Finance costs: Includes interest expense and borrowing costs. These are recognised as an expense when incurred, except where finance costs are directly attributable to the acquisition or construction of a qualifying asset. In this case they are capitalised as part of the cost of the asset. Interest-bearing liabilities and borrowings are stated at amortised cost. Any difference between the borrowing proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the borrowings’ period using the effective interest method.

Depreciation and amortisation: Refer to Note 8 for details on depreciation and amortisation of fixed assets and Note 7 for details on amortisation of intangibles.

Write-down of inventory to net realisable value: Included in Cost of Sales in the Statement of Comprehensive Income. Refer to Note 4 for details of inventories.

Finance revenue: Income from cash deposits is recognised as it accrues.

Employee benefits expense : Refer to Note 5 for further details.

Licence revenue: Milestone income received or receivable from licensees of CSL intellectual property is recognised as it accrues.

Pandemic facility reservation fees: Income received from governments in return for access to influenza manufacturing facilities in the event of a pandemic. Contracts are time based and revenue is accrued progressively over the life of the relevant contract.

Rental expenses relating to operating leases:

Operating leases are leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

12 CSL Financial Statements 30 June 2016

Goods and Services Tax and other foreign equivalents (GST)

Revenues, expenses and assets are recognised net of GST, except where GST is not recoverable from a taxation authority, in which case it is recognised as part of an asset’s cost of acquisition or as part of the expense.

Note 3: Tax

		2016	2015
		US$m	**US$m **
a.	Income tax expense recognised in the statement of comprehensive income
	Current tax expense
	Currentyear	419.5	344.6
	Deferred tax expense
	Origination and reversal of temporarydifferences	(98.5)	16.3
	Total deferred tax expense/(recovery)	(98.5)	16.3
	Overprovided inprioryears	(7.5)	(25.9)
	Income tax expense	313.5	335.0
b.	Reconciliation between tax expense and pre-tax net profit
	The reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s
	applicable income tax rate is as follows:
	Accounting profit before income tax	1,555.9	1,714.0
	Income tax calculated at 30% (2015: 30%)	466.8	514.2
	Effects of different rates of tax on overseas income	(98.5)	(152.4)
	Research and development	(15.7)	(13.6)
	Over provision in prior year	(7.5)	(25.9)
	Intercompany restructuring	12.0	-
	Nontaxable gain on acquisition	(52.8)	-
	Other non-deductible expenses	9.2	12.7
	Income tax expense	313.5	335.0
c.	Income tax recognised directly in equity
	Deferred tax benefit
	Share-basedpayments	0.9	(5.3)
	Income tax(expense)/benefit recognised in equity	0.9	(5.3)

13 CSL Financial Statements 30 June 2016

		2016	2015
		US$m	**US$m **
d.	Deferred tax assets and liabilities
	Deferred tax asset	389.0	274.4
	Deferred tax liability	(119.2)	(138.2)
	Net deferred tax asset	269.8	136.2
	Deferred tax balances reflect temporary differences attributable to:
	Amounts recognised in the statement of comprehensive income
	Inventories	114.6	87.0
	Property, plant and equipment	(82.5)	(83.9)
	Intangible assets	(102.4)	(85.3)
	Trade and other payables	18.5	17.0
	Recognised carry forward tax lossesa	155.6	48.9
	Retirement liabilities, net	53.5	29.2
	Research and development offsets	10.2	15.3
	Trade and other receivables	(2.2)	7.5
	Other assets	10.0	(3.9)
	Other liabilities and provisions	80.4	84.3
	Tax bases not in net assets – share-basedpayments	(1.4)	5.0
		254.3	121.1
	Amounts recognised in equity
	Share-basedpayments	15.5	15.1
	Net deferred tax asset	269.8	136.2
e.	Movement in temporary differences during the year
	Opening balance	136.2	171.4
	Acquired through business acquisition	22.6	-
	Credited/(charged) to profit before tax	98.5	(16.3)
	Credited/(charged) to other comprehensive income	15.7	13.7
	Credited to equity	0.9	(5.3)
	Currencytranslation difference	(4.1)	(27.3)
	Closing balance	269.8	136.2
	Unrecognised deferred tax assets
	Deferred tax assets have not been recognised for the following items:
	Tax losses with no expiry dateb	0.4	0.4

~~a~~ Deferred tax assets in respect of carry forward tax losses are principally recorded in CSL entities in Switzerland and the UK (prior year: Switzerland) and are recognised as it is probable that future taxable profit will be available in those entities to utilise the losses.

b Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available for utilisation in the entities that have recorded these losses.

14 CSL Financial Statements 30 June 2016

Current taxes

Current tax assets and liabilities are the amount expected to be recovered from (or paid to) tax authorities, under the tax rates and laws in each jurisdiction. These include any rates or laws that are enacted or substantively enacted as at the balance sheet date.

Deferred taxes

Deferred tax liabilities are recognised for taxable temporary differences. Deferred tax assets are recognised for deductible temporary differences, carried forward unused tax assets and unused tax losses, only if it is probable that taxable profit will be available to utilise them.

Key Judgements and Estimates - Tax

Management regularly assesses the risk of uncertain tax positions, and recognition and recoverability of deferred tax assets. To do this requires judgements about the application of income tax legislation in jurisdictions in which the Group operates and the future operating performance of entities with carry forward losses. These judgements and assumptions, which include matters such as the availability and timing of tax deductions and the application of the arm’s length principle to related party transactions, are subject to risk and uncertainty. Changes in circumstances may alter expectations and affect the carrying amount of deferred tax assets and liabilities. Any resulting adjustment to the carrying value of a deferred tax item will be recorded as a credit or charge to the statement of comprehensive income.

The carrying amount of deferred income tax assets is reviewed at the reporting date. If it is no longer probable that taxable profit will be available to utilise them, they are reduced accordingly.

Deferred tax is measured using tax rates and laws that are enacted at the reporting date and are expected to apply when the related deferred income tax asset is realised or when the deferred income tax liability is settled.

Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set-off current tax assets against current tax liabilities and if they relate to the same taxable entity or group and the same taxation authority.

Income taxes attributable to amounts recognised in other comprehensive income or directly in equity are also recognised in other comprehensive income or in equity, and not in the income statement.

CSL Limited and its 100% owned Australian subsidiaries have formed a tax consolidated group effective from 1 July 2003.

15 CSL Financial Statements 30 June 2016

Note 4: Inventories

Note 4: Inventories
	2016	2015
	US$m	US$m
Raw materials	550.5	486.2
Work in progress	816.9	546.1
Finished products	784.6	723.3
Total inventories	2,152.0	1,755.6

Raw Materials

Raw materials comprise collected and purchased plasma, chemicals, filters and other inputs to production that will be further processed into saleable products but have yet to be allocated to manufacturing.

Work in Progress

Work in progress comprises all inventory items that are currently in use in manufacturing and intermediate products such as pastes generated from the initial stages of the plasma production process.

Finished Products

Finished products comprise material that is ready for sale and has passed all quality control tests.

Inventories generally have expiry dates and the Group provides for product that is short dated. Expiry dates for raw material are no longer relevant once the materials are used in production. At this stage the relevant expiry date is that applicable to the resultant intermediate or finished product.

Inventories are carried at the lower of cost or net realisable value. Cost includes direct material and labour and an appropriate proportion of variable and fixed overheads. Fixed overheads are allocated on the basis of normal operating capacity.

Net realisable value is the estimated revenue that can be earned from the sale of a product less the estimated costs of both completion and selling. The Group assesses net realisable value of plasma derived products on a basket of products basis given their joint product nature.

Key judgements and estimates - Inventory

Various factors affect the assessment of recoverability of the carrying value of inventory, including regulatory approvals and future demand for the Group’s products. These factors are taken into account in determining the appropriate level of provisioning for inventory.

Note 5: People Costs

a. Employee benefits

Employee benefits include salaries and wages, annual leave and long-service leave, defined benefit and defined contribution plans and share-based payments incentive awards.

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16 CSL Financial Statements 30 June 2016

Salaries and wages

Wages and salaries include non-monetary benefits, annual leave and long service leave. These are recognised and presented in different ways in the financial statements:

• The liability for annual leave and the portion of long service leave expected to be paid within twelve months is measured at the amount expected to be paid.

• The liability for long service leave and annual leave expected to be paid after one year is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date.

• The liability for annual leave and the portion of long service leave that has vested at the reporting date is included in the current provision for employee benefits.

• The portion of long service leave that has not vested at the reporting date is included in the non-current provision for employee benefits.

Defined benefit plans

Defined benefit plans
	2016	2015
	US$m	US$m
Expenses/(gains) recognised in the statement of
comprehensive income are as follows:
Current service costs	27.7	25.4
Net Interest cost	3.8	1.6
Past service costs	8.0	(0.3)
Total included in employee benefits expense	39.5	26.7

Defined benefit pension plans provide either a defined lump sum or ongoing pension benefits for employees upon retirement, based on years of service and final average salary.

Liabilities or assets in relation to these plans are recognised in the balance sheet, measured as the present value of the obligation less the fair value of the pension fund’s assets at that date.

Present value is based on expected future payments to the reporting date, calculated by independent actuaries using the projected unit credit method. Past service costs are recognised in income on the earlier of the date of plan amendments or curtailment, and the date that the Group recognises restructuring related costs.

Detailed information about the Group’s defined benefit plans is in Note 18.

Key judgements and estimates – People Costs

The determination of certain employee benefit liabilities requires an estimation of future employee service periods and salary levels and the timing of benefit payments. These assessments are made based on past experience and anticipated future trends. The expected future payments are discounted using the rate applicable to high quality corporate bonds. Discount rates are matched to the expected payment dates of the liabilities.

Defined contribution plans

The Group makes contributions to various defined contribution pension plans and the Group’s obligation is limited to these contributions. The amount recognised as an expense for the year ended 30 June 2016 was $31.5m (2015: $25.5m).

Equity settled share-based payments expense

Share-based payments expenses arise from plans that award long-term incentives.

Detailed information about the terms and conditions of the share-based payments arrangements is presented in Note 18.

17 CSL Financial Statements 30 June 2016

Outstanding share-based payment equity instruments

The number and weighted average exercise price for each share-based payment scheme outstanding is as follows. All schemes are settled by physical delivery of shares except for instruments granted to good leavers from 2012 onwards which may be settled in cash at the discretion of the company.

	Options Performance Rights Global Employee Share Plan (GESP)# Total
	Number Weighted average exercise price Number Weighted average exercise price Number Weighted average exercise price
Outstanding at the beginning of the year	705,322 A$40.80 756,517 A$0.00 75,882 A$73.50 1,537,721
Granted during the year	348,594 A$89.52 231,312 A$0.00 152,189 A$82.83 732,095
Exercised during the year	373,364 A$33.12 165,446 A$0.00 150,842 A$77.57 689,652
Cash settled during the year	- - 29,281 A$0.00 - - 29,281
Forfeited during the year	2,408 A$32.04 19,998 A$0.00 - - 22,406
GESP True-up # - - - - (1,499) A$73.50 (1,499)
Closing balance at the end of the year 678,144 A$74.27 773,104 A$0.00 75,730 A$87.81 1,526,978
Exercisable at the end of the year 125,546 A$32.46 84,779 A$0.00 210,325

The share price at the dates of exercise (expressed as a weighted average) by equity instrument type, is as follows:

equity instrument type, is as follows:
	2016	2015
Options	A$101.87	A$79.18
Performance Rights	A$98.02	A$78.58
GESP	A$97.37	A$83.50

Cash-settled share-based payments expense

On 1 October 2015, 257,850 notional shares were granted to employees under the Executive Deferred Incentive Plan (EDIP) (October 2014: 268,760). The notional shares will generate a cash payment to participants in three years’ time, provided they are still employed by the company and receive a satisfactory performance review over that period. On 1 January, 1 March and 1 April 2016, additional notional shares were granted of 29,048, 67,782 and 10,309, respectively. These notional shares will generate a cash payment to participants based on a prorated vesting period from the respective grant dates and must comply with the employment and performance criteria previously noted. The amount of the cash payment will be determined by reference to the CSL share price immediately before the award maturity date.

The October 2012 EDIP grant vested during the period ended 30 June 2016 and an amount of $22.8m was paid to employees (2015: $33.8m). The carrying amount of the liability at 30 June 2016 attributable to the 2013, 2014 and 2015 grants is $42.3m (2015: $39.7m) measured at fair value. Fair value is determined by reference to the CSL share price at reporting date, adjusted for expected future dividends that will be paid between reporting date and vesting date.

# The exercise price at which GESP plan shares are issued is calculated at a 15% discount to the lower of the ASX market price on the first and last dates of the contribution period. Accordingly the exercise price and the final number of shares to be issued is not yet known (and may differ from the assumptions and fair values disclosed above). The number of shares which may ultimately be issued from entitlements granted on 1 March 2016 has been estimated based on information available as at 30 June 2016.

18 CSL Financial Statements 30 June 2016

b. Key management personnel disclosures

The remuneration of Directors and key management personnel is disclosed in section 17 of the Directors’ Report and has been audited.

Total compensation for key management personnel

	2016	2015
	US$	US$
Total of short term remuneration elements	14,454,863	9,938,338
Total of post-employment elements	177,347	176,645
Total of other long term elements	1,446,020	1,558,632
Total of share-based payments	8,905,582	5,734,718
Total of all remuneration elements	24,983,812	17,408,333

Our Future

Note 6: Research & Development

The Group conducts research and development activities to support future development of products to serve our patient communities, to enhance our existing products and to develop new therapies.

All costs associated with these activities are expensed as incurred as uncertainty exists up until the point of regulatory approval as to whether a research and development project will be successful. At the point of approval the total cost of development has largely been incurred.

For the year ended 30 June 2016, the research costs, net of recoveries, were $613.8m (2015: $462.7m). Further information about the Group’s research and development activities can be found on the CSL website.

19 CSL Financial Statements 30 June 2016

Note 7: Intangible Assets

Note 7: Intangible Assets
Year	Goodwill Intellectual property Software Intangible capital work in progress Total US$m US$m US$m US$m US$m 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Cost Accumulated amortisation	674.3 705.3 383.3 365.7 169.6 124.5 51.0 37.6 1,278.2 1,233.1 - - (246.0) (233.8) (89.6) (72.4) - - (335.6) (306.2)
Net carrying amount	674.3 705.3 137.3 131.9 80.0 52.1 51.0 37.6 942.6 926.9
Movement Net carrying amount at the beginning of the year Additions Business acquisition Transfers from intangible capital work in progress Transfers to/from property, plant and equipment Disposals Amortisation for the year1 Currency translation differences	705.3 731.1 131.9 118.7 52.1 47.2 37.6 27.1 926.9 924.1 - - 4.9 33.7 1.9 0.3 61.7 30.4 68.5 64.4 - - 31.6 - - - - - 31.6 - - - - (3.1) 45.4 20.0 (45.4) (16.9) - - - - - - - 0.2 (0.2) 1.2 (0.2) 1.4 - - - - (0.7) - - - (0.7) - - - (18.0) (10.3) (18.6) (14.8) - - (36.6) (25.1) (31.0) (25.8) (13.1) (7.1) (0.1) (0.8) (2.7) (4.2) (46.9) (37.9)
Net carrying amount at the end of the year	674.3 705.3 137.3 131.9 80.0 52.1 51.0 37.6 942.6 926.9

1 The amortisation charge is recognised in general and administration expenses in the statement of comprehensive income.

20 CSL Financial Statements 30 June 2016

Goodwill

Any excess of the fair value of the purchase consideration of an acquired business over the fair value of the identifiable net assets (minus incidental expenses) is recorded as goodwill.

Goodwill is allocated to each of the cash-generating units (the business unit which represents the lowest level within the Group at which goodwill is monitored) expected to benefit from the combination. The aggregate carrying amounts of goodwill allocated to each business unit are as follows:

	2016	2015
	$m	$m
CSL Behring	665.4	696.0
CSL Intellectual Property	8.9	9.3
Closing balance of goodwill as at 30 June	674.3	705.3

Goodwill is not amortised, but is measured at cost less any accumulated impairment losses. Impairment occurs when a business unit’s recoverable amount falls below the carrying value of its net assets.

The results of the impairment test show that each business unit’s recoverable amount exceeds the carrying value of its net assets, inclusive of goodwill. Consequently, there is no goodwill impairment as at 30 June 2016.

A change in assumptions significant enough to lead to impairment is not considered a reasonable possibility.

Intellectual property

Intellectual property acquired separately or in a business combination is initially measured at cost, which is its fair value at the date of acquisition. Following initial recognition, it is carried at cost less any amortisation and impairment.

Intellectual property with a fair value of $31.6m was acquired with the Novartis Influenza vaccines business. This intellectual property relates to an adjuvant technology that is used in the production of Seqirus’ adjuvanted influenza vaccine and is also licensed to a third party. All intellectual property has a finite life.

Software

Costs incurred in developing or acquiring software, licences or systems that will contribute future financial benefits are capitalised. These include external direct costs of materials and service and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight line basis over periods generally ranging from 3 to 10 years. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility, where the Group has the intention and ability to use the asset.

Recognition and measurement

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful life of the asset. The amortisation period and method is reviewed at each financial year end at a minimum.

Intangible assets with indefinite useful lives are not amortised. The useful life of these intangibles is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable.

Impairment of intangible assets

Assets with finite lives are subject to amortisation and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Intangible assets that have an indefinite useful life (including goodwill) are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they may be impaired.

An impairment loss is recognised in the statement of comprehensive income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

21 CSL Financial Statements 30 June 2016

Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units, and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

Key judgements and estimates

The impairment assessment process requires management to make significant judgements. Determining whether goodwill has been impaired requires an estimation of the recoverable amount of the cash generating units using a discounted cash flow methodology. This calculation uses cash flow projections based on operating budgets and a three-year strategic business plan, after which a terminal value, based on management’s view of the longer term growth profile of the business is applied. Cash flows have been discounted using an implied pretax discount rate of 8.9% (2015: 8.0%) which is calculated with reference to external analyst views, long-term government bond rates and the company’s pre-tax cost of debt. In the context of intangible assets of indefinite life, this requires an estimation of the discounted net cash inflows that may be generated through the use or sale of the intangible asset. The determination of cash flows over the life of an asset requires judgement in assessing the future demand for the Group’s products, any changes in the price and cost of those products and of other costs incurred by the Group.

22 CSL Financial Statements 30 June 2016

Note 8: Property, Plant and Equipment

											Leased property,	Leased property,	Leased property,
						Leasehold					plant and			Capital	work in
	Land		Buildings			improvements			Plant and equipment		equipment			progress		Total
	US$m		US$m			US$m			US$m		US$m			US$m		US$m
	2016	2015	2016		2015	2016		2015	2016	2015	2016		2015	2016	2015	2016	2015
Cost	26.4	19.6	502.2		409.3	223.3	185.6		2,354.7	1,937.9	33.8		32.5	621.2	502.1	3,761.6	3,087.0
Accumulated depreciation / amortization	-	-	(131.0)	(117.9)		(59.1)	(48.6)		(1,163.5)	(1,062.2)	(18.4)	(17.0)		-	-	(1,372.0)	(1,245.7)
Net carrying amount	26.4	19.6	371.2		291.4	164.2	137.0		1,191.2	875.7	15.4		15.5	621.2	502.1	2,389.6	1,841.3
Movement
Net carrying amount at the start of the	19.6	23.9	291.4		219.7	137.0	114.8		875.7	792.7	15.5		17.4	502.1	662.5	1,841.3	1,831.0
year
Transferred from capital work in	-	-	55.1		110.7	36.4		36.5	266.0	289.5	-		-	(357.5)	(436.7)	-	-
progress
Business Acquisition	7.8	-	48.6		-	-		-	227.8	-	-		-	-	-	284.2	-
Other Additions	-	-	0.7		2.5	2.3		0.2	11.3	7.1	3.2		2.9	493.8	353.3	511.3	366.0
Disposals	-	-	(0.1)		(0.5)	(0.4)		(1.4)	(28.1)	(48.5)	(1.8)		(3.9)	(0.4)	(2.6)	(30.8)	(56.9)
Transferred to/from intangibles	-	-	-		-	-		-	-	(0.2)	-		-	0.2	(1.2)	0.2	(1.4)
Depreciation / amortisation for the	-	-	(17.1)		(14.5)	(11.0)	(11.9)		(153.0)	(127.3)	(2.6)		(2.5)	-	-	(183.7)	(156.2)
year
Accumulated depreciation /	-	-	0.1		0.5	0.4		1.4	25.8	45.7	1.2		3.1	-	-	27.5	50.7
amortisation on disposals
Currency translation differences	(1.0)	(4.3)	(7.5)		(27.0)	(0.5)		(2.6)	(34.3)	(83.3)	(0.1)		(1.5)	(17.0)	(73.2)	(60.4)	(191.9)
Net carrying amount at the end of the	26.4	19.6	371.2		291.4	164.2	137.0		1,191.2	875.7	15.4		15.5	621.2	502.1	2,389.6	1,841.3
year

23 CSL Financial Statements 30 June 2016

Property, plant and equipment

Land, buildings, capital work in progress and plant and equipment assets are recorded at historical cost less, where applicable, depreciation and amortisation.

Depreciation is on a straight-line basis over the estimated useful life of the asset.

Buildings	5 – 40 years
Plant and equipment	3 – 15 years
Leasehold improvements	5 – 10 years

Assets’ residual values and useful lives are reviewed and adjusted if appropriate at each reporting date. Items of property, plant and equipment are derecognised upon disposal or when no further economic benefits are expected from their use or disposal.

Impairment testing for property, plant and equipment occurs if an impairment trigger is identified. No impairment triggers have been identified in the current year.

Gains and losses on disposals of items of property, plant and equipment are determined by comparing proceeds with carrying amounts and are included in the statement of comprehensive income when realised.

40% of the Holly Springs facility, acquired with the Novartis Influenza business, is legally owned by the US Government. Full legal title will transfer to CSL on the completion of the Final Closeout Technical Report, expected in the next three to five years. CSL has full control of the asset and 100% of the value of the facility is included in the consolidated financial statements.

each period. The property, plant and equipment acquired under a finance lease is depreciated over the shorter of the asset’s useful life and the lease term.

Leasehold improvements

The cost of improvements to leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement, whichever is the shorter.

Note 9: Deferred Government Grants

		2016	2015
		US$m	US$m
	Current deferred income	3.1	2.1
	Non-current deferred income	35.0	31.9
	Total deferred government grants	38.1	34.0

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to an expense item are deferred and recognised in the statement of comprehensive income over the period necessary to match them with the expenses that they are intended to compensate. Government grants received for which there are no future related costs are recognised in the statement of comprehensive income immediately. Government grants relating to the purchase of property, plant and equipment are included in current and non-current liabilities as deferred income and are released to the statement of comprehensive income on a straight line basis over the expected useful lives of the related assets.

Assets under Finance Leases

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. A finance lease is capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in interest bearing liabilities and borrowings. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for

24 CSL Financial Statements 30 June 2016

Returns, Risk & Capital Management

Note 10: Shareholder Returns

Dividends

Dividends are paid from the retained earnings and profits of CSL Limited, as the parent entity of the Group. (See Note 19 for the Group’s retained earnings). During the year, the parent entity reported profits of A$814.2m (2015: A$1,251.9m). The parent entity’s retained earnings as at 30 June 2016 were A$4,956.7m (2015: A$4,877.6m). During the financial year A$791.5m (the equivalent of US$579.0m) was distributed to shareholders by way of a dividend, with a further A$403.2m (the equivalent of US$310.5m) being determined as a dividend payable subsequent to the balance date.

	FY2016	FY2015
Dividend paid	US$m	US$m
Paid: Final ordinary dividend of US$0.66 per	293.4	268.5
share, unfranked, paid on 2 October 2015 for
FY15 (prior year: US$0.60 per share, unfranked
paid on 3 October 2014 for FY14)
Paid: Interim ordinary dividend of US$0.58 per	285.6	266.9
share, unfranked, paid on 15 April 2016 for FY16
(prior year: US$0.58 per share, unfranked paid
on 10 April 2015 for FY15)
Total paid	579.0	535.4
Dividend determined, but not paid at year	310.5	306.8
end:
Final ordinary dividend of US$0.68 per share,
unfranked, expected to be paid on 7 October
2016 for FY16, based on shares on issue at
reporting date. The aggregate amount of the
proposed dividend will depend on actual number
of shares on issue at dividend record date (prior
year: US$0.66 per share, unfranked paid on 3
October 2015 for FY15)

The distribution in respect of the 2016 financial year represents a US$1.26 dividend paid for FY2016 on each ordinary share held. These dividends are approximately 46.9% of the Group’s basic earnings per share (“EPS”) of US$2.689.

Earnings per Share

CSL’s basic and diluted EPS are calculated using the Group’s net profit for the financial year of US$1,242.4m (2015: US$1,379.0m).

	2016	2015
Basic EPS	US$2.689	US$2.923
Weighted average number	461,999,573	471,817,239
of ordinary shares
Diluted EPS	US$2.683	US$2.914
Adjusted weighted average	463,117,064	473,165,225
number of ordinary shares,
represented by:
Weighted average ordinary	461,999,573	471,817,239
shares
Plus:
Employee share schemes2	1,117,491	1,347,986

Diluted EPS differs from Basic EPS as the calculation takes into account potential ordinary shares arising from employee share schemes operated by the Group.

On-market Share Buyback

During the year, the Group carried out an on-market share buyback of up to A$1b as an element of its capital management program. As at 30 June 2016, shares to a value of A$908.5m have been purchased.

The on-market buyback was chosen as the most effective method to return capital to shareholders after consideration of the various alternatives. The onmarket buyback provides the Group with maximum flexibility and allows shareholders to choose whether to participate through normal equity market processes.

The Group’s contributed equity includes the Share Buyback Reserve of (US$4,213.0m) (2015: (US$3,560.4m)). The Group’s ordinary share contributed equity has been reduced to nil from previous share buybacks.

2 Subsequent to 30 June 2016, 18,586 shares were issued, as required under the Employee Performance Rights Plan. There have been no other ordinary shares issued since the reporting date and before the completion of this financial report.

25 CSL Financial Statements 30 June 2016

Contributed Equity

The following table illustrates the movement in the Group’s contributed equity.[3]

	2016		2015
	Number of shares	US$m	Number of shares	US$m
Opening balance at 1	464,832,827	(3,560.4)	474,788,269	(2,797.8)
July
Shares issued to
employees (see also
Note 18):
Performance Options	373,364	9.0	995,207	28.8
Plan
Performance Rights	165,446	-	274,782	-
Plan (for nil
consideration)
Global Employee	150,842	8.4	135,962	7.2
Share Plan (GESP)
Share buy-back,	(8,913,732)	(670.0)	(11,361,393)	(798.6)
inclusive of cost
Closing balance	456,608,747	(4,213.0)	464,832,827	(3,560.4)

Note 11: Financial Risk Management

CSL holds financial instruments that arise from the Group’s need to access financing, from the Group’s operational activities and as part of the Group’s risk management activities.

The Group is exposed to financial risks associated with its financial instruments. Financial instruments comprise cash and cash equivalents, receivables, payables, bank loans and overdrafts, unsecured notes, lease liabilities and derivative instruments.

The primary risks these give rise to are:

• Foreign exchange risk.

• Interest rate risk.

• Credit risk.

• Funding and liquidity risk.

• Capital management risk.

These risks, and the strategies used to mitigate them, are outlined below.

3 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where the Group reacquires its own shares, for example as a result of a share buy-back, those shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid to acquire the shares, including any directly attributable transaction costs net of income taxes, is recognised directly as a reduction in equity.

26 CSL Financial Statements 30 June 2016

	Source of Risk	Risk Mitigation
a. Foreign	The Group is exposed to foreign exchange risk because of its	Where possible CSL takes advantage of natural hedging (i.e., the existence of payables
exchange risk	international operations. These risks relate to future commercial transactions, assets and liabilities denominated in other currencies	and receivables in the same currency). Where this is not possible, CSL’s policy is to hedge contractual commitments denominated in a foreign currency by entering into forward
	and net investments in foreign operations.	exchange contracts to buy and sell specified amounts of foreign currencies in the future at predetermined exchange rates.
b. Interest rate	The Group is exposed to interest rate risk through its primary	The Group mitigates interest rate risk on borrowings primarily by entering into fixed rate
risk	financial assets and liabilities.	arrangements, which are not subject to interest rate movements in the ordinary course. If
		necessary, CSL also hedges interest rate risk using derivative instruments. As at 30 June
		2016, no derivative financial instruments hedging interest rate risk were outstanding
		(2015: Nil).
c. Credit risk	The Group is exposed to credit risk from financial instruments	The Group mitigates credit risk from financial instruments contracts by only entering into
	contracts and trade and other receivables. The maximum exposure to	transactions with counterparties who have sound credit ratings and with whom the Group
	credit risk at reporting date is the carrying amount, net of any	has a signed netting agreement. Given their high credit ratings, management does not
	provision for impairment, of each financial asset in the balance	expect any counterparty to fail to meet its obligations.
	sheet.	The Group minimises the credit risk associated with trade and other debtors by
		undertaking transactions with a large number of customers in various countries.
		Creditworthiness of customers is reviewed prior to granting credit, using trade references
		and credit reference agencies.
d. Funding and	The Group is exposed to funding and liquidity risk from operations	The Group mitigates funding and liquidity risks by ensuring that:
liquidity risk	and from external borrowing.	 The Group has sufficient funds on hand to achieve its working capital and investment
	One type of this risk is credit spread risk, which is the risk that in	objectives
	refinancing its debt, CSL may be exposed to an increased credit	 The Group focusses on improving operational cash flow and maintaining a strong
	spread.	balance sheet
	Another type of this risk is liquidity risk, which is the risk of not being	 Short-term liquidity, long-term liquidity and crisis liquidity requirements are
	able to refinance debt obligations or meet other cash outflow	effectively managed, minimising the cost of funding and maximising the return on any
	obligations when required.	surplus funds through efficient cash management
	Liquidity and re-financing risks are not significant for the Group, as CSL has a prudent gearing level and strong cash flows.	 It has adequate flexibility in financing to balance short-term liquidity requirements and long-term core funding and minimise refinancing risk
e. Capital Risk	The Group’s objectives when managing capital are to safeguard its	The Group aims to maintain a capital structure, which reflects the use of a prudent level
Management	ability to continue as a going concern while providing returns to	of debt funding. The aim is to reduce the Group’s cost of capital without adversely
	shareholders and benefits to other stakeholders. Capital is defined as	affecting the credit margins applied to the Group’s debt funding.
	the amount subscribed by shareholders to the Company’s ordinary	Each year the Directors determine the dividend taking into account factors such as
	shares and amounts advanced by debt providers to any Group entity.	profitability and liquidity.
		The Directors propose a share buyback consistent with the aim of maintaining an efficient
		balance sheet, and with the ability to cease a buyback at any point should circumstances
		such as liquidity conditions change. Refer to Note 10 for details of share buybacks.

27 CSL Financial Statements 30 June 2016

Risk management approach

The Group uses sensitivity analysis (together with other methods) to measure the extent of financial risks and decide if they need to be mitigated.

If so, the Group’s policy is to use derivative financial instruments, such as foreign exchange contracts and interest rate swaps, to support its objective of achieving financial targets while seeking to protect future financial security.

The aim is to reduce the impact of short-term fluctuations in currency or interest rates on the Group’s earnings.

Derivatives are exclusively used for this purpose and not as trading or other speculative instruments.

a. Foreign exchange risk

The objective is to match the contracts with committed future cash flows from sales and purchases in foreign currencies to protect the Group against exchange rate movements. Contracts to buy and sell foreign currencies are also entered into from time to time to offset purchase and sale obligations.

The Group reduces its foreign exchange risk on net investments in foreign operations by denominating external borrowings in currencies that match the currencies of its foreign investments.

Due to the international nature of the Group’s operations, it incurs foreign exchange risk in most group entities. In order to manage the stand alone financial results of group entities, these entities enter into forward exchange contracts with financial institutions. Many of the exposures managed in this way arise from inter-company transactions which eliminate on consolidation.

The total value of forward exchange contracts in place at reporting date is $1.3bn (2015: $0.9bn). These contracts are entered into with a rolling monthly maturity thereby mitigating significant fair value risk. The contracts are placed with financial institutions and expose the Group to counterparty credit risk. This risk is managed by only dealing with financial institutions with counterparties with sound credit ratings and by imposing caps on the exposure to any single counterparty.

Sensitivity analysis – USD values

Profit after tax – sensitivity to general movement of 1%

A movement of 1% in the USD exchange rate against AUD, EUR, CHF and GBP would not generate a material impact to profit after tax.

Equity – sensitivity to general movement of 1% Any change in equity is recorded in the Foreign Currency Translation Reserve.

==> picture [289 x 150] intentionally omitted <==

----- Start of picture text -----

US$m FX Sensitivity Analysis on Equity
12.0
10.0
8.0
6.0
4.0
2.0
0.0
AUD EUR CHF GBP
----- End of picture text -----

This calculation is based on changing the actual exchange rate of US Dollars to AUD, EUR, CHF and GBP as at 30 June 2016 by 1% and applying these adjusted rates to the net assets (excluding investments in subsidiaries) of the foreign currency denominated financial statements of various Group entities.

b. Interest rate risk

At 30 June 2016, it is estimated that a general movement of one percentage point in the interest rates applicable to investments of cash and cash equivalents would have changed the Group’s profit after tax by approximately $3.9m. This calculation is based on applying a 1% movement to the total of the Group’s cash and cash equivalents at year end.

At 30 June 2016, it is estimated that a general movement of one percentage point in the interest rates applicable to floating rate unsecured bank loans would have changed the Group’s profit after tax by approximately $6.8m. This calculation is based on applying a 1% movement to the total of the Group’s floating rate unsecured bank loans at year end.

28 CSL Financial Statements 30 June 2016

As at 30 June 2016, the Group had the following bank facilities, unsecured notes and finance leases:

• Three revolving committed bank facilities totalling $1,317.4m. Of these facilities $58.5m mature in November 2016 and the balance matures in December 2020. Interest on the facilities is paid quarterly in arrears at a variable rate. As at the reporting date the Group had $342.4m in undrawn funds available under these facilities;

• US$1,350m of Senior Unsecured Notes in the US Private Placement market. The notes mature in March 2018 (US$100m), November 2018 (US$200m), March 2020 (US$150m), November 2021 (US$250m), March 2023 (US$150m), November 2023 (US$200m), March 2025 (US$100m), October 2025 ($100m) and November 2026 (US$100m). The weighted average interest rate on the notes is fixed at 3.43%;

• EUR350m of Senior Unsecured Notes in the US Private Placement market. The Notes mature in November 2022 (EUR100m), November 2024 (EUR150m) and November 2026 (EUR100m). The weighted average interest rate on the notes is fixed at 1.90%;

The Group is in compliance with all debt covenants. The maturity profile of the Group’s debt is shown in the following chart.

Maturity Profile of Debt by Facility

==> picture [323 x 165] intentionally omitted <==

----- Start of picture text -----

1,000
900
800
700
600
500
400
300
200
100
0
Year
Private Placement Bank Debt Leases
US$m
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27
----- End of picture text -----

• CHF400m of Senior Unsecured Notes in the US Private Placement market. The notes mature in October 2023 (CHF150m) and October 2025 (CHF250m). The weighted average interest rate on the notes is fixed at 0.88%; and

• Finance leases with an average lease term of 8 years (2015: 9 years). The weighted average discount rate implicit in the leases is 4.85% (2015: 4.93%). The Group’s lease liabilities are secured by leased assets of $15.4 million (2015: $15.5m). In the event of default, leased assets revert to the lessor.

c. Credit Risk

The Group only invests its cash and cash equivalent financial assets with financial institutions having a credit rating of at least ‘A’ or better, as assessed by independent rating agencies.

29 CSL Financial Statements 30 June 2016

							Average	Average
			Non-interest				Closing
	Floating rate4		bearing		Total		interest Rate
	US$m		US$m		US$m			%
	2016	2015	2016	2015	2016	2015	2016	2015
Financial
Assets
Cash and	556.6	556.8	-	-	556.6	556.8	0.8%	1.6%
cash
equivalents
Trade and	-	-	1,122.8	1,015.0	1,122.8	1,015.0	-	-
other
receivables
Other financial	-	-	3.5	3.2	3.5	3.2	-	-
assets
	556.6	556.8	1,126.3	1,018.2	1,682.9	1,575.0

Credit quality of financial assets (30 June 2016)

==> picture [231 x 140] intentionally omitted <==

*US$556.6m of the assets held with financial institutions are held as cash or cash equivalents. All financial assets held with non-financial institutions of US$1,122.8m are trade and other receivables.

Credit quality of financial assets (30 June 2015)

==> picture [219 x 135] intentionally omitted <==

*US$556.8m of the assets held with financial institutions were held as cash or cash equivalents. All financial assets held with non-financial institutions of US$1,015.0m were trade and other receivables.

4 Floating interest rates represent the most recently determined rate applicable to the instrument at balance sheet date. All interest rates on floating rate financial assets and liabilities are subject to reset within the next six months.

30 CSL Financial Statements 30 June 2016

Financial assets are considered impaired where there is evidence that the Group will not be able to collect all amounts due according to the original trade and other receivable terms. Factors considered when determining if a financial asset is impaired include ageing and timing of expected receipts and the credit worthiness of counterparties. Where required, a provision for impairment is created for the difference between the financial asset’s carrying amount and the present value of estimated future receipts. The Group’s trading terms do not generally include the requirement for customers to provide collateral as security for financial assets.

The Group has not renegotiated any material collection/repayment terms of any financial assets in the current financial year.

Government or government-backed entities (such as hospitals) often account for a significant proportion of trade receivables. As a result, the Group carries receivables from a number of Southern European governments. The credit risk associated with trading in these countries is considered on a country-by-country basis and the Group’s trading strategy is adjusted accordingly. The factors taken into account in determining the credit risk of a particular country include recent trading experience, current economic and political conditions and the likelihood of continuing support from agencies such as the European Central Bank. An analysis of trade receivables that are past due and, where required, the associated provision for impairment, is as follows. All other financial assets are less than 30 days overdue.

	Trade Receivables
	Gross Provision Net 2016 2015 2016 2015 2016 2015 US$m US$m US$m US$m US$m US$m
Trade receivables: current less than 30 days overdue between 30 and 90 days overdue more than 90 days overdue	809.9 772.5 1.6 4.8 808.3 767.7 46.8 46.7 2.2 1.2 44.6 45.5 31.8 41.2 0.9 1.2 30.9 40.0 70.3 55.5 26.4 17.7 43.9 37.8
	958.8 915.9 31.1 24.9 927.7 891.0

d. Funding and liquidity risk

The following table analyses the Group’s financial liabilities.

		2016	2015
	Interest-bearing liabilities and borrowings	US$m	US$m
	Current
	Bank overdrafts – Unsecured	1.3	1.3
	Bank Borrowings – Secured	58.5	-
	Lease liability – Secured	2.5 62.3	1.9 3.2
	Non-current
	Bank loans – Unsecured	916.5	617.0
	Senior Unsecured Notes - Unsecured	2,142.2	1,637.9
	Lease liability - Secured	22.3	22.8
		3,081.0	2,277.7

Interest-bearing liabilities and borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, interestbearing liabilities and borrowings are stated at amortised cost, with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the statement of comprehensive income over the period of the borrowings.

Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

31 CSL Financial Statements 30 June 2016

The following table categorises the financial liabilities into relevant maturity periods, taking into account the remaining period at the reporting date and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and hence will not necessarily reconcile with the amounts disclosed in the balance sheet.

	Contractual payments due
	1 year or less Between 1 year and 5 years Over 5 years Total Average interest Rate
	US$m US$m US$m US$m %
	2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Trade and other payables (non-interest bearing) Bank loans – unsecured (floating rates) Bank overdraft – unsecured (floating rates) Senior unsecured notes (fixed rates) Lease liabilities (fixed rates) Other financial liabilities (non-interest bearing)	996.1 700.8 18.8 17.2 - - 1,014.9 718.0 - - 68.6 6.5 951.1 620.2 - - 1,019.7 626.7 1.1% 1.1% 1.3 1.3 - - - - 1.3 1.3 0.0% 0.0% 57.2 50.1 652.2 636.2 1,824.4 1,329.4 2,533.8 2,015.7 2.7% 3.1% 3.9 3.3 14.0 14.1 19.4 20.4 37.3 37.8 4.8% 4.9% 6.0 1.8 - - - - 6.0 1.8 - -
	1,133.1 763.8 1,636.1 1,287.7 1,843.8 1,349.8 4,613.0 3,401.3

Floating interest rates represent the most recently determined rate applicable to the instrument at balance sheet date. All interest rates on floating rate financial assets and liabilities are subject to reset within the next six months.

32 CSL Financial Statements 30 June 2016

Fair value of financial assets and financial liabilities

The carrying value of financial assets and liabilities is materially the same as the fair value. The following methods and assumptions were used to determine the net fair values of financial assets and liabilities.

Cash

The carrying value of cash equals fair value, due to the liquid nature of cash.

Trade and other receivables/payables

The carrying value of trade and other receivables/payables with a remaining life of less than one year is deemed to be equal to its fair value.

Derivatives

Derivative financial instruments are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at fair value at reporting date. The gain or loss on re-measurement is recognised in the statement of comprehensive income. The fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

Interest bearing liabilities

Fair value is calculated based on the discounted expected principal and interest cash flows, using rates currently available for debt of similar terms, credit risk and remaining maturities.

The Group also has external loans payable that have been designated as a hedge of its investment in foreign subsidiaries (known as a net investment hedge).

An effective hedge is one that meets certain criteria. Gains or losses on the net investment hedge that relate to the effective portion of the hedge are recognised in equity. Gains or losses relating to the ineffective portion, if any, are recognised in the consolidated statement of comprehensive income.

Valuation of financial instruments

• Level 1: Items traded with quoted prices in active markets for identical liabilities

• Level 2: Items with significantly observable inputs other than quoted prices in active markets

• Level 3: Items with unobservable inputs (not based on observable market data)

All derivatives are classified as level 2 financial liabilities.

There were no transfers between Level 1 and 2 during the year.

Note 12: Equity and Reserves

a. Contributed Equity

		2016 US$m	2015 US$m
	Ordinary shares issued and fully paid	-	-
	Share buy-back reserve	(4,213.0)	(3,560.4)
	Total contributed equity	(4,213.0)	(3,560.4)

Ordinary shares receive dividends as declared and, in the event of winding up the company, participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or proxy, at a meeting of the company.

Due to share buy-backs being undertaken at higher prices than the original subscription prices, the balance for ordinary share contributed equity has been reduced to nil, and a reserve created to reflect the excess value of shares bought over the original amount of subscribed capital. Refer to Note 10 for further information about on-market share buy-backs.

Information relating to employee performance option plans and GESP, including details of shares issued under the scheme, is set out in Note 5.

For financial instruments measured and carried at fair value, the Group uses the following to categorise the method used:

33 CSL Financial Statements 30 June 2016

b. Reserves

Movement in reserves

Movement in reserves
	Share-based payments reserve(i)		Foreign currency translation reserve(ii)		Total
	US$m 2016 2015		US$m 2016 2015		US$m 2016 2015
Opening balance	151.1	138.8	155.4	599.5	306.5	738.3
Share-based payments	5.7	6.0	-	-	5.7	6.0
expense
Deferred tax on share-based	2.6	6.3	-	-	2.6	6.3
payments
Net exchange gains / (losses) on translation of foreign	-	-	(126.9)	(444.1)	(126.9)	(444.1)
subsidiaries, net of hedge
Closing balance	159.4	151.1	28.5	155.4	187.9	306.5

Note 13: Commitments and Contingencies[4 ]

a. Commitments

Operating leases entered into relate predominantly to leased land and rental properties. The leases have varying terms and renewal rights. Rental payments under the leases are predominantly fixed, but generally contain inflation escalation clauses.

Finance leases entered into relate predominantly to leased plant and equipment. The leases have varying terms but lease payments are generally fixed for the life of the agreement. In some instances, at the end of the lease term the Group has the option to purchase the equipment.

No operating or finance lease contains restrictions on financing or other leasing activities.

Commitments in relation to non-cancellable operating leases, finance leases and capital expenditure contracted but not provided for in the financial statements are payable as follows:

Nature and purpose of reserves

• i. Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of options, performance rights and GESP rights issued to employees.

ii. Foreign currency translation reserve

Where the functional currency of a subsidiary is not US dollars, its assets and liabilities are translated on consolidation to US dollars using the exchange rates prevailing at the reporting date, and its profit and loss is translated at average exchange rates. All resulting exchange differences are recognized in other comprehensive income and in the foreign currency translation reserve in equity. Exchange differences arising from borrowings designated as hedges of net investments in foreign entities are also included in this reserve.

	Operating Leases Finance Leases Capital Commitments Total US$m US$m US$m US$m
	2016 2015 2016 2015 2016 2015 2016 2015
Not later than one year Later than one year but not later than five years Later than five years Sub-total Future finance charges	46.4 40.4 3.3 2.8 222.8 135.6 272.5 178.8 163.9 131.9 10.3 9.7 7.9 10.9 182.1 152.5 363.9 316.9 17.7 19.6 - - 381.6 336.5 574.2 489.2 31.3 32.1 230.7 146.5 836.2 667.8 - - (6.5) (7.4) - - (6.5) (7.4)
Total	574.2 489.2 24.8 24.7 230.7 146.5 829.7 660.4

4 Commitments and contingencies are disclosed net of the amount of GST (or equivalent) recoverable from, or payable to, a taxation authority

34 CSL Financial Statements 30 June 2016

The present value of finance lease liabilities is as follows:

The present value of finance lease liabilities is as follows:
	2016	2015
	US$m	US$m
Not later than one year	2.5	1.9
Later than one year but not later than five years	7.4	6.7
Later than five years	14.9	16.1
Total	24.8	24.7

b. Contingent assets and liabilities

Litigation

The Group is involved in litigation in the ordinary course of business.

35 CSL Financial Statements 30 June 2016

Efficiency of Operation

Note 14: Cash and Cash Equivalents, Cash Flows

	2016	2015
	US$m	US$m
Reconciliation of cash and cash equivalents
Cash at bank and on hand	442.0	186.8
Cash deposits	114.6	370.0
Less bank overdrafts	(1.3)	(1.3)
Total cash and cash equivalents	555.3	555.5
Reconciliation of Profit after tax to Cash Flows from
Operations
Profit after tax	1,242.4	1,379.0
Non-cash items in profit after tax:
Depreciation, amortisation and impairment charges (Gain)/loss on disposal of property, plant and equipment	220.3 2.3	181.3 0.7
Gain on acquisition	(176.1)
Share-based payments expense	6.1	6.0
Changes in assets and liabilities:
Increase in trade and other receivables	(45.3)	(127.3)
(Increase) in inventories	(216.5)	(272.2)
(Increase)/decrease in retirement benefit assets	2.3	(0.3)
(Increase)/decrease in net tax assets	(12.7)	54.0
Increase in trade and other payables	116.0	53.7
Increase in deferred government grants	4.5	-
Increase in provisions	19.7	-
Increase in retirement benefit liabilities	15.6	88.7
Net cash inflow from operating activities	1,178.6	1,363.6
Non-cash financing activities
Acquisition of plant and equipment by means of finance leases	3.2	2.9

Cash, cash equivalents and bank overdrafts

Cash and cash equivalents are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. They are made up of:

• Cash on hand.

• At call deposits with banks or financial institutions.

• Investments in money market instruments with original maturities of six months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

• For the purposes of the cash flow statement, cash at the end of the financial year is net of bank overdraft amounts.

Cash flows are presented on a gross basis. The GST component of cash flows arising from investing and financing activities that are recoverable from or payable to a taxation authority are presented as part of operating cash flows.

36 CSL Financial Statements 30 June 2016

Note 15: Trade Receivables and Payables

a. Trade and other receivables

Trade and other receivables
	2016	2015
	US$	US$
Current
Trade receivables	958.8	915.9
Less: Provision for impairment loss	(31.1)	(24.9)
	927.7	891.0
Sundry receivables	115.0	67.5
Prepayments	64.5	45.2
Carrying amount of current trade and	1,107.2	1,003.7
other receivables
Non-Current
Related parties - Loans to employees	-	0.1
Long term deposits/other receivables	15.6	11.1
Carrying amount of non-current other	15.6	11.2
receivables5

Trade and other receivables are initially recorded at fair value and are generally due for settlement within 30 to 60 days from date of invoice. Collectability is regularly reviewed at an operating unit level. Debts which are known to be uncollectible are written off when identified. A provision for impairment loss is recognised when there is objective evidence that all amounts due may not be fully recovered. The provision amount is the difference between the receivable’s carrying amount and the present value of estimated future cash flows that may ultimately be recovered. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. When a trade receivable for which a provision for impairment has been recognised becomes uncollectible in a subsequent period, it is written off against the provision.

Other current receivables are recognised and carried at the nominal amount due. Non-current receivables are recognised and carried at amortised cost. They are non-interest bearing and have various repayment terms.

As at 30 June 2016, the Group had made provision for impairment of $31.1m (2015: $24.9m).

	2016	2015
	US$m	US$m
Opening balance at 1 July	24.9	47.1
Additional allowance/(utilised/written back)	6.4	(15.1)
Currency translation differences	(0.2)	(7.1)
Closing balance at 30 June	31.1	24.9

Non-trade receivables do not include any impaired or overdue amounts and it is expected they will be received when due. The Group does not hold any collateral in respect to other receivable balances.

Key judgements and estimates

In applying the Group’s accounting policy to trade and other receivables with governments and related entities in South Eastern Europe as set out in Note 11, significant judgement is involved in first assessing whether or not trade or other receivable amounts are impaired and thereafter in assessing the extent of impairment. Matters considered include recent trading experience, current economic and political conditions and the likelihood of continuing support from agencies such as the European Central Bank.

5 The carrying amount disclosed above is a reasonable approximation of fair value. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable disclosed above. Refer to Note 11 for more information on the risk management policy of the Group and the credit quality of trade receivables.

37 CSL Financial Statements 30 June 2016

b. Trade and other payables

	2016	2015
	US$m	US$m
Current
Trade payables	303.5	257.8
Accruals and other payables	669.1	420.6
Share-based payments (EDIP)	23.5	22.4
Carrying amount of current trade and other payables	996.1	700.8
Non-current
Accruals and other payables	0.1	-
Share-based payments (EDIP)	18.7	17.2
Carrying amount of non-current other payables	18.8	17.2

Trade and other payables represent amounts reflected at notional amounts owed to suppliers for goods and services provided to the Group prior to the end of the financial year that are unpaid. Trade and other payables are non-interest bearing and have various repayment terms but are usually paid within 30 to 60 days of recognition.

Receivables and payables include the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, taxation authorities is included in other receivables or payables in the balance sheet.

Note 16: Provisions

	Employee benefits Other Total US$m US$m **US$m **
	2016 2015 2016 2015 2016 2015
Current	99.0 82.5 0.6 1.8 99.6 84.3
Non-current	32.1 31.5 8.4 0.4 40.5 31.9

Other provisions are recognised when all three of the following conditions are met:

• The Group has a present legal or constructive obligation arising from past transactions or events.

• It is probable that an outflow of resources will be required to settle the obligation.

• A reliable estimate can be made of the amount of the obligation.

Provisions are not recognised for future operating losses.

Provisions recognised reflect management’s best estimate of the expenditure required to settle the present obligation at the reporting date. Where the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows required to settle the obligation at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.

Detailed information about the employee benefits is presented in Note 5.

38 CSL Financial Statements 30 June 2016

Other Notes

Subsidiaries

The following table lists the Group’s material subsidiaries.

Note 17: Related Party Transactions

Ultimate controlling entity

The ultimate controlling entity is CSL Limited, otherwise described as the parent company.

Related party transactions

The parent company entered into the following transactions during the year with related parties in the Group.

Wholly owned subsidiaries

• Loans were advanced and repayments received on the long term intercompany accounts.

• Interest was charged on outstanding intercompany loan account balances.

• Sales and purchases of products.

• Licensing of intellectual property.

• Provision of marketing services by controlled entities.

• Management fees were received from a controlled entity.

• Management fees were paid to a controlled entity.

The transactions were undertaken on commercial terms and conditions.

Payment for intercompany transactions is through intercompany loan accounts and may be subject to extended payment terms.

Ownership interests in related parties

All transactions with subsidiaries have been eliminated on consolidation.

			Percentage owned	Percentage owned
			2016	2015
	Company	Country of Incorporation	%	%
	CSL Limited	Australia
	Subsidiaries of CSL Limited:
	CSL Behring (Australia) Pty Ltd	Australia	100	100
	CSL Behring LLC	USA	100	100
	CSL Plasma Inc	USA	100	100
	CSL Behring GmbH	Germany	100	100
	CSL Behring AG	Switzerland	100	100
	CSL Behring Recombinant Facility AG	Switzerland	100	100
	Seqirus UK Limited	UK	100	100
	Seqirus Pty Ltd	Australia	100	100
	Seqirus Vaccines Limited	UK	100	-
	Seqirus Inc	USA	100	-

Key management personnel transactions with the Group

The following transactions with key management personnel and their related entities have occurred during the financial year. These transactions occur as part of a normal supplier or partner relationship on “arm’s length” terms:

Corporate accounts with CityLink, operated by Transurban Group of which Christine O’Reilly is a director.

A number of contracts with Monash University, including collaborative research agreements. Megan Clark is a member of the Council of Monash University.

Supply of commercial energy from Origin Energy Limited of which Mr John Akehurst is a Director.

Labour hire contracts with Skilled, a business operated by Programmed Maintenance Services Limited of which Mr Bruce Brook is a Director.

39 CSL Financial Statements 30 June 2016

Note 18: Detailed Information – People Costs

a. Defined benefit plans

The Group sponsors a range of defined benefit pension plans that provide either a lump sum or ongoing pension benefit for its worldwide employees upon retirement. Entities of the Group who operate defined benefit plans contribute to the respective plans in accordance with the Trust Deeds, following the receipt of actuarial advice.

The surplus/deficit for each defined benefit plan operated by the Group is as follows:

Pension Plan	June 2016 $m June 2015 $m
	Plan Assets Accrued benefit Plan surplus/ (deficit) Plan Assets Accrued benefit Plan surplus/ (deficit)
CSL Pension Plan (Australia) - provides a lump sum benefit upon exit CSL Behring AG Pension Plan (Switzerland) - provides an ongoing pension CSL Behring Union Pension Plan (USA) – provides an ongoing pension CSL Behring GmbH Supplementary Pension Plan (Germany) – provides an ongoing pension bioCSL GmbH Pension Plan (Germany) – provides an ongoing pension CSL Behring KG Pension Plan (Germany) – provides an ongoing pension CSL Plasma GmbH Pension Plan (Germany) – provides an ongoing pension CSL Behring KK Retirement Allowance Plan (Japan) – provides a lump sum benefit upon exit CSL Behring S.A. Pension Plan (France) - provides a lump sum benefit upon exit CSL Behring S.p.A Pension Plan (Italy) - provides a lump sum benefit upon exit	27.5 (22.5) 5.0 29.7 (22.1) 7.6 439.8 (562.1) (122.3) 434.2 (489.5) (55.3) 54.8 (70.5) (15.7) 61.2 (74.4) (13.2) - (156.3) (156.3) - (127.4) (127.4) - (2.6) (2.6) - (1.9) (1.9) - (11.8) (11.8) - (9.2) (9.2) - (0.3) (0.3) - (0.2) (0.2) - (15.4) (15.4) - (11.9) (11.9) - (0.9) (0.9) - (0.8) (0.8) - (1.3) (1.3) - (1.2) (1.2)
Total	522.1 (843.7) (321.6) 525.1 (738.6) (213.5)

In addition to the plans listed above, CSL Behring GmbH and Seqirus GmbH employees are members of multi-employer plans administered by an unrelated third party. CSL Behring GmbH, Seqirus GmbH and their employees make contributions to the plans and receive pension entitlements on retirement. Participating employers may have to make additional contributions in the event that the plans have insufficient assets to meet their obligations. However, there is insufficient information available to determine this amount on an employer by employer basis. The contributions made by CSL Behring GmbH and Seqirus GmbH are determined by the Plan Actuary and are designed to be sufficient to meet the obligations of the plans based on actuarial assumptions. Contributions made by CSL Behring GmbH and Seqirus GmbH are expensed in the year in which they are made.

40 CSL Financial Statements 30 June 2016

Movements in Accrued benefits and assets

During the financial year the value of accrued benefits increased by $105.1m. The increase is attributable to three main factors:

• Service cost charged to the profit and loss of $49.9m. This amount represents the increased benefit entitlement of members, arising from an additional year of service and salary increases, which are taken into account in the calculation of the accrued benefit. The amount includes past service costs of $8.0m resulting from a change in benefit design in one Group plan.

• Actuarial adjustments, due to lower discount rates at the end of the year than originally anticipated by the actuary, generated an increase in accrued benefits of $71.9m. These adjustments do not affect the profit and loss as they are recorded in Other Comprehensive Income.

• Foreign currency movements had a $6.3m favourable impact on the value of accrued benefits, this movement is taken to the Foreign Currency Translation Reserve.

• Offsetting these increases were benefits of $18.3m that were paid by plans during the year.

In the prior year the value of accrued benefits increased by $71.5m. Contributing factors were Service costs ($40.6m), actuarial adjustments ($90.5m), offset by favourable currency movements ($50.4m) and benefit payments ($16.8m).

Plan assets reduced by $3.0m during the financial year. The decrease is attributable to the following factors:

• Investment returns increased plan assets by $4.1m

• Contributions made by employer and employee increased plan assets by $26.3m

• Offsetting these increases were benefits paid by the plans of $14.2m

• The balance of the movement is largely caused by unfavourable foreign currency movements of $18.8m which are taken directly to the Foreign Currency Translation Reserve.

In the prior year plan the value of plan assets increased by $13.0m. Contributing factors were employer and employee contributions ($24.6m), investment returns earned on plan assets ($24.5m), offset by benefits paid by the plans ($13.2m) and unfavourable currency movements (22.7m).

	The principal actuarial assumptions, expressed as	2016	2015
	weighted averages, at the reporting date are:	%	%
	Discount rate	0.8%	1.7%
	Future salary increases	2.2%	2.2%
	Future pension increases	0.4%	0.4%

Plan Assets

	Plan Assets
		2016	2015
	The major categories of total plan assets are as follows:	$m	$m
	Cash	44.0	35.1
	Instruments quoted in active markets: Equity Instruments	184.8	200.0
	Bonds	221.3	213.9
	Unquoted investments – property Other assets	71.1 0.9	71.4 4.7
	Total Plan assets	522.1	525.1

The variable with the most significant impact on the defined benefit obligation is the discount rate applied in the calculation of accrued benefits. A decrease in the average discount rate applied to the calculation of accrued benefits of 0.25% would increase the defined benefit obligation by $34.5m. An increase in the average discount rate of 0.25% would reduce the defined benefit obligation by $33.3m.

The defined benefit obligation will be discharged over an extended period as members exit the plans. The plan actuaries have estimated that the following payments will be required to satisfy the obligation. The actual payments will depend on the pattern of employee exits from the Group’s plans.

Year ended 30 June 2017 $18.3m (2015: 18.7m) Between two and five years $83.6m (2015: 83.6m) Between five and ten years $129.8m (2015: 128.7m) Beyond ten years $611.8m (2015: 507.6m)

41 CSL Financial Statements 30 June 2016

b. Share-based payments – equity settled

Share-based long term incentives (LTI) issued between October 2012 and October 2013

LTI grants in October 2011 were made up of performance rights and performance options. Changes were made to the plan in October 2012 so that LTI grants would subsequently be made up of solely performance rights. The hurdles for this and future grants were to be set and measured in US dollars in line with the Group’s presentation currency. Subject to performance hurdles being satisfied, 50% of the LTI award will vest after three years, with the remaining 50% vesting after the fourth anniversary of the award date.

Other changes included an adjustment to graduated vesting for the compound EPS hurdle and moving to measuring relative TSR by comparison with an international index of Pharma and Biotech companies, rather than using an ASX comparator group.

Share-based long term incentives (LTI) issued in October 2014 and October 2015

Recognition and measurement

The fair value of options or rights is recognised as an employee benefit expense with a corresponding increase in equity. Fair value is independently measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options or rights. Fair value is independently determined using a combination of the Binomial and Black Scholes valuation methodologies, including Monte Carlo simulation, taking into account the terms and conditions on which the options and rights were granted. The fair value of the options granted excludes the impact of any non-market vesting conditions, which are included in assumptions about the number of options that are expected to vest.

At each reporting date, the number of options and rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate of the number of options and rights that are expected to vest. No expense is recognised for options and rights that do not ultimately vest, except where vesting is conditional upon a market condition and that market condition is not met.

LTI grants in October 2014 reintroduced performance options for Executive KMP based outside Australia and changes were made to the vesting period and to performance hurdles. Performance Rights and Performance Options grants made in 2014 and 2015 will vest over a three year, nine month year period with no retest. The EPS growth test has been retained but now has a wider sliding scale with 100% vesting occurring at a 13% compound annual growth rate (previously 12%) and the potential for additional vesting on the achievement of stretch EPS growth targets has been introduced. The relative TSR test is against a cohort of global pharmaceutical and biotechnology companies and progressive vesting has been reintroduced with 50% vesting where CSL’s performance is at the 50[th] percentile rising to 100% vesting at the 75[th] percentile. Performance Options also vest over a four year period and have no performance hurdles. The options only have value when the share price on exercise exceeds the exercise price. The company does not provide loans to fund the exercise of options.

Global Employee Share Plan (GESP)

The Global Employee Share Plan (GESP) allows employees to make contributions from after tax salary up to a maximum of A$3,000 per six month contribution period. The employees receive the shares at a 15% discount to the applicable market rate, as quoted on the ASX on the first day or the last day of the sixmonth contribution period, whichever is lower.

42 CSL Financial Statements 30 June 2016

Valuation assumptions and fair values of equity instruments granted

The model inputs for performance rights, options and GESP awards granted during the year ended 30 June 2016 included:

	Fair Value6 Share Price Exercise Price Expected volatility7 Life assumption Expected dividend yield Risk free interest rate
	A$ A$ A$
Performance Rights (by grant date) 1 October 2015 – Tranche 1 1 October 2015 – Tranche 2 & Tranche 3 1 January 2016 – Tranche 1 1 January 2016 – Tranche 2 & Tranche 3 1 January 2016 – Tranche 1 1 January 2016 – Tranche 2 & Tranche 3 Performance Options (by grant date) 1 October 2015 GESP (by grant date)8 1 September 2015 1 March 2016	$60.92 $89.52 Nil 20.0% 3.75 years 2.0% 1.94% $83.12 $89.52 Nil 20.0% 3.75 years 2.0% 1.94% $79.58 $104.74 Nil 20.0% 2.5 years 2.0% 2.01% $99.69 $104.74 Nil 20.0% 2.5 years 2.0% 2.01% $75.97 $104.74 Nil 20.0% 3.5 years 2.0% 2.09% $97.73 $104.74 Nil 20.0% 3.5 years 2.0% 2.09% $13.51 $89.52 $89.52 20.0% 3.75 years 2.0% 1.94% $14.62 $91.87 $77.25 20.0% 6 months 2.0% 1.87% $24.83 $102.72 $77.89 20.0% 6 months 2.0% 1.93%

6 Options and rights granted are subject to a service condition. Since October 2010, grants of performance rights and options have both a market vesting condition TSR hurdle and a non market vesting condition EPS hurdle.

7 The expected volatility is based on the historic volatility (calculated based on the remaining life assumption of each equity instrument), adjusted for any expected changes.

8 The fair value of GESP equity instruments is estimated based on the assumptions prevailing on the grant date. In accordance with the terms and conditions of the GESP plan, shares are issued at a 15% discount to the lower of the ASX market price on the first and last dates of the contribution period.

43 CSL Financial Statements 30 June 2016

c. Share-based payments – cash settled

The notional shares under the Executive Deferred Incentive Plan generate a cash payment to participants in three years’ time, or in limited instances over a prorated period (see Note 5), provided they are still employed by the company and receive a satisfactory performance review over that period. The amount of the cash payment will be determined by reference to the CSL share price immediately before the award maturity date.

Recognition and measurement

The fair value of the cash-settled notional shares is measured by reference to the CSL share price at reporting date, adjusted for the dividend yield and the number of days left in the vesting period. The ultimate cost of these transactions will be equal to the fair value at settlement date. The cumulative cost recognised until settlement is a liability and the periodic determination of this liability is carried out as follows:

• At each reporting date between grant and settlement, the fair value of the award is determined.

• During the vesting period, the liability recognised at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period.

• All changes in the liability are recognised in employee benefits expense for the period.

• The fair value of the liability is determined by reference to the CSL Limited share price at reporting date, adjusted for the dividend yield and the number of days left in the vesting period.

• The following table lists the inputs to the valuation models used during the year for EDIP purposes.

		2016				2015
Grant date	Fair value of grants at		Dividend yield (%)		Fair value of grants at		Dividend yield %
	reporting date				reporting date
October 2012	-			-	A$86.15			1.5%
October 2013	A$108.21			2.0%	A$84.88			1.5%
October 2014	A$106.09			2.0%	A$83.62			1.5%
October 2015	A$104.01			2.0%	-			-
January 2016	A$104.01			2.0%	-			-
March 2016	A$104.01			2.0%	-			-
April 2016	A$104.01			2.0%	-			-

44 CSL Financial Statements 30 June 2016

Note 19: Detailed Information – Shareholder Returns

Note 19: Detailed Information – Shareholder Returns
Note	Consolidated Entity
	2016 2015 US$m US$m
Retained earnings Opening balance at 1 July Net profit for the year Dividends Actuarial gain/(loss) on defined benefit plans Deferred tax on actuarial gain/(loss) on defined benefit plans	6,000.8 5,221.5 1,242.4 1,379.0 (579.0) (535.4) (87.6) (78.0) 15.7 13.7
Closing balance at 30 June	6,592.3 6,000.8
Performance Options Plan Options exercised under Performance Option plans as follows nil issued at A$35.46 (2015: 59,313 issued at A$35.46) 59,213 issued at A$37.91 (2015: 52,040 issued at A$37.91) 190,050 issued at A$33.68 (2015: 712,752 issued at A$33.68) 21,320 issued at A$33.45 (2015: 75,327 issued at A$33.45) 102,781 issued at A$29.34 (2015: 95,775 issued at A$29.34)	- 1.9 1.6 1.7 4.7 20.6 0.5 2.2 2.2 2.4
	9.0 28.8
Global Employee Share Plan (GESP) Shares issued to employees under Global Employee Share Plan (GESP) 74,413 issued at A$77.25 on 4 September 2015 (2015: 64,668 issued at A$60.84 on 5 September 2014) 76,429 issued at A$77.89 on 4 March 2016 (2015: 71,294 issued at A$63.09 on 6 March 2015)	4.0 4.4 3.7 3.5
	8.4 7.2

45 CSL Financial Statements 30 June 2016

Note 20: Auditors Remuneration

During the year the following fees were paid or were payable for services provided by CSL’s auditor and by the auditor’s related practices:

Audit Services	2016 US$ 2015 US$
Ernst & Young Ernst & Young related practices	1,284,435 1,079,423 2,954,061 2,383,228
Total remuneration for audit services	4,238,496 3,462,651
Other services
Ernst & Young - compliance and other services Ernst & Young related practices - compliance and other services	160,377 215,252 447,028 153,836
Total remuneration for non-audit services	607,405 369,088
Total remuneration for all services rendered	4,845,901 3,831,739

Note 21: Deed of Cross Guarantee

movements in consolidated retained profits for the year ended 30 June 2016 and 30 June 2015 and a consolidated balance sheet as at each date for the Closed Group is set out below.

Income Statement	Consolidated Closed Group	Consolidated Closed Group
	2016	2015
	A$m	A$m
Continuing operations
Sales revenue	912.1	762.2
Cost of sales	(602.5)	(467.7)
Gross profit	309.6	294.5
Sundry revenues	178.8	199.1
Dividend income	851.1	1,290.3
Interest income	71.6	55.4
Research and development expenses	(194.7)	(189.3)
Selling and marketing expenses	(67.7)	(64.0)
General and administration expenses	(118.3)	(113.2)
Finance costs	(14.4)	(6.3)
Profit before income tax expense	1,016.0	1,466.5
Income tax expense	(30.2)	(49.0)
Profit for the year	985.8	1,417.5

On 22 October 2009, a deed of cross guarantee was executed between CSL Limited and some of its wholly owned entities, namely CSL International Pty Ltd, CSL Finance Pty Ltd, CSL Biotherapies Pty Ltd (now Seqirus (Australia) Pty Ltd) and Zenyth Therapeutics Pty Ltd. Since the establishment of the deed Seqirus Pty Ltd, CSL Behring (Australia) Pty Ltd and CSL Behring (Privigen) Pty Ltd have been added to the deed. Under this deed, each company guarantees the debts of the others. By entering into the deed, these specific wholly owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.

The entities that are parties to the deed represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by CSL Limited, they also represent the ‘Extended Closed Group’. A consolidated income statement and a summary of

46 CSL Financial Statements 30 June 2016

	2016	2015
Balance sheet	A$m	A$m
Current assets
Cash and cash equivalents	280.1	490.3
Trade and other receivables	322.7	189.4
Inventories	247.3	217.6
Total Current Assets	850.1	897.3
Non-current assets
Trade and other receivables	274.5	18.4
Other financial assets	18,776.1	19,050.2
Property, plant and equipment	698.7	641.5
Deferred tax assets	46.4	56.6
Intangible assets	33.2	51.3
Retirement benefit assets	6.7	9.9
Total Non-Current Assets	19,835.6	19,827.9
Total assets	20,685.7	20,725.2
Current liabilities
Trade and other payables	256.8	180.8
Provisions	53.1	43.4
Deferred government grants	3.8	2.8
Total Current Liabilities	313.7	227.0
Non-current liabilities
Trade and other payables	12.8	23.1
Interest-bearing liabilities and borrowings	1,076.8	510.7
Deferred tax liabilities	13.3	11.8
Provisions	11.1	12.0
Deferred government grants	46.6	41.6
Total Non-Current Liabilities	1,160.6	599.2
Total liabilities	1,474.3	826.2
Net assets	19,211.4	19,899.0
Equity
Contributed equity	(4,200.9)	(3,316.5)
Reserves	163.4	160.5
Retained earnings	23,248.9	23,055.0
TOTAL EQUITY	19,211.4	19,899.0

Summary of movements in consolidated retained	2016	2015
earnings of the Closed Group	A$m	A$m
Retained earnings at beginning of the financial year	23,055.0	22,289.9
Net profit	985.8	1,417.5
Actuarial gain/(loss) on defined benefit plans, net of tax	(0.4)	4.6
Dividends provided for or paid	(791.5)	(657.0)
Retained earnings at the end of the financial year	23,248.9	23,055.0

47 CSL Financial Statements 30 June 2016

Note 22: Parent Entity Information

	2016 A$m 2015 A$m
(a)	Information relating to CSL Limited (‘the parent entity’) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Current assets 486.5 268.8 Total assets 3,301.9 2,377.0 Current liabilities 240.2 83.1 Total liabilities 2,414.5 686.7 Contributed equity (4,200.9) (3,316.5) Share-based payments reserve 131.6 129.2 Retained earnings 4,956.7 4,877.6
	Net Assets & Total Equity 887.4 1,690.3
	Profit or loss for the year 814.2 1,251.9
	Total comprehensive income 814.2 1,252.5

(b) Guarantees entered into by the parent entity

The parent entity provides certain financial guarantees in the ordinary course of business. No liability has been recognised in relation to these guarantees as the fair value of the guarantees is immaterial. These guarantees are mainly related to all external debt facilities of the Group. In addition, the parent entity provides letters of comfort to indicate support for certain controlled entities to the amount necessary to enable those entities to meet their obligations as and when they fall due, subject to certain conditions (including that the entity remains a controlled entity).

(c)

Contingent liabilities of the parent entity

The parent entity did not have any material contingent liabilities as at 30 June 2016 or 30 June 2015. For information about guarantees given by the parent entity, please refer above and to Note 21.

(d) Contractual commitments for the acquisition of

property, plant or equipment

The parent entity did not have any material contractual commitments for the acquisition of property, plant and equipment as at 30 June 2016 or 30 June 2015.

48 CSL Financial Statements 30 June 2016

Note 23: Subsequent Events

Other than as disclosed elsewhere in these statements, there are no matters or circumstances which have arisen since the end of the financial year which have significantly affected or may significantly affect the operations of the Group, results of those operations or the state of affairs of the Group in subsequent financial years.

Note 24: New and Revised Accounting Standards

a. New and revised standards and interpretations adopted by the Group

The Group has adopted, for the first time, certain standards and amendments to accounting standards. None of the changes have impacted on the Group’s accounting policies nor have they required any restatement.

b. New and revised standards and interpretations not yet adopted by the Group

The following new and revised accounting standards and interpretations published by the Australian Accounting Standards Board which are considered relevant to the Group, are not yet effective. The Group has not yet completed its assessment of the impact of these new and revised standards on the financial report.

must be recognised when goods or services are transferred to a customer, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

IFRS 2 – Classification and Measurement of Share-based

Payment Transactions

This amendment clarifies how to account for certain types of share-based payment transactions impacting the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net settlement feature for withholding tax obligations and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity settled.

Applicable to the Group for the year ended 30 June 2020:

AASB 16 - Leases

This standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee will recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Depreciation on the asset and interest on the liability will be recognised.

Applicable to the Group for the year ended 30 June 2019:

AASB 9 – Financial Instruments

This standard will change the classification and measurement of financial instruments, introduce new hedge accounting requirements including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures, and introduce a new expected-loss impairment model that will require more timely recognition of expected credit losses.

AASB 15 - Revenue from Contracts with Customers

This standard specifies the accounting treatment for revenue arising from contracts with customers providing a framework for determining when and how much revenue should be recognised. The core principle is that revenue

49 CSL Financial Statements 30 June 2016

Directors’ Declaration

• 1) In the opinion of the Directors:

• a. the financial statements and notes of the company and of the Group are in accordance with the Corporations Act 2001 (Cth), including:

  • i. giving a true and fair view of the company’s and Group’s financial position as at 30 June 2016 and of their performance for the year ended on that date; and

  • ii. complying with Australian Accounting Standards and Corporations Regulations 2001.

• b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

• 2) About this Report (a) in the notes to the financial statements confirms that the financial report complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

• 3) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 (Cth) for the financial period ended 30 June 2016.

• 4) In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 21 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee dated 22 October 2009.

This declaration is made in accordance with a resolution of the directors.

John Shine AO Chairman

Paul Perreault Managing Director

Melbourne August 17 2016

50 CSL Financial Statements 30 June 2016

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51 CSL Financial Statements 30 June 2016

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52 CSL Financial Statements 30 June 2016

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