On May 14, 2018 FY2017 performance reflects superior execution (Press release, Takeda, May 14, 2018, View Source [SID1234526592])
– Underlying results: Revenue +5.5%, Core Earnings +40.2%, Core EPS +44.8%
– Takeda will maintain its underlying growth momentum in FY2018
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Underlying Revenue growth +5.5% led by Takeda’s Growth Drivers
• Underlying Revenue grew +5.5%, with Takeda’s Growth Drivers (Gastroenterology, Oncology, Neuroscience and Emerging Markets) posting strong underlying revenue growth of +12.8%.
• Broad based revenue performance was led by double digit growth in the U.S. (U.S. +13.5%, Japan -0.2%, Europe & Canada +6.7%, Emerging Markets +2.0%; Japan growth was +7.0% excluding returned portfolio)
• Reported revenue grew +2.2%, with underlying growth (+5.5%) and positive currency impact (+2.5pp), partly offset by the impact of divestitures (-5.8pp).
Stellar EPS growth reflects strong revenue growth and progress of Global Opex Initiative
• Underlying Core Earnings grew +40.2%, with the Core Earnings margin increasing by 420bps due to product mix improvement and strong cost discipline (+280bps gross margin; +160bps from OPEX margin). Reported operating profit was up +55.1%, mainly driven by Core Earnings growth. In FY2017, Takeda booked a large one-time gain of 106.3 billion yen from the sale of Wako; however, higher one-time expenses resulted in total other income/expenses being less favorable than prior year by-27.8 billion yen.
• Underlying Core EPS was up +44.8%, in-line with underlying Core Earnings growth. Reported EPS was 239 yen, an increase of +62.7% from 147 yen in the prior year, benefitting also from a lower tax rate due to re-measurement of deferred tax liabilities as a result of the U.S. tax reform.
Significant pipeline progress leveraging therapeutic area expertise
• 17 New Molecular Entity clinical stage-ups in FY2017, compared with 5 in the same period of the previous year. Important events included European Commission approval of ALOFISEL (darvadstrocel) in the area of GI, a label update for TRINTELLIX in neuroscience, and the initiation of Phase 3 for pevonedistat in oncology.
• Further strengthened innovation network with 56 new collaborations with academia and bio-tech/bio-ventures.
Net leverage improved due to continued strong progress on cash flow
• Operating Free Cash Flow was up +52.9% to 242.9 billion yen, higher than the dividend payment for the third consecutive year. Non-core asset sales generated an additional 164.4 billion yen of cash.
• Strong cash generation allowed rapid de-leveraging with the net debt/EBITDA ratio improving from 2.7x in March 2017 to 1.8x in March 2018.
Christophe Weber, President and Chief Executive Officer of Takeda, commented:
"Takeda’s transformation is delivering superior results as we execute against our key mid-term priorities of growing the portfolio, strengthening the pipeline, and boosting profitability. In FY2017, our Growth Drivers maintained their strong momentum, which together with disciplined cost management under the Global Opex Initiative resulted in industry-leading revenue and earnings growth. We also made significant progress in R&D, with 17 New Molecular Entity clinical trial stage-ups, and 56 new collaborations to strengthen our innovation network.
The strength of the underlying business means we expect to maintain revenue and earnings growth momentum in FY2018, and I am confident that through strategic focus and superior execution, Takeda will continue to deliver long-term value to patients and shareholders."
Core Earnings is calculated by deducting SG&A expenses and R&D expenses from reported Gross Profit. In addition, certain other items that are non-core in nature and significant in value may also be adjusted.
2 Underlying growth compares two periods of financial results on a common basis, showing the ongoing performance of the business excluding the impact of foreign exchange and divestitures.
3 Attributable to the owners of the company.
FY2018 Management Guidance: Maintaining underlying growth momentum
• Underlying revenue continues to grow despite negative headwinds of -4.4pp that include Velcade decline due to competitor entry (-3.5pp) and portfolio changes (-0.9pp).
• Continued product mix improvement and execution of the Global Opex Initiative will underpin margin improvement. Underlying Core Earnings margin to expand at lower end of the +100-200bps range bringing the 2-year margin expansion to more than 500 basis points.
• Underlying Core Earnings will grow high single digit, despite Velcade decline which negatively impacts Core Earnings growth by over 18 percentage points.
• Annual dividend of 180 yen per share, in-line with Takeda’s well-established dividend policy of being strongly committed to shareholder returns with the dividend as a key component.
FY2018 Reported Forecast: Underlying strength lessens impact of significant decline in one-time items
• Underlying revenue growth momentum offset by Forex and divestitures.
• Excluding the negative impact of Forex and divestitures, Core Earnings growth is forecast to be high single digit.
• Reported operating profit is impacted by lower other income (-40.9pp, especially the 106.3 billion yen gain on the sale of Wako in FY2017) and the impact of divestitures (-9.6pp).
Takeda is currently in an offer period (as defined in the City Code on Takeovers and Mergers (the "Code")) with respect to Shire plc. Pursuant to Rule 28 of the Code, statements made regarding Takeda’s guidance for FY2018 (including statements regarding forecasts for FY2018 revenue, Core Earnings, Operating profit, Profit before income taxes, Net profit attributable to owners of the Company, Basic earnings per share, R&D expenses, Amortisation and impairment and other income/expense, Underlying Revenue, Underlying Core Earnings and Underlying Core EPS) constitute a profit forecast for the year ending March 31, 2019 (the "Takeda Profit Forecast"). For additional information regarding the Takeda Profit Forecast and the required statement by its Directors that such profit forecast is valid and has been properly compiled on the basis of the assumptions stated and that the basis of accounting used in consistent with Takeda’s accounting policies, please see page 21 of Takeda’s Financial Results (Tanshin) for the Fiscal Year Ended March 31, 2018, dated May 14, 2018.
Raising our objectives for non-core asset disposals by the end of FY2018
• Revised objective is to unlock 190 billion yen of cash by the end of FY2018 from real estate disposals and the sale of securities, increased from 130 billion yen guidance given in May 2017.