Takeda Pharmaceutical Co Ltd: FY2018 Full Year Results & FY2019 Guidance Summary
Business Context and Reporting Period
This Form 6-K, filed on May 14, 2019, reports Takeda Pharmaceutical Company Limited's full-year financial results for the fiscal year ended March 31, 2019 (FY2018). The reporting period is significantly impacted by the completion of the acquisition of Shire plc on January 8, 2019. Consequently, consolidated results include Shire's operations for the three months from January 8 to March 31, 2019. The company distinguishes between "Consolidated Reported" results (including Shire and acquisition impacts) and "Legacy Takeda" results (excluding Shire and acquisition-related costs).
Key Financial Metrics (FY2018)
| Metric | Consolidated Reported (FY2018) | YoY Change | Legacy Takeda Reported (FY2018) | YoY Change |
|---|---|---|---|---|
| Revenue | 2,097.2 billion JPY | +18.5% | 1,788.0 billion JPY | +1.0% |
| Operating Profit | 205.0 billion JPY | -15.2% | 411.8 billion JPY | +70.3% |
| Net Profit | 109.1 billion JPY | -41.6% | 312.9 billion JPY | +67.4% |
| EPS (Basic) | 113 JPY | -52.6% | 399 JPY | +66.6% |
| Core Earnings | 459.3 billion JPY | +42.4% | 393.3 billion JPY | +21.9% |
| Free Cash Flow | 378.1 billion JPY | +4.6% | N/A | N/A |
Legacy Takeda Underlying Performance: Underlying Revenue grew +5.3% (constant currency), and Underlying Core Earnings grew +38.7%. The Underlying Core Earnings margin expanded by 540 basis points to 22.3%, driven by the Global Opex Initiative.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 18.5% primarily due to the inclusion of Legacy Shire (309.2 billion JPY). Legacy Takeda revenue grew 1.0% despite divestitures and FX headwinds, driven by key products like ENTYVIO (+34.8%) and NINLARO (+36.1%).
- Profitability Divergence: While Legacy Takeda operating profit surged 70.3%, Consolidated operating profit declined 15.2%. This decline was caused by significant non-cash purchase accounting expenses (181.6 billion JPY) and Shire acquisition-related costs (85.0 billion JPY).
- EPS Impact: Reported EPS fell 52.6% to 113 JPY due to the dilution from shares issued for the Shire acquisition and the aforementioned non-cash charges. Legacy Takeda EPS grew 66.6% to 399 JPY.
- Divestitures: The company generated 200.9 billion JPY in cash from the sale of real estate, marketable securities, and non-core businesses (Techpool and Multilab). Additionally, agreements were announced to divest XIIDRA to Novartis (up to $5.3 billion) and TACHOSIL to Ethicon (€358 million).
Guidance, Outlook, and Management Commentary
FY2019 Guidance (Excluding Divestitures):
- Underlying Revenue Growth: Flat to slightly declining (constant currency). This assumes significant Loss of Exclusivity (LoE) headwinds for VELCADE, FIRAZYR, and ULORIC. If no additional VELCADE competitor launches in the U.S., growth would be "flat to slightly increasing."
- Underlying Core Earnings Margin: Mid-twenties percent.
- Underlying Core EPS: 350–370 JPY.
- Annual Dividend: 180 JPY per share.
Reported FY2019 Forecast: Revenue is forecast at 3,300.0 billion JPY (+57.4% YoY) due to full-year Shire consolidation. However, Reported Operating Profit is forecast at a loss of 193.0 billion JPY, and Reported Net Profit at a loss of 383.0 billion JPY, heavily impacted by purchase accounting (693.0 billion JPY impact on operating profit) and integration costs. Excluding these one-time items, Net Profit is expected to grow 17.7%.
Management Commentary: CEO Christophe Weber highlighted that FY2018 results exceeded guidance, with Legacy Takeda performance absorbing all Shire acquisition costs. The company raised its cost synergy target from $1.4 billion to approximately $2 billion by FY2021. CFO Costa Saroukos emphasized a commitment to rapid deleveraging, targeting a Net Debt/Adjusted EBITDA ratio of 2.0x within 3 to 5 years, aided by strong cash flow and proceeds from asset divestitures.
Key Facts for Investor Verification
- Shire Integration Costs: Verify the trajectory of integration costs, which are expected to increase to 154.0 billion JPY in FY2019 compared to 85.0 billion JPY in FY2018.
- Purchase Accounting Impact: Confirm the magnitude of non-cash charges in FY2019, specifically the 253.0 billion JPY inventory step-up unwind and 439.0 billion JPY intangible asset amortization related to Shire.
- Loss of Exclusivity (LoE): Monitor the actual market impact of VELCADE LoE in the U.S. (assumed one additional competitor) and other products (FIRAZYR, ULORIC) against the "flat to slightly declining" revenue guidance.
- Divestiture Closing: Track the closing dates and final consideration for the XIIDRA and TACHOSIL divestitures, expected in the second half of calendar year 2019, and their impact on debt reduction.
- Deleveraging Progress: Assess the quarterly progress toward the 2.0x Net Debt/Adjusted EBITDA target, starting from a pro-forma ratio of 4.7x as of March 31, 2019.