Teva Pharmaceutical Industries Limited’s (TEVA) CEO Kåre Schultz on 40th Annual JPMorgan Healthcare Conference- Conference Call Transcript


Teva Pharmaceutical Industries Limited (NYSE:TEVA) Company Conference Call Presentation January 11, 2022 9:45 AM ET

Company Participants

Kåre Schultz – President & CEO

Conference Call Participants

Chris Schott – JPMorgan

Chris Schott

Good morning, everybody. I’m Chris Schott at JPMorgan, and it’s my pleasure to be introducing Teva today at the 40th annual JPMorgan Conference. From the company we have Kåre Schultz, the President and CEO. And before we turn it over to Kåre, I just want to remind people that if you wanted to ask a question, feel free to use the ask-a-question feature on the website and I’ll work those into the Q&A session after the presentation. And so, with that, Kåre, happy new year. Thanks for joining us and looking forward to your remarks.

Kåre Schultz

Thank you very much, Chris, and welcome to all of you listening in and watching this. I would like to address four important issues that are of high relevance to us in Teva. First, I’d like to give you an update on how we plan to solve the litigation challenges we have on the opioid litigation and what the status is. Then I’ll give you an idea about how we are going about optimizing our business, focus on the progress we’re making on reducing our debt, and then last but not least, I’ll explain how we’re securing our future safe growth.

But let’s start with a burning topic that I would say everybody is very interested in, which is the opioid litigation. Now, this is an area which has been going on for quite a while. As you all know, the early investigations and litigations has been started over the last six years. The events that are being discussed, many of them are 10, 20 years back. There’s more than 3,500 complaints filed by all kind of subdivisions, local, State, government agencies, tribes, private plaintiffs, and so on. And it involves Teva, of course, and some Teva affiliates, and many other manufacturers, distributors, and retailers. 90% of the complaints have been consolidated into the MDL, which is in Cleveland, Ohio, and 10% remain in State courts.

Now, so far, we have had a few one-off settlements in Oklahoma. You might remember May, 2019, that State for 85 million. And then in connection with the MDL case, the MDL track one in Cleveland, Ohio, we had two counters in 2019 for $20 million and 25 million of products. And then recently, we had Louisiana here in ‘21, 15 million over 18 years, and 3 million of products. At the same time, we’ve had a number of court cases. I’ll just mention the most relevant ones for us. As you know, J&J won on appeal in Oklahoma Supreme Court. The court found public nuisance law was not applicable in this case. And I can recommend everybody who’s interested in the topic, read the verdict. It’s very well written, and explains exactly why the public nuisance law does not really apply to the situation with opioid addiction and the sad, sad effects that this has on the public.

Now, Teva and co-defendants won in Orange County, California. The trial judge found that medicines sold lawfully could not be a basis of public nuisance, basically saying that if you meet all the rules and regulations on a product that you’re lawfully selling, then how can that product possibly be deemed to be a public nuisance? And also here, a very well written verdict, which also lays out exactly why this really does not make any sense. Then we had a loss in the jury trial in New York just recently. And basically, in that trial, you could say everybody else settled apart from us. And we were found there by the jury to be causing a public nuisance in New York through the medicines that we’ve been selling. There was a lot of interesting things that happened in that trial. I’ll just mention that we have filed for mistrial, and that’s basically because the closing remarks, the State produced data on opioid volumes that they claim several of the Teva companies had been selling, and these volumes were completely misstated, and they had not been willing to review what they were going to present. So, in the closing argument, they overstated the volumes of Teva with some many hundred times. And that’s one of the, of course, reasons why we are saying that it’s a mistrial because if you give that, it’s your closing argument and we are not allowed to say anything after that, then that’s not a fair way to do it, especially when you deliberately did not hand over these materials to us before your closing arguments.

So, there we are, you could say, moving for a mistrial that will be heard by the judge in February. Assuming that that works, there will be a new trial. Otherwise, there’ll be a verdict. We’ll appeal that. And then we hope that based on that appeal, the second part of the trials in New York, which is the financial piece, so to speak, will be stayed until that appeal has been heard. As you can see, it’s pretty complicated. And this is just the highlights. There’s a lot of more details here. And then, we have, of course, as you all know, since the Cleveland settlement, which is some odd two years ago, where we also came out with the national framework, we have been discussing a nationwide settlement with the AGs and with the plaintiff lawyers.

We did the nationwide framework together at the same time as J&J and the three big distributors. They are actually working on finalizing their nationwide settlements, and they’re quite far down the road with that. We are still in discussions with AGs, with plaintiff lawyers, trying to reach a suitable compromise on a nationwide settlement that could really be in the best interest of all stakeholders. I think it’s fair to say that the original framework where we would offer $250 million in cash and $23 billion in Suboxone product for the treatment of people who are using and misusing opioids, that has really been a very good idea from a State point of view, but from a plaintiff lawyers’ point of view, it’s probably less attractive, simply due to the fact that the fees are calculated on the cash and not on the product contributions. We still hope that we can contribute products. We also have Narcan approved now, which is this spray that can solve overdose situations and rescue people. So, we’re hopeful that in the coming year, we will be able to reach a nationwide settlement, which would be the best and we think for all parties.

So, that was on the opioid litigation side. Then I promised to cover three other topics and they’re here, business optimization, debt and financing, and future growth. And I’ll do it relatively quick. And if we just take the business optimization, this is a super simple way of explaining a very complex exercise we’ve been going through. You will know that from ‘17 to ‘19, we had a dramatic drop in our revenues due to Copaxone going off patent, and price competition in the US generic space. And that hurt our margin significantly. In the same period, we have been working to optimize our business, all aspects of the business. Just as an example, I can mention that we have now closed or divested around 100 sites, that being around 30 manufacturing sites, around 30 R&D labs and sites, and about 30 offices. And we are still planning to close another 10 manufacturing sites over the coming years. That has taken us from 80 manufacturing sites when I joined in 2017, to currently 50, and within a short period, getting down to around 40 manufacturing sites. So, we’re improving our operations and our operating margin is improving with it. And those of you who remember the targets, we said in early ‘18, we’ll see that we still have the same target for the end of 2023, a 28% operating margin, and we are well on the way to hit that.

So, that’s a simple way of explaining that we are doing everything we can to improve the business by consolidating and optimizing the business. At the same time, we had to handle our net debt situation. Net debt of $34 billion was way too much given our earnings. And that was the situation back in 2017, some four years ago. And you can see how we’ve taken it down from $34 billion by more – down by more than $12 billion to $21.7 at the end of the third quarter of last year. And this will continue. We have a firm target, as you also know, which I’ll get back to, to be less than three times net debt to EBITDA at the end of 2023. And the reason why we have this high debt, as you all know, is because the acquisition of Actavis was at a price tag of around $40 billion, and most of that was financed through debt. But we will continue to reduce our debt as we go forward.

Talking about debt, we had just some months ago, done a very successful refinancing. We refinanced $5 billion. So, basically, we issued $5 billion in sustainability-linked bonds. What that means is that you have a bond, and of course you pay a normal interest rate on it, but then you also commit yourself to certain targets. If you don’t meet these targets, you pay a penalty. Now, we have committed ourselves to three targets, one for the emission of greenhouse gases, and two for access to medicine in low and middle-income countries. And this is the first time that a generic medicines company issues these types of bonds, but it’s also the first time in the pharmaceutical industry that we have both social and environmental targets. Many have – and my own targets are greenhouse gases and so on, but very few have moved on to social targets. And we think being the biggest manufacturer of generic medicine in the world, we can do a lot of good for many countries by ensuring that the medicines on WHO’s list of essential medicines, that these medicines gets filed, approved, and supplied to low and middle-income countries. So, we are very proud about that. It’s building on our strong ESG foundation, and we think this is the way to go going forward, that you focus on where you can make a difference.

Now, what it actually meant from a more financial point of view, you can see here, what we call pre-deal here. That’s the debt stacks we had before the refinancing. And you can see the problem with the debt stacks that Teva had already four years ago, was that they were assuming a much higher profit contribution from exodus than what has actually ended up happening. So, what you see here is debt stacks around $3 billion to $4 billion, and the operational cash flow that we are creating is above two, but it’s not three. So, that’s basically why what we did is we paid down debt in ‘22, ‘23 and ‘24, and we took up new debt in ‘27, ‘29 and ‘30. And those of you who have been following our strategy on debt management, will see that we sort of take it in chunks a couple of years at a time. So, we do it operationally. We don’t try to be smart about the interest rate or anything like that. And as our debt situation improves, so does also the interest rate we are paying by the risk premium going down.

And you can see from this that the next time we’ll be handling the – so future debt towers will probably be end of ‘23, beginning of ‘24, where we will handle the excess height of the towers in ‘25, ‘26 and ‘27. And that, by the way, will be the last time we have to do it from an operational reason, because after that, then all our future (indiscernible) that I first time presented in 2018, I think it was February 2018. So, very soon it will be four years ago. We are aiming for those still, the same targets, 28%, as I talked about before, operating margin by end of ’23, cash to our earnings above 80 so we can pay down debt, and net debt to EBITDA below three times. It also goes without saying that in order to do this, we will continue to be totally committed to utilizing cashflow to pay down debt, and we do not plan to raise equity. We think that the very patient equity holders who have been bearing with us through this turnaround and through the opioid litigation, should be the ones to get the reward. So, this is our continued financial strategy long-term. So, with this, I have sort of finished my little presentation here, given you an idea about what we plan to do in the coming years, and I think I’ll hand it back to Chris.

Chris Schott

Great. Thanks so much for that. Maybe just kind of addressing some of these topics in the order you went through. Maybe just first few questions just on opioids, obviously a big discussion point in the story. So, maybe first the New York case, can you talk about the timelines and the pathway? I think you’re looking for a mistrial, appealing this in the damage portion. I’m just trying to get a sense of when we’ll have more visibility on kind of what – where this proceeds, I guess.

Kåre Schultz

Yes. First of all, it’s difficult for me to say exactly how the timing will be. These days with COVID, timing of legal situations have been unpredictable. But if we just take sort of the normal way that things would work, then first there’s already scheduled a hearing on the mistrial. So, the judge will be hearing that in February, and that will take – it’s difficult to say how long that takes, but that will take, of course, some time. Then either the judge grants a mistrial, then there’s a new trial. In that case, there will be a new jury trial, which would probably – to get scheduled and executed would take, I don’t know, at least a year or more. If the judge does not grant a mistrial, then there’s a verdict, which we will appeal. And we have many, many very serious grounds for appeal. I won’t get into those details, but, but there’s a lot of things there which we think are very valid, same as it was the case for J&J in Oklahoma.

And we will then appeal, and we will then argue that the appeal has to go first before we can go back and do the financial piece of the New York jury trial. Now, the appeal, we can then win or lose that. I don’t know how long that will take to get that appeal trial executed by, maybe one to two years. And then after that, we will either, if we win, of course, maybe have another appeal there from the plaintiffs. Who knows what could happen? And then eventually at some point in time, unless we win the whole way through, there will be a financial discussion. And that piece can then, again, also be appealed. So, it will be a while.

Chris Schott

Yes, that’s what it sounds like. Not something we should be thinking about a number anytime soon. And then I think you mentioned that you’re kind of the last one standing here. There was a lot of other settlements. Is settlement still an option, or is this something that Teva is committed to fighting at this point?

Kåre Schultz

No, I think settlement is very much still an option. We have said from the beginning that we are very willing to settle this. We think that conducting 3,500 trials in theory doesn’t make any sense for anybody. It won’t help anybody who is suffering from opioid misuse. So, we are very committed to settlement. What we did in the framework was, we offered what could realistically offer, because we don’t have the same ability to offer a lot of cash, like Johnson & Johnson, the free distributors. So, we’ve been offering cash and product. And we’ve got the feedback from especially the plaintiff lawyers that they would like to see more cash and less product. So, we’ve been trying to change the mix and negotiate the best we could, both in New York and also nationwide. And we are still in very active dialogue. So, I still hope that things can eventually meet. I don’t think anybody will benefit from a prolonged set of trials, not the AGs, not the States, not the plaintiff lawyers, and not us. So, I think everybody has an interest in a settlement, which will also be the best for the people suffering from opioid abuse.

Chris Schott

Absolutely. In your view, does the finalization of the J&J and distributor settlements help the process at all in terms of getting – it sounds like the plaintiff attorneys might be the sticking point here, just getting all the parties really focused on the framework and what Teva is able to offer? Or are these independent processes, I guess?

Kåre Schultz

I think any step forward towards settlement, be it the nationwide J&J and distributors, anything getting sort of finally wrapped up and executed and done, will help the process, I think, because that means that everybody realizes that this is the way forward. It is possible, and it is the way to do it. And if you think about things like the Purdue bankruptcy settlement discussions, right, it just shows that if you don’t get a reasonable settlement done, you can of course discuss forever, and you can maybe end up in the court system. I just explained briefly how the New York trial might evolve over the coming years. I mean, this could take, God knows how long. So, and I don’t think it benefits Teva, but I certainly don’t think it benefits the plaintiff lawyers or the States either.

Chris Schott

Yes, that makes sense. Just the last couple ones on this one. You mentioned the free product component of the framework. So, I guess, when you’re thinking about Suboxone and maybe now Narcan, do you still think that will represent kind of the biggest piece of any final deal? Or do you think there’s something that needs to be significantly revised in terms of the terms that the plaintiff attorneys are looking to see? So, is this more just like tweaking the settlement versus, is this something totally different than we maybe saw from the first go-around?

Kåre Schultz

I think it will be conceptually the same, that there will be product and there’ll be cash, but the balance will be shifted significantly, I would say. So, in the first framework, as you know, it was $250 million versus 23 billion, which is a big difference. I think the difference will be less. And one of the things you can look at is, of course, what we just did in Luciana, which is a different mix.

Chris Schott

Okay, perfect. And then final question, just when you wrap this all together, is your confidence of getting something done in 2022 – I know it’s hard to predict these things, but are you highly confident you get this done this year, or is it still a bit murky?

Kåre Schultz

So, with the caveat that I’m always optimistic, I’m optimistic that it will get done, because it doesn’t really make sense for anybody not to do it because I also think that the basic sort of pattern we’re seeing already is that when this situation gets in front of judges and only judges, so in an appeal court or Supreme court, or a bench trial, then there’s a very high likelihood that the plaintiffs will not prevail, that Teva will not be found guilty. Whereas if it’s a jury trial, that’s probably due to the political and emotional piece of the whole discussion, there’s probably a relatively high risk that we will lose in the first instance in jury trials. Now, what does that create long-term for the involved parties? It’s a very murky picture where you could say, maybe you fight it out forever and eventually win in the Supreme Court, but it will probably take 10 years. And that would mean that it would cost the plaintiff lawyers a lot of money. It would cost us a lot of money and we would not be helping anybody on the way.

Chris Schott

Yes. That makes sense. Well, we’ll look forward to some progress on that front. Just pivoting to the core business then, on AUSTEDO, I think we saw a bit slower growth for this product over the first three quarters of 2021. Some of those were just broader market conditions. Just help us a little bit understand what drives the step-up you’re expecting with Q sales, and just maybe any early thoughts on kind of the environment for this product as we head into 2022.

Kåre Schultz

Yes, you’re absolutely right. Compared to the predictions we had when we started last year, we saw a slightly lower patient uptake. It’s not that it’s not growing. it’s growing very nicely, as it should.

Chris Schott

Absolutely. Yes.

Kåre Schultz

But the speed of it was just a little bit slower. Now, we believe the reason for that is basically COVID-19 related. So, we could see in all the accumulated data, all the statistics we have on specialist visits, that the number of doctor face-to-face visits at psychiatrists and neurologists, had been down significantly in the first and second quarter of last year. Now, that has an effect in the sense that less patients come in and discuss their tardive dyskinesia, and therefore less patients gets on therapy. At the same time, our reps and MSLs have had less access and less face-to-face interaction with doctors. So, that has slowed down the curve somewhat. Now, what we saw in the third quarter was a pickup in activity and patient volume. And then there’s this factor that many patients, because we have titration, they will start on a sample titration pack.

So, from the moment you get a printed script until it keeps in as real sales, there’s quite a delay, which – so you can’t really say that TRX data is one-to-one with the sales data, because if you’re moving upwards in a quarter with many new patients, you can get a lot of TRXs, more patients, but you don’t really get any sales because they all come on a titration single pack. But then of course, after two months, when they have titrated, then they go on normal sales pack. And then that’s why you – so that’s why you will see some fluctuations between corners due to this phenomenon. But we believe now that we have a good traction again, of course, I’m not the one to predict how the Omicron current high infection rate, low mortality rate, how will that affect behavior of people going to the doctor, their psychiatrists, their neurologists. We have to make – it’s so new, so we don’t really know yet. I’m optimistic that there will be a limited effect because we don’t think we’ll see major lockdowns in the US, but it remains to be seen of course.

Chris Schott

Okay, very helpful. The other one, as I think about fasinumab, that was obviously a great launch for Teva. It’s been the large contributor the last several quarters. Can you talk a little bit, as we look out to ‘22 for this one, it’s becoming a bit more competitive market over time? I’m trying to get a sense of for a biosimilar like this that’s launched well, it has a lot of share, how do you think about erosion as competition starts to build in the space?

Kåre Schultz

Yes, you’re absolutely right. Of course, there’ll be more competition here in ‘22 than we had in ‘21. Of course, there’s this element, which is interesting with biosimilars, that you sell a lot to clinics, hospitals, and so on. Normally, they prefer not to have five different products in their pharmacy. that’s just not optimal from a practical point of view, which is why you also see the number one, two, three, that launches, will have a good chance of getting that volume and keeping the volume.

Of course, you’ll see some price competition. and you’ll see some gradual conversion close to 100% of the market. So, I think in ‘22, when it comes to fasinumab, we will see more volume converting to biosimilars. So, even more moving away from the original product. And then we’ll see lower net pricing – slow erosion of net pricing per unit. And hopefully, when we look at that mix, that will lead to some modest decline in our total consumer sales. That’s how we see it. And of course, at a point in time, we’ll have full penetration of the volume. So, there will be more volume up for grabs. That could happen maybe around ’23, and then you’ll see a slightly bigger impact of the price erosion.

Chris Schott

Okay. So, that’s helpful. And as I think about kind of the next big one kind of maybe coming on board with the biosimilar Humira market, obviously a huge target you’re going after, but also one with, I think, a different competitive environment that we’ve seen almost in any market before with so many players. So, how do you think about Teva differentiating in this space? And I guess I’m just sort of thinking about like what AbbVie is going to do, what – with eight or nine potential companies coming into this over the first year. Talk about just how you navigate that environment.

Kåre Schultz

Yes. Of course, it’s difficult to say exactly what’s going to happen because it’s – in the case of our product, which is coming from Alvotech, Alvotech and AbbVie are still in a legal battle/negotiation on a potential settlement. And I don’t know where that’s going to lead to. So, we’ll have to wait and see there. If we look at the facts as we know them, then of course we have the high concentration version, which is the version that AbbVie is marketing right now. And we are filing for, or have filed for interchangeability. So, there, of course, we need to see FDA approve the Alvotech filing and interchangeability. But assuming that happens, and I think that’s fair to assume since the product is already on the market in Europe. So, it’s – I mean, it’s a bona fide product approved by EMA, there shouldn’t really be any challenges there, unless something unexpected happens, which I don’t expect.

So, then it’s back to this normal, you could say litigation, settlement, IP fight, and you have a lot of different scenarios there. Sometimes people launch at risk. Sometimes they reach a good settlement, sometimes not as good a settlement. I think in this space, it will be the same as for other biosimilar launches. You’ve got to have the right product so that it’s easy for the hospital or clinic to switch, because switching to another version is always a bit of a hassle. And if there are many suppliers, which there will be here, several of them probably with the latest version of the product, then I think the ones with the latest version of the product will get most market share. You’ve got to be competitive on your contracting and be early in your contracting, of course, and you’ve got to be well prepared from a logistical point of view.

Then all that being said, of course, you can still do some basic math based on what we’ve seen so far, where you can say, okay, what is the originator net price, revenue, you know what. what’s the Humira net revenue reported in the US? You deduct a reasonable assumption on discounts and you say out of maybe seven competitors, three, four, will really get going. And then you start figuring out how much at the end of the day will be there for a company like Teva if we are successful with all these different practical pieces of the puzzle.

Chris Schott

Yes. Do you think of the …

Kåre Schultz

And when you do that math, of course you realize that this is as good as a really good generic launch, if not better.

Chris Schott

Okay. Yes. That was my …

Kåre Schultz

Assuming your product goes live.

Chris Schott

Okay. Yes. I was trying to get that question. A big question we get is just is, by the time this all shakes out, this is certainly big targets that turns into a not so interesting opportunity, but from your perspective, this is an attractive market for Teva as we think out to ‘23 and ‘24.

Kåre Schultz

Yes.

Chris Schott

Okay. Excellent. The other question I just had on the maybe bigger picture on the North America kind of generic portfolio is the whole – I think you in the past, used the ice maker analogy. I think we all like this way of thinking of the business. What does it take to get this franchise back to kind of a $4 billion run rate? So, I think we were a bit below that in 3Q. or is this a business that is stable, but we should be thinking about some sort of maybe gradual erosion over time? You’ve got some other growth drivers to offset that, but just give us a little bit sense of how that part of the portfolio shakes out over time.

Kåre Schultz

Yes. So, structurally, the business is a round the $ billion business on an annual basis, and that’s North America. So, it’s US and Canada, and that’s including our biosimilar portfolio. So, that’s how we look at it. So, what will really shake it up will be approvals of more of the complex generics. last year, Teva had more approvals of generics than anybody else in the US, much more. We also had more complex generics approved than anybody else. But we didn’t have all the ones approved that we thought should be approved. And we had this phenomenon that we have several complex generics that are approved and sold in Europe, in Canada, doing great, and we are not yet getting the FDA approvals. I would say it’s really kind of sometimes very small, bizarre technicalities that leads us into a situation where we don’t get the approval. So, we’re optimistic that we’ll get more of these approvals the coming years. We’re optimistic that our biosimilar pipeline will be contributing. So, we do believe that longer term, we do have a structurally $4 billion business in that space in North America.

Chris Schott

Okay. And in your view, what does the Sandoz divestiture mean for the industry? And kind of directionally, what do you think happens with that asset as we think about the maybe more traditional generic piece of the market?

Kåre Schultz

Yes. of course, I don’t know because I’m not deeply involved in that in any way whatsoever. And it is not a relevant merger path for Teva due to FTC issues, Sandoz and Teva are either number one, two, or three in all European markets, which means that if you were to combine them, you would be told to get rid of half your business or something like that. So, you would lose all the synergies in the comparative blocks from the EU commission. So, that would not make a lot of sense. It’s interesting that if I just look at it as an outsider, the move is a bit similar to Pfizer spinning of Upjohn out to Mylan into Viatris. And it just shows that big pharma is sort of preferring to focus on their specialty piece and take the generic piece elsewhere.

I think it’s good because it actually means that the generic businesses need to be very focused on profitability, on running a sustainable profitable cash generating business. And that’s what we want to do. And that’s, I think, what all our competitors by now are also realizing that that’s what they should do. So, you could say, a crazy race to the bottom on pricing, fighting for volume, market share, doesn’t make anybody rich or any shareholders happy. So, hopefully, when you get a more focused shareholder base and you’re not sort of in a way, not hidden, but a little bit Sandoz could get lost in the big story about Novartis. Now, that will maybe not happen in the future, and I think it can only help the competitive dynamics.

Chris Schott

Yes, that makes sense. On ‘23, you’ve made some really good progress towards those targets you laid out. If I just think conceptually, if I was to look at a longer-term kind of outlook for Teva, once we look past ‘23, does the story remain still kind of a margin story? Does it pivot more to topline growth? I guess, from a leverage perspective, do you – is three times like a good level, keep going down? I’m just trying to directionally think about how do you think about the next leg of the story once you kind of get through this big restructuring and kind of cleanup that you’ve been working on in the last few years?

Kåre Schultz

Yes. First of all, I’ll say something which is maybe not always so popular, but boring is good and it’s good that Teva, that we’re keeping the same targets and that we’re meeting the targets. And that’s basically how we want to run the business. So, we’ll set out new financial targets once we have achieved the ones we have right now. So, sometime in the beginning of ‘24, there’ll be new long-term financial targets. But in terms of strategic direction, we will be changing a little bit in the sense that we will still focus on margin improvements. I think I said the first time I presented for Teva at JPM, I said that if this was greenfield, we would have 12 to 16 factories, and we have 80 now. Maybe in ‘23, we won’t have 80, but we’ll have less than 40, but that doesn’t mean that you can’t keep on improving. So, that will be a margin story that will continue for years into the future. We are maybe halfway, two thirds of the way, but there’s still some way to go.

The next thing that we want to do is of course to secure growth going forward. Now, we are not a type of business where we are going for phenomenal double-digit growth, but we want to go for single digit growth and we want to do it organically globally. And I think we have a very good chance of doing that based on the assets that I’ve just described. So, we will be looking at modest growth on revenue, continued improvement on margin, strong cash generation. And once we get below the three times net debt to EBITDA, then of course the capital allocation is more up for discussion.

Right now, as you’ve seen for the last four years, again, it couldn’t be more boring. Capital allocation is 100% against debt. That’s not necessary once we get below three times. Then we can start thinking about allocating some capital, some cash towards the shareholders, and we can also start thinking about if there are really good business opportunities to do maybe smaller bolt-on acquisitions and so on. But the key driver in my personal view, is to continue to take debt down until we get around two times net debt to EBITDA, which I think is a sustainable level that you could then potentially continue to live with for many years.

Chris Schott

Okay. That’s perfect. Well, that’s a great way to wrap up. I think we’re about out of time. Kåre, really appreciate all the comments today and thanks for joining us.

Kåre Schultz

Very nice to see you. Bye-bye.

Chris Schott

Thanks so much.

Question-and-Answer Session

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