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How Teva Pharmaceutical Plans to Improve Financial Profile

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Overview

As we saw in the previous part of this series, Teva Pharmaceutical Industries (TEVA) is determined to pay down a considerable amount of its debt totaling $32 billion over the next few years. It has put in place a restructuring plan aimed at cost cuts of $3 billion over the next two years and then the reduction of $3 billion in expenses each successive year. The company aims to achieve financial stability through improvement in operating profits and stable cash flow generation over the next few years.

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Teva’s efforts to improve its financial profile

Teva Pharmaceutical has implemented a clear strategy to improve its financial profile and establish long-term growth prospects. It has suspended any dividend payments on its ordinary shares and ADRs (American depositary receipts) from immediate effect. It’s looking for opportunities to increasingly divest its non-core assets, which could result in a leaner, more robust, simplified organizational structure. However, the company is likely to undertake a divestment opportunity only if it adds to improvement in its overall financial situation from the liquidity as well as earnings perspective. The cash flows generated from its operating activities as well as divestitures will be used to pay down debt, with bank debts a priority. The company has targeted a leverage ratio or net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) of less than 4.0x by the end of 2020.

The company also announced that it will not be paying annual bonuses to its employees in the current fiscal year. It recently announced a cut in the financial remuneration of its board of directors in 2018. Any positive news around Teva Pharmaceutical could trigger a positive price movement in the Vanguard Total International Stock ETF (VXUS), which holds ~0.09% of its total portfolio in TEVA stock.

As of January 11, 2018, peers Mylan (MYL), Gilead Sciences (GILD), and Novartis (NVS) have outstanding debts of $15.2 billion, $29.3 billion, and $23.2 billion, respectively, on their balance sheets.

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