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Good morning and welcome to Atento’s First Quarter 2022 Results Conference Call. Today’s call is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Hernan van Waveren, Investor Relations Director for Atento. Please go ahead.
Thank you, operator and welcome everyone to our fiscal first quarter 2022 earnings call to discuss Atento’s financial and operating results. Here with us for today’s call are Carlos López-Abadía, Atento’s Chief Executive Officer and Jose Azevedo, Chief Financial Officer. Following a review of Atento’s financial and operating results, we will open the call for your questions. Please operator, turn to Slide 2.
Before proceeding, please note that certain comments made on this call will contain financial information that has been prepared under International Financial Reporting Standards. In addition, this call may contain information that constitutes forward-looking statements which are not guarantees of future performance and involve risks and uncertainties. Certain results may differ materially from those in the forward-looking statements as a result of various factors. We encourage you to review our publicly available disclosure documents filed with the relevant security regulators. And we invite you to read the complete disclosure included here on the second slide of our earnings call presentation. Our public filings and earnings presentation can be found at investors.atento.com. Please be advised that unless noted otherwise, all growth rates are on a year-over-year and constant currency basis.
I will now turn the call over to Carlos.
Thank you, Hernan and good morning, ladies and gentlemen. First of all, let me apologize for my voice or my lack of voice. I am recovering from a cold. And I am happy to report that this time around it’s not COVID. And I had the opportunity to get COVID on my last visit to Brazil. And this time around, it’s simply a bad cold that I am recovering from. My apologies in advance. Let me – getting down to business, let me start with confirming as an advance to you in our last call that although we had a slow start for the year this first quarter, we have seen significant improvement month-to-month leaving to Q2, which allows us to be more confident on the guidance that we have provided to you.
Now, let me break that into different components. Tier 1 results, in our last call, we discussed that we expected Q1 to start slow. Three main reasons for that: one, lingering impacts of cyber, Omicron, which affected us, particularly in January and February, decreasing in March and back to normal levels now in April, and the higher inflation regime that we see in many countries, but as you know, Latin America is particularly prone to high inflation and it has impacted us more than usual.
Now, these effects have been offset by a number of factors. One, obviously, is the actions that we have taken. But two very important ones are the insurance, cyber insurance recognition, which helps us to offset some of the cyber impacts; also, a very effective inflation pass-through this year. And normally, at this point of the year, which we are much less than the 60% that we have achieved already in terms of inflation pass-through to our customers, which allows to be very comfortable in terms of reaching our 80% or plus 80% inflation pass-through for the year. Now, we have seen a clear month-to-month improvement achieved in the quarter with higher margin in March than we had in Q1 last year, which again gives us the comfort, the action that we haven taken and improvements that we see, puts us in a good position to continue the improvement through the year and to achieve the guidance that we are giving.
Now, let me talk about the different components. First of all, sales and revenue. Pipeline volume and the quality of that volume continues to improve through the quarter and month to month, which allows us to estimate that we are on track to improve the sales year-on-year vis-à-vis last year. We have already achieved more than $50 million in total annual value of sales. Out of which 19 – that includes 19 clients, 58% of that total annual value and this – and that’s for the quality of this revenue, these new clients come at more than 19% EBITDA margin. Those customers are in mostly in three key sectors: 90% of our revenue is in three key sectors, e-commerce, fin-tech and our travel entertainment, those are some of our key sectors. These are sectors that we estimate and have proven for us to be a high-growth sector once when we have customers in the right sector with the right growth, obviously, that helps you let the base and grow with them. So acquiring customers in the right sector is very important to us. So, we are happy with the volume as well as with the quality of the sales that we are in-taking.
Another important aspect for us in terms of the quality of the revenues is hard currency. Hard currency revenues are up 310 basis points versus last year and we are reaching 28% of total revenue. As I mentioned to you before, our expectation for the year is to get to 30% hard currency as a percentage of our revenue and our EBITDA, most importantly, the EBITDA. So, we feel we are in a good track to achieve our objectives for the year.
Speaking of hard currency, talking about our hard currency markets in the U.S., we have seen significant pipeline improvement and sales growth in the quarter, but also very importantly both in existing accounts as well as new ones. In EMEA, we see a significant expansion in travel and energy sector, two sectors that travel has been a bit depressed last 3 years into COVID. It would appear that this year, a lot of pent-up demand in travel is generating quite a bit of volume. Very important for us, leading into Q2, which is a big quarter for the peak or the travel season. The energy sector, as you now, is a sector with significant challenges worldwide. Particularly in Europe, there are significant challenges and opportunities and we see a lot of activity in the energy sector, we expect to continue through the year.
I want to also touch on operational efficiencies as important as the generation of new revenue, acquisition of new customers and moving into the right sectors over time. It’s important to all that is. It’s also very important for us, the continued improvement of our basic operations. As you know, we launched a delivery transformation a couple of minutes ago and we continue to work and get improvements on that. We have deployed now our excellent centers to all the geographies and they are working at full capacity, full blown. Just to align on nomenclature what we call the excellence centers are fundamentally the continuous improvement centers that allow us to on a continued basis, month to month, year to year, to continue to improve the way we provide services to the specific programs to specific customers.
We also continue to improve the capabilities of our shared service center, which is where we centralized the capabilities that are not specific to the particular program or a particular customer or things like workforce management, quality assurance reporting, we continue to improve the capabilities there. We also are reaching the targets that we had in terms of the deployment of global delivery models, which improves methodologies, technologies and approaches that are critically important, all these four components that I mentioned are critically important for us to achieve a number of objectives.
When people hear the word efficiencies, the first thing that people think sometimes is cost. For us, we start with this, allows us to provide better quality, better services, new services, and of course, also to improve our cost position. But it’s very important when I talk about the improvement of the cost position, it’s not a one-off opportunity to reduce cost, but it allows us to continue to improve our cost structure, so that we can deliver more with less to our customers, year-on-year. The pressures on our industry, like most industries, are not going to decrease over time. So we need to build a capability that allows us to keep on improving that delivery to customers.
Also, I would like to add that the component that I mentioned last, perhaps very important, the global delivery models and methodologies are critically important for those customers that we have been targeting over the last couple of years. So we are getting significant traction with global customers, customers that expect same quality of service, same approaches to servicing them in different geographies. In addition to that, ones that you have more, that is problem in methodology – set of methodologies that allows us to deliver those capabilities to customers. Also, you have the opportunity to provide continuous improvement of those methodology studies. More difficult to do when you have these pockets of different approaches to delivery. So very important for us both in terms of efficiencies, ongoing and recurring cost impact as well as capabilities to deliver what the customers and the markets demand.
On the challenge front, we have seen increased financial costs due to increased interest rate regimes across essentially all the markets, but for us, particularly important and impactful is the Brazilian market. We are working with our bankers to improve our financing structure to mitigate the potential impact of continued high interest rate regimes. We are not expecting this to change necessarily in the short-term or in the foreseeable future. So we are trying to adjust our financing structure to mitigate the potential impact of that – of these interest rates that we have seen to grow over the last few months.
With that, I would like to finish my comments the way I started. We see our businesses and actions gaining traction and we do feel more confident about the trends for the year and the guidance that we have provided to you previously.
With that, thank you very much. And over to you, Jose.
Thank you, Carlos and good day everyone. As we noted in the earnings release, the first quarter is always seasonally slow, mostly in January and February. It is our weakest quarter by far in terms of sales, profitability and cash flow. Say that we exited March at healthy rates to face the coming month and we are very confident to achieve our guidance for this year. This quarter was especially difficult due to the very high absent rates in each of our markets, including Brazil, our largest.
The combination of lower volumes, high sick pay, hiring of temporary workers and over time payments impacted EBITDA and cash flow, particularly hard. In Brazil, this was offset by accrued insurance that’s covered the impact of the October cyber attack. In total, the residual impact of the attack was $25 million in the first quarter in terms of lost revenue and costs. These costs included upgrades of our cyber defenses. It is also important to point out that the current high levels of inflation had a stronger impact this quarter as new annual inflation adjustments in our contracts kick in during the remainder of the year.
We are happy to communicate that we have successfully managed to adjust most of our biggest key client contracts. Although as we noted in our previous earnings call some of our clients in Brazil diversified their volumes away from us to other vendors. This is reflected in the 7.7% decrease in Brazil’s multi-sector revenue in the quarter. Thankfully, less volume shipped than we expected. I should also point out that some of the decline also reflects contracts that tend to choose, not to renew due to low profitability.
The decline in Telefónica revenues in Brazil and the Americas was mainly due to a cost-cutting program that this client recently implemented globally. The exception was in EMEA, where Telefónica consolidated the number of CX providers it uses. In other words, we made the cuts and picked up additional volumes that have been assigned to other competitors. Although EMEA revenue was flat, EBITDA decreased due to one-time severance payments we made in relation to rationalizing capacity at the call center in this market. We expect to continue calibrating our capacity in all markets throughout the year. Lastly, revenue in the Americas region was soft compared to the previous year. Last year, we have won a big contract in the U.S., but we expect to resume our growth trajectory in this market based on the volumes we are seeing currently and the sales pipeline.
On the next slide is an EBITDA to free cash flow bridge. Three items mainly drove the change in working capital. This includes the cyber insurance that I noted earlier, a delay in the signing of new Telefónica contracts, hence advance funds that banks may deliver to brands at the end of each year. Regarding CapEx, $6.3 million of it reflects spend that was postponed to last year. For this year, we are budgeting between – CapEx to be between 4% and 4.5% of revenue. The $25 million in net financial expenses primarily consisted of $20 million in bond interest payments and $5.2 million in interest expenses, mainly those related to our hedges and credit revolvers.
Moving to our capital strategy, we maintained a healthy cash position at the end of the quarter and expect it to improve along with leverage and as the year progresses. Keep in mind that our leverage ratio is populated on a trailing 12-month basis. So the impact of the fourth quarter cyber attack will be carried in the ratio until the end of the first quarter 2022. It’s also important to note that our interest coverage ratio is at 1.9x versus 2.3x in the last year’s first quarter. Last but not least, we have successful 1 month our euro-denominated hedge with a positive cash impact of approximately $4 million. We continue to monitor currency in the interest rate markets for further opportunities to reduce our financial costs.
On the next slide, we’ve reached equity, which remained negative at the end of the quarter. The bulk of this is attributable to a net $104.3 million in financial items, of which $70.4 million is non-cash items related to the balance sheet and P&L conversions. These items are broken down into the box at the center of the slide. As you can see at the top of the slide, the CDI range, our cross country slot is linked to have revenues substantially over the last year. That impacted our USD-BRL cross currency swap mark to market.
Moving to the left slide, Q1 was another challenging quarter, but our underlying fundamentals remain strong and our growth strategy continues mainly traction. We, therefore, expect to achieve our guidance targets as well as exit 2022 in a strong win.
Operator, please open the call for questions.
[Operator Instructions] And I would now like to turn the call over to Mr. Hernan van Waveren for questions received via the webcast.
Thank you, operator. We have a question from our webcast. So Carlos and Jose, I think you mentioned that you were able to pass through 60% to 80% inflation historically. What is the number now?
As I mentioned in my remarks, we are over 60%, which is very good given the time of the year. The way this tends to work is as contracts reach their annual renewal or the annual point, the inflation process triggers. So some of those contracts happen to be renewed or triggered in January. That’s very good, smoothen in December. The sooner we can get the inflation pass-through on the back, and normally, it’s a combination of what the contracts say and a little bit of a negotiation. So we’ve been very proactive this year, as you can imagine, given the higher level of inflation. So we are at 60% at this point of the year. So reaching the 80% that we normally target by the end of the year is not only we can reach, but we expect to exceed that.
Thank you, Carlos. We have a next question from our webcast. Could you please give us an update on the impact of the cyber attack on your business moving forward?
Good question. Hopefully, this would be less unless the question over time because the answer is less unless as I mentioned, the – I mentioned in our previous call and we mentioned today, we still have some residual impacts in Q1. We expect much less in Q2, Q3 and so on. In fact, to be more specific, in Q1, we had both on the cost and revenue side impact. The bulk of the cost side, as I mentioned in the previous call, were the anticipation of a lot of the measures that we had in the cyber plant, we moved those we accelerated those to Q4 and Q1. So that was increased costs. The bulk of that is done, the rest of the year from that perspective.
In terms of customers and volumes, I mentioned before, by and large, with one exception where we decided to part ways on a mutual agreement. All the customers have remained with us. In some cases, as we expected, the customer that had a lot of volume with us, 90% plus, decreased their volumes. We had included in our forecast for the year. We looked at all the customers that have high exposure to us. And we have assumed we put in the forecast that potentially they are going to decline those volumes. That may or may not happen, but we want to be prudent to have that in the forecast. And included in the forecast, obviously, is the basis of the guidance that we provided to you. As the year progresses, we’ve seen some of those volume decreases either not happening or happening more slowly than we had in the forecast, which is a good thing. And then again, as time passes all this gets diluted into new sales and the natural growth of the business, which leads to fundamentally this receipts into the background of the past. So in short, we expect not to be talking too much about cyber Q3, Q4 and hopefully ever.
Thank you, Carlos. We have one more question from our webcast. Could you develop an Atento sales strategy for the remainder of the year?
Well, as I mentioned a second ago, very important for us, particularly when you have the – what’s always important – felt it is important when you’re doing a transformation, it’s very important to move from [indiscernible]. Obviously, that transformation includes sales, changes in customers, teams and services, etcetera, or adding customers on in services, of course. Particularly important for us years like this, where we have the undesirable events, tough events in Q4 and so and so forth to replenish the revenue sales. So I made some remarks regarding strategy sales, in particular. A couple of things I would highlight. Obviously, sales strategy is a complex and broad topic that we’re very happy since I have something I personally get very involved and I enjoy. We’re very happy to discuss it with anyone that cares to do that from me.
But in many things, we introduced new channels. We’ve introduced inside sales channel, and we have introduced also a partner channel, which we have before. We’re getting very good traction. We started with a partner channel earlier than inside sales, very good traction on both. We have in the pharma channel, I think, right now around $85 million, $90 million in the pipeline in such a likely the late-stage pipeline. So good fractional dose. We started rolling those out in the U.S. and with extending them to all the regions of the world as we see what works, what doesn’t work, etcetera. So we continue to do that with these and other channels. I believe that in any aspect of the business, it’s very important to try things, see how they work. Not everything that you try is going to work as you like and recognize very quickly what doesn’t work and try something else. These two seems we’re getting very good traction right now and we’re going at them out to the rest of the world as well.
Other aspects of the sales strategy that we highlight, for example, a very important market for us is Brazil, is our most – our largest and most important market. We are approaching – we’re taking a new approach to sales and to the market to reenergize Brazil. We have introduced changes on the sales incentive program that are different from what we used to do before. We’re focusing both in new sales, new customers and existing accounts where we think we have a significant opportunity to grow into new areas of the business of our customers. We are also looking at the overall Brazilian market. We – quite frankly, we are the largest provider in the Brazilian market by a large margin. It’s a very competitive market. And although we are interested to continue to be at the top end for the market, we don’t have any interest to go through the bottom. We’re getting to rise – sorry, a race to the bottom in terms of price or quality of service. We want to continue to be the premier provider.
But we’re looking at the upper part of the market, and we’re certainly seeing that and taking a specific and different approach for the different segments. One of the things we’re introducing is [indiscernible] we don’t have a commercial name yet. But what we wanted to is some of – a part of the market that is to sell for us have different needs from the top tier, Sao Paulo or large city-based customers. And we are doing a targeted offer for those segments. Again, very happy to discuss in more detail our sales strategy with any of you in particular or as we develop our Investor Relations Day, make sure we have a bit monographic on sales and marketing strategy.
Thank you. And we do have a phone question. That comes from Ryan O’Hagan with EPIC.
Hi, guys, thanks for taking the time and taking through the presentation and congrats on being able to confirm guidance. It’s great to see you given the difficulties you had in Q1. I just had three very quick questions. The first is in relation to the cyber attack. You mentioned a $25 million net impact on costs and revenue. I just wanted to get more color on how I should think about that number. And could you give us an overview of the quantum of the insurance refund that you got in relation to the attack?
Okay. Insurance, you see, is €10 million. So whatever the exchange rate is, the cyber impact you wanted the core on the cyber impact in Q1?
Yes, just an overview of kind of what the revenue impact was and what the cost impact was? And whether that cost impact was purely operational or was there some CapEx element, I don’t know, like IT infrastructure?
There was. We might want to look at this closing a little more – in more detail. There is particular interest in this. We didn’t bring that today, but I can tell you at the high level what that is. We have matched a cost element to that impact. That cost element, we took a lot of that in Q4 and some bit in Q1. And the cost element fundamentally, the investment on – we took our cyber program for the full fiscal year ‘22, and we accelerated that. Some of that we did in Q4, to be honest, but we still have some additional above and beyond what we had planned for the budget for Q1. So those are incremental costs of acceleration of things we were going to do through the year. On the revenue, it’s very simple. When I try to explain a few brands, a number of customers, not lots of them, to be honest, it’s a handful, where we represent 90% plus of their call center capacity, for example, right? In some cases, some large customers, it doesn’t apply to the whole customer. There is a line of service, a particular product as we would provide for them where we are the only provider for that service.
When that happens and you have – I think – in all fairness, I think it makes sense to do it anyway for redundancy and business continuity, right? But clearly, the cyber event brought to the forth from a normalcy perspective, I mean I might make sense to have my volumes distributed across more than one provider. So, some of that happened. Most of that happened during Q1, to be the same way I’m telling you and most of the incremental cost happening in Q4, most of the decrease in volumes happened in Q1. We have assumed that anyone that had a higher – a high percentage dependency on us either in total for the company or a line of service for a specific line of service, we have assumed that, that would decrease and that’s in the forecast and that’s in the guidance. That conservative assumption is not happening in all cases, which is good, or it’s not happening very not in the year. So my expectation is that there may be some more of that during the year, again, already in the forecast and in the guidance but it may not happen or may happen later, which I think will be an asset. But that is the nature of the impact.
In terms of the specific line items of the cost, software, hardware and second services, by the way, we also have upgraded the services of a number of security service security providers. We can look at making a specific disclosure of those by line item if it is of interest to our events [indiscernible]. Most of that is a one-time event. So we will think about having that, but we will be happy to break it down.
Got it. That’s a very helpful color and I appreciate that. My next question is more kind of the strategic side. I know there are quite a few rumors in the market that you guys are assessing strategic options for the go-forward shape of the business, etcetera. And clearly, the cyber attack has been a meaningful kind of impact in Q4 and Q1. And I know any kind of sales process or strategic options might be impacted by that. Just wondering, given the kind of near-term conclusion of the lockup period for the big three investors, is that something that you guys are actively discussing right now about expanding that lockup to give you kind of extra time as a result of this kind of disruption?
Okay. So, I thought the question was going in one direction, but maybe just the other one. On the question of M&A activity, my answer from last time stays, and it will always stay. We don’t comment on M&A activity until we have something to say. We are a public company. And obviously, we traded every day. And we always look at opportunities that could enhance the value. Beyond that, I will not comment on any specific rumors. On the shareholder cap, look, a number of you have asked me the question over the last few weeks, to be honest with you and have approached. I mean I am in constant discussions with my major shareholders, as you can imagine. And I have approached this question through a number of them. I can tell you with confidence that the above expressed confidence in the company and confidence in the value of the long-term – the long-term value of the investment. So, that I can tell you unambiguously. I have also approached the specific concern of some as you are right now expressing, and I am in discussion with some of them about the possibility of them making for the commitment that we could make public. Stay tuned, and we may have something to talk to you about that.
Got it. That’s super helpful to know. And just the last question on my side, I appreciate the color and I appreciate your hands tied on the M&A side. You mentioned at the Investor Day as part of your release materials and as part of your spoken comments, is that an event that you guys think will happen in Q2, or is that more kind of in the back half of the year? What kind of timeline, broad, broad spaces are you thinking for that?
Sure. I am glad you asked the question, I was having a debate, Jose [ph] is smiling. So, the debate with, say, the plan is to have a formal face-to-face proper Investor Day in the October-November timeframe. We would like have the time to organize and also for those of you that are interested to structure – to make plans to see us in person. I think there is most value in doing that. That was not possible in the last couple of years due to COVID and other things. But I think now that it’s possible, I think there is a ton of value on that. We would also have any discussion at an earlier event, potentially even in June, but that would have to be more of a virtual nature, right. That would be an extended maybe half a day, or we will figure out the agenda and the format. We have a bit of a debate internally as to the value of doing that. If you or anybody on this call would care to give us some input and feedback in terms of how that would allow us to gauge the level of interest on that virtual event in the next month or a couple of months, I am very happy to organize that as well. But we started out. We will organize an Investor Day in the October-November timeframe.
Got it. That’s super helpful color, guys and I appreciate that. For what it’s worth, I think something shorter and virtual in June makes a lot of sense. Presumably, you guys are very busy. So, it would just be good to touch base more kind of informally. I am sure the rest of the investor base would appreciate something like that. But yes, this has been super helpful. I appreciate taking my question guys and best of luck for the rest Q2 again and throughout the year. Thanks.
Thank you, Ryan.
Thank you. And the next phone question comes from Vincent Colicchio with Barrington Research.
Yes. Good morning Carlos. I am curious, are you seeing signs of economic weakness in any of your geographies? I think you had a good read on the broader Latin market and America as well.
As you can imagine, we all look at that constantly. And particularly this year, we call geopolitical issues, Ukraine, China and the whole economic situation at the global level. So, for us, in particular, we have not, and I always say these things with a level of nervousness, we haven’t seen that weakness. I never say that. I mean, sorry, when I say that, I always say with a level of nervousness because I think I could jinx it. But no, we haven’t seen that. As I mentioned in my prepared remarks, the beginning of the year was a bit slow in many markets, to be honest. But sales pipeline have been ramping up pretty nicely the last two weeks. And it leads me to have more confidence for the year. Predicting macro events is hard, and there is a lot of people might very qualified than myself to do so. But if your question, which I figure is do we see it on the ground, I don’t see significant weaknesses on the ground and in general, right. We can talk about a specific market, but we don’t see it right now. We see the last four weeks, five weeks, significant uptick on our pipeline and our sales.
And what was the level of low-margin contracts not renewed in Brazil significantly higher than your plan?
Well, there is one in particular that I think I mentioned in a previous call that we were not planning, we were – I don’t know how many negatives I can put in a sentence. We were not planning – in other words, we were planning to renew. But given the complexity after the cyber attack and it was taking a long time to bring them back, we decided that it was just, I don’t know what’s that, so there was one in particular, but that nothing comes to mind. So absolutely, we will know. But that exception that comes from it.
And Jose, what are your thoughts on free cash flow for the year?
Listen, our thoughts about the free cash flow with the guidance that we have given, we are very confident on that. It’s to be between breakeven and $10 million positive.
Okay. Thank you. Thanks for answering my questions. Thanks guys.
Thank you, Vince. Thank you.
So our next question comes from our webcast. Has the negative equity triggered any technical loan defaults or breached any covenants?
No. The short answer is no. Most of that, you say I mentioned is accounting criminals, but we don’t take that extremely seriously. But from a perspective of covenant, the right answer is simple one, no.
Thank you, Carlos. Next question from our webcast. Could you please talk about the further potential of managing costs? How does that translate into margin numbers? I think you said in one of the previous calls that there is less room to cut cost compared to the initial stage of the Three Horizon Plan.
So, I always want to make the specific point regarding cost. There is one-off cost cutting that many companies will do it when we are doing constantly and with you, which the sick calls that are hygienic, like cutting your fingernails because things tend to expand and particularly costs tend to expand is on cut regularly. Those are more, let’s call them, practical cost cuts which we do regularly. And I think – although they are important for any company, they are not very strategic. What is more is strategic for us is what we were – I was referring in my remarks, and I would like to give you a regular update is the reduction of the cost structure. And the difference there is not doing the same things with less is changing the way – sorry, it’s not doing the same things in the same way with less. It is doing the same things in a different way that is more effective and, obviously, we could have some doing that. So, the whole focus of our – one of the horizons or one of the focuses of the Three Horizon Plan is exactly that is to change the cost structure, to change the way we do business. That’s not as easy as have been spend on travel or let’s lay off 5% of the people or things like that. It expands because we are changing the way you are doing things, but it’s the most valuable thing we can do, because one, yes, you become more efficient and you lower your cost structure. But two, the focus is also to provide better service, high quality. That’s why when we look at that program, we frequently talk about it gives the impact in terms of efficiency, but also uses of NPS or customer satisfaction because we are looking at both, better service in a more efficient way, that’s harder. But that takes multiple years and quite frankly is something that will continue to evolve forever, way beyond we stop talking about it for quite some time. I think part of the question there was the impact of that on results. And again, this is another one of those areas that will be great, probably, to expand on an Investor Day because it will give you a simplistic answer and – but probably actually just is. This year, we are targeting to have an impact in the 1%, 2%, perhaps 3% on the less impact in terms of efficiency. But you need to take a look at the ongoing improvement on cost structure as something that puts you in a better position to compete. As I mentioned in my remarks, customers always look for more products, and that’s true today. It will be true 5 years from now. So, a level of improvement has to be always be produced. Part of that will go to improvement on definitely in our case. Part of that will go to improvement on net margin, EBITDA margin, but part of that goes into being more competitive – in forever more competitive market. So, how that – those two get split, it probably would be a very good topic for that Investor Day, so that – we can explain exactly what we do in operations and how that materializes in a more competitive position in the markets where we compete and how much of that materializes in better margins.
Thank you, Carlos. Another question from our webcast. Good to see things are getting back on track. How do you see cash flow fluctuating throughout the year? And how would cash flow look excluding gross working capital and gross CapEx investments?
Okay. And I think that’s one that I want to punch very quickly to Jose. I don’t know we have that information handy. I definitely don’t have any mind to commit from memory.
Yes. No, I can give color. At the – as I mentioned, we will be breakeven and maybe even positive. If we take out the growth CapEx, we will have more $15 million – between $15 million and $20 million. That is what we have – if you take out the 100% of the CapEx and it is possible, of course, because we have ongoing management in CapEx and it’s not less, it’s around $40 million. We have more $71 million. It means we can have the free cash flow with $80 million, but it doesn’t make sense to make demand on that and about the growth, the same. We cannot say here. We need to grow and I can invest to grow. That is why, again, we work to maintain everything in order that allow us to pay everything and to give us a positive free cash flow. It’s not so much as we wish, but as you know, we have a lot of financial costs and so on that we have to pay. But in the next years, our wish is, of course, to increase the free cash flow through the operational results.
Thank you, Jose and Carlos. Next question from our webcast. When looking at different financial structures, how do you think about the pros and cons of adjusting the hedge?
At a high level, very simply, the hedge made – makes much more sense. The more dependent your part of one to specific non-dollars of foreign currencies, foreign into the dollar. As we increase our percentage of hard currency, and we consider those euro and dollar, that becomes less unless necessary. That’s one component. The other component is the cost of that hedge. At the time where we did it, it was actively in expansion. Everything is so active, but after being expensive in a world of higher interest rates, it is more expensive. So, given that the [Technical Difficulty] has changed, that’s why the reason we are looking at our restructuring again.
Thank you. So, the last question from our webcast, could you talk about your current progress of hitting your guidance this year based on your current sales pipeline and new client contracts? Are we ahead or behind expectation?
Well, as I mentioned in my remarks, we – obviously, we will keep you updated as the year progresses. But the guidance that we set four weeks ago, we feel more strongly about it than a few weeks ago. I mentioned how the upticks that we have seen in pipeline sales is that perhaps some of the some of the downside that we were forecasting, and we are still high in the forecast are not materializing. We do – we are, however, in a very potentially difficult year from a macroeconomic perspective with all the global uncertainties that we have. So, we continue to be conservative in terms of how we look at things. But from last time we spoke, which I think we spoke four weeks or five weeks ago, until now, the things are ahead. So, more confident than when I made a commitment a few weeks ago.
Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Hernan van Waveren for any closing comments.
Thank you, operator. We wanted to thank our stakeholders and analysts joining the call today. We look forward in further answering any questions you may have. As a reminder, our public filings and earnings presentation can be found at investors.atento.com. Operator, please conclude the call. Thank you very much.