Atento S.A. (NYSE:ATTO) Q4 2021 Earnings Conference Call March 31, 2022 10:00 AM ET
Company Participants
Hernan Waveren – IR
Carlos López-Abadía – CEO
Jose Azevedo – CFO
Conference Call Participants
Vincent Colicchio – Barrington Research
Beltran Palazuelo – DLTV
Operator
Good morning, and welcome to Atento’s 2021 Fourth Quarter and Full Year 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.
Hernan Waveren
Thank you, operator, and welcome, everyone, to our fiscal fourth quarter 2021 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 José Azevedo, Chief Financial Officer. Following their review of Atento’s financial and operating results, we will open the call for your questions.
Before proceeding, please note that certain comments made in this call will contain financial information that has been presented and 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 securities regulators, and we invite you to read the complete disclosure included here in 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 year-over-year and constant currency basis.
I will now turn the call over to Carlos.
Carlos López-Abadía
Thank you, Hernan, and good morning, ladies and gentlemen. I want to discuss with you the results of 2021 and our perspectives for 2022.
Our 2021 results show continued improvement of our recurring operations when excluding the one-off cyber event that impacted our results significantly and beyond our initial estimates. As a result, we have made significant investments in our cyber’s preparedness, both from a technology and operational perspective. And we expect to resume in 2022 the improvements to our business and results.
The continued improvement showed in the first 3 quarters and in the fourth quarter, on a recurring basis, give us the confidence that we are on the right track to continue to improve Atento. On a recurring basis, we have grown our revenue 7.9% and EBITDA by 23.7% while expanding operations in key markets and sectors with strong sales growth and record customer satisfaction.
We increased sales by 20% with the vast majority of those sales coming from strategic and high-growth sectors such as technology, fintech, e-commerce, health care, while expanding relationships with traditional clients. A very important example of the latter is Telefónica. We completed the extension of the MSA to cover the totality of our geographic footprint with them. It is my belief that as important as MSAs are, we need to earn the business of our clients every single day. In that spirit, we have expanded our relationship with Telefónica in Spain with 800 workstations with a contract that extends beyond the MSA.
We continue to grow our U.S. and EMEA business, taking the hard-currency share of our EBITDA to 26% as a result of growth and margin expansion in both markets. The U.S. has grown 34%, reaching a 16.6% EBITDA margin, while EMEA has reached a 14.2% EBITDA margin. We have opened 2 new centers in the U.S., one of them co-branded with our customer, GameStop. These are important results for us not only because of the inherent attractiveness of the market, but also because it allows us to slowly but surely reduce our foreign exchange exposure.
On the topic of FX, I need to point out that we are working with our bankers to address the financial costs of our foreign exchange exposure. Expect some news from us on this front.
We continue to drive efficiencies across our organization. While we believe in the importance of our regional organization, which enables us to stay close to our clients, we continue to drive the implementation of shared service centers and global operating models. We expect to start delivering this year significant efficiencies, lowering our cost structure while providing better, more consistent service quality to our customers.
We continue to innovate and expand our portfolio of next-generation solutions. We’re emphasizing partnerships not only as technology sources, but also as go-to-market partners. We have started a new partner — sorry, a new partner channel organization in the U.S. that we expect to materially contribute to our growth in 2022, rolling it out to the rest of the world in the second half of the year.
I will be remiss if I do not comment on our several plans, given our recent experience. Making virtue out of necessity, we have modified our cyber strategy, having the lessons learned. It includes 3 components: prevention, detection and recovery. Particularly in the area of recovery, we are establishing joint protocols with our customers to accelerate service restoration in the event of future cyberattacks. This is something we have learned to be of paramount importance to address the cyber risk.
Last but not least, we keep on delivering on our ESG commitments. We have reduced Scope 1 emissions by 16%, continue to be a leader in the diversity and inclusions, and have achieved a new record in customer NPS while also improving employee satisfaction.
Finally, our outlook for 2022. We see some of the impact from the cyberattack affecting us in Q1 results, but we also see an acceleration of results and a resumption of our transformation trajectory thereafter, thus improving on our 2021 recurring EBITDA and revenue numbers.
José will now review our results with you in more detail, and then we’ll take your questions. Thank you.
Jose Azevedo
Thank you, Carlos, and good day, everyone. I will begin with a brief overview of our 2021 financial results on Slide 14.
We want to make clear that the underlying performance of our business remains strong and that our growth strategy continues gaining traction. So I will focus on the recurring numbers, which exclude the fourth quarter impacts of the cyberattack that resulted in approximately $35 million of lost revenue. This added a $7 million of costs related to the attack, hence a $42 million impact on our EBITDA.
Please turn to Slide 14. Guidance, revenue grew nearly 8% to $1.5 billion at year-end with a recurring EBITDA increasing a strong 24%. That’s to how our improving operating leverage. Also in line with the guidance was recurring margin of nearly 13%. Recurring operating cash flow was $21.1 million, which I will break down in a moment. Lastly on this slide, our reported results led to negative equity of $10 million. However, it’s important to note that this consists of $85 million of noncash items, which I will explain later in my presentation.
Slide 15 shows the cyberattack’s impacts on revenue, EBITDA as well as operating cash flow. The loss of revenue and costs stemming from the attack had a $42 million EBITDA impact, putting our recurring EBITDA at $192 million. Its impact on operating cash flow was $25 million or negative $4 million for 2021. On a recurring basis, operating cash flow was positive $21.1 million, as shown on the slide.
In the bottom half of Slide 16, we give a geographic breakdown of our recurring annual results. As you can see in the upper left of the slide, Telefónica revenue drove more of our top line than in the past. That was due to 23% growth in Telefónica revenue in Brazil as we captured a great share of wallet and we delivered more high-value, next-generation services to this key client.
At the same time, growth in Multisector sales slowed to 1% in Brazil as we maintained discipline with contracts we are signing. We continue to emphasize margin, not growth. That is reflected in Brazil’s EBITDA, which increased 26% in 2021, while the margin expanded 240 basis points to 15.4%.
In the Americas, Multisector business drove more of our top line, consistent with our strategy. Sales in this category grew 14%, while Telefónica revenue increased 7%. And the Americas increased 5.5% with the margin up slightly to 9.4%. The margin was constrained by increased variable operating costs due to high absenteeism rates, mainly in Argentina and Peru. For the year, EMEA was a healthy contributor to our performance with EBITDA increasing 73% and the margin expanding 410 basis points to 10.6%, a level we expect to maintain going forward.
Slide 17 makes clear the impact of cyberattack on our reported results for 2021. As you can see, Brazil revenue was flat with our Multisector business being hit the hardest with sales down 3%. Telefónica sales, on the other hand, rose 10% for the year. The lost revenue in Brazil, coupled with the costs we incurred to deal with the attack, resulted in a 31% decrease in EBITDA. In turn, Brazil’s margin contracted 410 basis points to just under 9%.
Slide 18 gives a more focused and objective view of our recurring performance in Brazil in the fourth quarter with the cyberattack occurring. Brazil revenue grew 2% with Telefónica sales increasing 11.5%. Recurring EBITDA increased 8.4% with Brazil’s margin expanding nearly 100 basis points to 19.6%.
Slide 19, which has our reported results, shows the impact the cyberattack had on our Brazilian business. Fourth quarter sales decreased 22% in Brazil with Multisector and Telefónica revenue decreasing 17% and 39%, respectively. The loss of revenue as well as the cyber costs led to a 148% decrease in Brazil’s EBITDA and a 3 basis point contraction in its margin.
Americas revenue increased 7.5%, while the margin contracted 100 basis points due to the higher absenteeism rates that I noted earlier. EMEA sales decreased nearly 9% in the quarter, although the margin expanded a strong 200 basis points, 13% on cost cutting and improved sales margins.
On Slide 20, we also show 2021 free cash flow on a recurring basis, which was $10.5 million. In addition to the $25 million impact of the cyberattack, there were other one-offs last year. This included the $20 million in payroll-related taxes that had been postponed in the prior year, other pandemic relief programs as well as the costs that we incurred when refinancing our debt in early 2021. This included $10 million in insurance costs and an $11 million premium to bondholders.
Slide 21, we bridge EBITDA and free cash flow. The biggest factors being changes in working capital of [$43 million], mainly the cyber costs and the tax payments; CapEx of $51 million; and the net financial expenses of $46 million. CapEx was much higher in 2021 as we have postponed cash CapEx in the prior year due to the pandemic. The increase also reflects the Microsoft licenses that we privilege treat as leases from an accounting perspective.
Please turn to Slide 22. Now let’s look at leverage on a recurring basis. Net debt was 2.9x EBITDA, up slightly both sequentially and year-over-year. On the basis, leverage was within our guidance range of 2.5 to 3x. On a reported basis, it was 3.9x. We finished the year with a healthy cash position of $129 million, which includes $79 million in existing revolvers, of which we have grown $56 million.
As you can see on the bottom of this slide, our maturity profile is a comfortable one, following the refinancing of the bond last year. Lastly, on debt, as we continue to generate more hard-currency revenues, we are building in a natural hedge against our dollar-denominated debt.
On Slide 23, we bridge 2020 and 2021 equity. Financial items were the biggest equity factor, which we have broken down in the box on this slide. Of the $134 million in financial items, $21 million was one-off times related to our debt refinancing; $71 million consists of recurring annual financial costs; and $42 million in accounting for changes in the fair value of derivatives. As you can see in the bridge, there was also $43 million of balance sheet and P&L conversion. So to summarize, there were $85 million of noncash items that affected our 2021 equity.
That concludes my review of our results. We are now happy to take your questions. Operator, please open the call.
Question-and-Answer Session
Operator
[Operator Instructions] I would like to turn the call over to Mr. Hernan van Waveren for the questions received via webcast.
Hernan Waveren
Thank you, operator. So we have a question from our webcast. First, can you reconcile the recurring EBITDA to the actual EBITDA from the quarter? And also, provide some more detail on the expected residual impacts that are driving the reduction in guidance for 2022.
Secondly, can you add any detail to recent press reports that your sponsors are considering selling the company?
Carlos López-Abadía
Okay. I always hate multipart questions because I tend to forget the second part. Let me address the first one, I think it was reconcile — I think it’s 3 parts, reconcile the EBITDA, recurring EBITDA, very simple. The only thing we don’t recur in EBITDA, we’ve taken out the impact of the cyber because it’s such a big impact. It makes the comparison of numbers very difficult.
As is our habit, to do everything else, the good, the bad, the ugly, it’s all in. Things that come to mind are things like the lingering effects during 2021 of the pandemic that had in the order of $30 million — $30 million, $35 million in the — we don’t consider those, so we don’t separate those as one-offs. So if you think about it, just the only difference between one — sorry, recurring and actual EBITDA is the cyber impact.
The second part, I think it was — can you — Hernan, was the Q1 — yes?
Hernan Waveren
Could we reconcile between recurring EBITDA…
Carlos López-Abadía
No, no, I got that. The second part, so fundamentally, in Q1 first half of the year, we expect the following. As you can imagine, after the — after we realized how we underestimated the impacts of the cyber at the beginning, we became much more cautious on our forecast going forward. We don’t think there’s going to be any significant long-lasting effects, but we do expect some in Q1, potentially in Q2, fundamentally Q1, which is we expect some — or at least, we’re forecasting that some customers that have very high dependence on us, 80%, 90%, 100% in a particular line of business, that they would naturally diversify that with other providers. That may or may not happen, but we are forecasting that, and it’s included and is factored in our guidance.
We do have some extraordinary expenses in Q1, specifically around all the things that we’re doing on cyber. So we got onto the improvement immediately. So a lot of those impacts happened during Q4 and still a few on Q1. I don’t think we have much of those in Q2 other than what we consider business as usual. But again, all this is factored in the guidance.
But Q1 also, we have had impact of Omicron. Obviously, a pandemic impact is always a bad thing. But on the good side, it has been relatively low impact in terms of serious cases, much less than it used to be. And from a financial perspective, I can tell you that the bulk of the impact was in January, decreasing rapidly in February. By the end of March, we’re back to normal. So we expect that to be just a blip on Q1. I mean we don’t expect major impacts in the rest of the year.
And I think there was a third part of the question, Hernan. I forgot the third part.
Hernan Waveren
So Carlos, could you expand a little bit on the current Bloomberg article that came out?
Carlos López-Abadía
I don’t know which one the references, but I think I remember that the first part of the question — the third part of the question was about the acquisition, M&A. Guys, our policy is not to comment on market rumors. We’re a public company. Of course, it’s our obligation to look at different opportunities to maximize the value of the company. But it’s our policy not to comment on anything. Whether we’re doing or not doing something, we’re not going to comment on that. When we have something to our release or comment to the market, we will do that.
Hernan Waveren
Thank you. So Carlos, we have another question from our webcast. Can you please give us more color about the impact of the cyberattack and why the impact has been much bigger than initially expected?
Carlos López-Abadía
Very well. So one thing, as I mentioned in my remarks, there are a number of lessons learned. I always believe that if you don’t learn — if you learn something, it’s an investment; if not, it’s absolute — it’s an absolute loss.
There’s a number of things that we learned. One, on the positive, I think we took the position — I took the position that we wanted to be 100% transparent with our customers and our clients and put the safety, security and well-being first. So we were very transparent from day 1, as you read the same articles and the same press that I do. And I don’t mean this industry, but in general, that is not necessarily the common practice out there. We have followed that and we’ll continue to follow that.
As it turned out, as I think I mentioned in previous calls, the number of servers affected were very small, very, very small. And we were confident of that within hours. One of the things that I learned or things we learned is that although technically, things could be sound and the technology may have worked as anticipated, there is a lot that needs to happen when you work with human beings.
And one of the things I learned is different companies have different levels of structured protocols to deal with these situations. So although some companies, we were working — we’re back up and running with some customers in a couple of days, the vast majority of the companies, they wanted to persuade themselves that things were satisfactory from a risk technology perspective.
Now some companies had some very well-thought-through protocols, others did not. And we got into, in some cases, into an exploratory process, which resulted in the return to service and the return to volumes, very importantly, because you could turn up service, but volumes may come through a different place, at a completely different place that we anticipated and particularly on the basis of the conversations that we have very early on with our customers.
Fundamentally, that was the most important point and our most important learning. And as part of that, as we are updating — we have updated our cyber policy and — I apologize, we got kind of echo here. Hopefully, it’s not for everybody else. We have — one very important part that we have included is working with our customers on the protocols to allow us to very rapidly get back to service when we are — as we were certain that there was no security risk.
Hernan Waveren
Thank you, Carlos. So now we’ll open the microphone for Vincent Colicchio from Barrington Research. Vincent?
Vincent Colicchio
The — what portion of the revenue that was lost in Q4 are you anticipating will return?
Carlos López-Abadía
We know, as I mentioned, I think in my previous question — the answer to my previous question, now we know it’s pretty good certainty what has returned. We have built into the Q1, Q2 and the full year some anticipation that some volume reduction in those cases where we see customers having a very high dependence on us. But in terms of the volume returning, the vast majority of it has returned back to normal.
Vincent Colicchio
So if I’m understanding you correctly, for Q1, in Brazil, most of the volume will have returned? Has returned — should be modeled into our expectations?
Carlos López-Abadía
It has. There’s some — not completely, but the vast majority has returned, and we’ve made allowance also for some potential down-the-road impact. Again, as I said, in the cases where customers have a high dependency on us, we try — we rather — based on recent experience, we’d rather be prudent in this.
Vincent Colicchio
And can you give us an update on your strategies around the world in addressing wage inflation? I know in Brazil, a lot of your contracts have — can be adjusted for wage inflation, I assume in the Americas as well. But just give us an update overall.
Carlos López-Abadía
Sure. The higher inflation is not a good thing for us, particularly in Latin America. U.S., Europe, we have an unusual high wage inflation. We have, so far, a good ability to pass through that on prices. Latin America, as you know, the market is a bit more complicated, although we do have the ability in our contracts to pass through the inflation increase that happens through the year. So typically, that’s one of the reasons we have very high seasonality, Q1 being our worst quarter and Q4 being significantly better than the others. So you can see the — a very clear trend through the year.
So we — part of the reason that we’re cautious about the guidance we’re giving you for the first half of the year is that we have higher impact of inflation. Although we will pass through it through the year, the first few months where we are mostly impacted by inflation. So other than the traditional markets, such as Brazil, Argentina, of course, the high inflation in the places where typically we don’t have it is U.S. and Europe. We don’t anticipate a big impact on that.
Vincent Colicchio
And the strong growth in the U.S. market, is that largely from existing clients? Or is it a combination of existing and new clients?
Carlos López-Abadía
It’s a combination. I’m happy to tell you that, as you know, it’s a market we just have started developing in the last couple of years. I’m happy to tell you that customers that we have been acquiring are growing very fast with us. So we have a good component of tailwind of the customers in the right industries and the right customers that increase their volumes with us. But also, we continue to be very aggressive in terms of acquiring new customers. We have a very active pipeline, and we expect to continue to grow both from existing customers and the new customers that we have.
Hernan Waveren
So we have a question from our webcast. Could you expand on your financial cost, specifically your current cost of capital?
Carlos López-Abadía
Yes. Let me make a couple of comments, and I’ll pass it on to José to give you a much better answer. We, in terms of our financing cost, we had a lot of one-off costs associated with the reasons of the bond. But also some of the instruments that we have put in place, which made a ton of sense in the beginning of last year and particularly as we were putting these things in place in December 2020 or late 2020. The world has changed quite a bit from late 2020 than to today. So some of the things, including the interest rate, foreign exchange position, et cetera, have changed. And what made sense at that time, it’s much less sense right now, and we are working to restructure all of that.
So — but José has probably a much better answer for you.
Jose Azevedo
Thank you, Carlos. No, in fact, our financial costs, I can give you a very quick — some information about it. What changed was, first, the interest rate from the bond, the previous bond and the new one, that increased our interest and our cost, of course. It means that’s worth, per year, $40 million. Yes, we pay always $20 million in February and $20 million in August. And the hedge in the first year gave us a positive effect in terms of cash, not in MTM, the market to market, but in terms of cash was a positive effect. Then we have around $6 million coming from the existing revolver that we use during the year.
Extra costs, one-off costs that affects the financial is basically the insurance of the new bonds, the cost that we have, it’s around $10 million, plus the premium that we have paid for the bondholders, around $11 million.
Hernan Waveren
Thank you. We have another question from our webcast. When do you expect to finalize the Telefónica MSA? And what is your level of confidence in bringing it to a successful conclusion?
Carlos López-Abadía
I think to repeat on my prepared remarks, we did complete the MSA just as a — perhaps are less familiar. With the agreement, we had extended the Brazil piece and the Spain piece, and we have concluded the rest of the footprint before the end of the year, so now that we have extended the whole footprint.
But more important than the MSA itself for us, as I mentioned in my remarks, we — I do tell everyone in my team that MSAs are great. But at the end of the day, we have to earn the business that we have with every customer every day. And as proof of that, I can tell you that our most important contract with Telefónica extend way beyond the MSA. So the most important contracts in Brazil and now in Spain, they extend to the end of 2025. So — and that’s, again, is not required by the MSA, but it’s something that I feel very proud of because that’s the business that we earn and the confidence that our customers place on us.
Operator
And we do have a question, our phone question next is from [Ryan O’Hagan] with [EIP].
Unidentified Analyst
I know you guys have spent quite a bit of time on cyberattack already. I just had a couple of follow-ups. Can you qualify if there’s been any kind of impact on the goodwill of customer relationships based off of what’s happened? I know you guys have some pretty big contracts. I’m just wondering with the down time and some of the comments you made about the dependence on you guys, has that been impacted? Or could you give us maybe any more color on that and how you expect that to kind of drift through earnings this year?
And one thing that was mentioned, I think, on the 3Q call was the insurance cover for some of the kind of costs associated with the cyberattack. It’d be helpful if you could kind of expand on that. And finally, the revenue guidance that you’ve given for the year, I presume that’s on the actual number for FY ’21 rather than the kind of expected number ex cyberattack?
Carlos López-Abadía
Okay. Again, somebody is going to have to remind me the different parts. Let me start with the last first. No, the guidance is based on the recurring, meaning ex cyberattack, it’s — we are forecasting to do better in 2022 than we would have done in 2021 without the cyberattack. The number will be much higher in terms of increases, what have you, ex — if we give you the numbers based on the actual.
So my objective, my ambition is always to do better. And whenever we have a bump on the road, whether it is a cyberattack or a pandemic, is to get back to the overall multiyear trend that this company has demonstrated and we will continue to demonstrate that we deliver. So that was the third part.
You asked — I think the first part was something about the cyber…
Unidentified Analyst
The first one was just on the goodwill, yes, and the relationships that kind of was impacted.
Carlos López-Abadía
Yes. Look, a cyberattack or a situation like this is never a great situation for us or our customers. So let me start with that. Having said that, in terms of our long-term relationship with customers and the way I believe we have handled, I think it’s demonstrating already and will continue to demonstrate that it is a positive. Not everyone is completely transparent with these things. I think you’ll find that — and I’m not talking about our industry, I’m talking in general. Just we can do is just read the papers. Most of the time, people say, well, I’m having a technical difficulty, I will get back to you in, whatever, in a few hours. And there may or may not be disclosure on the attack, depending on the circumstances. We can read that constantly on the paper.
We took a different tack. We took the tack that it’s our relationship with our customers, the well-being of our customers, our brand and the long-term trust on we are here to help them, protect them and that we can be a partner that is completely transparent with them is of paramount importance. Now that may have a cost as it did in the short term. But I believe that in terms of the relationship, the brand, where we stand for, it’s going to be a positive in the long term. And I’m not talking about the long term, 10 years from now, but we’ve already seen it with many customers.
Having said that, let me be clear, this is not — has not been a positive event for us or for our customers. Let me be crystal clear on that. But in terms of the impact with the relationship, I’m already seeing it and will continue to be — expected to be a very important long-term positive.
Unidentified Analyst
Got it. I suppose the last question I had was just around the insurance cover for the lost earnings. Is that something you guys expect to be a meaningful contributor this year?
Carlos López-Abadía
I expect to collect it, for sure. We actually — initially, we thought it was possible to get it done in Q4. It wasn’t, and part of the reason is everybody wanted — we run a complicated business. And we — to take a look at losses and all that, you have to take a look at volumes, invoices, et cetera. And the assessors wanted to take a look at the results with the books’ growth. So that’s in the works. I expect to — I don’t anticipate a problem on that front. So it will happen in the course of the year.
Unidentified Analyst
I’m sorry, could you confirm what kind of quantum you’re talking about there? How much cash that’s going to equate to the balance sheet or kind of loss of earnings?
Carlos López-Abadía
We have $11 million of insurance that I would expect to collect.
Unidentified Analyst
Got it. Helpful. That’s super helpful. And one last question. I know you’ve kind of addressed it already, but obviously, the minority investors have made a couple of submission to the SEC, and there was a rumor in Bloomberg about appointed bankers. Could you comment on the fact whether or not it’s true that the bankers have been appointed for any purpose, be that to run a sales process or look at further efficiency programs?
Carlos López-Abadía
I tried to answer that question earlier. Let me do it again. It’s the same answer as before, which is we don’t comment on rumors, not now or as a matter of policy. And as I said earlier, as a public company, as a responsible company, we look at any opportunity, any realistic opportunity to increase shareholder value. And we do that as a matter of — of course, we do that as part of the business we run. And we don’t comment on what we’re doing at any particular time regarding to that. So when we have something to disclose, we’ll do that. We’re not doing that at these times.
Operator
And the next question will be from Beltran Palazuelo with DLTV.
Beltran Palazuelo
This is Beltran. I have a couple of questions. First of all, regarding working capital in 2021, of course, there was a problem with the cyberattack, but I don’t know why, let’s say, the draining in cash for working capital is high?
Secondly, if you could give us more color, of course, you were thinking about wage inflation that we had in the first half. But if you could give, let’s say, more color, what is the ambition of our margins of this company? Before, it was 14% to 15%, but it was more. Is it still more ambitious in, let’s say, 15% to 16% in maybe 2023?
And then regarding the guidance, 2022, it’s — if you could give us, let’s say, free cash flow, what is the free cash flow guidance? Because at the end of the day, it’s very important at seeing, let’s say, the weak numbers on 2021. It’s very good to see what is our ambition. And then regarding the net debt, if you get, let’s say, $1.6 billion in the currency example, the margins, it seems very, very cautious, the net debt to EBITDA.
Then the 2 last questions, cost of hedge, could you give us more detail? And then regarding the results of 2020, it seems that you changed a couple of things in the EMEA and Americas on eliminations because they do not — they’re not the same figures as you reported in 2020 when you see the EBITDA margin of Americas and EMEA. If you could give us — give me more detail in those 5 things.
Carlos López-Abadía
Okay. Beltran, first of all, it’s great to hear your voice again. You have a ton of questions right there. I don’t even remember them. Can I make a suggestion? If there’s something you want me to address right now, I’m happy to do that. Can we set up a session with you to go through all your financial questions one by one?
Beltran Palazuelo
Carlos, thank you for your answer, but maybe just maybe the 2 is good. What is the free cash flow generation guidance for 2022? Of course, there’s inflation around costs and cyberattack, but it’s very good to hear what is the ambition of free cash flow generation in 2022.
And then regarding margins, it seems like 14% to 15% was going to be achieved. And suddenly, you take 100 basis points. So it’s good that you reflect that, at some point, you will get to that target or even higher or else — and also for the financial margins.
Carlos López-Abadía
Yes. Let me tackle those 2, and let’s set up a proper session. José and I will be more than happy to, particularly José since a lot of your questions, I think, are more in the José’s department. We’ll be very happy to go through that in detail.
So on those 2, particularly let me start with the margin targets. We continue to work on — we continue to be committed to the plan that we discussed with you guys 3 years ago. As you know, we had a dip in 2020 because of the pandemic. We had a problem with the cyber. We’ll have other problems through our lifetime. This is a complicated market, but we are committed to come back and continue the long-term trend. So let me be very clear.
Expectation to get that, I think the 2021 has put us behind a few months. I would expect to get back to the targets that we discussed with you 3 years ago, probably in the first half of next — of the year after. I don’t expect more than a few months of impact, my — impact to that time line. My ambition is to exit 2022 with a very strong exit rate, demonstrated that, yes, we got a problem with cyber in Q4 of 2021. But we are strong and continue to show in that trend beyond the number that you remember and beyond.
Hernan Waveren
We have a question from our webcast. Carlos, what is the reasonable expectation for the percentage of hard-currency EBITDA going forward? Your increase in hard-currency EBITDA in 2021 was 26%, which might have been helped by the decline in Brazil EBITDA owning to the cyberattack. Could you expand there, please?
Carlos López-Abadía
Sure. We continue to grow the percentage of our hard currency. It’s part of our strategy and policy. We — as I mentioned a number of times to you guys, I find that the U.S. market, European markets, not only they’re very attractive per se and inherently, but also it — one, it helps this company one of the challenges that we have, which is the FX exposure and fluctuations. So we continue to — we will continue as a target to increase our hard-currency percentage.
What do we expect for 2022? I expect something in the order of 30%. So we expect to continue growing the percentage, the fraction of high currency in our cash and EBITDA.
Hernan Waveren
Thank you, Carlos. So we have one more question from our webcast. How are the results of ongoing negotiation with clients to adjust contracts’ prices to inflation? Are they mostly completed? Could there still be pressure on guided margins for 2022 coming from this front?
Carlos López-Abadía
That front is fairly tractable. So the other things, unfortunately, in the environment that we work, that’s part of what we do, right? So it’s — our cost from that perspective are going to be higher this year because the inflation is higher, but the impact is fundamentally the first half. The way it works is every contract that we have signed in the last few years, and I think by now, the majority, not the totality, of our contracts have the inflation across adjustment process.
What tends to happen is that the wage inflation happens in the beginning of the year in many countries. This is driven by government and/or unions, and it happens immediately. And then the adjustment on the prices of the existing contracts happens through the year. We achieved very high rates of pass-through. I think we — and we expect to continue to be at the high end, 80% plus, for example, in Brazil. So it’s something we do every year, and it’s factored in the higher inflation of this year, it’s factored in the guidance that we’ve given you.
Hernan Waveren
Thank you, Carlos, and thank you, José, for your time. And this concludes our call. Operator, please, you can finalize the call.
Operator
And thank you, sir. The conference has now concluded. We thank you all for attending today’s presentation. You may now disconnect your phones at this time. Take care.
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