Atento S.A.
Q4 2014 Earnings Call Transcript

Published: 10 Mar 2015

[Operator:]

Good morning and welcome to Atento’s Fourth Quarter Full Year 2014 Earnings Conference Call. The call will begin with prepared comments by management, followed by a question-and-answer session. Today’s call is being recorded. I would now like to turn the call over to Elena Cebollero, Atento's Director of Corporate Finance & Investor Relations. Please go ahead.

[Elena Cebollero:]

Good morning and welcome to the fourth quarter and full year 2014 results earnings call. Before proceeding, let me mention the first hand comments made on this call, will contain financial information as in prepared in International Financial Reporting Standards. This financial information is unaudited. In addition, this call may contain announcements that constitute forward-looking statements which are not guarantees of future performance and involve risks and uncertainties and certain [resource] maybe materially from those in the forward-looking statements as a source of various factors. We encourage you to read the disclosure document filed with relevant securities market regulators and we invite you to read the complete disclosure included in the first page of our earnings presentation. Our outlook slide and earnings presentation can be found on Investor Relations section of our Web site. Our presenter this morning are Alejandro Reynal, Atento’s Chief Executive Officer; and Mauricio Montilha, Atento’s Chief Financial Officer. Alejandro will begin with a brief update on revolution with our strategy and overall business performance. Mauricio will then review our financial results and future outlook in more detail before we open the call for your questions. I would now like to turn the call over to Alejandro.

[Alejandro Reynal:]

Thank you, Elena. Good morning and welcome to Atento’s 2014 results conference call. We’re very pleased to deliver today a very strong set of results for the full year as a new public company. We believe our performance provides validation for the strategic direction of our company and for sustainable value creation. First, we deliver in 2014 a strong quality growth further strengthening our position as a leader player in the fast growing BPO CRM LatAm market, despite a range of adverse macroeconomic conditions. We continue to increase share of wallet with our existing clients addressing a larger portion of their spend by providing higher and more complex value added solutions with a strong focus in the financial sector. Our transformational growth strategy as an independent company is also bearing its fruits outside Telefónica. We have achieved significant customer wins in the year, particularly in the Telcos sector, while we continue to successfully ramp up our operations in the Near Shore business. Secondly we deliver profitable throughout the year fueled by improved productivity reviews, turnover and overall efficiencies; all these help us to strongly increase our margins in 2014. Further we also reinforce our capital structure in the year providing for enhanced financial flexibility. On the people front for the second year in a row, we were recognized as one of the world's top 25 best multinationals to work by the Great Place to Work Institute. A clear illustration of the high levels of employee satisfaction and engagement we have attained at Atento. I am convinced that the high retention rates we enjoy in the business, our solid commercial pipeline and client wins achieved in 2014 combined with a strong momentum of our growing efficiency programs provide us with good visibility to achieve our targets in 2015. All this positive momentum is clearly impacting in the positive way our Q4 and 2014 financials. Let me briefly start with the key highlights of 2014 that will be later discussed in great detail by Mauricio during the call. First, we deliver a strong growth in the year with revenue increasing by high single-digit growth rates of 7.7% on a constant currency basis, and our double-digit growth rates in the Americas and Brazil combined. This growth was achieved despite a range of macroeconomic conditions. More importantly we deliver a profitable growth. Our ongoing operational transformation through the implementation of our margin transformational initiatives we saw adjusted EBITDA at growing revenues and delivering and an EBITDA margin of 13.3% a 70 basis points increase year-on-year. We continue to make significant progress across our regions, further proving our strong execution skills. Just a few relevant proof points, in Brazil we achieved a remarkable 110 basis points margin expansion bringing adjusted EBITDA margins up to 14.5% in the year, and 17.4 in the quarter. Americas posted a solid revenue growth of 17% in the quarter, 16% in the full year. In EMEA we have completed the restructuring process to optimize our operations. Lastly, we achieved a strong de-leverage in 2014 from 2.2 in 2013 to 1.4 by year-end through improved cash generation. We entered the year with a stronger liquidity position of US$238 million in cash and in cash equivalents despite the FX headwinds. 2014 has been a year in which we have made significant progress to transform our business across the board. We aim to become the number one customer experience solutions provider in our markets delivering a unique growth profile of high single-digit growth rates and an industry leading profitability. We remain focused on executing the strategy we have communicated in order to deliver sustained growth and strong value creation for our shareholders. As a reminder of our strategy, first delivering on growth potential through a series of initiatives to drive up the top-line. These are developing and providing higher value added solutions to address a larger portion of our client spent, aggressively growing our customer base outside Telefónica by leveraging on our strong expertise to carve the Telco sector and penetrating the U.S. near-shore market. Secondly, transforming the way we operate by driving consistency and leveraging economies of scale across geographies. The execution of our margin transformation initiatives throughout the year will continue enabling us to improve our margins overtime and drive bottom-line growth. Equally important, we are also executing a series of initiatives aim at driving our culture, people and organization to the next level to consistently satisfy the needs of our clients and their end customers. The focused execution of our strategy has resulted in very significant achievements in the year across the three pillars of our strategy, with visible results in our financials. In 2014 we increased the share of our solutions penetration to over 23% up 1.4 percentage points year-on-year. Further, we have delivered the growth opportunity outside of Telefónica making substantial progress this year in the acquisition of new Telco business, leveraging our strong vertical prudentials. In 2014, we have been awarded contracts with a leading LatAm regional Telco for over 2,000 workstations in five countries including [level] operation in Colombia. Outside of the Telco vertical, we have also achieved significant customer wins representing over 3,200 workstations including a large carve-out with a leading retailer in Brazil of over 1,000 workstations. Lastly, we continue to successfully map our near-shore operation, a high potential opportunity. We have now a fully dedicated top class U.S. commercial team and built two world class facilities adding nearly 500 workstations saving five top U.S. clients across different sectors. We're also seeing the benefits of the acceleration of implementation of our operational transformation initiatives to expand margins. In 2014, we continued enhancing our efficiency and operations productivity across our operations, driving further consistency in the way we operate through improvements in our planning and forecasting processes. Our 4% productivity improvements throughout the year resulting in our billable versus payable ratio increasing in the year by nearly 2.7 percentage points for the Group. In HR the rollout of a series of initiatives help us to reduce turnover by 1 percentage points of the Group. The implementation of the global centralized procurement model in the year has allowed us to reduce overall costs. We have achieved over 15% of savings on key categories addressed in 2014 exceeding overall initial targets. Lastly in Brazil we have also completed the first phase of our relocation initiative with over 1,400 workstations to be moved totaling 53% of workstations in tier 2 cities now in Brazil. In EMEA, we have also completed our restructuring process in Spain, in the fourth quarter positively improving our margins. And finally, our people and organization. We have further reinforced our strategic team by bringing a number of top profile hires. In the fourth quarter we have also completed the relocation of our headquarters to be closer to our operations, which allows us to run a truly global integrated enterprise. We also continued to receive industry recognition for the strong culture and workplace environment that we have been able to provide to our people. For the second year in a row, we have been recognized as one of the top 25 best multinational workplaces by the Great Place to Work Institute amongst companies like Microsoft, McDonalds or Oracle. In a more challenging macro-environment, our execution skills and differentiated business model have led us once again to deliver on our commitments and achieve quality growth throughout the year. Specifically, I would like to spend a few minutes on what we’ve been able to achieve in Brazil, our main market. Clearly Brazil has had a challenging macro environment in recent years. However, our results have been robust and in 2014, we have posted a very strong prospect currency growth rate of nearly 8%, particularly remarkable when confirmed with the GDP growth rate in the country. This has been possible thanks to a strong commercial activity in which we have achieved continued share of wallet gains with existing clients, with solutions now representing 35% of revenues. Non-voice context account now for 25% of our total BPO CRM relationships interactions. We also continue expanding our customer base with more than 3,500 workstation wins in the year of which nearly a 1,000 are in the non-Telco sector, where we know several major providers. Brazil also continues to benefit from positive market dynamics as companies continue to seek for efficiencies and productivity gains. As an example, we recently completed a carve-out over 1,000 workstations from a leading retailing and starting operations in 2015. More importantly the combination of a healthy growth and ongoing margin transformation initiatives led us to an adjusted EBITDA margin expansion of 110 basis points in the year. In 2014, we set up a state-of-the-art command center to centralized manage it of our operations in Brazil, where we now host highly specialized analytics unit and may charge service review center unit. Our focus on continuing driving operational excellence has resulted in a productivity increase of 3 percentage points and a reduction of turnover ratios by more than one percentage point. And finally, we completed the first phase of our relocation initiative in Brazil with 53% of our site now in Tier 2 cities. I believe this example clearly proves Atento’s ability to excel from different macro environments and further reaffirms our market leadership. We are continuing our transformation journey in 2015 with a clear set of priorities for the year to drive Atento to its full potential. First of all we’re doubling down on our transformational growth agenda as an independent company. We remain focused this year on continuing growing to scale our non-Telefónica Telco business. This is as you might recall a US$4 billion market if we exclude Telefónica, where we enjoy an arrival sector expertise as a CRM BPO provider. We are also consolidating and further growing on our U.S. Near-Shore business. Now that we have full commercial structure and our facilities are in place. In addition, we continue focus on further developing and driving solutions, penetration to address a large portion of our client spend. And lastly but equally important, we continue growing our Telefónica business beyond our MSA minimal revenue commitments as it has been the case throughout last year. Secondly, we continue driving the company efficiency agenda to its next level. The ongoing margin transformational programs we started executing last year have yield in so far very tangible resource and we will continue optimizing the way we operate to deliver further cost savings throughout 2015. Allowing these lines, we’re pretty much focused on further consolidating our operational productivity and HR affecting initiatives across our operations. As an example, we are setting up this year a new operations command center in Mexico, replicating the success of our Brazilian initiative. In addition, we are accelerating our IT transformational programs, while also targeting new procurement savings in categories of items we did not address in 2014. Lastly, we are expanding our ongoing site relocation activities in Brazil, to Colombia, Peru and EMEA to achieve further operating efficiencies. At the same time, we are focused on exploring the benefits of our global regional operating model while continuing our focus on talent development. I will like to close this section by reiterating our mid-term addition and our framework to deliver sustainable earnings growth. Our business is quite unique as it benefits from a strong visibility year-on-year. This is possible thanks to our strong client retention rates 99% achieved in 2014. On top as I mentioned earlier, we benefit from a sound market growth prospects in the main countries where we operate. Our market leadership positions us very favorably to capture the growth x factor in the LatAm BPO CRM market from increased outsourcing spend and favorable demographic trends. We also remain focused on delivering the growth opportunity as an independent company throughout our strategic initiatives. We made significant progress already in 2014 achieving significant customer wins and we have a robust commercial pipeline in 2015 to continue capturing new opportunities and increase our share wallet with existing clients. Some of these initiatives should enable us to deliver high single-digit constant currency growth rates as a Group. We aim to continue transforming the way we operate and we are just at the initial stages of sweeping the full benefits from our margin expansion plan as we aim to achieve industry leading margins over the next years. In addition our reinforced capital structure post IPO provide us for significant financial flexibility, and all of these to translate into significant long-term earnings growth potential and sustained value creation for our shareholders. Thanks very much for your attention; I would now hand over the call to our CFO Mauricio Montilha who will walk you through the financial results in greater detail.

[Mauricio Montilha:]

Thank you Alejandro and good morning everyone. Thank you all for joining us today. As Alejandro mentioned 2014 has been a key milestone in our transformation journey and our strong financial results in the year validated progress we have made in establishing the foundations for profitable growth. Let me briefly summarize our key financial highlights for the year. We delivered consistent revenue growth growing 7.7% in constant rates and set a double-digit growth in Latin America. Atento continues accelerated client diversification strategy with revenue -- with clients other than Telefónica growing at 10.8% in constant last year. Profitability further increased in the year with adjusted EBITDA achieving 13.3% of revenue in the year, a 70 base points margin expansion versus the prior year. Our cash flow -- free cash flow significantly improved becoming positive in the year. We also benefited from limited transactional exposure a 97% of our cost matched with revenue at local level currencies and most of our debt denominated local currencies or hedges back into local currencies. And finally we are delivering on our objective to enhance financial flexibility, leverage ratio declined from 2.2 times to 1.4 times adjusted EBITDA at the end of 2014. I'd like now to spend a few minutes to walk you through our financial results in greater detail. As we highlighted as in constant rates that better represents the results we are exposed to several currencies and geographies where we operate. In terms of revenue you can see that revenue growth in constant currency reached 5.8% and 7.7% for the quarter and for the full year in 2014 respectively. The outstanding top-line performance was supported by strong growth in Americas and Brazil region which combined and grew at 8.4% in the quarter and at double-digit growth rates for the full year. This strong growth in those regions largely offset reduced activity in EMEA. As Alejandro mentioned earlier, our strategy to diversify revenue base from Telefónica is resulting in significant customer wins both in Telco and non-Telco segment. These wins have fueled our revenue performance and set a solid revenue base for 2016. Non-Telefónica revenues grew by 7% in the quarter and 7.8% for the year on constant currency rates. We continue also to benefit from a strong relationship with Telefónica delivering 4.5% growth in the quarter and similar rate for the full year in constant rate. Revenue of the other clients other than Telefónica now represents 53% of total revenue, an increase of 2.0% versus last year. And also I think it's really important we continue to deliver profitable growth. In the fourth quarter adjusted EBITDA increased 13.6% on a constant currency basis, a 120 base points margin expansion versus last year reaching 15.6% of revenue. The adjusted EBITDA full year increased to $306 million a robust 13.7% growth on a constant currency basis. Adjusted EBITDA is up in absolute numbers for the full year as well as margins are also up by 70 basis points from 12.6%, 13.3% in 2014. Our strong margin expansion reflected quality of our growth, the positive background margin transformation programs and improving business mix that is resulting from high margin revenues from LatAm representing nearly 85% of total revenue, an increase of 1.0% versus same period last year, above average growth with non-Telefónica clients and increasing penetration of solution reaching over 23.2% of total revenue in the fourth quarter and 1.4 points of percentage increase versus same period of last year. Going to Brazil more details on the Brazil results. Where we reported solid results despite a softer market environment especially in second part of the year, revenue growth in constant currency achieved nearly 3% in Q4 and 7.5% for the year. Our revenues in [good] sector grew at a double-digit rate about 11% in year. This finally results into strong commercial traction of our strategy that deliver over 3,500 workstations within the year of reach nearly 1,000 workstation in Telco clients other than Telefónica. We continue to deliver profitable within Brazil with adjusted EBITDA also growing revenue including by 8.6 in the quarter with a 110 basis points expansion versus the prior year. For the year, adjusted EBITDA as a percent of revenue growth to deliver remarkable 17% increase in our margin expansion of 90 basis points, achieving 14.5% of revenue. Brazil increasing from stability is having high quality growth with non-Telefónica client increase in mix of solutions achieving 35% of total revenue in the year. Cost efficient from our margin expansion activities and increase of operational leverage. A little bit now on the Americas where the revenue accelerated in the fourth quarter, reaching over 17% growth versus to last year. This growth was supported by strong performance across our main countries Mexico, Peru, Chile in Argentina in both Telefónica and non-Telefónica segment. Accelerated growth was achieved by strong commercial activity with significant wins with the leading results Telefónica several countries adding over 1,400 workstation and the ramp up of Near-Shore business. Adjusted EBITDA was up in the quarter by 7.2% [realized] on revenue primarily driven by fast increase from the relocation of our headquarter that occur in the year. Excluding the impact, adjusted EBITDA would have amounted $37.2 million, an increase of 20% versus last year for the same period. Over the year, Americas revenue increased by over 15% with adjusted EBITDA up by 10.7% driven by strong revenue growth, margin transformation initiatives and operational leverage as well. Moving to EMEA, you can see they don’t require, the revenue was down by 8.4% most fluctuating by Telefónica volume reduction in the Spanish Telco market. However, we are encouraged by our non-Telefónica performance as revenue increased by about 7% on the year as we start to see the benefit from the stabilization of the Spanish economy and our growth strategy with the new clients. In Q4, our adjusted EBITDA attribute $9 million as a result of the positive impact of the restructuring process completing the spend. Over the full year EMEA revenue decrease by 7.7% as a result of the Telefónica activity reduction of the line and above. With adjusted EBITDA decreasing by 1.2%, however, we already saw an improving margin over the previous period by 50 basis points. Let me talk about our CapEx structure now. With the completion of the IPO, we expect in our balance sheet structure following the capitalization of preferred equity certificate and the full prepayment of vendor loan note facilities of Telefónica. Net financial debt has been reduced by over 220 million our leverage ratio has improved significant to reach 1.4 times down from 2.2 times over adjusted EBITDA that we ended last year. Important, we continue to low cost of debt by prepaying the bankers the most on expenses debt in our balance sheet. In 2014, we paid BRL161 million of our facility that’s equivalent to $70 million and we continue drawing on our BNDES facility on more attractive terms to fund our growth. And finally, the liquidity position increases and achieved a substantial cash balance of $230 million and we do have any news before we can see the line of €50 million. One important driver for improving our balance sheet is a nice cash flow from operating activities that increase in the year from 99.6 million to $135 million by 36% driven primarily by improving working capital performance across many countries. Excusing the impacts of non-recurring items totaling 73 million, primarily related to the IPO and restructuring cost, main cash flow from operating activities would have been even stronger reaching $280 million. In the portfolio, net cash flow for an operating activities decreased by 9.4 million, down by 27% largely impact by nearly $35 million or IPO related expenses. Our CapEx increase $17.1 million versus last year 9% in the quarter versus last year and reached 5.2% over sales. Excluding exceptional cost, free cash flow would have amounted to nearly $80 million for the year a two-fold increase versus same period of last year. And finally, let me now run you through our 2015 guidance which clearly outlines our focus on delivering high profitable growth throughout the year. Group revenue is expected to grow in the range of 6% to 9% in constant currency mainly driven by a top line expansion in the Americas and Brazil. We anticipate consolidated adjusted EBITDA margin to be in the range of 13% to 13.5% of the revenue. This guidance already considers currency dynamics in the markets we operate. We would anticipate in 2015 to continue leverage on our margin transformation program driving the company agenda to the next level and that continue improvement in our revenue mix. Total CapEx is expected to be about 5% of the revenue potential increase in growth in the year. Effective tax rate is expected to be around 32% driven by lower non-tax deductible expenses above this year. And lastly, we anticipate a significant reduction in our exception cost around 9 million. This cost will include ongoing site relocation effort there's more restructurings in our activities and other miscellaneous expenses that don’t correlate or core recurring on day-to-day. Please note our guidance is based on organic growth and also assumes no impact from exchange rate movement on the translation of our financial statement to U.S. dollar. We also expect normal seasonal impacts [housing] our revenue and adjusted EBITDA to follow similar trends as last year with strong results in the second part of the year. I will now turn it back over to Alejandro for his closing remarks.

[Alejandro Reynal:]

Thanks Mauricio. Let me finish by providing our final conclusions. Overall in 2014, we made significant progress in the execution of our strategy to deliver sustainable value for our shareholders. First, we delivered a strong top line growth further reaffirming our leadership in the highly attractive LatAm BPO CRM market. We plan to continue growing and leading the market as our business model and excellence in execution have proven our ability to outperform in LatAm for our range of macroeconomic importance. Second and more importantly, we have delivered profitable growth, achieving strong margin expansion powered by the successful execution of our margin transformational programs. We are convinced this will be the case going forward. Third, we continue enhancing our financial flexibility and have reinforced post IPO our capital structure as we continue the leveraging. At closing, I'm convinced that our business benefits from very solid business fundamentals, a strong commercial activity and a solid momentum in our efficiency programs providing for high visibility to deliver on our 2015 results. Thank you very much for your attention and now we're ready to take your questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Thank you. Our first question comes from the line of Michel Morin with Morgan Stanley. Please proceed with your questions.

[Michel Morin:]

So the first question would be on guidance. I just wanted to understand a little bit better the margin targets of between 13 to 13.5 because that essentially implies flat performance versus 2014. And I think you said in your prepared remarks that you anticipate continuing to make progress on your cost saving initiatives. So if you could walk us through kind of the thought process there. And then secondly, in Brazil, maybe I missed this in your remarks, but did you breakout the growth from your non-Telefónica business if not that'd be very helpful. I know the second question is really for the fourth quarter.

[Mauricio Montilha:]

Michel, Mauricio speaking. In terms of guidance Michel, when we look forward there is more volatility and uncertainty in the market. We are very pleased with the progress in our cost initiatives we have in here and also this is helping us to get a good traction as we see in the Q3 and Q4 results. First 2015 as I'd say would be the more trickier. We have new eventually new implementation of tax increase in Brazil. So when we weighted all those elements for the year. With the fact that we'll be more present on that given develop this year, although I would say that at the beginning of the year or as we end up the year we end up with a very strong traction in all those programs and with the implementation of new clients. Regarding the non-Telefónica growth in the fourth quarter, the revenue of non-Telefónica clients grew 6.5% in constant rate in the fourth quarter of 2014.

[Michel Morin:]

That was for Brazil Mauricio?

[Mauricio Montilha:]

Absolutely, yes.

[Michel Morin:]

And then sorry, just to come back to your answer on guidance, so when you think about the tax changes that seem likely to be implemented in Brazil it would be an incremental -- potentially an incremental 2.5% tax on revenues above the 2% you're already paying. So, we would expect normally to see the impact on your top-line not so much on margins. So can you help us maybe by explaining a little bit how you're thinking about this? Do you expect that you'd actually be able to pass on that tax to your customers in terms of price increases or how should we be thinking about this?

[Alejandro Reynal:]

Michel, this is Alejandro, let me take over that one. In reality you know that this is pretty recent situation in Brazil that was enacted in February and then the project was rejected to March 3rd, so still we’re seeing what’s going to be the final outcome of this, now we will have to pass through both chambers of commerce, so the piece still to be refine is, what is going to be the final score and the timing of implementation. On our vision of the year what we see is that if anything this should impact towards the end of the year, so end of third quarter of 2015. Anything before that probably not probable based on the approval that need to go through the Brazilian Congress. In terms of the specific actions that we’re taking, I would say that we have been proactive since the moment that we knew this was occurring, first we are in conversations with our clients, good thing is that in some of the contracts there is a provision that allow us to pass through increases related to taxes, I would say that this is not in the 100% of the contrast because this is probably a very useful situation, so it's there in 100% of the contracts but we’ll have it in some of our contracted clients. Even though we might not have in the contract, we already engaging in conversations with clients to explain the situation and again being very proactive and that end to be able to pass through as much as possible. Second thing that we are doing which I think is also important is along with the Brazilian Teleservices Association, the ABT in Brazil were lobbying with Congress in terms of our position with regards to this measure that’s why I mentioned at the beginning that the final scope of the measure we don’t know because we’re going to try to influence that we get a different outcome from the existing proposed impact to our industry. And as you know I mean this tax increase impacts many, many industries. But what we’re trying to resolve in favor of our sector. And the third thing that we’re doing is which we feel very comfortable with is the fact that we have already an efficiency program in place and all the initiatives that we’re doing with regards to the margin transformation, we’re taking those to the next level and seeing what additional things we can do in terms of increasing our operations productivity, reduction of turnover and looking at other OpEx items to make sure that we continue to be very efficient in our cost. So, I guess even though the measure is out there and we'll know there is full scope and the timing along the year, but again probably chances are this will happen towards the end of the year, we're already taking proactive actions with our clients with lobbying efforts and also in terms of our efficiency initiatives to make sure that whatever impact we have is manageable in 2015.

[Operator:]

Our next question is from the line of Flavio Campos with Credit Suisse. Please proceed with your question.

[Flavio Campos:]

I wanted to focus on the top line just very briefly, here too you're guiding to pretty much the same growth just like 2014, but it looks like that now EMEA should be a little bit less of a drag right your guiding to that low single-digit of constant currency growth. Are you seeing any difference on the growth environment of the Americas side or just a tough comp in Americas because it was so powerful -- so strong this year, just to see little bit more color on the part region growth that’s building into guidance?

[Mauricio Montilha:]

Flavio, Mauricio is speaking. We will not provide the guidance by region, what I can say is if you see the results that we have as we started with the company in Q3 and Q4 of course America has been going above the average of the company given the nature of those markets, the growth of certain economies and also given our strategy to grow in [buy] from Telefónica, by the way Telefónica also in Americas as you saw in results is really generating very good growth for us. We expect those strengths to continue, Brazil also you see that despite some softness in market environment, we deliver a positive growth in all the quarters including Q4. Our non-Telefónica business is going very well and as Alejandro mentioned we have very good traction in our commercial activities with very good recent wins in all the markets. So I’d say that we are very confident that we are going to have a balance year next year despite the headwinds and regions uncertainty we have today in terms of macro especially in Brazil for the year.

[Flavio Campos:]

And just as a quick follow up on the margin and on the margin guidance again in addition to that tax -- the possible tax increase in Brazil, how is the pricing environment right now given that there is attachment of macro in the region especially in Brazil? Are you seeing a lot of pricing pressure from your clients -- from your competitors or price concessions coming from your clients?

[Alejandro Reynal:]

Flavio, this is Alejandro. Overall, I'd say that yes it's a tougher macro environment but we have been able to progress in terms of our plans meaning that typically wage factor inflation to clients and negotiation with them advancing the first quarter and second quarter of the year. And if you look at where we are at this stage, we're pretty much on track, but we're expecting to be the factor of inflation to our clients. So I'd say that even in the macro environment, it's probably tougher. We have been able to achieve the pass-through that we were expecting for this year, so we are on track with that respect.

[Operator:]

Our next question is from the line of Dave Koning with Robert W. Baird. Please proceed with your question.

[Dave Koning:]

And I guess I just wanted to start out with a question, I know the solutions business you highlighted kind of the -- or on the middle of your remarks that it's about 35% of revenue now. And I guess I'm just wondering, is this growing faster and I think it's higher margin business than the rest. How do you kind of see that playing out overtime, it just seems like a nice driver for better growth and better margins?

[Alejandro Reynal:]

Yes it is clearly one of the growth avenues for the Company and it's an interesting question because for example in the case of Brazil we've sized the back-office market which is back-office of higher value added solutions on US$2 billion. We have also sized the more advanced day collection services outside the market and it's about US$3 billion. And these are opportunities that we are currently targeting, but on a very limited basis. So we definitely see that also moving in to that direction. It's clearly the right move. With that respect what we're doing in 2015 which has been a differential with regards to 2014 is focus more our solutions business in the financial sector in Latin America and that's where we see most of the potential, [realty] in a specialized back-office center in Brazil to be able to provide this higher value added solutions. So we are investing this year in making sure that we are at the upfront in the solutions business. So yes the focus is on that and we will continue to increase our percentage of total revenues coming out of solutions.

[Dave Koning:]

And that is higher margin than the core agent based call-center business, right?

[Alejandro Reynal:]

Right, on average what we have seen is that typically it's 2 percentage points higher margin than the traditional business. So as we migrate the mix of services into more higher value added solutions we should see also an improvement in the margin coming out of an improved business mix.

[Dave Koning:]

Secondly just on guidance, thanks for all the detail on guidance. But the one part that I was just wondering interest expense just to make sure that we're on the same page I know there is the 650 million of debt. What should we put in our models for interest expense for the year?

[Mauricio Montilha:]

We don’t guide on the interest expense on the details but as you may have -- our debt structure is primarily based on the two elements Brazilian debentures [vendor] and we have ended augments that 14% a year and bonds 7.375 and we have some hedge instrument for the U.S. bond. One important element for your consideration as we announced as part of the IPO we complete we capitalized the preferred certificates that was in our debt structure now became capital, there is need that approximately 26 million of 2014 an interest on our P&L and also as we mentioned we fully paid the vendor loan note that we have for Telefónica, those two element on non-interest expense will be zero in the next year.

[Dave Koning:]

And was Q4 reasonably normalized? Like if we look at the Q4 income statement and look at the financing cost was that that [PDC] notes already gone, so it seems like that Q4 run rate is maybe a reasonable number to think about going forward?

[Mauricio Montilha:]

Yes, it was both as far as to 100% normalize, we have some commercial variations and our U.S. bond is hedge into local currencies the notion was 75% hedges and the interest more than 9%, so Q4 given some deprecation of euro and other currencies, this was as little bit higher impact on the FX gains or losses in the quarter. But this is already on the interest side with a new structure primarily [DPM].

[Dave Koning:]

And then I guess my last question is just free cash flow that the back page of your press release for the year was 15 million free cash flow, I am just wondering in 2015, I know you don’t guide to, but is there any sort of rough conversion of adjusted income that the free cash flow like 50% to 70% or is there any kind of rough metric to use?

[Mauricio Montilha:]

No, not at this point. We don’t have any proxy for that.

[Dave Koning:]

But you do expect it to be positive free cash flow, but just not as much as earnings?

[Mauricio Montilha:]

As we mentioned, before we as part of becoming independent company, listed company we've included together plan to have like stable and particular cash flow and I think the progress we made in this year was very good one especially in same working capital management. So, we continue also to invest in the business as we have growth opportunity and great traction in our commercial side. So that’s why we also guide for little bit higher by CapEx expense for the year. But we don’t see any major structural changes in our working capital structure for next year.

[Operator:]

Our next question comes from the line of Susana Salaru with Itaú. Please go ahead with your question.

[Susana Salaru:]

Actually we have two questions here; first, if you could comment little bit more on the Near-Shore market performance? And if you could also little bit more about what were the recent wins that you guys got in this region? That is our first question. And the second question is related to diversifying our way from Telefónica revenue specifically in Brazil. As Telefónica has just acquired GVT, just was wondering if you have any expectation towards serving GVT of services so that will be actually growing increasing your exposure in Telefónica’s Brazil services not the actually reducing as you guys have been delivering in the best cause, so just want to reconcile what is the guidance for diversifying away from Telefónica and is that could there not GVT operations in Brazil? That’s it guys.

[Alejandro Reynal:]

In terms of the first question, the U.S. Near-Shore market continues to progress very well. We continue to see a very strong demand in terms of commercial activity, now we have a full commercial team dedicated not only Bruce Dawson who you met but now he has a team underneath that is supporting him, there is commercial activity also all infrastructure is in place. We point out to five wins in 2014; those are already implemented and are ramping up I mean one of those wins was in the fourth quarter of last year. So, we still don’t see that volume of activity, but it's ramping up nicely. And I would point out to very strong commercial pipeline going into 2015. So I would say that plans for U.S. Near-Shore are in line expectations and we continue to feel optimistic about our opportunity going into this year. In terms of your question in Brazil and perhaps linked to also Michel’s question, we continue to have a very healthy growth in Brazil in clients other than Telefónica. In 2014, we grew 11% almost 7% in the fourth quarter and we continue to see that to be the pattern. Actually if you look up the commercial pipeline and the decline wins at the end of last year fourth quarter, that you’ll point out that we’re going to have also very good year in '15 in terms of client growth coming from clients in Telefónica. So, I don’t expect any trend in terms of having more concentration with Telefónica is as you point out that we have interesting opportunities ahead of us agility is one that when everything settles for Telefónica might be a good opportunity for us down the road. Also I would point out that we are -- we closed business opportunity with Telefónica end of last year in non-traditional services, so we closed business with them in back-office and also in advanced technical support, that is activity that will be implemented along 2015 and would give us further growth into '15 with them. But as I said, I don’t see a trend reversing in terms of the expectation of multi-sector or price on Telefónica growing at a much faster rate than what we expect for Telefónica in Brazil. Therefore in terms of concentration, you should not see a reverse trend into that respect. We should -- as we guided during the IPO I mean we should expect going forward that Telefónica will continue to reduce its percentage of total revenues overtime and eventually get to the range of 35% in three year to five year timeframe. So we continue that to be the case in 2015 the reversal or that continued growth of multi-sector versus Telefónica.

[Operator:]

Our next question is from the line of [indiscernible] with Bradesco. Please go ahead with your question.

[Unidentified Analyst:]

Some of my questions were already answered. Just a question regarding the Brazil operation, top line accelerated in 4Q and it seems that it is much more related to macro environment and competition especially from the large players. I'd like to know if the Company has an estimate of the market growth rate in Brazil in 2014 and I'd like to know if the U.S. pass-through keep gaining market share in this market.

[Alejandro Reynal:]

Yes in the case of Brazil we continue to gain market share. We grew in the year for Brazil 7.5% and our main competitor actually decreased the revenue, so therefore we are increasing market share. Right now we have about 25% of the market in Brazil as of the end of the year. In terms of what's going to happen in 2015 what I can say is that we have a very strong commercial pipeline. We have a very close series of client wins end of last quarter -- fourth quarter of last year and we see that commercial pipeline continue to be strong in 2015. We mentioned in the presentation, we performed a carve-out of a major retailer in Brazil that should -- this was to an extent an in-source activity so that should add to the outsource activity and therefore continue to add market share to us. So I would say that our prospects for '15 in Brazil in terms of continuing to gain market share are positive and we should continue to see that trend going forward.

[Operator:]

Thank you. At this time, I'll turn the floor back to Alejandro Reynal for closing comments.

[Alejandro Reynal:]

Thank you very much and nothing else to add from my end. Thank you for the time. Pleasure with you, and I'm sure we'll be in touch. Thanks again and looking forward to our next interaction. Have a great week. Thanks.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.