Good afternoon, ladies and gentlemen. Welcome to Portobello Group's video conference to discuss results regarding the first quarter of 2025. This video conference is being recorded, and the replay can be accessed on the company's website, ri.portobello.com.br. The presentation is also available for download. We would like to inform you that the participants attending the conference call will be in listen-only mode during the presentation. We will then open the Q&A session when further instructions will be provided. The presentation will be held in Portuguese with simultaneous translation into English. Before proceeding, we would like to clarify that any forward-looking statements are based on the beliefs and assumptions of Portobello Group's management and current information available to the company. These statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not occur.
Investors, analysts, and journalists must understand that events related to the macroeconomic environment, industry, and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference are Mr. John Suzuki, CEO, and Mr. Vladimir Brzezinski, Interim Vice President of Finance and Investor Relations. I would now like to turn the call over to Mr. John Suzuki, who started the presentation. You may proceed, sir.
Good afternoon, everyone. It's a pleasure to be here with you once again. Welcome, everyone. We are now going to discuss the results of the first quarter of 2025. We'll talk about the market, our operating results, and financial results as well, with a highlight on the growth that we had, in a very broad sense, in all our business units.
We are also going to make comments on an event which was very important for our first quarter, which was the heavy rains in Santa Catarina in January. Finally, we are also going to cover the financial aspects, especially our cash, cash generation, and so on and so forth. Before getting into the agenda, I would like to make some comments on the decision that was made yesterday at the board meeting. We had the election of the statutory board. We had some changes, important changes in the group. I remain as the Chief Executive Officer of the group, and here with me, I have Vladimir Brzezinski, as I have already introduced. He is the interim Executive Vice President of Finance and Investor Relations.
He's been with the group for more than 40 years, a long history of working with us, with international experience, and also working in the financial dimension abroad. He was also part of the controlling and also in the internal audit. In short, a long and beautiful trajectory with us, and now providing support to us as CFO. The new statutory board has Hamuel Sosa as a member. He joined the group in 2021, and since then, he's been the CEO of our business unit of Portobello Shop. You know the story of Portobello Shop, especially during the period when he was here, where he promoted a very major transformation in our business model in the retail dimension, reporting strong growth.
He maintains his position as the CEO of Portobello Shop, but he is also with us, with our corporate team, as an Executive Vice President of Retail and Innovation. Let me delve into the market overview. The Brazilian market of ceramic in the first quarter of 2025 had modest growth of 0.4% year over year, as you can see in the graph since the pre-pandemic period. We see this as no effects on the graph, but our sector still performs lower than what we had before the pandemic in 2019. We are experiencing low growth in our sector, but when we move on to the next slide, we can see that Portobello, and considering the operations in Brazil, stands out in this sense.
When we compare our performance in terms of volume per day of our sales and the operations in Brazil, it grew 6.5% in volume when compared to the 0.4% reported by the market, but it has been operating at full capacity in all our units in Brazil, Portobello, Pointer. We are operating at full capacity when the sector is operating at 67% as capacity utilization. In addition to our own production, we also have production made in outsourced units. In practice, that means that we have been selling above our capacity of production. On the right, you can see the history for purposes of comparison. We always compare with the period before the pandemic. We see that the market is at 85% of what was reported in the pre-pandemic period, and we are gaining market share in comparison to the market, as we can see here.
In the United States, which is a market which also, depending on the metrics, we have been observing a negative number or a low growth level. Consumption is still at the level of 5.9%. These are the data of the fourth quarter of last year. We still do not have data about the first quarter of 2025, but this is what we posted. In terms of local production, we had a drop of 2.4%. When we compare with our performance in the United States, we see that our performance posted a growth of 53.2%, as I said, of last quarter. We would look at the income. We saw that we grew in 44% in US dollars and 66.8% in BRL. On the right, we see a little bit more about the perspectives of the market. We can see that this is important to understand the dynamics of our sector.
It's still moving sideways. Just regarding the seasonal effects, we are at the same level when we compare with the same period of the previous year. Down below to the right, we see the consumption of what was happened in the United States, and we see important domestic production. Local production accounts for 29%. We have a typical dynamic today in terms of imports and exports as a result of this movement of tariffs that we have been seeing in the United States. Even so, when we compare the fourth quarter and the same quarter of the previous year, we can see that there was growth. We can move on now.
Now, talking about our performance, we ended this quarter, this first quarter of 2025, reporting a growth of 12.6%, considering the context that we have just described, both in the Brazilian market and in the US market. I'm going to focus a little bit more later on Portobello America, and I will discuss the operation of Pointer, who has reported important evolution since last year. Here we can show this is a very important indicator that reflects our evolution of our internationalization project. Our revenue coming from abroad through Portobello America or through our exports from Brazilian units accounts for 27% of our revenue. When we compare with the same quarter of last year, we had 7.2 percentage points of growth year on year. We can see that we are making headway with our strategy to internationalize, headed by our operations of Portobello America.
We can see that we grew in all our businesses. We saw that I mentioned Portobello America growing more than 40% in dollars, Pointer growing more than 21%, 21.8%. We have been making some comments about this progress. In previous calls, we did very important work to reposition the brand, the portfolio of Pointer, and this was driven by a lot of competitiveness that we had at the plant. This has helped us to gain these gains in scale at Pointer. Shop has a history of showing the highest resilience considering those tough market moments. Once again, it posts the growth of two digits. It grew more than 10% in the first quarter. Finally, Portobello, our B2B business, multi-channel, that sees in a very broad way all the impact on the market. It grew 2.9%, therefore above the level of the market, showing resilience.
The focus is exports and engineering, which were the two channels that had the best performance this quarter. We can see that those segments are likely to continue growing along the year of 2025. We also expanded our gross margin. This is a very important balance to take into consideration since the market is weakened. Even so, we grew in revenue, in volume, and expanding margins, highlighting Portobello America that grew its margin. Next slide, I will discuss more about it. Pointer also grew in revenue, volume, and margin. The internationalization by efficiency, apart from the internationalization part, our launches, all related to our commercial strategy. Part of it is explained by our operational efficiency. I can show a bit better each of our businesses. We come from a quarter which was very fragile, so as to say.
Last year, we were in an issue phase of our ramp-up of our plant in the United States, and therefore with a margin much lower. We grew. We reached 16.4%. Okay? Highlight should be given to Portobello America because with this gross margin with which we are operating, we already exceeded the break-even of the operation. More specifically, we have been reaching and exceeding the break-even since December last year, and with consistency in all the months until the end of the first quarter of 2025. This is a very important topic, considering that it was an operation, considering the level of maturity of our operation in the United States. It is an operation that used to consume our EBITDA along 2024, and in 2025, will contribute to our results in terms of EBITDA. Pointer also expanded its margin from 8.2% to 12.2% in 2025.
Again, it's a result of our strategy adapted to reposition and gain scale. We saw back in 2023 some moments where we had some stoppages of our kilns, and that would affect the profitability of our businesses. Now we can see that the business is not only maintaining those kilns, working at full capacity, but even selling a volume higher than what we produce at the plant. Portobello also had a very good performance. The business is much more mature with more robust margins. From a margin of 38% last year, we reached 40% this quarter as a result of the performances of the launches, not only of this year, but also considering those of last year. Portobello Shop is in a segment.
I would like to make this comment because the retail segment is the one that has been impacted by the market moment, Portobello Pointer, which are omnichannel businesses, but directly Portobello that operates in the retail market. This had an impact on the margin, 46% last year, and we ended at 44.6% in this first quarter of 2025, and we have been working hard to recover this level. We will discuss more about it when I talk about the prospect. In terms of expenses, it was also very important for us to build the result. We can see that in the first quarter of last year, we measure expenses over net revenue. We had an expense of 30%.
When we exclude the effect of the rains, this is when we see the effects of the rains because the losses that were caused by the rains, which were losses related to the inventory levels, they were included in expenses. When we exclude this effect, we can see that the expenses reached 29%, 28.9% to be exact, of our net revenue, with the effect that reached BRL 20 million. Our expenses go to 33.3%. We can see that this topic of going after operational efficiency is something which is very present at the company for the moment, even from the point of view of costs or expenses. With this, we reached a margin EBITDA of, again, excluding the effects, we reached an EBITDA margin of 17%, right? The largest margin considering this history period.
When we excluded the effects of the rains, it was the highest absolute EBITDA. EBITDA would have been BRL 104 million if we excluded the effects of the rains. With the effect of the rains, we reached BRL 75 million. We can see the effect being BRL 28.9 million because the effects were not only related to expenses and because this also would include the costs. Talking about our net income now, in the first quarter, excluding the effect of the floods, we would have reached a little loss of BRL 3.8 million. Below, we can see the information about the rainfall effect. We have been working very hard in this first quarter on cash flow. Part of it came from the work that was done in working capital. We can see that our cash conversion cycle dropped from 52 to 1 day in the quarter.
A great part of it comes from intense work related to negotiations of terms with our suppliers. We managed to expand with those partnerships that we established 40 days as an additional term, and we used our FIDC. This was a very important way to structure our first quarter with the FIDC of supplier reaches BRL 106 million. We built a very important instrument to allow those negotiations with our suppliers. We also worked on the inventory levels and also with the clients to reduce this conversion cycle. These were initiatives that were very important for our cash flow for this quarter. Okay, we can move on. We managed our investments very cautiously. When we look at the value-riching actions, we only maintained the essential investments for our operation or those which were already being made along the time.
In the quarter, we invested BRL 18.0 million. That was the lowest value in this historical period that we are showing you. With this, considering all the work that we did and having the operational results and working capital and CapEx, we managed to reach a cash flow of BRL 136 million when we compare to the same quarter of last year when the cash flow was negative. We had about BRL 200 million additional cash generated in this period. With this cash flow, we were able to maintain our commitments of the leverage at a gradual pace. When we looked at the dotted line, orange, which is the proforma leverage, excluding the extraordinary effect, we were at 3 times EBITDA last year, and we are closing at 2.85 times this quarter.
We would have closed at 2.7 times EBITDA if it were not the effect of the rainfalls and the restructures that we did in the fourth quarter of 2024. With those effects, our level is slightly above three times. It's important to remember that we even had communication to the market, and we had a very important capture of $54 million, and that amount was very important to maintain the liquidity of the company, but especially to improve the debt profile of our company. We can see the amortization schedule. With this new issuance, we managed to expand the allocation of our debt for 2.12 years. We are evolving. This is still a challenge that we have. We still have a volume of amortization of BRL 361 million still this year and BRL 370 million for next year.
A large part of this amount is being worked on. Briefly, we are going to announce some new updates about this as well. Closing with the operation, we closed with cash and equivalents of nearly BRL 500 million. Part of it is the quotas, subordinated quotas that we have in the FIDC. If it were not for those, we would have cash of BRL 412 million. Even so, it is still very robust cash considering we are at the end of the quarter. This was the information I would like to share about the first quarter of 2025, talking about the prospects for the rest of the year. I will start with Portobello America because not only was it important to have this first quarter, we generated positive results at Portobello America. We expanded gross margin, and we posted positive EBITDA results.
We see the evolution of all those operations along 2025. We are likely to continue this ramp-up related to sales or our plant, which is already very mature. It is already very competitive at the industrial level. We are going to continue watching the business to evolve, especially the effect result, because part of what we see in the industrial ramp-up is still in the inventory level. We do not immediately see this reflected in the result. Also, growth in terms of volume. This growth in the sales volume is likely to provide a gradual reduction of the inventory levels, either through the sales mix, which is an initiative that we are likely to complete along the year. In terms of Portobello Shop, the margin is an important topic. We lost margin in the first quarter.
We are working to recover those margins, and different commercial strategies are going to be adopted related to portfolio launches or work with our network, which is likely to ensure a recovery of our margins. At Portobello, our omnichannel business, we are going to watch a year with growth coming from especially the segment of exports, engineering segment. As to retail, we see that we have to face tough moments. Another important point is the great competitiveness we have in terms of cost. We have just closed the contract to migrate to the gas captive market, to the free market of gas, gaining competitiveness that is likely to incorporate. By the way, it is already being incorporated in our cost matrix at Portobello unit. Finally, at Pointer, we are going to continue seeing the capture of gains as a result of the repositioning that we made at Pointer.
From the industrial viewpoint, we continue making headway, gaining competitiveness in costs. This is what is allowing us to make this repositioning of our portfolio. With this, we are likely to continue watching the strong growth of Pointer and with profitability. This is what we would like to share with you in relation to the first quarter. Now I am going to open the Q&A session.
Thank you. We are now going to start the Q&A session for investors and analysts. If you want to ask any question using audio, please press the raise hand button. If your question is answered, you can leave the queue by clicking on lower hand. Questions can also be asked in writing using the Q&A option. Please wait while we collect the questions. Our first question comes from Daniel Chavez with GTI, and this is his question.
If you could provide more color on the new debt issue of $54 million term and equivalent rate.
We issued those bonds at the end of March, at the end of the quarter, as we mentioned, $54 million. The term is five years, two years of grace period. With the support or collateral in exports, it's in dollar. The interest will only be paid according to the CDI. I'm going to confirm some information with the team. If I say anything wrong, they are going to correct me. It was CDI plus 2.7.
Yes.
Once again, if you wish to ask a question, you can use the raise hand button if you want to ask a question in audio, or you can send your question in writing using the Q&A option. Please wait while we collect questions. Our next question comes from Alysha Zurikavach.
When the management expects the company to have positive net income?
We have our policy not to provide any guidance, so I cannot answer in a direct way the question that you asked. Obviously, the management is working hard so that we can start generating net income in the short term. This is our purpose, our target, and most of what we have been discussing related to the focus on cash flow, reduction of expenses, and also working hard on the working capital. The purpose is really to go back to have profitability, reduce our leverage ratio, reduce our indebtedness level, reducing financial expenses, which have been an important offender in our income statement, and go back to being profitable. I would like to reinforce the information we have already provided. We have the rainfall effects in the first quarter. These affected our income statement.
If it were not for the BRL 28 million effect, we would have got very close to a positive net income.
Our next question comes from Leonardo Piovizza.
Could you talk about the potential savings generated with the new gas contract?
That's a very good question, Leonardo. We're not very happy with the migration to the free market of gas. You know, it's a very important share of our cost matrix. And we estimate that in relation to the gas cost that we have today, we are likely to see a reduction of 8%.
We'd like to remind you that if you wish to ask a question, you can use the raise hand button. To send a question in writing, you can use the Q&A tool. Please wait while we collect the questions. Our next question comes from Julio César Cavalcante. G
ood afternoon. Congratulations on the results.
I would like to know when we are going to see the resumption of payment of dividends.
Julio, thank you for your question. Julio, our dividend policy, as you know, we are always after the 50% of distributable net income. Along the lines of the previous question, in terms of income generation, we are working hard to generate net income in the short term, and we would be very close if it were not for the rain. If we have net income, we are going to follow our dividend distribution policy.
Once again, to ask a question, please use the raise hand button or use the Q&A tool. Please wait while we collect the questions. Our next question comes from José Aneto.
The financial expenses grew in horizontal analysis in relation to the first quarter of last year, about 21%.
The depreciation and amortization grew about 15% in relation to the first quarter of 2024. CapEx had a reduction of about 18%. In addition to the known recurring effects of the rains, is there anything else that you'd like to mention about those effects? Thank you, and thank you for the conference.
Y eah, let me answer your question by parts. First, talking about financial expenses. Financial expenses have the effect of the level of our debt, naturally. There is a growth of the debt. There is a natural growth in the interest rate. I'm talking about the basic interest rate level, and it has been growing and has a direct effect on our financial expenses. There are instruments that we have bringing into the company.
As I said, we have the FIDC that has its financial cost, and the financial cost of the FIDC is included in financial expenses directly. These are the main effects of financial expenses that we have, right? In terms of depreciation and amortization, we have some increases of amortization and depreciation in Portobello America, also related to the expansion of our own stores that also have the depreciation and amortization aspects. Let me check with the team if there are other effects, but basically, these are the effects on the depreciation and amortization. I think Vladimir reminded me of Portobello America. Maybe we could provide more details because Portobello America had one of the lines when special pieces, and we started to start recognizing the depreciation of those lines quite recently, at the end of last year, to be exact. I'm not sure if I answered all the questions.
I think so.
Our next question comes from Luis Bajos.
Good afternoon. When you talk about the net revenue of Portobello Shop, you also talked about the own stores. When we talk about our own stores, it is the addition of Portobello to the own stores and to the sales of the final client. The other one is related to the franchisees.
Before answering your question, let me make a correction related to the question of $54 million. The previous question, the cost was not, yeah, it was CDI plus 2.2%. I am correcting the previous information. In relation to the net revenue, how it is formed for Portobello Shop, in fact, we have revenue coming from our own stores and also revenues coming from the network of franchise companies.
For our own stores, we recognize what we call, refer to as sellout, which is the sales to the consumer, and therefore the full price, so as to say. For the franchise stores, we recognize the selling, which is the sales to our franchisee units, franchised units, not to the consumers. Okay?
Our next question comes from Leonardo Piovizza.
The working capital dropped to one day. It's likely to be leveled and normalized at what level?
Leonardo, that's a very good question. Again, we avoid to provide guidance, as I said before, but our expectation is not to remain at one-day standard. In this first quarter, we did one stack task force, and we negotiated with our partners, with our suppliers, but we are not likely to remain at this level. We are not likely to go back to the previous level of 50-some days.
We are likely to be anywhere in between those numbers. Part of those are when we use other instruments such as FIDC. We are likely to negotiate good terms with our suppliers. We are likely to remain somewhere in between.
Our next question comes from Andrea Santana.
What is the effect of the tariff in the United States to Portobello America businesses and operations?
Andrea, this is a very complex question because this scenario is not yet very well defined. I may share with you how we see the situation at this moment. When the tariffs, additional tariffs, came into play, at first focused on Canada and Mexico, and then being known as tariffas or big tariff, we saw a positive effect on our operation, especially when we think about how our client base would respond when we talk about the imports and the local production.
We saw this as something positive. As the American government was retreating or providing a longer term for the accommodation that we are living now and beginning to negotiate with different countries that were being imposed those additional tariffs, we started to have experienced a moment of lots of uncertainties. We saw the volume of imports increasing in the United States. From the information that we have, this is something that has already stabilized. In terms of prospects, it seems that this trend is very clear that imports are going to have tariffs, high tariffs, which is with the purpose of valuing the American industry. Since we have a plant in Tennessee, we are an American business. The prospect is very positive.
Even from the viewpoint of Brazil, when we think about the tariffs being imposed, we saw that Brazil had a tariff imposed at 10%, the lowest considering all the tariffs that were imposed. We were being favored in this regard. The developments are still very uncertain. We see that our operation in the U.S. will be favored. This is how we see it now.
Our next question comes from Luciano Sosa.
Portobello Shop had significant growth in the first quarter of 2025. What are the main levers that sustain this performance? Considering the perspectives of stabilizing the margin, what are the actions that are being prioritized not to compromise the expansion rhythm and profitability?
Let me start answering from the margin. There are important works being done. Part is related to competitiveness and costs, and others are in relation to operational efficiency.
Some of the activities are not likely to happen in the second quarter. I already mentioned the migration to the free market of gas, and this will benefit the whole group since the Portobello unit is a supplier of Portobello Shop. We are going to have this higher level of competitiveness along the time. The migration started in the beginning of the month of May. More than that, we have to consider the commercial strategies in the sense of mix of products, thinking about a more noble mix and also considering the competitiveness of the more affordable mixes. We have this movement in our portfolio that is including the launches, and this is likely to bring a recovery of our gross margin at Portobello Shop.
Portobello Shop has been following this growth pace with some fluctuations, but this is the growth rate of two digits for some years. This is a result of the strategy that we have been implementing, both in relation to the evolution of our processes, looking at our competencies within the business, gaining commercial productivity, but also through the expansion of the network that we have. We have an additional channel at Portobello Shop, which is a B2B channel within the retail dimension, which has the purpose of promoting external sales of stores from small commercial works, construction works. We have seen good results from this initiative, and we are likely to continue seeing the good effects along the time.
Our next question comes from Alexandre Cavalcanti.
Are share buybacks still happening? No, Alexandre. We do not have an open share buyback program active.
We have a small buyback program that was approved by the board that only has the purpose of composing shares in the long-term incentive program for the officers. Low volumes that are going to be made up gradually, but in addition to that, we do not have any active or relevant share buyback program.
The Q&A session has ended. We would like to give the floor to Mr. John Suzuki for his final remarks.
I would like to thank you all for joining in. I would like to reinforce some important messages that we conveyed to you during this call. It was a good first quarter of the year. All the businesses grew. The group gained market share in the markets it operates with a very important advance in the financial viewpoint with a good cash position at the end of the quarter.
We saw that the first quarter made good headway for the company, even in a more fragile market scenario that we are facing at the moment. Thank you very much, and see you next quarter.
Portobello Group video conference is now closed. We would like to thank you all for participating and have a good day, everyone.