Good afternoon, ladies and gentlemen. We welcome you to the Portobello Group video conference to discuss the results for the second quarter 2025. This video conference is being recorded, and the replay can be accessed on the company's website, irportobello.com.br. The presentation is also available for download. Please keep your interpretation in select English.
Please note that all participants will be in watch-only mode during the presentation. In doing this, we will start the question and answer session when further instructions will be provided. The presentation will be conducted in Portuguese with simultaneous translation into English. Please be advised that the forward-looking statements made herein are based on the beliefs and assumptions of the Portobello Group and current information available to the company. These forward-looking 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 should bear in mind that events related to the macroeconomic environment, the segment, and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this video conference are Mr.
John Suzuki, Chief Executive Officer, Gayo Gonzalez de Morais, VP of Finance and Investor Relations, Officer, and Sue Ellen Heimes, Investor Relations Coordinator. I would now like to turn the floor over to Mr. Suzuki, who will begin the presentation. You may proceed, sir.
A good afternoon to all of you. It is a pleasure to once again refer to the results of the second quarter 2025. I hope you enjoyed our opening video with our launches to speak about our capacity for innovation in products, which is one of our competitive edge and explains our results for the second quarter. These were very positive results, and especially in the market context that we are undergoing and that we will discuss in the call.
Now, still speaking about the results very generally, you will observe that this was a quarter where we had a very good performance from the viewpoint of strategy execution, operationally, economically, but also from the financial viewpoint. You will observe that we have progressed in our internationalization strategy. We have Portobello America, we also have exports, and you will also observe in this quarter growth at all of our units with a market share gain in all of our business units. I'm going to begin speaking about the market, and for the first time, accompanying me in this presentation and commenting on the financial results, we have our new CFO, Gayo Gonzalez de Morais, who joined us very recently. We are going to speak about the market at large.
As I mentioned, the market, and this is valid for Brazil and the rest of the world, is undergoing a more difficult moment when it comes to construction material and finishing material. Because of the increase in the interest rate in Brazil, we were able to observe a quarter compared to the same quarters of 2024 with a drop, a drop of 2.3%. We were observing a very resilient market considering the interest rates that we have until the second quarter. In the second quarter, nevertheless, demand was weakened. Despite this context, Portobello stands out and gains market share. We had a growth of 6% while the market dropped 2.3% in the Brazilian market. Now, when we look at the North American market, unfortunately, we still don't have the figures for the second quarter, but of course, we can work through a proxy.
When we look at the first quarter, there was a drop of 2.1% in the market vis-à-vis PBG with a growth of 16.7% in the first quarter, and it grew even more in the second quarter, growing 19.4%. When we measure revenues in DRLs, the growth was of more than 50%, which means that we continue on with a very highlighted performance in our sector. I don't have this here, but the coverings market in Brazil is operating with a capacity occupation of approximately 75%. Going against this market, we're not only operating at 100% of our capacity in Brazil, but we're also adding volume that reaches 10% of our resale volume that comes from our outsourced operations. This shows a strong performance of the second quarter. I will now turn the floor over to Gayo.
We perceive very quickly what is happening with our net revenue. Although the market is quite weak, the revenue increased 17% quarter -on -quarter. All of this is driven by international markets. Of course, we highlight PBG with an increase quarte-on-quarter, expanding their share, and the growth was in all markets. If we look at the seasonality in the company, we expect that the second half of the year will have a more robust activity, which means that in coming quarters, we will see a continuity of our resilience. When we look at this per business unit, we observe the same. All of the business units had a growth. Portobello with a growth of 6.6%. Portobello Shop, our retail arm, growing 9.6% quarte-on-quarter. Pointer, which is our more democratic retail unit, growing 12.7%. Portobello America, another highlight, growing 52.4% in DRLs and 34.9% in U.S. dollars. A very robust growth.
This also happens with our gross profit that grew 17.4% in the quarter. This is because of the operations with an origin in Brazil of 3%, and in DRLs, this is more expensive. The growth of PBG goes from a negative second quarter last year and goes to a positive performance of almost $20 million. This is the second consistent gross profit growth, showing the consistency of our operations. If we look at the margins, once again, they are at a consistent margin of almost 37%. The pro forma EBITDA growing 45%, a reflex of what we saw before, the performance of gross profit, but also due to our optimization actions that have been in place since last year and efficiency gains that we had in the last quarter.
Now, despite all of this, we have a net income that remains under the pressure of the high interest rates and financial expenses. It's important, therefore, to look at the details of our financial operations. I'm going to go on to the next slide for this. There's an important point to underscore here. When we see the evolution of financial expenses between the quarters of 2024 and the second quarter of 2025, we have higher revenues and exchange variation, which is normal. We also have variations of our SELIC rate with $20 million in profitability. We also have the impact of some instruments that we are using to enhance our working capital.
We have the FIDCs and other actions on working capital that brought to the group a liquidity, a better cash generation, and along with our strategy of reprofiling our debt that we were able to do successfully in the last two quarters. All of this has contributed to a certain financial comfort in the company. Beginning now, we can rebalance the profitability, financial expenses, and recover our profitability going forward. When we look at cash generation, we see that we haven't stopped generating cash. We have a very robust cash generation this quarter. If we compare quarte-on-quarter, we have a $57 million variation of cash among semesters and $200 million of cash generation. Now, because of the instruments that we are presently using, this has boosted the cash of the company that is doing very well. We were able to lengthen the payment term of suppliers.
We have also been able to reduce the inventory levels, and we now are working with a different cash conversion cycle of 34 days. Last but not less important, the debt profile that we have since the end of last year. The fourth quarter of 2024 had a much worse portrait. Our cash was under greater pressure, of course, and the expectations for 2025 and 2026 were much better. Everything we did since the end of last year up to present was a complete debt reprofiling. We have $400 million in cash equivalent covering the years 2025, 2026, and part of the year 2027. In terms of prudence, therefore, this has become less important because of the operations that are underway. We should continue to lengthen our debt, and of course, everything will be within our reach. We can continuously decrease the leverage measured through pro forma.
We see a continuous reduction. We go from $302 million in the second quarter of 2024 to $230 million in the second quarter of 2025. An expressive reduction, therefore. With this, I would like to return the floor to John to speak about Portobello America.
In this last part, I would like to once again highlight not only the good economic, but financial performance, the enhancement in the leverage that we have, and the low cash conversion cycle that we have, much lower than that of last year. All of this was part of that financial equation to continue to move forward as a company. Let's speak about the viewpoint of strategy and highlight what is happening in Portobello America. This is part of our avenue for growth in terms of internationalization. Internationalization is made up of our export operations coming from Brazil, as well as the United States.
The operation in the U.S. has had a very robust growth, a 50% growth in dollars, a significant growth in volume. It also has evolved in terms of mix. The plant has already achieved stability. This is one of the topics that we discussed in previous calls. The special pieces and tiles lines have reached a situation of stability. It is no longer a matter of operation. What we have before us is an issue of commercial strategy. For the second consecutive quarter, we go beyond the EBITDA breakeven, not only go beyond, but we have been having an evolution quarte-on-quarter. You can see that this is truly an operation that has been generating positive results from the viewpoint of EBITDA.
Another highlight in terms of the results is that this was a quarter in which the operation generated not only a positive EBITDA, but also a positive FCO, important for the operation to have financial autonomy. Now, this is a project that we have been remarking on and that maintains our brand positioning, one that we have been working on for decades in Brazil. It's a brand that is seeking a high-end positioning with products that distinguish themselves with innovation and a full solution. We have special pieces, and in the United States, what is even more important, very high levels of service. This has been well executed in the U.S. market. Without a doubt, you're following on the issue of tariffs, the tariffs for exports from Brazil to the U.S.
Unfortunately, the ceramic coating has not become part of the exemption list, and we will be paying almost 30% in terms of tariffs to export to the U.S. The most strategic impact of these tariffs also has a positive impact on our operations. We had already seen that we would have some competitive advantages in the U.S. simply because we have a plant, an operation in the U.S. We can offer better service levels. We offer products made in the U.S., and the products are geared to the local market. We're competitive in terms of cost. The U.S. gained competitive prices simply because of the gas issue. All of this already existed. Because of the tariff issues, I'm not speaking specifically of the tariff issues for Brazil.
For the American market, of course, all of this will favor our project in the United States from the viewpoint of our operation there. When we think of the exports of Brazil to the United States, there is an impact, and I'm referring to that tariff of 15%. As a group, the volumes are not that relevant. Because of the demand that we have in Brazil presently, we can very easily gear this demand elsewhere with profitability in the domestic market or other export markets. This is not a relevant point, but for the operation in the U.S., perhaps in the very short term, there will be a slight impact on our operation. In the midterm, once again, this will end up being a favorable factor for our project in the United States. This is what we wanted to comment with you.
We can now go on to the question and answer session, if you will.
We will now go on to the question and answer session for investors and analysts. If you would like to pose a question, click on the Q&A icon at the bottom of the screen, writing your question, giving us your name and company. The first question is from Roberto Badi. He says, "Congratulations for your excellent results in this quarter. Could you speak about what has led you to this consolidated profitability and which are the expectations for leverage going forward?"
Thank you for the question. A very good question indeed. It's the issue of profitability. Now, the company has been doing very well in terms of its strategy, doing very well in all of its operations. We had a growth of almost 17% in the second quarter of this year.
All of the businesses have contributed for the evolution of our EBITDA operational results, especially in the United States, where we had the highest investment the company made in the last few years. There's still a great deal of room for the United States to contribute to our results. These results do not depend on operation. We don't only have to evolve operationally, we also have to evolve from the financial viewpoint. We have had a very constructive trajectory in terms of finances, in terms of our liquidity, our debt profile, the maturities in the midterm, and from the viewpoint of cash generation. We've had a significant evolution since the end of last year up to present. This has generated a new cycle for us. What we need to evolve in is the cost of our debt profile.
We have a debt profile that is partially based on banks, and even our international lines have a lower cost, but we need to evolve in this area. The trajectory to regain profitability goes through operational results in the U.S. , and it depends on our debt profile. Let me comment on this and take advantage of the second question. That is the strategy. We are generating more operational cash. All of the operations are doing well. Now, regarding our debt, we have chosen a strategy, which is liquidity for the company. We are working with strategies carried out recently because they help us to create new cycles with a competitive background, with bank debts that are at a lower cost. Now, we're going to continue with this strategy, generate greater cash. We will be able to work with funding at lower costs, as you mentioned.
Therefore, we can work better with term and cost. Even with a longer term, we can lower the marginal cost for the company.
Our next question comes from Daniel Chavez from GT Invest. Good afternoon. Could you give us more color regarding the cost that refers to FIDCs and which has been the absolute impact of that on the financial results of the company?
Thank you, Daniel. The cost of FIDCs is very compatible with the bank lines that we work with in the company. The FIDC operates at the best level when it has a large number of clients. This isn't a cost. It's a revenue for the company. It's very close to CDI + 2%. The impact on our financial result is negative. However, it's a strategy for the company that enhances the liquidity of our operations.
The information that I showed you, the $2 million, are part of that FIDC strategy.
We would like to remind you that should you wish to pose a question, click on the Q&A icon at the bottom of the screen, write in your name and company. Please hold while we pull for more questions. Once again, should you wish to pose a question, click on the Q&A icon at the bottom of the screen and type in your name and company. Please hold while we pull for more questions. Our next question comes from Michael Arcangelo. Which are the Portobello America plans going forward regarding the tariffs?
Let me respond in the following way. From the strategic viewpoint of our project, this tariff is very favorable for imports in the United States. It brings about competitiveness and speeds up our project. All of this will happen through time.
Now, because of the level of uncertainty that we are still facing, there has to be a period of accommodation. This will help us not only in the sales volume of our operation in the U.S. with the local production, but it will help us with the migration of products where we still work with outsourcing coming from our operations in Brazil. Brazil exports to the U.S. , and we will transfer the production from Brazil to the U.S . We were doing this gradually, and of course, we can increase the pace of this trajectory of our portfolio. There are some positive points in this moment of high tariffs, and in the very short term, there will be an accommodation of volume in the operation of the United States. The volume that comes from Brazil is relevant for the operation in the United States.
From the viewpoint of the business, the trajectory remains the same. We're conquering the market. We're improving the product mix, the mix of channels. We still have a very long trajectory for this project.
Our next question comes from Daniel Chavez. How do you think that leverage will behave until the end of the year, which is a healthy level that you're working with as a goal?
Thank you for the question, Daniel. As we have shown you here, for some consecutive quarters, we have generated more cash. We also have the impact of seasonality that is more favorable. Our strategy is to continue deleveraging, something that we have been doing. We reduced leverage more than one point between the last quarter 2024 up to present. Of course, we will continue to deleverage. Now, which is a healthy figure, a level that would be at or below two times.
Allow me to complement what you said, Gayo. The level of interest rates that we are facing here at present, it should be at 1.5 or 2 times for the leverage. During moments of more normal interest rates, interest rates of a single digit, we would operate at 2 or 2.5 times of leverage. That would be quite comfortable, but at this moment, 1.5 - 2 times is more comfortable. We will gradually reduce the level of leverage we have at present.
Our next question comes from Mr. Roberto Valadino. Can you show us an update on the production of Portobello America? When can we expect them to operate at 100% capacity?
That question, in a certain way, is connected to a previous one that I have already answered. There is the impact of the tariffs that will speed everything up.
We have been growing at a very fast pace in the United States. This issue of tariffs will accelerate the sales, especially of our local production. We will quickly reach that level of 100%. I would say that we're presently operating at 80% capacity, but in practice, we're at 100% in the operation. Of course, we have efficiency gains, and we can enhance our capacity in the United States. Presently, we're almost at 100% capacity.
We would like to remind you that should you wish to pose a question, click on the Q&A icon at the bottom of the screen and type in your name and company. Please hold while we pull for more questions. Once again, should you wish to pose a question, click on the Q&A icon at the bottom of the screen and type in your question, giving us your name and company.
Please hold while we pull for questions. Our next question comes from Mr. Kleber Diaz from Legacy Strategic. Comparatively, the companies in the same segment have indicators that are quite below yours, and the revenue still does not translate into the growth of value. You have the years 2026, 2027. How are you going to attain this?
That's something that we are already doing. At the end of last year, we had a challenge that could have seemed enormous of working properly with our maturities in 2026 and 2027. We generated cash and were able to access the market without any problems. We haven't stopped executing executions to the market with partners and with banks. We don't think it would be a challenge. We were able to overcome 2025 and 2026, and we will continue to do this. We are growing in Brazil as well as abroad.
Our next question comes from Mr. Juan Lorenzo. Thank you for the presentation and congratulations for the excellent results. Are you exporting the U.S.A. products to other states? Would reciprocal tariffs have an impact on this business?
Thank you for the question, Juan. Now, the operation in the United States was conceived to service the domestic market, and the American market is made up 70% of imports and 70% of local production. It is mainly an importing market, and our products are geared to the domestic market. We have a small percentage of exports, especially to Canada, simply because of the logistic ease. It's easier to deliver to Canada, but it's not a project geared to exports.
We would like to remind you once again that if you wish to pose a question, click on the Q&A icon at the bottom of the screen and type in your name and company. Please hold while we pull for more questions. Once again, if you wish to pose a question, click on the Q&A icon at the bottom of the screen and type in your name and company. Please hold while we pull for more questions. Our next question comes from Mr. Alex Saun. We would like to know when you intend to make new investments for the expansion of your plant. Congratulations and thank you.
Thank you, Alex. We have been on a trajectory to reduce our leverage, as mentioned by Gayo, especially for this quarter where we reached 2.3 times, and we want to reach a level that is closer to 2 times.
Once we deleverage the company, we recover our capacity to invest. Now, having said that, in the United States, part of our phase I plan is to add an additional line. The plant in the United States is made up of two parts of tiles and a second line of special tiles. This third line, we're imagining this for the end of 2026. Once again, we're following up on our trajectory of deleveraging in the company, but in principle, this is a plan that we have for the United States in the next two years.
Once again, if you wish to pose a question, please click on the Q&A icon at the bottom of the screen and write in your name and company. Please hold while we pull for questions. Our next question comes from Tiago Nascimento. Good afternoon.
Could you comment on the gas contract in the free market and which is the cost savings that you will have in terms of production?
Thank you for the question, Tiago. We migrated the consumption of gas in Tijucas in the month of May, and the reduction that we obtained with that compared to the captive market was of approximately 8%. I don't have the figures in DRLs, but the reduction was 8% beginning in May. Of course, this will also have a greater impact in our results. We have already captured part of those results. In the second half of the year, this should become more intense in the third and fourth quarters.
Our next question is from Mr. Giuseppe Castelli from XP. Hello. To take advantage of another excellent quarter, could you comment on the expansion plan of the company? Where will you have the greatest expansion?
In base points, what do you expect? Numbers and expressive values would be greatly appreciated if possible.
Hello, Giuseppe. I'm going to begin by saying that our policy is not to disclose guidance. I can't be as specific as you would like me to be. The United States is quite important. We reached a break-even point recently since December. We have been operating above break-even in the United States, but naturally, there's still a road to complete before we get to a perfect operational situation in the United States. The business in the United States, in normal conditions, works with an EBITDA margin that is higher than the margins we have in Brazil. Of course, it depends on the moment of the sector in each of the countries. Yes, the North American market operates with higher margins.
Not only the results of Portobello America contribute to our EBITDA margin, but their margin potential is higher compared to Brazil. This is the main variable when it comes to EBITDA margins. Our businesses in Brazil have had a healthy profitability, but we're facing a rather adverse moment in our sector, which might pressure margins, of course.
Once again, should you wish to pose a question, click on the Q&A icon at the bottom of the screen and type in your question, giving us your name and company. Please hold while we pull for questions. Our next question comes from Mr. Maurizio Hamani from Rich Capital. Should we expect a level of financial expenses similar in the coming quarters?
Thank you for the question. We have already responded to this very gradually. We're improving our debt profile, the terms, and we're now beginning to work on the issue of costs.
We have generated cash. We're going to capture more development funding, which can be of aid. We will see a gradual reduction in financial expenses going forward.
The question -and -answer session ends here. We would like to return the floor to Mr. John Suzuki for the closing remarks of the company.
Thank you all for your attendance, for connecting to our quarterly earnings call. As I mentioned at the beginning, we had good results in the second quarter of 2025 from the strategic level to the financial level. This is important to reinforce the assertiveness of our strategy. Of course, we're making good strategic choices in internationalization, our multi-channel strategy, multi-business strategy, and our focus on design and innovation. I wanted to underscore this. Our expectation going forward is to continue on with this trajectory with the same financial discipline we have had in previous quarters.
Once again, thank you for your attendance. We hope to see you in the next call. Thank you all.
The Portobello Group earnings conference call ends here. We would like to thank all of you for your attendance. Have a very good day.