Good morning, ladies and gentlemen. Welcome to Portobello's video conference to discuss the results for the second quarter of 2022. 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. Please be advised that all participants will only be watching the video conference during the presentation. Later, we will begin the question-and-answer session when further instructions will be provided. The presentation will be held in Portuguese with simultaneous translation into English. Before proceeding, I take this opportunity to reinforce that the forward-looking statements are based on the beliefs and assumptions of the management of Portobello Grupo and on the current information available to the company. These statements may involve risks and uncertainties given that they relate to future events and therefore depend on circumstances that may or may not occur.
Investors, analysts, and journalists must take into account that events related to the macroeconomic environment, the industry, and other factors may cause the results to differ materially from those expressed in the respective forward-looking statements. Before starting the presentation, the company will present a video about the results of the quarter.
Portobello Group second quarter results. Net revenue and growth of 24.4%. A growth above the market with gains in market share. Highlights for Portobello Shop and Engineering business units. Gross margin and EBITDA margin. Adjusted and recurring. Adjusted and recurring EBITDA. Acquisition of Portobello Shops in several locations in Santa Catarina, consolidated as of the third quarter of 2022, and new franchises. The third Portobello Unlimited exhibit. Also a market research for the trends related to the Milan Furniture Fair. Participation in Art Deco exhibits, and here are new executives. Portobello Sustainability Week.
The amazing team of Portobello made this all possible. Thank you.
Today in this video conference we have Mr. Mauro do Valle, CEO, Mr. Edson Stringari, VP of Legal and Compliance, Mr. John Suzuki, VP of Finance and Investor Relations, and Ms. Jeniffer Mariane, Senior Manager of Controllership, and also Mr. Renato de Serpa, expert in investor relations. I would now like to hand over to Mr. Mauro do Valle, who will begin his presentation. You may proceed, sir.
Good morning, everyone. It is a pleasure to have you here in our video conference, so welcome shareholders, clients, market analysts, journalists, everyone who keeps track of our routine. I would like to reinforce that John Suzuki is here. He is a colleague, somebody who has participated in our business for many years.
He recently had an experience in the market three years ago, and when we rearranged our organizational structure, we welcome Mr. Suzuki back, which is very positive for the company and because he's very familiar with the company and holds very strong knowledge about the market, a wonderful background, and knows a lot about the industry where we operate and about our clients as well. Welcome back, Mr. Suzuki, and also I'd like to welcome the other members of our team who are going to help us in this presentation. We will leave our camera open so that we can interact in a more dynamic way with you. Mr. Suzuki is going to make most of the presentation, but at this point, I would like to put the market into context. I'd like to give an overview of this market before we start talking about the performance.
When we analyze the market performance, whether it is based on the industry, based on data from the ABRAMAT or Anfacer, we see that the behavior of the market was very similar. Until the first half of last year, we had a very strong growth. In the second half of 2021, this was true for construction materials industries, not only in Brazil but abroad too. As of the second half of last year, we started having a decrease. Then we found some balance, and in 2021, we still had real actual growth. In 2022, the first half of the year showed some drops. You see that the performance of the retail market shows stabilization and a slight drop in this market. Also because the previous quarters were running at a higher rate.
We know that in Brazil, because we had a higher inflation levels and higher interest rates in the first month of 2022, so that has affected both the industry of construction materials as well as the retail market of that industry. We have consolidated our brand in the past years. We have more resilience. Also the segment of that market where we operate in a premium segment of the market, plus some initiatives of innovation of our products and the segmentation of our business in the past years, and a strong growth in exports have led to also the growth in the retail market, a market where we have also worked with major construction companies. All of that combined make Portobello to have performed well in the past quarter and in the first half of the year.
Because of that, we have a positive perspective for the year. I would like Mr. Suzuki to share more figures about that, and later we can comment about the perspectives for the year.
Thank you, Mauro. Good morning, everyone. It's good to be back. It's good to be back to the Portobello team. I would like to thank the words of Mauro and also the whole organization because I'm very pleased to be here. I'm also very pleased because of what we are going through right now at this company. We see that the performance is being reflected in our results. Despite the market scenario described by Mauro, we did have very good results in the second quarter in terms of resilience and also growth. We experienced 24% growth in the second quarter vis-à-vis the second quarter of last year. We also improved our profitability.
All of that in a scenario with a very strong inflation pressure and also energy costs. This is a reality even in the beginning of the third quarter. In the second quarter, despite the scenario, we have increased our profitability from 41 to almost 44%. When we make this analysis per business unit, as Mauro mentioned, you see that Portobello and Portobello Shop have experienced a very strong growth, 21.6% for Portobello, 33.1% for Portobello Shop. As you know, Portobello is a multi-channel B2B business that has performed very well according to our business model. We are experiencing good times in terms of engineering, also exports. That was very strong in the second quarter. In resales, we are starting to feel the impact of the scenario.
Since we work in a premium segment, we can be more resilient in times like that. Our premium segment is Portobello Shop, but not just here. You see that this performance also relates to the advances that we've made in our network, also the improvements that we have implemented. Pointer, on the other hand, is a business unit that has been more negatively affected by the scenario of our industry. We have experienced a drop in the net revenue of this particular business unit. After experiencing a very strong growth, reaching a very high level of revenue at Pointer, now we have felt this impact because of its location in the northeastern part of Brazil and also because of the scenario described. Portobello America focuses more on project. That's a very important business. We are going through a ramp-up time.
In the first half of next year, we expect to open its production facilities, and we see that we've had a significant growth in the net revenue for Portobello America. That's also important for us in terms of positioning. Because of that, you see that in the internal market, we had an 81.4% growth. Now I'm briefly going over this slide because the analysis is very similar when we talk about margins. We have grown our business with good profitability. Pointer has been more affected by it. In all business units, we have very healthy margins. I think it's important saying at this point that there is a difference between the performance of Pointer and the other business units like Portobello and Portobello Shop.
This also has to do with the profile of consumers because Pointer consumers are middle-class consumers in the northeastern part of the country. They are more sensitive to changes in interest rates or inflation. Of course, those of the retail market are also impacted by those same factors, but not as much. Combining the brand efforts and the efforts related to product innovation, we have been able to be successful in this first half of the year. We have been very disciplined about the management of expenses. As you see, we have evolved in terms of expense management and also because of the strategic evolution we've had in our strategy in investments. We have discipline to keep similar levels of expenses, as you can see here, so that won't have impact on the net revenue. All kinds of expenses.
Some of them, of course, are influenced by the investments. Finally, EBITDA. It's important to say that these are record results we have achieved in this period. This is a record net revenue in the second quarter, but also a record recurring EBITDA in our business. We have reached BRL 111 million in the second quarter of 22%, a margin of 19%, so an increase of 34% vis-a-vis the same period of last year. This really amazing results. Of course, this has had an impact on our net profit. Here you see the results of the second quarter of last year with BRL 40 million, and this year then for the second quarter, we have reached BRL 52 million in net income.
We will talk a little bit more about that and how that impacts our distribution of dividends is going to be paid earlier. Now, let's talk a little bit about our working capital. In our business units and also the corporate level, we manage our working capital very carefully. That's a very important point for us. Our cash conversion cycle has increased by 16 days, so now from 27 to 43 days. You see the impact totaled BRL 115 million. These events is due to the inventory, even partially determined by the time management of our suppliers and also the management of receivables. We're trying to mitigate that in several points. We have improved in terms of level of service, and this has been translated into these results.
We have had service levels that in the past were not as good as we should have had for our customers. We have made a major review of our suppliers in our supply chain, and we have improved in terms of level of inventory so that we could reach appropriate levels. There is room for improvement, but this is going to happen over time. In terms of inventories that are superior or higher because of impacts in sales, we only saw impact on Pointer. This is probably going to be adjusted in the second half of the year. We just had some downtime for maintenance. That's seasonal. As to investments, we have improved also in terms of investments. In the second quarter, we totaled BRL 99 million for investments. Our main investment was made in our own stores. We're going to talk more about that later on.
We are also going to have the acquisition of some stores, Pacaembu, São Gabriel. Of course, this was also published as a material fact because it has impact on the third quarter. We have made investments in our factory in the U.S., and soon we are going to see the impacts of those investments as well. In terms of leverage, we have good balance. It's a good evolution. We used to have 1.6 times in terms of net debt, and we have reached a record level and similar to the record level we've had in the past, which is 1.3 times the net debt over EBITDA. You see that the schedule for amortization is also very well distributed for the next years. It's very well-balanced, and we're very confident about the liabilities that we have.
Let's just recap in terms of the deliverables that we have announced in the last call. We have had a net revenue growth of around 20% vis-a-vis the same period of last year. In terms of costs and expenses, especially in terms of gross margin, we have maintained a level of 43% despite the inflation rate. We were able to improve and to maintain the gross margin at the level of 43%. Our CapEx is still focused on strategic projects. In this quarter, we're focused more on our own stores, but our CapEx is still a priority. In terms of cash flow, in terms of net debt, our leverage is lower than 2.5 times the EBITDA.
To wrap up the comments for the second quarter of this year, I'm sure that you keep track of our performance in the equity market. Our industry has suffered a lot in this period. I am sure that you have kept track of that. We had already communicated that last Friday that we would pay dividends in advance earlier than expected, totaling BRL 43 million. This also does not consider the reserves. The ex-dividend will be applicable as of August 19, and we expect to pay those dividends on September 1. Now let us talk about perspectives, especially focused on the next quarter. For the third quarter, we expect to maintain the same levels of demand, and we believe that this is going to be stable. We see more resilience in the premium engineering segments.
Export is still strong in some markets, especially in markets like Argentina. Although in Argentina, there is a higher level of uncertainty. We export more to the U.S. In terms of growth, we foresee for the same reasons we have mentioned for the second quarter, we expect also to grow above 20% in terms of net revenue vis-a-vis the third quarter of last year. Of course, we still feel the pressure of the inflation rate, but we expect our net revenue to be improved. In terms of gross margin, we also expect to maintain the same level of 43%, and we are going to be very rigorous in management of costs and also our working capital. We've talked about the gross margin and also for the EBITDA margin in 2022, we expect it to reach the same level of 2021.
The CapEx is the same we had indicated before, an estimate of BRL 280 million. This is the CapEx with a cash effect, with a financial effect. In terms of cash flow, we also expect to keep this ratio of 2.5 times. These were my comments for the third quarter. Now, I will turn over back to Mauro so that he can give us an update of our strategic projects. Well, in this final segment, I would like to comment on the main projects. First, I would like to start talking about our investments in the U.S. We always bring enough updates on the investments, and it's not just about the facilities themselves, but also in the distribution channel, also in strengthening the brand.
We are working with some products that are provided by Portobello in Brazil, and we are also increasing our share and also with local products for a best fit with the American market. At the end of the first quarter, we also have a logistics distribution center so that we can have a good service provided to the American market. You see the fast evolution and consistent evolution of this project, as you can see, by the pictures. We also would like to highlight our investments in the retail market in Brazil, so in different channels and also the network of our own stores and franchise stores. Usually, every quarter, we have expanded the number of stores. Now we are moving to the countryside of Brazil. Here you also see that we have more operations.
We are investing a lot on the reallocation or expansion of already existing stores. As the company grows in terms of its retail positioning and as it adapts its design experience and the consumer journey on stores, a lot of our stores along the first half of the year were reopened, so to speak. This is one of the main investment that the company is making in retail. The performance was significant, almost 27% growth in same-store sales. In terms of operations growth, we reached almost 32% in sales vis-a-vis the second quarter of last year. This is a sell-in value, not sell-out, because most of our stores, 80% are franchise stores, so sell-out is not included in this particular amount of sales. The growth of our retail operations has been constant.
When we focus more specifically on our own stores, you see that we have 22 stores that are our own. In the third quarter, we expect to open 3 other stores, so we will reach a much higher level of our own stores. This is a consistent operations. It will not replace the franchise stores. It will just complement those stores. It usually operates in cities where Portobello has a stronger operation. Those are bigger stores. The level of CapEx investment is also higher, so the brand can invest in a more consistent way in those stores. That supports the development of the whole network. Also there is logistics and commercial support to the franchise store through our own stores. We have combined the franchise stores, the franchised operations with our own stores.
This is a winning business model that has consolidated over time. In addition to the growth and evolution in the international market, especially the U.S., I think it's important for us to highlight the work that has been done internally. That's the next slide. It's important to talk about the focus on ESG that the company has made. We have made investments on that in the past years, putting together a structure to focus on ESG to improve its production facilities, reducing water consumption, improving productivity and energy consumption, reuse of factory waste. This eco-efficiency focus has been strong in the company for the past years, where we need, of course, more slides to talk specifically about each initiative. But we've also improved the diversity of this organization, putting that as part of the culture of the company.
The executive group has already three female executive persons. Two of them have been recently hired in 2022. Diversity is important for the company. It has involved in several segments. This is just one of the examples. This slide shows you the focus, the concern we have of engaging everyone as part of this new culture. It's not just about investments. We need concrete actions to improve our ESG culture. The whole company should be involved in that. There are several initiatives to that end, like this one that for a week everyone focused on sustainability and how each of the business units were performing in terms of eco-efficiency, in terms of people, in terms of engagement, and also diversity.
This was a moment of self-analysis, of a self-assessment of each group so that we could improve in the ESG agenda, and we're very pleased to share those efforts with you, with all stakeholders of the company. With that, I conclude my presentation, and now I would like to open for questions for all the participants, myself, John Edison, everyone. We are here to entertain your questions now.
Thank you. We will now begin the Q&A session for investors and analysts. If you wish to ask a question by audio, please press the Raise Your Hand button. If your question has been answered, you may exit the queue by clicking the Lower Your Hand button. Questions can also be asked in writing in the Q&A option. Please wait while we collect the questions. Our first question was asked by Mauro Herson, who is a private investor.
Congratulations to the company for constantly providing positive results, always showing investors how serious, responsible, and competent the company is. I would like to ask a question about Pointer. I may be wrong, but I see that this. I believe that this plant was planned when we expected some economic growth in the country, expecting lower social brackets to move to higher social brackets, and also the possibility of acting as a distribution channel in the U.S. and Europe. Given the current scenario we have with low social mobility or even a decrease in social mobility and the Portobello America plant operating as of 2023, do you still see positive prospects for Pointer?
That's a great question, Mauro. Mauro, I will answer that.
I agree with your analysis and your concern, and as John said, of course, this business unit suffer more in this quarter. Pointer still has interesting results, but there are segments to be explored because it is a young company, has been in the market just for five or six years, so not all segments have been explored. We'd also like to work in projects for construction companies because Pointer focus more in the traditional retail market, in also for lower social brackets in the specific area of the Northeast. Of course, the construction industry has variations in performance, but it will always be there. We believe that over time there will be balance that can be helpful to us. We started operating with the mid-level of upper middle class.
We are making investments that are not so relevant for the capital structure, but we've also tried to produce products that will move to a different social bracket, but also to the upper higher class. They are different products, and there is a specialized store that focuses on this premium segment, this upper high social bracket. This journey will be challenging. It's not just for this particular quarter or half of the year, but Pointer still has group results. Right now it is facing difficulties, but as we expect it to grow in terms of engineering. Even exports, I haven't mentioned that. Also to grow a little bit in the upper middle class or in the upper high on the high-class market.
Next question from Gabriela Fernandez.
With the constant reduction of Pointer in the last quarters, do you intend to discontinue this business unit? Thank you."
I think it relates to the previous question. No, we do not have any interest in discontinuing this business unit. It's quite the opposite. We see positive perspectives about Pointer. We expect this business to increase in the northeastern region of Brazil. I didn't mention during the presentation, but Pointer results, despite the drops we have experienced in the second quarter, its current levels are still very good. Mauro mentioned about the planning stage of this business. The results we see today are above the projections that we made back then when we approved the project. We're still very pleased with the levels that we are achieving at Pointer.
Our next question is by Henrique Aiás for Foco Capital. Please, sir. Good morning.
Congratulations on your results. I would like to better understand how you negotiate purchases from your franchised business. How do you purchase those stores? How are these negotiations made? Is it on a case-by-case basis? When you intend to purchase a franchise store, how does that work? Thank you.
Thank you for your question, Henrique. Over the years, we have acquired some stores, and we usually used EBITDA values in retail. As our opportunities of having our own stores and some of the franchise stores, we decided to make more technical analysis in these decisions and also to have we hire third parties for these analysis. We hired an expert company that specializes in valuation that has made a customized study for Portobello considering franchise stores, considering where they are located.
They also analyzed the methodology in terms of discounted cash flow and also multiples. We have made a combination because usually the marketing is translated in terms of multiples of profitability in our operations. We've also taken into account other aspects that discounted cash flow allows us. We're able to use a more technical analysis, and this is what we used in all operations. In addition to this technical and financial analysis, whether this methodology applies for related parties, that we don't have those anymore, but we did, and also for regular franchisees, we also have a qualitative assessment matrix considering location, market where they operate, the assets they have, whether those assets are related to portfolio or staff, and even facilities themselves and how updated the stores are.
We take into account some other factors to be able to see whether they would play a higher weight or not considering the initial methodology used. I think it's easier for us to follow a methodology that's validated by an independent company. With this clear methodology, which is clear to the franchise stores as well, it is easier for us to manage the business and to make safer investments. These investments have led to positive results. We do not follow a strategy of growth that is so big on our own operations because, as I mentioned, they focus more on large cities where investments are higher and where the brand positioning is also stronger. Sometimes the time to return is not as short as it is in a franchise agreement.
The fact that you're there, that in regional operations, it's important to have the franchise stores because it's a hybrid model that is a winning model, taking into account our own stores and also franchise stores.
I'd just like to add something. I want to be very transparent about this process, especially considering the two latest acquisitions that involved related parties. Because it involved related parties, we needed to conduct this operation very diligently as expected. This is why it is important to have an external company involved, not only with the assessment methodology but also they made an assessment of each one of these operations involved using that methodology. We had their evaluation report. It's important to have an external opinion, but also internally we have the audit committee, which is very active.
The audit committee has assessed this transaction not only in terms of the transaction amount, but also the whole process. This was analyzed by the audit committee, and later on it was also submitted to the board of directors. If there was any conflict of interest in this transaction, then those board members would not participate in this decision. Those that did not have any conflict of interest decided on these transactions. We were very diligent in this decision-making process. Here's the last point that is also important. This is an evolution in terms of governance. Now we have fewer contracts with related parties. They have always been respected, but as we have evolved towards having fewer contracts like that, I think that this is translated as an evolution in our governance.
It's also important to say that in related party relations, in addition to this external consulting company, we've also audited by KPMG. With that, we felt more confident about our operations. We hope to have answered questions. I think we still have other questions related to that, so I hope that this has helped us answering those. There is one saying, "Don't you think that the expansion of retail through franchises propose better return on capital?" That was Tiago Macruz's question. He also asked whether the company prefers acquiring franchised stores. I think I have answered this partially because of our strategy. Our operation of our own stores is limited to large cities, to big cities, and also they require more investments.
Clearly in franchising operations, you could acquire an operation at some point for a faster turnaround and to keep that market well-supplied and well-positioned, and then later you might sell it. I think that Tiago's key point has to do with the return on the investment, return on comparing your own operation and the franchised operation. Of course, the own operation adds sell-out, so it requires more investments. On the other hand, it has additional return. We see today that our own operations are the best business that the company has, the best investments because of the sell-out. When we have 25 stores, so the scale allows us to dilute costs and overhead. You also get more knowledgeable about the business. It's important to have balance because their operations differ. In some cases, the direct operations of franchisees are very positive.
They have the sense of ownership. I think that just the fact is that this reinforces our position of being a retail-focused company. We are a retail-focused company with integrated industry business. We can operate more directly on distribution using this business model. I think it's important not just in terms of return on capital, but also in terms of positioning, and we feel comfortable about this positioning.
Do you have more questions? Gabriela's question is already answered. Let's move on. Next question is from Gustavo Gutierrez .
Congratulations on the results. I would like to know if the recent increase in energy costs in Europe has impacted your business and whether there is a space to increase revenues with exports."
I would like to start answering this question, and Mauro can add something if necessary.
Energy costs is a very sensitive topic to our business as a whole, not just to Portobello. In the third quarter, and I can share public data with you, we have already experienced a significant increase in July for the cost of gas in the state of Santa Catarina, over 40% increase. We've also had an increase in the energy costs in the Northeast, but at lower levels, just 7%, if I'm not mistaken. We had increases like that at our Pointer plant. Yes, this is a challenge. It's not something new. We have experienced that since the beginning of the pandemic. The inflation rate has increased. There's a lot of pressure related to that. Because of our strategy, we have been able to transfer part of these costs and without affecting our profitability.
In other states, we also feel the impact in terms of projected costs, especially when we start our production in the U.S. We need to wait because until the first half of next year to say something about that. In terms of exports, would you like to say something about that?
I think your question is relevant, Gustavo, because it is consistent with the growth of the company that is related to a significant increase in Portobello exports, especially in dollars. We see room for growth, of course, in the American market. Because we've been asked, "Since now you're going to have a plant in the U.S., will you not export to the U.S. anymore?" Well, we will change the profile of our exports to the American market.
The day-to-day products, the basic products are going to be produced at the American plant with better cost. Portobello Brazil will still keep exporting complementary products. On the other hand, there is another market segment that we'll plan to explore. We are preparing ourselves to operate locally in the European market. Next month, we will attend Cersaie, the largest exhibit in the world in Italy. We will be exhibitors again because we focus on resuming our growth in the European market with better level of service, with more specificity for projects, with a local team. The European market will be our next target, not at the same level of our investments in the U.S. or in South America. I think we have room for expanding our business to Europe, especially niche products or exclusive clients.
This week we have an event in Australia, across the world. We participate and exhibit to distributors. It's a niche market, but exports, in addition to the Americas cluster, also has room for growth in segments of high value added, whether it is in Europe or in Australia or in the Middle East. Yes, there is room for improvement. It is part of our five-year plan. The CAGR of growth has been significant in exports above the average of the company. Next question from Tito Ferraz. Good morning, and congratulations on your strong results. I would like to understand whether from the working capital perspective, is there room to improve the efficiency of suppliers account?
Also, second question, I would like to know if the company can share with us the qualitative perspectives for 2023 from the perspectives of each one of the business units in terms of revenue and margins. Thank you.
Let me start. Tito, it's a pleasure to take your question. About the suppliers account, I think that you're asking this question to mitigate the level of inventory and to meet the level of service. At this point, we don't see the same level at the suppliers account. I think it's very important to focus on the health of the supply chain of all our suppliers. We have very large suppliers for raw materials. We are constantly trying to negotiate with them, but we also work with smaller suppliers. We've been using some financial instruments to be able to work better with the suppliers account.
In that sense, there is some room for improvement, but I don't see changes in terms of levels. Yeah, I think that Suzuki asked just right. There is a second question, right? He also has a second question about the perspectives for 2023. We don't usually make projections for the midterm because we do not have a final budget defined for the next year. We have our perspectives for our five-year plan, but we don't have that in details. Of course, we have some expectations for the local market. Still some trouble sometimes, but we expect to have more concrete perspectives soon so that we can give our positioning in a more structured way, but not right now.
I think that what can help you to see some of the points we have already provided visibility, like the case of the U.S. with the new plant that is going to be completed in the first half of next year. That's going to be a very important point for us and for our results. We've also talked about the evolution of our industry. We are reaching a level that requires adjustments. We have already done that, and we foresee more stability for the future. As we mentioned, depending on the business units, there could be different aspects. Of course, if it's talking about Pointer or if we are talking about the engineering or the premium market. It seems that the levels we have reached in terms of demand in the Brazilian market tends to be stable.
There are other questions related to our own stores, to franchise stores, to governance. I believe that we have answered those questions in the previous questions. André Garbe, for example, made a lot of comments and questions about the percentage of stores that are franchise stores that belong to the controllers. As we have answered, we no longer have any stores that belong to the shareholders. Also, if there's any negotiation of acquisition from franchise stores. The most recent store is the store in Salvador. It was a franchise store that also operates in Fortaleza and São Luís in the Northeast. They no longer have operating conditions of operating well in Salvador. This is why we are taking over that store. This is one of those stores that fit the profile of our own stores.
André Garbe talks about the importance of governance and diligence to ensure transparency, but I think that João has already mentioned that. The fact that we work with KPMG, the fact that we work with independent audit companies for valuation. All of that is being done and presented to the governance areas of the company, the board of directors, to the audit committee and other groups. We are aligned with that. We are concerned with the governance of the company and the ESG practices. It's important to talk about the policy of related parties. We had rules that have been strictly followed related to that to ensure governance. That's a relevant point. At this point, we do not have any other operations aside because all of the related parties' operations have been completed. There is another point.
Yes. Our next question is from Alexia Weizel from Eleven Research, is going to ask this question on the microphone.
Good morning and congratulations on your results. Thank you for taking my question. It's a brief question. We see that in U.S., we see in a typical scenario with an increased inflation rate. I would like to know more about the expected demand in that market. Also, we've talked a lot about Pointer, but could you talk about your expectations in the short term for Pointer? Anything that you plan to do to mitigate any drop in volume, maybe providing more discounts at this point?
Those are my points. About the American market, in the short term, the inflation rate is a challenge, especially for those who export to the American market, as it is our case. The logistics costs have increased significantly.
Because of that, our exporting platform in Brazil has become less competitive vis-à-vis other markets that export to the U.S. That's the half empty side of the glass. In the half full aspects is that although the inflation rate has increased, there has also been an increase in the competitiveness of the American industry, the competitiveness of those who produce in the U.S. Since we are going to start producing there as of March next year, we expect to gain competitiveness despite the American inflation rate. Of course, you need to be careful and be very diligent in the analysis of the customers, product profile, to be sure that your level of competitiveness is assured even when the American economy and the American segment is facing difficulties.
This is a concern we have, but we believe that the investments we made, which are niche investments compared to the potential market in the U.S. Makes us believe that we can maintain and even increase our profitability as of next year. We are still very optimistic about the American market despite their local problems. I think that two-thirds of the domestic consumption relates to those special products, so we expect to have good results in 2023 and later. We've talked a little bit about Pointer regarding your second question. In the management team, I think that we are very optimistic about the evolution and the uptake of that market, more focused on the upper middle class and on the high class. This relates to the investments we're going to make until the end of this year.
The share of products, of value-added products in Pointer is growing. This is true also for the more traditional market as it is for Portobello. Even in the Northeast, we tend to grow. There is one final point related to Pointer. We have also invested a lot in services. We have developed platforms for middle-sized and small-sized distributors in the Northeast. We have about 1,000 small customers that operate from the state of Bahia to the state of Ceará. We have a distribution center that has been recently opened in Petrolina, another one in Fortaleza. Through these regional DCs, we can add value and really differentiate ourselves from the competitors.
There is a journey to be taken. There's a lot of work ahead of us, so the game is not over yet, and we have a lot of positive perspectives to grow in the Pointer business. We're still very optimistic about the northeastern market.
That was clear. Thank you very much.
Next question is from Ricardo Vicente. Good morning. About the maintenance of margins and impact of energy costs, is there any risk of having a volume retraction because of cost transfer, or do you expect the market to absorb this increase? And he has a second question: Regarding the cycle and storage, times, is this a normal level for the company, or is there any strategy to reduce offer to help in the cash flow? These are difficult questions João is going to follow to answer them.
Let me try to answer your questions, Ricardo.
We talked a little bit about the margins and the pressure of the inflation rate and also energy costs. This is a reality to us. It's not something we just foresee for the future. This is something we have already experienced and still experience. We expect our business to transfer those increased costs, not only increased costs in energy, but also the inflation rate as a whole. There is a minor effect in volume, but I think it's not related so much about this cost pressure. It has more to do with the market conditions we shared with you. Vis-à-vis the beginning of last year, there has been a contraction of volume in the domestic market. This has already been priced in. Even the gas increase has already taken place. We don't expect to see new gas cost increases.
It was 40% increase in the South, and the Northeast was lower. We have already made the adjustments in our prices to cope with that, also in other segments to make up for that. It's not a linear transfer of costs. We don't expect new adjustments until the end of the year. Also, there is a question about cycle. From the inventory perspective as a whole, I can say that we have reached a new level. We have made significant headways after reviewing our policies. Of course, they can always be reviewed. As we evolve in our supply chain competencies, there is room for improvement, but we don't expect to see a significant change in the short term. Maybe more in the middle term, in the midterm.
You're talking also about a mix of business because different business have different terms, not only in terms of average stock time, but also the supplier terms. There is a mix of business, there is a mix of channels, so you see different levels in terms of working capital. The question and answer session is closed. We would like to give the floor to Mr. Mauro do Valle to make the company's closing remarks. Please proceed, sir. It was a pleasure to participate in this session. Great questions. We were able to share our enthusiasm about the companies and its results with the contribution of the whole Portobello's team to for our evolution in a balanced way. We keep very optimistic about the Brazilian and international markets, and let's pursue good results for the third quarter. Thank you for your attention.
The Portobello video conference is now adjourned. We thank you for your participation and wish you a very nice day.