Good afternoon, ladies and gentlemen. Welcome to Portobello's earnings call to discuss the results of the first quarter of 2022. This video conference is being recorded and the replay can be accessed at the company's website, ri.portobello.com.br. The presentation is also available for download. Please be advised that all participants will be in a listen only mode during the presentation, which will be followed by the question and answer session when further instructions will be provided. The presentation will be held in Portuguese with simultaneous interpretation into English. Before proceeding, I take this opportunity to reinforce that forward-looking statements are based on the beliefs and assumptions of Portobello's management and on the current information available to the company. These statements may involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur.
Investors, analysts, and journalists should note that events related to the macroeconomic environment in the industry and other factors may cause results to differ materially from those expressed in the forward-looking statements. Before the presentation starts, the company will share a video with the results of the quarter. Portobello Group starts the first quarter breaking records. Net revenue of BRL 525 million, a growth of 26% above the market with gain in market share, and with a highlight for retail and international operations. The results for the various business units. Acquisition of the shops, Portobello Shop, Gabriel, and Pacaembu consolidated as of May. Adjusted gross margin and recurring margin. Adjusted recurring EBITDA margin. Adjusted and recurring EBITDA. Reduce leverage to 1.3x EBITDA, a 0.7 reduction. Adjusted and recurring EBITDA for the last twelve months with a 69.9% growth.
Improvement in governance, 100% compliant with the rules of the new market and approval new policies. LiderA Mulher, a women leadership initiative for the women managers of the group. A preview on the new manufacturing site and sending an unboxing experience to clients in distribution and engineering. Participation in the 20th Expo Revestir with a booth with a sustainable concept. Very successful with the public, guided tours, and very intense programming to be webcast in our digital channels. Best in Show, a partnership with Ruy Ohtake that won this award. A signature of an agreement with Oak Street Real Estate Capital to build a build-to-suit building. The construction is estimated to cost $90 million, and it's expected to be completed by the end of the year. A highlight is Coverings, the largest exhibit on ceramic tiles and coverings.
The year is just beginning. We are Portobello Group.
With us at this video conference, we have Mr. Mauro do Valle, CEO, Mr. Claudio Avelar, VP of Investor Relations, Edson Stringari, VP of Legal and Compliance Department, and Mr. Roger Nickhorn, Senior Manager of FBANRI. I would now like to turn over to Mauro do Valle, who will start his presentation. You may proceed, sir.
Good afternoon, everyone. Once again, it is a pleasure to meet with our investors, partners, clients, everyone who's interested in the operations of Portobello. Today, I have not only the officers mentioned, but on the finance team that provides support to our presentation. We also have Claudio Avelar, who's a friend, a partner, a counselor of the group, VP of the board, and member of the strategic board, a very experienced professional in the Brazilian industry and retail.
He has contributed significantly to the company, and he's currently in the corporate executive group, and now he's taken over the relations with the capital market. His role will add up to a series of roles where he contributed to Portobello. Today, we no longer have Ronei Gomes. Ronei also has been an employee as CFO of the company, and he recently left the company when there is a change in statutory law in the company because of a private decision, his personal decision, and he lives in São Paulo. Of course, he was born in Santa Catarina but his family in São Paulo, and he had to make this personal decision to really get closer to his family.
We perfectly understand his decision, although, of course, it's a pity because as I mentioned before, Ronei's role was decisive to the expansion of the company and to reach the results we've got, as well as the evolution in governance with the share market. Cláudio also is experienced to contribute in this area, and it is clear for us that we needed to have a professional to fill his shoes. We are looking for one, but I feel very comfortable right now with Cláudio's presence and Edson, who is the VP of Legal and Compliance, who also helps with or the governance of the company. Having said that, I guess we can move straight to our presentation. I will tell you during this. I'll tell you about the results, and I'll have the support of my colleagues.
Of course, first let's start with the information from the market. The market of floor and wall coverings, and more specifically ceramic tiles in the second half of 2020, the beginning of the pandemic, and along the first, until the first quarter. Well, almost the first to third quarter of 2021 has had a solid growth. Since then, since the end of the third quarter of 2021, because of inflation pressures, because of increase in interest rates, the market became stable. The growth rates as given by ANFACER, the Brazilian Association of Ceramic Tiles Manufacturers indicate stable results as you can see. Stable numbers at the end of last year and the beginning of this year are yet very positive because the baseline was higher. In terms of volume, there was a decrease, and I'll tell you more exactly where this decrease happened.
It's important not just to work with average values to be able to make our forecast for the future. Here I would also like to show you the retail market. That also showed a similar behavior with some instability last year, just different from the strong growth we've had in 2020. Now in 2022 we expect more stability vis-à-vis 2021. Now more specifically talking about construction companies and new real estate, enterprises, we will see, as you can see on this chart, the behavior in the past five years for civil construction. It has been very stable, and the launch of real estate buildings, is stable, and there was a time when the inventory was quite high in 2015 and 2016. In 2021 we observed a significant growth in the number of new launches, more sales, and these launches were significant.
In the beginning of 2022 we have a very strong rate of launches just a few months into 2022 obviously. But what is clear to us in our segment is that those launches that have been made in the past 12-18 months will still have an impact on Portobello's portfolio along the years of 2022 and 2023, which is relevant because the conversion rate of a launch until we get orders for ceramic tiles at the end of the construction usually is a period that takes 24 months, as we mentioned in the last earnings calls we have. More interestingly, when you deploy these results and you get deeper into these analysis, thinking about more economical construction work versus value-added construction works, we've also observed growth in this lower cost constructions. It has reduced now because of the interest rates.
The ones that I'm going to show now of more value added, this is the segment that Portobello we're interested in. This is a market that is more resilient, and you'll see that during the presentation. When you segment the market and you position Portobello in its niche, whether it is in the domestic or the foreign market, we see that that niche is more resilient. Of course, there are difficulties, but the market is more resilient in that particular niche. Translating that into our results here as we saw in the video in a very summarized way, and we wanted to show this video because it shows not only the financial performance, but it also showed how much we can add value to shareholders in the long term.
Because it's important to assess not only the financial behavior, but also aspects related to human resources, appreciation of our employees, ESG concepts, and investments in the medium and long term that will allow the company to have a more long-lasting results because we want to add value to our shareholders. Charts are self-explanatory. We had good results in the first quarter with a good growth rate that has been translated into profitability and reduction in our debt. We are going to give you more details about that later on. Here we see a comparison with our last video conference analyzing the perspectives for the first quarter of 2022, and now our delivery. What was the first quarter like? Overall, we see that we met our targets, that our expectations were met.
We've had more difficulties in the Cash Conversion Cycles, and we are going to talk more about that later. We didn't expect to have this increase. It was a little bit higher than expected, but we are going to share with you the actions that are planned to offset that this year. We have also talked about increases in margin and in gross income, and here we get deeper into each of these results. When we talked about the niches where Portobello operates, not just as a unit, but as market segment. We have four different business units, Portobello, the original company that operates in a multi-brand market and also sales to construction companies and exports as a whole. Portobello Shop is our retail segment. That's the unit that supports the market and also focuses on the Northeast. Pointer focuses on the Northeast.
Portobello America, which is the new arm of our international operations. See that in terms of growth in retail, Portobello Shop and Portobello America, they've had the highest growth rate because we made investments in those areas, and those markets are more resilient. You see this growth of exports in US dollars, as you can see in the footnote, a growth over 50%. Because of that, the international market, and that's very important, to know because of stability and risk distribution. The international market accounts for 25% of our income, of our revenue. It was less than 15% last year. Here you see the drivers of growth. This is the physical growth in terms of production and sales.
In Brazil, it was reduced, and we just had some inventory, some areas in the Northeast that had better distribution ability, so volumes decreased at this time. We became more selective, we changed our mix, we focused on exports, we leveraged our sales in US dollars, and we increased our sales of value-added products to add 25 points in our monetary revenue. You see that it is practically neutral because of these actions. We've already talked a little bit about our business units and the growth of each one of them. We've also seen growth in Portobello Shop and Portobello in terms of gains in margin, which did not happen in the Northeast. This has to do with niches of market.
In the Northeast, Portobello, through Pointer units, operates in a segment that is less resilient to inflation fluctuations, also higher interest rates. It is the type of market that feels this impact and where profitability is lower. It is, and it will be a unit that is very profitable, but there is no doubt that it is more impacted in these cases of market problems because it's not so resilient. We've also had problems in freights. All of you who follow us up, and there was disruption in the international supply chain, and of course, this has impacted us. Our products are usually sold in the U.S. market, and this is highly affected by freight.
These disruptions in freight have affected our operations there, but this problem is being solved because of some local partnerships that we are doing, local sourcing that we are getting. We are also building our new manufacturing site, and as of next year, these freight impact or impact of any disruptions in the supply chain will no longer affect our results. Here we also see the margins for gross margin I've already talked about, and the same was true as it happened in revenue. We offset the problems in prices by making changes on our mix, and that's important in some of the channels where we operate because there is a very significant operational efficiency there. Today it is less feasible to transfer costs because of inflation rate. You need to optimize your operations, trying to obtain gains there to minimize the impacts of inflation.
The video showed in the beginning reinforced this point. New launches, brand positioning, marketing, fashion, internationalization, all these actions happen to offset those results. Of course, we need to constantly monitor our expenses. In the fourth quarter of last year, we had a higher level of expenses because of adjustments and also changes in our structure. In the first quarter of 2022, we have good news because the expenses levels are now back to the levels we had last year. We understand that we want to keep control over our levels of expenses even with our growth. This is always a focus of attention. We need to have a good trade-off between revenue and expenses. EBITDA was a significant point of growth as we can maintain the stability and expenses and increase our margin.
Of course, we get better results in EBITDA, and this is what we achieved this quarter. Also net income, that's another point of attention because there was a drop despite our growth in revenue. This is because our expenses were higher, not because of a growth in our debt, as I'm going to show later, but because of our growth, because of Selic rate that increased, because of an inflation rate, and also exchange rate fluctuations. Sometimes you have more credits to receive rather than to get. Exchange rate fluctuations may have an impact on that. From December to March, there was a decrease in the exchange rate. Real became more highly appreciated, so its value became higher and therefore the parity was no longer there. It's very important to show that. Working capital was also a point of attention.
That has been very good in our receivables, in managing channels and also customers, but there was an increase in inventory in the beginning of the year, especially in the Northeast. We understand that this is a one-off thing that is going to be reversed, and that this growth in this Cash Conversion Cycle that was increased to 42 days, this is still comfortable when compared to other benchmarks in the market where we operate. This is a point of attention to us, so that we can improve this over the year, as we mentioned at the beginning of our presentation. Roger, maybe you could help me here and talk about the cash flow evolution, CapEx and so on.
Okay. Here we see the evolution of our cash flow in the past 12 months. The company made investments in working capital.
We had investments, as we're going to see in the next slide as well, and we've also had share buyback programs and dividend that were distributed. The cash generation of the company could fund all these investments that were made in this period. It is important to highlight that these investments that were made in our share buyback has added value to our shareholders, and also the dividends policy that has been maintained in the past year of paying 50% of the net income. Along the lines of investments, here we can see the level of investments we made vis-a-vis the last year, BRL 46.5 million. Most of that were investments made in Portobello America.
It's important to mention that this does not take into account the amount that was reimbursed to us by Oak Street, our partner in the U.S., $11.8 million in this case. This reimbursement was considered not only investments in the quarter, but also investments that were made in Portobello America right from the beginning. It's like we anticipated our investments. Here you see our net debt and leverage. In this period, our adjusted and recurring EBITDA had a major growth, as we saw in the beginning of the video, and this major growth aligned with good discipline in cash management have made our financial leverage level to close at 1.3 times, a 0.7 times drop, which is significant considering the profile of the first quarter. In the middle of the chart, you will see the evolution of the debt.
Last year, we extended our debt. That improved our debt profile, so the duration reached 4.4 years, and the average cost totals 11.3%. Thanks to this improvement in our debt profile, the Fitch Ratings a few months ago has increased our rating to A-. Now let me tell you about the capital market. Here you see the profile of our share distribution. More than 60% of our basis is on the hands of controllers, and free float is a little bit under 40%. On the right-hand side, you see how the free float is distributed between the different profiles of investors that we have. Also, there was an additional payment of dividends made in April of BRL 3.5 million related to the results of 2021.
2021, it was BRL 102 million paid in dividends. There was also a variation in the 12 months of about 10% above Ibovespa. I think it is worth in a meeting like that to give you some guidance, some perspectives about what we foresee for 2022 now that we have completed the first quarter. We have a positive perspective for this premium market because this is a more resilient market. It is not that we are underestimating the risks, which we have mentioned during the presentation, a significant inflation rate. In our case, gas accounts for a significant amount, and there are also disruptions there because of international prices and even because of the exchange rate. These are points of attention to us.
Fortunately, the way that we distribute our sales and how we operate in the international market, and also because in retail we also operate at a premium level, we expect this segment to be more resilient. Of course, we are constantly aware of the situation we're going through in our country and some of the uncertainties that we see in the political market. What we expect for the second quarter, which is closer to us and also because of the results of April, we expect to maintain a good growth pace at about 20%, and we expect to maintain the market shares that we have. Of course, we will pay attention to the behaviors of the international market and also to the behavior of prices of commodities like gas, and also how we manage internal expenses.
We are keeping an eye on that to maybe, to keep the same margin levels we have achieved so far. EBITDA is probably going to be aligned with those rates I've just mentioned. Investments are not being reduced or increased. It is the same plan that we showed at the end of last year, prioritizing retail in the United States and also with operational improvements in our manufacturing sites. A conservative financial management to keep ourselves at good leverage rates below the ceiling determined by the board of directors. I would like to wrap up, and maybe my colleagues would like to add something later, but I would like to wrap up by showing you our strategic projects. We have projects related to our internationalization, so building the manufacturing site in the United States.
You see we're beginning, as you can see on the right-hand side, you see we have already foundation. We're starting the first part of it, and we are maintaining our plan to start operating as of the first quarter of 2023. Portobello Shop. That's also relevant to mention. We maintained the number of stores. Over the month, we have always had about 140 stores. I think that this has to do. I would like to share with you the modernization and the expansion of the areas of some of these stores. The one in Novo Hamburgo, for example, those stores already existed, but now they sometimes became bigger, and that is aligned with the brand.
It is aligned with the type of products they sell, which allows the company to have 38% increase in stores and 34% in same-store sales. Sometimes those stores are bigger usually and located in strategic sites or flagship markets, such as the one at Gabriel Monteiro da Silva in São Paulo, which is a benchmark. Those stores help the performance of this network have a similar performance in our own stores and that is equal or superior to our franchised stores. Not that we want to make changes to the balance. Actually, this shows that those that are operating their own stores are very solid in their management. While the ones that are part of the company have this feeling that they own the stores.
It's important to keep a balance between the stores we own and the stores that are franchised because that's important for the retail segment of the company. Finally, but not less important, is the evolution in the digital experience. Whether it is omnichannel, then marketplace or e-commerce, it's important to provide digital support to our customers because that journey might take weeks. The solution that is provided to your house, it usually involve projects and analysis and then the building stage, then delivery, then installation. The customer journey is long and needs to be properly followed up, identified all inefficiency, monitoring all operations, and basically following up in real time the level of satisfaction of our customers. This is crucial to companies that operate in the retail market.
Ladies and gentlemen, these first 30 minutes is a summary of our performance in the first quarter. We would now like to open for questions that you may have, so that myself, Cláudio Ávila, or Edson can help answering your questions. I think that ultimately we are sharing a positive message of growth, of optimism, but we are very pragmatic. We are very aware of the difficulties we may face in the market. Thank you.
Thank you. We will now start the question and answer session for investors and analysts. If you would like to ask a question, you can press the Raise Hand button, and if your question is answered, you can exit the queue by clicking on the lower hand. Questions can be also asked in writing using the Q&A option. Please wait while we collect the questions.
Our first question is from Thiago Lofiego. First he congratulates the company for the great results. "I would like to ask two questions," he says. "Do you believe that the market can absorb new adjustments to maintain the gross margin along the year close to what we achieved in the first quarter?" And the second question is about maintaining margins, "Do you think that you can keep a strict control of your expenses even at the high inflation rates we have?"
That's a great question. This transfer of cost because of inflation rate is the last thing that we should resort to. We believe that the market is resilient, but of course it will face more difficulties. How can we offset that? By managing expenses. Also an inflation pressure that might minimize that.
I think that innovation and the CapExes has been invested in manufacturing, updating, and increasing the number of channels, moving to international markets, are actions that could mitigate the inflation increase impact. Of course, we need to make adjustments as we need. I like that you asked this question because that's the challenge of the company's management. I think the transfer of our cost to our clients should be the last thing we should resort to. Innovation in products and in channel mix and international market participation and also optimization through CapEx and operational efficiency to minimize costs should be options to resort to earlier.
Remember that to ask questions, just click on Raise Hand if you want to speak out loud or send them via Q&A. Please wait while we collect more questions. Our next question is from Carlos de Andrade.
Congratulations on your results. With this reduction in demand in the Pointer segment, can you transfer part of the Portobello production to the Pointer factory to increase the production of products with higher value added?"
This is also a great question. There is also the possibility of an internal outsourcing. But I think that our operation in that unit is more regional. Well, we do have our distribution channels in the Northeast, even with other brands, and a network of stores that will probably tend to increase the market share of Pointer. Pointer have more democratic, products, so to speak, and the line of products they have is appropriate to the positioning and the image of Portobello Shop. That's an opportunity for growth, but it's also true for exports. I think there was an opportunity for growth at Pointer. Pointer is a challenge. We are aware of that.
You cannot do this turnaround of value so quickly using a more conservative perspective of the market. There is no doubt that we've been working on that. Our internal outsourcing is one of them.
Our next question is from Andre Hachem. "Considering that there is a trend in increasing assets and credits abroad to avoid profit from being impacted from exchange rate fluctuations, does the company consider to take debts in US dollars or maybe doing hedge operations to offset this variation, protect results?"
Also a good question. We show that our debt in dollars is low. We have our hedging much more in the sales end. This is a variable we are studying. As the company becomes more international and has more participation in the United States market, and even we have contracts that are funded in US dollars.
Probably this is going to balance as the company becomes more international. I'm sure this is going to happen.
Remember that to ask question, you can click the Raise Hand button if you want to use the microphone or send your question using Q&A. Tito Avila has the next question.
Congratulations on the results. What are the company's perspectives in the medium term in midterm in terms of the effects of the natural gas market? Have you discussed new potential suppliers of natural gas?
Cláudio Ávila was the president of Eletrobras. He's very familiar with this industry, and he provides good advice. I think that he is more suited to talk about this scenario. Cláudio?
Good afternoon, everyone. In fact, right now, and specifically in this market, because of all of circumstances, both local and international, of course, we're going through some rocky times.
The Brazilian market has developed a variant, so to speak, because we're constantly looking for alternatives of importing maybe gas directly from other sources, not to depend of the monopoly that we have in Brazil that is centralized on Petrobras. We are looking for alternatives. We are looking for international actors or players who could use existing infrastructure in Brazil, like gas pipes or even electrification plants. Because today in Santa Catarina, there is an alternative, for example, that is going to be completed at the end of the year. Companies in that state, especially in our case, since we use that a lot. That would be an alternative to be more competitive in the market.
We still believe that this deregulation of gas and having the only supply source having Petrobras, we believe that the Brazilian Association of Ceramic Tiles Manufacturers is working with us to pursue a solution like that. In the medium term, you believe? Yes, in the medium term, I think that the perspectives are more positive.
Our next question is from Alexandre Spada with Sumauma Capital.
Good afternoon and congratulations on yet another strong quarter. Is there any level of leveraging that you would like to aim? I understand that 2.5 times would probably be the maximum, but I would like to understand whether the company tries to fit into an ideal interval of leveraging. That's challenging to establish this level.
This is something strategic because that's the definition that needs to be taken even by the board of directors where it is debated. Of course, establishing this minimum number, so to speak, so that we have healthy indebtedness consistent with the company's growth is a figure that could be adjusted over time as we need to grow more. I think that this maximum level of 2.5 times is appropriate. Our investment plan for this year and the next year could be that. We have been achieving some results above our expectations, and this has already dropped to 1.3 times, as we've seen in the last month. Today, we don't have an ideal level we aim to. We fine-tune it as we look into the international market, the cost of the debt, and as we evolve more in the international market.
Maybe the indebtedness rate is going to go lower as we move to a more international market. It's fine-tuning, and that needs to be established by the board of directors for each period of time. I think that this is as much as I can tell you about that. If you allow me to add up. The 2.5 times level is established by the board of director of the company. What we negotiate with banks is 3.5 times. We already work with a lower level than the ones that we hire from the bank, so banks. 2.5 has good room for growth and additional indebtedness if necessary and if approved by our board. Alexandre sent another question: Is there room to increase the participation of major formats of total production of the company?
Can you direct part of the Pointer production to exports if this low-income market is reduced? Well, Pointer has a possibility to grow. The distribution of these products to international markets can be used at Recife in swap. There is a cost that maybe is too high to take those products produced there and put them on ships. There is a mix of products and investments that should be made and will be made in CapEx this year to allow them to produce products of higher value added. So that the logistic risks will represent less in the composition of the final project. Lastras is a new project, not only a Portobello challenge, but that also is related to several companies that joined this segment.
Lastras is not just an option for floor and wall coverings, but also for furniture as well. This is a segment that we are just started operating in, and we have some other products that we produce sometimes for kitchens or for bathrooms. It's a new area. There is room for growth. Also systems to produce products, even to hoist products that will allow these products to be used in other environments sometimes. We are just taking the first steps with Lastras in Brazil and in the world. Our next question is with Ricardo Vicente. The products of the premium segment in the domestic market will still be the focus of the companies. Is there room for growth in this segment? The engineering market has already become a target for this type of product.
Yes, it is still one of the focus of our company because we bet on products with more value added. That's the DNA of the company and production, and also in terms of manufacturing competitiveness, and also to be distributed. Our positioning is the same. The second part of your question related to... Can you repeat that again? Yes, the market of engineering. Yes. I showed you the charts in the beginning with a higher share of products. By products, I mean real estate buildings or those real estate apartments and houses that are premium also have bigger pieces, and it's easier for those who install that, and it's a more competitive market. It's different from what you sell in retail for somebody to refurbish their house.
I think that it moves in the same direction of the premium retail market. Yes, this is, I think, the trend for the market.
To ask a question, if you want to do them using audio, you can use the button Raise Hand or send your questions using the Q&A. Our next question is again from Tito Avila.
How do you analyze and work to mitigate the risks of a potential financial economic crisis in the U.S. at the same time that the Portobello factory will be started to operate in the American market?
It's a good question you ask, Tito, because the local production, the domestic production in the U.S. because of raw material, maybe logistic costs or even energy costs, has become very competitive. We can start considering exporting markets from the American market.
It's not our focus today, and it's not the perspective that we're using, but I would just like to highlight the possibilities to operate in case of a retraction of the market. Something else that can minimize this potential effect is the fact that there is only 30% of the production to meet their markets. Usually, the American market is supplied by Brazil, Mexico, and Europe, and in 70% of their needs because it's difficult to get Chinese products into the American market because of logistics. If there are market difficulties, we'll still have good buffer, so to speak. Not that it wouldn't be challenging, but that increases competitiveness and opportunities for domestic production. That will be true not only for Portobello but for competitors as well.
If you want to ask a question, click the Raise Hand button or send them in the Q&A menu. Please wait while we collect more questions. Once again, if you want to ask questions, click on the Raise Hand button or send your questions in writing using the Q&A menu. Please wait while we collect more questions. Since there are no further questions, this Q&A session is now closed. I would like to turn the floor over to Mauro do Valle for his final remarks. Please proceed, sir.
On behalf of Cláudio, Edson, and the whole team of 4,000 professionals at Portobello, I would like to thank you for your attention. We are open whenever possible to answer your questions so that our discussion with investors keep very active, and we are very transparent. Thank you very much for your attention.
Have a good day and a good weekend.
Portobello's video and conference is now adjourned. We thank you for your participation and wish you a great day.