PBG S.A. ($PTBL3)

Good afternoon, ladies and gentlemen. Welcome to the Portobello Group Video Conference to discuss Earnings Results for the Fourth Quarter 2025. This conference is being recorded, and the replay will be available on the company's website at ri.portobello.com.br. The presentation will also be available for download interpretation and select in English. [Operator Instructions] The presentation will be conducted in Portuguese with simultaneous translation into English. Before proceeding, we would like to remind you that forward-looking statements are based on the beliefs assumptions of Portobello's management and on currently available information. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should consider that these effects will differ materially from those expressed in such forward-looking statements. Joining us today are Mr. John Suzuki, Chief Executive Officer; and Mr. Caio Goncalves de Moraes, Chief Financial Officer and Investor Relations Officer. I will now turn the call over to Mr. Suzuki, who will begin the presentation.

A good afternoon to all of you. Welcome to our earnings result presentation for the fourth quarter. It's a pleasure to be with you once again to share the company's results. Before we go on to our agenda, I would like to share with you our general view of the year 2025. We had important strides in the group and all of our businesses. In Brazil, we continue to grow. And what is more important, yet we are expanding our market share in all of our business units since the period of the pandemic when we were navigating in a very favorable market. Since then, we have consistently gained market share in all of our businesses. Now despite a weaker marketing, more competitive market in 2025, we had good operating results, always driven by our competitive edge, like our brand our capacity to innovate in products, a focus on the customer and services as well as a great deal of discipline and execution. We have achieved a superior performance in some aspects such as the sale of the launch of products sale for exports, the occupancy of plants, among others, that ended up in an operating profitability much higher than what we observed in the market. In the United States, the environment with frequent changes because of the tariffs Well, this had a negative impact in that process that we were ramping up since 2023, a ramp-up of our sales and products in Portobello America. When we look inside at our business, we continue to have significant evolution, we see the stability of the plant, the competitiveness of cost, the expansion of our customer base in the different channels as well as a growth in domestic sales, those sales that depend less on Brazil. Further ahead, I will speak about the positive outlooks that we begin to foresee in the business in the United States. Very well, now this operating performance of the business units maintains our conviction on the group strategy, especially as we have reiterated every time we interact with you represented by our internationalization process. And our retail business integrated retail business, we had a year with an evolution in the profile of our debt with relevant operations since the first quarter we saw relevant important operations, not only through our 2025, but as you will see in the first quarter of '26. And despite all of the efforts that I have mentioned all of the operations and with very stringent financial operation in the operation the improvement of our capital structure continues to pose a significant challenge to the group. I will refer to this further ahead when we speak about our outlook. And of course, we are at your disposal for the Q&A. Very well, Caio will present the rest of the agenda.

Thank you, John. Good afternoon to all of you. It is a pleasure to present the results of the fourth quarter and the closing of the full year '25. Let's analyze the North American market. Now the [indiscernible] market pays several challenges, especially due to the tariffs. The fourth quarter had a retraction of 17% in sales, and there is a drop in that run to create in inventory once again, due to the tariffs, this is a onetime effect. For the entire year, that drop represented 5% despite a more challenging scenario, Portobello presented on performance, we had 15% growth of revenue in U.S. dollars, and we saw local production growing 30%. Now if we go on to the Brazilian market and look at the figures from said, well, we're speaking about the wet process segment, why the process represents 90% of our revenues. It had a drop of 1.1% vis-a-vis the same period in 2024. For the whole year, once again, the performance at that drop of 1.1%. This is a market with a drop in our main segment for the total market. We had a growth of 1.1% year-on-year for the quarter. Despite this scenario, the performance of Portobello Group was superior vis-a-vis that of the market. Now in the fourth quarter, the company presented results below the market due to a commercial pressure and enormous price competitiveness for the entire year. The drop was 2.0%. We had a market share gain, as you can see in the graph a gain of approximately 20% in volume when compared to the market. Our planned stopovers were carried out during the year, and this represented 7% while the market had much lower occupancy of 70%. Let's go on to the financial and economic results. In the fourth quarter, we had growth of 1.7%. And in revenue, especially in the exports of Brazil to other markets with a growth of 17% with a good performance of Portobello America. During the year, we advanced 8% in a market with retraction. This performance is due to the strong growth of Portobello America, 27% of exports, 4% of the domestic market that grew 3.2%. So the share of international markets grew as much in the quarter as during the full year. Now let's speak about the invoicing of our business units. In general, all the units had evolution in performance during the last few years. And this shows the consistency of our strategy and our operational consistency [indiscernible] Portobello outperformed the wet process market and had consistent commercial execution. Portobello Shop, this was even more competitive with growth and an evolution and product mix point was in line with dry process with moderate growth during the year and decline in the quarter. And in Portobello America we have good evolution and a consistent operation in the United States. So generally, this reinforces the consistency of our portfolio and the ability to act in different geographic areas. Let's speak about consolidated gross profit, a growth of almost 8% vis-a-vis '24. Gross margin ended with a margin of 36%, stable in the annual performance. Now in the fourth quarter, we had a slight drop. We had a retraction in sales and environment with greater commercial competitiveness. And of course, the company decided to protect its cash. Now let's speak about our EBITDA. It totaled BRL 321 million for 2025, an increase of 4.2% vis-a-vis 2024. In the fourth quarter, represented BRL 53 million, an increase of 2.2% vis-a-vis the previous period. This shows the more competitive domestic environment during the period and a change of mix among channels and units. Now let's speak about our net result. We that impacted the company will begin with the net income. We had a positive effect in 2024, reversion of contingency and tax credits. In 2025, climate effects impacted our operation in the South, bringing about additional expenses of BRL 20 million. 2025, was a year of difficult macroeconomic growth, CDI average compared to 10% in 2024, much higher in 2025. And it was difficult to work with our financial capital. We work with FDICs. The net result was impacted by reviews in the constitution of deferred income tax, but we had the recapability of taxes in previous years. Now these effects are purely accounting effects without a cash impact without impacting the company. Cash management was one of the highlights of the company. We created BRL 216 million in free cash to preserve our liquidity between 2023 and 2025. We had a relevant evolution with cash generation increasing consistently showing that we prioritize financial discipline. This was most difficult period recorded in the last 5 years. CapEx had a significant reduction when compared to 2023 and '24 because of our greater discipline in capital allocation. We had BRL 60 million that we executed at the beginning of the first quarter money '26, money that we obtained from the National Development Bank, and we had a late sale lease back operation from the plant in Alagoas, representing BRL 102.5 million. Now this will help us to cross more challenging scenarios. So we end 2025 with a net debt of BRL 995 million, very similar to 2024. Our leverage was [ 3.09x ] and 83% of the total of our debt has long-term maturity vis-a-vis 60% on compared to the previous year. Now the improvement of our capital structure continues to be a priority for the company. We focus on leverage costs, our present day level of indebtedness and the coverage of the debt requires attention, especially in this environment of high interest rates. So we are focused on our capital structure, and we would like to maintain adequate liquidity for the next cycles of the company. With this, I would like to turn the floor over to John to speak about our outlook for 2026.

Well, thank you, Caio. As Caio mentioned, after 2025, we continue to move forward in all of our businesses, growing above the market, gaining market share, maintaining good levels of profitability. Let's speak about the outlook for the year 2026. As always, we have enormous challenges. Our businesses in Brazil will continue to present consistent operating results, very much aligned with the market. And our expectation is that the market will continue to be one with limited growth because of the macroeconomic scenario we live in. The operational and commercial evolution that we mentioned here of our business in the U.S. besides the unfolding of the global and political scenario worldwide, firms are conviction of our internationalization strategy. The present tariff scenario of the U.S. favors not only our local business, but also exports to that country. Additionally to that, uncertainties due to tariff barriers and other barriers generated by the scenario of war will benefit local producers, which is our case. Our expectation of resuming the [ braking ] the operation that we had obtained in the first quarter of 2025 and that we lost because of the tariffs. Well, our expectation is to once again attain breakeven in the operation. As pointed out by Caio, we had significant evolution in the financial management of the company in 2025. We carried out new relevant operations in the first quarter of '26. Notwithstanding this, as Caio mentioned, we have to adjust the capital structure to the reality of our indebtedness and the high interest rates that we tend to live with now days. All of this continues to be the priority of the management. Despite the record result of our cash flow that we generated in 2025, it is still necessary to seek a better coverage for our debt service, a better balance between how much we generate as cash in the operation, and how much that service we are able to comply with. Now finally, and in this context, well, we deem to be fundamental is the alignment of the company's strategy, the company governance with the priorities and strategic challenges that were mentioned in the call today. Thank you all very much for your attendance. And we would now like to open the floor for questions and answers.

[Operator Instructions] First question is from Mr. [indiscernible] from Marco investment. Which are the possible strategies to reduce your leverage?

Well, thank you for the question. And well, there are several initiatives underway. We mentioned them during our call. We have a combination of reducing operational expenses, as mentioned, liability management, where we're exchanging the more costly debts with local banks for the promotion of trade, we refer to exports. We have another line of credit approved by the BNDES that we should be able to disimburse during the year. Another initiative refers to pointer that injects additional liquidity into the company. And of course, we're analyzing other strategies throughout the year. There are all mature initiatives and that we can put in place during the year. Now the three events that I have just mentioned are proof of this.

And to add to this, Caio, I think it's a very purposeful question. And during the [ live, ] we said that the capital structure is definitely a company priority. This is a true material issue. We're deploying efforts to gradually redress this. And of course, we are considering several alternatives. We're not going to mention anything concrete as there is nothing concrete, but we are serving alternatives.

[Operator Instructions] Next question comes from Mr. Carlos Herrera. He says, could you remark on the main trends that you observed in the first quarter of 2026 in the different segments, especially Portobello Shop and Portobello America.

Thank you for the question, Carlos. Let me begin with Portobello Shop. Well, you are aware of the market scenario, and what 2025 was like, this is what we're expecting for 2026. It's a rather fragile market with a great deal of stagnation, and it should not be different to what we saw in 2025, and the dry process is much better than the wet process. Now this is the scenario that we are facing in Brazil. And naturally, Portobello Shop is in a premium segment that tends to be more resilient, but not immune to those movements. It's a competitive segment in terms of pricing. This is a topic that has been debated. Our gross margin in the fourth quarter had an impact of this. And the scenario well led us to being more aggressive with our pricing in the fourth quarter. We're going back to another position. What we want in Portobello Shop is a margin recovery, but this also has a trade-off without the expectation of great growth of volume. We have a very good performance of performance above the market. And well, we are going to focus on margin without being overly aggressive. We are with a good cycle of the launch -- well, in the performance of launches. This leverages our competitive differences, which is important. We're also making strides in the retail strategy. Recently, we inaugurated a new store in the street called Gabriel Monteiro da Silva. Now regarding Portobello America, this scenario there is somewhat volatile. Initially, we had the tariff with a 10% for Brazil, and this generated a run to create inventories in the United States that was not reflected in Brazil, where our tariff was lower. In August of 2025, our tariff increased as it did in other countries. So these movements put us in a rather difficult situation well, this represents half of our business in Brazil, the business in the U.S.A. And now this brings about a more positive scenario for 2026, but in the medium term. Now the scenario of tariff wars, the war, the political economic scenario worldwide is very uncertain. And so the privilege the local production, we feel this. We have felt it since last year our local sales are growing significantly in the more profitable channels, which is important. And this should allow for a better quality, a healthier sale, and it will enable us to recover exports from Brazil. So our expectation is positive. We're expecting the breakeven position of the U.S.A. in coming quarters.

[Operator Instructions] Next question is from Mr. Nicolas Stage. He says what happened after 2022 when there was a drop in your profit.

Thank you for the question, Nicolas. And it is a very good question. It allows us to speak about a perspective with a longer horizon. We had a very positive moment in our sector during the pandemic. The consumption of construction material underwent an explosion between 2020 and 2022 with 2021 as a highlight. It was very positive in terms of volume and sales. It was also a period that enabled us to have a very healthy investment cycle for the company, between 2020 and 2023, where we made significant investments, especially in Portobello America and the expansion of our own stores and investments in digital transformation for the group, especially for the retail market. It was a period with considerable investments, and this raised our leverage we had the combination of two factors since 2022. There was a definite slowdown in the market. Well, the market normalized in truth because what we observed in the pandemic was not normal. There was a supply and demand stabilization that pressured prices. On the other hand, what impacted our profitability is the level of leverage that we reached after this cycle of investment. It came at the same time coincided with the increase in the interest rates and financial are consuming the financial results of the company, especially in 2025. Deferred income tax was also significant. But structurally, this is the moment that we are going through after a stronger investment cycle, we still have not reached the maturity of all of these investments.

Next question comes from Mr. Thiago [indiscernible]. Exporting countries of a the U.S.A. have had problems in the supply or in the gas price. Have you already perceived something in that direction? Are you expecting the transfer of prices, and what is happening with the U.S.A. In Brazil, do you expect an increase of gas? And if so, as of which moment?

Thank you for the questions, Thiago. Several questions wrapped up in one. I will try to answer them, and Caio will help me. Now the topic of oil, of course, and consequently, the price of gas, the supply price is one more of the uncertainties in the scenario, we still have not felt anything significantly when it comes to the supply of gas. But there is an outlook for an increase in the gas prices because it is a commodity basically. And this is what we face in Brazil as well as in the U.S.A. On the other hand, this will impact all of our competitors impact the industry as a whole. This is not a good moment because the market is already weaker, slower. As mentioned, last year, we carried out an important movement. We migrated from the captive gas market, and this allowed for significant savings in the gas price, but that doesn't mean we're not subject to the fluctuations in this commodity. A very good question, and it is a point of attention that we have for 2026. Regarding resumption of exports to the U.S.A. after the drop of tariffs, this is very recent. Now the effect is more gradual. The reaction of the construction material chain in the U.S. tends to be quite slow. And we're coming from a period with the formation of inventories in the American market. This situation has become regularized because of the tariffs, but we continue to observe it.

[Operator Instructions] Our next question comes from Mr. Juan Lodenso. Thank you for the presentation and congratulations for the excellent results. Regarding the funding from the BNDS, which is a cost and term of the BRL 160 million. And how does this compare with funding from a local bank?

Very good question now that credit line from the BNDS originally had a term of 4 years. With the revision of the program, sovereign [indiscernible] has been extended to 7 years. It's a relatively long and very competitive credit lines. If we compare it with CDI [indiscernible], it would be a CDI minus. CDI minus 6 or 7 in our average cost is CDI was 1.5. So there is a significant difference. And it was a very important line to obtain for the first half of the year.

Our next question is from Mr. [ Ogomara. ] Are you thinking of carrying out sales leaseback in other plants?

No, we have not thought about working with sales leaseback and other company plants. Well, because we don't have any more available plants for sale leaseback in the United States. And the plant there was given as warranty for another operation.

[Operator Instructions] Our next question comes from Mr. Mark Antonio Pereira. I would like to hear more details about the sale of the asset in Marechal Deodoro.

Very well. That operation, and we had a disclosure on that is an operation that was structured by a fund carried out by professionals who observed the market and saw the possibility of working with that sales leaseback with investors, but it arose with firm support of the controllers had we not had a support of the controllers. We could not make this operation feasible. For some time already, we have been analyzing that investor market for sales leaseback. It was somewhat more active. Some years ago, it resumed again last year. We had already done it ourselves. And this same market sounding was carried out, and we received as a proposal from market bonds proposals in financial conditions that were less interesting for the company vis-a-vis shareholders. So we worked with 100% of related parties working with the controllers. And this is a design we followed in that operation. This is an operation that involves several operations in the company warranting the very best conditions for our shareholders. Caio allow me to complement here. The sales leaseback operation is the sale of the real estate, the land, the construction of the plant and, of course, does not represent the sale of the business. And we continue with the same challenges that we have faced in previous years, especially in 2025. So this was a financial transaction and not a transaction regarding the business. It was an important transaction to increase the liquidity of the company, and we counted upon the support of the controlling shareholders to conclude. Now as we were dealing with 100% related parties, the governance was fully complied with the assessments that were necessary, the assessment by audits and much more.

The question and answer session answer ends here. We would like to return the floor to Mr. Suzuki for the company's closing remarks.

I would like to thank all of you for your attendance in this live, it's a pleasure to share this information with you. we had the opportunity of speaking about the main highlights and challenges of the company. I think we had a very rich discussion, and this gave us the opportunity to offer you more details regarding what we do. Once again, we're at your disposal through our IR department will meet again next quarter, the Portobello Group conference call ends here. We would like to thank all of you for your attendance. Have a wonderful afternoon.