PBG S.A. ($PTBL3)

Good afternoon, ladies and gentlemen. Welcome to the Porto Belo Group video conference to discuss the results for the first quarter 2026. [Operator Instructions] Joining us in this video conference are Mr. Cesar Gomez-Suner, CEO; and Mr. Honeko, Vice President of Finance and Investor Relations. We will turn the floor over to Mr. Cesar Gomes.

Good afternoon, everybody. It is a pleasure to be with you to share with you our context. Well, initially to show you that in the first quarter, we had some important changes in the organizational structure of the company, the Chairman of the Board. Well, I was Chairman, but my history took place in Portobello since the very beginning up to present. I have always been the company's CEO and in the last few years, I had become the Chairman of the Board. We thought it would be interesting to go back to that context because of the reality, the moment and the challenges. In that context, we were advised by the Board. We had Geraldo Luciano who has now taken office as the Chairman of the Board. One of the first changes that we made was to hire the CFO, Joe, who has already been our my CEO, and I thought he would be the best person to help us in this challenge for the moment. The Board remains unchanged. And these basically are the 3 alteration we carried out in the first quarter. We're going through a very difficult, harsh, tough market context Internationally, as you all know, the war, inflation, high interest rates, I think this is general. And in our case, our domestic market, we're facing moments with record interest rates and for our business, foreseeable construction, interest rates are certainly not interesting. And the first quarter is seasonal seasonal in Portobello, not only in our business, but in the covering business as a whole. The first quarter is always more critical in Brazil as well as in the United States. And this context is fundamental to assess the company's performance. We had some achievements, important achievements, this first quarter. And they set for the challenge for the rest of the year 2026. Our 2 main fares or coverings in the U.S. These are key moments where we present our launches, the market trends, and this is where we make most of the businesses for the rest of the year. And I can state that we're extremely satisfied with our performance be it with our launches and our participation in fairs. We were extremely successful, and this gives us confidence, this gives the company a new breadth of air, especially in the commercial part, but also in the industrial part. We're all satisfied with the work we carried out and with the year start. Another important moment was the inauguration of our flagship in Sao Paulo, in my opinion, when it comes to specialized stores, we're very satisfied with the initial steps that this store has taken. A key point of our challenge in the first quarter was the 1 conversing well in product to be present in fares, but also the performance of Portobello America. America is one of our challenges were somewhat delayed when it comes to implementing the project there. We have a ramp-up, but we have to increase pace. And we were able to have an evolution in Portobello America, especially in the distribution channel, a channel that best helps us to put in place our differentiation of products, services and the growth there was significant. We had good growth in exports in other countries, excluding the United States and we're now in a context where 27.5% of all of our profitability in dollars. This is very positive for the company. And our goal is to increase these figures to go beyond 30% to be on the right path. This was an important step in our first quarter when it comes to results. I would also like to underscore that we do have some priorities at present. That began in the first quarter and that will be executed throughout the year. Priority #1 is an operational enhancement for the company to enhance the operational results of the company is of the utmost importance. And we have a great deal of room for that. The market context will continue to be harsh. The interest rates will continue to be high. It's not easy to resolve the wars. So we have a difficult market context. Luckily, Portobello has several opportunities in-house to enhance its operation. And these are our priorities. These priorities go through the reduction of expenses and of course, an increase in revenue or mix as part of our priorities. There is no strategic change. Our positioning is a winning strategy to such a point that Portobello is one of the 4 companies working at full steam. What we want is to enhance our margin and improve our results. Minor adjustments that we have to do in the operational part. This is our great priority. The second priority I would like to highlight is to improve our capital structure. This is a challenge. It's a short-term challenge and throughout the coming quarters, we're going to make adjustments in our capital structure. As part of that context, we're extremely confident that very quickly. And when I say rapidly, I'm referring to a vision through the next quarter, the second and third quarters. We're going to put everything back on the rails to have our operational part in order. I would like to thank all of you for your attention, and I will now give the floor to our CFO, Jon, who will go into the details of our results and our figures. Thank you all for your attention.

Well, good afternoon to all of you. It's a pleasure to be back in the Porto Belo group. It's always very satisfying to be here. I was here in 2020, 2022, that very complicated period of the pandemic and afterwards in a very prosperous period with financial results. I left the company in 2022 where we had the best results and up to present, they have become a benchmark. I return at this very important moment, a turning point, a moment where we're going to focus on priorities that do not alter our strategy. They simply allow for an adjustment in the business. And in the short term, I want to work with my peers to enhance the operation and of course, to improve our capital structure. We're going to speak about that during the presentation. Some of the results still do not reflect to, but these are movements that we're making towards those 2 priorities. Let's begin to speak about our flow chart simply to give some color to what was mentioned by -- we begin with the Board. We have named head, who has been an independent on the group is Chairman of the Board, taking on the position that Cesar are occupied for 6 years. We have a more active president of Mauro Duval, who was the CEO of the company, helped us to build the company alongside with Cesar. He's a counselor and participating closely with me on the transformation front. Cesar is the founder who structured this business during 47 years and returns as the CEO, I am back in the team as VP for Finance and Investor Relationship, and we have the 4 CEOs of our 4 business units who maintain their positions in this new configuration with a challenge of putting into practice those 2 priorities for the year. This is the design that has changed recently. Let's speak about the market before we go into our operational results. The market continues to be under pressure with very dynamic competition. We have 64% of the industry that is occupied only 36% of idle capacity, of course. And this pressures sector in terms of volume, leads to higher price competition and high inventories. As a whole, the industry is operating. But with that vision of idleness in the case of Portobello we're operating at full steam for some time already. And this refers to the graph on BASE 100 that explains what happened since 2020. Well, we did until 2022, the blue curve, the gray curve showing the market in Portobello, then the separation of the curves where we focus on: one, gaining more market volume or 110 we grew 10 points in the market, and the market stands at 87%, detachment of almost 13 or 20 points for the last 3 years, at least us to having full capacity, but if we speak of the market, the market continues to be under pressure. We had minor growth in the first quarter, still has a falling volume by 3%. And this is different from the last 3 years. where in the first quarter, we're very aligned with the market to speak about the retail and give you an outlook that connects very well with our Portobello shop. We have a direct channel. The situation is not different here. We have fluctuations throughout the quarters, not a constant behavior. The construction material market with a performance below other retail segments like drug stores, hypermarkets, markets that grow between 4% to 7%. Our retail business is walking or proceeding somewhat sideways with a negative percentage of 0.5%, impacted in January and February with a gradual recovery of demand in March. But in comparison with other sectors of the industry, this points to the need to focus on a balance of our volume and our revenue and profitability equation. To speak about North America, not very different in terms of competitiveness. There is pressure, competitive pressure in the last 2 quarters, there was a significant drop in the imported volume. This has a statistic effect. The local market is flat in terms of volumes. Imports have dropped because of the tariffs, the fourth quarters, third and fourth quarters were quite weak and the local production gained market share but continues to be the same. The graph at the bottom of the slide is of the utmost importance. It shows us the housing starts, 1.5 million houses that start up every year, but not with a common evolution. Our strategy in Portobello North America is to gain market share in a rather competitive market, and of course, increased local production. Now this is the outlook speaking of the industry in Brazil, Portobello shop and the North American market. Now how does this translate into financial results, demand in this first quarter, we had little growth revenue grew around 1% vis-a-vis the fourth quarter last year, BRL 597 million. Now separated by geographic area, there is an important point. In reais, we have the foreign exchange effect because in the first quarter of last year, the exchange rate was 580. In this quarter, the exchange rate was 520. In dollars, we had excellent share in the export business in Portobello America. What you see in the graph is a growth of 22% for Portobello America. That's the highlight. For this quarter, we had an advance in imports, but this does not translate in the same levels in reais because of the foreign exchange we have a drop of 8%, 7.8% in 22.7% of growth in Portobello America becomes 10.7% in Brazil. So we did advance sideways in the first quarter. The great highlight was the advance of Portobello America, especially the distribution channel. Those specialized stores where we have better profitability. So this enables us to choose a better mix for the product and the channel. This is very important for this business unit and for the execution of our strategy. We had a performance in the Portobello Industry that services the engineering channels walking alongside the market, 0.7% versus the previous quarter and pointer more focused on the Northeastern market with somewhat more pressure and price adjustment, allowing somewhat better profitability in the first quarter. Now in terms of consolidated gross profit, we had a very complicated point in the fourth quarter. Our performance was not good. Our margin last quarter, our operating margin dropped 31%. We have made strides in terms of recovery. We're still not at the historical level of 37%. Those 33.4% of the fourth quarter had an evolution during the quarter, 32% in February and March, reaching close to 35%. Of course, gradual evolution. We had an improvement of 2 percentage points, and the enhancement was because of the mix and the reduction of operational costs. In Portobello America, we have a more competitive cost. Now to speak about performance per business unit. This is an important slide. We never showed the performance of units in detail. Although this is in our release, will once again speak about the performance of our business units and see how the margins behave along the way, separating the price effect, the mix effect foreign exchange effect. And here, you have a view of the performance of each of them beginning with coverings we were able to maintain in the first quarter margins around 38%, Portobello Shop with a slight drop in revenue, but it recovered. The margin went back to 44% because of our voices, 3.8% drop in revenue refers to the recovery of margin going back to historical levels. We go from 7% to 9%, and the drop of profitability relates to a recovery in margins. Portobello America, after a very complicated period. We had a strong revenue quarter with a 12.2% increase in margin, reflecting the mix, the distribution channel and operational enhancement at the plant. The next chapter is that of operational expenses. We have a first sign of our choices focused on expenses in the fourth quarter. We had a drop in absolute figures, adjusted expenses with a drop of BRL 218 million to BRL 201 million, a drop of BRL 17 million with a reduction of 0.3 percentage points. The focus here was on sales expenses. We were able to benefit from our scale, working more efficiently in our sales choices, working on Portobello Shop. The 0.3 comes from sales expenses that increased our sales expenses. We had no significant variation in other line items. The leaseback operation at the plant of Marechal Deodoro allowed us a gain of BRL 53 million that was recognized in our expenses and this is what allowed for a positive figure of BRL 43 million. As you can see on the slide. Now to go to EBIT, another important change. We speak more of EBITDA and not EBITDA. We, of course, will continue to speak about EBITDA. But we're speaking of gross margin with expenses based on operational profit and operational profit will give us that room to cover our financial expenses. We had an improvement in the fourth quarter, we had BRL 41 million this quarter, 7% of net revenue. It refers to an improvement in gross margin, we had 4.3% during the same period last year. So we did have an improvement in our performance in margin and expenses that once again refer to operational enhancement. When you translate this into EBITDA, the EBITDA is BRL 94 BRL 95 million, our level of depreciation and leasing expenses is BRL 50 million per quarter, BRL 41 million of operational profit with BRL 53 million of amortization, translate into an EBITDA discounting amortization of BRL 95 million. It's an EBITDA with 16% of EBITDA margin. There is a nonrecurring effect that is important. In the comparison of our reported figure, BRL 95 million compared to BRL 75 million that we achieved last year an evolution in the last 12 months because of this nonrecurring effect, we improve the operation, but the EBITDA figures are impacted. Now to speak about financial expenses, another change in the way that we position ourselves, our operational profit was BRL 40 million. Our operational expenses, almost BRL 50 million. This leads to a loss. We don't have anything to cover our financial expenses. This was a problem in the last 3 years that became aggravated in the last quarter of '25. We had an evolution of financial expenses because of net debt. We went from EUR 63 million to EUR 79 million. Now we went from 11% to 13%, which is a significant operational improvement. It will give us a greater base of operational profit to absorb our financial expenses, while we create a more structured situation for capital, one of the priorities of this new management. Now to speak about net income. Another quarter with a loss, operational profit is not sufficient to cover financial expenses. We have a loss of 40%. The operational increase was not sufficient to cover the increase in financial expenses, although the figure is lower than in previous quarters. When it comes to working capital, and this is an important point in operational enhancement, we're still being pressured in working capital. Here, you see the operational working capital vis-a-vis the total working capital. We have BRL 543 million approximately in working capital, 81 days. Although in our statements, we speak of BRL 152 million or 21 days. Why the difference? Because through time, we're using instruments to anticipate receivables that are worth BRL 68 million and some instruments representing BRL 122 million with suppliers. Now postponing payment to suppliers represents BRL 391 million. Our working capital, therefore, converses with that BRL 152 million. But in truth, we have BRL 543 million. Now -- for or 3 years ago, we had BRL 400 million. Of course, our business has grown, but it has also grown in terms of days. So one of our priorities is to focus on working capital. It should be 80 days. And in inventories, we work with 90, 100 days. We're working with 132 days. So this is a focus of our management. What happened in the short term. We created an agreement with suppliers. We're working with 150 days with suppliers. We realized we needed to adjust this. We have made adjustments. So we lost a bit of working capital -- and in the short term, we had a resumption. This impacted some suppliers. They went from 154 to 128. And we're now working with 21 days. Now this working capital structure, this is a strategic choice. It consumes part of our cash, BRL 135 million is what we had in the first quarter. Free cash flow, some of this is compromised with our banking debt, BRL 185 million. The cash is somewhat better vis-a-vis the fourth quarter '25 but we paid for suppliers that were consuming part of our operational cash. We had leaseback operation, BRL 60 million came into cash. We paid BRL 30 million in CapEx. So net, it was BRL 29 million. And in the funding flow. We had BRL 50 million positive. We raised BRL 197 million. We carried out an important raising with a national development bank, then for the long term, but we had to pay amortizations in the first quarter of EUR 137 million. So in the cash flow amortization, we had BRL 50 million coming in from funding, BRL 30 million of investments with a nonrecurring gain for the lease back from the plant at Pointer. And of course, the operational money coming in more strongly. Now all of this translates into a working capital, cash flow and net debt of BRL 1.1 billion, an increase of BRL 60 million in net debt, a part was increased in cash, the rest because of our fundraising, we were able to maintain our net debt EBITDA ratio at 3.93 because our EBITDA is BRL 340 million in the last 12 months. So this gives us a leverage of 3.93 we have amortizations that are significant for '27 and '28. We have BRL 5 billion in cash, BRL 250 billion that are linked to this. Now in '26, the amortizations are not that significant. They are more significant coming year, but we do have to face these amortizations between the second and fourth quarter, BRL 250 million. This shows you the pressure on our cash that leads us with this priority of focusing on our cash. We captured a 7-year line from BNDES, the national bank leading duration of net debt from 2.1% to 2.8%. And we were able to reduce our average cost of CDI plus 1.3 to CDI plus 0.51. This is the positive factor for this quarter. The lengthening of the debt although we still have that challenge of amortizations in coming years and a significant debt service. Now to speak about our priorities, an important change in our communication with shareholders with investors, Cesar spoke about our priorities. First of all, operational enhancement. Some of that enhancement appears in the first quarter, but it is still very timid. Secondly, optimization of our capital structure to speak of the operational enhancement and what happened. This requires adjustments and when we speak about our historical performance, in the last few years, in the last few years, we focused on market share growth. We had a growth in revenue, but to achieve that revenue and gain market share that appeared in the graph, 23 points vis-a-vis the market. We had to let go a bit of our gross margin. Historically, it was 40% last year. It ended at 35%, 36%. And we have varied expenses. They also grew by 4%, 5%. And our EBITDA, therefore, has been at BRL 320 million in '25. For example, the base of our business grew. Our working capital grew. We have an increase of BRL 200 million of operational working capital. So this is the model that we're adjusting and which conditions are important in this new priority for the business. We're going to grow in volumes aligned with the market, while the market forecast continues the same. The growth will probably come from Portobello America. In Brazil, we will be aligned with the market. Our revenues should be more earmarked for a better mix. We're going to change that equation of making more revenue. And as we work with price and mix, we will have an improvement in gross margin. If we don't have a growth in expenses, this is an important task in our equation. This will enable us to have a better EBITDA and focus on working capital. We will take some resources from the working capital to enhance our capital structure. So this is the readjustment of our operational model, our capital structure, how we can generate value in our business, make the most of the assets that we already have and generate better operational results and financial results. In terms of outlook, our outlook is that the market will not advance significantly this year. We're in a protected market, a premium market that does have a certain resiliency. But our outlook is that the market will not advance and we will grow in terms of prices. In terms of margins, we were working with margins of 35% in March and April, we went back to 37%. We have changed the way to price our business base in Portobello Industry and Portobello Shop. After 3 years, we had a 6% price increase. We're focusing on improving the mix and improving our margin results in plants with greater efficiency at the plants. April already reflects part of these changes and the expectation is that for the rest of the year, we will work with a margin above 37%, especially for Portobello America that should reach its breakeven point with a margin above 37% in Brazil and with Portobello America at a breakeven situation, our results will improve. We made adjustments in our structure. We're redesigning some administrative and financial roles, also redesigning the commercial structure trying to replicate what is the same among our business units. We're adjusting the size of our business, seeking BRL 50 million of initiatives in the reduction of expenses for this year. This will represent 7% of our expenses base. This should eliminate that inflationary pressure we have projected for this year. Now we're working on contracts, everything that is variable. Salaries plus the structure initiatives that will lead to a 7% reduction in working capital. As I mentioned, we're going to generate value. The focus here, of course, is to find resources for capital structure to reduce our indebtedness. We have BRL 550 million, and we can bring our inventory to 90 or 100 days. Now the second priority mentioned by Cesar, one of the priorities we've been acting strongly on this. We have been repeating this in our conversations we're adjusting our capital structure. We have an organizational structure that doesn't fit into the level of our expenses. The idea is to find a balance, both financial and operational. We have to do our homework and enhance the operational part. We're going to work on margin, our choices in terms of expenses, working capital and expenses. Once all of this improves, we can also work with our partners to find a better structure to reprofile and lengthen our debt. This will put the company back on the right tracks and will enable us to once again be profitable. This is all from the viewpoint of messages for the first quarter. Now we can now go on to the Q&A.

[Operator Instructions] Now while the Q&A session is open, we invite you to watch a short video in terms of what happened in the first quarter for Portobello Group. [Presentation] The largest covering there in Latin America. More than 70,000 visitors in a 5-day event Portobello acknowledged with a price, the best ceramic for the -- from the matter collection. Fair held in Las Vegas, receiving clients from all the continents. Portobello America was chosen as Supplier of the Year by the ceramic tile Distributors Association flagship -- the first brand flagship with more than 2,000 square meters developed by the architect is a wine field. This space offers you a unique experience. This is a benchmark project and sustainability through several certifications well and others. -- conforming environments and thrilling people to live design.

Our first question comes from Mr. [ Andre Prates ]. Well, during the Q&A session, we will have the participation of Mr. Romel Sosa, Vice President of Innovation CEO of Portobello Shop, Mr. Brandes, CEO of the Portobello Ceramics Unit; and Mr. Jorge CEO of the Pointer unit. Our first question, therefore, comes from Mr. Andre rates from rates Holding. He says the new Executive Board has it chosen a more strategic point that it will be focusing on priority in the first months.

Very well, thank you for the question, Andre. Let's speak about the strategic part and then about the priorities. Cesar said, our strategy has not changed. It has been the same in the last 4 years. It's the expansion of integrated retail. We're growing with coverings. We have Luciano in the reselling and engineering channels and our winning model of integrated retail that continues to be a strategy and international expansion with Portobello America, our second largest market. We continue to grow there, and we continue to grow in exports with other countries where changes, and I explained this in the presentation are the adjustments necessary in our value model. We gained share. We left our margin aside. Now we're making adjustments to seek operational improvements, generate better results through margin more stringent choices to improve our EBITDA and work more focused on working capital. This is what Cesar mentioned, I also focused on this an operational enhancement. Our capital structure is also imbalanced, and we will address this during the year.

The next question is also from Mr. Andre Prates, that trade-off movement, volume versus margin in the first quarter, should this increase the pace during the year? Or was this a one-time solution.

You saw in the graph that our volume was aligned with the performance with the market performance. What we did was to make choices in terms of an improvement of mix. As we're increasing price, we see some friction in transferring that price because after 3 years, there has been that friction. It's normal in the industry. There is a curve and everybody is impacted. This is a choice for the short term. We will make a growth aligned with the market, and we're going to focus on pricing and mix in the short term, of course, if there is any friction, we will go back and increase our revenues.

Our next question comes from [ Ms. Moto ] from XP. How can Portamedic Portobello America, gain share and which are the goals to attain this.

I'm going to risk myself a bit speaking about Porto Belo America. I did work on the strategy. They have 2 channels for growth, distribution channel that has been growing, the more profitable channel, are the smaller, specialized stores. We also have specific client that is our partner in the U.S. We began creating demand and we're now migrating to the distribution channel that is more profitable. Of course, we want to grow the distribution channel without losing our vision of others as we evolve, as we bring in the right scale and enhance the plant, we can make better choices in terms of mix and channel. Part of the growth of the operation refers to how we put that strategy and practice -- we have been doing this at a certain speed and we're trying to increase the pace.

Well, good afternoon, simply to add something, one, there is a context, pro local production. Historically, in the U.S.A., we have an importing country, now local production has been strengthened because of these imports and the evolution of our plant and our business goes through 2 pillars. Our portfolio and the channel management. This can generate value for the company about the channel evolution comes hand in hand with a portfolio evolution. Initially, we had a basic portfolio because we were opening up the market. It was the beginning of the operation, the hiring of labor. As we go on to distribution and more demanding channels we are able to do what we do very well in Brazil, use our differential design, with a specialization on small formats. This is an important driver of value generation here for the opening of new clients and to create margin for our business as well.

Our next question comes from Mr. Flavio investor.

Regarding your margin recomposition. Consolidated gross margin in the first quarter was 33.4%. If we look per unit, Portobello Shopping 4%; Portobello ceramic, 37%, 9.1% for pointer and Portobello America 5 point some percent. Each of these units has a different operational ceiling, which will be your greatest lever to recompose consolidated margin in the coming months about Portobello America, which is a present day use of the area you have and with which horizon are you working for the company to reach a 2-digit sustained margin.

Going forward, several questions thrown into the same question. Let's speak about Pointer Brazil then speak about Portobello America, and then Jiao will speak about the plant. When we speak about a margin that is 37%, we have 2 equations, one for Brazil, one for Portobello America in coverings. We're going to go back to a level of 40%. We have been at 46%, 47% in the [indiscernible], we have lower expenses. They work with expenses of 10% to 12%. So the pointer business with a 2-digit margin would be very profitable. And in Portobello America, we're working with a double digit, leading to margins closer to 15%, Portobello America in the long term should reach a margin close to 30%, and once everything has been fully occupied, that's for the long term. We're speaking of a scenario closer to 15%. So to structure your answer, there is no single lever. All the units have to improve in Brazil as well as in the United States.

In Portobello America, we have to improve our mix to leave that 37% margin and take Portobello America to a level of margin closer to 15%. You spoke about industrial capacity. Well, a key point in construction of margin is the channel mix, the products mix, but also industrial occupation our occupation use at present is close to 90%. We began January with greater idleness, but we do have a volume in the United States that will maintain our occupation close to 90%. We are working with innovation, and we have significant demand for our clients for new products that occupation of 90% capacity will help us to create that margin advance. And then, of course, we have to add a better mix and products.

[Operator Instructions] The question-and-answer session ends here, we would like to return the floor to Mr. Joe Gomes for the company's closing remarks.

Well, thank you all for your attendance. I would like to underscore some points we have opened an important channel of communication with investors, our IR channel is at your entire disposal. Should you have any questions about release. We try to bring you more color, more clarity regarding our performance speaking about points that had not been explored recently, speaking about what we envisioned for business going forward. Our model for value generation with this new team with our new CEO, Cesar, were fully motivated to seek the recovery of our business to put it back on track once again and to obtain significant results. What is more important is go back to having profitability and a positive capital structure. Once again, we're at your entire disposal, should you have additional doubts, please speak to our IR team so that we can explain the performance of our business. Thank you very much for your attendance. We hope to see you at our next call.

The video conference for the Portobello Group. And here, we would like to thank all of you for your attendance. Have a very good day.