I will now get started with the fourth quarter earnings call, and the other members of the executive board are going to be joining in a moment. Good morning, everyone. Welcome to our earnings call to discuss the fourth quarter 2023 Intelbras results. My name is Bruno Teixeira. I am the Head of IR of the company, and it is a privilege to be here with you today. With us today, we are going to have Mr. Altair, our CEO, Mr. Rafael, our CFO, our Head of Security, Paulo Correa , our Head of Communications, Henrique Fernandez, and our Head of Energy, Marcio Ferreira. This video call, for instance, is being recorded, and it will be available on our website. You can download the presentation now. You can download the slides, and the video is going to be made available after the call.
For those who need simultaneous translation, please choose the language by clicking the icon interpretation below. For the Q&A session, would like to recommend that your questions be sent using the Q&A icon at the bottom of the screen. Please write your name, the company, and the language you are going to be asking the question in. We will then be able to answer every question. When your name is called out, a pop-up will show for you to unmute and ask your question. Information contained in this presentation and any statements that may be made during this conference call about the business perspectives, projections, as well as operating and financial targets for Intelbras, are based on the beliefs and assumptions of the company's management and on information that is currently available. Forward-looking statements do not guarantee performance.
They involve risks, uncertainties, and assumptions as they refer to future events, and therefore depend on circumstances that may or may not come to pass. Investors should understand the general economic and market conditions, as well as other operating factors, may affect the future performance of Intelbras and lead to results that differ materially from those expressed in the forward-looking statements. Now, having covered these notices, we will formally start our presentation, and then we are going to have the Q&A session at the end. We have the standard figures we present, starting with the financial indicators. This is a very interesting quarter from a result perspective. Net revenue is 4.5% lower year-on-year because of the drop in solar energy. Our EBITDA had an 18.9% increase. When we look at these results also, our ROIC, there is a one-off result.
We have a negative adjustment in product sales and another positive adjustment in revenues with impact on expenses as well. This is the final result. Our EBITDA is BRL 190 million and our ROIC 23.3%. It is an excellent quarter. When we make all of the adjustments and look at the figures again, and we look at the quarter as per normal operations, we see no impact in revenue, and our EBITDA is BRL 156 million. It is important to say that this adjusted EBITDA is 22% higher quarter-on-quarter. It is a very important rise that we see here. We already had the expectation of getting operations back on track, and the net income is 7% lower year-on-year, but it is 35% higher quarter-on-quarter. We see that in the course of the year, we had some operating challenges, basically caused by the scenario in solar power.
We see that the company is going back to the regular operating levels, and our ROIC is at 22%. We have a summary of our historical figures, starting with net revenue. We like to talk about some points that are not connected to our regular operations. Ku-band, for example, we see a drop of 3% year-on-year. That has to do with solar energy and our EBITDA. Even if we exclude these two extraordinary points, these two one-off points, we see a 6.2% rise year-on-year comparing 2022 to 2023, and a 2.7% drop comparing the fourth quarter 2022 and the fourth quarter 2023. Here we see the composition of our EBITDA. This dip of BRL 31 million in net revenue is basically the BRL 29 million of the adjustment made.
Our product is in line with what was delivered in the fourth quarter last year with the lower revenue. The SG&A reduction has a positive impact on the EBITDA. This is basically the adjustment of other revenues based off of finishing paying Renovigi. We have concluded the acquisition. We see there is stability comparing the fourth quarter 2023 with the fourth quarter 2022. We see that the EBITDA margin rose from 13.4% to 16.4%. With the adjustments, the margin would be at 13.4%. Now, just fleshing out more details about each one of our departments or business. We start off with security. It accounted for 52% of our revenue in the fourth quarter 2023, and in the whole year 2023, it accounted for 55%. Year-on-year, we have a 12% increase.
When you compare the quarters, it is close to 14%, the fourth quarter 2023 with the fourth quarter 2022. This revenue level is matching what we see out in the field. We had talked about that in our third quarter review. There was no chance, rather, of mismatch from then on, and this is what we see here. Growth is as per the strategies and in the growth avenues we have been seeing what the market needs, and we have been focusing our efforts. In the fourth quarter, there was a drought in the Amazon River, and water supply was an issue in Manaus. Now, since the second fortnight of January, we are back to the regular supply chain in Manaus. When I say water supply management, I do not mean the water itself, but I mean the material supply for water. Waterborne.
We had a strong year in margins when it comes to the security business, and we start 2024 with the perspective that the margin should be a bit lower than this historical margin we have had up to 2023, and we can talk about it during the Q&A. As for communication, it accounted for 21% of our revenue in the fourth quarter and 22% in the whole of 2023. We continue to, or we go back to growing in this business line. There is a 7% rise year-on-year. In this quarter, there was a growth that was expected, and it was there with the increase in the Ku-band converter. So you see there is a 17% growth year-on-year comparing the quarters. Communication grew a little less than we expected at the end of the year, but we can see it has gone back to growing.
There is an important aspect here, and that is strategic for the company. It matches the growth expectations we have for 2024, and that is two new partnerships that we have signed in the communication business. We will start operating them in the first quarter of this year, and we will slowly but surely see these new revenues impact our communication business. In the gross margin, we see there is a decrease in the margin. That is due to a reorganization of pricing levels that took place during the quarter. The Ku-band had a lower margin than the average as well. We see a decrease in gross margin. But if compared to the margin from the previous year, it is rather stable, so one percentage point difference. In energy, last but not least, we see an increase in revenue.
It was 27% of the fourth quarter revenue and 23% of the revenue of the whole year of 2023. That is an interesting growth we see here. The demand for micro generators is higher at the end of the year, and we saw this expectation of growth in the course of the second half of 2023. We also have many generation off-grid projects, and we have seen this Power View growth. Our net operating revenue was BRL 314. Margins are lower because of what we had already been discussing with the market ever since the third quarter. We were selling out the products at a higher price, finishing those sales. Now we see that the average margin of the segment goes down in comparison to the third quarter.
The higher price inventory items have now been sold. Now we will follow the strategy we planned for 2024 with the guidelines that we have already discussed with the board of directors, focusing on growth, reorganizing costs, even if it is at a slower level, but focusing on results. This next slide shows the consolidated gross profit. I would like to provoke you thinking about how much importance we place at looking at the company's results in a consolidated fashion. We see a small valley here between 2021 and 2023, but now a climb from 2022 to 2023. This is how Intelbras is structured. We have three main businesses. We have businesses that complement each other, and that makes the company even more resilient when we look at these three businesses in a unified way.
To help you understand this gross margin, there is something that happened in 2020. There was an IT Law that was modified regarding financial credit, and that has no impact on operations, but it has an impact on the gross margin because it has no impact on operations because it will be seen as an expense-reducing factor. But we would have three percentage points more in 2020 if it were not for that. So from 2017 to 2020, we would be at 35%, 36%, 34%, and then in 2021 and 2022, the solar energy share gross in net revenue. Then there is a slight decrease of the gross margin. In 2023, solar power still plays an important role, of course, in the whole year, but slightly smaller. We are getting back to historical levels. If we look at 2020 and compare it to 2023, we are just 1.5% away from it.
This is what we expect for 2024. These margins should operate, even if the segments are following their own strategies and their own go-to-market, being more or less aggressive. We will see the margins closer to what we had in 2023. As for cash flow, we always touch on this matter on the calls. We see our cash flow is quite robust. Company is generating cash. And with that, we can have the financing and loans necessary. Our working capital need is quite stable in comparison to the third quarter 2023. We have completed the payment for the acquisition of Renovigi. So there is a positive impact in accounting. The last payments were made in the fourth quarter 2023. So we see this impact. This is the point that we had discussed in the second quarter call.
There was a mismatch here when you look at expenses and revenues. Adjustments were made. So this number that was close to 21 at one point is now much closer to 19. That is one of the targets we had set. This number should continue to improve proportionally with more efficiency being gained, which is what we have outlined for 2024. These BRL 402 million in expenses, these are already adjusted as per the reductions and with the adjustments regarding the Renovigi's payment. CapEx. We see that the total CapEx 2023 was slightly smaller. This figure should continue to drop in the course of 2024. We are completing our expansion project. It should be completed in the first half of 2024. So the distribution center should start operating in the middle of the year. This is the only expansion planned for the short term.
The maintenance CapEx should maintain historical levels. Nothing much new on that front. Lastly, before we start the Q&A session, we would just like to say that we have good perspectives for 2024. We are quite clear that these three businesses have room for growth. We have the projects, we have the strategies in place. Our focus now really is to execute these opportunities. So solar energy back to expected levels of results, improving our revenues, controlling costs, new partnerships. Also that we strengthen our partnerships with our suppliers and providers. The main security avenues are clear. They will continue to be executed as we have been executing them these past years, and we are certainly going to have a very positive year in 2024, certainly better than 2023. We expect more operating efficiency, which should contribute to results growing more than expenses.
This is part of our plan and is what we expect to see in 2024. Thank you very much for listening. I will stop sharing now. I will stop sharing my screen. We will now start answering your questions. We see there is a list here in the Q&A button. I would just like to make sure that everyone has been able to join, and then we can have everyone start their videos. Zoom is not allowing us to start our videos for some reason. I can see Marcio Ferreira here. I can see Mr. Altair as well. Oh, now Rafael is there. So again, everyone, we apologize for the delay. There was a technical challenge. For that reason, we took a bit longer in this first stage. Let us start with the questions then. Can you please unmute Eduardo Rubi. He is a sell-side analyst from UBS. Eduardo, good morning.
Good morning, everyone. Can you hear me well?
Yes, we can.
Thank you for taking my question. I actually got two. Thinking about the forecast for inventory in the fourth quarter. Are there going to be provisions for more items, or have they been sold in the quarter? That mismatch in revenue. It is not to be expected, right?
Would you like to start, Paulo, talking about the revenue mismatch, and then we talk about the inventory that is probably a more recurring question for everyone.
We already talked about that at the start of the call. The process is quite natural in some moments. Sell-out was higher at the end of the year. It had higher growth than sell-in. The mismatches were expected, and they happen time and again. As for the inventory, I can start off now, and then Mr. Altair can start.
These allowances that were made, they do not have to do with sales. If it had sales that had mismatches with costs, that will be reflected in the gross margin. There is no impact in provisioning or allowances. What has been accounted in the fourth quarter, and that is why we have highlighted that with the adjustments, is a review and how we calculate provisions for materials such as obsolescence, for example. We have always worked like that, looking at items that had been stocked out and including the raw materials in the calculation, and that led to an additional need for provisions for us to account for obsolescence and also for the inventory levels to reflect what we need in operations. There is no expectation that we should have changes in these items. We have some information on that and a notice that was published with explanations around inventory.
We may have inventory items being sold as scrap items or being really scrapped. There was this highlight at this point because of the impact on figures, but that is completed. This is not a point that should be changed in 2024 or in the future. We have some operating perspectives that are important. Mr. Altair, would you like to talk about that?
About the provisions, Bruno, yeah?
Correct.
Hello, everyone. It is a pleasure to be here with you. I apologize. I cannot turn on my camera. There is a technical glitch, but you are not losing much by not seeing me. 2023 was a year with many adjustments after the solar energy instability. We took advantage of that moment to review many processes, restructure items, really to get everything to be more well-oiled, so to speak.
We took that time to look at any adjustments that needed to be made, and one of them was to look at the portfolio performance. As time went by, we launched products, of course, and many of these products did not perform as we expected them to. Thinking about the productivity we need. We decided to stop selling over 300 items in the second half of 2023. We stopped buying these items, but we continued selling them. There was then a mismatch between the raw material because you do not have the full package closed. Then the distributors may not be interested in buying products that are out of line. We accounted for these changes. That is what happened. It may happen again if we
We lost Mr. Altair's audio. We lost his audio. Mr. Altair, can you hear us?
You were saying that if we continue to make mistakes in launching two or three products wrong a year, maybe in 10 years' time, we would need to have a similar processing as we did now. This is a one-off. We like to anticipate needs, or we like predictability. We accounted for these products being taken out of our sales. Getting out of line.
Bernardo, an XP analyst. Can he be unmuted, please?
Thank you for taking my question. I have a question about the consolidated margin. Even if we exclude the BRL 19 million with the consolidation of obsolescence of inventory, Altair's explanation was quite clear. What can we expect for the future when it comes to security and communication? I think when it comes to solar energy, the expectation for recovery is quite clear with cheaper inventory items. When it comes to solar power, you had a strong recovery quarter-on-quarter. I just like to understand what the drivers were. Were you more aggressive in pricing to allow for this recovery to take place? My idea is to try and understand if this level of revenue could be recurring in 2024.
Just before Marcio talks about solar power, I just wanted to say that we're not concerned about the margin. Last year, margins were a bit different to our historical levels, but we're quite comfortable. For the future, we expect the margins to go back to historical levels. Of course, there are products and solar energy and communication, but we have an improvement in the EBITDA margin. Volume, scale, more competitiveness, and an improvement on the EBITDA margin and ROIC. We're not concerned. We do not predict margins to be lower than historical levels. Marcio, please.
The last quarter was good, the fourth quarter was good. I like to stress a point every time we talk that solar energy is not the same everywhere, and energy is not the same everywhere. We had a good period for off-grid. We had some good results in power. As Bruno mentioned, this was a good combination of mini generation and mini-plants, but the number of mini generations climbing back up again. I think consumers are more confident. We were more aggressive in pricing, but we were not the most aggressive in the market. We're very careful when we think about our distributors and our channels. We really want to be loyal to the channels that we have. We have to be recognized with the channel and with the client, and we have premium products, premium services. For this year, we're cautious.
We are optimistic, but we have got our feet firm on the ground. Having the right level of inventory, having the right prices, strengthening consumer loyalty, focusing on resales and distributing channels. Solar energy is well structured. On and off-grid are well structured and power are all well structured. This plan has been well put together and they have been coming into reality as we expect them to.
Quite clear. Thank you everyone. Bernardo, I'd just like to say something about the margins. When we look at security margins, they're very close to what we had in 2023. There was a bigger drop in communication. We know what caused it. There was a pricing pressure with providers and the Ku-band issue as well. Structurally speaking, it's not different to what we had been discussing.
I don't know if you can explain your concern a bit better and we can discuss the margin issue. I understand that the mix in communication had some impact and had this impact on your margins. But you have the FiberHome partnership and H3C. We aim to understand how the margins can behave. If I may complement the question, if we can extrapolate it would be great to understand how this line should grow in 2024. My concern here has to do with the communication margin.
Rique, would you like to touch on that?
Thank you for your question, Bernardo. In 2022 and 2023, we're working on establishing these partnerships, bringing technology on board so that we could vie on the same level as our competitors in the market. Now we have these partnerships established. Now we have FiberHome for fiber optics and assets and liabilities. The liabilities are the cables, the connectors, and the assets, basically the hybrid OLT, ONT. Basically, the software to manage all that. H3C gives us access to a new level of client. We already see good results, good impacts in the first quarter. We see an improvement in productivity and an increase in scale. This is what we expect to see in 2024, a substantial improvement in revenue and an increase in the EBITDA margin. That's what we expect.
Quite clear. Thank you, Henrique.
Thank you, Bernardo. Can we unmute Fred? He's the sell-side analyst from BofA.
Thank you, Bruno. Thank you, everyone. I've also got two questions. Just getting back to the adjustment issue. There's a BRL 63 million adjustment for obsolescence. I just wanted to try and understand. How is that this connects to the BRL 29 million in this quarter? This is an adjustment that has been happening, apparently, right? Just wanted to understand how recurring this is so that we can structure our models. Bernardo talked about communication. Of course, when you look at 2024, there's more synergy, there are partnerships. But what can you say about challenges in ramping up these products? What do you expect from new products, impact on CapEx, telecom? What are the challenges and opportunities that you see with these new partnerships?
Thank you for your question, Fred. When you look at the market, you say, "Oh, there's no room for the ISP to grow. You're just bringing in more technology to the consumer's home just to keep them." But there's an important point here. There's an update to their technologies. They have a GPON, and they have to change to XGSPON. That will bring a higher band level to customers. Some are still using Wi-Fi 5. There's an opportunity for Wi-Fi 6, and there's a better coverage in the coverage within the home. There's a gap for over 20 million homes to be activated and 15 million to be upgraded. They have that old technology. Copper wire that used to be used by Claro. We have approximately 1.5 million new users every year. There's the whole set, the whole part to be updated. There's room for growth in this business.
The main challenge is in H3C. Because I think in fiber optics, we already had good providers. Bigger providers we're in direct contact with. Smaller and medium-sized, we have a distribution channel as the middleman. Just so you understand it. In H3C, some of the integrators there are already part of our base, and there is another share that we are not touching on the IT integrators. We had a team put together last year focusing on these integrators in IT, and we are already reaping good results. The sales pipeline have grown. We will see an increase in H3C, especially in the second half of the year. In fiber optics with the H3C partnership, that is going to be more immediate. We have the number of quotes increasing, and also our supply is increasing. Thank you.
Thank you, Henrique. I just like to make another comment here. When you look at the provision, it is like a checking account, a current account. Every month I will have a share that is in the COGS, and every time I report sales, and you have that accounted for the obsolescence. If you discontinue any item, be it because you are scrapping any item, then this point is written off comparing to the obsolescence to the provision. This number will go up and down, but it should have an average level that is according to what we work with. That should generate our income and bring cash flow. This BRL 29 million is not the whole amount.
We had BRL 29 million added to the whole amount, and that is why you see BRL 29 million as an adjustment just for us to be able to measure the result in the fourth quarter, which is when this new perspective was added with new raw materials, and also regarding the point that Mr. Altair mentioned with some items being discontinued. Phasing out some raw materials. Then you wonder if you should buy some raw materials to produce it or if you should then scrap it because you have a new line, you have a more competitive product, you have a new product that can be sold instead of this one. What you see in this adjustment is the additional share installment that is added to the obsolescence provision. Did I make it clearer?
Perfect. It is clear. That is what we sort of expected. I think it is quite clear. Just another point, I apologize on insisting on it. I think it is relatively small in comparison to the whole, but it just seemed to be something new to us. When I look at the total amount for the year, there is a 25% rise from BRL 51 million to BRL 63 million. But if you drop the BRL 29 million, it would be much smaller than that. There would be a decrease year-on-year. Is that right? Excluding the effect of this specific quarter or is that not it?
It will fluctuate up and down. It is lower when you acknowledge there was a loss in inventory. We have discontinued many items in the course of the year. This is something that happens every month, so I cannot confirm these figures that you have named. This provision is used in the course of the year also because of what Mr. Altair said, looking at inventory efficiency and really having the inventory that is going to be useful for business.
Can you hear me? I just wanted to say something. I am not sure what the calculation was that he made. This BRL 29 million addition that we see our feeling is that should not happen again. We expect to see more and more efficiency. We're improving on focuses, processes, and productivity, and the idea is that we should have the obsolescence levels going down and down.
Thank you, Mr. Altair. Thank you, Bruno. I was looking at the closed figures for the year for obsolescence. It goes from 51 to 63. That's the difference you named, right? That's what you mentioned, right? If you exclude the 29.
Correct. You can look at the controller's numbers and the consolidated numbers, and you will listen that better maybe. Thank you, Fred. Now, Marcelo Santos, can you please unmute him from JP Morgan?
Hello, everyone. Thank you for taking my questions. I don't mean to insist on it, but this provision is just focusing on raw materials, right? How long did it take for these raw materials to be constituted? What is the average age they are, the ones that are being provisioned in obsolescence? Is that something that came together in six months, in two years? That's my first question. The second question may be to Paulo. The security margins. What can we expect and how was security impacted with the drought? Can you start talking about this average inventory levels?
Excuse me.
He asked about the obsolescence and the average levels. I wanted to start answering and maybe you can complement it, sir. The name is obsolescence. That's what we call it. That's a provision that we have to keep the inventory levels. If something that was damaged can't be used in the course of years, then it goes into this provision called obsolescence. Raw materials are put together as per the sales plan and with everything that we plan considering supply, so that we have enough inventory there or every item we need in inventory to produce what we need. It's about six months, but there are items that have been there for longer.
It doesn't mean that these older items are the ones that will consume this obsolescence provision or that there are younger items that are being produced. When you talk about obsolescence, you shouldn't think about products that have expired, for example. To produce 100,000 cameras, you need to buy 110,000 capacitors. There's one per camera, and you have 10,000 left at the end. The sums match. I'm going to rebalance that with the next 100,000 cameras. But in buying the raw materials for new cameras, you may have a new camera with better levels, better images, better prices. What I used to do was, I would not consider these 10,000 remaining as items that would be scrapped because they just needed to produce another 10,000 cameras, and that wouldn't be a problem. This analysis is what we built in the second half.
That is why we have this addition in the fourth quarter, which is when we completed this study. It is not like items have expired that cannot be used. It is about including raw materials into our calculations, and they can be for items that are no longer going to be manufactured. It may be some items there, but there is no use to buy the remaining items for you to manufacture the product that the first group was originally for. I think this is the rationale that we wanted to share with you.
Just to complement on what Bruno Teixeira has said. The lack of balance in planning is a matter. You have a new product and you expect to sell 5,000 pieces, but you only sell 1,000. Then you have a surplus in the inventory levels. Last year, we were more strict. We were stricter when it came to inventory levels. If a product, because of problems in planning or in sales, if that goes beyond a certain level of availability and in months to sell, then it is going to go into sales and losses. If it is sold, it will come back. Last year, we have accelerated these provisions without real, actual losses. When I think about the 300 odd items that were discontinued, we accelerated these provisions and they continue to be sold.
They may even come back as a credit. Our internal processes changed, and we were stricter in this management. That has to do with the question that Fred asked. It is not an addition in the fourth quarter, but the provision in the course of the year. Can we have Paulo speak now?
The provision item is quite clear. Thank you. Thank you, Mr. Altair. Thank you, Bruno Teixeira.
You asked about the Manaus scenario, right? That was a challenging moment, it was a challenging period, but we were able to operate without stopping our plan. Some moments we had some items being manufactured more than others, so we had to rebalance our portfolio. There were several strategies that were adopted in the supply chain so that operations could continue. We had a couple of ruptures, but we were able to come back to normal operations. In the second fortnight of January, we were back to our regular operating levels. We had already had all of the raw materials that we had more challenges to have access to during that process. That had some impact on costs, but nothing major.
Tests of image. You brought a bit of the margin of security for- And you mentioned the security margin for 2024. We expect it to be between 2022 and 2023. There is more to be considered when it comes to product mixes, but there shouldn't be any major difference between what we had in 2022 and 2023.
That's v ery clear. Thank you.
Thank you, Marcelo. We have two questions from Thiago. He wrote them down, so I am going to read them out loud. Thiago is a sell-side analyst from Itaú BBA. There is a good acceleration in the third quarter, but when we compare it to the previous quarter, we only see a 9% growth in revenue. And there were changes in sell-in and sell-out. There is the inventory adjustment here, but that has got nothing to do with revenue. So he wanted to understand what he can expect from this line thinking about the future. Is that going to grow again in the 15%? What do you expect in the short term for security there?
Thank you, Bruno. He is probably thinking about the inventory of our partners in the third quarter, right?
Oh, yeah. That is probably it.
Yeah, we talked about that in the past, Thiago. We noticed in the second quarter that the sell-out was greater than the sell-in. So when you look at the accumulated numbers for the quarters, we see there is a positive dynamic there. It is in line with what we had expected. So of course, there was the adjustment in the third quarter and that affected results a bit. But looking at this year, we have been looking at projects. We have the verticals, and we have been working with our partners, with our distributors there. They are going to help us work hard on this project market. We want to make use of these partnerships, the resellers, the distributors, and that is going to yield good results. It already yielded good results last year.
It was an accurate approach. And this is going to be an important avenue in 2024. And we always talk about access control, Wi-Fi, AI. We have some items that allow us to have very good expectations here for 2024. A second point he makes here is that there are some startups with the recurring revenue model, with the subscription model. Do we see this type of business model as a possibility? Could this be an alternative to Intelbras? Should we adopt this type of model? I was in a meeting with a CEO that has been working on that yesterday. The idea is to have this model as a possibility. We rent solutions to support operations as well. We have work being carried out with suppliers so that we can have solutions that go beyond data, also security solutions in the streets, cameras, there are totems.
We are in contact with the main companies that are offering this in the market. We have got security in the home, in buildings, in companies, but we want to expand into the streets and interface with other levels and on city levels and state levels. We are really ready to support this type of increase and expansion.
These are the two points that Thiago had. Now we can unmute Cesar from Santander.
Hello, everyone. I have got two questions. On the communication side, you talked about growth expectations in 2024. We have a substantial expectation of growth looking at the whole year. When should that be more visible? You already showed improvement quarter-on-quarter, but do you have more details on when we are to see further improvements? Second question, gross margin. The EBITDA margin was rather constant. Should we expect movements like this for 2024? This drop in expenses, even with gross margin going down, do you think the EBITDA margin could get better?
Thank you for your question. Henrique will complement my answer with his expectations of the market, but I am just going to repeat what I had said about this year and the coming years. We are better structured in every technology front. We expect a substantial increase, especially in communication, and also in other segments. The gross margin will be addressed according to what goes on in the market, so it could be higher or lower. Our strategy is focusing on the EBITDA margin, and we aim to improve it. Considering all the work we did last year, we prepared the company, we prepared processes. We want to continue with our EBITDA margin improving by the year. That is our strategy. Henrique, please, can you complement that?
Hello, Cesar. We like to say that we do not follow fads in Intelbras. We build the house brick by brick. These technology partnerships will also follow this model. There is a path to be trodden for things to happen. There are commercial items, there are operating items that need to be addressed. Step by step, the business should grow this year. As I said before, especially when it comes to enterprises and H3C. This is a more consulting type of sales, and we will see that better in the second quarter. When it comes to fiber optics and assets and liabilities, we already see some impact now, and we see the growth in 2024. Just trying to complement it.
Do you have any visibility if that should be stronger later in the year or earlier?
We see this built in the first quarter, some improvement in the second quarter, further improvements in the third quarter, and further improvements in the fourth quarter. This is like a house being built, as I said, so brick by brick.
Thank you.
Thank you, everyone. We have a question from Verena, from the communication team. What drove price adjustment in communications? As we have a full year with lower prices, right? Will this weigh on revenue growth in the segment? It's Verena who is asking, right? Wachnitz.
Thank you, Verena, for your question. The main impact that we see in margin this year, we have to remember in 2023, we were expanding or building the Tubarão fiber optics plant. What we do is we have the price at the end so that we have the right price for the consumer, and then we improve plant processes, we improve our expenses, our costs, and we increase in volume so that we can have a saving on scale. One of the cases is the fiber optics cables, and we see an improvement towards the end of 2023. The trend is that this improvement should continue. Again, the price to the consumer is correct, so there is just an internal work when it comes to raw materials and operations. We also had a drop in prices in routers. Our technology was starting to become old-fashioned.
We have new products with better technology, better prices, and they are better positioned in the market. But there was some impact on the margins from the previous products and the Ku-band that Bruno talked about. Verena, thinking about all of the businesses that we have sown in the past years, even if the margins are maintained, we'll see a growth in revenue. That's going to be quite interesting.
Thank you, Henrique. We have a question from Rodrigo Faria. He's talking about FiberHome. FiberHome has been voicing their position in recovery market share with ISPs this year, and how that is going to have an impact on communications margins, and is also asking about a ballpark of the revenue of FiberHome.
I think this is something I have to work internally, right? To share this information with them. The structure is something I've touched on in previous questions. We see the communication business growing. We see growth in fiber optics and in enterprise. These are two businesses that are going to be the biggest drivers in the business. Now, in participation, I can say that the whole business assets, liabilities, and some of the routers that are related to fiber optics because they're part of the homes. That's about 30% of communication. Account for 30% of communication.
All right. Then we have a set of questions related to raw materials and obsolescence items from João Festas. They're asking for a more concrete example, what type of material was labeled obsolete, what type of products we have discontinued.
I think we can try and combine all of these questions and answer them together. We look at raw material in the provisions for obsolescence. There's no raw material one, two, or three that's already labeled as a loss. We look at raw materials, we balance inventories, and this loss, when it is confirmed, it will have been provisioned for in the balance sheet. The accounting approach is not looking at products A, B, and C. Maybe we were not able to explain it that clearly. But there is a provision, an amount that is being provisioned that we should have raw material as part of this calculation, and that calls for an amount being invested, and it was. The higher the inventory, the higher the risk. But the obsolescence risk is captured. Lower levels of inventory would have a lower level of obsolescence.
We operate it and we understand that a healthy inventory level should be 130 and 140 days. That is the number that we aim at. That is the most optimal level for our operation. I had mentioned capacitors to try and illustrate what the mismatch in raw materials could be. I recommend that we could maybe delve deeper into this subject after. We can have a call individually with you guys, or we can table this matter for another event that we have, if you are in agreement to do that.
Then we have one last question from Ricardo, a 4UM analyst. His question has to do with the gross margin adjustment in communication regarding prices. Was there an impact on the margins or— Hang on, let me read the question again. I am not sure if I understand it. Is the margin level going to be recurrent? I think that is what it is about. Henrique, so the adjustment made in communication and in inventory, that is not linked to pricing, right? Pricing goes to gross margin, also adjusted gross margin. The pricing adjustment has got to do with market dynamics, right?
That is right, Bruno. What is our main focus? It is to improve productivity and increase scales. As Mr. Altair mentioned, we want to improve our EBITDA margins as a business and as a company. This is our main focus in 2024.
Lastly, Marcio on solar energy.
There was a bill around the renewal of energy distribution. It speaks about a 10% share in energy distribution or generation distributed. Everyone felt the impact of Law 14,300, Law 14,200. Any change in laws can have a positive or a negative impact. This is something that we have been monitoring for a long time. There has been a wrestle between the concessionaires and the solar markets. There are some technical aspects in reverse flow and sometimes revenue and costs of maintaining the network. This is not a simple matter. There is a representative in the Chamber of Deputies that are focusing on the concessionaires more. The tax is not very clear, the 10% is not so clear if it is on power or on the consumer side exactly. I think that is going to be a lot of discussion on that front, still.
Thermal energy, increasing energy price is not good for the government, it is not good for the population. We have been surfing the mini-plant wave, but our thesis focus on high consumption. In homes, we think it is a 20 million target audience addressable market, and 500,600 homes could be added to the grid, that not mentioning the shops and commerce. Less than 3.5% of them have a connection to the grid. Even if they get to the 10% limit, there is still a lot of market to be worked on. I don't think it's going to be easy to approve these 10%. They want to limit 30% to the free market. There's a lot to be discussed in this subject. I think having a crystal ball and saying what direction we should be headed is really difficult.
Thinking about our focus, smaller shops, homes, I think there's a long road for us to work and make money on.
Thank you, Marcio. We've answered all the questions, and I'd like to turn the floor over to Mr. Altair for his final remarks, concluding then the fourth quarter earnings call.
All right, everyone. I listened to your concerns, and I just wanted to say that this year started very differently to 2023. We had that storm in the solar market. That caused some concern. We reorganized the company processes, structures. We worked hard on organizing everything in-house. We established new partnerships, and we started 2024 very optimistic. A lot was discussed here about the margins, but I'm not really concerned about the gross margin. I am more concerned about the EBITDA margin. Not concerned, mind you. I actually said that on Intelbras Day at the end of last year. We are going to go back to growing this year, back to the historical levels. EBITDA is going to grow more than revenue because of all of the work that we put in last year. We don't have the pressure of solar energy bringing us down, weighing us down.
We have our strategy of loyalty with the channels. We have updated our technologies in the communication front. All of that has been tidied up. We're back to our main foundation that has brought the company this far, which is making sure we have a sound, good relationship with our consumers, with the clients, customers, looking after people, training people, our projects for growth, the projects we have in security, the verticals, the expansions, tapping into new markets with new products that we haven't got to yet. Communication. I've never been so happy with communication as now with what we see on the horizon. There's good potential to improve revenue for good profitability, solar power. It's always been good.
We've had good projects, but now the market is more positive, and we again place a lot of emphasis on loyalty so that we don't have ups and downs with opportunistic buyers. We're working with our network, working with our margins. January and February, they are following the plan that we have. They really are as per the plan we had. We're much more optimistic. We're feeling much more positive this year than we were last year in March. With that difficult scenario that was ahead of us with the solar context. We're getting back to our historical levels of revenue. We're going to improve our margins even more than the revenue. We're quite confident. We're going to continue to answer any questions you may have, any questions that we may not have answered during this call. We'll talk again soon. Thank you for joining us on the call.