Good morning. Welcome to Grupo Multi's earnings conference call on the first quarter of 2024. If you need simultaneous translation, this tool is available on the platform. Simply click on the interpretation button through the globe icon on the bottom of your screen and choose the language of your preference, Portuguese or English. If you choose to listen to the conference in English, there is the option to mute original audio. We inform you that this conference is being recorded and will be available at our IR site at ir.multilaser.com.br where you'll also find the complete material of our earnings release. It is possible to download the presentation also on the chat icon, including the English version. During the presentation, all participants will have their microphones disabled. Afterwards, we'll begin the questions and answer session.
In order to ask a question, simply click on the Q&A icon at the bottom of your screen, write down your question, and join the queue. When announced, you will see a request to enable your microphone on the screen, when you should activate your microphone and ask your questions. We ask that all questions are asked at once. I also inform you to check the last slide on our presentation with our legal disclaimers. With that, with us here today, we have Ale, our CEO, myself, Flavio, IR officer, Eduardo Belelas, our Controller, who's replacing Eder today, who went to Brasilia on company business. Thank you. I turn the floor to Ale, so he'll begin the presentation.
Good morning, everyone. Welcome to our call. We're going to go through the earnings of the first quarter of 2024. I believe that we're in a period of gradual evolution. Looking at the picture, it's still far from where we want to be, of course. However, there's no doubt that looking at the bigger picture, everybody's going to conclude that the company took another step forward, a positive step in pretty much all fronts. So I'm pleased to see that step by step, we're putting the company into a healthier position.
It's still far from ideal, as I said, but it's a fair pace. Net revenue came from BRL 730 million, slightly below the same period, but squeezed by the delay in government. So we're going to see a slight growth in all fronts, but specifically, government was very strong on the first quarter of last year. The purchases didn't happen now. They're starting to happen in the second quarter. There's a good pipeline looking forward, and that's the point of pain here.
Of course, about the fourth quarter, there's a slight reduction because the fourth quarter is always the strongest in the year. So that's not a surprise. It's completely normal. Ex government, we would have seen a healthy growth. I believe that in the second quarter, we're going to show you better numbers in government as well. The main message, of course, is the gross profit. If you want to get one single takeaway from today in one minute of the call, that's it. We've been forecasting a recovery in the company's gross margin, and it came. We even had a negative gross margin in the first quarter of -7%, if I'm not mistaken. In the fourth quarter of 2023, -9% gross margin. There were also the write-offs here in the fourth quarter. Now we're standing at honest 23% nearly of gross margin. It's not ideal.
We're still on the way and the long path towards the 30%. We see a future where we'll be moving towards 30%. It's a believable plan, I believe, to get to 30%. There are still some offenders, but a lot less than before, and it's 23%, but no doubt it's a positive margin here to see this recovery in gross margin. As we've been saying in recent calls, this is the main pillar of any recovery. We're going to detail and break it down by segment later. I would have loved if we were out of the water in EBITDA, but we're still below water at a loss, but 90% smaller loss than the same period and 90% less than the previous quarter. As you can all see here, this is a positive message, such a drastic reduction in loss.
Then, of course, there's the question of when we're going to get our heads out of the water above water. I would like to see if the conditions of the second quarter remain as they were in the first month with no surprises. In normal conditions, I would like to show for the second quarter that we have our heads above the water out of the red. There's still half the quarter to go. I'm not making a forecast. It depends on the sales of May, of June, but April was quite satisfactory for us within expected. Nothing too big, but meeting the managerial target. We're on that fight to try and get our heads out of the water in terms of EBITDA on the second quarter. Nothing spectacular, but at least we won't have that minus sign there.
Inventory, there was another reduction here, significantly BRL 400 million in cash again starting to grow. You can see that our inventory reduction came straight into the net cash position. You're going to see a history at Multi of an accounting loss quarter by quarter, but with cash generation also quarter by quarter. We've been for one year and five months generating cash non-stop. This is another positive message. It seems to me that all fronts are showing a slightly positive sign. You know I'm not one to be screaming at the top of the building, but I am at a happy place with the earnings of the first quarter, considering the history. Speaking of inventory, we saw a new reduction. This is the total managerial inventory, including purchases from abroad, et cetera. What I showed you was the accounting reduction of inventory already shipped.
There was another reduction here, and what's most important here in this message is the share of products in transit. It continues to grow. We had here a peak of 71% blue. This blue here is the inventory in-house, the offending inventory, the inventory that's paid for, the taxes are paid for, the lease is being paid here in Brazil. It's inventory in-house, and it dropped already to 53%. I believe that the optimum balance for the company is something close to 45%, and then 55% out of the house. 45% in-house, 55% outside. It doesn't mean that it must be like that, but it's an interesting target. We've been below that, but at a time where those inventories were lacking, so it's not the optimum point.
If we have 45% in-house between raw materials, the factories in inventory and the rest of it on the way, it turns faster, you do not pay as much rent for the space, you do not have such a high capital cost. We are moving towards that, having a more controlled and healthier company in terms of inventory.
Now, in terms of gross margin, as I mentioned, it was -7%, -9%, and now 23%, quite honest, 23% fighting to get to 30% one day. This is not a forecast of a date, it is simply a reference of what is possible and healthy looking at our 15-year history. It is with the market conditions, reminding you that the offenders here are still included. Smartphones are still selling at margin zero, it is an offender. Some specific categories in games, some remainder of inventory. We are still selling at a negative margin.
I would say that, well, without those lines, what would the margin be today? It would be close to 25%, the gross margin, excluding those points at this time. An enormous improvement compared to the previous quarters, and we cannot even compare. Here we are talking about the first quarter of last year, the implementation of the SAP, and here there was a strong write-off on smartphones. It is not even fair to compare it, saying that the operation overnight became a miracle. Here is the write-off. There is no write-off here. It is coming in at zero. The margin of smartphones going in practically at -100%. EBITDA as well, comparing it here, there is a 90% reduction in terms of loss. -3% is very bad, but 90% of loss reduction is a good sign.
If we continue in this gradual evolution of our results and cross the waterline, we are going to start to get to an interesting return on capital, and I know that this is positive. Net income, the difference is purely in terms of exchange rate. There was an exchange rate impact in the first quarter, and it is more of an accounting factor because the inventories as well, we are readjusting prices a little bit. There is an appetite in the market to absorb this. Here is also a very strong reduction. It keeps up with EBITDA, the net profit. We see -3% here for EBITDA. It is ahead of about 6%, but practically 100% of it is due to exchange rates. Now talking a little bit about the cash position, we had the generation of plus BRL 43 million in the quarter. It is a slower cash generation pace.
We were generating it faster, and I was worried about ending this cycle. You know better than I do that if you do not have the accounting results, at some point, this will translate into cash. However, the company has been quite resilient in terms of cash generation. With more and more efficiency in the use of capital, we are generating cash. In April, we had another small cash generation in the month of April. The second quarter should be very close to zero. I believe there will be a small cash generation. It is the most likely to happen, but small. The simple fact that we are not wasting cash with these earnings and we are resupplying the company, I am quite happy. We are at a net cash position of BRL 270 million. We closed the quarter, and at this time, we are slightly above that, just slightly.
Remembering that we came from BRL -600 million in January of 2023. It was a journey of BRL 870 million of cash generation since the beginning of the SAP, the beginning of that nightmare that we had in the accounting loss. I am confident, and I see that the company, despite the accounting results not being as great, the company has been generating cash. We are at BRL 950 million. You can see the amortizations here. It is very comfortable. Our agenda is to not refinance anything. We are simply paying debt, bringing our gross debt to zero. It does not make sense for us at this time to pay CDI plus 2% or 3% and simply we have this cash. Of course, that begs the question, what are we thinking about it? I can tell you if the question comes up again the company's plans.
We are going to announce a small share buyback that will help put some of this cash to use. Coming with one or two solid quarters generating EBITDA, we are open to considering about a stronger dividend payment. With the accounting in order, with the P&L in order, improving distribution will lead us to a more efficient capital structure. Now, looking at the breakdown per channel, you are going to see that point I made in the beginning. Note that since the first quarter, government dropped from almost 18% to 5% so 1/3 of government year-on-year. That does not mean that the government business is no longer important looking forward. It does not mean it is going to be less relevant. The pipeline is good. There are a lot of deals to come through. There are a lot of deals that we already won.
The second quarter will be much better than the first, but these are points that depend on the political agenda for the purchases. That is the government. We have to look at the government sales on an annual basis or half-year basis rather than quarter by quarter, because it depends on the agenda of the public agencies. There are a lot of deals coming up, and the margins are a little better than the company's average. I believe that this quarter should be close to 10%. We do not know yet what is going to come out, but it is an educated guess of what the second quarter will bring. The others were growing in line. No big surprise here. The small and mid-size retailers have a share that grew based on this government topic, more or less, each one maintaining its share in line.
ISP and the others, you will see that they grow based on the drop in the government sales. The breakdown per segment is the same point. You see the part of mobile devices dropping their share. The driver here is basically smartphones, the phase-out, selling less and less, and then the lack of those sales to the government. It is a mirror of the previous slide. The others are growing in their own share with a little bit more highlight to kids and sports. That is the best gross margin we have. It seems that the company becomes healthier with this profile. Note that the breakdown here, what is different from the first one, is more based on this drop in mobile devices. Now, looking by segment, you will see that the BRL 300 million of last year, driven by smartphones and government, turned into BRL 129 million.
This is the explanation of why revenue hasn't grown. It seems that the fact of phasing out smartphones was good news because it's a product that was bringing a negative contribution to a negative gross margin, and now it's turning at 18.4%. There's no miracle. Smartphones are coming in at zero due to the write-off of the fourth quarter. You had that write-off. This BRL -117 million was marked at zero, and here it's coming in at zero, so that explains some of this improvement. Then we have tablets that are very healthy. PCs, there's still some sales to government. It's not zero, it's 5%, so it's healthy. It explains this relatively acceptable margin. If we excluded smartphones here, we'd be speaking of 28%. Note that once we liquidate all of the smartphones, you're going to get the 28% with a very healthy margin in this segment.
The part of office IT, we present a reasonable growth compared to last year, BRL 216 million to BRL 256 million. Compared to the fourth quarter, there's a small drop, but that's normal due to seasonality. Here we have the peripherals, routers, everything for providers. There's a series of lines here and some offenders. Gamer is still an offender. You have some lines that we're removing from stationary. You have security. Half of the line is an offender at a negative margin. Everything's being phased out. We're starting to get new lines with a good margin. Of course, you have the main topic here, that's routers for internet providers, and it's the main family in the segment. It's the ONUs, OLTs that we sell for providers. As I mentioned in some calls, we're at a point of migrating the technology.
We're phasing out the AC line, and we're starting with the AX line. When we migrate, we had a lot of inventory of AC, and it's offending the margin. That's why we have this low margin here of 12%. However, as more and more AX comes in at a better margin, this will recover. I believe that it's clearly recovering. You see it going from 9% to 12%. Next quarter should deliver even better than that. You can call me on it. Then it becomes healthy, basically. The reason is some specific phase outs that have been phasing out for a long time. Security for more than a year and a half, gamer as well, and routers in the AC line, that's the main one. Home electric products, we see a strong margin improvement. Oh, let me just go back. Here, look at that.
The difference, if we exclude the phase out, it doesn't really make a difference. 12.5% turns into 12.9%. Why? Because the weight of the gaming and security lines, even though they exist, it's low, and the routers are not considered a phase out. It's a change in technology. The agenda here is to migrate soon AC to AX. There are some budgets that we're taking from partners to be able to turn this around with a margin. That's going to be the driver for the second half. Home electric products is a stable line. There's practically nothing in phase out, only automotive that we virtually have nothing in the portfolio. No inventory left, so we don't have automotive anymore. These are the four categories that remain, and the margin was a lot healthier, 28.6%. We presented growth of 15%.
Going back to the previous one, you can see the growth. 19% for the computer devices. You see 15% in home electrics driven by screens, improvement in margin. It is good news. The demand for screens is very strong. The demand for audio is also strong. These are the two main drivers of this category. At kids and sports, the gross margin is spectacular, 37%. There is just a detail. On the other lines, since it is technology, there is a tax credit factor that is not included in the gross margin, so you would have to add. It is not fair to compare 37%, for example, with this 12%, because this 12%, they are still going to get pretty much 9% of tax credits that are added to the net margin, but they are not included in the gross margin.
The 12% is actually 21%, while in these families here at kids sports, it is all imported products. There is no tax credit, so it is 37%. Just to make the comparison fair. Still, it is working very well. You can see the stable gross margin, strong growth as well. Compared to the first quarter, it is a little unfair because that was the turn of the SAP system. We put in the SAP system. You have to invoice an order of BRL 5 million in routers, or are you going to invoice a lot of small orders of toys? That was less favorable during the migration. That is why this big growth. If you think about the fourth quarter compared to the first quarter, this drop of 19% is quite normal. These families are driven by the fourth quarter with Christmas, Black Friday, and so on.
It seems to be doing quite well on this side. Some highlights here by family so that we can get towards the end of the call and open for questions. The OPPO partnership, we announced it last week. We will talk about this in more details. There are some slides about it because it is important. The PCs line was completely renewed. We are going back to retail with PCs now. The previous line was pre-pandemic or during the pandemic, so it was two or three years outdated. A new line with a margin. Tablets with a completely renewed line with a margin. The part of office, we are upgrading the technology here from Wi-Fi 5 to Wi-Fi 6. The next upgrade for Wi-Fi 7 is expected for two years from now, according to the most recent market data.
We are going to surf a wave of the AX line, and then we are going to get a new technology that drives the market. It is good and bad. It is bad because you have to mark down the prices of the previous line, but it is good because it drives a lot of demand to renew parks. It is important because we get this pushback from analysts.
But why are you so optimistic with the provider line if the market is already saturated? So many providers, it is already covered, it is in the limit. The answer is that although the customer base is not growing as much, there are technology upgrades that drives a lot of the demand. For security, as I mentioned, it is an offender. All of the products manufactured in Manaus, it is an extensive line with a lot of subdivisions. We cut 70% of the line focused in three categories.
That's the core: camera, DVR, and batteries, and everything's imported. That simplifies the operation. The new lines are coming with a very healthy margin. Margin of -15% turned into +18% in this part of business, the new part that's coming in. The world of -15% is dying and the world of +18% is growing. Accessories is very good. Gamer as well, same story. There's a pre-pandemic line that's outdated with a margin of -25%, and we have a new line coming in already selling with a margin of +20%. This agenda of removing items from pre-pandemic times and enter with a new line takes a while to change. They're long cycles, but they start to contribute to this improvement in gross margin. Screens and video. What's new here is that we're already manufacturing the Hisense brand. It's a similar partnership as to OPPO.
It's already billing. OPPO as well is already on sale and on billboards in Rio de Janeiro. Maybe people from Rio de Janeiro have seen OPPO billboards in Rio de Janeiro. We started there and we're moving to São Paulo soon. Hisense as well, positive at the point of sale. TV is manufactured by Multi, and soon we're going to have a slide to explain this partnership exactly. The audio line is doing great. We have a new line, Wesley Safadão, exclusive, WS, signed by this influencer with a lot of demand. We're being able to do a good job in pre-launching the products on the website. We had a speaker, for example, that's been shipped. We had the pre-sales, and we sold. We had those giant actions on our website, and in 24 hours, we sold BRL 3 million. It's a good template for new launches. Portable appliances.
We are preparing things for Brazilian's Lovers' Day in June. Baby, we also have a new campaign, Safer Child. We have a strong influencer called Viih Tube. In wellness, we're closing a partnership with ZU for import and sale of products. That's a company that Multi invests on. It's an important point. I don't know if all investors look down to this in detail, but as a technology company, a PPB, we have to invest in research and development. It can be through internal projects or institutes and startup companies. We have an investment fund, and we are quite relevant shareholders. I'm talking about 30%-49% of ownership of different companies. Three, our main highlights, Luby, a company that makes BRL 600 million with an EBITDA of 20%. ZU itself, for the rental of gym equipment, is growing quite a lot and w atch, for television.
That also has revenue of half of what Luby makes. They're not relevant, huge companies, but it's not a minor detail. A company that makes BRL 600 million per year with an EBITDA of 12%, and we own 49% of that company. The other is between 30% and 49%, and other smaller companies as well that we have in our portfolio. All of that is money that has to be used to learn for research and development, so it turns into something productive. It's an upside to be considered. ZU is one of the three that I mentioned. ZU buys equipment. They import gym equipment and rent them. Treadmills and stationary bikes through a subscription program. It's growing quite a lot.
It's present at shopping malls, expanding to Brazil, and Multi now is going to run the import operation and supply of these equipment to them. In mobility, we're launching the Moto Trail, a motorcycle for trails, and we're increasing projects for corporate fleets. There's a lot of demand there as well for companies who buy these motorcycles for the company to use with that ESG appeal and a quick payback because the motorcycle takes a lot of fuel. Just to explain a little bit about OPPO. If you don't know, OPPO is currently the fourth-largest manufacturer of smartphones on the planet. It's a global giant. They sponsor the Champions League and other sports events and fashion events, Roland-Garros for tennis. It's a big player in the world with more than 103 million devices sold.
To give you an idea, Multi, if I'm not mistaken, the historical record of smartphone sales was close to 800,000 devices. The highest number we ever got to was less than 1/3 of OPPO's volume. They work with premium products. After Apple, Samsung, and Xiaomi, there's OPPO. Not to mention that this year Samsung exceeded, overcame Apple, but I have the reference here of last year. It doesn't affect OPPO's case. With 13% of share. It's an enormous group of many brands. As other Chinese brands, they wanted to come to Brazil and chose to come via a partner. Because of Brazil's complexities of local manufacturing, the tax details, distribution. Now we closed an exclusive partnership to bring OPPO's global portfolio to Brazil, basically divided into three main groups. Line A. There's no entry-level OPPO, okay? There's no basic cell phone by OPPO.
Line A is already mid- to high-end for Brazil. Reno would be high-end, Find as the flagship. It's their top products that will compete with the most recent iPhones and some Samsung's more sophisticated lines. There's also a tablet line and the smartwatch. This portfolio is what Multi is going to manufacture. To explain a little bit what the tasks are for each side, comparing a little bit with the Nokia-Toshiba model. In the case of Nokia and Toshiba, Multi owns and represent the brand in Brazil. Owner, not in the literal sense. We don't own the brand, but we represent 360 degrees of them in all aspects.
We're going to produce, we're going to distribute, work on the commercial strategy, sell to whoever we want at the price we want, do all the trade marketing, promoters, all the dissemination or asking for a budget to disseminate, defining the price of sale. The responsibility of the business falls completely into Multi in the case of Nokia and Toshiba with TVs. The result, we had a good period in the beginning with a margin and so on, but then we had a serious issue. Because we're carrying this commercial risk of bringing a product, and then this product doesn't fit. Then another multinational company will bring their prices down, and we have to keep up, and then there's no margin, and we already bought. In OPPO's case, in Hisense, we do not have this commercial risk. No onus and no bonus.
Multi is an operator, like a business operator. We produce and distribute. The trade marketing, prices, the ones responsible for the business are OPPO itself. They will define who they are going to sell it to, for what price, what budget, how to do the sell-out. Multi runs the business.
That is why we have a fixed fee, a small percentage. That is a guaranteed percentage that is lower than what we could make with Nokia business that goes well, but it avoids the risk of disaster that we faced in smartphones. We are a lot more conservative and cautious now. It would not be the time to have this huge appetite to embark huge volumes of smartphones to go out and sell on the market, then maybe a product does not fit properly and we have to sell at a loss again. We do not want to repeat that story.
For me, at this time, it seems that it is ideal. OPPO is coming in aggressively in Brazil, investing in the factory, process improvements, very demanding. We are hiring a lot of people to improve production as well, to be at a world level of production, both for Hisense and OPPO, okay? For Hisense, there is the distribution here. We send it to the clients, but there is a triangulation of billing go through Hisense to Brazil. There is an exchange of invoices so that the invoicing falls into their dashboard. Not in the case of OPPO. It is going to be invoiced by Multi, but they control the commercial side. I think it is a partnership with potential. It is going to help us improve our plant for all products, to improve the overall quality standard.
It will add some revenue to our P&L at a small margin and low financial cost because we have a long term of payment, so it is not an operation that consumes a lot of cash, a lot of capital, and it adds to the business, diluting fixed costs and factory costs. It is not a game changer in terms of margin. I would not expect this [Non-English content] Multi, new Multi, to change everything, but it will contribute to this journey of the company becoming as profitable as possible. Finally, we announced a share buyback plan for small amounts of share buyback that we are going to do little by little, putting the confidence that we have in the company's results and also giving an answer to the shareholders who question this issue of liquidity.
We believe that up to 15 million, 16 million shares will be 2% of the company's capital at most, and we have the opening to start doing this. We want to do that in the coming days, slowly. This was already announced. These are the main points of the quarter. We are going into our traditional questions.
I am going to ask people to put it on the Q&A. It has been working well. I read the questions and already start answering. If anyone wants to ask the question live, you can simply write it down on the Q&A. We have four questions now. Can they read the questions as well? Or do we read it? Okay, we read it. There are five questions. Let us take them in order. From Eduardo, UBS, could you comment more on the performance of the phone family and what to expect of the new partnership?
The financial impact of exchange rates and the impact of the rains in Rio Grande do Sul. For phones, we have about BRL 70 million at cost. Managerial cost, it has been written off. There should be around BRL 35 million. I am going to make an educated guess, but I think there is still BRL 35 million-BRL 40 million of accounting cost that should be. Then there are direct-to-consumer sales. It is a very simple product. To give you an idea, the average price of smartphones in Brazil is BRL 1,500 . That is the average price of normal smartphones on retail, BRL 1,500. Our products are being sold from BRL 299, BRL 199. We are selling BRL 200 cell phones. A very simple, basic specifications, and so on. There is nothing like our smartphones in terms of price. We sell them little by little.
It is a basic 3G cell phone that they can use at home for payments, or can take it to concerts, for example, if they do not want to be robbed of their expensive phone. That is the type of product that we have left. We are not going to do any major clearances. We are going to sell them slowly with a managerial margin of -20%, -30%, and a very tiny accounting margin. That is our view for now, and we do not expect to have new smartphones. We are studying maybe a model for direct online sales. The new partnership I mentioned, it is on the slide what to expect of this partnership. Financial impacts of exchange variation. Historically, we are not very affected by exchange rates. If they go up, the trend is for prices in Brazil to reorganize. This chain helps reorganize this.
Initially, we feel a hit in our balance sheet and the P&L because of the exchange variation, but there is a lot of inventory paid for that values, and we end up improving gross margin of the products that have been paid for in inventory. If we look at 15 years of Multi, there is no big effect of exchange rates. When it values, appreciates too much, we do well. If it remains stable, we do well. Rio Grande do Sul, it is a great tragedy. Of course, now we have a policy to make re-agreements with the customers.
I do not have the numbers here, but an educated guess is 4%- 5%, 4.5% of our sales. The plan now is to break down the amounts in installments, help our customers as much as possible, and expect that there will be federal support and a public agency to help them to rebuild the state.
It is not a very severe impact for the company because of their low share. We are also engaged in humanitarian aid. We sent a lot of products with Multi trucks being sent with healthcare products, toys, and we are also collecting food, water to send there. Our employees are engaged as well. We are helping as much as we can. From Mateus' first question, we see an improvement in the earnings this quarter compared to the first quarter. But compared to the second quarter, I think there is a worsening not driven by the inventory.
What could explain this loss? The second quarter of 2023. The second quarter of 2023 was a very happy point in a very bad history. We had a lot of government. I do not know why. So the revenue was high. There was a lot of inventory cutoff that dropped in the second quarter of 2023. So I have no doubt the operation today is a lot healthier than it was in the second quarter of 2023. I do not have the numbers here to compare one by one, but it was the height of the disaster with the SAP and some big government deliveries. Something from the first quarter fell into the second quarter that helped margin. Second question, in the current level of inventory and debt, is there still room to reduce them both? Inventory, there is very little room.
The biggest complaint from sellers, retailers today is that sometimes they are lacking some products. Our inventory is too tight. We receive it and it is shipped. Everything that is curve A already comes in sold. I think it is a healthy situation. Maybe we are a little spoiled historically. I want to have everything available on the shelf, asking for the order to be placed, because if the customer places an order, we need to have everything there waiting for them, waiting for the seller to place an order so that we can fulfill it. Now it is a healthier, normal situation of a company that is turning inventory. It will come in 20 days or 30. In the case of debt, there is a lot of room to reduce because we have a net cash position, and as the maturities come, we are paying the debt.
So we have BRL 300 million to pay this year, if I am not mistaken, on that chart that we showed. Third question from Mateus. We see constant increase of contingent liability that generates the big risk of a negative surprise about it. I did not see it, what these contingent liabilities would be. Belelas, can you talk about this?
Yes, sure. The contingent liabilities are the processes that we carry out with the government. According to our legal advisors, these are cases of possible loss, and Multi relies on that because when we identify a probable loss and we divide it in installments and calculate the depreciation. In this quarter, basically, it is the update. But answering honestly, as always, is there a risk of negative surprise? Yes. This is Brazil. Brazil has an environment that you know well. Surprises are always there.
Every now and then, something comes up, especially in manufacturing, imports. There is a lot of taxes, a lot of complexity. So it is a business that has risks. Of course, not intentional. We are always fighting to run the operation as best as possible. But considering we are in Brazil and not in Singapore, every now and then, there will be disputes, contingencies, lawsuits to our favor, against us, credits and debts. It is part of the tax insane asylum that this country is. We are a triple A company, positioned and exposed to all types of complexity. So every problem that you can imagine is in Multi's ecosystem, not because of how we evaluate it, but just the type of business we run. It is a constant topic of liabilities and a lot of recovery in this topic.
Why was there such a significant drop in government sales? Do you intend to increase sales?
The main thing is that there was a stoppage in the pipeline in the education, but there's other big deals as well. We have a total mapped pipeline at this time of BRL 6 billion. If everything that is documented and in process to come out and what the government wants to buy, and it's going to be a political decision if they're going to buy or not, but the pipeline is of a total of BRL 6 billion. It's not possible for me to give you an idea of how much we're going to capture in the long term. But as a reference, in the best days, for example, 2021, we made BRL 1 billion. 2022, we made BRL 1 billion. These years where we had BRL 1 billion, the pipeline was also BRL 6 billion.
If we asked this question in 2021, I was going to say in the future, there's BRL 6 billion in the pipeline. How much we're going to capture? I don't know, but we captured BRL 1 billion. Today, there's still BRL 6 billion. How much we're going to capture? I don't know. I cannot tell you it's going to be a billion, but just as a reference. There is a strong government pipeline. What's news is that it used to be simply education, 100% tablets and PCs, but now they also have it for TVs, some healthcare products, a little less. There's drones. It's a little bit broader. The fifth question here. Regulation of the tax reform as presented by the government, could it harm the company's results in the long term? I don't think so.
I believe that the tax reform is good for Brazil, for the companies, and good for us. It doesn't improve or worsen our competitiveness. We don't know what's going to come up, and that may appear in this regulation. But the way it is, if we look at the PPB products, will have to be manufactured all in Manaus. We have a plant in Manaus, so it's not an issue. The others, you're only going to pay for the taxes, CBS, debits, credits. It's going to be simpler. I don't see any harm. Who would be hindered, in theory, are manufacturers that are in the ICMS 7 regions. In theory, they would lose competitiveness because today, if they're in Bahia or Ceará, they sell at 12% for the region, North, Northeast, and Midwest. But I'm in Minas and I sell at an ICMS of 7.
These manufacturers today have a 5% ICMS advantage compared to Multi in those regions. With the tax reform, all taxes are equalized. My competitor that may be in that region loses that advantage. But I don't see any harm to Multi specifically. From Thiago here. Good morning. Congratulations on the earnings. Thank you. Two questions. Do you want to ask live or Oh, he sent it here. Let me find. Where's Thiago's question now? Oh, here. Found it. It was at the bottom. One, are there inventories connected to government-delayed budgets? Is it relevant? Yes. We have about BRL 150 million in inventory waiting for the government's orders. We consider it reasonably, it's in-house. It's not a concern. There's no cost depreciation at this time. They're orders that we already won and are not being shipped yet. Once it's shipped, we'll be able to bill a lot.
Can you give us more detail about the investments, Watts and ZU, and the strategy connected to the business? Who is responsible for the investments? That is a great question. I do not want to go on for too long because each one of them would deserve their own call to explain the case. Basically, the first concept is that it is a sunk cost. It is one thing to take the cash from the company and invest, but when it is a fund, that is a sunk cost. That is loss.
You can pay it to a federal university to run your project, or you can invest in a startup company. This is done in partnership with a fund called Beta Capital, specialist in investments related to PPB. This goes to a committee formed by me, Eder, and some other people from our company. I look at these investments personally.
I am at the board of the three companies, so every month I am at the board meetings at Watts, ZU, Luby. Each one is a different case. The most mature today is Luby, expected to make BRL 60 million, 20% of EBITDA, very mature, and there is a horizon of five, six years of investments to come out.
Watts is a company that is growing fast. It is coming now. Basically, they sell TV service to providers. Providers pay, watch BRL 2 or BRL 3 , and the provider will offer to people at their homes a TV package with an upselling of HBO and Open TV, Globo, whatever. It is also growing a lot. Their base, I think it is close to 2 million subscribers. So these are companies that have a lot to show. ZU is still underwater, so to speak, in the P&L now, but they are growing their revenue. It is a smaller company.
I think it is promising. It is run by Marcio Kumruian, who is the businessman who put Netshoes together, sold it to Magalu. He is very good, very serious. I think we have good things in our portfolio. For us, if we get back the CDI, it is great. If you transform a sunk cost into CDI investment, it is great. So basically, this is the big picture. From Mateus. Let me see if I skipped anyone. I am sorry, I skipped Marcelo. Good morning. How is the implementation of the new commercial policy? Can we expect better gross margins in the second quarter? That is a great question, Marcelo. For now, I am very happy with the commercial policy. The customers like it, the sellers like it. We are meeting the managerial targets. I did not expect it, okay? That was a pleasant surprise.
We implemented the policy on March 1st of this year, and I was certain that we would be below in sales. Can you imagine raising the price for a lot of small sellers? I thought they would not buy. But we went there, and at the end of the month, we had met the target. We met the target in March, met the target in April as well, the managerial target. It is a moderate target, okay? Based on a small inventory. It is not a huge target, but it was met. I would like to seek 1%-2% of gross margins only due to that.
If the commercial policy goes well, basically, you take the points of sale, increase it a little bit, raise the price for the sellers so that they can get to the point of sale without discounting prices, increase our price in the e-commerce to align the price in the market. We have good partners. We give them the margin they need. The margin becomes healthier. If all goes well, I think 1% or 2% in our gross margin can be the contribution. But it's too soon, and the second half of the year will tell you what happened. If we're able to deliver an additional 2% to gross margin, I can tell you that it will be a lot due to the commercial policy. There's a time for it to work as well because we always have older inventory.
Every month, we clear the older products, and it tends to improve over time. So it's a medicine that works over time. I got a little lost. Just a second. Agusti, if you can talk about the new commercial policy, I've answered. The fact that it was established in this last quarter, did it have any impact on sales expenses? No. I don't see an impact in sales expenses. What we can expect for the future was answered on Marcelo's question. From Vittorio at Apex, In the past few weeks with the event in Rio Grande do Sul, do you expect any drop on sales? No. Outside of Rio Grande do Sul, the others aren't affected. From Eduardo at UBS, I know you've talked about the OPPO partnership. Can you make it clearer in terms of the inventory risk? Which company would hold it?
It's on Multi's, on OPPO's balance sheet. So that's the question. In our agreement, the inventory risk, although our potential margin is fixed, locked, and low. It's low single digits for the net margin of this business at the end of the P&L. We do not have the inventory risk. So you shouldn't expect OPPO to cause another heart attack in inventory as we had with Nokia, because OPPO decides how many pieces they want to bring to Brazil. It's their decision 100%. At what price they'll put the transfer price, what will be the price of sale, how much they'll give to retailers' budget. If they want to bring the product for BRL 500 and sell for BRL 1 in Brazil, it's their decision. We have a locked margin in this deal.
From Hugo, In your internal view, when would Multi start to operate with gross margins and EBITDA at healthy levels? What will these levels be? This is the billion-dollar question. A healthy EBITDA, in my opinion, is an EBITDA of at least 13%. Looking at the company's history, we've been between 13%, 15% for 15 years in a row. So there's no structural reason in the market that shouldn't allow us to go back to those levels. It's a long journey. We were at -30%, now we're at -3%, and I want to see if we can get into positive numbers in the second quarter. I don't know when. I can't make you any promises. Gross margin that was negative went to 23%, 24%, 22.6%. So this long journey to get to 30%.
With a gross margin of 30%, making slightly more than what we make now in revenue, what is the agenda? To take those 23% and climb slowly to the level of 30%. Take the revenue today and increase it another 20%, 30%, so we can get to a good critical mass with a massive gross margin. The company's fixed cost with a strong reduction agenda, squeezing SG&A. We have Gradus Consultoria. We have savings planned and mapped out. We will be able to get to those 13%. That is the plan.
From João about the commercial policy. I think we talked about it. Mateus at Ártica as well. Good morning. Congratulations on the results. Thank you. Partnership with OPPO. I could not disclose the fee here, Mateus. There are contractual details, but it is low single digits, the net fee. Net of all expenses. What is the expectation of revenue in this partnership?
I have to look into it to see whether or not we can disclose this information. I cannot just mention it now. That would be reckless. But I think it is a revenue that at this time is not a game changer. We have the billion-dollar duo, providers and TV. Providers and TVs are the billion-dollar duo, and the maybe billion is government. Government could be BRL 1 billion, but it depends on them buying more or buying less. So it is three billion-dollar deals or businesses in Multi, and then we have the BRL 200 million and then the BRL 100 million. So Series A, B, and C. Yeah, between B and C. It is not a game changer at this time. It may become at some point, but that is what we have at the table now.
Finally, from Mateus, what is the relevance in terms of sales of the main ISPs in the network family? Could you talk about the share of sales of the three top customers? I would not know this by heart. We have a team of operators, that is the smallest part, and then one team for the main providers, and then we have another tier. Tier A is top operators, Tier A providers, and Tier B and Tier C. The distribution, the breakdown is similar, but I do not have the percentage here.
Finally, from Vinicius, h ow are you thinking about the nationwide retail channel, the change of the commercial policy, and the idea to work with a reduced inventory? National retail, it brings visibility, volume. It can bring a small margin if there are no mistakes, but we need to work with a lot of planning, choosing the products that we will sell there.
Typically, it is a retail that really squeezes our margins, and they have a long-term payments, 120 days. We have low prices that we have to sell at, and there are budgets of up to 10%. We are able to work in a much healthier way, win-win partnerships with regional sellers. So we have a strong agenda now. We have a campaign for travels and rewards, resuming our business with the regional partners, and I think it is a historically important pillar with the company. National has been buying as well, and we had good news recently with the negotiation of a major player. But we are doing well with the national sellers. But for the P&L, we need to have balance. We cannot let that partnership to grow too much. You saw that our share is moderate in the national retail. Very good. We are exactly on time.
We started at 9:00 sharp, and we are finishing at 10:00 sharp. All questions answered, as always. It is not the company who bring you the best results, but it is the most Britishly on time. We hope that on coming calls, we can continue showing this evolution. I thank you all for your attention. See you next time. Thank you.