Good morning. Welcome to the call on the earnings of the fourth quarter of 2023 and the year 2023. I am Flavio, IR Director. I am here with Ale, our CEO, and Eder, our CFO. Before turning the floor to Ale to discuss the earnings, we have some disclaimer notices. On the end of the presentation, you can read it there, and to ask questions in the Q&A session at the end of the presentation, and at any point of the presentation, you can click on the Q&A icon. Thank you, and I turn the floor to Ale.
Good morning, everyone. Let's get the slide projected. Welcome to our call. We will discuss the earnings of the fourth quarter of last year. We will have the Q&A at the end, so you can already read the questions, and we will have a dynamic format.
The first thing, let's talk about the elephant in the room, the revenue that did not meet our expectations in the fourth quarter, and of course, the accounting loss that is very concerning, as everybody saw, and needs to be addressed. But of course, also talking about the good part, that's the unforeseen cash generation of our company. So it's a company that is generating operating cash as never before, but very squeezed and quite disappointing in the top line and, of course, in the results. Net revenue came on the fourth quarter when usually sales warm up. We had a drop of 5%, still a remainder of the ERP migration. The market was struggling to replacement, very retracted. We see the number of retails, how it's struggling. So very little investment or belief in sales in the fourth quarter.
Sales in the fourth quarter was a lot lower, closing the net revenue in the year at BRL 3.5 billion. In term of earnings, we see the growth margin at negative levels. It's very atypical, pulled by some families, and we will discuss more about this, but it's driven by very specific villains here. Negative gross margin, not to mention net margin. We had BRL 181 million in inventory adjustments of write-offs of inventory in the fourth quarter, and that also hindered our results, leading to very disappointing is not the word in terms of the EBITDA. BRL 284 million negative EBITDA pulled by those write-offs, especially in mobile devices, the factor that we've been talking about every quarter. We will soon see a longer history breakdown, what the problem is, what are the actions, and why we have believable reasons to be optimistic for the future.
And of course, cash generation, it's the main positive point here. We generated more, BRL 67 million of free cash in the fourth quarter, almost BRL 800 million of cash generation. We started the year with BRL 600 million net debt and closed the year with BRL 800 million net cash, free cash. So if I had to choose one thing, you want a company with wonderful profits but with terrible cash, or do you want a company generating cash?
And when in doubt, cash is always better. Nobody would prefer accounting rather than cash position. But things need to converge. We cannot operate like this forever. But I am happy that at least the main focus of the year, that was to turn end of year free cash positive, with cash generation. This was done. And in the first quarter, we are still generating cash, so this phenomenon is not done.
Inventory clearance continues, BRL 508 million of inventory reduction. That is an unforeseen level of decrease at BRL 1.4 billion in the year. We started the year with an inventory marked at market prices very low, at the historical lowest level, there is no reduction to do further. A brief slide showing a little bit of the history. You will see the Grupo Multi in normal conditions over more than 15 years, generating EBITDA at 13%-15%. That was always our normal level of EBITDA. I am convinced, based on the assumptions and facts, that this remains Multi's normal EBITDA level. Each investor needs to do their own analysis. How many quarters do we have to be patient for? We were waiting for this convergence. We wanted to see in the third quarter. It did not come. Fourth quarter was worse.
If I was on the investor's place, I would sit down and think, well, how long are we going to see these squeezed results? Fourth quarter of 2022 was a loss. First quarter, we had the SAP change, so we understand, catastrophic, whatever, but second quarter was already blue. Third and fourth quarter, very disappointing. We get to a point when we look at the accounting figures and get disappointed. But the history is of a healthy company. The assumptions are there. We can still launch products with great quality, with great price, buy fast, sell fast, generate gross margin, except for some specific categories that we are removing, discontinuing. I will show you the actual gross margin and what the gross margin would be in the same conditions with the same prices if we removed the families that will be discontinued. We had that healthy phase.
The pandemic, of course, sent all the numbers up. As with many other companies, we went to 19%, 17% EBITDA margin. That was the boom of the pandemic, with a lot of expensive inventory purchased, overstocking with expensive shipping and freight. Dollar went up and so on. In 2021, we choked up. Multilaser was filled to the brim, like we ate too much, had indigestion. In 2022, revenue went down a little bit. The margin was squeezed. In 2023, not only choked up, but also having a heart attack due to the change of ERP. The athlete that was choking up had a heart attack, and the numbers are horrible.
Then you ask, what's ahead? Is it going to continue to drop or will it stabilize and recover? I believe that with all the measures that have already been implemented and the evidence, the scenario looking forward is towards normalization. It is not going to be a miracle, but it is not going to be the horror we saw last year. Everybody has to analyze it. We have professional investors on the call. You have experience. You can do your analysis and see what you believe.
Within possible, considering the scenario, I am confident that we are recovering, we are improving numbers, and with cash, always very important to have net cash. Here to talk a little bit about inventory, you will see that the blue at the bottom is the in-house inventory. That is bad, so to say, because you paid China, you paid customs, you paid the government, and you have it stopped, and you are paying for storage.
Until mid last year, by October or something of last year, we had three inventory centers outside of Manaus. Manaus is small, 7,000 sq m . We had three distribution centers, the main one in Extrema of 28,000 sq m and another 20,000 sq m in São Paulo. That is 90,000 pallets of goods. We are talking about the third quarter of 2022, fourth of first and second quarters of 2023, and until it starts to drop. You will see that from the third quarter, the blue part of the chart starts to drop. At the end of the year, we were able to return the São Paulo DC with its expenses and the freight costs. I am very pleased to say that last month we zeroed and returned the second DC in Minas with 28,000 sq m and BRL 1 million of monthly fixed costs, not to mention freight.
All of the inventory, all our logistics centers is in one location only, which significantly reduces our logistics costs, and this will be captured in 2024. Less in-house inventory, less obsolescence. In transit, that is purple, is the shipped inventory. That timeline of the time bomb that you have to pay China, and we have to pay customs very soon. It is good inventory, but not as good as gray. Gray is order placed, the future, the sales expectations. We did not involve capital or shipped. We have a greater share here of recent periods of good inventory, good, beautiful, affordable, and on the way, and the smallest share of in-house inventory. I do not believe it will go below that. This was a very specific pandemic period when we were selling a lot and the inventories were low. This is healthy inventory.
If we maintain it at these levels, that is healthy for Multi with a better gross margin. Talking about gross margin, going back, in 2022, that was already squeezed. We had a gross margin of 26%. Note that 26% is gross margin that leaves us in the blue with a small profit. Not enough, but at least there is no loss. We need to seek closer to 30% of gross margin. That would be the healthy historical margin, 30%+ . Sales dropped 20% this year. Gross margin went to 5.5% in the year, completely out of the curve. Here, this was the first quarter of loss when we started to really do the write-offs and clean out the inventory from the pandemic. It was 18% going to 7% on the last quarter, and now gross margin of -9.4%. That is a write-off of those families.
EBITDA, as you saw, -19% and -34% in the fourth quarter. Provisions, write-offs, and inventory clearance. It is going to be easier to see when we look at the breakdown by family. Here, G&A, I think is good news. During the year, we had a reduction of 16%. February, March last year, we had one reduction, so it was entirely captured during that year. Then in November, we had a second reduction that has not been captured at the end of the year. We have reduced the company's G&A by 16%. It should be more, yes, but historically, it has always been a streamlined company, a company that spent around 3%, 4% of revenue with G&A. With CR peers spending 6%, 7% in G&A, so that is already a streamlined company. But we still made efforts, captured 16% in the year.
And of course, all of that will have an effect in 2024. Everything that was captured in November, that monthly effort, will be captured in 2024. We also hired a specialized consultancy company, specialized in efficiency, called Gradus. Most of you know, we started the project last week. We are all involved with weekly projects. I am attending every week. Our goal is to seek another BRL 50 million in savings. That is our goal, challenge for the entire operation. So in addition to the savings of November that will be captured, we have the Gradus savings that will be captured throughout the year. Not everything in 2024, but we are going to seek another drop. The idea for 2024 is without losing revenue, improving margin, but seeking another drop on G&A at around the same level. That will be very helpful.
If you drop 16% of G&A, improving the other accounts, that goes straight to the bottom line. Income, the difference here is the financial side and FX with a bigger loss than the loss in EBITDA, because during the year we had net debt and now we are net cash, and that should change. We do not have an interest bill anymore. Cash investment generates positive interest, and we are paying off old debt. Here, basically we see EBITDA with the non-operational issues, amortization, income tax, that in this case we did not have because we have accounting loss. But the foreign exchange side is very heavy and financial expenses. Talking a little bit about cash. We turned the year with more than BRL 1 billion cash.
Net cash, BRL 235 million, so about BRL 800 million of debt. In that sense, we are very comfortable in terms of cash position.
We believe that we will be 100% in 2024, 100% of 2025, and then we also have sufficient cash to pay everything that will be due after 2025. So that makes us comfortable. We do not have any plans, unless things change in the scenario, of raising funds at all. We are just going to be paying off as the current loans are due. That is the cost for the year, of 13%. That has an impact on the bottom line. We also capture with a little premium of CDI. So if we have 2%, 3% of spread, as we pay the debts, the spread gets out of our P&L. This is the breakdown for cost. But of course, we are always open to seeking subsidized funding for a specific project, so we are studying the feasibility of that.
But the banking debt with CDI plus 2%, 3%, is not the plan for us to raise unless a specific project comes on that is below the CDI levels. Of course, there is a no-brainer. Then there is a lot of projects like that in Brazil. So the breakdown by channel, what we see is that government sales are still weak. You see government at its lowest share. As we know, government is very uncertain. There are waves that come and go. So talking to the government team, we are at a low period.
There is not a lot of business happening in build this quarter as well. Government is slow. But people are very excited because there is a lot of business coming up. So the perspectives are good according to the department and the project pipeline. We are diversifying our government business greatly. We are gaining or winning in healthcare, drones, a little bit of television.
What you tend to see for government, basically, a company that did not have government sales started to make BRL 1 billion from government per year. That really helped our earnings, but focused only on computers and tablets, only those two categories. The boom for government during the pandemic decreased. It became stable at a lower level, BRL 600 million. But we believe it will recover little by little and varying with other product families. Another interesting thing here is that we broke our record in D2C share, 10.6%. The trend is for this to continue to grow. At D2C today, I believe that is unique in the industry with very good KPIs. You buy it today, you receive it at your home the next day in the Greater São Paulo area. It is multi-zone operation. We have created a whole exclusive D2C product family.
I believe it will be a driver for growth and gross margin and better control of prices in the market. And the internet providers, ISP, we have a record share. We were a little bit skeptical. There were very rich people around in this case. But there is a lot of technology replacement going on, new business in our partnership with ZTE, so there is a big share here. Now by segment breakdown, you see the reduction of share in mobile devices. You see basically tablets, smartphones, PCs going down, driven by smaller government sales, smartphones being cleared. All of that we will show here, and the greater share of kids and sports, that pretty much doubled compared to 2022.
This is good news thinking of the medium and long term because the gross margin of the company, they are all imported product, relatively simple to operate in terms of factory. We do not manufacture them, but we have good distribution, good brands, and we are able to turn a good profit on them. And the others remain pretty much stable. Now let us have a look at mobile devices. That is the focal point. A gross margin that came from 32% turns into a gross margin of -46.7%. What is Multi's problem? This is. How are we going to solve it? Removing the lines, clearing inventory, and not continuing, discontinuing it. We had a simulation. If we did not have the smartphone line, for example, we would be getting a gross margin of 2%.
2% is still bad, yes, but 2% because when we say smartphone was choked, it was the worst choking, but it is not limited to smartphones. The other families also choked up. Smartphones, tablets, and PCs. Smartphones is the product with the highest obsolescence. We got stuck with it from the pandemic, and we had to sell it with lower margins. But tablets, we were also overstocked. The material also got obsolete, and the same thing for PCs.
But the difference is that we are not going to replace Multi smartphones or Nokia smartphones. But we will replace tablets and PCs. We are bringing cheaper products with better specifications that generate gross margin. If we look back and we only had Multi with tablets and PCs only, it would have been a margin of 1.7% here. And these two categories, looking forward, we believe at higher margins, higher than 20%.
That is what is already been done with the lines that are coming in. PCs, we cleared all of the old inventory. We have a completely new line with a gross margin. Tablets as well, we cleared the old line, [inaudible] 32 GB, and we launched a new line with 64 GB and better cost and so on.
We believe this will also correct this family. Look at it. It is impressive. A line with -118% margin. This is the pain. Why did it drop so much in the fourth quarter? Because we were doing it little by little every quarter, taking the loss, adjusting it, and then we got to a point where we said, let's write it all off. Otherwise, we will be bleeding all quarters. So let us recognize the reality of this line. It will have to be cleared entirely. We took this punch.
It seems to have been the right punch to take because at least we see the actual numbers. Whatever we have in smartphone sales from now on, we will enter with approximately zero of gross margin, okay? That is the balance that we still have to liquidate.
I am not saying we did not have cost at zero, it would have been comfortable, but we marked everything at market prices to get a margin of zero from now on. It is not that cost is zero, but that margin expected for these lines is zero. I do not know if it is clear, but if you have any questions, I can go back to this and detail it. Office and IT supplies, basically, the margin improved a little bit during the year. In the quarter, there was already a lot of sales as well, clearance. What we simulated here, we had 9%.
The year is good, okay, at 19%, but the quarter is at 9%. Why? We also had some clearance in this area. We liquidated two product families. Security, the entire family of access controls, alarms, lines that we were not being able to move in the market, we wrote it all off, liquidated, so that offended the numbers. The second line is the gamer family. All of the gamer gaming accessories that were purchased in 2020 that was very outdated with very high costs, bought during the pandemic, gamer webcam, gaming mouse, a lot of gaming headphones. They were not really meeting the taste of consumers four years later. So we also brought the prices down. But security will be removed from the portfolio. The gaming side, we are launching. We have launched a new gaming line with a much lower cost and modern design.
It is to resume gross margins of 35%. That is what we have always delivered for gaming items. There is no structural problem in gaming. There is a specific product line from 2020 that was bought at a specific time at a high cost, and now this will be normalized. I do not see Grupo Multi leaving this line of accessories. That is our DNA. Without these two lines, the gross margin would have been 20%. Home electric products, pretty much stable margin with a slight difference compared to the previous year, a little bit below.
We had some lines being removed from this part, basically automotive. Screens continue, they are doing well. Speakers are doing well. Home appliances, there is a point of doubt here that I will mention. Healthcare is fine. So what is happening is that we are killing off automotive, clearing everything, so that offends the numbers and home appliances.
We had products with plastic parts that were bought on the market, for example, blenders, fans. We used to buy the injected pieces, the injected parts with a higher cost that offended margin. These products have been outsold, and we have products manufactured 100% in-house, so the margin tends to recover. The 19%, consider the lines that are being removed, would have been 26.6%. It is no consolation because the executed is what matters, but it gives you a little bit of color, what Multi would be in normal conditions. Finally, the fourth family we will talk about, kids and sports. Very healthy growth margin. You see 37%. Very good products, very good margin. It improved the margin in the year. The share of this line was record from 10% to 18% of the total. So you see a company that overall is getting healthier.
That offender we talked about got worse in the quarter. We are recognizing a lot and putting a lot of things in our P&L, but the company is generating cash with a lot of good, healthy businesses. That is one of the reasons that get me grounded, but looking forward shows me we are in a good path. The fourth quarter was also good, maintaining margin here. We ran a simulation. If we removed some items from this portfolio, the margin would have been even better at 42%. Note that there are a lot of families.
Toys are doing great, very recognized in the market space. Sports and leisure, we are clearing all the lines, so it is going to be removed. 80% of the sports and leisure line, bicycle accessories, locks, and helmets for bicycles. These are all offenders. They are all stuck, and we are selling, clearing them with -30%, -40% of margin.
It is not as big in the total. It will be cleared. Baby, it is great. Pet, we have a painful margin, but it will remain. We are going to improve here with the factory costs. Wellness is great. The gaming part, this gaming, it is not right here, is it? This gamer is for office and IT supplies. No, it should not be here. It should be in accessories. So it is a typo. Gamer should not be here. Drones and cameras, excellent record sales with good margin. Electric mobility, here we have electric bicycles going very badly. We are going to clear them and remove the line. Scooters and other light vehicles going well. The electric motorcycles with excellent growth margins, but the production is still small. We are not diluting the factory costs properly.
The target for this year is to more than double it, and that will dilute factory costs and deliver better margin. From this entire family, sports and leisure will be removed. Everything else is healthy except for electric bicycles that we are removing. Let us see how we are doing in time. Okay. So we look at the breakdown by segment, how we are talking about the quarter. Just putting it into perspective, overall -9% . You see that mobile device is here at -118%. We have already talked about this. This is the share of each one of the segments. Recurring margin, if we had had a fourth quarter only with the lines that will remain, removing what is going to be discontinued, instead of -9% , we would see a margin of 23%. That would be a lot healthier. It is not what we want.
We want to get to 30%, but it would have been a lot better. Here is a big summary. ERP month by month is getting less bad. I would say that now things are running reasonably well. Now it's more a matter of capturing opportunities and automating other than blocked processes. We don't have an ERP, a serious structural ERP problem. We still have remainders, but we're recovering market and so on, feeling the willingness of customers, but it takes time. We lost space, and we need to renegotiate and reclaim our space. Purchasing diligence, a lot tighter. The inventory volumes are lower. Inventory reductions. Logistic optimizations that we talked about. We reduced a lot the DC park. That reduces costs. Renegotiating freight, highway delivery, and so on. Portfolio rationalization, removing a lot of lines.
I showed you some that were discontinued, and you can see our D2C going better. And the net cash part. Now most importantly, for 2024, what is the agenda? March 1st, we have our new commercial policy. As with all changes, in the beginning, there's a lot of doubt and customer testing the policy. Okay, so this year I won't buy, especially small customers. Our commercial policy basically considers to take all of our products, bringing them to a slightly higher market price to gain a little bit in pricing. Nothing major, because Multi is an entry-level brand. If you take an air fryer of BRL 350, maybe it could be BRL 369, so we'll gain BRL 19 . That's a lot of cash. So BRL 369, calculating the margin by client, how much I have to deliver to each client for them to do that purchasing price.
That's the agenda. The big clients continue to buy at a bigger discount. Smaller clients will pay a little bit more. And sellers for marketplaces that in the previous policy were based on volume. If you buy a lot, you get a discount. Now it's by executed margin. So sellers need to pay a little bit more for them to execute the price and not burn prices. The expected effect of this policy, I can't tell you if it's good or not. We need to wait two or three months to see. But initially, there's a depression in sales, especially for smaller customers. That's what we see in March. Big clients continue to buy, and the idea is the market will normalize. As the market inventory starts to go down, they will replenish their inventories at the new price already. So that would be the agenda.
And what we're seeking is profitability. If we do this policy well, it's 2% of bottom line that this policy can bring us. It's a truckload of cash. That's very important. We have to renew the inventory, good, beautiful, cheap, remove low-margin products, new partnerships being negotiated, such as Hisense. There's new things coming on. Increasing the scope of government sales that I talked about, selling more products and getting into bidding processes of things that weren't as obvious before. There's baby products, healthcare, mobility. There's a lot of great things here. Logistic savings, we'll capture them in 2024. Remember that in March, we exited the last warehouse that had a BRL 1 million per month cost, so we'll be realizing BRL 12 million per year plus the freight for that partnership that I mentioned with Gradus for cost and processes consulting.
Finally, I'll skip what I talked about during the presentation, but PCs and tablets. We renewed all products. There's no old line products anymore. Everything was renewed. Tablets that was two with 32 GB memory, we expanded for better screen with 464 and lower cost. So the squeezed gross margin is now a healthy gross margin. We turned profits in tablets for more than 15 years, or 13 years, actually. The fact that we had a choke up in 2023 doesn't mean that we're going to kill the line. I believe it's a line where we have a high share, good demand. The tablets for kids as well as a universe. PCs is the same. Telephony, we're ending the Multi line and the Nokia line, clearing them, studying new partnerships that may happen, but with a new model.
A model with a lot less commercial risk, so we don't have the risk of what happened in the past. Networks. A lot of investors had a pushback here, but we have the consolidation, the market's saturated, but there's a technology upgrade for whatever line, and we see a lot of demand for replacing routers, and that could drive good growth this year. In security, we'll stop manufacturing of the products. We removed more than half a portfolio. It's going to be a basic line. We're only going to have the good, affordable, beautiful camera line. I believe that margins will resume. Next quarter, I'll show you the network gross margin before and in the first quarter of how it's evolving. Peripherals, as I said, PC accessories, the gaming renewal, because the gaming line was obsolete. Screens, we have the Hisense partnership.
Basically, we already produce Multi screens that are doing well. We produce Toshiba screens, and now we're going to have exclusive production of the Hisense brand, second-largest brand in the world, very well-known around the world, and it's going to come to Brazil with a very good portfolio. So gaining scale. We have 50% of the Manaus production capacity, and we'll really want to grow in screens. In audio, we renew the Pulse part with Wesley Safadão, that's the brand ambassador. Home appliances, reducing manufacturing costs. Drones and cameras, we're doing well and getting record numbers every month in sales. Sports and leisure, discontinuing lines. Wellness for gyms. It's the best gross margin for the company, more than 50% at this time. Very interesting for us. Electric mobility, we're launching a consortium for Watts electric motorcycles.
The idea is to increase production in Manaus, which will dilute fixed costs, improving the margin and the bottom line for mobility. In baby, we also have a very strong influencer, Viih Tube is her name, doing an internet campaign. So these are the reasons here. On the letter, I gave you 10 reasons, and I summarized it a little bit more on the call. So although it was a disappointing quarter, you look at the results and I'm not happy with the bottom line results as well. But I'm happy with the cash position, and I believe the expectation of normalization has very believable, sound basis. With that said, let's move to the questions. I'm going to read here in order. If you have questions, I'll ask you to send them in writing. If you want to ask them live, you can write it down and I'll call you.
We have from Andre from UBS, first question, looking at the company's current revenue and the discontinued lines, which line should get the revenue to maintain current levels? We are projecting a flatter revenue level for this year. I would not expect major leaps in revenue. Basically what is growing is screens, the Hisense line, that is an aggregated revenue that will add to ours in terms of revenue. Drones also growing this year. We also have a number of families that are growing little by little compared to last year, such as retail tablets that tend to grow this year a little bit. We also have speakers with growth targets, home appliances as well. Everybody is contributing and adding a little bit so that we do not lose revenue. Our search this year is to not have a drop in revenue.
ISP, as I said, basically BRL 100 million of additional revenue that we have to work for and seek. So are the biggest ones that should grow to offset the removal of smartphones, sports, electric bicycles and so on. What are the options you are looking at for 2024 in relation to the cash generated in 2023? Okay, Andre, the agenda now is to have Grupo Multi on the blue. Until we start delivering net profit, bottom line, this cash is a safety cushion for the company. At this time, our agenda is to seek the blue. Once we can say, oh, now we have a better net income, we want to be very cash efficient, and we will study the share buyback and distribution of dividends. Because we have an accounting loss now, so we can pay out exempt payments. We can even have the IOE.
We can also have distribution with the reserve that we have. He reminded me, we have accumulated profit. We have the reserved cash. If we wanted to distribute this, we would had to offer or pay tax. But since we have an accumulated loss, we can offset it. So we can take money from the subvention reserves, offset the tax with the losses and distribute and make the payout exempt of tax. There is margin, there is room to maneuver. But let us go back to that result. You are going to say, is it going to come on the first quarter? No, unfortunately it will not. I do not expect anything as bad as you saw in the past, but it is no. Continuing. We will have cash generation, okay. I already told you, we are with a small cash generation in the first quarter.
Again, you are going to look and say, oh, it is still turning a loss, but we are still getting cash. It could be worse. Larissa wants to ask a question on the microphone, is that it, Larissa? You can go ahead, Larissa.
Hi, Ale. How are you? Good morning. On the release, you talked a little bit about this new round of key efficiency gains and the Gradus consulting you hired. Where do you see these opportunities in the company? Also about government orders, what would be the timeline, if you can give us a little bit of a color on the resumption of those orders for government?
Where do we still have cash on the table? Considerable cash, major accounts. Freight overall, optimizing freight and shipment, cargo. We have a software that will be implemented now to go live in May, that is for optimization and routing of freight.
Unfortunately, today, if you send me an order from Paraíba to a certain customer, three, four days go by and you send another order, I will have to ship twice to Paraíba. We do not have the intelligence to combine orders and send one truck. That is vanilla. Everybody does it, but it is not state-of-the-art.
We are going to implement a routing software that we have already hired, and it is being implemented. What it does is combining all of the cargoes for one specific region to close a truck, and then we send a truck to Paraíba to deliver for three or four clients. There is a lot of cash on the table there because we are talking about freight that could cost 7%-8% of the invoice. If it goes from 7%-8% to 4%, you made 4% bottom line. That is one point. Other logistics optimizations that are important.
IT is always high cost to review customers, costs. It is an area that always had cost inflation as well. So freight and inbound logistics, industrial costs, how are we tapping into the best synergy? Loss management as well. Inventory breaks and loss of components.
Money on S&OP that are not captured. Expenses with travel, for example, tighter policies. It seems that it is little by little, but it is a lot of money, you know, that travel, that advance. Planning in advance is fundamental for you to save. Here we spend about BRL 200,000 in travels per month, BRL 200,000 per month. More? More than BRL 200,000. Do you know, guys? BRL 300,000- BRL 400,000, I apologize. So total travel expenses. There are a lot of departments, but commercial trips, we have technical service, for example, trips. So if we can plan in advance for the purchase, the travel expense goes down greatly.
I was quoting from São Paulo to Brasília the other day, and this is very fresh. If I buy a flight for today, it is BRL 1,400. If I buy for next week, it is BRL 800. If I buy for two weeks from now, it is BRL 400. If I buy for a month from now, it is BRL 200. I am not kidding.
From BRL 1,400, it drops to BRL 200 on a flight ticket to Brasília. So all of these policies, little by little, we can add a lot. There are a lot of accounts there that we are going to look at. Marketing expenses, marketplace expenses and commissions, it is millions. From Marcelo Bandeira, what is the range of fit that is ideal for the size of the company, net revenue for historical levels of profitability about cash?" If there is how it is going to be used, we already addressed that. Does it make sense to pay off debt?
Paying off debt in advance would have a cost. There would be a penalty to pay it off ahead of time. So our agenda is to carry them and pay them off when they are due in their maturity date. The level of expense that we are projecting for 2024, we were there at 3.7% of G&A. If we bring it down 15% with revenue improving, it goes to 3% of G&A, and it becomes very efficient. I do not know a lot of companies in this area who have a G&A lower than 3%. Multi got to the top at 2.5% of G&A. It seems to be okay. This size for this level of expense and bringing it down a little bit more is fine. Our agenda has to go beyond expenses, but the most important is gross margin. That is our pain point.
If we get back to 30% growth margin with this level of expense, we are fine. From Sammy Miranda, considering the company's current performance in the smartphone market, is it the discontinuation of the smartphone offer? Yes, Sammy, we are selling out the entire inventory, clearing it, and we will leave this business. In the format of us operating retail and importing, manufacturing, selling, we will be out this format of smartphone sales. From Marcelo, what is the first quarter looking like? First quarter for government, very weak. Retail meeting targets, even though the targets are low, okay. We reviewed the targets, very grounded. So in managerial terms, retail is meeting target and gross margin recovered, going back well to healthier levels. We will not post a destroyed gross margin at the end of the quarter as what we saw in the fourth quarter.
You will see a strong recovery of gross margins, and it is great. But then you will see bad results, but not as catastrophic, and you will say, oh, not nice. You will see a small cash generation. Okay, that is good. And revenue that is still not strong.
New commercial policy we already talked about. We have implemented in March 1st. So I believe for the next call, I will be able to tell you, it is excellent. We are recovering gross margin, or, it was bad. People are not buying. But I will bring the information to you. What's the strategy for 2024, 2025 to mobile? Should you maintain? No. We are looking at other partnership formats that are possible with other brands that do not follow that model, that does not have that model of Multi taking all commercial risk. There is no scenario where we would maintain mobile in that model. From Matheus Rech, from Ártica.
So today, would you say that in-house inventory is 100% healthy? the inventory in home and in transit. Yes, I would say it is 100% healthy. I do not think there is much more we can remove from inventory. What consolidated gross margin do you estimate for the in-house inventory? The smartphones that will be still delivered that are left should come at zero gross margin. It is not turning a loss, but anything you put at the base with a 0% margin will reduce the total. I estimate that we should get to gross margins of 30%- 32%. That would be healthy. That is the normal levels that Multi delivers, but we are not at this level yet. It is a little below. Due to a few things that remained that will be sold at zero margin, those write-offs we talked about. Matheus, we had that doubt.
We could write off everything and put at zero cost, and anything you sell turns a profit, but that would not be coherent for the coming year. So all of a sudden, smartphones are doing well. Anything at a cost of zero turns great, right? If you sell a cellphone for BRL 5 , you have a margin. So we mark them for zero margin. How is the acceptance of the new commercial policy? Are you losing orders because of it? So far, not from large customers, medium customers, but small customers, yes. There is still a lot to adjust. I just came from a meeting with a manager that serves stationary companies, and they said that to sell computer accessories there, the margin is fitting, but toys, the margins are wrong, and they cannot work with it, for example. And it is a stationary store that also sells toys.
We went to the toy policy to adjust it, and then it will go. But it is still too soon to say. Could you say how much of the inventory is still smartphones? BRL 50 million at cost in the inventory of BRL 1.5 billion, marked to sell at a margin of zero, at market prices that are very low prices. It does not exist in the market anymore.
From Marcelo, throughout the year, does the company believe they will be able to reduce the distribution expenses compared to net revenue? What is the level you want to achieve? We are working for that. There is a lot of money there. The company's cargo profile has changed. A company that in the past sold essentially accessories and electronics, cellphones, tablets, and so on to retail, you have a product with high added value and low weight, so the freight expense was very low.
I remember that we got 2%-3% of revenues in freight expenses. Now, I am selling speakers and fans to the Northeast, TVs that come from Manaus to Rio Grande do Sul. So the profile changed a little bit, and there is still D2C that we are delivering via postal service. Our expense was as high as 8%-10% of freight. A company that paid from 2%-3% paid from 8%-10%. It is a huge difference. So there is room for reduction, but we will never go back to 2%-3% because of the profile of the type of cargo. There is still some inventory, BRL 422 million in mobile. Should we still expect this inventory to turn over with very low margins? That mobile is the whole, right, Eder? Government PCs, everything. Look, at this inventory, only just about 10% is for cellphones that will be sold at margin of zero.
For the rest, I do not expect low margins. We have PCs going for government. There are a couple business that we wait for the orders, the things that we already won. Tablets are with a good margin. PCs for retail are also new lines, 2024 lines. Just doing a quick math, if the cellphone is 10% and it goes in at zero, it will offend the gross margin at about 10%. What you are going to see, if we get a margin of 20%, for example, on mobile. With the smartphone effect, it will drop to 18%. So that is what should happen. It can only offend at most 10% of the margin because it represents 10% of inventory, and it will have a margin of zero.
From João here. You could talk a little bit about such a huge increase in possible losses for the year, and if you can talk about the Proinox process, why the value of the cause and the whole imported value and the due tax. I will talk a little bit, but Eder can be more precise. The due tax is zero, okay?
I will have to take about five minutes. How long do we have? We have five minutes. Okay, Houston, we have a problem. But I do not want to evade any of the questions. Multi is a company based in Minas Gerais who manufactures, imports, and sells. For some time, we were imported through Santa Catarina, transferring through Grupo Multi and distributing. Santa Catarina has a final decision that products that are imported through Santa Catarina, sells to Grupo Multi. It does not pay IPI tax because it is paid in the entry point, and Multi distributes.
Why there's no tax due? Because there's no IPI. There's no tax to be collected. When inspection went to look at this operation, they didn't apply an overdue tax fine because it's zero tax. That's the reason. That's the biggest cause. As everything in Brazil, they have a lot of opinions, and I believe it's a very remote, very absurd possibility of those things that only happen in Brazil. Inspection, this characterized that operation, even though the federal revenues shows that there's no loss for the public vaults, no tax due. But we'll understand that the sale from Proinox to Grupo Multilaser at the time, how would you say it, Eder? They call it a fraudulent interposition. What they say is, you imported by Proinox to hide Multi. You didn't want Multi to appear. But Proinox is a subsidiary that's 100% Multi's. It makes no sense.
The tax service said you imported from Proinox and transferred to Multi to hide Multi. How much did the government lose in terms of tax? Zero. They say that themselves because there's no due tax. How was I hiding Multi if Multi owns Proinox? And they say, oh, I don't care. We have that liability there. It's Brazil. We're defending the cause, but we're confident, but we don't have the results of this legal proceeding yet. That's the whole subject. You can contact us if you want more details. Leonardo from sell-s ide, if we can talk about new partnerships mentioned in the release, what partnerships we're seeking? Unfortunately, I cannot comment this now. I have to be vague. But very soon, willingly, in a few weeks, I should bring you something new.
Matheus Rech again, sales for small retailers were weaker in the fourth quarter before the change in commercial policy. What's the explanation for that? That's a good question, Matheus. I have to look into it. I don't want to guess why specifically for small retail and not overall retail. Overall retail, people are cautious with not a lot of money to buy. I'll have to get back to you about this, okay? From small retail. Andre from supra, can Multi compete with Foxconn in mobile as a manufacturer for the third? We could. Multi could potentially manufacture mobile, since we have one of the largest parks in Brazil for machines, and with expertise, tax structure that's optimized, with experienced engineering teams. We could eventually compete with Foxconn, and we could add more value than Foxconn. We could also run the logistics operation.
We could take a brand and manufacture and distribute in Brazil to consumers, as long as we don't have the commercial risk. That's the big fear. I can bring whatever product they want. I can sell at whatever price they want with a fixed fee. It's not going to be a huge project, but at least a huge profit, but it wouldn't turn a loss. We could potentially do that. Marcelo here, this distribution, is the line going to drop at the end or no now? I'm sorry, it wasn't The order here is for savings. We don't want to spend with translation. I believe that the pulverized distribution associated to the large amount of products is a competitive edge for Multi in physical retail, but consumption has migrated to e-commerce. When we think exclusively of online sales, does Multi believe there's a competitive edge? I believe so.
The evidence of that, our D2C is at record levels in terms of share. It's at 10.8% or something like that, the total for the company. We're growing retail on D2C. We have a competitive edge. We have an excellent team. We're plugged to the main important marketplace. We have a full. We have deliveries with the labels from our partners. We have automated distribution center for that. We have fast delivery, post-sales. We have a WhatsApp team that contacts consumers, answers. We have a structure that few industries in Brazil have to serve this D2C. That's one of the reasons to be optimistic. Hugo, can you give us a scenario of the contingencies that are not provisioned in the balance sheet?
Did they present an increase last year? We could, but it's Okay, Hugo, just quickly, more than half of this increase, we correct contingencies by the Selic rate in the same positions on the balance sheet. Selic rate started at 13% something. There's more than BRL 200 million of simply corrections. Then we have here from Rafael.
Alexandre's microphone is off.
Can you hear me now? Raphael from Ártica. Can you talk about how you made the decisions of which families are maintained and which ones are discontinued? What's the structure of the team connected to each family? Okay, so each family has a head. It's usually a product director that can have one or two families. This person below them has analysts and product managers, marketing analysts, engineering analysts, and trade marketing. Everything that is related to commercial, to sales, is response to that head.
Some areas also have a sales department. For example, wellness for gyms. This business unit has the commercial department responding to it. Or if it's electronic retail, there's no commercial department. It's a generic area. For example, speakers, computers, and so on. The decision basically is how believable it is for the future that this family is going to turn a MROI. For better or worse, we could be wrong, but we always manage it based on growth margin, return on investment for each family. Price minus cost, marketing expenses, financial costs of inventory of sales. It's a managerial EVA of the business because Multi is one single legal entity. We don't have separate accounting or P&L for example, mouse only. But I have the GMROI. If the GMROI is bad, it's negative, but it doesn't mean we're going to discontinue.
How credible it is that smartphones have a horrible margin. Mouse and gaming, the margin's horrible. But gaming mouse, we have a credible recovery plan, and we believe that the family will improve. For smartphones, we do not see. We're competing with giants with 100 x more R&D than we do with better stamina, so it's not worth competing. It's a high niche product. It's too small, or we are in channels where we're not strong. Those points are also considered. There's a number of reasons. Smartphones is because our competitive advantages are not sufficient to compete with multinational companies. For home appliances, for example, and sports that we left, and automotive that we discontinued, it's because it's informal competition. A lot of importers who do not pay taxes. There's no perspective and not a believable GMROI.
For electric bicycles also, logistics are more complicated for deliveries and so on. So each one has its reasons. Someone asked if we are going to do an offer of shares. Investors often ask, saying, we're worried that you are going to sell shares. Until people started asking, we had not thought about it. But once it was brought up, we went to look at how it works. But we do not have an appetite for that. It is not in our scenario to sell shares. It is just rumors. Any other questions, everyone? Great. So thank you again very much for being present during our call. We hope that we can bring you better results in the coming quarters.