Good morning. Welcome to Multi's second quarter of 2023 earnings conference call. My name is Juliane. I am the Director of Investor Relations. I am here with Ale, our CEO, and Eder, our CFO. Just the usual messages, I ask you to please refer to the disclaimer on the last page of our presentation. If you have a question, there are two options. You can either send it on the Q&A session and we will read and answer, or you can request to open your microphone. Ale, you have the floor.
Good morning. Thank you for your interest on our conference call. We will go through the earnings of the Grupo Multi in the second quarter of 2023. What are the highlights that we have? We have been talking about this on previous calls, about the challenges that came from the market and that were also created internally.
The external environment post-pandemic, a reduction of consumption, retraction of retail, inflation, high interest rates, indebtedness of the population. All of the technology, electronics segments had a retraction in consumption at the same time where we have inventories at a high cost, at high freight costs, generating a loss of margin. We also talked at length about the ERP migration and all the impacts that we had because of it. Very heavy for the company, for the operations, especially in the first quarter. We came from a first quarter that was very bad, and everybody could see in our call in the first quarter. We proposed to ourselves that motto from the previous call, that revenue is vanity, profit is opinion, and cash is reality. You all know this.
We proposed to work hard in order to stabilize the SAP, cut unprofitable lines, slowly replenish inventories only with products with good margins, and then overall deliver cash generation. We talked a lot about that. In this quarter, we want to generate cash. That is what is most important. It is clear that for investors, it seems like a solid, nice-looking plan, but will they deliver? Is that going to work? Coming from two negative quarters with strong losses, that is certainly reason for concern. But the first quarter, we had slight cash generation, but it was concerning. As you saw, if you had a chance to look at our report, it was a positive quarter for the company. Of course, we are not at the profitability levels that would be ideal.
We are far from what the company can deliver, but we have no doubt that there was progress that was good compared to the first quarter, and some KPIs even compared to last year. As you will see, we had an improvement in gross margin, a strong improvement, especially looking at the mobile segment. We had the inversion of EBITDA from a negative EBITDA, and we generated more than BRL 30 million positive EBITDAs. 30.7% is low compared to our history, but it is much better than having two bad quarters. Of course, it is positive progress. We had a reduction in expenses, improvement in net income that also reversed the loss, reduction of inventory, and above all, as you will see, net debt went down almost by half this quarter. The cherry on top for this quarter is that the cash that was generated, that makes me very happy.
The happiest point is to see that in the end, the plan turned out well in the reduction of debt and so on. The highlights, we had a slight growth in revenue compared to the first quarter of 26%. We're still 15% below last year. We're making less, but the pain is 100% mobile. Excluding mobile, we would be growing more. It's no comfort, but just to put this into context, the other divisions of our company, 26% of progress compared to the first quarter that was very bad due to the system migration. Gross income, wonderful news, evolved in all business units, including mobile, and we, excluding mobile, went back to our historical levels of very healthy growth margin in the other three divisions. EBITDA, as I said, a margin of 3.7%. It's well below our historical average, but much better than being at a loss.
Net debt is BRL 400 million. BRL 197 million is very significant cash generation. You know that at the end of the quarter, companies can push some payments a little bit, renegotiate, and make up nice-looking cash. Then the following month, there's often some cash burn because they have a re-agreement with the suppliers. In our case, it's my pleasure to say that we continue generating cash even after closing the quarter. So now we're even better than this position you see here. It's not that June we generated cash and then in July a lot of expenses came up and cash went down. No. We fortunately continue to generate cash even after closing the quarter. So this trend continues at a smaller scale, but we continue generating cash. As for inventory, that's another piece of good news. We're slowly being able to reduce inventory.
It's easy to say, hard to do. Especially while we were migrating ERP, because we would cut on purchases, but we couldn't get anything out, so we were not able to reduce inventory consistently. But we reduced BRL 186 million in the company's total inventory. You can see, as I always say, that inventory is divided in three parts. The good part is gray. That's inventory in production that our suppliers, it's not paid for. Taxes have not been paid. Then there's the semi-good part, that's the purple. That's inventory in transit. That, so to speak, bad side, that's the blue one, that's in-house inventory. So the negative side is that we have a higher inventory in-house in the historical series, 72% almost of inventory in-house. It's a villain in terms of working capital because it's pretty much all paid for.
Taxes for custom clearance have been paid, and we're also paying storage. There's logistics costs. So it's not such a noble inventory. Why is it so high? Because the purchases made in the past started to arrive. So the good news is that the future perspective is to reduce this inventory because you'll see that as blue is at the highest level on the historical series, purple's at the lowest level. So there's under 10% of inventory in transit, and there's little materials coming in in the next three or four months. With constant sales and new product arriving at the lowest level, we will get to our dream of bringing down blue inventory in-house, return leased warehouses, reduce logistic operators' costs. That will impact the results.
Gray is growing again because we are, again, buying products at a cheap cost, products that will bring the company an attractive growth margin. We are working to normalize it and get healthy inventory levels. There are some positive forces that you saw in the second quarter that should be maintained in the coming quarters as well, helping the company's working capital and cash. As you can see, we are 13% down on the last 12-month comparison. Gross margin, 700 bps lower, 7 points lower from the last 12 months. That is contaminated by two very negative quarters. You can see on the right, we went from 27% in the second quarter of 2022. That was a normalized quarter. It was not a healthy margin, the company's normal 30%+ margin, but it was nothing close to the last two quarters.
It dropped steeply in the previous quarter, a negative growth margin due to the SAP and mobile segment, and then the return of growth margin to the historical levels almost. We are going to see the breakdown by segment in a minute. Going back a little bit here, the revenue recovering with 26%. Here, gross margin, we are able to see on the left that we had almost 27% of office and IT, 31% at home products, 39% for sports, and mobile at 15%. 15% because smartphones, that is the villain of margin, was diluted in this group. We have tablets that have a healthier margin. We have PCs that have healthier margins, and mobile diluted a little bit. There is also some reversion of provision.
You remember that in the first quarter, we had a provision for mobile, and we consumed some of this provision, helping the margin become slightly more normalized. It is still a villain. At 15%, margin is a lot less. It is almost half of the company's average margin. The margins of the first three segments I mentioned, we can already say they are normal margins for the Grupo Multi .
They are healthy. Ex-mobile, we are already operating at normal levels in terms of gross margin. 39% is spectacular. 31% for home product, home electric product, is also excellent. Here on the right, we have a simulation to give you an idea of what the P&L would be without mobile, to see that once we get all this inventory out, what would be normalcy. It is not a projection. This is not a guidance, but just an intellectual exercise of comparison.
Excluding mobile, you can see that we would be at a margin level of 30.6% as a company, much higher than last year. Multi would be healthier today than it was in 2022, making slightly more in revenue. Excluding mobile, we would be at BRL 733 million compared to BRL 717 million, and a much healthier margin. Of course, that begs the question, so when will mobile be done? When will you get done with the inventory? Bad news is that it is still going to take some time.
I do not have the right number now. It slipped my mind, but it is something around 300,000 pieces, 300,000- 350,000 from 600,000. We had 600,000, and now we are at 300-some thousand pieces. It goes until the end of the year at this pace. Beginning of 2024, to get done with everything we have in the bad inventory, there will be a negative impact.
It's not going to be devastating, but it will affect this whole year, this family of products. Well, I stopped here a little bit more because I think this is very interesting in terms of gross margin. Looking at the EBITDA, really looking at the last 12 months, we're negative still, but exclusively due to the two bad quarters. The fourth quarter of 2022 was very bad with inventory burn and Black Friday sales. First quarter impacted by the SAP. Two quarters of loss. On the right you can see the impact of the first quarter, almost BRL 300 million in negative EBITDA, reverting it now to BRL 37 million positive this quarter. We'll keep fighting to get it back to double digits. That's something that Multi should be delivering. This is not guidance, but just historical levels. We're talking about a historical average of 15 years of constant delivery.
There's nothing structural in our business that would prevent us to work for getting on that level again. On net income, there's also a reversion. We made a slight exchange result, so the BRL 30-some million in EBITDA went up to BRL 43 million in net income with the exchange rate adjustment, but in line with the EBITDA, and the loss of the last quarter also in line with the EBITDA. In terms of debt, we have very low net debt today compared to the size of our company and the net equity. We have a book value of almost BRL 4 billion for a debt of under BRL 200 million. So 5% of indebtedness, it's an important KPI of debt over equity, so it's quite comfortable.
We cannot prepay, but at this time, we're talking to banks more to try and get to pay ahead of time than asking for loans, because cash is robust. As you all know, we need to pay with the usual spread. You'll see a weighted average cost of 6.7% per year, but part of it is denominated in dollars, and there's also that. And the lock of exchange rates. The difference in the debt is sent over to derivative. To eliminate any exchange rate exposure, the real cost of our debt is CDI plus 2%-3%, that's more or less the range, than 7%. That's the official cost when it's that share that is locked, denominated in dollars. Of course, the spread of 2.3% is expensive, and we have more cash than needed at this time. But this year, we'll pay almost BRL 300 million.
The trend is to pay it off and not incur into those debts again to reduce financial cost. We're quite comfortable. We have a long debt maturity, and the idea is to reduce net debt as much as possible and to finance based on suppliers, because we're at a historical level of pending suppliers. A lot of them have been paid off, and there's room for funding through our suppliers. You'll see leverage here is negative compared to the EBITDA because we're, at this time, with a negative EBITDA, but compared to the P&L, it's a very low debt. Looking at it by channel. Interestingly, the channel that was least leveraged this quarter was large domestic retail. Only 0.3% of progress from quarter on quarter, or from the first to the second quarter.
It's very large orders, and even with the system migration project, even if it's a million-high order, you end up selling, and there's not such a big impact when we talk about large retailers. When we talk about small orders or small retailers, a lot of orders very dispersed, we had a hard time invoicing them, and in the second quarter, we had an improvement in that invoicing and logistic systems, and it advanced 50%. Same thing for government, the providers, corporate deals. D2C advanced a little bit less, but it's another revenue channel. It's different logistics. Same department but different sector with a different team, ended up invoicing. With difficulty, and even if with delays, the products are shipped, so they didn't lose as much business.
The two that evolved the least, national retail and D2C, are those that in the first quarter were able to ship goods even though it was quite difficult. It was a positive evolution. The breakdown by segment, you can see here compared to last year, the villain is mobile devices with a drop of 43% year-on-year. The other factors, a slight growth in office, slight drop on home electric products, and great growth in kids and sports balance out and would generate a small growth for a company. Then compared to the second quarter, all of them growing strongly except for mobile devices, that we have an issue with the delivery. Some large deliveries in the first quarter that ended up not being repeated in the second. That's the large retail segment. Strong progress here. Looking briefly at the breakdown by segment.
We saw these numbers before. Mobile devices with a drop in revenue, a very squeezed margin with -57% in the first quarter, recovering to 15%. How did the gain turn so quickly? While 15% is not good, its growth margins are still bad. We had a better mix. There's a reversion of provisions here that were being done, both provisions in the first quarter. In office and IT supplies, we had a slight growth compared to last year, great progress compared to the first quarter, and margin improving and recovering, mostly driven by internet providers. We expanded local production to try and improve competitiveness. We were able to negotiate well with suppliers, recompose their margin, and that helped pull it up. IT peripherals, accessories, we renewed our product line. It's more competitive with better design, better quality.
This product, the pre-pandemic product that we were selling, we got the inventory sold and brought in new, better product. That's the drivers of the family. Home electric products, including screens, portable appliances, there was also a small drop in revenue, but a strong improvement in margin. It's much healthier now. Also due to getting rid of inventory, especially in the portable appliances. We had a phenomenon before that portable appliances is a space or a room villain. Bringing rice cookers, air fryers, robot vacuum cleaners at a high cost, freight of $13,000, and you start to sell it in 2022, the beginning of 2023. You get this inventory down to zero. Good things start coming in with freight at $2,000- $3,000 freight, better cost. These products were the main drivers to recompose the margin, both portable appliances and speakers. Healthcare, there's a lot of inhalers.
They have a very similar behavior. They are volume modes. They have low tickets. A lot of bulky light products that we had an improvement in freight and cost, which made the margin evolve strongly. Kids and sports was quite healthy, with an evolution in terms of revenue margin, a lot led by toys that are doing quite well. We were able to anticipate the sale of toys for Children's Day to June, so there was a strong driver. Baby as well. We had the migration of the Fisher-Price brand. We are closing the Fisher-Price baby brand and migrating to our own brand. The reason is that Fisher-Price has closed its heavy baby and childcare market globally of strollers and child seats. We had to follow that.
Since it is our product developed by Multi since the beginning, we migrated the brand to our own brand, and that led to an improvement in profitability because there are no royalties and so on. Pets also had great progress.
We increased production, and it is the highest margin we have from all of these lines. With the manufacturer of the hygiene mats. Accessories is not going well, but it is less than 5% of the total for pets. The mats were 90% of the business, and they are doing very well. Those were the three main drivers of margin in this line. The main revenue driver here was pets and the growth in drones with a DJI brand. The margin is less representative, but in terms of revenue, it is quite significant. To conclude, we have some KPIs to show you that the operation is getting back. The quarter did not run well throughout.
It was a quarter where the operation went from 60% of effectiveness up to 90%. It started in April at around 60%, 70%, 80%, and we got to the end, and now we can say that we are 90% within normal operation. The RA1000 for consumers was always our RA1000. It went down during the ERP migration, and now we are back to RA1000.
Here is the product shipment performance. I am not confident whether it is only B2C or everything. It seems to be B2C because of the numbers here. I can confirm it later. But that is already a driver of the overall performance. I am not confident if it is only B2C or all orders. B2C. Okay, so it is only for B2C. Note that in January, we were doing with a lot of difficulty, we could ship some product, but if it is shipped 10 days later, it is there in the quarter.
It looks good, but it messes up with your rating. You kill the market if it takes you 10 days to invoice. In January, we were invoicing only 10% in 24 hours. The ideal would be the minimum to play this game is 24 hours. It went to 10%, 18%, 28% in August. Now we are operating at 91%. It is not ideal. We need to get to 97%. That is the first day that we got there. We need to go from 91% to 97% for it to be good. But there is no doubt that it is progressing well. The first quarter ended here with 53% in second quarter, plus one, that is the light gray here. If you combine the three first ones, it is good delivery.
It's not a delivery that's going to upset the customer, but it does not deliver perfect ratings at the website and the competitive advantage that we have. 52% + 25% + 10%, it's close to most likely more than 90% of deliveries until C2. That's okay for e-commerce, but we need to be at 97% in B1. The ratings for marketplace, all of the websites went down during the system migration. We lost rating, relevance, sales. It's a big pain, but it's going back. We're recovering. We get to the highlights here with all the revenue recovery of growth margin, cash generation, BRL 200 million. That's great score. The resumption of purchases, buying a lot of good products at good prices with our feet on the ground, new controls and indicators to avoid making that very serious mistake we'd made in the post-pandemic.
In the post-pandemic, we talked about this on the other call. We didn't stop the machine on time. We didn't have the mindset and the adequate defenses. Multi with always that bias of growing. We can't have any shortages. That mindset led us to the loss of the first quarter of last year. The lesson has been learned. ERP is stabilized at 90%. It's not a critical factor anymore. We cannot blame ERP for anything anymore in the third quarter. I cannot come to you on the next call. Even if a meteor goes down, I cannot blame the ERP anymore. It's no longer a villain. It was in the first quarter and for half of the second. The RA1000 seal, and now in August, we started manufacturing the motorcycles, the Watts motorcycles. That's very interesting news.
The blender and fan plant today is at full steam, manufacturing the first portable appliances made in Brazil that also brings great competitiveness. These are the highlights. Now I will open for your questions. If you want to write down your questions on the chat, on the Q&A window, I'll answer. If you want to speak, if you want to ask, you can also join live and ask your question. If you can please open André's microphone, please, for his question.
Good morning, Ale, Eder, Juliane. I have two questions. The first about inventory and margin. We saw the level slightly under the recent inventory in recent months, and I think it's a little match to the company's strategy of holding imports a little bit.
As you need to recompose, replenish this inventory, how should we see the gross margin of the segment ex-mobile in 2023 with a slightly higher dollar exchange rate than we saw in the second quarter? The second question is that we saw some news about the government agreements. If you could comment the share of the São Paulo government in the sales for the government channel in the company's history, and if you see this share being maintained over the next few months.
Great. In the exchange rate issue, we've always worked well with the fluctuation of the exchange rates. Our market is pretty much all denominated in dollars. If you work with imported products or components, our dollar-denominated cost in terms of COGS is of around 93%. 7% are domestic costs on labor, packaging, and so on.
This level of BRL 4.85, BRL 5.2, BRL 5.5, we work on around them, and the prices adjust. If there's a max increase, that's not in our radar, but max is something that is unpredictable. Historically, it brings a positive boost in the short term because we're a company with a very large paid inventory. If there's a problem and Brazil goes to BRL 6, the exchange rate, a lot of this price is repositioned. We make money in the short term, and then we start to regularize the margin. If the dollar starts to drop, if the Brazilian currency value is too much, on the one hand, the new imports become more competitive. The market heats up and gets good because the product becomes more affordable, but we end up losing because of the inventory. Slight fluctuations for us tend to be irrelevant. Maxes historically go well.
I know it's a paradox. In 2015, we had a very strong FX effect, more than 20% of growth with very healthy EBITDA levels. Today it's not a big point of concern. What changed is freight. That's the structural from $13,000 to $2,000-$3,000, and FOB is the cost of products that went down and are at a lower level now. About the government, the state government issue, it's good that you asked. A lot of people saw on the media that we were on the news, in the news cycle. We're very confident with this issue because, first of all, we had some big deals with the São Paulo government that are bids that we won in December of 2021. Those were deals that we participated in bids and won more than one year before Renato Feder becoming the Secretary of Education.
He is one of the shareholders of our company. He is no longer part of the board of administration. He's not involved in the administration of the company or the control block. He's a shareholder as anyone else. He is relevant. He has a big share, but he's just a shareholder at the company. There's no legal impediment for Multi to sell to the government. Now, due to conservative views and for margin and protection, we chose not to do any deals with the Secretary of Education while he is in office. That gives us more transparency. What you're seeing, I'll get into more details. I'll give you all the facts. In December of 2021, there was a bid. We don't usually work with the state of São Paulo.
Historically, it's not a very relevant customer, but there were some deals that were significant, and we won some lots along with other companies, okay? There's five big manufacturers who won lots in São Paulo. One that you know well, that's our competitor that I will not name. Many deals, many lots. We won some of them. They're relevant. In May 2022, we had the registration of the product, and at the end of the year, in December, we signed a contract in the term of office before Renato's. We won the bid when no one had no idea Renato would be secretary. Tarcísio was not even a candidate for office at the time. When Renato became the secretary, being conservative, we decided not to sell anything else from that moment on to the Secretary of Education. We have some deals with healthcare. [inaudible].
It's under 0.02% of revenue. Also being conservative, we decided not to sell anything anymore for the state. Healthcare is not relevant for Multi. It's a zero impact. Above all, we want to preserve our image. Of course, we see it in the media. We know how it works. People were focused on getting clicks and showing the news with a bias that attracts more attention. There is nothing, no reason for concern. There's nothing wrong that Multi has done, nothing illegal. We sold those products. We're delivering the contract as well as the other companies. The state government had a timeline of deliveries until August, both for Multi and the other competitors who are manufacturing computers, and we are strictly meeting the deliveries. We're actually 20 days on average ahead of time. The final deliveries will be now in August.
More than 99% of the contract, I believe, is already delivered. I'll confirm that for you. Now we'll finish delivering the few pieces and get this contract closed and not sell anything anymore. The future impact, I don't know how much the government's going to buy in the future. I don't speak for the secretariat. I don't know what they're going to buy and how much or if we're going to let go of any revenue possibility if we don't participate. There's no doubt we will not participate because we want peace of mind above all. Historically, it's not a relevant governmental agency for us. São Paulo, we work a lot more with other states. That's it. What else came up? They published that the company had these contracts. That's old news. The deals with the health secretariat is BRL 200,000. It's irrelevant for our business.
There's no impediment. Healthcare and education are completely unrelated, different secretaries, of course. So we're quite confident. Even the consultation with public agencies, the Comptroller General, the prosecutors, everyone giving us feedback that everything is right and fine. We know newspapers will do all they can with click baits and trying to make some noise, and then they'll find something else to talk about.
Very clear, Ale. Thank you for your answers and transparency as always. Thank you.
Let's go to Gabriela from Itaú, if you can open her microphone.
Good morning. Congratulations on the results. Thank you for taking our question. We have two here on our side, more related to revenue.
We'd like to understand from the mobile side, we saw very relevant recovery this quarter, but we'd like to understand in terms of sales, revenue performance, what you expect looking forward, when we should see a more significant recovery of the segment. The other point about the office and IT supplies line, we saw very good performance 3/3 , quarter-over-quarter in the segment. Could we continue to imagine this level of growth from here on out? These are my questions. Thank you.
Sure, Gabriela. In office and IT, I think it's promising. It's a moderate organic, consistent growth driven by our internet provider line that's very strong. We're market leaders with competitive products, a solid partnership with ZTE. One part with computer accessories. We've renewed our line. It's been very well received. Doing some interesting work, and we can expect slight growth year- on- year.
As for mobile devices, excluding tablets, because there are different products there. Tablets are healthy, consolidated. PCs are focused on governments. They are also healthy sales. Smartphones, we had a problem. It is the product with the highest technology obsolescence. It does not mean that the mobile device, the mobile phone business is completely damned. We made mistakes during the pandemic, and the pains are higher because if you sit on your inventory, it loses value a lot faster than other products. If you take a keyboard, a keyboard is worth BRL 100. Next year, it is worth BRL 100 or BRL 95. A BRL 100 smartphone will be worth BRL 50 next year, and then BRL 25, and then nothing. The longer inventory turnover time and the ERP implementation that also stopped our sales made it a bigger pain. We are reassessing the line.
The idea is to resume it with fewer models, feet on the ground, very small volume for these products to start to feel the market and generate margin. If we buy new models today with new lines and new correct market price, they do generate acceptable margins for us. We are not buying right now because we still have inventory for the whole year. The bias, the trend, is with much fewer models at prices that are distant from national competition. We will resume smartphones very carefully. Larissa from XP. Stuart, can you open for Larissa, please?
Hi, can you hear me? Yes. Congratulations on the results. Thank you for taking my questions. On our side, we would like to understand a little bit more about the results dynamic from here on out. When do you expect this normalization? Are we going to see it in the few months, the last months of the year, or is it only 2024? What can we expect? Thank you.
That is always hard to say, Larissa, but I believe that the third quarter will be similar to the second quarter. I do not see any major miracles on the third quarter. There is still a lot of the mobile effect to be felt. There is a cut over from the second quarter. I expect slight cash generation, positive results, but close to the second quarter's earnings. I do not expect any miracles. The fourth quarter possibly will see better improvement. It is a strong season for sales. Black Friday is coming, and there is that cleaning of the products that are staying in.
If we do a slow and gradual recovery of our numbers towards our historical EBITDA percentages with small cash generation quarter on quarter improving working capital, I will be very happy. I would not expect anything spectacular. From Marcus' questions, I will take the liberty to say we answered them. Do you imagine abandoning the smartphone segment? Yes, I am open to that possibility, but that is not our trend right now. It is to resume it with small volumes at entry-level products that bring margin, okay? We learned our lessons with that line. Also the question about how we are dealing internally with the media news, I have already said. Just to add, to meet all of the points that the media addressed, the media also have that mindset of pinching what is more interesting and making a big deal, like a lot of ado about nothing.
Oh, this company was punished or penalized by the state of Paraná. The problem with that, it is not a lie, of course, but you take an exception and remove it from context to throw it on a headline. You create an impression that is different from reality. If you look at the last 10 years of the Grupo Multi working with governments in all states, with thousands and thousands of deliveries. Today, we have 50 mentions in 10 years. One-off situation of a delay or a delivery issue, and that was mentioned. What they do not mention is that in 50 notes, it is irrelevant for the total delivery. It is like taking an electrician you trust from your neighborhood. He did 1,000 services, and in 1,000 jobs, he was late in 2%.
You can say that the electrician was late 50 times, or you can say he was late 2% of the time. 98% were delivered in time, and that is much better than the market average. If you go to the internet now and you look at a big competitor that I will not name, but the same KPI exactly, they had 150 mentions, and that is normal for bid. We have 50, they have 150. Another competitor that is a gigantic multinational company, strong in bids. We looked at it yesterday and they have 220 mentions. If you have a contract that you have 60 days to go to China, buy panels, resistors, processors. You needed to take it to Manaus in the middle of the Amazon, produce it, bring it to the south, assemble, test, delivered throughout the country, and you have 60 days.
You will not always be able to deliver within that. That is normally renegotiated and agreed. The government of São Paulo re-agreed on the delivery timelines according to reality. When the contract was done, China was in lockdown. So there are force majeure factors that a reasonable, sensible government will renegotiate deliveries with all suppliers, and that is what happened. That is normal anywhere. But sometimes the way that the media selects and puts things on the headlines and what could put things into context and help readers understand that it is normal that delays occur do not make the headlines. Then people get that impression that is out of place. Another interesting fact is that the government only pays after the delivery and confirmation. So if anyone loses from delay in delivery, it is the manufacturer. There is no damage to the government, to the public vault.
If there is a pandemic and the Chinese producer delays a delivery, we go back to the public power and renegotiate deliveries. That is all normal, and they are making a lot of noise over nothing. I just wanted to add these points here that I had not mentioned. From Mateus, his question in writing, congratulations on the results. I believe this shows again Multi's agility and capacity to respond to adversities. The product lines that most attract the attention was networks with very positive results. Can you talk a little bit more about networks?
When I mention networks, historically we worked it on retail, routers for retail. This business is pretty much done. People do not buy routers in retail anymore. Internet providers install good routers for free, quote unquote, because it is part of the package, but they install it at people's houses.
The business migrated in our case, and retail is almost irrelevant. We migrated to internet providers, and we are optimistic. We have all of the AC technology that is migrating to AX technology. There is a lot of room to sell more sophisticated routers, giving an upgrade to the products in the market. There are infrastructure projects. There is the central IoT equipment. There is a positive trend, and we are increasing our production capacity from 100,000 to 200,000 ONUs per month. Now we are already 200,000 capacity, and we bought. In November, the volume of 200 parts per month will start to arrive. The capacity was smaller before, and that brings the possibility to drive revenues and results. Marcos asking about the drop on freight from $12,000 to $3,000. Does that make investments unfeasible in the national production of electrical appliances like fans and blenders?
No, it does not, Marcos, because even at a $ 3,000 level, a container of blenders is very cheap. I am not going to guess. I think a container is probably $20,000 worth, just to give you a figure. I may be wrong on this number, on the detail. But a container is $ 20,000. $3,000 is 10% of freight only, international freight, plus that section from the port to the plant.
In addition, local production has some tax reductions. You have ICMS incentive because you are producing locally. So there is 20% less on the table to produce locally. But $12,000 starts to make a lot of things completely unfeasible. It is insane. $12,000 is 30%-40% of freight costs only. So $2,000- $ 3,000 is a good historical level that makes it feasible for this line. From Eliseu, they would like to know a little bit more about the chips manufacturing.
Chips are a product that have been made here since 2014. We were the first and only, to date, domestic national company to manufacture chips. It is basically a well-known process. You buy the silicon wafer, you cut the wafer, encapsulate it, and you produce memories for different types of products.
Flash drives, for instance, memory cards, DDR for computers. It is a stable line. It is not growing. Post-pandemic, with the drop in the sales of electronics, it even dropped a little bit. It is a proxy for the devices market. So it is a good line that is stable. From Marcelo Afonso, in the other operational expenses, there is a tax infraction of BRL 30 million. What is that about? I have no idea. Just give me a second. I will check with my colleagues here. The installment payment of the ICMS tax. Okay, I got it. So that is it.
We divided the payments of ICMS that was due. Also from Marcelo, what is the evolution of sales for government this year? Overall, new sales are not that great. The government has slowed down in bids. It is not a Multi topic, but it is a matter of the bids themselves. Now we are delivering the last lots. We are receiving payment for those deliveries. It should go back. They should start opening bids again towards the end of the year, but it is a slow half year in terms of new sales. I am not upset with that, okay? Honestly. Since the government is non-recurring and we want to capitalize the company, at this time, building some cash, reducing working capital, makes us ready for a new purchase cycle, and it is not entirely bad.
As I said before, we're highly focused on cash generation, so this will be a good trend for the company's cash. There was a change in legislation that extended BRL 3.5 million that was supposed to be until the end of next year, that was postponed to the future. So that also gave the secretariats more time to purchase and use the money. Okay, all done. All the questions have been answered so far. Anyone else has any questions? Excellent. I think we've addressed all of the results. We started at 9:00 on time, and we're always committed to being on time. We may not be the most profitable company, but we are right on time. At 9:00 on the dot, we start talking. If you're not here, I'm sorry. It's disrespecting everyone who arrived.
I think all the questions have been answered, and we move towards the third quarter and work to have good results again. Thank you very much, and see you next time.