Good morning, everyone. Welcome to the earnings conference on Multi's fourth quarter of 2022's results. I am here with Eder, our CFO, and Ale, our CEO. I am Juliane, and before turning the floor to Ale, I will give you those messages as always. First, you can refer to our disclaimer on the last page of our presentation. The second thing is that if you want to ask a question, you simply click on the Q&A icon, and you have two choices. Either write down your question and Ale will read and answer, or you can ask for us to open your microphone so that you can ask your question live. Ale, you are on.
Good morning, everyone. Thank you for your presence here at our call. We will talk about the year of 2022, but in particular about the fourth quarter of 2022. As everyone saw on the release, it was a very difficult quarter. I have bad news to talk about. We are upset and concerned with the results, especially concerning the net income, -BRL 205 million.
That is unforeseen. The idea is for us to talk more about it, understand the context, understand why the company believes these are not recurring numbers, they are a one-off occasion in a specific moment of the market, what the mistakes were, and what is most important, what we are doing already, what is implemented, what we have on the pipeline to turn these numbers around and bring consistent results to everyone. So we take the liberty of giving a little bit longer history to put things into context. With this slide, we can understand what this last period was. Our business, I believe, is a business to turn 12%-15% in EBITDA.
If you look at 15 years of the history of the Grupo Multi, it has always been around that number, a little bit more, a little bit less. You can see a normalized margin of 14.7, 15, 16, 12.8, 12. So the five years before the pandemic, we see oscillating in the spaces. If you look 10 years earlier, it is the same thing with few exceptions. The major event that we had that was completely out of normalcy, as everyone knows, was the pandemic. After that initial scare in February, March, it was very clear that the pandemic would be an excellent tailwind for the business, for technology companies. As you can see, the margin went way up from 12%- 19% EBITDA. That is a margin outside of reality, of normalcy. Basically, everything that we had, we could sell at whatever price. Demand exploded in Brazil.
People had the emergency assistance at hand. Inflation was not knocking on our doors. The category of consumption made outside of the home disappeared, so everybody was equipping their homes with electronics, TVs, tablets, computers, routers. Everything we had would sell. That was not only a Multi phenomenon. It is worldwide. It put a lot of pressure into the supply chain. The costs in Asia exploded for components, freight. Everything was expensive, and we made the decision to buy and resupply to meet the demands and what the market was screaming for. "Oh, we need that. We need that." Then as entrepreneurs, we were excited. Let us make it happen. Let us grow. So to a certain point, it was a very correct decision, because if we maintained it below the usual, we would be making the same BRL 2 billion in revenue. But we increased our revenue 2.5 x.
The company went from BRL 2 billion to close to BRL 5 billion in annual net revenue at excellent margins. So 2021, Multi was one of the most profitable companies in Brazil, with BRL 760 million of net income, and that was excellent. But then in this Euphoria, of course, there were some roots of the problems we had in 2022 that was exacerbated at the end of the year. We continued to buy, replacing products, and the problem in our area is that let's assume you have a remote control product that's selling 1,000 pieces per month. For you to keep it supplied, since they are long chains, you always need to have seven times more of that bought. So if you're selling 1,000 per month, you need to buy 7,000. Production and inventory to turn it over. There's shipment and so on. So you need seven times inventory.
In the pandemic, since the lead times increased, we had problem products. For example, home pools, those kiddie pools that people would buy to have in their backyards, electric bicycles. Some components had a lead time of one year per component. So we increased the purchases to eight times or nine times. So if I sell 1,000, I'll need to buy nine. But it's not selling 1,000, it's selling 2,000. So two times nine, it's 18,000 pieces bought. So we were supplying according to the estimate forecast so that we wouldn't be out of stock at a high cost with high freight. From $2,000 per container went as high as $13,500. That's six times more than the historical average. So either you ship it or you don't have it. The market was buying, paying more, accepting higher prices. The turnover occurred in July of 2021.
July, August, September, a period where we see that the market was saturated. People started to go out again, and things cooled down. Of course, on our side, it was a mistake looking back not stopping this machine earlier. We should have stopped and said no to commercial and that we're not going to bring. We did it at one point, but it was late. The year of 2022, the whole year, is a year of adjusting margin and reorganizing, but always also with a lot of new lines. We launched the TV line. We had the drones, backpacks from Targus, a lot of business to sustain it so that there would be no shortage. But it was a year of low margins but showing growth. In 2022, our plan was to grow. Of course, now it doesn't solve it, but it's important to diagnose.
If we look back, it's better to say, "Well, we grew 2.5 x. Let's shrink a little bit healthy, and we would have healthier results now." But we sought some growth. We didn't get there. We didn't make it. Quite the opposite. With the discounts and so on, revenue went down, and the margin, as you can see, was squeezed and especially in the fourth quarter. That was the quarter to clean out inventory, making the most of Black Friday and seasonality, everything that was stuck, products that we had since 2020, 2019, 2021. Let's clean it out in the fourth quarter to see if we can start the year in a better place. So we see a massacre in terms of numbers, the fourth quarter with about BRL 115 EBITDA negative, BRL 200 of negative margin in terms of profit. So it was very concerning for us.
What we see next is that if it weren't for another non-recurring factor, now we would be ready to organize things. We'll talk next about the migration of the SAP system that we had in the beginning of January. That's another hit that we took. Here we have some context. You see a great increase and then a year where revenue went down a little bit. It should have grown a little bit under double digits, but this generated more inventory, and we'll talk about inventory in a minute. This is the backdrop. Then we see net revenue moving sideways compared to the third quarter, even discounting products and selling things with 30% discounts and so on. Gross profit, that's the main villain here. We're talking about a company that historically worked from 30 upwards in terms of gross margin, 30% gross margin at least.
In the year, it went down to 26%. But then in the quarter, made 18% of growth margin. Gross margin hides the other side, the flip side, that's the commercial budget. If I turn to my customer and say I can make the product competitive in two ways. I can give discounts on the offset and then a massacre growth margin to be able to turn over old inventory, or I can give you the full price or something in between and give a budget to the customer that goes under commercial expenses. You'll see that commercial expenses went up. Why? Essentially, two things. A budget for customers and inventory costs, logistic costs of inventory. These two things combined, you can consider within gross margin, we gave 3%, 4% of budget for customers for them to make a turnaround. Product costs BRL 1,000. It's not selling.
You give another BRL 200, and then it sells. These are things we did strongly last year. We paid BRL 2 million- BRL 3 million per month to customers to be able to sell products. Now, this is under half that amount, so it's a little bit healthier. Sales are healthier at this time. All of that was concentrated in the fourth quarter. You'll see here the major issue, number one issue is gross margin to clear out inventory. EBITDA -BRL 150 million with a margin of 5.6 in the year.
That's half of the minimum we need to be within our range. A very bad year of adjustment after an excellent year as 2021 was with record profits, one of the most profitable companies in the country. Lost year of BRL 205 million, as we said, closing at an income that was only BRL 90 million in the year.
It's very low considering all the aspects that we have, high turnover. It was very disappointing for me and certainly for all investors. What's our focus now? At this time, the name of the game is cash. Reducing purchases drastically this year to optimize inventory. We had the first inventory reduction, as we're going to see later, in the fourth quarter, but we'd like this year at every quarter to reduce inventory further. The first quarter now is pointing towards a strong inventory reduction despite SAP. Strong cuts in costs and expenses, reviewing all contracts. We cut more than 10% of payroll in both people and value in February, and we have a freeze of all expenses. Every time we need to increase something, I need BRL 1 for something. You need to deliver BRL 2 in savings.
If you don't bring us BRL 2 in savings for BRL 1 increase, there's no discussion. It doesn't matter how important it is. All managers need to find their savings. We're very tight. We turned the key and what we had in the last three years of growing, growing revenue. Let's grow first, and profit will come. Historically, that's what happened. We would grow, and profit would come. But now we're dancing to a different tune. The tune is cash, cutting costs, and being efficient. That's what we're doing very strongly in this first quarter through the cut of 700 employees that we had in February. Fixed assets, there's some that are halfway done. We're completing so that we don't lose it, but we're canceling or delaying all new projects.
M&A, we had things ready to go, interesting things that could bring results, interesting payback, but at this time, we're delaying everything. We're not going to talk about it now. We're only talking about operational efficiency, generating results. Later, we'll talk about M&A. That's our current movement. Here, you can see two important things on inventory. Since this is the main line in our balance sheet, it's always interesting to look at in detail. We're talking about more than BRL 3 billion in inventory total. I'm sorry. Now, we had, for the first time, a reduction that was significant in the fourth quarter of BRL 200 million, approximately. We were able to start to bring inventory down. But bringing it down, for it to be healthy, we have a long lead time, so it takes time.
We're going to see that we have gray, light blue, and dark blue on the inventory. Gray is the healthy inventory that historically would be around 35% of the total. That's the inventory that's in Asia, that's under production. You paid only 10% of down payment, and there's no additional impact of cash and operating costs. Light blue is the inventory that's shipped. It's semi-healthy. You already committed to pay the supplier. You generated a strong accounts payable. You have not paid taxes. You're not paying storage in Brazil. And then the dark blue, the purple, is the unhealthy inventory, the biggest villain at Multi today. That's this purple line. Because once the product, we arrive, $1 million that comes from the container and goes into our inventory.
First, we need to pay about 80% ahead of time for customs, PIS, COFINS, IPI, import tax, and so on and so on. 80% cash out. And this inventory is incorporated into our balance sheet with this major cost, and it generates tax credit that it's only offset at the time of sale. So it increases that tax credit. And you'll see that since we're bringing down the accounts, the first thing that goes down is orders from 34%, you see it goes down to 21%, and then it goes down to 18%. So we have the lowest historic level of new orders. And the in-house inventory remains high because we're buying less, but the things we're importing, the products are becoming in-house inventory before they go out. So this is the most expensive inventory. You paid for the product 100%, you've paid taxes, it's generating warehouse costs.
We have five warehouses at Multi today, the main one, plus four satellite warehouses with merchandise coming and going. Our revenue times 70% of in-house inventory, it's all generating storage costs. It's a very high cost, but it tends to decrease. Now with the purchases being slowed down, it will start to go down quickly. We will bring this down in the first quarter. This total inventory will go down despite the SAP. If we hadn't had the SAP migration, this would be a lot lower. It would be a lot better. We need to imagine if it was recurring without SAP and with SAP for Multi, it's two completely different scenarios. This is something we need to work on, these additional costs that I mentioned.
Now we need to recalibrate and bring down the dark blue, start to buy again slowly the goods at new costs. There's already freight at $2,000, new FOBs. We start to have a cheaper product that we can sell at a good margin. There are new products we're buying that are already bought to be sold at a gross margin above 30%. We're seeking a margin, an average of 30%, 34%, 35%. We're bringing in healthy products at a high margin to replace what we had at high cost, high freight in a squeezed market. Looking at the total, as I mentioned, a small decrease in revenue, a lot due to discounts. In volume, we don't see the same decrease. The volume is stable. This is mostly due to price.
Growth margin going down 2%, and in the fourth quarter, it goes down a lot more. Margin in the fourth quarter is 18%. You see that before we had a normal level. In the third quarter, it's normal. By the fourth quarter, in part due to our choices, in part due to seeing that the market was not going to move some products. Here at the company, our system classifies products in five colors, green, yellow, orange, red, and black, according to sales and the turnover. We have a KPI of percentage of products on orange, red, black. In the fourth quarter, the general order was we don't want anything at all in the slow-moving categories. You'll sell it at whatever price, get it out of the way to bring new things. We really squeezed it on the last quarter.
EBITDA, as we saw, going down strongly. The third quarter, a little bit closer to normalcy at 11%, but the fourth quarter really became a drag of all our problems. To get it out of the way. For example, one of the cases is the TV converter line. We made a business with operators some time ago. One of them is well-known, and it was a healthy deal with 20% of contribution margin for some years. At some point, this stopped. The operator was not pulling volume, everything was coupled. We had the inventory stopped for a year and a half, tens of thousands of TV converters. In the fourth quarter, we sold everything with minus 30% of gross margin. There was no market, so we took it all out of the way.
This is one of the examples of the house cleaning we did in the fourth quarter. Net income also keeping up. A violent drop in the year from BRL 774 million in 2021, down to BRL 90 million. Now, looking in the breakdown per panel. Basically, the main message here is last year, as I mentioned, in all quarters we talked about this, the major problem was focused on national retail, how it was locked. They had the same situation we did.
You see the market situation of large retailers, post-pandemic bringing a retraction, and they cut down purchases so much that we had year-on-year, 36% drop in national retail. That is the main culprit here as a channel. Government went down slightly, 13%, a lot due to project delays. In the beginning of this year, a lot of the projects that were expected for the end of last year were already done.
We will see in the first quarter of this year a robust number in government. Government is not something that worries us. National retail was 15% total, went down to 10%, and then recovered a little bit in the fourth quarter. It is good in one side because we started to sell again, but it is always a very tight margin, very discounted. You see the large ones were not buying a lot. You can imagine how much they demanded to buy the slow movers in the fourth quarter. Small retail, relatively stable. Government, we talked about. The big news for me here is that DTC went above double digits. We were starting with 4% in 2021 to 8%, and in the last quarter of last year, it was 10.5%. A lot due to Black Friday. It is not that DTC margin was wonderful.
There was a lot of red lines and orange. But it was sold, and we got as much as 11,000 orders per day. We were doing 1,000- 2,000 per day of DTC, and we got to 11,000 orders placed the days leading up to Black Friday, all DTC. That was very good. We saw that we were able to run DTC directly. Good satisfaction index, a lot of good numbers, and this was the 10.5% here. Now breaking down the revenue a little bit, we are going to see this drop in mobile devices, the electronics from 44%- 31%, 32%, and 28% in the last quarter. You see the drop in tablets, cell phones, computers post-pandemic. The growth on the other side in home products, home electric products, from 20%- 28%, getting to 32% in the last quarter. Here it is basically TV.
There is a lot of products, speakers, soundbars, portable appliances, but you have TVs as the main driver of growth, and you see that this category became the largest for the company. It is interesting how things are dynamic. It was a category that was half as big as personal devices, and it became bigger than personal devices. Multi is a little bit more diversified this year. You see the categories are closer to 25% each. They are less dominated by one single category, which is good. A strong growth in the varied line here of kids and sports. That is the one with the best margin in the year, or actually, sorry, the quarter. The best margin in the quarter was kids and sports. That went from 6% - 2%.
Of course, it's not such a high percentage to move the whole thing, but the category, as it grows, it tends to make our business healthier as a whole. Here you can see better each one of them, a big drop in PCs, tablets, and smartphones. Even if government's still in here, government is essentially PCs and tablets. Almost 100% of government is in PCs and tablets. Even with government becoming stable, there was still a 35% drop. You see how big the drop was on retail, the difficulty to move these products post-pandemic. Here in the quarter, a higher drop of 45%. Office and IT. We had that clean out of Smart TV Box that I mentioned. We had a new business that we won now at Healthy Masters . That's the Ku-band.
We won a very good bid with new clients, but we need to clean out with - 30 of gross margin for this very old product. Router growing healthy for internet providers. Accessories are going down due to the post-pandemic scenario. Pen drive drops every year slightly, and office supplies growing up. You see a small drop in the year. Considering the post-pandemic, that's a lot of technology products. It seems reasonable, it seems normal to have this number now. Home electric products, it's really good to see the growth, 26% in the year, 60% quarter-on-quarter, becoming the biggest revenue block for us. The main driver here are screens. We are going very well with Multi screens, Toshiba. We have a good news with the Hisense brand. Good news, and we're going to invest in that. We migrated a plant 100% to Manaus, generating more competitiveness.
We had a hybrid model before with Manaus and Minas Gerais. Now production's 100% in Manaus. The good news is that despite the World Cup, the first quarter was warming up. We were projecting a small decrease, but the first quarter is good for TVs, even post-World Cup, which is unusual. Speakers are going well, portable appliances are going well. We started to manufacture blenders last week. We already had manufacturing without plastic injections of fans, but we don't have full competitiveness yet as we need. Now we started with blenders with plastic injection. We have three injectors in our park in Extrema. Started last week. It's a very good product with great demand from the market, so it's a possible healthy revenue line for this year.
Healthcare as well, the items outside of pandemic are going up, and automotive with some special projects, but general retail is going down. Kids and sports, as I mentioned, 46% growth with a small drop here in the fourth quarter, but mainly due to toys. They are sold seasonally more strongly in the third quarter. Toys are the strongest products for the third quarter, so that's no reason for concern. Growing in pretty much all lines. pet going up, wellness, that's gym equipment, baby. Sports, led by drones. We're going very well with the DJI drones, and toy is going well. It's a traditional line that we have. I really like this slide because it's mostly become more diversified, showing that we can operate well in varied businesses with niche teams for each one, making our business healthy. That's the highest margin we had in the quarter.
The general margin was squeezed a little, but the margin for kids and sports was better than average. The worst was in IT due to the products that we are taking out of the line that were sold at a discount. Before we move on to the questions and answers, what is the highlight now at this time for us to think, look forward? It is cash generation. My mind is cash is number one, cash number two, cash is number three, and of course, healthy cash generation. When we are considering results and cash, we are thinking about cash, reducing net debt. That is around BRL 600 million. We want to reduce strongly quarter on quarter our net debt. Good news here is that despite the SAP transition, we will reduce net debt in the first quarter.
It will go down greatly in the first quarter, even considering all the issues that we had that we will detail. That is cutting costs, reducing personnel, delaying payments, delaying purchases, managing accounts receivable strongly will reduce net debt when we close the first quarter. Let me go to the other points quickly, and then we will go back to ERP. As I said, portable appliances is a line that we are very excited about. It is something where we can make BRL 1 billion over time. It generates cash. It is relatively healthy, and it is a line where we were not present in the two biggest categories, fans and blenders. To be competitive, we need to produce in Brazil and inject plastic in Brazil. Throughout last year, we made the investment, prepared the plant, about BRL 40 million investing in fixed assets and machinery, real estate and machinery.
We started production now for blenders. Two months from now, we will start plastic injection for fans' parts, and we will be a lot more competitive for portable appliances. There is great competitiveness with the market. In Minas Gerais alone, that is 10% of the Brazilian GDP, approximately. We are the only factory that is relevant in this segment. Even in terms of taxes, there is already an added competitiveness to sell in the state of Minas Gerais. We are excited with blenders. We are starting to sell the electronic motorcycles. About 300 pieces, if I am not mistaken, were already sold. We are getting very good, positive feedback. The Manaus plant is ready. It should start operating within the next couple of months with the materials coming in, and we are very excited. We have dozens of dealerships open, selling the motorcycles, Watts exclusive dealers.
I had a meeting yesterday with a representative from the dealerships, and everybody is excited with our main model, W125, and the two new models coming in. They sell bicycles, scooters, skates. There is a range of electric vehicles that is a very exciting new line for us. Expanding the existing partnerships, as I mentioned. We are growing with Hikvision. We embrace two lines at Hikvision. One is the car DVR. They have the best system for vehicle monitoring system. If you place a camera in the vehicle, it films the passenger, it films the road ahead. It is a security camera for cars. All fleets have a great appeal for that, with the world concerned more and more about security or safety. If they hit the car, they have proof of what happened. If a passenger makes the complaint on the driver, you have proof.
The driver can defend themselves as well. The trend is for all vehicles to have monitoring, and we have a very robust solution with Hikvision. There are digital signage parts, the LED displays for commercial purposes. It is B2B applications, and the products are coupled. You can put less anticipated capital. It is not like retail. We can bring most of the products under order. We have a small showroom, and you form the project, and you order as needed. It is more interesting margins than retail. This will be used by our corporate department that has been around for a long time. Our salespeople are skilled, and we have new professionals from the market who specialized in this area. Finally, Hisense, the world’s second-largest manufacturer, the largest in China.
Everybody saw the ads for Hisense in the World Cup, and they are coming to Brazil, and we are going to represent the Hisense brand, making their products. We are going to have a division. A product, Multi, the entry-level product, Hisense, and then Toshiba to strengthen this line. We have projects under development. The main focus is cash. Interesting things that do not require a lot of capital that will bring good results.
We are doing that, but the focus is efficiency now. Number one, number two, and number three priorities. Then we get to the final point. That is the ERP migration. I think Multi x SAP would be in a scenario where we would be able to talk about significant results improvements for the first quarter. We cleaned out stock. Market is relatively warm. There is a lot of orders coming in. But we turned the key for SAP in January.
We stopped the system at the end of December. We stopped for 10 years for adjustments, for loads, and on January 10, we turned the key. If you have any contact with people, well, with companies who have made this migration, you know there is no happy story of SAP migration. Not even in my worst nightmares I was able to imagine it would be such torture to migrate an ERP system. We had nine months of the project, extended to 1.5 years, extended to two years to reduce risks, to finalize customization and testing. Four complete test cycles involving more than 100 people. 100 employees outside of the operation, 100% testing SAP, key users, the best consulting, the best partners. All of the recommendations, of course, were not enough. We turned the key, and the company stopped. It is amazing. Nothing works. You cannot invoice. You cannot receive goods.
You cannot make payments. You cannot replace products and warranty for consumers. I am talking more about this because the impact of SAP in the first quarter will be huge. There is no chance for us to have a minimally acceptable first quarter. We are going to take another beating in the first quarter. I am being as transparent as always, telling you in advance. We were talking about this migration, but we suffered a lot with SAP. We struggled. To return an invoice, it seems like an escape room for you to be able to return an invoice. The number of things, the registration, the serial number of that, and this and that. Modestly, I really studied in depth to understand the weekend. I spent the weekend carrying boxes at the factory to understand, with the collectors looking at everything.
You do this, it blocks, and that, and it stops, and you have to redo and go back. January was a month to struggle invoicing. Only the highest invoices that there was no way out were done. Otherwise, nothing was done. January was terrible. February, we were able to get halfway there. In March, we are expected to meet the target finally. Even with a lot of pain, a lot of additional costs, it is horrible. The cost of this whole game is impossible to calculate. Thousands of retailers without receiving products, waiting for 20, 30 days. Consumers who send product for replacement, and we cannot invoice. We cannot ship. And reimbursement to consumers, millions of BRL per month in reimbursements. Extra expenses, overtime. Saturday, Sunday, everybody from the floor to the top working for seven weeks in a row. Extremely high costs, revenue locked.
I never saw anything as difficult in my entire professional career as ERP migration. Now we are doing much better. Since the middle of the month, we are invoicing more than the orders come in. The order line is smaller. E-commerce line is two days. You place an order on e-commerce, it takes two or three days to invoice. We got to a point where it was 20. The impact for our D2C will be heavy. Impact for small retail will be very heavy. Large retail, not as much because they have an order of BRL 5 million. You stop the whole company and say you invoice it today, and that is that. You have three consultants, the director, 10 people to invoice an order. If you are not from the operational market, it is hard to understand.
If you do not live this, it is very hard to fathom the size of the problem. I am giving more color just to let you know that the first quarter will be horrible. Nothing related to the fourth quarter. It is not inventory sale. It is SAP. SAP is a great product, but the pain it is to migrate. I believe that God willing, we will be better than we were before, once it stabilizes. But today, the status is 80%. We are 80% there. Things do not stop. There is an order of retail orders from small retailers, strong at around nine days. We have two days of e-commerce lines and nine f or small retail. Large retailers, the orders are shipped. That is the scenario today. Week by week, it is improving, but it is a very high cost. Do not expect anything great in the first quarter.
Now, for the second quarter, we are already expecting things to get better. In the second half of the year, looking only at the second half, it will be at normal levels. Multi, as usual, would be reasonable for the second half. We remain excited thinking on the long term. Now we are on the eye of the storm, as I said in the letter to shareholders. But looking at the history, we have a good business. It is diversified, many lines, a dynamic company that launches products quickly, consumer-avid market, great cost-effectiveness. Nothing changed, nothing in this sense. But we had a pandemic that made us. We bought too much, did not stop in time, and at the worst time, we went there and implemented SAP. Combining those two things, that is like two bombs exploded. But if you look at the long term, we are excited.
Right now, we are neck deep in the problem, cutting costs, focusing on the operation, reducing expenses. With that, I will close the presentation. I thank you all for your attention, all of you who have been with us, and let us go to the Q&A. Let me look. There are some who want to ask live. Let me just go over the written questions or live first. Okay. Great. We will start with the sell side. We have Andre from UBS, and Thiago after him from Itaú, and then Danniela from XP.
Good morning, Ale, Ju. Thank you for the opportunity to ask my question. Thank you for your transparency and the explanation on the earnings. Eder, good morning as well. I would like to ask two quick questions here. The first is a little bit more color in the inventory. We had a look at your statements, and there is a lot of finished products in this inventory. If you can give us some color of products that are already stamped with orders and what on those products depend on a sell-in to the retail channel and the breakdown of these finished products.
My second point is about the negotiation with the creditors at the end of last year, beginning of this year. If you can give us more details, the banks involved, if there was any increase in the cost of debt, and the frequency of the new covenant of 2.5 x leverage. Thank you.
Maybe Eder can add or Ju, but our type of business, most of the inventory is purchased for inventory. One of the things that add value to the customer is to have products ready to deliver. A customer says, "Oh, you place an order, then I will go to China and order production, and I will deliver in 120 days." You lose value, some value.
Of course. I have an educated guess of BRL 400 million- BRL 500 million of inventory at cost already for government orders, something close to that, and that is there. There is some coupled corporate business as well. Most of the inventory are products that turn over and has a monthly sale. That is the magic number. How many pieces we estimate we will sell per month. That is the magic KPI. If I have six or seven months of coverage, that is excellent, very healthy in total inventory. Eight to nine months, a little less, a year, bad, and more than a year, terrible. The products and the red dot and black dot is one, two years of inventory. That is the focus.
Now, with SAP, we had an issue that products with a serial number, the complexity to get it out is more difficult. You need to read the serial number one by one. That makes it more difficult to sell electronic with serial numbers. We only solved this effectively in March. We were invoicing in the other months, but we had a process. You take a batch, a customer is going to buy 10,000 cell phones, you need to take the boxes, read all of the serial numbers one by one, load it into the system. The entire process would make it delayed. For the covenants, we have one case that went over the covenant. The company's plan was done. We had that Brazil surprises that we know very well. We were within the covenants, very comfortable, calculated to have no problems.
Throughout this quarter, the first quarter of 2023, we had a surprise that the Supreme Federal Court decided what was unthinkable. They decided that the coisa julgada in Brazil, that was the only guarantee we had in the country, the only certainty we had in Brazil in the country where nothing is certain is that decisions that res judicata would be final. Us and all companies who had these rulings, res judicata, and following those rulings, we had the surprise now, after the year was closed, that we would need to reopen the past and provision for it. We were forced to provision BRL 150 million of that EBITDA. Not everything is operational. We have some non-operating points, and BRL 150 million is the decision of the Supreme Federal Court to reopen the past.
Even if you had the final ruling, that is no good anymore, and you need to make provision for that. Provisioning for that, EBITDA went down. EBITDA going down, the covenant was breached. That was a completely force majeure issue. Even if it is lost in the end, there is no cash effect, because if we do have to pay it, we will use tax credits that we have plenty of. We will just write off BRL 50 million in the tax credits. That is the only thing that breached the covenant.
Now, of course, for this quarter, the mission is to bring down this net debt steeply. That is what we will have to do, and recover less and reduce volume, and operate less at a zero debt. I would like to add here, the covenant assessment is annual. There was no increase in the cost of debt. We promptly met the requirement.
In operational terms, it was simple to accommodate. This reclassification had the objective of meeting a specific CPC. It is an accounting rule. We questioned it at length, but we understand that it had to be accounted that way in the short term. The financial impact is none. It is only in the financial statement of December. For the first quarter, we are already assessing whether we continue to show it in the short term or if we start to account it in the long term already. Another interesting point is that despite our debt multiple increasing, that is concerning. We do not want that. We want to bring it down, and we are focused on reducing it. In absolute terms, it is slightly over half the debt we had in mid-2021. We had a net debt that was a lot higher than today.
The multiple is high due to the freeze EBITDA, but if you look at the other metrics, for example, indebtedness relating to total assets, we have BRL 600 million net debt with a book value of more than BRL 4 billion. Our book is different from other books that they have fixed assets that nobody know how much it is worth or deferred point. Our P&L is basically working capital, receivables, inventory. The margin may be bad, but it is turning over. It is an obligation that we have as a company to optimize this, to extract this money from the P&L to pay off and reduce the net debt. We have good economics, even though the multiple of the EBITDA is not good at this time.
Very clear, Ale, Eder, thank you for your answer.
Hi, do you hear me? Great. Good morning, Ale, Eder, Ju. Thank you for the opportunity to ask questions. I also have two questions. I think I also want to talk a little bit about the debt to understand a little bit better. I think you already talked about this a lot, but it is two questions. One, regarding the provision. I understand it was the provision from the Supreme Federal Court or led by the Supreme Federal Court ruling that became a trigger for the covenant, right?
What I wanted to understand was whether this provision that you had, if you believe it is sufficient looking forward, or if there is any risk of needing additional provisions that could, again, lead to some type of review of covenants and so on. Even if you can talk more, or at least to set our minds at ease about the negotiations with banks.
Of course, you do not need to give us names, but if all of them are up to speed and how the situation is. The other question that I have. I think it was very clear on the focus on cash generation during the year and so on. What I would like to understand more, outside of this inventory and so on that you talked about, but are there other possibilities to cut costs or for efficiency gains that we could see in the coming quarters? If you can talk more about that, it would be good. Thank you.
We only had it with one bank. All of the others are within the covenant. We did not have to contact them, Thiago. As for the provision, it is adequate. There is no risk of a complement. The operation that gave margin to this contingency was discontinued.
So there is no risk of any additional impact of provisions or nothing new involving the Brazilian Supreme Federal Court. About the cost cuts, there is a lot of money still in the logistics side. That is where we have a lot to reduce from now on. Of course, according to the company's situation, I am not ruling out new cuts. It is not impossible. With those 10%, we have our departments a lot more streamlined. Where we had no cuts so far, quite the opposite, was supply chain. Because of the SAP, it is the opposite. We had to put 120 operating employees, consultants, so hundreds of thousands BRL more. The external warehouses continue to be paid. Only one of them is BRL 900,000 per month for 30,000 pallets. As the SAP system stabilizes, we will reduce external consultants. We will streamline the payroll.
We do not need the total people that we have today, but it is for the inefficiency of operating a new system and all the issues that come up. Reducing inventory, we will stop leasing warehouses that have an extremely high cost. The one that we have is BRL 900,000. Another is BRL 800,000 with 20,000 positions. For logistics operators, we have custom warehouses. It is very expensive. So deflating inventory is where the money is. I do not know the number of how many millions we have per month. We can do the math and tell you later, but it is a very high figure with a lot of gain for the company once we are able to streamline this inventory and optimize the logistics side.
Very clear. Thank you for your answers.
Danniela?
Hello, guys. Good morning. Thank you for taking my question. I have two. The first, you were talking about thinking of a more normalized Multi in the second half of the year, and the first quarter still being impacted. The second quarter, I will imagine it is a transition between the adjustments. Just to understand if that is the road we should imagine. The first quarter with a lot of impact, the second quarter with some impact, but less, and then from the third quarter on, getting to more normal levels and getting to the end of duplicate expenses with the Extrema distribution center, the SAP adjustment.
Just to see if that is the road we should imagine for the year. The other question is about the government side. You had an important drop in the fourth quarter, but we see some news about delays as well. Maybe it is connected to the SAP or I do not know if it is or not. If you can tell us, give us an overall overview of the bidding pipeline and this line, it would be nice. Thank you.
That is exactly what you said. The outlook is for a horrible first quarter due exclusively to the migration. Second quarter, still kind of licking our wounds from the first quarter. A lot of retailers are upset because it took them too long to get orders, buying slower. Consumers taking longer to go back to get the score of our website. Did you see to go back up? It will go back up, but it takes time. We need to invoice thousands and thousands of invoices with a perfect delivery so that the marketplace scores go up again. The first quarter, horrible. The second, licking our wounds, but operating well. Third and fourth at normal levels. That is what we need to do.
About the government, it started very strongly in the first quarter due to the delays that we had from the previous quarter, so we have had a lot of deliveries now. The year is still uncertain. The business of the second half or the bids are starting now. I believe we have a robust pipeline. The government has a lot of businesses to advance, a lot of processes.
The current government increased the budget for technology, and there is a bias of investing in this area, in education. We are seeing other channels as well, other types of products that work well with government. Studying servers, corporate PCs. They are good areas. It really depends on the pipeline of what we are going to win, depends on a lot of things. But I would believe a flat for government. Good revenue as we had in 2021, as we had in 2022. That is the greatness we have been already doing, without growing much, without dropping much .
Great. Thank you.
Let us have a look at the questions here. Continuing with the question, we have one from Mateus. "Ale, good morning. In the last quarter, you mentioned the priority was cash generation. We want to show a reaction on the next quarter," and you have to ask me about if there is a strong improvement. But there was no strong improvement. What happened? Excellent question. I do need you to demand answers from me. If you look at the video we should look at the video what we said, but as I remember, I said we need to generate cash or at least reduce the inventory. I think that is the full sentence. If I am mistaken, please take the video. It is a public document.
Then you can come back to me and you will be right. What I said was that I wanted to focus cash and at least reduce inventory because that automatically leads to cash generation, and that is what we did. I would have loved to have improved cash generation, but we reduced the inventory levels. When you convert BRL 1 of inventory in transit into BRL 1 of inventory in-house, this BRL 1 in terms of cash becomes BRL 1.5, BRL 1.6 due to all the import taxes. So when you take inventory of BRL 3.5 billion and it becomes BRL 3.3, you reduce BRL 300 million or BRL 200 million in inventory. But if you took part of it and converted inventory in transit to inventory in-house, this value also goes up.
So the real inventory in pieces, in value, reduces a lot more than BRL 200 million because in addition to reducing the whole thing, you transformed in-transit inventory into in-house inventory. There was an inventory reduction. It has not generated cash immediately, but we are seeing now for the first quarter of 2023 without invoicing. Imagine we in January invoiced 1/3 of what we should have. But even without revenue in January, without revenue or half in February, we generated cash in the first quarter already. So Mateus, you are right. You do need to ask me for answers, but our faith was to first look at inventory, and now in the first quarter, we will start to deliver, and it will become a better cash generation. The other question?
You said I mentioned that was the liquidation of inventory at slow turnover. What is inventory like now? Do you need to burn more margin, or do you believe in-house inventory is healthier now? Mateus, except for smartphones, that is a huge problem. Smartphones are a nightmare for us today, but the other things in the inventory are a lot healthier than in the past. We hold meetings with all business units, and one of the KPIs that I mentioned was the percentage of black dots or orange dots in inventory or red dots.
I remember that in all meetings, they would say, "Oh, throughout the quarter, especially the fourth quarter, black dots that were 20% became 3%. Red dots that were 10% of total is now 5%." So the total of those dots, orange, red, and black are the very severe ones. The total went down. There is a lot of BUs, I do not know, but it went from 30% - 10% in the total of inventory, these serious dots. But smartphones are a huge problem. We are going to bleed a lot still this quarter.
Now moving to Bob. Hello, thank you for taking my question. Alexandre, what is the size of the challenge with Americanas and how you are thinking about the healthy of other retail customers? A separate topic, how much overlap is there between cross-border e-commerce and your supply? Bob, Americanas historically is one of our top five retail customers. There is always top five, and generally top three. It went down. Remember I said there was a big drop in big retail, Americanas as well. That, some things actually turn out better. An account that could have BRL 80 million, BRL 90 million pending was at around BRL 40 million some pending, right, Eder? How much did we have?
BRL 56 million.
So BRL 56 million pending with us. Everything insured, everything with insurance coverage. So we fortunately do not see a huge impact in economics. There is a market impact. It has always been a very important channel for us.
We are hoping they will remain in operation and start recovering and are injected in capital so they can go back to being an important customer. But in our whole retail, Americanas responded to 2%, 3% of total revenue for the company. Last year, it was 1.3%. It went down. Historically, 2% and 3%, last year, a lot less. It did not weigh down on us so much. 1.3% total. Right, Eder?
A little bit more than that on retail. It is a moderate impact. You have some plans that sell 30%, 40% to a single customer. They will have a huge pain. But for us, it is not as bad. About cross-border, I see it with great concern. Cross-border today is in all segments. Of course, the more affordable products tend to have a bigger impact. It is a product, people do not need it urgently.
They buy it there for a third of the price and wait until they get it. Today they get it in 10 to 15 days. But there are also cases of expensive products. For example, we have DJI drones. I have a picture here. That is very interesting. They take a BRL 12,000 drone and charge BRL 4,000, BRL 5,000 for a drone. The product comes reported in the invoice as a $30 product. They have prints of invoices that retailers sell for BRL 4,000 straight from Asia without any tax. They declare $30 to customs. It comes without tax retention. All products of smaller physical size have an impact. Smartphones can come like that. PCs, though I do not see a lot of PCs coming because of warranty. That is products that people have more concern with warranty. But webcam, mouses, peripherals, clothing, that do not affect us.
Bob, I do not have the right percentage of what products are more affected. In theory, all products could be affected, some more, some less. We would have to do some math here to tell you, but big, large volume products have zero impact. Televisions, that is our main product today, it is zero impact. They are not going to send a TV through whatever Chinese website in a plane, a 60-in screen TV and speakers and appliances.
Larger products, it is difficult, but valuable small products, yeah. In that sense, I am very excited to see that the new government is being sensitive to that. The president made statements about this, and congressmen and women have talked about it as well. We are optimistic that the government will take some measures for that. There are already reports that inspection is tighter. We are seeing that they are taking more products and apprehending. Consumers are paying more taxes than the product value. That scares people off a little bit because cross-border is unloyal competition, and it is a big challenge not only for us, but for all formal businesses in Brazil and all industries and all retails.
From Carlos here: Could you explain which trend from the fourth quarter we should expect again in the first quarter? For example, negative EBITDA. If so, should we also see that in the second quarter of 2023? Well, Carlos, due to the SAP, I am almost certain that we will have negative EBITDA. I would be very surprised if it is not in the first quarter. Due to the low invoicing, the low revenue due to the system migration. We should not see that in the second quarter of 2023 at all. If there is a negative EBITDA in the second quarter, it is very, very serious. We did not have a guidance.
We don't have specific numbers for that. But the fourth quarter was a clean out of inventory that was huge with some additional expenses. The first quarter, SAP and additional expenses and low revenue. But the second quarter, no way. Low margin, yes. Tight, yes, but not negative. Net debt went up with cash burn operating and investments above BRL 100 million . If this trend continues during the year, what could be the impact? Do you foresee covenants to be breached? What levels of covenant renegotiation would be? We talked about covenants already, capital increase. Would it require any capital increase or asset sale? Well, Carlos, that's not the perspective we have. We're going to close the first quarter with a lower net debt, even with SAP.
If we keep up at this pace, playing the same tune at the first quarter with the tight faucets for purchases, I'd like to deliver in the second quarter a reduction of debt as well. Now you need to ask in the first quarter to reduce this debt. There's two days for us to close the first quarter, so it's delivered. In the second quarter, another session of debt reduction.
From Felipe Rangel. What's the forecast of the Watts share of revenue at Multi? Will there be a relevant contribution? Felipe, for this year, it's not going to be, I'm sorry, he froze slightly, but it's not going to be too high. But since it's coming from zero, as a contribution for the growth, yes. It would be one of the four lines that will grow the most this year. Drones will grow. The internet provision we want to grow. Portable appliances we want to grow. Watts will be one of the four business units out of 15 that we have, the four that will deliver the highest numbers. That will definitely be Watts.
From Igor. Good morning, Alexandre. As you said, looking in the review mirror, we could see that would be required to have a lower revenue increase to guarantee margin in line with history. It seems we can conclude that part of the revenue in the last three years was non-recurring. So what's the level of the company's structural revenue that balances the margins in line with historical levels? We never thought in these terms. Igor, it varies according to the business and the market. A business that was growing 20%, 30%, that got to 2 billion a year, and then all of a sudden went to 5 billion. Of those 5 billion, would it be reasonable to go up to 5.5, 6 in 2022? No, it wasn't.
Maybe we should have projected going down a little bit to 4.5. But certainly it's not a company that will go back to 2. We have a lot of new businesses manufactured here, Watts, drones, TVs. I think the level we're at right now is a level that should not go back significantly. Maybe this year, if we think it's better to go down a little bit to get more margin, generate cash, okay, in the name of cash, but not because there's no market or we can't do any more than that. I think the number that we got to is here to stay. I do not imagine Multi going back to what it was before the pandemic. Not at all.
From Marcelo, "Thanks for the presentation. Very clear. Can you give us an order of size of the impact by SAP in the first quarter?" Marcelo, unfortunately, I cannot. I would not be able to guess the size of the impact of SAP. That is what I mentioned. Orders canceled, thousands of customers not being served, duplicate costs, consumers being reimbursed in the month because we could not deliver products. It was very, very serious. It is the worst professional challenge in my career. It was SAP migration.
Leonardo, "Given what was said, ERP, does it have its advantages?" You see that we are traumatized by this topic. At this time, of course, no. We are struggling, we are suffering. Once it is implemented, I want to believe that a software that is used by half of the large corporations around the world, that everyone says is very robust and it is very complete, and we bought all modules, so it does not depend on integration. We are running SAP as ERP, WMS for managed inventory, the official SAP partners for taxes, for imports.
The idea, it is not that it was wonderful before. We used TOTVS Protheus. There was a lot of problems and suffering and complaints, database problems, a lot of work to close the accounting. But I believe that once everything is working, it is going to be more robust with less error, very reliable and fast to close the accounting, to make payments, very automated, gaining efficiency. So after stabilization, that takes a long time, and six months is the minimum stability. Six months for us to stop taking a beating, and then another year to have all the gains that SAP can bring, we will be more efficient than we were before. From Flavio, "Good morning. How does the company look at its capacity to refinance the debt rollout with maturities due in 2023?" Eder.
At this time, I can say it is very simple. Everything we had on the plan. We continue to have credit offers. The market is bad. It is not only due to Multi's fourth quarter numbers, but the market itself. But we have no difficulties. In line with that, we are also working with generating operating cash. We are trying to get away of banks a little bit, even to send a good message that the company, of course, needs it, but at this moment, we want to make all efforts to generate cash and not getting into this heavy debt. But we have no problems refinancing anything. It is actually quite the opposite. There is some amortizations made that we decided not to roll out. So I say the situation is quite comfortable.
From Marcos, "How do you assess the potentially negative influence of the deals with the government of São Paulo with the Secretary of Education?" So putting everyone on the same page, Renato Feder, that is one of the reference shareholders here, the second-largest shareholder, became Secretary of Education in the state of São Paulo, a state with whom we historically have had business.
Talking to the legal side and everything, there is no legal, formal prevention from Multi to work with the state. But being conservative, we know Brazil is very sensitive to this topic, we have decided not to enter new businesses. We are delivering on some contracts that we won in January 2022. Contracts from bids that Multi won one year before Renato took office, when nobody even dreamed that he could become Secretary.
These are big deals and we will deliver and close. The state does not have many plans to make purchases. They bought last year. They closed contracts on a lot of things that will leave them supplied, but really, if there are new contracts, we will not participate. We will decline. We may lose revenue there, but it is something that is not priced, it is not budgeted. It does not even exist. There is no provision for that. We will focus on the other states of the country.
From Marcelo, "Considering the duration of the Brazilian economy, is it reasonable to assume that the second half of 2023 will bring margins similar to the fourth quarter of 2022?" Marcelo, after the fourth quarter, I am not sure of anything. It was really bad. We knew we were going to burn prices, but the results were surprisingly negative. I do not believe what made us bad in the fourth quarter was not as much the Brazilian economy, it was more the fact that we had expensive inventory that we bought in the pandemic. The Brazilian economy goes poorly from time to time. 2015 was terrible for Brazilian economy, one of the worst times of the Dilma government with economic retraction, and we had healthy margin. We grew about 20% with a good EBITDA.
When the economy goes bad, people seek a trade down, they seek competitive brands, and that is what Multi does. Thinking about the second half of 2023, with inventory being renewed, refreshed, with new things coming in, old things going out, the trend is to get products that are good FOB, good freight cost of BRL 2,000 again, bought only for the turnover. I think it is highly unlikely to repeat the fourth quarter. I do not think it is going to be the seventh wonder of the world in terms of margin, but a normal margin of what Multi usually delivers is what should be expected for this period. From Marcelo, "What is the average term of customers' inventory and suppliers the company seeks and believes to be adequate to obtain return on invested capital with EBITDA margin close to 14%?" Do you want to answer, Eder?
Average inventory time, I would say we are at 90 days or more. Our goal is to get to the end of 2023 with a reduction to 60-90 days of inventory. Average time for customers does not change much. It is difficult to change what we have, but there is a lot of opportunities in terms of inventory. The trend here is from 60 - 90 days, to be able to reduce this at the end of 2023. In the first quarter, we should already see a significant reduction in inventory times. For suppliers, it is also a low term. We estimate to increase it in 20- 30 days compared to what we had in December 31st. The biggest opportunity that we have is inventory suppliers.
Marcos here, "Good morning. What is the size of smartphone inventory today, and with what growth margin do you expect to turn them over? Today we have about 160,000 smartphones in stock. These products are products that end up delaying. We had a lot of problems last year. The main laboratory in Brazil that enabled 60% of smartphones went bankrupt, and it did not give the authorization to the companies.
The Special Department of Federal Revenue of Brazil had a strike for two to three months for all smartphone shipments. There were a lot of delays. As I mentioned, the main pain today in our 15 business units is smartphones. We have 160,000 smartphones. The cost in rough terms is about BRL 100 million in inventory, and we will sell that at a low margin, a margin close to zero. The others are healthier. Forgive me if I make a mistake by a small margin, okay?
I cannot make big mistakes, but I am making educated guesses from the top of my mind. First quarter of 2023, do you see a reduction of net debt? Yes, we see that. Net debt will go down now. There are two days to close, so we already know. In revenue and EBITDA, is it expected to get better or worse compared to the fourth quarter? Revenue worse because we did not earn, and EBITDA, I do not know. With SAP, one of the things that takes a long time is the accounting side.
We cannot close things in time. This migration is really terrible. But net debt will go down. Revenue will go down strongly due to not invoicing in January and invoicing 50% in February. And EBITDA, negative. I do not know if it is worse or better. Was there a fine with delay of products in São Paulo?
If yes, what is the amount? This is still under discussion. If there is a fine, it will be a low value. The first fine in case of delay is a low percentage of the non-delivered part of the contract. So it is not a material amount. But it is still being discussed because the other manufacturers who also asked for extension had the same problem we did with components from China. So it is traditional that if the reasons are presented, the state may extend without a fine some orders. But we will see. We will follow the legislation and the procedures. If there is a fine, we will pay, but it is not going to be a material fine.
From Lais, if there is expectation of when the insurance company will reimburse the amount open for Americanas? Soon. We are optimistic that we will soon receive this payment. Very similar to maybe the question that you are asking about. Yeah, I think the payment terms do not make much of a difference. From Marcelo again, fourth quarter of 2022, Multi had an expense or provision for doubtful accounts in the amount of BRL 37 million. Eder?
It is pulverized. There is nothing concentrated, but there is expectation of loss. We made some adjustments in some items, in some indices, and we had to make a bit of a bigger provision, but it is dispersed. And a lot of this value can still be reversed, but there is nothing too relevant here individually.
In addition to blenders and fans, are there more similar products in the pipeline to be explored and manufactured? For the production pipeline, we concluded the motorcycle plant in Manaus. It is ready, waiting for the same lot of CKD products. It is a new line. Plastic injector, as I mentioned, fans and blenders, and there is other products in the pipeline that will be other portable appliances, especially air fryers. Everything that is large with a lot of plastic, it is worth it for us to produce. Then we have injection of pet products, some larger pet products that we will buy molds and use our injector, so there is zero CapEx cost.
Basically buying the molds and inject. Then we have baby car seats that are also being studied. That is also plastic injection. The baby car seats, the main product that we sell, and we are one of the market leaders. Finally, we have the routers plant with the ZTE brand that we doubled capacity from 100,000- 200,000 pieces per month. So today we have a large factory. It is also ready and in production. New projects are all on hold. Let us first explore the projects we have, build cash, and all this along the lines that I mentioned for this year.
From Marcus, "Looking in retrospect, what decisions would you have made different in the last 12 months?" Replacing brands have been a correct decision. Focus on cash generation will continue after the company reaches a healthier run rate. This exercise is always. Looking in retrospect, it is always easier, right? The first thing is the SAP, of course. I would not have started or released the turnkey for the system, without a doubt. We would need to have to run a lot more tests for a lot longer, even if we were with the meter on. But looking with the eyes we had at the time in December, the meter is running without 100 employees being paid to test SAP, all test cycles, consulting firms being paid.
You need to pay SAP and the previous system. This meter running in a company with a low margin is a very big pain. Can we turnkey? Yes, we are. It is not going to stop invoice. Let us go. Turnkey, and everything stops. So knowing that, of course, I would not have allowed the turnkey, but there is nothing we can do now. Another decision, of course, would have been to migrate for cash focus a year ago, cutting purchases. That previous vision of buying a little bit of everything so that there would not be shortage. Thinking about new sales, we would have tightened, saying margin should come first. If there is a shortage of a product, so be it. We would have changed it. But now there is nothing we can do. It is a lesson for the future.
Once we get back to the healthy run rate, as you said, Marcus, we need to find a more balanced middle ground. The company wants to grow again, launch new products. We have always been a bold company. Multi became Multi by being bold. We started doing things that everybody thought would be bad when we went in tablets, living accessories, when we got into TVs, drones, and the toy business. Some things were a wrong decision, but the majority was a right decision. We have Multi, one of the largest companies in the country with a very good, diverse history. This year is the year to stop and generate cash with no new adventures. But then we will get to get to a middle ground. Not like the previous years of growing, growing, and launching, launching. There are products that we see make no sense.
For example, we got into a home décor line. There's decorational elephant that would be sold by 100. We're selling for BRL 20 now to burn. Looking in retrospect, why did we enter home decoration, décor? Because we were excited, but it was a mistake. It doesn't mean we need to stop launching things and innovating. Within the next six months, nine months, if we're really improving in cash generation. Did it go down? Can anyone hear me?
Yes, Alexandre, you may go ahead.
Oh, they can hear us. People weren't hearing me here, but okay. Instead of just focusing on growing nonstop, it's to be in the middle ground to six to nine months. If net debt is halfway down, for example, hypothetically, we see that it's healthier, then we'll slowly start launching things again, but being more rigorous. Okay. I think we covered all the questions here. Great. One hour and a half, as I had expected. If there's no further questions. Ju, any comments? Eder?
Thank you all very much. I know the news are bad, but all I can do is be transparent as always. I always give you the real picture, be it good or bad. I'm talking to you as if I were talking to my internal team. 100% real for you to make your best decisions. Okay.
Thank you all, and let's hope for better news in the coming calls.