Good morning, everyone. Welcome to Multi's results of the second quarter. I'm Juliane, IR director. I'm here with Ale, our CEO, and Leo, our CFO. Before turning over to Ale, I just had two things to say. The first is if you'd like to ask a question, you just click on the Q&A icon. If you wish to open your microphone to make your question, you can feel free to do so. Otherwise, you can just write, "No mic," on your question and we'll read and answer. Also, a reference to our disclaimer on the last page of the presentation, and that's it. Let's begin. Ale, you have the floor.
Good morning, everyone. It's a great pleasure to be here. Thank you all for your interest. We'll have some comments about the second quarter of 2022 on Multi's earnings. We'll start with some highlights of the second quarter.
As you must have seen, first of all, we really changed our brand. This is a historical moment. After 35 years in the market, a company that started, as everyone knows, in the laser printer cartridges, therefore the name Multilaser. We made a historical change for a new positioning, shortening the name. Multilaser is now Multi. I'll talk more about it towards the end of the presentation, but it's really nice. It's a movement that will add a lot of value to our brand and to our results as well. Now talking about the numbers, and I'll talk about Multi. But the quarter's outlook was positive for us. We saw a recovery in revenue. We grew 20% in the company's net revenue compared to the first quarter of this year. Even more important, 1.2% compared to the quarter in 2021.
The big point of pain, the doubt that we had from the investors was that a company that tripled in size in a two-year period, maybe this new level would not be sustainable, or would it be possible for the company to hold its ground and continue to grow organically, even if at a small rate per year? Or will revenue go down to something between the pre-pandemic and post-pandemic levels? That was always the big doubt. But when the first quarter came up, we came here on the call, showed the 20% decrease. That was nothing that scared us. It was in line with the plan because the base of the first quarter of 2021 was huge. It was the best quarter in the year. Historically, the first quarter is weak. It's the weakest in the year, usually, in our industry. But okay, 20% down.
But now in the second quarter, we are +1%. It's small growth. Of course, we want to see more, but it's a good trajectory. Optimistic with the future for the upcoming quarters to be able to deliver more than that, of course. But -20% turned into +1%, so now we'll start delivering, if all goes well, better results, closing the year with an interesting figure. This small growth, this reversion seems a good thing comparing. The first half of last year was very strong, the first and second quarters last year. Third quarter last year was more difficult, and the fourth quarter was very hard. It was the quarter where retail really tightened and the atmosphere was worse in the fourth quarter of 2021. Now on EBITDA, we show an increase of 12% compared to the first quarter. That's also interesting.
In line with this revenue pro, the margin was tightened at 0.9, but EBITDA is going up. The fourth point here is that there was a lot of growth in new product lines that are not as traditional for Multi, but showed the diversification of the group. We are going to see each category, but we grew a lot on screens and displays, TVs, networks for providers, personal computers for the government. The new baby categories really booming, pets, wellness, toys. The company is increasingly diversified, relying less in one or two segments only. An interesting point is that we are generating operating cash at BRL 80 million. We are consuming cash, so quarter by quarter, we have been using cash to fund our growth. We have receivables and inventories with the large accounts that really eat up the cash, but for a good reason.
The company is growing strong, and now that the revenue base is more stable, we start to generate cash. That is always something investors ask, and I think this is positive. Let us see in the upcoming quarters if we continue generating a lot of cash. Bringing in more details, net revenue, looking at the year over the last 12 months, we see an important growth of 62%. There is a compression of growth margin that is entirely expected due to the comparison base. The pandemic moment when everything was in our favor. People were still with a lot of money and buying and equipping their homes, not consuming from abroad. All these forces have been discussed and really boosted national retail and electronics. But now the margin is more compressed. I believe the normal stabilized long-term margin is slightly above this.
It is in between the pandemic level and the level of the last nine months, which is tighter with a retracted retail. Looking quarter by quarter, we can see this 1.2%, a small growth compared to last year. See the 20% leap, that is very important compared to the first quarter. This margin compression here, the growth margin, and then 0.9 on EBITDA that we will see next. Here is the EBITDA. We see growth year-on-year, a 12% increase compared to the first quarter, and - 23% compared to the peak of the good winds of the pandemic phase. The first and second quarters of 2021 were some of the best quarters in the history of the company. Here we have that margin of 0.9, basically due to the mix. But we may say this is a level that is below expected. We want to improve this.
We can work better on this percentage, and it is closely related to that tightening of the retail, more competitiveness, fighting to sell. It is a cyclic point of the market in our view. Net income here, this slide is very important to pay more attention to because you will see a significant drop of 72% in net income, almost 70% compared to the first quarter. But we see this as non-recurring effects. There are three very important factors that explain this difference. Of course, it is frustrating to have an income that is below the previous quarter, but it is quite understandable, and it is non-recurring. We believe this will be quickly reverted. It is a one-off scenario. Let us give you the brief history. On the year, we are growing 55%. We came from BRL 200 million. That is an astronomical figure.
I think it's the highest income of the company's history, BRL 200 million in a quarter, because it's more than a quarter of the income of the entire last year, and a margin of 17.5%. The first quarter, we came here and told you that this was non-recurring due to foreign exchange aspects. We saw 13% of EBITDA margin in the previous slide, 13% becoming 17.5% of net income. The explanation is the strong drop on the dollar. We had a positive exchange rate variation. We told you, let's not get excited. This is not sustainable. We need to look at it carefully because it's way above the company's normal levels. It was a tight quarter, a lot of fight. Then we had BRL 171 million in net income. Now the opposite occurred. We had three important effects that we must understand.
The first one is the negative exchange rate variation offsetting the previous year, basically. What we made more on exchange rate last year, the US dollar went up. Now it went down again, but maybe if the US dollar is maintained at this level, we may have a positive exchange rate variation in the next quarter. We need to balance this. This is very important. Then we had another negative one-off event that was the tax review with the Minas Gerais Government. We reviewed many years back, and there was a discussion of ICMS credit intercompany. Being conservative, we decided to have a one-off spontaneous report of the ICMS tax, cleaning up some potential contingencies that could come up since 2017, 2018, 2019. Nothing is related to the 2022 fiscal year. We also had an adjustment in net income due to the spontaneous reports.
The first negative one-off effect is exchange rate of BRL 100 million, minus had, to give you an idea, is about BRL 70 million. So BRL 70 million, more or less, of exchange rate impact. Then we had this tax review, net of around BRL 45, BRL 50 million. This is just the major figures, but we have all the details in the notes. Finally, of course, we had a positive adjustment, a reassessment of our invested Watch because there was a new round of investment with a higher valuation. It seemed a fair valuation to us. Went up about 100% in the company value, and it tripled its subscribers base. So per subscriber, it became cheaper. Watch had about 400,000 paying subscribers, and now it's getting closer to 1.5 million active paying subscribers.
There's been a new round validated by audit, so we reassessed, and our share, that was about 42%, is now 49%. This is the limit we want to get to. We have almost 50% of Watch Brasil. It's a TV company, a paid subscription TV service that sells services through internet providers. It's growing a lot, and we have big plans for Watch. I'll talk about Multi+ when we talk about it. These are the three factors that explain the drop on income. They're non-recurring aspects. There should be nothing in the tax scenario for upcoming quarters. Tax and exchange rates really depends. Our business really does fluctuate according to exchange rate. If we look at the half of the year, we're talking about a company that's coming from an EBITDA of 12.5%, 13%, with net income at around 10.5%.
It's less than ideal, but completely explained by the very tight retail moments. There's a lot of competitiveness. It's difficult to sell, especially for large customers, as we'll see. The net income bottom line at two digit. It's a very tough sales moment, but it seems okay, in line with our plan. Now, per channel, there's something very interesting here, and I think it's good news for Multi. If we look at comparing to the base of last year, that robust sales base, excellent scenario, and so on, we'll see that there's been growth in most channels, led by a huge drop in large retailers. See how interesting. Small retail, which our intuition would tell us they would suffer more, small retailers with the pandemic, migrating to e-commerce, they would suffer. But no, we saw a small growth here and in the first quarter as well.
Large retailers is struggling. We're talking about three names here. It's concentrated in three big names. The conversation with the CEOs of these major companies that you know better than I do is basically, "Look, we're struggling with stock prices and so on, and we held on the purchases, and now we're starting to recover." What they've all been saying is that they have cleaned house, decreased inventory, but they're ready to start buying again. We see large retailers with more appetite now on the third quarter. This is a good perspective. But the other operations of the company have been showing growth, 11% in government, 7% in internet providers, corporate with a small drop, but this is basically a memory for other manufacturers. They are also suffering in the sales of electronics, buying less memory from us.
Another thing that I think is interesting for everyone, everybody asks about direct to consumer, is e-commerce growing with DTC at 65%. This is becoming a more and more important business for us. 7.3% of the company's revenue today, and more than 10% of its margin comes from e-commerce sales, and we're only beginning in this game because now we've unified all of our e-commerce area. We had the Multi e-commerce, we had Obabox, the company that we bought last year, specifically to do that, and now they're unified with joint forces, joint teams, joint marketing budget, and we're working on strong investments. I invite all of you to visit multi.com.vc. It's Multi with you. It has a new face. Go there, shop, try it out, and feel the logistics, the service level. I'm sure everyone will like it.
It's a healthier mix of channels, and the biggest suffering point is large retailers, and that's what tends to recover when we start to sell. Our relationship's good, everything's good. We're just waiting for the right moment, and it's coming up, so it's going to be easier to revert this. Now, looking at segments. Basically, there's greater diversification as well. We see kids and sports, that was the smallest segment of around 4%. This year is already close to 8%. We're growing strong. We'll see more details later. Home electric products growing at 16% due to TVs. Office and IT supplies going down slightly. That consumption from the pandemic of accessories. Everybody was buying webcams, mouse, keyboards, accessories, but now the level's slightly lower, 4% down. Does not scare us. It's a post-pandemic level. Everybody's already equipped in their home offices.
Everybody's starting to spend money outside of the house again, traveling and going to bars and hotels. 4% is acceptable, and - 10% in mobile devices is more concerning because it involves tablets and smartphones that really suffered in this half-year. Smartphones was the big villain of the revenue, especially in large retail. You see that's already 50% above the first quarter. It was a lot worse, and we'll see on the upcoming slide. We see a recovery. Smartphones, - 10% compared to last year, but 50% up. Look at the first quarter was a disaster for tablets and smartphones and PCs, from BRL 500 million- BRL 300 million, but now we see a recovery. In the third quarter, we'll see even more so, especially for smartphones for the first time. We had some months with good news for smartphones, but this is something for the future.
The second quarter has improved. It's still below the second quarter of last year. Office and IT supplies. Basically, we see a stable revenue with small decrease, recovering compared to the first quarter, basically led by internet providers. Internet providers are pulling it up. Computer accessories and peripherals, that was saturated. The replacement cycle's longer. People hold onto the mouse and keyboard for a year and a half, two years with an equipped home office. That's a little less. Home electric products, this is good news, growing 16% year-on-year, 2% quarter-on-quarter. The first quarter was already strong, but the name of the game here is basically TV. That's what we're talking about. Speakers are growing up slightly. Portable appliances going well, automotive going down. Automotive is very weak. Healthcare, portables, and audio and mobile accessories going up.
TV is a new market for us. We have 2% of market share in Brazil with a lot of room for growth. TVs are coming up with a lot of consumption, a lot of demand. Multi TVs are the entry TVs. We have the premium Toshiba TV brand that's very accepted, even more so than Nokia. We have Multi smartphone that's very well-positioned, Multi TV very well-positioned. Nokia smartphone is struggling with the competition with the big global brands, but Toshiba TVs are winners. In Toshiba, we see greater brand acceptance and more room than on smartphones right now at this moment. Finally, kids and sports shows this diversification because in addition of diversifying products, it's also channels. We're talking about completely different sales channels. Toys is one thing, sports is another, baby is another, and pets is another. Basically, we see huge growth rates, 71%.
Wellness is a little bit below that with supply difficulty of buying the exercise equipment. Baby is meeting all targets. Sports also beating targets. Toys beating targets. And pets, which is new, we acquired Expet last year, the mat factory, and it's really going up. Always with one month of backlog. Whatever we make, we sell. Good margins. Pets is a big point of surprise for us. We're investing in increasing production there. In sports, what's new here is that we've launched the DJI drones. It was a huge hit last month. We launched Mini 3. It's selling quite well and pulling these numbers up. 72% come basically from pets, DJI as something new, and the organic healthy growth of the other lines, except for wellness, that's a little bit below due to supply issues.
Finally, we have here the three additional points to discuss, the brand revitalization, the existing partners' evolution, and the factory. In terms of partnerships, we have Watts that we acquired in the beginning of the year, that factory for electric vehicles. We combined all of the electric vehicles line of the Multi brand, our Atrio brand of the Grupo Multilaser, the Atrio brand of electric vehicles, bicycles, scooters, et cetera, going very well. We bought Watts and combined the portfolio. We are going to have Watts with a more corporate portfolio and Multi with the Atrio brand and more of a leisure portfolio. What is new here is the electric motorcycle. Watts already had a project approved for the e-bike motorcycle already registered with all the licenses. They are being manufactured. They should be shipped in the upcoming days.
We are expecting something for launch in the fourth quarter with the electric motorcycles, and they are a game changer. They will be imported first to test the market, but we are already putting the factory together in Manaus to start production in the first quarter of last year, producing domestically electric motorcycles. It is a huge market, and we are very excited because it is the future, reducing the costs of fuels and the environment, ESG.
It is very good for people to adopt electric motorcycles, so we want to be a disruptive player in the market. DJI, we mentioned. We have the exclusive distribution. It is the leading brand for drones. With more than 80% of global share, they are the major reference for drones. We have our entry-level drone, Multi Atrio, and the DJI drones that cost 10x, 15 x more with more added value compared to Atrio's drones. It is a completely different market.
They do not compete with each other. The launch was very good. We have sold BRL 2 million in two days of the Mini 3 drones. The third, I do not even know what to tell you the biggest potential is. There are three major points. We have a very good partnership with Hikvision, greatest manufacturer of security cameras, image recorders, access controls, the whole security world. Hikvision is a leading brand worldwide, dominating all markets in the world except for Brazil. It is the vice leader in Brazil, and we are already manufacturing and selling at this moment. A product is already in line. Some of the Hikvision product lines are being distributed to the market, so this is huge potential as well. Taking more and more of their lines.
We are bringing body cams, those security cams for the police, for example, Hikvision brand, access control, high performance hard drives for security cameras, DVRs. There is a lot of potential for us to increase our security line. The last point that I want to mention that is very important, our sixth industrial warehouse is ready in Extrema, Minas Gerais. 8,000 sq m, 14-meter ceiling height, plus the factory. This warehouse will be entirely dedicated to plastic injectors. Multi is an electronic company. We have many industrial processes that are very complex, manufacturing memories and assembly lines, but we were not injecting plastic. We were purchasing it. For our portable lines, with the high volume products that are heavy, voluminous, it is more competitive for us to produce our own plastic rather than importing from China, for example. We are starting already to produce fans.
We are assembling them with plastic injection. The cost will go down greatly. The COGS of these products will be more competitive and be able to grow in this billion-BRL market, BRL 6 billion per year in the electrical portable devices that we have a small share. With plastic injection, in addition to that market, we already have in the pipeline blenders, fans are already ready, the robot vacuum cleaners, air fryers, and we also have projects for pets and baby lines with injected products. For example, car seats.
Car seats basically have large plastic pieces, and the products are all imported in Brazil, so as far as I know, we would be the only and first company to manufacture that here. We have a very important competitive edge in terms of costs, creating this injector industrial park, and it is a lot simpler than electronics. There is no big mystery.
The team is already put together with experts in the area. We have three plastic injectors initially, being able to grow to 40 for this industrial park. Without any further ado, let us go to the end of this presentation, talking a little bit about the Multi brand, the rebranding. The font has changed. It is younger, cleaner, the name shorter. We started to see that we became more and more multiple and more Multi and less laser. Laser refers to laser printers, and it does not respond to even 0.2% of our revenue. I do not know the exact number, but it is almost neglectable. We are also embracing this nickname. The company already had this nickname. Consumers called us Multi, retailers, financers, workers, everybody calls us Multi. Let us embrace that and show a new face of the brand, younger, more democratic, more pleasant, closer.
It is a Brazilian brand, so our mission has always been to democratize the access to the tech market. It is a market of desires, novelty. We are in tune, innovative, democratic, making the Brazilian people be able to afford an intelligent option, our quality products with warranties and a nice design. It is not going to be heavy on their pockets. People will not need to get in debt or pay thousands of installments, and this goes hand in hand with the current moment. As you know, it is a moment of economic retraction, small growth, inflation that puts pressure on everyone's wallets, and it encourages trade down from the consumer side. This change in the brand goes hand in hand with the Brazilian macroeconomic scenario and will help us boost the business for the future.
I will show you a brief two-minute video showing a little bit of these features for you. Being Multi is being tech and going beyond. Carlinhos, play that.
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A little bit of our packages. Look how clean they look, how attractive. Valuing the product, the product that we launched recently, the smartphone Multi G Max 2. We are now going on to Multi G Max 3, Multi G Pro 3. We are going to have a lot of very nice products in the smartphones. Just a curiosity, the average ticket for smartphones has been going up.
This category, we have been seeing great growth and specifications. Consumers want a product, large screens, good cameras, even entry level. Without leaving this entry level, we see that the ticket has been going up, an average ticket from BRL 400- BRL 500, moving up to BRL 700, BRL 800. That is the entry level category. Our PC, we are going to have an advertising campaign to strengthen the brands. That will be great to show the Multi technology as a way to make life Multi better. Investments of around BRL 100 million in media trade, launches, new packs, actions at points of sales as well. The plan is to have 1 billion impacts. It is almost as if each Brazilian person was impacted five times on average.
There is more than 200 million offline impact, 800 million online impact, not to mention the influencer package that we recruited with a great host of influencers to advertise the brand and run campaigns and actions. This is going to be widely communicated. It is the largest media campaign in the history of the company, and with that, we expect to change the perception of Multi and bring it closer to reality. There are companies that are, in terms of structure, are relatively modest, but in terms of brand, they have a huge perception. We were actually committing the opposite. We were ahead in terms of structure when people looked and said, "Oh, close to BRL 6 billion in revenue, 6,000 employees, 6,000 products." So many products, so many points of sales, and people did not know when they associated it to our name.
Now we want to make Multi's reality what we really are. People become aware of that, and it translates into perceived value and pricing power. At the end of the day, it is a game of pricing power. They go to the point of sale on the internet and pay a little bit more, a few hundred bips more for a product that they know, they trust, and this will have an absurd impact on margin, and we were leaving that on the table. What is the big mistake we are making at Multi? Maybe leaving it on the table, the power of building a great brand, and we are working strongly on that now. With that, I will move on to the Q&A. I think this has been a positive quarter overall, considering the one-off effects in terms of net income, and we are very confident.
There's a lot of business to be done, a lot of possible partnerships. I'm excited to face the next quarter, even if the macroeconomic scenario brings challenges with high inflation rates. We saw a small reduction in the fuel price, but it's still a point of concern. Unemployment's high, but it has been going down. It's a single digit now, if I'm not mistaken. High interest rates, but also helping us with a trade down situation. It's scenarios we're used to faced.
Retail is also not as supplied, so that indicates that there may be a lot of good things coming in terms of sell-in for large customers. We have a few questions here. Some of them have been typed, and then we'll turn the floor to people who would like to ask their questions with a microphone, right? Let's open with Dani. You can open her audio, and then André, and we can follow that sequence with the questions that we received.
Good morning, everyone. Thank you for taking my question. I have a few. First, about the perspective for the second half of the year. Ale, in the release, you say that you were a little concerned with the capacity to deliver the growth of the year, the first quarter. Then I don't quite understand, based on the second quarter, maybe the perspective for the second half has been brought down. Just to understand what you're thinking about the growth for the year.
You mentioned this recovery, the demand from large retailers, but I'd like to understand a little bit what you see for the second half, especially the fourth quarter, that there's a lot of expectation of the industry as a whole, especially with Toshiba going so well with TV and the World Cup. It'd be nice for you to tell us more about the growth for the year. My second question in terms of profitability, I'd like to understand what you see as sustainable profitability, looking at growth margin and EBITDA margin, because at the same time, you see some relevant dynamics that should help the margin. For example, decentralizing national retail, as you mentioned in the release, or the increase on the D2C channel. We see some margins still being pressured.
To understand what you see as a normalized point linking with this point of the new warehouse that I understand it's going to bring better margins or better price competitiveness. If you can give us more color and profitability. If I can, a third question about the impact of the tax review that you mentioned, it was a one-off point. As far as I understand, there should not be any other adjustment like that. On the tax aspect, there's been some news last month about the implementation of the IPI on some products that they consider relevant, including motorcycles, phones. If you can tell us whether or not this has been reverted and how it affects you and what other products you make that would be part of that basket. Thank you.
Great, Dani. Thank you for your questions. If I skip something, please remind me if I forget. First, the outlook for the half year. For us, it's a lot more positive than the first half of the year has been. I was joking at the company, when October, November comes, everyone's happy meeting targets and bonus, but I tell people the rearview mirror looks great, but looking forward, there's a storm coming. The first semester was chaotic. Now it's the other way around. I'm not going to say the skies are looking great, but when you look back, there was a storm, but looking forward, you may see clouds and the sun coming from between, poking through the clouds. But it's exciting to see that retailers are reporting smaller inventories. We have the overstock report is going down month by month.
The government started to also drop the Auxílio Brasil, the support of BRL 600 this month. This has also been a help. The emergency help in the pandemic was one of the big factors for the increase in consumption. Large retailers are supplied. Now they want to have more inventory. We were talking a lot about delivering low double digits, but now we're still targeting that number, but less comfortably so. Before, we were comfortable, and now it's like, well, some good things are coming up, but we're still considering low double digits in terms of growth for the year, or something very close to that. Your second question, but if you improve that distribution profile, why hadn't it reflected in the margin? The margin is tight because of the competitiveness. Even the smaller clients are tightening prices if we compare with the first half of 2021.
We saw things we never saw before, increasing prices one week before the container arrived, and all retailers accepting it, including large ones, because there was no product available in the market. The big three that everyone knows, we'd call them and say, "Guys, I'm sorry, we need to increase 20%, the cost went up." And they agree, no questions asked, but it's a lot tighter now. EBITDA, I'll ask for help here, but there is a percentage of non-recurring, right? But it also affects the EBITDA. It went down 0.9 in EBITDA, but what's the non-recurring? The EBITDA effect, especially done to that self-reporting that we had, amounted BRL 45 million on average. So that brings an effect of 2 - 3 points of margin reduction on EBITDA due to that, or the tax review aspect. Excellent. So I'm glad I didn't say anything silly.
But this 0.9 decrease, there's 2% that's non-recurring. So it would be a slight improvement in EBITDA. It's not wonderful, but it is a recovery. Continuing with what you asked, we have the IPI tax, that's very important. I think it's good news for our segment. Although in terms of the country, if we discuss the macro scenario, it would be very good to see an overall IPI reduction. But looking strictly from the electro electronic industry, these comings and goings bring a positive result. So two messages. What happens? Let's go back so everyone's on the same page. We have IPI, that's the tax on industrialized product. You manufacture it's BRL 100. There's the IPI, 10, 15, 20% rate, and you have the final price to sell to retail.
Looking to reduce inflation and improve purchasing power, the government forced a decrease of the IPI very abruptly. Overnight, actually. The news was released at the end of the night, then the next day it was already in force, reducing IPI in 25% for almost every product in Brazil. A while later, reduced it to 35%. This became a factor of loss of competitiveness for those who have plants in the Manaus Free Trade Zone. The benefit there is that they do not pay IPI. If IPI goes down for everyone, and this Free Zone in Manaus that was zero continues zero, they lose competitiveness. The political forces and law being in that region went to the Supreme Court, and they were able to get a monocratic decision to return IPI to what it was. There were the lists for a while, that typical Brazilian uncertainties.
Yesterday, there has been a third list released that I hope determines which products will have the full IPI incidence. The final balance, I do not believe there will be any more change. This seems that the status quo satisfies all stakeholders at this time. Finally, the products made in Manaus Free Trade Zone, 100, 200, more or less, it varies, this list. I do not know the exact numbers.
TVs, cell phones, computers, tablets, all of these products will have full IPI. It goes back to 15%, a little bit more or less, 15% is the average. It is not 9.75% anymore, it is 15%. The other products that are imported or made in the rest of Brazil, they will have reduced IPI rate. That is very good for us because it is all of Multi's imported lines, babies, Foods, accessories, pads, all of it will have less IPI, less tax.
The product will become cheaper, more attractive to consumers. That is going to help increase the product's share of wallet. The critical product, so where we need the competitiveness of the Manaus Free Zone, will go back to the IPI of 15%. We go back to the status quo. It is very interesting for us at this time. There was another question, Dani? I cannot remember.
Nope, that is it. You answered all of them. Just a last follow-up. Any product made in the Manaus Free Zone will have the full IPI, or some specific products.
The initial decision of Minister of Justice, Alexandre de Moraes, is that all products in Manaus. There has never been a list of that. What does the Free Zone mean? If there is a shack with someone making a product that is not related to electronics at all, does it count? It is made there.
This uncertainty was a point of concern for the industry. We wait for the Ministry of Economy to release the list. A month later, they released the list. It went back to the Supreme Court, and they brought it down saying it was incomplete. Yesterday, they released a new list from the Ministry of Economy, including all the NCMs, all the categories that were missing. Today, we have to follow a list of NCMs. They are the tax codes. We cannot guess everything that is being made in the free zone. There is a list that must be followed, including almost everything.
Excellent. I had a mini comment that I think you forgot about the non-recurring tax situation. If you think this may happen again, or if you mapped everything that could possibly come up.
In the ICMS, it has been resolved. We adjusted the entire procedure, and from now on, there will be no immediate financial impact, okay? But it has been recognized, and there is nothing else that we see. But Dani, again, Brazil is always full of surprises. There is nothing that we see or have in mind. There should be no new impact, unless there is a new surprise or something we are not aware of.
Great, thank you.
Okay, moving on then, André Salles.
Hello, good morning, Ale, Juliane. Thank you for the opportunity to ask a question. I would like to focus a little bit on the partnerships, of the two partnerships you mentioned, or two of the ones you mentioned, actually. When we look at partnerships with Nokia, what do you see is the biggest offender here for the growth of this partnership?
Is it new players that are coming to the market, or players that are more adapted to the market? My second question is about the partnership with Hikvision. You mentioned an interesting range of devices with Hikvision, but I understand that some of them may require a more specialized installation service. So how does this dynamic fit with your main channel? That is the small and medium retailer.
Okay, so smartphones, André. I think we made a mistake in the beginning, an error in assessment. When we came in with Nokia, we had that coincidence of the departure of LG, so I mentioned that call a few times. LG had 8% to 10% of market share. LG announced it was going to leave the smartphone market worldwide. Then we said, "Well, if LG is leaving, retail is avid for a third brand.
They do not want to rely only on the two big players, the two that you know that hold 90% of market share." Today, they had 80% at that time. So will this 80% turn into 90%, and the retail will be at the hand of two? With Nokia, we found a brand that is well-known, traditional, and we thought we could take LG's space. So since we already had a 2% market share with Multilaser smartphones, 2%, 3% with Nokia, we would go to 5%, 6% market share. It would be an interesting figure to defend. But since then, being quite honest, we were not competent enough in the premium smartphone market, which is completely different from the entry-level smartphone market, to have the time to market of launching products at the speed, and specification, and updated according to the competition.
While on Multi, we have the basic entry-level product with great share, great margins, depending the market, but it is a small share. Entry-level smartphones have a very small share. It is about 5% of the total market. So this mid low, mid market, that is almost 30%, that is the big money we wanted to embrace. The pace of launches and update is very fast, and we were not able to keep up with Nokia. So we are always three, four months behind.
We launch with the price we need to give a discount. We could not get margins. We are kind of chasing our own tails. It was a lesson we learned. We are still fighting there. There are new lines coming up. We are going to break more rocks down than we imagined. Thinking in the beginning, "Oh, well, LG is leaving, everyone is going to embrace Nokia, it is going to be beautiful," did not become a reality.
But we're remaining in this plan, launching new things with Nokia to accelerate and clean house, but it was not a good entry. Now, changing to the other question about Hikvision, you're completely right, and the retail channel has nothing to do with the specialized security camera channel. Since 2017, we have a separate division. It's the Giga division, Giga Security, that we bought in 2017. And this channel is very similar to the market's leader that's also listed, everyone knows. It's different from retail. You need to sell the product to specialized distributors or dealers that are focused on specifically this channel of security and CCTV, and they serve the installers in a direct channel. So it's more of a driving sellout. You have to have marketing teams in the distributors, give a lot of training, a lot of material.
You need to run campaigns to get the loyalty of the installers because people don't tend to have a brand of security that they're going to impose. If you have an installer in your region, they work with so many brands, and then today, Hikvision is basically number two, 25% market share. Giga's number three with about 8% market share, and there are a lot of smaller brands. So the leader holds about 60%, 25% Hikvision, 8% Giga, then smaller players.
With Hikvision together with Giga, we're talking about more than 30% of share, 33% market share. So that's already quite robust, and we need to intensify this attack to distributors. Work strongly on distributors, give more trainings, more sell-out, more campaigns, more incentives to installers so that they adopt and embrace our technology. That's what we're working on. We brought two senior professionals to this department to work on Hikvision. We're having good perspectives here.
Great. Very clear. Thank you.
Let's move now to the written questions. First, from Marcelo Alfonso. "Can you already have a vision of sales for government in 2023?" This year is quite strong. We'll post a small growth in government, remembering that it grew very strongly last year, from BRL 40 million to about more than BRL 1 billion. Unfortunately, government, we don't have a long-term pipeline. It's not recurring revenue for years, but part of this year's revenue will drop on next year. I believe that the government now, with devices for education, they're here to stay. Government distributed a lot of tablets and PCs and Chromebooks. This was really good for the teacher community, parents, students. There is a budget for that.
The trend is to always have business with government, but I cannot give you an idea on tides. At the end of 2021, we projected 50% drop for 2022 to be conservative because we didn't have the business on the table. If you were there at the calls, you'll remember we were quite conservative. And this year, fortunately, we're seeing a small growth compared to 2021. I hope we can repeat this next year, but we can't count on it. "The financial credit has been increasing quarter on quarter and today is at BRL 382 million. Is there an estimate of when this will stabilize or start to decrease?" Yes, Marcelo, this is a big challenge for us, the financial credit. This is also related to what Dani mentioned about margins. Something that we've struggled with this year were the high inventory levels.
Our average inventory at home went from 3.5 months to about 5.5 months. We are talking about two additional months of inventory in-house, paid for. In Brazil, when you import a product, you must pay almost 100%, usually 80%, then and there at customs. 80% to pay for expenses, import taxes, and all the handling, warehousing, PIS/Cofins. Everything is paid right then and there and credited. My estimate is about 2/3 of this value is stocked. As we bring our inventory down for the second half of the year, we tend to consume this financial credit. One third, of course, is the informatics line and credits generated from the PPB. We can get the details for you, okay, later. I am just giving you the outline. Now following with Bob. "Can you explain what seems to be ICMS fines of BRL 92 million?" Exactly, Bob.
That is what I talked about in the tax review. -BRL 92 million some credits. There are some credits there. Net EBITDA of 40-something million. That is what we talked about. That is spontaneous reporting. Basically, a discussion of intercompany credits, whether or not we could take that credit that was also raised since 2017. We decided to be conservative, not to discuss, to spontaneously report it and liquidate it within the quarter. "Should we litigate?" No.
We decided to break down this value in installments and get it out of the way. There will be no litigation, and the impact was 100% in this quarter. "You can explain the quarter-on-quarter drops in the office and IT margins as well as kids and sports?" I do not have this breakdown here now, but we will get back to you, okay? Just one second, guys. We can send it to Bob, right, the breakdown?
It is in the statements to give some color. I do not have the detail line by line in terms of margin now. "Great performance on D2C, but still small." Yes. From 4- 7, right? That we had on our presentation. "What is the expectation and plans for the direct to consumer business?" Well, Bob, we unified this area. Everyone is excited. We have excellent professionals.
We have an office in Belo Horizonte focused on that with about 50 people there, a team in São Paulo as well. Certainly, these are the areas that have the highest growth targets. We have a very aggressive target to deliver more and more in direct to consumer. More than that, improve margins, because the play so far has been on top of campaigns, promotions, and less on exclusive items. But now we are talking a lot about exclusive items working on better margins.
From Guilherme Corazza. "In the release, you mentioned a new inventory administration model. Can you give us more detail?" Excellent, Guilherme. Basically we had a model that was not working with the purchasing budget. We worked with a restocking value in terms of number of pieces. Our system looks at the past, looks at the day-to-day sale of each product. Oh, this product is selling three pieces, five, eight. When the sales are zero and the inventory is zero, they take it out, and we create a number that we called algorithm. That is the average daily sales. We have been buying to replenish inventory at this algorithm. So we have this mouse here, Rapoo, selling 23.5 pieces per day. So the restocking is four months, securities inventory as well. So 23 pieces times eight months, 240. That is what? 4,000 pieces. Yeah. 40,000, actually, pieces of this mouse.
We need to buy 40,000 of them. Then we would restock. Since we had a working capital at a lower level, we had not had that lesson learned in the quarter. We would release it and restock to keep the inventories regularized so that we would not have any shortage, but it did not optimize working capital. So what we implemented last year, and the financial planning department did, we took family by family, manager by manager, and we created a beacon that goes or is it actually a light post, red, green, and yellow, and according to the color, we give them a purchasing budget. If the line is green, they can restock on that same reasoning that I talked about, the eight months and so on, or seven to reduce inventory levels. If it is yellow, they can restock 50% of the COGS of the previous month.
They divide it and calculate the USD and so on. The manager, the head of the business unit, has a check applied to this rule, and the inventory levels will go down month by month. I do not know if it is too many details, but I know you like this, and I do, too. Numbers and management, it is really nice. So there is a Power BI. They get their budget, and they buy. One more, just projections. The breakdown of sales per channels will be maintained at the same. I do not think so, Guilherme Corazza. I think national retail will retake its fair share. It is going to bite a little bit of the other's share. It is going to pressure margin, but the improvement of retail overall reduces discounts, and it kind of offsets everything.
Francisco Rossetti, the company has a lot of debt in US dollar that required this exchange rate swap because the company had a good operating performance, even a positive financial result, but this net exchange rate variation killed a net income. Could you explain that again? Dani, do you want to talk about this?
The company has protection for the exchange rate variation on debt, and we marked this effect here, but there is also exposure on suppliers. We do not hedge the entire supplier base since we have the concept that we can work on the transfer of that to the price. But the fact is that since we market to the market, the position at that moment generates a negative exchange rate impact. Last quarter, there was a positive exchange rate effect. It is not necessarily cash. One thing offset the other in the quarter. With that policy, we see these effects of the exchange. The bank is all in BRL, right? It is only for suppliers.
Yes, it is only suppliers. From Bob, "How should we think of smartphones on the long run? Chinese producers seem to be aiming Brazil more aggressively. How do you see 5G?" Multi smartphones, we are launching new products, increasing average price. We are seeing an acceptance. We were a brand that only sold the entry line, but we are selling more F Pro, G. Multi has three lines, E, F, G. Entry, F is mid, and G is mid low. That is what is really booming now. People are looking for smartphones from BRL 700, 800 BRL. That is our brand. Nokia, we are also working on the brand, bringing new products, repositioning. Chinese producers are interested in Brazil, but they have barriers here for the local products.
We need to see what their appetite's going to be like. Without domestic manufacturing, it's almost impossible to compete in Brazil. One way or another, they need to make the investment, buy national memory, have the electronics plant. Until they come here and invest millions to manufacture, they will not be able to have a share outside of the gray market. We're excited with the smartphone perspective. It was a bad semester. We had been growing. This first half of the year has been quite painful, but I think it will improve. We see very positive signs because we're already halfway through the third quarter. The first half of the third quarter has been good, even for smartphones. 5G, I'm very excited. That's the normal evolution of technology, and it seems a lot like what happened with 4G.
Starts with 100% on 3G, grows and entries little by little, and that's the normal technology evolution. All of our areas have products that drop one type of technology and evolve to another one. For example, Wi-Fis were Mbps, then N line. Moving to 300 Mbps, C-line 1200. It goes up, and we renew it, and 5G brings a lot of opportunity. We have the first Multi 5G smartphone in the oven. It's going to be released by Christmas. It's H 5G. H is ultra-premium above G. We also have ZTE. That's our internet provider partners for routers, 5G routers for people to have it at home. 5G is a game changer. You cannot route 4G to your house, but 5G will have a ZTE router. Plug it in, put a chip, and the whole house will have high-speed internet. Not as good as fiber.
It's not going to replace fiber, but these technologies will live side by side. From Thiago Souza, "If Taiwan is invaded by China, how would this event impact the operations and results of the Multi Group?" Geez, Thiago. I really like this topic, but it's not my area of expertise. I imagine it's going to be a worldwide chaos if this comes true, depending on how the happens, the impacts, the duration. We can't compare it with the Ukraine-Russia case because China's the world's greatest industrial power, Taiwan for semiconductors. If Taiwan is invaded by China, and it's not extremely briefly resolved, it would be chaos for the global economy as a whole. Everything depends on technology. All products coming from China, our biggest economic partner. It's a doomsday scenario. I'd love to say that we would migrate production to local, but it's not feasible for anyone.
The components come from there. Nobody can manufacture all the components required, the silicon, these devices, semiconductors. There's no economic branch in the world that would not be affected by that scenario. It must be avoided at all costs. "What are the three macroeconomic variables that are most relevant to the Multi Group's business? Why?" Since 60% of our sales is consumer, the disposable income and the purchasing power of the C and D economic class population is our major driver. What moves disposable income? In my opinion, unemployment, inflation. What else? Come on, you can tell me. Oh, interest rates. You see? Unemployment, inflation, and interest rates. If these three aspects get worse, that affects the disposable income, reduces consumer, offset it a little bit with the trade down because of the entry-level migration, but it's not sufficient to guarantee good sales.
From Matheus, "Congratulations on the marketing and rebranding initiatives. We're keeping track. Very excited." Thank you, Matheus. Thank you for your support. Question about the hiring. Attracted our attention in the sustainability report is that more than 3,000 employees have been hired in 2021. Today, 60% of your employees have been in-house for under one year. Can you tell us please how the integration of these people has been, and what are the main difficulties? We had a lot of expansion in this boom moment. We went from BRL 2 billion- BRL 6 billion, increased our time sixfold. Employees doubled. So tripled revenue, doubled number of employees. But mainly, it's industrial personnel, factory to produce products. It's factory labor. Second place is increase in logistics. Because of the higher inventory, we had to increase the number of DCs, more product, more goods, more people handling goods.
In product areas with the launch of new lines, the business units teams have been reinforced. But it's a big challenge, Matheus, because it came along with a remote work condition. We have the hybrid system now. Multi defends this freedom with responsibility. That's our motto. Of course, inspired by Netflix. That was the main disseminator of these words. But we practice that here, and I have a strong feedback that this makes sense in everyone's and in the company's day-to-day. It's always a challenge to integrate people at home. We are running a lot of events and meetings from different departments for integration from the product area, IT area that are even back office. We had that meeting and the accounting team here at the office to get more aligned. I feel that the atmosphere is really good. People tell us they're quite satisfied overall.
They have the Multi spirit. It's a different way of being, very laid back, informal. Things happen fast. People say that, "Oh, if you have one defect is that you go too fast, that you stumble and then you have to make corrections and adjustments." But it's a company of doers, not a company where everyone's sitting on top of decisions, shifting things one side to the other. It's very fast. We have a big room here if you want to come and visit. There's 200 people here every day. I sit there with directors, with reps, and everyone, and it flows quite fast. We've been working a lot on the seven values of Multi, the culture, the freedom, responsibility, who decides, delegation, zero prejudice, and all that. Guilherme again about electric motorbikes.
How do you see the competition with Voltz that started first deliveries last month?" I wouldn't know about Voltz. There's a lot of businesses. It would be reckless of myself to do that. But what I've been seeing with the business unit and that works with that, Rodrigo and Alexandre are the heads at that. We know that Voltz had some struggles being a startup, starting their business. It seems to be a serious company, and we're going on top of them, as of all markets. There's no market that has no competition. So we're used to joining markets, even that are completely consolidated, that customers tell us not to go there. We go there, and we take a share, like TVs now and so many others.
What are the mistakes that generated the spontaneous reporting in the ICMS?" The mistakes is that we have two companies in Minas, one that builds components and one that produces industrial product. The components exit has incentives. There's no ICMS, and in the other company as well. But we had an understanding that it doesn't matter which company imports. If you import from one and transfer to the other, you would be entitled to incentives. But there's a technical detail that if you import, manufacture, and sell, you have incentives. But if you import, sell to a sister company in the same group, and transfer to the next one, and you sell, you would not be entitled to incentive. We had doubts if we should discuss this judicially or agree and self-report and not spend money with lawyers and fines.
Being conservative, we decided, in this case, to spontaneously report, pay the ICMS intercompany with the two of the Multi groups incentivized companies, and this is solved. It's not a very relevant value month by month, and we will not have this concern. There's been a lot of discussions that have been discussed in the past, but we decided that it would be better to do it like that, break it in installments, and feel more confident. Francisco Rossetti. "Last periods, the high value BRL made the domestic line consumption to improve significantly compared to internal consumption since important brands' price went up too much. With a potential improvement in the economy and stable dollar, don't you see a potential migration to other mid-quality brands affecting Multi's revenue?" Let me understand better because the dollars not going down, Francisco. It's stabilized at 5 point something.
It's a high level for the dollar. If the economic scenario improves and the exchange rate appreciates, maybe there's going to be a flood of imported goods, foreign brands. We saw that in the past, and it increases the share of premium global brands a little. There is some of that effect. But on the other hand, in this scenario we're looking at, you're talking about the valuation of the Brazilian real. Probably interest rates will go down. The economic scenario will be of growth, low unemployment, consumption increasing. So the pie increases for everyone, including us. People buy brands from other countries, but from our share, maybe it's not such good news, but in the top line, we'll do well. So there are scenarios whenever the economy is booming on the first Lula administration, pre-Dilma crisis, it would go well. Thiago, thanks for the answer. Wishes success.
Thank you. Another from Thiago. "How do you see small retailers who wish to sell only on the internet, and how are you structuring to serve these players that only have one online store and not a brick-and-mortar store?" Great question, Thiago. We have thousands of customers like that. We call them small sellers, and they're doing quite well. It's incredible. It seems they have a lot of advantage compared to the incumbents, the giant ones. Why do the top three players, why don't they massacre the small ones with their scale, competitiveness, and so on? Why are so many small sellers growing? We have examples that are not even that small anymore. The half year was so bad that today I have small sellers buying more from us than some large retailers.
We have some sellers that we considered small selling more than incumbents because of the platforms where they sell. I sell more on 3P through them than in 1P directly with a large player. Because sellers usually is an entrepreneur that understands the product, choose the right product, can work on price actions. They may have a more advantageous tax scenario because they are small. In some cases, each company have their own engineering. Small companies in faraway regions may have tax plays that make them more competitive in that sense. Geographically, they are closer to their consumers. A seller in Parauapebas, for them to deliver in the neighboring towns, it is a lot faster than if the client buys in the 1P with the inventory in Rio de Janeiro or São Paulo. They have these seats spread out.
In Brazil, a small seller in Acre, for example, is closer to them and finds the opportunities. They are doing quite well, and we are very excited and investing in our e-commerce infrastructure in two ways. We have our own website. You go at multi.com.vc or multilaser.com.br, it is still active. Or you can go to the marketplaces where we are plugged in. We are plugged in the large, medium, and more than 30 different marketplaces, including bank websites, airlines, mileage programs, affiliate member programs. We are plugging our inventory to a lot of options that you can buy directly. For small sellers, we created a project called Multiline, linha multi, that is a free virtual store that they can upload free of charge overnight and choose what they want to sell.
You go to a neighborhood shop in Salvador, and they have 200 products that he bought in their 1P on the shelf. But they can sell more than 6,000 Multi products through a website that has their face. It can be the John store. You type johnstore.com.br. You go to a website that will have the customer's logo, but Multi structure behind it. And you can buy any product from Extrema, from our plant. It leaves Extrema directly to the consumer, and the client gets a commission for working that. Finally, from Danielle, another final question for today. "How are the most perspectives for the last quarter of this year for the sales of PCs, tablets, smartphones? Do you feel the market is more apprehensive with the uncertainties?" Quite the opposite, Danielle. I see the market more excited than they were in the first quarter.
Definitely, people are more excited. I see the sales in large retailers starting to grow. We have to break this down in two. In government, we have a robust delivery pipeline for the second half. It is very strong of things that have already been won. On retail, I do not think it is going to be spectacular. I do not think it is going to compare to pandemic levels. I do not think it is going to have comparable margins, but it will be better than the first half of the year. I think we have covered everything. Excellent. If there are no further questions, Juliane, let us go to the closing. I will turn the floor to Juliane. Thank you all very much for the trust in our company, for attending this call. Let us go to the third quarter.
Thank you all for your presence. If you didn't see the whole meeting, we'll make the recording available, as well as the transcription of the call in our investor relations website. Thank you very much. Have a great day.