Good afternoon, everyone, and thanks for standing by. Welcome to the video conference to discuss the earnings of the first quarter 2024 earnings of Viveo. We would like to inform you that simultaneous translation into English is available on the platform. To access the tool, just click on the button on the globe icon named Interpretation at the bottom of the screen and choose English. Those listening to the video conference in English have the option to mute the original audio in Portuguese, and you can do so by clicking on Mute Original Audio. As a reminder, this video conference is being recorded and will be available on the company's IR website, www.viveo.com.br/ri, together with the full earnings release material. You can also download the presentation from the chat icon, either in Portuguese or in English. During the company's presentation, all participants will be with their mics muted.
We will then start the Q&A session. To ask a question, click on the Q&A icon at the bottom of your screen and enter your question, name, and company to join the queue. Upon being announced, a request to unmute your mic will appear on the screen. You then unmute your mic to ask questions. Please ask any questions that you may have at one time. Please be cautioned that the information contained in these presentations and any statements that may be made during the video conference related to the business outlooks, projections, operating and financial goals of Viveo are based on the beliefs and assumptions of the company's management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks and certainties and assumptions as they relate to future events and therefore depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, market conditions, and other operating factors may affect the future performance of Viveo and lead to results that will be materially different from those in the forward-looking statements. Today with us, we have with us Mr. Leonardo Byrro, CEO, André Pacheco, VP of Strategy and New Businesses, Guilherme Goulart, CFO, Flavia Carvalho, IR Officer and M&A, Vilson Schvartzman, Commercial VP of Distribution and Services, Renan Hervelha, Commercial Director, and Luiz Silva, VP of Operations. We will now turn the call to Mr. Leonardo Byrro, Chief Executive Officer, that will begin the presentation. Mr. Byrro, you may go on.
Hello, good afternoon, everyone, and Welcome to our conference call to discuss the earnings of the first quarter 2024. Thank you beforehand for joining us. I am going to make the presentation.
The team is going to be with me and we will all be together for the Q&A session. I am going to start with slide two. You probably saw the numbers before. But I would like to highlight that despite operational challenges, we are working on the company to reduce the contracts and businesses with return on invested capital below what we want. Now when you reduce those from contracts, we had growth of 13.7% growth compared to the same quarter last year. That is, we are continuing to grow our business with the confidence of our end consumers, despite the operational challenges that we are facing. I think the takeaway message of the slides, I am going to go into the other items. I do not want to stop much on this one. On to the next slide, talking about top line.
In the hospitals and clinic segments, I think the plus side is that we have been working to revisit our contracts, businesses, and prioritizing those businesses that have profitability, cash flow, and return on invested capital that is more compatible to the company. We started the work this quarter to continue on coming quarters, and still we had growth excluding this effect of 12% organic growth vis-à-vis the same quarter last year. We are gaining market share in high cost, and we had a double-digit growth in materials, which is one of our priorities of growth from now on with margins above the segment's average, not only in the segments we were before, but new partnerships and businesses such as nutrition. What were the downsides in pharmaceuticals?
Despite the gain market share of 7.1 to 8.1 this quarter, we still do not see that reflected in increase in sales because still a price that is still lagging behind and the effect on our net profit. I'm going to talk about that further on. Finally, we had a drop in the specialty business revenue, more specifically in dermatology, a business that really picked up last year, continues to grow, not as much as last year, but still grows strongly. But we had an adjustment of one of our main suppliers with percentage of sales in between distributors. The good news is that this week we signed a contract with the largest global player in the segment. We are going to have a startup with them. Throughout the year, we are going to recover this revenue, which was one of the main drivers of results last year.
With all that, we grew about 2.2% in net revenues. Going on talking about laboratories and vaccines, I think the main highlight were vaccines. We had record sales this quarter, specifically, obviously, because of the dengue fever and the seasonality of the quarter, but also others did well, like Pneumo 15 and even the herpes zoster vaccine that we launched last year and continues to grow. Pre-analytical and analytical also performed very well, part of it because of bank tests, other because of the recovery of prices in some categories that were lagging behind, especially procedure gloves. We grew a lot in volume in this category. I mentioned that last call, and now we are recovering prices. So in pre-analytical, analytical, we had good performance in the channel and grew 32% over the same quarter last year.
Now going on to retail, the highlights are dressings in the pharmaceutical channel, where we continue our leadership position in the category and continue to grow. Increased sales of wet wipes, substantial growth, where we already reached leadership in cash and carry channels. That is continuing to be our strategy, and we are really consolidating and expanding our plans in the category. Finally, the growth of the Piquitucho brand of wet wipes to a new category, which are disposable diapers in the end of last year. We are really with increased presence in national and retail chains. So growth of 8.6%, slightly below what we saw in some quarters last year, but it's still quite solid for the beginning of the year. Our challenge, as I'm going to talk about later on, was margin, which was slightly below what we expected for the quarter.
We already passed on prices in April to try and correct the margin throughout the year. I am going to talk a bit more on this effect when I talk about our gross profit. Finally, service channel, the positive highlight is the increase of 75 new customers in the manipulator business in Q1 2024 versus 1Q 2023, but also a significant loss of a customer in the third quarter 2023 that did affect our segment in the short term. Expansion is going on, but we did lose a specific contract. If we exclude this effect, we would have had growth of 40%. The idea is to resume expansion to other customers from now on. We grew 7% in the segment, basically in oncology, which is the segment that grows the best. The second most relevant service, that is Humania, which is our patient support service.
We had a 44% increase net revenue vis-a-vis the previous quarter in 2023, closing the quarter with 70 customers, not only in the pharmaceutical industry, but also in other areas. Gross profit. Margin was 13.5% in the quarter. That is approximately BRL 400 million of full gross profit. Some effects I would like to highlight here are, first, we had the elimination of intercompany freight expenses that were recorded in expenses vis-a-vis gross profit, and we adjusted the methodology as of this quarter. Also we had some operational challenges of BRL 12.5 million that impacted gross profit in the quarter, which are these effects. Most drugs with margins below our average to optimize inventory, and we were able to do that in the first quarter, and also revenues out of the optimal spots that hurts our margin. We are correcting this.
We had some advances in the quarter, but we still had an impact there. If we put together the BRL 12.5 million of impact operational challenges in gross profit BRL +12.4 million of intercompany freight expenses, which is an accounting effect, margin would have been 14.3%. Gross margin, just for you to have an idea. In addition, retail, we had lower margin, even gaining market share and growing in the channel. That would have represented 0.3 percentage points on the consolidated margin, not included in the 14.3%, okay, everyone? 14.3% are just internal effects and intercompany accounting. But there is a 0.3 effect in retail. Another major factor of about a 2.5% drop in drug prices in the last 12 months was also a significant impact on our gross profit, not included in the 14.3%, but that did hurt you in the first quarter.
Good news is that for the first time, we see an increase in prices for drugs after many months from February- March, and we hope that this consolidates along the year. We are able to get the market share gained and convert that into higher sales and prices along the year. Now I am going to talk about adjusted EBITDA. In addition to the effects I mentioned in gross profit, we have another important challenge in terms of freights. I have already mentioned that at the call before. Given the operational challenges that we are restructuring our routes and the company structure, we have expenses with freight of BRL 20 million above regular freight costs in the quarter, added to the BRL 12.5 million of gross profit I mentioned the slide before.
We also had consultancy for strategic projects that are non-recurring, and adjustments in the company's organizational structure with an effect altogether of BRL 6 million. Part of the effects will still show in coming quarters. They are not going to go to zero. But we wanted to highlight the impact of these specific effects for the first quarter of the year. Altogether, putting all those impacts together, we have BRL 38.5 million, BRL 39 million impact on the EBITDA results for the first quarter. In addition to that, we already started work to readapt the corporate structure and seek efficiencies. The work just started in the beginning of the second quarter. We expect it to go until the beginning of the third quarter. We should implement the adjustments in the third quarter and see the full effect of that in the fourth quarter this year.
It is ongoing work, and I should have news in the second and third quarters to share with you. Now going to adjusted net profit. We had net profit, adjusted, of BRL - 7 million, accounting profit of BRL 3 million. Remember, we are always adjusting for capital gains, and also we have BRL 36 million of impacts that are also non-recurring with regards to subsidies in the past that we recognized in December. The exemptions for the year, we still do not recognize in the year. We believe we can recognize that in our results, but we are being a bit cautious. We started with our measures, and we are waiting for the right time to recognize that in our results. But we are not recognizing these exemptions on the month-by-month balance sheet. Cash flow. I'd like to highlight a few things.
First, we had a consumption in accounts receivable of BRL 207 million. There are two effects here. Seasonal effect of our business. There is already an increase in accounts receivable in terms of consumption in the first quarter. In parallel to that, you have a higher pressure of the sector as a whole in accounts receivable. These two factors are accounted for here. Positive news is our reduction of the inventory and generation of value. It was the first strategic work of all the projects that started in the beginning of January that is already yielding results. We have a positive generation of approximately BRL 14 million in tax receivables. And we are very much focused on recovering these taxes. So we had positive news in the quarter. And the third point that I would like to highlight here is capital expenditure.
I also mentioned that in the beginning of the year. Last year, we ran a quarterly CapEx that was double this year, almost BRL 300 million. We were at BRL 32.7 million CapEx this quarter. This is the trend and the need of the year. So much lower compared to last year, in which we had to do a lot because of integrations and all the movements made. These are some of the pieces that are starting to fit to normality in the company. Within our cash cycle, we had a total cash cycle of 70 days. The points to highlight here are the postponement of receipts in the quarter. Remember, March is a March with a lot of business days.
In last year's 2021, 2022, we had this year 19 or 20, and that impacted in the receivables, a postponement of BRL 130 million, especially due to the holidays, which would represent three days in our cash cycle. We are working on the company aging. We had an evolution there, especially because of the pressure in accounts receivable. We are seeing this as part of the company of having the right working capital to service providers in the pharma sector . When we look at it at all, we may have a risk of around BRL 3 million. But we are negotiating with each one of the customers, so it has not been recognized in our results, but it is the size of risk that we see today.
Another important and positive piece of news, and we are talking about April, another reduction in inventory of BRL 83 million compared to March 2024, with the sales in April compared to last year. Very positive. Good growth compared to the previous year. So we are adjusting inventory levels, keeping growth and service levels. This is probably going to be our motto for next quarter when we talk about inventory. Indebtedness, we closed at 2.97. The company's financial leverage, we had an increase of net debt to BRL 2.5 billion and a reduction of our last 12 months EBITDA to BRL 856. The maximum priority now is to focus on generating cash, restructuring our working capital so that we can generate cash, and reverse this uptrend in leverage for the company. We have a new funding raise, and I am going to talk about on next slides.
We raised approximately BRL 1 billion a month ago with CDI + 1.6% rate, a term of five years, and now we are now seeing a new raise of BRL 400 million, same profile, same duration, same rate. So we are reducing company spread, the impact of interest rates, and we are extending maturity to improve the company's capital structure. Priority projects, this was the very first. We have several initiatives in the company. This was the very first in the beginning of January.
As you can see, we are already seeing a reduction in inventory levels, which is a result of this priority, a recovery of the level of service of the company that kind of deteriorated as of September. I did mention that in the last call. Going back to the same levels of June, March, and even freight evolution, we see an important growth of freight over gross revenue. It is the first results that we see. Again, this is ongoing work in the coming quarters, but we do expect to have an improvement in these indicators in the future. Now, I am going to turn to Guilherme that is going to talk about the judgment, and then Luiz is going to talk a bit about Rio Grande do Sul and the work we are developing there.
Well, good afternoon, everyone. I am going to talk about DIFAL. There was the publication of the judgment on May 6th, and basically it confirmed the need for states to regulate their legislation and these laws. All that said, together with our legal advisor, we calculated likelihood of loss per state. So far, we have an estimated amount of BRL 150 million. We are going to continue to monitor the impact and updates of DIFAL are going to be provided in the coming quarters.
Thank you, Guilherme. Luiz, if you could please talk a bit about Rio Grande do Sul.
Certainly. Good afternoon, everyone. Well, the situation in Rio Grande do Sul is catastrophic. Our company has Rio Grande do Sul as an important state. We have two major operations there. One, a distribution center in Nova Santa Rita, and the other, Life, which is part of the manipulation pharmacy business. We also have two smaller operations, one of prosthetics and orthotics, and the other of drugs. With the floods that we had last Friday, May 3rd, our pharmacy was flooded, almost one meter high waters inside. Therefore, obviously, we had to interrupt operations. We have chemotherapy and parenteral nutrition in this company, and the possibility of our ecosystem was great.
Even with the interruption on Friday, on Saturday, we started to manufacture parenteral nutrition for ICU and outpatients from other pharmacies in Brasília and Belo Horizonte. We were able to react, and on Sunday, we were already delivering food to these patients. In the case of LIFE, it is the only pharmacy of ours that manufactures dialysis solutions to chronic inpatients. This dialysis operation has no similar operation in Brazil. In one week, we transferred the operation from Rio Grande do Sul to other two operations, both in Belo Horizonte and Brasília, to be able to continue taking care of our dialysis patients in Brazil. At the same time, we are in contact with the state and federal administrations, and as of tomorrow, we are going to start an operation from scratch to prepare parenteral food in Hospital de Clínicas de Porto Alegre. This was an unprecedented operation.
We took our teams and drugs and materials to this hospital just to make sure that patients would be served, especially patients in neonatal units with specific formulas, which is what these patients required. So a huge effort since the floods of last Friday, and we are very proud to say that in this case, it was only possible to keep the operation because of our ecosystem and because we were able to react fast and use other capabilities of ours as a group to be able to continue services to customers. In terms of drugs, we have our distribution center of Nova Santa Rita underwater. In fact, the water didn't go inside the distribution center, but the power is out, and we are able to move all the refrigerated drugs to Santa Catarina.
We just completed the operation yesterday, and we are, again, providing all drugs to hospitals from Santa Catarina Distribution Center or Paraná, where we have other operations. So a huge effort in Florianópolis, part of it by land or by air, just to be able to keep supply to hospitals in Rio Grande do Sul, despite the situation, which was much worse than anyone would have expected. A true, unique situation, second to none.
Thank you, Luiz. Just to add to that, in addition, all our employees are 100% safe. We were able to locate them all. Many, unfortunately, did lose their homes and everything. We have an internal campaign to try and help these employees, but they're all safe, and the work we are doing makes us all very proud to keep services going.
Well, just to close, I would like to talk a bit about the development of the company's corporate structure. The day before yesterday, we announced a new addition to the team, Fred Oldani, that is going to be responsible for financials, IR, legal, together with the team, so that we have more and more focus in working with the company's working capital to make sure that we are going to create positive cash in our business suitable to the organizational structure until the third quarter. This is the plan. If I were to think in sequence, maximum priority is really to structure the working capital of the company and the whole cycle, make them appropriate to our structure and to the way we are structured, and this is already ongoing.
The idea is to have it completed until the third quarter, and then map new growth, focusing on businesses with higher profitability, and let go businesses that do not have the return on invested capital we want. With that expectation of myself and the teams is really to adjust the company until the end of the year and go back to historical levels of results we had before. This is my commitment together with the team, full focus on execution, and we are going to bring you news as of the coming months and quarters. With that, I close the presentation, and I am going to open for your questions.
Well, we will now start the Q&A session. As a reminder, if you have a question, click on Q&A at the bottom part of your screen and enter your question. When you are announced, we are going to send you a request for you to unmute the microphone. You do so and ask your questions. Please, if you have any more than one question, ask them all at one time. Our first question comes from Gustavo Miele, sell-side analyst from Goldman Sachs. Gustavo, please unmute your audio.
Hi, Leo. Good afternoon to all company officers. I have two questions, if I may. The first is that you have been mentioning some months now that one of the pillars to recover margins and cash generation of the company is reworking some contracts, especially in high cost. When you are talking about leaving some sales in top line, I believe that this is something that has been going on for some months.
Could you give us just a bit more color of how much this process of focusing on more profitable contracts has been completed, and what is the schedule until the end of the year? That is quarter on quarter, when do we expect us to see the high cost segment with the contracts that are most profitable for the company? This is the first question. Second question, perhaps a bit more specific on results. I would like to understand the nature of this reversal of provision for bad debt. When I take a look at the receivables with maturity for more than 60 days, the amount should be 3.1% of the total receivables against 2.5% in the previous month. Is this reversal non-recurring, any change in policy of the company? Just for us to be able to reconcile these two effects. Thank you very much.
Hi, Miele. Thanks for joining us, and thanks for your question. I am going to start with the contracts. We have three different breakdowns. I am going to start with the open market. The changes that we made in sales profile in the open market already gave us a gain of margin compared to the last quarter last year. We were able to see an increase in margin for high-cost sales in the open market as a whole. In OL, most of contract negotiations take place now. They happen at the second quarter. It is now that we are going to renegotiate prices and margins. The third factor are the drugs, especially generic drugs. These, we still see a curve of recovery of prices and margins. It was the largest impact among the three in the first quarter.
That is why I highlighted it, and that is probably going to happen along there. Open market in the first quarter, OL now, and drugs throughout the year. As for the reversal of provision for bad credit, the highest is Lasa with almost BRL 6 million. Then we had other things from acquired companies. We are constantly looking into that. Excluding this effect, our provision for bad credit would be close to zero in the quarter. That is why we talked about the aging and the mapped risk that we have of BRL 3 million. This is what we understand. We have less visibility to reverse. It is not that it is going to be a provision, we are working on that, but this is a number that we monitor from close.
Very clear. Thank you very much.
Thank you. Have a good afternoon.
Our next question comes from Leandro Bastos, sell-side analyst from Citi. Leandro, you can ask your question.
Thanks, everyone. Hi, Leo. I have two questions as well. The first I would like to ask about seasonality and cash generation. We got used to thinking of this company having a more intensive cash-related quarter, and the others not as much. Given the numbers as you mentioned, and the numbers of April receivables inventory, are you expecting a second quarter a bit better in terms of cash generation, a bit off your average? Thinking of your priorities, inventory, restructuring, return on invested capital. In terms of services, where are you in terms of recovering your level of service or getting to optimal levels?
Hi, Leandro. Thanks for your question. Seasonality. Yes, we are keeping what we said before. Last year indeed we did not have that, but the seasonality of cash generation, it starts as of May and June and will extend to the second half of the company. This is the rationale of the business. We were not able to show this last year because of a series of factors, internal factors that we understood. We changed the strategy for this year, and we are going to operate differently. We are working for it to happen, and the idea is as of the second quarter, have a very different scenario. That is driven by reduction in inventories, but other working capital accounts in the company. As for other priorities, as I mentioned, priority top one was inventory. We are able already to start bending the curve.
We still want to work with accounts payable together with our suppliers, just for them to understand the reality of accounts receivable and how important it is for them to help us with working capital. This is a very intensive agenda, and even more so with Fred joining the team to talk to suppliers, show the reality, and come up with solutions that can be positive to both sides. This is ongoing. Focus on business and products with higher profitability. We have a whole chapter now in the second quarter with all our contract renewals. The idea is really to focus on that and the structure, part of it more in the third quarter. The full reflex of everything is said that also has to do with level of services to customers should be in the fourth quarter a bit more reflected in all fronts.
The idea is by the end of the year, have everything then. Level of service, we are already receiving positive feedback from customers that we understood their pains, that we heard them, so we start to see some improvements. We are certainly not where we wanted to be, but I believe we are going to have a second half of year differently from the first quarter and much closer to where we wanted to be.
Very good. Thank you very much.
Our next question comes from Felipe Amancio, sell-side analyst from Itaú BBA. Felipe?
Hello, everyone. Thanks for taking my question. I also would like to talk a bit about working capital. We see a very challenging scenario for the healthcare market, especially service providers. We see an increase in receiving days, but also payment days. In this quarter, we saw payments go down. I would like to understand if the company is being able to pass on part of the receivables to the suppliers. Also during the presentation, you mentioned that your objective is to restructure working capital until the end of the year. I would like to understand what levers you are using. I know you have gone through that in the presentation, but any more color in terms of lines to see improvements is very appreciated. Thank you.
Hi, Felipe. Thanks for your questions. Let me try and break down the effects here. Accounts receivable. Due to the business seasonality that I just mentioned in the previous question, we should start seeing an improvement in the second quarter compared to the first quarter, and therefore along the year. Of course, there is a second component of accounts receivable, which is the market pressure.
We continue to have pressure, especially at the close of quarters and then in the beginning of the other quarters. It is more of a momentary effect, but because of the business seasonality, we really have to see an improvement as of the second quarter. Inventory levels, as we mentioned, we are working to continue reducing inventory levels. I showed you in April, but also along the next quarters of the year, and go back to levels that are closer to the beginning of last year than to the end of last year. I think these are the two priorities, so to speak. Then accounts payable vis-à-vis inventory. What we have is a disconnect of some suppliers in which we have high inventory, but everything was paid for. So accounts payable is almost zero, but inventory levels are very high.
And that's why you see a mismatch there. So what are we doing? We are no longer buying from the suppliers. We are lowering inventories levels, but we are not generating a new accounts payment. That is going to happen when we have a match, which happen more towards the end of second quarter and beginning of third quarter. And there we are no longer going to have a mismatch between inventory levels and accounts payable. We are mapping supplier by supplier. They're a handful, but we have an execution plan for each and with every one of them. So this matching should happen as of the end of second quarter, beginning of third quarter.
Thank you. Very clear.
Our next question comes from Fred Mendes, sell-side analyst from Bank of America. Fred?
Good afternoon, everyone. Thanks for the call and taking my question. I have two. One is to understand from Leo the strategy from now on for Viveo, at least for the years 2024 and 2025. If you think you are going to significantly reduce SKUs and focus on products with better margin, or not necessarily, they would be more specific products that affect margin. So if the reduction is more specific or more relevant, and if there is a reduction in the size of portfolio, if you understand that this somehow can affect your relationship with the customers due to the potential cross-selling in between products.
And second, you talked about BRL 150 million. I know it's still early, you're still looking into the impact, but do you think it would be a one-time impact for 2024, or is it something that could be spread along 10 years? What would be the cash effect of the decision?
Thanks, Fred. I'm going to answer the first question, and then we are going to answer the one on DIFAL. Strategy. First of all, remember that we continue to see very good double-digit opportunities to grow. The assumption is the same. Despite we leaving some businesses, we did continue with double-digit growth, and that continues. In our portfolio, we are looking today at how we can better structure working capital, especially because of levels of margin and also because we have to reduce our presence in some areas and focus on other things.
So it is an exercise on our portfolio. It's not a shrinking. It is a choice of where we should grow more and less, and where some type of margin, ROIC, and others, we are not going to invest. But that does not change the capacity of the company of continuing growing at double-digit levels from now on.
And it doesn't hurt us in the cross-selling of other products of our ecosystem. This quarter, as I mentioned, we had an important change of products that are relevant to the market and did not lose our cross-selling capacity. So if I add level of service with reduction of presence of products, it could have affected our capacity to grow or losing customers, and it didn't happen. And that's why we have the confidence or continually focusing on the items we want to prioritize. As for DIFAL, Guilherme?
Hi, Fred. As I mentioned, the BRL 150 million is still a likelihood today. It's possible. It's not that it is. So we are analyzing numbers per state according to the laws of each state. Some legislation has interpretation of the law, and perhaps we don't have the DIFAL. If we have to collect a DIFAL tax in the state, we'll certainly pay that installment and even perhaps, I know, better negotiations for payment, exemption of penalties. Whatever has to be paid, it's not going to be a one-time cash impact. It's going to be throughout a few years, depending on the programs that each state goes for. We do not see this magnitude of cash impact for the year. Remember, these are negotiations state by state. We haven't gotten there yet of sitting down with states and negotiating.
Very clear. A final point then for DIFAL. I know it's early, but the understanding is that 150 million BRL would be the worst-case scenario.
Yes. This is the principal amount, okay? Principal amount. But again, because it's a negotiation state by state, we are not talking about interest or penalties. It's the principal amount that we recognize together with the audit team.
Okay. Very clear. Thank you.
Our next question comes from Caio Moscardini, sell-side analyst from Santander. Caio, you may go on.
Hello, everyone. Thanks for taking my question. In the release, you said you were also looking to other opportunities to create cash in addition to operational cash. I would like to know what opportunities are you thinking about. Do they include discount of receivables? Just for us to have your views on what you see as opportunity. Thank you.
Thanks, Caio, for your question. No, we are not talking about receivables discounts. This is not something we do in the company. We might in the future. This is not what we are referring to. We are really looking into our ecosystem, everything that has been built. There are things that are working very well, as we talked about manipulation pharmacies and others, compound pharmacies and others, I'm sorry. Others, we expected more perhaps. We are thinking of opportunities also of divestment that can bring cash for the company.
Very clear, Leo. Thank you very much.
Our next question comes from Estela Strano from JP Morgan. Estela, you may go on.
Hello, everyone. Good afternoon. Thanks for taking my question. In the release, you mentioned that G&A increased because of some one-offs that were adjusted in EBITDA. What I would like to hear from you, thinking of recurring increases of G&A and freight, what do you think you could extract in terms of efficiencies and improvements to have higher efficiency in terms of your G&A ratio?
Thanks, Estela, for your question. G&A, I think the main impact we had, without considering freight costs that I mentioned before, were some layoffs in the beginning of the year and also consultancy for strategic projects, as I mentioned before. They are non-recurring. They are going to happen in some quarters this year, but they are not part of the company's G&A. When you think of admin expenses and you subtract these expenses, we have even a negative number. The main thing was freight within commercial expenses, and we have a series of initiatives to improve controls, flows of orders, billing, where we're billing, to where we're billing, for us not to have as many billing spots that makes our freight more expensive.
We haven't been tougher in some measures because, again, we have to match the quality of inventory and the size of inventory to improve customer services, and this is what we're able to show you to then be tougher with some measures that will reduce freight costs. But for that, we have to have the appropriate level of service and inventory levels. This is the logic that we're following. Despite all that, we just see an improvement along the first months of the quarter, and we are going to work to have even better numbers towards the end of the year.
Very good. Thank you very much.
Our next question comes from Samuel Alves, sell-side Analyst from BTG Pactual. Samuel.
Good afternoon, Leo, team. I have two questions on the same subject. The first is about deleveraging. Leo did talk a lot about the initiatives to generate cash, normalize working capital, but I would like to ask how you picture the deleveraging of the company, thinking of net debt EBITDA ratio for the year, considering that the base of the second half of last year was even more difficult in terms of EBITDA, if we can make a comparison to this year. I would like to know that. The second question is connected to covenants. in the release, you talked about covenants of 3.5 x as your benchmark. I would like to know when the covenants are calculated, and if you're thinking of another option if you hit the indicator along the year.
Hi, Samuel. Thanks for your questions. I'm going to start with covenants, your second question. Yes, our covenant is 3.5x, and it's calculated in June and December. We are considering several scenarios, and we have several initiatives to be in compliance with the covenants at these two points in time. As for debt and leverage, what should we expect? Undoubtedly, the second quarter, as you mentioned, and the third quarter last year had very high numbers compared to what we are running today, even with the adjustments.
So the expectation is the last 12 months EBITDA of the company more pressured for these two quarters, and in the fourth quarter, we reverse the curve. That is, we are going to have a positive effect of the last 12 months EBITDA with the maturation of all the initiatives I talked about, both in gross profit and revenues to go back to historical levels of results.
Working capital, as I mentioned in the beginning, should be a source of us reworking several of this line, and that's what we want. We want to have a better fit of the company's working capital, starting with inventory levels, seasonality of accounts receivable, and working with our suppliers in accounts payable. That would also be a source of cash as of the second quarter and the second half of the year. This is what we are picturing for the next quarters.
Okay, Leo, thank you very much. Have a good afternoon.
Thank you.
Viveo's Q&A session is now closed. We are going to turn the call for the company's final remarks.
Well, once again, I would like to thank you all for coming, for your questions, and reinforce our commitment, myself and all the teams, with full focus on executing strategic actions and restructuring the company's working capital and maturing the initiatives we commented during the call until the fourth quarter this year. Our objective is to resume historical levels of results and then continue with our agenda for 2025. Once again, thank you very much for joining, and very nice weekend, everyone. We are here available for anything you might need.
Viveo's conference call for 1Q 2024 is now closed. The IR team is available to answer any questions you might have. Thank you very much for joining.