Good morning to everyone, and welcome to Allegro Q2 2022 results call. I'm very happy to introduce to you today Roy Perticucci, the new CEO of Allegro. Roy will be hosting today's call together with our long-standing CFO, Jon Eastick.
Good morning, everyone.
Good morning.
As you can see, unfortunately, Jon Eastick had to join us remotely today. My name is Michal Kuzawinski, and I'm head of Investor Relations. Show the slides, please. Thank you. You can download a copy of this presentation from our IR webpage at allegro.eu. When you do so, I encourage you to read the information contained on this slide number 2 with a disclaimer. Let me now introduce the agenda for today. Roy will begin today's presentation and talk about his initial perspectives after the 1st month as Allegro CEO. Then we will hand over to Jon, who will talk you through the main part of the presentation, the business highlights, financial results before updating you with our 2022 expectations. Then we'll open to Q&A when you will have an opportunity to ask questions.
My final remark is please remember that this call is being recorded, including the Q&A session, and the replay will be available on our IR webpage at allegro.eu. Let me now hand over to Roy Perticucci.
Thanks very much, Michal. Good morning, and thank you for joining us today. I am very happy to have become part of the Allegro team. I'm not new to e-commerce, and I followed Allegro for many years, and I've always admired the way that Allegro has carefully nurtured strong relationships with Polish customers. That bond is incredibly difficult to achieve and just as hard to maintain consistently. There are very few companies that can match Allegro's emphatic desire to serve customers, and this focus has served them well over decades. I've known some of Allegro's leaders for a while, and I'm excited by the chance to join such a talented group, especially as we move beyond Poland and into neighboring countries. This next step is not going to be easy, especially now in this time when family incomes are being eroded by high inflation and uncertainty.
With new challenges come new opportunities, and I'm convinced that our marketplace model will be the solution for both customers and merchants during this timeframe. Since my arrival in Warsaw, I've been getting stuck in. I've been engaging with staff, I've been spending time with merchants and business partners and discussing plans with my senior team and the board. Let me summarize my perspective after my first 30 days or 29 days as chief executive. Sort of 1 general theme that appears is that we've invested ahead of growth over the past few years, and that's been reflected by a rising share of central costs and a markedly changed capital structure.
While most of those investments have been worthwhile, we still need to stay within our means, and that means that we need to be dead certain that the investments we do make will generate both the cash flows in terms of generated by both future growth and in reducing leverage. Another theme that I'd like to mention is, we've got an awful lot of lines on our to-do list. Maybe we're trying to do too much at once. I'm not commenting on any single projects, but rather I'm questioning whether we are sufficiently clear to ourselves about our priorities. I'm also a fan of giving well-defined set of projects, sufficient resources to complete at speed, and then move on to new objectives. I'll be diving deep on this question, and we'll work together with the team to stack rank our initiatives.
We want to take on the most value accretive tasks first, account for realization work, excuse me, realization risk, and then make sure that we don't take on more than we can finish with the people we already have. Over the past 4 weeks, I've been working with the team to set some of these priorities, and we've come together with a list. Our first priority will be to continue to be strong in Poland. That means in addition to continuing our performance in existing segments, we know that we need to improve selection and shopping experience in categories such as health and beauty, fashion, and ambient grocery. Often, these are areas of particular interest to women shoppers. To do that, we'll need to attract new merchants to our platform.
We want to direct the same passion we already feel for customers towards improving the merchant experience. A second point is the international expansion of our marketplace model. The acquisition of the Mall Group was a heavy investment and a bold first step outside of our home market. Over the course of the next year, we'll need to convince first Czech and later Slovak customers of the attractiveness of shopping on an online marketplace. There's much preparation that's still to be done here. Our third priority is our foray into financial services. The Buy Now, Pay Later product that we already have on the market has grown by over 200% a year and has been a fabulous GMV generator.
My vision is to pivot our growing fintech business into a self-funding operation with positive EBITDA. To do that, we need to develop new products and move the loan book off our balance sheet. I'd like to pause here for a minute. An old boss told me, sadly more than once, that I had to be able to walk and chew gum, and I think this rule also applies here. The priority I've listed so far are oriented for growth, but cash generation relies not only on driving growth, but also careful attention to costs. Top of my gum list is the disappointing H1 trading performance of some of the 1P companies within Mall Group. Good news is that growth is coming back in the H2 , but we'll need to continue to focus on margin performance.
A second cost priority, of course, is transport costs. Customers across Europe expect free delivery. Smart! has been extraordinarily successful at generating GMV growth by enabling merchants to offer delivery at low and subsidized cost. After all, Allegro covers over 70% of the total cost of transportation. There's another result. Those costs of delivery we've transferred from customers to our own income statements, and those logistics are now our single largest cost bucket. We'll need to intensify the collaboration with carriers to manage the impact of their own rising fuel and labor costs. We'll also need to work equally hard to improve the productivity on our own operations. Third on our list of costs are central costs.
We need to make sure that talent is deployed as productively as possible within a new post-merger structure. As I mentioned earlier, we need to evaluate our project portfolio by returns on investment and also on realization risk, and look also into that further, to our expense policies and our cash outflows in general. Chief executives often end their talk with the people topic, and I'm no exception. We need to shift from recruiting from outside local markets and spend more time evaluating the tremendous amount of talent that we already have. We want to make sure that we're deploying them as best as possible in both rewarding but also stretching tasks.
I'm not saying that we're gonna close the tap on recruitment, but I think, do think we should spend more time in being certain that we're getting really good at finding spaces for our best talent to develop and grow. I think these 7 priorities are fairly clear. We need time to refine our plans in order to execute them in a structured and rigorous manner. At this point, at the very early point in my tenure, I can only say that my excitement over the tasks at hand have only grown stronger over the last 4 weeks. I'm looking forward to work with our staff and to deliver continuous improvements, continuous improving experience, both for customers and merchants. Let me hand over now to Jon Eastick, who will take you through our most recent results.
Thanks very much, Roy. I'd like to welcome everyone 1 more time. I should explain why I'm actually not sat together with Roy as I would really like to be. Unfortunately, 2 days ago, I tested positive for COVID for the second time. That means I'm sat here in my little quarantine cell and trying to contribute remotely to the presentation. With that in mind, can we share the slides, please? I'll start the presentation that really focuses on our Q2 performance, which of course now includes Mall for the first time. I'll be going over the Mall results in a lot more detail and showing how it's all going to fit together going forward in terms of our financial reporting.
Then I'll also be covering, obviously, our expectations for the rest of the year. Let's move to the first slide, which is the overall highlights. I'm controlling the slides. Here we go. Let's start with the Polish operations, which has gone very much as we expected in the Q2 with our GMV growth accelerating significantly. We posted 16% year-on-year growth in GMV for the Polish business only. That's up significantly from the 12.8% growth that we managed for Q1, and is in line with those expectations that we have. It really shows the resilience of the Allegro model, given all that's going on around the consumer and around the cost of living crisis, that we're able to post such strong growth.
I don't think there are too many e-commerce businesses across Europe which have managed to grow 16% during the Q2 of this year. It really shows how our model has key benefits for the consumer, the multi-category approach, the massive selection, the focus on very attractive prices and bargains, and the convenience of shopping with us. It really brings the buyers back to us week after week, month after month, and brings so much to their shopping to Allegro. We think even in the circumstances that we see at the moment, that is set to continue, that we are going to be a big part of the solution for consumers as we go through these difficult periods of time. The GMV growth moved on to 16%.
Monetization also progressed as we indicated it would. We introduced higher co-financing rates at the end of the Q1 , and a full quarter's impact in Q2 took our take rate up 35 basis points to 10.81%. That combined with a very good quarter for advertising, growing 26.5%, meant that our revenue lines moved on strongly, and we were able to improve our adjusted EBITDA margin considerably versus Q1. We cut the year-on-year reduction in adjusted EBITDA from 13.6% a quarter ago to just a 1.5% decline in the Q2 . We're expecting that increase or that rate of increase to continue strongly through into the Q3 and beyond. I'll talk more about the expectations later in the presentation.
We continue to make great progress with our delivery. Our delivery speed in terms of next day is up another 6 % points year-on-year in the Q2 , and it's been another standout quarter for Allegro Pay. I'll go into more detail about how well it's performed a little bit later in the presentation. Obviously, another big milestone is the acquisition of Mall, which took place on the 1st of April. I'll be going through what we're doing on the integration side and our plans for the future on the one hand, and going deeper into their financial performance on the other during the course of the presentation. Okay, let's focus in on some of this wide range of initiatives and projects that we've been running across the business during the Q2.
As Roy points out, we really fire along across many different projects at the same time. There's a few things that I would like to highlight, as we go through the next 3 slides, which cover the business update. Starting from selection, it was another very good quarter of adding brands at speed to our selection. You can see over 200 new brands added in the Q2 . I also want to focus in on how we're starting to utilize the investments we've been making in productizing the back end of our platform.
Getting our merchants to associate their offers with particular products into how we're now starting to utilize that on the front end, creating shopping paths which allow customers to search for specific products rather than to just simply browse offers, as has been the old-fashioned or the older model or the well-known model of Allegro over its previous 20 years of existence. That productization, that productized perspective allows people to find products much more quickly and is extremely important for our future in the Mall region, where there aren't really any offer-based marketplaces already present, and customers really expect that productized search perspective.
Everything we're learning here on the Polish platform, we're going to be leveraging double and triple when we start the marketplace in Czech Republic in 2023. On price competitiveness, we've talked many times about the toolkit that we've been building to enable us to cooperate with merchants to ensure that the Allegro marketplace always has the best possible price available on the market available to the consumers, so that when the consumers visit, it reinforces the perception that at Allegro, you're gonna get the best price, and you don't need to shop anywhere else. The toolkit is fully operational.
We're investing more money and sharing more take rate with the merchants to bring down the number of what we call price defects, which is places where we don't meet that mission of ensuring we have the lowest market price available. We're investing more money behind that, and that is really helping us in terms of our price perception. That's helping us drive GMV and bringing customers back and driving frequency. In terms of delivery, I already mentioned the progress we're making on our point-to-point merchant fulfilled network, which, where we directly deliver from a merchant warehouse to the consumer. Delivery speed moving up steadily from quarter-to- quarter. It's also worth mentioning how we're doing on the One Box project.
We've already got 2,000 lockers installed. We have a plan to reach 3,000 by the end of this year, and the proportion of merchants who are now connected with One Box and are therefore able to deliver their offers into our proprietary locker network is increasing steadily. We're increasingly now focused on the front end and in particular the checkout process to ensure that our fair share of deliveries flow into those lockers, and we get the return on investment that we're expecting. Moving on to the key growth levers that take the basic proposition and turbocharge our growth across the marketplace, let's start with Smart. The number of customers who have got Smart subscriptions continues to move up strongly, mainly from 2 sources.
One is the uptake of Allegro Family, where customers of the same household can share a single Smart subscription, is continuing to accelerate. Secondly, Smart Start, which is our introductory free offering that includes 5 free deliveries, continues to be a stepping stone that results in many Smart Start users converting to becoming full Smart subscription payers. Also very important is that we're now very focused on the economics of the Smart offering. We have moved, as I said, in the Q1 to increase co-financing, which took the cost shared with the merchants from approximately 20% up to about 25% of the total cost of delivery, which is obviously on our income statement.
We made a further adjustment in the Q3 that kicked in on the 1st of August and moves the share up to approximately 30% of the total. This is obviously going to help considerably with margins and with balancing the P&L around Smart. Advertising, as I said, had an extremely good Q2 , advancing 10 % points faster than GMV growth at 26.5%. We introduced additional inventory on the shopping path and we also managed to improve relevancy, which then delivered higher click-through rates and drove revenue across the advertising offering. A very strong quarter for advertising. Let's look at Allegro Pay. This was a really excellent quarter.
I think the first point to highlight is that we've reached 1 million onboarded customers as of June, which means that's 1 million of our active buyers who have available at any point in time a personal credit limit that they can use with Allegro Pay to make purchases. They're doing that with great frequency. As you can see, PLN 1.26 billion of loans written in the Q2 . That represents 260% year-on-year growth. I've mentioned many times, this is very calorific in terms of GMV contribution. Our estimates are that about 35% of the spending is incremental when we compare to customers who do not have the benefit of an Allegro Pay credit line.
When it comes to credit risk, the situation stays very much under control, and obviously we're very closely focused on the cost of living crisis and what that might do for the creditworthiness of consumers. From that perspective, I think you can also understand that it's only 1 million customers that we've onboarded to Allegro Pay so far. We have 13.5 million users on the platform, but we've so far been very careful about how much credit we extend, and that will continue in the current economic context. When it comes to the Allegro Pay balance sheet, that PLN 1.26 billion of loans was possible with only about PLN 350 million of incremental balance sheet put into operation.
Of that PLN 350 million, PLN 273 million was then sold on to our financing partner, Aion. Our own balance sheet only increased 22% during the quarter, up to about PLN 80 million to PLN 445 million of loans actually on the balance sheet. Allegro Pay is really firing on all cylinders, and we're very excited about the prospects for the future. I'll cover international development rather on the next slide. On this slide, which deals specifically with the Mall transaction and with the integration. As I mentioned, we acquired Mall on the 1st of April, and we were already working hard in terms of the integration as we got to that date. Since then, obviously the pace of work has accelerated tremendously.
We've got over 15 teams, jointly created from Mall employees and from Allegro employees working across a whole bunch of different projects and work streams. The general cooperation between the 2 organizations is really excellent, and we're very positive about the culture that we're building together. There are 2 main areas that we're focused on. The first one is to prepare the marketplace or the Allegro marketplace stack to be launched as an allegro.cz marketplace address in 2023, initially for the Czech market, and then later for the other markets in the Mall region. This is obviously a huge project, which I'll go into in a second in a bit more detail about what's involved.
The second stream is around turning around the Mall 1P operations, which as you'll see when we get to the financial section, are under significant pressure given the economic environment in the Czech Republic, and given their positioning as an e-store and their particular specializations around electronics and consumer durable products. We're very focused on how we turn that business around and stabilize it, and we've already made a lot of progress in that regard, as I'll cover later.
When it comes to the 3P platform, we've already got a Czech version, a Czech language version of the platform up and running as a language choice on allegro.pl, and we'll be perfecting that over the coming months, together with the Czech team to make sure the experience is really excellent. We're working hard on expanding the amount of delivery options that are fully integrated to enable us to to ship cross-border and deliver fast, within the Czech Republic, and we're working on the go-to-market and launch campaign and utilizing techniques that we've perfected in Poland, like price management that I was discussing earlier, once we get up and running in the Czech Republic.
On the 1P side, we've been very focused on selection, increasing the amount of 1P selection, and particularly in top sellers. Also focused on stock levels and reducing the amount of overdue stock that Mall has within its inventory. We're very focused on their costs, and we're also focused on sharing techniques around marketing and spend management, and improving returns on investment. That's the end of the business update. Let me move on to the Polish operations. This slide is 1 that we normally just include as an aide-mémoire, so that you've got all the key KPIs at your fingertips.
The one thing I just wanna point out here today is that although we've bought Mall, the Polish operations and the way we present them is totally unchanged, and therefore, these KPIs are fully consistent backwards, the 2 years to the IPO, and all the previous quarterly reports that you've seen. Okay. As we go through the financial part of the presentation for the Polish operations, we start, as usual, with active buyers and spend per active buyer. The quarter was very good from an active buyer perspective. We've added 200,000 additional active buyers, and this again, I think, reflects this resilience that I was talking about, of the Allegro marketplace and the USPs that we have for the Polish consumer.
The customers are coming to us in these difficult times, and we expect that to continue, as the year progresses. As usual, the bigger driver when it comes to the total GMV growth is on the spend per active buyer side, and again, consumers bringing them their increasingly scarce spending power to Allegro, 13.9% growth on a year-on-year basis. Now the average buyer is spending PLN 3,350 on an annualized basis on the platform.
Putting those 2 elements together, as I mentioned earlier, our GMV grew 16%, which means we've landed on PLN 12.1 billion of GMV for the Q2 , and it means that our last 12 months GMV is now up to PLN 45.5 billion at the half year. It's worth remembering that the last of the lockdowns that we had in the Polish economy that had an effect on retail concluded right at the beginning of May last year. Since early May, our growth rates have accelerated strongly.
As you see at the bottom of the slide, we're also today sharing our current trading, which is effectively at this point the full Q3 , and we're actually tracking towards a full Q3 landing above 20% year-on-year growth. That acceleration is very much in line with what we were anticipating earlier in the year. It's also worth to note where this growth is coming from between real growth in terms of the number of transactions. You can see that in the Q2 , we had 9.1% increase in the number of transactions, which is actually holding up very well when you look on a last 12-month basis. The growth was 11.4%.
The slowdown in the economy is not really all that visible yet in our real trading performance in terms of transactions. On the other hand, obviously, as we were anticipating in previous meetings, the inflation that's going through the economy is indeed starting to feed through into product prices, and the rest of the growth that we have to arrive at that 16% is obviously various elements of inflation, but also selection aspects. 9% transaction growth, real transaction growth, still present within our GMV growth. Moving on to revenue, the higher take rate that I was describing earlier coming from some increases in commission rates, but mainly from the co-financing change that we made at the beginning of the.
At the end of the Q1 , together with the advertising improvements and the accelerating GMV growth is driving our revenue growth at 22.3% to PLN 1.6 billion of revenue for the Q2 . Moving on to looking at the adjusted EBITDA performance. The combination of the faster growth in GMV and the higher monetization and strong performance from advertising has enabled us to greatly improve our EBITDA performance compared to Q1. We managed to reduce the decline to just 1.5%, and we also managed to improve our margin on a sequential basis to 4.55% of GMV, which is about 27 basis points better than we achieved in Q1.
Sorry, COVID having some impact on my voice. Looking at the cost side, net delivery costs put a PLN 136 million drag on our EBITDA performance, but that includes the effect of the investments that we made in our smart product by making courier more accessible during the H2 of last year. We're going to start to lap as we move into the Q3 , and we would really only be looking at volume, additional smart volume, in terms of the impact on our EBITDA margin.
When we get into the Q4 , we are expecting some of our delivery partners to increase the prices that we're paying, and that will then obviously create a new headwind on the delivery cost line. In Q3, that position should get considerably smaller. When it comes to SG&A, as you know, we've been investing heavily to build the innovative capacity of the organization over the last 2 years or so. We have come to the conclusion that in the current environment, it's time to slow that down and our staffing was only up 2% quarter-on-quarter in the Q2 versus 26% year-on-year for the last 12 months.
We do have a general freeze in place, although that doesn't stop us making targeted investments in key new personnel as Roy was indicating. Looking at capital investments, we invested in the Polish business PLN 209 million in the Q2 . A large part of this investment program. We've lost the slides for some reason. Yeah. Thank you. A large part of the investment program was obviously the locker rollout, as we move through 2,000 installed lockers on our way to 3,000.
There's also quite a lot of investment going into fitting out new offices that we've been taking delivery of over the last year or so in Poznań and in Warsaw on a floor-by-floor basis. Those costs should be rolling out of our CapEx program as we move into the next year. On the capitalized development cost side, obviously the growth in the team and the number of people that are working on new innovations, and particularly on internationalization, translates into an increase in the amount of capitalized development cost that you see there, PLN 81 million for the Q2. That's the Polish operations covered, and now we'll move on to look at the Mall operation.
These are the KPIs that we'll be reporting for you on a sequential basis quarter -to- quarter going forward. One thing I think it's worth to emphasize while we're on this slide is that the GMV from this legacy Mall business that we've acquired, so from the e-tail business with a relatively small 3P marketplace included, is amounting to PLN 787 million, and that is basically only 7% of the GMV of the Polish operations. The legacy business that we've acquired is actually not very large relative to our existing operations.
This acquisition was much more about Mall as a stepping stone to give us the foundations to address the total addressable market in southern Central Europe, which takes our total addressable market to about 70 million population. It also gives us the opportunity to deploy the Allegro marketplace in the Mall countries and really turbocharge this existing business with the Allegro capabilities and merchant base. That said, let's have a look at the financial performance of this legacy business. The place to start here really is to acknowledge that Mall is operating in a very, very difficult environment, and this is coming from 2 perspectives.
The first one is that, going back again to the topic of COVID, in the Czech Republic in particular, it was the lockdowns processes that were followed by the Czech government were amongst some of the strictest in Europe in that they kept offline retail closed for months on end during the height of the crisis. Most sales were necessarily going to the e-commerce segment all the way up until May of 2021. That represents a really significant headwind for the Mall business as it moved into 2022. Secondly, the inflationary situation in the Czech Republic is very similar to the rest of Central Europe and Poland. They've got 17% inflation.
They've got interest rates at 7%. Consumers are under tremendous pressure. As Mall is very focused on electronics and consumer durables, that also translates into significant pressure on demand for their products. Putting those 2 things together, it's maybe not surprising that if you were to look at their Q1 growth, so the quarter before we acquired Mall, they were actually shrinking 18% year-on-year in the Q1 .
In that context, I think the 6% decline that we've noted for the Q2 actually represents a tremendous improvement and reflects the drastic steps that we took to focus on selection and to make them and also on pricing to make sure that they are fully competitive in the market, so that we could stabilize their active buyer base and stabilize their GMV. That has continued into the Q3 in that we're expecting that we'll be able to announce slightly positive like-for-like and constant currency growth for the Mall business when we announce the Q3 in a couple of months' time.
Where the problem really is here is that the price of stabilizing the GMV is coming in the margins. We're having to discount prices to match the market best prices the same way that we do in Poland, and that's cost us about 3 points of gross margin, bringing the gross margin down to 12%. That then, together with the lower total GMV, has caused the adjusted EBITDA loss to blow out from PLN 17 million to PLN 67 million in the Q2 of this year. We know that this is not a level that we want to sustain. We know that we want to turn this around as quickly as we possibly can, and we're very focused on this going forward, as Roy said in his opening remarks.
That brings us on to the group perspective. This is how the KPIs will look for the total group. If we take GMV as an example, the Mall GMV is added on top of the Polish GMV to get to this consolidated result. When we look at year-on-year numbers, these are the numbers that are in the financial statements, so there's no Mall in the prior year. These are not pro forma numbers. All the incremental GMV from Mall is reflected in the year-on-year growth figure that you see there of 23.5%, for the group.
A few comments then about leverage in the group, as a result, which has obviously moved significantly as a result of the Mall transaction. 1st of April, when we actually made the acquisition, the additional loans that we took to close the transaction, you may recall that, approximately half the transaction was paid for in stock issued at 55 PLN. The other half was paid for in higher debt. Lifted our leverage from about 1.8 to 3.26 times EBITDA. In the interim 3-month period to the end of June, the leverage moved up a little bit further to 3.54 times EBITDA.
The reason for this is fairly obvious. We're starting to include the Mall losses into our last 12-month adjusted EBITDA for the group. That contributed PLN 67 million and a loss and reduced the combined adjusted EBITDA slightly to PLN 1,920. On the other hand, the net debt moved up slightly in the interim period, but part of that was a non-cash adjustment to the amortized cost of the borrowings of about PLN 60 million zloty. Going forward, we do expect later in the year that this leverage will start to bend down. That's because we're expecting much stronger year-on-year growth from the Polish segment and a slowdown in the scale of the losses on a quarterly basis within Mall.
Bearing in mind again that Mall's business is extremely skewed towards the Q4 and the Christmas trading period. One other thing to point out here as well is that we're very well protected on interest rates. PLN 4 billion of our total net debt of PLN 6.8 billion is fully hedged into fixed rates, and we actually have a very attractive blended rate of just 1.3%, which compares to the variable rate of over 7% at the current time. That difference is worth something like PLN 250 million a year in lower interest payments, and that will last out until 2024, when these contracts expire.
Looking at net profit, we did book a small loss of PLN 63 million for the Q2 . There were 2 one-offs within the P&L below adjusted EBITDA, which you see here. The first one I mentioned previously, regarding the valuation of our borrowings. T hat was a non-cash item. The second one is related to taxation on previous years following the conclusion of our tax audit that was running within the group. I'm happy to take questions on that if anyone wants more details later in the meeting. Okay, that then brings me to my final slide, which is to cover the expectations for 2022, which we've concluded we need to revise slightly.
As in the previous quarter, we're presenting our expectations separately for the Polish operations and separately for our newly acquired Mall segment. On the right-hand side, you see there basically the mathematical blend, when we take the group perspective, on the overall performance. Let me start by focusing on the Polish operations and starting with GMV. The first thing to say is that Q2 and Q3 are very much gone the way that we expected with sequentially accelerating GMV, and we're now trading above 20% GMV growth year-on-year. When we're looking at the news flow, around the situation in the world, we are noting that the level of economic uncertainty is really reaching unprecedented levels.
When we're looking at the macroeconomic indicators that are coming out sequentially for the Polish economy, they are flashing that there's an imminent slowdown ahead. With that in mind, it's very difficult to judge exactly how the Polish consumer is going to hold up. We've always been a big fan of the Polish consumer, and we remain confident in their ability to sell. Things are just that much more difficult to judge than in a normal period. We don't know how the Q4 is going to pan out. With that in mind, we've taken down the upper end of our guidance for GMV from the previous 20% to the 17% level that you see here.
Now, that then obviously has a knock-on effect down to the upper end of the guidance for both revenue and for adjusted EBITDA that you see on the following 2 rows. Capital investments, we're taking down that guidance a bit further by another PLN 50 million. We are chipping away at our CapEx programs, finding savings wherever we can. As we've slowed the hiring, we won't have quite as much capitalized borrowing cost as we previously planned for. We're now expecting to land between PLN 650 million and PLN 700 million for the full year. Moving on to the Mall segment, our original guidance was focused on how quickly we would get back to positive growth, and we were predicting we'd do that in the Q4. As you've just heard, we're actually a bit ahead of schedule.
We think that's now going to happen already in the Q3 . On the other hand, we really wanna focus on controlling our losses, and turning the business around overall and focus a little bit less on the absolute level of GMV, in what, again, is a very uncertain situation for the consumer in the upcoming Q4 . With that in mind, we've rephrased the guidance to look at it in terms of year-on-year growth for the full 9-month period, and we're now expecting low single digit decline in GMV for the Mall Group for the full 9-month period that we're consolidating. Which is considerably better than that 18% loss that they were incurring in Q1, that I mentioned earlier. That has a similar impact on revenue.
When it comes to adjusted EBITDA, those much lower margins that I was flagging earlier in the presentation unfortunately mean that we do need to push out the adjusted EBITDA guidance to a loss of something between PLN 120 million and PLN 160 million. CapEx is coming down, as it is in Poland, to PLN 70 million to PLN 100 million, and it's worth noting that the majority of that PLN 100 million is actually Polish development going on around the marketplace that we're gonna deploy as allegro.cz in 2023. That's the expectations. The final comment that I wanna make is around our medium-term expectations.
As we move into the planning phase and the team starts to work hard with Roy, on implementing his vision, and planning for the future, we also note that the medium-term expectations that we set previously, we happened to set coincidentally on the 24th of February, which of course was the day that Russia invaded, Ukraine. Clearly the world, especially from the Polish perspective, looks a very different place, than it did, what is it? 8 months ago, as the world has changed dramatically.
With that in mind, we've taken the decision that we need to put the medium-term expectations under review, and we will be back to you probably at, well, definitely in the Q1 , once we've finished our annual planning process, to update you on our medium-term expectations for the next 3 or 4 years ahead. That's the end of the prepared comments. I'm really hoping that I'm gonna be sat with Roy and doing this together when we meet in just under 2 months' time to talk about the Q3. I'm gonna hand it back to Michal, who will run the Q&A session. Michal?
Thank you, Jon. Just a reminder for our guests, if you want to ask a question, please click on the Raise Hand button, then we will promote you to a panelist, and you will be able to ask your questions live. Our first questions come from Cesar Tiron from Bank of America. Cesar?
Yes. Hi. Good afternoon, everyone. Thanks for the presentation and the opportunity to ask questions. I have 3 questions if that's okay. They're all mainly focusing on the cost side. The first one is on what the 2022 guidance implies in terms of EBITDA growth in H2. I think it's about 30% versus about 10% decline in H1. Of course, take rates are increasing, and there's some normalization of delivery cost as a percent of GMV, and also Mall has significant seasonality, which you talked about. What else would drive this EBITDA uplift in H2? That would be the first question.
Second question, given that we're very close to the end of Q3, are you willing to share how margins would evolve between Q3 and Q4 this year? The last question would be coming back on the long-term plan, which you are working on revising. I think you did mention a couple of times the word cost. I just wanted to ask if we could end up with more focus on the cost side from Allegro going forward, especially cost on delivery, and maybe if the KPIs could be more balanced towards free cash generation margins, as opposed to growth, including for maybe management incentives. Thank you so much.
Cesar, thank you very much for the questions. Roy, would you like that last part of the question, and I'll take the first two ?
Sure. I think so. I think one of the things that I said in my introductory talk was that we need to really sort of focus on the returns of the projects we're doing. I think we'll continue to do that, and we'll continue to focus still more. Does the project generate the growth that we're looking for? Does it improve overall our cost position? I think it will continue to prioritize on those 2 criteria, keeping in mind also realization risk. I think really sort of the one thing that will probably make a difference in terms of the impact is I'll be looking for also timings of how actually we can make those changes, touch the numbers.
Great. Okay. Cesar, you were asking about to give you a bit more clarity on the margins going through H2, if I understood correctly.
Yeah, yeah.
Yeah.
I just want to better understand the obviously there has to be a significant uplift in the absolute EBITDA number.
Yeah, exactly.
In Q1.
Okay. Yeah.
Also, what should be price of that, and how it is split between 3Q and 4Q, if possible? Thank you so much.
Sure. Yeah, it's a great question. The key thing in Q3 and Q4 is that we start to lap, first of all the MOV investments that we made into, if you recall, taking down the Smart MOV for courier from PLN 80 all the way down to PLN 40. Actually, increased our cost base considerably. It increased the volume of Smart customers, but it also increased the share of courier in the cost of delivery mix quite considerably. We start to lap all of those impacts from Q3.
That obviously takes a major drag out of that EBITDA bridge that I was going through earlier, and helps the performance considerably in terms of year-on-year EBITDA growth. On top of that, you've obviously got further acceleration in the GMV growth in the Q3 , which we flagged very clearly, we're heading towards over 20% growth on the Polish business and a stabilization in the mall business. When it comes to the Q4 , we are factoring in that the arrangements we have with our key delivery partners does result in us needing to factor in higher unit costs, and that's fully taken into account into our guidance. Yeah.
That will be a new headwind that we'll need to deal with. It's, you know, at a manageable level. We also need to remember that the inflation, which is coming through in our GMV, that I was talking about, 9% real growth in terms of transaction numbers, and the rest of the growth, so 6% to 7% of the growth is effectively monetary. Because of our commission-based model, we're actually, you know, earning more take rate on that inflationary increase. Yeah. That gives us some natural protection against the, you know, let's face it, justified cost increases that our delivery partners, you know, are facing because of their own costs.
One other element that I really need to make sure that everyone has picked up, we have made a second increase in co-financing with effect from the 1st of August. We've moved the effects of this has basically moved the share of current delivery cost covered by the merchants up to approximately 30% of the total. That obviously in Q3 is gonna have a positive impact on margins. In Q4, it will offset some of the or a large part, in fact, of the increases that we may face on these delivery expenses. Okay. It altogether, that means that we do expect to have a pretty strong year-on-year growth in our adjusted EBITDA, even in the Q4 . Hopefully, that answers your question. Yeah.
Thank you.
Thank you, Cesar. Next, we have questions from Luke Holbrook from Morgan Stanley. Luke, the floor is yours.
Perfect. Thanks very much for taking my question today. Just a question really on the strategic outlook for your fulfillment business. Well, I'm just trying to get a sense of how quickly you think that you could in-house the fulfillment from here, maybe in light of imposed price increases from November. Do you think long-term strategically there'll be a shift there? Just secondly, on that 30% contribution from merchants today, where does that get to by the end of next year? Thank you.
Jon, I'll talk logistics and you talk about the take rate.
Sure. Yeah
Overall, I think really logistics choices are driven by 3 things, speed, reliability, and cost. One of our great strengths is, historically, we've been an asset light model, and I think wherever we can, that's where we wanna stay. As long as we can work with our carriers to sort of control costs, I don't have a huge priority to sort of rapidly grow out the market past the sort of the network we have at the moment. I think it's a question of choices and how well we can collaborate with our several carriers in the market. I think there are 2 other things to say here. The first one is, it hasn't been since February that carriers have been dealing with rapidly rising fuel costs. It's been over a year.
I think it's reasonable to understand that those costs are rising, and the same thing's true with labor, which to some extent has been scarce, particularly in this sector. You know, I think it's more about what the overall impact is as prices as a whole, costs as a whole rise with inflation. That said, I think the team has done a fabulous job of building out an infrastructure in very short time. I think it's something like 2,000 lockers across a great part of Poland. They've also developed an in-house logistics capability. I think at the moment, the question is not about capacity, but about capability. Are we actually utilizing the resources we have effectively?
I think we'll probably spend some time on that area and sort of getting the best use out of what we have before we decide whether to go forward or not. The rest, as I said, is more of a question about speed, reliability, and cost.
Understood. Thank you.
Thanks, Roy.
I think Jon had the other half.
Yeah. I've got the other half of the question. Yeah, so the question was whether on what to expect in terms of the 30% share of delivery expenses being covered by the merchants. I think the first thing obviously would be that if those price increases do come through as we expect in Q4, that 30% number would step back a little bit because we'd have to cover a higher cost from that co-financing.
More to the points that Roy was raising earlier in the presentation and in his opening remarks, we really feel that we need to focus on our operational costs and our efficiency, and do our homework, if you like, before we look to merchants to fund higher shares of co-financing of delivery expenses.
It doesn't mean that we won't make further increases at some point in time, but we don't have any firm plans at the moment, and we really want to do something, you know, that we haven't been particularly focused on in Allegro previously, which is to really take a closer look at our own costs, and the use of capital and the number of projects that we run simultaneously, as a first source of funding for the next few quarters.
Yeah. If I could add just something here. I think, again, merchants and merchants' loyalty to our marketplace has been a source of our success. We want to make sure that we do everything that we can to make trading on our marketplace for both Polish merchants and for merchants throughout the area we currently now serve find it attractive to continue to do so. We can't help the fact, unfortunately, that we're in a period of really high inflation. Those inflationary costs will pass through. I'm sure the numbers on the invoices that merchants see will be different. I think for us, the priority is just to make sure that the total percentage of their sales doesn't vary by very much unless we really don't have another choice to do it.
That's clear. Thank you very much.
Thank you, Luke. Now we have questions from Lisa Yang from Goldman Sachs. Lisa, if you can please unmute yourself, you should be able to ask questions now.
Great. Good morning and thanks for taking my question. Maybe a follow-up on your comments, Roy, and thanks very much for presenting your strategic priority. It does feel like you're gonna be more selective on investments. I'm just wondering, you know, if you can maybe at this stage highlight, you know, how you would rank those investments. Like, what is a priority? What is lesser a priority? I think you did flag Allegro Pay being a priority. Just wondering if you can, yeah, give us a bit more clarity on that at this point in time.
Yeah.
I think the second question is on your GMV growth guidance for the full year. I think in July you were up mid-20s, now you're seeing Q3 above 20%. I'm just wondering, are you already seeing any slowdown, for instance, in September? Obviously your Q4 guide will imply anywhere between 10% to 17%. Also wondering, you know, any early indications into October whether you're seeing a slowdown indeed. The third question actually is on your revenue growth guidance. It feels like you have taken down your revenue growth guidance a bit more than your GMV growth guidance, 'cause I think on the GMV growth, you're just narrowing it, just cutting the upper end.
I think on the revenue growth guidance, you're actually taking it down by 2% points. Just wondering what's driving that. Is it, you know, more cautious, you're not advertising or maybe to increase take rate. Any comment, that would be great. If I can just slot in a last question, if possible. I think you mentioned earlier you're gonna be launching Allegro.cz in 2023. Just wondering, are you gonna have 2 brands in Czech Republic, so the Mall Group and Allegro, or are you gonna discontinue the Mall Group brand? Thank you.
Okay. I'll do it, Jon.
I've got the second one.
You got the second.
But-
I'll do the third. I'll do the 1st and the 4th. Yeah?
Good
Just sort of a general comment. This is my 29th day in the saddle. There are a couple of places where I have a strong desire to say something, but I'm also acutely aware of what I say can have quite a bit of large impact, so I wanna make sure that we get the numbers absolutely right. I'll be, I think, much more involved in those discussions in my next iteration. This is my maiden voyage of doing these sorts of events. Let me speak to our growth priorities. Our number 1 priority is we have a tremendous strength and position built over decades in Poland, and that is reflected particularly through the loyalty of both merchants and customers to shopping on our site.
There's a first point is to make sure that that base continues to tick over as it does. I think there are 3 areas that I've outlined where I think there's additional opportunity to grow within the Polish market. Those are the 3 segments that I mentioned, health and beauty, ambient grocery, and apparel. To that, I would probably add, we already have a sizable chunk of small businesses that shop with us, and I think, again, that's also something we need to look at. Over and beyond that, this company a few years ago made a first foray moving abroad. We pulled back from that, and we really want to make sure that our launch first in Czechia and later in Slovakia are highly successful.
Success for me means not just that we've got all the bits and pieces that more or less work, but actually that Czech customers like us. I think that is an area that we will really be focusing a lot of attention, and we'll probably also be doing a number of things to sort of test initial reaction before the official launch sometime next year. Yes, I confirm, we also want to. We've had fabulous feedback with our buy now, pay later products, several of them, and we know that there's interest with our customers to shop to use still more of those sorts of financial-oriented products. We'll be working out what those actually will be. Of course, also doing some work around the balance sheet. I think overall, those are 3 things.
I think there's, if you will, within the day job, sort of less sort of how we say this, more functionally oriented stuff. Advertising is obviously something else that we'd want to do. T hat roughly is I think our to-do list at the highest level. As I also said before, I think often this is an issue of concentrating effort and making sure that you actually deliver the tangible results that you set out to do, which may mean do fewer things, maybe very conservative at first to make sure it actually lands well. Do you wanna do the-
Yeah, I'll do the second.
Do the second one.
I'll do the second one of Lisa's questions. Yeah. Y ou're right, Lisa. When we announced the results on a preliminary basis, we mentioned that July, I think, had produced a mid-20s% growth rate, which is the case. We're actually tracking quite close to that in September. For some reason, August was a bit lower. A main component of that was actually one of our main PPC partners made some adjustments to its algorithm, which not for a long period of time, but for a couple of weeks, had some impact on the efficiency of our PPC spending and the amount of GMV that it was bringing in for the business.
It was a bit of a technical factor. It did contribute to the performance in August. Yeah. We're expecting to be over 20% for the quarter as a whole. You know, can't tell you what October is gonna look like. As I was saying, we are worried about whether or not the whole situation is going to catch up with the consumer in the Q4 . If you've been tracking Polish retail versus some of the other countries in the region, you'll know that it's been pretty robust up until now. It is starting to have some signs of slowing.
Bearing in mind that the Q4 is effectively like 4 months rather than 3, because of the Christmas shopping season, you know. Because so much of that spending is really discretionary, we need to be cautious. Yeah. This is why we've taken down the top end of the guidance.
Okay. I'll take over and do the last one. Lisa, I think the other question you asked, your 4th question, was regarding the Mall brand, and I would say it's actually the Mall brands. I think primary, in addition to Mall.cz, there's also CZC.cz, and then also a number of regional brands for some of the other markets in which Mall trades.
Mimovrste, very strong in Slovenia, is the third one.
Thank you. I knew that was roughly that. I didn't trust myself to actually pronounce it clearly. I think the answer to that is yes, we will continue to use those brands. At a very minimum, it will be as a merchant presence within the Allegro marketplace. CZC.cz or Mall now actually sort of making their offers on the Allegro marketplace website. I think we also need to look closely at what we're going to do in terms of the existing trading sites. My personal view here is that we need to follow what customers prefer. If customers continue to enjoy shopping on these other websites, then we will follow their preferences.
Right. Actually, if I just follow quickly, you're obviously coming from a logistics background, but you didn't really highlight fulfillment and local rollout as a key priority.
I did actually. I said it within the context of the Smart! proposition as a whole. I think this is overall. Yeah, logistics sort of. I think you're asking sort of creating logistics of our own, and I'd say it's within the fact that our largest single cost block on the income statements is logistics, transport costs. That implies that we continue to work with our existing carriers, maybe add on a few, although they're not a huge number of large logistics players in the Polish market or for that matter elsewhere in the 5 other countries that we trade in. Over and above that, we've made a huge jump. I think it's 2,000 lockers and our own courier capability and FC capability.
Again, the physical assets are only a portion of the logistics capability. The other portion of the capability is people and the knowledge that those people and experience those people have working with the assets they have to hand. I think that's where we've got an opportunity this year to get better and better at what we've done. Remember, we're still in baby shoes. This is, I think, the 2nd year or the 3rd year that we've been working with these capabilities. I think it's always respectful of the challenge to make sure that you're all buttoned up before you make another major jump. The question for me is, we've built a successful business on being asset light. It's developing our own capabilities about choices, about speed, reliability, and cost.
As long as we have good choices from the market, that will also affect our speed or lack thereof in terms of further developing our own.
Thank you.
Thank you, Lisa. Now we have Łukasz Wachełko from WOOD & Company. Łukasz, please ask your questions.
Good afternoon, gentlemen. Thank you for taking my questions. Actually, I have 3 on InPost, the follow-up, on take rate, and on the Smart! subscription. Can we take them one-by- one?
Sure.
Absolutely. Yeah.
In fact, I understand that if nothing happens, and we have 3rd of November, the prices of deliveries by InPost for you increase roughly by 15%. The other option is that you negotiate the deal offering higher volumes for them, and allowing them to increase the prices by the smaller rate. What should we expect? Where are the negotiations going to, if you can shed any light here?
I really don't think it's fair, and for that matter, not even appropriate to sort of make comments about individual suppliers. I think we by and large, over now decades, a number of our service providers have grown with us as we brought more and more e-commerce volume, over to them. I think that's been a highly complementary environment, as I said, over quite a long time. I think our priority is to work with the carriers that we have, as they struggle with their own rising prices. Again, I think we should not underestimate if you're in a transportation or logistics business, if your fuel costs have gone up by more than 50% in the better part of a year, then that's a major challenge for you.
What we need to do as a customer of those service providers is to work with them in terms of managing their own costs and demands we put upon them. I would sort of say in terms of financial planning, as the CFO has already mentioned, we've incorporated all the contractual implications of the contracts that we have into the financial plan.
Okay. Thank you. On the take rate, historically, you targeted a take rate of 10%. Now you're already above it. Do you set any, well, longer term targets? Should we expect, well, the mark of 12 being exceeded, or it's premature at this stage?
Yeah, maybe I'll take that one because I've obviously got the history. Hi, Łukasz. Yeah. When we've talked historically about the 10% level, that was in the context of when the take rate only included the element of the commission that we charge on the transactions to the merchants. At that point in time, there was no co-financing stream of revenues. Yeah. I think it was about January of 2021, if I recall, was when we first started charging any co-financing. It's essentially the co-financing element which is pushing the rate up above the 10% level. Yeah.
Obviously, we have a huge amount of investment that we do on behalf of our merchants, both around financing the free delivery, but also bringing traffic to their offers, in terms of marketing and PPC spending. You know, we're giving them tremendous value for money in our view. You need to bear in mind that the co-financing is part of that KPI. It's not purely the commission on the transactions.
Okay. Thank you. The last one. We've seen this year Amazon increasing the price across some markets in Europe and Prime from, well, roughly EUR 49-EUR 69, depending on the currency. Would you consider increasing the prices of Smart! subscription, or given the price elasticity, it makes no sense according to your vision here?
Sorry, you clipped out. The question regarding
Just now if-
Amazon and the Prime, and the Prime offer price, but I think there was a bit more that we heard here.
Yeah.
Well, can you hear me?
Yeah.
Yeah.
There was just a 2-second break in the middle of.
Okay.
- Your question.
Amazon this year increased prices of Prime subscription on many markets. Your price of PLN 49 is with us for a long time. We have inflation. The MOV of PLN 40 is fairly low. Should we expect or do you consider increasing the cost of Smart! subscription or increasing the MOV for the free delivery?
Sure. What I would say here is that I wouldn't want to preannounce any changes to our Smart! offer or for that matter make any sort of comparisons to my former employer and what they're doing. I think you're right. I think overall we're in a high inflation environment. Everyone's costs are going up, and for us, I think it's a very important decision to work out when and how, and whether for that matter, we want to affect our customers who, quite frankly, are in a period that's particularly challenging.
Okay. Thank you. That's all my end.
Thank you, Łukasz. Now, we move on to Michal Potyra from UBS. Michal, the floor is yours.
Good morning, everyone. Thank you for taking my questions. I have 4, but 2 should be fairly straightforward. The first question is about your guidance for EBITDA margin inflection. My question is, should we expect that to continue in 2023 as well? I'm really wondering, has the margin bottomed already? That's the first question. The second question is about Allegro Pay as a strategic investment, and you mentioned monetization of Allegro Pay. If you can give a little bit more color on that, please. The third question, very straightforward. If you could give us some color on the unit cost of cross-border delivery to the Czech Republic, because I understand that's going to be a big part of Allegro.cz At the beginning.
The 4th question is about your return rate, if you can give us some numbers here, and what is the trend in your return rate? Thank you.
It kind of sort of feels like, Jon, it's like you for 1 and 4 and me for 2 and 3.
I think.
Do you wanna do 3 and 2?
Yeah. Can be. Sure. Let me take 1 and 4 first.
Do you wanna do this?
I can go through all of them, and you just supplement if there's anything you want.
Sure. Okay.
Starting with the guidance, we don't have anything specific to say about 2023. As I said, we've put the numbers under review, as I said on the final slide. There's no doubt about the direction of travel, right? You've heard from Roy that we're gonna be very focused on transport costs and our own operational costs and prioritizing the number of initiatives that we're working on at a single point in time. That obviously should feed through into our rate of cost growth.
It's a little bit too early to put all the different elements of the planning together, and especially with the amount of uncertainty that we're facing right now, that I was mentioning as well, to give you an insight in exactly which direction that margin's gonna move next year. We'll come back early in Q1, as we always do with the Q4 results, and with a much clearer view. We may have some updates as well during the Q3 announcement in 2 months' time. That's the first one. On Allegro Pay, we're actually monetizing quite well around the installment loans.
The price of installment loans has actually moved up to an APR of close to 20%, which we're still finding significant demand for those loans. We're also over time going to be looking at monetizing a little bit more around BNPL. Nothing to announce at this point in time, but there are various opportunities there, particularly when customers are not able to pay down those interest-free loans within the initial term. That will come later. Those are the main monetization opportunities there that we see short term. The third question on cross-border, it was one of the streams of work that I mentioned on the integration slide.
We're working with various options for doing the cross-border delivery. We won't announce anything until probably until we actually launch the platform. Then we'll explain exactly how we're going about it. Then the 4th question, the return rate. Our return rate generally is actually pretty low. Obviously, it varies between categories, but it's a mid-single digit return rate, and that's fully deducted in our GMV numbers as well. We don't show GMV gross of returns, it's net of returns.
Thank you. Just a last bit about the return rate. Are there any changes over the last couple of years, or is it pretty stable?
It is actually pretty stable. It maybe fluctuates 1, at most 1% or 2 % points up and down, but it's really very stable.
Thank you.
Thank you, Michal. Now we have questions from Piotr Łopaciuk, PKO BP.
Hello. I have 1 question concerning the new or renewed local marketplace initiatives. I mean, Wszystko.pl and Erli.pl. At least in their statements, they seem to be quite aggressive in terms of the benefits they will try to offer to the merchants. Do you think that it can be some serious challenge, competitor, or threat for you? Or rather you would disregard this? Yeah, and is it the environment for increasing monetization if, at least, I guess behind both of these initiatives there are some financial strength, at least moderate strength. C ould you elaborate on this? Thanks.
Yeah. Piotr, I'll take that one. I must admit, the moves that those 2 players have made have not been brought to my attention, or to Roy and the executive team's attention by the commerce team. I would assume that means they're not too concerned about those. I'll ask Michal to look into it and maybe come back to you with a more detailed answer after the call. I think it's maybe an opportune moment just to update the audience on one of the players that we do monitor very closely, which is obviously Shopee. They've been, as we all know, very aggressive in terms of their commercial positioning when they launched back in September of last year.
They're now 1 year or so into their journey. They've already made about. I think we're up now to the third round of monetization adjustments. They've started charging for delivery. They've started charging their merchants, and their take rates are starting to move up relatively close to Allegro's own take rates. That's 1 that we are watching closely, and given the relatively low traction that we think they've accomplished with that, you know, really aggressive initial launch positioning, we're, you know, quite happy to see that they're already moving into monetization, even though they haven't really taken very much GMV as far as we can tell.
Thank you.
Thank you, Piotr. With that, our time is drawing to a close. Thank you all for attending our call, for your interest and the many questions you've asked. See you on the 24th of November to discuss our Q3 results. Goodbye.
Thanks very much.
Thank you very much. Take care.