Good morning, welcome to Allegro IR call on the acquisition of Mall Group. Let me introduce today's speakers. We have with us today the CEO of Allegro Group, Francois Nuyts.
Hello.
And our CFO, Jon Eastick.
Hi, good morning.
My name is Michal Kuzawinski, and I'm head of investor relations. A few comments before we begin. Firstly, you can find the presentation that we will discuss today on our IR website at allegro.eu. Click on Investors, and you should see a link to IR Presentation on the top left corner. Please download the presentation and read the disclaimer on slide 24. We will have a Q&A session in approximately half an hour. The usual way you can ask your question by pressing the Q&A button that you will find at the bottom of your Zoom webinar screen, and we will answer your questions once we start the Q&A session.
Finally, this call is being recorded, including the Q&A session, and a recording will be available on our IR website at allegro.eu. Let's start. Over to you, Francois.
Thank you, Michal. First of all, thank you for making the time on short notice. As you well know, we have our scheduled Q3 results call on Tuesday. This is really a call to focus about on the acquisition of the Mall Group and WE|DO. I'll take you with Jon through the transaction and the logic of this amazing step in the development of Allegro and Mall Group. Without further ado, let's start with the slides team. Great. Thank you. If you remember, over the last few years, we spent a lot of time making sure that Allegro is a uniquely scalable company.
We've built all the marketplace process, the onboarding for sellers, not only locally, internationally. We also worked on how we can help those sellers, more recently export their wares to EU 27. We've developed a best-in-class UX both on desktop and on app. We've always looked at this with the intent that this platform, those processes, the team would be so scalable that it would make so much sense, either organically or through acquisition, to scale this to other countries, notably in the regions where there is obviously logistic proximity. Acquiring Mall and WE|DO is all about accelerating this.
We'll look at what's under the hood at Mall and WE|DO in a few slides, but really the intent here is you take the technology that we developed in Marketplace, you massively game change the selection, the price competitiveness thanks to that technology. As we've seen across many countries, not only in Poland, but across the world, when you game change the selection, the price, the delivery, as we know how to do, to a consumer base, they shop more and more consumers join. That's really at the basic of what we plan to do. This has been obviously quarters in the making, and the interaction across both teams has been fantastic, and it's great that we have such alignment to now build at that next step.
Before I continue on, how you say, on the strategic logic, let me hand over the mic to Jon, who is gonna take us through the transaction details.
Okay. Thank you very much, Francois. Good morning once more. It's really great to be taking you through this transformational acquisition that we've announced this morning. I'm gonna just go quickly through the transaction highlights. Francois is gonna obviously tell you a huge amount about Mall over the next few minutes. We're acquiring 100% of the Mall Group and 100% of its sister logistics company, WE|DO, from the three sellers, PPF, ECI and Rockaway. We're expecting that the transaction should close after the Competition Authority approval towards the end of the first half of 2022. We're paying EUR 925 million enterprise value for the business, which equates to 1x the trailing GMV for their financial year, which is ending March 2021.
It is also 7.2x their gross margin. Both of those figures are significantly at a discount to the trading multiples of Allegro. After EUR 44 million of debt and debt-like items that we'll be paying off, the equity value is EUR 881 million. We'll be paying that in two components. 53.7% is gonna be paid in cash. That's EUR 474 million. We have a lot of money on our balance sheet, as you know already. That will be about 60% of the total. Approximately EUR 200 million we're gonna raise from the financial markets in the near future. It most likely will be a Polish zloty bond, but there are various options for raising the financing.
When it comes to the equity component, we are 46.3% being paid with issues of new shares in allegro.eu. In this case, we actually have a fixed structure that you can rely on here. It's 33.6 million shares that will be issued. The price is based on the three-month VWAP, which is at 55.98. That will be what we'll issue to the shareholders, and that equates to a 3.3% dilution of the existing equity. Final point, we estimate that if the transaction does close towards the end of H1 next year, out of the box, the combined leverage will be just under 3x debt to EBITDA. That's the key transaction highlights.
I'm gonna hand it back to Francois, who's going to start taking you through a lot of details around this amazing transaction.
Thank you, Jon. Over the last few quarters, there's been a number of teams, both across Allegro and Mall, kind of looking under the hood and looking at what does it mean and how we would integrate. First looking at Mall, you can see that Mall is across five countries we're not. You can see that it has how you say, a number of brands which are love brands across the region with a very strong customer base. Can also see that it's a business that is much more 1P than we are, but it's actually started that 1P to 3P transition with some success. It's growing fast.
Really, the basics of what we intend to do is take the technology to scale up that marketplace at a totally different pace to increase the offer at the end of the day consumers and merchants have in the region. We'll go through a few of those numbers. We're also acquiring a company called WE|DO, which does courier, last mile logistics, pickup points, and lockers in very similar ways than what we're building. You may have seen the announcement on lockers a couple of days ago. Aggregating those two teams, obviously it's an acceleration of our know-how. What does it bring to Allegro?
It actually brings quite a large consumer base to which we can bolt in some of the retail basics, the large selection that we can find on Allegro. It's actually a massive TAM. It doubles our TAM from day one. It's also a very strong team. As I said before, there's been a lot of interaction over the last few quarters between the teams to see how these teams will integrate together, how do they think, how do they look at the business, and it's looking very good. We're also getting some actual critical fulfillment operations that will be core to succeeding in this cross-border merchant trade. The whole intent here is to create a pan-CEE e-commerce platform. What does it mean in very simple words, retail basics again?
In the region, there is no one-stop-shop where you can find the tens or hundreds of millions of offers that people have learned to use in countries like Poland, but also in other countries. By using the 100,000 merchant base, using all the onboarding tools that we've created, not only for Polish sellers, but for international sellers, we can massively game change what is on offer for consumers. Not only and also across the different means whether it's on desktop, or it's on app. We can also use the technology we've developed to make a marketplace feel like a 1P, whether it's delivery experience, whether it's competitive pricing to have a very competitive offer to consumers in a way that doesn't exist across the region. For merchants, what does it mean?
They get double the consumer base and the growth opportunities, but they also get all the tools, the seamless tools, the onboarding tools that we created over the last years, and this list once sell everywhere that we developed over the last few months. All in all, as we well know, it accelerates the retail flywheel. If you start with the selection, the technology, the process, and the consumer base, it increase the execution and increasing the GMV per consumers much faster than the organic route alone would have allowed us to do. Here, I'm not going to go into detail on the rationale for the acquisition because I'm gonna cover that in the next slides. Really from the key point, right?
It really, from the word go, doubles our TAM across highly attractive countries, over PLN 1 trillion. It's at the moment a scattered competitive landscape, right? Where you have multiple competitors across the region and you don't have one place where consumers can find everything. They still shop around for the best price. By turbocharging, by adding all the selection, the pricing that we've developed across Allegro Group, we can see how that's a game-changing experience for consumers. If we do this, we've known in Allegro and across multiple countries, we see not only the existing consumers shop more, but more and more consumers come to the store.
It also gives us great fulfillment assets, operations and fulfillment, in a way that it accelerates our own roadmap in Poland by the knowledge and the infrastructures that we're getting. We spend a lot of time over the last few months interacting between the two teams, and we can see there is a fantastic not only cultural alignment, but also metrics and input-based culture that, as you know, has been so core to the success of Allegro over the last few years.
All in all, you'll see that it also gives us an opportunity to develop not only the retail basics and the merchants marketplace, but it also gives us an opportunity to scale things such as Smart!, such as fintechs, such as ad tech, and other things in the platform, whether it's search or app, across multiple geographies in a way, at much greater speed. As I said, from the word go, you can see that those are two similar consumer base, but it doubles our TAM. It's similar to 38 million people, 32 million people, close to PLN 600 billion retail market, PLN 540 billion super retail market.
What you do see indeed is also e-commerce is on a reasonably earlier stage of development, which means there is even more headroom to grow in the region than there is in Poland, where it's still significant. Here you can see that GDP in each of those countries, very similar to Poland, is growing fast, but it has a lot of space to reach closer to a European average. It can continue to grow for the years to come. If the GDP grows, you'll see, as we've seen in Poland, there's an outsized opportunity for more consumer spending. You see across the region, it's growing fast and can continue to grow fast. The entitlement is massive.
Similar with e-commerce, and you've seen some of the similar slides, when we go through our Q3 or through IPO, the penetration of e-commerce is actually well below what it is in Poland. Poland still has a lot of catching up with the rest of the region and benchmark. There's this massive headroom to grow e-commerce much faster in the region. Let's move to what's the competitive landscape. You can see two things on this slide. First, that more brands across the regions have a very strong positions. You can also see that it's a very scattered landscape. This reflect the fact that for consumers shop around in the region.
There is not one place where they can find everything, always at the lowest price with the greatest convenience, both pre-sales and post-sales. This is all about building this. As we well know, when we build this, consumers follow, and consumers follow very fast. Here in terms of what, combining the two, brings us, as a competitive edge. Here, back to retail basics to a large extent, right? We see that in Mall there are about 5 million offers. The combined marketplace can bring over 200 million active offers from over 100,000 combined merchants.
That's even before the added TAM and the added consumer base makes the whole continuously more attractive with the flywheel that we've seen working very well for us in the past, notably as we keep on improving the onboarding tool for local sellers and international sellers. We'll obviously develop the same tools in terms of keeping the platform competitive for consumers, right? If consumers find it's always at the more competitive price. Consumers invariably come more direct to the platform and shop more and more with the platform. Obviously, if the selection works, the pricing works, the delivery works, as we know how to do, then if you start building on things such as Smart!, you can see that this is the accelerator, the additional rocket fuel on the consumer experience and the acceleration.
How do we intend to do this? We've spent quite a bit over the last few years, again, making the Allegro platform the process-driven, both on the consumer side, but also on the seller onboarding and servicing side, a very scalable operation. This is about bringing that technology and making sure that all the country iterations benefit from that technology, not only on the consumer but also all the different tools that we've developed, whether it's on merchant sourcing, it's on international sellers, on ad tech, on fintech. Overall, what it will mean in terms of core benefits, it's a much larger merchant pool, which means larger selection. Much larger selection pool and offer pools mean more competitive pricing.
We'll obviously use the technology that we've developed over the last few years to make the platform very efficient in being price competitive. That third-party model that is as efficient as 1P, if not more, but at much better economics to tackle both selection and pricing. We'll do things around Smart! and convenience to boost consumer engagement. All in all, we'll integrate the team across so our R&D and our technology scales across the region. All in all, that should accelerate our development, by the way, not only across Mall Group, but also at Allegro. Obviously we're talking about slightly different mix at the moment between Allegro and Mall Group. Mall Group is 90% 1P, 10% marketplace.
You can see Mall today has about 3,000 merchants, five million offers, but they've already started that transition from 1P to 3P. As you can see, 3P grows quite well at 130%. Obviously, we mean to totally turbocharge this and move from 3,000 merchants, five million offers, to multiples of that. It's not only about bolting on and turbocharging the third-party platform. It's also about improving the 1P existing core. At the moment, you'll see in a second, Mall is actually quite successful operating one of the most difficult categories that are to operate as an e-commerce e-retailer, electronics. Doing electronics as 1P is probably one of the more difficult category.
The fact that they do it break even is actually quite a success. There are many more categories you can add to that mix, where you can get selection, GMV incremental, and much better economics, even within 1P. Let's look at Mall today. It's a massive traffic generator, 350 million visits over the last twelve months. It's got a nicely growing customer base, which is obviously what we want to bolt in the selection and the pricing to upscale their purchase. It accounts for a reasonable percentage of the online population across the region. As you can see, there's still a lot of headroom to grow on that dimension when, for example, you compare it to Allegro at the bottom of the slide.
Let's look at how to drive wallet share expansion. What you can see here to the left of the slide is the current offering of Mall Group. Got five million offers, which is quite a wide choice of product. You can see at the bottom of that first column, it's mostly in electronics, small electronics in the home and garden. Again, some of the early categories of e-commerce, but also some of the categories that are harder to execute profitably in 1P. You can see the Allegro selection mix, 228 million offers, so multiple of that, but also across a much more varied categories.
As we've seen invariably at Allegro but also across multiple platforms around the world, as you add many choice and you become really the place for consumers to find whatever they're looking for, you can massively uptake the GMV per customer. Here you can see the size of the opportunity by adding the selection, the price, and the delivery convenience to the Mall Group versus what a benchmark like Allegro, and Allegro is still growing. Obviously, we'll do Smart! on top of it to rocket fuel that acceleration as we do the selection and the pricing. As I was mentioning earlier, we don't only get a retail and a marketplace, we also acquire an asset called WE|DO.
WE|DO and Mall Group have quite a number of warehouses that are strategically located, which will help not only our development in the existing region of Mall, but also will contribute to help the cross-border commerce and the fulfillment by Allegro that we're building in terms of helping merchants port across the region. WE|DO also brings a lot of expertise in courier and last mile delivery that we're developing. You probably will have seen our launch of lockers a couple of days ago or our acquisition of a courier company a couple of weeks ago. Here, the addition of the know-how across will really help us drive this execution and the operations in a much greater level of control than we have so far.
Couldn't go through this deck and not talk about the team, right? We spent over the last quarters at quite a great level of detail and engagement through managers in the company, getting to know each other and building obviously the business case and the value creation plan. You can see there is an uncommon obviously retail knowledge, tech knowledge and integration, what I love to call Biztech, across the company. We're acquiring a team that is about 2,007 strong between the geographies across the marketplace and the operations. It's a group that is very innovation driven and teamwork.
I can say it's not only obviously Jon and I that are here today, but across the team and across both parts, normally when we did the employee engagements, there is that level of energy and excitement of making this work that is so core to a successful integration. Last but not least, this is not only about bolting the retail basics, right? Making them work much better across the region. This is also about taking all the other components of our flywheel and making it scale across more merchants and a wider consumer base, whether it's Smart!, whether it's our delivery experience, whether it's advertising, ad tech, fintech.
We can see here where each team see the opportunity to scale that roadmap and those invested tech resources where we spent so much time scaling over the last few years and scaling this across a much wider consumer base and TAM at the end of the day. Jon?
Yep, over to me. Yeah, thank you, Francois. You've just heard from Francois the amazing plans that we have to transform the marketplace element of the Mall business, leveraging what we have here to deploy, both in terms of technology and merchants, across the Mall region. I'm just gonna try and put some numbers on this to give you some context. The first slide that I'm gonna go through is just looking through a quick pro forma of when you put the two businesses together. On the left-hand side, you have half, more or less half-year numbers from this year for the two groups on a twelve-month rolling basis, and then a pro forma on the right-hand side.
We've already talked about it, but the TAM, just as a reminder, PLN 1.1 trillion combined TAM that we're going to be getting a return on our investment across that population. The next two metrics I think are very important just to show the scale of what Francois has been talking about in terms of when you deploy a vertical marketplace with lots of price and selection, with excellent retail basics, look at the frequency that that drives. If you look at the left-hand side on Allegro, five billion visits on a 12-month basis from 13 million active buyers, versus Mall, where it's a much higher ticket 1P retail model, lower frequency, 350 million visits, right?
As we do that transformation and turbocharge the marketplace, you can see that we're hopefully gonna get that kind of frequency increase in the Mall footprint as well. When it comes to the key metrics, the GMV combined would be about PLN 43.3 billion. The revenue would go up significantly to PLN 8.2 billion. That's because obviously 90% of the Mall business today is 1P, so the total value of the goods sold goes into revenue. In Allegro, we have about 2% of our business in GMV terms coming from 1P.
To try and get a measure of margin before downstream costs like logistics and marketing, we're comparing here the monetization on Allegro, which gross monetization, including advertising, and the margin on 1P in comparison to the gross margin that we get from the 1P business at Mall. Overall, the average of those two would be about 11.7%. EBITDA-wise, would generate PLN 2 billion, the amazing economics of the marketplace driving that EBITDA coming on the Allegro side. When you put the business together, it looks like that. Now let's talk about what we think we can do with it financially within the Mall existing footprint, so within those five countries. Our midterm ambitions you see here. This is a projection covering 2022 to 2025.
It's our expectations of what we may be able to do when we implement this strategy that Francois outlined. First of all, that marketplace transformation, we would see moving from a 10%, 90% 3P, 1P split towards two-thirds marketplace, one-third 1P in the Mall countries, over that period of time. That's that turbocharging effect. In terms of GMV, we think that would translate into something like 30% CAGR across those four years, and that's because of the extra frequency, the extra merchants coming on, the local merchants that we think will be interested to join, across the Mall footprint will drive that that GMV growth. The revenue growth, because of the big element of 1P that's in the starting point, won't grow quite as quickly.
That's gonna be more sort of a mid-single digit type of CAGR as we shift towards marketplace business model. But adjusted EBITDA-wise, once we've gone through the investment and transformation phase over the first couple of years, we expect the relative size of the marketplace to take over in terms of driving profitability, gaining scale, gaining leverage, and we should get towards 2.5%-3% of GMV within that four-year period. That's what we're aiming to do with this strategy. I'm gonna hand it back to Francois to summarize.
Thank you, Jon. To wrap up, after spending quite a bit of time across the teams, creating the business case and the road ahead, the reason why we're so excited about this deal and the execution that follows is it nearly doubles our TAM. It really gives us an opportunity to create a number one consumer proposition. In retail, that means game-changing selection, price competitiveness, delivery, and we do that mostly by turbocharging Mall's third-party marketplace. Something Mall has already started, but with all the tools and knowledge that we've developed, we can truly fully accelerate. Invariably, if we do this, not only at Allegro we've seen it, but also in multiple geographies, we can see our consumers follow and shop more and more.
We do, and also Mall also gives us access to a team and assets that are a little bit ahead of us in the development of logistics capabilities, which means our own roadmap in Poland accelerates. There is a strong cultural alignment which is so core to executing such an integration. It's not only about the strong cultural alignment that already exists, but it's also about how this pan-CEE champion also gets us access to broader talent across the region and beyond.
What you'll see us doing, we have already been doing it for quite a while, but it's developing this consolidated technology across the region that enables us to scale not only the marketplace, but also all the initiatives that we do, or most of the initiatives that we do, already in Poland and across the region in a seamless way, across the different countries at the scale that wouldn't be possible country by country alone. All in, it's really the first day in many ways of this, but I'm super happy to share this deal and the excitement around the teams for it and the execution of it. Now, without further ado, Michal, do you want to start the Q&A?
Yes, thank you, Francois. We are ready to take your questions. You have sent a few of them already. If you would like to ask a question, please remember you have to click the Q&A button, which is on the bottom of your Zoom webinar screen. Let's start. A few of you are asking a question why Mall Group hasn't grown faster in the past, including the COVID-19 tailwinds, and what gives us comfort to be able to accelerate that towards 30% in the midterm.
It's obviously something we spent time analyzing. I think Mall Group is at a reasonably early stage of scaling up the marketplace, right? You can see where that bubble, I think it was in one of the slide, where you can see marketplace is growing at 130%. It's still too small, right? It's a CAGR at the end of the day to have a bigger impact on the total growth of the business. As we all know, there is quite a bit of technology to develop to have a seamless marketplace. Like the onboarding process, we know because we spent quite a bit of time at Allegro over the last few years developing that technology. What invariably we've seen is as you develop that technology, you roll it out, and we know how to do this, you massively game change the selection.
If you massively game change the selection, in layman terms, you offer much more choice across many more shopping opportunities, where currently Mall mostly has electronics and home and garden. You offer soft lines. You offer automotive-
Books, automotive.
Books, automotive. Consumers shop more. If you make sure on top of it that it's price competitive, consumers shop more. You find ways to improve the shopping experience, whether it's all the algorithm we have on search, on suggestions, consumers shop more. It's a playbook we know so well that it just needs to be executed, and the partnership between Mall and Allegro is all about this, making sure that we get that know-how across the group to get those retail basics. They're not called basics for nothing. They're things that are need to be executed and executed well.
Ivan Kim from AllianceBernstein is asking if we can grow faster than 30% given the low penetration and high fragmentation in those markets.
You know, you'll often hear me and Jon in the quarterly. I think in business it pays to be humble. Let's start by executing, and then we'll talk again.
We have a series of questions about profitability and margin outlook, maybe starting with the educational question from Konrad Księżopolski from Haitong. Why are Mall EBITDA margins so low compared to Allegro?
I think it was, as Francois was saying earlier in the presentation, because of the electronics being the core of that business, right, it is a very competitive area of e-commerce. Generally speaking, electronics, consumer electronics, is a relatively low-margin business. The business has not yet developed in terms of the scale it would need to actually get that liftoff and leverage on its operating costs to get above break-even. It's a matter of time, I think, but it isn't quite there yet.
We agree. I think it's also kudos to the Mall team. Being in front catalog consumer electronics, 1P, it's the hardest place to be, for sure in e-commerce.
We have a question from anonymous caller. What profitability do we target for Mall and by what year?
We had that measured in terms of a percentage of GMV. Yeah, similar to the way we present it when we talk about Allegro's profitability adjusted EBITDA to GMV margin. We expect that we would be able, even though we're growing extremely quickly in that projection, by the end of that four-year period, we'd be between 2.5% and 3% of GMV in adjusted EBITDA margin.
We have a question if the stated ambition of 2.5%-3% EBITDA margin is not too low relative to what Allegro is making today?
Well, it's a midterm outlook over four years. As Francois said, we need to see how it all goes. We have a lot of work to do ahead of us in order to make this all come alive, and then we'll see how things are developing. In principle, as the business scales, because of the business model of 3P, as you keep growing that business, the incremental costs that you're adding are much lower than in a 1P model. I wouldn't say the sky's the limit, but certainly the margins can keep growing as the business grows into the future.
We have quite a number of questions about the path towards that profitability. We said what the target is, but we also have mentioned investments in the first few years and how big those investments in profitability could be in terms of EBITDA impact over the next couple of years.
I'll talk about the type of investment.
Mm-hmm.
First, we need to go beyond, within 1P, we need to go beyond the kind of consumer electronics catalog. There has been also in the way Mall operates today, some constraints put in the types of selection it carries, even within electronics, the type of traffic and consumer acquisition activities it creates. We want to remove some of those constraints to grow the consumer base and the traffic. Because at the end of the day, what midterm and long term matters, the more you grow that consumer base, that frequency. The more you get the share of the wallet, the more you get to upscale, turbocharge.
Sorry, I'm using that word a little bit too much, but the marketplace, in short, the more consumers they have, the more frequent they have, as we've seen in the flywheel, the more they shop that accelerating selection that marketplace provide. But I do expect a little bit of what is that term? Trough.
Trough.
At the beginning as we remove some of those self-imposed constraints.
We have a question about the intended CapEx investments. Where are we planning to spend this money?
It's mainly in additional logistics capacity because as we build that business up, then obviously the amount of goods that we'll be moving to customers is gonna be dramatically bigger. And as in Poland, you know, where we're rolling out fulfillment centers for the 3P part of the business, and also lockers, we would be doing the same things in the Mall footprint. There will be CapEx needed for that. The vision is to have a very similar model in both, across both the Mall region and Poland.
The major difference will be the mix of the 1P and the 3P, where Poland will stay mostly much more a 3P business, whereas we see sort of the one-third, two-thirds mix in the Mall region.
We have a few questions from Miriam Adisa from Morgan Stanley. Firstly, what are our expectations in terms of 1P, 3P mix over time for Mall Group?
Yeah, I think I mentioned that in the presentation. We're aiming to transform it from 90% 1P, 10% 3P to a 33% , one-third 1P and two-thirds 3P over that four-year period of the projection.
A question about the competitive landscape in the Czech Republic. Miriam notices a big gap to the number one player, Alza. How have the markets, well, segment shares developed over time, and is our intention to become a number one?
I like how you phrased it, segment share. You know me here, right? In a region, notably where online penetration is reasonably small, whether somebody has 20% of that small part of the pie or 30% of the small part of the pie is not, for me, the most relevant number. It's more around out of total retail, which is a massive. Sorry, I get my currency confused, but.
PLN 1.1 trillion.
PLN 1.1 trillion across the region, about half of it in the Mall region. How do we get many more of those consumers to shop online? What we see at the moment across the region, there is no place online where you can find the selection, the choice, where you can go and be reasonably assured that you'll find a competitive price, and when you can get the type of quality delivery across the breadth of the catalog. It just doesn't exist. This is about building this in a way that we know how to do it. We've seen in Poland, but across multiple geographies, how offline shoppers move to online. That's a given, I know.
Catherine O'Neill from Citi is asking if we see all of the Mall markets as core markets for us.
Interesting. I think there are obviously countries within the Mall Group that have a larger TAM on their own. Yes, I think in the mix, well, the way we develop the platform, it's a very one technology across. Doing additional iteration, and that's valid within Mall Group and within the future Allegro.eu group, doing future iteration of that technology, should mean that we can deliver the same kind of service in smaller countries. That's really the core of the exercise here.
Catherine is also wondering if we expect any regulatory clearance challenges given Mall's presence in Poland.
I mean, obviously, you'll see, I think over the next few days, we'll file all the needed regulatory papers, for lack of a better word. The overlap in Poland is absolutely minimal, so I don't expect that to be an issue. Also, as you'll have heard, myself and John, this is about really turbocharging the seller base into more countries. I don't expect the 1P/3P mix in Poland to change as a result of this acquisition, which I know is something of interest. No, but obviously we'll be working as always with the regulators in the appropriate countries to get that approval done and done well and as soon as possible.
We have questions about Allegro technology platform. Are we planning to consolidate Allegro technology platform, bringing it into all of Mall operations?
Overall, yes, but it's a bit of a simplification. I think there are obviously core elements of the main platform, whether it's, as I mentioned earlier, whether it's a search engine, whether it's onboarding, marketplace processes, all of that technology that we've developed across over the last few years. Obviously, yes, there are components, you know, we talk about WE|DO, we talk about, 1P where Mall has actually some components we will integrate, and it's, totally adequate. Here we obviously has an amazing, tech team. After this acquisition, we'll have by far, the largest, tech team, in the region, and they're gonna start working on how do we make that integrated model, work.
Yes, obviously a lot of the marketplace components, fintech components, ad tech components, where Mall, because it was a little bit smaller, hasn't had as much R&D to put in. We obviously want to scale that R&D across the region, but we're also acquiring a great tech team with Mall. They're going to give the Allegro Group a few things as a result, which is fantastic, and I suppose to work.
Okay, we covered the tech platform. Now the brand. What's the brand strategy? Are we going to keep Mall brands in all those respective countries?
Stay tuned here. There is nothing to announce at this stage. Obviously, there are teams that are working on what is the best way to convince consumers to keep shopping with us across the region, and the fact that the Mall brand is very well loved is obviously a key component of that.
We have a question about the headquarters costs at Mall, and are we planning any synergistic benefits there?
Really the base case when we talk about synergies is about rolling and turbocharging that marketplace platform. If you looked at anything over the last at least year, if not couple of years, it's how difficult it is to find the right talent. Clearly one of the big parts of the interest in that acquisition is getting the Mall talent on board. This is not in that sense. We want to keep that headquarters, we want to keep the tech hub, and we actually want to scale the tech hub and the headquarters to help us scale across the region. This is about delivering much different GMV growth more than anything. As Jon is saying, obviously getting that OPEX to GMV ratio better because we grow so much faster.
A couple of interesting questions from Cesar Tiron from Bank of America. Firstly, how much will you dedicate your time to Mall Group versus Polish business?
I like the question. I would phrase it slightly differently. Obviously, we spend a lot of time within that acquisition and within the team making sure that this didn't remove the focus on Poland. It just, Poland has so much headroom to grow. We need to keep on innovating, keep improving the shopping consumer experience, the merchant consumer experience, some of the projects around ad tech and fintech that we're doing. But this is not, how do you say, with the difference with an organic launch, this is an addition of the Mall team. Where we were, I think by the end of the year, sorry for mumbling, about 4,500, with this we're about 7,200. We don't want to keep different business models.
That's where I kind of pivot. Over time, we want to have one business model, so when you're focusing on the business model, it doesn't matter whether it's Poland or whether it's Czech. This is the execution on the business model. There is a little bit of work to be done over the next 18 months on getting that technology and those processes supported across the region. One additional thing that I'll add, and nothing to announce at the moment, but you'll also see how it'll help us attract further talents, world-class talent to our teams, which is one great way to tackle some of the complexities of some of the projects we need to develop over time.
Cesar is asking, if you picked one single thing that you could improve the most in Mall Group, what would that be?
Selection, price, and delivery. Sorry, those are three things, right? Well, let me rephrase. Retail basics.
Thank you. Now Paweł Szpigiel is asking about the geographic structure of Mall revenues.
I think it's actually on one of the.
It's-
One of the slides, yes. The Czech Republic is the biggest part of the business. There's also big concentrations of revenue in Slovakia and in Slovenia.
90% across those three countries.
Yeah.
Paweł was asking explicitly if we think that Amazon or Alibaba have plans to develop on these markets. There were a few other questions asking about how comfortable do we feel, you know, competing against the international majors potentially on these markets.
Again, along the lines of it's always good to be humble. What we've seen over the last years and even recently is that we compete, we obviously keep on benchmarking. We also know that we have the know-how, the nimbleness to compete very efficiently with those groups, and we'll keep on humbly benchmarking and keep our own innovation flywheel.
Yes, just the final one from Paweł. He's asking about our delivery capabilities now including the expanded footprint of WE|DO. Are they enough to fulfill our ambitions on the delivery speed and logistics developments?
Overall, yes. What you'll see, if you go back to, because there's a lot of focus on our asset-based delivery, because obviously we're launching lockers recently, we've announced a fulfillment center. I really don't want this to take away from our core model, which remains the same. The asset-light portion across the hundreds of millions of offers, it's still such a fantastically scalable model, right? What it means, again, for those that didn't hear me describe it, we have a wide seller base, which are well dispersed across geography, as dispersed as the consumer. They actually ship very efficiently and quickly. We're all across the region. We're in countries that are one-day network. Some of them are probably less than one-day network, right? You can reach from one corner to the other.
If you have a consistent shipping pattern from the seller, you can reach at least next day any consumers over a breadth of catalog that you cannot do on the 1P model, right? You will need to build fulfillment centers next to each consumers to do that. That's really the core of the model, and we will do that across the region.
We have a follow-up question from one of the listeners on the logistics. If the logistics services could be profitable on their own going forward?
That's a guidance/forward-looking question, so I'll turn to Jon to see what we can share.
I mean, I think, you know, to the extent that's a question about our plans in Poland, it's really something that we should wait until Q3 discussions. Yeah, I mean, we do have a concept for fulfillment that we're rolling out, whereby over time, we think it will have a positive impact across the marketplace model. Because it would provide faster delivery that should then translate into higher conversion, higher GMV and higher commission on the one hand. On the other hand, merchants will actually pay money to have their logistics taken care of on their behalf. So that also contributes.
Thirdly, downstream, because you can directly inject into your delivery partners, you can also save money on the delivery to the end consumer. At maturity across those three levers, yes, we think there is a business case that fulfillment will pay for itself. It's a similar story with APMs which we just launched this week.
The final question on logistics. The question, if the Polish merchants entering those new markets will Mall operate, would be able to use these logistics capabilities from day one?
It depends what you define day one, but clearly the intent is to roll out, and Mall has already started some of it, by the way. Roll out first the asset-light type of model, right? Because again, one of the reason we're interested in those countries is just the proximity, right? Where a merchant dropping that inventory in the regular courier, this inventory will get there fast without having to invest in hard assets. Then indeed, as I mentioned during the kind of the WE|DO and Mall slide, there is expertise at Mall, actually a little bit ahead of where Allegro is in terms of developing cross-country logistics. Yes, that will help. What you would define as day one for that is still to be defined.
Thank you. A question from Piotr Krupa. Will you report numbers separately for Poland and Mall going forward?
Yeah. The exact design of the reporting we haven't finalized. That's something that we'll focus on early next year, really. There's no impact, obviously, until the deal closes, which I can remind you is probably towards the end of H1 2022. In all likelihood, yes, we'll have an international segment and a Poland segment.
A question about the price comparison website that Mall shareholders own currently. How much of the Mall traffic is from the website? How does the traffic split, traffic generation splits in Mall?
I looked at it, but I must admit from the top of my head, I don't remember.
No, it's not, it's not massively material. It's what, 15%-20%, if I remember, something like that. You know, because obviously Heureka is the price comparison. Because of the dispersed nature of e-tailers in those markets, Heureka plays a role to distribute the traffic to the different e-tailers, right? That includes Mall, Alza-
True.
and others, yeah.
In a fragmented market.
Yeah.
That tends to happen.
We have a question from Sergey Ambartsumov. How does this transaction incrementally help Allegro in the core Polish market?
That's, I think overall, there is some impact, I think notably in kind of a logistics know-how. I think there is also some tool and processes around 1P that are interesting. Not so much about scaling 1P because it's not something that is intended in this deal, but whatever share of 1P we have operating it better. We're obviously integrating a great team of +2,000 with a good track record of innovation. I'm sure they'll find ways as we integrate. As you know, you get a broader, more diverse team to add value to the total group thing. As I've said before, this is already a cross-country team.
This is already a team that does multiple things, whether on the consumer side and on the more on the 1P side, across the region. I'm sure there'll be key learnings there.
There's just one thing to add. I mean, as well as creating an even bigger development team that we can leverage to make innovations in our core platform going forward, whenever we do an innovation, instead of rather than only making a return on the Polish market, we'll be able to deploy that across and reduce the average cost effectively of developing the new innovations as we go. That will also help.
We have a few questions whether that transaction means a twist towards more 1P thinking going forward, any changes in the business model stemming from this transaction, including more capital-intensive business plan potentially going forward.
No, that's not the intent.
Thank you. A question whether this transaction should be taken as a defensive move versus, you know, the competitive landscape in Poland or a growth initiative.
Definitely a growth initiatives. Don't misread me. When I say we're humble, meaning we benchmark, but we're first and foremost fully focused on our innovation engine because we know it has worked for us across multiple years, and this is much more about taking our innovation engine to additional countries with the help of Mall than anything else.
On this innovative angle, a few of our listeners are asking what are our plans to roll out the fintech, Allegro Pay, business into these countries. Could we just plug and play and roll out the fintech business there?
As both John and I have said, this is a little bit too early, obviously, to talk about specific timeline and projects. Let's complete the transaction first. Clearly, one of the intent of that acquisition is not about scaling and turbocharging the marketplace across, but it's about making sure that some of the key innovations we've done and invested in, fintech is clearly one of them, is scaled across more consumers and across the region. That's clearly one of the. Not only fintech, by the way.
AdTech.
Ad tech, for example, which is also very relevant for the total profitability of the group.
We have a group of questions whether this completes our international acquisition, what our further international expansion plans. Are we planning to grow either organically or through M&A in other countries and the adjacent countries around Mall Group, any particular countries that we'll be more interested with than the others?
I think so really what we're building here, and it pays in retail to execute well, is a pan-CEE platform, right, with very efficient, scalable process, whether it comes to seller onboarding on the consumer side, on how they search, discover, get proposed selection, how the price is competitive, how the delivery is done, whether it's the asset-light model or in the fulfillment-based model. It's quite clear when you scale and execute well across several countries, the cost of doing more countries keep on being more efficient and efficient. I think right now, again, it pays to be humble. Let's execute this and execute this well, and then we'll see.
We have a question from Dominik Nisz. Is free delivery a popular feature in the Czech Republic and other countries of where Mall operates?
Obviously, yes. By the way, that's true across the world. If there's something that is common across the world in retail, consumers love to find what they're looking for. They like to pay less, they like to pay ideally zero for delivery, and they like to get it faster. Obviously, where teams like ours innovate is to make sure that we do this in a first-rate way for our consumers in a very competitive mix, so we grow faster, but also in a profitable mix. Here, as we've seen, we've been able to do that at Allegro, and there is no reason we can't do that across the region.
A question from Sebastian Patulea whether that transaction gives us access to a broader tech talent pool in the region.
Absolutely, yes. It's where you'll see me, Jon, but also other members of the team across Allegro and Mall. This is really. It's been actually even more for learning this year. I'm sure it's not only Allegro, it's kind of a post-COVID transition where the competition for tech talent has become greater. This is really about using the increased tech hub base that Mall has and scaling that up. We're a little bit less limited than we've been in Poland alone to attract the best tech talent that we can attract, which is a core success factor of a company such as Allegro and Mall.
A few more questions to go. Clearing the list of questions from Ivan Kim. What share of parcels does Mall Group deliver via own fulfillment? Are there any major 3P logistics providers on the fulfillment and delivery side in their markets?
Do you recall the mix?
No, I mean, they're doing quite a high percentage, and obviously massively higher percentage themselves than we do in Poland at this stage, right?
Of course.
Yeah.
What is the current share of electronics in Mall's GMV?
Uh, that we had-
That was on the slide. It's around about 40%.
Yeah.
The final question from Annick Maas. Can you please elaborate what the short-term targets are that can make the price vary by EUR 50 million?
Oh, yeah. Oh, so the price adjustment mechanism.
Yes.
Yeah, that's a great question. Yeah, so as I mentioned, the completion's expected towards the end of H1, and Mall works on a financial year that ends in March, on March 31. What we've agreed is that, based on how well they do for their full financial year that ends 31 March 2022, in terms of their GMV growth and in terms of the margin, their adjusted EBITDA margin, based on that, there's a formula that will decide how much of that EUR 0 million-EUR 50 million will be added to the price. That will get audited, and that will get paid out much later than the expected completion date, probably towards the end of 2022.
Thank you, Jon, and w ith that, we were able to cover all your questions. If you feel any of your questions was unanswered, please reach out to us at Allegro IR team. Thank you for your time.
Thank you. I expect we see each other in a few days for our Q3 results. Much appreciated for making the time on short notice. Jon?
Yep, thank you for joining us. Take care.
Thanks.