Ladies and gentlemen, thank you for standing by. I am Yota, your call operator. Welcome, and thank you for joining Allegro Group Earnings Call and Live Webcast to present and discuss the second quarter 2023 results. All participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. Anyone who wishes to ask a question may press star, followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. You may also type your questions on the webcast screen. At this time, I would like to turn the conference over to Mr. Tomasz Poźniak, Investor Relations Director. Mr. Poźniak, you may now proceed.
Thank you, Yota, and welcome to everybody on our call. Apologies for the slight delay. It is my pleasure to have with us today, Roy Perticucci, the CEO of Allegro, who will guide you through the business highlights of the second quarter, and Jon Eastick, our CFO, who will elaborate on financials and the outlook for the third quarter. Our results presentation is available for download from our allegro.eu webpage. You may also download the slides from the link available on the webcast screen.
As a reminder, today's presentation and discussion contains forward-looking statements. Our actual results could differ materially from the plans expressed in such statements. Please make sure you review the full disclaimer on slide two. Please note that this presentation and the Q&A session are being recorded and will be available for replay on our website at allegro.eu. Now I would like to hand over to Roy. Thanks so much.
It's my great pleasure to present our results for the second quarter of 2023. I'm especially happy to confirm that our 7 priorities continue to deliver results despite the subdued consumer demand that characterizes all of the 6 countries in which we trade. Before I move on to the facts and figures, I'd like to return briefly to this time last year, when I made my first earnings call as chief executive. Don and I flagged at that time that our market conditions had markedly shifted. Double-digit inflation and the economic uncertainty were leading consumers to be more value-oriented and more cautious with their spending. We introduced the 7 priorities and emphasized both cost discipline and decision-making, focused on return on investment in order to grow profitability within the new context.
We believe that although the trends we perceived last year continue, our approach has enabled us to deliver the performance that we report today. The Polish market, retail market, posted only 2.4%, year-on-year nominal growth in the second quarter. Allegro GMV in Poland grew by 11% during the same period. Active buyers grew by 5% year-on-year. So despite a clear shift to value for money buying behavior, per customer spending rose by more than 9%. I believe that this is the evidence of the adaptability of our merchant network in our recently launched Best Price Guarantee. Consolidated GMV grew by 10% year-on-year, over that actually, reflecting the inclusion of the Mall segment for the first time on a fully comparable basis.
Revenue from Polish operations grew by 18%, reflecting the slightly higher take rate and the outstanding performance of our advertising, up 34% year-on-year. Group revenue growth was more muted at 8.5, 8.5%. The figure now includes the top line of the legacy businesses, Mall, CZC, and Mimovrste, all of which trade in national markets with conditions at least as severe as those in Poland. We've improved profitability and leverage considerably, thanks to our hard work on the seven priorities. The Polish EBITDA grew by 22% year-on-year, significantly exceeding our quarterly outlook of between 13% and 16%. Quarterly EBITDA margin rose to 4.99%, tantalizingly close to our 5% reference point.
It should be unsurprising that our 1P legacy business has been hard hit by the contraction in Czech retail demand. Fortunately, the severity is lessening in real terms from -8% in April to -4% in June. Mall segments adjusted EBITDA loss improved to PLN 66 million. At the same time, startup costs related to the allegro.cz 3P marketplace preparations and its soft launch in early May added 27 million zloty of losses to international operations. All in all, our considerable, our consolidated, adjusted EBITDA was up nearly 20% year-on-year. Improved profitability, high prioritization, control over CapEx, as well as improvements in net working capital, reduced leverage from the post-acquisition peak of 3.5x in Q2 last year to 2.6 at the end of Q2 2023. This spectacular improvement was achieved in only 12 months.
Let me now add further detail on our progress. We've organized most of our work during this past year around the seven priorities. The first three focus on energizing the growth, while the second three focus on continuously improving our cost structure. We've made great progress on our final priority, people and culture, over the summer, and we'll share highlights once we've completed implementation. Our network brings together 14 million active buyers with more than 130,000 agile merchants. And our selection in Poland has now reached 320 million offers. Our legacy categories continue to maintain their leading positions, and selection in our priority categories, ambient grocery, health and beauty, and fashion, grew by 90% year-on-year. I'm pleased to point out that over 40% of our GMV growth came from these under-indexed and prioritized categories.
We've grown available products by high single digit year-on-year in our B2B offering as well. Finally, we've added 200 new key accounts and over 30 new key brands in Q2 across all categories. We always strive for the best possible value for customers. We closely track prices for more than 1 million products, and that in some, account for more than a third of GMV. We use this intelligence to support adhering merchants to price competitively. We continue to expand our Best Price Guarantee program, which has been very well received by both Polish and Czech customers, and now covers over 300,000 products. Our repertoire of campaigns are increasingly effective in delivering incremental sales from highly price-conscious customers.
And Smart Week was brought forward from October to May, and Allegro Days have been held as in other years in April and June. In terms of convenience, we have further developed implementation of machine learning-based routing of customer support queries to further enhance handling efficiency. Continuous improvements in our Allegro app drive its increasing penetration among active buyers in supporting conversion levels. Last but not least, we're increasing efforts to attract international sellers by introducing simplified processes and dedicated support. We recently reorganized advertising and Allegro Pay into autonomous units under executive team leadership, in order to drive growth in a more focused and nimble manner. Let me cover these two areas before moving on to the 3P marketplace launch in Czechia. Advertising remains an attractive income stream as well as an, in fact, an effective driver of GMV conversion.
We've tuned our search algorithms and changed the display patterns of sponsored offers in order to more effectively display ads. And we're also able to support ads for services beyond our own marketplace. This highly accretive business has posted spectacular results. Revenue grew by 34% year-on-year, while the number of advertisers doubled year-on-year in the same quarter. We are also pleased to note that pricing held firm against a softening market. For Allegro Pay, we've maintained high growth rates, both in terms of value of originated loans and incremental GMV that they generate. Both grew at year-on-year rates above 50%. The loans in Q2 were just short of PLN 2 billion, while Allegro Pay financed 12% of customers' purchases during the quarter.
At the same time, we keep loan book under constant, strict control, with just 290 million PLN on our balance sheet at the end of the quarter. The client's repayments and our sales of loans to our partner bank, Aion, keep our working capital requirements low. Our loans are of utmost quality and expected credit losses are well below 1%. We further develop and monetize Allegro Pay. Based on the agreement with Aion, we're working on a new banking as a service. Since July, we are charging merchants a fee of 35 basis points on any sale financed with Allegro Pay. We marked our first step outside our home market with the soft launch of allegro.cz on the ninth of May. The hard launch opens with a dedicated marketing campaign on the thirty-first of July, and Allegro is now operating at pace.
I'm pleased to share that we are now the Czech Republic's most visited group of websites. We have over 20,000 merchants, which provide over 150 million offers. That's 10 times any of its competitors, and that's a third of those offers are eligible for Smart delivery. More than half of the users have registered Allegro accounts, and we've recruited over 500,000 active buyers, of which 200,000 are Smart customers. Approximately two-thirds of traffic to allegro.cz comes from mobile, and that app has become the number two in terms of downloads in Czechia. Finally, our marketing campaign under the motto, Bigger, Bigger, Bigger, has triggered 80% prompted brand awareness. So although this is a very promising start, and I've stated earlier, we are using the experience to write the playbook for future launches next year.
After this thorough review of our growth priorities, let me now move on to our focus on cost efficiency. Smart customers are still migrating to the new pricing terms that were introduced nearly a year ago on November twenty-second. Two-thirds of them have rolled over their annual contracts by the end of Q2 with low churn, and we've discontinued Smart for Start and Allegro Family in order to raise conversion rates and the share and the share of paid subscriptions. We're already operating on revised co-financing rates, which partially offset the higher delivery costs from our delivery partners and preempt increases expected in Q4. Naturally, we continue to carry the majority of the delivery costs, which in turn pay back to consumers and merchants higher turnovers and loyalty.
Our delivery network is under continuous development, both in terms of reach and utilization, and we've installed more than 3,000 APMs. Both utilization and the Net Promoter Score, NPS, for One Box deliveries are steadily rising, and one carrier now covers 24 main cities. The most recent expansion to the Silesian metropolitan area increased the population coverage by 1.4 million year-on-year. Share of Allegro One in our delivery mix is increasing steadily, and we further promote it with Smart requirements, shifting more packages to out-of-home pickup options. Together, or rather altogether, our delivery experience improves with above 85% of parcels handed over to customers within two days. Our efforts to turn around the Mall 1P's business is making some progress. Consumer market conditions are especially severe in the Czech Republic.
We were able to contain adjusted EBITDA loss in Q2 2023 at PLN 66 million, slightly better than last year, despite sales erosion in the legacy discretionary categories. We've reduced idle stock in Czechia and have optimized marketing spend. SG&A costs are declining, supported by the completion of the mall stores closure and the merger of the CZC and mall warehouses, which was actually in very early Q3, as well as targeted reductions in the mall tech teams. I should note that both Mall and CZC have become anchor merchants on allegro.cz. This new sales channel provides them with incremental sales. Over this past year, we've given considerable coverage to Fit to Grow. The benefits of this program should be self-evident. I should also remind listeners that Fit to Grow was not only a basic cost-cutting program.
Another module defines the unified organization capable of serving six countries effectively. These changes were finally implemented in July. We have built and implemented a set of business processes. The OpEx, CapEx, processes maintain oversight of spending, resulting in cost and investment optimization that Jon will detail in a minute. The RAMP in four processes have created transparency over our project portfolio, and they also force a decisive prioritization of technology projects, especially those that span multiple business functions. RAMP and 4d, the prioritized projects, have both clearly defined objectives and sufficient resources to achieve them. Finally, our headcount process ensures that we know where we're investing our most precious resource, namely our people. In the future, I expect to use the name Fit to Grow less as we move to an established business culture of continuous improvement.
As the name suggests, we can always get better. The task is never finished. It's just one part of the day job. Over to you, Jon.
Thank you very much, Roy. Good morning, ladies and gentlemen. Good morning, ladies and gentlemen, it's my pleasure to take you through the financial results for the second quarter and the first half of 2023 for Allegro Group. As usual, I'll start with the Polish operations. Just a quick reminder, the Polish operations by GMV is still 94% of our total business. I'll get onto the international operations in due course. On slide 14, you do have, for your convenience, easy reference, the main KPIs. I'll start my remarks on slide 15, talking about the number of customers and the spend per buyer. As you can see, active buyers has risen by 5.1% over the last twelve months.
We're at 14.3 million active buyers on the Polish market as of, as at, Q2, and that's an increase of approximately 700,000 over that 12-month period. I think the most interesting part of the story for Q2, however, is around our increase in spend per active buyer, which is up on an annual basis by 9.4% to 3,664 PLN per average buyer on a rolling 12-month basis. And most interestingly, it's actually accelerated during Q on Q, during the second quarter, up 2.3 sequentially. Now, what is that showing us? That's showing us that in a situation where your average household clearly has less money available for shopping missions, they're spending more and more of that money on Allegro.
We see increasing frequency in particular, and this is offsetting the continuing trading down behavior and deferral of discretionary spending, especially on the higher ticket items, that you know is typical at this time. So this really shows that Allegro, in these difficult times, as Roy was saying, is the place to go to look for great deals. We're still performing really strongly, even in a difficult economic situation. So moving on to GMV. GMV in Poland is up by 11.3% at PLN 13.5 billion for Q2. On a rolling twelve-month basis, we move on to PLN 52.3 billion for the marketplace, 14.9% year-on-year growth. Now, as I mentioned, the spend is going up, this per customer.
The spend is going up because of that higher frequency, and that, therefore, translates into transaction growth moving up in the low teens year-on-year in the second quarter. And that also, therefore, means mathematically, that the average spend per transaction is actually lower than it was this time a year ago. So again, that is the impact of this trading down. Over time, as the economy stabilizes, we should start to see that effect unwrap, unwind, and start to see growth again in spend per transaction. The economic situation is improving in that real wages are now, or rather nominal wages, are now growing faster than inflation. And over time, that should feed through into inflation in the revenues per transaction going forward. We're also doing well on traffic.
Traffic for the e-commerce segment is growing faster at Allegro than at the average of the other top 150 e-commerce websites, according to SimilarWeb. And this is really reflecting the amount of hustle that we're putting in on the commercial side to really bring to the attention of the consumers great deals, the Best Price Guarantee program that was mentioned earlier, for example. The frequency of shopping events like Allegro Days and Smart Week, et cetera, are all contributing to making customers remember that Allegro is the place to go to get the good deals. And again, confirmation that supermarket, health and beauty, lower price point, higher frequency categories are actually significantly outperforming during the course of this year. Moving on to revenue then for the Polish segment.
18.4% growth, as usual, outdistancing the speed of growth in GMV. We landed at PLN 1.9 billion for the quarter. The main contributors, as usual, 15.7% growth coming on the marketplace GMV growth, helped by a 42 basis point increase in take rate, coming from co-financing increases, primarily, that we made in August of last year. Also, a big contribution coming from advertising, growing at just under 34%. It's worth noting, too, other revenue sources growing at 209%. They include our logistics businesses, external revenues, and it also includes the interest and profits on sale of loans from Allegro Pay.
Moving on then to adjusted EBITDA, and, another very pleasing performance to report, PLN 673 million of EBITDA for the second quarter. That's up by 22.1%, and, our margin is now up to 5%, of GMV in that quarter. Looking again in terms of the bridge, where that uplift is coming from. Revenue and, GMV growth up on the left-hand side of the bridge there, from marketplace and advertising, obviously, is the major contributor. The only real drag in terms of margin is, coming from net cost of delivery, which are up 53 basis points, as a percentage of GMV on a year-on-year basis. The main driver there is obviously that transaction growth that I was, mentioning earlier.
But in terms of cost management, we're doing pretty well in the current year. The changes we made to MOV back in November for the Smart program are helping significantly with a 6 percentage point swing to out-of-home away from courier. That's up by 1 point on the quarter. And on an average basis, looking at the cost per unit, we've obviously absorbed price increases over the last 12 months from our delivery partners, and the average cost per unit is only rising 5.7%. Fit to Grow, Roy mentioned earlier, you can see the impact in particular in the other SG&A expenses, up only 8.4% year-on-year, despite the highly inflationary environment, and it compares to 35.5% growth that we were reporting this time a year ago.
Headcount coming down slightly, 2.5% down year-on-year. It was growing double digits at the beginning of last year, and it was down 1% quarter-on-quarter. Capital investment down 50%, 51.3% in fact, to PLN 101.7 million. This is the cumulative impact of all the work we've been doing around focusing on return on investment and utilization of our assets. The spend on development expense continues at roughly a flat level to a year ago, at PLN 81 million out of the total. This reflects the fact that the tech team is still the same size as it was a year ago.
People cost a bit more to employ, obviously, and the costs are being capitalized on all the functionality improvements that we're performing for the main tech stack. There's another PLN 10 million of cost of the tech team, which we've capitalized into the international segment as it relates to the preparation of both allegro.cz and the work we're doing at the moment for the subsequent launches that we're planning for next year. So capital investment very much under control. Together with the EBITDA improvement, it means that the free cash flow we're generating of EBITDA minus CapEx in the Polish business is up Q1 is up year-on-year by over PLN 220 million.
So let me move on then to the international operations, which again, you have a summary on slide 20 of the key KPIs. Here, it's important just to note that we're introducing this quarter a new sub-segment, the Allegro International segment, which will allow us to show you separately the results of our new marketplace launches. So far, that means the allegro.cz launch, which took place in May of this year. And the numbers that you'll see here in the next couple of slides relate to the soft launch phase, with the hard launch coming in at the very end of July, already in Q3. So let me let me start to go through. What we've done on slide 21 is provided you with a bridge for our GMV growth.
So GMV for the international segment came in at PLN 743 million, which is down 5.7% year-on-year. But on the left-hand side of that bridge, you see the performance of the legacy Mall business that we acquired, where the GMV is down twelve point one percent. On the right-hand side of the bridge, we have the allegro.cz, already contributing PLN 57 million in soft launch mode, which is roughly six points improvement in the overall rate of growth. When we focus on what's happening within the Mall Group, we have been very focused on efficiency and controlling the EBITDA loss, keeping it to similar level to the prior year.
That has included rationalizing our marketing spending, which is contributing to the somewhat lower or the lower GMV performance. But it's also partly reflecting the continued difficult economic conditions in the Czech Republic in particular. So if I go on, onto the adjusted EBITDA performance of the international operations, on the left-hand side, you can see the steady, basically, EBITDA loss compared to Q2 a year earlier in the legacy business. And you can see how we've achieved that, that PLN 66 million loss. We were able to keep the margin fairly stable despite the GMV reduction.
We've managed to absorb the delivery expenses for 600,000 customers who are signed up for free delivery within the Smart program that we started rolling out last December, and that's included in that PLN 39 million of additional direct costs. We've cut back on marketing expenditure, and you can see clearly all the efforts we've made around Fit to Grow and efficiency in those difficult circumstances, brought in PLN 41 million of savings on the other SG&A compared to last year. Looking at the brand new launch of allegro.cz, you can see that we're already starting to book revenue or take rate because it's a marketplace model. The Polish businesses or Polish merchants are already paying basic take rates. They don't pay on the co-financing just yet, although that promotion is now ending.
And the Czech merchants who are starting to sign up in significant numbers are at the moment enjoying promotional discounted access to the marketplace. We're spending obviously a lot on PPC to get the flywheel moving, to bring in traffic, which you see in the second column. And finally, the fixed costs that you've seen in previous quarters, characterized as the startup or pre-launch costs, are running at a fairly similar number to previous quarters. Those costs will get defrayed over the whole set of marketplaces once they're all up and running in due course. So overall, we had a negative EBITDA of PLN 93 million for the quarter, which was quite a bit less than we'd originally expected.
Moving on to the group. And again, you have the key KPIs laid out. The most important thing here is our leverage performance. Another really significant improvement during Q2, we went down by 0.28 of a turn of EBITDA, landing at 2.56x as of the thirtieth of June. The progress is coming from a number of sources. Obviously, the Polish growth in EBITDA is more significant than the losses that we're taking to invest in our international business. So our adjusted EBITDA for the group has moved up. We also had seasonally a positive contribution from working capital. Quarters 2, 3, and 4 are generally positive for the mall segment. They give it all back in the first quarter.
So that was helping, as was sales of consumer loans on a larger scope by Allegro Pay to Aion. So leverage has come down now by just about one turn over the last 12 months. We do see it going down further during the remainder of the year, and we really have now regained our financial flexibility, putting us in a position to invest where we see really exciting returns on investments, and we see many such opportunities. In short, we've got ourselves Fit to Grow again, and we will be investing more in the coming quarters. So let's then change gears. That's the historical results covered. Let's change gears now and look at the outlook for the third quarter, which you have on the final slide of the material.
Let me start quickly with the highlights. The two main things I think to call out here is you should expect in Q3 another strong quarter of adjusted EBITDA performance from the Polish business at between 30% and 32%, so significantly faster than Q2. You're also going to see the GMV of the allegro.cz business really gaining traction after the hard launch in July. We're expecting to be presenting somewhere around PLN 190 million of GMV, which is more than three times the number for the second quarter. Let me just go through briefly each segment individually, and I'll start with the Polish operations. The GMV, we're expecting to come in marginally lower in terms of growth rate than we saw in Q2.
Things were holding up very well, but we see a couple of, let's say, one-off effects, particularly hitting September. The seasonal fashion shopping season has really been delayed by continued warm weather throughout the month. And secondly, this time last year, there was quite a lot of high transaction value activity in home and garden segment, mainly around heating equipment that was being purchased by mainly Ukrainian citizens for use in Ukraine during the upcoming winter, for obvious reasons related to the war there. We're not seeing so much of that this year, and that is putting a little bit of a drag on the GMV growth. That then feeds through to our revenue growth, which we're seeing at between 19 and 21%. Why?
Because of the price increases that we implemented at the beginning of the third quarter, back at the beginning of July, in particular, co-financing increases, putting the share of co-financing for merchants back to a level of 35%, and in anticipation of potential price increases from the delivery partners to come in the fourth quarter. Also, another strong quarter from advertising will be contributing there. Costs still very much under control, so all of that revenue performance is feeding down to adjusted EBITDA and that 30%-32% result. CapEx, very similar to Q2, somewhere under 100 million PLN of CapEx expected for the Polish business. On the international operations side, we've continued to rationalize our marketing spending throughout the third quarter in the mall business.
We've identified quite a lot of negative ROI spending within their normal way of operating, which we don't have anywhere else in the group. So we've cut back considerably on that spending in the short run. And that's partly the reason for a much more significant decline in GMV in Q3 from the Mall segment than we had in Q2. It's going to come in the high 20s% in terms of a reduction. However, the growth on the allegro.cz marketplace is so large, at 150 million PLN delta going in the other direction, that the overall decline in GMV will be limited to between 10% and 12%.
When it comes to revenue, because of the high, the highly over-indexed share of retail revenue in the mall segment, that GMV decline translates almost one-to-one into revenue decline as well, which is why the revenue is declining faster than the GMV. But the opposite happens in EBITDA, because a lot of those sales were really not generating significant margin. We're still confident that we'll land around about the same PLN 50 million loss for the mall segment that we had in the third quarter of last year. That leaves additional spending for the allegro.cz launch. We ran a large above-the-line campaign to get the ball rolling back in July. And obviously, as we grow the business in the short run, we'll invest more to drive it forward.
So we're expecting between PLN 50 million and PLN 60 million of losses from the allegro.cz marketplace. CapEx, again, just mainly development costs, but also some investment in our WeDo Logistics business, which will be strongly supporting delivery for the marketplace. So that's the prepared comments from our side, and, I'm going to hand it back for the Q&A session. Thank you.
Thank you, Jon, and thank you, Roy. After this introduction of our results, we are ready for Q&A. Yoda, can you take it on?
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star, followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Luke Holbrook with Morgan Stanley. Please go ahead.
Yeah, good morning, everyone, and thanks for allowing me to ask some questions. Appreciate the color as well between allegro.cz and Mall Group. I think that's really helpful. Just firstly, could you provide a bit more detail on why the Czech Republic is such a weak market for Mall currently, just some of the dynamics there, and whether you believe you're losing share, given the revenue guidance into Q3? And then secondly, we've had take rate increase to 11.2%. What are you factoring in, I guess, into your Q3 guidance on where that could head? Thank you.
Yeah, so yeah, thank you for those questions. So starting with, maybe I'll start with the take rate question first, as it's an easy one to pick up. We'll be looking for something in the region of 50 basis points higher take rates than in Q2 as a result of those changes that we made. The major one was the co-financing adjustment. The second one was mentioned by Roy, the 35 basis points that we're adding on the Allegro Pay loans that we write for the merchants or on behalf of the merchants. That obviously, because only around about 10, 12% of the business goes through Allegro Pay, contributes a few extra basis points. Part of the question.
As regards to Czech Republic, the market now, I think for five quarters, has been strongly negative in real terms, in terms of retail sales. And inflation is quite a bit lower there now than what we're seeing still in the Polish economy. So nominal retail growth there remains very subdued. We're very exposed to discretionary expenditure within the Mall segment, and they're very, very exposed as well to high-ticket items like washing machines and television sets, mobile phones, et cetera, et cetera. So it's a difficult market, but as I said in my comments, we're also very, very focused on whether or not basic requirements for the marketing spending are being achieved.
We've realized that quite a lot of the marketing is actually being done at a negative ROI. And we're trying to rein that in and redeploy the money over time on positive ROI categories. And while running down the areas that where basically Mall doesn't make great profits. What we want Mall to do is really focus on its execution as a seller on the marketplace, and it's making good progress in that from week to week, in learning how to sell as effectively as a merchant in the Allegro universe, right? In the Allegro marketplace. And that's going to be very important going forward.
As I was trying to get across, although we're cutting the top line, it's not really having a significant impact on the Mall legacy bottom line, because so much of that growth, or so much of their turnover, was not really adding much in terms of margin.
Okay, thank you very much. And just, given your comments then, that you've just made, are you expecting to write off the remaining part of Mall, or large parts of it, next quarter?
Well, yeah, I mean, that's an important question. We'll be doing... There are no indicators right now that we should do an impairment test from our perspective. So we'll be expecting to do that test in the normal scheme of things at the end of the year. We bought Mall with rolling out the marketplace in mind and with having it being an anchor merchant on that marketplace as its key role. And we still have a lot of improvements to its cost structure ahead of us. You know, that business is a combination of three businesses that have never been fully integrated.
We have a really ambitious program of streamlining the cost base and the systems base, in particular, to make it a really efficient merchant over time. Obviously, we're also looking at the performance of allegro.cz and how quickly we can project the, you know, the growth of that business going forward and the other marketplaces. So the very short answer is that we'll be pulling our plans together, taking a good look at things and doing our impairment test calculations at the end of Q4. It's also worth remembering that cost of money has actually come down quite a bit since when we since Q3 of last year, when we did the original write-off.
Thank you.
The next question comes from the line of Michal Potyra with UBS. Please go ahead.
Hi, morning, everyone. Thank you for taking my questions. I have 3 questions, please. So the first one is, if you could please add a little bit more color on what would drive the such a significant EBITDA margin expansion you are guiding for third quarter? Calculate correctly, that's like nearly 100 bits. So I understand there is a take rate, but what is the remaining 50 bits, please?
It's just the overall efficiency that we're running the business compared to a year earlier. It's primarily the Fit to Grow improvements, lower headcount feeding through into much lower SG&A costs, for example. Marketing costs are not really growing as a share of GMV. So it's but it's primarily just the cost control. I mean, yeah, that's basically it.
Thank you. Two just short questions. Could you just comment, as your leverage moves lower, do you expect to see some reduced cost of financing? I remember there used to be this kind of automated adjustment mechanism built in your financing. Should we expect something in the short term?
Yes. Yes, yes, indeed, margins are subject to a ratchet, so there will be improvements to be visible in the second half of the year.
Could you quantify what sort of drop should we expect, please?
I mean, it's not super material. But I'd rather not actually say exactly what the ratchet looks like, if that's all right.
Okay, thank you. I understand. And just the final question, you know, after maybe there was a little bit quiet, but now you kind of added more comments on, on Allegro One Box, and you reached the 3,000 machines, I understand. I mean, could you give us a little bit more data on the utilization rate of those machines and perhaps what's the share of deliveries at the moment, to those machines? Thank you.
So in terms of share, I don't think we released those numbers, and of course, regionally, there are lots of regional variations. I think the, the point, and I think that's also reflected in the CapEx spend at the moment, is we said, I think about this time last year, that we're going to look at the utilization of existing assets. And there's been considerable improvement of, of those over the last year, particularly, I'd say, in the last sort of two quarters. And we'll just continue to work on using the, using the assets that we currently have to the best effect. I include all our assets, also including outside of, outside of Poland, and won't be sort of expanding our investments until that actually happens. It's been a, it's been a significant improvement so far.
Do you have any data like, either like NPS score for those machines? I'm obviously interested in kind of, you know, comparing that with within InPost.
I can't give you the numbers because I don't have them in my head. What I can tell you directionally is that they're roughly equivalent.
Thank you.
What I'd say is, I think also the experience outside of Czech, outside of Poland, in Czech in particular, where we have our own delivery assets, that we perform quite well.
Thank you again.
The next question comes from the line of Lisa Yang with Goldman Sachs. Please go ahead.
Good morning. Thanks for taking my question. Could I just ask you a general question on, you know, how would you describe the state of the consumer Poland, heading into Q4? I mean, you said September has been more muted, but there might be also some, you know, comps effect, which you mentioned, I think earlier on the call around, you know, maybe people buying more ahead of the winter. So do you expect, like, September to be more one-off?
Do you think, you know, that slowdown could continue into October, and rest of the year, just based on the comps and what you think on the… so the consumer could be, and also, can you comment as well, and, in terms of the trading down, and is that something that, you know, you continue to expect as well, for the rest of the year? That's the first question. The second question is on your margin. So, a very impressive margin expansion in Q3. Just wondered, like, to what extent you think that's sustainable into Q4? So if you can maybe just break it down, like, how much more you can do in terms of the cost efficiencies as part of Fit to Grow program?
How much is being part of the impulse repricing, and how big would be the Take Rate increase in the fourth quarter because you're analyzing the November 2022 price increase? That would be really, really helpful. And the last question is, I think your other revenue went up a lot in the second quarter. Like, what sort of incremental margin is associated with those other revenues, and can you maybe give us a bit of a flavor in terms of what to expect for the rest of the year? Thank you.
Okay, three questions. I'll take the first one. I think John will take the next two. So I think we can be feeling very confident overall of the ability of the marketplace to react to whatever conditions we have. And we've seen two shifts, and I wouldn't be surprised that those shifts will continue, albeit in a much more reduced rate, 'cause I think it's all baked in now. And that is, customers are simply being much more careful where they spend their money. So there's one fact, which is, customers have shifted out of some of the discretionary shade, discretionary purchasing and focused more on the things that they need day-to-day. And regardless of category, the purchases are becoming or have become increasingly value-oriented. That's overall the trends.
I think overall, the outlook is a little bit more rosy, and so, we'll see how those could continue. But I think the main message here is, despite whatever the market happens to be, we're doing very, very well. I think the 9% figure, which I mentioned earlier, is indicative of the fact that consumer loyalty is increasing to Allegro, and, we are very much focused on making sure that customers find an ever-increasing set of reasons to shop with us. I think overall, that's reflected in the numbers.
Should there be a market recovery, which is something I can't predict for you, all I can say is I think we're in a good place that when consumers are feeling more confident, that they'll continue to increase their share of purchases with us and shift into perhaps less value-oriented and more discretionary categories. I mean, I would say difficult trade is a good time for good retailers to shine, and I think that's what we're doing.
Okay. Yeah, thanks, Roy. So let me try and address those other two questions. So when it comes to margin going forward, I think your best guide would be to look at the trends that we had a year ago. The co-financing increases that we did in Q3, so back in July, to a large extent, mirror the same move that we did in August a year ago, which was to reset the co-financing, to try and be coming in at around about a 35% share of the delivery costs to be paid by the merchants, in anticipation of the fact that there will be some increases coming through from our delivery partners in the fourth quarter.
Now, in the fourth quarter itself, what happens is it's effectively like having four months of GMV in a three-month period. So in the fourth quarter, the operating leverage is excellent in comparison to the earlier quarters. And that kind of last year, that was sufficient to offset the impact in Q4 of those price increases. So I think you'll see something similar if you're trying to map the margin. In Q1, obviously, the GMV slips back due to seasonality. The operating leverage effect goes into reverse, and you've still got those higher price increases. So you'd see a step back in margin in Q1.
It's also important to remember, by Q4 last year, we were starting to see the first signs of the Fit to Grow initiatives having a positive impact on year-on-year growth in GMV. So we'll be starting to lap some of that once we reach Q4. On other revenues, the question was around margins. There is, as I said, there are two main things in there. One is the financial revenues that are being billed by Ebillit, so interest, in other words, on the loans. And the part that isn't sold off to Aion Bank, so the profit on origination, you can call it, is in the other revenue. It's actually quite a positive number, and there's basically no negative cost to that, right?
So the cost of the money is a discount rate that's supplied when we sell the receivable. When it comes to the logistics, these are the revenues that we earn for the non-Smart parcels that we handle, where the merchants are paying us to do the deliveries. Our unit costs are obviously subject to a cost curve like any logistics provider. We're still moving down that cost curve as we grow our volumes. As Roy was mentioning, we're probably going to increase our investments in the future, and that will move us further and further down that cost curve. In the short run, we don't save money by this because we're still at an early stage, right?
The cost side is actually within the cost of delivery that you see on the cost side of the income statement. Hopefully, that answers the question.
Yeah, that's helpful. So what is the level of revenue you're assuming for Q3 then? Because that explains the big gap between your GMV and the revenue growth. Should still be around, like, over PLN 40 million.
I haven't got that figure at my fingertips, actually, because, you know, it's a small component of the total revenue. But yeah, the numbers should be moving up pretty steadily as we're making quite a lot of progress on volumes.
Okay, thank you.
The next question comes from the line of Andrew Ross with Barclays. Please go ahead.
Good morning, all. I've just got two left, if that's okay. So I just wanted to come back on exactly why the Q2 EBITDA was so much better in Poland than you guided to in the middle of the quarter. There were only kind of six weeks to go, and I guess a lot of those costs are already mapped out. So I'm curious as to what changed in those six weeks that was much better. I'm not sure I fully understood that. And then, the second question is about your plans for the number of heads in the business. I think I understood that you now feel more comfortable about the leverage position, and you are in a position where you want to invest a bit more.
So should we assume that the headcount reductions are now done and they'll start to grow again, as you think about the costs into 2024, or not? That would be helpful to get a bit of a steer on that.
Andrew, thank you for the questions. I'll take the first one. Roy will take the second one. The reason for the overperformance in the Polish business was quite simply that we were somewhat conservative, but particularly on the cost side, in our estimations. And I think it's coming really from two sources. One was that, in delivery, our we were actually overperforming, in terms of the average unit cost, per package delivered, more so than we'd assumed. That helped us quite a bit. But also, particularly on the SG&A side of things, the Fit to Grow mindset really took a hold with the team.
And some of the forecasts of the SG&A expenditure that we were relying on mid-quarter turned out to be excessive, and we had significantly lower cost than we were allowing for.
So in terms of investments, I think it's probably a story in two parts. I think the first part is simple and a real-world discussion, and that is our physical assets in transportation and delivery. And I think the answer there is very simple. We've implemented, as part of Fit to Grow, a series of processes that help us evaluate every head we hire or every head we replace, and every capital investment that we make, do they actually deliver to the strategic priorities? And do they actually give the return that we expect from any project that we make? And I think we've still got a road to go in terms of actually finish reaching a point where the utilization of our delivery assets is at a level that we would expect.
So, I think at some point in the future, we will continue to sort of expand our delivery capabilities. I think I'm very pleased, for example, with the integration deal that we did with InPost, which is now enabling us to deliver or collect from merchants in Poland, and deliver to customers in the Czech Republic at a much higher speed than I think is typical or has been for sort of the end-to-end 3P arrangements, with much higher reliability and much lower cost for cross-border logistics, and we'll continue to do those things. That is a good example of where we're able to drive more volume with better customer experience to Czech customers, and we'll be looking for other opportunities like that elsewhere. So that's the, I think, real-world moving boxes topic.
I think the other topic is, of course, we make considerable investments in software, and we'll continue to do those. And there are probably a few areas where there's an incremental opportunity. We mentioned advertising, and advertising requires, I think, some investment to make sure that our advertising products are increasingly attractive in producing results. And similarly, we've mentioned a number of things that we've planned and have already announced, but particularly Banking as a Service in financial services, and that, I would say, is also an area where incremental investments in the course of the next two or three quarters may increase. And of course, we have to continue to stick with our knitting, with our core business. That really is, I think, the motor for everything that we do, and that's the Polish business.
We've emphasized the desire to sort of improve the shopping experience with customers, particularly, if you will, on the topics of trust and findability. Overall, improving this or actually creating a shop experience in areas that are still relatively new for us. Of course, the way you shop or way of customer shops in health and beauty or in ambient grocery is different. It's a lower ASP items, so much more of this is repeat purchases, and so there's changes to the shopping experience that would aid customers. The shopping, instead of one large screen TV, they're shopping for five or six health and beauty items, and that requires, I think, adding functionality to the site. But again, it all starts with a process and discipline, which Fit to Grow introduced, and we continue to refine.
I mentioned both the ramp and the four D processes, and those are precisely ways that we make sure that every investment, that it delivers the benefits that are promised.
Thank you.
The next question comes from the line of Catherine O'Neill with Citi. Please go ahead.
Great, thanks very much. I've got three questions, if you don't mind. Firstly, on your debt, which matures in 2025, I just wondered if you could share some thoughts on debt refinancing outlook, given the current yield environment. Secondly, on Mall or Mall Markets International, is it possible to give us an idea of when you think the losses might peak and how we should think about the profile of those losses, given those further plans launched in 2024? And then finally, I guess advertising's a pretty good margin driver. Just wondered if you had any thoughts on where you think advertising revenue can go to as a percent of GMV.
Okay, thank you for those questions. I'll take the first one and pass the floor to Roy. We are looking at our financing and the duration of the senior loans. Nothing to announce at this moment in time, but we're aware of the opportunity. Roy?
All right. On to the international expansion, of which Mall represents the bit. Look, we bought Mall for a reason. It has a series of valuable assets, the brands, the customer, shopping habits of shopping with both Mall, CZC, and also Mimovrste, but also the logistics capability that came with it, with WE|DO. I would say, as is always the case, when a company with, in our case, over two decades of experience and a strong position in some market, moves into a new place, we need to be very cognizant of the fact that just because Polish customers have known and loved us for decades, does not mean that customers in a new country are going to love us with the same amount of intensity. It's a process.
It takes a longer period of time and requires that we are very consistent on delivering on whatever promises we make to customers who don't know us as well as they do in Poland. So, I think it's good to say that I think, broadly speaking, our losses are relatively constant in that market, and we just need to stay very, very focused on delighting customers in the Czech Republic, not only on our new marketplace, but on our existing websites, as we do a series of organizational changes, most of which have been wrapped up, but also a tech transition that will take the better part of next year. So remember, as you know, Jon mentioned, Mall, although it was sold as a company, is actually the product of three or four incomplete mergers.
The previous owners did not merge those organizations, did not simplify, those processes and consolidate them into an organization that was fit to trade efficiently across five countries. And so that's going to take some time. You know, there's a lot of hardwired mess, if you will, that we need to simplify and transition. Start of that was, is we consolidated two warehouses into one. We've moved the CZC operations into Irnet, and that's just a set of a program that's going to continue, as I said, for really all of next year, in the tech sense.
While the marketplace continues to grow, and again, I think anyone should be very, very pleased of being, well, I've mentioned sort of the, in terms of visits, we're—if you count all our sites together, we're the most important e-tailer in the Czech market, and I think that's pretty good going for two and a half months. But just because people are visiting, doesn't mean that they're shopping with the intensity that we would like, and that's going to take time. It's a bit of a lengthy answer, but it's, how do I say? I've been in international expansions before, and you need to be very, very focused on both the customer-consumer experience in all its various aspects.
And that includes delivery, where I think we're doing exceptionally well, and also on cost, and actually reengineering whatever acquisition you have to become part of an organization capable of operating efficiently across six countries, of which five are relatively small. Advertising was the next thing you sort of asked what the headroom is, and I think you're as well-placed as anyone to judge what an appropriate GMV share is. I think, again, what I was trying to communicate by pointing out that we now have an executive team member focused as his main day job, advertising, to say that we see potential there. So I think there is considerable headroom. I could probably even give you a number, but I don't think that would be fair to say.
But as I think you can see, there are successfully run, well-run marketplaces around the world, that have an advertising take rate higher than ours. And we want to do that again, where the advertising is attractive and useful to customers and not distracting. And I think there might be one or two examples out there who've over-egged advertising. I think it's certainly above the, what is it? 3.5% or so, that we currently run, more or less run at.
Okay, thank you. I just had one other question, actually. You were talking about banking as a service, being one of your areas of focus going forward. I just wondered if you could give us any more thoughts on sort of products you're planning to roll out in the timeframe?
Start with the correction. I used the wrong number. It's 1.4 in terms of the advertising rate. So to answer the question of, on, banking as a service, what I would say actually is that there are a lot of, I think, obvious things if you have this increasing number of capabilities of, of a banking service. And, you know, I think they're self-evident in, in the name, and those things will sort of roll out in the course of, the coming few quarters. I don't like to preannounce things, so say, watch this space. I think the, frankly, spectacular performance of, of, what we do currently with Allegro Pay is indicative that we see an awful lot of headroom in this area.
Great, thank you.
Once again, to register for a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Poźniak for any closing comments. Thank you.
Thank you, Yoda, for the smooth Q&A session, and thank you, everybody, for joining our call and for your questions. We have run over an hour with this call, so we will answer the written questions that are remaining unexplained during the live Q&A by mail. So please contact us for any other questions or follow-ups, and goodbye. See you next quarter.
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