InPost SA
AEX:INPST
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InPost SA
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Hi. I'm Mike Harris, Transitional Head of Investor Relations at InPost. Welcome to InPost Q2 2022 Results Call. Today, we'll have comments on our accelerating outperformance first peers in Q2 from CEO, Rafal Brzoska; Head of International, Michael Rouse, will run us through our significant outperformance in Western Europe; and Adam Aleksandrowicz, our CFO, will, as always, guide us through the financials.
A quick disclaimer. Today's call includes forward-looking statements that are subject to risks and uncertainties, and it is possible that actual results will differ materially. This call is being recorded.
Rafal, over to you.
Thank you, Mike, and thank you all for joining us this morning. It's been another exciting quarter of outperformance for InPost, which I look forward to discussing. But first, a reminder of what we are all about.
Our mission is nothing short of changing the consumer ease the economic efficiencies and sustainability of our PC commerce last mile. Lockers are an e-commerce enabler for merchants and as it's known by any of you who have the benefit of any of our InPost locker in our app very transformative for consumer control of pickup times. Really are the cost efficiencies of automating an industry, such a victory for consumers and our accelerating market share gains, you will hear about our manifestation of the structural advantages we offer to both merchants and consumers.
On the next page, you see 3 clear indications of why lockers are simply the most consumer-centric and sustainable mass-market solution for last mile delivery. First is convenience. As mentioned, when lockers are convenient, consumers love the high-quality experience of controlling collection times. Our locker NPS of 75 isn't another leg versus less differentiated to door competitors. A satisfied consumer is the holy grail for merchants. And as our NPS indicates, we elevate the consumer e-commerce experience, that's a big win for merchants.
And our second differentiation is, of course, the cost efficiency. In this new inflationary war, a merchant focus on limiting cost pressures is super supportive of our market share as our Q2 outperformance reflects. Beyond cost for the merchants, everyone on our planet and in our communities, benefits from the reduced need for vehicles versus traditional to door delivery. This means dramatically fewer vehicles, resources used and carbon limited per parcel.
Like any business, we are seeking to reduce our own carbon footprint, but where we make the most difference is in how we help retailers achieve their own sustainability objectives. Every merchant order that is delivered via one of our lockers can save the merchants up to 75% on the carbon footprint of door e-commerce cell. From a sustainability perspective, our product offering to merchants is head and shoulders above the competition.
And on the next page, we show the drivers of our flywheel that reflect our truly unique and transformational last-mile solution. So just a quick reminder of the mechanism here. The core of our proposition is convenience for consumers, which gives them control of pickup times that to door delivery simply cannot match. As we invest in new machines to improve proximity to consumers, these drives not only growth in new users, but increased loyalty and intensity of usage from our existing customers. This leads to more consumer convenience and control, of course, which means many choose us as their preferred option for parcel delivery.
Merchant engagement and parallels that we offer retailers access to the consumer base that to door logistics, suppliers or new local networks would struggle to tap. When our flywheel is humming, we are not just a highly efficient service for merchants, we are literally a gateway to the market. At the same time, the rising intensity of volumes going for our fixed cost base drives courier productivity to relentlessly rise, simply we are a specialist that is automating the most integrated cost base in the retail sector, the extremely manual and high touch e-commerce last mile.
Our courier productivity levels cannot be matched by traditional to-door delivery. And in Poland, our couriers deliver as many as 8x more parcels per courier than traditional to-door providers. The result of this productivity is a price to merchants that is highly competitive with operating leverage and robust financial returns. But for any competitor to replicate our returns, they will not only need to be a large-scale exceptional operator, they will need to win our consumers. Yet in Poland, we have a highly satisfied existing and rising InPost local consumer base.
So long as we retain that consumer's loyalty, competitors will struggle to match our productivity or margin outcomes. Nothing described about is unique to Poland, where we now account for almost half of all parcels delivered in the country. Yes, it takes time to get the moving. But with the enormous preexisting out-of-home consumer base that we have in Mondial Relay's European markets, we have an exceptional starting point. European merchants are increasingly sensitive to the cost in environmental and social pressures from the vehicle and energy intensity of traditional to door logistics. We believe that if we execute well, the stars are aligned for us to automate mining for shares of the last mile in leading Western European markets.
And now I'm very pleased to run you through some of our key Q2 highlights, which includes beating quarterly consensus, estimates for group volume revenues and, of course, adjusted EBITDA. Once again, our flywheel helped contribute to volume outperformance in each of our markets in Q2. Even with the rising uncertainty and inflation pressures on consumer wallets, we grew volumes 20% in Poland, which was nearly 3x the estimated sector growth.
In France, we grew volumes 7% versus a double-digit decline in sector volumes. Our 2-year second quarter compound volume growth rate at Mondial Relay is an exceptional 61%. It is worth noting we had already announced the acquisition of Mondial Relay prior to the start of Q2 last year.
And in the U.K., we grew volumes more than 200%, driven by our strong merchant traction with returns.
Group volume outperformance has helped to drive margin gains despite inflationary pressures. Polish Q2 EBITDA was up 15% year-on-year.
As you will see on the next slide, we had exceptional market share gains in all core markets. In Poland, it comes despite rising competition. Later, I will show you an updated version of an excellent chart that demonstrates the resilience of our lockers with nearby competition.
With high levels of consumer satisfaction and regularity of use, the total number of users of our parcel machines in Poland rose 14% to almost 16 million, that's more than 1 user for every household in Poland. While we are being prudent with our balance sheet, we have still increased our number of machines by 12% in Poland year-to-date to over 18,400 machines. We continue to entrench our competitive mode via enhanced proximity to Polish e-commerce consumers. The result is a highly differentiated positioning as an e-commerce enabler with 36% volume growth in our non-Allegro in Q2.
Our efforts to automate France gained momentum as we surpass 1,000 APMs there, triple the end of 2021 level. When coupled with our Mondial Relay brand with Fresh, mobile app launch and a pending move to the next day delivery, we are extremely excited about the Mondial Relay opportunity ahead of us.
In the U.K., our APM estate has grown 25% year-to-date to just shy of 4,000. Michael Rouse, our Head of International, will to run through our bespoke low risk U.K. parcel returns-driven strategy, which is showing a very good traction.
On the next page, you can see how we performed in the second quarter versus consensus expectations, which reflects the use of 10 of the brokers that cover InPost.
On the volumes, we outperformed consensus by almost 7%, with an almost 9% bid at Mondial Relay. Our revenue bit was 4.1%, with a big uplift from international and with our operating leverage, the EBIT to adjusted EBITDA was a more substantial 18.2%.
On the next page, you can see that of a very high Q2 of 2021 base, we showed strong market-beating volume performance across all our geographies. In Poland, we outgrew the market nearly 3x, the widest gap in our outperformance of the market in the past year. This accelerated gains came despite the competition trying to build a presence. And importantly, the late 2021 equalization of Allegro Smart to door and locker minimum order values.
Our overall market share gains make it clear that the core of the Polish consumer acceptance of lockers is driven by consumer choice, not price. Consumers get the quality and convenience of their most preferred InPost location and merchants benefit from lower cost and access to the preferred pickup point of what their open more active consumers. Michael will later talk about the international markets.
But as you see, we dramatically outperformed the French market by 31 percentage points. In the U.K., we again enjoyed triple-digit growth despite a declining market. So we continue to sign up U.K. fashion merchants to our differentiated returns proposition while we were highly successful deploying larger APMs with our high-traffic supermarket partners.
Next page, please. Here, let's jump into the business update. And here, you can see some of the most recent advances in our flywheel. It stands with the improved consumer experience in all our markets. We showed progress, a 14% increase in APM users in Poland, further environmental gains beyond our category killer product sustainability, the elevation of Mondial Relay's consumers' accessibility in France and rising trust pilot scores in the U.K.
Consumer traction leads to rising merchant adoption and Q2 didn't disappoint. We signed strategic agreements with major marketplaces. In France, we added 2,600 merchants. And in the U.K., we continue to elevate our returns penetration among fashion retailers.
As our flywheel continues to spin in a deflationary environment like, we continue to deploy machines with meaningful scale in all our markets. In Poland, we added nearly 2,000 APMs equating to more than 311,000 lockers, which is 60% more than all competitors combined. As we get closer to consumers, they respond by using our machines more frequently, which works well both for us and our merchants and the flywheel keep spinning.
On the next page, we have data that demonstrates how impactful we are as an e-commerce enabler. We offer merchants not just lower cost service, but access to a large pool of active APM users. We are effectively democratizing merchant access to e-commerce consumers. Of our overall 20% Polish volume growth, 1/3 was driven by C2C, where we work with leading platforms. Within B2C, our growth of 14% was double the market growth. While we are very pleased to how the Allegro grow at a faster based on its overall business via our APMs, we are extremely encouraged to have seen 25% volume growth in Poland with other merchants and 36% when including C2C and fast-growing international.
In addition to the growth that comes from more merchant activity, our data indicates the high penetration and satisfaction of our consumers reduces friction that e-commerce merchants face into door-dominated markets. We believe we are structurally not just more sustainable, but an accelerant for e-commerce penetration.
And on the next page, you see how we continue to make exceptional progress in improving our proximity to Polish consumers. We now have 58% of the total population within 7 minutes of an APM. This equates to 85% of the urban population within 7 minutes and 71% of the urban population within a 5-minute walk of one of our machines, and that's an improvement of 8 percentage points in the last 12 months. By contrast, our main competitors' level of penetration is just 14% based on the 7-minute threshold.
As you can see on the right chart, in the first half of 2022, we added just under 2,000 APMs in Poland out of 4,800 APMs added in the entire market. It is worth noting that competing lockers remain much smaller than ours, which can have implications for both service quality and most importantly, productivity. With our larger APMs, we accounted for 60% of local compartments added in the market in the first half of the year, which leaves us with 90% of all local compartment across country. As lockers are fixed rather than variable cost driven, this means that on a like-for-like volume basis, the margins we achieved are substantially ahead of our competitors and should remain so for as long as we retain the loyalty of our consumers.
On the next page, I will show you one of my favorite chart that demonstrates how minimal the market impact of competing lockers has been on our business to date. This excellent chart demonstrates the reality of our competitive mode. Let me coach you through this. We track the performance of every single one of our machines from the time a competing machine is introduced nearby. Here, we are showing the year-to-date performance for all our APMs that have a competitor within 100 meters. Our machines volume are indexed relative to all our other APMs that don't have a neighboring competitor.
And you see InPost lockers that are retracting competition and naturally in the highest performing locations has the index starts above 100. While gaining share is much more complicated than just deploying lockers, even we are somewhat surprised that the relative performance of our lockers facing competition has actually improved. We believe this reflects 2 realities. One is that our consumers remain extremely loyal as competing machines struggle to differentiate themselves on price, service quality or proximity. We have over 9 million active users and almost 16 million total users, who are overwhelmingly extremely satisfied with our service. This gives us confidence that if we continue to satisfy them, we will remain the preferred adoption to pick up parcels.
Additionally, we believe that as our machines reduce their friction associated with e-commerce delivery, we tend to have an outperforming client base. Both factors, which have firmed our relevance to e-commerce merchant success in Poland, are likely driving the resilience of power machines to competition.
On the next page, our overall user base has risen by 14% to almost 16 million in the past year. Of these consumers, our super hard user base, which we define as customers, who received at least 40 parcels in the last 12 months has expanded from 2.4 million a year ago to 3 million users by the end of Q2. When including hard users or those that order more than 13 parcels, we now have more than 7 million higher intensive users. This InPost specific demographic is up almost 7% year-to-date and 19% in the last 12 months. Again, as convenience and satisfaction enable greater ease of use, we expect the intensity of usage of our user base will continue to be a driver of overall market growth. And one of our key points of differentiation is our over 9 million active app users.
As a reminder, in Q1, functionality that included quick returns, GooglePay and launching a Ukrainian version. In Q2, we had a label less send and return via the app, eco packaging returns and direct connection with the call center and the chatbot via the app. All these complement key drivers of the app, which include remote opening of lockers and ability to monitor all your orders from all of our 40,000-plus merchants. This last point is a key point of differentiation of a merchant agnostic platform like ours. This level of functionality and connectivity with our customers is a key element of InPost success.
And on the next page, we are showing how InPost by dramatically reducing the resource required to deliver a parcel, is solving one of the society's key future challenges. Just one APM in Poland, reduces CO2 emissions by 53 kilograms daily. It's an equivalent to planting 3,000 trees. With more than 18,400 InPost APMs now in use in Poland, that is the equivalent of more than 55 million trees.
In 2021, 54 million liters of fuel were saved through the use of lockers versus to door deliveries and each parcel sent via locker, which can reduce emissions by up to 75% and of course, meaningfully improve traffic and all its ill effects. Even when we have parcel liberties via electric vehicles powered by renewable energy, the simple fact is parcels delivered to door, but still need as much as 8x the number of the vehicles and 8x the amount of renewable capacity when a green parcel delivered to an APM.
From a merchant sustainability perspective, InPost service is head and shoulders all other scalable solutions. We are a sustainability changer here. And in addition to InPost service leading to dramatic force in the resources required for merchants to get their product to consumers and InPost own business needs to make meaningful progress in the sustainability of our own operations.
In Q2, new initiatives included testing for reusable packaging for locker deliveries, instant label less locker returns via the app and screen less APMs. This last initiative reduces both the energy consumption required to operate APMs and the raw material and electronic component intensity needed to manufacture them.
InPost EcoBox provides consumers with the option to receive their parcel in eco-friendly packaging and return it via InPost lockers to be reused again. Another InPost initiative designed to reduce waste and support environmental goals is ECO returns for which people can pass an unwanted possessions, such as small electrical items or clotting to have a second life. And I recall, we are a business focused on sustainability. Beyond our sector transforming product, ESG is increasingly penetrating every aspect of our business.
I will now hand over to Michael Rouse, our Head of International, to discuss some of the exceptional progress we are making with Mondial Relay and the U.K. market. Thank you.
Thanks, Rafal. Good morning, everyone. Now let's focus on Mondial Relay, France. And the purpose on this page is to remind us of the tremendous opportunity to gain B2C market share with merchants as highlighted on the left-hand chart. We capture this opportunity by automating the last mile and to drive efficiencies and an improved consumer satisfaction through APM deployment, consumer digital engagement and the speed of delivery, moving the network to D+1 next day.
On the right side, we're making significant progress against all the key pillars of the transformation. Firstly, densifying logistics, which is the backbone to go from an average 3-day delivery network to 1 day. We've made good progress in the first half of 2022, and we're poised to have a network capacity as we go into '23.
Secondly, merchant wins. As we execute on elevating the service, merchants are responding positively with 2,600 new clients year-over-year.
Thirdly, locker deployment. We have now surpassed 1,000 lockers in less than a year on a run rate of deployment now approaching 3,000 annualized. So finally, as we accelerate our focus on the French consumer, we have relaunched the Mondial Relay brand with a new tagline that encapsulates the essence of the transformation to create a smile on every corner.
On Page 19, I've already touched on some of these elements, but I wanted to share some further details of the 3 major announcements we took to market in Paris on June 23 this year. The brand relaunch. As we know, InPost is an exceptional service-led brand at great price, whereas Mondial traditionally has been a price-driven value brand with low focus on service. Not only do we need to replicate the functional qualities of InPost for Mondial, we need to be one that is seen emotionally as part of the consumer's everyday lifestyle and to engage digitally as well as physically.
Building on the digital engagement is the pending launch of the mobile app this month, replicating the same journey we have seen success in Poland. The app will be the gateway to elevating consumer satisfaction and creating stickiness with APMs. And finally, the official launch of Mondial Relay Express, the game changer and winning the B2C market share as merchants secure the delivery outcome they need to win the out-of-home consumer. The collective impact of these announcements should prove relevant for Mondial Relay performance in 2023.
Finally, my last slide on France, I wanted to share 3 bridge charts that demonstrate how strong the uptick of ours has been. On the left, consumers pick up much sooner from a longer than they do for PUDOs. That's excellent for our ability to optimize utilization, but more importantly, a clear demonstration of how lockers elevate the consumer e-commerce experience.
The middle chart is showing just how quickly and already out-of-home audience can embrace lockers. The 2022 cohort of our locker users in France is on par with our Polish cohort of 2019 and much better than the 2017 cohort as previously shown. Our growth continues to significantly outperform the market, as we've highlighted already, and you can see here more specifically on the right-hand side. Our C2C business continued to grow nicely in a declining market. Even before our brand refresh and next day launch, B2C contributed to this Q2 outperformance as macro headwinds attract merchants to our economic value proposition.
And finally, volumes in our new lockers equated for just under half of Mondial's Q2 volume growth. All in all, a very encouraging performance in half 1, and our transformation of Mondial Relay France is progressing at pace.
So now let's move on to the U.K. We have continued to expand the network focusing on density, size and quality of location, whilst tripling volumes. On the left-hand chart, we've expanded the network with the total number of machines doubling versus Q2 '21 and up 25% year-to-date. The actual number of compartments is outstripping this and growing at 33% as we install bigger APMs, focused on high-traffic locations, such as supermarkets 6 out of the top 10 now working with us and key transport locations such as training tube stations. Our objective here is to secure the best locations and take first-mover advantage.
So as you can see on the middle chart, the performance of the most recent cohort is very strong versus historical cohorts, not only further highlighting the quality location, but evidence of accelerating consumer and merchant engagement towards APMs in the U.K. market.
On the right-hand chart, overall volumes more than tripled year-over-year, with returns being a big driver of growth and the improvement in mix, with as much as 30% share of checkout and returns being reported across our leading merchants.
My last point to highlight here is that in Q2, we still had no contribution from collection of our out-of-home services. Our focus up to this point has been on drop-off services for both returns and send for clients such as eBay and Vinted as we prioritize in Q1 migrating logistics towards an in-house controllable model similar to Poland and France.
Excitingly, last week, we launched our first collection services as part of this new model with Vinted and as we target next-day service quality post our logistics transition, we expect collection from our lockers will be a key point of differentiation for our merchants and a growing strong consumer base, especially in the face of tougher macroeconomic headwinds.
Finally, on our last slide. With our differentiated return service, we've made very good progress adding merchants, up over 2x in the last year approaching nearly 200 enterprise large merchants live now in the U.K. Based on external benchmark in a similar way in we're now working with circa 80% of the addressable market across the top e-commerce fashion brands, and we continue to add to the merchant business wins such as River Island and [indiscernible] going live in the last week of August.
Our focus on returns on C2C today in our first phase of U.K. development has demonstrated superior customer love for our APMs with our trustpilot scores consistently exceeding those of other carriers and data being measured directly with our retailers showing high repeat usage for first-time locker users, all grid building blocks as we strive to launch B2C collection services to lockers in the first half of '23 within the U.K. market.
On the last chart on the right just shows how important this consumer experience. It's not just with merchants and consumers, but our leading landlords. It's not just filling space in front of the store or facilitating sustainability, all important components, but the outcome of a recent study with a major partner shown 89 NPS and 2/3 repeat users, but truly remarkable in my opinion. In the U.K., it starts to become a landlord positive footfall traffic driver, which is one of our key points of differentiation we've seen in Poland.
Now over to Adam to take you through the financials.
Thank you, Michael. Good morning, everyone. Let's start with a summary of our financial performance for the quarter. We have grown group revenues by almost 98% on a reported basis and 23% on a like-for-like basis. That is excluding impact of Mondial Relay acquisition.
In Poland, we reported 17% rent growth, Mondial Relay grew by 5% in PLN, and International of a low base grew an impressive 414%. Q2 adjusted EBITDA was up by 63% at PLN 506 million, driven by Mondial Relay consolidation. We have delivered EBITDA growth of 15% in Poland following high single-digit performance in Q. We did not see a major impact of currency fluctuations on group reported EBITDA growth this quarter. As in Q1, the consolidation of Mondial Relay negatively impacted margins.
While our consolidated adjusted EBITDA margin fell over 1,200 basis points on a reported basis, majority of this drop reflected consolidation of lower margin business of Mondial Relay. On a like-for-like basis, inflationary pressures and deferred price increases on some of the contracted volumes continued to weigh on margins. The Q2 decline in like-for-like adjusted EBITDA margin was 370 basis points. Still, this was an improvement versus the 660 basis point decline in Q1, thanks to both the operating leverage from strong volumes and continued productivity improvements.
Hence, Poland adjusted EBITDA margins were only modestly down at 45.4% plus 46.3% in Q2 of 2021. International posted higher absolute loss, but business is sequentially improving with loss margin reducing year-on-year very visibly.
The combination of revenue growth and the moderation of CapEx in Poland, CapEx as a percentage of revenue fell from almost 20% in Q2 of 2021 to 14% on a like-for-like basis. And with the addition of Mondial Relay capital deployment, CapEx intensity for the group stood at 16% of revenues in Q2 2022 versus 20% a year ago. Reported net leverage, which now includes a full 12-month adjusted EBITDA contribution from Mondial Relay, stood at 3.2x on a reported basis. This compares to 3.3x in Q1.
Moving on to Page 25 and summary of 6 months of financial performance. In the 6 months of 2022, we have grown revenues by 96% on a reported basis and almost 21% like-for-like, excluding the impact of Mondial Relay acquisition. Adjusted EBITDA stood at PLN 920 million, posting a growth rate of 32.5%. Adjusted EBITDA margin contraction of almost 1,400 basis points, again reflected consolidation of Mondial Relay and somewhat weaker margin performance of Mondial Relay business in Q1 2022, both year-on-year and versus Q2 2022.
CapEx on a like-for-like basis was at 20% of revenue, same level as in the first half of 2021. With lower CapEx intensity at Mondial Relay, CapEx as a percentage of revenue was lower by 200 basis points at 18% of revenue in 6 months of 2022 on a reported basis.
As mentioned already, despite the deceleration in Polish sector B2C volume growth, InPost reported an acceleration in volume growth from 16% in Q1 to 20% in Q2. Growth in APM and to those segments were broadly similar in the quarter, being a reflection of outperformance with our non-Allegro merchants that use both of our services. Poland's volume growth was 18% in the first half of the year and the 2-year volume CAGR was an impressive 34% for the 6 months of the year. We're quite satisfied with this outcome taken in the context of the overall macro and geopolitical situation and the notable deceleration in overall sector growth.
Despite implemented price hikes across Q2 for part of our merchants, the pricing lag on the majority of our revenues, the C2C volume mix effect and also the outcomes of our volume performance-based price discounts kept overall pricing flat year-on-year, both for Q2 and first half of the year.
Revenues in both APM and to door segment grew at the same rate as the volume growth, both in Q2 and first 6 months of 2022. The revenue growth rate dilution you see here on total revenue was driven by other revenue elements comprising of services like fulfillment, e-grocery and legacy APM service related to revenue outside of port.
Polish EBITDA margin after having fallen by 350 basis points in Q1 fell only by 90 basis points to 45.4% in Q2 of 2022. Given circumstances, that was a strong margin performance, which was largely driven by operating leverage from volume growth and continued productivity improvements.
For 6 months of 2022, we have recorded PLN 830 million of EBITDA posting growth of 12% year-on-year and 41% of 2-year CAGR. Margin contraction was 220 basis points, again, with Q2 very well managed by a partial price increases and productivity improvements.
Moving on to Page 27, Mondial Relay business. As mentioned already, Mondial Relay delivered volume growth of 10% in Q2 versus an estimated 15% decline in sector volumes. This brings Mondial's 2-year volume CAGR to 61% for Q2 and 42% for 6 months of 2022. Mondial C2C strength in our long-term European contract advantage were supportive of growth, albeit dilutive to pricing. Revenue rose by 5% in Q2 versus 3% in Q1. This acceleration in pricing was supported partially by fuel price adjustment embedded in most of our contracts in France. Countering the mix-driven fall in pricing, Mondial has enjoyed some upward revision to like-for-like pricing, thanks to fuel price surcharges.
Mondial's EBITDA fell as expected by 24% year-on-year in Q2, driven by profitability normalization that we already saw in the second half of 2021 and first quarter of 2022. EBITDA margin fell from 22% in Q2 of 2021 to 16% in Q2 of this year. As expected, this margin change reflected an ongoing profitability normalization against the COVID-related productivity windfall in the first half of 2021 that boosted PUDO capacity utilization and operating efficiencies to extraordinary levels.
While Mondial's Q2 margin of 16% was well ahead of the 12.8% reported in Q1 with some notable improvements in the middle and last mile cost, we still expect the margin to further reduce in the second half of the year as we continue to invest into the logistics and APM network as well as expand the sales and marketing competencies of Mondial Relay.
Page 28, International business. We have seen very strong volume growth internationally with 246% of volume growth in the quarter and 414% revenue growth helped by a shift from rental volume to higher-value merchant returns. This revenue growth accelerated meaningfully versus Q1 growth rates. Adjusted EBITDA losses were 32% up year-on-year, but reduced versus Q1 2022.
While we have seen EBITDA losses increasing meaningfully year-on-year in both Q2 and the first half of the year driven by scale of our operations, we continue to deliver improving unit economics. In line with increasing scale of operations, losses per parcel are falling sharply, driven by positive price mix impact from increasing penetration of our product offering as well as reduced logistics costs and SG&A leverage. 6 months losses included costs associated with the transition from an incumbent logistics service supplier.
Originally, we expected this transition to be completed by end of Q2 this year, but it took longer than expected and we expect now this to be finished by end of Q3 with very meaningful positive impact on unit logistics costs in Q4 of this year. As we stated previously in Q1, the optimization of the courier network should allow us to start generating meaningful and sustainable economies of scale on the back of growing parcel volumes. With the continued fall in per parcel cost and the reduction in one-off costs associated with our logistics transition, we remain confident that the trajectory of EBITDA will be more favorable in subsequent quarters.
Page 29. Here, you see a bridge from adjusted EBITDA to net profit for the 6 months of 2022. A few points to call out here. Operating EBITDA was up by 59% year-on-year to PLN 909 million with a 28% EBITDA margin. Similar to Q1 dynamics, D&A was up by 83%, driven by the scale of asset rollout, both on PPE as well as IFRS 16 lease amortization. Mondial Relay acquisition had significant impact on the increase of intangible asset amortization as partial effect of purchase price allocation accounting.
Our group EBIT increased by 41% to PLN 465 million. The year-on-year decline in margin was driven mostly by consolidation of Mondial Relay operations, while underlying EBIT margin was improving with lease costs declining as a percentage of revenue from 9% to 7% of revenue in 6 months of 2022 and PPE depreciation being broadly stable as a percentage of revenue.
Net interest expense rose by 188% from PLN 42 million to PLN 122 million. Of this, around half of the increase was driven by the increased debt quantum arising from Mondial Relay acquisition financing. Excluding that effect, the interest cost would have doubled during the first half of the year. The remainder of the nominal increase in interest expenses was driven by the interest rate increase associated with floating grade PLN denominated debt.
The foreign exchange gains of around $52 million have a very technical accounting nature and were associated with translation of PLN denominated debt into functional currency of InPost S.A. which is euro.
Moving on to Page 30, cash flow bridge. Here, we include our bridge from adjusted EBITDA to free cash flow. Our EBITDA conversion in the quarter was 46% pre-CapEx and 44% post-maintenance CapEx. While growth CapEx resulted in negative PLN 158 million free cash outflow in the first half of 2022. It is important to note that negative free cash flow is entirely driven by U.K. investment and both operating losses and CapEx deployed in the U.K.
When looking at Poland, Mondial Relay and Italy combined, the overall business generated positive free cash flow even after growth CapEx. As I have mentioned during our Q1 results call, our CapEx this year, especially for Poland is front loaded towards the first half of the year as we schedule the production to build inventory and address continued squeeze of the supply chain on the critical production components. We expect to turn free cash flow positive in Q4 due to both CapEx moderation, volume seasonality and the repricing of services later in the year.
Moving on to Page 31. As we have long been articulating, we remain cautious about the outlook for the Polish and also European consumer due to many of the factors that are causing problems globally with the added complications associated with the war in neighboring Ukraine and Polish interest rate sensitivity. The economic outlook and the revised forecast for inflation and GDP have deteriorated since we have given our previous guidance back in March. The negative trend in consumer confidence illustrated here on the left-hand chart is a clear reflection of current volatility and negative outlook for the purchasing power.
As in many markets, the rising inflation in Poland is problematic, especially that it is among highest in Europe, all the more so due to the fact that majority of mortgages in Poland are floating rate and increased energy costs and their impact on house heating bills are yet to be felt. This, of course, is putting significant pressure on household disposable income in Poland, but also albeit to a different extent in the whole of Europe.
So moving to Page 32. Taking into account this stuff in a much more negative macro outlook despite the fact we continue to see strong trading and are meaningfully outperforming the sector, we remain cautious and think it is likely that our volumes might decelerate in the later part of the year. This volume uncertainty has also implications for margin from both an operating leverage perspective and by raising the complexity around optimizing our resource allocation in the peak season.
In this context, we are reiterating our previous full year guidance. We continue to expect Polish GMV growth of high teens to mid-20s implying high single-digit to low double-digit sector volume growth with downside risk in the second half of the year, driven by weaker macro. We expect French and U.K. sector volumes will decline for the year, although we expect to continue outperforming in all of our markets.
On the margins, our previous communication was that most, if not all, of adjusted EBITDA margin gains in Poland for 2021 will be reversed in 2022. We retain this guidance. Noting, however, that for all gains to be reversed, the deceleration in the second half of 2022 sector volumes would have to be very, very significant. At the same time, as you will see on the page in the appendix, our midterm outlook also remains unchanged.
That is all. Thank you very much, and we are open for questions now.
[Operator Instructions] We will now take our first question from Lisa Yang from Goldman Sachs.
Congratulations on the results. A couple of questions from me, please. Firstly, obviously, we're already in early September now. So could you please give us a bit more color on the trends since so far in Q3, July, August is also early indications for September in terms of both market volumes and also your outperformance across your main markets? I think your guidance implies quite a big slowdown. So I'm wondering if you're seeing that already? Or is that just being a bit conservative? That's the first question.
Secondly, on the margin, I appreciate you mentioned there's some operating leverage and productivity efficiency gains. But compared to Q1, that's still a massive improvement, down only 90 basis points when I think your revenue per parcel was flat. So is there any sort of one-off in that number? Or based on basically your volume expectations for the market of high single digit, low double digit, is it fair to assume based on this market growth -- market volume growth, you could sustain that level of 45% margin in H2? That's the second question.
And thirdly, could you maybe comment on your thoughts around taking price for the rest of the year and next year? And obviously, conscious you have this repricing element as part of your contract with Allegro today. So also if you can comment on any discussions you're having with Allegro? And what are the sort of puts and takes in these sort of discussions? And should we expect any outcome to impact in other way in -- one way or the other, your full year guidance?
Thank you, Lisa. So let me take those questions. So in terms of current trading and implications for the full year volume performance, I think July and August trading has been reasonably strong, i.e., we've seen continuation of the Q2 trends. Now having said that, obviously, as we said, we remain very, very cautious around the Q4 shape of the market and consumer sentiment. I think when looking at macro indices all across the board, every macro index that we look at is actually looking to us and actually more pessimistic than what we initially expected and that's why the visibility is poor. And we think the outlook for the remainder of the year should be very, very cautious, and that's why we think it's quite likely that the market growth might decelerate towards the end of the year.
In terms of margin performance, there's not been any one-off in the Q2 performance. Now again, I think one thing that's very volatile is, again, energy prices, fuel prices are very volatile. They're very much dependent on the development of the, obviously, geopolitical situation and Russia-Ukraine war and therefore, whereas -- and also the currency fluctuations are not helpful here. So when we look at the and performance versus dollar, especially has a huge impact on the fuel prices. So we expect some continued margin pressure in Q3 and Q4.
And therefore, whereas volume and operating leverage is super helpful actually to drive continued productivity gains and help us restore the margin and regain some of the margin losses that we've seen in Q1 of this year. Again, we expect continued price -- sorry, cost inflation pressures in Q3 and Q4.
On the pricing, maybe I'll leave that question to Rafal. So Rafal, if you may address the pricing element. Thank you.
Yes. Of course. Thank you, Adam. So in terms of pricing, we are not expecting any additional repricing for the broader market this year. But of course, 2023 as already mentioned by several logistics players that, that definitely the current macro environment and the labor cost and CPI, inflationary environment will impact the pricing for 2023. And here, we want to reprise the market as well. We will see how the trend is going on.
But looking back to the Allegro topic, I think there is no change. I mean we have pending contract and from that contract, the repricing, as we several times mentioned, will happen in the beginning of November. So no changes on that field.
Can I just follow up? So based on what you said, is it fair to assume that the margin in Poland in Q3 should be more or less in line with Q2 as well? And actually, on the Polish margin question, just wondering, I noticed the other revenue was down a lot, and I think that has to do with your external lockers. Could you maybe give us any hint in terms of what margin that is associated with those other revenues? I suspect it's pretty low and maybe that has helped your overall margin in Poland.
No, I think the impact of the other revenue on the overall profit and profitability margin is relatively negligible, I'd say, given the share. So the answer would be, I would not base the margin outlook on the other revenue element. So it's not that -- as you have noticed in Q2, that element has shrunk quite a bit year-on-year, and it did not impact our margins meaningfully. So again, not maybe guiding specifically for Q3 and Q4 outlook. As we said, for the full year, we would expect to be somewhere in the region of 2022 or maybe slightly above that. So not too different to what we've been guiding towards at the beginning of the year.
We will now take our next question from Sathish Shiva Kumar from Citi.
I've got 3 questions here. First, second -- firstly on the price thing. Just a follow-up on the earlier question. So are you still talking about 10% increase to Allegro in November? Or as the inflation picks up into the year, you could actually see even more upside to the pricing? And just related to pricing, again, in Q2, if you see that you could have strong volume growth, which was partly offset by weaker pricing? I believe that you also had a price revision in Q2 for non-Allegro customers. So can you clarify actually that stimulate volume to some competitive pricing?
And then the second question is actually on the Slide 15, where you actually highlighted that InPost locker for outperforming competition. Can you comment what is driving this outperformance? Is it the customer mix or the product mix? And like, say, late cutoff, which is -- because of your first and middle mile capability. And also, can you clarify if -- are we comparing lockers with similar life cycle point?
Finally, in the U.K. if you could share some color on the traction of the third-party logistics providers as you moved away from earnings? That will be helpful.
So maybe I will answer the first part of the question regarding repricing. Once again, we have a predefined formula in the contract with Allegro. And yes, that's right. At the beginning of the year, we all thought that the repricing impact would be rather around low double digits because the CPI was forecasted at such a level end of the year. Today, we see clearly that already the August CPI announced 2 days ago in Poland was 16.1, which for me means that in September, it will go up again. So now we are in the high double-digit area in terms of the upside for the repricing with our largest clients.
And the second part of the question regarding pricing in Q2, yes, indeed, we did the repricing in Q2, which was, I would say, expected as well by the other players. The other players went up as well, especially the door-to-door providers heavily impacted by the very high cost of fuel, they were literally waiting for our repricing. So we are a trendsetter on the market. That's clear and the others are observing us. So the meaningful shift in the volume is more complex. It's not only about the cost.
We already several times and here I'm linking to the cohorts and the performance of the locations that even with the competitive machines nearby are performing much better. Simply, we are gaining market share across the market irrespective of the price difference, irrespective of the competitive presence and the same state. We are creating the most competitive and the most loyal consumers already almost 16 million end users in Poland, which means more than 1 person per household using our solution.
So we have created extremely sticky and loyal consumers that do prefer to use our lockers. And because those lockers where the competition is deploying or trying to deploy their machines, mostly in the most popular locations, the transportation hubs or supermarket chains, literally, these are like very well populated by the potential consumers as well. So that's why those machines are not only not losing any consumers, literally it's accelerating because I may assume that even if some of them try to use the other competitive networks, they see InPost locker nearby and they quickly simply switch to the new machine that we deployed in such very popular locations. So that's at least our hypothesis for that.
And maybe shifting to Michael to give some feedback about the life cycle of our logistics transition in the U.K.
Yes. Thank you, Rafal. We've been in a very much a stage transition of our logistics operation. The ambition was to have completed it by Q2. We've actually extended our transition to the end of Q3, which I would just pretty much completed the transition. The actual stage transition was to ensure that we maintained existing customer service while actually building capacity for the increasing volumes that we're seeing in the U.K. So very much now as we go -- exit Q3 at the end of this month. And going to Q4, we will be on our new logistics partner solutions as we continue to expand and accelerate the product offering going into '23. So we're pretty much through the transition period now.
Okay. So on the U.K., so probably by into the peak season because that's kind of a risk also, right? Because you go into the peak season with the new set of logistics providers. Do you think there's any down service to that?
No, that's also why we have taken a very staged approach and made sure through the transition, we were building capacity with the third-party providers as we were seeing the demand from a network development point of view. So we feel that we've managed that risk very effectively with the extension of the transition period.
We will now take our next question from Sam Bland from JPMorgan.
I have 2, please. First one is on Slide 14 that I think InPost covers about 58% of the Polish population. And I think you said in the remarks that you have maybe a 50% share of the B2C market. I was just wondering, I mean, given that how attractive is it to serve the other 42% of the Polish population? Or is there something different makes rolling out lockers difficult to the rest of the population, maybe it's lower population density?
And the second question is, I noticed at the back of the presentation, the Slide 37, the number of PUDO locations has increased quite a bit quarter-on-quarter. Could you just sort of explain what's going on there? I thought in Mondial Relay that number of PUDO will be kept roughly stable.
Happy to answer the first part of the question. So there are 2 different numbers. So the coverage, which is the 58% of the population, this is the potential already within the 7 minutes walking distance. And also looking at the adoption, I think the better metric is the number of mobile app users and that's like increasing and also the number of registered users, which is close to 16 million.
There are 2 different estimates, how many potential consumers we may target based on the [ use ] report, and between '22 to '24 online shoppers, we identified today. So we may say that still there is a lot of growth opportunity for Poland for new users. But let's bear in mind that also the current users are extremely quickly like adopting to buy more and more, and that's why you know the evolution of soft users to hard users or from hard users to super hard users is accelerating continuously. Every single quarter, we have more hard users and more super hard users. And that's the stickiness what I described earlier on.
So I think still the continuous deployment covering white spaces, especially in the remote areas, smaller towns and villages what we do that's activating new users, new part of the population. And we see that on the trajectory of the mobile app users and registered users base.
In terms of PUDO points, maybe a broad comment on my end, and then I will hand over to Michael regarding Mondial. We want to continue our strategy in a very balanced way. So we are deploying lockers, but we also are deploying PUDO points, for instance, in Italy, but also in Poland. That's the kind of helping hand, especially for the peak season to help the most utilized lockers survive the peak without affecting the consumers' experience. But also, this is a kind of cheaper way to literally put a flag on the white space ground.
So this is definitely, if you ask me about the long-term strategy, nothing may compare with lockers and Michael explicitly explained that in terms of a dual time, for instance, and the level of consumer satisfaction, but -- in the meantime, we want to balance our CapEx expenditures and growing market opportunity that we want to literally accommodate with the usage of PUDO point simply.
I don't know, Michael, if you want to add something on top of this.
Rafal, you covered it, I think, very well. But specific to the slide, the actual number, is not just a France number in terms of expansion of PUDO. It's all the geographies that we operate within. So including Spain, Portugal, Benelux and Italy. So to complement Rafal's point, in those markets, it's not a locker strategy right now as we balance our CapEx deployment and focus that on the markets like France where we use PUDO to expand and cover the white space and keep a low CapEx approach to ensure we have the coverage for the consumer as we invest in the other markets for a locker point of view at this stage.
We will now take our next question from the [indiscernible]
I've got a couple of questions. Once again, back to pricing, and I'm looking at Slide 6 here of the presentation deck. In the middle, it says APM deliveries are more efficient. It saves a lot of fuel. It saves a lot of labor. These are the 2 main constituents -- the 2 main components that have been causing the inflation on -- the cost inflation on the last mile. Is it fair to assume that the price difference -- that the cost price difference between APM delivery and to door delivery will increase? You've -- in the past, I remember that you said that APM delivery is roughly 30% cheaper than to door delivery. Is it fair to assume that, that gap will increase? And having said that, does it enable you to raise your travel a little bit less than the rest or basically use part of it to increase your margins? How should I look at that? That's my first question.
The second question is with regard to AliExpress. We've seen a couple of interviews with people from AliExpress that have been tightening the relationship with a number of companies with out-of-home delivery infrastructure in place. And obviously, InPost Poland and Mondial Relay in France were mentioned quite specifically in the communication in AliExpress, how should I interpret that? Is it fair to assume that they've given up, for example, the expansion idea in own locker facilities in Poland? Did you opt for using your infrastructure instead and likewise in France?
And then the final question is on Mondial Relay Express. Just as a clarification on Slide 19, I see Mondial Relay Express and I get an impression that it is to door delivery. Is it fair to assume that it is to door delivery? Or is it locker delivery? And is the picture I see on my screen just a little bit deceiving?
Happy to answer first part again. So it's true that the 30% APM delivery difference to door is demonstrated in the context of a typical difference in the basket. So when you look at the websites of key retailers, you see those that are like very willing to drive the share of checkout of our lockers, they typically put the pricing 25% to even 40% cheaper than door-to-door.
When you look at our margin expansion, productivity, just bear in mind that 1-hour driver, 1-hour van replaces 8 drivers and 8 vans of traditional to door player. So the answer is, yes, we consume less energy per every parcel. And by the way, we save 75% CO2 emission in the meantime, which means that the higher the price of the fuel is the more expensive the energy is associated with every single delivery of door-to-door parcel, the higher delta we may achieve on our productivity. And that's why as well, our repricing at the beginning of the year was much less than the CPI. So we gave back partially our productivity to the merchants, which, of course, drove the commitment for the volume.
And this is where the volume comes from as well. Why we have 36% non-Allegro channel growth because we are not only the best in terms of quality and convenience, we are as well the cheapest for them. So they are highly motivated to kill door-to-door and shift that to InPost without the risk of losing quality, risk of losing loyalty of their clients because people love us. And this is the beauty of InPost solution and the repricing power that we've got and we want to use in the future as well.
And coming back to AliExpress, we've got long-lasting relationship with that client. And the asset truly collaborate in Poland. Yes, we hope to have the kind of Pan-European agreement to other markets like we did with other international clients, and we are highly supportive to every player that want to use our local network irrespective of their own plans. We do understand that some of the marketplaces, some of the players, they are testing, piloting, sometimes rolling out we don't comment it.
As you know, we are fully, fully focused on executing our most successful strategy in out-of-home because the success behind the InPost is not about the locker, it's about creating end consumer-centric ecosystem fueled by lockers, logistics, technologies, sustainability and high stickiness of the end users and that's the magic mix that allows us to outperform any other player that ever try to do the same.
And Mondial Relay Express, handing over to Michael just to explain and make some clarification.
Yes, sure. Firstly, I think the picture just for purposes is can take your door on a van, just not door on a house. But to clarify, our focus from Mondial Relay Express is next-day delivery for out-of-home, both for pickup points and lockers.
We will now take our next question from [ Piccolo ] [indiscernible] from Bank of Poland.
Just a few details left for me to ask. First, could you gave already some color on July and August dynamics for you and for the market, I guess. Could you just add one remark whether there was some visible difference between August and July? Or there is similar -- or some slowdown was the questionary already visible in August? That is the first one.
The second one I would ask for some clarification concerning the Allegro deal because I'm a bit confused right now. Does the price formula means that you will take the inflation rate from October? Or is it some form of the average of last, I don't know, of the last 12 [ fleets ] of inflation because the first one would -- then we would probably land at around, I don't know, 17%, whatever it will be in October, but I think similar, I guess, today?
And in the second case, if it would be like average rate of the last 12 [ fleets ], it will be like more like 11%. So which one is it?
And the third question is about APM -- international APMs other than U.K. I noticed that for the last 2 quarters, you started to add some significant volumes. I guess it's Italy because it's not U.K. It's not France. It's over 200 APMs. Is it Italy or what? Because earlier these other APMs apart from France, U.K. were roughly flat. Does it mean some I guess, slight trends of strategy, do you believe again in Italy or what is it? And that's it.
Adam, would you comment the first?
Yes. Yes, sure. Let me take the first 2, and then I'll leave the APM. So first of all, in terms of July, August trading, a simple answer would be there's no -- we haven't noticed any meaningful difference between the 2. So relatively stable months despite the fact, obviously, it's a holiday season, typically, they tend to be a bit weaker seasonally weaker months, but no meaningful difference between the 2.
In terms of Allegro indexation clause, it is the REIT of the average 12 months preceding the period in which the indexation kicks off. So effectively, we would take the average of 12 months before or 12 monthly actually CPI reads before. Now the contractual clause is a little bit more complex than this because it actually prescribes for 2 indices and takes the lower of the 2. It's either the headline CPI or it's a combination of CPI and labor inflation. And depending on which of those 2 comes down lower, the lower one will apply.
Effectively, historically, as you know, for the last couple of years, labor inflation was always exceeding the CPI inflation. Now this year, we've seen the reversal of the trend. So because of the CPI rate, the labor inflation tends to be lower in the last couple of months. And therefore, if we think about how it's going to impact the index, you probably should assume that our indexation will be a bit lower than the average 12-month CPI preceding the first of November.
Good. Let me take the APM question, Adam. I think just to stress the majority, and it's not really 90% of our APM deployment in the international markets is concentrated on France and the U.K. We have some small deployments going on in other markets as we test our way into those markets in a very highly concentrated way in core cities to -- but the real core strategy for deployment are for locations in markets like Italy and you looked at the absolute locations for InPost is very much biased towards PUDOs at this point. As we continue to accelerate getting the flag in the ground linked to the white space deployment and we'll continue to do that, as I mentioned earlier.
So the strategy for Italy and other markets is really to connect to the network as we see across all of Europe, but the concentration will continue to be in France and the U.K. for the APM and CapEx investment.
We will now take our next question from [ Marco Jimenez ] from Barclays.
So my first question is about same-day deliveries. Allegro has clearly announced yesterday, they will run same-day deliveries in 10 cities in Poland. So just wondering what's your strategy about on the same-day deliveries given that, as you said, quality of [indiscernible] is an important driver for customers' adoption?
And the second question is a bit more technical. Just wondering, as by '26, you are mentioning that price increases were largely offset by mix. So if you can just clarify specifically what does that mean? And also what was driven the lower performance in other areas in Poland?
Thank you, Marco. Happy to answer. So same-day delivery, we've been providing same-day delivery in parts of Poland for almost a year by now. So it's not a new product. It's not something that is basically transformational for us. Now having said that, I mean, first of all, we've not seen a big penetration of this product. So both in Allegro and non-Allegro channel, it continues to account for a relatively low share of total volumes. I think the adoption of both consumer and merchant is relatively low.
And I think the reasonable expectation would be with the price premium that it entails probably given the higher and increasing price sensitivity of the consumer, I don't think we would expect that same day will pick up very visibly over the next couple of quarters, given the overall consumer sentiment. But as I said, it is part of our product offering in Poland for quite a while already.
And in terms of pricing, so just to be very clear again. So if you look at the APM pricing and to door pricing so the kind of parcel segments, let's say, of the business in Poland, both have been flat in terms of pricing, both in Q2 and for the first 6 months of the year. So when you look at the revenue growth and volume growth for the 2 channels, it's exactly the same pricing, pricing impact is neutral. And it's really a combination of 2 things.
I mean, first one is it is partial price increase that we've applied in April and May on part of our volumes. As you remember, part of our volumes which are long-term contracted volumes have some pricing clock. And this has been offset, as you mentioned, Marco, by the mix. So what we mean by the mix, we continue to see the bigger merchants and the C2C channel performing stronger than the smaller merchants. And therefore, again, as we've seen this in the past quarters basically a lower-priced big customers taking a bigger share of volume, and that's the mix effect.
The second effect is really an outcome of our strategy for the market, which is with some of the merchants or with quite a big pool of our merchants, we actually have volume commitment deals whereby if the volume commitments are delivered, certain price discount supply or the price increases are reduced or in certain cases are basically waived. So it's really a combination of our strategy to grow and outperform the market as much as it is an outcome of the customer mix.
There's been no further questions at this time. I will now turn it over for web questions. Thank you.
Thanks. Operator? One question we have is InPost has previously cited a midterm target of 20,000 to 25,000 APMs in Poland. Given that the lower end of that range could be achieved by year-end, what is the latest thinking? Adam, could you handle that one?
I don't think there is a change to the midterm ambition. As we've always been saying, we've estimated the market potential to be somewhere in the region of 35,000 lockers for the whole of the Polish market, give or take. We've always been saying there's going to be some space for the competition as we expected competition to emerge. So I don't think our midterm ambition has changed a lot. Of course, we'll continue to react to the changing market conditions and to the demand, and we'll tweak our penetration targets accordingly. But at this point in time, I'd say no change to this target.
Thanks, Adam. Most of the other questions have already been answered in some form. If you have an additional question, please feel free to send it to me after the call at mharris@inpost.eu or to our IR address that you could find.
But I think with that, we'll conclude the call. I'd like to thank everyone for joining, and have a very good day.