Allegro.eu SA

WSE:ALE

Earnings Call Analysis

Solid Q2 Growth with Positive EBITDA and Strong GMV

Allegro reported robust results for Q2 '24, with group GMV rising 11.1%, driven by increases in active buyers and GMV per buyer in Poland. Total revenue grew by 12.5%, with Polish revenue up 23.8%. Adjusted EBITDA surged 35% year-on-year to PLN 908.3 million, despite higher delivery and marketing costs. The take rate increased 1.3 percentage points to 12.5%, and advertising revenue soared 30%. The company continues effective capital management, with only a 4% year-on-year capex increase and cash conversion of 83%. Allegro’s Smart! subscription grew significantly, reaching over 6 million members.

Strong Financial Performance in Q2 2024

Allegro reported strong results for Q2 2024, with revenue growing by 24% to PLN 2,345 million. This growth was primarily driven by the marketplace and advertising segments, which grew by 24.8% and nearly 30%, respectively. The adjusted EBITDA saw a robust year-on-year increase of 35%, reaching PLN 908.3 million, with a margin above 6%. This performance exceeded the company’s midterm guidelines of 5.4% to 5.75%.

Accelerating Growth in Key Metrics

Group GMV (Gross Merchandise Volume) grew by 11.1%, showcasing a 2.2 percentage point improvement quarter-on-quarter. This growth reflects steady gains in both active buyers and GMV per active buyer in Poland. In total, the company added 100,000 active buyers in Q2, bringing the total to 14.9 million. The company also saw an increase in the average annualized spend per active buyer, which grew to PLN 3,870.

Effective Cost Management and Leverage Reduction

Allegro maintained effective capital expense management, with only a 4% year-on-year increase in capital expenses, totaling PLN 128 million. The cash conversion rate improved to 83%, up by 4% versus last year. These efforts led to a significant reduction in leverage from 2.6x in Q2 last year to 1x this year.

Expanding Delivery Services

Allegro's delivery costs rose to PLN 133 million, a notable increase from PLN 96 million in Q1. This was partly due to the scale-up of Allegro One and Allegro Delivery services. The company corrected its presentation in Q2, which added PLN 10 million to both the cost and revenue sides.

Guidance and Future Outlook

For Q3 2024, Allegro expects GMV growth to be between 10% and 11%, slightly affected by a 1% headwind from the eBilet subsidiary. Revenue growth is projected to be between 16% and 18%, while adjusted EBITDA growth is expected to be between 11% and 13%, slightly below Q2 levels due to the absorption of salary and distribution cost increases.

Strategic Initiatives and Market Focus

Allegro has set priorities such as making shopping easy and safe for customers and simple for merchants to sell. The company is transitioning to a product-based view across its platforms in Poland, Slovakia, and the Czech Republic. There has been a disproportionate growth in the supermarket and health and beauty categories, which are expanding at 1.5 times the overall GMV.

International Expansion

Allegro’s international operations showed promising results with the first full quarter of operations in Slovakia. The international segment added 2.5 million new active buyers and grew GMV by 34% sequentially to PLN 355 million. The company plans to launch new marketplaces in Hungary and Slovenia, aiming to further integrate and reduce costs.

Enhanced Customer and Merchant Engagement

The company saw substantial growth in its Smart! subscription program, crossing the 6 million member milestone. On the merchant side, Allegro introduced new brand protection mechanisms to combat counterfeit products, resulting in a 10% year-on-year increase in the number of merchants joining the platform, reaching 153,000.

Technological Advancements and Future Investments

Allegro continues to invest in technology to drive future performance. Advertising revenues grew by optimizing ad relevancy algorithms. The company originated PLN 2.7 billion in loans via Allegro Pay, now having over 2 million users. Planned investments include installing additional APMs in the Czech market and preparing the Hungarian marketplace launch later this year.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome, and thank you for joining Allegro Group Earnings Call and Live Webcast to present and discuss the second quarter 2024 results.

[Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tomasz Pozniak, Investor Relations Director. Mr. Pozniak, you may now proceed.

[Tomasz Pozniak, executive]

Thank you and welcome to all participants of our call. Let me now introduce the presenters of today, Roy Perticucci, 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.

As usual, our results presentation is available for download from our investor web page at Allegro.eu. You may also download the slides from the link available on the webcast. As a reminder, today's presentation and discussion contains forward-looking statements. Our actual results could differ materially from the expectations expressed in such statements.

Please make sure you review the full disclaimer on Slide #2. Also, please note that the presentation and the Q&A session are being recorded and will be available for a replay on our website at Allegro.eu.

And now I would like to hand over to our CEO, Roy, the floor is yours.

[Roy Perticucci, executive]

Thanks very much, Tom. It's my great pleasure to join you again my ninth time since becoming the Chief Executive of Allegro.

We've got another set of great results for Q2 '24 and I should sort of stay upfront that we either met or exceeded our guidance on all measures and also stay within our midterm guidelines in terms of spending on various initiatives. I think overall, we've made solid progress on quite a number of our priorities. Group GMV grew by 11.1%. That's 2.2 percentage points improvement quarter-on-quarter, and that reflects steady gains in both active buyers and also in GMV per active buyer inside Poland.

That strength in GMV performance was further strengthened by improvements in the take rate. These are changes that we made earlier this year in Poland, the take rate has risen by 1.3 percentage points to 12.5%, and advertising continues to go from strength to strength, increasing almost 30% to rising to 1.7% of GMV. That translates in total revenue performance for the group improving by 12.5%, and for Poland, a very solid 23.8% and I should hasten to add at this point, first of all, that international is contributing for the first time since the mall acquisition positively to quarter-on-quarter GMV growth.

And also this is the first full quarter where we -- sorry, the first quarter where we increased the full results -- quarterly results for Allegro. SK, our flowback version of the marketplace. The top line acceleration, combined with investments resulted in a disproportionate growth in Polish EBITDA performance, up 35% year-on-year. and 31.5% for the group as a whole.

We've also made great strides in continuing to manage capital expense effectively, which rose only 4% year-on-year to a total of 128%, and we enjoy cash conversion of 83%. That's up 4% versus last year. Together, these resulted in reducing our leverage from the 2.6x we had in Q2 last year to the one time we have today. As I said, when I just opened, we've stayed within our mid-term guardrails. In terms of adjusted EBITDA share CapEx, it was 12% and the international expansion was 18%.

I should also add that the Board is reviewing our capital structure policies in this year's planning round. The next slide and the priorities that should be familiar to all of you. I've taken you through this a number of times now, I should say here that I will be taking you through progress on selective priorities. First off, I think it's our priority to make shopping easy and safe, simple also for merchants to sell.

We've enjoyed great growth, disproportionate growth in supermarket and health and beauty categories. These have been long-term priorities for us, they are growing at 1.5x overall GMV. We are also now moving also in Poland to a product-based view. This transition will extend for extend for most of the remaining part of this year in -- on our Slovak and check versions of the site.

We already have a product view so that means by the end of the year, we ought to be fully aligned in terms of the simpler shopping experience in all three national markets. The shopping campaigns also were boosted by a greater deal supply from merchants, which means that overall participation of our own 1P operation declined in those campaigns. Increasingly, our customers are loyal. We've added over 100 active buyers in Poland in Q2 alone and those buyers -- or the participation of those buyers as supported by the successful extension of Smart! week in May.

We've had the strongest Q-on-Q Smart subscriber growth in over 4 years with a total number of users crossing the 6 million member milestone. I should hasten to add. We're particularly pleased with our 8x8 offer, which is encouraged people who may have already been familiar with their program to really try it out for a longer period of time. And of course, we are also running a number of above-the-line marketing campaigns to attract attention to some of our higher shopper frequency categories.

The marketplace in terms of the proposition for merchants, we are doing more and more work not only for classical merchants, the ones who've been working with us for the better part of 25 years, but also brand owners with the new brand protection conditions, which underline and strengthen our support and protection against counterfeit products. 153,000 merchants have joined the marketplace that's up 10% year-on-year, and we are also getting better and better using social media to attract the attention and interest of customers on social media.

We continue to invest in the new engines that will support future business performance. As I have already mentioned, advertising continues to go from strength to strength. We've made some improvements to the algorithms that boost the ad relevancy and increase the click-through rate, which results in a higher click or as a cost per click. And the fintech solutions are also continuing to develop. We've now crossed 2 million users of Allegro Pay we've originated just in the quarter, PLN 2.7 billion of loans. That's up 37% year-on-year and has grown the share of Allegro Pay finance GMV to almost 14%.

That's up 1.9% year-on-year. With despite all that growth in lending activity, our own loan balance remains relative to the strength of the growth, relatively constant, increasing only 8% year-on-year to PLN 314 million, that's also, I think, aided by the fact that we have an additional partner who buys loans and take them off our balance sheet. Customers also, I should hasten to add, are very satisfied with their experience virtually one-click application process to gain access to a short-term loan.

Given the impact of Smart! and the impact and the degree that Smart! has brought transportation costs on to our P&L, we continue to make great efforts to either slow or contain like the unit cost of delivery to customers. We've launched, I think, a truly exciting program called Allegro delivery which combines over 18,000 out-of-home at points via two partners, our own Allegro One courier system and also Orlen Paczka and I'm quite confident that further partners will join in the course of this year and next.

Allegro Delivery simplifies the shopping experience for customers by enabling the customer simply to choose whether they want it delivered to their home or office or to a locker of their choice, and we make all the decisions in terms of what route parcel takes from a merchant to the customer. We've also extended our one-box coverage. We have 3.8k One Box APMs in Poland and we have now opened 140 One Box APMs in the Czech Republic as well. That will be very useful in Christmas, whereas last year, the boxes -- the existing box network was quite constrained.

Allegro One, our own operation of managed operations has grown twice for the quarter. International Operations is really two stories. One is our new asset-light marketplace. We've made solid progress in Czechia with the first full quarter from Slovakia, there are over 2.5 million active buyers, of which nearly 3/4 are new to Allegro Group. Smart! paid subscriptions in the Czechia continue to grow at a double-digit rate reaching over 100,000 paying customers, also in Slovakia.

We have 53,000 merchants participating on the Czechia and Slovak marketplaces that's an increase of just up to 17% quarter-on-quarter, and we see also the participation of local merchants growing steadily at 50% quarter-on-quarter and they start to gain share. Of course, selling internationally also adds complexity potentially for the merchants who are selling in now three markets instead of just one. And we have launched a serious automatic pricing tools, which enable them to manage these prices in near a seamless way.

Overall, our attention is focusing on sharper frequency. We have healthy traffic. We have a large number of shoppers, particularly in the Czech Republic, where we've been now for over a year, and our attention is shifting more and more to encourage shoppers to visit us more and more frequently. Of course, there's a second story and that is the original legacy sites within the mall segment. And we have been quite successful, particularly in the case of CZC of drawing down our inventory eliminating age stock in overall sizing the inventory relative to the sales that they're currently enjoying.

We've also simplified the range for CZC and we're getting ready sell exclusively on the marketplace either as merchants in the marketplace or within the dedicated CZC shop-in-shop. We've also, as part of the resizing, had two rounds of staff reductions in both Q2 and Q3. I should have, in addition to that, we have repurposed a number of the staff working from Prague to support the marketplace in different ways. I -- we should also say that consolidation and move overall to the marketplace in shopping channels will enable us to now shut down some of the legacy systems.

And of course, given our vision of having a single set of processes supported by a single set of software, this will bring further shopping efficiencies in the operating efficiencies in the quarters to come. Operational excellence has also been a theme that I've talked to you about a number of times. And I've just alluded to also our great work in consolidating and simplifying our IT applications landscape. And we expect to make, again, considerable progress both this quarter and next year and Q1 next year.

In People & Culture, we have a lot of sort of great developments as part of our celebrations of our 25th anniversary, we released an Allegro economic impact report, and that report also indicated that nearly 1% of the country's GDP is supported by the business that we generate. And that also supports the employment of about 140,000 people within the country. We published also the 2023 ESG report, and we work -- use this report as a dry run to ensure that we'll be able to fully comply to the CSRD requirements for the 2024 version.

And this is the second year that we are celebrating a AAA rating on ESG by the MSCI. And of course, we continue to work on improving our reporting as well as our performance on the metrics covered by the other major agencies. We've also set up and are currently being certified on the gender pay gap supported by a well-known accountancy firm.

And with that, I'm going to pass over to Jon who will take you through the financial results.

[Jonathan Eastick, executive]

Thank you very much, Roy, and hello, everyone. It's great to be with you today. As usual, I'm going to take you on a tour of the financial results of Allegro, and I'm pleased to say it's another excellent set of results for Q2. As usual, I'm going to start with Polish operations. You have on the current slide, you see the key KPIs also out for you. But let me start with some more detailed comments on the following slide.

Let me start with the economic context that we're seeing in Poland. The second quarter, we actually saw a pretty significant improvement in GDP results for Poland. We actually crossed 3% in terms of year-on-year GDP growth. But in contrast, the retail sales figures were not so good. They fell back a little bit from 5.6% in Q1 to 4.9% year-on-year growth, both in nominal terms for the second quarter. But despite that, as you've heard from Roy, we were able to accelerate our performance and accelerate our GMV growth. And you can see where that's coming from in these two KPIs, 100,000 additional customers added in the quarter to get to 14.9 million active buyers at the end of June, 4.3% progress over the course of the last 12 months on the buyer side of things, and I think more importantly and more significantly, acceleration in our progress on GMV spending per active buyer.

You can see a clear trend there, looking at the quarters. a 2.1% improvement Q-on-Q for Q1 to Q2 and landing at PLN 3,870 of spend on an annualized basis for each and every one of our active buyers. So the growth lever coming from spending in particular. Putting those together and moving on to GMV, as you've heard, 11.6% growth for the Polish business, 1.6 percentage points better than we achieved in Q1, and with over-indexing of our key focus areas, supermarket and Health & Beauty, which are growing 1.5x faster than the overall average of the rest of the categories. That translates to PLN 15.1 billion loss GMV for the second quarter alone, and our last 12-month GMV has now moved on to PLN 57.6 billion with an overall increase of 10.1% over the last 12-month period.

It's important to look at the trends around items sold and average selling price. In particular, you can see acceleration in items sold to 12.5%, so slightly ahead of the GMV growth, which, of course, means a lower average selling price down by 0.6 percentage points, but if you now take into consideration the over-index growth in supermarket and Health & Beauty with their lower ASPs and neutralize for the different category mix you actually see now that ASP on a category-by-category level was increasing in Q2 by 0.8 percentage points.

So it's not really strong growth, but it is growth and that means that the trading down that we've been seeing over the previous quarters has basically reached an end. The progress is perhaps not as fast as some of the macroeconomic analysts were predicting but we are starting to see growth in ASP again.

So moving then to revenue. And as usual, revenue growing faster than GMV this time around 24% growth for the quarter, PLN 2,345 million of revenue. The major drivers being the marketplace and advertising take rate on top of the GMV growth means the marketplace grew 24.8% and advertising, as you've heard, even better than in Q1, almost 30% growth, PLN [ 57.05 ] million better than a year earlier. Looking at the take rate, I remind you that the take rate increases and the co-financing increases that we made back in Q1 in February, are intended to be the only major changes to our rate cards for 2024.

In our number for Q2 of 12.53%, you've obviously got the full quarter impact of those changes that we made in Q1. And if you go back a year, we made the changes in two steps. We did it in Q1. And again, we made increases in Q3, yes? So in Q2, we're getting the cumulative impact of those two sets of changes. That will be important later on. And it's also important to note that these increases obviously have to cover all the cost increases that we expect to come through during the course of the year. It means higher salaries for employees increases in delivery charges from our delivery partners to name a couple of areas.

So moving on and looking at adjusted EBITDA, this was really yet another excellent quarter when it comes to progress on adjusted EBITDA, up by 35% year-on-year. we landed at PLN 908.3 million for Q2 and the margin in terms of adjusted EBITDA to GMV still above 6%, slightly below Q1, but still above 6%, and significantly above our midterm guidelines of between 5.4% and 5.75%. Now if you look at the bridge, you can see that there's about PLN 458 million of monetization and engine growth as well as GMV across those three pillars on the left-hand side of the bridge. And that's enabling us to make targeted investments in certain areas and continue to absorb delivery expenditures, as you can see on the right-hand side.

Let me start with delivery. PLN 133 million higher than a year ago, and versus PLN 96 million increase in Q1. Of that difference, which is, what, just over PLN 35 million, about PLN 10 million of that is actually related to the scale-up of our Allegro One and Allegro Delivery businesses that Roy was describing. Our business model in these services is that of principal rather than agent. And that means that it's time that we start booking the revenues growth and the cost growth. So we've actually made a correction of the presentation in Q2, and that's added PLN 10 million on the cost side and the equivalent PLN 10 million on the revenue side for those services. And that's within the cost of delivery.

When it comes to more routine items, slightly more volume over unit cost increase in the growth of cost of delivery. In terms of cost, 5.5% on average, being helped by the fact that Korea continues to go down in the mix following MOB changes made all the way back in 2022. And we're absorbing the scale-up costs of Allegro One within those figures. We're spending more on marketing, as you heard from Roy earlier, focusing on various USPs and encouraging use of some of our higher frequency categories, defending our position against new entrants in the market, PLN 54 million higher spending. SG&A the actual spending was flat Q-on-Q, 12% up year-on-year. We're investing in the team. We did our annual pay around in April. And one thing that's going down significantly are bad debt expenses as a result of our change to using a fee netting regime that we implemented over the course of the last year.

Capital investment, you can see on the following slide. As you heard, we're still very focused on the returns on investment. Growth was down 10% year-on-year at PLN 112 million, most of the growth is coming in the capitalized development costs. That's a combination of growing the tech team, paying them more than the year before. That was up 14% -- the hard CapEx broadly flat year-on-year, but we are expecting more spending to come through on the delivery projects, particularly in Q3. So that's Poland.

And now let's move on to the male segment. You've already heard at length from Roy, the huge amount of activity that's going on around turning this organization around to be a contributor to the group overall. And just a reminder, our objective is to finish all of these changes by the end of 2025. Starting with the GMV, the pivot that we're making towards only focusing on profitable selection and getting ready to sell purely as a merchant on the marketplace means that we're continuing to reduce the amount that we're selling in the mall marketplace.

The GMV was down 30 -- sorry, the [indiscernible] segment, I should say, the GMV was down 35.9%, but 7 percentage points of that was simply the exchange rate headwind coming from the stronger. So PLN 444 million of GMV and despite that decrease, we were able to cut our overall cost and adjusted EBITDA by 13% year-on-year to PLN 58 million loss for Q2 and some of the items in the bridge are quite interesting. The GMV decline only translates to a PLN 34 million lower gross margin than in the prior year. And that's been completely offset by the growth in our logistics business and also repurposing of staff to work on the marketplace projects, either the international marketplaces or also on the Polish business, using the great team that we have there in the mall business.

So that's bringing PLN 34 million of inflows, less marketing spending because we're selling less products that cost too much to market. PLN 17 million savings. The other SG&A is slightly higher, but that disguises the head count reductions that we've implemented, within that, there's also group recharges for all the new platforms that are starting to be rolled out into the mall segment.

So moving on to international, which is -- and starting from Slide 22, where you see the top of the funnel for our new marketplaces, as you heard, we now have within these numbers, allegro.cz, which has been running for over a year and allegro.sk, which had the first full year in full quarter impact in the second quarter 2024. So looking at the funnel, active buyers, as you've heard, 2.5 million customers. It's a fantastic result. We're really proud of this. Traffic moving up and items sold moving up very similarly to active buyers on a sequential basis. They're going up 24% and almost 30%, respectively.

And I think it makes sense to look back slightly 2 quarters, and you see that we've reached the same levels of traffic and items sold as we were enjoying in Q4 when we had the very steep seasonal growth in demand. So we've caught up to the peak that we achieved in Q4. That's translating into 34% sequential GMV growth to PLN 355 million for Q2. And the adjusted EBITDA -- sorry, and that compares in itself to Q4 PLN 410 million of GMV which means in short that there are less discretionary items in the mix in the second quarter, less Christmas spending in other words. The PLN 355 million of GMV. The adjusted EBITDA, minus PLN 87.3 million, 24.6% negative margin. slightly worse than in Q2, minus 3.5 percentage points versus Q2, but that's totally natural because it's including the absolute start-up phase of the Slovakian business to get the flywheel moving with and announcing our presence with an ATL campaign. So that's the international business.

As usual now, let's focus in on leverage, which is laid out for the group as a whole on the 26th slide, and as you've heard already, it was another quarter of significant deleveraging. The progress on EBITDA in particular and a good cash -- and the excellent cash conversion is producing this 0.4% -- sorry, 0.3% of a turn progress Q-on-Q, all the way down to PLN 1.04 million leverage at the end of June. We do expect the progress to be a bit slower from here. EBITDA won't be increasing as quickly as I'll describe in a moment on the on the guidance slide.

And also, we can expect higher cost of borrowing in the second half of the year, although we've now unlocked the lowest margin available in the grid. Unfortunately, those hedges that we implemented in 2020 in the middle of COVID at extremely low interest rates have now rolled off at the end of Q2, and we're now having a more normalized cost of borrowing closer to the [ VIVO ] rates that we see in the market. And just to reiterate, the management is doing analysis around options for capital allocation policy, and we'll expect to discuss those with the Board during the annual planning round and we'll report back when those discussions have concluded.

So with that, let me move on to the -- sort of the Q3 2024 outlook. And as usual, I'll start with the Polish operations, Q3 when it comes to the marketplace, has looked quite similar to Q2 in that we've made further progress. We have managed to accelerate again our GMV growth relative to Q2. And this has also been achieved with a pretty lackluster retail sales figure. So far, we only have the July number, but it wasn't a great print. And yet we are still managing to grow. This quarter, though, is a little bit a story about our eBilet subsidiary as a company that we don't talk about all that often, but it's Poland's leading ticketing company. This time last year, eBilet which in a normal quarter, represents around about 1% of our GMV, had an amazing quarter because they were selling as the main distributor, the Taylor Swift concerts that actually took place a few months -- a few weeks ago, actually, in Poland, but they were selling those tickets in Q3 last year.

And there's also a very important Polish stack called David [indiscernible], who sells out multiple stadiums on an annual basis. But last year, did many more stadium concerts than he does in a normal year. Those two things together equated to about double the usual GMV for eBilet and that equates to a 1% headwind on our GMV growth for Poland as a whole, okay? So that means that the GMV outlook is 10% to 11%, likely to be at the higher end of that range, but it would have been near 12% without this windfall effect for eBilet.

When it comes to revenue growth, as I mentioned, we're now lapping the Q3 increases from 2023. So therefore, the overall growth rate of GMV drops -- sorry, revenue dropped slightly to 16% to 18%. And our adjusted EBITDA is the growth there is slowing to 11% to 13%, and this requires a little bit more explanation from my side. First of all, the monetization effect, we were flagging right from the beginning of the year that all the changes were brought forward into Q1.

And over the course of the year, we would be absorbing increases like salary costs and distribution cost increases from our delivery partners. And that is what is actually happening. So the monetization is gradually rolling out of the numbers is the first point. The second point is that a lot of the progress that we made on Fit to grow last -- in the '22, '23 time frame but already has been reflected in our margins by the time we reach Q3 of last year. So that is also rolling out of the growth.

And then finally, we're spending more on marketing, as you saw on the earlier adjusted EBITDA bridge to grow our frequency, our engagement with our shoppers and also defend our position against new market entrants. So 11% to 13% growth for Q3. When it comes to CapEx, as I said, a little bit higher for Q3, PLN 140 million to PLN 150 million behind the DeX projects that we have up and running.

So moving on to international. We're looking at 3% to 6% decline in GMV for the third quarter. This is a combination of slightly slower growth on the international marketplace than we saw in Q2. We've got a lot of initiatives running to build on the large subscriber base that we have and really focus on the frequency of shopping of those subscribers, but it will take a bit of time for all of those initiatives to come through. And on the mall side, we continue to purposefully contract and refocus the organization as we pivot to being a merchant on the marketplace. And in particular, this is the key quarter for CZC to rightsize itself and get ready to sell 100% on the marketplace from Q4.

So 3% to 6% lower than in Q3 -- than in Q2. When it comes to revenue, obviously, the retail sales of Mall are much more significant than the take rates that the marketplace charges. So therefore, revenue dropping much quicker than the GMV. And adjusted EBITDA, because of the special sellouts that we're doing, we're expecting it to be slightly below the level we saw in Q2, PLN 150 million to PLN 160 million loss.

Finally, the CapEx is going to tick up a little bit in Q3. We're installing APMs in the Czech market. And secondly, we're preparing the Hungarian marketplace to be launched later in the year. So that's the outlook, and I'd like to wrap up the formal comments at this point, I hand it back to Tom. Thank you all for listening, and we'll go through the Q&A.

[Tomasz Pozniak, executive]

Thank you, Jon. Thank you, Roy. That completes the presentation, and we are ready now to take the questions from participants. Jota, you may proceed.

[Operator]

[Operator Instructions] The first question comes from the line of Tiron Cesar with Bank of America.

[Cesar Tiron, analyst]

For the call and the opportunity to ask questions. I'll ask three questions, if that's okay. The first one, I wanted to ask if you can give some examples of the initial success that you're seeing in Hungary and Slovenia. Second question would be to understand better the incremental cost, which you are expecting in Poland in Q3 that would lead to a slight erosion of the margin. And then three, I wanted to ask if there is scope for mall to breakeven. I'm not asking for international, but really just for more.

[Jonathan Eastick, executive]

So, thank you very much for the questions. The first one, I'm not quite sure I understand the question because the Allegro marketplace is for Slovenia and Hungary have not yet launched. Hungary we're working on at the moment. The others for the southern part of the mall footprint or projects rather full next year.

So I'll take a follow-up on that in a minute. The second question was around where the incremental costs are coming through, if I understood correctly in Q3. Half of the story, frankly, is around the monetization, okay, because we made all the increases in Q1, which means that we've been running above let's say, target margin level through the first half of the year. And we flagged this very clearly back in Q1, the 6% that we've been booking as our adjusted EBITDA to GMV margin was above the medium-term expectation that we have, right, which is 5.4% to 5.75%.

So half of that picture is the fact that we start to lap the Q3 increases that we booked a year earlier, which won't be repeated this year. The other significant item is marketplace -- sorry, is marketing on the marketplace. We are expecting to spend more as a percentage of GMV. There are other things going through the numbers. For example, we made our annual pay around increases in April, so we're going to get a full quarter of impact in the Q3 numbers. And those are really the most sizable items.

Obviously, the delivery cost will continue to go up. We're continuing to scale our own delivery capabilities which means that we're accelerating in terms of volume, the marginal cost is coming down rapidly. This is -- and the average cost even faster towards the levels where we get to a positive contribution from the activity, but we're not quite there yet. So these costs are still coming through. So these are the things that have an impact. But the adjusted EBITDA is still growing by, what, 11 to 13 -- 11% to 13%, yes. So it's still growing very healthily.

Sorry. And then the final question was around Mall. Yes, the medium-term outlook that we issued was that by the end of 2025, we want this business to be making a positive contribution to the marketplace business. Now that really comes from two things. First of all, their own trading with a cost-efficient structure using the same systems that we're using across the rest of Allegro should be more profitable than their sales have been heather to, part of that is also around reducing the SKUs and focusing in on the more profitable items, but it means lower GMV.

The second aspect is that those sales are going to be on the Allegro marketplaces, not off the Allegro marketplace is on their own front ends. So those -- the costs of running those front ends go away and they start to contribute to much more strongly to the performance of the Allegro marketplaces because they're known brands, their loved brands in their home markets. They'll only be available on Allegro. They can offer a much faster delivery than the Polish or the international merchants. And we expect them to systematically grow their GMV once they're really totally focused on the marketplace.

Now that should help to drive engagement and trust on the part of the check and the slowback consumers and the others around the region in due course. Helping to drive the frequency overall will translate into even better growth overall the marketplace, yes? So in those ways, we expect them to make a positive contribution to the core business, which at the end of the day is the marketplace model.

[Cesar Tiron, analyst]

Sorry, I meant to ask on the new launches, do you think there will be -- in terms of funding, is it going to be the same impact as the two ones that you've already done?

[Jonathan Eastick, executive]

Well, we're following this guideline that we've issued, right? We've said that we're not going to spend more than 20% of our Polish EBITDA on growing the international business. And the way that should play out over time is that gradually, the amount we need to invest in supporting the mold business is going to decline, and we said that we would get rid of most of that loss by the end of 2025.

And as the launched marketplaces get closer and closer to breakeven, that will mean we'll need less and less money to support those marketplaces. And that will then leave headroom within that 20% to start the launches of the new marketplaces, right? So in other words, Hungary, in other words, Slovenia, Croatia, which is still ahead of us. And in due course, if we're on track with building a profitable international business, we'll go further afield.

[Operator]

The next question comes from the line of Reshetnev Roman with Goldman Sachs.

[Roman Reshetnev, analyst]

Just a couple of questions. As of the share of your Polish EBITDA, reinvested into Polish CapEx has been tracking fairly below your guidance of up to 20%. So do you plan to accelerate your investments in the coming quarter? And what do you consider as the key areas of the investments? And basically, I also know that Allegro One [ versus ] [ 3.5k ] as of end of 2023. So does this lower CapEx spend related to somewhat weaker than initially planned local rollout? And finally, if you could provide the latest update on what you observed for Temu expansion and market share in Poland and do you see them taking any of your international market.

[Roy Perticucci, executive]

I think already 2 quarters ago, we said that we were, at that point, probably already approaching the lowest point in terms of capital expenditure. So I do think our CapEx will solely rise in some areas as we start trimming the company more for growth. But I think it's -- I can guarantee you, it will stay within some of the guidelines that we've said.

So I think we've got a very good playbook for launching into new countries. And you can see that we've gotten both faster and much more efficient in opening up a new country and to be very frank, within our existing six country catchment area, the transition to a marketplace everywhere, enables us to resolve other cost challenges that we have by consolidating onto a single application landscape. I think those are the sort of the key things in terms of CapEx, some modest rise. It's actually taking place later than what we originally signaled because again, we were signaling already 2 quarters ago that it would be relatively low but I believe it is still going to continue to be quite moderate increase.

[Jonathan Eastick, executive]

Looking at looking a little bit under the hood about how we're managing the delivery, CapEx, we're still quite focused on utilization of the lockers that we already have. So we're making tremendous progress on that, and that then translates into big improvements in average cost for our own our own locker network and the efficiency of the Korea rounds that service those lockers.

We're also able and very happy about the fact that within Allegro Delivery, we've now got access as well to roughly 6,000, I believe it is all end lockers, which to all intents and purposes, are now effectively integrated into our network and without having to spend the CapEx, they are also part of the network that we have at our disposal for doing proprietary or principal-based deliveries which I was referring to when I was talking about the accounting.

So going forward, as these opportunities start to roll out or roll off we'll start to look further afield and probably start to build more lockers and move a little bit faster. So that's why we have that 20% boundary because we don't want to cross that 20% level. But as you rightly pointed out, there's still plenty of headroom for us to accelerate further.

[Roy Perticucci, executive]

I'd add something here. Just as a reminder, for those of you who haven't heard us on previous calls, I think we've been emphasizing for quite a while now that we have developed a very rigorous and disciplined capital expenditure review. And we've decidedly shifted, I think, from the historical build it and they will come to have they come? And are they using so much of the capacity that we really need to add it on.

Therefore, I would actually treat investment in infrastructure, our own infrastructure, as a signal of two things. One is that we have got the current utilization at acceptable levels all the way through the network and that we haven't found another more attractive alternative amongst our various suppliers. So it's a needs must. And part of the need is that this is the best alternative and the other is that we can't get the capacities anywhere else.

I'll try and take that one. Hello?

[Operator]

Excuse me. Reshetnev Roman, are you done with your questions?

[Roy Perticucci, executive]

No, there was a third [indiscernible], which I believe is actually sort of what are the current trends with Temu, what is the effect, I think, is what it was, but we wanted to...

[Jonathan Eastick, executive]

I can take that one. Yes. The Temu trends are fairly similar to what we've talked about in preceding quarters. They are making progress in terms of app downloads in particular, you can see progress in traffic. And in particular, you can see that they continue to spend heavily on marketing their present in Internet marketing and banner, banners as well as buying traffic.

When we look at our monthly gain and loss reports, which give us some estimates of transaction shares, but not GMV shares, we see moderate progress. But honestly speaking, when you take the Chinese marketplace platforms together, so to Temu, AliExpress and SHEIN, it's still only adding up to mid-single-digit transaction share, yes. So they're progressing, but not all that rapidly. And we continue to see Temu in particular, is very good at what they're doing, but what they're doing is a very, very different shopping mission to Allegro.

Temu is a place to go and see what they're selling at a very attractive price today and perhaps buy it. Allegro is where you go because you need something, you need it tomorrow or in 2 days' time. you know it's going to be at a good price. We've got just about everything you can imagine that you might want. And you know that you can rely on Allegro to make sure that the quality of the delivery and the quality of the product and the performance of the merchant is what you expect? Yes. So it's a very different mission. And our mission is clearly much more every day and a much bigger emission than the discovery mission that Temu currently has.

[Operator]

The next question comes from the line of Potyra Michal with UBS.

[Michal Potyra, analyst]

Just one question from me. If you could please provide what is the current penetration of Allegro One in delivery and perhaps also your own lockers in that mix? And perhaps also if you could maybe add some color is the unit cost deliver unit cost lower for you when you're using your own delivery framework?

[Jonathan Eastick, executive]

Let me take the last part of the question first. The marginal cost, I would say, the incremental cost as we scale up Allegro on is already below what it's costing us to pay another operator to deliver. But the average cost is still higher, yes.

So we haven't yet reached the point where the scaling up will result in incremental EBITDA margin benefit, but it's coming closer and closer. And as you heard, the volume growth was over 2x compared to a year earlier. So the business is growing very, very quickly. both on the locker side and on the courier side of the operation. we don't give out specifics for obvious reasons around the exact shares of what we're doing ourselves versus what we're doing with our delivery partners. It's very sensitive competitive information, so we don't disclose that.

[Michal Potyra, analyst]

Okay. But any kind of color how material is that, please?

[Jonathan Eastick, executive]

From a cost perspective, there's some disclosure around that in the financial statements this quarter that most -- approximately in both this year and last year, about 80% of the cost of delivery that you see in the accounts is related to agent model deliveries, which means where Allegro is not involved. But as I said, the volumes are doubling in the meantime, right? So that will give you some indication of how fast the unit cost can be coming down.

[Roy Perticucci, executive]

I'm going to add one thing. I mentioned earlier that have a very disciplined CapEx approvals process. And the point of Allegro Delivery of our own courier operations is about choice. And we only need to develop that choice. If we're not able to find cost-efficient and high-quality service from our carriers carrier partners.

And we like working with our couriers. I think some of them are quite strong and reliable. So the question about share is almost not material. The question is, how much progress are we making on keeping our unit cost increase in terms of cost per parcel contained while continuously improving the service.

[Operator]

Ladies and gentlemen, there are no further audio questions at this time. I will now give the floor to Mr. Pozniak for any questions from our web participants.

[Tomasz Pozniak, executive]

Thank you, Jota. We have a few questions. Let me address the ones that were not answered or already asked to the audio.

So the first one comes from [ Stefan ] [indiscernible] from Goldman Sachs. Concerning the outlook as with 1 percentage point GMV headwind from the -- from eBilet. Is that the impact for the full quarter or the last 2 weeks of September and even adjusting for it, the Q3 looks conservative implying the [indiscernible] versus Q2.

So what are the drivers for the sales season? [indiscernible] season from late September to early October?

[Jonathan Eastick, executive]

Okay. I'll take that one. Thank you for the question. As a matter of sort of reporting policy, we're using round percentages when we're guiding. So I think you can assume that you're going to be much closer to the top end of that 10%, 11% range than the bottom. I think that's the first point. And that implies that without that eBilet headwind, we'd have been more around 12% than 11%, yes.

When it comes to the last 2 weeks of the quarter that's still ahead of us, mainly, it's because we're in the autumn season, it's very, very weather dependent. It depends on whether we start to get the autumn shopping season coming through in the numbers. or we don't. And that's quite a big piece of variability, which is very hard to predict, even though it's only a 2-week period.

Obviously, at the moment, the weather has been quite a bit colder and we've had these terrible floods which obviously tends to imply that there's a bit of autumn or some shopping going on. But whether that will continue, the weather is warming up again at the moment. So we have to wait and see.

[Tomasz Pozniak, executive]

Our next question is from [ Dominic Nish ] from [ Trigon ].

And the question concerns whether our adjusted EBITDA guidance for Q3 accounts for any costs associated with the launch of the [indiscernible] & [ Mark ]?

[Jonathan Eastick, executive]

The Q3 and in fact, even in Q2, there within the international marketplace, there are very small amounts of start-up costs included in the SG&A component mainly or in the CapEx component of the results for the international marketplaces. So it's not material at this stage. When we do launch, obviously, there can be a bit more spending coming through.

[Tomasz Pozniak, executive]

Next questions come from Mr. [ Nisha Mata ] from JPM Chase.

They also concern the first one concerns the Hungary market. What gives you confidence to start expanding in Hungary as early as this year as opposed to waiting for Czechia and Slovakia to ramp up before entering a new country?

[Roy Perticucci, executive]

I'll get this one. I think there are two ways to answer this question. I think the most important one is the faster we migrate off legacy systems and move to one application space, the faster we will get our costs overall outside of Poland down to a rate that we want to have.

So I think the full integration of what used to be called Mall North, simplifies our operation, recruit -- reduces the amount of staff we need in overall should give us greater efficiency, particularly around the SG&A lines. And the second is, quite frankly, is Hungary is a proportion of our total group sales. is relatively small.

So we don't actually need a particularly strong performance of Hungary to match what we currently do. but the benefits of moving off a very old legacy base announces a common one, legacy code base, and move to a common one gives all sorts of operational efficiencies further there. And then we have a choice. I was about to kick in earlier. Our launches are relatively quick now and so efficient that most of the expense in running a new country is discretionary. It's not only, but it's mostly the marketing spend that we need to do to build the business, and we can prioritize that as and one is needed. So it gives us, I think, quite a bit of flexibility as well.

[Tomasz Pozniak, executive]

And the second question from [indiscernible] is what is the share of next-day delivery for Allegro Delivery? .

I think we can here wrap it up basically the introduction of this solution -- it's for the purpose that it does not impact the delivery experience from our customers. So it matches the overall picture when we deliver more than 80% of our packages within 48 hours.

[Roy Perticucci, executive]

I would say certainly, within Poland, we block actually all of our deliveries next day. Of course, that also depends on merchants dispatching on the same day that they received the order in having progressively later pickup times from couriers at merchants. So that's not always possible, particularly for customers placing in order after about 5 or 6:00 at night because quite a lot of them don't have access to pickups that are after that. And the performance expectations that we have are customer-facing and therefore, a fairly consistent in fact, are consistent across the various couriers, including our own.

[Tomasz Pozniak, executive]

And the last question that we have not addressed during the call today is from Mr. [indiscernible] from [ Generali ].

The question concerns what's the strategy behind productized offering listing? As we -- it seems like we are moving somewhere between 3P, 1P model with this.

[Roy Perticucci, executive]

I'm not actually sure that would be a fair description. What I would say is traditionally within Poland, not even across Europe, but traditionally within Poland, the marketplace has always listed every single offer, but I think there are multiple examples of other marketplaces in other markets where they've always had or at least for quite a bit of recent history, a product view.

What I mean by that is the marketplace tries to surface the best offer amongst multiple ones in the buy box when you have a product view. And if the customer wants to route through and go through, they can actually see if there's another offer, which regardless what the price point is overall may be a better choice for them. What I would say is a product view is particularly important for outside of Poland because something you did touch on, which is if most of the shopping experience in a particular market is with 1P specialist there you still only seen one product and having a myriad of offers of the same products can actually cause quite a bit of -- for lack of a better expression, cognitive overload.

So by compressing that, trying to surface the buy box, the best to offer while still giving the option to dive deeper, if you want, I think it's something that most customers around Europe and certainly in those countries where they have less experience with marketplace is what they expect. So -- I think that's true. And frankly, I think that's also true with Polish customers now that we also have that opportunity here. There are some people who have been shopping with us with for decades to enjoy scrolling through pages upon ages of the same product with a different offer, but actually, I think, a very large majority of them like the simplicity which we've said also in our mission segment, which is we want to make shopping simple for customers.

[Tomasz Pozniak, executive]

Thank you, Roy. And this exhausts the list of questions [indiscernible] turn the today's presentation. Thank you very much. Jota, you can close the presentation.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good day.