Allegro.eu S.A. (ALE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Allegro Group earnings call and live webcast to present and discuss the first quarter 2025 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.

Thank you, Mina, and welcome to all participants of our call. Let me introduce the presenters of today. Marcin Kusmierz, the new CEO of Allegro, who will provide you with his opening remarks; and Jon Eastick, our CFO, who will guide you through the business highlights and financials for Q1, finishing off with the update on the status of the outlook for the full year 2025 and key takeaways from this meeting. As usual, our results presentation is available for download from our Investors webpage at allegro.eu. You may also download these 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 plans expressed in such statements. Please make sure you review the full disclaimer on Slide #2. Please note, this presentation and Q&A session are being recorded and will be available for a replay on our website at our allegro.eu. And with this, I would like to hand over to Marcin. The floor is yours.

Good morning, Marcin Kusmierz speaking, the new CEO of Allegro. I'm very glad to be here and have the opportunity to introduce myself and share my first impressions after joining this really great company. I've been working over 25 years in tech and e-commerce industries building unique experience, being executive, entrepreneur and investor at most innovative companies in Poland, but also across the world. By the way, I started my business career when Allegro was launched. So this year, we will celebrate our anniversary together. Over the past quarter of a century, I've had the opportunity observed and the development and the transformation of Allegro from the perspective of being consumer but also a competitor. For the last 4 years, I was managing the e-commerce company Shoper, the largest provider of online stores and solutions for them in Poland and Central Eastern Europe, which is a fast-growing company, listed on the Warsaw Stock Exchange with the best IPO in 2021 and having a very good relationship with the capital market. So I know Allegro very well. I've been observing the company for many years, learning about it, seeing some advantages at what could be improved. Now I confirmed what I saw from the outside and what I see from the inside. Over the past few years, I've also invested in various e-commerce and technology companies, which allowed me to build my industry expertise. This includes payments, financial services, logistics, cloud computing and of course, AI. Now let me share my first initial impressions after 2 weeks of joining this great company. Firstly, I can say that I'm really, really excited about the opportunities we have for growth. Secondly, I feel that I work with the best people in the industry. Over last 3 weeks, I have -- I had hundreds of meetings with employees, merchants and partners, and I received a very warm welcome. This is great support for me and my process of learning about the company and marketplaces. I also see that the current development strategy is a very good foundation for the further business growth. And this is great because in the coming months, my focus will be mainly on accelerating growth in Poland and in the region. So I will also definitely look at the opportunities to expand new market categories, both in terms of products and services. At Allegro, we have also a very strong network of partners, but we still want to develop it further based on partnerships with the best global and local leaders. Of course, we also want to remain one of the most efficient e-commerce companies in Europe and increase this efficiency by using the latest technologies and optimizing business processes. And last but not least, the transformation of our culture to be even more growth oriented, more competitive and finally, create a unique value proposition for our clients, consumers and merchants. Due to just being here 3 weeks, the rest of the -- today's presentation will be led by Jon. I will be available for you during the Q&A session. So thank you for our common beginning. Jon, the floor is yours.

Thank you very much, Marcin, and good morning, everyone. It's a pleasure to be with you again this time to take you through Allegro Group's Q1 results. As an exception, I'm also going to be taking you through the business highlights as I was the one who was here during Q1. So let me start off by saying that Allegro has got off to a very solid start to 2025. Polish revenue is rising 15%, as usual, outpacing our GMV growth, with higher take rates and rising penetration of advertising sales driving the revenue. Active buyers are reaching now 21 million across the group, 6 million in our international businesses, 15 million in Poland. And looking at spend per buyer, our Polish GMV, in particular, worth calling out 8.1% increase year-on-year. It's now PLN 4,100 per buyer per year. So putting those 2 metrics together, our GMV growth in Poland was 8.9%, which is 3x faster than the nominal retail sales growth that we've seen in Q1 of about 2.5% overall. And that was a weaker-than-expected macroeconomic score. Also on -- when we look at our group, 8% GMV growth. This has been supported by an excellent result for international marketplaces, which grew 81% year-on-year in the first quarter. When it comes to take rate, take rates are up by 40 basis points at 12.58%, and this reflects our making -- as with last year, our most significant and main monetization move in March, mostly related to cofinancing. This is meant to be the main monetization move for the whole year, and gives our merchants the opportunity to really plan their outcomes and not deal with any surprises during the course of the year. Advertising was up 29.4%, and we met the milestone or we reached the landmark of 2% of revenue versus GMV. So overall, that resulted in 15% revenue growth for Poland. For the group, it's at 5.9%. As usual, we have an over indexation of the contracting 1P retail sales of the Mall segment, pulling down the overall revenue growth. If we look only at Poland and the international marketplaces, revenue growth was 15.6%. So turning to EBITDA and capital investments. Our Q1 adjusted EBITDA to GMV margin came in at 5.82%, up seasonally by 20 basis points over the fourth quarter but lower on a year-on-year basis, also by 20 basis points versus Q1 last year. And this has restricted our adjusted EBITDA growth to 4.8% [Technical Difficulty] in our EBITDA growth rate. We had -- on the 1st of January, our parcel unit costs moved up due to indexation resets in some of our biggest supplier contracts and the offsetting moves in cofinancing only kicks in from March. This means that for the first 2 months of the quarter, we had a relatively low margin, which pops upwards again in March and will be reflected in 3 months of trading for Q2, so much better margins ahead and much better year-on-year growth to come through in the rest of the year. Leverage is at 0.84% of 1 turn for March. This is still comfortably below our 1x leverage target that we established when we announced our capital allocation policy back in March. We've got nearly PLN 4 billion of cash on hand, which is more than enough to support our PLN 1.4 billion share buyback proposal, the resolution for which was published overnight along with the rest of the AGM materials for the meeting on 26th of June. I should also mention CapEx. The CapEx, as we flagged in March is accelerating as we invest more into our delivery experience projects. It came in at PLN 205 million, which is 64% higher year-on-year. Our cash conversion rate, though, is still very, very strong at a very handsome 73%, which is a level that the vast majority of companies in the world would be very happy with. So let me move on to the detailed highlights, which we, as usual, organize based on our medium-term business priorities. These were confirmed with the Board after -- as unchanged for 2025 when we concluded our planning process back in March. So let's start with the first of these, which is the growing the core marketplace. So let me start with increasing loyalty of our customer base, and I'm really pleased to say that recent research has once again confirmed that Allegro is the standout leader in the Polish market when it comes to NPS in e-commerce. We had a stable and excellent score of 70 NPS points, which is head and shoulders above any of the local competitors and really way ahead of the other international horizontal players. Now this really underpins the continuing trust that our consumer base has in our value proposition and our unique selling points of great selection and very wide selection, excellent prices and great convenience. When it comes to easy and safe to shop and simple to sell, we've been extending the scope of our discounts and campaigns to attract consumers during the course of the quarter. We've also made a very bold move around removing the long delivery time offers that we have on the platform from the Asia Pacific region. We're looking to really double down on our differentiators versus the Asian players that are in the market, and make it really clear to the consumer why they look to Allegro every day is the main place to shop. When it comes to unique value proposition for merchants, our recent pricing changes included further simplification moves for the -- to help the merchants plan more easily. And finally, when it comes to -- for our cooperation with brands. We've introduced some exciting new functionalities to help them configure self-service shops on the platform. So let's move on and look at our 3 new engines for growth. All 3 of these have started the year extremely well. I'll begin with advertising. Revenue growth, as you already heard, very strong. Two major reasons for this. We have AI-driven improvements to the relevancy of sponsored offers and selection of which adverts to show to consumers. And this progress is reflected in a 16% year-on-year increase in click-through rates. Those improvements then also feed through into demand and into cost per click, which was up 27% on a year-on-year basis. Moving on to Allegro Pay and our core finance product continues to go from strength to strength. Loan origination is up 19.6% year-on-year. GMV finance is up 16.7% year-on-year, accounting for PLN 2.1 billion of the GMV in Q1. We've also taken a close look at our installment loan portfolio and concluded that it offers really attractive returns due to the high APRs and fees being paid by the consumers, and very low and under control NPLs. As a result, we've decided to invest some of our cash into the loan book, and we've increased the on-balance sheet proportion of the total book by 18 percentage points during the first quarter. In the short run, this means less profit from selling loans to our funding partners. But over the course of the year, we'll have much higher interest rate -- interest income and fee income from the on-balance sheet portfolio. Moving on to delivery experience, the third of our key growth engines. This has been an excellent quarter full of key milestones and great momentum. First of all, I'm pleased to announce that DHL has begun shipments under the umbrella of our Allegro Delivery partnership. DHL brings 6,000 additional APMs into the Allegro Delivery network, together with Allegro One Box and Orlen. We have 17,000 APMs between the three partners, which makes us to a great extent, comparable in the big cities and towns with the leading APM operator in the country. Last March, we introduced the concept of Allegro managed volume, which comprises the brand Kurier and the Allegro Delivery part of our total logistics operations. And this has moved up from 24% in Q4 by 5.3 percentage points to 29% of the mix for Q1. So quite a rapid improvement. And just to remind, growing this component of our parcel volume will diversify our delivery options over the longer term. And this will allow us to solve for the best solutions in terms of speed, reliability and cost. And when it comes to reliability and convenience, we take this very, very seriously and we monitor our consumers very diligently after they've had deliveries on the Allegro platform, we contact a sample of consumers and asked them about their experience. On the right-hand side of the slide, you see the resulting scores, recommendation scores from all of the key suppliers. And you can see that they're all extremely good results. This underlines the fact that our belief is that, ultimately, the key decision maker for the choice of APM will be its proximity and -- convenience of proximity to the consumer. So moving on to international. As I already said, we had a very good GMV dynamic on our international marketplaces in the first quarter. We now have 3.7 million active buyers across the Czech Republic, Slovakia and Hungary, shopping on the marketplace. As we've told you previously, our major focus at the moment is improving user experience and driving shopping frequency and loyalty amongst the active buyers. And I'm glad to say frequency is up by 30% year-on-year in the first quarter. Similar to in Poland, we've taken the same decision to remove most of the Asia Pac long delivery time offerings from the marketplace to better differentiate Allegro versus its Asian competitors in the minds of the Central European consumers. When it comes to the Mall turnaround, we outlined for you back in March, a number of key projects that will conclude this year so that we can finish this process and move forward. Most of these are up and running and in flights. The most important one for the first quarter was the milestone of retiring the legacy Mall e-stores and front end. This leaves a smaller team to focus on sales only over the marketplace in their new mission as a lean merchant. We should -- we continue to be on track to finish this turnaround project later in the year. And finally, in this section, ensuring solid fundamentals and starting with group-wide system architecture. First of all, the retirement of the legacy platforms that I just mentioned means that we further simplify the Allegro tech stack, bringing us additional opportunities to simplify the business and lower maintenance and operational costs. Similarly, our SAP financial systems are now all based on the same instance across most of the markets, allowing us to significantly reduce our financial operating costs, particularly in the accounting team. Lastly, we already introduced new group-wide software for managing human resources in the -- in late 2024. We've leveraged that to roll out unified performance management and goal setting across the whole organization in 2025. When it comes to ESG, charitable giving and utilizing the power of our platform to make it possible for consumers to give to charity is very important to us. Once again, we've had very strong results supporting Poland's largest annual fundraising event, which takes place every January. We've also just opened a satellite office in Brussels, which allows us to keep employees closer to activities in the European Union and allows us deeper engagement with the EU and its digital transformation initiatives. So that concludes the business highlights section. Now I'm going to put my usual hat back on and carry on with the financial results section, which, as usual, begins with our Polish operations. You have the key KPIs for Poland set out for your convenience on the first slide. And if we move on to look at the key KPIs that comprise our GMV growth, I already gave the highlights earlier. I think the main point to make here is that growth is being underpinned by growth in spend per buyer, which was at 8%, one of the best results in recent times. So looking at GMV in Poland being up by 8.9%. Once again, high-frequency categories, health and beauty and grocery are outperforming, growing between 2 and 2.5x faster than the GMV for the categories as a whole. In absolute terms, the GMV came in at PLN 14.8 billion for the first quarter. And that 8.9% growth rate, we consider to be a very robust result given a number of factors. First of all, as I mentioned before, the nominal retail sales growth was quite a bit weaker than most macroeconomic commentators we're expecting, coming in at only 2.5%. So we managed to outpace that by more than 3x. Furthermore, unlike last year, we had cold weather pretty much for the whole of Q1. So there was no advanced spring shopping season, that rectified itself to some extent in April. And there was also 1 day less in the quarter because, of course, last year was a leap year. When it comes to average selling price, we -- because of the gradual move in importance towards the high frequency, lower price categories, the overall ASP came down by 2.9%. But when we take a category neutral ASP, we were up by 1.6% year-on-year, and that's the best result that we've had since the end of the trading down period, which concluded early in 2024. So moving on to revenue. I've already outlined the key drivers of the 15% revenue growth in Poland. Let's take a slightly deeper look at take rates. As I said, the take rates at 12.58%, which is up 40 basis points on a year-on-year basis. We're also up seasonally versus Q4. The main reason for the 40 basis point growth are the 2 annual increases that we've undertaken. The first one, right at the end of February of 2024 increasing co-financing rates primarily. And a second one that we've introduced in March of 2025 further increasing those rates. So January and February, reflected last year's increase. March is also reflecting the 2025 increase. And then moving to adjusted EBITDA, where, as I mentioned, the growth on a year-on-year basis is at 4.8%. The margin -- the adjusted EBITDA to GMV margin is at 5.8%, 20 bps higher on a Q-on-Q basis, but 20 bps lower on a year-on-year basis. And you can see from the bridge that the major item responsible for that drop in margin is the cost of delivery, which was a 163 million drag on that bridge. That represents 75 basis points, lifting the cost of delivery to 5.1% of GMV in the first quarter of '25. I'm going to go into more detail about this on the next slide. Suffice to say that of that 75 basis point deterioration in -- on cost of delivery, 55 basis points has been made back mainly on the take rates and on the performance of advertising and Allegro Pay over the course of the year. But it makes sense to have a look at what was going on around indexation and cofinancing at a slightly more detailed level. And we're doing that on an additional slide that we've included this quarter. And you can see here the interaction between the cost of delivery, which is the total bar that you have there, minus the cofinancing, which as a reminder, is actually accounted as a part of the take rate, leads us to the net cost of delivery, which is the percentage of GMV that we're investing to run the Smart! program and cover the cost of subsidized deliveries. So on the left, you can see the combined outcomes for Q1 of last year and this year and that 75 basis point deterioration in terms of higher net cost of delivery. But when you look at it on a month-by-month basis, you can see that, first of all, in January, we moved up to 5.2% cost of -- a gross cost of delivery because of the higher indexation that we -- that kicked in, in our contract with the largest APM provider from the beginning of January. And the cofinancing rate at that time was reflective of the changes we made a year earlier, and amounted to 2.1% from the total take rate. That situation, therefore, continued in January and February and the net cost of delivery was over 3% in both months. In March, we've introduced the higher cofinancing rates, and the cofinancing has moved up to 2.4% of the total take rate. And the net cost of delivery has dropped all the way down to 2.5%, which is comparable to the level we had in Q1 last year. So what that means is that in Q2, you're going to see 3 months with that profile, i.e., the 2.5% cost of delivery, which means a higher margin for Q2, and it also means that the year-on-year growth rate is going to recover considerably. In April, we already saw double-digit growth rates for adjusted EBITDA on a year-on-year basis. So moving on to capital investment. As I mentioned earlier, we've got 64% growth on CapEx on the Polish part of the business, PLN 189 million invested overall. PLN 68 million of this is going into other CapEx and the vast majority of the growth there is in relation to delivery projects, APMs and also Kurier depots and investments around the upstream part of our One Kurier operation. There's now over 5,000 Allegro One Box APMs operational. Capitalized development costs are up 53%. It's a bigger team. The team costs somewhat more, but most importantly, more of the time is going into new functionalities to implement across the marketplace, relatively less time goes through P&L in relation to maintenance and compliance work, which cannot be capitalized. So that's Poland. Now let's move on and look at the international marketplaces. And starting with the top of the funnel. As I said, this has been a really very good month, a very good quarter, very promising. And starting at the top of the funnel, we have 58% growth in traffic, which is reflective of the fact that we dialed back our marketing expenditure as we work to improve the user experience and trust in the marketplace in order to drive frequency. As a result, 57% extra traffic, but active buyers are up by 81%, reflecting the 2 launches we did last year in Slovakia and Hungary. And we now have 3.7 million active buyers across the 3 marketplaces combined. Spend is also moving up. It's up 13.3% per active buyer of PLN 520 annually per active buyer. The shopper frequency within that is up 30%, as I mentioned earlier. The average basket value as the shoppers shop more frequently has come down somewhat. So moving on to the key outcomes for the marketplace. The GMV is up 82% at PLN 480 million. Our revenue growth is keeping pace at 80% up on the prior year at PLN 51 million. And most importantly of all, the percentage adjusted EBITDA loss to GMV has come down by 8.4 percentage points year-on-year to 12.7% negative. This is reflecting a number of factors, the lower marketing expenditure, also better conversion and less -- lower share of paid traffic as the customers become more loyal and more used to come into the website. And it's also reflecting the model that we're using with one set of software across all markets, one team supporting all markets, which is bringing economies of scale on the fixed cost component. So that's international. Let me move on to Mall. So as I said earlier, the projects that underpin the Mall turnaround are all in flight and will conclude during the course of this year. In financial terms, this is reflected in a contraction in the Mall loss on a year-on-year basis. The loss was PLN 48 million in the first quarter, down by 17%. And you can see savings across the board in operating expenses. 53% lower GMV as we systematically scale back the loss-making legacy businesses, and that process has essentially come to an end with the closure of the front ends that I mentioned. And now Mall and CZC are present only as merchants on the Allegro marketplace from Q2 onwards. Finally, on the group level, let me come to leverage. As I said, leverage is at 0.84x after the first quarter. The -- this is 7 basis points higher than we had at the end of December, closer to the 1x leverage target that we have in our capital allocation policy. The slight tick-up comes from a number of expenditure items, in particular, the seasonal pay down of liabilities, which always comes in the first quarter, bonus payments and whatnot along with the seasonal peak of Q4 produce a high amount of payables to clear. Secondly, as I mentioned, we've added self-funding to the tune of about 18% of the loan book in Allegro Pay during the course of Q1. And thirdly, the higher expenditure on CapEx. These things together mean that the cash balance dropped slightly from PLN 4.1 billion to PLN 4.8 billion in the quarter. But we're well placed going forward as the EBITDA growth starts to rebound in Q2, and we don't have the seasonal expenditure anymore until Q1 next year. We'll start to go back to that trajectory of sequential reduction in leverage going forward. On the other hand, we are looking to give back PLN 1.4 billion in cash in the form of a share buyback. And that will be put to a vote at the AGM. And hopefully, we'll go forward for implementation later in the year. So that brings us then to our outlook for 2025. Just as a reminder, we're now providing a full year outlook rather than quarterly after the policy change that we made in March. The key takeaway here is that we are very confident that we're on track across the board to deliver our 2025 guidance. You can see that we're on track on all KPIs across the board. This slide compares the Q1 performance with a reminder of the full year target. And there's few areas that I just want to call out to give you a bit more flavor. The first of those is the GMV in the Polish operations, which came in at 9% for Q1 and our full year target is 9% to 11%. We're seeing slightly firmer trading during the first part of the second quarter. We're also expecting the macroeconomic environment to support the Polish consumer and resale sales growth later in the year. We also have a number of initiatives in the pipeline aimed at driving loyalty and spend on the marketplace, which we think will also contribute. So we're confident that we can move up that growth rate into the guidance range during the course of the year. Secondly, on the international marketplaces where the GMV growth in Q1 was 82%. It's important to remember that we start to lap the launches of the Slovakian and Hungarian marketplaces as the year progresses, which is why we see the growth rate dropping somewhat to 40% to 50% for the full year, but we're very much on track to deliver that. Next, the adjusted EBITDA in the Polish business, 5% growth reported for Q1. I think I've laid out in detail already why we're seeing that is going to jump back up in Q2 and continue at a higher growth rate for the rest of the year. So again, confidence is there in that growth target. And I think the last thing perhaps worth a mention is that the drag that we've been used to seeing from the Mall segment, both on GMV and revenue because of its contraction and because of its over indexation of 1P revenues, is set to get smaller and smaller in terms of its weight in the overall group result. So over the course of this year, you'll see increasingly improving group results in GMV and revenue relative to the Polish performance. So that's it for outlook, and sure everything on track. So finally then, let's move to the key takeaways. And the first of which is the fact that the Polish trading is improving and we're confident for the outlook for the rest of the year. We also just want to allude to the global turmoil around global trade patterns and announcements of tariffs and then freezing of those changes and negotiations, et cetera, et cetera. It's important to remember that Allegro is typically extremely resilient to market shocks of any kind. We've seen that with COVID back in 2020. We've seen that with high inflation in 2023. Because of the hive mind of the merchants, when things change, we -- they tend to find a solution to put the right things onto the marketplace to keep the consumers or to meet the consumers' needs. This is reflected in the extremely wide selection we have, which means whatever is the consumer's mission, you can usually solve it on Allegro. On top of that, if you've looked at macroeconomic analysis of the tariff situation, one of the countries that's been earmarked is having the least exposure to these topics is Poland, which bodes well from a consumer resilience perspective, whatever may happen. At this moment in time, we simply have no idea how this is all going to play out. So there's no point in hypothesizing around any assumptions that be reflected in our outlook. Secondly, the cofinancing changes that we introduced in March more than offset the unit cost increases for parcels that were implemented in January, and this sets us up really well for better adjusted EBITDA growth for the rest of the year. Thirdly, the advertising Allegro Pay growth engines are off to a very strong start, and both of those deliver solid margins, which contribute to our profitability over the course of the year. Allegro managed share of deliveries has expanded sequentially, and we expect to see further progress during the course of the year, helping to keep cost of packages under control. Significant progress in international marketplaces, faster growth in Q1. Most of the projects around frequency already delivered, a few more to come in the next few months. The Mall transformation itself also on schedule with all projects on track. And then finally, the PLN 1.4 billion is sat there and available for share buybacks and you'll have your opportunity to vote on the 26 of June. So with that, I'm going to close the formal presentation. Marcin and I are here to answer your questions. So Tomasz, if you want to take us through Q&A. Thank you.

Thank you, Jon. We are now ready for the Q&A session. So Mina, let's open the line for the questions.

[Operator Instructions] The first question is from the line of Reshetnev, Roman with Goldman Sachs.

And Marcin, first of all, congratulations on your appointment and best of luck in the new role. Regarding your 5 main focus areas, which of this represents the biggest departure from previous strategy? And where do we see the highest risk-adjusted returns for incremental investment? And additionally, given your extensive background in e-commerce and tech and AI industries, are there any specific capabilities or approaches from your previous experience that you believe Allegro has not fully leveraged yet? And my second question is for Jon. So your comments on the second quarter EBITDA trends suggest you're tracking above your medium-term EBITDA to GMV target possibly above 6%. So apart from the uplift from the March cofinancing adjustment, are you seeing any other structural efficiencies? And in particular, with the Allegro One Delivery volumes growing and 3 new depot leases signed, can you quantify the unit cost improvement trajectory for your proprietary delivery network versus Q4?

Thank you for your question. I will start with covering the topic related to AI because it's something really fascinating us. And we do cooperate with the largest players on the market specialized in AI, American giants to have opportunity to potentially implement on our platform and in some processes, absolutely the best-in-class solutions. So we announced a couple of weeks ago, our first implementations of using AI at Allegro, improving quality of interactions with our customers. We have opened a lot of new initiatives, improving potentially conversions, improving increasing GMV on the platform, but of course, we should be also patient because it's quite new technology. We observe what is the direction of the market, how we can use this technology in a most efficient way. But the great thing is that we have great competencies in the company. We have great people specialized in AI, and we are supported by global leaders. So for sure, next couple of quarters, we will see first effects of implementing AI capabilities to the platform, but also covering some business processes to improve our efficiency. You were also asking about potential directions for our investment or what can be improved in the company? Yes, you're right that my experience is connected with e-commerce industry and many specialized fields of this market, including payments, including financial services, including logistics as well. And I can say that what I see after 2 weeks is that the company has a really great foundation to be even more innovative and even to improve some quality of some selected services. But what Jon presented on the presentation, for example, NPS of our logistics services is extremely high. And we just started building some capabilities on the platform. And you see that we are very close to the market leader. So our skills are improving all the time, and we are -- we have opportunity to absolutely best in class on the market. And of course, we will continue investment in developing of financial services, for example, because we see huge demand from customer side, but we also want to help our merchants to grow faster. So we listen them carefully. We do development of these services together. And we are absolutely on the way to be the best on the market.

Thank you for the questions. The first one related to the margin profile going forward. Yes, indeed, I think in the second quarter, we're probably looking at being up and around that 6% type of margin. But -- as you know, the target range that we've talked about is having a top end of 5.9% over the medium term. So we won't shy away from reinvesting any access into supporting growth within the operation, and this in itself will also, I think, contribute to lifting the year-on-year growth in GMV as the year progresses, but don't count on the margin staying above the 6% for the whole year. The second part of the question was around unit costs of delivery for Allegro One. Allegro One and our APM operation and our Kurier operation they need scale and they need volume in order to bring costs down, chiefly by defraying the fixed costs of running the network. And that's in progress. There is strong increase in volumes after Q1. I don't want to give you any specifics on how fast the unit cost is coming down. I'll just remind you that in March, we said that we expect that the unit cost at the EBITDA level of running the Allegro One operation and the APMs in particular, is going to be lower than what we're paying to our most expensive provider, which in other words, means we'll be saving on every package that we ship ourselves. But it's also important to remember that Allegro Delivery is a partnership, and we're also under that umbrella, we have Orlen and we have DHL, very important and valuable partners. They're giving us good prices. And on every single package that we direct in their direction or where the consumer selects their lockers as the most convenient, we're also going to be saving money.

The next question is from the line of Holbrook, Luke with Morgan Stanley.

My first question is just a bit on the last point where you've mentioned now you've got 29% of your order service through your own delivery partners and your own network in-house. Where could that be by the end of the year? Is it fair to kind of take that 5% Q-on-Q increase? Or is it because of some of the weighting to impose in Q4 to benefit from those volume-based agreements, we should use a slower run rate going forward in our modeling? And then the second question is more on the regulation that we're seeing on the EU level for this proposed to euro flat fee from outside of the block. Just can you run us through a little bit on how you're thinking about the implications of that, particularly for your Asia-based merchants?

Okay. Thank you for those questions. Let's start with the managed -- the Allegro managed share, which, as you rightly said, was 29% for Q1 and 24% for Q4. Your thesis is actually very much correct. In Q4, we put the whole process into reverse for a couple of weeks because we wanted to secure the maximum volume discounts that were available from that one-off deal we did with InPost in 2024. So I think if you're looking for a trend, you probably want to look at the graphic that we published in March and look at Q3 versus Q1, if you wanted to try to model a trend. We're not giving any specific guidance as to where we expect to end up at the end of the year. Suffice to say that we're looking to improve the share sequentially quarter to quarter. The second part of the question, yes, was related to the new regulations. This is fairly new information that came out about 2 days ago. The big picture is that Allegro welcomes anything which evens up the playing field between the direct-to-consumer, Southeast Asian platforms, and those of us that are actually domiciled and based in the EU. We're not alone in that position. We regularly meet many other players across the e-commerce space in Brussels. Having similar meetings with the European Union. So we're happy to see such proposals coming out. Part of your question was what does that mean for our Southeast Asian merchants? If you recall, I mentioned during the presentation that we've actually made a pretty bold move and pulled back most of the Asian offers that we have on the marketplace, most of which come with 2-week or 10-day to 2-week delivery. They don't convert very well, but they do give the marketplace more of a feel of being similar to what's available if you go and look at AliExpress or Temu or the other Asian platforms. So by taking it away from the platform, we're actually doubling down on our differentiators and our key USPs as being a local platform. And that EUR 2 fee if it does come in, is going to apply, as I understand it, for every package. So it's going to have a disproportionate impact on those that are shipping to Europe on a package-by-package basis. And our own merchants who also source from Southeast Asia, but import in bulk, it's going to have a very minor effect for them, right? So overall, we think it's a good move from the EU.

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

I have 2 questions, please. One -- sorry that's returning again to delivery costs, but it seems the cost actually grew visibly more year-over-year than in the previous quarters. So I'm really trying to understand the drivers here. I understand the indexation that, that kind of happens every year. On the other hand, that should be offset with increased share of your own deliveries. So I'm just wondering what the drivers are here? And should we expect similar momentum of delivery costs growing well ahead of GMV in the coming quarters? That's the first question. And the second question is on your CapEx and in particular, the capitalized development cost. Those seems to be rising very quickly. In reality, it's like an operating cost. I'm just wondering what are those special projects which drive so much additional spending.

Okay. Thank you very much for those 2 questions. Yes, starting with the cost of delivery or the gross cost of delivery. The increase of 75 basis points of GMV is Q1 last year to Q1 of this year. And there's a number of elements there. I'll come back to the indexation in a second, but the other major point to remember is we continue to grow the penetration of Smart!, which means a higher proportion of the total packages that are moved on Allegro are going -- are attracting a subsidy under the Smart! program than in previous years. And you can -- you can follow that because you can see the -- from time to time, we tell you how much the Smart! base has increased. I think 7 million was the last number that we shared, 7 million out of the 15 million active buyers. So far and away the vast majority of the GMV is within Smart!. So that's one of the reasons. The indexation was much more significant than it normally is. And that is because it's a fairly complex story. But essentially, the -- under the long-term deal that we have with InPost deal, the indexation reflects inflation over the previous 12 months, and it happens once a year. In 2024, there was such an indexation increase. But as a one-off arrangement with InPost, they offered us discounts on that increase in exchange for rising volume. And we obliged and gave additional volume and collected some of those discounts. But as of 1st of January, we -- that arrangement ended, and so we had the full 2024 or if you like, '23, '24 indexation reflected on the 1st of January. And in addition, we had the 2024-2025 indexation to reflect it for the first time on the 1st of January. So it was like a double hit. So much more significant than the increase that we had in previous years. So hopefully, that helps you understand that aspect. When it comes to cost of delivery for the year going forward, there will be other increases from other suppliers over the course of the year. Generally speaking, there will be some inflationary increase, although nowhere near as significant as the one we've just had from InPost. On the other hand, as I mentioned earlier, the more deliveries that we do ourselves through Allegro managed deliveries, the lower -- this will be a mitigating factor in the overall cost of delivery because it will be lower than the highest cost provider. Second question was about capital investments. The point you raised is, yes, is a perfectly valid one regarding capitalized development costs. Some companies don't do follow this accounting practice. Some companies just expense all development. But in our case, there was -- well, we're basically making a concerted attempt to make maintenance work more efficient and free up more time for development. And we've been quite successful in that, which means that a couple of extra percentage points of the team are actually being spent on doing meaningful work on new functionalities for the marketplace. There's many, many things, for example, going on around implementing AI-based capabilities into the platform. And we have an abundance of ideas about the various things that we can do to develop the platform. For example, we've been doing a lot on international to help drive frequency. All the software behind things like Allegro Delivery are all internally developed. So there's a lot of work going on around delivery, which also supports the business. Also in advertising, lots of initiatives going on to help keep driving up the penetration of advertising. So it's hard to put a finger on one individual mega project like the international platform rollout 2 years ago, but they are literally at any point in time, at least 100 different development projects going on across the team.

And just to confirm, is that the run rate you are expecting for the remainder of the year?

Which run rate on the CapEx or on the...

I mean the CapEx.

On the capital investment, yes, we'd expect to see fairly similar things over the course of the year.

The next question is a follow-up question from the line of Reshetnev, Roman with Goldman Sachs.

I would like to follow up on Allegro Delivery development. While you mentioned attractive pricing from delivery partners, from a customer perspective, the majority of your GMV comes from growing Allegro Smart! users who receive free delivery and are pretty sticky to the InPost platform. So what specific levers can you pull to redirect their Smart! users to your proprietary delivery channels?

Yes. As I said in the -- it's a great question. As I said in the presentation, the ultimately, the key factor, assuming, as we demonstrated with those NPS scores, a good level of quality of service that satisfies the consumer. We believe strongly that the single distinguishing factor that will be really important over time is the locker in a convenient location for you? Is it the closest one basically? And that is simple math. It's about how many lockers are out there relative to the population. And as long as they've been put in sensible places, it's simple mathematics who you're going to be closest to. We're now at 17,000 lockers across the Allegro Delivery. And importantly, unlike InPost, because all 3 of these players are startup in a start-up phase, if you like, we're not covering the whole country yet. We're covering bigger cities and bigger towns, not primarily. So we're getting to the point where, in essence, there's locational parity, give or take, with InPost. So -- and that we think is a key factor. So in terms of -- you were asking how can we convince consumers to switch? If I remember, was the second part of the question. We have solutions within our checkout that we can promote particular solutions to the merchant at the checkout -- sorry, to the consumer at the checkout phase. So it's very important that they discover that they have a new lockers close to them. And so when that's the case, we will propose a cheaper solution, but they have always the option to change -- the pre-configured selection and switch to whatever they actually prefer in reality. What we're finding is a lot of consumers are happy enough to use these alternative providers.

Ladies and gentlemen, there are no further audio questions at this time -- apologies, one just came in. It's from the line of Halbrook, Luke from Morgan Stanley.

I'm sorry, just a quick follow-up question. If we can just pay the attention to Mall. I'm just trying to understand -- you're talking about turning Mall around, but it seems like you're just winding it down. I just want to get an understanding of when we can expect Mall to effectively be like a 0 adjusted EBITDA position given some of the actions that you're taking?

Yes. Thank you for the question. I mean we're driving to greatly reduce the loss by the end of the year. All of the projects that we need to do to arrive at Mall essentially only selling on the marketplace using its existing brands and operating in a very lean merchant model. All of those projects are either completed or will get completed in the next 2 quarters. So we should have a much lower loss by the end of the year because lots of legacy platforms and legacy processes will have been retired by the end of the year. In terms of positive contribution to the group, we're targeting to have that for the full year of 2026. And what we're particularly looking for is that by selling on the marketplace, we're adding to the trust, adding to the selection and making available faster delivery than we're able to do from Poland to the Czech and the Slovakian and Hungarian consumers. And we are looking for that to be having a positive impact on the overall performance of the marketplace. So we'll be looking at that as well as the absolute, let's say, trading loss, if there is one from running the lean merchant going forward. But essentially, we see -- we're targeting to have a positive return -- cash return from running the Mall merchants in 2026.

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 webcast participants.

Thank you, Mina. We have a few questions coming online. The first one is from Rushab to Marcin, our new CEO. The question is about the initial remarks and focus on accelerating growth forward. Could you comment how this might be achieved?

Yes. This is really a great question. And of course, my impressions after a couple of weeks, they are only on the positive side, I can say. So this is a great company with great foundations for further growth. And with many opportunities to support consumers to shop even in a more convenient way, but also to be a bit more merchant-centric and help them to sell more. So of course, I have dozens or maybe hundred ideas to what should be implemented or what should be improved. And I start discussing with the team. I confirm some ideas because I'm still in the learning process of the company and the whole environment. But for sure, next couple of quarters, you will see a lot of new initiatives because we are market leader, and we want to give the market new opportunities to buy in a more convenient way. But again, because this is part of my experience to create a very friendly environment for merchants and to grow together even faster. So of course, you should be a bit patient because I'm still here just a couple of weeks, but I have had dozens of meetings with my team, and we share our ideas to what can be changed, what can be implemented, how we can attract a new group of customers, how we can implement new product categories. And I'm pretty sure it will be visible even in the second part of this year.

Next question is from Cesar Tiron from Bank of America. And the question concerns -- the question is whether we will make any further changes to cofinancing fees this year?

No. As I said Cesar earlier that as with last year, the full intention is to make just the one move for the year. So I'm not anticipating that we'll be proposing certainly no increases in cofinancing for the balance of the year.

The next question concerns our international expansion that actually goes beyond the current footprint. The question is whether -- with our experience in expansion, would we consider launching services in Ukraine in case the war ends?

Yes. So it's a great question. It's something which is on our radar. We're discussing it as an executive team. Now Marcin has arrived will certainly be discussing it with Marcin as well. But there are no concrete plans at the moment. As we can see, the situation is not looking as if it's going to clear up in the next few weeks, unfortunately, but it is something that's on our radar as a potential opportunity.

And the last question being pretty very technical. Let me take it about the disclosure of the monthly utilization of our own partners' APMs. Unfortunately, we do not disclose that level of detail. And that's quite the last of the questions. So thank you very much. Mina, back to you.

Thank you, sir. Ladies and gentlemen, there are no further questions at this time. I will now turn over the conference to Mr. Pozniak for any closing comments.

Thank you. Thank you, Mina, and thank you to our management team and all the participants. And we will see you again on the webcast when we're reporting H1 in September. In the meantime, we'll probably we'll meet face-to-face during some investor conference. Thank you so much, and have a great day.

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