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Welcome to Allegro Q1 2022 Results Call. Let me introduce today's hosts who have dialed into this meeting from our Prague office. So we have with us there, our CEO, Francois Nuyts.
Good morning.
And our CFO, Jon Eastick.
Good morning, everyone.
And my name is Michal Kuzawinski, and I'm Head of Investor Relations. A few usual intro comments from me before we -- firstly, you can download a copy of our Q1 2022 results presentation from our website at allegro.eu. Please read the disclaimer, which is on Slide 2, and comments about the forward-looking statements included in this presentation.
You will have an opportunity to ask questions after the main part of this presentation. [Operator Instructions]
And finally, please note that this call is being recorded, and a replay will be available on our website at allegro.eu.
Now let's start. Francois, over to you.
Thank you, Michal, and thank you for joining us today. And well I cover, obviously, as always, with Jon, who is next to me. And it's absolutely fantastic to do this from our new mall office, well, new, the mall office in Prague. So without further ado, let's start.
As you know, Q1 was a bit of a [ north ] quarter, right? First and foremost, the war in Ukraine; double-digit inflation, partially linked obviously to that war; and very tough comparison in Q1 2021 in terms of growth driven by lockdown. Now despite all of those headwinds in Q1, we managed to deliver solid business performance. We grew about 13%, which is a cumulative 2-year growth of 64% in overall business.
We're able to grow revenue by about 15%, which was in line with both our own expectations and market expectations. This shows the resilience, not only of the Polish economy, but also of our third-party business model that consistently drive improvements in the inputs that are important to the consumers choosing our business to do their shopping and the sellers transacting through Allegro. So all of this wouldn't be possible on the sequential improvement in inputs, and that's what this presentation will cover.
But there are also a couple of additional things that happened during Q1. It's really the acceleration of our international road map. First, the launch of Allegro.com, which enables us to deliver to all the European countries in English in Europe. And obviously, that's a great testament to the investments that we made on transforming our platform from a single country to a multi-country stack. But also the launch -- sorry, the acquisition of the Mall Group, which just happened at the end of the quarter on April 1st.
But without further ado, let's start the presentation. If you can start the slides? So the first screen has changed a little bit. It is not innocent, it's a screenshot of what consumers see when they shop from outside of Poland to choose where they want to deliver, in which country they want to -- in which currency they want to shop.
And one thing here, we were able -- when the Ukraine crisis arrived and obviously, quite a bit of immigration for protection of population to Poland, we were able to use that new technology and stack to launch that additional language, Ukrainian, within a few weeks. And again, that's because of the investment we've done in the platform. And that is, how do you say, an investment for the future growth and internationalization.
Moving from disclaimer to agenda. So as usual, I'll cover the highlights. Jon, next to me, will cover financial results. I'll cover Mall and international update. Jon will cover expectations, and we'll both cover Q&A.
So starting with results. As I was saying earlier, we managed to deliver strong results in Q1, solid GMV growth despite the fact that we grew 46% last year over the same period solely, and also the early impact of the Ukraine invasion and solid revenue growth as we're progressing both in monetization, in advertising and the change of co-financing we did in February across the platform. So we expect the support from Take Rate and monetization going forward to keep on sequentially improving.
In terms of imports, we managed to sequentially improve the delivery speed. We do invest in our asset-light model, meaning incentivizing merchants to deliver faster, more predictably. Year-on-year, this is improving 8 percentage points in next-day delivery. As I said, we're also delivering on a number of important milestones to our development plans, notably the launch of Allegro.com and the acquisition of Mall Group last months. I'll cover those in a bit.
All these initiatives and progresses made on the business inputs allowed us to deliver the adjusted EBITDA that was in line with our expectation. And we expect the monetization of courier MOV investments and continued investment in platform innovation to -- temporarily to sequentially drive improvements through the rest of the year.
We -- basically in Q1, as you recall, across the later part of last year, we invested in making the shopping experience better, notably when it comes to delivery, courier delivery and minimum order value. And we delayed the monetization to mid-Q1 and forward as we don't change the rules during Q4 to improve the way sellers do business on the platform.
Now moving to key results on Page 5. As always, I'm not going to cover this slide. It's more for you to have it as a placeholder where all the key data in terms of financial outputs are.
Now let's move to retail basics. So first and foremost, offering more choice to the consumer is the tool we directly control to make them shop more with us across more brands, across more categories. And this continues to sequentially improve double-digit year-on-year growth in active offers in Q1, but also the addition of many core brands that are actively sought by consumers. A few examples here is Skechers, Vans, Grohe that most of you will know.
We also continue to provide tools to our merchants to make the platform uniquely sticky and easy to use. Normally, in how it helps them manage and create new assortments but also give competitive pricing to the consumers. And we see that the continuous launch of pricing tools for merchants continue to allow us to progress in not only price competitiveness, but price perception and keep us very competitive across.
In improving convenience, here, I'll mostly cover output. We're given for the fourth year in a row the Star of Customer Service Award. And I think it's a testament of the continuous work that we do to keep that marketplace, give great selection, great price, presell but also incredibly post-sell service, no matter what the seller is. That's kind of the 1P feeling of that third-party platform.
Delivery speed, already covered. We are sequentially improving it under our merchant fulfilled network. We're also sequentially increasing the number of APMs, which is well on track to reach the 3,000 we had targeted by the end of the year. Here, we'd also secured an agreement with 1 of the largest offline retailer to install a couple of thousand lockers by the end of the year.
Moving to key growth initiatives. So Smart!, that still has a lot of growth ahead, both in terms of how many consumers can still join Smart! but in how much of the shopping those consumers do on Allegro as we continue to improve retail basis. But the real story in Smart! between Q4, Q1 and the rest of the year is the sequence between the improvements within consumer facing, the investments we did. If you recall, in Q4, we lowered the MOV from PLN 80 to PLN 40 in courier. A little bit earlier in H2, we had made courier universally -- almost universal coverage of offers, and that rebranded a lot of the volumes to courier, but also at much lower monetization for us as we didn't monetize the PLN 40 to PLN 80 AOV band, which is quite significant.
In February, we started monetizing this by introducing the same kind of co-financing for MOV below PLN 80, and we see that it drives the sequential monetization of Smart! and better economics for us. We still, in terms of co-financing, at a very low percentage, about 0.25%. But we don't want to move too fast here, but there is still a lot of opportunity to better monetize on Smart! and better share the cost of shipping whilst we continue to grow the business.
In advertising, so advertising revenue continues to grow 21%. The penetration of GMV continues to grow also but at 1.1%, it's still far below what we see in best-in-class platform across. And it's why we continue to invest, notably in AI and targeting and tools to merchants. And we see a continuous improvement here and the number of innovations coming in the next quarter that will sequentially drive that advertising revenue up.
Now Allegro Pay. Allegro Pay is obviously one of those earlier seeds that is truly scaling now in terms of NPS overall, which is the key reason for the success. It's incredibly simple and straightforward to use for consumers, 94 NPS. But also that drives a huge increase in loans originated, up 5x year-on-year. But what is important here is our collaboration with AION Bank means that this translates in a minimal increase in our loan book, which was up PLN 6 million quarter-on-quarter in Q1. That obviously reduced the working capital requirements on our end.
Lastly, we launched Allegro.com. That's an English language platform. But again, with the -- now that we have the tools, the ability to add additional language reasonably easily. Ukraine, in a few weeks, is a good example of that. With available payments in euro, we look obviously at adding additional currency. And that's the first step in -- that's a conclusion more than the first step of the investment we've made over the last 18 months in transforming our platform from a single country, single currency, single language to be much more flexible to do multi-country, multi-shipping destination and multi-language.
Now let's talk about ESG progress for the first part of the year. First and foremost, obviously, whilst it wasn't in our plan, Ukraine took the forefront. And as always, when such a crisis like this happen, we pivot to see how our unique scale, our unique technology, our unique employee base, too, can pivot on making a difference.
On the unique scale, obviously, we started collecting and also contributing to donations. That's what you can do from the scale and the reach of consumers and sellers we have. But one of the things I'm the most proud of is also the continuation of our program called, We Help Because We Care. And that's actually about helping the group of employees we have across the company that is making a difference on small and large initiatives across and helping that develop by just, how do you say, helping with the funding and the time needed.
On the corporate governance front, as you know, we have a goal to be over 50% independent. And here, there is a great development. We announced the appointment of Pedro Arnt as independent director. That's obviously pending approval by -- at the AGM. For those of you who don't know Pedro, Pedro is the CFO of MercadoLibre, a true leader also in e-commerce, a company with whom we have large interaction and knowledge sharing. And Pedro, and I know I told for myself, the management team and the Board is truly a welcome addition. And we really welcome his additional contribution to Allegro and knowledge expertise.
Last, in terms of environmental contribution and perspective. We have a multiyear goal, not only for Allegro, but also for the whole contributors to Allegro: merchants, delivery to be more green and eco-friendly. And here, we translated this into Science Based Targets to reduce emissions that were approved by the Board. And we're currently going through the Science Based Target initiatives framework.
Now to sum up, it was a busy quarter for Allegro, a number of great investment on the consumer end in Q1, the start of monetization on a number of them. But I'll let -- I'll leave Jon to cover that in more detail. Thank you, Jon.
Thank you very much, Francois. Good morning, again, everyone. It's a pleasure to take you through the Q1 results. And as Francois was saying, we think this is a really solid set of results into the headwinds that we were facing in this quarter. And let me take you through that step by step.
As has been the case in recent quarters, our growth has been mainly driven by the increasing loyalty and engagement of the customer base. You can see this manifested in one of the key metrics, which is last 12 months GMV to active buyer. And you can see the 14.2% growth on a Q1-to-Q1 basis and another sequential increase of 3.4% Q4 through to Q1. The average buyer right now is spending PLN 3,265 a year with us, which is a pretty impressive number.
What's driving this rate of improvement? Obviously, it continues to be growth in the Smart! program, which is driving -- and also the great results of Allegro Pay. Those 2 things together, they're really driving engagement, frequency, the numbers of transactions. And increasingly, we're seeing the order values moving up and also the first impacts of the inflationary pressures starting to move up the product prices was starting to become clearly evident in the first quarter. So all of that contributing to the growth.
When it comes to active buyers, we're continuing to deal with the pull-forward of very occasional shoppers caused by the COVID period, and those are rolling through the numbers. We also have the account consolidation effect that is caused thus far, where households tend to congregate their purchases under a single buyer account. So that is somewhat depressing the buyer numbers.
So looking at GMV growth, as you've already heard, we grew 12.8% in the first quarter year-on-year to PLN 10.8 billion of GMV. And just to recap on the headwinds that we were facing here. Last year, in Poland, in January and from the second half of March, there were retail lockdowns where the shopping malls were closed. And those were -- and that second lockdown actually carried on until early May, and that was the last retail lockdown that was associated with COVID in the Polish market. So that created a tremendous headroom. And in that context, the 13% growth rate is a really very solid result. As Francois said, 64% over the 2-year period makes the business massively larger.
It's worth mentioning the impact of the outbreak of war in the Ukraine due to the Russian invasion and the impact on our sales. We analyzed that there was about PLN 140 million impact, about 1.5% on the growth rate because similar to the 9/11 tragedy, there was this moment where people paused. They started watching TV. They weren't thinking about shopping, which, for about 10 days, did take down the growth rates. Impact, not that material. It's gone right back to the normal trend from March. Also a good contribution coming from the eBilet business now, fully up and running again now that the economy is open and events are taking place.
Okay. Moving on to revenue. We booked a 15.1% revenue growth, so faster than GMV, as is always the case with our business. The advertising business moved on 21.1%, and that's obviously a very high EBITDA value business for us. Retail also was a driver, 40% as we address competitive pricing in the marketplace to make sure the consumers are always finding the best prices. And on the marketplace itself, growth was in line with the GMV growth. And that's because, as you can see on the right-hand side of the slide, the overall Take Rate was more or less flat on a year earlier at 10.46% versus 10.43% a year earlier. So the usual seasonal step up again in Q1 took place.
But in addition to that, we started the monetization of those investments that Francois was describing in the Smart! program and in courier in the second half of 2021 with an introduction of higher co-financing fees, particularly on courier from February of 2022. So these numbers do not reflect a full year -- a full quarter impact of those changes. You're going to see that in Q2, and that's obviously going to be supportive to the Take Rate in Q2.
So moving on and looking at the EBITDA performance. This is, again, as with the GMV, this has come in very much in line with what we were expecting to happen as this somewhat mismatch between when we made the investments in the business in the second half of last year and the monetization being delayed to the beginning of this year resulted in a dip in the dynamic of our EBITDA growth rate. We had PLN 463 million of adjusted EBITDA, which was about 13.5% down on Q1 from a year earlier.
I'll take you through the bridge here. Obviously, the GMV growth plus the monetization effects that I just described driving the growth in the marketplace revenue. Advertising also contributing strongly to EBITDA through its growth. When it comes to the delivery costs, obviously, this is mainly driven by -- or totally driven by our investments in Smart!. There are more users of Smart!. We had 5 million when we last made an announcement on the numbers. They're still growing.
The frequency, as I described earlier, engagement of those Smart! customers is also moving up. The share of courier has gone up considerably due to the changes that we made. In fact, when we look at Q1 to Q1, the 21% increase in courier in the mix effectively means that virtually all the transactional volume growth that was going through Smart! Q1 to Q1 has accrued to the courier delivery partners rather than to APM or to pick-up points.
It's also worth commenting on the drag that we're currently having on our SG&A expenses. We have been investing very heavily across the organization to grow the innovative capacity of the business and also to start off the scale-up of our DEX initiatives. So the staffing for those DEX initiatives and the assets deployed there, a lot of that cost goes through the SG&A. We will start to see a stabilization in this metric going forward. And I'll come back to that when we talk expectations later in the presentation.
Quickly going on to our CapEx, PLN 160 million, very much in line with expectations for the first quarter with a PLN 700 million target for the full year. Again, this is focused on investments in the future growth levers, in particular, the development teams. We're very focused on the international projects that Francois has been describing, but also our DEX projects contributing quite a large part of the investments that you see here. We're on track for our 3,000 APM target by the end of the year. Numbers of installed lock is going up steadily month-to-month.
And then finally, a few comments around leverage. Obviously, there's been a major transaction with the acquisition of Mall on the first of April. So here, we show you both where we were at the end of March, 31st of March, leverage was at 1.86x. So very conservative leverage as a starting point for making a major acquisition. The transaction took effect on the 1st of April. Pro forma, the opening leverage would have been 3.26x after paying for Mall, which was, I remind you also, partly paid for in shares as well as cash.
In terms of liquidity, we have PLN 800 million on the balance sheet as of 1st of April and another PLN 500 million of RCF in reserves. So a very comfortable liquidity position. And I'd also like to underline given the rising interest rate environment that we're dealing with, the over PLN 4 billion of our senior debt is actually hedged at a very low 1.32% rate all the way out through 2024. So this is really insulating us significantly from potential further interest rate cost as interest rates are moving up.
AION has obviously also made a major contribution around our working capital consumption to support Allegro Pay. The guidance -- sorry, the leverage should start to move down again later in the year as the growth rate on our EBITDA starts to come through strongly again, and I will take you through that shortly.
In the meantime, I'm going to hand it back to Francois, and he's going to take you through our international initiatives before I do regarding guidance page. Francois?
So let's talk about how we're progressing on massively growing and scaling the business outside of Poland. That's a multiyear effort, as you recall. So about 2 years ago, we made selling on Allegro for international sellers much simpler. We also launched over the last year or so multilingual customer service tool, mostly targeted at merchants at the time. And over the current quarter -- last quarter, we closed 2 key developments in that, how do you say, journey. Thanks, Jon.
First is the launch of the international platform, which launched in Q1, Allegro.com. And that's where a lot of the investments into making our platform multi-country was front-loaded over the last 6 months to do best. The second part is the closing of Mall, which happened on April 1. And at the moment, we're in the first 100 days, where like we're looking to deliver within the current business model of Mall is business acceleration through quick wins in the existing platform.
Over the midterm 2023-2024, what we'll do is we'll take the investments we did on the Allegro platform to ensure that all the customers across the region and merchants have access to the unique technology and consumer benefits that we already offer in Poland. We'll also look, obviously, at further country developments as we progress and start delivering.
So in terms of where we stand here and the road map ahead. First and foremost, we acquired Mall because it gives us a brand awareness. It gives us an active customer base, which is about a 40% upside to our current customer base. But also a number of tools and merchants, 4,000 merchants across the region, extensive local market knowledge and cross-border operations with both Mall and WE|DO at 2,400 employees and an R&D center in Prague.
And overall, it front-loaded not only our development with Allegro.com, but it also pivots the teams across Allegro and Mall to solve for that challenge of increasing selection, better price, better convenience that we've been able to do in Poland and now we can do over a much wider consumer pull.
In terms of next steps, the combined addressable market is over 18 million across the CEE region, and we want to offer the same tools to the merchants across the region that we do in Poland. And that means increased selection, better pricing, Smart! across, and overall, provide that unique user experience that we're able to do.
What we've seen when we do that click once, how do you say, one-stop shop with millions and millions of incremental choice at good price, we've seen it in multiple countries, acceleration always come. It's almost mathematical, and we're already progressing on some of it. I'll cover on some of the quick wins.
But first, in terms of current performance, and that's the period leading before the acquisition and the control of Allegro, the progress is what it is. It's a minus 6%. It's rather driven by 2 things. First is an outside factor, a very hard lapping offline lockdown in Czechia, some of the Ukraine war and higher inflation but also limited progress on the core inputs. And that's obviously what we set out to change with the Mall team.
One of the things that is already progressing well even before the closing of the acquisition is the progression of the marketplace, progressing at 40...
44%.
44%. Thank you, Jon, and already reaching 12%. So in terms of already proving the case, it's already well underway. And obviously, now we can turbocharge that with all the tools we have at Allegro and Mall to do best.
Now in terms of shorter-term quick wins. Quick wins meaning what can we do on improving the retail basics within the current toolkit ahead of the full launch of the marketplace in Czechia starting early next year. Well, there are a number of things we can do in terms of improving the choice.
At the moment, Mall mostly offer consumer choice in electronics, small and large kitchen appliances. So here, we're really starting to add both from local merchants and from Polish merchant incremental selection, making it easier at the end for merchants to list on the platform and at the same time, optimizing the 1P selection and stock. Doing that at competitive pricing. At the moment, the price perception of Mall in country is muted. So obviously, we have a number of initiatives to make this competitive to consumer, and we see already some of the delivery test impact on consumer intake, frequency and shopping.
Obviously, what we do, we can also improve the convenience. We've done a number of -- by convenience, I mean, how many offers get delivered tomorrow, how late can you order that day. And there are a number of changes that have been done really and that sequentially improve the convenience for consumers and the forward GMV. That's why we tab on return to growth over the course of the year.
Now I'll leave Jon to cover 2022 expectations.
Okay. Thank you very much, Francois. Then so to finish up our presentation, I will take you through our current expectations for 2022. I'm sure that many of you will recall that the original guidance that we set was announced on the day that Russia invaded Ukraine. And obviously, the world looks a very different place then to the situation now, especially in Poland, where we're so close to the terrible crisis.
Despite the turmoil and economic uncertainty, as you've heard, we've had a very solid first quarter and the business is growing very well against the COVID headwinds, and performing very much as we expected. However, it's best to be prudent, and so we've factored in greater economic pressures into our assumptions for the balance of the year. And we've made minor adjustments to our expectations as a result.
Now furthermore, because we just completed the acquisition of Mall, and the businesses are still not obviously integrated as they decided working together, we're continuing to show our guidance but separately for the Polish business, whether for the continuing Allegro on the one hand. And separately, on the right-hand side of the slide, you see our expectations for Mall than we do for the 9 months that we'll be consolidating them in fiscal 2022.
So let me start off with Allegro. And we're expecting GMV to grow between 15% and 20% for the full year. And I just want to walk you through what we're expecting. I mean, we've been talking about the fact that the growth rate will move up sequentially over time. And I just want to walk you through how that's going to be the case.
The final lockdown of last year completed very early in May, okay? So we've now lapped the last COVID lockdown that affected retail sales as of the beginning of May. And what that means is that GMV on an absolute level in terms of hundreds of millions of zloties a week in sales is now delivering significantly faster GMV growth than it was delivering for us in Q1. And we're already seeing in our current trading that the growth rate has moved up to the high teens. And we have other expectation that it will continue to move up from here.
If you look at the comparatives for last year, what happened was that the economy -- the leisure side of the economy also opened up through the summer. There was a drop in the weekly sales through Q2 and Q3 last year. This year, we would expect it to keep moving up. And this is mainly because we continue to invest in the retail basics, we continue to drive Smart!, we continue to drive Allegro Pay. And those lockdown effects basically are not relevant to us for this year. So the growth rates are going to go up sequentially as we move later in the year.
Now when we get on to revenue, we're expecting between 25% and 30% growth. And again, these are the usual factors that are supporting that growth faster than GMV. The over-indexation of growth in the advertising portfolio, movements in monetization. Some have already happened. So they're already baked in as we move forward. Other monetization adjustments, we're analyzing and looking at week to week. Obviously, we have one eye on inflationary pressures and costs, and the other eye on making sure that our merchants are able to grow their business and develop with us on Allegro.
So then moving on to adjusted EBITDA. The EBITDA growth is expected to land between 10% and 15% on a year-on-year basis. Obviously, we started the year because of the investment -- the mismatch that I mentioned earlier between investment and monetization. We started the year with a minus 13% growth rate. But the worst point was already behind us after January, right? The trend is now upwards. The monetization issue factors and the GMV growth is going to contribute sequentially quarter-over-quarter.
And it's also important to note that those investments that we made in -- particularly in courier and expansion or improvements to the Smart! program, are going to start to be lapped in the second half of the year. Some of it in Q3, a large amount of it in Q4 that will go out of the numbers. And you'll start to see, again, higher year-on-year EBITDA growth rates as the year progresses.
There's a final element as well around the SG&A, as I was mentioning. We've pretty much got to the size of organization that we want to have to be able to innovate as an international organization. And we also have the talent pool now, this fantastic extra talent pool from the Mall Group that we can also draw on as we build an integrated organization. So we're very focused on increasing efficiency and increasing productivity over time. And that's going to bring that SG&A growth rate down and also contribute to improving year-on-year EBITDA performance.
In terms of CapEx, we've made a minor tweak looking for savings across the program. So we brought the guidance down to about PLN 700 million at the midpoint for the year. But it's worth underlining APM guidance, no change. We're still aiming for 3,000 lockers to be installed and running by the end of this year.
Okay. So moving on to Mall and WE|DO. For the 9 months to December, with all the initiatives that we're taking within the scope of the existing operational model of Mall in particular that Francois was taking you through, we're targeting that we can get the GMV growth back into positive territory by the end of the year. And obviously, in parallel to that, we're working extremely hard on getting the marketplace deployment ready to drive growth going forward in 2023.
When it comes to an EBITDA loss, we're expecting it to be somewhere between PLN 80 million and PLN 120 million, depending on how fast we're able to stabilize the GMV.
And then in terms of capital investment, PLN 100 million to PLN 120 million. But it's important to point out a big chunk of this money is actually the tech development that's going on in Poland to prepare the marketplace to be deployed in Czech next year. Okay? So that's the guidance across.
And with that, I'm going to hand it back to Michal to take your questions, and we'll start the Q&A session. Thank you for listening.
Thank you, Jon.
Thank you, Jon. [Operator Instructions] We have the first set of questions coming from Cesar Tiron from Bank of America.
Yes. I have 3 questions, if that's okay. I'm just going to ask them, all 3 of them in one go slowly. So the first one is really on the guidance for GMV. Obviously, it implies a significant acceleration of year-on-year growth throughout 2022 because Q1 was below the growth -- below the 15% to 20% growth. April was towards the bottom end of that guidance, and May is kind of in line. So do you expect to see some acceleration? I know you're not giving quarterly or monthly guidance. But just to give comfort probably to the market that you are comfortable to meet that guidance. Should we expect that we will see some acceleration of the growth in June? Or do you think that most of that acceleration is going to be 2H-weighted? So that was the first question.
The second question is on the -- on competition dynamics. If you can please give us an update of what you're seeing from Amazon and Shopee lately?
And then the third question is about the inflationary impact on your business. And if you can talk about any steps that you have taken lately to mitigate this. And also maybe if you can link this to a recent statement, which we've seen from InPost suggesting that delivery costs, which will be passed on to Allegro will increase significantly from the end of 2022 onwards.
Cesar, thank you very much for the questions. I'll kick it off then as I was just covering a lot around the GMV progression. So let me try and hit a couple of the points that you raised there.
Yes, indeed, I mean, we do expect that the growth rate is going to expand considerably. We always expected Q1 was going to be very slow because of the lockdowns. And that lockdown -- the last lockdown was continuing last year throughout April, right? So that's why the April growth rate was similar to Q1.
As we go forward, what we saw last year was obviously a drop from Q1 to Q2 in GMV. And that was because of the end of the lockdowns and also the reopening of the rest of the economy, okay? The leisure industry, tourism, restaurants, all of this stuff reopened later than retail, okay? And that took some of the spend away from retail generally and also from e-commerce, okay? So there's no reason this year why the GMV levels were hitting week-to-week should be dropping down, right? Because those effects have gone from the comparatives.
And so by sticking to our knitting, if you like, sticking to the basics of growing the business, retail basics, Smart!, the Allegro Pay, et cetera, et cetera, we'll keep growing the GMV. Comparatives are getting easier. And that's why you're going to start seeing much higher growth rates going forward. And just to underline, the growth rate in May, right, when all these effects are starting to run through, is already up into the high teens. So things are moving forward. And this gives us hope it will keep moving up.
And a final factor, obviously, is the inflation. The inflation more and more is starting to be seen in the product prices. Initially, it's led by the energy prices, the cost of labor, et cetera, et cetera. It is now starting to be seen quite clearly in the product prices. And that's a tailwind with our business model, as Francois was saying, that's a tailwind for us in terms of the GMV.
Should I continue with the second one and the third one?
Yes, please.
I think the second one was around competitive and competitive pressure. Very consistent to last quarter, we continue to see very limited impact from online competitors mostly as we continue to improve our own retail basics on top of it Smart!, on top of it Allegro Pay that makes Allegro very sticky with consumers and sellers alike. So we continue to see a very limited impact.
Obviously, there are movements between offline retail and online retail, but those are more due to lockdowns last year versus no lockdown this year. So here, no change. We continue to be humble, continue to improve our own consumer- and seller-facing metrics to make sure that we continue to improve at a speed which is greater than our competitors.
On the third question, which was impact from inflation and, let's say, InPost comments. So first, on impact from inflation, we're mostly a marketplace. So to a large extent, we somewhat hedged. I don't like specifically to use that word, but we take a commission on the average price of products. So that falls through.
In terms of delivery, we're in a setup now versus 2, 3 years ago where we have a number of shipments, deliveries, right, whether they go through couriers, through InPost that is much greater than anybody anticipated, right? The 64% over 2-year growth is something that was partially unexpected. Some of it is obviously the effect of COVID, which drove many consumers to try online e-commerce. And when they try, they stick with it. And also our own investments. We covered some of it is the trough in margin in Q1. But our own investment in extending very fast, convenient shipping at 0 cost to the consumer, which turns -- in turn drive sales for the merchant, right? So we're in a stage now where we have volumes which are much beyond what we expected. And this drives much better economics for the couriers, whether InPost or other.
So I think here, there's this ample space for a negotiation and getting to an agreement that is mutually beneficial. Also worth to say indeed, as commented, a part of the agreement, which is a 7-year contract. There is an indexation in price. But it also because the volumes are so much higher than what we were expected, the volume commitments are rightly not significant. And in any case, any volume commitment stops early 2025. So here, as I said before, we have an array of options to make sure we drive the right economics for the platform.
Thank you, Cesar. And then we have now questions from Lisa Yang from Goldman Sachs.
I have 3 as well. The first one, just to follow up on the margins. Actually, it feels like the new guidance implies margin is broadly in line but also even slightly better despite lower revenue growth. So I'm just wondering what's going on? And are there any costs where you're potentially scaling back to be able to sort of protect that margin? And as you said, you expect margin to be the trough in Q1 at 33%. I think you -- the midpoint of your guidance implies 33% for the year. So I'm wondering is that conservative, and you're saying Q1 can be the trough? That's the first question.
The second one is on the lockers. Could you confirm like how many lockers you have been able to rollout year-to-date? And obviously, given the supply chain constraint and I think you partnered with Modern-Expo. So I'm just wondering whether you're seeing any impact from that on the pace of your future rollout? So that will be really interesting to get your thoughts on that.
And the last question is on the Mall Group. I think the H2 run rate of that fiscal year implied, I think they were down 10%. Can you comment on where we are currently in terms of GMV growth? I mean, you said negative, but is it like close to minus 10 or closer to 0? And when you say the GMV growth should be back to positive by the end of the year, are you talking about the GMV growth to be flat to positive for the -- on a full year basis? Or you just expect an inflection by, let's say, Q4 this year? Any clarification would be great.
So Jon, if you take number one and number three, and I take the middle one?
Yes, yes. That's fine. That's fine. Yes. So the first question was around the margin level. As I said, what we've done with the guidance here is we're trying to be prudent. And the major change versus 3 months ago is that there is much more inflation. It's clearer now that there's going to be inflationary pressure for longer. A lot of that is precipitated by the events in Ukraine, but also other factors, right, which means this inflation is likely to go on for longer. And although the Polish consumer is proving incredibly resilient, we did want to factor in a little bit more conservatism in terms of what might happen in terms of their purchasing.
Now if that was to manifest itself later in the year, then obviously, as the GMV goes a bit lower, that tends to drop through to the bottom line, right? So we've given ourselves a bit more margin at the bottom end of the guidance as a result. So I think you should view being only at 33% as a very conservative sort of worst-case outcome.
On the first one.
First one.
On number of lockers, yes, I knew we shared them, Jon, if you can help me. We shared we're well on track to achieve the 3,000. I'm not sure...
We haven't actually said how many, but we're doing hundreds of lockers already.
Now a couple of drivers of that. First, the location scouting is working very well. We took, as any new project back a year ago, a bit of time to recruit the team, the process and all, but now it's working rather well. And we also, as I said earlier, on top of that, negotiated a deal with 1 of the largest offline retailer to install a couple of thousand over time. So that gives plenty of locations available than our choice to do efficient locations, too.
On the supply, you called out our great supplier, Modern-Expo. We have -- and this is something that we work with them to ensure both on the component side, and overall, on the overall supply of these a long -- I don't want to call it a backlog, but let's say, a big capacity to follow us. So we don't see any key constraints there. They're able to follow on the number of lockers we want to install.
Maybe here, it's also called out. So we've proven the point in terms of the number of lockers we can install, the location scouting, the technology, the integration with the platform. What is coming up is how do we make the offers that are present on Allegro shoppable through the lockers. At the moment, it's a reasonably small percentage. But we have a couple of innovations coming up across the next few weeks, actually, to drive almost to parity.
And if you recall, when we did this with courier back in the first half of H2, it drove a massive usage of that option. And we expect the same, which will drive, obviously, more consumption of our lockers, which is great in the scaling up of that shipping model.
And the third one was more on...
On the Mall Group, yes. Yes. So when it comes to Mall, what we're expecting is that the tactical quick win initiatives that we deploy around retail basics is going to accelerate the growth rate. And in addition, the lockdowns that were experienced in the southern part of Central Europe, Czech Republic and further south, they wound up more at the end of May. And they were in place all the way through the January to May period a year ago.
So we're already seeing significantly better growth rates now that we've moved into May than Mall was booking in the first 5 months of -- first 4 months of this year. Those quick wins will kick in over the course over the next few months. And so by the end of this year, we're pretty sure we're going to be booking positive GMV growth on the old platform, even before we deploy the new marketplace platform. And if we're looking for a number for the 9 months across, then this is probably conservatively, we're looking to try and get to something around 0 growth across the 9-month period.
Thank you, Lisa. And now we move on to questions from Luke Holbrook from Morgan Stanley.
I guess my first one is just on the number of actives. It looks like that declined about 0.1 million quarter-on-quarter. It looks like the kind of the lowest quarterly performance since 2018 at least. So just getting a sense is that number of subscribers on Smart! falling? Is this to do with the Smart! Start trial and the pull-in of the trial period? Any color there would be helpful. And if you have concerns in that regard?
And then just secondly, on the assumptions that you're making in terms of your internal guidance for this year, is this being driven, the tweaking to that by the number of actives, the buying frequency or the AOVs?
And just finally, if you could just quickly update us on the search for a new CEO, that would be helpful.
Take the first 2 ones...
Yes. So no, the active buyers, it really is the 2 things that I called out earlier, Luke. The -- there is this tendency perfectly logical that families consolidate under a single Smart! subscription, their purchases. And although we've developed a solution called Allegro Family, which allows similar to Netflix, right, each sub user of a subscription to have their own personal shopping history and their own recommendations and all this. There's still a lot of accounts where it's just lumping all into the 1 bucket occurs, okay? So that's kind of a drag that we're still working on.
Then the other one is really COVID-related where very occasional shoppers because of the lockdown situation decided they would go and buy something in e-commerce. But they haven't really returned since offline reopened. And that's still working through the numbers, something that we have to deal with.
Smart!, still growing very strongly. The change on the, what do we call it, the Smart! na Start, right? That's a change we made to Smart! for starters, actually was more of a Q2 move, okay? The idea there is that the conversion rate is actually exceptionally good of these customers, they're upgrading to a paid subscription. So we wanted to shorten the period that they need to use those 5 free deliveries. Then we'll train them to be more frequent in their purchasing, and we'll also bring forward them becoming paid subscribers more quickly. That's the thinking. We'll see how that goes in Q2.
Then over to you for the second one.
There was a question on guidance, I think.
Yes. What's behind the changes in the guidance, yes. I think our core case has not really changed, right, in the sense that we're expecting sequential acceleration in the GMV growth and the lapping of those investments on the cost side plus some monetization initiatives to balance inflation. All of that together is going to lift the GMV and the EBITDA during the course of the year. And that basic thinking hasn't really changed.
What has changed is there are various views, especially in Poland, around what's going to be the impacts on the consumer from the inflation. We've always been on the more optimistic view that the consumers are going to be resilient to the inflation. Wage inflation here is very high. Consumers have significant savings that they built up during the COVID times. So we tend to take an optimistic view. But we have to admit, at the same time, with the latest developments caused by the war in Ukraine, in particular, and the extra pulse of inflation, there is more risk than there was, right?
So we started to factor in a scenario where it could be the case that later in the year, the consumer is struggling a bit more than we thought they would do. But it's not exactly our base case, right? So it's just giving us more flexibility in the case that, that comes to fruition.
On CEO and succession, so the Board has retained Francois Nuyts to support on the succession planning. It's obviously, Francois Nuyts and the Board are progressing. There is a trove of international, local sourcing that is happening.
At the same time, first, there is no announcement, and there is also no rush, at least on my part. So we continue to work as for the time being on continuing to improve the business, both on the consumer and the center side on developing the team, which is developing a fantastically and integrating Mall and then giving the time to make sure that the next CEO is fantastic. I think that's what we owe to our consumers.
Thank you, Luke. Now we have questions from Annick Maas from BNP Paribas Exane. I can see that Annick has unmuted, but we can't hear you, Annick. Okay. Let's wait for Annick. And meanwhile, Michal Potyra from UBS.
Can you hear me?
Yes.
Let me go with the standard 3 questions. So one is the technical question about your revenues versus GMV growth. So just reading your guidance, there seems to be like about 10 percentage points overperformance of revenue over GMV. I'm talking about Poland. First quarter was 3 percentage points. So if you can give us some color why this should change so significantly?
My second question is about Allegro Pay economics in the higher interest rate environment. Is that becoming significantly more costly for you? And what's really the economics of that product that seems to be doing very well?
And my last question is about the capitalization of the development cost. That seems to be growing pretty significantly. So I just wonder if you can give us a little bit more color on why is that?
For you, and I'll support.
Yes, it's all for me, Michal. Okay. Thank you. Very good questions. Yes. Okay. So on the revenue acceleration, yes, it does imply that we're expecting to see a large divergence between the GMV growth and the revenue growth that we saw in Q1 which, in other words, is also reverting to more what is typically the case. That is -- to get to that, there's the -- first of all, the full quarter impact of the changes that we already made in monetization. We're looking at a whole bunch of other areas where we may monetize further during the rest of this year. And some of those, I'm sure, will come to fruition.
But by the same score, it's also to the point that Francois was making earlier around InPost, for example, and around the relationship with different suppliers. A lot of what will actually happen will depend on the extent to which the volumes that we're providing and the extra margin that, that drives for our suppliers translates in them being reasonable when it comes to inflationary increases that they expect from us, right? So how much monetization we actually do will be very much managed as events unfold over the course of the year. The important thing is to keep all the stakeholders cooperating well on driving the business forward.
Second question on Allegro Pay. I mean, there's 2 things to call out around the rising interest rates aspect, first of all. The first one is that we've now started charging significantly more on the installment side where we've always been charging interest on the loans that we provide to the customers. And those loans are then sold on to AION Bank. And those are also the loans that consume a huge chunk of the loan book because they're longer period loans. So that aspect we've got covered in terms of funding.
The buy now pay later part, it's true that we're not charging interest on that side of things. When it comes to the funding of that, the important thing is, first of all, it's very fast turnover credit, usually between 1 and 2 months outstanding. So any money that we have invested in that loan book is turning over anywhere from 6x to 12x a year. It drives for us significant incremental GMV.
We can see month-after-month in our statistics that there's at least 35% of uplift for Allegro Pay-activated consumers when it comes to how much they're spending compared to before they got credit from Allegro Pay. And not only that, they tend to be spending that money on higher-ticket items that are much higher than the average, which, therefore, also translates into better margin than we get on low-priced items because of Smart!, right? On low-margin items, we don't make very much money, if any, when we're down in the sort of PLN 40 to PLN 60 area. But when we're up in PLN 100, PLN 200, PLN 300 ticket items, we make great margins on those particular products.
So the short answer is that the BNPL part provides tremendous return on investment in terms of the marketplace margin that it's driving. And the final point I mentioned earlier as well, I mean, the main source of funding right now is obviously the senior debt that we have. We have -- the majority of that debt fully hedged at a very low rate compared to where LIBOR is at the moment. Hopefully that answers that question.
We've also got the third -- and the third one, yes, about the development costs. Yes. So this one, it is 2 things. One is the expansion of our tech organization to allow us to have the capacity to innovate right the way across the technology stack in terms of adding additional functionality. The biggest component that's a key focus right now are all these initiatives around internationalization in particular. There is also, obviously, the aspect of pay increases that is part of the increase in those costs. There's a global market for software engineers, especially the talented ones that we use because we have some of the best of the best in the Polish market. So that is also contributing to the numbers.
But as I said, going forward, we're really looking towards a stabilization of the size of the team. We think it's getting to the point where it's as big as we need. And going forward, that means that the growth in those numbers over time should start to level off.
Thank you, Michal. And meanwhile, I was able to get the questions from Annick, who couldn't ask these questions herself.
So the second question, can you confirm that CapEx is not shifting into next year? The quick answer is no, it's not.
And the first question is, can you talk about the Allegro.com opportunity? How much of the future guidance is baking in growth from here? And where are the buyers coming from here mostly?
Well, I'll cover the second one if you want.
Yes. Yes. Sure. Sure. Yes. I mean the Allegro.com in the first instance is providing the foundation for all the multi-language and everything that we want to build going forward. And at this point in time, it isn't something that we're actively marketing. So we're not looking to it to have a material impact in the short run on GMV. We'll probably get to marketing it more accurate -- actively later, and then we'll keep you posted on progress with that.
Yes, it's also an incredible source of customer- and seller-facing improvements, right? So -- and we're tackling those one by one and shopping quite a bit. But you took the one I was planning to answer. So you take the other one, too.
Did we miss something there? I didn't...
That was the first question.
Did we cover any impact on the guidance and where the buyers coming from, which countries.
So on the guidance, Jon answered where it's really not because at this stage, we're not heavily marketing it. And we're working on the sequential improvement in terms of customer experience.
Yes.
I mean, in terms of where the customers come from, it's reasonably, how do you say, it's -- let's say, the nearby countries are constituted as expected most of the shoppers when you launch something like this that is not fully marketed yet.
Yes. There's quite a lot coming from places like Lithuania, from Germany, Czech Republic, Slovakia. The further away you go logically, the more traces are the demand that's coming.
Great. Now we have questions from Sebastian Patulea from Jefferies.
I've got 2 questions, please. The first one, do you see some of your competitors slowing down their CapEx deployments, either in lockers or fulfillment centers or maybe even OpEx deployments in marketing, given Poland's proximity to the war?
And secondly, from a consumer perspective, do you see some users choosing to shop on Allegro, the local Polish commerce champion, versus choosing to shop on some of your Asian competitors maybe more from a patriotic sense?
Sure. I'll start, and Jon you build in. In terms of -- I mean, we've seen some of the news in terms of global spend, notably fulfillment of CapEx of Amazon, notably. That's somewhat expected. We start with a very different base, where we continue to maximize a very asset-light model, where most of our shipments, I mean, the overwhelming majority is done without touching it. And we have 1 fulfillment center that we continue to progress on to create a couple of -- to close a few gaps, let's call it that way, but we start from a different -- very different scale. And obviously, on lockers, we also target, as we say, about 3,000 by the end of the year. So at least in the impact it has on us, it's extremely limited.
In terms of shoppers and going to -- potentially going to Asian competitors, I think here you have 2, mostly AliExpress and Shopee. Here, as I said a little bit earlier, and it's true across a competitive set both local and international, we continue to see extremely limited impact from competitive activities. They obviously continue to develop their own road map. But in terms of active shoppers, frequency of shopping, any metric through the funnel, we see extremely limited impact because, again, we're able to sequentially continue to improve the shopping experience in -- on Allegro, whether it's selection, whether it's pricing, whether it's delivery. And we'll continue to do so and continue to expect the same results humbly, right?
The humble part is a keyword because when you lose that -- humble part is when you can lose the plot a little bit and get a little bit jaded because you have a head start.
Thank you, Sebastian. We have no more raised hands, but we did receive some questions on the chat from Konrad Ksiezopolski from Haitong.
Konrad, your first question about Shopee and Amazon has already been addressed. Then your second question is, do you consider lifting Allegro Smart! price to reflect inflation and growing costs?
I would tend to say, no announcement at this stage. I mean, keep in mind that the main driver within Smart!, it's not so much a subscription price, it's more the usage that consumers do and how frequently they transact. Now over time, we keep our options open. But obviously, we'll -- we won't do any -- yes. I don't know, if Jon, you want to add something...
As I was saying generally around the monetization, I mean, we're looking at the situation as it develops. It's dynamic around inflation. The price points, what -- can't stay -- in this kind of inflationary environment, they can't stay constant forever. But that doesn't mean that anything is going to happen in the immediate future. We're looking at it from a tactical perspective. And to a large extent, what happens with the suppliers and how they deal with the inflation versus the huge business that they get from us will also have an impact on what we can offer the consumer and what we can offer the merchants.
And the last question from Konrad was about the split of delivery volumes between APMs, lockers and couriers.
Unfortunately, Konrad, this is not a KPI which we provide and disclose. And with that...
Just maybe -- just let me underline though what I said earlier, right, in that 21 percentage point increase in courier in the mix from Q1 last year to Q1 this year because of all the investments we made to make courier more accessible within the Smart! program. Emphasize is one that customers actually appreciate courier delivery. But most importantly, it means that they took -- the couriers took far and away the majority of the volume growth between Q1 last year and Q1 this year as a result of those changes.
Going forward, Q-on-Q, because those changes are now quite a long way behind us, the incremental changes in the mix are now much lower. I think it's about 2 percentage points of increase in courier share between Q1 and Q4 if I recall.
Thank you, Jon, and thank you, everybody, for joining this call. Thank you for the active participation and your questions. If you still have any questions, please don't hesitate to call or e-mail us, and we will answer them. Goodbye.
Thank you.
Thank you. Bye-bye.