Inpost Sa

Good morning, my name is Gabriela Burdach and I am Investor Relations Director at InPost. Welcome to our Q1 2023 results call. A quick disclaimer, today's call includes forward-looking statements that are subject to risks and it is possible that actual results may differ materially. This call is being recorded and will be available on our website soon after the call. Today's presenters are Rafał Brzoska, our CEO, Michael Rouse, CEO International, and Adam Aleksandrowicz, CFO. We will have a Q&A session after the presentation. Rafał, over to you.

Thank you, Gabi, and thank you all for joining us this morning. It's been another exciting quarter of our Outperformance for Impulse, which I look forward to taking you through. But before we dive into details, let's remind ourselves of what makes us stand out. Our mission is to revolutionize last-mile e-commerce deliveries, but also returns across Europe, boosting convenience, economic efficiencies, and, of course, sustainability. With Parcel Lockers as our key enabler, we offer structural advantages to both merchants and consumers. That's why we are consistently gaining market share in all our key geographies. And it's time for a game-changing e-commerce experience. And we are leading the way. So let's jump into the next page. For those who have been following us for a while, you already know about our so-called flywheel concept, the business strategy that creates a self-reinforcing cycle of growth. And it's been from the beginning the key to our continued success and, of course, also driving force behind our international expansion. It all begins with bringing ourselves closer to consumers, offering next-day delivery and reducing the friction of online orders. This boosts convenience for consumers and, of course, encourages them naturally to choose our lockers as their preferred delivery method. While no logistics company has a kind of monopoly on people's front doors, the lockers of over 17 million strong Polish consumers base visits are actually our own. As our user base and their intensity of usage grows, we become increasingly relevant to merchants, further entrenching our competitive differentiation. Underpinning the flywheel are our investments in data and technology, and also recently into artificial intelligence. and our focus on sustainability, which is so inherent in our APM delivery model. On the next page, you can see three clear indications of why lockers are simply the most consumer centric, but also sustainable mass market solution for last mile delivery. You may recognize this page from our annual results call. Lockers are a more convenient solution for customers as they appreciate the ability to control their own collection times rather than being at the mercy of a traditional courier delivery. And this is something that old fashioned to door delivery companies cannot match. This is confirmed not only by our consistent ability to grow volumes ahead of the market, but also by third-party market research showing that our APMs record net promoter score of 81, a much higher level than any outdoor competitors. Happy customers are also a big win for merchants, as demonstrated by our merchant NPS, which is also significantly outperforming the rest of the market. Merchants trust us as a reliable partner, and it's a fundamental to our success. Lockers when correctly utilized, are a significantly better solution than traditional to-door delivery from also a sustainability perspective. In Poland, every merchant order that is delivered via one of our lockers can save up to 97% of the carbon footprint versus to-door last mile. And as merchants are increasingly focused on their suppliers' emissions, here, our differentiation versus PS will only increase. Next page, please. We are operating in nine European countries currently, with significant exposure to the larger British and French markets, which are the, by the way, number one and number three e-commerce markets in Europe. In France and the Benelux countries, we operate under Mondial Relay brand due to the existing customer base and excellent brand recognition. Everywhere else, we are expanding under the Infos branch. With almost 30,000 automated parcel machines across our entire network, we are the largest automated out-of-home network in Europe. And we are the market leader in Poland by a significant margin and enjoy, of course, market leading agnostic APM status in France and the UK. We also decided to continue a capital life expansion of traditional PUDO points. In some markets, it's very important to grow our client base for future automation, but also that allows us to address the enormous demand which we may simply address. On the next page, I'm super, super thrilled to share with you some of our impressive Q1 2023 highlights. Despite macro challenges, we achieved outstanding volume growth of more than 20% year on year and revenue of almost 2 billion Polish zloty, which is almost 30% increase from Q1 2022. Growing volume, operating leverage, continuous improvement in our logistics, as well as our ability to adjust prices helped us achieve an outstanding 36% growth in adjusted BDA. And it's all despite challenging cost environment due to rising inflation and fuel prices. On a group level, we generated positive free cash flow, which was driven by a very high free cash flow generation conversion in Poland at more than 56%. And the positive free cash flow led to a decrease in net leverage ratio to 3.0 times compared to 3.2 times at the end of last quarter. But Adam will provide you further details on this. In Poland, revenues increased by 29% year-on-year and volumes by 18%, resulting in a higher BDA margin of 45%. In international markets, volumes increased as well pretty nicely by 28% year-on-year and revenues by 30% year-on-year. We continue to expand our international network, increasing the number of out-of-home points by almost 40% in comparison to the last year. The international APM network increased by 19%, while PUDO points by 24%. And in the UK, we hit a major milestone by reaching 5,000 parcel lockers, and in France, 3,000 APMs. Next page, please. We have made a decision to no longer disclose market volume growth and declines. There are many different sources that show values in each of our key geographies. And no matter which source you are looking at, you can clearly see that our strong double digit volume growth consistently and massively surpasses market data in all of our key geographies as demonstrated by these various sources our q1 2023 revenue growth was driven primarily by volume and also by the finalization of the repricing process The strength of the repricing was different by market, of course, but you can clearly see continuation of the positive trend from Q4 2022. After having looked at our group as a whole, we are now going into more detail for each of the geographies that we cover. So let's jump in to Poland. Our consumer-centric strategy in our home market is focused on delivering a dense but also a convenient locker network to our customers. We strive to improve our network each year and take pride in being the clear market leader in automated out-of-home delivery in Poland. With over 60% of the Polish population already living within a seven-minute walk of four lockers and moreover 85% in urban areas, we ensure that our customers can easily access our services when and where they need them. And this is critical. Our mobile app with over 10 million users has a remarkable five-star rating on the App Store, the highest in our industry. We have a growing and devoted user base with almost 2 million more APM users in Poland than last year, totaling over 17 million of them. 44% of the Polish population already uses our lockers with nearly 3.4 million so-called super heavy users accounting for about 64% of our total volume. And these royal customers drive impulse growth and massively contribute to the outperformance of the Polish e-commerce market compared to most of Europe. On the other hand, also our merchant partnerships are crucial for our growth as we provide them with a sustainable and very cost effective solution that enhances the delivery and returns experience for their customers. In the last quarter alone, we launched label-less deliveries for Vinted. We initiated APM and fast returns deliveries through Zalando launch. And also we expanded our partnership with Amazon on fast returns. It's really exciting to see our merchant base grow by over 2,000 in the last quarter only, and now totaling over 50,000 merchants. On the next page, you may see in Q1 2023 that we delivered more than 130 million passes, which is, again, 18% more year on year. What's even more impressive is that our APM volumes grew even faster than the number of lockers, 18% versus 17%, which shows how we improve the efficiency of utilization as well. And our APMs are a cornerstone of our success. You may see that clearly on the third chart on the slide, illustrates how our APM utilization rates have steadily climbed post-installation and remain high. This is a very strong indication that our continuous efforts to improve the convenience have resulted in growing adoption and utilization. This is the merit of our end consumer centricity. This also proves that our APM network in Poland can still expand an attractive utilization and return on the investment. And now let's jump into the last page in my section. So it's all about the customers. They are fiercely loyal to InPost. As demonstrated on this chart, competing machines installed nearby or even on the same real estate have had little to, I would say even no impact on our machine performance, which is confirming that our customers, they really do trust in our brand. This confirms that in the absence of a significant difference in price or quality, simply our customers remain loyal to our services, given our much larger footprint and access to all major merchants in the country. Let me now hand over to Michael for the international part. Thank you very much.

Thanks, Rafa. Good morning, everybody. So let's go through our international business update, turning to page 15. The Mondial Relay out-of-home network has expanded to over 23,200 points, a 25% year-over-year increase, including 3,300 APMs, almost five times more versus Q1 last year. Over half of our APMs are deployed with national landlord partners like Lidl and Carrefour as we continue to target high footfall and high visible locations. We're expanding our coverage and density with 32% of the French population now living within a seven minute walk of an APM or a PUDO. So as we continue to invest in our market coverage, we observe more engagement from customers and merchants alike. Recently, we've actually been ranked third by Havas Media Group on the list of most meaningful B2B brands in France, behind such notable companies such as Microsoft and Google. Clearly, our investment in the market offering is still quite early, but that is quite an achievement, such early in this journey. And our mobile app downloads reached over 400,000 high ratings on both the App Store and Google Play. But our app journey is still early. Our merchant base also continues to grow with over 46,000 partners and almost 3,000 new ones added just in the last quarter alone. We're signing new contracts and extending cooperation with existing merchants to provide them the best possible experience. And the most recent example with the launch of the pilot of Mondial Relay Express, our D plus one offering to the first B2C customers, we're happy to report that our customer promise rate is over 95% since the launch of this program and client feedback has been super positive. So we will continue to invest and continue to optimize in the Mondial Relay Express product and its efficiency, looking to expand adoption with other merchants throughout the balance of the year. So what are the positive results of our actions in France? Q1 witnessed a robust growth across all Mondial markets, with volumes rising to 17% year over year, and our French volumes rising to 43.8 million, up by an impressive 11%. We continue in Q1 to capture market share gains and capitalise on growing demand. And to meet this accelerated demand, we've continued to invest to capture the market share against elevated labour costs driven by minimum wage increases and some marginal cost impact due to national strikes. Adam will further comment later in the financial sections on these. Our locker expansion strategy has been instrumental in driving volume growth. In Q1, APMs represented an impressive 10% of total parcel volumes in France, a significant increase from the 7% in Q4 22 and 1% in Q1 22. So volume growth in Q1 was led for the first time by B2C volumes, which grew by 15% as we see the early positive indicators of our increasing B2C focus with players like Sheen and Amazon. Our B2C services increased within our mix of merchant partners, but we've been more moderate with price increases As we go in exchange for volume, market share and ultimately adoption of lockers at checkout as we start the turning of the French flywheel. The chart on the right hand side of the slide shows the number of parcels per APM covered per month post installation. Encouragingly, we're thrilled to see the continuous adoption of lockers in France. What's even more encouraging is that the adoption rate of the 23 cord is keeping up with previous year, demonstrating the sustained traction of our lockers. So now let's move to the UK market, where we continue to see an immense growth potential. In Q1, we surpassed a staggering 5,000 APMs, a 53% increase year on year, making us the leading agnostic APM provider in the UK. Our focus on deploying larger machines with more lockers has improved our career economics. Additionally, we've begun to add poodle points in dense urban locations that have high footfall, but are not suitable for APMs to complement the network. We're pleased to say that in 12 of the UK major cities, 42% of residents are now within a seven-minute walk of an in-post APM. When deploying new APMs, we work together with major chains like we do across all markets and key landlords. And in the UK, 80% of our APMs have been installed at landlord and supermarket partners like Tesco, Sainsbury's, Morrison's and Lidl, to name a few. Again, key high footfall and visible locations. The chart in the center of the slide shows our growing UK consumer base. In Q1, over 1.3 million unique customers used our services, with almost 800,000 using instant returns and almost 600,000 using locker-to-locker, even though that product has been on a capped service since launch. Both the number of returns per customer as well as the number of locker to locker parcels bought per customer increased customer usage and retention every quarter, which is really encouraging signs now as we start to unlock the network. As for merchants, we partner with over 200 brands, including the UK's top retailers at the end of Q123. The number of sellers was 50% higher than Q122. And we note that this concerns only returns in locker to locker, while our B2C service in the UK is still not live, as we await the higher logistic capacity and coverage. On the next slide, in the UK, we continue to see tremendous growth with volumes reaching 7 million parcels and 95% increase year over year. This was largely driven by the successful launch of the locker-to-locker service we've ended, leading to a surge in C2X volumes. Returns have also continued to increase in line with our growing client base and higher input share check as we see the heavy repeat customer usage. Our total volumes in Q1 23 even exceeded peak season from the previous year. And as you can see in the middle chart, Consumer adoption of our APMs is on the rise, and our focus on deploying APMs in high-quality locations continues to pay off. We're making strides in profitability as we leverage the logistic capacity and see high repeat usage of the product services, resulting in improved adjusted EBITDA per parcel economics. The adjusted EBITDA per parcel reached minus 3.3 Polish Sloty in Q1, a significant improvement compared to Q4, and a significant improvement even further from Q1 2022. The high demand for our services in the UK is a clear indication of the increasing appetite amongst UK consumers for high-quality, automated, out-of-home delivery services. With a tremendous opportunity in the UK, we are focused on resolving the capacity bottlenecks that have hindered us up until this point and to fully maximise the potential of them all. market the good news is the transition is now completed in q2 and with the volume ramp up already commenced in may we're well on the way to to really attacking the market our plan for 23 is to continue expanding our network of apms and poodles to better serve our growing customer base and to capture the enormous opportunity the uk market represents i'll now hand over to adam to discuss the financials

Thanks, Michael. Good morning, everyone. Welcome. Now, let me take you through Q1 financial performance and then wrap up with 2023 full year outlook. On page 20, you can see our Q1 headline P&L for the group. Please note that this is the first quarter since about one and a half years when our year-on-year performance is fully comparable on a like-for-like basis. So we are not splitting out the module relay acquisition impact. A few main points I'd like to highlight on this slide. First of all, on the group level, we had revenue growth of almost 30% year on year, visibly higher than the volume growth. We will go through the drivers of this performance in detail in the following specific market slides. But clearly, price component in this quarter was an important element of our growth. Our adjusted EBITDA grew by 36.2% and EBITDA margin increased by 140 basis points, driven by a combination of Poland's margin improvement of 400 basis points, reduction of UK losses, and margin contraction at Mondial Relay, mainly caused by continued investment in operations. I'll talk more about CapEx shortly, but CapEx as a percentage of revenue was at 11.2%, notably lower than last year. As in 2022, CapEx was front-loaded in the first half of the year, but also we plan our CapEx for this year to be a bit lower intensity versus 2022. Net debt to EBITDA stood at three times, a decrease compared to 3.3 times at the end of Q1 last year, and 3.2 times as of December last year, mainly due to strong free cash flow generation. Now, looking specifically at Poland's performance on page 21, Volume growth in Q1 was at 18% versus same period last year with both APM and Tudor volumes increasing at a similar pace. That is 18 and 16% respectively. As already mentioned, pricing was a strong driver of our revenue growth, which is specifically visible in Poland. As we already mentioned a number of times last year, we expect that our prices to start catching up with inflation towards the end of last year and then in Q1. and that the price lag that hit our margins last year would revert in 2023. And hence, we have recorded the revenue growth in Q1 of 29%, showing 11 percentage points higher growth versus volume. Other revenue concerns mainly fulfillment services that grew by 2.5x to 10.6 million Polish zloty in Q1, while APM manufacturing revenue declined here on the air, partially offsetting positive fulfillment contribution. Our adjusted EBITDA posted a strong growth of 41% year-on-year. The adjusted EBITDA margin was up by 400 basis points compared to Q1 last year as a combination of good volume growth continuing to provide for operating leverage, significant contribution of positive price movements, and very good cost management in the operations that allowed to partially contain continued cost inflationary pressures. So all in all, very solid performance in Poland this quarter. Now looking at Mondial Relay performance on page 22. In the first quarter, the business experienced significant growth with volumes increasing by 17% year on year. This was driven mainly by France, with other markets improving their contribution to overall Mondial Relay business. In France, the volume increase was a result of strong B2C and cross-border parcel growth, as well as continued growth in C2C segment. Mondial real revenue exceeded 700 million Polish zloty, so above 19% year-on-year growth, reflecting some repricing effect, as well as positive segment mix effect. Adjusted EBITDA declined by 7% and adjusted EBITDA margin contracted by 280 basis points as a result of combination of factors. First of all, we have accelerated investment into logistics infrastructure in anticipation of higher demands that we have seen in Q4 2022, where our capacity was insufficient to handle the peak volumes. We also continue to prepare for D plus one services for B2C merchants. There was also some year-on-year cost step up as the Q1 low pre-war fuel cost has provided a tough comp on transportation costs. On the year-on-year comparison, labor costs increased driven by minimum wage growth in France, and that growth was slightly higher than what we have originally expected. Finally, there was some one-off impact from the national strikes in France. on the broader transportation space with some minor impact on our operations in this quarter. Moving on to our international business, which includes the UK and Italy performance, Q1 parcel volumes in our international markets increased by 172% compared to Q1 last year, and in total crossed the mark of 10 million parcels per quarter, with UK almost doubling volumes. UK growth in volume was generated despite the fact that we still had a cap on volumes in order to provide the right service quality and to handle our logistics costs properly. That means we still were not able to fully capture the volume and revenue potential of our services in this geography. Segment revenue in Q1 increased by 249%. International segment adjusted to post the decline of 4% year on year driven by a combination of reduced UK losses. Increase in Italy loss and investment into international overheads. Where we have significantly increased our tech capability is to support our international platform. I would specifically call out significant, almost 30% reduction in EBITDA loss in the UK this quarter. This is a visible reversal of the trend we have seen in the previous quarters to date, where growth in volume was driving increase in absolute EBITDA loss, despite unit economics incrementally improving. Now we are starting to see operating leverage better pronounced, where continued strong volume growth translates to loss reductions, which is very, very encouraging. Moving to page 24, as already highlighted by Michael, the UK has seen a strong volume uptake in the recent periods on the back of the launch of our Locker to Locker services, as well as the growth in returns. This growth continued in Q1 2023. Our revenue per parcel increased by nearly 5% versus Q4 2022, reflecting the repricing effect, partially offset by adverse foreign exchange rates fluctuations. Our product mix leaning more towards locker usage is driving operating leverage and optimizing our operating cost, which is visible at the adjusted EBITDA per parcel level, which was successfully brought down by 64% versus the same quarter last year. Now turning to items below EBITDA on page 25. Operating EBITDA was up by 35.3% year-on-year to over 545 million Polish zloty, with 27.3% EBITDA margin. Below the EBITDA line, the IFRS 16 costs grew by almost 46%, where majority of growth was from increase in leases driven by increase in space for our sorting hubs and depot expansion. Depreciation and amortization of property plant and equipment grew by almost 34%, which was directly connected with farther APM network development across all key geographies. As a result, we have delivered 36% year-on-year EBIT growth at 13.4 EBIT margin. That is 60 basis points EBIT margin expansion. On the net financial cost, there was an increase of interest expenses driven by the higher rates on our PLN-denominated floating portion of debt. Finally, the net income for the quarter increased by 67% year-on-year to almost 116 million Polish zloty. I would also comment on the high effective tax rate, which, when you just look at the consolidated pre-tax profit, is nearing 34%. Part of that is driven by the international tax losses, which do not create any tax shield on the group level at this stage. When you add back that international tax losses, then the effective tax rate is closer to 26%, which we would expect is a normal level for the group. Looking at the bridge between adjusted EBITDA and free cash flow on page 26, we break the free cash flow down to Poland and international. By doing that, I'd like to highlight that both high free cash flow generation and EBITDA cash conversion significantly improved in Poland to 56% versus 28% in Q1 last year. As in previous quarters, we have partially reinvested this cash into international expansion in our core markets. However, as the CAPEX intensity has reduced together with overall margin improvement, we see better free cash flow generation for the group. Now looking at our group capex in more detail on page 27, three main things to call out. First of all, development of our APM network is still the key driver behind our capital expenditure. It's worth noting that 45% of our capex in Q1 was attributable to international markets. And we expect this percentage to increase to over 50% for the full year 2023. Looking specifically at the CAPEX intensity ratio, this has decreased in all our key geographies. That change in intensity year on year was partially driven by 2022 CAPEX front loading in the first half of the year, while 2023 is expected to be faced more evenly across the quarters. At the same time as guided previously, we do not expect our full year 2023 CAPEX to reduce versus 2022. will probably land at a similar nominal capex spent for the year. Looking at net debt and leverage on page 28, there was a slight increase in utilization of our RCF at the end of the quarter, while the increase in gross debt was mainly due to the increase of IFRS 16 lease liabilities, as we have scaled up our operations and deployed new assets. Thanks to better cash generation, we managed to keep the net debt almost flat versus end of 2022. The net leverage stood there for three times EBITDA down by 0.2 turn of EBITDA compared to 2022 year end ratio. And finally moving to full year 2023 outlook on page 30. In terms of full year 2023, we keep the outlook unchanged versus what we have communicated together with our 2022 full year results back in March. Just as a reminder, this year the group will focus on three main areas. First of all, exceeding market volume growth in Poland while expanding margins. Secondly, continuing to invest in Mondial Relay to lay foundations for gaining more B2C market share while improving operational performance. and starting translating this into better margins. And finally, resolving logistics challenges in the UK to enable market share growth and continue to grow well ahead of the market in the future. We feel comfortable with our assumptions for this year. However, we also note that this guidance is ambitious, especially on the back of uncertainty around slowing consumer demand, pressure on cost, increase in minimal wages, and overall macro environment. Out of all of our focus areas, mondial relay margin step up is a challenge on the back of accelerated investment into logistics infrastructure that we need to make ahead of volumes in the shaky and uncertain market conditions. But we do expect, just like we saw in Q1 2023, to gain more B2C market share in France. And finally, commenting on the Q2 trading, We are aware of the overall market slowdown this quarter and anticipate a slightly lower growth pace in Q2 2023 compared to Q1. However, we still expect double digit growth in all of our key segments and markets. It's also worth pointing out that Q2 and Q3 of 2022 were relatively strong quarters in terms of absolute volume levels, both in Poland and for the group as a whole. which creates a challenging comb for growth. So that is all from my side. Thank you for your attention, and let's start Q&A part.

If you would like to ask a question, please press star 1 on your telephone keypad. Please ensure your line is unmuted locally, as you'll be advised when to ask your question. The first question comes from the line of Ivar Bilford-Kelly from UBS. Please go ahead.

Good morning, everyone. Thank you for the presentation. Maybe if we start with the UK, even though the partial has improved quite a lot, but it does still remain some way off break-even. Can you please give us a bit more on moving parts and expectations to reach break-even on a run rate basis by the end of the year? And linked to that, you still talk about having to turn down volume But what is your sense of the level of demand you could have today if capacity wasn't an issue? And secondly, margins in Mondial and France were a bit weaker than had been expected by consensus. So how should we think about the cost base evolving from here? Presumably new services have a large element of fixed costs. So can you give us an estimate of the margin you could expect to get on incremental volumes? And then maybe a quick one to tie it all off. Given your close relationship with Allegro in Poland and their recent launch in Czechia, would you consider entering that market? And if so, how would you evaluate that opportunity? Thank you.

Shall I take the first question? Can I just ask you to repeat the third question? I didn't capture it properly.

So it's in respect of the moving to break even on a run rate basis. in the UK, just the moving parts for that and how we can expect that to evolve.

Yeah, so just I think I caught the first two parts in the UK, just let me reframe it. One, we are making clearly an increase in changing capacity. I think a few of the things we've said in previous calls is there's a clear number of tipping points that we're working towards in the UK to enable the break-even, but one of them is really firstly to be able to get to about 6,000 locations or lockers, and two, then really to be able to leverage that that number of locations against the right capacity and logistics framework. I think what we've been able to demonstrate clearly as we're increasing the locker coverage, we're seeing the increased unit economics, and that's also being complemented by the further optimization of our existing logistics, but we have been constrained. And what we've been able to do across the end of Q1 and now starting Q2 is actually bring on board another third party location logistics provider that will allow us to give us natural coverage, better quality, and also provide us further exclusivity as we sort of expand the network from a logistics offering point of view. And that will also allow us to expand product offering going forward in the future, but near term will allow us to satisfy the demand that we have. I think I shared in previous quarterly updates, I think the demand we had actually in the Q3, Q4 for our services was about six times higher than what we could serve. But clearly we've been able to serve some of that capacity as we've grown the network. across Q3, Q4 and now in Q1 and probably at least the demand we have we see right now is at least two times what we could actually service which clearly the logistics capacity opening up will enable that and that will clearly target us towards break even as we get in the second half in Q4 of this year.

my end happy to answer the question about our allegro relationship also in terms of check activities so as you may realized i think we we really try uh to work even harder with our friends from allegro to shape the right service for their expansion and yes we are part of the journey part of the process of shipping parcel from poland to czech republic although we we are not considering any last mile activities uh in in czech republic at this stage so we we help to collect we help to move the parcel to the depots and to provide a cross-border solution but the last mile uh is not lying in our hands so passing to to adam about the margin and mondial

Yeah, thanks, Rafał. So maybe just to recap on the Q1 margin development again, just to reiterate two points, I think. First one was, again, you know, the comp base of the fuel cost in Q1, so pre-war versus the post-war fuel cost. It was definitely, you know, a step-up element that, you know, has put some pressure on the cost side. I think from you to onwards, we would expect to have a like for like, you know, fuel base for the cost comparison. So that's one element. The second element is What I alluded to, which is in general, the labor inflation and the minimum wage regulation in France was introducing slightly higher increase in the labor than what we originally expected. That's definitely going to carry into the year. So that is definitely an inflationary element that we're going to see to continue into the year. But the most important is really, you know, the build out of the of the network and of the infrastructure. And as you remember, the Q4, when in Q4 we have reported we had some extra cost of managing car peak. because of insufficient capacity, which essentially has put pressure on cost. We want to avoid that for two reasons. I mean, first of all, to have a more Faced more stable, more predictable cost base, but secondly, and probably more importantly to have the right capacity. To manage, you know, the growth, especially in the B2C space where, you know, on time delivery and delivery promises is a much more important element compared to the C2C segment. And then secondly, to be able to accommodate the growth that we hope to capture in the market. So we have decided to run a bit more aggressively in terms of infrastructure build out, most notably in the logistics space, in the depots and hubs. And that definitely is elevating our fixed cost base. Now, if we capture that growth that we so far are quite successfully capturing, that would mean we start seeing operating leverage on the base of those costs into the second half of the year. And then, secondly, we should be also seeing a better and more pronounced segment mix in our pricing. There was a very slight pricing improvement in the first quarter, as you have seen, on the back of the increasing B2C share. which is part of the growth strategy for the market and also ability to develop D plus one towards the end of the year. We would hope that also contributes very positively to our top line and therefore should support margin improvement going forward. Obviously, that is also a function of what competitive dynamics we see in the market and how tough the market is in terms of overall growth in the e-commerce and more notably B2C space. So a couple of moving parts, but in a nutshell, the strategy is continue to build out the infrastructure and then see the operating leverage coming through accompanied by the pricing benefit from the segment mix. That's in a nutshell the Mondial Relay margin dynamics into the second half of this year.

All very clear. Thank you very much.

The next question comes from the line of Sam Bland from JP Morgan. Please go ahead.

Thanks for taking the question. I have two, please. The first one is on the current market or volume situation in Poland. I think there's some headlines saying maybe April's a little bit slower, May better. But then I think there was also a talk that May was helped by sort of tax refunds or something for Polish consumers. So I don't know, do you view that as sort of a one-off benefit? Like what do you think overall the market's getting better or worse? And the second question is, we just heard about in France, sort of expanding capacity and that initially comes with a sort of margin reduction. Would a similar thing happen in the UK when you have this new logistics plan, which I guess is to increase capacity somehow? Does that come with a sort of upfront margin reduction before you then build back the volumes? Thank you.

Happy to answer both questions. So first one, indeed, we still observe a very volatile market. Just to give you a view, first half of April was super, super weak. Second half of April gave a catch up. So the overall April, according to our ambitious plans, had been very good. although many e-commerce players, they were suffering a lot. And we saw a lot of negative sentiment around some of the players. So we simply have a very volatile market. May seems to be strong fueled by the tax returns. At least that's the hypothesis coming from the economists. But again, when you look at the consumer sentiment and you see some of the official statistics from Q1, you see clearly that the consumer sentiment is still under pressure. So very hard to predict, very hard to judge. Also, you know, looking at the future, some declarations about again fueling consumers pockets with additional additional social support from the government we are in an election year bear in mind that so many question marks and and many surprises ahead of us uh i guess uh but our dynamics from first First view is, as Adam said, we keep our full year outlook, which should be a kind of indication of where we sit. Second question about expanding capacity. Bear in mind that it's a completely different setup. In France, we bought logistics already with suboptimal depot network for the size of the country and for the express deliveries. In the UK, the whole business case you see currently is based on subcontracting the third-party providers, which you may guess is... suboptimal in terms of the profitability is not giving advantage on the volume and stop rate efficiency. So the whole operating leverage with subcontracted business model is that the more is delivered or the subcontractor earns, not us. So we try to reshape that in a way you see already in the presentation that the unit economics has improved massively, almost you know, decrease the loss by 60%, thanks to higher density, but also thanks to supervision of the volume on our end, making planning much better. So still parcels are in subcontracting sense, but now in a more diversified way with the new new subcontractor lending. Recently, we expect further improvement of the of the unit economics. So it's a little bit different. Also, bear in mind that French market is very fragmented in terms of ecommerce. Volume in the UK, 70% of the e-commerce GMV sits in top three clusters, London, Manchester, Birmingham, where we already have a very dense network. So you can't compare both markets, you know, as same. So this will be slightly different setup than in France.

Okay, understood. Thank you.

Next question, it comes from the line of Paul from Bank of America. Please go ahead.

Hi, good morning. Thank you for taking my questions. I have two. Could you talk about broadly what's driving the strong outperformance versus the wider market in Poland? Because if you look at some of the data points, it seems you're significantly above those. Then for my second question, there was distinct benefit of repricing in Q1 margin, and we understand those repricing efforts are now behind us. Could you give us your visibility on Q2 margins, please?

Thank you. So maybe I will address the first question and then I will hand over to Adam. Yeah, indeed. Outperformance in Poland is massive. That's why we've also not presented the official stats as we believe something might be wrong there. And we want to see the Q2 results and maybe triangulate them with some other public companies from the Ecom space publishing their results. The outperformance is mostly driven by extreme loyalization of the consumer base. And this was something what we were always communicating. You know, this is not about deploying physically machines on the ground to replicate impulse business model. It's all about the whole setup, the whole process. flywheel that's fueled, of course, by the density of the machines, technology, mobile app, pricing, stickiness of the merchants, stickiness of the end users base, and also a little bit fueled by the smart repricing that we've conducted, giving relief to merchants, not passing all the costs to merchants in exchange for better visibility, better visibility on volumes, which allows us to plan our operations much more efficiently, thanks to which our operating leverage has increased. And that was one of the reasons why, again, we've improved our EBITDA margin. But yeah, this is a whole setup about end consumer centricity. And we are super happy that whatever we said two years ago at IPO is literally now visible in our outperformance chart. Looking at the other players, the others are struggling. We are taking over their volume.

Yeah, and maybe just commenting on the question around the margins for Q2, I'd probably hope from giving you a precise number, it's just what Rafa mentioned, which is there is a very subtle balance between profitability growth and therefore our pricing strategy has to be smart and has to be um to to an extent you know reactive to what's going on in the marketplace at the same time uh as you are all aware and i also mentioned you know commenting on france you know the the inflationary pressures are there uh and they're quite quite visible um as as we said you know in q1 we were quite successful managing those especially in poland But, you know, look, it's challenging environment. It still continues to be very challenging environment. There's lots of pressure on the margins. We'll definitely continue what we've been doing in Q1 into Q2 and the rest of the year. But I think, you know, in general, you know, it's challenging here, although we managed to beat the market growth quite visibly, despite the fact we're able to put, you know, visible price increases through. The margins are definitely under pressure and there'll be challenges, you know, to manage the margin pressure. Thank you.

Next question comes from the line of Lisa Wing from Goldman Sachs. Please go ahead.

Hi, good morning. It's Lisa Yang from Goldman. A couple of questions, please. Firstly, on the price per parcel, I was obviously pleasantly surprised to see time selling Poland for lockers and strong double digits for two-door. I think you said on the previous call we should expect mid to high single digits. in part from repricing or basically being the gap between the volume growth and the revenue growth. Does that still apply or could that be conservative given what you achieved in the first quarter? Second question on the free cash flow. You obviously reiterated your guidance to reach free cash flow by the end of the year, but you're already free cash flow positive in Q1. So any reason to think why you would go back to negative in the coming quarters or Basically, yeah, we should just expect positive cash flow to continue for the rest of the year. And last question, I was just wondering if you can provide an update on competition across the three markets, across all your markets in terms of given the demand you're seeing, I'm just wondering whether you're seeing maybe competitors becoming more aggressive in sort of rolling out their own lockers, whether it's in Poland or in France or the UK. And also, if you could just remind us, following the repricing, how does your pricing compare to competitors, whether they are local competitors or two-door competitors? So we just know what's the pricing advantage of InPost. Thank you.

uh shall i take the first two and i'll leave the the third one uh for raffle so in in terms of pricing um i i think would still hold you know to our previous original guidance uh i think you know there is a difference between the comp base for the price you know first half second half so as you remember you know we've been gradually reacting in terms of price adjustments already immediately after the war outbreak although our ability to react was somehow limited you know by the contractual provisions in our contracts and therefore we're saying you know we're going to experience some pricing clock which is going to then happen and be more visible you know in q4 last year and beginning of this year and therefore you know if you then look uh on the like for like you know price increase you know, in the second half, you know, the percentage increase will be somehow lower. And therefore, the blended full year price adjustment will be probably in the mid to high single digits. So I'd stick to that. And then the second one on the free cash flows, I think, you know, we're saying, you know, we will deliver a positive free cash flow. Now, again, you know, first quarter is... um is held by the fact compared to last year as you remember last year capex was front loaded we were addressing the um supply chain bottlenecks you know that that kind of were appearing in in the postcode world and therefore we've brought capex spent forward quite visibly whereas this year we facing It out more evenly. What that kind of means is probably we would expect to be delivering, you know, similar levels of free cash flows quarter on quarter into the rest of the year. And the third one, Rafa, if you may. Yes, sure.

So in terms of competition, you know, I hear the same story. You know, the world without competition is not the right world. So let them try. Let's see how they execute. And it's not our role to look at the competition. We are the trendsetter. We are developing the most dense network across Europe. And so far, this is the most successful network in Europe. So the answer is yes, the others are trying. The pace of the development on our end is three, four times faster than the others. to have combined. And we strongly believe that, again, what we have proven already in Poland, irrespective of the competitive moves, when we look at the size of the markets, we develop our solution, UK, France, Italy, Spain, you'll see clearly those markets combined are seven to eight times bigger than the Polish market. And the demand is much higher than the capacity we may solely provide. And so that's why, you know, the answer is pretty obvious. Rather, we feel the competitive angle comes from the PUDO points operators because this is capex light very efficient and very fast way of developing out of home capabilities uh and and and here we see competitive um activities mostly in terms of the pricing we try to always adjust the price to the market conditions um there are competitors who are much cheaper than us And still they are struggling in capturing the volume because, as I said, it has nothing to do with the end last mile solution, meaning the box is a combination of multiple factors making people convinced that they vote for the right brand and they choose consciously with whom they want to work with on the merchant side, and whom they want to deliver their parcel on the end users base.

That's helpful. Thank you.

The next question comes from the line of David Kirsten from Jeffrey, please go ahead.

Good morning, gentlemen. Thank you for taking my question. I've got three. First of all, on the repricing, you had Allegro last November. Can you talk a little bit more about the repricing in the non-Allegro channel in the first quarter of this year, and will this still provide support to your top line in the second quarter, as well as to your EBITDA margin, or will the margin impact from repricing be partly offset by less operational leverage in the second quarter? And secondly, on follow-up on the competition, Do you still see Allegro adding new automated parcel machines in the Polish market, or has that strategy from Allegro changed with regards to the expansion in the APM network? And then finally, on the solving of the UK logistics bottlenecks, I think in the last call you alluded to an imminent announcement. Has your strategy changed around the logistics in the UK? Thank you very much.

So let me start maybe with the last question first. So nothing has changed, David. We said we will try to resolve the capacity constraint topic on two ways. First one is the organic way, including having more subcontractors, more reliable subcontractors with more capacity. which we are testing right now. Second opportunity is still look at some potential assets that might be like helpful in our organic strategy or even may accelerate the development of the UK business. so uh so today there is no decision uh which is the preferred one that's why we are pursuing both scenarios not to be in a position that before peak we have got no capacity In terms of the Allegro machines deployment, frankly, we are not observing that for a while as we rather focus on the new fields of development with Allegro, but I think Allegro is announcing their results pretty soon. So you may ask them that question directly. In terms of the repricing and the non-Allegro channel, know this is a process some of the uh some of the merchants they've been reprised in q1 some of them uh apply the repricing uh the new pricing grid in beginning of q2 so there will be a visible effect on the repricing on the other hand like you rightly said might be a little bit offset by the uh by the volume although we don't know you know how the the rest of the q2 evolves as i said may look surprisingly good volume wise as well so let's see the evolution of the of the coming two weeks and june uh and and then uh we'll see as i said uh whatever is happening we will beat the market looking at the current dynamics we will definitely beat the market again in terms of the volume growth

Yeah, that's great. Sounds good. And maybe a quick follow up on the longer term profitability outlook for Poland. What does it take to get back to the previous guidance you had at the time of the IPO? Would you say your pricing is now in the right place? And is it mainly accelerating volume growth and operational leverage that would drive a further recovery in the high 40s range?

In a nutshell, I'd say yes, obviously with a caveat, you know, a lot depends on the development of the inflation rate in Poland and especially, you know, the inflation in the labor and energy space. So all other things being constant is probably one thing that is the biggest moving part and is least in our control. But otherwise, I feel like, yes, in terms of scale, operating leverage, productivity improvements and also pricing. You know, we have everything, you know, lined up, you know, to drive our margin improvement going forward.

Sounds good. Thank you very much, gentlemen.

The next question comes from the line of Hank Slotboom from the Idea. Please go ahead.

Good morning, gentlemen, and good morning, Gabby. I would like to dig in a little bit further on the B2C development in France. I'm pleased to see that you've launched the D plus one product. I think it's a pretty unique concept in a market where 48 and 72 hours is the standard. What do you see in terms of competition there? Is, for example, La Poste trying to follow you? How far are you ahead of them? And should I see D plus one as a premium product to the standard product? Hence, does it contribute to a further improvement of the revenue per parcel? Second question also on B2C, but then more towards the UK. I'm also reading in your press release that that is one of your focal points to strengthen your position in B2C, both for France and for the UK. What percentage of your volume is currently B2C? Those are my questions. Thank you.

Shall I take that? Good morning, Hank. I think firstly, hear me?

Yeah, go on, Michael.

Okay, just checking. Yeah, good morning. Just quickly to answer the UK, firstly. Currently, our UK business, 0% is B2C, just to highlight that. Our focus on the UK today has been on returns and on C2X products, consumer to door, consumer to locker products, and will continue to be for the balance of this year. But clearly, as we continue to expand the network and now bring on board new logistics providers, then that's something that we will look at mainly for 24 and beyond. When it comes to France, it's still very early in our D plus one offering. And yes, the D plus one offering is a premium offering versus the current product mix. And clearly, we're still in testing phase. I think the critical factor is continuing to build out the network and the flows, as Rafael said. talked about earlier, the network was significantly underinvested when we acquired the company to really serve that type of product. So there's still restrictions on who we can serve and how we can serve because of the network limitations, but we continue to push forward on it. When I look at the competitive set, you're right in that the D plus one offer is still underdeveloped in France. But, you know, La Poste Group do have an offering that goes to market quite successfully on that. So they are the main competitor in that space. But clearly the market really wants an alternative. And we're seeing John Gerard- demand already not just for D plus one but generally for our b2c offer as we've invested in the in the locker network, just as an overall offering. John Gerard- that's really what's also driving a lot of our our overall growth as you've seen in Q1, which is basically b2c customers adopt adopting lockers as an alternative as part of the right of home offering and that's seeing continued customer uptake.

Perhaps a brief follow-up. I was looking in the Q2 presentation of last year. I believe the share you had in B2C was around 8%. Has it entered the double-digit territory already in terms of market share?

It's hard to quantify based on whatever data set you are. I think generally we've seen a market share increase the exact amount. I don't think we can actually quote on at this point, mainly because of the market changes over the last 12 months, because we've seen a decline in the market overall as well. But certainly it's gone north in a positive direction.

Well, perhaps another way of phrasing it, just to get a rough idea what percentage of the volume on the French market, the total market is B2C and what is C2C, roughly? Is it 85-15, something like that?

Overall, I think C2C is about 30% directionally and B2C is about 70% to give you direction.

Okay, that's very helpful. Thank you very much.

You're welcome.

The next question comes from the line of Satish Supakumar from Citigroup. Please go ahead.

Yeah, thank you. I got two questions here. So the first one is around the new merchants you're onboarded. You flagged that about 2,000 merchants were added. Can you just share some color? What is the typical volume size of those merchants are compared to, say, the merchants that you added last year versus your average merchants? And then just slightly more related to that, can you compare the average basket size of the consumers going through InPost across three markets in Poland, SLS in France, and UK? That'll be super helpful. Thank you.

Prof. Oskar answering. So, you know, it's regarding 2,000 merchants. It's a typical mix. So there are a few large, really large international players. There are most probably around 30% of big players. And the rest is SMEs, so small and mid-sized merchants. So nothing what we are like measuring precisely, such level of granulation we are not providing. In terms of the basket size, you know, we are handling the volume. um once we launch our payment system in poland we may give you um view on the on the basket value but as you can imagine currently we have no clue what people order uh what's in the parcel how much they spend on average parcel if if that was the the merit of the question

The reason is during the IPO, one of the structural growth for enforcers that as you see average basket price come down, that meant that it will actually increase e-commerce penetration. But obviously, you have seen some market dynamics change in the last six to eight months. I was just trying to understand. Are we seeing that structural trend or is it kind of plateaued off? Yeah, that's it. Thank you.

I don't think so. We have such a data point, but passing to Adam, if I'm wrong.

No, obviously not for impost. For the broader market, obviously, yes. But again, it's approximation. Nobody kind of shares this data. You just base that knowledge based on the general kind of market research firms, which have their approximation and data points. Obviously, if you look today... on the evolution of the average basket is very much distorted by the abnormal inflation levels. So if we're still in a territory of mid-teens of CPI inflation in Poland, it does have an impact on the evolution of the average basket. So historically, what we have seen until 2021 really was that the increased penetration and increased frequency of purchase really of the existing e-commerce consumers was actually driving the reduction, continuous and consistent reduction in the average basket, because obviously increased frequency of purchase means you shop more often, you buy less, right, at the time. And that overly, in general, was kind of driving the volumes right now. Obviously, we see that the average basket has increased and it has increased in the total market, not in post specifically, but in the total market close to double digits because of the inflation. Now, clearly, if you look at the real change, so inflation adjusted, it's pretty much stable year on year. especially last year, right? It's less credible data for Q1 of this year, but if you look at last year, it was pretty much flat. Okay, thank you. Thanks, Adam.

We have no further questions on the phone lines, so I will now hand over for webcast questions.

Thank you to all those who have submitted their questions via the webcast. The first question comes from Michelle Stefaniak from Apoc.TV. Your current maintenance capex is very low at sub 1% APM revenue. How do you see it evolve over time as your APM fleet ages? Adam, if I could direct that to you, please. Yeah, sure.

So maybe I'll start with a reminder. We've made it clear a couple of times, but just to repeat. So our accounting policies are such that we expense our APM maintenance costs. So you see all of that in the P&L. And as P&L evolves together with the size and the vintage structure of the estate, it's blended into our margin. So what constitutes the maintenance capex is really the replacement of the equipment in the logistics space. So if you look at the sorting hubs and depots, all the equipment that needs to be replaced as a function of wear and tear is what what builds our maintenance um capex line and then if you if you think obviously that we also expand on on that part of our infrastructure so we build out our depots we build out our hops especially you know in france but continuously in poland as well um you know we don't expect this to be more intensive than 1% of revenue going forward. So again, you know, the volume expansion and the revenue expansion, especially as you see the price effect, you know, this year, you know, going forward for the next good couple of years, we expect the replacement CapEx to continue to hover around 1% of revenue.

Thank you, Adam. The next question comes from Zhizhen Chen at Santander. For the purpose of further expansion, will Impost consider any M&A of logistics or e-commerce solution providers in Western Europe? Rafael, if I could direct that to you, please.

Yeah, so I think I already addressed that point. So we are not considering currently for sure any e-comm solution providers. It's not in our scope of development. potential we may see is in the UK for rather a kind of backbone logistics assets where we might be interested. So these are not like obvious assets in the meaning of big courier companies existing on the UK market. Of course not. We want to be selective, precisely more tactical hit than a kind of strategical move.

Yeah, that's it. Thanks, Rafael. The next question comes from Joachim Aske at DEFA. Could you give a more detailed update on the progress of your B2C plans in France and the UK and the roadmap slash milestones you're seeing over the next 12 to 24 months for B2C in both countries? Rafal, if I could direct that to you, please.

Yeah, so I mean, again, we touched that topic already. B2C is super important for us. C2C is attractive, but it's a limited scope. B2C is an obvious target as we did in Poland. And there are only a few milestones. We have to have enough density to make that value proposition attractive for merchants. We need to have a good, reliable brand uh because that's what really fueling the the retention and what improves the customer satisfaction so if we have satisfied customers every merchant want to uh collaborate with a provider um because that's that's bringing retention which is now uh a key uh a key focus for most of the merchants in this inflationary environment so building density building capabilities for d plus one those are the key enablers and of course strengthening the brand presence uh across the market uh to be visibly uh an innovative solution a disruptor for former from from merchants point of view willing then to integrate. And the willingness to integrate is very important because also the integration sometimes takes even six to 12 months. So from that decision to have a go live decision, sometimes really it takes time. So this is a cascade of goals we are executing literally on daily basis for most of the merchants we already collaborate. But very important caveat here, thanks to our international presence, of course, most of the international brands already work with InPost because of the Polish angle. So we don't need to convince them. They simply say, guys, once you are ready, let us know. We'll switch you on because the integration is already done based on our experience. from Poland. So that's a kind of shortcut, a remarkable shortcut in our B2C expansion on other geographies.

Thank you. And the final question for today comes from Zhizhong Chen at Santander. Could you share with us your plan for any dividend distribution in the next four to eight quarters? Adam, if I could direct this to you, please.

Sure, happy to take that one. So our dividend policy is very clear and has been very consistent in terms of what we've communicated around the IPO and we've been consistent ever since. which is we said back you know early in 2021 we we did not foresee the company to distribute any dividends to shareholders for the next four to five years and given the growth opportunity and market share capture opportunity and also international expansion we thought that value creation and showholder value creation would be better delivered by Reinvesting the capital into international expansion and building truly pan-European e-commerce delivery platform. And we think, you know, it holds true and it holds, you know, very relevant now. So for the next several quarters, and I think it's more than just six to eight quarters, still no dividend distribution in the plans. Thank you.

Thank you, Adam. There appear to be no further questions from the online audience, so I'd like to hand back to Rafal for any additional or closing remarks.

Yeah, thank you, Jack. So, ladies and gentlemen, at the end, I'd like really to be very explicit here. We stand here today really super energized by a massive year-on-year volume increase, but also the robust revenue growth, which I think is a clear evidence of our relentless determination to exceed market expectations, but also our... strategic maneuvers in the face of rising inflation, fuel prices, war in Ukraine, have not only resulted in this immense 30, more than 35% growth in our adjusted BDA, but also, as I think, a considerable drop in net leverage ratio, because some of you very often ask us that question, what we want to do with that. Furthermore, our commitment to customer convenience and accessibility has given rise to a loyal user base 44% of the Polish population, but also the fast developing international presence. And our robust expansion strategies, I think, also reflected in the international growth with Mundial. Still, I'm reminding you, it's a marathon. It's not a sprint. But now boosting a 25% year-on-year increase in our out-of-home points, that's also a remarkable sign of our commitment. And most exciting, meanwhile, you know, our UK market is really striving with over 5000 APMs already, making us the leading agnostic APM provider on the British market. And our customers, they are choosing Inpose and they are choosing us for our convenience, reliability and our innovation. So to conclude, we are not just a business, we are a kind of force of disruption, a driver for growth and a beacon of resilience in the e-commerce industry. Our Q1 results prove that we are not just surviving like some of the players, we are really thriving. So as we continue to journey for 2023, Guys, we invite you to join us as we rewrite the future of e-commerce. But also 26th and 27th of June, we invite all of you to our Capital Market Days. Hope to see you soon there. Thank you very much.