Inpost Sa

Good morning, my name is Gabriela Burdach and I'm the Investor Relations Director at InPost. Welcome to InPost Q3 2023 earnings call. A quick disclaimer, today's call includes forward-looking statements that are subject to risks and it is possible that the actual results may differ materially. The call is being recorded and it will be available at our IR website shortly after the call. After the slides, we will have a Q&A session and today's presenters are Rafał Brzoska, CEO, Michael Rouse, CEO International, and Adam Aleksandrowicz, CFO. I am now pleased to hand over to our CEO, Rafał, over to you.

Good morning. Thank you, Gabi, and thank you all for joining us this morning. Let me start with the broader perspective. We are operating in nine European countries and have significant exposure to the largest e-commerce markets in the region, the UK, France, and Spain. On the slide, you can see data as of the end of the third quarter. However, currently we have already deployed over 33,000 APMs in Europe, 36% of which are situated outside of Poland. Including our PUDO points, we have over 62,000 locations across Europe, which makes us one of the leading out-of-home delivery companies in Europe. Moving on to the next page, I'm thrilled to share with you some of our impressive Q3 2023 highlights. On a group level, despite a still challenging macro backdrop and pretty soft September, in Q3, we achieved a very strong volume growth of 18% year-on-year and revenue of almost 2.1 billion polysloty, corresponding to a 22% increase compared to Q3 2022. The growth in volume, which underpinned our operating leverage, together with the continuous improvements in our logistics and our repricing strategy, helped us achieve a fantastic 40% growth in adjusted WDA at group level. The positive free cash flow and adjusted WDA growth led to a decrease in net leverage ratio to 2.6 times compared to 3.2 times at the end of last year. In Poland, we witnessed a substantial 24% year-on-year revenue growth, together with a 13% year-on-year increase in parcel volumes. This impressive performance led to an EBDA margin of 46%, which exceeded last year's result. On the other hand, in our international markets, volumes and revenues increased by 28% and 20% respectively. We continue to expand our international network, increasing the number of out-of-home points. And in the UK, we are now the number one APM network. And for the first time, we have achieved a positive adjusted BDA, thanks to the strong demand for our services and delivery on strategy. During our Q2 earnings call, I highlighted that we had delivered a very important goal that we had for this year, which consisted in addressing the logistics bottleneck in the UK. This quarter, we have achieved an additional goal, a massive achievement in my opinion, reaching profitability in the UK. This was accomplished with a market offering that is still partially limited as the B2C segment in the UK is still to be launched. Next page, please. As you can see in these three charts, in our main geographies, we are still outperforming the overall e-commerce market. This means that we are continuing to expand our market share. This is still the case in Poland as well, where we deliver half of the e-commerce parcel in the market and we continue to outpace our competitors in terms of growth. We are continuing gaining market share in mondial relay markets as well. And in the UK, our volume growth starts by impressive 182%, while the market contracted by 5%. Next page, please. As you may have already seen in the media, we have announced that in 2024, we will be the official partner of the legendary Tour de France cycling race. Where did the idea for this partnership come from? We share the same values, ecological transport, passion for competition, and of course, speed. We also share a passion for innovation, focus on performance, and a commitment to caring for the local communities and the environment. At InPost, for many years, we have been encouraging the use of zero emission means of transport, such as bicycles. Moreover, the partnership with Tour de France is a great opportunity for us to increase our brand awareness among European consumers, especially those in France. Let's jump into the business update about Poland. We can have a look at each geography in more detail, but let's start with our most important market. In Poland, as you know, we are the market leading e-commerce delivery provider. We have the most widespread and convenient network for our customers. And over 60% of the Polish population already live within a seven minute walking distance to our lockers, increasing to 87% in urban areas. We provide easy access to our services for customers and of course are available when and where they need us. What's even more impressive is that our new APMs utilization rates have steadily increased post installation and remained very high in line with the utilization rate trends of our older machines. This is a strong indication that our continuous efforts to improve convenience have resulted in growing adoption as well as utilization. This also continues to prove that our APM network in Poland can still expand at attractive utilization and ROI levels. On the next page, more details about our engines of growth in Poland. Our mobile app has over 11 million users, almost 20% more than a year ago. We have a growing and loyal customer base of over 17 million APM users in Poland. 90% of our total volume is attributable to our most loyal users, those that receive 13 passes or more a year. These customers drive and post growth and contribute to our outperformance of the Polish commerce market compared to most of Europe. Recent third-party studies confirm our data. As you can see in the chart on the right-hand side, customers in Poland favor parcel lockers to other delivery methods and have a clear preference for in-post versus other providers. When shopping online, 93% of customers that use APM's delivery choose in-post. We significantly stand out compared to our competitors. Another third-party market research we have received just recently is showing our APM's record net promoter score of 80 points, a much higher level than our to-do competitors. This grew from 78 we showed on our last earnings call. Simply, impulse lockers are unbeatable solution for customers. I'll now hand over to Michael for a short update on our international business. Thank you.

Thanks, Rafa. Good morning, everyone. Now let's go through our international business update, starting with a snapshot of all our international markets. Our international business is gaining momentum. 60% of the group's total out-of-home delivery points are now located outside of Poland. Our international PUDO points have grown by 20% in Q3 2023 compared to the same time last year, and our international APM network has now increased by 60% year over year. In terms of volumes, one third of the total group volume is now generated by our international markets, and these are growing faster than Poland, with a 28% increase year over year in Q3. All our geographies are important, however, we're now going to look more specifically in the UK market and Mondial Relay, as these are our primary focus in terms of network expansion, CapEx allocation and growth potential within the international segment. So let's start with Mondial Relay. Our key priorities for Mondial Relay remain the same, expanding our APM network and merchant base, as well as focusing on improving the quality of our service as we strive to build a D plus one service covering all of France. As we presented during the Capital Markets Day, these investments will underpin our growth, driving our B2C market share forward, and encouragingly, we continue to observe positive flywheel traction and momentum with further market share gains in a weakening market. The increase in number of APMs in the mondial relay markets has already allowed us to gain market share. Over the past year, our APM network has grown by nearly 3,000 machines. In France, one third of the population now live within a seven minute walk from an in-post location with significant headroom for density expansion. The volume delivered by Mondial Relay via APMs in Q3 was three and a half times higher than the previous year. Impressively, APMs accounted for 17% of total Mondial Relay volumes, underscoring their growing importance in our delivery network. This KPI grows significantly every quarter, demonstrating the continued adoption of the French shopper to the automated PUDO alternative. The volume growth in the last quarter was driven all by B2C, up 24% against the declining B2C market segment. This is highly encouraging and aligning perfectly with our strategic objectives. What's even more remarkable is that a substantial 40% of the total volume growth was attributed to B2C deliveries via APMs. As our merchants start to differentiate APMs in their checkouts and with the successful launches of major new clients such as Zalando, T-Mill and Lidl in Q3. To further emphasize, our strategy has differentiated Mondialis' significant number two now in the French market and created a gap to the nearest number three player. We are investing in quality and scaling the network whilst absorbing significant market inflation as we've made a conscious choice to not pass this through us. Taking market share and creating consumer and merchant adoption to APMs is at the forefront of changing market dynamics. We're not at the critical masses yet in location density, and France has a much larger geography to serve D plus one, but we're on track and growing our share. Now moving on to the UK market, we have some exciting news to share and building on Raphael's earlier comments. I'm thrilled to announce that in the last quarter, we've achieved the coveted position of being the number one APM network in the UK. Our network is already the largest, but we're not stopping there. We have ambitious plans to deploy even more APMs to meet the growing demand we're seeing in this market. And to couple with this announcement, we've also launched our partnership with the Royal Mail to offer nationwide locker-to-door in Q3 to complement our successful locker-to-locker solution that has been live since Q3 last year. As you can see on the left-hand side chart, our number of out-of-home points increased by almost 60% year-over-year. And in core cities, we have over half of the population within a walking distance to the nearest APM. Secondly, in Q3-23, for the first time ever, the UK segment has become profitable. This was made possible by our unique and high-quality service, the increased capacity unlocked by our logistics and network density and expansion, but most critically, creating the right effect of operating leverage as we've now scaled to nearly 6,000 locations. The charts at the center of the slide and on the right-hand side show the effect of this on volumes and growing utilization of our APMs. I'll now hand over to Adam to talk about the financials in more detail. Thank you.

Thank you, Michael. Good morning, everyone. As usual, I'll take you through our financial performance and we'll then wrap up with an update on outlook for the full year. So moving on to page 16, you can see the summary of our group P&L for the nine months of 2023, as well as for Q3. At group level in Q3, we recorded a revenue growth of 22% year on year. while over the nine months revenue grew by 26%. In both periods, the revenue growth was significantly higher than the volume growth due to repricing effect as well as change to the product mix. Volumes have decelerated a bit in Q3 versus Q2 of this year, driven by much softer September, especially in fashion segment, which was very visible in the broader retail market across all European geographies. At the same time, in Q3, our EBITDA line growth has visibly accelerated Q&Q, largely thanks to significant margin improvement in international segments. Our adjusted EBITDA grew by 40% year-on-year in Q3 and 37% over the nine months. That is to compare to 35% growth rate in Q2 of this year. Adjusted EBITDA margin for the group has expanded by 390 basis points to almost 31% in Q3 of this year. And year-to-date adjusted EBITDA margin improved by 250 basis points to 30.4%, up from 27.9% a year ago. In terms of CapEx, similar to previous quarters of this year, CapEx's percentage of revenue was notably lower in Q3 compared to the same period of last year and stood at 11.6%. I'll speak in more detail on the drivers later in the slides. Net leverage stood at 2.6 times, with 0.6 times decrease compared to the end of last year as a result of combination of EBITDA expansion, strong free cash flow generation in Poland, and gross debt remaining broadly stable. Moving on to Poland's performance, year-on-year volume growth in Q3 was at 13%, driven by increased sales in marketplaces and new agreements with small and large-scale merchants. This was a deceleration in the growth rates versus H1 of this year, which we largely attribute to much softer trading in September, driven by weather anomalies that impacted the whole online fashion segment across all European markets. Looking at October trading, though, we have seen a rebound in volume dynamics. Revenue growth in Q3 stood at 24% year-on-year, 11 percentage points higher than the growth in volume. As you can see, the business has continued to reflect the strong positive effects of the repricing. Our adjusted EBITDA grew by 31% year-on-year. The adjusted EBITDA margin was up by 250 basis points compared to Q3 of 2022, reflecting the positive impact of repricing combined with an effective management of inflation-induced cost increases. As part of our objectives for 2023, we had promised a recovery of our margins in Poland, which the business has been consistently delivering quarter after quarter. In conclusion, in Poland, Q3 has proven to be the continuation of a positive trend already reported in Q1 and Q2 across all key metrics, with delivery of strong financial performance for both Q3 and the nine months of the year. Now let's look at Mondial relay performance. In the third quarter, the business delivered a 10% growth in volumes year on year, with growth across all Mondial relay markets. Again, there was some softness on the volume side that was visible here towards the finish of the Q3, reflecting the shape of the broader e-commerce market. The volume increase was the result, especially the result of particularly strong B2C parcel volume growth, where we continued to focus our commercial efforts. On the revenue side, Mondial Relay reported a 4% year-on-year growth. Growth rate was impacted by price dilution that we already observed in the first half of the year as we continued to observe the same trends, namely faster growth of domestic volume versus cross-border and prioritization of the out-of-home volume over two-door, both shifting volume structure towards lower price point product. Adjusted EBITDA remained broadly flat in Q3 versus same time last year at 60.8 million zloty, despite the price dilution and despite continued accelerated investment into logistic infrastructure and into SG&A, as well as continued inflation in the labor space. The adjusted EBITDA margin was also broadly stable versus Q3 of last year. Now on to the next page, a snapshot of our UK and Italian markets. As already mentioned before, in Q3, we have crossed the mark of turning EBITDA positive in the UK for the first time earlier than we originally planned. A combination of factors have led to this, which we already highlighted partially on the Q2 results call. First of all, new logistics partnership has allowed us to unlock our locker capacity, provided us with ability to improve utilization, and as a result, provided better overall cost to serve by creating operating leverage. At the same time, we have continued to deploy APMs and to drive network coverage and better service convenience. This together has unlocked our ability to grow in a profitable manner. But as you can see, it is not only UK that has contributed to the international segment performance improvement. Revenue generated by Italy increased almost six times compared to the same period last year, and this growth has facilitated a significant reduction in adjusted EBITDA loss. The improvement in UK and Italy suggests that EBITDA was partially offset by an increase in the international overhead expenses, primarily investment into our tech platforms that is going to continue as we now accelerate growth in those businesses and also seek to offer a unified product offering on the cross-border side across all of our markets. Having said that, the entire international segment had visible positive impact on the group margin improvement in Q3 and is on track to continue to bring positive contribution to the group's EBITDA profit line next year. Moving on to page 20. We are now going to look at the unit economics evolution in the UK. You've seen this chart already, you're familiar with it. As already mentioned, the UK has seen a strong volume uptake in the second and third quarter of this year. At the same time, our revenue per parcel has increased by 6% versus Q3 2022, reflecting the different product mix and locker to locker, gaining a larger share of the total volumes. Our ability to unlock volume, the favorable changes in product mix, as well as the optimization of logistics costs resulted in a positive adjusted EBITDA in the UK market. The adjusted EBITDA per parcel improved from a loss to a profit of 0.8 zloty per parcel. On top of this, it is worth to mention that all of this was achieved in the UK ahead of starting our B2C product offering, which only gives us more confidence in our ability to expand in the UK going forward. Let's now look at the items below adjusted EBITDA on the next page. You see here the usual bridge. I would probably want to call out two points. First of all, on the adjustment line, which in Q3 was nominally higher than in the first two quarters, there is a one-off related to the acquisition costs of Menzies distribution. Secondly, interest expenses continued to increase, growing by over 40% year on year, driven by higher interest rates and higher quantum of credit facilities utilization. At the same time, there has been yet another swing in the foreign exchange rates, impacting currency translations of financial debt. I remember a question being asked at the Q2 results call whether we expected this item to change a lot during second half of the year. And indeed, foreign exchange rates have reversed versus Q2. And then 83 million unrealized foreign exchange loss in Q2 has now turned into a 3 million unrealized gain Yet still, the impact of those foreign exchange differences for the nine months was negative at 110 million versus same period of 2022. Other than this, the IFRS 16 lease cost and depreciation cost continued to grow in line with network scale. This has allowed us to expand EBIT margin to almost 16%, up by 260 basis points versus nine months of 2022, and deliver an impressive 50% EBIT growth year on year. As a result of all this, the net income for the nine months of this year amounted to 494 million Polish zloty, a 15% increase year on year. Now let's look at the cash generation for the three quarters of the year. Our free cash flow generation before M&A expenses in the first nine months of the year stood at 521 million. Including acquisition of 30% stake in Menzies, our free cash flow reached 266 million. The free cash flow to EBITDA conversion rate in Poland improved to 47%, up from 30% for the same period last year, driven by margin expansion. Free cash flow conversion rate before expansion capex was at 67% in Poland, showing the great resilience and underlying strength of the business that we have built. Moving on to the next slide, let's look at the group capex in more detail. As already mentioned, in the first nine months of 2023, our capex reduced by 16% compared to the same period of 2022. This is mostly driven by reduced scale of investment into Poland APM network compared to last year, and also different phasing of the UK network deployment. Looking specifically at the CapEx intensity ratio, this has decreased in Poland and in the international segment due to a slight reduction in CapEx spend, but more importantly, and especially true for international, more as a consequence of strong revenue growth. In Montreal, CapEx slightly increased, driven by the higher investment into APM deployment compared to the same period of 2022. Now let me provide an insight into the net debt and leverage. So our gross debt as of end of September 23 was slightly higher than at end of 2022 as a result of higher utilization of the revolving credit facility. Our EBITDA growth and improved cash position were partially offset by an increase in gross borrowings and lease liabilities, which led to marginally increased net debt position. Nevertheless, we brought our net leverage down to 2.6 times EBITDA, down from 3.2 times compared to the end of last year, and compared to 2.7x at the end of Q2 of this year. We still expect to marginally deliver towards end of this year. And finally, let me end with 2023 full year outlook update. In terms of volumes, our outlook for the broader e-commerce market performance and key geographies for the full 2023 remains unchanged, as you can see on the page. Our expectations are that the Polish e-commerce market volumes will grow by high single to low double digits for the full year. Combined mondial relay markets are expected to stagnate around zero growth, while the UK is expected to see a mid-single digit decline in parcel volumes year on year. At the same time, we are confident that our own volume growth will be well ahead of the market, especially in the UK, where we are somewhat disconnected from the market trend, given our still relatively small scale. And in Poland, where our strong market leadership is allowing us to still outperform the broader market. Looking at our key objectives for the full year and our ability to deliver, they look as follows. We will deliver volume growth well above the market growth rate in Poland, and we'll have expanded our EBITDA and EBIT margins. In Mondial Relay, we'll have significantly expanded our network footprint and increased market share in B2C. As a result of our investment into scale and of absorbing the cost inflation, we will experience price and margin dilution, but expect to capitalize on the scale of operations in the near term, as we'll drive APM adoption and build operating leverage to optimize our economics. In the UK, while we have delivered on our breakeven guidance ahead of time, we will continue to focus on growing our APM network footprint to drive scale of our operations that will support us winning improvements in profitability into 2024 and beyond. We will also balance our priorities so that we can continue the deleveraging of the business to well under 3x EBITDA by year-end in line with our initial guidance. In that context, we expect total capex to amount to circa 1.1 billion zloty. That is excluding M&A expenditure and expect to deliver positive free cash flow. Now to give a little insight into Q4 trading regarding volume growth at group level. In Q4, we expect similar volume growth dynamics to what we have seen in Q3. The start of Q4 in terms of October volume has been encouraging in this respect. And as always, we'll publish our trading update on volumes in the first few days of January. That is all from my side. Thank you all. And over to Rachel for the Q&A session.

Thank you, Adam. We will now take questions from the telephone and then from the webcast. Just a reminder that if you would like to submit a question on the webcast, please use the question icon in the control panel on the bottom of the screen. I will now hand over to Saskia, our conference call operator.

And to ask a question over the telephone today, please signal by pressing star one on your telephone keypad. That is star one for telephone questions. Our first question today comes from Satish Sivakumar from Citigroup. Please go ahead.

Yeah, thank you. I got three questions here. So firstly on the UK growth, obviously good progress on that. Can you share some colour like how London is performing versus the other cities? Just to get a sense like what's happening, is it because of the Menzies partnership that's actually driving this improvement or as you build the density within London, that's actually driving. So any color, all the trends are within London versus the other cities in terms of profitability, that will be helpful. And again, second on the Mondial relay, obviously you did flag the product mix during the dilution. How should we think about this dilution impact evolve in the coming quarters? Because as you gain more and more B2C volumes, this should be expected to get worse before you start to see pricing come through. And then the third one, This is, again, around the Mondial Relay. If you look at last year, you had to like ramp up the operation because there was more demand than actually thought into the Q4 peak season, and that led to the margin compression. How should we think about this year? Where are you actually in terms of investments for peak season, both in Mondial Relay as well as? Okay, thank you.

Good morning, Satish. Michael here. Maybe I take the first couple, and maybe Adam, you may want to comment on the thought around the outlook. Just when it comes to the UK, I don't think you should look at it from a city-specific demographic or economic picture. If we look at our growth, it's concentrated really where the lockers have been, which is historically and still very much across Manchester, London and Birmingham. Clearly London has a stronger population and clearly has a more heavy weight on the volume. But when you look at the distribution, it pretty much flows between those sort of key locations and where our density is. What we have seen is clearly demand for the product has increased beyond those core geographies. I mentioned on the previous call, we have expanded our footprint now into other cities both with APMs but also short term as we scale the network we've been launching PUDOs which you can see across the numbers and therefore you know the distribution of the volume continues clearly with Menzies What Menzies has allowed us to do is unlock the volume bottleneck because clearly we were not getting operating leverage as a consequence because volume was constrained. So clearly demand and utilization has accelerated across the whole network. And then furthermore, I made a comment on the call saying, is really we've launched the Royal Mail partnership. And really what that has unlocked is really scaling of a new product, which is locker to door. So you can drop a parcel off at a locker and send it to anywhere in the country now. So clearly where we don't have current footprint or coverage, we can offer the alternative delivery, but obviously using the locker as the starting point of the parcel journey. And that also demonstrates that we're seeing demand for usage in a multi-geographic coverage in the UK, so not specific to a single one. Coming back to your Mondial relay question, can you just repeat the last one, please? I didn't capture it, it just was a breakup.

So, on the dilution in the current quarter, you did say that product mix has a filter on the dilution pricing. Obviously, it's just the start of the cycle of B2C ramp up in Mondial Relay. Do we should expect this dilution in the coming quarters? How should we think about in terms of evolution?

Yeah, I mean, I'll ask Adam to comment further, but when we look at two things, one, I think you asked the question on preparation for Q4. This year, really what we've done is really make sure all our new openings and new locations are already being ramped up. pre-going into peak. And two, sort of our staffing requirements and volume forecasts for customers have been well managed in advance. In terms of relative to last year, we saw a demand. I think we will keep a stricter control this year, albeit linked to how we see the network evolution already. We've already seen B2C ramp up. I think there's a number of factors contributing to the B2C ramp up that we've been speaking about. One, the actual network coverage itself on APMs is now getting to a meaningful number of over 4,000. clearly there's a critical juncture where somewhere between 6,000 and 7,000 lockers will start to see what I would feel is the operating leverage and density requirements, similar to what we've seen in the UK in the last two quarters and what we predicted similarly, because clearly France being a much larger geography, we're only at about a third of the density we need to be in terms of 30% coverage when we need to be around about 48, 50%. uh density coverage so clearly we're working towards that and that's why increasing the locker coverage will do that but even with the current locker coverage we have we're starting to see b2c traction and really that's uh sort of really becoming meaningful over the last quarter and we expect that to continue um what you have seen is clearly our c2c shape has stabilized and really as a segment growth we're focused now is is really on the b2c and expanding that so When it comes to margin dilution, we have said, I think Adam commented, we'd expect some compression, mainly because we're going to absorb the costs. We're not going to pass it through at this point. And really, we really want to make sure we're winning both the consumer mindset and the merchant mindset to get APMs presented correctly in the checkout, which is also what's unlocking the B2C growth in the last quarter.

Thank you.

Thank you. And we're moving on to our next question, which comes from Paul Kirjanov from Bank of America. Please go ahead.

Hi. Good morning. Paul Kirjanov from Bank of America. Two questions from my side, please. You already spoke about this on the call and in the release, but can you give us some more color in the trends you've seen between September and October? And perhaps you could also talk about what you saw in France that led you to decrease your volume growth expectations for this year? And then my second question, is on EBITDA in UK, that has turned positive this quarter. But from the footnote, it seems that was X overhead cost. Should we assume that if we include that UK EBITDA number was negative? And maybe you can quantify how much those were. And if we think about 24 guidance of UK EBITDA being positive on full year basis, is that also X these overheads? Thank you.

Do you want to take on one, Adam, or would you like I?

Yeah, yeah. No, I'm actually not sure the interpretation of the footnote is correct. So I think, you know, the international overheads, which are kind of, you know, part of the international segment, are not specifically UK related. They're kind of, you know, related to the overall economy. international operations that also includes Italy, but that also includes, you know, Montreal markets where, you know, we build a common tech platform, we build a uniform product proposition, and therefore, you know, these are not costs which you can allocate to a single specific market. so all the uk related as gna such as sales marketing admin finance etc which pertain to the uk market are obviously in the uk numbers and they are part of the reported uk a bit just for clarity right so from that perspective uk is a standalone market with all the gnas relating to that market that can be allocated to this market has broken even and been profitable in Q3, just for clarity.

And maybe commenting on the dynamics. So as you know, and you realize most probably looking at the e-commerce performance in September and also other players delivering passes in September, September was very soft mostly because of the fashion retailers underperforming because of the weather. But October was clearly a catch up above our expectations. But it's very hard to look at it from the perspective of the full Q4. As you may imagine, the peak is going to start literally in coming days. So that will be the real test. If the consumer sentiment across the board, across the markets has improved, or literally October was just the counter reaction to very soft September. So that's why you know how we said in the guidance that we expect at least a performance on the Q3 level, but of course might change as As I saw, October already was a surprise, a positive surprise. So let's see how it evolves. But in this current volatile market and consumer sentiment driven market, it's super hard to have 200% conviction that November and December will be similarly strong or stronger than we expected like October. That's why, you know, we try to be cautious here.

Well, any comments on France specifically or not really?

No, I mean, this is across the board. I mean, in all the markets, we saw a catch up versus September. And now we look at, you know, coming days, the entry to the peak season, how it may evolve again across the markets we operate.

Great. Thank you.

Thank you. And up next, we have Marco Limite from Barclays. Please go ahead.

Hi, good morning. Thanks for taking my question. The first question is a follow-up question on the trading environment. So you are guiding at group level for Q4. Just wondering if you are willing to give a bit more color on what to expect or what's the guidance at single country or unit level. So if the flat-ish Q4 and Q3 is valid across the geographies There are different trends going on. And the second question is on the UK, and whether you can better explain the partnership with RealMail and really who is running the business. So you are running the business through Menzies and RealMail is just, let's say, switching on the offer on their platform or how does that work? Thank you.

Yeah, so let me maybe answer the first one, which is, you know, the dynamics across the markets without maybe being very specific on a single market. I think that, you know, the general comment that we expect broadly same growth dynamics in Q4 is relevant for all the individual markets. There obviously might be a swing in one or the other market, one or two percentage points up or down. But in total, we don't expect any single market to materially diverge from the Q3 trend.

Let me take the second question, Marco. Today, and historically, we have had two products live in the UK. Firstly, we have had labelless returns live, which we launched two years ago. And last year, with Predominantly Vinted, we launched our locker-to-locker service for C2C. we've not really had a competitive or a national coverage solution for what we call send or locker to door. And what we have today with Menzies is clearly now an operator that can really call at our lockers on a daily basis and on a multiple basis to really service both collection and delivery to those lockers. But what we also have seen in demand in terms of test of product service is the ability for someone to want to send a parcel through a locker as an alternative to using the post office as an example. And clearly one of the end points of that would be to a home delivery, because today we might not have a locker coverage or a PUDO coverage in a certain geography. And therefore, what we've now done is activate that product offer, but we've now done it in partnership with Royal Mail. And obviously what Royal Mail now has given us is full national coverage of being able to provide that solution. Menzies service the lockers and Menzies basically collect from the lockers in that basis. But clearly Royal Mail then does the last mile in this instance for delivery to door. I think it's an important footstep because also what it now does is give further usage and demand for using lockers and builds further consumer traction for utilization of the lockers in the UK. And clearly it's also been an important part of the growth in Q3 as we continue to expand.

Thank you, and can ask if the next step of this partnership is actually the other way around so real me collecting and mantis delivery brokers so yeah in post basically helping real million to do.

it's.

yeah it's not obviously on our current roadmap at this point, but you know, maybe a question better for the Royal Mail at this point.

hey Thank you. You. And now we have David Kerstens from Jefferies with our next question. Please go ahead.

Hi, good morning, gentlemen. I have three questions, please. First, can you update us on the pricing in the Allegro channel and how accretive do you expect it to be to profitability in the fourth quarter and next year? Second question from Michael on the launch of the B2C product offering in the UK. What do you expect or how will you proceed with this launch and when, and what will be the impact on volume and on the mix? Should we expect something similar as you have seen in mondial relay? Then final question for Adam. You talked about capex coming down by six percentage points to 11%, mainly driven by Poland, now with 10% of revenue. What do you see longer term as an optimal capex level for Poland and maybe for Mondial Relay and similarly for the UK? Maybe just to update those assumptions which we had from the time of the IPO. Thanks very much.

Happy to tackle the first point, then passing to Michael and at the end to Adam. So as you learned already after our Q2 results, the level of the repricing with our client, main client Allegro is set like on a double digit level. But the difference is in one point a year ago, there haven't been any discussions and talks about how we may strengthen our partnership around our repricing date. This year, such discussions are taking place. I, of course, can't disclose any details because nothing has been agreed. But if you tracked our joint activities, we launched cross border to foreign markets for our friends from Allegro. Now we enlisted our PUDO points on Allegro smart options as well. So you may read that as a kind of friendly win-win kind of discussions. And let's see.

Has the price increase already been implemented or is it still in talks with Allegro?

No, it hasn't been implemented yet because the date for the implementation is, I guess, end of November.

Okay. Okay. So a bit later than last year.

Correct me, Adam, if I'm wrong, but I think it was November. That's correct. That's correct.

Great. On the B2C question, David, and thank you, I'm building on a point that Marco raised. You'll see that actually from our current performance in the UK, utilization of the lockers is super strong, well ahead of expectations. And clearly that was reflected in our volume and overall distribution of growth across the country. I think it's an important point because when it comes to the B2C element, clearly we want to make sure we have the full capacity and density, as I keep stressing, to ensure we have the convenience to deliver the product. As it stands right now in the UK, I think the balance is continuing to focus on quality. The existing product set is really driving the growth. We have launched with two clients a test product on B2C, but it's at very small volumes. Really, as we iterate on the product and the flows and the demand, working with the retailer in the checkout, as we have done historically in France, because getting all the ingredients right, not just launching B2C, but working with the retailer to present lockers in the checkout correctly. really working in terms of the logistics to really ensure the servicing. And thirdly, making sure the network has the right capacity and density to really service it. And clearly, these are a number of steps. So I wouldn't expect any significant change, certainly in the near term, of the B2C product mix within the UK business. because clearly we want to continue to invest in the capacity and also the uk market relative to france is nearly three times the size so the b2c demand is obviously quite higher and really we need to make sure we can service that well but we are testing there is an incoming demand for our services but we have to make sure we have the quality of product But at the same time, we have already got enough demand with our current capacity as we've continued to expand. So we have a good situation developing, but really we will build the product carefully. And clearly, as you've seen in France in the last quarter, we took a very similar approach. Even when I look at France today, just to sort of iterate on a point, really we've only got about 60% of the top 50 merchants live on our product when it comes to sort of servicing. And today we're still predominantly servicing a D plus two product as we currently build the network and capacity as well. So not only is there room to improve the product mix to D plus one, as we continue to invest in the network, but also there's the opportunity to continue to expand in terms of merchants coverage, which clearly in the last quarter, We brought on brands like Zalando, Lidl, that have launched a B2C service, and Timo, to name a few. Really, as we start to expand that offering, because we're now starting to approach a meaningful locker coverage, albeit still need to improve on density. So these factors all need to come together to really build a winning product. So I'm clearly very pleased with results, but I would not expect the UK mix to change in the near term.

Yeah, and let me pick up on the CapEx question. So obviously, Polish CapEx intensity is gradually coming down and it's part of the structural element of where the business is and where the market is and how mature the business is. So I think a good feel for it would be mid-term. This is high single to low double-digit. um capex intensity for the market of poland um whereas in the international broad international both france uk even more so italy spain we are at a relatively early stage of development and therefore i think high teens or even high teens plus is is the right expectation you know for the years to come as you know right now obviously the dynamic is very much descending in terms of uk being on the very steep revenue development curve but uh in general our ambition in terms of network development and also the market potential definitely justifies you know keeping that capex intensity at high teens uh for the next couple of years probably

Thank you. And you said Poland, a high single digit, low double digit, so it can pick up again as well, you think?

High single to low double, yes.

Yeah. Okay, great. Thank you very much.

You're welcome.

Thank you. And we're moving on to Henk Slotboom from D-IDEA with our next question. Please go ahead.

Good morning, all. Thanks for taking my questions. I've got three. The first one, It relates to the partnership with Royal Mail. I'm a bit surprised to see that name popping up because you're referring to quality as well. Well, sometimes I read something about Royal Mail and delivery quality is not exactly their main strength. I would like to hear your views on that and to what extent that could undermine the reputation of Impost in the UK. Second question relates to Italy. You'll be making far better progress there than I had dared to hope. Is it conceivable that Italy will reach breakeven or slightly above in the course of 2024? And then perhaps you can clarify the first bullet point on slide 23 of the presentation, where you say that there was a temporary slowdown in the UK deployment and delayed procurement of some depots in Poland and France. What exactly do you mean by that? Those were my questions. Thank you.

Maybe I'll take the first question on the Royal Mail. Thank you, Henk. I think like any contract partner such as this that we go into, we set very strict standards around our quality and SLAs. And I'm very pleased in terms of what we've been able to agree with the Royal Mail. And I think already as we have entered into the relationship after a couple of months, the service quality and delivery has been super strong. So very pleased. And really what it has allowed us to do is expand our product offering for more consumers. uh and clearly we're working to those results so understand the feedback but i would say obviously we're monitoring that and clearly any quality challenges were very quick to to address When it comes to Italy and breakeven, I don't think we're guiding at this point in terms of that future. But, you know, clearly the progress of the market is doing really well. We're really seeing a good product mix and really traction with the development of the network across that country. So, you know, remain optimistic, but not guiding on anything relative to breakeven at this point. Now, Adam, do you want to cover the last point on the follow point?

Yeah, sure. Happy to. So what that means is if you look at the capex for the nine months, you clearly see a spend reduction, point number one. Point number two, if you take an average quarter run rate for the first three quarters and you look at our full year outlook, uh you will notice that we um expect some acceleration of the cap expense in the fourth quarter and and what that means is simply we will catch up like capex for the first uh for the first half of the year and especially You know, when we refer to the depot procurement, you know, the time to market is relatively long. The space is very competitive. That's typically third parties delivering that procurement and you sometimes experience, you know, some delays in delivery of those facilities. And that's exactly what we experienced, especially in France. Uh, we expect to make up for this, you know, in Q4, um, and, uh, for step up a little bit in the cap expand, uh, to meet our guidance of, you know, circa 1.1Billion spent for the full year.

As far as the procurement problems are concerned, this is a temporary, uh, phenomenon. This is not something, uh, structural.

Well, I'd say that's something that you see in the broader market. I don't think it's only Poland or France related, or it's something that specifically relates to us. I mean, I think in a post-COVID uh e-commerce logistics space you know the competition for capacity has been massive uh the disbalance of the demand versus supply has been quite significant i think the market needs a couple of years to normalize uh and therefore you also you know the people who deliver basically those facilities to the market also struggle with capacity their capacity is very much also driven by the location pipeline that they have uh or actually convenient and suitable locations pipeline i should say uh and therefore i think you know it's a it's a disbalance of the market that has happened you know uh post covet driven by the demand which is kind of phasing out and balancing out you know as we as we speak okay thank you very much thank you and our next question comes from sam bland of jp morgan please go ahead

thanks for taking the question i've got uh two please first one is on uh slide six you just see the um performance in volumes in poland uh versus the market narrowing a little bit would you um attribute that to anything in particular and the second one is sort of another one on on capex reading capital allocation we're seeing your leverage come down quite fast now um what do you think the thoughts are around maybe next year or capital allocation it's basically you know can you can you find more good projects to spend more capex on or um happy to let leverage keep on coming down or look at dividends or whatever else thank you

I'm happy to answer the first question. I think it's nothing unusual. I think in Q2 last year, also the difference between the market growth and the growth of our share in terms of volume was even lower. It was the difference about the two percentage points, if I remember correctly. On the other hand, I think it was already commented, you know, having half of the market having set of potential competitors trying to win something, we are continuously proving we are gaining the market share irrespective of our current market share, which is already very high. So even if it's 0.5 percentage points, we will be super happy that still we get a new client, we get the new higher stake in the market and also we are gaining more new users. I just want to flag one topic that maybe was missed is the number of clients shopping online is around 25 million clients. Our client share is increasing to almost 18 million. Still, we have to win around five to six million clients' hearts and we'll do so. But in terms of the adoption perception of the brand and the first choice, we are massively outbidding, outperforming the rest of the market. So we will continuously work hard on gaining the market share and winning customer hearts. But yeah, it will be quarter by quarter, I think, looking slightly differently. But it's our main focus to bring the best NPS to our end users. And in terms of the CapExpand or the free cash flow generation, I would love to pass to Adam.

Yeah, yeah. Thank you, Rafał. So, Sam, the cash generation and the leveraging, I think, is very much progressing in line with our expectations. And therefore, I think our priorities in terms of capital allocation remain unchanged. Um, as long as we see the, the market potential and the potential for the return on capital that we can generate in our core. Geographies by far priority number 1 will be to continue to invest in organic. Development in the core geographies. and stay very consistent in delivering those. Secondly, I think if balance sheet permits, we will also be looking for kind of M&A opportunities, but remain opportunistic on this, i.e., if an attractive and value-adding opportunity comes across, we'll probably look at it. But again, stick to key geographies. And make sure, you know, we consolidate our footprint in those geographies and simply, you know, potentially. Accelerate, you know, the trajectory. To building a solid footprint in those markets. um and and these by far will be the two the two key areas i think you know any capital distribution back to shareholders would probably be lowest priority and i think again we uh we remain consistent on this uh for for many quarters since ipo yep understood thank you very much thank you

Our next question comes from Roman Rishapniss of Goldman Sachs. Please go ahead.

Roman Rishapniss Yes, thanks for the call. Just a quick one. Could you please also update on your plan for repricing in France and the UK in the near term? Do you have any plans?

Roman, I can take those questions. There is no plans for any repricing in the UK in the near term. We're too early in our development. I'm very much focused on building and investing in the network and an expansion of that. I think in France, I think we've absorbed quite a significant amount of market inflation, specifically in the last 12 months, but clearly we're focused on the operating leverage. I think looking forward to 24, I think there may be opportunity to start to consider some of that, but at the minute it's too early and really the priority is still very much about taking building and investing in scale and taking market share. So very much it's under evaluation. But the strategy still remains very much to continue to invest in scale.

Thank you very much.

Thank you. And we have a follow-up from Marco Limit of Barclays. Please go ahead.

Hi, thanks for taking my follow-up question. And sorry to come back to the queue for Outlook. Are you willing to clarify how... stronger was October compared to Q3 average? And what is your assumption, basically, for November and December that you mentioned being kind of conservative at this point in time, given the limited discipline?

Marco, I'd stick to what we said for the full Q4. I think, you know, again, bear in mind peak is a significant swing factor in terms of absolute quantum of volume. I think any expectation of what November or December is going to be given, there is some flexibility in terms of how the volumes flow and especially how they are delivered. Black Friday versus early December and how people shift their kind of purchasing habits between November and December. I think a good example is Poland. You looked at Poland two years ago. The peak was really, you know, 10 days pre-Christmas, whereas, you know, it's shifting more and more towards November Black Week or even pre-Black Week. So I think, you know, sticking just to saying, you know, Q4, broadly expected to repeat the growth dynamics of Q3 is where we would leave it.

Okay, thank you. And maybe also a follow-up question on capital allocation, given that you are deleveraging uh quite fast uh am i right in assuming that uh beyond the leveraging um buying out the minority stake on mentis priority in terms of your capital allocation

Well, I'd say subject to us being pleased with Menzies' performance, which is obviously the case right now, I'd say yes, it is priority, which is probably reflected in the fact us securing that call option for buying out the remaining 70% of ownership. has clearly uh uh it's clearly you know a reflection of us thinking of menzies acquisition as one of the capital allocation priorities definitely is okay thank you thank you if there are no further telephone questions i'd now like to hand the call back over to rachel for any questions from the webcast thank you saskia our first question is from ryzard from insignis

He wants to know, what should one expect regarding the development of the business in Italy, both regarding the new additions of APMs and the profitability? And then a follow up question is, what is the outlook for the overhead position in the EBITDA line? And should it stabilize at the current level or should we expect to increase going forward?

Thank you for the question. I think it was in a big part already answered by Michael, especially referring regarding Italy. So obviously, we would refrain from giving any specific guidance for Italy, especially at this stage. I think we would guide for 2024 and potentially beyond early next year. What we can say is, obviously, if you look at Q3 results, you know, you can see a very significant improvement. It's not only scale, it's also unit economics. So, you know, improvement in the overall shape of Italy business is very visible. And we're not a million miles away from breaking even in this market as well. Now, whether that happens next year, I would not want to state that, but clearly we are very happy with the traction we have in Italy, both in terms of growth, but also in the improvement of the shape of the business in general and specifically unit economics improvement. So that's definitely a positive in the overall development. And in terms of international overheads, we would still expect them to increase next year. It's both, you know, we all know tech is competitive space, you know, competition for talent is very, very fierce. We are not, you know, a couple of years ago, we're only hiring in Poland in that space right now. We are very internationalized, so we have teams across Europe and definitely, you know, that's going to increase our cost next year.

Thank you, Adam. The next question is from Paul Johnson from Heldark. It's regarding in-post pay. What can you share about development and your perceived potential of it on business fundamentals?

Happy to answer that question. So maybe some of you may notice we started our beta version of impulse pay, which is now proliferated among more and more shops. Beta version means a limited number of functionalities to test and measure the impact on the share of checkout. And here we see clearly that first merchants who deploy that already on their baskets, they are visibly day by day, trending in terms of the share of checkout of our payment. One of the examples went up from zero to 5% share of checkout with our in-post pay among seven other payment providers. And that happened within a week. Of course, this is just one of the examples, but gives us strong conviction that once we start marketizing that solution, which is going to happen in coming days, running a big lottery program for all the end users. to acquire them and add them to the mobile app with InPost Pay embedded within the mobile app of InPost, we will see much stronger response rate. And we may then assume as well the potential business impact And quantify it also for 2024. So as for now, this is, I was several times saying that, but I can repeat that once again. This is the most innovative solution we launched with an impulse since our first APM. So the priority for that service is absolutely critical. And our belief that this is a game changer on the payment market is also very strong. So, of course, we are starting from Poland because the proliferation of mobile app is the highest, but I think we will quantify the potential impact and we are more than happy to share that with the market pretty soon, which will put us into another league from just being a logistics service provider enabler on that field to being also a super enabler on the GMV driven processes. So very intrigued, very happy to share more details once we collect more data from the pilot with the beta version. Thank you.

Thank you, Rafał. The next question is from Paul Johnson from Heldart again. How do you plan to take advantage of the ability to deliver on Sundays in the UK?

Thank you. I'll take that question. I think firstly, today we already see the weekend as being one of our busiest days for our returns products. So really where we're already operating with key e-commerce merchants such as Asus, Boohoo, JD Sports, etc., So it's quite obvious now that actually now looking at a seven day a week product from a delivery point of view is clearly a natural turn. One, because the consumers are quite actually open to using the lockers and are quite popular to use at the weekends. And clearly this becomes an attractive point for the B2C merchants as we start to consider the product. So it's very much a core pillar, but obviously it's a pillar that's already being utilized in terms of drop off. And we'll continue to be a focus as we think about the B2C rollout and creating a core competitive advantage amongst the competitive set.

Great. Thank you, Michael. The next question comes from Andre from Ceres. Can you see the vinted volumes increase as the e-commerce segment is going to be more and more popular regarding ESG conscious growth as well, especially in fashion?

Yeah, I can take that question as well. I think it's important. Firstly, I'm not going to comment specifically on an individual customer's volumes in this context related to Vinted, but I will highlight that clearly re-commerce itself is actually really probably the fastest growing segment as really what's highlighted here across all markets. And we can see it historically in France where probably it's been the strongest in Europe initially, but now we've seen it expand across Europe both Spain, Italy and the UK in the last 12 months, and really both fitting into what I not just the ESG consciousness, but also cost efficiency in terms of reselling of secondhand items and the and the consumers being more aware of what the purchasing habits are. So there's a number of factors that are really doubling into this segment. And clearly, you know, the final part here is clearly the reselling economy is really being driven by individual consumers not websites so actually a locker proposition uh really fits strongly to really provide an offering here so in terms of both convenience cost effectiveness and sustainability to cover together so uh really it's a fast growing segment if not the fastest and a segment really where our business is core and resonating with in multiple geographies And, you know, we'll continue to partner and grow not just with companies like Vinted, but others that are operating and developing into this segment.

Thank you, Michael. The next question is from Andre from JMS Invest. He says, what is your midterm EBITDA margin target for the UK?

um again this is the question which pops up you know quite often i think we're consistent with our expectations and with our outlook for the midterm which is we've been saying it's in the territory of high 20s uh 25 to 30 percent Um, and yeah, I think, you know, the current traction that we see is probably, you know, supporting that expectation, but obviously that said, you know, that, that will require us, you know, to, um, significantly increase our network footprint. Uh, and that also assumes obviously that we continue to, to grow our, uh, volumes in the UK, um, you know, quite dynamically over the next, uh, three years at least.

Thank you. The next question is from Andre from Ceres again. Can you please comment on the Mondial Relay takeover versus cooperation with Menzies? It seems the French market is very demanding versus the UK one.

I think I understand the context of the question, but I think firstly, I'd say both markets are super competitive, but the entry points for both markets are very different from an impulse point of view. Clearly, with Mondale Relay, we bought an existing business with legacy infrastructure. and also legacy product offer. With Menzies, we've obviously entered into a cooperation in sort of first phase, but we've really bought capacity and availability, but clearly there's still investment in product and development because today Menzies predominantly are not operating within the e-commerce segment, whereas Mondale have had a legacy PUDO structure. So We're coming at the operational side from two different angles and the development of the network. And furthermore, in the UK, we had a well-developed locker network already, whereas in Mondial, we're having to invest in that network in parallel, as well as invest in the operations to really build the coverage. I think the final thing, you know, I think which... I think we highlighted in the capital markets day, but for others may not seem so obvious looking from the outside. It's just the geographic size from the market. E-commerce in the UK is concentrated predominantly into three cities from Manchester, Birmingham and London. If you take France, the actual population distribution in France, 55% of the population don't live in cities in France. And actually the distribution between the markets is different. So density comes in a different wave. And actually you're building a different type of network of which clearly Menzies solves one solution, but Mondial really needs investment to build another. So really important to understand that both markets are competitive, but both come with different context in terms of starting point and evolution to reach the end point.

Thank you, Michael. The next question comes from Paul Johnson again from Haldark. What obstacles are there for reaching the 50% capacity and coverage in France, which are necessary for the B2C offering? And then a follow-up question, what's the timeline and capex needed for reaching this?

Yeah, I think really to comment, I think I've already covered some of this in terms of what we're trying to get to. As I said, it's 50% capacity, it's 50% density coverage. I'm at about 30% today. I think I said, look, really, we're looking to a tipping point between 6,000 and 7,000 locker locations, but really building that coverage in key areas in terms of ensuring we have the right density footprint to do that. And really, therefore, we can then offer a compelling B2C product. But also in France, we're having to invest in the last mile depot network to service that because just of the geographic footprint different to the UK in terms of what that offering is. When we started the journey in Mondale Relay, we had 26 locations at this point, and now we're up to 46, 47. So we've already doubled our footprint. I'd say there's still a journey to go. We need to be probably near about 55 to 56 locations. And clearly, we still need to nearly increase the locker network from where it is today by another 2,500 to 3,000 locations. So that's probably still another 12-month timeline of that type of development. But already we're getting coverage. So that's sort of the picture I would paint at this point to give a steer.

Thank you. And thank you for all your questions today. I would like to hand over to Rafael for closing remarks.

Thank you. Thank you very much for all the questions, guys. So very quickly, a kind of comprehensive summary. Q3 in Poland, I would say continuous growth with increasing client base adoption, NPS, loyalization, hard users shift, irrespective of the competitors trying to enter into that market, trying to go into that flywheel on themselves. But we are not slowing down. We are not sleepy. We are not just sitting and waiting. We are developing new features like Input Pay, like other tools embedded within our mobile app to strengthen our position, to create more hassles, to literally not slow down and bring even better results for Poland in coming quarters. On the other hand, Every other country we are playing with, we've beaten the market performance. Excellent results in the UK. Fast growing adoption of APMs. in France, which wasn't an obvious thing when we invested into Mongolia. This was our biggest question mark. Will APMs work on the market dominated by PUDO points? And now quarter by quarter, the share of the APMs volume is increasing. So clearly the thesis that this is the market for APMs is right, was right when we invested, is right today when we see and observe the volume. Fast growing B2C adoption in France. Mondial didn't exist in B2C space. And now, as Michael clearly has shown, it's the booster for our volume growth and market share adoption. fast growing network across all our markets. Great traction in Italy, Spain, Belgium. Of course, still a lot of challenges, but it's a marathon, as I always said, not a sprint. And the UK is the best example. We reached our break even after ten years. And now UK is, I strongly believe, a very strong engine for our growth. Maybe it will be the most important market among our nine markets we operate. And this is a marathon, not a sprint. Although I'm telling you, when you compare our global competitors, the big brands, global brands, they built their volumes and market positions for decades. And us building our international footprint just in the last two years, seems we are running in a super sprint, not in a marathon, looking at our achievements versus how much time it took them to build their presence, especially in Europe. Keep your fingers crossed for us. We are not slowing down. We are ambitious. We are hardworking and we are fully dedicated to really build a global brand that people love like they love in Poland. Thank you very much to the audience and have a great day and great rest of the week.