InPost S.A. (INPST) Earnings Call Transcript

Good morning. My name is Gabriela Burdach, and I'm 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 Rafal Brzoska, our CEO; Michael Rouse, CEO, International; and Adam Aleksandrowicz, CFO. We will have a Q&A session after the presentation. Rafal , 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 inPost, 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 InPost 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 type 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 not begins with bringing ourselves closer to consumers, offering next-day delivery and reducing the friction of online orders. This boost convenience for consumers and, of course, encourages them naturally to choose our lockers as their preferred delivery meter. While no logistics company has a kind of monopoly on people's front doors the lockers of over 17 million strong Polish consumers based visit are actually our own. As our user base and their intensity of usage growth, 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 3 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 fashion to door delivery companies cannot match. This is concerned, 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 do last mile. And as merchants are increasingly focused on their suppliers' emissions, Here, our differentiation versus peers will only increase. Next page, please. We are operating in 9 European countries currently with significant exposure to the larger British and French markets, which are, by the way, #1 and #3 e-commerce markets in Europe. In France and the Benelux countries, we operate under Mondial relabrant due to the existing customer base and excellent brand recognition. Everywhere else, we are expanding under the InPost brand 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 U.K. We also decided to continue a capital-light 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 filled 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 PLN 2 billion, 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 EBITDA, 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 3.0x compared to 3.2x 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 high EBITDA margin of 45%. In international markets, volumes in increase 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 U.K., we hit a major milestone by reaching 5,000 parcel lockers and in France, 3,000 APF. 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 a 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 local 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 7-minute walk for 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 5-star rating on the upstart, 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 7 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 this Royal customers drive inPost 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 labelless deliveries for Vinted. We initiated APM and fast returns deliveries through Zalando lounge. 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 parcels, 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 illustrate us how our APM utilization rates have steadily climbed post installation and remain high. This is a very strong indication that our continuously force to improve the convenience, have resulted in great 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 merchant 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, Rafal. Good morning, everybody. So let's go through our international business update. Turning to Page 15. I -- the Mondial Relay express network has expanded to over 23,200 points, a 25% year-over-year increase, including 3,300 APMs, almost 5x more versus Q1 last year. Over half of our ASMs 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 7-minute walk of an APM or 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 such a quite an achievement such early in this journey. And our mobile app downloads reached over 400,000 5 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 Mondial Relay Express, our D+1 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 through 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 volume [indiscernible] pricing to 17% year-over-year. On our French volumes rising to $43.8 million, up by an impressive 11%. We continue in Q1 to capture market share gain in capitalizing growing demand -- and to meet this accelerated demand, we continue to invest to capture the market share against elevated labor 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 Shein 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 the checkout as we start the turning the French level. The chart on the right-hand side of the slide shows the number of parcels per APM cohort per month post insulation. Encouragingly, we are thrilled to see the continuous adoption of lockers in France. What's even more encouraging is that the adoption rate of the '23 cohort is keeping up with the previous year, demonstrating the sustained traction of our lockers. So now let's move to the U.K. 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 U.K. Our focus on deploying larger machines with more lockers has improved our core economics. Additionally, we've become to add PUDO 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 U.K. major cities, 42% of residents are now within a 7-minute walk of an InPost APM. -- employing New APMs, we work together with major chains like we do across all markets and key landlords. And in the U.K., 80% of our APMs have been installed at landlord and supermarket partners like Tesco, Sainsbury's, Morrisons, a little to name a few, again, key high footfall and visible locations. The chart in the center of the slide shows our growing U.K. 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 Cap service since launch. Both the number of returns per customer as well as a number of locker-to-locker parcels bouge per customer increased customer usage and retention every quarter, which is really encouraging signs now as we start to unlock the network. After merchants will we partner with over 200 brands, including the U.K.'s top retailers at the end of Q1 '23, the number of sellers was 50% higher than Q1 '22. And we note that this concerns only returns on Locker-to-Locker, while our B2C service in the U.K. is still not live as we with the higher logistic capacity and coverage. On the next slide, in the U.K., we continue to see tremendous growth as volumes reaching 7 million parcels, a 95% increase year-over-year. This is largely driven by the successful launch of the Locker-to-Locker, service with vinted,leading to a surge in C2X volumes. Returns have also continued to increase in line with our growing client base and higher input sharecheck 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 APM 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 PNL 3.3 in Q1, a significant improvement compared to Q4 and a significant improvement even further from Q1 '22. The high demand for our services in the U.K. is a clear indication of the increasing appetite amongst U.K. consumers for high-quality automated out of home delivery services. With the tremendous opportunity in the U.K., we are focused on resolving the capacity by bottlenecks that have hindered us up until this point and to fully maximize the potential of the 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 our way to really attack in the market. Our plan for 2023 is to continue expanding our network of APMs and PUDOs The better serve our growing customer base and to capture the enormous opportunity the U.K. 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 1.5 years when our year-over-year performance is fully comparable on a like-for-like basis. So we are not splitting out the Mondial 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 U.K. 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 3x, a decrease compared to 3.3x at the end of Q1 last year and 3.2x 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 to-door 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, which reverted 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 PLN 10.6 million in Q1, while APM manufacturing revenue declined year-on-year, 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 Relay revenue exceeded PLN 700 million, 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 investments into logistics infrastructure in anticipation of higher demand that we have seen in Q4 2022 where our capacity was insufficient to handle the peak volumes. We also continue to prepare for D+1 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 a 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 U.K. and Italy performance. Q1 parcel volumes in our international markets increased by 172% compared to Q1 last year and in total cross the mark of 10 million parcels per quarter with U.K. almost doubling volumes. U.K. 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 cost 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 EBITDA posted a decline of 4% year-on-year, driven by a combination of reduced U.K. losses increase in Italy loss and investment into international overheads where we have significantly increased our tech capability to support our international platform. Out specifically call out significant, almost 30% reduction in EBITDA loss in the U.K. 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 the loss reductions, which is very, very encouraging. Moving to Page 24. As already highlighted by Michael, the U.K. 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. We -- 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 PLN 545 million with 27.3% EBITDA margin. Below the EBITDA line, the IFRS 16 cost grew by almost 46%, where majority of growth was from increase in leases driven by increase in space for our sorting hubs and depots expansion. Depreciation and amortization of property, plant and equipment grew by almost 34%, which was directly connected with further 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 in our PLN denominated floating portion of that. Finally, the net income for the quarter increased by 67% year-on-year to almost PLN 116 million. I would also comment on the high effective tax rate, which when you look just look at the consolidated pretax profit is nearing 34%. Part of that is driven by the international tax losses, which do not create any tax field 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 as 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, 3 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 spend 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 IFRS16 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 a 3x EBITDA and down by 0.2 turns 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 3 minor as, first of all, exceeding market volume growth in Poland while expanding margins; secondly, continuing to invest in Mondial Relay delay 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 U.K. 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 costs, 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 investments 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 end 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 comp for growth. So that is all from my side. Thank you for your attention, and let's start Q&A part.

[Operator Instructions] The first question comes from the line of Ivar Billfalk-Kelly from UBS.

Maybe if we start with the U.K., EBIT double or partial has improved quite a lot, but it does still remain some way off breakeven. Can you please give us a bit more color on the moving parts and expectations to reach breakeven on a run rate basis by the end of the year? And linked to that, I mean, 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 then secondly, margins in Mondial in France were a bit weaker than being 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 other marginal margin you could expect to get on incremental volumes? And then maybe a quick one to tie it all off. Given a close relationship with Lidl in Poland and the recent margin [indiscernible] -- would you consider entering that market? And if so, how would you evaluate that opportunity.

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

Sorry. So in respect of the moving to breakeven on a run rate basis in the U.K., just the moving pipes for that and how we can expect that to evolve?

So just -- I think I caught the first 2 parts in the U.K., just let me reframe it. One, we are making clearly an increase in change in 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 U.K. to enable the breakeven. 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 number of locations against with the right capacity and logistics framework. I think what we've been able to demonstrate clearly is we're increasing the locker coverage, we're seeing increased unit economics. And that's also being complemented by the further optimization of our existing logistics will be healthy constrained. And what we've been able to do across the end of Q1 and to start in Q2 is actually bring on board another third-party location logistics provider that will allow 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 allows 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 6x 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 2x what we can actually service, which clearly the logistics capacity opening up will enable that, and that will clearly target us towards breakeven as we get in the second half and Q4 of this year.

On my end I am happy to answer the question about our Allegro relationship also in terms of Czech activities. So as you may realize, I think we really try 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 are not considering any last mile activities in Czech Republic at this stage. So we help to collect, we help to move the parcel to the deeper and to provide a cross-border solution. But the last mile is not lying in our hands. So passing to Adam about the margin and Mondial .

Yes. Thanks, Rafal. So maybe just to recap on the Q1 margin development, again, just to reiterate 2 points, I think. First one was again, the comp base of the fuel cost in Q1, so pre-war versus the post-war or fuel cost. It was definitely a step-up element that has put some pressure on the cost side. I think from you to onwards, we would expect to have a like-for-like fuel based 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 the build-out 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 our Peak because of insufficient capacity, which essentially has put pressure on cost. We want to avoid that for 2 reasons. I mean, first of all, to have a more pace, more stable, more predictable cost base, but secondly and probably more importantly, to have the right capacity to manage the growth, especially in the B2C space, where on-time delivery and delivery promise 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 increase in B2C share which is part of the growth strategy for the market and also ability to develop D+1 towards the end of the year. We would hope that Lidl 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.

The next question comes from the line of Sam Bland from JPMorgan.

I have 2, please. The first one is on the current sort of market or volume situation in Poland. I think some headlines saying maybe April is a little bit slower, May better, but I think there was also a talk that May was helped by sort of tax refunds or something for Polish consumers. I know do you view that as sort of a one-off benefit, like what do you think overall, the market is 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 a margin reduction. Would a similar thing happen in the U.K. 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?

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 week. Second half of April, gave a catch-up. So the overall April, according to our ambitious plans have 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 economist. 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. And also looking at the future some declarations about again, fueling consumers' pockets with additional social support from the government. We are in an election year, bear in mind that. So many question marks and many surprises ahead of us, I guess. But our dynamics from 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 U.K. It's the whole business case you see currently is based on subcontracting the third-party providers, which you may guess suboptimal in terms of the profitability, not giving advantage on the volume, stop rate, efficiency. So the whole operating leverage we've subcontracted business model is that the more is delivered more 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 decreased the loss by 60% thanks to higher density, but also thanks to a 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 subcontractor lending recently. We expect further improvement of the unit economics. So it's a little bit different. Also bear in mind that French market is very fragmented in terms of e-commerce volume in the U.K., 70% of the e-commerce GMV sits in top 3 clusters, London, Manchester, Birmingham, where we already have a very dense network. So you can't compare both markets as same. So this will be slightly different setup done in France.

Next question comes from the line of Paul Cuan from Bank of America.

I have 2. 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 a distinct benefit of repricing in Q1 margin, and we understand those 3 pricing efforts are now behind us. So could you give us your visibility on Q2 margins, please?

So maybe I will address the first question, and then I will hand over to Adam. Yes, 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 triangle it down with some other public companies from the e-commerce space publishing their results. The outperformance is mostly driven by extreme lialization of the consumer base. And this was something that we are always communicating. This is not about deploying physically machines on the ground to replicate imposes business model. It's all about the whole setup. The whole 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 yes, this is a whole setup about end consumer centricity. And we are super happy that whatever we said 2 years ago at IPO is literally now visible in our outperformance. Looking at the other players, the others are struggling, we are taking over their volume.

Yes. And maybe just commenting on the question around the margins for Q2. I'll probably hault from giving you a precise number is 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 to an extent, reactive to what's going on in the marketplace. At the same time, as you are all aware, and I also mentioned commenting on France, the inflationary pressures are there. and they are quite visible. As we said in Q1, we were quite successful in managing those, especially in Poland. But look, it's a challenging environment. It still continues to be a 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 rest of the year. But I think in general, it's challenging here, although we managed to beat the market growth quite visibly despite the fact we're able to put visible price increases through the margins are definitely under pressure, and there'll be challenges to manage the margin pressure.

Next question comes from the line of Lisa Yang from Goldman Sachs.

Lisa Yang from Goldman. A couple of questions, please. Firstly, on the price per parcel, I was obviously pleasantly surprised to see type sell in Poland for lockers and strong double digit for to-door, I think you said on the previous call, we should expect mid- to high single-digit impact from repricing or basically the being the gap between 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 [indiscernible] 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, we should just expect a positive fee 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 3 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 U.K.? And also, if you could just remind thus following the repricing, how does your pricing compares to competitors, whether they are local competitors or to-door competitors. So we -- yes, we just know how -- what's the pricing advantage of InPost ?

Shall I take the first 2 and I'll leave the third one for Rafal. So in terms of pricing, I think would still hold to our previous original guidance. I think there is a difference between the comp base for the price first half, second half. So as you remember, we have been gradually reacting in terms of price adjustments already immediately after the war outbreak, although our ability to react was somehow limited by the contractual provisions in our contracts. And therefore, we're saying we're going to experience some pricing lock, which is going to then happen and be more visible in Q4 last year and beginning of this year. And therefore, if you then look on a like-for-like price increase, in the second half, the percentage increase will be somehow lower and therefore, the blend that 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 we're saying we want -- we will deliver a positive free cash flow. Now again, first quarter is helped by the fact compared to last year. As you remember, last year, CapEx was front-loaded. We were addressing the supply chain bottlenecks that kind of were appearing in the post Covid world. And therefore, we've brought CapEx spend forward quite visibly. Whereas this year, we're phasing it out more evenly. -- what that kind of means is probably we would expect to be delivering similar levels of free cash flows quarter-on-quarter into the rest of the year. And the third one, Rafal, if you may.

Yes, sure. So in terms of competition, I assure the same story. 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 trend setter. 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 3, 4x faster than the others do 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, U.K., France, Italy, Spain, you see clearly, those markets combined are 7 to 8x 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. And here, we see competitive activities mostly. in terms of the pricing, we try to always adjust the price to the market conditions. There are competitors who are much cheaper than us and still they are struggling and 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

Next question comes from the line of David Kerstens from Jefferies.

I have got 3. 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 a 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 or change with regards to the expansion in the APM network? And then finally, on the solving of the U.K. logistics bottlenecks. I think in the last call, you alluded to an imminent announcement. Has your strategy changed around the logistics in the U.K.

So let me start maybe with the last question first. So nothing has changed, David. We with that -- we will try to resolve the capacity constrained topic. On two ways as First one is the organic way, including having more subcontractors, more reliable subcontractors with more capacity, which we are testing right now. Second, opportunities still look at some potential assets that might be like helpful in our organic strategy or even may accelerate the development of the U.K. business. So today, there is no decision, 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, this is a process. Some of the merchants, they've been repriced in Q1. Some of them apply the repricing, 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 volume. Although we don't know how 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 coming 2 weeks and June, and then we'll see. -- as I said, 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.

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 the caveat, a lot depends on the development of the inflation rate in Poland and especially 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 it's leased in our control. But otherwise, I feel like, yes, in terms of scale, operating leverage, productivity improvements and also pricing. We have everything lined up to drive our margin improvement going forward.