Welcome to Ozon's Third Quarter 2021 Results Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Maryia Berasneva-McNamara, Head of Investor Relations. Please go ahead. Good afternoon, everyone. Welcome to Ozon third quarter 2021 results call. Today's presenters are Ozon's Chief Executive Officer, Alexander Shulgin, Chief Operating Officer, Daniil Fedorov, and Chief Financial Officer, Igor Gerasimov. During the call, we will share company's key strategic business and operating highlights and discuss financial performance for the third quarter. This will be followed by a Q&A session in which you're welcome to ask your questions. You can also find a copy of our earnings release and presentation on Ozon IR website. Before I pass the floor to our management, I would like to advise you that some of the information you will hear today may include forward-looking statements under the Private Securities Litigation Reform Act. Forward-looking statements are based on management's beliefs, assumptions and information currently available, and are subject to known and unknown risks and uncertainties, many of which may be beyond our control, and actual results may differ materially. We encourage you to refer to the cautionary statements contained in the company's press release issued today and our SEC filings. During today's call, the company will be referring to certain non-IFRS financial measures and other metrics, reconciliation and definition of which you can find in company's press release published today. Now with great pleasure, I will pass the floor to Alexander Shulgin, CEO of Ozon. Thank you, Maryia. Good afternoon, everyone, and welcome to our Q3 2021 earnings call. Let me outline key highlights of the third quarter performance, and then Daniil and Igor will discuss marketplace dynamics and our financials in more detail. We are very happy to report our best quarter with the highest GMV orders, active buyers and seller numbers in our history, resulting in strong performance across our core business and verticals. Compared to Q2 2021, we also achieved an improvement in unit economics and EBITDA as percentage of GMV on a like-for-like basis, which is really important for us. Now, let me provide you with a few operational highlights. Within our core e-commerce business, we saw strong momentum in GMV growth, supported by an outstanding buyers and sellers base expansion and a big step up in engagement with the platform. GMV, including services, increased 2.5 x compared to Q3 2020, supported by the record growth in number of orders, up 239% year-on-year. The number of buyers exceeded 21 million, and number of active sellers reached 60,000, both showing stellar year-on-year growth. Following an inflection in demand for online services since the start of COVID-19 pandemic, we ramped up investments and made huge progress in infrastructure expansion. Our infrastructure increased 2.5 x year-on-year, and our last mile network nearly doubled. The infrastructure expansion allows us to provide best-in-class service for our buyers and sellers with 98% on-time delivery and greater share of orders delivered same or next day. With greater proximity to consumer, our strategy of shifting to a high frequency model is bearing fruit and is reflected in stronger cohorts. During the third quarter, our different verticals made tremendous progress, which gives us confidence in their scalability and significant potential for creating value for Ozon Group. Russian retail market is worth $500 billion and represents a huge opportunity in terms of e-commerce. We see strong market fundamentals and GDP per capita, internet and mobile penetration as precursors to growth in e-commerce penetration, which is currently half of where it should be, where it is in other markets with similar initial internet penetration. The e-commerce penetration is expected to exceed 20% within total retail by 2025 as e-commerce market grows by 29% on compound annual growth rate basis until 2025. We aim to be the key driving force of this transformational offline to online shift. By focusing on high frequency model, we believe we are deploying the right strategy to win the market. Furthermore, we're expanding our total addressable market by entering new geographies such as Belarus and Kazakhstan. In Q3, Ozon growth accelerated and returned to triple-digit territory, reaching 145% year-over-year. The stellar GMV growth was boosted by a record high year-over-year order growth of 239% on the back of a big improvement in order frequency by 50%, as well as an extremely strong growth in the customer base, up nearly 90% year-over-year. The uptick in frequency is a testimony to our progress towards a high frequency model. Ozon has already become a go-to destination for more than 21 million buyers. Our customers enjoy the widest multi-category assortment on the market, along with convenient and reliable delivery, which in turn translates into step up in purchase frequency. Ozon Financial Services provide buyers and sellers with a comprehensive suite of digital financial services and ensures frictionless shopping experience when it comes to transacting or lending on and off platform. After acquisition of a banking license, we continue to build our B2B and B2C payment and lending business verticals under Ozon Bank's brand. Ozon Card, our flagship consumer payments product, showed tremendous performance with over 1.6 million cards issued. Ozon Card cardholders transact 60% more frequently on our platform. Within our B2B stream, I would like to highlight our flexible payment plan product, which is gaining a lot of traction and is very popular with our sellers community. More than 5,000 sellers leverage this product to enhance their cash management, improve working capital profile, and scale their online business with Ozon faster. After we laid foundation this year, we have a solid product pipeline for the next 12 months. We plan to share the updates with you on a wide array of FinTech products that are currently under development. Last year, we started to scale Ozon Express, our quick commerce vertical, which enables us to achieve higher shopping frequencies. Express accelerates our overall last mile and allows us to tap into one of the largest grocery markets in Europe. This deliver anything fast offering resonates incredibly well with the buyers. After piloting this vertical in 2020, we started to scale it this year. We're encouraged by the result as the more mature dark stores operating for more than 12 months, which show much better unit economics. Over the last few months, we expanded this business to metropolitan areas in the regions outside of Moscow and St. Petersburg. We opened new dark stores in Central Russia, for example, in Tver, and in the south, in Krasnodar and Rostov-on-Don. In addition to 20,000 branded SKUs, we expanded the selection with our own private label and launched our ready-to-eat meals offering. The dark stores footprint more than doubled quarter-on-quarter and exceeds 60,000 sq m by the end of Q3. We believe this is a very attractive segment with huge total addressable market of nearly $250 billion and less than 1% e-commerce penetration. We see enormous opportunity for Ozon in this segment. So far, we have barely scratched the surface, and we believe in our ability to execute and penetrate this market. To sum up, we had a tremendous quarter with GMV growth accelerating to 145% in Q3. We achieved an incredible GMV growth of 123% in the first nine months and had a strong start to Q4. Trading during the high season is progressing well with a record RUB 6 billion GMV generated in the Singles' Day of November 11 and 5,000 orders a minute placed on the platform during the peak hours. Given our strong performance year-to-date, we are raising our guidance to 120% GMV growth in 2021 compared to last year. Now, I will pass it over to Daniil Fedorov, who will elaborate on our operational performance and dynamics in the marketplace. Thank you, Alexander. Hello, everyone. I'll provide you with a few comments on company's growth results and key operational updates. 145% growth of GMV and 239% growth in orders in Q3 is a phenomenal result given company's scale and quite a comp base of Q3 2020. We're very focused on excellence and execution, delivering best customer experience for all users of our platform, buyers, sellers, and our logistics partners. Largest assortment, best-in-class fulfillment and logistics infrastructure, proximity to buyers and sellers enables us to expand platform user base and drive high engagement, augmenting flywheel effect. Our merchant base increased by 3.6 x in the last year. The outstanding growth in the merchant base to over 60,000 contributed to the rising share of marketplace reaching 67% of GMV. Sellers appreciate access to 21 million customer base, variety of fulfillment and delivery options. Ozon proprietary market and business analytic tools help sellers to make more informed decision about their business plans and better understand market landscape. Our advertising instruments and financial services assist sellers in scaling their business faster. Our cross-border business, Ozon Global, is also gaining traction. As of now, we have over 6,000 international business selling their goods on our platform, adding to variety and choice. In Q3 2021, we also launched sole proprietor sales on our platform that should encourage more entrepreneurs to join platform and start doing business with us. Such initiatives platform's assortment, making it more attractive to buyers. In fact, Ozon assortment increased 5 x between Q3 2020 and Q3 2021. Ozon currently offers the widest assortment across multiple categories, head and shoulders above core competitors. More choice and more availability coupled with more convenience brings more customers to the platform. As a matter of fact, during Q3, Ozon attracted approximately 1 million new active users per month. As a result, we surpassed the 20 million milestone in active buyers, which is 87% more than a year ago. We observe increasing frequency and engagement of our buyers across categories. Our offering resonates with shoppers, which translates in purchase frequency increase by 50% year-on-year, reaching 7.5 orders per year. That's the average number. Our cohorts showed great progress quarter-on-quarter, but this is still way behind our ambitious long-term targets. However, the indication of what progress we can achieve. I'll give you some illustration. Our most loyal audience, which places orders at least once a week, increased to nearly two million customers in October this year, versus around 500,000 a year ago. Transformation into a high-frequency model is coupled with marginal contraction of average order value more frequently, but with a lower basket size. We believe that this model is more sustainable in the long term as it shows great long performance of cohorts and high customer lifetime value. Key drivers of order frequency growth are strong assortment growth and availability, increasing proximity to customers through expansion of pickup points network, bolstered by services such as premium subscription and our adjacent verticals such as express delivery and fintech solutions, such as buy now, pay later, and the Ozon Card. We'd also share insights into our cohort performance. Ozon continues to improve proximity to customer through network expansion, build better product, and develop new products and services to enhance UX and to consumers' demand for greater convenience and high-quality service. Being a one-stop shop, we emerged as the go-to destination for online shopping for Russian consumers. Today, Ozon is the most recognizable e-commerce brand among Russian marketplaces. Based on consumer feedback, our top of mind share increased dramatically since beginning of 2019, and continue to go from strength to strength, outpacing our peers. As a result, we are seeing more and more consumers choosing to order on Ozon versus other marketplaces. Our mobile app user audience more than doubled year-on-year, exhibiting the highest pace of growth among peers based on third-party data. Cohort performance has been amazing among both new and existing cohorts. We believe our obsession over customer experience is contributing to the growth in buyers, greater retention, as well as greater order frequency. Order composition chart shows that recent cohorts contribute substantial part of orders, and those new cohorts show high repurchase rates, which gives us confidence that our customer proposition keeps improving. Improving cohort characteristics give us confidence that focusing on a high-frequency commerce is the right strategy long term. All of this would be impossible without having a solid logistics backbone. Fulfillment and logistics is the bedrock of Ozon's e-commerce business, as it enables Ozon to handle rapidly rising volumes of orders, huge assortment, as well as offer faster delivery. Ozon expanded its total warehouse capacity by over 150% year-on-year. Our total warehouse space exceeded 750,000 sq m. Last quarter marked the largest increase in our footprint in the history. Our offline pickup locations almost doubled since the year-end. With greater proximity to consumer, our strategy of shifting to a high-frequency model is bearing fruit, with order frequency doubling in the last two years. Furthermore, our infrastructure enabled us to reach a great milestone of more than one million parcels shipped per day, of which 98% are steadily delivered on time. Last but not the least, the infrastructure expansion in Q3 prepares us for demand and peak during the high season, delivering on our growth guidance for 2021 and positioning us for strong growth in 2022. I'm also pleased to say that we have secured over 80% of new space planned for opening during 2022. All of this should translate into the better cohort performance and boost order frequencies for years to come. Before we turn over to financial performance discussion with Igor, a few words on our international expansion. Ozon continues to scale its operations. The company is now present in Belarus and Kazakhstan. During Q3 2021, Ozon launched a sorting center in Belarus. There are more than 3,000 unbranded offline pickup locations where you can collect our orders. Just last week, we launched branded franchising of pickup points in Belarus, which we believe could replicate the success of the model seen in Russia. Ozon is gaining popularity faster, and sales in Belarus have grown by approximately 10 times since the beginning of the year. The sales of sellers from Belarus on Ozon increased 5 times since March 2021. With this, I would like to hand over to Igor Gerasimov, who will discuss further our financial performance. Thank you, Daniil. I will share some insights into our Q3 financials. Our platform generated GMV, including services, of RUB 108 billion or $1.5 billion. This means 2.4 x increase compared to Q3 2020. Quarter-on-quarter, we made great progress. Not only GMV accelerated to an impressive 145% year-over-year compared to 94% in Q2, but also we managed to deliver a visible improvement in underlying EBITDA on a like-for-like basis. This was primarily driven by the improvements in gross profit margin and marketing expense as a percentage of GMV. To give you more on the drivers of gross profit and marketing improvements. As I shared with you in August, in Q3, we started to optimize the price investments within our 1P business, which we ramped up during Q2 2021. As a result of this effort, we achieved better gross margins in Q3 compared to Q2 2021 on the like-for-like methodology. As discussed in August, we're also focused on optimization of our marketing spends. We aim to increase the efficiency without having negative impact on the customer acquisitions. The result is encouraging, in my view. Marketing and sales expense decreased to 6% of GMV in Q3 2021 versus Q2. Yet our customer base grew faster in Q3, up 87% year-over-year compared to approximately 80% average run rates for the last seven quarters. This achievement was somewhat offset by the rising cost pressure from our record infrastructure expansion. We have increased our warehouse capacity by 1.6 x Q-on-Q in preparation for the high season at the next leg of growth in 2022. To sum up underlying EBITDA calculated on a like-for-like basis and excluding one-off, it corresponds to 9.6% as a percentage of GMV in Q3. This represents an improvement of 70 basis points in Q3 versus Q2. Next slide shows dynamics in our operating expenses at the aggregate level. The increase is elevated by GMV and orders growth, as well as 2.5 x growth in infrastructure year-over-year, as well as strategic investments into new verticals and products. Higher operating expense also reflects the cost of transformation to a higher frequency model. A few points I would like to highlight on this slide. Our marketing expense increased due to concentrated efforts around customer acquisition, which really paid off year-over-year. I would like to remind you that our marketing expense includes costs associated with card processing, which inflates this cost line. Despite all of this, we achieved greater marketing efficiency, with sales and marketing expense as a percentage of GMV declining to 6% in Q3 2021 compared to 6.4% in Q2 2021. Turning over to technology. The increase Q-on-Q can be largely attributed to a one-off expenditure on R&D, which I have mentioned, as well as ESOP components, which doesn't impact EBITDA. Finally, I would like to note that G&A was impacted by non-cash ESOP components, which increased substantially both year-over-year and Q-on-Q because of the new grants and share price appreciation. Our AOV contracted, driven by our transition to a high frequency model. This transition is part of our strategy. We are seeing increasing loyalty and rising repurchase rates with customers engaging in buying across all categories. This makes our business and economics more sustainable and less dependent on the category mix in the future. This produces, however, temporary cost pressure on our bottom line. We can already say with confidence that this is paying off and would result in higher GMV per buyer. Therefore, it is diluting our cost per order basis, which I will comment on in the next slide. Higher revenue per user increases our returns on customer acquisition costs. I know Sasha already highlighted to you, but I would like to mention this once again and draw your attention to the tremendous order growth and growth which we achieved between Q3 this year and Q3 last year. This number of orders nearly quadrupled, reaching 56 million orders in Q3 compared to 17 million orders last year. We have delivered one of the strongest orders growth in the industry, which is one of the key volume metrics showing ultimate commitment of our buyers and sellers to our platform. This incredible growth in orders is positively impacting the dynamics of cost per order. Namely, fulfillment and delivery cost per order went down from RUB 393 per order in Q3 2020 to RUB 330 per order in the space of 12 months, despite 2.5x increase in warehousing capacity. Sales and marketing costs went down from RUB 144 in Q3 2021 to RUB 116 per order in Q3. It went down from RUB 144 in Q3 2020 to RUB 116 rubles per order in Q3 2021. What this means is that we were able to reduce marketing cost per order while nearly doubling active user base. With further order growth and continuing improvements in frequency, there is room for further cost dilution on per order basis and better unit economics. Lastly, a few words on our cash flow dynamics. Cash outflow from operating activities was RUB -9.1 billion. Our working capital dynamics remains favorable. Our capital expenditure amounted to RUB 4.6 billion as we progress with planned infrastructure launches. Thank you for your attention, and let us move now to Q&A session. Thank you. We will now begin the question-and-answer session. If you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. To cancel the request, please press the hash key. Star and one to ask a question. The first question comes from the line of Slava Degtyarev. Please ask your question. Thank you very much for the presentation. Couple of questions from my side. First, if you can elaborate on the competitive modes that you have created on the side of the high frequency versus what is available in the market currently from your competitors. Do you see a material difference in frequency between the capital cities and the regions? Second, you also mentioned you secured 80% of the target fulfillment space for the next year. Can you roughly comment what is the fulfillment capacity addition you are looking for compared to this year? Directionally, would you expect GMV growth next year to outpace the growth in the fulfillment space? Thank you. Thank you for your question, Slava. Let me begin, and probably on some questions Dan can follow up. On frequency, what we see is we have one of the strongest orders growth in the whole e-commerce market in Russia. I believe that many of our competitors still have relatively inflated average order values, which means that one of the key drivers behind their GMV is electronics. Meaning that going forward, probably it will be diluted once they move towards other categories and proceed with expansion in non-electronics. Also, I'd like to mention that on per item basis, growth remains very strong as well. From the standpoint of relative growth metrics, I'd say that our growth probably is one of the best based on the information which is available to us. On the fulfillment capacity, this year, as we have previously shared with you, we aim to almost double overall fulfillment capacity on year-over-year basis. A part of the infrastructure expansion would be attributable to first months of 2022 as well, in order to support the orders growth, because we're setting a high bar for us effectively. However, we cannot provide any exact targets or guidance. I guess we will share with you updated guidance on 2022 by the time we release our next quarter. Yes. Let me, if I can add, on the frequency. Look, I think, what we really focus on, and I think we excel, and we have a best-in-class performance is, I would first highlight very basic stuff, which is difficult to advertise and brand, but it's actually the most important. Well, first of all, we have super good coverage of our customers, so, with the last mile network. So, that's a last mile network proximity to customers. That's one. Second, we manage availability of goods and localization of stock and pay a lot of attention there, which means that actually it's not like a proximity of just last mile network. It's also the proximity of goods, which means that delivery time is narrower. On top of that, we of course focus a lot on fintech, premium subscription. In fintech, we have over 1.6 million Ozon Cards issued, and we also have good progress with our premium subscription. We see that those who use that product, their frequency is improving drastically. On top of that, last but not the least, of course, is express delivery, which could be different how other guys are doing. We think it's actually today one of the fastest growing e-groceries in the market. We also see a huge engagement and from customers and the express delivery is gaining pace and improves frequency quite dramatically. Looking versus the regions, as you ask, I think, the share of high-frequency buyers is high in Moscow, and in particular because of express. But at the same time, if you look at different layers of your customers, looking by frequency, actually have a lot of customers doing weekly orders in all cities. Key is actually to have a fulfillment near so that you can actually supply next or two-day delivery. Okay, thank you very much. Thank you. Your next question comes from the line of Miriam Adisa of Morgan Stanley. Please ask your que- Great. Thanks everyone for the opportunity to take questions. Firstly, just on the Ozon Express, if you could just share the share of GMV that represents now and how much was this a driver of that sort of step up in order frequency that you saw? Then also if you could talk about your expansion plans for dark stores over the next year, given the fact you've now sort of gone out of Moscow and you've gone into new cities. Is this something that you see working in most of your cities, or do you think this is still something limited to perhaps some of the bigger cities? How are you thinking about the size of the store as well and the relative number of SKUs per store as well? Any more color on your expansion plans there would be great. Finally, just on your seller base. You've seen this big growth in your merchant base. Just wondering if you're seeing sellers choosing more FBO versus FBS, if there's been any shift there. Any color on that as well would be great. Thank you. Sure, Miriam. Hi Miriam, this is Alexander speaking. On Express, this business is fairly new for us as we discussed. We were piloting it in 2020 and are actively developing the dark store infrastructure this year. Its total share in our GMV is less than 10%. I wouldn't say that's the key reason for the frequency increase. Frequency is driven by substantially better propositions to the sellers in terms of number of SKUs available on the platform, quality of service and speed of delivery. Obviously, Express contributes to frequency increase in the cities where it operates. In Moscow, primarily St. Petersburg and our recently launched Krasnodar and Rostov. Overall, the frequency increase is driven by the performance of the core business. Yes. On FBS and FBO split, let me add here. I think I can highlight two trends that we see. First, we see more and more sellers actually going into two models because actually, and I can claim that these models, they actually do not differentiate sellers, they differentiate different categories and goods. What we see that sellers are actually mixed in models. That's one. Two, we see a slight improvement of FBO. I would attribute that to the fact that we pay a lot of attention to regions. For FBS sellers, it's simply, you know, impossible to localize stock. If share of regions increases, our commissions actually work such that, you know, commission becomes a bit higher. By the way, on commissions, because I looked at commentaries, I see some misleading commentaries. Actually, our commission is very similar to some of our competitors. Some of our competitors increased commission three times this year. We are on par. I think what we focus on, and we've been talking through this very clearly over the last year, we are focusing on sustainable commissions because we've built a long-term partnership with our sellers. Great. Thank you. Just following up on the first question, it was just on sort of if you can talk about the expansion plans for your dark stores in terms of new cities, and then also how you're thinking about the format in terms of number of SKUs and the size of the stores. Sure, Miriam. In terms of the expansion, Express dark stores already operate in St. Petersburg, so they're not present exclusively in Moscow. We're experimenting with regional expansion. However, at this stage, it's mostly pilot, so we'll see. About the number of SKUs. We're also experimenting with a number of various formats in order to make the delivery even speedier compared to the previous value proposition. Therefore, we will be trying to roll out a mix of a relatively narrower SKU count versus better delivery time. It is an early stage initiative. Great. Thank you. Thank you. The next question comes from the line of Ivan Kim of Xtellus Capital. Please ask your question. Yes, good afternoon. Firstly, on the fourth quarter. The growth looks good in the fourth quarter so far. Can you please comment directionally on profitability level in the fourth quarter, and what will be the drivers defining the fourth quarter margin? Secondly, can you please talk about the ways you can improve customer retention and increase the moat? How can you improve the adoption of the premium subscription? And probably a related question is whether you think you're fully funded for the foreseeable future, thinking about the investments to implement. And lastly, just a technical question on the 1P margin. You just said that like for like it improved quarter-on-quarter. I was just trying to understand it was impacted by the one-off inventory valuation allowance, right? What sort of, like for like, so to say, clean 1P margin you had in the third quarter? Thank you. Sure, Ivan. Let me take first part of the question. In Q4, directionally, given that we've been opening infrastructure ahead of the high season, ramp-up of the fulfillment and delivery cost component should be better. I guess this should be one of the visible drivers in Q4. On 1P margin, let me explain that. IFRIC, I mean, a committee which dictates the IFRS methodology, has issued a new note saying how NRV, essentially impairment reserves on stock should be calculated and evaluated. This is already impacting most of the retail organizations globally reporting under IFRS standards. In our case, it resulted into an immediate cost of RUB 500 million. In our reporting, 1P gross margin is net of that. Therefore, effectively, our gross profit for 1P business should be higher by RUB 500 million. On your question with respect to our financial condition, we have over 100 billion rubles on the balance sheet as of now. Therefore, we remain comfortably funded, but would not comment on any future financing plans. On the ways to improve retention and increase the penetration of the premium subscription, I will let Dan to add. I think, let me split it into three buckets. First is, I would say, speed. Effectively what I'm talking about is that, increasing proximity of our last mile network, increasing proximity of stock. That would include building regional fulfillment centers, localizing stock there, and also opening more and more express Ozon hub stores actually. This proved to be very efficient historically. Our cohorts improve continuously. As I mentioned, just to keep this in mind, if you look at October, almost two million people are doing weekly orders already. That's compared to almost 500,000 a year ago. That actually worked out pretty well. I mean, of course, we'll talk through additional services and maybe, you know, having ability to watch, you know, different films on your smart TV pushes you to buy more in some universes, right? We are focusing on the very basic stuff. That's one. Second I would add is engaging buyers more and more. With that, we are working to develop social streaming. We had the most visited stream on Singles' Day already. We have big plans for next year in terms of social commerce. Number three would be actually creating motivation to shop to be a frequent shopper. When I say that that relates to Ozon Premium and Ozon Card and other financial services. That actually creates better stickiness financially to our platform. These three buckets. Talking about Premium, how to motivate, you know, how to develop the program. I think we did a lot of changes over the last couple months. We see good traction. I think as we mentioned previously, you know, we're still thinking how to enrich the program. One thing we did, and it was a good thing, is we in our 11/11 promo, we did one day of presale for Premium buyers, and the Premium buyers accounted for 50% of GMV on that day. Which means that we actually found a really good feature for the subscription. I think it’s basically more of the same. Great. Thank you very much. Thank you. Your next question comes from the line of Elena Jouronova of JP Morgan. Please ask your question. Hi, good evening everyone. I have a few questions, let me ask one-by-one, please. First and foremost, I noticed that you are talking a lot about the decline in your fulfillment and delivery costs on per order basis, and you've mentioned the number 16%. Well, as a matter of fact, we've been tracking that metric every quarter and we see that it's going down continuously ever since Q2 2020. So I'm just wondering why you decided to flesh out this particular number during today's release. And in the same context, how should we think about the improvement in unit economics when we actually see that your contribution margin deteriorated in 3Q versus second quarter? That's the first question. Sure. On fulfillment and delivery cost per order, why it is important? Because in Q3 of 2021, we've delivered even higher growth in orders. As you know, we do not have most of our orders are delivered without any artificial thresholds. Therefore, the economics, I mean, is adapted towards a higher frequency mode of operations. What does that mean? We've basically expanded our infrastructure more than 2 x since 2020, and cost per order didn't go up. I mean, what it tells you that economics of scale is working even despite the infrastructure is not fully ramped up. I mean, this was the point. Going forward with improving frequency, cost per order should be diluted even more than that in the future. On contribution profit, I mean, it's subject to how you define it. If it's gross profit minus fulfillment and delivery expense, this is because fulfillment and delivery expense in Q3 went up ahead because of the openings ahead of the high season next year. I don't know what to add here. The point was that focus on frequency is paying off economically because unit economics will be improved even better because semi-fixed component in our cost structure is significant. Therefore, given current cohort performance and the current frequency trends, costs will be continuously diluting in the future, especially, I mean, in 2022. Okay. Is it then logical to assume that after such a big expansion of fulfillment infrastructure and the associated fixed costs in Q3, when we are in the high season of Q4, we should start seeing contribution margin improving as percentage of sales? I mean, it depends on how you are defining the contribution margin. Gross profit less, fulfillment and delivery costs. I mean, we're not giving exact guidance on profitability targets for Q4. Fulfillment and delivery costs in Q4 should be better because of the ramp up. You mean better as percent of GMV? Yes. Okay. Another question was on receivables. Why did we see growth in receivables? I mean, it doesn't look like a significant change given that scale of GMV has also changed. It looks largely in line. What do you mean exactly by the question? Well, we've seen a change in receivables turnover, and that was something that I thought was unusual. If it's just related to fast GMV growth, fine, but it was doubling of receivables and advances in Q3 versus Q2 last year. I mean, l ook, if it's not important, we can take it off. There's nothing particular to it here. It's business as usual. I mean, in Q4, you should expect a significant improvement in the working capital dynamics as usual, I mean, because of the seasonality. I mean, nothing unusual from my standpoint. Okay. Can we maybe discuss a bit the outlook for advertising revenue growth? I think this is where you surprised on the upside. What would be expectations for Q4 and next year? Do you think that advertising is gonna accelerate growth or you've reached a certain level which you're comfortable with? It's definitely. Yeah. Yeah. Continue. Yeah. Yeah, like, I mean, the ambition is that next year, starting from next year, we're gonna become a reasonably big player in advertising market overall. It should continue growing. We see very healthy metrics in terms of engagement of sellers in our advertising tools. Despite the fact that actually the number of sellers is growing and almost doubled since March of this year, we actually see sellers' advertising tools increasing, so meaning that more sellers using advertising, you know, growing more than two times since March. It's more than half of sellers are using these tools. We have a quite strong roadmap of products. We're also enhance our commercial function. Next year, the ambition is that we're gonna become a top five players in online advertising overall in Russia. Mm-hmm. In terms of P&L metrics, we're not gonna give any guidance, but the percentage points should continue growing going forward. Understood. Also, Daniil, I had a question on the share of 3P as percentage of GMV. It's growing very nicely. When do you think it will stabilize, and at what level? It's difficult to say because I think it would be fair to say that let's say at 70%-75% is a level where we have no aim to push 3P share higher, right? It's the level where we're like broadly comfortable, so we're not doing a specific push. The sellers and vendors speak, so because a lot of unexpected things sometimes happens, like sometimes big brands become sellers unexpectedly, so anything can happen. I would say like current levels are more or less comfortable in terms of split, you know, let's say strategically. We will see what lenders choose to be sellers or to stay 1P brands. Yeah, that's clear. Another one I had was actually on sales and marketing. These costs went down as percentage of GMV obviously. GMV performance was very strong. Do you think this was really more of a one-off or this is a beginning of a trend, so we'll see in the future that sales and marketing costs go down as percentage of GMV? It's not a one-off. I mean, it's a result of the efforts to optimize the marketing spending. Within sales and marketing, I mean, you have separate items reported in aggregate. Marketing component per se, I mean, as a spending on online advertising and offline advertising, has improved even more drastically versus second quarter 2020. The rest of the cost is attributable to a number of factors. One component is the sales team, which is necessary to ensure the GMV growth. Another component is cost of processing of the Ozon Card. Mm-hmm. Okay. I'll also add that, you know, like the trend continues. Look at our historical financials. Like, I remember when I joined to Ozon, like this level of sales and marketing, especially if you look at the true marketing component without any other businesses or without the charge cost, you know, it, we were dreaming to have it like that. Yeah, and this will continue. Thank you. Just a final one, if I may, please. You've announced a couple of interesting things that I picked up on, and that is expansion to Belarus and Kazakhstan, and then you also touched upon the positive impact on GMV you're seeing from the fintech initiatives, B2B, B2C lending. Is there a way to quantify what GMV increments can we be talking about here in a more strategic sense maybe? How do these projects increase your midterm GMV growth outlook? I guess on Belarus and Kazakhstan, obviously the initiatives are at the very early stage, I mean, as of now, and GMV of both countries, ex Russia, is below 1%. For 2021 it's fair to assume. Target for 2022, given that we're not sharing broader guidance for the whole company, we'll not communicate that. The pace of growth in Belarus and Kazakhstan obviously should be exceeding that of Ozon on average. Share in GMV will be growing in 2022. It's one of the targets. As for fintech, I mean, penetration of Ozon financial payment products into our GMV already well exceeds 10%, and it's closer to 15% in fact. Therefore, incremental, I mean, uptick in frequency, in GMV, in customer loyalty is quite material, and going forward, it should be growing. Plus, I mean, we're extracting additional economies from effective reduction of the acquiring costs because we're not paying to third parties. Therefore, we have another incentive to drive penetration of Ozon Card up going forward. Mm-hmm. Okay. Understood. Thank you very much. Thank you. Your next question comes from the line of Kirill Panarin of Renaissance Capital. Please ask your question. Yeah. Hi, everyone. Three questions, please. Firstly, could you give some color on your pricing strategy and 1P gross margin outlook, in particular during the high Q4 season? Should we expect further optimization of pricing or a reversal of Q3 trend? That's the first one. Secondly, do you have a medium-term target for fulfillment capacity? And then maybe without giving a specific number on your plans for next year, could you talk about how we should think about fulfillment costs as percentage of GMV in 2022? Then lastly, to sum up all your comments on margin trends. EBITDA margin improved sequentially in Q3, adjusted for one-offs. Do you expect this improvement to continue in Q4 and next year? That's it. Thank you. Sure, Kirill. On 1P gross profit margin, it's hard to guide for any exact level because it is subject to the category mix. As you well know, in some categories, gross profit margins are lower, which is offset by higher average item value. In other categories, gross profit margins are higher, which is also not necessarily good for the economics because average item value is lower in that case. Therefore, I mean, we'll probably abstain from guiding the exact level of gross profit margins. We believe that the levels which we have achieved in 1P, in the midterm and going further into 2022 should be improving, I mean, because of the growing purchase power, and it's one of the targets to improve the terms with suppliers. On gross margin in general, I mean, it contains other items. It's a product of. Basically it's the sum of the commission revenue we get from marketplace, advertising revenue, from the sellers and also from the suppliers, from our 1P business. Yes, 1P gross profit margins and some other, not that material revenue streams. Overall, given what Daniil has mentioned about advertising revenue and given that our commission structure is relatively stable and taking into account that going forward, we expect our 1P gross profit margins to gradually improve, obviously coupled with still quite, ambitious growth targets. Yes, it's reasonable to assume that, in the following years, gross profit margin for the company overall will be improving. Thank you. Your next question comes from the line of Dmitry Vlasov of Wood & Co. Please ask your question. Thank you very much for the opportunity to ask question. Two for me, please. The first one is on the fulfillment and delivery cost item in the third quarter. Given such a huge increase in the fulfillment capacity, the 17.1% cost line item on the percentage of GMV actually doesn't look that terrible to me. Just curious, what would it be if you wouldn't increase the fulfillment infrastructure? Would it be better versus second quarter of 2021? And when exactly did you open those fulfillment centers? Was it the beginning of third quarter or the middle? The next question, are you maybe planning to expand in any new business verticals to improve your customer proposition, like maybe video streaming or music, or that's not an option as of now? Thank you. Mm-hmm. Sure. Thank you for your question. Yes, you're exactly right. Without any incremental addition of the infrastructure, cost per order would go down, I mean, logically Q-on-Q. As a percentage of GMV as well. Many of the openings occurred closer to the end of the quarter. There is some impact of timing within the quarter itself. Yes, in Q4, it's logical to assume that this cost component should be better relative to Q3. Could you please repeat your other question on other product verticals? Yeah. On other products, we're considering, I mean, any additions which might improve frequency and loyalty of the customers and sellers on our platform. We have a number of product initiatives, maybe, mainly internal ones, which target better retention of customers and improvements in the engagement. Those are relatively early stage initiatives, and we wouldn't mention that at this stage. I guess we have a huge customer base already. We have one of the biggest monthly audiences in the Russian market. We have a significant daily audience. Therefore, it's very important for us to ensure that those people become more frequent shoppers of the core platform in the first place. Which means that we still have to follow our playbook, bringing goods closer to customers in order to improve the delivery speed, improving the delivery terms, improving the availability and reach of the pickup points, including delivery channels, adding assortments, ensuring that you have best-selling stock available on your warehousing facilities, and et cetera, et cetera. It's a relatively complex equation which you have to manage in order to ensure great customer experience. Thank you very much. Thank you. Your next question comes from the line of Ivan Kim from Xtellus Capital. Your line is now open. Thank you for the opportunity to ask a couple of follow-ups. I just wanted to ask about the customer retention, what it has been lately, and do we see the significant improvement on churn in the recent cohorts, let's say in 2021 versus 2019? Maybe it would be possible to quantify that. Secondly, on Ozon Express impact on profitability, I think you said it in second quarter, it was about one percentage point impact on EBITDA. Maybe you can provide a similar estimate of what was the impact on the third quarter. Thank you very much. Sure. On cohorts, yes, you're exactly right. We see continuous improvements in the cohort performance in both client cohorts, in GMV per active buyer and et cetera. I mean in every section. Could you please repeat your other question? Yeah. The second question was just on the impact of Ozon Express on profitability in the third quarter. Sure. What sort of? It was around the same numbers for the third quarter, I mean, in relative terms. Okay, great. Thank you very much. Thank you. Your next question comes from the line of Catherine O'Neill from Citi. Your line is now open. Great. Thank you. I just had one question about the average order value, which is, yeah, has been ticking down as you suggested it would do. Clearly you're very focused on order frequency. I just wondered if you could give us some idea about how we should think about the average order value into 4Q and then into 2022 if you're more focused on frequency. Average order value in Q4. I mean, we see that it should be pretty much close to the one which we saw in Q3, so we do not expect any material deviations from these targets. Going forward, it's relatively complicated to guide because we already do not have any artificial thresholds on the minimal order value for delivery towards pickup points. We have a threshold of roughly $50 for the delivery via couriers. So far we do not plan to reduce it going forward. The mix in the basket might be changing because of varying customer preferences. What we're doing here, I mean, our goal is to ensure that we're able to deliver better economics under all circumstances, still having the ability to meet the customer needs and keeping in mind our goal to improve economics in the mid-term. Great. Thank you. Thank you. Your next question comes from the line of Alexey Philippov from JP Morgan. Your line is now open. Hi. Thank you for the presentation. Could you please share some color on your performance in the more mature markets like Moscow and St. Petersburg? Is the growth in these regions materially lower compared to the group level, or it's broadly similar? That's my first question. Thank you. Growth in Moscow is also very strong because we're deploying quite a significant fulfillment and sorting centers capacity, and we're improving the reach of the pickup points. The regions are growing a bit faster, but still growth in Moscow is quite impressive given obviously higher base. Yeah, that's clear. Thank you. My second question would be on your targeting of any specific categories. So have you been particularly aggressive in any specific category in the third quarter and during November campaign? For instance, we remember that the previous quarter you were experimenting a lot in consumer electronics and FMCG. Is it still the case over the last three, four months or you scaled down any specific categories? Thank you. This works a bit differently. Internally, given that we manage a huge assortment of, I mean, close to 50 million SKUs by the end of third quarter, any single pricing strategy wouldn't work. Therefore, you have to combine this, and you're trying to combine various product offerings. You have to combine different value propositions towards customers. I wouldn't say that we completely abolished all promo campaigns and et cetera, especially given that you are rewarded in advertising for some of the promo campaigns by your suppliers and by the sellers. We have optimized the level of the investments relative to Q2. As you could have seen in our numbers, it didn't have any negative impact on the growth of the group overall. This is one of the most important highlights for us, that the growth in fact accelerated in third quarter while we have managed to improve the pricing and rationalize marketing spend. I guess this is important. Yeah. I can also add on. If you just talk through categories, I think it's important to still keep in mind that we are building through a horizontal platform. We aim for the whole retail market, right? That doesn't change. We definitely wanna see high growth in FMCG and especially through the express. What I can also highlight is that there is quite high growth across the board, even in books where we are, you know, already the proxy of the market in online sales. What I can mention specifically is apparel. Overall apparel segment is getting to become the biggest category. We see very high growth. I think we did a good job over the last year actually to create a very good base for this category at all. We have now pickup points with fitting rooms. We have critical mass of assortment and sellers. We have actually over 5 million SKUs apparel. I think we're not where we would like to be for sure. That's a category which is lagging historically at Ozon. We think that we reach the pivotal point to continue growing. That doesn't necessarily mean that it's gonna be like super huge investments there. We see this category outperforming and that should continue going forward. Yes, that was very helpful. Thank you. Probably a last question on competition. Can you probably highlight who would be the most aggressive right now in terms of marketing and promo? Ozon obviously is at the top. Yeah, let me start. We're the most aggressive. We offer the best terms for the high frequency and our order value actually highlights this. We invest significantly into marketing, and that's good terms. We are the most aggressive player there. We also are aiming to collect more, so that it's actually sellers and brands paying for that. Because that's what it is effectively because to advertise their goods. We are by far the most aggressive player and the most aggressive developer of the industry, despite any numbers which you can see, which you can hear publicly. Thank you very much. Thank you. There are no further questions at this time. Please continue. This is Alexander speaking. Let me give you some closing remarks, and with this we'll finish the call. Thank you very much for your attention. We want to thank you for joining our quarterly call and for your questions today. To sum up, we continue to focus on scaling our business and expanding our core e-commerce business as well as additional verticals which are complementary to our business. We are pleased with the progress we have made in this last quarter with 145% GMV growth and record order growth of 139%, with unit economics exhibiting signs of improvement in Q3 compared to Q2 2021. The efficiency initiatives which we are implementing are bearing fruit with gross profit as percentage of GMV and marketing efficiency improving quarter-on-quarter, helping to drive margin improvements quarter-on-quarter on a like-for-like basis. Looking ahead, thanks to our infrastructure additions and concerted effort around inventory stocking, we are well prepared for the high season of 2021 and for the growth in 2022. With strong momentum in our platform and great engagement demonstrated by growing user and seller base as well as rising order frequencies, we believe we are well positioned to deliver on our long-term objective of becoming a leading e-commerce company in Russia. We look forward to updating you on the progress we make on our Q4 and full year earnings call in March. Thank you and have a good day. Thank you. That concludes the conference for today. Thank you for participating. You may now disconnect.