CEO's letter: Time to pursue the most ambitious goals

CEO's letter: Time to pursue the most ambitious goals

The letter presented below is a part of Directors' Report on the Operations of the KRUK Group in 2017


Dear All,

To me KRUK’s business is like a long distance run. For example, a marathon or a triathlon, both of which I have completed several times. In these races speed does not matter as much as good preparation, strong character and true passion. I have managed KRUK for 20 years now and I believe that nothing motivates me better than the prospect of long distance. KRUK’s market capitalisation has jumped from some PLN 600m at the time of its stock market launch to PLN 4bn today. Our net profit has consistently been on the rise. In 2017, it reached PLN 295m, having increased by as much as 19% year on year. Of that I am very much proud.

You may ask: since every marathon has its finish line, does KRUK’s business have its own? Of course not. Every runner knows that this comparison has an additional meaning. After crossing the finish line, the runner already thinks about getting ready to enter into the next race with an even more challenging distance. Running, just like KRUK’s business in my case, is an adventure for life.

We pave the way in Western Europe

Our organisation already has more than three thousand employees. It has attracted highly talented and the most experienced professionals in the industry. Thanks to them, we can take up even the most challenging races. A few years ago, we set ourselves an extremely ambitious goal. We decided to venture into the largest Western European countries, with the new markets to become KRUK’s driving force. This will make us the largest debt management company in the world. As you know, no Polish company has so far achieved significant success in Europe, and only few so aspire. Together with them, we pave the way for others.

Our goal is ambitious, but we have solid foundations and are well prepared. We have spread our wings in Poland and Romania, which are generating a growing stream of cash. In 2017, we posted record recoveries from purchased debt portfolios of PLN 1.4bn in aggregate, with the two markets contributing approximately 80% of the total. Last year, we continued our unique amicable settlement strategy, proven to be effective with clients. Concurrently, in both markets we intensified out court litigation efforts with respect to the most difficult cases, previously not expected to be resolved favourably. We believe that this approach will result in further recoveries in the future.

We always treat our clients as partners – the way we would like to be treated. You have been familiar with our approach for years. However, it is often the case that it is impossible to reach an agreement still at the out-of-court stage. That is where the court has to step in. This is to the detriment of both parties, because the process becomes longer and more expensive. Instigating court proceedings also seems to make irreversible damage to mutual relations. That is why we welcome amicable settlements at each stage of the process. Debtors who did not agree to instalment-based repayments may contact us at any time and resume negotiations. This is an absolutely innovative approach and we seek to promote it on a large scale. I believe that it will be well received.

We need to be equally flexible in new markets. In each country we are introducing processes adapted to local conditions.

More than 400 employees in Italy and Spain

That is why we have been enhancing our adaptive capacities month after month. In 2017, in Italy, we successfully completed the integration with Credit Base, our previous partner in portfolio valuations and debt management. In the past few months, our team grew tenfold. We now employ over 200 staff, the great majority of whom are consultants – including field specialists – and lawyers. We are entering into new settlement agreements, thus consistently improving recoveries. A few months ago, we also launched our own litigation procedure, which allows us to handle court cases independently.

In 2017, we also engaged in developing our operational capacities in Spain. The number of employees doubled during the year, reaching 230, and the merger with Grupo Espand acquired last year was successfully completed. Our structures and processes in Spain allow us to handle all types of unsecured cases – both consumer and corporate debts. The local contact centre provides support with respect to all purchased portfolios, while over 30 field consultants cover the four regions of the country that are the most important to us.

It may seem to you that we have already run a long way, but in fact we are still at the start of the road. Efficiency in Italy and Spain has enormous growth potential compared with the mature Polish and Romanian markets. We are still learning hard. In 2017, we learned our lesson when we had to recognise impairment losses on purchased debt portfolios. In line with our conservative approach, we had to swallow that bitter pill. Nonetheless, I think we have done important homework. You can expect that by the end of the year we will have fully developed our operating capacity in both markets, reflecting their respective local conditions.

Growing supply of debt

We still see a growing supply of debt from banks and other financial institutions, with additional contribution from service providers. Last year, we invested PLN 976m in seven markets to purchase debt portfolios with a total nominal value of PLN 16.4bn. This was a second consecutive year when investments amounted to around PLN 1bn. The last 12 months have been marked by further portfolio diversification. Almost 30% of our investments were made in Poland, 25% in Romania, and 40% in our new Western European markets, primarily Italy and Spain. We need to bear in mind that the issue of debt in these countries is still very much alive and serious. Debt disclosed on the balance sheets of banks across Europe totals nearly EUR 900bn, according to the latest data of the European Banking Authority.

In line with our strategy, I confirm our objective of a 15% increase in earnings per share in 2018 and 2019. Apart from having solid foundations in Poland and Romania and the rollout into Western European countries, we have access to the resources needed to finance new investments. In 2017, we signed another revolving credit facility agreement, for the first time with an international syndicate of four banks: DNB Bank of Norway, Bank Zachodni WBK, mBank, and ING Bank Śląski. The facility of up to EUR 250m may be used to purchase debt portfolios in European markets. We well prepared for the rising supply of debt portfolios in Europe.

The report gives details on a truly important stage in the history of our operations. Over the year, our business grew by nearly 20%, and still the market is full of opportunities and challenges. This year we are celebrating our 20th birthday. I would like to believe that during these years we have managed to build lasting relationships with you, our clients and counterparties. Relationships based on integrity and mutual respect. Thank you for your trust in me and the KRUK team. I encourage you to read this report thoroughly.

Respectfully yours,
Piotr Krupa

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