Despite strong recoveries and a stable liquidity position, KRUK expects the Covid-19 pandemic to have a negative impact on its first-quarter results
In the first quarter of 2020, KRUK invested over PLN 57m in debt portfolios with a total nominal value of PLN 505m. A 68% year-on-year decline in investment was brought about by the global spread of the coronavirus pandemic, which caused the Group to scale down its investing activity. In the first quarter of the year, KRUK invested primarily in retail debt portfolios in Poland and Romania.
“As for the supply of debt portfolios, the year started in line with our expectations. But the outbreak of the Covid-19 pandemic has slowed down activities on both sides of the market. We have suspended investing activity and sellers have withdrawn from ongoing or planned auctions,” said Piotr Krupa, President of the KRUK Management Board. “Under normal conditions, scaling down investment is bad news, but now it is a rational decision on the part of the KRUK Management Board, banks and other players. In our case, the decision follows directly from our investment risk management policy. At the same time, we want to prepare for a rise in supply when the pandemic subsides. The first requests for proposals have been reported across markets. But we do not expect an increase in debt supply until the second half of the year,” added Piotr Krupa.
Recoveries from the KRUK Group’s portfolios reached PLN 477m in the first quarter, up 11,8% year on year and up 0,4% quarter on quarter, driven by performance delivered in the first two months of the year, which was particularly strong in Poland, Romania, and Italy. In March, KRUK recorded a negative variance in actual recoveries relative to the operating targets in Spain and Italy, and in late March and early April – the same was reported for Romania and Poland. The KRUK Management Board expects the epidemic and its implications will continue to affect recoveries in Poland and other countries where the Group operates over the remainder of 2020. Therefore, the Management Board expects a negative revaluation of its debt portfolios in the first quarter of 2020. The Management Board has resolved to change the release date for the first-quarter 2020 results from May 7th 2020 to May 28th 2020 to gain more time to gather information, analyse it and accurately reflect it in the KRUK Group’s first-quarter results.
“We had a very strong start into the year in terms of operating performance in all markets, perhaps except for Spain. This is reflected in solid recoveries. As the coronavirus pandemic has been accelerating since March, our key objective has been to ensure business continuity. We have managed to efficiently achieve that in all markets, and today we are working remotely in every country. We are ramping up online tools in our operations, including online payments and the e-kruk platform, which enables conclusion of settlement agreements remotely,” said Piotr Krupa. “The coronavirus outbreak and its effects in the countries where we operate will adversely affect our results in 2020. The impacts will be particularly pronounced in our core business of purchased debt management, but we believe our lending business will also feel the pinch. Lowering of the non-interest cost cap enacted as part of the ‘anti-crisis legislative package’ will reduce our profitable lending potential in 2020, and a second negative impulse may come from the market when the ratio of non-performing loans increases. Against this backdrop, we are focusing on ensuring stable operational processes and cost savings. We are continuing our business activities across all markets and business lines. We believe our business landscape will significantly improve in 2021.
KRUK enjoys a stable liquidity position. Cash and cash equivalents held at the end of the first quarter of 2020 amounted to PLN 230m, up by PLN 80m on the end of 2019. The available lines of credit rose by PLN 156m compared with December 31st 2019, having reached PLN 712m as at March 31st 2020.
“Relative to the end of 2019, we have further enhanced our liquidity position through a PLN 80m increase in cash and repayment of some of our borrowings, which helped to increase funds available under credit facilities to a total of PLN 712m. Our goal is to minimise the negative impact of Covid-19 on the Group’s performance and to get ready to resume active business operations when the worst is over,” concluded Piotr Krupa, President of the KRUK Management Board.
Below, additional comment from Michał Zasępa, CFO of KRUK S.A. about the published report.
The link below (recording in English):