KRUK in H1 2017: Record net profit of PLN 217m and half a billion złoty of new investment spending

The KRUK Group, Polish leader of the debt management market in Central Europe, has published its performance figures for the first half of 2017.

• The Group reported a net profit of PLN 217.0m for the first half of 2017, up 95% year on year, with the strong growth driven by a sharp rise in business levels and a restatement of the result for the first quarter of 2017 by roughly PLN 35m*.
• Recoveries from purchased debt portfolios reached PLN 647.2m, up 45% year on year. In the second quarter alone, KRUK reported recoveries of PLN 337.6m, representing the Company’s best quarterly result to date.
• In the first half of 2017, the KRUK Group invested PLN 505.6m in 51 debt portfolios with a total nominal value of PLN 7.4bn. In the second quarter alone, investments totalled PLN 292.0m. With the net interest-bearing debt to equity ratio at 1.1x, KRUK’s balance sheet can easily accommodate future investments.
• In the first half of 2017, KRUK secured funding from several sources, with PLN 667.0m available under lines of credit at the end of the period, of which PLN 240.0m was also available in the euro. In addition, KRUK issued two series of euro-denominated notes to domestic investors, worth EUR 40.0m in total.
• After the end of the first half of 2017, KRUK signed a revolving credit facility agreement with a syndicate of four banks: DNB Bank of Norway, BZ WBK, mBank, and ING Bank Śląski. This multi-currency facility of EUR 250m can be used to finance or refinance portfolios in European markets other than Poland.

(*) KRUK resolved to change the functional currency of the subsidiary InvestCapital Malta from PLN to EUR as the latter best reflects the economic environment and the structure of investment in the subsidiary. As a result of the change, KRUK restated the results for the first quarter of 2017.

Presentation: https://en.kruk.eu/media/article/file/kruk_results_presentation_1h2017.pdf

Report: https://en.kruk.eu/media/article/file/kruk_2017_half_year_report.pdf 

Key consolidated financial results for H1 2017

(*) Cash EBITDA = EBIT + recoveries from purchased portfolios - revenues from purchased portfolios.
(**) Excluding the issue of 1m new shares worth PLN 215m in December 2016.

“This past half year was a period of very strong growth delivered by our team. The most important thing is that we are persistent in implementing our strategy. We spread debts into manageable instalments, staying attuned to problems faced by debtors and helping them pay off their debts. We have consistently implemented this amicable approach in seven different countries. In each of them, we safeguard compliance with social norms and legal rules requiring that liabilities incurred must be settled, said KRUK CEO Piotr Krupa.

New investments

In the first half of 2017, the KRUK Group invested PLN 506m in 51 debt portfolios with a total nominal value of PLN 7.4bn. In the second quarter alone, investments totalled PLN 292m. Over 90% of the investment budget was spent outside Poland − half in Italy, one-fourth in Romania, and the rest in other geographies, including Germany, Czech Republic and Slovakia.

“We spent half a billion złotys on debt portfolios in the first six months alone, when it is usually the second half of a year that sees stronger volumes. At the same time banks in Europe are increasingly willing to sell debt. In Poland, the supply of debt from banks remained stable, although in recent months we have noticed that competition is getting fiercer, pushing up portfolio prices relative to their quality. Poland is our home and core market, but our geographical diversification offers interesting alternatives. I believe that very soon a majority of our investments will be made in foreign markets,” Mr Krupa added.

Strong potential for further purchases

As supply in the market continued to rise, KRUK secured new financing in the first half of 2017, with PLN 667m available under lines of credit at the end of the period, of which PLN 240m was also available in the euro. In addition, KRUK issued two series of euro-denominated notes to domestic investors, worth EUR 40m in total. The notes pay interest at 3.59% and mature in five years.

After the end of the first half of 2017, KRUK signed a revolving credit facility agreement with a consortium of four banks: DNB Bank of Norway, BZ WBK, mBank, and ING Bank Śląski. This multi-currency facility of EUR 250m can be used to finance or refinance portfolios in European markets other than Poland.

Highest recoveries ever

Recoveries from purchased debt reached PLN 647m (up 45% year on year). In the second quarter alone, KRUK reported recoveries of PLN 338m, representing the Company’s best result to date. Collections on purchased portfolios totalled approximately PLN 1.2bn for the last twelve months. This compares to PLN 993m for the entire 2016.

“Our past investments today generate a growing stream of recoveries, with customers outside Poland already representing a majority share of total collections. This trend will accelerate as we expand our presence in new markets. We are getting more certain by the month that an amicable debt collection strategy that respects social norms and the law is an effective one. Paying off debts is crucial to economic well-being in any geography, said Mr Krupa.

Third dividend payment

After the end of the first half of 2017, KRUK paid a dividend of PLN 2 per share (approximately PLN 37.5m in total) from the consolidated net profit earned in 2016. The balance of the net profit was allocated to statutory reserve funds. This was the third dividend payment in KRUK’s history. Last year the Company paid a total of PLN 35.5m to shareholders.

The Management Board is of the opinion that a distribution of this amount will not affect the Group’s primary plans for further business growth, as they take into account the Group’s financing requirements, as well as its current debt level and overall financial condition. On March 29th, the Supervisory Board issued a favourable opinion on the recommendation.

New index membership

In the first half of 2017, the Warsaw Stock Exchange selected KRUK’s stock for inclusion in the elite WIG30 index and as a top pick in the standby list for WIG20. After the end of the half-year, the stock also met the eligibility criteria for FTSE EM membership. KRUK’s market capitalisation as at the date of the interim earnings report was at an unprecedented level of PLN 6.4bn.