KRUK has published its first-half 2020 report. The Company posted a net profit of PLN 43m for the second quarter of 2020, reducing its first-half loss to PLN -19m. The consensus estimate of the Polish Press Agency, based on estimates provided by six brokerages, put the average second-quarter net profit at PLN 4.2m. The quarter-on-quarter improvement was primarily driven by a decrease in downward revaluations of purchased portfolios compared with the end of the first quarter (PLN -74m vs PLN -125m) and realised cost savings. In the second quarter of 2020, KRUK achieved a PLN 26m reduction in operating costs compared with the previous quarter and a PLN 41m reduction versus budget. The Company delivered cash EBITDA of PLN 591m, up 5% on the first half of 2019.
‘We are set to go through the rough patch of the COVID-19 pandemic as best as we can. We are on track to recoup the losses suffered at the outset of the pandemic, as demonstrated mainly by the reported recoveries and cash performance. April proved the weakest month of the second quarter in terms of recoveries. The following months (May – 86% performance against target and June – 89% performance against target) saw a gradual growth in recoveries and improved performance against the operating target set before the pandemic. This and the achieved cost savings enabled us to record a net profit of PLN 43m already in the second quarter of the year despite significant downward portfolio revaluations. The bottom line was further affected by a non-cash impairment loss on Espand*, a company providing credit management services in Spain. Its performance led to the recognition of a PLN 25m impairment loss on the company, but we have developed a plan to enhance its performance in the future. Despite the downward portfolio revaluations and the impairment loss, our performance by far exceeded market expectations. That we were able to beat the consensus estimate is a good sign. Of course, we still don’t know how the pandemic will develop, particularly in the markets where KRUK operates, and we are planning further management and operational activities with this uncertainty front of mind,’ said Piotr Krupa, President of the Management Board of KRUK S.A.
Due to the COVID-19 pandemic, KRUK has temporarily reduced investment in new debt portfolios and expects the supply of debt portfolios to increase in late 2020 and in 2021. Overall in the first half of 2020 KRUK purchased debt portfolios with a total nominal value in excess of PLN 692m, investing PLN 80m, of which less than one-third was spent in the second quarter of this year. The Management Board believes the Group has a sound financial and liquidity position, enabling it to actively participate in the expected growth in supply and to share part of the net profit earned last year with shareholders. If a dividend payment is approved by the General Meeting on August 31st 2020, it will be the sixth consecutive year the Company has shared profits with its owners. The KRUK Group holds equity of PLN 2.0bn, representing 43% of its financing sources, with its net interest-bearing debt to equity ratio at 1.1x and its net interest-bearing debt to cash EBITDA ratio at 1.9x.
‘Virtually all the markets where the KRUK Group operates have seen the supply of portfolios and the number of transactions fall due to the COVID-19 pandemic. As the situation stabilises, the market will likely start to reopen. The present situation is unusual to debt sellers as it is to us. All market participants have new investment risks to assess. KRUK is well-positioned to actively leverage the upward trend on the markets, with sound financial and liquidity standing. The Company has long relied on funding diversification. Today, we have access to lines of credit of up to PLN 910m, and the PFSA’s decision to approve our prospectus for another year will enable us to issue bonds of up to PLN 700m,’ added Mr Krupa.
The KRUK Group has effectively implemented a remote working system across all markets during the lockdown, with 95% of employees working remotely. Work is currently underway to rationally use the benefits of remote working within the organisation for the long term. The Group has significantly ramped up the development of its online operating tools across all markets (online payments, the e-kruk platform enabling conclusion of settlement agreements remotely, etc.).
In late May and early June, the Group resumed field advisors visits in all markets. It is important we engage more with our customers to understand the impact of the pandemic and to properly cater to customer needs. Our research shows the number of customers citing COVID-19 as a factor impacting their financial situation is in a downtrend. Only partial loss of income remains a more frequent response. The number of annexes signed to defer or suspend loan repayments on the grounds of extraordinary circumstances is also in decline. We are doing our best to track this information in order to mitigate the effects of the pandemic in line with customer needs. Obviously, how the situation turns out in the market remains to be seen,’ concluded Piotr Krupa, President of the Management Board of KRUK S.A.
* Currently KRUK España
Additional Comment from Piotr Krupa, President of the KRUK S.A. Management Board, on the H1 2020 performance: here