KRUK S.A. has published its consolidated financial results for 2019:
- Net profit at PLN 277m, down 16% year on year
- Cash EBITDA at PLN 1.1bn, up 12% year on year
- Recoveries from purchased debt portfolios at PLN 1.8bn, up 13% year on year
- Revenue at PLN 1.3bn, up 8% year on year
- Investments at PLN 781m, down 44% year on year
Net profit, recoveries and cash EBITDA
The KRUK Group reported a net profit of PLN 277m for 2019, a 16% decrease on 2018 driven by several adverse factors. At the same time, recoveries and cash EBITDA were record high in 2019, with Poland and Romania accounting for 77% of total recoveries. In Italy, recoveries totalled PLN 185m and exceeded the 2018 full-year figure by 46%. In the fourth quarter of 2019, KRUK recognised its first significant revaluation gain of PLN 13m in Italy as a result of strong recoveries and a steady increase in the number of debt claims referred for in-court recovery procedure. Despite a significant year-on-year increase, recoveries in Spain were still below expectations, which led to a negative portfolio revaluation. Cash EBITDA stood at PLN 1,130m, a 12% increase year on year.
“2019 was a challenging year that brought us a number of adverse events. The cases in point include a PLN 45m revaluation loss on a retail debt portfolio in Spain and a PLN 19m impairment loss on a debt portfolio in Slovakia. We also decided to recognise a PLN 13m impairment loss on goodwill of an Italian servicing company we had acquired. In 2019, we also suffered losses due to foreign exchange rate fluctuations. They amounted to PLN 30m,” said Piotr Krupa, the founder and CEO of KRUK S.A. “Against this backdrop, the net profit of PLN 277m posted by the Company is a solid result, but my expectations were higher. My priorities remain unchanged despite the 16% year-on-year decrease – I want KRUK to grow and share its profits with shareholders. A listed company, KRUK has reported an over four-fold increase in its net profit and paid PLN 262m in dividends since 2011.
We ended 2019 with recoveries of close to PLN 1.8bn, which represents a 13% increase on the previous year. I am particularly pleased with the fourth-quarter figure of PLN 475m, a record in KRUK’s history. We owe this to our hard work in all markets and continuous improvement in the operational efficiency and the organisation that I want to further advance in 2020. We are working to preserve the favourable trend in recoveries, particularly in Italy, where we made our first upward revaluation. We still have a long way to go, but this is a historic moment that bodes well for the future. We have a similar challenge to tackle in Spain in 2020, as the Spanish market ended last year with a large impairment loss on debt portfolios,” said Piotr Krupa.
Investments and financing
KRUK spent PLN 781m on debt portfolios with a nominal value of PLN 8.3bn in 2019, which is 44% less than in 2018. The estimated average gross return on investment in debt portfolios purchased in 2019 is in excess of 24%, compared with 22% for investments made in 2018. In the fourth quarter, KRUK was active in six markets after it resumed investing in Italy, in line with its earlier announcements. In the last three months, investments totalled PLN 389m. The carrying amount of debt portfolios rose 3% year on year, to PLN 4.2bn, with estimated remaining collections (ERC) at PLN 7.6bn. KRUK remains one of the least leveraged large companies in its industry in Europe. The total amount of credit facilities available to KRUK is PLN 1.9bn, of which 64% is denominated in the euro. In 2019, the Company issued bonds with a total value of PLN 215m. Its net debt to cash EBITDA at the end of 2019 was 2.3x, with the net interest-bearing debt to equity ratio at 1.3x.
“The supply of debt portfolios in 2019 in Poland was lower than we expected at the end of 2018. At the same time, we deliberately chose to scale down our investments in Italy and Spain in the first three quarters of the year. As a result, our investment expenditure was significantly lower than in 2018, but, what is paramount in our business, the return on investments we made in 2019 was much higher than in 2018. The past year was very successful in terms of investments in Romania. We purchased 50 debt portfolios with a total value of PLN 254m, grew our market share to 76% and increased investment expenditure by 72% year on year,” said Piotr Krupa. “We want to achieve a year-on-year growth in investments in 2020, keeping our returns at solid levels. In the fourth quarter, we resumed operations in Italy and, applying a selective approach, we closed our first transactions with a total value of PLN 99m. However, our investment plans for this year focus primarily on the Polish and Romanian markets. We will maintain our selective approach in Italy and Spain. We enjoy flexible access to financing sources thanks to a robust balance sheet, we have strong cash flows, and we will be seeking out new opportunities to increase our investment activity”, said Piotr Krupa.