KRUK in the first part of 2020 – summary:
- COVID-19 and its after-effects had an adverse impact on debt portfolio collections in March–April 2020;
- Recoveries in April 2020 totalled 85% of the operational target for 2020;
- A PLN 125m negative revaluation of the portfolios in Q1 2020 reflects best knowledge and experience at the time of making the forecast;
- The first quarter of 2020 saw record high collections and cash EBITDA*, which came in at PLN 326m, up 15% year on year;
- Due to the COVID-19 epidemic, KRUK temporarily scaled down new debt purchases;
- KRUK expects a growing supply of debt portfolios in late 2020 and in 2021;
- KRUK is well-positioned to actively leverage the upward trend on the markets, with sound financial and liquidity standing;
- KRUK is reviewing its cost base and working on a range of cost-cutting measures;
- KRUK operates in compliance with the law, relevant standards and corporate social responsibility, which is of particular importance now, amid the COVID-19-induced crisis;
Despite record high collections (PLN 477m) and cash EBITDA* (PLN 326m), KRUK’s Q1 2020 results reflect the impact of COVID-19 on its expected future recoveries. As a result, the Group recorded a revaluation loss on its portfolios, of PLN 125m, translating into consolidated net loss of PLN 62m for Q1 2020.
‘As COVID-19 and its after-effects have badly hit practically each of our markets, we decided to revise downward our forecast of expected recoveries, as reflected in the KRUK Group’s consolidated net result,’ said Piotr Krupa, President of the KRUK S.A. Management Board. ‘Although the first quarter saw record high collections of PLN 477m, in the second half of March they fell short of our targets. Recoveries in April came in at 85% of the operational target set for 2020. Although we smoothly switched to remote work with as many as 95% of our staff working from home over the recent weeks, the adverse developments and experience had to be reflected in portfolio revaluation. It represents our best knowledge for the time being, but the full impact of the pandemic and its adverse effects are difficult to estimate,’ added Piotr Krupa.
The KRUK Group’s cash EBITDA for Q1 2020 reached PLN 326m, a 15% year-on-year improvement and an all-time record. The Group’s financial condition as at the end of the first quarter of 2020 and the date of issue of the Q1 report remained stable. As at March 31st 2020, the KRUK Group’s equity was close to PLN 2bn, while its debt level remained low (2.1x net debt/cash EBITDA). The undrawn amount of committed credit was PLN 712m as at March 31st 2020, up by PLN 156m from December 31st 2019. As at March 31st 2020, the KRUK Group’s cash and cash equivalents amounted to PLN 236m, having grown PLN 86m relative to December 31st 2019.
‘Given the COVID-19 crisis, the Group’s net profit or loss amount for the year is uncertain, but I’m confident that our financial and liquidity standing will remain sound. We generated record high cash EBITDA for Q1 2020, up 15% year on year. We have sufficient cash and available credit facilities, which will soon come in handy as we fully resume portfolio purchases with the market supply of debt on the rise. I don’t expect this to happen sooner than towards the year’s end, though. We are already returning to office work, in an organised and well thought-out manner, and our field consultants have resumed direct interaction with clients. Paradoxically enough, the crisis has helped accelerate work on certain solutions for our clients, especially online tools. We can see that the uptake of this communication channel, as well as the e-kruk platform, has increased and will continue to grow going forward. COVID-19 has taken its toll on us all, but we are consistently working to return to a growth path,’ commented Piotr Krupa. ‘With our 2020 performance in mind, we are reviewing the cost base and taking cost-saving measures. We have already identified potential to reduce operating expenses and overheads in Q2 2020 by PLN 41m relative to the budget and approximately PLN 26m relative to Q1 2020. The cost savings include a 25% pay cut taken by the Management and Supervisory Board members, and a 20% reduction in senior managers’ salaries between May and July 2020’.
In the first quarter of 2020, an ethics audit was carried out at KRUK by the Association of Financial Companies in Poland, an organisation established by the Minister of Finance. As in previous years, the Ethics Committee of the Association granted a certificate confirming KRUK’s compliance with ethical standards. KRUK’s operations are underpinned by legal compliance and ethical conduct, of which the certificate is an important token, especially during the pandemic. In accordance with the legislative changes addressing COVID-19, KRUK intends to hold its annual general meeting at a later date, i.e. by August 31st 2020. With the AGM date postponed, the KRUK Management Board will also postpone release of its profit distribution recommendation.
‘For over 20 years, we have been changing the general perception and image of the debt management industry in Poland and wider Europe. The Company is a member of the Association of Financial Companies in Poland, the United Nations Global Compact, PKPP Lewiatan and many other organisations. We are involved in activities to ensure the highest possible standards of client (debtor) service. KRUK operates in compliance with the law, relevant standards and principles of corporate social responsibility, which is particularly important now, amid the COVID-19-induced crisis,’ commented Piotr Krupa. ‘It’s my intention for KRUK to grow its business as an income-distributing company, with the amount of such distributions contingent on our financial standing and prevailing market conditions. The current situation, marked by the COVID-19 pandemic, makes such assessment difficult, hence our decision to postpone the recommendation on how to distribute KRUK’s 2019 profit,’ concluded Piotr Krupa.
* Cash EBITDA = EBITDA – revenue from purchased portfolios + purchased portfolio collections
The link to a video commentary is provided below: