KRUK Spólka Akcyjna

Good afternoon. My name is Michal Zasepa.

I'm CFO at KRUK. It's my pleasure to host this meeting where I will present the Q3 and 9 months results for 2025 for the KRUK Group.

I hope you see the presentation that I'm sharing, the presentation that is available on our website. And please give me now several minutes to present.

And in the meantime and after, please ask question via question-and-answers interface here at Teams, and I will answer your questions after I deliver the presentation. So let's start.

This was another very good quarter for the company. After 9 months, we have earned close to PLN 900 million of net profit.

This is as expected. So we are, in our view, on the way to deliver what will be most likely the best net profit in our history for 2025.

So in other words, we expect this 9 months to build our good position to have record high profits for the full year despite the fact that the 9 months of 2024 were higher than for this year. But last year, we had an extra high net profit in Q3 and a relatively weak Q4.

This year, likely the situation will be different. We have more even results for the quarters, and we also expect a decent Q4.

You can see that we deployed about PLN 1.4 billion in new portfolios. This is less than last year.

But as planned, we are on the way to deploy somewhere between PLN 2.4 billion to PLN 2.5 billion and Q4 should allow us to achieve it. Of course, there is some uncertainty.

We have not yet won all of those portfolios, but we see good pipeline, and we see already that we have won significantly more portfolios by a few hundred million zloty than what you see here as booked results for Q3. Recoveries were very good.

This PLN 2.9 billion is a record result. It's also in line with our operating ambitious plan for the entire group.

We had a record high cash EBITDA over PLN 2 billion, while the ROE decreased, but it decreased because it's counted for the 12 last months, which means it also includes the relatively weak Q4 of 2024. So I hope after Q4 of 2025, you will see some increase in this measure.

The company is well funded with good access to funding and continues to be moderately leveraged at 2.6x net debt to cash EBITDA or 1.4x -- 1.3x net debt to equity. This leverage level likely will somewhat grow in Q4 as we are realizing the plan to reach this PLN 2.5 billion of investment.

So overall, it's been quite successful 3 quarters and quite successful Q3 for us on the consolidated group level. You can see on this slide, share of recoveries, share of investments.

The fact that, again, we exceeded our accounting forecast by a strong single-digit number this time, 7% that shows you the business is healthy. Recoveries are increasing in the countries where we invested more.

So you can see an increasing share of Italy. On the other hand, in expenditures, you can see Spain taking the largest share where we saw the biggest opportunities for the past 9 months.

And you can see a small share of Spain, where we became very cautious given our relatively weaker performance over the past year. And we are investing as much as the market allows us in Poland and in Romania and possibly more investments are coming.

So overall, this picture shows good level of recoveries and optimization, our optimization across markets to win as much as possible of the good quality, good return investments as we can. Overall, looking at the business, as I told you, the net profit is at the level that was expected and desired by the company, no surprise here.

On the revenue, we are maybe a little bit below what we expected, but we are compensating it with costs. In this specific quarter, you may see there was somewhat lower positive revaluation than historically, but that's nature of the business where there are differences in between quarters in how the curves are shaped and it's not something we consider a problem.

Operating costs were increasing. They were increasing because we continue to increase salaries, especially in Poland and Romania with the market by a high single-digit number, but also because we invested more in costs of the New Horizon, the digital transformation -- that's the name of the digital transformation program we've instigated at the beginning of this year.

However, versus our budgetary assumptions, this cost growth was more contained than we expected. Finance costs went up together with the growing value of the debt, but were offset somewhat by lower interest rates and by the fact that we hedged some of -- some part of our debt, which contributed to some positive hedging gains.

Overall, as I told you, the businesses continues to be well funded. We enjoy very good access to debt funding, both from banks.

And here, we significantly increased our banking lines by PLN 90 million. We increased the RCF and we added some bilateral contracts.

We enjoy very good access if needed to the Polish bond market and the terms are as attractive that there is no need to go outside of Poland for the bonds. So funding is not an obstacle for the group currently.

Looking now at the segment analysis, if you look at this PLN 1.4 billion of investments, Italy contributed most. Why?

Because this is one of the largest markets, and it has been relatively less competitive than some other markets and also because the supply was relatively big in those markets. Poland was the second largest investment place for us.

You may see that we invested for the 9 months of this year less than a year ago. That is not worrying us.

There is more portfolio coming in this quarter, and we hope to increase this investment level significantly. However, it's a fact that the Polish market is quite competitive.

And usually, we are bidding there with -- together with higher number of competitors than, for example, in Italy, and that may also reflect the fact that the investments in Italy were higher than in Poland. We're very happy with the investments in Romania, and it's relatively big investments for that market.

And in Spain, we were shy here, and we will continue to be cautious until we see greater stability in the legal system and improvement in our recovery. So if you look at the business today at the split of the value of portfolios, Poland makes up close to 40%, Italy coming second with $3 billion and then 2 also large markets with $1.8 billion of assets in Spain and Romania.

So -- if you look at Spain, don't worry that we have not bought so much. We have a lot of portfolios to work and full concentration is on improving the recoveries there.

I'm happy to see that in this 9 months, we had record high cash EBITDA and cash EBITDA have grown considerably for all of those markets, as you see here. On EBITDA level, the business was profitable everywhere, but please note the growth is coming mostly from new markets.

So Poland and Romania, despite their excellent performance, decreased somewhat on profitability on EBITDA level because of the nature of the back book there. We are adding high-teen percent IRR portfolios to back books of over 20%.

The balance sheet -- the value of those portfolios is not growing so fast. And as a result, profitability is relatively stable there.

And the growth comes mostly from the back book that we have accumulated in Spain and Italy after we went successful to legal process, the costs go down, the recoveries and revenues stabilize and profitability increases. So this is a trend that we have expected, and I'd like you to understand why it's happening.

So overall, in my view, solid performance for Q3 and the 9 months. And now let's take a look -- a closer look at each of the main markets.

In Poland, as I told you, we're not discouraged with relatively lower investments until September and more is coming for October and Q4. In the meantime, recovery trends has been very strong and continues to be very strong.

You can see significant positive revaluation. We expect this trend to continue, and we're happy with the profitability that we have on the business.

In Romania, a good investment quarter with this $130 million and also a very strong trend of recoveries, significant positive revaluation. So again, after 9 months, we are where we wanted to be in Romania.

In Italy, very good 9 months in terms of investments, solid trend of recoveries, record high recoveries, including a cutoff for corporate portfolio that we bought. So there is an extra boost for cash flow, but not for revenues in Q3 alone, and we expect to continue to see good results there.

And finally, Spain, which, as you may remember, well, it suffered a year ago in Q4 of 2024, we took a relatively significant write-off there. I'm glad to tell you the situation has stabilized.

It has stabilized without improving much. So the results for Q3 recoveries alone are close to our accounting curve.

So there is not much margin for a mistake. We see that the legal environment is in process of reorganization.

We see that there is some good progress that we are expecting to see and has been started, but the process of those changes in the legal system in Spain is ongoing, and it will take still yet several months. So what we do, we concentrate on finding our improvements in our internal process of also understanding where these legal changes go, how exactly courts will be organized and how to adapt to that situation best as we can to prepare to see that in some months, we'll see even greater stabilization and some improvement of recoveries versus this planned minimum accounting forecast that we have currently.

So our expectation is that for the next few months at least, we will probably see a situation how it is now, which means the business is profitable, as you see in Q3, we earned PLN 50 million in EBITDA. So we expect to show also good profitability for Q4.

But we see the situation as still not adequately stable to come back to significant investments in that market. So we will probably be quite selective until we see a stronger recovery improvement and also signs from the market that would tell us we know how to operate now and not only this one in second quarter, but majority of them.

And hopefully, that will come sometime in 2026. This market is still at relatively higher risk than the other markets because of this history and because of the fact that we have little or none cushion in our operating plan versus the accounting forecast.

So we took the write-down, we lowered the curve, and we're now going right on this curve. But if something happens, if November or December recoveries will be significantly below what we think today, of course, it will constitute a problem.

We don't expect that today, but the risk is higher than in any other markets that we are in. Overall, we're optimistic.

We have no doubt Spain will be a very good market for the business. If you look at the portfolios that we have bought in Spain, 7, 8, 9 years ago, and we already started to see this level of -- this length of performance because we started to invest in Spain in 2016, we see an evidence that portfolios overperform in terms of cash, but they performed over a more flatter recovery curve.

So it's not a guarantee that will happen to all of our investments, but this is already visible that like in many of our other markets and portfolios, Spain is following this logic that once we do something, we may be at first in this initial phase of development of the business and market, sometimes overestimating. But overall, after a longer time, 5, 10, 15 years, we usually manage to beat our own expectations, and we see that eventually in profits and returns for the business.

So we expect we will find ourselves in that situation in a few years in Spain. Until now, we'll be concentrated on making sure we do every best step for managing this PLN 1.8 billion.

The balance sheet that we have, we'll be selectively buying small, medium-sized portfolios, which are immune given how -- what they are from legal system in Spain. There are such portfolios from time to time.

And hopefully, sometime in 2026, maybe second quarter, maybe third quarter, we'll resume to investing more heavily in that market. The other markets grouped here on this Slide 13 are 2 different streams.

Exit stream, which is Germany, Czech and Slovakia. For Germany, we have successfully sold our German company, and we still hold some assets, but there are tiny assets and they are in process of being sold.

So most likely this year, we'll end our experience and journey with Germany. And we are also following similar routes with the Czech and Slovak business.

We sold some assets already. We are in process in selling some other parts of the assets, and we will be starting a liquidation process for our company sometime in the next couple of months with the insight with the plan of liquidating our position in full exits sometime in 2026.

And the other stream, which is development stream is France, and France is here responsible for all of the investments that we make here. Here, the situation does not change.

We rely on currently 2 servicers. We continue to look for quality portfolios, which will allow us to add to our experience, but also make some money.

And we're waiting for a good moment to establish our operations there, but the decision has not been yet made how and when we will do it. So we'll continue to buy portfolios, but not on such a great scale.

So don't expect us to invest suddenly in France many hundreds of millions of zloty until we'll have a solid plan to be operational in France. So far, the experience in France has been quite good.

However, we see that we had very successful first stage of amicable process, which exceeded our expectations in terms of recoveries, and that was our experience for the past 1.5 years. Now we have almost half a year, maybe a bit less experience in legal process on some portfolios.

This legal process overall is going slower. The recoveries are a bit lower than the plan.

And now we are investigating this. It's not a significant problem from the P&L perspective, but it's, of course, an important operational question, have we underestimated amicable and overestimated legal stream or can we improve the legal stream and have even better returns?

And that's something the team will be concentrating on in the coming months. Overall, we remain optimistic about France and we would like to continue to develop there.

For the other markets, which are not listed here, we continue to research U.K. and U.S.

But that means we try to understand how big the market is, how competitive it is, how the business is done, what business models work best there and who could be possibly a good partner for us in a co-investment process like we do in France or a possible acquisition target. But this is still a preparatory phase, and we have not yet made a decision to enter any of those markets yet, but we're preparing for that.

Wonga and Novum had another solid quarter with good profitability. And I also want to inform you that in Q3, we started our operations of Wonga in Romania with a plan to build a position there, starting from a small scale start-up operation based on some assets and a team that KRUK Romania had because it also had small lending operations concentrated on our own clients.

Now we will be entering or we have entered the open market. And hopefully, in 3 years from now, we will be able to tell you that we have a successful solid business.

It will not be a very big business. If we will be 1/3 of the Polish operation, I think that will be quite good results given the market size.

So it's a nice addition and hopefully a good opportunity for Wonga to grow. Looking at the P&L, once again, in my view, solid performance on EBITDA and net profit and making it quite likely that we will see a decent results and growth for this year.

If you're asking specific questions, what the growth expectations, we're not giving a forecast, but please remember the last option motivational program that the Board has is based on the assumption that we need to grow at least 12% on profit before tax year-to-year to get the allocation, and we definitely want to get the allocation. I will finish here and I'll ask for your question.

Thank you for listening to my presentation.

We have the first question. Is the company considering early redemption of bonds with the highest interest rates?

We will consider and we may decide to do it if this will be profitable for us and open for that window -- and a window for that will open in some time, and then we'll be deciding on what to do. Another question that I have is, do we -- what are the plans to enter new markets, which and when?

We don't give a specific answer to that question. But as I mentioned, we are researching U.K.

and the U.S. markets.

U.K. is the biggest debt selling market in Europe.

U.S. is the largest debt selling -- consumer debt selling market in the world.

U.S. is, according to our assessment, significantly bigger than the whole European market in that respect.

So if we enter those markets, that opens a significant market opportunity for us to continue to grow. However, of course, those markets are competitive, are mature.

They are relatively highly regulated. So they are not easy, of course, to get into and win.

Do you have any other questions? No.

We'll give you a minute more to see. I don't see any other questions at this time.

Okay, I see a question. And the question is, can you talk about your right to collect accrued interest versus principal?

For example, even P&L accounts that you book for 3 years, do you continue to accrue interest? How does this vary across markets?

So this vary across market. The legislation tells us what we can do and what we cannot do over -- and that's also changing time, and it also may vary whether this is any capital process or legal process.

So to make it -- to give you a simple answer, the simple answer would be that, as a rule, we are most often able to see some accrued interest during the legal process, but it's not interest that we decide to put on the debtor, but the losses if a case when successful through legal process, the losses you need to add some additional interest, which is called delayed payment interest. And this is quite significant in Poland.

It's much less significant in the other countries, and it does not happen much from a member in Romania and Spain. But for example, for Poland, our biggest market, that's a significant percentage, currently maybe about 10%, 11% annually.

And it happens when the judge makes a verdict saying, this debt needs to be repaid. And from that moment, the outstanding amount of the debt is increased by certain interest, which is determined by law.

And the fact that it exists, prolongs our recovery curves in Poland and in the markets where it exists. Do you have any other questions?

I have another question here. You have had the experience of exiting some markets before.

From this presentation, it appears that you remain committed to Spanish market as of now. How would you make the decision regarding staying committed to Spain business versus exiting?

We are doing long-term business planning twice a year. So we, every roughly 6 months, look at what we have in Spain, look at what we believe is market in terms of buying portfolios in the future and see the business plan for the next 5, 10, 15 years.

And we see what realistically in our assumption are the profits that we can make. And at this point, as in historically, we believe the market is big enough and our competitive position is strong enough for us to continue to earn money in Spain an adequate return.

So for us to exit Spain, we would need to change that view. What would that mean?

That would mean that we make losses and we do not have an idea how to turn them into profits from our back book in Spain. This is not the case.

Despite the fact that we incurred some write-downs in Spain, our back book in Spain, according to best of our knowledge, yields a high-teen percent IRR. So it's a decent result.

You may not see it in the results for the past year, but we see it in our long-term forecast. Second, we would need to see that for regulatory reasons, for market reasons, we are not able to buy profitably.

Again, that's not something that we see. Spain is one of the largest debt selling market in Europe, and there is a number of players who do that business profitably.

So it doesn't look like any of this situation will occur and it doesn't look like we would be in a situation where we would need to exit Spain. Where we exited, that's Germany, we saw a very small market, and we saw that we could do returns of 10%, 8%, 9% IRR, which was not satisfactory.

So long-term and short-term perspective, it was that. When we exited from Czech and Slovakia, we saw a profitable business, but we saw a tiny market.

So we could continue to earn them $5 million, $10 million, but that's a percent of the group profits. And that's why we want to be -- we want to refocus our attention to the larger market where we can make hundreds of millions of gains, not several.

Spain will be a very good market for in the mid and long term. Okay.

We have another question. From a competition perspective, do you see any player becoming more or less active year-on-year in your markets?

How is the competitive intensity evolving? We see somewhat higher prices or somewhat higher price pressure across our markets in 2025 versus 2024, which is natural because interest rates went down in Europe and in Poland for euro and for Polish zloty.

And as a result, all of the participants count the weighted average cost of funding at some lower level than a year ago, and they are translating it into their maximum price levels. So I would say that's natural that when interest rates go down, our expected returns also are affected.

But it's a moderate effect, the difference may be 1% or 1.5 percentage points. In terms of competitive activity, it's -- I think it's a good environment where a few strong players in every market bid and compete strongly.

And sometimes this or sometimes other players is successful. We don't see somebody who would be successful enormously in many markets.

We see competitive situation differing country to country. And we see that there is not many new players, and there is not many players with this hot capital that would be quite reckless with investing the money NPL, which happened from time to time in the past.

So I would say it's quite stable situation, although it's a tough competitive environment where possibly not everybody will be making money from the current players, and there will be some consolidation. But knowing the history from 2020 -- '10 to '15, '16 where this competitive landscape environment was very fierce where the interest rates were 0 or negative in Europe, we enjoy being in this competitive situation.

So it's also lessons learned that it's good for us, a rational player to be in an environment where interest rates are not 0. And I hope as long as they are not 0, but 2-or-some-percent or something like that in Eurozone, that will not recreate this bubble of reckless money chasing portfolios for any price.

I don't see other questions. So in a summary, we expect a good year for this year.

Of course, as always, there's countries which will outperform and underperform. But overall, we expect a good 2025 for in-process and budgeting.

So hopefully, we will also be seeing good prospects for 2026. I didn't mention, we are continuing our program from digital transformation.

It's going well currently, but it promises significant benefits only from 2028, 2029 and later. But we are fully focused on that.

And hopefully, sometime in 2026, we'll have again 4 big markets to invest in without much of limitation. And at some point, France will be a new market.

And in the longer term, we hope to add either U.S. or U.K., although without yet specific time commitment when we will do it.

Thank you very much for your time. And if you have any follow-up questions, please contact the IR team, and we will be very happy to continue our dialog.

Have a good afternoon. Bye-bye.