Earnings call transcript: Kruk SA’s Q2 2025 Performance and Strategic Shifts

Kruk SA reported its second-quarter 2025 earnings, revealing a mixed financial performance marked by a 3% decline in net profit compared to last year, yet achieving a record-high cash EBITDA of 1.3 billion PLN for the first half of the year. The company’s stock saw a modest increase of 1.02%, closing at 352.2 PLN, reflecting investor confidence in its strategic shifts and robust market position. According to InvestingPro analysis, Kruk appears undervalued with strong fundamentals, supported by a healthy P/E ratio of 8.57 and an impressive Financial Health Score of 3.01 (rated as GREAT).

Key Takeaways

• Kruk SA’s net profit decreased by 3% year-on-year.
• Record cash EBITDA of 1.3 billion PLN for the first half of 2025.
• Significant investments in digital transformation and market expansion.
• Exit from Czech, Slovak, and German markets; focus shifts to France, UK, and US.
• Stock price increased by 1.02% post-earnings.

Company Performance

Kruk SA demonstrated resilience in Q2 2025 despite a slight dip in net profit. The company’s strategic focus on digital transformation and market expansion appears to be yielding positive results, evidenced by robust revenue growth of 22.49% over the last twelve months. Its cash EBITDA reached record levels, underscoring operational efficiency. The exit from less profitable markets like the Czech Republic, Slovakia, and Germany allows Kruk to concentrate resources on high-potential regions such as France, with future plans to enter the UK and US markets. For detailed analysis of Kruk’s expansion strategy and growth metrics, check out the comprehensive Pro Research Report available on InvestingPro.

Financial Highlights

• Net profit: 584 million PLN, down 3% year-on-year.
• Cash EBITDA: 1.3 billion PLN for the first half of 2025.
• Return on Equity: 22%.
• Asset growth: 18% year-on-year, approaching 11 billion PLN.
• Leverage ratio: 2.5x, well-contained.

Outlook & Guidance

Kruk SA remains optimistic about its growth trajectory, with plans to invest 2.5 billion PLN in portfolio purchases by year-end. The company anticipates a mid-single-digit effective tax rate, with potential adjustments once a 15% corporate tax is introduced in 2027. The ongoing "New Horizon" digital transformation program, expected to boost productivity post-2029, represents a significant long-term investment. With a strong Altman Z-Score of 6.2 indicating solid financial health and an attractive P/E ratio of 8.57, InvestingPro analysis suggests the company is well-positioned for sustainable growth.

Executive Commentary

• "We are on track in terms of our expectations to grow the net profit." - Michal Za Senpa, CFO
• "The gains come after 2029 when this system will be fully available for operations." - Michal Za Senpa, CFO
• "We are focused on big markets that will give us opportunity to grow significantly." - Michal Za Senpa, CFO

Risks and Challenges

• Increasing portfolio prices, particularly in Poland and Romania, could pressure margins.
• Competitive pressures in Italy and other core markets.
• Potential regulatory changes, including a new corporate tax rate in 2027.
• Execution risks associated with the digital transformation initiative.

Q&A

During the earnings call, analysts focused on Kruk’s market expansion strategy and digital transformation efforts. Concerns were raised about the rising portfolio prices in Poland and Romania, with Kruk confirming a 20% increase in Poland and 8-10% in Romania and Italy. The company expressed no current interest in the Buy Now, Pay Later (BNPL) market, emphasizing its commitment to exploring opportunities in the UK and US.

Full transcript - Kruk SA (KRU) Q2 2025:

Michal Za Senpa, CFO, Crook: Good afternoon. My name is Michal Za Senpa. I’m CFO at Crook, and it’s my pleasure to host the the communication for the second quarter and ’6 first half results of 2025. You should see on the screen the presentation, which is also available on our website. Please give me several minutes to present, and in the meantime, ask questions via chat Teams application here, and I will refer to those questions, answer them after the the presentation.

So let’s start. This was a very good six months for the company. We earned 584,000,000 slobby of net profit. Compared to our expectations and budgeting, this is better than what we than what we planned. Still, it’s 3% less than last year, but please please remember there was an extraordinary high base for the last year.

So this is nothing to worry if you are asking yourself the questions. Are we on the path to grow net profit this year? Yes. We are. Recoveries overall were very good, and there were markets where they were better.

There were markets where they were somewhat less less than very good. But overall, we are on plan, and the trend is positive. In all of the markets, we were profitable in in q two, and it looks like we will be in the following quarters. Underlying cash position of the business is very strong. Cash EBITDA is at the record high, 1,300,000,000 for the six months.

We continue to have very good return on equity. You can see 22% for those past six months. Our assets are steadily growing 18% year on year, reaching close to 11,000,000,000. Our leverage is contained at 2.5 times at the June. It should somewhat go up as we increase investments in debt purchased in the following quarters, but it doesn’t look like we are reaching anywhere near the this internal limit of three point zero this year this year.

Investments were more or less on plan, 800,000,000 for the six months. And I sustain our expectation that this year, the investments should be around 2,500,000,000.0. That’s what is given what we see in the in the markets. If you look at the split of recoveries, Poland represented 41%, and Poland had superb results of of recoveries. The Romania was eight eight eight at 18%, and it was a result achieved with the negative effect of weakening Romanian currency, Romanian lay weakened towards euro at between two to 3%, which resulted in lower recoveries, lower revenue, but also the lower EBITDA for that business in this particular quarter and the difference the impact was a little more than 30,000,000.

It’s not this so it was substantial. And despite this fact, the Romanian business, as you’ll see on further slides, performed very well, but it would be even better if it wasn’t for the weakening of the of the currency. This risk is inherent as we’re not hedging our position because it’s not profitable for us to do that in the longer term. So please remember, these situations can occur from time to time. Overall recoveries were 8% above the accounting curve, they were they were therefore, there was there was room for positive revaluation in some of the markets.

In terms of outlays for new portfolios, Poland took the biggest share as the biggest market and and where we had a good competitive position, 46. In Romania, as I will explain later, we also kept a very strong position, but the market supply supply wasn’t that that big. Italy was quite good, although our market share wasn’t that that high, but there was new portfolios coming likely on the market, and and we think we’ll be able to buy more into following quarters. In Spain, because we we had risks regarding to the external legal environment, we became we we stayed cautious, and we invest quite selectively. So there wasn’t much of investments in that markets.

Overall, we’re quite pleased with both recoveries and investments, and we’re on the way to achieve about $2,500,000,000 of investments for the full for the full year. If you look at the p and l, as I said, on the on the bottom line, we’re we’re satisfied here. We are where we plan to be or we’re a bit ahead of that in terms of of revenues. If you look at those past six months, we had lower revenues from Spain than we expected because of of the of the consequences on the negative changes in the legal system of Spain. However, this situation seems to be more contained now and stabilizing.

On the other hand, we have better than planned revenues from from Poland, Romania and roughly on plan in Italy. So again, two of the strong markets are compensating one of the weaker markets, but this weaker market, Spain, is becoming stable and as you’ve seen, Despite the slowdown in the revenues, improved profitability much this last quarter. The operating and administrative expense grew by 13% mostly because we grow salaries with the markets, especially in Poland Romania. But also in addition, we are undergoing this digital transformation, which means additional costs of of of people, some additional costs of CapEx that goes into the higher a higher amortization at some point and some extra expenses, which are expensing the p and l related to this to this development. And and if you look at the financial costs, they they grew, but they grew with scale of the of the funding on the on the balance sheet.

And one other element worth mentioning is income tax. We had release of provision for deferred taxations in the q two for a considerable amount of about 37,000,000 slotties. This is the outcome of the flows in the company and plant flows in the next couple of of quarters. There was more bonds fund more bond funding coming to the company. There was less investments in in Spain.

And as a results, we did not need to make transfers from our investments companies to the mother company that would be taxed, and there will be less of them than we planned. And as a results, we released this provision for deferred taxations. Taxations in the following quarters of this year should go up, but likely for the full year, we’ll have an effective tax rates of single digits, mid single digits. The group is very well capitalized. We enjoy very good and diversified access to debt funding.

You may have seen that we successfully placed on the Polish wholesale market at seven year unsecured bond at competitive terms, and we followed with the issue of six year bond unsecured bond toward Polish retailers achieving a margin of below 3%, 2.7 to be exact. Then in July, we also communicated to the market that we enlarged our revolving credit facility by €70,000,000. So we are good in terms of funding for the full year. We don’t exclude further bond issues, but they are it’s not given that we would have any for for them at this at this situation. And the cost of funding has been going down.

This is very good, but please remember also that if the global cost of funding goes down, likely, there will be more pressure on prices of the portfolios. Those prices will go up. The IRR will be under pressure to be to be exact. This is correlated, and and this is what to some degree, we see the market is competitive, but it’s reasonably competitive. Now let’s take a look at the segments analysis.

You see here that Poland brought over 40% of the investments as you see here. So those three markets that will represent great majority of the investment this year. We will continue to be selected from Spain until we see that that that all of this uncertainty goes away, and we can return to to to to the significant investments on that market. But still, that’s still not ahead, and we don’t know when exactly then that will that will come. You see here that the business is profitable everywhere and actually in the six six months of this year, the results grew every in every each and every segment.

Please also take a look at cash EBITDA, which was very strong in Poland, very strong in Romania, very strong in Italy, but also strong in Spain despite the weakness you saw on the results. And Polish market was good, stable supply for many portfolios, comparable size to what we saw in the six months of of of previous year. In this market, Krug secured about one third of the of the market, which which likely means we were number one. And Polish business performed very well. The recovery strength allowed us to once again recognize a significant positive reevaluation, and there is nothing that we see identified as regulatory or consumer related risks.

So we expect following very good quarters in the near future. Romania, the market was relatively small. As you can see here in that market, we took great majority of the deals with almost 80% market share. We hope there’ll be bigger supply in the second half of the year. And the business itself performed again extremely well.

Please bear in mind here, we we look at the Polish zloty, and the results would be about 30 something million better on revenue and EBITDA if it wasn’t for the weakening of Romanian leg towards euro. And even with this negative effect, the profitability of the business remains quite high on on all metrics. And again, here, we don’t identify any major issues going forward. Italy, the market was relatively big, but but similar in size to what it was last year. And we had the relatively modest market share.

That’s the the the outcome of competitive gain, but we think we will improve in terms of new outlays for portfolios in the second half of the year. And there is a several very interesting portfolios offered on the market. The business provided very good results. You you see here improving the profitability, strong cash EBITDA. There were significant legal costs here that are included in this EBITDA, and but overall, the results grew.

If you look at the EBITDA, that was the highest results in in in in any quarter since q three. And also the trend of recoveries was strong enough for us to decide to recognize upside of this 31,000,000 of of positive reevaluation. So again, positive trend. And last last out of those four big markets, Spain, the market was good, but we were selective, and and we did not invest much. You can see here that in the six months, we invested only 47,000,000 zloty, which is which is fine.

We have a big portfolio to manage, and we concentrate on internal work to improve it. It looks like this legal situation is stabilizing. July was a relatively good month. Until July, the second quarter, the recoveries were very close to the accounting target and some portfolios were beneath their accounting targets. Some of portfolios were above it.

We decided to decrease the valuation of those that were beneath, And therefore, you see a relatively small negative revaluation of those few portfolios. At this point and after July, I’m moderately optimistic about the future, meaning I don’t know yet whether this completes the the weakness of of Spanish market, but it looks like we are at the bottom at this at this point. And the likelihood of another negative evaluation is much lower today than what we thought, what I thought three months ago. So it’s a moderate optimism, and and you can see it’s it’s a significant turnaround in terms of profitability, but it should be better given how much assets we have. And this EBITDA should be should be going up significantly if things are going in the right directions.

And this is we do what we can to improve the situation internally and be ready for the lead system in Spain to to kick off again and start producing these cases as fast as as it should. And last, the the other markets which which includes Czech Republic, Slovakia, Germany, and France. And just as a reminder, we are in process of exiting exiting Czech Republic, Slovakia, and Germany. In second quarter of this year, we sold a part of our Czech portfolios, and we had insignificant a few million slop gain. And then on the on that, we invest only in the French market and the results overall for all of that segments are good as you see here.

Profitability is quite good and EBITDA as as well. And our cash loan business performed well, another good good quarter for Monga and and Novo. So in summary, the second quarter of this year was a very good quarter for the group. We are on track in terms of our expectations to grow the net profit. And this year, we are on track in terms of in in deploying about 2,500,000,000.0 sloppy of of portfolio purchases less than planned in Spain, but more than planned in some other markets.

Recoveries overall are on on plan situation in Spain has stabilized, it looks like, after after July data. We are focused on undergoing in the third quarter of digital transformation. It’s going well. The cost are somewhat lower. Thank you for thank you very much for listening to this presentation, and I’ll be very happy to take your questions.

Okay. I see some of the questions. And the first question is that the price of portfolios purchase portfolios have been up strongly in Poland around 20% of nominal. Romania, Italy, 810% of of nominal. Does it imply the IRRs are likely to be falling in the future?

Is the competition growing a lot, or are the portfolios of different quality than the past? So, overall, please please remember, you cannot draw good conclusions from observing the price to nominal because the change in the quality of portfolios is much bigger than the underlying change in the IRR. So the first and most important reason is there was different quality of portfolios that we happen to buy, and this is the the most important reason for the change of the price to not know. However, yes, the competition is stronger, somewhat stronger than than last year, and it mean it may mean that there will be or there is somewhat somewhat bigger pressure on on IRRs. But we’re talking about a percentage points or one and a half percent points difference.

And and whether this will be true for the full year, we’ll see. So, yes, there is some pressure, but but but it’s not represented well by by this measure that you mentioned. And please remember that we give an information about what is the expected profitability of our all annual purchases once a year in our annual report. There we show you the gross and the gross return that we that we expect. But overall, the investments we we made were in line plus minus one, one and a half percentage points to to what we, like, what we expected.

Another question. Can you update us on the situation in course in Spain as well as your first assessments are on the new law implementation? So this is a mixed picture. We we in the second quarter, we did see some deterioration of payments likely mostly because of this external legal situation and this new law in implementation. We don’t see further deterioration in July, so we see at a relatively stable situation.

We don’t see an improvement yet. So the situation is that we’ve taken the the the hit in our accounting curve. We, you know, we had this 10,000,000 loss. This is the second quarter and and and much more 140 over 140 in in December, and it seems that this is enough for to to address the problem. However, the question is when the situation would improve?

When will we see accelerated pace of of of legal cases from Spanish courts? And we don’t know yet. So so so it’s a situation where possibly this risk has become less symmetric with a possibility of upside of improvement, but we don’t know when exactly and how much of that improvement will will appear. So what we do is that we concentrate on improving the process internally, which is independent of the external of the external situation. Another comment may be that, you know, that a scenario where we would see a significant deterioration as a result of of of of this new log implementation in Spell did not materialize.

So we some we saw some deterioration, and but it it wasn’t very, very significant. Another question. What’s your outlook for the operating cost versus recoveries for the news dynamics in medium and long term? Do you expect the cost dynamics to become significantly lower than the software revenues due to AI automation, etcetera? So, you know, overall, you you should, in the long term, see that we have lower operating costs lower operating costs, which is salaries salaries costs mostly, but more cost on the on the investments in IT, which is CapEx and then, like, amortization.

So prob in the in the longer term, we’ll likely will have less men intensive labor intensive process, much more automated process, which means we’ll have bigger IT costs, but lower employee costs. However, another big component of our cost is legal costs, which are subject to regulation, whatever the regulator says we should pay to the court or to the or or to the bank. So so and this is we may we don’t know how this will change. We we we about and how much these costs would be will depend of given that they are stable in terms of price list. They will be dependent of how much we buy and how we manage the process.

So when we buy a lot of portfolios and then we’ll be subject to quickly good process, you will see some significant increase of this cost. That therefore therefore, we also separate here the court fees because if you calculate this cost of recoveries and you are talking and you are thinking about automation, the effectiveness, you should really take or take out the legal costs, which is direct costs of which is a direct cost of of regulated cost of of going to the legal process. So this part will not change the automation. This may change due to how much we buy, what we buy, and what’s the regulation. The the the labor part in the longer term in the longer term will change also as a result of this transformation digital transformation program that we are engaged in.

But please remember, the horizon for the full effects of that is a few years from now. So so there there will be some, of course, things that will improve year to year, but the big effects of our implementation of our new IT infrastructure will come after 2029. I see no further questions. Thank you very much for your interest and time, and I wish you health. And I hope to see you at one of the conferences coming up here in in the Excuse me, Michel, but I think I think we have three and other questions.

Okay. Only I don’t see them. Oh, I I refreshed, and I see them. Thank you. Thank you, Bartos.

So before we say goodbye, I have another three questions. Could you please update us on the digital CapEx initiative? When could we expect some significant gains? Again, gains cases for the FTE. Are you trying to implement some AI features to increase productivity?

So once again, a part of our strategy is is the digital transformation program, which we call New Horizon, which calls for a rebuild rebuilding of our main IT operating system, and it calls as a and and it calls as a results for a much more automated process, which faster lead time, which also will allow us to do much more testing and choosing the most optimal route for for collection process. This new system, which also will allow us also to to employ AI whenever where wherever it would be it would be productive. This is a five years program, which we started this year in 2025. So the gains and there are significant gains and the total program, which is estimated to cost Krug for those five years, five hundred million Polish zloty, has an IRR of over 20%. But the gains come, as I said, after 2029 when when this system will be fully available for operations.

Of course, it will be available in some increments, but the full effect will only come at after after this after this time. So we expect significant gains in productivity, but we’ll need to wait for them still a few a few years years. And another question, do I understand correctly that after exiting smaller markets, would be expanding and concentrating on the French market now? Are you confident already about the French market? Yes.

So so, you know, this the expansion strategy is focused on the big markets. The big markets will give us opportunity to grow significantly. Exit the small markets where even if we’re very successful, we can only earn that much, and that much is a few percent of our total net profit today. That’s why we’re exiting Slovakia, Czech Republic, and Germany despite the fact that all of those markets are currently profitable. And that’s why we’re looking to expand or we are in process of expanding into into France.

And as we mentioned in our strategy strategy, we also will look at other big markets. One of them is UK. One of them is is US. And in addition, we’ll look for growth opportunities in this four big markets that were currently present, Poland, Romania, Italy, and and Spain. Another question.

Court’s costs have materially declined in q two. You referred to accelerated referral of debt cases for judicial collection. What does this exactly mean mean? Is this a one off benefit? How should we think about the court costs for the remainder of the year and beyond?

So it was the case in Spain and and and possibly it was more market, but but especially in Spain, we accelerated the transfer of legal of cases to legal process, anticipating this new law that came into force and made the legal process in Spain a bit more demanding difficult. That law came into force in April. Therefore, there will be less legal costs from Spain in the 2025 until we’re already less in second in second quarter. So, yes, there is there is a significant cost portion where where these costs were already incurred, and there will be less coming coming forward. So overall, for that reason, there should be somewhat less legal cost in the second half of the years, but we don’t know how much exactly because some of that will depend on how much we buy and and and how many of these cases should already be sent to legal process this year.

So I I expect some decrease, but not so much decrease of the legal fees in 2024, and I don’t see that as one of benefit. I see that as an element of the process where we optimize where when is the the best time for us to send the legal cases. As in with with all of our p and l, please remember that you should look also at the longer horizon than one quarter. In one quarter, you you will have certain effects which will will happen one in several quarters. And that’s, you know, evaluation.

That’s that’s also legal legal fees. That’s deferred fixations. All of those elements should be looked upon for in a horizon of, I think, at least four quarters, not not one quarter. And it’s natural for us to have certain peaks and downs in this cost positions. Bartek, I don’t see other questions.

Can you? Yes. You should refresh it again. Yeah. I need to refresh it when I see it.

I see them now. Thank you. Aren’t you interested in the BNPL market as potential new leg of your business? Now we are potentially interested. Only BNPL market, we don’t see this as a big opportunity in the markets where we are present.

My view on the BNPL, NPL market is that it’s a big market in countries which allow the creditors to charge debtors additional collection fees, which creates a big space for the margin for the BNPL debt collector and also for the originator like Klarna. But the law does not allow this additional collection fees to be passed on the debtor in none of our big markets. Therefore, the potential for the mortgage for the margin is much smaller. That’s also, I think, the reason why PNPL will not be so strong in in in those in those markets or at least the NPL market for the NPL will not be. We take a look.

We we observe how how this market develops in in Poland. We see some some of our competitors doing that business, but we also see relatively high prices for this portfolio. So we don’t think it’s a business of very high margin in Poland, Romania, Spain, or or or Italy at this point. If this changes, we’ll be very interested to to to go into it, but we will see it just as an another type of seller. And so it doesn’t need, you know, huge expansion on our side.

But from my perspective, BNP market is a big business for debt collection companies, for example, in Germany, but it’s not important. And then use on US and UK? No. There there is no news other other than than we, you know, we are traveling to this market, and we are just learning learning it and and trying to to develop an an attitude and plan how to to think of them and how to enter them in the in the in the future, but there’s no business as of as of today. It’s a learning phase.

Oh, and as a follow-up question regarding BNPL, the investor investment being a PNPL debt provider, not a NPL servicer. Well, we don’t do it today. We are, at this point, not developing such service. If it would be the case, it would rather be Wonga, our cash non entity, but Wonga is currently not considering becoming BNPL. It has certain product product proposition, which is a limit of of credit, but it’s something different than than PNPL.

So not at not at this point. Another question, when do we expect to pay 15% effective corporate income tax? The guidance we have for the effects of the pillar to global tax taxation is that the earliest possible time when we would be required to pay 15% tax under this regime will be 2027. So I advise investors in their forecast to assume that from the 2027 and later, we have an effective tax rate of at least 15%, maybe better assume 19%, which is the statutory corporate income tax in in in in Poland. However, there is some uncertainty what exactly will happen.

At this point, we don’t even have enough and high enough revenues to qualify for for this tax. So so that’s why it’s uncertain. At this point, we know that there is certain possibilities to to to take advantage of so called safe harbor when you meet this criteria. But this criteria, for example, is part that you cannot be in more than six countries. You may be exempt from this tax for for the period of five years.

So there is some uncertainty regarding how and exactly when this the Pillar two will affect us, but I think it’s prudent to assume it will from 2027. Once again, thank you very much for for your interest and for your questions. I appreciate them. Oh, there’s one more. Trade payables have meaningfully declined, and this has resulted in some weakness in cash generation.

What is the underlying reason? Is it related to any earn out mechanics just slowing up portfolio purchases? I I would help I’ll ask IR to to help me, but I would think that the the reasons you’re referring to is that we have a provision for dividend payments, which is which is our liability to be paid out in at the September 2025, and this is the whole issue. If IR, you you think, looking at this question that there was another reason, then then please raise your hand raise your hand. No.

We agree we agree with with you, Micha. Thank you for confirmation. K. I’ll give you thirty seconds to see if there are any other questions as they appear from time to time, and I’m refreshing the screen. Okay.

It looks like there was no further questions. Once again, thank you very much, and hope to see you on one of the conferences. Have a

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