Earnings call transcript: KRUK’s Q3 2025 earnings reveal record cash EBITDA

KRUK Group reported its Q3 2025 earnings, showcasing strong financial performance with a net profit nearing PLN 900 million over nine months. The company anticipates potentially achieving its best annual net profit in history for 2025. The stock price increased by 1.02% following the announcement, reflecting investor confidence in the company’s strategic initiatives and robust financial metrics. According to InvestingPro data, KRUK is currently undervalued based on Fair Value estimates, with the stock trading at a P/E ratio of just 9.17 despite impressive 22.41% revenue growth over the last twelve months.

Key Takeaways

• KRUK deployed PLN 1.4 billion in new portfolios, indicating aggressive growth strategies.
• Record cash EBITDA exceeded PLN 2 billion, demonstrating strong operational efficiency.
• The company is moderately leveraged with a ratio of 2.6x net debt to cash EBITDA.
• KRUK is exploring potential market entries into the UK and US, signaling future expansion plans.
• The digital transformation program "New Horizon" is expected to yield significant benefits by 2028-2029.

Company Performance

KRUK Group’s performance in Q3 2025 highlights its strategic focus on growth and efficiency. With a net profit close to PLN 900 million over nine months, the company is on track to achieve potentially the highest annual net profit in its history. The deployment of PLN 1.4 billion in new portfolios and a record cash EBITDA of over PLN 2 billion underscore its strong operational capabilities. The company’s moderate leverage at 2.6x net debt to cash EBITDA indicates a balanced financial strategy.

Financial Highlights

• Net profit: Close to PLN 900 million after nine months
• Cash EBITDA: Over PLN 2 billion
• Portfolio deployment: Approximately PLN 1.4 billion
• Leverage: 2.6x net debt to cash EBITDA

Outlook & Guidance

KRUK anticipates a strong performance for the remainder of 2025, targeting at least a 12% growth in profit before tax. The company is also considering entry into the UK or US markets in the future and aims to establish four major investment markets by 2026. Additionally, the "New Horizon" digital transformation program is expected to bring significant benefits by 2028-2029.

Executive Commentary

"We expect this nine months to build our good position to have record high profits for the full year," stated a company executive, reflecting optimism about the year’s performance. Another executive noted, "We see good pipeline and we have won significantly more portfolios," highlighting the company’s success in securing new investments. Furthermore, the executive expressed confidence in the Spanish market, stating, "Spain will be a very good market for KRUK in the mid and long term."

Risks and Challenges

• Market Saturation: The company faces moderate price pressure across its markets, which could impact margins.
• Economic Conditions: Macroeconomic pressures in key markets could affect portfolio performance.
• Regulatory Changes: Potential regulatory changes in new markets like the UK and US could pose challenges.
• Currency Fluctuations: As KRUK operates in multiple countries, currency fluctuations could impact financial results.
• Competitive Landscape: While the competitive environment is currently stable, new entrants could disrupt market dynamics.

KRUK Group’s Q3 2025 earnings call reveals a company poised for growth, with robust financial metrics and strategic initiatives that position it well for future success. With a favorable EV/EBITDA ratio of 1.86 and strong financial health indicators across multiple metrics, KRUK continues to appear undervalued according to InvestingPro’s Fair Value analysis. Investors looking for similar opportunities can explore InvestingPro’s advanced screening tools and in-depth research reports covering over 1,400 stocks worldwide.

Full transcript - Kruk SA (KRU) Q3 2025:

Company Presenter/Executive, KRUK Group: 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. Please give me now several minutes to present. In the meantime and after, please ask questions via the question and answers interface here at Teams and I will answer your questions after I deliver the presentation. Let’s start. This was another very good quarter for the company. After nine months, we have earned close to PLN 900 million of net profit. This is as expected. We are, in our view, on the way to deliver what will be most likely the best net profit in our history for 2025.

In other words, we expect this nine months to build our good position to have record high profits for the full year, despite the fact that the nine months of 2024 were higher than for this year. 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 to 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.

We see good pipeline and we see already that we have won significantly more portfolios by a few hundred million PLN 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. It decreased because it’s counted for the last 12 months, which means it also includes the relatively weak Q4 of 2024. 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 2.6 times net debt to cash EBITDA or 1.4–1.3 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. Overall, it’s been quite successful three quarters and quite successful Q3 for us. From 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. The recoveries are increasing in the countries where we invested more. 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 nine months. You can see a small share of Spain where we became very cautious given our relatively weaker performance over the past year.

We are investing as much as the market allows us in Poland and in Romania, and possibly more investments are coming. Overall, this picture shows good level of recoveries and 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 and 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. That’s the nature of the business where there are differences between quarters in how the curves are shaped. It’s not something to consider a problem. Operating costs were increasing.

They were increasing because we continued 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 part of our debts, which contributed to some positive hedging gains. Overall, as I told you, the business 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 alone and we added some bilateral contracts. We enjoy very good access if needed to the Polish bond market. The terms are as attractive that there is no need to go outside of Poland for the bonds. Funding is not an obstacle for the group currently. Looking now on 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 nine 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’re bidding there together with a higher number of competitors than for example in Italy. 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 a relatively big investment for that market. 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. 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 PLN 3 billion and then two also large markets with PLN 1.8 billion of assets in Spain and Romania. 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 concentrations on improving the recoveries there. I’m happy to see that in this nine months we had record high cash EBITDA and the cash EBITDA have grown considerably for all of those markets. As you see here on EBITDA level the business was profitable everywhere. Please note, the growth is coming mostly from new markets. Poland and Romania, despite their excellent performance, decreased somewhat on profitability on a bit level because of the nature of the back book there. We are adding high 10% 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. The growth comes mostly from the back books 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. This is a trend that we have expected and I’d like you to understand why it’s happening. Overall in my view, solid performance for Q3 and the nine months. Now let’s take 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. More is coming for October and Q4. In the meantime, recovery trends have been very strong and continue 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 PLN 130 million and also very strong trend of recoveries, significant positive revaluation.

Again, after nine months we are where we wanted to be in Romania. In Italy, very good nine months in terms of investments, solid trend of recoveries, record high recoveries, including a cutoff from one corporate portfolio that we bought. There is an extra boost for cash flow but not for revenues in Q3 alone. We expect to continue to see good results there. Finally, Spain, which as you may remember suffered a year ago in Q4 of 2023, we took a relatively significant write-down there. I’m glad to tell you the situation has stabilized. It has stabilized without improving much. The results for Q3 recoveries alone are close to our accounting curve. 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 it’s been started.

The process of those changes in the legal system in Spain is ongoing and it will take still yet several months. 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 the 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 plan minimum accounting forecast that we have currently. 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. We expect to show also good profitability for Q4.

We see the situation as still not adequately stable to come back to significant investments in that market. 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 cards operate now, and not only this one or second card, but majority of them. 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. We took the write-down, we lowered the curve, and we’re now going right on this curve. 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 seven, eight, nine years ago, and we already start 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.

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 the 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. We see that eventually in profits and returns for the business. 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 will 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, you know, two different streams. Exit stream, which is Germany, Czech Republic, and Slovakia. For Germany, we have successfully sold our German company and we still hold some assets, but they are tiny assets and they are in process of being sold. Most likely this year will end our experience and journey with Germany. We are also following a similar route for the Czech and Slovak business. We sold some assets already.

We are in process of selling some other parts of these assets and we will be starting a liquidation process for our company sometime in the next couple of months with the plan of liquidating our position and full exit sometime in 2026. 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 are currently the servicer. We continue to look for quality portfolios which will allow us to add to our experience but also make some money. We are waiting for the good moment to establish our operations there. The decision has not yet been made how and when we will do it. We will continue to buy portfolios but not on such a great scale.

Do not expect us to invest suddenly in France many hundreds of million dollars until we have a solid plan to be operational in France. So far the experience in France has been quite good. We see that we had a very successful first stage of amicable process which exceeded our expectations in terms of recoveries. That was our experience for the past year and a half. Now we have almost half a year, maybe a little bit less, experience in legal process on some portfolios. This legal process overall is going slower. The recoveries are a bit lower than planned and now we are investigating this. It is not a significant problem from the P&L perspective, but it is, of course, an important operational question. Have we underestimated amicable and overestimated legal stream or can we improve the legal stream and have it bring better returns?

That is something the team will be concentrating on in the coming months. Overall, we remain optimistic about France and would like to continue to develop there for the other markets which are not listed here. We continue to research UK and US, 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 the co-investment process like we do in France or a possible acquisition target. This is still a preparatory phase and we have not yet made a decision to enter any of those markets yet. We’re preparing for that. Wonga and Novum had another solid quarter, good profitability.

I also want to inform you that in Q3 we started our operations of Wonga in Romania with the plan to build a position there, starting from a small scale, a startup operation based on some assets and anything 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. Hopefully, in three years from now, we’ll be able to tell you that we have a successful, solid business. It will not be a very big business. If we will be, you know, one third of the Polish operation, I think that would be quite good results given the market size. 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 it’s quite likely that we will see a decent result and growth for this year. If you’re asking specific questions about the growth expectations, we’re not giving you 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. We definitely want to get the allocation. I will finish here and I’ll ask for your questions. 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 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, what are the plans to enter new markets and when? We don’t give a specific answer to that question, but as I mentioned, we are researching UK and the US markets. UK is the biggest debt selling market in Europe. The US is the largest debt selling consumer debt selling market in the world. US is, according to our assessments, significantly bigger than the whole European market in that respect. 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, are relatively highly regulated.

They are not easy for us to get into and win. Do you have any other questions? I’ll give you a minute more to see. I don’t see any other questions at this point. Okay, I see a question, and the question is: can you talk about your right to collect accrued interest versus principal? For example, if a P&L account says that you book for three years, do you continue to accrue interest? How does this vary across market? This varies across market. The legislation tells us what we can do and what we cannot do, and that’s also changing in time, and it also may vary whether this is an amicable process or legal process. 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.

It’s not interest that we decide to put on the debtor, but the law says if a case went successfully through legal process, the law says you need to add some additional interest, which is called delayed payment interest. This is quite significant in Poland. It’s much less significant in other countries, and it does not happen much, from my memory, in Romania and Spain. For example, for Poland, our biggest market, that’s a significant percentage, currently maybe about 10%, 11% annually. 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. 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. We every roughly six months look at what we have in Spain, look at what we believe is market terms of buying portfolios in the future, and see the business plan for the next five, 10, 15 years. We see what realistically in our assumption are the profits that we can make 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 and adequate return. 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 10% IRR. 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 markets in Europe, and there is a number of players who do that business profitably.

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 satisfactorily. Long-term and short-term perspective was bad when we exited from Czech Republic and Slovakia. We saw a profitable business, but we saw a tiny market, so we could continue to earn them PLN 5 million, PLN 10 million, but that’s a percent of the group profits. That’s why 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 KRUK in the mid and long term. We have another question. From competition perspective, do you see any player becoming more or less active year on year in your markets? How is the competitive intensity evolving? Many thanks for your insight and time.

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 złoty. As a result, all of the participants count their weighted average cost of funding at some lower level than a year ago, and they are translating it into their maximum price levels. I would say that’s natural that when interest rates go down, our expected returns also are affected. It’s a moderate effect and the difference may be a percent or 1-1.5 percentage points. In terms of competitive activity, I think it’s a good environment where a few strong players in every market bid and compete strongly and sometimes this one, sometimes other players are successful. We don’t see somebody who would be successful enormously.

In many markets we see the competitive situation differing country to country and we see that there are not many new players and there are not many players with this hot capital that would be quite reckless with investing the money in NPL, which happened from time to time in the past. I would say it’s quite a 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. Knowing the history from 2010 to 2015-2016, 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. It’s also lessons learned that it’s good for us, a rational player, to be in an environment where interest rates are not zero.

I hope as long as they are not zero, but 2% 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. In summary, we expect a good year for this year. Of course, as always, there are countries which will outperform and underperform. Overall, we expect a good 2025 in process in budgeting. Hopefully, we will also be seeing good prospects for 2026. I didn’t mention we are continuing our program from digital transformation. It is going well currently, but it promises significant benefits only from 2028, 2029 and later. We’re fully focused on that and hopefully sometime in 2026 we’ll have again four big markets to invest in without much of limitation. 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 me and we’ll be very happy to continue our dialogue. Have a good afternoon. Bye bye.

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