Hello, and welcome to today's conference. My name's Lauren, I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star one on your telephone keypad. If you've joined us online, you can press the flag icon on your web browser to ask a question. I will now hand over to your host, Marta Jezewska, to begin. Marta, please go ahead.
Good morning, good afternoon. My name is Marta Jezewska, and I represent WOOD & Company. I'll be the host of today's call. Today's call is to discuss a fantastic record-high first quarter results of KRUK, our largest debt collector in Poland. The call will be run by Michał Zasępa, CFO at KRUK. Michał, over to you.
Thank you very much, Marta, and good morning, good afternoon. Thank you very much for being here on this call. It's my pleasure to walk you through the Q1 2021 results, especially these are the record results we've ever had. The second-best is PLN 110 million of net profit quarterly, but that was long ago, back in 2019, and we are back to the record it seems. I will be using the presentation, which is available on our website, the Q1 2021 results, and I will refer to the slides there. I'm now looking at slide number three, a snapshot of our results, a record-high net profit. Why is the net profit so high? The answer is twofold. First, excellent recoveries. Excellent recoveries, and I'll be telling you in a few moments on each and every market, which is also a new situation.
Second reason is a good new investment starting from Q4 and good performance on those investments in Q1. Those two elements are responsible for this very good net profit that you see. The cash EBITDA, also a very good result. You will see a good control of costs. High recoveries equals very good EBITDA. Based on these very good results, very strong cash flows, the management proposed to shareholders to increase the dividends to PLN 11 per share. The shareholders will decide on that in the next couple of weeks at the upcoming AGM. The purchases at PLN 160 million were very good. We did not plan on such high investments, and this is, it seems, a beginning of a good trend because we see a relatively strong pipeline, and we are ready to go back to investing on every single market that we're covering.
It may be a good year in terms of our investments. You may remember at the year-end, we were telling you that we budgeted over PLN 800 million for this year, which seems modest at this time. We are targeting PLN 1+ billion investment this year. Maybe we will have a positive update of that in a quarter or two. Today, we see this as reasonable and achievable. Of course, we are still relatively far from it after Q1, but there's a lot of portfolios being offered on the market in Q2. Overall, a very good result. These results are achieved in the environment of pandemic, and we made decisions about booking revaluations for Poland at the end of March. That was peak of the pandemic situation in Poland. Of course, we were concerned how the situation will affect us.
Is this some risks that we don't see today and may be seen tomorrow. There is some caution also in these results in our relatively conservative review of future recoveries for our Polish and Romanian unsecured lines. So far, knock on wood, March results also April results show that there is no additional risks, although we don't know exactly how this good performance, especially in Poland on the Polish retail side, can be explained by factors such as our improvement of operations, which definitely has been the case, but also very strong sentiment, very strong within debtors and their payment behavior. Maybe during the lockdown, people were more willingly paying money and repaying their debts. Maybe that will change one day once we all start to consume and spend more money. We don't know that. Then we'll find out in the next couple of months.
So far, it's been very good results, and results on recoveries were above our expectations, especially in March. Also, this trend was continued in April. At the end of Q1, we still are a lowly leveraged company, as you see here on the Slide 3, which means we have appetite to grow. We have place to grow. We're planning to grow. Today also, we announced a new issue of bonds on the Polish market targeted to retail investors, and that probably is not our last issue this year. On Slide 4, there's some more detail about our results, but I think I covered most of those points. I will go now to slide number seven, and just a reminder, we had an anniversary, a 10 years anniversary being a publicly listed company. Thank you very much to those investors who'd stayed with us for those 10 years.
We promise we'll continue to deliver as much as we can achieve in the future. The past was not that bad. If you look at slide number eight, we've always been above the indexes, and it seems that there is now an additional momentum for growth starting. Bear with us. I'm now looking at slide number 11, a summary of the group results. Again, it's very positive for me and the Board to say we were profitable on operating level in every single country that we operate on. That hasn't been that often in the past two years that I could say it. I hope I will be able to repeat that once again in the next quarter, but this is what it looks like today. Poland and Romania, a very strong performance on the bad book.
Italy also an increasing effectiveness on the legal stream, which bodes well for the next couple of quarters. Spain, which started the year with a hiccup, we had a big snowstorm and the country and Madrid was paralyzed for a week. The company managed this small crisis and ended Q1 on plan, and it's building some surplus over the plan in April, and the situation is stable and improving. Also, our small additional businesses, Wonga, Novum, credit information bureau, were all profitable, and the overall result is this PLN 127 million of profit and close to PLN 200 million of EBITDA, which is a great result. Now looking at Poland alone on Slide 2, we were quite active in investing in Poland. PLN 130 million shows you that in a relatively weak period in terms of supply, we were able to secure quite a few portfolios.
We see that we are stronger in Poland than ever before. By this I mean, over the past couple of quarters, we improved the precision of our scoring statistical models, and we also improved our effectiveness of our operations. This is visible in our market share in this first month of 2021. Yes, we accept somewhat lower IRRs than in 2020, but this is a market situation where our competitors are well-funded, recoveries are strong, risk is relatively lower than last year, so it's time to play a little more boldly, and this is what we do. Poland is strategically for us, a market where we want to be strong, and we aim at achieving a higher market share than this 20%, 25% that we usually had in the past years.
We believe we have now tools in terms of our operating effectiveness to achieve it and to have Poland as a strongly growing market in the next couple of quarters or maybe even years. The beginning of that, I think, is quite successful, and we see quite a few more portfolios we could target in Poland this year. The performance on the unsecured book was excellent. You see that there was about PLN 13 million of positive revaluation on the unsecured, some PLN 7 million negative on the secured part. This PLN 13 million is a rather conservative figure, but bear in mind, we made the decision on the 30th of March, where unfortunately, the death toll in Poland in the peak of the pandemic was quite heavy toll, and we didn't know where we were going. Today, the situation is much better. Recoveries are continuing to be strong.
If that situation repeats in May and June, please expect very good results in Poland, in Polish business in Q2. Romania, a different situation in terms of supply. Quite a few transactions were on the market, and it looks like this year it will not be a very strong supplier for portfolios in Romania. This has to do with still this negative effect of the taxation law on banks trying to sell their portfolio. This law is not going to change this year. We think maybe that will be changed next year. It will be a difficult time to buy much more portfolios. Still, this PLN 20 million is quite significant. Yes, we have plans to go much more, much above this figure. Romania likely will not be the main driver of our investment this year. On the other hand, our bad book in Romania is performing superb.
You may remember we suffered a lot in Romania last year. Our recoveries dropped by over 25% as a result of changing the law. That is gone. The law was brought back to what it was before pandemic. From Q4 and part of Q3, we see quite strong recoveries, and we see that trend being continued in March and April. Again, please expect very good results overall on Romania. You see here PLN 15 million of positive revaluation on the retail book, PLN -3 on the secured part. Again, if these trends continue, it's quite likely that you will see positive revaluation and very good EBITDA in the following quarters in Romania, despite the fact that we don't put much more investment in that market. Which I hope is temporary, and in a few quarters will change.
In Italy, we are hungry for new investment because we haven't bought anything for two years, more importantly, we are ready to absorb new investments. Why? Because we have a relatively long track record of achieving or overachieving our target in legal collections, the last part of the puzzle that we needed to say, "We know what we are doing, and we are ready to continue to invest." The Q1 was very good in this respect. We see a good acceleration on the legal process that led to increased legal costs in Italy in Q1 2021. Despite that, you still see a decent result in EBITDA, PLN 12 million, and good prospects to see good recoveries and much better profitability than in the past.
In that circumstances, looking how our expectations for recoveries for the books, for the portfolio that we bought over the past years are slowly starting to go up. We are ready to go back to buying portfolios. There are some portfolios that we're targeting. Please expect us to start to buy portfolios in Italy this year. Again, this is a situation where Italy seems to be on a very good road to more stable profitability, and Q1 is a very good step in that direction. Other markets, including Czech Republic, Slovakia, Germany, and Spain, were performing on plan or somewhat above plan. As I mentioned, the most important part of that group, Spain, underperformed in Spain in January for the weather reasons, but then regrouped and caught up the shortfall in February and March and finished the quarter on plan, which is a very good sign.
We see also a very stable situation there. We're happy with the portfolio we bought at the end of the last year. As you may know, we secured, we won auction for another portfolio back a few weeks ago. We are in a growing path in Spain, and we have a stable team improving results. There is also more optimism in KRUK Spain, and it is a profitable business on EBITDA level, which is very good. Czech Republic, Slovakia, Germany, good recoveries. It's PLN 10 million investments relates to Czech Republic and Slovakia only. We hope to invest more in the next couple of months on that market, and we are just managing our asset in a run-off mode in Germany. As you see, the first quarter in many, no negative surprises, only positive news, which makes us very happy.
Also, the other markets, the other business lines performed well. Wonga, as you hear, brought close to PLN 10 million of EBITDA, doubled the results from last year, despite the fact that it didn't grow revenues. We hope to increase the size of the business in the next couple of months, which is not so easy because in pandemic time, in lockdown, the demand for consumer finance dropped in Poland. Now we see some revival over the past 10 days where the lockdown was decreased. Hopefully, that means that It will be a little more easy for Wonga to continue to grow. The business is already profitable. Also, very good performance from the second cash loan business, Novum, and a decent performance in the credit information, Bureau, although a certain decrease of profitability due to market reasons.
If you look at the P&L, my summary would be a very good start in recoveries. Expect that this is just the beginning. In order to reach PLN 1 billion, we need to invest over PLN 840 million more. That will be our target this or maybe a little bit more. Recoveries, an excellent trend. Hopefully, we will not see a drop. The fact is, we are not positive if some of these March or April recoveries are not some positive effect of the lockdown, where people were very eager and willing to pay debt when they did not consume much. This is unknown. This is something we'll find out in a few months. So far, so good. Purchased debt portfolios revenues were increased by this PLN 18 million revaluation. Please expect more in the next couple of quarters. Why?
You see that the deviation from actual service recoveries to the accounting plan was quite significant and positive. As much as high as PLN 89 million in Q1. This is something, of course, we did a trade-off between the revaluation, the revision of the forecast. That shows this strong trend of recoveries. The company is very well capitalized. You see on slide number 22 that we are indebted at only 1x to net debt to equity, net debt to EBITDA. That gives us quite a lot of room. Of course, we want to use this leverage space to drive returns for shareholders. The plan for this year is to continue on this trend, maximize the market opportunities in Poland, Romania, cautiously, but more boldly, and come back to investing in Spain and Italy. Thank you very much for listening, and I invite you to ask questions.
Thank you. If you would like to ask a question please press star followed by one on your telephone keypad now. If you chage you mind, please press star followed by two. Those who have joined us online, please press the flag icon. While preparing to ask your question, please ensure your phone is muted locally. Okay. We have a question from Richard Wood from Higher Ground. Richard, please go ahead.
Hi, Michał and Marta. Thanks for a good set of results. That's all very exciting after last year. Something surprised me in the last few months. I just wanted to know why you did something. You bought back your own shares, a few months ago. You made it clear that you weren't going to pay a dividend. You were going to do this instead. Nobody except for the very small shareholders got any benefit from that. We participated but didn't get anything at all. That seemed to be quite un-shareholder friendly for anybody except retail. You've consistently done a very good job of keeping in touch with institutional shareholders. I wondered whether you were forced to do that by the regulator or why you did that, because we effectively just missed out on a dividend, which the smaller guys got.
Okay. Richard, thank you for that question. We have run this buyback program as a specific project for 2020 in the pandemic situation. That was a preference of some of the bigger shareholders in the group. The idea was to make this as an alternative to dividend, where we have offered investors to buy back the shares at a very significant premium to the current market share. Now, if I remember correctly, 91% of all the shareholders of KRUK participated in this program, which means all the big shareholders, all the big institutional shareholders of KRUK participated in this program and benefited from it because we were buying shares at PLN 360 at the time. I'm not exactly sure what it was, maybe the share price was PLN 160 or PLN 170 at the time. The shareholders who participated in this program, of course, benefited largely.
Now, these shares will be redeemed, and this is the only thing we can legally do with those based on this agreement with the shareholders. I'm sorry to hear you have not participated as a shareholder in that. I was surprised that as much as 9% of shareholders of KRUK did not participate in that. We made sure that we communicated quite widely and gave shareholders several weeks to participate. It seems we were not effective to many of them.
That's not exactly my point. Sorry to interrupt, Michał. We did participate. But I was under the impression that s mall retail got a much better success rate.
O kay.
In their participation than-
Now I understand.
institution-
Now I understand your point. Okay.
Which is effectively like paying a larger dividend to small-
Okay.
It's like paying shareholder A a bigger dividend than paying shareholder B.
Okay.
I didn't want to take up the whole call with it.
All right. Okay. Just to explain on that, there was some privilege for the very small shareholders holding 50 to 30 shares not to have a criticism from the Polish retail investors community that this program was aimed only at satisfying the big institutional shareholders. To some extent, a few people, 100 people, maybe got a slightly better deal, for the very relatively small amount of money. Other than that, I think all of the institutional investors benefited from this program. All in all, we will be paying much more likely only the dividends in the future, not the buybacks, because I don't like the situation where as much as 90% of the shareholders did not get something that they should have.
Yeah. Okay. Good. Thanks very much, Michał. I understand.
Sure.
Okay. As a reminder, to ask any further questions, please press star 51 on your telephone keypad. We now have a question from Radim Kramule from Erste Asset Management. Please go ahead.
Yes, good afternoon. Thanks for the questions. Can you just try to bring some more color on your P&L and its net income for the first quarter? When I'm looking at last year, basically the run rate was around PLN 50 million the quarter. How much of this is, let's say, some kind of one-off incurred in these numbers? What could actually be the recurring net income that can one assume for the rest of the year for KRUK? It would definitely be helpful for me to understand this almost tripling of quarter results. Yeah, thanks.
Trying to answer this question, there is no one-off in these results that would make these results look much worse. On the other hand, there is an accelerator of results, which comes from the fact that after pandemic, the recoveries in KRUK are significantly above the accounting recovery forecast. Look at the composition of the revenues, because it is the revenues that are the most important driver for the current and future performance of KRUK and its profitability. In 2020, the revenues were under the heavy negative effect of changes in the law and our negative revisions of the forecast. We incurred significant losses. On that sense, they were decreased. Not only you don't have this effect in 2021, but we're also starting the year with a relatively low base of accounting revenues, and the recoveries are very strong, and they actually accelerated.
Why they accelerated? We have introduced several improvements to our processes because the consumer is stronger than we anticipated, and also because we have bought in the last two quarters more than we expected and more than overall on average in 2020. What it means for the results of this year, future year, I don't know exactly, but the fact is, with this strong result in the first quarter, we are definitely going in the direction of the best results in the history of this business in 2021. It's too early to say what it means exactly, but it's a very solid result in terms of cash flow.
There is not a single important element that I could say it's a one-off, it will not repeat. Of course, as we will be recognizing positive evaluations, you will see a certain trend of the results leveling off. This is not something which will happen in one quarter. That will last several quarters, maybe even a few years. I think we are at this point where we are discovering that the business has more potential to grow than we would still think half a year ago, not to mention a year ago.
I see. Theoretically, the whole 2020 is a low base year.
Yes
let's say, the current trends, yeah.
Yes. Well, you can say that 2020 was a year where there was a few negative significant effects, and it's not a good base to grow results. I encourage you also to look through the details of the proposed option program, which was announced and made public a few days ago on our website. In this program the supervisory board proposes to shareholders that group management is remunerated in this option program as long as we grow at least by 15% EPS starting 2021, but from the base of 2019. 2020 is not taken into account, but the 2019 15% increase calls for some PLN 370 million of profit.
This is the threshold the supervisor has set for group management to say, "If you want the bonus, if you want to take part in this option plan, you need to deliver in 2021 at least around PLN 370 million." On the top of this PLN 370 million, additional 15% every year. This is something, of course, we want to make happen and maybe beat it.
Okay, fair enough. PLN 370 millionshould be, let's say, at least a target for the whole year based on the option program?
Yes, that's right. Roughly about that. It's maybe PLN 360 million something.
Thanks. It's helpful. Definitely, if you might comment on, let's say, your planned purchase, because I remember, probably a year ago, or maybe during 2020, you were kind of saying that the crisis usually creates a good opportunity to buy into attractive portfolios. It seems to me that also due to the different path of the pandemic, this is not really the case, because you also mentioned during the presentation that IRRs are slightly lower than what you were maybe hoping for.
That's right. The market situation, we are now, it's not a situation of a heavy crisis that created a big problem with the banks now, they are desperate to sell, there's so much supply and only limited demand, which means there will be very good IRRs and plenty to buy. This is a situation where banks are not under so big pressure to sell because the NPL increase wasn't so big so far, where most of our competitors are in relatively good shape. They are more leveraged than KRUK, they also didn't have a very difficult time in this 2020 crisis. It's more like back to business pre-pandemic. We are all well-funded. These top six, top seven European players, we are all eager to buy because we haven't bought so much in 2020.
T he revenues are good, the IRRs are somewhat lower than in 2020. They're still reasonable, but it's not El Dorado. We don't see, at least yet, any very significant influx of portfolios on the market. There is much more supply than in 2020, but I would say it's pre-COVID. It's 2019 levels, not something extra. In that sense, the crisis did not really create that much turbulence in 2021 as we might have expected back a year ago.
Yeah. Maybe last question also related to this topic. How comes you are relatively confident that you can manage to purchase around PLN 1 billion worth of portfolios when you're also suggesting that the banks are not in a position that they will be pushed to dispose of these portfolios? Where do you think the supply is coming, or do you really believe that the COVID has held back the banks, that they were not offering the portfolios? Thanks.
This PLN 1 billion of investment is, of course, an ambitious target, but it's possible to be realized in three or four main markets. Poland, increase our investment level. We see very good results so far in our competitiveness on the Polish market. We don't need supply to grow. We need to have a higher market share, and this is likely from what we're seeing now. Plus, good investment in Romania, not very high, but PLN 100 million-PLN 150 million, maybe in very positive scenario, closer to PLN 200 million. A few investments in Italy and Spain. One investment in Spain may be as much as PLN 100 million. Those are relatively large portfolios in those markets. If you group those four markets, leave something for Czech Republic and Slovakia, you may already be close to PLN 1 billion without the market growing at all.
Okay. Well, yeah, wish you all the luck here for 2021.
Thank you.
Thanks.
Thank you.
As a reminder, to ask any further questions, please press star sign one on your telephone keypad, or if you've joined us online, please press the flag icon. Okay, we currently have no further questions, so I will now hand back over to the host.
Thank you very much for your time and listening about KRUK results. I hope to see you, talk to you on some conferences. Please expect that KRUK has started a good year. Thank you very much. Stay healthy. Bye.
This concludes today's call. Thank you for joining. You may now disconnect your lines.