Welcome to the KRUK 1H 2021 results call. My name is Jordan, and I'll be coordinating your call today. I'm now going to hand over to your host, Marta Drzewiecka, to begin. Marta, please go ahead.
Good morning and good afternoon, everybody. My name is Marta Drzewiecka, and I work at Wood & Company that hosts this results call of KRUK's first half earnings. Thank you for joining us. Now, with no further delay, let me hand over to Michał Zasępa, CFO of KRUK. Michał?
Thank you, Marta. Thank you for joining this call. It is my pleasure to tell you about the great results we've had for Q1, for Q2 and the first half of the year. I hope you can all look at the presentation of the results, which is available on our website. I will be referring to it, telling you which slide I'm looking at. Indeed, you may ask yourselves what has happened that KRUK has made more money in the first six months of 2021 than in any given year in its history because this is a record. Six months of this year brought close to PLN 400 million of net profit, with the second-best annual results being the PLN 330 a few years back. The answer is that, well, we are a better, more profitable business now than we were before.
We are a business which significantly improved its efficiency in collecting on the back book, on the portfolios that we have, and we significantly increased our profitability in the foreign markets of Italy and Spain. Those two elements together means we no longer are a company that earns PLN 300 million a year, but much more. How much more? Of course, the rest of this year will tell. What I really would like to tell you today is please take a look at slide number seven and eight. This is new wording of why we believe KRUK is the company worth attention and set for growth in the future, and the promise of that growth you already saw in the first six of this month.
A few points I'd like to raise are mentioned on this slide. I ask you to read at your time that in detail. If you think you should question one of those statements, please call us back, contact me, contact our team, and discuss with us, because we believe every sentence here is a fact. The first argument here is why KRUK is worth your attention is we are proficient at what we do. We have a seasoned management team, which causes or brings about these results by improving the effectiveness of the collection process on whatever we own today. We needed just a few years in each and every one of our countries to deliver that. Once we are on it, we will deliver sooner or later.
We'll not only deliver the profitability, we will keep on increasing this profitability, which is evidenced by performance in Poland this six months, but also, of course, on the other markets. We are one of the most experienced debt manager in Europe. We're one of the most experienced debt buyer in Europe, having bought over 1,200 portfolios and collecting from them for over 18 years. Now, with six years of history in Italy and Spain, we can also say, yes, we can add profitably new countries in Western Europe and make them work after some time. Better than words is possibly the financial results, that's the second point on slide 7. We have a very good track record. If you look back at longer history, we kept on delivering.
Yes, there were times where the profits fell for some reasons, losses in Italy and Spain, GetBack spoiling the market, pandemic situation. If you look at more than three years, if you look at five, 10, 15 years horizon, you will see a trend which is quite clear. We grow profits at double digits. We keep profitability high, below, above average. We do this as a lower risk than average because we are the least leveraged company in the market if you compare us to other debt purchasers. Still, we have an average of over 20% on return on equity. Slide number eight tells another few things. We think we are set for growth. Why?
Because we see that we can still improve our productivity, our ability to dig deeper into this value of the portfolios that we earn, which reflects, reinforces our ability to be more competitive in offering good prices for portfolios to banks in Europe, which again offers opportunity to increase market share. We think even if the market of NPLs will not grow, we'll still be a growing business because of earning more from what we bought and by increasing our market share. The proof of that, you see in Poland, which in first six months of this year showed that KRUK is able to buy at 50% market share in one of the most competitive markets in Europe. More comment on that in a bit.
Another point is, if you look at the history, many of you, our dear shareholders, were asking me or Piotr Krupa, "What are you afraid? What happens if slowdown in economy comes? What happens if supply of portfolios dries out? What happens if some regulations came?" Well, the fact is, we've been running that business for 23 years, and we were never hit by a crisis hard enough to show loss in a given year. The fact is, we are able to turn around quickly enough to work out, to make profits in changing environment. The fact is, there was no regulatory and no financial crisis in this history since its inceptions for the past 20, 30, 23 years. Also, there was no reputational or PR crisis that we would have.
Looking at that, I dare to say it's a low or moderate risk business as the history shows. Again, run at low risks on the balance sheet if you look at how much we are leveraged due to net debt or to equity or to EBITDA. Last but not least, we pride ourselves at trying to change this industry for better in terms of ethics. We pride ourselves at being always very respectful of our, first of all, customers, but also business partners and of course our employees. You may be a proud shareholder too, if you decide to trust in KRUK story.
That's the beginning, which is, I think, for me, very important because I believe we redefined KRUK in this first half of 2021 as a business which is outstanding in terms of profitability and have good prospects for growth for the next several years, not this year or this quarter. This is a very solid result that we have. Now I will explain why I believe so. I will now turn to slide number four. Recoveries are excellent. They surpassed somewhat our expectation. They surpassed accounting forecast significantly, hence, there was no other reasonable way but to increase our forecast and do positive revaluations. Not only they were good at the total number, but they were also very good if you look deeper into different asset classes.
In all of KRUK's countries, in all of KRUK's main business lines, the recoveries from debt portfolios were on plan or above plan. I mean, ambitious operating target. This is a situation which is something new if you compare it to pandemic period, if you compare it to the long three, four years of building the business from scratch in Italy and Spain. Both Spain and Italy, but also the other markets delivered on plan as expected. That's the most important element of profit building for this year, for next year, as we are a big, over PLN 4 billion assets worth company, which sees the performance from the debt book at a very optimistic color, which should allow us to earn significantly more money than we historically expected and continue to revalue the value of these portfolios up as these trends are likely to continue.
On the other hand, of course, we have the new business, new portfolio purchases, and yet again, this is a positive story. We even invested over the six months, close to PLN 650 million across different jurisdictions. What I can tell you is that the next six months should be at least as good as the first half of this year. If we realize that, of course, we're very well set for further growth, because investing well over PLN 1 billion this year brings very good prospects for profitability in the next years, of course, if we deliver on the planned recoveries. You see here our ERC estimating remaining collections at PLN 8.5 billion. That has increased over the past quarter significantly. This is still a conservative picture of the, of course, uncertain future.
If you watch closely the quarterly results, you will see that the portfolios that we collect on have usually much thicker and longer tail than that our careful conservative accounting forecast assumes currently.Now I will go to slide number 10, which shows you the picture of profitability and some key indicators per geography. I mentioned the PLN 650 million investments.
This is mostly Poland, but we're very happy for Italy, Spain, modest investments in Romania. This is a very good result for us. As I mentioned, we would like to show at least similar performance in the second half of this year. We see further significant potential in Poland. We see more business in Romania in the second half of this year than in the first. We will continue to look at portfolios in Italy and Spain.
Although likely we will not want to be too fast and to invest too much, in a too short of a timeframe of PLN, not to give too much of a challenge to the still growing organizations there. Yet we are very happy with the several portfolios we bought on these two markets in the past six months. Outstanding results for investments in Poland, as I mentioned, 15% of the market share.
Recoveries, very good results in all of the geographies, and I mean all including Czech Republic, Slovakia, Germany, Spain, Italy, Romania, and Poland. If you look further, very good results on Wonga's revenues and EBITDA, and all businesses are cash generative. All businesses have positive operating profit as usual, if you look at the EBITDA line.
You may remember, the times a few years ago where KRUK was earning PLN 300 million of net profit, that was a situation where we were losing PLN few hundred million, in foreign markets. Now this situation hopefully is not going to repeat. Just by this fact, we're adding PLN few hundred million in profit for this year. A closer look at the Polish market, slide 11, a good market, PLN 3.5 billion nominal value of retail portfolios. KRUK takes half of that. Why were we able to increase our market share so much? If you recall further, the earlier times, KRUK was proud to achieve 30% market share. 25% market share was a good result already. Why 50 now? Well, we are more competitive because we can collect better on what we buy.
This is a result of evolutionary improvement in operating effectiveness that comes from many small improvements, in the process, but also in analytical tools, which advise us, what to do, when to do, and what to expect. We're very proud of that. Of course, the Polish market remains very competitive. The second half will be very competitive, even more competitive as many of our competitors have not done their investment budgets.
We're positive about Poland, and likely this will continue to be our largest market and most profitable business. Poland indeed was very profitable in the first half of this year. Look at slide number 12. PLN 400 million of cash EBITDA, close to PLN 300 million of EBITDA. Nice profitability, decent profitability of 34%.
PLN 54 million of positive revaluation of assets, which assumes, I'm talking now about the most important unsecured consumer debt, which assumes increasing recoveries for the six months mostly, which is a conservative approach to revaluation as it does not include further in time, increase in recoveries. What does it mean? It means that if we continue to deliver on the current trend of recoveries, likely in the next couple of quarters at least, you will see again positive revaluations. Is this revaluation big? Well, it's big compared to revaluations in the past 18 months in the COVID times. Is it big compared to the upside to the value of the assets? No, it's small.
Please note that if you dig into the composition of our revenues, you will see that the Q2 results were extraordinary in the fact that it including relatively big positive revaluation and also relatively big revenues from the delta, from the difference between the realized and planned in accounting curve revenues. Now, this delta element will decrease now, because of this revaluation. If we increase the forecast, the delta between the realized and accounting forecast will decrease logically in the next couple of months. Which means with the same performance on recoveries, you will see lower profit in July than you had in June. This is mathematics.
This is arithmetic, but it's important to understand. Because it means that going with this trend of the performance, the profits in Q3 likely will be smaller than in Q2, which is an extraordinary quarter, where we do, in a sense, a catch-up of revaluation and book significant revenues from this delta of recoveries. I'm telling this to tell you, please don't make a yearly forecast by doubling the net profit from the first half. It likely will not achieve that.
Still, Q3 and Q4 are to be quite good profitable quarters. Romania, look at slide 13, please. You see relatively small market. Market which suffers from some legislation, tax legislations, where the banks hold to selling some portfolios because they cannot treat them as tax deductible. This law will not change this year. I hope it will change sometime in 2022.
In the meantime, we are looking at smaller markets, and we are making sure we buy as much of these portfolios from the smaller market as possible. First half was relatively weak. Second half, we think we will be able to invest much more. Of course, that will still be investments which are significantly below of what we invest in Poland this year.
It's a slowdown in investments, but we think it's temporary and will deliver more in the next months to come. In the meantime, if you look at slide 14, the back book of the Romanian assets is performing in excellent fashion. You see also significant positive revaluation. Again, significant compared to previous couple of quarters, but not very significant compared to the potential that we see if we continue to go along this trend of recoveries we see.
If nothing changes, please expect further positive revaluation in the next quarters from Romanian unsecured business. Italy which was very good six months for us in terms of our investments. Moderate size of the market, of which we had about 18%. The market is likely to grow significantly several times in the second half of this year. The market is not a constraint for us. Our ability to buy, in a sense, how much do we want to process, how much we can process is.
We are very happy, and look at slide 16, with the investments in the six months. They were PLN 117 million, and more is to come in the next six months. The performance on the back book is very good, somewhat above the plan, the operating plan. The profitability has improved significantly. You see here 26%, over 16% a year ago.
Where are we in Italy? We are steady on the path to growing profits. Do we see big risks in Italy? No. We see potential to improve results. We don't see significant risk, neither regulation nor from our back book anymore. This is again, a change of the paradigm. We no longer think whether we'll succeed in Italy or not. We think what to do to succeed in a really meaningful way for the next couple of years. Will we do it overnight? Can you expect us to double, triple the investment in Italy? No. We'll do it gradually, evolutionary, to have good, stable, repeating and growing business there on very decent profitability, but we're not in a hurry. We are in a marathon. We are after 5 kilometers only. 6 years has passed.
Another 10 or another several is ahead of us to build a really big business there. This is our intention, and there is market for it. Spain, a similar positive history, good market, good purchases, 15% market share. We're quite happy to have bought three major portfolios from three major financial institutions in Spain. If you look at slide 18, this is PLN 82 million of investments. More to come in the next six months. Positive EBITDA, PLN 27 million.
Decent profitability, also. Nice improvement of the past year. Similarly to Italy, the risk is moving to the upside from downside. We don't expect negative surprises from the back book anymore. We see room to improve profitability from the back book, and we are competitive in buying new portfolios in Italy. Again, we want to do it in evolutionary moves.
The next couple of years likely will show further increase in profitability in Spain, will not happen overnight over a quarter. Going to other markets. Other markets now includes the Czech Republic, Slovakia, and Germany. The performance there is excellent. You can see profitability is even higher than in Poland for the six months of the year.
We were very happy with the performance there, the investment potential there is limited. You can see only 13 million PLN was invested in Czech Republic and Slovakia. We are looking at opportunities to increase that, the market is the limitation there. The Wonga business, decent performance. You see increased profitability for 10 million PLN of EBITDA. We're happy with the business. We see from July increasing demand among the Polish consumer for Wonga loans.
We're starting with a television marketing campaign, which should additionally boost our sales. We're positive that not only the six months was good, but the second 6 months of this year for Wonga will be even better. Good performance of some other businesses, you see on slide 20, 21. Overall, it's an excellent quarter, where all of the business lines, all of the main major business lines delivered or overperformed.
Where no bad news from regulatory front came, and where we really are enjoying that situation and thinking, "Okay, let's just not stop here." Let's just continue because there's growth ahead of us. We have a chance to become a really major player in this market once we succeeded in those 4 big markets in Europe. It's not to say we're ready to jump into another country.
There's still plenty of room to grow profits in those four countries, four main countries where we are. Of course, in time, we'll be looking at some other markets. Definitely not this year. I will now jump to a slide with funding. This is slide number 27. You see here that 2021 was a year where we needed significant amount of money.
Okay, it's not clearly visible from the slide, but the situation, not only we needed several hundred million PLN for investment, but also we bought back, or we're buying back this year, PLN 440 million of bonds. We also paid PLN 200 million of dividends. All that was funded with internal cash flow and additional issues of bonds. We successfully raised half a billion PLN, close to that, from Polish investors, both retail and corporate. We're very happy with that.
We also are successfully talking to banks about enlarging their commitments to groups. I may tell you, if we have excellent investment in that portfolio this year, funding will not limit us. That's very positive. We see that the financial market is looking very favorably at KRUK in Poland, and we have good partners to provide us debt instruments. There is two important slides here in the appendix. I'm looking at slide 29. This is our ERC now shown in more detailed over the period of 16 years. You can see and you can model now more precisely what our assumptions are. These assumptions are conservative. Why do I say that?
Well, because if you look at slide number 30, which shows the vintage analysis of what has been the performance of the portfolios we bought historically, which have at least six years of history to show you at least the six years we need to break even. You can see the details, the lengths, and the thickness of these curves is significantly above the ERC curve.
Of course, you cannot compare these curves one to one. One is forecast, another is history. The trend is visible. We are collecting more, and we are collecting longer in time than we historically thought, and our accounting curves struggles with catching up with this reality, and therefore, it will most likely need to be revised up and up and up again over the past couple of years.
The approach we took so far is we conservatively update the curve for the next six months. That's for Poland and Romanian retail. Do not change this forecast, this conservative forecast for the further longer period of time because of uncertainty that is connected with possible negative changes which may or may not come. This is the first time we have this disclosure. For those of you who have your own models, that should be very useful to compare this accounting world and historical cash flow world. If you have questions how to interpret that, please contact Tomasz Kałuziak or the IR team or myself to explain.
For me, the main conclusions from slide 30 compared to 21 is if things go as they went in the past. Here KRUK is sitting on a pot of gold and will be recognizing significant positive revaluation in the next couple of years, not only quarters. Of course, this is provided nothing negative will happen. If you ask again, do we see in the environment in which we are any negative changes, the answer is fortunately no. There is no negative legislation that we know of that could be significant for us at this point. The trend of recoveries in the beginning of the Q3 is also very positive. We are in a growth mode. We are thinking what else to improve to have even better results.
From my point of view, 2021, it's a certain thing, it will be a very good year for the business. It's not a one-off year. It's a year on which we would like to continue to build profitability. This situation looks quite positive. Thank you very much for listening. I would now like to ask for your questions, please.
If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two, and when preparing to ask your question, please ensure your phone is unmuted locally. For those dialing in online, you can register a question with the flag icon. Again, for any questions, that's star followed by one or the flag icon if you're dialing in online. We have no questions registered via the phone lines. As a final reminder, that's star followed by 1 or the flag icon for any questions.
If there are no questions, thank you very much for your time listening to this presentation. If you have follow-up questions, don't hesitate to contact us. We're very happy to tell you what we think in detail and keep fingers crossed for Q3, Q4. Stay healthy. Goodbye.
This concludes today's call. Thank you for joining. You may now disconnect your lines.