Kruk S.A.

In December 2010 KRUK SA, leader of the Polish receivables management market and one of the main providers of debt collection services in Romania, filed its prospectus with KNF (Polish Financial Supervision Authority). The company intends to launch a public offering of its shares immediately after the prospectus has obtained KNF approval.

The KRUK Group is a provider of multiple debt collection services and the only company on the Polish market purchasing large debt portfolios on its own account and offering contingency debt collection. The KRUK Group includes a credit information bureau (ERIF Register of Debtors), a debt collection company (KRUK SA), a detective bureau, a law firm (RAVEN) and securitization funds (Prokura NS CIF, Prokulus NS CIF). KRUK works with the largest banks and financial institutions in Poland and with providers of consumer services such as telecoms, leasing companies, insurance companies, digital and cable TV operators, etc. In 2007 KRUK established a subsidiary in Romania (KRUK International) whose business is similar to the business of KRUK in Poland. The KRUK Group has a 27 per cent share in the Polish receivables management market and a 20 per cent share of the Romanian market.

"The coming years will be a very good period for the receivables management industry. According to estimates, in the next 3-4 years banking portfolios of bad debts for collection worth around PLN 30 billion will come on the market. Obviously, the goal of KRUK as the sector leader is to fully capitalise on the upcoming market opportunities. We will however need more capital for debt purchases. Additionally, we intend to expand into new foreign markets. Our business model has proved itself successful in Romania and we see a large growth potential in other CE countries. We estimate that the investment needs of the KRUK Group in the coming years will be several dozen millions of Polish zloty,” says Piotr Krupa, KRUK SA CEO. ”The planned investment in further growth of the company will reinforce our leading position on the Polish ARM market. Our goal is also to make KRUK the largest debt collection company in this part of Europe,” added Krupa.

So far, the development of the KRUK Group has been funded by the company’s profit, corporate bond issues and bank loans. Among the milestones in the company’s history was the purchase of a block of its shares by a private equity fund managed by Enterprise Investors. Since 2003, the total amount of capital injected in KRUK by the fund has been close to PLN 90 million.

”Since the very beginning of our relationship with Enterprise Investors we have been aware that at some point they will decide to exit. This is how private equity funds operate. An IPO and the admittance of KRUK’s shares on the Warsaw Stock Exchange is in this case the best solution for all the parties,” says Piotr Krupa. ”For me personally it will be crucial to find a group of new, stable financial investors who will participate in further development of the company and will become the beneficiaries of its growth,” added KRUK’s CEO.

The KRUK Group has two main sources of income: contingency debt collection and collection of purchased debt. In the case of contingency debt collection the income generated includes mainly commissions which, depending on the status and delinquency level of accounts, may be from a few to several dozen per cent. Purchsed debt collection revenues include amounts recovered in the debt collection process from the debtors.

In 2010 KRUK’s revenues exceeded PLN 164 million, with a net profit of more than PLN 36 million. In 2009, the consolidated revenues of the KRUK Group exceeded PLN 128 million, with a net profit of PLN 23.5 million.

According to the most recent report prepared by the Gdańsk Institute for Market Economics called “Receivables Management Market in Poland and Its Development Outlook Until 2014”, in 2009 the value of the Polish debt collection market stood at PLN 14.3 billion. By 2014 it may approach PLN 22.2 billion. The total value of debts outsourced for collection will increase in comparison with 2009 by PLN 7.9 billion, up by 55 per cent. Despite its relatively short history, ARM has been among dynamically growing sectors of the Polish economy.

”The receivables management market has been developing also thanks to the growing propensity of companies to outsource their debt collection function,” says Piotr Krupa. ”For the past couple of years we have been witnessing a rising trend among businesses to outsource debt collection as well as growing values of debt portfolios offered for sale. The total nominal value of the debt accepted the KRUK Group for collection in 2009 was PLN 4.1 billion as at the date of purchase or acceptance for collection. In 2010, on both markets (Poland and Romania) it included around 1.9 million of new accounts with a total nominal value of PLN 5.9 billion, up by 26 per cent on 2009,” he added.

According to the report prepared by IBnGR (The Gdańsk Institute for Market Economics) the KRUK Group is an unquestioned leader of the Polish receivables management market  in terms of the value of accounts accepted for collection and has a market share of close to 27 per cent. The market share of the second company in the ranking is nearly twice lower.

KRUK has long-term experience in comprehensive management of consumer receivables. KRUK’s business model is based on two business segments: contingency debt collection and collection of purchased debt. The Group focuses its activities on the fastest developing financial services market, in particular on the collection of consumer debt. Banks and telecoms are among the Group’s main clients. The implementation of a pro-settlement approach to debtors (a novelty on the debt collection market) was a significant step forward in the development of the KRUK Group and of the ARM market.

Since mid-2008, KRUK has been consistently implementing its strategy based on concluding agreements with debtors arranging repayment of the debt in installments. The above agreements are a win-win solution offering benefits both for the creditor and for the debtor. The first will gradually get his money back, while the second one will step by step get out of the debt without placing an excessive burden on the home or company budget. According to the company’s pro-settlement approach, a debtor is an entity which has problems with paying its debts because of external circumstances.   At the same time, it is aware that the debt must be paid. As a result of implementing the pro-settlement strategy, recovery rates have much improved and payments received from debtors have become more regular. Since the launch of the above strategy the KRUK Group has signed 134,000 settlements. The implementation of the pro-settlement strategy was supported by Poland’s first TV campaign targeted at people with debts. The campaign reinforced the positive image of the Group and made KRUK the best recognised debt collection company in Poland. In 2010, more than a half of all payments received by the Group were received as a result of the application of the pro-settlement strategy.

Proper risk management is of key importance in the debt collection business. The lack of experience in the valuation of debt portfolios purchased by new players on the market is for them an important barrier to entry. The KRUK Group has many years of experience in the above area gained in the course of more than 140 transactions involving the purchase of receivables portfolios and valuation of more than 800 of such portfolios; it also has the know-how on how to service them later.

Polish Enterprise Fund IV L.P. managed by Enterprise Investors is KRUK’s largest shareholder holding 78.5% of the company’s share capital. The second significant shareholder is Piotr Krupa, founder and president of the board of KRUK SA holding 16.8% of the company’s share capital. Another important group of KRUK shareholders are its managers with a 4.7% share in the company’s share capital.