Despite record recoveries in Q1 2020 and preliminary estimated record cash EBITDA*, the KRUK, acting in accordance with accounting requirements (IFRS 9), factored in the expected effect of the COVID-19 pandemic when estimating the preliminary results for Q1 and reviewed the expected future recoveries. As a result, the Group posted a downward revaluation of portfolios, of PLN -125m, which led to the Group's estimated preliminary consolidated net loss of PLN 62m for Q1 2020. The KRUK Group's preliminary estimated cash EBITDA for Q1 2020 amounts to PLN 326m, up 15% year on year.
'Despite a strong start to the year, especially in Poland, Romania and also in Italy, the spread of COVID-19 to the size of a pandemic and the related consequences led to a situation in which already in March we observed deviations from our operating targets on the Italian and Spanish markets, and then also in Poland and Romania,' said Piotr Krupa, President of the KRUK S.A. Management Board. 'This is why after analysing the recoveries in March and in the weeks that followed we decided to lower the forecast of expected recoveries. We smoothly switched to working from home, but our field advisers could not directly contact the customers. Some of the payment channels, such as postal services and payment intermediaries, were also less accessible to customers, and the courts, bailiffs restricted their activities on the individual markets. We prepared the estimates for the first quarter of 2020 to the best of our knowledge at the time of their preparation, but the spread of the COVID-19 pandemic and its consequences remain a cause of significant uncertainty,' added Piotr Krupa.
The Group's financial condition as at the end of the first quarter of 2020 and as at the date of issue of this report is stable. The KRUK Group's equity is high (PLN 2bn as at December 31st 2019) and its debt is low (2,3 x net debt/cash EBITDA). As at March 31st 2020, the KRUK Group's cash and cash equivalents amounted to PLN 236m. The undrawn amount of lines of credit was PLN 712m as at March 31st 2020, having grown by PLN 156m compared with December 31st 2019.
'Our financial condition is sound and we have a strong liquidity position. Preliminary estimated cash EBITDA for Q1 2020 is up 15% comparing to Q1 2019. If the result is confirmed next week, it will be the record for the cash result in KRUK's history. At the same time, we are analysing various scenarios of how the pandemic might develop to be prepared for the worse ones, too. The moment we identify a decline in recoveries, we factor it in in the valuation of our assets. We are working to be ready to fully resume investing activity and be operationally prepared when the time is right both with respect to the debt purchase market as well as credit management for, e.g., banks,' concluded Piotr Krupa.
The finally determined financial results will be disclosed in the consolidated report of the KRUK Group for Q1 2020, scheduled for issue on May 28th 2020.
*Cash EBITDA = EBITDA - revenue from collection of purchased debt + recoveries from purchased debt portfolios