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DDM Holding AG
DDM Debt AB
DDM Holding AG: Q4 and full year report January - December 2016
Net profit of EUR 5.3 million and strong cash flows for the year
- Net collections increased by 24% to EUR 34.2M (2015: EUR 27.5M)
- Cash EBITDA increased by 35% and amounted to EUR 29.3M (2015: EUR 21.7M)
- Net profit for the year of EUR 5.3M (2015: profit of EUR 1.8M)
- A landmark transaction for DDM was completed in July, with EUR 17M invested in Slovenia
- EUR 11M bond at 13% interest was issued in July to finance a portfolio acquisition in Slovenia
- Loan repayments of about EUR 9.2M in H2 2016
- Pipeline of future transactions remains strong
Highlights fourth quarter 2016
- Net collections decreased by 34% to EUR 10.4M (Q4 2015: EUR 15.9M)
- Cash EBITDA decreased by 38% and amounted to EUR 8.7M (Q4 2015: EUR 14.2M)
- Net profit for the period of EUR 1.9M (Q4 2015: profit of EUR 4.8M)
- Gross ERC at the end of December 2016 was EUR 79.8M, an increase of 11% (Q4 2015: EUR 72.2M)
- Cash flows continued to be significantly stronger following the acquisition in Slovenia
Significant events after the end of the year
- Further loan repayments of approximately EUR 3.4M were made in January 2017
- A further portfolio was acquired in the Czech Republic for approximately EUR 5M
- EUR 50M of senior secured bonds at 9.5% were issued in January 2017, with the proceeds used to refinance existing debt within the DDM Group and for future portfolio acquisitions
- Share issue with pre-emptive subscription rights for the existing shareholders of up to SEK 104 million (approximately EUR 11 million) was proposed by the Board of Directors to support the expected continued growth in core markets
Comment by the CEO
We are very proud to present strong results for the year as we continued to deliver on our strategy through a number of significant and important steps in growing and developing the company over the past 12 months. We successfully completed a share capital increase in the second quarter of 2016. These proceeds, along with a EUR 11M bond, were used to acquire a landmark portfolio for DDM in July. Strong performance from both this and the large Hungarian portfolio acquired at the end of 2015 generated significant cash flows and enabled DDM to make substantial loan repayments of about 9.2M in H2 2016.
These positive developments have continued in 2017 and DDM successfully issued EUR 50M of senior secured bonds in January. The new bonds have a final maturity date in January 2020 and a 9.5% coupon rate, which is significantly lower than our previous financing cost. This is another important step in improving the capital structure and lowering our cost of funding. Part of the proceeds were used to refinance existing debt within the DDM Group, with the balance to be used for future portfolio acquisitions. Following the refinancing, on 13 February 2017 the Board of Directors of DDM proposed a share issue, with pre-emptive subscription rights for the existing shareholders of up to SEK 104 million (approximately EUR 11 million), to be approved by an extraordinary general meeting. The Rights Issue is carried out to further strengthen DDM’s balance sheet, lower our cost of capital, facilitating the issuance of more debt and increasing DDM’s ability to capture attractive growth opportunities in the Company’s markets.
We continue to have a significant and strong pipeline, and are pursuing several attractive investment opportunities that are expected to close in Q2 and Q3 2017. The focus continues to be on our existing markets, in addition to some neighboring countries where we are evaluating both consumer and corporate portfolios. Consistent with DDMs track-record we are now working intensively on the due diligence processes, confirming that the portfolios meet our investment and return requirements.
Net collections in the fourth quarter of 2016 decreased by 34% compared to the fourth quarter of 2015 despite the strong performance of the recent Slovenian acquisition, as the prior year benefitted from the significant Hungarian acquisition in the quarter. However, for the full year 2016 net collections increased by 24% compared to the full year 2015. Revenue from management fees were EUR 0.3M in the fourth quarter of 2016 and EUR 1.2M for the full year 2016. Revenue from management fees is a material revenue stream in 2016 and therefore it is now presented separately (previously included in net collections).
Operating expenses were EUR 2.0M in the quarter and EUR 6.1M for the full year, with the increase in the fourth quarter partially driven by some non-recurring operating expenses in addition to the acquisition in Slovenia. Cash EBITDA for the fourth quarter amounted to EUR 8.7M, a decrease of 38% compared the same period in 2015, driven by the lower net collections. For the full year 2016 cash EBITDA was EUR 29.3M, an increase of 35% compared to 2015.
Financial expenses decreased to EUR 1.7M in the fourth quarter compared to EUR 1.8M in the third quarter. This was due to the full redemption on 30 September of the SEK 31M (EUR 3.3M) subordinated notes and the repayment of EUR 2M of short-term borrowings in Q3, in addition to EUR 4.5M of repayments made by 31 December 2016 relating to the recently issued EUR 11M bond.
The net profit for Q4 2016 of EUR 1.9M benefitted from a tax income of EUR 0.9M, mainly due to the recognition of deferred tax assets on tax losses carried forward. The full year 2016 result was supported by foreign exchange gains of about EUR 1.9M, compared to a foreign exchange loss of approximately EUR 2.1M in 2015.
Gross ERC at the end of 2016 was EUR 79.8M, an increase of 11% compared to the end of 2015, as acquisitions in 2016 more than offset amortization, revaluation and impairment on existing portfolios.
Cash flow from operating activities before working capital changes was EUR 7.0M in the fourth quarter, compared to negative EUR 4.3M for the same period last year, benefitting from the large portfolios in Slovenia and Hungary. Cash flow from operating activities before working capital changes for the full year 2016 was EUR 20.2M, compared to negative EUR 2.5M in 2015. On the back of the strong cash flows, further loan repayments of approximately EUR 1.6M were made during the fourth quarter of 2016 relating to the recently issued EUR 11M bond.
At 31 December 2016 DDM had a significant cash balance of EUR 10.6M. Since the end of the year further loan repayments of approximately EUR 3.4M were made in January 2017 on the recently issued EUR 11M bond, and DDM has acquired a further portfolio in the Czech Republic for approximately EUR 5M. This was the third portfolio that we have acquired from the seller, confirming DDM’s reputation as a trustworthy buyer.
While considering that DDM has had strong profitable growth over the past twelve months, and we expect this trend to continue going forward, the Group’s rate of growth and financial results will vary from quarter to quarter, impacted by the timing of significant acquisitions. In addition, the bond refinancing will result in a write-off of about EUR 2M of capitalized transaction costs relating to the old bonds in the first quarter of 2017. Today DDM primarily targets larger portfolio acquisitions and they generally take longer to complete, potentially resulting in positive one-off effects during the quarter the portfolio is acquired, in addition to general growth of ERC, net collections and profit.
We continue to see a strong pipeline of portfolios for sale across our region, with returns and characteristics that match our investment criteria. DDM continues to receive a significant number of invites to bid for attractive portfolios and we are well placed to continue our rapid expansion. Given the large amount of investment opportunities, funding continues to be a key focus to sustain growth. As previously communicated, our strategy is to seek additional funding, both equity and debt, targeting further improvements in our capital structure. In 2017 our target is to invest more than EUR 50M in new portfolios. With the improved financial position owing to the refinancing of the existing debt and the significant recent acquisitions made, we remain positive on the outlook for DDM and feel confident that we will be able to continue to grow the DDM Group.
CEO Gustav Hultgren and CFO Fredrik Olsson will comment on the DDM Group’s results during a conference call on 28 February 2017, starting at 10:00 a.m. CET. The presentation can be followed live at www.ddm-group.ch and/or by telephone with dial-in numbers: SE: +46 8 566 426 62, CH: +41 225 675 548 or UK: +44 203 008 9801.
The information in this interim and full year report requires DDM Holding AG to publish the information in accordance with the EU Market Abuse Regulation and the Securities Market Act. The information was submitted for publication on 28 February 2017 at 8:00 a.m. CET.