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DDM Holding AG
DDM Debt AB
DDM Treasury Sweden AB
DDM Holding AG: Q1 2017 report
Strong portfolio performance and significant capital raised to support major growth in the coming months
Highlights first quarter 2017
- Adjusted net profit of EUR 0.6M, excluding non-recurring items related to the refinancing
- Net collections increased by 3% to EUR 8.1M (Q1 2016: EUR 7.9M)
- Cash EBITDA increased by 5% and amounted to EUR 7.0M (Q1 2016: EUR 6.6M)
- Net loss for the period of EUR 2.5M (Q1 2016: profit of EUR 0.1M) due to non-recurring items totaling approximately EUR 3.1M for the remaining transaction costs on the old bonds (non-cash) and the call premium for the SEK 300M bond
- Gross ERC at the end of March 2017 was EUR 81.6M, an increase of 15% (Q1 2016: EUR 70.9M)
- Further loan repayments of approximately EUR 3.4M were made in January 2017 prior to refinancing
- Two portfolios acquired in the Czech Republic (c. EUR 5M) and Slovenia (c. EUR 1M)
- EUR 50M of senior secured bonds at 9.5% were issued in January 2017, part of the proceeds were used to refinance existing debt and the remaining balance of about EUR 10M will be used for portfolio acquisitions
- Fully subscribed share issue with pre-emptive subscription rights for existing shareholders of approximately EUR 11M before issuance costs
Significant events after the first quarter
- EUR 35M of senior secured bonds were issued in April in a tap issue under the EUR 85M senior secured bond framework at a price of 101.5%, representing a yield to maturity of c. 9%
- DDM Holding AG has a new main investor, Aldridge EDC Specialty Finance, holding approximately 48.8% of the shares in the company
Comment by the CEO
The operating result for Q1 2017 was EUR 2.5M, an increase of EUR 1.2M compared to the first quarter of 2016, showing DDM’s operational strength and growth. The net result for the quarter was a profit of EUR 0.6M on an adjusted basis, excluding approximately EUR 3.1M of non-recurring items related to the bond refinancing in the quarter.
As a result of the financing activities during the quarter, at the end of the period DDM had a significant cash balance of EUR 27.6M, of which approximately EUR 10M relates to the net proceeds from the bond refinancing and about EUR 11M is the gross proceeds from the rights issue that was also received at the end of the quarter. In addition, DDM raised a further EUR 35M from the tap issue performed shortly after the end of the quarter.
The financing activities carried out mean that the company is now positioned to capitalize on the significant pipeline we have, and due diligence is ongoing on a number of large portfolios where the company is in an advanced stage of the investment process. The focus continues to be on our existing markets, and in addition some neighboring countries where we are evaluating both consumer and corporate portfolios. We foresee being able to release information about some of these transactions before the end of the current quarter.
As mentioned above, a number of significant events also took place in the quarter to support continued strong growth. DDM successfully issued EUR 50M of senior secured bonds in January under a framework totaling EUR 85M. 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 was an important step in improving our capital structure and lowering our cost of funding. Part of the proceeds were used to refinance existing debt within the DDM Group, and the remaining balance of about EUR 10M will be used for future portfolio acquisitions. The bonds are listed on the Corporate Bond list at Nasdaq Stockholm.
Following the bond refinancing, DDM carried out a share issue with pre-emptive subscription rights for the existing shareholders. The rights issue was fully subscribed, resulting in gross proceeds before issuance costs of approximately EUR 11 million. The rights issue was carried out to further strengthen DDM’s balance sheet and 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.
Shortly after the end of the first quarter DDM made an additional tap of EUR 35M under the EUR 85M senior secured bond framework. The bond tap issue was placed at a price of 101.5%, representing a yield to maturity of c. 9%. The tap issue is the next step to support the continued strong growth.
Net collections increased by 3% compared to Q1 2016 due to continued strong performance of the Slovenian acquisition. Revenue from management fees was EUR 0.3M in the first quarter of 2017, whereas it was included in net collections in Q1 2016 (presented separately from Q3 2016).
Operating expenses were EUR 1.5M in the quarter, EUR 0.2M higher than the first quarter of 2016. Cash EBITDA for the first quarter amounted to EUR 7.0M, an increase of 5% compared the same period in 2016, primarily due to the higher net collections.
Financial expenses increased to EUR 4.8M in the first quarter compared to EUR 1.7M in the fourth quarter of 2016. The aforementioned bond refinancing resulted in total negative non-recurring items of approximately EUR 3.1M due to the non-cash write off of about EUR 1.9M for the remaining transaction costs on the old bonds, in addition to the call premium of approximately EUR 1.2M for the SEK 300M bond.
Gross ERC at the end of the first quarter of 2017 was EUR 81.6M, an increase of 15% compared to the same period in 2016, as acquisitions in the past 12 months more than offset amortization, revaluation and impairment on existing portfolios.
Cash flow from operating activities before working capital changes was EUR 3.2M in the first quarter due to the negative impact from the above-mentioned call premium of EUR 1.2M, compared to EUR 4.4M for the same period last year. Further loan repayments of approximately EUR 3.4M were made in January 2017, prior to the bond refinancing. DDM also acquired a further portfolio in the Czech Republic for approximately EUR 5M and a smaller portfolio in Slovenia for about EUR 1M during the quarter using cash on hand. Both portfolios were acquired from sellers we have acquired portfolios from before, confirming DDM’s reputation as a preferred buyer.
DDM has had strong profitable growth over the past two years, and we expect this trend to continue. However, the Group’s rate of growth and financial results will continue to vary from quarter to quarter, impacted by the timing of significant acquisitions. 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.
We continue to see a strong pipeline of portfolios for sale across our region in both existing and potential new markets, with returns and characteristics that match our investment criteria. We are well placed to continue our rapid expansion as DDM continues to receive a significant number of invites to bid for attractive portfolios and due to our improved capital structure following the recent additional equity and debt funding. We remain positive on the outlook for DDM and feel confident that we will be able to continue to grow the DDM Group, targeting investments of more than EUR 50M in new portfolios in 2017. We now anticipate operating expenses of EUR 6M for 2017, compared to EUR 5.6M communicated previously as we anticipate slightly higher costs associated with portfolio acquisitions.
DDM intends to publish financial information on the following dates:
Annual General Meeting: 31 May 2017
Interim report for January – June 2017: 3 August 2017
Interim report for January – September 2017: 2 November 2017
Full year 2017 report: February 2018
CEO Gustav Hultgren and CFO Fredrik Olsson will comment on the DDM Group’s results during a conference call on 11 May 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 95, CH: +41 225 675 548 or UK: +44 203 008 9818.
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 11 May 2017 at 8:00 a.m. CET.