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DDM Holding AG
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DDM Debt AB
DDM Holding AG: Q2 and half year report January - June 2017
Milestone transactions, strong portfolio performance and significantly increased investment guidance
Highlights second quarter 2017
- Acquisitions of two portfolios in Croatia totaling c. EUR 28M
- Net collections increased by 67% to EUR 10.0M (Q2 2016: EUR 6.0M)
- Cash EBITDA increased by 95% and amounted to EUR 9.0M (Q2 2016: EUR 4.6M)
- Net profit for the period of EUR 0.7M (Q2 2016: loss of EUR 0.5M)
- Gross ERC at the end of June 2017 was EUR 86.7M, an increase of 36% (Q2 2016: EUR 63.7M)*
- 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%
Highlights six months 2017
- Investments in Croatia, the Czech Republic and Slovenia, totaling approximately EUR 34M
- Net collections increased by 30% to EUR 18.1M (H1 2016: EUR 13.9M)
- Cash EBITDA increased by 42% and amounted to EUR 16.0M (H1 2016: EUR 11.3M)
- Adjusted net profit of EUR 1.3M, excluding non-recurring items related to the refinancing in Q1 2017
- Net loss for the period of EUR 1.8M (H1 2016: loss of EUR 0.4M) due to non-recurring items totaling approximately EUR 3.1M related to the refinancing
- EUR 85M of senior secured bonds at 9.5% issued to refinance existing debt with the remaining balance for portfolio acquisitions. The bonds are currently trading above par
- Fully subscribed share issue with pre-emptive subscription rights for existing shareholders of approximately EUR 11M before issuance costs
Significant events after the second quarter
- Entered Greece through a milestone transaction, with an investment commitment of approximately EUR 50M
- Significantly increased investment guidance by 140% to EUR 120M for 2017
* Gross ERC at 30 June 2017 does not include one of the transactions in Croatia and the transaction in Greece
Comment by the CEO
I am very happy with the progress made during the past months. In addition to solid second quarter results, DDM has made a number of milestone transactions, entering new geographies with significant amounts invested. This further proves DDM’s operational capabilities, and the scalability and flexibility of the business model. The acquisition in Greece, where DDM’s investment commitment amounts to approximately EUR 50M, is one of the first and largest transactions in the Greek non-performing loan market, and allows us to establish a first mover advantage in the country with the highest non-performing loan ratio in Europe. The underlying portfolio consists of secured and unsecured retail and corporate receivables and has a nominal value of about EUR 1.3BN. The transaction includes one of the very few servicing licenses in Greece, in which we also see great potential for future transactions.
The Company also acquired two portfolios in Croatia totaling c. EUR 28M at the end of the second quarter. These acquisitions are in line with our strategy to grow our investments and to rapidly expand our presence across the region. Following significant due diligence work we are entering Croatia, a new market, which has strong potential for future growth. The acquisitions also increase our exposure to the corporate receivables segment, further diversifying our portfolio of investments in line with our strategy.
The investments, including commitments, in 2017 total EUR 84M to date and thereby significantly exceed the previous expectations of EUR 50M of investments for the full year. This, combined with a continued strong pipeline of portfolios currently amounting to about EUR 900M, has resulted in us increasing our investment target for 2017 by 140% to EUR 120M.
The recently announced investments, including commitments, totaling EUR 78M are funded by cash on hand, following the debt and equity financing activities in first half of the year, cash flow from operations and further debt financing. We also continue to work actively on the capital structure to match the increased investment target for 2017.
In the second quarter the portfolios continued to perform strongly, with net collections increasing 67% compared to the same period last year. The performance is a result of continued portfolio growth, focus on portfolio management and significant contributions by the investments in Hungary and Slovenia. The strong performance resulted in a profit of EUR 0.7M for the second quarter and a profit of EUR 1.3M for the first six months of 2017, on an adjusted basis.
Net collections for Q2 2017 increased by 67% compared to Q2 2016, and by 30% for H1 2017 compared to the same period last year. The increase was driven by significant collections from the larger Hungarian portfolio, in addition to the continued strong performance of the larger Slovenian acquisition. Revenue from management fees was EUR 0.7M in the second quarter of 2017 and EUR 1.0M for H1 2017, whereas it was included in net collections in H1 2016 (presented separately from Q3 2016). The increase in revenue from management fees in the second quarter was due to the significant collections in Hungary.
The strong net collections and revenue from management fees resulted in significant cash EBITDA for the second quarter of EUR 9.0M and EUR 16.0M for H1 2017, increases of 95% and 42% respectively compared to the corresponding periods in 2016.
Financial expenses decreased to EUR 2.1M in the second quarter compared to EUR 4.8M in the first quarter of 2017. The bond refinancing in Q1 2017 resulted in total negative non-recurring items of approximately EUR 3.1M in the quarter 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. The refinancing resulted in a significantly lower interest rate and an improved cost of funding that the company benefits from.
Gross ERC at the end of the second quarter of 2017 was EUR 86.7M, an increase of 36% compared to the same period in 2016, as acquisitions in the past 12 months more than offset amortization, revaluation and impairment on existing portfolios.
DDM’s cash flow benefitted from the strong operational performance and net collections in the quarter. Cash flow from operating activities before working capital changes was EUR 9.0M in the second quarter compared to EUR 2.9M in Q2 2016. For H1 2017, cash flow from operating activities before working capital changes was EUR 12.2M compared to EUR 7.2M for the same period last year, despite the negative impact from the above-mentioned call premium of EUR 1.2M.
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 very strong pipeline of portfolios currently amounting to about EUR 900M across our region in both existing and new markets, with returns and characteristics that match our investment criteria. We will continue our rapid expansion as we continue to source attractive portfolios given our proven transaction closing capabilities and strong reputation. We remain positive on the outlook for DDM and feel confident to be able to continue to grow the DDM Group. Following the recent acquisitions, we are now targeting investments of EUR 120M in new portfolios in 2017.
Annual General Meeting 2017
DDM Holding AG held its Annual General Meeting (“AGM”) on 31 May 2017. All resolutions proposed by the Board of Directors of DDM were unanimously approved. The AGM resolved to re-elect Kent Hansson, Torgny Hellström, Dr. Manuel Vogel and Fredrik Waker as members of the Board of Directors, and to elect Erik Fällström and Andreas Tuczka, representing the new main investor Aldridge EDC Specialty Finance Ltd., as new members of the Board of Directors. Please see our website www.ddm-group.ch, for further information about the resolutions passed at the AGM.
DDM intends to publish financial information on the following dates:
Interim report for January – September 2017: 2 November 2017
Q4 and full-year report for January – December 2017: February 2018
Annual report 2017: March 2018
This report has not been reviewed by the Company’s auditors.
CEO Gustav Hultgren and CFO Fredrik Olsson will comment on the DDM Group’s results during a conference call on 3 August 2017, starting at 10:00 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 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 3 August 2017 at 08:00 CET.