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DDM Holding AG
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DDM Debt AB
DDM Holding AG: Q4 and full year report January - December 2017
Significant increase in portfolio value and substantial financing raised
Highlights fourth quarter 2017
- Second Croatian investment of EUR 21M finalized, following regulatory approval
- New partner and co-investor in Greece, reducing DDM’s investment by about EUR 15M
- Entered Serbia, investing EUR 2M
- EUR 10M bridge financing raised
- EUR 50M of senior secured bonds at 8% issued and listed on Nasdaq Stockholm to support continued strong growth
- Gross ERC at the end of December 2017 was EUR 250M, a significant increase of 213% (Q4 2016: EUR 80M)
- Net collections increased by 22% to EUR 12.7M (Q4 2016: EUR 10.4M)
- Cash EBITDA increased by 28% and amounted to EUR 11.2M (Q4 2016: EUR 8.7M)
- Net profit for the period of EUR 1.8M (Q4 2016: profit of EUR 1.9M)
- Investments in Greece, Croatia, the Czech Republic, Serbia and Slovenia, totaling approximately EUR 83M
- EUR 85M of senior secured bonds at 9.5% issued and listed on Nasdaq Stockholm
- Fully subscribed share issue with pre-emptive subscription rights for existing shareholders of approximately EUR 11M before issuance costs
- Super senior revolving credit facility of EUR 17M, continuing to lower the cost of funding
- Net collections increased by 9% to EUR 37.4M (2016: EUR 34.2M)
- Cash EBITDA increased by 10% and amounted to EUR 32.3M (2016: EUR 29.3M)
- Adjusted net profit of EUR 3.8M, excluding non-recurring items totaling approximately EUR 3.1M related to the refinancing in Q1 2017
Significant events after the end of the year
- Kent Hansson, founder and Chairman of the Board of Directors became acting CEO from 5 February
- New Chief Investment Officer, Alessandro Pappalardo, appointed as a member of the Executive Management Committee
Comment by the CEO
DDM continued to deliver on its growth strategy in the fourth quarter. Fueled by our solid industry experience and analytical tools to assess portfolios of non-performing loans (NPL), we continued our rapid expansion. As a result our Estimated Remaining Collections (ERC) more than tripled in size in 2017, and DDM’s total assets increased by over EUR 115M since the end of 2016. We also entered into new territories as further NPL portfolios were acquired.
During the fourth quarter we finalized our second Croatian transaction, the previously announced acquisition of secured corporate receivables. After significant due diligence work, at the end of November we also entered Serbia. In order to rebalance the composition of DDM’s portfolio, we chose to bring in Ellington Capital Management as a new partner in Greece, decreasing our investment by about EUR 15M. With this transaction, our investment in Greece amounts to about 34% of DDM’s overall book value of distressed asset portfolios.
Net collections grew significantly during Q4, increasing 22% compared to Q4 2016, owing to the strong performance of the larger Croatian portfolio in addition to the first collections from Greece. Net collections increased by 9% for the full year 2017 compared to 2016, driven by collections from the recent investments in addition to the continued strong performance of the larger Slovenian portfolio. Revenue from management fees was EUR 0.6M in the fourth quarter and EUR 1.9M for the full year 2017, compared to EUR 0.3M and EUR 1.2M for the corresponding periods in 2016. The increase in revenue from management fees in the fourth quarter was driven by fees for portfolio management in Greece.
The strong net collections and revenue from management fees resulted in cash EBITDA for the fourth quarter of EUR 11.2M and EUR 32.3M for the full year 2017, increases of 28% and 10% respectively compared to the corresponding periods in 2016. The net result was a profit of EUR 1.8M for the fourth quarter and a profit of EUR 3.8M for the full year of 2017, on an adjusted basis.
During 2017 we more than doubled our investments compared to 2016, investing EUR 83M in total. These investments were both in DDM’s established markets as well as in Greece, Croatia and Serbia, new markets for DDM that have great potential for future transactions and growth, and where we have spent many years evaluating opportunities before entering. These investments display our flexibility and ability to invest in new markets. Furthermore, the transactions diversified our portfolio by increasing our exposure to the corporate receivables segment.
Our solid performance paved the way for DDM to raise capital at a significantly lower cost throughout the year. During the fourth quarter DDM Finance AB raised EUR 10M in a bridge financing transaction, enabling DDM Debt AB to issue EUR 50M of new senior secured bonds with a final maturity date in December 2020 and a coupon of 8%. Funding of the business will continue to be a focus area going forward to further improve flexibility, decrease the cost of capital and support our rapid growth.
Cash flow continued to improve due to the higher net collections and lower interest paid in the quarter compared to the prior year. Cash flow from operating activities before working capital changes was EUR 8.3M in the fourth quarter compared to EUR 7.0M in Q4 2016. For the full year 2017, cash flow from operating activities before working capital changes was EUR 21.6M compared to EUR 20.2M for the same period last year, despite the negative impact from the aforementioned call premium of EUR 1.2M.
We expect our strong profitable growth to continue, since the trend will continue in which banks and financial institutions around Europe need to improve their balance sheets through disposing of their non-performing assets. Regulatory, accounting and market pressures will drive these developments. In this environment, we believe that there will continue to be plenty of good business opportunities for DDM.
However, DDM’s rate of growth and financial results will continue to vary from quarter to quarter, impacted by the timing of significant investments. As we primarily target larger portfolios and they generally take longer to complete, this potentially results in positive one-off effects during the quarter the portfolio is acquired.
In 2018our target is to double our investments compared to 2017 by investing more than EUR 165M and we anticipate operating expenses of EUR 8M. To facilitate our growth, the Board has proposed that no dividend be paid out for the financial year 2017. We aim to deliver sizeable and profitable growth in 2018 as we continue to focus on our markets in SEE and CEE where we have strong market knowledge and relationships.
DDM intends to publish financial information on the following dates:
Annual report 2017: 29 March 2018
Interim report for January – March 2018: 3 May 2018
Annual General Meeting: 23 May 2018
This report has not been reviewed by the Company’s auditors.
Acting CEO Kent Hansson and CFO Fredrik Olsson will comment on the DDM Group’s results during a conference call on 28 February 2018, 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 8 566 193 53, CH: +41 225 675 548 or UK: +44 203 008 9807.
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 2018 at 08:00 CET.