DDM Holding AG: Interim report January - September 2016

Landmark transaction, strong results and significant loan repayments 

Highlights third quarter 2016

•  œ Net collections increased by 330% to EUR 10.4M (Q3 2015: EUR 2.4M)

• œ  Cash EBITDA increased by 748% and amounted to EUR 9.3M (Q3 2015: EUR 1.1M)

• œ  Profit for the period of EUR 3.9M (Q3 2015: loss of EUR 1.6M) 

• œ  Gross ERC at the end of September 2016 was EUR 89.6M, an increase of 57% (Q3 2015: EUR 57.2M)

• œ  A landmark transaction for DDM was completed in July, with EUR 17M invested in Slovenia

• œ  New bond of EUR 11M at 13% interest was issued in July to finance the investment in Slovenia

• œ  Cash flows were significantly stronger following the acquisition in Slovenia

• œ  Significant loan repayments of approximately EUR 8M, including the redemption of the 18% subordinated notes, decreasing future financial expenses and the average cost of borrowing

• œ  Pipeline of future transactions remains strong

Highlights nine months 2016

•  œ Net collections increased by 104% to EUR 23.8M (9M 2015: EUR 11.6M)

• œ  Cash EBITDA increased by 172% and amounted to EUR 20.5M (9M 2015: EUR 7.5M)

•   Profit for the period of EUR 3.5M (9M 2015: loss of EUR 2.9M) 

Comment by the CEO
In the third quarter of 2016 we continued to execute on our strategy to grow the portfolio investments when we closed a landmark transaction for DDM in July. We invested approximately EUR 17M in Slovenia in a portfolio of non-performing banking claims. The acquisition was funded by a new bond of EUR 11M issued in July, along with the proceeds from the share capital increase in the second quarter of 2016. For this acquisition and associated bond issuance, a new sub-group consisting of DDM Finance AB, DDM Debt AB, DDM Invest VII AG and DDM Invest VII d.o.o was established. 

DDM has had strong profitable growth over the past twelve months, and we expect this trend to continue going forward. However, the Group’s rate of growth and financial results will 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, in addition to general growth of ERC, net collections and profit.    

The Q3 2016 results benefitted from the acquisition in Slovenia in the quarter, in addition to the positive foreign exchange gain of about EUR 1.1M which was primarily driven by the weakening SEK. We estimate that gross ERC (Estimated Remaining Collections) is approximately EUR 8M in Q4, and therefore the result for the period should be expected to be significantly lower than Q3. However, we expect to have growth and profit for the full year 2016.

Net collections in the third quarter of 2016 increased by 330% compared to the third quarter of 2015 mainly as a result of the strong performance of the Slovenian acquisition in the quarter, while for the first nine months of 2016 net collections increased by 104%. Revenue from management fees were EUR 0.3M in the third quarter of 2016 and EUR 0.9M for the first nine months of 2016.  Revenue from management fees will be a material revenue stream for the 2016 financial year and therefore we are now presenting it separately (previously included in net collections).

Operating expenses were EUR 1.5M in the quarter, slightly higher than the previous two quarters mainly driven by the acquisition in Slovenia. Cash EBITDA (net collections and revenue from management fees, less operating expenses) for the third quarter amounted to EUR 9.3M, an increase of 748% compared the same period of 2015. For the first nine months of 2016 cash EBITDA was EUR 20.5M, an increase of 172% compared to the first nine months of 2015.

Revaluation of invested assets had a negative EUR 0.5M impact in the third quarter of 2016, mainly driven by the divestment of a portfolio in Poland in order to invest the funds in a beneficial alternative for investors. In addition, due to the ongoing weak macroeconomic environment in Russia we made downwards revaluations of several Russian portfolios. The downward adjustments were partly offset by positive revaluation of a number of other portfolios, in particular the recent Hungarian portfolio which has continued to perform ahead of expectations.

Gross ERC at the end of the third quarter of 2016 was EUR 89.6M and increased by 57% compared to the same period in 2015, mainly due to the acquisition in Slovenia in the quarter.

Cash flow from operating activities before working capital changes was EUR 6.0M in the third quarter, compared to negative EUR 2.2M for the same period last year, benefitting from the large portfolios recently acquired in Hungary and Slovenia. Cash flow from operating activities before working capital changes for the first nine months of 2016 was EUR 13.2M, compared to EUR 1.8M for the same period in 2015. On the back of the strong cash flows, significant loan repayments of approximately EUR 8M were made during the third quarter of 2016. The loan repayments include the full redemption of the SEK 31M (EUR 3.3M) 18% subordinated notes issued by DDM Treasury Sweden AB on their final maturity date of 30 September 2016, in addition to approximately EUR 3M of loan repayments relating to the recently issued EUR 11M bond, and EUR 2M of short-term borrowings. 

Market outlook

We continue to see strong growth in the pipeline of portfolios for sale across our region. DDM continues to receive a significant number of invites to bid for large portfolios and we are well placed to continue the rapid expansion in our investment activities.

Given the large amount of investment opportunities, funding continues to be a key focus to sustain growth. We aim to raise additional funding, both equity and debt, targeting a long-term and sustainable capital structure. In 2017 we intend to invest EUR 50M and anticipate operating expenses of EUR 5.6M. Please also see the Q3 2016 earnings presentation for further information about DDM’s business. With the improved financial position due to the recent significant acquisitions, 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 10 November 2016, 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 90, CH: +41 225 675 548 or UK: +44 203 008 9801.

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 10 November 2016 at 8:00 a.m. CET.

For more information, please visit DDM’s website at www.ddm-group.ch or contact:

Hans Uhrus, Investor Relations Manager
Mail: investor@ddm-group.ch | Tel: +46 7689 50101

DDM Holding AG (Nasdaq First North Stockholm: DDM) is a key acquirer and manager of distressed assets. Since 2007, the DDM Group has built a successful platform in Eastern Europe, currently managing 2.3 million receivables with a nominal value of over EUR 2 billion. DDM Treasury Sweden AB (publ) (NGM: DDM1) is a subsidiary wholly owned by DDM Holding AG. Erik Penser Bank is DDM Holding AG’s Certified Adviser.

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