DDM Holding AG: Q3 and YTD report January - September 2018

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Record collections and successful refinancing lowering the cost of funding

Highlights third quarter 2018

œ  Net collections increased by 153% to EUR 16.8M (Q3 2017: EUR 6.6M)

œ  Cash EBITDA increased by 188% and amounted to EUR 14.7M (Q3 2017: EUR 5.1M)

œ  Adjusted net profit for the period of EUR 0.3M excluding non-recurring items**

œ  Gross ERC at the end of September 2018 was EUR 250M (Q4 2017: EUR 250M)

œ  Cash on hand available for investments at the end of September 2018 was EUR 50M

Highlights nine months 2018

œ  Net collections increased by 74% to EUR 42.9M (9M 2017: EUR 24.7M)

œ  Cash EBITDA increased by 76% and amounted to EUR 37.2M (9M 2017: EUR 21.1M)

œ  Adjusted net profit for the period of EUR 2.4M excluding non-recurring items**

œ  Investments in the Balkans and the Czech Republic totaling approximately EUR 36M

œ  Henrik Wennerholm appointed as Chief Executive Officer

œ  The financial targets communicated at the beginning of 2018 has been removed

Significant events after the third quarter

œ  Refinancing raised EUR 12M of senior secured bonds lowering the cost of funding

œ  Investments in the Balkans of about EUR 6M following regulatory approval

œ  Buy-out of co-investor in Hungary for approximately EUR 1M

Comment by the CEO

I am delighted to report record net collections of EUR 16.8M in the third quarter and encouraged by the opportunities that lie ahead of us. A key focus during the quarter has been to intensify the strategic shift from being an investor in unsecured consumer loans to becoming a specialized investor in secured corporate and consumer portfolios. To achieve this, we have reviewed the business model and made organizational improvements to better position DDM as top-tier and effective workout partner. Another key priority is to continue to further decrease the cost of financing, an important factor when continuing our growth journey. Another important measure has been to remove the previously communicated investment target since DDM’s rate of growth will continue to vary from quarter to quarter due to the opportunistic business model.

All-time-high net collections

During the third quarter an all-time-high net collections of EUR 16.8M was achieved, an increase of 153% compared to Q3 2017, and by 74% for the first nine months of 2018 compared to the same period last year. The increase was driven by collections in Slovenia, Croatia, Greece and the Czech Republic following the significant acquisitions in these jurisdictions in the second half of 2017 and Q1 2018.

Supportive cash flow and lower cost of funding 

Cash flows also continued to be supportive from an increasingly geographically diversified portfolio. Significant progress was also made during the quarter to continue to lower the cost of funding when the Company successfully reached an agreement to refinance the EUR 10M senior secured bonds maturing on November 6, 2018 by way of issuing EUR 12M senior secured bonds. The bonds carry an interest rate of 7% per annum for the first six months and can be prolonged by the Company at 8% per annum for another six months. Funding of the business remains a focus area and we will continue to work on this going forward to further improve flexibility, decrease the cost of capital and support our rapid growth.

Strategic shift to corporate secured portfolios

Operational performance and organizational review have been key focus areas during the quarter following the strategic shift from investing in consumer unsecured portfolios to secured primarily corporate portfolios. The composition of the portfolio has changed greatly over the past 12 months, with secured portfolios now making up the majority share of our overall portfolio of assets. Consequently this will cause increased variability in our collections from quarter to quarter due to the timing of larger settlements from corporate portfolios.

Since the end of the third quarter, DDM has invested a further EUR 6M in the Balkans following regulatory approval and bought-out a co-investor for approximately EUR 1M in a portfolio in Hungary.

Revenue from management fees were EUR 0.3M in the quarter and EUR 0.9M for the first nine months of 2018, compared to EUR 0.3M and EUR 1.3M for the corresponding periods in 2017. Revenue from management fees were higher in 2017 due to the significant collections from Hungary received in the prior period. Operating expenses were EUR 2.3M in the third quarter and EUR 6.7M for the first nine months of 2018, EUR 0.5M and EUR 1.8M higher than for the corresponding periods in 2017, mainly as a result of management changes and strengthening the team. Cash EBITDA for the third quarter totaled EUR 14.7M and EUR 37.2M for the first nine months of 2018, increases of 188% and 76% respectively compared to 2017, as a result of net collections increasing more than the operational expenses.

The quarter includes negative revaluation of EUR 0.6M and impairment of portfolios of EUR 1.1M primarily relating to portfolios in the Balkans.

The adjusted net result was a profit of EUR 0.3M for Q3 2018 and a profit of EUR 2.4M for the first nine months of 2018 after adjusting respectively for EUR 0.8M and EUR 1.0M of non-recurring costs relating to deferred taxes and interests in associates.

Our strong operational performance resulted in cash flow from operating activities before working capital changes of EUR 10.6M in the third quarter compared to EUR 1.3M in Q3 2017, and EUR 26.8M for the first nine months of 2018 compared to EUR 13.5M for the first nine months of 2017.

Market outlook

The sale of non-performing assets is continuing among the banking industry players in the CEE region and supply of new corporate NPL portfolios in 2018 has been supported by number of large one-off transactions. The most active markets for DDM are currently in the Balkan region and Greece. We expect further interesting opportunities in Greece given the end of its third successive bailout program ending years of austerity. We also continue to see positive price development of real estate prices in our region supporting our business and further transactions.

DDM’s business model is flexible and opportunistic and we believe that there will continue to be good business opportunities for us. However, DDM’s rate of growth and financial results will continue to vary from quarter to quarter, impacted by the timing of significant investments and larger settlements from corporate portfolios.

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.

Financial calendar 

DDM intends to publish financial information on the following dates:

Q4 and full year report 2018: 21 February 2019

Annual report 2018: 29 March 2019

Other financial information from DDM is available on DDM’s website: www.ddm-group.ch.

This report has not been reviewed by the Company’s auditors.

Presentation of the report

The report and presentation material are available at www.ddm-group.ch on 8 November 2018, at 08:00 CET.

CEO Henrik Wennerholm and CFO Fredrik Olsson will comment on the DDM Group’s results during a conference call on 8 November 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 8 566 426 97, CH: +41 225 675 548 or UK: +44 203 008 9807.

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 8 November 2018 at 08:00 CET.