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Edited Transcript of DDM.ST earnings conference call or presentation 7-Nov-19 9:00am GMT

Full Year 2019 DDM Holding AG Earnings Call

BAAR Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of DDM Holding AG earnings conference call or presentation Thursday, November 7, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Fredrik Olsson

DDM Debt AB (publ) - CFO

* Henrik Wennerholm

DDM Debt AB (publ) - CEO

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Presentation

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Operator [1]

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Hello, and welcome to the DDM Holding Q3 Report 2019. (Operator Instructions) Just to remind you, this conference call is being recorded.

Today, I'm pleased to present CEO, Henrik Wennerholm; and CFO, Fredrik Olsson. Please go ahead with your meeting.

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Henrik Wennerholm, DDM Debt AB (publ) - CEO [2]

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Thank you very much, and good morning, everybody, and thank you all for joining this Q3 and 9-month presentation. The first 9 months have been a significant continued step forward in the growth strategy for DDM of -- with our continued focus on investing into secured corporate portfolio in our main market.

During the period, the first 9 months, we've made net investment of -- totaling approximately EUR 100 million across our core markets, primarily into secured corporate portfolios. Further during the quarter, we have continued to scale up our servicing platform, which is currently headquartered in Vienna.

I'd like you all to turn page to Slide 3, please. During the quarter, financially, we received net collections of EUR 16.5 million, which were largely in line with Q3 '18 and primarily received on the secured corporate portfolios in Greece and Croatia. If we look at the last 12 months net collection, it stood at EUR 72 million, while the corresponding cash EBITDA for the period -- for the last 12 months was EUR 61 million. If we compare that year-to-date, the last 9 months of '19, the net collection stood at EUR 50 million versus corresponding period of 2018, which stood at EUR 43 million, which represents a healthy increase of 16% of net collections.

In September, first we finalized the previously announced acquisition in Croatia of another NPL portfolio with a GCV, gross collection value, of EUR 200 million following positive approval from the National Bank of Greece. In light of these recent acquisitions, our ERC, estimated remaining collection, has increased by 38% to roughly EUR 330 million at the end of the quarter compared to EUR 240 million at the end of December '18.

Further, there has been a substantial increase with regards to the composition of the portfolio where the secured portfolio, secured primarily by real estate, has increased a lot from 61% to 72%. And further, the distribution of the collection curve, ERC, has shifted earlier in time as well, strengthening the credit value of our future collections. We have cash and undrawn facilities today, liquidity-wise, of EUR 28 million at the end of the quarter.

So please turn slide to Page 4. Continuing the quarter, we -- in July, we announced that we bought out our co-investor in Greece that was an acquisition we made in August 2017. We see great value in that portfolio, and the investment stood -- the investment cash-out was roughly EUR 20 million. Further, following the acquisition in Q2 that we made through a 50/50 joint venture with B2Holding in Croatia, we secured third-party financing to partially fund that joint venture. The DDM share of gross proceeds there was EUR 35 million. Most importantly, the cost of borrowing is lower in this joint venture compared to our existing bond framework. This financing was sort of executed and secured following a rather extensive due diligence, also confirm the quality of the portfolio.

In July, we also refinanced the existing EUR 12 million bond that we had in DDM Finance AB. We extended the maturity to June 2022. And we issued a further EUR 6 million of bonds, gross of financing costs that qualify as equity under the existing senior secured bond framework within DDM Debt AB.

As mentioned, we are continuing to scale up our servicing operations headquartered in Vienna. We appointed our newly -- recruitment of Bernard Engel, who's currently the COO. And we are naming this company -- it's headquartered in Vienna and it's named AxFina and Bernard Engel is the CEO of that servicing business, COO of DDM, reporting to me. It's a very good recruitment, and Bernard comes with a very strong banking, servicing, workout history from PwC.

During the quarter, at the end of August, we also had an AGM, where 2 of our Board members were exchanged, where Jörgen Durban was elected as Chairman of the Board of Directors and Florian Nowotny was elected as a new member of the Board. Both Jörgen and Florian have extensive experience. We're happy that they joined the Board, and we thank the departing members as well. Jörgen Durban is also Chairman of a couple of other listed companies, namely Haldex and Anoto Group. After the quarter, we have also sold a small portfolio containing consumer receivables in Croatia.

Please turn slide to Page 5, which shows the net collections over time from beginning of '17. As mentioned before here, we came in at EUR 17 million, which is roughly in line with the prior quarter last year, which also stood at EUR 17 million. Collections will continue, as mentioned several times, given our investment in the secured assets, will continue to vary from quarter to quarter and so will our investments here a lot since they are larger and chunkier. So it will continue to vary between the quarters, but it's a nice decent trend looking at.

In the quarter, roughly 70% of the net collections received related to secured corporate portfolios. 40% of the collections came in, in Greece and 21% in Croatia followed with the other smaller jurisdictions. This also varies over quarter. And for example, last quarter, it wasn't Greece that was the main contributor, rather it was Slovenia. Looking at the 9-month collected so far, we're standing at EUR 50 million, which represents a 16% increase compared to the same period last year.

Please turn slide to Page 6. This is a presentation of our ERC, which is the estimated remaining collections, basically cash flow from the acquired portfolios. It currently stands at EUR 330 million and represents an increase of 38% from December '18. And it's, of course, a natural consequence of roughly the EUR 100 million investments that we conducted during the 9 months of '19.

Looking at the distribution curve over the period going forward, we are at 79% of the gross collections on the bottom right hand, where we are expecting 79% of the gross collections to be received within the next 36 months. As mentioned before, it's been accelerating the cash flow curve. Before we were looking at 66% within the next 36 months, which clearly positive for the creditors.

Looking at the upper right-hand corner of the slide, the 2 pie charts reflect the proportion of the current ERC that is secured and it currently stands at 72%.

And I think that sort of summarizes the short introduction. So I will hand over to Fredrik, who will take us through the financials from January to September.

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Fredrik Olsson, DDM Debt AB (publ) - CFO [3]

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Thanks, Henrik. Please turn to Slide 8. And I will start with some of the financial KPIs for the third quarter of 2019. The adjusted net collections for the quarter, including collections from the JV in Croatia, amounted to EUR 16.5 million, in line with Q3 2018. Net collections totaled about EUR 50 million for the first 9 months of 2019, an increase of 16% compared to 1 year ago due to collections received on corporate secured portfolios in the Balkans and the sale of Russian portfolios in Q1 2019 that resulted in a gain of EUR 1.9 million.

Adjusted cash EBITDA amounted to EUR 13.1 million in the third quarter and EUR 40.9 million for the 9 months, 10% higher than the same period last year as a result of higher net collections received, but partially offset by higher operating expenses. Adjusted net result for Q3 '19 was a loss of EUR 1.5 million and for the first 9 months of 2019 a loss of EUR 3 million, if adjusting for the nonrecurring EUR 2.6 million of expenses relating to the bond refinancing during the second quarter. Higher amortization on large complex cases that were settled earlier than expected in relation to corporate secured portfolios and higher operating expenses due to accelerated growth weighed on the results.

Please turn to Slide 9. This slide shows movement in adjusted net collections by country for the first 9 months of 2019 compared to 9 months 2018. Net collections increased by 16% to EUR 49.6 million, driven by, as previously mentioned, significant settlements relating to corporate secured portfolios in Balkans; EUR 3.6 million for collections from the JV with B2Holding in Croatia, which was received in full on first distribution from the joint venture in October; EUR 1.9 million, as also previously mentioned, relating to the sale of Russian portfolios in Q1. These increases were partially offset by the decrease of EUR 1.8 million in collections in Czech Republic following the runoff of the consumer portfolio that was acquired in '17 and EUR 0.8 million relating to Greece.

Please turn to Slide 10. Adjusted cash EBITDA was EUR 61 million, mainly driven by the increase in net collection from secured corporate portfolios. The adjusted net result was a positive EUR 0.4 million compared to a positive EUR 5.8 million for '18 after adjusting for a EUR 2.6 million of nonrecurring costs following the bond refinancing in Q2 '19, principally driven by amortization and large complex cases that were settled in the period and the higher operating expenses due to the accelerated growth.

Our total assets were EUR 211 million at the end of September '19, of which approximately EUR 11 million was held in cash, and we have the remaining and 1 RCF available of at EUR 17 million at the end of the quarter. Equity amounted to EUR 30.3 million at the end of the September, with an equity ratio of about 14%. Please note that equity ratio in bond group is 19%, including the net proceeds following the issuance of the EUR 6 million bonds by DDM Finance AB. This EUR 6 million was provided at the shareholder loan down to the bond group and thereby strengthening the equity ratio. Our operating margin was about 62%, and our LTV ratio, which is the ratio of net debt to ERC, was increased to 48% following the recent acquisition in Croatia.

Please turn to Slide 11. This slide shows our balance sheet structure at the end of the quarter with total assets of EUR 211 million, an increase of 8% compared to the end of '18. The main movement compared to the end of '18 is an increase of EUR 67 million in invested assets to EUR 186 million, following the net acquisitions of approximately EUR 100 million for the 9 months ending September. EUR 46 million in the portfolio containing, let's say, secured and unsecured receivables in Croatia that being the recent addition, EUR 33 million relating to the JV in Croatia and EUR 20 million relating to the buyout of the co-investor in Greece. This is partly offset by corresponding decrease in cash. Please note, once again, that we have drawn down EUR 10 million on this RCF, but we have availability of another EUR 17 million.

In addition, the EUR 85 million bond was successfully refinanced in April '19 by issuing the new EUR 100 million bond with a 3-year period. We also extended the maturity on the EUR 12 million bond issued by DDM Finance and increased it by another EUR 6 million during the period.

Please turn to Slide 12, which shows the portfolio carrying value and the level of impairment and revaluation as a percentage of the opening book value by quarter. The total portfolio value has increased significantly over the last 2 financial years, and particularly following the recent investments and stands at EUR 186 million at 30th September. While the absolute value of impairment and revaluation totaled EUR 0.8 million for the first 9 months of 2019, the relative percentage of the opening book have remained at the same level during the last 2 years.

And with that, I would like to hand back to Henrik.

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Henrik Wennerholm, DDM Debt AB (publ) - CEO [4]

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Thanks, Fredrik. So let's summarize, and let's go to Slide 14. To summarize, we received net collections of EUR 16.5 million, roughly in line with the current same quarter in '18. We finalized the acquisition of a larger NPL portfolio in Croatia with a GCV of roughly EUR 200 million, following the positive approval from the National Bank of Croatia. We continue to buy out our co-investor in the Greek NPL portfolio. And in light of these recent acquisitions, our ERC has increased roughly 38% to EUR 330 million, where 72% is composed by secured assets.

In July, we secured the third-party financing of about EUR 35 million, the DDM share, to fund the joint venture, which we did in Croatia. We further successfully refinanced the existing EUR 12 million bond and increased it to EUR 6 million -- to EUR 20 million in total. And we continue to expand and grow our servicing platform in Vienna by recruiting a new COO, and setting up a new office and bring on further people, which unfortunately, cost us a month, but we have very good confidence in that venture.

And I would say, this concludes our presentation, and we're happy to hand over to the operator.

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Operator [5]

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(Operator Instructions) There are no audio questions at this time. Speakers, you may go ahead.

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Henrik Wennerholm, DDM Debt AB (publ) - CEO [6]

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Okay. So then thank you very much for listening, and I believe we have made a self-explanatory presentation. So thank you very much for this. I'm looking forward to speak to you next time. Thank you. Bye-bye.