Hello and welcome to the Axactor ASA presentation of Q3 2022 results call. My name is Lauren, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to Johnny Tsolis to begin. Johnny, please go ahead.
Good morning, and welcome to Axactor's third quarter presentation for 2022. This presentation will be divided into four parts. First, I will take you through the highlights of the quarter. Then our CFO, Nina Mortensen, will present Q3 financials before we give an updated outlook and round off with a Q&A session. As always, you may ask questions live after the presentation or through the available chat function. Now let us move to slide three and have a look at the third quarter highlights. Q3 was another solid quarter for Axactor, both in terms of collection, profitability, and CapEx deployment. The EBITDA margin expansion continued and ended at 51%. Actual EBITDA reached EUR 30 million, which is satisfying in a seasonally weak quarter, up from EUR 13 million same quarter last year.
However, please note that Q3 2021 was negatively affected by reopening effects after the pandemic and hence low collection performance. Cash EBITDA was up 22% year-over-year, reaching EUR 54 million. Profit after tax ended at EUR 10 million for continuing operations corresponding to 10% return on equity. This is a substantial improvement from the EUR 2 million loss in the same quarter last year. With close to EUR 70 million in CapEx for the quarter, Axactor has already invested nearly EUR 200 million so far in 2022. Including committed forward flow volume for Q4, Axactor has secured investments for more than double the 2022 replacement CapEx. Even more important, we have done so at an attractive gross IRR of 20% compared to the 16% gross IRR on the historical backbook.
We stick to the CapEx guiding of EUR 250 million-EUR 300 million, but it is more likely that we end up in the higher end of the interval than in the low end, given that Q4 is normally a quite busy investment quarter for the NPL industry. Please move to the next page for a quick reminder of the most important pillars in Axactor's strategy. Firstly, in Axactor, we are working hard to blend our NPL book. This means, in a nutshell, to solve all claims with low gross IRR acquired in the first four or five years of Axactor history and replace them with new claims of higher quality and substantially higher gross IRR. We accelerate the blending by investing significantly above the company's replacement CapEx level, which is estimated to EUR 108 million for 2022.
As you will see in the coming slides, over the last couple of years, we have also done so successfully. Secondly, we always seek to improve our cost position in all areas. The company was incepted to disrupt industry on cost to collect, and we have obtained a superior cost position. Currently, we are investing extensively in data-driven valuation and data-driven operations to excel further. Thirdly, we are pursuing a niche strategy in terms of industry, segment, and markets. Our main focus is on bank and finance, primarily business to consumer unsecured. Organic growth in our six markets to build market position and scale is the main rule. Please move to the next slide where you will see that Axactor is back on the growth track after a period of consolidating operations and improving the balance sheet.
It is clear that as investment levels are increasing, the same will be the case for the company's ERC. Third quarter shows a continuation of the growth we have seen throughout 2022 and since Q4 2021, Axactor's ERC has grown by a healthy 11%. For Axactor, ERC growth through CapEx deployment is in itself not the most important KPI, but when the investments are done at attractive gross IRR levels, it is of course very welcome. Now let us move to the next slide where we'll give more details on the blending-in-the-book strategy. Axactor's single most important profit improvement initiative is to buy portfolios at a satisfying gross IRR level. As you can see from the graph on the left-hand side, the average gross IRR on the total NPL book is steadily increasing quarter by quarter.
We have managed to increase the gross IRR backbook by 1.1 percentage points over the last six quarters. Please bear in mind that a 1 percentage point increase in the total NPL book gross IRR equals approximately 2 percentage points improvement in the return on equity. 2022 looks to become an attractive vintage with year-to-date gross IRRs north of 20%. Also, the future commitments looks promising at close to 21%, meaning a 4.1 percentage points higher gross IRR than the average book by end of Q3. The speed of the blending will obviously be influenced by the annual CapEx level. Please move to the next page for more details on the matter. In Q3, Axactor invested EUR 69 million in new NPL portfolios.
This is a relatively high number for a third quarter, but it's partially explained by a couple of Q2 processes that was extended in time and closed in July. Hence, it was a bit of an overflow on CapEx from the previous quarter. Axactor has invested EUR 195 million in new portfolios year to date. Another EUR 37 million is committed in forward flow agreements for the rest of the year, securing investments just north of EUR 230 million so far for 2022. We keep the NPL investment estimate to between EUR 250 million and EUR 300 million for the full year, but at the same time, we underline that our structure will probably reach the upper end of the interval.
Given this investment level, we already now know that we will invest at least 2x replacement CapEx for 2022 and most likely even more. In addition to CapEx investment at a meaningful level with attractive growth IRRs, we are continuing to improve our cost position. Please move to the next slide for more details. The EBITDA margin expansion continued and ended at 51% for the quarter and 50% year-to-date. A major part of the explanation for this strong performance is obviously our industry-leading position in cost to collect. Our structure has managed to take another big step in the right direction this year, and we now clearly see effects from all the improvement initiatives implemented over the last couple of years, in addition to more general scale effects in both operations and in SG&A.
We believe there is still improvement potential as we continue to blend the book with higher gross IRR portfolios, which leads to further margin expansion over time. Additional scale effects and more data-driven operation will also be supportive to the ambition of improved margins. Nina will go through more details on the most important financials shortly, but I just wanted to underline on the next page that we see a positive development on all key financial metrics year-to-date. From an overall company perspective, it is of course important to be able to blend the book so that in that sense, the NPL investment done at the right price level is crucial. Strong cash flow is important for obvious reasons, but especially since we are reinvesting the cash flow in new portfolios.
Finally, it is very important to be in a position where we deliver a satisfying level of earnings after tax, and hence return on equity to our shareholders. To conclude, we see both strong development since last year on important financial metrics and the level itself we find satisfying, although we still see further improvement potential over time. With that said, I will leave the word to Nina, which will present more details on financials.
Thank you, Johnny. Starting with the development in gross revenue, we see an increase of 17% compared to Q3 last year. We are, as in previous quarters, seeing growth through both the NPL and 3PC Segments. It is worth mentioning that Q3 last year was a weak quarter in terms of collection. NPL segment had a growth of 17% in the quarter, supported by a satisfying investment level during 2022. Q3 continued to show good collection with an overall collection performance of 99%. 3PC Segment grew 20% in the third quarter driven by the acquisition of C.R. Service in Italy. Let's now look a bit more into details on each of the business segments, starting with the NPL on the next slide. Total income for NPL segment ended at EUR 46 million, up 63% compared to Q3 last year.
The top line was, as already mentioned, supported by good collection. The portfolio amortization rate was lower in Q3 this year compared to Q3 last year. The reduced amortization rate is impacted by the reevaluation in Q4 2021 and higher gross revenue for the quarter. The contribution margin was at a solid 78% for the quarter, at the same level as previous quarter and up from 66% in Q3 last year. The market activity for NPL acquisitions continues to be high, and we have already secured a healthy book value growth this year. As Johnny mentioned earlier, we see a steadily increasing growth IRR. This will contribute positively to the future profitability of the NPL segment. Please turn to the next slide for comments on the 3PC development. The 3PC revenues reached EUR 13.1 million for the quarter.
The growth of 20% was mainly driven by the acquisition of C.R. Service in Italy. Even without the acquisition, the segment still reported underlying growth. The market activity for 3PC business has been good so far in 2022. We see another quarter this year with a positive market development, especially in Spain and Italy. The contribution margin ended at 35% for the quarter. The underlying margin is slightly better in Q3 this year compared to Q3 last year when adjusting for one-time effects. Let's move on to the next slide, where I'll present more details on reported financials. Total income at the group level ended at EUR 59 million in Q3, up from EUR 39 million in Q3 last year, which represents a growth of 51%. The increase in total income was driven by growth in both 3PC and in the NPL segment.
The amortization rate was, as previously mentioned, lower in Q3 this year compared to Q3 last year, mainly due to improved collection performance. The reported EBITDA came in at EUR 30 million, corresponding to a solid EBITDA margin of 51%. The margin is supported by good cost control in all countries. Cash EBITDA was EUR 54 million compared to EUR 44 million for the same quarter last year. This represents a record growth of 22%. Moving on from reported cash EBITDA to interest rate sensitivity on the next slide. The group reported in Q3 net interest expenses on borrowings of EUR 14 million.
The current macroeconomic view points to increasing interest rates going forward, and based on the interest rates set for Q4 and the debt level as of 30th of September, we expect an increase in interest expenses of EUR 2.1 million compared to the third quarter. As you also can see from the chart, an increase of 1% in interest rates will, given the company's current debt structure and hedging level, increase the quarterly interest expenses by EUR 1.8 million and reduce the analyzed return on equity by 1.4%. This leads on to the next slide and the development in the return on equity. We are pleased to see that the analyzed return on equity for continuing operations this quarter is in line with the previous quarters for this year. This underpins the consistently stable financial results in 2022.
The Return on Equity ended at 10% for the quarter and year to date. The Return on Equity has showed a good improvement in 2022 compared to previous years, and Axactor aims for further improvements of key drivers. Increasing economies of scale, changes in the business mix, and gradual blending in of higher gross IRR on NPL portfolios all point towards higher profitability. The effective tax rate is expected to stabilize around 27%. At the same time, the interest rate increases observed recently put negative pressure on the Return on Equity development going forward. Let's move on to the next slide for my comment on the group's balance sheet position. Axactor has a robust balance sheet with an Equity Ratio that continues at a satisfying level of 29%.
The group is also in a good liquidity position with available cash and undrawn credit facilities of approximately EUR 100 million on the revolving credit facility. Axactor has continued to repurchase bond loans and acquired a total outstanding value of EUR 10 million in the third quarter. The bonds were on average purchased at a set par value. The total face value of own bonds acquired so far this year is close to EUR 47 million. The estimated investment capacity is EUR 320 million for the year and is supported by good cash collection over the past three quarters. This is equivalent to almost three times the replacement CapEx level for 2022. I would also like to confirm that all of the covenants have a comfortable headroom. In summary, we are pleased to see stable results for the third consecutive quarter.
Along with a healthy investment level and strong cost to collect performance, we are in a solid position for profitable growth moving forward. I will hand it back to Johnny for an updated outlook.
Thank you so much, Nina. In our updated outlook, we have three items that we would like to share. Firstly, the interest rates in Europe are increasing and will impact Axactor's funding costs going forward. More precisely, we expect the interest expense on borrowings to increase by EUR 2.1 million from third to fourth quarter. A further 1% increase in interest rates is estimated to increase quarterly interest expenses on borrowings by EUR 1.8 million. Secondly, we continue to see a mixed outlook on back book collections. On the negative side, rising inflation and interest rates will reduce disposable income for consumers in Europe. All elements that reduces the debtor's disposable income will potentially have a negative impact on Axactor's back book and put pressure on debtors' ability to repay and hence postpone collections.
However, on the positive note, low unemployment numbers, increasing salaries, and government aid packages are improving the disposable income and can be expected to partly offset the challenges. The full net effects are probably yet to be experienced, but so far we have seen limited impact as a result of macroeconomic factors on collections in 2022. Thirdly, Axactor continues to see growth and margin expansion on NPL. We expect to deploy between EUR 250 million and EUR 300 million on NPL portfolios for 2022 at a satisfying gross margin. At the same time, we expect further margin expansion driven by attractive gross IRR levels on new portfolios and improved economies of scale over time. We have one last reminder on the next page before we move on to the Q&A session.
We mentioned briefly during the second quarter presentation that we plan to come back with more details on financial targets. This will be done early next year, and we would like to invite all of the investors for a webcast on January eleventh. We hope you will take the time to call in for this event. That was what we have on the agenda today. I suggest that we now move on to the Q&A session.
Thank you. If you would like to ask a question and you have joined on the phone, then please press star followed by one on your telephone keypad. If you change your mind, then please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. As a reminder, that is star followed by one to ask an audio question. As a reminder, if you wanted to ask a question, then please press star followed by one. Okay. We currently have no audio questions registered, so I'll now hand you back to the Axactor management team.
Yes. Thank you very much. We have a few questions that we have received over the chat. The first one is regarding how the development in euro will affect Axactor, and I will leave that. There's a question if the Price-to-Book Ratio is 0.28. I will leave the question for Nina to answer.
Thank you, Johnny. First I would say that we are a company that is reporting in euros and do all of the consolidation in euros. We are exposed to fluctuations in NOK and SEK towards the euro as we have business in both Norway and Sweden, and where we are acquiring both portfolios and also collect the cash in NOK and SEK. Also on the Price-to-Book Ratio, also that question, is that 0.28? No, that is not 0.28. It's currently at 0.45.
Thank you, Nina. Then we have next question. I'll also leave that for you. Here the question is, has there been any hedging of interest rates undertaken in Q3 2022? When will the target hedging be met?
We have a hedging policy to hedge between 50% and 70% of the outstanding debt. Currently we are at 23%. We are continuously also monitoring the markets. As of now the pricing of the hedging is considered to be too high. We will increase the hedging ratio as soon as we see that the market changes and the pricing is more favorable.
Thank you. Then we have a question, and I will also answer that myself. It says, it consists of several questions. I will take it first. Can you comment on October performance so far? Yes, I can do that. It's in line with our expectations. Nothing other than what we have seen than what we saw in Q3. We have not experienced any substantial changes due to macro so far in October either. Can you discuss the strong pace of NPL acquisitions and declining liquidity in the face of an uncertain macro outlook? First of all, I would say that, we are now at around EUR 200 million.
We have said that it will be at least EUR 232 with our already committed forward flows. I would say this is almost the level that our budget is EUR 250, so we are in line with the level that we foresaw already at the start of the year. Now, we also say that we probably will end up in the high end of the interval, somewhere between EUR 270 and EUR 300 maybe. Still, we have substantial available liquidity on both in terms of cash but also undrawn credit facilities. For us, this is not a big issue for the moment.
Also for, if you look further into Q1 next year, as we have also seen from the presentation, if I remember correctly, our forward flow commitment is EUR 30 million, which will be substantially below what we're actually gonna collect in Q1. This is. We are in a lucky situation because we could basically steer how much investments we want to do going forward. Currently we are not holding back on Q4 investments due to liquidity or macro. Again, macro will. It may of course have an impact in one or the other way, but it will be marginal compared to the levels that we are seeing in investment. Then next part of the question is, what's the latest expectation for the 2024 maturity? There's no expectations.
I mean, it's first of all, more than a year. It's 15 months, so it's pretty far into the future when it comes to bond markets and how that will look when we need to go into the markets. Of course what we are focusing on is to deliver better and better on the operational side of the business. Of course, we are discussing with the banks how to look upon refinancing of the RCF and so on, which will probably come first in line before we look into the bond. Then, let's come back to that in a couple of quarters. I think that's more reasonable.
We have the last part of the question is, are there any plans for further bond buybacks? We don't have any plans, but we will, if we find the price attractive and we see any window for it might be done. We did, as Nina mentioned, buyback some, was it EUR 10 million, approximately, in Q3. We will be opportunistically when it comes to bond buybacks. Of course, when we have bought back what we have done now lately in the two bond, it's a start of a refinancing, so to speak. Yes, it might be, but we don't have any current plans of doing it. That was the questions that we had.
Unless there are any on the line for further questions.
We don't currently have any audio questions on the telephone line.
Okay. Perfect. Thank you very much. Thank you all for attending this third quarter presentation, and we wish all of you a great day. Bye-bye.