Hello everyone, and welcome to the Axactor ASA presentation of Q4 2022 results. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. You may also submit a question via the webcast. I'll now hand over to your host, Johnny Tsolis, to begin. Johnny, please go ahead.
Good morning and welcome to Axactor's fourth quarter presentation for 2022. Thank you for taking the time to participate in this webcast, although some of the key highlights were already disclosed in our market update on January 11th, where we also announced financial targets for the company. This presentation will be divided into four parts. First, I will take you through the highlights of the quarter and also the full year. Our CFO, Nina Mortensen, will give a financial update before we present an updated outlook and round off with a Q&A session. As always, you may ask question live after the presentation or through the available chat function. Now let us move to slide three and have a look at the highlights. Q4 show the continuation of the stable and solid performance for Axactor, both in terms of collection, profitability, and CapEx deployment.
The EBITDA margin has stabilized at a high level, reaching 49% for the quarter. Actual EBITDA reached EUR 31 million, up from EUR 17 million in Q4 last year. Please note that Q4 2021 was negatively affected by a substantial reevaluation on our NPL back book. Cash EBITDA was up 18% year-over-year, reaching EUR 58 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 32 million loss in the same quarter last year. It is satisfying to see that also return on equity are showing a more stable development than what we have seen in the past.
With NPL investments of EUR 93 million for the quarter, Axactor ended up in the high end of the guided interval of EUR 250 million- EUR 300 million CapEx for the year. The invested level represent approximately 2.7 times the replacement CapEx, securing growth also into 2023. Even more important, we have done so at attractive gross IRRs of 21% compared to the 16% gross IRR on the back book. Please move to the next page for full year financials. I think it's fair to say that in 2022, Axactor took a material step in the right direction on all key financials. This is mainly the result of the full transformation of the company and its strategy for the last 3 years, with focus on less risk in perform acquisitions and strong cost discipline.
This, in combination with building a company culture which is characterized by openness, transparency, development of our employees, and high performance, has made this turnaround possible. If we look a bit more into the different key financials, the NPL investments were close to EUR 300 million, a level that has not been seen since 2019. The big difference, however, is that the investments have been done at a substantially higher gross IRR level than in the period 2017-2020. The book value of the NPL portfolios is record high at EUR 1.3 billion, and the gross revenue was up 10%, reaching close to EUR 340 million.
The EBITDA margin has stabilized around 50%, which is among the highest in the industry, and the Cash EBITDA was close to EUR 220 million, corresponding to a 65% Cash EBITDA margin. Profit after tax was the best in the company's history, reaching EUR 41 million for the year. Also, the key ratios has improved significantly, as you can see on the next page. In Axactor, we pay especially close attention to the three following ratios. gross IRR on the total NPL book, cost to collect percentage, and return on equity to shareholders. If we start with the first one, the gross IRR on the total back book continues to improve, reaching 17.3% for the full NPL book by year end.
As you probably remember, everything else equal, a 1 percentage point increase in this ratio equals more than 2 percentage points improvement in the return on equity. An uplift in this parameter is extremely important to Axactor. The cost to collect continues to improve year-over-year, declining to 39% for 2022. Over this time, we still believe that it can be possible to reduce it further as we see substantial effects on our investment in digitalization and machine learning tools, in addition to scale effects on cost from growing the top line. Return on equity to shareholders was record high at 9%. Let us move to the next slide, where I will give some comments to our discontinued operations.
To fresh up our memories, back in 2017 and 2018, Axactor invested a substantial amount, close to EUR 300 million, in Spanish real estate portfolios called REOs. A few years back, it was decided to fully exit the REO segment as part of our new strategy, and the book has been reduced substantially every year since then. As you can see, we still have a small tail of EUR 8 million in book values by year end 2022. We are looking into a full sale of the tail portfolio, but at the same time, we are selling assets on a continuous basis. We expect REOs to be completely out of our books by year end 2023 at the latest. As we have also stated during our market update in January, this will result in an uplift in return on equity from 2023 and onwards.
Please move to slide seven for a short reminder of how interest income is expected to contribute to continued growth for Axactor in 2023. From time to time, we experience that investors finds it a bit challenging to understand how to calculate the interest income for collection companies. It is actually quite predictable. Interest income represented 98% of Axactor's total income for the NPL segment in 2022. If we can predict interest income, we have come a long way in understanding the total income as well. The calculation is easy. You simply multiply book values with the gross IRR, and this will give you the interest income.
Already today, based on the gross IRRs and our book values, we can estimate a 10% increase in interest income from purchased loan portfolios this year. This number can, of course, be higher, especially depending on the investment level during 2023, as new portfolios also contribute to interest income for the year. In order to go from interest income to total income, which is the income figure we focus on in the reporting, we have to include any net gain or loss on portfolios and sale of repossessed assets. I encourage you, also to have a look at our educational videos, to further understand how P&L reporting works for Axactor. You will find this on our website. Before I leave the word to Nina, I will quickly remind you of our strategy on slide 8.
These three strategic levers are well known to those of you that are following Axactor on a regular basis, I still think it's worth to remind the audience. Axactor has a strong focus on doing accretive portfolio investments, as you have seen over the last couple of years, we have done so successfully. Axactor's single most important profit improvement initiative is to buy portfolios at a satisfying gross IRR level. We have managed to increase the gross IRR back book by 1.6 percentage points over the last seven quarters. We always seek to improve our cost level. Axactor was incepted to disrupt the industry on cost to collect, we have obtained a superior cost position.
A natural result of this is that our EBITDA margin is high compared to peers, especially when you consider that we pull share of TPC business that has a lower EBITDA margin than the NPL business. Currently, we are investing extensively in data-driven valuation and data-driven operations to excel the cost position further. Thirdly, we are pursuing a niche strategy in terms of industry segment and markets. Priority is on the bank and finance segment, which counts for the vast majority of our TPC and NPL business. We have chosen the six markets in Europe we believe to be the most attractive over time. All of our markets are mature in terms of NPL transaction, has a stable, legal and political environment, and has proven to provide attractive returns over time. Please move to slide 10, where Nina will give an update on the financials.
Thank you, Johnny. Let's start with the development in gross revenue, where we continue to see a healthy growth in Q4, with an increase of 13% compared to the same period in 2021. We are, as in the previous quarters, seeing growth in both NPL and TPC segments. NPL segment had a growth of 15% in the quarter, supported by a solid investment level during 2022. We continue to show good collection ending both Q4 and the full year with a collection performance of 99%. The TPC segment grew 5% in the fourth quarter, driven by the acquisition of CR Services in Italy. Let's look a bit more into details on each of the business segments, starting with NPL on the next slide.
Total income for NPL segment ended at EUR 48 million in Q4, up from negative EUR 0.3 million in the fourth quarter 2021. The Q4 2021 was weighed down by EUR 38 million in net negative revaluations. The top line in the fourth quarter 2022 was as already mentioned, supported by good collection and a healthy investment level during 2022. The portfolio amortization rate was lower in Q4 compared to the Q4 previous year. The reduced amortization rate is a result of the revaluation in Q4 2021, high gross IRRs and the collection in Q4 2022. The contribution margin was at EUR 36 million in the fourth quarter, up from negative EUR 11 million in the same quarter 2021.
The main drivers for this profitability level were a total income growth, solid collection performance, and a continued strict cost control. The market activities for NPL acquisition continued to be high during the last quarter of the year. We secured a healthy book value growth going into 2023. Together with increasing IRRs, this will contribute positively to the future profitability. Please turn to the next slide for comments on the development in TPC segment. The TPC revenues reached EUR 50 million for the quarter. The growth of 5% was driven by the acquisition of CR Services in Italy. The market activity for TPC business ended at a satisfactory level for 2022. The contribution margin ended at 41% for the quarter. Year-end bonuses for the Spanish business came in lower in 2022 compared to the year before, pressuring both revenue and contribution margin for the quarter.
Let us move on to the next slide where I will present more details on the reported financials. Total income at group level ended at EUR 63 million in Q4, up from EUR 14 million in Q4 2022. Q4 2021 was, as previously mentioned, heavily impacted by negative revaluations. The total income level in Q4 was supported by good growth in both the TPC and in the NPL segments. The reported EBITDA came in at EUR 31 million, corresponding to an EBITDA margin of 49%. The EBITDA margin for the full year 2022 ended at solid 50%. The margin is supported by good cost control in all countries. Cash EBITDA ended at EUR 58 million for the quarter, compared to EUR 49 million for the same quarter in 2022. This represents a robust growth of 18%.
Moving on from reported Cash EBITDA to interest rate sensitivity on the next slide. The increase in interest rate hedge we put in place end of 2022 will fully offset the increased interest rates for the coming quarter, given the same debt level. It is worth noting that there will be an increase in interest expenses related to the creative investments done in Q4, and this is reflected in the interest bearing debt level. As you also can see from the chart, the sensitivity shows that a further 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 million. This leads on to the next slide and the status of the refinancing process. Axactor has a EUR 545 million RCF facility that matures in December this year.
The refinancing process has started. We expect the refinancing to be finalized before the summer. In addition, we have two bonds outstanding. ACR02 is maturing in January next year. Out of the original EUR 200 million outstanding loan, Axactor has repurchased EUR 31 million. As communicated in the market update on the 11th of January, we will follow that deleveraging strategy for now. We will pay close attention to the bond market for the next two-three quarters to see if it's possible to refinance the ACR02 at acceptable margins. Until we see new NPL pricing that reflects new cost of funding, the focus will be on repaying debt going forward. Let us move on to the next slide and the development in return on equity.
We are pleased to see that analyzed return on equity for continuing operation this quarter again came in at double digits. This underpins the consistently stable financial results in 2022. The return on equity ended at 10% for the quarter and also for the full year. The return on equity has shown a good improvement in 2022 compared to previous years. Axactor aims for further improvements of key performance drivers, including increasing economies of scale, changes in the business mix, and higher gross IRR on NPL portfolios. The effective tax rate is expected to stabilize around 37% going forward. At the same time, the interest rate increases put negative pressure on future return on equity. Let's move on to the next slide for more comments on the financial targets communicated earlier this year.
We communicated financial targets in a market update on the 11th of January this year. Both short-term targets and the longer-term strategic directions were communicated. If you start with portfolio investment level, we expect it to be between EUR 100 million and EUR 150 million for 2023. The reason for the somewhat lower investment level is the fact that we will wait for portfolio prices to adjust to reflect the increase in interest rates. Please note that Axactor still has approximately EUR 70 million committed for flow contracts for this year, so the deployed CapEx will be a combination of these and new portfolio acquisitions. From 2024 and onwards, we expect a normalized investment level of EUR 200 million to EUR 300 million. We expect to achieve a return on equity of minimum 9% for 2023.
Interest hedging is providing partial protection against increased funding costs for the year. Return on equity targets for the longer run, we expect to announce towards the end of the year. Axactor has put in place a dividend policy aiming for a payout ratio of 20%-50% starting from financial year 2023 financial results with payout in 2024. The leverage ratio is expected to be below 3.5 times at the year end 2023. Compared to historical performance, all 2023 targets are perceived as realistic. I'll now hand it back to Johnny from updated outlook.
Thank you so much, Nina. In our updated outlook, we have four items that we would like to emphasize. We expect to continue to do accretive investments on NPL deals with a minimum of 22% gross IRRs compared to the back book at 17%. We expect a minimum growth of 10% on interest income for 2023. We also expect growth in the 3PC market driven by the increased defaults in the society. Regarding funding, our interest hedge secures flat interest rates from Q4 2022 into Q1 2022. Ongoing refinancing of the EUR 545 million RCF facility is going according to plan, and we are awaiting refinancing of the ACR02 to get clearer visibility on the portfolio prices and the spreads in the bond market.
Last but not least, we have seen a satisfying collection performance of 99% in 2022. We expect the collection performance to fluctuate around 100% over time. With that, I suggest that we open up for questions.
On your telephone keypad now. If you'd like to withdraw your question, please press star followed by two. When preparing to ask a question, please ensure your line is unmuted locally. You may also submit a question via the webcast. As a reminder, telephone line is star followed by one on your telephone keypad now. We currently have no questions registered on the telephone line, I'll hand back over to the team for any webcast questions.
Yes, we have one question. What is the main driver for the slightly weaker cost to collect in Q4 versus Q3 2022? How do you expect the cost growth and margins to develop into 2023? For the first one, it's basically marginal. I don't have any detailed explanations on it. How we expect it to develop is as we are not guiding on the EBITDA percentage. What we have said that over time, we expect to be able to improve EBITDA even further as we are investing quite substantially in more data-driven operations. Also, as you have seen, we will continue to grow for this year compared to last year, and that will give us more scale effects on the cost side.
We are now already at a very, very satisfying cost to collect and EBITDA level. It will not be any major steps. These improvements will come over time. I think it doesn't make too much sense to look at this quarter-over-quarter. We don't have any other questions on online. If there are no questions from the audience.
No further questions here.
Yeah. No, we actually got one more here. How do you see the cost of living crisis affecting the collection potential on existing portfolios? I think here we have the same answer as we had on 11th of January. So far, we don't see any material impacts from the macroeconomic environment. We know also that over time, macro factors does not play a vital role in collection. It could have an effect on the timing. As we are doing investments with 15-year collection curves, over time, it has no meaningful impact on the ERC. It could have impact on the timing, but not on the total ERC on our portfolio purchase. That was no other questions here in the questions queue.
I don't know if the operator has any questions from the audience.
No, we don't have any questions registered via the telephone lines.
Okay. Well, thank you all for attending this call, and have a nice day.
Ladies and gentlemen, this concludes today's call. You may now disconnect your lines.