Good morning, and welcome to Axactor's third quarter presentation for 2023. 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. 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. Gross revenue grew 3% year-over-year, and measured in constant currency, the growth was 5%. The increase in gross revenue is achieved despite macroeconomic headwind in Germany and in the Nordics. Cash EBITDA was up 2% year-over-year, and in constant currency, 5%. The EBITDA margin has stabilized at a high level, reaching 54% for the quarter.
Actual EBITDA ended at EUR 34 million, up from EUR 30 million same quarter last year. We delivered a return on equity of 6%. However, we had a significant one-time cost related to the refinancing of ACR02, and adjusted for this, the return on equity was 8% for the quarter. We have a last twelve-month ROE of 9%, which is in line with our financial targets. Also, please bear in mind that the steep increase in cost of funding, that both we and the rest of the industry is experiencing, are naturally putting pressure on our return on equity. To summarize the financial highlights, except for the refinancing exercise, this was a rather uneventful Q3, which is also normally the case in a seasonally weak quarter. Please move to slide four for a short recap of the key profit improvement initiatives.
So far in 2023, we have been focusing on three main elements. These are funding, portfolio profitability, and cost position. In the following slides, I will go through them one by one and add more flavor on what we are doing on each of the respective areas and the results so far. Let's start with funding on the next page and have a look at our updated maturity profile. It is starting to become old news now, but following our RCF renewal in Q2, we did refinance our outstanding bond, ACR02, with a new NOK 2.3 billion issue, ACR04, in August. This puts us in the very comfortable position where we don't have any debt maturities until June 2026.
The new debt issue did free up substantial investment capacity, but as you will see later on, we are now not changing our investment target for the year, and we will continue to stay disciplined in all acquisition processes. The fact that we successfully managed to refinance approximately EUR 750 million during Q2 and Q3 was well received by the credit rating agencies, as you will see on the next page. I'm not going to spend a lot of time on this slide, other than recognize that Axactor's stable financial development over time has secured affirmation of our credit ratings despite the current industry turmoil. Our ratings of B1 from Moody's, with positive outlook, and B, with stable outlook from S&P Global, has been kept unchanged since initiation in 2021.
Let's move on to portfolio profitability on the next slide and an update on gross IRR development for Axactor. The picture is not very different from what you saw in our Q2 presentation. The gross IRR on the total back book has steadily been increasing over the last couple of years and are closing in on 18% for the total back book. However, it is more interesting to have a look at the most recent transactions. From the beginning of December 2022 and until end September this year, the gross IRR has gone dramatically up to 35%, which is approximately twice as high as our total NPL book. Again, this is the same level on new transactions as we reported in Q2, but in all fairness, due to holiday season, there has been very few new transactions done in the quarter in our markets.
The reason for this dramatic price change is mixed, but the imbalance between supply and demand for NPL volumes is currently substantial, and due to a more challenging funding situation for the industry, combined with a more uncertain collection environment, there are no short-term triggers to change this imbalance. To conclude, the volumes are relatively low, but Axactor has invested EUR 61 million at this level, and sellers are working to absorb the new price level. We expect some banks to rather than sell at the current market price, that they will convert to the 3PC market for a limited period of time. The speed of the gross IRR blending will obviously be influenced by the annual CapEx level. Please move to the next page for a more detailed overview on the matter.
As announced earlier this year, we expect to invest between EUR 100 million and EUR 150 million in 2023. Our replacement CapEx is estimated to be approximately EUR 114 million, so the investment level does imply a constant or moderately increasing NPL book year-end, depending on where in the interval we end up. NPL investments for Q3 reached EUR 19 million, and investments year to date ended at EUR 92 million. We have committed another EUR 12 million for Q4, so we have secured EUR 104 million of investment so far this year. Depending on the price level going forward, Axactor will be moderate in terms of new portfolio investments. We also expect fewer transactions as sellers and buyers are trying to agree on the new price level.
Please move to the next page for a short comment on our cost development. Q3 was yet another confirmation that Axactor continues to have one of the best cost positions in the industry, particularly within NPL cost to collect. NPL cost to collect year to date was 37%, which is marginally lower than for 2022. However, it is true that the cost to collect level can vary a bit between quarters, but the trend is important for us to underline. Axactor's strong cost discipline is now materializing in an EBITDA percentage that is among the best in the industry, 54% for the quarter. We believe there is still improvement potential as we continue to do accretive portfolio investments, which will lead to further margin expansion over time. Additional scale effects and more data-driven operations will also be supportive to the ambitions of improved margins.
As part of the job of staying competitive and the industry leading on cost, sometimes hard decision needs to be taken. On the next page, you will see a couple of examples of just that. As we have been communicating earlier, we have been canceling unprofitable 3PC contracts. Unfortunately, sometimes that is not enough, and Axactor has decided to close down all 3PC activities in Sweden and Finland. The market prices and other terms and conditions are simply too low and challenging for us to be able to deliver a healthy, profitable 3PC business in these two countries. As we will see from the graph on the left-hand side, we never managed to build a sufficient scale on 3PC in Sweden and in Finland. However, the two countries only account for approximately 5% of the company's total 3PC income.
Most of the clients has already been off-boarded, and the 3PC total income will be substantially lower in both countries already in Q4 this year. The positive side of the equation is that the change drives simplification and improves our cost position. The Swedish and Finnish organizations will now fully focus on improving our market position within the NPL segment. With that, I will leave the word to Nina for a financial update, starting on page 12.
Thank you, Johnny. So let's start with the development in gross revenue, where we also, this quarter, continue to see a healthy growth with an increase of 3% compared to same period in 2022. Adjusted for NOK/SEK currency effects versus the euro, the estimated gross revenue growth was 5%. The NPL segment reports a growth of 4% this quarter, supported by a satisfactory collection performance and a solid investment level in 2022. The 3PC segment experienced a decline of 3% in Q3. Let's look a bit more into details on each of the business segments, starting with NPL on the next slide. Total income for the NPL segment ended at EUR 52 million in Q3, up from EUR 46 million in the third quarter of 2022, with a satisfying growth in total income of 13%.
The contribution margin for the segment was at 78%, up from 76% in the previous two quarters. The collection performance ended at 98% for the quarter, supported by good collection performance in Italy and Spain. Debtors in the Nordics and Germany continued to opt for longer payment plans with lower monthly installments. Bailiffs are offering debtors more flexible terms due to higher living costs. This includes higher reservation amounts and payment-free months in several markets. On the more positive side, we see that continuous strict cost control in all countries helps us accrue a healthy margin. Please turn to the next slide for comments on the development in the 3PC segment. The 3PC revenues ended at EUR 13 million for the quarter, 3% below Q3 last year. Contribution margin ended at 33%. The 3PC segment has been under pressure from market competition in several countries.
Axactor has initiated several targeted measures to address this. The company is currently going through all 3PC contracts and will terminate those with lower than acceptable margins. In addition to the planned exit of the Swedish 3PC market, we will also exit the Finnish market during the next quarters. The Swedish and the Finnish 3PC business accounts for only around 5% of 3PC total income. Let us move on to the next slide, where I'll present more details on the reported financials. Total income at group level ended at EUR 64 million in Q3, up from EUR 59 million in Q3 2022. Q3 is a seasonally slow quarter due to holiday season, especially in the southern part of Europe. Total income remained consistently steady also this quarter. The reported EBITDA came in at EUR 34 million, corresponding to a healthy EBITDA margin of 54%.
The EBITDA margin is supported by good cost control in all countries. Cash EBITDA ended at EUR 55 million for the quarter, equal to a growth of 2% from Q3 last year. In constant currency, the estimated growth was 5%. Moving on from reported cash EBITDA to some comments on the return on equity development and the impact of the recent refinancing on the next slide. The quarter ended with an ROE of 6%. Please note that the ROE for the quarter, before the one-time refinancing cost, was 8%. When we look at the return on equity on a 12-month rolling basis, we see a stable 9% for continuing operations. So in summary, I'm pleased with the continuing stable results during 2023.
Despite the increased cost of funding and the macroeconomic conditions, our focus on strict cost control and improved gross IRRs maintains a healthy financial position so far in 2023. I'll now hand it back to Johnny for an updated outlook.
Thank you so much, Nina. In our outlook, we have four items that we would like to emphasize.
... firstly, we expect to continue to do accretive investments on NPL deals with a minimum of 30% gross IRR compared to the back book at close to 18%. Secondly, we expect a minimum growth of 10% on interest income for 2023. On 3PC, we see competition puts pressure on both total income and contribution margin, as more players are focusing stronger on 3PC due to reduced investment capacity. Thirdly, regarding funding, we have an interest hedge that secures partial protection of financial expenses for 9 more quarters, and we have no debt maturities until June 2026. Regarding collections, we expect continued negative macroeconomic impact in the Nordics and in Germany, and our collection curves are adjusted to reflect the current macroeconomic conditions. With that, I suggest that we open up for questions.
Thank you, Johnny. We will now begin the audio Q&A. If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Ulrik Zürcher from Nordea. Please go ahead.
Thank you. I was two questions. How will the exit from Sweden and Finland affect your total 3PC margins? Because you hint strongly at the revenue impact, but I was also wondering if there will be any operational cost impact from that. Secondly, I think, Johnny, you're very careful on the outlook for the NPL volume here. I was just wondering, are there any positive news quarter-over-quarter here, on that the bank starting to realize that the industry and you need higher IRRs, or, and is it, like, possible to say anything about the volume outlook for next year? Thank you.
Yes. So if I start with the, with the first one, Ulrik, so, you're right on the exit, from Sweden and, and Finland has, of course, a very concrete, reduction in revenue, which we also have indicated. But, it is clear the reason why we are closing it down is that we at least have not been able to provide sufficient, profitability in these two markets. Actually, we are losing money, to be, to be blunt on it, and it will be, an improvement of the total 3PC margin as such. But again, remember that these two are the two smallest 3PC countries that we have. But we are closing down, two areas that has a negative, profit. And then, what also will happen is that since,...
So that is the direct cost just from closing it down. But we also are looking into how to then also better exploit SG&A resources across the Nordic region. That will take a little bit more time, but we expect also then, since we are simplifying the operations in the Nordics, that we could take out more indirect costs over time as well. Secondly, when it comes to volumes, this is—I am careful because it is a little bit standstill, the way we see it in our markets. I think that there are some positive news. We have seen that the IRRs in the Nordics are actually...
We have now closed our first contracts at the same level as we have seen earlier in the southern part of Europe. So we have earlier said, we have seen 20%+ net IRR in Spain and Italy on some transactions, and now we have also started to see that price level going through. But again, on small transactions in the Nordics. We still see that the most common response when we are in these transactions now is that the volumes are planned to be transferred to 3PC. That is the most common reaction from the banks. I think they are still struggling a little bit with being able to accept the new price price level.
So we don't see any large volumes moving in the Nordics. So what we also see that the annual transactions are going up, but we see that the parameters or the volumes are reduced. So it's clear that some of the banks choose to maybe sell one third or 50% of what they normally would do, and keep the rest on 3PC. So but I think if you're trying to look into you ask also about 2024 volumes, it's I think this is a little bit unclear what will happen, but normally the banks are not—If they first have implemented a strategy of selling portfolios, they will normally do it after at least after maybe a year.
It is a possibility that we are building up volumes that will come for sale later in 2024 and into 2025.
Mm-hmm. Thank you. That's as clear as it gets now, I guess. Could I just follow up one on the SG&A cost? Do you think you'll be able to, because you're clearly facing some inflation as everybody else, but do you think you'll be able to keep the cost nominally flattish next year?
I can say that it's that is the target we have, and we are now running our budget process. So that is that is our target, yes, to be able to absorb any inflation cost in reduced costs. So that is the target, and I'm pretty confident that we will be that should be realistic, at least.
Thank you.
The next question on the line is from Kristoffer Skeie from Arctic Securities. Please go ahead.
Good morning, this is Kristoffer Skeie. Thank you for taking my question. Just a follow-up on the termination of the 3PC contracts. You're closing down Sweden and Finland, but saying that you're looking at closing down unprofitable contracts, does that mean you're looking to reduce 3PC revenue in other geographies as well? So it will be down more than 5% next year, all things equal.
That might very well be the case, but if you look into our two largest markets, which is Spain and Italy, which counts for some, how is it? 60%-70% maybe, of the total 3PC volumes, there are very few contracts that is not already done at a healthy margin. So, but in that, so the revenue will be kept to more or less the same level, at least in our budget, but maybe with a slightly better margin. But I think, again, when you look into Sweden and Finland, remember, we didn't have that many clients in these countries. So when we had one large client in Sweden and 5, 6 smaller ones.
So when the large one was not profitable and was decided to close down, then it's just natural to also close down the whole business area. I think in the other markets, in general, it will be more selective approach. So we try to renegotiate the contract that is unprofitable. And if we are not successful with that, we will take it out. But we don't expect, currently now, to withdraw from any other markets, but this is something that we will always evaluate over time. And but, yeah, I think that is what I would like to say on the topic just right now.
Thank you. On the contribution margin from 3PC, you say it is under pressure. It's around 33% now. Does that mean you think it's going to go down going forward, or will it come up after you've closed unprofitable contracts? And what's the margin potential in that case?
Yeah. For again, if I refer to next year's budget, the aim is to increase the contribution margin by taking out unprofitable contracts. And also, like we said earlier, when we close down Sweden and Finland, it will also give a positive effect. But, there's no major changes either way. But we just indicate that we see that on new contracts, we see that the prices are under pressure. But we are compensating with spending, investing more in automated collections. And this goes especially for Spain and Italy, where we see that we can improve the cost position and improve the margins at the same revenue level.
Because in Spain, for example, we are at a level that is the same, has been more or less the same for a couple of years, and we are one of the two market leaders, and there's no easy way to really accelerate the top line in Spain. We are doing a few efforts. For example, we are building up 3PC within the secured space, but it takes some time. So you won't see any drastic changes in the top line in Spain, next year either.
Okay, thank you. One more question for me then. Regarding the outlook and collection performance, you are making the same remarks as in Q2, Nordics and Germany is a bit softer and Southern Europe are performing. Can you comment maybe on the delta between Q2 and Q3? Is it getting worse in the northern parts, or what are you seeing here between quarters?
No, there's no major difference between the quarters. And I just want to be a little bit more precise when you say the Nordics, if we should deep dive a little bit, and I would say that Finland is actually also in the category of a very stable collection performance at a 100%. So there are differences within the Nordics as well. But when it comes to Sweden and Norway, it's the same picture as we have seen before, and also Germany, that large payments are down, and we need to rely more on long-term payment agreements in order to recollect.
Okay, thank you very much. That's all for me now.
Thank you.
The next question is from Håkon Astrup from DNB. Please go ahead.
Good morning. I can start with one follow-up question on the 3PC business. I was just wondering, now exiting, Sweden and Finland, do you think that this will have any negative impact on your abilities to acquire portfolios or forward flow agreements in these markets going forward?
No, the short answer to that is no, welcome. So, for example, in Finland, we have only had a couple of clients. So, and we have been able to buy forward flow from other banks over the last few years. In Sweden, we haven't bought anything since 2019, as we consider the market to be basically uninvestable due to the high price level on portfolios. So, we don't expect any effects on our ability to get in position or be invited for NPL transactions. On the contrary, we hope that we can now simplify and even improve our cost position in these two countries, so we could be even more competitive when we put in the OPEX part into the calculations when we are evaluating new portfolios.
Mm. I see, and this is even in this market where the lenders are, say, using more 3PC, you know, because they do not, they like the current price environment?
No, I don't, I don't see how the close down should give us any any large disadvantage compared to where we are today. Like I said, we haven't bought anything in Sweden since 2019, even though we have had the 3PC all the way. So what we see is that, we have it on 3PC, but, when the banks decides to sell, they go to the market, and they always choose the highest price. And, and, so maybe, maybe one effect is that we, we could have a little bit less data in those transactions, but, today, when you buy a portfolio, the seller will always share the latest, collection data on the portfolio.
Even if they have sold it, they make sure that they are entitled to get all the collection data from even the buyer, and then they share that information with potential other buyers. So then the advantage of having the information is less and less compared to three or five years ago, where there were not all the banks required the same amount of information from a company that already has acquired a portfolio.
Makes sense. Makes sense. And just one other question. Well, what kind of, say, Gross IRR do you deem as fair, given the current cost and funding environment? I know it's different between geographies, et cetera, et cetera, but just a broad level that you deem is fair at the moment.
Yeah, it's, of course, very different if it's a secured portfolio or unsecured, as the costs on secured portfolio is roughly maybe 5% or more in percentage points. So you should have 5% more, maybe, as a rule of thumb on secured. But we have said that we are aiming to reach at least 30%, Gross IRR, which is a little bit lower than what we have been closing deals on. So what I'm implying is that in order to get the volumes up, I think we have to be a little bit more willing to also adjust the prices in order to be able to close the deals.
Because at 35%, that is, that is a level that is, I think it's more characterized by very few buyers and sellers that are really willing to accept the new price level as it is. I think for us to be able to fill EUR 100 million-EUR 200 million, we also need to adjust down. And then I think what we have said, a mix between all our segments, resulting in a 30% Gross IRR, should be what we consider a fair price point for large volumes.
Perfect. Thank you very much.
On the line is from Rickard Hellman, from Nordea. Please go ahead.
Thank you. Only have one question, and perhaps if you could update us a little bit around situation in Italy and the proposal that has been a lot in media, but perhaps not that much of a concrete out of it. Thank you.
You are referring to the one where the debtors, where the proposal where the debtor could buy back the debt for a certain, fixed amount? Is that the one?
Yes, indeed.
Oh, yeah. No, that, that is withdrawn. That is no longer on the table.
But it's also, you know, something that, you know, has come up back and forth, and with the current political situation, do you see a risk for it to return later on?
Short answer again is well, you can never stop a proposal, but for it to go through, I think it's highly unlikely. And I think maybe that is a discussion we should take offline, Rickard, because it's a lot of details into it. But in brief, it would mean that the large governmental bad banks and the GACS system would basically not work in practice. And also, the proposal is against the current legislation. So it's,
Mm.
It's a long way to go. And every now and then, you get these kind of proposals, especially in Italy, I would say. And over and over again, they are kind of withdrawn. So with this, it's not something that we look at as a high risk. No.
No, that's great. No, I just wanted to hear your view, especially. I mean, I agree on what you're saying. Just the fact that, you know, we are—this, you know, political party is now much stronger than it has been in the past. But thank you.
You're welcome.
The next question on the line is from Jan Erik Gjerland, from ABG. Please go ahead.
Hello, thank you for taking my questions as well. Just, two follow-ups, really. You, you're talking down your 3PC, contract, income, so to speak, but could you expect to get more, 3PC from the NPL, as you said? Or, or should we not expect you to be part of that game, so to speak, when the, when the banks are not selling as fast as you thought? Would you be able to grab any of these 3PC income at all? Or should we just expect you to sort of let them go because the margins still are too low? How should we read you there? Thank you.
No, I think, there's particularly one country that is relevant for this, since we are pulling out completely of Finland and Sweden. So that is in the Nordics, it's left, then you're left with Norway. And here, I think we are in a great position to capture exactly this new volume. And we are currently already in discussions with several banks that wants to convert from either forward flow contracts or not have been able to sell on us. So here we will definitely be a part of that market. In Spain and Italy, we have seen that the players have been more willing to sell than in the Nordics.
But again, here, of course, if that becomes a major, say, issue in these two countries, we will definitely be able to compete. And then, Germany, I'm not sure. We have seen transactions there. The annual transactions in Q3 has actually been sold at prices where we were not competitive, but so we haven't actually seen that. It's not that relevant for Germany. Hope that answers your question good enough.
Absolutely. Norway seems to be good then. Just one follow-up on the color for the gross collection, which, on my numbers, was a little bit softer than I expected. You mentioned that these large chunks of income is not coming through, mainly because of energy prices, higher interest rates, et cetera, high living costs.
Mm.
So, so you're not seeing them. How is it more to come on that sort of negative territory? Or should we expect that to sort of take a step back and look to that we will not receive too much of these going forward? Or how should we look at in Norway and Germany or Nordic and Germany? And then in Italy and Spain, is it a lot of lumpy income there as well, that could be sort of pulled back, similar to what you see in the Nordic and Germany, if that was at risk at all?
First of all, I have to say it's a little bit hard to predict how exactly this will develop. But if we go a little bit into the details in the Nordics first, then we see that the large payments are lacking or are heavily reduced, and that has a couple of explanations. So I think maybe the most important one is that the way this has been done in the past is that a debtor takes up consumer debt, and normally, or very often, they also have an apartment or a house. And as long as the housing prices are increasing, they will every once a year you will have a new free value in the house, and then you can repay or refinance.
This is more challenging when you see housing prices stabilizing or even going down. So, our perception is that the banks are more reluctant to basically refinance with free values in property. So that is kind of the answer, I think, on this. It lies in the how will the housing market develop going forward? So that is one explanation, maybe the most important one when it comes to large payments not being as present as before. And then we have a second explanation, which is also very Nordic, and that is you probably know this, Yannick, but in the Nordics, you have the bailiff system.
Strong bailiff system in all the three Nordic countries, and it also has an element of, political, say, political aspect. So what we have seen, for example, is that the reservation amounts that the debtors are allowed to keep before a salary, or after a salary reduction, has increased much more than inflation. So the government basically decides that, and it's a good thing, so, but it decides that the debtors should be allowed to keep more of their salary in order to be able to cope with higher energy prices and so on. And when you look at our books, especially in Sweden, but also, large parts of our Finnish book, it is in legal collection.
So when the bailiffs decides to adjust the reservation amount, it's just a pure mathematical, calculation, and that will reduce our cash flow. And also we have seen, for example, in Finland, that for the best payers, so if you have paid all your installments, the last 12 months, you are able to apply for payment free months. And it started off with one month, and then it was two months, and then it was three months, and now you can actually apply for a fourth month every year to not pay, as long as you're fulfilling your, commitment. So there are some really good explanations for why the cash flow is down in the Nordics, and we will spend more time, basically, recollecting the amounts in the Nordics.
Now, looking to the southern part, and especially Spain and Italy, where we have not seen the softening, they don't have the same bailiff system, so legal collection actually goes through the regular legal system, and there you don't have the same mechanism. So the debtors are will not have the same kind of holidays on payments as we have seen that the bailiff system are able to grant in the Nordics. And when it comes to Germany, I think Germany is a special case. The country is, I think, still in recession. There are the consumers are in a tough position. Also there, you have particularly high inflation, especially, especially, energy cost and grocery. So-...
So, hopefully the situation will also improve in Germany, but there you don't have the same bailiff explanation as you have in the Nordics. But I think of all our six countries, the macroeconomic situation in Germany is probably the worst of all our six countries at least.
Great. Could I just have one follow-up on the refinancing? You said you had nine more quarters on the hedge. Just remind us how the hedge work. It's for EUR 200 million, isn't it? And is it running gradually down, or is it fixed until it actually expires?
Yes, Jan Erik. On the hedge, it's correct that from a P&L point of view, we have a hedge of EUR 200 million in place. That is also will then protect or reduce the financial cost for the continuing 9 quarters. And it will not go gradually down, it will it all expires at the same time. Just also to be clear on that, because the hedge amount is from a cash perspective, is EUR 573 million. We tried to explain before that we have a difference between the cash and the P&L. So from a cash point of view, it expires this year, but from a P&L point of view, we have a protection of the EUR 200 million hedge then for 9 more quarters.
Thank you, very clear.
Any further questions, please press star followed by one on your telephone keypad now. It appears we have no further questions on the question queue, so I'd now like to hand back to Johnny for the written question.
Thank you so much. And yes, we have a list of questions that has come in through the chat channel here. So I will just start. Some of them have already been answered, so but I will start here on the ones that we haven't. So question number one: Do you see any new entries into the purchasing of NPLs, like private credit funds, et cetera? In our markets, no, we haven't seen it so far. I think also that we won't see it until the prices has really adjusted enough for these funds. For these funds, they typically. Well, there's a difference between the credit funds, but and private equity and so on. But they normally would tend to require at least the same IRR requirements that we have.
So far, I think we need to see the real price adjustment for the big volumes before we see these kind of players coming into at least our markets. Then, yeah, we have one question here: Do you expect to exit all the 3P C markets over the next several months? I have answered it. Could you provide some more color on how the current macroeconomic situation with high interest rates impacted your current and expected collection? I think we have already answered. I refer back to the relatively long question, answer regarding large payments and how the bailiff system works, and housing prices and so on. And then, we have got a question on the interest rate, rate hedge in detail that has been answered.
The company seems to be undervalued, underanalyzed, and not very known. The average volume on the stock exchange is low. What do you plan to get more attention and so on? Yes, here there are some statements. I could agree to some of them, and I could disagree to some of them. I'm not sure that we are really underanalyzed. We have four of the best investment banks in Norway following us on a regular basis, and we also have a lot of activities directed to the market. But to be honest, last year or over the last couple of years, we have attracted ten times the volume in the bond market compared to the stock market.
So currently, we are focusing a lot on the bond market investors, and we have a lot of activities towards them, so I don't think that they feel that we are not following up. When it comes to stock, I think it's unfortunate, but the whole industry is down. It's not just us, and we are trying to arrange for road shows. We are trying to keep the relationship with the investors, but to be completely honest on this, the interest is not that high. We are available and we are trying, but the... I think it's fair to say that the industry is a little bit out of favor for the moment.
What we were planning to do, and that is what we are doing, is to try to just deliver a stable and improving business quarter by quarter by quarter, and hopefully the investors will pick up on it and give us credit for it. Yeah. I think that is as much as I can say on that topic. Then we have a question: To what extent the very high Gross IRR in the new contract is related to higher risks associated with acquired assets? And here it's no higher risk than on the average book. So these are actual price adjustments on the client.
So many of them are portfolios we have been buying from the same clients for a longer period of time, and they've also put in more volatility in the collection curves and so on. So I think here, this is an actual, for all practical purposes, is an actual price adjustment and not due to a higher risk. If any, we are taking lower risk and focusing on clients that, or banks that we know well from before, if you look compared to our past. And there are a certain element of more secured transactions than on average, but not enough to really move the gross IRR on average with many percentage points. And then we have any updates on the proposed new Italian NPL law?
Yes, that is already commented on. Could you elaborate on general 3PC dynamics with the lower NPL sales volumes in the Nordics and Germany imply a growth in demand for 3PC services? Also already answered, and just to repeat, yes, it, that might be. We have seen this before. We saw it also during the pandemic that, and also already before the pandemic, 2019, when prices in the market went down and IRRs up, some banks decided to transform from forward flows, especially, into 3PC. But as soon as the market opened up for NPL transactions, the most of them were back for to sell. So I think, this, we expect to see some of the same dynamics, this time. And then we have one last question there.
Are you able to quantify the impact of borrower-friendly regulatory changes given the cost of living challenges? And no, that is, that is not something we share, at least. What's the outlook as inflation is coming down? What is the latest timing expected to the leverage? So again, inflation, I don't have any more comment on the macroeconomic situation, actually. What is the latest timing expected to get the leverage down to the 3.5 target? We, we have it as a target, and as everyone can see, it, it will be a challenge to reach 3.5 by year-end. And just again, to, to emphasize, the covenant is at 4. We, we have this under control.
It is a bit challenging situation because should we decide to deleverage or should we decide to buy portfolios at a very, very interesting price level? And so far, we have ended up at the latter. So we're not going to give any specific timing on it. We will, however, come back with updated financial targets in the beginning of 2024. So more flavor on it then. And the last question here, what is the rate you have hedged your interest at? So Nina.
The interest caps that we have in place has a interest rate of, or average strike of 0.5%.
Mm-hmm.
You can also find more details in the annual report sheet, if needed.
Yep. And then another question: Are you on track on paying out dividends for 2023? Well, that is a decision for the board and AGM. I can say that much, that we are on track in the terms of delivering profitability and have available funds, and then we just have to, then we just have to wait for what the board and AGM decides in the spring of 2024. That was all the questions we had on our list, so unless the operator have any more on the line?
We have no questions on the line.
Okay. Well, then I think I would just like to say thank you all for attending, and have a great day. Bye-bye.