We will also present the full year numbers for 2023. Together with me today I have our CFO Nina Mortensen. Also this time the presentation will be divided into four parts. First I will take you through Q4 and the full year highlights. Then Nina will present the financial update before I will give a status on financial targets including some Outlook remarks. As always we round off with a Q&A session. Questions can either be asked live after the presentation or through the chat function. Let us move to slide three and have a look at the fourth quarter highlights. Gross revenue declined 4% year-over-year and the main reasons for the negative development is of course a very challenging macroeconomic situation, but also the relatively moderate investment levels in 2023 and currency headwind.
On the more positive note, the EBITDA margin has stabilized at a high level reaching 53% for the quarter. Actual EBITDA ended at EUR 34 million, up from 31 million same quarter last year. The annualized return on equity was 9%, driven by EBIT growth and positive one-time effects on tax. Last point I would like to mention is that the discontinued business, which has consisted of our REO assets acquired in 2017 and 2018, is now fully out of our books. Both me and Nina will give more details later in the presentation, but to summarize the quarter, the results are satisfying. Especially in the light of the macroeconomic environment, and in particular the steep increase in interest costs over the last couple of years. On the next slide, slide four, I will explain this conclusion a bit more in detail.
I understand that it's possible to question the statement about satisfying results when we deliver an annualized return on equity of 9%, which is lower than the yield on both our bonds and the share price has had a negative development the last 12 months. What we are referring to is more the underlying business development of Axactor, which we believe has a positive development. If you look at the last two years, our EBITDA is up 24%, and the EBITDA margin is up 5 percentage points in the period. What this graph shows is that we are able to improve our operational results despite all the challenges, with debtors' reduced ability to repay debts and changes in the legal environment that leads to postponed cash flows, etc. A main element here is of course our strong focus on maintaining and improving our industry-leading cost-to-collect position.
We have taken a lot of difficult decisions such as reducing the number of managers and support functions, exiting unprofitable business areas such as 3PC in Sweden and Finland, but part of this improvement can also be contributed to accretive investments over the last two, three years. After a year-end, it's always a good time to put the year in perspective and to look at the development over a longer time period, which is what I will do on the next slide. The gross revenue reached all-time high at EUR 344 million and has shown a healthy growth the last years. Even more positive, I think, is the fact that we have been able to stabilize the EBITDA at a level above 50%, which is among the best in the industry. Again, at all-time high at 51% for 2023.
Cash EBITDA has never been better, but I'm the first to admit that it should have been even higher due to the relatively high investment levels in 2022. However, we are well aware of the reasons for why the debtors have a more challenging time settling their debt. For example, large one-off payments as a result of refinancing have almost been reduced to zero, resulting in more long-term payment plans. Payment-free months and changes in their reservation amount with the bailiffs in the Nordics have a comparable effect. With delayed cash flow as a result. If we move on to profit after tax, we see a reduction of EUR 7 million, down to 34 million. However, please bear in mind that the interest expenses alone were EUR 24 million higher in 2023 compared to 2022. In addition, we have had cost inflation.
Return on equity to shareholders has gone down two percentage points with partly the same explanation. Investments ended at EUR 116 million, more or less in line with our replacement capex. We would like to have invested more, but the gap between the buy side and the sell side is still wide, and we maintain capital discipline throughout the year. What I can say is that even though the vintage was limited in size, the deals that were signed have been done at a satisfying IRR level. Based on this, I think it's definitely fair to say that 2023 was another step in the right direction for Axactor. But we believe there are reasons to expect more in the years to come. Please move on to the next slide. It is easy to acknowledge that the collection industry has been and are facing some major challenges.
But if I were to comment on what is really the most important NPL value drivers for Axactor, it is difficult not to be a bit positive, despite all the current negativity and uncertainty in the markets. For Axactor, the single most important profit improvement driver is the development in the Gross IRR. As you can see, the total book has now reached 18%, and currently we are acquiring accretive portfolios with substantially higher Gross IRR than our total backbook. This will, everything else equal, lead to increased profitability over time. The second most important profit improvement driver is: what does it actually cost to collect on the debt? Axactor has a superior cost position, shown both through the record high EBITDA margin of 51%, but for us it is just as important that the NPL cost-to-collect ratio continued to decline in 2023, ending at 37%.
Cost-to-collect is one of Axactor's major competitive advantages, and we will continue to invest in data-driven valuations and operations to reduce costs even further, and to be very disciplined in SG&A expenditures. I mentioned earlier that the discontinued business has now come to an end, and on the next slide I will give some more details. I'm not going to spend too much time on this matter, but since it has been a very challenging business area for us for several years, I'm pleased to say that it's now finally out of our books. In Q4 we did sell assets for EUR 2 million, and as part of the run-off we have taken a EUR 1 million impairment, and the book value is now zero. Consequently, Axactor will not report discontinued operations as of Q1 2024.
The last item I would like to mention before I leave the word to Nina is the maturity profile on the next slide. Looking at last year, we must mention that we did refinance most of our balance sheet in 2023. Following the RCF renewal in Q2, we refinanced 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. With that, I will leave the word to Nina for a financial update.
Thank you, Johnny. Gross revenue for the group ended 4% below Q4 2022. The decline in revenue was mostly a result of the challenging macro situation, moderate investment level in 2023, and headwind on currency. Adjusted for NOK/SEK currency effects versus the euro, the drop in gross revenue was only 2%. The NPL segment reported a negative growth of 6% this quarter, as previously mentioned, external market and currency-related factors being the main reasons for the decline. The 3PC segment experienced an increase of 3% in Q4 in line with expectations. 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 50 million in Q4, up from 48 million in the fourth quarter 2022, with a growth in total income of 3%.
We maintained collection performance at 99% for the quarter and the full year, driven by good collection performance in Italy and Spain. The NPL amortization rate fell from 34% to 29%, partially explained by increased average gross IRR on the portfolios, but also explained by prolonged cash flow estimates due to higher share of collections from payment plans versus full settlements. Debtors in the Nordics and Germany continue 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 continued strict cost control in all countries helps to secure a healthy margin. The contribution margin for the segment ended at 75%, the same level as in Q4 2022.
Please turn to the next slide for comments on the development in the 3PC segment. The 3PC revenues ended at EUR 15 million for a quarter, 3% above Q4 2022. The growth in the 3PC segment was supported by solid performance in both Italy and Spain. Excluding Sweden and Finland, we saw an organic growth of 4%. Sweden and Finland have been now fully exited from the 3PC market activities. There will be no further impact from these markets on our current business.
The contribution margin was 46% in fourth quarter. This was driven by healthy cost control, year-end bonuses, and a positive one-time effect of EUR 0.5 million related to the exit of Sweden and Finland. 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 65 million in Q4, up from EUR 63 million in Q4 2022.
Total income continues to increase steadily over time with consistent year-on-year performance improvements since Q1 2022. The reported EBITDA came in at EUR 34 million, corresponding to a healthy EBITDA margin of 53%. The EBITDA margin is supported by good cost control in all countries. Cash EBITDA ended at EUR 55 million for a quarter, equal to a decline of 4% from Q4 2022. Moving on from reported cash EBITDA to some comments on the return on equity development. The ROE for the fourth quarter was 9% for continuing operations. The interest rate increases through 2023 hit harder than we expected at the outset of the year and impacted our full-year ROE, which ended at 8%. Having said this, I'm pleased with the stable results during 2023. Despite the demanding macro conditions and increased cost of funding, we have managed to maintain a healthy financial position at year-end.
This has been achieved through strict cost control and increased gross IRRs on acquired portfolios. Let us move on to the next slide and an update on interest rate hedging. Just to be clear, Q4 was the last quarter with an interest rate hedge in place from a cash flow perspective. Please note that in the profit and loss statement, Axactor will still have positive effects from the hedge of EUR 1 million per quarter in 2024 and EUR 800,000 per quarter in 2025. The group's long-term strategy is to hedge between 50%-70% of interest-bearing debt with a duration of three to five years. Axactor is committed to hedging each vintage of NPL investments with a matching interest rate hedge, in line with our strategy. I'll now hand it back to Johnny for an update on financial targets.
Thank you, Nina. Axactor launched for the first time financial targets January last year. Even though we reached some and we were close to reaching others, unfortunately we did not fully deliver on what we were aiming for at the beginning of the year, due to the reasons mentioned earlier in this presentation. The NPL investment target was met, but as I said, the most satisfying with investments in 2023 was the record high gross IRR level, not the size of the vintage as such. Regarding return on equity, we ended 1 percentage point lower than the target at 8%. The proposal to pay dividends or not will be announced in connection with the publication of the annual report. When it comes to leverage ratio, it is obvious that we did not manage to reach the target of a maximum leverage of 3.5 at year-end.
The main reason for this is the previously explained delay in cash flow. But 2023 is now history, and as earlier communicated, it is time to launch new targets. Please move on to the next slide. In line with the industry practice, the updated targets are for the medium term, be defined as 2026. We anticipate NPL investments in the range of EUR 100 million- 200 million annually for the next three-year period. This level will be reached by using current funding and running cash flow. Regarding return on equity, we are aiming for 12% in 2026. We believe in order for such a ROE target to make sense, we have also disclosed what interest rate assumptions we are making, which is EURIBOR and STIBOR of 2% and NIBOR of 2.9% in 2026. If the actual interest rate deviates from these assumptions, the ROE target will be adjusted accordingly.
We keep the same annual target for dividend payouts of 20%-50%, and we also keep the same leverage target of a maximum of 3.5% in 2026. Before we open up for questions, I would like to give some concluding remarks on the next page. It is clear to everyone that follows this industry that we are in a period with a high degree of uncertainty. At the same time, there is no doubt that a lot of negativity is already priced into the Axactor share. But I think it would be good to remind the investors that not everything will be negative going forward. Yes, it might become worse before it gets better, but I think it's more likely that the interest rates will go down rather than up over the next couple of years.
At least this is what is priced into interest forward curves, which fits well with what we can observe in the market, both that inflation is going down and listening to central banks. We have also observed a steep tightening of margins in the bond market, which of course is positive for the industry. Regarding investments, we see more transactions coming to the market, and we firmly believe that the portfolio prices will stabilize at sufficiently attractive levels for the next two, three years.
The main explanation for this is the imbalance we see in supply and demand, and the fact that the demand side has a lack of liquidity and has, as a whole, announced significant reductions in investments going forward. Prices on portfolios must adjust to a level where the industry is able to deliver a sufficient return to shareholders. I think this is what we are observing in the market right now. With that, I will open up for questions.
I'd like to ask a question. Please press star one on your telephone keypad. That's star one on your telephone keypad. To withdraw the question, star followed by two, and please do also remember to unmute your microphone when it's your turn to speak. We will now wait a couple of seconds to see if we gather any questions. Okay, we do have our first question registered. It comes from Neil Simpson from ICG. Neil, you may proceed with your question. Your line is now open.
Hello. Thanks for taking my question. So first one is just on your outlook for the servicing business. Obviously, you've exited some lower-margin business. So how would you guide 2024, either from an organic standpoint or an actual reported standpoint?
Well, first of all, we don't guide directly on the servicing revenue, but what I can say is that we see that volumes are slowly coming back, and default rates are also slowly picking up. So we expect everything else equal, more volumes to the 3PC, and maybe, but maybe more important, we see that at least in our customer relationships, we see that the customers are now more willing to actually pay for the services. So we are, as you know, we have been going out of some 3PC markets, Sweden and Finland, where we were not able to renegotiate rates. But in other markets, we are able to negotiate rates. That makes sense. So I think the profitability over time will increase in the 3PC segment, but again, from, like you say, a relatively low level. But yeah, I think that is what I can say on 3PC.
Got it. And do you ever talk about a gross contract value just to give us a sense of what the base is and how that's growing?
No, that is not something we disclose, unfortunately.
Okay. Fair enough. And then just on costs, you mentioned some cost cuts that you had been making. Are you able to size those cost cuts and just how you expect the cost evolution to trend over 2024?
We are not guiding directly on the cost level as such, but what I can say is that we are constantly doing a lot of initiatives to keep or maintain our cost-leading position, like we did during 2023. We did some large projects in certain countries, and we will do the same this year, and focusing on especially taking down management and SG&A costs and adjusting volumes or adjusting operations for volumes. If we are in some markets, for example, we have some markets that we are not investing that aggressively, then it's, of course, our job to make sure that we continuously take down the manning level, like we have done, for example, in Sweden, where we haven't invested for four years. Then we have taken down also the direct manning costs. But we don't guide at any specific numbers as such.
Okay. So you can't really say, "Okay, we've taken X amount of costs out of the business." It's more about, "We think margins will at least be as good as they were this year." Is that the right way to think about it?
That is the right way to think about it, yes. We expect the EBITDA margin to be at least at the same level, yes.
Okay. Got it. And then my last question, and I'm sorry I keep on asking forward-looking statements, but the interest rate hedge rolling off, what is the pro forma effect of that in 2024?
When it comes to the hedge, as also we have in the presentation, from a cash flow perspective, no, we don't have any impact from the hedge in 2024. But we will have a positive impact in the P&L with approximately EUR 1 million a quarter. And going forward, we will also.
I see.
Yeah.
Yeah, go ahead, sorry.
Yep. Also going forward, we will also hedge the vintages that we see so that we hedge on the debt that we are taking up with the same interest levels on the portfolios that we are purchasing.
Okay, got it. So maybe I misread the comment on slide 15 where you said Q4 was the last quarter with a hedge in place from a cash flow perspective. So to me, that reads that going forward, your interest costs will go up because you're no longer benefiting from the hedge.
In the P&L as such, we still have some coverage due to IFRS and have the need to do the prioritization of the previous interest hedge that we had in place, but not from a cash perspective. Yep.
Okay. Understood. Thank you. That's it for me.
Thank you.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Star one on your telephone keypad. Okay, we have no further questions, Regis, so I'd like to hand the call back to the room. Thank you.
Thank you so much. And yes, today we have a lot of questions in the chat, so I will start reading them. And the first one is, "Axactor is trading at [inaudible] 2023 at 4 with a 70% equity rebate. Isn't it a fantastic opportunity for a share buyback?" And first of all, I would like to say this is, of course, both share buybacks and dividends are up to the board to decide. But if I had to add something there, I would like to say, of course, you always have to consider any dividend payouts or share buyback versus your market opportunities. And currently, we see that the market is evolving, and there will be a lot of attractive portfolios coming to the market in 2024 and probably also next year. So other than that, I don't have any further comments.
But it's a little bit linked to the next question. "How can we expect dividends for 2023?" And here I would, like we said in the presentation, the decision to pay any dividend or not will be announced in connection with the publication of the annual report, which will come on April 17th. Next question is, "Could you provide more details regarding IRRs for recent NPL transactions?" And yes, I can. It's basically at the same level as we have seen over the last few quarters, slightly above 30% gross IRR, which is, like I said, more or less the same level as in Q1 and Q2. And that is what we observed in Q4. Next question, yeah, that is also the asked and answered. That was, "When will the annual report be announced?" And then we have the next one.
How do you think about your leverage covenant in light of headwinds on NPL going forward?" Well, it's easy to acknowledge that we are pretty close to the leverage limit. So that is clear. But we are still comfortable on it. We have a good plan to resolve it. And I think one of the most important remedies here will be to do actually accretive investments. So if we find the right portfolios at the right price with the right cash profile, it will actually help us to reduce leverage going forward. Then we have a next question there. "Are the cheap money moved away from your markets when it comes to competitors?" As you seem to be very prudent in your gross IRR achievement. Yes, for most of the markets, I would say that that is the case. Then there are, of course, some variations between the markets.
We see that, for example, there are more funds available for portfolio acquisitions in a country like Spain, while we have seen other markets basically drying completely up. But as an overall picture, I think it's clear that the cheap money is gone. And I think also this is what you can observe when you look at what the industry actually has to pay for, for example, new bonds and so on. So I think it's a clear yes on that one. And then the last questions I have here now is, "How should we think about investments in 2024?" SIPE, IRRs, etc. I think you should think about it just basically like you have seen us do in 2023. There will be no major changes. We will invest in the same type of portfolios, primarily business-to-consumer unsecured.
We will invest more in Spain and Italy and potentially Norway than in Finland, Sweden, and Germany, the way it looks now. The reason why I'm saying that is that currently, these three markets are, for example, let me take one on one. Sweden has been, in our mind, uninvestable for four years, and we are entering the fifth year. If the prices adjust as it should be, as they should do, we are definitely interested in investing in Sweden, but we have not seen any transactions in Sweden at a sensible IRR in four years. In Finland, it has been investable, but now we have seen that Bailiff has been, yeah, putting in measures like payment-free months and increasing the reservation amounts substantially, making also Finland a market that is not very attractive to invest in at the prices we saw in 2023.
That does not mean that we are not going to invest in 2024 because I believe that the prices will adjust in Finland in 2024. But currently, at the latest observations, we will not invest in Finland. And the same goes actually for Germany as well. Germany, of all our six markets, is, that's where we can observe the toughest macroeconomic environment. I think they're still in recession, and we could definitely feel that. And we are not interested in investing at the latest price points we have seen. But again, we believe that that will change going into 2024. And we see in Germany, since I'm commenting on it, a lot of extra opportunities now. We see bank secondary backbook sales, and we see large transactions coming to the market through the year.
So it's going to be very exciting to see if Germany will become one of the markets that we can actually deploy some meaningful amounts going forward. Also, the question has an element of asking, "What about efficiency and performance?" Obviously, what is important is you need to be very efficient when if you're going to be competing in this market. You need to either be competitive on the funding side or the cost side or hopefully both. For us, that is definitely the cost side. That's where we have our competitive advantage, which is substantial. That is something that we are really striving to keep and improve.
Of course, it's important now when you have this kind of macroeconomic situation that you are able to change the way you model your curves because if you're sitting there modeling like you did two years ago and put in large volume of payments and so on, you will definitely get burned. You need to have updated data and to produce your ERC curves that is much more matched with what you can observe in the actual market and how the money is actually collected in this market. Yes, and then I have one more question here, and that is, "Is year-end bonuses common in the 3PC, and how large was it?" So first of all, it is common. It is common in Spain and Italy. That is also where we have seen the bonuses, at least the meaningful bonuses. But the levels are confidential.
What I can say is that the bonuses are varying depending on performance versus a set of predetermined KPIs. And then have we more questions here? "Hi, can you comment on the EUR 50 million loan fee paid in 2023?" So I will regard that.
The loan fees that were paid in 2023 were related to the refinancing of both the RCF and the bond, the ACR02 that we refinanced also. It's in Q3 this year. Oh, sorry, last year.
Yep. And then we have a question, "Have you started any discussions with banks regarding your financial covenants or any upsides considering your RCF?" Normally, it's a question that we, of course, will not answer, but since it's a clear no, we don't have any reason to discuss any financial covenants with the banks. And when it comes to the RCF, I think that we do have options to increase it, but it's not something we. We have up to around EUR 100 million in available capacity as we speak, and we are generating up to EUR 10 million a month in free cash flow. So we have capacity to invest EUR 200 million this year without using any according option or addressing the bond market. So I think the challenge now today is not to raise more capital.
The challenge is that there's still a relatively wide gap between the sell side and the buy side. We need to see prices on portfolios coming further down in order to be willing to deploy much more than what we have announced in our financial target. And if for some reason the volumes coming to market at super attractive returns are exploding, then I can assure you we will find the money either in the bond market or with the banks. Yes. And then we have one, "Can we expect NPL investments to gradually increase towards EUR 200 million closer to 2026?"
It's a bit difficult to comment exactly how this will develop, but that's why we have said it will be between EUR 100 million and 200 million. That is what we are guiding at. The actual level, I don't think it will be EUR 100 million, 1 50 million, and 200 million.
It could easily be EUR 200 and then EUR 150 and then EUR 250. I don't know. It depends again only on what kind of deals are coming to the market at what returns. If the returns are what we consider to be attractive, we will invest. Like I said in the previous question, if for some reason the markets will be very active and we could invest much more, we will find the funds to invest even more than EUR 200. I think EUR 200 is based on what we have of capacity in our credit lines and what we see of available deals in the market at the current prices today. EUR 100-EUR 200 is the best estimate or the target that we can give you. Could you confirm that ACR02 option is still EUR 275, please? Yes, I can confirm. I think that is all the questions.
U nless there are anyone else at the line wanting to ask questions live, I think we are through. No? Well, then I think it's thank you for calling in. If you have any other questions, of course, you can direct me, Kyrre or Nina, separately after the call. So wish all of you a good day. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.