Axactor ASA

OSE:ACR

Earnings Call Transcript

[Johnny Vasili, executive]

Good morning, and welcome to Axactor's Third Quarter Presentation for 2023. This presentation will be divided into 4 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 3 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 up EUR 34 million, up from EUR 30 million same quarter last year. We delivered a return on equity of 6%. However, we have a significant onetime cost related to the refinancing of ACR02. And adjusted for this, the return on equity was 8% for the quarter. We have a last 12 months 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 4 for a short recap of the key profit improvement initiatives. So far in 2023, we have been focusing on 3 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 their 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 a 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 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 for 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 new price levels. 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 [ NPL ] 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 investments 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 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 supported to the ambitions of improved margins. As part of the job of staying competitive and the industry-leading on costs, 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 2 countries. As you 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 2 countries only accounts for approximately 5% of the company's total 3PC income. Most of the clients has already been offboarded 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.

[Nina Mortensen, executive]

Thank you, Johnny. So let's start with the development in gross revenues, where we also this quarter continued to see a healthy growth, with an increase of 3% compared to same period in 2022. Adjusted for NOK currency effects versus the euro, the estimated gross revenue growth was 5%. The NPL segment reported 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 2 quarters. The collection performance ended up 98% for the quarter, supported by good collection performance in Italy and Spain.

Debtors in the Nordics and Germany continue to opt for longer payment plans with lower monthly installments. Bailiffs are offering that there's more flexible terms due to higher living costs. This includes higher reservation amount and payment free months in several markets. On the more positive side, we see that continued strict cost control in all countries helps us secure 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 up 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 onetime 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. And despite the increased cost of funding and the macroeconomic conditions, our focus on strict cost control and improved gross IRR maintains a healthy financial position so far in 2023.

I'll now hand it back to Johnny for an updated outlook.

[Johnny Vasili, executive]

Thank you so much, Nina. In our outlook, we have 4 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 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.

[Operator]

[Operator Instructions] Our first question is from Ulrik Zürcher from Nordea.

[Ulrik Zürcher, analyst]

I'll ask 2 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? And secondly, I think, Johnny, very careful on the outlook for the NPL volume [ sale, ] so I was just wondering, are there any positive news quarter-on-quarter here on that the bank is starting to realize that the industry and you need higher IRRs? Or is it like possible to say anything about the volume outlook for next year?

[Johnny Vasili, executive]

Yes. So if I start with the first one, Ulrik, so you're right on the exit from Sweden 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 2 markets.

Actually, we are losing money to be [indiscernible]. It will be an improvement of the total 3PC margin as such. But again, remember that these 2 are the 2 smallest 3PC countries that we have, but we are closing down 2 areas that has a negative profit. And then what also will happen is that since -- so that is the direct costs 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 them since we are simplifying the operations in the Nordic 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 IRRs in the Nordics are actually -- we have not 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% plus 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 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 reactions from the banks. I think they are still struggling a little bit with being able to accept the new 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 of the volumes are reduced. So it's clear that some of the banks choose to maybe sell 1/3 or 50% of what they normally would do and keep the rest on 3PC. So what -- but I think if you are trying to look into -- you asked also about 2024 volumes, it's -- I think what -- I think this is a little bit unclear what will happen. But normally, the banks are not -- if they first have implemented the strategy of selling portfolios, they will normally do it after maybe a year. So it is a possibility that we are building up volumes that will come for sale later in '24 and into '25.

[Ulrik Zürcher, analyst]

That's clear as it gets now, I guess. Can I just follow up one on the SG&A cost? Do you think you will be able 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?

[Johnny Vasili, executive]

I can say that, that is the target we have and we are now owning our budget process. 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.

[Operator]

The next question on the line is from Gustav Larsson from Arctic Securities.

[Unknown Analyst]

This is [ Gustav ]. 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?

[Johnny Vasili, executive]

That might very well be the case. But if you look into our 2 largest markets, which is Spain and Italy, which accounts for some, how is it, 60%, 70% maybe of the total 3PC volumes. We -- there are very few contracts that is not already done at a healthy margin. So -- but in that -- so the revenue will be kept, 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 have 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 that we take. We try to renegotiate the contract that is unprofitable. 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 I think that is what I would like to say on the topic just right now.

[Unknown Analyst]

On the contribution margin from 3PC, you say it is under pressure. It's around 33% now. Do you -- does that mean you think it's going to go down going forward? Or will it come up after you closed unprofitable contracts? And what's the margin potential in that case?

[Johnny Vasili, executive]

Yes. 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 closed 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 we -- 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 2 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 topline in Spain next year either.

[Unknown Analyst]

Okay. 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 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?

[Johnny Vasili, executive]

No, there's no major difference between the quarters. And I just want to be a little bit more precise when you said 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 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.

[Operator]

The next question is from Håkon Astrup from DNB.

[Håkon Astrup, analyst]

I can start with one follow-up question on the 3PC business. So I'm 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?

[Johnny Vasili, executive]

No. The short answer to that is no, Håkon. 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 effect 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 2 countries, so we could be even more competitive when we put in the OpEx part into the calculations when we are evaluating new portfolios.

[Håkon Astrup, analyst]

As in this -- even in this market where the lenders are using more 3PC and all because they do not -- they like the current price environment?

[Johnny Vasili, executive]

No, I don't see how the close down should give us any large disadvantage compared to where we are today. Like I said, we haven't bought anything in Sweden sine 2019 even though we have had 3PC all the way. So what we see is that we have it on 3PC, but when the banks decide to sell, they go to the market and they always choose the highest price. And so maybe one effect is that 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 the advantage of having the information is less and less compared to 3 or 5 years ago, where there were not all the banks require the same amount of information from our company that already has acquired the portfolio.

[Håkon Astrup, analyst]

Makes sense, makes sense. And just one other question, what kind of a gross IRR do you deem as fair given the current cost and funding environment? I know it's different between geographies, et cetera, but just a broad level that you deem as fair at the moment.

[Johnny Vasili, executive]

Yes. 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 unsecured. 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 saying -- so what I'm implying is that in order to get the volumes up, I think we have to drop -- we have to be a little bit more willing to also adjust the prices in order to be able to close the deal because at 35%, that is a level that is, I think, is 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.

[Operator]

On the line is from Rickard Hellman from Nordea.

[Rickard Hellman, analyst]

I only have one question. 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.

[Johnny Vasili, executive]

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?

[Rickard Hellman, analyst]

Yes, indeed.

[Johnny Vasili, executive]

Yes. No, that is withdrawn. That is not longer on the table.

[Rickard Hellman, analyst]

But it's also something that has come up back and forth. And with the current political situation, do you see a risk for it to return later on?

[Johnny Vasili, executive]

Short answer, well, you can never stop a proposal. But for it to go through, I think it's highly unlikely. I think maybe that is a discussion which 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 [indiscernible] system will basically not work in practice. And also the proposal is against current legislation, so it's a long way to go. And every now and then you get these kind of proposals, especially in Italy, I would say. Over and over again, they are kind of withdrawn. So with this, it's not something that we look at as a high risk.

[Rickard Hellman, analyst]

That's great. Now I just wanted to hear your view, especially -- I mean, I agree on what you're saying, yes, the fact that we -- this political party is now much stronger than it has been in the past.

[Operator]

The next question on the line is from Jan Gjerland from ABG.

[Jan Gjerland, analyst]

Just 2 follow-ups [ really ]. You're talking down your 3PC contract income, so to speak. Could you expect to get more 3PC from the NPL, as you said? Or should we not expect you to be part of that game, so to speak, when the banks are not selling as fast as you thought? Would you be able to grab any of the 3PC income at all? Or should we just expect it to sort of let them go because the margins still are too low? How should we read you there?

[Johnny Vasili, executive]

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 -- then you're left with Norway. And here, I think we are in a great position to capture exactly this new volume. We are currently already in discussions with several banks that wants to convert from either 4-floor contracts or not have been able to sell one-off. 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. So -- but again, here, of course, if that becomes a major issue in these 2 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. So I hope that answers your question good enough.

[Jan Gjerland, analyst]

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. 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 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 we see in the Nordic and Germany, if that was at risk at all?

[Johnny Vasili, executive]

First of all, I have to say, it's a little bit hard to predict how exactly this will develop. But if you go a little bit into the details in the Nordics first, then we see that the large payments are lacking -- are heavily reduced, and that has a couple of explanations. And I think maybe the most important one is that the way this has been done in the past is that debtor takes up consumable best and normally or very often, they also have an apartment or a house.

And as long as the housing prices are increasing, they are all -- every once a year, you will have a new free value in the house, and then you can repay or refinance. And 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 this lies in 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 I have a second explanation, which is also very Nordic and that is, if you -- you probably know this, Jan. But in the Nordics, you have the Bailiff system, strong Bailiff system in all the 3 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 -- [ I know ] it's a good thing. So -- but it decides that the debtors should be allowed to keep more of the 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 the Bailiff 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 players, 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 1 month, and then it was 2 months and then it was 3 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 energy cost and grocery. 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 all our 6 countries, the macroeconomic situation in Germany is probably the worst of all our 6 countries at least.

[Jan Gjerland, analyst]

Great. I just have one follow-up on the refinancing. You said you had 9 more quarters on the hedge. Just remind us how does it work? It's for EUR 200 million, is it? And is it running gradually down? Or is it fixed until it actually expires?

[Nina Mortensen, executive]

Yes. On the hedge, it's correct to say that from a P&L point of view, we have a hedge of EUR 200 million in place, that is also then protect or reduce debt to financial costs for continuing 9 quarters. And it will not go gradually down, it will take -- all expire at the same time. Just also to be clear on that because the hedge amount is from a cash perspective, it's EUR 573 million. I 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.

[Operator]

[Operator Instructions]

It appears we have no further questions on the questions queue. So I'd now like to hand back to Johnny for the [ rest of the ] questions.

[Johnny Vasili, executive]

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. So these funds stay there typically -- well, there's a difference between the credit funds and private equity and so on, but they normally would tend to require at least the same IRR requirements that we have.

And 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, yes, we have one question here. Do you expect to exit all the 3PC markets over the next 12 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 will refer back to the relatively long 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 hedge in detail, that has been answered.

The company seems to be undervalued, under analyzed 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 under analyzed. We have 4 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 10x the volume in the bond markets 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 it's -- 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 I think it's fair to say that the industry is a little bit out of favor for the moment. And 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. And yes, so 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 risk assorted in the acquired assets? 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 we have also put in more volatility in the connection curves and so on. So I think here, this is an actual -- for all practical purposes as 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 would compared to our past. And there are certain elements 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 [indiscernible]? 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. Just to repeat, yes, 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 IRR's up.

Some banks decided to transform from forward flows, especially into 3PC. But as soon as the market opened up for NPL transactions, then most of them are back to sell. So I think this -- we expect to see some of the same dynamics this time.

And then we have one last question here, are you able to quantify the impact of borrower friendly regulatory changes given the cost of living challenges? No, 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 3.5x target? We have it has a target. And as everyone can see, it will be a challenge to reach 3.5 by year-end. Just, again, to emphasize the covenant is upward 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 and more flavor on it then.

And the last question here. What is the rate you have hedged your interests at? Nina?

[Nina Mortensen, executive]

The interest caps that we have in place has an interest rate -- or an average strike of 0.5%. And you can also find more details in the annual report sheet if needed.

[Johnny Vasili, executive]

Yes. 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 terms of delivering profitability and have available funds. And 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.

[Operator]

We have no questions on the line.

[Johnny Vasili, executive]

Okay. Then I think I would just like to say thank you all for attending, and have a great day. Bye-bye.

[Operator]

This concludes today's conference. Thank you for joining us. You may now disconnect your lines, and enjoy the rest of you day.