Kruk SA
WSE:KRU
Earnings Call Analysis
Q4-2023 Analysis
Kruk SA
KRUK S.A. has reported a strong performance for the full year 2023, highlighting a remarkable 26% year-over-year growth in net profit, reaching PLN 1.013 million. Cash EBITDA likewise improved, marking a 16% increase to PLN 2.1 billion. The year set a new record in debt portfolio investments, close to PLN 3 billion, and showcased successful recoveries in key markets. Earnings per share surged by 25%, achieving a new high at PLN 52 per share. The company's profitability remains robust with a 27% return on equity and a substantial 30% growth in assets. However, investors should note a significant increase in the leverage ratio, ending the year at 2.4 times net debt to cash EBITDA.
KRUK's investment strategy, largely funded through incremental debt, is focused on recoveries emanating from the legal phase, which will likely support enhanced profits in the mid- to long-term. This approach is expected to act as a major stabilizer for the company, with an anticipation of considerably higher net profits beyond 2023 and into the subsequent years, up to 2028.
The recoveries in 2023 exceeded the accounting curve targets by 12% in Q4, signalling a positive revaluation momentum, particularly from the Polish and Romanian markets. This trend is anticipated to continue contributing to profit revaluation in the forthcoming years.
KRUK has strategically pivoted towards non-Polish markets, with foreign investments comprising 26% of the total, capturing record high market shares. This diversification aligns with the company's positioning in consumer unsecured portfolios and strengthening in key foreign markets.
Despite the positive recovery trends, KRUK is experiencing a rise in costs, particularly a 15% escalation in salaries, in response to a tight job market in Poland and the expansion of operational scale, notably in Italy and Spain. On the financial side, with a significant portion of debt hedged to a fixed rate, the company could reap the benefits. Meanwhile, the availability of debt in both Poland and Europe is improving, with the potential for lowered margins on upcoming bond issues.
High interest rates have imposed a more cautious approach to balance sheet management and future investment decisions. KRUK has capitalized on the current market dynamics, where competitors constrained by interest rates have stepped back, allowing the company to secure advantages through less aggressive debt buying strategies.
In a continued effort to enhance efficiency, KRUK will prioritize its digital transformation in 2024, building upon the advancements made in 2023. The company aims to reduce lead times, foster hyper-personal communication with debtors, and increase automation, which will likely affect employment growth with a shift towards technology and analysis roles over baseline operational staff.
Investment analysis by segment revealed strong performance with PLN 3 billion allocated to its main markets. Poland recorded significant investments, capping off 2023 with PLN 800 million. While Romania saw fewer investments, it maintained a robust market presence. Italy and Spain are posited to command the #1 market position in consumer unsecured portfolios, despite some legal challenges. Notably, modifications to the Italian execution legislation and a legal employees' strike in Spain were one-time events that have since been resolved and are not expected to have future impacts.
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Good morning, good afternoon, ladies and gentlemen. And my name is Michal Zasepa, I'm CFO at KRUK, and this is a commentary to Q4 full year 2023 results of KRUK S. A. Welcome. Thank you for your time and joining this conference. I will use the presentation that is available on our website. And will go through it with you. At the end of the presentation, I would welcome your questions. You can use the question and answers sheet here available on teams, and I'll read the questions and respond to them. I hope you see the first slide of the presentation. Let's start.
So this was another very good year for the company and a very good Q4 for us. We end the year with an unaudited results of PLN 1.013 million of net profit. That represents a very nice growth of 26% year-on-year. You see somewhat lower but still quite strong cash EBITDA performance at PLN 2.1 billion or 16% growth year-on-year. This has been by far the best year in terms of our investments in debt portfolios. You see close to PLN 3 billion and another very good year for recoveries across all 4 big markets that we have. We finished the year with also record high EPS PLN 52 per share. It's 25% growth year-on-year. We continue to have very good profitability of 27% on equity. We grew the assets by close to 30%, and we remain relatively low leverage, although the leverage has grown significantly year-to-year. You see here, we ended it with 2.4x net debt to cash EBITDA. So overall, a superb year still leaving us a good place to continue to grow in the next coming years. If you look at longer history, we are also proud to continue the trend of development. You can see here that for the past 3 years, we significantly increased the investment level. Please note that in the current environment, assuming we fund all of these investments through incremental debt and majority of recoveries should come from legal phase of recovery. This promises growth of profits in the mid- to longer term as majority of profits from this portfolio after attribution of cost of funding have not yet gone through the P&L. So this is a big stabilizer, and this is the reasons why in '25, '26, '27, '28, you should see most likely much higher net profits than in 2023. We are on a path of stable growth of recoveries.
As you may have seen, the recoveries in 2023 meant also a significant beat of the accounting curve targets in Q4, that was 12%, and that is the reasons why we continue to recognize positive revaluation. And likely, you'll see more of it in the coming years, especially from Poland and Romania. We finished this year with a very good net profit. I see here a typo we finished the year with PLN 1.013 million not 1.1 billion so sorry for that. But with that profit of PLN 1.013 million we are at the position where possibly in 2024, the pace of net profit growth will slow down, although how much we will see the January results, the January recoveries were above the budget. So we'll probably have much more to say after first or second quarter. Anyway, we accept a good 2024. If you look a bit deeper into recoveries, as I mentioned, a very satisfactory return on Q4, 12% beat on the on the accounting curve, a very good results in Poland, a very good result in Romania, a good result from Italy and Spain that is also now improving.
In those 2 markets, you may have -- you may remember me saying that we had some minor legislation changes that affected the business negatively in 2023. This is fully priced into the recoveries and plan, and we expect at this point, no other surprises. In terms of investments, we gradually shift the scale towards non-Polish markets. You can see here that they represented merely 26% of our total investments. And this was a year of record high market shares across foreign countries. You will see that in a slide that in all of those countries in our target market, which is consumer unsecured portfolios, we possibly were #1 across the 4 more markets that we are operating in. 2023 was another year with strong recoveries, which granted us possibility or actual necessity to revalue our back book up and hence, significant positive revaluation. Please expect that if the recovery trends continue, that will last still for the next several years, likely a few years at least. On the other hand, we do have increasing costs. You can see here that they increased 15% year-on-year. Mostly, this is salary growth as the job markets in Poland remains to be quite tight, but also it's a corresponding growth of the organization as we significantly increased scale, especially in Italy and in Spain. On the financial cost, there is also significant growth coming mostly from this scale. You may see that a significant part of our indebtedness is already hedged and the floating rate is hedged to fixed rate. So we do benefit from that already. On the other hand, we see now that the debt availability on the Polish market, but also in Europe, it has improved and the margins on the bonds are -- is going down. So this year, we hope to see some decrease of pricing of the margin on the future bond issues when we do that. And the group continues to be well funded is our leverage level. I think it's medium. But this is a situation where after very significant growth of investments. Of course, we need to look how much space there is on the balance sheet and possibly also be somewhat more selective about the future portfolio purchases. This growth of investments comes in a quite interesting time, market time for us. We take advantage of the fact that high interest rates, restrain some of our competitors from more aggressive debt buying and we benefit from that. I will also comment on the 3 additional things here. One is tax inspection, tax control and other is our decision to stop investing further in Czech and Slovak Republican portfolios; and third, our development in France later in this presentation. We continue in 2024, as we did in 2023 to focus on digital and lean transformation, which means further operating improvements through technology and also through some process reengineering, identifying problems and resolving them. We're very focused on that. We made a thorough review of where we are and what we can do. And now we are establishing more precise targets what we want to achieve. There are 3 main areas in which we want to improve versus lead time. That means how to do things more quicker so that they don't last that many months, but less as an effect, NPV on the portfolio should improve. Second is more personal or even hyper-personal communication to our customers, the indebted customers so that we are more effective in convincing people to repay. And in addition, more automation in our processes, more work for the IT systems and bots and algorithms less for the baseline, the bottom line employees, which means also changing the fixed cost structure, there will be possibly less growth of employees in the operating level, but somewhat more employees in the overhead IT and analysis. Overall, this is a promise of greater efficiency for the business and somewhat higher or quicker cash flow from the company. But this will also increase -- this will also require some additional investments in CapEx and IT CapEx in infrastructure and people. Take a look at the segment analysis, looking at investments in new portfolios, this PLN 3 billion comes from 4 of our main market. It has been a very good fourth quarter for Poland, which ended the year with about PLN 800 million of investments. So a significant growth year-on-year. In Romania, less investments overall, but very good market share, as you see, so here, limitation is size of the market and excellent results for both Italy and Spain, which most likely give us #1 position in this market in consumer unsecured portfolios. Recoveries were very good, best versus our ambitious operating target in Poland and Romania, a bit below the operating target still above accounting forecast in Italy and Spain, but the reasons were changed -- some small changes in the legal environment in Italy, it was a change of the execution legislation where 2 additional steps were added in 2023. In Spain, it was a strike of legal employees. This is history. This is in the books already. We don't see this affecting us going forward. And you see here that with this size of investments, the size of the share of the books goes down in Poland and Romania, whereas in Italy and Spain, it's increasing. Is it good or bad? I think it's good because it allows us to get bigger. The IRRs returns expectations, the returns at which we are making decisions across those 4 countries is quite similar, and it was somewhat higher in Romania -- I'm sorry, in Italy and Spain and then in Romania or Poland. As we see in the new markets is still requiring somewhat higher return -- expected returns than Poland and Romania. You see here profitability. All of those markets are profitable. In all of those markets, we increased or significantly increased performance of EBITDA and also on the cash EBITDA. If you look at these results and you wonder what, were there any nonrecurring events, there were a few, but not very significant. Just to remind you, in the first half of 2023, we sold our credit information business that's an additional income of PLN 10 million, which is nonrecurring, of course, in Q4. On the other hand, we created a provision for employee bonus from the very good 2023 results. It's about PLN 16 million, which is in the -- booked in the overhead here so it decreased the EBITDA and also our servicing business in Spain. So the business that we directly do not on our balance sheet, not our risk, but for the banks underperformed in terms of EBITDA, and therefore, we decided to write down PLN 8 million of that insignificant, but still Spanish EBITDA would be higher by this PLN 8 million, if it wasn't for this fact. Now let's take a look at the market. This is Poland, PLN 2.1 billion was our estimate of the value of investments in unsecured retail portfolio. So a growth versus last year. You can see much bigger growth of nominal value. This is mostly secondary market transactions of unsecured consumer debt of PLN 7 billion. If you compare only supply from the banks, which is recurring, the market size was similar year-to-year. In that market, KRUK had about 30% market share, which is very decent results, although there were years where we were better in 2021, we had over 50% market share.
So our ambition is not to go down with this market share in 2024, but Polish market remains to be very competitive. In Q4, we were much more competitive. Let's see what the results will be in 2024. So far, we see good chances to buy portfolios in Poland, and we see stable supply coming from the market from the banks. Overall, we would expect a similar level of supply as this recurring so smaller nominal value investment value somewhere in between PLN 1.5 billion to PLN 1 billion this year. Now if you look at the results, they continue to be very good, very good recoveries. You may see here that they decreased quarter-to-quarter, but this is because corporate recoveries were very high in Q3, which was much better than planned, and they were much lower in Q4 as a result also of the fact had some of these recoveries came earlier in time. So if you look only in unsecured consumer portfolios, this is the performance that is above our expectations. It's very good, even though you don't see growth here, and that allowed us to recognize significant positive revaluation that should further be recognized in the following quarters of 2024. This is Romania. You see here a much smaller market, but also stable recurring market, PLN 0.5 billion of portfolios was the value of the investments on that market in unsecured retail portfolios.
KRUK took majority of that 63%. So we continued to safeguard this very good market for us. You can see much bigger nominal, which was a one-off transactions that we did not win that was a secondary unsecured debt. This year, we would expect a similar market size so roughly around PLN 0.5 billion of supply of which, again, we would like to have at least 50% or a bit more. This is the results of Romania, no negative surprises, somewhat better performance than expected by us at the beginning of 2023 very good strong Q4, both in terms of investments and recoveries as a result, significant positive revaluation and very high profitability, as you see here. Let's go to Italy. You have a similar market size like last year, roughly PLN 15 billion nominal and PLN 1.9 billion of investments in this unsecured consumer supply coming from primary debt owners, which is banks, big consumer finance companies. Our market share was close to 50%, which marks another step for us to increase our competitiveness through improvements of the process but also a relative weakening of our competitors, which could not compete with us at the same pace as they were in the past years. And the reasons for that is that some of them are constrained, are too leverage to be that competitive anymore. That situation may still continue in 2024. But let's see, in our planned investments planned for 2024, we assume somewhat lower investments in Italy because we think it's prudent not to assume 50% market share, it seems to be quite high. Overall, though, we see ourselves as a company with the potential to stay as the leader in unsecured retail portfolios on that market in Italy. Here, you see the results for Italy, another very good quarter for investments, good recoveries. They were above accounting plan, but a little bit below our operating target. As a result, you see here in significant positive revaluation. We hope this situation improves in the future. We see in the longer term, more upside than downside to our plans. So we hope there will be more positive revaluation in the next couple of years. And I can only say the beginning of this year is quite good. And here in Spain, you can see a market also close to about PLN 2 billion, also defined as unsecured portfolios from the primary creditors. KRUK market share was also most likely highest among our competitors at above 44%. And similarly to what we experienced in Italy, this is a market which show a decrease of competition and a relative increase of KRUK's strength in those bits. So we are also very happy about this development. And that especially for Spain, 2023 meant a significant growth of the business, which requires now development of the organization, some consolidation improvements in operations, and this is our important focus for Spain this year. In 2024, we would expect similar supply. We see good signs from the market, but we already are invested quite highly from 2023. So we will decide how much more to put on the balance sheet in Spain. Again, it may be that the level of investment this year in Spain will be somewhat lower than in 2023. And this is the results for the past several quarters and including Q4. You see here a good level of recoveries because of the strike, the effects of which in the legal -- in the cards, employed within the cards employees and the recoveries were lower by a few millions. Also, you see, therefore, plus/minus 0 revaluation, no problem here going forward. But hopefully, in the future, you will see some positives more positives in here as well. Overall, a very good improvement of profitability, especially cash EBITDA year-to-year. And in terms of EBITDA, you see a decline here, but this decline comes also from the fact that we wrote down, as I mentioned, goodwill, PLN 8 million of goodwill from -- for our servicing business. We don't expect any more negative situations like that in the future. Both in Italy and Spain, this big growth of investments means also grow an expected growth of legal and execution fees in 2024. So please bear that in mind that cost to collect for the group, especially in Spain and Italy will go up in 2024 as a result of the fact that we bought a lot of portfolios and much of them is to produce cash flow in the legal phase, and that requires this initial investment that goes fully through the P&L. It's not capitalized. And you have the remaining markets, which is Czech, Slovakia and Germany here, that's an important decision that we made looking at the size of that business, the market potential, also increasing complexity of investments in technology, overseeing -- monitoring all of our businesses, we decided that this few percent -- the small few percents of the business that Czech and Slovakia represent does not represent a good enough potential for us to continue to develop these markets. So we stopped as of January 2024. We decided to stop further investments in portfolios in Czech Republic and Slovakia with the with the exception for some forward flow commitment that we had, and we now will negotiate how and when to stop it. So please expect in Q3 and onwards, there will be very little, if any, investments in this group. And then we will do a review of our options there. We could very well stay on that market as a passive investor passive meaning. We have our operations. We do -- we maximize value from them, but we no longer add to this business. And slowly in time, we downsize these operations or we may decide at some point to sell the company or the assets will do whatever is most beneficial for the business. As for now, we have a good small-scale profitable business. You can see here on the cash EBITDA, it's a very stable operations. But on EBITDA, you see here, it's not contributing much. So that will allow us to put more resources, more central resources on the development of the 4 big countries plus this new country, which is France. And a word of commentary on France, as you know, we decided to put foot into the door in France. We already invested in one portfolio. It's a forward flow for 2024 and part of 2025 for one of the biggest seller in France. It's very early. We have been there for 2 months, but the results are positive. Now the goal for the 2024 is to research the market, understand the market much better and to create a plan that will confirm what is the potential for us in France. So far it's rather positive news that we are hearing the market has little transparency, and we need to dig deep to understand what really is the supply, who is selling? What are the prices? What do we think we can make, how much money can be made on those transactions. But this is potentially a market that could be quite interesting for us. It's a market that, on the one hand, is very big if you look at the size of consumer unsecured NPLs in the banking system, it will be the largest market that we are in. On the other hand, it's relatively small in terms of what is actually sold. But one issue we have is we don't know if we know how much is sold. So we have some data, but we doubt whether this data show 100% of the market. So one phase of that research that we're ahead of is to answer the question, how big the market really is, how many portfolios and what kind of portfolios is being sold off that market. We see unlike in Italy and Spain, many smaller and midsized portfolios. But we know that already that, for some reason, French banks were more reluctant to sell historically than the same institutions many times in Poland, Romania, Italy and Spain. Maybe it will change. Maybe it will not, even if it's not, this will be a most likely big enough market to stay with this possible upside where this market grows and become similar to the other 4 markets that we know. So once again, the goal for that year for France is to build up a business case through actual market experience being an owner of this portfolio or maybe some other portfolios that we are at and being there on the ground and doing a business case that will implement in 2025 and onwards.
Wonga and Novum 2 of our lending businesses had a good year. Just to remind you, there was a significant change of regulation and new cap of noninterest cost of credit was introduced in Poland in 2023. So we wanted to see how those 2 businesses accommodate to it. The results are good. You can see here, EBITDA improved year-to-year in both businesses despite the fact that some of the revenue was cut by the regulation. Now the challenge for both the company is how to generate growth, how to acquire new customers, and this is the main challenge, the main goal for Wonga for this next and following years, but it's being done in already stable legal environment, which is already a big improvement versus the past 3 years were between '19 and 2023 every year came with some negative legislation change.
Hopefully, this period is over now. Now more commentary to tax issues. There is 2 separate tax issues that I wanted to point your attention to. One is that there is a PLN 48 million gain in Q4 coming from release on provision from deferred taxation. Just to remind you, we create a deferred tax asset liability in our financial statement based on a 3 years long lens of cash flows in the group. And depending on that plan, and that plan is our best plan budget forecast for 2 additional years says this is how much money we will have. This is how much money we'll need. And as a result, this is how much money we plan to take from our investment companies, which is 2, one in Poland, one in Malta, to the mother company KRUK SA.
And when we do it, there is a 19% corporate income tax that we will pay in the future. The general rule is the more we plan to invest, the more we invest, the less money we take back to the more the company because we need more money in those investment companies. And this is exactly what happened throughout 2023. You've seen that we invested much more in 2023 than in 2022. This is more than we expected. This was also translated it somewhere higher investment plans in the future. And as a result, we needed to decrease our plans to take the money back to the mother company so we needed to decrease the level of provision for deferred tax assets. And this PLN 50 million, PLN 48 million, to be precise, was the release of this provision in Q4.
So you can look at this as a revision of plan of old plan to new plan, which accounts already for this new reality. Please be aware that every quarter, we do this exercise, every quarter we prolong this forecast for another quarter. So there could be variation plus/minus depending on how the situation changes. So it's not a one-off, but of course, it should be treated as part of the tax planning that we do iteratively quarter-to-quarter.
And another issue is that as every couple of years, we are being inspected by Polish tax authorities. They've been inspecting us already for many months. So we probably are getting to close to end of these inspections. The focus is corporate income tax in Poland for the years 2018 to 2020. And the main focus is transfer pricing between mother company, KRUK SA and our investment facility, the securitization fund that we operate in Poland, which by law is corporate income tax exempt and which pays to the mother company, certain fees for the debt collection services. This fees, the legislation should be market standard, arm's length, which they are because we use it for the past several years, we use benchmark, market benchmarks to set these prices, but tax authorities look at these and says yes, okay, we understand its market standard, but it doesn't cover all of your costs, especially overhead costs in KRUK SA, to which we say, of course, it doesn't cover because KRUK SA is much more than just a servicer for securitization fund. It's a headquarter of a publicly listed company managing business in 6 countries.
So much of these costs have no relationship with the servicing of the portfolios for this fund. At this point, the tax authority required us to present very thorough cost data, and they are analyzing it at some point in the future, they will present us their view. So this is to say, the inspection is ongoing. We don't know how it will end. Please assume there may be an additional tax coming from this inspection, it may be a cost or additional tax to which we say, okay, it's reasonable we agree or we may say we don't agree. If this is your final decision, let's litigate and see what this court will say to it. We don't know where we end up with that. But if this inspection is concluded in the next couple of weeks until we publish our audited numbers, which we plan to do by 26th of March. You may still see a revision of this net income from the -- an agreed amount of money or just a provision to be included in our accounts. So please bear in mind that we deal with this uncertainty, and this is what it is.
Now let's take a look at Slide 27. This is our ERC. You see significant growth of the ERC year-to-year for 2 main reasons. First of all, we added this PLN 3 billion, and it's significantly more than the amortization of the back book, which is about PLN 700 million, PLN 800 million. That also should tell you that the investment level that we've been realizing for the past 3 years is much higher than the amortization. Therefore, we're building up asset base from which we will grow revenues and profits in the mid to long term. And also, we recognized significant upside from the back book. So again, it was another year where we said, well, this back book continues to perform above our plan. Let's raise it, and we have reasons to believe it's not the end of these increases. If you look at this added PLN 3 billion, and this was decent returns, you can see here the gross returns of no cost. It was about 21% expected return and 2.3x money, high teen percent in terms of IRR after direct costs. And as I said, close in terms of profitability, it's close. It's a similar number across geographies that we invest.
You can see here how -- and next year, change the shape of this track record of our recoveries. They continue to show very long tail in the year '20 gave us as much as 25% of the initial purchase price. So you see here that we are still in the period of prolonging details, you can see it on the graph even better. They don't want to go down as quickly as we anticipated. So every year still give us an additional upside that we have not seen before. And a few words on funding. We are in a quite comfortable situation last year. We have agreed with the bank significant increase and extension of our banking lines. In addition, we see a very strong Polish market for bonds, especially retail bonds. You may have seen us do several small and midsized issues to retail investors, which were vastly oversubscribed. So please expect a decrease of our decreased margins that we'll be expecting for the future issues. We also see that on the European market, the level of margin has tightened significantly also on the -- when you look at the pricing of our bonds. This one that we issued in May. Now it's quoted at close to 260 points of margin. So we will be testing this market, likely in Poland first. But it seems that we don't require that much additional funding some, but much less than in 2023. In this base case investment scenario, which calls for between somewhere above PLN 2.5 billion of investments less than this PLN 3 billion we invested last year.
But of course, this is our initial view. The situation may change. We'll see what happens when we -- at what rate we'll be winning portfolios going forward. But in terms of the funding excess, it seems that ample liquidity is available. We plan to raise new money from the banks and from the bonds in the order of, of course, off-price coming first for the money, which is at least expensive for us. Thank you very much for listening, and now I will be very happy to take your questions.
First question is about recoveries in Poland Yes. I'll ask the IR team to help us out here. You see here we have PLN 1.5 billion recoveries on Slide 11. And then if you summer that quarterly, it's PLN 1.3 billion. So please check it and tell us right in here. What is the right number because it's maybe we have a typo...
I confirm that PLN 1.351 million is current value.
Yes. Okay. So we have a typo here, sorry. Sorry for that. Okay. Another question is to provide more details on goodwill impairment of PLN 8 million. As you may know, a few years ago, we bought a servicing business in Spain called [ Grupa Espand ] . Now it's part of the group. This company still has some goodwill on our balance sheet. The business of the company is to work for Spanish banks mostly to do servicing. In 2023, we had some minor EBITDA loss on that business despite the budget, which called for positive EBITDA. The loss on that business was because some of our clients sold their portfolios, among others to us. So we lost some business. Of course, the business tries to get new customers, but it didn't get enough to cover for all the cost. As a result, and given the business then that we have, we decided that it's prudent to write down this PLN 8 million. I think there was a remainder of about 8 or 10 million left of Polish of goodwill on this company. But at some point, we don't plan to do anything with that. We think that the business will defend itself.
So I would say it's a relatively minor issue, and it's a different line of business than our main purchase line business. If you would look at those 2 businesses, you may say, okay, we lost some -- in accounting terms, we lost some money on the servicing, but some of that business in servicing just went into our own portfolio operations and will more than compensate profits on this -- on the collection of these cases in our main net purchasing business. Another question is about overperformance on the PLN 427 million, but I'm not sure what the PLN 427 million refers to. Could you help me, which number is it in the presentation? Which market is it? Okay. Maybe it's recoveries for the group. I'll try to find the segments analysis here. Here, I don't have the quarters. 23rd slide can show the deviation...
Thank you. I'm going to 23 slide. Okay. And when do you see this number?
It's income from difference between projected and actual recoveries in 2023. Okay. And that's for the full year. Okay. I see it here. Okay. So this is the difference between what we had in our accounting plan and what we actually achieved. So this is a total for all of those markets. I can tell you, you have seen that that it's about 12% difference. It's a combination. It's a combination of the fact that we were conservative in planning, but also we beat our own ambitious expectations from that. In percentage-wise, it's a much higher number in percent and in absolute values coming from Poland and Romania.
And also it's been positive, but on a lower scale in Italy and Spain. In addition, in 2023, there was a significant beat on corporate recoveries, where we usually don't have this conservatism built in, but the performance was much better. We have another question. Based on your recovery curve, it seems that 2022 vintages was the weakest ever vintage in terms of how much of the purchase plan has been recovered in the first 2 years. What was the reason for such a performance, is it related to the fact that there was a higher share of investment in Spain and Italy.
Well, I would say, let's wait and see a few years. If we look at the expected IRRs 2022 is quite decent. It may be also that compared to the previous years, you see here longer recovery curves because from 2020, 2021, we started to buy portfolios using 20 years curves. So the IRRs, the times money multiple there is longer than on the previously bought portfolio. So in that sense, we don't see a problem in 2022 vintage. The IRR that we see also is high-teen percent. Now we start to see some upside from that. So I would say it's more of about longer curve and more flatter curve than a problem that we may identify. And overall, this is a trend.
The portfolio that we've been buying in 2021, '22, '23, our 20 years curve, more flatter curve, higher share of legal and hybrid assumes, which means a longer-term cash flow profile and a relatively smaller percentage of initial purchase price initially for the first couple of years. And you say, is it -- does the increased share of Spain in Italy, to some degree, although we are buying in 2022 and '23 at similar IRR expectations. Assuming all 20 years curve, is it Poland, Romania or Italy and Spain. So there shouldn't be such a big difference? Well, the difference comes mostly -- I'm thinking now from the fact that in Italy, you have somewhat longer legal process indeed that in Romania, especially which is most effective process in Poland. So yes, from that reason, there should be some difference. But we don't see the difference in IRR, but the cash flow price may be somewhat -- that's true. -- was relatively worse in Italy, then a bit better in Spain, but better in Poland and best in Romania. And the next question is, are we satisfied with the performance of portfolio both in '23? Is it better than on '22 portfolios? So far, we are very happy with the performance of 2023. But please bear in mind, it's very early for some of those portfolios from Q4. It's not much that we can say yet usually. Is it better than '20 portfolio. Well, it depends what do we mean? The average IRR in 2023 is a little better than in 2022 portfolios because they've been with us a year or a year longer, we see already some more upside on some of them. So I would say we look at this, and I would say what we see is a decent performance on 2023. Normally, we don't see much upside at this point. On '22, we see some. Main reasons for Czech and Slovak Republic exit, scale. We could continue that business, but we would invest PLN 50 million a decent IRR. The inflation of wages in Czech Republic and Slovakia is also strong. So there will be a risk that we would be in the subscale business where we could do small business, but we had a fixed cost that would also grow and that would eat into profitability more in the next 5, 10 years. So we decided it's just not worth the effort. If the market was double-digit size, probably we would stay. More market exit, no. No. We are now on 4 big markets, 4 of them have very good growth potential. On 4 of them were market leader in terms of consumer unsecured portfolio. So it's a strong focus and strong bet on those 4 markets, plus now, we hope to add France.
You say OpEx in fourth quarter Q3 was significantly higher than before. Yes. So -- but please remember, as I said, there was provision for costs for bonus for in place, PLN 16 million, although I think it's in overhead costs. And also, there was already some growth, some significant growth from -- to operating costs coming from increased -- a big increase in the scale of the business. So we started to recruit people to take over those much bigger size of cases that has landed on our balance sheet. Why the recoveries in Italy were below plan. As I told you, the reasons was outside environment in, I think, second quarter of 2023 a new regulation came that added 2 steps to execution process in Italy, and that slowed down the execution recoveries by about 6 months, and that meant a few millions less in recoveries. But this is already priced in our expectations. We don't expect any further negative surprises from that. You ask to disclose level of IRRs for Q4. We don't do it for competitive reasons, but you see it for the full year, this 21% gross return 2.3x money expected for the full year. In Q4, I think we were close to these averages for the year. Is the tax proved a big concern for you? No, it's not a big concern for you, but there's a relatively wide range within the outcome of that.
And please understand that it could be a reasonable range to which we say, okay, let's pay this and get over with it, and that will be unreasonable part of this range, which will say, this is incorrect. This is not market conditions. If this is your final view, then let's talk about it through card system. Both options are possible. You ask what were the key drivers for very good net income, very good recoveries, growth of scale and the growth of assets, plus you had this additional boost from release of PLN 48 million of deferred tax provision in Q4. But overall, cash performance that was a good base also for additional positive revaluation that was the reasons why you had this significant delta, 12% delta of additional cash and this variance between accounting and actual cash level and the growth of scale, this additional PLN 3 billion of investments. Okay. So again, you ask about why the net income in Q4 was better than the previous quarters and that usually is worse. Again, you have very good cash performance from the portfolios, this release of the tax provision are the 2 most important reasons. So again, as you see here, there is a fair degree of volatility quarter to quarter, which indeed may be difficult to predict year-to-year also for us. Is the PLN 2.5 billion cap for investments or just an assumptions, it's not a cap. It is more of an assumptions, I think, of a prudent assumptions. If we invest this PLN 2.5 billion, that means still a significant growth for the business in terms of assets, it's much more than our current amortization, which is below PLN 1 billion, PLN 2.5 billion investments would still mean an increase in leverage level due to EBITDA of net profit. So I think it's a reasonable assumption for now, and let's see where the market is this year. Would we be open to acquire a portfolio of a midsized Polish player? Would it be a big challenge for your organization to cope with such a purchase? Yes, we would be open to that. No, it would not be a big challenge. Of course, if it's millions of cases, that is always a challenge how to transfer these cases effectively. But we've done it before. We have much bigger scales than any of our midsized Polish competitors. So it would be a good project if we do it, and we don't have significant limitations in doing it.
Another set of questions. Inflation, do we expect better recoveries and lower cost of debt due to the decrease in inflation. Yes. First of all, inflation in this environment of the tight labor market means the relative value of our debt is decreasing versus the growing value of salaries. Second, as you may remember, the inflation is correlated to the growth of value of debt after the legal process. The law in Europe usually says there are certain interest linked to the interest rates by which the value of the debt increases year-to-year if it went through legal process. So that means somewhat higher recoveries possibly in some cases in the longer term.
And on the other hand, inflation may not directly affect our cost of debt or, of course, it's interest rates that it's affecting, but we see in Europe tightening of the spreads in the bonds on our markets. So we expect also our spreads on the future issues of that to go down somewhat. Let's see what the market will allow us to. And another question is about the regulatory update. Do you face any new regulation changes in your key markets, which will risk the future recoveries. The easy question at this point, we don't see such initiatives. Future growth potential. Where do you see the future sources of growth for free cash flows from the back book from those 3 big investment years that we've done between 2021 to 2023.
The majority of net profit from these portfolios is still to come through our P&L in the next 5, 10 years. So please remember, we just added a lot of over PLN 7 billion of assets to our balance sheet, which should be a source of profit still to come, not for 2024, but more for '25, '26, '27 and several other years. And the more we invest over this amortization value, the more we will be adding to the future possible growth. You asked also what are the pockets of good portfolio still to exploit in the markets or to enter new markets. So we will concentrate in consumer unsecured. There is still potential to grow on these markets, but you've seen the market shares. They are already high. So I'm telling you, PLN 2.5 billion seems to be a reasonable ambitious target for this year. But -- maybe this is conservative, maybe there is a potential to do several hundred million more. I don't know. That really depends on the competition on how competitive we will be in this portfolio. So in those 4 markets, we still have potential to grow our market shares in the couple of years, but this potential is not possibly not PLN 4 billion, maybe it's PLN 3 billion, maybe it's 3-point-something billion, maybe it's between this 2-point-something to 3-point something. To grow more, we would need to enter new asset classes which to some degree, it's possible, we will be getting a bit more comfortable with SME small corporate portfolios in Italy and Spain as we are in Poland now.
Those are relatively bigger markets, but we do a little of these investments. And depending -- and we know it's a quite risky asset class. So we will increase it if performance is good. But in our strategy, we say not more than 25% should come from these other asset classes. Today, it's less than 10%. So there is a place there, but I don't want to promise too much because maybe it will never be 25%. And there's new markets, of which now the only focus is France. If France is successful, it may offer a good opportunity for growth, but it's too early to say how much. And today, it's a smaller market than Polish, Italian or Spanish market. It's also an option, how will the France develop as an NPL selling market.
Today, it's a midsized market. Maybe it stays the way. Maybe it will become a big market like those other 4 -- the 3 that we are. You're asking is Wonga doing a card business. If yes, do you expect any negative impact from the recent interpretation of regulation from KNF. No, Wonga is not doing a card business, it has a different model. This is longer offers to a limited scale a product, which is card like, which is a credit, but it's not a card business in formal terms. So we don't expect to be hit by this interpretation.
Okay. You're also asking why did recoveries decrease Q4 versus Q3. There's 2 reasons. One reason is the weakening of euro versus Polish zloty if euro in Q4 was at the level of Q3 versus Polish zloty, recoveries would be roughly PLN 20 million higher. And second reason is in Q3, we had extra high recoveries from corporate portfolios in Poland. It was, if I remember well, about PLN 60 million, and they were much lower in Q4. They were below PLN 20 million, if I remember correctly, which is very good news because we realized a much better margin on the corporate portfolios in '23 than we expected. If it wasn't for those 2 reasons, you would see some growth of recoveries.
And you ask also what was the effect of strong European Polish zloty on recoveries from the foreign markets? So I answered that would be PLN 20 million roughly. And you are asking also what is the outlook for 2024, if the current -- if we have the current Europe Polish effect, that would be a slightly negative effect. We budgeted somewhat more favorable fixed exchange rate, but it wouldn't be a significant -- it would be significant. I would say, at this point, when we look at relatively strong zloty, it's more or less, it's what we expected. And any depreciation of Polish zloty would be an upside to the result.
And no, I cannot comment about the possible impact of the tax control. If we had idea, we would need to report it, of course, to you. So at this point, unfortunately, I cannot be precise. You're asking also what are the expectations for pricing of investments in different countries. So if you ask about the IRRs, we want to keep this hike in percent expectation unchanged from 2023 across all of the markets with possible exceptions if we see good value for money. But on average terms, this is -- we expect to keep up on the pricing level. We are not analyzing at this point seriously any other markets than France.
And do we have a plan to merge or acquire other companies. Not at this point. Is the reason for net income in Italy to decrease. We are not showing net income. So I'm not sure whether you're referring to EBITDA. And now let's take a look at EBITDA, the EBITDA increased significantly year-to-year. And if you look at quarter-to-quarter, it's stable -- EBITDA is stable, cash EBITDA is growing. So I'm not sure what you're referring to. We are not commenting whether we participate in credit in Castle deal, sorry. Can you comment on how is Wonga business doing after the change in the law. It's doing good. It's doing good, meaning it's a stable, profitable business in current market condition that could be at the level that we -- that you observe in 2023, but we need more volume, especially in the mid- to longer term when the interest rates go down and the revenue will, therefore, decrease and Wonga will introduce new initiatives to increase the volume of loans sold on the Polish market.
At this point, we're not analyzing diversifying into any new services. So overall, I would say it's been a very good year. 2024 starts very well. Recoveries in January were above expectations. Please don't expect us to continue to grow at the pace you've seen in 2024, but we definitely have ambition to grow profits this year despite this high base effect that we have. Please also bear in mind that the final audited results may be somewhat lower if the tax inspections will be concluded or we decide we have enough information to create provision.
In March, please take a look at this 3 years of investments of very big growth of investments between '21, '23 and try to extrapolate that, that should translate into further increases in net profits in the following 5 years. So we are positive. We as always concentrate on improving effectiveness in those 4 markets, plus the fifth now, and we think there is still much we can do about growing that business in the future. I don't see any other questions. So thank you very much all for your time and all the best in your investment decisions. Goodbye.