NAOS Emerging Opportunities Company Limited (NCC) Earnings Call Transcript & Summary

Good morning. My name is Sebastian Evans. I'm the Chief Investment Officer of NAOS Asset Management. As you're probably aware, this is our quarterly webinar for Q3 of FY '24. So first approaching what feels like it's been a pretty tumultuous financial year '24. Hopefully, you can see the slides in front of you. If not, the slides have actually been lodged on the ASX under one of our -- all of the 3 LICs, so NCC, NAC and NSC. There'll also be a recording of this webinar sent out later today if you're on our distribution list. If you're not on the distribution list, just feel free to add yourself on our website. It's pretty easy, and you'll see it on the front page. A disclaimer and just keeping me moving nice and quickly. So I'm not going to go through the disclaimer today. As you would know by now, and I'm sure as many people will remind me after this quarter's performance, we tend to speak about a number of specific investments. Obviously, you don't take this as gospel. This is not financial advice, seek your own advice from professionals that suited to your own circumstances. Next slide, please. And then finally, before I start, I want to acknowledge -- do an acknowledgement of country, acknowledge the traditional owners of the country throughout Australia and recognize their continuing connections to the lands, waters and communities that we live in. We power respect to Aboriginal and Torres Strait Islander cultures and to the elders past, present and emerging. So I'll just get straight into the slides. As some of you will know, there's a little bit of sort of background information, I think about 200 registered for this call today. So I'll just give a little bit of background information, and then, I'll get into the nitty-gritty about Q3 and how we're seeing the investing environment today. Do apologize, I've got a bit of a croaky voice. So for those of you who don't know who we are, we are -- obviously, we are NAOS. We've got -- we're an active investment firm. We have very much a long-term focus with a focus on investing in emerging companies. Clearly, our aim is to compound shareholders' capital and through that deliver dividend growth over the long term. And clearly, we have a resolute commitment to investing our capital alongside our shareholders. So most of you would know that all of my investable funds outside of my heavily mortgaged house is in the NAOS funds. We have a focus over quality over quantity, so we only have roughly 15 investments across all 3 of the LICs, but we do take significant minority shareholdings. So roughly, we have a 10% to 35% ownership in generally, most of our investments, as we want to support their ability to execute and achieve their longer-term goals. Another new slide. This is something that some of the investors have been asking for, and I think it probably does help give people an idea of where we're invested in. Yes, it doesn't give you each investment stock by stock, but it does give you the industry exposure. So you can see there on the pie chart on the left, we're heavily exposed to financial services, obviously, through businesses such as COG, who will be presenting today, Andrew Bennett, the CEO, will be presenting in about 10 minutes. And you can see there, we have a large exposure through the building materials, logistics and freight, contracting, health and retail. I suppose the most important one for me is probably the market capitalization by buckets. So you can see we are exposed through the 3 LICs to the smaller businesses in the stock market. So over half or about half the investments have a market cap between $50 million and $250 million and then $250 million to $500 million. So that's generally our sweet spot, I'd say. It's probably verging on the smaller side because a lot of the share prices haven't appreciated as much as we thought they would have. So, therefore, the market caps are smaller than we expected. But we're looking for businesses that have a market cap of $150 to $250 million with ambitions to be a $1 billion business. We think that's a very real possibility, and they're generally our core investments, such as the COGs, the MaxiPARTS of the world, the Big Rivers, the MOVe Logistics. You can also see there that we've started investing in unlisted investments. And as I've been saying for the last couple of years now, it's not a core part of our philosophy, simply a way for us to dip our toe in the water to find profitable businesses that we think has a similar quality to our listed in business -- listed investments because, as I've said time and time again, the amount of listed businesses being taken over and therefore -- and not being replenished on the ASX through IPOs has been significant. So the number of quality businesses that remain unlisted is getting smaller every day in my view. So therefore, we need to ensure that we're investing in the highest quality businesses that we can find, whether they are listed or unlisted. Next slide, please. Getting to know NAOS. Look, I think I'll just -- I might just pass over that one as I'm sure everyone knows NAOS by now. Next slide. And then this one, we've changed slightly, but I always think it's important why we believe we are different. Clearly, our performance is very different to that of the index time and time again. The average businesses that we invest in has an earnings profile of about $25 million, so they are smallish. Average holding period now is probably getting closer to 7 years. So we are long-term patient capital with a hands-on approach. We're not seeking to trade in and out of businesses all the time. We're concentrated. We are active and hands-on. We sit on the Boards of 7 companies now. And we do partner with our investments. We're big believers that we can -- we want to be able to assist our businesses as opposed to just being a passive shareholder and just being 1 of -- I suppose, 1 of 100 investments. We want to take much more of a long-term focus for you and partner and assist where we can. So getting into the nitty-gritties of the market, and obviously, the performance, and I'll hit the nail on the head pretty aggressively here and say Q3 of FY '24, no doubt was arguably our worst relative performance quarter by a significant margin, I'd say, as long as I can remember, and I'll get into why in a second. Clearly, we're investing in some of the smaller companies in the market. Liquidity is poor. They're not really of a -- definitely, obviously, we don't invest in resource companies. We don't invest in early-stage technology companies or super high-growth businesses, and that has hurt us very much from a relative standpoint. And I would say, from a relative standpoint, we're pretty -- we actually don't really care about relative returns, but I would say from an absolute perspective, we are disappointed, and we don't want to have absolute negative returns over 1-year period. We can see NCC and NSC specifically have suffered. For us, that's an unacceptable return. And I'll get into the reasons why that has occurred, but also, I suppose, why we remain exceptionally optimistic about the future of our -- many of our investments. Next slide, please. So just getting into a market summary, and I'm going to steal some words from a very famous investor in a second. But as you can see there, for the quarter, it was an exceptionally strong period for the small orgs and the ASX-100 Accumulation Index, finishing up 7.5% and 5.5%, respectively, which from a quarter standpoint, especially for the start of the calendar year is generally a very positive side, believe it or not. This, in our view, has been driven -- I suppose there's so much noise around this, but specifically, people or many investors are expecting rates in the U.S. to come down significantly this year. That's probably changed a little bit in April. But at the time of -- when I wrote this for Q3, the expectation was that there will be 3 to 4 interest rate cuts in the U.S. in a fairly quick succession, which drove equity prices higher. And what you saw was that's led to a re-rate of larger and much more liquid stocks regardless of their immediate growth outlook in my view. Next slide. And I'll touch on this chart here and then refer to the fund manager was telling before. And I think this slide for me really just highlights what we're faced with as an active fund manager and for investors in general. This slide here, if you look at the blue line, it looks at the share price of CBA. You can see specifically where I've circled. Since -- for Q3 of FY '24, the CBA share price re-rated significantly. Up until the end of March, you can see it was almost up 10% to 15%, which for one of, if not the largest stocks in the ASX is almost unprecedented, I would argue. But for me, the really frustrating thing is that, if you look at the earnings expectations for CBA, the market is telling you that they expect the EPS expectations of CBA to be flat at best. And that's what you can see from that orange line there. So people are expecting that the EPS of CBA for FY '24 is essentially going to be -- provide 0% growth. So why the share price is going up, it's purely a valuation re-rate. It's got nothing to do with earnings. Earnings are flat. But what people are willing to pay for CBA has gone up for whatever reason. And the one thing I was referring to if people do have a second in their days, I would really highly recommend reading this letter from a fund called Greenlight that David Einhorn writes his quarterly letter to his investors. And just on the first 2 pages, I think it's quite interesting that he comes out and says that the market in his view has been investing for a little longer than I have, just flat out says the market is completely broken. And he gives an example of what we're faced with today is there are many more investors today who do not care about valuation, are run by computers, and it's really a weight of money argument. And the example that he gives is that if you have 2 stocks that are worth $1, their true value is $1, but one has a market cap of $2 and the other one has a market cap of $0.50. For every dollar that goes into an index fund, it will be weighted more heavily to the larger stock regardless of its true fair value. So therefore, the stock that's expensive continues to get more and more expensive because index funds are getting more and more money, and they just go into the biggest, most liquid stocks. And also, what we're seeing is active managers, unfortunately, people like us, they are losing money. Obviously, some have shut down more recently. And therefore, that's even putting pressure on stocks because they're forced to sell what they consider to be value stocks, and therefore, more money goes into index funds and pushes those stocks up even higher and higher. But he says he does get to the point now where I can actually buy value stocks, and I can almost generate a 10% return just at a dividend yield and very low EPS growth expectations. And so it's almost getting to the stage where I actually don't even care what's going to happen to those more liquid, very, very large behemoth businesses because the businesses I can buy today in the smaller part of the market represents such strong value that I'm getting paid to wait. So I do recommend if you could spare a second read the first 2 pages of that. It's quite an interesting way it's been written to describe what's going on in stock markets around the world. Next slide, please. So from the macroeconomic environment standpoint, I'm probably going to stick my neck out here. I know people are generally pretty positive. And I think it's great that we've got Andrew on the call today because COG are the largest finance broking aggregator in the country, almost $9 billion of finance go through its network. So Andrew will have a very good feel for demand for new cars, equipment, yellow kit, things like that. So it gives you a very good underlying feel of the strength of the economy. But I probably would say from my standpoint what we're hearing is we would say that interest rates being longer -- higher for longer than expected, he is having a real effect on the economy more recently. Now I've given you 4 examples there of businesses and well-known businesses, high-growth businesses such as AWS or Amazon Web Services, Tesla, PwC, all cutting significant amounts of roles more recently. As I'll say later on in the pack, we've been doing a lot of channel checking. And you can see that a lot of businesses that are sort of front and center of that economic activity have definitely found Q3 and now the start of Q4 much more challenging. So activity is slower, people are more price conscious, margins are coming down, everyone is starting to look for a deal or they're deferring projects. And I would definitely say that it's having an effect on many listed businesses in the ASX. Next slide, please. And as you can see here, obviously, in April, this is up until yesterday, interestingly, the market has begun to sell off quite aggressively. So when I did this, the Small Ordinaries was actually down 5% in a very quick fashion with the larger ASX 200 actually falling at a slightly greater rate than that. So it definitely feels like the market is not sure what to expect or what's being priced, and therefore, we're a little bit beholden just to liquidity as opposed to value and fundamentals. Next slide. So from our performance perspective, I wanted to be very transparent here and really put the figures on a slide. And as I said, from our perspective, it was a very poor quarter from a relative and an absolute basis and not up to the status to which we hold ourselves. As I've said there, we've got 15 core investments, and therefore, our returns will generally have a very, very high tracking error compared to the index. No doubt about it. So we can often be up 10 and the index can be down 10. In the case of the last quarter, it was the opposite unfortunately. But what I've laid out here is you can see that the share price return of these investments over FY '24. And it really just shows you what we've been faced with. So as you can see there, COGs had a 2.5% share price return as to the 31st of March versus not for April. And you can see to the right of that, that gives you the return, including the dividend. But obviously, what stands out is it's clearly true positives and a whole heap of negatives. And if I go to the following slide, please, in our view, I would say share prices are not necessarily reflective of the true value of the business, and I'm very passionate about this. And I'm going to give you some reasons why we don't believe that is -- it's a fair reflection of value. And the first one here, I'll say, is considering many of these investments are a liquid, the first one I was going to refer to is Saunders, one of our largest investments in our NCC fund. This business has now gone through 4 consecutive years of record revenue and profit. So I would say that's an outstanding track record. The business is growing significantly, but it's also growing into new areas. So now does automation, does work in data centers, believe it or not. It does a lot more work with the Department of Defense, has really a Tier 1, I would say, customer base, doing much larger jobs. They did a $70 million to $80 million job of the new Western Sydney Airport. And what that has meant from a share price perspective, even though the returns have been records -- consecutive records for 4 years, over the last 2 years, to the 31st of March, the Saunders share prices actually returned negative 25% with a total return of negative -- almost negative 18%. So a complete discrepancy between what the market thinks the business is worth relative to the fundamental results of Saunders. Next slide, please. It's very slow to change. Sorry, it's a new platform today, and so, we're probably struggling a bit more than usual. GoTo webinars decided to upgrade their system. So I think we're all just getting used to it after many, many years of using the old one. So you can see here from a visual representation. I've tried to sort of help people understand what we're faced with. You can see this is the Saunders share price, the blue line, and you can see the profit is the column graph behind that. So clearly, what it's telling you is the share price pretty much tracked the profit almost, I'd say as your correlation with 1. But more recently, it's diverged significantly. So the share is down roughly 20%. And I'm sure people will say, "Well, no one knows what the profit is going to be for FY '24." But even if you were just to annualize the first half of what Saunders did, you would get a profit result that is slightly higher than what they did last year, which would imply that the discrepancy between profit and share price is significant, especially over the last 12 months. Next slide, please. And then finally, 2 other ones, which I'll touch on briefly before I pass over to Andrew is I'll touch on COG, considering it's one of our largest if not largest investment. The earnings are expected to grow modestly over a 2-year period. I'm sure people will say, well, that's -- obviously, that's not a lot of growth. But what I would say, and I'd say this very passionately is, yes, I would argue the quality of the earnings of this business has improved out of sight, it's a capital-light business, 2/3 of the earnings, we believe, will be, probably come from finance and broking aggregation as well as novated leasings. So that's all about clipping a ticket. It doesn't require a lot of capital, doesn't have any credit risk, is a business that generally flourishes as a listed business, when you look at other comparables, such as insurance brokers, even mortgage brokers. Anything that doesn't require a lot of capital to grow fairly easily and has a reasonable level of predictable earnings. And today, or maybe if you -- on an annualized run rate, COG is by far and away the largest broking aggregator in the country, and we think they'll be close to knocking on the door of being a top 5 novated leasing business in Australia. The other one I'll quickly touch on as well because there's a good chart following this slide is MaxiPARTS, pretty -- I'm sure it's going to be topical considering what's going on at black board today. It has a business that is just a pure play parts distribution business for trucks. They've completed 3 complementary acquisitions, probably in -- I would say, quick succession, probably quicker than what we would have liked. But as they say, when things come up, you need to act. Obviously, you can't plan certain things, but even so, the EPS is expected to grow significantly in the second half of FY '24. And even if you were just to annualize that second half '24 figure, it sets the business up well for a very strong FY '25. And if we go to the next slide, the thing that stands out for both of these businesses, as you can see here, so from a COG perspective, that's -- the blue line is how COG has been valued by the market since August 2023. It generally trades on a P/E of 11 to 10. So I would argue the quality of the earnings has changed significantly over that period of time. When you compare it to some of its peers, especially in the novated leasing space, McMillan's, in the orange, chart, trades on a P/E of closer to 13 or 14. Smart group trades on a P/E closer to 18. This is significant valuation discrepancy. And I would argue a lot to that extent to the fact that, obviously, COG is obviously more in liquids. It's a smaller business. But it doesn't mean it's a lower-quality business by any stretch of the imagination. My view would be it's a higher quality business because it's more diversified, but still has a very capital-light business model. And then shifting to MaxiPARTS, this one is even more obvious, there's one peer that MaxiPARTS has on the stock market that's SNL. We made the decision to invest in MaxiPARTS in early 2023 and not SNL because of the valuation discrepancy. What you've seen since then is the SNL valuation has just continued to re-rate. So it's a truck and bus pass distributor, a similar sized revenue business actually, not too different to MaxiPARTS, but it now trades on a P/E in the mid-20s. So you're getting close to 25, 26x parts distribution business, whereby MaxiPARTS is trading on a P/E of 14. We would argue that probably officially should be lower when the results do come out in FY '24. And then when you annualize FY '25, it's going to be closer to 12x. So if you're just applying a valuation re-rate compared to SNL, the MaxiPARTS share price should double. But I do appreciate SNL has been doing this for a very, very long time and has an exemplary track record of organic growth. But does highlight with those 3 investments what we're seeing as an investment firm, what we're significantly frustrated about, but I would also argue the inherent potential in our portfolio and why I feel very strongly that they could re-rate by 50% to 100% over the next 2 or 3 years when the demand for emerging companies does return. Next slide. So just touching on my final slide before I pass to Andrew. As I said, we are very optimistic on the ability of our current holdings to generate returns over -- total returns over 50% over the next 3 to 5 years. We saw a number of green shoots in Q3. As I mentioned here, Saunders, they grew their order book even though they lost their largest -- or they finished their largest contract in the company's history that replenish that, plus more with, I'd say, it was an amazing achievement by marketing team. MaxiPARTS reaffirmed guidance for a business that's -- I'd say it's a challenging macro environment, no doubt. They have got along with those 3 acquisitions that integrated over the last couple of years. Big River acquired Specialised Laminators, their first acquisition in 17 months, the first one for John. It, again, highlights the fragmented industry. That's what we are so attracted to that business. COG, Andrew and his team are doing, I would say, a fantastic integration of Paywise. I think if -- maybe Andrew might touch on the staff numbers in that business now, but it's really grown like we await, really built it up into a business that's almost institutional and is really going after some larger opportunities to compete against some of the large players, such as Smartgroup and McMillan, which have probably been -- haven't really had any notable competition for some time, I would argue. And then finally, MOVe, which has been probably the standout underperformer. Poor Craig, who hasn't been in the job too long, 3 months into his Project Blueprint, exceeded the downgraded guidance. Anyone who's been into New Zealand would understand the New Zealand economy is very much in the doldrums, everyone we talk to on a weekly basis. But this is where you can make drastic change and improve your business, win new customers because every customer is looking for a better deal, better service, better price. And we think Craig and his team are very, very well placed to do that. And then finally, a lot of people ask me this, that how do we challenge our investment thesis? We remain laser focused on always trying to second guess our investment thesis on why we invested in the business, why is it going to generate the returns that we are seeking, how can we exit that investment, what are the exit options to give people an idea. Over the last Q3, I don't want people to think we're just sitting here tooling up and waiting for the cycle to turn. My colleagues that I work with do a fantastic job of finding all sorts of people who work in different businesses, listed businesses, unlisted businesses, directors, former directors, even chairs, more chairs on the Board who are willing to speak with us. Executives, so we're always really keen to speak to people who aren't the CEO, so CFOs, division heads, former employees, industry experts, even some industry events. And then if you go to the following slide just to give you an idea of, I suppose, how we have been pounding the pavement, so to speak. That's a MaxiPARTS site, 2 of my colleagues went to last week unannounced just to get a feel of how that business obviously is going, but more importantly, how they're evolving with some of the new initiatives. You can see plants to the right there, Japanese truck parts. That's a big part of MaxiPARTS getting their gross margin up, some of the higher-margin products. We went to a site visit to Western Sydney Airport, the new Badgerys Creek Airport. You can see some of the work Saunders has been doing there. So they're doing the whole, obviously, the storage tanks, of course, the 14 kilometers worth of fuel piping that goes to all the aviation gates for the planes. It's a pretty extraordinary project. And then obviously, Saunders also bought Piping Solutions that was on the right. And then you can see here for MitchCap, some of the team went out to the Sydney Caravan & Camping Expo and speaking to people to see how some of those manufacturers, what they're looking from a floorplan, finance provider, and I had the privilege of going to the COG Asset Finance Broker Conference late last month, I think. And it was -- no doubt it was a massive turn up. I'm sure Andrew can tell you how many people went. But by far and away, the biggest event on a yearly basis for finance brokers around the country with some highly regarded and notable speakers. So with that, thankfully, you won't have to listen to me anymore. Andrew Bennett is the CEO of COG. I can't remember how long he's been, but anyhow I think it's 6 to 7 years from memory. Really turned this business into something, in our view, quite unique. As I said, the largest finance broking business in the country, now a large novated player. And I thought it was really timely to get Andrew to speak on this call today, not only because it is one of our largest investments, but also because they have such a great, I suppose, network into the underlying economic activity in this country, and hopefully, Andrew can share some key insights into what he's seeing through his network and what his customers are saying. So no further ado, I'll pass over to Andrew.

Thanks, Sebastian. Can you hear and see me okay? I assume so.

Yes.

Well, good morning, everyone. So can you put the first slide up, please? So what is COG? Consolidated Operations Group as it used to be called, but we are a cog in the wheel of many different segments. So we operate across 4 segments, and I'll talk through each one in a bit of detail. Broking and Aggregation, number one, which -- where we started; Novated Leasing, number two; Asset Management & Lending, the third column there; and the fourth column, Financial Advisory. So if I talk in detail around Broking and Aggregation, you'll understand the way that we try to operate or what we -- the types of businesses that we seek to acquire and integrate. So in the first one there, Broking and Aggregation, that's where we've been operating the longest. So we are small, medium enterprise brokers and aggregators. So in mortgage land, you've got companies like AFG who are a residential aggregator. So if you think you want a home loan, you go and see a broker that could be a Mortgage Choice or an Aussie Home Loans or any of those sort of branded broker, and they will find you a loan with a bank. And then there's another player in that transaction called an aggregator because banks don't want to deal with hundreds and hundreds and hundreds of individuals. They want to deal with 1 party who does all the compliance and who they make their payments to. So an aggregator is effectively a service provider to banks and brokers alike. Now we have owned brokers. So if you look in that table on the left, Linx, Heritage, Sovereign, QPF, et cetera. And then down the bottom, CFG, Platform, UFS & NFC are aggregators. But if we talk, and I'll give you a bit of a history on QPF, the fourth one on that list, Queensland Pacific Finance, that was a business based in Brisbane. When we bought into it, it was a father and effectively his 3 sons. We've been in that business for 8 years. It was making circa $3 million to $4 million a year of EBITDA. We bought 50% of it. But it was a business which was a really good business, but it was like a -- almost like a family-run cottage industry. So what we do is we put -- we leave in that situation, the father retired, but the 3 sons still work in the business and still own 30-odd percent of the shares and that's after 8 years. So -- but that business has effectively nearly tripled in profit during the course of our ownership. Now there are 18,000 customers from Tweed River to Cooktown. And they are SMEs, so they could be courier drivers with a light commercial van, a truck and trailer small operator, lots of builders, lots of plumbers with [indiscernible] and backhoes and excavators and scissor lifts. So our target market in the SME broking space is employee in small businesses, may be up to a max of 20 or 30 employees. Once they get to a certain size, then they don't really need the services of a broker. A broker helps them. They might win a new contract, and they need a truck next week, and they just need the truck. They're often too busy to ring around and shop and understand which bank will finance it, what bank offers the best terms, what are the return obligations, where is -- that's where we fit in. We're a service provider to small and medium enterprise. But if you look through that list of brokers and aggregators, what we do is we move them on to a standard computer system. We take away a lot of their back-office-type arrangements. We help them with M&A work so that they can themselves do a number of acquisitions. So what we do is we give -- we standardize the operations across all those businesses, which brings cost benefits to them. But more importantly, what it does is it allows them to spend their time doing what they're good at, which is servicing clients and in finding finance for their clients. And the business is still incredibly strong. And on my next slide, I'll talk about that. Then you can see the next one, Novated Leasing. Novated Leasing, what it all boils down to it is very similar to a broking operation. Novated Leasing is a tripartite arrangement between an employer, an employee and a lessor. So it's a little bit more complex than a normal SME getting a lease for a truck or a trailer or a backhoe, but the margins are better. And the other thing is that the credit loss history in novated has been incredibly low for a very long period of time. But at the moment, novated is sort of the jewel in our crown. We've been in the novated space for 6 or 7 years, and it's been going quite well in building, but we all needed to have a bit of software called a bureau or a salary packaging software, and we've been looking for a number of years to acquire one. And then finally, 12 months ago, we acquired a business called Paywise, and this has been quite revolutionary for us because that's enabled us to grow very rapidly, and we were growing very rapidly before the advent of the electric vehicle discount. So for those people who don't know the government in attempt to electrify vehicles as part of this decarbonization strategy, if you buy an electric vehicle through a novated lease, there is no Fringe Benefits Tax. So effectively, it's in half the cost of an electric vehicle. Or another way to describe it, you can have an $80,000 Tesla, and it costs you the same on an after-tax basis as a $40,000 Mazda 3. So it is most certainly an incentive, and it has triggered a huge wave of growth in that segment. The -- then we've got Asset Management & Lending. We own a number of small businesses. Same sort of concept where we try to find similar smaller businesses that probably won't be able to list in their own right with duplicated systems. But the other link is that we move -- we sit at the front end with their broking and aggregation. We send some funds that we originate into our asset management and lending segment. The final one that you can see on the right-hand side is a Financial Advisory. We like that segment. And I'll talk a little bit about why we like that segment. But fundamentally, it has a similar structure to the way that Broking and Aggregation operates. It has individual advisers who talk to customers and then -- or provide advice to customers. But then you have a service provider called a licensee. In our Broking and Aggregation space, it's very similar. You've got brokers, and then, you've got an aggregator. And the same sorts of things we've been able to do in Broking and Aggregation, we think we'll be able to do in Financial Advisory. Next slide, please. So here, just quickly, this is just what we've done in our Broking and Aggregation space over the last 8 years. And you can see that we've grown -- half-on-half grown the flow through our network. This is our aggregation network. And currently, about 36% of the flow going through our network is through our owned brokers. And then the balance is what's called member brokers where they just pay a fee for us to use our software and access our compliance and access to higher rates because -- think of it like a buying group. So you can see even since -- well, when was COVID, in the 2020 year, things were growing strongly before then. COVID -- the COVID incentives and then the wind off of COVID incentives and the higher interest rates have not changed the path of our business. We are doing, as every month goes past, more and more business. And when we turn to the next slide, that will give you a bit more of a sense around what's driving it in my view. So can I have the next slide, please? Is there another piece to that? Is there another -- okay, this slide here -- there we go, that's what I want to see. So this -- if you look at the bottom of this graph here, looking at 2021-'22 period, Australia's population was at 25.9 million. Now this comes off the government's own population website that the government grabs the data and forecasts. So the bottom line there was the build-out from -- basically June 2022 -- from June 2022 out to June 2031, which is a 9-year period. So you can see that deep blue line going from 25.9 million to 29 million. So then you come back another 12 months later and look at what the government forecasted. So this is the current year forecast. So this is -- this was released in about September '23. But even in a 1-year jump -- in 1-year time delay, the population went up way above the government's own forecast in a 12-month period. So there is a huge population growth that's coming through, and that's what's driving our business. So even in the face of very high interest rates, in terms of the underlying activity in the markets that we service, it's continued to grow, and it's continuing to grow because there were just more people, more people needing homes. It's creating, triggering investment in infrastructure. Sebastian mentioned the Sydney Airport, but there's the Brisbane Olympics, there's trains in Melbourne, there's just a wave of activity, and it flows directly into the small and medium enterprise, which we service. Now there's no slowdown in that. We've -- that's a very solid tailwind that we have. Yes, there'll be momentary or short-term pressure points in our business, and we've seen it in the last quarter. We've seen much higher volumes, but we've had a bit of margin compression in the face of the higher interest rates starting to buy through. It's taken a little while for it to flow through. But in terms of the underlying driver of all our businesses, Broking and Aggregation, Novated Leasing, Asset Management & Lending and then Financial Advisory, there are more people with more money under advice, and they require -- there's going to be a higher need for financial advice into the future. The other big dynamic, if I can have the next slide, is the transition of the electricity grid to renewables. So again, this is public information from the integrated system plan, which is what the Australian Energy Market Operator publishes every 18 months or 2 years around what it is proposing to build. You can see there on the left, there's sort of yellow and blue. So the yellow is solar panels, and the blue are wind farms, and then, all the transmission lines that have got to be built. If you come across 2 years later, there's -- it's a lot more denser. There's more transmission lines, more solar farms, more wind farms that are going to have to be built as we switch off coal and move to 100% renewable energy. So what you'll also note is a lot of this development is in remote and regional areas. There's not existing workforces or big factories already. So this all feeds pretty immediately down into small and medium enterprise. Camps have to be built, fences have to be built, stuff -- engines and blades and solar panels and all that stuff has to be moved from port to all these remote areas. And that all just feeds down into the workflow for small and medium enterprise. So the combination of the higher population and this additional build-out of the -- or the replacement of an electricity grid that has been -- we've had the coal-fired generators for 50 years, and they're going to be shut down by 2035, and all this infrastructure that's going to be built is a very strong tailwind for our business. So we're very optimistic about the future. That's about all I wanted to cover, Sebastian.

Thanks, Andrew. Sorry, it's a little bit slow. But no, no, thank you. I think, as I said, from my perspective, clearly, it resonates for COG, but I think as well it resonates through many of their investments and none of our investments, but many businesses on the ASX. Some of the underlying trends that we're seeing, COG is seeing, what's driving demand over the long term as opposed to some of those more -- the headwinds we're seeing in the short term from a margin perspective, but from a revenue perspective, the tailwinds are significant. As I forgot to mention -- if you do have a question for Andrew, I'll take questions at the end. So I'll try and go through my last section over the next 10 minutes. I think there's a chat box. I'm not sure of the new format. If you do have a question, put it in the chat box, and then I will read it out to Andrew. If that doesn't work for you, feel free to e-mail [email protected], and Angela will shoot that through to me as well. So with that, I'll just go through the next few slides, please. Just some -- a little bit of an update just on some of our key investments. As I said earlier on, Big River, obviously, acquired Specialised Laminators. It's actually quite a large acquisition. It's very much a panels business. They had their first half results, which saw a volume and margin decline, mainly a margin decline as a lot of the commercial projects continue to be delayed, but more notably, a lot of residential work. As we all know, it's just delayed because of red tape, lack of trades, financing issues. But at the same time, we've seen significant corporate activity with Boral, CSR and now Adelaide Brighton, all being taken over. People would also probably have noticed there's a Big River trading update today, which I may as we'll touch on. Clearly, it was a downgrade to consensus expectations, and as John said in that release, a lot of that has been driven by margins. So some of the higher-margin businesses in Big River's, I suppose, total business, specifically frame and truss because of the volumes of new homes in this country being built has slowed significantly, even regardless of the government's 1.2 million new homes ambition, which we won't get anywhere near to completing over the next 5 years. What Big River has set over the first 3 months of calendar year is quite a significant margin contraction, even though revenue is holding up relatively well. And then subsequently, the businesses had to, I suppose, recut its cost base, but I do remain very optimistic on the long-term drivers of that business. I think they just need to, as I said, recut the cost base, and they'll come out leaner and meaner business that now probably has close to $400 million to $500 million of revenue. I also touched on MOVe on the below. So I probably don't need to touch on it again, but I would say, clearly, a lot will revolve around, obviously, the New Zealand economy, and we're looking forward to prior to a full-year result from MOVe. Next slide, please. And then 2 of our smaller investments. Urbanise, they actually released their quarterly update today, and I would recommend reading that because they have specifically called out they're entering a new part of the strata market, and you can see that they have really called out financial services, which doubles the potential target market for strata, so I do recommend people read that. It's good to see Darc, who we were very supportive on his becoming as Chair, is really starting to get into the nitty-gritty of that business. And we think it's finally, starting to turn the corner and make some strides in regards to growing that revenue base at a more acceptable rate. MitchCap, one of our unlisted businesses, a big player in the finance or the floorplan finance space. As I mentioned probably last -- maybe last call, one of the largest players in that space has actually pulled out of the Australian market, and that's created a lot of opportunity for MitchCap. And interestingly, I was probably a bit naive to this, that as my colleagues tell me, a lot of the opportunity is as numerous deals when it comes to farming equipment, tractors, lawnmowers, slashers, things like that, and a lot of the new business that MitchCap is getting is from that arena. And we expect that business to be on a profitable run rate in the near future, which would be a fantastic outcome for Paul and his team. Considering Paul sold the family home to start this business not that long ago, it's been an exceptional outcome. Sorry, next slide, please. And then just 2 other ones, Dropsuite. You would have seen they had made a quarterly update out the other day as well. But in regards to the calendar year '23 results, 35% organic growth at the ARR level. They continue to reinvest in that product, continue to take share and build out their partners who they sell through. And then BSA, I would say BSA has probably been the one that's been the standout from a financial perspective. They had their quarterly out the other day as well, which I would recommend reading. But they've exited their noncore businesses. They look like they're on track for EBITDA in excess of $20 million. They're building out their capability in smart meters and EV charging and continue to do some great work with NBN around connecting the home to the new fiber network. So it's been a very, very long journey that one, unfortunately. But it's great to see BSA finally, reaching its potential from a financial standpoint at the very least. So just before I get to questions, an outlook. As I always say now, I mean, this outlook has probably become a little bit meaningless considering what goes on. But I would say, it's going to be an eventful end to the financial year hasn't it been already. So we've had Q3 quarterly updates. The noticeable ones, I would say, BSA, as I mentioned; COG, Andrew touched on, which they saw a little, revenues remain very strong, but there has been some margin contraction. We had one from Big River today, which also are experiencing some headwinds from a margin standpoint. But also ones that are giving the market a bit more color around strategic opportunities such as Urbanise. It will be interesting to see how the macro backdrop does affect business activity. I thought the noticeable one today, we had Ampol come out, and they missed expectations from obviously, the amount of fuel they're selling into the marketplace. Bapcor, one of the largest, I suppose, retailers of car parts have been trading pending a trading update, which generally is not a positive trading update. It's going to be very interesting, I think, to see how we finish the financial year. For me, it feels a bit more of a limp than a sprint. But at the same time, that creates some outstanding value opportunities in my view. Next slide, please. And then just touching on -- this is our new dividend slide just so, I know, people do like to understand where we're at. You can see, obviously, the history. I'm not going to go over each financial year for each LIC. Look, I think the thing that matters for all these LICs is probably 2 things. You can see the reserves there for each LIC in the bottom right-hand corner. So that's the reserves from a cent per share perspective. Our ability to frank these dividends will ultimately come down to how much tax we pay and how much franking we receive from the likes of COG and Big River. But at the same time, we also need to perform. I don't want people to I think we're being ignorant to that. We need to put up some solid performance year in, year out to continue to ensure that these dividends are sustainable because if we continue to perform like we have done, then obviously, they won't be. But we're very cognizant that dividends are important to our shareholders, as you can see there. NCC hasn't lowered its dividend in 13 years. So it's something we're proud of, and it's something we'll be trying very hard to maintain for all 3 of those LICs. So with that, I do have some questions in the question tab, I think. As I said, this format has changed, and I'm telling you right now, it is not as easy as the old format. So I actually can't read the entire question. I'll put it quicker.

So yes, first question from -- god, doesn't tell me who, it's a bit unfortunate. Anyway, it's about SNL and MaxiPARTS. So it comes down -- essentially, what the question is, is SNL has revenue of $300 million and NPAT of $10 million whereby MaxiParts has a $250 million revenue and $8.8 million of profit. So surely, this shows SNL has been more efficiently run on profitable business, therefore, justifying its share price outperformance. To the unnamed person, I can't see it anyway, who wrote that question. Yes, no doubt. We're not denying that. SNL is an exceptional business. I think what we -- our investment faces is -- Stephen Tom, there you go. Thanks, Stephen. What I would argue is I don't think MaxiPARTS has the potential to get to that level. As I said, they have had those 3 acquisitions. We haven't had a full year with all those acquisitions in the business. You got to remember, MaxiPARTS was part of a business that was MaxiTRANS, had a trailer business and a falling business. So the MaxiPARTS business has been under invested into many, many years. So I think MaxiPARTS has the ability to be -- get to return metrics similar to SNL. And Even if they got halfway there, I think we'd be over the moon. But no doubt, SNL has done a fantastic job. Yes. So again, I can't see the name for this question. So I'm just going to say don't worry about it. So it goes, can you explain your process of investment in acquisition and how you continue to monitor and ultimately exit investments given -- it looks like over the short term, NAOS has not made optimal decisions, how can you offer more investor confidence? Good question. Obviously, it's something that we ask us all the time. There's no doubt about it. I think -- clearly, I think, if we had our time again, the one thing that we've missed in investment team, and I might take the full blame for, is just I think we're probably underappreciated how liquidity would affect our investments. The demand for small caps in this country more generally is probably at a record low. I made the comment. But I think in my notes, if you look at COG, I think COG is almost a $300 million market cap business. And I think for Q3, the amount of shares that traded was just $2 million to give you an idea of just how liquid some of these businesses are even though COG is not a small business, I would argue, at $300 million. And therefore, what we're seeing is the valuations are just being crunched for these smaller businesses as there's risk aversion, people look to move up the market cap curve. In regards to how we stay and monitor these investments, as I've said, we are very hands-on. We would speak to most of our investments on a weekly, fortnightly basis, whether it's with our CEO or someone on the exec team or just someone that I saw, whatever it may be. So we're always -- we try and to do 1,000 meetings a year, which we're close to on track to do again this year. And then obviously, in the case of some other businesses, we actually even sit on the Board. So Brendan sits on the Board of Big River, Saunders, is 2 examples. So we have a very good understanding, I would say, almost better understanding than others of what these businesses or the potential is. But ultimately, the issue we probably have is we take large minority positions, almost similar to private equity, that we're marked against an equity index that bears no recollection to how we invest. And that's something that we need to deal with, especially in times as the ones that we're going through now. And ultimately, we need to drive shareholder value. And that's something we think about every single day. But we're extremely confident the likes of COG and others will drive really significant shareholder returns over the long term. And I don't have any doubt about that. But you can take COG for an example, it's a very valuable asset for someone at some stage. Just someone said, can you explain your process? Probably I won't go through the whole process. It's going to take me a little while. But, yes, as I said, the slide is probably the best place to start. For us, the process is all about its people, its industry. We want to invest in industries that have tailwinds. We want people that are aligned and have a proven track record. We want capital-light businesses and businesses that have a long runway of growth. And then ultimately, multiple expansions at the end of it. So we want to be paying 10x on something that hopefully will be worth 20x if that's how I was to summarize it. And we want businesses with bullet-proof balance sheets that can withstand some of the issues that we're witnessing today. This is a very good question. This is probably what I'd be asking. Looking at the performance summary, you mentioned that, obviously, your performance is below your high standards. When do you believe the last time you achieved the highest standard you set yourselves and when do you believe this will occur again? That's a good to the point question. Look, I'd say I don't have the performance figures in front of me. But I think I used to go from memory, when you looked at NCC up until 3 years ago, I don't think we ever had a negative financial year return from memory. So we've always been very consistent. I think no doubt the last 3 years has been the worst in my career by a country mile, and we've been caught out by some poor investment decisions, multiple de-rates, obviously, and then obviously, a pretty much lack of any investor appetite for emerging companies. When does this change? Obviously, I don't have the crystal ball, but my view is it changes. Yes. If I'm an investor, I think it changes when people get more comfortable with the macroeconomic environment and the level of certainty for earnings for small caps. I think that's a big one. Obviously, you've had a few businesses come out with some not overly positive trading updates. I think people need to get more comfortable with the trading environment. I think you need to see cash rates come down a little bit because, obviously, people are being paid good returns to invest in risk-free assets. So I think once you get that starting to occur, then I think the demand for emerging companies will be significant. And I think people do forget that the demand for emerging companies, changes like that, stocks can re-rate. I remember back in -- a few -- not that long ago, yes, 20%, 40%, 100%. And as what I always refer to as the GFC, fund managers, investors, everyone went down the same amount. The people who lost out were the people who sold out at the bottom. You had to stay invested. You had to stick to your philosophy and process. And if you stuck to those businesses, the re-rate was significant. And obviously, you did exceptionally well. I think that is it. So as I always said, if you do have any questions for Andrew or myself after this, don't hesitate to e-mail me or inquiries. There were -- I think we had 10 or so questions prior to this. I e-mailed each and every one of those on the day. So if you do have any questions, I'd generally get back to you on the same day or I'm happy to give you a call. I'm generally, an open book, so don't hesitate to reach out if you have any concerns or suggestions. I'd like to thank Andrew again and everyone else who helped with the webinar today. And hopefully, we can provide you with a little bit more better news in the Q4 update, which I'm sure we will hold sometime in July. So thanks again, and best of luck investing.