NAOS Ex-50 Opportunities Company Limited (NAC) Earnings Call Transcript & Summary

All right. Good morning, everyone. My name is Sebastian Evans. I'm the Chief Investment Officer of NAOS Asset Management. And this morning, we'll be speaking to, obviously, the quarterly update for all 3 of the NAOS funds and what has been Q1 of FY '22 now, which seems like it’s just flown by. As many of you, or hopefully, all of you, would realize, the documents or the presentation material was lodged this morning on the ASX. It was also sent around, I believe, this morning, if you're on our distribution list. If you have not received the presentation material, you can go to the ASX website or feel free to e-mail inquiries right now, and we can send that to you as we speak. With that, I'll get Ang to go to the next slide, please. I can't -- we might just have a quick issue. Unfortunately, sorry, everyone. I just can't see the slides. Uh-oh, nearly. My heart stopped for a second. So anyway. With that, I'll -- it was just a quick note. Obviously, for those of you who haven't seen the agenda today, Michael Omeros from Over the Wire, obviously, the founder of Over the Wire and the current CEO of Over the Wire and Managing Director is going to make a short presentation. Obviously, it's a new part of our quarterly update, where we try and get a CEO of one of our investee companies to come and present and talk about not really just the business but more of an industry, I suppose, analysis and feedback. I'd also like to thank Michael. Obviously, for those of you who don't know, Over the Wire is currently announced they're in discussions with Aussie Broadband on a potential corporate transaction. So I appreciate Michael, probably hasn't had enough hours in the day to get everything done. So for Michael to give us his time for the next hour, really appreciate it and I'm extremely grateful. With that, for those of you who don't know, NAOS, I'll try and keep this quick so we can get through to the content that everyone wants to speak about. NAOS was -- we launched our first listed investment company in 2013. We're very lucky to have 8,000 shareholders today and manage a little bit over $400 million across the 3 LICs. Many of you may notice that it no longer says we focus on listed emerging companies. At the end of this month, we will launch our first unlisted fund that will focus on private investment vehicles, which closes this Friday. And I think really what we're all about is really just focusing on genuine long-term concentrated exposure to undervalued emerging companies, whether or not their growth or value investments, and that is really what NAOS is about. So with that, I'll go the next slide, please. The team, I won't go through every one. The only new face, and it may have been in the last quarter's presentation as well, but I will touch on Brendan York. Just to refresh everyone, Brendan was the former CFO of Enero Group, one of our most successful if not our most successful investee companies, ASX code is EGG. Obviously, very grateful that Brendan's joined us from Enero. Really brings a very different perspective. Someone who obviously has a lot of operational experience running a listed business, M&A experience and obviously, with a heavy finance exposure. So for us, I think it really broadens our skill set, gives us a lot of experience. And it's really great not to have, I suppose, not just another fund manager in the room, but someone who has really great day-to-day experience of managing a listed business. And you would notice that he's obviously on the board of a couple of our core investments as well. Next slide. In regards to why we believe our investment beliefs provide a competitive advantage, as many of you would know, we really focus on the long term. We focus on investments that can grow over the longer term just like Over the Wire has, very much believing a concentrated investment structure. So our funds generally have 8 to 10 investments currently. We're not focused on the liquidity of the shares. We're really focused on long-term performance. An interesting fact is none of the NAOS holdings are within the small ordinaries for the ASX 50 Industrial Index. But also we're completely index unaware. We don't have 1 stock in any of the indexes. And we're big believers in management alignment. We want to focus on people who are aligned with ordinary shareholders just like us as we're big believers that they have the power and the commitment essentially and the drive to focus on their business's moat, its strategy and execute that over the longer term to drive gains for all shareholders. And then finally, those last 2 points, as many of you would know, we're very much focused on ESG thematic, how we, I suppose, connect with our investee companies, what we can invest in, how they're generating a positive impact for both the environment and their relative communities. And then obviously, we provide constructive engagement for all of our investee companies. As we've said, we're not an activist investor. We want to provide constructive engagement, where required, where we believe we can add to, I suppose, shareholder returns, sustainable shareholder returns over the long term. This slide we always put in, reasons not to invest with NAOS, and many have probably told me that's along the way. So I'm probably just repeating myself again. But clearly, we run very concentrated funds. Our investment philosophy revolves around being very long term. We have investments for 5-plus years. We focus on the smaller end of the market. So most of our investments are under $0.5 billion in market cap. I think all but 1 is below $500 million. We're completely benchmark unaware. We have a focus on industrial businesses. So we don't invest in resources or very early-stage technology. And clearly, our funds are of a smaller size where we can gain a meaningful exposure to small businesses. So we don't run a $1 billion and have 100 investments. We are true to label and very pure in that respect. And we have a very strong focus on ESG, and we're aware of that, again, as I said before, how that provides a positive impact over many facets of society, whether it's the environment or the community. Touching on, I suppose, the most important slide, and I suppose the meat of the presentation is really how our financial year returns have progressed in Q1 of FY '22. And as I said, it does feel like it's progressed extremely quickly in what's been a very dynamic environment coming out of or going into lockdown, coming out of lockdown depending on where you live in Australia and how that ultimately reflects in our performance. As you can see there, 2 of the 3 funds have started the financial year with positive returns. You can see that NCC is up 1.74%. NAC's had a slightly better start being up 3.7%. And NSD's slightly negative at negative 1.62% for the financial year. In regards to our dividends, the only thing I would say is these are the dividends to date. So since inception, you can see that all of our LICs have been extremely good dividend payers. They've all been fully franked. So you can see in the case of NCC, we've paid almost $0.81 in gross dividend since inception compared to an IPO price cost of just $1. The 1 thing that has changed and it's not reflected in this chart is obviously NAC declared a quarterly dividend, I think it was last week, of $0.016 fully franked, which is an increase from the previous quarterly dividend last year. And then also NSC declared a quarterly dividend of $0.0125, again fully franked. Again, just a performance summary, I'm not really going to go into this in very much detail. Obviously, we don't like to focus too much on the short term. It is pleasing to see that the 1-year performance of all the funds is well above the benchmark. And clearly, 2 of our funds are well above the benchmark in regards to their inception periods. And hopefully, NSC is clawing its way back to the benchmark performance. And we believe very strongly that we'll be able to get there sooner rather than later and surpass that benchmark figure as well. Many people, I suppose, ask us, I suppose, what we focus on as an investment team. Clearly, there's 5 in the investment team, we're quite a -- or we believe we're a very well-resourced investment team. So a lot of our day-to-day tasks is really revolved around this slide. So a lot of what we do when we look at a current investment or a potential investment, is really through these 4 facets. The first one is obviously internal engagement. So speaking with a lot of the executives in the business, Board and directors and wider staff. We generally get a lot more tangible information when we speak to people outside of the executive team. I think external engagement is key, if not the most important. So speaking to previous employees, competitors of all shapes and sizes, suppliers and customers in an industry context. Many of them who you literally have to track down on LinkedIn and approach directly. And then obviously, a bit more of a hands-on approach. So really pressing the flesh through site visits, which obviously have been impossible to do in the last 18 months and a lot of cold calling and product tested. And then finally, more I suppose, in-depth and detailed research, so going through annual reports, financials, historical financials or trends, even industry forums or industry events. Things like that also provide us with a very holistic view of the potential or even the trajectory of a current investment. I suppose in summary, Q1's always quite an interesting quarter. You're coming off what has been extremely busy financial year and really you rip straight into the next financial year. But Q1 often is a very important part of the year because obviously, it's full year results are released. And it was probably quite an interesting financial year for Q1 because of many businesses, obviously, in our portfolio reported their financial year results for FY 2021. And overall, we thought they were very much in line. But clearly, that was probably somewhat held back by the lockdowns that were occurring at that time and there were quite strict lockdowns in regards to New South Wales and Victoria specifically. So I think, obviously, we saw -- we felt that we saw some very, very strong results by our companies. We thought that a lot of that momentum was probably taken away by them due to the lack of outlook that they could provide simply because there was just too much uncertainty. And as we've said there, it's very hard for a business to provide much of an outlook when it's hard to provide, hard to get people to even move around the country, meet people face to face, complete deals, complete new contracts, even complete certain jobs where, in the case of some of our holdings, didn't have an operation that's going at all. And I think the 1 thing that we did learn in that third point is that we felt that the second round of lockdowns this time was probably -- had a much more negative impact this time around than the first time around. And clearly, that's because there was no JobKeeper in this time. And I think the other part is, obviously, the lockdowns were much more significant. And especially in the case of tourism businesses, they have very little, if any, financial or government help at all, so they really had to lockdown their business and just survive as best they could. But it also did hurt a number of other businesses, some in the case of Saunders that clearly got through the first round very, very well. Clearly, this time around, it did clearly affect them in regards to simply just signing new contracts and really building out that pipeline of work. I think it was pleasing that we have rotated into some new investments. Obviously, we've mentioned Gentrack a few times, the Software as a Service business for the utility space; and then Urbanise, again, another Software as a Service business for strata and facilities managers. We also, we believe, will be able to report 2 more new investments, hopefully, in Q2 as well. So finally starting to see the rotation out of some of those older investments as they reach fair value, what we believe is fair value and rotating to some appropriately more undervalued investments but that have very, very strong growth profiles in our view. Just some of, I suppose, the high points of what dominated Q1 from, I suppose, more of a top-down perspective. As many people would say, we're coming out of lockdown. I think the most notable event we're seeing is just the ability to hire people, I suppose, the inability to find skilled staff. Anyone we talk to is really, if you want skilled staff, a, they're very hard to find or b, you're paying an awful lot of money for them. And you're not talking about 5% price increases. You're probably talking about 20%, 30% or 40%, depending on what industry you're in. Even in the case of, as we've said there, truck drivers and even hospitality staff. I think people watching in North America and Europe, there simply aren't even enough truck drivers to drive trucks around obviously move goods. That's leading to issues around supply chain issues. Everyone's probably talking about a 6-week lead time for iPhones, which have now been produced. The amount of funds that will be reduced because of logistics issues. That's hurting all sorts of other industries, whether it's building materials, new car sales. There's a very, very long list. And then finally, those last 2 points have also seen, due to increased demand, especially again in Europe, that commodity prices have now increased very, very sharply. A lot of that's been driven by a significant underinvestment in what people consider to be, I suppose, dirty or old type commodities. And -- but because with some countries still rely an awful lot -- a lot of those commodities to drive their energy, that means there's obviously a shortage and prices have increased substantially. And we've seen that in the U.K. wholesale energy prices as well. But in saying that, I think if you were just looking at an equity markets and I've had the blinkers on and we're forgetting about everything else going on around the globe, you have found that equity markets are at record highs in some cases in the U.S. Capital markets remain open. IPO season is well and truly upon us. The big valuations are being achieved for IPOs and there's a lot of liquidity around. And that's I suppose, leading to a lot of M&A as well, which we'll touch on as well. As I mentioned previously, IPO activity has been fast and furious, and especially in the past 3 months, I think we've seen the largest IPO completes or supposedly complete, which is obviously a funds management business that's looking to list, similar to, I suppose, the Magellan type business. But in saying that, there's been many, many IPOs that have recently listed and will list towards the end of the year. I think it will be very much a frantic finish. And that really shows you that people are still looking for growing earnings streams no matter what industry that they're in, funds management, technology, all sorts of things. And the valuations that they are commanding are significant. In the case of SiteMinder, which some of you may have seen, the new flows, that will list on a revenue multiple north of 10x even though they have not provided a forecast for the next financial year. So interesting to see that all this capital is still willing to be deployed into IPOs that we would consider not exactly offering what we believe is fair value. As I touched on obviously in the slide before the previous one, as we can see here, commodity prices, especially in regards to energy, have skyrocketed since the early part of the year. So from December onwards, as, I suppose, the global economy started to come out of lockdown, we've seen huge shifts in energy prices. And as we can see, for Europe specifically, where they rely on natural gas a lot, the natural gas price is almost going close to doubling in the space of 7 or 8 months. And that's something that can't be hedged. That flows right down to the consumer. And obviously, that is inflationary over time. As I mentioned before, we're very lucky enough to have Michael Omeros, the Managing Director and CEO of Over the Wire, obviously the founder, cofounder. We've been invested with Over the Wire now for probably up to 4 years. We have a 17% shareholding in Over the Wire. Developed a very good relationship with Michael who we believe has done an excellent job of growing that business organically and by acquisition. And we thought it was very topical for Michael to come on and obviously, give us his thoughts not only on the Over the Wire business, but the thematic of cybersecurity in general. And now I'll pass over to Mike.

Great. Thanks, Seb. Appreciate the invite, and good morning, everyone. So where I might start is just give you a very quick overview on Over the Wire. So I'll mainly focused on the topic at hand, which is around cybersecurity. But Over the Wire, as Seb said, NAOS, I think, have been a shareholder of Over the Wire for about 4 years, and we actually listed in late 2015. So it's been about 6 years in the public space. As we say, our purpose is to simplify technology to empower business. And that really sort of goes to the core of everything we try and do. At a very high level, we're providing solutions around what we call cloud, connect and collaborate. If you think of traditional telco speak, cloud is cloud and sort of like that Infrastructure as a Service style offering. Connect is around sort of that data piece that you often see with telcos. And collaborate is voice. But for us, it's actually taking it beyond just those basic infrastructure pieces and providing an overall technology solution and a platform for growth, both growth of our customers as well as our partners. Over the Wire, when we listed the business in 2015, there was about 30 staff, and now we have nearly 300 people, about 16,000 customers and about 90% of our revenue is recurring, which is fantastic. But one of the proudest slides that we typically have in our investor packs is our retention of revenue or retention of our customers, which has averaged sort of in that sort of 96% mark, which in telco is very high. But even just generally, in a lot of businesses, that's high as well. So yes, that's great. And that sort of shows that when we focus on the customer experience, it is being displayed by our customers staying with us. That's all I'm going to talk about with Over the Wire. What I will do though is just start off by not scaring everyone, but if cybercrime was measured as a country, it would actually be the third-largest economy after the U.S. and China. So it's predicted that there's about USD 6 trillion globally in 2021 that will actually be spent, it will cost, damage costs in terms of cybercrime. And that's a massive number. And as we sort of see, we're seeing it in the press all the time about something to do with cyber, the cybersecurity market in the U.S. in 2020 was about $156 billion and is predicted by about 2026 to get to sort of around the $350 billion mark. So for everyone sort of looking at it from a financial perspective, that's about a 14.5% CAGR from 2021 to '26 in terms of that spend. A bit closer to the home, in 2020, it was $5.6 billion in Australia that was spent on cyber. And that demand is expected to sort of get to about $7.6 billion in 2024. So that CAGR there isn't quite as rapid as what's been seeing in the U.S. That's more sort of around that 8% mark, but it's still quite significant. So we're kind of going -- there's a significant amount of cost that -- the $6 trillion, there's a lot more being spent on cyber. Like why? What's sort of driving that? And it's -- like for me and whatever reading you do, there's sort of 3 key areas that we're sort of seeing it in. So firstly, digitization is exposing more businesses to threats. And I'll touch on how the pandemic has actually assisted that, or assist is probably not the right word, but it has assisted that. The overall threat environment is increasing. There's just more places and more points of entry within businesses. And also it's becoming higher profile like Toll Group is 1 example we've seen in the press, but there are so many. You can't pick up the paper or read a news feed without something being mentioned to do with cyber. And often, it's the organizations that you sit there going, geez, I would have thought they had that under control. But it's not. No one is immune to just the cyber. And the third one for me is just around governments and regulators requiring much stronger security for critical infrastructure and the systems. And when we talk to critical infrastructure, typically, in the past, we probably would have thought that they must be talking about health, defense, et cetera. One recent one that's been added is around food supply and distribution. So where are the hackers going to try and impact society? And it's some of these areas that are sort of being introduced that probably aren't top of mind for us at the moment but more and more so, they will be. And I just sort of touched on it before, but the reason these areas are driving the demand has probably come about a little bit with regard to the pandemic. And for the reason that the digitization of businesses absolutely accelerated sort of early last year 2020, working from home, remote working, I mean some of us did it, used to do it, but we've absolutely accelerated where we are now. But I think businesses in the speed to let's quickly get to remote working, et cetera, there were probably a few steps that were sort of cut out that probably should have been done. So that risk profile has increased. So I think there's a lot of following up with the broom and sort of sweeping out afterwards of where we got to. And so there's that risk profile. And if you sort of rushed at it, you sort of expose yourself more. And that's why in the short term, we're definitely going to see a lot more spend to make sure that there is protection. But I was going to just touch on now sort of as investors or just people that may or may not be involved in the business, what should you be doing about cybersecurity? What sort of preventative measures? And look, what I'm going to talk about is in no way an exhaustive list, but it's just some of the things to sort of keep in mind. And I'll come back to the things I mentioned now, how they then relate to business and what organizations should be mindful of. So the first one, which is called don't take the bait. So it comes around, everyone would have heard about phishing. So phishing is one of those things that you go and click on the link on your computer, on your phone, et cetera, that you shouldn't have. So what you need to do is you need to verify that it's safe. And phishing really works on the fact that we all live very busy lifestyles and we're always multitasking. So we'll see something come through. We go oh yes, I remember I did order something. I'll just click it without kind of going, whoops, actually, I didn't order it from whatever organization it was. So it's really important that you don't click on things unless you verify it. And phishing, you will now hear things like around smishing or vishing, which is through SMS, through voice, et cetera. that's absolutely ramping up. I mean I think now I see probably about 8 or 10 text messages a week, so deliveries that I haven't had anything to do with, et cetera. And they're basically just trying to trap you. And it's really important that you do not click on those links. So that's number one. The second one is around passwords and just having strong passwords. But the important thing there is having 1 password that's really relatively strong is great, but it's really dangerous. If it gets compromised, then all your accounts are at risk because typically, you'll use the same user name, being your e-mail address, and that password's the same. So I can then just try all the different sites that you may have used with that password and get in. So I kind of liken it to having a lock. So a front door with 5 locks and just having the same key for each of the locks. And once you lose that 1 key, it's pointless. I can open all 5. It'll just take a little bit longer. So how do you get around that? I highly recommend that you use a password manager. So at Over the Wire, we use a tool called LastPass. So it's effectively a vault of your passwords, but you create secure passwords for all of your sites, but they're all different. So they're all strong but different. So if one ever got hacked, that's as far as it goes. Because if I try your user name at a different site with the same password, I won't get any further. So that is really important that protecting yourself around passwords, it does occur and using a tool like that. And then secondly, wherever you can, use multifactor authentication. So that's where you put in a password, but then there's a second layer to that security. That may be it sends you an SMS on your phone and there's a code that you have to put in there. It might be using like an authentication tool that Microsoft, Google, et cetera, do provide. Absolutely, if you can use multifactor authentication, or MFA, definitely do that. The third one I was going to mention is just connecting securely. So whenever you go on to a web browser, look for that little padlock. Make sure it's a secure connection. Look for that HTTPS in the front. But double check, even when you see that, where you're going, see if there's some reviews out there because people can still get basically a certificate to create a secure site. So you're just putting your information into a secure site, but then it goes into their database and they've got your details anyway. So absolutely make sure that where you are putting your details, you're 100% across of who they are. It's a credible location. The fourth one I was going to talk to is around patching. So keep your software up to date absolutely. Where you can use automatic updates, absolutely do that. It's really critical that there are patches coming out continuously. They are often fix in security holes in the software. So please make sure you stay up to date there. My next one is just social media. So be mindful of what you post on social media and what info you share. So the first one is popping something on Facebook, et cetera, going looking forward to the next 2 weeks of my beach holiday, that's probably just told everyone, those who care and those who really want to know because they're trying to break in, where you are going to be. So just to be mindful of things like that. But then around social media, things like privacy and security controls, leverage those. So if you've got an Instagram account, unless you're an Influencer, make it private, and try and avoid also some of those little quizzes that are on there. So like an example I'll give you is in 1 site, you might go, what does it mean to be born on the third day of the month? Oh yes, I'm a diamond or something like that. And then the next one might be my star sign. Sagittarius is what I'm going to pick. And therefore, it means something that I go and post on everyone and say, hey, how do you fit in on this? And then there might be a little quiz to say, what was a significant event that occurred in your life the year you're born, and I might go, oh geez, Elvis died that year. Now if I've answered those 3 quizzes, effectively, I just gave away that my date of birth is the 3rd of December, 1977. It isn't my date of birth, by the way. But just be mindful of things like that. A lot of these tools are out there to trap and capture information that will then be used against you. So it's really critical that you don't sort of participate in a lot of those things because they're not there just for the benefit of sharing with your friends. And absolutely, if someone calls you from the ATO, wanting to speak to you, please don't ever give them any information. The way I do it, even when I've had some activity on a credit card that one of the banks will call me about, I'll always say, I'm going to ring you back. Go and find the number, ring them back and go through that process rather than speaking to someone because it's quite rare that the ATO is going to ring you about things like that. And it's very rare they're going to ask you for personal information. It looks the lights have gone out here. So effectively, you just need to be on guard for suspicious actions. It's really important. It's not a great way to live our life, to sort of be overly cautious, but it's better to be overly cautious in cyber than to sort of go give away information and give away your identity. And what I was going to say is a lot of what I've just spoken about is sort of to do with our day to day and just sort of just in terms of moms and dads, kids, always important to train your kids early, et cetera. But beyond that, you take that as a little subset and then look into business. And the way I look at it is what I just spoke about, is if you're looking through a keyhole, it's what you can see that a business has to look out for, but then there are so much more. And in business really, well hackers are generally targeting 1 of 2 things. So firstly, it's about stopping your business operation. So crypto is a great example of that. The other one might be about just exposing all of your data, which is trying to create reputational damage. And so those 2 items are what they are actually after. So it's really important from a business perspective, you need to be ready because it's not a case of if; it's often a case of when. So you need to absolutely have an incident response plan that's compliant with the laws. And interestingly, the laws are actually quite dynamic because it's such a changing landscape. There's forever new elements to be out there. The government is always trying to support small business. Even there's as an article that they wrote not long ago around the essential APES which has really cut down, but just trying to get that education going. And on that, education is absolutely paramount. So an interesting statistic for you, so 90% of threats manifest via an e-mail. So to this day, it's still someone going and clicking the wrong thing. Absolutely education. We need to train our families, our staff, et cetera, of what to do and what not to do. So with e-mail, absolutely using a secure e-mail gateway. At Over the Wire, we use a product called Mimecast and training of staff is absolutely important. So we use a tool called KnowBe4, which basically shows videos and then ask you questions at the end and reports back to us how people are going. If we're finding people are getting it wrong very often or getting the same thing wrong very often, we can then have more targeted training sessions with them to make sure that they understand the implications. Because it's great to have all the security in the world, but you only need 1 hole. And if it's 1 person that's a bit lax, that's all that's required. Beyond that, protecting your data is also paramount. So I sort of mentioned Toll Group before. And I also said, there's not a day that probably goes past where we're not seeing some sort of data breach. At Over the Wire, we have a data protection service through our Digital Sense business. But the interesting thing there is that data protection product is really about protecting against ransomware, which was that the hackers would get your information, they'd encrypt it all so you can't get access to it, and you'd have to pay a ransom to get it back. Interestingly, because there's more tools coming out to protect your backups, et cetera, to make sure they can't do that, i.e. they can still encrypt it, et cetera, but you've got a way of having a safe source that you can restore from backup, et cetera, but just move to the next step, which is, well, if you don't pay the ransom, we're just going to publish it on the web. Now for some businesses, that's actually even worse. We spoke about reputational damage before. But imagine there was that 1 e-mail that you sent to another board member having a rant 1 night about someone but you never thought would go any further than that. And all of a sudden, it's there for all to see. So the hackers are constantly going, how can we cause harm to basically get our ransom paid. So the important thing is don't let them get in there in the first place. That's your best protection. And on that, you just need to protect what is called the attack surface. So your entire organization and the entire area of your organization has to be seen as susceptible and all the points of access. So if you're thinking about a house or your locks, your doors, your chimney, getting in under the house, whatever it may be, you need to be mindful of that and work out where they can cause damage and make sure that you protect as much as possible. Another interesting statistic for you. So according to IBM in 2020, the average time of breach -- so the average time to identify a breach was 228 days. So what that means is, on average, there was a breach that occurred within an organization, and they didn't discover that for another 228 days. And the average time to remedy or contain that breach is another 80 days. So effectively, from when the breach first happens, it's nearly a year. So you can imagine what can happen in that year when you sort of go about your work unknowingly. So to summarize, it is absolutely a constant process of assess, detect, respond. And the more tools you can use that automate that, the more you can stay on top of things. At Over the Wire, we use tools like CrowdStrike, Rapid7, et cetera, for those elements. But where I'll wrap up is I've literally only just scratched the surface in what I've just spoken about. And I think this is also only just the beginning of what we will see. So on that note, I'll hand back to Rob.

Thanks very much, Mark, for those statistics and some key thoughts there. It's a bit scary, but certainly some plenty of key takeaways for us all to implement it in our daily lives. Good morning, everyone. Thanks for jumping on. Just a quick bit of housekeeping. If you do have questions, please feel free to put them in the chat box or alternatively e-mail them through to our inquiries line, just [email protected] and we'll look to answer them at the end of the session today. So I'll just quickly touch on the 3 portfolios and what we've seen throughout the quarter. It's worth probably noting in addition to what we've seen within the portfolios in the quarter, Sebastian briefly touched on, we've got a couple of investments that are, I suppose, well down our funnel in terms of due diligence, things that we've been working on throughout the quarter, meeting suppliers, customers, management teams, understanding the markets and how these particular companies do have competitive advantages in what they do, and we can hopefully build on them over the coming quarters and speak to them in due course. So firstly, to NCC. Again, busy quarter across all the portfolios given the reporting season. Key highlights here from Saunders, our tank and civils businesses, what we believe is a very strategic acquisition of a company called PlantWeave. We believe this is almost a third pillar to their business now going forward. Mark and his team were very successful at acquiring a business in the past called Civil Build. We believe this new one, PlantWeave, adds further capability in the technology area and can benefit the overall business. Added to this, they announced it and paid a special dividend during the quarter. We always believe that's a good sign, and the Board has got confidence in their outlook and the ability and the capital management initiative to do such a thing. So we think, yes, whilst Q1 has been relatively tough in terms of new contract wins for them, coming out of COVID, we believe there's a very large opportunity and pipeline of work for Saunders to certainly have been their fair share of work and we expect that going into the second half and beyond into FY '23. Secondly, Experience Co, our adventure tourism business, clearly heavily impacted throughout COVID and Q1 was no exception. But what the really key catalysts for them out of the quarter was is the management team have, in our opinion, proven the right to acquire businesses of scale and the ability to not raise capital during COVID has put this management team in a very strong position with the market. They've earned the right to do what they've done. They've gone out and bought a business called Trees Adventure, high ropes business, has sites all across the East Coast, very high-margin business, very high returns on capital of the sites that they roll out and an internal management team of that business it's very strong. We believe this is an excellent fit for this business. Its exposure to domestic tourism, which we build without no secret. It's here to boom out for the next couple of years, in our opinion. We've seen the opening up of orders coming soon, especially in Queensland before Christmas. So we think Experience Co is very well placed going into the second half of the year. Coming to Wingara, we've said it in the past and say it again, it's certainly been a problem child for us. But the line in the sand is here. They've conducted a capital raising throughout the quarter, which we've participated in. And further to that, we've put Brandon York, who's the newest member of the investment team has joined the Board. Brendan's got great experience in turning around businesses. He did so very effectively with the management team at Enero. And we believe despite the noise around the previous management team and what has occurred at Wingara, the underlying business of hay processing is a strong business, and it's actually been quite resilient during this period of time, and we're expecting growth out of that with the guidance they've provided and the run rate out of FY '22. We're looking forward to seeing what they can do around the strategic review they finalized on Austco, and we await, I suppose, an update on that in due course. Next slide, please. Just the quick highlights here. Nothing too much to note apart from the options that were outstanding and in the money expired at the end of June. So we've seen them wash through now fully for the quarter. And as you can see, just the dividend profile has been very consistent for some time. It's been a goal since day 1 to pay a growing stream of fully franked dividends across all our LICs. And we're pleased to say that NCC has been able to do that since back in 2013. So moving on to NSC. COG, which is a large position, and one that's well known to all of our investors over quite some period of time, they've obviously put out their final results for FY '21, which showed strong growth. But equally, that growth has translated well into quarter 1, which they've provided an update for in the last couple of weeks. They announced a strong order book in terms of the backlog of broking and aggregation products and services that were, I suppose, backlog in the system with cars and tractors and the like. Clearly, very hard to get them at the moment. So we believe that strong environment is here to stay for a longer period of time. I think what the key thing as well out of the results that we saw was the announcement by COG around a strategy that they've put a line in the sand and pent up [indiscernible] on around its broking aspirations. Certainly, it wasn't guidance, but it was an aspiration where they want to see that business be approximately 50% of the current earnings throughout that division, which is approximately $20 million to date. So we believe there could be up to $10 million of organic growth within the existing operations today simply by going into another vertical, which makes a very lot of intuitive sense and they've got a great team and an executive led by Cameron Bott, who was ex-Steadfast to be able to roll this out over the next couple of years. So we're very excited about that, and adds incrementally a lot of high margin to the group. Turning to Big River. They've again had a busy quarter. They acquired a business called Revolution. Key thing about Revolution, it was an existing customer and a very complementary business to Timberwood, which was the acquisition they did late in FY '21, which was the panels business based out of Canberra. So we think it's a very logical bolt-on to what they've already done. Equally, they acquired a business in just South of Sydney, another building supplies business, a bolt-on, which is a very big market. This is really Sydney market where they're heavily underpenetrated. There's plenty of opportunity for this to grow, and we think this is a good step. What was also pleasing from a Board and governance point of view is the appointment of 2 independent directors. Brad Soller, he was the ex-CFO of not only Metcash, but Lend Lease and David Jones, so brings a lot of financial acumen and experience in the distribution space. And equally, Martin Monro, who was the CEO of Watpac Group, which was acquired by one of the giant construction groups, BESIX, a couple of years ago. So not only have they got a strong environment, we think they've got the right people and the right positions to make it work over longer term. And finally, Gentrack. Sebastian touched on it earlier regarding the kind of energy crisis we're seeing across the world. It's everywhere. Any paper you pick up, you can certainly see that. The U.K. has been particularly hard-hit by this, and we've seen a lot of insolvencies over there given the structure of their market is potentially worse than a lot of other markets. Despite this, Gentrack have lost customers in this period of time, but despite that, they released an update and they've actually upgraded too their FY '21 results during that period of time. And most importantly, they've provided an update for growth going into FY '22. So we think this is very, very material given the underlying environment, which is, in the short term, clearly very poor, but have been able to execute on what they're doing in their turnaround strategy. They're not capitalizing any R&D. The current management team is -- are doing a good job to date, and this has been a recent addition to the portfolio to become a substantial position. We're encouraged by the early start of the journey of this firm today. Coming to the next slide, please, just around NSC here. You can see the dividend profile has increased over FY '21 versus the last couple of years. I think the key to note is clearly that the performance has improved, but it's not yet to the level that we want it to be at. So we're obviously going to be working hard, and it's very much a front-of-mind focus for us to continue to perform within this portfolio over the longer term. And certainly now coming to NAC. Across the quarter, a few keynotes here. Urbanise, which is, again, another one of these positions that we've built up over the last little while, a recent addition to the portfolio. They are an enterprise software company over the facilities management and also strata management. So very niche in terms of what they do, and they're very good at what they do in our opinion. What's been pleasing for us is this has been a turnaround story. We feel like we're getting in at the end of that period of time. And we think that's demonstrated by the fact that they've been able to win some big Tier 1 customers over the last 12 months. So in the quarter, Colliers Australia was the most recent of these to sign up. And we think once the implementation period occurs, this could be a material opportunity for them going forward. And finally here to Eureka Group, which again has been a core position for quite a couple of years now, independent seniors living. Cameron Taylor, who's been the well-serving COO of this business for quite some period of time, we think the turnaround process of this is now largely complete. He has now been elevated to the CEO role. They've acquired some assets throughout the quarter. And I think what's key here is to note that traditionally, they've been in the market just for buying existing operations, existing villages and adding them into their streamlined process and portfolio already. But what we've seen of late is they're now expanding that into operating to brownfield. So building new units on existing sites as well as actually, in this quarter, buying vacant land and developing their own sites on top of that. So we think that 3-pronged strategy is the right strategy over the longer term, and it's a way to improve your return on capital within this business. I've already touched on Experience Co there. So just coming to the NAC portfolio finally. I think what's key here to note is, yes, the performance has been strong of late, but the dividend profile there for FY '21, we've actually paid $0.0575 for the year there with the last quarterly dividend just being paid out. And the NTA, the share price, it's worth noting that the -- there's a 1 for 2 bonus option that are well in the money in this -- in NAC and they expire at the end of March 2023. So that's it on the portfolio front. And with that, I'll hand back to Sebastian.

Thanks, Rob. So obviously, just to finish up before I touch on the outlook. I mean obviously, a very important slide is regarding capital management initiatives, which we feel like we're very -- we pull a lot of levers in regards to this slide. Clearly, for us, performance is the most important thing we need to focus on, as Rob said. And if you look at the long-term performance of the funds, obviously, 2 of them, it's been strong, very strong. And then the other one is obviously starting to claw back. If we can continue to perform at the rate we expect to and we expect our team to, then obviously, that results in larger dividends, growing dividends that are franked. Some of you would have known that, obviously, we continue to acquire shares. We acquired shares as recently as yesterday, I believe, to further our alignment. Communication is a big one. Hence, why we do these webinars and are trying to make them more dynamic and interact with and provide you with quality and timely content. Then I suppose the other one is obviously the buybacks for 2 of the funds here. Clearly, if you've been watching, our buybacks have been extremely aggressive. We believe it's a great use of investors' capital because not only can we buy shares at significant discounts, we feel like we can buy shares at a discount to NTA into an NTA that we feel is already probably discounted because the investments, in our view, represent long-term value, I suppose. So return on capital via the buyback, we think is hugely accretive. Next slide, please, Ang. And probably the most important slide, in my view, is obviously the outlook for Q2, even though we don't like to be too short term, but we appreciate the market wants a view, wants transparency and wants some tangible evidence. So the most pleasing thing for Q2 is Q2 is the quarter when we all come out of lockdown. What that means is some of the investments that have probably been more impacted to date by lockdown are definitely starting to see a resurgence in revenue. So this has been businesses like EXP, the big jump site in Wollongong, their most important jump site has been closed, is now operational again. Businesses like BSA does a lot of NBN work, Foxtel work, maintenance on office buildings such as the one I'm in here. That all stopped effectively. And now that is obviously resuming again. It will affect a lot of businesses. I think the million-dollar question is to what extent they recover and how they can grow from there. I mean many of these businesses have been working on strategies to grow their earnings significantly for 6, 12, 18 months. And now it's about time for these businesses to execute and announce and really deliver the earnings growth. How they deliver or how they deliver, I suppose, in -- even with headwinds such as the ones we mentioned there, so supply chain, employment costs will be an issue for many. I've just noticed on LinkedIn, for example, that if you look at Experience Co, they're now doing -- done a new deal to train pilots essentially for freight. So clearly, sourcing quality pilots is going to be an issue, probably because they haven't been able to train for 18 months as well, so there's no backlog of trainee clerks. So even things like that will affect all sorts of businesses. And then that third point is clearly corporate activity. We think corporate activity, as we've been saying for a while, will ramp up. We've seen that with Over the Wire and from Aussie Broadband's offer to acquire Over the Wire. And we think we'll see a lot more of it, either from -- in regards to businesses acquiring or seeking to acquire some of the announced investee companies, but also some of our investee companies acquiring other businesses. So Big River has made a couple of acquisitions recently, which we think make a whole lot of sense. They're good multiples for very profitable businesses in key locations where Big River needs to, I suppose, expand. And we expect -- we've seen it with Saunders, getting some new, I suppose, technical ability, and we think we'll continue to see that. We saw COG recently complete a placement last week, I think it was last week, to buy out 2 minority positions in their existing portfolios. That's a business that we think has got $70 million to $80 million that they could deploy over the next 6 months to really stamp their foot down on the FP&A market, and they're clear #1 leader. At AGM season, we'll provide an update for most of our investee companies. So in the case of Gentrack and Wingara, they'll provide full year results, but we think we'll also get some reasonable updates from many of our core positions on how they're trading, so COG would be one, BSA I've mentioned, obviously, they're looking at, I suppose, expanding and growing that business somehow. So we expect something from them as well. And to be frank, we saw some guidance from Saunders, which we actually were relatively pleased with. So they expect revenue to be flat or to grow slightly. They did make some commentary around that they expect to execute and deliver some new contract wins by the end of this calendar year. So it will be a very interesting AGM season where we think we'll get a lot of tangible evidence on how these businesses are going. And then finally, as we've said before, we continue to constructively engage with our numerous investee companies. So Rob mentioned Wingara. Clearly, there's 1 or 2 larger positions in some of our funds that have held us back. I think it's obvious to work out which ones they are. And essentially, it's really now time to deliver. We think they've got excellent core businesses. But now it's really about the timeliness of growing these businesses in a manner that essentially gives the return or the internal rate of return that shareholders should expect in demand. And hopefully, we start to see some fruit from those discussions, especially now that lockdown is hopefully over for good. And then finally, for those of you who don't know now, clearly, the 1% pledge is extremely important to us. So many of you would know we donate 1% of our revenue to those 4 charities below. We donate 1% of our time to helping individuals to -- younger individuals, I suppose, develop within this industry, just like we were lucky enough to, starting at a very young age, so it's 1% intellect. And then 1% time, because I always get them mixed up, is obviously helping charities with really hands-on work as opposed to just financial help. So with that, as Rob mentioned, if you do want to ask a question, you can send the questions to [email protected], or you can write it in the chat box. As I've seen, there's a question come through already.

So the 2 questions I have received. So I'll just start, and hopefully, we get a few more questions because generally, we get quite a few, is there was 1 in regard to, obviously, the discount to NTA which was e-mailed a couple of hours ago. So I will touch on that. Obviously, a couple of the LICs are trading at a discount. And the question is essentially what is it that you own and what are we doing about it? So as I've said, yes, some of the LICs are trading at a discount. I think as Rob mentioned, it is a little bit convoluted, especially in the case NAC, what the discount is because of those options that are outstanding, and they're so far in the money now because of the performance. From our point of view, we really need a, to continue to perform, which is funny enough because as you continue to perform, the discount sometimes can get worse because the NTA continues to grow. We want to increase the dividends over time. So the yield forces the share price to close over time because the income relative to the share price becomes so out of whack and the yield becomes too high. And then clearly, we'll continue to be extremely aggressive every day essentially on those buybacks. So we can acquire capital -- acquire some capital, acquire some shares in regards to -- that are at a discount in regards to the LICs, but also in regards to potential value. And clearly, the communications would be part of what we do as well. But ultimately, it does come down to performance, and that's what we will continue to focus on. Going through some of these questions here. So there's a question here in regards to what's our view of the ABB offer for Over the Wire and how do we intend to vote? So look, I think I need to be clear that no formal offer has been made for Over the Wire. As I said, it was a nonbinding indicative offer with exclusive due diligence that can go to as far as I believe at the end of November. In our view, Over the Wire is a very solid business. It is very hard to find scale assets in the telco space, especially in the SME space that have a higher level of recurring revenue across a number of different services and not just products. So we think that's why Over the Wire is a very unique business. That's why it makes sense for Aussie Broadband. Clearly, they've stated publicly that they want to move very fast and hard into the SME space and that enterprise segment. And naturally, we feel Over the Wire is a great fit for them because it does provide scale and has some excellent customers, such as the RSPCA Queensland and A.P. Eagers and businesses that many of you would know. In regard to whether or not it's fair, it's very hard for us to really determine that until we see a formal proposal. The next question is from -- does NAOS still hold any shares an Objective? Yes, we do hold shares in Objective. Clearly, not as many as we used to, as the share price has essentially moved from $12 to $21. And as we said in our previous quarterly, we have moved some of those shares into Gentrack, which is a similar Software as a Service business in the B2B space. But yes, it is still a shareholding. What is the status on the investments in TOT and URF? So yes, they do remain investments in the fund. I think from our perspective, they are definitely undervalued. We're also very cognizant of the opportunity cost of holding some of these investments relative to what we can or may invest in. So it has been fair to say over the past, especially, I would say, a couple of months in regards to some of these newer investments, we may see some of that capital recycle into some of those new investments, especially as some may be seeking capital for what we believe are very sound opportunities. And then another question is just in regards to the number of holdings moving around throughout the quarter. So yes, we do have a -- we did have a number -- a few smaller holdings that we're seeking to increase the size of and for a number of specific reasons relating to those companies, in the end, we decided not to increase those positions. We have increased, obviously, in some and obviously removed some of our core holdings over time. There were 2 or 3 especially that we thought we would develop into much larger opportunities that as we sort of progressed through that due diligence stage, that we could not get comfortable with and ultimately, didn't make them a core investment of any of the portfolios, whether it's NCC, NSC or NAC. This question relates to Wingara. I actually don't quite understand it. But I think I get the gist. I think essentially, it's for the thesis or what was the thesis for investing in Wingara, if I'm making a guess. So look, essentially, the thesis is twofold. Obviously, Australian agricultural products are in high demand across the region and globally because of our quality and obviously, some of the scale that we can produce some of these agricultural products in. I think that was very attractive for us. The other attractive part is that for a business like Wingara, it's essentially a tolling business. They make a margin on what -- they put the margin on what they process. Those should be relatively low in assets because they don't need to grow that. I think for us, that was the most important part of the thesis and the fact that they could scale over time as they're aligned to different commodities. Clearly, there were a number of operational and management issues, and that's where that thesis probably became unstuck significantly. But I think, hopefully, the thesis does hold true, that we're now bringing someone with -- a new CEO with a strong agricultural background and manufacturing background. Hopefully, we start to see some of the potential within that business over time. In NCC, it's a question on how some of the money raised in the -- so they're not shares. So we issued those notes about 4 months ago and how have some of that funds been used? So clearly, they've gone to probably 3 new positions. So as we mentioned, 1 of them disclosed would be Gentrack, another 1 would be URF more recently, and there is 1 other. So essentially, we've built out the size of the portfolio into some new investments. This is a long question. So this is from Grant. Good question, Mark. So obviously, the question is in regards to Eureka Group. And essentially, it's saying, well, obviously, the management team have done a very good job of turning that business around and focusing on their core and selling a lot of those noncore assets and removing a lot of those conflict of interest and related party transactions. Grant then mentions that how confident are we that they're not changing the strategy by going into greenfields away from brownfields and what gives us that confidence? So look, I think definitely that we don't view this as becoming completely a greenfield player by any stretch of the imagination. We think that going forward, it will be at least, I would imagine, 2/3 brownfields, 1/3 greenfields. And the reason they have supplemented that greenfield part of the strategy is to essentially take some of the pressure off brownfields. And of course, there have been some reasonable opportunity in regards to just extending some of their existing facilities and making those larger as well, and they can still get a fair rate of return on them. From our point of view, we believe a, the assets are extremely undervalued as they're valued on a cost of capital circa 10%, relative to other assets such as self-storage units, which would be now closer to 5 or in the case of childcare assets, which would be similar or even lower. We think the thematic has a long way to go. And Eureka is one of the leaders, if not the leader in that space in a highly fragmented market that can be corporatized over a long time. We'll show them that they can obviously grow earnings. They're still recycling a very high cost debt facility, which can also be removed over time, which will again grow earnings. And we think as that WAC comes down relative to those assets, the asset value will grow over time as well again. And then obviously, with the acquisitions, they'll continue to grow over time. So we think it's got many, many levers. And as we've been saying in our monthly reports, we don't think they have to own everything. We think this can be a model where potentially use similar to a Charter Hall, where we've got funds management model, can expand quickly and really grow scale to a business that could be 2 or 3x the size of what it is today in regards to that portfolio. What is the approximate cash balance for each LIC? And so in regards to each LIC, it would be 5% or less, give or take. And the reason we do that if you are interested is we take the view that we should always be fully invested. Our investors give us the feedback that they want small cap, micro-cap exposure. We're not paid to make decisions on where the market is relative to its cycle, but we do take a very conservative view on our company's balance sheets and the balance -- and the businesses that we operate in. So there is hopefully no permanent capital loss event. So we really manage risk that way as opposed to having a significant amount of cash on our own balance sheet. How can NAOS assist UBN in rolling out their offering to more clients? This is a question from Chris. Thanks, Chris. Look, I would say, clearly, we can't assist them in any great deal. I think what -- clearly, we have made a couple of introductions, even certain businesses that we currently have large investments in where it would make sense, and you could probably worked that out yourself. But from our point of view, we think UBN is really more of a story whereby it's more about communications, transparency, consistency, building that rapport out with the market. This is a business that probably had a very bad false start. Thankfully, we weren't a shareholder. But now we are a shareholder, we think there's still probably a lot of perception in the marketplace this is the business that it was 5 years ago, and that's probably not the case. But in saying that, it's really taking that business on a journey to build credibility through consistency and transparency and delivering on their targets. And that does take time, especially from a management team potentially that is probably very wary of putting out targets and putting out too much information that they believe can potentially make their job difficult down the longer term in case they don't deliver, which we completely sympathize with, I suppose. A question from Michael. Do you cover some new investments made recently? Obviously, Michael, as I said, we have made a couple of new investments, which we haven't covered off on here because they are quite small again. We did, as we said, more recently or previously in our previous quarter, we have some number of -- a couple of new core investments, the major one being Gentrack. But hopefully, in Q2, we can touch on some of our larger newer positions if we can make them of a sufficient scale. And then another question from Lorraine in regards to NCC, obviously the share price relative to the NTA. It's a good question. Obviously, NCC has traded at NTA or a premium for most of its life, but obviously, that's changed in the past 6 months. I think from my point of view, what we have seen is a lot of people who took up the options are probably now selling the options that they converted into shares and now selling those shares as they probably had too many NCC shares. We've definitely seen that across the board. But what we are also seeing is that the number of new NCC shareholders is probably increasing at an ever-increasing rate. That's what resonates. The shareholder base is growing and growing quickly. The performance has been good. The dividends have been good. So in our view, we don't think it will be wrong at all before NCC is trading back at NTA again, obviously, assuming that we can continue to perform. But we definitely probably underestimated some of the churn we'd get from people exercising options who probably had a very large NCC exposure anyway in that because they probably made 10% on those shares very quickly, including the dividend. They probably decided to sell some of those shares as they probably already have a very large NCC holding and need to, I suppose, mitigate that risk. I don't think I've got any more questions. That's it. So yes, as I always say, if you do have any more questions, and I do get lots here, don't hesitate to call me or Rob or any other member of the investment team or e-mail us. We always get back to you on the same day generally. And I just got 1 other question actually from e-mail, so it's from Jersey. Yes. So what is the profit reserve part of the NTA? Yes. So obviously, the NTA, the post-tax NTA is $1.02. The profit reserve is about -- I wouldn't -- look, I don't think -- the NTA is not really calculated like that. So yes, so the NTA is essentially just the value of the investments less the debt and any obviously payables. But the profit reserve doesn't form any part of the NTA. If you're looking at the profit reserve, the profit reserve is about -- I think, it's about 3 years. So give or take $0.16 or $0.17. It is in the presentation, if you go back to the NSC slides. And yes, as I was saying, if you do have any questions, don't hesitate to contact me or any member of the investment team. There is a poll. So if you do have any feedback on these slides or the presentation materials, don't hesitate to contact us and put your feedback in that poll that'll be offered to you shortly after the end of the presentation. And hopefully, we can provide you with a strong positive update for Q2. So thanks again, and thanks again for Mike for joining, and we'll speak to you soon.