Dear fellow shareholders,

On behalf of the Board, welcome to the Annual Report of NAOS Small Cap Opportunities Company Limited (Company) for the financial year ended 30 June 2025. We extend our appreciation to all shareholders for your continued support and warmly welcome new shareholders who joined us in FY25.

The past 12 months have been defined by a shifting economic environment, with the RBA cutting interest rates in late 2024 and early 2025 to bolster economic activity, offset by volatile commodity prices, lagging inflationary pressures and a volatile macro backdrop. What did remain constant was the continued demand for large and liquid listed businesses, which saw the continued outperformance of the largest listed businesses in Australia.

Against this backdrop, NSC delivered a -9.08% investment return for FY25, underperforming the S&P/ASX Small Ordinaries Accumulation Index return of +12.26%. While disappointing, this result was materially impacted by a one-off portfolio event in February 2025. Core holding, BSA Limited (ASX: BSA), lost a critical tender renewal from its largest customer, NBN Co., causing its share price to drop by ~90% by year-end. Encouragingly, from March to June 2025, the portfolio rebounded strongly with a cumulative return of ~+24%, reaffirming our confidence in the strength and quality of NSC’s core investments.

For the financial year, the Company recorded an after-tax loss of $9.08 million (compared to an after-tax loss of $24.28 million in FY24). The Board has declared a final quarterly dividend of 1.25 cents per share (unfranked), bringing the full-year FY25 dividend to 5.0 cents per share (50% franked overall). This represents a yield of 17.86% based on the 30 June 2025 closing share price of $0.28.

Since inception, the Company has declared 38.5 cents per share in dividends, or 53.57 cents on a grossed-up basis, with the majority fully franked. The profits reserve of the Company stands at 7.5 cents per share as at 30 June 2025.

NSC Dividend History

Through FY25, the pre-tax Net Tangible Asset backing (NTA) per share of the Company decreased from $0.50 to $0.38 over the financial year, as shown in the following chart.

NSC Pre-Tax NTA Performance

Throughout the year, the Board maintained a disciplined and opportunistic capital management strategy focused on enhancing long-term shareholder value. Key initiatives included:

• No Dilutionary Share Issues – When shares are trading at a discount to NTA, the Company acquires DRP shares on-market, eliminating dilution and preserving NTA integrity.
• Dividends – The Company continues to focus on delivering a sustainable stream of dividends, franked to the maximum extent possible, while maintaining an adequate profit reserve balance and funds available to reinvest into investment opportunities that could add significant long-term value for shareholders.
• On-Market Buyback – 2.07 million shares were acquired and cancelled, enhancing shareholder value by buying significantly below pre-tax NTA. NSC has acquired and cancelled 36.32 million shares since inception.

Despite the challenging year for NSC, as we enter FY26, the Board strongly believes that the NSC investee companies will continue to re-rate to fair value as they have started to do so since March of this calendar year. Importantly, alignment between shareholders, the Board, and the Investment Manager continues to deepen, with Directors and the NAOS staff now holding 3.2 million NSC shares.

On behalf of the Board, thank you once again for your ongoing trust and support.

Kind Regards,

David Rickards OAM
‍Independent Chair

21 August 2025

Dear fellow shareholders,

For the financial year ending 30 June 2025 (FY25), the NSC Investment Portfolio decreased by -9.08% compared to the Benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI), which increased by +12.26%. As most readers may know, FY25 was turned on its head in February when core holding BSA Limited (ASX: BSA) lost a critical tender renewal from its largest customer, NBN Co., causing its share price to drop by ~90% by year-end. As the BSA investment, its risks, and subsequent events were covered in detail in the FY25 Q3 Quarterly Investment Report, I won’t revisit them here. For those interested in a deeper understanding, I encourage you to refer to that report for further context.

Post February, the Investment Portfolio delivered a ~+24% return, driven by substantial share price gains in core holdings such as COG Financial Services (ASX: COG), MaxiPARTS (ASX: MXI), and AMA Group (ASX: AMA), which had experienced flat or negative returns in prior years (as shown in the below chart). Despite these recent gains, we believe these investments retain significant medium-term upside potential as their cash generation strengthens and growth opportunities emerge, with further details provided later in this letter.

Share Price Performance - AMA, COG & MXI

For several years, I have noted that high interest rates, significant inflows into passive investing, and the rise of alternative strategies, such as private credit, have driven many investors away from emerging companies as a serious investment class. This has resulted in reduced liquidity, lower valuations, and fewer investable businesses due to market consolidation, with numerous listed emerging companies acquired by strategic investors.

Over the past six months, however, we have seen early signs of investors returning to the emerging companies segment. It appears to us that declining interest rates and supply-demand challenges in alternative strategies, such as private credit, are shifting the risk-return dynamics. As the economic outlook improves, it has placed many emerging companies in stronger positions to produce more consistent earnings growth over the medium term. We believe these combined forces could spark a valuation renaissance for emerging companies, with those generating stable, growing cash flows likely to command premium valuations over the next 2-3 years.

Relevance, Momentum and Index Inclusion

Reflecting on my FY24 Investment Manager’s Report, I dedicated significant discussion to the distinctive market dynamics that emerged, where valuations were often overshadowed by the influence of passive capital flows and index inclusion. A prime example was the share price of Commonwealth Bank of Australia Ltd (ASX: CBA), which soared to a record valuation despite maintaining a flat earnings per share (EPS) profile for several years.

Fast forward to the end of FY25, and this market dynamic, if anything, has only strengthened, and generally, equity investors of all types are being forced to ‘play the game’ and therefore focus on companies that form part of the index or are a good chance of index inclusion in the short term.

Turning to CBA, its share price, excluding dividends, has increased by +46% in FY25, following a 37% increase in FY24, marking the seventh consecutive year of share price growth. For further context, the chart below compares the grossed-up yield of CBA shares to Australian Government 10-year bond yields over a 10-year period. As the chart illustrates, despite CBA’s flat profit growth outlook, its shares are arguably being priced similarly to a government bond. This suggests investors perceive CBA’s risk profile as being closely correlated with the Australian government’s balance sheet.

Commonwealth Bank vs Australian 10 Year Bond - Yield

CBA has several qualitative attributes that continue to drive its rising valuation. In our view, these include:

• Relevance – CBA is now the 9th largest listed bank by market capitalisation. This makes CBA relevant not only to Australian investors but also to some of the largest investors around the world. As CBA’s relevance grows, the pool of passive buyers expands against a relatively fixed supply of CBA shares, fuelling demand.
• Momentum – As CBA continues to become a larger part of numerous indices, alongside its growing relevance, a self-reinforcing cycle emerges. Investors who are underweight in CBA, and thus lagging in relative performance, may feel compelled to purchase shares to align their portfolios with index exposure, further amplifying price momentum.
• Index Inclusion – With a market capitalisation exceeding A$300 billion, CBA is not only the largest company on the ASX but also a significant constituent in numerous global indices, including those tracking Asian financials and developed market banks. As CBA’s size grows, it attracts greater attention from prominent global indices, reinforcing its appeal to investors.

From a NAOS standpoint, we will continue to focus on what we can control. Our investment philosophy centres on investing in emerging companies that deliver high returns on invested capital and are led by experienced, aligned management teams. These companies operate in industries poised for sustained revenue growth, where they hold clear competitive advantages, and their business models are transparent to investors. Notably, 100% of NSC’s portfolio is outside the ASX indices, ensuring our investments diverge significantly from the benchmark, the S&P/ASX Small Ordinaries Accumulation Index.

Below, I have expanded upon a number of core investments within the NSC investment portfolio, outlining why we believe these companies have the potential to generate significant long-term value for shareholders irrespective of their share price movements in FY25.

COG Financial Services (ASX: COG) – Board Overhaul and Strategic Reset

In last year’s letter, I outlined the critical changes we felt were necessary for COG to restore shareholder value and establish a sustainable path to growing earnings per share (EPS). Through early FY25, COG persisted with its prior strategy, resulting in a share price decline from $1.10 to a low of $0.86 in March 2025.

COG Financial - Share Price & Key Events

This trajectory shifted dramatically following a significant board overhaul: three directors, including the Chair, resigned, one transitioned to a non-executive role, and two new non-executive directors were appointed, with one assuming the Chair position. To support this transition, NAOS and other major shareholders sold a significant portion of their holdings, which enhanced liquidity in COG shares and enabled new directors and institutional investors to acquire meaningful stakes. We believe owning a smaller share of a revitalised, high-potential business is preferable to a larger stake in an underperforming company with limited prospects for improvement.

The most notable outcome of all the changes mentioned above was the appointment of Tony Robertson as Chair and John Dwyer as a Non-Executive Director. These appointments are significant for several reasons:

• Proven Insurance Broking Expertise – Tony Robertson and John Dwyer co-founded PSC Insurance (ASX: PSI), a listed insurance broking business that debuted in late 2014 at $1.50 per share and was acquired in mid-2024 by the UK-based Ardonagh Group for $6.20 per share, valuing the company at $2.26 billion. Over the ~9-year listing, a $1 investment in PSI grew to ~$7 (including dividends), delivering a ~25% IRR. Importantly, in our opinion, an insurance broking business shares many of the attributes of a finance broking business and, to a lesser extent, a novated leasing business. PSC’s success in driving organic growth, executing accretive acquisitions, and maintaining aligned management offers a proven playbook for COG’s transformation.

PSC Insurance - Share Price

• Track Record in Leading ASX-Listed Companies – Robertson and Dwyer have an exemplary track record of running a listed business and maintaining a strong business valuation. Many management teams find it challenging to lead a public company, often due to difficulties in managing expectations, communicating a clear strategy, and consistently focusing on key financial metrics, such as EPS growth, to demonstrate strategic execution. COG has historically lacked this discipline, resulting in an incoherent strategy and insufficient focus on EPS growth and return on invested capital (ROIC). Their expertise addresses this critical gap.
• Significant Alignment with COG Ordinary Shareholders – Once appointed, both Robertson and Dwyer were quick to acquire ordinary shares in COG. At the time of writing, John Dwyer owns ~4.5m shares with a further ~2.5m options exercisable at $1.30, and Tony Robinson owns ~2.5m ordinary shares with the same number of options. For us, this highlights their commitment to restoring COG’s value and driving consistent earnings growth over the medium term.

With the new board in place, COG has swiftly advanced its simplification strategy. The sale of minority stakes in Earlypay Ltd (ASX: EPY) and Centrepoint Alliance Ltd (ASX: CAF) has generated ~$25 million in cash proceeds. The remaining step in this simplification effort, in our view, is addressing the Westlawn Group, COG’s asset management business. We believe this business contributes less than $2 million to group profitability but adds significant complexity to the balance sheet and cash flow statement due to Westlawn’s debenture program. If this business were to be sold, it would enable current and prospective shareholders to clearly see the capital-light nature and strong free cash flow generated by COG’s core operations.

Ultimately, for COG to achieve long-term success, it must deliver consistent organic earnings growth, even if that growth rate is ~5-10% p.a. While the full strategy is yet to be disclosed, we anticipate that Robertson and Dwyer’s insurance broking expertise will drive improvements in COG’s underdeveloped insurance broking division. Given the thousands of finance broking transactions that occur through a COG-owned or aligned broker, the potential for cross-selling insurance products is substantial.

At the very least, we believe COG now has a credible opportunity to unlock its full potential as Australia’s largest finance, broking & aggregation business. While its ultimate scale and valuation remain uncertain, comparable businesses with steady organic growth and strategic acquisitions have historically commanded premium earnings multiples. Accordingly, COG’s future valuation could be significant, provided it executes effectively under its revitalised leadership.

MaxiPARTS (ASX: MXI) – Half-Year Results, ATSG Dispute Settlement and Other Initiatives

MaxiPARTS (ASX: MXI) has presented challenges for investors seeking to assess its true value, given the numerous moving parts and one-off events that have occurred over the past two to three years. However, the release of a cleaner half-year result in FY25 has been a welcome development for shareholders. This provides a clearer view of MXI’s cash flow generation (see the chart below), ongoing margin improvements, and organic revenue growth, marking a step towards a more stable operating environment over the next 18 months. While a single half-year result does not establish a trend, we believe it lays the foundation for investors to make informed assumptions about revenue growth, margin enhancement, and cash flow consistency—metrics typically predictable in MXI’s distribution business.

Operating Cashflow

A significant factor in MXI’s complexity was its strained relationship with Australian Trailer Solutions Group (ATSG), which acquired MXI’s loss-making trailer operations a few years ago under a vendor finance agreement. This tension escalated into legal proceedings as MXI sought to recover owed payments. In mid-FY25, MXI announced a $2.2 million settlement in its favour, resolving the dispute. Though less than the full vendor finance amount, this outcome delivers certainty, frees the executive team from a significant distraction and allows both parties to part ways. With the agreement ending, MXI can discontinue supplying low-margin products to ATSG (a requirement for a period of time under the sale agreement), potentially boosting overall margins and optimising warehousing space previously occupied by bulky, lower-margin items. For a distribution business like MXI, we believe that incremental improvements in efficiencies and returns on capital can meaningfully enhance profitability.

Adding to this, at the end of FY25, MXI announced it had renegotiated its debt facility with the Commonwealth Bank of Australia, renewed their exclusive, nationwide Forch distribution agreement with the German parent company, acquired the outstanding minority interests (20%) of the Forch Australia business (so now MXI owns 100%) and finally has announced the opening of a new Kalgoorlie store which will commence trading in August 2025. Although these are incremental positive improvements, as detailed below, we believe that these improvements signal the start of significant gains for MXI shareholders in FY26 and FY27.

Outlook for FY26

At our October 2024 national roadshows, we emphasised the goal of delivering a +10-20% return for the NSC portfolio in FY25, supported by the low valuations of our core holdings and modest earnings growth projections.

FY25 was shaped by the BSA outcome, which masked what was otherwise a year of underlying progress. Excluding that specific event, the portfolio delivered +5.6% in the seven months to January and rebounded by +20% from March to June. This recovery was not coincidental; it demonstrates the strengthened qualitative and quantitative attributes of our core holdings.

In my experience, often the last thing to change for many businesses is the share price. Emerging companies usually need one or more catalysts to spark a valuation surge, and below, I highlight key FY26 catalysts for select holdings, each poised to drive substantial market re-ratings:

MaxiPARTS (ASX: MXI)

• First ‘Clean’ Full-Year Result – Over the circa three years since NAOS became a shareholder, MXI’s half-year and full-year results have been consistently impacted by one-off events, complicating the assessment of its true earnings potential. While these events have generally supported long-term value creation, they have introduced short-term complexity. Our investment thesis for MXI centres on it being a capital-light, scaled distribution business, which generates strong cash flows, has solid (and growing) barriers to entry and enjoys a high degree of repeat business, bolstered by a structurally increasing demand for its products and services. For MXI, the FY25 result is expected to provide a clear financial picture, highlighting robust cash flow, rising margins, and revenue growth.
• Enhanced Capital Management Flexibility – MXI has deployed significant capital over the past 2-3 years to fuel its growth strategy and achieve scale. As the business transitions to organic growth, we anticipate substantial cash flow generation post-capex and lease obligations, further supported by income tax loss credits for the next ~12-18 months. This should shift MXI’s net debt position to a net cash position, granting the board greater flexibility in capital management. With a current dividend payout ratio of just 30% of post-tax profits—despite no tax liability—an obvious option is to significantly increase this ratio or conduct a buyback should the share price continue to sit materially below intrinsic value.
• Entry into European Truck Parts Market – Supply Network Limited (ASX: SNL), trading as Multispares, competes with MXI in a similar, albeit slightly different space. SNL enjoys EBITDA margins roughly double what MXI currently generates. We believe this is largely due to its well-established catalogue of European as well as Japanese truck parts. We believe their dominance in European parts is so substantial that they are essentially the only aftermarket provider of scale, meaning the only alternative to the Original Equipment Manufacturers (OEMs) for European parts. Recently, Sampa, a European truck parts manufacturer, entered the Australian market with a major distribution centre in Truganina. Over time, this could provide MXI with access to a large-scale European parts catalogue. Recent history shows that MXI has a solid track record of growing its Japanese truck parts catalogue (see graph below), so hopefully, the opportunity with Sampa could potentially transform MXI’s European sales into a key driver of growth for the business.

MXI’s Japanese Sales

Big River Industries (ASX: BRI)

• Strengthened Executive Leadership – Over the past two years, BRI has significantly expanded and revitalised its executive team to support its ambition of achieving ~$1 billion in annual revenue. Key roles, such as Head of Supply Chain (which have been filled for over 12 months), are driving strategies with the potential to enhance long-term profitability, particularly at the gross margin level. As market conditions normalise, these initiatives are expected to deliver more apparent financial benefits, currently offset by a challenging market environment.
• Property Consolidation – BRI’s acquisitions of complementary private businesses over the past five years have left it with multiple sites across Australia, some facing rising rental costs amid a dynamic construction materials market. BRI has initiated a consolidation strategy to ensure each site is fit for purpose, with sufficient scale to boost profit margins over time. Stabilising lease-related expenses, such as depreciation and interest, should amplify profit growth as gross margins and revenue recover.
• Improved Market Conditions – BRI’s end markets, with ~65% tied to residential construction, have generally been at cyclical lows for the past 12-18 months. However, structural tailwinds supporting long-term growth, such as Australia’s housing shortage, remain robust and have strengthened. More importantly, we have started to see progress in addressing constraints such as interest rate reductions, reduced planning red tape and tradesman availability. As these reforms take effect, increased activity in residential, commercial, and infrastructure projects (e.g., the 2032 Olympics capital expenditure, as shown in the chart below) could drive ~10-20% annual growth, significantly boosting BRI’s profitability.

COG Financial Services (ASX: COG)

• New Board and Strategic Overhaul – Following the March 2025 board renewal, new Chair Tony Robertson and Director John Dwyer, former PSC Insurance founders, have yet to fully implement their vision for COG. Their expertise suggests a simple and repeatable strategy with an emphasis on driving consistent organic growth, which we expect to take shape in FY26.
• Business Simplification – As previously stated, COG’s CY23-24 share price decline stemmed from poor capital allocation and operational complexity. We have already seen steps to unwind this complexity via sales of COG’s minority investments in Earlypay (ASX: EPY) and Centrepoint Alliance (ASX: CAF). Divesting Westlawn Finance, which adds over $100 million in assets and liabilities via its debenture program, would further simplify COG’s balance sheet and clarify its cash flow profile.
• Insurance Broking Opportunity – COG facilitates ~$10 billion in annual finance for assets and equipment. Insurance broking has always been considered a growth lever for COG, given the complementary nature of offering insurance alongside finance for the purchase of business-critical equipment. COG’s insurance broking strategy has historically underperformed, falling short of expected growth. With the expertise of the new directors, we anticipate a renewed focus on revitalising this division. Given COG’s scale in finance broking, facilitating thousands of significant transactions annually, enhancements to the insurance broking operations could drive substantial organic growth for years to come.

MOVE Logistics (NZX/ASX: MOV)

• Stabilised Leadership – MOV has faced significant challenges from adverse economic conditions and management missteps, marked by two CEO resignations over the past three years. FY25 marks the first full year under the leadership of CEO Paul Millward and a refreshed executive team. Given the team has only been together as a group for <6 months, we don’t expect transformative results immediately, but a stronger 1H FY25 and optimistic FY25 guidance suggest a robust 2H and instil confidence in MOV’s path to profitability in FY26.
• New Zealand Economy Recovery – Through late FY25, New Zealand’s economy endured a two-year recession, marked by budget constraints, high interest rates, and reduced post-COVID immigration, performing worse than many developed nations. With a new government and declining interest rates, expected to continue, early signs suggest rising economic activity. For MOV, a logistics provider, this could drive significant tailwinds: (1) increased volumes from existing customers, (2) improved pricing power, and (3) less aggressive tendering as competitors prioritise efficiency over volume. While the timing, FY26 or FY27, remains uncertain, any economic upturn could substantially boost MOV’s profitability.
• Market Consolidation – New Zealand’s logistics sector remains fragmented, with numerous small private operators and a single dominant player. Due to the recent downturn, as well as ageing ownership (e.g. baby boomers), a significant number of these private operators have ceased trading or, in our view, will exit the logistics industry in the near term. We expect this trend to continue or even accelerate, as operators must have the network, systems, and assets to run an efficient and productive business that can offer clients a clear value proposition, as opposed to a pure trucking-only operation.

While the catalysts outlined above may appear nuanced, we believe their realisation in FY26 could deliver substantial shareholder value, particularly if accompanied by valuation re-ratings and sustained earnings growth.

This reinforces our conviction that the intrinsic value of our investments significantly exceeds their current share prices, despite the modest performance in FY25. We remain optimistic that, building on FY25, the Investment Portfolio can achieve significantly strong cumulative returns by FY26, driven by the strength of our core holdings.

I look forward to updating you over the next 12 months on the progress of these investee companies concerning these catalysts, and we remain confident that many should materialise as anticipated. The NAOS team and I remain steadfastly committed to delivering sustainable, positive returns for all NSC shareholders through a concentrated portfolio of Australian and New Zealand emerging companies.

I would also like to acknowledge our long-standing NSC shareholders for their unwavering support, particularly during periods of performance volatility. As a sign of my confidence in NSC’s long-term value creation, I have continued to acquire shares and will do so as long as this potential remains.

Kind regards,

Sebastian Evans
‍Managing Director and Chief Investment Officer

NAOS Asset Management Limited