Dear fellow shareholders,

On behalf of the Board, welcome to the Annual Report for NAOS Small Cap Opportunities Company Limited (Company) for the financial year ended 30 June 2026. I would like to thank all shareholders for your continued support and welcome all new shareholders who joined the register during the year.

For the financial year ended 30 June 2026, the NSC Investment Portfolio returned -9.86%, compared with the benchmark S&P/ASX Small Ordinaries Accumulation Index, which returned +8.11%. The Company recorded an after-tax loss of $6.60 million (FY25: after-tax loss of $9.07 million), and pre-tax net tangible asset backing per share decreased from 38.17 cents to 28.09 cents over the course of the year, as set out in the following chart.

The portfolio result was driven by share price reductions in a small number of large holdings against the economic backdrop, which offered little valuation support regardless of company-specific outcomes. Rather than the interest rate relief widely anticipated at the start of the year, the Reserve Bank of Australia increased the cash rate by 0.75% over the financial year to 4.35%, with inflation proving more persistent than forecast and conflict in the Middle East pushing oil and refined fuel prices higher. Higher discount rates weighed on valuations across the market, often regardless of how the underlying businesses performed operationally.

Whilst this has been a poor result, the Company’s share price told a different story. Over the twelve months, the share price increased from $0.280 to $0.325, strengthening notably over the final quarter, and the Company closed the financial year trading at a premium of 15.70% to pre-tax net tangible asset backing, having commenced the year at a discount of 26.64%.

Portfolio return and NTA measure the performance and value of the Company’s underlying investments. Total shareholder return measures the change in the market value of a shareholder’s investment, together with dividends paid over the period. Total shareholder return for the 12-month period was 33.14%, or 35.41% when including the value of franking credits, driven by the dividends paid over the year and by the movement in the share price relative to pre-tax NTA.

NSC Pre-Tax NTA Performance

Dividends are the part of the shareholder returns that the Board can most directly influence, and we have declared a final quarterly dividend of 1.25 cents per share, franked to 50%, bringing the total dividend for FY26 to 5.00 cents per share. Based on the closing share price of $0.325 at 30 June 2026, this represents a yield of 15.38%, or 17.95% once the value of the attached franking credits is included.

The Company seeks to provide shareholders with a sustainable stream of dividends, franked to the maximum extent possible, while maintaining a profit reserve sufficient to continue paying them in periods where performance has been harder to generate. The profit reserve balance at year-end was 7.9 cents per share.

Since inception, the Company has now declared 43.50 cents per share in dividends, together with 15.90 cents per share in franking credits, being 59.40 cents per share in total. That is more than 1.8 times the closing share price of 32.5 cents at 30 June 2026.

NSC Dividend History

Capital management is the other avenue available to the Board, and the principal activities during the year were:

• Dividends: the quarterly rate of 1.25 cents per share was maintained throughout the year.
• On-market share buy-back: 906,890 shares were acquired and cancelled at a total cost of $290,893, at a time when the shares were trading at a discount to pre-tax net tangible asset backing.
• Dividend reinvestment plan: all dividend reinvestment plan entitlements were satisfied through on-market purchases during the year, meaning shareholders received their reinvested dividends without any dilution to their holdings.

The Board continues to remain strongly aligned with all shareholders through their respective shareholdings, which increased by 353,136 shares over the course of the financial year, an increase of 11.0%, to a cumulative 3,554,820 shares.

Notably, since the end of the financial year, a number of the Company’s holdings have provided positive updates. In the short term, this may not lead to a significant re-rating of these businesses’ valuations, but the Board believes it highlights their true underlying value and the significant discount to fair value at which they are trading today. Given the recent events mentioned above, the Board anticipates a significantly stronger FY27 for shareholders.

A detailed view of the Company’s Investment Portfolio is set out in the Investment Manager’s Report on the following pages, which I would encourage shareholders to read.

On behalf of the Board of Directors, I would like to thank the staff of the Investment Manager for their efforts and dedication over the course of the financial year, and to all shareholders for their continued support.

Dear fellow shareholders,

For the financial year ended 30 June 2026 (FY26), the NSC Investment Portfolio decreased by -9.86% compared to the Benchmark S&P/ASX Small Ordinaries Accumulation Index (XSOAI), which returned +8.11%. We want to be clear: this is a deeply unsatisfactory result, particularly following the difficult FY25 outcome, and one for which we, as the team responsible for managing NSC, take full ownership of.

We are not in the business of making excuses. We are, however, in the business of allocating capital with a long-term view, and even after the recent improvement in performance, the NAOS team genuinely believes that the intrinsic value of NSC’s core investments materially exceeds their current carrying value. As a sign of my personal alignment, I have continued to acquire NSC shares on-market throughout FY26; I do not own any shares outside the NAOS LICs, and intend to maintain that position for as long as this view remains.

The Year in Markets - Capital, Capex and Concentration

FY26 will be remembered for both the extraordinary concentration of capital at the top end of global equity markets and the geopolitical and macroeconomic noise that has run alongside it. The S&P/ASX 200 Accumulation Index (XJOAI) delivered a +6.11% return. In the US, the S&P 500 Index returned +22.32%, but the dispersion within those headline numbers tells a more meaningful story.

S&P/ASX 200 v S&P 500 (Total Return)

For most of CY25, the so-called ‘Magnificent 7’ companies continued to drive the bulk of US equity returns, with this cohort delivering an average return of ~27.5% versus the S&P 500 Index’s return of ~16%. That dynamic reversed in CY26. Through the first half of CY26, the Magnificent 7 underperformed the broader index, returning +3.7% versus the S&P 500 Index return of +9.9%. By February, as a snapshot, the cohort was down -7% while the equal-weighted S&P 493 was up +4%. This is the first sustained period of underperformance for the Magnificent 7 cohort since 2022 and, in our view, marks an early shift in market breadth that requires close watching.

Underpinning FY26, both domestically and globally, was the AI infrastructure capital expenditure cycle. The five largest US hyperscalers - Alphabet Inc. (NDQ: GOOG), Amazon Inc. (NDQ: AMZN), Microsoft Corp. (NDQ: MSFT), Meta Platforms Inc. (NDQ: META) and Oracle Corp. (NYSE: ORCL) - collectively committed in excess of US$700 billion of capital expenditure in CY26, an increase of circa 36% year-on-year, with around 75% of that spend tied directly to AI infrastructure. To put that into perspective, Alphabet Inc. alone spent ~US$45 billion in Q2 CY26, which was 100% higher than the previous corresponding period, with Google Cloud’s reported contracted customer backlog exceeding US$510 billion. The Data Centre division for NVIDIA Corp. (NDQ: NVDA) generated revenue of circa US$75 billion in a single quarter (Q1 CY26), up circa 92% year-on-year.

These are numbers without a clear historical analogue. The capital being deployed into AI infrastructure, such as Graphics Processing Units (GPUs), power infrastructure, cooling, networking and the physical real estate that houses it, has, by some measures, exceeded the entire telecommunications buildout of the late 1990s. The relevant question for investors in emerging companies is not whether this capex cycle is happening - clearly, it is - but what the second-and third-order effects look like, and which companies further down the value chain are positioned to benefit without taking on hyperscaler-level capital risk.

The Software De-Rating

Sitting in awkward contrast to the AI infrastructure spend and data centre buildout has been the sharp de-rating of many listed software companies. In our Q3 FY26 Quarterly Investment Report, we referred to this dynamic, often coined the ‘SaaSpocalypse’.

Globally, and on the ASX, several of the most highly regarded software businesses have seen their share prices fall by 50% or more over a 6-12-month period, with notable ASX examples including Xero Ltd (ASX: XRO), Pro Medicus Ltd (ASX: PME), TechnologyOne Ltd (ASX: TNE) and Objective Corp. Ltd (ASX: OCL).

The driver of this de-rating is a genuine question over the long-term durability of software revenue. Will customers continue to pay the same price per seat in five years’ time if a competing AI-native product offers comparable functionality at a fraction of the cost? Will existing customers consume less of the software they already have? Will some customers simply build their own alternatives? These are not abstract questions; they are likely being asked by every CFO undertaking an enterprise software renewal within their existing environment.

In our view, this de-rating will not be felt evenly across the sector. Those with deep integrations into customer workflows, regulatory data, or proprietary network effects appear comparatively well insulated. Those whose primary value proposition is a thin layer on top of a large language model capability are far more exposed. As renowned global software investor Thoma Bravo noted at its annual investor meeting in March, total spend on software applications may actually increase as AI implementation drives efficiency gains, but the distribution of that spend across vendors will look very different from what it is today.

Interest Rates and the Middle East

A year ago, the consensus view was that domestic interest rates would continue their gradual descent through CY26. That view has not aged well. Through FY26, the Reserve Bank of Australia (RBA) increased interest rates by +0.75%, taking the cash rate back to 4.35% at the time of writing. The drivers of this reversal are well documented. Underlying inflation has proven stickier than expected, the labour market remains tight, and the conflict in the Middle East has driven oil and refined fuel prices sharply higher, which is now feeding through to the broader Consumer Price Index (CPI). It can also be strongly argued that interest rate increases no longer have the same desired effect as they did 10-20 years ago, given the demographic shifts in Australian society.

The conflict in the Middle East, which escalated meaningfully in early CY26, remains unresolved at the time of writing. For Australian businesses, the practical impact has been twofold:

1. A higher input cost profile for anything energy-intensive or transport-dependent
2. A delay in the timing of expected interest rate relief that many had built into FY26 budgets.

From our perspective, the more worrying variable is that we believe many second- and third-order effects are only now starting to make their way through supply chains. Examples include the inputs required to make many food-packaging items, the glues used in manufacturing processes such as plywood, and more nuanced pure-oil products. A good outcome, in our view, would be one where the impact is contained to price rises; a more realistic scenario is supply disruptions and volume curtailments that persist for a considerable period.

Commodity Price Movements - 6 Months

As we consistently emphasise, we do not claim any ability to consistently pick market highs and lows. However, the practical implications of the above for the businesses we own are reasonably clear. Discretionary consumer activity is softer than it was 6-12 months ago. Construction-related demand has continued to recover from cyclical lows, but more slowly than we had hoped. Defence-related spending continues to expand, both in Australia and globally, as governments respond to a more volatile geopolitical environment. The cost of debt remains higher than what businesses had been expecting 12 months ago, which has renewed the focus on capital efficiency and cash generation.

The Australian Knock-On - Data Centres, Contractors and Defence

The most consequential domestic development of FY26 has, in our view, been the way in which the global AI capex cycle has begun to translate into demand for physical infrastructure on Australian shores. Australia is now firmly on the global hyperscaler map as a build location, with the most visible commitment being both Amazon Inc.’s circa AU$20 billion data centre investment announced in mid-2025 and Microsoft Corp.’s AU$25 billion expansion investment announced in April 2026.

On a national basis, Australia’s deployable data centre capacity is expected to more than double from circa 1.5 GW in 2025 to in excess of 3.9 GW by 2030, requiring an estimated AU$26 billion in new build. To put that in perspective, this is the kind of structural construction pipeline that the domestic resources sector last enjoyed during the LNG construction boom of the early 2010s. Equally potent is the fact that, despite this projected build-out, demand will still outstrip supply.

Forecasted Gigawatts (GW) of Data Centre Demand in Australia

Layered on top of this is a marked uplift in federal government Defence spending, with successive commitments to expand the Department of Defence’s facilities footprint to support advanced aircraft, drones, submarines and related capability. Both the Data Centre theme and the Defence spending theme are highly capital-intensive, have multi-year durations, and ultimately require much of the same skill base: electrical engineering, civil works, mechanical fit-out, communications cabling, and high-voltage power infrastructure. For the specialist Australian contractors that can credibly self-perform across these disciplines, demand for their services appears the strongest it has been in well over a decade.

The market has noticed. Over the past 12-18 months, the share prices of contracting and engineering services businesses, including SKS Technologies Group Ltd (ASX: SKS), SRG Global Ltd (ASX: SRG), Southern Cross Electrical Engineering Ltd (ASX: SXE) and Duratec Ltd (ASX: DUR) have re-rated materially, in several cases more than doubling. The earnings underpinning these moves are real. Order books across the cohort have grown significantly, the project mix has shifted to higher-margin work, and pricing power has improved as bid lists have shortened.

Contractors & Engineering Firms - Share Price Growth (%)

Contractors & Engineering Firms - P/E Multiple Growth

It is worth noting, however, that the valuations applied to many of these businesses are now well above their long-term historical averages. For a sector that has historically traded on single-digit to low-teens forward earnings multiples through the cycle, in our view, the bar for continued share price appreciation from here is materially higher than it was 12 or 24 months ago. The read-through, in our view, for our Investment Portfolio is positive - the same demand backdrop directly benefits our exposure to Saunders International Ltd (ASX: SND). However, it is also a reminder that the easiest returns from this thematic have likely already been made. It is also important to weigh the longevity of these earnings profiles against the multiples at which they are being capitalised.

Pulling the Threads Together

In summary, we believe FY26 has been defined by four interrelated forces:

• An extraordinary capital expenditure cycle among the largest technology companies that has reshaped where global capital flows and how equity markets have performed;
• A broad de-rating of software businesses as investors question, for the first time in years, whether their recurring revenue will hold up;
• An interest rate path that has risen more than the market expected, on the back of stickier inflation and energy costs driven by geopolitics; and
• A conflict in the Middle East that affects the economy mainly through commodity prices and the timing of expected rate relief.

Against this backdrop, the Australian market has continued to disproportionately reward scale and passive index membership, while leaving a significant cohort of high-quality smaller businesses trading at, in our view, materially attractive valuations relative to their underlying long-term value. Despite this, the issue remains: what is the catalyst to close this disparity between perceived fair value and current value for the abovementioned cohort?

NAOS Philosophy

At NAOS, 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, more than 90% 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 on three core investments in the NSC portfolio that experienced notable events in FY26, setting out in each case the developments we believe support a re-rating in value over the period ahead.

MOVe Logistics Group Ltd (ASX/NZX: MOV) - The Path Back to Profitability

MOVe Logistics Group Ltd (ASX/NZX: MOV) is a New Zealand-based logistics operator that has been one of the more challenging investee companies within the NSC Investment Portfolio. In FY26, in our view, the MOV share price materially detached from the underlying operating trajectory of the business. We include MOV in this report precisely because we believe the gap between price and progress is now at its widest.

Our investment thesis on MOV rests on a turnaround from a loss-making, sub-scale cost base toward a right-sized, profitable national logistics network, leveraged to an eventual recovery in the New Zealand economy. Through FY26, that operational turnaround has steadily progressed. The company’s normalised earnings before tax (EBT) loss in Q1 FY26 had narrowed by 68% year-on-year, and management reaffirmed guidance to return to profitability for the full FY26 year. Pleasingly, this was confirmed during July with the company announcing it had achieved its target of positive normalised EBT for FY26. The 1H FY26 results extended that improvement, with all business lines other than Warehousing delivering planned operational gains.

MOVe Logistics NPAT ($m)

The Warehousing division remains the principal area of underperformance given some of the sub-optimal leases signed by previous management teams. The current management team has flagged a small level of new business wins, ongoing productivity improvements, and the planned exit of two onerous property leases as the key contributors to improving the cost base from late FY26 into FY27. We will be monitoring the resolution of these leases and the Warehousing division’s trajectory closely, as it represents the key swing factor for MOV achieving sustainable profitability.

The investment case from here, in our view, is a combination of self-help and cyclical leverage. On the self-help front, MOV has been right-sized, the cost base reset, and the customer base broadly retained - the operational gains are largely within management’s control. On the cyclical side, the New Zealand economic backdrop, while still soft, has begun to show early signs of stabilisation, with declining interest rates and improving consumer confidence. MOV’s national network, cost base reset and strong customer partnerships leave it well-placed to benefit operationally as economic activity improves through 2H CY26 and into CY27.

We will be the first to acknowledge that the share price action over FY26 has been disappointing, particularly given the underlying operational progress. The combination of low trading liquidity (MOV is primarily traded on the NZX) and a constrained risk appetite for small-cap logistics businesses has, in our view, weighed on the share price well beyond what the underlying earnings trajectory would warrant.

For a turnaround of this nature, the next 12 to 18 months will be critical. Success will depend not only on achieving profitability (which they have now done) but also on demonstrating that those profits are durable and scalable as volumes recover. Looking ahead, we expect management’s focus to shift toward delivering sustainable 3–5% net profit after tax (NPAT) margins. We believe this is an achievable target, given the significant operating leverage in the business as it scales from a low base amid a gradually improving New Zealand economy.

Big River Industries Ltd (ASX: BRI) - JBS Acquisition and the Emergence of a Strategic Substantial Shareholder

Big River Industries Ltd (ASX: BRI) has been a core holding in the NSC Investment Portfolio for several years, with the investment thesis centred on BRI’s position as one of the largest distributors of building products (timber, plywood, panels, formply, cladding, and related value-added products) in Australia. BRI also has a relatively balanced exposure across the different market segments, being residential construction, commercial construction and infrastructure. FY26 has been a period of meaningful strategic and corporate-level developments for BRI, even as end-market conditions have shown only modest improvement from the cyclical trough.

The most significant operational development of the year was the December 2025 acquisition of Johns Building Supplies (JBS), a Western Australian-based distributor of building materials. The total acquisition consideration was $17 million, funded by a fully underwritten $10 million rights issue, $2 million in vendor equity, and the balance from an earnout and existing debt facilities. Over the prior three financial years, JBS generated average annual revenue of approximately $41 million and EBITDA of $5.2 million (post-AASB 16), implying a transaction multiple that we view as attractive given the strategic rationale. For context, we believe JBS is the largest building supplies trade centre outside a Bunnings site in Western Australia.

The strategic rationale meets all of the criteria we would expect from a BRI acquisition.

1. JBS offers material exposure to higher-margin value-add products, notably in cladding, which benefit from structural long-term construction demand. This supports BRI’s ongoing strategy to lift gross margins toward 30%.
2. JBS materially strengthens BRI’s presence in Western Australia, a state where BRI had historically held two somewhat sub-scale sites. The combined footprint will allow BRI to compete more effectively for larger, more sophisticated WA clients.
3. JBS is a scaled operation with over $40 million in annual revenue and more than 800 customers across residential, commercial fit-out & construction segments, providing a diversified end-market exposure that, in our view, materially reduces integration risk compared to a smaller bolt-on.

The second corporate-level development of FY26 has been the emergence and continued accumulation of a new substantial shareholder, CTL (Aust) Pty Ltd. CTL first emerged on the register on 30 December 2025 with a 5.39% stake, having accumulated shares from late September 2025 onwards. Throughout the second half of FY26, including a sequence of substantial holder notices in May 2026, CTL has continued to build its stake to a current shareholding of approximately 19.9%. CTL (Aust) is linked, via its sole director, to United Steel Pty Ltd, a steel distribution business that also controls Calibre Steel and GAM Steel (both related to the Coil Steels group). Based on our understanding of the industry, we believe there is clear strategic merit in the ability to cross sell both building products (ex-steel) and steel-related building products through the same sites to the same customer base.

In parallel, the underlying BRI business has continued to navigate a challenging cyclical environment. End-market demand, with circa 65% of current revenue exposed to residential construction, has remained at cyclical lows throughout much of FY26. However, the structural tailwinds supporting the business (Australia’s housing shortage, government measures to ease planning constraints, ongoing interest rate uncertainty notwithstanding) remain intact.

With the JBS earnings contribution beginning to flow through 2HFY26 and into FY27, and with the BRI executive team continuing to invest in property consolidation, supply chain optimisation and margin-accretive product mix, we believe BRI is well-positioned for a material earnings uplift as cyclical conditions normalise. Given the pro forma run rate of the combined JBS and BRI businesses, equating to a $9.6 million NPATA, we would hope this figure exceeds $12 million in FY27, which would place the business on a Price to Earnings multiple (P/E) of ~10 at the time of writing. The company has provided initial guidance for FY27 that it expects to achieve double-digit EBITDA growth vs FY26, which itself is expected to be in line with consensus forecasts.

SomnoMed Ltd (ASX: SOM) - Margin Expansion and the Rest Assure Opportunity

SomnoMed Ltd (ASX: SOM) has been a more recent addition to the NSC Investment Portfolio, and one we featured as the Investment in Focus in our Q3 FY26 Quarterly Investment Report. For shareholders who may not have seen that piece, we provide a summary of the investment thesis here.

SOM is an Australian medical device company, ASX-listed since late 2004, and a global leader in the design and manufacture of custom-fitted oral appliances for the treatment of Obstructive Sleep Apnoea (OSA). The company has announced its FY26 preliminary, unaudited results with revenue between $114 million and $115 million, compared to latest guidance of $119 million to $126 million, but pleasingly EBITDA landed towards the middle of the previously guided $10 million to $12 million. The majority of sales are generated in the US and Northern Europe, and all SOM products are manufactured at the company's own facility in the Philippines.

The market opportunity is, in our view, large and structurally growing. Obstructive sleep apnoea affects an estimated 83.7 million US adults today, approximately 32% of the US adult population, yet only around 6 million have been formally diagnosed. The global sleep apnoea devices market was valued at approximately US$10.3 billion in 2025 and is projected to reach US$22.9 billion by 2034, a compound annual growth rate of approximately 9.6%. Importantly, the patient pool is growing, driven by rising obesity rates and an ageing population. A 2025 study sponsored by ResMed Inc. (ASX: RMD) projects that by 2050, OSA will affect approximately 76.6 million US adults, representing a relative increase of nearly 35%. The dominant existing treatment, continuous positive airway pressure (CPAP) therapy, suffers a well-documented compliance problem, with reported non-adherence rates of between 46% and 83% depending on the study, and more than 25% of patients abandoning CPAP entirely within approximately three years.

The arrival of GLP-1 weight-loss drugs (most notably Eli Lilly’s Zepbound, which became the first medication ever FDA-approved specifically for sleep apnoea) has added a further dimension to the market opportunity. Initial market reaction focused on GLP-1s as a potential threat to existing OSA device makers. A more nuanced reading, in our view, is that GLP-1s are likely to expand the total addressable market materially over time. The mechanism is straightforward. A patient who suspects they have OSA but has been deterred from seeking a diagnosis by the perceived burden of CPAP now has a strong incentive to engage with the healthcare system if they are already receiving, or considering, GLP-1 therapy. Many of those patients will lose meaningful weight on GLP-1s and move from severe to moderate or mild OSA - patients who will still require some form of treatment (oral appliances, positional therapy, or lower-pressure CPAP) but who are now actively engaged in managing the condition.

Within this expanding market, our investment in SOM rests on three pillars.

1. Gross margin expansion. SOM currently achieves a gross margin of approximately 61% on its all-Philippines-manufactured product range, compared with ResMed’s circa 62%. Given that ResMed has a revenue base that is ~65 times larger, we see substantial scope for SOM to improve its margin profile as it scales. Under the new leadership of CEO Karen Borg (former President, Asia Pacific at ResMed Inc.) and Amrita Blickstead (former COO and CMO at eBay Inc.), the team has prioritised automation of the largely manual production process and improved manufacturing throughput.
2. Market share growth. SOM currently holds an estimated share of circa 2% in the global sleep apnoea devices market, with its products primarily positioned as a second-line therapy for CPAP-intolerant patients. There is a clear opportunity to increase adoption within the existing dentist referral network through better product fit, simpler clinical processes, and improved practitioner remuneration, all of which the new leadership team has prioritised.
3. Commercialisation of the Rest Assure product. Of the three pillars, this is arguably the most strategically important. Rest Assure is SOM’s next-generation oral appliance, developed over nearly a decade. The defining differentiator of Rest Assure is its embedded sensors, which measure and monitor treatment efficacy and patient compliance in real time. This addresses the single most significant historical limitation of oral appliances relative to CPAP - the absence of objective compliance and efficacy data. Rest Assure already holds FDA clearance for its compliance monitoring features, and management has indicated that obtaining full FDA approval for the efficacy monitoring features is the priority milestone for the period ahead. We expect management to provide clarity on the optimal go-to-market strategy, reimbursement pathways and the commercial launch profile by the end of CY26.

In our view, the medium-term opportunity for Rest Assure is significant: to transition from a second-line therapy to a credible first-line option for a meaningful subset of OSA patients. In a market expected to double over the next decade - where the dominant therapy suffers from structural compliance issues and new pharmaceutical entrants are broadening patient awareness - the upside for SOM is substantial if it can establish Rest Assure as a strong CPAP alternative.

It is rare to find a listed business that can be acquired today at a reasonable valuation that also offers meaningful exposure to a growing market, material margin expansion potential, and significant market share upside. In our opinion, SOM meets all three criteria.

Outlook for FY27

As we have noted for many years, while valuations are heavily influenced by sentiment and subjective forces in the short term, earnings power and cash generation ultimately prevail over the long run.

For many of NSC’s remaining core investments, FY27 is shaping up to be a pivotal year in terms of earnings momentum, which we expect will drive a re-rating of these businesses over time. Examples include:

• MOVe Logistics Group Ltd (ASX/NZX: MOV) - MOV has announced that it has achieved a headline return to profitability for FY26. This should pave the way for a stronger outlook in FY27 and beyond. With a revenue base of approximately NZD$300 million and a market capitalisation of only NZD$25 million, the potential upside is significant. Even at a conservative 3% NPAT margin below best-in-class levels for the sector, the implied P/E would be just 2.7 times.
• After five years of the New Zealand economy bumping along the bottom, and with the conflict in the Middle East slowing the emergence of green shoots, a recovery is yet to materialise. However, we believe improving conditions could begin to flow through in FY27.
• Big River Industries Ltd (ASX: BRI) - Similar in many respects to MOV, FY27 is expected to be the year BRI demonstrates to the market its ability to deliver a reasonable return on a substantial revenue base of approximately $500 million.
• The overhauled and expanded management team has spent the past two years implementing key strategic initiatives, and these efforts are now poised to drive meaningful margin improvement. Combined with the additional scale and diversification from the recent JBS acquisition, we believe FY27 will mark a step-change year for earnings. The business also carries a free option on further M&A or corporate activity, supported by CTL’s new 19.9% shareholding. We would also expect the Board to provide updates on the strategic review being undertaken with Greenstone Partners, following the Board’s view that the current share price does not reflect the long-term value of the business.
• SomnoMed Ltd (ASX: SOM) - Despite six consecutive years of revenue growth (including FY26 guidance), we firmly believe SOM is still under-earning. From a margin perspective, there remains meaningful upside in the manufacturing process, which is still largely manual. On the revenue side, SOM’s share of the global non-CPAP sleep apnoea treatment market is still very low - less than 5%. The company is addressing this across the existing product range, and has also announced a new product, Virtus, a purpose-built therapy for patients with OSA and coexisting sleep bruxism (the grinding and clenching of teeth during sleep). Furthermore, the Rest Assure product offers a compelling opportunity for wider adoption, particularly given its ability to monitor compliance in real time, which should support improved reimbursement pathways. We expect significant progress on both the margin and revenue fronts throughout FY27.
• Saunders International Ltd (ASX: SND) - In 2HFY26, SND returned to profitability under its new CEO. The business has been deliberately scaling in preparation for entry into the Defence and Water sectors, which has seen costs outpace revenue for some time. In FY27, the key focus will be on delivering consistent financial results while securing larger-scale contracts in the water and defence sectors, alongside its core markets. Success here should demonstrate SND’s ability to win more sophisticated and materially larger projects than it has historically.

While the catalysts outlined above may appear nuanced, we believe their realisation in FY27 could drive substantial shareholder value, particularly if supported by earnings growth and valuation re-ratings.

I would also like to acknowledge our long-standing NSC shareholders for their unwavering support, particularly through what has been a challenging past two-year period. As a sign of my confidence in NSC’s long-term value creation, I have continued to acquire NSC shares throughout FY26, and intend to continue doing so for as long as I believe this opportunity for significant capital appreciation exists.

Kind regards,