NAOS Emerging Opportunities Company Limited ACN

49 Pages·2016·3.93 MB·English

NAOS Emerging Opportunities Company Limited
ACN: 161 106 510
Appendix 4E
Results Announcement for the year ended 30 June 2016
All comparisons unless specified are to the year ended 30 June 2015

$ up/down % change
Revenue from ordinary activities 13,000,673 Up 1,454%

Profit from ordinary activities before tax attributable to members 11,237,685 Up 1,567%

Profit from ordinary activities after tax attributable to members 8,063,747 Up 8,572%

Franked
Cents per amount per Tax rate for
Dividend Information share share franking

2016 Interim dividend 3.25 3.25 30%

2016 Final dividend 3.50 3.50 30%

Final Dividend Dates
Ex-dividend date 19 October 2016
Record date 20 October 2016
Payment date 11 November 2016

Dividend Reinvestment Plan
The Dividend Reinvestment Plan is in operation and the recommended fully franked final dividend of 3.5 cents per
share qualifies. The plan will be in effect per the latest dividend reinvestment rules.
30 June 2016 30 June 2015
$ $

(Post Tax) Net tangible asset backing 1.181 1.071

This report is based on the financial report which has been subject to independent audit by the auditors, Deloitte
Touche Tohmatsu Australia. All the documents comprise the information required by the Listing Rule 4.3A.
NAOS EMERGING OPPORTUNITIES
COMPANY LIMITED
Annual Report 2016
ACN 161 106 510
CONTENTS
Financial Record 02
Corporate Summary 03
Board of Directors 04
Chairman’s Letter 05
Investment Manager’s Review 06
Our Team 08
Corporate Governance Statement 09
Directors’ Report 11
Auditor’s Independence Declaration 16
Independent Auditor’s Report 17
Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016 19
Statement of Financial Position as at 30 June 2016 20
Statement of Changes in Equity for the year ended 30 June 2016 21
Statement of Cash Flows for the year ended 30 June 2016 22
Notes to the Financial Statements 23
Directors’ Declaration 41
Additional Information 42
Corporate Information IBC
Annual General Meeting
AGM to be held at 11am (AEST)
on Friday 18 November 2016
at Taylor Collison, Level 10,
167 Macquarie Street, Sydney NSW 2000
Our objective is to
provide investors with
genuine exposure to
emerging companies
with a long-term value
focus regardless of
market capitalisation
and/or liquidity
01
FINANCIAL RECORD
Net Tangible Assets 30 June 2016 30 June 2015
Undiluted NTA per share (pre-tax)*** $1.25 $1.07
Undiluted NTA per share (post-tax) $1.18 $1.07
Diluted NTA per share (pre-tax)* $1.25 $1.07
Diluted NTA per share (post-tax)* $1.18 $1.07
Share price $1.04 $1.00
Option price (expiring 1 February 2015) n/a n/a
Option price (expiring 1 August 2015)** n/a $0.004
Dividend
Dividend Information Cents per share Franked amount per share Tax rate for franking
2016 Interim dividend 3.25 3.25 30%
2016 Final dividend 3.50 3.50 30%
Final Dividend Dates
Ex-dividend date 19 October 2016
Record date 20 October 2016
Payment date 11 November 2016
Dividend Reinvestment Plan
The Dividend Reinvestment Plan is in operation and the recommended fully franked final dividend of 3.5 cents per share qualifies. The plan
will be in effect per the latest dividend reinvestment rules.
* I n the calculation of diluted NTA per share, options expiring on 1 August 2015 are not considered to have a dilutive effect, as the average market price of ordinary
shares of the Company during the year did not exceed the exercise price of the options.
** On 1 August 2015, all unexercised options expired.
*** T he Net Tangible Assets backing of the Company’s shares is calculated, in accordance with ASX guidelines, by dividing the net tangible assets of the Company
(net assets less tax assets and liabilities), at a particular date, by the number of shares on issue at that date.
Portfolio Performance as at 30 June 2016
2 Years 3 Years Inception Inception
1 Month 6 Months 1 Year (p.a.) (p.a.) (p.a.) (nom.)
NCC Investment Portfolio
+2.97% +17.07% +24.77% +12.49% +18.51% +20.07% +84.22%
Performance
S&P/ASX Small Ordinaries
–1.31% +6.94% +14.40% +7.19% +9.13% +2.33% +8.00%
Accumulation Index (XSOAI)
Outperformance Relative
+4.28% +10.13% +10.37% +5.30% +9.38% +17.74% +76.22%
to Benchmark
Past performance is not an indicator of future returns. Performance shown is post all operating expenses but before fees and taxes.
02 NAOS Emerging Opportunities Company Limited Annual Report 2016
CORPORATE SUMMARY
THE COMPANY BENCHMARK RISK
NAOS Emerging Opportunities Company The Company compares its performance The Company invests in securities listed on
Limited is a listed investment Company with the S&P/ASX Small Ordinaries the ASX and unlisted securities. The value
and its shares are listed on the Australian Accumulation Index (XSOAI). of the shares and the income derived may
securities Exchange (ASX: NCC). fall or rise depending on a range of factors.
INVESTMENT MANAGER Refer to Section 4 of the Prospectus
OBJECTIVE The Company has outsourced its of the Company and Note 17 of this
The Company was established on investment management function to financial report.
6 November 2012 to invest primarily in NAOS Asset Management Limited
a concentrated portfolio of listed entities (ACN 107 624 126) (Australian Financial MANAGEMENT AGREEMENT
that are not included in the S&P/ASX 100 Services Licence Number 273529) (the The Company has an agreement with
Accumulation Index with the objective to “Investment Manager”). NAOS Asset Management Limited for the
provide investors with genuine exposure provision of management services, details
to emerging companies with a long- CAPITAL STRUCTURE of which are contained at Note 16.
term value focus regardless of market The Company’s capital structure
capitalisation and/or liquidity, aiming to comprises Ordinary shares.
provide a growing income stream franked
to the maximum extent possible, and
long-term capital growth to investors
above the benchmark index, being the
S&P/ASX Small Ordinaries Accumulation
Index (ASX: XSOAI).
30 June 2016 30 June 2015
Total Assets and Net Tangible Assets (“NTA”)
$ $
Total assets 60,322,421 54,707,585
Undiluted NTA per share (pre-tax) 1.25 1.07
Undiluted NTA per share (post-tax) 1.18 1.07
Diluted NTA per share (pre-tax) 1.25 1.07
Diluted NTA per share (post-tax) 1.18 1.07
Total shares on issue 46,918,297 46,918,297
INFORMATION ABOUT THE greatest opportunity for shareholders to NAOS believe there should always
INVESTMENT MANAGER realise positive absolute returns in the form be a significant alignment of interests
of capital growth and income generation between the managers of investments
The Investment Manager of the
over the long term. and shareholders. As such, in undertaking
Company is NAOS Asset Management
Limited (NAOS). All NAOS investment products have the implementation of the investment
an absolute return focus. As such, strategy for the Company, the investment
NAOS was established in 2005 and
in implementing the strategy for the team seek only to invest in businesses
focuses on providing investors with niche
Company, the team place a primary focus that are led by proven management teams
product offerings, in asset classes and
on mitigating the risk of permanent loss with a clear alignment of interests to that
sub-sectors where they often lack the
of capital and assessing each investment of shareholders. Furthermore, NAOS
time, resources or expertise to research
opportunity on the basis of its potential Directors and employees are significant
and invest in the products themselves.
for long-term value add in the portfolio. investors in the vehicles they manage.
NAOS adopts a high conviction, long-
Given the approach adopted, it is unlikely Further information about NAOS can be
term, value driven, long/short approach
that the performance of the Company’s found at w w w.naos.com.au.
to investing. The investment team look
investment portfolio will present a
to realise value over the medium to long
high correlation to broader investment
term by sourcing, selecting and combining
market movements.
investment opportunities that present the
03
BOARD OF DIRECTORS
SEBASTIAN EVANS WARWICK EVANS DAVID RICKARDS
Director Director Independent Chairman
Sebastian Evans has been a Director of Warwick Evans has been a Director of the David has been a Director and Chairman of
the Company since inception (6 November Company since inception (6 November the Company from 20 November 2012.
2012). He was appointed as Director on 2012). He was appointed as Director on David has over 25 years of equity market
6 November 2012. 6 November 2012. experience, most recently as an Executive
Sebastian Evans is a Director of NAOS Warwick Evans has over 35 years of equity Director at Macquarie Group where David
Absolute Opportunities Company markets experience, most notably as was head of equities research globally as
Limited and the major shareholder and Managing Director for Macquarie Equities well as equity strategy since 1989 until
Managing Director of the Investment (Globally) from 1991-2001 as well as he retired in mid-2013. David was also a
Manager. He is also the Chief Investment being an Executive Director for Macquarie Consultant for the financial analysis firm
Officer for both the NAOS Emerging Group. He is a Director of NAOS Absolute Barra International.
Opportunities Company and the NAOS Opportunities Company Limited. He was He is a former Director and Treasurer at
Absolute Opportunities Company. Prior also the founding Chairman and CEO of Bush Heritage Australia, a Director of
to this he was an Investment Analyst at the Newcastle Stock Exchange (NSX). He NAOS Absolute Opportunities Company
the Investment Manager, focusing on was also the Chairman of the Australian Limited and a Consultant
emerging companies. Stockbrokers Association. Prior to these at Barra International.
Sebastian holds a Masters of Applied positions he was an Executive Director at David holds a Masters of Business
Finance majoring in Investment County NatWest. Administration majoring in Accounting
Management, a Bachelor’s Degree Warwick holds a Bachelor’s degree in and Finance from the University of
in Commerce, majoring in Finance Commerce majoring in Economics from Queensland as well as two Bachelor
and International Business, and a the University of New South Wales. degrees, one in Engineering (Civil and
Graduate Diploma in Management Structural) from the University of Sydney,
from the Australian Graduate School of and a Bachelor’s degree in Science (Pure
Management (AGSM). He also holds Mathematics and Geology).
a Diploma in Financial Services and is
RG146 Competent.
04 NAOS Emerging Opportunities Company Limited Annual Report 2016
CHAIRMAN’S LETTER
Dear fellow Shareholders,
Welcome to the 2016 Annual Report
for the NAOS Emerging Opportunities
Company Limited.
For the financial year ended 30 June 2016,
the Company recorded a record profit of
$8.06 million, representing a significant
increase on the prior period. The pre-tax
NTA increased by 23.25c including the 6.25c
of fully franked dividends paid over the
same period.
The strategy of offering a completely shareholders with a growing, predictable Fully Franked Dividend (CPS)
benchmark unaware strategy whilst stream of dividends, franked to the
providing concentrated exposure to maximum extent deemed appropriate by 9.0
emerging companies has continued to the Board of Directors.
8.0
provide excellent risk adjusted returns The Company continues to place
to shareholders, well above that of the significant emphasis on providing quality 7.0 5
wider market. The Company continues to and value add communications to our 6.0 25 6.5 6.7
provide current and future shareholders shareholder base. The Directors believe 5.0 6.
a Listed Investment Company that is true the monthly investment reports and
to its investment philosophy of investing quarterly question and answer session 4.0
in emerging companies over a long term with the NAOS Chief Investment Officer 3.0
ifinvvee sytemaresn, tw hhoirlsizto mn aoinf tbaeintwinege tnh eth arebeil itayn d awrieth sionm thee t Lhies tmedo sInt vuessetfmule annt dC tormanpsapnayre nt 2.0 2.5 3.0
to hold a significant cash position of up space. To further improve our shareholder 1.0
to 100% in times where excellent risk communications, we will be holding 0.0
adjusted returns are not able to be sourced investor briefings in five of the capital FY13 FY14 FY15 FY16
by the Investment Manager. cities on a bi-annual basis. The Directors (part year)
In its fourth year of operations the believe these briefings will allow both Fully Franked Dividend (CPS)
Company continues to grow from the prospective and current shareholders
perspective of both net assets and the the ability to meet with both the Board
number of shareholders. The number of Directors and the wider team at the aligning our interests with those of all
of shareholders that held equity in the Investment Manager, and allow them to shareholders of the Company.
Company increased by 4% in FY16, and have answered any questions they may
On behalf of the Board of Directors,
notably this was without the assistance of have in regards to the Company and
I would like to thank all staff of the
any form of capital raisings, including the its operations.
Investment Manager for their hard work
issue of new shares through a Dividend As stated in previous years, the Board over the financial year.
Reinvestment Plan. The net assets of the remains committed to managing the
The Board is grateful for all shareholder
business continue to increase with a post- capital base of the Company in a manner
support through the year and we welcome
tax net asset value of $55.40 million at the that provides the flexibility the Investment
all new shareholders who joined the
end of financial year 2016. Manager requires to maximise potential
Company in the 2016 financial year.
Dividends paid by the Company have shareholder returns over the long term.
now grown for four consecutive years The Board continues in its commitment
since listing in February 2013. For the to limit the size of the Company to
financial year 2016 the Company will $150 million unless organic growth
pay a fully franked dividend of $0.0675 increases the asset value over this amount.
to shareholders. This represents an Importantly, all Directors of the Company
increase of +3.85% over the previous year. were net acquirers of shares over the David Rickards
The paramount focus of the Directors financial year, and the Directors hold a Chairman
continues to be the ability to provide cumulative 3.44 million shares, further 25 August 2016
05
INVESTMENT MANAGER’S REVIEW
Dear Fellow Shareholders,
It is with great pleasure that I report to you
after completion of the fourth year of operations
for the NAOS Emerging Opportunities Company
Limited (‘NCC’). The investment portfolio
returned +24.77% for the year, which compared
favourably to the Benchmark Small Ordinaries
Accumulation Index (XSOAI) which returned
+15.23%. This brings the performance of the
investment portfolio to 84.22% since the
Company’s inception in February 2013.
“Pleasingly, almost all of Pleasingly, almost all of the nine number of well-known brands, such
investments held at the beginning as ALDI, the Australian Federal
the nine investments held
of the financial year produced Government, and also worked with
at the beginning of the positive absolute returns, and all Ebay in Europe on its social media
of these investments remained in strategy. Moving forward it will be
financial year produced
the portfolio at the end of Financial key for EGG to manage the mix
positive absolute returns” Year 2016. More importantly, the of potential acquisitions to help
worst detractor to the portfolio expand existing brands as well as
returned just –1.25%. continue to move the margin of the
current businesses higher. If both of
The major contributors to the these are successfully completed,
portfolio performance through the EGG could increase its earnings
financial year were Enero Group base significantly over the next
(ASX: EGG), BSA Limited (ASX: 24 months.
BSA) and Armidale Investments
(ASX: AIK). Below is a short In 2016, BSA Group continued to
summary of the progress these build on the success achieved in
three companies have made FY2015. Over this financial year
in FY2016 that has resulted in BSA moved from a turnaround
this subsequent share price and recapitalisation project,
appreciation, looking first at Enero to a business that has gained
Group, which operates advertising further market share within
and PR agencies in Australia, the telecommunication sector,
Western Europe and the USA. specifically through the National
Broadband Network (NBN), which
As with many NCC investments has given the company an excellent
Enero has reputable brands, a solid base to significantly grow its current
balance sheet and an excellent revenue base over the next 2-3
management team. EGG has years. Due to the more technical
been working towards increased nature of the telecommunications
profitability through margin work recently won by BSA, we
expansion to bring it in line with believe this will be higher margin
levels achieved by many of its local than some of the work BSA was
and global peers, i.e. 14-17% at previously completing. The key
the EBITDA level. Pleasingly EGG for BSA has always been for it to
was able to achieve an EBITDA lift its EBITDA margins as close
margin of 11.64%, a significant to 5% as possible on the >$500
improvement on the sub <6% result million revenue base achieved in
just two years ago. A degree of this FY16. When looking at comparable
improvement can be attributed to companies such as Service Stream
the revenue base which not only (SSM) EBITDA margins of >7% have
stabilised but grew 3% year on year. been achieved, so we are confident
A number of the Enero subsidiaries this can be achieved.
won and completed work for a
06 NAOS Emerging Opportunities Company Limited Annual Report 2016
Finally, Armidale Investment Group CURRENT PORTFOLIO The portfolio at the end of the financial
(ASX: AIK) made a significant amount of POSITIONING year was 98.5% invested across 10
progress over the year. Firstly, the small different holdings. The top-5 positions,
It is the core of the NAOS philosophy to
to medium business leasing unit called being BSA, AIK, EGG, My Net Fone (ASX:
focus on the “controllable”. What we
HAL finally secured a tier-1 bank funding MNF) and Lindsay Australia (ASX: LAU)
mean by this, is that a NAOS investment
arrangement after a number of years represented greater than 65% of the total
should have characteristics that allow
of persistence. This funding agreement portfolio, with the other five positions
for a substantial share price re-rating
will allow HAL to compete on larger making up the balance. The portfolio had
to occur over the long term but with
financing opportunities that are often 1.5% in cash and no active short positions.
less company specific risk than most
at lower rates than deals of <$100,000
investment opportunities. Such variables
in value. Secondly AIK completed the The current portfolio positioning reflects
include an existing revenue base, earnings
acquisition of Platform Finance Group our belief that our core holdings remained
growth through revenue and/or margin
(PFG), a finance broker that mainly deals undervalued. Much of a company’s re-
improvement, balance sheet flexibility,
with the financing of automobiles with valuation does not come from earnings
excellent management credibility and
a small amount of equipment financing. growth but from the earnings multiple
finally companies that are valued on
This acquisition provides AIK the platform that investors are willing to pay for a
today’s flat earnings profile and not the
to focus on two strategic objectives, company’s earnings.
growing earnings base that may eventuate
namely scalability in the finance broking,
in 3-5 years’ time. Posting what we
As always, the NAOS investment team is
and control over originators. Firstly the
believed was a good result in FY2015, we
looking to find potential new investments
equipment financing industry completes
asked our shareholder base to be patient
that will form the foundation of our
over $32 billion of financing every year.
with the NCC portfolio at that time. All of
portfolio in future years. Predictably,
Yet unlike the mortgage broking and
these companies are still in the portfolio
given the current valuation backdrop new
insurance broking industries, equipment
today, many with significantly higher share
investment ideas are potentially harder to
financing is yet to go through the process
prices. Ultimately these share prices have
come by than at any time over the last 10
of disintermediation. This acquisition gives
re-rated because management teams have
years. In saying this, the team believes we
AIK the platform to consolidate the finance
executed and thus profitability has grown.
are close to initiating on 2-3 new positions
broking space and achieve the numerous
Just because share prices have increased
in the coming months and we look
benefits that come with scale. Secondly,
does not necessarily mean it’s time to
forward to sharing the details with you
the main factors that affect the growth
sell. Many of the best performing stocks
later in the new financial year.
of a leasing business are funding and
continue to be consistent performers
origination. With the acquisition of PFG
for quite a few years, such examples On behalf of all the NAOS team, I would
and potentially further broking businesses
include CSL, TPM, ALU, VOC, MNF, SRX like to thank shareholders for their
in FY17, AIK will have control over the
and MFG. Being extremely mindful of continued support.
originators that feed business to HAL,
company specific valuations and company
which will thus allow the leasing book to
specific risks, I believe that a majority
grow significantly over time.
of our current holdings still represent
excellent risk adjusted return opportunities
over a 12-36-month period. Sometimes it Sebastian Evans
is your winners that you continue to hold Managing Director/Portfolio Manager
that often represent your best investment NAOS Asset Management Limited
decisions.
SUMMARY OF MONTHLY PORTFOLIO RETURNS
%
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
07