KFL – October 2017 monthly update

It’s pretty clear which of these two companies you would
want to own. Quality really does pay off in the long run and
it’s these quality companies that we seek to own.
Speaking of quality, during the quarter we introduced Xero
into the Kingfish portfolio. Xero is a great example of a
quality company with a number of positive attributes. It is the
market leading provider of cloud based accounting software
for small-to-medium businesses and their accountants in
New Zealand, Australia and the UK, with growing presences
in the USA and other markets such as South East Asia,
Europe and Africa. It has also achieved impressive subscriber
growth to date and we believe that Xero will continue to be
the innovator of the industry. We have been reluctant to own
Xero historically due to the lack of bottom line profitability
however we estimate that the Australian/New Zealand
businesses were profitable in the 2017 financial year and that
Xero is on track to achieve higher group earnings this year
and in the future. We are pleased to
have Xero in the Kingfish portfolio.
Profil ($)
220
200
180
160
140
120
100
Company 1 — High Quality
0 1 2 3 4 5 6 7 8 9 10
Company 2 — Lower Quality
Source: Fisher Funds
1
Monthly Update
October 2017
KFL NAV
$
1.41
SHARE PRICE
$
1.28
DISCOUNT
9.1
%
as at 30 September 2017
A word from the Manager – Quality Pays
Fisher Funds’ Chief Investment Officer, Frank Jasper
explains what ‘quality’ means when looking to invest.
We talk a lot about “quality” when we consider potential
investments for the Kingfish portfolio. The idea of quality is
central to the STEEPP investment process which is the lens we
use whenever we look at a company.
One of the most important measures of a company’s quality
are the returns that it is able to generate on each dollar that
it invests on behalf of shareholders. This is common sense.
If a company can earn a 15% return on every dollar invested
versus another company that only earns 5%, it is pretty
obvious that the company generating the 15% return is a
higher quality company.
While this may be obvious, it understates just how important
high returns on invested capital are to creating future value
for shareholders.
Let’s imagine two companies. Both of our mythical companies
earn $100 profit this year. Typically a company would pay
some of these profits out as dividends and retain some of
these profits to fuel future growth.
For our example let’s assume that half of all profits are
paid out. Let’s go one step further and assume one of our
companies, Company 1, is high quality and generates a 15%
return on every dollar invested. The other company, Company
2, is a lower quality company which has a 5% return on
invested capital.
As Warren Buffett says “time is the friend of the wonderful
company and the enemy of the mediocre.” The idea is aptly
demonstrated by our two mythical companies. Company 1
generates strong returns on every dollar of capital it retains.
These higher returns mean more profits over time. Company
1 is able to grow future profits rapidly. Company 2, the poorer
quality company, grows future profits at a much slower clip.
The difference is stark. In our example, using our assumption
of a consistent rate of return on invested capital and a 50%
dividend pay out, the profits of Company 1 more than double
over the next ten years. Comparatively, profits for the lower
quality Company 2, rise only 28% over the same time.
Quality pays — Profits over time
Frank Jasper
Chief Investment Officer,
Fisher Funds

Sector Split
as at 30 September 2017
Key Details
as at 30 September 2017
FUND TYPE
Listed Investment Company
INVESTS IN
Growing New Zealand companies
LISTING DATE
31 March 2004
FINANCIAL YEAR END
31 March
TYPICAL PORTFOLIO SIZE
15-25 stocks
INVESTMENT CRITERIA
Long-term growth
PERFORMANCE
OBJECTIVE
Long-term growth of capital and
dividends
TAX STATUS
Portfolio Investment Entity (PIE)
MANAGER
Fisher Funds Management
Limited
MANAGEMENT
FEE RATE
1.25% of gross asset value
(reduced by 0.10% for every 1% of
underperformance relative to the
change in the NZ 90 Day Bank Bill
Index with a floor of 0.75%)
PERFORMANCE
FEE HURDLE
Changes in the NZ 90 Day Bank
Bill Index + 7%
PERFORMANCE FEE
15% of returns in excess of
benchmark and high water mark
HIGH WATER MARK
$1.30
SHARES ON ISSUE
189m
MARKET CAPITALISATION
$242m
GEARING
None (maximum permitted 20%
of gross asset value)
Performance
to 30 September 2017
2
3
%
ENERGY
29
%
HEALTHCARE
14
%

UTILITIES
2
%
CONSUMER
STAPLES
29
%
INDUSTRIALS
6
%
INFORMATION
TECHNOLOGY
11
%
CONSUMER
DISCRETIONARY
The Kingfish portfolio also holds cash.
1 Month3 Months1 Year3 Years
(accumulated)
5 Years
(accumulated)
Corporate Performance
Total Shareholder Return+1.5%+1.5%+3.5%+29.6%+91.0%
KFL Adjusted NAV+1.3%+4.0%+6.7%+40.2%+90.8%
Manager Performance
Gross Performance+1.6%+4.6%+9.0%+50.6%+121.7%
S&P/NZX50G Index+1.4%+4.2%+7.7%+50.9%+106.8%
Non-GAAP Financial Information
Kingfish uses non-GAAP measures, including adjusted net asset value, gross performance return and total shareholder return. The rationale for using such non-GAAP measures is as follows:
»adjusted net asset value – the underlying value of the investment portfolio adjusted for capital allocation decisions,
»gross performance return – the Manager’s portfolio performance in terms of stock selection and hedging of currency movements, and
»total shareholder return – the return to an investor who reinvests their dividends, and if in the money, exercises their warrants at warrant maturity date for additional shares.
All references to including adjusted net asset value, gross performance return and total shareholder return in this monthly update are to such non-GAAP measures. The calculations applied to non-GAAP measures
are described in the Kingfish Global Non-GAAP Financial Information Policy. A copy of the policy is available at http://kingfish.co.nz/about-kingfish/kingfish-policies/

September’s Biggest Movers
Typically the Kingfish portfolio will be invested 90% or more in equities.
The remaining portfolio is made up of another 13 stocks and cash.
VISTA GROUP
+9
%
FISHER & PAYKEL
HEALTHCARE
+9
%
XERO
+7
%
RESTAURANT BRANDS
+7
%
MICHAEL HILL
-7
%
5 Largest Portfolio Positions
as at 30 September 2017
MAINFREIGHT
13
%
FISHER & PAYKEL
HEALTHCARE
11
%
INFRATIL
9
%
FREIGHTWAYS
8
%
RYMAN
HEALTHCARE
7
%
Total Shareholder Return
to 30 September 2017
3
Mar
2004
Mar
2005
Mar
2006
Mar
2007
Mar
2008
Mar
2009
Mar
2010
Mar
2011
Mar
2012
Mar
2014
Mar
2015
Mar
2013
Mar
2016
Share Price/Total Shareholder Return
$
2.50
$
3.00
$
2.0 0
$
1.50
$
1.00
Share PriceTotal Shareholder Return
$
3.50
$
0.50
$
0.00
Mar
2017

Disclaimer: The information in this update has been prepared as at the date noted on the front page. The information has been prepared as a general summary of the matters covered only, and it is
by necessity brief. The information and opinions are based upon sources which are believed to be reliable, but Kingfish Limited and its officers and directors make no representation as to its accuracy
or completeness. The update is not intended to constitute professional or investment advice and should not be relied upon in making any investment decisions. Professional financial advice from an
authorised financial adviser should be taken before making an investment. To the extent that the update contains data relating to the historical performance of Kingfish Limited or its portfolio companies,
please note that fund performance can and will vary and that future results may have no correlation with results historically achieved.
Kingfish Limited
Private Bag 93502, Takapuna, Auckland 0740
Phone: +64 9 489 7094 | Fax: +64 9 489 7139
Email: enquire@kingfish.co.nz | www.kingfish.co.nz
4
Computershare Investor Services Limited
Private Bag 92119, Auckland 1142
Phone: +64 9 488 8777 | Fax: +64 9 488 8787
Email: enquiry@computershare.co.nz | www.computershare.com/nz
About Kingfish
Kingfish is an investment company
listed on the New Zealand Stock
Exchange. The company gives
shareholders an opportunity to
invest in a diversified portfolio
of between 15 and 25 quality
growing New Zealand companies
through a single, professionally
managed investment. The aim
of Kingfish is to offer investors
competitive returns through
capital growth and dividends.
Capital Management Strategies
Regular Dividends
»Quarterly distribution policy introduced in
June 2009
»Under this policy, 2% of average NAV is targeted
to be paid to shareholders quarterly
»Dividends paid by Kingfish may include dividends
received, interest income, investment gains
and/or return of capital
»Shareholders who prefer to have increased
capital rather than a regular income stream have
the opportunity to participate in the company’s
dividend reinvestment plan (DRP)
»Shares issued to DRP participants are at a 3%
discount to market price
»Kingfish became a portfolio investment entity on
1 October 2007. As a result, dividends paid to
New Zealand tax resident shareholders have not
been subject to further tax
Share Buyback Programme
»Kingfish has a buyback programme in place allowing
it (if it elects to do so) to acquire up to 7.7m of its
shares on market in the year to 31 October 2017
»Shares bought back by the company are held as
treasury stock
» Shares held as treasury stock are available to be
re-issued for the dividend reinvestment plan and to
pay performance fees
Warrants
»Warrants put Kingfish in a better position to
grow further, improve liquidity, operate efficiently
and pursue other capital structure initiatives as
appropriate
»A warrant is the right, not the obligation, to purchase
an ordinary share in Kingfish at a fixed price on a
fixed date
»There are currently no warrants on issue
Management
Kingfish’s portfolio is managed
by Fisher Funds Management
Limited. Sam Dickie (Senior
Portfolio Manager), Zoie Regan
(Senior Investment Analyst) and
Matt Peek (Investment Analyst)
have prime responsibility for
managing the Kingfish portfolio.
Together they have over 40 years
combined experience and are
very capable of researching and
investing in the quality New
Zealand companies that Kingfish
targets. Fisher Funds is based in
Takapuna, Auckland.
Board
The Manager has authority
delegated to it from the
Board to invest according to
the Management Agreement
and other written policies.
The Board of Kingfish
comprises independent
directors Alistair Ryan (Chair),
Carol Campbell and Andy
Coupe; and non-independent
director Carmel Fisher.