KFL – March 2018 Quarter Update Newsletter

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NAV
$
1.45
SHARE PRICE
$
1.31
as at 31 March 2018
Quarter Update Newsletter
31 December 2017 — 31 March 2018
Notable Returns in the Quarter
»While much has been written about the recent
spike in market volatility and the correction during
the quarter, a number of key portfolio companies
experienced strong returns
»With increased volatility comes increased dispersion
with only 9 of our 19 positions contributing positively
for the quarter
»We took the opportunity to add to some of the highest
quality assets in NZ at discounted prices
After four quarters of solid gains, the S&P/NZX50 finished
down for the three months to 31 March 2018. Similarly, the
Kingfish portfolio lost some of its momentum and only crept
up 0.1% over the quarter.
A lot has been written about the increase in volatility and the
“flash crash” in early February which saw common volatility
measures spike from near all-time lows (as measured by the
VIX Index) to 5x those low levels. While global markets took a
solid hit (at one point within February the S&P 500 Index had
declined by 10%), the New Zealand share market’s fall was
much shallower.
New Zealand got off lightly compared to its international peers
partly because New Zealand is viewed as a more defensive
market due to its high dividend yield. Another contributing
factor was the S&P/NZX50’s rally in January, prior to the global
pull-back, was much more muted than international markets. It
was also helpful that our market was closed for Waitangi Day
while the flash crash was peaking, so by the time our market
opened, sentiment had somewhat calmed down and markets
had reclaimed some of their lost ground.
While the recent bout of higher volatility caught some by
surprise, low volatility does not last forever. Typically spikes
in volatility are associated with market corrections. The “flash
crash” of February was initially triggered by fundamental
drivers, but exacerbated by technical factors. In our view
this presented a buying opportunity. We used this market
dislocation and price weakness to add to the Kingfish positions
in Fisher & Paykel Healthcare, Auckland International
Airport, Freightways and Vista.
Sometimes a spike in volatility also results in increased
dispersion in stock price performance. Volatility doesn’t just
mean stocks go down sharply but they may also go up sharply.
This is a time stock pickers should come into their own – and
THE A2 MILK
COMPANY
+35
%
SUMMERSET
+28
%
FISHER & PAYKEL
HEALTHCARE
-8
%
Z ENERGY
-9
%
ABANO
HEALTHCARE
-10
%
pleasingly this was evident in the Kingfish portfolio over the
March quarter. Standout performers, The a2 Milk Company and
Summerset experienced volatile performance but to the upside,
rising substantially.
We added The a2 Milk Company to the portfolio ahead of its
2018 interim result, and subsequently increased our holding
further following the result which was impressive on a number
of levels. As discussed in our March 2018 update, for the first
half of 2018 a2 Milk comfortably beat already high expectations
growing revenues 70% and EBITDA 123% versus last year. The
company’s strong result was driven primarily through growth in
its China infant formula business where it has rapidly increased
market share.
a2 Milk also unexpectedly announced an agreement with
Fonterra to accelerate growth into new markets and products,
such as nutritionals, butter, and cheese. a2 Milk’s agreement with
Fonterra creates access to new milk suppliers and diversifies
a2 Milk’s manufacturing base. It will also help the company to
develop markets in South East Asia and the Middle East through
Fonterra’s logistics and distribution network, as well as provide
fresh a2 milk in New Zealand. Fonterra has historically opposed
a2 Milk’s progress so the validation of its product proposition is
also a strong endorsement of the a2 milk category and its global
growth potential.
DISCOUNT
9.5
%

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Disclaimer: The information in this newsletter 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 newsletter 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 newsletter 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
If you would like to receive future
newsletters electronically please email
us at enquire@kingfish.co.nz
Performance
as at 31 March 2018
3 Months
3 Years
(annualised)
Five Years
(annualised)
Corporate Performance
Total Shareholder Return(0.0%)+7.7%11.9%
Adjusted NAV Return+0.8%+12.7%+12.6%
Manager Performance
Gross Performance Return+0.1%+15.2%+15.6%
S&P/NZX50G Index(0.9%)+12.6%+13.5%

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
»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 adjusted net asset value, gross performance return and total shareholder return in this newsletter
are to such non-GAAP measures. The calculations applied to non-GAAP measures are described in the Kingfish
Non-GAAP Financial Information Policy. A copy of the policy is available at http://www.kingfish.co.nz/about-kingfish/
kingfish-policies/
LISTED COMPANIES
% Holding
Abano Healthcare
1.9%
Auckland International Airport5.4%
Delegat Group3.4%
EBOS Group2.4%
Fisher & Paykel Healthcare12.1%
Freightways9.3%
Infratil7.2%
Mainfreight12.1%
Meridian Energy2.9%
Michael Hill International4.5%
Port of Tauranga3.1%
Restaurant Brands NZ6.1%
Ryman Healthcare7.5%
Summerset6.5%
The a2 Milk Company7.8%
Vista Group International4.0%
Equity Total96.2%
New Zealand dollar cash3.8%
TOTAL
100.0%
Portfolio Holdings Summary
as at 31 March 2018
Company News
Dividend Paid 29 March 2018
A dividend of 2.89 cents per share was paid to Kingfish shareholders
on 29 March 2018 under the quarterly distribution policy. Interest
in Kingfish’s dividend reinvestment plan (DRP) remains high with
45% of shareholders participating in the plan. Shares issued to
DRP participants are at a 3% discount to market price. If you would
like to participate in the DRP, please contact our share registrar,
Computershare on (09) 488 8777.
During the quarter, Summerset delivered a strong full year
result, with underlying profit of $82m which was up 44% on
the previous year. This result exceeded previous guidance and
consensus forecasts, and was driven by better than expected
resale settlements and stronger than expected margins on both
new and resale settlements. Summerset flagged it expects to
lift its current New Zealand build rate from 450 units per annum
to approximately 600 units by the 2020/2021 financial year,
accelerating its growth ahead of expectations. Furthermore, the
company announced that it is continuing to investigate whether
to move into the Australian market and will have two full-time
employees on the ground from next month. We increased our
investment in Summerset during the quarter following the strong
result and continued delivery on its strategy.
In addition to adding a2 Milk to the portfolio, we chose to
exit the Kingfish positions in TradeMe and Z Energy during
the quarter due to changes in our investment theses. We also
completed our exit of the Xero position due to the company
moving to a sole listing on the ASX. With the 31 March 2018
quarter now passed, Kingfish has also reached the end of its
2018 financial year. We look forward to providing you with a
comprehensive update of the Kingfish portfolio in the Annual
Report which is due out later this year.
Sam Dickie
Senior Portfolio Manager
23 April 2018