KFL – August 2018 monthly update

1
Monthly Update
August 2018
A word from the Manager
Market Environment
The New Zealand market finally slowed relative to its
international peers in July with the S&P/NZX50G closing
down -0.2%. We also saw more variability in performance
of individual companies compared to recent times, where a
rising tide has lifted most boats.
One reason for the weaker performance by New Zealand
(aside from a necessary breather after the recent stellar run)
could be the domestic confidence surveys, which showed
business confidence levels continuing to weaken during
July. While New Zealand’s strong economic growth has
outperformed other developed economies in the past few
years, we are seeing a subtle shift in this trend as other
economies around the world (for example the US) have
seen a pick-up in growth. The Kingfish portfolio is exposed
to this pick-up, with around half the portfolio companies’
revenue derived offshore.
Portfolio Developments
July proved a busy one for Kingfish with a number of
portfolio companies providing results and announcing
meaningful market updates.
Abano modestly beat our expectations at its fiscal year
2018 result, driven by improvement in same-clinic sales in
the second half – New Zealand finished the year +3.3%
and Australia was flat (after being down -1.6% in the first
half). Pleasingly the company is also achieving favourable
Net Promoter Scores, ahead of peers, suggesting recent
investment in rebranding may be starting to pay off.
The a2 Milk Company provided a fiscal year 2018 trading
update, with revenue of $922 million slightly ahead of the
top end of May guidance ($900-920 million) and earnings
margins broadly in line with expectations. The company
also indicated that the market should expect a step up in
marketing spend in China and the US. The a2 Milk story
remains strongly driven by continued sales growth in
Chinese infant formula plus the launch of its first products
in conjunction with new joint venture partner Fonterra. Co-
branded Anchor and a2 Milk is on its way to a supermarket
near you!
Delegat provided net operating profit guidance for its
upcoming fiscal year result of $44.9 million, beating its
guidance for “at least $40.7 million” and ahead of most
expectations. This is a vintage result, which reflected the
benefits of lower costs per case underpinned by good
previous harvests.
Michael Hill announced its fourth quarter sales, which
generally showed a deceleration in the three continuing
segments (Australia, New Zealand, Canada), albeit Australia
and Canada were lapping strong prior periods. The company
closed all its US stores and 24 of the 30 Emma & Roe stores,
with the balance to close in the first quarter of the new fiscal
year as the focus returns to the core Michael Hill brand.
Mainfreight held its Annual Shareholder Meeting during July
and reported a generally positive outlook with comments
including “a growing confidence due to improved trading
results” and that “April to June has seen strong revenue
growth; profit has improved accordingly”. Other comments
indicated that this optimism is likely to translate to a strong
first half result with the company “quietly positive” that
results will sustain through FY19. This is relatively positive
language from a company that tends to set a high bar for
performance. All geographies appear to be trucking along
well, with particular emphasis that they “expect to see Asia
and the Americas improve markedly” after having been
below expectations recently.
Sam Dickie
Senior Portfolio Manager
Fisher Funds Management Limited
1
Share Price Discount to NAV (including warrant price on a pro-rated basis)
KFL NAV
$
1.52
SHARE PRICE
$
1.40
DISCOUNT
1
7.0
%
as at 31 July 2018
WARRANT PRICE
$
0.06

2
Sector Split
as at 31 July 2018
Key Details
as at 31 July 2018
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
$1.41
SHARES ON ISSUE
193m
MARKET CAPITALISATION
271m
GEARING
None (maximum permitted 20%
of gross asset value)
Performance
to 31 July 2018
1 Month3 Months1 Year3 Years
(annualised)
5 Years
(annualised)
Corporate Performance
Total Shareholder Return+1.8%+8.7%+19.8%+10.9%+11.2%
Adjusted NAV Return+0.1%+8.5%+16.5%+14.4%+12.9%
Manager Performance
Gross Performance Return+0.2%+0.9%+18.4%+17.1%+15.6%
S&P/NZX50G Index(0.2%)+5.7%+16.0%+14.6%+14.5%
Non-GAAP Financial Information
Kingfish uses non-GAAP measures, including adjusted net asset value, adjusted NAV return, 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 after fees and tax,
»adjusted NAV return – the net return to an investor after fees and tax,
»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, adjusted NAV return, 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 Non-GAAP Financial Information Policy. A copy of the policy is available at http://kingfish.co.nz/about-kingfish/kingfish-policies/
5
%
28
%
INDUSTRIALS
10
%

UTILITIES
INFORMATION
TECHNOLOGY
29
%
HEALTHCARE
6
%

CASH
10
%
CONSUMER
STAPLES
3
%

MATERIALS
9
%
CONSUMER
DISCRETIONARY

Total Shareholder Return
to 31 July 2018
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
$
4.50
$
0.50
$
0.00
Mar
2017
$
3.50
Mar
2018
$
4.00
July’s Biggest Movers
Typically the Kingfish portfolio will be invested 90% or more in equities.
The remaining portfolio is made up of another 11 stocks and cash.
5 Largest Portfolio Positions
as at 31 July 2018
VISTA GROUP
+10
%
DELEGAT GROUP
+6
%
INFRATIL
+2
%
MICHAEL HILL
-5
%
THE A2 MILK COMPANY
-9
%
FISHER & PAYKEL
HEALTHCARE
12
%
MAINFREIGHT
11
%
RYMAN HEALTHCARE
10
%
FREIGHTWAYS
8
%
INFRATIL
7
%
3

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 9.4m of its
shares on market in the year to 31 October 2018
»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
»On 2 July 2018, a new issue of warrants (KFLWE) was
announced
»The warrants were issued at no cost to eligible
shareholders and in the ratio of one warrant for
every four Kingfish shares held
»Exercise Price = $1.37 per warrant, to be adjusted
down for dividends declared during the period up to
the Exercise Date
»Exercise Date = 12 July 2019
»The final Exercise Price will be announced and an
Exercise Form will be posted to warrant holders in
June 2019
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.