KFL – October 2018 monthly update

1
Monthly Update
October 2018
A word from the Manager
Market Environment
New Zealand equities were up 0.4% in the month of
September, with the usual performance dispersion amongst
the various market sectors.
Telcos and utilities led the market’s performance, helped
in part by some offshore passive buying into quarter end.
The Government’s Electricity Price Review also came out
during the month and stated there was no price gouging
occurring within the wider electricity market which helped
the utilities sector.
Notable underperforming sectors were consumer staples
(-8%), and the Healthcare sector (-3%). Some of this was
a give-up from last month’s extraordinary performance,
when we saw outstanding performance from the a2 Milk
Company (+21%) and Fisher & Paykel Healthcare (+11%).
The September decline in the a2 Milk Company (-11%)
was influenced in part by the company’s CEO selling more
shares than the market expected, while the decline in Fisher
& Paykel Healthcare (-8%) was partly due to their Investor
Day in the US containing no real new news.
The Portfolio
The a2 Milk Company’s contract manufacturer Synlait
released its fiscal year 2018 result. Included in the result
was some guidance regarding the canned infant formula
volumes for FY19, which showed support for a2 Milk
Company’s volume growth outlook for FY19. Later in the
month new CEO, Jayne Hrdlicka, shocked the market by
selling all her newly-issued shares in the company as they
vested. The shares were granted to her as compensation
for similar entitlements she forfeited in her move from
Qantas. It was reported that part of the sale was to pay
a tax liability and the remainder of the sale of shares was
for other prior commitments. We think the situation was
poorly managed and communicated by the company
with particularly poor optics. We do not believe there are
any sinister implications regarding the performance of
the company.
Michael Hill announced that its CEO, Phil Taylor, had
resigned for health reasons and will be replaced by Daniel
Bracken (on 15 November). Bracken is currently CEO of
turnaround Australian retailer Specialty Fashion Group and
has further retail experience with a number of prominent
retailers in Australia and offshore, including Myer, The
Apparel Group, and Burberry. Phil Taylor had significant
experience with the business as CFO but had a short and
difficult tenure as CEO, given the distraction of exiting
the US and Emma & Roe businesses. Bracken’s superior
expertise as a retailer will be welcome in improving
performance in the slimmed-down core business, although
we are wary of expecting too much too quickly.
We have initiated a new position in Pushpay. Pushpay is a
leading mobile payments and engagement provider. They
have been a strong performer in the US where they broke
new ground in the faith sector, being used by parishioners
to make digital payments to their chosen church. They are
seen as providing the best in class product and service, and
their domain expertise combined with existing resources
(both sales & research and development) gives us comfort
that Pushpay will retain an edge over competitors. Pushpay
is on track to reach breakeven on a monthly cash flow
basis prior to the end of calendar 2018, with FY2019 on
the cusp of EBITDA breakeven. Although Pushpay remains
relatively early-stage, it is not unreasonable to expect
that their revenue growth over the next three to five
years will continue to compound at circa 30%+ p.a. The
recent pull-back in share-price provided us an attractive
entry point to initiate a small, nursery-sized position. We
attended the investor day in the US during the month and
were impressed by the depth of strength below senior
management levels and have been especially impressed
by the exceptionally strong customer feedback we have
obtained from our independent checks.
Restaurant Brands announced it will not be renewing
its Starbucks licence on expiry in October 2018 and the
subsequent sale of its fixed assets and stock to local
enterprise Tahua Capital for $4.4m. The outcome was well
1
Share Price Discount to NAV (including warrant price on a pro-rated basis)
KFL NAV
$
1.54
SHARE PRICE
$
1.39
DISCOUNT
1
9.0
%
as at 30 September 2018
WARRANT PRICE
$
0.07

2
Key Details
as at 30 September 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
$1.37
SHARES ON ISSUE
195m
MARKET CAPITALISATION
271m
GEARING
None (maximum permitted 20%
of gross asset value)
Sector Split
as at 30 September 2018
3
%
27
%
HEALTH CARE
14
%

UTILITIES

MATERIALS
29
%
INDUSTRIALS
6
%
INFORMATION
TECHNOLOGY
10
%
CONSUMER
STAPLES
3
%

CASH
8
%
CONSUMER
DISCRETIONARY
Sam Dickie
Senior Portfolio Manager
Fisher Funds Management Limited
flagged to investors, with the company noting franchisor
Starbucks Coffee International wanted further expansion
and development of the brand, whereas following picking
up in the brand in 1998, Restaurant Brands has pared its
network over time from around 50 mostly unprofitable stores
to 22 strongly performing stores around student and tourist
hubs. The company had long noted that New Zealand’s
well established coffee culture had prevented the brand
from having greater success. Restaurant Brands has several
growth options with attractive returns on capital, so a licence
renewal with a requirement to investment further capital at
low or potentially even negative incremental returns was
distinctly unattractive. That said, the ultimate sale price
is a little worse than we expected although relatively
immaterial from a valuation perspective.

September’s Biggest Movers
Typically the Kingfish portfolio will be invested 90% or more in equities.
The remaining portfolio is made up of another 12 stocks and cash.
5 Largest Portfolio Positions as at 30 September 2018
MAINFREIGHT
+7
%
PUSHPAY
+6
%
PORT OF TAURANGA
+6
%
A2 MILK COMPANY
-11
%
FISHER & PAYKEL
HEALTHCARE
-8
%
FISHER & PAYKEL
HEALTHCARE
12
%
MAINFREIGHT
11
%
FREIGHTWAYS
10
%
THE A2 MILK COMPANY
9
%
RYMAN HEALTHCARE
7
%
3
Performance to 30 September 2018
1 Month3 Months1 Year3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return(2.0%)+3.4%+19.9%+14.9%+11.7%
Adjusted NAV Return(0.6%)+3.7%+18.8%+17.5%+13.0%
Portfolio Performance
Gross Performance Return(0.5%)+4.4%+21.1%+20.3%+15.8%
S&P/NZX50G Index+0.4%+4.6%+17.9%+18.7%+14.6%
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, before fees and tax, 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/
Total Shareholder Return to 30 September 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

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
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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.