KFL – February 2019 monthly update

1
Monthly Update
February 2019
A word from the Manager
Market Environment
New Zealand shares as measured by the S&P/NZX50G
index were up +2.0% in the month of January, with
the Kingfish portfolio modestly outperforming with a
gross return of +2.1%.
While +2% in a month is certainly not to be sneezed
at, the New Zealand sharemarket actually sharply
underperformed global markets in January, which rallied
hard following their particularly poor finish to 2018.
In this “risk-on”
2
environment, it is typical that New
Zealand shares would underperform, especially after
such a large outperformance in December in a “risk-off”
2

environment.
The Portfolio
a2 Milk performed strongly during the month, on the
back of several supportive proof points and various
investment firms touting the company’s potential to
succeed in 2019. This was supported by sales data for
some of the key Chinese e-commerce platforms (such as
Tmall and Taobao) and Australian supermarket data had
a strong finish to 2018. New Zealand export data also
indicated the company is achieving strong volume growth.
These data points align with our view where we have
turned more positive from late 2018, when we saw
regulatory concerns subside and in-market pricing
improving. When combined with our overall positive
view of the company, these had given us confidence to
increase our holding at lower prices.
Data from a regular UBS survey indicates a2 Milk is still
strongly gaining market share in China from its small
base and continues to rank very highly as a trusted
brand, which is a leading purchasing criterion for Chinese
mothers choosing infant formula.
We remain positive on a2 Milk as the company’s product
continues to take market share, management are
executing strongly, and we see earnings expectations as
likely being too conservative.
During January Summerset announced its fourth quarter
operating statistics. The CEO, Julian Cook announced
that they had achieved their highest new sales in the last
two years, and the second highest quarter new sales ever
for the Group. Although resales
3
were a little soft, there
was reported to be minimal uncontracted stock available,
(i.e. their resales inventory is at historically low levels). We
believe that any resale softness will only be temporary.
Summerset’s 2018 retirement unit build target of 450 new
homes was reported as having been achieved.
Michael Hill reported its key December quarter sales
during January. Same store sales, compared with the prior
year had increased by 2.9% in Australia and 1.3% in New
Zealand during the combined November and December
Christmas period. This increase in sales momentum in the
second quarter was an improvement from the first quarter
performance when same store sales were down -8% and
-11% respectively. The gross margin for the business over
the first half of the 2019 year was maintained at 62.7%,
the same as for the first half of the 2018 year. This was
achieved despite an increase in the cost of goods due
to AUD weakness against the USD. The new CEO Daniel
Bracken hasn’t been with the business that long, however
under his management the business has backed away from
its unsuccessful cutting of promotional activity, so it will
be interesting to see how the company performs over the
second half of the 2019 year.
Daniel’s initial focus is on retail operating fundamentals
and we are of the view his influence will have a positive
impact here.
1
Share Price Discount to NAV (including warrant price on a pro-rated basis)
2
Risk-on, risk-off (RoRo) investing describes a process where investors move to riskier potentially higher yielding
investments and then back again to supposedly lower yielding investments which are perceived to have lower risk.
3
The reselling of existing retirement units
KFL NAV
$
1.43
SHARE PRICE
$
1.34
DISCOUNT
1
5.8
%
as at 31 January 2019
WARRANT PRICE
$
0.04

Key Details
as at 31 January 2019
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
$1.34
SHARES ON ISSUE
196m
MARKET CAPITALISATION
263m
GEARING
None (maximum permitted 20%
of gross asset value)
Sector Split
as at 31 January 2019
3
%
24
%
HEALTH CARE
15
%

UTILITIES

MATERIALS
29
%
INDUSTRIALS
7
%
INFORMATION
TECHNOLOGY
10
%
CONSUMER
STAPLES
5
%

CASH
7
%
CONSUMER
DISCRETIONARY
Sam Dickie
Senior Portfolio Manager
Fisher Funds Management Limited
Portfolio Changes and Strategy
We reduced our position in Auckland Airport during
the month. The stock has performed strongly recently
and given that there are signs that airlines are reducing
capacity we decided to reduce the Kingfish holding.
2

January’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 January 2019
A2 MILK
+13
%
PUSHPAY
+12
%
VISTA GROUP
+6
%
SUMMERSET
-4
%
MICHAEL HILL INTL
-8
%
FISHER & PAYKEL
HEALTHCARE
13
%
THE A2 MILK COMPANY
12
%
FREIGHTWAYS
10
%
MAINFREIGHT
10
%
INFRATIL
7
%
3
Performance to 31 January 2019
1 Month3 Months1 Year3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+1.5%+2.2%+10.0%+13.2%+10.7%
Adjusted NAV Return+2.0%+2.0%+5.5%+12.4%+11.0%
Portfolio Performance
Gross Performance Return+2.1%+2.4%+6.6%+15.0%+13.6%
S&P/NZX50G Index+2.0%+2.7%+6.4%+13.3%+13.0%
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 31 January 2019
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 9.7m of its
shares on market in the year to 31 October 2019
»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.