KFL – March 2019 monthly update

1
Monthly Update
March 2019
A word from the Manager
Market Environment
New Zealand equities as measured by the S&P/NZX50G index
were up +3.8% in the month of February. This was broadly in line
with global markets. After several months of very low dispersion
of returns, which often happens during sharp market corrections
and rebounds, variability increased in February during the local
earnings season.
The companies within the Kingfish portfolio reported well
compared to the New Zealand market, with a higher proportion
of our companies delivering earnings ahead of expectations.
Highlights were Vista and a2 Milk, whereas several other
companies we do not own within the portfolio disappointed (such
as Fonterra, Air NZ, Comvita, and Sky TV). Kingfish delivered an
adjusted NAV return of +6.5% for February.
The Portfolio
a2 Milk reported a strong result ahead of our expectations,
implying a very strong November/December and a re-
acceleration in revenue growth. The company has conducted
significant work on customer behaviour and is confident it will
see benefits from its planned ramp-up in marketing spend. We
continue to think there is significant potential for further growth in
the large Chinese infant formula market.
Auckland Airport reported its first half year result for fiscal 2019
which slightly beat expectations on the back of strong retail
division performance, although this is partly being offset by
slower capacity and traffic growth from airlines.
Delegat delivered a solid first half year result, with operating net
profit after tax up +17% on the previous corresponding period
on the back of continued strong sales growth in the US (+13%)
and a major new customer in the UK. The company upgraded its
full year case sales forecast and increased its net profit guidance
to now “at least” $50.3m, which would be a strong +12% on its
record result from last year.
Fisher & Paykel Healthcare and competitor Resmed mutually
agreed to end their respective global patent litigation. This is
positive news as it will result in meaningful cost savings over the
next couple of years, (in the order of $25m for next financial
year by our estimates). It also removes a key area of near-
term uncertainty given the timetable of hearings that were
scheduled for 2019.
Vista Group reported a strong 2018 result with revenue growth
of +23% which was ahead of its guidance (for circa +20%) and
the outlook for 2019 revenue growth “in the region of 20%”
was well above expectations. Its major business Vista Cinema
continues to grow strongly and its new cloud and managed
services offerings are beginning to generate new revenue
streams. Recent large new customer wins will further build
annuity revenue streams and enable the cross-sell of products
from Vista’s other small businesses. Vista’s data analytics
business Movio had very strong second half year revenue
growth and this translated to even stronger profit growth.
Movio Media is seeing more usage from customers - Disney
was recently the final major studio to come on board and the
industry is increasingly moving towards more non-traditional
advertising channels, which benefit from Movio’s insights. Vista
is entrepreneurial and proactively invests in developing new
businesses, with many of these like Powster, Numero, and
Cinema Intelligence continuing to gain traction and extend
the company’s growth runway. We think Vista is a high quality
software player in its niche and there is significant scope for it to
continue growing at strong rates for many years.
Freightways delivered its first half year result with its network
courier performance pleasingly in line with our expectations.
The company gave further insight to its ‘Pricing for Effort’
strategy which has commenced and is designed to better
monetise its $100m of business-to-residential revenue, which is
currently barely breakeven, with a residential delivery surcharge
to be introduced progressively from July. This and other
efficiency initiatives should add to revenues and profitability
over the next two years in addition to organic growth in
business-to-business volumes.
The new Michael Hill CEO, Daniel Bracken, reported his first
result with the company, with the first half year result soft as
expected due to known poor sales prior to his appointment.
Importantly, he has announced a targeted plan to turn the
1
Share Price Discount to NAV (including warrant price on a pro-rated basis)
KFL NAV
$
1.53
SHARE PRICE
$
1.38
DISCOUNT
1
8.7
%
as at 28 February 2019
WARRANT PRICE
$
0.05

Key Details
as at 28 February 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
$271m
GEARING
None (maximum permitted 20%
of gross asset value)
Sector Split
as at 28 February 2019
2
%
26
%
HEALTH CARE
15
%

UTILITIES

MATERIALS
28
%
INDUSTRIALS
7
%
INFORMATION
TECHNOLOGY
10
%
CONSUMER
STAPLES
5
%

CASH
7
%
CONSUMER
DISCRETIONARY
Sam Dickie
Senior Portfolio Manager
Fisher Funds Management Limited
business around, with the highest agenda items restoring
financial performance and improving core retail disciplines in
the business. $5m of annual cost reductions have already been
made starting January, with plans to take out another $5m this
year. Daniels approach so far is delivering the things we expect
to see for a successful turnaround to begin.
Summerset delivered a solid 2018 result, with revaluations of its
properties stronger than expected due to quicker completions
and higher development margins, which are driving stronger
than expected net asset growth.
Fletcher Building reported its first half year result in line
with November guidance. The company is busy working in
its Australian division as part of its longer term plan to more
than double profitability of this division to $200-250m EBIT
(operating earnings) and expects this to enable year-on-year
growth in the next fiscal year.
Pushpay’s revenue for the December quarter was softer than
anticipated because processing volumes in the last week of
December fell short of expectations. The company’s fiscal year
2
revenue guidance is unchanged but we now expect it to be
towards the lower end of the range. The company still expects
strong revenue growth for the next year of around 30%. Positively,
new customer growth was the best we have seen in 18 months,
product updates continue to support Pushpay’s proposition and
profit margins continue to surprise to the upside.
Portfolio changes and strategy
We trimmed our position in Fletcher Building ahead of its result.
We increased our positions in a2 Milk and Vista Group as we
gained additional comfort their long duration growth stories have
further to run. We trimmed our position in Freightways as the
‘Pricing for Effort’ story is becoming better reflected in the share
price. We also trimmed Infratil modestly during the month.

February’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 28 February 2019
FISHER & PAYKEL
HEALTHCARE
+17
%
THE A2 MILK COMPANY
+13
%
VISTA GROUP
+13
%
MICHAEL HILL INTL
+8
%
SUMMERSET
+6
%
FISHER & PAYKEL
HEALTHCARE
14
%
THE A2 MILK COMPANY
11
%
FREIGHTWAYS
10
%
MAINFREIGHT
9
%
INFRATIL
7
%
3
Performance to 28 February 2019
1 Month3 Months1 Year3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+3.2%+3.3%+13.6%+12.6%+11.1%
Adjusted NAV Return+6.5%+9.4%+13.8%+14.7%+12.4%
Portfolio Performance
Gross Performance Return+7.0%+10.3%+15.4%+17.4%+15.1%
S&P/NZX50G Index+3.8%+5.7%+11.4%+14.4%+13.3%
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 28 February 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
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 9.7m 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, Andy Coupe
and Carmel Fisher.