KFL – March 2019 Quarterly Update Newsletter

1
Notable Returns in the Quarter
»»Kingfish»had»its»best»quarter»in»13»years.
»»The»Kingfish»Adjusted»NAV»for»the»three»months»was»13.9%,»
while»the»S&P/NZX50G»Index»returned»11.7%»for»the»
quarter,»and»the»Kingfish»gross»performance»for»the»three»
months»was»15.3%.»
»»We»exited»Michael»Hill»during»the»quarter»and»redeployed»
those»funds»into»existing»holdings.
We welcome dispersion and the opportunities
it presents
The New Zealand share market had its best quarter in more
than two years and fourth best quarter since the global financial
crisis, based on returns for the S&P/NZX50G. Kingfish performed
significantly better than the market.
There was substantial change in market dynamics in late 2018 and
early 2019 with single stock dispersion, essentially the difference in
returns between the weakest and strongest performers, increasing
sharply after several quarters of very low dispersion in late 2017
and into 2018.
We welcome dispersion with open arms as it provides an
opportunity to beat the market and allows the high quality
companies we invest in on your behalf to shine.
During the March quarter portfolio heavyweights like The»a2»
Milk»Company, Fisher»&»Paykel»Healthcare and Mainfreight
delivered significantly higher returns than the market. Of course
dispersion is a two-way street. Our research process helped us
avoid some of the weaker performers over the quarter. In particular
it was satisfying that companies we have either previously exited
(Metro Performance Glass, Abano Healthcare Group and Sky TV)
or had run through our process and actively chosen not to invest in
(Metlifecare, Comvita) returned significantly less than the market.
Keeping our eye on the ball – long-term
thinking, like a business owner
You have heard us say before many times that we are long-
term thinkers and approach investing like business owners, not
financial analysts.
a2 Milk and Fisher & Paykel Healthcare by their very nature are
ultra-long-term growth stories. Fisher & Paykel Healthcare is
currently treating between two and three million patients with
their Optiflow Nasal High Flow Therapy product. We think the
total addressable market here could be as large as 40 to 50 million
patients. This is a growth runway that can extend for decades.
a2 Milk has less than four percent market share in the huge
Chinese infant formula market. We think this is a market the
company can dominate. We also think a2 can take a meaningful
VISTA GROUP
+31
%
A2 MILK
COMPANY
+28
%
MERIDIAN
ENERGY
+25
%
FISHER & PAYKEL
HEALTHCARE
+21
%
MICHAEL HILL
INTERNATIONAL
+18
%
market share in the US liquid milk market where its market
share is currently negligible. With the scale of opportunity these
companies have ahead of them, it is critical not to get lost in the
short-term noise and keep our eye on the long-term prize.
In recent months a2’s share price has been battered by various
fears. Firstly, the market grappled with concern that sweeping
regulatory changes in China may impact a2, but as it turned
out common sense prevailed, and the government did not
draconically block Chinese mothers from using offshore infant
formula as many in the market would have us believe. Secondly,
the CEO sold a parcel of shares she had just received, prompting
many in the market to suggest she must know something we
didn’t. As it turned out, like many sellers of shares, the CEO had
personal reasons for selling which had nothing whatsoever to
do with the health of the company. Thirdly, slowing consumption
growth in China as the economy slows came onto investor’s
radars, but as it turns out, the huge total addressable market and
low penetration allow a2 to prosper despite any broad slowdown
in consumption. Fourthly, a sales ‘miss’ relative to consensus
expectations led many to think the growth story was over, but
the shortfall was due to a change in their infant formula labelling,
which proved a temporary hiccup, has not impacted the long-term
earnings power of the business at all.
We have added to our a2 position in several of those situations,
which have all proved to be transitory and reflect the market’s
short-term focus.
Attending a meeting with the Fisher & Paykel Healthcare
management team is like, excuse the pun, a breath of fresh air
for us. The company thinks in decades, not quarters. This is the
exact opposite of many investors who’s nearsightedness on short-
term issues such as the annual flu cycle and whether it will impact
current earnings. Our view is that the flu cycle does not impact the
long-term earnings power of Fisher & Paykel Healthcare one iota.
When we meet the management team, we spend almost no time
focussing on the previous half yearly earnings. We spend almost
the entire time focussing on the 5 to 20-year outlook. We focus
on the long-term production capability of the Mexico facilities,
we focus on the very large and untapped opportunities Fisher &
Paykel Healthcare has with Optiflow outside the intensive care
Quarter Update Newsletter
31 December 2018 – 31 March 2019
NAV
$
1.57
1
SHARE PRICE
$
1.35
WARRANT PRICE
$
0.06
as»at»31»March»2019
DISCOUNT
13.1
%
2
1
As at the date of this Newsletter the Kingfish year end NAV has yet be to audited, and therefore it may change.
2
Share price discount/(premium) to NAV (including warrant price on a pro-rated basis)

2
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, New Zealand
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 2019
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+4.7%+11.2%+10.9%
Adjusted NAV Return+13.9%+14.3%+12.5%
Portfolio Performance
Gross Performance Return +15.3%+17.0%+15.2%
S&P/NZX50G Index+11.7%+13.4%+13.9%

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 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://kingfish.co.nz/about-kingfish/kingfish-policies/
LISTED»COMPANIES
%»Holding
Auckland Int Airport5.0%
Delegat Group3.5%
Fisher & Paykel Healthcare13.9%
Fletcher Building1.8%
Freightways8.6%
Infratil6.8%
Mainfreight10.6%
Meridian Energy3.3%
Port of Tauranga3.3%
Pushpay Holdings1.9%
Restaurant Brands NZ4.6%
Ryman Healthcare6.4%
Summerset5.9%
The A2 Milk Company13.2%
Vista Group International4.9%
Equity»Total93.7%
New Zealand dollar cash6.3%
TOTAL100.0%
Portfolio Holdings Summary
as at 31 March 2019
Company News
Dividend Paid 28 March 2019
A dividend of 2.83 cents per share was paid to Kingfish
shareholders on 28 March 2019 under the quarterly distribution
policy. Interest in Kingfish’s dividend reinvestment plan (DRP)
remains high with 44% 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.
Sam»Dickie,»Senior Portfolio Manager
18 April 2019
unit, and we focus on the super long-term opportunity of using
Optiflow or high flow nasal therapy in the home.
When the story changes, be prepared to
change your mind
During the quarter we exited our longstanding holding in
jewellery business, Michael Hill.
Over the last two years the investment case has changed
meaningfully. During the last year or so, the company exited
the US and its relatively new Emma & Roe ‘demi-fine’ jewellery
concept, significantly changed it’s pricing strategy and then
subsequently reversed that strategy.
With the structural shift to online sales and the pressure
shopping malls around the world are facing to attract foot traffic
and the fact that the underlying category growth of fine jewellery
is flat at best, Michael Hill requires near flawless execution to
navigate that tricky backdrop.
During these turbulent times, it became clear to us that the
strength of the business and the moat around the business is not
what it once was. The recent share price recovery on the back of
the new CEO’s turnaround plan presented an attractive time to exit
the position.
There are higher quality investment options where we can deploy
our capital and we have begun to do that, adding to our positions
in Mainfreight, Infratil and a2 Milk.