KFL – September 2019 monthly update

1
Monthly Update
September 2019
A word from the Manager
The Kingfish adjusted NAV return for the August month
was -5.3%, compared with the local share market which was
down 0.9% (S&P/NZX50G). The sharp underperformance was
driven by some portfolio companies announcing earnings
guidance below our expectations, combined with the sharp
outperformance of defensive companies. Interest rates fell at
the fastest rate in percentage terms ever experienced in New
Zealand, driven by concerns about global growth and the
surprise 0.5% cut in rates by the Reserve Bank of New Zealand.
This drove the outperformance in defensive companies, a
market sector that Kingfish has a lower allocation to when
compared to the benchmark index (S&P/NZX50G).
Vista (-35%) and a2 Milk (-20%) were both a material drag on
performance in August.
Vista sharply downgraded its revenue guidance for the 2019
calendar year from “around 20% revenue growth” to “10-
12%” and the company’s share price fell 29% on the day of
results because of two key factors. Firstly, the shock reduction
in revenue guidance came after “around 20%” had been
reiterated as recently as its annual meeting in May. Secondly,
Vista signalled it is accelerating the development of its ‘multi-
tenant Software as a Service (SaaS)’ product offering, which is
likely to mean higher up-front investment in product. There
is also some uncertainty regarding the impact on revenue
and profitability in the short term compared to the current
model, which includes up-front perpetual licence fees. This
was not well explained to the market. While there were several
disappointing elements to the revenue downgrade, the largest
single factor was revenue from the implementation of Vista
Cinema at Odeon in the UK and Ireland being delayed until
2020. The revenue has not disappeared, it has been delayed.
Underlying performance of the main Vista Cinema and Movio
businesses was broadly as we expected. This is important as we
think they account for approximately 85% of the value of Vista.
The transition to SaaS is the right thing for Vista to do for the
medium to long term and will create value for shareholders.
The company has considered the impact of the transition
financially and is confident revenue growth will sustain through
the transition and there will be an uplift in revenue and
profitability thereafter.
a2 Milk surprised with disappointing guidance for the 2020
fiscal year. In particular, the guidance to a contraction in
profit margins was below what we expected. The company
announced that it is investing in higher levels of marketing
and organisational capability, largely in China. We did not
anticipate such a large step up in costs, but are comfortable
with the approach, which will continue to improve the
company’s brand position and help drive higher levels of
revenue growth for greater duration. The company has made
these decisions using in-depth analysis that it conducted over
the last year.
Importantly, we added to our positions in both a2 Milk and
Vista after the sharp falls. At times like this, we take a step
back and ask ourselves: ‘has our big picture investment
thesis changed?’ We pay particular attention to any change
in the width of the moat and any change in our view on
management. Do customers still love the product? Has the
medium term earnings power of the company changed?
The key metric we use to judge whether a2’s customers still
love their product in China is infant formula market share. For
the six months ended June, market share accelerated at the
fastest pace in almost two years. Revenue growth in liquid
milk in the US also accelerated from around 140% for the six
months ended December 2018 to around 175% for the six
months ended June 2019. Customers still love a2’s product
and it continues to deliver strong revenue growth. The
targeted investment a2 is undertaking in both China and the
US will widen a2’s moat and this will help ensure its revenue
growth fades less than the consensus expectation.
Vista continued to grow market share for its core cinema
product to 50% of large circuit screens globally, outside of
China. It is multiple times the size of its next biggest global
competitor. Vista recently entered Japan, the third largest
cinema market globally, and has already landed the largest
customer in that market.
While we think Vista has not managed investor expectations
well, we remain confident that, like a2, its moat is also intact
and is likely widening.
1
Share Price Discount to NAV (using NAV to four decimal places)
KFL NAV
$
1.54
SHARE PRICE
$
1.44
DISCOUNT
1
6.3
%
as at 31 August 2019

2
Key Details
as at 31 August 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
10% of returns in excess of
benchmark and high water mark
HIGH WATER MARK
$1.47
PERFORMANCE FEE CAP
1.25%
SHARES ON ISSUE
242m
MARKET
CAPITALISATION
$349m
GEARING
None (maximum permitted 20%
of gross asset value)
Sector Split
as at 31 August 2019
1
%
29
%
HEALTH CARE
18
%

UTILITIES

MATERIALS
30
%
INDUSTRIALS
12
%
CONSUMER
STAPLES
1
%
CONSUMER
DISCRETIONARY
6
%
INFORMATION
TECHNOLOGY
The Kingfish portfolio also holds cash
Elsewhere, our portfolio companies results during the
August ‘reporting season’ were broadly in line with
expectations.
Summerset reported is first half 2019 result. Weak new sales
and resales had been pre-announced so the incremental
information in the result was positive. Development
margins and resale margins remain very healthy. Underlying
commentary about the market improved from the more
cautious outlook given earlier in the year. The company
delivered a strong increase in its net asset backing despite
the softer Auckland housing market.
Meridian benefited from strong hydro conditions across
its asset base during the year. This was also boosted
by disruptions to the gas supply in New Zealand, which
caused sharply higher wholesale prices. These dynamics
have created a couple of tailwinds for the company, as
commercial customers have been brought on at higher
prices and a greater focus on risk management has
elevated wholesale electricity prices a couple of years out.
The company is set to benefit from a revision to the cost it
is charged for inter-island electricity transmission from 2022
which, alongside new generation projects, will help underpin
earnings growth in the next few years.
Port of Tauranga reported in line with expectations but
earnings were good quality, with a poor result from its Coda
joint venture absorbed by strong performance from the
port. The company remains confident about its strategy of
operating the most efficient container port in New Zealand
and its trans-shipment model. They re-illustrated how the port
will benefit from the trend towards larger and less emissions
intensive ships. We expect the company to continue to grow
cargo volumes and improve profitability over time.
Sam Dickie
Senior Portfolio Manager
Fisher Funds Management Limited

3
1 Month3 Months1 Year3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return(1.4%)+1.2%+10.4%+11.6%+12.2%
Adjusted NAV Return(5.3%)+1.9%+9.6%+12.0%+13.1%
Portfolio Performance
Gross Performance Return(5.4%)+2.5%+13.0%+14.6%+15.9%
S&P/NZX50G Index(0.9%)+6.3%+15.5%+13.3%+15.5%
August’s Biggest Movers
Typically the Kingfish portfolio will be invested 90% or more in equities.
SUMMERSET
+8
%
PUSHPAY HOLDINGS
-9
%
DELEGAT GROUP
-11
%
VISTA GROUP
-20
%
5 Largest Portfolio Positions as at 31 August 2019
THE A2 MILK COMPANY
15
%
FISHER & PAYKEL
HEALTHCARE
15
%
MAINFREIGHT
14
%
INFRATIL
9
%
RYMAN
HEALTHCARE
7
%
The remaining portfolio is made up of another 10 stocks and cash.
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
$
5.00
$
0.50
$
0.00
Mar
2017
$
3.50
Mar
2018
$
4.00
Mar
2019
Total Shareholder Return to 31 August 2019
Performance to 31 August 2019
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/
A2 MILK COMPANY
-35
%

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
Warrants
»Warrants put Kingfish in a better position to grow
further, operate efficiently and pursue other capital
structure initiatives as appropriate
»A warrant is the right, not the obligation, to purchase
an ordinary share in Kingfish at a fixed price on a
fixed date
»There are currently no warrants on issue
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.