Kingfish – December 2019 Quarter Update Newsletter

1
Notable Returns in the Quarter
Kingfish had a very strong quarter, with a gross performance
return of +12.5% and an adjusted net asset value (Adjusted NAV)
return of +11.0%, compared to the benchmark, which was up
5.2% for the quarter. Kingfish was up a staggering 38.9% gross
performance return for the calendar year, (Adjusted NAV was up
33%) compared to the New Zealand market, which was up 30.4%.
The outperformance noted above is a meaningful difference and
reflects our active management style: handpicking a small number
of quality companies to invest in for the long-term.
One of the key attributes that we use to differentiate quality
companies from the rest of the pack is the idea of a moat.
The difference a moat makes
A moat is an attribute of a business that makes it very hard to
compete with. Not losing your customers to competition is a very
good attribute to have!
A genuine moat is near impenetrable and ideally gets wider over
time which drives long-term winners. No moat, a partial moat or
the perception of a moat can drive long-term losers
The winners in the New Zealand share market in 2019 had wide
moats. The losers did not.
The winners
Fisher & Paykel Healthcare’s moat is based on over 50+ years of
research and development it has tucked away. That is extremely
difficult to replicate and was reflected in the release of the Vitera
during the year - its new Obstructive Sleep Apnea (OSA) mask.
Customers seem to love it. This helped the company upgrade
their own earnings guidance three times in three months and
reminded us that this company is a under-promiser and over-
deliverer.
Despite an enormous amount of (often misplaced) concerns
thrown at a2 Milk by the market such as regulatory risk, CEO
selling shares, CEO change, lack of cost control and revenue
scares, the company still managed to outperform a very strong
NZ stock market in 2019. a2 Milk’s moat is based upon the very
strong brand it has built especially in China for its a2 Platinum
infant milk formula. It is also based upon the extremely passionate
and dynamic team of people that run and operate the company.
Despite the disappointment of the short tenure of the last CEO,
it is pleasing to see Geoff Babidge return to the driver’s seat.
Geoff was responsible for assembling and mentoring much
of the relatively small and passionate team that continues to
outmaneuver significantly larger companies. The recent AGM
allayed a lot of the market’s fears. Profit margins were re-upgraded
(following a downgrade at the 2019 result in August) due to price
SUMMERSET
GROUP
+34
%
FISHER & PAYKEL
+29
%
RYMAN
HEALTHCARE
+24
%
PORT OF
TAURANGA
+23
%
PUSHPAY
HOLDINGS
+20
%
rises and stringent control of cost of goods sold. Secondly, sales
growth of circa 30% for the 6 months ended December 2019 was
better than analysts had feared.
When you have been developing high-quality retirement villages
successfully for as long as Ryman and Summerset have, you
are going to develop a huge amount of in-house expertise.
The expertise to secure a large parcel of bare land in a high-
quality location and shepherd it through the difficult process of
consenting and turn out consistently high-quality apartments
and integrated care facilities has created wide moats around
these companies. And then to have the ability to replicate that
process dozens of times in both NZ and Australia means the moats
continue to widen.
Last month Ryman hosted an investor day in Melbourne which we
attended. Awareness of Ryman in Melbourne is strengthening,
resulting in strong demand for its product. The company is well
positioned versus its Australian counterparts that don’t cater to the
increasing demand for a continuum of care model - independent
retirement living all the way through to acute aged care and
dementia care.
Mainfreight’s moat is more obscure than most but is one of the
most powerful of all. It is largely based on Mainfreight’s culture
and Mainfreight’s people. And it was great to see Don Braid who
lives, breathes and drives the highly successful culture awarded the
executive of the decade by Deloitte!
The rest of the pack
Sky TV used to have a (near) monopoly in satellite delivery of
Pay TV and had the most Pay TV subscribers in NZ. But we were
reminded in 2019 that high market share is not necessarily a moat.
Sky TV’s technology is outdated, it is losing subscribers, it lost the
cricket rights and couldn’t show the Rugby World Cup. All of these
contributed to another horror year.
Metro Performance Glass has no moat. Its earnings were
downgraded another 20-30% this year as it continues to face
competition from all angles and it lost key management.
Gentrack has elements of a moat via its high market share and
strong software. But we were reminded that you are only as strong
as your customers, especially when you have a fairly concentrated
Quarter Update Newsletter
30 September 2019 – 31 December 2019
NAV
$
1.65
SHARE PRICE
$
1.60
as at 31 December 2019
DISCOUNT
1
3.2
%
1
Share price discount/(premium) to NAV (using NAV to four decimal places)

The highest market share in corporatised dentists in Australasia
was not enough of a moat for Abano. Despite being taken over
during the year, the stock still underperformed the market by
almost 40% in 2019.
Our relentless focus on owning companies with enduring
competitive advantages or wide moats assisted us in generating
a little over 800 basis points
1
of additional gross return in the 2019
calendar year.
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
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+13.4%+16.7%+13.2%
Adjusted NAV Return+11.0%+18.8%+14.6%
Portfolio Performance
Gross Performance Return +12.5%+22.2%+17.6%
S&P/NZX50G Index+5.2%+18.7%+15.6%

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 expenses, fees and tax,
»adjusted NAV return – the net return to an investor after expenses, fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock selection,
before expenses, 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 Airport4.5%
Delegat Group3.4%
Fisher & Paykel Healthcare13.5%
Freightways5.1%
Infratil9.3%
Mainfreight13.3%
Meridian Energy3.4%
Port of Tauranga4.3%
Pushpay Holdings1.7%
Ryman Healthcare7.0%
Summerset9.3%
The A2 Milk Company15.4%
Vista Group International5.2%
Equity Total95.4%
New Zealand dollar cash4.6%
TOTAL100.0%
Portfolio Holdings Summary
as at 31 December 2019
Company News
Dividend Paid 19 December 2019
A dividend of 3.09 cents per share was paid to Kingfish
shareholders on 19 December 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.
Performance
as at 31 December 2019
Sam Dickie
Senior Portfolio Manager
20 January 2020
customer base. The company was beleaguered by Brexit and its
small, unprofitable UK electricity customers are under pressure.
This saw analysts downgrade earnings by more than 50% during
the year.
Comvita is the biggest honey producer in NZ and has a very
strong brand. But those “moatish” elements are eroded by the
reliance on horticulture which is the definition of relying on factors
outside your control! The third poor honey harvest in a row and
the departure of the CCO and CEO contributed to the company
reporting a large and unexpected loss for the fiscal year.
Fonterra is one of the largest exporters of milk products globally.
But scale alone is not a moat and the company reported a record
annual loss last year.
1
Calendar year gross performance return of +38.9% verses the Kingfish benchmark return of +30.4%