KFL – June 2018 Quarter Update Newsletter

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Notable Returns in the Quarter
»»The»June»quarter»was»a»positive»one»for»the»New»Zealand»
market»with»the»S&P/NZX50G»up»+7.5%,»a»strong»rebound»
after»the»volatile»March»quarter.
»»The»Kingfish»portfolio»delivered»a»gross»performance»return»
of»+8.2%»for»the»quarter»with»the»majority»of»portfolio»
companies»delivering»positive»returns.»
»»We»spent»some»time»abroad»recently,»visiting»the»operations»
of»several»of»Kingfish’s»core»holdings»and»hearing»from»
management»about»key»developments»in»their»offshore»
businesses.
The New Zealand share market performed strongly for the three
months to 30 June, with gains increasing steadily each month. This
was in contrast to the volatile first quarter of the 2018 calendar year,
and made the New Zealand market one of the best performing
globally for the six months to 30 June 2018.
The Kingfish portfolio also performed strongly over the quarter,
rising 8.2% on a gross performance basis. Kingfish’s performance
was supported by the standout performance of Vista»Group which
rose +34% over the period, while nine other portfolio companies
posted double digit returns including Fisher»&»Paykel»Healthcare
(+14%) and Mainfreight (+13%). Recent portfolio addition,
Fletcher»Building, contributed positively to performance rising
13% since the position was first initiated in April.
Fisher Funds hits the road
Various investing legends have long espoused the virtues of
‘wearing out your shoe leather’ and visiting businesses first hand
to gain a more direct perspective. It certainly makes a welcome
change from reading financial reports and searching for unique
insights from the terabytes of information constantly circulating the
internet.
We are often talking and meeting with companies locally, but with
around half of Kingfish’s portfolio companies’ revenue generated
offshore, we think it is also important to get overseas and see the
offshore operations and key staff of these businesses first hand. So in
June we hit the road and visited a number of the offshore business
units of some of Kingfish’s core holdings, gaining valuable insights
into operations and hearing from local management directly.
As part of our trip, we were fortunate to see progress in
Mainfreight’s burgeoning European and Australian operations,
and attend the most recent investor day held in the Netherlands.
Currently, Mainfreight is growing revenues rapidly in Australia
and Europe and the company’s progress was evident. We spent
time at the large Epping site in Melbourne where the warehouse
was full and the quality of the operations at the site have been
attracting a significant number of new customers. As a result,
the company is already expanding onto an adjacent site. We
VISTA GROUP
+34
%
RYMAN
HEALTHCARE
+14
%
FISHER & PAYKEL
HEALTHCARE
+14
%
MAINFREIGHT
+13
%
FLETCHER
BUILDING
+13
%
were also encouraged by the recent investor day being held in
the Netherlands - a testament to the progress in the European
business, and were pleased to see the company continuing to
foster its unique culture offshore and intensify its network both
within, and between, regions.
When we were in Europe we visited Fisher & Paykel Healthcare’s
Head of European Operations, Patrick McSweeney, who is based
in France. Fisher & Paykel Healthcare generates almost 10% of
its revenue from Europe so it was extremely helpful to spend
some time with Patrick who has been in the medical technology
industry for 30 years and with Fisher & Paykel Healthcare for 15
years. In business generally, but especially in the world of medtech,
where timeframes to get products approved and into commercial
production are measured in decades, not years, Patrick’s
experience is worth its weight in gold. We gained a number of
valuable insights into the European business. Patrick also reminded
us that the European and global penetration of high flow oxygen
therapies into hospitals is still very low and that there are significant
growth runways available to the company. We agree with Patrick
that Fisher & Paykel Healthcare remains very well positioned to
dominate this significant opportunity for many years to come. As at
30 June, Fisher & Paykel Healthcare was the largest position in the
Kingfish portfolio.
We also had a number of meetings with The»a2»Milk»Company
distributors based in China and Hong Kong, which gave us the
opportunity to see the daigou channel in action and get on the
ground insights. During the quarter, we chose to increase the
Kingfish investment in The a2 Milk Company as new data shows
the company increasing its market share in China.
Fletcher Building added to the portfolio
As discussed in the recent Kingfish Annual Report, we added
Fletcher Building to the portfolio early in the quarter, taking
an initial 3% position size. Despite the well-publicised and
somewhat turbulent events of the last couple of years, we think
several key things have changed at Fletcher Building which have
acted as a catalyst for Kingfish taking a position.
Fletcher Building has undertaken a strategic review guided by the
new management team and committed to a “back to the future”
strategy - selling its overseas business, refocusing on the strong
New Zealand and Australian core.
Quarter Update Newsletter
31 March 2018 – 30 June 2018
NAV
$
1.52
SHARE PRICE
$
1.39
as»at»30»June»2018
DISCOUNT
8.6
%

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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 30 June 2018
3 Months
3 Years
(annualised)
Five Years
(annualised)
Corporate Performance
Total Shareholder Return+8.4%+9.9%+12.4%
Adjusted NAV Return+7.2%+15.6%+13.4%
Manager Performance
Gross Performance Return+8.2%+18.3%+16.2%
S&P/NZX50G Index+7.5%+16.0%+15.0%

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, 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://www.kingfish.co.nz/about-kingfish/kingfish-policies/
LISTED»COMPANIES
%»Holding
Abano Healthcare
1.8%
Auckland International Airport5.0%
Delegat Group3.3%
Fisher & Paykel Healthcare12.1%
Fletcher Building3.1%
Freightways9.2%
Infratil7.1%
Mainfreight10.7%
Meridian Energy3.0%
Michael Hill International3.9%
Port of Tauranga2.5%
Restaurant Brands NZ5.0%
Ryman Healthcare7.7%
Summerset6.2%
The a2 Milk Company7.5%
Vista Group International4.9%
Equity»Total93.0%
New Zealand dollar cash7.0%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 June 2018
Company News
Dividend Paid 29 June 2018
A dividend of 2.89 cents per share was paid to Kingfish shareholders
on 29 June 2018 under the quarterly distribution policy. Interest
in Kingfish’s dividend reinvestment plan (DRP) remains high with
45% 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.
We think the company’s decision to sell its overseas businesses
(Formica and Roof Tiles are currently up for sale) is likely to
generate in excess of $1bn for the company and may result in
it being able to return capital to shareholders. Additionally, the
New Zealand and Australian core comprises a number of key
operations such as Golden Bay Cement, Winstone Wallboards
and PlaceMakers which dominate their respective markets. These
core businesses have clear moats and help the company to
deliver solid cash flow.
We are encouraged by Fletcher’ Buildings new CEO, Ross Taylor.
To date, we think Ross has made the right moves to strengthen
and refocus the business through repairing the balance sheet
and plans to divest the non-core international operations. The
recently presented strategic plan is logical and sets expectations
of improved performance across the portfolio, with investment
where necessary. 2018 earnings guidance has been reiterated
with no new provisions expected for the problematic Building
and Interiors division, which is being wound down.
Ultimately, we believe the extent of Fletcher Building’s success will
be determined by how well its new strategy is executed. So far
the right building blocks appear to be in place and the stock has
performed well since we initiated the Kingfish portfolio position.
Sam»Dickie»
Senior Portfolio Manager
18 July 2018