KFL - June 2024 Quarterly Newsletter

In the June quarter Kingfish delivered a gross performance return of
-0.2% and an Adjusted NAV return of -0.5%, versus the -3.2% return of the
S&P/NZX50 gross index.
The quarter's performance was led by Fisher & Paykel Healthcare (+19%
total return in the quarter) following strong results and cinema software
provider Vista (+13%) after Australian private equity firm Potentia
emerged with a 19.9% shareholding. It also saw another solid return
from Infratil (+4%) and strong performance from Meridian Energy (+6%)
and Contact Energy (+4%).
Detractors from performance included wine maker Delegat (-20%), which
announced a low 2024 harvest outcome. Summerset (-17%) declined
as the New Zealand broader housing market remained soft through the
quarter as did Ryman (-22%).
These have been discussed in previous monthly updates, with limited
new news in June.
The local economic environment has not yet improved
As 2024 has played out it appears New Zealand economic data have not
improved and the negative updates from New Zealand companies came
thick and fast during the quarter.
Many of the most acutely impacted companies are those that rely
heavily on discretionary consumer spend. During the quarter, retailers
generally released weak trading updates that underwhelmed already
low expectations. This resulted in savage share price reactions: The
Warehouse in general merchandise (-33% total return), outdoors apparel
retailer Kathmandu (-36%), and Michael Hill in jewellery (-32%). Other
consumer facing companies have seen similar weakness including
casino operator Sky City (-30%), Air NZ off the back of weaker than
expected domestic travel (-12%), and campervan rental company
Tourism Holdings (-44%), particularly in relation to sales of ex-fleet
vehicles.
Cyclical companies relying on customers making large capital
investments have also been impacted. Fletcher Building (-31%) has seen
building activity come in lower than expected. Metals distributor Steel &
Tube (-17%) saw a deterioration in its activity levels. Telecommunications
company Spark (-13%) even provided an unexpected profit downgrade,
largely due to unexpectedly low demand in IT services from government
and enterprise customers restraining spending.
Fortunately none of the aforementioned are Kingfish portfolio
companies.
The direction of travel is still concerning. The Warehouse's update for
sales to be down 6-7% in its current financial year implies the June
quarter will be down even more, around 10%. A notable business survey
out late June suggested the net proportion of businesses concerned
about consumer demand has increased sequentially month on
month every month this year to a net 56% of respondents, from 41%
in December 2023 and 47% in March. In another survey, businesses'
activity in the June quarter was notably much more negative than
the March quarter. Interestingly, on balance many companies are
increasingly looking to cut prices over the coming year to stimulate
demand (versus raise prices to recover inflationary pressures), which
may finally be the sign the Reserve Bank needs to depart from its
hawkish rhetoric and cut interest rates.
In terms of portfolio companies, the most acutely impacted from the
New Zealand economy include Vulcan Steel (-23% in the quarter),
Freightways (-13%), Port of Tauranga (-13%), and Mainfreight (-3%). We
still think their business models will perform well longer term, and they
are in fact performing credibly compared to other consumer and cyclical
exposed companies in the broader New Zealand market mentioned
earlier. We did reduce our position in Mainfreight modestly as we now
think it will take the company longer to crack Transport in the US market
than previously. However, the balance of the business is performing
satisfactorily, and ongoing market share gains in Australia are particularly
encouraging.
Offshore focused companies with tailwinds were the
biggest gainers (again)
Again, the brightest spots in the portfolio are companies exposed to
structural growth trends, primarily outside New Zealand.
Fisher & Paykel Healthcare (+19%) provided maiden revenue and
net profit guidance for its new financial year in line with expectations
for strong growth. All key areas of the business are demonstrating
momentum. Anaesthesia (off a small base) and Obstructive Sleep Apnea
masks in particular are delivering outstanding growth. The outlook is
further supported by management's confidence in a strong pipeline of
new product development.
During June, Infratil (+4%) raised $1.15 billion to fund organic investment
opportunities in its portfolio, with the majority earmarked for Australian-
based CDC Data Centres. CDC has won the confidence of large
government and hyperscale customers (the likes of Microsoft), which
has led to its built capacity doubling every 2 years or so. CDC expects to
sign contracts on 400MW+ of capacity in the near term. Best-in-class
water cooling systems and modular design make CDC well placed to
support new Artificial Intelligence workloads, which is a key driver of this
growth. A new Sydney site at Marsden Park will deliver around 720MW
of capacity when fully built, making it one of the largest data centres
globally. CDC has been part of Infratil’s portfolio since 2016 and has
increased in value ten-fold over this period.
The saga concludes: long-awaited certainty for the NZ
electricity industry
On 31 May, electricity companies Meridian Energy (+6%) and Contact
Energy (+4%) announced that they had signed long term agreements
to supply power to the Tiwai Point aluminium smelter. The smelter’s
long-term future has been in doubt after owner Rio Tinto announced it
was planning to shut down back in July 2020. The new contracts are
for 20 years and mean the companies will likely be able to commit to a
higher level of dividends, supported by the certainty of higher earnings.
The contracts also provide for ‘demand response’, whereby Meridian and
Contact can require the smelter to reduce production to free up electricity
when needed most and when they are able to sell at high prices. Overall,
the deal was widely expected given the smelter's financial position has
improved vastly from 2020, but nonetheless a positive for the companies
as the tail risk of an unexpected shut down has been removed.
1
Share price discount to NAV (including warrant price on a pro-rated basis and using the net asset value per share, after expense, fees and tax, to four decimal places).
QUARTERLY NEWSLETTER
1 April 2024 – 30 June 2024
as at 30 June 2024
1
KFL NAV
$
1.31
$
1.17
Share Price
DISCOUNT
1
10.6
%
Warrant Price
$
0.00

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 a 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.
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return(4.4%)(9.4%)+5.3%
Adjusted NAV Return(0.5%)(1.7%)+5.4%
Portfolio Performance
Gross Performance
Return
(0.2%)(0.4%)+7.3%
S&P/NZX50G Index(3.2%)(2.5%)+2.2%

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 percentage change in the adjusted NAV value,
»gross performance return – the Manager’s portfolio performance in terms of stock selection,
before expenses, fees and tax, and
»total shareholder return – the return combines the share price performance, the warrant price
performance, the net value of converting any warrants into shares, and the dividends paid to
shareholders. It assumes all dividends are reinvested in the company’s dividend reinvestment
plan, and that shareholders exercise their warrants, (if they were in the money), at warrant
expiry date.
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 kingfish.co.nz/about-kingfish/kingfish-policies.
LISTED COMPANIES% Holding
Auckland Intl Airport8.9%
Contact Energy8.1%
Delegat Group1.4%
EBOS Group7.4%
Fisher & Paykel Healthcare17.4%
Freightways2.9%
Infratil18.2%
Mainfreight11.3%
Meridian Energy1.6%
Port of Tauranga2.4%
Ryman Healthcare2.0%
Summerset7.3%
The a2 Milk Company3.3%
Vista Group International5.2%
Vulcan Steel1.0%
Equity Total98.4%
New Zealand dollar cash1.6%
TOTAL100.0%
PORTFOLIO HOLDINGS SUMMARY
as at 30 June 2024
COMPANY NEWS
Dividend Paid 27 June 2024
A dividend of 2.65 cents per share was paid to Kingfish shareholders
on 27 June 2024 under the quarterly distribution policy. Interest
in Kingfish’s dividend reinvestment plan (DRP) remains high with
40% 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 30 June 2024
Kingfish Limited
Private Bag 93502, Takapuna, Auckland 0740, New Zealand
Phone: +64 9 489 7094
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
Reporting on the effects of climate change on Kingfish
Kingfish will soon be publishing climate-related disclosures, helping
investors understand the current and future impact of climate change on
their investment. The first Kingfish Climate Statement for the 31 March
2024 financial year will be published on the Kingfish website
(kingfish.co.nz) around the end of July.
SIGNIFICANT RETURNS
IMPACTING THE PORTFOLIO
DURING THE QUARTER
FISHER & PAYKEL
HEALTHCARE
+19
%
SUMMERSET
-17
%
DELEGAT
GROUP
-20
%
RYMAN
HEALTHCARE
-22
%
VULCAN
STEEL
-23
%
Matt Peek
Portfolio Manager
Fisher Funds Management Limited
12 July 2024