KFL - December 2024 Quarterly Newsletter

The December quarter saw Kingfish deliver a gross performance
return of +7.9% and an adjusted NAV return of +6.8%, compared to the
+5.5% return of the S&P/NZX50G benchmark index. The returns for the
2024 calendar year were +25.7% and +22.5% respectively, against the
benchmark return of +11.4%.
It was very satisfying to see the portfolio perform so well in 2024, given
the tough New Zealand economy and modest returns in the local
share market. Despite a second successive year in positive territory,
it was a tough year for many listed companies, with the majority of
the benchmark return driven by the strong performance of index
heavyweight Fisher & Paykel Healthcare ('F&P', +65% total return in
2024 including dividends).
2024 was a clear illustration of why we prefer
high quality growth companies
Kingfish focuses on the minority of companies that have wide
economic moats and long runways for growth. This also means
they often have meaningful offshore businesses that can continue to
thrive while conditions are tough in New Zealand and others are found
wanting when the economic tide goes out.
Aside from F&P, which is the largest position for Kingfish, the year’s
performance was supported by strong returns from cinema software
company Vista (+88%) and the large position in growth infrastructure
investor Infratil (+28%).
Through decades of investment, both F&P and Vista have cultivated
meaningful technology-driven moats versus their competitors. They
have become the global leaders in their respective markets, and so
virtually all their revenue is from offshore customers. This means
they are immune from New Zealand economic weakness and in fact
when the New Zealand dollar weakens (as it has in 2024 with the NZ$/
US$ exchange rate moving from 0.63 to around 0.56 at year end) this
actually boosts revenue and earnings.
As we discussed in last month’s update, at its half-yearly result F&P
demonstrated strong performance across all key parts of its business,
totalling 17% year-on-year growth in constant currency terms. The
company is benefiting from its ongoing investment in research and
development, which means it is regularly launching new products that
extend its runway for growth.
Vista's growth is coming from transitioning its global cinema
customers from its historical 'on-premise' solution (on servers
physically located at each cinema) to its next generation software
hosted in the cloud (remotely in secure data centres). This means it can
scale computing power to match customer demand when blockbuster
movie ticket sales open, maintain best practice cyber security, rapidly
and remotely deploy software updates, and leave the cinema company
IT staff to focus on other projects rather than maintaining old servers.
Customers migrated onto the new product suite can generate 3-5
times as much revenue as previously. It is in the early stages of this
transition and is set for many years of strong revenue growth, while
sound cost control should mean most of the revenue growth falls
straight to the bottom line as higher profits.
Infratil performed well again in 2024, in particular CDC Data Centres.
This business has been outperforming expectations due to demand
from customers driven by conventional and artificial intelligence
workloads. During the year the sale of its peer AirTrunk for A$24 billion
to global private equity firm Blackstone and a Canadian pension fund
reinforced the value of these businesses.
Local business conditions deteriorated over the
course of the year
The post-election optimism from a change in government late in 2023
and hopes of economic 'green shoots' early in the year faded as reality
set in. Expectations of economic growth (real GDP) for the year began
at around 1% but deteriorated to virtually zero by the end of the year.
Over the course of the year the mantra for many local businesses
became "survive 'till '25".
The consumer remains the largest driver of the New Zealand economy.
Cost of living has remained a challenge for many Kiwi households,
with essential big-ticket items like insurance, rates, and rent continuing
to increase. While mortgage rates generally fell over the course of
the year, the majority of households have been refinancing onto
higher rates which has continued to suck discretionary spend out
of the economy. Trans-Tasman retailer sales updates have routinely
contrasted how much worse their New Zealand businesses are
performing versus Australia.
The government only provided limited relief for taxpayers at its May
budget, faced by a declining tax take and widening budget deficit. New
Zealand has been an outlier compared with other western countries
in the sense that the government has been constraining spending
over the last couple of years when normally in a recession it would be
looking to boost the economy. The pre-Christmas Treasury update
showed that the country's books are in worse health than anticipated,
and the government's response appears to be further spending cuts
which risks prolonging the economic downturn.
Doom and gloom aside, Freightways (+30%) and Summerset
(+31%) bucked the trend and delivered strong returns despite most
of their businesses being exposed to weak economic conditions in
New Zealand. Both are well managed and have a winning customer
proposition in the market which has helped them fare better than
their competitors. In fact, both companies have seen current year's
prospects for profits broadly unchanged over the year despite the
inclement climate. That they have managed so well during brutal local
conditions makes us optimistic how well they will perform with a
tailwind!
In 2025 it appears as if local business conditions
may improve
Fortunately, some factors are now tentatively heading in the right
direction. The Reserve Bank cut the Official Cash Rate from 5.50%
to 4.25% over the second half of 2024. Current mortgage rates are
now lower than the average of the mortgage book and so over the
coming year the consumer will likely get some more spending power: a
persistent headwind will become a gentle tailwind. This is setting New
1
Share price discount to NAV (using the net asset value per share, after expense, fees and tax, to four decimal places).
QUARTERLY NEWSLETTER
1 October 2024 – 31 December 2024
as at 31 December 2024
1
KFL NAV
$
1.48
$
1.34
Share Price
DISCOUNT
1
9.5
%

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+8.7%(4.3%)+5.9%
Adjusted NAV Return+6.8%+2.1%+6.6%
Portfolio Performance
Gross Performance Return +7.9%+3.7%+8.4%
S&P/NZX50G Index+5.5%+0.2%+2.7%

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 Airport8.1%
Contact Energy6.4%
Delegat Group1.2%
EBOS Group7.1%
Fisher & Paykel Healthcare18.6%
Freightways3.5%
Infratil14.6%
Mainfreight10.4%
Meridian Energy3.1%
Port of Tauranga3.0%
Ryman Healthcare3.2%
Summerset8.7%
The a2 Milk Company2.2%
Vista Group International5.9%
Vulcan Steel0.9%
Equity Total96.9%
New Zealand dollar cash3.1%
TOTAL100.0%
PORTFOLIO HOLDINGS SUMMARY
as at 31 December 2024
COMPANY NEWS
Dividend Paid 20 December 2024
A dividend of 2.85 cents per share was paid to Kingfish shareholders
on 20 December 2024 under the quarterly distribution policy. Interest
in Kingfish’s dividend reinvestment plan (DRP) remains high with
39% 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 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
Zealand up for a consumer-led recovery. The key question will be how
meaningful this will be, as households are still licking their wounds,
and unemployment has been ticking up as companies react to tougher
conditions.
What 2024 has shown is that Kingfish's investments are well
positioned if a tricky climate persists, while a number will perform
better if conditions improve. Companies like Mainfreight (+9% in 2024
driven largely by excellent performance in its Australian business),
Ryman (-20%) and Vulcan Steel (-4%), should see their New Zealand
businesses improve as consumer spend, housing, and the industrial
economy recover.
SIGNIFICANT RETURNS
IMPACTING THE PORTFOLIO
DURING THE QUARTER
FREIGHTWAYS
GROUP
+17
%
AUCKLAND
INTERNATIONAL
AIRPORT
+16
%
CONTACT
ENERGY
+16
%
VISTA
GROUP
+15
%
FISHER & PAYKEL
HEALTHCARE
+11
%
Matt Peek
Portfolio Manager
Fisher Funds Management Limited
15 January 2025