Kingfish Limited — Fund Information / Factsheet 2019

Nov 18, 2019

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Monthly Update November 2019

KFL NAV SHARE PRICE DISCOUNT[1] $1.52 $1.49 2.2[%] as at 31 October 2019

A word from the Manager

Kingfish delivered an adjusted NAV return of +0.4% in October, well ahead of the New Zealand share market return of -1.3% (S&P/NZX50G).

The Portfolio

There was a flurry of news across the portfolio in October.

Fisher & Paykel Healthcare (+10.7%) upgraded its profit guidance for the 2020 fiscal year, in conjunction with announcing it had received approval to sell its new Vitera obstructive sleep apnea mask in the US earlier than expected. This is the second profit upgrade from the company in less than two months and highlights that the management team continues to under-promise and over-deliver.

Infratil (+0.2%) hosted an investor day focused on two of its key portfolio assets, Canberra Data Centres (CDC) and Vodafone. Every time we get further colour on CDC, we are impressed by the moat, the management and the growth runway. Vodafone on the other hand is a turnaround story. Infratil expects to improve the operating profit margins significantly over time through cost reductions, consolidation of legacy IT platforms, leadership in 5G, (where it will be first to market in December), and growth in fixed wireless. The turnaround will take some time but we are optimistic given Infratil’s track record here, including its successful investment in Z Energy.

Freightways (-5.2%) announced the conditional acquisition of leading New Zealand refrigerated transport provider Big Chill and also announced its first quarter trading update. The trading update was disappointing and showed that the subdued domestic courier market had slower revenue growth than we expected, although the pricing initiatives that have been implemented provided a boost. The acquisition appears positive based on our initial research and channel checks, with Big Chill a relatively solid business in an adjacent niche market to the courier business with some network overlap. We had trimmed our position in Freightways to a smaller level in earlier months.

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Port of Tauranga (+3.6%) provided first time guidance for fiscal 2020 profits below previous expectations. This reflected a soft first quarter of trading for logs and bulk freight, although container volumes continued to grow strongly. The softer log volumes reflect a recent well publicised dip in pricing in China, with some New Zealand forest owners deferring logging in anticipation of a recovery in pricing, which appears to be underway. Regardless, these volumes will still ultimately require harvesting and will still be captured by the port in coming years.

Meridian (-11.5%) and the rest of the New Zealand electricity sector saw sharp share price declines in October, after Rio Tinto initiated a strategic review of its Tiwai Point aluminium smelter (NZAS). It is considering various options including closing down the smelter, which consumes approximately 13% of New Zealand’s electricity. It is likely NZAS will attempt to negotiate lower rates for its electricity consumption from its suppliers to make the smelter more financially viable.

Portfolio changes

We exited our small residual position in Restaurant Brands during the month of September. The business continues to perform well across the key brands in its portfolio (KFC and Taco Bell), but has repeatedly struggled with minor brands Pizza Hut and Carl’s Jr. The company is now trading on a lofty valuation which we believe fully factors in the transformation of Taco Bell stores, a successful US acquisition, and the establishment of Taco Bell as a successful franchise in New South Wales. We will continue to monitor the company as an opportunity going forward.

We exited our minor position in Fletcher Building early in the month (before the unfortunate Convention Centre fire broke out). We exited because the investment thesis had changed negatively from the time of our initial entry and several of our catalysts have now played out. We had already reduced our position to a small size,

1 Share Price Discount to NAV (using NAV to four decimal places)

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reflecting the worsening risk/reward. On reflection, the major shortcoming of the investment was that a sharp Australian housing down-cycle impacted that business and severely reduced earnings, with the ultimate benefits of the Australian business improvement strategy now longdated and more uncertain. In addition, cost inflation in New Zealand without volume or pricing growth ate away corporate cost savings and resulted in lower earnings than we expected. Ultimately, we will do better by redeploying our capital into higher conviction ideas.

We also reduced our position in Meridian and increased our positions in Infratil and Summerset during the month as we deployed proceeds from recent sales.

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Sam Dickie Senior Portfolio Manager Fisher Funds Management Limited

Key Details as at 31 October 2019

Sector Split

as at 31 October 2019

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----- Start of picture text ----- FUND TYPE Listed Investment CompanyINVESTS IN Growing New Zealand companies INFORMATIONTECHNOLOGYLISTING DATE 31 March 2004FINANCIAL YEAR END 31 MarchHEALTH7 [%]CARETYPICAL PORTFOLIO15-25 stocksSIZEINVESTMENT CRITERIA Long-term growth 29 [%]PERFORMANCE Long-term growth of capital andOBJECTIVE dividendsTAX STATUS Portfolio Investment Entity (PIE)Fisher Funds ManagementMANAGERLimitedUTILITIES1.25% of gross asset value(reduced by 0.10% for everyMANAGEMENT 1% of underperformanceFEE RATE relative to the change in the 11 [%]NZ 90 Day Bank Bill Index witha floor of 0.75%)PERFORMANCE Changes in the NZ 90 Day BankFEE HURDLE Bill Index + 7% INDUSTRIALS10% of returns in excess of CONSUMERPERFORMANCE FEE STAPLESbenchmark and high water mark 28 [%]HIGH WATER MARK $1.4318 [%]PERFORMANCE FEE CAP 1.25%SHARES ON ISSUE 244mMARKET$364mCAPITALISATIONNone (maximum permitted 20%GEARINGof gross asset value)The Kingfish portfolio also holds cash----- End of picture text -----

The Kingfish portfolio also holds cash

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October’s Biggest Movers

Typically the Kingfish portfolio will be invested 90% or more in equities.

FISHER & PAYKEL FREIGHTWAYS PUSHPAY HOLDINGS FLETCHER BUILDING MERIDIAN ENERGY HEALTHCARE +11[%] -5[%] -6[%] -7[%] -12[%] as at 31 October 2019 5 Largest Portfolio Positions THE A2 MILK COMPANY FISHER & PAYKEL MAINFREIGHT INFRATIL SUMMERSET GROUP HEALTHCARE 15[%] 14[%] 14[%] 9[%] 8[%]

The remaining portfolio is made up of another 8 stocks and cash.

Total Shareholder Return to 31 October 2019

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----- Start of picture text ----- Share Price Total Shareholder Return$5.00$4.50$4.00$3.50$3.00$2.50$2.00$1.50$1.00$0.50$0.00Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Share Price/Total Shareholder Return----- End of picture text -----

Performance to 31 October 2019

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----- Start of picture text ----- 1 Month 3 Months 1 Year 3 Years 5 Years(annualised) (annualised)Company PerformanceTotal Shareholder Return +3.5% +4.4% +24.2% +14.4% +13.0%Adjusted NAV Return +0.4% (4.0%) +20.2% +14.2% +12.7%Portfolio PerformanceGross Performance Return +0.5% (3.8%) +24.3% +17.1% +15.4%S&P/NZX50G Index (1.3%) (0.6%) +23.3% +15.7% +14.9%----- End of picture text -----

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://kingfsh.co.nz/about-kingfsh/kingfsh-policies/

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About Kingfish

Management

Board

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.

Kingfish’s portfolio is managed by Fisher Funds Management Limited. Sam Dickie (Senior Portfolio Manager) and Matt Peek (Investment Analyst) have prime responsibility for managing the Kingfish portfolio. Together they have over 30 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.

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.

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 12.2m of its shares on market in the year to 31 October 2020

• » Shares bought back by the company are held as treasury stock

• » Shares held as treasury stock are available to be reissued 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

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.

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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

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

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