Kingfish Limited — Interim / Quarterly Report 2018

Jul 14, 2017

Monthly Update July 2017

Investing responsibly, investing wisely

Frank Jasper, director of Fisher Funds’, provides an update on the Manager’s enhanced Responsible Investing Policy.

New Zealand companies have some of the highest standards of corporate conduct in the world. Unfortunately not all companies are run to such high standards. At its most basic, that is why we have a responsible investing policy. We want to ensure that Kingfish invests in companies with conduct that we would all feel is appropriate.

As well as being the right thing to do, investing responsibly makes financial sense. Companies that take a long term perspective and act in the best interests of all stakeholders — the community, the environment, customers and shareholders — are more likely, in our view, to generate attractive long term returns.

We look at responsible investing in two ways — ‘avoiding the bad’ and ‘embracing the good’.

’Avoiding the bad’ ensures we don’t invest in companies that are poor performers from an environmental, social or corporate governance perspective.

We have, for some time, not invested in the tobacco industry or in companies that manufacture weapons that cause indiscriminate and disproportionate harm. The rationale for these exclusions is simple: these industries cause only harm and have no redeeming benefits.

New Zealand doesn’t have any listed weapons or tobacco companies but, as an example, we wouldn’t invest in a United States domiciled company like Textron which makes cluster munitions.

Freeport McMoran is an example of a company on our conduct exclusion list. Freeport, a mining company headquartered in the United States, has faced serious criticism over environmental practices at its Grasberg gold and copper mine in West Papua, Indonesia. The company has also been involved in widespread human rights abuses of the local indigenous populations.

Responsible investing is more than just excluding the worst companies, it also involves ‘embracing the good’. Whenever we look at a company, we have always looked at its financial performance, its strategy and the experience of its management team. We now also consider its performance through a responsible investing lens. This involves looking at how a company treats stakeholders, the environment and provides another view on the sustainability of its business model. Considering these factors, in addition to the traditional financial ones, gives us deeper insight into a business’s long term strategy, helps identify better quality companies and makes us better investors.

While New Zealand companies are rarely in the headlines for poor conduct, we are vigilant to ensure that this doesn’t change and catch us unaware. We believe that our responsible investing approach ensures that Kingfish will continue to generate attractive long term returns in a way you can feel good about. Investing responsibly is investing your money wisely.

We have recently gone one step further and added thermal coal producers to our list of product based exclusions. This is because of the impact of thermal coal on man-made climate change and the effect of particulate emissions on health.

Other than considering the goods and services a company produces we will also exclude companies that have exhibited widespread and severe corporate misbehaviour.

Frank Jasper Director, Fisher Funds

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as at 30 June 2017

Key Details as at 30 June 2017

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FUND TYPE Listed Investment Company
INVESTS IN Growing New Zealand companies
LISTING DATE 31 March 2004
FINANCIAL YEAR END 31 March
TYPICAL PORTFOLIO SIZE 15-25 stocks
INVESTMENT CRITERIA Long-term growth
PERFORMANCE Long-term growth of capital and
OBJECTIVE dividends
TAX STATUS Portfolio Investment Entity (PIE)
Fisher Funds Management
MANAGER
Limited
1.25% of gross asset value
(reduced by 0.10% for every 1% of
MANAGEMENT
FEE RATE underperformance relative to the
change in the NZ 90 Day Bank Bill
Index with a floor of 0.75%)
PERFORMANCE Changes in the NZ 90 Day Bank
FEE HURDLE Bill Index + 7%
15% of returns in excess of
PERFORMANCE FEE
benchmark and high water mark
HIGH WATER MARK $1.36 per share
SHARES ON ISSUE 188m
MARKET CAPITALISATION $243m
None (maximum permitted 20%
GEARING
of gross asset value)
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Sector Split

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CONSUMER
STAPLES
INFORMATION
TECHNOLOGY 3 [%]
3 [%] ENERGY
2 [%]
UTILITIES
HEALTHCARE
12 [%]
32 [%]
CONSUMER
DISCRETIONARY
13 [%] INDUSTRIALS
29 [%]
The Kingfish portfolio also holds cash.
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Performance

to 30 June 2017

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1 Month 3 Months 1 Year 3 Years 5 Years
(accumulated) (accumulated)
KFL Adjusted NAV +2.0% +3.1% +9.8% +36.5% +101.8%
Total Shareholder Return +1.5% +3.2% +6.2% +27.6% +112.7%
Gross Performance^ +2.2% +3.9% +12.6% +46.7% +136.0%
S&P/NZX50G Index +2.6% +5.8% +10.4% +48.0% +123.9%
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• ^ Gross of fees and tax and adjusting for capital management initiatives

• *Definitions of non-GAAP measures:

Adjusted Net Asset Value (Adjusted NAV)

The adjusted NAV per share represents the total assets of Kingfish (investments and cash) minus any liabilities (expenses and tax), divided by the number of shares on issue. It adds back dividends paid to shareholders and adjusts for:

• » the impact of shares issued under the dividend reinvestment plan at the discounted reinvestment price;

• » shares bought on-market (share buybacks) at a price different to the NAV, and;

• » warrants exercised at a price different to the NAV at the time exercised.

• Adjusted NAV assumes all dividends are reinvested in the company’s dividend reinvestment plan and excludes imputation credits.

Total Shareholder Return (TSR)

The TSR combines the share price performance, the warrant price performance (when warrants are on issue), the net value of converting warrants into shares and dividends paid to shareholders. TSR assumes:

• » all dividends paid are reinvested in the company’s dividend reinvestment plan at the discounted reinvestment price and exclude imputation credits, and;

• » all shareholders that have received warrants (for free), have subsequently exercised their warrants at the warrant expiry date and bought shares (if they were in the money).

• The directors believe this metric to be useful as it reflects the return of an investor who reinvests their dividends and, if in the money, exercises their warrants at warrant maturity date for additional shares. No metric has been included for investors who choose other investment options.

The directors believe this metric to be useful as it reflects the underlying performance of the investment portfolio adjusted for dividends, share buybacks and warrants, which are capital allocation decisions and not a reflection of the portfolio’s performance.

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Total Shareholder Return

to 30 June 2017

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Share Price Total Shareholder Return
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Share Price/Total Shareholder Return
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June’s Biggest Movers

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

RESTAURANT BRANDS FISHER & PAYKEL Z ENERGY VISTA GROUP MICHAEL HILL HEALTHCARE INTERNATIONAL +13[%] +8[%] +5[%] -5[%] -7[%]

5 Largest Portfolio Positions

as at 30 June 2017

FISHER & PAYKEL MAINFREIGHT FREIGHTWAYS INFRATIL RYMAN HEALTHCARE HEALTHCARE 13[%] 12[%] 9[%] 8[%] 8[%]

The remaining portfolio is made up of another 13 stocks and cash.

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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), Zoie Regan (Senior Investment Analyst) and Matt Peek (Investment Analyst) have prime responsibility for managing the Kingfish portfolio. Together they have over 40 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

• » This policy is well received by shareholders as it provides an attractive and regular return that is referable to the NAV

• » 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 7.7m of its shares on market in the year to 31 October 2017

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

• » Shares held as treasury stock are available to be re-issued for the dividend reinvestment plan and to pay performance fees

Warrants

• » Warrants put Kingfish in a better position to grow further, improve liquidity, 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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