REG - TempletonEmerg.Mkt. - Half-year Report
07/12/2023 16:00
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RNS Number : 0826W Templeton Emerging Markets IT PLC 07 December 2023
Templeton Emerging Markets Investment Trust PLC ("TEMIT" or "the Company")
Half Yearly Report to 30 September 2023
Legal Entity Identifier 5493002NMTB70RZBXO96
Company Overview
Launched in June 1989, Templeton Emerging Markets Investment Trust plc
("TEMIT" or the "Company") is an investment trust that invests principally in
emerging markets companies with the aim of delivering capital growth to
shareholders over the long term. While the majority of the Company's
shareholders are based in the UK, shares are traded on both the London and
New Zealand stock exchanges.
TEMIT has a diversified portfolio of around 80 high quality companies,
actively selected for their long-term growth potential and sustainable
earnings, and with due regard to Environmental, Social and Governance ("ESG")
attributes. TEMIT's research-driven investment approach and strong long-term
performance has helped it to grow to be the largest emerging markets
investment trust in the UK, with net assets of £1.9 billion as at 30
September 2023. From its launch to 30 September 2023, TEMIT's net asset value
("NAV") total return was +3,832.7% compared to the benchmark total return of
+1,698.1%.
The Company is governed by a Board of Directors who are committed to ensuring
that shareholders' best interests, considering the wider community of
stakeholders, are at the forefront of all decisions. Under the guidance of the
Chairman, the Board of Directors is responsible for the overall strategy of
the Company and monitoring its performance.
TEMIT at a glance
For the six months to 30 September 2023
Net asset value total return Share price total return((a)) MSCI Emerging Markets Interim dividend for
(cum-income)((a))
-1.6%
Index total return((a)(b))
the financial year 2024
-0.3%
(2022: -8.5%)
-0.5%
2.00p
(2022: -8.3%)
(2022: -7.4%)
(Interim dividend for the financial year 2023: 2.00p)
((a) ) A glossary of alternative performance measures is included
in the full Half Yearly Report.
((b) ) Source: MSCI. The Company's benchmark is the MSCI Emerging
Markets Index, with net dividends reinvested.
Chairman's Statement
Market overview and investment performance
Over the six months to 30 September 2023, TEMIT produced a small negative
total return of -0.3%((a)) which was marginally better than the benchmark
index's return of -0.5%((a)). In aggregate, emerging markets as measured by
the index have been less volatile than they were in our last financial year
but have not shown any meaningful progress, moving ahead for short periods
only to fall back again, particularly towards the end of the six-month period.
((a) ) A glossary of alternative performance measures is included
in the full Half Yearly Report.
Revenue and dividend
Net revenue earnings for the six months to 30 September 2023 amounted to 3.34
pence per share. It is too early to predict earnings for the full financial
year but, noting that TEMIT usually earns the majority of its revenue in the
first six months of its financial year, an unchanged interim dividend of
2.00 pence per share will be paid on 26 January 2024.
Share rating
The Board continues to encourage and support our managers in their active
programme of promoting TEMIT's shares to existing and potential investors via
a variety of traditional and online channels. We have long held the view that
marketing and promotion is an area to which a company should commit over the
long term. The Board was therefore very pleased to be the inaugural recipient
of the AIC's Consistent Communications Award. The award panel recognised that
TEMIT "has delivered a comprehensive strategy including advertising, PR and
social media to win over current and potential shareholders."
The discount remained under pressure during the period under review and we
were regularly active in buying back shares. A total of 23.9 million shares
were bought back at an average discount of 13.9%. This increased the NAV per
share by 0.3% for continuing shareholders.
The Board
We recently announced that Angus Macpherson had joined the Board as a
non-executive Director of the Company, with effect from 6 October 2023. Angus
is chief executive of Noble and Company (UK) Limited, an independent boutique
Scottish corporate finance business. He was based in Singapore and Hong Kong
between 1995 and 2004, latterly as head of capital markets and financing for
Merrill Lynch in Asia. He is currently Chairman of Pacific Horizon Investment
Trust, Henderson Diversified Income and a director of Schroder Japan Trust and
Hampden & Co. As a consequence of his appointment he intends to step down
from the Chair of Pacific Horizon as soon as a suitable successor can be
appointed.
The Board's intention is that Angus will take on the role of Chairman of the
Company on 1 January 2024. In the meantime, I will work closely with him to
ensure an effective handover of the role. As this will be my last formal
report, I would like to thank shareholders for their support and particularly
those shareholders who I have spoken to for their invaluable insights. I would
also like to thank the team at Franklin Templeton and all of the suppliers to
TEMIT for their considerable efforts over the last eight and a half years.
( )
Annual General Meeting
The Board was pleased to welcome shareholders to the AGM in July. All
resolutions at the AGM were duly carried by a large majority and I would like
to thank shareholders for their continuing support. I recognise that some
shareholders are unable to attend meetings in person and if you have any
questions, please send these by email to temitcosec@franklintempleton.com or
via www.temit.co.uk./investor/contact-us.
Continuation vote and the Conditional Tender Offer
At next year's AGM, TEMIT will hold its five yearly continuation vote. The 31
March 2024 financial year-end will also be the end of the five-year
measurement period for our Conditional Tender Offer, under which the Board has
undertaken to arrange a tender offer for up to 25% of the Company's shares if
the NAV total return underperforms that of the benchmark index over the
five-year period. For the four years and six months to the end of September,
the NAV total return was +14.0%, some 4.2 percentage points higher than that
of the comparator benchmark.
Outlook
The geopolitical and macroeconomic outlook remains difficult and investors are
clearly facing a number of headwinds. Managing investments for the long term
relies on an ability to see beyond the issues posed by wars in Ukraine and
Gaza, along with high inflation, and to focus on the long-term trends.
Notwithstanding the immediate challenges, with their extensive resources on
the ground and around the world, our managers are well equipped to deal with
this environment as they continue to focus on some of the world's most
interesting and dynamic companies.
The prospects for emerging markets remain compelling, with relatively high
levels of economic growth, young populations and increasing wealth. As I step
down from the Board I look to the future with optimism and I know that I leave
the Company in very capable hands.
Paul Manduca
Chairman
7 December 2023
Interim Management Report
Principal risks
The Company invests predominantly in the stock markets of emerging markets.
The principal categories of risks facing the Company, determined by the Board
and described in detail in the Strategic Report within the Annual Report and
Audited Accounts, are:
· Market;
· Geopolitical;
· Technology;
· Portfolio concentration;
· Sustainability and climate change;
· Foreign currency;
· Discount;
· Operational and custody;
· Key personnel; and
· Regulatory.
The Board has provided the Investment Manager with guidelines and limits for
the management of principal risks. The Board and Investment Manager are aware
that the economic challenges continue to be the key issue affecting investment
markets around the world, as well as the tensions between the United States
and China over trade and the Taiwan Strait. The ongoing Israel-Hamas conflict
also adds to existing geopolitical uncertainties, as do the continuing
ramifications of the Russian invasion of Ukraine. While pandemic risk is no
longer considered a top risk the Board remains mindful of the possibility of a
future pandemic and its potential impacts on the Company. There have been no
further changes to the principal and emerging risks reported in the Annual
Report and, in the Board's view, these risks are equally applicable to the
remaining six months of the financial year as they were to the six months
under review.
Related party transactions
There were no transactions with related parties during the period other than
the fees paid to the Directors and the AIFM.
Going concern
The Company's assets consist of equity shares in companies listed on
recognised stock exchanges and in most circumstances are realisable within a
short timescale. Having made suitable enquiries, including consideration of
the Company's objective, the nature of the portfolio, net current assets,
expenditure forecasts, the principal and emerging risks and uncertainties
described within the Annual Report, the Directors are satisfied that, assuming
that there will be a successful continuation vote at the 2024 AGM, the Company
has adequate resources to continue to operate as a going concern for the
period to 31 March 2025, which is at least 12 months from the date of approval
of these Financial Statements, and are satisfied that the going concern basis
is appropriate in preparing the Financial Statements.
Statement of Directors' Responsibilities
The Disclosure Guidance and Transparency Rules of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
Each of the Directors, who are listed in the full Half Yearly Report, confirms
that to the best of their knowledge:
(a) the condensed set of Financial Statements, for the period ended 30
September 2023, have been prepared in accordance with the UK adopted
International Accounting Standard (IAS) 34 "Interim Financial Reporting"; and
(b) the Half Yearly Report includes a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and a fair
review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
Financial Statements, and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period, and any changes in
the related party transactions described in the last Annual Report that could
do so.
The Half Yearly Report was approved by the Board on 7 December 2023 and the
above Statement of Directors' Responsibilities was signed on its behalf by
Paul Manduca
Chairman
7 December 2023
Investment Manager's Report
Review of performance
Emerging markets declined over the six months under review. The period started
positively, expectations of a turnaround for the technology sector and signs
of receding inflation in several countries were optimistic developments, but
this was somewhat affected by China's slow demand recovery and uncertainty
over US interest rates. A risk-off environment sparked by the US Federal
Reserve's forecast of higher-for-longer interest rate policy through 2024
affected market sentiment towards the end of the period. The MSCI Emerging
Markets Index returned -0.5% in the 6‑month period under review, whilst
TEMIT delivered a net asset value total return of -0.3% (all figures are total
return measured in sterling). Full details of TEMIT's performance can be found
in the full Half Yearly Report.
By region, Latin America saw an improvement in its general macroeconomic
environment. Equities in the EMEA region also rose. Volatility in energy
prices drove a mixed result for Middle Eastern equities, which were also
weighed down by a higher-for-longer interest rate environment in the US.
Emerging Asia declined. Stocks in China were amongst detractors as a
slower-than-expected recovery weighed. The technology-heavy countries of South
Korea and Taiwan grappled with slumping exports due to a slower recovery of
the semiconductor industry than investors had expected. However, an improving
long-term outlook for semiconductor stocks helped to limit losses for both
countries. India logged gains on improving macroeconomic indicators and robust
corporate earnings.
China was TEMIT's largest market exposure, although the portfolio remained
underweight relative to the benchmark. Chinese equities fell by more than 10%
in sterling terms over the six-month period. Concerns about the country's slow
consumption recovery and geopolitical tensions between China and the West
impacted investor sentiment. Its property sector woes, plagued by liquidity
worries and lack of demand, also continued into the reporting period, with the
weakness spreading to consumption-related stocks over worries about the impact
of weak property prices on consumer sentiment. These overshadowed early
signals of China's recovery from the release of better-than-expected
inflationary, credit and manufacturing data after some stimulus packages. We
do still see some upside in China; in particular the internet sector, to which
the portfolio has sizeable exposure, has adjusted to the new operating
environment as China eased its regulatory crackdown on the sector.
TEMIT's second-largest market position was in South Korea, where the portfolio
was overweight versus the benchmark. South Korean equities declined by more
than 1% during the reporting period, as the technology-heavy market continued
to struggle throughout the year on weakening demand for technology products,
including consumer electronics. However, an improving outlook for
semiconductor stocks, partially from increasing interest and ensuing optimism
around artificial intelligence ("AI") limited losses. South Korea is less
exposed to geopolitical risks as compared to China, and the country is home to
several companies which are expected to benefit from the secular trends of
digitalisation and decarbonisation, such as technology-related companies, and
firms in the value chain of electric vehicle ("EV") production.
The Taiwanese market also fell marginally, ending the reporting period with a
loss of more than 1%. The technology-heavy and export-oriented country
experienced a lower demand for its technology exports, which we view to be a
cyclical occurrence, but a demand uplift from AI benefitted Taiwanese
equities. TEMIT's allocation is slightly lower than the benchmark, with the
portfolio's exposure to the country largely attributable to the island's
semiconductor industry and TEMIT's largest portfolio holding which is Taiwan
Semiconductor Manufacturing Company ("TSMC"). Besides being an essential
component of electronic devices used in various industries spanning health
care, military systems and clean energy, the emergence of AI will drive
further demand for TSMC's advanced chips. We maintain a positive long-term
view on Taiwan's semiconductor industry.
India was TEMIT's fourth largest exposure at the end of September 2023. Indian
equities rose by 17% over the six-month period, benefitting from a moderating
inflationary environment, improving macroeconomic indicators and strong
corporate earnings. India has two growth drivers: strong domestic consumption
and infrastructure investments. Whilst higher energy prices remain a risk to
India's near-term outlook, the diversification of its power sources should
eventually ease pressure from imported energy and inflation in the long term.
We also believe that there are still pockets of reasonable and compelling
valuations, and there is still room for Indian equities to post further gains
based on improving earnings.
Equities in Brazil experienced some volatility in the beginning of the period,
but recovered strongly and ended the reporting period with double-digit gains.
Brazilian equities reacted favourably to improvements in its macroeconomic
environment, inflation reached a new 12-month low whilst a
stronger-than-expected GDP gave rise to an upward forecast of its full-year
GDP. The approval of its new fiscal framework and the subsequent commencement
of its rate-easing cycle overcame some negativity from concerns on changes to
its taxation regulations, which could potentially impact corporate earnings.
Investment strategy, portfolio changes and performance attribution
The following sections show how different investment factors (stocks, sectors,
and geographies) accounted for the Company's performance over the period. We
continue to emphasise that our investment process selects companies based on
their individual attributes and ability to generate risk-adjusted returns for
investors, rather than taking a high-level view of sectors, countries, or
geographic regions to determine our investment allocations.
Our investment style is centred on finding companies with long-term earnings
power and whose shares trade at a discount relative to our estimates of their
intrinsic worth and to other investment opportunities in the market. We also
pay close attention to risks.
We continue to utilise our research-based, active approach to help us to find
companies which have high standards of corporate governance, respect their
shareholder base, and understand the local intricacies that may determine
consumer trends and habits. Utilising our large team of analysts, we aim to
maintain close contact with the board and senior management of existing and
potential investments and believe in engaging constructively with our investee
companies.
All of these factors require us to conduct detailed analyses of potential
returns versus risks with a time horizon of typically five years or more.
Our well-resourced, locally based teams remain a key competitive advantage and
it has certainly been helpful being on the ground in the benchmark
heavyweights of China and India. This local presence allows us to understand
business models, competitive dynamics, and supply chain issues. We have also
managed to get insights into regulatory conversations and management
capabilities which are factored into our analysis. We view our locally based
teams, which are armed with vast knowledge of a country's macroeconomic issues
and views on-the-ground, as vital sources of input into the investment
process.
In the portfolio, we remain positioned in long-term themes including
consumption premiumisation, digitalisation, health care and technology. We
focus on companies reflecting our philosophy of owning good quality
businesses, with long-term repeatable earnings power and share prices at a
discount to intrinsic worth. We see high levels of leverage as a risk and
continue to avoid companies with weak balance sheets. We continue to embed
governance and sustainability factors into our fundamental bottom-up research
and remain active owners across our holdings. This involves integrating
Environmental, Social and Governance ("ESG") factors into our stock thesis,
engaging with investee companies on material ESG issues and actively voting on
behalf of our investors.
Performance attribution analysis %
Six months to 30 September 2023 2022 2021 2020 2019
Net asset value total return((a)) (0.3) (8.3) (7.5) 31.3 6.3
Expenses incurred((b)) 0.5 0.5 0.5 0.5 0.5
Gross total return((a)) 0.2 (7.8) (7.0) 31.8 6.8
Benchmark total return((a)) (0.5) (7.4) (1.0) 24.4 2.2
Excess return((a)) 0.7 (0.4) (6.0) 7.4 4.6
Stock selection 0.1 2.9 (4.3) 2.5 2.6
Sector allocation 0.4 (2.2) (1.4) 4.0 1.6
Currency (0.1) (1.1) (0.5) 0.5 0.4
Share buyback impact 0.3 0.1 0.0 0.3 0.2
Residual return((a)) 0.0 (0.1) 0.2 0.1 (0.2)
Total contribution 0.7 (0.4) (6.0) 7.4 4.6
Source: FactSet and Franklin Templeton.
((a) ) A glossary of alternative performance measures is included
in the full Half Yearly Report.
((b) ) Represents expenses incurred for the six months to 30
September 2023. Details of the annualised ongoing charges ratio are included
in the glossary of alternative performance measures in the full Half Yearly
Report.
Top 10 contributors to relative performance by security (%)((a))
Top contributors Country Sector Share price Contribution to
total return
portfolio relative
to MSCI Emerging
Markets Index
Petroleo Brasileiro Brazil Energy 86.2 1.1
POSCO((b)) South Korea Materials 66.5 0.6
Brilliance China Automotive((c)) China/Hong Kong Consumer Discretionary 50.3 0.5
Zomato India Consumer Discretionary 99.1 0.5
ICICI Bank India Financials 9.5 0.5
Yandex((b)(c)) Russia Communication Services - 0.4
Itaú Unibanco Brazil Financials 13.5 0.2
One 97 Communications((c)) India Financials 34.8 0.2
Samsung Life Insurance South Korea Financials 9.4 0.2
Cognizant Technology Solutions((c)(d)) United States Information Technology 13.4 0.2
((a) ) For the period 31 March 2023 to 30 September 2023.
((b) ) Security not held by TEMIT as at 30 September 2023.
((c) ) Security not included in the MSCI Emerging Markets Index as
at 30 September 2023.
((d) ) This security, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging markets.
Finishing higher over the six-month period were shares of Petroleo Brasileiro
("Petrobras"), a Brazilian energy company engaged in the exploration,
production, and distribution of oil and gas which was a strong contributor.
Its share price remained resilient throughout the period. The company
announced a new shareholder return policy and raised gasoline and diesel
prices, which alleviated some concerns regarding capital allocation and
pricing policy. An increase in oil prices towards the end of the quarter also
supported its share price.
POSCO, a South Korea-based steel product manufacturer with a diversified line
of steel products (including cold and hot rolled products) was also a strong
contributor. Its shares rallied in the later part of the period on optimism
around its battery materials business, where the company has materially raised
its longer-term targets. Whilst POSCO is one of the most efficient and cost
competitive steel makers globally, we observed that POSCO's strong stock
performance rose to a level above our assessment of its intrinsic value and
therefore sold our remaining holding in the period.
Brilliance China Automotive is a Chinese automotive manufacturer noted for its
association with German luxury car maker BMW. The company announced a special
dividend in the second quarter of 2023, which was a key driver of returns.
Top 10 detractors to relative performance by security (%)((a))
Top detractors Country Sector Share price Contribution
total return
to portfolio
relative
to MSCI
Emerging
Markets Index
Guangzhou Tinci Materials Technology China/Hong Kong Materials (37.9) (0.8)
Prosus((b)) China/Hong Kong Consumer Discretionary (16.6) (0.5)
Alibaba China/Hong Kong Consumer Discretionary (13.6) (0.4)
Samsung SDI South Korea Information Technology (32.0) (0.4)
Daqo New Energy China/Hong Kong Information Technology (34.7) (0.3)
China Resources Cement China/Hong Kong Materials (45.9) (0.3)
Genpact((b)(c)) United States Industrials (20.2) (0.3)
Uni-President China China/Hong Kong Consumer Staples (25.7) (0.3)
TSMC Taiwan Information Technology (5.1) (0.2)
Quanta Computer((d)) Taiwan Information Technology 175.7 (0.2)
((a) ) For the period 31 March 2023 to 30 September 2023.
((b) ) Security not included in the MSCI Emerging Markets Index as
at 30 September 2023.
((c) ) This security, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging markets.
((d) ) Security not held by TEMIT as at 30 September 2023.
Guangzhou Tinci Materials Technology is a China-based producer of electrolytes
for EV batteries. Slower growth in EV demand as well as higher competition
driven by an increase in industry capacity for electrolytes and declining
lithium prices have impacted the company's near-term performance. We remain
positive about the company's prospects as the robust demand for batteries
needed for EVs and energy storage-two of the fastest growing parts of the
global economy-should allow it to deliver strong earnings over the medium
term. The company is vertically integrated, and we believe it is cost
competitive.
An off-benchmark holding in Prosus, a leading global investment company and
the largest shareholder of Tencent, a Chinese technology company, was a key
detractor. Its share price tracked Tencent's, which declined in the period
alongside broader Chinese equities despite reporting resilient results.
Concerns over China's weak economic recovery also weighed on Tencent. However,
an announcement that Prosus will remove the cross-holding structure with
technology company Naspers (not a portfolio holding) managed to limit losses.
Another portfolio holding that detracted was Alibaba, a Chinese e-commerce
company providing brands and merchants the infrastructure to acquire and sell
to customers online. Its share price had been volatile over the period,
erasing gains from March from its organisational revamp. Its share price ended
lower on concerns of slower demand recovery, China's weak economic recovery
and uncertainty around the potential impact of a complete spin-off of its
cloud business. However, there were several uplifts to the stock price within
the period from better-than-expected quarterly results and policy support from
the Chinese government. We remain positive on the strength of its e-commerce
ecosystem and its ability to generate strong cash flows. The business has
adjusted to the new environment in China, and we expect the e-commerce
businesses of Alibaba to deliver steady growth.
Top contributors and detractors to relative performance by sector (%)((a))
Top contributors MSCI Contribution Top detractors MSCI Contribution
Emerging
to portfolio
Emerging
to portfolio
Markets Index
relative
Markets Index
relative
sector total
to MSCI
sector total
to MSCI
return
Emerging
return
Emerging
Markets Index
Markets Index
Communication Services (11.0) 0.8 Information Technology (0.5) (0.8)
Financials 5.6 0.5 Consumer Staples (3.1) (0.2)
Energy 21.3 0.5 Industrials (0.1) (0.2)
Health Care (2.0) 0.3 Consumer Discretionary (4.4) (0.2)
Materials (6.4) (0.2)
((a) ) For the period 31 March 2023 to 30 September 2023.
Favourable stock selection in the communication services, financials and
energy sectors added to TEMIT's performance relative to the benchmark index in
the period under review. Within the communication services sector, an
underweight allocation to Tencent, and an overweight allocation to NetEase,
one of the largest online games companies in China, helped to support returns.
The strong performance in the financials sector was led by an overweight
holding in India-based ICICI Bank, and Brazil-based Itaú Unibanco (a
Brazilian retail-focused bank providing a broad range of services such as
cards, loans and insurance). Our off-benchmark holding in One 97
Communications, a payment solutions and financial services provider in India,
also supported results within the financials sector. Petrobras was a key
contributor in the energy sector.
In contrast, stock selection in the information technology, consumer staples
and industrials sectors detracted relatively. Within the information
technology sector, the portfolio's positions in Samsung SDI (a South
Korea-based leading manufacturer of lithium-ion batteries), Daqo New Energy (a
China-based polysilicon manufacturer) and TSMC weighed on performance.
The detraction in the consumer staples sector was led by China-based instant
noodle and beverage manufacturer Uni-President China. In the industrials
sector, Genpact, a US-listed technology services company with significant
exposure to India, pressured returns.
Top contributors and detractors to relative performance by country (%)((a))
Top contributors MSCI Contribution Top detractors MSCI Contribution
Emerging
to portfolio
Emerging
to portfolio
Markets Index
relative
Markets Index
relative
country total
to MSCI
country total
to MSCI
return
Emerging
return
Emerging
Markets Index
Markets Index
Brazil 18.1 1.1 China/Hong Kong (10.2) (0.6)
South Korea (1.1) 0.7 India 17.1 (0.5)
Russia((b)(c)) - 0.4 Taiwan (1.1) (0.4)
South Africa (6.8) 0.1 Turkey((d)) 20.3 (0.1)
Chile (4.7) 0.1 Saudi Arabia((d)) 3.0 (0.1)
((a) ) For the period 31 March 2023 to 30 September 2023.
((b) ) All companies held by TEMIT in this country are fair valued
at zero as at 30 September 2023.
((c) ) No companies included in the MSCI Emerging Markets Index in
this country as at 30 September 2023.
((d) ) No companies held by TEMIT in this country as at 30
September 2023.
By markets, Brazil, South Korea, and South Africa were amongst contributors.
Besides Petrobras, several holdings in Brazil such as Itaú Unibanco and Banco
Bradesco helped relative returns. Brazilian equities benefitted from a broad
recovery, partially from positive sentiment from its new fiscal framework.
South Korea's contribution was led by POSCO, whilst South Africa's performance
was due to an underweight allocation.
Russia also contributed to relative returns. All Russian securities have been
valued at zero since 4 March 2022. However, during the first six months of the
financial year, an opportunity arose to dispose of TEMIT's holding in Yandex
(Russia's largest search engine, which also offers a wide range of other
online services in areas such as e-commerce) via an over-the-counter trade,
which led to Russia being a top contributor to relative performance. The two
remaining Russian securities, LUKOIL and Sberbank of Russia, continue to be
fair valued at zero at the period end.
Due to stock selection, China was the top detractor at a country level.
Several holdings in China such as Guangzhou Tinci Materials Technology and
Daqo New Energy pressured relative returns. India was the second-largest
detractor, as both stock selection and an underweight allocation to the
country dragged returns. Taiwan also detracted, largely due to stock
selection-TSMC led detractions in Taiwan.
Largest holdings
The largest portfolio holding is TSMC. The share price suffered in the last
few quarters due to demand weakness of some of its end customers.
Better-than-expected sales from AI-induced demand propped the share price up
at the beginning of the third quarter of 2023, but momentum declined after the
release of second-quarter results. A downward revision to its revenue forecast
for 2023 and a cautious near-term outlook weighed on the stock. News that TSMC
asked its major suppliers to delay high-end chipmaking equipment deliveries
also pressured the share price. Driven by structural growth in demand for
computing and its technology leadership, we remain confident in the resilience
of the TSMC business model.
The second largest portfolio holding is ICICI Bank, which rose on the back of
positive results for several quarters. The bank delivered strong profit growth
driven by loan growth, expansion in net interest income and continued low
credit costs. An uptick in the broader Indian equity market also helped. The
bank remains well positioned with its healthy capital adequacy ratios and
strong franchise.
Global semiconductor manufacturer Samsung Electronics was the third-largest
holding in the portfolio. Samsung Electronics also manufactures a wide range
of consumer and industrial electronics and equipment. Its share price has seen
some recovery after declining in 2022 on optimism around bottoming of the
memory cycle supported by supply cuts. An improvement in the outlook for
semiconductor stocks due to robust AI-driven demand for advanced chips also
fuelled the upward momentum of the stock.
Portfolio changes by sector
Total return in sterling
Sector 31 March 2023 Purchases Sales Market 30 September TEMIT MSCI
market value
£m
£m
movement
2023 market
%
Emerging
£m
£m
value
Markets Index
£m
%
Information Technology((a)) 517 70 (65) (28) 494 (3.7) (0.5)
Financials((a)) 484 92 (116) 25 485 7.3 5.6
Consumer Discretionary((a)) 272 17 (23) (24) 242 (5.5) (4.4)
Communication Services 198 7 (12) (10) 183 (4.5) (11.0)
Industrials((a)) 153 42 (24) (5) 166 (2.4) (0.1)
Materials 169 20 (58) (13) 118 (10.0) (6.4)
Health Care 60 18 - 2 80 5.4 (2.0)
Energy 49 - - 20 69 67.4 21.3
Consumer Staples 73 2 (7) (12) 56 (12.2) (3.1)
Utilities 9 - (1) 2 10 13.8 3.0
Real Estate 9 - - (2) 7 (15.8) (4.1)
Total investments 1,993 268 (306) (45) 1,910
((a)) One 97 Communications and Genpact were previously included
within Information Technology but have been reallocated to Financials and
Industrials, respectively. Astra International was previously included within
Consumer Discretionary and has been reallocated to Industrials. The
reallocations have been performed as a result of a change in the Global
Industry Classification Standard ("GICS") structure.
Portfolio changes by country
Total return in sterling
Country 31 March 2023 Purchases Sales Market 30 September TEMIT MSCI
market value
£m
£m
movement
2023 market
%
Emerging
£m
£m
value
Markets Index
£m
%
China/Hong Kong 616 89 (68) (93) 544 (12.7) (10.2)
South Korea 398 46 (71) 10 383 2.4 (1.1)
Taiwan 316 17 (37) (20) 276 (3.7) (1.1)
India 226 45 (50) 33 254 15.6 17.1
Brazil 155 6 (17) 26 170 27.1 18.1
Other 282 65 (63) (1) 283 - -
Total investments 1,993 268 (306) (45) 1,910
Portfolio investments by fair value
As at 30 September 2023
Holding Country Sector Trading((a)) Fair value % of net
£'000
assets
TSMC Taiwan Information Technology PS 197,753 10.2
ICICI Bank India Financials PS 107,486 5.6
Samsung Electronics South Korea Information Technology PS 107,078 5.5
Alibaba((b)) China/Hong Kong Consumer Discretionary NT 98,656 5.1
NAVER South Korea Communication Services IH 62,957 3.3
Petrobras((c)) Brazil Energy NT 62,039 3.2
Tencent China/Hong Kong Communication Services NT 59,544 3.1
Prosus((d)) China/Hong Kong Consumer Discretionary IH 52,341 2.7
LG South Korea Industrials PS 50,828 2.6
Samsung Life Insurance South Korea Financials IH 50,688 2.6
TOP 10 LARGEST INVESTMENTS 849,370 43.9
MediaTek Taiwan Information Technology PS 45,006 2.3
Itaú Unibanco((c)(e)) Brazil Financials PS 37,731 1.9
HDFC Bank India Financials IH 36,554 1.9
Techtronic Industries China/Hong Kong Industrials IH 34,581 1.8
Grupo Financiero Banorte Mexico Financials NH 34,537 1.8
Banco Bradesco((c)(e)) Brazil Financials PS 34,445 1.8
China Merchants Bank China/Hong Kong Financials PS 33,752 1.7
Genpact((f)) United States Industrials IH 33,597 1.7
Baidu China/Hong Kong Communication Services IH 32,941 1.7
WuXi Biologics China/Hong Kong Health Care IH 32,110 1.7
TOP 20 LARGEST INVESTMENTS 1,204,624 62.2
Samsung SDI South Korea Information Technology IH 31,470 1.6
Cognizant Technology Solutions((f)) United States Information Technology PS 30,367 1.6
Vale Brazil Materials NT 29,662 1.5
Infosys Technologies India Information Technology IH 25,853 1.3
Guangzhou Tinci Materials Technology China/Hong Kong Materials PS 25,730 1.3
Kasikornbank Thailand Financials IH 24,573 1.3
Unilever((f)) United Kingdom Consumer Staples PS 23,828 1.2
Gedeon Richter Hungary Health Care IH 22,864 1.2
Soulbrain South Korea Materials PS 22,832 1.2
Brilliance China Automotive China/Hong Kong Consumer Discretionary PS 22,370 1.2
TOP 30 LARGEST INVESTMENTS 1,464,173 75.6
Ping An Insurance China/Hong Kong Financials NT 22,207 1.1
NetEase China/Hong Kong Communication Services PS 19,738 1.0
Hon Hai Precision Industry Taiwan Information Technology IH 19,517 1.0
Doosan Bobcat South Korea Industrials PS 17,874 0.9
Banco Santander Chile((e)) Chile Financials NT 17,319 0.9
One 97 Communications India Financials NT 16,859 0.9
Meituan China/Hong Kong Consumer Discretionary NT 15,362 0.8
Bajaj Holdings & Investments India Financials PS 15,192 0.8
Federal Bank India Financials NH 15,010 0.8
Uni-President China China/Hong Kong Consumer Staples NT 14,877 0.8
TOP 40 LARGEST INVESTMENTS 1,638,128 84.6
Astra International Indonesia Industrials PS 14,513 0.7
Netcare South Africa Health Care IH 13,906 0.7
Yageo Taiwan Information Technology IH 13,380 0.7
Daqo New Energy((e)) China/Hong Kong Information Technology NT 13,332 0.7
Zomato India Consumer Discretionary PS 13,226 0.7
ACC India Materials NH 12,635 0.7
Fila South Korea Consumer Discretionary PS 12,497 0.7
LegoChem Biosciences South Korea Health Care IH 11,350 0.6
Emirates Central Cooling Systems United Arab Emirates Utilities NT 10,116 0.5
Intercorp Financial Services Peru Financials NT 9,515 0.5
TOP 50 LARGEST INVESTMENTS 1,762,598 91.1
Thai Beverage Thailand Consumer Staples IH 9,015 0.5
Ping An Bank China/Hong Kong Financials NT 9,004 0.5
Wizz Air Holdings Hungary Industrials NH 8,984 0.5
BDO Unibank Philippines Financials NT 8,534 0.4
Haier Smart Home China/Hong Kong Consumer Discretionary NH 7,919 0.4
H&H Group China/Hong Kong Consumer Staples IH 7,905 0.4
Beijing Oriental Yuhong Waterproof Technology China/Hong Kong Materials NT 7,780 0.4
Kiatnakin Phatra Bank Thailand Financials NT 6,833 0.4
Star Petroleum Refining Thailand Energy NT 6,593 0.3
Hindalco Industries India Materials NH 6,496 0.3
TOP 60 LARGEST INVESTMENTS 1,841,661 95.2
Tencent Music Entertainment((e)) China/Hong Kong Communication Services NT 6,324 0.3
China Resources Cement China/Hong Kong Materials NT 6,276 0.3
LG Chem South Korea Materials NT 6,139 0.3
TOTVS Brazil Information Technology IH 6,073 0.3
COSCO SHIPPING Ports China/Hong Kong Industrials PS 5,521 0.3
PB Fintech India Financials PS 4,745 0.2
China Resources Land China/Hong Kong Real Estate NT 4,439 0.2
NagaCorp Cambodia Consumer Discretionary IH 4,309 0.2
L&F South Korea Information Technology NH 3,739 0.2
Hankook Tire South Korea Consumer Discretionary NT 3,659 0.2
TOP 70 LARGEST INVESTMENTS 1,892,885 97.7
Nemak Mexico Consumer Discretionary NT 3,545 0.2
Chervon Holdings China/Hong Kong Consumer Discretionary IH 3,139 0.2
Greentown Service Group China/Hong Kong Real Estate NT 2,928 0.2
BAIC Motor China/Hong Kong Consumer Discretionary NT 2,371 0.1
Weifu High-Technology China/Hong Kong Consumer Discretionary NT 1,634 0.1
KT Skylife South Korea Communication Services NT 1,584 0.1
JD.com China/Hong Kong Consumer Discretionary NT 1,384 0.1
East African Breweries Kenya Consumer Staples NT 552 0.0
LUKOIL((g)) Russia Energy NT 0.0 0.0
Sberbank of Russia((g)) Russia Financials NT 0.0 0.0
TOP 80 LARGEST INVESTMENTS 1,910,022 98.7
TOTAL INVESTMENTS 1,910,022 98.7
NET ASSETS 25,544 1.3
TOTAL NET ASSETS 1,935,566 100.0
((a)) Trading activity during the year: (NH) New Holding, (IH)
Increased Holding, (PS) Partial Sale and (NT) No Trading.
((b) ) TEMIT holds in this company shares listed on the Hong Kong
stock exchange and American Depository Receipts listed on the New York stock
exchange.
((c) ) Preferred shareholders are entitled to dividends before
ordinary shareholders.
((d)) This company is listed in the Netherlands. The classification of
China/Hong Kong is due to most of its revenue coming from its holding in
Tencent.
((e) ) US listed American Depository Receipt.
((f) ) This company, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging markets.
((g) ) This company is fair valued at zero as a result of its
trading being suspended on international stock exchanges.
Portfolio summary
As at 30 September 2023
All figures are a % of the net assets
Communication Consumer Consumer Energy Financials Health Care Industrials Information Materials Real Estate Utilities Total Equities Net assets((a)) 30 September 31 March 2023
Services
Discretionary
Staples
Technology
2023 Total
Total
Brazil - - - 3.2 3.7 - - 0.3 1.5 - - 8.7 - 8.7 7.6
Cambodia - 0.2 - - - - - - - - - 0.2 - 0.2 0.3
Chile - - - - 0.9 - - - - - - 0.9 - 0.9 0.8
China/Hong Kong 6.1 10.7 1.2 - 3.3 1.7 2.1 0.7 2.0 0.4 - 28.2 - 28.2 30.3
Hungary - - - - - 1.2 0.5 - - - - 1.7 - 1.7 1.0
India - 0.7 - - 10.2 - - 1.3 1.0 - - 13.2 - 13.2 11.2
Indonesia - - - - - - 0.7 - - - - 0.7 - 0.7 0.9
Kenya - - 0.0 - - - - - - - - 0.0 - 0.0 0.1
Mexico - 0.2 - - 1.8 - - - - - - 2.0 - 2.0 1.5
Pakistan - - - - - - - - - - - - - - 0.1
Peru - - - - 0.5 - - - - - - 0.5 - 0.5 0.5
Philippines - - - - 0.4 - - - - - - 0.4 - 0.4 0.4
Russia((b)) - - - 0.0 0.0 - - - - - - 0.0 - 0.0 0.0
South Africa - - - - - 0.7 - - - - - 0.7 - 0.7 0.6
South Korea 3.4 0.9 - - 2.6 0.6 3.5 7.3 1.5 - - 19.8 - 19.8 19.8
Taiwan - - - - - - - 14.2 - - - 14.2 - 14.2 15.8
Thailand - - 0.5 0.3 1.7 - - - - - - 2.5 - 2.5 2.4
United Arab Emirates - - - - - - - - - - 0.5 0.5 - 0.5 0.5
United Kingdom - - 1.2 - - - - - - - - 1.2 - 1.2 1.6
United States - - - - - - 1.7 1.6 - - - 3.3 - 3.3 3.4
Net assets((a)) - - - - - - - - - - - - 1.3 1.3 1.2
30 September 2023 Total 9.5 12.7 2.9 3.5 25.1 4.2 8.5 25.4 6.0 0.4 0.5 98.7 1.3 100.0 -
31 March 2023 Total((c)) 9.8 13.3 3.6 2.4 23.8 3.0 7.7 25.8 8.5 0.4 0.5 98.8 1.2 - 100.0
((a)) The Company's net assets are the total of net current assets
plus non-current liabilities per the Statement of Financial Position in the
full Half Yearly Report.
((b)) All companies held by TEMIT in this country are fair valued at
zero.
((c)) One 97 Communications and Genpact were previously included
within Information Technology but have been reallocated to Financials and
Industrials, respectively. Astra International was previously included within
Consumer Discretionary and has been reallocated to Industrials. The
reallocations have been performed as a result of a change in the GICS
structure.
Market capitalisation breakdown (%) Less than £1.5bn to £5bn to Greater than Net assets((a))
£1.5bn
£5bn
£25bn
£25bn
30 September 2023 5.2 9.3 29.5 54.7 1.3
31 March 2023 5.1 11.2 22.9 59.6 1.2
Split between markets((b)) (%) 30 September 31 March
2023
2023
Emerging markets 94.0 93.3
Developed markets((c)) 4.5 5.0
Frontier markets 0.2 0.5
Net assets((a)) 1.3 1.2
Source: FactSet Research System, Inc.
((a)) The Company's net assets are the total of net current assets
plus non-current liabilities per the Statement of Financial Position in the
full Half Yearly Report.
((b)) Geographic split between "Emerging markets", "Frontier markets",
"Developed markets" are as per MSCI index classifications.
((c)) Developed market exposure represented by companies listed in
United Kingdom and United States which have significant exposure to operations
from emerging markets.
Environmental, Social and Governance
We continue to embed governance and sustainability factors into our
fundamental bottom-up research and remain active owners across our holdings.
This involves integrating ESG factors into our stock thesis, engaging with
investee companies on material ESG issues and actively voting on behalf of our
investors. In addition, we monitor the potential ESG characteristics that may
be exhibited by our investee companies, including TEMIT's portfolio carbon
footprint where our portfolio managers seek to understand the carbon risk
profile. We provide below a short summary of our process over the six-month
period under review.
Integrating ESG factors
A case study example of integrating ESG factors is Federal Bank, whose shares
were purchased during the six months under review. Federal Bank is a mid-sized
regional private sector bank in India. The company has amongst the strongest
liability franchises within mid-sized banks due to its strong presence in
Kerala and aided by traction amongst the non-resident Kerala population
working in the Middle East. Looking at the ESG practices of the company, we
first highlight that despite it being a mid-sized bank, the company is board
driven, and has a management team that is well respected. We noted no material
past controversies and business practices focused on risk management and
disciplined capital management. The company has board approved environment and
social management systems ("ESMS") in place to incorporate environmental and
social risk considerations into financing activities as part of its credit
risk governance. Finally, the company has a stated framework around
cybersecurity, compliant with external certifications/standards (e.g., ISO
27001 certificate for critical IT areas) and no reported instances of
cybersecurity breaches over the past few years. We believe the company is well
positioned to manage its exposure to material operational ESG issues.
Climate change
Note we prefer to commentate around the WACI metric as it provides a
measurement of the carbon intensity of businesses, normalises for company size
and allows us to compare companies against each other, helping to determine
the portfolio's exposure to potential carbon related risks.
The TEMIT Portfolio Carbon Emissions are 30% lower (31 March 2023: 23% lower)
than the MSCI Emerging Markets benchmark, Carbon Intensity is 20% lower (31
March 2023: 10% lower) and Weighted Average Carbon Intensity is 31% lower (31
March 2023: 38% lower). The portfolio carbon exposure is concentrated amongst
a small number of companies, with the top five companies in terms of carbon
intensity representing 2.7% of the portfolio by value and accounting for 62.4%
of the total portfolio WACI.
Over the six-month period, the portfolio's carbon footprint remained stable
with some changes in both positioning as well as updates in emissions data for
a few companies contributing to this. The purchase of ACC, an update by MSCI
to estimated emissions data (previously not covered) for Emirates Central
Cooling Systems and a change from estimated to reported emissions data for
Daqo New Energy by MSCI, added to the portfolio WACI. The reduction in ending
weight for China Resources Cement, and sale of POSCO helped offset some of the
impact on the portfolio WACI.
As at 30 September 2023, China Resources Cement is the company with the
largest carbon intensity, contributing 16.7% to the total portfolio WACI. We
believe that the company is managing its emissions profile well and, looking
forward, the company is seeking to improve its carbon emissions management
further through the use of solar, carbon capture, usage and storage ("CCUS"),
and alternative fuels. They have also set 2025 targets around their absolute
carbon emissions and carbon intensity, with the long-term aim to achieve
carbon neutrality by 2060. We are willing to invest in companies in
carbon-intensive sectors, such as cement, steel and extractive industries. Our
engagement with these companies focuses on their intention to decarbonise and
any incremental improvements they are making to reach these goals. These views
are integrated into our investment views.
Active ownership
As investors with a significant presence in emerging markets, our investment
team's active ownership efforts are a key part of the overall approach to
stewardship. Over the six-month period, we have engaged with select investee
companies on material governance and sustainability issues, as well as
executing on our proxy voting policy on behalf of our shareholders. For
example, in April 2023, we spoke to the CEO of Gedeon Richter regarding their
capital allocation activities, new board structure, and how they expect to
improve disclosure on specific areas within their remuneration policy such as
key KPIs. The CEO was very transparent regarding the higher capital return in
2023, rationale behind first ever share buyback and their intentions. The
company is in contact with key shareholders on best practice and we believe
the company's intentions to improve corporate governance are promising.
We also voted against a proposal to approve the remuneration report at
Unilever. We voted against this proposal as the incoming CEO's salary has been
set higher than his predecessor's and is significantly higher than his
current salary and those at UK market peers. The company has not provided a
compelling justification for this remuneration package. We continue to use our
voting power as a signal to management on important issues raised through
voting ballots. We believe that our engagement and proxy voting efforts are
key in understanding our companies better and improving outcomes for
shareholders as well as stakeholders more broadly.
We will be sharing a more detailed account of our stewardship practices in the
next Annual Report and dedicated Stewardship Report.
Outlook for emerging markets
Emerging markets have been volatile due to fears of higher interest rates
lasting for longer. Long-term yields have now started to come off, which
should be positive for the emerging markets asset class. A few emerging
markets economics, such as Brazil, have already started to cut their interest
rates. The onset of an easing cycle in selected countries tilts the balancing
act of tackling inflation yet pursuing economic growth. The impact of a rate
cut is positive for overall consumption as well as for financing costs for
companies which should also spur investments.
Besides rate cuts, other long-term opportunities abound in emerging markets.
The increasingly popular China+1 strategy, where global manufacturers
establish an additional overseas production base in China plus one other
country, stands to benefit India, Mexico and several other Association of
Southeast Asian Nations ("ASEAN") economies.
Another longstanding theme is the transition to a greener future. Asia is home
to well-run companies in the electric vehicle and solar equipment segment. The
structural theme of electrical vehicles has seen a short-term slowdown
impacted by slower growth and concerns of oversupply. We believe that the
long-term structural growth opportunities for these sectors remain intact
supported by national commitments underpinning energy transition to a cleaner
environment.
The recovery of demand in China has been tepid and low birth rates and
difficulties in the property sector pose further long-term challenges to its
growth trajectory. Whilst government policy has become more supportive, we are
cognisant that more substantive policies and a rebound in consumer activity is
a prerequisite for a recovery in Chinese equities. We remain watchful for such
developments. China's internet sector, which forms a large part of the index,
has already adjusted to the new policy and demand environment. We expect
future returns for the sector to be driven more by steady cash flow generation
and corporate actions.
The semiconductor cycle has remained weak due to slower demand. With the
emerging popularity of AI, there has been a demand uplift that primarily
benefits companies within the value chain. In the portfolio, our holdings in
TSMC and Samsung Electronics are direct beneficiaries of AI-driven demand. In
India, information technology services have been impacted by a slowdown in
discretionary spending. Nevertheless, cost takeout deals-deals aimed at saving
costs-have been strong.
Amidst an uncertain macroeconomic environment, we continue to retain a
bottom-up focus on research. We believe that the long-term fundamentals for
emerging markets remain attractive despite near term headwinds, and that
equities offer good potential for investors. We believe that breadth of
opportunities, growth, innovation and stronger institutional resilience
together create an attractive future for emerging markets.
Chetan Sehgal
Lead Portfolio Manager
7 December 2023
Independent Review Report
to the members of Templeton Emerging Markets Investment Trust plc
Conclusion
We have been engaged by Templeton Emerging Markets Investment Trust plc ('the
Company') to review the condensed set of Financial Statements in the Half
Yearly Report for the six months ended 30 September 2023 which comprises the
Statement of Comprehensive Income, Statement of Financial Position, Statement
of Changes in Equity, Statement of Cash Flows, and related notes 1-9. We have
read the other information contained in the Half Yearly Report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of Financial Statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of Financial Statements in the Half Yearly
Report for the six months ended 30 September 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual Financial Statements of the Company are
prepared in accordance with UK adopted international accounting standards. The
condensed set of Financial Statements included in this Half Yearly Report has
been prepared in accordance with UK adopted International Accounting Standard
34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Half Yearly Report in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the Half Yearly Report, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half Yearly Report, we are responsible for expressing to the
Company a conclusion on the condensed set of Financial Statements in the Half
Yearly Report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
7 December 2023
Financial Statements
Statement of Comprehensive Income
For the six months to 30 September 2023
For the six months to For the six months to Year ended
30 September 2023
30 September 2022
31 March 2023
(unaudited)
(unaudited)
(audited)
Note Revenue Capital £'000 Total Revenue £'000 Capital Total Revenue £'000 Capital £'000 Total
£'000
£'000
£'000
£'000
£'000
Net losses on investments and foreign exchange
Net losses on investments at fair value - (44,956) (44,956) - (215,485) (215,485) - (54,645) (54,645)
Net losses on foreign exchange - (649) (649) - (69) (69) - (442) (442)
Income
Dividends 2 42,180 6,560 48,740 55,693 - 55,693 77,463 8,431 85,894
Other income 3,278 - 3,278 877 - 877 3,088 - 3,088
45,458 (39,045) 6,413 56,570 (215,554) (158,984) 80,551 (46,656) 33,895
Expenses
AIFM fee((a)) (2,580) (6,019) (8,599) (2,674) (6,239) (8,913) (5,232) (12,209) (17,441)
Other expenses (821) - (821) (985) - (985) (1,979) - (1,979)
(3,401) (6,019) (9,420) (3,659) (6,239) (9,898) (7,211) (12,209) (19,420)
Profit/(loss) before finance costs and taxation 42,057 (45,064) (3,007) 52,911 (221,793) (168,882) 73,340 (58,865) 14,475
Finance costs((a)) (389) (909) (1,298) (550) (1,285) (1,835) (962) (2,239) (3,201)
Profit/(loss) before taxation 41,668 (45,973) (4,305) 52,361 (223,078) (170,717) 72,378 (61,104) 11,274
Tax expense 6 (3,338) (4,291) (7,629) (3,448) (3,130) (6,578) (5,520) (3,232) (8,752)
Profit/(loss) for the period 38,330 (50,264) (11,934) 48,913 (226,208) (177,295) 66,858 (64,336) 2,522
Profit/(loss) attributable to equity holders of the Company 38,330 (50,264) (11,934) 48,913 (226,208) (177,295) 66,858 (64,336) 2,522
Earnings per share 3 3.34p (4.37)p (1.03)p 4.16p (19.25)p (15.09)p 5.72 p (5.50)p 0.22p
((a)) 70% of the annual Alternative Investment Fund Manager ("AIFM")
fee and 70% of the finance costs have been allocated to the capital account.
Under the Company's Articles of Association the capital element of return is
not distributable.
The total column of this statement represents the profit and loss account of
the Company.
The accompanying notes are an integral part of the Financial Statements.
Statement of Financial Position
As at 30 September 2023
Note As at As at As at
30 September
30 September
31 March
2023
2022
2023
(unaudited)
(unaudited)
(audited)
£'000
£'000
£'000
Non-current assets
Investments at fair value through profit or loss 1,910,022 1,860,514 1,992,775
Current assets
Trade and other receivables 10,622 8,190 7,886
Cash and cash equivalents 130,722 167,115 132,988
Total current assets 141,344 175,305 140,874
Current liabilities
Other payables (3,902) (53,875) (6,402)
Total current liabilities (3,902) (53,875) (6,402)
Net current assets 137,442 121,430 134,472
Non-current liabilities
Capital gains tax provision (11,898) (10,183) (9,744)
Other payables falling due after more than one year (100,000) (100,000) (100,000)
Total assets less liabilities 1,935,566 1,871,761 2,017,503
Share capital and reserves
Equity Share Capital 4 61,955 63,515 63,148
Capital Redemption Reserve 20,714 19,154 19,521
Capital Reserve 1,286,949 1,221,595 1,372,654
Special Distributable Reserve 433,546 433,546 433,546
Revenue Reserve 132,402 133,951 128,634
Equity Shareholders' Funds 1,935,566 1,871,761 2,017,503
Net asset value pence per share((a)) 170.5 160.5 174.1
((a) ) Based on shares in issue excluding shares held in treasury.
Statement of Changes in Equity
For the six months to 30 September 2023 (unaudited)
Note Equity Share Capital Capital Special Revenue Total
Capital
Redemption
Reserve
Distributable
Reserve
£'000
£'000
Reserve
£'000
Reserve
£'000
£'000
£'000
Balance at 31 March 2022 64,136 18,533 1,466,197 433,546 117,978 2,100,390
(Loss)/profit for the period - - (226,208) - 48,913 (177,295)
Equity dividends 5 - - - - (32,940) (32,940)
Purchase and cancellation of own shares 4 (621) 621 (18,394) - - (18,394)
Balance at 30 September 2022 63,515 19,154 1,221,595 433,546 133,951 1,871,761
Profit for the period - - 161,872 - 17,945 179,817
Equity dividends 5 - - - - (23,262) (23,262)
Purchase and cancellation of own shares 4 (367) 367 (10,813) - - (10,813)
Balance at 31 March 2023 63,148 19,521 1,372,654 433,546 128,634 2,017,503
(Loss)/profit for the period - - (50,264) - 38,330 (11,934)
Equity dividends 5 - - - - (34,562) (34,562)
Purchase and cancellation of own shares 4 (1,193) 1,193 (35,441) - - (35,441)
Balance at 30 September 2023 61,955 20,714 1,286,949 433,546 132,402 1,935,566
Statement of Cash Flows
For the six months to 30 September 2023
For the For the For the
six months to
six months to
year to
30 September
30 September
31 March
2023
2022
2023
(unaudited)
(unaudited)
(audited)
£'000
£'000
£'000
Cash flows from operating activities
(Loss)/profit before taxation (4,305) (170,717) 11,274
Adjustments to reconcile (loss)/profit before taxation to cash used in
operations:
Bank and deposit interest income recognised (3,266) (873) (3,082)
Dividend income recognised (48,740) (55,693) (85,894)
Finance costs 1,298 1,835 3,201
Net losses on investments at fair value 44,956 215,485 54,645
Net losses on foreign exchange 649 69 442
Decrease/(increase) in debtors 13 (52) 12
Decrease in creditors (4) (210) (310)
Cash used in operations (9,399) (10,156) (19,712)
Bank and deposit interest received 3,266 873 3,082
Dividends received 49,274 59,855 86,727
Bank overdraft interest paid - - (2)
Tax paid (5,457) (3,244) (5,971)
Net realised (losses)/gains on foreign currency cash and cash equivalents((a)) (355) 548 179
Net cash inflow from operating activities((a)) 37,329 47,876 64,303
Cash flows from investing activities
Purchases of non-current financial assets (271,085) (214,314) (465,539)
Sales of non-current financial assets((a)) 302,151 262,009 548,504
Net cash inflow from investing activities((a)) 31,066 47,695 82,965
Cash flows from financing activities
Equity dividends paid (34,562) (32,940) (56,202)
Purchase and cancellation of own shares (34,831) (19,677) (30,453)
Repayment of revolving credit facility - - (50,000)
Interest and fees paid on bank loans (1,276) (1,687) (3,457)
Net cash outflow from financing activities (70,669) (54,304) (140,112)
Net (decrease)/increase in cash((a)) (2,274) 41,267 7,156
Cash at the start of the period 132,988 125,855 125,855
Net unrealised gains/(losses) on foreign currency cash and cash 8 (7) (23)
equivalents((a))
Cash at the end of the period 130,722 167,115 132,988
((a) ) Net unrealised gains/(losses) on cash and cash equivalents
have been shown separately as part of the reconciliation of cash and cash
equivalents. Net realised losses arising from cash and cash equivalents have
been allocated to the corresponding cash flow activities to which they relate.
Comparative figures for the period ended 30 September 2022 have been updated
for the consistency of the presentation in line with IAS 8 requirements.
Reconciliation of liabilities arising from bank loans
Liabilities Cash flows Profit & Loss Liabilities
as at
£'000
£'000
as at
31 March
30 September
2023
2023
£'000
£'000
Revolving credit facility - - - -
Interest and fees payable - (241) 241 -
Fixed term loan 100,000 - - 100,000
Interest and fees payable 343 (1,035) 1,057 365
Total liabilities from bank loans 100,343 (1,276) 1,298 100,365
Liabilities Cash flows Profit & Loss Liabilities
as at
£'000
£'000
as at
31 March
30 September
2022
2022
£'000
£'000
Revolving credit facility 50,000 - - 50,000
Interest and fees payable 249 (662) 794 381
Fixed term loan 100,000 - - 100,000
Interest and fees payable 352 (1,025) 1,041 368
Total liabilities from bank loans 150,601 (1,687) 1,835 150,749
Liabilities Cash flows Profit & Loss Liabilities
as at
£'000
£'000
as at
31 March
31 March
2022
2023
£'000
£'000
Revolving credit facility 50,000 (50,000) - -
Interest and fees payable 249 (1,351) 1,102 -
Fixed term loan 100,000 - - 100,000
Interest and fees payable 352 (2,106) 2,097 343
Total liabilities from bank loans 150,601 (53,457) 3,199 100,343
Notes to the Financial Statements
For the six months to 30 September 2023
1 Basis of preparation
The Half Yearly Report for the six months to 30 September 2023 has been
prepared in accordance with the UK adopted International Accounting Standard
("IAS") 34 "Interim Financial Reporting".
The Company has adopted the Statement of Recommended Practice ("SORP") for
investment trusts issued by the Association of Investment Companies ("AIC")
and updated in July 2022 insofar as the SORP is compatible with UK adopted
International Accounting Standards. The accounting policies applied in these
half yearly Financial Statements are consistent with those applied in the
Company's Financial Statements for the year ended 31 March 2023 and have been
applied consistently to all periods presented in these interim Financial
Statements.
The financial information contained in this interim statement does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The financial information for the half years ended 30 September 2023 and
30 September 2022 has not been audited. The figures and financial information
for the year ended 31 March 2023 are extracted from the published accounts and
do not constitute the statutory accounts for that period. Those accounts have
been delivered to the Registrar of Companies and included the Report of the
Independent Auditors, which was unqualified and did not include a statement
under sections 498(2) or 498(3) of the Companies Act 2006.
As at 30 September 2023, the Company had net current assets of £137,442,000
(31 March 2023: net current assets £134,472,000). The Directors have a
reasonable expectation that the Company has sufficient resources to continue
in operational existence for the period to 31 March 2025, which is at least 12
months from the date of approval of these Financial Statements. Accordingly
the Financial Statements have been prepared on a going concern basis.
2 Income
The Company received special dividends amounting to £7.7 million (30
September 2022: £1.6 million) of which £6.6 million was classified as
capital, representing a second pay out of net proceeds from the disposal of a
25% equity interest in Brilliance China Automotive's joint venture with BMW,
and £1.1 million was classified as revenue (30 September 2022: £nil and
£1.6 million respectively).
3 Earnings per share
For the For the For the
six months to
six months to
year to
30 September
30 September
31 March
2023
2022
2023
£'000
£'000
£'000
Revenue profit 38,330 48,913 66,858
Capital loss (50,264) (226,208) (64,336)
Total (11,934) (177,295) 2,522
Weighted average number of shares in issue 1,149,158,447 1,175,330,868 1,169,095,903
Revenue profit per share 3.34p 4.16p 5.72p
Capital loss per share (4.37)p (19.25)p (5.50)p
Total (loss)/profit per share (1.03)p (15.09)p 0.22p
4 Equity share capital
For the six months to For the six months to For the year to
30 September 2023
30 September 2022
31 March 2023
Ordinary shares in issue £'000 Number £'000 Number £'000 Number
Opening ordinary shares of 5 pence 57,957 1,159,138,372 58,945 1,178,896,985 58,945 1,178,896,985
Purchase and cancellation of own shares (1,193) (23,862,295) (621) (12,413,292) (988) (19,758,613)
Closing ordinary shares of 5 pence 56,764 1,135,276,077 58,324 1,166,483,693 57,957 1,159,138,372
For the six months to For the six months to For the year to
30 September 2023
30 September 2022
31 March 2023
Ordinary shares held in treasury £'000 Number £'000 Number £'000 Number
Opening ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895 5,191 103,825,895
Closing ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895 5,191 103,825,895
Total ordinary shares in issue and held in treasury at the end of the period 61,955 1,239,101,972 63,515 1,270,309,588 63,148 1,262,964,267
In the six months to 30 September 2023, 23,862,295 shares were bought back for
cancellation for a total consideration of £35,441,000 (30 September 2022:
12,413,292 shares were bought back for cancellation for a total consideration
of £18,394,000). All shares bought back in the period were cancelled, with
none being placed in treasury (30 September 2022: no shares were placed into
treasury).
5 Dividends
For the six months For the six months For the year
to 30 September
to 30 September
to 31 March
2023
2022
2023
Rate £'000 Rate £'000 Rate £'000
(pence)
(pence)
(pence)
Declared and paid during the period:
Dividend on shares:
Final dividends for the years ended 31 March 2023 and 31 March 2022 3.00 34,562 2.80 32,940 2.80 32,940
Interim dividend for the six months ended 30 September 2022 - - - - 2.00 23,262
Total 3.00 34,562 2.80 32,940 4.80 56,202
On 7 December 2023 the Board declared an interim dividend of 2.00 pence per
share for the financial year 2024 (financial year 2023: 2.00 pence per share
interim dividend). This dividend has not been accrued in the Financial
Statements for the six months ended 30 September 2023 as dividends are
recognised when the shareholders' right to receive the payment is established.
For the 2024 interim dividend this would be the ex-dividend date of 14
December 2023.
6 Taxation
The total tax expense of £7.63 million (30 September 2022: £6.58 million)
consists of a revenue tax expense of £3.34 million (30 September 2022: £3.45
million) and a capital tax expense of £4.29 million (30 September 2022:
£3.13 million). The revenue tax expense relates to irrecoverable overseas tax
on dividends. The capital tax expense consists of £2.22 million (30 September
2022: £0.91 million) expense arising from an increase in the provision for
deferred tax on unrealised gains on holdings in India and a £2.07 million
expense (30 September 2022: £2.22 million) arising from tax on realised gains
on holdings in India.
7 Costs of investment transactions
During the period, expenses were incurred in acquiring or disposing of
investments. The following costs of transactions are included in the
gains/(losses) on investments at fair value:
For the For the For the
six months to
six months to
year to
30 September
30 September
31 March
2023
2022
2023
£'000
£'000
£'000
Purchase expenses 320 282 638
Sales expenses 657 528 1,068
Total 977 810 1,706
8 Fair value
Fair values are derived as follows:
- Where assets are denominated in a foreign currency, they are converted
into the sterling amount using period end rates of exchange;
- Investments held by the Company on the basis set out in the annual
accounting policies;
- Cash at the denominated currency of the account; and
- Other financial assets and liabilities at the carrying value which is
a reasonable approximation of the fair value.
The tables below analyse financial instruments carried at fair value by
valuation method. The different levels have been defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets and
liabilities;
Level 2 Inputs other than quoted prices included with level 1 that are
observable for the asset or liability, either directly (prices) or indirectly
(derived from prices); and
Level 3 Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The hierarchy valuation of listed investments through profit and loss is shown
below:
30 September 30 September 31 March
2023
2022
2023
£'000
£'000
£'000
Level 1 1,910,022 1,842,148 1,992,775
Level 2 - - -
Level 3 - ((a)) 18,366 ((a)(b)) -((a))
Total 1,910,022 1,860,514 1,992,775
((a) ) As at 30 September 2023 Russian investments in LUKOIL and
Sberbank of Russia continue to be fair valued at zero and classified as
Level 3 as a result of trading being suspended on international stock
exchanges in February 2022. These investments were transferred from Level 1
to Level 3 during the financial year ended 31 March 2022.
((b) ) As at 30 September 2022 the fair value of the Company's
holding in Brilliance China Automotive was £18,366,000 classified as Level 3.
The stock was fair valued using a beta model (which applied an index movement
to observed trade prices) until 5 October 2022 when trading resumed and the
stock was transferred from Level 3 to Level 1.
Given the current market conditions and the inability of the Company to access
the local Moscow equity markets and the very limited access to the
over-the-counter market, the Russian investments are valued based on a current
liquidity discount of 100% to the last traded price for an exit price of zero.
The following table presents the movement in Level 3 investments for the
period:
30 September 30 September 31 March
2023
2022
2023
£000
£000
£000
Opening balance - 20,803 20,803
Transfers from Level 3 into Level 1 - - (17,734)
Disposal proceeds - sale of Level 3 assets (7,766) ((a)) (617) ((b)) (1,613)((b))
Net gains/(losses) on investments at fair value 7,766 (1,820) (1,456)
Level 3 closing balance - 18,366 -
((a)) Represents the sale of the holding in Yandex on 23 May 2023 for
£7,766,000.
((b)) Represents the sale of the holdings in Gazprom on 25 April 2022
for £617,000, and the sale of VK on 9 March 2023 for £996,000.
The fixed term loan is shown at amortised cost within the Statement of
Financial Position. If the fixed term loan was shown at fair value, the impact
would be:
30 September 30 September 31 March
2023
2022
2023
£000
£000
£000
Fixed term loan at amortised cost 100,000 100,000 100,000
Fixed term loan at fair value 94,800 97,100 94,470
Increase in net assets 5,200 2,900 5,530
The fair value of the fixed term loan included in the table above is
calculated by aggregating the expected future cash flows which are discounted
at a rate comprising the sum of SONIA rate plus a spread. The fixed term loan
at fair value is classed as Level 2.
9 Events after the reporting period
On 7 December 2023 the Board declared an interim dividend of 2.00 pence per
share for the financial year 2024 (financial year 2023: 2.00 pence per share
interim dividend). Please see Note 5 in the full Half Yearly Report for more
information.
The Half Yearly Report for the six months to 30 September 2023 was approved by
the Board on 7 December 2023. A copy of the report is available on our website
www.temit.co.uk. (http://www.temit.co.uk./)
The PDF of the Half Yearly Report will be uploaded and available for viewing
on the National Storage Mechanism, posted to the website
www.temit.co.uk/resources/literature
(http://www.temit.co.uk/resources/literature) and may also be requested during
normal business hours from Client Dealer Services at Franklin Templeton
Investment Management Limited on freephone 0800 305 306.
For further information please e-mail temitcosec@franklintempleton.com
(mailto:temitcosec@franklintempleton.com) .
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