REG - TempletonEmerg.Mkt. - Statement of Annual Results to 31 March 2022
14/06/2022 15:00
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RNS Number : 8504O Templeton Emerging Markets IT PLC 14 June 2022
Stock Exchange Announcement
Statement of Annual Results
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC
("TEMIT" or "the Company")
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 assets of £2.1 billion as at 31 March 2022.
From its launch to 31 March 2022, TEMIT's net asset value ("NAV") total return
was +3,813.9% compared to the benchmark total return of +1,792.0%.
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 year to 31 March 2022
Net asset value total return (cum-income)((a)) Share price total return((a)) MSCI Emerging Markets Index total return((a)(b)) Proposed total ordinary dividend((c))
-17.3% -21.2% -6.8% 3.80p
(2021: 54.5%) (2021: 59.5%) (2021: 42.8%) (2021: 3.80p)((d)(e))
((a)) A glossary of alternative performance measures is included in the full
Annual Report.
((b)) Source: MSCI. The Company's benchmark is the MSCI Emerging Markets
Index, with net dividends reinvested.
((c)) An annual ordinary dividend of 3.80 pence per share for the year ended
31 March 2022 has been proposed. This comprises the interim dividend of 1.00
pence per share paid by the Company on 10 January 2022 and the proposed final
dividend of 2.80 pence per share.
((d)) In addition to the ordinary dividend of 3.80p, a special dividend of
2.00p was paid for the year ended 31 March 2021.
((e)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Strategic Report
The Directors present the Strategic Report for the year ended 31 March 2022,
which incorporates the Chairman's Statement, and has been prepared in
accordance with the Companies Act 2006.
The aim of the Strategic Report is to provide shareholders with the ability to
assess how the Directors have performed in their duty to promote the success
of the Company for shareholders' collective benefit, and having regard for the
interests of all stakeholders, by bringing together in one place key
information about the Company's strategy, the risks it faces, how it is
performing and the outlook.
Financial Summary
2021-2022
2021-2022 Notes Year ended Year ended Capital Total
31 March
31 March
return
return
2022
2021
%
%
Total net assets (£ millions) 2,100.4 2,591.3
Net asset value (pence per share) ((a)(b)) 178.2 219.4 (18.2) (17.3)
Highest net asset value (pence per share) ((b)) 223.9 235.6
Lowest net asset value (pence per share) ((b)) 161.0 141.2
Share price (pence per share) ((a)(b)) 156.4 202.4 (22.2) (21.2)
Highest end of the day share price (pence per share) ((b)) 208.0 214.4
Lowest end of the day share price (pence per share) ((b)) 140.6 127.2
MSCI Emerging Markets Index ((a)) (9.1) (6.8)
Share price discount to net asset value at year end ((a)) 12.2% 7.7%
Average share price discount to net asset value over the year ( ) 9.5% 11.1%
Ordinary dividend (pence per share) ((b)(c)) 3.80 3.80
Special dividend (pence per share) ((b)) - 2.00
Revenue earnings (pence per share) ((b)(d)) 3.44 5.73
Capital earnings (pence per share) ((b)(d)) (40.90) 72.73
Total earnings (pence per share) ((b)(d)) (37.46) 78.46
Net gearing ((a)) 1.1% 0.5%
Ongoing charges ratio ((a)) 0.97% 0.97%
Source: Franklin Templeton and FactSet.
((a)) A glossary of alternative performance measures is included in the full
Annual Report.
((b)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
((c)) An annual dividend of 3.80 pence per share for the year ended 31 March
2022 has been proposed. This comprises the interim dividend of 1.00 pence per
share paid by the Company on 10 January 2022 and a proposed final dividend of
2.80 pence per share.
((d)) The revenue, capital and total earnings per share figures are shown in
the Statement of Comprehensive Income in the full Annual Report and Note 7 of
the Notes to the Financial Statements.
Ten Year Record
2012-2022
Year ended Total net NAV((a)) Share Year-end Revenue Annual Ongoing
assets (£m)
(pence per
price((a))
discount((b))
earnings((a))
dividend((a))
charges
share)
(pence per
(%)
(pence per
(pence per
ratio((b))
share)
share)
share)
(%)
31 March 2012 2,098.6 127.3 117.7 7.5 1.58 1.15 1.31
31 March 2013 2,302.7 140.5 128.1 8.2 1.69 1.25 1.30
31 March 2014 1,913.6 118.4 105.4 10.9 1.83 1.45 1.30
31 March 2015 2,045.0 128.2 111.2 13.3 1.86 1.65 1.20
31 March 2016 1,562.3 104.8 90.8 13.4 1.41 1.65 1.22
31 March 2017 2,148.1 152.6 132.3 13.3 1.32 1.65 1.20
31 March 2018 2,300.8 169.2 148.6 12.2 3.18 3.00 1.12
31 March 2019 2,118.2 168.5 153.2 9.1 3.45 3.20 1.02
31 March 2020 1,775.7 146.5 131.4 10.3 4.88 3.80((c)) 1.02
31 March 2021 2,591.3 219.4 202.4 7.7 5.73 3.80((c)) 0.97
31 March 2022 2,100.4 178.2 156.4 12.2 3.44 3.80((d)) 0.97
Ten year growth record((e))
2012-2022
Year ended NAV NAV total Share Share price MSCI Revenue Ordinary
return((b))
price
total
Emerging
earnings per
dividend
return((b))
Market
share-
per share
Index total
undiluted
return
31 March 2012 100.0 100.0 100.0 100.0 100.0 100.0 100.0
31 March 2013 110.4 111.1 108.8 110.0 107.7 107.0 108.7
31 March 2014 93.0 94.9 89.5 91.6 97.0 115.8 126.1
31 March 2015 100.7 104.0 94.5 97.9 109.8 117.7 143.5
31 March 2016 82.3 86.3 77.1 81.2 100.1 89.2 143.5
31 March 2017 119.9 127.5 112.4 120.5 135.4 83.5 143.5
31 March 2018 132.9 143.3 126.3 137.0 151.3 201.3 260.9
31 March 2019 132.4 145.8 130.2 145.2 151.4 218.4 278.3
31 March 2020 115.1 129.5 111.6 127.6 131.5 308.9 330.4
31 March 2021 172.3 200.1 172.0 203.5 187.8 362.7 330.4
31 March 2022 140.0 165.4 132.9 160.3 175.0 217.7 330.4
Source: Franklin Templeton and FactSet.
((a)) Comparative figures for financial years 2012 to 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
((b)) A glossary of alternative performance measures is included in the full
Annual Report.
((c)) Excludes the special dividend of 0.52 pence per share for the year ended
March 2020 and the special dividend of 2.00 pence per share for the year ended
March 2021.
((d)) An annual ordinary dividend of 3.80 pence per share for the year ended
31 March 2022 has been proposed. This comprises the interim dividend of 1.00
pence per share paid by the Company on 10 January 2022 and a proposed final
dividend of 2.80 pence per share.
((e)) Rebased to 100 at 31 March 2012.
Chairman's Statement
I would like to start by expressing the sympathy of the Board and of all of
those involved with the management of TEMIT to all victims of the Russian
invasion of Ukraine.
Market overview and investment performance((a))
Last year I had the pleasure of reporting a fifth consecutive year of
out-performance of our benchmark index. The year under review was much more
challenging. In the first half of our accounting year news in emerging markets
was dominated by pressure on the share prices of some technology companies.
This came after an extended period of strong performance and the Chinese
government's moves to curtail the activities of some listed companies as it
seeks to balance growth, equality and security. Both of these factors had a
negative impact on the performance of our portfolio over the 12 months under
review. This was followed in February by the Russian invasion of Ukraine.
Russian securities were rapidly suspended from trading and at our financial
year end the five Russian stocks in TEMIT's portfolio were ascribed a zero
value. The combination of events in China and Russia and the weakness of
technology stocks led to TEMIT underperforming its benchmark by quite some
margin, with a total return of -17.3%.
The Board takes a close interest in the performance of the portfolio and we
are naturally disappointed by investment performance in recent months. We meet
formally with the Investment Manager at least four times per year and in the
first quarter of each year conduct an in-depth review of investment strategy
with the portfolio managers and supporting analysts. Franklin Templeton has a
large emerging markets team and the Board this year spent time with several
regional experts in order better to understand the construction of the
portfolio. While we are concerned by recent performance, the Board is
reassured by both the quantity of resources and the quality of the insights
that the team produces and is confident that performance will turn around in
due course.
((a)) The share split which was approved by shareholders at the 2021 Annual
General Meeting took effect on 26 July 2021 and all of the numbers quoted in
this report take account of the fact that each existing share was replaced by
five new shares.
Environmental, social and governance
There is a growing interest by investors in the various aspects of companies'
approaches to the environment, to social matters and to good governance.
Effective stewardship of the Company's assets is a key element of the Board's
strategy for the Company. Consideration of governance and sustainability
issues has long been an integral part of our Investment Manager's approach and
information and key disclosures are included in the description of the
Investment Manager's process. In order to explain in more detail their
approach to this important topic they have published a Stewardship Report for
TEMIT, which is available at www.temit.co.uk. (http://www.temit.co.uk/) This
Report sets out the general approach to investing your Company's assets,
relevant statistical information and examples of engagement with investee
companies. I encourage you to download a copy.
Revenue and dividend
Net revenue earnings for the period under review amounted to 3.44 pence per
share. This is marginally lower than earnings for the prior year, adjusted for
the stock split and the exceptional Corporation Tax refund received in the
prior year. An interim dividend of 1.00 pence per share was paid in January
2022 and the Board recommends a final dividend of 2.80 pence per share, both
amounts being unchanged from last year after accounting for the share split.
TEMIT has large revenue reserves amounting to 10.01 pence per share and the
Board believes that it is appropriate to use a small part of these reserves to
maintain the annual ordinary dividend at the same level as last year. As
usual, shareholders will be asked to approve the final dividend at the Annual
General Meeting ("AGM").
Asset allocation and borrowing
TEMIT has fixed borrowing of £100 million, and a revolving credit facility
under which up to £120 million in flexible debt may be drawn down. The
Investment Manager has taken a cautious view on borrowing, which has proven
correct in difficult markets. Gearing was increased during the year under
review as £50 million was drawn down under the revolving credit facility in
October 2021.
As at the financial year end, gearing net of cash in the portfolio stood at
1.1%. I would like to remind shareholders that the level of debt deployed is
not a result of views on market direction but driven by investment
opportunities presented by individual companies.
Share rating
We remain active in promoting TEMIT's shares to a wide variety of existing and
potential investors, particularly private investors. The Board believes that
promoting the Company to new investors is good for its long-term health, while
the demand created also helps to exert pressure on the discount. We have a
substantial marketing budget, which is also supported by a financial
contribution from Franklin Templeton and by their marketing resources. As we
noted in our half year report for the second consecutive year we won the award
in the "Emerging Markets Equity - Active" category in the prestigious AJ Bell
Fund and Investment Trust Awards 2021. This award is made on the basis of
voting from private investors from a short list of open-ended funds, ETFs and
investment trusts drawn up by investment experts. TEMIT also won the
prestigious Best Campaign Award at the AIC Shareholder Awards 2022 in
recognition of the quality of the "Your future is emerging" campaign
undertaken to attract new shareholders. The innovative use of broadcast media
has helped to increase TEMIT's profile, advertise the benefits of the Company
and communicate the growth story of emerging markets to a wider audience.
The Board continues to regard share buybacks as a key tool in managing the
balance between supply and demand for the shares. Trading in the shares is
very closely monitored and the Board receives a daily report from our broker,
Winterflood Securities, as well as regular summaries of market conditions
focused on investor demand for global emerging markets funds. Based on the
detailed information that we receive, the Board continues to believe that we
have ample evidence that the driver of changes in the discount is the balance
between supply and demand for the shares. In the Chairman's Statement at the
half year stage I noted that the discount had been narrow and in the event we
made only one buyback in the first 11 months of our financial year, that being
in September 2021. The situation changed dramatically following the Russian
invasion of Ukraine and we stepped in on a number of occasions to buy back
shares in March 2022 and have continued to do so after the year end.
In total over the year, £3.6 million was spent on share buybacks and, as all
buybacks were at a discount to the prevailing NAV, this resulted in an
increase to the NAV of 0.03% to the benefit of remaining shareholders.
The Board
As reported last year, Magdalene Miller was appointed as a non-executive
Director of the Company with effect from 10 May 2021.
Beatrice Hollond will retire from the Board at this year's AGM. On behalf of
all the Directors, I would like to record our thanks to Beatrice for her
advice and wise contributions to our discussions over the last eight years.
After Beatrice retires, Simon Jeffreys will take on role of Senior Independent
Director. The search for a replacement Director is in progress bearing in mind
gender diversity and we plan to make an announcement shortly.
AIFM fee
We announced in November 2021 that the Board has agreed with Franklin
Templeton that with effect from 1 July 2022 the AIFM fee will reduce to:
• 1.0% on the first £1 billion of net assets;
• 0.75% on net assets between £1 billion and £2 billion; and
• 0.5% on net assets over £2 billion.
This compares with the current fee structure of 1.0% on the first £1 billion
of assets and 0.80% on assets above £1 billion. Based on net assets as at 31
March 2022, this results in an annual saving to the Company of £0.8 million.
The management fee rate has gradually been reduced over recent years and the
Board is mindful of the balance between controlling costs and incentivising
the Investment Manager to continue to invest in their team.
Annual General Meeting
Having been obliged to hold the last two years' AGMs behind closed doors, I am
pleased to be able to invite all shareholders to attend our AGM in person on
14 July 2022 at Barber-Surgeons' Hall in London. We look forward to welcoming
shareholders at the meeting. While we hope that shareholders will be able to
attend, the Directors are aware that Government guidance and regulation
relating to the COVID-19 pandemic may change. If we are obliged to change the
arrangements for the AGM after publishing this document, details will be
published via Stock Exchange announcements in London and New Zealand and our
website. Shareholders who plan to attend the AGM are encouraged to check the
website before travelling.
If you have any questions, please send these by email to
temitcosec@franklintempleton.com (mailto:temitcosec@franklintempleton.com) or
via www.temit.co.uk./investor/contact-us
(http://www.temit.co.uk./investor/contact-us) in advance of the meeting. Any
questions that we receive will be considered and responses will be provided on
our website www.temit.co.uk. (http://www.temit.co.uk/)
Whether you intend to attend the meeting in person or not, you are strongly
encouraged to submit your votes on the AGM resolutions in advance of the
meeting. Submitting votes by proxy does not preclude you attending the meeting
or changing your vote if you attend the AGM but ensures that your votes will
be counted if restrictions preventing attendance at the AGM are introduced at
short notice.
Outlook
These are difficult times for investment managers. At the time of writing the
war in Ukraine appears likely to continue for some time and while active
hostilities will, we hope, end shortly, the ramifications are likely to be
felt for some considerable time. From the perspective of investors the major
issues will be the extent to which commodity prices remain elevated and the
effect that this has on broader inflation around the world. Higher inflation
generally leads to higher interest rates and this affects the market value of
assets, particularly high growth companies for which values are derived from
expectations of earnings over the longer term. The COVID-19 pandemic is still
present in parts of the world. In particular, the Chinese government continues
to pursue a policy of lockdowns to control outbreaks of the virus and this can
have serious economic consequences. We also remain concerned about the extent
to which the Chinese government will continue to intervene in the affairs of
companies.
Against this difficult background, your Board remains optimistic for the long
term despite recent setbacks. Our Investment Manager deploys a large team with
staff around the world and their process has demonstrated its effectiveness
over the long term. Countries making up the emerging markets currently
contribute around 2/3 of the world's economic growth. We believe that this
growth advantage will continue because emerging markets enjoy many structural
advantages - relatively young and growing populations, growing wealth,
expanding economies, and companies that in some cases are world leading.
Paul Manduca
Chairman
14 June 2022
The Investment Manager
TEMIT's Investment Manager is the Franklin Templeton Emerging Markets Equity
("FTEME") team. FTEME has managed the portfolio since TEMIT's inception and
are pioneers in emerging markets equity investing. They bring more than 30
years of experience and local knowledge from over 70 investment professionals,
based in 13 countries around the world.
The team has a collaborative investment process where all analysts and
portfolio managers work together to contribute to investment returns. They
meet regularly, both formally and informally, to debate and exchange ideas,
investment themes and enrich their understanding of the markets by drawing on
local insights to build a global perspective and context to their thinking.
They also benefit from the broader resources available throughout Franklin
Templeton.
The portfolio managers for TEMIT, Chetan Sehgal (lead) and Andrew Ness are
senior executives in FTEME.
Portfolio Managers
Chetan Sehgal, CFA
Chetan is the lead portfolio manager of TEMIT and is based in Singapore.
As part of his broader responsibilities within FTEME, Chetan is also the
director of portfolio management. In this capacity, he is responsible for the
overall Global Emerging Markets and Small Cap strategies, providing guidance
and thought leadership, coordinating appropriate resources and coverage, and
leveraging the group's expertise to add value across products within the
strategies.
Chetan joined Franklin Templeton in 1995 from the Credit Rating Information
Services of India Ltd, where he was a senior analyst.
Chetan holds a B.E. Mechanical (Hons) from the University of Bombay and a
postgraduate diploma in Management from the Indian Institute of Management in
Bangalore, where he specialised in finance and business policy and graduated
as an institute scholar. Chetan speaks English and Hindi and is a Chartered
Financial Analyst ("CFA") Charterholder.
Andrew Ness, ASIP
Andrew Ness is a portfolio manager of TEMIT and is based in Edinburgh.
Prior to joining Franklin Templeton in September 2018, Andrew was a portfolio
manager at Martin Currie. He began his career at Murray Johnstone in 1994 and
worked with Deutsche Asset Management in both London and New York before
joining Scottish Widows Investment Partnership in 2007.
Andrew holds a B.A. (Hons) in Economics and an MSc in Business Economics from
the University of Strathclyde in the UK. He is an Associate Member of the UK
Society of Investment Professionals and a member of the CFA Institute.
Portfolio Report
Overview of markets
Emerging markets collectively declined over the 12 months under review.
Although progress in vaccination campaigns and businesses reopening, along
with ongoing monetary and fiscal stimulus, aided economic recovery in several
parts of the world, others struggled with new COVID-19 variant outbreaks. An
accelerated tightening in United States ("US") monetary policy suppressed
investors' risk appetite. Higher inflation amidst a spike in commodity prices
raised investor concerns as rebounding consumer demand alongside continued
supply-chain disruptions drove inflation in many countries to reach the
highest levels in decades. Towards the end of the period under review,
Russia's invasion of Ukraine further tested financial markets, triggering a
series of international sanctions on Russia. The MSCI Emerging Markets Index
returned -6.8% in the 12-month period under review, whilst TEMIT delivered a
net asset value total return of -17.3% (all figures are total return in
sterling). Full details of TEMIT's performance can be found in the full Annual
Report.
By region, Latin America outperformed its peers in EMEA (Europe, Middle East
and Africa) and Asia. Latin America, replete with natural resources and
relatively insulated from supply interruptions related to Russia's war with
Ukraine, benefitted from higher prices for energy and other commodities.
Although the EMEA region lost ground on contagion from Russia's invasion of
Ukraine and subsequent sanctions from Western governments, resource-rich South
Africa and oil- producing nations in the Middle East benefitted from higher
commodity prices. Declines in China were largely responsible for Asia's
lagging performance, overshadowing solid returns in India and Taiwan.
China was TEMIT's largest market exposure, although the portfolio remained
underweight relative to the benchmark. China was amongst the weakest emerging
markets, losing 29% in sterling terms over the 12-month period. Chinese
equities retreated under pressure from concerns relating to the impact of
additional regulations, particularly in the internet industry, a property
market slowdown and new COVID-19 outbreaks, even as the central bank cut key
lending rates to support the economy. The government enacted new regulations
in a number of industries, including internet and education, which caused
considerable investor concern. The regulatory changes in China were announced
at a time when the country was seeing a slowdown in its economy and resurgence
in COVID-19 cases, which further weighed on equity performance. Equities
sharply rebounded near the end of the period after assurances of stock market
stability from China's state council.
While regulatory changes in China have elevated market volatility and investor
fears of policy risks in the country, we would like to stress that the
policies do not have a uniform effect on all companies within a given sector.
Therefore, it is crucial to assess the impact of regulatory changes on the
long-term earnings power and intrinsic value of companies individually. Other
factors, including a resurgence of COVID-19 and rising coal and gas prices,
will also be likely to have an impact on economic growth this year.
Additionally, we have seen a slowdown in consumption. However, we believe that
China's policy makers have multiple and flexible policy tools to underpin the
economy. China's increased emphasis on its domestic market and
self-sufficiency should support sustainable longer-term growth. China has
directed its policies towards developing industries that are likely to benefit
broader society-the "greening" of the economy, for example, is likely to be a
tailwind for industries related to electric vehicles and renewable energy. We
also expect digitalization to remain an important theme in China.
TEMIT's second-largest market position was in South Korea, where the portfolio
was overweight versus the benchmark. South Korean equities declined by 14%
during the reporting period. The resurgence of COVID-19, stricter social
distancing measures and weak market sentiment surrounding technology stocks
weighed on equity prices. South Korea ended the period near a historically low
unemployment rate of under 3% largely due to government spending. The country
is an export powerhouse, and several South Korean exporters are of global
importance, supplying vital hardware. However, rising commodity prices and
supply chain bottlenecks have put pressure on the semiconductor and battery
makers that comprise South Korea's growth sectors. Uncertain global economic
issues could lead to a slower-than-expected recovery in key macroeconomic
indicators. Concerns about regulations also remain, whilst geopolitical
tension with North Korea and the possibility of future COVID-19 outbreaks
warrant close attention.
The Taiwanese market outperformed the wider benchmark, ending the reporting
period with a return of nearly 12%. TEMIT's overweight allocation to Taiwan
was largely attributable to exposure to the island's semiconductor industry.
Technology's role as a key economic engine has only strengthened during the
pandemic. Moreover, semiconductor chips have become a growing part of almost
all consumer goods with the semiconductor industry experiencing a cyclical and
secular boom as growing digitalisation powers a surge in demand. Some of
Taiwan's manufacturers are counted amongst the largest and most advanced
foundries in the world and partner with and produce chips for clients
globally, with few competitors able to progress to the next level of
technology. Despite increased market concerns that Russia's invasion of
Ukraine could potentially increase cross-strait geopolitical risk between
China and Taiwan, we expect the current status quo situation to remain
unchanged.
Equities in Brazil rose sharply in the final three months of the reporting
period to end the 12-month period with double-digit gains. Brazil's monetary
policy has been amongst the most aggressive in emerging markets. In the second
half of 2021, fiscal uncertainties, depreciation in the real, increased
political noise, rising inflation and pockets of commodity weakness weighed on
the Brazilian market. However, higher commodity prices, a stronger real and
undemanding valuations led to renewed fund inflows in 2022. However, political
uncertainty and fiscal challenges created volatility in the equity market, as
did concerns that rising inflation and a tighter monetary policy could hinder
the overall economy. Brazil's long-term growth recovery and business
environment could be further supported by the continuation of economic
reforms, privatisations and concessions, all of which the government has been
focusing on but remain difficult to materialize ahead of presidential
elections in October 2022. As the world's fourth-largest commodity exporter,
the commodity price surge amidst global supply concerns from Russia's invasion
of Ukraine has been beneficial for Brazil's commodity exports, economy and
market. We also believe that Brazil's economic growth could surprise on the
upside, aided by efficiencies arising from a thriving internet economy.
India was TEMIT's fifth largest exposure at the end of March 2022. The Indian
market remained on an upward trend over the majority of the 12-month period.
Stocks, however, declined in early 2022, as rising oil prices weighed on the
economic outlook for the country as it is a major oil importer. A moderation
in oil prices and expectations of policy continuity with the ruling government
party's election in key states in March led equities to rebound off their 2022
low, to end the reporting period with double-digit gains. Digitalisation in
India has been advancing at a rapid pace since 2016, due to government
initiatives, inexpensive mobile data and a significant step-up of venture
capital and private equity funding. Companies related to the internet and
digital economy have also been gaining prominence on Indian stock exchanges,
providing exciting investment opportunities and diversifying the overall
market. Over the longer-term, we expect to see continued growth in Indian
earnings due to positive demographics, continued private sector penetration in
segments like finance and health care, digitalisation from a low base, and
supply-chain diversification supported by government policy. We believe that
long-term fundamentals remain robust in view of increasing consumer
penetration, growing formalisation of the economy, a reform push and a stable
government.
TEMIT had maintained an overweight exposure to Russia relative to the
benchmark prior to Russia's invasion of Ukraine. Equity prices were on an
upward trend in the first seven months of the reporting year, returning over
25% in sterling terms. Despite its strong market performance, however, Russia
remained one of the most undervalued markets in Europe as well as globally.
Rising oil prices, appreciation in the rouble and a faster-than-expected
economic recovery buoyed the stock market. Brewing tensions with Ukraine
however, started weighing on equity prices in Russia. We remained generally
positive in our outlook on investment opportunities in Russia, given the
belief that diplomacy could resolve the issue. We believed that Russia's
internally focused economy and policy flexibility (given twin surpluses in its
fiscal and current accounts) continued to provide a conducive environment for
companies operating domestically.
Post the invasion and the implementation of extensive sanctions from the West,
stock prices and the Russian rouble declined sharply. Russia's resilience to
financial shocks has also been affected by the freeze of some of its central
bank's international reserves. Index compilers MSCI and FTSE dropped Russia
from their benchmarks in early March at a zero-value, due to non-fulfilment of
market accessibility requirements. Although trading in the domestic market
resumed in late-March, following a trading suspension on 28 February,
foreigners remained barred from selling, while trading in Russian American and
Global Depositary Receipts (ADRs/GDRs) listed in international exchanges also
remained suspended at the time of writing. Given these facts, on 4 March 2022,
Russian company securities were fair valued at zero by the Franklin Templeton
Valuation Committee. In concluding upon a zero value, the continued
uncertainty in the market, restrictions on trading the shares both onshore and
offshore, and a lack of any price discovery mechanism to provide indications
of residual value were all considered.
Investment strategy, portfolio changes and performance
The following sections show how different investment factors (stocks, sectors
and geographies) accounted for TEMIT's performance over the period. We
continue to emphasise our investment process which is described in more detail
in the full Annual Report and that 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.
In the portfolio, we remain positioned in long-term themes including
consumption premiumisation, digitalisation and technology. We focus on
companies reflecting our philosophy of owning superior quality businesses,
with long-term sustainable earnings power and share prices at a discount to
intrinsic worth. We see elevated levels of leverage as a risk and continue to
avoid companies with weak balance sheets.
Whilst the immediate outlook may be volatile, this approach should help us
best navigate the ongoing pandemic and geopolitical instability. Over time, we
expect the long-term fundamentals of our holdings to remain intact and to
produce attractive returns for investors.
Performance attribution analysis %
Year to 31 March 2022 2021 2020 2019 2018
Net asset value total return((a)) (17.3) 54.5 (11.2) 1.8 12.4
Expenses incurred 1.0 1.0 1.0 1.0 1.1
Gross total return((a)) (16.3) 55.5 (10.2) 2.8 13.5
Benchmark total return((a)) (6.8) 42.8 (13.2) 0.1 11.8
Excess return((a)) (9.5) 12.7 3.0 2.7 1.7
Stock selection (10.0) 6.0 (2.1) 1.8 1.3
Sector allocation 0.3 6.8 3.1 (0.6) (0.3)
Currency 0.2 (0.3) 1.6 1.0 0.4
Share buyback impact((b)) 0.0 0.3 0.4 1.0 0.4
Residual return((a)) (0.0) (0.1) - (0.5) (0.1)
Total Investment Manager contribution (9.5) 12.7 3.0 2.7 1.7
Source: FactSet and Franklin Templeton.
((a)) A glossary of alternative performance measures is included in the full
Annual Report.
((b)) The share buyback impact has been presented separately from the residual
figure.
Top 10 contributors to relative performance by security (%)((a))
Top contributors Country Sector Share price total Contribution to
return
portfolio relative
to MSCI Emerging
Markets Index
ICICI Bank India Financials 26.6 1.0
Meituan((b)) China/Hong Kong Consumer Discretionary (45.7) 0.7
Itaú Unibanco Brazil Financials 50.5 0.6
Taiwan Semiconductor Manufacturing Taiwan Information Technology 5.5 0.6
Bajaj Holdings & Investments((c)) India Financials 57.9 0.5
Guangzhou Tinci Materials Technology China/Hong Kong Materials 59.3 0.5
Cognizant Technology Solutions((c)) United States Information Technology 22.0 0.5
Pinduoduo((b)) China/Hong Kong Consumer Discretionary (68.6) 0.4
Longshine Technology((c)) China/Hong Kong Information Technology 93.6 0.4
Banco Bradesco Brazil Financials 18.0 0.3
((a)) For the period 31 March 2021 to 31 March 2022.
((b)) Security not held by TEMIT as at 31 March 2022.
((c)) Security not included in the MSCI Emerging Markets Index as at 31 March
2022.
Finishing higher over the 12-month period were shares of ICICI Bank, India's
second largest private sector bank. In its most recent fiscal quarter ended in
December 2021, the bank posted robust loan growth amidst increasing economic
activity as pandemic restrictions eased. The bank has a wide presence across
retail banking products, as well as corporate and commercial banking. The bank
has strong franchises and competitive asset management, insurance, and retail
brokerage subsidiaries.
Brazilian bank Itaú Unibanco was a top contributor during the period. Its
shares rebounded from a decline in the latter part of 2021, as Brazilian
equities benefitted from renewed investor inflows amidst higher commodity
prices, improving macroeconomic data and undemanding valuations. Rising
interest rates further benefitted the bank. The large-scale bank benefits from
low penetration of financial products and a strong distribution network. Loan
activity increased in 2021, and expense control supported strong margins.
Shares of Taiwan Semiconductor Manufacturing ("TSMC") gained during the
period. The chip maker's strong quarterly earnings growth, upbeat full year
outlook and larger capital expenditure plan boosted investor confidence in the
stock, although risks of a slowdown in consumer spending led to volatility in
the semiconductor industry late in the period. We expect TSMC to benefit from
a structural increase in chip demand, driven by smartphones, high-performance
computing and other advanced applications. We are positive on its technology
leadership and its dominance in developing cutting-edge chips.
Top 10 detractors to relative performance by security (%)((a))
Top detractors Country Sector Share price total Contribution to
return
portfolio relative
to MSCI Emerging
Markets Index
Alibaba China/Hong Kong Consumer Discretionary (47.2) (1.5)
LUKOIL Russia Energy (100.0) (1.5)
Yandex Russia Communication Services (100.0) (1.3)
Sberbank of Russia Russia Financials (100.0) (1.1)
Brilliance China Automotive China/Hong Kong Consumer Discretionary (59.2) (1.0)
Tencent China/Hong Kong Communication Services (35.2) (0.8)
Tencent Music Entertainment China/Hong Kong Communication Services (75.1) (0.7)
Naspers((b)) South Africa Consumer Discretionary (46.9) (0.7)
Samsung Electronics South Korea Information Technology (15.6) (0.6)
Prosus((c)) China/Hong Kong Consumer Discretionary (38.5) (0.5)
((a)) For the period 31 March 2021 to 31 March 2022.
((b)) Security not held by TEMIT as at 31 March 2022.
((c)) Security not included in the MSCI Emerging Markets Index as at 31 March
2022.
Alibaba's stock fell over the period as the Chinese e-commerce company came
under pressure from increased regulatory scrutiny from its government.
Additionally, weakening consumption trends amidst repeated COVID-19 outbreaks
and intensified competition in the domestic e-commerce market weighed on
sentiment. We remain positive on the relative strength of Alibaba's e-commerce
ecosystem. It has also been pursuing a multi-engine growth strategy for the
longer term, which includes building up its cloud and international e-commerce
businesses.
LUKOIL, a major Russian oil producer, Yandex, Russia's largest search engine
and Sberbank of Russia, one of the biggest banks in Russia were top detractors
in the final quarter of the period. Before Russia's invasion of Ukraine, we
had maintained our positions in Russian stocks in the belief that diplomacy
could resolve the issue. Post the invasion, share prices of Russian equities
declined significantly. As mentioned above, with effect from 4 March 2022,
Russian company stocks were fair valued at zero.
Top contributors and detractors to relative performance by sector (%)((a))
Top contributors MSCI Contribution to Top detractors MSCI Contribution to
Emerging Markets
portfolio
Emerging Markets
portfolio
Index sector total
relative to MSCI
Index sector total
relative to MSCI
return
Emerging
return
Emerging
Markets Index
Markets Index
Information Technology (1.8) 0.9 Communication Services (19.9) (3.7)
Real Estate (24.3) 0.7 Energy (1.5) (2.0)
Health Care (21.8) 0.6 Financials 16.5 (2.0)
Consumer Discretionary (36.2) (1.9)
Industrials 9.9 (0.5)
((a)) For the period 31 March 2021 to 31 March 2022.
An overweight position and favourable stock selection in the information
technology sector added to TEMIT's performance relative to the benchmark index
in the review period. Tata Consultancy Services, an India-based IT services
firm, and Cognizant Technology Solutions, a US listed technology services
company that derives much of its earnings from services provided in India,
were both examples of information technology companies that aided relative
returns. Stock selection and an underweight in real estate also aided relative
performance, as the poorly performing sector for the benchmark contributed to
relative returns in the portfolio. The portfolio did not invest in several
Chinese real estate stocks that weighed on the sector in the benchmark amidst
a slowdown in the Chinese real estate sector. However, Chinese real estate
company China Resources Land was an overweight in the portfolio and rose
during the period. Stock selection and an underweight exposure to the health
care sector was another positive contributor to relative returns.
In contrast, stock selection in the communication services sector was a key
detractor from relative performance. Yandex was a leading detractor as Russian
stocks were fair valued at zero, as discussed above. Tencent was another key
detractor in the sector. In addition to new rules in China's internet sector,
concerns of a freeze on new video game approvals also impacted sentiment in
the company. Stock selection in energy also detracted from relative
performance, owing to Russia's LUKOIL, which was fair valued at zero, as
discussed above. Additionally, not holding India-based Reliance Industries,
which has energy and telecommunications operations, held back returns as its
shares advanced. Stock selection in financials, due to the write down of
Sberbank of Russia, hindered performance relative to the benchmark,
overshadowing the contribution of an overweight position as the sector was
positive for the benchmark.
Top contributors and detractors to relative performance by country (%)((a))
Top contributors MSCI Contribution to Top detractors MSCI Contribution to
Emerging Markets
portfolio
Emerging Markets
portfolio
Index sector total
relative to MSCI
Index sector total
relative to MSCI
return
Emerging
return
Emerging
Markets Index
Markets Index
Brazil 30.5 0.6 Russia((b)(c)) (100.0) (2.9)
United States((b)) - 0.4 South Africa 17.3 (1.8)
Thailand 3.5 0.2 Saudi Arabia((d)) 45.5 (1.3)
Peru 28.0 0.1 Taiwan 11.9 (0.7)
Egypt (10.1) 0.1 South Korea (14.2) (0.7)
((a)) For the period 31 March 2021 to 31 March 2022.
((b)) No companies included in the MSCI Emerging Markets Index in this country
as at 31 March 2022.
((c)) All companies held by TEMIT in this country are valued at zero as at 31
March 2022.
((d)) No companies held by TEMIT in this country as at 31 March 2022.
An overweight position and stock selection in Brazil aided relative
performance amidst the surge in commodity prices and strength in the financial
sector. Stock selection in Brazilian financials, including banks Itaú
Unibanco and Banco Bradesco, and Brazil's leading financial market
infrastructure company B3, helped relative returns. Off-benchmark exposure in
the United States was another key contributor to TEMIT's returns relative to
the index, as a position in Cognizant Technologies Solutions, with high
earnings exposure to India, was a key contributor. Thailand was another
resource rich country that benefitted from a surge in commodity prices, and
our stock selection in the country aided relative performance.
Russia was the top detractor from relative performance. As mentioned above,
with effect from 4 March 2022, Russian company stocks were fair valued at
zero. An overweight exposure to Naspers, which has a sizeable interest in
Tencent, was largely responsible for South Africa's inclusion in the list of
top market detractors from relative performance. We exited Naspers during the
reporting period. A lack of exposure to Saudi Arabia and several of its
well-performing oil companies detracted from relative performance. As a major
oil exporter, the country benefitted from prices that climbed throughout the
period, a rise that accelerated in the first three months of 2022.
Portfolio changes by sector
Total return in sterling
Sector 31 March 2021 Purchases Sales Market 31 March 2022 TEMIT MSCI Emerging
market value
£m
£m
movement
market value
%
Markets Index
£m
£m
£m
%
Information Technology 810 137 (186) (24) 737 (1.0) (1.8)
Financials 486 101 (113) (1) 473 3.4 16.5
Consumer Discretionary 491 65 (92) (198) 266 (43.9) (36.2)
Communication Services 433 59 (128) (152) 212 (40.9) (19.9)
Materials 91 144 (25) (2) 208 8.1 8.7
Consumer Staples 115 11 (24) (20) 82 (17.5) (5.3)
Industrials 67 17 (11) (11) 62 (5.6) 9.9
Energy 62 33 (8) (51) 36 (64.8) (1.5)
Health Care 32 12 (5) (6) 33 (14.2) (21.8)
Real Estate 12 25 (26) 5 16 0.2 (24.3)
Utilities - - - - - - 16.7
Total Investments 2,599 604 (618) (460) 2,125
Portfolio changes by country
Total return in sterling
Country 31 March 2021 Purchases Sales Market 31 March 2022 TEMIT MSCI Emerging
market value
£m
£m
movement
market value
%
Markets Index
£m
£m
£m
%
China/Hong Kong 770 312 (248) (229) 605 (33.2) (29.0)
South Korea 575 77 (66) (99) 487 (14.4) (14.2)
Taiwan 430 15 (86) 4 363 3.0 11.9
Brazil 151 65 (32) 26 210 20.3 30.5
India 162 35 (61) 52 188 34.6 23.9
Other 511 100 (125) (214) 272 - -
Total Investments 2,599 604 (618) (460) 2,125
Portfolio investments by fair value
As at 31 March 2022
Holding Country Sector Trading((a)) Fair value % of net
£'000
assets
Taiwan Semiconductor Manufacturing Taiwan Information Technology PS 259,125 12.3
Samsung Electronics South Korea Information Technology PS 218,002 10.4
Alibaba China/Hong Kong Consumer Discretionary IH 124,514 5.9
ICICI Bank India Financials IH 117,038 5.6
Tencent China/Hong Kong Communication Services PS 81,516 3.9
NAVER South Korea Communication Services PS 79,021 3.8
MediaTek Taiwan Information Technology IH 77,821 3.7
China Merchants Bank China/Hong Kong Financials IH 62,500 3.0
Guangzhou Tinci Materials Technology China/Hong Kong Materials NH 56,399 2.7
LG South Korea Industrials PS 50,981 2.4
TOP 10 LARGEST INVESTMENTS 1,126,917 53.7
Banco Bradesco, ADR((b)(c)) Brazil Financials IH 46,710 2.2
Vale Brazil Materials IH 46,056 2.2
Itaú Unibanco, ADR((b)(c)) Brazil Financials PS 44,301 2.1
Samsung Life Insurance South Korea Financials IH 38,654 1.8
Cognizant Technology Solutions((d)) United States Information Technology IH 37,970 1.8
Petroleo Brasileiro((c)) Brazil Energy NH 35,977 1.7
Prosus((e)) China/Hong Kong Consumer Discretionary IH 35,258 1.7
Genpact United States Information Technology NH 35,151 1.6
POSCO South Korea Materials IH 29,634 1.4
Unilever((d)) United Kingdom Consumer Staples PS 29,164 1.4
TOP 20 LARGEST INVESTMENTS 1,505,792 71.6
Banco Santander Mexico, ADR((b)) Mexico Financials NT 29,127 1.4
Kasikornbank Thailand Financials IH 27,472 1.3
Tata Consultancy Services India Information Technology NH 26,874 1.3
Soulbrain South Korea Materials NH 26,641 1.3
Daqo New Energy, ADR((b)) China/Hong Kong Information Technology IH 24,998 1.2
Bajaj Holdings & Investments India Financials PS 22,502 1.1
Ping An Insurance China/Hong Kong Financials IH 22,475 1.1
Hon Hai Precision Industry Taiwan Information Technology PS 21,399 1.0
China Resources Cement China/Hong Kong Materials IH 21,390 1.0
Brilliance China Automotive China/Hong Kong Consumer Discretionary NT 20,803 1.0
TOP 30 LARGEST INVESTMENTS 1,749,473 83.3
Astra International Indonesia Consumer Discretionary PS 19,351 0.9
Fila South Korea Consumer Discretionary IH 16,915 0.8
Infosys Technologies India Information Technology PS 16,656 0.8
Americanas((f)) Brazil Consumer Discretionary IH 16,517 0.8
NetEase China/Hong Kong Communication Services IH 16,347 0.8
Tencent Music Entertainment, ADR((b)) China/Hong Kong Communication Services IH 16,219 0.8
Baidu China/Hong Kong Communication Services IH 15,972 0.8
Uni-President China China/Hong Kong Consumer Staples IH 15,555 0.7
Gedeon Richter Hungary Health Care PS 15,522 0.7
Ping An Bank China/Hong Kong Financials NT 15,281 0.7
TOP 40 LARGEST INVESTMENTS 1,913,808 91.1
Longshine Technology Group China/Hong Kong Information Technology IH 13,838 0.7
Massmart South Africa Consumer Staples IH 13,598 0.6
LG Chem South Korea Materials NH 11,661 0.5
Intercorp Financial Services Peru Financials IH 10,782 0.5
Keshun Waterproof Technologies China/Hong Kong Materials NH 10,525 0.5
LegoChem Biosciences South Korea Health Care IH 9,723 0.5
Greentown Service Group China/Hong Kong Real Estate NH 8,860 0.4
Kiatnakin Phatra Bank Thailand Financials PS 8,654 0.4
Thai Beverage Thailand Consumer Staples NT 8,141 0.4
Techtronic Industries China/Hong Kong Industrials NH 7,909 0.4
TOP 50 LARGEST INVESTMENTS 2,017,499 96.0
NagaCorp Cambodia Consumer Discretionary PS 7,883 0.4
B3 Brazil Financials PS 7,510 0.4
China Resources Land China/Hong Kong Real Estate PS 7,221 0.3
WuXi Biologics China/Hong Kong Health Care NH 7,189 0.3
BDO Unibank Philippines Financials NT 6,699 0.3
H&H Group China/Hong Kong Consumer Staples IH 6,632 0.3
MCB Bank Pakistan Financials NT 6,386 0.3
XP Inc Brazil Financials NH 5,899 0.3
ACC India Materials NT 5,257 0.3
East African Breweries Kenya Consumer Staples NT 4,673 0.2
TOP 60 LARGEST INVESTMENTS 2,082,848 99.1
Nemak Mexico Consumer Discretionary NT 4,604 0.2
M. Dias Branco Brazil Consumer Staples NT 4,142 0.2
PChome Online Taiwan Consumer Discretionary PS 3,385 0.2
Hankook Tire South Korea Consumer Discretionary NT 3,215 0.2
COSCO SHIPPING Ports China/Hong Kong Industrials IH 3,102 0.1
Delivery Hero((d)) Germany Consumer Discretionary NH 2,825 0.1
JD.com China/Hong Kong Consumer Discretionary NH 2,613 0.1
BAIC Motor China/Hong Kong Consumer Discretionary PS 2,434 0.1
KT Skylife South Korea Communication Services NT 2,431 0.1
Weifu High-Technology China/Hong Kong Consumer Discretionary NT 2,387 0.1
TOP 70 LARGEST INVESTMENTS 2,113,986 100.5
TOTVS Brazil Information Technology PS 2,102 0.1
Chervon Holdings China/Hong Kong Consumer Discretionary NH 1,994 0.1
E-Finance for Digital & Financial Investments Egypt Information Technology NH 1,844 0.1
Largan Precision Taiwan Information Technology PS 1,758 0.1
United Bank Pakistan Financials NT 1,093 0.1
New Oriental Education & Technology Group, ADR((b)) China/Hong Kong Consumer Discretionary NH 924 0.1
Americanas((g)) Brazil Consumer Discretionary IH 418 0.0
Netcare South Africa Health Care NH 411 0.0
Gazprom, ADR((b)(h)) Russia Energy PS - -
LUKOIL, ADR((b)(h)) Russia Energy IH - -
TOP 80 LARGEST INVESTMENTS 2,124,530 101.1
Sberbank of Russia, ADR((b)(h)) Russia Financials PS - -
VK, GDR((h)(i)(j)) Russia Communication Services IH - -
Yandex((h)) Russia Communication Services PS - -
TOTAL INVESTMENTS 2,124,530 101.1
NET LIABILITIES (24,140) (1.1)
TOTAL NET ASSETS 2,100,390 100.0
((a)) Trading activity during the year: (NH) New Holding, (IH) Increased
Holding, (PS) Partial Sale and (NT) No Trading.
((b)) US listed American Depository Receipt.
((c)) Preferred Shares.
((d)) This company, listed on a stock exchange in a developed market, has
significant exposure to operations from emerging markets.
((e)) 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.
((f)) Holding name has been changed from B2W Digital as the result of a merger
between B2W Digital and Americanas.
((g)) Subscription receipts on the back of a rights issuance converted into
ordinary shares on 1 April 2022.
((h)) This company has been fair valued at zero as a result of its trading
being suspended.
((i)) UK listed Global Depository Receipt.
((j)) Holding name has been changed from Mail.Ru to VK as a result of
rebranding.
Portfolio summary
As at 31 March 2022
All figures are a % of the net assets
Communication Services Consumer Discretionary Consumer Energy Financials Health Care Industrials Information Technology Materials Real Estate Total Equities Net liabilities((a)) 31 March 2022 Total 31 March 2021 Total
Staples
Brazil - 0.8 0.2 1.7 5.0 - - 0.1 2.2 - 10.0 - 10.0 5.9
Cambodia - 0.4 - - - - - - - - 0.4 - 0.4 0.5
China/Hong Kong 6.3 9.1 1.0 - 4.8 0.3 0.5 1.9 4.2 0.7 28.8 - 28.8 29.5
Czech Republic - - - - - - - - - - - - - 0.3
Egypt - - - - - - - 0.1 - - 0.1 - 0.1 -
Germany - 0.1 - - - - - - - - 0.1 - 0.1 -
Hungary - - - - - 0.7 - - - - 0.7 - 0.7 0.9
India - - - - 6.7 - - 2.1 0.3 - 9.1 - 9.1 6.3
Indonesia - 0.9 - - - - - - - - 0.9 - 0.9 0.6
Kenya - - 0.2 - - - - - - - 0.2 - 0.2 0.3
Mexico - 0.2 - - 1.4 - - - - - 1.6 - 1.6 1.3
Pakistan - - - - 0.4 - - - - - 0.4 - 0.4 0.3
Peru - - - - 0.5 - - - - - 0.5 - 0.5 0.2
Philippines - - - - 0.3 - - - - - 0.3 - 0.3 0.2
Russia - - - - - - - - - - - - - 6.0
South Africa - - 0.6 - - - - - - - 0.6 - 0.6 4.4
South Korea 3.9 1.0 - - 1.8 0.5 2.4 10.4 3.2 - 23.2 - 23.2 22.1
Taiwan - 0.2 - - - - - 17.1 - - 17.3 - 17.3 16.7
Thailand - - 0.4 - 1.7 - - - - - 2.1 - 2.1 1.7
United Kingdom - - 1.4 - - - - - - - 1.4 - 1.4 2.1
United States - - - - - - - 3.4 - - 3.4 - 3.4 1.0
Net liabilities((a)) - - - - - - - - - - - (1.1) (1.1) (0.3)
31 March 2022 Total 10.2 12.7 3.8 1.7 22.6 1.5 2.9 35.1 9.9 0.7 101.1 (1.1) 100.0 -
31 March 2021 Total 16.7 19.0 4.4 2.4 18.7 1.2 2.6 31.3 3.5 0.5 100.3 (0.3) - 100.0
((a)) The Company's net liabilities are the total of net current assets plus
non-current liabilities per the Statement of Financial Position in the full
Annual report.
Market capitalisation breakdown (%) Less than £1.5bn to £5bn to Greater than Net liabilities((a))
£1.5bn £5bn £25bn £25bn
31 March 2022 7.7 8.0 16.5 68.9 (1.1)
31 March 2021 11.8 8.5 12.9 67.1 (0.3)
Split between markets((b)) (%) 31 March 2022 31 March 2021
Emerging markets 95.6 96.4
Developed markets((c)) 4.9 3.1
Frontier markets 0.6 0.8
Net liabilities((a)) (1.1) (0.3)
Source: FactSet Research System, Inc.
((a)) The Company's net liabilities are the total of net current assets plus
non-current liabilities per the Statement of Financial Position in the full
Annual 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 Germany,
United Kingdom and United States which have significant exposure to operations
in emerging markets.
Outlook for markets
The current down cycle has been driven by the aftereffects of the
unprecedented fiscal stimulus, the spike in commodity prices, post COVID-19
supply chain issues impacting inflation, China's zero COVID policy, and
Russia's invasion of Ukraine impacting investor risk appetite. An aversion to
holding risky assets currently prevails amongst many investors; what started
with investors selling Russian equities has spread to China and other emerging
markets. In such circumstances, we believe that having a long-term perspective
is valuable.
The start of the US Federal Reserve's withdrawal of support has also
heightened market volatility. Higher US interest rates could also trigger a
strengthening of the US dollar, this would be potentially negative for
emerging markets with macro vulnerabilities, although there are much fewer
significant emerging economies in this situation today than in past cycles.
Whilst the current period of increased market volatility and declining equity
markets is unnerving, we believe that it is also creating attractive
investment opportunities for long-term investors. We continue to search for
companies that have sustainable earnings growth, trade at a discount to
intrinsic worth and have competitive advantages which are persistent and
repeatable over time. In the current market decline, we observe many companies
with these characteristics. This is creating opportunities for investors to
increase exposure to these companies in preparation for the eventual recovery.
Emerging markets have seen many changes over the past two decades, and the
opportunity set for investors has similarly evolved and expanded. Emerging
markets generally have youthful and digital-savvy populations with growing
needs. In India, for example, there are about 800 million people under the age
of 35. As investors, that creates opportunities not only in technology
companies, but also in areas like financial services and aspirational products
like education and luxury goods.
As a whole, emerging market economic fundamentals have improved in the past
decade, and we believe that they are in a stronger position today to cope with
any market volatility. Our overall outlook for emerging markets remains
positive, with long-term investment opportunities underpinned by emerging
markets' structural strengths and the competitiveness of their companies.
Moreover, we think that the COVID-19 pandemic period has catalysed change,
innovation, and brought a greater focus on technology. It is an interesting
time to be looking at the emerging world today. We believe that the breadth of
opportunity, the growth, the innovation, the sustainability of the business
models, and the much stronger institutional resilience compared to decades
past when considered together create an attractive future for emerging
markets.
Chetan Sehgal
Lead Portfolio Manager
14 June 2022
The Investment Manager's Process
Investment philosophy and approach
FTEME's long-term approach is driven by the 3 S's, seeking Structural growth
opportunities in emerging markets, investing in businesses with Sustainable
earnings power at a discount to intrinsic worth, and believing in responsible
Stewardship of client capital. FTEME seeks to capture the growth potential of
emerging market companies and believes this is best achieved by employing a
bottom-up and fundamental security selection process. FTEME conducts in-depth
proprietary company research with a long-term and independent perspective.
FTEME believes in the responsible stewardship of clients' capital and that
governance and sustainability factors create risks and opportunities for
companies. ESG analysis is therefore integrated alongside fundamental
bottom-up analysis.
TEMIT's performance in different market environments
FTEME's approach aims for outperformance over the long term. The investment
strategy tends to produce stronger performance when company fundamentals are
the primary driver for stock returns, where a focus on stock selection should
produce superior results. Performance may be less strong in highly
sentiment-driven market environments, when investors focus more on the overall
economic picture rather than company fundamentals. This can also be the case
when the market is overly short-term oriented, and rewards companies driven by
what FTEME views as unsustainable factors such as short-term demand/supply
imbalances or inorganic growth.
Investment process
The three broad stages of FTEME's investment process comprise: idea
generation, stock research, and portfolio construction and management; with
governance and sustainability considerations and risk management fully
integrated at all stages.
1. Idea generation
The key source of idea generation is FTEME's team of over 70 analysts and
portfolio managers located around the globe. Their experience and expertise
allow them to identify trends which they may want to explore further through
company research. In addition, FTEME's local presence, network and
understanding of local dynamics may help to identify trends and opportunities
that other market participants may filter out through standard quantitative
screens. FTEME analysts speak the local language and are part of the local
culture and fabric of the countries where they conduct research.
2. Stock research
FTEME analysts conduct rigorous analysis to assess whether a company has
sustainable earnings power, and to establish a proprietary estimate of its
intrinsic worth. By integrating ESG analysis with traditional business and
financial analysis, FTEME seeks to gain insights into the quality and risks of
companies. FTEME's research platform currently has coverage of over 700
companies across emerging markets using a proprietary and rigorous bottom-up
research approach, along with extensive knowledge of the wider universe.
FTEME's research analysts form detailed views of companies by collecting and
analysing a variety of information. The team conducts detailed quantitative
financial analysis by building in-depth company models to evaluate financial
strength and profitability, and to project future earnings and cash flow.
Industry demand and supply models are incorporated in the analysis, as well as
country and currency macro considerations. FTEME has a strong emphasis on
qualitative assessment.
The assessment of ability to sustain stable or growing economic profits over
time is typically driven by a combination of factors, including (i) sound
business models; (ii) sustainable competitive advantages; (iii) management
foresight; and (iv) low debt levels. Earnings power is the demonstrable
ability to generate sustainable economic profit into the future in areas which
could be beyond the current scope of operations. The analysts look for real
earnings growth by focusing on economic earnings and cash flows rather than
reported earnings, and differentiating between operational earnings and
financial earnings. They evaluate internal versus external drivers to earnings
and prefer companies with earnings which can be affected through management
action. A key element of earnings power is therefore quality, as signified by
(i) products and services with low regulatory and macro risk; (ii) financial
strength; and (iii) management strength.
Each research recommendation may incorporate several valuation methods
extending typically over a three- to five-year horizon. FTEME aims to clarify
the risk/reward balance of a company by conducting sensitivity analysis,
stress-testing, and scenario analysis. It seeks to identify what the market
consensus expectations are for a stock and how the team's fundamental views
may differ.
3. Portfolio construction
FTEME seeks to build a high-conviction stock-centric portfolio that is
primarily driven by company- specific factors and focused on the long term. A
bottom-up approach to stock selection is used, with country and sector
allocations a residual of this process.
Portfolio Style and Characteristics
The strategy typically displays the following characteristics:
• Core style: The strategy aims to deliver outperformance
irrespective of market direction. The portfolio construction process leads to
the majority of active risk being focused
• Quality and growth but not at excessive valuation levels: The
philosophy typically leads to a portfolio with higher quality and growth than
the aggregate of the benchmark index, but not at excessive valuation levels
• High conviction portfolio: The top-10 holdings typically account
for over 40% of the portfolio which overall is well-diversified portfolio
across the market cap spectrum.
• Low turnover: FTEME's high conviction and long-term approach
means that the typical annual portfolio turnover is less than 20%.
Buy and Sell Discipline
FTEME's buy discipline is primarily designed to ensure that the portfolio
managers buy when they have both conviction in a business and it is trading
below its intrinsic value; FTEME's sell discipline is designed to capture the
opposite. All holdings are regularly reviewed to ensure that analyst
recommendations are up to date and accurately reflect any changes in company
fundamentals. In this way, ongoing fundamental research drives all buy and
sell decisions.
Investment risk management
Investment in emerging markets equities inevitably involves risk in a volatile
asset class. Franklin Templeton uses a comprehensive approach to managing
risks within its managed portfolios and this approach is inherent in all
aspects of the investment process. Investment risks are to be identified and
intentional, not minimised. Risk management is embedded through all stages of
the investment process, in collaboration with dedicated resources from
Franklin Templeton's Investment Risk Management Group of over 80 risk
management professionals, which is independent from the portfolio management
team. Various risk management tools are used to predict and decompose the
portfolio's active risk in order to understand and manage the portfolio's
active risk profile.
For additional information with respect to the AIFM risk management framework,
please read the Investor Disclosure Document on our website (www.temit.co.uk).
FTEME's approach to stewardship
FTEME's focus is on a total sustainability approach including business,
economic, environmental and social sustainability. How FTEME monitors and
manages client assets is not just about focusing on governance and
sustainability factors. It demands a holistic approach incorporating proactive
long-term engagement with the managers of the companies which FTEME invests in
on behalf of TEMIT and its other clients.
Part of being a responsible steward of clients' assets is acknowledging that
governance and sustainability factors create risks and opportunities for
companies. It therefore makes sense to integrate these factors alongside
fundamental bottom-up analysis and engage with companies as active owners on
behalf of clients. Responsible stewardship is not a single act but a
continuous process that includes engagement and voting. Being responsible
stewards of our client's capital is reflected in:
How we act as investors How we treat our clients How we behave as a business
- ESG integration - Putting clients first - Building relationships
- Company engagement - Being responsible fiduciaries of our clients' capital - Achieving quality results
- Policy advocacy - Working with integrity
Integrating ESG factors
Analyses of governance and sustainability factors are embedded components of
our rigorous fundamental bottom-up research. The driving factors of the
decision to purchase or sell a stock centre on the following:
• Its sustainable earnings power and whether its price is at a
discount to intrinsic worth; and
• The sustainability of its business model, which is critical to
maintaining its competitive positioning.
Our proprietary three-pillar ESG framework is a key component of how we aim to We have summarised one of our case studies from our full Stewardship Report to
achieve our goal of being an emerging market leader in sustainable investing.
give TEMIT shareholders a snapshot of the typical analysis undertaken.
Tencent - provides social networking, music, web portals, e-commerce, mobile
games, internet services and payment systems.
Intentionality
ESG Topic: User Privacy Protection & Content Management
Assessing companies' intentionality toward managing material ESG factors with
our proprietary scoring system and linking ESG factors into our valuation
models.
Materiality and Risk: Users of internet service providers that have privacy
concerns may decide to switch to alternative internet services. This has the
potential to impact revenue growth due to lower engagement by users. Content
management (censorship) without a reasonable level of consensus building or
supervision may also lead to a less active user base.
Alignment
Analysis:
Mapping the alignment of companies' products and services to positive social
and environmental outcomes and UN Sustainable Development Goals (SDGs).
1) Strong privacy policy and commits to collecting only the information
that is necessary for product functions;
2) Mechanism for personal data control and dedicated website to help
Transition resolve any dispute users may have;
3) Privacy management practices are transparent and certified by TRUSTe;
and
Identifying companies' transition potential linked to their incremental
progress, using our on-the-ground capabilities and experience as active owners 4) The company is aware and anticipates censorship requirements from
to foster positive change. government related bodies.
Outcomes: Social risks associated with privacy concerns and content management
(censorship) are faced by all content platforms in China, and full cooperation
with regulators is important to ensure continuous operation. Based on our
analysis, we consider Tencent as a leader among Chinese peers in its industry
and is well positioned to manage such risks.
Climate change
Within emerging markets, the landscape varies considerably, ranging from
countries that have announced meaningful carbon targets to those that have yet
to declare any significant policies. FTEME's objective is to understand the
climate commitments of investee companies incorporating both local and global
perspectives, recognising that the pace of decarbonisation and the associated
strategies will differ across countries and cultures.
Where material, FTEME integrates climate change/carbon analysis into its
bottom-up research process, focusing on assessing the impact on long-term
business values. This is part of the holistic approach of integrating ESG
analysis with traditional financial analysis so that FTEME can gain valuable
insights into the quality and risks of businesses which FTEME invests in.
FTEME's analysts and portfolio managers look at climate risks and
opportunities closely for relevant sectors and geographies where climate
change plays a very important role. FTEME closely tracks climate related
factors into estimates, models and valuations for those businesses materially
exposed to the issue.
Our portfolio managers also seek to understand the carbon risk profile at a
portfolio level to understand its carbon risk exposures. The data presented in
the full Annual Report very much helps with the engagement agenda.
TEMIT's portfolio carbon risk is concentrated amongst a small number of
companies, with the top five companies in terms of carbon intensity
representing 6.8% of the portfolio and accounting for 74.2% of the total
portfolio Weighted Average Carbon Intensity ("WACI"). From a sector
perspective, 66.2% of the total portfolio WACI contributions come from the
materials sector. On a relative basis, portfolio holdings in materials and
industrials contribute negatively to WACI and the utilities sector contributes
positively, as TEMIT does not hold any investments in the sector. Cement
manufacturers, China Resources Cement and ACC, exhibit the largest carbon
intensities in TEMIT's portfolio, representing 1.3% of the portfolio and
accounting for 51.9% of the portfolio WACI. TSMC's carbon intensity is low,
however due to it representing 12.3% of the portfolio, it is second in terms
of contribution to WACI.
We emphasise that the data does not always fully represent the actual carbon
risk of the portfolio. Some of the data is estimated where carbon emissions
are not disclosed by portfolio companies. WACI is measured against sales,
however, in production orientated industries this is not always an accurate
measure. Finally, the reported data is a snapshot at a point in time and does
not represent the forward-looking nature of our approach to analysing investee
companies. Below we provide a short summary of FTEME's analysis of China
Resources Cement and ACC.
China Resources Cement ("CRC") - leading cement and concrete producer in ACC - one of the largest producers of cement in India
Southern China
ACC is guided by parent Lafarge-Holcim's principles and technical know-how on
CRC strictly implements national policies and guidelines and operates in full environmental issues. As a result, it is ahead of the curve versus its Indian
compliance with local standards and audits, with no fines or penalties in peers in both approach and adopting innovative technologies related to
recent history. Management integrates ESG Key Performance Indicators in emissions control. It has recently had its 2030 carbon-emission reduction
remuneration at various levels whilst expressing an intention to improve target endorsed by the Science Based Targets Initiative ("SBTi") and has
carbon management further via tech upgrades and appropriate target setting signed the 'Business Ambition for 1.5°C' pledge.
annually.
We are positive on the company's ability to manage its emissions profile and
The company's improving emissions intensity, compliance with local standards from an environmental perspective, the company is one of the best investment
and management intentions to improve further, suggests low carbon risk and options in the cement sector in a developing market.
strong profile in the sector.
Active ownership
As investors with a significant presence in emerging markets, FTEME's active
ownership efforts are a key part of the overall approach to stewardship. FTEME
analysts conduct almost 2,000 company meetings a year across the investment
platform using its industry-leading research footprint across emerging
markets, where FTEME seek to gain a number of fundamental and sustainability
insights. We believe that our engagement efforts are key to developing a
detailed understanding of companies and improving outcomes for shareholders as
well as stakeholders more broadly.
Engagement statistics
FTEME's analysts are in a continual dialogue with companies on a range of
topics including sustainability and governance. There are also companies that
FTEME identify where dedicated discussion on ESG topics are necessary. Active
engagements with companies in the TEMIT portfolio for the year ended 31 March
2022 are summarised below:
Dedicated ESG discussion by Number of % of
engagement type interactions interactions
Environmental 11 31
Social 7 19
Governance 15 42
Combination 3 8
Total 36 100
Proxy voting
In the year ended 31 March 2022, FTEME voted on over 900 management proposals
at annual and special general meetings for TEMIT. Most of the proposals which
FTEME voted on related to companies' director appointments, routine business
proposals and capital structures. Of the voteable management proposals, FTEME
voted FOR proposals 80% of the time.
FTEME voted against management proposals in 12% of cases, our votes against
were largely concentrated on capital structure, non-salary compensation, and
director related management proposals. FTEME views votes against proposals as
a formal way to communicate our views to management, and FTEME undertakes them
based on the investment team's assessment of each motion in line with clients'
best interests.
Where "Other" votes were cast, these were mainly director related votes in
Brazil, where FTEME abstained from voting they were not supportive of the
candidates put forward for election, or where the company bundled several
proposals into one, preventing voting on individual items.
The number of resolutions proposed by shareholders is increasing around the
world, particularly on environmental and social issues, although they remain
relatively uncommon in emerging markets. FTEME will continue closely to
examine the merits of views raised by fellow shareholders.
We encourage you to download the full TEMIT Stewardship report from
www.temit.co.uk (http://www.temit.co.uk/)
for further, detailed information.
Business Review
Strategy and Business Model
Company purpose and objective
TEMIT's purpose is to provide both private and institutional investors with
the opportunity for capital appreciation via a professionally managed vehicle
focused on listed equity investments in emerging markets.
The objective of TEMIT is to provide long-term capital appreciation via
exposure to global emerging markets, supported by a culture of both strong
customer service and corporate governance.
Investment policy
The current investment policy was approved at the Company's AGM on 8 July
2021.
The Company seeks long-term capital appreciation through investment in
companies listed in emerging markets or companies which earn a significant
amount of their revenues in emerging markets but are domiciled in, or listed
on, stock exchanges in developed countries ("Emerging Markets Companies").
It is expected that the majority of investments will be in listed equities.
However, up to 10% of the Company's assets may be invested in unlisted
securities. In addition, while it is intended that the Company will normally
invest in equity instruments, the Investment Manager may invest in
equity-related investments (such as convertibles or derivatives) where it
believes that it is advantageous to do so.
The portfolio may frequently be overweight or underweight in certain
investments compared with the MSCI Emerging Markets Index (the "Benchmark")
and may be concentrated in a more limited number of sectors or geographical
areas than the Benchmark. Investments may be made in Emerging Markets
Companies outside the Benchmark that meet the investment criteria.
Whilst there are no specific restrictions on investment in any one sector or
geographic area, the portfolio will be managed in a way which aims to spread
investment risk. The portfolio will typically contain between 50 and 100
individual stocks but may, at times, contain fewer or more than this range. No
more than 12% of the Company's assets will be invested in the securities of
any one issuer at the time of investment, save that any investment in unlisted
securities of any one issuer will be limited to no more than 2% of the
Company's assets, measured at the time of investment.
The maximum borrowing will be limited to 20% of the Company's net assets,
measured at the time of borrowing.
No more than 10%, in aggregate, of the value of the Company's assets will be
invested in other listed closed-ended investment funds.
In accordance with the Listing Rules, the Company will not make any material
change to its published investment policy without the prior approval of the
FCA and the approval of its shareholders by ordinary resolution.
Distribution policy
The Company will ensure that its total annual dividends will be paid out of
the profits available for distribution under the provisions of the relevant
laws and regulations and will be at least sufficient to enable it to qualify
as an investment trust under the UK Income and Corporation Taxes Act. If the
Company has received an exceptional level of income in any accounting year,
the Board may elect to pay a special dividend. The primary focus of the
investment policy is on generating capital returns, the Company does not
target a particular level of income and there is no guarantee that dividend
levels will be maintained from one year to the next.
The Company will normally pay two dividends per year, an interim dividend
declared at the time when the half yearly results are announced, and a final
dividend declared at the time when the annual results are announced. The final
dividend will be subject to shareholder approval at the AGM each year.
Dividends will be paid by cheque or by direct transfer to a shareholder's bank
account. For UK shareholders holding shares in their own name on the Company's
main register, the dividend payments can be used to purchase further shares in
the Company under the Dividend Reinvestment Plan
The Company may also distribute capital by means of share buybacks when the
Board believes that it is in the best interests of shareholders to do so. The
share buyback programme will be subject to shareholder approval at each AGM.
Business model
The Company has no employees and all of its Directors are non-executive. The
Company delegates its day-to-day activities to third parties.
On 1 October 2021, Franklin Templeton Investment Trust Management Limited
("FTITML", "AIFM" or the "Manager") replaced Franklin Templeton International
Services S.à r.l ("FTIS") as the Company's AIFM and company secretary.
The Board is responsible for all aspects of the Company's affairs, including
the setting of parameters for the monitoring of the investment strategy and
the review of investment performance and policy. It also has responsibility
for overseeing all strategic policy issues, namely dividend, gearing, share
issuance and buybacks, share price and discount/premium monitoring, corporate
governance matters and engagement with all of the Company's stakeholders.
Strategy
The Company seeks to achieve its objective by following a strategy focused on
the following:
Performance
At the heart of the strategy is the appointment and retention of capable
investment management professionals, whose aim is to identify value and
achieve superior long-term growth for shareholders. The Investment Manager,
under the leadership of Chetan Sehgal, continues to apply the same core
investment philosophy that has driven TEMIT's performance since the Company's
launch. The investment team aims to achieve long-term capital appreciation for
shareholders seeking exposure to global emerging markets by investing in
companies that they believe offer long-term sustainable growth and good value,
combined with strong management and sound governance.
Environmental, social and governance ("ESG") matters
The Investment Manager comments on the integral nature of ESG matters within
the investment process and how it engages with companies to promote ESG best
practice of this report. In addition, Franklin Templeton recently published a
detailed Stewardship Report for TEMIT and this can be downloaded from our
website www.temit.co.uk. (http://www.temit.co.uk/)
As an institutional investor, the Company recognises its responsibility that
the companies in which it invests should aspire to appropriate levels of
corporate governance. As a matter of policy, the Company aims to utilise its
votes in shares held in the relevant underlying portfolio companies at the
general meetings of those companies.
Further details of the Investment Manager's approach to responsible investing
and of votes cast at investee companies' general meetings in 2021 can be
accessed on Franklin Templeton's UK web site under "Sustainable Investing" at
www.franklintempleton.co.uk/about-us/our-company/sustainable-
(http://www.franklintempleton.co.uk/about-us/our-company/sustainable-)
investing.
The Board receives regular reports on Franklin Templeton's policies and
controls. The Board has reviewed and fully supports the Franklin Templeton
Stewardship Statement and its Sustainable Investing Principles and Policies.
TEMIT has no greenhouse gas emissions to report from the operations of the
Company, as all of its activities are outsourced to third parties. While as an
investment trust TEMIT is exempt from disclosures recommended by the Task
Force on Climate-related Financial Disclosures ("TCFD"), Franklin Templeton
continues to develop metrics for our carbon footprint. Further information on
our approach to climate change can be found under "FTEME's approach to
stewardship" above and in more detail in our Stewardship Report, available on
our website (www.temit.co.uk).
TEMIT has no employees and is not an organisation that provides goods or
services as defined in the Modern Slavery Act 2015 and thus the Company
considers that the Act does not apply. The Company's own supply chain consists
predominantly of professional services advisers.
Culture and values
The Board believes in a culture of openness and constructive challenge in its
interactions with the Manager and other service providers. The Board aims to
maintain open and regular communication with shareholders, as set out under
Communication.
The Company is committed to acting professionally, fairly and with integrity
in all of its business dealings and relationships. The Board has a zero
tolerance policy towards bribery and looks to ensure that its service
providers and associated persons have effective policies and procedures
designed to actively prevent bribery which are proportionate and risk based.
In relation to the corporate offence of failing to prevent tax evasion, it is
the Company's policy to conduct all business in an honest and ethical manner.
The Company takes a zero tolerance approach to any facilitation of tax evasion
whether under UK law or under the law of any foreign country.
Information on the Company's approach to Diversity is set out in the
Directors' Report in the full Annual Report.
Liquidity
The shares issued by the Company are traded on the London and New Zealand
stock exchanges. The Company has engaged Winterflood Securities as financial
adviser and stockbroker, and to act as a market maker in the shares of the
Company.
Gearing
On 31 January 2020, the Company entered into a five-year £100 million loan at
a fixed rate of 2.089% with Scotiabank Europe PLC, and a three-year £120
million unsecured multi-currency revolving loan facility with The Bank of Nova
Scotia, London Branch. The £100 million fixed term loan is denominated in
pounds sterling. Drawings under the £120 million revolving credit facility
may be in sterling, US dollars or Chinese renminbi ("CNH"). The total amount
which may be drawn down in CNH is 45% of the combined limit of the fixed rate
loan and of the revolving loan facility. The fixed rate loan was drawn down on
31 January 2020 and will remain in place until 31 January 2025. On 18 October
2021, the Company drew down £50 million from the revolving credit facility
repayable within six months (2021: revolving credit facility was not
utilised). Subsequent to the year end, the Investment Manager rolled forward
the £50 million and took this borrowing out for a further six months. The
Company has no other debt. The Investment Manager has been granted discretion
by the Board to draw down the revolving loan facility as investment
opportunities arise, subject to overall supervision by the Board, and subject
to the overall gearing limit in TEMIT's investment policy.
The Company's net gearing position was 1.1% (net of cash in the portfolio) at
the year-end (2021: 0.5%).
The Board continues to monitor the level of gearing and currently considers
gearing of up to 20% to be appropriate, measured at the time of borrowing.
Affirmation of shareholder mandate
In accordance with the Company's Articles of Association, the Board must seek
shareholders' approval every five years for TEMIT to continue as an investment
trust. This allows shareholders the opportunity to decide on the long-term
future of the Company. The last continuation vote took place at the 2019 AGM,
when 99.95% of the votes cast were registered as votes in favour. The next
continuation vote will take place at the 2024 AGM.
Stability - Share buybacks and Conditional Tender Offer
The Company has powers to buy back its shares as a discount control mechanism
and when this is in the best interests of the Company's shareholders and in
2019 introduced a Conditional Tender Offer. The share price discount to net
asset value is discussed under Key Performance Indicators in the full Annual
Report.
Under the Conditional Tender Offer, if over the five year period the Company's
net asset value total return fails to exceed the benchmark total return the
Board will put forward proposals to shareholders to undertake a tender offer
for up to 25 per cent of the issued share capital of the Company, at the
discretion of the Board. Any such tender offer will be at a price equal to the
then prevailing net asset value less two per cent (and less the costs of the
tender offer). There will be no tender offer in the event that the Company's
net asset value total return exceeds the benchmark total return (MSCI Emerging
Markets Index total return) over the five year period from 31 March 2019 to 31
March 2024. Any tender offer would take place following the Company's 2024 AGM
and will also be conditional on shareholders approving the continuation vote
in 2024 which is described under "Affirmation of shareholder mandate" above.
A key point in the Investment Manager's mandate is to take a long-term view of
investments and one of the advantages of a closed end fund is that the
portfolio structure is not disrupted by large inflows or outflows of cash.
However, the Board and the Investment Manager recognise that the returns
experienced by shareholders are in the form of movements in the share price,
which are not directly linked to NAV movements, and the shares may trade at
varying discounts or premiums to NAV. Many shareholders, both professional and
private investors, have expressed a view that a high level of volatility in
the discount is undesirable and that the Company should continue its active
share buyback programme. A less volatile discount, and hence share price, is
seen as important to investors. For this reason, TEMIT uses share buybacks
selectively with the intention of limiting volatility in the share price and
where buybacks are in the best interests of shareholders. Details of the share
buybacks are included in the following table. All shares bought back in the
year were cancelled, with none being placed in treasury. As at 31 March 2022,
the Company held 103,825,895 shares in treasury (2021: 103,825,895 shares in
treasury((a))).
2022 2021
Shares bought back and cancelled during the year((a)) 2,331,670 31,192,040
Proportion of share capital bought back and cancelled 0.2% 2.6%
Total cost of share buybacks £3.6m £49.6m
The benefit to NAV £0.5m £6.9m
The percentage benefit to NAV 0.03% 0.3%
((a)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Discount management is reviewed regularly by the Board to ensure that it
remains effective in the light of prevailing market conditions. The
Conditional Tender Offer will not affect the Board's current approach to
discount management. The Board will continue to exercise the Company's right
to buy back shares when it believes this to be in shareholders' interests and
with the aim of reducing volatility in the discount.
Communication
The Board works to ensure that investors are informed regularly about the
performance of TEMIT and of emerging markets through clear communication and
updates. The Board is fully committed to TEMIT's marketing programme. There is
a substantial annual marketing and communication budget and expenditure by
TEMIT is matched by a contribution to costs from the Manager.
TEMIT won the prestigious Best Campaign Award at the AIC Shareholder Awards
2022 in recognition of the quality of the "Your future is emerging" campaign
undertaken to attract new shareholders. The innovative use of broadcast media
has helped to increase TEMIT's profile, advertise the benefits of the Company
and communicate the growth story of emerging markets to a wider audience.
A new corporate identity was launched in January 2022 providing TEMIT with a
unique brand for the first time.
TEMIT seeks to keep shareholders updated on performance and investment
strategy through its regular annual and half yearly reports, along with
monthly factsheets and commentaries. These are available on the TEMIT website
(www.temit.co.uk) which also contains portfolio holdings information, updates
from the Investment Manager and other important documents that will help
shareholders to understand how their investment is managed. We also
communicate via @TEMIT on Twitter and continue to develop the Company's
presence across social media platforms. The Board encourages registration to
our monthly email that keeps subscribers appraised of the latest performance,
insights and announcements.
TEMIT has an active public relations programme. Our Investment Manager
provides comments to journalists, hosts media briefings and publishes articles
on issues relevant to investing in emerging markets.
The Investment Manager meets regularly with professional investors and
analysts and hosts interactive webinars. At each AGM the Investment Manager
makes a presentation with the opportunity for all shareholders to ask
questions.
The Chairman regularly meets major shareholders to discuss investment
performance and developments in corporate governance. We try to engage with a
wide spectrum of our shareholders and aim to address their concerns as far as
practically possible. Shareholders are welcome to contact the Chairman or the
Chairman of the Audit and Risk Committee at any time via
temitcosec@franklintempleton.com. (mailto:temitcosec@franklintempleton.com)
Section 172 Report - Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to
explain how they have discharged their duties under Section 172(1) of the
Companies Act 2006 in promoting the success of their companies for the benefit
of "members as a whole" and having regard for all stakeholders.
Section 172 Matter Board's Statement
The likely consequences of any decision in the long term. The Board is focused on promoting the long-term success of the Company and
regularly reviews the Company's long-term strategic objectives, including
consideration of the impact of the investment manager's actions on the
marketability and reputation of the Company and the likely impact on the
Company's stakeholders of the Company's strategy.
The interests of the Company's employees. The Company has no direct employees.
The need to foster the Company's business relationships with suppliers, The Board's approach to its key stakeholders is set out below.
customers and others.
The impact of the Company's operations on the community and the environment. The Board's approach is set out in the section on ESG under Strategy and
Business Model in the full Annual Report.
The desirability of the Company maintaining a reputation for high standards of The Board's approach is set out in 'Culture and values' in the full Annual
business conduct. Report.
The need to act fairly between members of the Company. The Board's approach to its key stakeholders is set out below.
In addition to the primary focus of the Board, and with due regard to its
obligations under Section 172 of the Companies Act 2006, the following
non-routine matters were considered at Board meetings during the year:
• Recruitment of Magdalene Miller as a non-executive Director;
• Changes to the risk matrix, monitoring such changes carefully
and introducing alternative mitigating controls where necessary and
practicable to support the operation of an effective control environment;
• Pandemic risks affecting the Company's investments and business
operations;
• Risks resulting from the Russian invasion of Ukraine and the
valuation of Russian assets;
• Review of the marketing plan with the Manager;
• Review of the share buyback programme; and
• Review of the gearing facility.
The Board considers the main stakeholders in the Company to be its
shareholders and its service providers, the principal one of which is its
Manager, along with its investee companies. A summary of the key areas of
engagement undertaken by the Board with its main stakeholders in the year
under review and how Directors have acted upon this to promote the long-term
success of the Company are set out in the following table.
Stakeholders Area of Engagement Consideration Engagement Outcome
Shareholders and potential investors Company objective Delivering on the Company's objective to shareholders over the long term. The Company's objective and investment policy are set out in the full Annual The Investment Manager's commentary in the full Annual Report gives a full
Report. commentary on the Company's portfolio as well as on the approach and
considerations undertaken by the Investment Manager for stock selection within
the portfolio.
The Company's performance against its objective is regularly reviewed by the
Board, taking account of views expressed by shareholders.
A continuation vote took place at the 2019 AGM, with 99.95% of votes cast in
favour. The next continuation vote is scheduled to take place at the AGM in
2024.
The Company holds a continuation vote every five years to allow shareholders
to decide on the long- term future of the Company.
Shareholders and potential investors Dividend The objective of the Company is to provide long term capital appreciation, The Board reviews regularly the level of dividends, taking account of the Dividend payments are discussed in the Chairman's Statement.
however the Board recognises the importance of regular dividend income to many income generated by the Company's portfolio and the availability of reserves.
shareholders.
In considering the sustainability of the dividend and of the Company, the
Board reviews the models supporting the going concern assessment and viability
statement.
Shareholders and potential investors Communication with shareholders The Board understands the importance of communication with its shareholders Working closely with the Manager the Board ensures that there is a variety of Full details of all Board and Manager communication are included in the full
and maintains open channels of communication with shareholders. regular communication with shareholders. Annual Report.
Shareholders are invited to submit questions for the Board to address at the
Company's Annual General Meeting.
Shareholders and potential investors Discount management To smooth the volatility in the discount. The Board monitors the discount closely and discusses discount strategy with TEMIT continues to adopt an active buy back policy and has a Conditional
the Investment Manager and the Company's stockbroker at every regular Board Tender Offer. Details of these can be found under "Stability - Share buybacks
meeting. The stockbroker provides a summary of the discount and market and Conditional Tender Offer" in the full Annual Report.
conditions to the Board and Investment Manager at the close of each trading
day in London.
The Board also meets with the Investment Manager to discuss the Company's
marketing strategy to ensure effective communication with existing
shareholders and to consider strategies to create additional demand for the
Company's shares.
Further details of the current discount and discount management are detailed
in the Chairman's Statement in the full Annual Report.
Manager Communication between the Board and the Manager The relationship of the Board with the Manager is very important. The Manager attends all Board meetings where it reviews and discusses The Board operates in a supportive and open manner, challenging the activity
performance reports, changes in the portfolio composition and risk matrix. of the Manager and its results. The Board believes that the Company is well
managed and the Board places great value on the experience of the Investment
Manager to deliver superior long-term returns from investments and on the
other functions of the Manager to fulfil their roles effectively.
The Board receives timely and accurate information from the Manager and
engages with the Investment Manager and the secretary between meetings as well
with other representatives of the Manager as and when it is deemed necessary.
Third-party service providers Engagement with service providers The Board acknowledges the importance of ensuring that the Company's service As an investment company all services are outsourced to third-party providers. The Manager maintains the overall day-to-day relationship with the service
providers are providing a suitable level of service, that the service level is The Board considers the support provided by service providers including the providers and the Board undertakes an annual review of the performance of the
sustainable and that they are fairly remunerated for their service. quality of the service, succession planning and any potential interruption of Company's service providers. This review also includes the level of fees paid.
service or other potential risks. The Board meets with service providers as and when considered necessary.
Investee companies Engagement with investee companies The relationship between the Company and the investee companies is very The Board discusses stock selection and asset allocation on a quarterly basis. The Investment Manager has a dedicated research team that is employed in
important. On behalf of the Company the Investment Manager engages with investee making investment decisions and when voting at shareholder meetings of
companies implementing corporate governance principles. investee companies.
Key Performance Indicators
The Board considers the following to be the key performance indicators
("KPIs") for the Company:
• Net asset value and share price total return over various
periods, compared to its benchmark;
• Share price discount to net asset value;
• Dividend and revenue earnings; and
• Ongoing charges ratio.
The Ten Year Record of the KPIs is shown in the full Annual Report.
Net asset value and share price total return((a))
Net asset value and share price total return data is presented within the
Company Overview along with the Ten -Year Record are shown in in the full
Annual Report.
The Chairman's Statement in the full Annual Report and the Portfolio Report in
the full Annual Report include further commentary on the Company's
performance.
Share price discount to net asset value
Details of the Company's share price discount to net asset value is presented
within the Financial Summary in the full Annual Report. On 31 May 2022, the
latest date for which information was available, the discount was 12.3%.
The Company has powers to buy back its shares as a discount control mechanism
when it is in the best interests of the Company's shareholders and has a
Conditional Tender Offer mechanism. These are described under "Stability -
Share buybacks and Conditional Tender Offer" in the full Annual Report.
Dividend and revenue earnings
Total income earned in the year was £54.3 million (2021: £59.9 million)
which translates into net revenue earnings of 3.44 pence per share (2021: 3.50
pence per share, adjusted for the stock split and the extra-ordinary
Corporation Tax refund), a decrease of 2% over the prior year.
The Company paid an interim dividend of 1.00 pence per share on 10 January
2022. The Board is proposing a final dividend of 2.80 pence per share, making
total ordinary dividends for the year of 3.80 pence per share.
Ongoing charges ratio((a)) ("OCR")
The OCR remained constant at 0.97% for the year ended 31 March 2022, compared
to the prior year.
Costs associated with the purchase and sale of investments are taken to
capital and are not included in the OCR. Transaction costs are disclosed in
Note 8 of the Notes to the Financial Statements in the full Annual Report.
((a)) A glossary of alternative performance measures is included in the full
Annual Report.
Principal and emerging risks
At least quarterly, the Board reviews with the AIFM and the Investment Manager
a wide range of risk factors that may impact the Company. A full review of
risks and internal controls is held every September by the Audit and Risk
Committee. The Board has carried out a robust assessment of the principal and
emerging risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. These are
summarised in the table below.
Further explanation of the monitoring of risk and uncertainties is covered
within the Report of the Audit and Risk in the full Annual Report. Information
on the risks that TEMIT is subject to, including additional financial and
valuation risks, are also detailed in Note 15 of the Notes to the Financial
Statements.
Due to the nature of the Company's business, investment risk is a key focus
and is reviewed on an ongoing basis by the Investment Manager as part of every
investment decision. Further information on this process is detailed in the
full Annual Report.
Risk Mitigation
Market and geo-political
Market risk arises from volatility in the prices of the Company's investments, The Board reviews regularly and discusses with the Investment Manager the
from the risk of volatility in global markets arising from macroeconomic and portfolio, the Company's investment performance and the execution of the
geopolitical circumstances and conditions. Many of the companies in which investment policy against the long-term objectives of the Company. The
TEMIT invests are, by reason of the locations in which they operate, exposed Manager's independent risk team performs systematic risk analysis, including
to the risk of political or economic change. In addition, sanctions, exchange country and industry specific risk monitoring, as well as stress testing of
controls, tax or other regulations introduced in any country in which TEMIT the portfolio's resilience to geopolitical shocks. The Manager's legal and
invests may affect its income and the value and the marketability of its compliance team monitors sanctions. Where TEMIT is affected, adherence to all
investments. Emerging markets can be subject to greater price volatility than sanctions and restrictions is ensured by this team. The Board also regularly
developed markets. reviews reports from the Manager's risk, legal and compliance teams.
In the first quarter of 2022, geopolitical risk was highlighted by the Russian
invasion of Ukraine, with the resultant effects on global trade posed by
supply shocks, sanctions, higher levels of inflation and volatility in asset
prices.
Pandemic
The spread of infectious illnesses or other public health issues and their The Board has regularly reviewed and discussed the situation with the
aftermaths, such as the outbreak of COVID-19, first detected in China in Investment Manager, including a review of the portfolio, risk management and
December 2019 and later spreading globally, could have a significant adverse business continuity.
impact on the Company's operations (including the ability to find and execute
suitable investments) and therefore, the Company's potential returns.
The risks associated with a pandemic affect all areas of the Company's
investments as well as operations.
In large parts of the world restrictions on social contact and travel have
been reduced or removed completely but this is not the case in some countries, Mitigation strategies apply as detailed within the specific areas of risk.
notably China, and there remains a risk of further outbreaks and ongoing
lockdowns. The current COVID-19 outbreak, as well as the restrictive measures
implemented to control such outbreaks, could continue to adversely affect the
economies of many nations or the entire global economy, the financial A global network of analysts and operations and a flexible technology setup
condition of individual issuers or companies (including those that are held (including the ability to "work from home") at the Investment Manager ensure
by, or are counterparties or service providers to, the Company) and capital operational business continuity and continuous analyst coverage. The Board has
markets in ways that cannot necessarily be foreseen, and such impact could be also received updates on its key service providers' business continuity plans.
significant and long term.
Cyber
Failure or breach of information technology systems of the Company's service The Company benefits from Franklin Templeton's technology framework designed
providers may entail risk of financial loss, disruption to operations or to mitigate the risk of a cyber security breach.
damage to the reputation of the Company.
For key third-party providers, the Audit and Risk Committee receives regular
independent certifications of their control environment.
Concentration
Concentration risk arises from investing in relatively few holdings, few The Board reviews regularly the portfolio composition/ asset allocation and
sectors or a restricted geographic area. Performance may be more volatile than discusses related developments with the Investment Manager and the independent
with a greater number of securities. risk management team. The Investment Compliance team of the Investment Manager
monitors concentration limits and highlights any concerns to portfolio
management for remedial action.
Sustainability and climate change
The Company's portfolio, and also the Company's service providers and the The Investment Manager considers that sustainability risks are relevant to the
Investment Manager, are exposed to risks arising from governance and returns of the Company. The Manager has implemented a policy in respect of the
sustainability factors, including climate change. To the extent that such a integration of sustainability and climate change risks in its investment
risk occurs, or occurs in a manner that is not anticipated by the Investment decision making process. The Board receives regular reports on the policies
Manager, there may be a sudden, material negative impact on the value of an and controls in place on ESG matters. The Board has reviewed and fully
investment, and the operations or reputation of the Investment Manager. supports the Franklin Templeton Stewardship Statement and its Sustainable
Investing Principles and Policies.
Foreign currency
Currency exchange rate movements may affect TEMIT's performance. In general, The Board monitors currency risk as part of the regular portfolio and risk
if the value of sterling increases compared with a foreign currency, an management oversight. TEMIT does not hedge currency risk.
investment traded in that foreign currency will be worth less in sterling
terms. This can have a negative effect on the Company's performance.
Portfolio liquidity
The Company's portfolio may include securities with reduced liquidity. This The closed ended structure of TEMIT reduces the impact to shareholders of
may impair the ability to sell assets which could limit the Investment potential illiquidity in the portfolio.
Manager's ability to make significant changes to the portfolio.
The Board receives and regularly reviews updates on portfolio liquidity. The
This risk was highlighted by the Russian invasion of Ukraine in February 2022. diversified nature of the portfolio and limited investments in stocks with
The five Russian stocks owned at the time of the invasion became impossible to lower liquidity result in a balanced portfolio structure.
trade and were written down to zero value.
Counterparty and credit
Certain transactions that the Company enters into expose it to the risk that The Board receives and reviews the approved counterparty list of the
the counterparty will not deliver an investment (purchase) or cash (in Investment Manager on an annual basis and receives and reviews regular reports
relation to a sale or declared dividend) after the Company has fulfilled its on counterparty risk from the Manager's independent risk team. A dedicated
responsibilities. The Company engages in securities lending which can increase team oversees the securities lending programme and evaluates all risks on a
counterparty risk. daily basis.
Operational and custody
Like many other investment trust companies, TEMIT has no employees. The The Manager's systems are regularly tested and monitored and an internal
Company therefore relies upon the services provided by third parties and is controls report, which includes an assessment of risks together with an
dependent upon the control systems of the Investment Manager and of the overview of procedures to mitigate such risks, is prepared by the Manager and
Company's other service providers. The security, for example, of the Company's reviewed by the Audit and Risk Committee.
assets, dealing procedures, accounting records and maintenance of regulatory
and legal requirements depends on the effective operation of these systems.
J.P. Morgan Europe Limited is the Company's depositary. Its responsibilities
include cash monitoring, safe keeping of the Company's financial instruments,
verifying ownership and maintaining a record of other assets and monitoring
the Company's compliance with investment limits and borrowing requirements.
The depositary is liable for any loss of financial instruments held in custody
and will ensure that the custodian and any sub-custodians segregate the assets
of the Company. The depositary oversees the custody function performed by
JPMorgan Chase Bank. The custodian provides a report on its key controls and
safeguards (SOC 1/ SSAE 16/ISAE 3402) that is independently reported on by its
auditor, PwC.
The Board reviews regular operational risk management reporting provided by
the Investment Manager.
Key personnel
The ability of the Company to achieve its objective is significantly dependent The Manager endeavours to ensure that the principal members of its management
upon the expertise of the Investment Manager and its ability to attract and teams are suitably incentivised, participate in strategic leader programmes
retain suitable staff. and monitor key succession planning metrics. The Board discusses this risk
regularly with the Manager.
Regulatory
The Company is an Alternative Investment Fund ("AIF") and is listed on both The Board, with the assistance of the Manager, ensures that the Company
the London and New Zealand stock exchanges. The Company operates in an complies with all applicable laws and regulation and its internal risk and
increasingly complex regulatory environment and faces a number of regulatory control framework reduces the likelihood of breaches happening.
risks. Breaches of regulations could lead to a number of detrimental outcomes
and reputational damage.
Emerging risks
The key emerging risk faced by the Company during the year under review was
the Russian invasion of Ukraine, discussed under geo-political and liquidity
risks above. The extent of this risk will depend on the length of the
conflict, impacts on commodity prices and associated inflationary pressure.
Viability Statement
The Board considers viability as part of its continuing programme of
monitoring risk. In preparing the Viability Statement, in accordance with the
UK Corporate Governance Code and the AIC Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months required by the 'Going Concern' provision.
The Board has considered the Company's business and investment cycles and is
of the view that five years is a suitable time horizon to consider the
continuing viability of the Company, balancing the uncertainties of investing
in emerging markets securities against having due regard to viability over the
longer term.
In assessing the Company's viability, the Board has performed a robust
assessment of controls over the principal risks. The Board considers, on an
ongoing basis, each of the principal and emerging risks as noted above and set
out in Note 15 of the Notes to the Financial Statements. The Board evaluated a
number of scenarios of possible future circumstances including a material
increase in expenses and a continued significant and prolonged fall in
emerging equity markets. The Board also considered the latest assessment of
the portfolio's liquidity. The Board monitors income and expense projections
for the Company, with the majority of the expenses being predictable and
modest in comparison with the assets of the Company. The Company sees no
issues with meeting interest payments and other principal obligations of the
borrowing facilities. A significant proportion of the Company's expenses are
an ad valorem AIFM fee, which would naturally reduce if the market value of
the Company's assets were to fall. The Board has also taken into consideration
the operational resilience of its service providers in light of the ongoing
COVID-19 pandemic.
Considering the above, and with careful consideration given to the current
market situation, the ongoing COVID-19 pandemic, the Russian invasion of
Ukraine and the challenges posed by climate change, the Board has concluded
that there is a reasonable expectation that, assuming that there will be a
successful continuation vote at the 2024 AGM, the Company will be able to
continue to operate and meet its liabilities as they fall due over the next
five years.
Future Strategy
The Company was founded, and continues to be managed, on the basis of a
long-term investment strategy that seeks to generate superior returns from
investments, principally in the shares of carefully selected companies in
emerging markets.
The Company's results will be affected by many factors including political
decisions, economic factors, the performance of investee companies and the
ability of the Investment Manager to choose investments successfully as well
as the current challenges.
The Board and the Investment Manager continue to believe in investment with a
long-term horizon in companies that are undervalued by stock markets but which
are fundamentally strong and growing. It is recognised that, at times,
extraneous political, economic and company-specific and other factors will
affect the performance of investments, but the Company will continue to take a
long-term view in the belief that patience will be rewarded.
By order of the Board
Paul Manduca
14 June 2022
Statement of Directors' Responsibilities
In respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Details of the Directors and members of the committees are reported in the
full Annual Report.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors are required to prepare the
Financial Statements in accordance with UK adopted International Accounting
Standards.
Under company law the Directors must be satisfied that the Financial
Statements give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for the period.
In preparing these Financial Statements, International Accounting Standard 1
requires that Directors:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
• Provide additional disclosures when compliance with the specific
requirements of UK adopted International Accounting Standards are insufficient
to enable users to understand the impact of particular transactions, other
events and conditions on the entity's financial position and financial
performance; and
• Assess the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
(www.temit.co.uk). Legislation in the United Kingdom governing the preparation
and dissemination of Financial Statements may differ from legislation in other
jurisdictions.
Responsibility Statement
Each of the Directors, who are listed in the full Annual Report confirms that
to the best of their knowledge:
• The Financial Statements, which have been prepared in accordance
with UK adopted International Accounting Standards, give a fair, balanced and
understandable view of the assets, liabilities, financial position and profit
or loss of the Company for the year ended 31 March 2022; and
• The Chairman's Statement, Strategic Report and the Report of the
Directors include a fair review of the information required by 4.1.8R to
4.1.11R of the FCA's Disclosure Guidance and Transparency Rules; and
• The Annual Report and Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary to assess the Company's position and performance, business model and
strategy, and include a description of principal risks and uncertainties.
By order of the Board
Paul Manduca
14 June 2022
Financial Statements
Statement of Comprehensive Income
For the Year Ended 31 March 2022
Year ended Year ended
31 March 2022 31 March 2021
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (losses)/gains on investments and foreign exchange 8
Net (losses)/gains on investments at fair value - (460,585) (460,585) - 888,402 888,402
Net losses on foreign exchange - (168) (168) - (594) (594)
Income
Dividends 2 54,020 - 54,020 56,964 - 56,964
Other income 2 250 - 250 2,965 - 2,965
54,270 (460,753) (406,483) 59,929 887,808 947,737
Expenses
AIFM fee 3 (6,316) (14,738) (21,054) (6,142) (14,331) (20,473)
Other expenses 4 (2,338) - (2,338) (2,094) - (2,094)
(8,654) (14,738) (23,392) (8,236) (14,331) (22,567)
Profit/(loss) before finance costs and taxation 45,616 (475,491) (429,875) 51,693 873,477 925,170
Finance costs 5 (858) (1,998) (2,856) (773) (1,802) (2,575)
Profit/(loss) before taxation 44,758 (477,489) (432,731) 50,920 871,675 922,595
Tax (expense)/income 6 (4,081) (5,596) (9,677) 17,303 (5,469) 11,834
Profit/(loss) for the year 40,677 (483,085) (442,408) 68,223 866,206 934,429
Profit/(loss) attributable to equity holders of the Company
40,677 (483,085) (442,408) 68,223 866,206 934,429
Earnings per share((a)) 7 3.44p (40.90)p (37.46)p 5.73p 72.73p 78.46p
((a)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
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 31 March 2022
Note As at As at
31 March 2022 31 March 2021
£'000 £'000
Non-current assets 2,124,530 2,599,075
Investments at fair value through profit or loss 8
Current assets 16,928 15,323
Trade and other receivables 9
Cash and cash equivalents 125,855 85,212
Total current assets 142,783 100,535
Current liabilities (57,718) (3,362)
Other payables 10
Total current liabilities (57,718) (3,362)
Net current assets 85,065 97,173
Non-current liabilities (9,205) (4,961)
Capital gains tax provision 6
Other payables falling due after more than one year 11 (100,000) (100,000)
Total assets less liabilities 2,100,390 2,591,287
Share capital and reserves 64,136 64,253
Equity Share Capital 12
Capital Redemption Reserve 18,533 18,416
Capital Reserve 1,466,197 1,952,886
Special Distributable Reserve 433,546 433,546
Revenue Reserve 117,978 122,186
Equity Shareholders' Funds 2,100,390 2,591,287
Net Asset Value pence per share((a)(b)) 178.2 219.4
((a)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
((b)) Based on shares in issue excluding shares held in treasury.
The Financial Statements of Templeton Emerging Markets Investment Trust PLC
(company registration number SC118022) in the full Annual Report were approved
for issue by the Board and signed on 14 June 2022.
Paul Manduca Simon Jeffreys
Chairman
Director
Statement of Changes in Equity
For the Year Ended 31 March 2022
Note Equity Share Capital Capital Special Revenue Total
Distributable
£'000
Capital Redemption Reserve
Reserve
£'000 Reserve
£'000
£'000 Reserve
£'000
£'000
Balance at 31 March 2020 65,812 16,857 1,136,322 433,546 123,113 1,775,650
Profit for the year - - 866,206 - 68,223 934,429
Equity dividends 13 - - - - (69,150) (69,150)
Purchase and cancellation of own shares 12 (1,559) 1,559 (49,642) - - (49,642)
Balance at 31 March 2021 64,253 18,416 1,952,886 433,546 122,186 2,591,287
(Loss)/profit for the year - - (483,085) - 40,677 (442,408)
Equity dividends 13 - - - - (44,885) (44,885)
Purchase and cancellation of own shares 12 (117) 117 (3,604) - - (3,604)
Balance at 31 March 2022 64,136 18,533 1,466,197 433,546 117,978 2,100,390
The accompanying notes are an integral part of the Financial Statements.
Statement of Cash Flows
For the Year Ended 31 March 2022
Note For the year to 31 March 2022 For the year to 31 March 2021
£'000 £'000
Cash flows from operating activities (432,731) 922,595
(Loss)/profit before taxation((a))
Adjustment for: (130) (26)
Bank and deposit interest
Dividend income (54,020) (56,964)
Finance costs((a)) 2,856 2,575
Net losses/(gains) on investments at fair value 8 460,585 (888,402)
Net losses on foreign exchange 168 594
Stock dividends received in year - (674)
Decrease/(increase) in debtors((a)) 16 (104)
(Decrease)/increase in creditors((a)) (614) 981
Cash generated from operations((a)) (23,870) (19,425)
Bank and deposit interest received 130 26
Dividends received 57,522 52,442
Bank overdraft interest paid (2) -
Tax paid((a)) (6,250) (5,303)
Corporation tax recovered - 23,753
Net cash inflow from operating activities 27,530 51,493
Cash flows from investing activities (600,482) (415,127)
Purchases of non-current financial assets
Sales of non-current financial assets 613,249 483,182
Net cash inflow from investing activities 12,767 68,055
Cash flows from financing activities (44,885) (69,150)
Equity dividends paid 13
Purchase and cancellation of own shares (2,041) (50,455)
Draw down from revolving credit facility 50,000 -
Bank loans' interest and fees paid (2,728) (2,561)
Net cash inflow/(outflow) from financing activities 346 (122,166)
Net increase/(decrease) in cash 40,643 (2,618)
Cash at the start of the year 85,212 87,830
Cash at the end of the year 125,855 85,212
((a)) The Company has used the (Loss)/profit before tax as a starting point in
the Statement of Cash Flows for the year ended 31 March 2022. Comparative
figures for the year have been updated to adjust the presentation in line with
IAS 8.
The accompanying notes are an integral part of the Financial Statements.
Reconciliation of liabilities arising from bank loans
Liabilities as at Cash flows Profit & Loss Liabilities as at
31 March 2021 £'000 £'000 31 March 2022
£'000 £'000
Revolving credit facility - 50,000 - 50,000
Interest and fees payable 120 (628) 757 249
Fixed term loan 100,000 - - 100,000
Interest and fees payable 355 (2,100) 2,097 352
Total liabilities from bank loans 100,475 47,272 2,854 150,601
Liabilities as at Cash flows Profit & Loss Liabilities as at
31 March 2020 £'000 £'000 31 March 2021
£'000 £'000
Revolving credit facility - - - -
Interest and fees payable 111 (474) 483 120
Fixed term loan 100,000 - - 100,000
Interest and fees payable 350 (2,087) 2,092 355
Total liabilities from bank loans 100,461 (2,561) 2,575 100,475
Notes to the Financial Statements
As at 31 March 2022
1 Accounting Policies
(a) Basis of preparation
The Financial Statements of the Company have been prepared in accordance with
UK adopted International Accounting Standards. The Financial Statements have
also been prepared in accordance with the Statement of Recommended Practice
("SORP") for investment trusts issued by the Association of Investment
Companies in April 2021 insofar as the SORP is compatible with International
Accounting Standards.
The Financial Statements have been prepared on the historical cost basis,
except for the measurement at fair value of certain financial instruments. All
financial assets and financial liabilities are recognised (or derecognised) on
the date of the transaction by the use of "trade date accounting". The
principal accounting policies adopted are set out below.
Adoption of new and revised Accounting Standards
At the date of authorisation of these Financial Statements, the following
standards and interpretations were assessed to be relevant and are all
effective for annual periods beginning on or after 1 January 2021:
• IAS 39, IFRS 7 and IFRS 9 Amendments: Interest Rate Benchmark
Reform
The amendments listed above did not have any impact on the amounts recognised
in the current reporting period.
Going concern
The Directors have a reasonable expectation that the Company has sufficient
resources to continue in operational existence for the period to 31 March
2024, which is at least 12 months from the date of the approval of the
Financial Statements. The Directors reviewed income forecasts covering the
next two financial years, including interest and fees arising from the debt
facility. The Directors considered the principal and emerging risks and
uncertainties disclosed in the full Annual Report in particular those relating
to COVID-19.
At 31 March 2022, the Company had net current assets of £85,065,000 (31 March
2021: net current assets of £97,173,000). In addition the Company holds a
portfolio of largely liquid assets that, if required, can be sold to maintain
adequate cash balances to meet its expected cash flows, including debt
servicing. The repayment of the principal balance of the Company's £100
million fixed term loan does not fall due until 2025. The repayment of the
£50 million revolving loan was due on 19 April 2022 and, subsequent to the
year end, the Investment Manager rolled it forward for a further six months.
Given the liquidity profile of the Company's assets and the current cash
levels it is expected that the Company will be able to meet the repayment
requirement. The Directors also reviewed scenarios of a significant drop in
value of the assets and noted that in those scenarios they would still be
significantly higher than the Company's liabilities. They have also confirmed
the resiliency of the Company's key service providers and are satisfied that
their contingency plans and working arrangements are sustainable.
The Board has established a framework of prudent and effective controls
performed periodically by the Audit and Risk Committee, which enable risks to
be assessed and managed. Therefore, the going concern basis has been adopted
in preparing the Company's Financial Statements. The Going Concern statement
is set out in the full Annual Report.
Functional currency
As the Company is a UK investment trust, whose share capital is issued in the
UK and denominated in sterling, the Directors consider that the functional
currency of the Company is sterling.
Estimates and assumptions
During the year, estimates and assumptions have been used to fair value the
Level 3 investments held by the Company. Further details are given in the fair
value section of Note 15 and in the Report of the Audit and Risk Committee.
There have been no other significant judgements, estimates or assumptions for
the year.
In preparing these Financial Statements, the Directors have considered the
impact of climate change as a principal risk as set out in the full Annual
Report, and have concluded that there was no further impact of climate change
to be considered as the investments are valued based on market pricing. In
line with UK adopted International Accounting Standards the investments are
valued at fair value, which for the Company are the bid prices quoted on the
relevant stock exchange at the date of the Statement of Financial Position and
therefore reflect market participants' views of climate change risk on the
investments held.
(b) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
capital nature has been presented within the Statement of Comprehensive
Income. In accordance with the Company's Articles of Association, net capital
profits may not be distributed by way of dividend. Additionally, the net
revenue is the measure that the Directors believe appropriate in assessing the
Company's compliance with certain requirements set out in Section 1158 of the
Corporation Tax Act 2010.
(c) Income
Dividends receivable on equity shares are treated as revenue for the year on
an ex-dividend basis. Where no ex-dividend date is available, dividends are
recognised on their due date. Provision is made for any dividends not expected
to be received.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the amount of the cash dividend is
recognised in the revenue column of the Statement of Comprehensive Income. Any
excess in the value of the shares received over the amount of the cash
dividend forgone is recognised in the capital column of the Statement of
Comprehensive Income.
Special dividends receivable are treated as repayment of capital or as income
depending on the facts of each particular case. Interest on bank deposits is
recognised on an accrual basis.
Stock lending income is shown gross of associated costs and recognised in
revenue as earned.
(d) Expenses
All expenses are accounted for on an accrual basis and are charged through the
revenue and capital sections of the Statement of Comprehensive Income
according to the Directors' expectation of future returns except as follows:
• Expenses relating to the purchase or disposal of an investment
are treated as capital. Details of transaction costs on purchases and sales of
investments are disclosed in Note 8; and
• Expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated. 70% of the annual AIFM fee has been allocated to the capital
account.
(e) Finance costs
Finance costs relating to bank loans are accounted for on an accrual basis
using the effective interest method in the Statement of Comprehensive Income
according to the Directors' expectations of future returns. Finance costs
relate to interest and fees on bank loans and overdrafts. 70% of the finance
costs, except for interest and fees on overdrafts, have been allocated to the
capital account.
(f) Taxation
The tax expense represents the sum of current and deferred tax. Tax
receivables will be recognised when it is probable that the benefit will flow
to the entity and the benefit can be reliably measured. In line with the
recommendations of the SORP, the allocation method used to calculate tax
relief on expenses presented against capital returns in the supplementary
information in the Statement of Comprehensive Income is the "marginal basis".
Under this basis, if taxable income is capable of being offset entirely by
expenses presented in the revenue return column of the Statement of
Comprehensive Income, then no tax relief is transferred to the capital return
column.
Deferred taxation is recognised in respect of all taxable temporary
differences that have originated but not reversed at the year-end date, where
transactions or events that result in an obligation to pay more tax in the
future or rights to pay less tax in the future have occurred at the year-end
date. This is subject to deferred tax assets only being recognised to the
extent that it is probable that taxable profit will be available against which
the deductible temporary difference can be utilised. Deferred tax assets and
liabilities are measured at the rates applicable to the legal jurisdictions in
which they arise.
Due to the Company's status as an investment trust company, and its intention
to continue to meet the eligibility conditions of Section 1158 of the
Corporation Tax Act 2010 and the ongoing requirements of The Investment Trust
(Approved Company) (Tax) Regulations 2011, the Company has not provided
deferred tax in respect of UK corporation tax on any capital gains and losses
arising on the revaluation or disposal of investments. Where appropriate, the
Company provides for deferred tax in respect of overseas taxes on any capital
gains arising on the revaluation of investments.
The carrying amount of deferred tax assets is reviewed at each year-end date
and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
(g) Investments held at fair value through profit or loss
The Company classifies its equity investments based on their contractual cash
flow characteristics and the Company's business model for managing the assets.
The Company's business is investing in financial assets with a view to
profiting from their total return in the form of revenue and capital growth.
This portfolio of financial assets is managed, and its performance evaluated
on a fair value basis, in accordance with a documented investment strategy,
and information about the portfolio is provided internally on that basis to
the Company's Directors and other key management personnel. Equity investments
fail the contractual cash flows test so are measured at fair value.
Accordingly, upon initial recognition, all of the Company's non-current asset
investments are held at "fair value through profit or loss". They are included
initially at fair value, which is taken to be their cost excluding expenses
incidental to the acquisition.
Subsequently, the investments are valued at "fair value", which is measured as
follows:
The fair value of financial instruments at the year-end date is, ordinarily,
based on the latest quoted bid price at, or before, the US market close
(without deduction for any of the estimated future selling costs), if the
instrument is held in active markets. This represents a Level 1 classification
under IFRS 13. For all financial instruments not traded in an active market or
where market price is not deemed representative of fair value, valuation
techniques are employed to determine fair value. Valuation techniques include
the market approach (i.e. using recent arm's length market transactions
adjusted as necessary and reference to the market value of another instrument
that is substantially the same) and the income approach (i.e. discounted cash
flow analysis making use of available and supportable market data as
possible).
Gains and losses arising from changes in fair value are included in the net
profit or loss for the period as a capital item in the Statement of
Comprehensive Income.
(h) Foreign currencies
Transactions involving foreign currencies are translated to sterling (the
Company's functional currency) at the spot exchange rates ruling on the date
of the transactions. Assets and liabilities in foreign currencies are
translated at the rates of exchange at the year-end date. Foreign currency
gains and losses are included in the Statement of Comprehensive Income and
allocated as capital or income depending on the nature of the transaction
giving rise to the gain or loss.
(i) Financial instruments
Cash comprises cash in hand and demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known
amounts of cash that are subject to an insignificant risk of changes in value.
Bank loans are classified as financial liabilities at amortised cost. They are
initially measured as the proceeds net of direct issue costs and subsequently
measured at amortised cost. Interest payable on the bank loan is accounted for
on an accrual basis in the Statement of Comprehensive Income. The amortisation
of direct issue costs is accounted for on an accrual basis in the Statement of
Comprehensive Income using the effective interest method.
(j) Share capital and reserves
Equity Share Capital - represents the nominal value of the issued share
capital. This reserve is undistributable.
Capital Redemption Reserve - represents the nominal value of shares
repurchased and cancelled. This reserve is undistributable.
Capital Reserve - gains and losses on realisation of investments; changes in
fair value of investments which are readily convertible to cash, without
accepting adverse terms; realised exchange differences of a capital nature;
changes in the fair value of investments that are not readily convertible to
cash, without accepting adverse terms; and the amounts by which other assets
and liabilities valued at fair value differ from their book value are within
this reserve.
Additionally, 70% of the annual AIFM fee and finance costs are charged to this
reserve in accordance with accounting policies 1(d) and 1(e).
Purchases of the Company's own shares are funded from the realised component
of the Capital Reserve. The Company's Articles of Association preclude it from
making any distribution of capital profits.
If treasury shares are subsequently cancelled, the nominal value is
transferred out of Equity Share Capital and into the Capital Redemption
Reserve.
Special Distributable Reserve - reserve created upon the cancellation of the
Share Premium Account and Capital Redemption Reserve. This reserve is fully
distributable.
Revenue Reserve - represents net income earned that has not been distributed
to shareholders. This reserve is fully distributable.
Income recognised in the Statement of Comprehensive Income is allocated to
applicable reserves in the Statement of Changes in Equity.
2 Income
2022 2021
£'000 £'000
Dividends
Non-EU dividends 52,144 54,530
UK dividends 1,306 1,532
EU dividends 570 228
Stock dividends - 674
54,020 56,964
Other income
Bank and deposit interest 130 26
Stock lending income 120 161
Interest relating to historic tax reclaims((a)) - 2,778
250 2,965
Total 54,270 59,929
((a)) Historic HMRC claim for exemption of pre 2009 dividend income from
Corporation Tax based on the Prudential & CFC FII GLO cases.
3 AIFM fee
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 6,316 14,738 21,054 6,142 14,331 20,473
On 1 October 2021, FTITML replaced FTIS as the Company's AIFM and company
secretary. The contract with FTITML may be terminated at any date by either
party giving one year's notice of termination.
The AIFM fee is paid monthly and based on the month end total net assets of
the Company. The AIFM fee for the year was 1% of net assets up to £1 billion
and 0.80% of net assets above £1 billion. 70% of the annual AIFM fee has been
allocated to the capital account.
4 Other expenses
2022 2021
£'000
£'000
Custody fees 775 706
Marketing fees 362 334
Directors' remuneration 304 275
Depository fees 207 192
Membership fees 176 156
Registrar fees 132 76
Legal fees 51 34
Auditor's remuneration
Audit of the annual financial statements 34 36
Review of the Half Yearly Report 8 7
Broker fees 33 32
Printing and postage fees 21 16
Other expenses 235 230
Total 2,338 2,094
5 Finance costs
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Fixed term loan 629 1,468 2,097 628 1,464 2,092
Revolving credit facility 227 530 757 145 338 483
Bank overdraft interest 2 - 2 - - -
Total 858 1,998 2,856 773 1,802 2,575
6 Tax on ordinary activities
2022 2021
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000 £'000 £'000
Overseas withholding tax 4,081 - 4,081 6,450 - 6,450
Capital gains tax paid - 1,352 1,352 - 508 508
Historic tax claims((a)) - - - (23,753) - (23,753)
Total current tax 4,081 1,352 5,433 (17,303) 508 (16,795)
Capital gains tax provision - 4,244 4,244 - 4,961 4,961
Total tax 4,081 5,596 9,677 (17,303) 5,469 (11,834)
2022 2021
£'000
£'000
(Loss)/profit before taxation (432,731) 922,595
Theoretical tax at UK corporation tax rate of 19% (2021: 19%) (82,219) 175,293
Effects of:
- Capital element of loss/(profit) 87,543 (168,684)
- Irrecoverable overseas withholding tax 4,081 6,450
- Excess management expenses 3,101 2,915
- Overseas capital gains tax 1,352 508
- Dividends not subject to corporation tax (7,924) (9,079)
- Movement in overseas capital gains tax liability 4,244 4,961
- UK dividends (248) (291)
- Overseas tax expensed (253) (154)
- Historic tax claims((a)) - (23,753)
Actual tax charge 9,677 (11,834)
((a)) Historic HMRC claim for exemption of pre 2009 dividend income from
Corporation Tax based on the Prudential & CFC FII GLO cases was received
in May 2020.
As at 31 March 2022 the Company had unutilised management expenses and
non-trade deficits of £284.4 million carried forward (2021: £268.1 million).
These balances have been generated because a large part of the Company's
income is derived from dividends which are not taxed. Based on current UK tax
law, the Company is not expected to generate taxable income in a future period
in excess of deductible expenses for that period and, accordingly, is unlikely
to be able to reduce future tax liabilities by offsetting these excess
management expenses. These excess management expenses are therefore not
recognised as a deferred tax asset.
Movement in provision for capital gains tax 2022 2021
£'000 £'000
Balance brought forward 4,961 -
Charge for the year 5,596 5,469
Capital gains tax paid (1,352) (508)
Balance carried forward 9,205 4,961
Provision consists of:
9,205 4,961
- Overseas capital gains tax liability((a))
9,205 4,961
((a)) A provision for deferred capital gains tax has been recognised in
relation to unrealised gains for holdings in India and Pakistan.
7 Earnings per share
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Earnings 40,677 (483,085) (442,408) 68,223 866,206 934,429
2022 2021
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings per share((a)) 3.44 (40.90) (37.46) 5.73 72.73 78.46
((a)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
The earnings per share is based on the profit attributable to equity holders
and on the weighted average number of shares in issue during the year of
1,181,093,110 (year to 31 March 2021 after the sub-division of shares:
1,190,975,420).
8 Financial assets - investments
2022 2021
£'000 £'000
Opening investments 1,553,330 1,539,265
Book cost
Net unrealised gains 1,045,745 240,988
Opening fair value 2,599,075 1,780,253
Movements in the year: 603,763 415,812
Additions at cost
Disposals proceeds (617,723) (485,392)
Net (losses)/gains on investments at fair value (460,585) 888,402
2,124,530 2,599,075
Closing investments 1,732,693 1,553,330
Book cost
Net unrealised gains 391,837 1,045,745
Closing investments 2,124,530 2,599,075
All investments have been recognised at fair value through the Statement of
Comprehensive Income.
Transaction costs for the year on purchases were £749,000 (2021: £612,000)
and transaction costs for the year on sales were £1,209,000 (2021:
£875,000). The aggregate transaction costs for the year were £1,958,000
(2021: £1,487,000). Please note the comparative figures for the year ended 31
March 2021 have been retrospectively adjusted to incorporate some additional
expenses identified as transaction costs.
2022 2021
£'000 £'000
Net (losses)/gains on investments at fair value comprise:
193,323 83,645
Net realised gains based on carrying value at 31 March
Net movement in unrealised (depreciation)/appreciation (653,908) 804,757
Net (losses)/gains on investments at fair value (460,585) 888,402
9 Trade and other receivables
2022 2021
£'000 £'000
Dividends receivable 8,224 11,726
Sales awaiting settlement 5,955 1,649
Overseas tax recoverable 2,661 1,844
Other debtors 88 104
Total 16,928 15,323
10 Other payables
2022 2021
£'000 £'000
Revolving credit facility payable 50,000 -
Purchase of investments for future settlement 3,292 11
Amounts owed for share buybacks 1,563 -
AIFM fee 1,515 1,816
Accrued expenses 747 1,060
Interest and fees on borrowings 601 475
Total 57,718 3,362
Interest and fees on borrowings consist of: 2022 2021
£'000 £'000
Fixed term loan 352 355
Revolving credit facility 249 120
Total 601 475
Revolving credit facility
On 31 January 2020, the Company entered into a £120 million multi-currency
unsecured revolving credit facility (the "facility") for a period of three
years with The Bank of Nova Scotia, London Branch. Balances can be drawn down
in GBP, USD or CNH. The agreement was revised on 17 September 2021 to account
for the London Interbank Offered Rate ("LIBOR") discontinuation. Under the new
terms, the USD drawdown rates are 1.125% per annum over the daily secured
overnight financing rate ("SOFR") administered by the Federal Reserve Bank of
New York plus the applicable baseline credit adjustment spread, while for any
sterling drawdowns the rate is 1.125% per annum over the daily sterling
overnight index average ("SONIA") published by the Bank of England plus the
applicable credit adjustment spread. The rate for any CNH drawdowns remains
unchanged at a rate of 1.125% per annum over the Hong Kong Interbank Offered
Rate.
Undrawn balances in excess of £60 million are charged at 0.40% per annum and
any undrawn portion below this is charged at 0.35% per annum. Under the terms
of the facility, the net assets shall not be less than £1,015 million and the
adjusted net asset coverage to all borrowings shall not be less than 3.5:1.
On 18 October 2021, the Company drew down £50 million from the revolving
credit facility repayable within six months (2021: revolving credit facility
was not utilised).
The facility is shown at amortised cost and revalued for exchange rate
movements. Any gain or loss arising from changes in exchange rates is included
in the capital reserves and shown in the capital column of the Statement of
Comprehensive Income. Interest costs are charged to capital (70%) and revenue
(30%) in accordance with the Company's accounting policies.
11 Other payables falling due after more than one year
2022 2021
Book value Book value
£'000 £'000
Fixed term loan 100,000 100,000
Total 100,000 100,000
Fixed term loan
On 31 January 2020, the Company entered into a term loan (the "term loan") for
a period of five years with Scotiabank Europe PLC for £100 million.
The term loan bears interest at a fixed annual rate of 2.089%. Under the
conditions of the term loan, the net assets shall not be less than £1,015
million and the adjusted net asset coverage to all borrowings shall not be
less than 3.5:1.
The facility is shown at amortised cost. Interest costs are charged to capital
(70%) and revenue (30%) in accordance with the Company's accounting policies.
12 Equity share capital
2022 2021
Ordinary shares in issue £'000 Number((a)) £'000 Number((a))
Opening ordinary shares of 5 pence 59,062 1,181,228,655 60,621 1,212,420,695
Purchase and cancellation of own shares (117) (2,331,670) (1,559) (31,192,040)
Closing ordinary shares of 5 pence 58,945 1,178,896,985 59,062 1,181,228,655
2022 2021
Ordinary shares held in treasury £'000 Number((a)) £'000 Number((a))
Opening ordinary shares of 5 pence 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
Total ordinary shares in issue and held in treasury at the end of the year 64,136 1,282,722,880 64,253 1,285,054,550
((a)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
The Company's shares (except those held in treasury) have unrestricted voting
rights at all general meetings, are entitled to all of the profits available
for distribution by way of dividend and are entitled to repayment of all of
the Company's capital on winding up.
During the year, 2,331,670 shares were bought back for cancellation at a cost
of £3,604,000 (2021: 31,192,040 shares were bought back for cancellation at a
cost of £49,642,000). All shares bought back in the year were cancelled, with
none being placed in treasury (2021: no shares were placed into treasury).
13 Dividends
2022 2021
Rate((a)) Rate((a))
(pence) £'000 (pence) £'000
Declared and paid in the financial year
Dividend on shares:
Final dividends for the years ended 31 March 2021 and 31 March 2020 2.80 33,074 2.80 33,680
Interim dividends for the six-month periods ended 30 September 2021 and 1.00 11,811 1.00 11,823
30 September 2020
Special dividends for the year ended 31 March 2021 - - 2.00 23,647
Total 3.80 44,885 5.80 69,150
Proposed for approval at the Company's AGM
Dividend on shares:
Final dividend for the year ended 31 March 2022 2.80 32,960
((a)) Comparative figures for the year ended 31 March 2021 have been
retrospectively adjusted following the sub-division of each existing ordinary
share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Dividends are recognised when the shareholders' right to receive the payment
is established. In the case of the final dividend, this means that it is not
recognised until approval is received from shareholders at the AGM. The
proposed final dividend of 2.80 pence per share will be funded from the
revenue reserve and the payment of this dividend will not threaten the going
concern or viability of the Company.
14 Related party transactions
There were no transactions with related parties, other than the fees paid to
the Directors and the AIFM fee during the year ended 31 March 2022, which have
a material effect on the results or the financial position of the Company.
Details of fees paid to the Directors are included in the full annual report
and details of the fee paid to the AIFM is included in the full Annual Report.
15 Risk management
In pursuing the Company's objective, as set out in the full Annual Report, the
Company holds a number of financial instruments which are exposed to a variety
of risks that could result in either a reduction in the Company's net assets
or a reduction in the profits available for dividends.
The main risks arising from the Company's financial instruments are investment
and concentration risk, market risk (which comprises market price risk,
foreign currency risk and interest rate risk), liquidity risk and counterparty
and credit risk.
The objectives, policies and processes for managing these risks, and the
methods used to measure the risks, are set out below. These policies have
remained unchanged since the beginning of the year to which these Financial
Statements relate.
Investment and concentration risk
The Company may invest a greater portion of its assets than the benchmark in
the securities of one issuer, securities of a particular country, or
securities within one sector. As a result, there is the potential for an
increased concentration of exposure to economic, business, political or other
changes affecting similar issues or securities, which may result in greater
fluctuation in the value of the portfolio. Investment risk and a certain
degree of concentration risk is a known and necessary effect of the stated
investment approach in line with the investment policy. The Directors
regularly review the portfolio composition and asset allocation and discuss
related developments with the Investment Manager. Security, country, and
sector concentrations are monitored by the Manager's risk and compliance teams
on a regular basis and any concerns are highlighted to the Investment Manager
for remedial action and brought to the attention of the Directors.
Market price risk
Market risk arises mainly from uncertainties about future prices of financial
instruments held. It represents the potential loss that the Company might
suffer through holding market positions in the face of price movements.
The Directors meet quarterly to consider the asset allocation of the portfolio
and to discuss the risks associated with particular securities, countries or
sectors. The Investment Manager selects securities in the portfolio in
accordance with the investment policy, and the overall asset allocation
parameters described above, and seeks to ensure that individual stocks also
meet the intended risk/reward profile.
The Company does not use derivative instruments to hedge the investment
portfolio against market price risk as, in the Investment Manager's opinion,
such a process could result in an unacceptable level of cost and/or a
reduction in the potential for capital growth.
100% (2021: 100%) of the Company's investment portfolio is listed on stock
exchanges. If share prices as at 31 March 2022 had decreased by 30% (2021: 30%
decrease) with all other variables remaining constant, the Statement of
Comprehensive Income capital return and the net assets attributable to equity
shareholders would decrease by £637,359,000 (2021: £779,723,000). A 30%
increase (2021: 30% increase) in share prices would have resulted in a
proportionate equal and opposite effect on the above amounts, on the basis
that all other variables remain constant.
Foreign currency risk
Currency translation movements can significantly affect the income and capital
value of the Company's investments, as the majority of the Company's assets
and income are denominated in currencies other than sterling, which is the
Company's functional currency.
The Investment Manager has identified three principal areas where foreign
currency risk could affect the Company:
• Movements in rates affect the value of investments;
• Movements in rates affect short-term timing differences; and
• Movements in rates affect the income received.
The Company does not hedge the sterling value of investments that are priced
in other currencies. The Company may be subject to short-term exposure to
exchange rate movements, for instance where there is a difference between the
date on which an investment purchase or sale is entered into and the date on
which it is settled.
The Company receives income in currencies other than sterling and the sterling
values of this income can be affected by movements in exchange rates. The
Company converts all receipts of income into sterling on or near the date of
receipt. However, it does not hedge or otherwise seek to avoid rate movement
risk on income accrued but not received.
The fair value of the Company's items that have foreign currency exposure at
31 March are shown below:
2022 Trade, bank, Total net Investment
Trade and loans, and foreign at fair
other receivables Cash at bank other payables currency value through
£'000 £'000 £'000 exposure profit or loss
Currency £'000 £'000
Korean won 6,523 - - 6,523 486,879
Hong Kong dollar 19 - (219) (200) 376,797
Taiwan dollar 3,791 2,069 (2,069) 3,791 363,488
US dollar 53 - (1,000) (947) 252,082
Indian rupee - 323 - 323 188,326
Other 6,473 116 (23) 6,566 427,793
2021 Trade, bank, loans, and Total net foreign currency exposure Investment
Trade and other payables £'000 at fair value through profit or loss((a))
other receivables Cash at bank £'000 £'000
£'000 £'000
Currency
Hong Kong dollar 430 - (430) - 626,193
Korean won 9,304 - - 9,304 574,910
Taiwan dollar 4,001 3,213 - 7,214 429,925
US dollar 578 - (5) 573 357,514
Indian rupee 27 - - 27 162,049
Other 1,089 - - 1,089 394,142
((a)) Comparative figures for the year ended 31 March 2021 on US dollar and
Other have been restated due to a prior year misallocation.
The above tables are based on the currencies of the country where shares are
listed rather than the underlying currencies of the countries where the
companies earn revenue.
As at 31 March 2022, 65.4% (2021: 69.5%) of the investments shown as US dollar
and Hong Kong dollar are Chinese companies with exposure to the Chinese yuan.
The total exposure to Chinese yuan was £604.9 million (2021: £769.7
million).
Foreign currency sensitivity
The following table illustrates the foreign currency sensitivity of the total
income (which is mainly comprised of dividend income) and of the financial
assets and liabilities of the Company if sterling had strengthened by 10%
relative to the top 5 currencies on the reporting date. With all other
variables held constant, the revenue and capital return would have decreased
by the below amounts.
2022 2021
Revenue Capital Revenue Capital
Return Return Return Return((a))
£'000 £'000 £'000 £'000
Korean won 1,083 48,688 1,460 57,491
Hong Kong dollar 482 37,660 1,161 62,619
Taiwan dollar 955 36,349 748 43,414
US dollar 994 25,108 858 35,794
Indian rupee 169 18,865 147 16,205
Total 3,683 166,670 4,374 251,523
((a)) Comparative figures for the year ended 31 March 2021 on the capital
return column have been revised to exclude income items.
A 10% weakening of sterling against the above currencies would have resulted
in an equal and opposite effect on the above amounts.
Interest rate risk
The Company is permitted to invest in interest bearing securities. Any change
to the interest rates relevant to particular securities may result in income
either increasing or decreasing, or the Investment Manager being unable to
secure similar returns on the expiry of contracts or the sale of securities.
In addition, changes to prevailing rates or changes in expectations of future
rates may result in an increase or decrease in the value of the securities
held and the interest payable on bank loans when interest rates are reset.
The fixed term loan incurs a fixed rate of interest and is carried at
amortised cost rather than fair value. Hence, movements in interest rates will
not affect net asset values, as reported under the Company's accounting
policies.
The revolving loan bears interest at the rate of 1.125% over the daily SONIA
rate plus the applicable baseline credit adjustment spread. Hence, movements
in SONIA rates may result in an increase or decrease of the interest payable
on the revolving loan affecting the net asset value of the Company.
Interest rate risk profile
The exposure of the financial assets and liabilities to floating interest rate
risks at 31 March is shown below:
2022 2021
£'000 £'000
Cash 125,855 85,212
Revolving credit facility (50,000) -
Net exposure at year end 75,855 85,212
Exposures vary throughout the year as a consequence of changes in the make-up
of the net assets of the Company. Cash balances are held on call deposit and
earn interest at the bank's daily rate. The Company's net assets are sensitive
to changes in interest rates on borrowings. There was no exposure to fixed
interest investment securities during the year or at the year end.
Interest rate sensitivity
If the above level of cash and revolving credit facility were maintained for a
year and interest rates were 100 basis points higher or lower, the net profit
after taxation would be impacted by the following amounts:
2022 2021
100 basis 100 basis 100 basis 100 basis points decrease
points points points £'000
increase decrease increase
£'000 £'000 £'000
Revenue 1,109 (1,109) 852 (852)
Capital (350) 350 - -
Total 759 (759) 852 (852)
Liquidity risk
The Company's assets comprise mainly securities listed on the stock exchanges
of emerging economies. Liquidity can vary from market to market and some
securities may take a significant period to sell. As a closed ended investment
trust, liquidity risks attributable to the Company are less significant than
for an open-ended fund.
The risk of the Company not having sufficient liquidity at any time is not
considered by the Board to be significant, given the large number of quoted
investments held in the portfolio and the liquid nature of the portfolio of
investments.
The Investment Manager reviews liquidity at the time of making each investment
decision and monitors the evolving liquidity profile of the portfolio
regularly.
The below table details the maturity profile of the Company's financial
liabilities as at 31 March 2022, based on the earliest date on which payment
can be required and current exchange rates as at the Balance Sheet date:
As at 31 March 2022 In one year More than More than More than Total
or less one year two years three years £'000
£'000 and not and not £'000
later than later than
two years three years
£'000 £'000
Fixed term loan 2,089 2,089 102,095 - 106,273
Revolving credit facility 51,117 - - - 51,117
Other payables 7,117 - - - 7,117
Total 60,323 2,089 102,095 - 164,507
As at 31 March 2021(a) In one year More than More than More than Total
or less one year two years three years £'000
£'000 and not and not £'000
later than later than
two years three years
£'000 £'000
Fixed term loan 2,100 2,089 2,089 102,095 108,373
Revolving credit facility 471 - - - 471
Other payables 2,887 - - - 2,887
Total 5,458 2,089 2,089 102,095 111,731
((a)) Comparative figures for the year ended 31 March 2021 have been revised
to exclude the capital gains tax provision from other payables as it does not
meet the definition of a financial liability. Also, finance costs related to
the revolving credit facility have been presented separately from other
payables.
Counterparty and credit risk
Certain transactions in securities that the Company enters into expose it to
the risk that the counterparty will not deliver the investment (purchase) or
cash (in relation to sale or declared dividend) after the Company has
fulfilled its responsibilities. The Company only buys and sells through
brokers which have been approved by the Investment Manager as an acceptable
counterparty. In addition, limits are set as to the maximum exposure to any
individual broker that may exist at any time. These limits are reviewed
regularly. The amounts under trade and other receivables and cash and cash
equivalents shown in the Statement of Financial Position represent the maximum
credit risk exposure at the year end.
The Company has an ongoing contract with its custodian (JPMorgan Chase Bank)
for the provision of custody services.
As part of the annual risk and custody review, the Company reviewed the
custody services provided by JPMorgan Chase Bank and concluded that, while
there are inherent custody risks in investing in emerging markets, the custody
network employed by TEMIT has appropriate controls in place to mitigate those
risks, and that these controls are consistent with recommended industry
practices and standards.
Securities held in custody are held in the Company's name or to its accounts.
Details of holdings are received and reconciled monthly. Cash is actively
managed by Franklin Templeton's Trading Desk in Edinburgh and is typically
invested in overnight time deposits in the name of TEMIT with an approved list
of counterparties. Any excess cash not invested by the Trading Desk will
remain in a JPMorgan Chase interest bearing account. There is no significant
risk on debtors and accrued income or tax at the year end.
During the year, the Company participated in a securities lending programme
through JPMorgan as the lending agents. As at 31 March 2022, the market value
of the securities on loan and the corresponding collateral received were as
follows:
31 March 2022 31 March 2021
Counterparty Market value Market value Market value Market value
of securities of collateral of securities of collateral received
on loan received on loan £'000
£'000 £'000 £'000
Merrill Lynch International 2,908 4,047 - -
Citigroup 382 558 82 119
Morgan Stanley - - 7,820 10,581
UBS - - 3,285 4,055
Total 3,290 4,605 11,187 14,755
The maximum aggregate value of securities on loan at any time during the year
was £17,002,296. The collateral received comprised investment grade sovereign
bonds and treasury notes and bonds.
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;
• Non-current financial assets on the basis set
out in the annual accounting policies; and
• Cash at the denominated currency of the account.
Investments held by the Company are valued in accordance with the accounting
policies. The carrying value of the other financial assets and liabilities
of the Company which is included in the Statement of Financial Position 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 are
shown below:
31 March 2022 31 March 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Listed investments 2,103,727 - 20,803((a)(b)) 2,124,530 2,548,121 50,954 - 2,599,075
((a)) On 31 March 2021 the company listing for Brilliance China Automotive was
suspended from the Hong Kong stock exchange. For the 31 March 2021 Annual
Report, given the suspension the previous published market price was not
deemed representative of fair value and was subsequently reduced by 10% based
on facts and circumstances known at that date, as a result the fair value of
the Company's holding at 31 March 2021 was £50,594,000 and the stock
disclosed as Level 2. As the stock remained suspended at 31 March 2022 the
stock has been transferred from Level 2 to Level 3. The closing value of the
Company's holding as at 31 March 2022 was £20,803,000. This valuation was
based on a beta model with the unobservable inputs shown in the table below.
((b)) Russian investments in Gazprom, LUKOIL, Sberbank of Russia, VK, and
Yandex have been fair valued at zero as at 31 March 2022 as a result of
trading being suspended on international stock exchanges. These investments
have been transferred from Level 1 to Level 3.
The following table presents the key unobservable inputs for Brilliance China
Automotive's beta model as at 31 March 2022:
Description Fair value Unobservable Weighted Reasonable Reasonable Reasonable
£'000 input average input possible shift possible possible
+/- shift + shift -
£'000 £'000
Equities 20,803 Index movement -12% 4% 1,157 (1,157)
Unleveraged beta 1.19 0.5 (1,434) 1,434
The following table presents the movement in Level 3 investments for the year
ended:
31 March 2022 31 March 2021
£000 £000
Opening balance - -
Transfers from Level 1 into Level 3 149,593 -
Transfers from Level 2 into Level 3 50,954 -
Net losses on investments at fair value (179,744) -
Level 3 closing balance 20,803 -
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 to decrease the Company's net assets by £390,000. The fair value of
the Company's fixed term loan at the year-end was £100,390,000 (2021:
£102,560,000). The fair value of the fixed term loan is calculated by
aggregating the expected future cash flows which are discounted at a rate
comprising the sum of SONIA rate plus a static spread. The fixed term loan is
considered to be classed as Level 2.
16 Significant holdings in investee undertakings
As at 31 March 2022 and 2021, TEMIT had no significant holdings of 3% or more
of any issued class of security within the portfolio.
17 Contingent liabilities
No contingent liabilities existed as at 31 March 2022 or 31 March 2021.
18 Contingent assets
No contingent assets existed as at 31 March 2022 or 31 March 2021.
19 Financial commitments
No financial commitments existed as at 31 March 2022 or 31 March 2021.
20 Capital management policies and procedures
The Company's objective is to provide long-term capital appreciation for
private and institutional investors seeking exposure to global emerging
markets, supported by a culture of both strong customer service and corporate
governance.
The Board monitors and regularly reviews the structure of the Company's
capital on an ongoing basis. This review includes the investment performance
and outlook, discount management mechanisms including share buybacks, gearing
and the extent to which revenue in excess of that which is required to be
distributed under the investment trust rules should be retained.
The Company's investment policy allows borrowing of up to 20% of net assets,
measured at the time of borrowing.
As at 31 March 2022, the Company had share capital and reserves of
£2,100,390,000 (31 March 2021: £2,591,287,000).
21 Events after the reporting period
Subsequent to the year end, the Investment Manager rolled forward the £50
million revolving facility drawdown and took this borrowing out for a further
six months.
The only other material post balance sheet event is in respect of the proposed
dividend, which has been disclosed in Note 13.
The statutory accounts for the period ended 31 March 2022 received an audit
report which was unqualified, did not include a reference to any matters to
which the Auditors drew attention by way of emphasis without qualifying the
report, and did not contain statements under section 498(2) and (3) of the
Companies Act 2006, and will be delivered to the Registrar of Companies.
The Annual Report and Accounts will be sent to Shareholders shortly. Copies
will be uploaded and available for viewing on the National Storage Mechanism,
copies will also be posted to the website www.temit.co.uk
(http://www.temit.co.uk) 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:CompanySecretarialEdinburgh@franklintempleton.com) or contact Client
Dealer Services at Franklin Templeton on free phone 0800 305 306, +44 (0) 20
7073 8690 for overseas investors, or e-mail enquiries@franklintempleton.co.uk
(mailto:enquiries@franklintempleton.co.uk) .
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