REG - TempletonEmerg.Mkt. - Statement of Annual Results to 31 March 2024
07/06/2024 16:45
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RNS Number : 6819R Templeton Emerging Markets IT PLC 07 June 2024
Stock Exchange Announcement
Statement of Annual Results
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC
("TEMIT" or "the Company")
Legal Entity Identifier 5493002NMTB70RZBXO96
Templeton Emerging Markets Investment Trust plc
Annual Report and Accounts to 31 March 2024
Introducing TEMIT
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. From its launch to 31 March 2024, TEMIT's net asset
value ('NAV') total return was +4,155.4% compared to the benchmark total
return of +1,752.0%.
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.
Financial highlights
2024 2023 3 Years Cumulative 5 Years Cumulative 10 Years Cumulative
Net Assets Value Total Return 7.9% 0.8% (10.0)% 23.4% 89.5%
(cum-income)((a))
Share Price Total Return((a)) 4.9% 0.5% (16.9)% 16.5% 84.7%
MSCI Emerging Markets Index((a)(b)) 5.9% (4.9)% (6.5)% 15.1% 76.5%
Proposed Total 5.00p 5.00p
Ordinary Dividend((c))
(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
(Net Dividends) Index.
(c) An annual ordinary dividend of 5.00 pence per share for the year ended
31 March 2024 has been proposed. This comprises the interim dividend of 2.00
pence per share paid by the Company on 26 January 2024 and the proposed final
dividend of 3.00 pence per share.
Strategic report
The Directors present the Strategic Report for the year ended 31 March 2024,
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
2023-2024
Year Ended Year Ended Change
31 March 2024
31 March 2023
Net Asset Value Total Return (Cum-Income)((a)) 7.9% 0.8%
Share Price Total Return((a)) 4.9% 0.5%
MSCI Emerging Markets (Net Dividends) Index Total Return((a)) 5.9% (4.9)%
Total Net Assets (£ millions) 2,034.9 2,017.5 0.9%
Net Asset Value (Pence per Share) 182.5 174.1 4.8%
Share Price (Pence per Share) 154.4 152.2 1.4%
Share Price Discount to Net Asset Value at Year End((a)) 15.4% 12.6%
Average Share Price Discount to Net Asset Value Over the Year((a)) 13.9% 13.0%
Ordinary Dividend((b)) (Pence per Share) 5.00 5.00
Revenue Earnings((c)) (Pence per Share) 5.18 5.72
Net Gearing((a)) 0.0% 0.0%
Ongoing Charges Ratio((a)) 0.97% 0.98%
Source: Franklin Templeton and FactSet.
(a) A glossary of alternative performance measures is included in the full
Annual Report.
(b) An annual ordinary dividend of 5.00 pence per share for the year ended
31 March 2024 has been proposed. This comprises the interim dividend of 2.00
pence per share (2023: 2.00 pence per share) paid by the Company on 26 January
2024 and a proposed final dividend of 3.00 pence per share (2023: 3.00 pence
per share).
(c) The revenue 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.
10 year record
2014-2024
Year Ended Total Net NAV((a)) Share Price((a)) Year-End Revenue Annual Ongoing
Assets (£m)
(Pence
(Pence
Discount((b)) (%)
Earnings((a))
Dividend((a))
Charges
per Share)
per Share)
(Pence
(Pence
Ratio((b)) (%)
per Share)
per Share)
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 0.97
31 March 2023 2,017.5 174.1 152.2 12.6 5.72 5.00 0.98
31 March 2024 2,034.9 182.5 154.4 15.4 5.18 5.00((d)) 0.97
Source: Franklin Templeton and FactSet.
(a) Comparative figures for financial years 2014 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 31 March 2020 and the special dividend of 2.00 pence per share for the
year ended 31 March 2021.
(d) An annual ordinary dividend of 5.00 pence per share for the year ended
31 March 2024 has been proposed. This comprises the interim dividend of 2.00
pence per share paid by the Company on 26 January 2024 and a proposed final
dividend of 3.00 pence per share.
Chairman's statement
'Over the year under review, our Investment Managers produced a commendable
+7.9% NAV total return, which was 2.0 percentage points higher than the
benchmark index.'
Angus Macpherson
Chairman
It is a great pleasure to deliver to you my first statement since assuming the
role of Chairman in January. All of the Board members would like to thank my
predecessor Paul Manduca for his excellent contribution in leading the Board
and steering the Company over the last nine years. We wish Paul well in his
current and future endeavours.
I have been involved with emerging markets for most of my career. During that
time, I have considered Templeton Emerging Markets Investment Trust, your
Company, as a pioneer of the asset class and the most widely recognised and
admired investment vehicle of its type. Its achievements speak for themselves:
from its launch 35 years ago, it has provided a NAV total return of +4,155.4%
compared to a benchmark total return over the same period of only +1,752.0%.
At the moment, some of the forces that drove this performance - globalisation,
free trade and geopolitical stability following the fall of the Berlin wall -
are under threat. China, the largest and most successful emerging market, is a
cause of increasing alarm to western governments. This has translated into
less compelling returns for the asset class. Since 2000 emerging market
equities have returned more to shareholders than world stock markets overall,
but most of that outperformance occurred in the first decade of the 21(st)
century and in the most recent ten years this trend has reversed.
Your Manager and Board are optimistic about emerging markets in the longer
term but acknowledge that significant challenges are adversely impacting the
appetite of investors for emerging market equities as an asset class at this
time.
Performance((a))
Over the year under review, our Investment Managers produced a commendable
+7.9% NAV total return, which was 2.0 percentage points higher than the
benchmark index.
The share price performance of the Company did not reflect this positive
performance, delivering a total return of only +4.9%, as the discount the
shares trade to their underlying net asset value widened from 12.6% to 15.4%.
We believe that this mainly reflects investor appetite for emerging markets.
(a) See Glossary of Alternative Performance Measures in the full Annual
Report.
Share price rating
This discount is extremely unsatisfactory and of considerable concern to the
Board. Your Company is not alone in experiencing such a discount: at the end
of March 2024 the average investment trust discount was 15.6%, compared with
3.2% three years previously((b)). This does not alter the fact that investors
have recently only been willing to buy £1 of emerging market equities for
around 85p. While the cause is evidently a lack of buyers for the Company's
shares, the solution is harder to achieve.
(b) Source: Winterflood (data provided by Refinitiv).
The Board believes that there are three important factors which can narrow the
discount: renewed investor enthusiasm for emerging market equities after a
period in the doldrums (investor psychology is notoriously cyclical); a
company structure with investment performance that makes it attractive
relative to other investment vehicles; and an enhanced profile through
marketing that increases awareness amongst new investors.
Two of these three factors, the performance of the Company and its marketing
efforts, have been strong. The Portfolio Managers, Chetan Sehgal and Andrew
Ness, have delivered outperformance. This year, the Company received an Income
and Growth award rating from Kepler Investment Trust Intelligence. Kepler's
annual ratings are intended to highlight investment trusts that have
demonstrated attractive and consistent performance over the long term, using
the unique advantages of the investment trust structure to benefit
shareholders.
Our Manager has also been active in promoting TEMIT's shares to existing and
potential investors via a variety of traditional and online channels. In
recent years they have made great advances particularly in digital marketing.
Additionally, our Portfolio Managers participate in a range of activities,
including presentations to investor groups and meetings with key journalists.
The Board was pleased again to be recognised by the AIC in its awards for
shareholder communication in September 2023, for the second consecutive year.
So the missing factor to a natural and positive re-rating for our shares is a
return to favour for emerging markets more generally. We cannot influence this
but our objective is to continue to lay the foundations through appropriate
structural mechanisms, strong performance and ongoing marketing, so that the
Company can enjoy the benefit of buying interest when sentiment towards
emerging markets improves.
Shareholder returns
There are a number of levers at the disposal of the Board which have been put
in place to make the shares of the Company relatively more attractive: a
commitment to at least maintain the dividend; a share buyback programme for up
to £200.0 million; a further conditional tender offer; and amendments to the
Company's management fee arrangements.
Dividends
An interim dividend of 2.00 pence per share was paid at the half year stage
and the Board is proposing an unchanged final dividend of 3.00 pence per
share, taking the total for the year to 5.00 pence per share. The proposed
full year dividend yield will amount to 3.2%, based on the share price as at
31 March 2024. This compares with net revenue earnings for the year under
review of 5.18 pence per share, which was a little lower than the preceding
year.
Over the course of the last five years, including this year's proposed final
dividend, the Company has paid aggregated dividends((a)) of £249.0 million or
23.92 pence per share to shareholders. Over five years, we will then have
returned circa 15.6% of the share price on 31 March 2019 to shareholders in
dividends.
(a) Includes special dividends of 0.52 pence per share for the year ended
31 March 2020 and 2.00 pence per share for the year ended 31 March 2021 which
related respectively to an extraordinary distribution from Brilliance China
Automotive and a tax reclaim.
The Company has accumulated significant distributable reserves over the years
and the Board intends to at least maintain the dividend at the current level
of 5.00 pence per share for next five years and will, if necessary, use
reserves to do so. This equates to a total minimum distribution over the next
five years of £278.7 million on the basis of the number of shares in issue as
at 31 March 2024, and equivalent to 16.2% of the Company's market
capitalisation as at 31 March 2024.
Share buybacks
The Board does not believe that share buybacks narrow the discount to NAV in
anything other than the short term. However, the Board remains steadfast in
its view that share buybacks are important in providing liquidity to
shareholders and enhancing returns. In the Board's view an investment manager
needs a very high level of conviction to purchase a new holding when shares of
the Company can be purchased at a wide discount to NAV. In total over the last
year, £65.9 million was allocated to share buybacks, representing 3.8% of the
outstanding share capital. All buybacks were executed at a discount to the
prevailing NAV and this resulted in an increase in the NAV of 0.54% to the
benefit of continuing shareholders.
Over the past five years, the Company has purchased 142.3 million((a)) shares
for £218.2 million. In aggregate these share buybacks resulted in an increase
in the NAV of 1.5% to the benefit of continuing shareholders.
(a) Adjusted for the sub-division of each share into five shares on 26 July
2021.
In view of the wide discount that the shares are trading to their underlying
NAV the Board has decided that it will substantially increase the rate of
share buybacks and, if the discount persists, intends to repurchase up to
£200.0 million of shares at open market value over the next 12 to 24 months
and continue at a suitable rate as required thereafter. This should enhance
returns for continuing shareholders and provide improved liquidity for those
wishing to realise their investment.
Conditional tender offer
31 March 2024 also marked the point at which we measured performance over five
years for our conditional tender offer. In 2019, the Board announced that if
the NAV total return over five years did not exceed that of the benchmark
index, then the Company would implement a conditional tender offer for up to
25% of the issued share capital at a price equal to the net asset value less
two per cent (less the costs of the tender offer). The Board is pleased to
report that the NAV total return over the period was +23.4%, which was 8.3
percentage points higher than that of the benchmark index, representing
annualised outperformance of over 1.6% per annum. As a result, the conditions
for triggering the tender offer were not met.
The Board and Manager believe in active management to generate excess return.
As a consequence, we have decided to offer a new conditional tender. If over
the five-year period from 31 March 2024 to 31 March 2029 the Company's net
asset value total return fails to exceed the benchmark total return then the
Board will put forward proposals to shareholders to undertake a tender offer
for up to 25 per cent of the outstanding share capital 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 (less the costs of the tender
offer). As with the previous conditional tender offer, any tender offer will
also be conditional on shareholders approving the continuation vote in 2029
and would take place following the Company's 2029 annual general meeting
('AGM').
Fees
The Board recognises the commitment of its Manager to provide on-the-ground
presence across global emerging markets. It also recognises the industry-wide
pressure on management fees. The Board's measured response is a phased change
in fees between now and mid-2026.
Current fee rates:
• 1% of the first £1 billion of net assets;
• 0.75% of net assets between £1 billion and £2 billion; and
• 0.5% of net assets over £2 billion.
With effect from 1 July 2024 and 1 July 2025, the middle rate band for net
assets between £1 billion and £2 billion will reduce to 0.7% and then 0.6%
respectively.
With effect from 1 July 2026:
• 1% of the first £1 billion of net assets;
• 0.5% of net assets over £1 billion.
Based on the current net asset value of approximately £2 billion, this will
result in the blended fee rate reducing from approximately 0.875% today to
0.75% in 2026.
Over the last five years in aggregate £467.2 million has been returned to
shareholders through dividends and share buybacks, some 22.1% of net assets at
the start of the five-year period. If the tender offer had been triggered and
taken up this would have risen to £965.7 million or the equivalent of some
45.6% of net assets at the start of the period.
Going forward, we believe that the Investment Managers are well positioned to
deploy capital in emerging market equities to the benefit of Company
shareholders. The Board believes that the measures announced above represent
an even greater commitment over the next five years to underpin the returns to
shareholders through dividends, a more aggressive buyback programme, a new
conditional tender offer, and lower fees.
Gearing
The Board believes that gearing is one of tools that closed ended investment
vehicles like TEMIT can use to differentiate themselves from open ended
vehicles. At times of high conviction market exposure can be increased through
increasing gearing. The Board is currently reviewing our approach to gearing
with Franklin Templeton. Historically, TEMIT had two facilities: a fixed rate
loan of £100.0 million at an attractive rate of interest which is set to
mature in January 2025 and a £120.0 million revolving credit facility. When
the latter facility matured in January 2024 the Board opted not to renew it
because at the time the Investment Managers were not using the facility and
interest rates had risen substantially since the facility was first set up.
The Board and Investment Managers are exploring alternative forms of gearing
such as Contracts for Difference and other derivatives. We will communicate
with shareholders when this review is concluded.
Stewardship
Since TEMIT was launched in the late 1980s, our Investment Managers have had a
strong focus on the corporate governance of investee companies, which we
believe has helped many companies to understand and attract international
investors. Details of the Investment Managers' process are included in the
full Annual Report, along with a summary of the approach to Environmental,
Social and Governance ('ESG') considerations. While sustainability has
garnered increasing attention in recent years, it has always represented one
element of a multi-faceted investment process. To comprehensively illustrate
the wide range of analysis and activities undertaken, two years ago the
Investment Managers started to produce an annual dedicated Stewardship Report
for TEMIT, and this initiative continues to receive a favourable response from
shareholders and industry experts. This year's report was published
simultaneously with this Annual Report and is available to download at
www.temit.co.uk.
The Board
Following my appointment the Board comprises four men and two women, a
composition that we recognise falls below best practice in gender diversity.
We intend to address this as Directors retire in due course, prioritising the
enhancement of the Board's diversity while remaining attentive to the best
interests of our shareholders. Our aim is to ensure that the Board maintains a
robust blend of skills, knowledge, and experience.
Annual General Meeting and continuation vote
I am pleased to extend an invitation to all shareholders to join us for our
AGM on 11 July 2024 at Stationers' Hall in London. We look forward to
welcoming those shareholders who are able to come to the meeting.
The Company's Articles of Association stipulate that the Board must seek
shareholders' approval every five years for its continuation, and a
continuation vote is scheduled for this year's AGM. This vote coincides with
the 35(th) anniversary of TEMIT's launch. As mentioned in the discussion of
the conditional tender offer above, performance over the last five-yearly
cycle has been strong. Furthermore, over the 35 years since TEMIT's inception
returns have been exceptional. The NAV total return has been over 40-fold,
compared with a 17-fold return for our benchmark index. In light of the
long-term track record and the strength of the investment management team, the
Board unanimously recommends that shareholders vote in favour of continuation.
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 do subsequently decide to attend the AGM. If you
have any questions, please send these by email to
temitcosec@franklintempleton.com or via www.temit.co.uk./investor/contact-us
in advance of the meeting. You are also welcome to use these contact details
should you have a question at any other time. Any questions that we receive
will be considered and, if appropriate, responses will be provided on our
website www.temit.co.uk.
Outlook - risks and opportunities
While there has been a significant deterioration in the geopolitical
environment, the Board considers that the equity markets in which TEMIT
invests are less expensive than those of developed markets, while the
prospects for economic growth in emerging markets are superior. Those two
factors should make emerging market equities very appealing for long-term
investment.
The most immediate challenge is China, which is around 25% of our benchmark
index. The combination of increasing tensions with the US, changes in domestic
policy and the poor performance of the Chinese economy are together causing
concerns about the wisdom of investment in China.
Given the significant exposure of our portfolio to China the Board met in
China and Hong Kong in March 2024 with some of the analysts who assist our
Portfolio Managers. Franklin Templeton has extensive and impressive research
resources in the region and provided the Board with deep insights into the
range of investment opportunities that they are considering. The Investment
Managers' view, which we share, is that while these risks are very real, asset
prices are substantially discounted for them.
Additionally, the Board and Investment Managers believe that China is probably
too integrated into the global economy for economic sanctions to profit any
party. However, the risks, while remote, are large and it would be imprudent
to ignore them.
At the point investors perceive these risks to have moderated, it is
reasonable to assume that shareholders will once again be rewarded with the
returns they used to earn from investing in the most exciting, fastest growing
economies in the world.
Angus Macpherson
Chairman
7 June 2024
The investment managers
TEMIT's Investment Management is delegated to Franklin Templeton Investment
Management Limited ('FTIML') and Templeton Asset Management Ltd ('TAML')
(together, the 'Investment Managers'). Portfolio Managers from FTIML and TAML
form part of the wider Franklin Templeton Emerging Markets Equity group
('FTEME'). FTEME have managed the portfolio since TEMIT's inception and are
pioneers in emerging markets equity investing. They bring more than 35 years
of experience and local knowledge from over 70 investment professionals,
based in 14 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 strategies, providing guidance and thought
leadership, co-ordinating 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 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.
The investment managers' report
Review of performance((a))
Emerging markets advanced over the 12 months ended 31 March 2024. The
macroeconomic environment, however, has been challenging, given ongoing
geopolitical conflicts and high interest rates. The information technology
sector was one of the key drivers of returns during the period, led by
expectations of a recovery in demand. The emergence of widely-available
artificial intelligence ('AI') has been a catalyst for growth in certain
segments of the emerging markets economies such as South Korea and Taiwan. The
MSCI Emerging Markets Index returned +5.9% for the 12-month period under
review, while TEMIT delivered a net asset value total return of +7.9% (all
figures are net total return in pounds sterling)((b)). Full details of TEMIT's
performance can be found in the full Annual Report.
(a) All benchmark performance as per the MSCI Emerging Markets (Net
Dividends) Index.
(b) See Glossary of Alternative Performance Measures in the full Annual
Report.
By region, emerging markets in Latin America produced positive returns and,
overall, fared better than markets in Asia and EMEA (Europe, the Middle East
and Africa). Latin America saw an improvement in its general economic
environment, giving rise to interest-rate cuts by central banks. Equities in
the EMEA region also rose. While higher oil prices, driven by supply concerns,
provided some support to Middle Eastern equities, concerns about the
Israel-Hamas conflict and a higher-for-longer interest-rate environment in the
United States limited gains. Emerging market Asia also advanced, but at a much
slower pace than its above-mentioned peers. A slower-than-expected recovery in
the information technology sector featured for most of 2023, impacting the
technology-heavy countries of South Korea and Taiwan, but optimistic growth
projections due to AI spurred investor interest. India logged gains amid
improving macroeconomic indicators and robust corporate earnings, but concerns
over China's recovery continued to weigh on the region.
China/Hong Kong
TEMIT's largest allocation by country was in stocks listed in China or Hong
Kong, although the allocation was lower than the proportion of China/Hong Kong
in the benchmark index. Chinese equities fell by almost 19% in sterling terms
over the 12-month period. Concerns about the country's slow consumption
recovery and geopolitical tensions between China and the West impacted
investor sentiment. Its property sector woes, plagued by liquidity worries and
a lack of demand, also featured heavily during the reporting period. A
downgrade of China's credit outlook and lack of strong stimulus from the China
Economic Work Conference and National People's Congress pressured Chinese
equities further. Government efforts to stabilise the equity markets and
regulatory intervention to shore up investor sentiment were insufficient to
reverse the losses that the Chinese equity market had suffered. While being
alert to the risks of investing in China we do, however still see the
potential for positive returns in China and opportunities in Chinese equities.
In particular the internet industry, to which the portfolio has sizeable
exposure, has adjusted to the new operating environment as China eased its
regulatory crackdown on the industry. The potential for the Chinese
government's policies to support their economy is now more evident, and we
believe that this may be a driver of performance.
South Korea
TEMIT's second-largest market position was South Korea, where the portfolio
had a higher allocation than the benchmark. South Korean equities rose by more
than 11% during the reporting period, as the technology-heavy market's earlier
struggles due to weakening demand for technology products were quickly
overturned by a rally in the information technology sector. Expectations of a
recovery in the semiconductor cycle and an improving outlook for technology
stocks, particularly from increased interest and enduring optimism around AI,
propelled gains. A short-selling ban and the country's Corporate Value-Up
Programme, which plans to encourage and support companies to return more
capital to shareholders and improve governance to reduce the valuation
discount for South Korean companies, also supported the outperformance of the
country's equity market. South Korea is less exposed to geopolitical risks as
compared to China, and the country is home to several companies that are
broadly expected to benefit from the secular trends of digitalisation and
decarbonisation, such as technology-related companies, and firms in the value
chain of electric vehicle ('EV') production.
Taiwan
The Taiwanese market also performed well, ending the reporting period with a
gain of more than 25%. The technology-heavy and export-oriented country
experienced a recovery in its technology exports, which lifted performance
together with AI-induced growth expectations. However, Taiwan's central bank
went against global trends and raised benchmark interest rates in March 2024.
TEMIT's allocation to Taiwan is marginally higher than the benchmark, with a
difference of less than 1%. The portfolio's exposure to the country is largely
attributable to its semiconductor industry and TEMIT's largest portfolio
holding, Taiwan Semiconductor Manufacturing Company ('TSMC'). Besides being an
essential component of electronic devices used in various sectors and
industries, the emergence of AI should drive further demand for TSMC's
advanced chips. We maintain a positive long-term view on Taiwan's
semiconductor industry.
India
India was TEMIT's fourth-largest exposure at the end of March 2024. Indian
equities rose by nearly 34% over the 12-month period, benefitting from
reducing inflation, improving economic indicators and strong corporate
earnings. Favourable results for the incumbent government in state elections
and expectations of relatively high gross domestic product ('GDP') and
corporate earnings growth also boosted the country's equity market. India has
two growth drivers: strong domestic consumption and infrastructure
investments. While higher energy prices remain a risk to India's near-term
outlook, the diversification of its power sources should eventually ease
pressure from imported energy and inflation in the long term. India also
stands to benefit from rising geopolitical tensions, where the United States,
the European Union and Japan are adopting a 'derisking' strategy by realigning
their supply chains and strengthening bilateral relations with their allies.
India is itself a solution to manufacturers in developed markets seeking to
diversify their supply chains, underpinned by its sizeable and youthful
population and positive government policies leading to infrastructure
investments (thus attracting more foreign direct investments).
Brazil
Equities in Brazil experienced some volatility within the 12 months under
review but ultimately finished the reporting period with gains of more than
24%. For the first six months of the period, Brazilian equities reacted
favourably to improvements in the country's macroeconomic environment, where
inflation reached a new 12-month low and the country experienced
stronger-than-expected GDP growth. While these two datapoints continued to
improve thereafter, the country's inflation rose slightly more than consensus
expectations in February 2024, and sequential GDP growth in the last quarter
for 2023 stagnated. However, the Brazilian government displayed confidence in
the country's macroeconomic outlook, expecting economic growth to exceed 2% in
2024 with inflation moderating to the midpoint of the central bank's target
range. The approval of the country's new fiscal framework and the subsequent
commencement of the central bank's interest rate easing cycle overcame some
negativity stemming from concerns about changes to the country's taxation
regulations, which could potentially impact corporate earnings. Interest-rate
cuts also helped to drive the performance of the country's equity market.
Investment strategy, portfolio changes and performance attribution
The following sections show how TEMIT's exposure to individual stocks, to
regions and to countries accounted for its investment performance over the
period. We continue to emphasise that our investment process selects companies
based on their individual attributes and ability to generate risk-adjusted
returns for investors, rather than taking a high-level view of sectors,
countries, or geographic regions to determine our investment allocations.
Our investment style is centred on finding companies with sustainable earnings
power and whose shares trade at a discount relative to their intrinsic worth
and to other investment opportunities in the market. We also pay close
attention to risks.
We continue to utilise our research-based and active approach to help us to
find companies that have high standards of corporate governance, respect their
shareholders and also allow us to understand the local intricacies that may
determine consumer trends and habits. Utilising our large team of analysts, we
aim to maintain close contact with the board and senior management of existing
and potential investments and believe in engaging constructively with our
investee companies.
All of these factors require us to conduct detailed analyses of potential
returns versus risks with a time horizon of typically five years or more.
Our well-resourced, locally based teams remain a key competitive advantage.
This local presence allows us to understand business models, competitive
dynamics, and supply chain issues. We have also managed to get insights into
regulatory conversations and management capabilities, which are factored into
our analysis. We view our locally based teams, which are armed with vast
knowledge of the respective countries' macroeconomic issues and views on the
ground as vital sources of input into the investment process. This complements
our global presence, which allows us to analyse short-term uncertainties and
determine if these are reflective of cyclical or structural trends.
In the portfolio, we remain positioned in long-term growth themes including
consumption of premium goods and services and the use of digital devices,
health care and technology. We focus on companies reflecting our philosophy of
owning good quality businesses, with long-term sustainable earnings power and
share prices at a discount to intrinsic worth. We see high levels of leverage
as a risk and continue to avoid companies with weak balance sheets.
Performance Attribution Analysis %
Year to 31 March
2024 2023 2022 2021 2020
Net Asset Value Total Return((a)) 7.9 0.8 (17.3) 54.5 (11.2)
Expenses Incurred 1.0 1.0 1.0 1.0 1.0
Gross Total Return((a)) 8.9 1.8 (16.3) 55.5 (10.2)
Benchmark Total Return((a)) 5.9 (4.9) (7.1) 42.3 (13.5)
Excess return((a)) 3.0 6.7 (9.2) 13.2 3.3
Stock Selection 0.3 7.3 (10.2) 6.0 (2.0)
Sector Allocation 2.1 (0.4) 0.8 6.5 3.3
Currency 0.3 (0.2) 0.2 0.6 1.8
Share Buyback Impact 0.5 0.2 0.0 0.3 0.4
Residual Return((a)) (0.2) (0.2) - (0.2) (0.2)
Total Contribution 3.0 6.7 (9.2) 13.2 3.3
Source: FactSet and Franklin Templeton.
(a) A glossary of alternative performance measures is included in the full
Annual Report.
This table sets out the results of a detailed analysis of the returns produced
by the TEMIT portfolio, how this compares with the theoretical returns
available from the benchmark index and factors affecting the comparison with
the returns of the benchmark index.
Top 10 Contributors and Detractors to Relative Performance by Security
(%)((a))
Top Contributors Contribution to Top Detractors Contribution to
portfolio relative portfolio relative
to MSCI Emerging to MSCI Emerging
Markets Index Markets Index
Overweight TSMC 1.3 Guangzhou Tinci Materials Technology (1.2)
(TEMIT holds more than the index weight)
Petroleo Brasileiro 1.3 Alibaba (1.0)
Samsung Life Insurance 1.1 WuXi Biologics (0.8)
MediaTek 0.8 Samsung SDI (0.7)
Brilliance China Automotive 0.8 Genpact (0.6)
Zomato 0.7 Prosus (0.6)
Itaú Unibanco 0.6 One97 Communications (0.5)
ICICI Bank 0.6 Baidu (0.5)
Techtronic Industries 0.5 Daqo New Energy (0.5)
NAVER (0.4)
Underweight POSCO 0.8
(TEMIT has no holding or
a holding smaller than the index weight)
(a) For the period 31 March 2023 to 31 March 2024.
This table sets out the results of a detailed analysis of the returns produced
by individual securities in the TEMIT portfolio, and how this has affected the
overall returns produced by the portfolio compared with theoretical returns
available from the benchmark index.
TSMC is the world's largest semiconductor foundry company. Its chips are used
in a wide variety of solutions including personal computers, automotive and
industrial equipment, and smartphones. An optimistic outlook coupled with
in-line or better-than-expected sales and earnings data released during the
period supported TSMC's share price. Expectations of healthy revenue growth
driven by demand from AI applications, as well as recovery in the demand for
smartphones and personal computers, further supported sentiment in the stock.
Finishing higher over the 12-month period were the shares of Petroleo
Brasileiro ('Petrobras'). Its shares generally remained on an upward trend
over most of the period. The company announced a new shareholder return policy
and raised gasoline and diesel prices, which alleviated some investor concerns
regarding its capital allocation and pricing policy. An increase in crude oil
prices and improving investor confidence regarding policy risks continued to
support its share price well. However, dividends in March 2024 missed
consensus expectations, which led to a moderate fall in the share price. We
continue to favour Petrobras in the oil and gas industry, given its large cash
generation and high dividend yields.
The shares of Samsung Life Insurance also performed well over the period,
logging most of its gains in the first quarter of 2024. Samsung Life Insurance
is the leading life insurance company in South Korea and owns a meaningful
stake in Samsung Electronics. Its share price rallied in the latest quarter
amid the country's Corporate Value-Up Programme and hopes that this would lead
to better shareholder return policy.
Guangzhou Tinci Materials Technology, a China-based producer of electrolytes
for EV batteries, saw its stock price fall over the period. Earnings for the
company have been impacted due to an oversupply in the industry and declining
lithium prices. Slower growth in EV demand as well as an increase in industry
capacity for electrolytes have led to higher competition for the company. The
company remains among the lowest cost producers in the industry.
The shares of Alibaba, a Chinese e-commerce company, also declined and
rendered it a key detractor. Investor concerns about a slower demand recovery,
higher competition, and the lack of strategic clarity after the company
cancelled and/or delayed plans for a spinoff and initial public offering
('IPO') of some of its key businesses drove its share price lower. While the
stock has seen significant derating over the past couple of years, the company
continues to generate significant cash flows. The company has a strong buyback
policy and we expect returns from here to be supported by such corporate
actions.
WuXi Biologics is a Chinese specialist biotechnology contract development and
manufacturing organisation. The share price declined in the later part of last
year after the company made a downward revision to its guidance. The release
of a draft US Senate bill, which aims to sanction WuXi AppTec (not a portfolio
holding) and related companies led to a further decline in the share price.
The company has denied the allegations and is engaging with various
stakeholders. While there is uncertainty, we believe there is a pathway to
avoid sanctions and are engaged with the company.
Contributors and Detractors to Relative Performance by Sector (%)((a))
Top Contributors Contribution to Top Detractors Contribution to
portfolio relative portfolio relative
to MSCI Emerging to MSCI Emerging
Markets Index Markets Index
Overweight Information Technology 1.5 Health Care (0.4)
(TEMIT holds more than the index weight)
Communication Services 0.4
Financials 0.3
Industrials 0.1
Underweight Energy 0.6 Utilities (0.3)
(TEMIT has no holding or
a holding smaller than the index weight)
Real Estate 0.2 Materials (0.1)
Consumer Discretionary 0.1
Consumer Staples 0.0
(a) For the period 31 March 2023 to 31 March 2024.
This table sets out the results of a detailed analysis of the returns produced
by the industrial sectors of the holdings in the TEMIT portfolio, and how this
has affected the overall returns produced by the portfolio compared with
theoretical returns available from the benchmark index.
A favourable overweight allocation in the information technology sector added
to TEMIT's performance relative to its benchmark index during the 12-month
period under review. TSMC (described above) and MediaTek (a Taiwan-based chip
designer for smartphones and other technology devices) are examples of
companies that aided relative returns. Holdings in the energy sector were also
a source of TEMIT's outperformance of its benchmark, with Petrobras providing
notable strength within the sector. Stock selection in the communication
services sector also contributed to relative results.
In contrast, holdings in the materials, health care and utilities sectors
detracted from relative performance, alongside an underweight allocation in
utilities and materials. While the weakness in the materials sector was
largely due to an overweight allocation in Guangzhou Tinci (described above),
a weak property market in China also affected several related China-based
portfolio holdings such as Beijing Oriental Yuhong Waterproof Technology, a
producer of waterproof materials and engineering solutions used in real estate
and China Resources Building Materials Technology, which is engaged in the
production and sales of cement and aggregates. In the health care sector, WuXi
Biologics was a key laggard (described above).
Contributors and Detractors to Relative Performance by Country (%)((a))
Top Contributors Contribution to Top Detractors Contribution to
portfolio relative portfolio relative
to MSCI Emerging to MSCI Emerging
Markets Index Markets Index
Overweight Taiwan 2.2 United States (0.4)
(TEMIT holds more than the index weight)
South Korea 1.8 Cambodia (0.2)
Brazil 1.4
Russia 0.4
Underweight South Africa 0.2 India (2.4)
(TEMIT has no holding or
a holding smaller than the index weight)
Poland (0.3)
China/Hong Kong (0.2)
(a) For the period 31 March 2023 to 31 March 2024.
This table sets out the results of a detailed analysis of the returns produced
by the country of risk of the holdings in the TEMIT portfolio, and how this
has affected the overall returns produced by the portfolio compared with
theoretical returns available from the benchmark index.
By markets, holdings in Taiwan, South Korea and Brazil were beneficial, adding
on to the positive contribution from overweight allocations. Once again, TSMC
and MediaTek aided relative returns in Taiwan. While Samsung Life Insurance
provided great support to South Korea's relative performance, steel product
manufacturer POSCO played a supporting role. POSCO's share price rallied amid
investor optimism about the company's increased longer-term targets for its
battery materials business. In Brazil, besides Petrobras, retail-focused bank
Itaú Unibanco also helped relative performance due to financial results that
were generally in-line or exceeded consensus expectations for its first to
third fiscal quarters of 2023.
Russia also contributed to relative returns. All Russian securities have been
valued at zero since 4 March 2022. However, during the first six months of the
financial year, an opportunity arose to dispose of TEMIT's holding in Yandex
(Russia's largest search engine, which also offers a wide range of other
online services in areas such as e-commerce) via an over-the-counter trade,
which led to Russia being a top contributor to relative performance. The two
remaining Russian securities, LUKOIL and Sberbank of Russia, continue to be
fair valued at zero throughout the year.
Conversely, India was the top detractor from relative returns due to a
combination of stock selection and an underweight exposure. Financial
companies such as One97 Communications and HDFC Bank were among reasons for
the relative underperformance. Guangzhou Tinci, Alibaba, and WuXi Biologics
(all discussed above) were large drags on returns in China. An off-benchmark
allocation in the United States dragged performance lower by a decline in the
share price of Genpact, a US-listed technology services company that derives
much of its earnings from services provided from India.
Top 10 Holdings
As at 31 March 2024
Portfolio Benchmark Over/(Under)
% weight %
Holding £'000 %
TSMC((a)) 252,050 12.6 8.3 4.3
TSMC is the world's largest semiconductor foundry company based in Taiwan. The
emergence of AI and expectations of a recovery in the demand for technology
products contributed to a turnaround in TSMC's stock price. Driven by
structural growth in demand for computing and the company's technology
leadership, we remain confident in the resilience of the TSMC business model.
Samsung Electronics 133,737 6.7 4.6 2.1
Samsung Electronics is one of the largest memory semiconductor manufacturers
in the world. It also manufactures a wide range of consumer and industrial
electronics and equipment. The memory sector is currently seeing an upturn in
its fortunes driven by the rapid increase in demand for high bandwidth memory
which is used in AI applications. With the migration to more complex
technologies required for the more advanced products, the industry has also
seen supply curtailment which augurs well for the prospects of commodity
memory products as well. We continue to believe that memory companies will be
a significant beneficiary of the AI revolution and that Samsung Electronics
will remain a leader in this industry.
ICICI Bank 102,879 5.2 0.9 4.3
ICICI Bank is a leading India-based private sector bank, it was the
portfolio's third largest holding. The share price has seen sustained
appreciation over the past years and the bank has been a key contributor to
overall fund performance. This highlights the value of our longer-term,
fundamentally driven investment process, which we continue to employ. The bank
with its strong franchise remains well positioned to benefit from the India
growth story.
Alibaba 78,403 3.9 2.0 1.9
Alibaba is the leading e-commerce company in China. While intensified
competition and weak macroeconomic performance in China has impacted the
growth outlook for its e-commerce business, its other businesses such as
cloud, fintech, local commerce and international e-commerce have significant
potential. These could offer either growth opportunities or the possibility
for improvement in profitability. While the stock has experienced a
significant derating over the past couple of years, the company continues to
generate significant cash flows. The company has a strong buyback policy and
we expect returns from here to be supported by corporate actions.
Tencent 76,441 3.8 3.6 0.2
Tencent is the largest gaming, communication, and social entertainment
platform in China. It has a major presence in online games, digital
advertising, video, music and live-streaming, fintech and other businesses
such as cloud computing. The company should be a key beneficiary of AI across
its business segments. The company seems to have adjusted well to the changing
regulatory environment and slowing Chinese economy and continues to deliver
strong cash flows, albeit at a much slower rate of growth. Tencent has also
significant public and private investments in China and globally. Trading at
attractive valuations, the company has been proactively undertaking share
buybacks, which further enhances earnings per share.
Prosus 63,881 3.2 - 3.2
Prosus is a leading global investment company and the largest shareholder of
Tencent, a Chinese technology company. We see Prosus as a good proxy for
Tencent exposure and is available at a discount to its net asset value
('NAV'). The company also has holdings in leading food delivery platforms
globally. Management's effort to narrow the share price discount to NAV via
buybacks should also support returns.
Samsung Life Insurance 59,216 3.0 0.1 2.9
Samsung Life Insurance is the largest life insurance company in South Korea
and is growing in the field of health insurance. With the increase in interest
rates in the recent past and the steady move to more health-related products
the company has been able to improve its profitability. It also owns a
majority stake in the credit card business of the Samsung Group and has
smaller stakes in the securities and the fire and marine businesses. Most
notably it has a significant stake in Samsung Electronics, a world leading
company which is currently benefitting from an upswing in the prospects of its
main memory business. The Corporate Value-Up programme initiated by the South
Korean government should provide incentives to improve distributions to
shareholders.
Petrobras 59,136 3.0 0.9 2.1
Petrobras is a leading oil and gas company in Brazil, recognised worldwide for
its oil exploration in ultra-deep waters. It is a low-cost producer and has
long life oil reserves. It remains our preferred pick in the oil and gas
industry globally, given its large cash generation and high dividend yield.
NAVER 53,165 2.7 0.3 2.4
NAVER is a South Korean internet search and advertising company. It also has
business interests in e-commerce, financial services, and entertainment
content. We believe that NAVER is in a good position to build a thriving
ecosystem integrating e-commerce, payments and digital content based on its
solid foundation in search and advertising. Its leadership position in AI
solutions in South Korea should also provide the company with additional cost
efficiencies and growth opportunities.
MediaTek 51,090 2.6 0.8 1.8
MediaTek, listed in Taiwan, is a world-leading chip designer for smartphones
and other technology devices. It should be a key beneficiary from growth in
demand for chips from IoT ('Internet of Things'), automotive, industrial, and
wi-fi applications. It should also be a beneficiary of the proliferation of
new AI applications in various technology devices, which could require
on-device AI computing.
(a) At time of investment this holding was less than 12% of the Company's
assets.
Portfolio Changes by Country
Total Return in Sterling
Country 31 March 2023 Purchase £m Sales £m Market 31 March 2024 TEMIT % MSCI Emerging
Market Value £m
Movement £m
Market Value £m
Markets Index %
China/Hong Kong 616 148 (126) (148) 490 (21.0) (18.8)
South Korea 398 107 (140) 61 426 18.2 11.8
Taiwan 316 32 (91) 101 358 41.7 25.6
India 226 66 (87) 42 247 17.3 33.9
Brazil 155 24 (26) 33 186 36.8 24.3
United States 67 15 (16) (4) 62 (5.8) -
Thailand 49 10 - (10) 49 (16.7) (18.2)
Mexico 30 34 (25) 9 48 17.5 16.2
Hungary 20 11 (3) 2 30 20.7 44.2
South Africa 13 12 - (5) 20 (24.6) (7.6)
Other 103 5 (42) 13 79 - -
Total Investments 1,993 464 (556) 94 1,995
Portfolio by Fair Value
Holding Sector Fair Value £'000 % of Portfolio
Brazil
Petrobras((a)) Energy 59,136 3.0
Itaú Unibanco((a)(b)) Financials 44,608 2.2
Banco Bradesco((a)(b)) Financials 33,418 1.7
Vale Materials 25,890 1.3
Oncoclinicas do Brasil Servicos Medicos Health Care 8,132 0.4
Hypera Health Care 8,122 0.4
TOTVS Information Technology 7,032 0.3
186,338 9.3
Cambodia
NagaCorp Consumer Discretionary 3,772 0.2
3,772 0.2
Chile
Banco Santander Chile((b)) Financials 18,105 0.9
18,105 0.9
China/Hong Kong
Alibaba((c)) Consumer Discretionary 78,403 3.9
Tencent Communication Services 76,441 3.8
Prosus((d)) Consumer Discretionary 63,881 3.2
Techtronic Industries Industrials 39,071 2.0
China Merchants Bank Financials 37,137 1.9
Baidu Communication Services 28,067 1.4
Guangzhou Tinci Materials Technology Materials 20,220 1.0
Ping An Insurance Financials 16,424 0.8
Uni-President China Consumer Staples 15,115 0.8
Brilliance China Automotive Consumer Discretionary 14,774 0.7
NetEase Communication Services 14,749 0.7
Meituan Consumer Discretionary 12,547 0.6
Daqo New Energy((b)) Information Technology 11,999 0.6
Wuxi Biologics Health Care 11,254 0.6
Haier Smart Home Consumer Discretionary 9,072 0.5
Ping An Bank Financials 8,259 0.4
H&H Group Consumer Staples 6,979 0.3
Beijing Oriental Yuhong Waterproof Technology Materials 4,507 0.2
COSCO SHIPPING Ports Industrials 4,453 0.2
China Resources Building Materials Technology((e)) Materials 3,582 0.2
China Resources Land Real Estate 3,412 0.2
Chervon Holdings Consumer Discretionary 2,526 0.1
Greentown Service Group Real Estate 2,390 0.1
BAIC Motor Consumer Discretionary 2,072 0.1
Weifu High-Technology Consumer Discretionary 1,684 0.1
JD.com Consumer Discretionary 1,255 0.1
490,273 24.5
Hungary
Gedeon Richter Health Care 21,486 1.1
Wizz Air Holdings Industrials 8,979 0.5
30,465 1.6
India
ICICI Bank Financials 102,879 5.2
HDFC Bank Financials 44,499 2.2
Infosys Technologies Information Technology 21,760 1.1
Bajaj Holdings & Investments Financials 17,004 0.8
Federal Bank Financials 15,183 0.8
ACC Materials 14,455 0.7
Zomato Consumer Discretionary 13,450 0.7
One97 Communications Financials 12,376 0.6
Hindalco Industries Materials 4,981 0.2
246,587 12.3
Indonesia
Astra International Industrials 10,459 0.5
10,459 0.5
Kenya
East African Breweries Consumer Staples 592 0.0
592 0.0
Mexico
Grupo Financiero Banorte Financials 44,681 2.2
Nemak Consumer Discretionary 3,541 0.2
Grupo Aeroportuario del Centro Industrials 0.0 0.0
48,222 2.4
Peru
Intercorp Financial Services Financials 8,150 0.4
8,150 0.4
Philippines
BDO Unibank Financials 10,247 0.5
10,247 0.5
Russia
LUKOIL((f)) Energy 0.0 0.0
Sberbank of Russia((f)) Financials 0.0 0.0
0.0 0.0
South Africa
Netcare Health Care 13,324 0.7
Discovery Financials 6,774 0.3
20,098 1.0
South Korea
Samsung Electronics Information Technology 133,737 6.7
Samsung Life Insurance Financials 59,216 3.0
NAVER Communication Services 53,165 2.7
LG Industrials 43,201 2.2
Samsung SDI Information Technology 38,948 2.0
SK Hynix Information Technology 33,054 1.7
Doosan Bobcat Industrials 22,419 1.1
Soulbrain Materials 17,790 0.9
Fila Consumer Discretionary 11,068 0.6
LegoChem Biosciences Health Care 7,500 0.4
Hankook Tire Consumer Discretionary 4,865 0.2
KT Skylife Communication Services 1,444 0.1
426,407 21.6
Taiwan
TSMC Information Technology 252,050 12.6
MediaTek Information Technology 51,090 2.6
Hon Hai Precision Industry Information Technology 42,316 2.1
Yageo Information Technology 12,789 0.6
358,245 17.9
Thailand
Kasikornbank Financials 23,534 1.2
Thai Beverage Consumer Staples 7,514 0.4
Star Petroleum Refining Energy 6,346 0.3
Kiatnakin Phatra Bank Financials 6,319 0.3
Minor International Consumer Discretionary 5,062 0.3
48,775 2.5
United Arab Emirates
Emirates Central Cooling Systems Utilities 8,577 0.4
8,577 0.4
United Kingdom
Unilever((g)) Consumer Staples 17,821 0.9
17,821 0.9
United States
Genpact((g)) Industrials 31,600 1.6
Cognizant Technology Solutions((g)) Information Technology 30,499 1.5
62,099 3.1
Total Investments 1,995,232 100.0
(a) Preferred shareholders are entitled to dividends before ordinary
shareholders.
(b) US listed American Depository Receipt.
(c) TEMIT holds shares in this company listed on the Hong Kong stock
exchange and American Depository Receipts listed on the New York stock
exchange.
(d) This company is listed in the Netherlands. The classification of
China/Hong Kong is due to most of its revenue coming from its holding in
Tencent.
(e) 'China Resources Cement' was renamed to 'China Resources Building
Materials Technology'.
(f) This company is fair valued at zero as a result of its trading being
suspended on international stock exchanges.
(g) This company, listed on a stock exchange in a developed market, has
significant exposure to operations from emerging markets.
Market Capitalisation Breakdown % Less than £1.5bn to £5bn to Greater than
£1.5bn £5bn £25bn £25bn
31 March 2024 4.6 12.6 23.3 59.5
31 March 2023 5.2 11.3 23.1 60.4
Split Between Markets %((a)) 31 March 2024 31 March 2023
Emerging Markets 95.8 94.5
Developed Markets((b)) 4.0 5.0
Frontier Markets 0.2 0.5
Source: FactSet Research System, Inc.
(a) Geographic split between 'Emerging markets', 'Frontier markets',
'Developed markets' are as per MSCI index classifications.
(b) Developed market exposure represented by companies listed in United
Kingdom and United States which have significant exposure to operations in
emerging markets.
In investing, a developed market is a country that is most developed in terms
of its economy and capital markets. To be classified as a developed market,
the country must be high income, but this also includes openness to foreign
ownership, ease of capital movement, and efficiency of market institutions. An
emerging market is a market that has some characteristics of a developed
market, but does not fully meet its standards. This includes markets that may
become developed markets in the future or were in the past. The term 'frontier
market' is used for developing countries with smaller, riskier, or more
illiquid capital markets than 'emerging'.
Outlook for emerging markets
The first quarter of 2024 has seen a recovery after a period of volatility. We
believe that the current investment backdrop is conducive for emerging market
equities. Potential interest rate cuts and better earnings growth for 2024 are
expected to be tailwinds for emerging markets when they are implemented.
While interest rates are expected to be higher for longer, we believe that
they will eventually moderate as goods inflation has started declining in most
markets. Our overweight positions in Latin America-especially Brazil, where
real rates remain high-reflect our view on interest rates.
AI has seen a boom led by the development of large language models. This has
been facilitated by the advancement in semiconductor chips. New applications
have emerged. We expect growth in this sector to be structural, driven by the
adoption of Al solutions in both enterprise and consumer applications. This
should benefit the Al supply chain. Many of the semiconductor and hardware
companies catering to the Al industry are based in emerging markets and we
remain overweight in that sector. We also remain overweight in South Korea and
are well-invested in Taiwan to play these megatrends.
Meanwhile, the EV supply chain is currently experiencing a material slowdown
in growth expectations as many consumers and governments have yet to fully
embrace the advantages of their deployment. Although we remain aligned with
the longer-term growth outlook for EVs, we have lowered our exposure to the EV
value chain.
India and Middle Eastern countries have continued to see good economic growth.
India is holding General Elections this year, and we expect political
stability to continue. Valuations in many of the sectors in India remain
elevated and we are currently underweight in that market, with most of our
exposure being to the private sector banks. We remain opportunistic in our
deployment of capital to the Middle East region, taking advantage of the boom
in the IPO market in many of those countries.
The Chinese economy seems to have stabilised with signs of policy support,
even though the property sector and government finances are still very feeble.
In addition, we continue to see the western countries reduce their dependence
on Chinese supply chains. All these factors continue to impinge on valuations
in the China equity market and we remain underweight in China. Most of our
exposure is to the internet-related names in China where companies continue to
generate cash and have elevated shareholder return policies.
It is an interesting time to look at emerging markets. Despite the dynamic
nature of emerging markets, we believe that several enduring themes persist.
First, we believe their structural growth potential remains superior, driven
by an expanding and diverse investment universe with appealing valuations.
Second, while navigating challenges such as the COVID-19 pandemic and
geopolitical risks, emerging economies have demonstrated remarkable
resilience, emphasising the potential for robust growth. Finally, strategic
policy decisions, ongoing reforms, and innovation will shape the future of
these markets, offering what we believe are significant opportunities for
economic progress and investment gains in the years ahead. In summary,
emerging markets have evolved, embracing innovation, technology, and
diversification. As pivotal players in the global trade map, their
adaptability and growth trajectory position them as key drivers of the world
economy, making them, in our opinion compelling investment opportunities for
investors globally.
Chetan Sehgal
Lead Portfolio Manager
7 June 2024
The investment managers' 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 that 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 issues create risks and opportunities
for companies. ESG analysis is therefore integrated as a key element of
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 investment
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.
High conviction portfolio
The top-10 holdings typically account for over 40% of the portfolio which
overall is well-diversified 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 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.)
TEMIT's approach to stewardship
TEMIT's research process includes a structured analysis of governance and
sustainability issues.
TEMIT seeks to capture growth potential of emerging markets companies by
employing a bottom-up security selection process with a long-term perspective.
We aim to be a responsible steward of our clients' capital-that is why we
integrate Environmental, Social and Governance ('ESG') factors into our
investment research process, as a key element of fundamental, bottom-up
analysis, to understand the risks and opportunities that stem from governance
and sustainability issues. Responsible stewardship is not a single act but a
continuous process that includes engagement and voting.
Whilst governance and sustainability issues are analysed in our research, the
findings are not binding on the stock selection process. TEMIT does not pursue
any sustainable targets (e.g., carbon reduction) or objectives.
Being responsible stewards of our clients' capital is reflected in:
How we act as investors
• ESG research integration
• Company engagement and proxy voting
• Policy advocacy
How we treat our clients
• Putting clients first
• Being responsible fiduciaries of our clients' capital
How we behave as a business
• Building relationships
• Working with integrity
Integrating ESG factors
Analyses of governance and sustainability issues are embedded components of
our rigorous fundamental bottom-up research. This allows us to identify those
business models most likely to resist competitive pressure and understand
management's ability to generate sustainable returns.
Our proprietary three-pillar ESG research framework is an assessment tool that
has further enhanced our approach to sustainability and is codified within our
analytical database.
Intentionality
Assessing companies' intentionality toward managing material ESG factors with
our proprietary scoring system and linking ESG factors into our valuation
models.
Alignment
Mapping the alignment of companies' products and services to positive social
and environmental outcomes and UN Sustainable Development Goals ('SDGs').
Transition
Identifying companies' transition potential and monitoring their incremental
progress, using our on-the-ground capabilities and experience as active owners
to foster positive
change.
Please find below a case study of a company's intentionality to manage the ESG
footprint of its operating model from the full Stewardship Report for TEMIT to
give shareholders a snapshot of the typical intentionality analysis
undertaken. Case studies of alignment and transition can also be found in the
full Stewardship Report for TEMIT.
Grupo Financiero Banorte
Offers financial services to individuals and corporates in Mexico.
ESG Topic Cybersecurity
Materiality and Risk
The safeguarding of personal customer data is a critical aspect of digital
banking activities. Data breach and cyberattacks may disrupt operations and
impact customer loyalty, affecting market share and long-term growth.
Cybersecurity issues may also incur penalties, liabilities and compliance
costs. Amid a rapidly expanding digital ecosystem, the protection of
customers' personal identifiable information is a key ESG factor for the
banking sector.
Analysis
• Banorte created a dedicated cyber-crisis management team.
• Integrity Committee and the Cyber Risk Subcommittee meet regularly to
monitor the central mitigation systems.
• The company has formed a strategic alliance with Google Cloud to
strengthen its cybersecurity ecosystem.
• Regular employee training and system drills are conducted to raise
awareness and address audit requirements.
• Reflecting its efforts, the company has earned various certifications,
such as the Normalización y Certificación ('NYCE') personal data protection
certification and the International Organization for Standardization and the
International Electrotechnical Commission ('ISO' and 'IEC') 27001:2013
standard.
ESG Thesis
Amid a push for digital transformation, Banorte has established procedures and
policies for cybersecurity and other key ESG issues--such as climate change,
human capital, and corporate governance--that are overseen by the board and
executive team, ensuring effective integration into its core business strategy
(2023-2025 priority plan in place). Banorte is also aligned with national and
international sustainability initiatives, such as the Equator Principles and
Principles for Responsible Investment((a)).
(a) Banorte:
https://investors.banorte.com/en/sustainability/sustainability-strategy/sustainable-finances
TEMIT's research process includes a structured analysis of governance and
sustainability issues. Whilst governance and sustainability issues are
analysed in our research, the findings are not binding on the stock selection
process. TEMIT does not pursue any sustainable targets (e.g., carbon
reduction) or objectives.
Nature and biodiversity
In 2023, the threat of 'biodiversity loss and ecosystem collapse' continued to
rise up the economic agenda and was identified as the third most severe
perceived risk to economies and societies over the next 10 years by the World
Economic Forum((a)).
(a) World Economic Forum Global Risks Perception Survey 2023-2024
Global risks ranked by severity over the long term (10 years):
1 Extreme weather events 6 Adverse outcomes of AI technologies
2 Critical change to Earth systems 7 Involuntary migration
3 Biodiversity loss and ecosystem collapse 8 Cyber insecurity
4 Natural resource shortages 9 Societal polarisation
5 Misinformation and disinformation 10 Pollution
As nature loss presents a significant risk to corporate and financial
stability, it is a key area for us as active managers to promote a direct
dialogue with those businesses materially exposed.
We view the biodiversity challenge as a natural extension of our climate
efforts. A deep understanding of the rapid changes taking place in the Earth's
physical systems, and the impact these changes will have on the economy, will
prove vital to the successful allocation of capital today and into the future.
Since last year's report, we have developed a framework to formalise the
integration of nature and biodiversity-related considerations into our
investment process. This will help us to deepen our research, learn more about
our investee companies most exposed to nature and biodiversity loss, and be
additive to our engagement process. More details on this can be found in the
full Stewardship Report for TEMIT.
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. TEMIT does not pursue a climate change
objective. Structured analysis of ESG factors, including climate
considerations, are part of TEMIT's research process but are not binding on
stock selection. Our 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, TEMIT 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 we can gain valuable
insights into the quality and risks of businesses in which TEMIT invests.
The investment team looks at climate risks and opportunities closely for
relevant sectors and geographies where climate change plays an important role.
This includes integrating climate related factors into estimates, models and
valuations for those businesses materially exposed to the issue.
In the full Stewardship Report for TEMIT available on our website (www.
temit.co.uk) we profile companies exposed to climate opportunities and climate
risks.
Climate opportunities
The transportation sector is still a major contributor to greenhouse gas (GHG)
emissions, accounting for 20% of global CO2 emissions in 2023((a)). Electric
Vehicles (EV) offer a cleaner alternative, and their batteries rely heavily on
electrolytes. Battery electric passenger vehicles (BEV) sales continue to grow
and are on track to post 13.3 million units worldwide in 2024, compared with
an estimated 9.6 million in 2023((b)).
• Guangzhou Tinci Materials Technology manufactures fine chemicals
and new materials, including Li-ion battery materials. It is the world's
largest electrolyte supplier for EV batteries, with over 40% market share in
China in 2022.
• Guangzhou Tinci has made great advances in developing
independent new additives and formulations. These products are widely used in
new energy vehicles to solve key battery problems such as achieving a longer
range, and the ability to withstand high and low temperatures. Guangzhou Tinci
also has a battery-recycling business, focusing on the recovery of lithium
iron phosphate batteries.
• As a result, the company has built a circular production model.
By-products in one process are reused as raw materials in another. This not
only solves the environmental problem of hazardous chemicals and by-products,
but also greatly reduces the cost of procuring and disposing of raw materials.
(a) Statista, 18/12/23 -
https://www.statista.com/topics/7476/transportation-emissions-worldwide/#topicOverview
(b) SPGlobal, 20/12/23 -
https://www.spglobal.com/mobility/en/research-analysis/2024-ev-forecast-the-supply-chain-charging-network-and-battery.html#:~:text=S%26P%20Global%2Mobility's%202024%20global,%2C%20for%2012%25%20market%20share.
Climate risks
We do not rule out investing in companies in carbon-intensive sectors, such as
the metals and mining industry.
Focus on metals and mining: Clean energy infrastructure requires substantial
material inputs. Demand for each of the five key critical minerals-lithium,
cobalt, nickel, copper and neodymium-is expected to increase 1.5 to 7 times by
2030 in the Net Zero Emissions by 2050 Scenario ('NZE') as clean technology
deployment soars((a)). While energy transition minerals have relatively high
emission intensities, there are ways to minimise these emissions through
switching fuel sources, using low-carbon electricity and making efficiency
improvements. Integrating environmental concerns in the early stages of
project planning can help ensure sustainable practices throughout the project
life cycle.
• Hindalco Industries, one of India's largest non-ferrous metals
companies, and an industry leader in aluminium and copper, has adopted
Internal Carbon Pricing ('ICP') to monitor the cost of carbon, in preparation
for regulations, emissions trading, and low-carbon growth initiatives.
• The company aims to reduce specific energy consumption and GHG
emissions by 25% by 2025, as part of its target to achieve carbon neutrality
by 2050((b)).
• Coal is one of its primary energy sources for its Indian operations.
Replacing that with a renewable energy source is difficult due to the
challenges in reliability. While challenges persist, we recognise Hindalco's
efforts to address climate-related risks and move towards its carbon net
neutral goal. The company has set up interim targets and provides regular
disclosures through periodic reports and quarterly conference calls.
Our portfolio managers also seek to understand the carbon risk profile at a
portfolio level to understand its carbon risk exposures. This includes carbon
exposure broken down by sector and stock. The data helps with the engagement
agenda.
(a) IEA:
https://www.iea.org/reports/energy-technology-perspectives-2023/mining-and-materials-production
(b) Hindalco, Natural Capital:
https://www.hindalco.com/integrated-annual-report2022-23/pdf/natural-capital.pdf
To determine the portfolio's exposure to carbon related risks, we assess the
WACI metric-which measures carbon intensity on a normalised basis for better
comparison among companies. With that, we observe the following:
• TEMIT's portfolio carbon risk is concentrated among a small number of
companies, with the top five companies in terms of carbon intensity
representing 2.0% of the portfolio and accounting for 59.2% of the portfolio
WACI.
• In sector terms, 47.7% of the portfolio WACI contribution comes from
the materials sector; on a relative basis, the effect is neutral. The
utilities sector is the largest positive contributor to WACI relative to the
benchmark, as TEMIT is underweight in this high emitting sector.
• China Resources Building Materials Technology and ACC have the largest
carbon intensities in TEMIT's portfolio, representing 0.9% of the portfolio
but accounting for 43.4% of the portfolio WACI.
• TSMC's carbon intensity is low. However, since it represents 12.6% of
the portfolio, it is the second highest in terms of contribution to the
portfolio WACI, after ACC.
Over the 1-year period, the portfolio's carbon footprint remained stable and
specifically WACI has been consistently below the benchmark. The interim
variability is caused by changes in both positioning as well as updates in
emissions data.
The reduction in ending weight for China Resources Building Materials
Technology, the sale of POSCO and a change in methodology in emissions
calculation for LG Corp led to a decline in the portfolio WACI. The purchase
of ACC, the purchase of and subsequent update by MSCI to estimated emissions
data (previously not covered) for Emirates Central Cooling Systems and a
change from estimated to reported emissions data for Daqo New Energy by MSCI
offset some of the decline in the portfolio WACI.
Active ownership
As investors with a significant presence in emerging markets, our active
ownership efforts are a key part of our overall approach to stewardship. Our
analysts conduct almost 2,000 company meetings a year, and this year 377 with
TEMIT holdings, using our industry-leading research footprint across emerging
markets, where we 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
Our analysts are in continual dialogue with companies on a range of topics,
ranging from operational performance, competition landscape, business outlook,
company financials, to name a few. There are also companies we identify where
dedicated discussion on ESG topics is necessary and we report the nature and
outcome of these meetings. For the 12 months ended 31 March 2024, there were
34 tagged ESG interactions by type where detailed discussions were conducted
with an investee company. These are summarised below:
ESG Issue Objectives and Process Outcome
Identify material ESG issues and Set goal and/or rationale for the Review outcomes, next steps and
rationale for engagement engagement and approach investment thesis
ESG Discussion by Engagement Type Number of Percentage of
Interactions Interactions
Environmental 7 20.6%
Carbon Risk and Climate Change 4 11.8%
Environmental Consideration 3 8.8%
Social 6 17.6%
Human and Social Capital 6 17.6%
Governance 21 61.8%
Corporate Governance 11 32.4%
Strategic Risk and Communication 10 29.4%
Total 34 100%
Note: Engagement statistics refer to 12 months ended 31 March 2024.
ESG Discussion Outcome Number of Percentage of
Interactions Interactions
Contact made by FTEME 5 15%
Contact acknowledged by entity 8 23%
Dialogue taking place between FTEME and entity 10 29%
Plan formulated 6 18%
Plan implemented by entity 3 9%
Measured and validated outcome 2 6%
No progress 0 0%
Total 34 100%
Below is an ESG engagement example with an investee company in China.
Ping An Insurance
A financial conglomerate offering insurance, banking, brokerage and other
financial services.
ESG Engagement Social - human and social capital
Topic
Objectives
• We were concerned that Ping An's staff turnover rate was high,
at28%. A stable and competent workforce is key to sustaining strategic growth,
service quality, innovations and customer loyalty.
• Therefore, we engaged with Ping An to better understand the
reasons behind the turnover, and to discuss ways to improve turnover stability
over time.
Outcome
• Ping An explained that the turnover rate was relatively high in
the telesales team. Excluding this factor, the overall turnover would be more
normal, at 10-15%.
• Technology is a major differentiator for Ping An versus industry
peers, but it also means Ping An faces tough competition for tech talent,
resulting in higher turnover.
• We discussed with the company how to improve its turnover rate
with better hiring practices and staff training. We will continue to monitor
for improvements.
Proxy voting
In the year ended 31 March 2024, we voted on over 870 management proposals at
annual and special general meetings for TEMIT.
Of the voteable management proposals, we voted 'For' proposals 85% of the time
and 'Against' in another 14%. By proposal category, as a percentage of votes
within each category and where we had a total of 10 votes or more, our votes
against were largely concentrated on management compensation, capital
structure, strategic transactions and director-related proposals.
We view votes against proposals as a formal way to communicate our views to
management, and we undertake them based on our investment team's assessment of
each motion in line with clients' best interests.
'Other' votes were cast on proposals such as say-on-pay frequency.
Additionally, we have abstained or withheld a vote due to a lack of company
disclosure.
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. We will continue to closely examine
the merits of views raised by fellow shareholders and vote accordingly.
Effective engagement for the year ahead
As we strive for continuous improvement in our investment process, we have
been improving our platform for more effective engagement, seeking to: enhance
our practice and outcomes; build more consistency and transparency; and
improve reporting to our clients.
Looking ahead, we are enhancing our existing engagement recording
infrastructure, focusing on our proprietary Emerging Markets Research Database
('EMDB'), which houses our research and the three-pillar framework. Given our
longstanding heritage and local presence across emerging markets, our
engagement efforts extend beyond companies to policymakers-we are enhancing
EMDB to capture these interactions as well. To coordinate and oversee the
engagement efforts of our broader platform of 70+ investment professionals
across 14 countries, we also created an FTEME Engagement Group comprising 7
regional coordinators from the research analyst team. This group includes a
representative from each key region that will bring cross-border perspectives
and provide guidance on best practices.
We encourage you to download the full Stewardship Report for TEMIT from
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 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 Managers may invest in
equity-related investments (such as convertibles or derivatives) where they
believe that it is advantageous to do so.
The portfolio may frequently be overweight or underweight in certain
investments compared with the MSCI Emerging Markets (Net Dividends) 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 may 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
UK's Financial Conduct Authority ('FCA') and the approval of its shareholders
by ordinary resolution. Any material change would be announced by the Company
through the London Stock Exchange.
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 Corporation Tax Act 2010 and the ongoing
requirements of The Investment Trust (Approved Company) (Tax) Regulations
2011. 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 proposed at the time when the annual results are announced. The final
dividend will be subject to shareholder approval at the AGM each year.
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.
Since 1 October 2021, Franklin Templeton Investment Trust Management Limited
('FTITML', 'AIFM' or the 'Manager') has been 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 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. FTEME, 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.
Investment Process and Environmental, Social and Governance ('ESG')
Considerations
As part of TEMIT's stock research process, ESG factors are researched
alongside other important factors, such as company earnings power, competitive
positioning and management quality. These factors are likely to materially
impact the operating performance or financial conditions of a company. This
deepens our understanding of the companies we research; it also guides us in
our engagement activities over a range of issues, better informing our
research insights, as we strive to protect shareholder value.
As TEMIT is an investment trust, the key ESG consideration is the stewardship
of its portfolio of investments. The Board has reviewed and fully supports
FTEME's approach to stewardship, which is described under 'TEMIT's approach to
stewardship' in the full Annual Report. It receives regular reports on
Franklin Templeton's policies and controls.
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 'TEMIT's approach to
stewardship' above and in more detail in the full 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 in the full Annual Report.
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. The Board notes
that the Manager has a robust whistleblowing policy in place.
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
Fixed Term Loan
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. The fixed term loan is
denominated in pounds sterling and will remain in place until 31 January 2025.
Full details of the loan are set out in Note 10 of the Notes to the Financial
Statements.
Revolving Credit Facility
On 31 January 2020, the Company entered into a three-year £120 million
unsecured multi-currency revolving loan facility with The Bank of Nova Scotia,
London Branch. Drawings may be in sterling, US dollars or Chinese renminbi
('CNH'). The facility matured on 30 January 2024 and the undrawn commitment
was not renewed. Further details of the facility are set out in Note 10 of the
Notes to the Financial Statements.
The Company has no other debt as at 31 March 2024 except for the £100 million
fixed term loan. The net gearing position was 0.0% (net of cash in the
portfolio) at the year-end (2023: 0.0%) which means that the cash held by the
Company is equal to or higher than the total bank loans.
The Board continues to monitor the level of gearing and currently considers
borrowing of up to 20% of net assets 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 this year's AGM on Thursday 11 July 2024
and the Board unanimously recommends that shareholders vote in favour of
continuation.
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 from
31 March 2019 to 31 March 2024 the Company's net asset value total return had
failed to exceed the benchmark total return, the Board would have 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. The
net asset value total return over the five years to 31 March 2024 exceeded
that of the benchmark and so the Conditional Tender Offer introduced in 2019
was not triggered.
The Board has agreed to run a further Conditional Tender Offer such that if
over the five-year period from 31 March 2024 to 31 March 2029 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 if the Company's net asset value total return exceeds
the benchmark total return (MSCI Emerging Markets (Net Dividends) Index) over
the five-year period. Any tender offer would take place following the
Company's 2029 AGM and will also be conditional on shareholders approving the
continuation vote in 2029 which is described under 'Affirmation of Shareholder
Mandate' above.
A key point in the Investment Managers' 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 Managers 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 2024,
the Company held 103,825,895 shares in treasury (2023: 103,825,895 shares in
treasury).
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.
2024 2023
Shares Bought Back and Cancelled During the Year 44,319,755 19,758,613
Proportion of Share Capital Bought Back and Cancelled 3.8% 1.7%
Total Cost of Share Buybacks £65.9m £29.2m
The Benefit to NAV £10.6m £4.6m
The Percentage Benefit to NAV 0.54% 0.23%
Communication
The Board and Manager aim to ensure that investors are kept updated regularly
about the performance of TEMIT and of emerging markets through clear
communication and updates as detailed in this section. 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 has received AIC Shareholder Communication awards for its 'Your Future
is Emerging' campaigns in both 2022 and 2023. Through innovative use of
broadcast media, TEMIT's profile has been elevated, showcasing the Company's
benefits and conveying the dynamic growth story of emerging markets to a wider
audience. Additionally, in January 2022, TEMIT unveiled a fresh corporate
identity, establishing a unique brand for the Company for the first time.
TEMIT seeks to keep shareholders updated on performance and investment
strategy through its Annual and Half Yearly Reports, along with monthly
factsheets and manager commentaries, which are available on the Company's
website - temit.co.uk - offering a wealth of updates, stock story videos,
articles, portfolio details, and essential documents. Connect with @TEMIT on
Twitter / X for ongoing updates and announcements as we expand our social
media presence.
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 Managers
provide comments to journalists, host media briefings and publish articles on
issues relevant to investing in emerging markets. The Investment Managers meet
regularly with professional investors and analysts and host interactive
webinars. At each AGM the Investment Managers make 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
Senior Independent Director at any time via 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 1. The likely consequences of any decision in the long term.
2. The interests of the Company's employees.
3. The need to foster the Company's business relationships with suppliers,
customers and others.
4. The impact of the Company's operations on the community and the
environment.
5. The desirability of the Company maintaining a reputation for high standards
of business conduct.
6. The need to act fairly between members of the Company.
Board's Statement 1. 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 Managers' actions on the
marketability and reputation of the Company and the likely impact on the
Company's stakeholders of the Company's strategy.
2. The Company has no direct employees.
3. The Board's approach to its key stakeholders is set out below.
4. The Board's approach is set out in the section on Investment Process and
ESG Considerations under Strategy and Business Model in the full Annual
Report.
5. The Board's approach is set out in 'Culture and Values' in the full Annual
Report.
6. 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
important matters were considered at Board meetings during the year:
• Recruitment of Angus Macpherson as a non-executive Director and
Chairman;
• 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;
• Review of the marketing plan with the Manager;
• Review of the share buyback programme;
• Review of the dividend policy; and
• Review of the gearing facility and in particular the decision not to
renew the revolving credit 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 Managers' 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 Managers 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. The Company holds a
continuation vote every five years to allow shareholders to decide on the A continuation vote took place at the 2019 AGM, with 99.95% of votes cast in
long-term future of the Company. favour. The next continuation vote is taking place at this year's AGM.
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 in the full Annual
however, the Board recognises the importance of dividend income to many income generated by the Company's portfolio and the availability of reserves. Report.
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 AGM.
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 Managers 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 Managers at the close of each trading
day in London. The Board also meets with the Investment Managers to discuss
the Company's marketing strategy to ensure effective communication with
existing shareholders and to consider strategies to create additional demand Further details of the current discount and discount management are detailed
for the Company's shares. in the Chairman's Statement under 'Share price rating' in the full Annual
Report.
Manager Communication Between the Board and the Manager The Board's oversight of 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. The of the Manager and its results. The Board believes that the Company is well
Board receives timely and accurate information from the Manager and engages managed and the Board places great value on the experience of the Investment
with the Investment Managers and the Company Secretary between meetings as Managers to deliver superior long-term returns from investments and on the
well as with other representatives of the Manager as and when it is deemed other functions of the Manager to fulfil their roles effectively.
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 delivering a suitable level of service, that the service level The Board considers the support delivered by service providers including the providers and the Board undertakes an annual review of the performance of the
is 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 On behalf of the Company the Investment Managers engage with investee The Investment Managers have a dedicated research team that is employed in
important. companies implementing corporate governance principles and discuss the making investment decisions and when voting at shareholder meetings of
portfolio with the Board on a quarterly basis. 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 10 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
Financial Highlights in the full Annual Report along with the 10 Year Record
in the full Annual Report.
The Chairman's Statement and the Investment Managers' Report in the full
Annual Report include further commentary on the Company's performance.
Performance of the Company's portfolio is measured in pounds sterling (GBP)
against the MSCI Emerging Markets (Net Dividends) Index. In previous Annual
and Half Yearly Reports, performance data has been presented using the version
of the MSCI Emerging Markets Index calculated on the basis that gross
dividends (that is, without assuming the deduction of any local taxes) were
reinvested. In this Annual Report, performance data is presented using the
version of the MSCI Emerging Markets Index which assumes that dividends net of
local taxes are reinvested and we will use that version of the index, which we
refer to as the MSCI Emerging Markets (Net Dividends) Index, in all
publications from now on. We believe that this change will make the
performance of TEMIT more comparable with similar investment trusts that use a
'Net Dividend' benchmark. This also better reflects the potential tax
treatment of TEMIT as the MSCI Emerging Markets (Net Dividends) Index takes
account of the local taxes that are charged on dividends included in the
index. For the avoidance of doubt, the change in benchmark described above
will not affect the investment decision-making process of the Investment
Managers.
Share price discount to net asset value((a))
Details of the Company's share price discount to net asset value are presented
within the Financial Summary in the full Annual Report. On 23 May 2024, the
latest practicable date for which information was available, the discount was
14.3%.
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 £71.9 million (2023: £80.6 million)
which translates into net revenue earnings of 5.18 pence per share (2023:
5.72 pence per share), a decrease of 10.8% over the prior year.
The Company paid an interim dividend of 2.00 pence per share on 26 January
2024. The Board is proposing a final dividend of 3.00 pence per share, making
total ordinary dividends for the year of 5.00 pence per share.
Ongoing charges ratio((a)) ('OCR')
The OCR reduced to 0.97% for the year ended 31 March 2024, compared to 0.98%
in the prior year. The OCR has been calculated in line with the Association of
Investment Companies ('AIC') recommended methodology.
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.
(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
Managers 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. These reviews include 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 Committee 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 14 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 Managers as part of
every investment decision. Further information on this process is detailed in
the full Annual Report.
Principal Risk Mitigation
Market and Geopolitical Market risk arises from volatility in the prices of the Company's investments, The Board reviews regularly and discusses with the Investment Managers 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.
Geopolitical risk was highlighted by the Russian war on Ukraine, the
escalating trade war between the United States and China and military tensions
over the Taiwan Strait, and the conflict between Israel and Hamas which broke
out in October 2023. All of these factors have depressed investor sentiment
and the Russian invasion of Ukraine has impacted global trade posed by supply
shocks, sanctions, higher levels of inflation and volatility in asset prices.
Technology Failure or breach of the security of information technology systems of the The Company benefits from Franklin Templeton's technology framework designed
Company's service providers may entail risk of financial loss, disruption to to mitigate the risk of a cyber security breach.
operations or damage to the reputation of the Company.
For key third-party providers, the Audit and Risk Committee receives regular
independent reports on their technology 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 Managers and the
with a greater number of securities. independent risk management team. The Investment Compliance team of the
Investment Managers 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 Managers consider that sustainability risks are relevant to the
Investment Managers, are exposed to risks arising from governance and returns of the Company. The Manager has implemented a policy in respect of the
sustainability issues, 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
Managers, there may be a sudden, material negative impact on the value of an and controls in place on ESG considerations. The Board has reviewed and fully
investment, and the operations or reputation of the Investment Managers. 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.
Discount Risk The discount/premium at which the Company's shares trade relative to its net The Board monitors the level of discount/premium at which the shares trade and
asset value can change. The risk of a widening discount, and/or related has an active investor relations programme. The Company has authority to buy
volatility, could reduce shareholder returns and confidence in the Company. back its existing shares when deemed by the Board to be in the best interests
of the Company and its shareholders.
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 Managers 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 Managers.
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 Managers and their 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 numerous 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 possible effects of the conflict between Israel and Hamas on stability in
the Middle East and wider world. The Board and Investment Managers continue to
monitor the investment strategy response, along with the continuing
ramifications of the Russian invasion of Ukraine, and tensions between the
United States and China, as noted under the market and geopolitical risk
above. The Board also continues to monitor the potential risks on the
portfolio and investee companies posed by the dramatic progress of Artificial
Intelligence ('AI').
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 14 of the Notes to the Financial Statements. The Board evaluated
various 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 foresees no issues with meeting interest payments and current
liabilities relating to the £100 million fixed term loan which matures on 31
January 2025. A significant proportion of the Company's expenses is the ad
valorem AIFM fee, which would naturally reduce if the market value of the
Company's assets were to fall.
Considering the above, and with careful consideration given to the current
market situation, the ramifications of continuing geopolitical tensions 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 in July, 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, based on 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 Managers to choose investments successfully as well
as the current challenges.
The Board and the Investment Managers 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
Angus Macpherson
7 June 2024
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 true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company for the year ended 31 March 2024; 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 for shareholders to assess the Company's position and performance,
business model and strategy, and include a description of the principal risks
and uncertainties.
By order of the Board
Angus Macpherson
7 June 2024
Financial Statements
Statement of comprehensive income
For the year ended 31 March 2024
Year Ended 31 March 2024 Year Ended 31 March 2023
Note Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Net Gains/(Losses) on Investments and Foreign Exchange
Net Gains/(Losses) on Investments at Fair Value 8 - 94,636 94,636 - (54,645) (54,645)
Net Losses on Foreign Exchange - (817) (817) - (442) (442)
Income
Dividends 2 65,350 6,560 71,910 77,463 8,431 85,894
Other Income 2 6,536 - 6,536 3,088 - 3,088
71,886 100,379 172,265 80,551 (46,656) 33,895
Expenses
AIFM Fee 3 (5,130) (11,970) (17,100) (5,232) (12,209) (17,441)
Other Expenses 4 (1,774) - (1,774) (1,979) - (1,979)
(6,904) (11,970) (18,874) (7,211) (12,209) (19,420)
Profit/(Loss) Before Finance Costs and Taxation 64,982 88,409 153,391 73,340 (58,865) 14,475
Finance Costs 5 (751) (1,747) (2,498) (962) (2,239) (3,201)
Profit/(Loss) Before Taxation 64,231 86,662 150,893 72,378 (61,104) 11,274
Tax Expense 6 (5,366) (5,201) (10,567) (5,520) (3,232) (8,752)
Profit/(Loss) for the Year 58,865 81,461 140,326 66,858 (64,336) 2,522
Profit/(Loss) Attributable to Equity Holders of the Company 58,865 81,461 140,326 66,858 (64,336) 2,522
Earnings per Share 7 5.18p 7.17p 12.35p 5.72p (5.50)p 0.22p
• 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 2024
Note As at 31 March 2024 As at 31 March 2023
£'000
£'000
Non-Current Assets
Investments at Fair Value Through Profit or Loss 8 1,995,232 1,992,775
Current Assets
Trade and Other Receivables 9 10,759 7,886
Cash and Cash Equivalents 145,736 132,988
Total Current Assets 156,495 140,874
Current Liabilities
Bank Loan (100,000) -
Other Payables (6,401) (6,402)
Total Current Liabilities 10 (106,401) (6,402)
Net Current Assets 50,094 134,472
Non-Current Liabilities
Capital Gains Tax Provision 6 (10,463) (9,744)
Other Payables Falling Due After More than One Year - (100,000)
Total Assets Less Liabilities 2,034,863 2,017,503
Share Capital and Reserves
Equity Share Capital 11 60,932 63,148
Capital Redemption Reserve 1(j) 21,737 19,521
Capital Reserve 1(j) 1,388,186 1,372,654
Special Distributable Reserve 1(j) 433,546 433,546
Revenue Reserve 1(j) 130,462 128,634
Equity Shareholders' Funds 2,034,863 2,017,503
Net Asset Value Pence per Share((a)) 182.5 174.1
(a) Based on shares in issue excluding shares held in treasury.
The Financial Statements of Templeton Emerging Markets Investment Trust plc
(company registration number SC118022) were approved for issue by the Board
and signed on 7 June 2024.
Angus Macpherson Simon Jeffreys
Chairman Director
(b)
Statement of changes in equity
For the year ended 31 March 2024
Note Equity Share Capital Capital Special Revenue Total
Capital
Redemption
Reserve
Distributable
Reserve
£'000
£'000
Reserve
£'000
Revenue
£'000
£'000
£'000
Balance at 31 March 2022 64,136 18,533 1,466,197 433,546 117,978 2,100,390
(Loss)/Profit for the Year - - (64,336) - 66,858 2,522
Equity Dividends 12 - - - - (56,202) (56,202)
Purchase and Cancellation of Own Shares 11 (988) 988 (29,207) - - (29,207)
Balance at 31 March 2023 63,148 19,521 1,372,654 433,546 128,634 2,017,503
Profit for the Year - - 81,461 - 58,865 140,326
Equity Dividends 12 - - - - (57,037) (57,037)
Purchase and Cancellation of Own Shares 11 (2,216) 2,216 (65,929) - - (65,929)
Balance at 31 March 2024 60,932 21,737 1,388,186 433,546 130,462 2,034,863
The accompanying notes are an integral part of the Financial Statements.
Statement of cash flows
For the year ended 31 March 2024
Note For the Year to For the Year to
31 March 2024
31 March 2023
£'000
£'000
Cash Flows From Operating Activities
Profit Before Taxation 150,893 11,274
Adjustments to Reconcile Profit Before Taxation to Cash Used in Operations:
Bank and Deposit Interest Income Recognised (6,518) (3,082)
Dividend Income Recognised (71,910) (85,894)
Finance Costs 2,498 3,201
Net (Gains)/Losses on Investments at Fair Value 8 (94,636) 54,645
Net Losses on Foreign Exchange 817 442
(Increase)/Decrease in Debtors (23) 12
Decrease in Creditors (29) (310)
Cash Used in Operations (18,908) (19,712)
Bank and Deposit Interest Received 6,434 3,082
Dividends Received 71,024 86,727
Bank Overdraft Interest Paid (2) (2)
Tax Paid (9,945) (5,971)
Net Realised (Losses)/Gains on Foreign Currency Cash and Cash Equivalents (435) 179
Net Cash Inflow From Operating Activities 48,168 64,303
Cash Flows From Investing Activities
Purchases of Non-Current Financial Assets (463,750) (465,539)
Sales of Non-Current Financial Assets 553,641 548,504
Net Cash Inflow From Investing Activities 89,891 82,965
Cash Flows From Financing Activities
Equity Dividends Paid 12 (57,037) (56,202)
Purchase and Cancellation of Own Shares (65,784) (30,453)
Repayment of Revolving Credit Facility - (50,000)
Interest and Fees Paid on Bank Loans (2,490) (3,457)
Net Cash Outflow From Financing Activities (125,311) (140,112)
Net Increase in Cash 12,748 7,156
Cash at the Start of the Year 132,988 125,855
Net Unrealised Losses on Foreign Currency Cash and Cash Equivalents 0 (23)
Cash at the End of the Year 145,736 132,988
The accompanying notes are an integral part of the Financial Statements.
Reconciliation of Liabilities Arising From Bank Loans
Liabilities as Cash Flows Profit & Loss Liabilities as
at 31 March 2023
£'000
£'000
at 31 March 2024
£'000
£'000
Revolving Credit Facility - - - -
- Fees Payable - (401) 401 -
Fixed Term Loan 100,000 - - 100,000
- Interest and Fees Payable 343 (2,089) 2,095 349
Total Liabilities From Bank Loans 100,343 (2,490) 2,496 100,349
Liabilities as Cash Flows Profit & Loss Liabilities as
at 31 March 2022
£'000
£'000
at 31 March 2023
£'000
£'000
Revolving Credit Facility 50,000 (50,000) - -
- Interest and Fees Payable 249 (1,351) 1,102 -
Fixed Term Loan 100,000 - - 100,000
- Interest and Fees Payable 352 (2,106) 2,097 343
Total Liabilities From Bank Loans 150,601 (53,457) 3,199 100,343
Notes to the financial statements
As at 31 March 2024
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 ('AIC') and updated in July 2022 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 using '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 were assessed to be relevant and are effective for annual periods
beginning on or after 1 January 2023:
• IAS 1 Amendments: Disclosure of Accounting Policies. This
amendment is to help preparers decide which accounting policies to disclose in
their Financial Statements.
• IAS 8 Amendments: Definition of Accounting Estimates. This
amendment is designed to clarify the distinction between changes in accounting
estimates and changes in accounting policies and the correction of errors.
The amendments listed above did not have any impact on the amounts recognised
in the current reporting period.
At the date of authorisation of these Financial Statements, the following
standards and interpretations which have not been applied in these Financial
Statements were in issue but not yet applicable:
Accounting Standards Effective Date for Annual Periods Beginning On or After
IAS 1 Amendments: Non-current Liabilities with Covenants 1 January 2024
The Directors expect that the amendments listed above will have either no
impact or that any impact will not be material to the Financial Statements of
the Company in the next reporting periods.
Going concern
The Directors have a reasonable expectation that, assuming that there will be
a successful continuation vote at the AGM in July 2024, the Company has
sufficient resources to continue in operational existence for the period to 31
March 2026, which is at least 12 months from the date of the approval of
these 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.
At 31 March 2024, the Company had net current assets of £50,094,000 (31 March
2023: net current assets of £134,472,000). 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 current
liabilities relating to the £100 million fixed term loan which matures 31
January 2025. 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, assumptions and judgements
There have been no significant estimates, assumptions or judgements 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
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 revenue
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
do not meet the contractual cash flows test so are measured at fair value.
Accordingly, upon initial recognition, all 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 by way of dividend.
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 balance transfer of
the Share Premium Account and Capital Redemption Reserve in December 2008.
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
2024 2023
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Dividends((a))
International Dividends 64,489 6,560 71,049 76,287 8,431 84,718
UK Dividends 861 - 861 1,176 - 1,176
65,350 6,560 71,910 77,463 8,431 85,894
Other Income
Bank and Deposit Interest 6,518 - 6,518 3,082 - 3,082
Stock Lending Income 18 - 18 6 - 6
6,536 - 6,536 3,088 - 3,088
Total 71,886 6,560 78,446 80,551 8,431 88,982
(a) The Company received special dividends amounting to £8.2 million
(2023: £11.0 million) of which £6.6 million (2023: £8.4 million) was
classified as capital and £1.6 million (2023: £2.6 million) was classified
as revenue.
3 AIFM Fee
2024 2023
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
AIFM Fee 5,130 11,970 17,100 5,232 12,209 17,441
The AIFM fee is paid monthly and based on the month end total net assets of
the Company. From 1 July 2022, the AIFM fee was reduced to 1% of the first £1
billion of net assets, 0.75% of net assets between £1 billion and £2
billion, and 0.50% of net assets over £2 billion. The previous fee structure
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
2024 2023
£'000
£'000
Custody Fees 432 526
Marketing Fees 344 321
Directors' Remuneration 333 303
Membership Fees 171 180
Depository Fees 166 148
Registrar Fees 117 86
Auditor's Remuneration
- Audit of the Annual Financial Statements 55 52
- Review of the Half Yearly Report 10 10
Broker Fees 40 36
Printing and Postage Fees 17 13
(Tax Advisory Fees Net of Refund)/Tax Advisory Fees (98) 187
Other Expenses 187 117
Total 1,774 1,979
5 Finance Costs
2024 2023
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Fixed Term Loan 629 1,466 2,095 629 1,468 2,097
Revolving Credit Facility 120 281 401 331 771 1,102
Bank Overdraft Interest 2 - 2 2 - 2
Total 751 1,747 2,498 962 2,239 3,201
6 Tax on Ordinary Activities
2024 2023
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Irrecoverable Overseas Withholding Tax 5,366 - 5,366 5,520 - 5,520
Capital Gains Tax Paid - 4,482 4,482 - 2,693 2,693
Total Current Tax 5,366 4,482 9,848 5,520 2,693 8,213
Capital Gains Tax Provision - 719 719 - 539 539
Total 5,366 5,201 10,567 5,520 3,232 8,752
2024 2023
£'000 £'000
Profit Before Taxation 150,893 11,274
Theoretical Tax at UK Corporation Tax Rate of 25% (2023: 19%) 37,723 2,142
Effects of:
- Capital Element of (Profit)/Loss (25,095) 8,865
- Irrecoverable Overseas Withholding Tax 5,366 5,520
- Excess Management Expenses 2,224 2,539
- Overseas Capital Gains Tax Paid 4,482 2,693
- Dividends Not Subject to Corporation Tax (14,421) (13,152)
- Movement in Overseas Capital Gains Tax Liability 719 539
- UK Dividends (215) (224)
- Overseas Tax Expensed (216) (170)
Actual Tax Charge 10,567 8,752
As at 31 March 2024 the Company had unutilised management expenses and
non-trade deficits of £304.4 million carried forward (2023: £295.5 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 of £76.1 million (2023: £73.9 million)
based on a prospective corporation tax rate of 25% (2023: 25%). The UK
corporation tax rate is currently 25% with effect from 1 April 2023.
Movement in Provision for Capital Gains Tax((a))
2024 2023
£'000
£'000
Balance Brought Forward 9,744 9,205
Charge For the Year 5,201 3,232
Capital Gains Tax Paid (4,482) (2,693)
Balance Carried Forward 10,463 9,744
(a) A provision for deferred capital gains tax has been recognised in
relation to unrealised gains for holdings in India.
7 Earnings per Share
2024 2023
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Earnings 58,865 81,461 140,326 66,858 (64,336) 2,522
2024 2023
Revenue Capital Total Revenue Capital Total
pence
pence
pence
pence
pence
pence
Earnings per Share 5.18 7.17 12.35 5.72 (5.50) 0.22
The earnings per share is based on the profit attributable to equity holders
and on the weighted average number of shares in issue, excluding shares held
in treasury, during the year of 1,136,517,365 (year to 31 March 2023:
1,169,095,903).
8 Financial Assets - Investments
2024 2023
£'000
£'000
Opening Investments
Book Cost 1,705,635 1,732,693
Net Unrealised Gains 287,140 391,837
Opening Fair Value 1,992,775 2,124,530
Movements In the Year
Additions at Cost 463,628 466,037
Disposals Proceeds (555,807) (543,147)
Net Gains/(Losses) on Investments at Fair Value 94,636 (54,645)
1,995,232 1,992,775
Closing Investments
Book Cost 1,740,112 1,705,635
Net Unrealised Gains 255,120 287,140
Closing Investments 1,995,232 1,992,775
All investments have been recognised at fair value with gains and losses
recorded through the Statement of Comprehensive Income. Transaction costs for
the year on purchases were £546,000 (2023: £638,000) and transaction costs
for the year on sales were £1,210,000 (2023: £1,068,000). The aggregate
transaction costs for the year were £1,756,000 (2023: £1,706,000).
2024 2023
£'000
£'000
Net Gains/(Losses) on Investments at Fair Value Comprise:
Net Realised Gains on Sale of Investments at Fair Value 126,656 50,052
Net Movement in Unrealised Losses (32,020) (104,697)
Net Gains/(Losses) on Investments at Fair Value 94,636 (54,645)
9 Trade and Other Receivables
2024 2023
£'000
£'000
Dividends Receivable 8,277 7,391
Sales Awaiting Settlement 1,783 -
Overseas Tax Recoverable 516 419
Other Debtors 183 76
Total 10,759 7,886
10 Current Payables
2024 2023
£'000
£'000
Bank Loan 100,000 -
Purchase of Investments for Future Settlement 3,667 3,790
AIFM Fee 1,369 1,396
Accrued Expenses 554 556
Amounts Owed for Share Buybacks 462 317
Interest and Fees on Fixed Term Loan 349 343
Total 106,401 6,402
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. With
effect from 28 September 2022, the term loan was transferred by novation from
Scotiabank Europe plc to The Bank of Nova Scotia, London Branch. All other
contractual terms and conditions remain the same.
The term loan bears interest at the fixed 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.
Revolving credit facility
On 31 January 2020, the Company entered into a £120 million multi-currency
unsecured revolving credit facility (the 'facility') for an initial period of
three years with The Bank of Nova Scotia, London Branch, subsequently this was
extended for one year to 30 January 2024. The undrawn commitment was not
renewed and expired on 30 January 2024.
From 31 January 2023, the commitment fee on unutilised commitments was a flat
fee of 0.40% per annum. The previous fee structure was 0.40% per annum charged
on undrawn balances in excess of £60 million and 0.35% per annum on any
undrawn portion below £60 million.
Under the facility balances could be drawn down in GBP, USD or CNH. From 31
January 2023, the interest margin was 1.20% as follows: USD drawdowns bore
interest at 1.20% per annum over the daily secured overnight financing rate
('SOFR') administered by the Federal Reserve Bank of New York, while any GBP
drawdowns bore interest at 1.20% per annum over the daily sterling overnight
index average ('SONIA') published by the Bank of England. The rate for any CNH
drawdowns was 1.20% per annum over the Hong Kong Interbank Offered Rate. The
previous fee structure was 1.125% per annum over the daily SOFR for USD
drawdowns, 1.125% per annum over the daily SONIA for GBP drawdowns and 1.125%
per annum over the Hong Kong Interbank Offered Rate for CNH drawdowns. GBP
drawdowns were also charged a credit adjustment spread, which was removed
following the amendment of the agreement on 31 January 2023.
Under the terms of the facility, the net assets would not be less than £1,015
million and the adjusted net asset coverage to all borrowings would not be
less than 3.5:1.
There were no drawdowns on the revolving credit facility during the year
(2023: £50 million was repaid). Any facility drawdown was shown at amortised
cost and revalued for exchange rate movements. Any gain or loss arising from
changes in exchange rates was included in the capital reserves and shown in
the capital column of the Statement of Comprehensive Income. Interest costs
were charged to capital (70%) and revenue (30%) in accordance with the
Company's accounting policies.
11 Equity Share Capital
2024 2023
Ordinary Shares In Issue £'000 Number £'000 Number
Opening Ordinary Shares of 5 Pence 57,957 1,159,138,372 58,945 1,178,896,985
Purchase and Cancellation of Own Shares (2,216) (44,319,755) (988) (19,758,613)
Closing Ordinary Shares of 5 Pence 55,741 1,114,818,617 57,957 1,159,138,372
2024 2023
Ordinary Shares Held In Treasury £'000 Number £'000 Number
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 60,932 1,218,644,512 63,148 1,262,964,267
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, 44,319,755 shares were bought back for cancellation at a cost
of £65,929,000 (2023: 19,758,613 shares were bought back for cancellation at
a cost of £29,207,000). All shares bought back in the year were cancelled,
with none being placed in treasury (2023: no shares were placed into
treasury).
12 Dividends
2024 2023
Rate (pence) £'000 Rate (pence) £'000
Declared and Paid in the Financial Year
Dividend on Shares:
Final Dividends for the Years Ended 31 March 2023 and 31 March 2022 3.00 34,562 2.80 32,941
Interim Dividends for the Six-Month Periods Ended 30 September 2023 and 30 2.00 22,475 2.00 23,261
September 2022
Total 5.00 57,037 4.80 56,202
Proposed for Approval at the Company's AGM
Dividend on Shares:
Final Dividend for the Year Ended 31 March 2024 3.00 33,138
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 3.00 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.
13 Related Party Transactions
There were no transactions with related parties, other than the fees paid to
the Directors and the AIFM during the financial years ended 31 March 2024 and
31 March 2023 respectively, which have a material effect on the results or the
financial position of the Company. Details of fees paid to the Directors and
details of the fee paid to the AIFM are included in the full Annual Report.
14 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 Managers. 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 Managers
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 Managers select securities in the portfolio in
accordance with the investment policy, and the overall asset allocation
parameters described above, and seek 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.
100% (2023: 100%) of the Company's investment portfolio is listed on stock
exchanges. If share prices as at 31 March 2024 had decreased by 30% (2023: 30%
decrease) with all other variables remaining constant, the Statement of
Comprehensive Income capital return and the net assets attributable to equity
shareholders would have decreased by £598,570,000 (2023: £597,833,000). A
30% increase (2023: 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 Managers have 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 denominated in a foreign currency as at
31 March are shown below:
2024
Currency Trade and Cash at Bank Trade, Bank Loans, Total Net Foreign Investments at
Other Receivables
£'000
and Other Payables
Currency Exposure
Fair Value Through
£'000
£'000
£'000
Profit or Loss
£'000
Korean Won - - - - 426,407
Hong Kong Dollar 1,783 1 - 1,784 371,454
Taiwan Dollar 516 - - 516 358,245
Indian Rupee - - - - 246,587
US Dollar - - - - 183,034
Other - 99 (3,667) (3,568) 382,705
2023
Currency Trade and Cash at Bank Trade, Bank Loans, Total Net Foreign Investments at
Other Receivables
£'000
and Other Payables
Currency Exposure
Fair Value Through
£'000
£'000
£'000
Profit or Loss
£'000
Hong Kong Dollar - - (1,786) (1,786) 421,688
Korean Won 5,561 - (1,834) 3,727 397,800
Taiwan Dollar 1,494 98 - 1,592 316,317
US Dollar 420 - - 420 232,164
Indian Rupee - - - - 226,039
Other 320 4,680 (72) 4,928 366,798
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 2024, 69.3% (2023: 68.8%) 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 £490.3 million (2023: £616.3
million), out of which £33.0 million (2023: £109.4 million) were investments
denominated in Chinese yuan.
Foreign currency sensitivity
The following table illustrates the foreign currency sensitivity on the
revenue and capital return. The revenue return impact represents the impact on
total income (which is mainly comprised of dividend income) had sterling
strengthened relative to all currencies by 10% throughout the year.
The capital return impact represents the impact of the financial assets and
liabilities of the Company if sterling had strengthened by 10% relative to all
currencies on the reporting date. With all other variables held constant, the
revenue and capital return would have decreased by the below amounts.
2024 2023
Revenue Return Capital Return Revenue Return Capital Return
£'000 £'000
£'000 £'000
Korean Won 853 42,641 1,008 40,153
Hong Kong Dollar 655 37,324 657 41,990
Taiwan Dollar 1,253 35,876 1,226 31,791
Indian Rupee 237 24,659 241 22,604
US Dollar 789 18,303 917 23,258
Other 2,663 37,914 3,580 37,173
Total 6,450 196,717 7,629 196,969
A 10% weakening of sterling against all 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 Managers 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.
Interest rate risk profile
The exposure of the financial assets and liabilities to floating interest rate
risks at 31 March is shown below:
2024 2023
£'000 £'000
Cash 145,736 132,988
Net Exposure at Year End 145,736 132,988
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 was 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:
2024 2023
100 Basis Points 100 Basis Points 100 Basis Points 100 Basis Points
Increase in Rate Decrease in Rate Increase in Rate Decrease in Rate
£'000 £'000 £'000 £'000
Revenue 1,457 (1,457) 1,330 (1,330)
Total 1,457 (1,457) 1,330 (1,330)
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 to meet
its obligations associated with financial liabilities 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 Managers review liquidity at the time of making each investment
decision and monitor 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 2024, 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 2024 In One Year More Than One Year More Than Two Years More Than Total £'000
or Less £'000
and Not Later Than and Not Later Than Three Years £'000
Two Years £'000 Three Years £'000
Fixed Term Loan 102,095 - - - 102,095
Revolving Credit Facility - - - - -
Other Payables 6,052 - - - 6,052
Total 108,147 - - - 108,147
As at 31 March 2023 In One Year More Than One Year More Than Two Years More Than Total £'000
or Less £'000 and Not Later Than and Not Later Than Three Years £'000
Two Years £'000 Three Years £'000
Fixed Term Loan 2,089 102,095 - - 104,184
Revolving Credit Facility 401 - - - 401
Other Payables 6,059 - - - 6,059
Total 8,549 102,095 - - 110,644
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 Managers as an acceptable
counterparty. Limits are set as to the maximum exposure to any individual
broker that may exist at any time. Total exposure is compared to monetary
limits that vary based on the size and creditworthiness of the counterparty.
Counterparty spreads and capital ratios are reviewed periodically. 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 and is typically invested in overnight time
deposits in the name of TEMIT with an approved list of counterparties. Any
excess cash not invested 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. All securities on loan are Level 1
financial instruments, and their value is determined by reference to the
trading prices on the stock market. As at 31 March 2024, the market value of
the securities on loan and the corresponding collateral received were as
follows:
31 March 2024 31 March 2023
Counterparty Market Value of Market Value of Market Value of Market Value of
Securities on
Collateral
Securities on
Collateral
Loan £'000 Received £'000
Loan £'000 Received £'000
Merrill Lynch International 3,831 5,082 543 739
UBS 211 276 - -
Citigroup - - 17 22
Total 4,042 5,358 560 761
The maximum aggregate value of securities on loan at any time during the year
was £5,892,895 (2013: £9,470,125). Full details of the collateral received
is noted in the full Annual Report.
Fair value
Fair values are derived as follows:
• Where assets are denominated in a foreign currency, they are
converted into the sterling amount using period-end rates of exchange;
• Investments held by the Company on the basis set out in the
accounting policies included in Note 1; and
• Other financial assets and liabilities at the carrying value
which is a reasonable approximation of the fair value.
The tables below analyse financial instruments carried at fair value by
valuation method. The different levels have been defined as follows:
Level 1. Quoted prices (unadjusted) in active markets for identical assets
and liabilities;
Level 2. Inputs other than quoted prices included with level 1 that are
observable for the asset or liability, either directly (prices) or indirectly
(derived from prices); and
Level 3. Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The hierarchy valuation of listed investments through profit and loss is shown
below:
31 March 2024 31 March 2023
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Listed Investments 1,995,232 - -((a)) 1,995,232 1,992,775 - -((a)) 1,992,775
(a) As at 31 March 2024 investments in Russian securities, LUKOIL and
Sberbank of Russia, continue to be fair valued at zero and classified as Level
3 due to the inability of the Company to access the local Moscow equity
markets and the very limited access to the over-the-counter market. The fair
value of these investments is based on a liquidity discount of 100% to the
last traded price for an exit price of zero. As at 31 March 2023, the
Company's holding in Yandex was also fair valued at zero and subsequently sold
on 23 May 2023.
The following table presents the movement in Level 3 investments for the year
ended:
31 March 2024 31 March 2023
£'000
£'000
Opening Balance - 20,803
Transfers From Level 3 Into Level 1 - (17,734)
Disposal Proceeds - Sale of Level 3 Assets (7,766)((a)) (1,613)((b))
Net Gains/(Losses) on Investments at Fair Value 7,766 (1,456)
Level 3 Closing Balance - -
(a) Represents the sale of the holding in Yandex on 23 May 2023 for
£7,766,000.
(b) Represents the sale of the holdings in Gazprom on 25 April 2022 for
£617,000, and the sale of VK on 9 March 2023 for £996,000.
The fixed term loan is shown at amortised cost within the Statement of
Financial Position. If the fixed term loan was shown at fair value the impact
would be:
31 March 2024 31 March 2023
£'000
£'000
Fixed Term Loan at Amortised Cost 100,000 100,000
Fixed Term Loan at Fair Value 96,770 94,470
Increase in Net Assets 3,230 5,530
The fair value of the fixed term loan included in the table above is
calculated by aggregating the expected future cash flows which are discounted
at a rate comprising the sum of the SONIA rate plus a spread. The fixed term
loan at fair value is classed as Level 2.
15 Significant Holdings in Investee Undertakings
As at 31 March 2024, TEMIT held 3% or more of the issued class of security in
the following portfolio holding whose shares are admitted to trading:
31 March 2024 31 March 2023
Holding % of Issued Fair Value % of Issued Fair Value
Security Class
£'000
Security Class
£'000
Held by TEMIT
Held by TEMIT
Haier Smart Home 3.0 9,072 - -
16 Contingent Liabilities
No contingent liabilities existed as at 31 March 2024 or 31 March 2023.
17 Contingent Assets
No contingent assets existed as at 31 March 2024 or 31 March 2023.
18 Financial Commitments
No financial commitments existed as at 31 March 2024 or 31 March 2023.
19 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 2024, the Company had share capital and reserves of
£2,034,863,000 (31 March 2023: £2,017,503,000). The Company's policies and
procedures for managing capital are consistent with the previous year.
20 Events After the Reporting Period
The only material post balance sheet event is in respect of the proposed final
dividend, which is disclosed in Note 12.
The statutory accounts for the period ended 31 March 2024 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) .
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