REG - TempletonEmerg.Mkt. - Statement of Half-Yearly Results to 30 Sept 22
08/12/2022 17:00
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RNS Number : 1262J Templeton Emerging Markets IT PLC 08 December 2022
Templeton Emerging Markets Investment Trust PLC ("TEMIT" or "the Company")
Unaudited Half Yearly Report to 30 September 2022
Legal Entity Identifier 5493002NMTB70RZBXO96
Company Overview
Launched in June 1989, Templeton Emerging Markets Investment Trust plc
("TEMIT" or the "Company") is an investment trust that invests principally in
emerging markets companies with the aim of delivering capital growth to
shareholders over the long term. While the majority of the Company's
shareholders are based in the UK, shares are traded on both the London and New
Zealand stock exchanges.
TEMIT has a diversified portfolio of around 80 high quality companies,
actively selected for their long-term growth potential and sustainable
earnings, and with due regard to Environmental, Social and Governance ("ESG")
attributes. TEMIT's research-driven investment approach and strong long-term
performance has helped it to grow to be the largest emerging markets
investment trust in the UK, with assets of £1.9 billion as at 30 September
2022. From its launch to 30 September 2022, TEMIT's net asset value ("NAV")
total return was +3,481.8% compared to the benchmark total return of
+1,652.7%.
The Company is governed by a Board of Directors who are committed to ensuring
that shareholders' best interests, considering the wider community of
stakeholders, are at the forefront of all decisions. Under the guidance of the
Chairman, the Board of Directors is responsible for the overall strategy of
the Company and monitoring its performance.
TEMIT at a glance
For the six months to 30 September 2022
Net asset value total Share price total MSCI Emerging Markets Interim dividend for
return (cum-income) ((a))
return((a))
Index total return((a)(b))
the financial year 2023
-8.3%
-8.5%
-7.4%
2.00p
(2021: -7.5%) (2021: -9.8%)
(2021: -1.0%)
(Interim dividend for
the financial year 2022:
1.00p)
Cumulative total return to 30 September 2022 (%)((a))
6 Months 1 Year 3 Years 5 Years 10 Years
Net asset value (cum-income) -8.3 -18.0 -2.4 6.6 58.3
Share price -8.5 -20.1 -3.3 6.3 53.7
MSCI Emerging Markets Index -7.4 -12.8 4.8 11.8 66.5
((a) ) A glossary of alternative performance measures is included on pages
37 and 38 of the full Half Yearly Report.
((b) ) Source: MSCI. The Company's benchmark is the MSCI Emerging Markets
Index, with net dividends reinvested.
Chairman's Statement
Market overview and investment performance
The difficult market conditions that I described in the most recent Annual
Report continued during the six-month period under review. The news continues
to be dominated by the Russian invasion of Ukraine and its ramifications,
particularly the impact on commodity prices. While governments around the
world have sought to contain the effect, particularly on fuel and food prices,
there is a risk that inflation will become entrenched as workers naturally
seek to counterbalance the effects of price rises with wage rises, which can
form an inflationary spiral. In the developed world, central banks have sought
to counter inflation expectations with increased interest rates but
controlling demand while not stifling growth is very difficult to achieve.
While events in Ukraine have overshadowed commodity and equity markets, there
were also concerns over Chinese growth in light of the government's
interventions in private companies and continued pursuit of lockdowns to
control the spread of COVID-19.
The Net Asset Value ("NAV") of TEMIT's shares was volatile over the period.
While by the end of August the shares had recorded a small positive return, a
very difficult September followed. This resulted in a net asset value total
return of -8.3%, compared with -7.4% for the benchmark index for the six
months to 30 September 2022. From 30 September 2022 to 6 December 2022, it has
been heartening to see a small recovery in markets. TEMIT's NAV total return
over this period was 6.0% compared with 1.7% for the benchmark index.
Revenue and dividend
Net revenue earnings for the period under review amounted to 4.16 pence per
share. As I have noted in the past, it is too early to predict revenues for
the full year but the majority of TEMIT's earnings are typically received in
the first half of the accounting year. Brazil's national oil and gas company
Petroleo Brasileiro, in which the Investment Manager invested in January, rose
on the back of surging oil prices, which led to strong results for the second
quarter of 2022 and a dividend yield of around 20% in the same quarter.
Petroleo Brasileiro's long-life oil reserves, together with its strategy of
deleveraging its balance sheet and exiting non-core assets allow for a
particularly strong dividend payout.
An interim dividend of 2.00 pence per share will be paid by TEMIT on 27
January 2023 to shareholders on the register on 16 December 2022. This is an
increase of 1.00 pence per share compared with last year's interim dividend.
This increase in the interim dividend recognises that there was a large
imbalance between the interim and final dividend in recent years and
shareholders should note that this increase in the interim dividend does not
imply any intention to change the final dividend.
Borrowing
TEMIT has fixed borrowing of £100 million, and a revolving credit facility
under which up to £120 million in flexible debt may be drawn down. As well as
the fixed borrowing, throughout the period £50 million was drawn under the
revolving credit facility which was subsequently repaid in October. The
Investment Manager continues to take a cautious view on the deployment of
borrowing in light of market circumstances. As at 30 September 2022, there was
significant cash in the portfolio and, net of this cash, the portfolio was not
geared. I would once again remind shareholders that the level of debt deployed
is not a result of views on market direction but driven by investment
opportunities presented by individual companies.
Share rating
Our managers remain very active in promoting TEMIT's shares to a wide variety
of existing and potential investors and have continued with their efforts to
promote the Company despite the turbulent markets. The Board was delighted
that TEMIT won the award in the "Emerging Markets Equity - Active" category in
the prestigious AJ Bell Fund and Investment Trust Awards in September 2022.
This was the third consecutive year that we have won this award. The award is
made on the basis of voting by private investors from a shortlist of
open-ended funds, ETFs and investment trusts drawn up by investment experts.
The market conditions that I describe above naturally led to pressure on the
discount as investors sought safe havens. The Board remains consistent in its
view that share buybacks are a key tool in managing the balance between supply
and demand for the shares. As set out in the most recent Annual Report,
selling pressure changed dramatically following the Russian invasion of
Ukraine and this has subsequently continued. In total over the six months to
30 September 2022, £18.4 million was spent on share buybacks and, as all
buybacks were at a discount to the prevailing NAV, this resulted in an
increase in the NAV of 0.15% to the benefit of remaining shareholders.
First Stewardship Report launched
I set out in the most recent Annual Report that effective stewardship of the
Company's assets is a key element of the Board's strategy for the Company.
Consideration of governance and sustainability issues has long been an
integral part of our Investment Manager's approach. In order to explain in
more detail their approach to this important topic, our inaugural Stewardship
Report for TEMIT was published in June and is available on our website at
www.temit.co.uk. (http://www.temit.co.uk/) This Report sets out in detail the
approach to investing your Company's assets sustainably and includes
TEMIT-specific case studies as well as data highlighting the depth of
engagement with companies. I encourage you to download a copy if you have not
already done so. The Investment Manager has also provided a brief update of
its stewardship activities as part of the Investment Manager's Report.
The Board
As previously announced, Beatrice Hollond retired from the Board at this
year's Annual General Meeting and Simon Jeffreys assumed the position of
Senior Independent Director.
On 17 October 2022 we announced the appointment of Abigail Rotheroe as a
director effective 1 November 2022. Abigail has over 20 years of investment
experience, most recently as the Investment Director at Snowball Impact
Management, a sustainable and impact-focused asset manager. Previously Abigail
has managed retail and institutional Asia Pacific portfolios in Hong Kong and
London for Schroders, HSBC Asset Management Hong Kong and Columbia
Threadneedle Investments. She is a CFA Charterholder and has experience in
manager selection, sustainability, and impact measurement.
Management fee reduction
As previously announced, with effect from 1 July 2022 the fee paid to Franklin
Templeton was reduced to:
• 1.0% 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.
Annual General Meeting
The Board was pleased to welcome shareholders to the AGM again in July, having
been obliged to hold the previous two years' AGMs behind closed doors. All
resolutions at the AGM were duly carried by a large majority and I would like
to thank shareholders for their continuing support. I recognise that some
shareholders are unable to attend meetings in person and if you have any
questions, please send these by email to temitcosec@franklintempleton.com
(mailto:temitcosec@franklintempleton.com) or via
www.temit.co.uk./investor/contact-us.
(http://www.temit.co.uk./investor/contact-us)
Outlook
It is likely that economic and market turbulence will continue for some time
and the risk of further political and economic shocks remains elevated, not
least as Russia's war on Ukraine continues. The effects of high inflation, the
resulting increases in interest rates and strains on currency exchange rates
are foremost in many investors' minds. Uncertainties also continue in China
where growth and sentiment are being impacted by the continued zero-COVID
policy of the government which is currently resulting in widespread social
unrest. We will continue to focus on the Chinese government's "common
prosperity" agenda which has potential effects on the profitability of some
companies and on overall economic growth. Geopolitical concerns, and
particularly relations between China and United States, also remain a key
issue.
At the time of writing the value of the US dollar against a basket of other
currencies has moved down from the high levels reached in September and equity
markets are showing some signs of recovery. Commentators often say that
markets attempt to look 12-18 months into the future and it is possible that
they are beginning to reflect an eventual economic recovery. Our aim is to
produce attractive returns over the long term. Countries making up the
emerging markets currently contribute a large proportion of the world's
economic growth, and this appears likely to continue. The markets in which our
Investment Manager seeks opportunities have many advantages, including
relatively young and growing populations, growing wealth and expanding
economies. Further, many of the companies in which we are able to invest are
highly innovative, and in some cases have world leading products and are able
to leapfrog their competitors in developed markets. As I said in the recent
Annual Report, your Board remains optimistic for emerging market equities over
the long term, and this view is based on both the opportunities presented and
the resources which our Investment Manager deploys on shareholders' behalf.
Paul Manduca
Chairman
8 December 2022
Interim Management Report
Principal risks
The Company predominantly invests directly in the stock markets of emerging
markets. The principal categories of risks facing the Company, determined by
the Board and described in detail in the Strategic Report within the Annual
Report and Audited Accounts, are:
• Market and geo-political;
• Pandemic;
• Cyber;
• Concentration;
• Sustainability and climate change;
• Foreign currency;
• Portfolio liquidity;
• Counterparty and credit;
• Operational and custody;
• Key personnel; and
• Regulatory.
The Board has provided the Investment Manager with guidelines and limits for
the management of principal risks. The key emerging risk faced by the Company
during the year to 31 March 2022 was the Russian invasion of Ukraine, and this
was highlighted under geo-political and liquidity risks. The Board and
Investment Manager are aware that the economic challenges continue to be the
key issue affecting investment markets around the world, including the ongoing
zero-COVID policy in China and its impact on economic growth as well as the
continued tensions between United States and China over trade and Taiwan.
There have been no further changes to the principal and emerging risks
reported in the Annual Report and, in the Board's view, these principal and
emerging risks are equally applicable to the remaining six months of the
financial year as they were to the six months under review.
Related party transactions
There were no transactions with related parties during the period other than
the fees paid to the Directors and the AIFM.
Going concern
The Company's assets consist of equity shares in companies listed on
recognised stock exchanges and in most circumstances are realisable within a
short timescale. Having made suitable enquiries, including consideration of
the Company's objective, the nature of the portfolio, net current assets,
expenditure forecasts, the principal and emerging risks and uncertainties
described within the Annual Report and with due consideration to the
continuing ramifications of the Russian invasion of Ukraine, the impact of the
ongoing zero-COVID policy in China and the potential impact of the growing
United States-China tensions around trade and Taiwan, the Directors are
satisfied that the Company has adequate resources to continue to operate as a
going concern for the period to 31 March 2024, which is at least 12 months
from the date of approval of these Financial Statements, and are satisfied
that the going concern basis is appropriate in preparing the Financial
Statements.
Statement of Directors' Responsibilities
The Disclosure Guidance and Transparency Rules of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
Each of the Directors, who are listed on page 35 of the full Half Yearly
Report, confirms that to the best of their knowledge:
(a) the condensed set of Financial Statements, for the period ended 30
September 2022, have been prepared in accordance with the UK adopted
International Accounting Standard (IAS) 34 "Interim Financial Reporting"; and
(b) the Half Yearly Report includes a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and a review
of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of Financial
Statements, and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period, and any changes in
the related party transactions described in the last annual report that could
do so.
The Half Yearly Report was approved by the Board on 8 December 2022 and the
above Statement of Directors' Responsibilities was signed on its behalf by
Paul Manduca
Chairman
8 December 2022
Investment Manager's Report
Review of performance
Emerging markets collectively declined over the six months under review as
market sentiment remained weak. Rising inflation rates and the continuation of
central bank interest rate increases depressed consumer and investor
sentiment, although Asian emerging markets experienced lower rates of
increases than elsewhere. The MSCI Emerging Markets Index returned -7.4% for
the six-month period under review, whilst TEMIT delivered a net asset value
total return of -8.3% (all figures are total return in sterling). Full details
of TEMIT's performance are on page 1 of the full Half Yearly Report.
All regions declined during the period but Latin America was the best relative
performer, as positive performance in Chile limited the region's decline. Asia
was the worst performing region during the six-month period despite strong
returns in India, as tech-heavy South Korea and Taiwan, as well as China, were
largely responsible for the region's lagging performance.
China was TEMIT's largest market exposure, although the portfolio remained
underweight relative to the benchmark. China was amongst the region's
strongest markets during the first three months of the period, but regional
lockdowns related to the country's zero-COVID policy, continued regulatory
uncertainty and a reeling real estate market weighed on equity performance in
the second three months of the period. For the six months, Chinese equities
declined significantly as it dealt with a slowing economy and weak investor
sentiment. However, we believe that China's government remains committed to
fostering innovation as an economic growth engine, and that we will see more
regulatory clarity towards the end of the year and hope that the government
will also look to plan an exit from the current zero-COVID policy.
TEMIT's second-largest market position was in South Korea, where the portfolio
was significantly overweight versus the benchmark. South Korea experienced the
largest emerging market decline, as its technology-heavy market continued to
struggle throughout the period. An export powerhouse, several South Korean
exporters are of global importance, supplying vital hardware. World-leading
semiconductor and battery makers are benefitting from the secular trends of
increased computing power and greener mobility-some of which have accelerated
as we emerge from the COVID-19 pandemic. South Korea's advantages in
innovation and intellectual property are also evident, whilst the country's
internet sector has also been thriving. However, the downtrend in the global
technology sector continues to weigh and an accompanying de-rating of sector
valuations affected South Korea in the third quarter of 2022.
The Taiwanese market also depressed the relative performance of TEMIT as its
technology sector experienced lower demand and higher costs. TEMIT's
overweight allocation to Taiwan is largely attributable to exposure to the
island's semiconductor industry, chief amongst which was Taiwan Semiconductor
Manufacturing ("TSMC"), which is also the portfolio's largest holding.
Technology's role as a key economic engine has only strengthened during the
pandemic. As technology has advanced, semiconductor chips have become a
growing part of almost all consumer goods with the semiconductor industry
experiencing a cyclical and secular boom as growing digitalisation powers a
surge in demand. Historically, many chip designers outsourced manufacturing to
key Taiwanese companies such as TSMC with specialised manufacturing prowess
and lower costs. Some of these manufacturers are now counted amongst the
largest foundries globally and can partner with, and produce chips for,
clients anywhere in the world. This collaboration, rather than direct
competition, is a key advantage of their business model. Over time, their
advantage has shifted from primarily cost-based to one of intellectual
property, with fewer competitors able to progress to the next level of
technology. Although we see a promising long term for the sector, a confluence
of factors makes the short term less certain. At the start of the period,
concerns around component shortages and the durability of a price and demand
recovery gave way to reduced demand, triggered in part by higher global
interest rates and inflation. However, we maintain a positive long-term view
on Taiwan's semiconductor industry. Despite growing geopolitical concerns
around China's stated desire to absorb Taiwan, we expect the current status
quo to remain for the time being.
Although underweight relative to the benchmark, India was TEMIT's fourth
largest exposure at the end of September 2022. India was also a relative
outperformer, benefitting from a decline in oil prices in the third quarter of
the year. Over the longer-term, we expect to see continued growth in Indian
earnings due to positive demographics for higher consumption, rising
penetration in segments like finance and health care, and growth in
digitalisation. India is also benefitting from the "China+1" strategy amongst
manufacturers. This strategy sees companies establish an additional
manufacturing base outside China to mitigate some of the supply chain risks
encountered during COVID-19. We remain focused on being selective and identify
bottom-up opportunities based on our assessment of a company's growth, quality
and earnings sustainability.
Investment strategy, portfolio changes and performance attribution
The following sections show how different investment factors (stocks, sectors
and geographies) accounted for the Company's performance over the period.
We continue to emphasise our investment process that selects companies based
on their individual attributes and ability to generate risk-adjusted returns
for investors, rather than taking a high-level view of sectors, countries or
geographic regions to determine our investment allocations.
Our investment style remains resolutely centred on finding good quality
companies with sustainable earnings power and whose shares trade at a discount
relative to their intrinsic worth. We see high levels of leverage as a risk
and we seek to avoid companies with weak balance sheets.
We continue to utilise our research-based, active approach to help us to find
companies which have high standards of corporate governance, respect their
shareholder base and understand the local intricacies that may determine
consumer trends and habits. Utilising our large team of analysts, we aim to
maintain close contact with the board and senior management of existing and
potential investments and believe in engaging constructively with our investee
companies.
Whilst the immediate outlook is uncertain, this approach should help us best
navigate the challenging market and economic backdrop. Over time, we expect
the long-term fundamentals of our holdings to remain intact.
Performance attribution analysis %
Six months to 30 September 2022 2021 2020 2019 2018
Net asset value total return((a)) (8.3) (7.5) 31.3 6.3 (1.5)
Expenses incurred 0.5 0.5 0.5 0.5 0.6
Gross total return((a)) (7.8) (7.0) 31.8 6.8 (0.9)
Benchmark total return((a)) (7.4) (1.0) 24.4 2.2 (1.8)
Excess return((a)) (0.4) (6.0) 7.4 4.6 0.9
Stock selection 2.9 (4.3) 2.5 2.6 (0.2)
Sector allocation (2.2) (1.4) 4.0 1.6 (0.5)
Currency (1.1) (0.5) 0.5 0.4 1.1
Share buyback impact 0.1 0.0 0.3 0.2 0.7
Residual return((a)) (0.1) 0.2 0.1 (0.2) (0.2)
Total Investment Manager contribution (0.4) (6.0) 7.4 4.6 0.9
Source: FactSet and Franklin Templeton.
((a) ) A glossary of alternative performance measures is included on pages
37 and 38 of the full Half Yearly Report.
Top 10 contributors to relative performance by security (%)((a))
Top contributors Country Sector Share price Contribution to
total return
portfolio relative
to MSCI
Emerging
Markets Index
ICICI Bank India Financials 30.1 1.8
Daqo New Energy China/Hong Kong Information Technology 51.2 0.8
Petroleo Brasileiro Brazil Energy 37.3 0.7
Bajaj Holdings & Investments((b)) India Financials 42.8 0.5
Genpact((b)(c)) United States Information Technology 19.0 0.5
Banco Santander Mexico((b)) Mexico Financials 26.7 0.5
Prosus((b)) China/Hong Kong Consumer Discretionary 16.1 0.4
Unilever((b)(c)) United Kingdom Consumer Staples 17.1 0.3
Itaú Unibanco Brazil Financials 7.9 0.3
Guangzhou Tinci Materials Technology China/Hong Kong Materials (1.1) 0.3
( )
((a) ) For the period 31 March 2022 to 30 September 2022.
((b) ) Security not included in the MSCI Emerging Markets Index as at 30
September 2022.
((c) ) This security, listed on a stock exchange in a developed market, has
significant exposure to operations from emerging markets.
ICICI Bank is an Indian bank engaged in retail, corporate and treasury
services. The bank reported first quarter fiscal 2023 earnings which were
ahead of expectations, led by a sharp increase in non-interest income and an
increase in net interest margins. Momentum from a favourable quarterly report
announced in late July and good economic datapoints boosted returns. The
bank's healthy capital adequacy ratios and strong franchise place it in a good
position to capitalise on the growth opportunity in the Indian economy.
Daqo New Energy, the Chinese producer of polysilicon for the solar industry,
experienced a sharp increase in its share price during the period. The company
raised its annual production volume target and is positive on the outlook for
polysilicon prices. Investors are attracted to the company given its focus on
renewable energy which is forecast to continue growing significantly in the
coming years.
Brazil's national oil and gas company Petroleo Brasileiro ("Petrobras") rose
on the back of surging oil prices, which led to strong results for the second
quarter of 2022 and a dividend yield of around 20% in the same quarter.
Petrobras' long-life oil reserves, together with its strategy of deleveraging
its balance sheet and exiting non-core assets allow for a strong dividend
payout.
Top 10 detractors to relative performance by security (%)((a))
Top detractors Country Sector Share price total return Contribution to
portfolio relative to MSCI Emerging
Markets Index
NAVER South Korea Communication Services (43.7) (1.2)
Taiwan Semiconductor Manufacturing Taiwan Information Technology (24.3) (1.0)
Samsung Electronics South Korea Information Technology (23.4) (0.8)
MediaTek Taiwan Information Technology (28.7) (0.7)
Meituan((b)) China/Hong Kong Consumer Discretionary 25.2 (0.4)
China Merchants Bank China/Hong Kong Financials (21.3) (0.3)
Cognizant Technology Solutions((c)(d)) United States Information Technology (24.0) (0.3)
Soulbrain((c)) South Korea Materials (28.0) (0.3)
Americanas Brazil Consumer Discretionary (45.8) (0.3)
Alibaba China/Hong Kong Consumer Discretionary (18.2) (0.2)
((a)) For the period 31 March 2022 to 30 September 2022.
((b)) Security not held by TEMIT as at 30 September 2022.
((c)) Security not included in the MSCI Emerging Markets Index as at 30
September 2022.
((d)) This security, listed on a stock exchange in a developed market, has
significant exposure to operations from emerging markets.
NAVER declined in the third quarter after it fell short of consensus second
quarter earnings estimates. The company operates South Korea's largest search
engine, and offers e-commerce, fintech and digital content services. Its share
price has been on a declining trend due to slower growth in the post-COVID
environment. Concerns that expansion into unprofitable new businesses with
lower margins also negatively impacted market sentiment. However, 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.
After losing ground in August due to lower chip demand throughout the
industry, TSMC shares took another hit in late September when Apple reported
lower demand for its new iPhone 14. TSMC is the world's largest foundry
semiconductor manufacturer. The company's share price has been under pressure,
despite solid second quarter results which saw management increase third
quarter sales guidance. The company is a beneficiary of the digitisation
trend, and of increased penetration of semiconductors in consumer goods
ranging from cars to domestic appliances. Nevertheless, it cannot escape the
short-term downtrend in the global technology sector and the accompanying
de-rating of sector valuations.
Samsung Electronics is one of the largest memory semiconductor manufacturers
in the world. The company experienced downward pressure in its share price in
the period under review as rising inventory levels have converged with
increased global economic uncertainty, resulting in an inventory adjustment
amongst customers. In addition to the already weakening demand in PC and
mobile segments, there are concerns over the outlook for server demand.
Consensus estimates amongst analysts for sales in 2023 peaked in May and have
been trending lower since then. We partially reduced our overweight exposure
during the period.
Top contributors and detractors to relative performance by sector (%)((a))
Top contributors MSCI Contribution to portfolio Top detractors MSCI Emerging Markets Index sector total return Contribution to portfolio
Emerging Markets Index sector total relative to MSCI Emerging Markets Index relative to MSCI Emerging Markets Index
return
Financials (3.5) 2.4 Consumer Discretionary 1.9 (1.1)
Energy 8.6 0.3 Communication Services (14.6) (0.8)
Real Estate (10.5) 0.1 Information Technology (20.7) (0.5)
Utilities 8.0 (0.3)
Industrials (3.3) (0.3)
((a)) For the period 31 March 2022 to 30 September 2022.
Favourable stock selection and a significant overweight position in the
financial sector added to TEMIT's performance relative to the benchmark. ICICI
Bank, mentioned above, was the primary contributor to the sector. The energy
sector also contributed to relative results, despite an underweight that
detracted, thanks to strong performance from Petrobras (discussed above). Real
estate was the only other sector in the portfolio to post a positive result
during the period, thanks to modest contributions from both an underweight
position and stock selection.
Stock selection in the consumer discretionary sector weighed on relative
performance, where Americanas, Alibaba, and a lack of exposure to benchmark
holding Meituan were all amongst the top 10 detractors in the portfolio. The
communication services sector, where stock selection weighed on results, also
had a negative impact. NAVER (discussed above) was the key detractor in the
communication services sector. A significant overweight position in
information technology hindered relative returns, although stock selection
helped mitigate some of the negative effect. TSMC and Samsung Electronics
(discussed above) were the heaviest decliners relative to the benchmark in the
information technology sector.
Top contributors and detractors to relative performance by country (%)((a))
Top contributors Contribution to portfolio Top detractors MSCI Contribution to portfolio
MSCI relative to MSCI Emerging Markets Index Emerging Markets Index sector total relative to MSCI Emerging Markets Index
Emerging Markets Index sector total return
return
Brazil (2.6) 0.9 South Korea (21.9) (1.4)
India 8.9 0.7 Taiwan (18.0) (1.1)
South Africa (19.9) 0.7 Saudi Arabia((c)) 3.2 (0.5)
Mexico (6.1) 0.4 China/Hong Kong (5.6) (0.4)
United Kingdom((b)) - 0.3 Indonesia 15.9 (0.2)
((a) ) For the period 31 March 2022 to 30 September 2022.
((b)) No companies included in the MSCI Emerging Markets Index in this
country as at 30 September 2022.
((c) ) No companies held by TEMIT in this country as at 30 September 2022.
A significant overweight position in the underperforming South Korean market
hurt relative results. Key stocks included NAVER and Samsung Electronics,
discussed earlier. In Taiwan, selections including the portfolio's largest
holding, TSMC, hindered performance, while MediaTek had a lesser negative
effect. A slight overweight in the market also hurt relative returns. China,
as discussed above, also detracted, although a slight underweight helped mute
underperformance. Lack of exposure to Meituan, a food-delivery platform, and
an overweight in China Merchants Bank were the top detractors.
Brazil was the major positive contributor to relative performance. An
overweight exposure and favourable stock selection had a positive impact, and
Petrobras (discussed above and also overweighted) contributed significantly.
An overweight in top-performing ICICI Bank (discussed above) led India to an
outsized positive result during the period, as did off-benchmark exposure to
Bajaj Holdings & Investments. Stock selection and an underweight in South
Africa also delivered positive results led by an off-benchmark investment in
Massmart.
Portfolio changes by sector
Total return in sterling
Sector 31 March 2022 market value £m Purchases £m Sales £m Market movement £m 30 September 2022 market value TEMIT MSCI
£m
%
Emerging Markets Index %
Information Technology 737 27 (102) (137) 525 (17.4) (20.7)
Financials 473 51 (46) 24 502 6.3 (3.5)
Consumer Discretionary 266 30 (30) (22) 244 (7.8) 1.9
Communication Services 212 18 (11) (47) 172 (23.3) (14.6)
Materials 208 10 (34) (31) 153 (13.8) (12.8)
Industrials 62 28 (1) (7) 82 (7.9) (3.3)
Consumer Staples 82 5 (16) 10 81 14.4 7.7
Energy 36 25 (1) (2) 58 33.7 8.6
Health Care 33 7 (2) (5) 33 (11.4) (7.2)
Real Estate 16 - (6) - 10 (8.8) (10.5)
Utilities - 10 (11) 2 1 17.6 8.0
Total Investments 2,125 211 (260) (215) 1,861
Sector asset allocation
As at 30 September 2022
Sector weightings vs benchmark (%)
TEMIT MSCI Emerging Markets Index
Information Technology 28.2 18.2
Financials 26.9 22.6
Consumer Discretionary 13.1 14.0
Communication Services 9.3 9.7
Materials 8.2 8.7
Industrials 4.4 5.8
Consumer Staples 4.3 6.6
Energy 3.2 5.3
Health Care 1.8 3.9
Real Estate 0.5 2.0
Utilities 0.1 3.2
Portfolio changes by country
Total return in sterling
Country 31 March 2022 market value £m Purchases £m Sales £m Market movement £m 30 September 2022 market value TEMIT MSCI
£m
%
Emerging Markets Index %
China/Hong Kong 605 63 (74) (50) 544 (7.7) (5.6)
South Korea 487 11 (67) (107) 324 (22.4) (21.9)
Taiwan 363 19 (15) (93) 274 (23.8) (18.0)
India 188 44 (47) 46 231 22.0 8.9
Brazil 210 29 (18) (15) 206 2.2 (2.6)
Other 272 45 (39) 4 282 - -
Total Investments 2,125 211 (260) (215) 1,861
Geographic asset allocation
As at 30 September 2022
Country weightings vs benchmark (%)((a))
TEMIT MSCI Emerging Markets Index
China/Hong Kong 29.2 31.4
South Korea 17.4 10.7
Taiwan 14.7 13.7
India 12.4 15.3
Brazil 11.1 5.7
United States((b)) 3.9 -
Thailand 2.6 2.1
Mexico 2.0 2.3
United Kingdom((b)) 1.8 -
Indonesia 1.0 2.2
Hungary 0.8 0.2
South Africa 0.7 3.4
Chile 0.6 0.6
Peru 0.5 0.2
Cambodia((b)) 0.4 -
Philippines 0.3 0.7
Pakistan((b)) 0.3 -
Kenya((b)) 0.3 -
United Arab Emirates 0.0 1.4
Russia((b)(c)) 0.0 -
((a)) Other countries included in the benchmark are Colombia, Czech
Republic, Greece, Kuwait, Malaysia, Poland, Qatar, Romania, Saudi Arabia,
Singapore and Turkey.
((b)) Countries not included in the MSCI Emerging Markets Index.
((c) ) All companies held by TEMIT in this country are valued at zero.
Portfolio investments by fair value
As at 30 September 2022
Holding Country Sector Trading((a)) Fair value £'000 % of net assets
Taiwan Semiconductor Manufacturing Taiwan Information Technology NT 194,259 10.4
ICICI Bank India Financials PS 128,805 6.9
Samsung Electronics South Korea Information Technology PS 108,780 5.8
Alibaba((b)) China/Hong Kong Consumer Discretionary PS 102,744 5.5
Tencent China/Hong Kong Communication Services IH 74,610 4.0
MediaTek Taiwan Information Technology IH 63,147 3.4
Petroleo Brasileiro((c)) Brazil Energy IH 53,242 2.9
Banco Bradesco((c)(d)) Brazil Financials IH 51,332 2.7
NAVER South Korea Communication Services IH 50,508 2.7
China Merchants Bank China/Hong Kong Financials IH 49,044 2.6
TOP 10 LARGEST INVESTMENTS 876,471 46.9
LG South Korea Industrials NT 48,944 2.6
Itaú Unibanco((c)(d)) Brazil Financials IH 48,233 2.6
Genpact((e)) United States Information Technology IH 44,124 2.4
Guangzhou Tinci Materials Technology China/Hong Kong Materials PS 43,740 2.3
Prosus((f)) China/Hong Kong Consumer Discretionary PS 40,017 2.1
Vale Brazil Materials IH 38,604 2.1
Samsung Life Insurance South Korea Financials NT 36,388 2.0
Banco Santander Mexico((d)) Mexico Financials NH 33,549 1.8
Unilever((e)) United Kingdom Consumer Staples PS 33,048 1.8
Daqo New Energy((d)) China/Hong Kong Information Technology PS 30,710 1.6
TOP 20 LARGEST INVESTMENTS 1,273,828 68.2
Cognizant Technology Solutions((e)) United States Information Technology NT 28,641 1.5
Techtronic Industries China/Hong Kong Industrials IH 28,245 1.5
HDFC Bank India Financials NH 27,945 1.5
Kasikornbank Thailand Financials NT 25,329 1.3
Bajaj Holdings & Investments India Financials PS 23,088 1.2
Soulbrain South Korea Materials IH 21,627 1.2
POSCO South Korea Materials NT 21,153 1.1
Uni-President China China/Hong Kong Consumer Staples IH 20,378 1.1
Ping An Insurance China/Hong Kong Financials IH 19,475 1.0
Tata Consultancy Services India Information Technology PS 18,687 1.0
TOP 30 LARGEST INVESTMENTS 1,508,396 80.6
Astra International Indonesia Consumer Discretionary PS 18,465 1.0
Brilliance China Automotive((g)) China/Hong Kong Consumer Discretionary NT 18,366 1.0
Zomato India Consumer Discretionary NH 17,069 0.9
Fila South Korea Consumer Discretionary NT 16,633 0.9
Baidu China/Hong Kong Communication Services IH 16,293 0.9
Hon Hai Precision Industry Taiwan Information Technology PS 16,093 0.8
Infosys Technologies India Information Technology IH 15,463 0.8
Gedeon Richter Hungary Health Care NT 14,495 0.8
Tencent Music Entertainment((d)) China/Hong Kong Communication Services PS 14,269 0.8
NetEase China/Hong Kong Communication Services PS 14,252 0.8
TOP 40 LARGEST INVESTMENTS 1,669,794 89.3
China Resources Cement China/Hong Kong Materials PS 12,451 0.7
Ping An Bank China/Hong Kong Financials NT 12,340 0.6
Banco Santander Chile((d)) Chile Financials NH 10,700 0.5
Intercorp Financial Services Peru Financials IH 9,253 0.5
Americanas Brazil Consumer Discretionary IH 9,183 0.5
Kiatnakin Phatra Bank Thailand Financials NT 8,952 0.5
Keshun Waterproof Technologies China/Hong Kong Materials PS 8,900 0.5
LegoChem Biosciences South Korea Health Care IH 8,122 0.4
Massmart South Africa Consumer Staples PS 8,016 0.4
Thai Beverage Thailand Consumer Staples NT 7,639 0.4
TOP 50 LARGEST INVESTMENTS 1,765,350 94.3
NagaCorp Cambodia Consumer Discretionary PS 6,873 0.4
LG Chem South Korea Materials PS 6,793 0.4
H&H Group China/Hong Kong Consumer Staples IH 6,409 0.3
Star Petroleum Refining Thailand Energy NH 6,145 0.3
BDO Unibank Philippines Financials NT 5,885 0.3
Netcare South Africa Health Care IH 5,740 0.3
MCB Bank Pakistan Financials NT 4,993 0.3
COSCO SHIPPING Ports China/Hong Kong Industrials IH 4,939 0.3
East African Breweries Kenya Consumer Staples NT 4,913 0.3
Wuxi Biologics China/Hong Kong Health Care PS 4,899 0.3
TOP 60 LARGEST INVESTMENTS 1,822,939 97.5
China Resources Land China/Hong Kong Real Estate PS 4,793 0.3
Longshine Technology Group China/Hong Kong Information Technology PS 4,781 0.3
Greentown Service Group China/Hong Kong Real Estate PS 4,760 0.2
Nemak Mexico Consumer Discretionary NT 4,417 0.2
XP Inc Brazil Financials NT 4,384 0.2
Hankook Tire South Korea Consumer Discretionary NT 3,338 0.2
JD.com China/Hong Kong Consumer Discretionary NT 2,605 0.1
Weifu High-Technology China/Hong Kong Consumer Discretionary NT 2,461 0.1
KT Skylife South Korea Communication Services NT 2,179 0.1
BAIC Motor China/Hong Kong Consumer Discretionary NT 1,876 0.1
TOP 70 LARGEST INVESTMENTS 1,858,533 99.3
TOTVS Brazil Information Technology PS 885 0.1
Dubai Electricity and Water Authority United Arab Emirates Utilities NH 817 0.0
Chervon Holdings China/Hong Kong Consumer Discretionary PS 279 0.0
Yandex((h)) Russia Communication Services NT - -
LUKOIL((h)) Russia Energy NT - -
VK((h)(i)) Russia Communication Services NT - -
Sberbank of Russia((h)) Russia Financials NT - -
TOTAL INVESTMENTS 1,860,514 99.4
NET ASSETS 11,247 0.6
TOTAL NET ASSETS 1,871,761 100.0
((a) ) Trading activity during the year: (NH) New Holding, (IH) Increased
Holding, (PS) Partial Sale and (NT) No Trading.
((b) ) Company is listed on the Hong Kong and New York stock exchanges.
((c)) Preferred shareholders are entitled to dividends before ordinary
shareholders.
((d)) US listed American Depository Receipt.
((e)) This company, listed on a stock exchange in a developed market, has
significant exposure to operations from emerging markets.
((f)) 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.
((g)) Trading of this company's shares on the Hong Kong stock exchange has
been suspended since 31 March 2021. Shares resumed trading on 5 October 2022.
((h)) This company is fair valued at zero as a result of its trading being
suspended on international stock exchanges.
((i)) UK listed Global Depository Receipt.
Portfolio summary
As at 30 September 2022
All figures are a % of the net assets
Communication Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Materials Real Estate Utilities Net assets/(liabilities)((a)) 30 September 2022 31 March 2022
Technology
Total
Total
Services Total Equities
Brazil - 0.5 - 2.9 5.5 - - - 2.1 - - 11.0 - 11.0 10.0
Cambodia - 0.4 - - - - - - - - - 0.4 - 0.4 0.4
Chile - - - - 0.5 - - - - - - 0.5 - 0.5 -
China/Hong Kong 6.5 8.9 1.4 - 4.3 0.3 1.8 1.9 3.4 0.5 - 29.0 - 29.0 28.8
Egypt - - - - - - - - - - - - - - 0.1
Germany - - - - - - - - - - - - - - 0.1
Hungary - - - - - 0.8 - - - - - 0.8 - 0.8 0.7
India - 0.9 - - 9.6 - - 1.8 - - - 12.3 - 12.3 9.1
Indonesia - 1.0 - - - - - - - - - 1.0 - 1.0 0.9
Kenya - - 0.3 - - - - - - - - 0.3 - 0.3 0.2
Mexico - 0.2 - - 1.8 - - - - - - 2.0 - 2.0 1.6
Pakistan - - - - 0.3 - - - - - - 0.3 - 0.3 0.4
Peru - - - - 0.5 - - - - - - 0.5 - 0.5 0.5
Philippines - - - - 0.3 - - - - - - 0.3 - 0.3 0.3
Russia((b)) - - - - - - - - - - - 0.0 - 0.0 0.0
South Africa - - 0.4 - - 0.3 - - - - - 0.7 - 0.7 0.6
South Korea 2.8 1.1 - - 2.0 0.4 2.6 5.8 2.7 - - 17.4 - 17.4 23.2
Taiwan - - - - - - - 14.6 - - - 14.6 - 14.6 17.3
Thailand - - 0.4 0.3 1.8 - - - - - - 2.5 - 2.5 2.1
United Arab Emirates - - - - - - - - - - 0.1 0.1 - 0.1 -
United Kingdom - - 1.8 - - - - - - - - 1.8 - 1.8 1.4
United States - - - - - - - 3.9 - - - 3.9 - 3.9 3.4
Net assets/(liabilities)((a)) - - - - - - - - - - - - 0.6 0.6 (1.1)
30 September 2022 Total 9.3 13.0 4.3 3.2 26.6 1.8 4.4 28.0 8.2 0.5 0.1 99.4 0.6 100.0 -
31 March 2022 Total 10.2 12.7 3.8 1.7 22.6 1.5 2.9 35.1 9.9 0.7 - 101.1 (1.1) - 100.0
( )
((a)) The Company's net assets/(liabilities) are the total of net current
assets plus non-current liabilities per the Statement of Financial Position on
page 25 of the full Half Yearly Report.
((b) ) All companies held by TEMIT in this country are valued at zero.
Market capitalisation breakdown (%) Less than £1.5bn to £5bn to Greater than Net assets/ (liabilities)((a))
£1.5bn £5bn £25bn £25bn
30 September 2022 5.7 9.5 25.4 58.8 0.6
31 March 2022 7.7 8.0 16.5 68.9 (1.1)
30 September 31 March
Split between markets((b)) (%) 2022 2022
Emerging markets 93.0 95.6
Developed markets((c)) 5.7 4.9
Frontier markets 0.7 0.6
Net assets/(liabilities)((a)) 0.6 (1.1)
Source: FactSet Research System, Inc.
((a)) The Company's net assets/(liabilities) are the total of net current
assets plus non-current liabilities per the Statement of Financial Position on
page 25 of the full Half Yearly Report.
((b)) Geographic split between "Emerging markets", "Frontier markets",
"Developed markets" are as per MSCI index classifications.
((c) ) Developed market exposure represented by companies listed in United
Kingdom and United States which have significant exposure to operations from
emerging markets.
Environmental, Social and Governance
We continue to embed governance and sustainability factors into our
fundamental bottom-up research and remain active owners across our holdings.
This involves integrating Environmental, Social and Governance ("ESG") factors
into our stock thesis, engaging with investee companies on material ESG issues
and actively voting on behalf of our investors. In addition, we monitor the
potential ESG externalities that may be exhibited by our investee companies,
including TEMIT's portfolio carbon footprint where our portfolio managers seek
to understand the carbon risk profile. We provide below a short summary of our
process over the six-month period under review.
Integrating ESG factors
During the six months, we purchased shares in HDFC Bank. HDFC Bank is India's
largest private sector bank by advances and remains one of the fastest growing
banks with consistent market share gains while also maintaining high
profitability and strong asset quality. Considering its ESG practices, the
bank remains one of the best governed banks in India. The senior management
team are well respected within the industry, remuneration is in line with
industry best practices, and the bank's Employee Stock Option Plan ("ESOP")
ensures alignment with shareholders. Post the CEO change, governance and
control mechanisms remain a critical focus to us. In addition, the bank's
internal policies and outcomes on environmental and social issues are strong
with no material red flags. The bank has policies in place to consider
environmental and social impacts in its underwriting process. For large
long-term loans, the bank has put in place a Social and Environmental
Management System ("SEMS") framework that assesses and considers numerous
parameters such as social impact and emissions. We believe the bank is well
positioned to manage its operational ESG footprint.
Climate change
TEMIT Carbon Footprint vs. MSCI EM Index - 30 September 2022((a))
Carbon Emissions Carbon Intensity Weighted Average Carbon
(tCO2e/$M invested)
(tCO2e/$M sales)
Intensity (tCO2e/$M sales)
Portfolio 269.2 369.3 216.1
Benchmark 296.6 384.8 345.1
((a)) Source: MSCI ESG as at 11 October 2022, portfolio coverage 94% (79%
reported, 15% estimated); MSCI EM coverage 100% (77% reported, 23% estimated).
Carbon emissions include scope 1 and 2.
Carbon Emissions - Measures the portfolio's normalised carbon footprint per $1
million invested.
Carbon Intensity - Measures the portfolio's efficiency in terms of the level
of carbon emissions per dollar of sales generated by a company.
Weighted Average Carbon Intensity - Measures the portfolio's exposure to
carbon-intensive companies.
The TEMIT Portfolio Carbon Emissions are 9.2% lower than the MSCI Emerging
Markets benchmark, Carbon Intensity is 4.0% lower and Weighted Average Carbon
Intensity ("WACI") is 37.4% lower. TEMIT's portfolio carbon risk is
concentrated amongst a small number of companies, with the top five companies
in terms of carbon intensity representing 7.6% of the portfolio and accounting
for 71.5% of the total portfolio WACI.
Active ownership
As investors with a significant presence in emerging markets, our investment
team's active ownership efforts are a key part of the overall approach to
stewardship. Over the six-month period, we have engaged with several of our
investee companies on material governance and sustainability issues. For
example we (i) reached out to KT Skylife to recommend that the company adopts
a more transparent and attractive dividend payout policy; (ii) had an in-depth
dialogue with Genpact where the conversation was focused on learning more
around the company's ESG strategy, its alignment with UN Sustainable
Development Goals ("SDGs") from a product/services perspective, its thoughts
on net-zero commitment and its management of human capital; and (iii) engaged
Soulbrain across multiple areas to request clarification on topics such as
executive remuneration, whilst also encouraging improved disclosure on ESG
issues. These discussions help us to gain a number of fundamental and
sustainability insights. We believe that our engagement efforts are key to
developing both a detailed understanding of companies and improving outcomes
for shareholders as well as stakeholders more broadly.
We look forward to sharing a more detailed account of our stewardship
practices in the next Annual Report and dedicated Stewardship Report.
Outlook for markets
Inflation remains a multi-layered challenge for policymakers. Whilst the shift
from easier policies during the pandemic to tighter policies in a supply
chain-constrained world may previously have taken place at a slower pace than
required, there is no doubt that central banks have fully reasserted their
inflation fighting credentials. By mid-November 2022, the US Federal Reserve
had raised interest rates six times this year, by a cumulative 3.75% to 4.00%,
the highest level since January 2008. Inflation in the euro area meanwhile
rose to a record 10.6% in October 2022, which is likely to lead to further
interest rate increases by the European Central Bank.
Interest rate increases in emerging markets ("EMs") have been less than
developed markets ("DMs"), reflecting more subdued inflationary pressures,
helped largely by significantly less fiscal expansion during lockdowns. Using
real interest rates as a proxy for the monetary policy stance, markets such as
Brazil are experiencing tight monetary policy, whereas policy in the US and
Euro Area remain loose. This has implications for the timing of eventual
interest rate cuts, with Brazil likely to join China in cutting rates in 2023.
In isolation, this would be positive for investors. However, we acknowledge
the challenging global backdrop and the need to see an improvement in global
growth and/or a weaker US dollar to enable the positive impact of lower
interest rates to filter through to the market in these countries.
The Chinese property market continues to struggle, which is impacting domestic
growth as well as demand for key commodities involved in construction,
including cement and steel. A 40% decline in new real estate construction
starts as well as single-digit growth in infrastructure investment have
contributed to the weakness in growth.
Slower global growth, a strong US dollar, global supply chain woes as well as
domestic economic factors have created headwinds for EMs. Nevertheless, we
believe in their long-term growth potential, as economic growth in EMs has
continued to outpace that in DMs. EMs are home to companies with exposure to
new technologies driving future sustainable economic growth. From solar and
electric vehicle battery producers to semiconductor designers and
manufacturers, the acceleration of innovation in EM is driving our confidence
in the asset class. Despite the current challenges, we continue to see
opportunities to invest in companies with a technological edge which are
investing to drive growth.
Chetan Sehgal
Lead Portfolio Manager
8 December 2022
Independent Review Report
to the members of Templeton Emerging Markets Investment Trust plc
Conclusion
We have been engaged by Templeton Emerging Markets Investment Trust plc ('the
Company') to review the condensed set of Financial Statements in the Half
Yearly Report for the six months ended 30 September 2022 which comprise the
Statement of Comprehensive Income, Statement of Financial Position, Statement
of Changes in Equity, Statement of Cash Flows, and related notes 1 to 8. We
have read the other information contained in the Half Yearly Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of Financial
Statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of Financial Statements in the Half Yearly
Report for the six months ended 30 September 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual Financial Statements of the Company are
prepared in accordance with UK adopted international accounting standards. The
condensed set of Financial Statements included in this Half Yearly Report has
been prepared in accordance with UK adopted International Accounting Standard
34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the Half Yearly Report in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the Half Yearly Report, the directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half Yearly Report, we are responsible for expressing to the
Company a conclusion on the condensed set of Financial Statements in the Half
Yearly Report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Edinburgh
8 December 2022
Statement of Comprehensive Income
For the six months to 30 September 2022
For the six months to For the six months to 30 September 2021 Year ended
30 September 2022
(unaudited)
31 March 2022
(unaudited)
(audited)
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Net losses on investments and foreign exchange
Net losses on investments at fair value - (215,485) (215,485) - (204,001) (204,001) - (460,585) (460,585)
Net losses on foreign exchange - (69) (69) - (25) (25) - (168) (168)
Income
Dividends 55,693 - 55,693 32,203 - 32,203 54,020 - 54,020
Other income 877 - 877 127 - 127 250 - 250
56,570 (215,554) (158,984) 32,330 (204,026) (171,696) 54,270 (460,753) (406,483)
Expenses
AIFM fee((a)) (2,674) (6,239) (8,913) (3,312) (7,727) (11,039) (6,316) (14,738) (21,054)
Other expenses (985) - (985) (1,144) - (1,144) (2,338) - (2,338)
(3,659) (6,239) (9,898) (4,456) (7,727) (12,183) (8,654) (14,738) (23,392)
Profit/(loss) before finance costs and taxation 52,911 (221,793) (168,882) 27,874 (211,753) (183,879) 45,616 (475,491) (429,875)
Finance costs((a)) (550) (1,285) (1,835) (388) (904) (1,292) (858) (1,998) (2,856)
Profit/(loss) before taxation 52,361 (223,078) (170,717) 27,486 (212,657) (185,171) 44,758 (477,489) (432,731)
Tax expense 5 (3,448) (3,130) (6,578) (1,984) (4,695) (6,679) (4,081) (5,596) (9,677)
Profit/(loss) for the period 48,913 (226,208) (177,295) 25,502 (217,352) (191,850) 40,677 (483,085) (442,408)
Profit/(loss) attributable to equity holders of the Company 48,913 (226,208) (177,295) 25,502 (217,352) (191,850) 40,677 (483,085) (442,408)
Earnings per share 2 4.16p (19.25)p (15.09)p 2.16p (18.40)p (16.24)p 3.44p (40.90)p (37.46)p
((a)) 70% of the annual Alternative Investment Fund Manager ("AIFM") fee and
70% of the finance costs have been allocated to the capital account.
Under the Company's Articles of Association the capital element of return is
not distributable.
The total column of this statement represents the profit and loss account of
the Company.
The accompanying notes are an integral part of the Financial Statements.
Statement of Financial Position
As at 30 September 2022
Note As at As at As at
30 September
30 September
31 March
2022
2021
2022
(unaudited)
(unaudited)
(audited)
£'000
£'000
£'000
Non-current assets
Investments at fair value through profit or loss 1,860,514 2,440,769 2,124,530
Current assets
Trade and other receivables 8,190 7,852 16,928
Cash and cash equivalents 167,115 40,748 125,855
Total current assets 175,305 48,600 142,783
Current liabilities
Other payables (53,875) (14,506) (57,718)
Total current liabilities (53,875) (14,506) (57,718)
Net current assets 121,430 34,094 85,065
Non-current liabilities
Capital gains tax provision (10,183) (8,814) (9,205)
Other payables falling due after more than one year (100,000) (100,000) (100,000)
Total assets less liabilities 1,871,761 2,366,049 2,100,390
Share capital and reserves
Equity Share Capital 3 63,515 64,244 64,136
Capital Redemption Reserve 19,154 18,425 18,533
Capital Reserve 1,221,595 1,735,220 1,466,197
Special Distributable Reserve 433,546 433,546 433,546
Revenue Reserve 133,951 114,614 117,978
Equity Shareholders' Funds 1,871,761 2,366,049 2,100,390
Net Asset Value pence per share((a)) 160.5 200.3 178.2
((a)) Based on shares in issue excluding shares held in treasury.
Statement of Changes in Equity
For the six months to 30 September 2022 (unaudited)
Note Equity Share Capital Redemption Capital Reserve Special Distributable Revenue Reserve Total
Capital
Reserve
£'000
Reserve
£'000
£'000
£'000
£'000
£'000
Balance at 31 March 2021 64,253 18,416 1,952,886 433,546 122,186 2,591,287
(Loss)/profit for the period - - (217,352) - 25,502 (191,850)
Equity dividends 4 - - - - (33,074) (33,074)
Purchase and cancellation of own shares 3 (9) 9 (314) - - (314)
Balance at 30 September 2021 64,244 18,425 1,735,220 433,546 114,614 2,366,049
(Loss)/profit for the period - - (265,733) - 15,175 (250,558)
Equity dividends 4 - - - - (11,811) (11,811)
Purchase and cancellation of own shares (108) 108 (3,290) - - (3,290)
Balance at 31 March 2022 64,136 18,533 1,466,197 433,546 117,978 2,100,390
(Loss)/profit for the period - - (226,208) - 48,913 (177,295)
Equity dividends 4 - - - - (32,940) (32,940)
Purchase and cancellation of own shares 3 (621) 621 (18,394) - - (18,394)
Balance at 30 September 2022 63,515 19,154 1,221,595 433,546 133,951 1,871,761
Statement of Cash Flows
For the six months to 30 September 2022
For the For the For the
six months to
six months to 30 September
year to
30 September
2021
31 March
2022
(unaudited)
2022
(unaudited)
£'000
(audited)
£'000
£'000
Cash flows from operating activities
Loss before taxation((a)) (170,717) (185,171) (432,731)
Adjustments to reconcile loss before taxation to cash generated from
operations:
Bank and deposit interest income recognised (873) (14) (130)
Dividend income recognised (55,693) (32,203) (54,020)
Finance costs((a)) 1,835 1,292 2,856
Net losses on investments at fair value 215,485 204,001 460,585
Net losses on foreign exchange((b)(c)) 69 25 168
(Increase)/decrease in debtors((a)) (52) 38 16
Decrease in creditors((a)) (210) (185) (614)
Cash generated from operations((a)(b)) (10,156) (12,217) (23,870)
Bank and deposit interest received 873 14 130
Dividends received 59,855 39,129 57,522
Bank overdraft interest paid - - (2)
Tax paid((a)) (3,244) (3,548) (6,250)
Net cash inflow from operating activities((b)) 47,328 23,378 27,530
Cash flows from investing activities
Purchases of non-current financial assets (214,314) (349,022) (600,482)
Sales of non-current financial assets((b)) 262,619 315,873 613,417
Net cash inflow/(outflow) from investing activities((b)) 48,305 (33,149) 12,935
Cash flows from financing activities
Equity dividends paid (32,940) (33,074) (44,885)
Purchase and cancellation of own shares (19,677) (314) (2,041)
Draw down from revolving credit facility - - 50,000
Bank loans interest and fees paid (1,687) (1,280) (2,728)
Net cash (outflow)/inflow from financing activities (54,304) (34,668) 346
Net increase/(decrease) in cash 41,329 (44,439) 40,811
Cash at the start of the period 125,855 85,212 85,212
Net losses on foreign exchange((c)) (69) (25) (168)
Cash at the end of the period 167,115 40,748 125,855
((a) ) The Company has used the Loss before taxation as a starting point in
the Statement of Cash Flows for the period ended 30 September 2022 and year
ended 31 March 2022. Comparative figures for the period ended 30 September
2021 have been updated to adjust the presentation in line with IAS 8.
((b)) Net losses on foreign exchange related to the Sales of non-current
financial assets for the comparative figures have been reclassified for the
consistency of the presentation.
((c) ) Net losses on foreign exchange related to cash and cash equivalents
have been shown separately as part of the reconciliation of the cash and cash
equivalents in line with IAS 8 requirements.
Reconciliation of liabilities arising from bank loans
Liabilities Cash flows Profit & Loss Liabilities
as at
£'000
£'000
as at 30 September
31 March
2022
2022
£'000
£'000
Revolving credit facility 50,000 - - 50,000
Interest and fees payable 249 (662) 794 381
Fixed term loan 100,000 - - 100,000
Interest and fees payable 352 (1,025) 1,041 368
Total liabilities from bank loans 150,601 (1,687) 1,835 150,749
Liabilities Cash flows Profit & Loss Liabilities
as at
£'000
£'000
as at 30 September
31 March
2021
2021
£'000
£'000
Revolving credit facility - - - -
Interest and fees payable 120 (239) 243 124
Fixed term loan 100,000 - - 100,000
Interest and fees payable 355 (1,041) 1,049 363
Total liabilities from bank loans 100,475 (1,280) 1,292 100,487
Liabilities Cash flows Profit & Loss Liabilities
as at
£'000
£'000
as at
31 March
31 March
2021
2022
£'000
£'000
Revolving credit facility - 50,000 - 50,000
Interest and fees payable 120 (628) 757 249
Fixed term loan 100,000 - - 100,000
Interest and fees payable 355 (2,100) 2,097 352
Total liabilities from bank loans 100,475 47,272 2,854 150,601
Notes to the Financial Statements
For the six months to 30 September 2022
1 Basis of preparation
The Half Yearly Report for the six months to 30 September 2022 has been
prepared in accordance with the UK adopted International Accounting Standard
("IAS") 34, "Interim Financial Reporting".
The Company has adopted the Statement of Recommended Practice ("SORP") for
investment trusts issued by the Association of Investment Companies ("AIC") in
July 2022 insofar as the SORP is compatible with UK adopted International
Accounting Standards. The accounting policies applied in these half yearly
Financial Statements are consistent with those applied in the Company's
Financial Statements for the year ended 31 March 2022 and have been applied
consistently to all periods presented in these interim Financial Statements.
The financial information contained in this interim statement does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The financial information for the half years ended 30 September 2022 and
30 September 2021 has not been audited. The figures and financial information
for the year ended 31 March 2022 are extracted from the published accounts and
do not constitute the statutory accounts for that period. Those accounts have
been delivered to the Registrar of Companies and included the Report of the
Independent Auditors, which was unqualified and did not include a statement
under sections 498(2) or 498(3) of the Companies Act 2006.
As at 30 September 2022, the Company had net current assets of £121,430,000
(31 March 2022: net current assets £85,065,000). The Directors have a
reasonable expectation that the Company has sufficient resources to continue
in operational existence for the foreseeable future. Accordingly the Financial
Statements have been prepared on a going concern basis for the period to 31
March 2024, which is at least 12 months from the date of approval of these
Financial Statements.
2 Earnings per share
For the For the For the
six months to
six months to
year to
30 September
30 September
31 March
2022
2021
2022
£'000
£'000
£'000
Revenue profit 48,913 25,502 40,677
Capital loss (226,208) (217,352) (483,085)
Total (177,295) (191,850) (442,408)
Weighted average number of shares in issue 1,175,330,868 1,181,225,786 1,181,093,110
Revenue profit per share 4.16p 2.16p 3.44p
Capital loss per share (19.25)p (18.40)p (40.90)p
Total loss per share (15.09)p (16.24)p (37.46)p
3 Equity share capital
For the six months to For the six months to For the year
30 September 2022
30 September 2021
31 March 2022
Ordinary shares in issue £'000 Number £'000 Number((a)) £'000 Number((a))
Opening ordinary shares of 5 pence 58,945 1,178,896,985 59,062 1,181,228,655 59,062 1,181,228,655
Purchase and cancellation of own shares (621) (12,413,292) (9) (175,000) (117) (2,331,670)
Closing ordinary shares of 5 pence 58,324 1,166,483,693 59,053 1,181,053,655 58,945 1,178,896,985
For the six months to For the six months to For the year
30 September 2022
30 September 2021
31 March 2022
Ordinary shares held in treasury £'000 Number £'000 Number((a)) £'000 Number((a))
Opening ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895 5,191 103,825,895
Closing ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895 5,191 103,825,895
Total ordinary shares in issue and held in treasury at the end of the year 63,515 1,270,309,588 64,244 1,284,879,550 64,136 1,282,722,880
((a)) Comparative figures for the year ended 31 March 2021 (i.e. number of
ordinary shares in issue and number of ordinary shares held in treasury as at
31 March 2021) have been retrospectively adjusted following the sub-division
of each existing ordinary share of 25 pence into five ordinary shares of 5
pence each on 26 July 2021.
In the six months to 30 September 2022, 12,413,292 shares were bought back for
cancellation for a total consideration of £18,394,000 (30 September 2021:
175,000 shares were bought back for cancellation for a total consideration of
£314,000). All shares bought back in the period were cancelled, with none
being placed in treasury (30 September 2021: no shares were placed into
treasury).
4 Dividends
For the six For the six For the year
months to
months to
31 March
30 September
30 September
2022
2022
2021
Rate £'000 Rate((a)) £'000 Rate((a)) (pence) £'000
(pence)
(pence)
Declared and paid during the period:
Dividend on shares:
Final dividends for the years ended 31 March 2022 and 31 March 2021 2.80 32,940 2.80 33,074 2.80 33,074
Interim dividend for the six months ended 30 September 2021 - - - - 1.00 11,811
Total 2.80 32,940 2.80 33,074 3.80 44,885
( )
((a)) Comparative figures for the year ended 31 March 2021 (i.e. final
dividend per share declared and paid for the year ended 31 March 2021) have
been retrospectively adjusted following the sub-division of each existing
ordinary share of 25 pence into five ordinary shares of 5 pence each on 26
July 2021.
On 8 December 2022 the Board declared an interim dividend of 2.00 pence per
share for the financial year 2023 (financial year 2022: 1.00 pence per share
interim dividend). This dividend has not been accrued in the Financial
Statements for the six months ended 30 September 2022 as dividends are
recognised when the shareholder's right to receive the payment is established.
For the 2023 interim dividend this would be the ex-dividend date of 15
December 2022.
5 Taxation
The total tax expense of £6.58 million (30 September 2021: £6.68 million)
consists of a revenue tax expense of £3.45 million (30 September 2021: £1.98
million) and a capital tax expense of £3.13 million (30 September 2021:
£4.70 million). The revenue tax expense relates to irrecoverable overseas tax
on dividends. The capital tax expense consists of £0.91 million (30 September
2021:
£3.94 million) expense arising from an increase in the provision for deferred
tax on unrealised gains on holdings in India and a £2.22 million expense
arising from tax on realised gains on holdings in India (30 September 2021:
£0.76 million tax on realised gains on holdings in India and Pakistan).
6 Costs of investment transactions
During the period, expenses were incurred in acquiring or disposing of
investments. The following costs of transactions are included in the
gains/(losses) on investments at fair value:
For the six months to For the six For the year to
30 September
months to
31 March
2022
30 September
2022
£'000
2021
£'000
£'000
Purchase expenses 282 452 749
Sales expenses 528 534 1,209
Total 810 986 1,958
7 Fair value
Fair values are derived as follows:
- Where assets are denominated in a foreign currency, they are converted
into the sterling amount using period-end rates of exchange;
- Investments held by the Company on the basis set out in the annual
accounting policies;
- Cash at the denominated currency of the account; and
- Other financial assets and liabilities at the carrying value which is
a reasonable approximation of the fair value.
The tables below analyse financial instruments carried at fair value by
valuation method. The different levels have been defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets and
liabilities;
Level 2 Inputs other than quoted prices included with level 1 that are
observable for the asset or liability, either directly (prices) or indirectly
(derived from prices); and
Level 3 Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The hierarchy valuation of listed investments through profit and loss are
shown below:
30 September 30 September 31 March
2022
2021
2022
£'000
£'000
£'000
Level 1 1,842,148 2,414,193 2,103,727
Level 2 - - -
Level 3 18,366((a)(b)) 26,576((a)) 20,803((a)(b))
Total 1,860,514 2,440,769 2,124,530
((a)) Trading of Brilliance China Automotive shares on the stock exchange
has been suspended since 31 March 2021, and as a result, the stock was fair
valued using a beta model (which applies an index movement to observed trade
prices) with unobservable inputs shown in the table below. As of 30 September
2021, this holding was disclosed as Level 3 and continues to be classified as
Level 3 at 30 September 2022.
((b)) Russian investments in Gazprom, LUKOIL, Sberbank of Russia, VK, and
Yandex were fair valued at zero as at 31 March 2022 as a result of trading
being suspended on international stock exchanges. These investments were
transferred from Level 1 to Level 3 during the financial year ending 31 March
2022. As at 30 September 2022 these investments, except Gazprom which was sold
in April 2022, continue to be fair valued at zero and classified as Level 3.
The following table presents the key unobservable inputs for Brilliance China
Automotive's beta model as at 30 September 2022:
Description Fair value Unobservable Weighted average input Reasonable possible shift Reasonable possible Reasonable possible
£'000
input
+/-
shift +
shift -
£'000
£'000
Equities 18,366 Index movement -4% 4% 599 (671)
Unleveraged beta 0.88 0.5 (338) 338
Shares of Brilliance China Automotive resumed trading on 5 October 2022 (see
Note 8 for more details).
The following table presents the movement in Level 3 investments for the
period:
30 September 30 September 31 March 2022
2022
2021
£'000
£'000
£'000
Opening balance 20,803 - -
Transfers from Level 1 into Level 3 - - 149,593
Transfers from Level 2 into Level 3 - 50,954 50,954
Disposal proceeds - sale of Level 3 asset((a)) (617) - -
Net losses on investments at fair value (1,820) (24,378) (179,744)
Level 3 closing balance 18,366 26,576 20,803
((a) ) Represents the sale of the holding in Gazprom on 25 April 2022.
The fixed term loan is shown at amortised cost within the Statement of
Financial Position. If the fixed term loan was shown at fair value the impact
would be:
30 September 30 September 31 March 2022
2022
2021
£'000
£'000
£'000
Fixed term loan at amortised cost 100,000 100,000 100,000
Fixed term loan at fair value 97,100 102,280 100,390
Increase/(decrease) in net assets 2,900 (2,280) (390)
The fair value of the fixed term loan included in the table above is
calculated by aggregating the expected future cash flows which are discounted
at a rate comprising the sum of SONIA rate plus a static spread.
The fixed term loan has been transferred by novation from Scotiabank Europe
plc to The Bank of Nova Scotia, London Branch with effective date 28 September
2022. All other contractual terms and conditions remained the same.
8 Events after the reporting period
Revolving credit facility
On 19 October 2022, the Company fully repaid the £50 million revolving
facility drawdown included under the current liabilities in the Statement of
Financial Position.
Brilliance China Automotive trading
Trading in Brilliance China Automotive shares on the stock exchange has been
suspended since 31 March 2021, and as a result, the stock was fair valued
using a beta model. The fair value as at 30 September 2022 was £18.4 million.
The company announced it has fulfilled all the resumption recommendations set
out by the Hong Kong stock exchange and therefore shares resumed trading on 5
October 2022. As at 5 December 2022, the market value was £42.9 million.
The Half Yearly Report for the six months to 30 September 2022 was approved by
the Board on 8 December 2022. A copy of the report is available on our website
www.temit.co.uk. (http://www.temit.co.uk.)
The PDF of the Half Yearly Report will be uploaded and available for viewing
on the National Storage Mechanism, posted to the website
www.temit.co.uk/resources/literature
(http://www.temit.co.uk/resources/literature) and may also be requested during
normal business hours from Client Dealer Services at Franklin Templeton
Investment Management Limited on freephone 0800 305 306.
For further information please e-mail temitcosec@franklintempleton.com
(mailto:temitcosec@franklintempleton.com) or contact Client Dealer Services at
Franklin Templeton on free phone 0800 305 306, +44 (0) 20 7073 8690 for
overseas investors, or e-mail enquiries@franklintempleton.co.uk
(mailto:enquiries@franklintempleton.co.uk) .
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