REG - TempletonEmerg.Mkt. - Statement of Half-Yearly Results
09/12/2024 16:45
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RNS Number : 3905P Templeton Emerging Markets IT PLC 09 December 2024
Stock Exchange Announcement
Templeton Emerging Markets Investment Trust PLC ("TEMIT" or "the Company")
Half Yearly Results to 30 September 2024
Legal Entity Identifier 5493002NMTB70RZBXO96
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 30 September 2024, TEMIT's net
asset value ('NAV') total return was +4,462.1% compared to the benchmark total
return of +1,891.1%.
The Company is governed by a Board of Directors who are committed to ensuring
that shareholders' best interests, considering the wider community of
stakeholders, are at the forefront of all decisions. Under the guidance of the
Chairman, the Board of Directors is responsible for the overall strategy of
the Company and monitoring its
performance.
Financial highlights
For the six months to 30 September 2024
2024 2023 3 Years Cumulative 5 Years Cumulative 10 Years Cumulative
Net Assets Value 7.2% (0.3)% 4.3% 24.4% 87.8%
Total Return
(cum-income)((a))
Share Price Total 12.0% (1.6)% 3.3% 25.0% 84.9%
Return((a))
MSCI Emerging 7.5% (0.5)% 1.7% 21.5% 79.3%
Markets Index((a)(b))
Interim dividend for 2.00p 2.00p 13.80p 23.92p 35.07p
the financial year((c)(d))
(a) A glossary of terms and alternative performance measures is included
in the full Half Yearly Report.
(b) Source: MSCI. The Company's benchmark is the MSCI Emerging Markets
(Net Dividends) Index.
(c) 3, 5 and 10 year cumulative dividends include ordinary dividends that
shareholders were entitled to in those periods. 5 and 10 year cumulative
figures exclude 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) Financial years 2015 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.
Chairman's statement
"There are many reasons to be optimistic about emerging markets."
Angus Macpherson
Chairman
Performance
TEMIT's net asset value ('NAV') Total Return((a)) over the six months to 30
September 2024 was +7.2%, slightly less than that of our benchmark index
which produced a total return((a)) of +7.5%. I said in the most recent Annual
Report that one of the three major factors which would lead to an improvement
in the rating of TEMIT's shares would be a return to favour for emerging
markets and it is notable that over the six months under review the return of
the MSCI World Index Net total return, which measures the performance of
developed markets, was only +2.8%((a)). The return over the whole period
naturally only tells part of the story and, as is often the case, we
experienced patches of volatility, driven by a variety of events including
continued geopolitical instability, fears of a US recession and, on a more
positive note, moves to reduce interest rates and stimulate economic growth.
The Chinese equity market is a key component of our comparator benchmark, as
indeed the Chinese economy is an important force in the world. There has been
much concern about the pace of growth of China and towards the end of the
period under review the Chinese government initiated steps to kick start the
country's moribund real estate sector and more generally to reinvigorate
growth. Even if successful, these efforts will take time to bear fruit but at
the very least a start has been made. As well as efforts to reinvigorate
domestic activity, the other key concern is China's relationship with the
United States, particularly following the election of Donald Trump in the
United States.
(a) A glossary of terms and alternative performance measures is included
in the full Half Yearly Report.
Share price rating
In June we announced a series of measures with the intention of improving
liquidity and returns for holders of TEMIT's shares. In summary, these were
commitments to:
• At least maintain the current level of annual dividend;
• Repurchase up to £200m of shares over the next 12 to 24 months;
• A conditional tender offer, under which TEMIT will tender for up to
25% of its shares if it underperforms its benchmark index over five years to
March 2029; and
• A phased reduction in management fees.
Following this announcement, we stepped up the rate of share buybacks and over
the six months under review 46.2 million shares were bought back, returning
£74.3 million to shareholders. These buybacks represented 4.1% of shares in
issue on 31 March 2024 and, as all buybacks were at a discount to the
prevailing NAV, resulted in an uplift of 0.57% of NAV per share for remaining
shareholders.
The Board do not believe that buybacks alone cause discounts to narrow; their
more measurable impact is to improve liquidity and to enhance earnings per
share.
The Board and Manager also remain fully committed to promoting TEMIT's shares
using a wide variety of channels, including an increasing presence in social
media. The Board was very pleased to be awarded 'Best Social Media' at the AIC
Shareholder Communications Awards 2024, the third year in a row that we have
been awarded by the AIC for our marketing and communications.
Unlisted investment
The ability to invest in illiquid assets is a key advantage of the investment
trust structure. In July, we made our first foray into unlisted investments,
with the purchase of shares in leading Indian food delivery company Swiggy.
This was a 'pre-IPO' investment and I am pleased to report that the shares
were successfully listed on the National Stock Exchange of India on 13
November. The Board is very pleased with the outcome of this investment and
has encouraged our Manager to seek further opportunities.
Income and dividend
Revenue earnings for the six months under review were 3.60 pence per share.
The majority of TEMIT's revenues are usually earned during the first six
months of its financial year and the Board has resolved to pay an unchanged
interim dividend of 2.00 pence per share. As set out above, it is our
intention at least to maintain the total dividend each year and, while it is
too early to predict earnings for the second half of the year, the final
dividend will be at least 3.00 pence per share.
Annual General Meeting and Continuation Vote
The resolutions at the Annual General Meeting held on 11 July, importantly
including a vote on the continuation of TEMIT for the next five years, were
each passed by a very large majority. The Board would like to thank
shareholders for their continuing support.
Outlook
Emerging markets continue to be less expensive than their developed
counterparts. This must, at least to an extent, reflect a higher level of risk
in an unstable world but does make the markets in which our managers invest on
our behalf appear attractive.
There are many reasons to be optimistic about emerging markets, from the
shifting dynamics of supply chains, with 'nearshoring' and 'friendshoring'
having become established elements of the lexicon in Asia and Latin America,
the continuing demand for ever greater computing power with the excitement
over artificial intelligence only the most recent manifestation of this, and
the potential for leadership in clean energy being just some examples. In the
near term we are encouraged by moves to reduce interest rates and remain
optimistic that this will be beneficial for economies and companies.
Angus Macpherson
Chairman
9 December 2024
Management report
Principal risks
The Company invests predominantly in the stock markets of emerging markets.
The principal categories of risks facing the Company, determined by the Board
and described in detail in the Strategic Report within the Annual Report and
Audited Accounts, are:
• Market and geopolitical;
• Technology;
• Concentration;
• Sustainability and climate change;
• Foreign currency;
• Discount;
• Operational and custody;
• Key personnel; and
• Regulatory.
The Board has provided the Investment Manager with guidelines and limits for
the management of principal risks. The Board and Investment Manager are aware
that the economic challenges continue to be the key issue affecting investment
markets around the world, as well as the tensions between the United States
and China over trade and the Taiwan Strait. The ongoing Israel-Hamas conflict
also adds to existing geopolitical uncertainties, as do the continuing
ramifications of the Russian invasion of Ukraine. There have been no further
changes to the principal and emerging risks reported in the Annual Report and,
in the Board's view, these risks are equally applicable to the remaining six
months of the financial year as they were to the six months under review.
Related party transactions
There were no transactions with related parties during the period other than
the fees paid to the Directors and the AIFM.
Going concern
The Company's assets consist primarily of equity shares in companies listed on
recognised stock exchanges and in most circumstances are realisable within a
short timescale. Having made suitable enquiries, including consideration of
the Company's objective, the nature of the portfolio, net current assets,
expenditure forecasts, the principal and emerging risks and uncertainties
described within the Annual Report, the Directors are satisfied that the
Company has adequate resources to continue to operate as a going concern for
the period to 31 March 2026, which is at least 12 months from the date of
approval of these Financial Statements, and are satisfied that the going
concern basis is appropriate in preparing the Financial Statements.
Statement of Directors' Responsibilities
The Disclosure Guidance and Transparency Rules of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
Each of the Directors, who are listed in the full Half Yearly Report, confirms
that to the best of their knowledge:
• The condensed set of Financial Statements, for the period ended 30
September 2024, have been prepared in accordance with the UK adopted
International Accounting Standard (IAS) 34 'Interim Financial Reporting'; and
• The Half Yearly Report includes a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and a fair
review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of Financial
Statements, and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period, and any changes in
the related party transactions described in the last Annual Report that could
do so.
The Half Yearly Report was approved by the Board on 9 December 2024 and the
above Statement of Directors' Responsibilities was signed on its behalf by
Angus Macpherson
Chairman
9 December 2024
Investment manager's report
Outlook for emerging markets
In the last Annual Report, we wrote that it is an interesting time to look at
EMs. We believed that despite the volatility experienced in the recent
quarters, the investment backdrop still remained conducive on the grounds of
potential interest-rate cuts and better earnings growth.
As we head into the final quarter of 2024, we retain that optimism. We have
emerged from a volatile period in which worries about economic recession
dominated investor sentiment. We have also seen a change in the investment
environment, where, although structural growth themes remain, we have had to
make tweaks to the portfolio to potentially capture what we deem to be the
best opportunities in the market. An example would be the Electric Vehicle
('EV') segment. While we remain aligned with the longer-term growth outlook
for EVs, we have lowered our exposure to the EV supply chain as many consumers
and governments have yet to fully embrace the advantages of EV deployment.
Tailwinds within EMs remain; interest-rate cuts, strong demand for
semiconductors due to AI applications, and what we consider reasonable
valuations in most EMs. These may negate some key risks such as geopolitical
tensions, a meaningful economic slowdown in the United States and continued
weakness in China's demand.
Interest-rate cuts, in our view, are catalysts for growth, supporting both
consumption and corporate earnings. Brazil's central bank raised its key
interest rate in September, in contrast with the policy decisions of other
countries' central banks; however, we believe that it will eventually follow
the global trajectory. While Mexico's judicial reforms have affected investor
sentiment recently, in our view corporate earnings should remain intact.
Sustained demand growth from AI applications, in our assessment, should be
beneficial for South Korea and Taiwan, which are home to several large
semiconductor companies. While this is potentially beneficial for the earnings
growth of these corporations, we believe that this growth opportunity has not
been reflected in the valuations of some of the beneficiary companies.
Conversely, while India has continued to see good economic growth and remains
a bright spot, equity valuations remain a key concern for us. Although end
demand in China could remain weak for a longer period, a low starting point
could potentially prove helpful for earnings growth in 2025. China's equity
market rallied in the last few weeks of the quarter, supported by stimulus
measures announced by the government. However, the weaker economic growth
outlook in China has led to our selective approach; our key holdings in China
are in internet companies that have given us comfort with their cash flows and
improving shareholder returns.
As ever, we remain focused on bottom-up investing. We continue to retain our
investment approach and seek opportunities across markets, focusing on
companies that, in our analysis, have long-term earnings power. We have built
considerable expertise in the EM equity asset class, which we believe gives us
the ability to identify investment opportunities before many of our peers.
Review of performance
Emerging markets ('EMs') advanced over the six months under review. However,
it was not all plain sailing and a bout of volatility marked the period,
making it a challenging environment for equities. Nevertheless, our investment
approach, which is anchored in a bottom-up process to finding companies that
our analysis indicates have sustainable earnings power and whose shares trade
at a discount relative to their intrinsic worth and to other investment
opportunities in the market, has managed to steer the performance of TEMIT to
generate returns that were on par with the benchmark. While we note that this
is a mere six-month period, contrasting with our longer-term investment
horizon, it provides some validation for holding course in the face of an
uncertain, ever-changing investment environment.
Elections in key EM countries (where the extent of the winning parties'
victories led to some surprises), a change in investor sentiment towards
artificial intelligence ('AI') and an intensification of geopolitical tensions
added onto concerns of a recession in the United States. The latter was
tempered by optimism about the US Federal Reserve's potential interest-rate
cut, which eventually came to fruition.
The MSCI EM Index returned +7.5% in the six-month period under review, while
TEMIT delivered a net asset value total return of +7.2% (all figures are net
total return in sterling terms). Full details of TEMIT's performance can be
found in the full Half Yearly Report.
By region as measured by the MSCI EM Index, Asia advanced the most ahead of
peers in Europe, Middle East and Africa ('EMEA') which also rose. Latin
America was the sole region that declined. Asian equities had several
catalysts for their positive performance, these included a technology rally
that helped the technology-heavy market of Taiwan, positive economic data and
the victory of the incumbent prime minister in India, and the release of
policy support in China. The EMEA region received support from South Africa's
equity market, helped by a rally which followed the country's elections where
President Cyril Ramaphosa secured sufficient votes to form a coalition
government. While geopolitical conflict continued to plague the Middle East
with the sparking of tensions between Israel and Iran, the interest-rate
easing cycle in the United States helped to overcome some of the negative
investor sentiment caused by geopolitical uncertainties. Monetary policy in
many of the Gulf Cooperation Council countries follows the US central bank due
to currencies being pegged to the US dollar. In Latin America, the Mexican
equity market declined following the country's elections, where the ruling
MORENA party's strong majority win caught investors by surprise. Concerns
regarding anti-market reforms and the signing of a controversial judicial
reform into law pressured Mexican equities further. In Brazil, the central
bank raised interest rates, which contrasted with expectations that most
central banks would continue to cut rates.
China/Hong Kong
China/Hong Kong was TEMIT's largest market exposure, although the portfolio
remained underweight relative to the benchmark. Chinese equities rose by over
24% in net sterling terms over the six-month period. This outperformance was
supported by the government's stimulative policies to boost the country's
economic growth and equity market. China's property market was a key focal
point in the government's support measures, with a rescue package that
included an easing of mortgage rules and a reduction in mortgage rates.
Semiconductor stocks in China benefitted from a new investment fund to boost
the domestic chip industry. The government also announced equity
market-related measures that encompassed a programme for share buybacks and a
swap facility to shore up the equity market. While these resulted in a return
of investor confidence, we are uncertain whether these measures will lead to a
recovery in longer-term growth. We have not observed any meaningful change in
demand just yet. We believe that the government will also have to resolve
structural challenges that the country faces, such as a declining and ageing
population and youth unemployment. This has led to our selective approach in
China, where our key holdings are in internet companies where we gain comfort
from their strong cash flows and increasing shareholder focus.
South Korea
TEMIT's second-largest market exposure was South Korea, where the portfolio
was overweight versus the benchmark. South Korean equities lost slightly over
12% in net sterling terms during the reporting period, as the technology-heavy
market struggled with oversupply in the memory market. Investor concerns about
weaker demand and oversupply in dynamic random access memory ('DRAM') overtook
earlier expectations of a strong recovery and demand tightness. In our
assessment, we still expect a strong cycle for memory chips into 2025. We
think that concerns about slower demand in DRAM could linger for the next half
year, but it should nevertheless be a short-lived phenomenon as capacity
shifts to high-bandwidth memory ('HBM'), thus resulting in a tightness in
conventional DRAM supply as well.
Taiwan
Taiwan was TEMIT's third-largest market exposure. While the Taiwanese equity
market performed well overall and ended the six-month period with a gain of
nearly 9% in net UK-sterling terms, although this hid several hiccups during
the period. Investor sentiment ebbed and flowed. Expectations of higher
earnings growth bolstered by AI, which uplifted performance earlier into the
period, gave way to concerns about the impact of delays and monetisation of AI
investments. The portfolio's exposure to the country is largely focussed in
the island's semiconductor industry and TEMIT's largest portfolio holding,
which is in Taiwan Semiconductor Manufacturing Company ('TSMC'). We remain
positive on the semiconductor industry and believe that AI will continue to
experience strong growth, which should benefit semiconductor companies as they
make up a key component of the AI supply chain. Beyond AI, semiconductors are
an essential component of electronics used in a myriad of industries. We
maintain a positive long-term view on both Taiwan's semiconductor industry and
TSMC.
India
India was TEMIT's fourth-largest market exposure at the end of September 2024.
Indian equities rose by more than 11% (in net sterling terms) over the
six-month period, benefitting from positive economic data. While there was a
short-lived period of volatility during the country's elections-in which the
incumbent prime minister Narendra Modi's party won a smaller number of seats
compared to the 2019 election and led to some investor disappointment,
expectations of policy continuity drove the market and reversed short-lived
concerns of policy uncertainty. A reduction in US interest rates in September
was also supportive for the Indian equity market's performance as this could
lead to foreign inflows into the country's equities. While investors have
flocked to India on the basis of strong growth, valuations remain a concern to
us. Our investment approach hinges on finding companies whose shares,
according to our analysis, trade at a discount relative to their intrinsic
worth and to other investment opportunities in the market. We do, however,
concede that India remains a bright spot. This guides our allocation in India,
while the country is one of TEMIT's largest absolute weighting allocations, it
is still underweight relative to the benchmark.
Brazil
Brazil was TEMIT's fifth-largest market exposure with equities in Brazil
finishing the reporting period with losses of more than 11%. As mentioned
earlier, Brazil's central bank started to raise interest rates to control the
country's level of inflation caused by stronger-than-expected economic
activity. We believe that the interest rate hikes should be a short-term
phenomenon and that Brazil's central bank could converge with the global
interest rate cycle eventually.
Investment strategy, portfolio changes and performance attribution
The following sections show how different investment factors (stocks, sectors
and geographies) accounted for TEMIT's performance over the period. We
continue to emphasise our investment process 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 is centred on finding companies that, in our analysis,
have 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 and Environmental, Social and Governance
factors.
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 and
it has certainly been helpful having teams on the ground-for example, in the
benchmark-heavyweight countries of China, India and Brazil-to help us better
understand what is happening locally. 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 themes including
consumption premiumisation, digitalisation, 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 %
Six months to 30 September
2024 2023 2022 2021 2020
Net Asset Value Total Return((a)) 7.2 (0.3) (8.3) (7.5) 31.3
Expenses Incurred((b)) 0.5 0.5 0.5 0.5 0.5
Gross Total Return((a)) 7.7 0.2 (7.8) (7.0) 31.8
Benchmark Total Return((a)) 7.5 (0.5) (7.4) (1.0) 24.4
Excess return((a)) 0.2 0.7 (0.4) (6.0) 7.4
Stock Selection (0.2) 0.1 2.9 (4.3) 2.5
Sector Allocation 0.5 0.4 (2.2) (1.4) 4.0
Currency 0.0 (0.1) (1.1) (0.5) 0.5
Share Buyback Impact 0.6 0.3 0.1 0.0 0.3
Residual Return((a)) (0.7) 0.0 (0.1) 0.2 0.1
Total Contribution 0.2 0.7 (0.4) (6.0) 7.4
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.
Source: FactSet and Franklin Templeton.
(a) A glossary of terms and alternative performance measures is included
in the full Half Yearly Report.
(b) Represents expenses incurred. Details of the annualised ongoing
charges ratio are included in the glossary of terms and alternative
performance measures in the full Half Yearly Report.
Top 10 Contributors and Detractors to Relative Performance by Security %((a))
Top Contributor Contribution to Top Detractor Contribution to
portfolio relative portfolio relative to
to MSCI Emerging MSCI Emerging
Markets Index Markets Index
Overweight Alibaba 0.8 Grupo Financiero Banorte (0.8)
(TEMIT holds more than the index weight)
Prosus 0.8 Samsung Electronics (0.6)
TSMC 0.5 NAVER (0.5)
Discovery 0.4 Samsung SDI (0.5)
Brilliance China Automotive 0.4 LG (0.4)
Kasikornbank 0.3 Oncoclinicas do Brasil (0.4)
Servicos Medicos
China Merchants Bank 0.3 Doosan Bobcat (0.3)
Hon Hai Precision Industry 0.2 Soulbrain (0.3)
Netcare 0.2 Itaú Unibanco (0.3)
Underweight Reliance Industries 0.2 Meituan (0.4)
(TEMIT has a zero holding or
holding smaller than the index weight)
(a) For the period 31 March 2024 to 30 September 2024.
Our high conviction, larger-weight holdings have led performance for the
period under review. Finishing higher over the six-month period were shares of
Chinese e-commerce company Alibaba. Its share price received support from
investor expectations that the company could be included in the Hong Kong
Stock Connect (which allows investors in Hong Kong to invest in Mainland
Chinese stocks and vice-versa) later this year and that the company's new
strategy to charge merchant service fees could potentially increase its
revenue. Furthermore, China's stimulus measures to boost the country's economy
and equity market provided a strong lift to Alibaba's share performance near
the end of September 2024. Alibaba remains a key holding in TEMIT's China
exposure. The company continues to generate strong cash flows, in our
assessment, and we expect share-price appreciation to be supported by
corporate actions, including share buybacks.
An off-benchmark holding in Prosus served the portfolio well. Prosus is a
leading global investment company and the largest shareholder of Tencent (also
held directly by TEMIT), a Chinese technology company. The company has
ownership in multiple food delivery platforms, including Swiggy, which TEMIT
recently took a direct investment in. Its share price tracked Tencent's stock,
which initially rose following the company's release of its second-quarter
2024 earnings results and subsequently amid a slew of stimulus measures in
China.
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 phones. The company is a key beneficiary of the
growth in demand for AI chips, and its share price rose along with other
companies in the AI supply chain in the earlier part of the period. However,
cautious investor sentiment surrounding AI-related stocks due to uncertainty
around the monetisation of AI investments for end clients limited further
rises in the share price towards the end of the period.
Grupo Financiero Banorte is a leading financial institution in Mexico, was a
notable detractor. Its share price fell alongside the general Mexican equity
market as investors feared adverse constitutional reforms and regulatory
changes in the country. We continue to monitor the country's government
policies and reforms and their potential impact on corporate earnings.
However, we do remain optimistic on Mexico's banking sector growth prospects,
given large percentage of unbanked population.
Samsung Electronics is one of the largest memory semiconductor manufacturers
in the world, saw its share price fall over the six-month period. The company
also manufactures a wide range of consumer and industrial electronics and
equipment. Its share price was volatile during the period due to investor
concerns about a weaker memory cycle in the near term, as well as the
company's loss of leadership in advanced memory products. However, we expect
the weakness in the memory cycle to be short lived, as demand for HBM should
remain strong and conventional DRAM products should see supply tightness as
capacity shifts to HBM.
NAVER is a South Korean internet search and advertising company. It also has
business interests in e-commerce, financial services and entertainment
content. Its share price weakened due to a combination of factors, including
weaker growth for its market, competition for both its advertisement and
e-commerce business, underwhelming response to its generative AI technology,
and uncertainty about the benefits from its AI investments. The company had an
issue with a data leak with the messaging application Line in Japan and
potential implications of this on its business interest, along with NAVER's
shareholding in Line, also pressured the share price. We remain positive on
NAVER's business execution and expect the company to continue to deliver
steady growth over the medium term. Its leadership position in AI solutions in
South Korea, in our view, should provide the company with additional cost
efficiencies and revenue opportunities.
Top Contributors and Detractors to Relative Performance by Sector %((a))
( )
Top Contributor Contribution to Top Detractor Contribution to
portfolio relative portfolio relative to
to MSCI Emerging MSCI Emerging
Markets Index Markets Index
Overweight Financials 0.3 Information Technology (0.6)
(TEMIT holds more than the index weight)
Industrials (0.5)
Communication Services (0.5)
Health Care (0.1)
Underweight Consumer Discretionary 1.0 Utilities (0.1)
(TEMIT has a zero holding or
a holding smaller than the index weight)
Consumer Staples 0.6
Materials 0.2
Energy 0.2
Real Estate 0.0
(a) For the period 31 March 2024 to 30 September 2024.
Stock selection in the consumer discretionary, consumer staples and financials
sectors added to TEMIT's performance relative to the benchmark index during
the six-month period under review. An underweight allocation in the consumer
staples sector provided additional support. Within the consumer discretionary
sector, Alibaba and Prosus (both described above) are examples of companies
that aided relative returns. Contribution in the financials sector was led by
Discovery, South Africa's biggest health insurance provider. This company also
offers banking and investment services. Additionally, the company has
international insurance operations in the United Kingdom and partners with
other insurance companies through its shared-value insurance model called
Vitality.
In contrast, stock selection in the information technology, industrials and
communication services sectors caused relative detraction. The information
technology sector was driven lower by holdings in MediaTek (a Taiwan-based
designer of chips for smartphones and other technology devices), Samsung
Electronics (described above) and Samsung SDI (a leading manufacturer of
lithium-ion batteries for electric vehicles ('EVs') energy storage, power
tools and information technology products). Samsung SDI's share price suffered
from investor concerns about weaker-than-expected growth in end-market demand
for its products. The weakness in the communication services sector was driven
by NAVER (described earlier), in which TEMIT has an overweight position. In
the industrials sector, South Korean holding company LG led detraction, due to
weak earnings for its key holdings. LG owns stakes in several companies across
various industries such as electronics, chemicals, EV batteries and household
products. The company has been buying back its shares, which should help
narrow the discount to its net asset value ('NAV').
Top Contributors and Detractors to Relative Performance by Country %((a))
Top Contributor Contribution to Top Detractor Contribution to
portfolio relative portfolio relative to
to MSCI Emerging
MSCI Emerging
Markets Index Markets Index
Overweight Taiwan 1.2 South Korea (2.4)
(TEMIT holds more than the index weight)
South Africa 0.2 Brazil (0.7)
Indonesia 0.2 Mexico (0.2)
Philippines (0.0)
Underweight China/Hong Kong 0.8 Malaysia (0.2)
(TEMIT has a zero holding or
a holding smaller than the index weight)
Saudi Arabia 0.7
(a) For the period 31 March 2024 to 30 September 2024.
By markets, stock selection in Taiwan and China/Hong Kong added onto positive
contribution from a lack of exposure to Saudi Arabia. Once again, TSMC aided
relative returns in Taiwan. Another Taiwan-based holding that was supportive
of the portfolio's performance was Hon Hai Precision Industry, a provider of
electronic manufacturing services for consumer electronics, cloud and
networking products, and computing products and components. In China, Alibaba
was a leading contributor.
Conversely, overweight allocations and stock selection in both South Korea and
Brazil led these markets to be top detractors from relative returns. Stock
selection in Mexico also pressured the portfolio's relative performance.
Samsung Electronics, NAVER and Samsung SDI were key drivers of the portfolio's
lacklustre performance in South Korea. In Brazil, Oncoclinicas, a cancer-care
provider, experienced volatility in its share price due to investor concerns
about the company's excessive debt. While we remain optimistic on
Oncoclinicas' growth prospects, we are keeping a close watch on the pace of
the company's debt reduction. Mexico's relative detraction was largely driven
by Grupo Financiero Banorte (described above).
Top 10 Holdings
As at 30 September 2024
Portfolio Benchmark % Over/(Under) Weight %
Holding £'000 %
Taiwan Semiconductor Manufacturing Company ('TSMC') 254,022 12.4 9.0 3.4
The world's largest semiconductor foundry company, which is based in Taiwan.
The emergence of AI and investor 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.
ICICI Bank 106,449 5.2 1.0 4.2
A leading India-based private sector bank and the portfolio's second-largest
holding. Its 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. We believe that the bank, with its
strong franchise, remains well positioned to benefit from the India growth
story.
Alibaba 100,612 4.9 2.6 2.3
The leading e-commerce company in China. While intensified competition and a
weak economy have 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, in our view. We believe that these
could offer either growth opportunities or the possibility for improvements in
profitability. While the share price has experienced a significant derating
over the past couple of years, the company continues to generate significant
cash flows. The company has a strong share buyback policy and we expect
returns from here to be supported by such corporate actions.
Tencent 87,820 4.3 4.5 (0.2)
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. We
believe that the company should be a key beneficiary of AI across its business
segments. Tencent also has significant public and private investments in China
and globally. Trading at attractive valuations, based on our analysis, the
company has been proactively undertaking share buybacks, which further enhance
its earnings per share.
Samsung Electronics 86,543 4.2 3.1 1.1
One of the largest memory semiconductor manufacturers in the world based in
South Korea. It also manufactures a wide range of consumer and industrial
electronics and equipment. Its share price was volatile during the six-month
period due to investor concerns about a weaker memory cycle in the near term,
as well as the company's loss of leadership in advanced memory products. We
expect the weakness in the memory cycle to be short lived, as demand for HBM
should remain strong and conventional DRAM products should see supply
tightness as capacity shifts to HBM.
Prosus 84,151 4.1 - 4.1
A leading global investment company and the largest shareholder of Tencent
Holdings, a Chinese technology company. We see Prosus as a good proxy for
Tencent exposure and its shares are available at a discount to its NAV. The
company also has holdings in leading food delivery platforms globally.
Management's effort to narrow the discount to NAV via share buybacks should
also support returns.
SK Hynix 56,483 2.7 0.9 1.8
A South Korean semiconductor company and a maker of memory chips used globally
across a wide range of solutions. The company is the industry leader in HBM
chips, which are expected to see strong demand growth for AI applications.
NAVER 55,374 2.7 0.2 2.5
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.
HDFC Bank 54,669 2.7 1.1 1.6
India's leading private sector bank. It offers a wide range of banking
services across retail banking, home loans and mortgages, and
wholesale/corporate banking. HDFC Bank is a leader among Indian private sector
banks with a strong liability franchise, market leadership across multiple
retail asset categories and a comprehensive approach to digitalisation, which
leads to a combination of industry-leading growth while maintaining superior
asset quality and best-in-class profitability.
Samsung Life Insurance 50,460 2.5 0.1 2.4
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 towards more health-related products, the company has been
able to improve its profitability. Most notably, it has a significant stake in
Samsung Electronics. 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 insurance businesses. The Corporate Value-Up programme initiated by the
South Korean government should also provide the company with incentives to
improve distributions to shareholders. Therefore, we expect the company to
take more meaningful measures to improve distributions to shareholders.
Portfolio Changes by Country
Total Return in Sterling
Country 31 March 2024 Purchase Sales Market 30 September 2024 TEMIT % MSCI Emerging
Market Value £m
£m
£m Movement £m Market Value £m Markets Index %
China/Hong Kong 490 59 (103) 114 560 28.8 24.4
South Korea 426 43 (36) (68) 365 (15.5) (12.1)
Taiwan 358 8 (51) 50 365 14.8 9.0
India 247 48 (45) 33 283 13.7 11.4
Brazil 186 7 - (30) 163 (11.1) (11.5)
United States 62 3 - 5 70 7.0 -
Thailand 49 9 - 5 63 14.0 15.6
South Africa 20 13 - 15 48 44.3 23.5
Mexico 48 11 - (19) 40 (34.2) (22.4)
Hungary 30 1 - (1) 30 7.7 9.3
Other 79 10 (23) 2 68 - -
Total investments 1,995 212 (258) 106 2,055
Portfolio by Fair Value
Holding Sector Fair Value £'000 % of Portfolio
Brazil
Petrobras((a)) Energy 49,517 2.4
Itaú Unibanco((a)(b)) Financials 40,458 2.0
Banco Bradesco ((a)(b)) Financials 30,399 1.5
Vale Materials 23,483 1.1
TOTVS Information Technology 8,183 0.4
Hypera Health Care 6,058 0.3
Oncoclinicas do Brasil Servicos Medicos Health Care 5,377 0.3
163,475 8.0
Cambodia
NagaCorp Consumer Discretionary 3,888 0.2
3,888 0.2
Chile
Banco Santander Chile((b)) Financials 17,898 0.9
17,898 0.9
China/Hong Kong
Alibaba((c)) Consumer Discretionary 100,612 4.9
Tencent Communication Services 87,820 4.3
Prosus Consumer Discretionary 84,151 4.1
Techtronic Industries Industrials 41,666 2.0
China Merchants Bank Financials 34,490 1.7
Budweiser Brewing Company APAC Consumer Staples 31,465 1.5
Baidu Communication Services 27,418 1.3
Ping An Insurance Financials 23,676 1.1
Kuaishou Technology Communication Services 22,197 1.1
Uni-President China Consumer Staples 18,768 0.9
NetEase Communication Services 17,102 0.8
Wuxi Biologics Health Care 13,069 0.6
Haier Smart Home Consumer Discretionary 12,343 0.6
Daqo New Energy((b)) Information Technology 8,156 0.4
H&H Group Consumer Staples 7,192 0.4
Guangzhou Tinci Materials Technology Materials 6,754 0.3
Beijing Oriental Yuhong Waterproof Technology Materials 5,678 0.3
China Resources Building Materials Technology Materials 5,123 0.3
COSCO SHIPPING Ports Industrials 4,708 0.2
Greentown Service Group Real Estate 3,524 0.2
Weifu High-Technology Consumer Discretionary 1,967 0.1
JD.com Consumer Discretionary 1,849 0.1
Weichai Power Industrials 146 0.0
559,874 27.2
Hungary
Gedeon Richter Health Care 25,672 1.2
Wizz Air Holdings Industrials 4,688 0.2
30,360 1.4
India
ICICI Bank Financials 106,449 5.2
HDFC Bank Financials 54,669 2.7
Swiggy((d)) Consumer Discretionary 35,697 1.7
Infosys Technologies Information Technology 23,221 1.1
Bajaj Holdings & Investment Financials 16,282 0.8
Zomato Consumer Discretionary 16,215 0.8
Federal Bank Financials 15,844 0.8
ACC Materials 11,629 0.6
Ola Electric Mobility Consumer Discretionary 2,716 0.1
282,722 13.8
Indonesia
Astra International Industrials 11,147 0.5
11,147 0.5
Mexico
Grupo Financiero Banorte Financials 38,621 1.9
Nemak Consumer Discretionary 1,698 0.1
40,319 2.0
Peru
Intercorp Financial Services Financials 8,427 0.4
8,427 0.4
Philippines
BDO Unibank Financials 9,922 0.5
9,922 0.5
Russia
LUKOIL((e)) Energy 0 0.0
Sberbank of Russia((e)) Financials 0 0.0
0 0.0
South Africa
Discovery Financials 30,157 1.4
Netcare Health Care 17,816 0.9
47,973 2.3
South Korea
Samsung Electronics Information Technology 86,543 4.2
SK Hynix Information Technology 56,483 2.7
NAVER Communication Services 55,374 2.7
Samsung Life Insurance Financials 50,460 2.5
LG Industrials 35,950 1.7
Samsung SDI Information Technology 31,919 1.6
Doosan Bobcat Industrials 16,345 0.8
Fila Consumer Discretionary 11,854 0.6
Soulbrain Materials 10,431 0.5
LegoChem Biosciences Health Care 4,626 0.2
Hankook Tire Consumer Discretionary 3,584 0.2
KT Skylife Communication Services 1,225 0.1
364,794 17.8
Taiwan
TSMC Information Technology 254,022 12.4
MediaTek Information Technology 48,616 2.4
Hon Hai Precision Industry Information Technology 47,365 2.3
Yageo Information Technology 8,271 0.4
Lite-On Technology Information Technology 6,483 0.3
364,757 17.8
Thailand
Kasikornbank Financials 31,646 1.5
Minor International Consumer Discretionary 11,388 0.5
Thai Beverage Consumer Staples 8,136 0.4
Kiatnakin Phatra Bank Financials 6,467 0.3
Star Petroleum Refining Energy 5,255 0.3
62,892 3.0
United Arab Emirates
Emirates Central Cooling Systems Utilities 10,351 0.5
Spinneys Consumer Staples 6,329 0.3
16,680 0.8
United States
Genpact((f)) Industrials 39,153 1.9
Cognizant Technology Solutions((f)) Information Technology 30,858 1.5
70,011 3.4
Total Investments 2,055,139 100.0
(a) Preference shares: 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 unlisted.
(e) This company is fair valued at zero as a result of its trading being
suspended on international stock exchanges.
(f) 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
30 September 2024((a)) 4.9 8.0 26.5 58.9
31 March 2024 4.6 12.6 23.3 59.5
Split Between Markets %((b)) 30 September 2024 31 March 2024
Emerging Markets 96.4 95.8
Developed Markets((c)) 3.4 4.0
Frontier Markets 0.2 0.2
Source: FactSet Research System, Inc.
(a) Swiggy is unlisted at 30 September 2024 and is not
included in the breakdown.
(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 the United
States which have significant exposure to operations from emerging markets.
Stewardship
Templeton Emerging Markets Investment Trust ('TEMIT') seeks to capture the
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 to understand the financial risks and opportunities that stem
from 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 (for example, carbon reduction) or objectives.
We provide some examples from the last six months which illustrate our
process.
Business Thesis and ESG Research
TEMIT's research process includes a structured analysis of governance and
sustainability issues to understand the financial risk and opportunities of
investing in a stock. A case study example considering ESG factors is
Budweiser Brewing Company APAC, whose shares were purchased during the six
months under review.
Budweiser Brewing Company APAC, part of AB InBev Group ('ABI'), is a leading
beer company in Asia. The company has two major markets in Asia: China and
South Korea. Unlike other local brewers, Budweiser has a large market leading
brand portfolio with more than 50 beer brands, including more than 25 brands
licensed from ABI.
Turning to our ESG research, Budweiser Brewing Company APAC has set key 2025
goals across multiple sustainability areas such as climate action, water
stewardship, circular packaging and sustainable agriculture. The company has
an ambitious programme to achieve net zero by 2040. Near term goals include:
achieving 100% electricity from renewable sources, 25% carbon emissions
reduction across its value chain and 35% reduction in absolute scope 1 and 2
emissions.
Its water usage continues to decrease, and the company has set a goal to
ensure average brewing water usage reaches 2.00 hl/hl by 2025, from 2.03 hl/hl
as at end 2023. 64.8% of the company's total beer volume was in the form of
returnable packaging or made from a majority of recycled content. The company
has set a goal to increase this to 100%. The company also works with its
supply chain to ensure adequate monitoring, ranging from responsible sourcing,
to ensuring compliance with UN Global Compact Principles covering human
rights, which further empowers value chain partners to deliver on
sustainability objectives.
The company continues to innovate with a strong research & development
capability. It is aiming for no-alcohol (by which it means the Alcohol by
Volume ('ABV') 0.0%-0.5%) and low-alcohol (ABV 0.51%-3.5%) beer products to
represent at least 20% of its total beer volume by the end of 2025. This is
consistent with consumer trends and should enhance its growth trajectory.
The company generally exhibits strong corporate governance practices. Although
the board lacks an independent majority (an engagement topic for us), the
skillset is strong, made up of industry and financial experts, with gender
diversity demonstrated. The management team is strong, and we believe
incentives through compensation and ESOP (employee stock ownership plan) are
well aligned to minority shareholders. Finally, we note no material concerns
in other areas such as ownership structure, accounting or historical
controversies.
Market share gains in the premium and super premium segment in China will be
the key revenue and EBITDA growth driver in the next few years. Based on our
research, we have confidence in management's ability to execute the overall
business strategy ensuring key ESG risk considerations are being managed.
These considerations are central to cost efficiency, productivity, and
continuity of operations, to deliver on its long-term outlook and as such we
have attributed a lower discount rate to the company in our financial model.
Active ownership
Our significant presence in emerging markets allows our investment team to
pursue active ownership, which is a key part of the overall approach to
stewardship. Over the six-month period, we have engaged with select investee
companies on governance issues, as well as executing our proxy voting policy
on behalf of our shareholders.
For example, over the period under review, we reached out to the management of
Baidu to encourage them to undertake a more favourable set of shareholder
return actions and policies. Baidu has continued to generate strong cash
flows, despite the changing competition landscape and slower industry growth.
However, we think that the current share price has not reflected the intrinsic
value of the business and various assets on the balance sheet. There has been
no dividend payout, and the multi-year buyback was not enough to offset the
dilution from share-based compensation. We have made specific requests of the
company, including asking the company to formulate a long-term shareholder
return policy in the form of dividends and/or buybacks at the management's
discretion. We await their response and monitor this issue.
One recent example of our proxy voting was our votes against proposals to
approve two Director elections at COSCO SHIPPING Ports on the grounds that one
director failed to attend at least 75% of board meetings in the most recent
fiscal year, without a satisfactory explanation, while another director was
serving on more than six public company boards. Strong and engaged board
oversight is important for value creation at a company. We continue to use our
voting power as a signal to management on important issues raised through
voting ballots.
We will be sharing a more detailed account of our stewardship practices in the
next Annual Report and dedicated Stewardship Report.
Chetan Sehgal
Lead Portfolio Manager
9 December 2024
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 2024 which comprises the
Statement of Comprehensive Income, Statement of Financial Position, Statement
of Changes in Equity, Statement of Cash Flows, and related notes 1-9. We have
read the other information contained in the Half Yearly Report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of Financial Statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of Financial Statements in the Half Yearly
Report for the six months ended 30 September 2024 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual Financial Statements of the Company are
prepared in accordance with UK adopted international accounting standards. The
condensed set of Financial Statements included in this Half Yearly Report has
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting'.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Half Yearly Report in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the Half Yearly Report, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half Yearly Report, we are responsible for expressing to the
Company a conclusion on the condensed set of Financial Statements in the Half
Yearly Report. Our conclusion, including our Conclusions relating to going
concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) 'Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
9 December 2024
Financial statements
Statement of comprehensive income
For the six months to 30 September 2024
For the Six Months to For the Six Months to Year Ended
30 September 2024 (unaudited)
30 September 2023 (unaudited)
31 March 2024 (audited)
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Net Gains/(Losses) on Investments and Foreign Exchange
Net Gains/(Losses) on Investments at Fair Value - 106,120 106,120 - (44,956) (44,956) - 94,636 94,636
Net Losses on Foreign Exchange - (286) (286) - (649) (649) - (817) (817)
Income
Dividends 2 42,859 3,720 46,579 42,180 6,560 48,740 65,350 6,560 71,910
Other Income 3,046 - 3,046 3,278 - 3,278 6,536 - 6,536
45,905 109,554 155,459 45,458 (39,045) 6,413 71,886 100,379 172,265
Expenses
AIFM Fee((a)) (2,606) (6,081) (8,687) (2,580) (6,019) (8,599) (5,130) (11,970) (17,100)
Other Expenses (981) - (981) (821) - (821) (1,774) - (1,774)
(3,587) (6,081) (9,668) (3,401) (6,019) (9,420) (6,904) (11,970) (18,874)
Profit/(Loss) Before Finance Costs and Taxation 42,318 103,473 145,791 42,057 (45,064) (3,007) 64,982 88,409 153,391
Finance Costs((a)) (316) (733) (1,049) (389) (909) (1,298) (751) (1,747) (2,498)
Profit/(Loss) Before Taxation 42,002 102,740 144,742 41,668 (45,973) (4,305) 64,231 86,662 150,893
Tax Expense 6 (2,701) (9,044) (11,745) (3,338) (4,291) (7,629) (5,366) (5,201) (10,567)
Profit/(Loss) for the Year 39,301 93,696 132,997 38,330 (50,264) (11,934) 58,865 81,461 140,326
Profit/(Loss) Attributable to Equity Holders of the Company 39,301 93,696 132,997 38,330 (50,264) (11,934) 58,865 81,461 140,326
Earnings per Share 3 3.60p 8.57p 12.17p 3.34p (4.37)p (1.03)p 5.18p 7.17p 12.35p
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.
(a) 70% of the annual Alternative Investment Fund Manager
('AIFM') fee and 70% of the finance costs, except for interest and fees on
overdrafts, have been allocated to the capital account.
Statement of financial position
As at 30 September 2024
Note As at 30 September 2024 As at 30 September 2023 As at 31 March 2024
(unaudited)
(unaudited)
(audited)
£'000
£'000
£'000
Non-Current Assets
Investments at Fair Value Through Profit or Loss 2,055,139 1,910,022 1,995,232
Current Assets
Trade and Other Receivables 22,349 10,622 10,759
Cash and Cash Equivalents 105,830 130,722 145,736
Total Current Assets 128,179 141,344 156,495
Current Liabilities
Bank Loan (100,000) - (100,000)
Other Payables (4,460) (3,902) (6,401)
Total Current Liabilities (104,460) (3,902) (106,401)
Net Current Assets 23,719 137,442 50,094
Non-Current Liabilities
Capital Gains Tax Provision (18,241) (11,898) (10,463)
Bank Loan - (100,000) -
Total Assets Less Liabilities 2,060,617 1,935,566 2,034,863
Share Capital and Reserves
Equity Share Capital 4 58,622 61,955 60,932
Capital Redemption Reserve 24,047 20,714 21,737
Capital Reserve 1,407,545 1,286,949 1,388,186
Special Distributable Reserve 433,546 433,546 433,546
Revenue Reserve 136,857 132,402 130,462
Equity Shareholders' Funds 2,060,617 1,935,566 2,034,863
Net Asset Value Pence per Share((a)) 192.8 170.5 182.5
(a) Based on shares in issue excluding shares held in treasury.
Statement of changes in equity
For the six months to 30 September 2024 (unaudited)
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 2023 63,148 19,521 1,372,654 433,546 128,634 2,017,503
(Loss)/Profit for the Period - - (50,264) - 38,330 (11,934)
Equity Dividends 5 - - - - (34,562) (34,562)
Purchase and Cancellation of Own Shares 4 (1,193) 1,193 (35,441) - - (35,441)
Balance at 30 September 2023 61,955 20,714 1,286,949 433,546 132,402 1,935,566
Profit for the Period - - 131,725 - 20,535 152,260
Equity Dividends 5 - - - - (22,475) (22,475)
Purchase and Cancellation of Own Shares 4 (1,023) 1,023 (30,488) - - (30,488)
Balance at 31 March 2024 60,932 21,737 1,388,186 433,546 130,462 2,034,863
Profit for the Period - - 93,696 - 39,301 132,997
Equity Dividends 5 - - - - (32,906) (32,906)
Purchase and Cancellation of Own Shares 4 (2,310) 2,310 (74,337) - - (74,337)
Balance at 30 September 2024 58,622 24,047 1,407,545 433,546 136,857 2,060,617
Statement of cash flows
For the six months to 30 September 2024
For the six months to For the six months to For the year to
30 September 2024
30 September 2023 31 March 2024
(unaudited) (unaudited) (audited)
£'000
£'000
£'000
Cash Flows From Operating Activities
Profit/(Loss) Before Taxation 144,742 (4,305) 150,893
Adjustments to Reconcile Profit/(Loss) Before Taxation to Cash Used in
Operations:
Bank and Deposit Interest Income Recognised (3,023) (3,266) (6,518)
Dividend Income Recognised (46,579) (48,740) (71,910)
Finance Costs 1,047 1,298 2,498
Net (Gains)/Losses on Investments at Fair Value (106,120) 44,956 (94,636)
Net Losses on Foreign Exchange 286 649 817
(Increase)/Decrease in Debtors (18) 13 (23)
Increase/(Decrease) in Creditors 159 (4) (29)
Cash Used in Operations (9,506) (9,399) (18,908)
Bank and Deposit Interest Received 3,094 3,266 6,434
Dividends Received 50,017 49,274 71,024
Bank Overdraft Interest Paid (2) - (2)
Tax Paid (3,574) (5,457) (9,945)
Net Realised Gains/(Losses) on Foreign Currency Cash and Cash Equivalents 647 (355) (435)
Net Cash Inflow From Operating Activities 40,676 37,329 48,168
Cash Flows From Investing Activities
Purchases of Non-Current Financial Assets (213,890) (271,085) (463,750)
Sales of Non-Current Financial Assets 241,804 302,151 553,641
Net Cash Inflow From Investing Activities 27,914 31,066 89,891
Cash Flows From Financing Activities
Equity Dividends Paid (32,906) (34,562) (57,037)
Purchase and Cancellation of Own Shares (74,549) (34,831) (65,784)
Interest and Fees Paid on Bank Loans (1,041) (1,276) (2,490)
Net Cash (Outflow)/Inflow From Financing Activities (108,496) (70,669) (125,311)
Net Increase/(Decrease) in Cash (39,906) (2,274) 12,748
Cash at the Start of the Period 145,736 132,988 132,988
Net Unrealised Gains/(Losses) on Foreign Currency Cash and Cash Equivalents 0 8 0
Cash at the End of the Period 105,830 130,722 145,736
Reconciliation of Liabilities Arising From Bank Loans
Liabilities as Cash Flows Profit & Loss Liabilities as
at 31 March 2024 £'000 £'000 at 30 September 2024
£'000 £'000
Fixed term loan 100,000 - - 100,000
- Interest and Fees Payable 349 (1,041) 1,047 355
Total Liabilities From Bank Loans 100,349 (1,041) 1,047 100,355
Liabilities as Cash Flows Profit & Loss Liabilities as
at 31 March 2023 £'000 £'000 at 30 September 2023
£'000 £'000
Revolving Credit Facility - - - -
- Interest and Fees Payable - (241) 241 -
Fixed Term Loan 100,000 - - 100,000
- Interest and Fees Payable 343 (1,035) 1,057 365
Total Liabilities From Bank Loans 100,343 (1,276) 1,298 100,365
Liabilities as Cash Flows Profit & Loss Liabilities as
at 31 March 2023 £'000 £'000 at 31 March 2024
£'000 £'000
Revolving Credit Facility - - - -
- Interest and 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
Notes to the financial statements
For the six months to 30 September 2024
1 Basis of preparation
The Half Yearly Report for the six months to 30 September 2024 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 lnvestment Companies ('AIC')
and updated in July 2022 insofar as the SORP is compatible with UK adopted
International Accounting Standards. The accounting policies applied in these
half yearly Financial Statements are consistent with those applied in the
Company's Financial Statements for the year ended 31 March 2024 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 2024 and
30 September 2023 has not been audited. The figures and financial information
for the year ended 31 March 2024 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 2024, the Company had net current assets of £23,719,000
(31 March 2024: net current assets £50,094,000). The Directors have a
reasonable expectation that 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 approval of these Financial Statements. Accordingly,
the Financial Statements have been prepared on a going concern basis.
2 Income
The Company received special dividends amounting to £8.5 million (30
September 2023: £7.7 million) of which £3.7 million was classified as
capital and £4.8 million was classified as revenue (30 September 2023: £6.6
million and £1.1 million respectively).
3 Earnings per share
For the Six Months to For the Six Months to For the Year to
30 September 2024 30 September 2023 31 March 2024
£'000 £'000 £'000
Revenue Profit 39,301 38,330 58,865
Capital Profit/(Loss) 93,696 (50,264) 81,461
Total 132,997 (11,934) 140,326
Weighted Average Number of Shares in Issue 1,092,655,677 1,149,158,447 1,136,517,365
Revenue Profit per Share 3.60p 3.34p 5.18p
Capital Profit/(Loss) per Share 8.57p (4.37)p 7.17p
Total 12.17p (1.03)p 12.35p
4 Equity Share Capital
For the Six Months to For the Six Months to For the Year to
30 September 2024 30 September 2023 31 March 2024
Ordinary Shares In Issue £'000 Number £'000 Number £'000 Number
Opening Ordinary Shares of 5 Pence 55,741 1,114,818,617 57,957 1,159,138,372 57,957 1,159,138,372
Purchase and Cancellation of Own Shares (2,310) (46,214,019) (1,193) (23,862,295) (2,216) (44,319,755)
Closing Ordinary Shares of 5 Pence 53,431 1,068,604,598 56,764 1,135,276,077 55,741 1,114,818,617
For the Six Months to For the Six Months to For the Year to
30 September 2024
30 September 2023
31 March 2024
Ordinary Shares Held in Treasury £'000 Number £'000 Number £'000 Number
Opening Ordinary Shares of 5 Pence 5,191 103,825,895 5,191 103,825,895 5,191 103,825,895
Closing Ordinary Shares of 5 Pence 5,191 103,825,895 5,191 103,825,895 5,191 103,825,895
Total ordinary shares in issue and held in treasury at the end of the period 58,622 1,172,430,493 61,955 1,239,101,972 60,932 1,218,644,512
In the six months to 30 September 2024, 46,214,019 shares were bought back for
cancellation for a total consideration of £74,337,000 (30 September 2023:
23,862,295 shares were bought back for cancellation for a total consideration
of £35,441,000). All shares bought back in the period were cancelled, with
none being placed in treasury (30 September 2023: no shares were placed into
treasury).
5 Dividends
For the Six Months to For the Six Months to For the Year to
30 September 2024 30 September 2023
31 March 2024
Rate (Pence) £'000 Rate (Pence) £'000 Rate (Pence) £'000
Declared and Paid During the Period:
Dividend on Shares:
Final dividends for the years ended 31 March 2024 and 31 March 2023 3.00 32,906 3.00 34,562 3.00 34,562
Interim dividend for the six months ended 30 September 2023 - - - - 2.00 22,475
Total 3.00 32,906 3.00 34,562 5.00 57,037
On 9 December 2024 the Board declared an interim dividend of 2.00 pence per
share for the financial year 2025 (financial year 2024: 2.00 pence per share
interim dividend). This dividend has not been accrued in the Financial
Statements for the six months ended 30 September 2024 as dividends are
recognised when the shareholders' right to receive the payment is established.
For the 2025 interim dividend this would be the ex-dividend date of 19
December 2024.
6 Taxation
The total tax expense of £11.74 million (30 September 2023: £7.63 million)
consists of a revenue tax expense of £2.70 million (30 September 2023: £3.34
million) and a capital tax expense of £9.04 million (30 September 2023:
£4.29 million). The revenue tax expense relates to irrecoverable overseas tax
on dividends. The capital tax expense consists of £7.77 million (30 September
2023: £2.22 million) expense arising from an increase in the provision for
deferred tax on unrealised gains on holdings in India and a £1.27 million
expense (30 September 2023: £2.07 million) arising from tax on realised gains
on holdings in India.
7 Costs of Investment Transactions
During the period, expenses were incurred in acquiring or disposing of
investments. The following costs of transactions are included in the
gains/(losses) on investments at fair value:
For the Six Months to For the Six Months to For the Year to
30 September 2024 30 September 2023 31 March 2024
£'000 £'000
£'000
Purchase Expenses 226 320 546
Sales Expenses 531 657 1,210
Total 757 977 1,756
8 Fair Value
Fair values are derived as follows:
• Where assets are denominated in a foreign currency, they are converted
into the sterling amount using period end rates of exchange;
• Investments held by the Company on the basis set out in the annual
accounting policies;
• Cash at the denominated currency of the account; and
• Other financial assets and liabilities at the carrying value which is
a reasonable approximation of the fair value.
The tables below analyse financial instruments carried at fair value by
valuation method. The different levels have been defined as follows:
Level 1. Quoted prices (unadjusted) in active markets for identical assets and
liabilities;
Level 2. Inputs other than quoted prices included with level 1 that are
observable for the asset or liability, either directly (prices) or indirectly
(derived from prices); and
Level 3. Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The hierarchy valuation of investments through profit and loss are shown
below:
30 September 2024 30 September 2023 31 March 2024
£'000 £'000 £'000
Level 1 2,019,442 1,910,022 1,995,232
Level 2 - - -
Level 3 35,697 - -
Total 2,055,139 1,910,022 1,995,232
The Company held three Level 3 securities as at 30 September 2024 (31 March
2024: two).
The investments in Russian securities, LUKOIL and Sberbank of Russia, continue
to be fair valued at £nil (31 March 2024: £nil) and are 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.
The investment in Swiggy was acquired during the current period and was fair
valued at £35.70 million as of 30 September 2024. It has been classified as
Level 3 due to its unlisted status and has been fair valued based on a pricing
model that is 75% discounted cash flows and 25% on a comparable peer group.
The unobservable inputs as of 30 September 2024 are below.
Description Fair value Unobservable input Weighted Reasonable Reasonable Reasonable
£'000
average
possible
possible
possible
input
shift +/-
shift +
shift -
£'000
£'000
Equities 35,697 CY25 Enterprise Value and Revenue Multiple of Comparable Group 1 x8.5 x1.5 503 (503)
CY25 Enterprise Value and Revenue Multiple of Comparable Group 2 x6.7 x1.5 1,508 (1,508)
Comparable Group 1 Weighting 25.0% 10.0% 235 (235)
Discount for Lack of Marketability 5.7% 1.5% (568) 568
Forecasted Cashflows 100.0% 20.0% 5,123 (5,123)
Weighted Average Cost of Capital 11.1% 1.0% (4,344) 6,107
Long Term Growth Rate 5.0% 0.5% 1,980 (1,681)
Discounted Cash Flow Weighting 75.0% 10.0% (605) 605
The following table presents the movement in Level 3 investments for the
period:
30 September 2024 30 September 2023 31 March 2024
£'000
£'000
£'000
Opening Balance - - -
Additions at Cost - Purchase of Level 3 Assets 37,952 - -
Disposal Proceeds - Sale of Level 3 Assets - (7,766)((a)) (7,766)((a))
Net Gains/(Losses) on Foreign Exchange (2,255) - -
Net Gains/(Losses) on Investments at Fair Value - 7,766 7,766
Level 3 Closing Balance 35,697 - -
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 2024 30 September 2023 31 March 2024
£'000
£'000
£'000
Fixed Term Loan at Amortised Cost 100,000 100,000 100,000
Fixed Term Loan at Fair Value 98,980 94,800 96,770
Increase in Net Assets 1,020 5,200 3,230
The fair value of the fixed term loan included in the table above is
calculated by aggregating the expected future cash flows which are discounted
at a rate comprising the sum of SONIA rate plus a spread. The fixed term loan
at fair value is classed as Level 2.
9 Events after the reporting period
On 1 October 2024, the allocation of annual AIFM fee and finance costs was
updated from 70% to 75% being allocated to the capital account, with the
remainder being allocated to revenue. The Board believes that this is more
reflective of the expected long-term split of returns between capital and
revenue.
(a) Represents the sale of the holding in Yandex on 23 May 2023 for
£7,766,000.
On 13 November 2024, Swiggy was successfully listed on the National Stock
Exchange of India and at 20 November, which is the latest available date,
Swiggy was trading 23.3% higher which represents an uplift of £10.91 million
for TEMIT since purchase. TEMIT has a lock in period of 6 months from the
listing date.
On 9 December 2024 the Board declared an interim dividend of 2.00 pence per
share for the financial year 2025 (financial year 2024: 2.00 pence per share
interim dividend). Please see Note 5 in the full Half Yearly Report for more
information.
The Half Yearly Report for the six months to 30 September 2024 was approved by
the Board on 9 December 2024. A copy of the report is available on our website
www.temit.co.uk. (http://www.temit.co.uk./)
The PDF of the Half Yearly Report will be uploaded and available for viewing
on the National Storage Mechanism, posted to the website
www.temit.co.uk/resources/literature
(http://www.temit.co.uk/resources/literature) and may also be requested during
normal business hours from Client Dealer Services at Franklin Templeton
Investment Management Limited on freephone 0800 305 306.
For further information please e-mail temitcosec@franklintempleton.com
(mailto:temitcosec@franklintempleton.com) .
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