TIDMTEM
RNS Number : 3120C
Templeton Emerging Markets IT PLC
09 June 2023
Stock Exchange Announcement
Statement of Annual Results
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC
("TEMIT" or "the Company")
Legal Entity Identifier 5493002NMTB70RZBXO96
Templeton Emerging Markets Investment Trust plc
Annual Report and Accounts to 31 March 2023
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 GBP2.0 billion as at 31 March 2023. From its
launch to 31 March 2023, TEMIT's net asset value ("NAV") total
return was +3,845.7% compared to the benchmark total return of
+1,707.2%.
The Company is governed by a Board of Directors who are
committed to ensuring that shareholders' best interests,
considering the wider community of stakeholders, are at the
forefront of all decisions. Under the guidance of the Chairman, the
Board of Directors is responsible for the overall strategy of the
Company and monitoring its performance.
TEMIT at a glance
For the year to 31 March 2023
Net asset value total return Share price total return(a) MSCI Emerging Markets Index Proposed total ordinary
(cum-income)(a) total return(a)(b) dividend(c)
0.8% 0.5% -4.5% 5.00p
(2022: -17.3%) (2022: -21.2%) (2022: -6.8%) (2022: 3.80p)
---------------------------- --------------------------- ---------------------------- -----------------------------
(a) A glossary of alternative performance measures is included in the full Annual Report.
(b) Source: MSCI. The Company's benchmark is the MSCI Emerging
Markets Index, with net dividends reinvested.
(c) An annual ordinary dividend of 5.00 pence per share for the
year ended 31 March 2023 has been proposed. This comprises the
interim dividend of 2.00 pence per share paid by the Company on 27
January 2023 and the proposed final dividend of 3.00 pence per
share.
Strategic Report
The Directors present the Strategic Report for the year ended 31
March 2023, which incorporates the Chairman's Statement, and has
been prepared in accordance with the Companies Act 2006.
The aim of the Strategic Report is to provide shareholders with
the ability to assess how the Directors have performed in their
duty to promote the success of the Company for shareholders'
collective benefit, and having regard for the interests of all
stakeholders, by bringing together in one place key information
about the Company's strategy, the risks it faces, how it is
performing and the outlook.
Financial Summary
2022-2023
Year ended Year ended Capital Total
31 March 31 March return return
Notes 2023 2022 % %
------------------------------------- -------- ----------- ----------- -------- --------
Total net assets (GBP millions) 2,017.5 2,100.4
----------------------------------------------- ----------- ----------- -------- --------
Net asset value (pence per share) (a) 174.1 178.2 (3.7) 0.8
------------------------------------- -------- ----------- ----------- -------- --------
Highest net asset value (pence per
share) 185.1 223.9
----------------------------------------------- ----------- ----------- -------- --------
Lowest net asset value (pence per
share) 150.3 161.0
----------------------------------------------- ----------- ----------- -------- --------
Share price (pence per share) (a) 152.2 156.4 (4.2) 0.5
------------------------------------- -------- ----------- ----------- -------- --------
Highest end of the day share price
(pence per share) 164.6 208.0
----------------------------------------------- ----------- ----------- -------- --------
Lowest end of the day share price
(pence per share) 130.6 140.6
----------------------------------------------- ----------- ----------- -------- --------
MSCI Emerging Markets Index (a) (7.6) (4.5)
------------------------------------- -------- ----------- ----------- -------- --------
Share price discount to net asset
value at year end (a) 12.6% 12.2%
------------------------------------- -------- ----------- ----------- -------- --------
Average share price discount to net
asset value over the year 13.0% 9.5%
----------------------------------------------- ----------- ----------- -------- --------
Ordinary dividend (pence per share) (b) 5.00 3.80
------------------------------------- -------- ----------- ----------- -------- --------
Revenue earnings (pence per share) (c) 5.72 3.44
------------------------------------- -------- ----------- ----------- -------- --------
Capital earnings (pence per share) (c) (5.50) (40.90)
------------------------------------- -------- ----------- ----------- -------- --------
Total earnings (pence per share) (c) 0.22 (37.46)
------------------------------------- -------- ----------- ----------- -------- --------
Net gearing (a)(d) 0.0% 1.1%
------------------------------------- -------- ----------- ----------- -------- --------
Ongoing charges ratio (a) 0.98% 0.97%
------------------------------------- -------- ----------- ----------- -------- --------
Source: Franklin Templeton and FactSet.
(a) A glossary of alternative performance measures is included in the full Annual Report.
(b) An annual ordinary dividend of 5.00 pence per share for the
year ended 31 March 2023 has been proposed. This comprises the
interim dividend of 2.00 pence per share (2022: 1.00 pence per
share) paid by the Company on 27 January 2023 and a proposed final
dividend of 3.00 pence per share (2022: 2.80 pence per share).
(c) The revenue, capital and total earnings per share figures
are shown in the Statement of Comprehensive Income in the full
Annual Report and Note 7 of the Notes to the Financial
Statements.
(d) A net gearing figure of 0% means that the cash held in the
Company is equal to or higher than the total bank loans.
Ten Year Record
2013-2023
Share Revenue Annual Ongoing
Total net NAV(a) price(a) Year-end earnings(a) dividend(a) charges
(pence (pence (pence
assets per (pence discount(b) per per ratio(b)
Year ended (GBPm) share) per share) (%) share) share) (%)
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2013 2,302.7 140.5 128.1 8.2 1.69 1.25 1.30
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2014 1,913.6 118.4 105.4 10.9 1.83 1.45 1.30
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2015 2,045.0 128.2 111.2 13.3 1.86 1.65 1.20
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2016 1,562.3 104.8 90.8 13.4 1.41 1.65 1.22
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2017 2,148.1 152.6 132.3 13.3 1.32 1.65 1.20
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2018 2,300.8 169.2 148.6 12.2 3.18 3.00 1.12
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2019 2,118.2 168.5 153.2 9.1 3.45 3.20 1.02
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2020 1,775.7 146.5 131.4 10.3 4.88 3.80(c) 1.02
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2021 2,591.3 219.4 202.4 7.7 5.73 3.80(c) 0.97
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2022 2,100.4 178.2 156.4 12.2 3.44 3.80 0.97
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
31 March 2023 2,017.5 174.1 152.2 12.6 5.72 5.00(d) 0.98
-------------- --------- -------- ------------ ------------- ------------- ------------- ----------
Ten year growth record(e)
2013-2023
MSCI
Emerging Revenue
Share Market earnings Ordinary
NAV total Share price total Index total per share- dividend
Year ended NAV return(b) price return(b) return(b) undiluted per share
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2013 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2014 84.3 85.4 82.3 83.2 90.1 108.3 116.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2015 91.2 93.6 86.8 88.9 102.0 110.1 132.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2016 74.6 77.6 70.9 73.8 93.0 83.4 132.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2017 108.6 114.7 103.3 109.5 125.8 78.1 132.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2018 120.4 128.9 116.0 124.5 140.6 188.2 240.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2019 119.9 131.2 119.6 131.9 140.6 204.1 256.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2020 104.3 116.5 102.6 115.9 122.1 288.8 304.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2021 156.2 179.8 158.0 184.9 174.4 339.1 304.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2022 126.8 148.8 122.1 145.7 162.5 203.6 304.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
31 March 2023 123.9 150.1 118.8 146.4 155.3 338.5 400.0
-------------- ----- ---------- ------ ------------ ------------ ----------- ----------
Source: Franklin Templeton and FactSet.
(a) Comparative figures for financial years 2013 to 2021 have
been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5
pence each on 26 July 2021.
(b) A glossary of alternative performance measures is included in the full Annual Report.
(c) Excludes the special dividend of 0.52 pence per share for
the year ended 31 March 2020 and the special dividend of 2.00 pence
per share for the year ended 31 March 2021.
(d) An annual ordinary dividend of 5.00 pence per share for the
year ended 31 March 2023 has been proposed. This comprises the
interim dividend of 2.00 pence per share paid by the Company on 27
January 2023 and a proposed final dividend of 3.00 pence per
share.
(e) Rebased to 100 at 31 March 2013.
Chairman's Statement
Market overview and investment performance
Our financial year started shortly after the Russian invasion of
Ukraine and I would like to repeat the sympathy of the Board and of
all of those involved with the management of TEMIT for all victims
of the Russian invasion of Ukraine. Market conditions were
challenging throughout the year. The war caused a surge in
commodity prices. Rapid increases in prices generally result in
pressure from individuals to increase their pay, with a risk that
inflation then becomes entrenched. Governments and central banks
around the world have sought to contain inflation by raising
interest rates but need simultaneously to avoid choking economic
growth. This is a difficult balance to achieve and only time will
tell whether their actions have been successful.
In recent years China has become an important engine for world
economic growth as well as a key element of the emerging markets
investment universe. For a large part of our financial year there
were concerns over the Chinese economy due to the government's
continued pursuit of lockdowns to control the spread of COVID-19 as
well as its interventions in private companies and political
tension with the rest of the world, particularly the United States.
The approach to COVID-19 was suddenly and unexpectedly reversed and
this, along with more positive regulatory developments, helped to
spur the recovery in the country and in other emerging markets. In
other countries the higher level of inflation has caused a variety
of issues, although some companies have benefited from higher
commodity prices, most notably in the energy sector.
The year under review was a volatile period for TEMIT's shares.
The second half of our financial year was better than the first; at
the half year stage we reported a decline of -8.3% whereas in the
second half returns turned around and we ended the financial year
with a small positive return over 12 months of +0.8%(a) ,
outperforming the benchmark index which produced a total return of
-4.5%(a) .
(a) See Glossary of Alternative Performance Measures included in
the full Annual Report.
Revenue and dividend
Net revenue earnings increased markedly to 5.72 pence per share.
At the half year stage we announced an increase in the interim
dividend from 1.00 pence to 2.00 pence per share. The Board is
proposing a final dividend of 3.00 pence per share which, if
approved by shareholders at the Annual General Meeting ("AGM") will
result in a total dividend for the year of 5.00 pence per share.
This will be an increase in the total dividend of 32% compared with
the previous financial year. I have regularly emphasised that the
primary focus of our Investment Manager is on capital growth.
Nevertheless, it is encouraging to see such a strong increase in
revenues.
Borrowing
TEMIT has fixed borrowing of GBP100 million, and a revolving
credit facility under which up to GBP120 million in flexible debt
may be drawn down. The revolving facility matured on 31 January
2023 and was extended for a further year. The Investment Manager
continues to take a cautious view on borrowing in difficult
markets. As at the financial year end, net of cash in the
portfolio, TEMIT was not geared.
Share rating
Our managers remain very active in promoting TEMIT's shares to
existing and potential investors via a variety of traditional and
online channels. As I mentioned in the half yearly report, 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 for the third
consecutive year. 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 challenging market conditions naturally led to pressure on
the discount. 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. In total over the year, GBP29.2 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
0.23% to the benefit of remaining shareholders.
31 March 2023 marked the end of the fourth year of the
assessment period for the Conditional Tender Offer, under which the
Board undertook to arrange a tender for up to 25% of the Company's
shares if the NAV total return underperforms that of the benchmark
index over the five years to 31 March 2024. After four years, the
return was ahead of the benchmark index over the measurement period
by approximately 4 percentage points, but we are aware that
returns, both absolute and relative to the benchmark, can be
volatile. The Conditional Tender Offer is described in detail in
the full Annual Report.
Environmental, Social and Governance
Throughout TEMIT's history, governance of investee companies has
been a key part of the investment process and in recent years there
has been a growing focus on sustainability. A description of the
Investment Manager's process is included in the full Annual Report,
along with a summary of the approach to Environmental, Social and
Governance matters. Last year the Investment Manager published the
first dedicated Stewardship Report for TEMIT and this received
favourable comments from shareholders and industry experts. The
second report was published simultaneously with this Annual Report
and is available to download at www.temit.co.uk.
The Board
As previously announced, Beatrice Hollond retired from the Board
at last year's AGM in July 2022 and Simon Jeffreys assumed the
position of Senior Independent Director.
Abigail Rotheroe was appointed as a Director with effect from 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 managed retail and institutional Asia Pacific
portfolios in Hong Kong and London for Schroders, HSBC Asset
Management and Columbia Threadneedle Investments. She is a CFA
Charterholder and has experience in manager selection,
sustainability, and impact measurement.
I will complete nine years as a director on 1 August 2024,
shortly after next year's AGM. My colleagues have started the
process of identifying the next Chairman of the Company and expect
to make an announcement later this year.
Annual General Meeting
I am pleased to be able to invite all shareholders to attend our
AGM on 14 July 2023 at Barber-Surgeons' Hall in London. We look
forward to welcoming shareholders at the meeting.
Whether you intend to attend the meeting in person or not, you
are strongly encouraged to submit your votes on the AGM resolutions
in advance of the meeting. Submitting votes by proxy does not
preclude you attending the meeting or changing your vote if you
attend the AGM.
If you have any questions, please send these by email to
temitcosec@franklintempleton.com or via
www.temit.co.uk./investor/contact-us in advance of the meeting. You
can also use these contact details should you have a question at
any other time. Any questions that we receive will be considered
and responses will be provided on our website www.temit.co.uk.
Outlook
Recent evidence suggests that the problems stemming from the
pandemic and then the Russian invasion of Ukraine have started to
abate and attention has returned to the prospects for growth.
Nevertheless, difficulties remain particularly in the developed
world which is challenged by high levels of inflation and debt. The
re-opening of the Chinese economy is a positive development but
equally important are efforts to stimulate growth in several parts
of the emerging world.
Our Investment Manager expects a recovery in earnings in the
second half of 2023 and this is likely to be helped by efforts by
governments to stimulate demand. The long-term case for investing
in emerging markets is founded on a higher level of economic growth
supported by young populations, increasing domestic consumption as
the middle-class population expands rapidly and some world-leading
companies. Key to investment performance will be identifying the
companies best able to capitalise on these factors. Our Investment
Manager points to a wide variety of opportunities around the world
and, despite the obvious challenges, we continue to look to the
long term with some optimism.
Paul Manduca
Chairman
9 June 2023
The Investment Manager
TEMIT's Investment Management is delegated to Templeton Asset
Management Ltd ("TAML") and Franklin Templeton Investment
Management Limited ("FTIML"). Portfolio managers from TAML and
FTIML form part of the wider Franklin Templeton Emerging Markets
Equity group ("FTEME"). FTEME have managed the portfolio since
TEMIT's inception and are pioneers in emerging markets equity
investing. They bring more than 30 years of experience and local
knowledge from over 70 investment professionals, based in 13
countries around the world.
The team has a collaborative investment process where all
analysts and portfolio managers work together to contribute to
investment returns. They meet regularly, both formally and
informally, to debate and exchange ideas, investment themes and
enrich their understanding of the markets by drawing on local
insights to build a global perspective and context to their
thinking. They also benefit from the broader resources available
throughout Franklin Templeton.
The portfolio managers for TEMIT, Chetan Sehgal (lead) and
Andrew Ness are senior executives in FTEME.
Portfolio Managers
Chetan Sehgal, CFA
Chetan is the lead portfolio manager of TEMIT and is based in
Singapore.
As part of his broader responsibilities within FTEME, Chetan is
also the director of portfolio management. In this capacity, he is
responsible for the overall Global Emerging Markets strategies,
providing guidance and thought leadership, coordinating appropriate
resources and coverage, and leveraging the group's expertise to add
value across products within the strategies.
Chetan joined Franklin Templeton in 1995 from Credit Rating
Information Services of India Ltd, where he was a senior
analyst.
Chetan holds a B.E. Mechanical (Hons) from the University of
Bombay and a postgraduate diploma in Management from the Indian
Institute of Management in Bangalore, where he specialised in
finance and business policy and graduated as an institute scholar.
Chetan speaks English and Hindi and is a Chartered Financial
Analyst ("CFA") Charterholder.
Andrew Ness, ASIP
Andrew Ness is a portfolio manager of TEMIT and is based in
Edinburgh.
Prior to joining Franklin Templeton in September 2018, Andrew
was a portfolio manager at Martin Currie. He began his career at
Murray Johnstone in 1994 and worked with Deutsche Asset Management
in both London and New York before joining Scottish Widows
Investment Partnership in 2007.
Andrew holds a B.A. (Hons) in Economics and an MSc in Business
Economics from the University of Strathclyde in the UK. He is an
Associate Member of the UK Society of Investment Professionals and
a member of the CFA Institute.
The Investment Manager's Report
Review of performance
Emerging markets ("EMs") as measured by our benchmark index
declined over the 12 months under review. For a large part of the
year, rising inflationary pressures and resultant rate hikes, the
ongoing Russian invasion of Ukraine and supply chain challenges
depressed consumer and investor sentiment. However, several bright
spots emerged towards the end of the year under review-signs of
receding inflation, policy support to spur domestic consumption and
China's pivot away from zero-COVID restored investor confidence and
helped to cap losses. The MSCI Emerging Markets Index returned
-4.5% in the 12-month period under review, whilst TEMIT delivered a
net asset value total return of +0.8% (all figures are total return
in sterling). Full details of TEMIT's performance can be found in
the full Annual Report.
By region, EMs in Asia fared relatively better than their peers
in Latin America and Europe, Middle East and Africa. However, all
three regions witnessed declines in some of their underlying
markets. Stocks in China contributed to regional gains after the
dismantling of the country's zero-COVID policy and measures to spur
the economy, such as support for the property sector. Weakening
global demand for consumer electronics weighed on technology-heavy
markets in South Korea and Taiwan, and the Indian market corrected
from its strong performance previously. China's gains at the end of
2022, together with tourism-reliant Thailand (which benefited from
optimism from a rebound in tourism), helped to support the emerging
Asia region. Latin America was dragged down by the emergence of
political concerns which weighed on equity prices. Emerging Europe
lost ground due to the fallout from Russia's invasion of Ukraine
and the dislocations in regional energy markets. Towards the end of
the year, share prices in the Middle East-which had been through a
boom-declined as oil prices moderated and liquidity conditions
tightened in some of the markets. As at 31 March 2023 TEMIT held
three Russian securities which remained fair-valued at zero in view
of restrictions around trading these shares and a lack of any price
discovery mechanism to provide indications of residual value. We
continue to monitor the developments and will look to realise value
in the best interests of shareholders, whenever possible.
China was TEMIT's largest market exposure, although the
portfolio remained underweight relative to the benchmark. China
gained almost 2% in sterling terms over the 12-month period.
Regional lockdowns related to the country's zero-COVID policy,
prolonged regulatory uncertainty and a reeling real estate market
dominated headlines for a large part of the year and capped gains.
However, Chinese equities rebounded sharply near the end of the
period as the country reopened, and the government reiterated its
growth priorities. The Chinese government has clearly defined its
agenda in terms of support of common prosperity and the curtailment
of monopolies. With this, we see the internet sector now adjusting
to the new normal. China's pursuit of higher quality growth with a
focus on technology advancement and self-sufficiency will likely
shift investment and growth to newer emerging technologies. We
expect the opening up of the Chinese economy to spur local and
overseas demand as there has been a significant increase in
household savings accumulated during the pandemic.
TEMIT's second-largest market position was in South Korea, where
the portfolio was overweight versus the benchmark. South Korean
equities declined by more than 8% during the reporting period, as
the technology-heavy market continued to struggle throughout the
year on weakening demand for technology products, including
consumer electronics which had seen excess demand during the
pandemic. Although a downtrend in the global technology sector
weighed heavily, expectations of a trough and hopes of a visible
end in the destocking cycle started to manifest in March 2023.
South Korea has some of the most competitive and innovative
companies which span several sectors including semiconductors,
electric battery, automobile and renewable energy industries which
augur well for future growth.
The Taiwanese market ended the reporting period with a loss of
more than 7%. The technology-heavy and export-oriented market
experienced a lower demand for its technology exports and a fallout
from the demand shortfall in many consumer electronic industries.
TEMIT's slight overweight allocation to Taiwan was largely
attributable to exposure to the island's semiconductor industry and
TEMIT's largest portfolio holding, which is in Taiwan Semiconductor
Manufacturing ("TSMC"), the world's leading manufacturer of
advanced chips.
India was TEMIT's fourth-largest exposure at the end of March
2023. Indian equities fell by 6% over the 12-month period as global
volatility, rising inflation and soaring energy prices diminished
investor sentiment for most of 2022. India also had a weak start to
2023 over concerns of a consumption slowdown and the impact of the
decline in the share prices of different companies in the Adani
Group following a negative research report; none of these were held
in TEMIT. However, India has the ability to rely on domestic
consumption and its massive increase in infrastructure capital
expenditure bodes well for further development of the economy. It
has also benefited from the diversification of global supply chains
away from China alongside a pick-up in manufacturing investments.
In the long-term, the diversification of India's power sources into
renewables should eventually ease pressure from imported energy and
inflation.
Equities in Brazil fell 13% over the reporting period. Brazilian
equities were volatile due to political and economic uncertainty
after its presidential elections in October 2022. Former president
Luiz Inacio Lula da Silva won the election by a narrow margin,
beating the incumbent president Jair Bolsonaro. In the immediate
aftermath of the election, widespread protests that lasted for more
than two months plagued the country. A delay in announcing the
composition of the new cabinet also caused uncertainty. This
backdrop of domestic unrest and post-election uncertainty on future
government policy hung over positive developments such as an
improvement in economic growth and softening inflation.
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 with
sustainable earnings power and whose shares trade at a discount
relative to their intrinsic worth and to other investment
opportunities in the market. We also pay close attention to
risks.
We continue to utilise our research-based and active approach to
help us to find companies which 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 particularly in the benchmark heavyweight countries of
Brazil, China and India. This local presence allows us to
understand business models, competitive dynamics and supply chain
issues. We also obtain 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.
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 %
Year to 31 March 2023 2022 2021 2020 2019
-------------------------------- ----- ------ ----- ------ -----
Net asset value total return(a) 0.8 (17.3) 54.5 (11.2) 1.8
-------------------------------- ----- ------ ----- ------ -----
Expenses incurred 1.0 1.0 1.0 1.0 1.0
-------------------------------- ----- ------ ----- ------ -----
Gross total return(a) 1.8 (16.3) 55.5 (10.2) 2.8
-------------------------------- ----- ------ ----- ------ -----
Benchmark total return(a) (4.5) (6.8) 42.8 (13.2) 0.1
-------------------------------- ----- ------ ----- ------ -----
Excess return(a) 6.3 (9.5) 12.7 3.0 2.7
-------------------------------- ----- ------ ----- ------ -----
Stock selection 6.9 (10.0) 6.0 (2.1) 1.8
-------------------------------- ----- ------ ----- ------ -----
Sector allocation (0.4) 0.3 6.8 3.1 (0.6)
-------------------------------- ----- ------ ----- ------ -----
Currency (0.2) 0.2 (0.3) 1.6 1.0
-------------------------------- ----- ------ ----- ------ -----
Share buyback impact 0.2 0.0 0.3 0.4 1.0
-------------------------------- ----- ------ ----- ------ -----
Residual return(a) (0.2) (0.0) (0.1) - (0.5)
-------------------------------- ----- ------ ----- ------ -----
Total contribution 6.3 (9.5) 12.7 3.0 2.7
-------------------------------- ----- ------ ----- ------ -----
Source: FactSet and Franklin Templeton.
(a) A glossary of alternative performance measures is included in the full Annual Report.
Top 10 contributors to relative performance by security
(%)(a)
Contribution
to
portfolio relative
Share price to MSCI Emerging
Top contributors Country Sector total return Markets Index
------------------------------- ---------------- ----------------------- ------------- -------------------
ICICI Bank India Financials 18.9 1.3
------------------------------- ---------------- ----------------------- ------------- -------------------
Prosus(b)(c) China/Hong Kong Consumer Discretionary 55.0 1.1
------------------------------- ---------------- ----------------------- ------------- -------------------
Brilliance China Automotive(b) China/Hong Kong Consumer Discretionary 78.2 0.9
------------------------------- ---------------- ----------------------- ------------- -------------------
Banco Santander Mexico(b) Mexico Financials 52.2 0.7
------------------------------- ---------------- ----------------------- ------------- -------------------
Daqo New Energy China/Hong Kong Information Technology 20.7 0.5
------------------------------- ---------------- ----------------------- ------------- -------------------
Tencent Music Entertainment China/Hong Kong Communication Services 81.1 0.5
------------------------------- ---------------- ----------------------- ------------- -------------------
Unilever(b)(c) United Kingdom Consumer Staples 25.9 0.4
------------------------------- ---------------- ----------------------- ------------- -------------------
Genpact(b)(c) United States Information Technology 14.4 0.4
------------------------------- ---------------- ----------------------- ------------- -------------------
LG South Korea Industrials 11.3 0.4
------------------------------- ---------------- ----------------------- ------------- -------------------
Petroleo Brasileiro Brazil Energy 19.0 0.4
------------------------------- ---------------- ----------------------- ------------- -------------------
(a) For the period 31 March 2022 to 31 March 2023.
(b) Security not included in the MSCI Emerging Markets Index as at 31 March 2023.
(c) This security, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging
markets.
ICICI Bank , India's second largest private sector bank, gained
during the period following several consistently strong quarters of
loan growth, net interest margins and non-interest income. The bank
remains well positioned with its healthy capital adequacy ratios
and strong franchise.
Prosus is a leading global investment company and the largest
shareholder of Tencent, a Chinese technology company. Its share
price tracked Tencent's, which ended the period higher on hopes of
China's reopening, better-than-expected third quarter results for
2022 and easing of restrictions for the Chinese internet
industry.
Shares of Brilliance China Automotive, a Chinese car maker noted
for its association with German luxury car maker BMW, moved higher
after trading resumed in October 2022 following a suspension of
one-and-a-half years. It also paid out a special dividend of the
proceeds from a stake sale in its affiliate BMW Brilliance
Automotive, but uncertainties over further dividends weighed on the
stock price in the later part of the period.
Top 10 detractors to relative performance by security (%)(a)
Contribution
to
portfolio relative
to MSCI
Share price Emerging
Top detractors Country Sector total return Markets Index
----------------------- ---------------- ----------------------- ------------- -------------------
NAVER South Korea Communication Services (41.0) (1.1)
----------------------- ---------------- ----------------------- ------------- -------------------
Americanas(b) Brazil Consumer Discretionary (94.1) (0.7)
----------------------- ---------------- ----------------------- ------------- -------------------
Banco Bradesco Brazil Financials (30.7) (0.5)
----------------------- ---------------- ----------------------- ------------- -------------------
Samsung Electronics South Korea Information Technology (6.6) (0.4)
----------------------- ---------------- ----------------------- ------------- -------------------
Cognizant Technology
Solutions(c)(d) United States Information Technology (26.4) (0.4)
----------------------- ---------------- ----------------------- ------------- -------------------
China Merchants Bank China/Hong Kong Financials (19.4) (0.3)
----------------------- ---------------- ----------------------- ------------- -------------------
Naspers(b) South Africa Consumer Discretionary 74.0 (0.3)
----------------------- ---------------- ----------------------- ------------- -------------------
PDD(b) China/Hong Kong Consumer Discretionary 101.5 (0.3)
----------------------- ---------------- ----------------------- ------------- -------------------
China Resources Cement China/Hong Kong Materials (32.3) (0.3)
----------------------- ---------------- ----------------------- ------------- -------------------
TSMC Taiwan Information Technology (8.8) (0.2)
----------------------- ---------------- ----------------------- ------------- -------------------
(a) For the period 31 March 2022 to 31 March 2023.
(b) Security not held by TEMIT as at 31 March 2023.
(c) Security not included in the MSCI Emerging Markets Index as at 31 March 2023.
(d) This security, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging
markets.
NAVER is the leading internet search and advertising company in
South Korea. The share price was negatively impacted by slower
growth in a post-COVID environment. Concerns over expansion into
unprofitable new businesses in uncertain macroeconomic conditions
and weak earnings (which fell short of consensus estimates)
pressured the share price. However, we believe that NAVER is in a
good position to build a thriving ecosystem integrating search,
e-commerce, payments and digital content based on its solid
foundation in search and advertising.
Americanas is a Brazilian e-commerce company and operator of
convenience stores. Disappointing results for the third quarter of
2022, news of accounting inconsistencies and the departure of its
new leadership team pressured its share price. High inflation and
elevated interest rates also made for a difficult environment. We
divested our position in the stock in January 2023.
Banco Bradesco is Brazil's leading private sector bank. Weak
fourth quarter results and exposure to Americanas weighed on stock
prices.
Top contributors and detractors to relative performance by
sector (%)(a)
Contribution Contribution
MSCI to portfolio MSCI to portfolio
Emerging relative Emerging relative
Markets Index to MSCI Markets Index to MSCI
sector total Emerging sector total Emerging
Top contributors return Markets Index Top detractors return Markets Index
----------------------- -------------- -------------- ------------------------- -------------- --------------
Financials (7.4) 2.3 Information Technology (7.8) (0.0)
----------------------- -------------- -------------- ------------------------- -------------- --------------
Materials (9.5) 1.0
----------------------- -------------- -------------- ------------------------- -------------- --------------
Consumer Discretionary 2.2 0.8
----------------------- -------------- -------------- ------------------------- -------------- --------------
Industrials 0.4 0.5
----------------------- -------------- -------------- ------------------------- -------------- --------------
Consumer Staples 6.6 0.5
----------------------- -------------- -------------- ------------------------- -------------- --------------
(a) For the period 31 March 2022 to 31 March 2023.
Favourable stock selection in the financials sector added to
TEMIT's performance relative to the benchmark index in the period
of review. ICICI Bank (described above) and Banco Santander Mexico
were both examples of financial companies which aided relative
returns. In addition, Banco Santander Mexico is an off-benchmark
holding, which is testament to the investment team's knowledge of
local companies stemming from our experience and on-the-ground
presence. Stock selection in the materials sector also aided
relative performance. Contribution within this sector was led by
South Korea-based steel product manufacturer POSCO. Stock selection
in the consumer discretionary sector was also another contributor
to relative returns.
In contrast, only one sector, information technology detracted
(marginally) primarily due to an overweight allocation.
Semiconductor firms TSMC and Samsung Electronics were key
detractors, as they suffered from a cyclical downturn in demand for
semiconductors.
Top contributors and detractors to relative performance by
country (%)(a)
Contribution Contribution
MSCI to portfolio MSCI to portfolio
Emerging relative Emerging relative
Markets Index to MSCI Markets Index to MSCI
sector total Emerging sector total Emerging
Top contributors return Markets Index Top detractors return Markets Index
--------------------- -------------- -------------- ----------------- -------------- --------------
China/Hong Kong 1.5 2.2 Brazil (13.1) (0.4)
--------------------- -------------- -------------- ----------------- -------------- --------------
India (6.0) 2.1 Thailand 5.8 (0.3)
--------------------- -------------- -------------- ----------------- -------------- --------------
South Africa (15.0) 0.6 Turkey 63.2 (0.2)
--------------------- -------------- -------------- ----------------- -------------- --------------
United Arab Emirates (23.8) 0.6 Indonesia 7.5 (0.2)
--------------------- -------------- -------------- ----------------- -------------- --------------
United Kingdom 2.5 0.4 Pakistan(b) - (0.1)
--------------------- -------------- -------------- ----------------- -------------- --------------
(a) For the period 31 March 2022 to 31 March 2023.
(b) No companies included in the MSCI Emerging Markets Index in
this country as at 31 March 2023.
By markets, stock selection in China, India and South Africa
were key contributors. Several holdings in China such as Brilliance
China Automotive and polysilicon manufacturer Daqo New Energy
helped relative returns. In India, ICICI Bank was a key contributor
to TEMIT's returns relative to the index. South Africa's
contribution was led by general merchandise retailer Massmart.
Brazil was the top detractor from relative performance. The
detraction was caused by stock selection with Americanas and Banco
Bradesco leading the declines. An overweight position in Thailand
was a positive contributor to performance but this was negated by
poor stock performance. A lack of exposure to Turkey also detracted
as Turkish equities rallied in 2022. Investors increased their
equity allocation within the country to hedge against inflation and
a low-yield environment. Turkey has since given up some of its
gains in the first quarter of 2023.
Largest holdings
The largest portfolio holding is in computer chip maker TSMC.
After rising in 2021 on the basis of a positive outlook for the
semiconductor industry, TSMC suffered with a weakness in demand at
some of its end customers. Although its profits for 2022 were ahead
of initial estimates, the slowdown in demand meant that estimates
for 2023 profit growth are much more muted. However, we are
confident on the resilience of the business model of TSMC as it
continues to lead on its business model of being "everyone's
foundry".
The second largest portfolio holding is in Alibaba, a Chinese
e-commerce company. Most recently, Alibaba announced an
organisational revamp, resulting in a split into six units. Alibaba
has seen a slowdown in growth in the past couple of years due to
increased regulations, competition and prolonged COVID-19
lockdowns. With China's economic reopening and the industry's
adjustment to the new regulatory environment, we expect growth to
resume, albeit at a slower pace. Whilst the e-commerce businesses
of Alibaba should deliver steady growth, its other businesses such
as cloud, fintech, local commerce and content have significant
potential. This could either offer growth opportunities or the
possibility of an improvement in profitability. We remain positive
on the strength of the e-commerce ecosystem of Alibaba and its
ability to generate strong cash flows. In addition, Alibaba's
strong buyback policy is another driver of earnings growth.
Global semiconductor manufacturer Samsung Electronics was the
third-largest holding in the portfolio. Although TEMIT has reduced
its holdings in the company due to a cyclical fall in earnings, we
continue to believe that Samsung Electronics will be at the
forefront of the industry and will benefit from any subsequent
revival in demand.
Portfolio changes by sector
Total return in sterling
MSCI
31 March 2022 Market 31 March 2023 Emerging
market value Purchases Sales movement market value TEMIT Markets Index
Sector GBPm GBPm GBPm GBPm GBPm % %
----------------------- ------------- --------- ----- --------- ------------- -------- ----------------
Information Technology 737 57 (168) (61) 565 (5.8) (7.8)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Financials 473 141 (139) (4) 471 2.3 (7.4)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Consumer Discretionary 266 52 (43) 14 289 6.7 2.2
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Communication Services 212 46 (58) (2) 198 (1.8) (1.2)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Materials 208 25 (56) (8) 169 1.3 (9.5)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Industrials 62 51 (16) 4 101 8.6 0.4
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Consumer Staples 82 14 (42) 19 73 28.8 6.6
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Health Care 33 33 (2) (4) 60 (7.2) (9.5)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Energy 36 29 (1) (15) 49 18.4 2.1
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Utilities - 18 (12) 3 9 45.7 (8.6)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Real Estate 16 - (6) (1) 9 (13.2) (13.2)
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Total investments 2,125 466 (543) (55) 1,993
----------------------- ------------- --------- --------- --------- ------------- -------- ----------------
Portfolio changes by country
Total return in sterling
MSCI
31 March 2022 Market 31 March 2023 Emerging
market value Purchases Sales movement market value TEMIT Markets Index
Country GBPm GBPm GBPm GBPm GBPm % %
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
China/Hong Kong 605 191 (219) 39 616 9.1 1.5
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
South Korea 487 60 (107) (42) 398 (5.8) (8.4)
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
Taiwan 363 22 (32) (37) 316 (6.5) (7.1)
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
India 188 73 (65) 30 226 14.5 (6.0)
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
Brazil 210 33 (29) (59) 155 (16.6) (13.1)
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
Other 272 87 (91) 14 282 - -
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
Total investments 2,125 466 (543) (55) 1,993
------------------ ------------- --------- ----- --------- ------------- -------- ----------------
Portfolio investments by fair value
As at 31 March 2023
Fair value % of net
Holding Country Sector Trading(a) GBP'000 assets
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TSMC Taiwan Information Technology NT 231,444 11.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Alibaba(b) China/Hong Kong Consumer Discretionary PS 114,084 5.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Samsung Electronics South Korea Information Technology PS 113,781 5.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
ICICI Bank India Financials PS 112,103 5.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Tencent China/Hong Kong Communication Services PS 74,008 3.7
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
MediaTek Taiwan Information Technology IH 69,319 3.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
NAVER South Korea Communication Services IH 61,205 3.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Prosus(c) China/Hong Kong Consumer Discretionary IH 56,774 2.8
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
LG South Korea Industrials PS 52,065 2.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
China Merchants Bank China/Hong Kong Financials IH 45,150 2.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 10 LARGEST INVESTMENTS 929,933 46.1
------------------------------------------------------------------------------------------------ ---------- --------
Guangzhou Tinci Materials
Technology China/Hong Kong Materials PS 43,448 2.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Samsung Life Insurance South Korea Financials IH 42,935 2.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Petroleo Brasileiro(d) Brazil Energy IH 41,238 2.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Itaú Unibanco(d)(e) Brazil Financials IH 40,867 2.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
HDFC Bank India Financials NH 38,345 1.9
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Genpact(f) United States Information Technology PS 35,216 1.8
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Banco Bradesco(d)(e) Brazil Financials IH 34,687 1.7
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Vale Brazil Materials PS 34,589 1.7
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Baidu China/Hong Kong Communication Services IH 32,193 1.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Unilever(f) United Kingdom Consumer Staples PS 31,968 1.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 20 LARGEST INVESTMENTS 1,305,419 64.7
------------------------------------------------------------------------------------------------ ---------- --------
Cognizant Technology Solutions(f) United States Information Technology IH 31,915 1.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
POSCO South Korea Materials PS 31,627 1.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Brilliance China Automotive China/Hong Kong Consumer Discretionary NT 29,606 1.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Soulbrain South Korea Materials IH 28,414 1.4
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Banco Santander Mexico(e) Mexico Financials PS 25,627 1.3
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Ping An Insurance China/Hong Kong Financials IH 24,963 1.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Techtronic Industries China/Hong Kong Industrials IH 24,812 1.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Kasikornbank Thailand Financials NT 23,425 1.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Uni-President China China/Hong Kong Consumer Staples IH 21,144 1.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
NetEase China/Hong Kong Communication Services IH 20,515 1.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 30 LARGEST INVESTMENTS 1,567,467 77.7
------------------------------------------------------------------------------------------------ ---------- --------
Daqo New Energy(e) China/Hong Kong Information Technology PS 20,392 1.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Gedeon Richter Hungary Health Care IH 19,603 1.0
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Meituan China/Hong Kong Consumer Discretionary NH 18,962 0.9
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Doosan Bobcat South Korea Industrials NH 17,977 0.9
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Bajaj Holdings & Investments India Financials PS 17,872 0.9
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Astra International Indonesia Consumer Discretionary PS 17,313 0.9
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
WuXi Biologics China/Hong Kong Health Care IH 17,250 0.9
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Banco Santander Chile(e) Chile Financials NH 16,659 0.8
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Fila South Korea Consumer Discretionary PS 15,867 0.8
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Zomato India Consumer Discretionary NH 14,093 0.7
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 40 LARGEST INVESTMENTS 1,743,455 86.5
------------------------------------------------------------------------------------------------ ---------- --------
Infosys Technologies India Information Technology IH 14,015 0.7
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Netcare South Africa Health Care IH 12,735 0.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
One 97 Communications India Information Technology NH 12,481 0.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
China Resources Cement China/Hong Kong Materials PS 11,887 0.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Hon Hai Precision Industry Taiwan Information Technology PS 11,824 0.6
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Ping An Bank China/Hong Kong Financials PS 10,588 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Beijing Oriental Yuhong Waterproof
Technology China/Hong Kong Materials NH 10,262 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Tata Consultancy Services India Information Technology PS 10,201 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
H&H Group China/Hong Kong Consumer Staples IH 10,150 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
LegoChem Biosciences South Korea Health Care IH 9,885 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 50 LARGEST INVESTMENTS 1,857,483 92.1
------------------------------------------------------------------------------------------------ ---------- --------
Samsung SDI South Korea Information Technology NH 9,627 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Intercorp Financial Services Peru Financials IH 9,501 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Emirates Central Cooling Systems United Arab Emirates Utilities NH 9,416 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
LG Chem South Korea Materials PS 9,012 0.5
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Thai Beverage Thailand Consumer Staples IH 8,680 0.4
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Kiatnakin Phatra Bank Thailand Financials NT 8,279 0.4
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Star Petroleum Refining Thailand Energy NH 8,251 0.4
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Tencent Music Entertainment(e) China/Hong Kong Communication Services PS 8,107 0.4
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
BDO Unibank Philippines Financials NT 7,931 0.4
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
PB Fintech India Financials NH 6,930 0.3
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 60 LARGEST INVESTMENTS 1,943,217 96.4
------------------------------------------------------------------------------------------------ ---------- --------
NagaCorp Cambodia Consumer Discretionary PS 6,819 0.3
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
COSCO SHIPPING Ports China/Hong Kong Industrials IH 5,961 0.3
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
China Resources Land China/Hong Kong Real Estate PS 5,033 0.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Nemak Mexico Consumer Discretionary PS 4,689 0.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Greentown Service Group China/Hong Kong Real Estate PS 4,070 0.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Yageo Taiwan Information Technology NH 3,730 0.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Hankook Tire South Korea Consumer Discretionary NT 3,292 0.2
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
MCB Bank Pakistan Financials PS 2,807 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
XP Inc Brazil Financials NT 2,473 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Weifu High-Technology China/Hong Kong Consumer Discretionary NT 2,410 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOP 70 LARGEST INVESTMENTS 1,984,501 98.3
------------------------------------------------------------------------------------------------ ---------- --------
BAIC Motor China/Hong Kong Consumer Discretionary NT 2,152 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
KT Skylife South Korea Communication Services NT 2,114 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
JD.com China/Hong Kong Consumer Discretionary NT 2,042 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOTVS Brazil Information Technology PS 817 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
East African Breweries Kenya Consumer Staples PS 801 0.1
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Chervon Holdings China/Hong Kong Consumer Discretionary PS 348 -
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Yandex(g) Russia Communication Services NT - -
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
LUKOIL(g) Russia Energy NT - -
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
Sberbank of Russia(g) Russia Financials NT - -
----------------------------------- --------------------- ----------------------- ----------- ---------- --------
TOTAL INVESTMENTS 1,992,775 98.8
------------------------------------------------------------------------------------------------ ---------- --------
NET ASSETS 24,728 1.2
------------------------------------------------------------------------------------------------ ---------- --------
TOTAL NET ASSETS 2,017,503 100.0
------------------------------------------------------------------------------------------------ ---------- --------
(a) Trading activity during the year: (NH) New Holdings, (IH)
Increased Holdings, (PS) Partial Sale and (NT) No Trading.
(b) TEMIT holds in this company shares listed on the Hong Kong
stock exchange and American Depository Receipts listed on the New
York stock exchange.
(c) 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.
(d) Preferred shareholders are entitled to dividends before ordinary shareholders.
(e) US listed American Depository Receipt.
(f) This company, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging
markets.
(g) This company is fair valued at zero as a result of its
trading being suspended on international stock exchanges.
Portfolio summary
As at 31 March 2023
All figures are a % of the net assets
31 31
March March
Communication Consumer Consumer Health Information Real Total Net assets/ 2023 2022
Services Discretionary Staples Energy Financials Care Industrials Technology Materials Estate Utilities Equities (liabilities)(a) Total Total
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Brazil - - - 2.0 3.8 - - 0.1 1.7 - - 7.6 - 7.6 10.0
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Cambodia - 0.3 - - - - - - - - - 0.3 - 0.3 0.4
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Chile - - - - 0.8 - - - - - - 0.8 - 0.8 -
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
China/Hong Kong 6.7 11.1 1.5 - 3.9 0.9 1.5 1.0 3.3 0.4 - 30.3 - 30.3 28.8
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Egypt - - - - - - - - - - - - - - 0.1
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Germany - - - - - - - - - - - - - - 0.1
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Hungary - - - - - 1.0 - - - - - 1.0 - 1.0 0.7
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
India - 0.7 - - 8.7 - - 1.8 - - - 11.2 - 11.2 9.1
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Indonesia - 0.9 - - - - - - - - - 0.9 - 0.9 0.9
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Kenya - - 0.1 - - - - - - - - 0.1 - 0.1 0.2
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Mexico - 0.2 - - 1.3 - - - - - - 1.5 - 1.5 1.6
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Pakistan - - - - 0.1 - - - - - - 0.1 - 0.1 0.4
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Peru - - - - 0.5 - - - - - - 0.5 - 0.5 0.5
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Philippines - - - - 0.4 - - - - - - 0.4 - 0.4 0.3
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Russia(b) 0.0 - - 0.0 0.0 - - - - - - 0.0 - 0.0 0.0
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
South Africa - - - - - 0.6 - - - - - 0.6 - 0.6 0.6
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
South Korea 3.1 1.0 - - 2.1 0.5 3.5 6.1 3.5 - - 19.8 - 19.8 23.2
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Taiwan - - - - - - - 15.8 - - - 15.8 - 15.8 17.3
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Thailand - - 0.4 0.4 1.6 - - - - - - 2.4 - 2.4 2.1
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
United Arab Emirates - - - - - - - - - - 0.5 0.5 - 0.5 -
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
United Kingdom - - 1.6 - - - - - - - - 1.6 - 1.6 1.4
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
United States - - - - - - - 3.4 - - - 3.4 - 3.4 3.4
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
Net
assets/(liabilities)(a) - - - - - - - - - - - - 1.2 1.2 (1.1)
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
31 March 2023 Total 9.8 14.2 3.6 2.4 23.2 3.0 5.0 28.2 8.5 0.4 0.5 98.8 1.2 100.0 -
------------------------ -------------- -------------- --------- ------- ----------- ------- ------------ ------------ ---------- ------- ---------- --------- ----------------- ------ ------
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 in the full Annual Report.
(b) All companies held by TEMIT in this country are valued at zero.
Less than GBP1.5bn to GBP5bn to Greater than Net assets/
Market capitalisation breakdown (%) GBP1.5bn GBP5bn GBP25bn GBP25bn (liabilities)(a)
------------------------------------ --------- ----------- --------- ------------ -----------------
31 March 2023 5.1 11.2 22.9 59.6 1.2
------------------------------------ --------- ----------- --------- ------------ -----------------
31 March 2022 7.7 8.0 16.5 68.9 (1.1)
------------------------------------ --------- ----------- --------- ------------ -----------------
31 March 31 March
Split between markets(b) (%) 2023 2022
----------------------------- -------- --------
Emerging markets 93.3 95.6
-------------------------------- -------- --------
Developed markets(c) 5.0 4.9
-------------------------------- -------- --------
Frontier markets 0.5 0.6
-------------------------------- -------- --------
Net assets/(liabilities)(a) 1.2 (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 in the full Annual Report.
(b) Geographic split between "Emerging markets", "Frontier
markets", "Developed markets" are as per MSCI index
classifications.
(c) Developed market exposure represented by companies listed in
United Kingdom and United States which have significant exposure to
operations in emerging markets.
Outlook for emerging markets
Heading into 2023, while we remain watchful for developments
that could change our overall outlook, including China's
relationship with Taiwan and the United States, we find many
reasons to be positive about EMs. Many countries are towards the
end of the rate tightening cycle. Most markets in Latin America
have traditionally had a significant real interest rate and their
economic potential has been curtailed because of the need for
macroeconomic stability.
We expect any policy pivot in EMs to revive consumption and spur
economic growth as inflation slows. In addition, after a slowdown
in earnings in 2022, there is the prospect of a recovery in
earnings growth in 2023, with China being the last major country to
emerge from the pandemic. However, in the short-term, earnings are
likely to remain weak with subdued consumption and inventory
digestion and a recovery is expected more towards the second half
of 2023. A pickup in earnings revisions in EMs would signify better
times ahead for equity markets.
Although the current global outlook remains weak, economies with
a greater focus on domestic demand are better placed to weather
this in the near term. Many emerging markets such as China, India,
Indonesia and Brazil have huge domestic consumption bases and are
well-positioned to remain resilient from external demand
shortfalls. In addition, policy makers in several markets are
providing incentives to manufacturing companies to expand
operations in order to remain self-sufficient and competitive. For
example, India is driving investments through its Production Linked
Incentive program. South Korea plans to offer tax breaks to
semiconductor and other technology companies investing within the
country whilst reforming stock market regulations. Thailand has
also approved a budget to boost tourism in the country, one of its
biggest growth drivers.
The long-term structural tailwind of consumption growth in EMs
via expansion of the middle class and premiumisation of buying
patterns is now more significant than ever. Some US$2.6 trillion in
Chinese bank deposits were amassed in 2022(a) and middle-class
households are looking to spend on experiences, products and
services. In our view, China's reopening could benefit many markets
as the country has strong trade links with many EMs. Chinese
tourism has also been a vital source of revenue for many
countries.
(a) Source: People's Bank of China
After the removal of most COVID-related constraints, we have
seen economic activity in China starting to recover in the first
quarter of 2023, where retail sales, industrial production and
investment in fixed assets increased. More importantly, companies
are now able to operate their businesses without COVID protocols
which removes the pressure of unplanned outages and improves
overall efficiency.
Markets in Eastern Europe will benefit from the normalisation of
energy dislocations, although the conflict in Ukraine will continue
to be an overhang. Markets in the Middle East continue to see a
boom in initial public offering activity which bodes well for
future capital market developments in the region.
These uncorrelated drivers of returns in EM economies present an
investment opportunity which our team's deep experience, local
expertise and a bottom-up investment approach can uncover.
EMs also continue to make strides towards climate goals and with
the cost of renewable energy expected to fall in 2023, we might
well see EMs make further climate commitments.
It is an interesting time to be looking at the emerging world
today. We believe that the breadth of opportunity, growth,
innovation, sustainability of business models and the much stronger
institutional resilience compared to decades past when considered
together create an attractive future for EMs.
Chetan Sehgal
Lead Portfolio Manager
9 June 2023
The Investment Manager's Process
Investment philosophy and approach
FTEME's long-term approach is driven by the 3 S's, seeking
Structural growth opportunities in emerging markets, investing in
businesses with Sustainable earnings power at a discount to
intrinsic worth, and believing in responsible Stewardship of client
capital. FTEME seeks to capture the growth potential of emerging
market companies and believes that this is best achieved by
employing a bottom-up and fundamental security selection process.
FTEME conducts in-depth proprietary company research with a
long-term and independent perspective. FTEME believes in the
responsible stewardship of clients' capital and that governance and
sustainability factors create risks and opportunities for
companies. ESG analysis is therefore integrated alongside
fundamental bottom-up analysis.
TEMIT's performance in different market environments
FTEME's approach aims for outperformance over the long term. The
investment strategy tends to produce stronger performance when
company fundamentals are the primary driver for stock returns,
where a focus on stock selection should produce superior results.
Performance may be less strong in highly sentiment-driven market
environments, when investors focus more on the overall economic
picture rather than company fundamentals. This can also be the case
when the market is overly short-term oriented, and rewards
companies driven by what FTEME views as unsustainable factors such
as short-term demand/supply imbalances or inorganic growth.
Investment process
The three broad stages of FTEME's investment process comprise:
idea generation, stock research, and portfolio construction and
management; with governance and sustainability considerations and
risk management fully integrated at all stages.
1. Idea generation
The key source of idea generation is FTEME's team of over 70
analysts and portfolio managers located around the globe. Their
experience and expertise allow them to identify trends which they
may want to explore further through company research. In addition,
FTEME's local presence, network and understanding of local dynamics
may help to identify trends and opportunities that other market
participants may filter out through standard quantitative screens.
FTEME analysts speak the local language and are part of the local
culture and fabric of the countries where they conduct
research.
2. Stock research
FTEME analysts conduct rigorous analysis to assess whether a
company has sustainable earnings power, and to establish a
proprietary estimate of its intrinsic worth. By integrating ESG
analysis with traditional business and financial analysis, FTEME
seeks to gain insights into the quality and risks of companies.
FTEME's research platform currently has coverage of over 700
companies across emerging markets using a proprietary and rigorous
bottom-up research approach, along with extensive knowledge of the
wider investment universe.
FTEME's research analysts form detailed views of companies by
collecting and analysing a variety of information. The team
conducts detailed quantitative financial analysis by building
in-depth company models to evaluate financial strength and
profitability, and to project future earnings and cash flow.
Industry demand and supply models are incorporated in the analysis,
as well as country and currency macro considerations. FTEME has a
strong emphasis on qualitative assessment.
The assessment of ability to sustain stable or growing economic
profits over time is typically driven by a combination of factors,
including (i) sound business models; (ii) sustainable competitive
advantages; (iii) management foresight; and (iv) low debt levels.
Earnings power is the demonstrable ability to generate sustainable
economic profit into the future in areas which could be beyond the
current scope of operations. The analysts look for real earnings
growth by focusing on economic earnings and cash flows rather than
reported earnings, and differentiating between operational earnings
and financial earnings. They evaluate internal versus external
drivers to earnings and prefer companies with earnings which can be
affected through management action. A key element of earnings power
is therefore quality, as signified by (i) products and services
with low regulatory and macro risk; (ii) financial strength; and
(iii) management strength.
Each research recommendation may incorporate several valuation
methods extending typically over a three to five-year horizon.
FTEME aims to clarify the risk/reward balance of a company by
conducting sensitivity analysis, stress-testing, and scenario
analysis. It seeks to identify what the market consensus
expectations are for a stock and how the team's fundamental views
may differ.
3. Portfolio construction
FTEME seeks to build a high-conviction stock-centric portfolio
that is primarily driven by company-specific factors and focused on
the long term. A bottom-up approach to stock selection is used,
with country and sector allocations a residual of this process.
Portfolio Style and Characteristics
The strategy typically displays the following
characteristics:
-- Core style: The strategy aims to deliver outperformance
irrespective of market direction. The portfolio construction
process leads to the majority of active risk being focused.
-- Quality and growth but not at excessive valuation levels: The
philosophy typically leads to a portfolio with higher quality and
growth than the aggregate of the benchmark index.
-- High conviction portfolio: The top-10 holdings typically
account for over 40% of the portfolio which overall is
well-diversified across the market cap spectrum.
-- Low turnover: FTEME's high conviction and long-term approach
means that the typical annual portfolio turnover is less than
20%.
Buy and Sell Discipline
FTEME's buy discipline is primarily designed to ensure that the
portfolio managers buy when they have both conviction in a business
and it is trading below its intrinsic value; FTEME's sell
discipline is designed to capture the opposite. All holdings are
regularly reviewed to ensure that analyst recommendations are up to
date and accurately reflect any changes in company fundamentals. In
this way, ongoing fundamental research drives all buy and sell
decisions.
Investment risk management
Investment in emerging markets equities inevitably involves risk
in a volatile asset class. Franklin Templeton uses a comprehensive
approach to managing risks within its managed portfolios and this
approach is inherent in all aspects of the investment process.
Investment risks are to be identified and intentional, not
minimised. Risk management is embedded through all stages of the
investment process, in collaboration with dedicated resources from
Franklin Templeton's Investment Risk Management Group of over 80
risk management professionals, which is independent from the
portfolio management team. Various risk management tools are used
to predict and decompose the portfolio's active risk in order to
understand and manage the portfolio's active risk profile.
For additional information with respect to the AIFM risk
management framework, please read the Investor Disclosure Document
on our website (www.temit.co.uk).
FTEME's approach to stewardship
FTEME's focus is on a total sustainability approach including
business, economic, environmental and social sustainability. How
FTEME monitors and manages client assets is not just about focusing
on governance and sustainability factors. It demands a holistic
approach incorporating proactive long-term engagement with the
managers of the companies which FTEME invests in, on behalf of
TEMIT and its other clients.
Part of being a responsible steward of clients' assets is
acknowledging that governance and sustainability factors create
risks and opportunities for companies. It therefore makes sense to
integrate these factors alongside fundamental bottom-up analysis
and engage with companies as active owners on behalf of clients.
Responsible stewardship is not a single act but a continuous
process that includes engagement and voting. Being responsible
stewards of our clients' capital is reflected in:
How we act as investors How we treat our clients How we behave as a business
* ESG integration * Putting clients first * Building relationships
* Company engagement * Being responsible fiduciaries of our clients capital * Achieving quality results
* Policy advocacy * Working with integrity
Integrating ESG factors
Analyses of governance and sustainability factors are embedded
components of our rigorous fundamental bottom-up research. The
driving factors of the decision to purchase or sell a stock centre
on the following:
-- Its sustainable earnings power and whether its price is at a
discount to intrinsic worth; and
-- The sustainability of its business model, which is critical
to maintaining its competitive positioning.
Our proprietary three-pillar We have summarised one of our case studies
ESG framework is a key component from the full Stewardship Report to give
of how we aim to achieve TEMIT shareholders a snapshot of the typical
our goal of being an emerging analysis undertaken.
market leader in sustainable
investing. Soulbrain - a prominent South Korean player
in the electronic materials and chemicals
industry.
Intentionality ESG Topic: Environmental Footprint
Assessing companies' intentionality Materiality and Risk: Companies operating
toward managing material in the materials processing sector have
ESG factors with our proprietary the potential to cause significant environmental
scoring system and linking damage if they are not managed properly.
ESG factors into our valuation The reliability of service and safe operation
models. of company assets is key.
Analysis:
Alignment To minimise leaks of hazardous materials
in the event of disasters such as fires,
Mapping the alignment of earthquakes, or floods, measures such as
companies' products and explosion-proofing equipment, negative pressure
services to positive social equipment, and ventilation have been implemented
and environmental outcomes to standards exceeding those required by
and UN Sustainable Development South Korea's Ministry of Environment.
Goals (SDGs).
Wastewater and sewage from plants are pooled
in collecting wells and processed at an
on-site treatment facility operated by the
Transition government. Soulbrain not only complies
with legal water quality standards, but
Identifying companies' transition also treats water pollutants as much as
potential linked to their possible and sends the remaining wastewater
incremental progress, using for further treatment at an industrial complex
our on-the-ground capabilities that is operated by the government.
and experience as active
owners to foster positive ESG Thesis: As a chemical product manufacturer,
change. Soulbrain focuses on the management of environmental
issues, whilst also contributing to nearby
communities. The company has expressed active
commitment to the protection of the environment
through the establishment of its own Environmental
Health, Safety and Energy Management Policy.
We note that the company has been exposed
to fires in the past. Post these incidents
the company has implemented an Emergency
Response System and other prevention measures
such as regular monthly prevention exercises.
The CEO has since been replaced with one
who is specialised in health and safety
of factory operations. With some history
of disruption and environmental impact in
the past, we have applied a discount to
our valuation but are confident in the new
management's ability to manage future fire
risk in its operations.
------------------------------------
Climate change
Within emerging markets, the landscape varies considerably,
ranging from countries that have announced meaningful carbon
targets to those that have yet to declare any significant policies.
FTEME's objective is to understand the climate commitments of
investee companies incorporating both local and global
perspectives, recognising that the pace of decarbonisation and the
associated strategies will differ across countries and
cultures.
Where material, FTEME integrates climate change/carbon analysis
into its bottom-up research process, focusing on assessing the
impact on long-term business values. This is part of the holistic
approach of integrating ESG analysis with traditional financial
analysis so that FTEME can gain valuable insights into the quality
and risks of businesses which FTEME invests in.
FTEME's analysts and portfolio managers look at climate risks
and opportunities closely for relevant sectors and geographies
where climate change plays an important role. FTEME closely tracks
climate related factors into estimates, models and valuations for
those businesses materially exposed to the issue.
Our portfolio managers also seek to understand the carbon risk
profile at a portfolio level to understand its carbon risk
exposures. The data helps with the engagement agenda.
TEMIT's portfolio carbon risk is concentrated amongst a small
number of companies, with the top 5 companies in terms of carbon
intensity representing 7.2% of the portfolio and accounting for
69.0% of the portfolio WACI. From a sector perspective, 48.2% of
the portfolio WACI contributions come from the materials sector. On
a relative basis, portfolio selection in materials contributes
positively, whilst the utilities sector also contributes positively
to WACI, as TEMIT is underweight in this sector. China Resources
Cement and LG, exhibit the largest carbon intensities in TEMIT's
portfolio, representing 3.2% of the portfolio and accounting for
48.8% of the portfolio WACI. TSMC's carbon intensity is low,
however due to it representing 11.6% of the portfolio, it is third
in terms of contribution to the portfolio WACI.
We emphasise that the data does not always fully represent the
actual carbon risk of the portfolio.
We remain willing to invest in companies in carbon-intensive
sectors, such as cement, steel and extractive industries. This is
because we are pragmatic investors who understand that not every
company can have a perfect sustainability profile today.
In the full Stewardship Report, available on our website
(www.temit.co.uk), we spotlight and focus this year on the steel
industry. The transition to a low-carbon economy will require a
change in the way we manufacture steel. Accounting for nearly 8% of
global emissions from the energy sector, the steel industry will
play an important role in mitigating climate change by reducing the
CO2 emissions in the production process.
As investors in the steel industry in TEMIT, we profile our
observations with POSCO, one of the largest steel producers in the
world, headquartered in South Korea.
POSCO
ESG observations and analysis:
* POSCO is one of the most efficient and cost
competitive steel makers globally, but it has
recognised that the "survival" of steel companies
depends on net-zero carbon.
* In order to achieve their net-zero by 2050 target,
the company plans to optimise low-carbon solutions
that are already in use such as hydrogen reduction
steelmaking, expansion of renewable energy and carbon
capture and storage.
* POSCO has a clear timeline in place for the
commercialisation of their hydrogen reduction
steelmaking technology. Clear progress has been made
over recent years, but the technology in its current
state is not sufficient to enable fast enough
progress for low-carbon steelmaking.
Our thesis:
POSCO is a market leader in terms of ESG disclosures and efforts to move towards net-zero
steel production. We acknowledge the significant steps that POSCO's management has undertaken
to improve the company's environmental initiatives with the implementation of clear disclosures,
documentation, and establishment of timelines.
There are several steps that the company will have to take to fully utilise its hydrogen-reduction
technology. POSCO is supported by a strong financial position and has committed a substantial
capital investment, which has been factored into our valuation.
Active ownership
As investors with a significant presence in emerging markets,
FTEME's active ownership efforts are a key part of the overall
approach to stewardship. FTEME analysts conduct almost 2,000
company meetings a year across the investment platform using its
industry-leading research footprint across emerging markets, where
FTEME seek to gain a number of fundamental and sustainability
insights. We believe that our engagement efforts are key to
developing a detailed understanding of companies and improving
outcomes for shareholders as well as stakeholders more broadly.
Engagement statistics
FTEME's analysts are in a continual dialogue with companies on a
range of topics including sustainability and governance. There are
also companies that FTEME identify where dedicated discussion on
ESG topics are necessary. Active engagements with companies in the
TEMIT portfolio for the year ended 31 March 2023 are summarised
below:
Number of % of
ESG discussion by engagement type interactions interactions
---------------------------------- ------------- -------------
Environmental 12 34
---------------------------------- ------------- -------------
Carbon risk and climate change 6 17
---------------------------------- ------------- -------------
Environmental consideration 6 17
---------------------------------- ------------- -------------
Social 4 11
---------------------------------- ------------- -------------
Human and social capital 4 11
---------------------------------- ------------- -------------
Governance 20 55
---------------------------------- ------------- -------------
Corporate governance 14 39
---------------------------------- ------------- -------------
Strategic risk and communication 6 16
---------------------------------- ------------- -------------
Total 36 100
---------------------------------- ------------- -------------
Number of % of
ESG discussion outcome interactions interactions
------------------------------ ------------- -------------
No progress 1 3
------------------------------ ------------- -------------
Feedback noted by company 17 47
------------------------------ ------------- -------------
Company plans to make changes 7 19
------------------------------ ------------- -------------
Company has made changes 11 31
------------------------------ ------------- -------------
Total 36 100
------------------------------ ------------- -------------
Below is an ESG engagement example with an investee company
headquartered in South Korea.
KT Skylife
ESG engagement topic: Governance - to recommend a more transparent and attractive payout policy.
Objectives:
* Pay-tv is a mature market in South Korea and the
business generates significant cash. Thus, we
continue to engage with the company on their
shareholder return policy, encouraging management to
align its policy with minority shareholder interests.
Outcome: Company plans to make changes
* We engaged with the management to highlight that,
despite previous engagements, KT Skylife's dividend
distribution remained low despite cash levels
matching the company's market capitalisation at one
point in time.
* We also noted that in 2021, the company acquired a
cable TV operator, a low growth business, at a
valuation that was at a significant premium to its
own valuation. However, we believed that a share
buyback would have added more value than the
acquisition.
* The company responded with confirmation that they
would actively consider a new dividend policy, and
that while share buybacks may be considered, they
preferred to prioritise strengthening their dividend
payout.
* Management confirmed that, once finalised, they would
share the company's strategy and vision for the year
ahead with us.
Proxy voting
In the year ended 31 March 2023, FTEME voted on over 900
management proposals at annual and special general meetings for
TEMIT.
Most of the proposals which FTEME voted on related to companies'
director appointments, routine business proposals and capital
structures. Of the voteable management proposals, FTEME voted "For"
proposals 84% of the time.
FTEME voted "Against" management proposals in 13% of cases. By
proposal category, as a percentage of votes within each category,
votes against were largely concentrated on capital structure,
non-salary compensation and management-related proposals.
FTEME views votes against proposals as a formal way to
communicate our views to management, and FTEME undertakes them
based on the investment team's assessment of each motion in line
with clients' best interests.
"Other" votes were cast in 3% of cases. These were mainly
related to director votes in Brazil, where FTEME abstained from
voting when they did not support the candidates put forward for
election, or where the company bundled several proposals into one,
preventing voting on individual items.
The number of resolutions proposed by shareholders is increasing
around the world, particularly on environmental and social issues,
although they remain relatively uncommon in emerging markets. FTEME
will continue to closely examine the merits of views raised by
fellow shareholders.
We encourage you to download the full TEMIT Stewardship Report
from www.temit.co.uk for further, detailed information.
Business Review
Strategy and Business Model
Company purpose and objective
TEMIT's purpose is to provide both private and institutional
investors with the opportunity for capital appreciation via a
professionally managed vehicle focused on listed equity investments
in emerging markets.
The objective of TEMIT is to provide long-term capital
appreciation via exposure to global emerging markets, supported by
a culture of both strong customer service and corporate
governance.
Investment policy
The Company seeks long-term capital appreciation through
investment in companies listed in emerging markets or companies
which earn a significant amount of their revenues in emerging
markets but are domiciled in, or listed on, stock exchanges in
developed countries ("Emerging Markets Companies").
It is expected that the majority of investments will be in
listed equities. However, up to 10% of the Company's assets may be
invested in unlisted securities. In addition, while it is intended
that the Company will normally invest in equity instruments, the
Investment Manager may invest in equity-related investments (such
as convertibles or derivatives) where it believes that it is
advantageous to do so.
The portfolio may frequently be overweight or underweight in
certain investments compared with the MSCI Emerging Markets Index
(the "Benchmark") and may be concentrated in a more limited number
of sectors or geographical areas than the Benchmark. Investments
may be made in Emerging Markets Companies outside the Benchmark
that meet the investment criteria.
Whilst there are no specific restrictions on investment in any
one sector or geographic area, the portfolio will be managed in a
way which aims to spread investment risk. The portfolio will
typically contain between 50 and 100 individual stocks but may, at
times, contain fewer or more than this range. No more than 12% of
the Company's assets will be invested in the securities of any one
issuer at the time of investment, save that any investment in
unlisted securities of any one issuer will be limited to no more
than 2% of the Company's assets, measured at the time of
investment.
The maximum borrowing will be limited to 20% of the Company's
net assets, measured at the time of borrowing.
No more than 10%, in aggregate, of the value of the Company's
assets will be invested in other listed closed-ended investment
funds.
In accordance with the Listing Rules, the Company will not make
any material change to its published investment policy without the
prior approval of the UK's Financial Conduct Authority ("FCA") and
the approval of its shareholders by ordinary resolution.
Distribution policy
The Company will ensure that its total annual dividends will be
paid out of the profits available for distribution under the
provisions of the relevant laws and regulations and will be at
least sufficient to enable it to qualify as an investment trust
under the UK Income and Corporation Taxes Act. If the Company has
received an exceptional level of income in any accounting year, the
Board may elect to pay a special dividend. The primary focus of the
investment policy is on generating capital returns, the Company
does not target a particular level of income and there is no
guarantee that dividend levels will be maintained from one year to
the next.
The Company will normally pay two dividends per year, an interim
dividend declared at the time when the half yearly results are
announced, and a final dividend declared at the time when the
annual results are announced. The final dividend will be subject to
shareholder approval at the AGM each year.
The Company may also distribute capital by means of share
buybacks when the Board believes that it is in the best interests
of shareholders to do so. The share buyback programme will be
subject to shareholder approval at each AGM.
Business model
The Company has no employees and all of its Directors are
non-executive. The Company delegates its day-to-day activities to
third parties.
Since 1 October 2021, Franklin Templeton Investment Trust
Management Limited ("FTITML", "AIFM" or the "Manager") has been the
Company's AIFM and Company Secretary.
The Board is responsible for all aspects of the Company's
affairs, including the setting of parameters for the monitoring of
the investment strategy and the review of investment performance
and policy. It also has responsibility for overseeing all strategic
policy issues, namely dividend, gearing, share issuance and
buybacks, share price and discount/premium monitoring, corporate
governance matters and engagement with all the Company's
stakeholders.
Strategy
The Company seeks to achieve its objective by following a
strategy focused on the following:
Performance
At the heart of the strategy is the appointment and retention of
capable investment management professionals, whose aim is to
identify value and achieve superior long-term growth for
shareholders. The Investment Manager, under the leadership of
Chetan Sehgal, continues to apply the same core investment
philosophy that has driven TEMIT's performance since the Company's
launch. The investment team aims to achieve long-term capital
appreciation for shareholders seeking exposure to global emerging
markets by investing in companies that they believe offer long-term
sustainable growth and good value, combined with strong management
and sound governance.
Environmental, Social and Governance ("ESG") matters
As TEMIT is an investment trust, the key ESG consideration is
the stewardship of its portfolio of investments. The Board has
reviewed and fully supports the Investment Manager's approach to
stewardship, which is described under "FTEME's approach to
stewardship" in the full Annual Report. It receives regular reports
on Franklin Templeton's policies and controls.
TEMIT has no greenhouse gas emissions to report from the
operations of the Company, as all of its activities are outsourced
to third parties. While as an investment trust TEMIT is exempt from
disclosures recommended by the Task Force on Climate-related
Financial Disclosures ("TCFD"), Franklin Templeton continues to
develop metrics for our carbon footprint. Further information on
our approach to climate change can be found under "FTEME's approach
to stewardship" above and in more detail in the full Stewardship
Report, available on our website (www.temit.co.uk).
TEMIT has no employees and is not an organisation that provides
goods or services as defined in the Modern Slavery Act 2015 and
thus the Company considers that the Act does not apply. The
Company's own supply chain consists predominantly of professional
services advisers.
Culture and values
The Board believes in a culture of openness and constructive
challenge in its interactions with the Manager and other service
providers. The Board aims to maintain open and regular
communication with shareholders, as set out under Communication in
the full Annual Report.
The Company is committed to acting professionally, fairly and
with integrity in all of its business dealings and relationships.
The Board has a zero-tolerance policy towards bribery and looks to
ensure that its service providers and associated persons have
effective policies and procedures designed to actively prevent
bribery which are proportionate, and risk based. In relation to the
corporate offence of failing to prevent tax evasion, it is the
Company's policy to conduct all business in an honest and ethical
manner. The Company takes a zero-tolerance approach to any
facilitation of tax evasion whether under UK law or under the law
of any foreign country. The Board notes that the Manager has a
robust whistleblowing policy in place.
Information on the Company's approach to Diversity is set out in
the Directors' Report in the full Annual Report.
Liquidity
The shares issued by the Company are traded on the London and
New Zealand stock exchanges. The Company has engaged Winterflood
Securities as financial adviser and stockbroker, and to act as a
market maker in the shares of the Company.
Gearing
Fixed term loan
On 31 January 2020, the Company entered into a five-year GBP100
million loan at a fixed rate of 2.089% with Scotiabank Europe plc.
The fixed term loan is denominated in pounds sterling and will
remain in place until 31 January 2025. Full details of the loan are
set out in Note 11 of the Notes to the Financial Statements.
Revolving credit facility
On 31 January 2020, the Company entered into a three-year GBP120
million unsecured multi-currency revolving loan facility with The
Bank of Nova Scotia, London Branch. Drawings may be in sterling, US
dollars or Chinese renminbi ("CNH"). The total amount which may be
drawn down in CNH is 45% of the combined limit of the fixed rate
loan and of the revolving loan facility. On 31 January 2023 the
agreement was amended to extend the maturity date to 30 January
2024. Further details of the facility are set out in Note 10 of the
Notes to the Financial Statements.
The Investment Manager has been granted discretion by the Board
to draw down the revolving loan facility as investment
opportunities arise, subject to overall supervision by the Board,
and subject to the overall gearing limit in TEMIT's investment
policy.
The Company has no other debt. The net gearing position was 0.0%
(net of cash in the portfolio) at the year-end (2022: 1.1%) which
means that the cash held by the Company is equal to or higher than
the total bank loans.
The Board continues to monitor the level of gearing and
currently considers gearing of up to 20% to be appropriate,
measured at the time of borrowing.
Affirmation of shareholder mandate
In accordance with the Company's Articles of Association, the
Board must seek shareholders' approval every five years for TEMIT
to continue as an investment trust. This allows shareholders the
opportunity to decide on the long-term future of the Company. The
last continuation vote took place at the 2019 AGM, when 99.95% of
the votes cast were registered as votes in favour. The next
continuation vote will take place at the 2024 AGM.
Stability - Share buybacks and Conditional Tender Offer
The Company has powers to buy back its shares as a discount
control mechanism and when this is in the best interests of the
Company's shareholders and in 2019 introduced a Conditional Tender
Offer. The share price discount to net asset value is discussed
under Key Performance Indicators in the full Annual Report.
Under the Conditional Tender Offer, if over the five-year period
from 31 March 2019 to 31 March 2024 the Company's net asset value
total return fails to exceed the benchmark total return, the Board
will put forward proposals to shareholders to undertake a tender
offer for up to 25 per cent of the issued share capital of the
Company, at the discretion of the Board. Any such tender offer will
be at a price equal to the then prevailing net asset value less two
per cent (and less the costs of the tender offer). There will be no
tender offer if the Company's net asset value total return exceeds
the benchmark total return (MSCI Emerging Markets Index) over the
five-year period. Any tender offer would take place following the
Company's 2024 AGM and will also be conditional on shareholders
approving the continuation vote in 2024 which is described under
"Affirmation of shareholder mandate" above.
A key point in the Investment Manager's mandate is to take a
long-term view of investments and one of the advantages of a
closed-end fund is that the portfolio structure is not disrupted by
large inflows or outflows of cash. However, the Board and the
Investment Manager recognise that the returns experienced by
shareholders are in the form of movements in the share price, which
are not directly linked to NAV movements, and the shares may trade
at varying discounts or premiums to NAV. Many shareholders, both
professional and private investors, have expressed a view that a
high level of volatility in the discount is undesirable and that
the Company should continue its active share buyback programme. A
less volatile discount, and hence share price, is seen as important
to investors. For this reason, TEMIT uses share buybacks
selectively with the intention of limiting volatility in the share
price and where buybacks are in the best interests of shareholders.
Details of the share buybacks are included in the following table.
All shares bought back in the year were cancelled, with none being
placed in treasury. As at 31 March 2023, the Company held
103,825,895 shares in treasury (2022: 103,825,895 shares in
treasury).
2023 2022
------------------------------------------------------ ---------- ---------
Shares bought back and cancelled during the year 19,758,613 2,331,670
------------------------------------------------------ ---------- ---------
Proportion of share capital bought back and cancelled 1.7% 0.2%
------------------------------------------------------ ---------- ---------
Total cost of share buybacks GBP29.2m GBP3.6m
------------------------------------------------------ ---------- ---------
The benefit to NAV GBP4.6m GBP0.5m
------------------------------------------------------ ---------- ---------
The percentage benefit to NAV 0.23% 0.03%
------------------------------------------------------ ---------- ---------
Discount management is reviewed regularly by the Board to ensure
that it remains effective in the light of prevailing market
conditions. The Conditional Tender Offer will not affect the
Board's current approach to discount management. The Board will
continue to exercise the Company's right to buy back shares when it
believes this to be in shareholders' interests and with the aim of
reducing volatility in the discount.
Communication
The Board works to ensure that investors are informed regularly
about the performance of TEMIT and of emerging markets through
clear communication and updates. The Board is fully committed to
TEMIT's marketing programme. There is a substantial annual
marketing and communication budget, and expenditure by TEMIT is
matched by a contribution to costs from the Manager.
TEMIT won the prestigious Best Campaign Award at the AIC
Shareholder Awards 2022 in recognition of the quality of the "Your
future is emerging" campaign undertaken to attract new
shareholders. The innovative use of broadcast media has helped to
increase TEMIT's profile, advertise the benefits of the Company and
communicate the growth story of emerging markets to a wider
audience.
A new corporate identity was launched in January 2022 providing
TEMIT with a unique brand for the first time.
TEMIT seeks to keep shareholders updated on performance and
investment strategy through its regular annual and half yearly
reports, along with monthly factsheets and commentaries. These are
available on the TEMIT website (www.temit.co.uk) which also
contains portfolio holdings information, updates from the
Investment Manager and other important documents that will help
shareholders to understand how their investment is managed. We also
communicate via @TEMIT on Twitter and continue to develop the
Company's presence across social media platforms. The Board
encourages registration to our monthly email that keeps subscribers
appraised of the latest performance, insights and
announcements.
TEMIT has an active public relations programme. Our Investment
Manager provides comments to journalists, hosts media briefings and
publishes articles on issues relevant to investing in emerging
markets.
The Investment Manager meets regularly with professional
investors and analysts and hosts interactive webinars. At each AGM
the Investment Manager makes a presentation with the opportunity
for all shareholders to ask questions.
The Chairman regularly meets major shareholders to discuss
investment performance and developments in corporate governance. We
try to engage with a wide spectrum of our shareholders and aim to
address their concerns as far as practically possible. Shareholders
are welcome to contact the Chairman or the Senior Independent
Director at any time via temitcosec@franklintempleton.com.
Section 172 Report - Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require
directors to explain how they have discharged their duties under
Section 172(1) of the Companies Act 2006 in promoting the success
of their companies for the benefit of "members as a whole" and
having regard for all stakeholders.
Section 172 Matter Board's Statement
--------------------------------------------------------- ---------------------------------------------------------
The likely consequences of any decision in the long term. The Board is focused on promoting the long-term success
of the Company and regularly reviews
the Company's long-term strategic objectives, including
consideration of the impact of the
Investment Manager's actions on the marketability and
reputation of the Company and the likely
impact on the Company's stakeholders of the Company's
strategy.
--------------------------------------------------------- ---------------------------------------------------------
The interests of the Company's employees. The Company has no direct employees.
--------------------------------------------------------- ---------------------------------------------------------
The need to foster the Company's business relationships The Board's approach to its key stakeholders is set out
with suppliers, customers and others. below.
--------------------------------------------------------- ---------------------------------------------------------
The impact of the Company's operations on the community The Board's approach is set out in the section on ESG
and the environment. under Strategy and Business Model in
the full Annual Report.
--------------------------------------------------------- ---------------------------------------------------------
The desirability of the Company maintaining a reputation The Board's approach is set out in "Culture and values"
for high standards of business conduct. in the full Annual Report.
--------------------------------------------------------- ---------------------------------------------------------
The need to act fairly between members of the Company. The Board's approach to its key stakeholders is set out
below.
--------------------------------------------------------- ---------------------------------------------------------
In addition to the primary focus of the Board, and with due
regard to its obligations under Section 172 of the Companies Act
2006, the following important and non-routine matters were
considered at Board meetings during the year:
-- Recruitment of Abigail Rotheroe as a non-executive Director;
-- Changes to the risk matrix, monitoring such changes carefully
and introducing alternative mitigating controls where necessary and
practicable to support the operation of an effective control
environment;
-- Pandemic risks affecting the Company's investments and business operations;
-- Risks resulting from the Russian invasion of Ukraine and the valuation of Russian assets;
-- Rebalancing dividend payments by increasing the interim dividend;
-- Review of the marketing plan with the Manager;
-- Review of the share buyback programme; and
-- Review of the gearing facility.
The Board considers the main stakeholders in the Company to be
its shareholders and its service providers, the principal one of
which is its Manager, along with its investee companies. A summary
of the key areas of engagement undertaken by the Board with its
main stakeholders in the year under review and how Directors have
acted upon this to promote the long-term success of the Company are
set out in the following table.
Stakeholders Area of Engagement Consideration Engagement Outcome
--------------------- --------------------- -------------------- -------------------- --------------------
Shareholders and Company objective Delivering on the The Company's The Investment
potential investors Company's objective objective and Manager's commentary
to shareholders over investment policy in the full Annual
the long term. are set out in the Report gives a full
full Annual Report. commentary on the
Company's portfolio
The Company's as well as on the
performance against approach and
its objective is considerations
regularly reviewed undertaken by the
by the Board, taking Investment
account of views Manager for stock
expressed by selection within the
shareholders. portfolio.
The Company holds a A continuation vote
continuation vote took place at the
every five years to 2019 AGM, with
allow shareholders 99.95% of votes cast
to decide on in favour. The next
the long-term future continuation vote is
of the Company. scheduled to take
place at the AGM in
2024.
--------------------- --------------------- -------------------- -------------------- --------------------
Shareholders and Dividend The objective of the The Board reviews Dividend payments
potential investors Company is to regularly the level are discussed in the
provide long term of dividends, taking Chairman's Statement
capital account of the in the full Annual
appreciation, income generated Report.
however the Board by the Company's
recognises the portfolio and the
importance of availability of
regular dividend reserves.
income to many
shareholders. In considering the
sustainability of
the dividend and of
the Company, the
Board reviews the
models supporting
the going concern
assessment and
viability statement.
--------------------- --------------------- -------------------- -------------------- --------------------
Shareholders and Communication with The Board Working closely with Full details of all
potential investors shareholders understands the the Manager, the Board and Manager
importance of Board ensures that communication are
communication with there is a variety included in the full
its shareholders and of regular Annual Report.
maintains communication
open channels of with shareholders. Shareholders are
communication with invited to submit
shareholders. questions for the
Board to address at
the Company's Annual
General Meeting.
--------------------- --------------------- -------------------- -------------------- --------------------
Shareholders and Discount management To smooth the The Board monitors TEMIT continues to
potential investors volatility in the the discount closely adopt an active buy
discount. and discusses back policy and has
discount strategy a Conditional Tender
with the Investment Offer. Details
Manager and the of these can be
Company's found under
stockbroker at every "Stability - Share
regular Board buybacks and
meeting. The Conditional Tender
stockbroker provides Offer" in the
a summary of the full Annual Report.
discount and market
conditions to the Further details of
Board and Investment the current discount
Manager at the and discount
close of each management are
trading day in detailed in the
London. Chairman's
The Board also meets Statement under
with the Investment "Share rating" in
Manager to discuss the full Annual
the Company's Report.
marketing strategy
to ensure effective
communication with
existing
shareholders and to
consider strategies
to
create additional
demand for the
Company's shares.
--------------------- --------------------- -------------------- -------------------- --------------------
Manager Communication between The relationship of The Manager attends The Board operates
the Board and the the Board with the all Board meetings in a supportive and
Manager Manager is very where it reviews and open manner,
important. discusses challenging the
performance reports, activity of the
changes in the Manager
portfolio and its results. The
composition and risk Board believes that
matrix. The Board the Company is well
receives timely and managed and the
accurate Board places
information from the great value on the
Manager and engages experience of the
with the Investment Investment Manager
Manager and the to deliver superior
Company Secretary long-term returns
between meetings as from investments and
well with other on the other
representatives of functions of the
the Manager as and Manager to fulfil
when it is deemed their roles
necessary. effectively.
--------------------- --------------------- -------------------- -------------------- --------------------
Third-party service Engagement with The Board As an investment The Manager
providers service providers acknowledges the company all services maintains the
importance of are outsourced to overall day-to-day
ensuring that the third-party relationship with
Company's service providers. The Board the service
providers are considers providers and the
delivering a the support Board undertakes an
suitable level of delivered by service annual review of the
service, that the providers including performance of the
service level is the quality of the Company's service
sustainable and that service, succession providers. This
they planning and any review also includes
are fairly potential the level of fees
remunerated for interruption of paid. The Board
their service. service or other meets with service
potential risks. providers as and
when considered
necessary.
--------------------- --------------------- -------------------- -------------------- --------------------
Investee companies Engagement with The relationship On behalf of the The Investment
investee companies between the Company Company the Manager has a
and the investee Investment Manager dedicated research
companies is very engages with team that is
important. investee companies employed in making
implementing investment
corporate governance decisions and when
principles and voting at
discusses the shareholder meetings
portfolio with the of investee
Board on a quarterly companies.
basis.
--------------------- --------------------- -------------------- -------------------- --------------------
Key Performance Indicators
The Board considers the following to be the key performance
indicators ("KPIs") for the Company:
-- Net asset value and share price total return over various
periods, compared to its benchmark;
-- Share price discount to net asset value;
-- Dividend and revenue earnings; and
-- Ongoing charges ratio.
The Ten Year Record of the KPIs is shown in the full Annual
Report.
Net asset value and share price total return(a)
Net asset value and share price total return data is presented
within the Company Overview along with the Ten Year Record in the
full Annual Report.
The Chairman's Statement and the Investment Manager's Report in
the full Annual Report include further commentary on the Company's
performance.
Share price discount to net asset value(a)
Details of the Company's share price discount to net asset value
are presented within the Financial Summary in the full Annual
Report. On 24 May 2023, the latest practicable date for which
information was available, the discount was 14.8%.
(a) A glossary of alternative performance measures is included
in the full Annual Report.
The Company has powers to buy back its shares as a discount
control mechanism when it is in the best interests of the Company's
shareholders and has a Conditional Tender Offer mechanism. These
are described under "Stability - Share buybacks and Conditional
Tender Offer" in the full Annual Report.
Dividend and revenue earnings
Total income earned in the year was GBP80.6 million (2022:
GBP54.3 million) which translates into net revenue earnings of 5.72
pence per share (2022: 3.44 pence per share), an increase of 66.3%
over the prior year. The increase in revenue earnings per share was
attributable to the increase in underlying revenues, mainly
dividends earned from Petroleo Brasileiro.
The Company paid an interim dividend of 2.00 pence per share on
27 January 2023. The Board is proposing a final dividend of 3.00
pence per share, making total ordinary dividends for the year of
5.00 pence per share.
Ongoing charges ratio(a) ("OCR")
The OCR rose to 0.98% for the year ended 31 March 2023, compared
to 0.97% in the prior year. This was driven by the reduction in
average net assets during the year, offsetting the AIFM fee
reduction effective from 1 July 2022. The OCR has been calculated
in line with the Association of Investment Companies ("AIC")
recommended methodology.
Costs associated with the purchase and sale of investments are
taken to capital and are not included in the OCR. Transaction costs
are disclosed in Note 8 of the Notes to the Financial Statements in
the full Annual Report.
(a) A glossary of alternative performance measures is included
in the full Annual Report.
Principal and emerging risks
At least quarterly, the Board reviews with the AIFM and the
Investment Manager a wide range of risk factors that may impact the
Company. A full review of risks and internal controls is held every
September by the Audit and Risk Committee. These reviews include a
robust assessment of the principal and emerging risks facing the
Company, including those that would threaten its business model,
future performance, solvency or liquidity. These are summarised in
the table below.
Further explanation of the monitoring of risk and uncertainties
is covered within the Report of the Audit and Risk Committee in the
full Annual Report. Information on the risks that TEMIT is subject
to, including additional financial and valuation risks, are also
detailed in Note 15 of the Notes to the Financial Statements.
Due to the nature of the Company's business, investment risk is
a key focus and is reviewed on an ongoing basis by the Investment
Manager as part of every investment decision. Further information
on this process is detailed in the full Annual Report.
Principal risk Mitigation
--------------------------------------------------------- ---------------------------------------------------------
Market and geopolitical
Market risk arises from volatility in the prices of the The Board reviews regularly and discusses with the
Company's investments, from the risk Investment Manager the portfolio, the Company's
of volatility in global markets arising from investment performance and the execution of the
macroeconomic and geopolitical circumstances investment policy against the long-term objectives
and conditions. Many of the companies in which TEMIT of the Company. The Manager's independent risk team
invests are, by reason of the locations performs systematic risk analysis, including
in which they operate, exposed to the risk of political country and industry specific risk monitoring, as well
or economic change. In addition, sanctions, as stress testing of the portfolio's
exchange controls, tax or other regulations introduced in resilience to geopolitical shocks. The Manager's legal
any country in which TEMIT invests and compliance team monitors sanctions.
may affect its income and the value and the marketability Where TEMIT is affected, adherence to all sanctions and
of its investments. Emerging markets restrictions is ensured by this team.
can be subject to greater price volatility than developed The Board also regularly reviews reports from the
markets. Manager's risk, legal and compliance teams.
Geopolitical risk was highlighted by the Russian invasion
of Ukraine in February 2022 and
the escalating trade war between the United States and
China and military tensions over the
Taiwan Strait. All these factors have depressed investor
sentiment and the Russian invasion
of Ukraine has impacted global trade posed by supply
shocks, sanctions, higher levels of inflation
and volatility in asset prices.
Pandemic
The spread of infectious illnesses or other public health The Board has regularly reviewed and discussed the
issues and their aftermaths, such situation with the Investment Manager,
as the outbreak of COVID-19, first detected in China in including a review of the portfolio, risk management and
December 2019 and later spreading business continuity.
globally, could have a significant adverse impact on the
Company's operations (including the The risks associated with a pandemic affect all areas of
ability to find and execute suitable investments) and the Company's investments as well
therefore, the Company's potential returns. as operations. Mitigation strategies apply as detailed
within the specific areas of risk.
Restrictive measures implemented to control such
outbreaks could adversely affect the economies A global network of analysts and operations and a
of individual nations or the entire global economy, the flexible technology setup (including the
financial condition of individual ability to "work from home") at the Investment Manager
issuers or companies (including those that are held by, ensure operational business continuity
or are counterparties or service providers and continuous analyst coverage. The Board has also
to, the Company) and capital markets in ways that cannot received updates on its key service providers'
necessarily be foreseen, and such business continuity plans.
impact could be significant and long term.
Technology
Failure or breach of the security of information The Company benefits from Franklin Templeton's technology
technology systems of the Company's service framework designed to mitigate the
providers may entail risk of financial loss, disruption risk of a cyber security breach.
to operations or damage to the reputation
of the Company. For key third-party providers, the Audit and Risk
Committee receives regular independent certifications
of their technology control environment.
--------------------------------------------------------- ---------------------------------------------------------
Concentration
Concentration risk arises from investing in relatively The Board reviews regularly the portfolio composition/
few holdings, few sectors or a restricted asset allocation and discusses related
geographic area. Performance may be more volatile than developments with the Investment Manager and the
with a greater number of securities. independent risk management team. The Investment
Compliance team of the Investment Manager monitors
concentration limits and highlights any
concerns to portfolio management for remedial action.
--------------------------------------------------------- ---------------------------------------------------------
Sustainability and climate change
The Company's portfolio, and also the Company's service The Investment Manager considers that sustainability
providers and the Investment Manager, risks are relevant to the returns of
are exposed to risks arising from governance and the Company. The Manager has implemented a policy in
sustainability factors, including climate respect of the integration of sustainability
change. To the extent that such a risk occurs, or occurs and climate change risks in its investment decision
in a manner that is not anticipated making process. The Board receives regular
by the Investment Manager, there may be a sudden, reports on the policies and controls in place on ESG
material negative impact on the value of matters. The Board has reviewed and fully
an investment, and the operations or reputation of the supports the Franklin Templeton Stewardship Statement and
Investment Manager. its Sustainable Investing Principles
and Policies.
--------------------------------------------------------- ---------------------------------------------------------
Foreign currency
Currency exchange rate movements may affect TEMIT's The Board monitors currency risk as part of the regular
performance. In general, if the value portfolio and risk management oversight.
of sterling increases compared with a foreign currency, TEMIT does not hedge currency risk.
an investment traded in that foreign
currency will be worth less in sterling terms. This can
have a negative effect on the Company's
performance.
--------------------------------------------------------- ---------------------------------------------------------
Discount Risk
The discount/premium at which the Company's shares trade The Board monitors the level of discount/premium at which
relative to its net asset value can the shares trade and has an active
change. The risk of a widening discount, and/or related investor relations programme. The Company has authority
volatility, could reduce shareholder to buy back its existing shares when
returns and confidence in the Company. deemed by the Board to be in the best interests of the
Company and its shareholders.
--------------------------------------------------------- ---------------------------------------------------------
Operational and custody
Like many other investment trust companies, TEMIT has no The Manager's systems are regularly tested and monitored
employees. The Company therefore and an internal controls report,
relies upon the services provided by third parties and is which includes an assessment of risks together with an
dependent upon the control systems overview of procedures to mitigate
of the Investment Manager and of the Company's other such risks, is prepared by the Manager and reviewed by
service providers. The security, for the Audit and Risk Committee.
example, of the Company's assets, dealing procedures,
accounting records and maintenance of J.P. Morgan Europe Limited is the Company's depositary.
regulatory and legal requirements depends on the Its responsibilities include cash
effective operation of these systems. monitoring, safe keeping of the Company's financial
instruments, verifying ownership and maintaining
a record of other assets and monitoring the Company's
compliance with investment limits and
borrowing requirements. The depositary is liable for any
loss of financial instruments held
in custody and will ensure that the custodian and any
sub-custodians segregate the assets
of the Company. The depositary oversees the custody
function performed by JPMorgan Chase Bank.
The custodian provides a report on its key controls and
safeguards (SOC 1/ SSAE 16/ISAE 3402)
that is independently reported on by its auditor, PwC.
The Board reviews regular operational risk management
reporting provided by the Investment
Manager.
--------------------------------------------------------- ---------------------------------------------------------
Key personnel
The ability of the Company to achieve its objective is The Manager endeavours to ensure that the principal
significantly dependent upon the expertise members of its management teams are suitably
of the Investment Manager and its ability to attract and incentivised, participate in strategic leader programmes
retain suitable staff. and monitor key succession planning
metrics. The Board discusses this risk regularly with the
Manager.
--------------------------------------------------------- ---------------------------------------------------------
Regulatory
The Company is an Alternative Investment Fund ("AIF") and The Board, with the assistance of the Manager, ensures
is listed on both the London and that the Company complies with all
New Zealand stock exchanges. The Company operates in an applicable laws and regulation and its internal risk and
increasingly complex regulatory environment control framework reduces the likelihood
and faces numerous regulatory risks. Breaches of of breaches happening.
regulations could lead to a number of detrimental
outcomes and reputational damage.
--------------------------------------------------------- ---------------------------------------------------------
Emerging risks
The key emerging risk faced by the Company during the year under
review was the continuing ramifications of the Russian invasion of
Ukraine, discussed under market and geopolitical risk above. The
extent of this risk will depend on the length of the conflict,
impacts on commodity prices and associated inflationary pressure.
In addition, the Board and Investment Manager discussed the growing
tensions between the United States and China. The Board is also
monitoring the potential risks on the portfolio and investee
companies posed by the dramatic progress of Artificial Intelligence
(AI).
Viability Statement
The Board considers viability as part of its continuing
programme of monitoring risk. In preparing the Viability Statement,
in accordance with the UK Corporate Governance Code and the AIC
Corporate Governance Code, the Directors have assessed the
prospects of the Company over a longer period than the 12 months
required by the 'Going Concern' provision.
The Board has considered the Company's business and investment
cycles and is of the view that five years is a suitable time
horizon to consider the continuing viability of the Company,
balancing the uncertainties of investing in emerging markets
securities against having due regard to viability over the longer
term.
In assessing the Company's viability, the Board has performed a
robust assessment of controls over the principal risks. The Board
considers, on an ongoing basis, each of the principal and emerging
risks as noted above and set out in Note 15 of the Notes to the
Financial Statements. The Board evaluated various scenarios of
possible future circumstances including a material increase in
expenses and a continued significant and prolonged fall in emerging
equity markets. The Board also considered the latest assessment of
the portfolio's liquidity. The Board monitors income and expense
projections for the Company, with the majority of the expenses
being predictable and modest in comparison with the assets of the
Company. The Company foresees no issues with meeting interest
payments and other principal obligations of the borrowing
facilities. A significant proportion of the Company's expenses is
the ad valorem AIFM fee, which would naturally reduce if the market
value of the Company's assets were to fall.
Considering the above, and with careful consideration given to
the current market situation, the continuing ramifications of the
Russian invasion of Ukraine, growing tensions between the United
States and China over trade and the Taiwan Strait and the
challenges posed by climate change, the Board has concluded that
there is a reasonable expectation that, assuming that there will be
a successful continuation vote at the 2024 AGM, the Company will be
able to continue to operate and meet its liabilities as they fall
due over the next five years.
Future Strategy
The Company was founded, and continues to be managed, based on a
long-term investment strategy that seeks to generate superior
returns from investments, principally in the shares of carefully
selected companies in emerging markets.
The Company's results will be affected by many factors including
political decisions, economic factors, the performance of investee
companies and the ability of the Investment Manager to choose
investments successfully as well as the current challenges.
The Board and the Investment Manager continue to believe in
investment with a long-term horizon in companies that are
undervalued by stock markets, but which are fundamentally strong
and growing. It is recognised that, at times, extraneous political,
economic and company-specific and other factors will affect the
performance of investments, but the Company will continue to take a
long-term view in the belief that patience will be rewarded.
By order of the Board
Paul Manduca
9 June 2023
Statement of Directors' Responsibilities
In respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulations. Details of the Directors and members of the committees
are reported in the full Annual Report.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law the Directors
are required to prepare the Financial Statements in accordance with
UK adopted International Accounting Standards.
Under company law the Directors must be satisfied that the
Financial Statements give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
the period. In preparing these Financial Statements, International
Accounting Standard 1 requires that Directors:
-- Properly select and apply accounting policies;
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Provide additional disclosures when compliance with the specific requirements of UK adopted International Accounting Standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
-- Assess the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website (www.temit.co.uk). Legislation in the United
Kingdom governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
Responsibility Statement
Each of the Directors, who are listed in the full Annual Report,
confirms that to the best of their knowledge:
-- The Financial Statements, which have been prepared in
accordance with UK adopted International Accounting Standards, give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company for the year ended 31 March 2023;
and
-- The Chairman's Statement, Strategic Report and the Report of
the Directors include a fair review of the information required by
4.1.8R to 4.1.11R of the FCA's Disclosure Guidance and Transparency
Rules; and
-- The Annual Report and Audited Financial Statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy, and include
a description of the principal risks and uncertainties.
By order of the Board
Paul Manduca
9 June 2023
Financial Statements
Statement of Comprehensive Income
For the Year Ended 31 March 2023
Year ended Year ended
31 March 2023 31 March 2022
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Net losses on investments and foreign exchange
Net losses on investments at fair value 8 - (54,645) (54,645) - (460,585) (460,585)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Net losses on foreign exchange - (442) (442) - (168) (168)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Income
Dividends 2 77,463 8,431 85,894 54,020 - 54,020
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Other income 2 3,088 - 3,088 250 - 250
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
80,551 (46,656) 33,895 54,270 (460,753) (406,483)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Expenses
AIFM fee 3 (5,232) (12,209) (17,441) (6,316) (14,738) (21,054)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Other expenses 4 (1,979) - (1,979) (2,338) - (2,338)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
(7,211) (12,209) (19,420) (8,654) (14,738) (23,392)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Profit/(loss) before finance costs and taxation 73,340 (58,865) 14,475 45,616 (475,491) (429,875)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Finance costs 5 (962) (2,239) (3,201) (858) (1,998) (2,856)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Profit/(loss) before taxation 72,378 (61,104) 11,274 44,758 (477,489) (432,731)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Tax expense 6 (5,520) (3,232) (8,752) (4,081) (5,596) (9,677)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Profit/(loss) for the year 66,858 (64,336) 2,522 40,677 (483,085) (442,408)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Profit/(loss) attributable to equity holders of
the Company 66,858 (64,336) 2,522 40,677 (483,085) (442,408)
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Earnings per share 7 5.72p (5.50)p 0.22p 3.44p (40.90)p (37.46)p
-------------------------------------------------- ---- -------- -------- -------- -------- --------- ---------
Under the Company's Articles of Association the capital element
of return is not distributable.
The total column of this statement represents the profit and
loss account of the Company.
The accompanying notes are an integral part of the Financial
Statements.
Statement of Financial Position
As at 31 March 2023
As at As at
31 March 2023 31 March 2022
Note GBP'000 GBP'000
---------------------------------------------------- ---- -------------- --------------
Non-current assets
Investments at fair value through profit or loss 8 1,992,775 2,124,530
---------------------------------------------------- ---- -------------- --------------
Current assets
Trade and other receivables 9 7,886 16,928
---------------------------------------------------- ---- -------------- --------------
Cash and cash equivalents 132,988 125,855
---------------------------------------------------- ---- -------------- --------------
Total current assets 140,874 142,783
---------------------------------------------------- ---- -------------- --------------
Current liabilities
Other payables 10 (6,402) (57,718)
---------------------------------------------------- ---- -------------- --------------
Total current liabilities (6,402) (57,718)
---------------------------------------------------- ---- -------------- --------------
Net current assets 134,472 85,065
---------------------------------------------------- ---- -------------- --------------
Non-current liabilities
Capital gains tax provision 6 (9,744) (9,205)
---------------------------------------------------- ---- -------------- --------------
Other payables falling due after more than one year 11 (100,000) (100,000)
---------------------------------------------------- ---- -------------- --------------
Total assets less liabilities 2,017,503 2,100,390
---------------------------------------------------- ---- -------------- --------------
Share capital and reserves
Equity Share Capital 12 63,148 64,136
---------------------------------------------------- ---- -------------- --------------
Capital Redemption Reserve 1(j) 19,521 18,533
---------------------------------------------------- ---- -------------- --------------
Capital Reserve 1(j) 1,372,654 1,466,197
---------------------------------------------------- ---- -------------- --------------
Special Distributable Reserve 1(j) 433,546 433,546
---------------------------------------------------- ---- -------------- --------------
Revenue Reserve 1(j) 128,634 117,978
---------------------------------------------------- ---- -------------- --------------
Equity Shareholders' Funds 2,017,503 2,100,390
---------------------------------------------------- ---- -------------- --------------
Net asset value pence per share(a) 174.1 178.2
---------------------------------------------------- ---- -------------- --------------
(a) Based on shares in issue excluding shares held in treasury.
The Financial Statements of Templeton Emerging Markets
Investment Trust plc (company registration number SC118022) were
approved for issue by the Board and signed on 9 June 2023.
Paul Manduca Simon Jeffreys
Chairman Director
Statement of Changes in Equity
For the Year Ended 31 March 2023
Capital Special
Equity Share Redemption Capital Distributable Revenue
Capital Reserve Reserve Reserve Reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Balance at 31 March 2021 64,253 18,416 1,952,886 433,546 122,186 2,591,287
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
(Loss)/profit for the year - - (483,085) - 40,677 (442,408)
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Equity dividends 13 - - - - (44,885) (44,885)
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Purchase and cancellation of own
shares 12 (117) 117 (3,604) - - (3,604)
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Balance at 31 March 2022 64,136 18,533 1,466,197 433,546 117,978 2,100,390
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
(Loss)/profit for the year - - (64,336) - 66,858 2,522
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Equity dividends 13 - - - - (56,202) (56,202)
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Purchase and cancellation of own
shares 12 (988) 988 (29,207) - - (29,207)
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
Balance at 31 March 2023 63,148 19,521 1,372,654 433,546 128,634 2,017,503
------------------------------------- ---- ------------ ----------- --------- -------------- -------- ---------
The accompanying notes are an integral part of the Financial
Statements.
Statement of Cash Flows
For the Year Ended 31 March 2023
For the year to For the year to
31 March 2023 31 March 2022
Note GBP'000 GBP'000
------------------------------------------------------------------------------ ---- --------------- ---------------
Cash flows from operating activities
Profit/(Loss) before taxation 11,274 (432,731)
------------------------------------------------------------------------------ ---- --------------- ---------------
Adjustments to reconcile Profit/(Loss) before taxation to cash used in
operations:
Bank and deposit interest income recognised (3,082) (130)
------------------------------------------------------------------------------ ---- --------------- ---------------
Dividend income recognised (85,894) (54,020)
------------------------------------------------------------------------------ ---- --------------- ---------------
Finance costs 3,201 2,856
------------------------------------------------------------------------------ ---- --------------- ---------------
Net losses on investments at fair value 8 54,645 460,585
------------------------------------------------------------------------------ ---- --------------- ---------------
Net losses on foreign exchange 442 168
------------------------------------------------------------------------------ ---- --------------- ---------------
Decrease in debtors 12 16
------------------------------------------------------------------------------ ---- --------------- ---------------
Decrease in creditors (310) (614)
------------------------------------------------------------------------------ ---- --------------- ---------------
Cash used in operations (19,712) (23,870)
------------------------------------------------------------------------------ ---- --------------- ---------------
Bank and deposit interest received 3,082 130
------------------------------------------------------------------------------ ---- --------------- ---------------
Dividends received 86,727 57,522
------------------------------------------------------------------------------ ---- --------------- ---------------
Bank overdraft interest paid (2) (2)
------------------------------------------------------------------------------ ---- --------------- ---------------
Tax paid (5,971) (6,250)
------------------------------------------------------------------------------ ---- --------------- ---------------
Realised gains on foreign currency cash and cash equivalents(a) 179 377
------------------------------------------------------------------------------ ---- --------------- ---------------
Net cash inflow from operating activities(a) 64,303 27,907
------------------------------------------------------------------------------ ---- --------------- ---------------
Cash flows from investing activities
Purchases of non-current financial assets (465,539) (600,482)
------------------------------------------------------------------------------ ---- --------------- ---------------
Sales of non-current financial assets(a) 548,504 612,872
------------------------------------------------------------------------------ ---- --------------- ---------------
Net cash inflow from investing activities(a) 82,965 12,390
------------------------------------------------------------------------------ ---- --------------- ---------------
Cash flows from financing activities
Equity dividends paid 13 (56,202) (44,885)
------------------------------------------------------------------------------ ---- --------------- ---------------
Purchase and cancellation of own shares (30,453) (2,041)
------------------------------------------------------------------------------ ---- --------------- ---------------
(Repayment)/draw down from revolving credit facility (50,000) 50,000
------------------------------------------------------------------------------ ---- --------------- ---------------
Interest and fees paid on bank loans (3,457) (2,728)
------------------------------------------------------------------------------ ---- --------------- ---------------
Net cash (outflow)/inflow from financing activities (140,112) 346
------------------------------------------------------------------------------ ---- --------------- ---------------
Net increase in cash(a) 7,156 40,643
------------------------------------------------------------------------------ ---- --------------- ---------------
Cash at the start of the year 125,855 85,212
------------------------------------------------------------------------------ ---- --------------- ---------------
Unrealised losses on foreign currency cash and cash equivalents(a) (23) 0
------------------------------------------------------------------------------ ---- --------------- ---------------
Cash at the end of the year 132,988 125,855
------------------------------------------------------------------------------ ---- --------------- ---------------
(a) Net unrealised losses on cash and cash equivalents have been
shown separately as part of the reconciliation of cash and cash
equivalents. Net realised gains arising from cash and cash
equivalents have been allocated to the corresponding cash flow
activities to which they relate. Comparative figures have been
updated for the consistency of the presentation in line with IAS 8
requirements.
The accompanying notes are an integral part of the Financial
Statements.
Reconciliation of liabilities arising from bank loans
Liabilities Liabilities
as at as at
31 March 2022 Cash flows Profit & Loss 31 March 2023
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------------- ---------- ------------- --------------
Revolving credit facility 50,000 (50,000) - -
---------------------------------- -------------- ---------- ------------- --------------
Interest and fees payable 249 (1,351) 1,102 -
---------------------------------- -------------- ---------- ------------- --------------
Fixed term loan 100,000 - - 100,000
---------------------------------- -------------- ---------- ------------- --------------
Interest and fees payable 352 (2,106) 2,097 343
---------------------------------- -------------- ---------- ------------- --------------
Total liabilities from bank loans 150,601 (53,457) 3,199 100,343
---------------------------------- -------------- ---------- ------------- --------------
Liabilities Liabilities
as at as at
31 March 2021 Cash flows Profit & Loss 31 March 2022
GBP'000 GBP'000 GBP'000 GBP'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
As at 31 March 2023
1 Accounting Policies
(a) Basis of preparation
The Financial Statements of the Company have been prepared in
accordance with UK adopted International Accounting Standards. The
Financial Statements have also been prepared in accordance with the
Statement of Recommended Practice ("SORP") for investment trusts
issued by the Association of Investment Companies ("AIC") in July
2022 insofar as the SORP is compatible with International
Accounting Standards.
The Financial Statements have been prepared on the historical
cost basis, except for the measurement at fair value of certain
financial instruments. All financial assets and financial
liabilities are recognised (or derecognised) on the date of the
transaction by the use of "trade date accounting". The principal
accounting policies adopted are set out below.
Adoption of new and revised Accounting Standards
At the date of authorisation of these Financial Statements, the
following standard was assessed to be relevant and is effective for
annual periods beginning on or after 1 January 2022:
-- Annual Improvements to IFRS Standards 2018 - 2020: IFRS 9
Amendment. This amendment relates to situations where there is a
substantial change in the terms of a financial liability.
The amendment listed above did not have any impact on the
amounts recognised in the current reporting period.
At the date of authorisation of these Financial Statements, the
following standards and interpretations which have not been applied
in these Financial Statements were in issue but not yet
applicable:
Effective date for annual
Accounting Standards periods beginning on or after
-------------------------------------------------------- ------------------------------
IAS 1 Amendments: Disclosure of Accounting Policies 1 January 2023
-------------------------------------------------------- ------------------------------
IAS 8 Amendments: Definition of Accounting Estimates 1 January 2023
-------------------------------------------------------- ------------------------------
IAS 1 Amendments: Non-current Liabilities with Covenants 1 January 2024
-------------------------------------------------------- ------------------------------
The Directors expect that the amendments listed above will have
either no impact or that any impact will not be material to the
Financial Statements of the Company in the next reporting
periods.
Going concern
The Directors have a reasonable expectation that the Company has
sufficient resources to continue in operational existence for the
period to 31 March 2025, which is at least 12 months from the date
of the approval of the Financial Statements. The Directors reviewed
income forecasts covering the next two financial years, including
interest and fees arising from the debt facility. The Directors
considered the principal and emerging risks and uncertainties
disclosed in the full Annual Report in particular those relating to
the continuing ramifications of the Russian invasion of
Ukraine.
At 31 March 2023, the Company had net current assets of
GBP134,472,000 (31 March 2022: net current assets of
GBP85,065,000). In addition, the Company holds a portfolio of
largely liquid assets that, if required, can be sold to maintain
adequate cash balances to meet its expected cash flows, including
debt servicing. The repayment of the principal balance of the
Company's GBP100 million fixed term loan does not fall due until 31
January 2025. The Directors also reviewed scenarios of a
significant drop in value of the assets and noted that in those
scenarios they would still be significantly higher than the
Company's liabilities. They have also confirmed the resiliency of
the Company's key service providers and are satisfied that their
contingency plans and working arrangements are sustainable.
The Board has established a framework of prudent and effective
controls performed periodically by the Audit and Risk Committee,
which enable risks to be assessed and managed. Therefore, the going
concern basis has been adopted in preparing the Company's Financial
Statements. The Going Concern statement is set out in the full
Annual Report.
Functional currency
As the Company is a UK investment trust, whose share capital is
issued in the UK and denominated in sterling, the Directors
consider that the functional currency of the Company is
sterling.
Estimates, assumptions and judgements
Significant estimates and assumptions have been used to fair
value the Level 3 Russian investments held by the Company. Further
details are given in the fair value section of Note 15 and in the
Report of the Audit and Risk Committee. There have been no other
significant judgements, estimates or assumptions for the year.
In preparing these Financial Statements, the Directors have
considered the impact of climate change as a principal risk as set
out in the full Annual Report and have concluded that there was no
further impact of climate change to be considered as the
investments are valued based on market pricing. In line with UK
adopted International Accounting Standards the investments are
valued at fair value, which for the Company are the bid prices
quoted on the relevant stock exchange at the date of the Statement
of Financial Position and therefore reflect market participants'
views of climate change risk on the investments held.
(b) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented within the Statement of Comprehensive Income. In
accordance with the Company's Articles of Association, net capital
profits may not be distributed by way of dividend. Additionally,
the net revenue is the measure that the Directors believe
appropriate in assessing the Company's compliance with certain
requirements set out in Section 1158 of the Corporation Tax Act
2010.
(c) Income
Dividends receivable on equity shares are treated as revenue for
the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends are recognised on their due date. Provision is
made for any dividends not expected to be received.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash, the amount of the
cash dividend is recognised in the revenue column of the Statement
of Comprehensive Income. Any excess in the value of the shares
received over the amount of the cash dividend forgone is recognised
in the capital column of the Statement of Comprehensive Income.
Special dividends receivable are treated as repayment of capital
or as revenue depending on the facts of each particular case.
Interest on bank deposits is recognised on an accrual basis.
Stock lending income is shown gross of associated costs and
recognised in revenue as earned.
(d) Expenses
All expenses are accounted for on an accrual basis and are
charged through the revenue and capital sections of the Statement
of Comprehensive Income according to the Directors' expectation of
future returns except as follows:
-- Expenses relating to the purchase or disposal of an
investment are treated as capital. Details of transaction costs on
purchases and sales of investments are disclosed in Note 8; and
-- Expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated. 70% of the annual AIFM fee has been allocated to the
capital account.
(e) Finance costs
Finance costs relating to bank loans are accounted for on an
accrual basis using the effective interest method in the Statement
of Comprehensive Income according to the Directors' expectations of
future returns. Finance costs relate to interest and fees on bank
loans and overdrafts. 70% of the finance costs, except for interest
and fees on overdrafts, have been allocated to the capital
account.
(f) Taxation
The tax expense represents the sum of current and deferred tax.
Tax receivables will be recognised when it is probable that the
benefit will flow to the entity and the benefit can be reliably
measured. In line with the recommendations of the SORP, the
allocation method used to calculate tax relief on expenses
presented against capital returns in the supplementary information
in the Statement of Comprehensive Income is the "marginal basis".
Under this basis, if taxable income is capable of being offset
entirely by expenses presented in the revenue return column of the
Statement of Comprehensive Income, then no tax relief is
transferred to the capital return column.
Deferred taxation is recognised in respect of all taxable
temporary differences that have originated but not reversed at the
year-end date, where transactions or events that result in an
obligation to pay more tax in the future or rights to pay less tax
in the future have occurred at the year-end date. This is subject
to deferred tax assets only being recognised to the extent that it
is probable that taxable profit will be available against which the
deductible temporary difference can be utilised. Deferred tax
assets and liabilities are measured at the rates applicable to the
legal jurisdictions in which they arise.
Due to the Company's status as an investment trust company, and
its intention to continue to meet the eligibility conditions of
Section 1158 of the Corporation Tax Act 2010 and the ongoing
requirements of The Investment Trust (Approved Company) (Tax)
Regulations 2011, the Company has not provided deferred tax in
respect of UK corporation tax on any capital gains and losses
arising on the revaluation or disposal of investments. Where
appropriate, the Company provides for deferred tax in respect of
overseas taxes on any capital gains arising on the revaluation of
investments.
The carrying amount of deferred tax assets is reviewed at each
year-end date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
(g) Investments held at fair value through profit or loss
The Company classifies its equity investments based on their
contractual cash flow characteristics and the Company's business
model for managing the assets. The Company's business is investing
in financial assets with a view to profiting from their total
return in the form of revenue and capital growth. This portfolio of
financial assets is managed, and its performance evaluated on a
fair value basis, in accordance with a documented investment
strategy, and information about the portfolio is provided
internally on that basis to the Company's Directors and other key
management personnel. Equity investments do not meet the
contractual cash flows test so are measured at fair value.
Accordingly, upon initial recognition, all of the Company's
non-current asset investments are held at "fair value through
profit or loss". They are included initially at fair value, which
is taken to be their cost excluding expenses incidental to the
acquisition.
Subsequently, the investments are valued at "fair value", which
is measured as follows:
The fair value of financial instruments at the year-end date is,
ordinarily, based on the latest quoted bid price at, or before, the
US market close (without deduction for any of the estimated future
selling costs), if the instrument is held in active markets. This
represents a Level 1 classification under IFRS 13. For all
financial instruments not traded in an active market or where
market price is not deemed representative of fair value, valuation
techniques are employed to determine fair value. Valuation
techniques include the market approach (i.e. using recent arm's
length market transactions adjusted as necessary and reference to
the market value of another instrument that is substantially the
same) and the income approach (i.e. discounted cash flow analysis
making use of available and supportable market data as
possible).
Gains and losses arising from changes in fair value are included
in the net profit or loss for the period as a capital item in the
Statement of Comprehensive Income.
(h) Foreign currencies
Transactions involving foreign currencies are translated to
sterling (the Company's functional currency) at the spot exchange
rates ruling on the date of the transactions. Assets and
liabilities in foreign currencies are translated at the rates of
exchange at the year-end date. Foreign currency gains and losses
are included in the Statement of Comprehensive Income and allocated
as capital or income depending on the nature of the transaction
giving rise to the gain or loss.
(i) Financial instruments
Cash comprises cash in hand and demand deposits. Cash
equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash that are subject to an
insignificant risk of changes in value.
Bank loans are classified as financial liabilities at amortised
cost. They are initially measured as the proceeds net of direct
issue costs and subsequently measured at amortised cost. Interest
payable on the bank loan is accounted for on an accrual basis in
the Statement of Comprehensive Income. The amortisation of direct
issue costs is accounted for on an accrual basis in the Statement
of Comprehensive Income using the effective interest method.
(j) Share capital and reserves
Equity Share Capital - represents the nominal value of the
issued share capital. This reserve is undistributable.
Capital Redemption Reserve - represents the nominal value of
shares repurchased and cancelled. This reserve is
undistributable.
Capital Reserve - gains and losses on realisation of
investments; changes in fair value of investments which are readily
convertible to cash, without accepting adverse terms; realised
exchange differences of a capital nature; changes in the fair value
of investments that are not readily convertible to cash, without
accepting adverse terms; and the amounts by which other assets and
liabilities valued at fair value differ from their book value are
within this reserve. Additionally, 70% of the annual AIFM fee and
finance costs are charged to this reserve in accordance with
accounting policies 1(d) and 1(e).
Purchases of the Company's own shares are funded from the
realised component of the Capital Reserve. The Company's Articles
of Association preclude it from making any distribution of capital
profits by way of dividend.
If treasury shares are subsequently cancelled, the nominal value
is transferred out of Equity Share Capital and into the Capital
Redemption Reserve.
Special Distributable Reserve - reserve created upon the
cancellation of the Share Premium Account and Capital Redemption
Reserve. This reserve is fully distributable.
Revenue Reserve - represents net income earned that has not been
distributed to shareholders. This reserve is fully
distributable.
Income recognised in the Statement of Comprehensive Income is
allocated to applicable reserves in the Statement of Changes in
Equity.
2 Income
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- -------- -------- --------
Dividends(a)
International dividends 76,287 8,431 84,718 52,714 - 52,714
-------------------------- -------- -------- -------- -------- -------- --------
UK dividends 1,176 - 1,176 1,306 - 1,306
-------------------------- -------- -------- -------- -------- -------- --------
77,463 8,431 85,894 54,020 - 54,020
-------------------------- -------- -------- -------- -------- -------- --------
Other income
Bank and deposit interest 3,082 - 3,082 130 - 130
-------------------------- -------- -------- -------- -------- -------- --------
Stock lending income 6 - 6 120 - 120
-------------------------- -------- -------- -------- -------- -------- --------
3,088 - 3,088 250 - 250
-------------------------- -------- -------- -------- -------- -------- --------
Total 80,551 8,431 88,982 54,270 - 54,270
-------------------------- -------- -------- -------- -------- -------- --------
(a) The Company received special dividends amounting to GBP14.0
million (2022: GBP3.9 million) of which GBP8.4 million (2022:
GBPnil) was classified as capital and GBP5.6 million (2022: GBP3.9
million) was classified as revenue.
3 AIFM fee
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- -------- -------- -------- -------- --------
AIFM fee 5,232 12,209 17,441 6,316 14,738 21,054
--------- -------- -------- -------- -------- -------- --------
On 1 October 2021, FTITML replaced Franklin Templeton
International Services S.à r.l as the Company's AIFM and Company
Secretary. The contract with FTITML may be terminated at any date
by either party giving one year's notice of termination.
The AIFM fee is paid monthly and based on the month end total
net assets of the Company. From 1 July 2022, the AIFM fee was
reduced to 1% of the first GBP1 billion of net assets, 0.75% of net
assets between GBP1 billion and GBP2 billion, and 0.50% of net
assets over GBP2 billion. The previous fee structure was 1% of net
assets up to GBP1 billion and 0.80% of net assets above GBP1
billion.
70% of the annual AIFM fee has been allocated to the capital
account.
4 Other expenses
2023 2022
GBP'000 GBP'000
-------------------------------------------- -------- --------
Custody fees 526 775
-------------------------------------------- -------- --------
Marketing fees 321 362
-------------------------------------------- -------- --------
Directors' remuneration 303 304
-------------------------------------------- -------- --------
Membership fees 180 176
-------------------------------------------- -------- --------
Depository fees 148 207
-------------------------------------------- -------- --------
Registrar fees 86 132
-------------------------------------------- -------- --------
Auditor's remuneration
Audit of the annual financial statements 52 34
Review of the Half Yearly Report 10 8
-------------------------------------------- -------- --------
Broker fees 36 33
-------------------------------------------- -------- --------
Printing and postage fees 13 21
-------------------------------------------- -------- --------
Other expenses 304 286
-------------------------------------------- -------- --------
Total 1,979 2,338
-------------------------------------------- -------- --------
5 Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- -------- -------- --------
Fixed term loan 629 1,468 2,097 629 1,468 2,097
-------------------------- -------- -------- -------- -------- -------- --------
Revolving credit facility 331 771 1,102 227 530 757
-------------------------- -------- -------- -------- -------- -------- --------
Bank overdraft interest 2 - 2 2 - 2
-------------------------- -------- -------- -------- -------- -------- --------
Total 962 2,239 3,201 858 1,998 2,856
-------------------------- -------- -------- -------- -------- -------- --------
6 Tax on ordinary activities
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -------- -------- -------- --------
Irrecoverable overseas withholding tax 5,520 - 5,520 4,081 - 4,081
--------------------------------------- -------- -------- -------- -------- -------- --------
Capital gains tax paid - 2,693 2,693 - 1,352 1,352
--------------------------------------- -------- -------- -------- -------- -------- --------
Total current tax 5,520 2,693 8,213 4,081 1,352 5,433
--------------------------------------- -------- -------- -------- -------- -------- --------
Capital gains tax provision - 539 539 - 4,244 4,244
--------------------------------------- -------- -------- -------- -------- -------- --------
Total tax 5,520 3,232 8,752 4,081 5,596 9,677
--------------------------------------- -------- -------- -------- -------- -------- --------
2023 2022
GBP'000 GBP'000
-------------------------------------------------------------- -------- ---------
Profit/(loss) before taxation 11,274 (432,731)
-------------------------------------------------------------- -------- ---------
Theoretical tax at UK corporation tax rate of 19% (2022: 19%) 2,142 (82,219)
-------------------------------------------------------------- -------- ---------
Effects of:
* Capital element of loss 8,865 87,543
-------------------------------------------------------------- -------- ---------
* Irrecoverable overseas withholding tax 5,520 4,081
-------------------------------------------------------------- -------- ---------
* Excess management expenses 2,539 3,101
-------------------------------------------------------------- -------- ---------
* Overseas capital gains tax paid 2,693 1,352
-------------------------------------------------------------- -------- ---------
* Dividends not subject to corporation tax (13,152) (7,924)
-------------------------------------------------------------- -------- ---------
* Movement in overseas capital gains tax liability 539 4,244
-------------------------------------------------------------- -------- ---------
* UK dividends (224) (248)
-------------------------------------------------------------- -------- ---------
* Overseas tax expensed (170) (253)
-------------------------------------------------------------- -------- ---------
Actual tax charge 8,752 9,677
-------------------------------------------------------------- -------- ---------
As at 31 March 2023 the Company had unutilised management
expenses and non-trade deficits of GBP295.5 million carried forward
(2022: GBP284.4 million). These balances have been generated
because a large part of the Company's income is derived from
dividends which are not taxed. Based on current UK tax law, the
Company is not expected to generate taxable income in a future
period in excess of deductible expenses for that period and,
accordingly, is unlikely to be able to reduce future tax
liabilities by offsetting these excess management expenses. These
excess management expenses are therefore not recognised as a
deferred tax asset of GBP73.9 million (2022: GBP54.0 million) based
on a prospective corporation tax rate of 25% (2022: 19%). The UK
corporation tax rate is currently 25% with effect from 1 April
2023.
Movement in provision for capital gains tax(a)
2023 2022
GBP'000 GBP'000
------------------------ -------- --------
Balance brought forward 9,205 4,961
------------------------ -------- --------
Charge for the year 3,232 5,596
------------------------ -------- --------
Capital gains tax paid (2,693) (1,352)
------------------------ -------- --------
Balance carried forward 9,744 9,205
------------------------ -------- --------
(a) A provision for deferred capital gains tax has been
recognised in relation to unrealised gains for holdings in India
and Pakistan.
7 Earnings per share
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- -------- -------- -------- --------- ---------
Earnings 66,858 (64,336) 2,522 40,677 (483,085) (442,408)
--------- -------- -------- -------- -------- --------- ---------
2023 2022
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
------------------- ------- ------- ------ ------- ------- -------
Earnings per share 5.72 (5.50) 0.22 3.44 (40.90) (37.46)
------------------- ------- ------- ------ ------- ------- -------
The earnings per share is based on the profit attributable to
equity holders and on the weighted average number of shares in
issue, excluding shares held in treasury, during the year of
1,169,095,903 (year to 31 March 2022: 1,181,093,110).
8 Financial assets - investments
2023 2022
GBP'000 GBP'000
---------------------------------------- --------- ---------
Opening investments
Book cost 1,732,693 1,553,330
---------------------------------------- --------- ---------
Net unrealised gains 391,837 1,045,745
---------------------------------------- --------- ---------
Opening fair value 2,124,530 2,599,075
---------------------------------------- --------- ---------
Movements in the year:
Additions at cost 466,037 603,763
---------------------------------------- --------- ---------
Disposals proceeds (543,147) (617,723)
---------------------------------------- --------- ---------
Net losses on investments at fair value (54,645) (460,585)
---------------------------------------- --------- ---------
1,992,775 2,124,530
---------------------------------------- --------- ---------
Closing investments
Book cost 1,705,635 1,732,693
---------------------------------------- --------- ---------
Net unrealised gains 287,140 391,837
---------------------------------------- --------- ---------
Closing investments 1,992,775 2,124,530
---------------------------------------- --------- ---------
All investments have been recognised at fair value with gains
and losses recorded through the Statement of Comprehensive
Income.
Transaction costs for the year on purchases were GBP638,000
(2022: GBP749,000) and transaction costs for the year on sales were
GBP1,068,000 (2022: GBP1,209,000). The aggregate transaction costs
for the year were GBP1,706,000 (2022: GBP1,958,000).
2023 2022
GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Net losses on investments at fair value comprise:
------------------------------------------------------- --------- ---------
Net realised gains based on carrying value at 31 March 50,052 193,323
------------------------------------------------------- --------- ---------
Net movement in unrealised depreciation (104,697) (653,908)
------------------------------------------------------- --------- ---------
Net losses on investments at fair value (54,645) (460,585)
------------------------------------------------------- --------- ---------
9 Trade and other receivables
2023 2022
GBP'000 GBP'000
-------------------------- -------- --------
Dividends receivable 7,391 8,224
-------------------------- -------- --------
Overseas tax recoverable 419 2,661
-------------------------- -------- --------
Other debtors 76 88
-------------------------- -------- --------
Sales awaiting settlement - 5,955
-------------------------- -------- --------
Total 7,886 16,928
-------------------------- -------- --------
10 Other payables
2023 2022
GBP'000 GBP'000
---------------------------------------------- -------- --------
Purchase of investments for future settlement 3,790 3,292
---------------------------------------------- -------- --------
AIFM fee 1,396 1,515
---------------------------------------------- -------- --------
Accrued expenses 556 747
---------------------------------------------- -------- --------
Interest and fees on borrowings 343 601
---------------------------------------------- -------- --------
Amounts owed for share buybacks 317 1,563
---------------------------------------------- -------- --------
Revolving credit facility payable - 50,000
---------------------------------------------- -------- --------
Total 6,402 57,718
---------------------------------------------- -------- --------
Interest and fees on borrowings consist of:
2023 2022
GBP'000 GBP'000
-------------------------- ------- -------
Fixed term loan 343 352
-------------------------- ------- -------
Revolving credit facility - 249
-------------------------- ------- -------
Total 343 601
-------------------------- ------- -------
Revolving credit facility
On 31 January 2020, the Company entered into a GBP120 million
multi-currency unsecured revolving credit facility (the "facility")
for a period of three years with The Bank of Nova Scotia, London
Branch. The agreement was amended on 31 January 2023 extending the
maturity date to 30 January 2024. The commitment fee on unutilised
commitments was also amended to a flat fee of 0.40% per annum. The
previous fee structure was 0.40% per annum charged on undrawn
balances in excess of GBP60 million and 0.35% per annum on any
undrawn portion below GBP60 million.
Under the facility balances can be drawn down in GBP, USD or
CNH. The interest margin was increased to 1.20% from 1.125%
following the amendment of the agreement as follows: USD drawdowns
bear interest at 1.20% per annum over the daily secured overnight
financing rate ("SOFR") administered by the Federal Reserve Bank of
New York, while any GBP drawdowns bear interest at 1.20% per annum
over the daily sterling overnight index average ("SONIA") published
by the Bank of England. The rate for any CNH drawdowns is 1.20% per
annum over the Hong Kong Interbank Offered Rate. GBP drawdowns were
also charged a credit adjustment spread, but this has been removed
following the amendment of the agreement on 31 January 2023.
Under the terms of the facility, the net assets shall not be
less than GBP1,015 million and the adjusted net asset coverage to
all borrowings shall not be less than 3.5:1.
On 19 October 2022, the Company fully repaid the GBP50 million
revolving facility drawdown (2022: GBP50 million was outstanding
under the revolving credit facility).
Any facility drawdown is shown at amortised cost and revalued
for exchange rate movements. Any gain or loss arising from changes
in exchange rates is included in the capital reserves and shown in
the capital column of the Statement of Comprehensive Income.
Interest costs are charged to capital (70%) and revenue (30%) in
accordance with the Company's accounting policies.
11 Other payables falling due after more than one year
2023 2022
Book value Book value
GBP'000 GBP'000
---------------- ---------- ----------
Fixed term loan 100,000 100,000
---------------- ---------- ----------
100,000 100,000
---------------- ---------- ----------
Fixed term loan
On 31 January 2020, the Company entered into a term loan (the
"term loan") for a period of five years with Scotiabank Europe plc
for GBP100 million. With effect from 28 September 2022, the term
loan was transferred by novation from Scotiabank Europe plc to The
Bank of Nova Scotia, London Branch. All other contractual terms and
conditions remain the same.
The term loan bears interest at the fixed rate of 2.089%. Under
the conditions of the term loan, the net assets shall not be less
than GBP1,015 million and the adjusted net asset coverage to all
borrowings shall not be less than 3.5:1.
The facility is shown at amortised cost. Interest costs are
charged to capital (70%) and revenue (30%) in accordance with the
Company's accounting policies.
12 Equity share capital
2023 2022
Ordinary shares in issue GBP'000 Number GBP'000 Number
---------------------------------------- ------- ------------- ------- ----------------
Opening ordinary shares of 5 pence 58,945 1,178,896,985 59,062 1,181,228,655(a)
---------------------------------------- ------- ------------- ------- ----------------
Purchase and cancellation of own shares (988) (19,758,613) (117) (2,331,670)
---------------------------------------- ------- ------------- ------- ----------------
Closing ordinary shares of 5 pence 57,957 1,159,138,372 58,945 1,178,896,985
---------------------------------------- ------- ------------- ------- ----------------
2023 2022
Ordinary shares held in treasury GBP'000 Number GBP'000 Number
--------------------------------------------------------------------- ------- ------------- ------- --------------
Opening ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895(a)
--------------------------------------------------------------------- ------- ------------- ------- --------------
Closing ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895
--------------------------------------------------------------------- ------- ------------- ------- --------------
Total ordinary shares in issue and held in treasury at the end of the
year 63,148 1,262,964,267 64,136 1,282,722,880
--------------------------------------------------------------------- ------- ------------- ------- --------------
(a) Comparative figures for the year ended 31 March 2022 have
been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5
pence each on 26 July 2021.
The Company's shares (except those held in treasury) have
unrestricted voting rights at all general meetings, are entitled to
all of the profits available for distribution by way of dividend
and are entitled to repayment of all of the Company's capital on
winding up.
During the year, 19,758,613 shares were bought back for
cancellation at a cost of GBP29,207,000 (2022: 2,331,670 shares
were bought back for cancellation at a cost of GBP3,604,000). All
shares bought back in the year were cancelled, with none being
placed in treasury (2022: no shares were placed into treasury).
13 Dividends
2023 2022
Rate Rate
(pence) GBP'000 (pence) GBP'000
-------------------------------------------------------------------------------- -------- ------- -------- -------
Declared and paid in the financial year
Dividend on shares:
-------------------------------------------------------------------------------- -------- ------- -------- -------
Final dividends for the years ended
31 March 2022 and 31 March 2021 2.80 32,941 2.80(a) 33,074
-------------------------------------------------------------------------------- -------- ------- -------- -------
Interim dividends for the six-month periods ended 30 September 2022 and 30
September 2021 2.00 23,261 1.00 11,811
-------------------------------------------------------------------------------- -------- ------- -------- -------
Total 4.80 56,202 3.80 44,885
-------------------------------------------------------------------------------- -------- ------- -------- -------
Proposed for approval at the Company's AGM
Dividend on shares:
-------------------------------------------------------------------------------- -------- ------- -------- -------
Final dividend for the year ended 31 March 2023 3.00 34,599
-------------------------------------------------------------------------------- -------- ------- -------- -------
(a) Comparative figures for the year ended 31 March 2022 have
been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5
pence each on 26 July 2021.
Dividends are recognised when the shareholders' right to receive
the payment is established. In the case of the final dividend, this
means that it is not recognised until approval is received from
shareholders at the AGM. The proposed final dividend of 3.00 pence
per share will be funded from the revenue reserve and the payment
of this dividend will not threaten the going concern or viability
of the Company.
14 Related party transactions
There were no transactions with related parties, other than the
fees paid to the Directors and the AIFM during the financial years
ended 31 March 2023 and 31 March 2022 respectively, which have a
material effect on the results or the financial position of the
Company. Details of fees paid to the Directors are included in the
full Annual Report and details of the fee paid to the AIFM are
included in the full Annual Report.
15 Risk management
In pursuing the Company's objective, as set out in the full
Annual Report, the Company holds a number of financial instruments
which are exposed to a variety of risks that could result in either
a reduction in the Company's net assets or a reduction in the
profits available for dividends.
The main risks arising from the Company's financial instruments
are investment and concentration risk, market risk (which comprises
market price risk, foreign currency risk and interest rate risk),
liquidity risk and counterparty and credit risk.
The objectives, policies and processes for managing these risks,
and the methods used to measure the risks, are set out below. These
policies have remained unchanged since the beginning of the year to
which these Financial Statements relate.
Investment and concentration risk
The Company may invest a greater portion of its assets than the
benchmark in the securities of one issuer, securities of a
particular country, or securities within one sector. As a result,
there is the potential for an increased concentration of exposure
to economic, business, political or other changes affecting similar
issues or securities, which may result in greater fluctuation in
the value of the portfolio. Investment risk and a certain degree of
concentration risk is a known and necessary effect of the stated
investment approach in line with the investment policy. The
Directors regularly review the portfolio composition and asset
allocation and discuss related developments with the Investment
Manager. Security, country, and sector concentrations are monitored
by the Manager's risk and compliance teams on a regular basis and
any concerns are highlighted to the Investment Manager for remedial
action and brought to the attention of the Directors.
Market price risk
Market risk arises mainly from uncertainties about future prices
of financial instruments held. It represents the potential loss
that the Company might suffer through holding market positions in
the face of price movements.
The Directors meet quarterly to consider the asset allocation of
the portfolio and to discuss the risks associated with particular
securities, countries or sectors. The Investment Manager selects
securities in the portfolio in accordance with the investment
policy, and the overall asset allocation parameters described
above, and seeks to ensure that individual stocks also meet the
intended risk/reward profile.
The Company does not use derivative instruments to hedge the
investment portfolio against market price risk as, in the
Investment Manager's opinion, such a process could result in an
unacceptable level of cost and/or a reduction in the potential for
capital growth.
100% (2022: 100%) of the Company's investment portfolio is
listed on stock exchanges. If share prices as at 31 March 2023 had
decreased by 30% (2022: 30% decrease) with all other variables
remaining constant, the Statement of Comprehensive Income capital
return and the net assets attributable to equity shareholders would
have decreased by GBP597,833,000 (2022: GBP637,359,000). A 30%
increase (2022: 30% increase) in share prices would have resulted
in a proportionate equal and opposite effect on the above amounts,
on the basis that all other variables remain constant.
Foreign currency risk
Currency translation movements can significantly affect the
income and capital value of the Company's investments, as the
majority of the Company's assets and income are denominated in
currencies other than sterling, which is the Company's functional
currency.
The Investment Manager has identified three principal areas
where foreign currency risk could affect the Company:
-- Movements in rates affect the value of investments;
-- Movements in rates affect short-term timing differences; and
-- Movements in rates affect the income received.
The Company does not hedge the sterling value of investments
that are priced in other currencies. The Company may be subject to
short-term exposure to exchange rate movements, for instance where
there is a difference between the date on which an investment
purchase or sale is entered into and the date on which it is
settled.
The Company receives income in currencies other than sterling
and the sterling values of this income can be affected by movements
in exchange rates. The Company converts all receipts of income into
sterling on or near the date of receipt. However, it does not hedge
or otherwise seek to avoid rate movement risk on income accrued but
not received.
The fair value of the Company's items that have foreign currency
exposure at 31 March are shown below:
2023
Trade, bank Total net Investment
Trade and loans, and foreign at fair
other Cash at other currency value through
receivables bank payables exposure profit or loss
Currency GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------ -------- ----------- --------- ---------------
Hong Kong dollar - - (1,786) (1,786) 421,688
---------------- ------------ -------- ----------- --------- ---------------
Korean won 5,561 - (1,834) 3,727 397,800
---------------- ------------ -------- ----------- --------- ---------------
Taiwan dollar 1,494 98 - 1,592 316,317
---------------- ------------ -------- ----------- --------- ---------------
US dollar 420 - - 420 232,164
---------------- ------------ -------- ----------- --------- ---------------
Indian rupee - - - - 226,039
---------------- ------------ -------- ----------- --------- ---------------
Other 320 4,680 (72) 4,928 366,798
---------------- ------------ -------- ----------- --------- ---------------
2022
Trade, bank Total net Investment
Trade and loans, and foreign at fair
other Cash at other currency value through
receivables bank payables exposure profit or loss
Currency GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------ -------- ----------- --------- ---------------
Korean won 6,523 - - 6,523 486,879
---------------- ------------ -------- ----------- --------- ---------------
Hong Kong dollar 19 - (219) (200) 376,797
---------------- ------------ -------- ----------- --------- ---------------
Taiwan dollar 3,791 2,069 (2,069) 3,791 363,488
---------------- ------------ -------- ----------- --------- ---------------
US dollar 53 - (1,000) (947) 252,082
---------------- ------------ -------- ----------- --------- ---------------
Indian rupee - 323 - 323 188,326
---------------- ------------ -------- ----------- --------- ---------------
Other 6,473 116 (23) 6,566 427,793
---------------- ------------ -------- ----------- --------- ---------------
The above tables are based on the currencies of the country
where shares are listed rather than the underlying currencies of
the countries where the companies earn revenue.
As at 31 March 2023, 68.8% (2022: 65.4%) of the investments
shown as US dollar and Hong Kong dollar are Chinese companies with
exposure to the Chinese yuan. The total exposure to Chinese yuan
was GBP616.3 million (2022: GBP604.9 million), out of which
GBP109.4 million (2022: GBP158.5 million) were investments
denominated in Chinese yuan.
Foreign currency sensitivity
The following table illustrates the foreign currency sensitivity
on the revenue and capital return. The revenue return impact
represents the impact on total income (which is mainly comprised of
dividend income) had sterling strengthened relative to the top 5
currencies by 10% throughout the year. The capital return impact
represents the impact of the financial assets and liabilities of
the Company if sterling had strengthened by 10% relative to the top
5 currencies on the reporting date. With all other variables held
constant, the revenue and capital return would have decreased by
the below amounts.
2023 2022
Revenue Capital Revenue Capital
Return Return Return Return
GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- -------- --------
Hong Kong dollar 657 41,990 482 37,660
----------------- -------- -------- -------- --------
Korean won 1,008 40,153 1,083 48,688
----------------- -------- -------- -------- --------
Taiwan dollar 1,226 31,791 955 36,349
----------------- -------- -------- -------- --------
US dollar 917 23,258 994 25,108
----------------- -------- -------- -------- --------
Indian rupee 241 22,604 169 18,865
----------------- -------- -------- -------- --------
Total 4,049 159,796 3,683 166,670
----------------- -------- -------- -------- --------
A 10% weakening of sterling against the above currencies would
have resulted in an equal and opposite effect on the above
amounts.
Interest rate risk
The Company is permitted to invest in interest bearing
securities. Any change to the interest rates relevant to particular
securities may result in income either increasing or decreasing, or
the Investment Manager being unable to secure similar returns on
the expiry of contracts or the sale of securities. In addition,
changes to prevailing rates or changes in expectations of future
rates may result in an increase or decrease in the value of the
securities held and the interest payable on bank loans when
interest rates are reset.
The fixed term loan incurs a fixed rate of interest and is
carried at amortised cost rather than fair value. Hence, movements
in interest rates will not affect net asset values, as reported
under the Company's accounting policies.
Interest rate risk profile
The exposure of the financial assets and liabilities to floating
interest rate risks at 31 March is shown below:
2023 2022
GBP'000 GBP'000
-------------------------- ------- --------
Cash 132,988 125,855
-------------------------- ------- --------
Revolving credit facility - (50,000)
-------------------------- ------- --------
Net exposure at year end 132,988 75,855
-------------------------- ------- --------
Exposures vary throughout the year as a consequence of changes
in the make-up of the net assets of the Company. Cash balances are
held on call deposit and earn interest at the bank's daily rate.
The Company's net assets are sensitive to changes in interest rates
on borrowings. There was no exposure to fixed interest investment
securities during the year or at the year end.
Interest rate sensitivity
If the above level of cash was maintained for a year (2022:
level of cash and revolving credit facility were maintained for a
year) and interest rates were 100 basis points higher or lower, the
net profit after taxation would be impacted by the following
amounts:
2023 2022
100 basis 100 basis 100 basis 100 basis
points increase points decrease points increase points decrease
in rate in rate in rate in rate
GBP'000 GBP'000 GBP'000 GBP'000
-------- ---------------- ---------------- ---------------- ----------------
Revenue 1,330 (1,330) 1,109 (1,109)
-------- ---------------- ---------------- ---------------- ----------------
Capital - - (350) 350
-------- ---------------- ---------------- ---------------- ----------------
Total 1,330 (1,330) 759 (759)
-------- ---------------- ---------------- ---------------- ----------------
Liquidity risk
The Company's assets comprise mainly securities listed on the
stock exchanges of emerging economies. Liquidity can vary from
market to market and some securities may take a significant period
to sell. As a closed ended investment trust, liquidity risks
attributable to the Company are less significant than for an
open-ended fund.
The risk of the Company not having sufficient liquidity at any
time is not considered by the Board to be significant, given the
large number of quoted investments held in the portfolio and the
liquid nature of the portfolio of investments.
The Investment Manager reviews liquidity at the time of making
each investment decision and monitors the evolving liquidity
profile of the portfolio regularly.
The below table details the maturity profile of the Company's
financial liabilities as at 31 March 2023, based on the earliest
date on which payment can be required and current exchange rates as
at the balance sheet date:
More than More than
one year two years
and not and not
In one year later than later than More than
or less two years three years three years Total
As at 31 March 2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ----------- ------------ ------------ --------
Fixed term loan 2,089 102,095 - - 104,184
-------------------------- ----------- ----------- ------------ ------------ --------
Revolving credit facility 401 - - - 401
-------------------------- ----------- ----------- ------------ ------------ --------
Other payables 6,059 - - - 6,059
-------------------------- ----------- ----------- ------------ ------------ --------
Total 8,549 102,095 - - 110,644
-------------------------- ----------- ----------- ------------ ------------ --------
More than More than
one year two years
and not and not
In one year later than later than More than
or less two years three years three years Total
As at 31 March 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ----------- ------------ ------------ --------
Fixed term loan 2,089 2,089 102,095 - 106,273
-------------------------- ----------- ----------- ------------ ------------ --------
Revolving credit facility 51,117 - - - 51,117
-------------------------- ----------- ----------- ------------ ------------ --------
Other payables 7,117 - - - 7,117
-------------------------- ----------- ----------- ------------ ------------ --------
Total 60,323 2,089 102,095 - 164,507
-------------------------- ----------- ----------- ------------ ------------ --------
Counterparty and credit risk
Certain transactions in securities that the Company enters into
expose it to the risk that the counterparty will not deliver the
investment (purchase) or cash (in relation to sale or declared
dividend) after the Company has fulfilled its responsibilities. The
Company only buys and sells through brokers which have been
approved by the Investment Manager as an acceptable counterparty.
In addition, limits are set as to the maximum exposure to any
individual broker that may exist at any time. These limits are
reviewed regularly. The amounts under trade and other receivables
and cash and cash equivalents shown in the Statement of Financial
Position represent the maximum credit risk exposure at the year
end.
The Company has an ongoing contract with its custodian (JPMorgan
Chase Bank) for the provision of custody services.
As part of the annual risk and custody review, the Company
reviewed the custody services provided by JPMorgan Chase Bank and
concluded that, while there are inherent custody risks in investing
in emerging markets, the custody network employed by TEMIT has
appropriate controls in place to mitigate those risks, and that
these controls are consistent with recommended industry practices
and standards.
Securities held in custody are held in the Company's name or to
its accounts. Details of holdings are received and reconciled
monthly. Cash is actively managed by Franklin Templeton and is
typically invested in overnight time deposits in the name of TEMIT
with an approved list of counterparties. Any excess cash not
invested will remain in a JPMorgan Chase interest bearing account.
There is no significant risk on debtors and accrued income or tax
at the year end.
During the year, the Company participated in a securities
lending programme through JPMorgan as the lending agents. All
securities on loan are Level 1 financial instruments, and their
value is determined by reference to the trading prices on the stock
market. As at 31 March 2023, the market value of the securities on
loan and the corresponding collateral received were as follows:
31 March 2023 31 March 2022
Market value Market value Market value Market value
of securities of collateral of securities of collateral
on loan received on loan received
Counterparty GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------------- -------------- -------------- --------------
Merrill Lynch International 543 739 2,908 4,047
---------------------------- -------------- -------------- -------------- --------------
Citigroup 17 22 382 558
---------------------------- -------------- -------------- -------------- --------------
Total 560 761 3,290 4,605
---------------------------- -------------- -------------- -------------- --------------
The maximum aggregate value of securities on loan at any time
during the year was GBP9,470,125. Full details of the collateral
received is noted in the full Annual Report.
Fair value
Fair values are derived as follows:
-- Where assets are denominated in a foreign currency, they are
converted into the sterling amount using period end rates of
exchange;
-- Investments held by the Company on the basis set out in the
accounting policies included in Note 1;
-- 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:
31 March 2023 31 March 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- -------- -------- --------- --------- -------- ------------ ---------
Listed investments 1,992,775 - -(a) 1,992,775 2,103,727 - 20,803(a)(b) 2,124,530
------------------- --------- -------- -------- --------- --------- -------- ------------ ---------
(a) Russian investments in LUKOIL, Sberbank of Russia, and
Yandex continue to be fair valued at zero as at 31 March 2023 as a
result of trading being suspended on international stock exchanges
in February 2022. These investments were transferred from Level 1
to Level 3 during the financial year ended 31 March 2022.
(b) Trading in Brilliance China Automotive shares on the Hong
Kong stock exchange was suspended from 31 March 2021 and, as a
result, the stock was fair valued using a beta model (which applied
an index movement to observed trade prices) until 5 October 2022
when trading resumed. The fair value as at 31 March 2022 was
GBP20,803,000 and the stock was disclosed as Level 3. After the
shares resumed trading, the stock has been transferred from Level 3
to Level 1.
Given the current market conditions and the inability of the
Company to access the local Moscow equity markets and the very
limited access to the over-the-counter market, the Russian
investments continued to be valued based on a liquidity discount of
100% to the last traded price for an exit price of zero.
The following table presents the movement in Level 3 investments
for the year ended:
31 March 2023 31 March 2022
GBP000 GBP000
---------------------------------------------- ------------- -------------
Opening balance 20,803 -
---------------------------------------------- ------------- -------------
Transfers from Level 1 into Level 3 - 149,593
---------------------------------------------- ------------- -------------
Transfers from Level 2 into Level 3 - 50,954
---------------------------------------------- ------------- -------------
Transfers from Level 3 into Level 1 (17,734) -
---------------------------------------------- ------------- -------------
Disposal proceeds - sale of Level 3 assets(a) (1,613) -
---------------------------------------------- ------------- -------------
Net losses on investments at fair value (1,456) (179,744)
---------------------------------------------- ------------- -------------
Level 3 closing balance - 20,803
---------------------------------------------- ------------- -------------
(a) Represents the sale of the holdings in Gazprom on 25 April
2022 for GBP617,000, and the sale of VK on 9 March 2023 for
GBP996,000.
The fixed term loan is shown at amortised cost within the
Statement of Financial Position. If the fixed term loan was shown
at fair value the impact would be:
31 March 2023 31 March 2022
GBP000 GBP000
---------------------------------- ------------- -------------
Fixed term loan at amortised cost 100,000 100,000
---------------------------------- ------------- -------------
Fixed term loan at fair value 94,470 100,390
---------------------------------- ------------- -------------
Increase/(decrease) in net assets 5,530 (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 at fair value is
considered to be classed as Level 2.
16 Significant holdings in investee undertakings
As at 31 March 2023 and 2022, TEMIT had no significant holdings
of 3% or more of any issued class of security within the portfolio
whose shares are admitted to trading.
17 Contingent liabilities
No contingent liabilities existed as at 31 March 2023 or 31
March 2022.
18 Contingent assets
No contingent assets existed as at 31 March 2023 or 31 March
2022.
19 Financial commitments
No financial commitments existed as at 31 March 2023 or 31 March
2022.
20 Capital management policies and procedures
The Company's objective is to provide long-term capital
appreciation for private and institutional investors seeking
exposure to global emerging markets, supported by a culture of both
strong customer service and corporate governance.
The Board monitors and regularly reviews the structure of the
Company's capital on an ongoing basis. This review includes the
investment performance and outlook, discount management mechanisms
including share buybacks, gearing and the extent to which revenue
in excess of that which is required to be distributed under the
investment trust rules should be retained.
The Company's investment policy allows borrowing of up to 20% of
net assets, measured at the time of borrowing.
As at 31 March 2023, the Company had share capital and reserves
of GBP2,017,503,000 (31 March 2022: GBP2,100,390,000). The
Company's policies and procedures for managing capital are
consistent with the previous year.
21 Events after the reporting period
The only material post balance sheet event is in respect of the
proposed final dividend, which is disclosed in Note 13.
The statutory accounts for the period ended 31 March 2023
received an audit report which was unqualified, did not include a
reference to any matters to which the Auditors drew attention by
way of emphasis without qualifying the report, and did not contain
statements under section 498(2) and (3) of the Companies Act 2006,
and will be delivered to the Registrar of Companies.
The Annual Report and Accounts will be sent to Shareholders
shortly. Copies will be uploaded and available for viewing on the
National Storage Mechanism, copies will also be posted to the
website www.temit.co.uk 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 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 .
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END
FR NKCBNABKDNAK
(END) Dow Jones Newswires
June 09, 2023 12:49 ET (16:49 GMT)
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