TIDMTEM
RNS Number : 9262A
Templeton Emerging Markets IT PLC
04 June 2021
Stock Exchange Announcement
Statement of Annual Results
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC
("TEMIT" or "the Company")
Legal Entity Identifier 5493002NMTB70RZBXO96
Company Overview
Launched in June 1989, Templeton Emerging Markets Investment
Trust PLC ("TEMIT" or the "Company") is an investment trust that
invests principally in emerging markets companies with the aim of
delivering capital growth to shareholders over the long term. While
the majority of the Company's shareholders are based in the UK,
shares are traded on both the London and New Zealand stock
exchanges.
TEMIT has a diversified portfolio of around 80 high quality
companies, actively selected for their long-term growth potential,
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 GBP2.6 billion as at 31 March 2021. Since launch
to 31 March 2021, TEMIT's net asset value ("NAV") total return was
+4,629.5% compared to the benchmark total return of +1,930.4%.
The Company is governed by a Board of Directors who are
committed to ensuring that shareholders' best interests, taking
into account 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 2021
Total return for the year to 31 March 2021
Net asset value(a) Share price(a) Benchmark(a)(b)
54.5% 59.5% 42.8%
(2020: -11.2%) (2020: -12.1%) (2020: -13.2%)
--------------------------------- ----------------- ----------------
Dividends for the year to 31 March 2021(c)
Proposed total ordinary dividend Special dividend
19.00p 10.00p
(2020: 19.00p) (2020: 2.60p)
----------------------------------- ---------------------------------
(a) A glossary of alternative performance measures is included
on pages 112 and 113 of 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 19.00 pence per share for the
year ended 31 March 2021 has been proposed. This comprises the
interim dividend of 5.00 pence per share paid by the Company on 11
January 2021 and the proposed final dividend of 14.00 pence per
share. In addition, a special dividend of 10.00 pence per share was
paid by the Company on 11 January 2021.
Strategic Report
The Directors present the Strategic Report for the year ended 31
March 2021, 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
2020-2021
Year ended Year ended Capital Total
31 March 31 March return return
2020-2021 Notes 2021 2020 % %
--------------------------------------- ------- ----------- ----------- -------- --------
Total net assets (GBP million) 2,591.3 1,775.7
------------------------------------------------ ----------- ----------- -------- --------
Net asset value (pence per share) (a) 1,096.9 732.3 50.9 54.5
--------------------------------------- ------- ----------- ----------- -------- --------
Highest net asset value (pence per
share) 1,177.8 971.4
------------------------------------------------ ----------- ----------- -------- --------
Lowest net asset value (pence per
share) 706.1 705.6
------------------------------------------------ ----------- ----------- -------- --------
Share price (pence per share) (a) 1,012.0 657.0 55.4 59.5
--------------------------------------- ------- ----------- ----------- -------- --------
Highest end of day share price (pence
per share) 1,072.0 876.0
------------------------------------------------ ----------- ----------- -------- --------
Lowest end of day share price (pence
per share) 636.0 578.0
------------------------------------------------ ----------- ----------- -------- --------
MSCI Emerging Markets Index 39.4 42.8
------------------------------------------------ ----------- ----------- -------- --------
Share price discount to net asset
value at year end (a) 7.7% 10.3%
--------------------------------------- ------- ----------- ----------- -------- --------
Average share price discount to net
asset value over the year 11.1% 10.7%
------------------------------------------------ ----------- ----------- -------- --------
Ordinary dividend (pence per share) (b) 19.00 19.00
--------------------------------------- ------- ----------- ----------- -------- --------
Special dividend (pence per share) (c) 10.00 2.60
--------------------------------------- ------- ----------- ----------- -------- --------
Revenue earnings (pence per share) (d) 28.64 24.40
--------------------------------------- ------- ----------- ----------- -------- --------
Capital earnings (pence per share) (d) 363.65 (116.75)
--------------------------------------- ------- ----------- ----------- -------- --------
Total earnings (pence per share) (d) 392.29 (92.35)
--------------------------------------- ------- ----------- ----------- -------- --------
Net gearing (a) 0.5% 0.7%
--------------------------------------- ------- ----------- ----------- -------- --------
Ongoing charges ratio (a) 0.97% 1.02%
--------------------------------------- ------- ----------- ----------- -------- --------
Source: Franklin Templeton and FactSet.
(a) A glossary of alternative performance measures is included
on pages 112 and 113 of the Annual Report.
(b) An annual dividend of 19.00 pence per share for the year
ended 31 March 2021 has been proposed. This comprises the interim
dividend of 5.00 pence per share paid by the Company on 11 January
2021 and a proposed final dividend of 14.00 pence per share.
(c) Special dividend of 10.00 pence per share paid by the
Company on 11 January 2021.
(d) The revenue, capital and total earnings per share figures
are shown in the Statement of Comprehensive Income on page 80 of
the Annual Report and Note 7 of the Notes to the Financial
Statement.
Ten Year Record
2011-2021
--------- ----------- ---------
Revenue
earnings Ongoing
Year-end (pence charges
Total net NAV Share price discount(a) per ratio(a)
Annual
dividend
(pence (pence (pence
Year ended assets (GBPm) per share) per share) (%) share) per share) (%)
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2011 2,368.4 718.0 660.0 8.1 6.14 4.25 1.31
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2012 2,098.6 636.3 588.5 7.5 7.91 5.75 1.31
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2013 2,302.7 702.3 640.5 8.2 8.45 6.25 1.30
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2014 1,913.6 591.8 527.0 10.9 9.14 7.25 1.30
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2015 2,045.0 641.2 556.0 13.3 9.28 8.25 1.20
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2016 1,562.3 524.2 453.9 13.4 7.05 8.25 1.22
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2017 2,148.1 762.8 661.5 13.3 6.59 8.25 1.20
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2018 2,300.8 846.0 743.0 12.2 15.90 15.00 1.12
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2019 2,118.2 842.5 766.0 9.1 17.26 16.00 1.02
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2020 1,775.7 732.3 657.0 10.3 24.40 19.00(b) 1.02
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
31 March 2021 2,591.3 1,096.9 1,012.0 7.7 28.64 19.00(c) 0.97
-------------- -------------- ------------ ------------ ------------ --------- ----------- ---------
Ten year growth record
(rebased to 100.0 at
31 March 2011)
2011-2021
---------
MSCI
Emerging
Year ended Market Revenue
Index earnings Ordinary
NAV total Share Share price total per share dividend
NAV return(a) price total return(a) return - undiluted per share
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2011 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2012 88.6 89.2 89.2 89.8 91.8 128.8 135.3
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2013 97.8 99.1 97.0 98.8 98.8 137.6 147.1
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2014 82.4 84.6 79.8 82.2 89.0 148.9 170.6
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2015 89.3 92.8 84.2 87.9 100.8 151.1 194.1
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2016 73.0 76.9 68.8 72.9 91.9 114.8 194.1
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2017 106.2 113.7 100.2 108.1 124.3 107.3 194.1
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2018 117.8 127.8 112.6 122.9 138.9 259.0 352.9
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2019 117.3 130.0 116.1 130.3 139.0 281.1 376.5
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2020 102.0 115.5 99.5 114.5 120.7 397.4 447.1
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
31 March 2021 152.8 178.3 153.3 182.6 172.4 466.4 447.1
----------------- ------ ----------- ------- ----------------- --------- ------------ -----------
Source: Franklin Templeton and FactSet.
(a) A glossary of alternative performance measures is included
on pages 112 and 113 of the Annual Report.
(b) Excludes the special dividend of 2.60 pence per share.
(c) An annual ordinary dividend of 19.00 pence per share for the
year ended 31 March 2021 has been proposed. This comprises the
interim dividend of 5.00 pence per share paid by the Company on 11
January 2021 and a final dividend of 14.00 pence per share. It
excludes the special dividend of 10.00 pence per share paid by the
Company on 11 January 2021.
Chairman's Statement
Market overview and investment performance
At the start of the 12 months under review, equity markets had
begun to recover from the initial shock of the COVID-19 pandemic
outbreak, and investment returns have subsequently been high.
TEMIT's NAV total return was very strong at +54.5%, which exceeded
the return of the benchmark index of +42.8% by a wide margin. This
is the fifth consecutive accounting year that our Investment
Manager has delivered an investment return in excess of the
benchmark, making TEMIT the best performing investment trust in its
peer group(a) over five years. I would like to record the Board's
thanks on behalf of shareholders for this excellent
performance.
(a) Peer group: Global Emerging Markets Investment Trusts.
Source AIC Interactive Statistics.
Revenue and dividend
In April 2020 we were informed by the UK tax authorities that
they agreed our claim for a substantial repayment amounting to 10.0
pence per share, relating to Corporation Tax levied some years ago
along with associated interest.
Excluding the tax repayment and interest, revenue earnings for
the 12 months under review were 17.5 pence per share, compared with
21.8 pence per share for the same period in the prior year (on a
like-for-like basis and excluding an extraordinary receipt of 2.6
pence per share in the prior year). The reduction in core revenue
earnings is largely a result of the COVID-19 pandemic but the
outcome is higher than may have been expected and demonstrates the
resilience of our investment portfolio.
An interim dividend of 5.0 pence per share was paid on 11
January 2021, along with a special dividend of 10.0 pence per share
to distribute the tax repayment to shareholders. The Board
recommends a final dividend of 14.0 pence per share, which is
unchanged from last year. TEMIT has large revenue reserves
amounting to 51.7 pence per share and the Board believes that it is
appropriate to use a small part of these reserves to maintain the
annual dividend at the same level as last year. As usual,
shareholders will be asked to approve the final dividend at the
Annual General Meeting ("AGM").
Asset allocation and borrowing
TEMIT has fixed borrowings of GBP100 million, and a revolving
credit facility under which up to GBP120 million may be drawn down.
During the period under review, in the light of the continuing
COVID-19 pandemic and likely market volatility, the Investment
Manager took a cautious approach and elected not to borrow under
the revolving credit facility and cash held in the portfolio
largely offset the fixed borrowing.
Proposed adjustments to investment policy
The Board is proposing certain amendments to TEMIT's investment
policy and shareholders will be asked to approve a revised policy
at this year's AGM. The key changes are:
(i) The maximum proportion of assets that may be invested in one
company to increase from 10% to 12%, measured at the time of
investment.
This proposed change recognises that there are a number of very
large and world-leading companies based in emerging markets that
have grown to become a significant part of the benchmark. In
proposing this change the Board is conscious that TEMIT should
maintain a portfolio with an appropriate level of
diversification.
We believe that it is in shareholders' best interests to provide
TEMIT this additional flexibility to enable it to hold active
positions in companies that reflect the Investment Manager's
conviction while being conscious of the balance between risk and
potential reward.
(ii) Up to 10% of assets may be invested in unlisted securities
with a limit of 2% per individual investment, measured at the time
of investment.
TEMIT's Investment Manager has recently been aware of a number
of opportunities to invest in unlisted securities, particularly
companies in the final stage of private funding before a planned
public listing. The majority of investments will remain in listed
companies but this proposed change provides a limited ability for
TEMIT to invest in unlisted securities.
(iii) Maximum gearing to increase from 10% to 20%, measured at
the time of borrowing.
While there is no current intention to increase gearing to 20%,
the Board is requesting that shareholders approve an increase in
gearing limits so that the Board and Investment Manager have
additional flexibility to capture future investment
opportunities.
In summary, these proposed changes are designed to increase
flexibility in managing the portfolio but shareholders should not
expect any fundamental change to our Investment Manager's
established approach to investment. A full description of the
proposed changes is included on pages 9 and 10 of the Annual Report
and shareholders will be asked to approve the revised investment
policy at the AGM.
The discount
In the Chairman's Statement at the half-year stage I noted that
the discount had been "stubbornly wide" with a relatively low level
of demand for the shares. Since then the position has improved and,
at the end of the financial year, the discount was 7.7%.
We continue to be active in promoting TEMIT's shares using a
variety of marketing tools with the aim of increasing demand for
the shares. We have a substantial annual marketing and
communications budget which is used to promote TEMIT to private
investors. In addition, our Investment Manager is very active in
meeting professional investors and in making information available
to all investors using electronic media, with a wide variety of
information published on our web site.
The Board regards share buybacks as a helpful tool in managing
the balance between supply and demand for the shares and TEMIT was
again active in buying back shares throughout the year. Trading in
the shares is very closely monitored and the Board receives a daily
report from our broker, Winterflood Securities, as well as regular
summaries of market conditions focused on investor demand for
global emerging markets funds. The information that we receive
provides compelling evidence that the driver of changes in the
discount is the balance between supply and demand for the shares.
At the half year stage, we reported that we had bought back
5,781,760 shares. In the second half of the year, in light of
increased interest from investors and a lower discount, the rate of
buybacks slowed and TEMIT purchased a further 456,648 shares. In
total over the year, GBP49.6 million was spent on share buybacks
and, as all buybacks were at a discount to the prevailing NAV, this
resulted in an increase to the NAV of 0.3% to the benefit of
remaining shareholders.
AIFM fee
With effect from 1 July 2020, the annual fee rate levied on
assets above GBP1 billion was cut to 0.80% from 0.85%. The fee rate
on assets below GBP1 billion is unchanged at 1.0%. Based on net
assets as at 31 March 2021, this results in an annual saving to the
Company of GBP0.8 million.
The Board
Gregory Johnson duly stepped down from the Board at the Annual
General Meeting on 9 July 2020.
Medha Samant joined the Board with effect from 1 October 2020.
Medha subsequently accepted a full time role at a financial
services company and resigned from the Board on 19 April 2021. The
Board would like to thank Medha for her contribution and wishes her
success in her future career. After going through a new recruitment
process the Board has appointed Magdalene Miller as a non-executive
Director of the Company, with effect from 10 May 2021.
Share split to improve marketability
The price of the Company's existing ordinary shares of 25 pence
each ("Existing Ordinary Shares") has more than doubled over the
last five years, from under 500 pence in March 2016 to over 1,000
pence as at the end of March 2021. To assist monthly savers,
shareholders who reinvest their dividends, and individuals wishing
to invest smaller amounts, the Directors are proposing the
sub-division of each Existing Ordinary Share into 5 new ordinary
shares of 5 pence each ("New Ordinary Shares") ("Share Split"). The
Directors believe that the Share Split may improve the liquidity
in, and affordability of, the Company's shares, which would benefit
all shareholders.
The Share Split will not affect the overall value of any
shareholder's holding in the Company, and we have made arrangements
to ensure that there will be no interruption in trading the shares
on the London and New Zealand stock exchanges when the Share Split
takes place.
The New Ordinary Shares will rank pari passu with each other and
will carry the same rights and be subject to the same restrictions
as the Existing Ordinary Shares, including the same rights to
participate in dividends paid by the Company. The Share Split
requires the approval of shareholders and, accordingly, resolution
10 in the Notice of AGM seeks such approval. The Share Split is
conditional on the New Ordinary Shares being admitted to the
Official List of the Financial Conduct Authority and to trading on
the London Stock Exchange's main market for listed securities. If
resolution 10 is passed, the Share Split will become effective on
admission of the New Ordinary Shares to the Official List.
Further details of the Share Split are set out in the Directors'
Report on pages 52 to 54 of the Annual Report and in the Notice of
AGM.
Operational resilience and the COVID-19 pandemic
The Board, and particularly the Audit and Risk Committee,
continues to monitor the Company's operations closely. I am pleased
to report that our Investment Manager and key service providers
have continued to provide a robust service, with good communication
and effective risk controls. While to date all of our key suppliers
have maintained business as usual, we remain alert to the risks
presented by prolonged absence from the office and unconventional
working practices.
Annual General Meeting
The AGM of the Company will take place on 8 July 2021 at
Barber-Surgeons' Hall in London. Our lead portfolio manager will
not be able to attend the AGM but we have a wide range of
information on our web site at www.temit.co.uk , which is regularly
updated. If you decide to join the meeting, shareholders must
review and follow the latest local COVID-19 restrictions applicable
to London and their return location. Voting on the resolutions to
be proposed will be conducted on a poll, and the Board encourages
shareholders to submit their forms of proxy, to ensure that their
vote counts. In light of the evolving situation, it may in any case
be necessary to change the arrangements for this year's Annual
General Meeting after the date of the Notice. Details of any
changes will be made available via an RNS and on the Company's
website. We have made arrangements for shareholders to submit
questions to the AGM. If you have any questions please send these
by email to temitcosec@franklintempleton.com or via the www.temit.
co.uk./investor/contact-us in advance of the meeting. All questions
received will be considered and responses will be provided on our
website www.temit.co.uk.
Whether you intend to attend the meeting in person or not, you
are strongly encouraged to submit your votes on the AGM resolutions
in advance of the meeting. Submitting votes by proxy does not
preclude you attending the meeting or changing your vote if you
attend the AGM but ensures your votes will be counted if
restrictions preventing attendance at the AGM are introduced at
short notice.
If we are required to change the AGM arrangements we will write
to shareholders, make an announcement via the London and New
Zealand stock exchanges and post information on www.temit.co.uk.
Full information on the AGM is contained in the Notice of Meeting
on page 102 of the Annual Report.
Outlook
There are a number of challenges facing the world including
continuing trade tensions, the potential for inflation rates to
continue to edge up and, of course, the risk of continuing
outbreaks of COVID-19. Against this background, we are experiencing
an earnings-led recovery and this environment is one in which our
Investment Manager's approach to stock picking with a focus on
sustainable earnings should continue to lead to attractive
investment returns.
Paul Manduca
Chairman
4 June 2021
Strategy and Business Model
Company objective, purpose and culture
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 for private and institutional investors seeking
exposure to global emerging markets, supported by a culture of both
strong customer service and corporate governance.
Investment policy
The Board is proposing a number of changes to the investment
policy. These changes have been reviewed and approved by the UK
Financial Conduct Authority ("FCA") and are now subject to
shareholder approval at this year's AGM.
Explanation of proposed changes to the investment policy
The revised investment policy as set out below is designed to
provide additional flexibility to the Investment Manager in
achieving TEMIT's aims. While adjustments to the investment policy
are proposed, there will be no fundamental change to the investment
philosophy and approach.
The key proposed changes are:
-- The maximum proportion of assets that may be invested in one
company to increase from 10% to 12%, measured at the time of
investment: This proposed change recognises that there are a number
of very large and world-leading companies based in emerging
markets. In proposing this change the Board is conscious that TEMIT
should maintain a portfolio with an appropriate level of
diversification;
-- Up to 10% of assets may be invested in unlisted securities,
with a maximum of 2% in any one unlisted security at the time of
investment: The majority of investments will remain in listed
companies but this proposed change allows some additional
flexibility to allow TEMIT to participate as and when private
equity opportunities arise. All investments will follow TEMIT's
existing investment philosophy, and the balance of risk and reward,
along with contribution to the overall portfolio, will be carefully
considered for any private investments;
-- Maximum gearing to increase from 10% to 20%: While there is
no current intention to increase gearing to 20%, the Board is
requesting that shareholders approve an increase in gearing limits
so that the Board and Investment Manager have additional
flexibility should suitable investment opportunities occur in the
future; and
-- No more than 10%, in aggregate, of the value of the Company's
assets will be invested in other listed closed-ended investment
funds: The UK Listing Rules set out limits to an investment trust's
ability to invest in other listed closed end funds. This statement
is included to confirm compliance with the listing rules and there
is no current intention to invest in other listed closed end
funds.
Current 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 listed on stock exchanges in developed
countries.
It is intended that the Company will normally invest in equity
instruments. However, the Investment Manager may invest in
equity-related investments (such as convertibles) where it believes
it is advantageous to do so. The portfolio may frequently be
overweight or underweight in certain investments compared with the
MSCI Emerging Markets Index and may be concentrated in a more
limited number of sectors, geographical areas or countries than the
benchmark. Investments may also be made in companies outside the
benchmark that meet the investment criteria. The Company may also
invest a significant proportion of its assets in the securities of
one issuer, securities domiciled in a particular country, or
securities within one industry. No more than 10% of the Company's
assets will be invested in the securities of any one issuer at the
time of investment.
The Board has agreed that TEMIT may borrow up to a limit of 10%
of its net assets.
Revised investment policy - subject to approval at this year's
AGM
The Company seeks long-term capital appreciation through
investment in companies in emerging markets or companies which earn
a significant amount of their revenues in emerging markets but are
domiciled in, or listed on, stock exchanges in developed countries
("Emerging Markets Companies").
It is expected that the majority of investments will be in
listed equities. However, up to 10% of the Company's assets may be
invested in unlisted securities. In addition, while it is intended
that the Company will normally invest in equity instruments, the
Investment Manager may invest in equity-related investments (such
as convertibles or derivatives) where it believes that it is
advantageous to do so.
The portfolio may frequently be overweight or underweight in
certain investments compared with the MSCI Emerging Markets Index
(the "Benchmark") and may be concentrated in a more limited number
of sectors or geographical areas than the Benchmark. Investments
may be made in Emerging Markets Companies outside the Benchmark
that meet the investment criteria.
Whilst there are no specific restrictions on investment in any
one sector or geographic area, the portfolio will be managed in a
way which aims to spread investment risk. The portfolio will
typically contain between 50 and 100 individual stocks but may, at
times, contain fewer or more than this range. No more than 12% of
the Company's assets will be invested in the securities of any one
issuer at the time of investment, save that any investment in
unlisted securities of any one issuer will be limited to no more
than 2% of the Company's assets, measured at the time of
investment.
The maximum borrowing will be limited to 20% of the Company's
net assets, measured at the time of borrowing.
No more than 10%, in aggregate, of the value of the Company's
assets will be invested in other listed closed- ended investment
funds.
In accordance with the Listing Rules, the Company will not make
any material change to its published investment policy without the
prior approval of the FCA and the approval of its shareholders by
ordinary resolution. Such an alteration would be announced by the
Company through a Regulatory Information Service.
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 that the half yearly results are
announced, and a final dividend declared at the time that the
annual results are announced. The final dividend will be subject to
shareholder approval at the Annual General Meeting each year.
Dividends will be paid by cheque or by direct transfer to a
shareholder's bank account. For UK shareholders holding shares in
their own name on the Company's main register, the dividend
payments can be used to purchase further shares in the Company
under the Dividend Reinvestment Plan, detailed on page 111 of the
Annual Report.
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 buy back programme will be
subject to shareholder approval at each Annual General Meeting.
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.
At least quarterly, the Board reviews with Franklin Templeton
International Services S.à r.l. ("FTIS", "AIFM" or the "Manager")
and Franklin Templeton Emerging Markets Equity ("FTEME" or the
"Investment Manager"), a wide range of risk factors that may impact
the Company. Further analysis of these risks is described on pages
17 to 19 of the Annual Report. A full risk and internal controls
review is held every September at the Audit and Risk Committee
meeting.
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 on pages 30 and 31 of the Annual
Report.
The Board is responsible for all aspects of the Company's
affairs, including the setting of parameters for the monitoring of
the investment strategy and the review of investment performance
and policy. It also has responsibility for overseeing all strategic
policy issues, namely dividend, gearing, share issuance and
buybacks, share price and discount/premium monitoring, corporate
governance matters and engagement with all of the Company's
stakeholders.
Strategy
In setting the Company's overall strategy, the Directors have
taken due note of the requirements of Section 172 of the Companies
Act 2006. This section sets out a duty to promote the overall
success of the company, while taking account of the interests of
its various stakeholders. Further details are provided on pages 13
to 15 of the Annual Report. 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, who will identify
value and achieve superior 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 by
investing in companies that they believe offer long-term
sustainable growth and good value, combined with strong management
and sound governance. See pages 24 to 31 of the Annual Report for
details of the investment process.
Liquidity
The shares issued by the Company are traded on the London and
New Zealand stock exchanges. The Company has engaged Winterflood
Securities as Financial Adviser and Stockbroker, and to act as a
market maker in the shares of the Company.
Gearing
On 31 January 2020, the Company entered into a five-year GBP100
million loan at a fixed rate of 2.089% with Scotiabank Europe PLC,
and a three-year GBP120 million unsecured multi-currency revolving
loan facility with The Bank of Nova Scotia, London Branch. The
GBP100 million fixed term loan is denominated in pounds sterling.
Drawings under the GBP120 million revolving credit facility may be
in sterling, US dollars or Chinese renminbi ("CNH"). The total
amount which may be drawn down in CNH is 45% of the combined limit
of the fixed rate loan and of the revolving loan facility. The
fixed rate loan was drawn down on 31 January 2020 and will remain
in place until 31 January 2025. At the year end, the revolving loan
facility has not been utilised (2020: not utilised). The Company
has no other debt. The Investment Manager has been granted
discretion by the Board to draw down the revolving loan facility as
investment opportunities arise, subject to overall supervision by
the Board, and subject to the overall gearing limit in TEMIT's
investment policy.
The Company's net gearing position was 0.5% (net of cash in the
portfolio) at the year-end (2020: 0.7%).
The Board continues to monitor the level of gearing and
currently considers gearing of up to 10% to be appropriate. To
provide further flexibility, assuming that shareholders approve the
changes to the investment policy to be proposed at this year's AGM,
the maximum borrowing will increase from 10% to 20% of TEMIT's net
assets at the time of entering into any new or replacement debt
facility.
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. The Board has
agreed that it will hold a performance-related conditional tender
offer (the "Conditional Tender Offer"). There will be no tender
offer in the event that the Company's net asset value total return
continues to exceed the benchmark total return (MSCI Emerging
Markets Index total return) over the five year period from 31 March
2019 to 31 March 2024. However, if over the five year period the
Company's net asset value total return fails to exceed the
benchmark total return the Board will put forward proposals to
shareholders to undertake a tender offer for up to 25 per cent of
the issued share capital of the Company at the discretion of the
Board. Any such tender offer will be at a price equal to the then
prevailing net asset value less two per cent (less the costs of the
tender offer). Any tender offer will also be conditional on
shareholders approving the continuation vote in 2024 and would take
place following the Company's 2024 AGM.
Stability
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 in 2019 introduced a Conditional Tender Offer. The
share price and discount are discussed under Key Performance
Indicators on page 16 of the Annual Report.
Communication
The Board works to ensure that investors are informed regularly
about the performance of TEMIT and emerging markets through clear
communication and updates.
TEMIT seeks to keep shareholders updated on performance and
investment strategy through the regular annual and half yearly
reports, along with monthly factsheets. 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 understand how
their investment is managed. We also communicate via @TEMIT on
Twitter and continue to develop the Company's presence on social
media.
TEMIT has an active public relations programme. Our Investment
Manager provides comments to journalists 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 each quarter.
At each AGM the Investment Manager makes a presentation with the
opportunity for all shareholders to ask questions. Our lead
portfolio manager will not be able to attend the AGM but we have a
wide range of information on our web site at www.temit.co.uk ,
which is regularly updated.
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, not only
the major shareholders and try to address their concerns as far as
practically possible. Shareholders are welcome to contact the
Chairman and the Chairman of the Audit and Risk Committee at any
time at temitcosec@ franklintempleton.com.
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.
Service providers
The Board conducts regular reviews of the Company's principal
service providers, as discussed on page 55 of the Annual Report, to
ensure that the services provided are of the quality expected by
TEMIT. The Directors also ensure that the Company's principal
service providers have adopted an appropriate framework of
controls, monitoring and reporting to enable the Directors to
evaluate risk.
Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require
directors to explain more fully 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.
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, Company objective Delivering on the The Company's objective The Investment
investors Company's objective and investment Manager's
and potential to shareholders policy are set report starting on
investors over the long term. out on page 9 of page 23 of the Annual
the Annual Report. Report gives a full
The Board took commentary on the
into consideration Company's portfolio
views expressed as well as on the
by shareholders approach and
in deciding on considerations
the proposed revisions undertaken by the
to the investment Investment Manager
policy. The share for stock selection
split was proposed within the portfolio.
because the Board The proposed changes
felt that this to the investment
would be in the policy and the proposed
best interests share split are
of smaller shareholders believed
and major shareholders to be in the best
expressed support interests of
for this initiative. shareholders
The Company's performance as a whole, taking
against its objective account of the views
is regularly reviewed of shareholders.
by the Board, taking A continuation vote
account of views took place at the
expressed by 2019 AGM, with 99.95%
shareholders. of votes cast in
The Company holds favour.
a continuation The next continuation
vote every five vote is scheduled
years to allow to take place at the
shareholders to AGM in 2024.
decide on the long-term
future of the Company.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Shareholders, Dividend The objective of The Board reviews Dividend payments
investors the Company is regularly the level are discussed in the
and potential to provide long of dividends, taking Chairman's Statement.
investors term capital account of the In the year under
appreciation, income generated review the Board decided
however the Board by the Company's to pay a special
recognises the portfolio and the dividend.
importance of regular availability of
dividend income reserves.
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.
In this review
it factored in
the Corporation
Tax repayment received
during the year,
which was distributed
as a special dividend
at the half year
stage. However,
future ordinary
dividends have
been modelled in
line with the
distribution
policy.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Shareholders, Communication The Board understands Working closely Full details of all
investors with shareholders the importance with the Manager Board and Manager
and potential of communication the Board ensures communication are
investors with its shareholders that there is a included on page 108
and maintains open variety of regular of the Annual Report.
channels of communication
communication with shareholders. Shareholders are invited
with shareholders. to submit questions
for the Board to address
at the Company's Annual
General Meeting.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Shareholders, Discount management To smooth the volatility The Board monitors TEMIT continues to
investors in the discount. closely the discount adopt an active buy
and potential and discusses discount back policy and in
investors strategy with the 2019 announced a
Investment Manager Conditional
and the Company's Tender Offer. Details
stockbroker of this can be found
at every regular on page 12 of the
Board meeting. Annual Report.
The stockbroker
provides a summary Further details of
of the discount the current discount
and market conditions and discount management
to the Board and are detailed in the
Investment Manager Chairman's Statement
at the close of on page 6 of the Annual
each trading day Report.
in London.
The Board also
meets with the
Investment Manager
to discuss the
Company's marketing
strategy to ensure
effective communication
with existing
shareholders
and to consider
strategies to create
additional demand
for the Company's
shares.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Manager Communication The relationship The Manager attends The Board operates
between the of the Board with all Board meetings in a supportive and
Board and the the Manager is where it reviews open manner, challenging
Manager very important. and discusses performance the activity of the
reports, changes Manager and its results.
in the portfolio The Board
composition and believes that the
risk matrix. The Company is well managed
Board receives and the Board places
timely and accurate great value on the
information from experience of the
the Manager and Investment Manager
engages with the to deliver superior
Investment Manager returns from investments
and the secretary and on the other
between meetings functions
as well with other of the Manager to
representatives fulfil their roles
of the Manager effectively.
as and when it
is deemed necessary.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Third-party Engagement with The Board acknowledges As an investment The Manager maintains
service providers service providers the importance company all services the overall day-to-day
of ensuring that are outsourced relationship with
the Company's service to third-party the service providers
providers are providing providers. and the Board undertakes
a suitable level The Board considers an annual review of
of service, that the support provided the performance of
the service level by its service providers.
is services providers This review also
sustainable and including the quality includes
that they are fairly of the service, the level of fees
remunerated for succession planning paid. The Board meets
their service. and any potential with the depositary
interruption of at
service or other least annually and
potential risks. with other service
providers as and when
considered necessary.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Investee companies Engagement with The relationship The Board discusses The Investment Manager
investee companies between the Company stock selection has a dedicated research
and the investee and asset allocation team that is employed
companies is very on a quarterly in making investment
important. basis. On behalf decisions and when
of the Company voting at shareholder
the Investment meeting of investee
Manager engages companies.
with investee companies
implementing corporate
governance principles.
------------------ ------------------- ------------------------ ------------------------- ------------------------
Key Performance Indicators(a)
The Board considers the following to be the key performance
indicators ("KPI") for the Company:
-- Net asset value total return over various periods, compared to its benchmark;
-- Share price and discount;
-- Dividend and revenue earnings; and
-- Ongoing charges ratio.
The Ten Year Record of the KPIs is shown on pages 3 and 4 of the
Annual Report.
Net asset value performance
Net asset value performance data is presented within the Company
Overview on page 1 along with the Ten Year Record on pages 3 and 4
of the Annual Report.
The Chairman's Statement on pages 5 to 8 and the Investment
Manager's Report on pages 23 to 44 of the Annual Report include
further commentary on the Company's performance.
Share price and discount
Details of the Company's share price and discount are presented
within the Financial Summary on page 2 of the Annual Report. On 24
May 2021, the latest date for which information was available, the
discount had narrowed to 6.2%.
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. The Company was authorised at its AGM on 9 July 2020
to buy back up to 14.99% of the Company's issued share capital on
that date. The present authority expires on the conclusion of the
AGM on 8 July 2021. The Directors are seeking to renew this at the
2021 AGM, as further detailed in the Directors' Report on pages 59
and 60 of the Annual Report. The Board ensures that the share price
discount to NAV is actively monitored on a daily basis. Discount
management is reviewed regularly by the Board to ensure that it
remains effective in the light of prevailing market conditions. The
Board introduced in 2019 a Conditional Tender Offer, which is
described on page 12 of the Annual Report. The introduction of 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.
Details of share buybacks in the year can be found on pages 6,
54 and 92 of the Annual Report. From 1 April 2021 to 24 May 2021,
no shares were bought back.
Dividend and revenue earnings
Total income earned in the year was GBP59.9 million (2020:
GBP75.1 million) which translates into net revenue earnings of
28.64 pence per share (2020: 24.40 pence per share), an increase of
17.4% over the prior year. The movement in net revenue earnings
year-on-year is explained in the Chairman's Statement on page 5 of
the Annual Report.
The Company paid an interim dividend of 5.00 pence per share and
a special dividend of 10.00 pence per share, both on 11 January
2021. The Board is proposing a final dividend of 14.00 pence per
share, making total ordinary dividends for the year of 19.00 pence
per share and total dividends including the special dividend of
29.00 pence per share.
Ongoing charges ratio(a) ("OCR")
The OCR fell to 0.97% for the year ended 31 March 2021, compared
to 1.02% in the prior year. This was largely driven by the AIFM fee
reduction as detailed within the Chairman's Statement on page 6 of
the Annual Report and an increase in average net assets over the
year.
Costs associated with the purchase and sale of investments are
taken to capital and are not included in the OCR. Transaction costs
are disclosed in Note 8 of the Notes to the Financial Statements on
page 90 of the Annual Report.
Principal risks
The Board has carried out a robust assessment of the principal
and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. These are summarised in the table below. Further
explanation of the monitoring of risk and uncertainties is covered
within the Report of the Audit and Risk Committee on pages 70 and
71 of the 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.
(a) A glossary of alternative performance measures is included
on pages 112 and 113 of the Annual Report.
Risk Mitigation
---------------------------------------------- ---------------------------------------------------
Pandemic
---------------------------------------------- ---------------------------------------------------
The spread of infectious illnesses The Board has regularly reviewed and
or other public health issues and discussed the situation with the Investment
their aftermaths, such as the outbreak Manager, including a review of the portfolio,
of COVID-19, first detected in China risk management and business continuity.
in December 2019 and later spreading The risks associated with a pandemic
globally, could have a significant affect all areas of the
adverse impact on the Company's operations Company's investments as well as operations.
(including the ability to find and Mitigation strategies apply as detailed
execute suitable investments) and within the specific areas of risk.
therefore, the Company's potential A global network of analysts and operations
returns. and a flexible technology setup ("Work
The current COVID-19 outbreak, as from home") at the Investment Manager
well as the restrictive measures implemented ensure operational business continuity
to control such outbreaks, could continue and continuous analyst coverage. The
to adversely affect the economies Board has also received updates on its
of many nations or the entire global key service providers' business continuity
economy, the financial condition of plans.
individual issuers or companies (including
those that are held by, or are counterparties
or service providers to, the
Company) and capital markets in ways
that cannot necessarily be foreseen,
and such impact could be significant
and long term.
---------------------------------------------- ---------------------------------------------------
Cyber The Company benefits from Franklin Templeton's
Failure or breach of information technology technology framework designed to mitigate
systems of the Company's service providers the risk of a cyber security breach.
may entail risk of financial loss,
disruption to operations or damage For key third-party providers, the Audit
to the reputation of the Company. and Risk Committee receives regular
independent certifications of their
controls environment.
---------------------------------------------- ---------------------------------------------------
Investment and concentration The Board reviews regularly the portfolio
The portfolio may diverge significantly composition/asset allocation and discusses
from the MSCI Emerging Markets Index related developments with the Investment
and may be concentrated in a more Manager and the independent risk management
limited number of securities, sectors, team. The Investment Compliance team
geographical areas or countries. This of the Investment Manager monitors concentration
is consistent with the stated investment limits and highlights any concerns to
approach of long-term value investment portfolio management for remedial action.
in companies demonstrating sustainable
earnings power at a discount to their
intrinsic worth. Investment will generally
be made directly in the stock markets
of emerging countries.
---------------------------------------------- ---------------------------------------------------
Market and geo-political The Board reviews regularly and discusses
Market risk arises from volatility with the Investment Manager the portfolio,
in the prices of the Company's investments, the Company's investment performance
from the risk of volatility in global and the execution of the investment
markets arising from macroeconomic policy against the long-term objectives
and geopolitical circumstances and of the Company. The Manager's independent
conditions, as well as from the borrowing risk team performs systematic risk analysis,
utilised by TEMIT. Many of the companies including country and industry specific
in which TEMIT invests are, by reason risk monitoring, as well as stress testing
of the locations in which they operate, of the portfolio's resilience to geopolitical
exposed to the risk of political or shocks. The Manager's legal and compliance
economic change. In addition, sanctions, team monitors sanctions. Where TEMIT
exchange controls, tax or other regulations is affected, adherence to all sanctions
introduced in any country in which and restrictions is ensured by this
TEMIT invests may affect its income team. The Board also regularly reviews
and the value and marketability of risk management reports from the Manager's
its investments. Emerging markets risk team.
can be subject to greater price volatility
than developed markets.
---------------------------------------------- ---------------------------------------------------
Sustainability and climate change The Investment Manager considers that
The Company' portfolio, and also the sustainability risks are relevant to
Company's service providers and the the returns of the Company. The Manager
Investment Manager, are exposed to has implemented a policy in respect
risks arising from ESG factors, and of the integration of sustainability
from sustainability and climate change. and climate change risks in its investment
To the extent that such a risk occurs, decision making process. The Board receives
or occurs in a manner that is not regular reports on the policies and
anticipated by the Investment Manager, controls in place on ESG matters. The
there may be a sudden, material negative Board has reviewed and fully supports
impact on the value of an investment, the Franklin Templeton Stewardship Statement
the operations or reputation of the and its Sustainable Investing Principles
Investment Manager. and Policies.
---------------------------------------------- ---------------------------------------------------
Foreign currency The Board monitors currency risk as
Currency movements may affect TEMIT's part of the regular portfolio and risk
performance. In general, if the value management oversight. TEMIT does not
of sterling increases compared with hedge currency risk.
a foreign currency, an investment
traded in that foreign currency will
decrease in value because it will
be worth less in sterling terms. This
can have a negative effect on the
Company's performance.
---------------------------------------------- ---------------------------------------------------
Portfolio liquidity The closed ended structure of TEMIT
The Company's portfolio may include reduces the impact to shareholders of
securities with reduced liquidity. potential illiquidity in the portfolio.
This may impair the ability to sell
assets which could limit the Investment The Board receives and regularly reviews
Manager's ability to make significant updates on portfolio liquidity. The
changes to the portfolio. diversified nature of the portfolio
and limited investments in stocks with
lower liquidity result in a balanced
portfolio structure.
---------------------------------------------- ---------------------------------------------------
Counterparty and credit The Board receives and reviews the approved
Certain transactions that the Company counterparty list of the Investment
enters into expose it to the risk Manager on an annual basis and receives
that the counterparty will not deliver and reviews regular reports on counterparty
an investment (purchase) or cash (in risk from the Manager's independent
relation to a sale or declared dividend) risk team. A dedicated team oversees
after the Company has fulfilled its the securities lending programme and
responsibilities. The Company engages evaluates all risks on a daily basis.
in securities lending which can increase
counterparty risk.
---------------------------------------------- ---------------------------------------------------
Operational and custody The Manager's systems are regularly
Like many other investment trust companies, tested and monitored and an internal
TEMIT has no employees. The Company controls report, which includes an assessment
therefore relies upon the services of risks together with an overview of
provided by third parties and is dependent procedures to mitigate such risks, is
upon the control systems of the Investment prepared by the Manager and reviewed
Manager and of the Company's other by the Audit and Risk Committee annually.
service providers. The security, for
example, of the Company's assets, J.P. Morgan Europe Limited is the Company's
dealing procedures, accounting records depositary. Its responsibilities include
and maintenance of regulatory and cash monitoring, safe keeping of the
legal requirements depends on the Company's financial instruments, verifying
effective operation of these systems. 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 Manager endeavours to ensure that
The ability of the Company to achieve the principal members of its management
its objective is significantly dependent teams are suitably incentivised, participate
upon the expertise of the Investment in strategic leader programmes and monitor
Manager and its ability to attract key succession planning metrics. The
and retain suitable staff. Board discusses this risk regularly
with the Manager.
---------------------------------------------- ---------------------------------------------------
Regulatory The Board, with the assistance of the
The Company is an Alternative Investment Manager, ensures that the Company complies
Fund ("AIF") and is listed on both with all applicable laws and regulation
the London and New Zealand stock and its internal risk and control framework
exchanges. The Company operates in reduces the likelihood of breaches happening.
an increasingly lex regulatory environment
and faces a number of regulatory risks.
Breaches of regulations could lead
to a number of detrimental outcomes
and reputational damage.
---------------------------------------------- ---------------------------------------------------
Emerging risks
The key emerging risk faced by the Company during the year under
review was the ramifications of the COVID-19 pandemic. While the
onset of the pandemic set many economies into decline, it is far
from clear at this stage what the full societal and economic impact
from the pandemic will be, and it is likely that new risks will
emerge over the coming year. The medical and epidemiological
implications of COVID-19 are yet to be fully understood. While
treatments for those affected by COVID-19 have improved, vaccines
are now available, many local economies are gradually reopening and
business activity is resuming, a return to full capacity is
unlikely to happen anytime soon. Further waves from the mutated
variants of the virus or ill- judged governmental responses could
result in even worse economic effects. Changing consumer behaviour,
continuing restrictions on international travel, additional
administrative burdens and new regulations could significantly
alter and negatively affect business operations in the medium to
long term, with unknown consequences for affected industries and
countries.
TEMIT is a company registered in Scotland. Scottish independence
was the dominant issue in the May 2021 Scottish parliamentary
elections. In her victory speech, the First Minister Nicola
Sturgeon said that she would press ahead with preparations for a
second vote, once the COVID-19 crisis was over. An independent
Scotland, or a Scotland with greater autonomy within the United
Kingdom, may have significant implications from changes in tax
regimes, regulations, and company law. We continue to monitor
developments and will take any appropriate steps to protect
shareholders' interests.
Brexit
TEMIT is regulated as an AIF under UK law, with its Alternative
Investment Fund Manager ("AIFM") being FTIS, a Luxembourg company.
In light of the UK Temporary Permissions Regime that allows up to a
three year extension of current "passporting" for the AIFM into the
UK, we expect that the UK FCA will continue to recognise FTIS as
TEMIT's AIFM at least until the end of 2022. The Manager has,
however, developed plans which can be implemented if and when the
regulatory position changes and the plans involve the appointment
of a UK alternative investment fund manager from Franklin Templeton
group, keeping the same key commercial terms and the same dedicated
team.
TEMIT invests most of its assets outside the EU and the vast
majority of shareholders are based in the UK, New Zealand and the
United States. There was no material adverse affect of the Brexit
process on TEMIT and the Board has decided that Brexit is not one
of the principal risks facing the Company.
Environmental, social and governance matters
The Investment Manager comments on the integral nature of
environmental, social and governance ("ESG") matters within the
investment process and how it engages with companies to promote ESG
best practices on pages 27 to 29 of the Annual Report. It is
assisted by Franklin Templeton's independent ESG specialists and
risk managers.
The Board receives regular reports on the policies and controls
in place on ESG. The Board has reviewed and fully supports the
Franklin Templeton Stewardship Statement and its Sustainable
Investing Principles and Policies. Franklin Templeton supports the
UK Stewardship Code, and seeks to protect and enhance value for our
shareholders through active management, integration of ESG factors
into investment decision making, voting and company engagement.
Franklin Templeton is a signatory to the Principles for Responsible
Investment ("PRI") from 2013 and an active member of a wide range
of organisations and initiatives that work to promote ESG
integration and responsible investment.
As a signatory, the Investment Manager reports annually on its
progress and in 2020 (the latest statistics available) ranked ahead
of the peer median score in all categories. A link to the PRI
Transparency Report and policies relating to responsible investing
are available on the Company's website - www.temit.co.uk. For
further information on: Proxy Voting Policies, Stewardship Policy,
Controversial Weapons Policy, Regional Stewardship Code Statements
and PRI Transparency Report please visit the Responsible Investing
section on www.franklintempleton.co.uk.
Franklin Templeton is a signatory of the Stewardship Code and,
as required by the Financial Reporting Council ("FRC"), reported on
how they have applied the provisions in their annual Responsible
Investment Review in early 2021.
TEMIT has no greenhouse gas emissions to report from the
operations of the Company, as all of its activities are outsourced
to third parties, nor does it have responsibility for any other
emissions-producing sources under the Companies Act 2006 (Strategic
Report and Directors' Report) Regulations 2013. On 26 March 2015,
the Modern Slavery Act 2015 came into force. TEMIT has no employees
and is not an organisation that provides goods or services as
defined in the Act and thus the Company considers that the Act does
not apply. In any event, the Company's own supply chain consists
predominantly of professional services advisers.
Diversity
TEMIT's aim is to have an appropriate level of diversity in the
boardroom.
The Board acknowledges and welcomes the recommendations from the
Hampton-Alexander Review on gender diversity and the Parker Review
about ethnic representation on the Board. The Nomination and
Remuneration Committee considers diversity generally when making
recommendations for appointments to the Board, taking into account
gender, social and ethnic backgrounds, thought, experience and
qualification. The prime responsibility, however, is the strength
of the Board and the overriding aim in making any new appointments
must always be to select the best candidate based on objective
criteria and merit.
In all of the Board's activities, there has been and will be no
discrimination on the grounds of gender, race, ethnicity, religion,
sexual orientation, age or physical ability.
As at 31 March 2021 the Board comprised six Directors, four male
and two female.
The Investment Manager has a culture which embraces individual
differences and the wealth of perspectives brought by global
diversity. As a global company, Franklin Templeton believes that it
benefits from the unique skills and experiences of an inclusive
workforce made up of employees who span different generations,
genders, preferences, capabilities and cultural identification. It
also believes that an inclusive culture can drive innovation and
allows the firm to deliver better client outcomes. This culture
aided Franklin Templeton's inclusion, for the fourth consecutive
year, in the 2020 Bloomberg Gender-Equality Index ("GEI"), which
recognises diverse and equitable workplaces. Franklin Templeton
sponsors thousands of volunteer activities each year through its
global Involved programme which helps to provide better outcomes
for local communities. In the UK, it is an active sponsor/supporter
of several organisations that promote inclusion and social mobility
such as the Diversity Project, Stonewall and Career Ready.
Viability Statement
The Board considers viability as part of its continuing
programme of monitoring risk. In preparing the Viability Statement,
in accordance with the UK Corporate Governance Code and the AIC
Corporate Governance Code, the Directors have assessed the
prospects of the Company over a longer period than the 12 months
required by the 'Going Concern' provision.
The Board has considered the Company's business and investment
cycles and is of the view that five years is a suitable time
horizon to consider the continuing viability of the Company,
balancing the uncertainties of investing in emerging markets
securities against having due regard to viability over the longer
term.
In assessing the Company's viability, the Board has performed a
robust assessment of controls over the principal risks. The Board
considers, on an ongoing basis, each of the principal and emerging
risks as noted above and set out in Note 15 of the Notes to the
Financial Statements. The Board evaluated a number of scenarios of
possible future circumstances including a material increase in
expenses and a continued significant and prolonged fall in equity
markets as a result of the COVID-19 pandemic. The Board also
considered the latest assessment of the portfolio's liquidity.
Further details regarding the impact of COVID-19 on the Company are
detailed within the Chairman's Statement on pages 5 to 8 and the
principal risks section starting on page 17 of the Annual Report.
The Board monitors income and expense projections for the Company,
with the majority of the expenses being predictable and modest in
comparison with the assets of the Company. The Company sees no
issues with meeting interest and other principal obligations of the
borrowing facilities. A significant proportion of the Company's
expenses are an ad valorem AIFM fee, which would naturally reduce
if the market value of the Company's assets were to fall. The Board
has also taken into consideration the operational resilience of its
service providers in light of COVID-19.
Taking into account the above, and with careful consideration
given to the current market situation, the Board has concluded that
there is a reasonable expectation that, assuming that there will be
a successful continuation vote at the 2024 AGM, the Company will be
able to continue to operate and meet its liabilities as they fall
due over the next five years.
Future strategy
The Company was founded, and continues to be managed, on the
basis of a long-term investment strategy that seeks to generate
superior returns from investments, principally in the shares of
carefully selected companies in emerging markets.
The Company's results will be affected by many factors including
political decisions, economic factors, the performance of investee
companies and the ability of the Investment Manager to choose
investments successfully as well as the current challenges as the
world deals with the effects of the COVID-19 pandemic.
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
4 June 2021
The Investment Manager
TEMIT's Investment Manager is the Franklin Templeton Emerging
Markets Equity ("FTEME") team. FTEME has managed the portfolio
since TEMIT's inception and are pioneers in emerging markets equity
investing. They bring more than 30 years of experience and local
knowledge from over 80 investment professionals, based in 14
countries around the world.
The team has a collaborative investment process where all
analysts and portfolio managers are jointly tasked to contribute to
investment returns. They meet regularly, both formally and
informally, to debate and exchange ideas, investment themes and
enrich their understanding of the markets by drawing on local
insights to build a global perspective and context to their
thinking. They also benefit from the broader resources available
throughout Franklin Templeton.
The portfolio managers for TEMIT, Chetan Sehgal (lead) and
Andrew Ness are senior executives in FTEME.
Portfolio Managers
Chetan Sehgal, CFA
Chetan is the lead portfolio manager of TEMIT and is based in
Singapore.
As part of his broader responsibilities within FTEME, Chetan is
also the director of portfolio management. In this capacity, he is
responsible for the overall Global Emerging Markets and Small Cap
strategies, providing guidance and thought leadership, coordinating
appropriate resources and coverage, and leveraging the group's
expertise to add value across products within the strategies.
Chetan joined Franklin Templeton in 1995 from the Credit Rating
Information Services of India, Ltd where he was a senior
analyst.
Chetan holds a B.E. Mechanical (Hons) from the University of
Bombay and a postgraduate diploma in management from the Indian
Institute of Management in Bangalore, where he specialised in
finance and business policy and graduated as an institute scholar.
Chetan speaks English and Hindi and is a Chartered Financial
Analyst ("CFA") charterholder.
Andrew Ness, ASIP
Andrew Ness is a portfolio manager of TEMIT and is based in
Edinburgh.
Prior to joining Franklin Templeton in September 2018, Andrew
was a portfolio manager at Martin Currie, an Edinburgh based asset
manager. 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.
Investment Process
Investment philosophy and approach
FTEME's investment philosophy is focused on investing in
companies with sustainable earnings power at a discount to
intrinsic value. It seeks to capture the growth potential of
emerging market companies and believe that this is best achieved by
employing a bottom-up and fundamental security selection process.
It conducts in-depth proprietary company research with a long-term
and independent perspective.
FTEME believes in the responsible stewardship of clients'
capital and that ESG factors create risks and opportunities for
companies. ESG analysis is therefore integrated alongside
fundamental bottom-up analysis and FTEME engages with companies as
active owners on behalf of clients. As investors with significant
scale across emerging markets, FTEME believes that its engagement
efforts are key to developing detailed understanding of companies
and to improve outcomes for shareholders as well as stakeholders
more broadly.
TEMIT's performance in different market environments
FTEME's core approach and focus on stock-specific risk aims for
outperformance in all market conditions. Whilst more stylized
approaches such as deep value or high growth strategies may perform
better in relative terms in more extreme market conditions, FTEME
aims for long-term outperformance and compounding. As long-term
investors, FTEME are most likely to produce superior returns in
markets that reward patience in identifying and purchasing
fundamentally undervalued securities. 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 over the long term.
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 view as unsustainable factors such
as short-term demand/supply imbalances or inorganic growth. At
these times, FTEME's philosophy and process may therefore be less
successful, given its focus on sustainability, quality, and
valuation.
FTEME's investment process leverages the strength of its
investment team and is aligned to its investment philosophy. The
three broad stages comprise: idea generation, stock research, and
portfolio construction and management. The process is designed to
be repeatable and embeds risk management as well as ESG integration
throughout these stages.
1. Idea generation
The key source of idea generation is FTEME's team of over 80
country and sector analysts and portfolio managers located around
the globe. Their local presence means that it is well placed to
uncover potential investments that meet the specific stock criteria
used to identify sustainable earnings power. In addition, it can
incorporate a deep understanding of the economic, political and
cultural environment in their analysis. FTEME analysts speak the
local language and are part of the local culture and fabric of the
countries where it conducts research.
Research coverage is mutually decided by the analyst and the
Director of Research/portfolio managers and is focused on
identifying sustainable earnings power at a discount. The goal is
to leverage analysts' knowledge and expertise and provide them with
the freedom to satisfy their intellectual curiosity and
entrepreneurialism in identifying research candidates that may
serve as investable ideas for the strategies under management. At
the same time, FTEME aims to ensure appropriate coverage of the
investment universe, and diversification in terms of country,
sector and investment themes.
Both quantitative and qualitative resources support analysts in
their efforts to search the investment universe for compelling
opportunities. FTEME also comprehensively evaluates the emerging
markets investment universe. On occasion, quantitative and
fundamental techniques are used to support the idea generation
process. This is aligned to seek businesses fitting FTEME's
investment philosophy, and help the investment team identify
companies that meet earnings sustainability, earnings power and
valuation criteria. The purpose of the screen is to provide
reference and context to the research team, rather than to drive
decisions on research coverage. The idea generation process is
ongoing and dynamic, as analysts continually monitor their
countries and industries for new opportunities.
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 it also
seeks to gain insights into the quality and risks of companies.
Research Methods
FTEME's research analysts form detailed views of companies by
collecting and analysing a variety of information including, but
not limited to:
-- Regular meetings with company management;
-- Local intelligence including competitors, customers, independent industry professionals;
-- Public records and financial releases (including
cross-referencing onshore and offshore filings that might be in
different languages/released at different times);
-- Third-party data, analytics, research; and
-- Cross-border corroboration and proprietary insights from a global research team.
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 team:
-- Conducts in-depth analysis of market opportunity, business
model, strategy and competitive advantages;
-- Performs assessments of management's ability to identify
opportunities and create value consistently;
-- Carries out comprehensive analysis of industry perspective
and outlook, enriched by Franklin Templeton's global insights;
and
-- Evaluates regulatory and policy risk at the company, industry and country level.
Every stock researched by the analysts is thoroughly vetted at
regular investment team meetings. This analysis is available to all
investment team members on common platforms. The high degree of
interaction helps each member share and learn from the team's
collective experience and expertise. Areas of focus are:
Sustainable
The ability to sustain stable or growing economic profits over
time. This is typically driven by a combination of factors such
as:
-- Sound business models;
-- Sustainable competitive advantages;
-- Management foresight; and
-- Low leverage.
As part of assessing a company's sustainable characteristics,
FTEME seeks to develop a deep understanding of a company's ESG
practices. This supports the identification of business models that
are most likely to sustain high returns and resist competitive
pressure over time. ESG factors can have a material impact on a
company's current and future corporate value and therefore ESG
considerations are an embedded component of the rigorous
fundamental bottom-up research that the team conducts.
Earnings Power
-- 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 per share
("EPS"), and differentiating between operational earnings and
financial earnings; and
-- Evaluate internal versus external drivers to earnings, and
prefer companies with internal drivers which can be affected
through management action.
A key element of earnings power is therefore quality, as
signified by:
-- Products and services with low regulatory and macro risk.
FTEME focuses on the crucial intangibles that create lasting value:
strong brands, excellent people, established systems and
procedures, proprietary technologies, and low-cost operations;
and
-- Financial strength, as exhibited by strong balance sheets,
conservative accounting, and high economic value added.
-- Management strength as indicated by:
- A strong execution track record;
- Ability to maintain the highest standards in their areas of
operation; and
- Ability/willingness to return cash to investors if there are
no identified profitable investment opportunities.
Discount to intrinsic worth
Each research recommendation may incorporate several valuation
methods including discounted cash flows, sum of the parts, net
asset value, and a wide range of relative valuation metrics, as
deemed appropriate by the analyst. Explicit cash flow forecasting
typically extends 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.
As part of its assessment of value, FTEME focuses on
understanding the margin of safety. It seeks explicitly to identify
what the market consensus expectations are for a stock and how
their fundamental view may differ. The intrinsic worth of a company
is determined through modelling the current business
characteristics and changes in the business profile over time.
To illustrate Franklin Templeton's approach to ESG and the way
in which this is integrated in the research process set out below
is a summary of research carried out on two companies in the past
year.
Summary of the company Analysis
One of the largest cement producers The company is in compliance with local
in South East China standards and has improving emissions intensity
Over 80% of the company's revenue figures. Management integrates ESG KPIs
comes from cement production which in staff remuneration at various levels.
requires combustion of fossil fuels The company has a stated intention to improve
and with at present no meaningful carbon management further via technology
and viable economic alternative. upgrades.
Global tightening of environmental The company was a participant in the Guangdong
standards and pressure in China province's pilot carbon trading programme.
to reduce emissions may lead to While the details of the imminent nationwide
potential operating & compliance carbon trading system are yet to be released,
costs. the company is confident that they are
well equipped to face the challenges of
carbon peak by 2030.
We encouraged the company to join the Global
Cement and Concrete Association, a commitment
to ensure sustainability for the industry
and to improve reporting standards which
is underway.
Conclusion:
Improving emissions intensity, compliance
with local standards, and management intentionality
to improve further suggests low ESG risk
and strong profile within sector. Given
potential emissions costs in the future
to Chinese cement manufacturers however,
we have factored this into the company
valuation by adjusting our cash flow forecasts.
-------------------------------------- ----------------------------------------------------
Internet service operator in China The company exhibits a strong privacy policy
There is an issue with user privacy and commits to collecting only the information
protection & content management that is necessary for product functions.
in China. Users with privacy concerns It provides a mechanism for personal data
may decide to switch to control, allowing clients to erase, rectify,
alternative internet services. This complete or amend personal information,
has the potential to impact revenue. as well as to raise concerns about data
Content management (censorship) privacy. A dedicated website listing all
without reasonable level of consensus privacy rules for all of its products exists
building or supervision may lead and offers contact to resolve any dispute
to a less active user base. the users may have. Privacy management
practices are transparent and certified
by TRUSTe, joining the ranks of other leading
international companies. The company is
aware and anticipates censorship requirements
from government related bodies.
Conclusion:
Risks associated with privacy concerns
and content management (censorship) are
faced by all content platforms in China,
and full cooperation with regulators is
important to ensure continuous operation.
Such risks, which Franklin Templeton sees
as part of the political risk of investing
in China, are reflected in the cost of
capital in valuation models.
-------------------------------------- ----------------------------------------------------
Company engagement
FTEME's research analysts conduct ESG analysis alongside
fundamental bottom-up analysis. They analyse ESG factors which may
affect growth potential and asset values with the same level of
rigour as traditional risk metrics. By integrating ESG analysis
with traditional business and financial analysis FTEME seeks to
gain insights into the quality and risks of companies. This allows
FTEME to identify those business models most likely to resist
competitive pressure and sustain high returns. The process aims to
understand management's ability to generate sustainable earnings,
understand their motivation and determine whether their interests
are aligned with minority investors.
FTEME's analysts seek to identify material ESG issues and are
guided by ESG Sector Framework Guides prepared by Franklin
Templeton's dedicated, independent ESG team. The frameworks have
been informed by the Sustainability Accountings Standards Board
("SASB") and identify a minimum set of ESG issues most likely
materially to impact the operating performance or financial
condition of a typical company in its industry group.
Rather than create a niche ESG research function in a separate
silo, one of FTEME's key strategies for effective integration is to
keep ESG considerations embedded in the work of its mainstream
research teams. While consideration of material ESG issues is
already an element of analysts' fundamental bottom-up research,
Franklin Templeton's dedicated ESG team supports FTEME to
anticipate and translate ESG risks and opportunities in the
investment process. This support is provided through access to
additional ESG-related analysis and training, thematic research,
and enhancements to processes.
FTEME's primary source for gathering information on ESG is
through engagement with management,
financial statement analysis, corporate reports and reference to
third party providers of dedicated ESG research such as MSCI and
Sustainalytics. In addition, FTEME is supported by independent risk
consultants in Franklin Templeton's Investment Risk Management
Group, as well as its dedicated ESG team. The Investment Risk
Management Group uses industry-leading tools to provide a top-down,
portfolio level perspective on ESG issues, while ESG specialists
engage and support FTEME's understanding of the impact and scope of
material ESG issues and can provide guidance on emerging ESG
themes.
Voting and Engagement
FTEME conducts a significant number of company meetings -
typically over 2000 a year - using its industry- leading research
footprint of over 80 investors in 14 countries where it seeks to
gain a number of fundamental and ESG insights. FTEME views this
along with voting and engagement as part of its broader objective
of responsible stewardship on behalf of clients.
As an active owner FTEME seeks to engage with companies on
material issues via several approaches including management and
board meetings, letter writing, proxy voting, and shareholder
resolution filing. The approach to voting is designed to enhance
shareholders' long-term economic interests. All voting decisions
are made in-house by FTEME analysts/portfolio managers and are
undertaken in accordance with FTEME's Corporate Governance
Principles and in line with clients' best interests.
Engagement efforts are not limited only to companies. FTEME also
uses its wide footprint and relationships with governments and
regulators to foster positive outcomes. Notable efforts in this
arena include pushing for better standards of corporate governance
and reforms. FTEME believes that these improvements should in turn
help boost economic growth and profitability for listed
companies.
To illustrate Franklin Templeton's approach to active ownership
set out below is a summary of engagement with two investee
companies in the past year.
Summary of the company Actions
Asian nutritional product manufacturer Franklin Templeton sought change in the
Topic: board structure, with the company acknowledging
Franklin Templeton raised concerns that they are open to change. The company
around lack of board independence is considering new board appointees with
given that several directors had fast-moving consumer goods experience and
served for 10 years or more. is willing to listen to referrals, including
overseas candidates to broaden the base
of experience which the board brings.
-------------------------------------- --------------------------------------------------
Commercial bank in China The bank agreed that there is room for
ESG disclosures and accountability improvement in their disclosures and focus
were considered to be inadequate. on ESG. They have appointed a team to compile
ESG data from bank and publish a report.
The bank will reflect the focus on ESG
to the management team, with a commitment
to increase awareness.
-------------------------------------- --------------------------------------------------
3. Portfolio construction
The portfolio managers aim to build a portfolio of around 50 to
100 companies that have been identified as strong investment
opportunities.
The portfolio construction and management process seeks to build
a high-conviction stock-centric portfolio that is primarily driven
by company-specific factors and focused on the long term.
FTEME aims to build a portfolio that is primarily driven by
stock selection while seeking sufficient diversification at the
portfolio level with low country, currency and style tilt factors.
The dominant driver of the portfolio is expected to be
stock-specific risk, aligned with the investment philosophy
described above.
Risk is managed at the portfolio level to ensure diversified
economic drivers and to understand portfolio exposure to broader
market events and macro factors.
Portfolio Style and Characteristics
The strategy typically displays the following
characteristics:
-- Core style: The strategy typically displays low style tilt,
aiming to deliver outperformance irrespective of market direction.
The portfolio construction process leads to the majority of active
risk focused on stock selection, not style or currency factors;
-- Quality and growth but not at excessive valuation levels: The
philosophy typically leads to a portfolio with higher quality (and
lower debt) and growth than the aggregate of the benchmark index,
but not at excessive valuation levels;
-- High conviction portfolio: The top-10 holdings typically
account for over 40% of the portfolio which forms part of a
well-diversified portfolio across the market cap spectrum. Active
share is typically between 70 and 85%, with a significant number of
holdings distinct from the benchmark; and
-- Low turnover: FTEME's bottom-up, high conviction and
long-term approach means that typically portfolio turnover is less
than 20%, with an average holding period of around five years.
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; their sell discipline
is designed to capture the opposite.
Buy decisions typically take into consideration:
-- Analyst rating upgrades driven by an increase in the margin
of safety or conviction in the company; and
-- Portfolio manager increase in conviction and portfolio
context including rebalancing and risk management. Sell decisions
typically are driven by:
-- Analyst downgrades driven by a deterioration in fundamentals
or the stock reaches intrinsic value;
-- More attractive opportunities on a relative basis; and
-- Other factors including risk considerations such as excessive
volatility, ESG risk, or exposure to a given stock, country,
sector, or theme.
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, and portfolios constructed from the
"bottom up" based on fundamental stock specific analysis, may be
exposed to risks that become evident when viewed from the "top
down", or a macroeconomic, sector or country perspective. 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 led first and foremost by experienced
portfolio managers. It is integrated within each step of FTEME's
fundamental, research-driven process, and includes formalised
collaboration with FT's independent Investment Risk Management
Group. The group consists of over 90 investment risk and
performance professionals in 20 global locations. The group is
responsible for the independent preparation and monitoring of risk
management information and for the reporting of any exceptions to
senior management and the Board of the Company. A monthly executive
risk summary report is reviewed by FT's Executive Investment Risk
Committee as an input to the senior management reporting process.
The group also provides regular performance analysis versus the
benchmark to identify absolute and relative performance trends or
outliers. Exposure and attribution analysis is another key measure
to support the integration of investment risk insight into each
step of the investment process.
Building from this philosophy and within the boundaries of the
overall investment strategy or potential regulatory restrictions,
the Investment Manager and Investment Risk Management Group will
agree upon guidelines that reflect TEMIT's risk profile.
As part of the ongoing risk management, potential performance in
stressed markets or under anticipated scenarios are assessed and
discussed. Using their specific expertise and with an independent
view, the Investment Risk Management Group can provide risk-related
information to the Investment Manager that can provide valuable
insight for consideration in the portfolio construction
process.
For additional information with respect to the AIFM risk
management framework, please read the Investor Disclosure Document
on our website (www.temit.co.uk).
Portfolio Report
Overview of markets
Emerging market equities posted strong gains for the reporting
year, outpacing developed markets despite losses in the final weeks
prompted by concerns over rising inflation, higher US Treasury
yields and resurgent COVID-19 outbreaks. Early-period
pandemic-related losses were erased by a rally in the latter part
of 2020, driven by renewed risk appetite amid vaccine breakthroughs
that fanned hopes for a full economic reopening. TEMIT delivered a
net asset value total return of 54.5%, while the MSCI Emerging
Markets Index returned 42.8% in the year under review (all figures
total return in sterling). Full details of TEMIT's performance can
be found on page 1 of the Annual Report.
Key emerging markets, particularly in East Asia, substantially
outperformed other countries in terms of health outcomes, economic
resilience, and equity returns over the reporting year. The global
competitiveness of emerging market companies has been a standout
feature amid market swings and pandemic worries.
Notably, Taiwanese and South Korean semiconductor firms proved
indispensable as demand for technology skyrocketed, fuelling
market-beating returns for both countries.
The challenges of 2020 highlighted structural advantages and
other beneficial secular trends in emerging markets that we believe
bode well for the year ahead. The resilience of key markets in East
Asia during the pandemic, paired with their ability to capitalise
on secular shifts to the new economy, should drive continued
strength. India and Brazil, among markets that lagged their peers,
stand to benefit from a uniquely accommodative environment of
negative real rates (and an undervalued currency in Brazil), paired
with ongoing reform efforts and excess capacity in the economy,
boosting growth.
China remained TEMIT's largest market exposure but the portfolio
remained underweight relative to the benchmark. Equity prices in
China gained more than 29% in sterling terms over the year,
underperforming the benchmark. Encouraging economic data and
government policy response to the pandemic drove investor optimism,
but US-China disputes and increased Chinese government scrutiny of
internet companies, emphasising fair competition, consumer
protection and data security, dampened sentiment. Geopolitical
tension between China and the United States remains a key headwind
that is likely to persist under President Joe Biden's
administration, though we could see a shift to a more constructive
tone. The US Department of Defense, however, added a number of
Chinese companies to a list of those deemed to have some military
connection. An executive order prevents US investors from holding
any companies on the list. Although business operations should not
be directly impacted by the ban, stock prices experienced some
volatility as a result of some forced selling. China was the only
major economy to generate gross domestic product ("GDP") growth in
2020, underpinned by a diversified domestic economy driven by
innovation and digitalisation. The strength of China's economic
recovery is unparalleled, in our view. The skill and speed with
which the authorities dealt with the COVID-19 pandemic resulted in
a V-shaped recovery that we believe bodes well for continued
strength in the year ahead. Chinese economic policy is likely to
focus on normalisation throughout 2021, using monetary, fiscal or
regulatory levers. We also believe that the depth and breadth of
the investment opportunities that the Chinese equity market offers
have grown exponentially.
South Korea was TEMIT's second-largest market position at the
end of March and the portfolio was overweight versus the benchmark.
South Korean equities gained 71% during the reporting period, the
second-highest return in the benchmark after Taiwan.
Technology-heavy indices in both countries soared on robust demand
for their technology exports. A widespread chip shortage has
underscored the world's reliance on Taiwanese and South Korean
semiconductor firms, which have dominated the global industry with
their strong manufacturing capabilities. South Korean battery
makers have become key suppliers of electric vehicle ("EV")
batteries, supporting EVs' growing penetration on the back of
favourable policies and advancing technology. Macroeconomic
indicators in South Korea have deteriorated since the onset of the
pandemic, but we expect them to normalise when the COVID-19 threat
recedes.
With a return of nearly 75%, Taiwan outperformed all other
countries in the MSCI Emerging Markets Index over the reporting
period. Taiwan posted better-than-expected economic growth for 2020
and was among the few markets in the world to avoid a contraction
during the pandemic. TEMIT's exposure to Taiwan was largely
attributable to Taiwan Semiconductor Manufacturing ("TSMC"), one of
the portfolio's largest holdings and the largest stock contributor
to TEMIT's performance relative to the benchmark. Taiwan's
companies derive over 70% of revenues from abroad. The country's
highly educated workforce has been the backbone of its steady
ascent up the value chain in manufacturing; it is now an exporter
of technology components and essential semiconductor chips that
constitute the computing power behind modern technologies. The
importance of these products in the world economy is only
increasing, which is a powerful tailwind for Taiwan's economy. The
pandemic has accelerated some long-term themes that have benefited
Taiwan, which we expect to continue.
Russia trailed its emerging market peers, returning 31% in
sterling terms. Equities in the energy-dependent market spiked and
dipped along with changes in oil prices, although other factors
influenced performance as well. In May, Russia's benchmark index
recorded robust returns, driven by strong appreciation in the
rouble, higher oil prices and easing quarantine measures. Voters
passed a constitutional referendum that allows President Vladimir
Putin to seek two additional terms, effectively remaining in power
until 2036. Then in August and September, lower oil prices,
geopolitical worries and a depreciation in the rouble offset the
development of a COVID-19 vaccine and better-than-expected
second-quarter GDP data to push Russian equities lower. As oil
prices rose again later in the year, Russian equities advanced
thanks to an improved outlook for global oil demand. A weaker
rouble, mass protests across the country and geopolitical noise
weighed on investor sentiment as 2021 began. Finally, another
upswing in oil prices buoyed Russian equities near the close of the
reporting year, although worries of potential US sanctions then
checked returns. Looking forward, given a recovery in oil prices
and stable environment for the rouble, we believe that Russian
companies will be likely to benefit from positive earnings
revisions and improved distributions to shareholders.
India gained 59% in sterling terms, performing better than most
of its peer countries in the benchmark. Equities advanced
relatively steadily throughout the reporting period,
notwithstanding intermittent sell-offs prompted by India-China
border clashes and worsening COVID-19 infection rates. A relaxation
of lockdown restrictions early in the reporting year lifted hopes
for the economy's recovery and drove equities higher.
Better-than-expected corporate results also cushioned the market
against COVID-19's sustained spread. The Indian government's
emphasis on infrastructure development in its current Union Budget
should benefit the construction, infrastructure and cement sectors,
while plans to increase the foreign direct investment limits in
insurance companies bodes well for that sector. A revival of GDP
growth, combined with the push on infrastructure and industrial
growth, as well as a benign interest-rate environment, could
support loan growth, which could benefit banks with a sizeable
corporate lending activity. Normalisation of credit stress on the
back of falling interest rates and improving liquidity should also
have a positive impact on banks, an area where we maintain a
positive outlook. A key holding in India is one of the country's
largest private-sector banks, ICICI Bank. Although India remains
one of the relatively larger positions in TEMIT's portfolio, we
remain underweight relative to the benchmark. We believe that as
investment-driven GDP growth picks up, so should disposable
incomes, in turn boosting domestic consumption. Overall, we expect
India's economic recovery to continue over 2021, as economic
activity gradually settles toward pre-pandemic levels.
Brazil gained 32% during the reporting period but lagged the
benchmark. Heavy government spending and monetary policy easing
helped to bring some stability to the economy in the early stages
of the pandemic. In the third quarter of 2020, however,
worse-than-expected second-quarter GDP data weighed on market
sentiment. Latin American equities and currencies staged a rally
based on growing investor confidence and stronger commodity prices
in the final months of 2020, with optimism around Brazil's economic
rebound outweighing worries over its fiscal deficit following
massive stimulus to tackle the pandemic. Market trends in the first
few months of 2021 reversed some of those gains, as concerns about
Brazil's fiscal position and COVID-19 situation coupled with
weakness in the real weighed on Brazilian equities. The
intensifying pandemic has added pressure on the government to ramp
up already massive spending. Signs of increased state interference
in the economy and heightened political noise ahead of next year's
presidential election also held back returns. Complicating matters,
rising domestic inflation has narrowed the scope for monetary
policy support. The central bank raised its key interest rate from
a record low in March, signalling the start of a rate-hike cycle.
We believe that Brazil's economic recovery will rely heavily on the
government's ability to implement long-awaited structural reforms.
Meanwhile, as a major commodity exporter Brazil is likely to
benefit from rising prices for commodities, as well as their broad
appeal as an inflation hedge. We expect higher interest rates in
Brazil to bode well for banks, especially market leaders that have
weathered the pandemic with the help of strong capital positions
and large deposit franchises.
Investment strategy, portfolio changes and performance
The following sections show how different investment factors
(stocks, sectors and geographies) accounted for the Company's
performance over the period. We continue to emphasise our
investment process that selects companies based on their individual
attributes and ability to generate risk-adjusted returns for
investors, rather than taking a high-level view of sectors,
countries or geographic regions to determine our investment
allocations.
Our investment style 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, active approach to
help us to find companies which have high standards of corporate
governance, respect their shareholder base and understand the local
intricacies that may determine consumer trends and habits.
Utilising our large team of analysts, we aim to maintain close
contact with the board and senior management of existing and
potential investments and believe in engaging constructively with
our investee companies.
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.
We believe as active investors that, while this is a difficult
time it does give us the opportunity to engage with companies and
understand both the short- and long-term impact of COVID-19 and the
subsequent behavioural changes on companies and ensure that our
portfolios are positioned accordingly. We continue to stress the
importance of being selective and undertaking due diligence in
making investment decisions.
Our well-resourced, locally based team remains a key competitive
advantage and it has certainly been helpful having a team on the
ground in Hong Kong and Shanghai for example, to help us better
understand what is happening in China.
In the portfolio, we remain positioned in long-term themes
including consumption premiumisation, digitalisation, healthcare
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.
While the immediate outlook is uncertain, this approach should
help us best navigate the ongoing pandemic. Over time, we expect
the long-term fundamentals of our holdings to remain intact.
Performance attribution analysis
%
Year to 31 March 2021 2020 2019 2018 2017
--------------------------------- ----- ------ ----- ----- -----
Net asset value total return
(a) 54.5 (11.2) 1.8 12.4 47.8
--------------------------------- ----- ------ ----- ----- -----
Expense incurred 1.0 1.0 1.0 1.1 1.2
--------------------------------- ----- ------ ----- ----- -----
Gross total return (a) 55.5 (10.2) 2.8 13.5 49.0
--------------------------------- ----- ------ ----- ----- -----
Benchmark total return (a) 42.8 (13.2) 0.1 11.8 35.2
--------------------------------- ----- ------ ----- ----- -----
Excess return (a) 12.7 3.0 2.7 1.7 13.8
--------------------------------- ----- ------ ----- ----- -----
Stock selection 6.0 (2.1) 1.8 1.3 13.7
--------------------------------- ----- ------ ----- ----- -----
Sector allocation 6.8 3.1 (0.6) (0.3) 0.1
--------------------------------- ----- ------ ----- ----- -----
Currency (0.3) 1.6 1.0 0.4 0.2
--------------------------------- ----- ------ ----- ----- -----
Residual (a) 0.2 0.4 0.5 0.3 (0.2)
--------------------------------- ----- ------ ----- ----- -----
Total Investment Manager
contribution 12.7 3.0 2.7 1.7 13.8
--------------------------------- ----- ------ ----- ----- -----
Source: FactSet and Franklin Templeton.
(a) A glossary of alternative performance measures is included
on pages 112 and 113 of the Annual Report.
Top contributors to relative performance by security (%) (a)
Relative
Share price contribution
Top contributors Country Sector total return to portfolio
----------------------------------- ------------ ----------------------- ------------- -------------
Taiwan Semiconductor Manufacturing Taiwan Information Technology 116.3 2.7
----------------------------------- ------------ ----------------------- ------------- -------------
Communication
NAVER South Korea Services 117.3 2.2
----------------------------------- ------------ ----------------------- ------------- -------------
Samsung Electronics South Korea Information Technology 73.8 1.5
----------------------------------- ------------ ----------------------- ------------- -------------
China Construction Bank China/Hong
(b) Kong Financials (2.1) 0.7
----------------------------------- ------------ ----------------------- ------------- -------------
Communication
Yandex Russia Services 69.4 0.6
----------------------------------- ------------ ----------------------- ------------- -------------
Samsung Life Insurance South Korea Financials 82.8 0.4
----------------------------------- ------------ ----------------------- ------------- -------------
MediaTek Taiwan Information Technology 63.4 0.4
----------------------------------- ------------ ----------------------- ------------- -------------
Glenmark Pharmaceuticals
(b) India Health Care 123.8 0.4
----------------------------------- ------------ ----------------------- ------------- -------------
China/Hong Communication
Kuaishou Technology (b) Kong Services 161.9 0.4
----------------------------------- ------------ ----------------------- ------------- -------------
China/Hong Communication
Tencent Kong Services 47.0 0.4
----------------------------------- ------------ ----------------------- ------------- -------------
(a) For the period 31 March 2020 to 31 March 2021.
(b) Security not held by TEMIT as at 31 March 2021.
Taiwan Semiconductor Manufacturing ("TSMC") is one of the
world's leading semiconductor manufacturers, with major technology
companies among its clients. TSMC surged as investors lifted their
longer-term outlook for the chip maker in a robust environment for
technology exports driven by increased consumer demand for
computers, game consoles, smartphones and tablets during the
pandemic. Strong demand for its leading-edge chips coupled with
production setbacks for its key competitor underpinned the
optimism. TSMC's better-than-expected fourth-quarter profit,
upgraded sales growth forecasts, and increased capital spending
targets sent the stock soaring in January 2021, before signs of
increased industry competition erased some gains. We are confident
in TSMC's technology leadership, and we believe that the company
could gain market share to extend its industry dominance.
NAVER is South Korea's largest search engine. The company also
provides services including LINE, a messenger app that merged with
SoftBank subsidiary Yahoo Japan. NAVER benefitted from increased
online shopping on its platform amid the pandemic. Investors
remained confident of NAVER's penetration into e-commerce, digital
content and financial services, and looked positively upon its
substantial research and development investment. The company's
paid-content platform NAVER Webtoon, which publishes mobile and
digital comics, reported tremendous growth in active users during
the 12-month period, particularly in Japan and the United States.
NAVER's strong fourth-quarter earnings continued to support an
upward share- price trend.
Strong investor confidence in Samsung Electronics lifted the
South Korea-based semiconductor and consumer electronics company.
An improving outlook for the memory chip market and expectations
for the company to raise its dividends were positive catalysts. We
see growing demand and disciplined capacity expansion supporting
the memory chip market's upturn, which could benefit Samsung
Electronics. We also believe that its foundry, smartphone, and
other businesses have fared well amidst the pandemic.
Top detractors to relative performance by security (%) (a)
Relative
Share price contribution
Top detractors Country Sector total return to portfolio
---------------------------- ---------------- ----------------------- ------------- -------------
Unilever (b) United Kingdom Consumer Staples 3.2 (1.0)
---------------------------- ---------------- ----------------------- ------------- -------------
Brilliance China Automotive China/Hong Kong Consumer Discretionary (2.7) (0.9)
---------------------------- ---------------- ----------------------- ------------- -------------
Meituan (c) China/Hong Kong Consumer Discretionary 185.3 (0.8)
---------------------------- ---------------- ----------------------- ------------- -------------
Alibaba China/Hong Kong Consumer Discretionary 5.1 (0.8)
---------------------------- ---------------- ----------------------- ------------- -------------
China Resources Cement China/Hong Kong Materials (9.7) (0.6)
---------------------------- ---------------- ----------------------- ------------- -------------
Itaú Unibanco Brazil Financials 1.6 (0.6)
---------------------------- ---------------- ----------------------- ------------- -------------
Nio(c) China/Hong Kong Consumer Discretionary 1,160.1 (0.5)
---------------------------- ---------------- ----------------------- ------------- -------------
Communication
China Mobile China/Hong Kong Services (30.2) (0.4)
---------------------------- ---------------- ----------------------- ------------- -------------
Banco Bradesco Brazil Financials 17.8 (0.3)
---------------------------- ---------------- ----------------------- ------------- -------------
JD.Com (c) China/Hong Kong Consumer Discretionary 87.1 (0.3)
---------------------------- ---------------- ----------------------- ------------- -------------
(a) For the period 31 March 2020 to 31 March 2021.
(b) Security not included in the MSCI Emerging Markets
Index.
(c) Security not held by TEMIT as at 31 March 2021.
Unilever's 2020 results and muted outlook disappointed the
market. Unilever, a UK-based global consumer goods giant that
generates more than half of its sales in emerging markets, reported
flat sales as the pandemic altered consumption patterns.
Nonetheless, the company continues to stand out to us for its
defensive business model and solid balance sheet. We reduced our
position in the stock but still maintain a sizeable position on our
belief that Unilever's longstanding track record of operating in
emerging markets positions it to benefit from the structural growth
in consumption in those countries.
Brilliance China Automotive is a Chinese car maker noted for its
joint venture with German luxury car maker BMW. Mixed news held
back the share price of Brilliance China Automotive-debt concerns
surrounding its significant shareholder and competition from
electric vehicle makers offset brief enthusiasm around media
reports of a possible privatisation of the company. We believe that
Brilliance China Automotive's fundamentals remain healthy and
expect the company to benefit from BMW's strong brand, new model
launches, and a "premiumisation" of auto demand in China.
Investors turned cautious towards Chinese e-commerce company
Alibaba as regulators stepped up their scrutiny of the internet
industry through a series of actions, including the release of
draft online microlending and anti-monopoly rules. Alibaba grappled
with a halt to its plan to list its financial technology arm, as
well as an antitrust probe into its merchant policy. From our
observations, China's internet industry has experienced periods of
heightened scrutiny in the past, and business models offering
superior user experiences and efficiencies have weathered such
episodes to a large extent. Although further regulatory news could
drive share-price volatility for Alibaba in the near term, we
believe that the company has distinct competitive advantages that
should secure its structural earnings power. We continue to view
Alibaba as well-diversified and resilient, with longer-term growth
drivers across multiple areas such as e-commerce and cloud
computing.
Top contributors and detractors to relative performance by sector
(%) (a)
MSCI MSCI
Emerging Markets Emerging Markets
Index sector Relative Index sector Relative
total contribution total contribution
Top contributors return to portfolio Top detractors return to portfolio
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Communication Consumer
Services 34.0 5.1 Discretionary 45.1 (4.1)
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Information Technology 84.4 4.4 Materials 77.4 (1.3)
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Financials 24.1 4.0
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Real Estate 8.2 1.2
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Industrials 35.1 0.8
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Utilities (b) 17.8 0.6
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Health Care 43.3 0.5
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Energy 30.7 0.1
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
Consumer Staples 20.9 0.0
----------------------- ----------------- -------------- ----------------------- ----------------- --------------
(a) For the period 31 March 2020 to 31 March 2021.
(b) Sector not held by TEMIT as at 31 March 2021.
Favourable stock selection in communication services added to
TEMIT's performance relative to the benchmark index in the review
period. An overweight position and stock selection in the
information technology sector, which outperformed all of its
counterparts, also had a positive impact. Stock selection in the
financials sector also boosted relative performance.
Technology-related sectors have remained resilient throughout the
pandemic with e-commerce, internet and software companies
benefiting from an increase in remote working and schooling,
streaming of content and other online activities. As we describe
above, major semiconductor companies in Taiwan and South Korea
surged on demand for chips. Financials remain a key area of secular
growth given the low levels of credit penetration across emerging
markets, and TEMIT's holdings are primarily dominant incumbent
banks with strong capitalisation levels and robust deposit
franchises. Conversely, two sectors, consumer discretionary and
materials negatively impacted relative returns. Stock selection was
largely responsible for the negative impact in the consumer
discretionary sectors, while an underweight position in materials,
the second-best performing sector in the benchmark, proved
detrimental to performance relative to the benchmark.
Top contributors and detractors to relative performance by country
(%) (a)
MSCI Emerging MSCI Emerging
Markets Index Relative Markets Index Relative
country total contribution country total contribution
Top contributors return to portfolio Top detractors return to portfolio
------------------- -------------- -------------- -------------------- -------------- --------------
United Kingdom
South Korea 71.3 3.5 (c) - (0.9)
------------------- -------------- -------------- -------------------- -------------- --------------
Taiwan 74.9 3.5 Brazil 32.0 (0.3)
------------------- -------------- -------------- -------------------- -------------- --------------
Russia 30.9 1.4 Kenya (c) - (0.2)
------------------- -------------- -------------- -------------------- -------------- --------------
India 59.1 0.6 Cambodia (c) - (0.1)
------------------- -------------- -------------- -------------------- -------------- --------------
Malaysia (b) 8.6 0.6
------------------- -------------- -------------- -------------------- -------------- --------------
Thailand 25.3 0.5
------------------- -------------- -------------- -------------------- -------------- --------------
United States
(c) - 0.4
------------------- -------------- -------------- -------------------- -------------- --------------
Indonesia 27.0 0.3
------------------- -------------- -------------- -------------------- -------------- --------------
Qatar (b) 8.5 0.3
------------------- -------------- -------------- -------------------- -------------- --------------
Turkey (b) (6.3) 0.2
------------------- -------------- -------------- -------------------- -------------- --------------
(a) For the period 31 March 2020 to 31 March 2021.
(b) No companies held by TEMIT in this country.
(c) No companies included in the MSCI Emerging Markets Index in
this country.
Our selection of stocks and overweight positions in South Korea
and Taiwan were amongst the leading contributors to TEMIT's returns
relative to the benchmark index, along with stock selection in
Russia. Samsung Electronics accounted for approximately half of
TEMIT's exposure in South Korea. We added exposure to Samsung
Electronics as demand for memory chips continued to grow. In
Taiwan, we closed positions in information technology companies
Catcher Technology and FIT Hon Teng, and we reduced TEMIT's
exposure to Russia. In contrast, relative performance was hurt by
off-benchmark exposure to Unilever in the United Kingdom, stock
selection in Brazil and off-benchmark exposure to Kenya. We
maintain an overweight exposure to Brazil relative to the
benchmark. TEMIT's holding in East African Breweries was the main
detractor in Kenya. The company experienced a decline in sales due
to COVID-19.
Portfolio
changes by Total return in
sector sterling
31 March 31 March
2020 market Market 2021 market MSCI Emerging
value Purchases Sales movement value TEMIT Markets Index
Sector GBPm GBPm GBPm GBPm GBPm % %
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Information
Technology 418 146 (142) 388 810 93.9 84.4
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Consumer
Discretionary 337 124 (22) 52 491 18.0 45.1
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Financials 348 29 (34) 143 486 45.6 24.1
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Communication
Services 345 64 (191) 215 433 67.5 34.0
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Consumer
Staples 106 12 (14) 11 115 12.9 20.9
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Materials 66 9 (13) 29 91 56.2 77.4
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Industrials 38 10 (1) 20 67 55.2 35.1
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Energy 92 - (40) 10 62 21.4 30.7
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Health Care 30 10 (25) 17 32 68.2 43.3
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Real Estate - 12 (3) 3 12 21.2 8.2
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Utilities - - - - - - 17.8
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Net
liabilities(a) (5) - - (3)(b) (8) - -
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
Total 1,775 416 (485) 885 2,591
--------------- ------------ ----------- ------- --------- ------------ ------------- -------------
(a) The Company's net liabilities are the total of net current
assets plus non-current liabilities per the Statement of Financial
Position on page 81 of the Annual Report.
(b) The movement relates to changes in cash, receivables, payables,
the loan facility and capital gains tax provision.
Portfolio changes by
country Total return in
sterling
31 March
31 March 2020 Market 2021 MSCI Emerging
market value Purchases Sales movement market value TEMIT Markets Index
Country GBPm GBPm GBPm GBPm GBPm % %
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
China/Hong
Kong 594 253 (228) 151 770 25.7 29.3
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
South Korea 306 70 (52) 251 575 83.9 71.3
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
Taiwan 204 49 (43) 220 430 110.6 74.9
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
India 115 10 (40) 77 162 81.4 59.1
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
Russia 135 - (38) 57 154 27.5 30.9
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
Brazil 128 3 (8) 28 151 53.7 32.0
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
Other 298 31 (76) 104 357 - -
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
Net liabilities(a) (5) - - (3)(b) (8) - -
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
Total 1,775 416 (485) 885 2,591 -
------------------ ------------- ----------- ------- --------- ------------- ----------------- --------------
(a) The Company's net liabilities are the total of net current
assets plus non-current liabilities per the Statement of Financial
Position on page 81 of the Annual Report.
(b) The movement relates to changes in cash, receivables, payables,
the loan facility and capital gains tax provision.
Portfolio investments by fair value
As at 31 March 2021
---------- -----------
Holding Country Sector Trading(a) Fair value % of
GBP'000 net assets
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Taiwan Semiconductor
Manufacturing Taiwan Information Technology PS 309,279 12.0
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Samsung Electronics South Korea Information Technology IH 288,930 11.1
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Alibaba Kong Consumer Discretionary IH 230,455 8.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong Communication
Tencent Kong Services PS 215,055 8.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Communication
NAVER South Korea Services PS 119,027 4.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Naspers South Africa Consumer Discretionary IH 101,401 3.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
ICICI Bank India Financials NT 90,959 3.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
MediaTek Taiwan Information Technology NH 67,374 2.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
LG South Korea Industrials IH 64,572 2.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Unilever(b) United Kingdom Consumer Staples PS 54,342 2.1
------------------------------- --------------- ----------------------- ----------- ---------- -------------
TOP 10 LARGEST INVESTMENTS 1,541,394 59.5
------------------------------------------------ ----------------------------------- ---------- -------------
China/Hong
China Merchants Bank(c) Kong Financials IH 52,877 2.0
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Brilliance China Automotive Kong Consumer Discretionary IH 50,954 1.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
LUKOIL, ADR(d) Russia Energy NT 50,157 1.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Sberbank of Russia,
ADR(d) Russia Financials NT 48,659 1.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Communication
Yandex Russia Services PS 45,633 1.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Hon Hai Precision
Industry Taiwan Information Technology IH 42,755 1.7
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Samsung Life Insurance South Korea Financials IH 41,558 1.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Banco Bradesco, ADR(d)(e) Brazil Financials NT 37,501 1.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Itaú Unibanco,
ADR(d)(e) Brazil Financials PS 36,720 1.4
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Infosys Technologies India Information Technology NT 36,393 1.4
------------------------------- --------------- ----------------------- ----------- ---------- -------------
TOP 20 LARGEST INVESTMENTS 1,984,601 76.6
------------------------------------------------ ----------------------------------- ---------- -------------
Vale Brazil Materials PS 33,389 1.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Banco Santander Mexico,
ADR(d) Mexico Financials NT 29,306 1.1
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
China Resources Cement Kong Materials NT 27,269 1.0
------------------------------- --------------- ----------------------- ----------- ---------- -------------
POSCO South Korea Materials PS 26,000 1.0
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Cognizant Technology
Solutions(b) United States Information Technology PS 25,052 1.0
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Ping An Insurance(c) Kong Financials IH 22,826 0.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Gedeon Richter Hungary Health Care PS 22,142 0.9
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Daqo New Energy, ADR(d) Kong Information Technology NH 21,362 0.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Fila South Korea Consumer Discretionary IH 21,058 0.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Kasikornbank Thailand Financials NT 20,639 0.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
TOP 30 LARGEST INVESTMENTS 2,233,644 86.2
------------------------------------------------ ----------------------------------- ---------- -------------
Bajaj Holdings & Investments India Financials IH 20,638 0.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Ping An Bank Kong Financials NT 20,231 0.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Prosus(f) Kong Consumer Discretionary NT 19,700 0.8
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong Communication
Baidu, ADR(d) Kong Services PS 19,391 0.7
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Kiatnakin Phatra Bank Thailand Financials PS 16,528 0.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Lojas Americanas Brazil Consumer Discretionary IH 16,189 0.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Uni-President China Kong Consumer Staples IH 15,850 0.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
B3 Brazil Financials IH 15,692 0.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Astra International Indonesia Consumer Discretionary PS 14,771 0.6
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong Communication
NetEase, ADR(d) Kong Services NT 14,173 0.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
TOP 40 LARGEST INVESTMENTS 2,406,807 92.8
------------------------------------------------ ----------------------------------- ---------- -------------
Massmart South Africa Consumer Staples NT 14,032 0.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Tencent Music Entertainment, China/Hong Communication
ADR(d) Kong Services NT 12,788 0.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
China Resources Land Kong Real Estate NH 12,410 0.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
NagaCorp Cambodia Consumer Discretionary PS 11,943 0.5
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
H&H Group Kong Consumer Staples IH 11,702 0.4
------------------------------- --------------- ----------------------- ----------- ---------- -------------
MCB Bank Pakistan Financials PS 8,748 0.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Thai Beverage Thailand Consumer Staples NT 8,112 0.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
China/Hong
Flat Glass Group Kong Information Technology NH 7,945 0.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Moneta Money Bank Czech Republic Financials PS 7,171 0.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Coal India India Energy NT 6,545 0.3
------------------------------- --------------- ----------------------- ----------- ---------- -------------
TOP 50 LARGEST INVESTMENTS 2,508,203 96.7
------------------------------------------------ ----------------------------------- ---------- -------------
LegoChem Biosciences South Korea Health Care NH 6,508 0.2
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Longshine Technology China/Hong
Group Kong Information Technology NH 5,650 0.2
------------------------------- --------------- ----------------------- ----------- ---------- -------------
Intercorp Financial
Services Peru Financials NT 5,474 0.2
------------------------------- --------------- ----------------------- ----------- ---------- -------------
B2W Digital Brazil Consumer Discretionary NT 5,332 0.2
------------------------------- --------------- ----------------------- ----------- ---------- -------------
BDO Unibank Philippines Financials NT 5,287 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
Gazprom, ADR(d) Russia Energy PS 5,144 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
PChome Online Taiwan Consumer Discretionary NT 4,994 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
East African Breweries Kenya Consumer Staples NT 4,896 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
Hankook Tire South Korea Consumer Discretionary PS 4,831 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
Communication
Mail.Ru, GDR(g) Russia Services PS 4,635 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
TOP 60 LARGEST INVESTMENTS 2,560,954 98.7
------------------------------------------------ ----------------------------------- ---------- -----------
ACC India Materials NH 4,608 0.2
------------------------------ ---------------- ----------------------- ---------- ---------- -----------
Nemak Mexico Consumer Discretionary PS 4,390 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
M. Dias Branco Brazil Consumer Staples NT 4,167 0.2
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
Largan Precision Taiwan Information Technology NT 3,669 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
Apollo Hospitals India Health Care NH 2,906 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
Communication
KT Skylife South Korea Services PS 2,425 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
China/Hong
BAIC Motor Kong Consumer Discretionary NT 2,381 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
China/Hong
Weifu High-Technology Kong Consumer Discretionary PS 2,366 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
China/Hong
COSCO SHIPPING Ports Kong Industrials PS 2,365 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
KCB Group Kenya Financials NT 2,323 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
TOP 70 LARGEST INVESTMENTS 2,592,554 100.0
------------------------------------------------ ----------------------------------- ---------- -----------
CTBC Financial Taiwan Financials NT 1,855 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
TOTVS Brazil Information Technology IH 1,830 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
China/Hong
Dairy Farm Kong Consumer Staples NT 1,740 0.1
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
United Bank Pakistan Financials NT 1,096 0.0
------------------------------ ---------------- ----------------------- ----------- ---------- -------------
TOTAL INVESTMENTS 2,599,075 100.3
------------------------------ ---------------- ----------------------------------- ---------- -------------
NET LIABILITIES (7,788) (0.3)
------------------------------ ---------------- ----------------------------------- ---------- -------------
TOTAL NET ASSETS 2,591,287 100.0
------------------------------ ---------------- ----------------------------------- ---------- -------------
(a) Trading activity during the year: (NH) New Holdings, (IH)
Increased Holdings, (PS) Partial Sale and (NT) No Trading.
(b) This company, listed on a stock exchange in a developed
market, has significant exposure to operations from emerging
markets.
(c) Company is listed on the Hong Kong and Shanghai stock
exchanges.
(d) US listed American Depository Receipt.
(e) Preferred Shares.
(f) This company is listed in the Netherlands. The
classification of China/Hong Kong is due to most of its revenue
coming from its holding in Tencent.
(g) UK listed Global Depository Receipt.
Portfolio summary
As at 31 March 2021
All figures are in %
31 31
March March
Communication Consumer Consumer Health Information Real Total Net 2021 2020
Services Discretionary Staples Energy Financials Care Industrials Technology Materials Estate Equities liabilities(a) Total Total
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Brazil - 0.8 0.2 - 3.5 - - 0.1 1.3 - 5.9 - 5.9 7.2
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Cambodia - 0.5 - - - - - - - - 0.5 - 0.5 0.7
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
China/Hong Kong 10.0 11.8 1.1 - 3.7 - 0.1 1.3 1.0 0.5 29.5 - 29.5 33.5
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Czech Republic - - - - 0.3 - - - - - 0.3 - 0.3 0.4
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Hungary - - - - - 0.9 - - - - 0.9 - 0.9 1.2
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
India - - - 0.3 4.3 0.1 - 1.4 0.2 - 6.3 - 6.3 6.4
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Indonesia - 0.6 - - - - - - - - 0.6 - 0.6 0.7
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Kenya - - 0.2 - 0.1 - - - - - 0.3 - 0.3 0.6
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Mexico - 0.2 - - 1.1 - - - - - 1.3 - 1.3 1.3
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Pakistan - - - - 0.3 - - - - - 0.3 - 0.3 0.5
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Peru - - - - 0.2 - - - - - 0.2 - 0.2 0.3
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Philippines - - - - 0.2 - - - - - 0.2 - 0.2 0.3
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Russia 2.0 - - 2.1 1.9 - - - - - 6.0 - 6.0 7.6
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
South Africa - 3.9 0.5 - - - - - - - 4.4 - 4.4 3.2
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
South Korea 4.7 1.0 - - 1.6 0.2 2.5 11.1 1.0 - 22.1 - 22.1 17.2
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Taiwan - 0.2 - - 0.1 - - 16.4 - - 16.7 - 16.7 11.5
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Thailand - - 0.3 - 1.4 - - - - - 1.7 - 1.7 2.2
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
United Kingdom - - 2.1 - - - - - - - 2.1 - 2.1 3.2
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
United States - - - - - - - 1.0 - - 1.0 - 1.0 2.3
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
Net
liabilities(a) - - - - - - - - - - - (0.3) (0.3) (0.3)
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
31 March 2021
Total 16.7 19.0 4.4 2.4 18.7 1.2 2.6 31.3 3.5 0.5 100.3 (0.3) 100.0 -
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
31 March 2020
Total 19.4 19.0 6.1 5.1 19.7 1.7 2.1 23.6 3.6 - 100.3 (0.3) - 100.0
--------------- ------------- ------------- -------- ------ ---------- ------ ----------- ----------- --------- ------ -------- -------------- ----- -----
(a) The Company's net liabilities are the total of net current
assets plus non-current liabilities per the Statement of Financial
Position on page 81 of the Annual Report.
GBP1.5bn GBP5bn Greater
Market capitalisation breakdown(a) Less than to to than
(%) GBP1.5bn GBP5bn GBP25bn GBP25bn Net liabilities(b)
----------------------------------- --------- -------- -------- -------- ------------------
31 March 2021 11.8 8.5 12.9 67.1 (0.3)
----------------------------------- --------- -------- -------- -------- ------------------
31 March 2020 8.2 10.4 22.7 59.0 (0.3)
----------------------------------- --------- -------- -------- -------- ------------------
Split between markets(c) (%) 31 March 2021 31 March 2020
----------------------------- ------------- -------------
Emerging markets 96.4 93.5
----------------------------- ------------- -------------
Developed markets(d) 3.1 5.5
----------------------------- ------------- -------------
Frontier markets 0.8 1.3
----------------------------- ------------- -------------
Net liabilities(b) (0.3) (0.3)
----------------------------- ------------- -------------
Source: FactSet Research System, Inc.
(a) A glossary of alternative performance measures is included
on pages 112 and 113 of the Annual Report.
(b) The Company's net liabilities are the total of net current
assets plus non-current liabilities per the Statement of Financial
Position on page 81 of the Annual Report.
(c) Geographic split between "Emerging markets", "Frontier
markets", "Developed markets" are as per MSCI index
classifications.
(d) Developed market exposure represented by companies listed in
United Kingdom and United States which have significant exposure to
operations from emerging markets.
Market outlook
Fresh waves of COVID-19 infection have continued to test
economies and health care systems globally, just as more countries
step up the rollout of vaccines. We think that emerging markets are
likely to stay resilient in the face of new challenges. Many
emerging markets have remained less indebted than developed
economies at the sovereign, corporate and household levels.
Emerging market banking systems have largely withstood stress
despite loan moratoriums. Technology and consumption have also
become new drivers of economic growth for many emerging markets.
Overall, we expect a sharp earnings rebound in emerging markets
this year from a low base last year.
Chinese internet stocks have struggled recently amid tighter
regulatory scrutiny, higher US Treasury yields and block trades
linked to a troubled hedge fund. China's increased emphasis on fair
competition, consumer protection and data security within the
internet industry has been a chief concern. Though regulatory news
could drive near-term share-price volatility, we remain largely
confident in the longer-term fundamentals of several leading
internet companies. These companies have grown rapidly by offering
superior user experiences and efficiencies, and we expect these
strengths to continue underpinning their structural earnings power.
We also think that regulators are keen to ensure the sustainable
development of the internet space for all stakeholders, rather than
curb its growth. We are mindful of the dispersion in valuations
across the internet space, and we seek to invest in quality
companies trading below what we consider to be their intrinsic
worth.
Reflationary expectations and higher US bond yields have stoked
market volatility. Although inflation has picked up from low levels
last year amid recovering economic activity, firmer commodity
prices and near- term supply chain bottlenecks, we believe that
considerable slack remains in many economies, especially on the
labour front. Also visible to us are longer-term deflationary
trends arising from technology advances and demographic headwinds.
Rather than position for specific macroeconomic scenarios, we
strive to build well- diversified portfolios that can potentially
navigate a range of market environments.
We see compelling opportunities to invest in companies that
demonstrate sustainable earnings power, with shares trading at
discounts to our assessment of their intrinsic worth. We are
confident in a long runway of growth for innovative and
technology-driven companies extending their leads in areas such as
semiconductors and internet services. We also favour companies that
could benefit from longer-term consumption growth in emerging
markets, reflected in a rising penetration of goods and services or
a "premiumisation" in demand.
A second wave of COVID-19 infections in India led to the
implementation of new restrictions including lockdowns (at a
regional state level rather than nationwide) to contain the
outbreak. While this second wave is expected to impact the
country's economic recovery in the short term, we expect the
economy to bounce back as the government accelerates its vaccine
rollout and lockdowns are lifted. In the interim, however, the
situation remains fluid and we continue to monitor the
developments. In the longer-term, we expect India's economic
recovery to continue as economic activity gradually improves. We
see corporate earnings on an uptrend toward earnings normalization,
following the pandemic-related downturn. The overarching drivers
underpinning the Indian market also include low interest rates,
high liquidity and fiscal incentives, all of which currently remain
intact. However, we are mindful of the risks, including the ongoing
virus pandemic, regional and global geopolitical relations and the
path of the recovery and infection rates in other regions
globally.
However, we expect COVID-19 to remain prevalent this year. While
some countries have made solid progress with inoculation; the
production and distribution of vaccines in sufficient scale are
challenges of a similar scale to their development. As a result, we
expect many countries to continue experiencing sporadic COVID-19
outbreaks, which could add volatility to the underlying trend of
economic and market recovery.
Chetan Sehgal
Lead Portfolio Manager
4 June 2021
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 on pages 45 to 51 of the 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
international accounting standards in conformity with the
requirements of the Companies Act 2006.
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 international accounting standards in
conformity with the requirements of the Companies Act 2006 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
-- Make an assessment of 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 on pages 45 to 47 of the
Annual Report, confirms that to the best of their knowledge:
-- The Financial Statements, which have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006, give a fair,
balanced and understandable view of the assets, liabilities,
financial position and profit or loss of the Company for the year
ended 31 March 2021; and
-- The Chairman's Statement, Strategic Report and the Report of
the Directors include a fair review of the information required by
4.1.8R to 4.1.11R of the FCA's Disclosure Guidance and Transparency
Rules; and
-- The Annual Report and Audited Financial Statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary to assess the Company's position and
performance, business model and strategy, and include a description
of principal risks and uncertainties.
By order of the Board
Paul Manduca
4 June 2021
Financial Statements
Statement of Comprehensive Income
For the Year Ended 31 March 2021
Year ended Year ended
31 March 2021 31 March 2020
Note Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---- -------- -------- -------- -------- --------- ---------
Net gains/(losses)
on investments and
foreign exchange
Net gains/(losses)
on investments at
fair value 8 - 888,402 888,402 - (271,335) (271,335)
-------------------------- ---- -------- -------- -------- -------- --------- ---------
Net gains/(losses) on foreign
exchange - (594) (594) - (883) (883)
-------------------------------- -------- -------- -------- -------- --------- ---------
Income
Dividends 2 56,964 - 56,964 74,470 - 74,470
-------------------------- ---- -------- -------- -------- -------- --------- ---------
Other income 2 2,965 - 2,965 643 - 643
-------------------------- ---- -------- -------- -------- -------- --------- ---------
59,929 887,808 947,737 75,113 (272,218) (197,105)
-------------------------------- -------- -------- -------- -------- --------- ---------
Expenses
AIFM fee 3 (6,142) (14,331) (20,473) (5,900) (13,766) (19,666)
-------------------------- ---- -------- -------- -------- -------- --------- ---------
Other expenses 4 (2,094) - (2,094) (2,095) - (2,095)
-------------------------- ---- -------- -------- -------- -------- --------- ---------
(8,236) (14,331) (22,567) (7,995) (13,766) (21,761)
-------------------------------- -------- -------- -------- -------- --------- ---------
Profit/(loss) before finance
costs and taxation 51,693 873,477 925,170 67,118 (285,984) (218,866)
-------------------------------- -------- -------- -------- -------- --------- ---------
Finance costs 5 (773) (1,802) (2,575) (873) (2,037) (2,910)
-------------------------- ---- -------- -------- -------- -------- --------- ---------
Profit/(loss) before taxation 50,920 871,675 922,595 66,245 (288,021) (221,776)
-------------------------------- -------- -------- -------- -------- --------- ---------
Tax income/(expense) 6 17,303 (5,469) 11,834 (6,312) 1,350 (4,962)
-------------------------- ---- -------- -------- -------- -------- --------- ---------
Profit/(loss) for the year 68,223 866,206 934,429 59,933 (286,671) (226,738)
-------------------------------- -------- -------- -------- -------- --------- ---------
Profit/(loss) attributable
to equity holders of the
Company 68,223 866,206 934,429 59,933 (286,671) (226,738)
-------------------------------- -------- -------- -------- -------- --------- ---------
Earnings per share 7 28.64p 363.65p 392.29p 24.40p (116.75)p (92.35)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 on pages 84 to 99 of the Annual Report
are an integral part of the Financial Statements.
Statement of Financial Position
As at 31 March 2021
As at As at
31 March 2021 31 March 2020
Note GBP'000 GBP'000
------------------------------------------- ---- -------------- --------------
Non-current assets
-------------- --------------
Investments at fair value through profit
or loss 8 2,599,075 1,780,253
------------------------------------------- ---- -------------- --------------
Current assets
-------------- --------------
Trade and other receivables 9 15,323 10,736
------------------------------------------- ---- -------------- --------------
Cash and cash equivalents 85,212 87,830
------------------------------------------------- -------------- --------------
Total current assets 100,535 98,566
------------------------------------------------- -------------- --------------
Current liabilities
-------------- --------------
Other payables 10 (3,362) (3,169)
------------------------------------------- ---- -------------- --------------
Total current liabilities (3,362) (3,169)
------------------------------------------------- -------------- --------------
Net current assets 97,173 95,397
------------------------------------------------- -------------- --------------
Non-current liabilities
-------------- --------------
Capital gains tax provision 6 (4,961) -
------------------------------------------- ---- -------------- --------------
Other payables falling due after more than
one year 11 (100,000) (100,000)
------------------------------------------- ---- -------------- --------------
Total assets less liabilities 2,591,287 1,775,650
------------------------------------------------- -------------- --------------
Share capital and reserves
-------------- --------------
Equity Share Capital 12 64,253 65,812
------------------------------------------- ---- -------------- --------------
Capital Redemption Reserve 18,416 16,857
------------------------------------------------- -------------- --------------
Capital Reserve 1,952,886 1,136,322
------------------------------------------------- -------------- --------------
Special Distributable Reserve 433,546 433,546
------------------------------------------------- -------------- --------------
Revenue Reserve 122,186 123,113
------------------------------------------------- -------------- --------------
Equity Shareholders' Funds 2,591,287 1,775,650
------------------------------------------------- -------------- --------------
Net Asset Value pence per share(a) 1,096.9 732.3
------------------------------------------------- -------------- --------------
(a) Based on shares in issue at 31 March excluding shares held
in treasury.
The Financial Statements of Templeton Emerging Markets
Investment Trust PLC (company registration number SC118022) on
pages 80 to 99 in the full Annual Report were approved for issue by
the Board and signed on 4 June 2021.
Paul Manduca Simon Jeffreys
Chairman Director
Statement of Changes in Equity
For the Year Ended 31 March 2021
Equity Capital Special
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
2019 68,045 14,624 1,492,845 433,546 109,124 2,118,184
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Profit/(loss) for
the year - - (286,671) - 59,933 (226,738)
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Equity dividends 13 - - - - (45,944) (45,944)
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Purchase and cancellation
of own shares 12 (2,233) 2,233 (69,852) - - (69,852)
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Balance at 31 March
2020 65,812 16,857 1,136,322 433,546 123,113 1,775,650
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Profit for the year - - 866,206 - 68,223 934,429
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Equity dividends 13 - - - - (69,150) (69,150)
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Purchase and cancellation
of own shares 12 (1,559) 1,559 (49,642) - - (49,642)
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
Balance at 31 March
2021 64,253 18,416 1,952,886 433,546 122,186 2,591,287
-------------------------- ---- --------- ----------- --------- -------------- --------- ---------
The accompanying notes on pages 84 to 99 in the full Annual
Report are an integral part of the Financial Statements.
Statement of Cash Flows
For the Year Ended 31 March 2021
A
For the year For the year
to to
31 March 2021 31 March 2020
Note GBP'000 GBP'000
Cash flows from operating activities
-------------- --------------
Profit/(loss) before finance costs and
taxation 925,170 (218,866)
------------------------------------------ ---- -------------- --------------
Adjustment for:
Bank and deposit interest (26) (622)
------------------------------------------------ -------------- --------------
Dividend income (56,964) (74,470)
------------------------------------------------ -------------- --------------
Net (gains)/losses on investments at
fair value 8 (888,402) 271,335
------------------------------------------ ---- -------------- --------------
Net losses on foreign exchange 594 883
------------------------------------------------ -------------- --------------
Stock dividends received in year (674) (103)
------------------------------------------------ -------------- --------------
(Increase)/decrease in debtors 1,551 (732)
------------------------------------------------ -------------- --------------
Increase/(decrease) in creditors 5,942 (108)
------------------------------------------------ -------------- --------------
Cash generated from operations (12,809) (22,683)
------------------------------------------------ -------------- --------------
Bank and deposit interest received 26 622
------------------------------------------------ -------------- --------------
Dividends received 52,442 72,987
------------------------------------------------ -------------- --------------
Tax paid (11,919) (6,540)
------------------------------------------------ -------------- --------------
Tax recovered 23,753 -
------------------------------------------------ -------------- --------------
Net cash inflow from operating activities 51,493 44,386
------------------------------------------------ -------------- --------------
Cash flows from investing activities
-------------- --------------
Purchases of non-current financial assets (415,127) (440,488)
------------------------------------------ ---- -------------- --------------
Sales of non-current financial assets 483,182 553,409
------------------------------------------------ -------------- --------------
Net cash inflow from investing activities 68,055 112,921
------------------------------------------------ -------------- --------------
Cash flows from financing activities
-------------- --------------
Equity dividends paid 13 (69,150) (45,944)
------------------------------------------ ---- -------------- --------------
Purchase and cancellation of own shares (50,455) (69,453)
------------------------------------------------ -------------- --------------
Repayment of revolving credit facility - (124,679)
------------------------------------------------ -------------- --------------
Draw down of fixed term loan - 100,000
------------------------------------------------ -------------- --------------
Bank loans interest and fees paid (2,561) (2,614)
------------------------------------------------ -------------- --------------
Net cash outflow from financing activities (122,166) (142,690)
------------------------------------------------ -------------- --------------
Net (decrease)/increase in cash (2,618) 14,617
------------------------------------------------ -------------- --------------
Cash at the start of the year 87,830 73,213
------------------------------------------------ -------------- --------------
Cash at the end of the year 85,212 87,830
------------------------------------------------ -------------- --------------
The accompanying notes on pages 84 to 99 in the full Annual
Report are an integral part of the Financial Statements.
Reconciliation of liabilities arising from bank loans
Liabilities Liabilities
as at Cash flows Profit & as at
31 March GBP'000 Loss 31 March
2020 GBP'000 2021
GBP'000 GBP'000
---------------------------- ----------- ------------ ---------- -----------
Revolving credit facility - - - -
---------------------------- ----------- ------------ ---------- -----------
Interest and fees payable 111 (474) 483 120
---------------------------- ----------- ------------ ---------- -----------
Fixed term loan 100,000 - - 100,000
---------------------------- ----------- ------------ ---------- -----------
Interest and fees payable 350 (2,087) 2,092 355
---------------------------- ----------- ------------ ---------- -----------
Total liabilities from bank
loans 100,461 (2,561) 2,575 100,475
---------------------------- ----------- ------------ ---------- -----------
Notes to the Financial Statements
As at 31 March 2021
1 Accounting policies
(a) Basis of preparation
The Financial Statements of the Company have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006. The Financial
Statements have also been prepared in accordance with the Statement
of Recommended Practice ("SORP") for investment trusts issued by
the Association of Investment Companies in November 2014 and
updated in February 2018 and October 2019 insofar as the SORP is
compatible with international accounting standards.
Adoption of new and revised Accounting Standards
At the date of authorisation of these Financial Statements, the
following standards and interpretations were assessed to be
relevant and are all effective for annual periods beginning on or
after 1 January 2020:
-- IAS 1 and IAS 8 Amendments: Definition of Material
-- IFRS 9, IAS 39 and IFRS 7 Amendments: Interest Rate Benchmark Reform
The amendments listed above did not have any impact on the
amounts recognised in the current reporting period.
The Financial Statements have been prepared on the historical
cost basis, except for the measurement at fair value of certain
financial instruments. The principal accounting policies adopted
are set out below.
The Directors have a reasonable expectation that the Company has
sufficient resources to continue in operational existence for the
period to 31 March 2023, 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 on pages 17 to 20 of the full Annual Report in particular
those relating to COVID-19.
At 31 March 2021, the Company had net current assets of
GBP92,212,000 (31 March 2020: net current assets of GBP95,397,000),
in addition to its net current assets 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 debt facility does not fall due until 2025. The Directors
also reviewed scenarios of a significant drop in value of the
assets and noted that they will still be significantly higher than
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 on pages 60 and
61 of the full Annual Report.
All financial assets and financial liabilities are recognised
(or derecognised) on the date of the transaction by the use of
"trade date accounting".
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.
There have been no significant judgements, estimates or
assumptions for the year.
(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 income section 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 section of the Statement of Comprehensive
Income.
Special dividends receivable are treated as repayment of capital
or as income depending on the facts of each particular case.
Interest receivable on bank deposits is recognised on an accruals
basis.
(d) Expenses
All expenses are accounted for on an accruals 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 are accounted for on an accruals basis using the
effective interest method in the Statement of Comprehensive Income
according to the Directors' expectations of future returns. 70% of
the finance costs 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 or
disposal of investments.
The carrying amount of deferred tax assets is reviewed at each
year-end date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
(g) Investments held at fair value through profit or loss
The Company classifies its equity investments based on their
contractual cash flow characteristics and the Company's business
model for managing the assets. The Company's business is investing
in financial assets with a view to profiting from their total
return in the form of revenue and capital growth. This portfolio of
financial assets is managed, and its performance evaluated on a
fair value basis, in accordance with a documented investment
strategy, and information about the portfolio is provided
internally on that basis to the Company's Directors and other key
management personnel. Equity investments fail the contractual cash
flows test so are measured at fair value. Accordingly, upon initial
recognition, all of the Company's non-current asset investments are
held at "fair value through profit or loss". They are included
initially at fair value, which is taken to be their cost excluding
expenses incidental to the acquisition.
Subsequently, the investments are valued at "fair value", which
is measured as follows:
The fair value of financial instruments at the year-end date is,
ordinarily, based on the latest quoted bid price at, or before, the
US market close (without deduction for any of the estimated future
selling costs), if the instrument is held in active markets. This
represents a Level 1 classification under IFRS 13. For all
financial instruments not traded in an active market or where
market price is not deemed representative of fair value, valuation
techniques are employed to determine fair value. Valuation
techniques include the market approach (i.e. using recent arm's
length market transactions adjusted as necessary and reference to
the market value of another instrument that is substantially the
same) and the income approach (i.e. discounted cash flow analysis
making use of available and supportable market data as
possible).
Gains and losses arising from changes in fair value are included
in the net profit or loss for the period as a capital item in the
Statement of Comprehensive Income.
(h) Foreign currencies
Transactions involving foreign currencies are translated to
sterling (the Company's functional currency) at the spot exchange
rates ruling on the date of the transactions. Assets and
liabilities in foreign currencies are translated at the rates of
exchange at the year-end date. Foreign currency gains and losses
are included in the Statement of Comprehensive Income and allocated
as capital or income depending on the nature of the transaction
giving rise to the gain or loss.
(i) Financial instruments
Cash comprises cash in hand and demand deposits. Cash
equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash that are subject to an
insignificant risk of changes in value.
Bank loans are classified as financial liabilities at amortised
cost. They are initially measured as the proceeds net of direct
issue costs and subsequently measured at amortised cost. Interest
payable on the bank loan is accounted for on an accruals basis in
the Statement of Comprehensive Income. The amortisation of direct
issue costs is accounted for on an accruals 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.
Capital Redemption Reserve - represents the nominal value of
shares repurchased and cancelled.
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
Capital Reserve. The Company's Articles of Association preclude it
from making any distribution of capital profits.
If treasury shares are subsequently cancelled, the nominal value
is transferred out of Equity Share Capital and into the Capital
Redemption Reserve.
Special Distributable Reserve - reserve created upon the
cancellation of the Share Premium Account and Capital Redemption
Reserve.
Revenue Reserve - represents net income earned that has not been
distributed to shareholders.
Income recognised in the Statement of Comprehensive Income is
allocated to applicable reserves in the Statement of Changes in
Equity.
2 Income
2021 2020
GBP '000 GBP '000
----------------------------------------------- --------- ---------
Dividends
--------- ---------
Non-EU dividends 54,530 70,670
----------------------------------------------- --------- ---------
UK dividends 1,532 2,047
----------------------------------------------- --------- ---------
EU dividends 228 1,650
----------------------------------------------- --------- ---------
Stock dividends 674 103
----------------------------------------------- --------- ---------
56,964 74,470
----------------------------------------------- --------- ---------
Other income
--------- ---------
Bank and deposit interest 26 622
----------------------------------------------- --------- ---------
Stock lending income 161 21
----------------------------------------------- --------- ---------
Interest relating to historic tax reclaims (a) 2,778 -
----------------------------------------------- --------- ---------
2,965 643
----------------------------------------------- --------- ---------
Total 59,929 75,113
----------------------------------------------- --------- ---------
(a) Historic HMRC claim for exemption of pre 2009 dividend
income from Corporation Tax based on the Prudential & CFC FII
GLO cases.
3 AIFM fee
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- -------- -------- -------- -------- --------
AIFM fee 6,142 14,331 20,473 5,900 13,766 19,666
--------- -------- -------- -------- -------- -------- --------
The Company has a contract with FTIS as Alternative Investment
Fund Manager and provider of Secretarial Services, this contract
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 2020, the AIFM fee was
reduced from 1% of net assets up to GBP1 billion and 0.85% of net
assets above GBP1 billion to 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
2021 2020
GBP'000 GBP' 000
----------------------------------------- -------- ---------
Custody fees 706 679
----------------------------------------- -------- ---------
Shareholder communications and marketing 334 297
----------------------------------------- -------- ---------
Directors' remuneration 275 247
----------------------------------------- -------- ---------
Depository fees 192 182
----------------------------------------- -------- ---------
Membership fees 156 135
----------------------------------------- -------- ---------
Registrar fees 76 113
----------------------------------------- -------- ---------
Printing and postage fees 16 42
----------------------------------------- -------- ---------
Auditor's remuneration
Audit of the annual financial statements 36 33
Review of the Half Yearly Report 7 5
Indian tax compliance - 8
----------------------------------------- -------- ---------
Broker fees 32 32
----------------------------------------- -------- ---------
Legal fees 34 30
----------------------------------------- -------- ---------
Other expenses 230 292
----------------------------------------- -------- ---------
Total 2,094 2,095
----------------------------------------- -------- ---------
Fees in respect of services as Directors are paid by the Company
only to those Directors who are independent of Franklin Templeton.
Included within these costs are Employer National Insurance
contributions.
5 Finance costs
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'00 GBP'000 GBP'000 GBP '000
0
-------------------------- -------- -------- ------- -------- -------- ---------
Revolving credit facility 145 338 483 753 1,758 2,511
-------------------------- -------- -------- ------- -------- -------- ---------
Fixed term loan 628 1,464 2,092 120 279 399
-------------------------- -------- -------- ------- -------- -------- ---------
Total 773 1,802 2,575 873 2,037 2,910
-------------------------- -------- -------- ------- -------- -------- ---------
6 Tax on ordinary activities
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'0 GBP'000 GBP'000 GBP'000
00
---------------------------- -------- -------- -------- -------- -------- --------
Overseas withholding
tax 6,450 - 6,450 6,312 - 6,312
---------------------------- -------- -------- -------- -------- -------- --------
Capital gains tax paid - 508 508 - 228 228
---------------------------- -------- -------- -------- -------- -------- --------
Historic tax claims(a) (23,753) - (23,753) - - -
---------------------------- -------- -------- -------- -------- -------- --------
Total current tax (17,303) 508 (16,795) 6,312 228 6,540
---------------------------- -------- -------- -------- -------- -------- --------
Capital gains tax provision - 4,961 4,961 - (1,578) (1,578)
---------------------------- -------- -------- -------- -------- -------- --------
Total tax (17,303) 5,469 (11,834) 6,312 (1,350) 4,962
---------------------------- -------- -------- -------- -------- -------- --------
2021 2020
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
Profit/(loss) before taxation 922,595 (221,776)
--------------------------------------------------- --------- ---------
Theoretical tax at UK corporation tax rate of
19% (2020: 19%) 175,293 (42,137)
--------------------------------------------------- --------- ---------
Effects of:
--------------------------------------------------- --------- ---------
- Capital element of profit (168,684) 51,721
--------------------------------------------------- --------- ---------
- Irrecoverable overseas tax 6,450 6,312
--------------------------------------------------- --------- ---------
- Excess management expenses 2,915 2,357
--------------------------------------------------- --------- ---------
- Overseas capital gains tax 508 228
--------------------------------------------------- --------- ---------
- Income taxable in different periods - (63)
--------------------------------------------------- --------- ---------
- Dividends not subject to corporation tax (9,079) (11,183)
--------------------------------------------------- --------- ---------
- Movement in overseas capital gains tax liability 4,961 (1,578)
--------------------------------------------------- --------- ---------
- UK dividends (291) (389)
--------------------------------------------------- --------- ---------
- Overseas tax expensed (154) (306)
--------------------------------------------------- --------- ---------
- Historic tax claims(a) (23,753) -
--------------------------------------------------- --------- ---------
Actual tax charge (11,834) 4,962
--------------------------------------------------- --------- ---------
(a) Historic HMRC claim for exemption of pre 2009 dividend
income from Corporation Tax based on the Prudential & CFC FII
GLO cases was received in May 2020.
As at 31 March 2021 the Company had unutilised management
expenses and non-trade deficits of GBP268.1 million carried forward
(2020: GBP252.8 million). These balances have been generated
because a large part of the Company's income is derived from
dividends which are not taxed. Based on current UK tax law, the
Company is not expected to generate taxable income in a future
period in excess of deductible expenses for that period and,
accordingly, is unlikely to be able to reduce future tax
liabilities by offsetting these excess management expenses. These
excess management expenses are therefore not recognised as a
deferred tax asset.
Movement in provision for capital gains tax 2021 2020
GBP'000 GBP'000
-------------------------------------------- -------- --------
Balance brought forward - 1,578
-------------------------------------------- -------- --------
Charge for the year 5,469 (1,578)
-------------------------------------------- -------- --------
Capital gains tax paid (a) (508) -
-------------------------------------------- -------- --------
Balance carried forward 4,961 -
-------------------------------------------- -------- --------
Provision consists of:
-------- --------
- Overseas capital gains tax liability 4,961 -
-------------------------------------------- -------- --------
4,961 -
-------------------------------------------- -------- --------
(a) A provision for deferred capital gains tax has been
recognised in relation to unrealised gains on Indian holdings.
7 Earnings per share
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP '000 GBP'000 GBP'000 GBP'000
------------------- -------- -------- --------- -------- --------- ---------
Earnings 68,223 866,206 934 ,429 59,933 (286,671) (226,738)
------------------- -------- -------- --------- -------- --------- ---------
2021 2020
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
------------------- -------- -------- --------- -------- --------- ---------
Earnings per share 28.64 363.65 392 .29 24.40 (116.75) (92.35)
------------------- -------- -------- --------- -------- --------- ---------
The earnings per share is based on the profit attributable to
equity holders and on the weighted average number of shares in
issue during the year of 238,195,084 (year to 31 March 2020:
245,537,352).
8 Financial assets - investments
2021 2020
GBP'000 GBP '000
------------------------------------------------ --------- ---------
Opening investments
Book cost 1,539,265 1,501,311
------------------------------------------------ --------- ---------
Net unrealised gains 240,988 661,124
------------------------------------------------ --------- ---------
Opening fair value 1,780,253 2,162,435
------------------------------------------------ --------- ---------
Movements in the year:
Additions at cost 415,812 440,354
------------------------------------------------ --------- ---------
Disposals proceeds (485,392) (551,201)
------------------------------------------------ --------- ---------
Net gains/(losses) on investments at fair value 888,402 (271,335)
------------------------------------------------ --------- ---------
2,599,075 1,780,253
------------------------------------------------ --------- ---------
Closing investments
Book cost 1,553,330 1,539,265
------------------------------------------------ --------- ---------
Net unrealised gains 1,045,745 240,988
------------------------------------------------ --------- ---------
Closing investments 2,599,075 1,780,253
------------------------------------------------ --------- ---------
All investments have been recognised at fair value through the
Statement of Comprehensive Income.
Transaction costs for the year on purchases were GBP301,000
(2020: GBP503,000) and transaction costs for the year on sales were
GBP346,000 (2020: GBP843,000). The aggregate transaction costs for
the year were GBP647,000 (2020: GBP1,346,000).
2021 2020
GBP'000 GBP'000
------------------------------------------------------- -------- ---------
Net gains/(losses) on investments at fair value
comprise:
Net realised gains based on carrying value as at
31 March 83,645 148,802
------------------------------------------------------- -------- ---------
Net movement in unrealised appreciation/(depreciation) 804,757 (420,137)
------------------------------------------------------- -------- ---------
Net gains/(losses) on investments at fair value 888,402 (271,335)
------------------------------------------------------- -------- ---------
9 Trade and other receivables
2021 2020
GBP'000 GBP'000
-------------------------- -------- --------
Dividends receivable 11,726 7,204
-------------------------- -------- --------
Overseas tax recoverable 1,844 3,499
-------------------------- -------- --------
Sales awaiting settlement 1,649 33
-------------------------- -------- --------
Other debtors 104 -
-------------------------- -------- --------
Total 15,323 10,736
-------------------------- -------- --------
10 Other payables
2021 2020
GBP'000 GBP'000
---------------------------------------------- --------- ---------
AIFM fee 1,816 -
---------------------------------------------- --------- ---------
Amounts owed for share buybacks - 813
---------------------------------------------- --------- ---------
Accrued expenses 1,060 1,895
---------------------------------------------- --------- ---------
Interest and fees on borrowings 475 461
---------------------------------------------- --------- ---------
Purchase of investments for future settlement 11 -
---------------------------------------------- --------- ---------
Total 3,362 3,169
---------------------------------------------- --------- ---------
Interest and fees on borrowings consist of: 2021 2020
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Fixed term loan 355 350
---------------------------------------------- --------- ---------
Revolving credit facility 120 111
---------------------------------------------- --------- ---------
Total 475 461
---------------------------------------------- --------- ---------
Revolving credit facility
On 31 January 2020, the Company revised the agreement with The
Bank of Nova Scotia, London Branch. Under the new terms, the
Company can borrow GBP120.0 million (2020: GBP220 million) via an
unsecured revolving credit facility (the "facility") for a period
of three years. Balances can be drawn down in GBP, USD or CNH.
The facility bears interest at the rate of 1.125% over the
relevant Inter-Bank Offer Rate on any drawn balance. Undrawn
balances in excess of GBP60.0 million are charged at 0.40% and any
undrawn portion below this is charged at 0.35%. 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.
The facility is shown at amortised cost and revalued for
exchange rate movements. Any gain or loss arising from changes in
exchange rates is included in the capital reserves and shown in the
capital column of the Statement of Comprehensive Income. Interest
costs are charged to capital (70%) and revenue (30%) in accordance
with the Company's accounting policies.
11 Other payables falling due after more than one year
2021 2020
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 GBP100.0 million.
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
2021 2020
Allotted, issued & Allotted, issued &
fully paid fully paid
GBP'000 Number GBP'000 Number
----------------------------- -------- ------------ -------- ------------
Shares of 25p each
Opening balance 65,812 242,484,139 68,045 251,416,170
----------------------------- -------- ------------ -------- ------------
Purchase and cancellation
of own shares (1,559) (6,238,408) (2,233) (8,932,031)
----------------------------- -------- ------------ -------- ------------
Purchase of own shares into - - - -
treasury
----------------------------- -------- ------------ -------- ------------
Closing balance 64,253 236,245,731 65,812 242,484,139
----------------------------- -------- ------------ -------- ------------
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, 6,238,408 shares were bought back for
cancellation at a cost of GBP49,642,624 (2020: 8,932,031 shares
were bought back for cancellation at a cost of GBP69,852,000). All
shares bought back in the year were cancelled, with none being
placed in treasury (2020: no shares were placed into treasury).
As at 31 March 2021, in addition to the allotted and issued
shares above the Company held 20,765,179 shares in treasury (2020:
20,765,179 shares). These shares have a nominal value of
GBP5,191,000 (2020: GBP5,191,000) which is included in the above
closing balance of GBP64,253,000.
13 Dividends
2021 2020
Rate (pence) GBP'000 Rate (pence) GBP'000
------------------------------------ ------------- -------- ------------- --------
Declared and paid in the financial
year
Dividend on shares:
Final dividends for the years
ended 31 March 2020
and 31 March 2019 14.00 33,680 11.00 27,421
------------------------------------ ------------- -------- ------------- --------
Interim dividends for the
six-month periods ended
30 September 2020 and 30 September
2019 5.00 11,823 5.00 12,187
------------------------------------ ------------- -------- ------------- --------
Special dividend for the years
ended 31 March 2021 and 31
March 2020 10.00 23,647 2.60 6,336
Total 29.00 69,150 18.60 45,944
------------------------------------ ------------- -------- ------------- --------
Proposed for approval at the
Company's AGM
Dividend on shares:
------------------------------------ ------------- ---------------------------------
Final dividend for the year
ended 31 March 2021 14.00 33,074
------------------------------------ ------------- ---------------------------------
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.
14 Related party transactions
The Directors consider that, under the classification of related
party transactions outlined in the Association of Investment
Companies SORP, issued November 2014 and updated in February 2018
and October 2019, Franklin Templeton entities are not classified as
related parties under IAS 24.
Accordingly, there were no transactions with related parties,
other than the fees paid to the Directors during the year ended 31
March 2021, which have a material effect on the results or the
financial position of the Company. Details on fees paid to the
Directors is included on page 63 of the full Annual Report.
15 Risk management
In pursuing the Company's objective, set out on page 9 of 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 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% (2020: 100%) of the Company's investment portfolio is
listed on stock exchanges. If share prices had decreased by 30%
(2020: 20% 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
GBP779,723,000 (2020: GBP356,051,000). A 30% increase (2020: 20%
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 monetary items that have foreign
currency exposure at 31 March are shown below:
2021 Trade, bank Total net Investments
Trade and loans, and foreign at fair
other Cash other currency value through
receivables at bank payables exposure profit or
loss
Currency GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------ -------- ------------ ---------- --------------
Hong Kong dollar 430 - (430) - 626,193
------------------ ------------ -------- ------------ ---------- --------------
Korean won 9,304 - - 9,304 574,910
------------------ ------------ -------- ------------ ---------- --------------
Taiwan dollar 4,001 3,213 - 7,214 429,925
------------------ ------------ -------- ------------ ---------- --------------
US dollar 578 - (5) 573 357,521
------------------ ------------ -------- ------------ ---------- --------------
Indian rupee 27 - - 27 162,049
------------------ ------------ -------- ------------ ---------- --------------
Other 1,089 - - 1,089 394,136
------------------ ------------ -------- ------------ ---------- --------------
2020 Trade, bank, Total net Investments
Trade and loans, and foreign at fair
other Cash other currency value through
receivables at bank payables exposure profit or
loss
Currency GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------ -------- ------------- ---------- --------------
US dollar 112 - - 112 447,757
------------------ ------------ -------- ------------- ---------- --------------
Hong Kong dollar 33 (33) - - 383,183
------------------ ------------ -------- ------------- ---------- --------------
Korean won 4,514 - - 4,514 306,197
------------------ ------------ -------- ------------- ---------- --------------
Taiwan dollar 4,843 - - 4,843 199,449
------------------ ------------ -------- ------------- ---------- --------------
Indian rupee - 85 - 85 115,004
------------------ ------------ -------- ------------- ---------- --------------
Other 1,224 - (1) 1,223 271,821
------------------ ------------ -------- ------------- ---------- --------------
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 2021, 69.5% (2020: 64.8%) of the investments
shown as US dollar and Hong Kong dollar are Chinese companies with
exposure to the Chinese yuan. The total exposure to Chinese yuan
was GBP769.7 million (2020: GBP593.7 million).
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit
after taxation for the year and of the equity in regard to the
Company's monetary financial assets and liabilities and its equity
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.
2021 2020
Capital Capital
Revenue Return Revenue Return
Financial assets and liabilities GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Hong Kong dollar 1,161 62,619 1,762 38,318
---------------------------------- -------- -------- -------- --------
Korean won 1,460 58,421 829 30,620
---------------------------------- -------- -------- -------- --------
Taiwan dollar 748 43,714 1,098 19,945
---------------------------------- -------- -------- -------- --------
US dollar 858 35,809 2,066 44,776
---------------------------------- -------- -------- -------- --------
Indian rupee 147 16,208 216 11,500
---------------------------------- -------- -------- -------- --------
Total 4,374 216,771 5,971 145,159
---------------------------------- -------- -------- -------- --------
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 interest
rate risks at 31 March is shown below:
2021 2020
GBP'000 GBP'000
------------------------- -------- --------
Cash 85,212 87,830
------------------------- -------- --------
Net exposure at year end 85,212 87,830
------------------------- -------- --------
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 were maintained for a year, a 1.0%
increase or decrease in interest rates would impact the net profit
after taxation by the following amounts:
2021 2020
1.0% increase 1.0% decrease 1.0% increase 1.0% decrease
in rate in rate in rate in rate
GBP'000 GBP'000 GBP'000 GBP'000
--------- -------------- -------------- -------------- --------------
Revenue 852 (852) 878 (878)
--------- -------------- -------------- -------------- --------------
Capital - - - -
--------- -------------- -------------- -------------- --------------
Total 852 (852) 878 (878)
--------- -------------- -------------- -------------- --------------
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 2021, based on the earliest
date on which payment can be required and current exchange rates as
at the Balance Sheet date:
Less than Later than
one year two years
and and
In one year not later not later More than
than than
or less two years three years three years Total
As at 31 March 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ ---------- ------------ ------------ --------
Fixed term loan 2,444 2,089 2,089 101,757 108,379
--------------------- ------------ ---------- ------------ ------------ --------
Other payables 7,968 - - - 7,968
--------------------- ------------ ---------- ------------ ------------ --------
Total 10,412 2,089 2,089 101,757 116,347
--------------------- ------------ ---------- ------------ ------------ --------
Less than Later than
one year two years
and and
In one year not later not later More than
than than
or less two years three years three years Total
As at 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ ---------- ------------ ------------ --------
Fixed term loan 2,089 2,089 2,089 103,840 110,107
--------------------- ------------ ---------- ------------ ------------ --------
Other payables 3,169 - - - 3,169
--------------------- ------------ ---------- ------------ ------------ --------
Total 5,258 2,089 2,089 103,840 113,276
--------------------- ------------ ---------- ------------ ------------ --------
Investments held by the Company are valued in accordance with
the accounting policies. Other financial assets and liabilities of
the Company are included in the Statement of Financial Position at
fair value.
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 amount of credit risk that the Company is
exposed to is disclosed under the interest rate risk profile and
represents the maximum credit risk at the year-end date.
The Company has an ongoing contract with its custodian (JPMorgan
Chase Bank) for the provision of custody services.
As part of the annual risk and custody review, the Company
reviewed the custody services provided by JPMorgan Chase Bank and
concluded that, while there are inherent custody risks in investing
in emerging markets, the custody network employed by TEMIT has
appropriate controls in place to mitigate those risks, and that
these controls are consistent with recommended industry practices
and standards.
Securities held in custody are held in the Company's name or to
its accounts. Details of holdings are received and reconciled
monthly. Cash is actively managed by Franklin Templeton's Trading
Desk in Edinburgh and is typically invested in overnight time
deposits in the name of TEMIT with an approved list of
counterparties. Any excess cash not invested by the Trading Desk
will remain in a JPMorgan Chase interest bearing account. There is
no significant risk on debtors and accrued income or tax at the
year end.
During the year, the Company participated in a securities
lending programme through JPMorgan as the lending agents. As at 31
March 2021, the market value of the securities on loan and the
corresponding collateral received were as follows:
31 March 2021 31 March 2020
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
----------------------------- -------------- -------------- -------------- --------------
Morgan Stanley 7,820 10,581 - -
----------------------------- -------------- -------------- -------------- --------------
UBS 3,285 4,055 - -
----------------------------- -------------- -------------- -------------- --------------
Citigroup 82 119 - -
----------------------------- -------------- -------------- -------------- --------------
Merrill Lynch International - - 7,891 8,335
----------------------------- -------------- -------------- -------------- --------------
HSBC Bank - - 19 73
----------------------------- -------------- -------------- -------------- --------------
Total 11,187 14,755 7,910 8,408
----------------------------- -------------- -------------- -------------- --------------
The maximum aggregate value of securities on loan at any time
during the year was GBP29,788,419. The collateral received
comprised investment grade sovereign bonds and treasury notes and
bonds.
Fair value
Fair values are derived as follows:
-- Where assets are denominated in a foreign currency, they are
converted into the sterling amount using period end rates of
exchange;
-- Non-current financial assets on the basis set out in the
annual accounting policies; and
-- Cash at the denominated currency of the account.
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 2021 31 March 2020
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- ---------- ---------- ------- ---------- ---------- ------- ------- ----------
Listed investments 2,548,121 50,954(a) - 2,599,075 1,780,253 - - 1,780,253
-------------------- ---------- ---------- ------- ---------- ---------- ------- ------- ----------
(a) The fair value of the Company's holding in Brilliance China
Automotive as at 31 March 2021 was GBP50,954,000. On 31 March 2021
the company listing was suspended from the Hong Kong stock
exchange. Given the suspension the previous published market price
was not deemed representative of fair value and was subsequently
reduced by 10% based on facts and circumstances known at this
date.
The fixed term loan is shown at amortised cost within the
Statement of Financial Position. If the fixed term loan was shown
at fair value the impact would be to decrease the Company's net
assets by GBP2,560,000. The fair value of the Company's fixed term
loan at the year-end was GBP102,560,000 (2020: GBP100,782,000).
The fair value of the fixed term loan is calculated by
aggregating the expected future cash flows which are discounted at
a rate comprising the 3 month sterling LIBOR rate plus the
borrower's margin. The fixed term loan is considered to be classed
as Level 2.
16 Significant holdings in investee undertakings
As at 31 March 2021 and 2020, TEMIT had no significant holdings
of 3% or more of any issued class of security within the
portfolio.
17 Contingent liabilities
No contingent liabilities existed as at 31 March 2021 or 31
March 2020.
18 Contingent assets
There are no contingent assets as at reporting date.
TEMIT has filed historic claims with HMRC for exemption of pre
2009 dividend income from Corporation Tax based on the Prudential
& CFC FII GLO cases. As at 31 March 2020, a contingent asset of
GBP3,802,000 (inclusive of interest) was reported with respect to
the claim for the financial year ended April 2004. The facts and
circumstances as at 31 March 2021 have changed and the likelihood
of recovery has decreased such that there is no contingent asset
reported for the current year.
19 Financial commitments
There were no financial commitments as at 31 March 2021 or 31
March 2020.
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 which allows borrowing of up to
10% of net assets is unchanged but shareholders have been requested
to increase this limit at this year's Annual General Meeting.
As at 31 March 2021, the Company had share capital and reserves
of GBP2,591,287,000 (31 March 2020: GBP1,775,650). 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 dividend, which has been disclosed in Note 13.
The statutory accounts for the period ended 31 March 2021
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 FLFISRVISIIL
(END) Dow Jones Newswires
June 04, 2021 10:11 ET (14:11 GMT)
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