Statement of Annual Results to 31 March 2022
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 and
sustainable earnings, and with due regard to environmental, social and governance (“ESG”) attributes. TEMIT’s research-driven
investment approach and strong long-term performance has helped it to grow to be the largest emerging markets investment trust
in the UK, with assets of £2.1 billion as at 31 March 2022. From its launch to 31 March 2022, TEMIT’s net asset value (“NAV”)
total return was +3,813.9% compared to the benchmark total return of +1,792.0%.
The Company is governed by a Board of Directors who are committed to ensuring that shareholders’ best interests, considering the
wider community of stakeholders, are at the forefront of all decisions. Under the guidance of the Chairman, the Board of Directors
is responsible for the overall strategy of the Company and monitoring its performance.
TEMIT at a glance
For the year to 31 March 2022
Net asset value total return
(cum-income)
(a)
Share price total return
(a)
MSCI Emerging Markets
Index total return
(a)(b)
Proposed total ordinary
dividend
(c)
-17.3% -21.2% -6.8% 3.80p
(2021: 54.5%) (2021: 59.5%) (2021: 42.8%) (2021: 3.80p)
(d)(e)
(a)
A glossary of alternative performance measures is included in the full Annual Report.
(b)
Source: MSCI. The Company’s benchmark is the MSCI Emerging Markets Index, with net dividends reinvested.
(c)
An annual ordinary dividend of 3.80 pence per share for the year ended 31 March 2022 has been proposed. This comprises the
interim dividend of 1.00 pence per share paid by the Company on 10 January 2022 and the proposed final dividend of 2.80 pence
per share.
(d)
In addition to the ordinary dividend of 3.80p, a special dividend of 2.00p was paid for the year ended 31 March 2021.
(e)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Strategic Report
The Directors present the Strategic Report for the year ended 31 March 2022, 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
2021–2022
2021–2022 Notes
Year ended
31 March
2022
Year ended
31 March
2021
Capital
return
%
Total
return
%
Total net assets (£ millions) 2,100.4 2,591.3
Net asset value (pence per share)
(a)(b)
178.2 219.4 (18.2) (17.3)
Highest net asset value (pence per share)
(b)
223.9 235.6
Lowest net asset value (pence per share)
(b)
161.0 141.2
Share price (pence per share)
(a)(b)
156.4 202.4 (22.2) (21.2)
Highest end of the day share price (pence per share)
(b)
208.0 214.4
Lowest end of the day share price (pence per share)
(b)
140.6 127.2
MSCI Emerging Markets Index
(a)
(9.1) (6.8)
Share price discount to net asset value at year end
(a)
12.2% 7.7%
Average share price discount to net asset value over the
year
9.5% 11.1%
Ordinary dividend (pence per share)
(b)(c)
3.80 3.80
Special dividend (pence per share)
(b)
– 2.00
Revenue earnings (pence per share)
(b)(d)
3.44 5.73
Capital earnings (pence per share)
(b)(d)
(40.90) 72.73
Total earnings (pence per share)
(b)(d)
(37.46) 78.46
Net gearing
(a)
1.1% 0.5%
Ongoing charges ratio
(a)
0.97% 0.97%
Source: Franklin Templeton and FactSet.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
(b)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
(c)
An annual dividend of 3.80 pence per share for the year ended 31 March 2022 has been proposed. This comprises the interim
dividend of 1.00 pence per share paid by the Company on 10 January 2022 and a proposed final dividend of 2.80 pence per share.
(d)
The revenue, capital and total earnings per share figures are shown in the Statement of Comprehensive Income in the full
Annual Report and Note 7 of the Notes to the Financial Statements.
Ten Year Record
2012–2022
Year ended
Total net
assets (£m)
NAV
(a)
(pence per
share)
Share
price
(a)
(pence per
share)
Year-end
discount
(b)
(%)
Revenue
earnings
(a)
(pence per
share)
Annual
dividend
(a)
(pence per
share)
Ongoing
charges
ratio
(b)
(%)
31 March 2012 2,098.6 127.3 117.7 7.5 1.58 1.15 1.31
31 March 2013 2,302.7 140.5 128.1 8.2 1.69 1.25 1.30
31 March 2014 1,913.6 118.4 105.4 10.9 1.83 1.45 1.30
31 March 2015 2,045.0 128.2 111.2 13.3 1.86 1.65 1.20
31 March 2016 1,562.3 104.8 90.8 13.4 1.41 1.65 1.22
31 March 2017 2,148.1 152.6 132.3 13.3 1.32 1.65 1.20
31 March 2018 2,300.8 169.2 148.6 12.2 3.18 3.00 1.12
31 March 2019 2,118.2 168.5 153.2 9.1 3.45 3.20 1.02
31 March 2020 1,775.7 146.5 131.4 10.3 4.88 3.80
(c)
1.02
31 March 2021 2,591.3 219.4 202.4 7.7 5.73 3.80
(c)
0.97
31 March 2022 2,100.4 178.2 156.4 12.2 3.44 3.80
(d)
0.97
Ten year growth record
(e)
2012-2022
Year ended NAV
NAV total
return
(b)
Share
price
Share price
total
return
(b)
MSCI
Emerging
Market
Index total
return
Revenue
earnings per
share-
undiluted
Ordinary
dividend
per share
31 March 2012 100.0 100.0 100.0 100.0 100.0 100.0 100.0
31 March 2013 110.4 111.1 108.8 110.0 107.7 107.0 108.7
31 March 2014 93.0 94.9 89.5 91.6 97.0 115.8 126.1
31 March 2015 100.7 104.0 94.5 97.9 109.8 117.7 143.5
31 March 2016 82.3 86.3 77.1 81.2 100.1 89.2 143.5
31 March 2017 119.9 127.5 112.4 120.5 135.4 83.5 143.5
31 March 2018 132.9 143.3 126.3 137.0 151.3 201.3 260.9
31 March 2019 132.4 145.8 130.2 145.2 151.4 218.4 278.3
31 March 2020 115.1 129.5 111.6 127.6 131.5 308.9 330.4
31 March 2021 172.3 200.1 172.0 203.5 187.8 362.7 330.4
31 March 2022 140.0 165.4 132.9 160.3 175.0 217.7 330.4
Source: Franklin Templeton and FactSet.
(a)
Comparative figures for financial years 2012 to 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
(b)
A glossary of alternative performance measures is included in the full Annual Report.
(c)
Excludes the special dividend of 0.52 pence per share for the year ended March 2020 and the special dividend of 2.00 pence per
share for the year ended March 2021.
(d)
An annual ordinary dividend of 3.80 pence per share for the year ended 31 March 2022 has been proposed. This comprises the
interim dividend of 1.00 pence per share paid by the Company on 10 January 2022 and a proposed final dividend of 2.80 pence per
share.
(e)
Rebased to 100 at 31 March 2012.
Chairman’s Statement
I would like to start by expressing the sympathy of the Board and of all of those involved with the management of TEMIT to all
victims of the Russian invasion of Ukraine.
Market overview and investment performance
(a)
Last year I had the pleasure of reporting a fifth consecutive year of out-performance of our benchmark index. The year under
review was much more challenging. In the first half of our accounting year news in emerging markets was dominated by pressure
on the share prices of some technology companies. This came after an extended period of strong performance and the Chinese
government’s moves to curtail the activities of some listed companies as it seeks to balance growth, equality and security. Both of
these factors had a negative impact on the performance of our portfolio over the 12 months under review. This was followed in
February by the Russian invasion of Ukraine. Russian securities were rapidly suspended from trading and at our financial year end
the five Russian stocks in TEMIT’s portfolio were ascribed a zero value. The combination of events in China and Russia and the
weakness of technology stocks led to TEMIT underperforming its benchmark by quite some margin, with a total return of -17.3%.
The Board takes a close interest in the performance of the portfolio and we are naturally disappointed by investment performance
in recent months. We meet formally with the Investment Manager at least four times per year and in the first quarter of each year
conduct an in-depth review of investment strategy with the portfolio managers and supporting analysts. Franklin Templeton has a
large emerging markets team and the Board this year spent time with several regional experts in order better to understand the
construction of the portfolio. While we are concerned by recent performance, the Board is reassured by both the quantity of
resources and the quality of the insights that the team produces and is confident that performance will turn around in due course.
(a)
The share split which was approved by shareholders at the 2021 Annual General Meeting took effect on 26 July 2021 and all of
the numbers quoted in this report take account of the fact that each existing share was replaced by five new shares.
Environmental, social and governance
There is a growing interest by investors in the various aspects of companies’ approaches to the environment, to social matters and
to good governance. Effective stewardship of the Company’s assets is a key element of the Board’s strategy for the Company.
Consideration of governance and sustainability issues has long been an integral part of our Investment Manager’s approach and
information and key disclosures are included in the description of the Investment Manager’s process. In order to explain in more
detail their approach to this important topic they have published a Stewardship Report for TEMIT, which is available at
www.temit.co.uk. This Report sets out the general approach to investing your Company’s assets, relevant statistical information
and examples of engagement with investee companies. I encourage you to download a copy.
Revenue and dividend
Net revenue earnings for the period under review amounted to 3.44 pence per share. This is marginally lower than earnings for the
prior year, adjusted for the stock split and the exceptional Corporation Tax refund received in the prior year. An interim dividend
of 1.00 pence per share was paid in January 2022 and the Board recommends a final dividend of 2.80 pence per share, both
amounts being unchanged from last year after accounting for the share split. TEMIT has large revenue reserves amounting to
10.01 pence per share and the Board believes that it is appropriate to use a small part of these reserves to maintain the annual
ordinary 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 borrowing of £100 million, and a revolving credit facility under which up to £120 million in flexible debt may
be drawn down. The Investment Manager has taken a cautious view on borrowing, which has proven correct in difficult markets.
Gearing was increased during the year under review as £50 million was drawn down under the revolving credit facility in October
2021.
As at the financial year end, gearing net of cash in the portfolio stood at 1.1%. I would like to remind shareholders that the level of
debt deployed is not a result of views on market direction but driven by investment opportunities presented by individual
companies.
Share rating
We remain active in promoting TEMIT’s shares to a wide variety of existing and potential investors, particularly private investors.
The Board believes that promoting the Company to new investors is good for its long-term health, while the demand created also
helps to exert pressure on the discount. We have a substantial marketing budget, which is also supported by a financial
contribution from Franklin Templeton and by their marketing resources. As we noted in our half year report for the second
consecutive year we won the award in the “Emerging Markets Equity – Active” category in the prestigious AJ Bell Fund and
Investment Trust Awards 2021. This award is made on the basis of voting from private investors from a short list of open-ended
funds, ETFs and investment trusts drawn up by investment experts. TEMIT also won the prestigious Best Campaign Award at the
AIC Shareholder Awards 2022 in recognition of the quality of the “Your future is emerging” campaign undertaken to attract new
shareholders. The innovative use of broadcast media has helped to increase TEMIT’s profile, advertise the benefits of the
Company and communicate the growth story of emerging markets to a wider audience.
The Board continues to regard share buybacks as a key tool in managing the balance between supply and demand for the shares.
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. Based on the
detailed information that we receive, the Board continues to believe that we have ample evidence that the driver of changes in the
discount is the balance between supply and demand for the shares. In the Chairman’s Statement at the half year stage I noted that
the discount had been narrow and in the event we made only one buyback in the first 11 months of our financial year, that being in
September 2021. The situation changed dramatically following the Russian invasion of Ukraine and we stepped in on a number of
occasions to buy back shares in March 2022 and have continued to do so after the year end.
In total over the year, £3.6 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 0.03% to the benefit of remaining shareholders.
The Board
As reported last year, Magdalene Miller was appointed as a non-executive Director of the Company with effect from 10 May 2021.
Beatrice Hollond will retire from the Board at this year’s AGM. On behalf of all the Directors, I would like to record our thanks to
Beatrice for her advice and wise contributions to our discussions over the last eight years.
After Beatrice retires, Simon Jeffreys will take on role of Senior Independent Director. The search for a replacement Director is in
progress bearing in mind gender diversity and we plan to make an announcement shortly.
AIFM fee
We announced in November 2021 that the Board has agreed with Franklin Templeton that with effect from 1 July 2022 the AIFM
fee will reduce to:
• 1.0% on the first £1 billion of net assets;
• 0.75% on net assets between £1 billion and £2 billion; and
• 0.5% on net assets over £2 billion.
This compares with the current fee structure of 1.0% on the first £1 billion of assets and 0.80% on assets above £1 billion. Based
on net assets as at 31 March 2022, this results in an annual saving to the Company of £0.8 million.
The management fee rate has gradually been reduced over recent years and the Board is mindful of the balance between
controlling costs and incentivising the Investment Manager to continue to invest in their team.
Annual General Meeting
Having been obliged to hold the last two years’ AGMs behind closed doors, I am pleased to be able to invite all shareholders to
attend our AGM in person on 14 July 2022 at Barber-Surgeons’ Hall in London. We look forward to welcoming shareholders at
the meeting. While we hope that shareholders will be able to attend, the Directors are aware that Government guidance and
regulation relating to the COVID-19 pandemic may change. If we are obliged to change the arrangements for the AGM after
publishing this document, details will be published via Stock Exchange announcements in London and New Zealand and our
website. Shareholders who plan to attend the AGM are encouraged to check the website before travelling.
If you have any questions, please send these by email to temitcosec@franklintempleton.com or via
www.temit.co.uk./investor/contact-us in advance of the meeting. Any questions that we receive 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 that your votes will be counted if restrictions preventing attendance at the AGM are introduced at short
notice.
Outlook
These are difficult times for investment managers. At the time of writing the war in Ukraine appears likely to continue for some
time and while active hostilities will, we hope, end shortly, the ramifications are likely to be felt for some considerable time. From
the perspective of investors the major issues will be the extent to which commodity prices remain elevated and the effect that this
has on broader inflation around the world. Higher inflation generally leads to higher interest rates and this affects the market value
of assets, particularly high growth companies for which values are derived from expectations of earnings over the longer term. The
COVID-19 pandemic is still present in parts of the world. In particular, the Chinese government continues to pursue a policy of
lockdowns to control outbreaks of the virus and this can have serious economic consequences. We also remain concerned about
the extent to which the Chinese government will continue to intervene in the affairs of companies.
Against this difficult background, your Board remains optimistic for the long term despite recent setbacks. Our Investment
Manager deploys a large team with staff around the world and their process has demonstrated its effectiveness over the long term.
Countries making up the emerging markets currently contribute around 2/3 of the world’s economic growth. We believe that this
growth advantage will continue because emerging markets enjoy many structural advantages – relatively young and growing
populations, growing wealth, expanding economies, and companies that in some cases are world leading.
Paul Manduca
Chairman
14 June 2022
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 70 investment professionals, based in 13 countries around the world.
The team has a collaborative investment process where all analysts and portfolio managers work together to contribute to investment
returns. They meet regularly, both formally and informally, to debate and exchange ideas, investment themes and enrich their
understanding of the markets by drawing on local insights to build a global perspective and context to their thinking. They also
benefit from the broader resources available throughout Franklin Templeton.
The portfolio managers for TEMIT, Chetan Sehgal (lead) and Andrew Ness are senior executives in FTEME.
Portfolio Managers
Chetan Sehgal, CFA
Chetan is the lead portfolio manager of TEMIT and is based in Singapore.
As part of his broader responsibilities within FTEME, Chetan is also the director of portfolio management. In this capacity, he is
responsible for the overall Global Emerging Markets 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. 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.
Portfolio Report
Overview of markets
Emerging markets collectively declined over the 12 months under review. Although progress in vaccination campaigns and
businesses reopening, along with ongoing monetary and fiscal stimulus, aided economic recovery in several parts of the world,
others struggled with new COVID-19 variant outbreaks. An accelerated tightening in United States (“US”) monetary policy
suppressed investors’ risk appetite. Higher inflation amidst a spike in commodity prices raised investor concerns as rebounding
consumer demand alongside continued supply-chain disruptions drove inflation in many countries to reach the highest levels in
decades. Towards the end of the period under review, Russia’s invasion of Ukraine further tested financial markets, triggering a
series of international sanctions on Russia. The MSCI Emerging Markets Index returned -6.8% in the 12-month period under
review, whilst TEMIT delivered a net asset value total return of -17.3% (all figures are total return in sterling). Full details of
TEMIT’s performance can be found in the full Annual Report.
By region, Latin America outperformed its peers in EMEA (Europe, Middle East and Africa) and Asia. Latin America, replete
with natural resources and relatively insulated from supply interruptions related to Russia’s war with Ukraine, benefitted from
higher prices for energy and other commodities. Although the EMEA region lost ground on contagion from Russia’s invasion of
Ukraine and subsequent sanctions from Western governments, resource-rich South Africa and oil- producing nations in the Middle
East benefitted from higher commodity prices. Declines in China were largely responsible for Asia’s lagging performance,
overshadowing solid returns in India and Taiwan.
China was TEMIT’s largest market exposure, although the portfolio remained underweight relative to the benchmark. China was
amongst the weakest emerging markets, losing 29% in sterling terms over the 12-month period. Chinese equities retreated under
pressure from concerns relating to the impact of additional regulations, particularly in the internet industry, a property market
slowdown and new COVID-19 outbreaks, even as the central bank cut key lending rates to support the economy. The government
enacted new regulations in a number of industries, including internet and education, which caused considerable investor concern.
The regulatory changes in China were announced at a time when the country was seeing a slowdown in its economy and
resurgence in COVID-19 cases, which further weighed on equity performance. Equities sharply rebounded near the end of the
period after assurances of stock market stability from China’s state council.
While regulatory changes in China have elevated market volatility and investor fears of policy risks in the country, we would like
to stress that the policies do not have a uniform effect on all companies within a given sector. Therefore, it is crucial to assess the
impact of regulatory changes on the long-term earnings power and intrinsic value of companies individually. Other factors,
including a resurgence of COVID-19 and rising coal and gas prices, will also be likely to have an impact on economic growth this
year. Additionally, we have seen a slowdown in consumption. However, we believe that China’s policy makers have multiple and
flexible policy tools to underpin the economy. China’s increased emphasis on its domestic market and self-sufficiency should
support sustainable longer-term growth. China has directed its policies towards developing industries that are likely to benefit
broader society—the “greening” of the economy, for example, is likely to be a tailwind for industries related to electric vehicles
and renewable energy. We also expect digitalization to remain an important theme in China.
TEMIT’s second-largest market position was in South Korea, where the portfolio was overweight versus the benchmark. South
Korean equities declined by 14% during the reporting period. The resurgence of COVID-19, stricter social distancing measures
and weak market sentiment surrounding technology stocks weighed on equity prices. South Korea ended the period near a
historically low unemployment rate of under 3% largely due to government spending. The country is an export powerhouse, and
several South Korean exporters are of global importance, supplying vital hardware. However, rising commodity prices and supply
chain bottlenecks have put pressure on the semiconductor and battery makers that comprise South Korea’s growth sectors.
Uncertain global economic issues could lead to a slower-than-expected recovery in key macroeconomic indicators. Concerns
about regulations also remain, whilst geopolitical tension with North Korea and the possibility of future COVID-19 outbreaks
warrant close attention.
The Taiwanese market outperformed the wider benchmark, ending the reporting period with a return of nearly 12%. TEMIT’s
overweight allocation to Taiwan was largely attributable to exposure to the island’s semiconductor industry. Technology’s role as
a key economic engine has only strengthened during the pandemic. Moreover, semiconductor chips have become a growing part
of almost all consumer goods with the semiconductor industry experiencing a cyclical and secular boom as growing digitalisation
powers a surge in demand. Some of Taiwan’s manufacturers are counted amongst the largest and most advanced foundries in the
world and partner with and produce chips for clients globally, with few competitors able to progress to the next level of
technology. Despite increased market concerns that Russia’s invasion of Ukraine could potentially increase cross-strait
geopolitical risk between China and Taiwan, we expect the current status quo situation to remain unchanged.
Equities in Brazil rose sharply in the final three months of the reporting period to end the 12-month period with double-digit
gains. Brazil’s monetary policy has been amongst the most aggressive in emerging markets. In the second half of 2021, fiscal
uncertainties, depreciation in the real, increased political noise, rising inflation and pockets of commodity weakness weighed on
the Brazilian market. However, higher commodity prices, a stronger real and undemanding valuations led to renewed fund inflows
in 2022. However, political uncertainty and fiscal challenges created volatility in the equity market, as did concerns that rising
inflation and a tighter monetary policy could hinder the overall economy. Brazil's long-term growth recovery and business
environment could be further supported by the continuation of economic reforms, privatisations and concessions, all of which the
government has been focusing on but remain difficult to materialize ahead of presidential elections in October 2022. As the
world’s fourth-largest commodity exporter, the commodity price surge amidst global supply concerns from Russia’s invasion of
Ukraine has been beneficial for Brazil’s commodity exports, economy and market. We also believe that Brazil’s economic growth
could surprise on the upside, aided by efficiencies arising from a thriving internet economy.
India was TEMIT’s fifth largest exposure at the end of March 2022. The Indian market remained on an upward trend over the
majority of the 12-month period. Stocks, however, declined in early 2022, as rising oil prices weighed on the economic outlook for
the country as it is a major oil importer. A moderation in oil prices and expectations of policy continuity with the ruling
government party’s election in key states in March led equities to rebound off their 2022 low, to end the reporting period with
double-digit gains. Digitalisation in India has been advancing at a rapid pace since 2016, due to government initiatives,
inexpensive mobile data and a significant step-up of venture capital and private equity funding. Companies related to the internet
and digital economy have also been gaining prominence on Indian stock exchanges, providing exciting investment opportunities
and diversifying the overall market. Over the longer-term, we expect to see continued growth in Indian earnings due to positive
demographics, continued private sector penetration in segments like finance and health care, digitalisation from a low base, and
supply-chain diversification supported by government policy. We believe that long-term fundamentals remain robust in view of
increasing consumer penetration, growing formalisation of the economy, a reform push and a stable government.
TEMIT had maintained an overweight exposure to Russia relative to the benchmark prior to Russia’s invasion of Ukraine. Equity
prices were on an upward trend in the first seven months of the reporting year, returning over 25% in sterling terms. Despite its
strong market performance, however, Russia remained one of the most undervalued markets in Europe as well as globally. Rising
oil prices, appreciation in the rouble and a faster-than-expected economic recovery buoyed the stock market. Brewing tensions
with Ukraine however, started weighing on equity prices in Russia. We remained generally positive in our outlook on investment
opportunities in Russia, given the belief that diplomacy could resolve the issue. We believed that Russia’s internally focused
economy and policy flexibility (given twin surpluses in its fiscal and current accounts) continued to provide a conducive
environment for companies operating domestically.
Post the invasion and the implementation of extensive sanctions from the West, stock prices and the Russian rouble declined
sharply. Russia’s resilience to financial shocks has also been affected by the freeze of some of its central bank’s international
reserves. Index compilers MSCI and FTSE dropped Russia from their benchmarks in early March at a zero-value, due to non-
fulfilment of market accessibility requirements. Although trading in the domestic market resumed in late-March, following a
trading suspension on 28 February, foreigners remained barred from selling, while trading in Russian American and Global
Depositary Receipts (ADRs/GDRs) listed in international exchanges also remained suspended at the time of writing. Given these
facts, on 4 March 2022, Russian company securities were fair valued at zero by the Franklin Templeton Valuation Committee. In
concluding upon a zero value, the continued uncertainty in the market, restrictions on trading the shares both onshore and offshore,
and a lack of any price discovery mechanism to provide indications of residual value were all considered.
Investment strategy, portfolio changes and performance
The following sections show how different investment factors (stocks, sectors and geographies) accounted for TEMIT’s
performance over the period. We continue to emphasise our investment process which is described in more detail in the full
Annual Report and 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.
In the portfolio, we remain positioned in long-term themes including consumption premiumisation, digitalisation and technology.
We focus on companies reflecting our philosophy of owning superior quality businesses, with long-term sustainable earnings
power and share prices at a discount to intrinsic worth. We see elevated levels of leverage as a risk and continue to avoid
companies with weak balance sheets.
Whilst the immediate outlook may be volatile, this approach should help us best navigate the ongoing pandemic and geopolitical
instability. Over time, we expect the long-term fundamentals of our holdings to remain intact and to produce attractive returns for
investors.
Performance attribution analysis %
Year to 31 March 2022 2021 2020 2019 2018
Net asset value total return
(a)
(17.3) 54.5 (11.2) 1.8 12.4
Expenses incurred 1.0 1.0 1.0 1.0 1.1
Gross total return
(a)
(16.3) 55.5 (10.2) 2.8 13.5
Benchmark total return
(a)
(6.8) 42.8 (13.2) 0.1 11.8
Excess return
(a)
(9.5) 12.7 3.0 2.7 1.7
Stock selection (10.0) 6.0 (2.1) 1.8 1.3
Sector allocation 0.3 6.8 3.1 (0.6) (0.3)
Currency 0.2 (0.3) 1.6 1.0 0.4
Share buyback impact
(b)
0.0 0.3 0.4 1.0 0.4
Residual return
(a)
(0.0) (0.1) – (0.5) (0.1)
Total Investment Manager contribution (9.5) 12.7 3.0 2.7 1.7
Source: FactSet and Franklin Templeton.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
(b)
The share buyback impact has been presented separately from the residual figure.
Top 10 contributors to relative performance by security (%)
(a)
Top contributors Country Sector
Share price total
return
Contribution to
portfolio relative
to MSCI Emerging
Markets Index
ICICI Bank India Financials 26.6 1.0
Meituan
(b)
China/Hong Kong Consumer Discretionary (45.7) 0.7
Itaú Unibanco Brazil Financials 50.5 0.6
Taiwan Semiconductor Manufacturing Taiwan Information Technology 5.5 0.6
Bajaj Holdings & Investments
(c)
India Financials 57.9 0.5
Guangzhou Tinci Materials Technology China/Hong Kong Materials 59.3 0.5
Cognizant Technology Solutions
(c)
United States Information Technology 22.0 0.5
Pinduoduo
(b)
China/Hong Kong Consumer Discretionary (68.6) 0.4
Longshine Technology
(c)
China/Hong Kong Information Technology 93.6 0.4
Banco Bradesco Brazil Financials 18.0 0.3
(a)
For the period 31 March 2021 to 31 March 2022.
(b)
Security not held by TEMIT as at 31 March 2022.
(c)
Security not included in the MSCI Emerging Markets Index as at 31 March 2022.
Finishing higher over the 12-month period were shares of ICICI Bank, India’s second largest private sector bank. In its most
recent fiscal quarter ended in December 2021, the bank posted robust loan growth amidst increasing economic activity as
pandemic restrictions eased. The bank has a wide presence across retail banking products, as well as corporate and commercial
banking. The bank has strong franchises and competitive asset management, insurance, and retail brokerage subsidiaries.
Brazilian bank Itaú Unibanco was a top contributor during the period. Its shares rebounded from a decline in the latter part of
2021, as Brazilian equities benefitted from renewed investor inflows amidst higher commodity prices, improving macroeconomic
data and undemanding valuations. Rising interest rates further benefitted the bank. The large-scale bank benefits from low
penetration of financial products and a strong distribution network. Loan activity increased in 2021, and expense control supported
strong margins.
Shares of Taiwan Semiconductor Manufacturing (“TSMC”) gained during the period. The chip maker’s strong quarterly
earnings growth, upbeat full year outlook and larger capital expenditure plan boosted investor confidence in the stock, although
risks of a slowdown in consumer spending led to volatility in the semiconductor industry late in the period. We expect TSMC to
benefit from a structural increase in chip demand, driven by smartphones, high-performance computing and other advanced
applications. We are positive on its technology leadership and its dominance in developing cutting-edge chips.
Top 10 detractors to relative performance by security (%)
(a)
Top detractors Country Sector
Share price total
return
Contribution to
portfolio relative
to MSCI Emerging
Markets Index
Alibaba China/Hong Kong Consumer Discretionary (47.2) (1.5)
LUKOIL Russia Energy (100.0) (1.5)
Yandex Russia Communication Services (100.0) (1.3)
Sberbank of Russia Russia Financials (100.0) (1.1)
Brilliance China Automotive China/Hong Kong Consumer Discretionary (59.2) (1.0)
Tencent China/Hong Kong Communication Services (35.2) (0.8)
Tencent Music Entertainment China/Hong Kong Communication Services (75.1) (0.7)
Naspers
(b)
South Africa Consumer Discretionary (46.9) (0.7)
Samsung Electronics South Korea Information Technology (15.6) (0.6)
Prosus
(c)
China/Hong Kong Consumer Discretionary (38.5) (0.5)
(a)
For the period 31 March 2021 to 31 March 2022.
(b)
Security not held by TEMIT as at 31 March 2022.
(c)
Security not included in the MSCI Emerging Markets Index as at 31 March 2022.
Alibaba’s stock fell over the period as the Chinese e-commerce company came under pressure from increased regulatory scrutiny
from its government. Additionally, weakening consumption trends amidst repeated COVID-19 outbreaks and intensified
competition in the domestic e-commerce market weighed on sentiment. We remain positive on the relative strength of Alibaba’s e-
commerce ecosystem. It has also been pursuing a multi-engine growth strategy for the longer term, which includes building up its
cloud and international e-commerce businesses.
LUKOIL, a major Russian oil producer, Yandex, Russia’s largest search engine and Sberbank of Russia, one of the biggest
banks in Russia were top detractors in the final quarter of the period. Before Russia’s invasion of Ukraine, we had maintained our
positions in Russian stocks in the belief that diplomacy could resolve the issue. Post the invasion, share prices of Russian equities
declined significantly. As mentioned above, with effect from 4 March 2022, Russian company stocks were fair valued at zero.
Top contributors and detractors to relative performance by sector (%)
(a)
Top contributors
MSCI
Emerging Markets
Index sector total
return
Contribution to
portfolio
relative to MSCI
Emerging
Markets Index Top detractors
MSCI
Emerging Markets
Index sector total
return
Contribution to
portfolio
relative to MSCI
Emerging
Markets Index
Information Technology (1.8) 0.9 Communication Services (19.9) (3.7)
Real Estate (24.3) 0.7 Energy (1.5) (2.0)
Health Care (21.8) 0.6 Financials 16.5 (2.0)
Consumer Discretionary (36.2) (1.9)
Industrials 9.9 (0.5)
(a)
For the period 31 March 2021 to 31 March 2022.
An overweight position and favourable stock selection in the information technology sector added to TEMIT’s performance
relative to the benchmark index in the review period. Tata Consultancy Services, an India-based IT services firm, and Cognizant
Technology Solutions, a US listed technology services company that derives much of its earnings from services provided in India,
were both examples of information technology companies that aided relative returns. Stock selection and an underweight in real
estate also aided relative performance, as the poorly performing sector for the benchmark contributed to relative returns in the
portfolio. The portfolio did not invest in several Chinese real estate stocks that weighed on the sector in the benchmark amidst a
slowdown in the Chinese real estate sector. However, Chinese real estate company China Resources Land was an overweight in
the portfolio and rose during the period. Stock selection and an underweight exposure to the health care sector was another
positive contributor to relative returns.
In contrast, stock selection in the communication services sector was a key detractor from relative performance. Yandex was a
leading detractor as Russian stocks were fair valued at zero, as discussed above. Tencent was another key detractor in the sector.
In addition to new rules in China’s internet sector, concerns of a freeze on new video game approvals also impacted sentiment in
the company. Stock selection in energy also detracted from relative performance, owing to Russia’s LUKOIL, which was fair
valued at zero, as discussed above. Additionally, not holding India-based Reliance Industries, which has energy and
telecommunications operations, held back returns as its shares advanced. Stock selection in financials, due to the write down of
Sberbank of Russia, hindered performance relative to the benchmark, overshadowing the contribution of an overweight position as
the sector was positive for the benchmark.
Top contributors and detractors to relative performance by country (%)
(a)
Top contributors
MSCI
Emerging Markets
Index sector total
return
Contribution to
portfolio
relative to MSCI
Emerging
Markets Index Top detractors
MSCI
Emerging Markets
Index sector total
return
Contribution to
portfolio
relative to MSCI
Emerging
Markets Index
Brazil 30.5 0.6 Russia
(b)(c)
(100.0) (2.9)
United States
(b)
– 0.4 South Africa 17.3 (1.8)
Thailand 3.5 0.2 Saudi Arabia
(d)
45.5 (1.3)
Peru 28.0 0.1 Taiwan 11.9 (0.7)
Egypt (10.1) 0.1 South Korea (14.2) (0.7)
(a)
For the period 31 March 2021 to 31 March 2022.
(b)
No companies included in the MSCI Emerging Markets Index in this country as at 31 March 2022.
(c)
All companies held by TEMIT in this country are valued at zero as at 31 March 2022.
(d)
No companies held by TEMIT in this country as at 31 March 2022.
An overweight position and stock selection in Brazil aided relative performance amidst the surge in commodity prices and
strength in the financial sector. Stock selection in Brazilian financials, including banks Itaú Unibanco and Banco Bradesco, and
Brazil’s leading financial market infrastructure company B3, helped relative returns. Off-benchmark exposure in the United
States was another key contributor to TEMIT’s returns relative to the index, as a position in Cognizant Technologies Solutions,
with high earnings exposure to India, was a key contributor. Thailand was another resource rich country that benefitted from a
surge in commodity prices, and our stock selection in the country aided relative performance.
Russia was the top detractor from relative performance. As mentioned above, with effect from 4 March 2022, Russian company
stocks were fair valued at zero. An overweight exposure to Naspers, which has a sizeable interest in Tencent, was largely
responsible for South Africa’s inclusion in the list of top market detractors from relative performance. We exited Naspers during
the reporting period. A lack of exposure to Saudi Arabia and several of its well-performing oil companies detracted from relative
performance. As a major oil exporter, the country benefitted from prices that climbed throughout the period, a rise that accelerated
in the first three months of 2022.
Portfolio changes by sector
Total return in sterling
Sector
31 March 2021
market value
£m
Purchases
£m
Sales
£m
Market
movement
£m
31 March 2022
market value
£m
TEMIT
%
MSCI Emerging
Markets Index
%
Information Technology 810 137 (186) (24) 737 (1.0) (1.8)
Financials 486 101 (113) (1) 473 3.4 16.5
Consumer Discretionary 491 65 (92) (198) 266 (43.9) (36.2)
Communication Services 433 59 (128) (152) 212 (40.9) (19.9)
Materials 91 144 (25) (2) 208 8.1 8.7
Consumer Staples 115 11 (24) (20) 82 (17.5) (5.3)
Industrials 67 17 (11) (11) 62 (5.6) 9.9
Energy 62 33 (8) (51) 36 (64.8) (1.5)
Health Care 32 12 (5) (6) 33 (14.2) (21.8)
Real Estate 12 25 (26) 5 16 0.2 (24.3)
Utilities – – – – – – 16.7
Total Investments 2,599 604 (618) (460) 2,125
Portfolio changes by country
Total return in sterling
Country
31 March 2021
market value
£m
Purchases
£m
Sales
£m
Market
movement
£m
31 March 2022
market value
£m
TEMIT
%
MSCI Emerging
Markets Index
%
China/Hong Kong 770 312 (248) (229) 605 (33.2) (29.0)
South Korea 575 77 (66) (99) 487 (14.4) (14.2)
Taiwan 430 15 (86) 4 363 3.0 11.9
Brazil 151 65 (32) 26 210 20.3 30.5
India 162 35 (61) 52 188 34.6 23.9
Other 511 100 (125) (214) 272 – –
Total Investments 2,599 604 (618) (460) 2,125
Portfolio investments by fair value
As at 31 March 2022
Holding Country Sector Trading
(a)
Fair value
£'000
% of net
assets
Taiwan Semiconductor Manufacturing Taiwan Information Technology PS 259,125 12.3
Samsung Electronics South Korea Information Technology PS 218,002 10.4
Alibaba China/Hong Kong Consumer Discretionary IH 124,514 5.9
ICICI Bank India Financials IH 117,038 5.6
Tencent China/Hong Kong Communication Services PS 81,516 3.9
NAVER South Korea Communication Services PS 79,021 3.8
MediaTek Taiwan Information Technology IH 77,821 3.7
China Merchants Bank China/Hong Kong Financials IH 62,500 3.0
Guangzhou Tinci Materials Technology China/Hong Kong Materials NH 56,399 2.7
LG South Korea Industrials PS 50,981 2.4
TOP 10 LARGEST INVESTMENTS 1,126,917 53.7
Banco Bradesco, ADR
(b)(c)
Brazil Financials IH 46,710 2.2
Vale Brazil Materials IH 46,056 2.2
Itaú Unibanco, ADR
(b)(c)
Brazil Financials PS 44,301 2.1
Samsung Life Insurance South Korea Financials IH 38,654 1.8
Cognizant Technology Solutions
(d)
United States Information Technology IH 37,970 1.8
Petroleo Brasileiro
(c)
Brazil Energy NH 35,977 1.7
Prosus
(e)
China/Hong Kong Consumer Discretionary IH 35,258 1.7
Genpact United States Information Technology NH 35,151 1.6
POSCO South Korea Materials IH 29,634 1.4
Unilever
(d)
United Kingdom Consumer Staples PS 29,164 1.4
TOP 20 LARGEST INVESTMENTS 1,505,792 71.6
Banco Santander Mexico, ADR
(b)
Mexico Financials NT 29,127 1.4
Kasikornbank Thailand Financials IH 27,472 1.3
Tata Consultancy Services India Information Technology NH 26,874 1.3
Soulbrain South Korea Materials NH 26,641 1.3
Daqo New Energy, ADR
(b)
China/Hong Kong Information Technology IH 24,998 1.2
Bajaj Holdings & Investments India Financials PS 22,502 1.1
Ping An Insurance China/Hong Kong Financials IH 22,475 1.1
Hon Hai Precision Industry Taiwan Information Technology PS 21,399 1.0
China Resources Cement China/Hong Kong Materials IH 21,390 1.0
Brilliance China Automotive China/Hong Kong Consumer Discretionary NT 20,803 1.0
TOP 30 LARGEST INVESTMENTS 1,749,473 83.3
Astra International Indonesia Consumer Discretionary PS 19,351 0.9
Fila South Korea Consumer Discretionary IH 16,915 0.8
Infosys Technologies India Information Technology PS 16,656 0.8
Americanas
(f)
Brazil Consumer Discretionary IH 16,517 0.8
NetEase China/Hong Kong Communication Services IH 16,347 0.8
Tencent Music Entertainment, ADR
(b)
China/Hong Kong Communication Services IH 16,219 0.8
Baidu China/Hong Kong Communication Services IH 15,972 0.8
Uni-President China China/Hong Kong Consumer Staples IH 15,555 0.7
Gedeon Richter Hungary Health Care PS 15,522 0.7
Ping An Bank China/Hong Kong Financials NT 15,281 0.7
TOP 40 LARGEST INVESTMENTS 1,913,808 91.1
Longshine Technology Group China/Hong Kong Information Technology IH 13,838 0.7
Massmart South Africa Consumer Staples IH 13,598 0.6
LG Chem South Korea Materials NH 11,661 0.5
Intercorp Financial Services Peru Financials IH 10,782 0.5
Keshun Waterproof Technologies China/Hong Kong Materials NH 10,525 0.5
LegoChem Biosciences South Korea Health Care IH 9,723 0.5
Greentown Service Group China/Hong Kong Real Estate NH 8,860 0.4
Kiatnakin Phatra Bank Thailand Financials PS 8,654 0.4
Thai Beverage Thailand Consumer Staples NT 8,141 0.4
Techtronic Industries China/Hong Kong Industrials NH 7,909 0.4
TOP 50 LARGEST INVESTMENTS 2,017,499 96.0
NagaCorp Cambodia Consumer Discretionary PS 7,883 0.4
B3 Brazil Financials PS 7,510 0.4
China Resources Land China/Hong Kong Real Estate PS 7,221 0.3
WuXi Biologics China/Hong Kong Health Care NH 7,189 0.3
BDO Unibank Philippines Financials NT 6,699 0.3
H&H Group China/Hong Kong Consumer Staples IH 6,632 0.3
MCB Bank Pakistan Financials NT 6,386 0.3
XP Inc Brazil Financials NH 5,899 0.3
ACC India Materials NT 5,257 0.3
East African Breweries Kenya Consumer Staples NT 4,673 0.2
TOP 60 LARGEST INVESTMENTS 2,082,848 99.1
Nemak Mexico Consumer Discretionary NT 4,604 0.2
M. Dias Branco Brazil Consumer Staples NT 4,142 0.2
PChome Online Taiwan Consumer Discretionary PS 3,385 0.2
Hankook Tire South Korea Consumer Discretionary NT 3,215 0.2
COSCO SHIPPING Ports China/Hong Kong Industrials IH 3,102 0.1
Delivery Hero
(d)
Germany Consumer Discretionary NH 2,825 0.1
JD.com China/Hong Kong Consumer Discretionary NH 2,613 0.1
BAIC Motor China/Hong Kong Consumer Discretionary PS 2,434 0.1
KT Skylife South Korea Communication Services NT 2,431 0.1
Weifu High-Technology China/Hong Kong Consumer Discretionary NT 2,387 0.1
TOP 70 LARGEST INVESTMENTS 2,113,986 100.5
TOTVS Brazil Information Technology PS 2,102 0.1
Chervon Holdings China/Hong Kong Consumer Discretionary NH 1,994 0.1
E-Finance for Digital & Financial
Investments Egypt Information Technology NH 1,844 0.1
Largan Precision Taiwan Information Technology PS 1,758 0.1
United Bank Pakistan Financials NT 1,093 0.1
New Oriental Education & Technology
Group, ADR
(b)
China/Hong Kong Consumer Discretionary NH 924 0.1
Americanas
(g)
Brazil Consumer Discretionary IH 418 0.0
Netcare South Africa Health Care NH 411 0.0
Gazprom, ADR
(b)(h)
Russia Energy PS – –
LUKOIL, ADR
(b)(h)
Russia Energy IH – –
TOP 80 LARGEST INVESTMENTS 2,124,530 101.1
Sberbank of Russia, ADR
(b)(h)
Russia Financials PS – –
VK, GDR
(h)(i)(j)
Russia Communication Services IH – –
Yandex
(h)
Russia Communication Services PS – –
TOTAL INVESTMENTS 2,124,530 101.1
NET LIABILITIES (24,140) (1.1)
TOTAL NET ASSETS 2,100,390 100.0
(a)
Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.
(b)
US listed American Depository Receipt.
(c)
Preferred Shares.
(d)
This company, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.
(e)
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.
(f)
Holding name has been changed from B2W Digital as the result of a merger between B2W Digital and Americanas.
(g)
Subscription receipts on the back of a rights issuance converted into ordinary shares on 1 April 2022.
(h)
This company has been fair valued at zero as a result of its trading being suspended.
(i)
UK listed Global Depository Receipt.
(j)
Holding name has been changed from Mail.Ru to VK as a result of rebranding.
Portfolio summary
As at 31 March 2022
All figures are a % of the net assets
Communication Services
Consumer Discretionary
Consumer
Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Total
Equities
Net liabilities
(a)
31 March 2022 Total
31 March 2021 Total
Brazil – 0.8 0.2 1.7 5.0 – – 0.1 2.2 – 10.0 – 10.0 5.9
Cambodia – 0.4 – – – – – – – – 0.4 – 0.4 0.5
China/Hong Kong 6.3 9.1 1.0 – 4.8 0.3 0.5 1.9 4.2 0.7 28.8 – 28.8 29.5
Czech Republic – – – – – – – – – – – – – 0.3
Egypt – – – – – – – 0.1 – – 0.1 – 0.1 –
Germany – 0.1 – – – – – – – – 0.1 – 0.1 –
Hungary – – – – – 0.7 – – – – 0.7 – 0.7 0.9
India – – – – 6.7 – – 2.1 0.3 – 9.1 – 9.1 6.3
Indonesia – 0.9 – – – – – – – – 0.9 – 0.9 0.6
Kenya – – 0.2 – – – – – – – 0.2 – 0.2 0.3
Mexico – 0.2 – – 1.4 – – – – – 1.6 – 1.6 1.3
Pakistan – – – – 0.4 – – – – – 0.4 – 0.4 0.3
Peru – – – – 0.5 – – – – – 0.5 – 0.5 0.2
Philippines – – – – 0.3 – – – – – 0.3 – 0.3 0.2
Russia – – – – – – – – – – – – – 6.0
South Africa – – 0.6 – – – – – – – 0.6 – 0.6 4.4
South Korea 3.9 1.0 – – 1.8 0.5 2.4 10.4 3.2 – 23.2 – 23.2 22.1
Taiwan – 0.2 – – – – – 17.1 – – 17.3 – 17.3 16.7
Thailand – – 0.4 – 1.7 – – – – – 2.1 – 2.1 1.7
United Kingdom – – 1.4 – – – – – – – 1.4 – 1.4 2.1
United States – – – – – – – 3.4 – – 3.4 – 3.4 1.0
Net liabilities
(a)
– – – – – – – – – – – (1.1) (1.1) (0.3)
31 March 2022 Total 10.2 12.7 3.8 1.7 22.6 1.5 2.9 35.1 9.9 0.7 101.1 (1.1) 100.0 –
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
(a)
The Company’s net liabilities are the total of net current assets plus non-current liabilities per the Statement of Financial
Position in the full Annual report.
Market capitalisation breakdown (%)
Less than
£1.5bn
£1.5bn to
£5bn
£5bn to
£25bn
Greater than
£25bn Net liabilities
(a)
31 March 2022 7.7 8.0 16.5 68.9 (1.1)
31 March 2021 11.8 8.5 12.9 67.1 (0.3)
Split between markets
(b)
(%) 31 March 2022 31 March 2021
Emerging markets 95.6 96.4
Developed markets
(c)
4.9 3.1
Frontier markets 0.6 0.8
Net liabilities
(a)
(1.1) (0.3)
Source: FactSet Research System, Inc.
(a)
The Company’s net liabilities are the total of net current assets plus non-current liabilities per the Statement of Financial
Position in the full Annual report.
(b)
Geographic split between "Emerging markets", "Frontier markets", "Developed markets" are as per MSCI index classifications.
(c)
Developed market exposure represented by companies listed in Germany, United Kingdom and United States which have
significant exposure to operations in emerging markets.
Outlook for markets
The current down cycle has been driven by the aftereffects of the unprecedented fiscal stimulus, the spike in commodity prices,
post COVID-19 supply chain issues impacting inflation, China’s zero COVID policy, and Russia’s invasion of Ukraine impacting
investor risk appetite. An aversion to holding risky assets currently prevails amongst many investors; what started with investors
selling Russian equities has spread to China and other emerging markets. In such circumstances, we believe that having a long-
term perspective is valuable.
The start of the US Federal Reserve’s withdrawal of support has also heightened market volatility. Higher US interest rates could
also trigger a strengthening of the US dollar, this would be potentially negative for emerging markets with macro vulnerabilities,
although there are much fewer significant emerging economies in this situation today than in past cycles.
Whilst the current period of increased market volatility and declining equity markets is unnerving, we believe that it is also
creating attractive investment opportunities for long-term investors. We continue to search for companies that have sustainable
earnings growth, trade at a discount to intrinsic worth and have competitive advantages which are persistent and repeatable over
time. In the current market decline, we observe many companies with these characteristics. This is creating opportunities for
investors to increase exposure to these companies in preparation for the eventual recovery.
Emerging markets have seen many changes over the past two decades, and the opportunity set for investors has similarly evolved
and expanded. Emerging markets generally have youthful and digital-savvy populations with growing needs. In India, for
example, there are about 800 million people under the age of 35. As investors, that creates opportunities not only in technology
companies, but also in areas like financial services and aspirational products like education and luxury goods.
As a whole, emerging market economic fundamentals have improved in the past decade, and we believe that they are in a stronger
position today to cope with any market volatility. Our overall outlook for emerging markets remains positive, with long-term
investment opportunities underpinned by emerging markets’ structural strengths and the competitiveness of their companies.
Moreover, we think that the COVID-19 pandemic period has catalysed change, innovation, and brought a greater focus on
technology. It is an interesting time to be looking at the emerging world today. We believe that the breadth of opportunity, the
growth, the innovation, the sustainability of the business models, and the much stronger institutional resilience compared to
decades past when considered together create an attractive future for emerging markets.
Chetan Sehgal
Lead Portfolio Manager
14 June 2022
The Investment Manager’s Process
Investment philosophy and approach
FTEME’s long-term approach is driven by the 3 S’s, seeking Structural growth opportunities in emerging markets, investing in
businesses with Sustainable earnings power at a discount to intrinsic worth, and believing in responsible Stewardship of client
capital. FTEME seeks to capture the growth potential of emerging market companies and believes this is best achieved by
employing a bottom-up and fundamental security selection process. FTEME conducts in-depth proprietary company research with
a long-term and independent perspective. FTEME believes in the responsible stewardship of clients’ capital and that governance
and sustainability factors create risks and opportunities for companies. ESG analysis is therefore integrated alongside fundamental
bottom-up analysis.
TEMIT’s performance in different market environments
FTEME’s approach aims for outperformance over the long term. The investment strategy tends to produce stronger performance
when company fundamentals are the primary driver for stock returns, where a focus on stock selection should produce superior
results. Performance may be less strong in highly sentiment-driven market environments, when investors focus more on the overall
economic picture rather than company fundamentals. This can also be the case when the market is overly short-term oriented, and
rewards companies driven by what FTEME views as unsustainable factors such as short-term demand/supply imbalances or
inorganic growth.
Investment process
The three broad stages of FTEME’s investment process comprise: idea generation, stock research, and portfolio construction and
management; with governance and sustainability considerations and risk management fully integrated at all stages.
1. Idea generation
The key source of idea generation is FTEME’s team of over 70 analysts and portfolio managers located around the globe. Their
experience and expertise allow them to identify trends which they may want to explore further through company research. In
addition, FTEME’s local presence, network and understanding of local dynamics may help to identify trends and opportunities that
other market participants may filter out through standard quantitative screens. FTEME analysts speak the local language and are
part of the local culture and fabric of the countries where they conduct research.
2. Stock research
FTEME analysts conduct rigorous analysis to assess whether a company has sustainable earnings power, and to establish a
proprietary estimate of its intrinsic worth. By integrating ESG analysis with traditional business and financial analysis, FTEME
seeks to gain insights into the quality and risks of companies. FTEME’s research platform currently has coverage of over 700
companies across emerging markets using a proprietary and rigorous bottom-up research approach, along with extensive
knowledge of the wider universe.
FTEME’s research analysts form detailed views of companies by collecting and analysing a variety of information. The team
conducts detailed quantitative financial analysis by building in-depth company models to evaluate financial strength and
profitability, and to project future earnings and cash flow. Industry demand and supply models are incorporated in the analysis, as
well as country and currency macro considerations. FTEME has a strong emphasis on qualitative assessment.
The assessment of ability to sustain stable or growing economic profits over time is typically driven by a combination of factors,
including (i) sound business models; (ii) sustainable competitive advantages; (iii) management foresight; and (iv) low debt levels.
Earnings power is the demonstrable ability to generate sustainable economic profit into the future in areas which could be beyond
the current scope of operations. The analysts look for real earnings growth by focusing on economic earnings and cash flows
rather than reported earnings, and differentiating between operational earnings and financial earnings. They evaluate internal
versus external drivers to earnings and prefer companies with earnings which can be affected through management action. A key
element of earnings power is therefore quality, as signified by (i) products and services with low regulatory and macro risk; (ii)
financial strength; and (iii) management strength.
Each research recommendation may incorporate several valuation methods extending typically over a three- to five-year horizon.
FTEME aims to clarify the risk/reward balance of a company by conducting sensitivity analysis, stress-testing, and scenario
analysis. It seeks to identify what the market consensus expectations are for a stock and how the team’s fundamental views may
differ.
3. Portfolio construction
FTEME seeks to build a high-conviction stock-centric portfolio that is primarily driven by company- specific factors and focused
on the long term. A bottom-up approach to stock selection is used, with country and sector allocations a residual of this process.
Portfolio Style and Characteristics
The strategy typically displays the following characteristics:
• Core style: The strategy aims to deliver outperformance irrespective of market direction. The portfolio construction process
leads to the majority of active risk being focused
• Quality and growth but not at excessive valuation levels: The philosophy typically leads to a portfolio with higher quality and
growth than the aggregate of the benchmark index, but not at excessive valuation levels
• High conviction portfolio: The top-10 holdings typically account for over 40% of the portfolio which overall is well-
diversified portfolio across the market cap spectrum.
• Low turnover: FTEME’s high conviction and long-term approach means that the typical annual portfolio turnover is less than
20%.
Buy and Sell Discipline
FTEME’s buy discipline is primarily designed to ensure that the portfolio managers buy when they have both conviction in a
business and it is trading below its intrinsic value; FTEME’s sell discipline is designed to capture the opposite. All holdings are
regularly reviewed to ensure that analyst recommendations are up to date and accurately reflect any changes in company
fundamentals. In this way, ongoing fundamental research drives all buy and sell decisions.
Investment risk management
Investment in emerging markets equities inevitably involves risk in a volatile asset class. Franklin Templeton uses a
comprehensive approach to managing risks within its managed portfolios and this approach is inherent in all aspects of the
investment process. Investment risks are to be identified and intentional, not minimised. Risk management is embedded through
all stages of the investment process, in collaboration with dedicated resources from Franklin Templeton’s Investment Risk
Management Group of over 80 risk management professionals, which is independent from the portfolio management team.
Various risk management tools are used to predict and decompose the portfolio’s active risk in order to understand and manage the
portfolio’s active risk profile.
For additional information with respect to the AIFM risk management framework, please read the Investor Disclosure
Document on our website (www.temit.co.uk).
FTEME’s approach to stewardship
FTEME’s focus is on a total sustainability approach including business, economic, environmental and social sustainability. How
FTEME monitors and manages client assets is not just about focusing on governance and sustainability factors. It demands a
holistic approach incorporating proactive long-term engagement with the managers of the companies which FTEME invests in on
behalf of TEMIT and its other clients.
Part of being a responsible steward of clients’ assets is acknowledging that governance and sustainability factors create risks and
opportunities for companies. It therefore makes sense to integrate these factors alongside fundamental bottom-up analysis and
engage with companies as active owners on behalf of clients. Responsible stewardship is not a single act but a continuous process
that includes engagement and voting. Being responsible stewards of our client’s capital is reflected in:
How we act as investors
- ESG integration
- Company engagement
- Policy advocacy
How we treat our clients
- Putting clients first
- Being responsible fiduciaries of our
clients’ capital
How we behave as a business
- Building relationships
- Achieving quality results
- Working with integrity
Integrating ESG factors
Analyses of governance and sustainability factors are embedded components of our rigorous fundamental bottom-up research. The
driving factors of the decision to purchase or sell a stock centre on the following:
• Its sustainable earnings power and whether its price is at a discount to intrinsic worth; and
• The sustainability of its business model, which is critical to maintaining its competitive positioning.
Our proprietary three-pillar ESG framework
is a key component of how we aim to achieve
our goal of being an emerging market leader in
sustainable investing.
Intentionality
Assessing companies’ intentionality toward
managing material ESG factors with our
proprietary scoring system and linking ESG
factors into our valuation models.
Alignment
Mapping the alignment of companies’
products and services to positive social and
environmental outcomes and UN Sustainable
Development Goals (SDGs).
Transition
Identifying companies’ transition potential
linked to their incremental progress, using our
on-the-ground capabilities and experience as
active owners to foster positive change.
We have summarised one of our case studies from our full Stewardship
Report to give TEMIT shareholders a snapshot of the typical analysis
undertaken.
Tencent – provides social networking, music, web portals, e-commerce,
mobile games, internet services and payment systems.
ESG Topic: User Privacy Protection & Content Management
Materiality and Risk: Users of internet service providers that have
privacy concerns may decide to switch to alternative internet services.
This has the potential to impact revenue growth due to lower
engagement by users. Content management (censorship) without a
reasonable level of consensus building or supervision may also lead to a
less active user base.
Analysis:
1) Strong privacy policy and commits to collecting only the
information that is necessary for product functions;
2) Mechanism for personal data control and dedicated website to
help resolve any dispute users may have;
3) Privacy management practices are transparent and certified by
TRUSTe; and
4) The company is aware and anticipates censorship requirements
from government related bodies.
Outcomes: Social 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. Based on our analysis, we consider Tencent as a leader among
Chinese peers in its industry and is well positioned to manage such risks.
Climate change
Within emerging markets, the landscape varies considerably, ranging from countries that have announced meaningful carbon
targets to those that have yet to declare any significant policies. FTEME’s objective is to understand the climate commitments of
investee companies incorporating both local and global perspectives, recognising that the pace of decarbonisation and the
associated strategies will differ across countries and cultures.
Where material, FTEME integrates climate change/carbon analysis into its bottom-up research process, focusing on assessing the
impact on long-term business values. This is part of the holistic approach of integrating ESG analysis with traditional financial
analysis so that FTEME can gain valuable insights into the quality and risks of businesses which FTEME invests in.
FTEME’s analysts and portfolio managers look at climate risks and opportunities closely for relevant sectors and geographies
where climate change plays a very important role. FTEME closely tracks climate related factors into estimates, models and
valuations for those businesses materially exposed to the issue.
Our portfolio managers also seek to understand the carbon risk profile at a portfolio level to understand its carbon risk exposures.
The data presented in the full Annual Report very much helps with the engagement agenda.
TEMIT’s portfolio carbon risk is concentrated amongst a small number of companies, with the top five companies in terms of
carbon intensity representing 6.8% of the portfolio and accounting for 74.2% of the total portfolio Weighted Average Carbon
Intensity (“WACI”). From a sector perspective, 66.2% of the total portfolio WACI contributions come from the materials sector.
On a relative basis, portfolio holdings in materials and industrials contribute negatively to WACI and the utilities sector
contributes positively, as TEMIT does not hold any investments in the sector. Cement manufacturers, China Resources Cement
and ACC, exhibit the largest carbon intensities in TEMIT’s portfolio, representing 1.3% of the portfolio and accounting for 51.9%
of the portfolio WACI. TSMC’s carbon intensity is low, however due to it representing 12.3% of the portfolio, it is second in
terms of contribution to WACI.
We emphasise that the data does not always fully represent the actual carbon risk of the portfolio. Some of the data is estimated
where carbon emissions are not disclosed by portfolio companies. WACI is measured against sales, however, in production
orientated industries this is not always an accurate measure. Finally, the reported data is a snapshot at a point in time and does not
represent the forward-looking nature of our approach to analysing investee companies. Below we provide a short summary of
FTEME’s analysis of China Resources Cement and ACC.
China Resources Cement (“CRC”) – leading cement
and concrete producer in Southern China
CRC strictly implements national policies and guidelines
and operates in full compliance with local standards and
audits, with no fines or penalties in recent history.
Management integrates ESG Key Performance Indicators
in remuneration at various levels whilst expressing an
intention to improve carbon management further via tech
upgrades and appropriate target setting annually.
The company’s improving emissions intensity,
compliance with local standards and management
intentions to improve further, suggests low carbon risk
and strong profile in the sector.
ACC – one of the largest producers of cement in India
ACC is guided by parent Lafarge-Holcim’s principles and technical
know-how on environmental issues. As a result, it is ahead of the
curve versus its Indian peers in both approach and adopting
innovative technologies related to emissions control. It has recently
had its 2030 carbon-emission reduction target endorsed by the
Science Based Targets Initiative (“SBTi”) and has signed the
‘Business Ambition for 1.5°C’ pledge.
We are positive on the company’s ability to manage its emissions
profile and from an environmental perspective, the company is one
of the best investment options in the cement sector in a developing
market.
Active ownership
As investors with a significant presence in emerging markets, FTEME’s active ownership efforts are a key part of the overall
approach to stewardship. FTEME analysts conduct almost 2,000 company meetings a year across the investment platform using its
industry-leading research footprint across emerging markets, where FTEME seek to gain a number of fundamental and
sustainability insights. We believe that our engagement efforts are key to developing a detailed understanding of companies and
improving outcomes for shareholders as well as stakeholders more broadly.
Engagement statistics
FTEME’s analysts are in a continual dialogue with companies on a range of topics including sustainability and governance. There
are also companies that FTEME identify where dedicated discussion on ESG topics are necessary. Active engagements with
companies in the TEMIT portfolio for the year ended 31 March 2022 are summarised below:
Dedicated ESG discussion by
engagement type
Number of
interactions
% of
interactions
Environmental 11 31
Social 7 19
Governance 15 42
Combination 3 8
Total 36 100
Proxy voting
In the year ended 31 March 2022, FTEME voted on over 900 management proposals at annual and special general meetings for
TEMIT. Most of the proposals which FTEME voted on related to companies’ director appointments, routine business proposals
and capital structures. Of the voteable management proposals, FTEME voted FOR proposals 80% of the time.
FTEME voted against management proposals in 12% of cases, our votes against were largely concentrated on capital structure,
non-salary compensation, and director related management proposals. FTEME views votes against proposals as a formal way to
communicate our views to management, and FTEME undertakes them based on the investment team’s assessment of each motion
in line with clients’ best interests.
Where “Other” votes were cast, these were mainly director related votes in Brazil, where FTEME abstained from voting they were
not supportive of the candidates put forward for election, or where the company bundled several proposals into one, preventing
voting on individual items.
The number of resolutions proposed by shareholders is increasing around the world, particularly on environmental and social
issues, although they remain relatively uncommon in emerging markets. FTEME will continue closely to examine the merits of
views raised by fellow shareholders.
We encourage you to download the full TEMIT Stewardship report from www.temit.co.uk for further, detailed information.
Business Review
Strategy and Business Model
Company purpose and objective
TEMIT’s purpose is to provide both private and institutional investors with the opportunity for capital appreciation via a
professionally managed vehicle focused on listed equity investments in emerging markets.
The objective of TEMIT is to provide long-term capital appreciation via exposure to global emerging markets, supported by a
culture of both strong customer service and corporate governance.
Investment policy
The current investment policy was approved at the Company’s AGM on 8 July 2021.
The Company seeks long-term capital appreciation through investment in companies listed in emerging markets or companies
which earn a significant amount of their revenues in emerging markets but are domiciled in, or listed on, stock exchanges in
developed countries (“Emerging Markets Companies”).
It is expected that the majority of investments will be in listed equities. However, up to 10% of the Company’s assets may be
invested in unlisted securities. In addition, while it is intended that the Company will normally invest in equity instruments, the
Investment Manager may invest in equity-related investments (such as convertibles or derivatives) where it believes that it is
advantageous to do so.
The portfolio may frequently be overweight or underweight in certain investments compared with the MSCI Emerging Markets
Index (the “Benchmark”) and may be concentrated in a more limited number of sectors or geographical areas than the Benchmark.
Investments may be made in Emerging Markets Companies outside the Benchmark that meet the investment criteria.
Whilst there are no specific restrictions on investment in any one sector or geographic area, the portfolio will be managed in a way
which aims to spread investment risk. The portfolio will typically contain between 50 and 100 individual stocks but may, at times,
contain fewer or more than this range. No more than 12% of the Company’s assets will be invested in the securities of any one
issuer at the time of investment, save that any investment in unlisted securities of any one issuer will be limited to no more than
2% of the Company’s assets, measured at the time of investment.
The maximum borrowing will be limited to 20% of the Company’s net assets, measured at the time of borrowing.
No more than 10%, in aggregate, of the value of the Company’s assets will be invested in other listed closed-ended investment
funds.
In accordance with the Listing Rules, the Company will not make any material change to its published investment policy without
the prior approval of the FCA and the approval of its shareholders by ordinary resolution.
Distribution policy
The Company will ensure that its total annual dividends will be paid out of the profits available for distribution under the
provisions of the relevant laws and regulations and will be at least sufficient to enable it to qualify as an investment trust under the
UK Income and Corporation Taxes Act. If the Company has received an exceptional level of income in any accounting year, the
Board may elect to pay a special dividend. The primary focus of the investment policy is on generating capital returns, the
Company does not target a particular level of income and there is no guarantee that dividend levels will be maintained from one
year to the next.
The Company will normally pay two dividends per year, an interim dividend declared at the time when the half yearly results are
announced, and a final dividend declared at the time when the annual results are announced. The final dividend will be subject to
shareholder approval at the AGM each year.
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
The Company may also distribute capital by means of share buybacks when the Board believes that it is in the best interests of
shareholders to do so. The share buyback programme will be subject to shareholder approval at each AGM.
Business model
The Company has no employees and all of its Directors are non-executive. The Company delegates its day-to-day activities to
third parties.
On 1 October 2021, Franklin Templeton Investment Trust Management Limited (“FTITML”, “AIFM” or the “Manager”) replaced
Franklin Templeton International Services S.à r.l (“FTIS”) as the Company’s AIFM and company secretary.
The Board is responsible for all aspects of the Company’s affairs, including the setting of parameters for the monitoring of the
investment strategy and the review of investment performance and policy. It also has responsibility for overseeing all strategic
policy issues, namely dividend, gearing, share issuance and buybacks, share price and discount/premium monitoring, corporate
governance matters and engagement with all of the Company’s stakeholders.
Strategy
The Company seeks to achieve its objective by following a strategy focused on the following:
Performance
At the heart of the strategy is the appointment and retention of capable investment management professionals, whose aim is to
identify value and achieve superior long-term growth for shareholders. The Investment Manager, under the leadership of Chetan
Sehgal, continues to apply the same core investment philosophy that has driven TEMIT’s performance since the Company’s
launch. The investment team aims to achieve long-term capital appreciation for shareholders seeking exposure to global emerging
markets by investing in companies that they believe offer long-term sustainable growth and good value, combined with strong
management and sound governance.
Environmental, social and governance (“ESG”) matters
The Investment Manager comments on the integral nature of ESG matters within the investment process and how it engages with
companies to promote ESG best practice of this report. In addition, Franklin Templeton recently published a detailed Stewardship
Report for TEMIT and this can be downloaded from our website www.temit.co.uk.
As an institutional investor, the Company recognises its responsibility that the companies in which it invests should aspire to
appropriate levels of corporate governance. As a matter of policy, the Company aims to utilise its votes in shares held in the
relevant underlying portfolio companies at the general meetings of those companies.
Further details of the Investment Manager’s approach to responsible investing and of votes cast at investee companies’ general
meetings in 2021 can be accessed on Franklin Templeton’s UK web site under “Sustainable Investing” at
www.franklintempleton.co.uk/about-us/our-company/sustainable- investing.
The Board receives regular reports on Franklin Templeton’s policies and controls. The Board has reviewed and fully supports the
Franklin Templeton Stewardship Statement and its Sustainable Investing Principles and Policies.
TEMIT has no greenhouse gas emissions to report from the operations of the Company, as all of its activities are outsourced to
third parties. While as an investment trust TEMIT is exempt from disclosures recommended by the Task Force on Climate-related
Financial Disclosures (“TCFD”), Franklin Templeton continues to develop metrics for our carbon footprint. Further information
on our approach to climate change can be found under “FTEME’s approach to stewardship” above and in more detail in our
Stewardship Report, available on our website (www.temit.co.uk).
TEMIT has no employees and is not an organisation that provides goods or services as defined in the Modern Slavery Act 2015
and thus the Company considers that the Act does not apply. The Company’s own supply chain consists predominantly of
professional services advisers.
Culture and values
The Board believes in a culture of openness and constructive challenge in its interactions with the Manager and other service
providers. The Board aims to maintain open and regular communication with shareholders, as set out under Communication.
The Company is committed to acting professionally, fairly and with integrity in all of its business dealings and relationships. The
Board has a zero tolerance policy towards bribery and looks to ensure that its service providers and associated persons have
effective policies and procedures designed to actively prevent bribery which are proportionate and risk based. In relation to the
corporate offence of failing to prevent tax evasion, it is the Company’s policy to conduct all business in an honest and ethical
manner. The Company takes a zero tolerance approach to any facilitation of tax evasion whether under UK law or under the law of
any foreign country.
Information on the Company’s approach to Diversity is set out in the Directors’ Report in the full Annual Report.
Liquidity
The shares issued by the Company are traded on the London and New Zealand stock exchanges. The Company has engaged
Winterflood Securities as financial adviser and stockbroker, and to act as a market maker in the shares of the Company.
Gearing
On 31 January 2020, the Company entered into a five-year £100 million loan at a fixed rate of 2.089% with Scotiabank Europe
PLC, and a three-year £120 million unsecured multi-currency revolving loan facility with The Bank of Nova Scotia, London
Branch. The £100 million fixed term loan is denominated in pounds sterling. Drawings under the £120 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. On 18 October 2021, the Company drew down £50 million from the
revolving credit facility repayable within six months (2021: revolving credit facility was not utilised). Subsequent to the year end,
the Investment Manager rolled forward the £50 million and took this borrowing out for a further six months. 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 1.1% (net of cash in the portfolio) at the year-end (2021: 0.5%).
The Board continues to monitor the level of gearing and currently considers gearing of up to 20% to be appropriate, measured at
the time of borrowing.
Affirmation of shareholder mandate
In accordance with the Company’s Articles of Association, the Board must seek shareholders’ approval every five years for
TEMIT to continue as an investment trust. This allows shareholders the opportunity to decide on the long-term future of the
Company. The last continuation vote took place at the 2019 AGM, when 99.95% of the votes cast were registered as votes in
favour. The next continuation vote will take place at the 2024 AGM.
Stability – Share buybacks and Conditional Tender Offer
The Company has powers to buy back its shares as a discount control mechanism and when this is in the best interests of the
Company’s shareholders and in 2019 introduced a Conditional Tender Offer. The share price discount to net asset value is
discussed under Key Performance Indicators in the full Annual Report.
Under the Conditional Tender Offer, if over the five year period the Company’s net asset value total return fails to exceed the
benchmark total return the Board will put forward proposals to shareholders to undertake a tender offer for up to 25 per cent of the
issued share capital of the Company, at the discretion of the Board. Any such tender offer will be at a price equal to the then
prevailing net asset value less two per cent (and less the costs of the tender offer). There will be no tender offer in the event that
the Company’s net asset value total return exceeds the benchmark total return (MSCI Emerging Markets Index total return) over
the five year period from 31 March 2019 to 31 March 2024. Any tender offer would take place following the Company’s 2024
AGM and will also be conditional on shareholders approving the continuation vote in 2024 which is described under “Affirmation
of shareholder mandate” above.
A key point in the Investment Manager’s mandate is to take a long-term view of investments and one of the advantages of a closed
end fund is that the portfolio structure is not disrupted by large inflows or outflows of cash. However, the Board and the
Investment Manager recognise that the returns experienced by shareholders are in the form of movements in the share price, which
are not directly linked to NAV movements, and the shares may trade at varying discounts or premiums to NAV. Many
shareholders, both professional and private investors, have expressed a view that a high level of volatility in the discount is
undesirable and that the Company should continue its active share buyback programme. A less volatile discount, and hence share
price, is seen as important to investors. For this reason, TEMIT uses share buybacks selectively with the intention of limiting
volatility in the share price and where buybacks are in the best interests of shareholders. Details of the share buybacks are included
in the following table. All shares bought back in the year were cancelled, with none being placed in treasury. As at 31 March 2022,
the Company held 103,825,895 shares in treasury (2021: 103,825,895 shares in treasury
(a)
).
2022 2021
Shares bought back and cancelled during the year
(a)
2,331,670 31,192,040
Proportion of share capital bought back and cancelled 0.2% 2.6%
Total cost of share buybacks £3.6m £49.6m
The benefit to NAV £0.5m £6.9m
The percentage benefit to NAV 0.03% 0.3%
(a)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Discount management is reviewed regularly by the Board to ensure that it remains effective in the light of prevailing market
conditions. The Conditional Tender Offer will not affect the Board’s current approach to discount management. The Board will
continue to exercise the Company’s right to buy back shares when it believes this to be in shareholders’ interests and with the aim
of reducing volatility in the discount.
Communication
The Board works to ensure that investors are informed regularly about the performance of TEMIT and of emerging markets
through clear communication and updates. The Board is fully committed to TEMIT’s marketing programme. There is a substantial
annual marketing and communication budget and expenditure by TEMIT is matched by a contribution to costs from the Manager.
TEMIT won the prestigious Best Campaign Award at the AIC Shareholder Awards 2022 in recognition of the quality of the “Your
future is emerging” campaign undertaken to attract new shareholders. The innovative use of broadcast media has helped to
increase TEMIT’s profile, advertise the benefits of the Company and communicate the growth story of emerging markets to a
wider audience.
A new corporate identity was launched in January 2022 providing TEMIT with a unique brand for the first time.
TEMIT seeks to keep shareholders updated on performance and investment strategy through its regular annual and half yearly
reports, along with monthly factsheets and commentaries. These are available on the TEMIT website (www.temit.co.uk) which
also contains portfolio holdings information, updates from the Investment Manager and other important documents that will help
shareholders to understand how their investment is managed. We also communicate via @TEMIT on Twitter and continue to
develop the Company’s presence across social media platforms. The Board encourages registration to our monthly email that
keeps subscribers appraised of the latest performance, insights and announcements.
TEMIT has an active public relations programme. Our Investment Manager provides comments to journalists, hosts media briefings
and publishes articles on issues relevant to investing in emerging markets.
The Investment Manager meets regularly with professional investors and analysts and hosts interactive webinars. At each AGM
the Investment Manager makes a presentation with the opportunity for all shareholders to ask questions.
The Chairman regularly meets major shareholders to discuss investment performance and developments in corporate governance.
We try to engage with a wide spectrum of our shareholders and aim to address their concerns as far as practically possible.
Shareholders are welcome to contact the Chairman or the Chairman of the Audit and Risk Committee at any time via
temitcosec@franklintempleton.com.
Section 172 Report – Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain how they have discharged their duties
under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of “members as a
whole” and having regard for all stakeholders.
Section 172 Matter Board’s Statement
The likely consequences of any decision in the long term. The Board is focused on promoting the long-term success of the
Company and regularly reviews the Company’s long-term
strategic objectives, including consideration of the impact of
the investment manager’s actions on the marketability and
reputation of the Company and the likely impact on the
Company’s stakeholders of the Company’s strategy.
The interests of the Company’s employees. The Company has no direct employees.
The need to foster the Company’s business relationships with
suppliers, customers and others.
The Board’s approach to its key stakeholders is set out below.
The impact of the Company’s operations on the community and
the environment.
The Board’s approach is set out in the section on ESG under
Strategy and Business Model in the full Annual Report.
The desirability of the Company maintaining a reputation for
high standards of business conduct.
The Board’s approach is set out in ‘Culture and values’ in the
full Annual Report.
The need to act fairly between members of the Company. The Board’s approach to its key stakeholders is set out below.
In addition to the primary focus of the Board, and with due regard to its obligations under Section 172 of the Companies Act 2006,
the following non-routine matters were considered at Board meetings during the year:
• Recruitment of Magdalene Miller as a non-executive Director;
• Changes to the risk matrix, monitoring such changes carefully and introducing alternative mitigating controls where necessary
and practicable to support the operation of an effective control environment;
• Pandemic risks affecting the Company’s investments and business operations;
• Risks resulting from the Russian invasion of Ukraine and the valuation of Russian assets;
• Review of the marketing plan with the Manager;
• Review of the share buyback programme; and
• Review of the gearing facility.
The Board considers the main stakeholders in the Company to be its shareholders and its service providers, the principal one of
which is its Manager, along with its investee companies. A summary of the key areas of engagement undertaken by the Board with
its main stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the
Company are set out in the following table.
Stakeholders Area of Engagement Consideration Engagement Outcome
Shareholders and
potential investors
Company objective Delivering on the
Company’s objective to
shareholders over the
long term.
The Company’s objective
and investment policy are
set out in the full Annual
Report.
The Company’s
performance against its
objective is regularly
reviewed by the Board,
taking account of views
expressed by shareholders.
The Company holds a
continuation vote every
five years to allow
shareholders to decide on
the long- term future of the
Company.
The Investment
Manager’s commentary
in the full Annual Report
gives a full commentary
on the Company’s
portfolio as well as on the
approach and
considerations
undertaken by the
Investment Manager for
stock selection within the
portfolio.
A continuation vote took
place at the 2019 AGM,
with 99.95% of votes cast
in favour. The next
continuation vote is
scheduled to take place at
the AGM in 2024.
Shareholders and
potential investors
Dividend The objective of the
Company is to provide
long term capital
appreciation, however
the Board recognises the
importance of regular
dividend income to
many shareholders.
The Board reviews
regularly the level of
dividends, taking account
of the income generated by
the Company’s portfolio
and the availability of
reserves.
In considering the
sustainability of the
dividend and of the
Company, the Board
reviews the models
supporting the going
concern assessment and
viability statement.
Dividend payments are
discussed in the
Chairman’s Statement.
Shareholders and
potential investors
Communication with
shareholders
The Board understands
the importance of
communication with its
shareholders and
maintains open channels
of communication with
shareholders.
Working closely with the
Manager the Board ensures
that there is a variety of
regular communication
with shareholders.
Full details of all Board
and Manager
communication are
included in the full
Annual Report.
Shareholders are invited
to submit questions for
the Board to address at
the Company’s Annual
General Meeting.
Shareholders and
potential investors
Discount management To smooth the volatility
in the discount.
The Board monitors the
discount closely and
discusses discount strategy
with the Investment
Manager and the
Company’s stockbroker at
every regular Board
meeting. The stockbroker
provides a summary of the
discount and market
conditions to the Board
and Investment Manager at
the close of each trading
day in London.
The Board also meets with
the Investment Manager to
discuss the Company’s
TEMIT continues to
adopt an active buy back
policy and has a
Conditional Tender
Offer. Details of these
can be found under
“Stability – Share
buybacks and
Conditional Tender
Offer” in the full Annual
Report.
Further details of the
current discount and
discount management are
marketing strategy to
ensure effective
communication with
existing shareholders and
to consider strategies to
create additional demand
for the Company’s shares.
detailed in the
Chairman’s Statement in
the full Annual Report.
Manager Communication between
the Board and the
Manager
The relationship of the
Board with the Manager
is very important.
The Manager attends all
Board meetings where it
reviews and discusses
performance reports,
changes in the portfolio
composition and risk
matrix.
The Board receives timely
and accurate information
from the Manager and
engages with the
Investment Manager and
the secretary between
meetings as well with
other representatives of the
Manager as and when it is
deemed necessary.
The Board operates in a
supportive and open
manner, challenging the
activity of the Manager
and its results. The Board
believes that the
Company is well
managed and the Board
places great value on the
experience of the
Investment Manager to
deliver superior long-
term returns from
investments and on the
other functions of the
Manager to fulfil their
roles effectively.
Third-party service
providers
Engagement with service
providers
The Board
acknowledges the
importance of ensuring
that the Company’s
service providers are
providing a suitable
level of service, that the
service level is
sustainable and that they
are fairly remunerated
for their service.
As an investment company
all services are outsourced
to third-party providers.
The Board considers the
support provided by
service providers including
the quality of the service,
succession planning and
any potential interruption
of service or other
potential risks.
The Manager maintains
the overall day-to-day
relationship with the
service providers and the
Board undertakes an
annual review of the
performance of the
Company’s service
providers. This review
also includes the level of
fees paid. The Board
meets with service
providers as and when
considered necessary.
Investee companies Engagement with
investee companies
The relationship
between the Company
and the investee
companies is very
important.
The Board discusses stock
selection and asset
allocation on a quarterly
basis. On behalf of the
Company the Investment
Manager engages with
investee companies
implementing corporate
governance principles.
The Investment Manager
has a dedicated research
team that is employed in
making investment
decisions and when
voting at shareholder
meetings of investee
companies.
Key Performance Indicators
The Board considers the following to be the key performance indicators (“KPIs”) for the Company:
• Net asset value and share price total return over various periods, compared to its benchmark;
• Share price discount to net asset value;
• Dividend and revenue earnings; and
• Ongoing charges ratio.
The Ten Year Record of the KPIs is shown in the full Annual Report.
Net asset value and share price total return
(a)
Net asset value and share price total return data is presented within the Company Overview along with the Ten -Year Record are
shown in in the full Annual Report.
The Chairman’s Statement in the full Annual Report and the Portfolio Report in the full Annual Report include further
commentary on the Company’s performance.
Share price discount to net asset value
Details of the Company’s share price discount to net asset value is presented within the Financial Summary in the full Annual
Report. On 31 May 2022, the latest date for which information was available, the discount was 12.3%.
The Company has powers to buy back its shares as a discount control mechanism when it is in the best interests of the Company’s
shareholders and has a Conditional Tender Offer mechanism. These are described under “Stability – Share buybacks and
Conditional Tender Offer” in the full Annual Report.
Dividend and revenue earnings
Total income earned in the year was £54.3 million (2021: £59.9 million) which translates into net revenue earnings of 3.44 pence
per share (2021: 3.50 pence per share, adjusted for the stock split and the extra-ordinary Corporation Tax refund), a decrease of 2%
over the prior year.
The Company paid an interim dividend of 1.00 pence per share on 10 January 2022. The Board is proposing a final dividend of 2.80
pence per share, making total ordinary dividends for the year of 3.80 pence per share.
Ongoing charges ratio
(a)
(“OCR”)
The OCR remained constant at 0.97% for the year ended 31 March 2022, compared to the prior 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 in the full Annual Report.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
Principal and emerging risks
At least quarterly, the Board reviews with the AIFM and the Investment Manager a wide range of risk factors that may impact the
Company. A full review of risks and internal controls is held every September by the Audit and Risk Committee. 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 in the full
Annual Report. Information on the risks that TEMIT is subject to, including additional financial and valuation risks, are also
detailed in Note 15 of the Notes to the Financial Statements.
Due to the nature of the Company’s business, investment risk is a key focus and is reviewed on an ongoing basis by the
Investment Manager as part of every investment decision. Further information on this process is detailed in the full Annual Report.
Risk Mitigation
Market and geo-political
Market risk arises from volatility in the prices of the
Company’s investments, from the risk of volatility in global
markets arising from macroeconomic and geopolitical
circumstances and conditions. Many of the companies in which
TEMIT invests are, by reason of the locations in which they
operate, exposed to the risk of political or economic change. In
addition, sanctions, exchange controls, tax or other regulations
introduced in any country in which TEMIT invests may affect
its income and the value and the marketability of its
investments. Emerging markets can be subject to greater price
volatility than developed markets.
In the first quarter of 2022, geopolitical risk was highlighted by
the Russian invasion of Ukraine, with the resultant effects on
global trade posed by supply shocks, sanctions, higher levels of
inflation and volatility in asset prices.
The Board reviews regularly and discusses with the Investment
Manager the portfolio, the Company’s investment performance
and the execution of the investment policy against the long-term
objectives of the Company. The Manager’s independent risk
team performs systematic risk analysis, including country and
industry specific risk monitoring, as well as stress testing of the
portfolio’s resilience to geopolitical shocks. The Manager’s legal
and compliance team monitors sanctions. Where TEMIT is
affected, adherence to all sanctions and restrictions is ensured by
this team. The Board also regularly reviews reports from the
Manager’s risk, legal and compliance teams.
Pandemic
The spread of infectious illnesses or other public health issues
and their aftermaths, such as the outbreak of COVID-19, first
detected in China in December 2019 and later spreading
globally, could have a significant adverse impact on the
Company’s operations (including the ability to find and
execute suitable investments) and therefore, the Company’s
potential returns.
The Board has regularly reviewed and discussed the situation
with the Investment Manager, including a review of the portfolio,
risk management and business continuity.
The risks associated with a pandemic affect all areas of the
Company’s investments as well as operations.
Mitigation strategies apply as detailed within the specific areas of
risk.
In large parts of the world restrictions on social contact and
travel have been reduced or removed completely but this is not
the case in some countries, notably China, and there remains a
risk of further outbreaks and ongoing lockdowns. The current
COVID-19 outbreak, as well as the restrictive measures
implemented to control such outbreaks, could continue to
adversely affect the economies of many nations or the entire
global economy, the financial condition of 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.
A global network of analysts and operations and a flexible
technology setup (including the ability to “work from home”) at
the Investment Manager ensure operational business continuity
and continuous analyst coverage. The Board has also received
updates on its key service providers’ business continuity plans.
Cyber
Failure or breach of information technology systems of the
Company’s service providers may entail risk of financial loss,
disruption to operations or damage to the reputation of the
Company.
The Company benefits from Franklin Templeton’s technology
framework designed to mitigate the risk of a cyber security
breach.
For key third-party providers, the Audit and Risk Committee
receives regular independent certifications of their control
environment.
Concentration
Concentration risk arises from investing in relatively few
holdings, few sectors or a restricted geographic area.
Performance may be more volatile than with a greater number
of securities.
The Board reviews regularly the portfolio composition/ asset
allocation and discusses related developments with the
Investment Manager and the independent risk management team.
The Investment Compliance team of the Investment Manager
monitors concentration limits and highlights any concerns to
portfolio management for remedial action.
Sustainability and climate change
The Company’s portfolio, and also the Company’s service
providers and the Investment Manager, are exposed to risks
arising from governance and sustainability factors, including
climate change. To the extent that such a risk occurs, or occurs
in a manner that is not anticipated by the Investment Manager,
there may be a sudden, material negative impact on the value
of an investment, and the operations or reputation of the
Investment Manager.
The Investment Manager considers that sustainability risks are
relevant to the returns of the Company. The Manager has
implemented a policy in respect of the integration of
sustainability and climate change risks in its investment decision
making process. The Board receives regular reports on the
policies and controls in place on ESG matters. The Board has
reviewed and fully supports the Franklin Templeton Stewardship
Statement and its Sustainable Investing Principles and Policies.
Foreign currency
Currency exchange rate movements may affect TEMIT’s
performance. In general, if the value of sterling increases
compared with a foreign currency, an investment traded in that
foreign currency will be worth less in sterling terms. This can
have a negative effect on the Company’s performance.
The Board monitors currency risk as part of the regular portfolio
and risk management oversight. TEMIT does not hedge currency
risk.
Portfolio liquidity
The Company’s portfolio may include securities with reduced
liquidity. This may impair the ability to sell assets which could
limit the Investment Manager’s ability to make significant
changes to the portfolio.
This risk was highlighted by the Russian invasion of Ukraine
in February 2022. The five Russian stocks owned at the time of
the invasion became impossible to trade and were written
down to zero value.
The closed ended structure of TEMIT reduces the impact to
shareholders of potential illiquidity in the portfolio.
The Board receives and regularly reviews updates on portfolio
liquidity. The diversified nature of the portfolio and limited
investments in stocks with lower liquidity result in a balanced
portfolio structure.
Counterparty and credit
Certain transactions that the Company enters into expose it to
the risk that the counterparty will not deliver an investment
(purchase) or cash (in relation to a sale or declared dividend)
after the Company has fulfilled its responsibilities. The
Company engages in securities lending which can increase
counterparty risk.
The Board receives and reviews the approved counterparty list of
the Investment Manager on an annual basis and receives and
reviews regular reports on counterparty risk from the Manager’s
independent risk team. A dedicated team oversees the securities
lending programme and evaluates all risks on a daily basis.
Operational and custody
Like many other investment trust companies, TEMIT has no
employees. The Company therefore relies upon the services
provided by third parties and is dependent upon the control
systems of the Investment Manager and of the Company’s
other service providers. The security, for example, of the
Company’s assets, dealing procedures, accounting records and
maintenance of regulatory and legal requirements depends on
The Manager’s systems are regularly tested and monitored and
an internal controls report, which includes an assessment of risks
together with an overview of procedures to mitigate such risks, is
prepared by the Manager and reviewed by the Audit and Risk
Committee.
J.P. Morgan Europe Limited is the Company’s depositary. Its
the effective operation of these systems. responsibilities include cash monitoring, safe keeping of the
Company’s financial instruments, verifying ownership and
maintaining a record of other assets and monitoring the
Company’s compliance with investment limits and borrowing
requirements. The depositary is liable for any loss of financial
instruments held in custody and will ensure that the custodian
and any sub-custodians segregate the assets of the Company. The
depositary oversees the custody function performed by
JPMorgan Chase Bank. The custodian provides a report on its
key controls and safeguards (SOC 1/ SSAE 16/ISAE 3402) that
is independently reported on by its auditor, PwC.
The Board reviews regular operational risk management
reporting provided by the Investment Manager.
Key personnel
The ability of the Company to achieve its objective is
significantly dependent upon the expertise of the Investment
Manager and its ability to attract and retain suitable staff.
The Manager endeavours to ensure that the principal members of
its management teams are suitably incentivised, participate in
strategic leader programmes and monitor key succession
planning metrics. The Board discusses this risk regularly with the
Manager.
Regulatory
The Company is an Alternative Investment Fund (“AIF”) and
is listed on both the London and New Zealand stock
exchanges. The Company operates in an increasingly complex
regulatory environment and faces a number of regulatory risks.
Breaches of regulations could lead to a number of detrimental
outcomes and reputational damage.
The Board, with the assistance of the Manager, ensures that the
Company complies with all applicable laws and regulation and
its internal risk and control framework reduces the likelihood of
breaches happening.
Emerging risks
The key emerging risk faced by the Company during the year under review was the Russian invasion of Ukraine, discussed under
geo-political and liquidity risks above. The extent of this risk will depend on the length of the conflict, impacts on commodity
prices and associated inflationary pressure.
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 emerging equity markets. The Board also considered the latest
assessment of the portfolio’s liquidity. The Board monitors income and expense projections for the Company, with the majority of
the expenses being predictable and modest in comparison with the assets of the Company. The Company sees no issues with
meeting interest payments 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 the ongoing COVID-19
pandemic.
Considering the above, and with careful consideration given to the current market situation, the ongoing COVID-19 pandemic, the
Russian invasion of Ukraine and the challenges posed by climate change, the Board has concluded that there is a reasonable
expectation that, assuming that there will be a successful continuation vote at the 2024 AGM, the Company will be able to
continue to operate and meet its liabilities as they fall due over the next five years.
Future Strategy
The Company was founded, and continues to be managed, 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.
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
14 June 2022
Statement of Directors’ Responsibilities
In respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and
regulations. Details of the Directors and members of the committees are reported in the full Annual Report.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors are
required to prepare the Financial Statements in accordance with UK adopted International Accounting Standards.
Under company law the Directors must be satisfied that the Financial Statements give a true and fair view of the state of affairs of
the Company and of the profit or loss of the Company for the period.
In preparing these Financial Statements, International Accounting Standard 1 requires that Directors:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• Provide additional disclosures when compliance with the specific requirements of UK adopted International Accounting
Standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions on
the entity’s financial position and financial performance; and
• Assess the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website (www.temit.co.uk). Legislation in the United Kingdom governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Responsibility Statement
Each of the Directors, who are listed in the full Annual Report confirms that to the best of their knowledge:
• The Financial Statements, which have been prepared in accordance with UK adopted International Accounting Standards,
give a fair, balanced and understandable view of the assets, liabilities, financial position and profit or loss of the Company for
the year ended 31 March 2022; 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
14 June 2022
Financial Statements
Statement of Comprehensive Income
For the Year Ended 31 March 2022
Year ended
31 March 2022
Year ended
31 March 2021
Note
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Net (losses)/gains on investments and
foreign exchange
8
Net (losses)/gains on investments at fair
value
– (460,585) (460,585) – 888,402 888,402
Net losses on foreign exchange – (168) (168) – (594) (594)
Income
Dividends 2 54,020 – 54,020 56,964 – 56,964
Other income 2 250 – 250 2,965 – 2,965
54,270 (460,753) (406,483) 59,929 887,808 947,737
Expenses
AIFM fee 3 (6,316) (14,738) (21,054) (6,142) (14,331) (20,473)
Other expenses 4 (2,338) – (2,338) (2,094) – (2,094)
(8,654) (14,738) (23,392) (8,236) (14,331) (22,567)
Profit/(loss) before finance costs and
taxation
45,616 (475,491) (429,875)
51,693 873,477 925,170
Finance costs 5 (858) (1,998) (2,856) (773) (1,802) (2,575)
Profit/(loss) before taxation 44,758 (477,489) (432,731) 50,920 871,675 922,595
Tax (expense)/income 6 (4,081) (5,596) (9,677) 17,303 (5,469) 11,834
Profit/(loss) for the year 40,677 (483,085) (442,408) 68,223 866,206 934,429
Profit/(loss) attributable to equity
holders of the Company
40,677
(483,085)
(442,408)
68,223
866,206
934,429
Earnings per share
(a)
7 3.44p (40.90)p (37.46)p 5.73p 72.73p 78.46p
(a)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Under the Company’s Articles of Association the capital element of return is not distributable.
The total column of this statement represents the profit and loss account of the Company.
The accompanying notes are an integral part of the Financial Statements.
Statement of Financial Position
As at 31 March 2022
Note
As at
31 March 2022
£’000
As at
31 March 2021
£’000
Non-current assets
2,124,530 2,599,075 Investments at fair value through profit or loss 8
Current assets
16,928 15,323 Trade and other receivables 9
Cash and cash equivalents 125,855 85,212
Total current assets 142,783 100,535
Current liabilities
(57,718) (3,362) Other payables 10
Total current liabilities (57,718) (3,362)
Net current assets 85,065 97,173
Non-current liabilities
(9,205) (4,961) Capital gains tax provision 6
Other payables falling due after more than one year 11 (100,000) (100,000)
Total assets less liabilities 2,100,390 2,591,287
Share capital and reserves
64,136 64,253 Equity Share Capital 12
Capital Redemption Reserve 18,533 18,416
Capital Reserve 1,466,197 1,952,886
Special Distributable Reserve 433,546 433,546
Revenue Reserve 117,978 122,186
Equity Shareholders' Funds 2,100,390 2,591,287
Net Asset Value pence per share
(a)(b)
178.2 219.4
(a)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
(b)
Based on shares in issue excluding shares held in treasury.
The Financial Statements of Templeton Emerging Markets Investment Trust PLC (company registration number SC118022) in the
full Annual Report were approved for issue by the Board and signed on 14 June 2022.
Paul Manduca Simon Jeffreys
Chairman Director
Statement of Changes in Equity
For the Year Ended 31 March 2022
Note
Equity Share
Capital
£’000
Capital
Redemption
Reserve
£’000
Capital
Reserve
£’000
Special
Distributable
Reserve
£’000
Revenue
Reserve
£’000
Total
£’000
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
(Loss)/profit for the year – – (483,085) – 40,677 (442,408)
Equity dividends 13 – – – – (44,885) (44,885)
Purchase and cancellation of own shares 12 (117) 117 (3,604) – – (3,604)
Balance at 31 March 2022 64,136 18,533 1,466,197 433,546 117,978 2,100,390
The accompanying notes are an integral part of the Financial Statements.
Statement of Cash Flows
For the Year Ended 31 March 2022
Note
For the year to 31
March 2022
£’000
For the year to 31
March 2021
£’000
Cash flows from operating activities (432,731) 922,595
(Loss)/profit before taxation
(a)
Adjustment for:
(130)
(26) Bank and deposit interest
Dividend income (54,020) (56,964)
Finance costs
(a)
2,856 2,575
Net losses/(gains) on investments at fair value 8 460,585 (888,402)
Net losses on foreign exchange 168 594
Stock dividends received in year – (674)
Decrease/(increase) in debtors
(a)
16 (104)
(Decrease)/increase in creditors
(a)
(614) 981
Cash generated from operations
(a)
(23,870) (19,425)
Bank and deposit interest received 130 26
Dividends received 57,522 52,442
Bank overdraft interest paid (2) –
Tax paid
(a)
(6,250) (5,303)
Corporation tax recovered – 23,753
Net cash inflow from operating activities 27,530 51,493
Cash flows from investing activities
(600,482)
(415,127) Purchases of non-current financial assets
Sales of non-current financial assets 613,249 483,182
Net cash inflow from investing activities 12,767 68,055
Cash flows from financing activities
(44,885)
(69,150) Equity dividends paid 13
Purchase and cancellation of own shares (2,041) (50,455)
Draw down from revolving credit facility 50,000 –
Bank loans' interest and fees paid (2,728) (2,561)
Net cash inflow/(outflow) from financing activities 346 (122,166)
Net increase/(decrease) in cash 40,643 (2,618)
Cash at the start of the year 85,212 87,830
Cash at the end of the year 125,855 85,212
(a)
The Company has used the (Loss)/profit before tax as a starting point in the Statement of Cash Flows for the year ended 31
March 2022. Comparative figures for the year have been updated to adjust the presentation in line with IAS 8.
The accompanying notes are an integral part of the Financial Statements.
Reconciliation of liabilities arising from bank loans
Liabilities as at
31 March 2021
£’000
Cash flows
£’000
Profit & Loss
£’000
Liabilities as at
31 March 2022
£’000
Revolving credit facility – 50,000 – 50,000
Interest and fees payable 120 (628) 757 249
Fixed term loan 100,000 – – 100,000
Interest and fees payable 355 (2,100) 2,097 352
Total liabilities from bank loans 100,475 47,272 2,854 150,601
Liabilities as at
31 March 2020
£’000
Cash flows
£’000
Profit & Loss
£’000
Liabilities as at
31 March 2021
£’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 2022
1 Accounting Policies
(a) Basis of preparation
The Financial Statements of the Company have been prepared in accordance with UK adopted International Accounting
Standards. The Financial Statements have also been prepared in accordance with the Statement of Recommended Practice
(“SORP”) for investment trusts issued by the Association of Investment Companies in April 2021 insofar as the SORP is
compatible with International Accounting Standards.
The Financial Statements have been prepared on the historical cost basis, except for the measurement at fair value of certain
financial instruments. All financial assets and financial liabilities are recognised (or derecognised) on the date of the transaction by
the use of “trade date accounting”. The principal accounting policies adopted are set out below.
Adoption of new and revised Accounting Standards
At the date of authorisation of these Financial Statements, the following standards and interpretations were assessed to be relevant
and are all effective for annual periods beginning on or after 1 January 2021:
• IAS 39, IFRS 7 and IFRS 9 Amendments: Interest Rate Benchmark Reform
The amendments listed above did not have any impact on the amounts recognised in the current reporting period.
Going concern
The Directors have a reasonable expectation that the Company has sufficient resources to continue in operational existence for the
period to 31 March 2024, which is at least 12 months from the date of the approval of the Financial Statements. The Directors
reviewed income forecasts covering the next two financial years, including interest and fees arising from the debt facility. The
Directors considered the principal and emerging risks and uncertainties disclosed in the full Annual Report in particular those
relating to COVID-19.
At 31 March 2022, the Company had net current assets of £85,065,000 (31 March 2021: net current assets of £97,173,000). In
addition the Company holds a portfolio of largely liquid assets that, if required, can be sold to maintain adequate cash balances to
meet its expected cash flows, including debt servicing. The repayment of the principal balance of the Company’s £100 million
fixed term loan does not fall due until 2025. The repayment of the £50 million revolving loan was due on 19 April 2022 and,
subsequent to the year end, the Investment Manager rolled it forward for a further six months. Given the liquidity profile of the
Company’s assets and the current cash levels it is expected that the Company will be able to meet the repayment requirement. The
Directors also reviewed scenarios of a significant drop in value of the assets and noted that in those scenarios they would still be
significantly higher than the Company’s liabilities. They have also confirmed the resiliency of the Company’s key service
providers and are satisfied that their contingency plans and working arrangements are sustainable.
The Board has established a framework of prudent and effective controls performed periodically by the Audit and Risk
Committee, which enable risks to be assessed and managed. Therefore, the going concern basis has been adopted in preparing the
Company’s Financial Statements. The Going Concern statement is set out in the full Annual Report.
Functional currency
As the Company is a UK investment trust, whose share capital is issued in the UK and denominated in sterling, the Directors
consider that the functional currency of the Company is sterling.
Estimates and assumptions
During the year, estimates and assumptions have been used to fair value the Level 3 investments held by the Company. Further
details are given in the fair value section of Note 15 and in the Report of the Audit and Risk Committee. There have been no other
significant judgements, estimates or assumptions for the year.
In preparing these Financial Statements, the Directors have considered the impact of climate change as a principal risk as set out in
the full Annual Report, and have concluded that there was no further impact of climate change to be considered as the investments
are valued based on market pricing. In line with UK adopted International Accounting Standards the investments are valued at fair
value, which for the Company are the bid prices quoted on the relevant stock exchange at the date of the Statement of Financial
Position and therefore reflect market participants’ views of climate change risk on the investments held.
(b) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature
has been presented within the Statement of Comprehensive Income. In accordance with the Company’s Articles of Association,
net capital profits may not be distributed by way of dividend. Additionally, the net revenue is the measure that the Directors
believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the Corporation
Tax Act 2010.
(c) Income
Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends are recognised on their due date. Provision is made for any dividends not expected to be received.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash
dividend is recognised in the revenue column of the Statement of Comprehensive Income. Any excess in the value of the shares
received over the amount of the cash dividend forgone is recognised in the capital column of the Statement of Comprehensive
Income.
Special dividends receivable are treated as repayment of capital or as income depending on the facts of each particular case.
Interest on bank deposits is recognised on an accrual basis.
Stock lending income is shown gross of associated costs and recognised in revenue as earned.
(d) Expenses
All expenses are accounted for on an accrual basis and are charged through the revenue and capital sections of the Statement of
Comprehensive Income according to the Directors’ expectation of future returns except as follows:
• Expenses relating to the purchase or disposal of an investment are treated as capital. Details of transaction costs on purchases
and sales of investments are disclosed in Note 8; and
• Expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can
be demonstrated. 70% of the annual AIFM fee has been allocated to the capital account.
(e) Finance costs
Finance costs relating to bank loans are accounted for on an accrual basis using the effective interest method in the Statement of
Comprehensive Income according to the Directors’ expectations of future returns. Finance costs relate to interest and fees on bank
loans and overdrafts. 70% of the finance costs, except for interest and fees on overdrafts, have been allocated to the capital
account.
(f) Taxation
The tax expense represents the sum of current and deferred tax. Tax receivables will be recognised when it is probable that the
benefit will flow to the entity and the benefit can be reliably measured. In line with the recommendations of the SORP, the
allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the
Statement of Comprehensive Income is the “marginal basis”. Under this basis, if taxable income is capable of being offset entirely
by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to
the capital return column.
Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the year-end
date, where transactions or events that result in an obligation to pay more tax in the future or rights to pay less tax in the future
have occurred at the year-end date. This is subject to deferred tax assets only being recognised to the extent that it is probable that
taxable profit will be available against which the deductible temporary difference can be utilised. Deferred tax assets and liabilities
are measured at the rates applicable to the legal jurisdictions in which they arise.
Due to the Company’s status as an investment trust company, and its intention to continue to meet the eligibility conditions of
Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of The Investment Trust (Approved Company) (Tax)
Regulations 2011, the Company has not provided deferred tax in respect of UK corporation tax on any capital gains and losses
arising on the revaluation or disposal of investments. Where appropriate, the Company provides for deferred tax in respect of
overseas taxes on any capital gains arising on the revaluation of investments.
The carrying amount of deferred tax assets is reviewed at each year-end date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
(g) Investments held at fair value through profit or loss
The Company classifies its equity investments based on their contractual cash flow characteristics and the Company’s business
model for managing the assets. The Company’s business is investing in financial assets with a view to profiting from their total
return in the form of revenue and capital growth. This portfolio of financial assets is managed, and its performance evaluated on a
fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally
on that basis to the Company’s Directors and other key management personnel. Equity investments 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 accrual basis in the
Statement of Comprehensive Income. The amortisation of direct issue costs is accounted for on an accrual basis in the Statement
of Comprehensive Income using the effective interest method.
(j) Share capital and reserves
Equity Share Capital – represents the nominal value of the issued share capital. This reserve is undistributable.
Capital Redemption Reserve – represents the nominal value of shares repurchased and cancelled. This reserve is undistributable.
Capital Reserve – gains and losses on realisation of investments; changes in fair value of investments which are readily convertible
to cash, without accepting adverse terms; realised exchange differences of a capital nature; changes in the fair value of investments
that are not readily convertible to cash, without accepting adverse terms; and the amounts by which other assets and liabilities
valued at fair value differ from their book value are within this reserve.
Additionally, 70% of the annual AIFM fee and finance costs are charged to this reserve in accordance with accounting policies
1(d) and 1(e).
Purchases of the Company’s own shares are funded from the realised component of the Capital Reserve. The Company’s Articles
of Association preclude it from making any distribution of capital profits.
If treasury shares are subsequently cancelled, the nominal value is transferred out of Equity Share Capital and into the Capital
Redemption Reserve.
Special Distributable Reserve – reserve created upon the cancellation of the Share Premium Account and Capital Redemption
Reserve. This reserve is fully distributable.
Revenue Reserve – represents net income earned that has not been distributed to shareholders. This reserve is fully distributable.
Income recognised in the Statement of Comprehensive Income is allocated to applicable reserves in the Statement of Changes in
Equity.
2 Income
2022
£’000
2021
£’000
Dividends
Non-EU dividends 52,144 54,530
UK dividends 1,306 1,532
EU dividends 570 228
Stock dividends – 674
54,020 56,964
Other income
Bank and deposit interest 130 26
Stock lending income 120 161
Interest relating to historic tax reclaims
(a)
– 2,778
250 2,965
Total 54,270 59,929
(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
2022 2021
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
AIFM fee 6,316 14,738 21,054 6,142 14,331 20,473
On 1 October 2021, FTITML replaced FTIS as the Company’s AIFM and company secretary. The contract with FTITML may be
terminated at any date by either party giving one year’s notice of termination.
The AIFM fee is paid monthly and based on the month end total net assets of the Company. The AIFM fee for the year was 1% of
net assets up to £1 billion and 0.80% of net assets above £1 billion. 70% of the annual AIFM fee has been allocated to the capital
account.
4 Other expenses
2022
£’000
2021
£’000
Custody fees 775 706
Marketing fees 362 334
Directors' remuneration 304 275
Depository fees 207 192
Membership fees 176 156
Registrar fees 132 76
Legal fees 51 34
Auditor's remuneration
Audit of the annual financial statements 34 36
Review of the Half Yearly Report 8 7
Broker fees 33 32
Printing and postage fees 21 16
Other expenses 235 230
Total 2,338 2,094
5 Finance costs
2022 2021
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Fixed term loan 629 1,468 2,097 628 1,464 2,092
Revolving credit facility 227 530 757 145 338 483
Bank overdraft interest 2 – 2 – – –
Total 858 1,998 2,856 773 1,802 2,575
6 Tax on ordinary activities
2022 2021
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Overseas withholding tax 4,081 – 4,081 6,450 – 6,450
Capital gains tax paid – 1,352 1,352 – 508 508
Historic tax claims
(a)
– – – (23,753) – (23,753)
Total current tax 4,081 1,352 5,433 (17,303) 508 (16,795)
Capital gains tax provision – 4,244 4,244 – 4,961 4,961
Total tax 4,081 5,596 9,677 (17,303) 5,469 (11,834)
2022
£’000
2021
£’000
(Loss)/profit before taxation (432,731) 922,595
Theoretical tax at UK corporation tax rate of 19% (2021: 19%) (82,219) 175,293
Effects of:
- Capital element of loss/(profit) 87,543 (168,684)
- Irrecoverable overseas withholding tax 4,081 6,450
- Excess management expenses 3,101 2,915
- Overseas capital gains tax 1,352 508
- Dividends not subject to corporation tax (7,924) (9,079)
- Movement in overseas capital gains tax liability 4,244 4,961
- UK dividends (248) (291)
- Overseas tax expensed (253) (154)
- Historic tax claims
(a)
– (23,753)
Actual tax charge 9,677 (11,834)
(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 2022 the Company had unutilised management expenses and non-trade deficits of £284.4 million carried forward
(2021: £268.1 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 2022
£’000
2021
£’000
Balance brought forward 4,961 –
Charge for the year 5,596 5,469
Capital gains tax paid (1,352) (508)
Balance carried forward 9,205 4,961
Provision consists of:
9,205
4,961 - Overseas capital gains tax liability
(a)
9,205 4,961
(a)
A provision for deferred capital gains tax has been recognised in relation to unrealised gains for holdings in India and Pakistan.
7 Earnings per share
2022 2021
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Earnings 40,677 (483,085) (442,408) 68,223 866,206 934,429
2022
2021
Revenue
pence
Capital
pence
Total
pence
Revenue
pence
Capital
pence
Total
pence
Earnings per share
(a)
3.44 (40.90) (37.46) 5.73 72.73 78.46
(a)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
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 1,181,093,110 (year to 31 March 2021 after the sub-division of shares: 1,190,975,420).
8 Financial assets – investments
2022
£’000
2021
£’000
Opening investments
1,553,330
1,539,265 Book cost
Net unrealised gains 1,045,745 240,988
Opening fair value 2,599,075 1,780,253
Movements in the year:
603,763
415,812 Additions at cost
Disposals proceeds (617,723) (485,392)
Net (losses)/gains on investments at fair value (460,585) 888,402
2,124,530 2,599,075
Closing investments
1,732,693
1,553,330 Book cost
Net unrealised gains 391,837 1,045,745
Closing investments 2,124,530 2,599,075
All investments have been recognised at fair value through the Statement of Comprehensive Income.
Transaction costs for the year on purchases were £749,000 (2021: £612,000) and transaction costs for the year on sales were
£1,209,000 (2021: £875,000). The aggregate transaction costs for the year were £1,958,000 (2021: £1,487,000). Please note the
comparative figures for the year ended 31 March 2021 have been retrospectively adjusted to incorporate some additional expenses
identified as transaction costs.
2022
£’000
2021
£’000
Net (losses)/gains on investments at fair value comprise:
193,323
83,645
Net realised gains based on carrying value at 31 March
Net movement in unrealised (depreciation)/appreciation (653,908) 804,757
Net (losses)/gains on investments at fair value (460,585) 888,402
9 Trade and other receivables
2022
£’000
2021
£’000
Dividends receivable 8,224 11,726
Sales awaiting settlement 5,955 1,649
Overseas tax recoverable 2,661 1,844
Other debtors 88 104
Total 16,928 15,323
10 Other payables
2022
£’000
2021
£’000
Revolving credit facility payable 50,000 –
Purchase of investments for future settlement 3,292 11
Amounts owed for share buybacks 1,563 –
AIFM fee 1,515 1,816
Accrued expenses 747 1,060
Interest and fees on borrowings 601 475
Total 57,718 3,362
Interest and fees on borrowings consist of:
2022
£’000
2021
£’000
Fixed term loan 352 355
Revolving credit facility 249 120
Total 601 475
Revolving credit facility
On 31 January 2020, the Company entered into a £120 million multi-currency unsecured revolving credit facility (the “facility”)
for a period of three years with The Bank of Nova Scotia, London Branch. Balances can be drawn down in GBP, USD or CNH.
The agreement was revised on 17 September 2021 to account for the London Interbank Offered Rate (“LIBOR”) discontinuation.
Under the new terms, the USD drawdown rates are 1.125% per annum over the daily secured overnight financing rate (“SOFR”)
administered by the Federal Reserve Bank of New York plus the applicable baseline credit adjustment spread, while for any
sterling drawdowns the rate is 1.125% per annum over the daily sterling overnight index average (“SONIA”) published by the
Bank of England plus the applicable credit adjustment spread. The rate for any CNH drawdowns remains unchanged at a rate of
1.125% per annum over the Hong Kong Interbank Offered Rate.
Undrawn balances in excess of £60 million are charged at 0.40% per annum and any undrawn portion below this is charged at
0.35% per annum. Under the terms of the facility, the net assets shall not be less than £1,015 million and the adjusted net asset
coverage to all borrowings shall not be less than 3.5:1.
On 18 October 2021, the Company drew down £50 million from the revolving credit facility repayable within six months (2021:
revolving credit facility was not utilised).
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
2022
Book value
£’000
2021
Book value
£’000
Fixed term loan 100,000 100,000
Total 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 £100 million.
The term loan bears interest at a fixed annual rate of 2.089%. Under the conditions of the term loan, the net assets shall not be less
than £1,015 million and the adjusted net asset coverage to all borrowings shall not be less than 3.5:1.
The facility is shown at amortised cost. Interest costs are charged to capital (70%) and revenue (30%) in accordance with the
Company’s accounting policies.
12 Equity share capital
2022 2021
Ordinary shares in issue £’000 Number
(a)
£’000 Number
(a)
Opening ordinary shares of 5 pence 59,062 1,181,228,655 60,621 1,212,420,695
Purchase and cancellation of own shares (117) (2,331,670) (1,559) (31,192,040)
Closing ordinary shares of 5 pence 58,945 1,178,896,985 59,062 1,181,228,655
2022 2021
Ordinary shares held in treasury £’000 Number
(a)
£’000 Number
(a)
Opening ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895
Closing ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895
Total ordinary shares in issue and held in treasury at the end of the year 64,136 1,282,722,880 64,253 1,285,054,550
(a)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
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, 2,331,670 shares were bought back for cancellation at a cost of £3,604,000 (2021: 31,192,040 shares were bought
back for cancellation at a cost of £49,642,000). All shares bought back in the year were cancelled, with none being placed in
treasury (2021: no shares were placed into treasury).
13 Dividends
2022 2021
Rate
(a)
(pence)
£’000
Rate
(a)
(pence)
£’000
Declared and paid in the financial year
Dividend on shares:
Final dividends for the years ended 31 March 2021 and 31 March 2020 2.80 33,074 2.80 33,680
Interim dividends for the six-month periods ended 30 September 2021 and
30 September 2020 1.00 11,811
1.00 11,823
Special dividends for the year ended 31 March 2021 – – 2.00 23,647
Total 3.80 44,885 5.80 69,150
Proposed for approval at the Company's AGM
Dividend on shares:
Final dividend for the year ended 31 March 2022 2.80 32,960
(a)
Comparative figures for the year ended 31 March 2021 have been retrospectively adjusted following the sub-division of each
existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
Dividends are recognised when the shareholders’ right to receive the payment is established. In the case of the final dividend, this
means that it is not recognised until approval is received from shareholders at the AGM. The proposed final dividend of 2.80
pence per share will be funded from the revenue reserve and the payment of this dividend will not threaten the going concern or
viability of the Company.
14 Related party transactions
There were no transactions with related parties, other than the fees paid to the Directors and the AIFM fee during the year ended
31 March 2022, which have a material effect on the results or the financial position of the Company. Details of fees paid to the
Directors are included in the full annual report and details of the fee paid to the AIFM is included in the full Annual Report.
15 Risk management
In pursuing the Company’s objective, as set out in the full Annual Report, the Company holds a number of financial instruments
which are exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction in the
profits available for dividends.
The main risks arising from the Company’s financial instruments are investment and concentration risk, market risk (which
comprises market price risk, foreign currency risk and interest rate risk), liquidity risk and counterparty and credit risk.
The objectives, policies and processes for managing these risks, and the methods used to measure the risks, are set out below.
These policies have remained unchanged since the beginning of the year to which these Financial Statements relate.
Investment and concentration risk
The Company may invest a greater portion of its assets than the benchmark in the securities of one issuer, securities of a particular
country, or securities within one sector. As a result, there is the potential for an increased concentration of exposure to economic,
business, political or other changes affecting similar issues or securities, which may result in greater fluctuation in the value of the
portfolio. Investment risk and a certain degree of concentration risk is a known and necessary effect of the stated investment approach
in line with the investment policy. The Directors regularly review the portfolio composition and asset allocation and discuss related
developments with the Investment Manager. Security, country, and sector concentrations are monitored by the Manager’s risk and
compliance teams on a regular basis and any concerns are highlighted to the Investment Manager for remedial action and brought
to the attention of the Directors.
Market price risk
Market risk arises mainly from uncertainties about future prices of financial instruments held. It represents the potential loss that
the Company might suffer through holding market positions in the face of price movements.
The Directors meet quarterly to consider the asset allocation of the portfolio and to discuss the risks associated with particular
securities, countries or sectors. The Investment Manager selects securities in the portfolio in accordance with the investment
policy, and the overall asset allocation parameters described above, and seeks to ensure that individual stocks also meet the
intended risk/reward profile.
The Company does not use derivative instruments to hedge the investment portfolio against market price risk as, in the Investment
Manager’s opinion, such a process could result in an unacceptable level of cost and/or a reduction in the potential for capital
growth.
100% (2021: 100%) of the Company’s investment portfolio is listed on stock exchanges. If share prices as at 31 March 2022 had
decreased by 30% (2021: 30% decrease) with all other variables remaining constant, the Statement of Comprehensive Income
capital return and the net assets attributable to equity shareholders would decrease by £637,359,000 (2021: £779,723,000). A 30%
increase (2021: 30% increase) in share prices would have resulted in a proportionate equal and opposite effect on the above
amounts, on the basis that all other variables remain constant.
Foreign currency risk
Currency translation movements can significantly affect the income and capital value of the Company’s investments, as the
majority of the Company’s assets and income are denominated in currencies other than sterling, which is the Company’s
functional currency.
The Investment Manager has identified three principal areas where foreign currency risk could affect the Company:
• Movements in rates affect the value of investments;
• Movements in rates affect short-term timing differences; and
• Movements in rates affect the income received.
The Company does not hedge the sterling value of investments that are priced in other currencies. The Company may be subject to
short-term exposure to exchange rate movements, for instance where there is a difference between the date on which an
investment purchase or sale is entered into and the date on which it is settled.
The Company receives income in currencies other than sterling and the sterling values of this income can be affected by
movements in exchange rates. The Company converts all receipts of income into sterling on or near the date of receipt. However,
it does not hedge or otherwise seek to avoid rate movement risk on income accrued but not received.
The fair value of the Company’s items that have foreign currency exposure at 31 March are shown below:
2022
Currency
Trade and
other receivables
£’000
Cash at bank
£’000
Trade, bank,
loans, and
other payables
£’000
Total net
foreign
currency
exposure
£’000
Investment
at fair
value through
profit or loss
£’000
Korean won 6,523 – – 6,523 486,879
Hong Kong dollar 19 – (219) (200) 376,797
Taiwan dollar 3,791 2,069 (2,069) 3,791 363,488
US dollar 53 – (1,000) (947) 252,082
Indian rupee – 323 – 323 188,326
Other 6,473 116 (23) 6,566 427,793
2021
Currency
Trade and
other receivables
£’000
Cash at bank
£’000
Trade, bank, loans,
and
other payables
£’000
Total net
foreign
currency
exposure
£’000
Investment
at fair value
through profit or
loss
(a)
£’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) 573 357,514
Indian rupee 27 – – 27 162,049
Other 1,089 – – 1,089 394,142
(a)
Comparative figures for the year ended 31 March 2021 on US dollar and Other have been restated due to a prior year
misallocation.
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 2022, 65.4% (2021: 69.5%) 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 £604.9 million (2021: £769.7 million).
Foreign currency sensitivity
The following table illustrates the foreign currency sensitivity of the total income (which is mainly comprised of dividend income)
and of the financial assets and liabilities of the Company if sterling had strengthened by 10% relative to the top 5 currencies on the
reporting date. With all other variables held constant, the revenue and capital return would have decreased by the below amounts.
2022 2021
Revenue
Return
£’000
Capital
Return
£’000
Revenue
Return
£’000
Capital
Return
(a)
£’000
Korean won 1,083 48,688 1,460 57,491
Hong Kong dollar 482 37,660 1,161 62,619
Taiwan dollar 955 36,349 748 43,414
US dollar 994 25,108 858 35,794
Indian rupee 169 18,865 147 16,205
Total 3,683 166,670 4,374 251,523
(a)
Comparative figures for the year ended 31 March 2021 on the capital return column have been revised to exclude income items.
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.
The revolving loan bears interest at the rate of 1.125% over the daily SONIA rate plus the applicable baseline credit adjustment
spread. Hence, movements in SONIA rates may result in an increase or decrease of the interest payable on the revolving loan
affecting the net asset value of the Company.
Interest rate risk profile
The exposure of the financial assets and liabilities to floating interest rate risks at 31 March is shown below:
2022
£’000
2021
£’000
Cash 125,855 85,212
Revolving credit facility (50,000) –
Net exposure at year end 75,855 85,212
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 and revolving credit facility were maintained for a year and interest rates were 100 basis points higher or
lower, the net profit after taxation would be impacted by the following amounts:
2022 2021
100 basis
points
increase
£’000
100 basis
points
decrease
£’000
100 basis
points
increase
£’000
100 basis
points
decrease
£’000
Revenue 1,109 (1,109) 852 (852)
Capital (350) 350 – –
Total 759 (759) 852 (852)
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 2022, based on the earliest date on
which payment can be required and current exchange rates as at the Balance Sheet date:
As at 31 March 2022
In one year
or less
£’000
More than
one year
and not
later than
two years
£’000
More than
two years
and not
later than
three years
£’000
More than
three years
£’000
Total
£’000
Fixed term loan 2,089 2,089 102,095 – 106,273
Revolving credit facility 51,117 – – – 51,117
Other payables 7,117 – – – 7,117
Total 60,323 2,089 102,095 – 164,507
As at 31 March 2021(a)
In one year
or less
£’000
More than
one year
and not
later than
two years
£’000
More than
two years
and not
later than
three years
£’000
More than
three years
£’000
Total
£’000
Fixed term loan 2,100 2,089 2,089 102,095 108,373
Revolving credit facility 471 – – – 471
Other payables 2,887 – – – 2,887
Total 5,458 2,089 2,089 102,095 111,731
(a)
Comparative figures for the year ended 31 March 2021 have been revised to exclude the capital gains tax provision from other
payables as it does not meet the definition of a financial liability. Also, finance costs related to the revolving credit facility have
been presented separately from other payables.
Counterparty and credit risk
Certain transactions in securities that the Company enters into expose it to the risk that the counterparty will not deliver the
investment (purchase) or cash (in relation to sale or declared dividend) after the Company has fulfilled its responsibilities. The
Company only buys and sells through brokers which have been approved by the Investment Manager as an acceptable
counterparty. In addition, limits are set as to the maximum exposure to any individual broker that may exist at any time. These
limits are reviewed regularly. The amounts under trade and other receivables and cash and cash equivalents shown in the
Statement of Financial Position represent the maximum credit risk exposure at the year end.
The Company has an ongoing contract with its custodian (JPMorgan Chase Bank) for the provision of custody services.
As part of the annual risk and custody review, the Company reviewed the custody services provided by JPMorgan Chase Bank and
concluded that, while there are inherent custody risks in investing in emerging markets, the custody network employed by TEMIT
has appropriate controls in place to mitigate those risks, and that these controls are consistent with recommended industry
practices and standards.
Securities held in custody are held in the Company’s name or to its accounts. Details of holdings are received and reconciled
monthly. Cash is actively managed by Franklin Templeton’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 2022, the market value of the securities on loan and the corresponding collateral received were as follows:
31 March 2022 31 March 2021
Counterparty
Market value
of securities
on loan
£’000
Market value
of collateral
received
£’000
Market value
of securities
on loan
£’000
Market value
of collateral
received
£’000
Merrill Lynch International 2,908 4,047 – –
Citigroup 382 558 82 119
Morgan Stanley – – 7,820 10,581
UBS – – 3,285 4,055
Total 3,290 4,605 11,187 14,755
The maximum aggregate value of securities on loan at any time during the year was £17,002,296. 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.
Investments held by the Company are valued in accordance with the accounting policies. The carrying value of the other financial
assets and liabilities of the Company which is included in the Statement of Financial Position is a reasonable approximation of the
fair value.
The tables below analyse financial instruments carried at fair value by valuation method. The different levels have been defined as
follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 Inputs other than quoted prices included with level 1 that are observable for the asset or liability, either directly (prices) or
indirectly (derived from prices); and
Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The hierarchy valuation of listed investments through profit and loss are shown below:
31 March 2022 31 March 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Listed investments 2,103,727 – 20,803
(a)(b)
2,124,530 2,548,121 50,954 – 2,599,075
(a)
On 31 March 2021 the company listing for Brilliance China Automotive was suspended from the Hong Kong stock exchange. For the 31 March
2021 Annual Report, 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 that date, as a result the fair value of the Company’s holding at 31 March 2021 was
£50,594,000 and the stock disclosed as Level 2. As the stock remained suspended at 31 March 2022 the stock has been transferred from Level 2 to
Level 3. The closing value of the Company’s holding as at 31 March 2022 was £20,803,000. This valuation was based on a beta model with the
unobservable inputs shown in the table below.
(b)
Russian investments in Gazprom, LUKOIL, Sberbank of Russia, VK, and Yandex have been fair valued at zero as at 31 March 2022 as a result of
trading being suspended on international stock exchanges. These investments have been transferred from Level 1 to Level 3.
The following table presents the key unobservable inputs for Brilliance China Automotive’s beta model as at 31 March 2022:
Description
Fair value
£’000
Unobservable
input
Weighted
average input
Reasonable
possible shift
+/-
Reasonable
possible
shift +
£’000
Reasonable
possible
shift -
£’000
Equities 20,803 Index movement -12% 4% 1,157 (1,157)
Unleveraged beta 1.19 0.5 (1,434) 1,434
The following table presents the movement in Level 3 investments for the year ended:
31 March 2022
£000
31 March 2021
£000
Opening balance – –
Transfers from Level 1 into Level 3 149,593 –
Transfers from Level 2 into Level 3 50,954 –
Net losses on investments at fair value (179,744) –
Level 3 closing balance 20,803 –
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 £390,000. The fair value of the Company’s fixed term loan at
the year-end was £100,390,000 (2021: £102,560,000). 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 sum of SONIA rate plus a static spread. The fixed term
loan is considered to be classed as Level 2.
16 Significant holdings in investee undertakings
As at 31 March 2022 and 2021, 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 2022 or 31 March 2021.
18 Contingent assets
No contingent assets existed as at 31 March 2022 or 31 March 2021.
19 Financial commitments
No financial commitments existed as at 31 March 2022 or 31 March 2021.
20 Capital management policies and procedures
The Company’s objective is to provide long-term capital appreciation for private and institutional investors seeking exposure to
global emerging markets, supported by a culture of both strong customer service and corporate governance.
The Board monitors and regularly reviews the structure of the Company’s capital on an ongoing basis. This review includes the
investment performance and outlook, discount management mechanisms including share buybacks, gearing and the extent to
which revenue in excess of that which is required to be distributed under the investment trust rules should be retained.
The Company’s investment policy allows borrowing of up to 20% of net assets, measured at the time of borrowing.
As at 31 March 2022, the Company had share capital and reserves of £2,100,390,000 (31 March 2021: £2,591,287,000).
21 Events after the reporting period
Subsequent to the year end, the Investment Manager rolled forward the £50 million revolving facility drawdown and took this
borrowing out for a further six months.
The only other 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 2022 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.
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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