Final Results
CORPORATE
Stock Exchange Announcement
Statement of Annual Results
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC
("TEMIT" or "the Company")
Legal Entity Identifier 5493002NMTB70RZBXO96
Templeton Emerging Markets Investment Trust plc
Annual Report and Accounts to 31 March 2023
Company Overview
Launched in June 1989, Templeton Emerging Markets Investment Trust plc ("TEMIT" or the "Company") is an
investment trust that invests principally in emerging markets companies with the aim of delivering capital
growth to shareholders over the long term. While the majority of the Company's shareholders are based in the
UK, shares are traded on both the London and New Zealand stock exchanges.
TEMIT has a diversified portfolio of around 80 high quality companies, actively selected for their long-term
growth potential and sustainable earnings, and with due regard to Environmental, Social and Governance
("ESG") attributes. TEMIT's research-driven investment approach and strong long-term performance has helped
it to grow to be the largest emerging markets investment trust in the UK, with assets of £2.0 billion as at 31
March 2023. From its launch to 31 March 2023, TEMIT's net asset value ("NAV") total return was +3,845.7%
compared to the benchmark total return of +1,707.2%.
The Company is governed by a Board of Directors who are committed to ensuring that shareholders' best
interests, considering the wider community of stakeholders, are at the forefront of all decisions. Under the
guidance of the Chairman, the Board of Directors is responsible for the overall strategy of the Company and
monitoring its performance.
TEMIT at a glance
For the year to 31 March 2023
Net asset value total return
(cum-income)
(a)
Share price total return
(a)
MSCI Emerging Markets
Index total return
(a)(b)
Proposed total ordinary
dividend
(c)
0.8% 0.5% -4.5% 5.00p
(2022: -17.3%) (2022: -21.2%) (2022: -6.8%) (2022: 3.80p)
CORPORATE
(a)
A glossary of alternative performance measures is included in the full Annual Report.
(b)
Source: MSCI. The Company's benchmark is the MSCI Emerging Markets Index, with net
dividends reinvested.
(c)
An annual ordinary dividend of 5.00 pence per share for the year ended 31 March 2023 has been
proposed. This comprises the interim dividend of 2.00 pence per share paid by the Company on 27
January 2023 and the proposed final dividend of 3.00 pence per share.
Strategic Report
The Directors present the Strategic Report for the year ended 31 March 2023, which incorporates the
Chairman's Statement, and has been prepared in accordance with the Companies Act 2006.
The aim of the Strategic Report is to provide shareholders with the ability to assess how the Directors have
performed in their duty to promote the success of the Company for shareholders' collective benefit, and having
regard for the interests of all stakeholders, by bringing together in one place key information about the
Company's strategy, the risks it faces, how it is performing and the outlook.
Financial Summary
2022-2023
Notes
Year
ended
31 March
2023
Year
ended
31 March
2022
Capital
return
%
Total
return
%
Total net assets (£ millions)
2,017.5 2,100.4
Net asset value (pence per share)
(a)
174.1 178.2 (3.7) 0.8
Highest net asset value (pence per share)
185.1 223.9
Lowest net asset value (pence per share)
150.3 161.0
Share price (pence per share)
(a)
152.2 156.4 (4.2) 0.5
Highest end of the day share price (pence per share)
164.6 208.0
Lowest end of the day share price (pence per share)
130.6 140.6
MSCI Emerging Markets Index
(a)
(7.6) (4.5)
Share price discount to net asset value at year end
(a)
12.6% 12.2%
Average share price discount to net asset value over
the year
13.0% 9.5%
Ordinary dividend (pence per share)
(b)
5.00 3.80
CORPORATE
Revenue earnings (pence per share)
(c)
5.72 3.44
Capital earnings (pence per share)
(c)
(5.50) (40.90)
Total earnings (pence per share)
(c)
0.22 (37.46)
Net gearing
(a)(d)
0.0% 1.1%
Ongoing charges ratio
(a)
0.98% 0.97%
Source: Franklin Templeton and FactSet.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
(b)
An annual ordinary dividend of 5.00 pence per share for the year ended 31 March 2023 has been
proposed. This comprises the interim dividend of 2.00 pence per share (2022: 1.00 pence per
share) paid by the Company on 27 January 2023 and a proposed final dividend of 3.00 pence per
share (2022: 2.80 pence per share).
(c)
The revenue, capital and total earnings per share figures are shown in the Statement of
Comprehensive Income in the full Annual Report and Note 7 of the Notes to the Financial
Statements.
(d)
A net gearing figure of 0% means that the cash held in the Company is equal to or higher than the
total bank loans.
Ten Year Record
2013-2023
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 2013 2,302.7 140.5 128.1 8.2 1.69 1.25 1.30
31 March 2014 1,913.6 118.4 105.4 10.9 1.83 1.45 1.30
31 March 2015 2,045.0 128.2 111.2 13.3 1.86 1.65 1.20
31 March 2016 1,562.3 104.8 90.8 13.4 1.41 1.65 1.22
31 March 2017 2,148.1 152.6 132.3 13.3 1.32 1.65 1.20
31 March 2018 2,300.8 169.2 148.6 12.2 3.18 3.00 1.12
31 March 2019 2,118.2 168.5 153.2 9.1 3.45 3.20 1.02
31 March 2020 1,775.7 146.5 131.4 10.3 4.88 3.80
(c)
1.02
31 March 2021 2,591.3 219.4 202.4 7.7 5.73 3.80
(c)
0.97
31 March 2022 2,100.4 178.2 156.4 12.2 3.44 3.80 0.97
31 March 2023 2,017.5 174.1 152.2 12.6 5.72 5.00
(d)
0.98
Ten year growth record
(e)
CORPORATE
2013-2023
Year ended NAV
NAV total
return
(b)
Share
price
Share
price total
return
(b)
MSCI
Emerging
Market
Index total
return
(b)
Revenue
earnings
per share-
undiluted
Ordinary
dividend
per share
31 March 2013 100.0 100.0 100.0 100.0 100.0 100.0 100.0
31 March 2014 84.3 85.4 82.3 83.2 90.1 108.3 116.0
31 March 2015 91.2 93.6 86.8 88.9 102.0 110.1 132.0
31 March 2016 74.6 77.6 70.9 73.8 93.0 83.4 132.0
31 March 2017 108.6 114.7 103.3 109.5 125.8 78.1 132.0
31 March 2018 120.4 128.9 116.0 124.5 140.6 188.2 240.0
31 March 2019 119.9 131.2 119.6 131.9 140.6 204.1 256.0
31 March 2020 104.3 116.5 102.6 115.9 122.1 288.8 304.0
31 March 2021 156.2 179.8 158.0 184.9 174.4 339.1 304.0
31 March 2022 126.8 148.8 122.1 145.7 162.5 203.6 304.0
31 March 2023 123.9 150.1 118.8 146.4 155.3 338.5 400.0
Source: Franklin Templeton and FactSet.
(a)
Comparative figures for financial years 2013 to 2021 have been retrospectively adjusted following
the sub-division of each existing ordinary share of 25 pence into five ordinary shares of 5 pence
each on 26 July 2021.
(b)
A glossary of alternative performance measures is included in the full Annual Report.
(c)
Excludes the special dividend of 0.52 pence per share for the year ended 31 March 2020 and the
special dividend of 2.00 pence per share for the year ended 31 March 2021.
(d)
An annual ordinary dividend of 5.00 pence per share for the year ended 31 March 2023 has been
proposed. This comprises the interim dividend of 2.00 pence per share paid by the Company on 27
January 2023 and a proposed final dividend of 3.00 pence per share.
(e)
Rebased to 100 at 31 March 2013.
Chairman's Statement
Market overview and investment performance
CORPORATE
Our financial year started shortly after the Russian invasion of Ukraine and I would like to repeat the sympathy
of the Board and of all of those involved with the management of TEMIT for all victims of the Russian invasion
of Ukraine. Market conditions were challenging throughout the year. The war caused a surge in commodity
prices. Rapid increases in prices generally result in pressure from individuals to increase their pay, with a risk
that inflation then becomes entrenched. Governments and central banks around the world have sought to contain
inflation by raising interest rates but need simultaneously to avoid choking economic growth. This is a difficult
balance to achieve and only time will tell whether their actions have been successful.
In recent years China has become an important engine for world economic growth as well as a key element of
the emerging markets investment universe. For a large part of our financial year there were concerns over the
Chinese economy due to the government's continued pursuit of lockdowns to control the spread of COVID-19
as well as its interventions in private companies and political tension with the rest of the world, particularly the
United States. The approach to COVID-19 was suddenly and unexpectedly reversed and this, along with more
positive regulatory developments, helped to spur the recovery in the country and in other emerging markets. In
other countries the higher level of inflation has caused a variety of issues, although some companies have
benefited from higher commodity prices, most notably in the energy sector.
The year under review was a volatile period for TEMIT's shares. The second half of our financial year was
better than the first; at the half year stage we reported a decline of -8.3% whereas in the second half returns
turned around and we ended the financial year with a small positive return over 12 months of +0.8%
(a)
,
outperforming the benchmark index which produced a total return of -4.5%
(a)
.
(a)
See Glossary of Alternative Performance Measures included in the full Annual Report.
Revenue and dividend
Net revenue earnings increased markedly to 5.72 pence per share. At the half year stage we announced an
increase in the interim dividend from 1.00 pence to 2.00 pence per share. The Board is proposing a final
dividend of 3.00 pence per share which, if approved by shareholders at the Annual General Meeting ("AGM")
will result in a total dividend for the year of 5.00 pence per share. This will be an increase in the total dividend
of 32% compared with the previous financial year. I have regularly emphasised that the primary focus of our
Investment Manager is on capital growth. Nevertheless, it is encouraging to see such a strong increase in
revenues.
Borrowing
TEMIT has fixed borrowing of £100 million, and a revolving credit facility under which up to £120 million in
flexible debt may be drawn down. The revolving facility matured on 31 January 2023 and was extended for a
further year. The Investment Manager continues to take a cautious view on borrowing in difficult markets. As at
the financial year end, net of cash in the portfolio, TEMIT was not geared.
CORPORATE
Share rating
Our managers remain very active in promoting TEMIT's shares to existing and potential investors via a variety
of traditional and online channels. As I mentioned in the half yearly report, the Board was delighted that TEMIT
won the award in the "Emerging Markets Equity - Active" category in the prestigious AJ Bell Fund and
Investment Trust Awards in September 2022 for the third consecutive year. The award is made on the basis of
voting by private investors from a shortlist of open-ended funds, ETFs and investment trusts drawn up by
investment experts.
The challenging market conditions naturally led to pressure on the discount. The Board remains consistent in its
view that share buybacks are a key tool in managing the balance between supply and demand for the shares. In
total over the year, £29.2 million was spent on share buybacks and, as all buybacks were at a discount to the
prevailing NAV, this resulted in an increase in the NAV of 0.23% to the benefit of remaining shareholders.
31 March 2023 marked the end of the fourth year of the assessment period for the Conditional Tender Offer,
under which the Board undertook to arrange a tender for up to 25% of the Company's shares if the NAV total
return underperforms that of the benchmark index over the five years to 31 March 2024. After four years, the
return was ahead of the benchmark index over the measurement period by approximately 4 percentage points,
but we are aware that returns, both absolute and relative to the benchmark, can be volatile. The Conditional
Tender Offer is described in detail in the full Annual Report.
Environmental, Social and Governance
Throughout TEMIT's history, governance of investee companies has been a key part of the investment process
and in recent years there has been a growing focus on sustainability. A description of the Investment Manager's
process is included in the full Annual Report, along with a summary of the approach to Environmental, Social
and Governance matters. Last year the Investment Manager published the first dedicated Stewardship Report for
TEMIT and this received favourable comments from shareholders and industry experts. The second report was
published simultaneously with this Annual Report and is available to download at www.temit.co.uk.
The Board
As previously announced, Beatrice Hollond retired from the Board at last year's AGM in July 2022 and Simon
Jeffreys assumed the position of Senior Independent Director.
Abigail Rotheroe was appointed as a Director with effect from 1 November 2022. Abigail has over 20 years of
investment experience, most recently as the Investment Director at Snowball Impact Management, a sustainable
and impact-focused asset manager. Previously Abigail managed retail and institutional Asia Pacific portfolios in
Hong Kong and London for Schroders, HSBC Asset Management and Columbia Threadneedle Investments.
She is a CFA Charterholder and has experience in manager selection, sustainability, and impact measurement.
CORPORATE
I will complete nine years as a director on 1 August 2024, shortly after next year's AGM. My colleagues have
started the process of identifying the next Chairman of the Company and expect to make an announcement later
this year.
Annual General Meeting
I am pleased to be able to invite all shareholders to attend our AGM on 14 July 2023 at Barber-Surgeons' Hall in
London. We look forward to welcoming shareholders at the meeting.
Whether you intend to attend the meeting in person or not, you are strongly encouraged to submit your votes on
the AGM resolutions in advance of the meeting. Submitting votes by proxy does not preclude you attending the
meeting or changing your vote if you attend the AGM.
If you have any questions, please send these by email to temitcosec@franklintempleton.com or via
www.temit.co.uk./investor/contact-us in advance of the meeting. You can also use these contact details should
you have a question at any other time. Any questions that we receive will be considered and responses will be
provided on our website www.temit.co.uk.
Outlook
Recent evidence suggests that the problems stemming from the pandemic and then the Russian invasion of
Ukraine have started to abate and attention has returned to the prospects for growth. Nevertheless, difficulties
remain particularly in the developed world which is challenged by high levels of inflation and debt. The re-
opening of the Chinese economy is a positive development but equally important are efforts to stimulate growth
in several parts of the emerging world.
Our Investment Manager expects a recovery in earnings in the second half of 2023 and this is likely to be helped
by efforts by governments to stimulate demand. The long-term case for investing in emerging markets is
founded on a higher level of economic growth supported by young populations, increasing domestic
consumption as the middle-class population expands rapidly and some world-leading companies. Key to
investment performance will be identifying the companies best able to capitalise on these factors. Our
Investment Manager points to a wide variety of opportunities around the world and, despite the obvious
challenges, we continue to look to the long term with some optimism.
Paul Manduca
Chairman
CORPORATE
9 June 2023
The Investment Manager
TEMIT's Investment Management is delegated to Templeton Asset Management Ltd ("TAML") and Franklin
Templeton Investment Management Limited ("FTIML"). Portfolio managers from TAML and FTIML form part
of the wider Franklin Templeton Emerging Markets Equity group ("FTEME"). FTEME have managed the
portfolio since TEMIT's inception and are pioneers in emerging markets equity investing. They bring more than
30 years of experience and local knowledge from over 70 investment professionals, based in 13 countries
around the world.
The team has a collaborative investment process where all analysts and portfolio managers work together to
contribute to investment returns. They meet regularly, both formally and informally, to debate and exchange
ideas, investment themes and enrich their understanding of the markets by drawing on local insights to build a
global perspective and context to their thinking. They also benefit from the broader resources available
throughout Franklin Templeton.
The portfolio managers for TEMIT, Chetan Sehgal (lead) and Andrew Ness are senior executives in FTEME.
Portfolio Managers
Chetan Sehgal, CFA
Chetan is the lead portfolio manager of TEMIT and is based in Singapore.
As part of his broader responsibilities within FTEME, Chetan is also the director of portfolio management. In
this capacity, he is responsible for the overall Global Emerging Markets strategies, providing guidance and
thought leadership, coordinating appropriate resources and coverage, and leveraging the group's expertise to add
value across products within the strategies.
Chetan joined Franklin Templeton in 1995 from Credit Rating Information Services of India Ltd, where he was
a senior analyst.
Chetan holds a B.E. Mechanical (Hons) from the University of Bombay and a postgraduate diploma in
Management from the Indian Institute of Management in Bangalore, where he specialised in finance and
business policy and graduated as an institute scholar. Chetan speaks English and Hindi and is a Chartered
Financial Analyst ("CFA") Charterholder.
Andrew Ness, ASIP
Andrew Ness is a portfolio manager of TEMIT and is based in Edinburgh.
Prior to joining Franklin Templeton in September 2018, Andrew was a portfolio manager at Martin Currie. He
began his career at Murray Johnstone in 1994 and worked with Deutsche Asset Management in both London
and New York before joining Scottish Widows Investment Partnership in 2007.
CORPORATE
Andrew holds a B.A. (Hons) in Economics and an MSc in Business Economics from the University of
Strathclyde in the UK. He is an Associate Member of the UK Society of Investment Professionals and a member
of the CFA Institute.
The Investment Manager's Report
Review of performance
Emerging markets ("EMs") as measured by our benchmark index declined over the 12 months under review. For
a large part of the year, rising inflationary pressures and resultant rate hikes, the ongoing Russian invasion of
Ukraine and supply chain challenges depressed consumer and investor sentiment. However, several bright spots
emerged towards the end of the year under review-signs of receding inflation, policy support to spur domestic
consumption and China's pivot away from zero-COVID restored investor confidence and helped to cap losses.
The MSCI Emerging Markets Index returned -4.5% in the 12-month period under review, whilst TEMIT
delivered a net asset value total return of +0.8% (all figures are total return in sterling). Full details of TEMIT's
performance can be found in the full Annual Report.
By region, EMs in Asia fared relatively better than their peers in Latin America and Europe, Middle East and
Africa. However, all three regions witnessed declines in some of their underlying markets. Stocks in China
contributed to regional gains after the dismantling of the country's zero-COVID policy and measures to spur the
economy, such as support for the property sector. Weakening global demand for consumer electronics weighed
on technology-heavy markets in South Korea and Taiwan, and the Indian market corrected from its strong
performance previously. China's gains at the end of 2022, together with tourism-reliant Thailand (which
benefited from optimism from a rebound in tourism), helped to support the emerging Asia region. Latin
America was dragged down by the emergence of political concerns which weighed on equity prices. Emerging
Europe lost ground due to the fallout from Russia's invasion of Ukraine and the dislocations in regional energy
markets. Towards the end of the year, share prices in the Middle East-which had been through a boom-declined
as oil prices moderated and liquidity conditions tightened in some of the markets. As at 31 March 2023 TEMIT
held three Russian securities which remained fair-valued at zero in view of restrictions around trading these
shares and a lack of any price discovery mechanism to provide indications of residual value. We continue to
monitor the developments and will look to realise value in the best interests of shareholders, whenever possible.
China was TEMIT's largest market exposure, although the portfolio remained underweight relative to the
benchmark. China gained almost 2% in sterling terms over the 12-month period. Regional lockdowns related to
the country's zero-COVID policy, prolonged regulatory uncertainty and a reeling real estate market dominated
headlines for a large part of the year and capped gains. However, Chinese equities rebounded sharply near the
end of the period as the country reopened, and the government reiterated its growth priorities. The Chinese
government has clearly defined its agenda in terms of support of common prosperity and the curtailment of
monopolies. With this, we see the internet sector now adjusting to the new normal. China's pursuit of higher
quality growth with a focus on technology advancement and self-sufficiency will likely shift investment and
growth to newer emerging technologies. We expect the opening up of the Chinese economy to spur local and
overseas demand as there has been a significant increase in household savings accumulated during the
pandemic.
CORPORATE
TEMIT's second-largest market position was in South Korea, where the portfolio was overweight versus the
benchmark. South Korean equities declined by more than 8% during the reporting period, as the technology-
heavy market continued to struggle throughout the year on weakening demand for technology products,
including consumer electronics which had seen excess demand during the pandemic. Although a downtrend in
the global technology sector weighed heavily, expectations of a trough and hopes of a visible end in the
destocking cycle started to manifest in March 2023. South Korea has some of the most competitive and
innovative companies which span several sectors including semiconductors, electric battery, automobile and
renewable energy industries which augur well for future growth.
The Taiwanese market ended the reporting period with a loss of more than 7%. The technology-heavy and
export-oriented market experienced a lower demand for its technology exports and a fallout from the demand
shortfall in many consumer electronic industries. TEMIT's slight overweight allocation to Taiwan was largely
attributable to exposure to the island's semiconductor industry and TEMIT's largest portfolio holding, which is
in Taiwan Semiconductor Manufacturing ("TSMC"), the world's leading manufacturer of advanced chips.
India was TEMIT's fourth-largest exposure at the end of March 2023. Indian equities fell by 6% over the 12-
month period as global volatility, rising inflation and soaring energy prices diminished investor sentiment for
most of 2022. India also had a weak start to 2023 over concerns of a consumption slowdown and the impact of
the decline in the share prices of different companies in the Adani Group following a negative research report;
none of these were held in TEMIT. However, India has the ability to rely on domestic consumption and its
massive increase in infrastructure capital expenditure bodes well for further development of the economy. It has
also benefited from the diversification of global supply chains away from China alongside a pick-up in
manufacturing investments. In the long-term, the diversification of India's power sources into renewables should
eventually ease pressure from imported energy and inflation.
Equities in Brazil fell 13% over the reporting period. Brazilian equities were volatile due to political and
economic uncertainty after its presidential elections in October 2022. Former president Luiz Inacio Lula da
Silva won the election by a narrow margin, beating the incumbent president Jair Bolsonaro. In the immediate
aftermath of the election, widespread protests that lasted for more than two months plagued the country. A delay
in announcing the composition of the new cabinet also caused uncertainty. This backdrop of domestic unrest and
post-election uncertainty on future government policy hung over positive developments such as an improvement
in economic growth and softening inflation.
Investment strategy, portfolio changes and performance attribution
The following sections show how different investment factors (stocks, sectors and geographies) accounted for
TEMIT's performance over the period. We continue to emphasise our investment process that selects companies
based on their individual attributes and ability to generate risk-adjusted returns for investors, rather than taking a
high-level view of sectors, countries or geographic regions to determine our investment allocations.
Our investment style is centred on finding companies with sustainable earnings power and whose shares trade at
a discount relative to their intrinsic worth and to other investment opportunities in the market. We also pay close
attention to risks.
CORPORATE
We continue to utilise our research-based and active approach to help us to find companies which have high
standards of corporate governance, respect their shareholders and also allow us to understand the local
intricacies that may determine consumer trends and habits. Utilising our large team of analysts, we aim to
maintain close contact with the board and senior management of existing and potential investments and believe
in engaging constructively with our investee companies.
All of these factors require us to conduct detailed analyses of potential returns versus risks with a time horizon
of typically five years or more.
Our well-resourced, locally-based teams remain a key competitive advantage and it has certainly been helpful
having teams on the ground particularly in the benchmark heavyweight countries of Brazil, China and India.
This local presence allows us to understand business models, competitive dynamics and supply chain issues. We
also obtain insights into regulatory conversations and management capabilities, which are factored into our
analysis. We view our locally-based teams, which are armed with vast knowledge of the respective countries'
macroeconomic issues and views on the ground as vital sources of input into the investment process.
In the portfolio, we remain positioned in long-term themes including consumption premiumisation,
digitalisation, health care and technology. We focus on companies reflecting our philosophy of owning good
quality businesses, with long-term sustainable earnings power and share prices at a discount to intrinsic worth.
We see high levels of leverage as a risk and continue to avoid companies with weak balance sheets.
Performance attribution analysis %
Year to 31 March 2023 2022 2021 2020 2019
Net asset value total return
(a)
0.8 (17.3) 54.5 (11.2) 1.8
Expenses incurred 1.0 1.0 1.0 1.0 1.0
Gross total return
(a)
1.8 (16.3) 55.5 (10.2) 2.8
Benchmark total return
(a)
(4.5) (6.8) 42.8 (13.2) 0.1
Excess return
(a)
6.3 (9.5) 12.7 3.0 2.7
Stock selection 6.9 (10.0) 6.0 (2.1) 1.8
Sector allocation (0.4) 0.3 6.8 3.1 (0.6)
Currency (0.2) 0.2 (0.3) 1.6 1.0
Share buyback impact 0.2 0.0 0.3 0.4 1.0
Residual return
(a)
(0.2) (0.0) (0.1) - (0.5)
Total contribution 6.3 (9.5) 12.7 3.0 2.7
Source: FactSet and Franklin Templeton.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
Top 10 contributors to relative performance by security (%)
(a)
Top contributors Country Sector
Share
price
Contribution to
portfolio relative
CORPORATE
total
return
to MSCI Emerging
Markets Index
ICICI Bank India Financials 18.9 1.3
Prosus
(b)(c)
China/Hong Kong Consumer Discretionary 55.0 1.1
Brilliance China Automotive
(b)
China/Hong Kong Consumer Discretionary 78.2 0.9
Banco Santander Mexico
(b)
Mexico Financials 52.2 0.7
Daqo New Energy China/Hong Kong Information Technology 20.7 0.5
Tencent Music Entertainment China/Hong Kong Communication Services 81.1 0.5
Unilever
(b)(c)
United Kingdom Consumer Staples 25.9 0.4
Genpact
(b)(c)
United States Information Technology 14.4 0.4
LG South Korea Industrials 11.3 0.4
Petroleo Brasileiro Brazil Energy 19.0 0.4
(a)
For the period 31 March 2022 to 31 March 2023.
(b)
Security not included in the MSCI Emerging Markets Index as at 31 March 2023.
(c)
This security, listed on a stock exchange in a developed market, has significant exposure to
operations from emerging markets.
ICICI Bank, India's second largest private sector bank, gained during the period following several consistently
strong quarters of loan growth, net interest margins and non-interest income. The bank remains well positioned
with its healthy capital adequacy ratios and strong franchise.
Prosus is a leading global investment company and the largest shareholder of Tencent, a Chinese technology
company. Its share price tracked Tencent's, which ended the period higher on hopes of China's reopening,
better-than-expected third quarter results for 2022 and easing of restrictions for the Chinese internet industry.
Shares of Brilliance China Automotive, a Chinese car maker noted for its association with German luxury car
maker BMW, moved higher after trading resumed in October 2022 following a suspension of one-and-a-half
years. It also paid out a special dividend of the proceeds from a stake sale in its affiliate BMW Brilliance
Automotive, but uncertainties over further dividends weighed on the stock price in the later part of the period.
Top 10 detractors to relative performance by security (%)
(a)
Top detractors Country Sector
Share price
total return
Contribution to
portfolio relative
to MSCI
Emerging
Markets Index
NAVER South Korea Communication Services (41.0) (1.1)
Americanas
(b)
Brazil Consumer Discretionary (94.1) (0.7)
Banco Bradesco Brazil Financials (30.7) (0.5)
Samsung Electronics South Korea Information Technology (6.6) (0.4)
CORPORATE
Cognizant Technology
Solutions
(c)(d)
United States Information Technology (26.4) (0.4)
China Merchants Bank China/Hong Kong Financials (19.4) (0.3)
Naspers
(b)
South Africa Consumer Discretionary 74.0 (0.3)
PDD
(b)
China/Hong Kong Consumer Discretionary 101.5 (0.3)
China Resources Cement China/Hong Kong Materials (32.3) (0.3)
TSMC Taiwan Information Technology (8.8) (0.2)
(a)
For the period 31 March 2022 to 31 March 2023.
(b)
Security not held by TEMIT as at 31 March 2023.
(c)
Security not included in the MSCI Emerging Markets Index as at 31 March 2023.
(d)
This security, listed on a stock exchange in a developed market, has significant exposure to
operations from emerging markets.
NAVER is the leading internet search and advertising company in South Korea. The share price was negatively
impacted by slower growth in a post-COVID environment. Concerns over expansion into unprofitable new
businesses in uncertain macroeconomic conditions and weak earnings (which fell short of consensus estimates)
pressured the share price. However, we believe that NAVER is in a good position to build a thriving ecosystem
integrating search, e-commerce, payments and digital content based on its solid foundation in search and
advertising.
Americanas is a Brazilian e-commerce company and operator of convenience stores. Disappointing results for
the third quarter of 2022, news of accounting inconsistencies and the departure of its new leadership team
pressured its share price. High inflation and elevated interest rates also made for a difficult environment. We
divested our position in the stock in January 2023.
Banco Bradesco is Brazil's leading private sector bank. Weak fourth quarter results and exposure to
Americanas weighed on stock prices.
Top contributors and detractors to relative performance by sector (%)
(a)
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
Financials (7.4) 2.3
Information
Technology (7.8) (0.0)
Materials (9.5) 1.0
Consumer
Discretionary 2.2 0.8
Industrials 0.4 0.5
Consumer Staples 6.6 0.5
(a)
For the period 31 March 2022 to 31 March 2023.
CORPORATE
Favourable stock selection in the financials sector added to TEMIT's performance relative to the benchmark
index in the period of review. ICICI Bank (described above) and Banco Santander Mexico were both examples
of financial companies which aided relative returns. In addition, Banco Santander Mexico is an off-benchmark
holding, which is testament to the investment team's knowledge of local companies stemming from our
experience and on-the-ground presence. Stock selection in the materials sector also aided relative performance.
Contribution within this sector was led by South Korea-based steel product manufacturer POSCO. Stock
selection in the consumer discretionary sector was also another contributor to relative returns.
In contrast, only one sector, information technology detracted (marginally) primarily due to an overweight
allocation. Semiconductor firms TSMC and Samsung Electronics were key detractors, as they suffered from a
cyclical downturn in demand for semiconductors.
Top contributors and detractors to relative performance by country (%)
(a)
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
China/Hong Kong 1.5 2.2 Brazil (13.1) (0.4)
India (6.0) 2.1 Thailand 5.8 (0.3)
South Africa (15.0) 0.6 Turkey 63.2 (0.2)
United Arab Emirates (23.8) 0.6 Indonesia 7.5 (0.2)
United Kingdom 2.5 0.4 Pakistan
(b)
- (0.1)
(a)
For the period 31 March 2022 to 31 March 2023.
(b)
No companies included in the MSCI Emerging Markets Index in this country as at 31 March
2023.
By markets, stock selection in China, India and South Africa were key contributors. Several holdings in China
such as Brilliance China Automotive and polysilicon manufacturer Daqo New Energy helped relative returns. In
India, ICICI Bank was a key contributor to TEMIT's returns relative to the index. South Africa's contribution
was led by general merchandise retailer Massmart.
Brazil was the top detractor from relative performance. The detraction was caused by stock selection with
Americanas and Banco Bradesco leading the declines. An overweight position in Thailand was a positive
contributor to performance but this was negated by poor stock performance. A lack of exposure to Turkey also
detracted as Turkish equities rallied in 2022. Investors increased their equity allocation within the country to
hedge against inflation and a low-yield environment. Turkey has since given up some of its gains in the first
quarter of 2023.
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Largest holdings
The largest portfolio holding is in computer chip maker TSMC. After rising in 2021 on the basis of a positive
outlook for the semiconductor industry, TSMC suffered with a weakness in demand at some of its end
customers. Although its profits for 2022 were ahead of initial estimates, the slowdown in demand meant that
estimates for 2023 profit growth are much more muted. However, we are confident on the resilience of the
business model of TSMC as it continues to lead on its business model of being "everyone's foundry".
The second largest portfolio holding is in Alibaba, a Chinese e-commerce company. Most recently, Alibaba
announced an organisational revamp, resulting in a split into six units. Alibaba has seen a slowdown in growth
in the past couple of years due to increased regulations, competition and prolonged COVID-19 lockdowns. With
China's economic reopening and the industry's adjustment to the new regulatory environment, we expect growth
to resume, albeit at a slower pace. Whilst the e-commerce businesses of Alibaba should deliver steady growth,
its other businesses such as cloud, fintech, local commerce and content have significant potential. This could
either offer growth opportunities or the possibility of an improvement in profitability. We remain positive on the
strength of the e-commerce ecosystem of Alibaba and its ability to generate strong cash flows. In addition,
Alibaba's strong buyback policy is another driver of earnings growth.
Global semiconductor manufacturer Samsung Electronics was the third-largest holding in the portfolio.
Although TEMIT has reduced its holdings in the company due to a cyclical fall in earnings, we continue to
believe that Samsung Electronics will be at the forefront of the industry and will benefit from any subsequent
revival in demand.
Portfolio changes by sector
Total return in sterling
Sector
31 March
2022
market value
£m
Purchases
£m
Sales
£m
Market
movement
£m
31 March
2023
market value
£m
TEMIT
%
MSCI
Emerging
Markets
Index
%
Information
Technology 737 57 (168) (61) 565 (5.8) (7.8)
Financials 473 141 (139) (4) 471 2.3 (7.4)
Consumer
Discretionary 266 52 (43) 14 289 6.7 2.2
Communication
Services 212 46 (58) (2) 198 (1.8) (1.2)
Materials 208 25 (56) (8) 169 1.3 (9.5)
Industrials 62 51 (16) 4 101 8.6 0.4
Consumer Staples 82 14 (42) 19 73 28.8 6.6
Health Care 33 33 (2) (4) 60 (7.2) (9.5)
Energy 36 29 (1) (15) 49 18.4 2.1
Utilities - 18 (12) 3 9 45.7 (8.6)
Real Estate 16 - (6) (1) 9 (13.2) (13.2)
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Total investments 2,125 466 (543) (55) 1,993
Portfolio changes by country
Total return in sterling
Country
31 March
2022
market value
£m
Purchases
£m
Sales
£m
Market
movement
£m
31 March
2023
market value
£m
TEMIT
%
MSCI
Emerging
Markets Index
%
China/Hong Kong 605 191 (219) 39 616 9.1 1.5
South Korea 487 60 (107) (42) 398 (5.8) (8.4)
Taiwan 363 22 (32) (37) 316 (6.5) (7.1)
India 188 73 (65) 30 226 14.5 (6.0)
Brazil 210 33 (29) (59) 155 (16.6) (13.1)
Other 272 87 (91) 14 282 - -
Total investments 2,125 466 (543) (55) 1,993
Portfolio investments by fair value
As at 31 March 2023
Holding Country Sector Trading
(a)
Fair value
£'000
% of net
assets
TSMC Taiwan Information Technology NT 231,444 11.5
Alibaba
(b)
China/Hong Kong Consumer Discretionary PS 114,084 5.6
Samsung Electronics South Korea Information Technology PS 113,781 5.6
ICICI Bank India Financials PS 112,103 5.6
Tencent China/Hong Kong Communication Services PS 74,008 3.7
MediaTek Taiwan Information Technology IH 69,319 3.5
NAVER South Korea Communication Services IH 61,205 3.0
Prosus
(c)
China/Hong Kong Consumer Discretionary IH 56,774 2.8
LG South Korea Industrials PS 52,065 2.6
China Merchants Bank China/Hong Kong Financials IH 45,150 2.2
TOP 10 LARGEST
INVESTMENTS
929,933 46.1
Guangzhou Tinci Materials
Technology China/Hong Kong Materials PS 43,448 2.2
Samsung Life Insurance South Korea Financials IH 42,935 2.1
Petroleo Brasileiro
(d)
Brazil Energy IH 41,238 2.0
Itaú Unibanco
(d)(e)
Brazil Financials IH 40,867 2.0
HDFC Bank India Financials NH 38,345 1.9
Genpact
(f)
United States Information Technology PS 35,216 1.8
Banco Bradesco
(d)(e)
Brazil Financials IH 34,687 1.7
Vale Brazil Materials PS 34,589 1.7
Baidu China/Hong Kong Communication Services IH 32,193 1.6
Unilever
(f)
United Kingdom Consumer Staples PS 31,968 1.6
TOP 20 LARGEST
INVESTMENTS
1,305,419 64.7
Cognizant Technology Solutions
(f)
United States Information Technology IH 31,915 1.6
POSCO South Korea Materials PS 31,627 1.6
CORPORATE
Brilliance China Automotive China/Hong Kong Consumer Discretionary NT 29,606 1.5
Soulbrain South Korea Materials IH 28,414 1.4
Banco Santander Mexico
(e)
Mexico Financials PS 25,627 1.3
Ping An Insurance China/Hong Kong Financials IH 24,963 1.2
Techtronic Industries China/Hong Kong Industrials IH 24,812 1.2
Kasikornbank Thailand Financials NT 23,425 1.2
Uni-President China China/Hong Kong Consumer Staples IH 21,144 1.0
NetEase China/Hong Kong Communication Services IH 20,515 1.0
TOP 30 LARGEST
INVESTMENTS
1,567,467 77.7
Daqo New Energy
(e)
China/Hong Kong Information Technology PS 20,392 1.0
Gedeon Richter Hungary Health Care IH 19,603 1.0
Meituan China/Hong Kong Consumer Discretionary NH 18,962 0.9
Doosan Bobcat South Korea Industrials NH 17,977 0.9
Bajaj Holdings & Investments India Financials PS 17,872 0.9
Astra International Indonesia Consumer Discretionary PS 17,313 0.9
WuXi Biologics China/Hong Kong Health Care IH 17,250 0.9
Banco Santander Chile
(e)
Chile Financials NH 16,659 0.8
Fila South Korea Consumer Discretionary PS 15,867 0.8
Zomato India Consumer Discretionary NH 14,093 0.7
TOP 40 LARGEST
INVESTMENTS
1,743,455 86.5
Infosys Technologies India Information Technology IH 14,015 0.7
Netcare South Africa Health Care IH 12,735 0.6
One 97 Communications India Information Technology NH 12,481 0.6
China Resources Cement China/Hong Kong Materials PS 11,887 0.6
Hon Hai Precision Industry Taiwan Information Technology PS 11,824 0.6
Ping An Bank China/Hong Kong Financials PS 10,588 0.5
Beijing Oriental Yuhong
Waterproof Technology
China/Hong Kong Materials NH 10,262 0.5
Tata Consultancy Services India Information Technology PS 10,201 0.5
H&H Group China/Hong Kong Consumer Staples IH 10,150 0.5
LegoChem Biosciences South Korea Health Care IH 9,885 0.5
TOP 50 LARGEST
INVESTMENTS
1,857,483 92.1
Samsung SDI South Korea Information Technology NH 9,627 0.5
Intercorp Financial Services Peru Financials IH 9,501 0.5
Emirates Central Cooling Systems United Arab Emirates Utilities NH 9,416 0.5
LG Chem South Korea Materials PS 9,012 0.5
Thai Beverage Thailand Consumer Staples IH 8,680 0.4
Kiatnakin Phatra Bank Thailand Financials NT 8,279 0.4
Star Petroleum Refining Thailand Energy NH 8,251 0.4
Tencent Music Entertainment
(e)
China/Hong Kong Communication Services PS 8,107 0.4
BDO Unibank Philippines Financials NT 7,931 0.4
PB Fintech India Financials NH 6,930 0.3
TOP 60 LARGEST
INVESTMENTS
1,943,217 96.4
NagaCorp Cambodia Consumer Discretionary PS 6,819 0.3
COSCO SHIPPING Ports China/Hong Kong Industrials IH 5,961 0.3
China Resources Land
China/Hong Kong
Real Estate PS 5,033 0.2
Nemak Mexico Consumer Discretionary PS 4,689 0.2
Greentown Service Group China/Hong Kong Real Estate PS 4,070 0.2
Yageo Taiwan Information Technology NH 3,730 0.2
Hankook Tire South Korea Consumer Discretionary NT 3,292 0.2
MCB Bank Pakistan Financials PS 2,807 0.1
XP Inc Brazil Financials NT 2,473 0.1
Weifu High-Technology China/Hong Kong Consumer Discretionary NT 2,410 0.1
TOP 70 LARGEST
INVESTMENTS
1,984,501 98.3
BAIC Motor China/Hong Kong Consumer Discretionary NT 2,152 0.1
KT Skylife South Korea Communication Services NT 2,114 0.1
CORPORATE
JD.com China/Hong Kong Consumer Discretionary NT 2,042 0.1
TOTVS Brazil Information Technology PS 817 0.1
East African Breweries Kenya Consumer Staples PS 801 0.1
Chervon Holdings China/Hong Kong Consumer Discretionary PS 348 -
Yandex
(g)
Russia Communication Services NT - -
LUKOIL
(g)
Russia Energy NT - -
Sberbank of Russia
(g)
Russia Financials NT - -
TOTAL INVESTMENTS
1,992,775 98.8
NET ASSETS
24,728 1.2
TOTAL NET ASSETS
2,017,503 100.0
(a)
Trading activity during the year: (NH) New Holdings, (IH) Increased Holdings, (PS) Partial Sale
and (NT) No Trading.
(b)
TEMIT holds in this company shares listed on the Hong Kong stock exchange and American
Depository Receipts listed on the New York stock exchange.
(c)
This company is listed in the Netherlands. The classification of China/Hong Kong is due to most
of its revenue coming from its holding in Tencent.
(d)
Preferred shareholders are entitled to dividends before ordinary shareholders.
(e)
US listed American Depository Receipt.
(f)
This company, listed on a stock exchange in a developed market, has significant exposure to
operations from emerging markets.
(g)
This company is fair valued at zero as a result of its trading being suspended on international stock
exchanges.
Portfolio summary
As at 31 March 2023
All figures are a % of the net assets
Comm
unicati
on
Service
s
Consu
mer
Discre
tionar
y
Con
sum
er
Stap
les
E
ne
rg
y
Fina
ncia
ls
H
ea
lt
h
C
ar
e
Indu
stria
ls
Infor
mati
on
Tech
nolog
y
Mat
eria
ls
R
ea
l
E
st
at
e
Uti
liti
es
To
tal
Eq
uit
ies
Net
asset
s/
(liabi
lities)
(a)
31
M
ar
ch
20
23
T
ot
al
31
M
ar
ch
20
22
T
ot
al
Brazil - - - 2.0 3.8 - - 0.1 1.7 - - 7.6 - 7.6 10.0
Cambodia - 0.3 - - - - - - - - - 0.3 - 0.3 0.4
Chile - - - - 0.8 - - - - - - 0.8 - 0.8 -
China/Ho
ng Kong 6.7 11.1 1.5 - 3.9 0.9 1.5 1.0 3.3 0.4 - 30.3 - 30.3 28.8
Egypt - - - - - - - - - - - - - - 0.1
CORPORATE
Germany - - - - - - - - - - - - - - 0.1
Hungary - - - - - 1.0 - - - - - 1.0 - 1.0 0.7
India - 0.7 - - 8.7 - - 1.8 - - - 11.2 - 11.2 9.1
Indonesia - 0.9 - - - - - - - - - 0.9 - 0.9 0.9
Kenya - - 0.1 - - - - - - - - 0.1 - 0.1 0.2
Mexico - 0.2 - - 1.3 - - - - - - 1.5 - 1.5 1.6
Pakistan - - - - 0.1 - - - - - - 0.1 - 0.1 0.4
Peru - - - - 0.5 - - - - - - 0.5 - 0.5 0.5
Philippine
s - - - - 0.4 - - - - - - 0.4 - 0.4 0.3
Russia
(b)
0.0 - - 0.0 0.0 - - - - - - 0.0 - 0.0 0.0
South
Africa - - - - - 0.6 - - - - - 0.6 - 0.6 0.6
South
Korea 3.1 1.0 - - 2.1 0.5 3.5 6.1 3.5 - - 19.8 - 19.8 23.2
Taiwan - - - - - - - 15.8 - - - 15.8 - 15.8 17.3
Thailand - - 0.4 0.4 1.6 - - - - - - 2.4 - 2.4 2.1
United
Arab
Emirates - - - - - - - - - - 0.5 0.5 - 0.5 -
United
Kingdom - - 1.6 - - - - - - - - 1.6 - 1.6 1.4
United
States - - - - - - - 3.4 - - - 3.4 - 3.4 3.4
Net
assets/(lia
bilities)
(a)
- - - - - - - - - - - - 1.2 1.2 (1.1)
31 March
2023
Total 9.8 14.2 3.6 2.4 23.2 3.0 5.0 28.2 8.5 0.4 0.5 98.8 1.2 100.0 -
31 March
2022
Total 10.2 12.7 3.8 1.7 22.6 1.5 2.9 35.1 9.9 0.7 - 101.1 (1.1) - 100.0
(a)
The Company's net assets/(liabilities) are the total of net current assets plus non-current liabilities
per the Statement of Financial Position in the full Annual Report.
(b)
All companies held by TEMIT in this country are valued at zero.
Market capitalisation breakdown
(%)
Less than
£1.5bn
£1.5bn to
£5bn
£5bn to
£25bn
Greater than
£25bn
Net assets/
(liabilities)
(a)
31 March 2023 5.1 11.2 22.9 59.6 1.2
31 March 2022 7.7 8.0 16.5 68.9 (1.1)
Split between markets
(b)
(%)
31 March
2023
31 March
2022
Emerging markets
93.3 95.6
Developed markets
(c)
5.0 4.9
Frontier markets
0.5 0.6
Net assets/(liabilities)
(a)
1.2 (1.1)
Source: FactSet Research System, Inc.
(a)
The Company's net assets/(liabilities) are the total of net current assets plus non-current liabilities
per the Statement of Financial Position in the full Annual Report.
CORPORATE
(b)
Geographic split between "Emerging markets", "Frontier markets", "Developed markets" are as
per MSCI index classifications.
(c)
Developed market exposure represented by companies listed in United Kingdom and United States
which have significant exposure to operations in emerging markets.
Outlook for emerging markets
Heading into 2023, while we remain watchful for developments that could change our overall outlook, including
China's relationship with Taiwan and the United States, we find many reasons to be positive about EMs. Many
countries are towards the end of the rate tightening cycle. Most markets in Latin America have traditionally had
a significant real interest rate and their economic potential has been curtailed because of the need for
macroeconomic stability.
We expect any policy pivot in EMs to revive consumption and spur economic growth as inflation slows. In
addition, after a slowdown in earnings in 2022, there is the prospect of a recovery in earnings growth in 2023,
with China being the last major country to emerge from the pandemic. However, in the short-term, earnings are
likely to remain weak with subdued consumption and inventory digestion and a recovery is expected more
towards the second half of 2023. A pickup in earnings revisions in EMs would signify better times ahead for
equity markets.
Although the current global outlook remains weak, economies with a greater focus on domestic demand are
better placed to weather this in the near term. Many emerging markets such as China, India, Indonesia and
Brazil have huge domestic consumption bases and are well-positioned to remain resilient from external demand
shortfalls. In addition, policy makers in several markets are providing incentives to manufacturing companies to
expand operations in order to remain self-sufficient and competitive. For example, India is driving investments
through its Production Linked Incentive program. South Korea plans to offer tax breaks to semiconductor and
other technology companies investing within the country whilst reforming stock market regulations. Thailand
has also approved a budget to boost tourism in the country, one of its biggest growth drivers.
The long-term structural tailwind of consumption growth in EMs via expansion of the middle class and
premiumisation of buying patterns is now more significant than ever. Some US$2.6 trillion in Chinese bank
deposits were amassed in 2022
(a)
and middle-class households are looking to spend on experiences, products and
services. In our view, China's reopening could benefit many markets as the country has strong trade links with
many EMs. Chinese tourism has also been a vital source of revenue for many countries.
(a)
Source: People's Bank of China
After the removal of most COVID-related constraints, we have seen economic activity in China starting to
recover in the first quarter of 2023, where retail sales, industrial production and investment in fixed assets
increased. More importantly, companies are now able to operate their businesses without COVID protocols
which removes the pressure of unplanned outages and improves overall efficiency.
CORPORATE
Markets in Eastern Europe will benefit from the normalisation of energy dislocations, although the conflict in
Ukraine will continue to be an overhang. Markets in the Middle East continue to see a boom in initial public
offering activity which bodes well for future capital market developments in the region.
These uncorrelated drivers of returns in EM economies present an investment opportunity which our team's
deep experience, local expertise and a bottom-up investment approach can uncover.
EMs also continue to make strides towards climate goals and with the cost of renewable energy expected to fall
in 2023, we might well see EMs make further climate commitments.
It is an interesting time to be looking at the emerging world today. We believe that the breadth of opportunity,
growth, innovation, sustainability of business models and the much stronger institutional resilience compared to
decades past when considered together create an attractive future for EMs.
Chetan Sehgal
Lead Portfolio Manager
9 June 2023
The Investment Manager's Process
Investment philosophy and approach
FTEME's long-term approach is driven by the 3 S's, seeking Structural growth opportunities in emerging
markets, investing in businesses with Sustainable earnings power at a discount to intrinsic worth, and believing
in responsible Stewardship of client capital. FTEME seeks to capture the growth potential of emerging market
companies and believes that this is best achieved by employing a bottom-up and fundamental security selection
process. FTEME conducts in-depth proprietary company research with a long-term and independent
perspective. FTEME believes in the responsible stewardship of clients' capital and that governance and
sustainability factors create risks and opportunities for companies. ESG analysis is therefore integrated
alongside fundamental bottom-up analysis.
TEMIT's performance in different market environments
FTEME's approach aims for outperformance over the long term. The investment strategy tends to produce
stronger performance when company fundamentals are the primary driver for stock returns, where a focus on
stock selection should produce superior results. Performance may be less strong in highly sentiment-driven
CORPORATE
market environments, when investors focus more on the overall economic picture rather than company
fundamentals. This can also be the case when the market is overly short-term oriented, and rewards companies
driven by what FTEME views as unsustainable factors such as short-term demand/supply imbalances or
inorganic growth.
Investment process
The three broad stages of FTEME's investment process comprise: idea generation, stock research, and portfolio
construction and management; with governance and sustainability considerations and risk management fully
integrated at all stages.
1. Idea generation
The key source of idea generation is FTEME's team of over 70 analysts and portfolio managers located around
the globe. Their experience and expertise allow them to identify trends which they may want to explore further
through company research. In addition, FTEME's local presence, network and understanding of local dynamics
may help to identify trends and opportunities that other market participants may filter out through standard
quantitative screens. FTEME analysts speak the local language and are part of the local culture and fabric of the
countries where they conduct research.
2. Stock research
FTEME analysts conduct rigorous analysis to assess whether a company has sustainable earnings power, and to
establish a proprietary estimate of its intrinsic worth. By integrating ESG analysis with traditional business and
financial analysis, FTEME seeks to gain insights into the quality and risks of companies. FTEME's research
platform currently has coverage of over 700 companies across emerging markets using a proprietary and
rigorous bottom-up research approach, along with extensive knowledge of the wider investment universe.
FTEME's research analysts form detailed views of companies by collecting and analysing a variety of
information. The team conducts detailed quantitative financial analysis by building in-depth company models to
evaluate financial strength and profitability, and to project future earnings and cash flow. Industry demand and
supply models are incorporated in the analysis, as well as country and currency macro considerations. FTEME
has a strong emphasis on qualitative assessment.
The assessment of ability to sustain stable or growing economic profits over time is typically driven by a
combination of factors, including (i) sound business models; (ii) sustainable competitive advantages; (iii)
management foresight; and (iv) low debt levels. Earnings power is the demonstrable ability to generate
sustainable economic profit into the future in areas which could be beyond the current scope of operations. The
analysts look for real earnings growth by focusing on economic earnings and cash flows rather than reported
earnings, and differentiating between operational earnings and financial earnings. They evaluate internal versus
external drivers to earnings and prefer companies with earnings which can be affected through management
CORPORATE
action. A key element of earnings power is therefore quality, as signified by (i) products and services with low
regulatory and macro risk; (ii) financial strength; and (iii) management strength.
Each research recommendation may incorporate several valuation methods extending typically over a three to
five-year horizon. FTEME aims to clarify the risk/reward balance of a company by conducting sensitivity
analysis, stress-testing, and scenario analysis. It seeks to identify what the market consensus expectations are for
a stock and how the team's fundamental views may differ.
3. Portfolio construction
FTEME seeks to build a high-conviction stock-centric portfolio that is primarily driven by company-specific
factors and focused on the long term. A bottom-up approach to stock selection is used, with country and sector
allocations a residual of this process.
Portfolio Style and Characteristics
The strategy typically displays the following characteristics:
• Core style: The strategy aims to deliver outperformance irrespective of market direction. The
portfolio construction process leads to the majority of active risk being focused.
• Quality and growth but not at excessive valuation levels: The philosophy typically leads to a
portfolio with higher quality and growth than the aggregate of the benchmark index.
• High conviction portfolio: The top-10 holdings typically account for over 40% of the portfolio
which overall is well-diversified across the market cap spectrum.
• Low turnover: FTEME's high conviction and long-term approach means that the typical annual
portfolio turnover is less than 20%.
Buy and Sell Discipline
FTEME's buy discipline is primarily designed to ensure that the portfolio managers buy when they have both
conviction in a business and it is trading below its intrinsic value; FTEME's sell discipline is designed to capture
the opposite. All holdings are regularly reviewed to ensure that analyst recommendations are up to date and
accurately reflect any changes in company fundamentals. In this way, ongoing fundamental research drives all
buy and sell decisions.
CORPORATE
Investment risk management
Investment in emerging markets equities inevitably involves risk in a volatile asset class. Franklin Templeton
uses a comprehensive approach to managing risks within its managed portfolios and this approach is inherent in
all aspects of the investment process. Investment risks are to be identified and intentional, not minimised. Risk
management is embedded through all stages of the investment process, in collaboration with dedicated resources
from Franklin Templeton's Investment Risk Management Group of over 80 risk management professionals,
which is independent from the portfolio management team. Various risk management tools are used to predict
and decompose the portfolio's active risk in order to understand and manage the portfolio's active risk profile.
For additional information with respect to the AIFM risk management framework, please read the
Investor Disclosure Document on our website (www.temit.co.uk).
FTEME's approach to stewardship
FTEME's focus is on a total sustainability approach including business, economic, environmental and social
sustainability. How FTEME monitors and manages client assets is not just about focusing on governance and
sustainability factors. It demands a holistic approach incorporating proactive long-term engagement with the
managers of the companies which FTEME invests in, on behalf of TEMIT and its other clients.
Part of being a responsible steward of clients' assets is acknowledging that governance and sustainability factors
create risks and opportunities for companies. It therefore makes sense to integrate these factors alongside
fundamental bottom-up analysis and engage with companies as active owners on behalf of clients. Responsible
stewardship is not a single act but a continuous process that includes engagement and voting. Being responsible
stewards of our clients' capital is reflected in:
How we act as investors
- 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
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• 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 the full
Stewardship Report to give TEMIT shareholders a snapshot
of the typical analysis undertaken.
Soulbrain - a prominent South Korean player in the
electronic materials and chemicals industry.
ESG Topic: Environmental Footprint
Materiality and Risk: Companies operating in the materials
processing sector have the potential to cause significant
environmental damage if they are not managed properly.
The reliability of service and safe operation of company
assets is key.
Analysis:
To minimise leaks of hazardous materials in the event of
disasters such as fires, earthquakes, or floods, measures
such as explosion-proofing equipment, negative pressure
equipment, and ventilation have been implemented to
standards exceeding those required by South Korea's
Ministry of Environment.
Wastewater and sewage from plants are pooled in
collecting wells and processed at an on-site treatment
facility operated by the government. Soulbrain not only
complies with legal water quality standards, but also treats
water pollutants as much as possible and sends the
remaining wastewater for further treatment at an industrial
complex that is operated by the government.
ESG Thesis: As a chemical product manufacturer,
Soulbrain focuses on the management of environmental
issues, whilst also contributing to nearby communities. The
company has expressed active commitment to the
protection of the environment through the establishment of
its own Environmental Health, Safety and Energy
Management Policy. We note that the company has been
exposed to fires in the past. Post these incidents the
company has implemented an Emergency Response System
and other prevention measures such as regular monthly
prevention exercises. The CEO has since been replaced
with one who is specialised in health and safety of factory
operations. With some history of disruption and
environmental impact in the past, we have applied a
discount to our valuation but are confident in the new
management's ability to manage future fire risk in its
operations.
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Climate change
Within emerging markets, the landscape varies considerably, ranging from countries that have announced
meaningful carbon targets to those that have yet to declare any significant policies. FTEME's objective is to
understand the climate commitments of investee companies incorporating both local and global perspectives,
recognising that the pace of decarbonisation and the associated strategies will differ across countries and
cultures.
Where material, FTEME integrates climate change/carbon analysis into its bottom-up research process, focusing
on assessing the impact on long-term business values. This is part of the holistic approach of integrating ESG
analysis with traditional financial analysis so that FTEME can gain valuable insights into the quality and risks of
businesses which FTEME invests in.
FTEME's analysts and portfolio managers look at climate risks and opportunities closely for relevant sectors and
geographies where climate change plays an important role. FTEME closely tracks climate related factors into
estimates, models and valuations for those businesses materially exposed to the issue.
Our portfolio managers also seek to understand the carbon risk profile at a portfolio level to understand its
carbon risk exposures. The data helps with the engagement agenda.
TEMIT's portfolio carbon risk is concentrated amongst a small number of companies, with the top 5 companies
in terms of carbon intensity representing 7.2% of the portfolio and accounting for 69.0% of the portfolio WACI.
From a sector perspective, 48.2% of the portfolio WACI contributions come from the materials sector. On a
relative basis, portfolio selection in materials contributes positively, whilst the utilities sector also contributes
positively to WACI, as TEMIT is underweight in this sector. China Resources Cement and LG, exhibit the
largest carbon intensities in TEMIT's portfolio, representing 3.2% of the portfolio and accounting for 48.8% of
the portfolio WACI. TSMC's carbon intensity is low, however due to it representing 11.6% of the portfolio, it is
third in terms of contribution to the portfolio WACI.
We emphasise that the data does not always fully represent the actual carbon risk of the portfolio.
We remain willing to invest in companies in carbon-intensive sectors, such as cement, steel and extractive
industries. This is because we are pragmatic investors who understand that not every company can have a
perfect sustainability profile today.
In the full Stewardship Report, available on our website (www.temit.co.uk), we spotlight and focus this year on
the steel industry. The transition to a low-carbon economy will require a change in the way we manufacture
steel. Accounting for nearly 8% of global emissions from the energy sector, the steel industry will play an
important role in mitigating climate change by reducing the CO2 emissions in the production process.
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As investors in the steel industry in TEMIT, we profile our observations with POSCO, one of the largest steel
producers in the world, headquartered in South Korea.
POSCO
ESG observations and analysis:
• POSCO is one of the most efficient and cost competitive steel makers globally, but it has recognised that
the "survival" of steel companies depends on net-zero carbon.
• In order to achieve their net-zero by 2050 target, the company plans to optimise low-carbon solutions
that are already in use such as hydrogen reduction steelmaking, expansion of renewable energy and
carbon capture and storage.
• POSCO has a clear timeline in place for the commercialisation of their hydrogen reduction steelmaking
technology. Clear progress has been made over recent years, but the technology in its current state is not
sufficient to enable fast enough progress for low-carbon steelmaking.
Our thesis:
POSCO is a market leader in terms of ESG disclosures and efforts to move towards net-zero steel production.
We acknowledge the significant steps that POSCO's management has undertaken to improve the company's
environmental initiatives with the implementation of clear disclosures, documentation, and establishment of
timelines.
There are several steps that the company will have to take to fully utilise its hydrogen-reduction technology.
POSCO is supported by a strong financial position and has committed a substantial capital investment, which
has been factored into our valuation.
Active ownership
As investors with a significant presence in emerging markets, FTEME's active ownership efforts are a key part
of the overall approach to stewardship. FTEME analysts conduct almost 2,000 company meetings a year across
the investment platform using its industry-leading research footprint across emerging markets, where FTEME
seek to gain a number of fundamental and sustainability insights. We believe that our engagement efforts are
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key to developing a detailed understanding of companies and improving outcomes for shareholders as well as
stakeholders more broadly.
Engagement statistics
FTEME's analysts are in a continual dialogue with companies on a range of topics including sustainability and
governance. There are also companies that FTEME identify where dedicated discussion on ESG topics are
necessary. Active engagements with companies in the TEMIT portfolio for the year ended 31 March 2023 are
summarised below:
ESG discussion by engagement type
Number of
interactions
% of
interactions
Environmental 12 34
Carbon risk and climate change 6 17
Environmental consideration 6 17
Social 4 11
Human and social capital 4 11
Governance 20 55
Corporate governance 14 39
Strategic risk and communication 6 16
Total 36 100
ESG discussion outcome
Number of
interactions
% of
interactions
No progress 1 3
Feedback noted by company 17 47
Company plans to make changes 7 19
Company has made changes 11 31
Total 36 100
Below is an ESG engagement example with an investee company headquartered in South Korea.
KT Skylife
ESG engagement topic: Governance - to recommend a more transparent and attractive payout policy.
Objectives:
• Pay-tv is a mature market in South Korea and the business generates significant cash. Thus, we continue
to engage with the company on their shareholder return policy, encouraging management to align its
policy with minority shareholder interests.
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Outcome: Company plans to make changes
• We engaged with the management to highlight that, despite previous engagements, KT Skylife's
dividend distribution remained low despite cash levels matching the company's market capitalisation at
one point in time.
• We also noted that in 2021, the company acquired a cable TV operator, a low growth business, at a
valuation that was at a significant premium to its own valuation. However, we believed that a share
buyback would have added more value than the acquisition.
• The company responded with confirmation that they would actively consider a new dividend policy, and
that while share buybacks may be considered, they preferred to prioritise strengthening their dividend
payout.
• Management confirmed that, once finalised, they would share the company's strategy and vision for the
year ahead with us.
Proxy voting
In the year ended 31 March 2023, FTEME voted on over 900 management proposals at annual and special
general meetings for TEMIT.
Most of the proposals which FTEME voted on related to companies' director appointments, routine business
proposals and capital structures. Of the voteable management proposals, FTEME voted "For" proposals 84% of
the time.
FTEME voted "Against" management proposals in 13% of cases. By proposal category, as a percentage of votes
within each category, votes against were largely concentrated on capital structure, non-salary compensation and
management-related proposals.
FTEME views votes against proposals as a formal way to communicate our views to management, and FTEME
undertakes them based on the investment team's assessment of each motion in line with clients' best interests.
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"Other" votes were cast in 3% of cases. These were mainly related to director votes in Brazil, where FTEME
abstained from voting when they did not support the candidates put forward for election, or where the company
bundled several proposals into one, preventing voting on individual items.
The number of resolutions proposed by shareholders is increasing around the world, particularly on
environmental and social issues, although they remain relatively uncommon in emerging markets. FTEME will
continue to closely examine the merits of views raised by fellow shareholders.
We encourage you to download the full TEMIT Stewardship Report from www.temit.co.uk for further, detailed
information.
Business Review
Strategy and Business Model
Company purpose and objective
TEMIT's purpose is to provide both private and institutional investors with the opportunity for capital
appreciation via a professionally managed vehicle focused on listed equity investments in emerging markets.
The objective of TEMIT is to provide long-term capital appreciation via exposure to global emerging markets,
supported by a culture of both strong customer service and corporate governance.
Investment policy
The Company seeks long-term capital appreciation through investment in companies listed in emerging markets
or companies which earn a significant amount of their revenues in emerging markets but are domiciled in, or
listed on, stock exchanges in developed countries ("Emerging Markets Companies").
It is expected that the majority of investments will be in listed equities. However, up to 10% of the Company's
assets may be invested in unlisted securities. In addition, while it is intended that the Company will normally
invest in equity instruments, the Investment Manager may invest in equity-related investments (such as
convertibles or derivatives) where it believes that it is advantageous to do so.
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The portfolio may frequently be overweight or underweight in certain investments compared with the MSCI
Emerging Markets Index (the "Benchmark") and may be concentrated in a more limited number of sectors or
geographical areas than the Benchmark. Investments may be made in Emerging Markets Companies outside the
Benchmark that meet the investment criteria.
Whilst there are no specific restrictions on investment in any one sector or geographic area, the portfolio will be
managed in a way which aims to spread investment risk. The portfolio will typically contain between 50 and
100 individual stocks but may, at times, contain fewer or more than this range. No more than 12% of the
Company's assets will be invested in the securities of any one issuer at the time of investment, save that any
investment in unlisted securities of any one issuer will be limited to no more than 2% of the Company's assets,
measured at the time of investment.
The maximum borrowing will be limited to 20% of the Company's net assets, measured at the time of
borrowing.
No more than 10%, in aggregate, of the value of the Company's assets will be invested in other listed closed-
ended investment funds.
In accordance with the Listing Rules, the Company will not make any material change to its published
investment policy without the prior approval of the UK's Financial Conduct Authority ("FCA") and the approval
of its shareholders by ordinary resolution.
Distribution policy
The Company will ensure that its total annual dividends will be paid out of the profits available for distribution
under the provisions of the relevant laws and regulations and will be at least sufficient to enable it to qualify as
an investment trust under the UK Income and Corporation Taxes Act. If the Company has received an
exceptional level of income in any accounting year, the Board may elect to pay a special dividend. The primary
focus of the investment policy is on generating capital returns, the Company does not target a particular level of
income and there is no guarantee that dividend levels will be maintained from one year to the next.
The Company will normally pay two dividends per year, an interim dividend declared at the time when the half
yearly results are announced, and a final dividend declared at the time when the annual results are announced.
The final dividend will be subject to shareholder approval at the AGM each year.
The Company may also distribute capital by means of share buybacks when the Board believes that it is in the
best interests of shareholders to do so. The share buyback programme will be subject to shareholder approval at
each AGM.
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Business model
The Company has no employees and all of its Directors are non-executive. The Company delegates its day-to-
day activities to third parties.
Since 1 October 2021, Franklin Templeton Investment Trust Management Limited ("FTITML", "AIFM" or the
"Manager") has been the Company's AIFM and Company Secretary.
The Board is responsible for all aspects of the Company's affairs, including the setting of parameters for the
monitoring of the investment strategy and the review of investment performance and policy. It also has
responsibility for overseeing all strategic policy issues, namely dividend, gearing, share issuance and buybacks,
share price and discount/premium monitoring, corporate governance matters and engagement with all the
Company's stakeholders.
Strategy
The Company seeks to achieve its objective by following a strategy focused on the following:
Performance
At the heart of the strategy is the appointment and retention of capable investment management professionals,
whose aim is to identify value and achieve superior long-term growth for shareholders. The Investment
Manager, under the leadership of Chetan Sehgal, continues to apply the same core investment philosophy that
has driven TEMIT's performance since the Company's launch. The investment team aims to achieve long-term
capital appreciation for shareholders seeking exposure to global emerging markets by investing in companies
that they believe offer long-term sustainable growth and good value, combined with strong management and
sound governance.
Environmental, Social and Governance ("ESG") matters
As TEMIT is an investment trust, the key ESG consideration is the stewardship of its portfolio of investments.
The Board has reviewed and fully supports the Investment Manager's approach to stewardship, which is
described under "FTEME's approach to stewardship" in the full Annual Report. It receives regular reports on
Franklin Templeton's policies and controls.
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TEMIT has no greenhouse gas emissions to report from the operations of the Company, as all of its activities are
outsourced to third parties. While as an investment trust TEMIT is exempt from disclosures recommended by
the Task Force on Climate-related Financial Disclosures ("TCFD"), Franklin Templeton continues to develop
metrics for our carbon footprint. Further information on our approach to climate change can be found under
"FTEME's approach to stewardship" above and in more detail in the full Stewardship Report, available on our
website (www.temit.co.uk).
TEMIT has no employees and is not an organisation that provides goods or services as defined in the Modern
Slavery Act 2015 and thus the Company considers that the Act does not apply. The Company's own supply
chain consists predominantly of professional services advisers.
Culture and values
The Board believes in a culture of openness and constructive challenge in its interactions with the Manager and
other service providers. The Board aims to maintain open and regular communication with shareholders, as set
out under Communication in the full Annual Report.
The Company is committed to acting professionally, fairly and with integrity in all of its business dealings and
relationships. The Board has a zero-tolerance policy towards bribery and looks to ensure that its service
providers and associated persons have effective policies and procedures designed to actively prevent bribery
which are proportionate, and risk based. In relation to the corporate offence of failing to prevent tax evasion, it
is the Company's policy to conduct all business in an honest and ethical manner. The Company takes a zero-
tolerance approach to any facilitation of tax evasion whether under UK law or under the law of any foreign
country. The Board notes that the Manager has a robust whistleblowing policy in place.
Information on the Company's approach to Diversity is set out in the Directors' Report in the full Annual Report.
Liquidity
The shares issued by the Company are traded on the London and New Zealand stock exchanges. The Company
has engaged Winterflood Securities as financial adviser and stockbroker, and to act as a market maker in the
shares of the Company.
Gearing
Fixed term loan
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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. The fixed term loan is denominated in pounds sterling and will remain in place until 31
January 2025. Full details of the loan are set out in Note 11 of the Notes to the Financial Statements.
Revolving credit facility
On 31 January 2020, the Company entered into a three-year £120 million unsecured multi-currency revolving
loan facility with The Bank of Nova Scotia, London Branch. Drawings may be in sterling, US dollars or Chinese
renminbi ("CNH"). The total amount which may be drawn down in CNH is 45% of the combined limit of the
fixed rate loan and of the revolving loan facility. On 31 January 2023 the agreement was amended to extend the
maturity date to 30 January 2024. Further details of the facility are set out in Note 10 of the Notes to the
Financial Statements.
The Investment Manager has been granted discretion by the Board to draw down the revolving loan facility as
investment opportunities arise, subject to overall supervision by the Board, and subject to the overall gearing
limit in TEMIT's investment policy.
The Company has no other debt. The net gearing position was 0.0% (net of cash in the portfolio) at the year-end
(2022: 1.1%) which means that the cash held by the Company is equal to or higher than the total bank loans.
The Board continues to monitor the level of gearing and currently considers gearing of up to 20% to be
appropriate, measured at the time of borrowing.
Affirmation of shareholder mandate
In accordance with the Company's Articles of Association, the Board must seek shareholders' approval every
five years for TEMIT to continue as an investment trust. This allows shareholders the opportunity to decide on
the long-term future of the Company. The last continuation vote took place at the 2019 AGM, when 99.95% of
the votes cast were registered as votes in favour. The next continuation vote will take place at the 2024 AGM.
Stability - Share buybacks and Conditional Tender Offer
The Company has powers to buy back its shares as a discount control mechanism and when this is in the best
interests of the Company's shareholders and in 2019 introduced a Conditional Tender Offer. The share price
discount to net asset value is discussed under Key Performance Indicators in the full Annual Report.
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Under the Conditional Tender Offer, if over the five-year period from 31 March 2019 to 31 March 2024 the
Company's net asset value total return fails to exceed the benchmark total return, the Board will put forward
proposals to shareholders to undertake a tender offer for up to 25 per cent of the issued share capital of the
Company, at the discretion of the Board. Any such tender offer will be at a price equal to the then prevailing net
asset value less two per cent (and less the costs of the tender offer). There will be no tender offer if the
Company's net asset value total return exceeds the benchmark total return (MSCI Emerging Markets Index) over
the five-year period. Any tender offer would take place following the Company's 2024 AGM and will also be
conditional on shareholders approving the continuation vote in 2024 which is described under "Affirmation of
shareholder mandate" above.
A key point in the Investment Manager's mandate is to take a long-term view of investments and one of the
advantages of a closed-end fund is that the portfolio structure is not disrupted by large inflows or outflows of
cash. However, the Board and the Investment Manager recognise that the returns experienced by shareholders
are in the form of movements in the share price, which are not directly linked to NAV movements, and the
shares may trade at varying discounts or premiums to NAV. Many shareholders, both professional and private
investors, have expressed a view that a high level of volatility in the discount is undesirable and that the
Company should continue its active share buyback programme. A less volatile discount, and hence share price,
is seen as important to investors. For this reason, TEMIT uses share buybacks selectively with the intention of
limiting volatility in the share price and where buybacks are in the best interests of shareholders. Details of the
share buybacks are included in the following table. All shares bought back in the year were cancelled, with none
being placed in treasury. As at 31 March 2023, the Company held 103,825,895 shares in treasury (2022:
103,825,895 shares in treasury).
2023 2022
Shares bought back and cancelled during the year 19,758,613 2,331,670
Proportion of share capital bought back and cancelled 1.7% 0.2%
Total cost of share buybacks £29.2m £3.6m
The benefit to NAV £4.6m £0.5m
The percentage benefit to NAV 0.23% 0.03%
Discount management is reviewed regularly by the Board to ensure that it remains effective in the light of
prevailing market conditions. The Conditional Tender Offer will not affect the Board's current approach to
discount management. The Board will continue to exercise the Company's right to buy back shares when it
believes this to be in shareholders' interests and with the aim of reducing volatility in the discount.
Communication
The Board works to ensure that investors are informed regularly about the performance of TEMIT and of
emerging markets through clear communication and updates. The Board is fully committed to TEMIT's
marketing programme. There is a substantial annual marketing and communication budget, and expenditure by
TEMIT is matched by a contribution to costs from the Manager.
TEMIT won the prestigious Best Campaign Award at the AIC Shareholder Awards 2022 in recognition of the
quality of the "Your future is emerging" campaign undertaken to attract new shareholders. The innovative use of
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broadcast media has helped to increase TEMIT's profile, advertise the benefits of the Company and
communicate the growth story of emerging markets to a wider audience.
A new corporate identity was launched in January 2022 providing TEMIT with a unique brand for the first time.
TEMIT seeks to keep shareholders updated on performance and investment strategy through its regular annual
and half yearly reports, along with monthly factsheets and commentaries. These are available on the TEMIT
website (www.temit.co.uk) which also contains portfolio holdings information, updates from the Investment
Manager and other important documents that will help shareholders to understand how their investment is
managed. We also communicate via @TEMIT on Twitter and continue to develop the Company's presence
across social media platforms. The Board encourages registration to our monthly email that keeps subscribers
appraised of the latest performance, insights and announcements.
TEMIT has an active public relations programme. Our Investment Manager provides comments to journalists,
hosts media briefings and publishes articles on issues relevant to investing in emerging markets.
The Investment Manager meets regularly with professional investors and analysts and hosts interactive
webinars. At each AGM the Investment Manager makes a presentation with the opportunity for all shareholders
to ask questions.
The Chairman regularly meets major shareholders to discuss investment performance and developments in
corporate governance. We try to engage with a wide spectrum of our shareholders and aim to address their
concerns as far as practically possible. Shareholders are welcome to contact the Chairman or the Senior
Independent Director at any time via temitcosec@franklintempleton.com.
Section 172 Report - Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain how they have
discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their
companies for the benefit of "members as a whole" and having regard for all stakeholders.
Section 172 Matter Board's Statement
The likely consequences of any decision in the long
term.
The Board is focused on promoting the long-term
success of the Company and regularly reviews the
Company's long-term strategic objectives, including
consideration of the impact of the Investment
Manager's actions on the marketability and reputation
of the Company and the likely impact on the
Company's stakeholders of the Company's strategy.
The interests of the Company's employees.
The Company has no direct employees.
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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 important and non-routine matters were considered at Board meetings
during the year:
• Recruitment of Abigail Rotheroe as a non-executive Director;
• Changes to the risk matrix, monitoring such changes carefully and introducing alternative
mitigating controls where necessary and practicable to support the operation of an effective control
environment;
• Pandemic risks affecting the Company's investments and business operations;
• Risks resulting from the Russian invasion of Ukraine and the valuation of Russian assets;
• Rebalancing dividend payments by increasing the interim dividend;
• Review of the marketing plan with the Manager;
• Review of the share buyback programme; and
• Review of the gearing facility.
The Board considers the main stakeholders in the Company to be its shareholders and its service providers, the
principal one of which is its Manager, along with its investee companies. A summary of the key areas of
engagement undertaken by the Board with its main stakeholders in the year under review and how Directors
have acted upon this to promote the long-term success of the Company are set out in the following table.
Stakeholders
Area of
Engagement
Consideration
Engagement
Outcome
Shareholders and
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
The Board reviews
regularly the level of
Dividend payments
are discussed in the
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long term capital
appreciation, however
the Board recognises
the importance of
regular dividend
income to many
shareholders.
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.
Chairman's Statement
in the full Annual
Report.
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
marketing strategy to
ensure effective
communication with
existing shareholders
and to consider
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 detailed in the
Chairman's Statement
under "Share rating" in
the full Annual Report.
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strategies to create
additional demand for
the Company's
shares.
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
Company 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
delivering 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 delivered
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.
On behalf of the
Company the
Investment Manager
engages with investee
companies
implementing
corporate governance
principles and
discusses the
portfolio with the
Board on a quarterly
basis.
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:
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• Net asset value and share price total return over various periods, compared to its benchmark;
• Share price discount to net asset value;
• Dividend and revenue earnings; and
• Ongoing charges ratio.
The Ten Year Record of the KPIs is shown in the full Annual Report.
Net asset value and share price total return
(a)
Net asset value and share price total return data is presented within the Company Overview along with the Ten
Year Record in the full Annual Report.
The Chairman's Statement and the Investment Manager's Report in the full Annual Report include further
commentary on the Company's performance.
Share price discount to net asset value
(a)
Details of the Company's share price discount to net asset value are presented within the Financial Summary in
the full Annual Report. On 24 May 2023, the latest practicable date for which information was available, the
discount was 14.8%.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
The Company has powers to buy back its shares as a discount control mechanism when it is in the best interests
of the Company's shareholders and has a Conditional Tender Offer mechanism. These are described under
"Stability - Share buybacks and Conditional Tender Offer" in the full Annual Report.
Dividend and revenue earnings
Total income earned in the year was £80.6 million (2022: £54.3 million) which translates into net revenue
earnings of 5.72 pence per share (2022: 3.44 pence per share), an increase of 66.3% over the prior year. The
increase in revenue earnings per share was attributable to the increase in underlying revenues, mainly dividends
earned from Petroleo Brasileiro.
The Company paid an interim dividend of 2.00 pence per share on 27 January 2023. The Board is proposing a
final dividend of 3.00 pence per share, making total ordinary dividends for the year of 5.00 pence per share.
Ongoing charges ratio
(a)
("OCR")
The OCR rose to 0.98% for the year ended 31 March 2023, compared to 0.97% in the prior year. This was
driven by the reduction in average net assets during the year, offsetting the AIFM fee reduction effective from 1
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July 2022. The OCR has been calculated in line with the Association of Investment Companies ("AIC")
recommended methodology.
Costs associated with the purchase and sale of investments are taken to capital and are not included in the OCR.
Transaction costs are disclosed in Note 8 of the Notes to the Financial Statements in the full Annual Report.
(a)
A glossary of alternative performance measures is included in the full Annual Report.
Principal and emerging risks
At least quarterly, the Board reviews with the AIFM and the Investment Manager a wide range of risk factors
that may impact the Company. A full review of risks and internal controls is held every September by the Audit
and Risk Committee. These reviews include a robust assessment of the principal and emerging risks facing the
Company, including those that would threaten its business model, future performance, solvency or liquidity.
These are summarised in the table below.
Further explanation of the monitoring of risk and uncertainties is covered within the Report of the Audit and
Risk Committee in the full Annual Report. Information on the risks that TEMIT is subject to, including
additional financial and valuation risks, are also detailed in Note 15 of the Notes to the Financial Statements.
Due to the nature of the Company's business, investment risk is a key focus and is reviewed on an ongoing basis
by the Investment Manager as part of every investment decision. Further information on this process is detailed
in the full Annual Report.
Principal risk Mitigation
Market and geopolitical
Market risk arises from volatility in the prices of the
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.
Geopolitical risk was highlighted by the Russian
invasion of Ukraine in February 2022 and the
escalating trade war between the United States and
China and military tensions over the Taiwan Strait. All
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.
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these factors have depressed investor sentiment and the
Russian invasion of Ukraine has impacted global trade
posed by supply shocks, sanctions, higher levels of
inflation and volatility in asset prices.
Pandemic
The spread of infectious illnesses or other public health
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.
Restrictive measures implemented to control such
outbreaks could adversely affect the economies of
individual 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.
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.
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.
Technology
Failure or breach of the security 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 technology 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.
Discount Risk
The discount/premium at which the Company's shares
trade relative to its net asset value can change. The risk
of a widening discount, and/or related volatility, could
The Board monitors the level of discount/premium at
which the shares trade and has an active investor
relations programme. The Company has authority to
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reduce shareholder returns and confidence in the
Company.
buy back its existing shares when deemed by the Board
to be in the best interests of the Company and its
shareholders.
Operational and custody
Like many other investment trust companies, TEMIT
has no 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
effective operation of these systems.
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 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
numerous 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 continuing ramifications of
the Russian invasion of Ukraine, discussed under market and geopolitical risk above. The extent of this risk will
depend on the length of the conflict, impacts on commodity prices and associated inflationary pressure. In
addition, the Board and Investment Manager discussed the growing tensions between the United States and
China. The Board is also monitoring the potential risks on the portfolio and investee companies posed by the
dramatic progress of Artificial Intelligence (AI).
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Viability Statement
The Board considers viability as part of its continuing programme of monitoring risk. In preparing the Viability
Statement, in accordance with the UK Corporate Governance Code and the AIC Corporate Governance Code,
the Directors have assessed the prospects of the Company over a longer period than the 12 months required by
the 'Going Concern' provision.
The Board has considered the Company's business and investment cycles and is of the view that five years is a
suitable time horizon to consider the continuing viability of the Company, balancing the uncertainties of
investing in emerging markets securities against having due regard to viability over the longer term.
In assessing the Company's viability, the Board has performed a robust assessment of controls over the principal
risks. The Board considers, on an ongoing basis, each of the principal and emerging risks as noted above and set
out in Note 15 of the Notes to the Financial Statements. The Board evaluated various scenarios of possible
future circumstances including a material increase in expenses and a continued significant and prolonged fall in
emerging equity markets. The Board also considered the latest assessment of the portfolio's liquidity. The Board
monitors income and expense projections for the Company, with the majority of the expenses being predictable
and modest in comparison with the assets of the Company. The Company foresees no issues with meeting
interest payments and other principal obligations of the borrowing facilities. A significant proportion of the
Company's expenses is the ad valorem AIFM fee, which would naturally reduce if the market value of the
Company's assets were to fall.
Considering the above, and with careful consideration given to the current market situation, the continuing
ramifications of the Russian invasion of Ukraine, growing tensions between the United States and China over
trade and the Taiwan Strait and the challenges posed by climate change, the Board has concluded that there is a
reasonable expectation that, assuming that there will be a successful continuation vote at the 2024 AGM, the
Company will be able to continue to operate and meet its liabilities as they fall due over the next five years.
Future Strategy
The Company was founded, and continues to be managed, based on a long-term investment strategy that seeks
to generate superior returns from investments, principally in the shares of carefully selected companies in
emerging markets.
The Company's results will be affected by many factors including political decisions, economic factors, the
performance of investee companies and the ability of the Investment Manager to choose investments
successfully as well as the current challenges.
The Board and the Investment Manager continue to believe in investment with a long-term horizon in
companies that are undervalued by stock markets, but which are fundamentally strong and growing. It is
recognised that, at times, extraneous political, economic and company-specific and other factors will affect the
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performance of investments, but the Company will continue to take a long-term view in the belief that patience
will be rewarded.
By order of the Board
Paul Manduca
9 June 2023
Statement of Directors' Responsibilities
In respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with
applicable law and regulations. Details of the Directors and members of the committees are reported in the full
Annual Report.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the
Directors are required to prepare the Financial Statements in accordance with UK adopted International
Accounting Standards.
Under company law the Directors must be satisfied that the Financial Statements give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for the period. In preparing these
Financial Statements, International Accounting Standard 1 requires that Directors:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
• Provide additional disclosures when compliance with the specific requirements of UK adopted
International Accounting Standards are insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the entity's financial position and financial
performance; and
• Assess the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company's transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
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The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company's website (www.temit.co.uk). Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Responsibility Statement
Each of the Directors, who are listed in the full Annual Report, confirms that to the best of their knowledge:
• The Financial Statements, which have been prepared in accordance with UK adopted International
Accounting Standards, give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company for the year ended 31 March 2023; and
• The Chairman's Statement, Strategic Report and the Report of the Directors include a fair review
of the information required by 4.1.8R to 4.1.11R of the FCA's Disclosure Guidance and
Transparency Rules; and
• The Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the Company's
position and performance, business model and strategy, and include a description of the principal
risks and uncertainties.
By order of the Board
Paul Manduca
9 June 2023
Financial Statements
Statement of Comprehensive Income
For the Year Ended 31 March 2023
Year ended
31 March 2023
Year ended
31 March 2022
Note
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Net losses on investments and foreign
exchange
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Net losses on investments at fair value 8 - (54,645) (54,645) - (460,585) (460,585)
Net losses on foreign exchange
- (442) (442) - (168) (168)
Income
Dividends 2 77,463 8,431 85,894 54,020 - 54,020
Other income 2 3,088 - 3,088 250 - 250
80,551 (46,656) 33,895 54,270 (460,753) (406,483)
Expenses
AIFM fee 3 (5,232) (12,209) (17,441) (6,316) (14,738) (21,054)
Other expenses 4 (1,979) - (1,979) (2,338) - (2,338)
(7,211) (12,209) (19,420) (8,654) (14,738) (23,392)
Profit/(loss) before finance costs and
taxation
73,340 (58,865) 14,475 45,616 (475,491) (429,875)
Finance costs 5 (962) (2,239) (3,201) (858) (1,998) (2,856)
Profit/(loss) before taxation
72,378 (61,104) 11,274 44,758 (477,489) (432,731)
Tax expense 6 (5,520) (3,232) (8,752) (4,081) (5,596) (9,677)
Profit/(loss) for the year
66,858 (64,336) 2,522 40,677 (483,085) (442,408)
Profit/(loss) attributable to equity
holders of the Company
66,858 (64,336) 2,522 40,677 (483,085) (442,408)
Earnings per share 7 5.72p (5.50)p 0.22p 3.44p (40.90)p (37.46)p
Under the Company's Articles of Association the capital element of return is not distributable.
The total column of this statement represents the profit and loss account of the Company.
The accompanying notes are an integral part of the Financial Statements.
Statement of Financial Position
As at 31 March 2023
Note
As at
31 March 2023
£'000
As at
31 March 2022
£'000
Non-current assets
Investments at fair value through profit or loss 8 1,992,775 2,124,530
Current assets
Trade and other receivables 9 7,886 16,928
Cash and cash equivalents
132,988 125,855
Total current assets
140,874 142,783
Current liabilities
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Other payables 10 (6,402) (57,718)
Total current liabilities
(6,402) (57,718)
Net current assets
134,472 85,065
Non-current liabilities
Capital gains tax provision 6 (9,744) (9,205)
Other payables falling due after more than one year 11 (100,000) (100,000)
Total assets less liabilities
2,017,503 2,100,390
Share capital and reserves
Equity Share Capital 12 63,148 64,136
Capital Redemption Reserve 1(j) 19,521 18,533
Capital Reserve 1(j) 1,372,654 1,466,197
Special Distributable Reserve 1(j) 433,546 433,546
Revenue Reserve 1(j) 128,634 117,978
Equity Shareholders' Funds
2,017,503 2,100,390
Net asset value pence per share
(a)
174.1 178.2
(a)
Based on shares in issue excluding shares held in treasury.
The Financial Statements of Templeton Emerging Markets Investment Trust plc (company registration number
SC118022) were approved for issue by the Board and signed on 9 June 2023.
Paul Manduca Simon Jeffreys
Chairman Director
Statement of Changes in Equity
For the Year Ended 31 March 2023
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 2021
64,253 18,416 1,952,886 433,546 122,186 2,591,287
(Loss)/profit for the year
- - (483,085) - 40,677 (442,408)
Equity dividends 13 - - - - (44,885) (44,885)
Purchase and cancellation of
own shares 12 (117) 117 (3,604) - - (3,604)
Balance at 31 March 2022
64,136 18,533 1,466,197 433,546 117,978 2,100,390
(Loss)/profit for the year
- - (64,336) - 66,858 2,522
Equity dividends 13 - - - - (56,202) (56,202)
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Purchase and cancellation of
own shares 12 (988) 988 (29,207) - - (29,207)
Balance at 31 March 2023
63,148 19,521 1,372,654 433,546 128,634 2,017,503
The accompanying notes are an integral part of the Financial Statements.
Statement of Cash Flows
For the Year Ended 31 March 2023
Note
For the year to
31 March 2023
£'000
For the year to
31 March 2022
£'000
Cash flows from operating activities
Profit/(Loss) before taxation
11,274 (432,731)
Adjustments to reconcile Profit/(Loss) before taxation to cash used in
operations:
Bank and deposit interest income recognised
(3,082) (130)
Dividend income recognised
(85,894) (54,020)
Finance costs
3,201 2,856
Net losses on investments at fair value 8 54,645 460,585
Net losses on foreign exchange
442 168
Decrease in debtors
12 16
Decrease in creditors
(310) (614)
Cash used in operations
(19,712) (23,870)
Bank and deposit interest received
3,082 130
Dividends received
86,727 57,522
Bank overdraft interest paid
(2) (2)
Tax paid
(5,971) (6,250)
Realised gains on foreign currency cash and cash equivalents
(a)
179 377
Net cash inflow from operating activities
(a)
64,303 27,907
Cash flows from investing activities
Purchases of non-current financial assets
(465,539) (600,482)
Sales of non-current financial assets
(a)
548,504 612,872
Net cash inflow from investing activities
(a)
82,965 12,390
Cash flows from financing activities
Equity dividends paid 13 (56,202) (44,885)
Purchase and cancellation of own shares
(30,453) (2,041)
(Repayment)/draw down from revolving credit facility
(50,000) 50,000
Interest and fees paid on bank loans
(3,457) (2,728)
Net cash (outflow)/inflow from financing activities
(140,112) 346
Net increase in cash
(a)
7,156 40,643
Cash at the start of the year
125,855 85,212
Unrealised losses on foreign currency cash and cash equivalents
(a)
(23) 0
Cash at the end of the year
132,988 125,855
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(a)
Net unrealised losses on cash and cash equivalents have been shown separately as part of the
reconciliation of cash and cash equivalents. Net realised gains arising from cash and cash
equivalents have been allocated to the corresponding cash flow activities to which they relate.
Comparative figures have been updated for the consistency of the presentation in line with IAS 8
requirements.
The accompanying notes are an integral part of the Financial Statements.
Reconciliation of liabilities arising from bank loans
Liabilities
as at
31 March 2022
£'000
Cash flows
£'000
Profit & Loss
£'000
Liabilities
as at
31 March 2023
£'000
Revolving credit facility 50,000 (50,000) - -
Interest and fees payable 249 (1,351) 1,102 -
Fixed term loan 100,000 - - 100,000
Interest and fees payable 352 (2,106) 2,097 343
Total liabilities from bank loans 150,601 (53,457) 3,199 100,343
Liabilities
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
Notes to the Financial Statements
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As at 31 March 2023
1 Accounting Policies
(a) Basis of preparation
The Financial Statements of the Company have been prepared in accordance with UK adopted International
Accounting Standards. The Financial Statements have also been prepared in accordance with the Statement of
Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies
("AIC") in July 2022 insofar as the SORP is compatible with International Accounting Standards.
The Financial Statements have been prepared on the historical cost basis, except for the measurement at fair
value of certain financial instruments. All financial assets and financial liabilities are recognised (or
derecognised) on the date of the transaction by the use of "trade date accounting". The principal accounting
policies adopted are set out below.
Adoption of new and revised Accounting Standards
At the date of authorisation of these Financial Statements, the following standard was assessed to be relevant
and is effective for annual periods beginning on or after 1 January 2022:
• Annual Improvements to IFRS Standards 2018 - 2020: IFRS 9 Amendment. This amendment
relates to situations where there is a substantial change in the terms of a financial liability.
The amendment listed above did not have any impact on the amounts recognised in the current reporting period.
At the date of authorisation of these Financial Statements, the following standards and interpretations which
have not been applied in these Financial Statements were in issue but not yet applicable:
Accounting Standards
Effective date for annual
periods beginning on or after
IAS 1 Amendments: Disclosure of Accounting Policies 1 January 2023
IAS 8 Amendments: Definition of Accounting Estimates 1 January 2023
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IAS 1 Amendments: Non-current Liabilities with Covenants 1 January 2024
The Directors expect that the amendments listed above will have either no impact or that any impact will not be
material to the Financial Statements of the Company in the next reporting periods.
Going concern
The Directors have a reasonable expectation that the Company has sufficient resources to continue in
operational existence for the period to 31 March 2025, which is at least 12 months from the date of the approval
of the Financial Statements. The Directors reviewed income forecasts covering the next two financial years,
including interest and fees arising from the debt facility. The Directors considered the principal and emerging
risks and uncertainties disclosed in the full Annual Report in particular those relating to the continuing
ramifications of the Russian invasion of Ukraine.
At 31 March 2023, the Company had net current assets of £134,472,000 (31 March 2022: net current assets of
£85,065,000). In addition, the Company holds a portfolio of largely liquid assets that, if required, can be sold to
maintain adequate cash balances to meet its expected cash flows, including debt servicing. The repayment of the
principal balance of the Company's £100 million fixed term loan does not fall due until 31 January 2025. The
Directors also reviewed scenarios of a significant drop in value of the assets and noted that in those scenarios
they would still be significantly higher than the Company's liabilities. They have also confirmed the resiliency
of the Company's key service providers and are satisfied that their contingency plans and working arrangements
are sustainable.
The Board has established a framework of prudent and effective controls performed periodically by the Audit
and Risk Committee, which enable risks to be assessed and managed. Therefore, the going concern basis has
been adopted in preparing the Company's Financial Statements. The Going Concern statement is set out in the
full Annual Report.
Functional currency
As the Company is a UK investment trust, whose share capital is issued in the UK and denominated in sterling,
the Directors consider that the functional currency of the Company is sterling.
Estimates, assumptions and judgements
Significant estimates and assumptions have been used to fair value the Level 3 Russian investments held by the
Company. Further details are given in the fair value section of Note 15 and in the Report of the Audit and Risk
Committee. There have been no other significant judgements, estimates or assumptions for the year.
CORPORATE
In preparing these Financial Statements, the Directors have considered the impact of climate change as a
principal risk as set out in the full Annual Report and have concluded that there was no further impact of climate
change to be considered as the investments are valued based on market pricing. In line with UK adopted
International Accounting Standards the investments are valued at fair value, which for the Company are the bid
prices quoted on the relevant stock exchange at the date of the Statement of Financial Position and therefore
reflect market participants' views of climate change risk on the investments held.
(b) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by
the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of
a revenue and capital nature has been presented within the Statement of Comprehensive Income. In accordance
with the Company's Articles of Association, net capital profits may not be distributed by way of dividend.
Additionally, the net revenue is the measure that the Directors believe appropriate in assessing the Company's
compliance with certain requirements set out in Section 1158 of the Corporation Tax Act 2010.
(c) Income
Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-
dividend date is available, dividends are recognised on their due date. Provision is made for any dividends not
expected to be received.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the
amount of the cash dividend is recognised in the revenue column of the Statement of Comprehensive Income.
Any excess in the value of the shares received over the amount of the cash dividend forgone is recognised in the
capital column of the Statement of Comprehensive Income.
Special dividends receivable are treated as repayment of capital or as revenue depending on the facts of each
particular case. Interest on bank deposits is recognised on an accrual basis.
Stock lending income is shown gross of associated costs and recognised in revenue as earned.
(d) Expenses
CORPORATE
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
CORPORATE
appropriate, the Company provides for deferred tax in respect of overseas taxes on any capital gains arising on
the revaluation of investments.
The carrying amount of deferred tax assets is reviewed at each year-end date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
(g) Investments held at fair value through profit or loss
The Company classifies its equity investments based on their contractual cash flow characteristics and the
Company's business model for managing the assets. The Company's business is investing in financial assets
with a view to profiting from their total return in the form of revenue and capital growth. This portfolio of
financial assets is managed, and its performance evaluated on a fair value basis, in accordance with a
documented investment strategy, and information about the portfolio is provided internally on that basis to the
Company's Directors and other key management personnel. Equity investments do not meet the contractual cash
flows test so are measured at fair value. Accordingly, upon initial recognition, all of the Company's non-current
asset investments are held at "fair value through profit or loss". They are included initially at fair value, which is
taken to be their cost excluding expenses incidental to the acquisition.
Subsequently, the investments are valued at "fair value", which is measured as follows:
The fair value of financial instruments at the year-end date is, ordinarily, based on the latest quoted bid price at,
or before, the US market close (without deduction for any of the estimated future selling costs), if the instrument
is held in active markets. This represents a Level 1 classification under IFRS 13. For all financial instruments
not traded in an active market or where market price is not deemed representative of fair value, valuation
techniques are employed to determine fair value. Valuation techniques include the market approach (i.e. using
recent arm's length market transactions adjusted as necessary and reference to the market value of another
instrument that is substantially the same) and the income approach (i.e. discounted cash flow analysis making
use of available and supportable market data as possible).
Gains and losses arising from changes in fair value are included in the net profit or loss for the period as a
capital item in the Statement of Comprehensive Income.
(h) Foreign currencies
Transactions involving foreign currencies are translated to sterling (the Company's functional currency) at the
spot exchange rates ruling on the date of the transactions. Assets and liabilities in foreign currencies are
translated at the rates of exchange at the year-end date. Foreign currency gains and losses are included in the
Statement of Comprehensive Income and allocated as capital or income depending on the nature of the
transaction giving rise to the gain or loss.
CORPORATE
(i) Financial instruments
Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash that are subject to an insignificant risk of changes in
value.
Bank loans are classified as financial liabilities at amortised cost. They are initially measured as the proceeds net
of direct issue costs and subsequently measured at amortised cost. Interest payable on the bank loan is accounted
for on an accrual basis in the Statement of Comprehensive Income. The amortisation of direct issue costs is
accounted for on an accrual basis in the Statement of Comprehensive Income using the effective interest
method.
(j) Share capital and reserves
Equity Share Capital - represents the nominal value of the issued share capital. This reserve is undistributable.
Capital Redemption Reserve - represents the nominal value of shares repurchased and cancelled. This reserve is
undistributable.
Capital Reserve - gains and losses on realisation of investments; changes in fair value of investments which are
readily convertible to cash, without accepting adverse terms; realised exchange differences of a capital nature;
changes in the fair value of investments that are not readily convertible to cash, without accepting adverse
terms; and the amounts by which other assets and liabilities valued at fair value differ from their book value are
within this reserve. Additionally, 70% of the annual AIFM fee and finance costs are charged to this reserve in
accordance with accounting policies 1(d) and 1(e).
Purchases of the Company's own shares are funded from the realised component of the Capital Reserve. The
Company's Articles of Association preclude it from making any distribution of capital profits by way of
dividend.
If treasury shares are subsequently cancelled, the nominal value is transferred out of Equity Share Capital and
into the Capital Redemption Reserve.
Special Distributable Reserve - reserve created upon the cancellation of the Share Premium Account and Capital
Redemption Reserve. This reserve is fully distributable.
CORPORATE
Revenue Reserve - represents net income earned that has not been distributed to shareholders. This reserve is
fully distributable.
Income recognised in the Statement of Comprehensive Income is allocated to applicable reserves in the
Statement of Changes in Equity.
2 Income
2023 2022
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Dividends
(a)
International dividends 76,287 8,431 84,718 52,714 - 52,714
UK dividends 1,176 - 1,176 1,306 - 1,306
77,463 8,431 85,894 54,020 - 54,020
Other income
Bank and deposit interest 3,082 - 3,082 130 - 130
Stock lending income 6 - 6 120 - 120
3,088 - 3,088 250 - 250
Total 80,551 8,431 88,982 54,270 - 54,270
(a)
The Company received special dividends amounting to £14.0 million (2022: £3.9 million) of
which £8.4 million (2022: £nil) was classified as capital and £5.6 million (2022: £3.9 million) was
classified as revenue.
3 AIFM fee
2023 2022
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
AIFM fee 5,232 12,209 17,441 6,316 14,738 21,054
On 1 October 2021, FTITML replaced Franklin Templeton International Services S.à r.l as the Company's
AIFM and Company Secretary. The contract with FTITML may be terminated at any date by either party giving
one year's notice of termination.
The AIFM fee is paid monthly and based on the month end total net assets of the Company. From 1 July 2022,
the AIFM fee was reduced to 1% of the first £1 billion of net assets, 0.75% of net assets between £1 billion and
£2 billion, and 0.50% of net assets over £2 billion. The previous fee structure 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
CORPORATE
2023
£'000
2022
£'000
Custody fees 526 775
Marketing fees 321 362
Directors' remuneration 303 304
Membership fees 180 176
Depository fees 148 207
Registrar fees 86 132
Auditor's remuneration
Audit of the annual financial statements 52 34
Review of the Half Yearly Report 10 8
Broker fees 36 33
Printing and postage fees 13 21
Other expenses 304 286
Total 1,979 2,338
5 Finance costs
2023 2022
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Fixed term loan 629 1,468 2,097 629 1,468 2,097
Revolving credit facility 331 771 1,102 227 530 757
Bank overdraft interest 2 - 2 2 - 2
Total 962 2,239 3,201 858 1,998 2,856
6 Tax on ordinary activities
2023 2022
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Irrecoverable overseas
withholding tax 5,520 - 5,520 4,081 - 4,081
Capital gains tax paid - 2,693 2,693 - 1,352 1,352
Total current tax 5,520 2,693 8,213 4,081 1,352 5,433
Capital gains tax provision - 539 539 - 4,244 4,244
Total tax 5,520 3,232 8,752 4,081 5,596 9,677
2023
£'000
2022
£'000
Profit/(loss) before taxation 11,274 (432,731)
Theoretical tax at UK corporation tax rate of 19% (2022: 19%) 2,142 (82,219)
Effects of:
- Capital element of loss 8,865 87,543
- Irrecoverable overseas withholding tax 5,520 4,081
CORPORATE
- Excess management expenses 2,539 3,101
- Overseas capital gains tax paid 2,693 1,352
- Dividends not subject to corporation tax (13,152) (7,924)
- Movement in overseas capital gains tax liability 539 4,244
- UK dividends (224) (248)
- Overseas tax expensed (170) (253)
Actual tax charge 8,752 9,677
As at 31 March 2023 the Company had unutilised management expenses and non-trade deficits of £295.5
million carried forward (2022: £284.4 million). These balances have been generated because a large part of the
Company's income is derived from dividends which are not taxed. Based on current UK tax law, the Company
is not expected to generate taxable income in a future period in excess of deductible expenses for that period
and, accordingly, is unlikely to be able to reduce future tax liabilities by offsetting these excess management
expenses. These excess management expenses are therefore not recognised as a deferred tax asset of £73.9
million (2022: £54.0 million) based on a prospective corporation tax rate of 25% (2022: 19%). The UK
corporation tax rate is currently 25% with effect from 1 April 2023.
Movement in provision for capital gains tax
(a)
2023
£'000
2022
£'000
Balance brought forward 9,205 4,961
Charge for the year 3,232 5,596
Capital gains tax paid (2,693) (1,352)
Balance carried forward 9,744 9,205
(a)
A provision for deferred capital gains tax has been recognised in relation to unrealised gains for
holdings in India and Pakistan.
7 Earnings per share
2023 2022
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Earnings 66,858 (64,336) 2,522 40,677 (483,085) (442,408)
2023 2022
Revenue
pence
Capital
pence
Total
pence
Revenue
pence
Capital
pence
Total
pence
Earnings per share 5.72 (5.50) 0.22 3.44 (40.90) (37.46)
CORPORATE
The earnings per share is based on the profit attributable to equity holders and on the weighted average number
of shares in issue, excluding shares held in treasury, during the year of 1,169,095,903 (year to 31 March 2022:
1,181,093,110).
8 Financial assets - investments
2023
£'000
2022
£'000
Opening investments
Book cost 1,732,693 1,553,330
Net unrealised gains 391,837 1,045,745
Opening fair value 2,124,530 2,599,075
Movements in the year:
Additions at cost 466,037 603,763
Disposals proceeds (543,147) (617,723)
Net losses on investments at fair value (54,645) (460,585)
1,992,775 2,124,530
Closing investments
Book cost 1,705,635 1,732,693
Net unrealised gains 287,140 391,837
Closing investments 1,992,775 2,124,530
All investments have been recognised at fair value with gains and losses recorded through the Statement of
Comprehensive Income.
Transaction costs for the year on purchases were £638,000 (2022: £749,000) and transaction costs for the year
on sales were £1,068,000 (2022: £1,209,000). The aggregate transaction costs for the year were £1,706,000
(2022: £1,958,000).
2023
£'000
2022
£'000
Net losses on investments at fair value comprise:
Net realised gains based on carrying value at 31 March 50,052 193,323
Net movement in unrealised depreciation (104,697) (653,908)
Net losses on investments at fair value (54,645) (460,585)
9 Trade and other receivables
2023
£'000
2022
£'000
CORPORATE
Dividends receivable 7,391 8,224
Overseas tax recoverable 419 2,661
Other debtors 76 88
Sales awaiting settlement - 5,955
Total 7,886 16,928
10 Other payables
2023
£'000
2022
£'000
Purchase of investments for future settlement 3,790 3,292
AIFM fee 1,396 1,515
Accrued expenses 556 747
Interest and fees on borrowings 343 601
Amounts owed for share buybacks 317 1,563
Revolving credit facility payable - 50,000
Total 6,402 57,718
Interest and fees on borrowings consist of:
2023 2022
£'000 £'000
Fixed term loan 343 352
Revolving credit facility - 249
Total 343 601
Revolving credit facility
On 31 January 2020, the Company entered into a £120 million multi-currency unsecured revolving credit
facility (the "facility") for a period of three years with The Bank of Nova Scotia, London Branch. The
agreement was amended on 31 January 2023 extending the maturity date to 30 January 2024. The commitment
fee on unutilised commitments was also amended to a flat fee of 0.40% per annum. The previous fee structure
was 0.40% per annum charged on undrawn balances in excess of £60 million and 0.35% per annum on any
undrawn portion below £60 million.
Under the facility balances can be drawn down in GBP, USD or CNH. The interest margin was increased to
1.20% from 1.125% following the amendment of the agreement as follows: USD drawdowns bear interest at
1.20% per annum over the daily secured overnight financing rate ("SOFR") administered by the Federal Reserve
Bank of New York, while any GBP drawdowns bear interest at 1.20% per annum over the daily sterling
overnight index average ("SONIA") published by the Bank of England. The rate for any CNH drawdowns is
1.20% per annum over the Hong Kong Interbank Offered Rate. GBP drawdowns were also charged a credit
adjustment spread, but this has been removed following the amendment of the agreement on 31 January 2023.
Under the terms of the facility, the net assets shall not be less than £1,015 million and the adjusted net asset
coverage to all borrowings shall not be less than 3.5:1.
CORPORATE
On 19 October 2022, the Company fully repaid the £50 million revolving facility drawdown (2022: £50 million
was outstanding under the revolving credit facility).
Any facility drawdown is shown at amortised cost and revalued for exchange rate movements. Any gain or loss
arising from changes in exchange rates is included in the capital reserves and shown in the capital column of the
Statement of Comprehensive Income. Interest costs are charged to capital (70%) and revenue (30%) in
accordance with the Company's accounting policies.
11 Other payables falling due after more than one year
2023 2022
Book value
£'000
Book value
£'000
Fixed term loan 100,000 100,000
100,000 100,000
Fixed term loan
On 31 January 2020, the Company entered into a term loan (the "term loan") for a period of five years with
Scotiabank Europe plc for £100 million. With effect from 28 September 2022, the term loan was transferred by
novation from Scotiabank Europe plc to The Bank of Nova Scotia, London Branch. All other contractual terms
and conditions remain the same.
The term loan bears interest at the fixed rate of 2.089%. Under the conditions of the term loan, the net assets
shall not be less than £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
2023 2022
Ordinary shares in issue £'000 Number £'000 Number
Opening ordinary shares of 5 pence 58,945 1,178,896,985 59,062 1,181,228,655
(a)
CORPORATE
Purchase and cancellation of own shares (988) (19,758,613) (117) (2,331,670)
Closing ordinary shares of 5 pence 57,957 1,159,138,372 58,945 1,178,896,985
2023 2022
Ordinary shares held in treasury £'000 Number £'000 Number
Opening ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895
(a)
Closing ordinary shares of 5 pence 5,191 103,825,895 5,191 103,825,895
Total ordinary shares in issue and held in
treasury at the end of the year 63,148 1,262,964,267 64,136 1,282,722,880
(a)
Comparative figures for the year ended 31 March 2022 have been retrospectively adjusted
following the sub-division of each existing ordinary share of 25 pence into five ordinary shares of
5 pence each on 26 July 2021.
The Company's shares (except those held in treasury) have unrestricted voting rights at all general meetings, are
entitled to all of the profits available for distribution by way of dividend and are entitled to repayment of all of
the Company's capital on winding up.
During the year, 19,758,613 shares were bought back for cancellation at a cost of £29,207,000 (2022: 2,331,670
shares were bought back for cancellation at a cost of £3,604,000). All shares bought back in the year were
cancelled, with none being placed in treasury (2022: no shares were placed into treasury).
13 Dividends
2023 2022
Rate
(pence) £'000
Rate
(pence) £'000
Declared and paid in the financial year
Dividend on shares:
Final dividends for the years ended
31 March 2022 and 31 March 2021 2.80 32,941 2.80
(a)
33,074
Interim dividends for the six-month periods ended 30
September 2022 and 30 September 2021 2.00 23,261 1.00 11,811
Total 4.80 56,202 3.80 44,885
Proposed for approval at the Company's AGM
Dividend on shares:
Final dividend for the year ended 31 March 2023 3.00 34,599
(a)
Comparative figures for the year ended 31 March 2022 have been retrospectively adjusted
following the sub-division of each existing ordinary share of 25 pence into five ordinary shares of
5 pence each on 26 July 2021.
CORPORATE
Dividends are recognised when the shareholders' right to receive the payment is established. In the case of the
final dividend, this means that it is not recognised until approval is received from shareholders at the AGM. The
proposed final dividend of 3.00 pence per share will be funded from the revenue reserve and the payment of this
dividend will not threaten the going concern or viability of the Company.
14 Related party transactions
There were no transactions with related parties, other than the fees paid to the Directors and the AIFM during
the financial years ended 31 March 2023 and 31 March 2022 respectively, which have a material effect on the
results or the financial position of the Company. Details of fees paid to the Directors are included in the full
Annual Report and details of the fee paid to the AIFM are included in the full Annual Report.
15 Risk management
In pursuing the Company's objective, as set out in the full Annual Report, the Company holds a number of
financial instruments which are exposed to a variety of risks that could result in either a reduction in the
Company's net assets or a reduction in the profits available for dividends.
The main risks arising from the Company's financial instruments are investment and concentration risk, market
risk (which comprises market price risk, foreign currency risk and interest rate risk), liquidity risk and
counterparty and credit risk.
The objectives, policies and processes for managing these risks, and the methods used to measure the risks, are
set out below. These policies have remained unchanged since the beginning of the year to which these Financial
Statements relate.
Investment and concentration risk
The Company may invest a greater portion of its assets than the benchmark in the securities of one issuer,
securities of a particular country, or securities within one sector. As a result, there is the potential for an
increased concentration of exposure to economic, business, political or other changes affecting similar issues or
securities, which may result in greater fluctuation in the value of the portfolio. Investment risk and a certain
degree of concentration risk is a known and necessary effect of the stated investment approach in line with the
investment policy. The Directors regularly review the portfolio composition and asset allocation and discuss
related developments with the Investment Manager. Security, country, and sector concentrations are monitored
by the Manager's risk and compliance teams on a regular basis and any concerns are highlighted to the
Investment Manager for remedial action and brought to the attention of the Directors.
CORPORATE
Market price risk
Market risk arises mainly from uncertainties about future prices of financial instruments held. It represents the
potential loss that the Company might suffer through holding market positions in the face of price movements.
The Directors meet quarterly to consider the asset allocation of the portfolio and to discuss the risks associated
with particular securities, countries or sectors. The Investment Manager selects securities in the portfolio in
accordance with the investment policy, and the overall asset allocation parameters described above, and seeks to
ensure that individual stocks also meet the intended risk/reward profile.
The Company does not use derivative instruments to hedge the investment portfolio against market price risk as,
in the Investment Manager's opinion, such a process could result in an unacceptable level of cost and/or a
reduction in the potential for capital growth.
100% (2022: 100%) of the Company's investment portfolio is listed on stock exchanges. If share prices as at 31
March 2023 had decreased by 30% (2022: 30% decrease) with all other variables remaining constant, the
Statement of Comprehensive Income capital return and the net assets attributable to equity shareholders would
have decreased by £597,833,000 (2022: £637,359,000). A 30% increase (2022: 30% increase) in share prices
would have resulted in a proportionate equal and opposite effect on the above amounts, on the basis that all
other variables remain constant.
Foreign currency risk
Currency translation movements can significantly affect the income and capital value of the Company's
investments, as the majority of the Company's assets and income are denominated in currencies other than
sterling, which is the Company's functional currency.
The Investment Manager has identified three principal areas where foreign currency risk could affect the
Company:
• Movements in rates affect the value of investments;
• Movements in rates affect short-term timing differences; and
• Movements in rates affect the income received.
CORPORATE
The Company does not hedge the sterling value of investments that are priced in other currencies. The Company
may be subject to short-term exposure to exchange rate movements, for instance where there is a difference
between the date on which an investment purchase or sale is entered into and the date on which it is settled.
The Company receives income in currencies other than sterling and the sterling values of this income can be
affected by movements in exchange rates. The Company converts all receipts of income into sterling on or near
the date of receipt. However, it does not hedge or otherwise seek to avoid rate movement risk on income
accrued but not received.
The fair value of the Company's items that have foreign currency exposure at 31 March are shown below:
2023
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
Hong Kong dollar - - (1,786) (1,786) 421,688
Korean won 5,561 - (1,834) 3,727 397,800
Taiwan dollar 1,494 98 - 1,592 316,317
US dollar 420 - - 420 232,164
Indian rupee - - - - 226,039
Other 320 4,680 (72) 4,928 366,798
2022
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
The above tables are based on the currencies of the country where shares are listed rather than the underlying
currencies of the countries where the companies earn revenue.
As at 31 March 2023, 68.8% (2022: 65.4%) of the investments shown as US dollar and Hong Kong dollar are
Chinese companies with exposure to the Chinese yuan. The total exposure to Chinese yuan was £616.3 million
(2022: £604.9 million), out of which £109.4 million (2022: £158.5 million) were investments denominated in
Chinese yuan.
CORPORATE
Foreign currency sensitivity
The following table illustrates the foreign currency sensitivity on the revenue and capital return. The revenue
return impact represents the impact on total income (which is mainly comprised of dividend income) had
sterling strengthened relative to the top 5 currencies by 10% throughout the year. The capital return impact
represents the impact of the financial assets and liabilities of the Company if sterling had strengthened by 10%
relative to the top 5 currencies on the reporting date. With all other variables held constant, the revenue and
capital return would have decreased by the below amounts.
2023 2022
Revenue
Return
£'000
Capital
Return
£'000
Revenue
Return
£'000
Capital
Return
£'000
Hong Kong dollar 657 41,990 482 37,660
Korean won 1,008 40,153 1,083 48,688
Taiwan dollar 1,226 31,791 955 36,349
US dollar 917 23,258 994 25,108
Indian rupee 241 22,604 169 18,865
Total 4,049 159,796 3,683 166,670
A 10% weakening of sterling against the above currencies would have resulted in an equal and opposite effect
on the above amounts.
Interest rate risk
The Company is permitted to invest in interest bearing securities. Any change to the interest rates relevant to
particular securities may result in income either increasing or decreasing, or the Investment Manager being
unable to secure similar returns on the expiry of contracts or the sale of securities. In addition, changes to
prevailing rates or changes in expectations of future rates may result in an increase or decrease in the value of
the securities held and the interest payable on bank loans when interest rates are reset.
The fixed term loan incurs a fixed rate of interest and is carried at amortised cost rather than fair value. Hence,
movements in interest rates will not affect net asset values, as reported under the Company's accounting
policies.
Interest rate risk profile
The exposure of the financial assets and liabilities to floating interest rate risks at 31 March is shown below:
CORPORATE
2023 2022
£'000 £'000
Cash 132,988 125,855
Revolving credit facility - (50,000)
Net exposure at year end 132,988 75,855
Exposures vary throughout the year as a consequence of changes in the make-up of the net assets of the
Company. Cash balances are held on call deposit and earn interest at the bank's daily rate. The Company's net
assets are sensitive to changes in interest rates on borrowings. There was no exposure to fixed interest
investment securities during the year or at the year end.
Interest rate sensitivity
If the above level of cash was maintained for a year (2022: level of cash and revolving credit facility were
maintained for a year) and interest rates were 100 basis points higher or lower, the net profit after taxation
would be impacted by the following amounts:
2023 2022
100 basis
points
increase
in rate
£'000
100 basis
points
decrease
in rate
£'000
100 basis
points increase
in rate
£'000
100 basis
points
decrease
in rate
£'000
Revenue 1,330 (1,330) 1,109 (1,109)
Capital - - (350) 350
Total 1,330 (1,330) 759 (759)
Liquidity risk
The Company's assets comprise mainly securities listed on the stock exchanges of emerging economies.
Liquidity can vary from market to market and some securities may take a significant period to sell. As a closed
ended investment trust, liquidity risks attributable to the Company are less significant than for an open-ended
fund.
The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be
significant, given the large number of quoted investments held in the portfolio and the liquid nature of the
portfolio of investments.
The Investment Manager reviews liquidity at the time of making each investment decision and monitors the
evolving liquidity profile of the portfolio regularly.
CORPORATE
The below table details the maturity profile of the Company's financial liabilities as at 31 March 2023, based on
the earliest date on which payment can be required and current exchange rates as at the balance sheet date:
As at 31 March 2023
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 2,089 102,095 - - 104,184
Revolving credit facility 401 - - - 401
Other payables 6,059 - - - 6,059
Total 8,549 102,095 - - 110,644
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
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.
CORPORATE
Securities held in custody are held in the Company's name or to its accounts. Details of holdings are received
and reconciled monthly. Cash is actively managed by Franklin Templeton and is typically invested in overnight
time deposits in the name of TEMIT with an approved list of counterparties. Any excess cash not invested will
remain in a JPMorgan Chase interest bearing account. There is no significant risk on debtors and accrued
income or tax at the year end.
During the year, the Company participated in a securities lending programme through JPMorgan as the lending
agents. All securities on loan are Level 1 financial instruments, and their value is determined by reference to the
trading prices on the stock market. As at 31 March 2023, the market value of the securities on loan and the
corresponding collateral received were as follows:
31 March 2023 31 March 2022
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 543 739 2,908 4,047
Citigroup 17 22 382 558
Total 560 761 3,290 4,605
The maximum aggregate value of securities on loan at any time during the year was £9,470,125. Full details of
the collateral received is noted in the full Annual Report.
Fair value
Fair values are derived as follows:
• Where assets are denominated in a foreign currency, they are converted into the sterling amount
using period end rates of exchange;
• Investments held by the Company on the basis set out in the accounting policies included in Note
1;
• Cash at the denominated currency of the account; and
• Other financial assets and liabilities at the carrying value which is a reasonable approximation of
the fair value.
The tables below analyse financial instruments carried at fair value by valuation method. The different levels
have been defined as follows:
CORPORATE
Level 1 Quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 Inputs other than quoted prices included with level 1 that are observable for the asset or
liability, either directly (prices) or indirectly (derived from prices); and
Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The hierarchy valuation of listed investments through profit and loss are shown below:
31 March 2023 31 March 2022
Level 1
£'000
Level 2
£'000
Level 3
£'000
Total
£'000
Level 1
£'000
Level 2
£'000
Level 3
£'000
Total
£'000
Listed investments 1,992,775 - -
(a)
1,992,775 2,103,727 - 20,803
(a)(b)
2,124,530
(a)
Russian investments in LUKOIL, Sberbank of Russia, and Yandex continue to be fair valued at
zero as at 31 March 2023 as a result of trading being suspended on international stock exchanges
in February 2022. These investments were transferred from Level 1 to Level 3 during the financial
year ended 31 March 2022.
(b)
Trading in Brilliance China Automotive shares on the Hong Kong stock exchange was suspended
from 31 March 2021 and, as a result, the stock was fair valued using a beta model (which applied
an index movement to observed trade prices) until 5 October 2022 when trading resumed. The fair
value as at 31 March 2022 was £20,803,000 and the stock was disclosed as Level 3. After the
shares resumed trading, the stock has been transferred from Level 3 to Level 1.
Given the current market conditions and the inability of the Company to access the local Moscow equity
markets and the very limited access to the over-the-counter market, the Russian investments continued to be
valued based on a liquidity discount of 100% to the last traded price for an exit price of zero.
The following table presents the movement in Level 3 investments for the year ended:
31 March 2023 31 March 2022
£000 £000
Opening balance 20,803 -
CORPORATE
Transfers from Level 1 into Level 3 - 149,593
Transfers from Level 2 into Level 3 - 50,954
Transfers from Level 3 into Level 1 (17,734) -
Disposal proceeds - sale of Level 3 assets
(a)
(1,613) -
Net losses on investments at fair value (1,456) (179,744)
Level 3 closing balance - 20,803
(a)
Represents the sale of the holdings in Gazprom on 25 April 2022 for £617,000, and the sale of VK
on 9 March 2023 for £996,000.
The fixed term loan is shown at amortised cost within the Statement of Financial Position. If the fixed term loan
was shown at fair value the impact would be:
31 March 2023 31 March 2022
£000 £000
Fixed term loan at amortised cost 100,000 100,000
Fixed term loan at fair value 94,470 100,390
Increase/(decrease) in net assets 5,530 (390)
The fair value of the fixed term loan included in the table above is calculated by aggregating the expected future
cash flows which are discounted at a rate comprising the sum of SONIA rate plus a static spread. The fixed term
loan at fair value is considered to be classed as Level 2.
16 Significant holdings in investee undertakings
As at 31 March 2023 and 2022, TEMIT had no significant holdings of 3% or more of any issued class of
security within the portfolio whose shares are admitted to trading.
17 Contingent liabilities
No contingent liabilities existed as at 31 March 2023 or 31 March 2022.
18 Contingent assets
CORPORATE
No contingent assets existed as at 31 March 2023 or 31 March 2022.
19 Financial commitments
No financial commitments existed as at 31 March 2023 or 31 March 2022.
20 Capital management policies and procedures
The Company's objective is to provide long-term capital appreciation for private and institutional investors
seeking exposure to global emerging markets, supported by a culture of both strong customer service and
corporate governance.
The Board monitors and regularly reviews the structure of the Company's capital on an ongoing basis. This
review includes the investment performance and outlook, discount management mechanisms including share
buybacks, gearing and the extent to which revenue in excess of that which is required to be distributed under the
investment trust rules should be retained.
The Company's investment policy allows borrowing of up to 20% of net assets, measured at the time of
borrowing.
As at 31 March 2023, the Company had share capital and reserves of £2,017,503,000 (31 March 2022:
£2,100,390,000). The Company's policies and procedures for managing capital are consistent with the previous
year.
21 Events after the reporting period
The only material post balance sheet event is in respect of the proposed final dividend, which is disclosed in
Note 13.
The statutory accounts for the period ended 31 March 2023 received an audit report which was unqualified, did
not include a reference to any matters to which the Auditors drew attention by way of emphasis without
CORPORATE
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.