Statement of Half-Yearly Results to 30 Sept 22
Templeton Emerging Markets Investment Trust PLC ("TEMIT" or "the Company")
Unaudited Half Yearly Report to 30 September 2022
Legal Entity Identifier 5493002NMTB70RZBXO96
Company Overview
Launched in June 1989, Templeton Emerging Markets Investment Trust plc ("TEMIT" or the "Company") is an investment trust that invests principally in emerging markets companies with the aim of delivering capital growth to shareholders over the long term. While the majority of the Company's shareholders are based in the UK, shares are traded on both the London and New Zealand stock exchanges.
TEMIT has a diversified portfolio of around 80 high quality companies, actively selected for their long-term growth potential and sustainable earnings, and with due regard to Environmental, Social and Governance ("ESG") attributes. TEMIT's research-driven investment approach and strong long-term performance has helped it to grow to be the largest emerging markets investment trust in the UK, with assets of £1.9 billion as at 30 September 2022. From its launch to 30 September 2022, TEMIT's net asset value ("NAV") total return was +3,481.8% compared to the benchmark total return of +1,652.7%.
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 six months to 30 September 2022
|
Net asset value total |
|
Share price total |
|
MSCI Emerging Markets |
|
Interim dividend for |
Cumulative total return to 30 September 2022 (%) (a)
|
|
6 Months |
1 Year |
3 Years |
5 Years |
10 Years |
|
Net asset value (cum-income) |
-8.3 |
-18.0 |
-2.4 |
6.6 |
58.3 |
|
Share price |
-8.5 |
-20.1 |
-3.3 |
6.3 |
53.7 |
|
MSCI Emerging Markets Index |
-7.4 |
-12.8 |
4.8 |
11.8 |
66.5 |
(a) A glossary of alternative performance measures is included on pages 37 and 38 of the full Half Yearly Report.
(b) Source: MSCI. The Company's benchmark is the MSCI Emerging Markets Index, with net dividends reinvested.
Chairman's Statement
Market overview and investment performance
The difficult market conditions that I described in the most recent Annual Report continued during the six-month period under review. The news continues to be dominated by the Russian invasion of Ukraine and its ramifications, particularly the impact on commodity prices. While governments around the world have sought to contain the effect, particularly on fuel and food prices, there is a risk that inflation will become entrenched as workers naturally seek to counterbalance the effects of price rises with wage rises, which can form an inflationary spiral. In the developed world, central banks have sought to counter inflation expectations with increased interest rates but controlling demand while not stifling growth is very difficult to achieve. While events in Ukraine have overshadowed commodity and equity markets, there were also concerns over Chinese growth in light of the government's interventions in private companies and continued pursuit of lockdowns to control the spread of COVID-19.
The Net Asset Value ("NAV") of TEMIT's shares was volatile over the period. While by the end of August the shares had recorded a small positive return, a very difficult September followed. This resulted in a net asset value total return of -8.3%, compared with -7.4% for the benchmark index for the six months to 30 September 2022. From 30 September 2022 to 6 December 2022, it has been heartening to see a small recovery in markets. TEMIT's NAV total return over this period was 6.0% compared with 1.7% for the benchmark index.
Revenue and dividend
Net revenue earnings for the period under review amounted to 4.16 pence per share. As I have noted in the past, it is too early to predict revenues for the full year but the majority of TEMIT's earnings are typically received in the first half of the accounting year. Brazil's national oil and gas company Petroleo Brasileiro, in which the Investment Manager invested in January, rose on the back of surging oil prices, which led to strong results for the second quarter of 2022 and a dividend yield of around 20% in the same quarter. Petroleo Brasileiro's long-life oil reserves, together with its strategy of deleveraging its balance sheet and exiting non-core assets allow for a particularly strong dividend payout.
An interim dividend of 2.00 pence per share will be paid by TEMIT on 27 January 2023 to shareholders on the register on 16 December 2022. This is an increase of 1.00 pence per share compared with last year's interim dividend. This increase in the interim dividend recognises that there was a large imbalance between the interim and final dividend in recent years and shareholders should note that this increase in the interim dividend does not imply any intention to change the final dividend.
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. As well as the fixed borrowing, throughout the period £50 million was drawn under the revolving credit facility which was subsequently repaid in October. The Investment Manager continues to take a cautious view on the deployment of borrowing in light of market circumstances. As at 30 September 2022, there was significant cash in the portfolio and, net of this cash, the portfolio was not geared. I would once again remind shareholders that the level of debt deployed is not a result of views on market direction but driven by investment opportunities presented by individual companies.
Share rating
Our managers remain very active in promoting TEMIT's shares to a wide variety of existing and potential investors and have continued with their efforts to promote the Company despite the turbulent markets. 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. This was the third consecutive year that we have won this award. 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 market conditions that I describe above naturally led to pressure on the discount as investors sought safe havens. 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. As set out in the most recent Annual Report, selling pressure changed dramatically following the Russian invasion of Ukraine and this has subsequently continued. In total over the six months to 30 September 2022, £18.4 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 0.15% to the benefit of remaining shareholders.
First Stewardship Report launched
I set out in the most recent Annual Report that effective stewardship of the Company's assets is a key element of the Board's strategy for the Company. Consideration of governance and sustainability issues has long been an integral part of our Investment Manager's approach. In order to explain in more detail their approach to this important topic, our inaugural Stewardship Report for TEMIT was published in June and is available on our website at www.temit.co.uk. This Report sets out in detail the approach to investing your Company's assets sustainably and includes TEMIT-specific case studies as well as data highlighting the depth of engagement with companies. I encourage you to download a copy if you have not already done so. The Investment Manager has also provided a brief update of its stewardship activities as part of the Investment Manager's Report.
The Board
As previously announced, Beatrice Hollond retired from the Board at this year's Annual General Meeting and Simon Jeffreys assumed the position of Senior Independent Director.
On 17 October 2022 we announced the appointment of Abigail Rotheroe as a director effective 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 has managed retail and institutional Asia Pacific portfolios in Hong Kong and London for Schroders, HSBC Asset Management Hong Kong and Columbia Threadneedle Investments. She is a CFA Charterholder and has experience in manager selection, sustainability, and impact measurement.
Management fee reduction
As previously announced, with effect from 1 July 2022 the fee paid to Franklin Templeton was reduced to:
• 1.0% of the first £1 billion of net assets;
• 0.75% of net assets between £1 billion and £2 billion; and
• 0.5% of net assets over £2 billion.
Annual General Meeting
The Board was pleased to welcome shareholders to the AGM again in July, having been obliged to hold the previous two years' AGMs behind closed doors. All resolutions at the AGM were duly carried by a large majority and I would like to thank shareholders for their continuing support. I recognise that some shareholders are unable to attend meetings in person and if you have any questions, please send these by email to temitcosec@franklintempleton.com or via www.temit.co.uk./investor/contact-us.
Outlook
It is likely that economic and market turbulence will continue for some time and the risk of further political and economic shocks remains elevated, not least as Russia's war on Ukraine continues. The effects of high inflation, the resulting increases in interest rates and strains on currency exchange rates are foremost in many investors' minds. Uncertainties also continue in China where growth and sentiment are being impacted by the continued zero-COVID policy of the government which is currently resulting in widespread social unrest. We will continue to focus on the Chinese government's "common prosperity" agenda which has potential effects on the profitability of some companies and on overall economic growth. Geopolitical concerns, and particularly relations between China and United States, also remain a key issue.
At the time of writing the value of the US dollar against a basket of other currencies has moved down from the high levels reached in September and equity markets are showing some signs of recovery. Commentators often say that markets attempt to look 12-18 months into the future and it is possible that they are beginning to reflect an eventual economic recovery. Our aim is to produce attractive returns over the long term. Countries making up the emerging markets currently contribute a large proportion of the world's economic growth, and this appears likely to continue. The markets in which our Investment Manager seeks opportunities have many advantages, including relatively young and growing populations, growing wealth and expanding economies. Further, many of the companies in which we are able to invest are highly innovative, and in some cases have world leading products and are able to leapfrog their competitors in developed markets. As I said in the recent Annual Report, your Board remains optimistic for emerging market equities over the long term, and this view is based on both the opportunities presented and the resources which our Investment Manager deploys on shareholders' behalf.
Paul Manduca
Chairman
8 December 2022
Interim Management Report
Principal risks
The Company predominantly invests directly in the stock markets of emerging markets. The principal categories of risks facing the Company, determined by the Board and described in detail in the Strategic Report within the Annual Report and Audited Accounts, are:
• Market and geo-political;
• Pandemic;
• Cyber;
• Concentration;
• Sustainability and climate change;
• Foreign currency;
• Portfolio liquidity;
• Counterparty and credit;
• Operational and custody;
• Key personnel; and
• Regulatory.
The Board has provided the Investment Manager with guidelines and limits for the management of principal risks. The key emerging risk faced by the Company during the year to 31 March 2022 was the Russian invasion of Ukraine, and this was highlighted under geo-political and liquidity risks. The Board and Investment Manager are aware that the economic challenges continue to be the key issue affecting investment markets around the world, including the ongoing zero-COVID policy in China and its impact on economic growth as well as the continued tensions between United States and China over trade and Taiwan. There have been no further changes to the principal and emerging risks reported in the Annual Report and, in the Board's view, these principal and emerging risks are equally applicable to the remaining six months of the financial year as they were to the six months under review.
Related party transactions
There were no transactions with related parties during the period other than the fees paid to the Directors and the AIFM.
Going concern
The Company's assets consist of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. Having made suitable enquiries, including consideration of the Company's objective, the nature of the portfolio, net current assets, expenditure forecasts, the principal and emerging risks and uncertainties described within the Annual Report and with due consideration to the continuing ramifications of the Russian invasion of Ukraine, the impact of the ongoing zero-COVID policy in China and the potential impact of the growing United States-China tensions around trade and Taiwan, the Directors are satisfied that the Company has adequate resources to continue to operate as a going concern for the period to 31 March 2024, which is at least 12 months from the date of approval of these Financial Statements, and are satisfied that the going concern basis is appropriate in preparing the Financial Statements.
Statement of Directors' Responsibilities
The Disclosure Guidance and Transparency Rules of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
Each of the Directors, who are listed on page 35 of the full Half Yearly Report, confirms that to the best of their knowledge:
(a) the condensed set of Financial Statements, for the period ended 30 September 2022, have been prepared in accordance with the UK adopted International Accounting Standard (IAS) 34 "Interim Financial Reporting"; and
(b) the Half Yearly Report includes a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and a review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.
The Half Yearly Report was approved by the Board on 8 December 2022 and the above Statement of Directors' Responsibilities was signed on its behalf by
Paul Manduca
Chairman
8 December 2022
Investment Manager's Report
Review of performance
Emerging markets collectively declined over the six months under review as market sentiment remained weak. Rising inflation rates and the continuation of central bank interest rate increases depressed consumer and investor sentiment, although Asian emerging markets experienced lower rates of increases than elsewhere. The MSCI Emerging Markets Index returned -7.4% for the six-month period under review, whilst TEMIT delivered a net asset value total return of -8.3% (all figures are total return in sterling). Full details of TEMIT's performance are on page 1 of the full Half Yearly Report.
All regions declined during the period but Latin America was the best relative performer, as positive performance in Chile limited the region's decline. Asia was the worst performing region during the six-month period despite strong returns in India, as tech-heavy South Korea and Taiwan, as well as China, were largely responsible for the region's lagging performance.
China was TEMIT's largest market exposure, although the portfolio remained underweight relative to the benchmark. China was amongst the region's strongest markets during the first three months of the period, but regional lockdowns related to the country's zero-COVID policy, continued regulatory uncertainty and a reeling real estate market weighed on equity performance in the second three months of the period. For the six months, Chinese equities declined significantly as it dealt with a slowing economy and weak investor sentiment. However, we believe that China's government remains committed to fostering innovation as an economic growth engine, and that we will see more regulatory clarity towards the end of the year and hope that the government will also look to plan an exit from the current zero-COVID policy.
TEMIT's second-largest market position was in South Korea, where the portfolio was significantly overweight versus the benchmark. South Korea experienced the largest emerging market decline, as its technology-heavy market continued to struggle throughout the period. An export powerhouse, several South Korean exporters are of global importance, supplying vital hardware. World-leading semiconductor and battery makers are benefitting from the secular trends of increased computing power and greener mobility-some of which have accelerated as we emerge from the COVID-19 pandemic. South Korea's advantages in innovation and intellectual property are also evident, whilst the country's internet sector has also been thriving. However, the downtrend in the global technology sector continues to weigh and an accompanying de-rating of sector valuations affected South Korea in the third quarter of 2022.
The Taiwanese market also depressed the relative performance of TEMIT as its technology sector experienced lower demand and higher costs. TEMIT's overweight allocation to Taiwan is largely attributable to exposure to the island's semiconductor industry, chief amongst which was Taiwan Semiconductor Manufacturing ("TSMC"), which is also the portfolio's largest holding. Technology's role as a key economic engine has only strengthened during the pandemic. As technology has advanced, semiconductor chips have become a growing part of almost all consumer goods with the semiconductor industry experiencing a cyclical and secular boom as growing digitalisation powers a surge in demand. Historically, many chip designers outsourced manufacturing to key Taiwanese companies such as TSMC with specialised manufacturing prowess and lower costs. Some of these manufacturers are now counted amongst the largest foundries globally and can partner with, and produce chips for, clients anywhere in the world. This collaboration, rather than direct competition, is a key advantage of their business model. Over time, their advantage has shifted from primarily cost-based to one of intellectual property, with fewer competitors able to progress to the next level of technology. Although we see a promising long term for the sector, a confluence of factors makes the short term less certain. At the start of the period, concerns around component shortages and the durability of a price and demand recovery gave way to reduced demand, triggered in part by higher global interest rates and inflation. However, we maintain a positive long-term view on Taiwan's semiconductor industry. Despite growing geopolitical concerns around China's stated desire to absorb Taiwan, we expect the current status quo to remain for the time being.
Although underweight relative to the benchmark, India was TEMIT's fourth largest exposure at the end of September 2022. India was also a relative outperformer, benefitting from a decline in oil prices in the third quarter of the year. Over the longer-term, we expect to see continued growth in Indian earnings due to positive demographics for higher consumption, rising penetration in segments like finance and health care, and growth in digitalisation. India is also benefitting from the "China+1" strategy amongst manufacturers. This strategy sees companies establish an additional manufacturing base outside China to mitigate some of the supply chain risks encountered during COVID-19. We remain focused on being selective and identify bottom-up opportunities based on our assessment of a company's growth, quality and earnings sustainability.
Investment strategy, portfolio changes and performance attribution
The following sections show how different investment factors (stocks, sectors and geographies) accounted for the Company's performance over the period.
We continue to emphasise our investment process that selects companies based on their individual attributes and ability to generate risk-adjusted returns for investors, rather than taking a high-level view of sectors, countries or geographic regions to determine our investment allocations.
Our investment style remains resolutely centred on finding good quality companies with sustainable earnings power and whose shares trade at a discount relative to their intrinsic worth. We see high levels of leverage as a risk and we seek to avoid companies with weak balance sheets.
We continue to utilise our research-based, active approach to help us to find companies which have high standards of corporate governance, respect their shareholder base and understand the local intricacies that may determine consumer trends and habits. Utilising our large team of analysts, we aim to maintain close contact with the board and senior management of existing and potential investments and believe in engaging constructively with our investee companies.
Whilst the immediate outlook is uncertain, this approach should help us best navigate the challenging market and economic backdrop. Over time, we expect the long-term fundamentals of our holdings to remain intact.
Performance attribution analysis %
|
Six months to 30 September |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Net asset value total return(a) |
|
(8.3) |
|
(7.5) |
|
31.3 |
|
6.3 |
|
(1.5) |
|
Expenses incurred |
|
0.5 |
|
0.5 |
|
0.5 |
|
0.5 |
|
0.6 |
|
Gross total return(a) |
|
(7.8) |
|
(7.0) |
|
31.8 |
|
6.8 |
|
(0.9) |
|
Benchmark total return(a) |
|
(7.4) |
|
(1.0) |
|
24.4 |
|
2.2 |
|
(1.8) |
|
Excess return(a) |
|
(0.4) |
|
(6.0) |
|
7.4 |
|
4.6 |
|
0.9 |
|
Stock selection |
|
2.9 |
|
(4.3) |
|
2.5 |
|
2.6 |
|
(0.2) |
|
Sector allocation |
|
(2.2) |
|
(1.4) |
|
4.0 |
|
1.6 |
|
(0.5) |
|
Currency |
|
(1.1) |
|
(0.5) |
|
0.5 |
|
0.4 |
|
1.1 |
|
Share buyback impact |
|
0.1 |
|
0.0 |
|
0.3 |
|
0.2 |
|
0.7 |
|
Residual return(a) |
|
(0.1) |
|
0.2 |
|
0.1 |
|
(0.2) |
|
(0.2) |
|
Total Investment Manager contribution |
|
(0.4) |
|
(6.0) |
|
7.4 |
|
4.6 |
|
0.9 |
Source: FactSet and Franklin Templeton.
(a) A glossary of alternative performance measures is included on pages 37 and 38 of the full Half Yearly Report.
Top 10 contributors to relative performance by security (%)(a)
|
Top contributors |
|
Country |
|
Sector |
|
Share price |
|
Contribution to |
|
ICICI Bank |
|
India |
|
Financials |
|
30.1 |
|
1.8 |
|
Daqo New Energy |
|
China/Hong Kong |
|
Information Technology |
|
51.2 |
|
0.8 |
|
Petroleo Brasileiro |
|
Brazil |
|
Energy |
|
37.3 |
|
0.7 |
|
Bajaj Holdings & Investments(b) |
|
India |
|
Financials |
|
42.8 |
|
0.5 |
|
Genpact(b)(c) |
|
United States |
|
Information Technology |
|
19.0 |
|
0.5 |
|
Banco Santander Mexico(b) |
|
Mexico |
|
Financials |
|
26.7 |
|
0.5 |
|
Prosus(b) |
|
China/Hong Kong |
|
Consumer Discretionary |
|
16.1 |
|
0.4 |
|
Unilever(b)(c) |
|
United Kingdom |
|
Consumer Staples |
|
17.1 |
|
0.3 |
|
Itaú Unibanco |
|
Brazil |
|
Financials |
|
7.9 |
|
0.3 |
|
Guangzhou Tinci Materials Technology |
|
China/Hong Kong |
|
Materials |
|
(1.1) |
|
0.3 |
(a) For the period 31 March 2022 to 30 September 2022.
(b) Security not included in the MSCI Emerging Markets Index as at 30 September 2022.
(c) This security, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.
ICICI Bank is an Indian bank engaged in retail, corporate and treasury services. The bank reported first quarter fiscal 2023 earnings which were ahead of expectations, led by a sharp increase in non-interest income and an increase in net interest margins. Momentum from a favourable quarterly report announced in late July and good economic datapoints boosted returns. The bank's healthy capital adequacy ratios and strong franchise place it in a good position to capitalise on the growth opportunity in the Indian economy.
Daqo New Energy , the Chinese producer of polysilicon for the solar industry, experienced a sharp increase in its share price during the period. The company raised its annual production volume target and is positive on the outlook for polysilicon prices. Investors are attracted to the company given its focus on renewable energy which is forecast to continue growing significantly in the coming years.
Brazil's national oil and gas company Petroleo Brasileiro ("Petrobras") rose on the back of surging oil prices, which led to strong results for the second quarter of 2022 and a dividend yield of around 20% in the same quarter. Petrobras' long-life oil reserves, together with its strategy of deleveraging its balance sheet and exiting non-core assets allow for a strong dividend payout.
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 |
(43.7) |
(1.2) |
|
Taiwan Semiconductor Manufacturing |
Taiwan |
Information Technology |
(24.3) |
(1.0) |
|
Samsung Electronics |
South Korea |
Information Technology |
(23.4) |
(0.8) |
|
MediaTek |
Taiwan |
Information Technology |
(28.7) |
(0.7) |
|
Meituan(b) |
China/Hong Kong |
Consumer Discretionary |
25.2 |
(0.4) |
|
China Merchants Bank |
China/Hong Kong |
Financials |
(21.3) |
(0.3) |
|
Cognizant Technology Solutions(c)(d) |
United States |
Information Technology |
(24.0) |
(0.3) |
|
Soulbrain(c) |
South Korea |
Materials |
(28.0) |
(0.3) |
|
Americanas |
Brazil |
Consumer Discretionary |
(45.8) |
(0.3) |
|
Alibaba |
China/Hong Kong |
Consumer Discretionary |
(18.2) |
(0.2) |
(a) For the period 31 March 2022 to 30 September 2022.
(b) Security not held by TEMIT as at 30 September 2022.
(c) Security not included in the MSCI Emerging Markets Index as at 30 September 2022.
(d) This security, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.
NAVER declined in the third quarter after it fell short of consensus second quarter earnings estimates. The company operates South Korea's largest search engine, and offers e-commerce, fintech and digital content services. Its share price has been on a declining trend due to slower growth in the post-COVID environment. Concerns that expansion into unprofitable new businesses with lower margins also negatively impacted market sentiment. However, we believe that NAVER is in a good position to build a thriving ecosystem integrating e-commerce, payments and digital content based on its solid foundation in search and advertising.
After losing ground in August due to lower chip demand throughout the industry, TSMC shares took another hit in late September when Apple reported lower demand for its new iPhone 14. TSMC is the world's largest foundry semiconductor manufacturer. The company's share price has been under pressure, despite solid second quarter results which saw management increase third quarter sales guidance. The company is a beneficiary of the digitisation trend, and of increased penetration of semiconductors in consumer goods ranging from cars to domestic appliances. Nevertheless, it cannot escape the short-term downtrend in the global technology sector and the accompanying de-rating of sector valuations.
Samsung Electronics is one of the largest memory semiconductor manufacturers in the world. The company experienced downward pressure in its share price in the period under review as rising inventory levels have converged with increased global economic uncertainty, resulting in an inventory adjustment amongst customers. In addition to the already weakening demand in PC and mobile segments, there are concerns over the outlook for server demand. Consensus estimates amongst analysts for sales in 2023 peaked in May and have been trending lower since then. We partially reduced our overweight exposure during the period.
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 |
(3.5) |
2.4 |
Consumer Discretionary |
1.9 |
(1.1) |
|
Energy |
8.6 |
0.3 |
Communication Services |
(14.6) |
(0.8) |
|
Real Estate |
(10.5) |
0.1 |
Information Technology |
(20.7) |
(0.5) |
|
|
|
|
Utilities |
8.0 |
(0.3) |
|
|
|
|
Industrials |
(3.3) |
(0.3) |
(a) For the period 31 March 2022 to 30 September 2022.
Favourable stock selection and a significant overweight position in the financial sector added to TEMIT's performance relative to the benchmark. ICICI Bank, mentioned above, was the primary contributor to the sector. The energy sector also contributed to relative results, despite an underweight that detracted, thanks to strong performance from Petrobras (discussed above). Real estate was the only other sector in the portfolio to post a positive result during the period, thanks to modest contributions from both an underweight position and stock selection.
Stock selection in the consumer discretionary sector weighed on relative performance, where Americanas, Alibaba, and a lack of exposure to benchmark holding Meituan were all amongst the top 10 detractors in the portfolio. The communication services sector, where stock selection weighed on results, also had a negative impact. NAVER (discussed above) was the key detractor in the communication services sector. A significant overweight position in information technology hindered relative returns, although stock selection helped mitigate some of the negative effect. TSMC and Samsung Electronics (discussed above) were the heaviest decliners relative to the benchmark in the information technology sector.
Top contributors and detractors to relative performance by country (%)(a)
|
Top contributors |
MSCI Emerging Markets Index sector total return |
Contribution to portfolio relative to MSCI Emerging Markets Index |
Top detractors |
MSCI Emerging Markets Index sector total return |
Contribution to portfolio relative to MSCI Emerging Markets Index |
|
|
Brazil |
(2.6) |
0.9 |
South Korea |
(21.9) |
|
(1.4) |
|
India |
8.9 |
0.7 |
Taiwan |
(18.0) |
|
(1.1) |
|
South Africa |
(19.9) |
0.7 |
Saudi Arabia(c) |
3.2 |
|
(0.5) |
|
Mexico |
(6.1) |
0.4 |
China/Hong Kong |
(5.6) |
|
(0.4) |
|
United Kingdom(b) |
- |
0.3 |
Indonesia |
15.9 |
|
(0.2) |
(a) For the period 31 March 2022 to 30 September 2022.
(b) No companies included in the MSCI Emerging Markets Index in this country as at 30 September 2022.
(c) No companies held by TEMIT in this country as at 30 September 2022.
A significant overweight position in the underperforming South Korean market hurt relative results. Key stocks included NAVER and Samsung Electronics, discussed earlier. In Taiwan, selections including the portfolio's largest holding, TSMC, hindered performance, while MediaTek had a lesser negative effect. A slight overweight in the market also hurt relative returns. China, as discussed above, also detracted, although a slight underweight helped mute underperformance. Lack of exposure to Meituan, a food-delivery platform, and an overweight in China Merchants Bank were the top detractors.
Brazil was the major positive contributor to relative performance. An overweight exposure and favourable stock selection had a positive impact, and Petrobras (discussed above and also overweighted) contributed significantly. An overweight in top-performing ICICI Bank (discussed above) led India to an outsized positive result during the period, as did off-benchmark exposure to Bajaj Holdings & Investments. Stock selection and an underweight in South Africa also delivered positive results led by an off-benchmark investment in Massmart.
Portfolio changes by sector
|
|
Total return in sterling |
||||||
|
Sector |
31 March 2022 market value £m |
Purchases £m |
Sales £m |
Market movement £m |
30 September 2022 market value |
TEMIT |
MSCI |
|
Information Technology |
737 |
27 |
(102) |
(137) |
525 |
(17.4) |
(20.7) |
|
Financials |
473 |
51 |
(46) |
24 |
502 |
6.3 |
(3.5) |
|
Consumer Discretionary |
266 |
30 |
(30) |
(22) |
244 |
(7.8) |
1.9 |
|
Communication Services |
212 |
18 |
(11) |
(47) |
172 |
(23.3) |
(14.6) |
|
Materials |
208 |
10 |
(34) |
(31) |
153 |
(13.8) |
(12.8) |
|
Industrials |
62 |
28 |
(1) |
(7) |
82 |
(7.9) |
(3.3) |
|
Consumer Staples |
82 |
5 |
(16) |
10 |
81 |
14.4 |
7.7 |
|
Energy |
36 |
25 |
(1) |
(2) |
58 |
33.7 |
8.6 |
|
Health Care |
33 |
7 |
(2) |
(5) |
33 |
(11.4) |
(7.2) |
|
Real Estate |
16 |
- |
(6) |
- |
10 |
(8.8) |
(10.5) |
|
Utilities |
- |
10 |
(11) |
2 |
1 |
17.6 |
8.0 |
|
Total Investments |
2,125 |
211 |
(260) |
(215) |
1,861 |
|
|
Sector asset allocation
As at 30 September 2022
Sector weightings vs benchmark (%)
|
|
TEMIT |
|
MSCI Emerging Markets Index |
|
Information Technology |
28.2 |
|
18.2 |
|
Financials |
26.9 |
|
22.6 |
|
Consumer Discretionary |
13.1 |
|
14.0 |
|
Communication Services |
9.3 |
|
9.7 |
|
Materials |
8.2 |
|
8.7 |
|
Industrials |
4.4 |
|
5.8 |
|
Consumer Staples |
4.3 |
|
6.6 |
|
Energy |
3.2 |
|
5.3 |
|
Health Care |
1.8 |
|
3.9 |
|
Real Estate |
0.5 |
|
2.0 |
|
Utilities |
0.1 |
|
3.2 |
Portfolio changes by country
|
|
Total return in sterling |
||||||
|
Country |
31 March 2022 market value £m |
Purchases £m |
Sales £m |
Market movement £m |
30 September 2022 market value |
TEMIT |
MSCI |
|
China/Hong Kong |
605 |
63 |
(74) |
(50) |
544 |
(7.7) |
(5.6) |
|
South Korea |
487 |
11 |
(67) |
(107) |
324 |
(22.4) |
(21.9) |
|
Taiwan |
363 |
19 |
(15) |
(93) |
274 |
(23.8) |
(18.0) |
|
India |
188 |
44 |
(47) |
46 |
231 |
22.0 |
8.9 |
|
Brazil |
210 |
29 |
(18) |
(15) |
206 |
2.2 |
(2.6) |
|
Other |
272 |
45 |
(39) |
4 |
282 |
- |
- |
|
Total Investments |
2,125 |
211 |
(260) |
(215) |
1,861 |
|
|
Geographic asset allocation
As at 30 September 2022
Country weightings vs benchmark (%)(a)
|
|
TEMIT |
|
MSCI Emerging Markets Index |
|
China/Hong Kong |
29.2 |
|
31.4 |
|
South Korea |
17.4 |
|
10.7 |
|
Taiwan |
14.7 |
|
13.7 |
|
India |
12.4 |
|
15.3 |
|
Brazil |
11.1 |
|
5.7 |
|
United States(b) |
3.9 |
|
- |
|
Thailand |
2.6 |
|
2.1 |
|
Mexico |
2.0 |
|
2.3 |
|
United Kingdom(b) |
1.8 |
|
- |
|
Indonesia |
1.0 |
|
2.2 |
|
Hungary |
0.8 |
|
0.2 |
|
South Africa |
0.7 |
|
3.4 |
|
Chile |
0.6 |
|
0.6 |
|
Peru |
0.5 |
|
0.2 |
|
Cambodia(b) |
0.4 |
|
- |
|
Philippines |
0.3 |
|
0.7 |
|
Pakistan(b) |
0.3 |
|
- |
|
Kenya(b) |
0.3 |
|
- |
|
United Arab Emirates |
0.0 |
|
1.4 |
|
Russia(b)(c) |
0.0 |
|
- |
(a) Other countries included in the benchmark are Colombia, Czech Republic, Greece, Kuwait, Malaysia, Poland, Qatar, Romania, Saudi Arabia, Singapore and Turkey.
(b) Countries not included in the MSCI Emerging Markets Index.
(c) All companies held by TEMIT in this country are valued at zero.
Portfolio investments by fair value
As at 30 September 2022
|
Holding |
Country |
Sector |
Trading(a) |
Fair value £'000 |
% of net assets |
|||
|
Taiwan Semiconductor Manufacturing |
Taiwan |
Information Technology |
NT |
194,259 |
10.4 |
|||
|
ICICI Bank |
India |
Financials |
PS |
128,805 |
6.9 |
|||
|
Samsung Electronics |
South Korea |
Information Technology |
PS |
108,780 |
5.8 |
|||
|
Alibaba(b) |
China/Hong Kong |
Consumer Discretionary |
PS |
102,744 |
5.5 |
|||
|
Tencent |
China/Hong Kong |
Communication Services |
IH |
74,610 |
4.0 |
|||
|
MediaTek |
Taiwan |
Information Technology |
IH |
63,147 |
3.4 |
|||
|
Petroleo Brasileiro(c) |
Brazil |
Energy |
IH |
53,242 |
2.9 |
|||
|
Banco Bradesco(c)(d) |
Brazil |
Financials |
IH |
51,332 |
2.7 |
|||
|
NAVER |
South Korea |
Communication Services |
IH |
50,508 |
2.7 |
|||
|
China Merchants Bank |
China/Hong Kong |
Financials |
IH |
49,044 |
2.6 |
|||
|
TOP 10 LARGEST INVESTMENTS |
|
|
|
876,471 |
46.9 |
|||
|
LG |
South Korea |
Industrials |
NT |
48,944 |
2.6 |
|||
|
Itaú Unibanco(c)(d) |
Brazil |
Financials |
IH |
48,233 |
2.6 |
|||
|
Genpact(e) |
United States |
Information Technology |
IH |
44,124 |
2.4 |
|||
|
Guangzhou Tinci Materials Technology |
China/Hong Kong |
Materials |
PS |
43,740 |
2.3 |
|||
|
Prosus(f) |
China/Hong Kong |
Consumer Discretionary |
PS |
40,017 |
2.1 |
|||
|
Vale |
Brazil |
Materials |
IH |
38,604 |
2.1 |
|||
|
Samsung Life Insurance |
South Korea |
Financials |
NT |
36,388 |
2.0 |
|||
|
Banco Santander Mexico(d) |
Mexico |
Financials |
NH |
33,549 |
1.8 |
|||
|
Unilever(e) |
United Kingdom |
Consumer Staples |
PS |
33,048 |
1.8 |
|||
|
Daqo New Energy(d) |
China/Hong Kong |
Information Technology |
PS |
30,710 |
1.6 |
|||
|
TOP 20 LARGEST INVESTMENTS |
|
|
|
1,273,828 |
68.2 |
|||
|
Cognizant Technology Solutions(e) |
United States |
Information Technology |
NT |
28,641 |
1.5 |
|||
|
Techtronic Industries |
China/Hong Kong |
Industrials |
IH |
28,245 |
1.5 |
|||
|
HDFC Bank |
India |
Financials |
NH |
27,945 |
1.5 |
|||
|
Kasikornbank |
Thailand |
Financials |
NT |
25,329 |
1.3 |
|||
|
Bajaj Holdings & Investments |
India |
Financials |
PS |
23,088 |
1.2 |
|||
|
Soulbrain |
South Korea |
Materials |
IH |
21,627 |
1.2 |
|||
|
POSCO |
South Korea |
Materials |
NT |
21,153 |
1.1 |
|||
|
Uni-President China |
China/Hong Kong |
Consumer Staples |
IH |
20,378 |
1.1 |
|||
|
Ping An Insurance |
China/Hong Kong |
Financials |
IH |
19,475 |
1.0 |
|||
|
Tata Consultancy Services |
India |
Information Technology |
PS |
18,687 |
1.0 |
|||
|
TOP 30 LARGEST INVESTMENTS |
|
|
|
1,508,396 |
80.6 |
|||
|
Astra International |
Indonesia |
Consumer Discretionary |
PS |
18,465 |
1.0 |
|||
|
Brilliance China Automotive(g) |
China/Hong Kong |
Consumer Discretionary |
NT |
18,366 |
1.0 |
|||
|
Zomato |
India |
Consumer Discretionary |
NH |
17,069 |
0.9 |
|||
|
Fila |
South Korea |
Consumer Discretionary |
NT |
16,633 |
0.9 |
|||
|
Baidu |
China/Hong Kong |
Communication Services |
IH |
16,293 |
0.9 |
|||
|
Hon Hai Precision Industry |
Taiwan |
Information Technology |
PS |
16,093 |
0.8 |
|||
|
Infosys Technologies |
India |
Information Technology |
IH |
15,463 |
0.8 |
|||
|
Gedeon Richter |
Hungary |
Health Care |
NT |
14,495 |
0.8 |
|||
|
Tencent Music Entertainment(d) |
China/Hong Kong |
Communication Services |
PS |
14,269 |
0.8 |
|||
|
NetEase |
China/Hong Kong |
Communication Services |
PS |
14,252 |
0.8 |
|||
|
TOP 40 LARGEST INVESTMENTS |
|
|
|
1,669,794 |
89.3 |
|||
|
China Resources Cement |
China/Hong Kong |
Materials |
PS |
12,451 |
0.7 |
|||
|
Ping An Bank |
China/Hong Kong |
Financials |
NT |
12,340 |
0.6 |
|||
|
Banco Santander Chile(d) |
Chile |
Financials |
NH |
10,700 |
0.5 |
|||
|
Intercorp Financial Services |
Peru |
Financials |
IH |
9,253 |
0.5 |
|||
|
Americanas |
Brazil |
Consumer Discretionary |
IH |
9,183 |
0.5 |
|||
|
Kiatnakin Phatra Bank |
Thailand |
Financials |
NT |
8,952 |
0.5 |
|||
|
Keshun Waterproof Technologies |
China/Hong Kong |
Materials |
PS |
8,900 |
0.5 |
|||
|
LegoChem Biosciences |
South Korea |
Health Care |
IH |
8,122 |
0.4 |
|||
|
Massmart |
South Africa |
Consumer Staples |
PS |
8,016 |
0.4 |
|||
|
Thai Beverage |
Thailand |
Consumer Staples |
NT |
7,639 |
0.4 |
|||
|
TOP 50 LARGEST INVESTMENTS |
|
|
|
1,765,350 |
94.3 |
|||
|
NagaCorp |
Cambodia |
Consumer Discretionary |
PS |
6,873 |
0.4 |
|||
|
LG Chem |
South Korea |
Materials |
PS |
6,793 |
0.4 |
|||
|
H&H Group |
China/Hong Kong |
Consumer Staples |
IH |
6,409 |
0.3 |
|||
|
Star Petroleum Refining |
Thailand |
Energy |
NH |
6,145 |
0.3 |
|||
|
BDO Unibank |
Philippines |
Financials |
NT |
5,885 |
0.3 |
|||
|
Netcare |
South Africa |
Health Care |
IH |
5,740 |
0.3 |
|||
|
MCB Bank |
Pakistan |
Financials |
NT |
4,993 |
0.3 |
|||
|
COSCO SHIPPING Ports |
China/Hong Kong |
Industrials |
IH |
4,939 |
0.3 |
|||
|
East African Breweries |
Kenya |
Consumer Staples |
NT |
4,913 |
0.3 |
|||
|
Wuxi Biologics |
China/Hong Kong |
Health Care |
PS |
4,899 |
0.3 |
|||
|
TOP 60 LARGEST INVESTMENTS |
|
|
|
1,822,939 |
97.5 |
|||
|
|
China Resources Land |
China/Hong Kong |
Real Estate |
PS |
4,793 |
0.3 |
||
|
|
Longshine Technology Group |
China/Hong Kong |
Information Technology |
PS |
4,781 |
0.3 |
||
|
|
Greentown Service Group |
China/Hong Kong |
Real Estate |
PS |
4,760 |
0.2 |
||
|
|
Nemak |
Mexico |
Consumer Discretionary |
NT |
4,417 |
0.2 |
||
|
|
XP Inc |
Brazil |
Financials |
NT |
4,384 |
0.2 |
||
|
|
Hankook Tire |
South Korea |
Consumer Discretionary |
NT |
3,338 |
0.2 |
||
|
|
JD.com |
China/Hong Kong |
Consumer Discretionary |
NT |
2,605 |
0.1 |
||
|
|
Weifu High-Technology |
China/Hong Kong |
Consumer Discretionary |
NT |
2,461 |
0.1 |
||
|
|
KT Skylife |
South Korea |
Communication Services |
NT |
2,179 |
0.1 |
||
|
|
BAIC Motor |
China/Hong Kong |
Consumer Discretionary |
NT |
1,876 |
0.1 |
||
|
|
TOP 70 LARGEST INVESTMENTS |
|
|
|
1,858,533 |
99.3 |
||
|
|
TOTVS |
Brazil |
Information Technology |
PS |
885 |
0.1 |
||
|
|
Dubai Electricity and Water Authority |
United Arab Emirates |
Utilities |
NH |
817 |
0.0 |
||
|
|
Chervon Holdings |
China/Hong Kong |
Consumer Discretionary |
PS |
279 |
0.0 |
||
|
|
Yandex(h) |
Russia |
Communication Services |
NT |
- |
- |
||
|
|
LUKOIL(h) |
Russia |
Energy |
NT |
- |
- |
||
|
|
VK(h)(i) |
Russia |
Communication Services |
NT |
- |
- |
||
|
|
Sberbank of Russia(h) |
Russia |
Financials |
NT |
- |
- |
||
|
|
TOTAL INVESTMENTS |
|
|
|
1,860,514 |
99.4 |
||
|
|
NET ASSETS |
|
|
|
11,247 |
0.6 |
||
|
|
TOTAL NET ASSETS |
|
|
|
1,871,761 |
100.0 |
||
(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.
(b) Company is listed on the Hong Kong and New York stock exchanges.
(c) Preferred shareholders are entitled to dividends before ordinary shareholders.
(d) US listed American Depository Receipt.
(e) This company, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.
(f) This company is listed in the Netherlands. The classification of China/Hong Kong is due to most of its revenue coming from its holding in Tencent.
(g) Trading of this company's shares on the Hong Kong stock exchange has been suspended since 31 March 2021. Shares resumed trading on 5 October 2022.
(h) This company is fair valued at zero as a result of its trading being suspended on international stock exchanges.
(i) UK listed Global Depository Receipt.
Portfolio summary
As at 30 September 2022
All figures are a % of the net assets
|
|
Communication Services |
Consumer Discretionary |
Consumer Staples |
Energy |
Financials |
Health Care |
Industrials |
Information |
Materials |
Real Estate |
Utilities |
Total Equities |
Net assets/(liabilities)(a) |
30 September 2022 |
31 March 2022 |
|
Brazil |
- |
0.5 |
- |
2.9 |
5.5 |
- |
- |
- |
2.1 |
- |
- |
11.0 |
- |
11.0 |
10.0 |
|
Cambodia |
- |
0.4 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.4 |
- |
0.4 |
0.4 |
|
Chile |
- |
- |
- |
- |
0.5 |
- |
- |
- |
- |
- |
- |
0.5 |
- |
0.5 |
- |
|
China/Hong Kong |
6.5 |
8.9 |
1.4 |
- |
4.3 |
0.3 |
1.8 |
1.9 |
3.4 |
0.5 |
- |
29.0 |
- |
29.0 |
28.8 |
|
Egypt |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.1 |
|
Germany |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.1 |
|
Hungary |
- |
- |
- |
- |
- |
0.8 |
- |
- |
- |
- |
- |
0.8 |
- |
0.8 |
0.7 |
|
India |
- |
0.9 |
- |
- |
9.6 |
- |
- |
1.8 |
- |
- |
- |
12.3 |
- |
12.3 |
9.1 |
|
Indonesia |
- |
1.0 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
1.0 |
- |
1.0 |
0.9 |
|
Kenya |
- |
- |
0.3 |
- |
- |
- |
- |
- |
- |
- |
- |
0.3 |
- |
0.3 |
0.2 |
|
Mexico |
- |
0.2 |
- |
- |
1.8 |
- |
- |
- |
- |
- |
- |
2.0 |
- |
2.0 |
1.6 |
|
Pakistan |
- |
- |
- |
- |
0.3 |
- |
- |
- |
- |
- |
- |
0.3 |
- |
0.3 |
0.4 |
|
Peru |
- |
- |
- |
- |
0.5 |
- |
- |
- |
- |
- |
- |
0.5 |
- |
0.5 |
0.5 |
|
Philippines |
- |
- |
- |
- |
0.3 |
- |
- |
- |
- |
- |
- |
0.3 |
- |
0.3 |
0.3 |
|
Russia(b) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.0 |
- |
0.0 |
0.0 |
|
South Africa |
- |
- |
0.4 |
- |
- |
0.3 |
- |
- |
- |
- |
- |
0.7 |
- |
0.7 |
0.6 |
|
South Korea |
2.8 |
1.1 |
- |
- |
2.0 |
0.4 |
2.6 |
5.8 |
2.7 |
- |
- |
17.4 |
- |
17.4 |
23.2 |
|
Taiwan |
- |
- |
- |
- |
- |
- |
- |
14.6 |
- |
- |
- |
14.6 |
- |
14.6 |
17.3 |
|
Thailand |
- |
- |
0.4 |
0.3 |
1.8 |
- |
- |
- |
- |
- |
- |
2.5 |
- |
2.5 |
2.1 |
|
United Arab Emirates |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.1 |
0.1 |
- |
0.1 |
- |
|
United Kingdom |
- |
- |
1.8 |
- |
- |
- |
- |
- |
- |
- |
- |
1.8 |
- |
1.8 |
1.4 |
|
United States |
- |
- |
- |
- |
- |
- |
- |
3.9 |
- |
- |
- |
3.9 |
- |
3.9 |
3.4 |
|
Net assets/(liabilities)(a) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
0.6 |
0.6 |
(1.1) |
|
30 September 2022 Total |
9.3 |
13.0 |
4.3 |
3.2 |
26.6 |
1.8 |
4.4 |
28.0 |
8.2 |
0.5 |
0.1 |
99.4 |
0.6 |
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 on page 25 of the full Half Yearly 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) |
|
30 September 2022 |
5.7 |
9.5 |
25.4 |
58.8 |
0.6 |
|
31 March 2022 |
7.7 |
8.0 |
16.5 |
68.9 |
(1.1) |
|
Split between markets(b) (%) |
30 September 2022 |
31 March 2022 |
|
Emerging markets |
93.0 |
95.6 |
|
Developed markets(c) |
5.7 |
4.9 |
|
Frontier markets |
0.7 |
0.6 |
|
Net assets/(liabilities)(a) |
0.6 |
(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 on page 25 of the full Half Yearly Report.
(b) Geographic split between "Emerging markets", "Frontier markets", "Developed markets" are as per MSCI index classifications.
(c) Developed market exposure represented by companies listed in United Kingdom and United States which have significant exposure to operations from emerging markets.
Environmental, Social and Governance
We continue to embed governance and sustainability factors into our fundamental bottom-up research and remain active owners across our holdings. This involves integrating Environmental, Social and Governance ("ESG") factors into our stock thesis, engaging with investee companies on material ESG issues and actively voting on behalf of our investors. In addition, we monitor the potential ESG externalities that may be exhibited by our investee companies, including TEMIT's portfolio carbon footprint where our portfolio managers seek to understand the carbon risk profile. We provide below a short summary of our process over the six-month period under review.
Integrating ESG factors
During the six months, we purchased shares in HDFC Bank. HDFC Bank is India's largest private sector bank by advances and remains one of the fastest growing banks with consistent market share gains while also maintaining high profitability and strong asset quality. Considering its ESG practices, the bank remains one of the best governed banks in India. The senior management team are well respected within the industry, remuneration is in line with industry best practices, and the bank's Employee Stock Option Plan ("ESOP") ensures alignment with shareholders. Post the CEO change, governance and control mechanisms remain a critical focus to us. In addition, the bank's internal policies and outcomes on environmental and social issues are strong with no material red flags. The bank has policies in place to consider environmental and social impacts in its underwriting process. For large long-term loans, the bank has put in place a Social and Environmental Management System ("SEMS") framework that assesses and considers numerous parameters such as social impact and emissions. We believe the bank is well positioned to manage its operational ESG footprint.
Climate change
TEMIT Carbon Footprint vs. MSCI EM Index - 30 September 2022(a)
|
|
Carbon Emissions |
Carbon Intensity |
Weighted Average Carbon |
|
Portfolio |
269.2 |
369.3 |
216.1 |
|
Benchmark |
296.6 |
384.8 |
345.1 |
(a) Source: MSCI ESG as at 11 October 2022, portfolio coverage 94% (79% reported, 15% estimated); MSCI EM coverage 100% (77% reported, 23% estimated). Carbon emissions include scope 1 and 2.
Carbon Emissions - Measures the portfolio's normalised carbon footprint per $1 million invested.
Carbon Intensity - Measures the portfolio's efficiency in terms of the level of carbon emissions per dollar of sales generated by a company.
Weighted Average Carbon Intensity - Measures the portfolio's exposure to carbon-intensive companies.
The TEMIT Portfolio Carbon Emissions are 9.2% lower than the MSCI Emerging Markets benchmark, Carbon Intensity is 4.0% lower and Weighted Average Carbon Intensity ("WACI") is 37.4% lower. TEMIT's portfolio carbon risk is concentrated amongst a small number of companies, with the top five companies in terms of carbon intensity representing 7.6% of the portfolio and accounting for 71.5% of the total portfolio WACI.
Active ownership
As investors with a significant presence in emerging markets, our investment team's active ownership efforts are a key part of the overall approach to stewardship. Over the six-month period, we have engaged with several of our investee companies on material governance and sustainability issues. For example we (i) reached out to KT Skylife to recommend that the company adopts a more transparent and attractive dividend payout policy; (ii) had an in-depth dialogue with Genpact where the conversation was focused on learning more around the company's ESG strategy, its alignment with UN Sustainable Development Goals ("SDGs") from a product/services perspective, its thoughts on net-zero commitment and its management of human capital; and (iii) engaged Soulbrain across multiple areas to request clarification on topics such as executive remuneration, whilst also encouraging improved disclosure on ESG issues. These discussions help us to gain a number of fundamental and sustainability insights. We believe that our engagement efforts are key to developing both a detailed understanding of companies and improving outcomes for shareholders as well as stakeholders more broadly.
We look forward to sharing a more detailed account of our stewardship practices in the next Annual Report and dedicated Stewardship Report.
Outlook for markets
Inflation remains a multi-layered challenge for policymakers. Whilst the shift from easier policies during the pandemic to tighter policies in a supply chain-constrained world may previously have taken place at a slower pace than required, there is no doubt that central banks have fully reasserted their inflation fighting credentials. By mid-November 2022, the US Federal Reserve had raised interest rates six times this year, by a cumulative 3.75% to 4.00%, the highest level since January 2008. Inflation in the euro area meanwhile rose to a record 10.6% in October 2022, which is likely to lead to further interest rate increases by the European Central Bank.
Interest rate increases in emerging markets ("EMs") have been less than developed markets ("DMs"), reflecting more subdued inflationary pressures, helped largely by significantly less fiscal expansion during lockdowns. Using real interest rates as a proxy for the monetary policy stance, markets such as Brazil are experiencing tight monetary policy, whereas policy in the US and Euro Area remain loose. This has implications for the timing of eventual interest rate cuts, with Brazil likely to join China in cutting rates in 2023. In isolation, this would be positive for investors. However, we acknowledge the challenging global backdrop and the need to see an improvement in global growth and/or a weaker US dollar to enable the positive impact of lower interest rates to filter through to the market in these countries.
The Chinese property market continues to struggle, which is impacting domestic growth as well as demand for key commodities involved in construction, including cement and steel. A 40% decline in new real estate construction starts as well as single-digit growth in infrastructure investment have contributed to the weakness in growth.
Slower global growth, a strong US dollar, global supply chain woes as well as domestic economic factors have created headwinds for EMs. Nevertheless, we believe in their long-term growth potential, as economic growth in EMs has continued to outpace that in DMs. EMs are home to companies with exposure to new technologies driving future sustainable economic growth. From solar and electric vehicle battery producers to semiconductor designers and manufacturers, the acceleration of innovation in EM is driving our confidence in the asset class. Despite the current challenges, we continue to see opportunities to invest in companies with a technological edge which are investing to drive growth.
Chetan Sehgal
Lead Portfolio Manager
8 December 2022
Independent Review Report
to the members of Templeton Emerging Markets Investment Trust plc
Conclusion
We have been engaged by Templeton Emerging Markets Investment Trust plc ('the Company') to review the condensed set of Financial Statements in the Half Yearly Report for the six months ended 30 September 2022 which comprise the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, and related notes 1 to 8. We have read the other information contained in the Half Yearly Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Half Yearly Report for the six months ended 30 September 2022 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE) issued by the Financial Reporting Council. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual Financial Statements of the Company are prepared in accordance with UK adopted international accounting standards. The condensed set of Financial Statements included in this Half Yearly Report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the Half Yearly Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
In preparing the Half Yearly Report, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half Yearly Report, we are responsible for expressing to the Company a conclusion on the condensed set of Financial Statements in the Half Yearly Report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Ernst & Young LLP
Edinburgh
8 December 2022
Statement of Comprehensive Income
For the six months to 30 September 2022
|
|
|
For the six months to |
For the six months to 30 September 2021 |
Year ended |
||||||||
|
|
Note |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||
|
Net losses on investments and foreign exchange |
|
|
|
|
|
|
|
|
|
|
||
|
Net losses on investments at fair value |
|
- |
(215,485) |
(215,485) |
- |
(204,001) |
(204,001) |
- |
(460,585) |
(460,585) |
||
|
Net losses on foreign exchange |
|
- |
(69) |
(69) |
- |
(25) |
(25) |
- |
(168) |
(168) |
||
|
Income |
|
|
|
|
|
|
|
|
|
|
||
|
Dividends |
|
55,693 |
- |
55,693 |
32,203 |
- |
32,203 |
54,020 |
- |
54,020 |
||
|
Other income |
|
877 |
- |
877 |
127 |
- |
127 |
250 |
- |
250 |
||
|
|
|
56,570 |
(215,554) |
(158,984) |
32,330 |
(204,026) |
(171,696) |
54,270 |
(460,753) |
(406,483) |
||
|
Expenses |
|
|
|
|
|
|
|
|
|
|
||
|
AIFM fee(a) |
|
(2,674) |
(6,239) |
(8,913) |
(3,312) |
(7,727) |
(11,039) |
(6,316) |
(14,738) |
(21,054) |
||
|
Other expenses |
|
(985) |
- |
(985) |
(1,144) |
- |
(1,144) |
(2,338) |
- |
(2,338) |
||
|
|
|
(3,659) |
(6,239) |
(9,898) |
(4,456) |
(7,727) |
(12,183) |
(8,654) |
(14,738) |
(23,392) |
||
|
Profit/(loss) before finance costs and taxation |
|
52,911 |
(221,793) |
(168,882) |
27,874 |
(211,753) |
(183,879) |
45,616 |
(475,491) |
(429,875) |
||
|
Finance costs(a) |
|
(550) |
(1,285) |
(1,835) |
(388) |
(904) |
(1,292) |
(858) |
(1,998) |
(2,856) |
||
|
Profit/(loss) before taxation |
|
52,361 |
(223,078) |
(170,717) |
27,486 |
(212,657) |
(185,171) |
44,758 |
(477,489) |
(432,731) |
||
|
Tax expense |
5 |
(3,448) |
(3,130) |
(6,578) |
(1,984) |
(4,695) |
(6,679) |
(4,081) |
(5,596) |
(9,677) |
||
|
Profit/(loss) for the period |
|
48,913 |
(226,208) |
(177,295) |
25,502 |
(217,352) |
(191,850) |
40,677 |
(483,085) |
(442,408) |
||
|
Profit/(loss) attributable to equity holders of the Company |
|
48,913 |
(226,208) |
(177,295) |
25,502 |
(217,352) |
(191,850) |
40,677 |
(483,085) |
(442,408) |
||
|
Earnings per share |
2 |
4.16p |
(19.25)p |
(15.09)p |
2.16p |
(18.40)p |
(16.24)p |
3.44p |
(40.90)p |
(37.46)p |
||
(a) 70% of the annual Alternative Investment Fund Manager ("AIFM") fee and 70% of the finance costs have been allocated to the capital account.
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 30 September 2022
|
|
Note |
As at |
As at |
As at |
|
Non-current assets |
|
|
|
|
|
Investments at fair value through profit or loss |
|
1,860,514 |
2,440,769 |
2,124,530 |
|
Current assets |
|
|
|
|
|
Trade and other receivables |
|
8,190 |
7,852 |
16,928 |
|
Cash and cash equivalents |
|
167,115 |
40,748 |
125,855 |
|
Total current assets |
|
175,305 |
48,600 |
142,783 |
|
Current liabilities |
|
|
|
|
|
Other payables |
|
(53,875) |
(14,506) |
(57,718) |
|
Total current liabilities |
|
(53,875) |
(14,506) |
(57,718) |
|
Net current assets |
|
121,430 |
34,094 |
85,065 |
|
Non-current liabilities |
|
|
|
|
|
Capital gains tax provision |
|
(10,183) |
(8,814) |
(9,205) |
|
Other payables falling due after more than one year |
|
(100,000) |
(100,000) |
(100,000) |
|
Total assets less liabilities |
|
1,871,761 |
2,366,049 |
2,100,390 |
|
Share capital and reserves |
|
|
|
|
|
Equity Share Capital |
3 |
63,515 |
64,244 |
64,136 |
|
Capital Redemption Reserve |
|
19,154 |
18,425 |
18,533 |
|
Capital Reserve |
|
1,221,595 |
1,735,220 |
1,466,197 |
|
Special Distributable Reserve |
|
433,546 |
433,546 |
433,546 |
|
Revenue Reserve |
|
133,951 |
114,614 |
117,978 |
|
Equity Shareholders' Funds |
|
1,871,761 |
2,366,049 |
2,100,390 |
|
Net Asset Value pence per share(a) |
|
160.5 |
200.3 |
178.2 |
(a) Based on shares in issue excluding shares held in treasury.
Statement of Changes in Equity
For the six months to 30 September 2022 (unaudited)
|
|
Note |
Equity Share |
Capital Redemption |
Capital Reserve |
Special Distributable |
Revenue Reserve |
Total |
|
Balance at 31 March 2021 |
|
64,253 |
18,416 |
1,952,886 |
433,546 |
122,186 |
2,591,287 |
|
(Loss)/profit for the period |
|
- |
- |
(217,352) |
- |
25,502 |
(191,850) |
|
Equity dividends |
4 |
- |
- |
- |
- |
(33,074) |
(33,074) |
|
Purchase and cancellation of own shares |
3 |
(9) |
9 |
(314) |
- |
- |
(314) |
|
Balance at 30 September 2021 |
|
64,244 |
18,425 |
1,735,220 |
433,546 |
114,614 |
2,366,049 |
|
(Loss)/profit for the period |
|
- |
- |
(265,733) |
- |
15,175 |
(250,558) |
|
Equity dividends |
4 |
- |
- |
- |
- |
(11,811) |
(11,811) |
|
Purchase and cancellation of own shares |
|
(108) |
108 |
(3,290) |
- |
- |
(3,290) |
|
Balance at 31 March 2022 |
|
64,136 |
18,533 |
1,466,197 |
433,546 |
117,978 |
2,100,390 |
|
(Loss)/profit for the period |
|
- |
- |
(226,208) |
- |
48,913 |
(177,295) |
|
Equity dividends |
4 |
- |
- |
- |
- |
(32,940) |
(32,940) |
|
Purchase and cancellation of own shares |
3 |
(621) |
621 |
(18,394) |
- |
- |
(18,394) |
|
Balance at 30 September 2022 |
|
63,515 |
19,154 |
1,221,595 |
433,546 |
133,951 |
1,871,761 |
Statement of Cash Flows
For the six months to 30 September 2022
|
|
For the |
For the |
For the |
|
Cash flows from operating activities |
|
|
|
|
Loss before taxation(a) |
(170,717) |
(185,171) |
(432,731) |
|
Adjustments to reconcile loss before taxation to cash generated from operations: |
|
|
|
|
Bank and deposit interest income recognised |
(873) |
(14) |
(130) |
|
Dividend income recognised |
(55,693) |
(32,203) |
(54,020) |
|
Finance costs(a) |
1,835 |
1,292 |
2,856 |
|
Net losses on investments at fair value |
215,485 |
204,001 |
460,585 |
|
Net losses on foreign exchange(b)(c) |
69 |
25 |
168 |
|
(Increase)/decrease in debtors(a) |
(52) |
38 |
16 |
|
Decrease in creditors(a) |
(210) |
(185) |
(614) |
|
Cash generated from operations(a)(b) |
(10,156) |
(12,217) |
(23,870) |
|
Bank and deposit interest received |
873 |
14 |
130 |
|
Dividends received |
59,855 |
39,129 |
57,522 |
|
Bank overdraft interest paid |
- |
- |
(2) |
|
Tax paid(a) |
(3,244) |
(3,548) |
(6,250) |
|
Net cash inflow from operating activities (b) |
47,328 |
23,378 |
27,530 |
|
Cash flows from investing activities |
|
|
|
|
Purchases of non-current financial assets |
(214,314) |
(349,022) |
(600,482) |
|
Sales of non-current financial assets(b) |
262,619 |
315,873 |
613,417 |
|
Net cash inflow/(outflow) from investing activities (b) |
48,305 |
(33,149) |
12,935 |
|
Cash flows from financing activities |
|
|
|
|
Equity dividends paid |
(32,940) |
(33,074) |
(44,885) |
|
Purchase and cancellation of own shares |
(19,677) |
(314) |
(2,041) |
|
Draw down from revolving credit facility |
- |
- |
50,000 |
|
Bank loans interest and fees paid |
(1,687) |
(1,280) |
(2,728) |
|
Net cash (outflow)/inflow from financing activities |
(54,304) |
(34,668) |
346 |
|
Net increase/(decrease) in cash |
41,329 |
(44,439) |
40,811 |
|
Cash at the start of the period |
125,855 |
85,212 |
85,212 |
|
Net losses on foreign exchange(c) |
(69) |
(25) |
(168) |
|
Cash at the end of the period |
167,115 |
40,748 |
125,855 |
(a) The Company has used the Loss before taxation as a starting point in the Statement of Cash Flows for the period ended 30 September 2022 and year ended 31 March 2022. Comparative figures for the period ended 30 September 2021 have been updated to adjust the presentation in line with IAS 8.
(b) Net losses on foreign exchange related to the Sales of non-current financial assets for the comparative figures have been reclassified for the consistency of the presentation.
(c) Net losses on foreign exchange related to cash and cash equivalents have been shown separately as part of the reconciliation of the cash and cash equivalents in line with IAS 8 requirements.
Reconciliation of liabilities arising from bank loans
|
|
Liabilities |
|
|
Liabilities |
|
Revolving credit facility |
50,000 |
- |
- |
50,000 |
|
Interest and fees payable |
249 |
(662) |
794 |
381 |
|
Fixed term loan |
100,000 |
- |
- |
100,000 |
|
Interest and fees payable |
352 |
(1,025) |
1,041 |
368 |
|
Total liabilities from bank loans |
150,601 |
(1,687) |
1,835 |
150,749 |
|
|
Liabilities |
|
|
Liabilities |
|
Revolving credit facility |
- |
- |
- |
- |
|
Interest and fees payable |
120 |
(239) |
243 |
124 |
|
Fixed term loan |
100,000 |
- |
- |
100,000 |
|
Interest and fees payable |
355 |
(1,041) |
1,049 |
363 |
|
Total liabilities from bank loans |
100,475 |
(1,280) |
1,292 |
100,487 |
|
|
Liabilities |
|
|
Liabilities |
|
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
For the six months to 30 September 2022
1 Basis of preparation
The Half Yearly Report for the six months to 30 September 2022 has been prepared in accordance with the UK adopted International Accounting Standard ("IAS") 34, "Interim Financial Reporting".
The Company has adopted the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") in July 2022 insofar as the SORP is compatible with UK adopted International Accounting Standards. The accounting policies applied in these half yearly Financial Statements are consistent with those applied in the Company's Financial Statements for the year ended 31 March 2022 and have been applied consistently to all periods presented in these interim Financial Statements.
The financial information contained in this interim statement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 September 2022 and 30 September 2021 has not been audited. The figures and financial information for the year ended 31 March 2022 are extracted from the published accounts and do not constitute the statutory accounts for that period. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors, which was unqualified and did not include a statement under sections 498(2) or 498(3) of the Companies Act 2006.
As at 30 September 2022, the Company had net current assets of £121,430,000 (31 March 2022: net current assets £85,065,000). The Directors have a reasonable expectation that the Company has sufficient resources to continue in operational existence for the foreseeable future. Accordingly the Financial Statements have been prepared on a going concern basis for the period to 31 March 2024, which is at least 12 months from the date of approval of these Financial Statements.
|
2 Earnings per share |
|
|
|
|
|
|
|
|
|
|
For the |
For the |
For the |
|
Revenue profit |
48,913 |
25,502 |
40,677 |
|
Capital loss |
(226,208) |
(217,352) |
(483,085) |
|
Total |
(177,295) |
(191,850) |
(442,408) |
|
Weighted average number of shares in issue |
1,175,330,868 |
1,181,225,786 |
1,181,093,110 |
|
Revenue profit per share |
4.16p |
2.16p |
3.44p |
|
Capital loss per share |
(19.25)p |
(18.40)p |
(40.90)p |
|
Total loss per share |
(15.09)p |
(16.24)p |
(37.46)p |
|
3 Equity share capital |
|
|
|
|
|
|
|
|
For the six months to |
For the six months to |
For the year |
|||
|
Ordinary shares in issue |
£'000 |
Number |
£'000 |
Number(a) |
£'000 |
Number(a) |
|
Opening ordinary shares of 5 pence |
58,945 |
1,178,896,985 |
59,062 |
1,181,228,655 |
59,062 |
1,181,228,655 |
|
Purchase and cancellation of own shares |
(621) |
(12,413,292) |
(9) |
(175,000) |
(117) |
(2,331,670) |
|
Closing ordinary shares of 5 pence |
58,324 |
1,166,483,693 |
59,053 |
1,181,053,655 |
58,945 |
1,178,896,985 |
|
|
For the six months to |
For the six months to |
For the year |
|||
|
Ordinary shares held in treasury |
£'000 |
Number |
£'000 |
Number(a) |
£'000 |
Number(a) |
|
Opening ordinary shares of 5 pence |
5,191 |
103,825,895 |
5,191 |
103,825,895 |
5,191 |
103,825,895 |
|
Closing ordinary shares of 5 pence |
5,191 |
103,825,895 |
5,191 |
103,825,895 |
5,191 |
103,825,895 |
|
Total ordinary shares in issue and held in treasury at the end of the year |
63,515 |
1,270,309,588 |
64,244 |
1,284,879,550 |
64,136 |
1,282,722,880 |
(a) Comparative figures for the year ended 31 March 2021 (i.e. number of ordinary shares in issue and number of ordinary shares held in treasury as at 31 March 2021) have been retrospectively adjusted following the sub-division of each existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
In the six months to 30 September 2022, 12,413,292 shares were bought back for cancellation for a total consideration of £18,394,000 (30 September 2021: 175,000 shares were bought back for cancellation for a total consideration of £314,000). All shares bought back in the period were cancelled, with none being placed in treasury (30 September 2021: no shares were placed into treasury).
|
4 Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six |
For the six |
For the year |
|||
|
|
Rate |
£'000 |
Rate(a) |
£'000 |
Rate(a) (pence) |
£'000 |
|
Declared and paid during the period: |
|
|
|
|||
|
Dividend on shares: |
|
|
|
|||
|
Final dividends for the years ended 31 March 2022 and 31 March 2021 |
2.80 |
32,940 |
2.80 |
33,074 |
2.80 |
33,074 |
|
Interim dividend for the six months ended 30 September 2021 |
- |
- |
- |
- |
1.00 |
11,811 |
|
Total |
2.80 |
32,940 |
2.80 |
33,074 |
3.80 |
44,885 |
(a) Comparative figures for the year ended 31 March 2021 (i.e. final dividend per share declared and paid for the year ended 31 March 2021) have been retrospectively adjusted following the sub-division of each existing ordinary share of 25 pence into five ordinary shares of 5 pence each on 26 July 2021.
On 8 December 2022 the Board declared an interim dividend of 2.00 pence per share for the financial year 2023 (financial year 2022: 1.00 pence per share interim dividend). This dividend has not been accrued in the Financial Statements for the six months ended 30 September 2022 as dividends are recognised when the shareholder's right to receive the payment is established. For the 2023 interim dividend this would be the ex-dividend date of 15 December 2022.
5 Taxation
The total tax expense of £6.58 million (30 September 2021: £6.68 million) consists of a revenue tax expense of £3.45 million (30 September 2021: £1.98 million) and a capital tax expense of £3.13 million (30 September 2021: £4.70 million). The revenue tax expense relates to irrecoverable overseas tax on dividends. The capital tax expense consists of £0.91 million (30 September 2021:
£3.94 million) expense arising from an increase in the provision for deferred tax on unrealised gains on holdings in India and a £2.22 million expense arising from tax on realised gains on holdings in India (30 September 2021: £0.76 million tax on realised gains on holdings in India and Pakistan).
6 Costs of investment transactions
During the period, expenses were incurred in acquiring or disposing of investments. The following costs of transactions are included in the gains/(losses) on investments at fair value:
|
|
For the six months to |
For the six |
|
|
Purchase expenses |
282 |
452 |
749 |
|
Sales expenses |
528 |
534 |
1,209 |
|
Total |
810 |
986 |
1,958 |
7 Fair value
Fair values are derived as follows:
- Where assets are denominated in a foreign currency, they are converted into the sterling amount using period-end rates of exchange;
- Investments held by the Company on the basis set out in the annual accounting policies;
- Cash at the denominated currency of the account; and
- Other financial assets and liabilities at the carrying value which is a reasonable approximation of the fair value.
The tables below analyse financial instruments carried at fair value by valuation method. The different levels have been defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 Inputs other than quoted prices included with level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices); and
Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The hierarchy valuation of listed investments through profit and loss are shown below:
|
|
30 September |
30 September |
31 March |
|
Level 1 |
1,842,148 |
2,414,193 |
2,103,727 |
|
Level 2 |
- |
- |
- |
|
Level 3 |
18,366(a)(b) |
26,576(a) |
20,803(a)(b) |
|
Total |
1,860,514 |
2,440,769 |
2,124,530 |
(a) Trading of Brilliance China Automotive shares on the stock exchange has been suspended since 31 March 2021, and as a result, the stock was fair valued using a beta model (which applies an index movement to observed trade prices) with unobservable inputs shown in the table below. As of 30 September 2021, this holding was disclosed as Level 3 and continues to be classified as Level 3 at 30 September 2022.
(b) Russian investments in Gazprom, LUKOIL, Sberbank of Russia, VK, and Yandex were fair valued at zero as at 31 March 2022 as a result of trading being suspended on international stock exchanges. These investments were transferred from Level 1 to Level 3 during the financial year ending 31 March 2022. As at 30 September 2022 these investments, except Gazprom which was sold in April 2022, continue to be fair valued at zero and classified as Level 3.
The following table presents the key unobservable inputs for Brilliance China Automotive's beta model as at 30 September 2022:
|
Description |
Fair value |
Unobservable |
Weighted average input |
Reasonable possible shift |
Reasonable possible |
Reasonable possible |
|
Equities |
18,366 |
Index movement |
-4% |
4% |
599 |
(671) |
|
|
|
Unleveraged beta |
0.88 |
0.5 |
(338) |
338 |
Shares of Brilliance China Automotive resumed trading on 5 October 2022 (see Note 8 for more details).
The following table presents the movement in Level 3 investments for the period:
|
|
30 September |
30 September |
|
|
Opening balance |
20,803 |
- |
- |
|
Transfers from Level 1 into Level 3 |
- |
- |
149,593 |
|
Transfers from Level 2 into Level 3 |
- |
50,954 |
50,954 |
|
Disposal proceeds - sale of Level 3 asset(a) |
(617) |
- |
- |
|
Net losses on investments at fair value |
(1,820) |
(24,378) |
(179,744) |
|
Level 3 closing balance |
18,366 |
26,576 |
20,803 |
(a) Represents the sale of the holding in Gazprom on 25 April 2022.
The fixed term loan is shown at amortised cost within the Statement of Financial Position. If the fixed term loan was shown at fair value the impact would be:
|
|
30 September |
30 September |
|
|
Fixed term loan at amortised cost |
100,000 |
100,000 |
100,000 |
|
Fixed term loan at fair value |
97,100 |
102,280 |
100,390 |
|
Increase/(decrease) in net assets |
2,900 |
(2,280) |
(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 has been transferred by novation from Scotiabank Europe plc to The Bank of Nova Scotia, London Branch with effective date 28 September 2022. All other contractual terms and conditions remained the same.
8 Events after the reporting period
Revolving credit facility
On 19 October 2022, the Company fully repaid the £50 million revolving facility drawdown included under the current liabilities in the Statement of Financial Position.
Brilliance China Automotive trading
Trading in Brilliance China Automotive shares on the stock exchange has been suspended since 31 March 2021, and as a result, the stock was fair valued using a beta model. The fair value as at 30 September 2022 was £18.4 million. The company announced it has fulfilled all the resumption recommendations set out by the Hong Kong stock exchange and therefore shares resumed trading on 5 October 2022. As at 5 December 2022, the market value was £42.9 million.
The Half Yearly Report for the six months to 30 September 2022 was approved by the Board on 8 December 2022. A copy of the report is available on our website www.temit.co.uk.
The PDF of the Half Yearly Report will be uploaded and available for viewing on the National Storage Mechanism, posted to the website www.temit.co.uk/resources/literature and may also be requested during normal business hours from Client Dealer Services at Franklin Templeton Investment Management Limited on freephone 0800 305 306.
For further information please e-mail temitcosec@franklintempleton.com or contact Client Dealer Services at Franklin Templeton on free phone 0800 305 306, +44 (0) 20 7073 8690 for overseas investors, or e-mail enquiries@franklintempleton.co.uk .
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