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 2024
Introducing TEMIT
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. From its launch to 31 March 2024, TEMIT’s net asset value (‘NAV’) total return was +4,155.4% compared to the benchmark total return of +1,752.0%.
The Company is governed by a Board of Directors who are committed to ensuring that shareholders’ best interests, considering the wider community of stakeholders, are at the forefront of all decisions. Under the guidance of the Chairman, the Board of Directors is responsible for the overall strategy of the Company and monitoring its performance.
Financial highlights
| 2024 | 2023 | 3 Years Cumulative | 5 Years Cumulative | 10 Years Cumulative | |
| Net Assets Value Total Return (cum-income)(a) | 7.9% | 0.8% | (10.0)% | 23.4% | 89.5% |
| Share Price Total Return(a) | 4.9% | 0.5% | (16.9)% | 16.5% | 84.7% |
| MSCI Emerging Markets Index(a)(b) | 5.9% | (4.9)% | (6.5)% | 15.1% | 76.5% |
| Proposed Total Ordinary Dividend(c) | 5.00p | 5.00p |
(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 (Net Dividends) Index.
(c) An annual ordinary dividend of 5.00 pence per share for the year ended 31 March 2024 has been proposed. This comprises the interim dividend of 2.00 pence per share paid by the Company on 26 January 2024 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 2024, 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
2023-2024
| Year Ended 31 March 2024 | Year Ended 31 March 2023 | Change | |
| Net Asset Value Total Return (Cum-Income)(a) | 7.9% | 0.8% | |
| Share Price Total Return(a) | 4.9% | 0.5% | |
| MSCI Emerging Markets (Net Dividends) Index Total Return(a) | 5.9% | (4.9)% | |
| Total Net Assets (£ millions) | 2,034.9 | 2,017.5 | 0.9% |
| Net Asset Value (Pence per Share) | 182.5 | 174.1 | 4.8% |
| Share Price (Pence per Share) | 154.4 | 152.2 | 1.4% |
| Share Price Discount to Net Asset Value at Year End(a) | 15.4% | 12.6% | |
| Average Share Price Discount to Net Asset Value Over the Year(a) | 13.9% | 13.0% | |
| Ordinary Dividend(b) (Pence per Share) | 5.00 | 5.00 | |
| Revenue Earnings(c) (Pence per Share) | 5.18 | 5.72 | |
| Net Gearing(a) | 0.0% | 0.0% | |
| Ongoing Charges Ratio(a) | 0.97% | 0.98% |
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 2024 has been proposed. This comprises the interim dividend of 2.00 pence per share (2023: 2.00 pence per share) paid by the Company on 26 January 2024 and a proposed final dividend of 3.00 pence per share (2023: 3.00 pence per share).
(c) The revenue 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.
10 year record
2014-2024
| 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 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 | 0.98 |
| 31 March 2024 | 2,034.9 | 182.5 | 154.4 | 15.4 | 5.18 | 5.00(d) | 0.97 |
Source: Franklin Templeton and FactSet.
(a) Comparative figures for financial years 2014 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 2024 has been proposed. This comprises the interim dividend of 2.00 pence per share paid by the Company on 26 January 2024 and a proposed final dividend of 3.00 pence per share.
Chairman’s statement
‘Over the year under review, our Investment Managers produced a commendable +7.9% NAV total return, which was 2.0 percentage points higher than the benchmark index.’
Angus Macpherson
Chairman
It is a great pleasure to deliver to you my first statement since assuming the role of Chairman in January. All of the Board members would like to thank my predecessor Paul Manduca for his excellent contribution in leading the Board and steering the Company over the last nine years. We wish Paul well in his current and future endeavours.
I have been involved with emerging markets for most of my career. During that time, I have considered Templeton Emerging Markets Investment Trust, your Company, as a pioneer of the asset class and the most widely recognised and admired investment vehicle of its type. Its achievements speak for themselves: from its launch 35 years ago, it has provided a NAV total return of +4,155.4% compared to a benchmark total return over the same period of only +1,752.0%.
At the moment, some of the forces that drove this performance – globalisation, free trade and geopolitical stability following the fall of the Berlin wall – are under threat. China, the largest and most successful emerging market, is a cause of increasing alarm to western governments. This has translated into less compelling returns for the asset class. Since 2000 emerging market equities have returned more to shareholders than world stock markets overall, but most of that outperformance occurred in the first decade of the 21st century and in the most recent ten years this trend has reversed.
Your Manager and Board are optimistic about emerging markets in the longer term but acknowledge that significant challenges are adversely impacting the appetite of investors for emerging market equities as an asset class at this time.
Performance(a)
Over the year under review, our Investment Managers produced a commendable +7.9% NAV total return, which was 2.0 percentage points higher than the benchmark index.
The share price performance of the Company did not reflect this positive performance, delivering a total return of only +4.9%, as the discount the shares trade to their underlying net asset value widened from 12.6% to 15.4%. We believe that this mainly reflects investor appetite for emerging markets.
(a) See Glossary of Alternative Performance Measures in the full Annual Report.
Share price rating
This discount is extremely unsatisfactory and of considerable concern to the Board. Your Company is not alone in experiencing such a discount: at the end of March 2024 the average investment trust discount was 15.6%, compared with 3.2% three years previously(b). This does not alter the fact that investors have recently only been willing to buy £1 of emerging market equities for around 85p. While the cause is evidently a lack of buyers for the Company’s shares, the solution is harder to achieve.
(b) Source: Winterflood (data provided by Refinitiv).
The Board believes that there are three important factors which can narrow the discount: renewed investor enthusiasm for emerging market equities after a period in the doldrums (investor psychology is notoriously cyclical); a company structure with investment performance that makes it attractive relative to other investment vehicles; and an enhanced profile through marketing that increases awareness amongst new investors.
Two of these three factors, the performance of the Company and its marketing efforts, have been strong. The Portfolio Managers, Chetan Sehgal and Andrew Ness, have delivered outperformance. This year, the Company received an Income and Growth award rating from Kepler Investment Trust Intelligence. Kepler’s annual ratings are intended to highlight investment trusts that have demonstrated attractive and consistent performance over the long term, using the unique advantages of the investment trust structure to benefit shareholders.
Our Manager has also been active in promoting TEMIT’s shares to existing and potential investors via a variety of traditional and online channels. In recent years they have made great advances particularly in digital marketing. Additionally, our Portfolio Managers participate in a range of activities, including presentations to investor groups and meetings with key journalists. The Board was pleased again to be recognised by the AIC in its awards for shareholder communication in September 2023, for the second consecutive year.
So the missing factor to a natural and positive re-rating for our shares is a return to favour for emerging markets more generally. We cannot influence this but our objective is to continue to lay the foundations through appropriate structural mechanisms, strong performance and ongoing marketing, so that the Company can enjoy the benefit of buying interest when sentiment towards emerging markets improves.
Shareholder returns
There are a number of levers at the disposal of the Board which have been put in place to make the shares of the Company relatively more attractive: a commitment to at least maintain the dividend; a share buyback programme for up to £200.0 million; a further conditional tender offer; and amendments to the Company’s management fee arrangements.
Dividends
An interim dividend of 2.00 pence per share was paid at the half year stage and the Board is proposing an unchanged final dividend of 3.00 pence per share, taking the total for the year to 5.00 pence per share. The proposed full year dividend yield will amount to 3.2%, based on the share price as at 31 March 2024. This compares with net revenue earnings for the year under review of 5.18 pence per share, which was a little lower than the preceding year.
Over the course of the last five years, including this year’s proposed final dividend, the Company has paid aggregated dividends(a) of £249.0 million or 23.92 pence per share to shareholders. Over five years, we will then have returned circa 15.6% of the share price on 31 March 2019 to shareholders in dividends.
(a) Includes special dividends of 0.52 pence per share for the year ended 31 March 2020 and 2.00 pence per share for the year ended 31 March 2021 which related respectively to an extraordinary distribution from Brilliance China Automotive and a tax reclaim.
The Company has accumulated significant distributable reserves over the years and the Board intends to at least maintain the dividend at the current level of 5.00 pence per share for next five years and will, if necessary, use reserves to do so. This equates to a total minimum distribution over the next five years of £278.7 million on the basis of the number of shares in issue as at 31 March 2024, and equivalent to 16.2% of the Company’s market capitalisation as at 31 March 2024.
Share buybacks
The Board does not believe that share buybacks narrow the discount to NAV in anything other than the short term. However, the Board remains steadfast in its view that share buybacks are important in providing liquidity to shareholders and enhancing returns. In the Board’s view an investment manager needs a very high level of conviction to purchase a new holding when shares of the Company can be purchased at a wide discount to NAV. In total over the last year, £65.9 million was allocated to share buybacks, representing 3.8% of the outstanding share capital. All buybacks were executed at a discount to the prevailing NAV and this resulted in an increase in the NAV of 0.54% to the benefit of continuing shareholders.
Over the past five years, the Company has purchased 142.3 million(a) shares for £218.2 million. In aggregate these share buybacks resulted in an increase in the NAV of 1.5% to the benefit of continuing shareholders.
(a) Adjusted for the sub-division of each share into five shares on 26 July 2021.
In view of the wide discount that the shares are trading to their underlying NAV the Board has decided that it will substantially increase the rate of share buybacks and, if the discount persists, intends to repurchase up to £200.0 million of shares at open market value over the next 12 to 24 months and continue at a suitable rate as required thereafter. This should enhance returns for continuing shareholders and provide improved liquidity for those wishing to realise their investment.
Conditional tender offer
31 March 2024 also marked the point at which we measured performance over five years for our conditional tender offer. In 2019, the Board announced that if the NAV total return over five years did not exceed that of the benchmark index, then the Company would implement a conditional tender offer for up to 25% of the issued share capital at a price equal to the net asset value less two per cent (less the costs of the tender offer). The Board is pleased to report that the NAV total return over the period was +23.4%, which was 8.3 percentage points higher than that of the benchmark index, representing annualised outperformance of over 1.6% per annum. As a result, the conditions for triggering the tender offer were not met.
The Board and Manager believe in active management to generate excess return. As a consequence, we have decided to offer a new conditional tender. If over the five-year period from 31 March 2024 to 31 March 2029 the Company’s net asset value total return fails to exceed the benchmark total return then the Board will put forward proposals to shareholders to undertake a tender offer for up to 25 per cent of the outstanding share capital at the discretion of the Board. Any such tender offer will be at a price equal to the then prevailing net asset value less two per cent (less the costs of the tender offer). As with the previous conditional tender offer, any tender offer will also be conditional on shareholders approving the continuation vote in 2029 and would take place following the Company’s 2029 annual general meeting (‘AGM’).
Fees
The Board recognises the commitment of its Manager to provide on-the-ground presence across global emerging markets. It also recognises the industry-wide pressure on management fees. The Board’s measured response is a phased change in fees between now and mid-2026.
Current fee rates:
• 1% 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.
With effect from 1 July 2024 and 1 July 2025, the middle rate band for net assets between £1 billion and £2 billion will reduce to 0.7% and then 0.6% respectively.
With effect from 1 July 2026:
• 1% of the first £1 billion of net assets;
• 0.5% of net assets over £1 billion.
Based on the current net asset value of approximately £2 billion, this will result in the blended fee rate reducing from approximately 0.875% today to 0.75% in 2026.
Over the last five years in aggregate £467.2 million has been returned to shareholders through dividends and share buybacks, some 22.1% of net assets at the start of the five-year period. If the tender offer had been triggered and taken up this would have risen to £965.7 million or the equivalent of some 45.6% of net assets at the start of the period.
Going forward, we believe that the Investment Managers are well positioned to deploy capital in emerging market equities to the benefit of Company shareholders. The Board believes that the measures announced above represent an even greater commitment over the next five years to underpin the returns to shareholders through dividends, a more aggressive buyback programme, a new conditional tender offer, and lower fees.
Gearing
The Board believes that gearing is one of tools that closed ended investment vehicles like TEMIT can use to differentiate themselves from open ended vehicles. At times of high conviction market exposure can be increased through increasing gearing. The Board is currently reviewing our approach to gearing with Franklin Templeton. Historically, TEMIT had two facilities: a fixed rate loan of £100.0 million at an attractive rate of interest which is set to mature in January 2025 and a £120.0 million revolving credit facility. When the latter facility matured in January 2024 the Board opted not to renew it because at the time the Investment Managers were not using the facility and interest rates had risen substantially since the facility was first set up. The Board and Investment Managers are exploring alternative forms of gearing such as Contracts for Difference and other derivatives. We will communicate with shareholders when this review is concluded.
Stewardship
Since TEMIT was launched in the late 1980s, our Investment Managers have had a strong focus on the corporate governance of investee companies, which we believe has helped many companies to understand and attract international investors. Details of the Investment Managers’ process are included in the full Annual Report, along with a summary of the approach to Environmental, Social and Governance (‘ESG’) considerations. While sustainability has garnered increasing attention in recent years, it has always represented one element of a multi-faceted investment process. To comprehensively illustrate the wide range of analysis and activities undertaken, two years ago the Investment Managers started to produce an annual dedicated Stewardship Report for TEMIT, and this initiative continues to receive a favourable response from shareholders and industry experts. This year’s report was published simultaneously with this Annual Report and is available to download at www.temit.co.uk.
The Board
Following my appointment the Board comprises four men and two women, a composition that we recognise falls below best practice in gender diversity. We intend to address this as Directors retire in due course, prioritising the enhancement of the Board’s diversity while remaining attentive to the best interests of our shareholders. Our aim is to ensure that the Board maintains a robust blend of skills, knowledge, and experience.
Annual General Meeting and continuation vote
I am pleased to extend an invitation to all shareholders to join us for our AGM on 11 July 2024 at Stationers’ Hall in London. We look forward to welcoming those shareholders who are able to come to the meeting.
The Company’s Articles of Association stipulate that the Board must seek shareholders’ approval every five years for its continuation, and a continuation vote is scheduled for this year’s AGM. This vote coincides with the 35th anniversary of TEMIT’s launch. As mentioned in the discussion of the conditional tender offer above, performance over the last five-yearly cycle has been strong. Furthermore, over the 35 years since TEMIT’s inception returns have been exceptional. The NAV total return has been over 40-fold, compared with a 17-fold return for our benchmark index. In light of the long-term track record and the strength of the investment management team, the Board unanimously recommends that shareholders vote in favour of continuation.
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 do subsequently decide to 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 are also welcome to use these contact details should you have a question at any other time. Any questions that we receive will be considered and, if appropriate, responses will be provided on our website www.temit.co.uk.
Outlook – risks and opportunities
While there has been a significant deterioration in the geopolitical environment, the Board considers that the equity markets in which TEMIT invests are less expensive than those of developed markets, while the prospects for economic growth in emerging markets are superior. Those two factors should make emerging market equities very appealing for long-term investment.
The most immediate challenge is China, which is around 25% of our benchmark index. The combination of increasing tensions with the US, changes in domestic policy and the poor performance of the Chinese economy are together causing concerns about the wisdom of investment in China.
Given the significant exposure of our portfolio to China the Board met in China and Hong Kong in March 2024 with some of the analysts who assist our Portfolio Managers. Franklin Templeton has extensive and impressive research resources in the region and provided the Board with deep insights into the range of investment opportunities that they are considering. The Investment Managers’ view, which we share, is that while these risks are very real, asset prices are substantially discounted for them.
Additionally, the Board and Investment Managers believe that China is probably too integrated into the global economy for economic sanctions to profit any party. However, the risks, while remote, are large and it would be imprudent to ignore them.
At the point investors perceive these risks to have moderated, it is reasonable to assume that shareholders will once again be rewarded with the returns they used to earn from investing in the most exciting, fastest growing economies in the world.
Angus Macpherson
Chairman
7 June 2024