Interim Results

Templeton Emerging Markets IT PLC 19 December 2000 TEMPLETON EMERGING MARKETS INVESTMENT TRUST PUBLIC LIMITED COMPANY('TEMIT') ('the Company') ---------------------------------------------------------------------------- Interim Results for the six months to 31 October 2000 CHAIRMAN'S STATEMENT To Shareholders: At 31 October 2000 your Company had total assets of £629.1 million, compared with £749.9 million at 30 April 2000 and £680.2 million at 31 October 1999. The Company was 89.3% invested in equities as at 31 October 2000 compared to 81.5% at 30 April 2000. The largest country weightings at 31 October, compared to 30 April, were South Africa at 13.0% (10%), Mexico at 10.3% (7.3%) and Brazil at 9.9% (9.4%). Asia had the largest regional exposure at 33.9%, followed by Latin America at 24.4% with sub-Saharan Africa, Europe and the Middle East accounting for the remainder of the assets. Undiluted net asset value per share at the half-year stage was 137.9p, down 13.4% since the last year end. Over the same period the MSCI Emerging Markets Free Index, on a total return basis, fell by 13.7% and the IFCI Investible Index also declined by 13.7%. At 31 October the discount to net asset value was 20.6% and the share price was 109.5p, down 5.8% from six months ago. During the six month period 14.6 million shares were purchased in the market place, reducing the share capital by 3.1%. The Board has shareholder authority to buy back further shares when appropriate. Emerging markets have been affected by concerns about a slow-down in company earnings in major economies throughout the world, the high price of oil and the mark-down of technology stocks, all of which have been features of the six months under review. However this type of market offers opportunities to buy shares in companies at prices well below what we believe their true value to be. Many of these companies continue to operate profitably in spite of the difficult economic conditions they face in the emerging markets. The massive discounts they trade at, in relation to other companies, are in our view excessive. The Honourable Nicholas F Brady 19 December 2000 STATEMENT OF TOTAL RETURN For the six months to 31 October 2000 Revenue Capital Total £000 £000 £000 (unaudited) (unaudited) (unaudited) INCOME (Losses)/gains on investments - (106,297) (106,297) Investment income 6,785 - 6,785 Deposit interest 3,183 - 3,183 ------- --------- ---------- 9,968 (106,297) (96,329) EXPENSES Administrative expenses 5,321 - 5,321 ------- --------- --------- PROFIT BEFORE TAXATION 4,647 (106,297) (101,650) Taxation (1,273) - ( 1,273) ------- --------- --------- PROFIT AFTER TAXATION 3,374 (106,297) (102,923) Dividend in respect of equity shares - - - ------- --------- --------- TOTAL RETURN FOR THE PERIOD 3,374 (106,297) (102,923) Return per ordinary share Basic 0.72p (22.84)p (22.12)p Fully Diluted 0.72p (22.84)p (22.12)p Note: The capital element of returns is not distributable. The revenue column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. STATEMENT OF TOTAL RETURN continued For the six months to Year to 31 October 1999 30 April 2000 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) - (44,061) (44,061) - 26,988 26,988 8,630 - 8,630 19,081 - 19,081 408 - 408 1,275 - 1,275 -------- -------- -------- -------- ------- -------- 9,038 (44,061) (35,023) 20,356 26,988 47,344 -------- -------- -------- -------- ------- -------- (5,572) - (5,572) (11,764) - (11,764) -------- -------- -------- -------- ------- -------- 3,466 (44,061) (40,595) 8,592 26,988 35,580 (1,060) - (1,060) (2,303) - (2,303) -------- -------- --------- -------- ------- -------- 2,406 (44,061) (41,655) 6,289 26,988 33,277 -------- -------- --------- -------- ------- -------- - - - (5,180) - (5,180) -------- -------- --------- -------- ------- -------- 2,406 (44,061) (41,655) 1,109 26,988 28,097 -------- -------- --------- -------- ------- -------- 0.51p (9.36p) (8.85p) 1.34p 5.73p 7.07p 0.51p (9.36p) (8.85p) 1.34p 5.73p 7.07p Dividend Policy In accordance with the Company's stated policy, no interim dividend is declared for the period. (A dividend of 1.10 pence per Ordinary Share was paid for the year ended 30 April 2000.) BALANCE SHEET As at As at As at 31 October 31 October 30 April 2000 1999 2000 £000 £000 £000 (unaudited) (unaudited) (audited) FIXED ASSETS Equity Investments 561,845 648,702 611,071 ------- ------- ------- CURRENT ASSETS Debtors 23,859 20,298 39,275 Current Asset Investments 20,039 - 29,869 Cash 32,103 29,036 96,258 ------- ------- ------- 76,001 49,334 165,402 CREDITORS: amounts falling due within one year (8,361) (16,595) (25,455) -------- -------- -------- NET CURRENT ASSETS 67,640 32,739 139,947 TOTAL ASSETS LESS CURRENT LIABILITIES 629,485 681,441 751,018 PROVISION FOR LIABILITIES AND CHARGES (358) (1,285) (1,112) ------- --------- -------- NET ASSETS 629,127 680,156 749,906 ------- --------- -------- CAPITAL AND RESERVES Called-up Share Capital 114,081 117,726 117,726 Share Premium Account 260,977 275,265 275,264 Capital Reserves - realised 310,262 229,307 272,007 Capital Reserves - unrealised (72,296) 43,908 72,256 Revenue Reserves 16,103 13,950 12,653 ------- ------- ------- SHAREHOLDERS' FUNDS (all equity) 629,127 680,156 749,906 ------- ------- ------- Net Asset Value per Ordinary Share(in pence) - Basic 137.87 144.40 159.25 - Fully Diluted 137.04 142.56 154.89 Note: As a result of share buy backs, the dividend payable on 22 September 2000, for the year to 30 April 2000, was reduced by £76,000 and this has been credited to Revenue Reserves. CASH FLOW STATEMENT As at As at As at 31 October 31 October 30 April 2000 1999 2000 £000 £000 £000 (unaudited) (unaudited) (audited) Reconciliation of operating profit to net cash inflow from operating activities Operating activities 4,647 3,466 8,592 Decrease/(increase) in debtors 34 35 (38) Decrease/(increase) in accrued income 2,457 889 (2,252) (Decrease)/increase in creditors (145) (89) 193 (Decrease) in provisions - - (110) ------- ------- ------- Net cash inflow from operating activities 6,993 4,301 6,385 ------- ------- ------- Cash Flow Statement Net cash inflow from operating activities 6,993 4,301 6,385 Taxation (309) (2,414) 2,363 Financial investments (57,519) 9,820 98,065 -------- -------- -------- (50,835) 11,707 106,813 Equity dividends paid (5,104) (5,178) (5,178) -------- -------- -------- (55,939) 6,529 101,635 Management of liquid resources 9,830 6,938 (22,931) Financing (17,932) 238 238 -------- -------- --------- (Decrease)/increase in cash (64,041) 13,705 78,942 -------- -------- --------- Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the year (64,041) 13,705 78,942 Cash (outflow)/inflow from (decrease)/increase in liquid resources (9,830) (6,938) 22,931 Movement in net funds (73,871) 6,767 101,873 Foreign exchange translation and other differences (114) (64) 1,921 Opening net funds 126,127 22,333 22,333 -------- ------- ------- Closing net funds 52,142 29,036 126,127 -------- ------- ------- The unaudited interim financial information, which does not comprise full statutory accounts in terms of the Companies Act 1985, has been prepared on the basis of the accounting policies in the statutory accounts for the year ended 30 April 2000. The statutory accounts, which have been filed with the Registrar of Companies, received an unqualified audit report and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. Franklin Templeton Investment Management Limited 19 December 2000 GEOGRAPHIC ASSET ALLOCATION AS AT 31 OCTOBER 2000 AS AT 30 APRIL 2000 % % COUNTRY South Africa 13.04 9.98 Mexico 10.30 7.31 Brazil 9.86 9.45 Korea (South) 9.72 5.40 Turkey 6.59 8.09 Thailand 6.00 6.76 Hong Kong 5.13 5.75 Singapore 4.91 4.05 Poland 4.15 3.17 Indonesia 3.37 4.28 Argentina 2.46 2.98 Russia 1.40 1.82 Egypt 1.32 0.31 Czech Republic 1.27 1.57 Philippines 1.17 1.81 Pakistan 1.09 0.99 Hungary 1.07 2.31 Israel 1.00 0.26 Venezuela 0.87 2.31 India 0.84 0.82 Malaysia 0.71 0.31 Taiwan 0.67 0.02 Chile 0.50 0.51 Greece 0.45 0.00 Colombia 0.42 0.48 China 0.35 0.45 Croatia 0.32 0.03 Estonia 0.27 0.22 Finland 0.03 0.00 Slovak Republic 0.02 0.04 Peru 0.01 0.01 Liquid Assets 10.69 18.51 ------ ------ 100.00 100.00 ------ ------ TOP TWENTY HOLDINGS As at 31 October 2000 Market Value Company Country Industry £000's Grupo Financiero Banamex Accival SA De CV Mexico Banking 23,980 Cemex SA Mexico Building Materials 22,241 & Components Cheung Kong Holdings Ltd. Hong Kong Multi-Industry 18,857 Centrais Eletricas Brasileiras SA Brazil Utilities 17,479 (Eletrobras) Electrical & Gas Korea Electric Power Corp. Korea (South) Utilities 13,978 Electrical & Gas Sasol Ltd. South Africa Energy Sources 13,043 Banco Bradesco SA, pfd. Brazil Banking 12,833 Tupras-Turkiye Petrol Turkey Energy Sources 12,190 Rafineleri AS Akbank Turkey Banking 12,107 Telefonos de Mexico SA (Telmex) Mexico Telecommunications 9,900 Anglo American PLC South Africa Metals & Mining 9,770 South African Breweries PLC South Africa Beverages & Tobacco 9,281 PT Telekomunikasi Indonesia (Persero) Indonesia Telecommunications 8,529 Keppel Corp. Ltd. Singapore Transportation 7,784 CEZ AS Czech Republic Utilities Electrical & Gas 7,044 Siam Commercial Bank Thailand Banking 6,990 Barloworld Ltd. South Africa Multi-Industry 6,973 Old Mutual PLC South Africa Financial Services 6,741 Thai Farmers Bank Public Co. Ltd. Thailand Banking 6,711 Samsun Electronics Co. Ltd. Korea (South) Electrical 6,697 & Electronics ------- Top 20 Holdings - 37.0% of Net Assets 233,128 ------- INVESTMENT REVIEW This is the semi-annual report for the Templeton Emerging Markets Investment Trust PLC covering the six-month period ending 31 October 2000. Most emerging markets fell during the last six months with the MSCI EMF Index falling 13.7%, as investors cashed out of the stock markets due to fears over soaring global oil prices, signs of slowing growth in Western economies and concerns over the actual delivery of earnings. Portfolio Changes & Investment Strategies ----------------------------------------- In such an environment, we discovered more bargains in a number of markets which in our opinion had excessively corrected not due to a lack of improving fundamentals or economic breakdown but due to panic selling and a general loss of interest. This stemmed from firstly the correction of technology-related stocks in the beginning of the period, which then led to a chain reaction ending in selling across all sectors. Second, global oil prices at 10-year highs also exerted further pressures on most emerging markets. As the technology sector corrected, investors began reassessing their portfolios and began to rediscover value investing. While many investors stayed on the sidelines, we used the downturn to build positions in equities we deemed were trading at appealing valuations. This led to an increase in holdings in South Africa which, combined with stock price appreciation, made South Africa the most dominant country in the portfolio. We continue to favour South Africa due to the growth potential of the market and the quality of the managements we find there. We believe that South Africa's policies will build long-term stability, as indicated by a 10-year low budget deficit, improving trade situation and strict monetary policies. Moreover, heavy corrections in the technology sector have now brought the valuations of some stocks down to reasonable valuations, thus we increased our holdings in South Korea, Taiwan and Israel. In South Korea, not only has the latest Hyundai Group restructuring aroused concern, the announcement by Ford Motors to withdraw its US$6.9 billion bid for the ailing Daewoo Motors also resulted in a flight of funds in the short-term. While these events have once again brought the need for stringent reforms to the forefront, we have seen the government make some progress pushing through economic reforms. Anticipating positive changes ahead, we continue to use these downturn periods to build long-term positions cheaply. In our opinion these markets have experienced more than their fair share of volatility and should recuperate due to continuing economic recovery and strengthening fundamentals. Holdings in the China 'H' market were also added as China worked towards expediting its entry into the World Trade Organization (WTO). Going forward, we expect China to work towards the resolution of the remaining multilateral agreements as well as the final bilateral agreement with Mexico. While accession was expected by the end of the year, final barriers at a multilateral level might result in the delay of accession to next year. However, this should not have any major negative impact as China continues to implement reforms and changes in line with agreements made with WTO partners. Further encouragement was seen when the US Senate granted China permanent normal trading relations. These positive changes could have spillover effects on the Taiwanese market. Moreover, with China's entry into the WTO, Taiwan should reap some benefits as a result of increased trade with China. In Brazil, continued success, albeit slow and painful, on fiscal reforms as well as further progress on privatization augured well for Brazil's economy. These changes have led to relatively stable economic growth in Latin America's largest country. As a result of the above changes and varying performances of individual markets, Sasol (South Africa) and Banco Bradesco (Brazil) replaced Arcelik (Turkey) and Telekomunikasi Indonesia (Indonesia) among the Trust's top ten holdings. As of the end of October, the largest portion of the Trust's holdings could be found in South Africa (13.0%), followed by Mexico (10.3%), Brazil (9.9%) and South Korea (9.7%). Political Climate ----------------- This year marked the end of Mexico's Institutional Revolutionary Party's (PRI) rule in Latin America's second largest economy. Centre-right National Action Party candidate Vicente Fox defeated the PRI, the world's longest-governing party, in power for over seven decades. The long-awaited defeat of the PRI confirms that Mexico has developed strong democratic institutions and is moving more in line with its northern neighbours. In Eastern Europe, as widely expected, President Aleksander Kwasniewski secured a second five-year term in office. In Hungary, President-elect Ferenc Madl began his 5-year term. However, no change in government policy is expected, as a Hungarian president has no executive powers. Moving to Asia, the big news in South Korea was definitely President Kim Dae-jung's Nobel Peace Prize victory for his groundbreaking efforts in bringing the two Koreas together. Talks have been held numerous times since June and in October North Korea began construction on reopening rail links across the border to the South. As efforts towards reunification continue, interest in Korea could further develop and result in greater investor confidence, and expanded foreign investment in the region. However, the impact of the debt-laden Korean chaebol conglomerates continues to act as a drag on the economy. Resistance to reform is now coming not only from the chaebol families but also from subcontractors to chaebol firms many of whom will be pushed into bankruptcy as orders dry up and promissory notes issued by the chaebols move into default. Labour layoffs is arousing militant union demonstrations. Political turmoil engulfed Taiwan as three opposition parties came together to contemplate the removal of the President due to the government's decision to abandon the construction of the island's fourth nuclear power plant, despite being one-third completed. While the Parliament has in fact passed the law empowering it to undertake dismissal or impeachment proceedings against the President, such actions seem less likely to take place. In the Philippines the impeachment trial of President Estrada for corruption takes centre stage. This is the first impeachment trial in Asia and is an indication of increasingly restive citizens demanding reform. This pattern is prevalent throughout Asia. Economic Conditions ------------------- Most Eastern European economies continued to undertake various reforms and embark upon new programs in order to ensure that their accession into the European Union is not derailed by any external shocks. Efforts to expedite Turkey's accession into the European Union also continued as the Council decided that changes in laws relating to human rights and democracy should be parliament's top priority. Furthermore, the government also announced plans to speed up privatization, which should also help restrain inflation. The 2001 budget was also submitted to the parliament. The underlying macroeconomic targets were in line with the International Monetary Fund's requirements and indicated a commitment to a disciplined fiscal policy. However, banking reform concerns led to a short-term crisis which led the central bank to inject liquidity into the market and increase short-term interest rates briefly to relieve pressure on the local currency. Panic-selling took place across the board in the stock market as investors reacted to the liquidity crunch and concerns over a possible devaluation. While this caused the stock market to crash, an IMF rescue mission announced a US$10 billion loan package designed to calm the market and help relieve liquidity problems. Furthermore, the government also decided to bring into effect a package of measures to strengthen the banking system as well as speed up privatization, actions which we believe along with the central bank's decision to resume its tight monetary policy, could eliminate concerns over currency devaluation. In addition, the government continued to stress its commitment to the deflation program and stated that the underlying targets would not be changed. In Latin America, Mexico cleared its outstanding debt with the IMF, thereby allowing the next government to start afresh with the organization. In another positive development, Brazil completed the largest ever emerging market debt exchange, swapping over US$5 billion worth of Brady bonds for new 40-year global bonds. This combined with Moody's announcement to place Brazil's foreign debt on review for a possible upgrade, improved perception of the country's risk level. In the Middle East, towards the end of the six-month period, severe disruptions to the peace process were experienced with violent confrontations between the Israelis and the Palestinians. Positively, Israeli and Palestinian leaders have agreed to meet US President Clinton separately in a bid to reinstate peace in the region. While all these events have led to corrections in the stock markets, we believe that long-term investors should be well rewarded as bargain hunting leads to the return of investors. Outlook ------- Turbulence is expected to continue in most emerging markets in the short-term as investors recuperate from the losses experienced this year and begin to take a more cautious attitude towards investing, especially in the technology sector which has heavily corrected. In many of the emerging markets, valuations have fallen to very attractive levels. We are now able to buy companies at a fraction of what we view their true values to be. Many of these companies continue to operate profitably in spite of the difficult economic conditions they may face in the emerging markets. Thus we feel that the present discounts on stocks in the markets are unwarranted. Emerging markets have traditionally been volatile, and their volatility has increased recently. However, as an asset class, emerging markets can deliver superior returns over the long term. Dr J B Mark Mobius Director 19 December 2000 For further information, please contact: Jim Sharp Philip Middleton Templeton Merrill Lynch International Tel: 0131 469 4000 Tel: 0207 772 1000

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