Interim Results

Templeton Emerging Markets IT PLC 10 December 2004 PRELIMINARY ANNOUNCEMENT TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC ("TEMIT") ("the Company") Interim Results for the six months to 31 October 2004 The Company today announced its interim results for the period to 31 October 2004. Chairman's Statement Interim Results for the six months to 31 October 2004 The Company today announced its interim results for the period to 31 October 2004. Chairman's Statement At 31 October 2004 your Company had total assets of £965.8 million, compared with £778.5 million at 30 April 2004. 94.3% of the Company's total assets were invested in equities with the remaining 5.7% being held in liquid assets. The general policy of your Board is to be fully invested and in line with this, the proceeds of the warrant exercise have been substantially invested. Net asset value per share on 31 October was 180.20 pence, an increase of 5.4% from 30 April 2004. The share price was 150.75 pence compared with 144.00 pence at the beginning of the fiscal year, an increase of 4.7%. Over the same period the MSCI Emerging Markets Index, on a total return basis in sterling terms rose 5.4% and the IFC Investable Composite Index increased 6.0%. The discount was 16.3% compared with 15.8% at 30 April 2004. On 7 December the share price had risen to 163.00 pence and the discount had dropped to 13.8%. The quarter has seen the satisfactory conclusion of the redemption of warrants: 88.34% of warrants in issue were exercised by warrant holders. The shareholders also voted in favour of continuation at the AGM on 21 September. During the six-month period to 31 October 2004, variable expenses rose from £4.7 million to £5.4 million as a direct result of the increase in assets compared to the same period last year. Additionally, fixed expenses rose from £0.35 million to £0.6million, principally as a result of expenses associated with the continuation vote and the warrant conversion exercise. The Board itself has been re-constituted in the last 9 months. The new combined code and AITC rules meant that a number of the previous Board were classified as non-independent. The Board now has 8 members of whom only one, Mr Charles Johnson as Chairman of Franklin Resources, Inc., is non-independent. Since the AGM, Sir Peter Burt, former CEO of the Bank of Scotland and now Chairman of ITV, has been elected to the Board; he will serve on the Audit Committee. Peter Smith, former Senior Partner of PricewaterhouseCoopers, who is Chairman of the Audit Committee, has been appointed Senior Independent Director. The new Board is international, has broad business, financial and investment experience and is well suited to its primary task of representing shareholders in monitoring the fund manager's performance. The Board is fully aware that shareholders are primarily interested in total shareholder return and in the fund manager's performance. Dr Mark Mobius, the investment manager makes regular presentations to shareholders and will continue to do so. I, as Chairman, am available to any shareholder who wishes to comment on or discuss any point of Company policy. The Board keeps the performance of the fund, the share price and the discount under continual review and in the period running up to the warrant exercise date engaged in a significant share buy-back programme. 11,812,763 shares were bought back at a cost of £17,273,852 and the shares cancelled. The fund manager report and profile review gives a detailed analysis of the fund performance over the period. The portfolio is managed by using the value style of investing. This requires detailed research of stocks and only those trading at less than their assessed value are purchased. Since inception, the net asset value of TEMIT plc has risen by 399.2% in sterling terms compared with 242.0% for the IFC Investable Composite Index and 252.9% for the MSCI Emerging Markets Index. Since our last report at 30 April 2004, most emerging markets recorded positive performances, reflecting investors' optimism. The continuation of generally positive economic and political developments drove much of the gains, and the asset class out-performed the US, European and Japanese markets for the six months under review. Despite some short-term political instability in the Czech Republic, Hungary and Poland, most Eastern European markets continued on an upward trend as many governments there implemented legislation in line with EU standards and experienced positive macro-economic developments. Latin American markets performed strongly during the period as some governments focused on implementing reforms and developing regional and international trade relations. Under-performing markets included China, Taiwan and Thailand, whose commerce and economic fortunes are closely linked. Concerns about a hard landing for China's cooling economy, record high oil prices and rising US interest rates adversely impacted investor confidence about China and some of its Asian trading partners. Sir Ronald Hampel 10 December 2004 Indices above are shown on a total return basis in GBP. Sources: Franklin Templeton Investments and Standard & Poor's Micropal. STATEMENT OF TOTAL RETURN (UNAUDITED) For the six months to 31 October 2004 (unaudited) Revenue Capital Total £000 £000 £000 INCOME Gains on investments - 76,265 76,265 Investment Income 13,748 - 13,748 Interest Income 556 - 556 14,304 76,265 90,569 -------- -------- -------- EXPENSES Administrative Expenses (6,031) - (6,031) --------- ----- --------- PROFIT BEFORE TAXATION 8,273 76,265 84,538 Taxation (2,996) - (2,996) --------- PROFIT AFTER TAXATION 5,277 76,265 81,542 ------- -------- -------- Dividend in respect of equity shares - - - TOTAL RETURN FOR THE PERIOD 5,277 76,265 81,542 ------- -------- -------- Return per Ordinary Share 1.13p 16.27p 17.40p Diluted Return Per Ordinary Share* 1.12p 16.21p 17.33p Annualised Expense Ratio 1.51% N/A Notes: *April 2004 return has been restated to reflect the dilutive effect of potential ordinary shares. 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 (UNAUDITED) (CONTINUED) For the six months to Year to 31 October 2003 (unaudited) 30 April 2004 (audited) Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 - 154,850 154,850 - 179,999 179,999 14,874 - 14,874 28,820 - 28,820 214 - 214 462 - 462 ----- --- ----- ----- --- ----- 15,088 154,850 169,938 29,282 179,999 209,281 -------- --------- --------- -------- --------- --------- (5,076) - (5,076) (10,978) - (10,978) --------- --- --------- ---------- --- ---------- 10,012 154,850 164,862 18,304 179,999 198,303 (3,005) - (3,005) (5,144) - (5,144) --------- --- --------- --------- --- --------- 7,007 154,850 161,857 13,160 179,999 193,159 ------- --------- --------- -------- --------- --------- - - - (10,242) - (10,242) --- --- --- ---------- --- ---------- 7,007 154,850 161,857 2,918 179,999 182,917 ------- --------- --------- ------- --------- --------- --- --- --- --- --- --- 1.54p 34.02p 35.56p 2.89p 39.54p 42.43p N/A N/A N/A 2.88p 39.40p 42.28p 1.47% N/A 1.48% N/A Dividend Policy In accordance with the Company's stated policy, no interim dividend is declared for the period. (A dividend of 2.25 pence per Ordinary Share was paid for the year ended 30 April 2004) BALANCE SHEET As at As at As at 31 October 31 October 30 April 2004 2003 2004 £000 £000 £000 (unaudited) (unaudited) (audited) FIXED ASSETS Investments 910,372 740,334 768,120 --------- --------- --------- CURRENT ASSETS Debtors 5,450 5,095 15,322 Cash* 56,658 16,893 17,977 -------- -------- -------- 62,018 21,988 33,299 CREDITORS: amounts falling due within one year (6,504) (4,825) (22,062) --------- --------- ---------- NET CURRENT ASSETS 55,604 17,163 11,237 TOTAL ASSETS LESS CURRENT LIABILITIES 965,976 757,497 779,357 PROVISION FOR LIABILITIES AND CHARGES (132) (100) (900) ------- ------- ------- NET ASSETS 965,844 757,397 778,457 --------- --------- --------- CAPITAL AND RESERVES Called-up Share Capital+ 133,995 113,806 113,806 Share Premium Account+ 375,327 275,351 275,351 Capital Redemption Reserve++ 6,893 3,940 3,940 Capital Reserve - Realised 164,958 195,871 197,761 Capital Reserve - Unrealised 258,552 143,498 166,757 Revenue Reserve 26,119 24,931 20,842 -------- -------- -------- SHAREHOLDERS' FUNDS (all equity) 965,844 757,397 778,457 --------- --------- --------- Net Asset Value per Ordinary Share (in pence) - Basic 180.20 166.38 171.01 - Diluted++ N/A 160.74 164.58 *The high level of cash held as at 31 October 2004 has arisen as a result of the final warrant exercise on 30 September 2004. +The movement in called-up share capital and the share premium account is due to the final warrant exercise and the shares repurchased during the period. The movements are detailed below: Called-up share capital £000 Share premium account £000 Balance as at 1 May 2004 113,806 Balance as at 1 May 2004 275,351 Shares repurchased during the Issue of Ordinary Shares on exercise period (2,953) of Warrants 99,976 Warrants exercised during the period 23,142 Balance as at 31 October 2004 133,995 Balance as at 31 October 2004 375,327 ++The movement in the capital redemption reserve reflects the nominal value of shares repurchased during the period. The movements are detailed below: £000 Balance as at 1 May 2004 3,940 Nominal value of shares repurchased 2,953 Balance as at 31 December 2004 6,893 ++Final warrant exercise took place on 30 September 2004, resulting in the diluted NAV no longer being applicable. CASH FLOW STATEMENT For the six For the six For the year months to months to to 30 April 31 October 2004 31 October 2003 2004 £000 £000 £000 (unaudited) (unaudited) (audited) Reconciliation of operating profit to net cash inflow from operating activities Operating activities 8,273 10,012 18,304 (Increase) in debtors (408) (67) (25) Decrease/(increase) in accrued income 5,011 2,460 (2,574) (Decrease)/increase in creditors (73) (6) 323 ------ ----- ----- Net cash inflow from operating activities 12,803 12,399 16,028 -------- -------- -------- Cash Flow Statement Net cash inflow from operating activities 12,803 12,399 16,028 Taxation (3,706) (1,793) (3,768) Financial investments (65,910) 5,116 4,546 ---------- ------- ------- (56,813) 15,722 16,806 Equity dividends paid (10,242) (5,690) (5,690) ---------- --------- --------- (67,055) 10,032 11,116 Financing * 105,736 54 54 --------- ---- ---- Increase in cash 38,681 10,086 11,170 -------- -------- -------- Reconciliation of net cash inflow to movement in net funds Increase in cash in the period 38,681 10,086 11,170 Opening net funds 17,977 6,807 6,807 -------- ------- ------- Closing net funds 56,658 16,893 17,977 -------- -------- -------- The figures and financial information for the year ended 30 April 2004 are an extract from the latest published financial statements and do not constitute statutory financial statements for that year. Those financial statements have been delivered to the Registrar of Companies and included a report of the auditors which was unqualified and did not contain a statement under Section 237 (2) and 237(3) of the Companies Act 1985. The interim report has not been audited by the Company's auditors. The interim report has been prepared using accounting policies that are consistent with those adopted in the statutory accounts for the year ended 30 April 2004. *The cash inflows resulting from financing activities are detailed below: £000 Cost of shares repurchased during the period (17,249) Proceeds from warrants exercised during the period 122,985 105,736 GEOGRAPHIC ASSET DISTRIBUTION AS AT 31 OCTOBER 2004 AS AT 30 APRIL 2004 COUNTRY % COUNTRY % Korea (South) 15.53 Korea (South) 15.42 China 13.81 China 15.54 Brazil 11.33 Brazil 9.33 Thailand 8.01 Thailand 9.64 Turkey 6.83 Turkey 6.65 Hungary 5.73 Hungary 6.28 Taiwan 5.51 Taiwan 3.78 South Africa 4.46 South Africa 4.91 Singapore 3.76 Singapore 3.48 India 3.16 India 1.81 Poland 3.06 Poland 2.24 Greece 2.60 Greece 3.75 Austria 2.23 Austria 2.17 Mexico 2.05 Mexico 2.96 Croatia 1.86 Croatia 1.81 Malaysia 0.94 Malaysia 0.54 Egypt 0.88 Egypt 1.00 Philippines 0.82 Philippines 1.09 Czech Republic 0.74 Czech Republic 1.75 Russia 0.48 Russia 0.54 Sweden 0.20 Sweden 0.00 Peru 0.16 Peru 0.16 Japan 0.11 Japan 0.19 Argentina 0.00 Argentina 0.17 Denmark 0.00 Denmark 1.81 Indonesia 0.00 Indonesia 0.24 Portugal 0.00 Portugal 1.41 Liquid Assets 5.74 Liquid Assets 1.33 TOP TWENTY HOLDINGS As at 31 October 2004 Market Value Company Country Industry £000 China Petroleum & Chemical Corp., H China Oil & Gas 43,904 SK Corp Korea (South) Oil & Gas 39,986 Akbank Turkey Commerical Banks 31,956 Gedeon Richter Ltd. Hungary Pharmaceuticals 28,379 Unibanco Uniao de Bancos Brazil Commercial Banks 27,396 Brasileiros SA, GDR Hyundai Development Co. Korea (South) Construction & Engineering 27,020 MOL Magyar Olay-Es Gazipari RT Hungary Oil & Gas 26,976 Polski Koncern Naftowy Orlen SA Poland Oil & Gas 25,386 Banco Bradesco SA, ADR, pfd. Brazil Commercial Banks 23,842 Centrais Electricas Brasileiras SA Brazil Electrical Utilities 23,819 Dairy Farm International Singapore Food & Staples Retailing 22,880 Holdings Ltd. OMV AG Austria Oil & Gas 21,538 Siam Commercial Bank, cvt., pfd. Thailand Commercial Banks 20,910 Tupras-Turkiye Petrol Rafineleri AS Turkey Oil & Gas 19,205 Pliva DD, GDR, Reg S Croatia Pharmaceuticals 17,987 PetroChina Co. Ltd., H China Oil & Gas 17,400 Siam Cement Public Co. Ltd., fgn. Thailand Construction Materials 17,379 POSCO Korea (South) Metals & Mining 17,219 Nedcor Ltd. South Africa Commercial Banks 16,052 China Merchants Holdings China Transportation 15,538 (International) Co. Ltd Infrastructure Top 20 Holdings - 50.19% 484,772 of Net Assets --------- INVESTMENT REVIEW This is the semi-annual report for the Templeton Emerging Markets Investment Trust PLC (the "Company") covering the six-month period ending 31 October 2004. Overview Emerging markets corrected in the first half of the period as uncertainty in the Middle East, high oil prices and concerns over an overheating Chinese economy impacted markets. Declines in some markets provided opportunities for bargain hunting. As a result, emerging markets rebounded in the latter half as investors took a micro view by focusing on the positive developments within countries, allowing the MSCI Emerging Markets index to end the period up 5.4% in GBP terms. Asian markets underperformed emerging markets in general as an interest rate hike in China, its first in nine years, impacted markets in the region on concerns of a possible effect on demand from China for imports. In addition, Muslim unrest in Southern Thailand impacted the market there. Portfolio Changes & Investment Strategies During the period, the Company's exposure to Asia increased, as investments were made in South Korea, Taiwan and India. Key purchases included Lite-On Technology, one of the largest PC downstream companies in Taiwan. Kangwon Land Inc., the only casino licensed to cater to the local investors in South Korea, and Hindustan Petroleum Corporation Ltd., one of India's major refiners and petroleum-based product marketing companies. In Europe, the Company added Bank Pekao SA (Poland), one of the largest banks in Central and Eastern Europe, and Trakya Cam Sanayii AS (Turkey), the undisputed leader in flat glass manufacturing. Exposure was also increased in Pliva D D based in Croatia and one of the largest pharmaceutical companies in Central and Eastern Europe. In addition, the Company divested its interests in Denmark and Portugal by realising gains on Carlsberg AS and Banco BPI SA, respectively. Additional key sales included Unipetrol (Czech Republic) and Matav RT (Hungary). The Company's holdings in Brazil were increased via purchases in Souza Cruz SA, one of the leading tobacco companies in Brazil, and Suzano Bahia Sul Papel E Celulose SA, one of the largest integrated paper and pulp producers in Latin America. Elsewhere in the region, the Company divested its investment in Grupo Carso SA de CV (Mexico). As at 31 October 2004, the top three sectors were diversified banks, oil and gas and electric utilities. The availability of extra capital as a result of the warrant exercise on 30 September 2004 has allowed us to continue with our investment strategy. We have invested in companies in South Korea, Taiwan, China, and Brazil. As a result of investors' concerns in emerging markets regarding rising interest rates, high prices of crude oil and other commodities and terrorist activities we have been able to get our buy orders executed at what we believe to be good prices. Asia China raised interest rates in October as government efforts to cool the economy continued after GDP grew 9.1% in the first nine months of 2004. Investor confidence in the economy continues with foreign direct investment inflows expected to top US$60 billion in 2004, up from US$53.5 billion in 2003. Jiang Zemin resigned from his position as chairman of the Military Commission, handing the position over to President Hu Jintao enabling Hu to consolidate his power as he now commands the state, ruling party and armed forces. In South Korea, the Constitutional Court overturned a parliamentary impeachment vote and reinstated President Roh Moo-hyun. President Roh Moo-hyun visited Russia and India in a bid to expand bi-lateral trade and economic relations. South Korea and Russia signed economic agreements valued at US$4 billion and vowed to boost co-operation in areas such as energy, transport and sciences while Roh announced plans to study the possibility of a free trade agreement with India. In a setback for Roh, the Constitutional Court blocked his controversial plan to relocate the country's capital to the Yeongi-Gongju area from Seoul. Supported by strong exports and capital investment, second quarter GDP grew 5.5%, up slightly from the 5.3% growth recorded in the first quarter. Signalling a strong economic recovery, Taiwan's GDP grew 7.2% in the first half of 2004, its fastest since 1992. As a result, the government raised its 2004 growth forecast to 5.9% from 5.4%. Moreover, aimed at improving the country's infrastructure and service sectors, the government approved plans to spend US$15 billion over the next five years. Narrowly winning the presidential elections in March, Chen Shui-bian commenced his second term in office in May. Latin America Latin American markets were the strongest performers during the period as governments focused on implementing reforms, and developing regional as well as international trade relations. Mexico and Japan signed a free trade agreement in September signalling greater co-operation between the two countries. President Vincente Fox also undertook a three-day visit to Canada where the two countries initiated the Canada-Mexico partnership under which government and business leaders will work towards expanding relations. Aimed at improving trade relations between Brazil and China, President Luiz Inacio da Silva visited China where a number of agreements were signed and closer political and economic ties developed. The two countries also pledged to work together to push for free trade agreements with developed markets. Thereafter, a delegation led by Argentine President Nestor Kirchner also visited China to begin talks on a free trade agreement with the Mersour trade bloc. In Brazil, Standard and Poor's raised the country's credit rating to BB- from B+ due to improved fiscal and strong macroeconomic policies. Moody's also raised its rating to B1 as the country continues to record a healthy current account surplus supported by strong exports. GDP in the first half of the year grew 4.2% year on year supported by a strong trade sector. Solidifying Brazil's growing importance in the global economy, the US strongly supported the country's bid for a permanent seat in the United Nations Security Council. Southern/Eastern Europe On 1 May 2004, ten additional countries joined the European Union (EU), expanding the bloc to include 25 states and a population of 450 million. The countries (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) offer attractive investment opportunities when comparing them to 'old Europe'. As such, most Eastern European markets continued on an upward trend as governments continued to implement legislation in line with EU standards and record positive macroeconomic performances. During the latter half of the period, some short-term political instability was experienced in Hungary and Poland. However, this did not deter the markets continuing to produce positive market returns. Hungary's parliament approved the appointment of Fedor Gyurcsany as Prime Minister. His cabinet included 17 ministers with Finance Minister Tibor Draskovics continuing as Finance Minister. Standard & Poor's upgraded its outlook on Poland's foreign currency rating to stable from negative due to an improvement in the country's external position. The Polish government survived a confidence vote signalling its independence from any political party in parliament. Moody's raised Turkey's local currency debt rating to B2 from B3 due to an improvement in the country's public sector debt situation. Citing progress on the economic front, Standard and Poor's also upgraded the country's long-term foreign currency rating to BB- from B+. While the European Commission recommended the commencement of EU accession talks for Turkey, it is now up to the Council of the Presidents, the highest body in the EU, which is to meet on 17 December 2004, to decide whether talks should commence. South Africa The African National Congress (ANC) emerged victorious in April's general elections, giving it a majority in Parliament. In line with his party's overwhelming victory, President Thabo Mbeki was formally re-elected for a second term in office. A few months later, the New National Party (NNP) that ruled the country during four decades of apartheid dissolved itself due to lack of voter support. Members of the party will be able to join any party they choose with the leadership of the NNP encouraging them to join the ANC. Signalling continuity in the country's monetary policies, the government reappointed Tito Mboweni as the Central Bank Governor. Citing progress on the economic front, Standard and Poor's upgraded the country's long-term foreign currency rating to BB- from B+. Outlook Over the last few years, most emerging countries implemented effective fiscal and monetary policies as well as social reforms. These efforts could bear fruit and lead to greater investor confidence in the markets. But there are many implementation hurdles. We believe companies with attractive valuations, improved corporate transparency and good management, have the potential to do especially well going forward. As such, we will continue to follow our value strategy and identify those companies selling at the greatest discount to future intrinsic value, which over time could produce share price returns with reduced risk. Thank you for your continued interest and support. Dr. Mark Mobius, Ph.D. Fund Manager 10 December 2004 Copies of the Interim Report will shortly be sent to shareholders. For information please contact David Bliss/Will Rogers at UBS Limited (0207 567 8000) or David Smart at Franklin Templeton Investment Management Limited (0207 925 7171). No representation or warranty is made by UBS Limited as to the accuracy or completeness of the information contained in this announcement and no liability will be accepted for any loss arising from its use. These figures have been prepared by Franklin Templeton Investments and are their sole responsibility. End of Announcement. This information is provided by RNS The company news service from the London Stock Exchange

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