Preliminary Statement of Annu
Preliminary Statement of Annual Results
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC
("TEMIT") (the "Company")
YEAR TO 30 APRIL 2008
The Company today announced its annual results for the year to 30 April 2008.
FINANCIAL SUMMARY
2007-2008
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Year Ended
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Year Ended
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30 April
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30 April
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2008
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2007
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Change
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Net Assets and Shareholders’ Funds (£ million)
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2,291.40
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1,925.48
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19.0%
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Net Asset Value (pence per Ordinary Share)
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484.77
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359.24
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34.9%
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Total Shareholder Return
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35.7%
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4.2%
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Benchmark 1
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MSCI Emerging Markets Index
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27.0%
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7.5%
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Benchmark 2
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S & P/IFCI Composite Index
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25.6%
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9.0%
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Share Price (pence)
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438.00
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327.25
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33.8%
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Year – High (pence)
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485.50
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338.50
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Year – Low (pence)
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324.75
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265.55
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Dividend (pence per Ordinary Share)
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3.50
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3.13
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11.8%
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Revenue Earnings (pence per Ordinary Share)+
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4.07
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4.16
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(2.2%)
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Share Price Discount to Net Asset Value
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9.6%
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8.9%
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Total Expense Ratio++
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1.33%
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1.32%
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Indices above are shown on a total return basis in GBP. Source: Franklin Templeton Investments Datastream.
The Company has prepared its financial statements in accordance with International Financial Reporting Standards ("IFRS") for the year ended 30 April 2008 and 30 April 2007.
+ The Earnings per Ordinary Share figure is based on the earnings shown in the "Revenue" column in the Income Statement.
++ The Total Expense Ratio represents the annualised total expenses of the Company divided by the monthly average net assets of the Company for the year.
TEN YEAR RECORD
1999-2008
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Year
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1999
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2000
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2001
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2002
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2003
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2004
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2005*
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2006
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2007
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2008
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Ended
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30 April
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Total Net
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Assets and
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Shareholders’
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Funds £’000
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721,571
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749,906
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619,031
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666,217
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595,486
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778,457
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1,065,957
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1,866,199
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1,925,484
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2,291,395
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NAV Basic (pence)
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153.29
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159.25
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135.66
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146.24
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130.82
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171.01
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198.88
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348.18
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359.24
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484.77
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NAV Diluted (pence)
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149.95
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154.93
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135.21
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144.00
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N/A
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164.58
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N/A
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N/A
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N/A
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N/A
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Price – Ordinary (pence)
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129.00
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116.25
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113.50
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125.00
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107.25
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144.00
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167.25
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310.25
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327.25
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438.00
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Price – Warrants (pence)
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37.00
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22.00
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17.00
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17.50
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3.75
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13.25
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N/A
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N/A
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N/A
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N/A
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Discount (%)
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15.8%
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27.0%
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16.3%
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14.5%
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18.0%
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15.8%
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15.9%
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10.9%
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8.9%
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9.6%
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Revenue Earnings per share
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Undiluted (pence)
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1.68
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1.34
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1.36
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1.82
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1.70
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2.89
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3.42
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3.65
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4.16
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4.07
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Revenue Earnings per share
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Diluted (pence)
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1.40
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1.12
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1.13
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1.51
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N/A
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2.88
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N/A
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N/A
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N/A
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N/A
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Net Dividends per
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Ordinary Share (pence)
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1.10
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1.10
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1.25
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1.25
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1.25
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2.25
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2.25
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2.67
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3.13
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3.50
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Total Expense Ratio
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1.18%
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1.57%
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1.61%
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1.34%
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1.49%
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1.48%
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1.50%
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1.41%
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1.32%
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1.33%
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* Prior to April 2005 the results were prepared in accordance with UK GAAP. The results for the year ended 30 April 2005 have been restated in accordance with IFRS.
The main differences as a result of adopting IFRS are:
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Investments are valued on a bid basis, as opposed to a mid basis; and
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Only dividends paid during the year are reflected in the Financial Statements. A dividend of 3.50p per share on the Company's profits of 2008 has been proposed.
CHAIRMAN'S STATEMENT
Performance
In my first annual statement to you as Chairman I am delighted to report that the net asset value per share rose from 359.24 pence at 30 April 2007 to 484.77 pence at 30 April 2008. This represents an increase of 34.9% despite a turbulent year for financial markets.
The stated objective of the Company is to provide long-term capital appreciation for its investors and since its launch in 1989, the net asset value of the Company, in sterling terms, has risen by 1,479.4% compared with a rise of 673.4% for the MSCI Emerging Markets Index and 707.8% for the S&P/IFC Investable Composite Index. The continued long term performance of your Company sets it apart from its peers and makes it an attractive proposition for long term investment.
The share price at 30 April 2008 was 438.00 pence, compared with 327.25 pence at the beginning of the financial year, an increase of 33.8%. The Company's discount widened slightly during the year, increasing from 8.9% initially to 9.6% at the end of the year: the discount generally was in the range of 8% to 11%.
The total assets at the year end were £2,297 million compared to £1,925 million at 30 April 2007. The total return for the Company for the year, including dividends re-invested, was 35.7%. Over the year, the MSCI Emerging Markets Index and the S&P/IFC Investable Composite Index increased by 27.0% and 25.6% respectively.
I am delighted to report that TEMIT has also been nominated for a number of independent awards from personal finance magazines primarily recognising its strong performance since the beginning of 2008. TEMIT won both the Best Investment Trust in the Global Growth category of the Moneywise Investment Trust Awards 2008 and Best Large Trust 2007 in the Investment Trusts magazine awards. The Company was also highly commended in Best Large Trust sector of the Money Observer Investment Trust Awards 2008.
These awards demonstrate the Company's continued commitment to meeting its objective to deliver strong capital growth to shareholders over the long term.
The Manager's Report & Portfolio Review gives a detailed analysis of the Company's performance over the year. The portfolio is managed using the value style of investing and the investment process is described in the full annual report.
On 18 June 2008, the net asset value per share had fallen by 3.3% to 468.60 pence since 30 April 2008, and the share price correspondingly by 0.5% to 436.00 pence.
Tender Offer
At the EGM held on 13 June 2008, the proposals for a tender offer to purchase up to 30% of the Company's share capital were approved. Accordingly, the proposals set out in the Circular to shareholders dated 20 May 2008 are currently being implemented.
The tender offer proposals were designed to:
• provide an opportunity for returning capital to those shareholders seeking an exit from the Company;
• preserve or enhance the interests of continuing shareholders;
• maintain the liquidity of the Company's shares in the secondary market; and
• bring the demand from buyers and sellers of the Company's shares closer to equilibrium.
The total number of shares successfully tendered was 141.8 million leaving 330.9 million shares in issue after the tender proposals are fully implemented. The strike price discount was 4% to the NAV which resulted in an uplift to the NAV for the benefit of continuing shareholders of 1.7%. Following the allocation of assets to the tender pool the assets attributable to continuing shareholders was £1,551 million.
In the Circular to shareholders proposing the tender offer, the costs were estimated at £6 million. All of these expenses will be borne by exiting shareholders.
Shareholders also voted in favour of granting authority to the Company to purchase up to 14.99% of the Ordinary Shares in issue on 13 June 2008, the authority to expire no later than the Annual General Meeting in 2009. The Company will continue to buy back shares when the Directors consider it to be in the interests of shareholders as a whole.
Asset allocation
At the year end, 98.9% of the Company's total assets were invested in equities, with the remaining 1.1% being held in liquid assets. The general policy of the Board is to be fully invested.
Dividend
The Board's dividend policy ensures the Company maintains its investment trust status by not retaining more than 15% of gross revenues. To this end, the Board of Directors has proposed a cash dividend of 3.50 pence per Ordinary share (2007: 3.13 pence). This represents an increase of 11.8% on 2007, which is partly attributable to the lower shareholder base at the time of the dividend record date as a result of share buy-backs and the tender offer.
Discount
During the year, the Board has kept the discount under continual review and retained its right to buy back shares when it believed that this was in shareholders' best interests having regard to the Company's investment objective. During the year 63.3 million shares were bought back (representing 11.8% of the shares in issue at 30 April 2007) for a total cost to the Company of £245.1 million. This has contributed to an uplift to the NAV per share of 1.34%.
The Board and the AGM
As indicated in the Half Yearly Report of the Company to 31 October 2007, Sir Ronald Hampel and Charles Johnson retired from the Board on 12 December 2007. In addition, Andrew Knight retired from the Board on 25 February 2008 and Peter Godsoe retired on 26 June 2008. Sir Ronnie joined the Board in 2003 at the time of its significant restructuring and provided vision and leadership in his role as Chairman from 22 September 2004 to 12 December 2007. Charlie joined the Board in 1994 and provided outstanding advice to the Board with his wide experience of investment and fund management. Andrew and Peter also joined the Board in 2003 and provided an excellent sounding board during Board discussions. We shall miss Sir Ronnie, Charlie, Andrew and Peter and I would like to thank them for their commitment and contribution during those periods.
We welcomed Peter Harrison to the Board on 30 November 2007, and Christopher Brady and Gregory Johnson to the Board on 12 December 2007. Mr Harrison (56), Mr Brady (53) and Mr Johnson (46) will be recommended to shareholders for re-election at the Annual General Meeting on 25 September 2008 and their biographies appear in the annual report.
The Directors have also appointed Hamish Buchan (63) to the Board as a Director and as a Member of the Audit Committee with effect from 26 June 2008. A resolution to re-appoint him as a Director will be proposed at the AGM. Hamish is an experienced director of UK investment trusts and former Chairman of the Association of Investment Companies. His biographical details also appear in the annual report.
Sir Peter Burt retires by rotation and offers himself for re-election at the AGM.
The Board continually evaluates its performance and following the annual Directors' appraisal process, and on the recommendation of the Nomination Committee, the Board has approved all these Directors standing for re-election.
Finally, I would like to invite you to the AGM which will be held in London at Stationer's Hall, on 25 September 2008 at 12 noon. I hope that you will be able to attend this meeting at which the Manager will make a short presentation and, with my fellow Directors, I look forward to the opportunity of meeting you.
Peter A Smith
26 June 2008
Indices above are shown on a total return basis in GBP. Sources: Franklin Templeton Investments and Standard & Poors.
MANAGER'S REPORT AND PORTFOLIO REVIEW
30 APRIL 2008
MANAGEMENT COMPANY
The Directors have appointed Templeton Asset Management Limited ("TAML") as Investment Manager of the Company.
TAML, part of the Franklin Templeton Group (with US$617 billion in assets under management as at 30 April 2008), has over 20 years of investment experience in emerging markets and approximately US$41 billion in assets under management.
TAML's Executive Chairman, Mark Mobius, has spent over thirty years working in Asia and other emerging markets. TAML currently has 66 employees supporting Mark, consisting of 36 portfolio managers/analysts from 18 nationalities who between them speak 19 different languages. They are located in 14 offices; Moscow (Russia), Warsaw (Poland), Vienna (Austria), Dubai, (United Arab Republic), Istanbul (Turkey), Johannesburg (South Africa), Hong Kong (China), Singapore, Shanghai (China), Seoul (South Korea), Mumbai (India), Ho Chi Minh (Vietnam), Rio de Janeiro (Brazil), and Buenos Aires (Argentina).
TAML's Emerging Markets Team receives support from the employees of Franklin Resources Inc., its ultimate parent company and its subsidiaries.
Overview
Emerging market equities started the reporting period on an upbeat note with most markets recording positive returns. After reaching a record high at the end of October 2007, renewed concerns of a recession in the US and its possible impact on emerging markets, coupled with global credit concerns, led markets to correct, eliminating some of the gains recorded in the earlier part of the period. Most stock markets were supported by a robust macroeconomic environment, surging money supply, rising commodity prices, stronger emerging market currencies, improved corporate earnings and significant fund inflows. In addition, emerging market countries are benefiting from large fiscal reserves and strong macroeconomic trends. The Investment Manager is thus of the opinion that emerging markets are in a much better position to weather a slowdown in the US economy than in the past.
Within the emerging markets asset class, Latin American markets were among the top performers as stronger regional currencies, higher commodity prices and greater demand for metals and soft commodities supported resource producers in markets such as Brazil. In Asia, China, India and Thailand were among the top performing markets. China and India continued to benefit from strong economic growth, a large consumer base and large foreign reserves. Despite returning double-digit returns, South Korea, on the other hand, underperformed its regional peers during the period. In Europe, the Russian market benefited from high commodity prices, robust FDI inflows and strong economic growth. While Turkey ended the period with a minor gain, the South African market recorded a decline.
Performance Attribution
The Company's performance, relative to the MSCI Emerging Markets (EM) index, benefited significantly from its overweight position and good stock selection in Brazil. An underweight position in South Africa and overweight exposure in Thailand, coupled with good stock selection in these markets as well as Russia, further enhanced relative performance.
The largest contributors to performance in Brazil were overweight exposures to Vale Do Rio Doce, one of the world's biggest iron ore producers who are also engaged in various mining activities, and leading commercial banks, Unibanco and Banco Bradesco. The Company's absence from underperforming stocks such as Standard Bank and Goldfields in South Africa and Russia's Sberbank, as well as an overweight exposure to Norilsk Nickel in Russia, allowed these markets to record positive attribution effects. Overweight positions in PTT Exploration & Production Public (PTTEP), the oil and natural gas exploration and production arm of PTT, Siam Commercial Bank, a major commercial bank in Thailand, and Land & Houses, a premier real estate developer in the country, also helped the portfolio. By sector, good stock selection in the banking, materials and utilities sectors as well as an underweight position in semiconductor companies supported performance.
Conversely, detractors to relative performance included overweight positions in Turkey and Hungary as well as selective investments in South Korea. Investments in Akbank, Gedeon Richter and SK Energy resulted in the largest negative attribution effects in these markets due to their underperformance relative to the benchmark MSCI EM index during the period. Remaining confident of the long-term potential of Akbank and SK Energy, the Company increased its holdings in both stocks as recent markets corrections provided an attractive buying opportunity. Holdings in Gedeon Richter, however, were reduced due to regulatory risks. By industry, an underweight exposure to telecommunications services companies and the underperformance of selective holdings in the energy and pharmaceutical sectors had a negative impact on the Company.
Portfolio Changes & Investment Strategies
Fund-raising for share buybacks required the sale of a number of holdings during the period. The attainment of target prices also led to selective sales. These sales also allowed the Company to focus on stocks deemed to be relatively more attractively valued within our investment universe. Holdings were thus reduced in Brazil, China "Red-chip" shares, Malaysia, Hungary, South Africa, Taiwan and South Korea. These sales reduced the Company's exposure to the wireless & integrated telecommunications services, electric utilities, marine ports & services, pharmaceuticals and tobacco sectors. Major sales included Maxis Communications, a leading telecommunications services provider in Malaysia that the Company sold in a tender offer, Gedeon Richter, a major pharmaceutical producer in Hungary, and China Merchants, a conglomerate specialising in ports and related asset investments in China.
The Company's search for undervalued stocks trading at attractive valuations led to selective investments in the automobile manufacturing, metals & mining, IT consulting, oil & gas and banking sectors. Energy stocks are expected to benefit from greater revenues and earnings as a result of high oil prices and greater global energy demand. Additions included PTT, Thailand's leading integrated gas company, and SK Energy, a major player in South Korea's refining market.
Growing demand for raw materials in emerging markets, especially markets such as China and India as well as high commodity prices should support corporate earnings in these natural resource companies. Purchases included Sesa Goa, a leading Indian iron ore miner and exporter, Aluminum Corporation of China (Chalco), China's leading producer of alumina and primary aluminium products, and National Aluminum India's largest alumina producer.
Banking reforms and growing demand for financial services made banks attractive investments. Banks are also generally facing more favourable business conditions such as increasing fee income derived from cross-selling of financial products and lower non-performing loans due to economic recovery and fewer bankruptcies. Investments included Turkey's Akbank, Indonesian banks, Bank Danamon and Bank Central Asia, and Faysal Bank in Pakistan. Moreover, the continued trend of outsourcing of services to Indian consulting companies could also lead to higher corporate earnings. Thus, exposure to the sector was increased via the purchase of Tata Consultancy, a major IT consulting company in India.
ASIA
China's economy grew 10.6% year-on-year in the first quarter of 2008, compared to the revised 11.9% for all of 2007. The slowdown was mainly due to slower export growth and heavy snowstorms in the earlier part of the year. Inflation, while lower than the 8.7% recorded in February, was a relatively high 8.3% year-on-year in March as a result of high food prices. Tightening measures continued during the reporting period as the government strived to curb rising inflationary pressures. China's foreign reserves increased 40% year-on-year in the first quarter of 2008 to US$1.7 trillion in part due to trade and foreign direct investment (FDI) inflows. FDI flows totalled US$74.7 billion, up 7.5% year-on-year in 2007. Politically, President Hu Jintao and Premier Wen Jiabao were re-elected for another five-year term by the National People's Congress in March.
In South Korea, GDP increased 5.7% year-on-year in the first quarter of 2008, higher than 2007's 4.9% growth, mainly due to higher exports. Growth, however, slowed down on a quarter-on-quarter basis, as lower domestic demand led private consumption growth to reach a three-year low of 3.6%. The government maintained its GDP growth forecast of 6% for 2008, despite expectations of slower global growth this year. Inflation remained a key concern for the government with the CPI increasing 3.9% in March, higher than the Central Bank's 3.5% target for the fourth consecutive month. Actual FDI inflows totalled US$7.7 billion in 2007 while foreign exchange reserves reached a new high of US$264.3 billion in March. In politics, Lee Myung-bak was sworn in as the new President following his election in December 2007. Lee pledged to boost economic growth through tax cuts, deregulation and privatisation.
The Bank of Thailand raised its 2008 GDP growth forecast to 4.8% to 6.0% from 4.5% to 6.0% due to the government's economic stimulus package and stronger exports growth. The economy grew 4.8% in 2007. The government implemented measures such as the simplification of red tape for investors and reduction in the time taken to process small and medium-sized project approvals, to attract local and foreign investment. Politically, the People Power Party (PPP), supporters of ousted Prime Minister Thaksin, won the most seats in the parliamentary elections in December. The new parliament subsequently elected Samak Sundaravej, the head of the PPP, and ally of former Prime Minister Thaksin Shinawatra, as Prime Minister.
LATIN AMERICA
Brazil's GDP grew 5.4% year-on-year in 2007, its fastest annual growth in three years. Key drivers included strong investment and private consumption growth. Brazil's financial position continued to strengthen with international reserves totalling US$193.9 billion in mid-March, compared to US$180.3 billion as of end-2007. International ratings agency, Standard & Poor's, raised Brazil's long-term foreign currency sovereign credit rating from "BB+" to the investment grade of "BBB"- due to the country's improved growth prospects and fiscal management policies. Fitch and Moody's currently rate the country at one level below investment grade status. After 18 interest rates cuts totalling 850 basis points, the Central Bank embarked upon a tightening policy in April 2008 by raising its key interest rate by 50 basis points as inflation reached a two-year high of 4.7% in March.
Southern/Eastern Europe
Government estimates put Russia's first quarter GDP growth at 8.0% year-on-year, in line with the 8.1% growth for all of 2007. This led the government to revise its 2008 growth forecast to 7.6% from 7.1%. Key drivers included robust investment and consumption growth. Investment also remained robust with FDI inflows totalling US$47 billion in 2007. On the political front, as widely expected, First Deputy Prime Minister Dmitry Medvedev won the presidential elections by an overwhelming majority on March 2, 2008. Medvedev confirmed that his administration would continue the policies set by President Putin's government. Putin also formally agreed to becoming the leader of the ruling United Russia party and its nomination for the position of prime minister in May 2008. Given the party's majority in the Duma, Putin's appointment is assured.
GDP growth in Turkey slowed to 4.5% year-on-year in 2007 from 6.9% in 2006 due to slower growth in the last three quarters of the year. The economy remained embroiled in political instability for a large part of the period, firstly due to parliamentary elections and then a power struggle between the ruling government party, army, judiciary and republican opposition. Despite being re-elected in a landslide victory in July 2007, Turkey's chief prosecutor, Abdurrahman Yalcinkaya, petitioned the constitutional court for the closure of the ruling Justice and Development Party (AKP) as well as a 5-year political ban for 71 officials of the AKP including President AbdullahGul and Prime Minister Tayyip Erdogan. Yalcinkaya accuses the AKP of being "the centre of anti-secular activities". In the meanwhile, however, government focus has been drawn away from much-needed focus on reforms and financial markets have experienced significant volatility as a result of the uncertainty. Turkey is currently one of the cheapest markets in emerging markets which means that the political uncertainty is already priced in its valuations. While political issues may continue in the short-term, we remain confident of Turkey's longer-term potential.
Outlook
While there has been much talk about emerging markets decoupling from the US market, the Investment Manager does not believe a complete decoupling is possible because the world has become so interdependent. There is no question that the relationships between nations are growing because world trade and travel has been growing. Whereas in the past, the US was the centre, the biggest economy in the world by far, this is no longer the case. While the US is still the largest economy and most influential, this influence has gradually diminished as other economies continue to grow at much faster rates. This has especially been the case in the emerging market countries where we are seeing new centres of economic wealth and growth. China, Russia, Brazil and India are clear examples. Moreover, there is a lot of new growth taking place in the world today. In addition to emerging markets, frontier markets such as Qatar, UAE, Kazakhstan, Lithuania, Nigeria and Vietnam are all forecast to grow 7% to 12% in 2008. The Investment Manager will continue to monitor these markets with a view to future investment by the Company (all of these countries have already been approved for investment by the Board).
Additionally, over the last 5 years, emerging markets have demonstrated stronger economies. For example, Asia is the largest emerging markets region in the world and home to some of the fastest growing economies globally. In fact, more than half of the world's population lives in Asia, providing the region with a huge consumer base. Per capita incomes have also been rising, which leads to higher domestic consumption and decreasing dependence on exports to the US.
While stock prices have fallen across the board recently without much differentiation and in empathy with what was happening in the US, one must remember that historically, emerging markets are generally not strongly correlated to the US. Going forward, the Investment Manager therefore expects to see discerning investors becoming more selective, benefiting markets with stronger fundamentals and better growth prospects.
J Mark Mobius, Ph.D.
Templeton Asset Management Ltd.
26 June 2008
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks facing the Company are summarised below. The number and spread of investments in TEMIT's portfolio is intended to reduce the degree of risk, however, investors should be aware of the risks associated with TEMIT's investment objectives.
Market risk
Many of the companies in which TEMIT does or may invest are, by reason of the locations in which they operate, exposed to the risk of political or economic change. In addition, exchange control, tax or other regulations introduced in any country in which TEMIT invests may affect its income and the value and marketability of its investments. Currency fluctuations may also affect the value of its investments and the income derived therefrom, and investors in emerging markets can face settlement and custodial problems. Furthermore, companies in emerging markets are not always subject to accounting, auditing and financial standards which are equivalent to those applicable in the United Kingdom and there may also be less government supervision and regulation. These risks can increase the potential for losses in the Company and affect its share price. For these reasons, a long-term approach to investing in emerging markets is taken.
In recent years many Emerging Market stock markets have experienced considerable price appreciation, and are at, near, or above the high points of their historic valuations. Emerging Markets have in the past been subject to greater price volatility and rapid and severe re-pricing than developed markets. In such situations, the correlation between different stocks in the same market, and between various Emerging Markets and countries has been shown to increase, reducing the benefits that diversification between securities, industries, markets and countries generally provides.
Investment risk
In addition, the Company may invest a greater portion of its assets in the securities of one issuer, securities domiciled in a particular country, or securities within one industry group than other types of fund investments. As a result, it may be more sensitive to economic, business, political or other changes affecting similar issues or securities, which may result in greater fluctuation in the value of the portfolio.
Currency risk
It is important to recognise the effect of currency movements on TEMIT's performance. In general, if the value of sterling increases compared with a foreign currency, an investment traded in that foreign currency will decrease in value because it will be worth fewer UK pounds. This can have a negative effect on fund performance. Conversely, when, in general, sterling weakens in relation to a foreign currency, investments traded in that foreign currency will increase in value, which can contribute to an improvement in the Company's performance.
Regulatory risk
It is also worth noting that the Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of Section 842 of the Income and Corporation Taxes Act 1988 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations such as the ULKA Listing Rules, could lead to a number of detrimental outcomes and reputational damage.
Key personnel
The ability of the Company to achieve its investment objective is significantly dependent upon the expertise of the Investment Manager and its ability to attract and retain suitable staff. The Company is also reliant upon the skills of its Directors and the loss of any of these individuals could reduce its ability to achieve its planned investment objectives. The Company and the Investment Manager have endeavoured to ensure that the principal members of their management teams are suitably incentivised, but the retention of such staff cannot be guaranteed.
Operational risk
Like many other investment trust companies, the Company has no employees. The Company therefore relies up on the services provided by third parties and is dependent upon the control systems of the Investment Manager and the Company's service providers. The security, for example, of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements depend on the effective operation of these systems. These are regularly tested and monitored and an internal control report, which includes an assessment of risks together with an overview of procedures to mitigate such risks, is prepared by the Secretary and Administrator and reviewed by the Audit Committee annually. The custodian (JP Morgan) produces an annual SAS 70 report which is reviewed by its auditors and gives assurance regarding the effective operation of controls.
The Directors have sought to ensure that the Company's service providers have adopted an appropriate framework of controls which is designed to monitor the principal risks facing the Company, and to provide a monitoring system to enable the Directors to mitigate these risks.
Further information on the risks that TEMIT is subject to is also detailed in Note 14 of the Notes to the Financial Statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors, to the best of their knowledge, state that:
-
the financial statements, prepared in accordance with United Kingdom Generally accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
-
the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.
PORTFOLIO HOLDINGS BY GEOGRAPHY
Geographical analysis
(by country of incorporation)
As at 30 April 2008
|
|
|
FairValue** |
|
Country |
Sector |
£'000 |
|
AUSTRIA |
|
|
|
OMV AG++ |
Utilities |
38,738 |
|
|
|
38,738 |
|
|
|
|
|
|
|
|
|
BRAZIL |
|
|
|
Banco Bradesco SA, ADR, pfd.*+ |
Financial |
114,517 |
|
Centrais Eletricas Brasileiras SA |
Utilities |
15,249 |
|
Companhia Paranaense de Energia-Copel, ADR, pfd.*+ |
Utilities |
28,225 |
|
Companhia Vale do Rio Doce, ADR, pfd., A*+ |
Materials |
165,340 |
|
Petroleo Brasileiro SA, ADR, pfd.*+ |
Energy |
120,675 |
|
Souza Cruz SA |
Consumer Staples |
21,102 |
|
Unibanco - Unaio de Bancos Brasileiros SA, GDR, pfd.*+ |
Financial |
139,179 |
|
|
|
604,287 |
|
|
|
|
|
CHINA |
|
|
|
Aluminum Corp. of China Ltd., H |
Materials |
80,117 |
|
Brilliance China Automotive Holdings Ltd. |
Consumer Discretionary |
19,489 |
|
China International Marine Containers (Group) Co. Ltd., |
Industrials |
3,568 |
|
China Petroleum and Chemical Corp., H |
Energy |
81,430 |
|
Denway Motors Ltd. |
Consumer Discretionary |
43,214 |
|
PetroChina Co. Ltd., H |
Energy |
79,727 |
|
Yanzhou Coal Mining Co Ltd. |
Consumer Discretionary |
26,286 |
|
|
|
333,831 |
|
|
|
|
|
HUNGARY |
|
|
|
MOL Hungarian Oil and Gas Nyrt. |
Energy |
49,314 |
|
Richter Gedeon Nyrt. |
Health Care |
8,779 |
|
|
|
58,093 |
|
|
|
|
|
INDIA |
|
|
|
Hindalco Industries Ltd. |
Materials |
20,079 |
|
National Aluminium Co. Ltd. |
Materials |
37,151 |
|
Oil and Natural Gas Corp. Ltd. |
Energy |
35,589 |
|
Sesa Goa Ltd. |
Materials |
24,265 |
|
Tata Consultancy Services Ltd. |
Information Technology |
17,878 |
|
|
|
134,962 |
|
|
|
Fair Value** |
|
Country |
Sector |
£'000 |
|
INDONESIA |
|
|
|
PT Astra International Tbk |
Consumer Discretionary |
22,453 |
|
PT Astra Central Asia Tbk |
Financial |
6,926 |
|
PT Bank Danamon Indonesia Tbk |
Financial |
13,280 |
|
|
|
42,659 |
|
|
|
|
|
MEXICO |
|
|
|
Kimberly Clark de Mexico SAB de CV, A |
Consumer Staples |
9,286 |
|
|
|
9,286 |
|
|
|
|
|
PAKISTAN |
|
|
|
Faysal Bank Ltd. |
Financial |
10,607 |
|
MCB Bank Ltd. |
Financial |
20,941 |
|
Pakistan Telecommunications Corp., A |
Telecommunication Services |
5,436 |
|
|
|
36,984 |
|
|
|
|
|
POLAND |
|
|
|
Grupa Lotos SA |
Utilities |
15,578 |
|
Polnord SA |
Industrials |
4,200 |
|
Polski Koncern Naftowy Orlen SA |
Utilities |
40,861 |
|
|
|
60,639 |
|
|
|
|
|
RUSSIA |
|
|
|
Gazprom ADR* |
Energy |
67,594 |
|
LUKOIL, ADR* |
Energy |
55,783 |
|
Mining and Metallurigical Co. Norilsk Nickel |
Materials |
16,867 |
|
Mining and Metallurigical Co. Norilsk Nickel, ADR* |
Materials |
50,201 |
|
Mobile TeleSystems, ADR* |
Telecommunication Services |
31,815 |
|
OAO TMK |
Energy |
4,903 |
|
|
|
227,163 |
|
|
|
|
|
SINGAPORE |
|
|
|
Dairy Farm International Holdings Ltd. |
Consumer Staples |
45,986 |
|
|
|
45,986 |
|
|
|
|
|
SOUTH AFRICA |
|
|
|
Anglo American PLC |
Materials |
26,878 |
|
Tiger Brands Ltd. |
Consumer Staples |
2,727 |
|
|
|
29,605 |
|
|
|
|
|
SOUTH KOREA |
|
|
|
Hyundai Development Co. |
Industrials |
119,066 |
|
Kangwon Land Inc. |
Consumer Discretionary |
24,646 |
|
SK Energy Co. Ltd |
Energy |
61,303 |
|
SK Holdings Co. Ltd. |
Utilities |
31,785 |
|
|
|
236,800 |
|
|
|
Fair Value** |
|
Country |
Sector |
£'000 |
|
SWEDEN |
|
|
|
Oriflame Cosmetics SA, SDR++ |
Consumer Staples |
6,550 |
|
|
|
6,550 |
|
|
|
|
|
TAIWAN |
|
|
|
Compal Communications Inc. |
Telcommunication Services |
4,121 |
|
Novatek Microelectronics Corp. Ltd |
Information Technology |
7,092 |
|
Tainan Enterprises Co. Ltd |
Consumer Discretionary |
4,559 |
|
|
|
15,772 |
|
|
|
|
|
THAILAND |
|
|
|
Kasikornbank Public Co. Ltd., fgn. |
Financial |
31,417 |
|
Kiatnakin Bank Public Co. Ltd., fgn. |
Financial |
9,904 |
|
Land and Houses Public Co. Ltd., fgn. |
Consumer Discretionary |
15,348 |
|
PTT Exploration and Production Public Co Ltd., fgn. |
Energy |
36,423 |
|
PTT Public Co. Ltd., fgn. |
Utilities |
37,748 |
|
Siam Cement Public Co. Ltd., fgn. |
Materials |
22,727 |
|
Siam Commercial Bank Public Co. Ltd., fgn. |
Financial |
50,071 |
|
|
|
204,638 |
|
|
|
|
|
TURKEY |
|
|
|
Akbank TAS |
Financial |
82,436 |
|
Tupras-Turkiye Petrol Rafineleri AS |
Utilities |
56,272 |
|
Turkcell Iletisim Hizmetleri AS |
Telecommunication Services |
40,223 |
|
|
|
178,931 |
|
TOTAL INVESTMENTS |
|
2,264,926 |
|
|
|
|
|
OTHER NET ASSETS |
|
26,469 |
|
TOTAL EQUITY |
|
2,291,395 |
* US Listed Stocks
+ pfd: preferred shares
++ These companies have significant exposure to operations in emerging markets.
**Fair value represents the bid value of a security as required by International Financial Reporting Standards.
TEN LARGEST INVESTMENTS
IN ORDER OF MARKET VALUE AS AT 30 APRIL 2008
|
|
|
|
|
VALE RIO DOCE |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
Brazil |
7.22 |
165,340 |
This Brazilian-based company is one of the world's largest iron ore producers that is also engaged in various mining activities.
|
|
|
|
|
UNIBANCO |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
Brazil |
6.07 |
139,179 |
One of Brazil's largest financial conglomerates, providing a full range of banking and financial services.
|
|
|
|
|
PETROBRAS |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
Brazil |
5.27 |
120,675 |
Brazil's national oil and gas company.
|
|
|
|
|
HYUNDAI DEVELOPMENT |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
South Korea |
5.20 |
119,066 |
One of the leading residential property developers in Korea.
|
|
|
|
|
BANCO BRADESCO |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
Brazil |
5.00 |
114,517 |
One of Brazil's largest financial conglomerates, providing a full range of banking and financial services.
|
|
|
|
|
AKBANK |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
Turkey |
3.60 |
82,436 |
One of Turkey's largest privately owned commercial banks, providing a full range of banking and financial services.
|
|
|
|
|
CHINA PETROLEUM AND CHEMICAL CORP |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
China |
3.55 |
81,430 |
One of the largest integrated energy companies in China.
|
|
|
|
|
ALUMINUM CORP OF CHINA |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
China |
3.50 |
80,117 |
Aluminum Corporation of China Limited and its subsidiaries engage in bauxite mining, alumina refining and aluminium smelting business in the People's Republic of China.
|
|
|
|
|
PETROCHINA |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
China |
3.48 |
79,727 |
China's largest oil and gas company in terms of reserves. The company is also diversifying into marketing and downstream activities.
|
|
|
|
|
GAZPROM |
|
|
|
|
|
|
|
Country |
% of Total |
Fair Value |
|
|
Net Assets |
£'000 |
|
|
|
|
|
Russia |
2.95 |
67,594 |
Gazprom is the largest producer of natural gas in the world in terms of reserves and production.
|
|
|
|
|
Total Top Ten Holdings |
|
1,050,081 |
INCOME STATEMENT OF THE COMPANY
For the year ended 30 April 2008
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on investments |
|
|
|
|
|
|
|
and exchange |
|
|
|
|
|
|
|
Gains on investments at |
|
|
|
|
|
|
|
fair value |
- |
607,057 |
607,057 |
- |
52,513 |
52,513 |
|
Losses on foreign exchange |
- |
(581) |
(581) |
- |
(739) |
(739) |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
Dividends |
57,578 |
- |
57,578 |
52,883 |
- |
52,883 |
|
Bank Interest |
820 |
- |
820 |
1,192 |
- |
1,192 |
|
|
58,398 |
606,476 |
664,874 |
54,075 |
51,774 |
105,849 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Investment Management fee |
(22,602) |
- |
(22,602) |
(17,328) |
- |
(17,328) |
|
Other expenses |
(8,228) |
- |
(8,228) |
(5,715) |
- |
(5,715) |
|
|
|
|
|
|
|
|
|
Profit before taxation |
27,568 |
606,476 |
634,044 |
31,032 |
51,774 |
82,806 |
|
Tax Expense |
(7,728) |
- |
(7,728) |
(8,727) |
- |
(8,727) |
|
|
|
|
|
|
|
|
|
Profit for the financial year |
19,840 |
606,476 |
626,316 |
22,305 |
51,774 |
74,079 |
|
|
|
|
|
|
|
|
|
Profit attributable to equity |
|
|
|
|
|
|
|
holders of the company |
19,840 |
606,476 |
626,316 |
22,305 |
51,774 |
74,079 |
|
|
|
|
|
|
|
|
|
Basic earnings per Ordinary |
|
|
|
|
|
|
|
Share |
4.07p |
124.43p |
128.50p |
4.16p |
9.66p |
13.82p |
|
|
|
|
|
|
|
|
|
Annualised Expense Ratio |
|
|
1.33% |
|
|
1.32% |
|
|
|
|
|
|
|
|
The Total column is the Income Statement of the Company.
The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
BALANCE SHEET
As at 30 April 2008
|
|
|
|
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
ASSETS |
|
|
|
Non-current assets |
|
|
|
Investments |
2,264,926 |
1,903,046 |
|
|
|
|
|
Current assets |
|
|
|
Trade and other receivables |
18,961 |
9,010 |
|
Cash |
22,605 |
25,915 |
|
|
41,566 |
34,925 |
|
|
|
|
|
LIABILITIES |
|
|
|
Current Liabilities |
|
|
|
Trade and other payables |
(11,082) |
(7,853) |
|
Current tax payable |
(2,778) |
(2,248) |
|
|
(13,860) |
(10,101) |
|
|
|
|
|
Non-current liabilities |
|
|
|
Deferred tax liabilities |
(1,237) |
(2,386) |
|
|
|
|
|
NET ASSETS |
2,291,395 |
1,925,484 |
|
|
|
|
|
ISSUED SHARE CAPITAL AND RESERVES |
|
|
|
ATTRIBUTABLE TO EQUITY SHAREHOLDERS |
|
|
|
Equity Share Capital |
118,170 |
133,995 |
|
Share Premium Account |
375,327 |
375,327 |
|
Capital Redemption Reserve |
22,718 |
6,893 |
|
Capital Reserve - Realised |
1,719,870 |
414,900 |
|
Capital Reserve - Unrealised |
- |
943,605 |
|
Revenue Reserve |
55,310 |
50,764 |
|
|
|
|
|
SHAREHOLDERS' FUNDS |
2,291,395 |
1,925,484 |
|
|
|
|
|
Net Asset Value per Ordinary Share (in pence) |
484.77 |
359.24 |
These Financial Statements were approved for issue by the Board and signed on 26 June 2008.
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 April 2008
|
|
|
|
Capital |
Capital |
Capital |
|
|
|
|
Share |
Share |
Redemption |
Reserve - |
Reserve - |
Revenue |
|
|
|
Capital |
Premium |
Reserve |
Realised |
Unrealised |
Reserve |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
|
Balance at 30 April 2006 |
133,995 |
375,327 |
6,893 |
271,724 |
1,035,007 |
43,253 |
1,866,199 |
|
|
|
|
|
|
|
|
|
|
Profit for the period |
- |
- |
- |
143,176 |
(91,402) |
22,305 |
74,079 |
|
Equity dividends |
- |
- |
- |
- |
- |
(14,794) |
(14,794) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 April 2007 |
133,995 |
375,327 |
6,893 |
414,900 |
943,605 |
50,764 |
1,925,484 |
|
|
|
|
|
|
|
|
|
|
Transfer to capital reserves* |
- |
- |
- |
943,605 |
(943,605) |
- |
- |
|
Profit for the period |
- |
- |
- |
606,476 |
- |
19,840 |
626,316 |
|
Equity Dividends |
- |
- |
- |
- |
- |
(15,294) |
(15,294) |
|
Purchase and cancellation of |
|
|
|
|
|
|
|
|
own shares |
(15,825) |
- |
15,825 |
(245,111) |
- |
- |
(245,111) |
|
|
|
|
|
|
|
|
|
|
Balance at 30 April 2008 |
118,170 |
375,327 |
22,718 |
1,719,870 |
- |
55,310 |
2,291,395 |
* With effect from 1 May 2007, changes in fair value of investments which are readily convertible to cash, without accepting adverse terms at the balance sheet date are included in realised, rather than unrealised, capital reserves. The balance on both capital reserves at 1 May 2007 has been amended by a reserve transfer to reflect this change.
CASH FLOW STATEMENT
For the year ended 30 April 2008
|
|
As at |
As at |
|
|
30 April |
30 April |
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Cash flows from operating activities |
|
|
|
Profit before taxation |
634,044 |
82,806 |
|
Adjustments for: |
|
|
|
Gains on investments at fair value |
(607,057) |
(52,513) |
|
Losses on foreign exchange |
581 |
739 |
|
Increase in debtors |
(2,934) |
(439) |
|
(Increase)/decrease in accrued income |
20 |
(56) |
|
(Increase)/decrease in creditors |
3,827 |
(203) |
|
Cash generated from operations |
28,481 |
30,334 |
|
Taxation paid |
(8,160) |
(8,878) |
|
Net cash inflow from operating activities |
20,321 |
21,456 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchases of non-current financial assets |
(146,864) |
(371,610) |
|
Net proceeds from the sale of |
|
|
|
non-current financial assets |
383,616 |
364,806 |
|
|
236,752 |
(6,804) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
Equity dividends paid |
(15,294) |
(14,793) |
|
Purchase of shares for cancellation |
(245,111) |
- |
|
|
(260,405) |
(14,793) |
|
|
|
|
|
Net decrease in cash and cash equivalents |
(3,332) |
(141) |
|
|
|
|
|
Cash and cash equivalents at start of year |
25,915 |
25,764 |
|
Exchange gains on cash |
22 |
292 |
|
|
|
|
|
Cash and cash equivalents at end of year |
22,605 |
25,915 |
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 APRIL 2008
1 Income
2008 2007
£'000 £'000
Income from investments
UK dividends 482 176
Other EU dividends 2,817 2,649
Other overseas dividends 54,279 49,614
Scrip dividends - 444
______ ______
57,578 52,883
Other income
Deposit interest 820 1,192
______ ______
Total income 58,398 54,075
Total income comprises:
Dividends 57,578 52,883
Interest 820 1,192
______ ______
58,398 54,075
Income from investments
Listed overseas 57,096 52,707
2 Investment management fee
2008 2007
£'000 £'000
Variable Expense
Investment management fee 22,602 17,328
The Company's Investment Manager is Templeton Asset Management Ltd. ("TAML").
The contract between the Company and TAML may be terminated at any date by either party giving one year's notice of termination. TAML receives a fee paid monthly in arrears, at an annual rate of 1.00% of the monthly total net assets of the Company. As at 30 April 2008, £3.5 million (30 April 2007: £3.2 million) in fees were payable and outstanding to TAML. In addition to the investment management fee above, the Company obtains secretarial and administration services from FTIML pursuant to a secretarial and administration agreement (which is terminable by either party giving one year's notice to the other). The fee in respect of secretarial and administration services is recorded within other expenses (note 3).
3 Other expenses
2008 2008 2007 2007
£'000 £'000 £'000 £'000
Variable expenses
Secretarial and administration expenses 4,520 3,466
Custody fees 1,688 1,215
6,208 4,681
Fixed expenses
Directors' emoluments 254 223
Auditors' remuneration
Fees payable to the Company's auditor for the
audit of the annual financial statements 28 28
Fees payable to the Company's auditor and its
associates for other services
- Other services pursuant to legislation:
half yearly financial report 4 4
- Other services relating to taxation - 3
- Services relating to corporate finance transactions:
assistance with the capital restructuring proposals 31 -
Registrar fees 169 219
Bank overdraft interest 198 7
Other administration expenses 1,336 550
2,020 1,034
Total other expenses 8,228 5,715
Included within the other administration expenses are the costs associated with the reorganisation proposals brought by the Company in July 2007.
Fees in respect of services as Directors are paid by the Company only to those Directors who are independent of Franklin Templeton Investments.
As at 30 April 2008, £702,000 (30 April 2007: £635,000) in fees were payable and outstanding to FTIML.
Following the outcome in a recent European Court of Justice Case, HM Revenue and Customs (HMRC) has now accepted that management fees charged to Investment Trusts can be treated as exempt for Value Added Tax (VAT) purposes. The Company has also lodged protective claims with HMRC to recover VAT previously overpaid by it. However, it is generally acknowledged that the resolution of retrospective claims is likely to be complex and may not occur for some time. HMRC has recently issued some guidance in principle on how it views such claims should be settled but also reaffirms that claims will be considered on a case by case basis. As such, the eventful outcome of the claims cannot be accurately predicted at this time. No credit has been taken into these accounts for any amounts that may be recoverable.
4 Tax on ordinary activities
2008 2007
£'000 £'000
Corporation tax charged at 30% 7,650 7,540
Double taxation relief (3,791) (2,984)
Prior year adjustments - 4
_____ ____
3,859 4,560
Overseas tax 5,073 3,427
Adjustment in respect of prior periods (55) 54
_____ ____
Current tax 8,877 8,041
Deferred tax - current year (1,149) 789
Deferred tax - prior year - (103)
_____ _____
7,728 8,727
Taxation
The current taxation change for the year is different from the standard rate of corporation tax in the UK. With effect from 1 April 2008 the standard rate of corporation tax in the UK became 28%. Prior to 1 April 2008 the rate was 30% (2007: 30%). The differences are explained below:
2008 2007
£'000 £'000
Profit on ordinary activities before taxation 27,568 31,032
______ _____
Theoretical tax at UK corporation tax rate 8,225 9,310
Effects of:
- Prior year adjustments to Corporation Tax - 4
- Prior year adjustments to irrecoverable overseas tax (55) 54
- Non taxable income (12) -
- Stock dividends - (133)
- Non Deductible expenses 170 -
- UK dividends not subject to Corporation Tax (144) (53)
- Other EU dividends not subject to Corporation Tax (840) (795)
- Irrecoverable overseas tax 528 443
- Income taxable in different periods (144) -
- Prior year deferred tax adjustment - (103)
_____ ____
Actual tax charge 7,728 8,727
The Company is exempt from UK corporation tax on capital gains because it is an Investment Trust and has excluded the capital return of £606,476,000 (2007: £51,774,000) from this reconciliation.
Due to recent favourable decisions in the European Court of Justice, the taxation of overseas dividends in the UK has been subject to review. In response to decisions from the courts, the Government has issued a consultation paper on the future taxation of overseas dividends. In light of this uncertainty, the Company has not recognised the potential refund of UK corporation tax from treating this income as non-taxable.
5 Earnings per Ordinary Share
Earnings per Ordinary Share has been calculated on the following earnings:
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Basic: 19,840 606,476 626,316 22,305 51,774 74,079
______ _______ _______ ______ ______ ______
Earnings per Ordinary Share:
2008 2008 2008 2007 2007 2007
Revenue Capital Total Revenue Capital Total
p p p p p p
Basic: 4.07 124.43 128.50 4.16 9.66 13.82
_______ _______ ______ ____ _____ _____
The earnings per Ordinary Shares is based on the profit on ordinary activities after tax and on the weighted average number of Ordinary Shares in issue during the year 487,398,572 (2007: 535,981,593).
At the EGM on 13 June 2008 shareholders approved the proposals for a tender offer to purchase up to 30% of the issued share capital. Since this event took place after the year end there is no impact on the numbers presented here.
6 Financial Assets - Investments
2008 2007
£'000 £'000
Opening investments as at 1 May 1,903,045 1,851,594
Movements in year
Additions 149,761 364,226
Sales (394,751) (365,145)
Realised profits 192,071 143,922
Net (depreciation)/appreciation 414,800 (91,551)
________ _______
Closing investments 2,264,926 1,903,046
All investments have been recognised at fair value through the Income Statement.
Transaction costs for the year on purchases were £594,000 (2007: £925,000) and transaction costs for the year on sales were £877,000 (2007: £744,000). The aggregate transaction costs for the year were £1,471,000 (2007: £1,669,000).
2008 2007
£'000 £'000
Realised and unrealised gains on investments comprise of:
Realised gain based on carrying value at 30 April 2007 192,071 143,922
Net movement in unrealised (depreciation)/appreciation 414,800 (91,551)
Indian Capital Gains Tax 186 142
_______ _____
Realised and unrealised gains on investments 607,057 52,513
7 Trade and other receivables
2008 2007
£'000 £'000
Sale of investments for future settlement 11,347 817
Dividends receivable 7,110 7,953
Other debtors 357 142
Accrued income 78 98
Overseas tax recoverable 69 -
______ ____
18,961 9,010
8 Trade and other payables
2008 2007
£'000 £'000
Purchase of Investments for Future Settlement 6,207 3,311
Accrued expenses 4,875 4,540
Net losses on Forward Foreign Exchange Contracts - 2
_____ _____
11,082 7,853
9 Deferred tax
2008 2007
£'000 £'000
Deferred tax provided
Accrued income taxable on receipt 1,237 2,386
£'000 £'000
The movement in the provision is as follows:
Provision at start of year 2,386 1,700
Prior year adjustment - (103)
Deferred tax in Income Statement (1,149) 789
1,237 2,386
Deferred tax has been provided at 28% (2007: 30%) because of uncertainty as to the average rate of tax that will apply when the underlying timing differences will reverse.
Any changes in the provision for deferred tax have been recognised in the Income Statement under Tax Expense (see Note 4).
10 Called-up share capital
Allotted, issued &
Authorised fully paid
£'000 Number £'000 Number
Ordinary Shares of 25p each
Balance as at 1 May 2007 340,605 1,362,419,566 133,995 535,981,593
Shares repurchased during the year - - (15,825) (63,300,377)
______ ___________ ______ __________
Balance as at 30 April 2008 340,605 1,362,419,566 118,170 472,681,216
The Company's Ordinary Shares have unrestricted voting rights at all general meetings, are entitled to all of the profits available for distribution by way of dividend, and are entitled to repayments of all of the Company's capital on winding up.
During the year, 63,300,377 shares were bought back for cancellation at a cost of £245.1 million. No shares were bought back and cancelled between 1 May 2008 and 18 June 2008. The amount of the proposed dividend for the year ended 30 April 2008 takes account of the reduced amount of shares in issue after the tender offer in June 2008.
11 Net asset value per share
The net asset value per share and the net asset value attributable to the Ordinary Shares at the year end were as follows:
Net asset value Net asset value
per share attributable
2008 2007 2008 2007
p p £'000 £'000
Ordinary Shares 484.77 359.24 2,291,395 1,925,484
12 Dividend
2008 2007
Rate (p) £'000 Rate (p) £'000
Declared and paid in the year
Equity dividend on Ordinary Shares:
Final dividend for year ended 30 April
2007 (2006: 2.76p) 3.13 15,294 2.76 14,793
______ _____
15,294 14,793
Proposed for approval at the Company's AGM
Equity dividend on Ordinary Shares:
Final dividend for year ended 30 April 2008
(2007: 3.13p) 3.50 12,408
_____
12,408
Dividends are recognised when the shareholders rights to receive payment is established. In the case of the final dividend, this means that they are not recognised until approval is received by shareholders at the Annual General Meeting. The amount of the proposed dividend for the year ended 30 April 2008 takes account of the reduced amount of shares in issue after the tender offer in June 2008.
13 Related party transactions
The following are considered to be related parties:
Templeton Asset Management Ltd. ("TAML")
Franklin Templeton Investment Management Limited ("FTIML").
All material related party transactions, as set out in International Accounting Standard 24 Related Party Disclosures, have been disclosed in Note 2 and Note 3.
14 Risk management
In pursuing the investment objectives the Company holds a number of financial instruments which are exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends.
The main risks arising from the Company's financial instruments are market risk, foreign currency risk, interest rate risk, other price risk, liquidity risk and credit risk.
The objectives, policies and processes for managing these risks, and the methods used to measure the risk, are set out below. These policies have remained unchanged since the beginning of the year to which these financial statements relate.
Market price risk
Market risk arises mainly from uncertainties about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.
The Directors meet quarterly to consider the asset allocation of the portfolio in order to minimise the risk associated with particular countries or industry sectors whilst continuing to follow the investment objectives. The Investment Manager has responsibility for monitoring the existing portfolio selected in accordance with the overall asset allocation parameters described above and seeks to ensure that individual stocks also meet the risk/reward profile on an ongoing basis.
The Investment Manager does not use derivative instruments to hedge the investment portfolio against market risk, as in its opinion, the cost of such a process would result in an unacceptable reduction in the potential for capital growth.
14 Risk management (continued)
Foreign currency risk
Currency translation movements can significantly affect the income and capital value of the Company's investments as the majority of the Company's assets and income are denominated in currencies other than sterling, which is the Company's functional currency.
The Investment Manager has identified three principal areas where foreign currency risk could affect the Company:
- movements in rates affect the value of investments;
- movements in rates affect short-term timing differences; and
- movements in rates affect the income received.
The Company does not hedge the sterling value of investments that are priced in other currencies.
The Company may be subject to short-term exposure to exchange rate movements, for instance where there is a difference between the date an investment purchase or sale is entered into and the date on which it is settled.
The Company receives income in currencies other than sterling and the sterling values of this income can be affected by movements in exchange rates. The Company converts all receipts of income into sterling on or near the date of receipt; it, however, does not hedge or otherwise seek to avoid rate movement risk on income accrued but not received.
The fair value of the Company's monetary items that have foreign currency exposure at 30 April 2008 are shown below:
2008 Trade and Trade and Total net Investments at
other Cash other foreign currency fair value through
receivables at bank payables exposure profit or loss
Currency £'000 £'000 £'000 £'000 £'000
US$ 5,455 4,758 - 10,213 841,085
Hong Kong $ 308 - - 308 333,831
Indonesia rupee - - (5,235) (5,235) 134,963
Korean won - - - - 236,801
Thai bhat 1,896 - - 1,896 204,639
Turkish lira 103 - - 103 178,931
Other 15,020 2,938 (971) 16,987 334,676
2007 Trade and Trade and Total net Investments at
other Cash other foreign currency fair value through
receivables at bank payables exposure profit or loss
Currency £'000 £'000 £'000 £'000 £'000
US$ 3,773 - - 3,773 555,800
Hong Kong $ 1,882 - - 1,882 284,032
Indonesia rupee - - (119) (119) 66,171
Korean won - - - - 239,037
Thai bhat 2,604 - - 2,604 144,098
Turkish lira - - (3,192) (3,192) 161,593
Other 3,939 44 - 3,983 452,315
14 Risk management (continued)
Sensitivity
The following table illustrates the sensitivity of the profit after taxation for the year and the equity with regard to the Company's monetary financial assets and liabilities.
If the pound had strengthened by 10% relative to all currencies on the reporting date, with all other variables held constant, the impact would have been:
2008 2007
Revenue Capital Revenue Capital
£'000 £'000 £'000 £'000
US$ 1 28 - 29
Hong Kong $ - 15 - 13
Indonesia rupee (1) 9 - 6
Thai bhat - 8 - 8
Turkish lira - 9 - 8
Other 2 22 - 32
2 91 - 96
A 10% weakening of the pound against the above currencies would have resulted in an equal and opposite effect on the above amounts.
Interest rate risk
The Company is permitted to invest in fixed rate securities. Any change to the interest rates relevant to particular securities may result in either income increasing or decreasing, or the Investment Manager being unable to secure similar returns on the expiry of contracts or the sale of securities. In addition, changes to prevailing rates or changes in expectations of future rates may result in an increase or decrease in the value of the securities held.
In general, if interest rates rise the income potential of the Company also rises, but the value of fixed rate securities will decline. A decline in interest rates will have the opposite effect.
Interest rate risk profile
The majority of the Company's financial assets are non-interest bearing equity investments.
The carrying amount, by the earlier of contractual re-pricing or maturity date, of the Company's financial instruments was as follows:
Within Within
one year one year
2008 2007
£'000 £'000
Cash flow interest rate risk
Loans and receivables
Cash 22,605 25,915
Maximum in year 109,366 60,236
Minimum in year 28 3,932
Exposures vary throughout the year as a consequence of changes in the make up of the net assets of the Company arising from out of the investment and risk management process.
Cash balances are held on call deposit and earn interest at the bank's daily rate.
There were no exposure to fixed interest investment securities during the year or at the year end.
14 Risk management (continued)
Liquidity risk
The Company's assets comprise mainly of securities listed on the stock exchanges of emerging economies. Liquidity can vary from market to market and some securities may take longer to sell. As a closed ended investment trust, liquidity risks attributable to the Company are less significant than for an open-ended fund.
The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given the large number of quoted investments held in the portfolio and the liquid nature of the portfolio of investments.
The portfolio manager reviews liquidity at the time of making each investment decision and monitors the evolving liquidity profile of the portfolio regularly.
Securities held by the Company are valued at Bid price. Other financial assets and liabilities of the Company are included in the balance sheet at fair value.
Credit risk
Certain transactions in securities that the Company enters into expose it to the risk that the counter-party will not deliver the investment (purchase) or cash (in relation to sale or declared dividend) after the Company has fulfilled its responsibilities. The Company only buys and sells through brokers which have been approved by the Investment Manager as an acceptable counter-party. In addition, limits are set as to the maximum exposure to any individual broker that may exist at any time. These limits and the credit standing of all counterparties are reviewed regularly.
The amount of credit risk that the Company is exposed to is disclosed under Interest Rate Risk Profile.
The Company has an ongoing contract with its custodian for the provision of custody services. Details of securities held in custody on behalf of the Company are received and reconciled monthly.
To the extent that JPMorgan Chase Bank (JPMorgan) carries out management and administrative duties on the Company's behalf, the Company is exposed to counterparty risk. The Board access this risk continuously through regular meetings with management of JPMorgan and with the JPMorgan internal audit function, which function carries out annual audits of JPMorgan appointed sub-managers.
Capital management
The Company's capital comprises shareholders' funds which is managed on a basis consistent with its investment objective and policies, as disclosed in the Directors' Report in the annual report. The principal risks and their management are disclosed above.
Fair value
Fair values are derived as follows:
- Where assets are denominated in a foreign currency, they are converted into the Sterling amount using
year-end rates of exchange.
- Non-current financial assets - on the basis set out in the accounting policies.
- Cash - at the face value of the account.
15 Significant holdings in investee undertakings
As at 30 April 2008 the Company held 3% or more in the issued share capital of the following companies:
% of issued % of issued
share capital share capital
Name 2008 2007
Brilliance China Automotive Holdings Ltd. 5.68 1.33
Hyundai Development Co. 4.92 4.92
Tainan Enterprises Co. Ltd. 4.91 4.36
Faysal Bank Ltd. 4.65 3.99
Kaitnakin Bank Public Co. Ltd., fgn. 4.19 4.09
16 Contingent liabilities
No contingent liabilities existed as at 30 April 2008 or 30 April 2007.
17 Financial commitments
There were no financial commitments at 30 April 2008 or 30 April 2007.
18 Post balance sheet events
The Company has proposed a dividend of 3.50 pence per Ordinary Share. Details of this are disclosed in note 12.
At the EGM on 13 June 2008, shareholders approved proposals for a tender offer to purchase up to 30% of the issued share capital of the Company. Accordingly, the proposals set out in the circular to shareholders dated 20 May 2008, are currently being implemented.
This preliminary statement, which has been agreed with the Auditors, was approved by the Board on 26 June 2008. It is not the company's statutory accounts. The statutory accounts for the financial year ended 30 April 2007 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain statements under section 237(2) and (3) of the Companies Act 1985. The statutory accounts for the financial year ended 30 April 2008 have not yet been approved, audited or filed.
The Annual Report and Accounts will be mailed to Shareholders shortly. Copies may be requested during normal business hours from Client Dealer Services at Franklin Templeton Investment Management Limited on freephone 0800 305 306.
For information please contact Client Dealer Services on freephone 0800 305 306 or Sara MacIntosh (Company Secretary) on + 44 (0) 131 242 4000, UBS (Corporate Broker) Joe Winkley or Mark Whitfeld on + 44 (0) 20 7567 8000. 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 for its use. These figures have been prepared by Franklin Templeton Investments and are their sole responsibility.
This information is provided by RNS
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