TEM Templeton Emerging Markets Investment Trust Plc

Chairman's statement

 

"There are many reasons to be optimistic about emerging markets."

 

Angus Macpherson
Chairman

 

Performance

 

TEMIT's net asset value ('NAV') Total Return^(a) over the six months to 30 September 2024 was +7.2%, slightly less than that of our benchmark index which produced a total return^(a) of +7.5%. I said in the most recent Annual Report that one of the three major factors which would lead to an improvement in the rating of TEMIT's shares would be a return to favour for emerging markets and it is notable that over the six months under review the return of the MSCI World Index Net total return, which measures the performance of developed markets, was only +2.8%^(a). The return over the whole period naturally only tells part of the story and, as is often the case, we experienced patches of volatility, driven by a variety of events including continued geopolitical instability, fears of a US recession and, on a more positive note, moves to reduce interest rates and stimulate economic growth.

 

The Chinese equity market is a key component of our comparator benchmark, as indeed the Chinese economy is an important force in the world. There has been much concern about the pace of growth of China and towards the end of the period under review the Chinese government initiated steps to kick start the country's moribund real estate sector and more generally to reinvigorate growth. Even if successful, these efforts will take time to bear fruit but at the very least a start has been made. As well as efforts to reinvigorate domestic activity, the other key concern is China's relationship with the United States, particularly following the election of Donald Trump in the United States.

 

(a)   A glossary of terms and alternative performance measures is included in the full Half Yearly Report.

 

 

Share price rating

 

In June we announced a series of measures with the intention of improving liquidity and returns for holders of TEMIT's shares. In summary, these were commitments to:

 

•   At least maintain the current level of annual dividend;

 

•   Repurchase up to £200m of shares over the next 12 to 24 months;

 

•   A conditional tender offer, under which TEMIT will tender for up to 25% of its shares if it underperforms its benchmark index over five years to March 2029; and

 

•   A phased reduction in management fees.

 

Following this announcement, we stepped up the rate of share buybacks and over the six months under review 46.2 million shares were bought back, returning £74.3 million to shareholders. These buybacks represented 4.1% of shares in issue on 31 March 2024 and, as all buybacks were at a discount to the prevailing NAV, resulted in an uplift of 0.57% of NAV per share for remaining shareholders.

 

The Board do not believe that buybacks alone cause discounts to narrow; their more measurable impact is to improve liquidity and to enhance earnings per share.

 

The Board and Manager also remain fully committed to promoting TEMIT's shares using a wide variety of channels, including an increasing presence in social media. The Board was very pleased to be awarded 'Best Social Media' at the AIC Shareholder Communications Awards 2024, the third year in a row that we have been awarded by the AIC for our marketing and communications.

 

Unlisted investment

 

The ability to invest in illiquid assets is a key advantage of the investment trust structure. In July, we made our first foray into unlisted investments, with the purchase of shares in leading Indian food delivery company Swiggy. This was a 'pre-IPO' investment and I am pleased to report that the shares were successfully listed on the National Stock Exchange of India on 13 November. The Board is very pleased with the outcome of this investment and has encouraged our Manager to seek further opportunities.

 

Income and dividend

 

Revenue earnings for the six months under review were 3.60 pence per share. The majority of TEMIT's revenues are usually earned during the first six months of its financial year and the Board has resolved to pay an unchanged interim dividend of 2.00 pence per share. As set out above, it is our intention at least to maintain the total dividend each year and, while it is too early to predict earnings for the second half of the year, the final dividend will be at least 3.00 pence per share.

 

Annual General Meeting and Continuation Vote

 

Outlook

 

Emerging markets continue to be less expensive than their developed counterparts. This must, at least to an extent, reflect a higher level of risk in an unstable world but does make the markets in which our managers invest on our behalf appear attractive.

 

There are many reasons to be optimistic about emerging markets, from the shifting dynamics of supply chains, with 'nearshoring' and 'friendshoring' having become established elements of the lexicon in Asia and Latin America, the continuing demand for ever greater computing power with the excitement over artificial intelligence only the most recent manifestation of this, and the potential for leadership in clean energy being just some examples. In the near term we are encouraged by moves to reduce interest rates and remain optimistic that this will be beneficial for economies and companies.

 

Angus Macpherson
Chairman

 

 

 

Principal risks

 

The Company invests predominantly in the stock markets of emerging markets. The principal categories of risks facing the Company, determined by the Board and described in detail in the Strategic Report within the Annual Report and Audited Accounts, are:

 

•   Market and geopolitical;

 

•   Technology;

 

•   Concentration;

 

•   Sustainability and climate change;

 

•   Foreign currency;

 

•   Discount;

 

•   Operational and custody;

 

•   Key personnel; and

 

•   Regulatory.

 

The Board has provided the Investment Manager with guidelines and limits for the management of principal risks. The Board and Investment Manager are aware that the economic challenges continue to be the key issue affecting investment markets around the world, as well as the tensions between the United States and China over trade and the Taiwan Strait. The ongoing Israel-Hamas conflict also adds to existing geopolitical uncertainties, as do the continuing ramifications of the Russian invasion of Ukraine. There have been no further changes to the principal and emerging risks reported in the Annual Report and, in the Board's view, these risks are equally applicable to the remaining six months of the financial year as they were to the six months under review.

 

Related party transactions

 

There were no transactions with related parties during the period other than the fees paid to the Directors and the AIFM.

 

Going concern

 

The Company's assets consist primarily of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. Having made suitable enquiries, including consideration of the Company's objective, the nature of the portfolio, net current assets, expenditure forecasts, the principal and emerging risks and uncertainties described within the Annual Report, the Directors are satisfied that the Company has adequate resources to continue to operate as a going concern for the period to 31 March 2026, which is at least 12 months from the date of approval of these Financial Statements, and are satisfied that the going concern basis is appropriate in preparing the Financial Statements.

 

Statement of Directors' Responsibilities

 

The Disclosure Guidance and Transparency Rules of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

 

Each of the Directors, who are listed in the full Half Yearly Report, confirms that to the best of their knowledge:

 

•   The condensed set of Financial Statements, for the period ended 30 September 2024, have been prepared in accordance with the UK adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting'; and

 

•   The Half Yearly Report includes a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and a fair review of the information required by:

 

(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

 

The Half Yearly Report was approved by the Board on 9 December 2024 and the above Statement of Directors' Responsibilities was signed on its behalf by

 

Angus Macpherson
Chairman

 

9 December 2024

 

 

Emerging markets ('EMs') advanced over the six months under review. However, it was not all plain sailing and a bout of volatility marked the period, making it a challenging environment for equities. Nevertheless, our investment approach, which is anchored in a bottom-up process to finding companies that our analysis indicates have sustainable earnings power and whose shares trade at a discount relative to their intrinsic worth and to other investment opportunities in the market, has managed to steer the performance of TEMIT to generate returns that were on par with the benchmark. While we note that this is a mere six-month period, contrasting with our longer-term investment horizon, it provides some validation for holding course in the face of an uncertain, ever-changing investment environment.

 

Elections in key EM countries (where the extent of the winning parties' victories led to some surprises), a change in investor sentiment towards artificial intelligence ('AI') and an intensification of geopolitical tensions added onto concerns of a recession in the United States. The latter was tempered by optimism about the US Federal Reserve's potential interest-rate cut, which eventually came to fruition.

 

The MSCI EM Index returned +7.5% in the six-month period under review, while TEMIT delivered a net asset value total return of +7.2% (all figures are net total return in sterling terms). Full details of TEMIT's performance can be found in the full Half Yearly Report.

 

Investment strategy, portfolio changes and performance attribution

 

The following sections show how different investment factors (stocks, sectors and geographies) accounted for TEMIT's performance over the period. We continue to emphasise our investment process that selects companies based on their individual attributes and ability to generate risk- adjusted returns for investors, rather than taking a high-level view of sectors, countries or geographic regions to determine our investment allocations.

 

Our investment style is centred on finding companies that, in our analysis, have sustainable earnings power and whose shares trade at a discount relative to their intrinsic worth and to other investment opportunities in the market. We also pay close attention to risks and Environmental, Social and Governance factors.

 

We continue to utilise our research-based and active approach to help us to find companies that have high standards of corporate governance, respect their shareholders and also allow us to understand the local intricacies that may determine consumer trends and habits. Utilising our large team of analysts, we aim to maintain close contact with the board and senior management of existing and potential investments and believe in engaging constructively with our investee companies.

 

All of these factors require us to conduct detailed analyses of potential returns versus risks with a time horizon of typically five years or more.

 

Our well-resourced, locally based teams remain a key competitive advantage and it has certainly been helpful having teams on the ground-for example, in the benchmark-heavyweight countries of China, India and Brazil-to help us better understand what is happening locally. This local presence allows us to understand business models, competitive dynamics and supply-chain issues. We have also managed to get insights into regulatory conversations and management capabilities, which are factored into our analysis. We view our locally based teams, which are armed with vast knowledge of the respective countries' macroeconomic issues and views on the ground as vital sources of input into the investment process. This complements our global presence, which allows us to analyse short-term uncertainties and determine if these are reflective of cyclical or structural trends.

 

Our high conviction, larger-weight holdings have led performance for the period under review. Finishing higher over the six-month period were shares of Chinese e-commerce company Alibaba. Its share price received support from investor expectations that the company could be included in the Hong Kong Stock Connect (which allows investors in Hong Kong to invest in Mainland Chinese stocks and vice-versa) later this year and that the company's new strategy to charge merchant service fees could potentially increase its revenue. Furthermore, China's stimulus measures to boost the country's economy and equity market provided a strong lift to Alibaba's share performance near the end of September 2024. Alibaba remains a key holding in TEMIT's China exposure. The company continues to generate strong cash flows, in our assessment, and we expect share-price appreciation to be supported by corporate actions, including share buybacks.

 

An off-benchmark holding in Prosus served the portfolio well. Prosus is a leading global investment company and the largest shareholder of Tencent (also held directly by TEMIT), a Chinese technology company. The company has ownership in multiple food delivery platforms, including Swiggy, which TEMIT recently took a direct investment in. Its share price tracked Tencent's stock, which initially rose following the company's release of its second-quarter 2024 earnings results and subsequently amid a slew of stimulus measures in China.

 

TSMC is the world's largest semiconductor foundry company. Its chips are used in a wide variety of solutions, including personal computers, automotive and industrial equipment, and phones. The company is a key beneficiary of the growth in demand for AI chips, and its share price rose along with other companies in the AI supply chain in the earlier part of the period. However, cautious investor sentiment surrounding AI-related stocks due to uncertainty around the monetisation of AI investments for end clients limited further rises in the share price towards the end of the period.

 

Grupo Financiero Banorte is a leading financial institution in Mexico, was a notable detractor. Its share price fell alongside the general Mexican equity market as investors feared adverse constitutional reforms and regulatory changes in the country. We continue to monitor the country's government policies and reforms and their potential impact on corporate earnings. However, we do remain optimistic on Mexico's banking sector growth prospects, given large percentage of unbanked population.

 

Samsung Electronics is one of the largest memory semiconductor manufacturers in the world, saw its share price fall over the six-month period. The company also manufactures a wide range of consumer and industrial electronics and equipment. Its share price was volatile during the period due to investor concerns about a weaker memory cycle in the near term, as well as the company's loss of leadership in advanced memory products. However, we expect the weakness in the memory cycle to be short lived, as demand for HBM should remain strong and conventional DRAM products should see supply tightness as capacity shifts to HBM.

 

NAVER is a South Korean internet search and advertising company. It also has business interests in e-commerce, financial services and entertainment content. Its share price weakened due to a combination of factors, including weaker growth for its market, competition for both its advertisement and e-commerce business, underwhelming response to its generative AI technology, and uncertainty about the benefits from its AI investments. The company had an issue with a data leak with the messaging application Line in Japan and potential implications of this on its business interest, along with NAVER's shareholding in Line, also pressured the share price. We remain positive on NAVER's business execution and expect the company to continue to deliver steady growth over the medium term. Its leadership position in AI solutions in South Korea, in our view, should provide the company with additional cost efficiencies and revenue opportunities.

 

(a)   For the period 31 March 2024 to 30 September 2024.

 

Stock selection in the consumer discretionary, consumer staples and financials sectors added to TEMIT's performance relative to the benchmark index during the six-month period under review. An underweight allocation in the consumer staples sector provided additional support. Within the consumer discretionary sector, Alibaba and Prosus (both described above) are examples of companies that aided relative returns. Contribution in the financials sector was led by Discovery, South Africa's biggest health insurance provider. This company also offers banking and investment services. Additionally, the company has international insurance operations in the United Kingdom and partners with other insurance companies through its shared-value insurance model called Vitality.

 

In contrast, stock selection in the information technology, industrials and communication services sectors caused relative detraction. The information technology sector was driven lower by holdings in MediaTek (a Taiwan-based designer of chips for smartphones and other technology devices), Samsung Electronics (described above) and Samsung SDI (a leading manufacturer of lithium-ion batteries for electric vehicles ('EVs') energy storage, power tools and information technology products). Samsung SDI's share price suffered from investor concerns about weaker-than-expected growth in end-market demand for its products. The weakness in the communication services sector was driven by NAVER (described earlier), in which TEMIT has an overweight position. In the industrials sector, South Korean holding company LG led detraction, due to weak earnings for its key holdings. LG owns stakes in several companies across various industries such as electronics, chemicals, EV batteries and household products. The company has been buying back its shares, which should help narrow the discount to its net asset value ('NAV').

(a)   For the period 31 March 2024 to 30 September 2024.

 

By markets, stock selection in Taiwan and China/Hong Kong added onto positive contribution from a lack of exposure to Saudi Arabia. Once again, TSMC aided relative returns in Taiwan. Another Taiwan-based holding that was supportive of the portfolio's performance was Hon Hai Precision Industry, a provider of electronic manufacturing services for consumer electronics, cloud and networking products, and computing products and components. In China, Alibaba was a leading contributor.

 

Conversely, overweight allocations and stock selection in both South Korea and Brazil led these markets to be top detractors from relative returns. Stock selection in Mexico also pressured the portfolio's relative performance. Samsung Electronics, NAVER and Samsung SDI were key drivers of the portfolio's lacklustre performance in South Korea. In Brazil, Oncoclinicas, a cancer-care provider, experienced volatility in its share price due to investor concerns about the company's excessive debt. While we remain optimistic on Oncoclinicas' growth prospects, we are keeping a close watch on the pace of the company's debt reduction. Mexico's relative detraction was largely driven by Grupo Financiero Banorte (described above).

 

 

 

Portfolio by Fair Value

 

Holding	Sector	Fair Value £'000	% of Portfolio
Brazil
Petrobras(a)	Energy	49,517	2.4
Itaú Unibanco(a)(b)	Financials	40,458	2.0
Banco Bradesco (a)(b)	Financials	30,399	1.5
Vale	Materials	23,483	1.1
TOTVS	Information Technology	8,183	0.4
Hypera	Health Care	6,058	0.3
Oncoclinicas do Brasil Servicos Medicos	Health Care	5,377	0.3
		163,475	8.0
Cambodia
NagaCorp	Consumer Discretionary	3,888	0.2
		3,888	0.2
Chile
Banco Santander Chile(b)	Financials	17,898	0.9
		17,898	0.9
China/Hong Kong
Alibaba(c)	Consumer Discretionary	100,612	4.9
Tencent	Communication Services	87,820	4.3
Prosus	Consumer Discretionary	84,151	4.1
Techtronic Industries	Industrials	41,666	2.0
China Merchants Bank	Financials	34,490	1.7
Budweiser Brewing Company APAC	Consumer Staples	31,465	1.5
Baidu	Communication Services	27,418	1.3
Ping An Insurance	Financials	23,676	1.1
Kuaishou Technology	Communication Services	22,197	1.1
Uni-President China	Consumer Staples	18,768	0.9
NetEase	Communication Services	17,102	0.8
Wuxi Biologics	Health Care	13,069	0.6
Haier Smart Home	Consumer Discretionary	12,343	0.6
Daqo New Energy(b)	Information Technology	8,156	0.4
H&H Group	Consumer Staples	7,192	0.4
Guangzhou Tinci Materials Technology	Materials	6,754	0.3
Beijing Oriental Yuhong Waterproof Technology	Materials	5,678	0.3
China Resources Building Materials Technology	Materials	5,123	0.3
COSCO SHIPPING Ports	Industrials	4,708	0.2
Greentown Service Group	Real Estate	3,524	0.2
Weifu High-Technology	Consumer Discretionary	1,967	0.1
JD.com	Consumer Discretionary	1,849	0.1
Weichai Power	Industrials	146	0.0
		559,874	27.2
Hungary
Gedeon Richter	Health Care	25,672	1.2
Wizz Air Holdings	Industrials	4,688	0.2
		30,360	1.4
India
ICICI Bank	Financials	106,449	5.2
HDFC Bank	Financials	54,669	2.7
Swiggy(d)	Consumer Discretionary	35,697	1.7
Infosys Technologies	Information Technology	23,221	1.1
Bajaj Holdings & Investment	Financials	16,282	0.8
Zomato	Consumer Discretionary	16,215	0.8
Federal Bank	Financials	15,844	0.8
ACC	Materials	11,629	0.6
Ola Electric Mobility	Consumer Discretionary	2,716	0.1
		282,722	13.8
Indonesia
Astra International	Industrials	11,147	0.5
		11,147	0.5
Mexico
Grupo Financiero Banorte	Financials	38,621	1.9
Nemak	Consumer Discretionary	1,698	0.1
		40,319	2.0
Peru
Intercorp Financial Services	Financials	8,427	0.4
		8,427	0.4
Philippines
BDO Unibank	Financials	9,922	0.5
		9,922	0.5
Russia
LUKOIL(e)	Energy	0	0.0
Sberbank of Russia(e)	Financials	0	0.0
		0	0.0
South Africa
Discovery	Financials	30,157	1.4
Netcare	Health Care	17,816	0.9
		47,973	2.3
South Korea
Samsung Electronics	Information Technology	86,543	4.2
SK Hynix	Information Technology	56,483	2.7
NAVER	Communication Services	55,374	2.7
Samsung Life Insurance	Financials	50,460	2.5
LG	Industrials	35,950	1.7
Samsung SDI	Information Technology	31,919	1.6
Doosan Bobcat	Industrials	16,345	0.8
Fila	Consumer Discretionary	11,854	0.6
Soulbrain	Materials	10,431	0.5
LegoChem Biosciences	Health Care	4,626	0.2
Hankook Tire	Consumer Discretionary	3,584	0.2
KT Skylife	Communication Services	1,225	0.1
		364,794	17.8
Taiwan
TSMC	Information Technology	254,022	12.4
MediaTek	Information Technology	48,616	2.4
Hon Hai Precision Industry	Information Technology	47,365	2.3
Yageo	Information Technology	8,271	0.4
Lite-On Technology	Information Technology	6,483	0.3
		364,757	17.8
Thailand
Kasikornbank	Financials	31,646	1.5
Minor International	Consumer Discretionary	11,388	0.5
Thai Beverage	Consumer Staples	8,136	0.4
Kiatnakin Phatra Bank	Financials	6,467	0.3
Star Petroleum Refining	Energy	5,255	0.3
		62,892	3.0
United Arab Emirates
Emirates Central Cooling Systems	Utilities	10,351	0.5
Spinneys	Consumer Staples	6,329	0.3
		16,680	0.8
United States
Genpact(f)	Industrials	39,153	1.9
Cognizant Technology Solutions(f)	Information Technology	30,858	1.5
		70,011	3.4
Total Investments		2,055,139	100.0

 

(a)  Preference shares: Shareholders are entitled to dividends before ordinary shareholders.

(b)  US listed American Depository Receipt.

(c)  TEMIT holds shares in this company listed on the Hong Kong stock exchange and American Depository Receipts listed on the New York stock exchange.

(d)  This company is unlisted.

(e)  This company is fair valued at zero as a result of its trading being suspended on international stock exchanges.

(f)  This company, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.

 

Market Capitalisation Breakdown %	Less than £1.5bn	£1.5bn to £5bn	£5bn to £25bn	Greater than £25bn
30 September 2024(a)	4.9	8.0	26.5	58.9
31 March 2024	4.6	12.6	23.3	59.5

 

Split Between Markets %(b)		30 September 2024	31 March 2024
Emerging Markets		96.4	95.8
Developed Markets(c)		3.4	4.0
Frontier Markets		0.2	0.2

 

Source: FactSet Research System, Inc.

(a)           Swiggy is unlisted at 30 September 2024 and is not included in the breakdown.

(b)           Geographic split between 'Emerging markets', 'Frontier markets', 'Developed markets' are as per MSCI index classifications.

(c) Developed market exposure represented by companies listed in the United States which have significant exposure to operations from emerging markets.

 

Stewardship

 

Templeton Emerging Markets Investment Trust ('TEMIT') seeks to capture the growth potential of emerging markets companies by employing a bottom-up security selection process with a long-term perspective. We aim to be a responsible steward of our clients' capital-that is why we integrate Environmental, Social and Governance ('ESG') factors into our investment research process to understand the financial risks and opportunities that stem from governance and sustainability issues.

 

Whilst governance and sustainability issues are analysed in our research, the findings are not binding on the stock selection process. TEMIT does not pursue any sustainable targets (for example, carbon reduction) or objectives.

 

We provide some examples from the last six months which illustrate our process.

 

Business Thesis and ESG Research

 

TEMIT's research process includes a structured analysis of governance and sustainability issues to understand the financial risk and opportunities of investing in a stock. A case study example considering ESG factors is Budweiser Brewing Company APAC, whose shares were purchased during the six months under review.

 

Budweiser Brewing Company APAC, part of AB InBev Group ('ABI'), is a leading beer company in Asia. The company has two major markets in Asia: China and South Korea. Unlike other local brewers, Budweiser has a large market leading brand portfolio with more than 50 beer brands, including more than 25 brands licensed from ABI.

 

Turning to our ESG research, Budweiser Brewing Company APAC has set key 2025 goals across multiple sustainability areas such as climate action, water stewardship, circular packaging and sustainable agriculture. The company has an ambitious programme to achieve net zero by 2040. Near term goals include: achieving 100% electricity from renewable sources, 25% carbon emissions reduction across its value chain and 35% reduction in absolute scope 1 and 2 emissions.

 

Its water usage continues to decrease, and the company has set a goal to ensure average brewing water usage reaches 2.00 hl/hl by 2025, from 2.03 hl/hl as at end 2023. 64.8% of the company's total beer volume was in the form of returnable packaging or made from a majority of recycled content. The company has set a goal to increase this to 100%. The company also works with its supply chain to ensure adequate monitoring, ranging from responsible sourcing, to ensuring compliance with UN Global Compact Principles covering human rights, which further empowers value chain partners to deliver on sustainability objectives.

 

The company continues to innovate with a strong research & development capability. It is aiming for no-alcohol (by which it means the Alcohol by Volume ('ABV') 0.0%-0.5%) and low-alcohol (ABV 0.51%-3.5%) beer products to represent at least 20% of its total beer volume by the end of 2025. This is consistent with consumer trends and should enhance its growth trajectory.

 

The company generally exhibits strong corporate governance practices. Although the board lacks an independent majority (an engagement topic for us), the skillset is strong, made up of industry and financial experts, with gender diversity demonstrated. The management team is strong, and we believe incentives through compensation and ESOP (employee stock ownership plan) are well aligned to minority shareholders. Finally, we note no material concerns in other areas such as ownership structure, accounting or historical controversies.

 

Market share gains in the premium and super premium segment in China will be the key revenue and EBITDA growth driver in the next few years. Based on our research, we have confidence in management's ability to execute the overall business strategy ensuring key ESG risk considerations are being managed. These considerations are central to cost efficiency, productivity, and continuity of operations, to deliver on its long-term outlook and as such we have attributed a lower discount rate to the company in our financial model.

 

Active ownership

 

Our significant presence in emerging markets allows our investment team to pursue active ownership, which is a key part of the overall approach to stewardship. Over the six-month period, we have engaged with select investee companies on governance issues, as well as executing our proxy voting policy on behalf of our shareholders.

 

For example, over the period under review, we reached out to the management of Baidu to encourage them to undertake a more favourable set of shareholder return actions and policies. Baidu has continued to generate strong cash flows, despite the changing competition landscape and slower industry growth. However, we think that the current share price has not reflected the intrinsic value of the business and various assets on the balance sheet. There has been no dividend payout, and the multi-year buyback was not enough to offset the dilution from share-based compensation. We have made specific requests of the company, including asking the company to formulate a long-term shareholder return policy in the form of dividends and/or buybacks at the management's discretion. We await their response and monitor this issue.

 

One recent example of our proxy voting was our votes against proposals to approve two Director elections at COSCO SHIPPING Ports on the grounds that one director failed to attend at least 75% of board meetings in the most recent fiscal year, without a satisfactory explanation, while another director was serving on more than six public company boards. Strong and engaged board oversight is important for value creation at a company. We continue to use our voting power as a signal to management on important issues raised through voting ballots.

 

We will be sharing a more detailed account of our stewardship practices in the next Annual Report and dedicated Stewardship Report.

 

Chetan Sehgal

Lead Portfolio Manager

 

9 December 2024

Independent review report

to the members of Templeton Emerging Markets Investment Trust plc

 

Conclusion

 

We have been engaged by Templeton Emerging Markets Investment Trust plc ('the Company') to review the condensed set of Financial Statements in the Half Yearly Report for the six months ended 30 September 2024 which comprises the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, and related notes 1-9. We have read the other information contained in the Half Yearly Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Half Yearly Report for the six months ended 30 September 2024 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Basis for conclusion

 

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' (ISRE) issued by the Financial Reporting Council. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

As disclosed in note 1, the annual Financial Statements of the Company are prepared in accordance with UK adopted international accounting standards. The condensed set of Financial Statements included in this Half Yearly Report has been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting'.

 

Conclusions relating to going concern

 

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

 

Responsibilities of the Directors

 

The Directors are responsible for preparing the Half Yearly Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

In preparing the Half Yearly Report, the Directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's Responsibilities for the review of the financial information

 

In reviewing the Half Yearly Report, we are responsible for expressing to the Company a conclusion on the condensed set of Financial Statements in the Half Yearly Report. Our conclusion, including our Conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

 

Use of our report

 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

 

Ernst & Young LLP

London

 

9 December 2024

 

Financial statements

 

Statement of comprehensive income

 

For the six months to 30 September 2024

 

		For the Six Months to 30 September 2024 (unaudited)			For the Six Months to 30 September 2023 (unaudited)			Year Ended 31 March 2024 (audited)
	Note	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net Gains/(Losses) on Investments and Foreign Exchange
Net Gains/(Losses) on Investments at Fair Value		-	106,120	106,120	-	(44,956)	(44,956)	-	94,636	94,636
Net Losses on Foreign Exchange		-	(286)	(286)	-	(649)	(649)	-	(817)	(817)
Income
Dividends	2	42,859	3,720	46,579	42,180	6,560	48,740	65,350	6,560	71,910
Other Income		3,046	-	3,046	3,278	-	3,278	6,536	-	6,536
		45,905	109,554	155,459	45,458	(39,045)	6,413	71,886	100,379	172,265
Expenses
AIFM Fee(a)		(2,606)	(6,081)	(8,687)	(2,580)	(6,019)	(8,599)	(5,130)	(11,970)	(17,100)
Other Expenses		(981)	-	(981)	(821)	-	(821)	(1,774)	-	(1,774)
		(3,587)	(6,081)	(9,668)	(3,401)	(6,019)	(9,420)	(6,904)	(11,970)	(18,874)
Profit/(Loss) Before Finance Costs and Taxation		42,318	103,473	145,791	42,057	(45,064)	(3,007)	64,982	88,409	153,391
Finance Costs(a)		(316)	(733)	(1,049)	(389)	(909)	(1,298)	(751)	(1,747)	(2,498)
Profit/(Loss) Before Taxation		42,002	102,740	144,742	41,668	(45,973)	(4,305)	64,231	86,662	150,893
Tax Expense	6	(2,701)	(9,044)	(11,745)	(3,338)	(4,291)	(7,629)	(5,366)	(5,201)	(10,567)
Profit/(Loss) for the Year		39,301	93,696	132,997	38,330	(50,264)	(11,934)	58,865	81,461	140,326
Profit/(Loss) Attributable to Equity Holders of the Company		39,301	93,696	132,997	38,330	(50,264)	(11,934)	58,865	81,461	140,326
Earnings per Share	3	3.60p	8.57p	12.17p	3.34p	(4.37)p	(1.03)p	5.18p	7.17p	12.35p

 

Under the Company's Articles of Association the capital element of return is not distributable. The total column of this statement represents the profit and loss account of the Company. The accompanying notes are an integral part of the Financial Statements.

 

(a)           70% of the annual Alternative Investment Fund Manager ('AIFM') fee and 70% of the finance costs, except for interest and fees on overdrafts, have been allocated to the capital account.

 

Statement of financial position

 

As at 30 September 2024

 

	Note	As at 30 September 2024 (unaudited) £'000	As at 30 September 2023 (unaudited) £'000	As at 31 March 2024 (audited) £'000
Non-Current Assets
Investments at Fair Value Through Profit or Loss		2,055,139	1,910,022	1,995,232
Current Assets
Trade and Other Receivables		22,349	10,622	10,759
Cash and Cash Equivalents		105,830	130,722	145,736
Total Current Assets		128,179	141,344	156,495
Current Liabilities
Bank Loan		(100,000)	-	(100,000)
Other Payables		(4,460)	(3,902)	(6,401)
Total Current Liabilities		(104,460)	(3,902)	(106,401)
Net Current Assets		23,719	137,442	50,094
Non-Current Liabilities
Capital Gains Tax Provision		(18,241)	(11,898)	(10,463)
Bank Loan		-	(100,000)	-
Total Assets Less Liabilities		2,060,617	1,935,566	2,034,863
Share Capital and Reserves
Equity Share Capital	4	58,622	61,955	60,932
Capital Redemption Reserve		24,047	20,714	21,737
Capital Reserve		1,407,545	1,286,949	1,388,186
Special Distributable Reserve		433,546	433,546	433,546
Revenue Reserve		136,857	132,402	130,462
Equity Shareholders' Funds		2,060,617	1,935,566	2,034,863
Net Asset Value Pence per Share(a)		192.8	170.5	182.5

 

(a) Based on shares in issue excluding shares held in treasury.

Statement of changes in equity

 

For the six months to 30 September 2024 (unaudited)

 

	Note	Equity Share Capital £'000	Capital Redemption Reserve £'000	Capital Reserve £'000	Special Distributable Revenue £'000	Revenue Reserve £'000	Total £'000
Balance at 31 March 2023		63,148	19,521	1,372,654	433,546	128,634	2,017,503
(Loss)/Profit for the Period		-	-	(50,264)	-	38,330	(11,934)
Equity Dividends	5	-	-	-	-	(34,562)	(34,562)
Purchase and Cancellation of Own Shares	4	(1,193)	1,193	(35,441)	-	-	(35,441)
Balance at 30 September 2023		61,955	20,714	1,286,949	433,546	132,402	1,935,566
Profit for the Period		-	-	131,725	-	20,535	152,260
Equity Dividends	5	-	-	-	-	(22,475)	(22,475)
Purchase and Cancellation of Own Shares	4	(1,023)	1,023	(30,488)	-	-	(30,488)
Balance at 31 March 2024		60,932	21,737	1,388,186	433,546	130,462	2,034,863
Profit for the Period		-	-	93,696	-	39,301	132,997
Equity Dividends	5	-	-	-	-	(32,906)	(32,906)
Purchase and Cancellation of Own Shares	4	(2,310)	2,310	(74,337)	-	-	(74,337)
Balance at 30 September 2024		58,622	24,047	1,407,545	433,546	136,857	2,060,617

 

Statement of cash flows

 

For the six months to 30 September 2024

 

	For the six months to 30 September 2024 (unaudited) £'000	For the six months to 30 September 2023 (unaudited) £'000	For the year to 31 March 2024 (audited) £'000
Cash Flows From Operating Activities
Profit/(Loss) Before Taxation	144,742	(4,305)	150,893
Adjustments to Reconcile Profit/(Loss) Before Taxation to Cash Used in Operations:
Bank and Deposit Interest Income Recognised	(3,023)	(3,266)	(6,518)
Dividend Income Recognised	(46,579)	(48,740)	(71,910)
Finance Costs	1,047	1,298	2,498
Net (Gains)/Losses on Investments at Fair Value	(106,120)	44,956	(94,636)
Net Losses on Foreign Exchange	286	649	817
(Increase)/Decrease in Debtors	(18)	13	(23)
Increase/(Decrease) in Creditors	159	(4)	(29)
Cash Used in Operations	(9,506)	(9,399)	(18,908)
Bank and Deposit Interest Received	3,094	3,266	6,434
Dividends Received	50,017	49,274	71,024
Bank Overdraft Interest Paid	(2)	-	(2)
Tax Paid	(3,574)	(5,457)	(9,945)
Net Realised Gains/(Losses) on Foreign Currency Cash and Cash Equivalents	647	(355)	(435)
Net Cash Inflow From Operating Activities	40,676	37,329	48,168
Cash Flows From Investing Activities
Purchases of Non-Current Financial Assets	(213,890)	(271,085)	(463,750)
Sales of Non-Current Financial Assets	241,804	302,151	553,641
Net Cash Inflow From Investing Activities	27,914	31,066	89,891
Cash Flows From Financing Activities
Equity Dividends Paid	(32,906)	(34,562)	(57,037)
Purchase and Cancellation of Own Shares	(74,549)	(34,831)	(65,784)
Interest and Fees Paid on Bank Loans	(1,041)	(1,276)	(2,490)
Net Cash (Outflow)/Inflow From Financing Activities	(108,496)	(70,669)	(125,311)
Net Increase/(Decrease) in Cash	(39,906)	(2,274)	12,748
Cash at the Start of the Period	145,736	132,988	132,988
Net Unrealised Gains/(Losses) on Foreign Currency Cash and Cash Equivalents	0	8	0
Cash at the End of the Period	105,830	130,722	145,736

 

Reconciliation of Liabilities Arising From Bank Loans

 

	Liabilities as at 31 March 2024 £'000	Cash Flows £'000	Profit & Loss £'000	Liabilities as at 30 September 2024 £'000
Fixed term loan	100,000	-	-	100,000
- Interest and Fees Payable	349	(1,041)	1,047	355
Total Liabilities From Bank Loans	100,349	(1,041)	1,047	100,355
	Liabilities as at 31 March 2023 £'000	Cash Flows £'000	Profit & Loss £'000	Liabilities as at 30 September 2023 £'000
Revolving Credit Facility	-	-	-	-
- Interest and Fees Payable	-	(241)	241	-
Fixed Term Loan	100,000	-	-	100,000
- Interest and Fees Payable	343	(1,035)	1,057	365
Total Liabilities From Bank Loans	100,343	(1,276)	1,298	100,365
	Liabilities as at 31 March 2023 £'000	Cash Flows £'000	Profit & Loss £'000	Liabilities as at 31 March 2024 £'000
Revolving Credit Facility	-	-	-	-
- Interest and Fees Payable	-	(401)	401	-
Fixed Term Loan	100,000	-	-	100,000
- Interest and Fees Payable	343	(2,089)	2,095	349
Total Liabilities From Bank Loans	100,343	(2,490)	2,496	100,349

 

Notes to the financial statements

 

For the six months to 30 September 2024

 

1     Basis of preparation

 

The Half Yearly Report for the six months to 30 September 2024 has been prepared in accordance with the UK adopted International Accounting Standard ('IAS') 34 'Interim Financial Reporting'.

 

The Company has adopted the Statement of Recommended Practice ('SORP') for investment trusts issued by the Association of lnvestment Companies ('AIC') and updated in July 2022 insofar as the SORP is compatible with UK adopted International Accounting Standards. The accounting policies applied in these half yearly Financial Statements are consistent with those applied in the Company's Financial Statements for the year ended 31 March 2024 and have been applied consistently to all periods presented in these interim Financial Statements.

 

The financial information contained in this interim statement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 September 2024 and 30 September 2023 has not been audited. The figures and financial information for the year ended 31 March 2024 are extracted from the published accounts and do not constitute the statutory accounts for that period. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors, which was unqualified and did not include a statement under sections 498(2) or 498(3) of the Companies Act 2006.

 

As at 30 September 2024, the Company had net current assets of £23,719,000 (31 March 2024: net current assets £50,094,000). The Directors have a reasonable expectation that the Company has sufficient resources to continue in operational existence for the period to 31 March 2026, which is at least 12 months from the date of approval of these Financial Statements. Accordingly, the Financial Statements have been prepared on a going concern basis.

 

2     Income

 

The Company received special dividends amounting to £8.5 million (30 September 2023: £7.7 million) of which £3.7 million was classified as capital and £4.8 million was classified as revenue (30 September 2023: £6.6 million and £1.1 million respectively).

 

3     Earnings per share

 

	For the Six Months to 30 September 2024 £'000	For the Six Months to 30 September 2023 £'000	For the Year to 31 March 2024 £'000
Revenue Profit	39,301	38,330	58,865
Capital Profit/(Loss)	93,696	(50,264)	81,461
Total	132,997	(11,934)	140,326
Weighted Average Number of Shares in Issue	1,092,655,677	1,149,158,447	1,136,517,365
Revenue Profit per Share	3.60p	3.34p	5.18p
Capital Profit/(Loss) per Share	8.57p	(4.37)p	7.17p
Total	12.17p	(1.03)p	12.35p

 

4     Equity Share Capital

 

	For the Six Months to 30 September 2024			For the Six Months to 30 September 2023			For the Year to 31 March 2024
Ordinary Shares In Issue	£'000	Number		£'000		Number	£'000		Number
Opening Ordinary Shares of 5 Pence	55,741	1,114,818,617	57,957		1,159,138,372		57,957	1,159,138,372
Purchase and Cancellation of Own Shares	(2,310)	(46,214,019)	(1,193)		(23,862,295)		(2,216)	(44,319,755)
Closing Ordinary Shares of 5 Pence	53,431	1,068,604,598	56,764		1,135,276,077		55,741	1,114,818,617

 

	For the Six Months to 30 September 2024		For the Six Months to 30 September 2023		For the Year to 31 March 2024
Ordinary Shares Held in Treasury	£'000	Number	£'000	Number	£'000	Number
Opening Ordinary Shares of 5 Pence	5,191	103,825,895	5,191	103,825,895	5,191	103,825,895
Closing Ordinary Shares of 5 Pence	5,191	103,825,895	5,191	103,825,895	5,191	103,825,895
Total ordinary shares in issue and held in treasury at the end of the period	58,622	1,172,430,493	61,955	1,239,101,972	60,932	1,218,644,512

 

In the six months to 30 September 2024, 46,214,019 shares were bought back for cancellation for a total consideration of £74,337,000 (30 September 2023: 23,862,295 shares were bought back for cancellation for a total consideration of £35,441,000). All shares bought back in the period were cancelled, with none being placed in treasury (30 September 2023: no shares were placed into treasury).

 

5     Dividends

 

	For the Six Months to 30 September 2024		For the Six Months to 30 September 2023		For the Year to 31 March 2024
	Rate (Pence)	£'000	Rate (Pence)	£'000	Rate (Pence)	£'000
Declared and Paid During the Period:
Dividend on Shares:
Final dividends for the years ended 31 March 2024 and 31 March 2023	3.00	32,906	3.00	34,562	3.00	34,562
Interim dividend for the six months ended 30 September 2023	-	-	-	-	2.00	22,475
Total	3.00	32,906	3.00	34,562	5.00	57,037

 

On 9 December 2024 the Board declared an interim dividend of 2.00 pence per share for the financial year 2025 (financial year 2024: 2.00 pence per share interim dividend). This dividend has not been accrued in the Financial Statements for the six months ended 30 September 2024 as dividends are recognised when the shareholders' right to receive the payment is established. For the 2025 interim dividend this would be the ex-dividend date of 19 December 2024.

 

6     Taxation

 

The total tax expense of £11.74 million (30 September 2023: £7.63 million) consists of a revenue tax expense of £2.70 million (30 September 2023: £3.34 million) and a capital tax expense of £9.04 million (30 September 2023: £4.29 million). The revenue tax expense relates to irrecoverable overseas tax on dividends. The capital tax expense consists of £7.77 million (30 September 2023: £2.22 million) expense arising from an increase in the provision for deferred tax on unrealised gains on holdings in India and a £1.27 million expense (30 September 2023: £2.07 million) arising from tax on realised gains on holdings in India.

 

7      Costs of Investment Transactions

 

During the period, expenses were incurred in acquiring or disposing of investments. The following costs of transactions are included in the gains/(losses) on investments at fair value:

 

	For the Six Months to 30 September 2024 £'000	For the Six Months to 30 September 2023 £'000	For the Year to 31 March 2024 £'000
Purchase Expenses	226	320	546
Sales Expenses	531	657	1,210
Total	757	977	1,756

 

8      Fair Value

 

Fair values are derived as follows:

 

•   Where assets are denominated in a foreign currency, they are converted into the sterling amount using period end rates of exchange;

 

•   Investments held by the Company on the basis set out in the annual accounting policies;

 

•   Cash at the denominated currency of the account; and

 

•   Other financial assets and liabilities at the carrying value which is a reasonable approximation of the fair value.

 

The tables below analyse financial instruments carried at fair value by valuation method. The different levels have been defined as follows:

 

Level 1. Quoted prices (unadjusted) in active markets for identical assets and liabilities;

 

Level 2. Inputs other than quoted prices included with level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices); and

 

Level 3. Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The hierarchy valuation of investments through profit and loss are shown below:

 

	30 September 2024 £'000	30 September 2023 £'000	31 March 2024 £'000
Level 1	2,019,442	1,910,022	1,995,232
Level 2	-	-	-
Level 3	35,697	-	-
Total	2,055,139	1,910,022	1,995,232

 

The Company held three Level 3 securities as at 30 September 2024 (31 March 2024: two).

 

The investments in Russian securities, LUKOIL and Sberbank of Russia, continue to be fair valued at £nil (31 March 2024: £nil) and are classified as Level 3 due to the inability of the Company to access the local Moscow equity markets and the very limited access to the over-the-counter market. The fair value of these investments is based on a liquidity discount of 100% to the last traded price for an exit price of zero.

 

The investment in Swiggy was acquired during the current period and was fair valued at £35.70 million as of 30 September 2024. It has been classified as Level 3 due to its unlisted status and has been fair valued based on a pricing model that is 75% discounted cash flows and 25% on a comparable peer group. The unobservable inputs as of 30 September 2024 are below.

 

Description	Fair value £'000	Unobservable input	Weighted average input	Reasonable possible shift +/-	Reasonable possible shift + £'000	Reasonable possible shift - £'000
Equities	35,697	CY25 Enterprise Value and Revenue Multiple of Comparable Group 1	x8.5	x1.5	503	(503)
		CY25 Enterprise Value and Revenue Multiple of Comparable Group 2	x6.7	x1.5	1,508	(1,508)
		Comparable Group 1 Weighting	25.0%	10.0%	235	(235)
		Discount for Lack of Marketability	5.7%	1.5%	(568)	568
		Forecasted Cashflows	100.0%	20.0%	5,123	(5,123)
		Weighted Average Cost of Capital	11.1%	1.0%	(4,344)	6,107
		Long Term Growth Rate	5.0%	0.5%	1,980	(1,681)
		Discounted Cash Flow Weighting	75.0%	10.0%	(605)	605

 

The following table presents the movement in Level 3 investments for the period:

 

	30 September 2024 £'000	30 September 2023 £'000	31 March 2024 £'000
Opening Balance	-	-	-
Additions at Cost - Purchase of Level 3 Assets	37,952	-	-
Disposal Proceeds - Sale of Level 3 Assets	-	(7,766)(a)	(7,766)(a)
Net Gains/(Losses) on Foreign Exchange	(2,255)	-	-
Net Gains/(Losses) on Investments at Fair Value	-	7,766	7,766
Level 3 Closing Balance	35,697	-	-

 

The fixed term loan is shown at amortised cost within the Statement of Financial Position. If the fixed term loan was shown at fair value the impact would be:

 

	30 September 2024 £'000	30 September 2023 £'000	31 March 2024 £'000
Fixed Term Loan at Amortised Cost	100,000	100,000	100,000
Fixed Term Loan at Fair Value	98,980	94,800	96,770
Increase in Net Assets	1,020	5,200	3,230

 

The fair value of the fixed term loan included in the table above is calculated by aggregating the expected future cash flows which are discounted at a rate comprising the sum of SONIA rate plus a spread. The fixed term loan at fair value is classed as Level 2.

 

9      Events after the reporting period

 

On 1 October 2024, the allocation of annual AIFM fee and finance costs was updated from 70% to 75% being allocated to the capital account, with the remainder being allocated to revenue. The Board believes that this is more reflective of the expected long-term split of returns between capital and revenue.

 

(a) Represents the sale of the holding in Yandex on 23 May 2023 for £7,766,000.

 

On 13 November 2024, Swiggy was successfully listed on the National Stock Exchange of India and at 20 November, which is the latest available date, Swiggy was trading 23.3% higher which represents an uplift of £10.91 million for TEMIT since purchase. TEMIT has a lock in period of 6 months from the listing date.

 

On 9 December 2024 the Board declared an interim dividend of 2.00 pence per share for the financial year 2025 (financial year 2024: 2.00 pence per share interim dividend). Please see Note 5 in the full Half Yearly Report for more information.

 

The Half Yearly Report for the six months to 30 September 2024 was approved by the Board on 9 December 2024. A copy of the report is available on our website www.temit.co.uk.

 

The PDF of the Half Yearly Report will be uploaded and available for viewing on the National Storage Mechanism, posted to the website www.temit.co.uk/resources/literature and may also be requested during normal business hours from Client Dealer Services at Franklin Templeton Investment Management Limited on freephone 0800 305 306.

 

For further information please e-mail temitcosec@franklintempleton.com.

 

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area, Canada, Australia, Japan or the Republic of South Africa.