Half Year Results

In accordance with DTR6.3 the Company releases the full text of its Interim Report for the six months ended 31 March 2009 (unaudited). The interim report will be available shortly on the website at www.bee-plc.com INTERIM REPORT Baring Emerging Europe PLC For the six months ended 31 March 2009 CONTENTS Investment Objective 1 Financial Highlights 1 Performance 1 Chairman's Statement 2-3 Report of the Investment Manager 4-7 Geographic Exposure 8 Twenty Largest Equity Holdings 9 Income Statement 10-11 Balance Sheet 12 Reconciliation of Movement in 13 Shareholders' Funds Cashflow Statement 14 Notes to Interim Accounts 15-16 Interim Management Report 17 ISA and Savings Scheme 18 Share Price 18 Directors and Officers 19 INVESTMENT OBJECTIVE The investment objective of the Company is to achieve long term capital growth, principally through investment in emerging European securities. FINANCIAL HIGHLIGHTS At 31 March At 31 March At 30 September 2009 2008 2008 Shareholders' funds (£ 164,562 383,167 280,414 000) Net asset value ("NAV") 435.48p 942.09p 711.41p per share Share price 395.00p 858.00p 630.50p Discount of share price 9.3% 8.9% 11.4% to NAV Six months Six months Year ended to 31 March to 31 March 30 September 2009 2008 2008 Total return per share (275.26)p 20.51p (205.56)p Dividend per share* - - 9.00p * See note 2 on page 15. PERFORMANCE Six months Six months Year ended to 31 March to 31 March 30 September 2009 2008 2008 Net asset value per -38.8% +2.2% -22.8% share Benchmark# -36.6% -3.0% -24.8% Share price -37.4% +2.7% -24.5% # The benchmark is the MSCI EM Europe 10/40 Index. CHAIRMAN'S STATEMENT PERFORMANCE The bear market in almost all asset classes continued with a vengeance during the six months under review. Emerging Europe was no exception and our benchmark index fell by 36.3%. Our own performance was marginally worse than this with the share price declining by 37.4% and the net asset value by 38.8%. Moves of this magnitude can present opportunities to add significant value relative to the benchmark but in practice we failed to take advantage as there were few places to hide. On the other hand, we do draw some consolation from the fact that we have avoided small companies and less liquid markets, which have suffered disproportionately during the decline. SHARE CAPITAL The discount averaged 7.2% during the period. The Board's policy is to constrain discount volatility and to this end 1,627,675 of its ordinary shares were bought back for cancellation at an average discount of 9.3%. Since 31 March 2009 a further 293,240 shares have been bought back at an estimated average discount of 11.6%. GEARING It has come to no surprise to the Board to see the improvement in the banks' pre-provision earnings. The cost of our US$10 million unsecured loan and overdraft facility with State Street Bank and Trust Company is expected to increase and we have been unable to secure funding for a modest tactical gearing facility which we would have liked to have had in place at current market levels. It remains our intention to introduce this latter facility once the banking climate has improved. ANNUAL DIVIDEND At the Annual General Meeting held on 13 January 2009 shareholders approved the payment of an annual dividend of 9.0p per share on 4 February 2009 to members on the register at the close of business on 9 January 2009. VAT ON MANAGEMENT FEES Progress has been made with the recovery of VAT on past management fees and the Investment Manager has submitted a claim to HM Revenue & Customs for part of the reclaim. As there is still no certainty as to the amount that will be recovered and the timing of any recovery no asset is as yet being recognised. STOCKBROKER Following UBS's withdrawal from investment trust broking we have appointed JPMorgan Cazenove as the Company's brokers after conducting a review of the alternatives. OUTLOOK We share the Manager's view that investors should continue to be attracted to Emerging Europe over the coming months, drawn by the superior growth outlook and attractive share price valuations. The case for Russia is underpinned by its natural resource wealth, a healthy export surplus, and large currency reserves, while companies in Central Europe should benefit from improved price competitiveness following currency weakness. The year so far has undoubtedly been very difficult for investors, but we are encouraged by the recovery seen in the markets since February and believe that the long term prospects for Emerging Europe are very good. Iain Saunders Chairman 12 May 2009 REPORT OF THE INVESTMENT MANAGER for the six months to 31 March 2009 - BACKGROUND Against the backdrop of a collapse in the oil price, and a significant deterioration in economic conditions, Emerging Europe underperformed other emerging markets in the early stages of 2009. Over the twelve months to the stock market low on 25 February this year, the MSCI Eastern Europe Index declined by 74% in US dollar terms, compared with falls of 56.5% and 48% in the MSCI Emerging Markets and MSCI World Indices respectively. Investor sentiment towards the EMEA region became very negative as concerns mounted about the ability of some countries in the region to access credit. Since then, however, Emerging European equities have rallied by more than 30%, outperforming developed and emerging market indices. The Russian market led this recovery, adding 45% in US dollar terms, and making it the best performing European index year to date and one of the best performing markets globally. We believe the recovery in the Emerging European market was driven by three factors: 1. clear signs of commitment by organisations such as the International Monetary Fund and the European Central Bank to the region, alleviating concerns about the ability of some countries to refinance short-term debt as it falls due, and helping to improve investor sentiment towards the region; 2. the stabilisation of commodity prices; and 3. a series of downgrades from analysts on GDP and corporate profits growth forecasts, which helped to align investor expectations with reality, and left little scope for further negative surprises. THE REFINANCING SITUATION IN EMEA As a number of commentators have pointed out, Emerging Europe does have a high level of foreign currency indebtedness relative to other peers in the emerging market universe. However, the commonly quoted figure of US$450 billion of private sector and sovereign debt due in the next twelve months is rather misleading. First, it does not take into account the level of foreign reserves. Russia, for example is practically debt free at the sovereign level, and still has US$400 billion of foreign reserves to draw on as needed. Second, the figure is no more than many Western countries borrow routinely: US$450 billion is coincidentally the amount of public debt the Republic of Italy needs to refinance in 2009. Third, the debt is concentrated in the larger economies in the EMEA region, and split between corporate and public borrowers. Much of the need for refinancing on the corporate side comes from the banking sector. Many of the banks are foreign owned, and able to draw upon the parent company or a syndicate arranged by the parent for short-term debt financing. Furthermore, the absolute levels of external debt are not as high as have been suggested when compared to the size of the underlying economy. Our analysis suggests that the short-term external debt of Russia and Turkey accounts for no more than 10% of GDP, even after assuming GDP contraction and adjusting it down further for currency depreciation. The figure is higher for Poland and the Czech Republic at 20% of GDP but, again, we do not believe this is excessive by comparison with many other emerging markets or, indeed, developed markets these days. Evidence that concerns about the outlook for Emerging Europe may be exaggerated is starting to come through. For example, the Turkish banking sector managed to re-finance short-term debt at a reasonable premium of 150 to 200 basis points over Libor in November and December 2008. Even in an extreme scenario where it becomes entirely impossible to refinance external debt for corporates, central banks across the EMEA region have the power to provide the necessary liquidity for periods of up to a year, in most cases. While this sort of intervention would not be sustainable in the long run, it does show that there is an emergency mechanism in place if needed. Over the coming months, we expect to see the extension of lines of credit from the various supranational bodies such as the International Monetary Fund to some of the smaller Eastern European economies, such as the Baltic and Balkan states, Ukraine and, to a lesser extent, Hungary and Kazakhstan. These countries have assumed more foreign borrowing, with a lower level of reserves, than the larger countries in the region, and are now at a greater risk of recessionary shock. From an investment perspective, we do not invest in the smaller markets in South-East Europe, the Baltic countries or Ukraine which we believe are most exposed in this environment. Our exposure to the banking sector is concentrated in highly capitalised, liquid banks which we believe are well positioned to be able to survive the crisis and strengthen their market position. CONCLUSION The unparalleled global nature of the financial crisis means that the magnitude of adjustment and the duration of the crisis in Emerging Europe will remain highly contingent on a recovery in the developed world. It is, however, important to analyse the economic situation for each individual country, since the degree of export dependency and liquidity risk vary substantially between countries. On the positive side, we believe Russia stands out by virtue of its healthy export surpluses and large currency reserves - the third largest in the world. It stands in stark contrast to some of the Baltic countries, which we believe will be severely impacted by the current situation. With regards to the large Central European economies, we believe the fact that domestic consumption is a significant component of Polish economic activity will be beneficial in an environment where export volumes drop sharply. The Czech Republic's high levels of domestic liquidity, and the fact that households and businesses have little in the way of non-domestic borrowing, put the country in a much better situation than, for example, Hungary, where consumer confidence is significantly depressed by high levels of foreign currency debt. Central European companies should also start to benefit from currency weakness, which has improved export competitiveness. Considering equity market valuations, it is important to highlight that most Central European markets trade at a significant discount to developed markets or emerging market peers, even after the recent rally. We believe that the combination of a superior growth outlook for the region and attractive share price valuations will continue to attract investors to the region. Following our investment process, we have been able to find attractive investment opportunities for Baring Emerging Europe plc in consumer-related fields such as mobile telephony, retailing and healthcare. We are also very positive on a number of investments for the Company in commodity-related companies in Russia and Kazakhstan, which we believe are well positioned to benefit from superior assets and substantial cost advantages over rivals. Baring Asset Management, London 12 May 2009. TWENTY LARGEST EQUITY HOLDINGS at 31 March 2009 Market value % Security Country of £000 of Portfolio listing 1 Lukoil Holdings Russia 18,210 11.2% 2 Gazprom Russia 17,731 10.9% 3 Rosneft Russia 15,221 9.3% 4 Mobile Telesystems Russia 13,804 8.5% 5 CEZ Czech Republic 13,144 8.1% 6 Garanti Bank Turkey 7,541 4.6% 7 Sberbank Russia 5,851 3.6% 8 Norilsk Nickel Russia 5,778 3.5% 9 PKO BP Poland 5,646 3.5% 10 Tupras Petrol Turkey 5,224 3.2% 11 Oriflame Cosmetics Sweden 4,901 3.0% 12 Vimpel Comm Russia 4,869 3.0% 13 Enka Insaat Turkey 4,730 2.9% 14 Bank Pekao Poland 4,431 2.7% 15 Turkiye Halk Bankasi Turkey 3,741 2.3% 16 Globe Trade Centre Poland 3,730 2.3% 17 Turkiye Vakiflar Turkey 3,594 2.2% 18 Eurocash Poland 3,003 1.8% 19 Komercni Banka Czech Republic 2,628 1.6% 20 KGHM Polska Poland 2,345 1.4% 146,122 89.6% Other holdings 16,991 10.4% Total investments 163,113 100.0% INCOME STATEMENT (incorporating the Revenue Account*) for the six months to 31 March 2009 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited) (Audited) Six months Six months Six months Six months Six months Six months Year Year Year to to to to to to ended ended ended 31 March 31 March 31 March 31 March 31 March 31 March 30 30 30 2009 2009 2009 2008 2008 2008 September September September 2008 2008 2008 Revenue Capital Total Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 £000 £000 £000 (Losses)/ - (105,506) (105,506) - 10,151 10,151 - (87,107) (87,107) gains on investments held at fair value through profit or loss Income 687 - 687 2,150 - 2,150 10,147 - 10,147 Investment (667) - (667) (1,607) (1,544) (3,151) (3,142) (128) (3,270) management fee and performance fee Other (527) - (527) (628) - (628) (1,393) - (1,393) expenses Net return (507) (105,506) (106,013) (85) 8,607 8,522 5,612 (87,235) (81,623) before finance costs and taxation Finance (6) - (6) (4) - (4) (8) - (8) costs Net return (513) (105,506) (106,019) (89) 8,607 8,518 5,604 (87,235) (81,631) on ordinary activities before taxation Taxation (51) - (51) (151) - (151) (1,449) - (1,449) Return (564) (105,506) (106,070) (240) 8,607 8,367 4,155 (87,235) (83,080) attributable to ordinary shareholders Total Total Total Return per (275.26)p 20.51p (205.56)p ordinary share *The total column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement. BALANCE SHEET as at 31 March 2009 (Unaudited) (Unaudited) (Audited) At 31 March At 31 March At 30 September 2009 2008 2008 £000 £000 £000 Fixed assets Investments at fair 163,113 377,640 270,697 value through profit or loss Current assets Debtors - 1,183 8,978 Cash at bank and in 2,057 11,358 5,878 hand 2,057 12,541 14,856 Creditors: Amounts (608) (7,014) (5,139) falling due within one year Net current assets 1,449 5,527 9,717 Net assets 164,562 383,167 280,414 Capital and reserves Called-up share 4,111 4,436 4,273 capital Share premium account 1,411 1,411 1,411 Special reserve 61,418 79,917 67,745 Redemption reserve 677 352 515 Capital reserve 119,498 320,846 225,004 Revenue reserve 1,017 641 5,036 Own shares held (23,570) (24,436) (23,570) Total equity 164,562 383,167 280,414 shareholders' funds Net asset value per 435.48p 942.09p 711.41p share RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS For the six months ended 31 March 2009 (unaudited) Share Own Called-up premium Special Redemption Retained shares share account reserve reserve earnings* held Total capital £000 £000 £000 £000 £000 £000 £000 At 30 4,273 1,411 67,745 515 230,040 (23,570) 280,414 September 2008 Buy back of - - (6,327) - - - (6,327) own shares for cancellation Transfer to (162) - - 162 - - - capital redemption reserve Net return - - - - (109,525) - (109,525) for the six months to 31 March 2009 At 31 March 4,111 1,411 61,418 677 120,515 (23,570) 164,562 2009 For the six months ended 31 March 2008 (unaudited) Share Own Called-up premium Special Redemption Retained shares share account reserve reserve earnings* held Total capital £000 £000 £000 £000 £000 £000 £000 At 30 4,436 1,411 79,917 352 313,323 (17,251) 382,188 September 2007 Buy back of - - - - - (7,185) (7,185) own shares held in treasury Net return - - - - 8,164 - 8,164 for the six months to 31 March 2008 At 31 March 4,436 1,411 79,917 352 321,487 (24,436) 383,167 2008 For the year ended 30 September 2008 (audited) Share Own Called-up premium Special Redemption Retained shares share account reserve reserve earnings* held Total capital £000 £000 £000 £000 £000 £000 £000 At 30 4,436 1,411 79,917 352 313,323 (17,251) 382,188 September 2007 Buy back of - - - - - (13,422) (13,422) own shares held in treasury Buy back of - - (5,069) - - - (5,069) own shares for cancellation Cancellation - - (7,103) - - 7,103 - of shares held in treasury Transfer to (163) - - 163 - - - capital redemption reserve Net return - - - - (83,283) - (83,283) for the year to 30 September 2008 At 30 4,273 1,411 67,745 515 230,040 (23,570) 280,414 September 2008 *Retained earnings comprise capital reserve and revenue reserve. CASHFLOW STATEMENT for the six months to 31 March 2009 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended to 31 March to 31 March 30 September 2009 2008 2008 £000 £000 £000 Operating activities Income received from 3,576 2,858 7,901 investments Interest received 16 269 343 Investment management (771) (1,636) (3,241) fees paid Other cash payments (663) (607) (1,349) Net cash inflow from 2,158 884 3,654 operating activities Servicing of finance Interest paid (6) (4) (8) Taxation Overseas tax paid (51) (151) (1,449) Capital expenditure and financial investment Purchases of (49,186) (103,893) (204,638) investments Sales of investments 54,049 108,361 212,460 Net cash inflow from 4,863 4,468 7,822 capital expenditure and financial investments Equity dividends paid (3,455) (203) (203) Net cash inflow 3,509 4,994 9,816 before financing Financing Buyback of ordinary (7,330) (7,185) (17,487) shares Net cash outflow from (7,330) (7,185) (17,487) financing Decrease in cash (3,821) (2,191) (7,671) NOTES TO INTERIM ACCOUNTS 1. ACCOUNTING POLICIES These financial statements are prepared under the historical cost convention as modified by the revaluation of fixed asset investments and in accordance with applicable United Kingdom accounting standards and with the Statement of Recommended Practice 2003 (revised 2005) regarding the Financial Statements of Investment Trust Companies. The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 30 September 2008. 2. DIVIDEND No dividend is payable in respect of the six months to 31 March 2009. Consideration will be given to an annual dividend in respect of the year ended 30 September 2009 at a Board meeting to be held in November. An announcement will be made shortly after that meeting. 3. COMPARATIVE INFORMATION The figures and financial information for the year ended 30 September 2008 are an extract from the latest published accounts and do not constitute statutory accounts. Full accounts for that period have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. The accounts for the six months ended 31 March 2009 and for the six months ended 31 March 2008 have been neither audited nor reviewed by the auditors. 4. SHARES IN ISSUE As at 31 March 2009 there were 41,107,037 ordinary shares of 10p each in issue (30 September 2008: 42,734,712 and 31 March 2008: 44,359,906) which includes 3,318,207 ordinary shares held in treasury (30 September 2008: 3,318,207 and 31 March 2008: 3,687,738) and treated as not being in issue when calculating the net asset value per share. Shares held in treasury are non-voting and not eligible for receipt of dividends. During the period 1,627,675 ordinary shares were bought back to be cancelled at a cost of £6,327,000. A further 293,240 ordinary shares were bought back to be cancelled during the period 1 April 2009 to 12 May 2009. 5. TAXATION The taxation charge of £51,000 (30 September 2008: £1,449,000 and 31 March 2008: £151,000) relates to irrecoverable overseas taxation. 6. RECONCILIATION OF TOTAL RETURN ON ORDINARY ACTIVITIES BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31 March 31 March 30 September 2009 2008 2008 £000 £000 £000 Total return before (106,013) 8,522 (81,623) finance costs and taxation Capital return before 105,506 (8,607) 87,235 finance costs and taxation Increase/(decrease) in 2,905 977 (1,903) accrued income (Decrease)/increase in (240) 1,490 22 sundry creditors Decrease in debtors - 46 51 Management fee capitalised - (1,544) (128) Net cash inflow from 2,158 884 3,654 operating activities 7. POSTING OF THE INTERIM REPORT The interim report will be posted to shareholders on or around 20 May 2009. It will not be advertised in newspapers, but copies will be available from that date at the Company's Registered Office at 155 Bishopsgate, London, EC2M 3XY. INTERIM MANAGEMENT REPORT The Company is required to make the following disclosures in its half year report: Principal Risks and Uncertainties The Board believes that the principal risks and uncertainties faced by the Company continue to fall into six broad categories: • Investment strategy. • Accounting, legal and regulatory. • Loss of investment team or investment manager. • Discount. • Operational. • Financial. Information of each of these is given in the Report of the Directors in the Annual Report for the year ended 30 September 2008. Related Party Transactions The Investment Manager is regarded as a related party and details of the management fee payable during the six months ended 31 March 2009 is shown in the Income Statement on pages 10 and 11. There have been no other related party transactions during the six months ended 31 March 2009. Directors' Responsibility Statement The Directors are responsible for preparing the half-yearly financial report, in accordance with applicable law and regulations. The Directors confirm that, to the best of their knowledge: • The condensed set of financial statements within the half-yearly financial report has been prepared in accordance with the Accounting Standards Board's statement "Half-Yearly Financial Reports"; and • The Interim Management Report includes a fair review of the information required by 4.2.7R (indication of important events during the first six months of the year) and 4.2.8R (disclosure of related party transactions and changes therein) of the FSA's Disclosure and Transparency Rules. For and on behalf of the Board Iain Saunders Chairman 12 May 2009 ISA AND SAVINGS SCHEME The Company's shares can be purchased through the BARING EMERGING EUROPE ISA AND SAVINGS SCHEME. The Scheme provides an easy way to purchase the Company's shares and caters for regular and/or lump-sum savers. Full details of the ISA and Savings Scheme are available on the Company's website,www.bee-plc.com, or may be obtained from the Company Secretary. SHARE PRICE The ordinary share price of the Company is quoted in the Financial Times under the heading "Investment Companies" in the "London Share Service" section. DIRECTORS AND OFFICERS Directors Iain Saunders, Chairman Steven Bates John Cousins Josephine Dixon* Saul Estrin Jonathan Woollett *Chairman of the Audit Committee Secretary Michael Nokes, F.C.A. Registered Office 155 Bishopsgate London EC2M 3XY Company Number 4560726 Investment Manager Baring Asset Management Limited 155 Bishopsgate London EC2M 3XY Administrator Northern Trust Global Services Limited 50 Bank Street London E14 5NT Stockbroker JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA Telephone: 020 7155 5000 www.cazenove.com Auditors KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB Custodian State Street Bank & Trust Company Limited 20 Churchill Place Canary Wharf London E14 5HJ Registrars and Transfer Office Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0LA Telephone: (UK) 0870 664 0300 (calls cost 10p per minute plus network extras) Overseas: +44 208 639 3399 Email: shareholder.services@capitaregistrars.com Website www.bee-plc.com 155 Bishopsgate, London EC2M 3XY Telephone +44 (0)20-7628 6000 Facsimile +44 (0)20-7638 7928 Internet www.baring-asset.com LONDON · BOSTON · FRANKFURT GUERNSEY · HONG KONG PARIS · SAN FRANCISCO TAIPEI · TOKYO · TORONTO

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