Half-yearly Report
BARING EMERGING EUROPE PLC
In accordance with DTR 6.3 the Company releases the full text of its INTERIM REPORT for the six months to
31 March 2008 (unaudited). The INTERIM REPORT is available on the internet at www.bee-plc.com.
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 At At
31 March 31 March 30 September
2008 2007 2007
£000 £000 £000
Shareholders' funds (£000) 383,167 355,106 382,188
Net asset value ("NAV") per share 942.09p 823.15p 921.43p
Share price 858.00p 734.00p 835.50p
Discount of share price to NAV 8.9% 10.8% 9.3%
Six months Six months Year ended
to 31 March to 31 March 30 September
2008 2007 2007
Total return per share 20.51p 150.49p 245.80p
Dividend per share* - - 0.50p
* See note 2.
PERFORMANCE
Six months Six months Year ended
to 31 March to 31 March 30 September
2008 2007 2007
Net asset value per share +2.2% +21.9% +36.5%
Benchmark -3.0% # +25.2% * +42.2% â€
Share price +2.7% +21.3% +38.1%
# The benchmark is the MSCI EM Europe 10/40 Index from 1 April 2007.
* The benchmark was the FTSE Custom All World Emerging Europe Index prior to 1
April 2007.
†The benchmark for the year ended 30 September 2007 was a blended benchmark
of the above two indicies.
CHAIRMAN'S STATEMENT
Performance
In the context of the difficult market conditions the first six months of the
current financial year were very satisfactory for your Company with the share
price increasing by 2.7% and the net asset value by 2.2%. During the period the
benchmark (MSCI EM Europe 10/40 Index) fell by 3.0%. The out-performance was
driven both by strong stock selection and good asset allocation.
Share Capital
At the Annual General Meeting held on 15 January 2008 shareholders renewed the
Board's power to buy back up to 14.99% of the issued share capital (6,096,757
shares) for cancellation or to be held in treasury. During the six months under
review the Company bought back 805,539 of its ordinary shares at an average
discount of 9.3% to be held in treasury. This is in line with the Board's
policy to constrain the volatility of the discount, which averaged 8.5% during
the period. Since 31 March 2008 a further 135,000 shares have been bought back
at an average discount of 9.9%. At 31 March 2008 the Company's issued share
capital consisted of 40,672,168 ordinary shares (excluding 3,687,738 ordinary
shares held in treasury).
Gearing
During the period the Company renewed its US$10 million unsecured loan and
overdraft facility with State Street Bank and Trust Company until 24 March
2009. This facility is used principally to cover timing differences on
portfolio transactions. Negotiations for a short term gearing facility for up
to US$60 million are continuing.
Annual Dividend
At the Annual General Meeting held on 15 January 2008 shareholders approved the
payment of an annual dividend of 0.5p per share on 6 February 2008 to members
on the register at the close of business on 11 January 2008.
VAT on Management Fees
The Board is in discussions with the Investment Manager about the recovery of
VAT on past management fees but a number of procedural matters need first to be
resolved. Therefore no amount is, as yet, being recognised in the asset value.
Outlook
The Board shares the Investment Manager's view that the long term case for
Emerging Europe remains positive.
Iain Saunders
Chairman
1 May 2008
REPORT OF THE INVESTMENT MANAGER
for the six months to 31 March 2008
Introduction
Against a very challenging investment environment the Company delivered a
positive return during the first half of its financial year. In contrast its
benchmark - the MSCI EM Europe 10/40 Index - declined by 3.0% and the period
saw other asset classes suffer heavy losses. The global picture continued to
deteriorate during the period influenced by large equity write downs in the
global banking system and culminating in the rescue of Bear Stearns. The US
housing crisis deepened and global inflationary pressures intensified with food
and energy prices increasing the most. Our Emerging European equities generally
proved resilient in these circumstances with a large part of corporate earnings
benefiting from rising energy and commodity prices. Your Company has been well
positioned to benefit from these trends.
Russian and Czech equities delivered positive returns during the period but
Turkish and Hungarian shares fell sharply. In the case of Russia and the Czech
Republic, returns were driven by a secure economic backdrop while, in contrast,
a rapidly deteriorating political and economic landscape affected Turkey and
Hungary. Additionally, a large part of the strong returns in the Czech
Republic, Poland and Russia derived from local currency appreciation, while the
Turkish Lira lost 8% in value against sterling. Your Company was favourably
exposed having reduced its holdings of Turkish and Hungarian assets, while
adding to Russia, Poland and Kazakhstan.
The best performing sectors were basic materials, telecommunications and IT.
Unsurprisingly financials, industrials and consumer discretionary sectors were
the worst performers. Your Company generated strong returns from a substantial
exposure to Russian steel makers and iron ore, copper and cement producers. At
the same time, the under weighting against the benchmark in financial and real
estate stocks across the region, was the source of additional relative
performance.
Very strong fundamentals in Russia were reflected in a buoyant equity market.
The oil price increased by 26% during the period. This, combined with early
signals from the Russian government of a willingness to cut taxes in 2009,
drove Russian energy stocks sharply upwards. Supply constraints in iron ore,
ferro chrome and coal sectors resulted in sharp price increases, pushing equity
values up. The political landscape in Russia remained stable despite major
political change which saw Mr Medvedev peacefully winning the presidential
election. We expect continuity in policy-making with respect to reform and
international relations.
Portfolio Developments
The Company reduced its number of holdings during the period through a
re-allocation of funds from low conviction positions to companies benefiting
from infrastructure spending, robust domestic demand and strong pricing power.
As a result the Company sold its exposure to real estate by removing Immoeast,
RGI, Sistema Hals, Ablon, CA Immo and Africa Israel Development from the
portfolio. It also sharply reduced its banking exposure, primarily through the
sale of Turkish and Hungarian banks such as Vakif Bank, Akbank and OTP. The
Company also sold small holdings in Integra (oil equipment), Urals Energy
(oil), Surgutneftegas (oil), RBC (media), Chelyabinsk Zinc and Uranium One.
The Company took advantage of market volatility to add two new holdings;
Vimetco (aluminium) and Wimm Bill Dann (a juice and dairy producer). It also
participated successfully in new equity offerings in ENRC (iron ore) and Tekfen
(fertilizer and construction). The presence in Kazakhstan was increased from 1%
to 4% through a stock specific investment in an iron ore producer rather than
on the back of improving country fundamentals.
Conclusion
Large parts of Central Europe such as Poland and the Czech Republic will
benefit from large EU funded infrastructure projects, strong domestic
consumption and a significant flow of remittances.
While we expect global headwinds to persist through 2008 we expect Emerging
European equities to continue outperforming other asset classes supported by
exposure to high energy and commodity prices.
Your Company will continue to explore individual stock opportunities in this
volatile environment, aiming to maximise your returns.
Baring Asset Management Limited
1 May 2008
TWENTY LARGEST EQUITY HOLDINGS
at 31 March 2008
Market
value % of
Security Country of listing £000 Portfolio
1 Gazprom Russia 39,312 10.4%
2 Lukoil Holdings Russia 33,466 8.9%
3 Sberbank Russia 25,450 6.7%
4 Norilsk Nickel Russia 19,744 5.2%
5 CEZ Czech Republic 18,120 4.8%
6 Mobile Telesystems Russia 18,067 4.8%
7 Eurasian Natural Resources Kazakhstan 13,923 3.7%
8 Evraz Russia 13,737 3.6%
9 Vimpel Comm Russia 13,193 3.5%
10 Unified Energy Systems Russia 10,810 2.9%
11 KGHM Polska Poland 10,766 2.9%
12 Novatek Russia 8,217 2.2%
13 Tatneft Russia 7,807 2.1%
14 Enka Insaat Turkey 7,568 2.0%
15 Oriflame Cosmetics Sweden 7,290 1.9%
16 Powszechna Kasa Poland 7,098 1.9%
17 Novolipetsk Iron Russia 6,448 1.8%
18 Bank Pekao Poland 6,124 1.6%
19 Tupras Petrol Turkey 5,670 1.5%
20 Sibirskiy Cement Russia 5,423 1.4%
278,233 73.8%
Other holdings 99,407 26.2%
Total investments 377,640 100.0%
INCOME STATEMENT
(incorporating the Revenue Account*) for the six months to 31 March 2008
(Unaudited)
Six months ended 31 March 2008
Revenue Capital Total
£000 £000 £000
Gains on investments held at fair value through
profit or loss - 10,151 10,151
Income 2,150 - 2,150
Investment management fee and performance fee (1,607 ) (1,544 ) (3,151 )
Other expenses (628 ) - (628 )
Net return before finance charges and taxation (85 ) 8,607 8,522
Finance charges (4 ) - (4 )
Return on ordinary activities before taxation (89 ) 8,607 8,518
Taxation (151 ) - (151 )
Return attributable to ordinary shareholders (240 ) 8,607 8,367
Total
Return per ordinary share (pence) 20.51p
INCOME STATEMENT
continued
(Unaudited)
Six months ended 31 March 2007
Revenue Capital Total
£000 £000 £000
Gains on investments held at fair value through
profit or loss - 66,599 66,599
Income 813 - 813
Investment management fee (1,566 ) - (1,566 )
Other expenses (667 ) - (667 )
Net return before finance charges
and taxation (1,420 ) 66,599 65,179
Finance charges (5 ) - (5 )
Return on ordinary activities before taxation (1,425 ) 66,599 65,174
Taxation (75 ) - (75 )
Return attributable to ordinary shareholders (1,500 ) 66,599 65,099
Total
Return per ordinary share (pence) 150.49p
INCOME STATEMENT
continued
(Audited)
Year ended 30 September 2007
Revenue Capital Total
£000 £000 £000
Gains on investments held at fair value through
profit or loss - 104,815 104,815
Income 5,220 - 5,220
Investment management fee (3,222 ) - (3,222 )
Other expenses (1,246 ) - (1,246 )
Net return before finance charges and taxation 752 104,815 105,567
Finance charges (10 ) - (10 )
Return on ordinary activities before taxation 742 104,815 105,557
Taxation (524 ) - (524 )
Return attributable to ordinary shareholders 218 104,815 105,033
Total
Return per ordinary share (pence) 245.80p
*The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statements 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 statements.
BALANCE SHEET
as at 31 March 2008
(Unaudited) (Unaudited) (Audited)
At At At
31 March 31 March 30 September
2008 2007 2007
£000 £000 £000
Fixed assets
Investments at fair value through the
profit or loss 377,640 349,417 370,406
Current assets
Debtors 1,183 3,690 7,741
Cash at bank and in hand 11,358 4,752 13,549
12,541 8,442 21,290
Creditors: Amounts falling due within
one year (7,014 ) (2,753 ) (9,508 )
Net current assets 5,527 5,689 11,782
Net assets 383,167 355,106 382,188
Capital and reserves
Called-up share capital 4,436 4,436 4,436
Share premium account 1,411 1,411 1,411
Special reserve 79,917 79,917 79,917
Redemption reserve 352 352 352
Capital reserve - realised 179,766 111,122 157,723
Capital reserve - unrealised 141,080 162,901 154,516
Revenue reserve 641 (634 ) 1,084
Own shares held (24,436 ) (4,399 ) (17,251 )
Total equity shareholders' funds 383,167 355,106 382,188
Net asset value per share 942.09p 823.15p 921.43p
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
For the six months ended 31 March 2008 (Unaudited)
Called-up Share Own
share premium Special Redemption Retained shares
capital account reserve reserve earnings* held Total
£000 £000 £000 £000 £000 £000 £000
At 30 September
2007 4,436 1,411 79,917 352 313,323 (17,251) 382,188
Buy back of own
shares held in
treasury - - - - - (7,185) (7,185)
Net return for
the six months
to 31 March
2008 - - - - 8,164 - 8,164
At 31 March
2008 4,436 1,411 79,917 352 321,487 (24,436) 383,167
For the six months ended 31 March 2007 (Unaudited)
Called-up Share Own
share premium Special Redemption Retained shares
capital account reserve reserve earnings* held Total
£000 £000 £000 £000 £000 £000 £000
At 30 September
2006 4,436 1,411 79,917 352 209,458 (3,538) 292,036
Net return for
the six months
to 31 March 2007 - - - - 63,931 (861) 63,070
At 31 March 2007 4,436 1,411 79,917 352 273,389 (4,399) 355,106
For the year ended 30 September 2007 (Audited)
Called-up Share Own
share premium Special Redemption Retained shares
capital account reserve reserve earnings* held Total
£000 £000 £000 £000 £000 £000 £000
At 30
September 2006 4,436 1,411 79,917 352 209,458 (3,538) 292,036
Buy back of
own shares
held in
treasury - - - - - (13,713) (13,713)
Net return for
the year
to 31 March 2007 - - - 103,865 - 103,865
At 30
September 2007 4,436 1,411 79,917 352 313,323 (17,251) 382,188
Note:
* Retained earnings comprise capital reserve - realised, capital reserve -
unrealised and revenue reserve.
CASHFLOW STATEMENT
for the six months to 31 March 2008
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 March 31 March 30 September
2008 2007 2007
£000 £000 £000
Operating activities
Income received from investment 2,858 1,586 5,541
Interest received 269 68 108
Investment management fees paid (1,636 ) (1,277 ) (3,169 )
Other cash payments (607 ) (722 ) (1,237 )
Net cash inflow/(outflow) from
operating activities 884 (345 ) 1,243
Servicing of finance
Interest paid (4 ) (5 ) (10 )
Taxation
Overseas tax paid (151 ) (75 ) (524 )
Capital expenditure and financial
investment
Purchases of investments (103,893 ) (83,516 ) (178,857 )
Sales of investments 108,361 84,535 201,252
Net cash inflow from capital
expenditure and financial investments 4,468 1,019 22,395
Equity dividends paid (203 ) (1,168 ) (1,168 )
Net cash inflow/(outflow) before
financing 4,994 (574 ) 21,936
Financing
Buyback of ordinary shares (7,185 ) - (13,713 )
Net cash outflow from financing (7,185 ) - (13,713 )
(Decrease)/increase in cash (2,191 ) (574 ) 8,223
NOTES TO THE 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 2007.
2. Dividend
No dividend is payable in respect of the six months to 31 March 2008.
Consideration will be given to an annual dividend in respect of the year ended
30 September 2008 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 2007 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 2008 and for the six months
ended 31 March 2007 have been neither audited nor reviewed by the auditors.
4. Shares in Issue
As at 31 March 2008 there were 44,359,906 ordinary shares of 10p each in issue
(30 September 2007: 44,359,906 and 31 March 2007: 44,359,906) which includes
3,687,738 ordinary shares held in treasury (30 September 2007: 2,882,199 and 31
March 2007: 1,220,000) 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 805,539 ordinary shares
were bought back to be held in treasury at a cost of £7,236,000. A further
135,000 ordinary shares were bought back to be held in treasury during the
period 1 April 2008 to 1 May 2008.
5. Taxation
The taxation charge of £151,000 (30 September 2007: £524,000 and 31 March 2007:
£75,000) relates to irrecoverable overseas taxation.
6. Reconciliation of total return on ordinary activities before finance costs
and taxation to net cash inflow/(outflow) from operating activities
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31 March 31 March 30 September
2008 2007 2007
£000 £000 £000
Net revenue before interest payable and
taxation (85) (1,420) 752
Increase in accrued income 977 841 429
Increase/(decrease) in
sundry creditors 1,490 128 (12)
Decrease in debtors 46 106 74
Management fee capitalised (1,544) - -
Net cash inflow/(outflow)
from operating activities 884 (345) 1,243
7. Investment Management Fee
The investment management fee for the six months to 31 March 2008, which
includes a provision for the performance fee for the year ending 30 September
2008, comprises:
£000
Basic fee (charged to revenue) 1,607
Performance bonus (charged to capital):
Provision for the year ending 30 September 2008 1,544
3,151
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 2007.
Related Party Transactions
In accordance with Transparency Rule 4.2.8R there have been no related party
transactions during the six months ended 31 March 2008 and therefore nothing to
report on any material effect by such transaction on the financial position or
performance of the Company during the period; and there have been no changes in
this position since the last annual report that could have a material effect on
the financial position or performance of the Company in the first six months of
the current financial year.
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
1 May 2008
GEOGRAPHIC EXPOSURE at 31 March 2008
Company Benchmark
% %
Hungary 1.6 6.3
Poland 10.1 15.4
Czech Republic 6.0 7.3
Kazakhstan 4.2 -
Other 3.7 -
Romania 0.7 -
Turkey 9.2 10.3
Russia 63.0 60.7
Cash 1.5 -
100.0 100.0
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