Half-yearly Report

Half Year Report For the six months ended 31 March 2010 Baring Emerging Europe PLC Contents Investment Objective 2 Financial Highlights 2 Performance 2 The Investment Manager 2 Chairman's Statement 3 Report of the Investment Manager 4-6 Twenty Largest Equity Holdings 7 Income Statement 8-9 Balance Sheet 10 Reconciliation of Movement in 11 Shareholders' Funds Cashflow Statement 12 Notes to Half Year Report 13-14 Interim Management Report 15 Directors and Officers 16 ISA and Savings Scheme 17 Share Price 17 Investment objective The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market or in securities of companies listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe. Financial'highlights 31 March 31 March 30 September 2010 2009 2009 Shareholders' funds 331,834 164,562 271,189 (£000) Net asset value 952.21p 435.48p 770.57p ("NAV") per share Share price 861.00p 395.00p 701.00p Discount of share 9.6% 9.3% 9.0% price to NAV Six months Six months Year ended to 31 March to 31 March 30 September 2010 2009 2009 Total return per 184.93p (275.26)p 46.83p share Dividend per share* - - 8.50p *See note 2 on page 13. Performance (total return basis) Six months Six months Year ended 31 March 31 March 30 September 2010 2009 2009 Net asset value per +24.80%* -36.27%† +11.17%† share Benchmark# +24.20% -36.60% +6.40% Share price† +24.19% -35.82% +13.89% #The benchmark is the MSCI EM Europe 10/40 Index. '†Source: AIC using Fundamental Data. *Source: Barings. The Investment Manager The Investment Manager is Baring Asset Management Limited which is authorised and regulated by the Financial Services Authority. Chairman's statement Performance I am pleased to be able to report in my first Chairman's statement that the net asset value per share increased from 770.57p at 30 September 2009 to 952.21p at 31 March 2010. This represented an increase of 24.8% on a total return basis compared to an increase of 24.2 % in the benchmark index. Against the Company's peer group, the Company was ranked 29 out of 81 funds in the Morningstar Emerging Europe Index for the half year ended 31 March 2010. More important than these short term statistics, however, are the returns generated by the Company over the longer run. These have been excellent, with the Company producing an annualised return of +19.9% during the five years ended 31 March 2010 compared to an annualised return for the benchmark in the same period of +19.7%. The Company was ranked 4th out of 56 funds in the Morningstar Emerging Europe Index for the five years ended 31 March 2010. The Board thinks it is important to use both benchmark and peer group as comparators, as these represent the other options available to you as investors. Share Capital The discount averaged 9.72% during the period. The Board's policy is to constrain discount volatility and to this end 1,634,974 of its ordinary shares were bought back for cancellation during the six months ended 31 March 2010 (equivalent to 4.46% of the issued ordinary share capital at 30 September 2009 net of shares held in treasury) at an average discount of 10.2.%. Since 31 March 2010 a further 322,625 shares have been bought back at an estimated average discount of 10.1%. Annual Dividend At the Annual General Meeting held on 19 January 2010 shareholders approved the payment of an annual dividend in respect of the financial year ended 30 September 2009 of 8.50p per share on 4 February 2010 to members on the register at the close of business on 8 January 2010. The Board has not declared an interim dividend in respect of the half year ended 31 March 2010. VAT Although VAT on management fees and performance fees invoiced subsequent to March 2005 was recovered during the year ended 30 September 2009 we are still awaiting the recovery of VAT on such fees for the period from the launch of the Company in December 2002 to March 2005. As the exact amount of the recovery and the timing cannot be determined no amount has been recognised in the net asset value in respect of this additional amount. Board As reported in the annual report for the year ended 30 September 2009, Iain Saunders retired from the Board at the conclusion of the Annual General Meeting on 19 January 2010. Iain had been Chairman since the launch of the Company in December 2002 and on behalf of the Board I would like to thank him for his loyal service and wish him well for the future. Outlook The global investment environment remains volatile as markets react to the aftermath of the financial crisis. Growth appears to be recovering well in the short term, but the long term potential will clearly be held back by the deterioration in fiscal balances across the developed world. With this constraint in mind, we believe that the more benign economic fundamentals in the emerging world may well attract more investor attention. We share the Manager's view that the investment case for the region remains positive. Your Company is well placed to take advantage of the opportunities that the region offers. Steven Bates Chairman 18 May 2010 Report of the Investment Manager for the half year ended 31 March 2010 Performance Following the recovery of the Company's NAV over the previous six months, Emerging European equity markets continued to perform strongly during the period under review. Your Company posted a 24.8% increase in its NAV in Sterling terms, while its benchmark rose by 24.2%. Relative outperformance stemmed mainly from stock selection with Turkish banks, Russian and Kazakh raw materials stocks and Russian retailers contributing the most. The strong rebound in Emerging European equity markets, especially in Russia and Turkey, was helped by increased investor appetite for riskier assets but remains remarkable nonetheless as investors ignored negative newsflow emanating from several markets. In particular, the period saw the sovereign rating of Greece reduced to the lowest possible investment grade as widespread corruption and unwillingness to rein in public spending over recent years led to discussions about the need for a bail-out. Investors, however, paid little attention to the ongoing troubles in the EU's peripheral economies and this was a positive development for Emerging Europe's markets, with a distinction being drawn between those with sounder public finances and lower household debt levels and those at the other end of the scale. This can be seen in Sovereign Credit Default Swaps where risk premia in countries such as Spain, Portugal or Greece are now higher than Russia or Turkey. This unprecedented situation has yet to be fully reflected in equity markets. On the macroeconomic front, positive signs have emerged. Economic recovery is under way in all economies of note with consumer demand returning. The high liquidity levels of the banking sector, coupled with a significant reduction in interest rates, should lead to an expansion of lending over the next few months. In turn, this should support growth especially in Turkey and Russia. Russia is further helped by strong commodity prices including oil, copper and other materials. The new EU member states such as Poland, the Czech Republic and Hungary will continue to benefit from funding from the EU's Structural Growth Funds. This is a welcome fiscal stimulus that could add between 3-4% annually to the GDP in some Central European countries. Not surprisingly, the return of earnings growth has been a feature of the period under review. We believe this has further to go as the market consensus lags the strong operating performance of many companies. The market should therefore be supported by further earnings upgrades over the coming months. Turning to the possible risks, one risk factor that has to be considered carefully is an ambitious programme of equity issuance across most countries. While this may lead to some correction in the equity markets, it may offer an attractive buying opportunity in the region. Moreover, the market is fully aware of the potential issuance. Economically a soft patch in the global recovery or a smaller than anticipated recovery of the German export sector could affect Central European Countries more than Russia or Turkey. Other risks of note are political, especially in Turkey where the confrontational course of the ruling AK party can pose a threat. Activity We increased the Company's focus on our highest conviction stock ideas. This strategy bore fruit during the period as stock selection continued to make a positive contribution to performance. The deviation from the benchmark was kept at relatively low levels at the sector and country level with stock-picking dominating the risk profile of the Company. The Company's performance during the review period suggests that this strategy was effective. We expect activity on the primary market to increase and stock issues should serve as an excellent barometer of international investor sentiment towards the region. While the amount of stock to be issued could be substantial, we do not believe that this will lead to pressure on valuations in the secondary markets. Because of strong liquidity and hitherto subdued fund flows into the region, this may lead to increased activity in both primary and secondary markets that should attract the interest of non-specialist investors. Outlook We believe the investment case for the region remains compelling. While consumers in the West are burdened with debt, the situation across most of our region is very different. Consumers in Central and Eastern Europe carry a fraction of the debt of their Western counterparts. In Russia, the temporary halt in the growth of the middle class is now behind us; we still expect rapid improvement over the medium-term as wage growth returns. The resilience of domestic consumption elsewhere in the region, especially in Poland, has been noteworthy. Overall, it is important to put recent events into context; 2009 was a year of adjustment for the emerging market consumer, but not a year of fundamental change and markets recovered from their lows but remain attractively priced relative to their potential for 2010. Stock market volatility is a natural consequence when politics, growth or global events disappoint investors. As some of these factors have been a feature of recent months, there has been a modest correction in the short term. The Company, however, is well placed to take advantage of the opportunities the region offers; an attractive mix of vast resources, underleveraged consumers, and superior economic growth at low valuations. Baring Asset Management Limited 19 April 2010 Twenty largest equity holdings Investment portfolio The Company's twenty largest equity holdings at 31 March 2010, is set out in the following table: The Company's twenty largest equity holdings at 31 March 2010, is set out in the following table: Holding Country of Market value £ % of portfolio listing 000 1 Sberbank Russia 33,489 10.2% 2 Gazprom Russia 31,516 9.6% 3 Rosneft Russia 25,994 7.9% 4 Norilsk Nickel Russia 19,252 5.9% 5 Lukoil Holdings Russia 18,893 5.7% 6 Garanti Bank Turkey 17,208 5.2% 7 PKO BP Poland 16,595 5.1% 8 Mobile Russia 16,414 5.0% Telesystems 9 Vimpel Comm Russia 13,234 4.0% 10 OTP Bank Hungary 12,754 3.9% 11 CEZ Czech Republic 12,655 3.8% 12 Turkiye Halk Turkey 11,700 3.6% Bankasi 13 Turkcell Turkey 8,883 2.7% Iletism 14 Evraz Russia 8,560 2.6% 15 Eurocash Poland 7,224 2.2% 16 Novolipetsk Russia 6,749 2.1% Steel 17 Mechel Russia 6,270 1.9% 18 Kazakhmys United Kingdom 6,044 1.8% 19 Enka Insaat Turkey 5,884 1.8% 20 Petropavlovsk United Kingdom 5,348 1.6% 284,666 86.6% Other holdings 43,917 13.4% Total 328,583 100.0% investments Income statement (incorporating the Revenue Account*) for the six months to 31 March 2010 (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 31 March to 31 March to 31 March to 31 March to 31 March to 31 March ended 30 ended 30 ended 30 2010 2010 2010 2009 2009 2009 September September September 2009 2009 2009 Revenue Capital Total Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 £000 £000 £000 Gains/ - 68,631 68,631 - (105,506) (105,506) - 15,228 15,228 (losses) on investments held at fair value through profit or loss Income 408 - 408 687 - 687 5,834 7 5,841 Investment (1,214) (225) (1,439) (667) - (667) (1,570) (1,012) (2,582) management fee and performance fee VAT - - - - - - 870 90 960 recovered from HMRC on management fees Other (671) - (671) (527) - (527) (1,155) - (1,155) expenses Net return (1,477) 68,406 66,929 (507) (105,506) (106,013) 3,979 14,313 18,292 before finance costs and taxation Finance (10) - (10) (6) - (6) (17) - (17) costs Net return (1,487) 68,406 66,919 (513) (105,506) (106,019) 3,962 14,313 18,275 on ordinary activities before taxation Taxation (49) - (49) (51) - (51) (561) - (561) Return (1,536) 68,406 66,870 (564) (105,506) (106,070) 3,401 14,313 17,714 attributable to ordinary shareholders Return per 184.93p (275.26)p 46.83p 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 2010 (Unaudited) (Unaudited) (Audited) At At At 31 March 31 March 30 September 2010 2009 2009 £000 £000 £000 Non current assets Investments at fair 328,583 163,113 271,189 value through profit or loss Current assets Debtors 589 - 3,567 Cash at bank and in 9,137 2,057 11,125 hand 9,726 2,057 14,692 Creditors: amounts (6,475) (608) (3,591) falling due within one year Net current assets 3,251 1,449 11,101 Net assets 331,834 164,562 282,290 Capital and reserves Called-up share 3,817 4,111 3,995 capital Share premium 1,411 1,411 1,411 account Special reserve 17,551 37,848 31,792 Redemption reserve 971 677 793 Capital reserve 307,723 119,498 239,317 Revenue reserve 361 1,017 4,982 Total equity 331,834 164,562 282,290 shareholders' funds Net asset value per 952.21p 435.48p 770.57p share Reconciliation of movement in shareholders' funds Called-up Share share premium Special Redemption Retained (Unaudited) capital account reserve reserve earnings* Total For the six £000 £000 £000 £000 £000 £000 months ended 31 March 2010 At 30 3,995 1,411 31,792 793 244,299 282,290 September 2009 Buyback of - - (14,241) - - (14,241) own shares for cancellation Transfer to (178) - - 178 - - capital redemption reserve Net return - - - - 63,785 63,785 for the six months to 31 March 2010 Balance at 31 3,817 1,411 17,551 971 308,084 331,834 March 2010 Called-up Share share premium Special Redemption Retained (Unaudited) capital account reserve reserve earnings* Total For the six £000 £000 £000 £000 £000 £000 months ended 31 March 2009 At 30 4,273 1,411 44,175 515 230,040 280,414 September 2008 Buyback 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 Balance at 31 4,111 1,411 37,848 677 120,515 164,562 March 2009 Called-up Share share premium Special Redemption Retained (Audited) capital account reserve reserve earnings* Total For the year £000 £000 £000 £000 £000 £000 ended 30 September 2009 At 30 4,273 1,411 44,175 515 230,040 280,414 September 2008 Buyback of - - (12,383) - - (12,383) own shares for cancellation Transfer to (278) - - 278 - - capital redemption reserve Net return - - - - 14,259 14,259 for the year to 30 September 2009 Balance at 30 3,995 1,411 31,792 793 244,299 282,290 September 2009 *Retained earnings comprise capital reserve and revenue reserve. Cashflow statement for the six months to 31 March 2010 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended to 31 March to 31 March 30 September 2010 2009 2009 £000 £000 £000 Operating activities Income received from 2,221 3,576 6,653 investments Interest received - 16 16 Investment management (2,171) (771) (1,717) fees and performance fees paid VAT recovered - - 1,039 (including interest thereon) Other cash payments (600) (663) (1,224) Net cash inflow from (550) 2,158 4,767 operating activities Servicing of finance Interest paid (10) (6) (17) Taxation Overseas tax paid (60) (51) (728) Financial investment Purchases of (36,302) (49,186) (93,829) investments Sales of investments 46,536 54,049 111,895 Net cash inflow from 10,234 4,863 18,066 financial investment Equity dividends paid (3,085) (3,455) (3,455) Net cash inflow before 6,529 3,509 18,633 financing Financing Buyback of ordinary (8,517) (7,330) (13,386) shares Net cash outflow from (8,517) (7,330) (13,386) financing (Decrease)/increase in (1,988) (3,821) 5,247 cash Notes to the half year report 1. Accounting policies These financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (issued in January 2009). The accounting policies applied to this half year report are consistent with those applied in the accounts for the year ended 30 September 2009. 2. Dividend No dividend is payable in respect of the six months to 31 March 2010. Consideration will be given to an annual dividend in respect of the year ended 30 September 2010 at a Board meeting to be held in November 2010. An announcement will be made shortly after that meeting. 3. Comparative information The figures and financial information for the year ended 30 September 2009 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 498 of the Companies Act 2006. The half year report for the six months ended 31 March 2010 and for the six months ended 31 March 2009 have been neither audited nor reviewed by the auditors. 4. Shares in issue As at 31 March 2010 there were 38,166,942 ordinary shares of 10p each in issue (30 September 2009: 39,951,916 and 31 March 2009: 41,107,037) which includes 3,318,207 ordinary shares held in treasury (30 September 2009: 3,318,207 and 31 March 2009: 3,318,207) 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 1,784,974 ordinary shares were bought back to be cancelled at a cost of £14,241,000. A further 322,625 ordinary shares were bought back to be cancelled during the period 1 April 2010 to 17 May 2010. 5. Taxation The taxation charge of £49,000 (30 September 2009: £561,000 and 31 March 2009: £51,000) relates to irrecoverable overseas taxation. 6. Reconciliation of total return on ordinary activities before finance costs and taxation to net cash (outflow)/inflow from operating activities (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 31 March 31 March 30 September 2010 2009 2009 £000 £000 £000 Net revenue return 66,929 (106,013) 18,292 before finance costs and taxation Net capital return (68,406) 105,506 (14,313) before finance costs and taxation Increase in accrued 1,813 2,905 907 income (Decrease)/increase (661) (240) 796 in sundry creditors VAT recovered from - - 97 HMRC (including interest thereon) capitalised Management fee (225) - (1,012) capitalised Net cash (outflow)/ (550) 2,158 4,767 inflow from operating activities 7. Return per ordinary share The total return per ordinary share is based on the return on ordinary activities after taxation of £66,870,000 (six months ended 31 March 2009: £ (106,070,000); and year ended 30 September 2009: £17,714,000) and on a weighted average of 36,159,129 ordinary shares in issue during the six months ended 31 March 2010 (six months ended 31 March 2009: weighted average of 38,533,771 ordinary shares in issue; and year ended 30 September 2009: weighted average of 37,820,907 ordinary shares in issue). 8. Posting of the half year report The half year report will be posted to shareholders on or around 24 May 2010. 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 under the following broad categories: • Investment strategy. • Accounting, legal and regulatory. • Loss of investment team or investment manager. • Discount. • Corporate governance and shareholder relations. • 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 2009. 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 2010 is shown in the Income Statement on pages 8 and 9. There have been no other related party transactions during the six months ended 31 March 2010. 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 Steven Bates Chairman 18 May 2010 Directors and officers Directors Steven Bates, Chairman John Cousins Josephine Dixon Saul Estrin Jonathan Woollett Iain Saunders (retired 19 January 2010) Secretary M. J. 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 Telephone: 020 7628 6000 Facsimile: 020 7638 7928 Auditor KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB Custodian State Street Bank & Trust Company Limited 20 Churchill Place Canary Wharf London E14 5HJ Administrator Northern Trust Global Services Limited 50 Bank Street Canary Wharf London E14 5NT Telephone: 0207 982 2000 Registrars and transfer office Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA Telephone: 0871 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 ISA & Savings Scheme The Company's shares can be purchased through the Baring Emerging Europe ISA & Savings Scheme which provides a simple and cost-effective method for investing either lump sums or on a regular basis. The Baring Emerging Europe ISA investment limits are: Minimum Maximum Investment Limits Investment Limits Regular investment £250 £850 per month per month Lump sum investment £3,000 £10,200 (Additional lump sum per annum top-ups of £1,000) The Baring Emerging Europe Savings Scheme has a minimum regular investment of £ 50 per month or a minimum lump sum investment of £250. Further information For further information on the ISA & Savings Scheme, please write to: Baring Asset Management Limited c/o NTGS 50 Bank Street London E14 5NT Telephone: 0845 082 2479 Alternatively information can be obtained from the Company's website: www.bee-plc.com Please remember that the value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Past performance is not a guarantee of future performance. Baring Asset Management Limited, the Manager of the Baring Emerging Europe ISA & Savings Scheme, is authorised and regulated by the Financial Services Authority. 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.

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