Half-yearly Report

Baring Emerging Europe PLC Half Year Report for the six months ended 31 March 2013 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 Share Price 16 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 2013 2012 2012 Shareholders' funds 190,972 205,955 189,203 (£000) Net asset value 880.95p 796.04p 776.34p ("NAV") per share Share price 786.00p 738.50p 703.00p Discount of share 10.8% 7.2% 9.4% price to NAV Six months to 31 Six months to 31 Year ended 30 March March September 2013 2012 2012 Total return per 109.39p 108.89p 95.77p share Dividend per share* - - 16.00p Performance (total return basis) Six months to 31 Six months to 31 Year ended 30 March March September 2013 2012 2012 Net asset value per +15.1%* +15.1%* +11.3%† share Benchmark# +11.5% +16.2% +13.8% Share price† +14.2% +17.4% +11.7% #The benchmark is the MSCI EM Europe 10/40 Index. †Source: AIC using Morningstar. *Source: Barings. The Investment Manager The Investment Manager is Baring Asset Management Limited which is authorised and regulated by the Financial Conduct Authority. Chairman's statement Dear Shareholder, Performance The Net Asset Value per share of your Company rose by 15.1% on a total return basis during the first half of the fiscal year. During the same period, the Company's benchmark rose by 11.5%. This is a very good result in both absolute and relative terms and reflects good stock selection across the portfolio by Matthias Siller, your fund manager. It is rewarding to see the long term approach Matthias takes beginning to bear fruit. It is worth noting that the portfolio by country outperformed each of its local markets. In a competitive sense, BEE continues to do well in its peer group. In the Morningstar Emerging Europe universe, the Company ranks 4 out of 56 funds over the half year, while in the longer term, it ranks 11 out of 49 on a five year view. Discount Management During the equivalent period last year, the Company conducted a tender offer to buy shares back at a 3% discount to the then NAV. This year has been quieter, but despite the good performance, the Company has continued to see sellers of its shares and has bought back a relatively large amount of stock. During the period, 2,693,000 shares were bought back for cancellation, at a total cost of £19,481,000 or just over £7.23 on average. These shares were bought at an average discount of 11.2%, adding approximately 11 pence to NAV per share. The shares closed the half year on a discount of 10.8%. During the half year, the average discount was 10.4%. Your Board remains committed to a strong discount management policy and this is reflected in low discount volatility. Annual Dividend At the Annual General Meeting held on 9 January 2013 shareholders approved the payment of an annual dividend in respect of the financial year ended 30 September 2012 of 16p per share on 1 February 2013 to members on the register at the close of business on 14 December 2012. Outlook World markets have been strong over the last six months as investors have added risk to portfolios in the expectation that interest rates will remain low for longer than looked the case in the middle of last year. This reflects the weakness of economic activity in the EU and to a lesser extent the US, a sluggishness that inevitably takes its toll in Emerging Europe as well. Within the region, markets performed well in the last quarter of last year but have struggled in 2013 so far, with the weakness of sterling contributing significantly to the sterling returns earned by BEE. Nevertheless, as Matthias explains in his report later, there are more and more opportunities to invest in the rapidly growing sectors exposed to domestic consumption across our region, and at valuations which remain amongst the lowest of all world markets. Steven Bates Chairman 3 May 2013 Report of the Investment Manager for the half year ended 31 March 2013 Performance Against the backdrop of rising global equity markets, your Company posted an increase of 15.1% in its NAV in Sterling terms, while the benchmark rose by 11.5%. Performance attribution from stock selection was strong, and contributed positively to performance in every one of the five countries in the benchmark. The portfolio's positioning assumed a subdued global growth environment, falling interest rates and a robust domestic economic backdrop in Russia and Turkey. Against the backdrop of a relatively weak global economy, Emerging European countries found themselves responding differently to the economic cycle during the period. The small, open economies of Central Europe were affected by lower German economic growth rates as Germany is their main trading partner. As a result, the economies of Hungary and the Czech Republic effectively stalled. While 2013 might bring some relief in the form of reviving fixed capital investment, the tight budgetary situation rules out any major fiscal stimulus, in our view. Poland, the largest Central European economy, had been outperforming a sluggish European growth environment for years as strong domestic demand and rapid absorption of European Union infrastructure subsidies supported slightly better growth rates. This superior growth profile has deteriorated rapidly over the past six months, as major infrastructure investment projects have been finished and the booming real estate market has cooled markedly. Household credit demand, a significant contributor to economic growth in the past, has ground to a halt. The Turkish economy, on the other hand, showed signs of accelerating growth despite the authorities taking some of the heat out of the economy. Impressively, almost all of the 2.7% economic growth achieved in 2012 stems from a very strong export performance, as Turkish companies have successfully been building market share in new markets in the Middle East and Africa. The chronic current account deficit, traditionally the country's achilles heel, improved visibly on the back of this growth in exports while falling commodity prices also helped to reduce Turkey's import bill. On the political front, Prime Minister Erdogan's push for reconciliation with the Kurdish minority presents an historic opportunity for the country to put an end to a costly, decade-long conflict and opens growth opportunities for Turkish businesses inside that region of Turkey and, equally importantly, in the oil rich, Kurd-dominated region in Northern Iraq. While Russia's economy performed best of all regional economies in 2012, it started showing signs of a slowdown as the year progressed. Household spending and credit creation, the pillars of the recent economic expansion, have begun to slow and industrial production has been negatively affected by falling commodity prices. The fiscal expansion that accompanied the Presidential election of 2012 and bolstered wage growth, cannot easily be reproduced this year. With the Russian Central Bank determined to strengthen its inflation fighting credentials, Russian monetary policy has remained remarkably tight - and short-term interest rates therefore relatively high - in an environment where they are moving lower elsewhere around the world. Activity Exposure to the materials sector has been further reduced since we last reported, and limited to cash generative, high dividend yielding growth companies. In particular, Gazprom's plans for an investment in Russia's Eastern gas pipeline to the Sea of Japan are unlikely to yield attractive returns for its shareholders in our view and as a result we have reduced our position in the stock to a pronounced underweight position relative to the benchmark. The sale of BP-TNK (a joint venture of BP and Russia's AAR) to state oil champion Rosneft which was agreed in October 2012 signals the growing influence of the Russian state in business and more particularly, of Rosneft's chairman and "Energy Tsar" Igor Sechin. Your Company decided to sell its BP-TNK position soon after the deal was announced. This move was vindicated five months later when Rosneft announced plans to distribute the substantial amount of cash on TNK's accounts via a debt facility rather than via dividends, moving sharply against the interests of minority shareholders. The banking sector remains our preferred avenue to access domestic growth and the expansion of household wealth in the region. The sector benefits from particularly favourable growth dynamics, robust balance sheets, ample liquidity and attractive share price valuations. Outside the financial sector, exposure to Russian domestic demand growth is now mainly achieved through investments in retail and healthcare, where we participated in the initial public offering of MD Medical Group, a group of private hospitals in Russia specialising in women's and children's healthcare. In Turkey we added to economically sensitive consumer exposure by investing into Vakif Bank and the refiner Tupras, while we sold our holding in BIM, the county's leading "no frills" discount supermarket. Dogus Otomotiv Servis, the exclusive distributor of Volkswagen cars, exceeded expectations on the back of substantial market share gains and surprised investors positively with a dividend increase. The stock gained 90% in USD terms over the last 6 months, making it the best performing stock in the portfolio. The utility sector remains a major underweight across the portfolio in the light of what we regard as considerable regulatory risk, indecisive governments and feeble electricity demand growth. The main exception to this scenario is Turkey, where high electricity prices, strong demand growth and a determined government policy have led to successful privatisations and fresh investment. In the Telecom, Media and Technology sector, we mainly focus on Russia and avoid Central European fixed line operators. The holding in Turkcell, the largest Turkish mobile operator, was sold after the resolution of a lingering shareholder conflict propelled the stock to our price target while we invested in attractively valued Russian technology and internet stocks that benefit from a highly skilled labour force and online advertising growth. Your Company's allocation to the Polish stock market was reduced markedly as strong performance pushed the portfolio's top picks, copper miner KGHM Polska and insurer PZU, to their respective price targets. We believe that the sharp drop in Polish long term interest rates is partially responsible for this development as both companies pay high dividend yields. Overall, the sharp decline in government bond yields globally over the past six months and the effect of substantial asset flows into corporate bonds have led to a pronounced fall in risk free rates across the region, further supporting the valuation argument for Emerging European equities. These developments have led to increased demand for shares of companies featuring strong cash flow generation, growth opportunities and healthy dividends. We are encouraged to see that dividend policy and corporate governance in general have moved higher up the agenda for management teams and majority shareholders across the region, a development that is particularly important in the wake of the substantial privatisation plans in Russia. Outlook While the global economy shows encouraging signs we still believe that the background will remain one of subdued economic activity. Under these circumstances we believe our approach of running a broadly diversified portfolio of reasonably priced, high quality growth stocks is the key to unlocking the attractive return potential of the region's equity markets, which remain the cheapest globally. As we look forward from here, we believe that your Company is well placed to take advantage of the opportunities the region offers - vast resources, underleveraged consumers, and superior economic growth at attractive valuations. Baring Asset Management Limited 10 April 2013 Twenty largest equity holdings Equity portfolio The Company's twenty largest equity holdings at 31 March 2013, is set out in the following table: Holding Primary country Market value £ % of equity of listing or 000 portfolio investment 1 Lukoil Holdings Russia 21,117 11.3 2 Sberbank Russia 20,718 11.1 3 Gazprom Russia 12,024 6.5 4 Tupras Turkey 8,938 4.8 5 Halk Bank Turkey 8,570 4.6 6 Novatek Russia 8,422 4.5 7 Mobile Russia 7,904 4.2 Telesystems 8 VTB Bank Russia 7,347 3.9 9 Rosneft Russia 6,095 3.3 10 Norilsk Nickel Russia 5,991 3.2 11 Vakif Bank Turkey 5,911 3.2 12 Magnit Russia 5,857 3.1 13 PZU Poland 5,598 3.0 14 Dogus Otomotiv Turkey 5,015 2.7 Servis 15 Surgutneftegas Russia 4,373 2.3 16 Sistema Russia 4,312 2.3 17 Bank Zachodni WBK Poland 4,078 2.2 18 KGHM Polska Poland 3,606 2.0 19 OTP Bank Hungary 3,446 1.9 20 PKO BP Poland 3,062 1.7 152,384 81.8 Other holdings 33,811 18.2 Total investments 186,195 100.0 Income statement (incorporating the Revenue Account*) for the six months to 31 March 2013 (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 2013 2013 2013 2012 2012 2012 September September September 2012 2012 2012 Revenue Capital Total Revenue Capital Total Revenue Capital Total Notes £000 £000 £000 £000 £000 £000 £000 £000 £000 Gains on - 25,388 25,388 - 35,228 35,228 - 22,598 22,598 investments held at fair value through profit or loss Income 772 - 772 199 - 199 7,994 - 7,994 Investment (764) - (764) (894) - (894) (1,641) - (1,641) management fee Other (483) - (483) (427) - (427) (976) - (976) expenses Net return (475) 25,388 24,913 (1,122) 35,228 34,106 5,377 22,598 27,975 before finance costs and taxation Finance (17) - (17) (7) - (7) (27) - (27) costs Return on (492) 25,388 24,896 (1,129) 35,228 34,099 5,350 22,598 27,948 ordinary activities before taxation Taxation (35) - (35) (28) - (28) (755) - (755) Return (527) 25,388 24,861 (1,157) 35,228 34,071 4,595 22,598 27,193 attributable to ordinary shareholders Return per 7 (2.32)p 111.71p 109.39p (3.70)p 112.59p 108.89p 16.18p 79.59p 95.77p 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 2013 (Unaudited) (Unaudited) (Audited) At At At 31 March 31 March 30 September 2013 2012 2012 £000 £000 £000 Non current assets Investments at fair 186,195 203,683 188,293 value through profit or loss Current assets Debtors 1,004 54 3,103 Cash at bank and in 4,257 2,622 509 hand 5,261 2,676 3,612 Current liabilities Creditors: amounts (484) (404) (2,702) falling due within one year Net current assets 4,777 2,272 910 Total net assets 190,972 205,955 189,203 Capital and reserves Called-up share 2,500 2,920 2,769 capital Share premium 1,411 1,411 1,411 account Capital reserve 181,895 198,492 175,988 Redemption reserve 2,288 1,868 2,019 Revenue reserve 2,878 1,264 7,016 Total equity 190,972 205,955 189,203 shareholders' funds Net asset value per 880.95p 796.04p 776.34p share Reconciliation of movement in shareholders' funds Called-up Share share premium Special Capital Redemption Revenue (Unaudited) capital account reserve reserve reserve reserve Total For the six £000 £000 £000 £000 £000 £000 £000 months ended 31 March 2013 At 30 September 2,769 1,411 - 175,988 2,019 7016 189,203 2012 Return for the - - - 25,388 - (527) 24,861 six months to 31 March 2013 Buyback of own - - - (19,481) - - (19,481) shares for cancellation Transfer to (269) - - - 269 - - capital redemption reserve Dividends paid - - - - - (3,611) (3,611) Balance at 31 2,500 1,411 - 181,895 2,288 2,878 190,972 March 2013 Called-up Share share premium Special Capital Redemption Revenue (Unaudited) capital account reserve reserve reserve reserve Total For the six £000 £000 £000 £000 £000 £000 £000 months ended 31 March 2012 At 30 September 3,630 1,411 1,252 218,205 1,158 5,664 231,320 2011 Return for the - - - 35,228 - (1,157) 34,071 six months to 31 March 2012 Buyback of own - - (1,252) (54,241) - - (55,493) shares for cancellation Transfer to (710) - - - 710 - - capital redemption reserve Tender Offer - - - (700) - - (700) costs Dividends paid - - - - - (3,243) (3,243) Balance at 31 2,920 1,411 - 198,492 1,868 1,264 205,955 March 2012 Called-up Share share premium Special Capital Redemption Revenue (Audited) capital account reserve reserve reserve reserve Total For the year £000 £000 £000 £000 £000 £000 £000 ended 30 September 2012 At 30 September 3,630 1,411 1,252 218,205 1,158 5,664 231,320 2011 Return for the - - - 22,598 - 4,595 27,193 year to 30 September 2012 Buyback of own ­ - (1,252) (64,175) - - (65,427) shares for cancellation Transfer to (861) - - - 861 - - capital redemption reserve Tender Offer - - - (640) - - (640) costs Dividends paid - - - - - (3,243) (3,243) Balance at 30 2,769 1,411 - 175,988 2,019 7,016 189,203 September 2012 Cashflow statement for the six months to 31 March 2013 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended to 31 March to 31 March 30 September 2013 2012 2012 Notes £000 £000 £000 Operating activities Income received from 1,475 766 7,818 investments Investment management (764) (894) (1,641) fees paid Other cash payments (327) (457) (1,081) Net cash inflow/ 6 384 (585) 5,096 (outflow) from operating activities Servicing of finance Interest paid (17) (7) (27) Taxation Overseas tax paid (35) (28) (755) Financial investment Purchases of (41,300) (74,977) (112,372) investments Sales of investments 67,808 134,676 172,524 Net cash inflow from 26,508 59,699 60,152 financial investment Equity dividends paid (3,611) (3,243) (3,243) Net cash inflow before 23,229 55,836 61,223 financing Financing Buyback of ordinary (19,481) (56,194) (63,694) shares Net cash outflow from (19,481) (56,194) (63,694) financing Increase/(decrease) in 3,748 (358) (2,471) 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 2012. 2. Dividend No dividend is payable in respect of the six months to 31 March 2013. Consideration will be given to an annual dividend in respect of the year ended 30 September 2013 at a Board meeting to be held in November 2013. An announcement will be made shortly after that meeting. 3. Comparative information The figures and financial information for the year ended 30 September 2012 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 2013 and for the six months ended 31 March 2012 have been neither audited nor reviewed by the auditors. 4. Shares in issue As at 31 March 2013 there were 21,678,043 ordinary shares of 10p each in issue (30 September 2012: 24,371,043 and 31 March 2012: 25,872,543) which excludes 3,318,207 ordinary shares held in treasury (30 September 2012: 3,318,207 and 31 March 2012: 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 2,693,000 ordinary shares were bought back to be cancelled at a cost of £19,481,000. A further 100,000 ordinary shares were bought back to be cancelled at a cost of £772,000 since 31 March 2013 to the date of this report. 5. Taxation The taxation charge of £35,000 (30 September 2012: £755,000; and 31 March 2012: £28,000) 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 2013 2012 2012 £000 £000 £000 Net revenue return 24,913 34,106 27,975 before finance costs and taxation Net capital return (25,388) (35,228) (22,598) before finance costs and taxation Decrease/(increase) in 703 567 (175) accrued income Increase/(decrease) in 156 (30) (106) sundry creditors Net cash inflow/ 384 (585) 5,096 (outflow) 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 £24,861,000 (six months ended 31 March 2012: £ 34,071,000; and year ended 30 September 2012: £27,193,000) and on a weighted average of 22,726,252 ordinary shares in issue during the six months ended 31 March 2013 (six months ended 31 March 2012: weighted average of 31,287,414 ordinary shares in issue; and year ended 30 September 2012: weighted average of 28,393,596 ordinary shares in issue). 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 and strategy. • Accounting, legal and regulatory. • Loss of investment team or investment manager. • Discount. • Corporate governance and shareholder relations. • Operational. • Financial. • Future developments. Information of each of these is given in the Report of the Directors in the Annual Report for the year ended 30 September 2012. 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 2013 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 2013. 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 FCA's Disclosure and Transparency Rules. For and on behalf of the Board Steven Bates Chairman 3 May 2013 Directors and officers Directors Steven Bates, Chairman Josephine Dixon Saul Estrin Jonathan Woollett Ivo Coulson 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 15 Canada Square London E14 5GL 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 The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: 0871 664 0300 (calls cost 10p per minute plus network extras) Overseas: +44 208 639 3399 Email: ssd@capitaregistrars.com Website www.bee-plc.com 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. Baring Asset Management Limited 155 Bishopsgate London EC2M 3XY Telephone: 020 7628 6000 (Authorised and regulated by the Financial Conduct Authority) www.barings.com Registered in England and Wales no: 02915887 Registered office as above.

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