Annual Financial Report

BlackRock Commodities Income Investment Trust plc Annual Results Announcement For the year ended 30 November 2013 Performance record Financial Highlights As at 30 As at 30 November November Change 2013 2012 % Assets Net assets (Â£'000)* 101,830 111,663 -8.8 Net asset value per ordinary share 105.79p 118.47p -10.7 -with income reinvested - - -5.9 -------- -------- -------- Ordinary share price (mid-market) 109.50p 122.75p -10.8 -with income reinvested - - -6.0 ======== ======== ======== Year Year ended ended 30 30 November November Change 2013 2012 % Revenue Net revenue after taxation (Â£'000) 5,551 5,570 -0.3 Revenue return per ordinary share 5.87p 6.10p -3.8 -------- -------- -------- Interim dividends 1st interim 1.4750p 1.4375p +2.6 2nd interim 1.4750p 1.4375p +2.6 3rd interim 1.4750p 1.4375p +2.6 4th interim 1.5250p 1.5875p -3.9 -------- -------- -------- Total dividends paid and payable 5.9500p 5.9000p +0.8 -------- -------- -------- * The change in net assets reflects market movements and the issue of 2,000,000 ordinary shares in the year. Chairman's statement I am pleased to present the Annual Report to shareholders of BlackRock Commodities Income Investment Trust plc for the year ended 30 November 2013. Overview Shares in the mining sector generally failed to participate in the otherwise strong recovery in equity markets during 2013. Returns from the energy sector were better than those from the mining sector. Slower growth in China and other major emerging economies tempered market expectations of future requirements for industrial and construction commodities and previous capital spending began to look over ambitious in the more muted demand environment. Against this background, the Company's net asset value (`NAV') per share returned -5.9% and the share price returned -6.0%. Over the same period, the Euromoney Global Mining Index (formerly the HSBC Global Mining Index) and MSCI World Energy Index returned -21.5% and 13.1% respectively. Since the launch of the Company in December 2005 the NAV has returned 54.9% and the share price 57.2% (all percentages calculated in sterling terms with income reinvested). Since the year end, the Company's NAV has returned -0.6% and the share price has returned 0.1%. Revenue return and dividends The Company's revenue return per share for the year amounted to 5.87 pence (2012: 6.10 pence). It remains the Company's intention to pay four quarterly dividends. Details for the 2012 and 2013 financial years are set out in note 6. Our objective this year was to pay dividends which in total amounted to at least 5.90 pence and I am pleased to report that we have exceeded this target by paying quarterly dividends amounting to 5.95 pence per share (2012: 5.90 pence). This necessitated a very marginal utilisation of brought forward revenue reserves. It is the Company's aim to pay dividends amounting to at least 5.95 pence per share for the year ending 30 November 2014. Our ability to match or exceed this target will depend on the dividend distributions from our underlying portfolio and should not be interpreted as a proï¬t forecast. The target level represents a yield of 5.4% based on the share price as at the close of business on 30 November 2013. Your Company has now been operating for eight years. We have seen considerable turbulence and share price volatility over this period. However, in each ï¬nancial year, the ordinary dividends we have been able to pay to our shareholders have been ahead of the previous year. Tender offers The Directors of the Company have the discretion to make semi-annual tender offers at the prevailing NAV, less 2%, for up to 20% of the issued share capital in August and February of each year. The Board announced on 19 June 2013 that it had decided not to proceed with a tender offer in August 2013, and on 18 December 2013 that the tender offer in February 2014 would not be implemented. During the year ended 30 November 2013, the Company's shares traded at an average premium to NAV of 0.4% compared to a discount of 2.0% to NAV, the price at which any tender offer would be made. A resolution for the renewal of the Company's semi-annual tender authorities will be put to shareholders at the forthcoming annual general meeting. Share Capital The Directors recognise the importance to investors of ensuring that the Company's share price is as close to its underlying NAV as possible. Accordingly, the Directors monitor the share price closely and will continue the issue at a premium, or repurchase at a discount, of ordinary shares to balance supply and demand in the market. During the year the Company issued 2,000,000 ordinary shares at an average price of 108.98 pence per share for a total consideration of Â£2,178,000, before the deduction of issue costs. The shares were issued at an average premium of 1.8% to the cum income NAV at the close of business on the business day prior to each issue and at a premium to the estimated cum income NAV at the time of each transaction. Since 30 November 2013, a further 1,100,000 shares have been issued for considreation of Â£1,177,000, before the deduction of issue costs. The shares were issued at a premium of 2.1% to the cum income NAV at the close of business on the previous business day and at a premium to the estimated cum income NAV at the time of the transaction. Gearing The Company operates a ï¬‚exible gearing policy which depends on prevailing market conditions. The maximum gearing used during the year was 10.7% and at 30 November 2013 gearing was 9.3%. Gearing has been calculated in accordance with AIC guidelines and on a net basis. The Board In accordance with our policy of Board refreshment we were pleased to welcome Ed Warner to the Board on 1 July 2013. Humphrey van der Klugt, who has served as a Director since the Company's incorporation in November 2005, intends to retire from the Board following the 2014 AGM. Humphrey is currently the Company's Audit and Management Engagement Committee Chairman. Michael Merton will take over as Chairman of the Audit and Management Engagement Committee immediately after the AGM. I would like to thank Humphrey for his outstanding contribution to the Company and wish him the very best for the future. The Board seeks to reflect the highest standards of corporate governance and accordingly all Directors will now stand for re-election every year. Portfolio Manager The Board announced on 20 January 2014 that Richard Davis had stepped down as the portfolio manager. He is succeeded by Olivia Ker as the lead manager of the Trust. Thomas Holl will continue as deputy manager working alongside Olivia. Both are experienced members of BlackRock's Natural Resources equity team and will provide continuity in the existing investment approach. The Board would like to thank Richard for all of his work since the Company's launch in 2005 and to wish him well for the future. New reporting requirements There have been a number of revisions to reporting requirements for companies with effect from accounting periods beginning on or after 1 October 2012. These include the addition of a new Strategic Report, as set out on pages 16 to 19 of the Annual Report, which is intended to replace the Business Review section of the Directors' Report, providing insight into the Company's objectives, strategy and principal risks, and enabling shareholders to assess how effective Directors have been in promoting the success of the Company during the course of the year under review. Other changes comprise additional Audit Committee reporting requirements on the external audit process, as set out on pages 34 to 36 of the Annual Report, and changes to the structure and voting requirements in respect of the Directors' Remuneration Report which are explained in more detail on page 25 of the Annual Report. Alternative Investment Fund Managers' Directive The Alternative Investment Fund Managers' Directive (`the Directive') is a European directive which seeks to reduce systemic risk by regulating alternative investment fund managers (`AIFMs'). AIFMs are responsible for managing investment products that fall within the category of Alternative Investment Funds (`AIFs') and investment trusts are included in this. The Directive was implemented on 22 July 2013 although the Financial Conduct Authority (`FCA') permits a transitional period of one year after that, during which UK AIFMs must seek authorisation. The Board has taken, and will continue to take, independent advice on the consequences for the Company of the implementation of the Directive. It has decided in principle that BlackRock Fund Managers Limited will be appointed as its AIFM before the end of the transitional period on 22 July 2014. Proposed change to the Articles of Association At the forthcoming Annual General Meeting, shareholders will be asked to approve new Articles of Association in substitution for the current Articles. The Board is proposing to make these amendments to the Articles in response to AIFMD Regulations coming into force; details of the principal changes are given on pages 23 and 24 of the Annual Report. Annual General Meeting The Company's Annual General Meeting will be held at 10.30 a.m. on Friday, 28 March 2014 at the ofï¬ces of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL. Details of the business of the meeting are set out in the Notice of Meeting on pages 64 to 67 of the Annual Report. The Investment Manager will also make a presentation to shareholders on the Company's progress and the outlook for the year. Outlook As we enter the new financial year, global economic growth finally appears to be more robust, particularly in the US. If sustained, this will no doubt boost demand for energy and commodities more generally. New sources of supply, however, are coming on-stream to meet this improving demand. Corporate proï¬tability will continue to be very dependent on cost and capital expenditure management. Energy prices will also remain significantly governed by OPEC's ability to ration output as new supply emerges. Overall, we are cautiously optimistic and believe that the Company's portfolio is well positioned to participate as economic growth accelerates. We also expect further growth in the dividend income generated by the portfolio. Alan Hodson Chairman 27 January 2014 Strategic report The Directors present the Strategic Report of the Company for the year ended 30 November 2013. Principal activity The Company carries on business as an investment trust. Its principal activity is portfolio investment. The Company's wholly owned subsidiary is BlackRock Commodities Securities Income Company Limited. Its principal activities are option writing and investment dealing. Objective The objectives of the Company are to achieve an annual dividend target and, over the long term, capital growth by investing primarily in securities of companies operating in the mining and energy sectors. Strategy The Company seeks to achieve its objectives through a focused portfolio, consisting of approximately thirty to one hundred and fifty securities. Business model and investment policy There are no restrictions on investment in terms of geography or sub-sector and, in addition to equities, other types of securities, such as convertible bonds and debt issued primarily by mining or energy companies, may be acquired. Although most securities will be quoted, listed or traded on an investment exchange, up to 10% of the gross assets of the Company and its subsidiary (`the Group'), at the time of investment, may be invested in unquoted securities. Investment in securities may be either direct or through other funds, including other funds managed by BlackRock Investment Management (UK) Limited (`BlackRock') or its associates, with up to 15% of the portfolio being invested in other listed investment companies, including listed investment trusts. Up to 10% of the gross assets of the Group, at the time of investment, may be invested in physical assets, such as gold and in securities of companies that operate in the commodities sector other than the mining and energy sectors. No more than 15% of the gross assets of the Group will be invested in any one company as at the date any such investment is made and the portfolio will not own more than 15% of the issued shares of any one company, other than the Company's subsidiary. The Company may deal in derivatives, including options and futures, up to a maximum of 30% of the Group's assets for the purposes of efficient portfolio management and to enhance portfolio returns. In addition, the Company is also permitted to enter into stock lending arrangements up to a maximum of 331/3% of the total asset value of the portfolio. The Company may from time to time, use borrowings to gear its investment policy or in order to fund the market purchase of its own ordinary shares. This gearing typically is in the form of an overdraft or short-term facility, which can be repaid at any time. Under the Company's Articles of Association, the Board is obliged to restrict the borrowings of the Company to an aggregate amount equal to 40% of the value of the gross assets of the Group. However, borrowings are not anticipated to exceed 20% of the Company's gross assets at the time of drawdown of the relevant borrowings. The Company's financial statements are maintained in sterling. Although many investments are denominated and quoted in currencies other than sterling, the Company does not intend to employ a hedging policy against fluctuations in exchange rates, but may do so in the future if circumstances warrant implementing such a policy. No material change will be made to the investment policy without shareholder approval. Portfolio analysis A detailed analysis of the portfolio has been provided on pages 12 to 14 of the Annual Report. Performance During the year ended 30 November 2013, the Company's NAV per share returned -5.9% and the share price returned -6.0% (both percentages calculated in sterling terms with income reinvested). The Investment Manager's Report includes a review of the main developments during the period, together with information on investment activity within the Company's portfolio. Results and dividends The results for the Group are set out in the Consolidated Statement of Comprehensive Income. The total loss for the year, after taxation, was Â£6,331,000 (2012: loss of Â£6,261,000) of which the revenue return amounted to Â£5,551,000 (2012: Â£5,570,000) and the capital loss amounted to Â£11,882,000 (2012: Â£11,831,000). The Company pays dividends quarterly and for the year ended 30 November 2013 the Company's target was to pay dividends amounting to at least 5.90 pence per share in total (2012: target of 5.75 pence). The first three quarters' dividends of 1.475 pence per share were paid on 17 April 2013, 26 July 2013 and 24 October 2013. A fourth quarterly dividend of 1.525 pence per share was paid on 23 January 2014 to shareholders on the register of members at the close of business on 27 December 2013. This makes a total of 5.95 pence per share which exceeds the target for the year of 5.90 pence per share. It is the Company's aim to pay dividends amounting to at least 5.95 pence per share for the year ending 30 November 2014. This represents a yield of 5.4% based on the share price as at the close of business on 30 November 2013. Key performance indicators The Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators (`KPIs') used to measure the progress and performance of the Company over time and which are comparable to those reported by other funds are set out below. Year ended Year ended 30 November 30 November 2013 2012 Net asset value movement1 -5.9% -5.2% Share price movement2 -6.0% +0.8% Premium to net asset value (at year end) 3.5% 3.6% Revenue return per share 5.87p 6.10p Ongoing charges1 1.4% 1.3% 1 Calculated in accordance with AIC guidelines. 2 Calculated on a mid to mid basis with income reinvested. The Board also regularly reviews a number of indices and ratios to understand the impact on the Company's relative performance of the various components such as asset allocation and stock selection. The Board also reviews the performance of the Company against a peer group of other funds with similar investment objectives. Share rating The Directors recognise the importance to investors that the Company's share price should not trade at a signiï¬cant discount to NAV. Accordingly, the Directors monitor the share rating closely. Ordinary share issues and repurchases The Directors will consider the issue at a premium or repurchase at a discount of ordinary shares to correct any supply/demand imbalance in the market. Any such issues or repurchases will enhance the net asset value per share for continuing shareholders. Share issues During the year the Company issued shares on seven separate occasions and 2,000,000 ordinary shares in total were issued at an average price of 108.98 pence per share for a total consideration of Â£2,178,000 before the deduction of issue costs. Details of the allottees are set out in the following table: Number Total Average of Shares Price range consideration premium Allottee issues issued (pence) Â£'000 % JPMorgan Cazenove 3 1,000,000 108.50 to 108.60 1,085 1.8 Winterflood Securities 4 1,000,000 107.75 to 111.50 1,093 1.8 Since 30 November 2013, the Company has issued a further 1,100,000 ordinary shares. The shares were issued at a price of 107.00 pence per share for a total consideration of Â£1,177,000 before the deduction of issue costs. The current authority to issue new ordinary shares or sell shares from treasury for cash was granted to the Directors on 8 March 2013 and will expire at the conclusion of the 2014 annual general meeting. The Directors are proposing that their authority to issue new ordinary shares or sell shares from treasury for cash be renewed at the forthcoming annual general meeting. Share repurchases The current authority to repurchase up to 14.99% of the Company's issued share capital to be held in treasury or for cancellation was granted to the Directors on 8 March 2013 and will expire at the conclusion of the 2014 annual general meeting. No ordinary shares were bought back in the year under review. The Directors considered that it was unnecessary to buy back any shares as there was demand for the Company's shares in the market and any discount at which the shares traded to their underlying net asset value remained narrow. In the year to 30 November 2013, the Company's shares traded in the range of a discount of 4.3% and a premium of 5.5% with the average being a premium of 0.4%. The Directors are proposing that their authority to buy back up to 14.99% of the Company's issued share capital be renewed at the forthcoming annual general meeting. Although the Investment Manager would implement any buy backs, the policy and parameters are set by the Board and reviewed at regular intervals. The Company would raise the cash needed to finance any purchase of shares either by selling securities in the Company's portfolio or by short-term borrowing. Principal risks The key risks faced by the Company are set out below. The Board regularly reviews and agrees policies for managing each risk, as summarised below: ïµ Performance risk - The Board is responsible for deciding the investment strategy to fulfil the Company's objectives and for monitoring the performance of the Company's Investment Manager. An inappropriate policy or strategy may lead to poor performance, dissatisfied shareholders and a widening discount. To manage this risk the Board regularly reviews the Company's investment mandate and long term strategy and the Investment Manager's explanation of significant stock selection decisions, the rationale for the composition of the investment portfolio and any movement in the level of gearing. The Board also monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company's investment policy. ïµ Income/dividend risk - The amount of income and future dividend growth will depend on the Company's underlying portfolio and investment activity. Any change in the tax treatment of the income received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders. The Board monitors this risk through the receipt of income forecasts and considers the level of income at each meeting. ïµ Market risk - Market risk arises from volatility in the prices of the Company's investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. The Board considers asset allocation, stock selection, any unquoted investments and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. ïµ Financial risk - The Company's investment activities expose it to a variety of financial risks which include market price risk, liquidity risk, credit risk and interest rate risk. Further details are disclosed in note 19 to the Financial Statements, together with a summary of the policies for managing these risks. ïµ Gearing risk - The use of gearing increases the Company's performance risk. Gearing provides an opportunity for greater returns but, at the same time, increases the Company's exposure to capital risk and interest costs. Any investment income and gains earned on investments made through the use of gearing that are in excess of the costs associated therewith may cause the Company's NAV to increase further and more rapidly than would otherwise be the case. Conversely, where investments depreciate, the Company's NAV may decrease further and more rapidly than would otherwise be the case. Gearing costs also decrease gains and income and increase losses and costs. The use of gearing in making investments increases the Company's exposure to market fluctuations and creates the possibility that where the investment depreciates the Company's overall loss may be greater than the sum invested. ïµ Operational risk - In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager and the Company's other service providers. The security, for example, of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored and an internal controls report, which includes an assessment of risks together with procedures to mitigate such risks, is prepared by the Investment Manager and reviewed by the Audit and Management Engagement Committee on a regular basis. The Investment Manager and custodian, Bank of New York Mellon (International) Limited also produce Service Organisation control reports (SOC 01), which are reviewed by their reporting accountants and gives assurance regarding the effective operation of controls. The Board also considers succession arrangements for key employees of the Investment Manager and the business continuity arrangements for the Company's key service providers. ïµ Regulatory risk - The Company operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. The Investment Manager monitors investment movements, the level of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. The Company must also comply with the provisions of the Companies Act 2006, the UKLA Listing Rules, the Disclosure and Transparency Rules and the Prospectus Rules. A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules could result in the Company's shares being suspended from listing, which in turn would breach the requirements of Chapter 4 of Part 24 of the Corporation Tax Act 2010. Following authorisation under the AIFMD (the "Directive") the Company and its appointed AIFM will be subject to the risk that the requirements of the Directive are not correctly complied with. The Board relies on the services of its professional advisers and its Company Secretary to ensure compliance with all relevant regulations. The Company Secretary has stringent compliance procedures in place and closely monitors regulatory developments and changes. Future prospects The Board's main focus is the achievement of an annual dividend target and, over the long term, capital growth. The future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chairman's Statement and in the Investment Manager's Report. Social, community and human rights issues As an investment trust, the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders' interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company's policy on socially responsible investment are set out on page 21 of the Annual Report. Directors and employees The Directors of the Company on 30 November 2013, all of whom held ofï¬ce throughout the year, with the exception of Mr Warner who was appointed on 1 July 2013, are set out in the Directors' biographies on page 15 of the Annual Report. The Board consists of five male Directors. The Company does not have any employees. By order of the Board BlackRock Investment Management (UK) Limited Secretary 27 January 2014 Related party transactions BlackRock Investment Management (UK) Limited, the Investment Manager, is regarded as a related party and details of the investment management fees payable are set out in note 4 to the Financial Statements. The Company's participation in the sales and marketing programme run by BlackRock commenced on 1 November 2013. As at 30 November 2013, Â£2,600 (including VAT) remained outstanding in respect of the Company's contribution to the programme. The Board consists of five non-executive Directors, all of whom, with the exception of Mr Ruck Keene who is an employee of the Investment Manager, are considered to be independent by the Board. None of the Directors has a service contract with the Company. For the year ended 30 November 2013, the Chairman received an annual fee of Â£32,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of Â£24,000 and each of the other Directors received an annual fee of Â£21,000. Mr Ruck Keene waived the entitlement to his fees. With effect from 1 December 2013 the annual remuneration of the Chairman was increased to Â£33,000, the Chairman of the Audit and Management Engagement Committee to Â£27,000 and the other Directors to Â£22,000. All members of the Board hold shares in the Company. Alan Hodson holds 150,000 ordinary shares, Humphrey van der Klugt holds 35,000 ordinary shares, Ed Warner holds 20,000 ordinary shares, Michael Merton holds 17,000 ordinary shares and Jonathan Ruck Keene holds 14,000 ordinary shares. Statement of directors' responsibilities The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare ï¬nancial statements for each ï¬nancial year. Under that law, the Directors are required to prepare the ï¬nancial statements under IFRS as adopted by the European Union. Under Company law the Directors must not approve the ï¬nancial statements unless they are satisï¬ed that they give a true and fair view of the state of affairs of the Group and of the proï¬t or loss of the Group for that period. In preparing these Group ï¬nancial statements, the Directors are required to: ïµ present fairly the ï¬nancial position, ï¬nancial performance and cash ï¬‚ows of the Group; ïµ select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; ïµ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; ïµ make judgements and estimates that are reasonable and prudent; ïµ state whether the ï¬nancial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the ï¬nancial statements; ïµ provide additional disclosures when compliance with the speciï¬c requirements in IFRS as adopted by the European Union is insufï¬cient to enable users to understand the impact of particular transactions, other events and conditions on the Group's ï¬nancial position and ï¬nancial performance; and ïµ prepare the ï¬nancial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufï¬cient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the ï¬nancial position of the Group and enable them to ensure that the ï¬nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report and the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Group's corporate and ï¬nancial information included on the Investment Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of ï¬nancial statements may differ from legislation in other jurisdictions. Each of the Directors, whose names are listed on page 15 of the Annual Report, conï¬rm to the best of their knowledge that: ïµ the ï¬nancial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, ï¬nancial position and net return of the Company; and ïµ the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. The 2012 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Accounts are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Management Engagement Committee advise on whether it considers that the Annual Report and Accounts fulï¬ls these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee's report on pages 34 to 36 of the Annual Report. As a result, the Board has concluded that the Annual Report for the year ended 30 November 2013, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. For and on behalf of the Board Alan Hodson Chairman 27 January 2014 Investment manager's report There was a marked difference in the performance of the energy and mining sectors during the year under review, as illustrated in the table below. Energy shares, as measured by the MSCI World Energy Index, gained 13.1% on a total return basis and 10.5% on a capital only basis (in Sterling terms). Brent crude (the international benchmark price) was largely unchanged over the course of the year, closing at US$111/Bbl as shown in the following table. 30 30 November November % 2012 2013 Change Commodity Base Metals (US$/tonne) Aluminium 2,094 1,710 -18.3 Copper 7,979 7,054 -11.6 Lead 2,258 2,055 -9.0 Nickel 17,598 13,451 -23.6 Tin 21,862 22,789 4.2 Zinc 2,029 1,866 -8.0 Precious Metals (US$/oz) Gold 1,718 1,253 -27.1 Silver (USc/oz) 3,428 1,993 -41.9 Platinum 1,612 1,376 -14.6 Palladium 685 724 5.7 Energy Oil (WTI) (US$/Bbl)1 88.5 92.5 4.5 Oil (Brent) (US$/Bbl)2 110.7 111.1 0.4 Natural Gas (US$/MMBTU)3 3.5 3.8 8.6 Uranium (US$/lb)4 41.8 36.3 -13.2 Bulk Commodities (US$/tonne) Iron ore5 119.0 136.4 14.6 Coking coal6 161.0 136.0 -15.5 Thermal coal7 90.9 84.9 -6.6 Potash (US$/st)8 505.0 410.0 -18.8 Equity Indices Euromoney Global Mining Index (US$)9 515.2 401.2 -22.1 Euromoney Global Mining Index (Â£)9 321.5 244.9 -23.8 MSCI World Energy Index (US$) 237.4 268.1 12.9 MSCI World Energy Index (Â£) 148.1 163.7 10.5 1 West Texas Intermediate 2 Brent 3 Henry Hub 4 Nuexco Restricted, U3O8 5 CFR China (Bloomberg) 6 Spot HCC (Macquarie) 7 FOB Newcastle (Macquarie) 8 Standard Muriate, Saskatchewan 9 Formerly the HSBC Global Mining Index Source: Datastream. All data are on a capital basis only. The modest global economic recovery has helped underpin crude oil this year, but supply disruptions and geopolitical tensions have also had key roles to play. Outages in Libya, Nigeria and Sudan have taken a significant volume of oil off the market and Iranian exports have been hit by sanctions. West Texas Intermediate (`WTI') was further buoyed by the relative strength of the US economy and rose by 4.5% to US$92.5/Bbl, narrowing the spread between WTI and Brent crude. Natural gas performed well during the period with Henry Hub, the benchmark US domestic price, gaining 8.6%, albeit off a low base. Gas was helped by the cold winter in the northern hemisphere which pushed gas inventories below their five year average. In stark contrast to the decent returns in the energy sector, the Euromoney Global Mining Index slumped by 21.5% on a total return basis and by 23.8% on a capital only basis (in Sterling terms) in response to concerns about the sustainability of Chinese economic growth. Base metals with poor fundamentals, such as aluminium (-18.3%) and nickel (-23.6%), have fallen to multi-year lows. Both metals have historically high levels of inventory and are in supply surplus this year. Copper was a better performer, falling by 11.6%, helped by the steady decline in inventories since the end of June. Towards the end of the year, Chinese economic data showed some improvement and this is evidenced by strong imports of iron ore by the country's steel industry. Iron ore prices gained 14.6% over the year as a consequence, making it the best performing commodity in the table above. The data failed to catalyse a recovery in equity valuations; however, a key feature of the mining industry this year has been a renewed focus on shareholder returns through cost cutting initiatives and greater capital discipline. Even though early indications have been reasonably encouraging, the market remains sceptical. Gold had a poor year, registering its worst two day performance for 30 years when a sizeable transaction in the futures market triggered stop-loss selling, which in turn drove redemptions out of the gold Exchange Traded Funds. In the second half of the year, improving US economic data also damaged bullion's appeal as the metal began to price in the ending of quantitative easing in the US. Gold fell by 27.1% to US$1,253/oz, while silver collapsed by 41.9%. The platinum group metals had a much better time. Platinum (-14.6%) and palladium (+5.7%) have been helped by strong Chinese jewellery demand and lower than expected South African production. Portfolio activity Portfolio positioning this year has led us to be overweight energy shares and underweight mining shares, relative to a composite index which is equally weighted in the MSCI World Energy Index and the Euromoney Global Mining Index. This positioning was driven by a number of factors, including valuation, dividend yield and our near term outlook on the sectors. Energy shares were generally (marginally) cheaper than their mining counterparts and had better dividend yields, an important investment criteria for this portfolio. Our 2013 outlook for the energy sector was also more positive. Our view was that the downside in oil markets was limited given OPEC's ability to defend prices, while industrial metals might struggle in the face of supply surpluses and inventory overhangs. Our key positions in the energy markets included the integrated oil and gas companies. Chevron, ExxonMobil, BP, Royal Dutch Shell, Eni and Total are all top ten positions in the portfolio, all of which are described on page 11 of the Annual Report. These companies are trading at attractive levels in terms of earnings multiples and dividend yields. For example, Chevron, the portfolio's largest investment, is on a 2014 price earnings multiple of 10.2 times and a yield of 3.3%. We have added to some of these positions over the course of the year, funding the purchases through sales of some of the better performing exploration and production (`E&P') and oil service companies. While the integrated oil and gas companies offer compelling value, the portfolio's E&P investments offer more potential for capital appreciation. Our key E&P investment is Anadarko Petroleum, which has significant production and exploration assets in the Gulf of Mexico, onshore US, West and East Africa. The stock is trading on a price earnings multiple of 15.9 times for 2014 and a dividend yield of 0.9%. Other E&P stocks provide exposure to the US shale gas industry, which looks set to revolutionise energy markets in the long term. These include Noble Energy and Southwestern Resources. The latter is active in the Fayetteville shale in Arkansas with a 900,000 acre position and is one of the lowest cost gas producers in the US. By virtue of its strong growth profile, Southwestern is trading on a 2014 price earnings multiple of 18.5 times. Within the mining sector, our largest weighting is in the diversified mining companies, which together with the integrated oil and gas equities make up 50% of the portfolio. These have been leading the drive for more rigorous capital discipline and improved shareholder returns. Following changes to senior management at the top five diversified companies, they are beginning to focus on profitability and efficiency rather than simply expanding production. To this end several large scale expansions and developments have been cancelled and many companies have written down the value of assets. Our biggest positions in the diversified mining sector include BHP Billiton and Rio Tinto, which are trading on 2014 price earnings multiples of 10.6 times and 9.1 times respectively. Their dividends yields for 2014 are estimated at 4.4% and 3.6% respectively. Descriptions of both companies are provided on page 11 of the Annual Report. Elsewhere in the mining sector, our preferred metal is copper. Our investment philosophy in copper, and indeed all commodities, is to seek out undervalued companies trading at discounts to net asset values (based on conservative commodity price forecasts) with quality assets. A good example of such a company in the portfolio is Freeport McMoran Copper & Gold, which is the largest publicly listed copper producer in the world. We estimate that the shares are discounting a copper price of US$2.75/lb into perpetuity, which is too conservative in our view. Its regular dividend has increased by 270% since 2010 and following the payment of a special dividend in June 2013, the company is trading on a 12 month historic yield of 6.5%. Another interesting investment, albeit with a lower weighting, is Nevsun Resources. The company is the owner-operator of an attractive asset, which is high margin with significant exploration upside. The asset is located in Eritrea so the company does carry a higher degree of risk. Therefore, we have scaled the size of the investment accordingly. However, with half the market capitalisation in cash, a dividend yield of approximately 4% and a price earnings multiple of less than 7 times 2014 earnings, we believe we are being well compensated for these risks. Longer term, we also like the company's production profile. The asset is a polymetallic orebody containing gold, copper and zinc. In 2014, the transition away from gold into copper production will take place, followed by a transition into zinc production in 2017. Zinc fundamentals look unattractive at this point in time, with inventories at near record levels. Longer term, however, we believe that the zinc market will face significant supply challenges as several mines come to the end of their lives. This could be positive for zinc prices, just as Nevsun Resources zinc production ramps up. Diversified miner GlencoreXstrata also provides exposure to zinc. In the gold sector, we have been adding to exposure on price weakness. The FTSE Gold Mines Index has fallen by 53.2% over the year and is down by 67.8% from its high in September 2011. This significant de-rating is reflected in the fact that valuations are now on a par with general mining companies, a highly unusual situation. With profit margins squeezed by falling bullion prices and cost inflation, gold producers are, like other mining companies, focusing on cost cutting and capital discipline. We have added to the positions in Eldorado, Goldcorp and Yamana Gold. In the case of AngloGold Ashanti, we have written two sets of put options that, if exercised, would take us into the stock at prices more than 70% below its recent high. We believe a number of developments have improved the company's outlook. These include the recent commissioning of two mines, both outside South Africa, for the first time in more than a decade. The introduction of a new mining technique at the company's deep level mines in South Africa could also radically improve their economics. Asset Allocation - Geography Global 39.6% Canada 18.3% USA 17.7% Latin America 8.1% Europe 6.8% Asia 3.7% Africa 2.6% Australia 1.8% China 1.4% Asset Allocation - Commodity Energy 59.0% Mining 41.0% Mining Diversified Mining 46.3% Copper 17.7% Gold 13.1% Iron Ore 5.7% Aluminium 4.4% Fertilizers 3.3% Silver 2.6% Uranium 2.3% Nickel 1.7% Tin 1.6% Platinum 1.3% Energy Integrated Oil 54.6% Exploration & Production 24.7% Oil Sands 7.1% Oil Services 6.0% Coal 4.5% Distribution 3.1% Source: BlackRock In terms of the portfolio's geographic exposure, approximately one third of the investments are in what we define as global companies. These are companies, such as Chevron and BHP Billiton, which have a significant operational presence in several countries. Another third of the assets is invested in companies with a North American focus. The portfolio's geographic exposure is well diversified in terms of geopolitical risks and has remained largely unchanged over the course of the year. Performance attribution For performance measurement purposes a composite index equally weighted in the MSCI World Energy Index and the Euromoney Global Mining Index is used. For the 12-month period under review, this index fell by 4.2%. By comparison, the Company's NAV fell by 5.9%. With energy solidly outperforming mining during the period under review, the portfolio's 60% allocation to energy equities and 40% to mining equities benefited relative performance. Some of our sub-sector and individual stock selections however, contributed to underperformance. The worst performers included the gold stocks, such as Kinross Gold and Eldorado, both of which lost more than half of their value during the period under review. By far the best contributors to relative performance were the E&P and oil service stocks, which delivered in terms of operational performance and benefited from resilient crude and stronger gas prices. Anadarko Petroleum, Peyto Exploration & Development Corp., Occidental Petroleum, Noble Energy and Baker Hughes all contributed positively to performance. Chevron and Total were also solid contributors. Income During the year, we generated Â£6.7 million (2012: Â£6.6 million) in gross income giving an earnings per share of 5.87 pence (2012: 6.10 pence). This was slightly short of the 5.90 pence per share target consequently, we made use of our revenue reserves to meet, and raise, the final interim payment, bringing the total dividend for the year to 5.95 pence per share. Dividend income from the mining sector was a little disappointing during the period, because of the weaker market conditions. Of the Â£6.7 million in gross income, Â£4.5 million was received through the dividend payments from our investments. Integrated oil and gas stocks continue to be some of the best dividend payers within the commodity universe and this year these companies contributed nearly 40% of dividend income. Chevron and ExxonMobil, for example, have maintained their excellent long term track record of growing dividends. Within the mining sector, copper companies have also been strong payers, reflecting the relatively high levels of profitability in the copper industry. Copper companies accounted for approximately 11% of dividend income, while the diversified miners, benefiting from strong iron ore and copper prices, contributed nearly 17% of total dividend income. A fall in metal prices, together with a greater focus on conserving cash, has meant that dividend payments have been somewhat disappointing. For example, a number of special dividends paid in 2012, were not repeated this year. Breakdown of Dividend Income Integrated Oil & Gas 39.8% Diversified Mining 16.9% E&P 10.7% Copper 10.6% Oil Sands 3.9% Oil Services 3.7% Gold 3.1% Iron Ore 2.4% Fertilizer 2.1% Silver 1.4% Nickel 1.3% Distribution 1.3% Coal 1.2% Zinc 0.9% Aluminium 0.5% Uranium 0.1% Platinum 0.1% Source: Datastream Our option writing strategy generated an additional Â£2.2 million of gross income. Since the launch of the Company eight years ago, we have written, on average, three options per month. Typically, the notional exposure of each option is around 1% of gross assets. In other words, if a call option is exercised, we would sell the stock and its weighting would fall from, say, 4% to 3% of gross assets. Similarly, if a put is exercised, our weighting in that stock would increase by one percentage point of gross assets. All the options we have written are exchange traded and typically have a life of two months. Options are used as part of our portfolio management process - we write calls against positions we would be happy to sell and puts in stocks we would like to buy. During the year, our call writing has generally been in the energy sector, which has performed well. Our strategy here has been to take profits and re-invest the proceeds in the mining sector, which has underperformed, therefore our put options have generally been written in the mining sector as we look to add to these stocks on weakness. Going forward, we will continue to use options as part of our portfolio management process and as a way of bringing in more income. Dividends from our investments however, will always be the most important contributor to income. Outlook For some time now, the Company has had a minor exposure to the agriculture sector. Our investments have included fertilizer producers such as Agrium, Mosaic and Potash Corporation. Thus far they have been categorised as mining companies, as key parts of their businesses involve mining rock that is then turned into fertilizer products. It is the Investment Manager's belief that agriculture offers a compelling investment theme and that equities within the sector are capable of delivering additional opportunities in terms of capital appreciation and yield. As a consequence, the Investment Manager intends to make other modest investments in the agriculture sector. In the energy markets, oil prices look set to move sideways into 2014. We believe a steady recovery in global economic growth will support demand, which could be offset by a rebound in supply. We would expect OPEC to continue to defend the bottom end of its recent range. In the mining sector, commodity prices in the near term are also likely to remain range bound. We expect improving fundamentals for some industrial commodities as the global economy recovers. Across the commodity equity universe, companies are trading on undemanding valuations and with many commodities trading at or close to their marginal cost of production, the downside risk has been reduced. With capital expenditure being reigned in and a greater focus on shareholder returns, management teams are guiding investors towards rising free cashflows. This bodes well for their ability to grow their dividends. NATURAL RESOURCES TEAM BlackRock Investment Management (UK) Limited 27 January 2014 Ten largest investments 30 November 2013 Chevron - 7.6% (2012: 5.7%, chevron.com) is one of the world's leading integrated energy companies engaged in every aspect of the oil, gas and power generation industries. Chevron is one of the world's `supermajor' oil companies, along with BP, ExxonMobil, Royal Dutch Shell and Total. ExxonMobil - 5.7% (2012: 6.2%, exxonmobil.com) is the world's largest publicly traded international oil and gas company and the largest reï¬ner and marketer of petroleum products. BHP Billiton - 5.3% (2012: 5.2%, bhpbilliton.com) is the world's largest diversiï¬ed natural resources company. The company is a major producer of aluminium, iron ore, copper, thermal and metallurgical coal, manganese, uranium, nickel, silver, titanium minerals and diamonds. The company also has signiï¬cant interests in oil, gas and liqueï¬ed natural gas. Rio Tinto - 4.1% (2012: 4.6%, riotinto.com) is one of the world's leading mining companies. The company produces aluminium, copper, diamonds, gold, industrial minerals, iron ore and energy products. BP - 3.8% (2012: 2.9%, bp.com) is one of the world's leading oil and gas companies active in all areas of the oil and gas industry including exploration and production, refining and marketing, distribution, trading, power generation and petrochemicals. The company also has renewable energy interests in biofuels and wind power. Royal Dutch Shell - 3.8% (2012: 2.3%, shell.com) is one of the world's leading energy companies. The Anglo-Dutch company is active in every area of the oil and gas industry from exploration and production, reefing and marketing, power generation and energy trading. The company also has renewable energy interests in biofuels. GlencoreXstrata - 3.5% (2012: 1.4%*, glencorexstrata.com) formed following the merger of Glencore International and Xstrata in May 2013 and is one of the world's largest globally diversified natural resource companies. GlencoreXstrata is an integrated producer and marketer of commodities, with activities in every part of the supply chain, from sourcing materials to delivering products to an international customer base. In the mining sector, the company has interests in base metals and iron ore, while its energy portfolio is focused on oil and coal. The company also has storage, handling and processing facilities for grains, oils and oilseeds, cotton and sugar. Eni - 3.2% (2012: 3.1%, eni.com) is a major integrated energy company with activities in exploration and production, reï¬ning and marketing as well as power generation. Based in Italy, Eni is also the leading player in the European gas market. In the oil services sector, Eni owns a major stake in Saipem, a leading turnkey contractor in the oil and gas industry. Teck Resources - 2.8% (2012: 2.5%, teck.com) is a Canadian diversified mining company and a major producer of copper. With operations in Canada, USA, Chile and Peru, the company is the second largest exporter of metallurgical coal and the third largest producer of zinc concentrate. Teck also has interests in molybdenum and oil sands. Total - 2.7% (2012: 3.5%, total.com) is based in France and is one of the world's largest international oil and gas companies with operations covering the entire energy chain, from oil exploration and production to trading, shipping and reï¬ning and marketing of petroleum products. All percentages reï¬‚ect the value of the holding as a percentage of total investments. For this purpose where more than one class of securities is held these have been aggregated. The percentages in brackets represent the value of the holding as at 30 November 2012. Together, the ten largest investments represents 42.5% of total investments (ten largest investments as at 30 November 2012: 41.7%). * The GlencoreXstrata merger was completed during the period and the combined entity started trading on 2 May 2013. At 30 November 2012, the Company had 1.2% and 0.2% invested in Xstrata and Glencore respectively. Investments as at 30 November 2013 Main Market % geographic value of exposure Â£'000 investments Integrated Oil Chevron Global 8,215 7.6 ExxonMobil Global 6,161 5.7 BP Global 4,097 3.8 Royal Dutch Shell Global 4,075 3.8 Eni Europe 3,459 3.2 Eni call option 17/01/14 Europe (13) - Total Global 2,888 2.7 Conocophillips USA 2,222 2.1 Occidental Petroleum USA 2,082 1.9 Occidental Petroleum call option 22/02/14 USA (75) (0.1) Statoil Europe 1,520 1.5 -------- -------- 34,631 32.2 -------- -------- Diversified Mining BHP Billiton Global 5,763 5.4 BHP Billiton put option 21/02/14 Global (76) (0.1) Rio Tinto Global 3,914 3.6 Rio Tinto Finance 8.95% 01/05/14* Global 631 0.6 Rio Tinto put option 21/02/14 Global (84) (0.1) GlencoreXstrata Global 3,835 3.6 GlencoreXstrata put option 21/02/14 Global (58) (0.1) Teck Resources Canada 2,955 2.8 Vale Latin America 1,373 1.3 Lundin Mining Europe 1,108 1.0 Vedanta Resources Asia 1,018 1.0 -------- -------- 20,379 19.0 -------- -------- Exploration & Production Anadarko Petroleum USA 2,576 2.4 Peyto Exploration & Development Canada 2,088 1.9 Crescent Point Energy Canada 1,967 1.8 Vermilion Energy Canada 1,965 1.8 Noble Energy USA 1,587 1.5 Southwestern Energy USA 1,298 1.2 Range Resources USA 1,280 1.2 Penn West Canada 1,032 1.0 Western Areas Australia 743 0.7 Ultra Petroleum USA 625 0.6 EOG USA 504 0.5 -------- -------- 15,665 14.6 -------- -------- Copper Antofagasta Latin America 2,858 2.6 Freeport McMoRan Copper & Gold Asia 2,117 2.0 First Quantum Global 1,327 1.2 First Quantum call option 21/12/13 Global (1) - First Quantum call option 18/01/14 Global (4) - Southern Copper Latin America 1,054 1.0 South Peru Copper Latin America 438 0.4 -------- -------- 7,789 7.2 -------- -------- Gold Barrick Gold Global 1,409 1.3 Nevsun Resources Africa 1,119 1.0 Yamana Gold Latin America 1,109 1.0 Kinross Canada 877 0.8 Kinross call option 22/02/14 Canada (48) - Eldorado Gold Global 847 0.8 Goldcorp Canada 685 0.7 Goldcorp put option 18/01/14 Canada (51) - Anglogold Ashanti put option 18/01/14 Global (88) (0.1) Anglogold Ashanti put option 19/04/14 Global (103) (0.1) -------- -------- 5,756 5.4 -------- -------- Oil Sands Canadian Oil Sands Canada 2,519 2.4 Suncor Energy Canada 1,188 1.1 Suncor Energy call option 22/03/13 Canada (54) (0.1) Cenovus Energy Canada 890 0.8 -------- -------- 4,543 4.2 -------- -------- Oil Services Schlumberger USA 1,754 1.6 Aker Solutions Europe 1,195 1.1 Baker Hughes USA 869 0.8 Baker Hughes call option 18/01/14 USA (26) - -------- -------- 3,792 3.5 -------- -------- Coal China Shenhua Energy China 1,455 1.4 Consol Energy USA 1,412 1.3 -------- -------- 2,867 2.7 -------- -------- Iron Ore Kumba Iron Ore Africa 1,192 1.1 Labrador Iron Ore Canada 975 0.9 Fortescue Metals Australia 316 0.3 -------- -------- 2,483 2.3 -------- -------- Distribution Enbridge Income Fund Trust Canada 1,954 1.8 -------- -------- 1,954 1.8 -------- -------- Aluminium Alcoa USA 1,138 1.0 Alcoa call option 22/02/14 USA (23) - Alumina Australia 813 0.8 -------- -------- 1,928 1.8 -------- -------- Fertilizers Mosaic USA 877 0.8 Potash Corporation of Saskatchewan Canada 580 0.6 -------- -------- 1,457 1.4 -------- -------- Silver Fresnillo Latin America 1,161 1.1 -------- -------- 1,161 1.1 -------- -------- Uranium Cameco USA 1,002 0.9 -------- -------- 1,002 0.9 -------- -------- Nickel Vale Indonesia Asia 735 0.7 -------- -------- 735 0.7 -------- -------- Tin Minsur Latin America 713 0.7 -------- -------- 713 0.7 -------- -------- Platinum Impala Platinum Africa 568 0.5 -------- -------- 568 0.5 -------- -------- Total investments 107,423 100.0 ======== ======== Represented as follows per the Statement of Finanical Position: Investments held at fair value through profit or loss 108,127 100.7 Derivative financial instruments (704) (0.7) -------- -------- Total investments 107,423 100.0 ======== ======== * Fixed interest security. All investments are in ordinary shares unless otherwise stated. The total number of holdings as at 30 November 2013 was 75 (30 November 2012: 54). The total number of open options as at 30 November 2013 was 14 (30 November 2012: 8). The negative valuations of Â£704,000 (30 November 2012: Â£397,000) in respect of options held represent the notional cost of repurchasing the contracts at market prices as at 30 November 2013. Consolidated statement of comprehensive income for the year ended 30 November 2013 Notes Revenue Revenue Capital Capital Total Total 2013 2012 2013 2012 2013 2012 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Income from investments held at fair value through profit or loss 3 4,534 4,724 - - 4,534 4,724 Other income 3 2,185 1,910 - - 2,185 1,910 -------- -------- -------- -------- -------- -------- Losses on investments held at fair value through profit or loss - - (10,866) (10,890) (10,866) (10,890) -------- -------- -------- -------- -------- -------- Total revenue 6,719 6,634 (10,866) (10,890) (4,147) (4,256) -------- -------- -------- -------- -------- -------- Expenses Investment management fee 4 (306) (307) (918) (922) (1,224) (1,229) Other expenses 5 (279) (235) - - (279) (235) -------- -------- -------- -------- -------- -------- Total operating expenses (585) (542) (918) (922) (1,503) (1,464) -------- -------- -------- -------- -------- -------- Profit/(loss) before finance costs and taxation 6,134 6,092 (11,784) (11,812) (5,650) (5,720) -------- -------- -------- -------- -------- -------- Finance costs (38) (8) (98) (22) (136) (30) -------- -------- -------- -------- -------- -------- Profit/(loss) before taxation 6,096 6,084 (11,882) (11,834) (5,786) (5,750) -------- -------- -------- -------- -------- -------- Taxation (charge)/credit (545) (514) - 3 (545) (511) -------- -------- -------- -------- -------- -------- Net profit/ (loss) for the year after taxation 5,551 5,570 (11,882) (11,831) (6,331) (6,261) -------- -------- -------- -------- -------- -------- Earnings/(loss) per ordinary share 7 5.87p 6.10p (12.57p) (12.96p) (6.70p) (6.86p) ======== ======== ======== ======== ======== ======== The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (`IFRS') as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (`AIC'). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of BlackRock Commodities Income Investment Trust plc. There were no minority interests. The total net loss of the Company and the Group for the year was Â£6,331,000 (2012: loss of Â£6,261,000). The Group does not have any other recognised gains or losses. The net profit/ (loss) disclosed above represents the Group's total comprehensive income/ (loss). Statements of changes in equity for the year ended 30 November 2013 Group Notes Ordinary Share share premium Special Capital Revenue capital account reserve reserves reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the year ended 30 November 2013 At 30 November 2012 943 25,429 71,223 10,807 3,261 111,663 Total comprehensive income: Net (loss)/profit for the year - - - (11,882) 5,551 (6,331) Transactions with owners, recorded directly to equity: Shares issued 20 2,158 - - - 2,178 Share issue costs - (3) - - - (3) Dividends paid 6 - - - - (5,677) (5,677) -------- -------- -------- -------- -------- -------- At 30 November 2013 963 27,584 71,223 (1,075) 3,135 101,830 ======== ======== ======== ======== ======== ======== For the year ended 30 November 2012 At 30 November 2011 905 20,778 71,223 22,638 3,098 118,642 Total comprehensive income: Net (loss)/profit for the year - - - (11,831) 5,570 (6,261) Transactions with owners, recorded directly to equity: Shares issued 38 4,658 - - - 4,696 Share issue costs - (7) - - - (7) Dividends paid 6 - - - - (5,407) (5,407) -------- -------- -------- -------- -------- -------- At 30 November 2012 943 25,429 71,223 10,807 3,261 111,663 ======== ======== ======== ======== ======== ======== Company Notes Ordinary Share share premium Special Capital Revenue capital account reserve reserves reserve Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For the year ended 30 November 2013 At 30 November 2012 943 25,429 71,223 12,441 1,627 111,663 Total comprehensive income: Net (loss)/profit for the year - - - (12,115) 5,784 (6,331) Transactions with owners, recorded directly to equity: Shares issued 20 2,158 - - - 2,178 Share issue costs - (3) - - - (3) Dividends paid 6 - - - - (5,677) (5,677) -------- -------- -------- -------- -------- -------- At 30 November 2013 963 27,584 71,223 326 1,734 101,830 ======== ======== ======== ======== ======== ======== For the year ended 30 November 2012 At 30 November 2011 905 20,778 71,223 24,196 1,540 118,642 Total comprehensive income: Net (loss)/profit for the year - - - (11,755) 5,494 (6,261) Transactions with owners, recorded directly to equity: Shares issued 38 4,658 - - - 4,696 Share issue costs - (7) - - - (7) Dividends paid 6 - - - - (5,407) (5,407) -------- -------- -------- -------- -------- -------- At 30 November 2012 943 25,429 71,223 12,441 1,627 111,663 ======== ======== ======== ======== ======== ======== Statements of financial position as at 30 November 2013 Notes 2013 2013 2012 2012 Group Company Group Company Â£'000 Â£'000 Â£'000 Â£'000 Non current assets Investments held at fair value through profit or loss 108,127 109,531 115,515 117,149 -------- -------- -------- -------- Current assets Other receivables 3,905 3,905 654 654 Cash and cash equivalents 47 47 75 26 -------- -------- -------- -------- 3,952 3,952 729 680 -------- -------- -------- -------- Total assets 112,079 113,480 116,244 117,829 -------- -------- -------- -------- Current liabilities Other payables (879) (715) (951) (656) Derivative financial instruments (704) (704) (397) (397) Bank overdraft (8,666) (10,231) (3,233) (5,113) -------- -------- -------- -------- (10,249) (11,650) (4,581) (6,166) -------- -------- -------- -------- Net assets 101,830 101,830 111,663 111,663 ======== ======== ======== ======== Equity attributable to equity holders Ordinary share capital 963 963 943 943 Share premium account 27,584 27,584 25,429 25,429 Special reserve 71,223 71,223 71,223 71,223 Capital reserves (1,075) 326 10,807 12,441 Revenue reserve 3,135 1,734 3,261 1,627 -------- -------- -------- -------- Total equity 101,830 101,830 111,663 111,663 ======== ======== ======== ======== Net asset value per ordinary share 7 105.79p 105.79p 118.47p 118.47p ======== ======== ======== ======== Cash flow statements for the year ended 30 November 2013 Note 2013 2013 2012 2012 Group Company Group Company Â£'000 Â£'000 Â£'000 Â£'000 Operating activities Loss before taxation (5,786) (5,950) (5,750) (5,919) Add back interest paid 126 121 37 37 Losses on investments held at fair value through profit or loss including transaction costs 10,866 11,099 10,890 10,814 (Increase)/decrease in other receivables (11) (11) (15) 1,208 Increase in other payables 59 59 252 252 (Increase) in amounts due from brokers (2,166) (2,166) (266) (266) Movements in investments held at fair value through profit or loss (3,164) (3,164) (4,972) (4,972) -------- -------- -------- -------- Net cash (outflow)/inflow from operating activities before interest and taxation (76) (12) 176 1,154 -------- -------- -------- -------- Interest paid (126) (121) (37) (37) Taxation (paid)/recovered (240) 55 (16) (16) Taxation on investment income included within gross income (436) (436) (372) (372) -------- -------- -------- -------- Net cash (outflow)/inflow from (878) (514) (249) 729 operating activities -------- -------- -------- -------- Financing activities Share issue costs paid (3) (3) (7) (7) Proceeds from shares issued 1,094 1,094 4,696 4,696 Equity dividends paid 6 (5,677) (5,677) (5,407) (5,407) -------- -------- -------- -------- Net cash outflow from financing activities (4,586) (4,586) (718) (718) -------- -------- -------- -------- =(Decrease)/increase in cash and cash equivalents (5,464) (5,100) (967) 11 -------- -------- -------- -------- Cash and cash equivalents at start of the year (3,158) (5,087) (2,116) (5,023) Effect of foreign exchange rate changes 3 3 (75) (75) -------- -------- -------- -------- Cash and cash equivalents at end of (8,619) (10,184) (3,158) (5,087) the year -------- -------- -------- -------- Comprised of: Cash and cash equivalents 47 47 75 26 Bank overdraft (8,666) (10,231) (3,233) (5,113) -------- -------- -------- -------- (8,619) (10,184) (3,158) (5,087) ======== ======== ======== ======== Notes to the financial statements 1. Principal activities The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010. The principal activity of the subsidiary, BlackRock Commodities Securities Income Company Limited, is investment dealing and options writing. 2. Accounting policies The principal accounting policies adopted by the Group and the Company are set out below. (a) Basis of preparation The Group and Parent Company financial statements have been prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual Statement of Comprehensive Income and related notes. All of the Group's operations are of a continuing nature. The Group's financial statements are presented in Sterling, which is the currency of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand pounds (Â£'000) except when otherwise stated. Insofar as the Statement of Recommended Practice (`SORP') for investment trust companies and venture capital trusts issued by the AIC, revised in January 2009 is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP. A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 December 2012, and have not been applied in preparing these financial statements. Few of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company however additional disclosures will be required. IFRS 9 `Financial Instruments' issued in November 2009 will change the classification of financial assets, but is not expected to have an impact on the measurement basis of the financial assets since the majority of the Company's financial assets are measured at fair value through profit or loss. IFRS 9 deals with classification and measurement of financial assets and its requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: at amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of `held to maturity', `available for sale' and `loans' and `receivables'. The standard has not yet been approved by the EU. Earlier application is permitted. The Company does not plan to adopt this standard early. IFRS 10 Consolidated Financial Statements (effective 1 January 2014) establishes a single control model that applies to all entities including special purpose entities. IFRS 11 Joint Arrangements (effective 1 January 2014) removes the option to account for jointly controlled entities using proportionate consolidation. IFRS 12 Disclosure of Involvement with Other Entities (effective 1 January 2014) now requires additional disclosures that relate to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. IFRS 13 Fair Value Measurement (effective 1 January 2013) establishes a single source of guidance under IFRS for all fair value measurements. It does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Company has assessed the impact of this standard on the financial position and performance and has concluded it is unlikely to result in changes to the fair value measurement techniques currently in place. (b) Basis of consolidation The Group's financial statements consolidate the financial statements of the Company and its wholly owned subsidiary, which is registered and operates in England and Wales, BlackRock Commodities Securities Income Company Limited. (c) Presentation of the Consolidated Statement of Comprehensive Income In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Consolidated Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Consolidated Statement of Comprehensive Income. In accordance with the Company's status as an investment trust under the provisions of section 1158 of the Corporation Tax Act 2010, net capital returns may not be distributed by way of dividend. (d) Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business being investment business. (e) Income Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each particular case. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Interest income is accounted for on an accruals basis. Premia on written options are recognised as income when written in the subsidiary. Options are marked to market and the gain or loss is taken to capital of the parent company. Where options are exercised the loss is taken to capital of the parent entity. (f) Expenses All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Consolidated Statement of Comprehensive Income except as follows: ïµ expenses which are incidental to the acquisition of an investment are included within the cost of the investment. Details of transaction costs on the purchases and sales of investments are disclosed in note 10 on pages 49 and 50 of the Financial Statements; ïµ expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and ïµ the investment management fees and finance costs of borrowing borne by the Company have been allocated 75% to the capital column and 25% to the revenue column of the Consolidated Statement of Comprehensive Income in line with the Board's expectations of the long term split of return, in the form of capital gains and income respectively, from the investment portfolio. (g) Taxation The Group accounts do not reflect any adjustment for group relief between the Company and the Subsidiary. Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to pay less taxation in the future have occurred at the financial reporting date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred taxation assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise. (h) Investments held at fair value through profit or loss The Company's investments are classified as held at fair value through profit or loss in accordance with IAS 39 `Financial Instruments: Recognition and Measurement' and are managed and evaluated on a fair value basis in accordance with its investment strategy. All investments are initially recognised as held at fair value through profit and loss. Purchases of investments are recognised on a trade date basis. The sales of investments are recognised at the trade date of the disposal. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs. The fair value of financial instruments is based on their quoted bid price at the financial reporting date, without deduction for any estimated future selling costs. Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Association Guidelines. This policy applies to all current and non current asset investments held by the Group. Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Consolidated Statement of Comprehensive Income as `Gains or losses on investments held at fair value through profit or loss'. Also included within this heading are transaction costs in relation to the purchase or sale of investments. Under IFRS, the investment in the trading subsidiary is carried at fair value which is deemed to be the total equity of the subsidiary. (i) Other receivables and other payables Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their nominal value. (j) Dividends payable Under IFRS special and interim dividends are recognised when paid to shareholders. Final dividends, if any, are only recognised after they have been approved by shareholders. (k) Foreign currency translation Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated into Sterling at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. (l) Cash and cash equivalents Cash comprises cash in hand and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. (m) Bank borrowings Bank overdrafts are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Consolidated Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise. 3. Income 2013 2012 Â£'000 Â£'000 Investment Income: Overseas listed dividends 3,652 3,979 Fixed interest 57 152 UK listed dividends 825 593 -------- -------- 4,534 4,724 -------- -------- Other operating income: Deposit interest - 3 Underwriting commission - 13 Option premium income 2,185 1,894 -------- -------- 2,185 1,910 -------- -------- Total 6,719 6,634 ======== ======== Option premium income is stated after deducting costs incurred on transactions. 4. Investment management fee 2013 2012 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment management fee 306 918 1,224 307 922 1,229 ======== ======== ======== ======== ======== ======== Details of the investment management contract are disclosed in the Annual Report on page 20. The investment management fee is levied at a rate of 1.1% of gross assets per annum based on the gross assets on the last day of each quarter and is allocated 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income. 5. Other expenses 2013 2012 Â£'000 Â£'000 Custody fee 18 18 Auditor's remuneration: - audit services 24 24 - other services 6 6 Directors' emoluments 86 79 Registrar's fee 28 25 Other administrative costs 117 83 ----- ----- 279 235 ===== ===== The Company's ongoing charges, calculated as a percentage of average net assets and using expenses, excluding any interest costs and excluding taxation, were: 1.4% 1.3% The Company's ongoing charges, calculated as a percentage of average net assets and using expenses, excluding any interest costs and including taxation, were: 1.9% 1.7% ====== ===== Fees paid to the Auditor for other services comprise Â£6,000 (2012: Â£6,000) relating to the review of the half yearly financial statements. 6. Dividends The dividends disclosed in the table below have been considered in view of the requirements of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts declared meet the relevant requirements. Amounts recognised as distributions to ordinary shareholders during the year to 30 November 2013 were as follows: 2013 2012 Â£'000 Â£'000 Fourth interim dividend for the year ended 30 November 2012 - 1.5875p (2011: 1.55p) 1,496 1,403 First interim dividend for the year ended 30 November 2013 - 1.4750p (2012: 1.4375p) 1,390 1,316 Second interim dividend for the year ended 30 November 2013 - 1.4750p (2012: 1.4375p) 1,390 1,344 Third interim dividend for the year ended 30 November 2013 - 1.4750p (2012: 1.4375p) 1,401 1,344 -------- -------- 5,677 5,407 ======== ======== For the year ended 30 November 2013, a fourth interim dividend of 1.5250p (2012: 1.5875p) per ordinary share has been declared and will be paid on 23 January 2014, to shareholders on the Company's register on 27 December 2013. The total dividends payable in respect of the year which form the basis of section 1158 of the Corporation Tax Act 2010 are set out below: 2013 2012 Â£'000 Â£'000 First interim dividend paid on 17 April 2013 of 1.4750p (2012: 1.4375p) 1,390 1,316 Second interim dividend paid on 26 July 2013 of 1.4750p (2012: 1.4375p) 1,390 1,344 Third interim dividend paid on 24 October 2013 of 1.4750p (2012: 1.4375p) 1,401 1,344 Fourth interim dividend paid on 23 January 2014 of 1.5250p (2013: 1.5875p) 1,468 1,496 -------- -------- 5,649 5,500 ======== ======== 7. Consolidated earnings and net asset value per ordinary share Revenue and capital earnings per share and net asset value per share are shown below and have been calculated using the following: 2013 2012 Net revenue profit attributable to ordinary shareholders (Â£'000) 5,551 5,570 Net capital loss attributable to ordinary shareholders (Â£'000) (11,882) (11,831) -------- -------- Total loss attributable to ordinary shareholders (Â£'000) (6,331) (6,261) ======== ======== Equity shareholders' funds (Â£'000) 101,830 111,663 ======== ======== The weighted average number of ordinary shares in issue during each period, on which the return per ordinary share was calculated was: 94,551,836 91,308,022 The actual number of ordinary shares in issue at the year end, on which the net asset value was calculated was: 96,258,000 94,258,000 The number of ordinary shares in issue including treasury shares at the year end was: 96,258,000 94,258,000 -------- -------- Revenue return per share 5.87p 6.10p Capital loss per share (12.57p) (12.96p) -------- -------- Total loss per share (6.70p) (6.86p) -------- -------- Net asset value per share 105.79p 118.47p Share price (mid-market) 109.50p 122.75p ======== ======== 8. Share capital Ordinary Total Nominal shares shares value number number Â£'000 Allotted, called up and fully paid share capital comprised: Ordinary shares of 1p each -------- -------- -------- Shares in issue at 30 November 2012 94,258,000 94,258,000 943 -------- -------- -------- Shares issued 2,000,000 2,000,000 20 -------- -------- -------- At 30 November 2013 96,258,000 96,258,000 963 ======== ======== ======== The number of ordinary shares in issue at the year end was 96,258,000 of which none were held in treasury (2012: nil). During the year 2,000,000 (2012: 3,750,000) shares were issued for a total consideration of Â£2,178,000 (2012: Â£4,696,000) before the deduction of issue costs. Since 30 November 2013, a further 1,100,000 shares have been issued for a total consideration of Â£1,177,000 before the deduction of issue costs. The ordinary shares carry the right to receive any dividends and have one voting right per ordinary share. There are no restrictions on the voting rights of the ordinary shares or on the transfer of the ordinary shares. 9. Contingent liabilities There were no contingent liabilities at 30 November 2013 (2012: Â£780,000 in respect of underwriting contracts). 10. Events after the Balance Sheet Since 30 November 2013, a further 1,100,000 shares have been issued for consideration of Â£1,177,000 before the deduction of issue costs. The shares were issued in a single transaction at a premium of 2.1% to the cum income NAV at the close of business on the previous business day. 11. Publication of non-statutory accounts The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The Annual Report and Financial Statements for the year ended 30 November 2013 will be filed with the Registrar of Companies shortly. The figures set out above have been reported upon by the Auditor, whose report for the year ended 30 November 2013 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006. The comparative figures are extracts from the audited financial statements of BlackRock Commodities Income Investment Trust plc for the year ended 30 November 2012, which have been filed with the Registrar of Companies. The report of the Auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act. 12. Annual Report Copies of the Annual Report will be published shortly and will be available from the registered office, c/o The Company Secretary, BlackRock Commodities Income Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL. 13. Annual General Meeting The Annual General Meeting of the Company will be held at the offices of BlackRock Investment Management (UK) Limited, 12 Throgmorton Avenue, London EC2N 2DL on Friday, 28 March 2014 at 10.30 a.m. ENDS The Annual Report will also be available on the BlackRock Investment Management website at www.blackrock.co.uk/brci. Neither the contents of the Investment Manager's website nor the contents of any website accessible from hyperlinks on the Investment Manager's website (or any other website) is incorporated into, or forms part of, this announcement. For further information please contact: Simon White, Managing Director, Investment Company Division - 020 7743 5284 Olivia Ker, Fund Manager - 020 7743 3447 Tom Holl, Fund Manager - 020 7743 2013 BlackRock Investment Management (UK) Ltd 12 Throgmorton Avenue London EC2N 2DL 27 January 2014

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