Final Results

18 January 2008 MERRILL LYNCH COMMODITIES INCOME INVESTMENT TRUST plc Preliminary announcement of results in respect of the year ended 30 November 2007 Performance to 30 November 2007 3 Months 6 Months Year ended 30.11.2007 Net asset value (total return) +21.6% +20.5% +55.5% Ordinary share price (total return) +21.9% +22.3% +53.8% Source: BlackRock, Datastream. * The net asset value per share at 30 November 2007 was 158.05p (2006: 105.53p). * Net asset value total return of +55.5%. * Share price total return of +53.8%. * Total dividends per share were 5.25p for the year against a target of 4.50p. * Dividend target for the current year to 30 November 2008 raised to 5.25p per share. For further information please contact: Jonathan Ruck Keene, Managing Director Investment Trusts 020 7743 2178 Richard Davis, Fund Manager 020 7743 2668 Emma Philips, Media & Communications 020 7743 2922 BlackRock Investment Management (UK) Limited Or William Clutterbuck 020 7379 5151 The Maitland Consultancy The Chairman, Alan Hodson, comments: I am pleased to present the second annual report to shareholders of the Merrill Lynch Commodities Income Investment Trust plc, for the year ended 30 November 2007. The exceptional volatility which has characterised securities markets throughout 2007, particularly during the second half, has been mirrored in the mining and energy sectors. Against this challenging background I am pleased to report that over the year the Company's net asset value ("NAV") per share increased by 55.5% and the share price increased by 53.8% (both percentages calculated in sterling terms with income reinvested). Earnings and dividends in the Company's investments grew strongly resulting in a satisfactory total return to shareholders. Revenue return and dividends Revenue return per share for the year was 6.31 pence (2006: 5.28 pence). As set out in the Company's prospectus dated 22 November 2005, it is the Company's intention to pay four quarterly dividends, details of which are set out in note 8. It was the Company's aim to pay dividends amounting to at least 4.50 pence for the year ended 30 November 2007 (2006: target of 4.25 pence) and we are pleased to have exceeded this target by paying dividends amounting to 5.25 pence per share in total in respect of the year (2006: 4.50 pence). It is the Company's aim to pay dividends amounting to at least 5.25 pence per share for the year ending 30 November 2008. This is a target and should not be interpreted as a profit forecast. This represents a yield of 3.5% based on the share price as at close of business on 30 November 2007. Tender offer 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 Directors exercised their discretion to operate the half yearly tender offer in August 2007 which was undersubscribed with 5,989,338 shares, (7.92% of the shares in issue), being tendered. The tender price calculated as at close of business on 31 August 2007 was 128.28 pence per share. All shares tendered in August have been placed in treasury. The Directors, having received feedback from a number of the Company's shareholders, have concluded that there is insufficient appetite for them to exercise their discretion to implement the February 2008 tender offer. The current tender offer authority expires on the earlier of the Annual General Meeting of the Company in 2008 or 30 April 2008. A resolution for its renewal will be put to shareholders at the forthcoming Annual General Meeting. Discount and share buybacks The Directors recognise the importance to investors of ensuring that any discount of the Company's share price to its underlying NAV is as small as possible. Accordingly, the Directors will monitor the discount closely and will consider share repurchases in the market if the discount to NAV widens significantly. The Directors have the authority from shareholders to buyback up to 14.99% of the Company's issued share capital. This authority, which has not so far been utilised, expires at the forthcoming Annual General Meeting on 18 March 2008 when a resolution will be put to shareholders to renew it. Gearing The Company operates a flexible gearing policy which depends on prevailing conditions. The maximum gearing used during the period was 12.9% and at 30 November 2007 gearing amounted to 3.6%. Company Name Following the merger of Merrill Lynch Investment Managers with BlackRock in September 2006, BlackRock became the master brand for the merged business. Accordingly, a full product rebrand is under way and the Board now expects to put forward proposals with regard to your Company's name in the Spring of 2008. Directorate As mentioned in my interim report we are very pleased to welcome Jonathan Ruck Keene who joined the Board on 23 April 2007, as an alternate Director to Dr Graham Birch. Jonathan has wide-ranging experience in the investment industry and he is currently a Managing Director of BlackRock Investment Management (UK) Limited where he is head of its investment company business. VAT The Board welcomes the success of the Association of Investment Companies ("AIC") and JPMorgan Claverhouse Investment Trust plc who have won their lengthy legal test case against HM Revenue & Customs ("HMRC") challenging the imposition of VAT on management services supplied to investment trusts. HMRC have now accepted the European Court of Justice's judgement of 28 June 2007 that management services supplied to investment trusts should be exempt from VAT. Total irrecoverable VAT incurred by the Company on management fees since inception is estimated at Â£110,000 and the prospective cost saving for your Company is estimated at Â£73,000 per annum. The Manager has already submitted claims to recover from HMRC any amounts repayable as a result of the AIC and JPMorgan Claverhouse case and is awaiting clarification from HMRC regarding the basis on which repayments will be made, which may have an impact on the amounts recovered. Given the volume of claims HMRC have to process it is likely to be a significant period of time before any amounts are refunded. However, the amounts involved will not have a material impact on the Company's NAV. Outlook High equity market volatility looks set to continue in the immediate future and your Company's investments will be affected by this. Demand should be underpinned by economic growth in emerging markets whilst the supply side constraints are set to continue. However, we remain confident in the long term future of the mining and energy sectors. Richard Davis of BlackRock Investment Management (UK) Limited, the Investment Manager, comments: Commodity market overview For the year ended 30 November 2007, the Manager is pleased to report that the Company's NAV and share price rose by 55.5% and 53.8% respectively. Over the same period, the HSBC Global Mining Index and the MSCI World Energy Index rose by 56.9% and 16.1% respectively, while the FTSE All-Share Index rose by 8.5%. (All percentages are in sterling terms with income reinvested). The positive returns generated by the Company reflect a generally robust set of fundamentals in the commodities market. Demand is strong, driven by urbanisation of emerging market economies, while supply growth remains relatively weak. The US Dollar performance of the major commodities and indices can be seen in the table below. The period under review was also characterised by further "decoupling" of major economies. In the Company's latest interim statement it was reported that the slowdown in the US economy had been absorbed by growth in the emerging markets (including China). Not surprisingly, US growth estimates were further downgraded in the summer, in the wake of the ongoing credit crisis. It appears, for the moment at least, that the Chinese economy, the world's largest consumer of commodities has been unscathed. It is worth noting that exports represent only 6% of China's GDP and of these, 20% go to the US. The period was also a time of exceptional volatility in the equity markets, notably during the credit crisis. Commodity equities were sold-off significantly during the July-August period. This reflected investors' desire to "de-risk" their portfolios rather than any significant deterioration in the industry fundamentals. Another feature in the market has been the gyrations in the value of the US Dollar, which weakened markedly against most major currencies during the period under review. 30 30 November November % Commodity 2006 2007 Change Base Metals (US$/tonne) Aluminium 2,686 2,465 -8.2 Copper 6,936 6,956 0.3 Lead 1,674 3,048 82.0 Nickel 34,703 26,408 -23.9 Tin 10,688 16,988 59.0 Zinc 4,390 2,530 -42.4 Precious Metals (US$/oz) Gold 647.6 782.7 20.9 Silver 13.68 14.23 4.0 Platinum 1,171.0 1,440.0 23.0 Palladium 327.0 349.0 6.7 Energy Oil (WTI) (US$/Bbl) 63.1 88.7 40.5 Natural Gas (US$/MMBTU) 8.3 7.3 -12.6 Uranium (US$/lb) 64.0 93.0 45.3 Equity Indices (US$) HSBC Global Mining Index (US$) 463.2 743.6 60.5 HSBC Global Mining Index (Â£) 235.5 361.6 53.6 MSCI World Energy Index (US$) 239.6 284.3 18.7 MSCI World Energy Index (Â£) 246.6 286.3 16.1 Source: Datastream. Base metals were a "mixed bag". The best performers were lead and tin, both of which hit new all-time highs driven largely by production shortfalls at several operations. The portfolio has one tin stock - the Peruvian producer Minsur. While the portfolio does not hold any pure-play lead companies, our exposure to this commodity is "hidden" in other companies such as Zinifex, which is principally a zinc producer. On concerns about increasing supply, zinc prices nearly halved during the period, making it the worst performing metal. Another important development is the fact that Chinese authorities are looking to remove a 5% tax rebate on zinc exports and instead impose a 5-10% tax. This encouraged exports of the metal, which put further pressure on prices. However, demand for zinc, which is primarily used for galvanising and alloying, remains strong. It is worth noting that the U.S. only accounts for around of 10% of global consumption. Copper started the year weakly, falling back below US$2.40/lb in February 2007. A series of strikes and production shortfalls together with a recovery in Chinese imports resulted in inventory drawdowns and renewed price strength. The portfolio's copper holdings included Freeport McMoran and Southern Copper. In the nickel market, prices made huge gains in the first half of the year. With London Metal Exchange inventories at extremely low levels, nickel exceeded US$50,000/tonne at one point on strong demand and supply side disruptions. A subsequent increase in inventories, in response to destocking by the stainless steel producers, resulted in a sharp decline in prices. The portfolio's key nickel investment was Jubilee Mines. In October, Xstrata made a cash bid for the company, which is based in Western Australia. The bid valued Jubilee at a 35% premium to the stock's closing price prior to the bid. The portfolio had a significant holding in Jubilee, which was subsequently sold. While the aluminium price drifted 8% lower in US$ terms, the aluminium equities fared much better amidst a series of corporate transactions. In 2007, we saw the three-way merger of the private Russian aluminium companies Rusal and Sual with Glencore's aluminium division to create the world's largest aluminium company. Alcoa then launched a hostile bid for Alcan, which was subsequently topped by an all cash offer by Rio Tinto. The portfolio has a significant holding in Alcoa. In the bulk commodity market, iron ore benchmark prices were increased by 9.5% in US$ terms for the year beginning April 2007. This was the fifth successive annual price increase, which is unprecedented in the iron ore market. The market has been driven by growth in the Chinese steel industry in combination with constraints to supply. The market remains extremely tight and a sixth price increase is expected for the April 2008 contract price. One of the key metrics to consider is the difference between Chinese spot and Australian Cost, Insurance and Freight prices, which have grown significantly this year. As a result, some brokers are forecasting a 50% increase in contract prices for next year. A similar situation has developed in the coking coal market. Spot sales of Australian Hard Coking Coal into India have driven prices to US$150/tonne, roughly 50% above contract prices. The Company is well exposed to the iron ore market through its holdings in the diversified companies BHP Billiton, Rio Tinto and Vale (formerly known as CVRD). In November, BHP Billiton announced details of a proposal to merge with Rio Tinto. While the approach was quickly rejected by Rio Tinto, BHP Billiton intends to pursue the potential transaction, which if successful would be one of the largest corporate transactions. BHP Billiton has until 6 February 2008 to make a formal bid or walk away. In the precious metals market, gold prices came within a whisker of surpassing the 1980 high of US$850/oz. One of the key drivers behind the run in bullion has been investment demand. This has grown strongly this year, particularly in the wake of the credit crisis, as investors sought "safe haven" assets. In terms of supply, some of the big producers such as South Africa and Australia recorded significant falls in output. In 2006, South African gold mine production hit its lowest level since 1922. Despite a 20.9% US$ gain in bullion prices, gold equities, as measured by the FTSE Gold Mines Index, were reasonably disappointing in only returning 17.7% in US$ terms. (Typically, gold equities should provide leverage to movements in the gold price - for a 10% move in bullion, the shares should move by 20-30%.) The portfolio's key gold equities include Kinross Gold and Goldcorp. Platinum prices gained 23.0% in US$ terms. The key driver has been the growing use of platinum in autocatalysts, particularly in diesel vehicles. The portfolios exposure to the Platinum Group Metals is through the South African producers Anglo Platinum and Impala. In the energy market, we entered 2007 with a relatively sanguine view on the oil price. We believed a handful of large projects, which had been delayed, would come into production in 2007 resulting in higher than average volume growth. Together with a relatively mild winter in the US, leading to lower demand for heating oil, West Texas Intermediate fell back to the US$50/Bbl level in January. The supply/demand fundamentals subsequently improved as non-OPEC supply growth fell short of expectations. Meanwhile, geopolitical tensions continued to influence prices. Prices came close to overtaking the US$100/Bbl level in October before falling back to close the period at US$89/ Bbl. The portfolio's key energy plays include the integrated oil company StatoilHydro. In November, Statoil completed the merger with Norsk Hydro's oil and gas assets. The new entity renamed StatoilHydro is the largest operator on the Norwegian continental shelf. The portfolio also has significant holdings in CNOOC, Total and Chevron. Uranium prices also performed strongly, largely due to supply disruptions. Last year's flood at Cameco's Cigar Lake mine was followed in the spring by a flood at ERA's Ranger mine in the Northern Territory, Australia. Prices peaked at US$138/lb in June before drifting back to close the period at US$93/lb. In the thermal coal market, the Australian contract price for April 2007 to April 2008 was set at US$55.5/tonne, up from US$52.5/tonne in the previous year. A sharp reduction in Chinese exports has been a key factor in determining prices. Early settlements between Australian producers and Korean power companies have been set around US$66/tonne, while spot prices have topped US$70/tonne in August. Portfolio The portfolio is largely invested in established producing companies within the mining and energy sectors, with little exposure to exploration and development companies. At 30 November 2007, the Company had 59 stock holdings across a broad range of mining and energy sub-sectors. Roughly 50% of the portfolio's assets are invested in integrated energy and diversified mining companies. These provide excellent diversification both in terms of geographic and commodity risk. The remainder is invested in "purer play" equities. The Company generated Â£4.8m in investment income during the year, a slight increase compared with the previous period. In the derivatives market, the Group can sell put and call options where the Manager considers it appropriate to do so for efficient portfolio management and to enhance income under guidelines set by the Board. During the period, the portfolio generated Â£2.1m of income through option writing, up from Â£1.1m in the previous period. As volatilities rose sharply during the credit crisis, the cost of buying an option also increased. We took advantage of this by selling puts in some of the UK mining shares in August, after their share prices had fallen back significantly. The portfolio's other sources of income included corporate bonds, stocklending and interest on cash. A full analysis of income and expenses can be seen in the annual report. Outlook The commodity market fundamentals remain positive in the long term notwithstanding the slowdown in the US economy, economic growth in emerging markets, such as China and India, is likely to drive demand going forward. While these countries are already significant consumers of raw materials in absolute terms, their per capita consumption is relatively modest. In China, for example, oil consumption per capita is equal to US per capita oil consumption in 1904. On the supply side of the equation, a lack of exploration success, shortages of labour and equipment, infrastructure bottlenecks and permitting delays are expected to persist. Supply growth, therefore, may remain constrained. This year, we have witnessed signs of a positive re-rating of the sector. However, commodity equities remain undervalued in our view. With positive supply/demand fundamentals maintaining commodity prices at attractive levels for the producers, we believe that this re-rating could continue. We also believe that further corporate activity is likely to provide solid support for equity valuations. Ten Largest Investments Rio Tinto - 5.4% (2006: 3.8%) is the world's second largest mining company. The company has interests in aluminium, copper, diamonds, energy products, gold, industrial minerals (borates, titanium dioxide, salt and talc), and iron ore. This year, Rio Tinto successfully completed the acquisition of Alcan, the Canadian aluminium company. In November 2007, BHP Billiton announced details of a proposal to merge with Rio Tinto. The approach has been rejected by the company. StatoilHydro - 5.2% (2006: n/a) was established in October 2007 following the merger of Statoil with Norsk Hydro's oil and gas assets and is the leading operator on the Norwegian continental shelf. The company is one of the world's leading suppliers of gas and the largest supplier of petroleum products in Scandinavia. StatoilHydro is also a world leader in the use of deepwater technology and in carbon capture and storage. BHP Billiton - 5.1% (2006: 5.1%) is the world's largest diversified natural resources company. Formed in 2001 following the merger of UK's Billiton and Australia's BHP, the company is a major producer of aluminium, iron ore, copper, thermal and metallurgical coal, manganese, uranium, nickel, silver and titanium minerals. The company also has significant interests in oil, gas, liquefied natural gas and diamonds. In November 2007, BHP Billiton announced details of a proposal to merge with Rio Tinto. While the approach was quickly rejected by Rio Tinto, BHP Billiton intends to pursue the potential transaction, which if successful would be the largest ever corporate takeover. Vale - 4.4% (2006: 4.3%) in November 2007, CVRD changed its name to Vale. Based in Brazil, the company is the third largest mining company in the world and the largest producer of iron ore. The company has significant interests in other commodities including aluminium, coal, copper and gold. Since the 2006 acquisition of Inco, Vale is also a leading producer of nickel. In addition to its mining interests, Vale owns and operates transport infrastructure. CNOOC - 3.6% (2006: n/a) is engaged primarily in oil and gas exploration and production and is one of China's NOCs (National Oil Companies). The company is the dominant producer of oil and gas offshore China. CNOOC also has assets in Indonesia, Central Asia, Africa and Australia. Total - 3.5% (2006: 1.9%) is one of the largest publicly traded integrated oil and gas companies in the world. The company's key production regions are the North Sea, Africa and the Middle East. Total is Western Europe's leader in refining and marketing and one of the world's major traders of crude oil and refined products. Total also produces petrochemical and fertilizer products and has interests in coal mining and the power generation sector. Chevron - 3.4% (2006: 3.2%) is one the world's largest integrated energy companies with operations in more than 180 countries. One of the six "super major" oil companies, Chevron is active in every aspect of the oil and gas industry including exploration and production, refining, marketing and transportation, chemicals manufacturing and sales, geothermal and power generation. Eni - 3.3% (2006: 6.2%) is an integrated energy company based in Italy. The company engages in oil and gas exploration and production, refining and marketing and the generation and sale of electricity. In Italy, the company is the leader in the marketing of refined products under its Agip brand. Eni also operates in the transport, distribution and sale of natural gas and is active in the petrochemical, oilfield service and engineering industries. Alcoa - 3.1% (2006: 2.9%) is the world's leader in alumina production and the third largest producer of aluminium. Headquarted in the USA, Alcoa is also active in other businesses including packaging and consumer products, fastening systems, precision castings and electrical distribution systems for cars and trucks. In May 2007, Alcoa made a hostile bid for Alcan, the Canadian aluminium producer. Alcan was subsequently the target of a friendly takeover by Rio Tinto. Straits Resources - 3.0% (2006: 2.5%) is a diversified mining company based in Perth, Western Australia. The company's assets include copper mines in Australia and a gold mine in Indonesia. Straits also has an interest in a coal mine in Indonesia through its subsidiary Straits Asia Resources, which is listed on the Singapore Stock Exchange. All percentages reflect the value of the holding as a percentage of total investments. CONSOLIDATED INCOME STATEMENT for the year ended 30 November 2007 Revenue Revenue Capital Capital return return return return Total Total 2007 2006 2007 2006 2007 2006 Notes Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Income from investments held at fair value through profit or loss 3 4,832 4,763 - - 4,832 4,763 Other operating income 3 2,232 1,296 - - 2,232 1,296 ------- ------- --------- ------- --------- --------- Total revenue 7,064 6,059 - - 7,064 6,059 Gains on investments held at fair value through profit or loss - - 37,690 4,577 37,690 4,577 ------- ------- --------- ------- --------- --------- 7,064 6,059 37,690 4,577 44,754 10,636 Expenses Investment management fees 4 (305) (227) (913) (682) (1,218) (909) Other expenses 5 (69) (326) - - (69) (326) ------- ------- --------- ------- --------- --------- Total operating expenses (374) (553) (913) (682) (1,287) (1,235) ------- ------- --------- ------- --------- --------- Profit before finance costs and taxation 6,690 5,506 36,777 3,895 43,467 9,401 ------- ------- --------- ------- --------- --------- Finance costs 6 (135) (77) (369) (193) (504) (270) ------- ------- --------- ------- --------- --------- Profit before taxation 6,555 5,429 36,408 3,702 42,963 9,131 ------- ------- --------- ------- --------- --------- Taxation (1,874) (1,450) 385 263 (1,489) (1,187) ------- ------- --------- ------- --------- --------- Profit for the year 4,681 3,979 36,793 3,965 41,474 7,944 ===== ===== ====== ===== ====== ====== Earnings per ordinary share 8 6.31p 5.28p 49.60p 5.26p 55.91p 10.54p ===== ===== ====== ===== ====== ====== The total column of this statement represents the Group's Income Statement, prepared in accordance with International Financial Reporting Standards. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies. 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 Merrill Lynch Commodities Income Trust plc. There are no minority interests. STATEMENTS OF CHANGES IN EQUITY for the year ended 30 November 2007 Share Capital Capital Share premium Special reserve reserve Revenue capital account reserve realised unrealised reserve Total Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 For period ended 30 November 2006 Net assets at launch on 13 December 2005 750 74,250 - - - - 75,000 Profit for the period - - - 304 3,661 3,979 7,944 Launch costs* - (1,480) - - - - (1,480) Cancellation of share premium account - (72,750) 72,750 - - - - Shares issued (note 9) 6 717 - - - - 723 Dividends paid (note 7) - - - - - (2,403) (2,403) --- --- ------ --- ----- ----- ------ At 30 November 2006 756 737 72,750 304 3,661 1,576 79,784 --- --- ------ --- ----- ----- ------ For year ended 30 November 2007 At 30 November 2006 756 737 72,750 304 3,661 1,576 79,784 Profit for the year - - - 18,017 18,776 4,681 41,474 Shares purchased (notes 9 & 11) - - (7,684) - - - (7,684) Share purchase costs (notes 9 & 11) - - (79) - - - (79) Dividends paid (note 7) - - - - - (3,477) (3,477) --- --- ------ ------ ------ ----- ------- At 30 November 2007 756 737 64,987 18,321 22,437 2,780 110,018 --- --- ------ ------ ------ ----- ------- Company For period ended 30 November 2006 Net assets at launch on 13 December 2005 750 74,250 - - - - 75,000 Profit for the period - - - 304 4,285 3,355 7,944 Launch costs* - (1,480) - - - - (1,480) Cancellation of share premium account - (72,750) 72,750 - - - - Shares issued (note 9) 6 717 - - - - 723 Dividends paid (note 7) - - - - - (2,403) (2,403) --- --- ------ --- ----- ------- ------- At 30 November 2006 756 737 72,750 304 4,285 952 79,784 --- --- ------ --- ----- ------- ------- For year ended 30 November 2007 At 30 November 2006 756 737 72,750 304 4,285 952 79,784 Profit for the year - - - 18,017 19,321 4,136 41,474 Shares purchased 5,989,338 (notes 9 & 11) - - (7,684) - - - (7,684) Share purchase costs (notes 9 & 11) - - (79) - - - (79) Dividends paid (note 7) - - - - - (3,477) (3,477) --- --- ------ ------ ------ ----- ------- At 30 November 2007 756 737 64,987 18,321 23,606 1,611 110,018 --- --- ------ ------ ------ ----- ------- * Restated - as set out in note 10. BALANCE SHEETS as at 30 November 2007 Group Company Group Company Restated Restated 2007 2007 2006 2006 Notes Â£'000 Â£'000 Â£'000 Â£'000 Non current assets Investments held at fair value through profit or loss 112,861 114,030 81,110 81,734 Current assets Other receivables 1,438 1,438 3,310 3,310 Cash and cash equivalents 1,694 - 909 - ---------- ---------- --------- --------- 3,132 1,438 4,219 3,310 ---------- ---------- --------- --------- Total assets 115,993 115,468 85,329 85,044 ---------- ---------- --------- --------- Current liabilities Other payables (1,969) (1,444) (2,219) (1,934) Bank overdrafts (4,006) (4,006) (3,326) (3,326) --------- ---------- --------- --------- (5,975) (5,450) (5,545) (5,260) ---------- ---------- --------- --------- Net assets 110,018 110,018 79,784 79,784 ---------- ---------- --------- --------- Equity attributable to equity holders Ordinary share capital 9 756 756 756 756 Share premium account 10 737 737 737 737 Special reserve 11 64,987 64,987 72,750 72,750 Capital reserve - realised 11 18,321 18,321 304 304 Capital reserve - unrealised 11 22,437 23,606 3,661 4,285 Revenue reserve 11 2,780 1,611 1,576 952 ---------- ---------- --------- --------- Total equity 110,018 110,018 79,784 79,784 ---------- ---------- --------- --------- Net asset value per ordinary share 8 158.05p 158.05p 105.53p 105.53p ====== ====== ====== ====== CASH FLOW STATEMENTS for the year ended 30 November 2007 Group Company Group Company 2007 2007 2006 2006 Note Â£'000 Â£'000 Â£'000 Â£'000 Operating activities Profit before taxation 42,963 42,322 9,131 8,799 Add back interest paid 599 587 270 258 Gains on investments held at fair value through profit or loss including transaction costs (37,690) (38,235) (4,577) (5,201) Increase in other receivables (214) (214) (320) (320) (Decrease)/increase in other payables (167) (167) 405 405 Decrease/(increase) in amounts due from brokers 2,227 2,227 (2,829) (2,829) (Decrease)/increase in amounts due to brokers (412) (412) 1,236 1,236 Net sales/(purchases) of investment held at fair value 6,021 6,021 (76,538) (76,538) through profit or loss ---------- ---------- ---------- ---------- Net cash inflow/(outflow) from operating activities before interest and taxation 13,327 12,129 (73,222) (74,190) ---------- ---------- ---------- ---------- Interest paid (599) (587) (270) (258) Taxation paid (947) (546) (245) (198) Taxation on investment income included within gross income (339) (339) (520) (520) ---------- ---------- ---------- ---------- Net cash inflow/(outflow) from operating activities 11,442 10,657 (74,257) (75,166) ---------- ---------- ---------- ---------- Financing activities Shares (repurchased)/issued (7,778) (7,778) 75,723 75,723 Launch costs paid - - (1,485) (1,485) Equity dividends paid 7 (3,477) (3,477) (2,403) (2,403) ---------- ---------- ---------- ---------- Net cash (outflow)/inflow from financing activities (11,255) (11,255) 71,835 71,835 ---------- ---------- ---------- ---------- Increase/(decrease) in cash and cash equivalents 187 (598) (2,422) (3,331) Cash and cash equivalents at start of the year/period (2,417) (3,326) - - Effect of foreign exchange rate changes (82) (82) 5 5 --------- --------- --------- --------- Cash and cash equivalents at the end of the year/period (2,312) (4,006) (2,417) (3,326) --------- --------- --------- --------- Comprised of: Cash at bank 1,694 - 909 - Bank overdrafts (4,006) (4,006) (3,326) (3,326) --------- --------- --------- --------- (2,312) (4,006) (2,417) (3,326) --------- --------- --------- --------- NOTES TO THE PRELIMINARY RESULTS 1. Principal activities The principal activity of the Company is that of an Investment Trust Company within the meaning of section 842 of the Income and Corporation Taxes Act 1988. The principal activities of the subsidiary undertaking, Merrill Lynch Commodities Securities Income Company Limited, are 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 International Financial Reporting Standards ("IFRS") as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 1985. The Company has taken advantage of the exemption provided under section 230 of the Companies Act 1985 not to publish its individual income statement and related notes. The Group's financial statements are presented in sterling, which is the currency of the primary environment in which the Group operates. All values are rounded to the nearest thousand pounds (Â£'000) except where otherwise indicated. Insofar as the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") revised in December 2005 is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP. 3. Income 2007 2006 Â£'000 Â£'000 Investment income: Overseas listed dividends 4,320 4,074 Fixed interest 204 93 UK listed dividends 308 596 -------- -------- 4,832 4,763 -------- -------- Other operating income: Deposit interest 105 138 Option premium income 2,057 1,143 Underwriting commission - 15 Stock lending income 70 - -------- -------- 2,232 1,296 -------- -------- Total income 7,064 6,059 -------- -------- Option premium income is stated after deducting transaction costs incurred on the purchases and sales of investments. At 30 November 2007 the total value of securities on loan by the Group for stock lending purposes was Â£2,066,000 (2006: Nil). Cash collateral of Â£3,032,196 was held for these securities. The maximum aggregate value of securities on loan at any one time during the year ended 30 November 2007 was Â£4,773,000 (2006: Nil). 4. Investment management fees Revenue Capital Revenue Capital return return Total return return Total 2007 2007 2007 2006 2006 2007 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment management fees 290 869 1,159 214 644 858 VAT 15 44 59 13 38 51 ------ ------ ------- ------ ------ ------ 305 913 1,218 227 682 909 ------ ------ ------- ------ ------ ------ The investment management fee is levied quarterly, based on the gross assets on the last day of each quarter, and is charged 25% to the revenue account and 75% to the capital account. 5. Other expenses 2007 2006 Â£'000 Â£'000 Custody fee (63) 97 Auditor's remuneration: - audit services 18 22 - other 5 9 Directors' emoluments 57 55 Registrar's fee 11 20 Other administrative costs 41 123 -------- -------- 69 326 -------- -------- The Company's total expense ratio, calculated as a percentage of average net assets and using expenses, excluding interest costs, after relief for taxation, was: 1.0% 1.1% -------- -------- Fees paid to the audit for non audit services comprise Â£4,500 (2006: Â£5,000), relating to the review of the interim financial statements. In addition, in 2006 a fee of Â£4,000 was paid to the auditor for the review of the initial accounts. An amount of Â£70,000 has been credited against operating expenses for the year ended 30 November 2007 relating to the release of an overprovision for custody fees for the period ended 30 November 2006. 6. Finance costs Revenue Capital Revenue Capital return return Total return return Total 2007 2007 2007 2006 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Interest on bank overdrafts 135 369 504 77 193 270 --- --- --- -- --- --- 7. Dividends Under IFRS final dividends are not recognised until approved by shareholders. They are also debited directly to reserves. Amounts recognised as distributions to ordinary shareholders during the year to 30 November 2007 were as follows: 2007 2006 Â£'000 Â£'000 4th interim dividend for the period ended 30 November 2006 - 1.3125p (2005: nil) 992 - 1st interim dividend for the period ended 28 February 2007 - 1.125p (2006: 1.0625p) 851 797 2nd interim dividend for the period ended 31 May 2007 - 1.125p (2006: 1.0625p) 851 803 3rd interim dividend for the period ended 31 August 2007 - 1.125p (2006: 1.0625p) 783 803 ------- -------- 3,477 2,403 ------- -------- For the year ended 30 November 2007, a fourth interim dividend of 1.875p (2006: 1.3125p) per ordinary share has been declared and will be paid on 25 January 2008, to shareholders on the Company's register on 28 December 2007. The total dividends payable in respect of the period which form the basis of section 842 of the Income and Corporation Taxes Act 1988 are set out below: 2007 2006 Â£'000 Â£'000 1st interim paid on 27 April 2007 of 1.125p (2006: 1.0625p) 851 797 2nd interim paid on 27 July 2007 of 1.125p (2006: 1.0625p) 851 803 3rd interim paid on 26 October 2007 of 1.125p (2006: 1.0625p) 783 803 4th interim payable on 25 January 2008 of 1.875p (2006: 1.3125p) 1,305 992 ------- ------- 3,790 3,395 ------- ------- 8. Consolidated earnings per ordinary share and net asset value per ordinary share Revenue and capital returns per share are shown below and have been calculated using the following: 2007 2006 Net revenue return attributable to ordinary shareholders (Â£'000) 4,681 3,979 Net capital return attributable to ordinary shareholders (Â£'000) 36,793 3,965 ------- ------ Total return attributable to ordinary shareholders (Â£'000) 41,474 7,944 ------- ------ Equity shareholders' funds (Â£'000) 110,018 79,784 ------- ------ The weighted average number of ordinary shares in issue during each period, on which the return per ordinary share was calculated, was: 74,172,404 75,357,955 The actual number of ordinary shares in issue at the year/period end, on which the net asset value was calculated, was: 69,610,662 75,600,000 The number of ordinary shares in issue including treasury shares at the year end, was: 75,600,000 75,600,000 Revenue return per share 6.31p 5.28p Capital return per share 49.60p 5.26p ---------- ---------- Total return per share 55.91p 10.54p ---------- ---------- Net asset value per share 158.05p 105.53p Share price 149.75p 101.25p ---------- ---------- As the Company's share price at 30 November 2007 stood at a discount to the NAV, shares could not be sold out of treasury and consequently there was no dilution to the Company's NAV or return per share as a result. 9. Share Capital Ordinary Treasury shares shares Total number number shares Â£'000 Authorised share capital comprised: Ordinary shares of 1p each 505,000,000 - 505,000,000 5,050 ----------- --------- ----------- ----------- Allotted, issued and fully paid: Shares in issue at 30 November 2006 75,600,000 - 75,600,000 756 Shares transferred into treasury pursuant to tender offer on 5 September 2007 (5,989,338) 5,989,338 - - ----------- --------- ----------- ----------- At 30 November 2007 69,610,662 5,989,338 75,600,000 756 ----------- --------- ----------- ----------- During the year, 5,989,338 ordinary shares were purchased (2006: 600,000 issued) for a total consideration of Â£7,763,000. The number of ordinary shares in issue at the year end was 75,600,000 (2006: 75,600,000) of which 5,989,338 were held in treasury (2006: nil). There were no sales of shares out of treasury during the year (2006: nil). 10. Share premium account 2006 2007 (Restated) Â£'000 Â£'000 At start of the year/period 737 - Shares issued at launch - 74,250 Launch costs - (1,480) Cancellation of share premium account - (72,750) Share issued during the year/period - 717 ----- -------- At 30 November 2007 737 737 ----- -------- An amount of Â£20,000 credited to the special reserve during the period ended 30 November 2006 relating to the release of provisions for launch costs has been reclassified to the share premium account and the balances on the special reserve and the share premium account at 30 November 2006 have been restated accordingly. 11. Reserves Special Group reserve Capital Revenue (Restated) reserve reserve Â£'000 Â£'000 Â£'000 At 1 December 2006 72,750 3,965 1,576 Movement during the year: Net income for the year - - 41,474 Transfer from revenue reserve to capital reserve - 36,793 (36,793) Dividends paid - - (3,477) Purchase of ordinary shares (7,684) - - Shares purchase costs (79) - - --------- -------- -------- At 30 November 2007 64,987 40,758 2,780 --------- -------- -------- The Group's capital reserve consists of Â£22,437,000 of unrealised appreciation (2006: Â£3,661,000). Special Company reserve Capital Revenue (Restated) reserve reserve Â£'000 Â£'000 Â£'000 At 1 December 2006 72,750 4,589 952 Movement during the year: Net income for the year - - 41,474 Transfer from revenue reserve to capital reserve - 37,338 (37,338) Dividends paid - - (3,477) Purchase of ordinary shares (7,684) - - Share purchase costs (79) - - --------- -------- -------- At 30 November 2007 64,987 41,927 1,611 --------- -------- -------- The Company's capital reserve consists of Â£23,606,000 of unrealised appreciation (2006: Â£4,285,000). The annual report and accounts will be posted to shareholders in late January or early February 2008. Copies will also be available from the Company's registered office at 33 King William Street, London, EC4R 9AS. 18 January 2008 33 King William Street London EC4R 9AS

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