Half-yearly Report

10 July 2007 MERRILL LYNCH COMMODITIES INCOME INVESTMENT TRUST plc Interim announcement of results in respect of the six months ended 31 May 2007 - Company's NAV rose by 29.2% and share price by 25.8% on a total return basis. - Dividends declared in respect of the period amounted to 2.25 pence per share. - Revenue return per share amounted to 3.11 pence for the period. For further information please contact: Jonathan Ruck Keene, Managing Director Investment Trusts - 020 7743 2178 Richard Davis, Fund Manager - 020 7743 2668 Nigel Webb, Director Media & Communications - 020 7743 5938 BlackRock Investment Management (UK) Limited Or William Clutterbuck The Maitland Consultancy - 020 7379 5151 The Chairman, Alan Hodson, comments: Performance "I am pleased to report that despite the increased volatility in equity markets, commodities and commodity related companies have continued to perform well. Against this background, the Company returned the best performance in its short history with net asset value ("NAV") up by 29.2% and the share price up by 25.8% (both percentages in total return terms). Revenue return and dividends "As stated in previous reports, it is the Company's intention to pay four quarterly dividends. It is the Company's aim to pay dividends amounting to at least 4.50 pence in total for the year ending 30 November 2007(1) (2006: target of 4.25 pence). Revenue return per share for the period was 3.11 pence (period to 31 May 2006: 2.90 pence) which exceeded the target of 2.25 pence by a comfortable margin. The first quarterly dividend of 1.125 pence per share was paid on 27 April 2007 and the second quarterly dividend of 1.125 pence per share which was announced on 18 June 2007, will be paid on 27 July 2007 to shareholders on the register on 29 June 2007 (2006: three interim dividends of 1.0625 pence per share and a fourth interim dividend of 1.3125 pence per share). After provision for the second interim dividend, revenue reserves carried forward amounted to 1.63 pence per share. Tender Offer "The Directors of the Company have the discretion to make semi-annual tender offers in February and August of each year at the prevailing NAV, less 2%, for up to 20% of the Company's issued share capital. Over the last six months, despite favourable returns, the Company's discount to NAV has been on average 5.6% and in the light of this, the Directors have, on this occasion, resolved to exercise their discretion to implement a tender offer as at 31 August 2007. Whilst the tender is open to all Shareholders, the Directors have no intention of tendering any of their own shares. Shareholders will therefore find enclosed with the interim report a circular setting out the details of the tender offer. Shareholders who wish to participate in the tender offer should return their tender forms by no later than 20 August 2007 and participants in the BlackRock Investment Trusts Savings Plan, ISA or PEP should return their tender forms by no later than 15 August 2007. Gearing "The Company operates a flexible gearing policy which depends on prevailing market conditions. The maximum gearing used during the period was 12.8% and at 31 May 2007 gearing was 6.5%. Director "We are very pleased to welcome Mr Jonathan Ruck Keene who joined the Board on 23 April 2007, as an alternate Director in the event that Dr Graham Birch is unable to attend some meetings. Given the alternate nature of this appointment, it will not affect the independence of the Board. Jonathan has wide-ranging experience in the investment business and he is currently a Managing Director of BlackRock where he is head of its investment trust business. VAT "The Board welcomes the European Court of Justice's judgment in the JP Morgan Claverhouse case which endorses the AIC claim that VAT exemption for the management of special investment funds as defined by Member States should extend to the management of Investment Trust Companies. "Whilst this should be beneficial for the Company, in view of the Company's short history, any amounts recovered from HMRC are not expected to have a material impact on the Company's net asset value. Prospects "The outlook for your Company continues to appear to be favourable. Despite signs of weakening US economic growth, the leading emerging economies remain significant drivers of global demand. The resulting supply/demand imbalances in the mining and energy sectors should support prices of natural resources and provide good conditions for earnings and dividend growth." (1)This is a target and should not be interpreted as a profit forecast. Commenting upon performance and the outlook for the Company, Richard Davis of BlackRock Investment Management (UK) Limited, the Investment Manager, notes: Outlook "We expect to see long term increasing demand for metals driven by higher intensity of use of some of the emerging market economies and sluggish supply growth. Metals may drift lower, however, during the summer months, typically a time of lower demand for metals. In the energy market, the International Energy Agency has recently made positive revisions to its outlook for the oil market with the latest data suggesting a further tightening in the supply/demand balance. We would, therefore, expect to see a firmer tone to the oil market for the remainder of the year. Commodity equities are attractively priced and in general, in our view, are discounting falls in commodity prices. Earnings and dividends payments should remain strong going forward. We also expect to see further merger and acquisition activity, particularly in the mining sector, as companies look to expand resources and production." Ten Largest Investments: CVRD - 5.3% (2006: 4.3%) is the world's largest producer of iron ore. Based in Brazil, the company also has significant interests in other commodities including aluminium, copper and gold. In 2006, CVRD made a successful bid for Inco, one of the world's largest producers of nickel. In addition to its mining interests, CVRD owns and operates transport infrastructure. Last year, CVRD entered into a partnership to build a new pelletising plant in China. This is the company's first investment in China's iron ore industry. CVRD will supply at least 70% of the iron ore to the plant. BHP Billiton - 4.9% (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 has major interests in aluminium, iron ore, copper, coal, manganese and diamonds. The company also has significant oil and gas assets, and following the purchase of WMC Resources in 2005, has added uranium to its portfolio of energy commodities. Jubilee Mines - 4.7% (2006: 5.3%) owns and operates the Cosmos high grade nickel mine located in the North Eastern Goldfields of Western Australia. The company also holds interests in a number of exploration assets in the region, which is considered to be a significant nickel province. Hydro - 4.6% (2006: nil) is a Norwegian offshore producer of oil and gas, and an integrated aluminium supplier with operations in nearly 40 countries. In energy, the company develops, produces and supplies oil, gas and hydropower. In mining, Hydro supplies primary aluminium, rolled products, extruded and other fabricated products. It is also engaged in the development of energy forms, such as wind power and hydrogen, and manages energy trading and transport operations. Hydro and Statoil have agreed to merge their oil and gas activities in a new company called StatoilHydro. Rio Tinto - 3.9% (2006: 3.8%) is one of the most successful major mining companies in the world. The company has interests in a wide range of commodities including iron ore, copper, coal, industrial minerals, uranium, gold and diamonds. In October 2006, Rio Tinto made an investment in Ivanhoe and formed a strategic partnership to develop Ivanhoe's giant Oyu Tolgoi copper gold project in Mongolia. Statoil - 3.8% (2006: nil) is an integrated oil and gas company based in Norway. The company is the leading operator on the Norwegian continental shelf and has strong growth in international production. Statoil is the world's largest seller of crude oil and a substantial supplier of natural gas to the European market. The company also has a New Energy business unit focusing on energy efficiency and carbon dioxide capture and storage. Zinifex - 3.4% (2006: 6.4%) is one of the world's largest integrated zinc producing companies. The company's mining operations are located in Australia and its smelters are in Australia, the US and the Netherlands. In December 2006, Zinifex and Umicore announced their intention to merge and spin out their zinc smelting and alloying businesses. This combination would create the world's pre-eminent zinc metal producer with operations on four continents. This year, Zinifex was successful in acquiring Wolfden Resources, an exploration and development company with assets in Canada. Valero Energy - 3.2% (2006: 3.1%) is a US-based refining and marketing company. The company operates 18 refineries in North America with a total capacity of 3.2 million barrels per day, representing around 16% of total US refining capacity. Valero's retail outlets are located in the US and eastern Canada under the Valero, Diamond Shamrock, Ultramar, Beacon and Total brand names. The company also has over 7,500km of refined product and crude oil pipelines throughout the US Southwest and Mid-continent regions. Eramet - 3.2% (2006: 2.9%) is the fifth largest producer of nickel in the world and is the world's leading producer of ferronickel, an alloy used in the manufacture of stainless steel. The company's key nickel mines and processing facilities are located in New Caledonia and France. Eramet is also the world's second largest producer of manganese ore and manganese alloys and is a leading producer of high-speed steels. Chevron - 3.0% (2006: 3.2%) is one the world's largest integrated energy companies with operations in more than 180 countries around the world. Chevron's major upstream production facilities are in the US Gulf of Mexico, Africa, Asia Pacific and Russia. The company has refining capacity of more than 2 million barrels per day at 19 refineries. In September 2006, Chevron and its partners announced that they had successfully extracted oil from a test well in the deep waters of the Gulf of Mexico. The project is potentially the largest American oil find in a generation. All percentages in brackets after each investee company's name represents the value of that investment expressed as a percentage of the Company's portfolio as at 31 May 2007 and 30 November 2006. CONSOLIDATED INCOME STATEMENT for the six months ended 31 May 2007 Revenue return Â£'000 Capital Return Â£'000 Total Â£'000 Six months Six months Six months ended Period Period ended Period Period ended Period Period Notes 31.05.07 31.05.06 30.11.06 31.05.07 31.05.06 30.11.06 31.05.07 31.05.06 30.11.06 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) Income from investments held at fair value through profit or loss 2 2,810 2,623 4,763 - - - 2,810 2,623 4,763 Other income 2 717 566 1,296 - - - 717 566 1,296 -------- -------- -------- --------- --------- -------- -------- -------- -------- Total revenue 3,527 3,189 6,059 - - - 3,527 3,189 6,059 -------- -------- -------- --------- --------- -------- -------- -------- -------- Gains on investments held at fair value through profit or loss - - - 20,933 2,146 4,577 20,933 2,146 4,577 -------- -------- -------- --------- --------- -------- -------- -------- -------- 3,527 3,189 6,059 20,933 2,146 4,577 24,460 5,335 10,636 -------- -------- -------- --------- --------- -------- -------- -------- -------- Expenses Investment management fees 3 (143) (110) (227) (429) (328) (682) (572) (438) (909) Other expenses 4b (4) (157) (326) - - - (4) (157) (326) -------- -------- -------- --------- --------- -------- -------- -------- -------- Total operating expenses (147) (267) (553) (429) (328) (682) (576) (595) (1,235) -------- -------- -------- --------- --------- -------- -------- -------- -------- Net return before finance costs and taxation 3,380 2,922 5,506 20,504 1,818 3,895 23,884 4,740 9,401 -------- -------- -------- --------- --------- -------- -------- -------- -------- Finance costs (83) (16) (77) (225) (47) (193) (308) (63) (270) -------- -------- -------- --------- --------- -------- -------- -------- -------- Profit before taxation 3,297 2,906 5,429 20,279 1,771 3,702 23,576 4,677 9,131 Taxation (948) (725) (1,450) 196 113 263 (752) (612) (1,187) -------- -------- -------- --------- --------- -------- --------- --------- -------- Profit for the period 6 2,349 2,181 3,979 20,475 1,884 3,965 22,824 4,065 7,944 ====== ====== ====== ====== ====== ====== ====== ====== ====== Return per ordinary share 6 3.11p 2.90p 5.28p 27.08p 2.51p 5.26p 30.19p 5.41p 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 period. All income is attributable to the equity shareholders of Merrill Lynch Commodities Income Investment Trust plc. There are no minority interests. Details of dividends paid and proposed at the balance sheet date are given in note 5. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Special Capital Revenue Total Share premium reserve Â£ reserve Â£ Capital reserve - reserves Â£ Â£'000 account Â£'000 '000 '000 unrealised Â£'000 '000 Â£'000 For the six months ended 31 May 2007(unaudited) At 30 November 2006 756 737 72,750 304 3,661 1,576 79,784 Launch costs written back - 15 - - - - 15 Profit for the period - - - 4,849 15,626 2,349 22,824 Dividends paid - - - - - (1,843) (1,843) -------- ---------- --------- -------- --------- -------- ----------- At 31 May 2007 756 752 72,750 5,153 19,287 2,082 100,780 -------- ---------- --------- -------- --------- -------- ----------- Share capital Special Capital Revenue Total Share premium reserve Â£ reserve Â£ Capital reserve - reserves Â£ Â£'000 account Â£'000 '000 '000 unrealised Â£'000 '000 Â£'000 For the period ended 31 May 2006(unaudited) At launch on 13 December 2005 750 74,250 - - - - 75,000 Launch costs - (1,500) - - - - (1,500) Cancellation of share premium account - (72,750) 72,750 - - - - Shares issued 6 717 - - - - 723 Profit for the period - - - 1,016 868 2,181 4,065 Dividends paid - - - - - (797) (797) -------- ---------- --------- -------- --------- -------- ----------- At 31 May 2006 756 717 72,750 1,016 868 1,384 77,491 -------- ---------- --------- -------- --------- -------- ----------- Share capital Special Capital Revenue Total Share premium reserve* Â£ reserve Â£ Capital reserve - reserves Â£ Â£'000 account* Â£'000 '000 '000 unrealised Â£'000 '000 Â£'000 For the period ended 30 November 2006(audited) At launch on 13 December 2005 750 74,250 - - - - 75,000 Launch costs - (1,480) - - - - (1,480) Cancellation of share premium account - (72,750) 72,750 - - - - Shares issued 6 717 - - - - 723 Profit for the period - - - 304 3,661 3,979 7,944 Dividends paid - - - - - (2,403) (2,403) -------- ---------- --------- -------- --------- -------- ----------- At 30 November 2006 756 737 72,750 304 3,661 1,576 79,784 -------- ---------- --------- -------- --------- -------- ----------- * As restated - see note 4a The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserve. Purchases and sale costs amounted to Â£92,000 and Â£75,000 respectively for the six months ended 31 May 2007 (period ended 31 May 2006: Â£341,000 and Â£54,000; period ended 30 November 2006: Â£ 437,000 and Â£136,000). CONSOLIDATED BALANCE SHEET as at 31 May 2007 31 May 2007 31 May 2006 30 November 2006 Restated - see note 4a (unaudited) (unaudited) (audited) Note Â£'000 Â£'000 Â£'000 Non current assets Investments held at fair value through profit or loss 107,343 80,382 81,110 ---------- --------- --------- Current assets Other receivables 910 465 3,310 Cash and cash equivalents 1,049 406 909 ---------- --------- --------- 1,959 871 4,219 ---------- --------- --------- Total assets 109,302 81,253 85,329 ---------- --------- --------- Current liabilities Other payables (1,038) (1,002) (2,219) Bank overdrafts (7,484) (2,760) (3,326) ---------- --------- --------- (8,522) (3,762) (5,545) ---------- -------- -------- Net assets 100,780 77,491 79,784 ======= ====== ====== Equity attributable to equity holders Share capital 756 756 756 Share premium account 752 717 737 Special reserve 72,750 72,750 72,750 Capital reserve - realised 5,153 1,016 304 Capital reserve - unrealised 19,287 868 3,661 Revenue reserve 2,082 1,384 1,576 ---------- --------- --------- Total equity 100,780 77,491 79,784 ====== ====== ====== Net asset value per ordinary share 5 133.31p 102.50p 105.53p ====== ====== ====== CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 May 2007 Six months ended Period ended Period ended 30 November 31 May 2007 31 May 2006 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net cash outflow from operating activities before financing activities (2,131) (75,785) (74,257) --------- --------- --------- Financing activities Shares issued - 75,723 75,723 Launch costs paid - (1,485) (1,485) Equity dividends paid (1,843) (797) (2,403) --------- --------- --------- Net cash (outflow)/inflow from financing activities (1,843) 73,441 71,835 --------- --------- --------- Decrease in cash and cash equivalents (3,974) (2,344) (2,422) Effect of foreign exchange rate changes (44) (10) 5 --------- --------- --------- Change in cash and cash equivalents/(bank overdrafts) (4,018) (2,354) (2,417) Cash and cash equivalents/(bank overdrafts) at start of period (2,417) - - --------- --------- --------- Cash and cash equivalents/(bank overdrafts) at end of period (6,435) (2,354) (2,417) ====== ====== ====== Comprised of: Cash at bank 1,049 406 909 Bank overdraft (7,484) (2,760) (3,326) --------- --------- --------- 6,435 2,354 2,417 ====== ====== ====== RECONCILIATION OF NET INCOME BEFORE TAXATION TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Six months Period ended ended Period ended 31 May 30 November 31 May 2007 2006 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Profit before taxation 23,576 4,677 9,131 Gains on investments held at fair value through profit or loss including transaction costs (20,933) (2,146) (4,577) Increase in other receivables (408) (391) (320) (Decrease)/increase in other payables (49) 598 405 Decrease/(increase) in amounts due from brokers 2,787 - (2,829) (Decrease)/increase in amount due to brokers (1,236) - 1,236 Net purchases of investments held at fair value through profit or loss (5,247) (78,225) (76,538) Taxation paid (509) - (245) Taxation on investment income included within gross income (112) (298) (520) --------- --------- ---------- Net cash outflow from operating activities (2,131) (75,785) (74,257) ====== ====== ======= Notes to the Interim Report 1. Principal activity 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 activity of the subsidiary, Merrill Lynch Commodities Securities Income Company Limited, is investment dealing. Basis of Preparation The interim financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements for the period ended 30 November 2006. Income and operating expenses have been recognised in accordance with the same principles used in the preparation of the annual financial statements. The taxation charge has been calculated by applying an estimate of the annual effective tax rate to any profit for the period. 2. Income Six months ended Period ended Period ended 31 May 2007 31 May 2006 30 November 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Income from investments: UK listed dividends 137 491 596 Overseas listed dividends 2,619 2,118 4,074 Interest bearing 54 14 93 ------- ------- ------- 2,810 2,623 4,763 ------- ------- ------- Other income: Deposit interest 57 134 138 Option premium income 660 432 1,143 Underwriting commission - - 15 ------- ------- ------- 717 566 1,296 ------- ------- ------- Total income 3,527 3,189 6,059 ------- ------- ------- 3. Investment management fees Six months ended Period ended Period ended 31 May 2007 31 May 2006 30 November 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Revenue: Investment management fees 136 104 214 Irrecoverable VAT thereon 7 6 13 ----- ----- ----- 143 110 227 ----- ----- ----- Capital: Investment management fees 408 312 644 Irrecoverable VAT thereon 21 16 38 ----- ----- ----- 429 328 682 ----- ----- ----- Total: Investment management fees 544 416 858 Irrecoverable VAT thereon 28 22 51 ----- ----- ----- 572 438 909 ----- ----- ----- 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 account and 75% to the capital account. 4. Expenses (a) 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. (b) An amount of Â£70,000 has been credited against operating expenses for the six months ended 31 May 2007 relating to the release of an overprovision for custody fees for the period ended 30 November 2006. 5. Dividends Ordinary dividends on equity shares are analysed below: Six months ended Period ended Period ended 31 May 2007 31 May 2006 30 November 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) First interim dividend for the period ended 28 February 2007 - 1.125p (2006: 1.0625p) 851 797 797 Second interim dividend for the period ended 31 May 2007 - 1.125p (2006: 1.0625p) 851 803 803 Third interim dividend for the period ended 31 August 2007 - (2006: 1.0625p) - - 803 Fourth interim dividend for the period ended 30 November 2007 - (2006: 1.3125p) - - 992 ------- ------- ------- 1,702 1,600 3,395 ===== ===== ===== A first interim dividend for the period ended 28 February 2007 of Â£851,000 (1.125p per ordinary share) was paid on 27 April 2007 to Shareholders on the register at 30 March 2007. A second interim dividend of Â£851,000 (1.125p per ordinary share) is proposed and will be paid on 27 July 2007 to Shareholders on the register at 29 June 2007. This dividend has not been accrued in the financial statements for the period ended 31 May 2007, as under IFRS, interim dividends are not recognised until paid. Dividends are debited directly to reserves. The third and fourth interim dividends will be declared in September 2007 and December 2007 respectively. 6. Return per share and net asset value per share Six months Period Period ended ended ended 30 31 May 31 May November 2007 2006 2006 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Net revenue return attributable to ordinary shareholders (Â£'000) 2,349 2,181 3,979 Net capital return attributable to ordinary shareholders (Â£'000) 20,475 1,884 3,965 --------- -------- -------- Total return attributable to ordinary shareholders (Â£'000) 22,824 4,065 7,944 --------- -------- -------- Equity shareholders funds (Â£'000) 100,780 77,491 79,784 --------- -------- -------- The weighted average number of ordinary shares in issue during the period, on which the return per ordinary share was calculated, was: 75,600,000 75,082,653 75,357,955 The actual number of ordinary shares in issue at the end of the period on which the net asset value was calculated, was: 75,600,000 75,600,000 75,600,000 Revenue return per share 3.11p 2.90p 5.28p Capital return per share 27.08p 2.51p 5.26p ---------- --------- --------- Total return per share 30.19p 5.41p 10.54p ---------- --------- --------- Net asset value per share 133.31p 102.50p 105.53p ======= ======= ======= Share price 124.50p 102.75p 101.25p ======= ======= ======= 7. Publication of statutory accounts The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the periods ended 31 May 2007 and 2006 has not been audited. The information for the period ended 30 November 2006 has been extracted from the latest published audited accounts, which have been filed with the Registrar of Companies. The report of the independent auditor on those financial statements contained no qualification or statement under section 237(2) or (3) of the Companies Act 1985. A copy of the interim report will be posted to shareholders on or about 23 July 2007. 8. Annual results The Board expects to announce the annual results for the year ended 30 November 2007, as prepared under IFRS in mid January 2008. Copies of the preliminary announcement can be obtained from the Secretary on 020 7743 3000. The annual report should be available at the beginning of February 2008, with the Annual General Meeting being held in March 2008. 10 July 2007 33 King William Street London EC4R 9AS

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