Final Results

To: Stock Exchange For immediate release: 29 April 2004 Securities Trust of Scotland plc Annual results for the year ended 31 March 2004 Chairman's statement Following three years of almost unremitting gloom in the UK stockmarket, the twelve months to 31 March 2004 witnessed a sharp recovery in equity prices. Initially, sentiment improved with a 'relief rally' on events in Iraq and, thereafter, robust economic performance bolstered investor confidence. Total return performance The net asset value per share (NAV) total return of 32.3% outperformed that of the benchmark FTSE All-Share index, at 31.0%. Gearing was beneficial in the rising market, reversing three years of negative contribution, and offset two other factors that were less helpful to performance. First, the company's exposure to defensive equity sectors, which had afforded some protection in the downturn, was unhelpful at a time of economic recovery, when investors preferred the more cyclical characteristics of financially and operationally leveraged companies. Second, the company's income requirements necessitate a relatively high weighting in fixed interest securities. Although these performed well compared to their benchmark, they lagged the recovery in the equity market. The discount of the share price to NAV widened from 12.1% at 31 March 2003 to 15.7% at 31 March 2004. The Board is disappointed that the discount has widened to this level and has recently reactivated a share buyback program with a view to enhancing the NAV of the company and reducing the level of the discount. In the twelve months to 31 March 2004, 1.7 million shares have been repurchased for cancellation and, since the year-end, a further 1.25 million have been bought in. This totals 0.4% of the share capital outstanding as at 31 March 2004. The Board has no current intention of holding shares in treasury for re- issue, despite recent changes in legislation that allow investment trusts so to do. Earnings and dividends Earnings per share increased by 8.1%, from 4.47p to 4.83p. This is higher than indicated in my letter accompanying the second interim dividend, due to several companies unexpectedly paying dividends at the end of March rather than in April. The underlying level of dividends from the UK stockmarket has shown growth of just 2.4% over the last twelve months due to, inter alia, a difficult operating environment and the impact of a declining dollar on the many companies that declare their dividends in the US currency. It is estimated that some 25% of the value of UK stockmarket dividends is currently declared in dollars; 22% of the company's equity income in the year was received in dollars. The government has abolished the recoverable tax credit on dividends received in PEPs and ISAs with effect from 5 April 2004. Therefore, to help shareholders who hold their shares in PEPs or ISAs, the Board declared a second interim dividend of 3.28p per share, payable on 31 March 2004 to shareholders on the register on 5 March 2004. Taken with the first interim dividend of 1.27p per share, this made a total of 4.55p per share in respect of the year ended 31 March 2004, an increase of 0.7% on the 4.52p paid in the previous financial year. The Board is accordingly not recommending a final dividend. The company's dividend has now increased for ten consecutive years. The 4.55p per share paid in the year just completed represented a yield of 5.2% on the share price at 31 March 2004, a significant premium to the 3.1% yield of the FTSE All-Share index on that date. Revenue reserves at 31 March 2004 stood at 2.85p per share, or over 60% of the current dividend payment. The Board would remind shareholders that the company's relatively high yield is achieved partially by gearing and the accounting policy of charging 70% of finance costs and management fees to capital. In the year to 31 March 2004, such capitalised expenses amounted to 2.66p per share. Corporate matters Peter Millar, who joined the Board in 1996, stepped down in February this year and I would like to thank him, on shareholders' behalf, for the valuable contribution that he has made during his tenure. I have intimated to my colleagues that I intend to retire at the 2005 AGM and, as a consequence of recent changes to the Listing Rules, either Andrew Irvine or Michael Walker must also step down by 1 April 2005, as both are deemed professional advisers to the company's managers, Martin Currie. The Board has begun the process of considering new candidates. There have been a number of other changes to the corporate governance landscape over the last twelve months, which you will find reflected in a somewhat expanded Report of the Directors. I trust that the additional information that this provides will give you further reassurance that the stewardship of the company is in safe hands, both with respect to the Directors - all, like yourselves, shareholders - and our service providers. Outlook Although investor sentiment has clearly improved since the initial success of the ground war in Iraq, global political instability will continue to exert a negative influence on confidence for the foreseeable future. Economic conditions are no less uncertain, with the interest rate cycle having already turned in the UK and closer to so doing in the key US economy. Equities will thus struggle to maintain the momentum of the last twelve months, given that they are no longer obviously cheap and with corporate earnings' expectations already reflecting much of the anticipated recovery in the economy. Dividend growth remains sluggish, with the full-year impact of the declining dollar now starting to be felt. - ends - For further information, please contact: Tom Maxwell or Michael Woodward Martin Currie Investment 0131 229 5252 Management Ltd tmaxwell@martincurrie.com / mwoodward@martincurrie.com SECURITIES TRUST OF SCOTLAND plc Statement of total return (incorporating the revenue account*) for the year ended 31 March 2004 Audited Revenue Capital Total £'000 £'000 £'000 Gains on investments - realised - 12,214 12,214 - unrealised - 54,492 54,492 Currency losses - (113) (113) Income - franked 17,886 - 17,886 - unfranked 1,427 - 1,427 Investment management fee (593) (1,383) (1,976) Other expenses (636) (28) (664) ________ ________ ________ Net return before finance costs and 18,084 65,182 83,266 taxation Interest payable and similar charges (2,940) (6,861) (9,801) ________ ________ ________ Return on ordinary activities before 15,144 58,321 73,465 taxation Taxation on ordinary activities (74) - (74) ________ ________ ________ Return attributable to equity shares 15,070 58,321 73,391 Dividends in respect of equity (14,177) - (14,177) shares (4.55p per share) ________ ________ ________ Transfer to reserves 893 58,321 59,214 ________ ________ ________ Return per ordinary share 4.83p 18.70p 23.53p * The revenue column of this statement is the profit and loss account of the company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. The financial information contained within this preliminary announcement does not constitute the company's statutory financial statements as defined in section 240 of the Companies Act 1985 for the years ended 31 March 2004 or 2003, but is derived from those financial statements. Statutory financial statements for 2003 have been delivered to the Registrar of Companies and those for 2004 will be delivered following the company's annual general meeting which will be held at Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES on Wednesday 16 June 2004 at 12.30pm. The auditors have reported on those financial statements, their reports were unqualified and did not contain statements under s237(2) or (3) of the Companies Act (1985). The terms of the annual report and preliminary announcement were approved by the board on 29 April 2004. SECURITIES TRUST OF SCOTLAND plc Statement of total return (incorporating the revenue account*) for the year ended 31 March 2003 Audited Revenue Capital Total £'000 £'000 £'000 Losses on - realised - (26,003) (26,003) investments - unrealised - (110,737) (110,737) Income - franked 16,864 - 16,864 - unfranked 1,371 - 1,371 Investment management fee (692) (1,615) (2,307) Other expenses (661) (46) (707) ________ ________ ________ Net return before finance costs and 16,882 (138,401) (121,519) taxation Interest payable and similar charges (2,937) (6,853) (9,790) ________ ________ ________ Return on ordinary activities before 13,945 (145,254) (131,309) taxation Taxation on ordinary activities - - - ________ ________ ________ Return attributable to equity shares 13,945 (145,254) (131,309) Dividends in respect of equity (14,103) - (14,103) shares (4.52p per share) ________ ________ ________ Transfer from reserves (158) (145,254) (145,412) ________ ________ ________ Return per ordinary share 4.47p (46.55p) (42.08p) * The revenue column of this statement is the profit and loss account of the company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. SECURITIES TRUST OF SCOTLAND plc BALANCE SHEET As at 31 March As at 31 March 2004 2003 (audited) (audited) £000 £000 £000 £000 Investments at market value Listed on Stock Exchanges in the UK 439,247 364,551 Unlisted at Directors' valuation - - _______ _______ 439,247 364,551 Current assets Debtors 9,450 6,492 Cash at bank 1,909 28,358 _______ _______ 11,359 34,850 Creditors Amounts falling due within one year (55,422) (11,943) _______ _______ Net current (liabilities) / assets (44,063) 22,907 _______ _______ Total assets less current 395,184 387,458 liabilities Creditors Amounts falling due after one year (73,922) (123,882) _______ _______ Total assets attributable to 321,262 263,576 share capital _______ _______ Capital and reserves Called up ordinary share capital 77,581 78,006 Capital redemption reserve 2,499 2,074 Realised capital reserve 201,673 199,372 Unrealised capital reserve 30,651 (23,841) Revenue reserve 8,858 7,965 _______ _______ Equity shareholders' funds 321,262 263,576 _______ _______ Net asset value per ordinary share 103.53p 84.47p SECURITIES TRUST OF SCOTLAND plc STATEMENT OF CASH FLOW Year to Year to 31 March 2004 (audited) 31 March 2003 (audited) £000 £000 £000 £000 Operating activities Net dividends and interest received from investments 18,628 18,351 Investment management fee (1,976) (2,307) Cash paid to and on behalf of Directors (78) (83) Bank charges (19) (30) Other cash payments (543) (575) _______ _______ Net cash inflow from operating activities 16,012 15,356 Servicing of finance Interest paid (9,801) (9,779) _______ _______ Net cash outflow from servicing of finance (9,801) (9,779) Taxation Foreign taxation recovered 24 43 _______ _______ Net cash inflow from taxation 24 43 Capital expenditure and financial investment Payments to acquire investments (104,479) (44,225) Receipts from disposal of investments 97,640 59,573 _______ _______ Net cash (outflow) / inflow from investing activities (6,839) 15,348 Equity dividends paid (24,317) (13,855) _______ _______ Net cash (outflow) / inflow before use of liquid (24,921) 7,113 resources and financing Financing Repurchase of ordinary share capital (1,528) - _______ _______ Net cash outflow from financing (1,528) - _______ _______ (Decrease) / increase in cash for the year (26,449) 7,113 _______ _______ SECURITIES TRUST OF SCOTLAND plc NOTES TO THE STATEMENT OF CASH FLOW Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities Year to Year to 31 March 2004 (audited) 31 March 2003 (audited) £000 £000 Net revenue before interest payable and taxation 18,084 16,882 (Increase) / decrease in accrued income and other (637) 130 debtors Decrease in creditors (20) (24) Capitalised management expenses (1,383) (1,615) Capitalised expenses - (18) Amortised debenture issue expenses and discount 12 12 Net taxation withheld (74) (43) Effective yield adjustment 30 32 ________ ________ Net cash inflow from operating activities 16,012 15,356 ________ ________ Reconciliation of net cash flow to movement in net debt Year to Year to 31 March 2004 (audited) 31 March 2003 (audited) £000 £000 (Decrease) / increase in cash in the period (26,449) 7,113 Expenses amortised during the year (40) (40) Net debt as at 1 April (95,524) (102,597) _________ _________ Net debt as at 31 March (122,013) (95,524) _________ _________

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