Interim Results Correction of headline category...

To: Stock Exchange For immediate release: 31 October 2006 Securities Trust of Scotland plc Interim results for the six months ended 30 September 2006 Chairman's statement Introduction I am pleased to report encouraging results for the six-month period ended 30 September 2006. The company's net asset value (NAV) total return was 2.3% in comparison to the benchmark FTSE All-Share index which returned 1.7%. Since flotation in June 2005, the NAV total return of 27.4% has exceeded the benchmark return of 25.7%. The company continues to seek rising income and long-term capital performance through investment in a balanced portfolio of UK stocks. This is described in more detail in the manager's review. Revenue and dividends The company's net revenue exceeded earlier estimates due to lower-than-forecast costs and higher dividend income. This enabled an increase in the proportion of the portfolio invested in equities, at the expense of fixed interest investments, and increased dividend payments. A first interim dividend of 1.05p for the year to 31 March 2007 has been paid, and a second interim dividend of 1.05p will be paid on 15 December to shareholders on the register on 17 November 2006, totalling 2.10p. The directors intend to declare two further interim dividends totalling at least 2.90p, giving a total payment of at least 5.00p per share for the year to 31 March 2007. Discount The company's share price has traded at a relatively stable discount to its NAV in recent months, moving gradually closer to the peer-group average. During the current financial year, only 160,150 shares have been purchased for cancellation. The directors believe that this illustrates continuing support for the company offering the highest yield in its peer group, and producing a better- than-average total return. Ross Watson has met numerous existing and potential shareholders to explain the company's investment policy and attractions. Outlook After falling back from the levels in the spring, UK shares have recently recovered. With relatively attractive valuations and continuing corporate activity, investors are more confident, and can continue to benefit from higher profits and dividends. While some volatility is inevitable, our outlook remains positive. Manager's review This six-month period was eventful as share prices reached their highest levels for five years in April and then, in common with other world equity markets, underwent a sharp correction during May and June. From this low point, shares have steadily recovered, as investors regain confidence and companies continue to provide good increases in profits and dividends. The company has the power to utilise gearing to enhance performance, up to a limit of 15% of net assets. During the six months under review, we have geared the portfolio using short-term flexible debt at attractive rates. The average gearing level has been approximately 10% of net assets, but due to the holdings in fixed interest securities the effective equity gearing has been lower. At 30 September, gearing stood at 111% of net assets. Effective equity exposure was 106%. The UK economy has performed reasonably well over the last six months with GDP currently growing at slightly above its trend level. This, coupled with the impact of higher energy and commodity prices, prompted the Bank of England to increase short-term interest rates to 4.75%. In fact, oil and other commodity prices have been falling and the retail price of petrol has already dropped. New gas supplies are now reaching the UK, although suppliers will be unable to reduce gas and electricity prices to consumers for many months. The squeeze on consumer incomes due to higher fuel and energy costs has not dampened the housing market, where prices and activity remain firm. When examining opportunities for change within the portfolio, we look at individual stocks and assess their relative valuation and future prospects in profits and dividends. The relative weighting of the portfolio between the large- capitalisation stocks in the FTSE 100 index and smaller companies is of lesser importance. However, the portfolio weighting in the largest FTSE 100 companies has increased, as we have added to our positions in both BP and Vodafone. These companies have been trading on attractively low valuations relative to the market. Vodafone, in addition to increasing its dividend payment sharply, has recently made a significant capital return to shareholders. The UK stockmarket has been alive with bid rumours in recent months. The focus of this activity is now shifting to the utilities sectors, where stable and regulated returns are attractive to debt-financed acquirers. We reduced our holding in water firm AWG after it became a bidding target. The combination of takeover bids and capital returns means that the UK stockmarket's equity base has been shrinking in recent years. Some companies are raising new capital, however. Resolution had a large rights issue to finance the acquisition of a book of mostly closed life funds, in line with its key business strategy. The weighting of our holding increased significantly as a result of this issue. At the end of the period, our mining holding Xstrata also announced a rights issue, to finance part of the cost of acquiring Falconbridge, a Canadian mining business. We have built two new positions in the media sector. Informa provides business information through journals, newspapers, electronic media and books. They also run trade exhibitions, which link to many of their other activities. Although the yield on their shares is relatively low (below that of the market), the P/E multiple was attractive and the prospects for sustained dividend growth are good. Since we purchased this stock, Informa has increased its interim dividend by 22%, well ahead of our expectations, and the share price has responded positively. The share price has subsequently risen further after announcing that they have received an approach that may lead to a takeover bid. We established a holding in EMAP for different reasons. Emap operates radio stations and publishes a wide range of consumer magazines. It is therefore much more exposed to advertising volumes and the consumer than Informa. Recent interim results were disappointing and the share price fell sharply, presenting us with the opportunity to acquire the holding. After a steady recovery in recent months, UK share prices have returned to their highest levels of the year. Despite this, valuation levels are inexpensive, with the prospective P/E ratio for 2007 at 12X. With profits and dividends set to continue to grow - although not at the rates experienced recently - share prices can appreciate from here. Moreover, the prospect of further takeovers will act as a spur to valuations in certain sectors. A further increase in UK interest rates to 5% would not have a significant impact on UK corporate profits, which are more widely exposed to the world economy. For more information, please contact: Ross Watson rwatson@martincurrie.com 0131 229 5252 SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT for the six months ended 30 September 2006 Unaudited Revenue Capital Total £000 £000 £000 Gains / (losses) on - realised - 162 162 investments - unrealised - (2,181) (2,181) Currency losses - (7) (7) Income - franked 3,066 1,372 4,438 - unfranked 150 - 150 Investment management fee (77) (142) (219) Other expenses (195) - (195) _______ _______ _______ Net return before finance costs and 2,944 (796) 2,148 taxation Finance costs - debt (115) (213) (328) - shareholders' (2,957) - (2,957) funds _______ _______ _______ Return on ordinary activities before (128) (1,009) (1,137) taxation Taxation on ordinary activities (3) - (3) _______ _______ _______ Return attributable to shareholders (131) (1,009) (1,140) _______ _______ _______ Return per ordinary redeemable share 2.77p (0.99p) 1.78p Returns per ordinary share (as defined by the Articles) are detailed in note 1. The total column of this statement is the profit and loss account of the company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. The directors have declared an interim dividend of 1.05p per share, which will be paid on 15 December 2006 to shareholders on the register on 17 November 2006. The interim results will be circulated to shareholders in the form of an interim report, copies of which will be available at the company's registered office, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES. SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT for the period ended 30 September 2005 Unaudited Revenue Capital Total £000 £000 £000 Gains on - realised - 114 114 investments - unrealised - 8,927 8,927 Currency losses - - - Income - franked 1,631 - 1,631 - unfranked 88 - 88 Investment management fee (45) (84) (129) Other expenses (107) - (107) _______ _______ _______ Net return before finance costs and 1,567 8,957 10,524 taxation Finance costs - debt (66) (122) (188) - shareholders' - - - funds _______ _______ _______ Return on ordinary activities before 1,501 8,835 10,336 taxation Taxation on ordinary activities - - - _______ _______ _______ Return attributable to shareholders 1,501 8,835 10,336 _______ _______ _______ Return per ordinary redeemable share 1.39p 8.18p 9.57p Returns per ordinary share (as defined by the Articles) are detailed in note 1. The total column of this statement is the profit and loss account of the company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT for the period ended 31 March 2006 Audited Revenue Capital Total £000 £000 £000 Gains on - realised - 6,110 6,110 investments - unrealised - 20,476 20,476 Currency gains - 6 6 Income - franked 3,915 639 4,554 - unfranked 223 - 223 Investment management fee (158) (293) (451) Other expenses (416) - (416) _______ _______ _______ Net return before finance costs and 3,564 26,938 30,502 taxation Finance costs - debt (166) (308) (474) - shareholders' (1,031) - (1,031) funds _______ _______ _______ Return on ordinary activities before 2,367 26,630 28,997 taxation Taxation on ordinary activities - - - _______ _______ _______ Return attributable to shareholders 2,367 26,630 28,997 _______ _______ _______ Return per ordinary redeemable share 3.19p 25.03p 28.22p Returns per ordinary share (as defined by the Articles) are detailed in note 1. The total column of this statement is the profit and loss account of the company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. SECURITIES TRUST OF SCOTLAND plc BALANCE SHEET As at 30 September As at 30 September As at 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000 £000 £000 £000 £000 £000 Fixed assets Investments Listed on 152,554 138,041 149,575 Exchanges in the UK Current assets Debtors 794 4,183 4,408 Cash at bank 1,712 3,234 3,359 _______ _______ _______ 2,506 7,417 7,767 Creditors Amounts falling (14,977) (16,569) (15,916) due within one year _______ _______ _______ Net current liabilities (12,471) (9,152) (8,149) _______ _______ _______ Shareholders' 140,083 128,889 141,426 funds (prior to shareholders' redemption liability) Creditors Distributable (137,847) (8,951) (139,059) capital and reserves attributable to shareholders on redemption _______ _______ _______ 2,236 119,938 2,367 _______ _______ _______ Undistributable capital and reserves Share premium - 118,437 - Revenue reserve 2,236 1,501 2,367 _______ _______ ______ 2,236 119,938 2,367 _______ _______ ______ Net asset value 137.38p 120.18p 138.48p per ordinary redeemable share (prior to shareholders' redemption liability) AIC net asset 135.67p 119.07p 135.55p value per ordinary share SECURITIES TRUST OF SCOTLAND plc STATEMENT OF CASH FLOW Six months ended Period ended Period ended 30 September 2006 30 September 2005 31 March 2006 (unaudited) (unaudited) (audited) £000 £000 £000 £000 £000 £000 Operating activities Net dividends and 4,732 850 3,749 interest received from investments Interest received 41 12 55 from deposits Investment management (259) - (299) fee Cash paid to and on (42) (16) (58) behalf of directors Bank charges (6) - (4) Other cash payments (239) (22) (193) _______ _______ _______ Net cash inflow from 4,227 824 3,250 operating activities Servicing of finance Finance - debt (327) (127) (435) costs - equity (2,957) - (1,031) _______ _______ _______ Net cash outflow from (3,284) (127) (1,466) servicing of finance Taxation Overseas taxation (4) - - paid _______ _______ _______ Net cash outflow from taxation (4) - - Capital expenditure and financial investment Payments to acquire investments (27,047) (134,522) (159,189) Receipts from 19,914 3,006 38,335 disposal of investments _______ ________ ________ Net cash outflow from investing activities (7,133) (131,516) (120,854) _______ ________ ________ Net cash outflow (6,194) (130,819) (119,070) before use of liquid resources and financing Financing Issue of ordinary - 119,518 119,518 share capital Repurchase of (203) (965) (7,089) ordinary share capital Net movement in short- 4,750 15,500 10,000 term borrowings _______ _______ _______ Net cash inflow from 4,547 134,053 122,429 financing _______ _______ _______ (Decrease)/increase (1,647) 3,234 3,359 in cash for the period _______ _______ _______ Notes 1. Returns and net asset value The return and net asset value per ordinary share are calculated with reference to the following figures: Six months Period Period Revenue return ended ended ended 30 30 31 March September September 2006 2006 2005 Revenue return attributable (£131,000) £1,501,000 £2,367,000 to shareholders Add back finance costs - £2,957,000 - £1,031,000 shareholders' funds ___________ ___________ ___________ £2,826,000 £1,501,000 £3,398,000 ___________ ___________ ___________ Average number of shares in 101,973,904 108,058,258 106,407,347 issue during period Revenue return per ordinary 2.77p 1.39p 3.19p redeemable share Capital return Capital return attributable (£1,009,000) £8,835,000 £26,630,000 to ordinary shareholders ___________ ___________ ___________ Average number of shares in 101,973,904 108,058,258 106,407,347 issue during period Capital return per ordinary (0.99p) 8.18p 25.03p share Net asset value per share As at As at As at 30 30 31 March September September 2006 2006 2005 Net assets attributable to £140,083,000 £128,889,000 £141,426,000 shareholders ___________ ___________ ___________ Number of shares in issue at 101,970,223 107,246,570 102,130,373 period end Net asset value per share 137.38p 120.18p 138.48p 2. Reconciliation of accounting and AIC net asset values As at As at As at 30 30 31 March September September 2006 2006 2005 Accounting net asset value 137.38p 120.18p 138.48p per share Adjustment per share from bid - 0.28p - to mid price valuation of investments Exclusion of undistributed (1.71p) (1.39p) (2.32p) current period revenue Re-classification of capital - - (0.63p) dividend Period-end accrual - - 0.02p adjustments ___________ ___________ ___________ AIC net asset value per share 135.67p 119.07p 135.55p

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