Final Results for year to 31 March 2007 amende...

To: Stock Exchange For immediate release: 4 May 2007 SECURITIES TRUST OF SCOTLAND plc Annual results for year to 31 March 2007 Chairman's statement Welcome to the Report to shareholders covering the 12 months to 31 March 2007. This is the first report covering a full 12-month period since the listing of the Company on the London Stock Exchange on 28 June 2005. It is pleasing to be able to report again on a period of good progress for the Company, with both revenue and capital advancing. The net asset value ("nav") total return for the period was 13.6%, compared to 11.1% from the Company's benchmark the FTSE All- Share Index. UK equities have continued to make positive progress in terms of both profits and dividends. With the fixed interest weight within the portfolio remaining low, modest gearing contributed positively to the total return. The maximum level of gearing currently permitted is 15% of shareholders' funds, but the actual level has been around 10% for most of the period. Revenue The Company continues to focus upon delivering a high and growing income for shareholders in excess of the average yield available from the UK equity market. At 31 March 2007, the Company's share offered a yield of 3.5% compared to the 2.8% available from the FTSE All-Share Index. A continuing feature of UK company announcements over the last year has been the strong level of dividend growth that has enabled the portfolio to maintain a low weighting in fixed interest securities. The revenue return over the year to 31 March was 5.13p per share, compared to 3.19p over the initial period from the Company's flotation to 31 March 2006. Three interim dividends each of 1.05p per share have already been paid in respect of the period to 31 March 2007 and the Directors have declared a fourth interim dividend of 1.90p per share making a total of 5.05p per share. The Company will pay dividends quarterly in September, December, March and June. Discount management I am pleased that efforts made by the managers and the Board to promote the Company to both existing and potential new shareholders have been well received. Continued good investment performance has contributed to a gradual narrowing of the discount in comparison to the Company's peers. In contrast to the previous period, there has been almost no requirement to repurchase any of the Company's shares. Only 160,150 shares were purchased and all of these were bought early in the period. Performance fee In order to ensure that the interests of the managers are aligned with those of the shareholders, the Directors negotiated a performance fee with Martin Currie. Briefly, this entitled the managers to 15% of the outperformance of the nav capital return over that of the FTSE All-Share Index capital return over the year to 31 March 2007 - subject to a cap of 1% of year end assets, including the base management fee of 0.3% of net assets. After this first year in operation, the Directors are reviewing the structure of the performance fee. Outlook Last year in my statement, I stated that shareholders could look forward to a year of positive returns. This comment proved to be accurate, although the start to the period was volatile. Looking forward, UK equities continue to be reasonably valued. I believe the Company is well positioned to benefit from the profit and dividend growth expected to be delivered by UK companies. Manager's report The year under review has been another one when UK equities have generated good real returns - although progress was volatile. The year began well with equities worldwide continuing their strong progress. This ended with a sharp correction beginning in May that saw UK share prices fall by almost 10%. Although shares began to recover within a few weeks, it took several months for them to reach their previous levels. Share prices continued to rise, helped by the good progress in corporate profits and the continuing high level of corporate activity apparent in all equity markets. The steady progress of the equity market, which had seen the FTSE All-Share Index reach a new record high, exceeding its previous peak in 2000, ended towards the close of the year. The year under review was a good one for the portfolio which increased in value by 9.5%, compared to the 7.7% from the benchmark FTSE All-Share Index. One very positive feature of the UK stockmarket has been the continued strong growth in dividends, a trend which has lasted longer than we expected. The benefits to shareholders are clear, and have enabled both an increase in dividend payments and a low weighting in fixed interest investments within the portfolio. Last year the managers highlighted the 25% dividend increase from Royal Bank of Scotland and are pleased to report that the story has remained the same with another 25% increase in dividend. This holding accounts for over 5% of the portfolio and, although dividend growth will inevitably slow from this level, the prospects for future growth remain good. The rate of inflation became a source of concern to the Bank of England over the year after a long period of stability and was a major factor behind the series of increases in short term interest rates during the year. The biggest contributor to the increase in the inflation measure targeted by the Bank of England was the sharp increase in the price of domestic energy. During 2006 this added almost 1% to the rate of inflation, but this effect fell rapidly during 2007, with the first price reductions now taking effect. By the end of 2007 we expect the rate of consumer price inflation should again be close to the 2% target level. There has been an upsurge in corporate activity in equity markets, including the UK, over the last year. The reasons for this include the ever-increasing scale of private equity funds and the desire of companies to expand via acquisitions. The easy availability of finance, from both banks and the bond markets, has been a contributory factor. Two companies within the portfolio, BOC and awg, were the target of takeover bids during the year at significant premiums to previous prices. The underperformance of many of the very largest companies in the UK stockmarket has attracted much attention in recent years. The fifteen largest companies account for almost half of the market by value, but their continued underperformance has opened up a valuation gap with the rest of the market. So far these companies have been protected from takeover by their sheer size, but this could change. Also the growth from many of the largest companies such as BP, HSBC and Astra Zeneca has disappointed the market. Thus, despite looking cheap, in some cases the lack of future growth is being correctly discounted by the market. Nevertheless the valuation gap will inevitably be closed - although this may take some time. The managers expect that the portfolio's exposure to these companies will be increased in the future. The managers continue to operate a relatively concentrated portfolio, usually between 50 and 60 holdings. The weighting in the mining sector had been low for much of the period but was increased with a purchase of BHP Billiton that had lagged the sector. The yield is relatively low, but the dividend growth prospects are good. The portfolio holdings in the media sector have changed considerably. The position in Pearson was sold as the growth prospects appeared to be discounted in the share price. New holdings were established in EMAP, Informa and UBM. The Informa price has done well as the market has re-rated the Company whose business is not dependent upon advertising. Good results have seen the Company increase its total dividends by 43%. By contrast, continual disappointment in TV advertising volumes led to the holding in ITV being sold. The UK commercial property market has performed very well in recent years as investors have pushed valuation yields lower. The managers believe that there are better prospects, without taking risks, in Europe and added Summit Germany and Northern European Properties to the portfolio. These both offer a high yield and the prospect of growth in asset values. Both share prices have already performed well. Within the Life Assurance sector, our holding in Legal & General was switched into Aviva where future dividend growth prospects are better. Unlike the previous year, UK equities have not been re-rated as share prices have broadly kept pace with earnings over the period. The prospective PE multiple of 13x offers fair value for this stage of the economic cycle although, as already highlighted, there is a divergence of valuations in the stockmarket: the very largest companies are trading on relatively low multiples. The economic background is satisfactory, although there are concerns about how quickly inflation will start to fall back, leading to a further increase in short term interest rates. In the US the housing market is weakening and revealing the excess lending made to sub-prime borrowers. But the economy will continue to grow despite this. For the coming year, UK shareholders can look forward to another year of real profit and dividend growth that should be reflected in rising share prices. Corporate activity is likely to add to overall returns. - ends - For further information, please contact: Ross Watson 0131 229 5252 Martin Currie Investment Management Ltd rwatson@martincurrie.com Keith Swinley 0131 229 5252 Martin Currie Investment Management Ltd kswinley@martincurrie.com SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 (Unaudited) Revenue Capital Total £000 £000 £000 Net gains on - realised - 2,829 2,829 investments - unrealised - 8,316 8,316 Net currency - (15) (15) losses Income - franked 5,497 1,604 7,101 - unfranked 541 - 541 Investment management fee (162) (300) (462) Performance fee - (320) (320) Other expenses (393) - (393) _______ _______ _______ Net return before finance costs and 5,483 12,114 17,597 taxation Finance costs - debt (244) (452) (696) - shareholders' funds (4,028) - (4,028) _______ _______ _______ Return on ordinary activities before 1,211 11,662 12,873 taxation Taxation on ordinary activities (3) - (3) _______ _______ _______ Return attributable to ordinary 1,208 11,662 12,870 redeemable shareholders _______ _______ _______ Return per ordinary redeemable share 5.13p 11.44p 16.57p The total column of this statement is the profit and loss account of the Company. The revenue and capital items are presented in accordance with the AIC SORP. All revenue and capital items in the above statement derive from continuing operations. A Statement of Total Recognised Gains and Losses is not required, as all gains and losses of the Company have been reflected in the above statement. The board announces a fourth interim dividend of 1.90p per share. The dividend will be paid on 29 June 2007 to shareholders on the register on 8 June 2007. This is in addition to the three 1.05p interim dividends already paid during the period. 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 period ended 31 March 2007, but is derived from those financial statements. Statutory financial statements for 2007 will be delivered to the Registrar of Companies following the Company's annual general meeting. The terms of the preliminary announcement were approved by the board on 2 May 2007. SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT FOR THE PERIOD FROM 15 APRIL 2005 (DATE OF INCORPORATION) TO 31 MARCH 2006 (Audited) Revenue Capital Total £000 £000 £000 Net gains on - realised - 6,110 6,110 investments - unrealised - 20,476 20,476 Net currency - 6 6 gains 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' funds (1,031) - (1,031) _______ _______ _______ Return on ordinary activities before 2,367 26,630 28,997 taxation Taxation on ordinary activities - - - _______ _______ _______ Return attributable to ordinary 2,367 26,630 28,997 redeemable shareholders _______ _______ _______ Return per ordinary redeemable share 3.19p 25.03p 28.22p SECURITIES TRUST OF SCOTLAND plc BALANCE SHEET As at 31 March 2007 As at 31 March 2006 (Unaudited) (Audited) Fixed assets £000 £000 £000 £000 Investments at market value Listed on The Stock Exchange 166,595 149,575 in the UK Current assets Debtors 1,391 4,408 Cash at bank 1,616 3,359 _______ _______ 3,007 7,767 Creditors Amounts falling due within one (15,509) (15,916) year _______ _______ Net current liabilities (12,502) (8,149) _______ _______ Net assets attributable to 154,093 141,426 shareholders Creditors Distributable capital and reserves attributable to (150,518) (139,059 shareholders on redemption ) _______ _______ 3,575 2,367 _______ _______ Undistributable capital and reserves Revenue reserve 3,575 2,367 _______ ______ Net asset value per ordinary share 151.12p 138.48p (prior to shareholders' redemption liability) AIC net asset value per 148.40p 135.55p ordinary share SECURITIES TRUST OF SCOTLAND plc STATEMENT OF CASH FLOW Year ended 31 March Period from 15 2007 (Unaudited) April 2005 (date of incorporation) to 31 March 2006 (Audited) £000 £000 £000 £000 Net cash inflow from operating 6,274 3,250 activities Servicing of finance Finance - debt (700) (435) costs - equity (4,028) (1,031) _______ _______ Net cash outflow from servicing of (4,728) (1,466) finance Taxation Overseas taxation paid (3) - _______ _______ (3) - Capital expenditure and financial investment Payments to acquire investments (42,252) (159,189 ) Receipts from disposal of 35,184 38,335 investments _______ _______ Net cash outflow from investing (7,068) (120,85 activities 4) _______ _______ Net cash outflow before use of (119,07 liquid resources and financing (5,525) 0) Financing Issue of ordinary share capital - 119,518 Repurchase of ordinary share (203) (7,089) capital Movement in short-term borrowings 4,000 10,000 _______ _______ Net cash inflow from financing 3,797 122,429 _______ _______ (Decrease)/increase in cash for the (1,728) 3,359 period ________ _______ SECURITIES TRUST OF SCOTLAND plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (Unaudited) Called Special For year ended 31 March up Capital distrib Reali Unreal 2007 ordina redempt utable sed ised Reven ry ion capital capit capita ue Total share reserve reserve al l reser £000 capita £000 £000 reser reserv ve l ve e £000 £000 £000 £000 As at 31 March 2006 1,021 60 111,348 6,154 20,476 2,367 141,4 26 Ordinary shares bought back during the year (2) 2 (203) - - - (203) Realised gain on - - - 2,829 - - 2,829 investments during the year Realised currency loss - - - (15) - - (15) during the year Unrealised appreciation - - - - 8,316 - 8,316 on investments Franked income - - - 1,604 - - 1,604 Capitalised expenses - - - (1,07 - - (1,07 2) 2) Return attributable to - - - - - 1,208 1,208 shareholders ______ _______ _______ _____ ______ _____ _____ _ __ _ __ __ Balance at 31 March 2007 1,019 62 111,145 9,500 28,792 3,575 154,0 93 ______ _______ _______ _____ ______ _____ _____ _ __ _ __ __ SECURITIES TRUST OF SCOTLAND plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (Audited) Calle For period ended d up Special 31 March 2006 ordin Capital distribu Reali Unreali ary Share redempt table sed sed Reven share Premi ion capital capit capital ue Total capit um reserve reserve al reserve reser £000 al £000 £000 £000 reser £000 ve £000 ve £000 £000 As at 15 April - - - - - - - - 2005 Transferred in as part of the STOS plc scheme 1,081 118,4 - - - - - 119,5 of 37 18 reconstruction Cancellation of the share - (118, - 118,437 - - - - premium account 437) Ordinary shares bought back (60) - 60 (7,089) - - - (7,08 during the 9) period Realised gain on investments - - - - 6,110 - - 6,110 during the period Realised currency gains - - - - 6 - - 6 during the period Unrealised appreciation on - - - - - 20,476 - 20,47 investments 6 Franked income - - - - 639 - - 639 Capitalised - - - - (601) - - (601) expenses Return attributable to - - - - - - 2,367 2,367 shareholders _____ _____ _______ _______ _____ _______ _____ _____ __ __ __ __ __ Balance at 31 1,021 - 60 111,348 6,154 20,476 2,367 141,4 March 2006 26 _____ _____ _______ _______ _____ _______ _____ __ __ __ __ _______

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