Final Results

To: Stock Exchange For immediate release: 22 May 2008 SECURITIES TRUST OF SCOTLAND plc Annual results for year to 31 March 2008 Chairman's statement Welcome to the latest report covering the twelve months to 31 March 2008. After five years of rising stock markets, this has been a much tougher year for shareholders. In contrast to the strong gains of the last year, the total return of the net asset value per share fell by 13.9%, compared with the 7.7% fall in the FTSE All-Share Index. Income-orientated investments were out of favour over this period. Revenue We continue to deliver a high and growing income for shareholders in excess of that available from the UK equity market. The dividend growth from many UK companies exceeded expectations during the year, reflecting healthy profit levels. Furthermore, a number of companies have increased their dividend payout ratios, due to either their strong cash flows or a reduction in share buybacks. At 31 March 2008 the Company's shares offered a yield of 4.5%, compared to the 3.8% available from the FTSE All-Share Index. The revenue return over the year to 31 March was 5.68p per share, compared to 5.13p in the previous year. Three interim dividends of 1.10p per share have already been paid and the Directors have declared a fourth interim dividend of 2.15p per share making a total of 5.45p per share. This is an increase of 7.9% on the total dividends paid for the year to 31 March 2007. The Company will continue to pay dividends quarterly in September, December, March and June. Borrowing We maintained a low level of borrowing throughout the year, reflecting our manager's prudent approach. Gearing remained well below the maximum permitted level of 15% throughout the year and the fixed interest investments within the portfolio meant that the effective gearing level was between 4%-6% for most of the year. Discount management The efforts made by the managers and the Board to promote the Company to both existing and potential new shareholders have been well received. Despite the more difficult investment background the discount to asset value at which the shares trade has continued to be relatively narrow, both in absolute terms and in comparison to the Company's peers. There was no requirement for any shares to be repurchased during the 12 months to 31 March 2008. Performance fee The Directors negotiated a performance fee with the managers in order to ensure that the interests of the managers are aligned with those of shareholders. Although the managers did earn a performance fee to 31 March 2007, no such fee was earned to 31 March 2008. The operation of the performance fee has been reviewed and some changes made for the future to incentivise outperformance. These maintain the requirement of the managers to exceed the performance of the benchmark FTSE All-Share Index . The previous hurdles have now been replaced with a condition to surpass the performance of the peer group. Outlook Last year I stated that the Company was well placed to benefit from the expected profit and dividend growth from UK companies, but not the weak capital returns which ensued. This year the economic outlook is more testing and this will be reflected in lower profit and dividend growth at the Company level. However this has already been discounted in the current level of share prices, which are relatively lowly rated. The current economic uncertainty should create a number of selective buying opportunities. Manager's review With UK equities producing their weakest returns since the bear market in the early part of this decade, this was a very different period to the preceding twelve months. The year began well, with rising share prices reflecting continuing economic growth. In June, the FTSE All-Share index reached an all- time high. But then the first fears of the wider effects of the US sub-prime mortgage debacle emerged, and share prices fell back. The collapse of Northern Rock was a shock, but share prices recovered and were within 2% of their highs even by the end of October. Since then, however, share prices in the UK and abroad have been under pressure, as the effects of a lack of liquidity in the banking sector on the wider economy become clearer. This has not been a good year for the portfolio, which fell by 13.9%, well behind the FTSE All-share's 7.7% fall. Unlike the previous year, this was a challenging period for an income- biased portfolio. Many of the sectors and stocks that have performed well over the year were relatively low-yielding. Conversely, several of the more domestically exposed sectors with higher yields have underperformed. The poor performance of a number of smaller companies also affected performance. We continue to focus upon companies with strong free cashflows to support sustained dividend growth. A number of portfolio companies have sharply increased their dividend payments during the year, including Informa in the media sector, and BP, the international oil & gas group. Dividend flows into the portfolio were slightly ahead of forecasts made earlier in the year, reflecting the relatively conservative nature of these predictions. The trend of strong dividend payments from UK companies has again benefited shareholders, but the growth rate in the coming months will slow, although it will still exceed the rate of inflation. The Bank of England remains concerned about inflationary pressures, particularly from the higher prices of imported energy. The weakening pound means that the benefit of lower prices of manufactured goods, particularly from China, is also declining. The Bank of England thus has limited room to reduce short-term interest rates in response to weaker economic activity and a lack of access to credit. The big change in the availability of credit since last summer has had an impact on the volume of corporate activity. Large debt-financed private-equity deals have almost entirely disappeared, as much of the debt associated with previous transactions remains on the books of the banks. This is one reason why the underperformance of larger companies has ended. Although very few quoted companies have reported difficulties in accessing debt finance, renegotiation of existing debt facilities will undoubtedly result in these costing more. As usual, the portfolio benefited from the takeover of a number of its constituents during the year. We sold our holdings in Hanson, PFI Infrastructure, EMAP and Resolution after takeovers. As the extent of exposure to complex financial instruments linked to the US mortgage market has become clear, the banking sector has come under a lot of pressure. The portfolio has had no exposure to the UK mortgage banks, but does hold Barclays and Royal Bank of Scotland. The market has penalised companies with high levels of debt, often arising from recent acquisitions. This trend affected two portfolio holdings, Johnston Press and Premier Foods. The mining sector is relatively low-yielding but we have striven to have as much exposure as possible to this sector, which has benefited from high commodity prices. We sold our holding in Anglo American, switching the proceeds into Rio Tinto shortly before BHP Billiton announced its intention to merge with Rio. Although this potential transaction remains a long way from completion, it has helped Rio's share price. We also opened a position in AstraZeneca, the international drugs company. The stock has been weak due to concerns about patent challenges to some of its key products but these are discounted in the share price. Another new holding is Babcock International, which should gain long-term contracts from the decommissioning of nuclear power stations in the UK. Dividend growth will be above average for a number of years. The UK equity market has been de-rated in recent months as investors discount weaker economic activity and its effect upon corporate profits. With so much of the profits of UK companies now coming from overseas the health of the UK economy itself is of less relevance. Unless global growth slows sharply profits and dividends will continue to grow. Profits for retailers and house builders will undoubtedly fall but this is a small part of the market. Share prices are likely to remain volatile until there is greater clarity around financial markets and their impact upon the real economy. In addition more companies across a range of sectors, including banks, are currently raising more equity capital and this is affecting share prices. Against this background our diversified portfolio is still likely to deliver dividend growth during the coming year. SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2008 (Unaudited) Revenue Capital Total £000 £000 £000 Losses on - (26,985) (26,985) investments Currency gains - 10 10 Income - franked 6,160 635 6,795 - unfranked 400 - 400 106 - 106 - deposit interest 16 - 16 - other income Investment management fee (142) (264) (406) Performance fee - - - Other expenses (441) - (441) _______ _______ _______ Net return before finance costs and 6,099 (26,604) (20,505) taxation Finance costs - debt (301) (558) (859) - shareholders' funds (6,368) - (6,368) _______ _______ _______ Return on ordinary activities before (570) (27,162) (27,732) taxation Taxation on ordinary activities (3) - (3) _______ _______ _______ Return attributable to ordinary (573) (27,162) (27,735) redeemable shareholders _______ _______ _______ Return per ordinary redeemable share 5.68p (26.64p) (20.96p) 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 2.15p per share. The dividend will be paid on 27 June 2008 to shareholders on the register on 30 May 2008. This is in addition to the three 1.10p interim dividends already paid during 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 year ended 31 March 2008, but is derived from those financial statements. Statutory financial statements for 2007 have been delivered to the Registrar of Companies and statutory financial statements for 2008 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditors have not yet reported on the statutory financial statements for 2008, however it is expected that their report will be unqualified, will not draw attention to any matters by way of emphasis and will not contain statements under s237(2) or (3) of the Companies Act 1985. The terms of the preliminary announcement were approved by the board on 21 May 2008. SECURITIES TRUST OF SCOTLAND plc INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 (Audited) Revenue Capital Total £000 £000 £000 Gains on - 11,145 11,145 investments Currency losses - (15) (15) Income - franked 5,497 1,604 7,101 - unfranked 448 - 448 93 - 93 - deposit interest - - - - other income 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 SECURITIES TRUST OF SCOTLAND plc BALANCE SHEET As at 31 March 2008 As at 31 March 2007 (Unaudited) (Audited) Non current assets £000 £000 £000 £000 Investments at fair value through profit and loss Listed on Exchanges in the UK 137,823 166,595 Current assets Loans and receivables 1,994 1,391 Cash at bank 451 1,616 _______ _______ 2,445 3,007 Creditors Amounts falling due within one (13,910) (15,509) year _______ _______ Net current liabilities (11,465) (12,502) _______ _______ Shareholders' funds (prior to 126,358 154,093 shareholders' redemption liability) Creditors Distributable capital and reserves attributable to (123,356) (150,518) shareholders on redemption _______ _______ 3,002 3,575 _______ _______ Distributable capital and reserves Revenue reserve 3,002 3,575 _______ ______ Net asset value per ordinary share 123.92p 151.12p (prior to shareholders' redemption liability) AIC net asset value per 121.53p 148.40p ordinary share SECURITIES TRUST OF SCOTLAND plc STATEMENT OF CASH FLOW Year ended 31 March Year ended 31 2008 (Unaudited) March 2007 (Audited) £000 £000 £000 £000 Net cash inflow from operating 5,836 6,274 activities Servicing of finance Finance - debt (878) (700) costs - equity (6,368) (4,028) _______ _______ Net cash outflow from servicing of (7,246) (4,728) finance Taxation Overseas taxation paid (3) (3) _______ _______ (3) (3) Capital expenditure and financial investment Payments to acquire investments (44,647) (42,252) Receipts from disposal of 45,335 35,184 investments _______ _______ Net cash inflow/(outflow) from 688 (7,068) investing activities _______ _______ Net cash outflow before use of (5,525) liquid resources and financing (725) Financing Repurchase of ordinary share (203) capital - Movement in short-term borrowings (450) 4,000 _______ _______ Net cash (outflow)/inflow from (450) 3,797 financing _______ _______ Decrease in cash for the year (1,175) (1,728) ________ _______ SECURITIES TRUST OF SCOTLAND plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (Unaudited) Called Special For year ended 31 March up Capital distrib- Realised Unreal- 2008 ordinary redemption utable capital ised Revenue Total share reserve capital reserve capital Reserve capital reserve reserve £000 £000 £000 £000 £000 £000 £000 As at 31 March 2007 1,019 62 111,145 9,500 28,792 3,575 154,093 Realised gains on - - - 9,317 - - 9,317 investments during the year Realised currency gains - - - 10 - - 10 during the year Unrealised depreciation - - - - (36,302) - (36,302) on investments Franked income - - - 635 - - 635 Capitalised expenses - - - (822) - - (822) Return attributable to - - - - - (573) (573) shareholders ______ _______ _______ _____ ______ _____ _____ Balance at 31 March 2008 1,019 62 111,145 18,640 (7,510) 3,002 126,358 ______ _______ _______ _____ ______ _____ _____ SECURITIES TRUST OF SCOTLAND plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (Audited) Called Special For year ended 31 March up Capital distrib- Realised Unreal- 2007 ordinary redemption utable capital ised Revenue Total share reserve capital reserve capital Reserve capital reserve reserve £000 £000 £000 £000 £000 £000 £000 As at 31 March 1,021 60 111,348 6,154 20,476 2,367 141,426 2006 Ordinary shares (2) 2 (203) - - - (203) bought back during the year Realised gains - - - 2,829 - - 2,829 on investments during the year Realised currency losses - - - (15) - - (15) during the year Unrealised appreciation on - - - - 8,316 - 8,316 investments Franked income - - - 1,604 - - 1,604 Capitalised - - - (1,072) - - (1,072) expenses Return attributable to - - - - - 1,208 1,208 shareholders _____ _______ _______ _____ _______ _____ _____ Balance at 31 1,019 62 111,145 9,500 28,792 3,575 154,093 March 2007 _____ _______ _______ _____ _______ _____ _______ For further information, please contact: Ross Watson 0131 229 5252 Martin Currie Investment Management Ltd rwatson@martincurrie.com Tamsin Hooton 0131 229 5252 Martin Currie Investment Management Ltd thooton@martincurrie.com -ends-

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