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Chairman's Annual Report

Contents

1. Board Appointments
2. Major Developments
3. Business Performance
4. Main Trading Sectors
5. Other Trading Sectors
6. Marketing
7. Harbour Property & Facilities
8. Safety, Security & Environmental
9. Staff & Training
10. Conclusion

Overview

It is a pleasure to present my report and to review another successful year for the Trust.

The past year has seen the Trust make substantial progress in a number of directions:

• Our programme of further infrastructure development has been steadily progressed.
• The port’s current and future contribution to the Caithness economy has been independently assessed by economic consultants.
• Our financial health continues to strengthen providing a solid platform to leverage the necessary funding for our development programme.
• The decline in fishing revenues has been arrested.
• Oil related revenue and prospects remain strong.
• Cruise activity continues to grow.
• The port is extremely well positioned to facilitate and support the growth of Marine Renewable energy activity in the Pentland Firth.

1. Board Appointments

I would like to express my thanks to the Appointing Body for their participation in the appointment process. Once again, we were heartened by the extremely high quality of applicants and our thanks go to all of those who expressed an interest of serving on the Board. At the AGM the Trust Body will be asked to endorse the appointment of those two candidates the Appointing Body have selected as a result of the open and accountable appointments process.

The prospective Board Members are Mr J Cormack and Mr S W M Threipland.

2. Major Developments

As I reported last year, at the beginning of September 2007, the Trust publicly announced the blueprint for the future development of the port. The Trust has worked hard to progress and refine those original plans.

The Trust appointed Consulting engineers, Jacobs, in January 2008 to prepare a feasibility study identifying the various options for redevelopment of the old fishmarket pier. Their study is now complete and the Trust’s preferred option will see the creation of a wedge shaped pier structure which will over-build the old fishmarket pier. A berthing pocket dredged to a depth of -7.5 metres at chart datum will be created on both sides of the pier. Access to this new infrastructure will be provided by the creation of a safe navigation channel again dredged to a depth of -7.5 metres at chart datum. This will enable vessels to berth at all states of the tide. The redevelopment will consolidate the importation of bulk fuels, improve the facilities for the fishing sector, extend our accommodation for oil related traffic, but most significantly offer the urgently required infrastructure to facilitate the needs of the marine renewable opportunities in the Pentland Firth.

Having identified a preferred option, formal funding applications are now being progressed and an appropriate financing package agreed.

Phase 2 of our proposed harbour development involves the creation of a new quay with associated lay down areas and additional quayside space in the deepwater basin. A feasibility study investigating the possible options for development will be commissioned shortly.

Additional back up land will be needed to support expanded port activity. With this in mind, thirty-two acres of land close to the port, zoned for industrial use, was acquired by the Trust in April this year.

The overall cost for the development programme is now assessed at £50 million. However, this substantial investment is clearly justified given the wider economic and potential employment benefits for the wider Caithness and Sutherland and Highland areas.

a. The development will create new infrastructure that will benefit the port and community for 60 years or more.

b. The investment is necessary if the port and county are to fully realise the potential of both marine renewable activity in the Pentland Firth and Oil and Gas prospects West of Shetland. Improved infrastructure is needed now.

c. The developments offer substantial opportunity to utilise the specialist skills and expertise available in the county particularly engineering and project management skills. This will help to retain local communities in Caithness and Sutherland through offering new business and employment opportunities utilising the local skills available.

The current economic significance of Scrabster on the Caithness economy has been established by an Economic Impact Study undertaken by Reference Economics on behalf of the Trust. The gross output of the port has been assessed at £39M per annum. The study shows that the total impact of Scrabster currently amounts to 339 full time equivalent jobs. The consultants also conservatively report that the new developments would generate a further 325 full time equivalents jobs for the county. The economic impact study confirms the Trust’s view that Scrabster already plays an important role in the Caithness economy and can play an increasingly significant role in the future socio economic wellbeing of the area.

Further confirmation of the importance and potential of Scrabster has been provided by Highlands and Islands Enterprise. I am delighted that under the new growth strategy adopted by HIE Scrabster Harbour and our proposed new development are recognised as both a high growth business and as a transformational project.

3. Business Performance

The past financial year has been a profitable and extremely busy period for Scrabster Harbour.

Total GRT through the port during for the financial year to 31 March 2009 was 9.934M tonnes an increase of some 42,000 tonnes over the previous year.

The surplus before tax of £677,921 is a very satisfactory result. Our balance sheet demonstrates a strong financial base from which to support and underpin our infrastructure and other expansion plans.

4. Main Trading Sectors:

I shall now take each of the four main business sectors namely Ferry, Fishing, Oil Related and Cruise Ships in turn.

4.1. Ferry

The port continues to enjoy an extremely good working relationship with Northlink Ferries. Revenue from traffic alone was increased by 7% from £556,508 to 31 March 2008 up to £595,414 to 31 March 2009. This was achieved despite a small reduction in the number of actual sailings due to the severe winter weather.

4.2. Fishing

Fishing continues to be a large and extremely strong element of Scrabster’s overall business. Total whitefish landed through the Port increased by 34% from 223,782 boxes in 2007/08 to 301,844 boxes in 2008/09.

Overall fishing industry revenue rose by 45% from £334,854 to 31 March 2008 to £488,082 to 31 March 2009. This is an extremely encouraging improvement in the fortunes of the fishing sector and seems to transcend all areas of the industry.

In addition, the installation of shore power has enhanced the attractiveness of the port and this utility will also be included in the redevelopment of the Old Fishmarket Pier / Tanker Berth.

Freshlink P/F continue to operate their weekly service between the Faroes and Scrabster but unfortunately took the decision to reduce their service to a once weekly visit from June 2008. This reduction in calls will certainly have some impact on our income, however this service remains a very important link for Scrabster.

4.3 Oil Related

The number of oil related vessels visiting the harbour decreased from 111 in 2007/08 to 85 in 2008/09.

Whilst we are disappointed with this decrease in numbers, we remain conscious that drilling programmes, vessel day rates and fuel prices are all important factors when oil companies are making their strategic and operational logistics decisions. However, we continue to aggressively market this sector of the port’s commodity range as we believe Scrabster is ideally placed to service the West of Shetland and North, North Sea drilling and support programmes. This optimism is being reflected in an improving situation in 2009/10.

The Phase 1 Development will continue to improve the range of facilities which oil companies demand and will provide safe, sheltered berths for their service and supply vessels.

Prospects West of Shetland remain optimistic. Exploration and Appraisal activity in the UKCS is at a ten year high. Drilling West of Shetland delivered 50% of new UK reserves in 2007.

Industry talks continue regarding the gas gathering infrastructure required West of Shetland. Movement on this issue could allow gas from West of Shetland to flow by early 2012.

Oil and Gas prospects remain attractive with Scrabster strategically placed to offer huge operating cost savings and a development plan in place to deliver the services and facilities required by the offshore industry. We would urge the enterprise agencies and others to promote the oil and gas opportunities available to Scrabster and Caithness with the same vigour as marine renewables.

4.4 Cruise Ships

As part of our five-year cruise marketing plan, the Trust again exhibited at the annual global Seatrade Cruise Shipping Convention in Miami in March. The Port’s strategic objective of enhancing Scrabster’s reputation as an attractive destination for cruise passengers is steadily bearing fruit. In the European cruise sector, Scrabster Harbour also had a presence at the Seatrade European Cruise Exhibition in Hamburg this year and we aim to develop and maintain a high profile within the cruise industry.

During the summer of 2008 we had 6 visits from cruise vessels carrying a total of 1,272 passengers.

Cruise Scotland, a Scottish Ports cruise initiative was formally launched at the Seatrade Miami Conference and Exhibition in March. Scrabster is a fully participating member in this initiative and we hope this will facilitate an increase in cruise line calls in the coming years. We, the Scottish ports, recognise that whilst in many ways we compete with one another in many commercial areas, in determining a cruise itinerary, the cruise line operators require a complimentary approach to ensure that they can maximise the time available to their passengers. By creating Cruise Scotland we believe the cruise operators will now find it easier to put together a cruise itinerary which will hopefully include Scrabster as one of their Scottish ports of call.

Renewable Energy

Whilst the renewable energy sector is not currently a major element of the port’s activities, our proposed new infrastructure project is designed to facilitate the servicing and support mechanisms for this important new energy source.

It may be some time before this sector produces any significant revenue; however, the Trust is working particularly hard to ensure that the necessary port infrastructure is in place to enable a commercial marine renewable industry to be created around the Pentland Firth. My Board sees the availability of appropriate port facilities as a key constraint which, unless addressed speedily, may prevent Caithness realising the full economic benefit from the Pentland Firth opportunity.

We aspire to deliver a globally important world class renewables industry in the Pentland Firth. This new industry requires first class infrastructure and at Scrabster, we have expanded the scope of our phase 1 development to accommodate the requirements of renewable developers and accelerated the time scale for Phase 2 implementation. In particular, our current Phase 1 plans now include provision for a heavy lift facility capable of handling load out of up to 1,000 tonnes and the creation of an additional 9,500 square metres of new quay and back-up land.

We continue to liaise closely with developers to ensure that our facilities meet their required needs.

5. Other Trading Sectors

5.1 General and Other Cargo

General Cargo has remained constant with the main commodities being salt and timber. Other cargoes exported during the year included a consignment of Salmon smolts to Orkney.

5.2. Pleasure Craft

This year is showing a slight decrease in the number of visiting yachts from 63 to 50. This sector continues to be viewed as a limited income generator, but is an important social aspect of harbour activities and will not be ignored in port development. Indeed, the intention is to provide pontoon berthing for some 20 plus vessels as part of our Phase 1 Development programme.

6. Marketing

In addition to the hugely important Seatrade Miami Convention, the Trust also exhibited at the All Energy exhibition in Aberdeen and at the Seatrade Hamburg Cruise Convention.

Substantial effort has been expended meeting with existing and potential port users, explaining our developments and identifying users’ needs.

As reported last year we continue to meet with many of our strategic partners to discuss a range of issues. We have held regular meetings with HIE, the NDA, Highland Council, CASVAG, Caithness Transport Forum, Dounreay Stakeholder Group and the British Ports Association. Close links with all of these organisations are seen as critical and the Board are very grateful for their continued support and encouragement. In the coming year we will continue with this regular programme of meetings as we are anxious to build on our existing relationships with these important stakeholders.

The Board will continue to take a keen interest in all marketing initiatives and the resulting opportunities for new business.

7. Harbour Property and Facilities

During the year ended 31 March 2009, total capital expenditure of £420,000 was incurred on harbour property and facilities. The bulk of the expenditure was on the acquisition of 32 acres of land in close proximity to the port and the installation of shore power in the Fish Dock.

8. Safety, Security and Environmental

The Scrabster Health and Safety Management System, combining marine and land based safety matters is running well with an emphasis on staff training. As required, Scrabster submitted confirmation of its compliance with the Port Marine Safety Code to the MCA in March 2009.

9. Staff and Training

The Board continues to recognise the need for continuous professional and personal development of all members of staff. As a consequence there is an ongoing training programme with both in-house and external courses available to all members of staff where appropriate.

10. Conclusion

In conclusion, I would like to thank the Board and all members of staff for their significant contribution in delivering and implementing the port’s strategic and operational objectives throughout the year.

It is worth noting that there has been more change in the composition in the Trust Board in the past years than at any previous time.

There is a challenging and very exciting period ahead of us. Over the past year we have moved from a development blueprint to making tangible progress with our projects. We have continuously and robustly made the strong business case for Scrabster and have secured a significant amount of support for our aspirational development proposals. We must now press forward to deliver together, with our strategic partners, Scrabster’s development programme.

I am confident that the Board and the staff will meet these new challenges and will continue to manage and develop the business of the Trust in the best interests of all stakeholders.

WILLIAM CALDER
CHAIRMAN

October 2009