1. BOARD APPOINTMENTS

I am very pleased that today’s Meeting has endorsed the re-appointment of board members John Campbell and myself. I express my thanks to the Appointing Body for their diligent participation in the appointment process.

It is a matter of continuing disappointment that more interest had not been shown in Board membership. The Board is keen that as many applications as possible are received. My report will outline a very successful year, increased recognition of the port and an exciting programme of development. I hope this will encourage greater interest and participation in the affairs of the Port.

2. MAJOR DEVELOPMENTS

I reported last year that agreement had been reached with Carillion to settle the dispute regarding the construction of the Queen Elizabeth pier.

I stated that this result was of huge significance to the Trust and enabled the Board to focus on the outstanding works on the rest of the harbour and further marketing initiatives to bring new business to the port.

I am pleased to announce that on 30 March 2007 the Trust reached agreement with the Scottish Executive for their buyout of the Ferry Facility Fee (FFF) arrangement. The FFF was originally put in place to deliver revenue support to the Trust over a period of 15 years for the purpose of allowing the Trust to recover its financial contribution to lifeline ferry facilities at the Queen Elizabeth Pier.

The Scottish Government recognised the important social, economic and environmental benefits that would flow from the buy out of the FFF. The buy out capital payment of £2,171,559 allows the Trust to bring forward its development plans. This is of significant strategic importance to the Trust. The Trust is now in a position to seek significant additional commercial borrowing for essential and urgent developments, which would not be possible without the buy out.

At the beginning of September, the Trust publicly announced the blueprint for the future development of the port.

A first development will see a seven-figure investment to modernise the existing oil tanker quay. The 130 metre long quay will be heightened and additional pier space created, ensuring that the new generation of oil tankers can continue to access Scrabster to deliver vital supplies. The Trust expects the outline design and funding applications to be complete by the end of 2007. Subject to finalising the finance and grant package and obtaining statutory consents, construction will take place in 2008-09.

A second development will see a new £15 million deepwater quay and adjacent backup land within the ports’ existing deep-water basin. The project will create a modern supply base and enable the port to offer the same range of supplies as found in the more distant east coast ports. This new facility will enhance Scrabster’s ability to accommodate the increased demand from oil supply boat traffic and the marine logistics required to support development on the Atlantic Oil & Gas Frontier. It will also service the needs arising from the expected development of the Pentland Firth as a major tidal energy supplier.

We believe that our developments offer considerable 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. We believe that is particularly attractive given the current socio-economic situation of the county.

3. BOARD & BUSINESS PERFORMANCE

3.1. Board

The Scrabster Board remains fully committed to achieving good governance standards. To assist with this, an IOD facilitated seminar was held in November, follow up events were held in February and August. The feedback from the IOD facilitators indicated that the Trust is not only following best practice but is ahead of many organisations in this regard.

Annually appointed sub committees continue to report to the Board in the areas of Fishing, Finance and Audit, and Health & Safety.

During the past year, existing links have been strengthened with our Members of Parliament, members and officers of the Highland Council and the executives of Highlands and Islands Enterprise to build partnerships to achieve common objectives. The Trust welcomes the establishment of the Caithness Regeneration Partnership and is totally committed to working towards a sustainable future for our County and its people.

The Board also recognises the importance of membership of local groups namely: the Dounreay Stakeholders Group, Caithness Partnership, Caithness Transport Forum, and the Caithness & Sutherland Visitor Attraction Group, among others. In addition the Trust is an active partner in the Caithness Energy Alliance formed to promote Caithness as the ideal location for renewable energy developments. The Trust along with 23 other Caithness businesses exhibited at the All Energy Exhibition in Aberdeen in May under the Alliance banner.

Most importantly, the Board aims to secure increasing commercial growth for the benefit of the local community and believes that the Trust is possessed of the necessary skills to achieve this objective

3.2. Business Performance

Once again, the year has been a profitable and extremely busy period for Scrabster Harbour.

Total GRT through the port during the financial year to 31 March 2007 was 9.373 M tonnes, which is in line with the previous year. The figure for the current year is higher with monthly GRT totals of over 1m tonnes being dealt with in July and August. It is interesting when comparing this figure with Aberdeen, one of Scotland’s largest and busiest harbours, that we are nearly 40%of their total GRT of 23.46 M tonnes.

The surplus before tax of £977,332 is a spectacular result. The surplus was achieved despite further decline in fishing revenues. The financial results confirm that the Trust’s strategy of diversifying port activities is working. The financial position puts the Trust in a strong position to progress essential and urgent works and leverage additional funding to progress our major developments.

Settlement of this dispute will allow the Trust to move on and deal with major harbour works especially the on-going problem of accelerated low water corrosion repairs which will cost several million pounds. This essential work has already been started with the installation of cathodic protection on the Ice Pier and within the Fisheries Harbour. Other parts of the harbour will require more ubstantial works and these further works are planned on a basis of giving priority to those parts of the harbour that generate most income in order that this expenditure can in turn create and protect income for future works.

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

A good working relationship with Northlink Ferries has been maintained over the year with appropriate arrangements in place to regulate and strengthen our business relationship. A seamless transfer of operations from Northlink Orkney and Shetland Ferries Limited to the new operator Northlink Ferries Limited occurred on 6 July 2006. The total volume of traffic carried on the Scrabster to Stromness route in calendar year 2006 amounted to 147,099 passengers, 43,886 cars and 5,811 commercial vehicles.

This summer saw Scrabster become Scotland’s second international gateway port. The international super ferry Pf Norrona, owned by Smyril Line, has just completed an eleven-week sailing schedule of service linking Scrabster with Norway, Faroes and Iceland. In total 6,000 passengers used the service generating significant economic benefit to the local community and business. The port has coped well with the new logistics challenges of operating an international service and the demands of Immigration, Customs and Transec. I would wish to express our gratitude to the public agencies, particularly HIE Caithness and Sutherland, for their support and assistance against challenging timescales.

4.2. Fishing

Fishing continues to be a large part of Scrabster’s business, although the decommissioning programme and quota cuts have seen a dramatic downturn of fish landings. Fishing revenues fell by 26% in 2005-06 and by a further 13% in 2006-07. Indications from the current year are that the position has stabilised. The Trust looks forward to discussion with the new Scottish Government on measures to support the fishing sector.

Faroe Line continue to run their twice weekly (weekend and mid week) visits to the harbour and the net tonnage of their fish cargo through the port in the calendar year 2005 was 1,100 tonnes up on the figure for 2004.

The Trust is determined to continue to deliver the excellent services offered at Scrabster and to endeavour to attract new business within the UK and from overseas. We will also work with interested agencies to explore innovative measures that could re-energise the industry.

4.3. Oil Related

The number of oil related vessels visiting the harbour increased from 100 in 2005-06 to 138 in the year ended 31 March 2007.

While significant challenges exist for the commercial development of the Atlantic Frontier, the potential prospects in the Shetland-Faroes Basin remain strong. According to the DTI, reserves West of Shetland represent 17 percent of the UK’s remaining oil and gas reserves; this estimate is widely believed to be very conservative.

Five fields are already in the production stage: Foinaven, Foinaven East, Loyal, Schiehallion and Clair. Appraisal activity has continued following Chevron’s exciting sister Rosebank / Lochnagar discoveries with 500 million barrels of recoverable oil being speculated.

Scrabster is already on the map as a recognised oil industry supply port. Scrabster’s location in the far North of Scotland offers a more cost effective base over distant east coast ports. In addition the port and local business has an enviable reputation for rapid and flexible response but most of all high quality service.

The Trust exhibited at the Offshore Europe Exhibition held in Aberdeen at the beginning of September 2007.

4.4. Cruise Ships

As I reported last year the cruise industry is an area where future growth is foreseen although the lead-time on this happening is seen as at least 2-3 years. Scrabster Harbour Trust has committed to a five-year cruise marketing plan as part of its strategic plans to develop the port. Marketing activities include attendance at the annual global Seatrade Cruise Shipping Convention in Miami and participation in Cruise Europe events around Europe.

During 2007 we had 6 visits from cruise vessels. In 2008 seven visits are scheduled. Scrabster ’s reputation as a growing destination for cruise passengers received a further boost with the announcement that Princess Cruises will visit in September 2008. Princess Cruises are regarded as market leaders with other cruise lines watching their every move and following their example. We are hopeful that more interest from cruise companies will follow.

5. OTHER TRADING SECTORS

5.1. General Cargo

General Cargo has remained constant with the main loads being salt and timber.

5.2. Pleasure Craft

This year is showing a slight increase in the number of visiting yachts from 62 in last year to 68 in the year to 31 March 2007. This sector is not seen as a great income generator, but is an important social aspect of harbour activities.

The Trust recognise the pontoon and marina developments being put in place by Wick Harbour Authority and are supportive of this development.

The Board is currently investigating a smaller scale facility, which would provide a landing stage with disabled access for cruise ship passengers.

6. MARKETING

As I have mentioned the Trust took part in the hugely important Seatrade Miami Convention, All Energy and Offshore Europe exhibitions. In addition a welcome reception was held to mark the first visit of the Norrona and appropriate opportunities have been taken to promote the port through press and media coverage.

In addition Scrabster has been chosen as the port for the cover of the 2008 Ports of Scotland publication.

Representatives of both the Board and staff have maintained valuable links with other harbours both on the mainland and with the Islands (Orkney, Shetland and the Faroes).

Regular meetings have been held with CASE (& HIE), the Highland Council, CASVAG, Caithness Transport Forum, Dounreay Stakeholder Group and the British Ports Association. Close links with all of these are seen as very important by the Board who are very grateful for their continued support and wish to maintain and build on this.

The Board and the Manager 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 2007, total capital expenditure of £356,000 was incurred on harbour property and facilities. These works included completion of the Water Tanks, Parking Facilities and QE Pier projects. In addition a new weighbridge was purchased and survey equipment acquired.

Following the year-end the Trust’s programme of cathodic protection was continued at a cost of £110k for additional works on the Ice Pier and the Fish Market quay.

It is disappointing to report that the A9 trunk road to the Harbour remains restricted to one lane, controlled by traffic lights, following the landslip on October 26, 2006. It is understood that two- lane operation will be restored next month.

8. SAFETY, SECURITY AND ENVIRONMENTAL

The Port Marine Safety Code introduced a national standard for every aspect of port marine safety, which aims to improve safety for those who work in this environment. Our compliance with the code was independently audited in March 2007. A number of areas for development were highlighted and will be progressed.

The Port Waste Management Plan is fully MCA compliant and will remain in force until 2008. Similarly our approved Oil Spill Contingency Plan will remain in force until 2010.

The Port Security Plan has been upgraded and reviewed. The upgrade was required to accommodate the new international ferry activities and also to incorporate the new port security instructions issued by Transec. The revised plan is currently awaiting approval by Transec.

The Trust continues to recognise its environmental responsibilities. A programme of installing “ tyre mat fendering” on the Ice Pier and the Fish Dock piers has been completed. This provided excellent fendering but also utilised 1,200 used lorry tyres which otherwise would have gone for landfill disposal.

9. STAFF AND TRAINING

Mr Sandy Mackie took up appointment as Trust Manager on 13 February. Sandy joined Scrabster after twelve years as Director of Finance and Information at North Highland College. Mr Alan Cook was appointed to the post of Deputy Harbour Master in January of 2007. Both have settled in well to their new roles. Sandy has joined at a particularly challenging time but has already made a valuable contribution.

Training is on going with both in-house and external courses as well as professional development being offered to staff.

10. CONCLUSION

In conclusion to my annual report, I would like to thank the Board members and of course the staff, who together have worked extremely well in implementing the objectives and aims of the port, both strategically and operationally.

There is a challenging but very exciting period ahead of us. I am confident that the Board and the staff will meet the new challenges and will continue to manage and develop the business of the Trust in the best interest of the stakeholders.

WILLIAM CALDER
CHAIRMAN
October 2007