David MacBrayne Limited Group Annual Report & Consolidated Financial Statements

David MacBrayne Group Ferry Terminal, Gourock PA19 1QP

Tel: 01475 650100 Fax: 01475 650336 Websites: www.calmac.co.uk www.northlinkferries.co.uk

Cover 1 27/07/2010 11:59 David MacBrayne Limited/Company Number SC15304/31 March 2010

Contents

Chairman's Statement 1

Chairman's Statement (Gaelic language version) 3

Board of Directors 5

Directors' Report 6

Report on corporate governance 9

Report on Directors’ remuneration 13

Statement of Directors' responsibilities 14

Independent Auditors' Report 15

Consolidated Profit and Loss Account 16

Consolidated and Company Balance Sheets 17

Consolidated Cash Flow Statement 18

Notes on the financial statements 19

Corporate information 27

Text 1 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010

Chairman's Statement Chairman's Statement

I am pleased to present the Annual Report of the David MacBrayne Group, which comprises the companies operatingI am pleased to present the Annual Report of the David MacBrayne Group, which comprises the companies operating the Clyde, Hebrides and Northern Isles ferry services. the Clyde, Hebrides and Northern Isles ferry services.

The Group recorded a profit before tax of £4.6m. Revenue from fares and other sources at £80.3m and operatingThe Group recorded a profit before tax of £4.6m. Revenue from fares and other sources at £80.3m and operating costs at £170.6m were largely in line with expectations. The first full year effect of the introduction of road equivalentcosts at £170.6m were largely in line with expectations. The first full year effect of the introduction of road equivalent tariff on a number of Hebridean routes had a direct impact on grants received from the Scottish Government. Totaltariff on a number of Hebridean routes had a direct impact on grants received from the Scottish Government. Total grants received from the Scottish Government amounted to £94.8m, an increase of 5.8% compared with the previousgrants received from the Scottish Government amounted to £94.8m, an increase of 5.8% compared with the previous year. year.

Group traffic carryings for the year were passengers 5.6m, cars 1.2m and freight metres 1.4m. Passenger and carGroup traffic carryings for the year were passengers 5.6m, cars 1.2m and freight metres 1.4m. Passenger and car carryings on the Clyde and Hebrides routes increased respectively by 6% and 7% compared with the previous year,carryings on the Clyde and Hebrides routes increased respectively by 6% and 7% compared with the previous year, while freight metre carryings were down by 5%. Carryings in all categories on the Northern Isles routes were broadlywhile freight metre carryings were down by 5%. Carryings in all categories on the Northern Isles routes were broadly in line with the previous year. in line with the previous year.

Both of the main operating companies, CalMac Ferries Ltd. and NorthLink Ferries Ltd., performed satisfactorily in termsBoth of the main operating companies, CalMac Ferries Ltd. and NorthLink Ferries Ltd., performed satisfactorily in terms of the operational and functional targets set within their respective contracts with the Scottish Government. of the operational and functional targets set within their respective contracts with the Scottish Government.

Work on the construction of the new Islay vessel is progressing to schedule and it is anticipated that the vessel will beWork on the construction of the new Islay vessel is progressing to schedule and it is anticipated that the vessel will be available to enter service in Spring 2011. available to enter service in Spring 2011.

Following completion of major development works at both Port Askaig and Largs, the official opening ceremonies forFollowing completion of major development works at both Port Askaig and Largs, the official opening ceremonies for both of these facilities took place in September 2009 in the presence of HRH the Princess Royal. Infrastructureboth of these facilities took place in September 2009 in the presence of HRH the Princess Royal. Infrastructure improvements at both Kennacraig and Port Ellen are planned for completion to coincide with the introduction of theimprovements at both Kennacraig and Port Ellen are planned for completion to coincide with the introduction of the new Islay vessel. new Islay vessel.

Works on Armadale, Mallaig and Colonsay linkspans were completed in December 2009 and works at Oban, Coll andWorks on Armadale, Mallaig and Colonsay linkspans were completed in December 2009 and works at Oban, Coll and Tiree commenced in early 2010. Structural repair works to strengthen sections of the berthing facility at Brodick PierTiree commenced in early 2010. Structural repair works to strengthen sections of the berthing facility at Brodick Pier commenced in Spring 2010. commenced in Spring 2010.

The lairage facilities and livestock containers, which were brought into operation on the Northern Isles services for theThe lairage facilities and livestock containers, which were brought into operation on the Northern Isles services for the peak livestock season in Autumn 2008, continue to prove successful in streamlining the operation and generatepeak livestock season in Autumn 2008, continue to prove successful in streamlining the operation and generate ongoing cost savings by removing the previous need to charter vessels dedicated for use with peak livestockongoing cost savings by removing the previous need to charter vessels dedicated for use with peak livestock movements. In February 2010, the owned freight vessel, MV Hascosay, was replaced by a more modern vessel, MVmovements. In February 2010, the owned freight vessel, MV Hascosay, was replaced by a more modern vessel, MV Hildasay, which has been taken on a time charter. MV Hascosay was sold in March 2010. Hildasay, which has been taken on a time charter. MV Hascosay was sold in March 2010.

Caledonian Maritime Assets Ltd. (CMAL), which provides the majority of the ships and terminal facilities for the ClydeCaledonian Maritime Assets Ltd. (CMAL), which provides the majority of the ships and terminal facilities for the Clyde and Hebrides ferry operations and is wholly owned by the Scottish Ministers, is the principal employer for the CalMacand Hebrides ferry operations and is wholly owned by the Scottish Ministers, is the principal employer for the CalMac Pension Fund, which is the pension fund with the largest employee membership within the Group. CMAL and the otherPension Fund, which is the pension fund with the largest employee membership within the Group. CMAL and the other participating employers are responsible for ensuring, on the basis of advice from the Trustees and their advisers andparticipating employers are responsible for ensuring, on the basis of advice from the Trustees and their advisers and with approval from the pensions regulator, where appropriate, that any deficits are properly funded. with approval from the pensions regulator, where appropriate, that any deficits are properly funded.

The majority of the liability for deficits in the other funds with large employee membership within the Group, theThe majority of the liability for deficits in the other funds with large employee membership within the Group, the Merchant Navy pension funds, lies with CMAL. However, following the actuarial valuation of the Merchant NavyMerchant Navy pension funds, lies with CMAL. However, following the actuarial valuation of the Merchant Navy Officers Pension Fund as at 31 March 2009, some of the active membership liability lies with companies within theOfficers Pension Fund as at 31 March 2009, some of the active membership liability lies with companies within the David MacBrayne Group, the financial impact of which has been provided for in these financial statements. David MacBrayne Group, the financial impact of which has been provided for in these financial statements.

The Board recognises that the safety of passengers and staff, and the security of operation of ships and shoreThe Board recognises that the safety of passengers and staff, and the security of operation of ships and shore facilities, as well as the protection of the environment, are of paramount importance. Accordingly, the Board ensuresfacilities, as well as the protection of the environment, are of paramount importance. Accordingly, the Board ensures that the associated practices and procedures which are in place across the Group are subject to regular and rigorousthat the associated practices and procedures which are in place across the Group are subject to regular and rigorous review. The Group adopts a proactive approach to all these matters by keeping up-to-date with the latest informationreview. The Group adopts a proactive approach to all these matters by keeping up-to-date with the latest information to ensure that it stays in the forefront of any developments. to ensure that it stays in the forefront of any developments.

The road equivalent tariff pilot scheme, which was introduced at the Scottish Government’s request from October 2008The road equivalent tariff pilot scheme, which was introduced at the Scottish Government’s request from October 2008 on certain Inner and Outer Hebrides services, is being assessed by their appointed consultants. The pilot scheme ison certain Inner and Outer Hebrides services, is being assessed by their appointed consultants. The pilot scheme is planned to operate until Spring 2011 and indications are that this has generated considerable increases in traffic onplanned to operate until Spring 2011 and indications are that this has generated considerable increases in traffic on the routes affected. the routes affected.

Following approval by the Scottish Government under the terms of the Clyde and Hebrides ferry services contract, Followinga approval by the Scottish Government under the terms of the Clyde and Hebrides ferry services contract, a number of timetable improvements were introduced from the start of the 2009/10 Winter season. These are primarilynumber of timetable improvements were introduced from the start of the 2009/10 Winter season. These are primarily aimed at providing better integration with bus and rail services, as well as improving connectivity for customers. aimed at providing better integration with bus and rail services, as well as improving connectivity for customers.

We are participating in the Scottish Ferries Review in our capacity as ferry operators. The review was commissioned byWe are participating in the Scottish Ferries Review in our capacity as ferry operators. The review was commissioned by the Scottish Government with the principal aim of developing a long-term plan for the provision of ferry servicesthe Scottish Government with the principal aim of developing a long-term plan for the provision of ferry services throughout Scotland. Publication and launch of the Scottish Ferries Plan is due in 2011. throughout Scotland. Publication and launch of the Scottish Ferries Plan is due in 2011.

During the year, the European Commission completed its inquiry into the levels of support provided for the operationDuring the year, the European Commission completed its inquiry into the levels of support provided for the operation of ferry services in Scotland and concluded that the support provided for the operation of both the Clyde & Hebridesof ferry services in Scotland and concluded that the support provided for the operation of both the Clyde & Hebrides and Northern Isles services is compliant with all relevant EU directives. As regards the Gourock/Dunoon serviceand Northern Isles services is compliant with all relevant EU directives. As regards the Gourock/Dunoon service currently operated by Cowal Ferries Ltd., the Commission concluded that the existing support is non-compliant andcurrently operated by Cowal Ferries Ltd., the Commission concluded that the existing support is non-compliant and that, in order to remove this non-compliance, a public tender for the operation of this service would need to bethat, in order to remove this non-compliance, a public tender for the operation of this service would need to be conducted. The Scottish Government commenced the public tender process in December 2009 with a view to theconducted. The Scottish Government commenced the public tender process in December 2009 with a view to the successful bidder taking over the service under the new contract by no later than 30 June 2011. successful bidder taking over the service under the new contract by no later than 30 June 2011.

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Text 2 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010

In relation to the tender for the Gourock/Dunoon ferry service currently being conducted by the Scottish Government, In relation to the tender for the Gourock/Dunoon ferry service currently being conducted by the Scottish Government,the Company has pre-qualified to receive an invitation to tender and it is anticipated that bids will require to be the Company has pre-qualified to receive an invitation to tender and it is anticipated that bids will require to besubmitted later in 2010. submitted later in 2010. We continued our tradition of holding Board Meetings at locations around the Group network, enabling Board Members We continued our tradition of holding Board Meetings at locations around the Group network, enabling Board Membersand senior managers to meet both customers and local community representatives in an informal setting. Meetings and senior managers to meet both customers and local community representatives in an informal setting. Meetingswere held in Lewis, Arran, Orkney and Mull. were held in Lewis, Arran, Orkney and Mull. In October 2009, Primrose Stark was appointed as a Non-Executive Director and I am confident that the Group will In October 2009, Primrose Stark was appointed as a Non-Executive Director and I am confident that the Group willbenefit greatly from the wealth of business skills and experience which she brings. benefit greatly from the wealth of business skills and experience which she brings. Lawrie Sinclair retired on 30 June 2010 and I would like to record my gratitude for his greatly valued contribution Lawrie Sinclair retired on 30 June 2010 and I would like to record my gratitude for his greatly valued contributionduring his 10-year period in office, latterly as Chief Executive of the David MacBrayne Group. during his 10-year period in office, latterly as Chief Executive of the David MacBrayne Group. Archie Robertson has been appointed as his successor and I am confident that he has the ability to take the Group Archie Robertson has been appointed as his successor and I am confident that he has the ability to take the Groupforward in facing the challenges which lie ahead. forward in facing the challenges which lie ahead. The Board was delighted that Alex Lynch’s achievements were recognised by his award of an MBE in the 2010 New The Board was delighted that Alex Lynch’s achievements were recognised by his award of an MBE in the 2010 NewYears Honours List. Years Honours List. Under the Board’s leadership, the Group will continue to build on its strengths, focusing on maintaining and, where Under the Board’s leadership, the Group will continue to build on its strengths, focusing on maintaining and, wherepossible, improving safety, comfort and quality of service to our customers, whilst endeavouring to control costs with a possible, improving safety, comfort and quality of service to our customers, whilst endeavouring to control costs with aview to providing best value for customers and the taxpayer. view to providing best value for customers and the taxpayer. I would like to thank all the Group’s employees, management and Directors for their continued commitment, I would like to thank all the Group’s employees, management and Directors for their continued commitment,enthusiasm and professionalism which ensure that we can look forward to the challenges which lie ahead with great enthusiasm and professionalism which ensure that we can look forward to the challenges which lie ahead with greatconfidence. confidence.

Peter Timms Peter Timms Chairman Chairman

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Text 3 27/07/2010 12:02 Dhaibhidh Mac a’ Bhriuthainn Earranta/Aireamh SC15304/31 Màrt 2010 Dhaibhidh Mac a’ Bhriuthainn Earranta/Aireamh SC15304/31 Màrt 2010 Aithris a’ Chathraiche Aithris a’ Chathraiche Tha mi toilichte a bhith a’ taisbeanadh na h-Aithisg Bhliadhnail aig Buidhinn Dhaibhidh Mhic a’ Bhriuthainn, a tha Tha mi toilichte a bhith a’ taisbeanadh na h-Aithisg Bhliadhnail aig Buidhinn Dhaibhidh Mhic a’ Bhriuthainn, a thagabhail a-stigh nam buidhnean a tha lìbhrigeadh sheirbheisean aiseig Chluaidh, Innse Gall, agus nan Eileanan mu gabhail a-stigh nam buidhnean a tha lìbhrigeadh sheirbheisean aiseig Chluaidh, Innse Gall, agus nan Eileanan muThuath. Thuath. Nochd a’ Bhuidheann prothaid de £4.6m mus deach cìsean a phàigheadh. Bha teachd-a-steach air faraidhean is eile a- Nochd a’ Bhuidheann prothaid de £4.6m mus deach cìsean a phàigheadh. Bha teachd-a-steach air faraidhean is eile a-rèir amais aig £80.3m, agus bha cosgaisean an ìre mhath mar a bha an dùil aig £170.6m. Thug a’ chiad bhliadhna rèir amais aig £80.3m, agus bha cosgaisean an ìre mhath mar a bha an dùil aig £170.6m. Thug a’ chiad bhliadhnashlàn seo de chosgaisean co-ionnan rathaid (RET) air cuid de sheirbheisean Innse Gall, buaidh air na tabhartasan- shlàn seo de chosgaisean co-ionnan rathaid (RET) air cuid de sheirbheisean Innse Gall, buaidh air na tabhartasan-airgid a fhuaireas bho Riaghaltas na h-Alba. Bha tabhartas-airgid Riaghaltas na h-Alba air a’ bhliadhna suas 5.8% air airgid a fhuaireas bho Riaghaltas na h-Alba. Bha tabhartas-airgid Riaghaltas na h-Alba air a’ bhliadhna suas 5.8% aira bhliadhna an-uiridh, aig £94.8m. a bhliadhna an-uiridh, aig £94.8m. Thar na bliadhna ghiùlain a’ Bhuidheann 5.6m neach-siubhail, 1.2m càr, agus 1.4m meatair de luchd bathair. Chaidh Thar na bliadhna ghiùlain a’ Bhuidheann 5.6m neach-siubhail, 1.2m càr, agus 1.4m meatair de luchd bathair. Chaidhàireamhan luchd-siubhail agus chàraichean air seirbheisean Chluaidh agus Innse Gall suas 6% agus 7% fa leth air a’ àireamhan luchd-siubhail agus chàraichean air seirbheisean Chluaidh agus Innse Gall suas 6% agus 7% fa leth air a’bhliadhna roimhe, ach bha meatair luchd bathair sìos 5%. Bha àireamhan air seirbheisean nan Eileanan mu Thuath gu bhliadhna roimhe, ach bha meatair luchd bathair sìos 5%. Bha àireamhan air seirbheisean nan Eileanan mu Thuath gumòr co-ionnan ris a’ bhliadhna an-uiridh. mòr co-ionnan ris a’ bhliadhna an-uiridh. Choilean an dà phrìomh bhuidhinn, Aiseagan Calmac Earranta agus Aiseagan Northlink Earranta, mar bu chòir mu Choilean an dà phrìomh bhuidhinn, Aiseagan Calmac Earranta agus Aiseagan Northlink Earranta, mar bu chòir muchoinneimh nan amasan seirbheis agus gnìomh as na cùmhnantan fa leth aca le Riaghaltas na h-Alba. choinneimh nan amasan seirbheis agus gnìomh as na cùmhnantan fa leth aca le Riaghaltas na h-Alba. Tha obair togail an t-soithich ùir airson Ìle a’ dol a-rèir clàr-ama, agus tha dùil rithe tòiseachadh air seirbheis san Tha obair togail an t-soithich ùir airson Ìle a’ dol a-rèir clàr-ama, agus tha dùil rithe tòiseachadh air seirbheis sanEarrach 2011. Earrach 2011. Le obair leasachaidh air cidheachan Phort Ascaig agus Na Leargaidh Ghallda deiseil chaidh an dà ghoireas fhosgladh gu Le obair leasachaidh air cidheachan Phort Ascaig agus Na Leargaidh Ghallda deiseil chaidh an dà ghoireas fhosgladh guh-oifigeil fa chomhair na Bana-Phrionnsa Rìoghail san t-Sultain 2009. Tha dùil ri obair leasachaidh aig Ceann na Creige h-oifigeil fa chomhair na Bana-Phrionnsa Rìoghail san t-Sultain 2009. Tha dùil ri obair leasachaidh aig Ceann na Creigeagus Port Ilein a bhith deanta ann an àm airson bàta ùr Ìle. agus Port Ilein a bhith deanta ann an àm airson bàta ùr Ìle. Chaidh crìoch air obair air altan-aiseig Àrmadail, Mhallaig agus Cholbhasaigh, san Dùbhlachd 2009; agus thòisich Chaidh crìoch air obair air altan-aiseig Àrmadail, Mhallaig agus Cholbhasaigh, san Dùbhlachd 2009; agus thòisichobraichean aig an Òban, Col agus Tiriodh tràth ann an 2010. Thòisich obair air neartachadh phàirtean de Chìdhe obraichean aig an Òban, Col agus Tiriodh tràth ann an 2010. Thòisich obair air neartachadh phàirtean de ChìdheBhreadhaig san Earrach 2010. Bhreadhaig san Earrach 2010. Tha na cròthan agus na bogsaichean-sprèidhe ùra, a chuireadh gu feum aig àirde iarrtais san Fhoghar 2008, a’ Tha na cròthan agus na bogsaichean-sprèidhe ùra, a chuireadh gu feum aig àirde iarrtais san Fhoghar 2008, a’leantainn soirbheachail le bhith a’ sgioblachadh na h-obrach agus a’ caomhnadh air cosgais leis nach fheumar leantainn soirbheachail le bhith a’ sgioblachadh na h-obrach agus a’ caomhnadh air cosgais leis nach fheumarbàtaichean a bharrachd fhastadh aig prìomh àm giùlain sprèidhe. Sa Ghearran 2010 chaidh soitheach-bathair nas ùire, bàtaichean a bharrachd fhastadh aig prìomh àm giùlain sprèidhe. Sa Ghearran 2010 chaidh soitheach-bathair nas ùire,MV Hildasay, a chur an àite MV Hascosay a bha fo shealbh. Chaidh MV Hascosay a reic sa Mhàrt 2010. MV Hildasay, a chur an àite MV Hascosay a bha fo shealbh. Chaidh MV Hascosay a reic sa Mhàrt 2010. ’S e Stòras Mara Chaledonian Earr. (CMAL), a tha solarachadh a’ mhòr-chuid de na soithichean is na cidheachan airson ’S e Stòras Mara Chaledonian Earr. (CMAL), a tha solarachadh a’ mhòr-chuid de na soithichean is na cidheachan airsonseirbheisean aiseig Chluaidh is Innse Gall agus a bhuineas gu tur dha Ministearan na h-Alba, am prìomh fhastaiche dha seirbheisean aiseig Chluaidh is Innse Gall agus a bhuineas gu tur dha Ministearan na h-Alba, am prìomh fhastaiche dhaSgeama Peinnsein ChalMac dham buin an àireamh is motha de luchd-obrach na Buidhne. Tha uallach air CMAL agus Sgeama Peinnsein ChalMac dham buin an àireamh is motha de luchd-obrach na Buidhne. Tha uallach air CMAL agusair luchd-fastaidh eile a tha a’ gabhail pàirt san sgeama, dèanamh cinnteach, le stiùireadh Urrasairean agus an cuid air luchd-fastaidh eile a tha a’ gabhail pàirt san sgeama, dèanamh cinnteach, le stiùireadh Urrasairean agus an cuidchomhairlichean, agus le aonta riaghladair pheinnseanan mar a bhios iomchaidh, gum bheil gainnead sam bith air a chomhairlichean, agus le aonta riaghladair pheinnseanan mar a bhios iomchaidh, gum bheil gainnead sam bith air amhaoineachadh gu ceart. mhaoineachadh gu ceart. Tha a’ mhòr-chuid den uallach airson uireasbhaidhean co-cheangailte ri ionmhasan eile dham buin àireamhan mòr den Tha a’ mhòr-chuid den uallach airson uireasbhaidhean co-cheangailte ri ionmhasan eile dham buin àireamhan mòr denluchd-obrach, peinnseanan na Cabhlaich Mharsanta, air CMAL. Ach a’ leantainn air measadh air Stòras Peinnsean luchd-obrach, peinnseanan na Cabhlaich Mharsanta, air CMAL. Ach a’ leantainn air measadh air Stòras PeinnseanOifigeach na Cabhlaich Mharsanta le luachadair-peinnsean, mar aig 31 Màrt 2009, tha uallach air companaidhean Oifigeach na Cabhlaich Mharsanta le luachadair-peinnsean, mar aig 31 Màrt 2009, tha uallach air companaidheantaobh a-staigh Buidheann Dhaibhidh Mhic a’ Bhriuthainn airson cuid de bhallrachd-leantainnich na sgeama, agus tha taobh a-staigh Buidheann Dhaibhidh Mhic a’ Bhriuthainn airson cuid de bhallrachd-leantainnich na sgeama, agus thana cunntasan seo a’ gabhail a-staigh nan cosgaisean sin. na cunntasan seo a’ gabhail a-staigh nan cosgaisean sin. Tha am Bòrd mothachail gum bheil sàbhailteachd luchd-obrach agus luchd-siubhail, agus tèarainteachd obrach air na Tha am Bòrd mothachail gum bheil sàbhailteachd luchd-obrach agus luchd-siubhail, agus tèarainteachd obrach air nabàtaichean agus air tìr, agus dìon na h-àrainneachd, nam prìomhachais. Ri linn sin tha am Bòrd a’ dèanamh bàtaichean agus air tìr, agus dìon na h-àrainneachd, nam prìomhachais. Ri linn sin tha am Bòrd a’ dèanamhcinnteach gum bheil modhan-obrach a tha bualadh air sàbhailteachd is tèarainteachd feadh na Buidhne, fo sgrùdadh cinnteach gum bheil modhan-obrach a tha bualadh air sàbhailteachd is tèarainteachd feadh na Buidhne, fo sgrùdadhcunbhalach agus mionaideach. Tha a’ Bhuidheann a’ gabhail eala chunbhalach ri seo le bhith a’ cumail suas ri cunbhalach agus mionaideach. Tha a’ Bhuidheann a’ gabhail eala chunbhalach ri seo le bhith a’ cumail suas rifiosrachadh ùr sam bith ach am bi e air ceann adhartais. fiosrachadh ùr sam bith ach am bi e air ceann adhartais. San Dàmhair 2008, air iarrtas Riaghaltas na h-Alba, stèidhicheadh sgeama dearbhaidh air cosgaisean co-ionnan San Dàmhair 2008, air iarrtas Riaghaltas na h-Alba, stèidhicheadh sgeama dearbhaidh air cosgaisean co-ionnanrathaid air cuid de sheirbheisean nan Eileanan a-Staigh agus Innse Gall, agus tha seo ga mheasadh le comhairlichean rathaid air cuid de sheirbheisean nan Eileanan a-Staigh agus Innse Gall, agus tha seo ga mheasadh le comhairlicheantaghte. Ruithidh an sgeama dearbhaidh gu Earrach 2011 agus tha coltas ann gum bheil malairt air fàs gu mòr air na taghte. Ruithidh an sgeama dearbhaidh gu Earrach 2011 agus tha coltas ann gum bheil malairt air fàs gu mòr air naslighean air am bheil e. slighean air am bheil e. Le aonta an Riaghaltais fo riaghailtean chùmhnant sheirbheisean aiseig Chluaidh agus Innse Gall, chaidh grunn Le aonta an Riaghaltais fo riaghailtean chùmhnant sheirbheisean aiseig Chluaidh agus Innse Gall, chaidh grunnleasachaidhean clàr-ama a chur an gnìomh airson seirbheis a’ Gheamhraidh 2009-10. Tha iad sin ag amas as a’ mhòr- leasachaidhean clàr-ama a chur an gnìomh airson seirbheis a’ Gheamhraidh 2009-10. Tha iad sin ag amas as a’ mhòr-chuid air ceanglaichean nas fheàrr le seirbheisean bhusaichean is thrèanaichean, cho math ri bhith a’ leasachadh chuid air ceanglaichean nas fheàrr le seirbheisean bhusaichean is thrèanaichean, cho math ri bhith a’ leasachadhshe irbheisean luchd-siubhail. sheirbheisean luchd-siubhail. Mar luchd-lìbhrigidh sheirbheisean aiseig tha sinn a’ gabhail pàirt anns an Sgrùdadh air Aiseagan Alba. Chaidh an Mar luchd-lìbhrigidh sheirbheisean aiseig tha sinn a’ gabhail pàirt anns an Sgrùdadh air Aiseagan Alba. Chaidh ansgrùdadh a stèidheachadh le Riaghaltas na h-Alba le prìomh amas innleachd fad-ùine a dhealbh airson seirbheisean sgrùdadh a stèidheachadh le Riaghaltas na h-Alba le prìomh amas innleachd fad-ùine a dhealbh airson seirbheiseanaiseig air feadh Alba. Tha dùil ri clò-bhualadh is foillseachadh Plana Aiseagan Alba ann an 2011. aiseig air feadh Alba. Tha dùil ri clò-bhualadh is foillseachadh Plana Aiseagan Alba ann an 2011.

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Text 4 27/07/2010 12:02 Dhaibhidh Mac a’ Bhriuthainn Earranta/Aireamh SC15304/31 Màrt 2010 Dhaibhidh Mac a’ Bhriuthainn Earranta/Aireamh SC15304/31 Màrt 2010

Rè na bliadhna chrìochnaich an Coimisean Eòrpach an sgrùdadh air ìrean na taice a tha seirbheisean aiseig a’ faotainnRè na bliadhna chrìochnaich an Coimisean Eòrpach an sgrùdadh air ìrean na taice a tha seirbheisean aiseig a’ faotainn ann an Alba agus cho-dhùin e gum bheil an taic a tha seirbheisean Chluaidh, Innse Gall, agus nan Eileanan mu Thuathann an Alba agus cho-dhùin e gum bheil an taic a tha seirbheisean Chluaidh, Innse Gall, agus nan Eileanan mu Thuath a’Dhaibhidh faotainn uileMac taobh a’ Bhriuthainn a-staigh riaghailtean Earranta/Aireamh iomchaidh SC15304/31Eòrpach. Cho-dhùin Màrt 2010 an Coimisean nach eil an t-seirbheis a thaa’ faotainn uile taobh a-staigh riaghailtean iomchaidh Eòrpach. Cho-dhùin an Coimisean nach eil an t-seirbheis a tha Aiseigean Cowal Earranta a’ lìbhrigeadh eadar Dùn Omhain agus Guireig a-rèir nan riaghailtean, agus gum feumAiseigean Cowal Earranta a’ lìbhrigeadh eadar Dùn Omhain agus Guireig a-rèir nan riaghailtean, agus gum feum tairgsean poblach a chur air dòigh gus sin a cheartachadh. Thòisich Riaghaltas na h-Alba air obair na tairgse poblaich atairgsean poblach a chur air dòigh gus sin a cheartachadh. Thòisich Riaghaltas na h-Alba air obair na tairgse poblaich a churRè na an bliadhna gnìomh chrìochnaich san Dùbhlachd an Coimisean 2009 le Eòrpachamas gun an sgrùdadhtòisich a’ air chompanaidh ìrean na taice a ashoirbhicheas tha seirbheisean ris aiseigan t-seirbheis a’ faotainn achur an gnìomh san Dùbhlachd 2009 le amas gun tòisich a’ chompanaidh a shoirbhicheas ris an t-seirbheis a lìbhrigeadhann an Alba air agus 30 cho-dhùinÒgmhios 2011 e gum aig bheil a’ char an taicis fhaide. a tha seirbheisean Chluaidh, Innse Gall, agus nan Eileanan mu Thuathlìbhrigeadh air 30 Ògmhios 2011 aig a’ char is fhaide. a’ faotainn uile taobh a-staigh riaghailtean iomchaidh Eòrpach. Cho-dhùin an Coimisean nach eil an t-seirbheis a tha ThaAiseigean teisteanas Cowal iomchaidh Earranta a’aig lìbhrigeadh a’ Chompanaidh eadar cuireadhDùn Omhain fhaotainn agus Guireigbho Riaghaltas a-rèir nan na riaghailtean,h-Alba tairgse agus a churgum airsonfeumTha teisteanas iomchaidh aig a’ Chompanaidh cuireadh fhaotainn bho Riaghaltas na h-Alba tairgse a chur airson seirbheistairgsean Ghuireigpoblach a/ churDhùn air Omhainn dòigh gus a lìbhrigeadh, sin a cheartachadh. agus tha Thòisich dùil gum Riaghaltas bi aig tairgsean na h-Alba ri bhith air obair a-staigh na tairgse nas fhaide poblaich air a’aseirbheis Ghuireig / Dhùn Omhainn a lìbhrigeadh, agus tha dùil gum bi aig tairgsean ri bhith a-staigh nas fhaide air a’ bhliadhnachur an gnìomh 2010. san Dùbhlachd 2009 le amas gun tòisich a’ chompanaidh a shoirbhicheas ris an t-seirbheis abhliadhna 2010. lìbhrigeadh air 30 Ògmhios 2011 aig a’ char is fhaide. Lean sinn leis a’ chleachdadh a bhith a’ cumail Coinneamhan Bùird feadh nan sgìrean a tha a’ Bhuidheann a’Lean sinn leis a’ chleachdadh a bhith a’ cumail Coinneamhan Bùird feadh nan sgìrean a tha a’ Bhuidheann a’ frithealadh,Tha teisteanas a’ toirtiomchaidh cothroim aig dhaa’ ChompanaidhBuill Bùird agus cuireadh àrd-stiùirichean fhaotainn coinneachadhbho Riaghaltas ri naluchd-cleachdaidh h-Alba tairgse asheirbheisean chur airsonfrithealadh, a’ toirt cothroim dha Buill Bùird agus àrd-stiùirichean coinneachadh ri luchd-cleachdaidh sheirbheisean agusseirbheis ri riochdairean Ghuireig / Dhùn coimhearsnachd Omhainn a lìbhrigeadh, ann an suidheachaidhean agus tha dùil gum neo-fhoirmeil. bi aig tairgsean Chaidh ri bhith coinneamhan a-staigh nas a fhaidechumail air ana’agus ri riochdairean coimhearsnachd ann an suidheachaidhean neo-fhoirmeil. Chaidh coinneamhan a chumail an Leòdhas;bhliadhna an2010. Arcaibh; ann am Muile; agus ann an Eilean Arainn. Leòdhas; an Arcaibh; ann am Muile; agus ann an Eilean Arainn.

ChaidhLean sinn Primrose leis a’ Stark chleachdadh a shuidheachadh a bhith a’mar cumail Stiùiriche Coinneamhan Neo-Ghnìomha Bùird annsfeadh an nan Damhar sgìrean 2009, a agustha a’tha Bhuidheann mi cinnteach a’Chaidh Primrose Stark a shuidheachadh mar Stiùiriche Neo-Ghnìomha anns an Damhar 2009, agus tha mi cinnteach gumfrithealadh, buannaich a’ toirta’ Bhuidheann cothroim dhaàs na Buill sgilean Bùird is anagus eòlas àrd-stiùirichean luachmhor gnìomhachais coinneachadh a thari luchd-cleachdaidhi a’ toirt chun na dreuchd. sheirbheisean gum buannaich a’ Bhuidheann às na sgilean is an eòlas luachmhor gnìomhachais a tha i a’ toirt chun na dreuchd. agus ri riochdairean coimhearsnachd ann an suidheachaidhean neo-fhoirmeil. Chaidh coinneamhan a chumail an LeigLeòdhas; Labhraidh an Arcaibh; Mac Na ann Ceàrdaich am Muile; dheth agus a anndhreuchd an Eilean air 30Arainn. Ògmhios 2010 agus dh’ iarrainn mo thaing dhà a chlàradhLeig Labhraidh Mac Na Ceàrdaich dheth a dhreuchd air 30 Ògmhios 2010 agus dh’ iarrainn mo thaing dhà a chlàradh airson a chuid saothrach luachmhor thar 10 bliadhna, mu dheireadh mar Cheannard Buidheann Dhaibhidh Mhic a’airson a chuid saothrach luachmhor thar 10 bliadhna, mu dheireadh mar Cheannard Buidheann Dhaibhidh Mhic a’ Bhriuthainn.Chaidh Primrose Stark a shuidheachadh mar Stiùiriche Neo-Ghnìomha anns an Damhar 2009, agus tha mi cinnteachBhriuthainn. gum buannaich a’ Bhuidheann às na sgilean is an eòlas luachmhor gnìomhachais a tha i a’ toirt chun na dreuchd. Chaidh Eardsaidh Robasdan fhastadh na àite agus tha mi misneachail gum bheil an comas aigesan a’ Bhuidheann aChaidh Eardsaidh Robasdan fhastadh na àite agus tha mi misneachail gum bheil an comas aigesan a’ Bhuidheann a thoirtLeig Labhraidh air adhart Mac mu Nachoinneimh Ceàrdaich nan dheth dùbhlan a dhreuchd a tha roimhpe. air 30 Ògmhios 2010 agus dh’ iarrainn mo thaing dhà a chlàradhthoirt air adhart mu choinneimh nan dùbhlan a tha roimhpe. airson a chuid saothrach luachmhor thar 10 bliadhna, mu dheireadh mar Cheannard Buidheann Dhaibhidh Mhic a’ BhaBhriuthainn. am Bòrd air leth toilichte leis an aithne a fhuair obair Ailig Lynch, le MBE ga bhuileachadh air ann an LiostaBha am Bòrd air leth toilichte leis an aithne a fhuair obair Ailig Lynch, le MBE ga bhuileachadh air ann an Liosta Urraman Bliadhn’ Ùire 2010. Urraman Bliadhn’ Ùire 2010. Chaidh Eardsaidh Robasdan fhastadh na àite agus tha mi misneachail gum bheil an comas aigesan a’ Bhuidheann a Fothoirt stiùireadh air adhart a’ Bhùird,mu choinneimh leanaidh nana’ Bhuidheann dùbhlan a thaa’ neartachadh roimhpe. a cuid ealantais, a’ sònrachadh air gleidheadh agus, farFo stiùireadh a’ Bhùird, leanaidh a’ Bhuidheann a’ neartachadh a cuid ealantais, a’ sònrachadh air gleidheadh agus, far an gabh sin dèanamh, leasachadh sàbhailteachd, cofhurtachd agus ìre seirbheis luchd-ceannachd, fhad ’s a tha sinnan gabh sin dèanamh, leasachadh sàbhailteachd, cofhurtachd agus ìre seirbheis luchd-ceannachd, fhad ’s a tha sinn cuideachdBha am Bòrd a’ feuchainn air leth toilichte ri smachd leis a an chumail aithne aira fhuaircosgaisean obair gusAilig an Lynch, luach leas MBEfhèarr ga abhuileachadh thoirt dha luchd-siubhail air ann an Liosta aguscuideachd a’ feuchainn ri smachd a chumail air cosgaisean gus an luach as fhèarr a thoirt dha luchd-siubhail agus luchd-pàighidhUrraman Bliadhn’ chìsean. Ùire 2010. luchd-pàighidh chìsean.

BuFo stiùireadhmhath leam a’ Bhùird,taing a thoirtleanaidh dha a’ luchd-obrach, Bhuidheann a’ luchd-stiùiridh neartachadh aagus cuid Buill ealantais, Bòrd na a’ Buidhnesònrachadh air fadair gleidheadhairson an dìlseachd, agus, farBu mhath leam taing a thoirt dha luchd-obrach, luchd-stiùiridh agus Buill Bòrd na Buidhne air fad airson an dìlseachd, dealaisan gabh agus sin dèanamh,proifeiseantachd leasachadh leantainnich, sàbhailteachd, a tha cofhurtachda’ ceadachadh agus dhuinn ìre seirbheis coimhead luchd-ceannachd, ris na dùbhlain fhromhainnad ’s a tha le sinnmòrdealais agus proifeiseantachd leantainnich, a tha a’ ceadachadh dhuinn coimhead ris na dùbhlain romhainn le mòr mhisneachd.cuideachd a’ feuchainn ri smachd a chumail air cosgaisean gus an luach as fhèarr a thoirt dha luchd-siubhail agusmhisneachd. luchd-pàighidh chìsean.

Bu mhath leam taing a thoirt dha luchd-obrach, luchd-stiùiridh agus Buill Bòrd na Buidhne air fad airson an dìlseachd, Peadardealais Timmsagus proifeiseantachd leantainnich, a tha a’ ceadachadh dhuinn coimhead ris na dùbhlain romhainn le mòrPeadar Timms Cathraichemhisneachd. Cathraiche

Peadar Timms Cathraiche

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Text 5 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Board of Directors Board of Directors Peter Timms CBE Peter Timms CBE Chairman Chairman Peter Timms is a resident of the island of Bute where he is Chairman of Flexible Technology Ltd. He is also Chairman of Peter Timms is a resident of the island of Bute where he is Chairman of Flexible Technology Ltd. He is also Chairman ofseveral other companies in the private sector. He formerly served as a Member of the Highlands and Islands Enterprise several other companies in the private sector. He formerly served as a Member of the Highlands and Islands EnterpriseBoard and Chairman of HIE Argyll and the Islands. Board and Chairman of HIE Argyll and the Islands. David McGibbon David McGibbon Deputy Chairman Deputy Chairman David McGibbon is a qualified accountant and an independent business consultant. He is a Board member and David McGibbon is a qualified accountant and an independent business consultant. He is a Board member andChairman of the Audit Committee of Historic Scotland. He formerly served as Chairman of the London Stock Exchange, Chairman of the Audit Committee of Historic Scotland. He formerly served as Chairman of the London Stock Exchange,Scottish Council and held the post of Finance Director and Company Secretary with Grampian Holdings plc. Scottish Council and held the post of Finance Director and Company Secretary with Grampian Holdings plc. Archie Robertson OBE Archie Robertson OBE Chief Executive Chief Executive Archie Robertson has an honours degree in Technological Economics and is a Fellow of the Chartered Institute of Archie Robertson has an honours degree in Technological Economics and is a Fellow of the Chartered Institute ofHighways and Transportation. He formerly held the posts of Chief Executive of the Highways Agency, and Operations Highways and Transportation. He formerly held the posts of Chief Executive of the Highways Agency, and OperationsDirector at the Environment Agency of England and Wales. These posts followed an international career with BP, in Director at the Environment Agency of England and Wales. These posts followed an international career with BP, inshipping, oil-refining and distribution. He is also a Non-Executive Director of Capita Symonds Ltd. shipping, oil-refining and distribution. He is also a Non-Executive Director of Capita Symonds Ltd. Ian Gillies Ian Gillies Non-Executive Director Non-Executive Director Ian Gillies is an Estate Factor and recent past Councillor for the islands of Tiree and Coll on Argyll & Bute Council. He Ian Gillies is an Estate Factor and recent past Councillor for the islands of Tiree and Coll on Argyll & Bute Council. Heholds several public sector posts representing island interests and is a past Chairman of the Shipping Services Advisory holds several public sector posts representing island interests and is a past Chairman of the Shipping Services AdvisoryCommittee (South). Based on Tiree, Mr Gillies has detailed knowledge of the issues affecting island communities. Committee (South). Based on Tiree, Mr Gillies has detailed knowledge of the issues affecting island communities. Alex Lynch MBE Alex Lynch MBE Group Finance Director Group Finance Director Alex Lynch is an associate member of the Chartered Institute of Management Accountants and a Chartered Member of Alex Lynch is an associate member of the Chartered Institute of Management Accountants and a Chartered Member ofthe Institute of Logistics and Transport. He formerly held posts at Board level within the transport sector. the Institute of Logistics and Transport. He formerly held posts at Board level within the transport sector. Lorne MacLeod Lorne MacLeod Non-Executive Director Non-Executive Director Lorne MacLeod is a Chartered Accountant based in Oban, and specialises in working with social enterprises and charities Lorne MacLeod is a Chartered Accountant based in Oban, and specialises in working with social enterprises and charitiesin the West Highlands and Islands. He is a Director of Sealladh na Beinne Moire, the community company which in the West Highlands and Islands. He is a Director of Sealladh na Beinne Moire, the community company whichmanages the estate covering the islands of Eriskay, South Uist and Benbecula. He is also a Director of several manages the estate covering the islands of Eriskay, South Uist and Benbecula. He is also a Director of severalbusinesses based in Skye. businesses based in Skye. Norman Quirk Norman Quirk Non-Executive Director Non-Executive Director Norman Quirk lives on the island of Mull, and is a Chartered Accountant. He is the former Managing Director of Saga Norman Quirk lives on the island of Mull, and is a Chartered Accountant. He is the former Managing Director of SagaRadio in Scotland, and previously held senior positions in several other radio broadcasting organisations in Scotland. He Radio in Scotland, and previously held senior positions in several other radio broadcasting organisations in Scotland. Heis also immediate past Chairman of the Scottish Chambers of Commerce, former President of the Glasgow Chamber of is also immediate past Chairman of the Scottish Chambers of Commerce, former President of the Glasgow Chamber ofCommerce, Glasgow Junior Chamber of Commerce and the Citizens Theatre in Glasgow. He is a Director of Mull Theatre Commerce, Glasgow Junior Chamber of Commerce and the Citizens Theatre in Glasgow. He is a Director of Mull Theatreand the former Executive Director and Vice Chair of Scottish Ballet. and the former Executive Director and Vice Chair of Scottish Ballet. Robert Sinclair Robert Sinclair Non-Executive Director Non-Executive Director Robert Sinclair was the Principal of Banff and Buchan College of Further Education until April 2010. He has also worked Robert Sinclair was the Principal of Banff and Buchan College of Further Education until April 2010. He has also workedas a Master Mariner and as a Platform Manager with Treasure Petroleum Services, and as Principal of the North Atlantic as a Master Mariner and as a Platform Manager with Treasure Petroleum Services, and as Principal of the North AtlanticFisheries College in Scalloway. He is also on the Board of the Museum of Scottish Lighthouses. Fisheries College in Scalloway. He is also on the Board of the Museum of Scottish Lighthouses. Primrose Stark Primrose Stark Non-Executive Director Non-Executive Director Primrose Stark is a Non-Executive Director of Competence Matters Ltd. and served as a Non-Executive Director of the Primrose Stark is a Non-Executive Director of Competence Matters Ltd. and served as a Non-Executive Director of theNuclear Decommissioning Authority. She was HR Director and a founder Director of First Engineering Ltd., having been Nuclear Decommissioning Authority. She was HR Director and a founder Director of First Engineering Ltd., having beenpart of the successful management employee buy-out from British Rail. She also held the post of Business part of the successful management employee buy-out from British Rail. She also held the post of BusinessTransformation Consultant for Glasgow Housing Association. Transformation Consultant for Glasgow Housing Association. George Taylor George Taylor Group Technical Director Group Technical Director George Taylor is an Incorporated Engineer and a Member of the Institute of Marine Engineering, Science and George Taylor is an Incorporated Engineer and a Member of the Institute of Marine Engineering, Science andTechnology. He formerly held posts at senior management level within the shipping industry. Technology. He formerly held posts at senior management level within the shipping industry.

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Text 6 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010

Directors' Report Directors' Report

The Directors present their Annual Report and financial statements for the year ended 31 March 2010. In the opinion of The Directors present their Annual Report and financial statements for the year ended 31 March 2010. In the opinion of the Directors, the state of affairs of the Group is satisfactory. the Directors, the state of affairs of the Group is satisfactory.

Principal activity and business review Principal activity and business review

The principal activity of the Group is the provision of ferry services in the Clyde Estuary and in the Hebrides and The principal activity of the Group is the provision of ferry services in the Clyde Estuary and in the Hebrides and Northern Isles areas of Scotland, under public service contracts with the Scottish Government. Under the terms of Northern Isles areas of Scotland, under public service contracts with the Scottish Government. Under the terms of these contracts, the main operating companies within the Group, CalMac Ferries Ltd. and NorthLink Ferries Ltd., receive these contracts, the main operating companies within the Group, CalMac Ferries Ltd. and NorthLink Ferries Ltd., receive grant support from the Scottish Government; the Group also operates a limited number of services outwith these grant support from the Scottish Government; the Group also operates a limited number of services outwith these contracts without grant support. contracts without grant support.

The Group made a profit for the year before tax of £4.6m. No dividends have been paid or are proposed. The Group made a profit for the year before tax of £4.6m. No dividends have been paid or are proposed.

Group turnover for the year from fares and other sources was £80.3m whilst operating costs were £170.6m. Grants and Group turnover for the year from fares and other sources was £80.3m whilst operating costs were £170.6m. Grants and subsidies receivable amounted to £94.8m. subsidies receivable amounted to £94.8m.

The principal risks and uncertainties facing the Group include, in the case of CalMac Ferries Ltd., the financial impact of The principal risks and uncertainties facing the Group include, in the case of CalMac Ferries Ltd., the financial impact of operating the Clyde and Hebrides ferry services under contract and the implications of the introduction on a pilot basis, operating the Clyde and Hebrides ferry services under contract and the implications of the introduction on a pilot basis, under direction from the Scottish Government, of a road equivalent tariff scheme on a number of the routes which it under direction from the Scottish Government, of a road equivalent tariff scheme on a number of the routes which it operates, and, in the case of NorthLink Ferries Ltd., competition from other ferry and airline operators. Until 31 March operates, and, in the case of NorthLink Ferries Ltd., competition from other ferry and airline operators. Until 31 March 2009, the risks associated with the volatility of marine fuel prices were underwritten within the terms of the respective 2009, the risks associated with the volatility of marine fuel prices were underwritten within the terms of the respective contracts with the Scottish Government. From April 2009, the Group entered a fuel hedge covering a two-year period, contracts with the Scottish Government. From April 2009, the Group entered a fuel hedge covering a two-year period, which relates to a substantial portion of the Group’s marine fuel consumption. The risk related to the balance of marine which relates to a substantial portion of the Group’s marine fuel consumption. The risk related to the balance of marine fuel consumption remains underwritten within the terms of the respective contracts with the Scottish Government. fuel consumption remains underwritten within the terms of the respective contracts with the Scottish Government.

Key areas of the performance and development of the business include safety, reliability, punctuality and standard of Key areas of the performance and development of the business include safety, reliability, punctuality and standard of service. service.

The performance of CalMac Ferries Ltd. is monitored by the Scottish Government under the terms of the Clyde and The performance of CalMac Ferries Ltd. is monitored by the Scottish Government under the terms of the Clyde and Hebrides ferry services contract. This includes such measures as reliability and punctuality (allowing for weather Hebrides ferry services contract. This includes such measures as reliability and punctuality (allowing for weather disruption) and customer service levels. disruption) and customer service levels.

During the year, CalMac Ferries Ltd. achieved reliability and punctuality levels of 99.9% after relief events such as During the year, CalMac Ferries Ltd. achieved reliability and punctuality levels of 99.9% after relief events such as adverse weather conditions, and a 100% record was achieved on other targets. The Company operated within the adverse weather conditions, and a 100% record was achieved on other targets. The Company operated within the contract grant provision for the year. contract grant provision for the year.

The performance of NorthLink Ferries Ltd. is monitored by the Scottish Government under the terms of the Northern The performance of NorthLink Ferries Ltd. is monitored by the Scottish Government under the terms of the Northern Isles ferry services contract. This includes such measures as reliability and punctuality (allowing for weather Isles ferry services contract. This includes such measures as reliability and punctuality (allowing for weather disruption), the availability of on-board services, services at the port terminals and the welfare of livestock carried. disruption), the availability of on-board services, services at the port terminals and the welfare of livestock carried.

During the year to 31 March 2010, NorthLink Ferries Ltd. achieved reliability and punctuality levels of 100% and 99.5% During the year to 31 March 2010, NorthLink Ferries Ltd. achieved reliability and punctuality levels of 100% and 99.5% respectively after relief events such as adverse weather conditions, and a 100% record was achieved on the other respectively after relief events such as adverse weather conditions, and a 100% record was achieved on the other targets. The company operated within the contract grant provision for the year. targets. The company operated within the contract grant provision for the year. An amount of £1.6m has been accrued in respect of one-off active member employer deficit contributions due to be paid An amount of £1.6m has been accrued in respect of one-off active member employer deficit contributions due to be paid to the Merchant Navy Officers Pension Fund. to the Merchant Navy Officers Pension Fund.

The Board examines, on an ongoing basis, existing practices within the Group with a view to identifying more efficient The Board examines, on an ongoing basis, existing practices within the Group with a view to identifying more efficient and cost effective ways of delivering and improving standards of service. The Board also keeps under review the and cost effective ways of delivering and improving standards of service. The Board also keeps under review the corporate governance arrangements within the Group to ensure that the most appropriate arrangements are in place. corporate governance arrangements within the Group to ensure that the most appropriate arrangements are in place.

Political and charitable donations Political and charitable donations

The Group made no political or charitable donations during the year. However, Group companies support a range of The Group made no political or charitable donations during the year. However, Group companies support a range of local organisations through travel-related sponsorship and CalMac Ferries Ltd. continues to be the main commercial local organisations through travel-related sponsorship and CalMac Ferries Ltd. continues to be the main commercial supporter of the Royal National Mod. supporter of the Royal National Mod.

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Text 7 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010

David MacBrayne Limited/Company Number SC15304/31 March 2010 Directors' Report continued

Directors' Report continued Directors and their interests

Directors and their interests The Directors who held office during the year and up to the date of this report and their current appointment periods, where applicable, are as follows: The Directors who held office during the year and up to the date of this report and their current appointment periods, where applicable, are as follows: P K Timms - 31 July 2012 D C McGibbon - 30 April 2012 P K Timms - 31 July 2012 C A Robertson - appointed 1 July 2010, appointment period to 30 June 2013 D C McGibbon - 30 April 2012 I Gillies - 30 April 2012 C A Robertson - appointed 1 July 2010, appointment period to 30 June 2013 A M Lynch - 24 June 2011 I Gillies - 30 April 2012 L B MacLeod - 30 April 2012 A M Lynch - 24 June 2011 N L Quirk - 31 December 2010 L B MacLeod - 30 April 2012 R Sinclair - 31 December 2010 N L Quirk - 31 December 2010 P Stark - appointed 1 October 2009, appointment period to 30 September 2012 R Sinclair - 31 December 2010 G A Taylor - appointment period coterminous with holding the associated executive post P Stark - appointed 1 October 2009, appointment period to 30 September 2012 W L Sinclair - retired 30 June 2010 G A Taylor - appointment period coterminous with holding the associated executive post W L Sinclair - retired 30 June 2010 None of the Directors had any beneficial interest in the share capital of the parent company or any of its subsidiaries at any time during the year. None of the Directors had any beneficial interest in the share capital of the parent company or any of its subsidiaries at any time during the year. The Company is wholly owned by the Scottish Ministers.

The Company is wholly owned by the Scottish Ministers. Safety

Safety The Board recognises that safe operation of the ships and ports is of paramount importance and considers it essential that there is constant review of all practices impacting on safety and that there is constant vigilance over all aspects of The Board recognises that safe operation of the ships and ports is of paramount importance and considers it essentialthe safety function. that there is constant review of all practices impacting on safety and that there is constant vigilance over all aspects of the safety function. The responsibilities of the Ship Management function, including maintaining safety certification, compliance with safety of life at sea and marine pollution prevention rules, as well as compliance in respect of officer and crew certification and The responsibilities of the Ship Management function, including maintaining safety certification, compliance with safetyqualifications, are clearly separated from the audit function which is responsible for ensuring that all aspects of safety of life at sea and marine pollution prevention rules, as well as compliance in respect of officer and crew certification andare properly dealt with. qualifications, are clearly separated from the audit function which is responsible for ensuring that all aspects of safety are properly dealt with. Regular internal reports on safety matters are submitted to the Safety, Environmental and Security Manager and a proactive approach is adopted in taking appropriate corrective and preventative action. As part of this proactive Regular internal reports on safety matters are submitted to the Safety, Environmental and Security Manager and approach,a emphasis is placed on ongoing risk assessment and specific safety-related training. proactive approach is adopted in taking appropriate corrective and preventative action. As part of this proactive approach, emphasis is placed on ongoing risk assessment and specific safety-related training. The safety arrangements within the Group also involve regular reporting to the Group Safety Committee and ultimately to the Board, thereby providing appropriate assurance with regard to all safety aspects of the Group’s operations. The safety arrangements within the Group also involve regular reporting to the Group Safety Committee and ultimately to the Board, thereby providing appropriate assurance with regard to all safety aspects of the Group’s operations. Employees

Employees The Group has a policy of equal opportunities and non-discrimination in all aspects of employment.

The Group has a policy of equal opportunities and non-discrimination in all aspects of employment. The majority of employees are formally represented by Trade Unions recognised for collective bargaining purposes. A system of employee participation and consultative committees is well established. In addition, an information and The majority of employees are formally represented by Trade Unions recognised for collective bargaining purposes. Aconsultation forum meets twice yearly. system of employee participation and consultative committees is well established. In addition, an information and consultation forum meets twice yearly. Through either the formal negotiating or consultative process, or a combination of both, employees at all levels, directly or through their representatives, are provided with information on matters concerning them and are encouraged to be Through either the formal negotiating or consultative process, or a combination of both, employees at all levels, directlyinvolved in the activities of the Group. or through their representatives, are provided with information on matters concerning them and are encouraged to be involved in the activities of the Group. All of these measures are kept under constant review with a view to identifying where improvements can be made.

All of these measures are kept under constant review with a view to identifying where improvements can be made. Policy of employment of people with disabilities

Policy of employment of people with disabilities It is the Group's policy to consider applications for employment from people with disabilities on the same basis as other potential employees subject to the nature and extent of disability and the degree of physical fitness demanded of the It is the Group's policy to consider applications for employment from people with disabilities on the same basis as otherposition. Ability and aptitude are the determining factors in the selection, training, career development and promotion potential employees subject to the nature and extent of disability and the degree of physical fitness demanded of theof all employees with disabilities. If any employee becomes disabled during the period of employment, the Group will, position. Ability and aptitude are the determining factors in the selection, training, career development and promotionwhere possible, retain the employee for duties commensurate with the employee's abilities following the disablement. of all employees with disabilities. If any employee becomes disabled during the period of employment, the Group will, where possible, retain the employee for duties commensurate with the employee's abilities following the disablement.

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Text 8 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Directors' Report continued Directors' Report continued Disclosure of information to Auditors Disclosure of information to Auditors The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are eachaware, there is no relevant audit information of which the Group's auditors are unaware and each Director has taken all aware, there is no relevant audit information of which the Group's auditors are unaware and each Director has taken theall steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit informationand to establish that the Group's auditors are aware of that information. and to establish that the Group's auditors are aware of that information. Auditors Auditors A resolution to re-appoint KPMG LLP as Group and Company auditors will be put to the members at the Annual General A resolution to re-appoint KPMG LLP as Group and Company auditors will be put to the members at the Annual GeneralMeeting. Meeting. On behalf of the Board On behalf of the Board

G W McKenzie G W McKenzie Secretary Secretary 21 July 2010 21 July 2010

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Text 9 27/07/2010 12:02 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Report on corporate governance Report on corporate governance The Group is committed to high standards of corporate governance, business integrity and professionalism in all its activities. The Group is committed to high standards of corporate governance, business integrity and professionalism in all its activities. Throughout the year ended 31 March 2010, the Group has complied with all the relevant provisions of the Combined Code issued by the Committee on Corporate Governance in June 1998 (notwithstanding that the Company is not a listedThroughout the year ended 31 March 2010, the Group has complied with all the relevant provisions of the Combined company to which the provisions are directed) insofar as these have not been superseded by the provisions of theCode issued by the Committee on Corporate Governance in June 1998 (notwithstanding that the Company is not a listed revised Combined Code. company to which the provisions are directed) insofar as these have not been superseded by the provisions of the revised Combined Code. In addition, the Group has complied with the provisions set out in the revised Combined Code issued by the Financial Reporting Council in July 2003 (“the revised code”) with the following exceptions: In addition, the Group has complied with the provisions set out in the revised Combined Code issued by the Financial Reporting Council in July 2003 (“the revised code”) with the following exceptions: • there is no Board Nominations Committee as all Board appointments, including their roles and terms and conditions of employment, are determined by the Company’s sole shareholder, the Scottish Ministers • there is no Board Nominations Committee as all Board appointments, including their roles and terms and conditions of employment, are determined by the Company’s sole shareholder, the Scottish Ministers • in view of the Group's responsibilities to take account of public sector guidelines, compliance with the provision that performance-related elements of remuneration should form a significant proportion of • in view of the Group's responsibilities to take account of public sector guidelines, compliance with the Executive Directors’ total pay package is not appropriate provision that performance-related elements of remuneration should form a significant proportion of Executive Directors’ total pay package is not appropriate • the Remuneration Committee does not have delegated responsibility for setting remuneration levels for Non-Executive Directors as this is a matter for Scottish Ministers • the Remuneration Committee does not have delegated responsibility for setting remuneration levels for Non-Executive Directors as this is a matter for Scottish Ministers • the Remuneration Committee does not become involved in recommending and monitoring remuneration for senior management below Board level; the overall parameters for pay awards are approved by the Board • the Remuneration Committee does not become involved in recommending and monitoring remuneration for and detailed implementation is the responsibility of the Executive Directors senior management below Board level; the overall parameters for pay awards are approved by the Board and detailed implementation is the responsibility of the Executive Directors • in view of the nature of the Group's status, compliance with those provisions that relate to share options, long-term incentive schemes, dialogue with institutional investors and the conduct of the Annual General • in view of the nature of the Group's status, compliance with those provisions that relate to share options, Meeting is not appropriate long-term incentive schemes, dialogue with institutional investors and the conduct of the Annual General Meeting is not appropriate • the Board has considered the appointment of a senior independent Non-Executive Director but has decided not to make this appointment as it does not believe that it is necessary in respect of the Group's • the Board has considered the appointment of a senior independent Non-Executive Director but has decided relationship with its shareholder; the Board has, however, decided that the appointment of a Non- not to make this appointment as it does not believe that it is necessary in respect of the Group's Executive Director as Deputy Chairman is appropriate relationship with its shareholder; the Board has, however, decided that the appointment of a Non- Executive Director as Deputy Chairman is appropriate Board of Directors Board of Directors The David MacBrayne Ltd. Board is the principal decision-making forum for the Group. It has overall responsibility for leading and controlling the Group and is accountable to the parent company’s sole shareholder, the Scottish Ministers,The David MacBrayne Ltd. Board is the principal decision-making forum for the Group. It has overall responsibility for for financial and operational performance. The Board approves Group strategy and monitors performance. The Boardleading and controlling the Group and is accountable to the parent company’s sole shareholder, the Scottish Ministers, has adopted a formal schedule of matters specifically reserved for its decision, which is reviewed on an annual basis. for financial and operational performance. The Board approves Group strategy and monitors performance. The Board has adopted a formal schedule of matters specifically reserved for its decision, which is reviewed on an annual basis. The roles of the Chairman and the Group Chief Executive are distinct and separate, with a clear division of responsibilities. The roles of the Chairman and the Group Chief Executive are distinct and separate, with a clear division of responsibilities. The Chairman leads the Board and ensures the effective engagement and contribution of all Non-Executive and Executive Directors. Executive Directors have responsibility for all operating companies' business and act in accordanceThe Chairman leads the Board and ensures the effective engagement and contribution of all Non-Executive and with the authority delegated from the Board. Responsibility for the implementation of policy, strategy and operationalExecutive Directors. Executive Directors have responsibility for all operating companies' business and act in accordance management is delegated to the Executive Directors. with the authority delegated from the Board. Responsibility for the implementation of policy, strategy and operational management is delegated to the Executive Directors. Five Board Meetings were held during the year. Board Meetings are structured to allow open discussion and all Directors participate in discussing the Group’s strategic aims and performance and financial and risk management. The Board isFive Board Meetings were held during the year. Board Meetings are structured to allow open discussion and all Directors supplied with comprehensive information in advance of each Board Meeting, including financial and operational reportsparticipate in discussing the Group’s strategic aims and performance and financial and risk management. The Board is covering the Group's business activities. Members of the senior management of the Group companies regularly attendsupplied with comprehensive information in advance of each Board Meeting, including financial and operational reports and make presentations at Board Meetings. A representative of the parent company's sole shareholder attends eachcovering the Group's business activities. Members of the senior management of the Group companies regularly attend Board Meeting. and make presentations at Board Meetings. A representative of the parent company's sole shareholder attends each Board Meeting. Board balance and independence Board balance and independence The Board comprises seven Non-Executive Directors (including the Chairman) and three Executive Directors. The Board considers that, based on the criteria set out in the provisions of the revised Code, all Non-Executive Directors areThe Board comprises seven Non-Executive Directors (including the Chairman) and three Executive Directors. The Board independent. considers that, based on the criteria set out in the provisions of the revised Code, all Non-Executive Directors are independent. The Board functions effectively and efficiently and is considered to be of an appropriate size in relation to the Group's level of business and associated responsibilities. The Board functions effectively and efficiently and is considered to be of an appropriate size in relation to the Group's level of business and associated responsibilities. The Directors provide an appropriate mix of skills, experience and expertise. The Board Committees comprise Directors with a mix of relevant skills and experience such that no undue reliance is placed on any one individual. The Directors provide an appropriate mix of skills, experience and expertise. The Board Committees comprise Directors with a mix of relevant skills and experience such that no undue reliance is placed on any one individual. The Non-Executive Directors combine broad business and commercial experience with independent and objective judgement and constructively challenge and assist development of strategic matters. The Non-Executive Directors combine broad business and commercial experience with independent and objective judgement and constructively challenge and assist development of strategic matters. The balance between Non-Executive and Executive Directors enables the Board to provide clear and effective leadership and maintain the highest standards of integrity and professionalism across the Group's business activities. The balance between Non-Executive and Executive Directors enables the Board to provide clear and effective leadership and maintain the highest standards of integrity and professionalism across the Group's business activities.

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Text 10 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Report on corporate governance continued Report on corporate governance continued Re-election of Directors Re-election of Directors Directors are appointed by Scottish Ministers for a three-year period and can be re-appointed subject to the limitations Directors are appointed by Scottish Ministers for a three-year period and can be re-appointed subject to the limitationsprescribed in the Code of Practice for Ministerial Appointments to Public Bodies in Scotland, as published by the prescribed in the Code of Practice for Ministerial Appointments to Public Bodies in Scotland, as published by Commissionerthe for Public Appointments in Scotland. These arrangements persist for all existing appointments, but since Commissioner for Public Appointments in Scotland. These arrangements persist for all existing appointments, but since1 April 2009, new Executive Director Board appointments are no longer subject to the 3-year re-appointment process 1 April 2009, new Executive Director Board appointments are no longer subject to the 3-year re-appointment processand instead will be coterminous with the holding of the associated managerial post. and instead will be coterminous with the holding of the associated managerial post. Information, induction and professional development Information, induction and professional development The Chairman ensures that all Directors receive clear, accurate and timely information on all relevant matters. Any The Chairman ensures that all Directors receive clear, accurate and timely information on all relevant matters. requestsAny for further information or clarification are dealt with or co-ordinated by the Company Secretary. requests for further information or clarification are dealt with or co-ordinated by the Company Secretary. The Company Secretary is responsible for advising the Board, through the Chairman, on all governance matters. All The Company Secretary is responsible for advising the Board, through the Chairman, on all governance matters.Directors All have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuringthat Board procedures are followed. All Directors are entitled to obtain independent professional advice at the that Board procedures are followed. All Directors are entitled to obtain independent professional advice at Company’sthe expense. Company’s expense. On appointment, a Director receives a formal induction, including an introductory meeting with the Chairman and the On appointment, a Director receives a formal induction, including an introductory meeting with the Chairman and Executivethe Directors. Board Meetings are regularly held at locations across the Group’s area of operation which assists Executive Directors. Board Meetings are regularly held at locations across the Group’s area of operation which assistsDirectors in familiarising themselves with and understanding local issues. During their term of office, Directors Directors in familiarising themselves with and understanding local issues. During their term of office, Directorsundertake such professional development as is considered necessary in assisting them to carry out their duties as undertake such professional development as is considered necessary in assisting them to carry out their dutiesDirectors. as Directors. Performance evaluation Performance evaluation The performance of Non-Executive Directors is assessed by the Chairman and the performance of Executive Directors is The performance of Non-Executive Directors is assessed by the Chairman and the performance of Executive Directorsassessed is by the Remuneration Committee. The Chairman's performance is assessed by the Scottish Government. assessed by the Remuneration Committee. The Chairman's performance is assessed by the Scottish Government. Board Committees Board Committees To provide effective overview and leadership, the Board has established a number of Committees with specific To provide effective overview and leadership, the Board has established a number of Committees with specificresponsibilities extending to all companies within the Group. The Committee Chairmanship and membership, all responsibilities extending to all companies within the Group. The Committee Chairmanship and membership,comprising all Non-Executive Directors, is refreshed at appropriate intervals. comprising Non-Executive Directors, is refreshed at appropriate intervals. Audit Committee Audit Committee The Group Audit Committee is responsible for assisting the Board in discharging its responsibilities in relation to the The Group Audit Committee is responsible for assisting the Board in discharging its responsibilities in relation to financialthe affairs of the Group, the arrangements for accounting, financial reporting and regulatory compliance, the financial affairs of the Group, the arrangements for accounting, financial reporting and regulatory compliance, standardsthe and effectiveness of internal control, the arrangements for identifying, evaluating and managing the standards and effectiveness of internal control, the arrangements for identifying, evaluating and managing significantthe risks faced by Group companies and the arrangements for internal and external audit. The Audit Committee significant risks faced by Group companies and the arrangements for internal and external audit. The Audit Committeemeets at least four times each year and, in addition, the Committee meets both the internal and external auditors meets at least four times each year and, in addition, the Committee meets both the internal and external auditorsprivately. privately. The Committee reviews and monitors the independence of the external auditors in relation to non-audit assignments, The Committee reviews and monitors the independence of the external auditors in relation to non-audit assignments,taking into account relevant ethical guidance. taking into account relevant ethical guidance. The Committee undertakes an annual evaluation to assess the independence and objectives of the external auditors and The Committee undertakes an annual evaluation to assess the independence and objectives of the external auditors theand effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements. the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements. The present members of the Committee are: The present members of the Committee are: D C McGibbon (Chair) D C McGibbon (Chair) L B MacLeod L B MacLeod N L Quirk N L Quirk R Sinclair R Sinclair The Board is satisfied that the Committee membership has recent and relevant financial experience. The Board is satisfied that the Committee membership has recent and relevant financial experience. Remuneration Committee Remuneration Committee The primary function of the Group Remuneration Committee is to make recommendations to the Board and, where The primary function of the Group Remuneration Committee is to make recommendations to the Board and, whereappropriate, the Scottish Ministers on Directors’ pay and conditions, taking due account of the guidelines issued from appropriate, the Scottish Ministers on Directors’ pay and conditions, taking due account of the guidelines issued fromtime to time by the Scottish Ministers in respect of bodies in the public sector. In particular the main items in respect of time to time by the Scottish Ministers in respect of bodies in the public sector. In particular the main items in respectwhich of the Committee makes its recommendations are as follows: which the Committee makes its recommendations are as follows: • basic remuneration levels for Executive and Non-Executive Directors • basic remuneration levels for Executive and Non-Executive Directors • targets to be set for the purpose of the Executive Directors’ performance scheme • targets to be set for the purpose of the Executive Directors’ performance scheme • performance payment awards under the Executive Directors’ performance scheme • performance payment awards under the Executive Directors’ performance scheme • any matter concerning terms and conditions of service of Executive and Non-Executive Directors • any matter concerning terms and conditions of service of Executive and Non-Executive Directors • any policy matters concerning benefits for Executive Directors • any policy matters concerning benefits for Executive Directors

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Text 11 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Report on corporate governance continued Report on corporate governance continued The remuneration levels for Non-Executive Directors are set by the Scottish Ministers each year. The performance The remuneration levels for Non-Executive Directors are set by the Scottish Ministers each year. The performancescheme for Executive Directors comprises: scheme for Executive Directors comprises: • financial and operational targets • financial and operational targets • personal targets for individual Directors • personal targets for individual Directors • related performance scheme awards for various levels of achievement • related performance scheme awards for various levels of achievement The present members of the Committee are as follows: The present members of the Committee are as follows: P K Timms (Chair) P K Timms (Chair) D C McGibbon D C McGibbon N L Quirk N L Quirk P Stark – appointed 28 October 2009 P Stark – appointed 28 October 2009 Safety Committee Safety Committee The Group Safety Committee is responsible to the Board for monitoring the performance of executive management in The Group Safety Committee is responsible to the Board for monitoring the performance of executive management respectin of safety and security matters. The Chairman and members of the Committee are appointed by the Board from respect of safety and security matters. The Chairman and members of the Committee are appointed by the Board fromamongst the Non-Executive Directors. The Committee meets at least four times each year. There is regular Executive amongst the Non-Executive Directors. The Committee meets at least four times each year. There is regular ExecutiveDirector presence at these meetings at the invitation of the Committee. Director presence at these meetings at the invitation of the Committee. The Committee is responsible for reviewing the safety and security performance of the main operating companies within The Committee is responsible for reviewing the safety and security performance of the main operating companies withinthe Group and for reporting on such performance to the Board. The information which the Committee considers includes the Group and for reporting on such performance to the Board. The information which the Committee considers includesthe monthly reports prepared by the Safety, Environmental and Security Manager and any other relevant papers or the monthly reports prepared by the Safety, Environmental and Security Manager and any other relevant papers reports.or reports. The present members of the Committee are as follows: The present members of the Committee are as follows: R Sinclair (Chair) R Sinclair (Chair) I Gillies I Gillies P Stark – appointed 28 October 2009 P Stark – appointed 28 October 2009 Communications Committee Communications Committee The Communications Committee which was re-constituted in October 2009 held its first meeting in January 2010. The The Communications Committee which was re-constituted in October 2009 held its first meeting in January 2010. TheCommittee is responsible for monitoring, reviewing and advising on the Group’s corporate communications and Committee is responsible for monitoring, reviewing and advising on the Group’s corporate communications andmarketing activities both external and internal. The Chairman and members of the Committee are appointed by the marketing activities both external and internal. The Chairman and members of the Committee are appointed by theBoard from amongst the Non-Executive Directors. The Committee meets at least four times each year. There is regular Board from amongst the Non-Executive Directors. The Committee meets at least four times each year. There is regularExecutive Director presence at these meetings at the invitation of the Committee. Executive Director presence at these meetings at the invitation of the Committee. The present members of the Committee are as follows: The present members of the Committee are as follows: N L Quirk (Chair) N L Quirk (Chair) I Gillies I Gillies L B MacLeod L B MacLeod Board and Board Committee meetings Board and Board Committee meetings The number of Board and Board Committee Meetings held during the year, and the individual attendance by members, The number of Board and Board Committee Meetings held during the year, and the individual attendance by members,was as follows (figures in brackets denote the number of meetings which members were eligible to attend): was as follows (figures in brackets denote the number of meetings which members were eligible to attend): ______Board Audit Remuneration Safety Communications Board Audit Remuneration Safety Communications______P K Timms 5(5) 2(2) P K Timms 5(5) 2(2) W L Sinclair 5(5) W L Sinclair 5(5) I Gillies 5(5) 4(4) 2(2) I Gillies 5(5) 4(4) 2(2) A M Lynch 5(5) A M Lynch 5(5) L B MacLeod 5(5) 4(4) 3(3) 2(2) L B MacLeod 5(5) 4(4) 3(3) 2(2) D C McGibbon 4(5) 4(4) 2(2) D C McGibbon 4(5) 4(4) 2(2) N L Quirk 3(5) 4(4) 2(2) 1(2) N L Quirk 3(5) 4(4) 2(2) 1(2) R Sinclair 4(5) 4(4) 4(4) R Sinclair 4(5) 4(4) 4(4) P Stark 2(3) 2(2) 1(1) P Stark 2(3) 2(2) 1(1) G A Taylor 5(5) G A Taylor 5(5) ______The Directors also regularly attend the Board Meetings of the main operating companies, CalMac Ferries Ltd. and The Directors also regularly attend the Board Meetings of the main operating companies, CalMac Ferries Ltd. andNorthLink Ferried Ltd. NorthLink Ferried Ltd. Executive Directors and senior managers of companies within the Group are regularly invited to attend Board Committee Executive Directors and senior managers of companies within the Group are regularly invited to attend Board CommitteeMeetings as appropriate. Meetings as appropriate. 11 11

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Report on corporate governance continued Report on corporate governance continued

Relations with sole shareholder Relations with sole shareholder

As disclosed in the Directors’ Report, the Company is wholly owned by the Scottish Ministers. As disclosed in the Directors’ Report, the Company is wholly owned by the Scottish Ministers.

The Scottish Ministers’ appointed Assessor attends all Board Meetings. The Scottish Ministers’ appointed Assessor attends all Board Meetings.

Internal control Internal control

The Board is responsible for the Group's system of internal control and for reviewing its effectiveness in orderThe to Board is responsible for the Group's system of internal control and for reviewing its effectiveness in order to safeguard the Shareholder’s investment and the Group's assets. The system is designed to provide reasonable but safeguardnot the Shareholder’s investment and the Group's assets. The system is designed to provide reasonable but not absolute assurance against material mis-statement or loss. absolute assurance against material mis-statement or loss.

In accordance with guidance issued in the document “Internal Control: Guidance for Directors on the Combined Code”In accordance with guidance issued in the document “Internal Control: Guidance for Directors on the Combined Code” which was published in September 1999 (the Turnbull guidance) procedures are in place to ensure that there iswhich an was published in September 1999 (the Turnbull guidance) procedures are in place to ensure that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which is subjectongoing to process for identifying, evaluating and managing the significant risks faced by the Group, which is subject to regular review by the Audit Committee and ultimately the Board. Following management restructuring implementedregular review by the Audit Committee and ultimately the Board. Following management restructuring implemented with effect from 1 April 2009, the Board is continuing to take steps to ensure that a consistent approach to thesewith effect from 1 April 2009, the Board is continuing to take steps to ensure that a consistent approach to these procedures is adopted throughout the Group. procedures is adopted throughout the Group.

The key elements of the system of internal control are as follows: The key elements of the system of internal control are as follows:

Control structure Control structure

The Group's control structure is the responsibility of the Directors and Managers at all levels. The Group's organisationalThe Group's control structure is the responsibility of the Directors and Managers at all levels. The Group's organisational structure has clear lines of responsibility and effective communication channels which ensures that best practicestructure in has clear lines of responsibility and effective communication channels which ensures that best practice in managing risks and controls is consistently applied throughout the Group. managing risks and controls is consistently applied throughout the Group.

In addition, the Group's internal and external auditors present reports to the Audit Committee which include Inany addition, the Group's internal and external auditors present reports to the Audit Committee which include any significant internal control matters which they have identified. significant internal control matters which they have identified.

Under ISO 14001 : 2004 accreditation, CalMac Ferries Ltd. has implemented an environmental management systemUnder ISO 14001 : 2004 accreditation, CalMac Ferries Ltd. has implemented an environmental management system which is aimed at minimising environmental risks and ensuring compliance with legislative and corporate governancewhich is aimed at minimising environmental risks and ensuring compliance with legislative and corporate governance requirements. requirements.

Identification and monitoring of business risks Identification and monitoring of business risks

The Group has adopted a risk-based approach to internal control through evaluating the likelihood and impact of risks,The Group has adopted a risk-based approach to internal control through evaluating the likelihood and impact of risks, and resting responsibility for risk management and internal control in a designated owner. Procedures includeand an resting responsibility for risk management and internal control in a designated owner. Procedures include an ongoing process of identifying, evaluating and managing the Group's key risks and, where appropriate, enhancing ongoingthe process of identifying, evaluating and managing the Group's key risks and, where appropriate, enhancing the systems which manage these risks. Regular review of the risks is undertaken by the Audit Committee and ultimatelysystems the which manage these risks. Regular review of the risks is undertaken by the Audit Committee and ultimately the Board. Board.

Major corporate information systems Major corporate information systems

The Group operates a comprehensive budgeting and financial reporting system, which includes the preparationThe of Group operates a comprehensive budgeting and financial reporting system, which includes the preparation of strategic plans for each of the operating companies within the Group containing detailed annual budgets. strategic plans for each of the operating companies within the Group containing detailed annual budgets.

The system provides monthly comparison of actual results against both financial year budget and annual contract,The system provides monthly comparison of actual results against both financial year budget and annual contract, regularly revised forecasts, balance sheet, cash flow and variance statements and key performance indicators, allregularly of revised forecasts, balance sheet, cash flow and variance statements and key performance indicators, all of which are regularly reviewed by the Board. which are regularly reviewed by the Board.

Standard financial control procedures, which provide assurance on the integrity of the Group's finances, operate withinStandard financial control procedures, which provide assurance on the integrity of the Group's finances, operate within the majority of the companies in the Group. In those companies where this is not presently the case, proceduresthe are majority of the companies in the Group. In those companies where this is not presently the case, procedures are being developed to ensure a standard approach throughout the Group. being developed to ensure a standard approach throughout the Group.

Going concern Going concern

On the basis of the information available to them, the Directors have a reasonable expectation that the Group Onhas the basis of the information available to them, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors consideradequate it resources to continue in operational existence for the foreseeable future. Accordingly, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements. appropriate to continue to adopt the going concern basis in preparing the financial statements.

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Report on Directors’ remuneration Report on Directors’ remuneration Details of the Group Remuneration Committee's responsibilities are set out within the Report on Corporate Governance. Details of the Group Remuneration Committee's responsibilities are set out within the Report on Corporate Governance. Details of Directors' remuneration are as follows: Details of Directors' remuneration are as follows:

Employer's Employer's Pension Pension Performance Benefits Total Contribution Performance Benefits Total Contribution Salary Fees Payment in kind 2010 2009 2010 2009 Salary Fees Payment in kind 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Executive Directors Executive Directors W L Sinclair 135 - 12 16 163 141 36 26 W L Sinclair 135 - 12 16 163 141 36 26 A M Lynch 96 - 9 6 111 88 23 16 A M Lynch 96 - 9 6 111 88 23 16 G A Taylor 89 - 8 12 109 - 22 - G A Taylor 89 - 8 12 109 - 22 - Non-Executive Directors Non-Executive Directors P K Timms - 39 - - 39 36 - - P K Timms - 39 - - 39 36 - - I Gillies - 22 - - 22 12 - - I Gillies - 22 - - 22 12 - - L B MacLeod - 11 - - 11 7 - - L B MacLeod - 11 - - 11 7 - - D C McGibbon - 29 - - 29 22 - - D C McGibbon - 29 - - 29 22 - - N L Quirk - 14 - - 14 17 - - N L Quirk - 14 - - 14 17 - - R Sinclair - 11 - - 11 10 - - R Sinclair - 11 - - 11 10 - - P Stark - 7 - - 7 - - - P Stark - 7 - - 7 - - - Past Directors Past Directors P G Preston - - - - - 94 - 18 P G Preston - - - - - 94 - 18 A A MacDonald - - - - - 7 - - A A MacDonald - - - - - 7 - - 320 133 29 34 516 434 81 60 320 133 29 34 516 434 81 60

As a result of a change in the arrangements for Executive Directors’ performance awards introduced during the 2008/09 As a result of a change in the arrangements for Executive Directors’ performance awards introduced during the 2008/09 financial year whereby these relate to contract year rather than financial year, the performance payment disclosed for financial year whereby these relate to contract year rather than financial year, the performance payment disclosed for 2010 relates to a 12-month period whereas the payment included in the 2009 comparative total figure relates to a 6- 2010 relates to a 12-month period whereas the payment included in the 2009 comparative total figure relates to a 6- month period. The principal benefit in kind relates to the provision of a fully expensed car. month period. The principal benefit in kind relates to the provision of a fully expensed car. Pensions Pensions The CalMac Pension Fund, to which each member currently contributes 6%, entitles members to a pension on retirement The CalMac Pension Fund, to which each member currently contributes 6%, entitles members to a pension on retirement based on their Final Pensionable Salary which reflects the highest salary in each of the last five years of pensionable based on their Final Pensionable Salary which reflects the highest salary in each of the last five years of pensionable service. The financial effect of the pension arrangements for Executive Directors who were members of the CalMac service. The financial effect of the pension arrangements for Executive Directors who were members of the CalMac Pension Fund during the year is as follows: Pension Fund during the year is as follows:

Annual Pension payable After taking account The effect on the Transfer value Annual Pension payable After taking account The effect on the Transfer value from normal retirement of inflation during the transfer value of based on from normal retirement of inflation during the transfer value of based on date based on service year, the increase in the movement in accrued date based on service year, the increase in the movement in accrued and salary at March annual pension is annual pension is pension and salary at March annual pension is annual pension is pension 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

W L Sinclair 18 14 4 2 60 8 329 262 W L Sinclair 18 14 4 2 60 8 329 262 A M Lynch 12 7 5 1 70 8 187 112 A M Lynch 12 7 5 1 70 8 187 112 G A Taylor 4 - 2 - 24 - 58 - G A Taylor 4 - 2 - 24 - 58 - Allowance has been made in the above for the contributions made by Directors. Normal retirement age within the Allowance has been made in the above for the contributions made by Directors. Normal retirement age within the CalMac Pension Fund is 65. CalMac Pension Fund is 65. Service Contracts of Executive Directors Service Contracts of Executive Directors The terms of appointment of continuing Executive Directors are as follows: The terms of appointment of continuing Executive Directors are as follows: Current Notice of termination Notice of termination Current Notice of termination Notice of termination Term Term by the Company by the Director Term Term by the Company by the Director

C A Robertson coterminous with holding the 6 months 6 months C A Robertson coterminous with holding the 6 months 6 months associated executive post associated executive post A M Lynch 3 year fixed term renewable 24 June 2011 6 months 6 months A M Lynch 3 year fixed term renewable 24 June 2011 6 months 6 months G A Taylor coterminous with holding the 6 months 6 months G A Taylor coterminous with holding the 6 months 6 months associated executive post associated executive post

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Text 14 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010

Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements David MacBrayne Limited/Company Number SC15304/31 March 2010

The Directors are responsible for preparing the Annual Report and the group and parent company financial statementsStatement in of Directors’ responsibilities in respect of the Annual Report and the financial statements accordance with applicable law and regulations. The Directors are responsible for preparing the Annual Report and the group and parent company financial statements in Company law requires the Directors to prepare group and parent company financial statements for each financial year.accordance with applicable law and regulations. Under that law they have elected to prepare the group and parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare the group and parent company financial statements in accordance with UK Under company law the Directors must not approve the financial statements unless they are satisfied that they giveAccounting a Standards and applicable law (UK Generally Accepted Accounting Practice). true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the Directors are required to: Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In • select suitable accounting policies and then apply them consistently; preparing each of the group and parent company financial statements, the Directors are required to:

• make judgments and estimates that are reasonable and prudent; • select suitable accounting policies and then apply them consistently;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures• make judgments and estimates that are reasonable and prudent; disclosed and explained in the financial statements; and • state whether applicable UK Accounting Standards have been followed, subject to any material departures • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group disclosed and explained in the financial statements; and and the parent company will continue in business. • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group The Directors have decided to prepare voluntarily a Directors’ Remuneration Report in accordance with Schedule 8 to and the parent company will continue in business. the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as if those requirements were to apply to the Company. The Directors have also decided to prepare voluntarilyThe a Directors have decided to prepare voluntarily a Directors’ Remuneration Report in accordance with Schedule 8 to Corporate Governance Statement as if the Company were required to comply with the Listing Rules and the Disclosurethe Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Rules and Transparency Rules of the Financial Services Authority in relation to those matters. as if those requirements were to apply to the Company. The Directors have also decided to prepare voluntarily a Corporate Governance Statement as if the Company were required to comply with the Listing Rules and the Disclosure The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parentRules and Transparency Rules of the Financial Services Authority in relation to those matters. company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have generalThe Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to preventcompany’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and detect fraud and other irregularities. and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent The Directors are responsible for the maintenance and integrity of the corporate and financial information includedand on detect fraud and other irregularities. the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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Text 15 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Independent Auditors’ Report to the Members of David MacBrayne Limited Independent Auditors’ Report to the Members of David MacBrayne Limited We have audited the financial statements of David MacBrayne Limited for the year ended 31 March 2010 set out on We have audited the financial statements of David MacBrayne Limited for the year ended 31 March 2010 set out onpages 16 to 26. The financial reporting framework that has been applied in the preparation of the group and parent pages 16 to 26. The financial reporting framework that has been applied in the preparation of the group and parentcompany financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted AccountingPractice). Practice). In addition to our audit of the financial statements, the Directors have engaged us to audit the information in the In addition to our audit of the financial statements, the Directors have engaged us to audit the information in theDirectors’ Remuneration Report that is described as having been audited, which the Directors have decided to prepare Directors’ Remuneration Report that is described as having been audited, which the Directors have decided to prepare(in addition to that required to be prepared) as if the Company were required to comply with the requirements of (in addition to that required to be prepared) as if the Company were required to comply with the requirements Scheduleof 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Schedule 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports)Regulations 2008 (SI 2008 No. 410). Regulations 2008 (SI 2008 No. 410). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of theCompanies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members thosematters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permittedby law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, asbody, a for our audit work, for this report, or for the opinions we have formed. body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors Respective responsibilities of Directors and Auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 14, the Directors are responsible for As explained more fully in the Directors’ Responsibilities Statement set out on page 14, the Directors are responsible forthe preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibilityis to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK andIreland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards forAuditors. Auditors. Scope of the audit of the financial statements Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s web-site at A description of the scope of an audit of financial statements is provided on the APB’s web-site www.frc.org.uk/apb/scope/UKNP.at www.frc.org.uk/apb/scope/UKNP. Opinion on financial statements Opinion on financial statements In our opinion: In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2010 and of the group’s profit for the year then ended; as at 31 March 2010 and of the group’s profit for the year then ended; • the financial statements have been properly prepared in accordance with UK Generally Accepted Accounting • the financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; Practice; • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 and under the terms of our engagement Opinion on other matter prescribed by the Companies Act 2006 and under the terms of our engagement In our opinion: In our opinion: • the part of the Directors’ Remuneration Report which we were engaged to audit has been properly prepared in • the part of the Directors’ Remuneration Report which we were engaged to audit has been properly prepared in accordance with Schedule 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups accordance with Schedule 8 to the Companies Act 2006 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as if those requirements were to apply to the Company; and (Accounts and Reports) Regulations 2008, as if those requirements were to apply to the Company; and • the information given in the Directors’ Report for the financial year for which the financial statements are • the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. prepared is consistent with the financial statements. Matters on which we are required to report by exception Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report youto if, in our opinion: you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. • we have not received all the information and explanations we require for our audit. In addition to our audit of the financial statements, the Directors have engaged us to review their Corporate Governance In addition to our audit of the financial statements, the Directors have engaged us to review their Corporate GovernanceStatement as if the Company were required to comply with the Listing Rules and the Disclosure Rules and Transparency Statement as if the Company were required to comply with the Listing Rules and the Disclosure Rules and TransparencyRules of the Financial Services Authority in relation to those matters. Under the terms of our engagement we are Rules of the Financial Services Authority in relation to those matters. Under the terms of our engagement we arerequired to review: required to review: • the Directors’ statement, set out on page 12, in relation to going concern; and • the Directors’ statement, set out on page 12, in relation to going concern; and • the part of the Corporate Governance Statement on page 9 relating to the Company’s compliance with the nine • the part of the Corporate Governance Statement on page 9 relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. provisions of the June 2008 Combined Code specified for our review.

G Macrae G Macrae for and on behalf of KPMG LLP, Statutory Auditor for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Chartered Accountants Glasgow Glasgow 21 July 2010 21 July 2010 15 15

Text 16 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Consolidated Profit and Loss Account for the year ended 31 March 2010 Consolidated Profit and Loss Account for the year ended 31 March 2010 Consolidated Profit and Loss Account for the year ended 31 March 2010 2010 2009 2010 2009 Note 2010£000 2009£000 Note £000 £000 Note £000 reclassified£000 reclassified reclassified Turnover 2 175,119 169,854Turnover 2 175,119 169,854 Turnover 2 175,119 169,854 Cost of sales (161,105) (157,357)Cost of sales (161,105) (157,357) Cost of sales (161,105)______(157,357)______Gross profit 14,014 12,497Gross profit 14,014 12,497 Gross profit 14,014 12,497 Administrative expenditure (9,523) (9,351)Administrative expenditure (9,523) (9,351) Administrative expenditure ______(9,523) ______(9,351) ______Operating profit 4,491 3,146Operating profit 4,491 3,146 Operating profit 4,491 3,146 Interest receivable 3 121 632Interest receivable 3 121 632 Interest receivable 3 ______121 ______632 ______Profit on ordinary activities before taxation 3 4,612 3,778Profit on ordinary activities before taxation 3 4,612 3,778 Profit on ordinary activities before taxation 3 4,612 3,778 Tax on profit on ordinary activities 4 (198) (293)Tax on profit on ordinary activities 4 (198) (293) Tax on profit on ordinary activities 4 ______(198) ______(293) ______Profit for the year 4,414 3,485Profit for the year 4,414 3,485 Profit for the year ______4,414 ______3,485 ______

There are no other recognised gains or losses for the year. There are no other recognised gains or losses for the year. There are no other recognised gains or losses for the year. The 2009 figures have been reclassified to reflect revised standard Group classification of costs. The 2009 figures have been reclassified to reflect revised standard Group classification of costs. The 2009 figures have been reclassified to reflect revised standard Group classification of costs.

The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements 16 16 16

Text 17 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayneDavid MacBrayne Limited/Company Limited/Company Number Number SC15304/31 SC15304/31 March 2010March 2010 Consolidated and Company Balance Sheets as at 31 March 2010 Consolidated and Company Balance Sheets as at 31 March 2010 ConsolidatedConsolidated and Company and Company Balance Balance Sheets Sheetsas at 31 as March at 31 2010March 2010 Group Group Company Company Group Group Company Company 2010 2009 2010 2009 Group Group2010 Group Group2009Company Company 2010Company Company 2009 Note £000 £000 £000 £000 Note 2010 2010£000 2009 2009£000 2010 2010£000 2009 2009£000 Note Note £000 £000 £000 £000 £000 £000 £000 £000 Fixed assets Fixed assets Tangible assets 6 4,342 5,722 - Fixed assets-FixedTangible assets assets 6 4,342 5,722 - - Intangible assets 7 - 534 - Tangible-TangibleIntangible assets assets assets 6 67 4,342 4,342- 5,722 5,722534 - - - - Investments 8 - - 74 Intangible724IntangibleInvestments assets assets 7 87 - - 534 534- - 74- - 724- ______Investments______Investments 8 8 -______- - ______- 74______74 724 ______724 ______4,342 6,256 74 724 4,342 6,256 74 724 ______4,342______4,342 6,256 ______6,256 74______74 724 ______724 ______Current assets Current assets Stocks 1,722 1,469 - Current-CurrentStocks assets assets 1,722 1,469 - - Debtors and prepayments 9 11,733 10,223 271 Stocks138 StocksDebtors and prepayments 9 1,72211,733 1,722 1,469 10,2231,469 - 271- - 138- Cash and cash equivalents 23,174 17,700 10,932 Debtors6,331DebtorsCash and prepaymentsand and cash prepayments equivalents 9 9 11,73311,73323,174 10,223 10,22317,700 27110,932 271 138 6,331138 ______Cash______andCash cash and equivalents cash equivalents 23,174______23,174 17,700 ______17,700 10,932______10,932 6,331 ______6,331 ______36,629 29,392 11,203 6,469 36,629 29,392 11,203 6,469 36,62936,629 29,392 29,392 11,20311,203 6,469 6,469 Creditors: amounts falling due within one year 10 (19,042) (16,826) (617) (68)Creditors: amounts falling due within one year 10 (19,042) (16,826) (617) (68) ______Creditors:______Creditors: amounts amounts falling duefalling within due onewithin year one 10 year 10(19,042) (19,042)______(16,826) (16,826)______(617)______(617) (68)______(68) ______Net current assets 17,587 12,566 10,586 6,401Net current assets 17,587 12,566 10,586 6,401 ______Net______currentNet current assets assets 17,587______17,587 12,566 ______12,566 10,586______10,586 6,401 ______6,401 ______Total assets less current liabilities 21,929 18,822 10,660 7,125Total assets less current liabilities 21,929 18,822 10,660 7,125 ______Total______assetsTotal lessassets current less current liabilities liabilities 21,929______21,929 18,822 ______18,822 10,660______10,660 7,125 ______7,125 ______Deferred income and provisions Deferred income and provisions Capital grants 11 (4,017) (5,324) - Deferred-DeferredCapital income grants income and provisions and provisions 11 (4,017) (5,324) - - Provisions 12 (400) (400) - Capital grants-CapitalProvisions grants 11 1211 (4,017)(4,017) (400) (5,324) (5,324)(400) - - - - ______Provisions______Provisions 12 12 (400)______(400) (400)______(400) -______- -______- ______(4,417) (5,724) - - (4,417) (5,724) - - ______(4,417)______(4,417) (5,724)______(5,724) -______- -______- ______Net assets 17,512 13,098 10,660 7,125Net assets 17,512 13,098 10,660 7,125 ______Net______assetsNet assets 17,512______17,512 13,098 ______13,098 10,660______10,660 7,125 ______7,125 ______Capital and reserves Capital and reserves Share capital 13 5,500 5,500 5,500 Capital5,500 CapitalShareand reserves capital and reserves 13 5,500 5,500 5,500 5,500 Profit and loss account 14 12,012 7,598 5,160 Share1,625 capitalShareProfit andcapital loss account 13 1413 5,50012,012 5,500 5,500 5,5007,598 5,500 5,5005,160 5,500 5,5001,625 ______Profit______andProfit loss and account loss account 14 14 12,012______12,012 7,598 ______7,598 5,160______5,160 1,625 ______1,625 ______Shareholder’s funds 17,512 13,098 10,660 7,125Shareholder’s funds 17,512 13,098 10,660 7,125 ______Shareholder’s______Shareholder’s funds funds 17,512______17,512 13,098 ______13,098 10,660______10,660 7,125 ______7,125 ______These financial statements were approved by the Board of Directors and signed on 21 July 2010 on its behalf by: These financial statements were approved by the Board of Directors and signed on 21 July 2010 on its behalf by: These financialThese financial statements statements were approved were approved by the Board by the of Board Directors of Directors and signed and onsigned 21 July on 212010 July on 2010 its behalf on its by: behalf by:

P K Timms, Chairman A M Lynch, Group Finance Director P K Timms, Chairman A M Lynch, Group Finance Director P K Timms,P K Timms,Chairman Chairman A M Lynch,A M GroupLynch, Finance Group FinanceDirector Director

The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements The accompanyingThe accompanying notes are notes an integralare an integralpart of thesepart of financial these financial statements statements 17 17 17 17

Text 18 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010

Consolidated Cash Flow Statement for the year ended 31 March 2010 Consolidated Cash Flow Statement for the year ended 31 March 2010

2010 2009 2010 2009 Reconciliation of operating profit to net cash £000 £000Reconciliation of operating profit to net cash £000 £000 flow from operating activities flow from operating activities

Operating profit 4,491 3,146Operating profit 4,491 3,146 Depreciation and amortisation 1,879 1,235Depreciation and amortisation 1,879 1,235 Amortisation of capital grants (1,187) (803)Amortisation of capital grants (1,187) (803) Gain on sale of fixed assets (347) Gain(1) on sale of fixed assets (347) (1) (Increase) / Decrease in stocks (253) 249(Increase) / Decrease in stocks (253) 249 (Increase) in debtors and prepayments (1,564) (2,969)(Increase) in debtors and prepayments (1,564) (2,969) Increase / (Decrease) in creditors 2,233 (149)Increase / (Decrease) in creditors 2,233 (149) ______

Net cash inflow from operating activities 5,252 708Net cash inflow from operating activities 5,252 708 ______

Cash flow statement Cash flow statement

Net cash inflow from operating activities 5,252 708Net cash inflow from operating activities 5,252 708 ______

Returns on investments and servicing of finance Returns on investments and servicing of finance Interest received 200 555Interest received 200 555 ______

Taxation (240) (12)Taxation (240) (12) ______

Capital expenditure and financial investment Capital expenditure and financial investment Purchase of tangible fixed assets (302) (3,531)Purchase of tangible fixed assets (302) (3,531) Disposal of tangible fixed assets 401 Disposal1 of tangible fixed assets 401 1 ______

Net cash inflow from capital expenditure 99 (3,530)Net cash inflow from capital expenditure 99 (3,530) ______

Net cash inflow / (outflow) before financing 5,311 (2,279)Net cash inflow / (outflow) before financing 5,311 (2,279) ______

Financing Financing Capital grants received 163 3,247Capital grants received 163 3,247 ______

Increase in cash and cash equivalents in the year 5,474 968Increase in cash and cash equivalents in the year 5,474 968 ______

Analysis of net funds Group GroupAnalysis of net funds Group Group as at Cash as at as at Cash as at 1 April 2009 flow 31 March 2010 1 April 2009 flow 31 March 2010 £000 £000 £000 £000 £000 £000

Cash and cash equivalents 17,700 5,474 23,174Cash and cash equivalents 17,700 5,474 23,174 ______

The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements

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Text 19 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Notes on the financial statements Notes on the financial statements 1. Accounting policies 1. Accounting policies (a) Basis of preparation These financial statments have been prepared under the historical cost accounting convention and in accordance with(a) Basis of preparation applicable accounting standards. A summary of the more important accounting policies, which have been appliedThese financial statments have been prepared under the historical cost accounting convention and in accordance with consistently, is set out below. applicable accounting standards. A summary of the more important accounting policies, which have been applied consistently, is set out below. As permitted by Section 408 of the Companies Act 2006, the parent company's profit and loss account has not been included in these financial statements. As permitted by Section 408 of the Companies Act 2006, the parent company's profit and loss account has not been included in these financial statements. (b) Fixed assets Gross book values of all fixed assets are stated at historical cost. No depreciation is charged until the asset comes into(b) Fixed assets use. Gross book values of all fixed assets are stated at historical cost. No depreciation is charged until the asset comes into use. Intangible assets represent the bid costs incurred under the Northern Isles ferry services and Clyde and Hebrides ferry services tenders. Intangible assets represent the bid costs incurred under the Northern Isles ferry services and Clyde and Hebrides ferry services tenders. Fixed asset investments are carried at historical cost. Fixed asset investments are carried at historical cost. (c) Depreciation Depreciation is provided on tangible assets by equal annual instalments calculated to write off the cost (taking account(c) Depreciation of anticipated residual values) over their estimated useful lives as follows: Depreciation is provided on tangible assets by equal annual instalments calculated to write off the cost (taking account of anticipated residual values) over their estimated useful lives as follows: Buildings 20 years Ships 8 years Buildings 20 years Motor vehicles 3 years Ships 8 years Equipment Between 3 and 6 years Motor vehicles 3 years Equipment Between 3 and 6 years (d) Capital grants Capital grants are deferred and taken to the profit and loss account over the anticipated lives of the assets to which they(d) Capital grants relate. Capital grants are deferred and taken to the profit and loss account over the anticipated lives of the assets to which they relate. (e) Operating leases Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease. (e) Operating leases Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease. (f) Stocks Stocks are valued at the lower of average invoiced cost and net realisable value. (f) Stocks Stocks are valued at the lower of average invoiced cost and net realisable value. (g) Maintenance and repair costs Routine maintenance and repair costs, as well as vessel overhaul costs, are charged to the profit and loss account in the(g) Maintenance and repair costs financial year in which the work is performed. In certain of the Group’s subsidiary companies, repairs to meet statutoryRoutine maintenance and repair costs, as well as vessel overhaul costs, are charged to the profit and loss account in the or classification requirements are met by the vessel owners and recharged to the operator by increased charter hirefinancial year in which the work is performed. In certain of the Group’s subsidiary companies, repairs to meet statutory charges. Where any Group company provides ferry services under a fixed-term contract, at contract end, independentor classification requirements are met by the vessel owners and recharged to the operator by increased charter hire vessel surveys are carried out to establish any work required. The agreed dilapidation costs are charged to profit andcharges. Where any Group company provides ferry services under a fixed-term contract, at contract end, independent loss account at the end of the contract period. vessel surveys are carried out to establish any work required. The agreed dilapidation costs are charged to profit and loss account at the end of the contract period. (h) Taxation The Group is elected into tonnage tax. However, certain activities within the Group are liable to corporation tax.(h) Taxation Accordingly, the charge for taxation is based partly on ship tonnage and partly on the result for the year and takes intoThe Group is elected into tonnage tax. However, certain activities within the Group are liable to corporation tax. account tax deferred because of timing differences between the treatment of certain items for taxation and accountingAccordingly, the charge for taxation is based partly on ship tonnage and partly on the result for the year and takes into purposes. The Directors have chosen not to discount the Company's deferred tax liability, as permitted by FRS 19. account tax deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. The Directors have chosen not to discount the Company's deferred tax liability, as permitted by FRS 19. (i) Pensions With the exception of NorthLink Ferries Ltd., the companies within the Group are participating employers in the CalMac(i) Pensions Pension Scheme, which is a defined benefit scheme operated by Caledonian Maritime Assets Ltd. The assets of theWith the exception of NorthLink Ferries Ltd., the companies within the Group are participating employers in the CalMac scheme are held separately from those of Caledonian Maritime Assets Ltd. in an independently administered fund. ThePension Scheme, which is a defined benefit scheme operated by Caledonian Maritime Assets Ltd. The assets of the amount charged to the profit and loss account represents the contributions payable to the Scheme in respect of thescheme are held separately from those of Caledonian Maritime Assets Ltd. in an independently administered fund. The financial year. NorthLink Ferries Ltd. provides a stakeholder pension facility, which is available to all staff, and whichamount is charged to the profit and loss account represents the contributions payable to the Scheme in respect of the a defined contribution pension scheme. financial year. NorthLink Ferries Ltd. provides a stakeholder pension facility, which is available to all staff, and which is a defined contribution pension scheme. (j) Derivatives and financial instruments The Group has adopted FRS 13:Derivatives and other financial instruments. The Group's financial instruments comprise(j) Derivatives and financial instruments cash, other liquid resources and various items such as trade debtors and creditors which arise directly from operations.The Group has adopted FRS 13:Derivatives and other financial instruments. The Group's financial instruments comprise The Group's policy is not to trade or speculate in financial instruments but to utilise them to finance operations. Thecash, other liquid resources and various items such as trade debtors and creditors which arise directly from operations. Group enters into fuel hedging arrangements as and when this is considered appropriate. The Group's policy is not to trade or speculate in financial instruments but to utilise them to finance operations. The Group enters into fuel hedging arrangements as and when this is considered appropriate. (k) Receipts in advance Receipts for advanced and multi-journey bookings are recognised with reference to time of travel. The deferred element(k) Receipts in advance of this income is shown under creditors. Receipts for advanced and multi-journey bookings are recognised with reference to time of travel. The deferred element of this income is shown under creditors. (l) Dividend to Shareholder A dividend is payable annually by each of the main operating companies to David MacBrayne Limited. The quantum (l)of Dividend to Shareholder the dividend is dependent on the estimated profit which is expected to be achieved for the financial year and the cashA dividend is payable annually by each of the main operating companies to David MacBrayne Limited. The quantum of position of each company. the dividend is dependent on the estimated profit which is expected to be achieved for the financial year and the cash position of each company.

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Notes on the financial statements continued Notes on the financial statements continued

2. Turnover 2. Turnover

Turnover represents gross revenue stated net of value added tax and is made up as follows: Turnover represents gross revenue stated net of value added tax and is made up as follows:

Group Group Group Group 2010 2009 2010 2009 £000 £000 £000 £000

Fares and other income 80,297 80,133Fares and other income 80,297 80,133 Grants receivable from the Scottish Government (including amount relating to RET) 94,822 89,619Grants receivable from the Scottish Government (including amount relating to RET) 94,822 89,619 Subsidy received from the Northern Ireland Department for Regional Development - 102Subsidy received from the Northern Ireland Department for Regional Development - 102 ______

175,119 169,854 175,119 169,854 ______

The increase in grants receivable from the Scottish Government mainly relates to the first full year effect of Thethe increase in grants receivable from the Scottish Government mainly relates to the first full year effect of the introduction of road equivalent tariff on a number of Hebridean routes effective from October 2008. introduction of road equivalent tariff on a number of Hebridean routes effective from October 2008.

3. Profit on ordinary activities before tax 3. Profit on ordinary activities before tax

The Profit is stated after charging/(crediting): The Profit is stated after charging/(crediting): Group Group Group Group 2010 2009 2010 2009 £000 £000 £000 £000

Auditors' remuneration - audit of these financial statements 32 29Auditors' remuneration - audit of these financial statements 32 29 - audit of financial statements of subsidiaries - audit of financial statements of subsidiaries pursuant to legislation 90 92 pursuant to legislation 90 92 - other services relating to tax 49 25 - other services relating to tax 49 25 - other services 125 43 - other services 125 43 Depreciation of tangible fixed assets 1,345 1,086Depreciation of tangible fixed assets 1,345 1,086 Amortisation of intangible fixed assets 534 149Amortisation of intangible fixed assets 534 149 Net gain on disposal of tangible fixed assets 347 Net1 gain on disposal of tangible fixed assets 347 1 Amortisation of capital grants (1,187) (803)Amortisation of capital grants (1,187) (803) Operating lease costs - buildings 2,751 2,653Operating lease costs - buildings 2,751 2,653 - ships and motor vehicles 23,127 21,452 - ships and motor vehicles 23,127 21,452 Interest receivable - bank (121) (632)Interest receivable - bank (121) (632) ______

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Text 21 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010

Notes on the financial statements continued Notes on the financial statements continued

4. Taxation 4. Taxation

The tax charge for the year is made up as follows: The tax charge for the year is made up as follows: Group Group Group Group 2010 2009 2010 2009 £000 £000 £000 £000

UK corporation tax on the profit for the year 228 240UK corporation tax on the profit for the year 228 240 Adjustments in respect of prior years (5) (6)Adjustments in respect of prior years (5) (6) ______

223 234 223 234 ______Deferred tax: Deferred tax: Adjustments in respect of prior years (5) Adjustments- in respect of prior years (5) - Origination of timing differences (20) 59Origination of timing differences (20) 59 ______

(25) 59 (25) 59 ______

Tax on profit on ordinary activities 198 293Tax on profit on ordinary activities 198 293 ______

The current tax charged for the year differs from the standard rate of corporation tax of 28% (2009: 28%). TheThe current tax charged for the year differs from the standard rate of corporation tax of 28% (2009: 28%). The differences are explained below: differences are explained below: Group Group Group Group 2010 2009 2010 2009 £000 £000 £000 £000

Profit on ordinary activities before tax 4,612 3,778Profit on ordinary activities before tax 4,612 3,778 ______

UK corporation tax at 28% (2009: 28%) 1,291 1,058UK corporation tax at 28% (2009: 28%) 1,291 1,058 Effects of: Effects of: Tonnage tax (1,155) (853)Tonnage tax (1,155) (853) Group relief 1 Group- relief 1 - Marginal rate of tax (4) (2)Marginal rate of tax (4) (2) Items not allowable for tax purposes 77 99Items not allowable for tax purposes 77 99 Unrecognised deferred tax asset (2) Unrecognised- deferred tax asset (2) - Deferred tax 20 (59)Deferred tax 20 (59) Adjustment in respect of prior year (5) (6)Adjustment in respect of prior year (5) (6) Other - (3)Other - (3) ______

Corporation tax for the year 223 234Corporation tax for the year 223 234 ______

The Group is elected into tonnage tax. However, certain activities within the Group are liable to corporation tax.The Group is elected into tonnage tax. However, certain activities within the Group are liable to corporation tax. Tonnage tax is levied wholly on the net tonnage of certain vessels operated by the Group. Accordingly, the amountTonnage of tax is levied wholly on the net tonnage of certain vessels operated by the Group. Accordingly, the amount of tonnage tax payable is not affected by the amount of accounting profits or losses related to the associated activities. tonnage tax payable is not affected by the amount of accounting profits or losses related to the associated activities.

The Group has a deferred tax asset of £300,000 (2009: £275,000) which is considered recoverable. It is included withThe Group has a deferred tax asset of £300,000 (2009: £275,000) which is considered recoverable. It is included with debtors (note 9) and comprises: debtors (note 9) and comprises:

2010 2009 2010 2009 £000 £000 £000 £000

Decelerated capital allowances 218 267Decelerated capital allowances 218 267 Other timing differences 82 Other8 timing differences 82 8 ______

300 275 300 275 ______

Balance at beginning of year 275 334B alance at beginning of year 275 334 Movement during the year 25 (59)Movement during the year 25 (59) ______

Balance at end of year 300 275Balance at end of year 300 275 ______

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Notes on the financial statements continued Notes on the financial statements continued

5. Employee information 5. Employee information

Staff costs (including Directors) Staff costs (including Directors) Group Group Group Group 2010 2009 2010 2009 £000 £000 £000 £000

Wages and salaries 49,985 44,365Wages and salaries 49,985 44,365 Social security costs 1,700 1,582Social security costs 1,700 1,582 Other pension costs 7,820 5,552Other pension costs 7,820 5,552 ______

59,505 51,499 59,505 51,499 Staff-related costs 5,201 4,602Staff-related costs 5,201 4,602 ______

64,706 56,101 64,706 56,101 ______

Details of Directors' remuneration are given in the Report on Directors’ remuneration. Details of Directors' remuneration are given in the Report on Directors’ remuneration.

Employee numbers Employee numbers

The average number of employees, including Directors, was made up as follows: The average number of employees, including Directors, was made up as follows: Group Group Group Group 2010 2009 2010 2009 No. No. No. No.

Ship operating 1,121 1,087Ship operating 1,121 1,087 Shore terminal 363 355Shore terminal 363 355 Administrative 156 156Administrative 156 156 ______

1,640 1,598 1,640 1,598 ______

6. Tangible Assets - Group 6. Tangible Assets - Group

Vehicles and Vehicles and Buildings Ships Equipment Total Buildings Ships Equipment Total £000 £000 £000 £000 £000 £000 £000 £000

At cost: At cost: At 1 April 2009 2,471 442 4,572 7,485At 1 April 2009 2,471 442 4,572 7,485 Additions during year 60 - 242 302Additions during year 60 - 242 302 Disposals during year - (442) (435) (877)Disposals during year - (442) (435) (877) ______

At 31 March 2010 2,531 - 4,379 6,910At 31 March 2010 2,531 - 4,379 6,910 ______

Aggregate depreciation: Aggregate depreciation: At 1 April 2009 41 284 1,438 1,763At 1 April 2009 41 284 1,438 1,763 Charge for the year 121 114 1,110 1,345Charge for the year 121 114 1,110 1,345 Disposals during year - (398) (142) (540)Disposals during year - (398) (142) (540) ______

At 31 March 2010 162 - 2,406 2,568At 31 March 2010 162 - 2,406 2,568 ______

Net book value at 31 March 2010 2,369 - 1,973 4,342Net book value at 31 March 2010 2,369 - 1,973 4,342 ______

Net book value at 31 March 2009 2,430 158 3,134 5,722Net book value at 31 March 2009 2,430 158 3,134 5,722 ______

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Text 23 27/07/2010 12:03 David MacBrayne Limited/Company Number SC15304/31 March 2010 David MacBrayne Limited/Company Number SC15304/31 March 2010 Notes on the financial statements continued Notes on the financial statements continued 7. Intangible assets - Group Bid7. Intangible assets - Group Costs Bid £000 Costs £000 At cost: At 1 April 2009 and 31 March 2010 845At cost: ______At 1 April 2009 and 31 March 2010 845 Amortisation: ______At 1 April 2009 311Amortisation: Charge for year 534At 1 April 2009 311 ______Charge for year 534 ______At 31 March 2010 845 ______At 31 March 2010 845 ______Net book value at 31 March 2010 - ______Net book value at 31 March 2010 - ______Net book value at 31 March 2009 534 ______Net book value at 31 March 2009 534 ______Previously capitalised goodwill relating to the excess cost over and above the fair value of the identifiable assets purchased from the previous operator of the Northern Isles ferry services is fully amortised and is no longerPreviously capitalised goodwill relating to the excess cost over and above the fair value of the identifiable assets included in the financial statements. purchased from the previous operator of the Northern Isles ferry services is fully amortised and is no longer included in the financial statements. The bid costs were incurred in respect of the tenders for both the Northern Isles ferry services and the Clyde and Hebrides ferry services. The Directors consider it appropriate to write off the remaining balance during the currentThe bid costs were incurred in respect of the tenders for both the Northern Isles ferry services and the Clyde and financial year. Hebrides ferry services. The Directors consider it appropriate to write off the remaining balance during the current financial year. 8. Investments 8. Investments Group Group Company Company 2010 2009 2010 2009 Group Group Company Company £000 £000 £000 £000 2010 2009 2010 2009 £000 £000 £000 £000 Shares in Group undertakings - - 74 74 Loans to Group undertakings - - - 650Shares in Group undertakings - - 74 74 ______Loans to Group undertakings - - - 650 ______- - 74 724 ______- - 74 724 ______The Company owns the whole of the issued ordinary share capital of CalMac Ferries Ltd., NorthLink Ferries Ltd., Cowal Ferries Ltd., Rathlin Ferries Ltd. and David MacBrayne HR (UK) Ltd. The Company owns the whole of the issued ordinary share capital of CalMac Ferries Ltd., NorthLink Ferries Ltd., Cowal Ferries Ltd., Rathlin Ferries Ltd. and David MacBrayne HR (UK) Ltd. CalMac Ferries Ltd. operates the Clyde and Hebrides ferry services, NorthLink Ferries Ltd. operates the Northern Isles ferry services, Cowal Ferries Ltd. operates the Gourock/Dunoon ferry service and David MacBrayne HR (UK) Ltd.CalMac Ferries Ltd. operates the Clyde and Hebrides ferry services, NorthLink Ferries Ltd. operates the Northern Isles provides human resource services to the companies with the Group. Rathlin Ferries Ltd. which formerly operated theferry services, Cowal Ferries Ltd. operates the Gourock/Dunoon ferry service and David MacBrayne HR (UK) Ltd. Ballycastle/Rathlin ferry service is currently dormant. All of these companies are incorporated in Scotland. provides human resource services to the companies with the Group. Rathlin Ferries Ltd. which formerly operated the Ballycastle/Rathlin ferry service is currently dormant. All of these companies are incorporated in Scotland. CalMac Ferries Ltd. owns the whole of the issued ordinary share capital of Caledonian MacBrayne Crewing (Guernsey) Ltd., which administers its offshore crewing arrangements. NorthLink Ferries Ltd. owns the whole of the issued ordinaryCalMac Ferries Ltd. owns the whole of the issued ordinary share capital of Caledonian MacBrayne Crewing (Guernsey) share capital of NorthLink Crewing (Guernsey) Ltd. which administers its offshore crewing arrangements. Both of theseLtd., which administers its offshore crewing arrangements. NorthLink Ferries Ltd. owns the whole of the issued ordinary companies are incorporated in Guernsey. share capital of NorthLink Crewing (Guernsey) Ltd. which administers its offshore crewing arrangements. Both of these companies are incorporated in Guernsey.

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Notes on the financial statements continued Notes on the financial statements continued

9. Debtors and prepayments 9. Debtors and prepayments

Group Group Company Company Group Group Company Company 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000

Trade debtors 3,403 3,716 - Trade- debtors 3,403 3,716 - - Other debtors 3,415 4,577 190 Other6 debtors 3,415 4,577 190 6 Prepayments and accrued income 4,615 1,655 46 106Prepayments and accrued income 4,615 1,655 46 106 Deferred tax (note 4) 300 275 - Deferred- tax (note 4) 300 275 - - Amounts due from subsidiaries - - 35 26Amounts due from subsidiaries - - 35 26 ______

11,733 10,223 271 138 11,733 10,223 271 138 ______

10. Creditors: amounts falling due within one year 10. Creditors: amounts falling due within one year

Group Group Company Company Group Group Company Company 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000

Trade creditors 4,335 4,916 19 Trade- creditors 4,335 4,916 19 - Other creditors and accruals 10,478 8,114 247 32Other creditors and accruals 10,478 8,114 247 32 Deferred income 4,006 3,556 - Deferred- income 4,006 3,556 - - Corporation tax 223 240 48 26Corporation tax 223 240 48 26 Amounts due to subsidiaries - - 303 10Amounts due to subsidiaries - - 303 10 ______

19,042 16,826 617 68 19,042 16,826 617 68 ______

11. Capital grants 11. Capital grants

Group Group Company Company Group Group Company Company 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000

Balance at beginning of year 5,324 2,880 - Balance- at beginning of year 5,324 2,880 - - Grants received during year 163 3,247 - Grants- received during year 163 3,247 - - Amount amortised during year (1,470) (803) - Amount- amortised during year (1,470) (803) - - ______

Balance at end of year 4,017 5,324 - Balance- at end of year 4,017 5,324 - - ______

12. Provisions 12. Provisions

Group Group Company Company Group Group Company Company 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000

Balance at beginning and end of year 400 400 - Balance- at beginning and end of year 400 400 - - ______

The provision held is in respect of employment-related legal claims in NorthLink Ferries Ltd. The timing of paymentThe in provision held is in respect of employment-related legal claims in NorthLink Ferries Ltd. The timing of payment in relation to this provision is currently uncertain, but is expected to be within the next five years. relation to this provision is currently uncertain, but is expected to be within the next five years.

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Notes on the financial statements continued Notes on the financial statements continued

13. Share capital 13. Share capital

2010 2009 2010 2009 £000 £000 £000 £000 Authorised Authorised 6,800,000 Ordinary Shares of £1 each 6,800 6,8006,800,000 Ordinary Shares of £1 each 6,800 6,800 ______Allotted issued and fully paid Allotted issued and fully paid 5,500,002 Ordinary shares of £1 each 5,500 5,5005,500,002 Ordinary shares of £1 each 5,500 5,500 ______

14. Profit and loss account 14. Profit and loss account

Group Group Company Company Group Group Company Company 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000

Balance at beginning of year 7,598 4,113 1,625 247Balance at beginning of year 7,598 4,113 1,625 247 Retained profit for year 4,414 3,485 3,535 1,378Retained profit for year 4,414 3,485 3,535 1,378 ______

Balance at end of year 12,012 7,598 5,160 1,625Balance at end of year 12,012 7,598 5,160 1,625 ______

15. Pension arrangements 15. Pension arrangements

A large number of employees within the Group are members of the CalMac Pension Fund which is a defined benefitA large number of employees within the Group are members of the CalMac Pension Fund which is a defined benefit scheme. With the exception of NorthLink Ferries Ltd., the companies within the Group are participating employersscheme. in With the exception of NorthLink Ferries Ltd., the companies within the Group are participating employers in this scheme which is operated by Caledonian Maritime Assets Ltd., a company wholly owned by Scottish Ministers. thisOn scheme which is operated by Caledonian Maritime Assets Ltd., a company wholly owned by Scottish Ministers. On this basis, pension contributions are accounted for as if the scheme were defined contribution. this basis, pension contributions are accounted for as if the scheme were defined contribution.

A number of other employees participate in one of the Merchant Navy Pension Funds. As these pension schemes areA all number of other employees participate in one of the Merchant Navy Pension Funds. As these pension schemes are all industry-wide, contributions are accounted for on a defined contribution basis. industry-wide, contributions are accounted for on a defined contribution basis.

NorthLink Ferries Ltd. provides a stakeholder pension facility, which is available to all staff, and which is a definedNorthLink Ferries Ltd. provides a stakeholder pension facility, which is available to all staff, and which is a defined contribution pension scheme. contribution pension scheme.

The amount charged to profit and loss account in respect of employer contributions to Pension Schemes is: The amount charged to profit and loss account in respect of employer contributions to Pension Schemes is:

Group Group Group Group 2010 2009 2010 2009 £000 £000 £000 £000

CalMac Pension Fund 5,478 4,862CalMac Pension Fund 5,478 4,862 Other schemes 2,342 690Other schemes 2,342 690 ______

7,820 5,552 7,820 5,552 ______

Contributions to be paid to pension schemes included in creditors 1,787 162Contributions to be paid to pension schemes included in creditors 1,787 162 ______

Included within amounts payable in respect of other schemes is an amount of £1,600,000 (2009:£Nil) which is dueIncluded in within amounts payable in respect of other schemes is an amount of £1,600,000 (2009:£Nil) which is due in respect of active member employer deficit contributions to the Merchant Navy Officers Pension Fund. respect of active member employer deficit contributions to the Merchant Navy Officers Pension Fund.

16. Financial instruments 16. Financial instruments

The Group has a fuel hedge in place which covers the period to 31 March 2011. The hedge relates to a significantThe Group has a fuel hedge in place which covers the period to 31 March 2011. The hedge relates to a significant percentage of the forecast marine fuel volumes over this period and this percentage can be increased at any time shouldpercentage of the forecast marine fuel volumes over this period and this percentage can be increased at any time should market conditions indicate that this may be beneficial. Under the terms of the hedge, the hedge provider takes the riskmarket conditions indicate that this may be beneficial. Under the terms of the hedge, the hedge provider takes the risk of the impact of fuel price movements, and consequently there is no risk to the Group. of the impact of fuel price movements, and consequently there is no risk to the Group.

Under the terms of the respective public service contracts under which the main operating companies provide ferryUnder the terms of the respective public service contracts under which the main operating companies provide ferry services, the risk related to the movement on fuel prices on the volume not covered by fuel hedge at any time is takenservices, the risk related to the movement on fuel prices on the volume not covered by fuel hedge at any time is taken by the Scottish Government. by the Scottish Government.

The Directors consider that these arrangements provide appropriate stability of cost base in this significant expenseThe Directors consider that these arrangements provide appropriate stability of cost base in this significant expense area. area.

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Notes on the financial statements continued Notes on the financial statements continued

17. Other financial commitments 17. Other financial commitments

The Group has a number of operating leases in respect of buildings, ships and motor vehicles. The annual commitmentsThe Group has a number of operating leases in respect of buildings, ships and motor vehicles. The annual commitments in respect of these leases are as follows: in respect of these leases are as follows:

Group Group Company Company Group Group Company Company 2010 2009 2010 2009 2010 2009 2010 2009 £000 £000 £000 £000 £000 £000 £000 £000

Buildings Buildings Leases which expire: Leases which expire: within one year 176 179 - within- one year 176 179 - - between two and five years 2,627 2,533 - between- two and five years 2,627 2,533 - - ______

2,803 2,712 - - 2,803 2,712 - - ______

Ships & motor vehicles Ships & motor vehicles Leases which expire: Leases which expire: within one year 229 816 3 within- one year 229 816 3 - between two and five years 22,188 21,551 47 between- two and five years 22,188 21,551 47 - ______

22,417 22,367 50 - 22,417 22,367 50 - ______

18. Related party transactions 18. Related party transactions

Details of transactions between the Group’s subsidiaries and related parties are as follows: Details of transactions between the Group’s subsidiaries and related parties are as follows:

2010 2009 2010 2009 £000 £000 £000 £000 Transactions during the year – receivable/(payable): Transactions during the year – receivable(payable):

Scottish Ministers Scottish Ministers - grants 95,035 92,866 - grants 95,035 92,866

Caledonian Maritime Assets Ltd. Caledonian Maritime Assets Ltd. - vessel leasing charges (13,041) (11,587) - vessel leasing charges (13,041) (11,587) - harbour, property and equipment access charges (2,059) (1,954) - harbour, property and equipment access charges (2,059) (1,954) - provision of staff (67) (69) - provision of staff (67) (69) - vessel modification and other costs 783 1,497 - vessel modification and other costs 783 1,497 - vessel new build costs 37 311 - vessel new build costs 37 311 - harbour management and maintenance 863 1,455 - harbour management and maintenance 863 1,455 - ferry travel costs 6 5 - ferry travel costs 6 5 ______

Amounts due at end of year – receivable/(payable): Amounts due at end of year – receivable/(payable):

Scottish Ministers Scottish Ministers - grants 886 2,810 - grants 886 2,810

Caledonian Maritime Assets Ltd. Caledonian Maritime Assets Ltd. - provision of staff (6) (24) - provision of staff (6) (24) - vessel modification and other costs 790 1,462 - vessel modification and other costs 790 1,462 - vessel new build costs 6 79 - vessel new build costs 6 79 - harbour management and maintenance 10 - - harbour management and maintenance 10 - - ferry travel costs - 1 - ferry travel costs - 1 ______

Transactions between the Company and its subsidiaries, which are related parties, have been eliminatedTransactions on between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. consolidation and are not disclosed in this note.

During the year, CalMac Ferries Ltd. acted as agent for Caledonian Maritime Assets Ltd. in relation to certain elementsDuring of the year, CalMac Ferries Ltd. acted as agent for Caledonian Maritime Assets Ltd. in relation to certain elements of new vessel builds. The associated funds were paid to third parties and recovered from Caledonian Maritime Assets Ltd.new vessel builds. The associated funds were paid to third parties and recovered from Caledonian Maritime Assets Ltd.

19. Ultimate parent company 19. Ultimate parent company

The Company is wholly-owned by the Scottish Ministers. The Company is wholly-owned by the Scottish Ministers.

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Corporate information Corporate information

Parent company Parent company Registered office The Ferry Terminal Registered office The Ferry Terminal Gourock Gourock PA19 1QP PA19 1QP

Principal Group advisors Principal Group advisors Auditors KPMG LLP Auditors KPMG LLP

Solicitors McGrigors Solicitors McGrigors Pinsent Masons Pinsent Masons

Bankers The Royal Bank of Scotland plc Bankers The Royal Bank of Scotland plc Alliance & Leicester plc Alliance & Leicester plc

Insurers The North of England Protecting & Indemnity Insurers The North of England Protecting & Indemnity Association and Marine Shipping Mutual Insurance Association and Marine Shipping Mutual Insurance

Websites www.calmac.co.uk Websites www.calmac.co.uk www.northlinkferries.co.uk www.northlinkferries.co.uk

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Cover 2 27/07/2010 11:59 David MacBrayne Limited Group Annual Report & Consolidated Financial Statements

David MacBrayne Group Ferry Terminal, Gourock PA19 1QP

Tel: 01475 650100 Fax: 01475 650336 Websites: www.calmac.co.uk www.northlinkferries.co.uk

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