Building a new company with a proud tradition. ANNUAL REPORTS 2003/04 British Columbia Ferry Services Inc. & B.C. Ferry Authority Contents British Columbia Ferry Services Inc. A Message from the Chair 02 A Message from the President and CEO 04 Corporate Profile 06 Our Vision, Our Mission and Our Values 06 2003/04 Key Accomplishments 08 Operating Highlights 09 Our New Business Model 10 BC Ferries Fleet 26 BC Ferries Routes 28 Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Consolidated Financial Statements of British Columbia Ferry Services Inc. 37 Corporate Directory 50 B.C. Ferry Authority A Message from the Chair A1 Summary of Meetings A2 Legal Basis for the B.C. Ferry Authority A3 Skills and Experience Profile A4 Consolidated Financial Statements of B.C. Ferry Authority A6 Board of Directors A12 On April 2, 2003, BC Ferries became an independent company. On that day, a 43-year-old organization was given a new beginning. We now have a clear vision to become a world-class marine transportation system, one that is both highly customer-focused and financially viable. During our first year, we have made big strides towards our vision. We’ve built on our strengths and we’ve created new business opportunities. And we’re excited about the future… One sailing at a time. 01 A Message from the Chair “During the year, we set in motion the plans needed to guide our long-term direction.” ONE YEAR AGO, the process of and regulated service levels. Peter Armstrong and Jim Cutt. The work transforming BC Ferries by implementing To ensure proper governance, of these individuals, along with members of a new structure for the delivery of ferry BC Ferries’ operations are overseen by the our current board, resulted in the successful services to coastal British Columbia was BC Ferry Commissioner Martin Crilly. establishment of the new BC Ferries. implemented. That structure transformed The Commissioner acts as an independent On behalf of the Board of Directors, the former Crown corporation and gave regulator who oversees our compliance I look forward to the future as we continue the new BC Ferries a solid business with the Coastal Ferry Services Contract, our pursuit of customer service excellence foundation and a clear vision to create a monitors the fares, and encourages and financial accountability. modern, safe, reliable ferry system while BC Ferries to be efficient and innovative. protecting British Columbia taxpayers While we are in the early stage of our from further financial burden. corporate evolution, important first steps During the year, we set in motion have successfully been taken to achieve our the plans needed to guide our long-term goal of establishing a financially viable, direction; making important advances toward world-class marine transportation system improving customer service and corporate with improved customer service and a governance and securing the financial renewed fleet of vessels. platform needed to modernize BC Ferries. I want to extend a special thank you We provide ferry services under a to the previous board members who were 60-year contract with the Province of instrumental in bringing about the British Columbia, which protects coastal transformation of this proud company— communities with a long-term service former Board chair David Emerson and Elizabeth J. Harrison, Q.C. commitment, predictable fare increases former Board members Mark Cullen, Chair 02 BRITISH COLUMBIA FERRY SERVICES INC. “While we are in the early stage of our corporate evolution, the important first steps have successfully been taken to achieve our goal of establishing a financially viable, world-class marine transportation system with improved customer service and a renewed fleet of vessels.” ANNUAL REPORT 2003/04 03 A Message from the President and CEO “In our first year as an independent company, we made measurable progress in demonstrating our capability and determination to operate a world-class ferry system.” LAST YEAR, I had the privilege of joining that they expect BC Ferries to maintain the includes revolving credit facilities totalling BC Ferries. This is a company with a solid highest safety standards, build new ships, $155 million. We were very pleased with operational background, and a proud and improve on-time performance, provide the strong and positive response from the rich history as the vital transportation link quality food services, reduce wait times at financial markets—clearly, a strong vote of to and from communities along British terminals and communicate better. confidence in our plans for BC Ferries. Columbia’s beautiful coastline. We are diligently addressing each of these These enabled us to repay debts due to the Since its formation in 1960, BC Ferries priorities, and I am pleased with our Government of British Columbia. has grown to become one of the world’s progress to date. I am also confident that We expect that of the approximately largest ferry transportation systems. In the year ahead promises to see even more $2.4 billion in capital expenditures BC Ferries’ first year as an independent progress in these critical areas. required over the next 15 years for ship company, the framework needed for Over the last year, we added replacements and upgrades, as well as other building a customer-focused, financially additional vehicle reservation services, much needed infrastructure, approximately viable company has successfully been expanded our tourism travel packages, half will be funded from external sources. established. We have also made measurable offered off-peak pricing initiatives and Accordingly, successful completion of these progress in demonstrating our capability upgraded our food services. offerings was an important first step in and determination to operate a world-class Upgrades to our Tsawwassen and establishing BC Ferries as a high-quality, ferry system. Swartz Bay terminals, providing vital commercially viable borrower. Our first priority in rebuilding customer-service improvements, have Net earnings in 2004 were $28.0 BC Ferries has been to better understand also begun. million. This result was ahead of our our customers; the residents of ferry- Perhaps our biggest challenge over targets and is a marked improvement over dependent communities and the many the next year is the need to commence the 2003 when BC Ferries reported earnings of businesses, industries and visitors that have replacement of our aging fleet of vessels. We $24.4 million (before deducting the final a direct interest in our service. expect to award a contract for the first phase costs of $53 million associated with the Our recent customer satisfaction of our new capital program shortly. disposal of the high-speed ferries). Despite survey indicates that most customers are In May 2004, we completed two debt this improvement, we are working to find favourably impressed with BC Ferries. financings—a $250 million bond offering better ways to add new revenue sources and Understandably, our customers also tell us and a $355 million bank facility, which to control our rising operating costs—most 04 BRITISH COLUMBIA FERRY SERVICES INC. “We added additional vehicle reservation services, expanded our tourism travel packages, offered off-peak pricing initiatives and upgraded our food services.” significantly, the recent surge in the price Most importantly, I thank BC Ferries’ of fuel and motor oil. customers for their continuing support With respect to labour negotiations, during our rebuilding process. BC Ferries and the BC Ferry & Marine The year ahead is a promising one in Workers’ Union are currently involved in a which we will work hard to meet the binding arbitration process to reach a new expectations of our customers. I look collective agreement. In the interim, our forward to the unprecedented opportunities employees continue to deliver excellent that our current direction will bring. service to ensure the safe passage of our customers. BC Ferries is committed to a long- term process of progressive and ongoing improvements while maintaining stable, predictable services. I would like to express my gratitude to our Board of Directors for their efforts in helping BC Ferries become a new David L. Hahn independent company. President and Chief Executive Officer I also thank BC Ferries’ employees, who are among the most knowledgeable and experienced in the industry. With their expertise and the changes underway to transform the company, BC Ferries has all of the elements necessary to be a successful commercial enterprise. ANNUAL REPORT 2003/04 05 Corporate Profile BC FERRIES is an independent marine We provide frequent year-round British Columbia owns cumulative transportation company operating a services on 25 routes, supported by 35 preferred shares of BC Ferries, but has no complex coastal ferry system that provides vessels and 47 terminals. (In addition, voting interest in either the B.C. Ferry vehicle and passenger transportation and BC Ferries owns two other vessels, which Authority or BC Ferries. related services in British Columbia’s we charter to other operators.) To learn more about BC Ferries, please coastal waters. Our company is governed by an visit our website at www.bcferries.com. We are one of the largest ferry independent Board of Directors operators in the world, based on passengers appointed by the B.C. Ferry Authority, transported annually and transportation which owns the single voting common infrastructure. share of BC Ferries. The Province of Our Vision Our Values To become a world-class marine transportation system that is Safety. Ensure that the safety and security of our customers customer-focused and financially viable. and staff is a primary concern in all aspects of doing business. Quality. Be motivated by customer expectations in providing quality facilities and services. Our Mission Integrity. Be accountable for all our actions and ensure we To provide a safe, reliable and efficient ferry service which demonstrate integrity in our business relations, utilization of consistently exceeds the expectations of our customers and resources, treatment of our customers and staff, and in the general communities, and creates value for the shareholder.