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REGISTERED NUMBER: SC036770 (Scotland)










Strategic Report, Report of the Directors and

Audited Financial Statements

for the Year Ended 31 March 2024

for

Orkney Ferries Limited

Orkney Ferries Limited (Registered number: SC036770)






Contents of the Financial Statements
for the Year Ended 31 March 2024




Page

Company Information 1

Strategic Report 2

Report of the Directors 5

Report of the Independent Auditors 7

Income Statement 11

Other Comprehensive Income 12

Statement of Financial Position 13

Statement of Changes in Equity 14

Statement of Cash Flows 15

Notes to the Statement of Cash Flows 16

Notes to the Financial Statements 17


Orkney Ferries Limited

Company Information
for the Year Ended 31 March 2024







DIRECTORS: Mellissa Thomson
Heather Woodbridge
Ivan Taylor
Raymond Peace
Lindsay Hall



REGISTERED OFFICE: Council Offices
Kirkwall
ORKNEY
KW15 1NY



REGISTERED NUMBER: SC036770 (Scotland)



AUDITORS: Orcadia
Chartered Accountants and Registered Auditors
1-3 East Road
Kirkwall
Orkney
KW15 1HZ



BANKERS: The Royal Bank of Scotland
1 Victoria Street
Kirkwall
Orkney
KW15 1DP

Orkney Ferries Limited (Registered number: SC036770)

Strategic Report
for the Year Ended 31 March 2024

The Company operates lifeline ferry services under a Service Level Agreement with Orkney Islands Council. The islands served are:

The outer north isles of North Ronaldsay, Papa Westray, Westray, Eday, Sanday, and Stronsay
The inner north isles of Shapinsay, Rousay, Egilsay and Wyre.
The south isles of Hoy, Flotta and Graemsay.


Orkney Ferries Limited (Registered number: SC036770)

Strategic Report
for the Year Ended 31 March 2024

REVIEW OF BUSINESS
During 2023/24 the Board approved the introduction of a seven day customer facing service and a new shoreside structure. This saw the shore support being split into 4 distinct areas - Marine Superintendents, Administration Support, Finance Service and Customer Service. During this financial year the Finance Service and the Marine Superintendents has been fully integrated. The Customer Service and Administration Support is still being recruited to, with the Supervisors all starting in May 2024 and looking to implement the seven day customer facing service in June 2024.

The company had some technical and operational challenges throughout the year including bow thruster issues on both the Earl Sigurd and Earl Thorfinn which at one point saw the company down to one outer north isles vessel. Due to the age of our fleet maintenance remains one of the most challenging aspects of operating the lifeline services, with long delivery lead times for the supply of some parts, many of which must be manufactured on an ad hoc bespoke basis. While we are now actively planning the stocking and the supply of such parts in advance of the end of their operational lifespan to increase the resilience of our operation, It remains difficult to plan for every eventuality and the risk of more frequent breakdowns will increase as the vessels age advances.

As a result of the above and high incidence of weather disruptions, especially in the months of December and January and other technical/operational related disruptions, there were 741 individual sailings affected and 69 additional sailings. The age of the fleet is such that each year the fleet requires more Marine and Technical Superintendent resource to ensure that the vessels are maintained and fit for purpose to deliver the timetabled service.

MV Golden Mariana that operated the Westray to Papa Westray Service was sold in February 2024 and a procurement exercise commenced to source an additional small ferry for the fleet. The MV Nordic Sea was deployed on the outer north isles route to help relieve capacity pressures during the refit period in January and February. This was a welcomed additional service to the outer north isles residents and the Nordic Sea continues to cover the Graemsay during refit time also with further additional sailings planned for next financial year.

In July 2023 Orkney Ferries entered into a contract to implement a new booking system. During this financial year there has been a lot of background work taking place building up the system. Work is progressing and a go live date is expected during summer 2024 for online and office bookings and then in autumn 2024 for on board bookings.
The fare structure did not increase during 2023/24 as per the policy agreed in February 2022 that ferry fares on services operated by Orkney Ferries Limited be increased annually in line with the fare uprating assumptions applied on Transport Scotland's supported ferry services.
There has been an increase in total income of £201K to £2,869K. Freight and Fares income was £2,619K and has increased by £158K (6.4%) compared to the previous year and was £216K (9%) ahead of budget. Stewards Catering generated an income of £146K compared to the £112K income the previous year. Charter income increased by £9K (21%) to £53K compared to the previous year, overall income was 10.27% above budget.

The Company faced significant costs in relation to ships refit and repair costs, which at £4,541K was £1,325K (41.2%) higher than the previous year and £737K (19.36%) above budget, the challenges of keeping an aging fleet in service have already been noted and lead times for supply of spares is increasing.

Additionally, the increase in energy costs and cost of living generally, has increased the costs of shore power and catering.

Administration costs were 40.5% higher than the previous year, due mainly to pay awards and IT software costs for the new booking system project but was £305K (12.14%) under budget.

Orkney Ferries Limited (Registered number: SC036770)

Strategic Report
for the Year Ended 31 March 2024


The subsidy from the Scottish Government Fairer Ferries Funding for 2023/24 was originally advised at £13,402M, however on 16th August 2023 the Scottish Government confirmed that Orkney Islands Council would be awarded a grant of £15,829M for 2023/24, this was an increase of £2,427M.

On 11 September 2023 Orkney Ferries Ltd were successful in The Zero Emission Vessel and Infrastructure (ZEVI) competition. This project funded by the Department of Transport and Innovate UK is to fund 100% battery electric vessels. The Grant Offer Letter was signed in November 2023 and the project is now underway with the 12m vessel due to arrive in Orkney in August 2024 and the 24m vessel to follow in Spring 2025.

The Company notes that for the year ahead, trading conditions will continue to be challenging, given the age and condition of the vessels and that there has been no increase in the funding settlement, with the Scottish Government confirming that a flat cash award will apply and that Orkney Islands Council will be awarded a specific grant of £15,829M for 2024/25. The Company recognises that there are ever increasing risks to the reliability and operating efficiency of the service as the age of the fleet of vessels operated increases further.

A ferries taskforce has been established between Scottish Government and Orkney Islands Council that will work jointly on proposals to support the Council's consideration of options for the long-term renewal of the Orkney internal ferry fleet. The taskforce will consider potential funding models and the funding sources available as well as the business case for replacement.

PRINCIPAL RISKS AND UNCERTAINTIES
Due to the age of our fleet maintenance remains one of the most challenging aspects of operating the lifeline services, with long delivery lead times for the supply of some parts, many of which must be manufactured on an ad hoc bespoke basis. While we are now actively planning the stocking and the supply of such parts in advance of the end of their operational lifespan to increase the resilience of our operation, It remains difficult to plan for every eventuality and the risk of more frequent breakdowns will increase as the vessels age advances.

The high incidence of weather and other technical/operational related disruptions can lead to sailings being affected. The age of the fleet is such that each year the fleet requires more Marine and Technical Superintendent resource to ensure that the vessels are maintained and fit for purpose to deliver the timetabled service.

Fuel and Energy, major costs to our business, are influenced by demand, supply and costs volatillity which can have a significant impact on the operating costs of the company.

ON BEHALF OF THE BOARD:





Mellissa Thomson - Director


3 July 2024

Orkney Ferries Limited (Registered number: SC036770)

Report of the Directors
for the Year Ended 31 March 2024

The directors present their report with the financial statements of the company for the year ended 31 March 2024.

PRINCIPAL ACTIVITY
The principal activity of the company in the year under review was that of the provision of sea transport to the North and South Isles of Orkney.

DIVIDENDS
No dividends will be distributed for the year ended 31 March 2024.

EVENTS SINCE THE END OF THE YEAR
Information relating to events since the end of the year is given in the notes to the financial statements.

DIRECTORS
The directors shown below have held office during the whole of the period from 1 April 2023 to the date of this report.

Mellissa Thomson
Heather Woodbridge
Ivan Taylor
Raymond Peace
Lindsay Hall

STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic Report, the Report of the Directors and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. 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 company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

-select suitable accounting policies and then apply them consistently;
-make judgements and accounting estimates that are reasonable and prudent;
-prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the company's auditors are unaware, and each director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

Orkney Ferries Limited (Registered number: SC036770)

Report of the Directors
for the Year Ended 31 March 2024


AUDITORS
The auditors, Orcadia, will be proposed for re-appointment at the forthcoming Annual General Meeting.

ON BEHALF OF THE BOARD:





Mellissa Thomson - Director


3 July 2024

Report of the Independent Auditors to the Members of
Orkney Ferries Limited

Opinion
We have audited the financial statements of Orkney Ferries Limited (the 'company') for the year ended 31 March 2024 which comprise the Income Statement, Other Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and Notes to the Statement of Cash Flows, Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
_
In our opinion the financial statements:
-give a true and fair view of the state of the company's affairs as at 31 March 2024 and of its loss for the year then ended;
-have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
-have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information
The directors are responsible for the other information. The other information comprises the information in the Strategic Report and the Report of the Directors, but does not include the financial statements and our Report of the Auditors thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Report of the Independent Auditors to the Members of
Orkney Ferries Limited


Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and
- the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Report of the Directors.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
- adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
- the 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
- we have not received all the information and explanations we require for our audit.

Responsibilities of directors
As explained more fully in the Statement of Directors' Responsibilities set out on page five, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Report of the Independent Auditors to the Members of
Orkney Ferries Limited


Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a Report of the Auditors that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. A summary of the procedures we designed and executed to detect irregularities, including fraud is set out below:

In identifying and assessing risks of material misstatement in respect of irregularities including fraud and non-compliance with laws and regulations, we considered the following:
- the nature of the industry and sector, control environment and business performance;
- results of our enquiries of management about their own identification and assessment of the risks and irregularities;
- any matters we identified having obtained and reviewed the company's documentation of their policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
- the matters discussed among the audit engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exit in the organisation for fraud.

In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory frameworks that the society operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the Companies Act 2006, UK tax legislation and FRS102.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the company's ability to operate or to avoid a material penalty. These include the Maritime & Coastguard Agency regulations and employment legislation.

In addition to the above, our procedures to respond to risks identified included the following:

- performing analytical procedures to identify unusual or unexpected relationships that may indicate risks of material misstatement due to fraud and tested accordingly;

Report of the Independent Auditors to the Members of
Orkney Ferries Limited

- reading minutes of those charged with governance and reviewing correspondence with regulatory bodies, such as HMRC and the MCA, for indications of non-compliance with laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the company's ability to operate or avoid a material penalty.;
- assessing whether the accounting policies, treatments and presentation adopted in the financial statements is in accordance with United Kingdom Generally Accepted Accounting Practice and whether there are instances of potential bias in areas with significant degrees of judgement;
- in addressing the risk of fraud through management override of controls, testing the appropriateness of a sample of journal entries;
- assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business;
- vouching balances and reconciling items in management's key control account reconciliations to supporting documentation as at 31 March 2024.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentation or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, or the greater the concealment of irregularities, including fraud, the less likely we are to become aware of it.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.

Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.




Steven Sinclair BA CA (Senior Statutory Auditor)
for and on behalf of Orcadia
Chartered Accountants and Registered Auditors
1-3 East Road
Kirkwall
Orkney
KW15 1HZ

4 December 2024

Orkney Ferries Limited (Registered number: SC036770)

Income Statement
for the Year Ended 31 March 2024

2023 2024
£    £    Notes £    £   

2,667,609 TURNOVER 2,868,807

15,418,640 Cost of sales 16,438,958
(12,751,031 ) GROSS LOSS (13,570,151 )

761,076 Distribution costs 1,112,021
804,764 Administrative expenses 1,089,476
1,565,840 2,201,497
(14,316,871 ) (15,771,648 )

13,402,000 Other operating income 15,683,667
(914,871 ) OPERATING LOSS 4 (87,981 )

12,988 Interest receivable and similar income 33,136
(901,883 ) (54,845 )

- Interest payable and similar expenses 6 (11,363 )
(901,883 ) LOSS BEFORE TAXATION (43,482 )

- Tax on loss 7 -
(901,883 ) LOSS FOR THE FINANCIAL YEAR (43,482 )

Orkney Ferries Limited (Registered number: SC036770)

Other Comprehensive Income
for the Year Ended 31 March 2024

2023 2024
£    Notes £   

(901,883 ) LOSS FOR THE YEAR (43,482 )


OTHER COMPREHENSIVE INCOME
7,765,000 Pension Reserve 951,000
- Income tax relating to other
comprehensive income

-
7,765,000 OTHER COMPREHENSIVE INCOME
FOR THE YEAR, NET OF INCOME
TAX


951,000
6,863,117 TOTAL COMPREHENSIVE INCOME
FOR THE YEAR

907,518

Orkney Ferries Limited (Registered number: SC036770)

Statement of Financial Position
31 March 2024

2023 2024
£    £    Notes £    £   
FIXED ASSETS
52,511 Tangible assets 8 174,021

CURRENT ASSETS
163,002 Stocks 9 190,849
518,154 Debtors 10 8,362,982
1,044,975 Cash at bank and in hand 820,892
1,726,131 9,374,723
CREDITORS
2,474,376 Amounts falling due within one year 11 2,780,850
(748,245 ) NET CURRENT ASSETS/(LIABILITIES) 6,593,873
(695,734 ) TOTAL ASSETS LESS CURRENT
LIABILITIES

6,767,894

(500,000 ) PROVISIONS FOR LIABILITIES 12 (500,000 )

- ACCRUALS AND DEFERRED INCOME 13 (7,507,110 )

7,678,000 PENSION ASSET 16 8,629,000
6,482,266 NET ASSETS 7,389,784

CAPITAL AND RESERVES
7,500,000 Called up share capital 14 7,500,000
30,965 Other reserves 15 30,965
7,678,000 Pension Reserve 15 8,629,000
(8,726,699 ) Retained earnings 15 (8,770,181 )
6,482,266 SHAREHOLDERS' FUNDS 7,389,784

The financial statements were approved by the Board of Directors and authorised for issue on 3 July 2024 and were signed on its behalf by:





Mellissa Thomson - Director


Orkney Ferries Limited (Registered number: SC036770)

Statement of Changes in Equity
for the Year Ended 31 March 2024

Called up
share Retained Other Pension Total
capital earnings reserves Reserve equity
£    £    £    £    £   
Balance at 1 April 2022 7,500,000 (7,824,816 ) 30,965 (87,000 ) (380,851 )

Changes in equity
Total comprehensive income - (901,883 ) - 7,765,000 6,863,117
Balance at 31 March 2023 7,500,000 (8,726,699 ) 30,965 7,678,000 6,482,266

Changes in equity
Total comprehensive income - (43,482 ) - 951,000 907,518
Balance at 31 March 2024 7,500,000 (8,770,181 ) 30,965 8,629,000 7,389,784

Orkney Ferries Limited (Registered number: SC036770)

Statement of Cash Flows
for the Year Ended 31 March 2024

2023 2024
£    Notes £   
Cash flows from operating activities
(1,414,794 ) Cash generated from operations 1 (130,827 )
- Finance costs paid 11,363
(1,414,794 ) Net cash from operating activities (119,464 )

Cash flows from investing activities
(19,763 ) Purchase of tangible fixed assets (145,333 )
1,880 Sale of tangible fixed assets 7,578
12,988 Interest received 33,136
(4,895 ) Net cash from investing activities (104,619 )

(1,419,689 ) Decrease in cash and cash equivalents (224,083 )
2,464,664 Cash and cash equivalents at
beginning of year

2

1,044,975

1,044,975 Cash and cash equivalents at end of
year

2

820,892

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Statement of Cash Flows
for the Year Ended 31 March 2024

1. RECONCILIATION OF LOSS BEFORE TAXATION TO CASH GENERATED FROM
OPERATIONS

2024 2023
£    £   
Loss before taxation (43,482 ) (901,883 )
Depreciation charges 23,821 9,938
Profit on disposal of fixed assets (7,578 ) (1,880 )
Government grants 7,507,110 -
Finance costs (11,363 ) -
Finance income (33,136 ) (12,988 )
7,435,372 (906,813 )
(Increase)/decrease in stocks (27,847 ) 7,770
(Increase)/decrease in trade and other debtors (7,844,827 ) 752,855
Increase/(decrease) in trade and other creditors 306,475 (1,268,606 )
Cash generated from operations (130,827 ) (1,414,794 )

2. CASH AND CASH EQUIVALENTS

The amounts disclosed on the Statement of Cash Flows in respect of cash and cash equivalents are in respect of these Statement of Financial Position amounts:

Year ended 31 March 2024
31.3.24 1.4.23
£    £   
Cash and cash equivalents 820,892 1,044,975
Year ended 31 March 2023
31.3.23 1.4.22
£    £   
Cash and cash equivalents 1,044,975 2,464,664


3. ANALYSIS OF CHANGES IN NET FUNDS

At 1.4.23 Cash flow At 31.3.24
£    £    £   
Net cash
Cash at bank and in hand 1,044,975 (224,083 ) 820,892
1,044,975 (224,083 ) 820,892
Total 1,044,975 (224,083 ) 820,892

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements
for the Year Ended 31 March 2024

1. STATUTORY INFORMATION

Orkney Ferries Limited is a private company, limited by shares , registered in Scotland. The company's registered number and registered office address can be found on the Company Information page.

2. ACCOUNTING POLICIES

Basis of preparing the financial statements
These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Companies Act 2006. The financial statements have been prepared under the historical cost convention.

Turnover
Turnover represents amounts receivable for the operation of passenger and freight ferry services, excluding value added tax, with income being recognised at the point of departure.

Tangible fixed assets
Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.
Plant and machinery - 25% on cost
Fixtures and fittings - 25% on cost and 10% on cost

Stocks
Stocks are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items.

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

2. ACCOUNTING POLICIES - continued

Financial instruments
The company has elected to apply the provisions of Section 11 'Basic Financial Instruments' of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Classification of financial liabilities
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities
Basic financial liabilities, including creditors re initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Taxation
Taxation for the year comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current or deferred taxation assets and liabilities are not discounted.

Current tax is recognised at the amount of tax payable using the tax rates and laws that have been enacted or substantively enacted by the statement of financial position date.


Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

2. ACCOUNTING POLICIES - continued
Deferred tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the statement of financial position date.

Timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the year end and that are expected to apply to the reversal of the timing difference.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Hire purchase and leasing commitments
Rentals paid under operating leases are charged to profit or loss on a straight line basis over the period of the lease.

Pension costs and other post-retirement benefits
The company employees are eligible to join a defined benefit local government pension scheme. A defined benefit plan defines the pension benefit that the employee will receive on retirement, usually dependent upon several factors including age, length of service and remuneration. The liability recognised in the balance sheet in respect of the defined benefit plan is the present value of the defined benefit obligation at the reporting date less the fair value of the plan assets at the reporting date. The defined benefit obligation is calculated using the projected unit credit method. Annually the company engages independent actuaries to calculate the obligation. The present value is determined by discounting the estimated future payments using market yields on high quality corporate bonds that are denominated in sterling and that have terms approximating the estimated period of the future payments (‘discount rate’). The fair value of plan assets is measured in accordance with the FRS 102 fair value hierarchy and in accordance with the group’s policy for similarly held assets. This includes the use of appropriate valuation techniques. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income. These amounts together with the return on plan assets, less amounts included in net interest, are disclosed as ‘remeasurement of net defined benefit liability’. The cost of the defined benefit plan, recognised in profit or loss as employee costs, except where included in the cost of an asset, comprises:
• The increase in pension benefit liability arising from employee service during the period.
• The cost of plan introductions, benefit changes, curtailments and settlements
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit
obligation and the fair value of plan assets. This cost is recognised in profit or loss as ‘finance expense’.

Payments in respect of other post-retirement benefits are charged to profit or loss in the period to which they relate.


Government grants
Government grants received are treated as deferred credits and credited to the profit and loss account over the estimated useful life of the relevant fixed assets. Other grants of a revenue nature are credited to the profit and loss account in the year to which they relate.

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

2. ACCOUNTING POLICIES - continued

Other operating income
Other operating income represents grant income received from Orkney Islands Council under the Service Level Agreement for the operation of the lifeline ferry services. The grant is the deficit that the Council estimates that the Company is likely to incur in providing the ferry services during the year.

Going concern
These financial statements have been prepared on a going concern basis.
The company receives funding from Orkney Islands Council under a service level agreement to provide the lifeline ferry services for the North and South Isles of Orkney. The directors consider that the company will be able to continue to operate with the available funding over the next twelve months. On this basis, the directors consider it appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustments that would result from the withdrawal of funding from Orkney Islands Council.

3. EMPLOYEES AND DIRECTORS
2024 2023
£    £   
Wages and salaries 7,806,517 7,066,206
Other pension costs 167,806 107,907
7,974,323 7,174,113

The average number of employees during the year was as follows:
2024 2023

Ships Crew 173 162
Office Staff 23 19
Pier Staff 6 6
202 187


4. OPERATING LOSS

Subsidy income received from Orkney Islands Council under a service level agreement for the operation of lifeline ferry services for the North and South Isles of Orkney.
20242023
££

Other Operating Income


15,683,667

13,402,00
0

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

5. AUDITORS' REMUNERATION
2024 2023
£    £   
Fees payable to the company's auditors for the audit of the
company's financial statements

7,500

7,880

6. INTEREST PAYABLE AND SIMILAR EXPENSES
2024 2023
£    £   
Amortisation of Deferred
Government Grants (11,363 ) -
(11,363 ) -

7. TAXATION

Analysis of the tax charge
No liability to UK corporation tax arose for the year ended 31 March 2024 nor for the year ended 31 March 2023.

Tax effects relating to effects of other comprehensive income

2024
Gross Tax Net
£    £    £   
Pension Reserve 951,000 - 951,000

2023
Gross Tax Net
£    £    £   
Pension Reserve 7,765,000 - 7,765,000

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

8. TANGIBLE FIXED ASSETS
Fixtures
Plant and and Motor Computer
Totals machinery fittings vehicles equipment
£    £    £    £    £   
COST
At 1 April 2023 387,919 112,214 218,111 33,294 24,300
Additions 145,333 16,350 8,736 - 120,247
Disposals (350 ) - (350 ) - -
At 31 March 2024 532,902 128,564 226,497 33,294 144,547
DEPRECIATION
At 1 April 2023 335,408 84,177 206,573 27,923 16,735
Charge for year 23,823 7,898 1,501 3,090 11,334
Charge written back (350 ) - (350 ) - -
At 31 March 2024 358,881 92,075 207,724 31,013 28,069
NET BOOK VALUE
At 31 March 2024 174,021 36,489 18,773 2,281 116,478
At 31 March 2023 52,511 28,037 11,538 5,371 7,565

9. STOCKS
2024 2023
£    £   
Stocks 190,849 163,002

10. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2024 2023
£    £   
Trade debtors 164,961 162,401
Other debtors 145,084 208,011
VAT 685,264 147,742
Prepayments 7,367,673 -
8,362,982 518,154

11. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2024 2023
£    £   
Trade creditors 823,040 420,960
Other creditors 1,121,729 1,217,335
Balance of Grant due to OIC 836,081 836,081
2,780,850 2,474,376

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

12. PROVISIONS FOR LIABILITIES
2024 2023
£    £   
Other provisions
Provision - Engine Replacement 500,000 500,000

13. ACCRUALS AND DEFERRED INCOME
2024 2023
£    £   
Deferred government grants 7,507,110 -

14. CALLED UP SHARE CAPITAL

Allotted, issued and fully paid:
Number: Class: Nominal 2024 2023
value: £    £   
7,500,000 Ordinary £1 7,500,000 7,500,000

15. RESERVES
Retained Other Pension
Totals earnings reserves Reserve
£    £    £    £   

At 1 April 2023 (1,017,734 ) (8,726,699 ) 30,965 7,678,000
Deficit for the year (43,482 ) (43,482 ) - -
Pension Reserve 951,000 - - 951,000
At 31 March 2024 (110,216 ) (8,770,181 ) 30,965 8,629,000

In a departure from the provisions of FRS 102, a separate Pension Reserve has been disclosed to show the cumulative amount of the Pension Asset/(Liability) for presentation purposes. This element of the profit and loss account is not realised and not available for distribution.

16. EMPLOYEE BENEFIT OBLIGATIONS

The company's employees are eligible to join a Local Government pension scheme, which is a defined benefit statutory scheme. The most recent full actuarial valuation was on 31 March 2023 and was carried out by a qualified independent actuary. Contributions to the scheme are determined by the actuary on the basis of triennial valuations. The estimated Employer's contributions for the year to 31 March 2025 will be approximately £698,000.

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

16. EMPLOYEE BENEFIT OBLIGATIONS - continued

The amounts recognised in profit or loss are as follows:

Defined benefit
pension plans
2024 2023
£    £   
Current service cost 1,056,000 1,952,000
Net interest from net defined benefit
asset/liability

(359,000

)

19,000
Past service cost - -
697,000 1,971,000

Actual return on plan assets - -

Changes in the present value of the defined benefit obligation are as follows:

Defined benefit
pension plans
2024 2023
£    £   
Opening defined benefit obligation 19,625,000 28,723,000
Current service cost 1,056,000 1,952,000
Contributions by scheme participants 298,000 277,000
Interest cost 953,000 815,000
Benefits paid (572,000 ) (341,000 )
Remeasurements:
Actuarial (gains)/losses from changes in
demographic assumptions

61,000

(267,000

)
Actuarial (gains)/losses from changes in
financial assumptions

(1,412,000

)

(13,009,000

)
Other Experience Remeasurement 1,970,000 1,475,000
21,979,000 19,625,000

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

16. EMPLOYEE BENEFIT OBLIGATIONS - continued

Changes in the fair value of scheme assets are as follows:

Defined benefit
pension plans
2024 2023
£    £   
Opening fair value of scheme assets 27,303,000 28,636,000
Contributions by employer 791,000 708,000
Contributions by scheme participants 298,000 277,000
Interest Income 1,312,000 796,000
Benefits paid (566,000 ) (335,000 )
Return on plan assets (excluding interest
income)

1,470,000

(2,779,000

)
30,608,000 27,303,000

The amounts recognised in other comprehensive income are as follows:

Defined benefit
pension plans
2024 2023
£    £   
Actuarial (gains)/losses from changes in
demographic assumptions

(61,000

)

267,000
Actuarial (gains)/losses from changes in
financial assumptions

1,412,000

13,009,000
Other Experience Remeasurement (1,970,000 ) (1,475,000 )
Return on plan assets (excluding interest
income)

1,470,000

(2,779,000

)
851,000 9,022,000

The major categories of scheme assets as a percentage of total scheme assets are as follows:

Defined benefit
pension plans
2024 2023
Equities 84% 87%
Bonds 6% 7%
Property 8% 5%
Cash 2% 1%
100% 100%

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

16. EMPLOYEE BENEFIT OBLIGATIONS - continued

Principal actuarial assumptions at the balance sheet date (expressed as weighted averages):

2024 2023
Discount rate 4.85% 4.75%
Future salary increases 3.25% 3.45%
Future pension increases 2.75% 2.95%



Mortality Assumptions20242023
Assumed life expectations on retirement at age 65:YearsYears
Retiring today
- Males20.220.9
- Females22.823.4
Retiring in 20 years
- Males22.422.5
- Females25.925.6


Merchant Navy Ratings Pension Fund (MNRPF)
Some employees may qualify to contribute to the MNRPF, a defined benefit scheme, with a contribution rate of 2.0%. It is a multiple employer scheme and the company is unable to identify its share of the underlying assets and liabilities. As at the last valuation in March 2023, the MNRPF had a deficit of £106.9M, and this has been updated on 10 June 2024 to a deficit of £24m. The Trustees of the fund have requested additional deficit contributions to be made.

Merchant Navy Officers Pension Fund (MNOPF)
The MNOPF is closed to new members and closed to future accrual from 31 March 2016 when contributing members were transferred to the Ensign Retirement Plan (for the MNOPF). The MNOPF is a multiple employer scheme and the Council is unable to identify its share of the underlying assets and liabilities. As at the last full valuation in 2021 the Fund had a surplus of £61M, and the actuarial report at 31 March 2023 has updated this to a deficit of £10M. As there were sufficient assets at 31 March 2021 to cover the Fund's technical provisions at 31 March 2021, no further deficit contributions were agreed.

17. CONTINGENT LIABILITIES

On 11 September 2023 Orkney Ferries Ltd were successful in The Zero Emission Vessel and Infrastructure (ZEVI) competition. This project funded by the Department of Transport and Innovate UK is to fund 100% battery electric vessels. The Grant Offer Letter was signed in November 2023 and the project is now underway with the 12m vessel due to arrive in Orkney in August 2024 and the 24m vessel to follow in Spring 2025.

Grant assistance of £7,373,140 has been received during the year ended 31 March 2024 from Innovate UK, with monitoring of the project set to continue until 31 March 2028.

If the conditions of the grant funding are not met, Innovate UK may suspend, terminate or reclaim the grant in whole or in part.

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

18. CAPITAL COMMITMENTS
2024 2023
£    £   
Contracted but not provided for in the
financial statements 5,958,938 -

On 11 September 2023 Orkney Ferries Ltd were successful in The Zero Emission Vessel and Infrastructure (ZEVI) competition. This project funded by the Department of Transport and Innovate UK is to fund 100% battery electric vessels. The Grant Offer Letter was signed in November 2023 and the project is now underway with the 12m vessel due to arrive in Orkney in August 2024 and the 24m vessel to follow in Spring 2025.

19. RELATED PARTY DISCLOSURES

Entities with control, joint control or significant influence over the entity
2024 2023
£    £   
Revenue Grants Receivable from Orkney Islands Council 15,683,667 13,402,000
Purchases 2,710,950 3,014,281
Capital Grants Receivable from Orkney Islands Council 145,333 -
Amount due from related party 22,024 29,876
Amount due to related party 1,456,294 1,017,110

Orkney Islands Council is regarded by the directors as being the company's ultimate parent company.

The ultimate parent organisation is Orkney Islands Council, a local authority incorporated under the Local Government Scotland Act 1973.

20. POST BALANCE SHEET EVENTS

On 30 May 2024, the Company received a loan of £2,664,000 to assist with the investment in the Zero Emission Vessel and Infrastructure project, from Orkney Islands Council. Security for the loan to be granted once ownership of the vessel has been transferred to Orkney Ferries Limited.

21. ULTIMATE CONTROLLING PARTY

The controlling party is Orkney Islands Council.

The ultimate Controlling Party is Orkney Islands Council, a local authority incorporated under the Local Government Scotland Act 1973.

Orkney Ferries Limited (Registered number: SC036770)

Notes to the Financial Statements - continued
for the Year Ended 31 March 2024

22. SIGNIFICANT JUDGEMENTS AND ESTIMATION UNCERTAINTIES

The financial statements contain estimated figures that are based on assumptions made by the company about the future that are otherwise uncertain. Estimates are made taking into account professional advice (e.g. actuarial advice), historical experience, current trends and other relevant information. Items included within the Company's Balance Sheet at 31 March 2024 for which there is a risk of material adjustment in the forthcoming year are as follows:

Pension Asset
The value of the pension assets at 31 March 2024 is £8.629M. This asset depends on a number of factors, including discount rates, changes in retirement age, mortality rates and expected return on pension's assets. These are determined on an actuarial basis by Hymans Robertson, the actuaries for the Orkney Islands Council Pension Fund.

Provision - Engine Replacement
The value of the provision for engine replacement at 31 March 2024 is £500k. This liability depends on a number of factors, including the age of the vessel, sourcing suitable replacements, extent of work involved, what needs to be changed and moved. The provision has been made following guidance from the Head of Marine Services at Orkney Islands Council.