Bahri Annual Report-2009

The National Shipping Company of Saudi Arabia

Annual Report 2009

Annual Report 2009 The National Shipping Company of Saudi Arabia

The National Shipping Company of Saudi Arabia Annual Report 2009

Contents

Members of the Board of Directors Chairman’s Message Board of Directors (Management) Report Strategy and Future Objectives Financial Statements and Operational Results Affiliates and Segments Ship Management of Vessels Planning and Business Development Customer Services and Public Relations Financing and Investment Human Resources Information Technology Internal Audit and Control Quality and Environmental Safety

8 10 14 15 16 18 25 25 25 26 27 27 28 28 29 29 30 31 32 33 34 35 37 40 66

Social Responsibility Regulatory Payments Dividend Distribution Shareholders’ Equity Risk Management Disclosure & Governance Board of Directors Board Committees Executive Management Financial Report Office and Branch Addresses

Annual Report 2009 The National Shipping Company of Saudi Arabia

Members of the Board of Directors

Abdullah Sulaiman Al-Rubaian Board Chairman

Mohammed Abdulaziz AlSarhan Board Vice-chairman

Esam Hamad Al-Mubarak

Saleh Abdullah AlDebasi

Abdulkarim Ibrahim Al-Nafie

Farraj Mansour Abothenain

Nasser Mohammed Al-Kahtani

Sami Abdullah Al-Saeed

Bander Barjas Al-Abdul Kareem

Chairman’s Message

Dear Shareholders

On behalf of myself and the members of the Board of Directors, I am delighted to submit the annual report for the fiscal year 2009, which includes the operational results of the company, its achievements and the most important results and goals achieved. As shown in the company’s financial statements, NSCSA has achieved a net profit of SAR (369) million during the fiscal year 2009. As you are well aware, 2009 was a difficult year for the global economy in general and the shipping industry in particular. However, despite the repercussions of the global financial crisis, the company was able to overcome the difficulties it encountered in the course of the year. NSCSA met with the challenges which it had confronted and the changes brought about by recession in world trade and its impact on the shipping industry, and achieve positive results compared to the performance of international maritime transport industry in general. During 2009, the overall strategic plan adopted by the company’s Board of Directors in late 2008 was implemented. This strategic plan emphasized the importance of continuing the company’s expansion and growth at various levels of corporate activities, in addition to monitoring the status of the markets and seeking opportunities to expand its current activities. Other viable options are to engage in relevant investment activities and capturing available opportunities, based on valid results of economic feasibility studies, rewarding returns and relevance to the company’s competitive edge. To accommodate expansion requirements and new activities in an effective and smooth manner while maintaining the company’s efficiency in the performance of its operations, it was imperative to restructure and develop the company’s management systems and improve corporate methods of control, evaluation and follow-up. With respect to crude oil transport sector, NSCSA took delivery of four VLCCs during the fiscal year 2009, bringing the fleet to (17) VLCCs, with a total capacity of 5.26 million DWT. Additionally, a Murabah contract has been signed with the Public Investment Fund to finance a part of the cost of eight VLCCs , for an amount of SAR 1,050 billion (one billion and fifty million Saudi Riyals).

In line with NSCSA’s strategy regarding petrochemical transportation, National Chemical Carriers Co. Ltd. “NCC” (80% NSCSA-owned subsidiary) sold (3) chemical tankers that were approaching the end of their virtual trading life, leased (3) other carriers under a bareboat contract and reviewed the lease contracts of certain chemical tankers, leaving a positive impact on the company’s results of operations for the fiscal year 2009. To enhance its trade and operational capacity, in 2009 NSCSAhas incorporated NCCOdfjell, a limited liability company based in Dubai, owned equally between the National Chemical Carriers Company and Odfjell International Company. This company will operate chemical tankers in the pool business between the two parties. The company commenced its operations in early 2010, aimed to manage a joint fleet that, God willing, will consist of no less than (31) tankers in the course of the coming three years after NCC takes delivery of (16) new contracted tankers, subject to increase depending on the increase of Odfjell’s fleet in the new company. In the area of general cargo transportation, NSCSA has entered into contract with an internationally renowned consulting firm specialized in this area to conduct a feasibility study on general cargo market and submit the necessary recommendations on the company’s current fleet which is approaching the end of its useful life, and to recommend either to build or buy general cargo vessels to replace the current fleet whereby the Board of Directors will decide whatever deemed appropriate in this regard based on the recommendation of the consulting firm.

In 2009, a memorandum of understanding (MOU) was signed between the National Shipping Company of Saudi Arabia and the Arabian Agricultural Services

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management in the fulfillment of their obligations, improving the standards of efficiency and operation of the Board and its committees to ensure compliance with the best corporate governance practices that safeguard the rights of the shareholders and other stakeholders. The Company continues to take its social responsibility by sponsoring various social and cultural events, participating in conferences, awareness enhancement seminars and forums, in addition to participating in several conferences for preserving the marine environment. The company’s outlook is manifested in its sustained endeavor to remain as one of the leading and highly professional international shipping companies, through deliberate growth and constant expansion while maintaining its commitment and high value to the society. In conclusion, I would like to extend my heartfelt thanks to the Government of the Custodian of the Two Holy Mosques, owners and customers of NSCSA for their continued support to the company. I would also thank the members of the board, executive committees, executive management and employees of the company for their sustained efforts in 2009 for further leading the company in achieving the targets. Wishing you all the best of success and guidance in your future endeavors.

Company (ARASCO), which is the largest dry bulk importer in the region with ambitious growth strategy to establish a limited liability company for shipping of dry-bulk cargo, with (60%) of capital share owned by NSCSA. The agreement is expected to be finalized and the company is envisaged to be incorporated during the first half of 2010. The administrative organizational restructuring recommended by the company’s comprehensive strategic plan has been finalized, and NSCSA continues to focus on investing in the development of its human resources through ongoing professional competence training & development . NSCSA started implementing its strategic information technology project (Manarah) and completed the initial phase of the ERP project, which is considered to be one of the most important phases of (Manarah) projects. This phase included re-engineering and development of procedures; preparation, installation and commissioning of the new systems prior to linking them to the information technology systems applied at the level of operating units, in order to subsequently interconnect all corporate systems, support joint planning for enhancing and development of reports to assist decision-making and measuring performance indicators and ensure compliance with governance requirements. God willing, this project is expected to go live by mid-2010. To enhance the level of disclosure and transparency, NSCSA has prepared its own corporate governance regulations which have been approved by the Board of Directors. Rules and standards contained in these regulations are based on the company’s articles of association, directives of the Capital Market Authority (CMA), corporate governance guidelines duly issued by CMA and Companies Act. These regulations will assist the Board of Directors and the Executive

Abdullah Sulaiman Al Rubaian Chairman of the Board

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

and rules of implementation as well as upgrading and development of technologies and hardware used in financial operations, information technology and other operational systems, including the modernization and expansion of the company’s fleet, besides recruitment, development and career building of staff at the levels of parent company, affiliates and branches. With the grace of God, NSCSA has overcome the global economic crisis through balanced policies pursued by the company in chartering and operation of its vessels and diversification of its activities. Despite the manifested impact of the crisis on all global economic sectors, NSCSA successfully managed to achieve relatively good financial results in 2009, compared to the global shipping industry results.

The National Shipping Company of Saudi Arabia (NSCSA) was formed in 1979 as a Saudi Joint Stock Company by a Royal Decree No. M/5 dated 12/02/1398H (22/01/1978). Through implementing the successive strategic plans, the company continued to grow and to realize its mission and stated objectives through optimal utilization of resources to achieve the best return for the owners and for the shareholders. NSCSA services cover multiple markets around the world through its branch offices and a network of agents. NSCSA has also established subsidiaries and entered into several investments. In view of the importance of the shipping industry and its impact on the overall development of the Kingdom and associated imports and exports with global markets, NSCSA has been of significant support and continues to contribute to accelerating the wheel of development of the Kingdom. This is clearly manifested in the diverse shipping activities of NSCSA which include general cargo, crude oil, petrochemicals and liquefied petroleum gas (LPG) transportation. NSCSA’s successive board of directors and executive management continued to extend distinct and constant development efforts at the domestic level, which included updating regulations

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Strategy and Future Objectives

restructuring project of all its divisions and departments as well as those of its subsidiaries. Controls and governance systems have also been in place in line with generally accepted international practices and applicable regulations of the Kingdom of Saudi Arabia. In 2009, NSCSA incorporated NCC Odfjell, a limited liability company based in Dubai, owned equally between the National Chemical Carriers Company and Odfjell International Company. The newly- incorporated company will be a chemical tankers operator in the pool business between the two parties. NCC Odfjell commenced business early 2010. In mid-2009, a Memorandum of Understanding (MOU) was signed between the National Shipping Company of Saudi Arabia and the Arabian Agricultural Services Company (ARASCO), which is the largest dry bulk importer in the region in order to establish a Joint Venture limited liability company for shipping bulk cargo. The formation of the Joint Venture is in progress and expected to be incorporated during the first half of 2010.

At the end of 2008, the Board of Directors adopted NSCSA’s new five-year plan (2009–2013), which was prepared in coordination with an international consulting firm. The findings of this plan confirmed NSCSA’s sound financial and operational position and its competitive edge on the global markets, especially pursuing the expansion over the past three years of its VLCC fleet that has been delivered and put into operation. 16 new building chemical carriers are expected to be delivered during 2010-2012. The current strategy recommends continuing the main activities of the company, which are manifested in the transportation of crude oil, petrochemicals, general cargo and at the same time continue to monitor carefully the shipping industry in order to explore other investment activities in the field of maritime transport and ancillary services. NSCSA will continue to take up the opportunities available in a timely manner, after conducting the necessary studies to ensure the economic feasibility of prospective projects based on a number of factors, including fair return on investment, prospective growth of activity and the ability to participate in such projects in a manner that asserts the competitive edge of NSCSA. Recommendations of this plan also called for administrative and organizational restructuring of NSCSA to ensure the highest degree of operational, financial and administrative competence, to enhance the company’s capability in tackling potential global changes and optimal use of available resources. In this regard, NSCSA finalized the administrative

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Financial Statements & Operational Results

In 2009, NSCSA posted a net profit of SAR (369.30) million compared to SAR (749.97) million in 2008. The global economic crisis that began in mid-2008 continued to have a major factor for the decline of profits in 2009 compared to that of 2008. NSCSA results of operations are shown in the following tables and financial statements:

Financial Results for the past five years Year

2009 2008

2007 2006 2005

Operating Income Operating Expenses Gross Operating Income General and Administrative Expenses Other Income (Expenses), Net Zakat & Tax Net Profit Earning Per Share (SAR)

1,672,016 (1,299,545)

2,594,530 (1,633,882) 960,648 (105,718)

1,703,294 (1,251,958)

1,651,281 (1,161,006)

1,602,270 (1,081,005)

372,471 (95,020) 126,439 (34,590) 369,300 1.17

451,336 (87,301) 76,960 (18,419) 422,576 1.48

490,275 (81,344) 51,870 (19,305) 441,496 1.96

521,265 (70,844) 6,096 (18,677) 437,840 2.19

(50,491) (54,471) 749,968 2.38

In Thousands Saudi Riyals

Diagram of Financial Statements & Operational Results

3,0

2,5

2,0

1,5

1,0

0,5

0,0

2009

2008

2007

2006

2005

Operating Revenue

Operating Expenses

General and Administrative Expenses

Net profit

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Statement of Assets and Liabilities

Year 2007

Caption

2009

2008

2006

2005

Current Assets Current Liabilities Operating Capital

1,400,642 1,579,185 1,226,805

558,011

698,228 616,820 81,408 789,227

609,791 617,014

817,726 761,459

717,011 683,631

1,472,536 )914,525(

Other Long Term Assets

1,788,351 1,761,709 2,581,331 2,381,013

Fixed Assets Total Assets

3,346,742 3,650,744 4,634,435 5,658,910 6,730,766 4,834,197 5,997,106 7,796,786 9,819,426 10,338,584

Current Liabilities Long Term Loans Other Liabilities Total Liabilities Paid up Capital

609,791

817,726

717,011

1,472,536

616,820

1,432,898 1,336,078 2,229,291 3,709,941 4,516,180

34,974

37,888

37,002

34,612

41,741

2,091,459 2,843,226 2,983,304 4,565,555 5,160,945 1,999,290 2,250,000 3,150,000 3,150,000 3,150,000

Reserves & Retained Earnings

1,509,793 1,940,796 1,837,520

754,619 149,261

601,527 141,921

Minority Interests

190,119

163,075

153,689

Equities

2,742,738 3,153,880 4,813,482 5,253,871 5,177,639 4,834,197 5,997,106 7,796,786 9,819,426 10,338,584

Total Liabilities & Equities

In Thousands Saudi Riyals

The company's financial results reflect noticeable increases in the shareholders’ equity, which has grown significantly over the previous years.

Growth in Shareholders’ Equity

Year

Shareholders’ Equity

Variance

2009 2008 2007 2006 2005

4,987,520 5,090,796 4,659,793 3,004,619 2,600,817

)103,276( 431,003 1,655,174

)2%(

55% 16% 22%

403,802 470,782

In Thousands Saudi Riyals

2009

2005 2006 2007 2008

Shareholders’ Equity to Assets

70 %

60 %

50 %

Year

Shareholders’ Equity

Total Assets 10,338,584 9,819,426 7,796,786 5,997,106 4,834,197

2009 2008 2007 2006 2005

4,987,520 5,090,796 4,659,793 3,004,619 2,600,817

48% 52% 60% 50% 54%

40 %

30 %

20 %

10 %

0 %

In Thousands Saudi Riyals

2009

2005 2006 2007 2008

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Affiliates and Segments

The company owns or participates in a group of companies both within and outside the Kingdom of Saudi Arabia, as follows:

Ownership (%) 2009

Ownership )%( 2008

Head Office

Scope of Activity

Date of Incorporation

Company’s Name

Activity

1991

100%

NSCSA (America) Inc.

NSCSA ships agent

USA

Global

Technical Ship Management Mideast Ship Management Ltd.

1996

100%

Dubai

Global

National Chemical Carriers Ltd. Co.

Petrochemicals Transportation

1990

80%

Riyadh

Global

Bermuda LPG transportation and Trading

1980

30.3%

Petredec Co. Ltd.

Global

Arabian United Float Glass Company

Glass Manufacturing & Trading

2006

10%

Riyadh

Regional

Summary of Financial Results of Affiliates for the Fiscal year 2009

% Participation in Company Net Profits

General & Administrative Expenses

Other (Expenses) revenues

Operating Revenue

Operating Expenses

Net profit (Loss)

Company

NSCSA (America) Inc.*

21,539

(5,827)

(19,765)

(2,402)

(6,5%)

Mideast Ship Management Ltd. *

37,086

---

(32,379)

4,716

1,3%

National Chemical Carriers Ltd. Co.

304,706

(152,892)

(5,399)

135,221

36,6%

* Dependent entirely on the parent company in generating their income.

In Thousands Saudi Riyals

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Revenues of the Company’s Main Segments for the Fiscal Year 2009

Operating expenses (771,456) (152,892) (375,197) (1,299,545)

Segment

Operating Revenue

Operating Income

% Total

Crude Oil & LPG Transportation Petrochemical Transportation General Cargo Transportation

1,040,228

268,772 151,814 (48,115) 372,471

72% 41%

304,706 327,082

(13%) 100%

Total

1,672,016

In Thousands Saudi Riyals

Operating Revenue

Operating expenses

(13%) Operating Income

29%

20%

41%

12%

18%

62%

72%

59%

Crude Oil & LPG Transportation Petrochemical Transportation General Cargo Transportation

Asset and Liability Distributions over Company Segments as at 31/12/2009

Crude Oil & LPG Transportation

Petrochemicals Transportation

General Cargo Transportation

Combined 1.067.491

Total

Assets

5,747,711

3,309,741

213,641

10,338,584

Percentage

56%

32%

10%

100%

Liabilities

2,597,619

2,358,664

63,126

141,536

5,160,945

Percentage

50%

46%

100%

In Thousands Saudi Riyals

Assets

Liabilities

56%

50%

10%

32%

46%

Crude Oil & LPG Transportation Petrochemical Transportation General Cargo Transportation Combined

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Transportation of Crude Oil and Gas

Crude oil transportation sector is the most important source of income for NSCSA. This segment has a fleet consisting of (17) VLCCs. In 2009, (4) VLCCs were received from a total of (6) VLCCs which were contracted to build in March 2006. This fleet is operated on the basis of long-term contracts (Time Charter) and in the spot market (Spot Market) through a balanced strategy for risk management of market price fluctuations based on driving a balance between variable and fixed transport costs according to a formula that ensures a minimum stable revenue and gives the company the opportunity to benefit from any rise in the spot market. In 2009, (6) VLCCs were chartered on limited-term charter contracts, of which (3) were chartered to Korean Hanjin Company; (2) to Belgium Euronav

Company, and (1) to Vela International Marine Ltd., a subsidiary of Saudi Aramco. Currently (11) VLCCs are operated on the spot market. The rates are determined according to prevailing market competitive rates that were internationally accepted upon signing of the respective charter contracts. Among the major customers of NSCSA on this market are Vela, Shell, BP, Chevron and Exxon Mobil. Crude oil and liquefied petroleum gas (LPG) transportation sector posted an annualized operating income of SAR 268.8 million in 2009, compared to SAR 685.6 million in 2008, representing 72% of the total operating income in 2009.

VLCC’s Fleet

Year of Manufacture

Weight )Static Tons(

Length )Meter(

Width )Meter(

Number of Tanks

Speed )Knots(

VLCC Name

Type

Ramlah Ghawar Watban Hawtah Harad Marjan Safwa Abqaiq Wafrah Safaniyah

1996 1996 1996 1996 1996 2001 2002 2002 2002 2007 2007 2008 2008 2009 2009 2009 2009

Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull Double-Hull

300,361 300,361 300,361 300,361 300,361 302,700 302,700 302,700 302,700 318,000 318,000 318,000 318,000 318,000 318,000 318,000 318,000

340 340 340 340 340 333 333 333 333 333 333 333 333 333 333 333 333

56 56 56 56 56 58 58 58 58 60 60 60 60 60 60 60 60

17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17

15 15 15 15 15

2 3 4 5 6 7 8 9

17.1 17.1 17.1 17.1 16.7 16.7 16.7 16.7 16.7 16.7 16.7 16.7

10 11 12 13 14 15 16 17

Leyla Jana

Habari Kahla Dorra Ghazal Sahba

5,256,605 Total Capacity

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Growth of VLCC’s Fleet

Description

Number of VLCCs

Capacity (Static Tons)

Fleet as at the beginning of 2009

3,984,605 1,272,000 5,256,605

VLCCs received in 2009

Fleet as at 31 December 2009

Transportation of Liquefied Petroleum Gas (LPG)

various sizes, of which (13) are company-owned and the remaining number of carriers are chartered on spot and long-term operational contracts. Petredec business covers Asian and European markets as well as the Caribbean region. Over the past years, NSCSA realized remarkable profits from this investment. The company’s share in Petredec’s net profits amounted to SAR 84.94 million in 2009, compared to SAR (3.84) million net loss in 2008.

Petredec Co. Ltd. was founded in 1980 by a group of international investors, and it currently operates exclusively in trade and transport of liquefied petroleum gas. This Bermuda-based company has offices in Monaco, Singapore and the Bahamas. In 2005, the National Shipping Company of Saudi Arabia (NSCSA) bought a stake representing 30.3% of the share capital of Petredec Co. Ltd. The business activity of Petredec limited in the field of trade in liquefied natural gas is supported by a fleet of specialized gas carriers, consisting of (58) vessels of

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Petrochemical Transportation

(15) carriers with a total capacity of approximately (660) thousand static tons, which is envisaged to rise to (31) carriers with a total capacity of up to 1.4 million tons within the coming three (3) years. Odfjell is one of the largest global companies operating in the field of shipping chemicals around the world and one of the key players in this industry. The company operates (90) carriers with a total capacity of up 2.5 million tons in international and regional trade of shipping petrochemicals and vegetable oils and refined petrochemical products, in addition to running a network of reservoirs for the storage of liquid substances in important regions around the world. Odfjell is a joint stock company headquartered in the Norwegian city of Bergen, with (20) offices run by 3700 employees around the world. This partnership will enhance the position of the National Chemical Carriers in the global markets. NCC operates three of its carriers through an international conglomerate run by Odfjell and three other carriers are chartered to the same company. NCC has a long-term charter contract of six of its carriers to Saudi Basic Industries Corporation “SABIC” in addition to one carrier chartered to Sipchem. Petrochemical transportation sector realized a total operating income of SAR 151.81 million in 2009, compared to SAR 116.09 million in 2008, which constitutes 41% of the total operating income of the company in 2009.

In 1990, NSCSA, in collaboration with the Saudi Basic Industries Corporation (SABIC), founded the National Chemical Carriers Company (NCC), with a capital of SAR 200 million and at a share of 80% and 20% respectively. The two founding companies have injected extra funds to support the expansion plans of the National Chemical Carriers with a capital currently amounting to (610) million Saudi Riyals. In line with the strategic plan of the NCC to increase the capacity of its fleet to approximately 1.3 million static tons and the number of owned vessels to (29) carriers, NCC entered into a contract with SLS SHIPBUILDING CO. for building sixteen (16) new carriers that are expected to be delivered during the period from 2010 to 2012. NCC signed a partnership agreement with the Norwegian company Odfjell in June 2009, to establish a company in Dubai on a 50-50 basis to commercial operate both companies fleet of coated vessels of 40,000 tons and above in size within one conglomerate operating in the field of shipment and trade of petrochemicals, vegetable oils and refined petrochemical products around the world with focus on the Arabian Gulf region as one of the most important regions in the production and export of petrochemicals. The new company commenced operations on the 1st of January 2010 with the commercial operation of the current fleet of both companies, consisting of

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Growth of Chemical Carriers Fleet

Description

Number of Carriers

Capacity (Static Tons)

Fleet at the beginning of 2009

16 )3( 13

645,228 )70,728( 574,500

Carriers sold in 2009

Fleet as at 31 December 2009

Carriers under construction, expected to be delivered during 2010-2011

720,000

Total

1,294,500

Chemical Carrier Fleet - Operational and Under Construction

Weight )Static Tons(

Length (Meter) 183,10 183,10 183,10 183,02 183,02 183,02 183,02 183,02 183,02 183,02 183,02 183,02 183,02

Width )Meter(

Number of Tanks

Speed )Knots(

Carrier

Year Built

NCC Makkah * NCC Riyadh * NCC Jubail *

1995 1995 1996 2005 2005 2006 2006 2006 2006 2007 2007 2008 2008

37,500 37,500 37,500 46,200 46,200 46,200 46,200 46,200 46,200 46,200 46,200 46,200 46,200 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000

32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20 32,20

22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22

16 16 16 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

2 3 4 5 6 7 8 9

NCC Najd NCC Hijaz

NCC Tihama NCC Abha NCC Tabuk NCC Qassim NCC Rabegh NCC Sudair NCC Dammam

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

NCC Hail Hull # 490 Hull # 491 Hull # 492 Hull # 493 Hull # 494 Hull # 495 Hull # 500 Hull # 501 Hull # 508 Hull # 509 Hull # 536 Hull # 537 Hull # 538 Hull # 539 Hull # 540 Hull # 541

183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183

Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2010 Expected in 2011 Expected in 2011 Expected in 2011 Expected in 2011 Expected in 2011 Expected in 2011

1,294,500 Total Capacity * Vessels NCC Makkah, NCC Riyadh and NCC Jubail have been chartered out under a bareboat contract to Odfjell for a period of ten years, with an option to exercise the right of purchase after the third year.

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

General Cargo Transportation

a feasibility study on the general cargo market and make necessary recommendations on the company’s current fleet which is approaching the end of its useful life, whether to build or buy new vessels to replace the current fleet. The general cargo transportation activity posted total operating losses in 2009 of SAR (48.12) million compared to an operating income of SAR 158.9 million in 2008.

General cargo transport sector has witnessed a noticeable decline in 2009 as a result of global economic recession and consequent downfall in the volume of trade exchanges, coupled with intense competition. These circumstances, significantly affected NSCSA’s market share in general cargo transportation. This is clearly manifested in the decline in the number of containers and bulk cargo shipments. The company engaged an international professional consulting firm specialized in this field to conduct

General Cargo Fleet

Saudi Tabuk

Saudi Abha

Saudi Diriyah

Saudi Hofuf

Specifications of General Cargo Fleet

Weight (Static Tons) Number

Container Capacity

Horse power

Type

Width

Length

Draft

Speed

42,600

11,12 236,95m 32,29m

2,050

27,600

Containers/RoRo

Container Yard

NSCSA Owned Containers and Trailers

Type

Number

The company owns a spacious container yard in the Islamic Port of Jeddah. This yard is used for the storage of containers and related equipment, which contributes to the rapid handling of containers to and from vessels and speeds up the clearance of customer shipments.

1 2 3 4 5 6 7 8 9

20ft standard container 20ft open-top container

2,828

333

20ft flat bed

40ft standard container 40ft high cube container 40ft open-top container 20ft trailers (chassis) 40ft trailers (chassis) 20ft Mafi – 30 tons 20ft Mafi – 60 tons 20ft Mafi – 80 tons 20ft Mafi – 100 tons 62ft Mafi – 80 tons 40ft flat bed

558

1,341

146 153 227 250

10 11 12 13 14

212

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Ship Management

and seeks to update and train crew on new plans and devices adopted and used by the company. Mideast also submits technical reports to NSCSA on the performance and status of ships, fuel consumption, results of periodic inspections and recommendations in this regard, in addition to periodic financial reporting on operating expenses and budgeting, along with several other reports. Mideast also provides trainings to new entrant Saudi sailors on board NSCSA vessels.

The Mideast Ship Management Ltd., a wholly owned subsidiary of NSCSA, is responsible for technical management of NSCSA and its affiliate’s vessels in accordance with the requirements of international maritime organizations. The company employs a specialized team of captains, engineers and technicians with high competence and extensive experience in the technical and administrative aspects of the management and operation of ships. The Mideast Ship Management recruits crew for the ships in accordance with specifications of high efficiency,

Planning and Business Development

Brief functions of this division include follow-up of the processes of change & restructuring and exploration of appropriate opportunities consistent with the initiatives of overall corporate strategy. It also issues periodic information reports on maritime transport market and prepares comparative financials on the performance of NSCSA and peer companies both at the regional and international levels.

Early 2006, NSCSA established Planning and Business Development division responsible for the corporate strategic planning functions including ongoing review and follow -up as well as a formal periodic planning function. The division undertakes the functions of strategic planning and development among business units and supporting departments and follows-up their performance in line with the stated objectives contained in the strategic plans.

Customer Services and Public Relations

schedules, cargo insurance and timely delivery of shipments. In this regard, NSCSA adopts measures and policies of outstanding performance to improve services continuously, and seeks to create a better impression of this industry that reflects the national identity of the Company. NSCSA participated in many activities, events and conferences in order to foster its relations with those related to the maritime transport industry and create a distinct presence on this market. This is highlighted by NSCSA’s participation in the Islamic Ship-owners Forum and the World Maritime Day, which was held in the city of Jizan, Saudi Arabia, in October 2009.

The company implements its marketing policies consistent with its marketing plans and promises to its customers and its achievements and practices, which would establish confidence and foster ties with customers. Over the past years, NSCSA has developed a core of distinctive clients and won their confidence and gave special attention, as usual with all customers. NSCSA has always been keen to foster its relationship with its clients and regards them as business partners. NSCSA has maintained the level of services provided to its customers by providing the best services at minimal costs, handling speed, accuracy in voyage

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Financing and Investment

NSCSA pursues a conservative financial policy commensurate with the nature of its business and assets by financing assets in line with the useful life of these assets and the expected revenues, which led to flexibility in the cash flows that enabled the company to meet all its domestic and international obligations. By the end of 2009, total financing of the company’s assets reached SAR 4.8 billion. It is expected that financing will reach its maximum level of SAR 5.3 billion in 2010 before it starts to diminish gradually, depending on the current financial data.

Over the last five years, NSCSA has adopted a financing and investment policy compatible with the precepts of Islamic Shariah. As a result of adopting this policy, all company investments and 82% of its loans have been converted into Shariah-compliant instruments and God willing, the Shariah-compliant financing will reach 100% upon completion of the current outstanding conventional loans. NSCSA follows a conservative investment policy of its available cash funds in low-risk investments that are easy to liquidate when such funds are needed to finance corporate needs.

Murabaha financing and long-term loans balances

6,000

5 ٬ 439

5 ٬ 343

5,000

4 ٬ 765

4 ٬ 235

3 ٬ 709

4,000

3,000

2,000

1,000

2011

2012

2013

2014

2010

with the Public Investment Fund to finance part of the cost of eight VLCCs and to apply some of these financing funds for the payment of accrued debts and outstanding Murabah payments to commercial banks to finance VLCCs (Wafra, Dorra, Ghazal, Sahba) respectively under financing agreements with those banks.

NSCSA and its subsidiary, the National Chemical Carriers finalized in 2007 the financing arrangements for their investment schemes, duly signed in 2006 and in 2007. This was a long term financing facility that extended for (10) years from the date of receipt of the carriers, and such financing is in line with the dates of accrued payments for the respective dockyards. In 2009, NSCSA signed a Murabah financing contract

Financing in 2009

Loan balance at the beginning of the year

Change during the year

Loan balance at year end

Company

NSCSA

1,864,714 2,047,237

617,674 211,987

2,482,388 2,259,224

NCC

Mideast Ship Management Ltd.

23,351

)1,991(

21,360

Total

3,935,302

827,670

4,762,972

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Human Resources

their dealings, which would positively reflect on their performance. The company is also eager to provide an appropriate work environment for the employees that are conducive of enhancing their productivity and thereby creating an atmosphere of professionalism. In this regard, the company has adopted a special program to support some of its employees to complete their university studies; it also conducts English language training courses, in addition to holding numerous training courses for staff both in-house and outside in the fields of advanced technologies and disciplines required for company business. In line with the conviction of NSCSA that Saudization is a national requirement, it has completed Saudization of most of the leadership positions in the company and its subsidiaries. Other functions are being Saudized gradually, according to a plan under which NSCSA has taken upon itself to train Saudi national cadets, rendering the percentage of Saudization in NSCSA to be 52%.

NSCSA management conducts, from time to time, a review and update of corporate by-laws to organize work and maintain a distinct corporate structure that would enhance its distinct competitive edge of the company, which is based primarily on its human resources. In this regard, certain structural changes were carried out at the corporate and affiliate levels in line with the overall strategy of the company. NSCSA is of the opinion that it is imperative to upgrade competency levels of staff in their respective fields of work through providing them with state-of- the-art technology and applications to develop their abilities. In this regard, NSCSA adopts a permanent policy of sponsoring, qualifying and training of the national human resources in all sectors. This is in line with NSCSA’s conviction that these cadres constitute the core of any investment and accordingly, it sets up appropriate training plans for all disciplines on the grounds that training is a key component of knowledge and talent development. NSCSA is keen that its employees acquire the technical skills and comply with professional ethics in NSCSA is always strived to be state-of-the-art in technology and sophisticated systems in all sectors of corporate business and to keep pace with the trend of expansion and upgrading the level of services to support its competitive edge. Accordingly, NSCSA embarked on implementing a strategic information technology plan (Manarah), which determines the company’s course of action and its future needs for modern information technology to keep pace with the company’s strategic plan. The initial phase of Enterprise Resource Management (ERP) project implementation, one of the most important part of Manarah project, has been finalized. This phase included re-engineering and development of operating procedures, taking into consideration the Information Technology

application of best internationally accepted practices and methods in harmony with the company’s current technical system and the nature of its business. New corporate systems have been prepared, installed and commissioned. Preparations are underway to link the new system with the technical systems currently applied at the level of corporate operating units, and subsequently connect all information systems of the company to support the joint planning effort for the development of reports to assist in decision-making, performance measurement parameters, compliance with corporate governance and fulfillment of risk management requirements. God willing, this project is due to be finalized by mid-2010 following system test runs and trainings of the concerned staff.

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Internal Audit and Control

control system (ISO) for internal auditors and lead auditors in order to enhance and strengthen the quality management system (QMS). The Department also conducted other in-house courses and examination on the verification and implementation of (ISO) applications. In coordination with the Information Technology Department (ITD), the Internal Audit and Control Department endeavors to fully apply several important options in (SIS) to satisfy the needs of the regional offices of the company and its affiliates. The Internal Audit and Control Department conducted an audit and review of company accounts for the fiscal year 2009 in accordance with the stated plan and submitted its recommendations and suggestions in due course. Organization (ISM) certificate and Lloyd’s certificate. Further in 2009, NSCSA was awarded ISO 9001 – 2008 for Quality Management System(QMS). During 2009, NSCSA was also awarded with the Certificate of Excellence in Global Business for the Middle East and The Best Logistics Service Provider award by Dubai based ITP Group. In December 2009, a field audit was conducted by DNV to ensure NSCSA compliance with international systems and procedures of quality, which resulted in the approval to continue the company’s quality certificate. Additionally, the Mideast Ship Management Company Ltd. (a fully-owned subsidiary of NSCSA) which is responsible for technical management of NSCSAvessels, has also achieved the ISO9001-2000 certification. NSCSA has participated in events that aim at enhancing public environmental awareness and safety of the oceans, including: • Arab Sea Conference and Exhibition held in Dubai on 11th December 2009. • World Maritime Day, held in the city of Jizan, Saudi Arabia, on 9th October 2009.

The Internal Audit and Control Department employs a selected group of highly qualified professional auditors who are well experienced in their respective filed. They constantly develop the efficiency and skills of their employees through the use of modern technology in their work, applying audit development programs, preparing plans and projects for risk management audit in compliance with generally accepted auditing standards. The Internal Audit and Control Department also verifies the authenticity of internal control procedures which aim at the protection of company assets against any unauthorized use, maintenance of accounting records and proper application of accounting policies, by-laws and internal procedures of the company. The Internal Audit and Control Department conducted preliminary training courses on international quality Since its inception, NSCSA continued to provide services to its clients in an optimal and best possible manner. At an earlier stage, NSCSA created a special unit for quality control, through which it endeavored to lay the foundations for a clear and sound quality of service and performance. NSCSA continued to improve and develop performance and level of service and commitment to schedules and delivery deadlines so as to safeguard the interests of its clients. NSCSA is also committed to comply with all the regulations imposed by the legislative bodies and environmental organizations globally, to preserve the integrity of the marine environment and climate. NSCSA is determined to observe all the requirements necessary for this purpose in the technical specifications of its fleet, and firm to minimize as much as possible, the negative impact on the environment by pollution from ship engines and equipment used on board the fleet. NSCSA conducts periodic inspections of the fleet and equipment through global consulting firms to ensure safety and conformity to the technical specifications and standards adopted universally. NSCSA regularly conducts renovation and modernization of safety equipments on board the fleet to conform to the latest systems. In 2006, NSCSA was awarded (ISO 9001-2000) and (ISO 14001-2004) quality certificates, International Maritime Quality and Environmental Safety

Annual Report 2009 The National Shipping Company of Saudi Arabia

Management Report

Social Responsibility

Among the most important contributions of NSCSA to social activities are the following: • Support a campaign about Diabetic Patients conducted by the Health Awareness Committee; • Support swine flu (H1N1) awareness campaign organized by the Health Awareness Committee; • Support to theDownSyndromeCharityAssociation (DSCA); • Support to the Charitable Society for Orphans (Ensan); • Sponsorship of certain Islamic awareness publications.

In line with its national mission and stated objectives, it is the conviction of NSCSA that social work constitutes an important success factor, and promotes the concept of national affiliation at the level of the company and its employees. For this reason, the company is interested to participate in various social events, conferences and exhibitions that serve the objective of establishing an active presence in the field of social responsibility. NSCSAalways adheres to religious and ethical values and pays special attention to social, humanitarian and advocacy activities at the local level besides its economic and developmental role and as such, NSCSA has earmarked a special provision in its budget for social and scientific activities, awareness- raising and general development projects.

Regulatory Payments

Zakat & Tax

did not receive any zakat and tax assessments for the period from 2005 to 2008. NSCSA and its affiliate allocated what they believe to be a sufficient provision to meet any zakat and tax claims for these periods. The zakat and tax provisions shown in the statement of financial position covers zakat and tax claims by the DZIT or related committees.

NSCSA and its affiliate (National Chemical Carriers) compute and file Zakat returns at the end of each year, and pay the applicable zakat dues in a timely manner. All tax deductions on payments to non- resident foreign parties are also paid on a regular periodic basis pursuant to applicable regulations. NSCSA has not received any zakat assessments from the Department of Zakat & Income Tax (DZIT) for the period from 2001 to 2008 and tax assessments for the period 2001-2004. Additionally, NSCSA’s affiliate

NSCSA Claims

Period

Tax Claims Zakat Claims

Remarks

Case closed and payments are being made in semi-annual installments. This amount represents the final payment which is due in June 2010.

1982-1995

---

2,000

In Thousands Saudi Riyals

Annual Report 2009 The National Shipping Company of Saudi Arabia

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