Bahri Annual Report-2008

The National Shipping Company of Saudi Arabia

Annual Report 2008

Annual Report 2008 The National Shipping Company of Saudi Arabia

النقل البحري

The National Shipping Company of Saudi Arabia

Annual Report 2008

The National Shipping Company of Saudi Arabia

Annual Report 2008

Contents

The National Shipping Company of Saudi Arabia

Annual Report 2008

8 9

Members of the Board of Directors Chairman’s Message Board of Directors Report Company Profile

12 14 14 15 15 16 18 25 25 25 26 27 27 28 28 29 29 30 30 31 32 32 34 35 36 60

Historical Background Economic Highlights Strategy, Future Objectives and Projects Financial Statements and Results of Operations Affiliates and Segments Ship Management of Vessels Planning and Business Development Customer Services and Public Relations Investment and Financing Human Resources

Information Technology Internal Audit and Control Quality and Environmental Safety Social Responsibility Zakat & Tax Dividend Distribution Risk Management Shareholders’ Equity Disclosure & Governance Board of Directors Board Committees Executive Management Financial Report Office and Branch Addresses

Board of Directors & Chairman’s Message

Board of Directors

Abdullah Sulaiman Al-Rubaian Chairman

Esam Hamad Al-Mubarak

Mohommed Abdulaziz AlSarhan

Abdulkarim Ibrahim Al-Nafie Saleh Abdullah AlDebasi

Nasser Mohammad Al-Kahtani

Farraj Mansour Abothenain

Bander Barjas Al-Abdulkareem Sami Abdullah Al-Saeed

The National Shipping Company of Saudi Arabia

Annual Report 2008

Chairman’s Message

Dear Shareholders

On behalf of my colleagues members of the Board of Directors, I am delighted to submit the annual report for the fiscal year 2008, which contains the most important results, stated objectives, projects and studies which have been completed or will be completed in the near future, in addition to the financial statements for the fiscal year 2008, which presents the company’s achievement of a net profit of SAR (750) million or (77%) increase over 2007. In the course of 2008, several strategic corporate objectives were achieved. The most important of these objectives was the approval of a comprehensive strategic plan by the Board of Directors with effect from the end of the year 2008. This strategic plan, which includes a review of the company's previous strategy that had been in operation since the start of year 2006, confirms the need to continue expansion and growth in various activities of the company (transportation of crude oil, chemicals, and general cargo) on a timely manner. It also focused on development of the organizational and administrative structure of the company, taking into account the economic situation and the extent of global financial impact on the various activities of the company, with due consideration to the fact that the company is not immune to this crisis. Therefore, the Board of Directors and management of the company have been monitoring the situation and waiting for opportunities to expand its various activities at a suitable time , as well as to engage in investment activities in the field of maritime transport and services to complement and exploit the opportunities available after the preparation of the necessary studies and to ascertain the economic feasibility based on a number of factors, including a rewarding profit returns, expected growth of the activity as well as the ability of the company to strongly participate in such activities, commensurate with its competitive capabilities. According to the strategic plan regarding crude oil transportation sector, the company received two VLCCs in 2008, and will receive the remaining four carriers during the year 2009, thereby increasing company'sVLCC fleet to 17 carriers with a capacity of (5.26) million tons of dead weight. In the sector of chemical products transportation, the National Chemical Carriers Limited Company “NCC” (80% ownership by NSCSA) received two new chemical carriers in 2008. Additionally, NCC has signed a contract to build 16 other carriers due to be delivered by 2012. In the general cargo sector, the company’s overall strategic plan recommended construction or purchase of a number of general cargo vessels to replace or supplement the current fleet, subject to preparation of necessary feasibility studies in accordance with approved investment criteria. With regard to organizational and administrative restructuring, the Strategic Plan recommended restructuring of certain sectors of the company, whereby the various functions of the company would become independent business units, stressing on the importance of giving due care and attention to the existing human resources and investment in the development of their capabilities through constant training and providing updated information on all developments in their respective fields of work to ensure the highest degree of operational, financial and administrative efficiency. In the field of information technology, the company has conducted a study to evaluate its technical systems and future requirements of latest information technology, and has signed contracts for the application of the Enterprise Resource Planning (ERP) system, which aims at updating and

Chairman’s Message

developing corporate information systems to link the operations of the company internally and externally.

The company has taken advanced steps to raise the level of transparency and to prepare new corporate governance rules of its own in line with generally accepted international practices, applicable regulations and guidelines duly issued by competent authorities in Saudi Arabia. The company’s outlook is manifested in its continued endeavor to become one of the leading and a recognized shipping company globally, through deliberate growth and expansion in the size of its fleet and diversification of its investments. In line with its effective role towards social responsibility, the company continues to sponsor various social events, participate in conferences for local and global awareness enhancement, sponsoring and participating in several awareness conferences to protect the marine environment. 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 the company for their support. I also thank members of the board, executive committees, executive management and employees of the company for their laudable efforts to further improve and develop the company, God willing.

Wishing you all the best of success and guidance in your future endeavors.

Eng. Abdullah Sulaiman Al Rubaian Chairman of the Board

The National Shipping Company of Saudi Arabia

Annual Report 2008

Board of Directors Report

Company Profile

Three decades have passed since the inception of the National Shipping Company of Saudi Arabia (NSCSA). The course of this procession was full of great success which reflected the company’s identity and national affiliation with global features. The most striking features of this success are manifested in the strategic outlook towards this promising industry by penetrating various fields of shipping business. NSCSA was a forerunner in providing excellent services, which constituted a qualitative change in the shipping industry throughout its course of transition from phases of foundation and formation to full- fledged growth which eventually led to its current phase of expansion. NSCSA continues to mobilize its resources to further support the acceleration of the wheel of development of the national economy, rendering the company to be a leading company in this industry at the regional level and assuming a forefront position among the leading shipping companies in the international level. The company and its affiliates currently own a large fleet of giant crude oil tankers, liquefied petroleum gas and chemical tankers, general cargo and multi-purpose (RORO) vessels. The company also deals in the field of shipping brokerage and has a wholly- owned affiliate responsible for ship

management services. The company made significant progress over the past years, at the levels of expansion in services and the size of its fleet, and generated successive remarkable profits, culminating in the record of profits generated in 2008. Given the significant role of the transport sector in accelerating the wheel of development in the Kingdom, and being one of the basic focal points in this field, NSCSA, through its distinctive activity, constitutes one of the pillars of the Saudi national economy and contributes to the support and development of national development programs and preservation of the environment in line with national and Islamic values. The company is making every possible effort to achieve meaningful returns to shareholders by practicing best investment methods to avoid risks without adversely impacting its stated mission, goals and objectives. The company endeavors to foster confidence through establishing long- term relationships with its customers and partners. Additionally, affiliation to a large number of organizations and conglomerates has given the company worldwide distinctive presence, prominent status and prestige in the international arena.

Historical Background

1986 Engaged in the primary phase of chemical Transportation

1997 Founded the Mideast Ship Management Ltd.

1993 Founded the National Shipping Company of Saudi Arabia (USA)

2008 Realized historical financial results

1970

1980

1990

2000

2010

1979 Company’s incorporation by Royal Decree and commence-ment of operations with chartered vessels

1990 Founded

2005 Engaged in the shipping of liquefied petroleum gas through purchase of stake in Petredec Ltd. International Company

the National Chemical Carriers Limited Company in a strategic partnership with SABIC 1995

1983 Owned the 1st. cargo vessel “Saudi Abha” of a 4-vessel fleet

Engaged in crude oil transportation and taking delivery of the first giant crude oil tanker

The National Shipping Company of Saudi Arabia

Annual Report 2008

Economic Highlights

At the end of 2008, the global economy has experienced a significant decline in growth rates which impacted most economic sectors following the global financial crisis that were rampant in many countries at varying degrees. This decline coincided with a disruption in financial markets, decline in crude oil prices, high rates of unemployment, winding up of many companies especially in the USA and other Western countries, contraction by many companies of their business activities and suspension of many large construction projects. In light of this sharp decline and the recession that the global economy has gone through, most countries adopted incentive policies to face the economic recession and to avoid going into depression. These policies included an increase of In 2006, the company embarked on the implementation of its strategic plan, which focused on expansion in the shipment of crude oil, liquefied petroleum gas and chemicals, as manifested in the contract duly concluded to build six (6) giant oil tankers (VLCCs) and sixteen (16) chemical carriers. At the end of 2008, the Board of Directors adopted a new five-year plan (2009 – 2013), which was prepared in co-ordination with an international consulting firm. Results of this plan confirmed the soundness of the company's financial and operational position and its competitive edge in the global markets, especially after increasing its VLCCs fleet and chemical tankers over the last three years, which NSCSA will continue to receive until the end of 2012. The current strategy recommends, continuing the main activities of the company, which are manifested in the transportation of crude oil, chemicals, general cargo and at the same time continue to analyze the

government at spending, support of basic industries and reduction of interest rates. However, economic outlook indicates a continued economic recession in 2009. The company was not immune to this crisis, which witnessed a decline in the world trade activities and, consequently, a reduction in shipping rates. However, the impact of this decline on the company was limited due to the balanced policies pursued by the company in chartering and operating of vessels and diversification of its activities. In spite of the current fluctuations in the global economic markets, the shipping industry augurs a promising future, especially with the current expansion in infrastructure projects, and chemical industries. shipping industry in order to engage in other investments in maritime transport sector and supplementary services. NSCSA will continue to exploit the opportunities available on a timely manner, after conducting necessary studies to ensure the economic feasibility of prospective projects based on a number of factors, including fair return on investment, expected 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 include, administrative and organizational restructuring of the company to ensure the highest degree of operational, financial and administrative competence, to enhance the company’s capability in tacklingpotential global changes and optimal use of available resources. Controls and governance systems have also been in place in line with generally acceptable international practices and applicable regulations of the Kingdom of Saudi Arabia.

Strategy, Future Objectives and Projects

Board of Directors Report

Financial Statements & Results of Operations

The Company’s operations have witnessed a quantum leap and excellent results in the course of 2008 despite the state of volatility that dominated the global economy due to declining growth rate in most countries of the world during the second half of 2008. The company posted a net profit of 749.97 million Saudi Riyals (compared to SAR 422.58 millions in 2007) marking an increaseof SAR327.39or 77.47%over prior year income. Achievement of such recorded results are attributed to several factors, including: Improvement in the charter rates of carriers and general cargo freight rates during the first nine months of 2008.

Diversification activities and sources of income of the company, which led to stability and growth in profits. of

Putting new oil tankers in service during the year 2008.

Adoption of a balanced policy in the selection between long-term charter of carriers and the spot market business.

All sectors of the company and its affiliates have contributed effectively to achieve these results.

Financial Results for the previous five years*

Year

2008

2007

2006

2005

2004

Operating Revenue Operating Expenses Gross Operating Income

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(

1.646.221 )1.080.813(

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

565.408 )66.914( )50.669( )19.985( 427.840 2.14

General and Administrative Expenses

Other Income (Expenses) Zakat &Tax Provision Net profit Earning Per Share (SAR)

(50.491) (54.471) 749.968 2.38

*SAR (000)

Financial Results for the previous five years

2.5

1.5

0.5

2004

2005

2006

2007

2008

General and Administrative Expenses

Operating Revenues

Operating Expenses

Net Profit

The National Shipping Company of Saudi Arabia

Annual Report 2008

Statement of Significant Assets and Liabilities

Item

2007 2006

2005 2004

2008

698.228 616.820 81.408 789.227

790.221 786.642 3.579 412.631

1.400.642 717.011 683.631 1.761.709 4.634.435 7.796.786 2.229.291 2.983.304 3.150.000 1.509.793 153.689 4.813.482 7.796.786

558.011 1.472.536 )914.525( 1.788.351 3.650.744 5.997.106 1.336.078 2.843.226 2.250.000

Current Assets Current Liabilities Operating Capital Other Non-Current Assets

1.579.185 817.726 761.459 2.581.331 5.658.910 9.819.426 3.709.941 4.565.555 3.150.000 1.940.796 163.075 5.253.871 9.819.426

3.346.742 4.834.197 1.432.898 2.091.459 1.999.290

3.276.956 4.479.808 1.367.770 2.217.858 1.998.189

Fixed Assets Total Assets LongTerm Loans

Total Liabilities Paid up Capital Reserves & Retained Earnings Minority Interests Equities Total Liabilities & Equities

601.527 141.921

131.846 131.915

754.619 149.261

2.742.738 4.834.197

2.261.950 4.479.808

3.153.880 5.997.106

*SAR (000)

The company's financial results over the previous years had positive effects on the shareholders’ equity, which has grown significantly.

Growth in Shareholders Equity

Shareholders Equity

Increase

Year

9% 55% 16% 22% 14%

431.003 1.655.174 403.802 470.782 260.622

2008 2007 2006 2005 2004

5.090.796 4.659.793 3.004.619 2.600.817 2.130.035

*SAR (000)

2004 2005 2006 2007 2008

Growth in Shareholders Equity

Shareholders Equity to Assets

Shareholders Equity

Total Assets

Year

60 %

52% 60% 50% 54% 48%

9.819.426 7.796.786 5.997.106 4.834.197 4.479.808

2008 2007 2006 2005 2004

5.090.796 4.659.793 3.004.619 2.600.817 2.130.035

50 %

40 %

30 %

20 %

*SAR (000)

10 %

0 %

2004 2005 2006 2007 2008

Shareholders Equity to Assets

Board of Directors Report

Subsidiaries and Main Segments

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

Ownership )%( 2008

Ownership )%( 2007

Head Office

Scope of Activity

Date of Incorporation

Activity

Company’s Name

NSCSA (America) Inc. Mideast Ship Management Ltd. National Chemical Carriers Ltd. Co. Petredec Ltd. Arabian United Float Glass Company

Company's ships agent Ship Management PetrochemicalsTransportation Liquefied Petroleum GasTransportation Glass Manufacturing and Trading

USA Dubai Riyadh Bermuda Riyadh

Global Global Global Global Regional

1991 1996 1990 1980 2006

100% 100% 80% 30.3% 10%

Summary of Financial Results of Subsidiaries for the Fiscal year 2008

Other (Expenses) Income

Participation in Company Net Profits

General and administrative Expenses

Operating Revenue

Operating Expenses

Net profit (Loss)

Company

NSCSA (America) Inc. Mideast Ship Management Ltd. ** National Chemical Carriers Ltd. Co. ** Dependent entirely on the parent company in generating their income.

41.209 22.542 618.937

)12.143( - )502.843(

)23.218( )30.787( )6.997(

)2.223( 269 )62.170(

3.625 )7.976( 46.927

0.48% - 6%

*SAR (000)

There are no issued shares or debt instruments pertaining to the subsidiary companies.

Asset and Liability Distributions over Company Segments for the fiscal year 2008

Crude Oil Transportation Segment 5.032.373 51% 1.995.025 44% Assets Percentage Liabilities Percentage

Petrochemicals Transportation

General Cargo Transportation Combined

Total

3.072.196 31% 2.256.403 49%

292.065 3% 99.804 2%

1.422.792 15% 214.323 5%

9.819.426 100% 4.565.555 100%

*SAR (000)

51%

44%

Assets

Liabilities

15%

31%

49%

Crude Oil

General Cargo Commoned Petrochemical Carriers

The National Shipping Company of Saudi Arabia

Annual Report 2008

Revenues of the Company’s Main Segments for the Fiscal Year 2008

CrudeOil Transportation

Petrochemicals Transportation

General Cargo Transportation

Segment Operating Revenue Operating Expenses Gross Operating Income Percentage ofTotal

Total

2.594.530 )1.633.882(

623.145 )464.210(

618.937 )502.843(

1.352.448 )666.829(

960.648 100%

158.935 17%

116.094 12%

685.619 71%

*SAR (000)

17%

24%

28%

41%

Gross Operating Income

Operating Revenue

Operating Expenses

12%

52%

71%

24%

31%

Crude OilTransportation

General CargoTransportation PetrochemicalsTransportation

Board of Directors Report

Transportation of Crude Oil and Liquefied Gas Crude OilTransportation:

The company’s tendency through the nineties to engage in the transportation of crude oil has been successful by all standards, and its strategic plans to focus on the successive expansion of this activity is rendered to be a good return on equity, through which the company has assumed a leading position in the Middle East. In this regard, the company has pursued a thoroughly studied operational policy for investment in crude oil carriers (VLCC), aimed at achieving a balance between operating revenues and market risks by: Leasing some of its vessels on long-term contracts (Time Charter), to ensure steady income. By the end of 2008, the number of vessels leased on long-term contracts were six, two of which can contribute to the company's rental revenues in accordance with an equation that ensures a minimum level of rent and provides the company with the opportunity to benefit from any rise in the spot market.

Operating in the spot market in order to take advantage of the opportunities available in that market. By the end of 2008, the number of VLCCs operating in the spot market reached seven. The company currently owns (13) VLCCs in service, two of which were received in 2008 and four carriers which had previously been contracted to build are still under construction and are expected to be received during 2009. This comes within the framework of the five- year strategic plan of the company's ambitious expansion and growth in the shipping sector, which envisages that the company’s fleet capacity will be in the range of (5.25) million static tons. Transportation of crude oil and liquefied gas realized an operating profit of SAR 685.6 million in 2008, compared to SAR 260.7 million in 2007, representing 71% of the total operational profits of the company.

VLCCs fleet operational and under construction

Weight (StaticTons)

Length (Meter)

Width (Meter)

Number of Tanks

Speed (Knots)

31/01/1996 30/04/1996 30/08/1996 31/10/1996 14/01/1997 12/10/2001 11/02/2002 17/06/2002 07/11/2002 26/02/2007 24/09/2007 03/09/2008 14/10/2008 March 2009 April 2009 July 2009 Sept. 2009 Date of Delivery

Year of Manufacture

VLCC name

Type

Ramlah Ghawar Watban Hawtah Safaniyah Harad Marjan Safwa

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

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 5.256.605

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

Double Hull

17.1 17.1 17.1 17.1 16.7 16.7 16.1 16.1 16.1 16.1 16.1 16.1

Double Hull

Abqaiq Wafrah Leyla Jana Habari

Double Hull

Kahla Dorra

Double Hull

Ghazal Sahba

Double Hull

Total Capacity

The National Shipping Company of Saudi Arabia

Annual Report 2008

Growth of VLCCs

Number of Carriers

Capacity (Static tons)

Description Fleet at the beginning of 2008 Vessels received during 2008 Fleet as at 31 December 2008 Vessels under construction and expected to be received in 2009 Total

11 2 13 4 17

3.348.605 636.000 3.984.605 1.272.000 5.256.605

Liquefied Petroleum Gas Transportation In line with the stated objectives of the company as manifested in the diversification of sources of income, in 2005 NSCSA embarked on investing in Petredec limited for trading and shipping LNG, based in Bermuda, through the purchase of 30.3% stake of its capital in an amount of (187.5) million Saudi Riyals. Petredec operates in the field of trade and shipment of liquefied petroleum gas. It operates a fleet of 64 carriers of various sizes, including 19 carriers owned by Petredec and the rest are leased on charter contracts and operated on

spot and long-term contracts. According to its expansion plan, Petredec has contracted to build six liquefied gas carriers, four of which were received in 2008, and the remaining tankers are expected to be received in the first half of the year 2009. Over the past years, the company achieved remarkable profits from this investment, amounting to a total of SAR 220.7 million by the end of 2008.

Board of Directors Report

Petrochemicals' Transportation

In collaboration with SABIC, in 1990 the NSCSA founded the National Chemical Carriers Limited Company at a share of 80% and 20% respectively. The National Chemical Carriers Limited Company (NCC) is considered as one of the leading international companies specialized in the transportation of petrochemicals, has a capital of Saudi Riyals 610 million.

Within the framework of the National Chemical Carriers company's strategic plan to increase the capacity of its fleet to approximately 1.3 million static tons and the number of owned vessels to (29) carriers, NCC received four new carriers in 2007 and 2008, and contracted with SLS SHIPBUILDING CO. for building sixteen (16) carriers which are expected to be received during the period from 2009 to 2012.

Chemical carrier fleet operational and under construction

Weight )StaticTons(

Length )Meter(

Width )Meter(

Number of Tanks

Speed )Knots(

June 1982 Oct.1982 Jan.1988 Jan.1995 May 1995 Oct.1996 Oct. 2005 Oct. 2005 Apr. 2006 Jun. 2006 Jul. 2007 Aug. 2006 Aug. 2007 Nov. 2007 Jan. 2008 Mar. 2008 Sep. 2009 Jan. 2010 Jan. 2010 Apr. 2010 Jun. 2010 Aug. 2010 Jan. 2011 Mar. 2011 May 2011 Date of Delivery

Year of Manufacture

Type

Carrier Name

NCC Assir (1) NCC Arar (1) NCC Baha (1)

23.000 23.000 24.700 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 1.365.200

1982 1982 1988 1995 1995 1996 2005 2005 2005 2006 2006 2006 2007 2007 2008 2008 2009 2010 2010 2010 2010 2010 2011 2011 2011 2011 2011 2011 2011 2011 2012 2012

158.95 158.9 172.4 183.1 183.1 183.1

23.1 23.1 27.7 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2

28 28 25 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 14.5

Double Hull

NCC Riyadh (2) NCC Makkah (2) NCC Jubail (2)

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

Double Hull

NCC Najd NCC Hijaz NCCTihama NCC Abha NCCTabuk

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

Double Hull

NCC Qassim NCC Rabegh NCC Sudair NCC Dammam NCC Hail

Double Hull

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

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

Double Hull

Jul. 2011 Jul. 2011

Double Hull

Aug. 2011 Oct. 2011 Dec. 2011 Jan. 2012 March 2012

Double Hull

Total

(1)These carriers were sold and expected to be delivered to the buyer during the month of January 2009. (2)These carriers (NCC Riyadh, NCC Mekkah, and NCC Jubail) have been leased (Bareboat) to "Odfjell" for a period of ten years, with an option to exercise the right of purchase after the third year.

The National Shipping Company of Saudi Arabia

Annual Report 2008

to the same company. NCC has a long-term charter contract for six of its carriers to Saudi Basic Industries Corporation "SABIC" in addition to one carrier chartered by Sipchem.

The National Chemical Carriers Company operates six of its carriers through an international conglomerate run by "Odfjell" and three other carriers are chartered

Growth of Chemical Carriers

Number of Carriers

Capacity )static tons(

Description Fleet at the beginning of 2008 Tankers received during 2008 Fleet as at 31 December 2008 Tankers excluded during 2009 Tankers under construction expected to be received during 2009-2012 Total

14 2 16 )3( 16 29

552.800 92.400 645.200 )70.700( 720.000 1.294.500

In 2008, the chemical carrier activity realized a total operating profit of SAR 116.09 million, compared to $ 81.8 million Saudi riyals in 2007, or 12% percent of the total operational profits of the company in 2008.

Board of Directors Report

General Cargo Transportation

The general cargo transport sector (Lines) had witnessed a remarkable recovery until the end of the third quarter of 2008. In spite of the decline in freight rates during the fourth quarter of 2008, the rate of annual performance was positive and good results at both, financial and operational side were achieved. The plan to prolong the operational

life of the general cargo vessels was also completed. The general cargo transportation sector had contributed a total operating profit of SAR 158.9 million in 2008, compared to $ 108.9 million Saudi Riyals in 2007, representing 17% of the total operating profit of the company in 2008.

General Cargo Fleet

Weight (StaticTon)

Container Capacity Speed

Vessel

Length Width Draft

Saudi Abha Saudi Diriyah Saudi Hofuf SaudiTabuk

42.600 42.600 42.600 42.600

236.95 m 236.95 m 236.95 m 236.95 m

32.29 m 32.29 m 32.29 m 32.29 m

11.12 11.12 11.12 11.12

2.050 2.050 2.050 2.050

18 18 18 18

ContainerYard

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 rapid handling of containers to and from ships and speeds up clearance of customer shipments.

NSCSA owned containers and trailers

Type

Quantity

Type

Quantity

Ordinary 20ft Container OpenTop 20ft Container Open sides 20ft Container Ordinary 40ft Container 40ft Container OpenTop 40ft Container

Open sides 40ft Container Trailers (40) ft Trailers (20) ft Trailers (Chassis) (62) ft Trailers (Chassis) (40) ft Trailers (Chassis) (20) ft

2841 376 104 561 1351 157

178 255 229 15 289 4

Number of Containers

Number of Units (TEUS)

7815

5568

The National Shipping Company of Saudi Arabia

Annual Report 2008

Ship Management

The Mideast Ship Management Ltd. is responsible for technical management of the company's vessels in accordance with the requirements of international maritime organizations. The company employs a specialized team of captains, engineers and technicians with high level of competence and extensive experience in the technical and administrative aspects of the management andoperationof ships. During early 2006, the company established a department for BusinessDevelopment andplanning to coordinate the implementation of the initiatives and objectives of its overall strategic plan. NSCSA undertakes the functions of strategic planning and coordination between business units and supporting departments and follows-up the performance in line with the stated objectives of the strategic plans. NSCSA always endeavors to achieve excellence in keeping pace with developments in the field of maritime transport and expanding its investment activities at the regional and global levels. It has demonstrated its ability to compete through manifesting good knowledge of the domestic and international markets and through accumulated experience. The growing interest in the shipping industry at an global level in general and the Middle East and the Gulf in particular, makes it contingent upon shipping companies to mobilize all their competitive capabilities to meet the needs of their clients. NSCSA currently focuses on the exploitation of its capabilities, and endeavors to maintain its position among the leading companies locally and internationally in order to provide optimal services to its customers. In this regard, NSCSA seeks to create competitive advantages for its services which

The Mideast Ship Management submits technical reports to NSCSA on the performance and status of ships, fuel consumption and recommendations in this regard, in addition to periodic financial reporting on operating expenses and budgeting, as well as several other reports. The Mideast Ship Management also provides training to new entrant sailors on board NSCSA carriers. Functions of this Department include follow-up of the processes of change and restructuring currently taking place in all sectors of the company; search for appropriate opportunities consistent with the initiatives of the general strategy. It also issues periodic information reports on the maritime transport market and prepares comparative financial reports on the performance of NSCSA and similar companies both at the regional and global levels. In the wake of this competition, NSCSA aims to satisfy the customers, who have contributed actively to its success and represent the core of its assets by fulfilling their needs and seeking their satisfaction through outstanding performance, reliability, quality and commitment. NSCSA has a solid base of core clients both locally and internationally. NSCSA also maintains strategic relationships with several local, regional and international bodies, and company management constantly works on strengthening such relations. Notwithstanding the rise in the cost of shipping during the previous years, which eventually led to increasing the operational costs of the company, NSCSA has made every possible effort to reduce the impact of this rise in cost on its are distinct from other competitor companies in order to capture a greater share of the domestic, regional and global markets.

Planning and Business Development

Customer Services and Public Relations

Board of Directors Report

Money and Ships Conference - Middle East Fourth Gulf Forum for Ship Financing Indian Shipping Conference - Mumbai First Saudi Exhibition on Minerals Sponsoring the National Sales Forum in America Participation in various investment forums NSCSA has been awarded the (SCATA) "Company of the Year in Maritime Transport" prize for 2008 duly organized by "ITP Business". The award is given to the company for record performance in its field of activity. NSCSA was chosen on the merit of many inputs of outstanding performance in all areas in which it operates, especially in the transportation of oil and gas, chemicals and general cargo. due to fulfillment of its commitments under the agreements concluded with these institutions rendering the company to have a sound financial position. The company has worked over the past three years with these financial institutions to secureShariah compliant financing facilities and succeeded in raising the proportion of Shariah compliant funding to 77% at the end of 2008. NSCSA endeavors diligently to have 100% Shariah compliant funding upon termination of the existing commercial loans.

clients, without adversely affecting the revenues of the company while working at the same time to upgrade the level of services provided to these clients. In line with NSCSA’s endeavors to foster its relationship with areas concerned with the maritime transport industry and to create a distinct presence in this arena, NSCSA participated in many activities and events. Highlights of NSCSA participation in such activities during the year 2008 are summed up in the following: World Maritime Day 2008 Exhibition and Conference Oil and Gas The 11th GCC industrialists Conference Lloyd's List (Best Oil Shipping Company in 2008) First Saudi International Forum on Ports and MaritimeTransport

Investment and Financing During the past four years, NSCSA procured to have its investments compliant with the precepts of Islamic Shariah, and achieved this goal rendering its current investments Shariah compliant. The company also obtained over the past two decades a package of commercial loans and Murabaha financing facilities from several major local and international financial institutions, to finance its ambitious strategic projects which are expanding year after year. The company currently enjoys the confidence of financial institutions

Financing During 2008*

Loan balance at the beginning of

Change during the year

Loan balance at year end

Company

the year 1.234.328 1.176.461 23.351 2.434.140

NSCSA NCC Mideast Ship Management Ltd. Total

607.035 965.378 - 1.572.413

1.841.363 2.141.839 23.351 4.006.553

*SAR (000)

Financing Details as at 31 December 2008*

Financing

NSCSA 1.359.167 294.797 210.750 1.864.714

Affiliates

Total

Murabaha Financing Commercial Loans PIF Loans Total

73% 16% 11% 100%

1.706.089 - 435.750 2.141.839

80% - 20% 100%

3.065.256 294.797 646.500 4.006.553

77% 7% 16% 100%

*SAR (000)

NSCSA does not have any absolute debt instruments or debt instruments that are convertible into shares, option rights, subscription or similar rights issued or granted by the company during the current financial year.

The National Shipping Company of Saudi Arabia

Annual Report 2008

Human Resources

NSCSA focuses on providing an appropriate environment tooptimize productivity and develop its human resources. For this reason, in 2008 NSCSA embarked on the review and updating of its by-laws in order to enhance its competitive edge which is dependent primarily on its distinctive competencies. Various in-house or out side training courses for staff development were also conducted to tackle relevant advanced technology and disciplines needed for NSCSA functions. Based on the company's conviction that nationalization of jobs constitutes anational option, NSCSA has completed the Saudization of Out of NSCSA’s concern to have in place state-of-the-art technology and sophisticated systems to provide necessary support and assistance to all sectors of the company and to keep pace with the trend of expansion in various fields, and in order to upgrade the level of services provided to its customers, a strategic plan for information technology has been developed with the assistance of a specialized international consulting firm to develop scientific methods and an appropriate methodology aimed at determining the company’s course of action and its future needs for modern information technology, and to keep up with the company's strategic plan. Based on this strategic plan, the company’s vision with regard to information technology is focused on providing all sectors of NSCSA with a comprehensive package of electronic services and the latest technology to support the efforts of the company and enhance its competitive edge. The Strategic Plan recommended application of a uniform system for managing and planning of the company's resources (ERP) as a necessity to cope with future growth and development of the company. The system relies on

most of the leading positions in the company and its affiliates, and other jobs are being Saudized gradually, according to a plan under which NSCSA has undertaken to train Saudi cadres. Given the lack of qualified Saudi manpower working in the shipping industry, NSCSA has signed a memorandum of understanding with the Naval College, King Abdulaziz University in Jeddah, to avail students of the said college the opportunity of practical training on board NSCSA vessels for developing their abilities and giving them career opportunities to increase the number of Saudi cadres in this field. application of the best international practices and methods in place, and provides possibility of measuring and identifying performance indicators (KPI) for various activities of all segments of the company, with submission of smart reports to assist in the process of decision- making, and ensure application of governance and other electronic services. A study has been conducted to assess the extent of the company's readiness for application of this system with the identification of needs and future requirements relating to the performance of daily work and relevant factors, and, God willing, implementation will begin during the first quarter of 2009 for a period of one year.

Information Technology

Board of Directors Report

Internal Audit and Control The Internal Audit and Control Department employs a selected group of highly qualified professional auditors.

organizations around the world. In this regard, NSCSA takes into account all necessary requirements in setting up building specifications of its fleet, and conducts regular check-ups of the fleet through an international consultation firm to ensure safety of the fleet and its compatibility with the technical specifications and internationally recognized standards. In 2006, NSCSA was (ISM), (ISO 9001-2000) and (ISO 14001-2004) certified and was awarded the International Maritime Organization and Lloyd's certificates. Mideast Ship Management Company, Ltd., (a wholly owned affiliate of NSCSA) which provides ship management services to most of the company's vessels, is also (ISO 9001-2000) certified. 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 preliminary training courses related to international quality control system (ISO) for internal auditors and lead auditors (supervisors) in order to enhance and strengthen the quality management system (QMS). The Internal Audit and Control Department also conducted other in-house courses on examination and verification of implementation of (ISO) applications.

In operational activities and services provided to its customers, NSCSA adopts distinct standards of high quality which reflects an added value to the interests of its clients, which also enhances the leading position of NSCSA in the market. For that reason, NSCSA continues to follow-up and improve the quality of performance and standards of service provided to its clients, and follow international quality standards to provide excellent services to cope with the current severe competition in the maritime shipping market. Topreservetheintegrityofthemarine environment and climate, NSCSA is committed to implement all the laws imposed by the legislative bodies and environmental programs and developing plans and projects for riskmanagement audit in compliance with generally accepted auditing standards. The Internal Audit and Control Department also verifies the authenticity of the internal control procedures which aim at the protection of company’s assets against any unauthorized use, maintenance of accounting records and proper application of accounting policies, by-laws and internal procedures of the company. all dealings, This Department is working to develop efficiency and skills of its employees through the use of technology in their work and applying audit development

Quality and Environmental Safety

The National Shipping Company of Saudi Arabia

Annual Report 2008

Social Responsibility

NSCSA is keen to participate in various events, conferences and exhibitions which foster its presence in social activities. NSCSA 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. NSCSA has earmarked a special provision in its budget for social activities, awareness programs and general development projects in addition to its contribution to several activities in this regard. In 2008, among other events, NSCSA participated in the following social activities: Arranged breakfast reception for Ensan (Human Being) Charitable Society

Supported the Community Health magazine of the National Guard Subscribed to the Drug Combat Directory Subscribed to the Directory of Riyadh Specialized Center for the Disabled Supported the Down's Syndrome Charitable Association "DSCA" (Social activity)

Zakat & Tax

NSCSA and its affiliate (National Chemical Carriers) prepare Zakat returns at the end of each year, and pay their zakat dues based on those returns promptly. All the tax deductions on payments to non- resident foreign parties are paid on a regular periodic basis pursuant to applicable regulations. NSCSA did not receive any zakat assessments from the Zakat & Income Tax Department for the period from

2001 until 2007 and for its affiliate for the period from 2005 until 2007.

The Zakat and Tax provision shown in the balance sheet includes Zakat and Tax claims by the Zakat and Income Tax Department that have not been decided by the Appeals Committee to this date.

NSCSA Claims*

Period

Zakat Claims

Tax Claims

Remarks

Case closed and payments are being made in semi-annual installments. Decisions # (11, 12, 13, 14, and 15) were issued by the Primary Objection Committee and NSCSA appealed these decisions which are being deliberated by the Appeals Committee but no decision has been issued yet.

1982-1995 1989-1995 1996-1998 1999-2000 Total

- 37.687 19.225 4.176 61.088

6.000 - 2.198 9.678 17.876

*SAR (000)

NCC Claims*

Period

Zakat Claims

Tax Claims

Remarks

1991-1993 1994-1996 1997-2004 Total

15.825 7.236 12.035 35.096

12.585 12.218 24.718 49.521

NCC objections are still pending with the ZITD and no decision has been issued to this date.

*SAR (000)

Board of Directors Report

Dividend Distribution

Earnings per share are calculated on the basis of the weighted average of the outstanding number of shares during the year. Proposed year- end dividend distribution shall be treated as part of retained earnings rather than liabilities, unless a dividend distribution decision is

made by the end of the year. For comparison purposes, profit per share has been recalculated for the years 2004 - 2006 commensurate with the number of shares after the share split duly approved by the Council of Ministers in 2006.

Share Profit

Share Profit 2.38 1.48 1.96 2.19 2.14

Year

2008 2007 2006 2005 2004

2.5

1.5

0.5

2004 2005 2006 2007 2008

Share profit

In the meeting held on 7/4/2008, the ordinary general assembly approved cash dividend distribution to shareholders for the year 2007 in an amount of SAR 315 million at a rate of SAR 1 per share, representing 10% of the company’s share capital.

As a result of the excellent financial performance of 2008, the Board of Directors at their meeting held on November 29, 2008 recommended to the General Assembly to approve a cash dividend of SAR 472.5 million at a rate of SAR 1.5 per share representing 15% of the company’s share capital.

Risk Management

NSCSA lends major importance to risk management, especially in the wake of current volatility in the global economy. NSCSA adopts a policy of addressing these risks through a self-control system in order to reduce or avoid the risks of operations and to hedge against all expectations of future market volatility in both the international or local markets

through financial management, treasury management, internal audit and control. Among the risks that NSCSA puts under constant monitoring are credit risks, risks of fluctuations in foreign currency exchange rates, risks of inflation (purchasing power), liquidity risks, interest rate risks and risks associated with technical and electronic systems.

Shareholders’ Equity

NSCSA shareholders enjoy all the rights and privileges pursuant to the provisions of the company’s memorandum and articles of association which are in line with the articles of the Companies Act and the Corporate Governance

Regulations duly issued by the Capital Market Authority. NSCSA did not issue any priority shares or shares with special voting priority rights. NSCSAboardof directors and executive management are keen to create an appropriate environment

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64