Bahri Annual Report-2011

Contents

Members of the Board of Directors ............................................. Chairman’s Message .................................................................. Board of Directors Report .......................................................... Strategy and projects ........................................................ Financial Statements and Operational Results ...................... Affiliates and Segments .................................................... Technical Ship Management ............................................... Business Planning and Development ................................... Communications and Public Relations ................................. Information Technology .................................................... Internal Audit and Control ................................................. Human Resources ............................................................. Marketing and Customer Services ........................................ Quality Assurance ............................................................. Environment and Safety .................................................... Social Responsibility ......................................................... Risk Management ............................................................. Financing and Investment ................................................. Regulatory Payments ......................................................... Dividend Distribution ........................................................ Shareholders’ Equity and Communication with Shareholders ... Disclosure and Governance ................................................. The Board of Directors ....................................................... Board Committees ............................................................. Executive Management ...................................................... Compensations and Remunerations ..................................... Consolidated Financial Statements ............................................. Auditors’ Report ............................................................... Consolidated Balance Sheet ................................................ Consolidated Income Statement .......................................... Consolidated Statement of Cash Flows ................................. Consolidated Statement of Changes in Shareholders’ Equity .... Notes To The Consolidated Financial Statements ................... Bahri Offices & Subsidiaries ................................................

2 4 7 9 9

12 24 25 25 26 27 28 29 29 30 30 30 32 33 34 35 38 39 42 44 45 47 49 50 52 53 55 56 78

Board of Directors Report 2011

Members of the Board of Directors 2011 - 2013

Mohammed Abdulaziz Al-Sarhan Vice-Chairman

Abdullah Sulaiman Al-Rubaian Chairman

Saleh Abdullah Al Debasi Member

Esam Hamad Al-Mubarak Member

Nasser Mohd. Al-Kahtani Member

Abdulkarim Ibrahim Al-Nafie Member

Farraj Mansour Abothenain Member

Ghassan Abdulrahman Al-Shibl Member

Abdullah Ali Al-Ajaji Member

The National Shipping Company of Saudi Arabia

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Board of Directors Report 2011

Abdullah Sulaiman Al Rubaian Chairman

Chairman’s Message

vessels in the spot market to lower levels. Nevertheless, with the grace of The God and the policy of the Company to diversify the sources of income, Bahri has realized lucrative profits under these circumstances. In spite of the current situation in the region and challenges of the global economy, the Company is moving vigorously towards achieving its stated goals and aspirations for the future. Concluded a contract for building (6) General Cargo (ROCON) vessels equipped with cranes, capable of loading and discharging (360) intermodal shipping containers (TEUs); in addition, loading goods and other break bulk project equipment that are placed inside the hull of the vessel which consists of four decks dedicated to the carriage of bulk goods and cars. During the year 2011, many programs and projects were implemented, including:

Dear Shareholders,

On behalf of the Board of Directors of The National Shipping Company of Saudi Arabia (Bahri) and myself, I am pleased to present to you the annual report for the fiscal year 2011. It includes the Board of Directors report on the various results, the activities of the Company and its programs as well as projects that have been implemented during 2011 in addition to the consolidated financial statements for the year ended 31/12/2011 presenting the financial position of the Company and a net profit of SAR 287,768,000 achieved during the fiscal year 2011. The year 2011 was one of the most difficult years experienced by the shipping industry due to the significant impact in the global economic growth, combined with the continued entry of record tonnage capacity from the vessels contracted during previous years. The Crude oil segment is the largest segment of the Company and the highest contributor to its profitability in recent years; it was one of the most affected sectors in the industry, rendering the average daily time-charter equivalent (TCE) rates for

The delivery of (6) chemical carriers during the year and (5) other chemical carriers are

The National Shipping Company of Saudi Arabia

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Concluded a contract for building (6) General Cargo (ROCON) vessels equipped with cranes, capable of loading and discharging (360) intermodal shipping containers (TEUs); in addition, loading goods and other break bulk project equipment that are placed inside the hull of the vessel which consists of four decks dedicated to the carriage of bulk goods and cars.

I would also like to thank all the shareholders for showing their support and confidence in the Company, my colleague members of the Board, Executive Management team and all the employees of Bahri and its affiliates to further improve and develop the company.

expected to be delivered during 2012 and (1) specialized carrier is also expected to be delivered in 2013. The Board of Directors has agreed to adopt a mechanism of linking bonuses, salary increases and benefits of the employees completely to their performance and efficiencies. The completion of the administrative and legal formalities of company’s new brand, which is expected to be launched during the second quarter of 2012. A service contract has been signed with the Ministry of Defense (MOD) for an amount of SAR 230 million for three years. According to this contract, the Company will be an official carrier of the Armed Forces for the Ministry of Defense in all sectors; it will cover air, sea and land logistic services. Further, there is an opportunity that the company can also be assigned to transport additional shipments beside the current scope of work of this contract, resulting in an increase of expected returns from this contract.

The technical specifications to build the Dry Bulk vessels are finalized; negotiations are in progress to select an appropriate shipyard. The operational efficiency of the crude oil vessels’ has been improved by reducing their sailing speed which helped to reduce the fuel consumption. The administrative and legal formalities regarding the transfer and registration of Mideast Ship Management Company Ltd. from Bermuda to Dubai have been finalized. These achievements were a result of the concerted efforts by the Board of Directors, Executive Management and the employees of Bahri and its affiliates. In conclusion, I would like to extend my gratitude and appreciation to the Government of the Custodian of the Two Holy Mosques and King Abdullah bin Abdul Aziz for their constant support.

We look forward to achieve all our objectives for the current year, God willing.

Abdullah Sulaiman Al Rubaian Chairman

The National Shipping Company of Saudi Arabia

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Board of Directors Report

Board of Directors Report 2011

Introduction

profits on an annual basis, to contribute to the development of the country’s economy and maximize the returns for its shareholders. Bahri also provides high quality services to satisfy its customer needs, in addition to creating job opportunities for Saudi graduates who are eligible to participate in building the national economy. Currently, Bahri operates extensively around the world to link the economies and participate in the global growth. Bahri has committed itself to maintain transparency in all its dealings and the disclosure of the financial results. Bahri adopts safety standards in its operations to preserve the environment and committed to its social responsibilities. In 2010, Bahri was awarded first place for transparency by BMG, which is an award for the best corporate disclosure. Through implementing the successive strategic plans, Bahri continues to grow and focus on the mission and stated objectives by utilizing its resources in order to achieve the best returns for the shareholders.

The National Shipping Company of Saudi Arabia (Bahri) was established in the year 1979 as a Saudi Joint Stock Company by a Royal Decree No. M/5 dated 12/02/1398H, corresponding to 22/01/1979, to be the national carrier and a prominent company among the leading shipping companies of the world. The Public Investment Fund owns 28.2% of Bahri’s share capital. Bahri commenced its business operations in the General Cargo segment. In 1985, it entered into the transportation of petrochemical products and expanded in the mid-1990s into the segment of transporting crude oil. In 2005, Bahri entered into the liquefied petroleum gas (LPG) segment by buying a stake in Petredec Ltd., a company specialized in the trade and transport of liquefied petroleum gas (LPG). In 2010, Bahri announced its entry in the Dry Bulk segment. All these activities come in line with Bahri’s strategy to diversify its sources of income. Bahri embodies the national maritime transport industry and links the Kingdom’s trade to the rest of the world. Bahri services cover various global markets through its branches, subsidiaries and a network of agents. Bahri has investments in its operations to realize

Vision

Connecting Economies, Sharing Prosperity and Driving Excellence in Global Logistics Services.

Mission

practices to run a world-class fleet, whilst building mutually beneficial relationships with all stakeholders.

By consistently focusing on our Values and responsible business fundamentals, we shall be a leading service provider applying best

Values

Driven, Relentless, Transparent, Considered.

The National Shipping Company of Saudi Arabia

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Strategy and Projects

Ltd. (DSME) to construct a specialized chemical tanker of 75,000 DWT expected to be delivered in 2013. Bahri continues its focused progress in line with its stated strategy. The strategy is to expand the Company’s business through expansion of the fleet, diversification of investments, effective management that monitors the markets, reduce operating costs and oversees processes of implementation. Operation of crude oil vessels in an optimal manner in the spot market and through time-charter contracts. Explore markets for optimal operation of the chemical tankers. Improve operational management in all business sectors. Explore promising investment opportunities for potential expansions in the future. The strategic plan consists of the following components: shipyard (6) chemical tankers each with a tonnage capacity of (45,000) tons. These tankers began its operations through (NCC ODFJELL CHEMICAL TANKERS JLT), headquartered in Dubai. Bahri signed a contract with an international consulting firm specialized in branding the identity to determine the Company’s future strategy related to the rebranding project which is expected to be complete during the second quarter of 2012. million compared to SAR 415 million in 2010. The total operating income for the year 2011 amounted to SAR 230 million compared to SAR 454 million in 2010, marking a decrease of 49% over prior year’s operating income. This decrease is traced to the decline in the results of operations of the crude oil transport segment, which was affected by a decrease in the charter rates of crude oil in the spot market, which in turn was affected by the increase of tonnage resulting from the entry of new VLCCs in the market as well as the completion of charter agreements of (3) Very Large Crude Carriers (VLCCs) owned by the Company during the second and third quarters of 2011; in addition to the increasing purchase cost of bunker fuel for the vessels.

Bahri continues to expand and grow in various shipping sectors including General Cargo, Dry Bulk and Petrochemicals. This is in line with the comprehensive strategic plan focused on growth in shipping activities to increase and diversify sources of income. At the end of 2008, the Board of Directors adopted a new five-year strategic plan (2009-2013), which was prepared in coordination with an international consulting firm. This plan confirmed the strong financial and operational position of the Company, which enhances its competitive edge in the global markets. The National Chemical Carriers Company (NCC) purchased the two chemical tankers whose contracts were previously cancelled due to their delayed delivery by the shipyard. (6) Tankers have been delivered in 2011 and the remaining (5) tankers, currently under construction are due to be delivered by the end of 2012. On August 28, 2010, Bahri signed an agreement with the Arabian Agricultural Services Company (ARASCO) to establish a JV company to transport dry bulk cargo, named Bahri Dry Bulk Company LLC. On March 6, 2011, Bahri signed a contract with Hyundai (MIPO) to build (4) ROCON vessels with an option to build (2) additional vessels. Bahri has exercised this option to build the (2) additional vessels. The year 2011 was one of the most difficult years for the shipping industry due to the significant impact in the global economy and successive entry of large tonnage capacities of the VLCCs contracted during the prior years. The crude oil segment was the largest segment of the Company in terms of contribution to its profitability during the last years and the most affected sector of the industry in 2011. The time charter equivalent (TCE) rates in the spot market were the lowest in twenty years. Nevertheless, with the grace of God and the adoption of a policy for diversification of investments, Bahri has realized lucrative profits. On July 4, 2010, NCC signed a contract with Daewoo Shipping and Marine Engineering Co. During 2011, NCC received from (SHINAsb)

Completed Projects

Financial Statements and Operational Results

In 2011, Bahri realized a net profit of SAR 288

Board of Directors Report 2011

Financial results for five years (In Thousands Saudi Riyals)

2011

2010

2009

2008

2007

Operating Revenues

1,991,084

2,049,830

1,672,016

2,594,530

1,703,294

Bunker cost

(801,163)

(625,692)

(395,986)

(539,592)

(327,217)

Other operating expense

(1,027,214)

(976,253)

(903,559)

(1,094,290)

(924,741)

Gross operating income before bunker subsidy

162,707

447,885

372,471

960,648

451,336

Bunker subsidy

176,465

109,498

83,212

72,859

56,640

Gross operating income

339,172

557,383

455,683

1,033,507

507,976

General and Administrative Expense

(109,660)

(103,801)

(95,020)

(105,718)

(87,301)

Revenue (Expense) Other

83,753

2,339

43,227

(123,350)

174,166

Zakat & Tax Provision

(25,497)

(36,365)

(34,590)

(54,471)

(18,419)

Net Profit

287,768

414,878

369,300

749,968

576,422

Earning per share from net profit (SAR)

0.91

1.32

1.17

2.38

1.48

3.0

2.5

2.0

1.5

1.0

0.5

0.0

In Billion (Saudi Riyals)

2007

2008

2009

2010

2011

Operating Revenues

Operating Expenses

General and Administrative Expense

Net Profit

The National Shipping Company of Saudi Arabia

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Assets & Liabilities as of December 31, 2011 (In Thousands Saudi Riyals)

Description

2011

2010

2009

2008

2007

Total Current Assets

1,042,280 1,578,464 1,225,146 1,579,185 1,400,642

Fixed Assets, net

7,252,854 6,407,630 6,730,766 5,658,910 4,634,435

Other non-current Assets

2,328,077 1,980,185 2,380,922 2,581,331 1,761,709

Total Assets

10,623,211 9,966,279 10,338,584 9,819,426 7,796,786

Total Current Liabilities

944,248

736,030

608,041

817,726

717,011

Murabaha financing and long-term finance

4,294,968 3,818,540 4,516,180 3,709,941 2,229,291

Other non-current Liabilities

28,058

33,326

34,974

37,888

37,002

Total Liabilities

5,267,274 4,587,896 5,160,945 4,565,555 2,983,304

Paid-up share capital

3,150,000 3,150,000 3,150,000 3,150,000 3,150,000

Statutory Reserve and Retained Earnings

1,912,623 1,939,691 1,837,520 1,940,796 1,509,793

Minority Interest

293,314

288,692

190,119

163,075

153,689

Total Equity

5,355,937 5,378,383 5,177,639 5,253,871 4,813,482

Total Liabilities and Equity

10,623,211 9,966,279 10,338,584 9,819,426 7,796,786

Board of Directors Report 2011

Affiliates and Segments

Bahri owns or invests in a group of companies within the Kingdom of Saudi Arabia and abroad, as shown in the following table:

Country of Establishment

Head Office Location

Geographical Scope of Activity

Data of Incorporation

Ownership (%) 2011

Company Name

Activity

Bhari (America) Inc.

Bahri Ship Agent

USA

USA

Global

1991

100%

Mideast Ship Management Ltd.

Technical Ship Management

UAE

UAE

Global

1996

100%

National Chemical Carriers Ltd. Co.

Petrochemical Transportation

KSA

KSA

Global

1990

80%

Bahri Dry Bulk

Dry Bulk Transportation

KSA

KSA

Global

2010

60%

LPG Transportation and Trading

Petredec Co. Ltd.

Bermuda

Singapore

Global

1980

30.3%

Arabian United Float Glass Company

Glass Manufacturing and Trading

KSA

KSA

Local

2006

10%

Financial Results for Affiliates and Segments for the FY 2011 (In Thousands Saudi Riyals)

Percentage contribution in Company’s Net Profit

Operating Revenue

Operating Expenses

General & Administrative

Other Income (Expenses)

Net Profit (Loss)

Company Name

Bahri (America) Inc.

23,470

(6,605)

(16,541)

(86)

238

0.1%

Mideast Ship Management Ltd.

40,665

----

(36,055)

(3,002)

1,608

0.1%

National Chemical Carriers Ltd. Co.

362,539

(210,785)

(7,439)

8,880

135,435

47%

Bahri Dry Bulk

----

----

(2,290)

(3,874)

(6,164)

(2%)

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

The National Shipping Company of Saudi Arabia

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two independent companies: The National Chemical Carriers (NCC) and Bahri Dry Bulk, in collaboration with its strategic partners in these two segments.

The Company operates through independent strategic shipping segments: oil & gas, petrochemicals, general cargo and dry bulk. The petrochemical and dry bulk cargo segments’ operations are carried out through

Gross Operating Income

(%) of the segment contribution to the total

Other Operating Expenses

Total Operating Expenses

before bunker subsidy

Gross Operating Profit

Operating Revenue Bunker Cost

Bunker Subsidy

Segment

Crude Oil & LPG Transportation

1,227,423 (661,509) (560,057) (1,221,566) 5,857 137,449 143,306

42%

Petrochemical Transportation 362,539

---

(210,785) (210,785) 151,754

---

151,754

45%

General Cargo Transportation 401,122 (139,654) (256,372) (396,026)

5,096

39,016 44,112

13%

Dry Bulk Transportation

---

---

---

---

---

---

---

---

Total

1,991,084 (801,163) (1,027,214) (1,828,377) 162,707 176,465 339,172 100%

Operating Revenue

Operating Expenses

Gross Operating Income

62%

67%

42%

18%

11%

45%

20%

22%

13%

Crude Oil & LPG Transportation

Petrochemical Transportation

General Cargo Transportation

Dry Bulk Transportation

Board of Directors Report 2011

Asset and Liability distributions over the company’s segment as on 31 December 2011 (In Thousands Saudi Riyals)

Crude Oil & LPG Transportation

Petrochemical Transportation

General Cargo Transportation

Dry Bulk Transportation Combined

Total

Assets

5,415,286

3,647,375

542,316

199,124

819,110

10,623,211

Percentage (%)

51%

34%

5%

2%

8%

100%

Liabilities

2,337,777

2,568,479

213,692

5,288

142,038

5,267,274

Percentage (%)

44%

49%

4%

0.1%

3%

100%

Assets

51% 34%

Liability

5% 2% 8%

44% 49%

Crude Oil & LPG Transportation

Petrochemical Transportation

4% 3%

General Cargo Transportation

Dry Bulk Transportation

Combined

The National Shipping Company of Saudi Arabia

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Crude Oil Transport Segment

the global market at the time of signing the charter contract. Due to the poor spot market rates during the year 2011 and their direct impact on the time charter contract rates, Bahri refrained from entering into medium- or long-term time charter contracts at low rates, pending the issuance of clear market indices. In the meantime, Bahri has devoted its best efforts to improve the relationship with its major customers, reduce the vessels speed to minimize bunker fuel consumption and aims to maximize the returns by establishing its presence in various markets and taking advantage of the timely presence of Bahri vessels in those markets.

The crude oil transport segment is the largest operating segment of Bahri. This segment operates a fleet of (17) Very Large Crude Carriers (VLCCs) in the spot market and long term contracts (time charter) basis. The risk management strategy is to balance between fixed and variable income, i.e. to benefit from the high revenue in the spot market and fixed revenue generated from time charter contracts. In 2011, (3) VLCCs completed their time charter agreements and were deployed in the spot market as a result (14) VLCCs were operating in the spot market by the end of the year 2011. Charter rates are set according to the mechanisms of supply and demand in Bahri started the operation of crude oil transportation during 1996. The company presently owns a fleet of (17) VLCCs. The total DWT capacity of these VLCCs reached (5,256,605) tons which is equivalent to about (36) million barrels of crude oil.

Facts and Figures

Number of VLCC Voyages completed during 2011 was as follows:

Percentage at the beginning of the year

Percentage at the end of the year

Number of Voyages

Vessels operating in the Spot Market

66%

80%

79

Vessels operating on Time Charter Contracts

34%

20%

28

Total

100%

100%

107

In 2011, VLCCs made 320 ports call. The main routes on which these VLCCs operated were as follows: • Arabian Gulf / Far East (45%). • Arabian Gulf / United States of America (30%). • West Africa / Far East (25%) Technology systems installed on VLCCs fleet include: • Energy-saving technology; • Electronic control system in the main operational engines.

Global VLCCs market (new construction and exit from the service): • By the end of 2011, the total number of VLCCs operating in the global market reached (575) vessels and (127) vessels are under construction. • (61) VLCCs are expected to be delivered during 2012. • (12) VLCCs are expected to exit the market during 2012 and 2013.

Board of Directors Report 2011

Main Routes for VLCCs Globally

The National Shipping Company of Saudi Arabia

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VLCC Fleet

Length (Meter)

Width (Meter)

Weight (Static Tons)

Number of Tanks

Speed (Knots)

Year of Manufacture VLCC Name

S#

Type

1

Ramlah

1996

Double-Hull

340

56

300,361

17

15

2

Ghawar

1996

Double-Hull

340

56

300,361

17

15

3

Watban

1996

Double-Hull

340

56

300,361

17

15

4

Hawtah

1996

Double-Hull

340

56

300,361

17

15

5

Safaniyah

1996

Double-Hull

340

56

300,361

17

15

6

Harad

2001

Double-Hull

333

58

302,700

17

17.1

7

Marjan

2002

Double-Hull

333

58

302,700

17

17.1

8

Safwa

2002

Double-Hull

333

58

302,700

17

17.1

9

Abqaiq

2002

Double-Hull

333

58

302,700

17

17.1

10

Wafrah

2007

Double-Hull

333

60

318,000

17

16.7

11

Layla

2007

Double-Hull

333

60

318,000

17

16.7

12

Jana

2008

Double-Hull

333

60

318,000

17

16.7

13

Habari

2008

Double-Hull

333

60

318,000

17

16.7

14

Kahla

2009

Double-Hull

333

60

318,000

17

16.7

15

Dorra

2009

Double-Hull

333

60

318,000

17

16.7

16

Ghazal

2009

Double-Hull

333

60

318,000

17

16.7

17

Sahba

2009

Double-Hull

333

60

318,000

17

16.7

Total Capacity 5,256,605

Board of Directors Report 2011

Liquefied Petroleum Gas (LPG)

bareboat charter contracts, (26) carriers are on time chartered agreements, (19) carriers operate in the spot market and additional (3) carriers are under construction. Petredec operations cover Asian, European, Caribbean and Middle Eastern markets. Over the past years, Bahri realized remarkable profits from this investment. Bahri’s share in Petredec’s net profits amounted to SAR 135.38 million in 2011, compared to SAR 36.93 million in 2010, marking an increase of 267% over the previous year. During 2011, the construction of (4) chemical carriers was completed and were delivered in June, August, September and October. Also, the (2) carriers purchased in March and April of the same year were also delivered. These vessels joined service in the pool with the (NCC Odfjell) JV immediately upon receiving their delivery. Voyages: The chemical fleet completed (100) voyages during 2011, (45) were completed by the carriers operating under the pool of (NCC Odfjell) JV and (55) voyages were completed by the carriers operating under time-charter contracts. Volume of Shipments: The total tonnage transported by the chemical carriers’ segment in 2011 reached (3.7) million tons of chemicals, oils and clean fuel shipped to destinations globally. Of the total of these shipments, (1.7) million tons were carried by the carriers operating in the pool of the (NCC Odfjell) JV and (2) million tons were carried by carriers operating under time-charter contracts.

Bahri operates in the Liquefied Petroleum Gas (LPG) segment through Petredec Co. Ltd. which was founded in 1980. This Bermuda-based company has offices in Monaco, Singapore and the Bahamas, operating exclusively in the trade and transport of LPG. In 2005, Bahri bought a 30.3% stake in the share capital of Petredec Co. Ltd. The business activity of Petredec in LPG is supported by a fleet of specialized LPG carriers, consisting of (64) vessels of various sizes, of which (17) are owned by the company, (2) carriers are on In 1990, Bahri founded the National Chemical Carriers Company (NCC) with a capital of SAR 200 million, in collaboration with Saudi Basic Industries Corporation (SABIC) with an ownership of 80% and 20% respectively. Additional funds were injected to support the expansion plans of NCC, increasing its capital to SAR 610 million by the end of 2011, shareholders’ equity to be SAR 1,079 million and total assets to be SAR 3,647 million. The National Chemical Carriers Co. Ltd., an affiliate of Bahri, currently owns (19) specialized chemical carriers, operated as follows: (9) Carriers are operating in a commercial pool arrangement with (NCC Odfjell Chemical Tankers JLT) company. (6) Carriers are chartered to the International Shipping and Transportation Co. Ltd., an affiliate of Saudi Basic Industries Corporation (SABIC). (3) Carriers are chartered to Odfjell, a Norwegian company, under a bareboat capital lease arrangement. (1) Carrier is chartered to the Saudi International Petrochemical Company (Sipchem). The purpose of NCC alliance with Odfjell in mid- 2009 is to incorporate a JV company owned equally, to commercially operate the fleet of chemical carriers’ of both companies’ in one pool to transport chemicals, vegetable oils and refined petroleum products throughout the world. This JV will enhance its presence in the global markets with a special focus on the GCC region. Successive receipt and operation of carriers in this pool confirmed the financial returns and the presence of this strategy.

Chemical Transport Segment

Main Routes for Chemical Fleet Globally:

Middle East - Far East.

Middle East – Europe.

Far East - Europe - United States.

Europe - United States - South America.

Europe - Far East.

United States - Europe - Far East.

United States - South America.

South America - Far East.

The National Shipping Company of Saudi Arabia

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Main Routes for Chemical Tankers Globally

Growth of Chemical Carriers Fleet

Capacity (Static Tons)

Description

Number of Carriers

13

574,500

Fleet at the beginning of the year 2011

6

270,000

Fleet delivered during the year 2011

19

844,500

Fleet at the end of the year 2011

Carriers under construction and expected to be delivered during 2012-2013

6

300,000

25

1,144,500

Total

Board of Directors Report 2011

Chemical Carrier Fleet-Operational and Under Construction as on 31 December 2011

Length (Meter)

Weight (Static Ton)

Number of Tanks Speed (Knots)

S#

Carrier

Year Built

Width (Meter)

1

NCC Makkah *

1995

32.2

183.10

37,500

52

16

2

NCC Riyadh *

1995

32.2

183.10

37,500

52

16

3

NCC Jubail *

1996

32.2

183.10

37,500

52

16

4

NCC Najd

2005

32.2

183.02

46,200

22

15

5

NCC Hijaz

2005

32.2

183.02

46,200

22

15

6

NCC Tihama

2006

32.2

183.02

46,200

22

15

7

NCC Abha

2006

32.2

183.02

46,200

22

15

8

NCC Tabuk

2006

32.2

183.02

46,200

22

15

9

NCC Qassim

2006

32.2

183.02

46,200

22

15

10

NCC Rabegh

2007

32.2

183.02

46,200

22

15

11

NCC Sudair

2007

32.2

183.02

46,200

22

15

12

NCC Dammam

2008

32.2

183.02

46,200

22

15

13

NCC Hail

2008

32.2

183.02

46,200

22

15

14

NCC Noor

2011

32.2

183

45,000

22

15

15

NCC Huda

2011

32.2

183

45,000

22

15

16

NCC Amal

2011

32.2

183

45,000

22

15

17

NCC Safa

2011

32.2

183

45,000

22

15

18

NCC Danah

2011

32.2

183

45,000

22

15

19

NCC Nesmah

2011

32.2

183

45,000

22

15

20

NCC Shams

Expected in 2012

32.2

183

45,000

22

15

21

NCC Najm

Expected in 2012

32.2

183

45,000

22

15

22

NCC Reem Expected in 2012

32.2

183

45,000

22

15

23

NCC Samaa

Expected in 2012

32.2

183

45,000

22

15

24

NCC Bader

Expected in 2012

32.2

183

45,000

22

15

25

NCC Fajer

Expected in 2013

36.8

228

75,000

30

14

Total Capacity

1,144,500

* The carriers (NCC Makkah), (NCC Riyadh) and (NCC Jubail) were bareboat chartered to Odfjell for (10) years with a purchase option after the third year.

The National Shipping Company of Saudi Arabia

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General Cargo Segment

Size of Shipments: The total amount of cargo carried by General Cargo fleet (RoRo) during 2011 was, (20,126) containers and (811,235) DWT of general cargo carried by 14 liner voyages. Main Route for the General Cargo Segment: The general cargo fleet operates a liner service from the US East coast and Canada to the Indian sub-continent passing through Livorno Port in Italy, Jeddah Islamic Port on the Red Sea, King Abdul Aziz Port in Dammam and Jebel Ali Port on the Arabian Gulf coast.

Bahri commenced its operation through the general cargo segment, which covers a geographical area extending from ​the eastern coast of the US and Canada to the Indian sub- continent, passing through the Mediterranean Sea, Red Sea and Arabian Gulf. This segment began its operation through Bahri offices in Dammam, Riyadh, Jeddah, Jubail, Mumbai, Livorno in Italy, and Baltimore in Maryland, U.S.A. Bahri’s focus is to expand its customer base and was awarded a contract for (3) years period amounting SAR (230) million to provide logistic services for the Ministry of Defense in the Kingdom of Saudi Arabia. Bahri is appointed as an official carrier for all the branches of the Armed Forces sectors of the Ministry of Defense, to transport cargo by sea, land and air to and from the Kingdom of Saudi Arabia.

Specifications of the General Cargo Fleet operating and under construction.

Specifications of the General Cargo Fleet operating and under construction

Weight (Static Ton)

Immersion (Meter)

Width (Meter)

Speed (Knots)

S#

Vessel

Length

TEUs

Horse Power

1

Saudi Hofuf

42,600

11.12

32.29

248.72

2,310

27,600

18

2 Saudi Diriyah

42,600

11.12

32.29

248.72

2,310

27,600

18

3

Saudi Abha

42,600

11.12

32.29

248.72

2,310

27,600

18

4

Saudi Tabuk

42,600

11.12

32.29

248.72

2,310

27,600

18

5 Hull No. 8085

26,000

9.5

32.30

225

2,500

---

17

6 Hull No. 8086

26,000

9.5

32.30

225

2,500

---

17

7 Hull No. 8087

26,000

9.5

32.30

225

2,500

---

17

8 Hull No. 8088

26,000

9.5

32.30

225

2,500

---

17

9 Hull No. 8089

26,000

9.5

32.30

225

2,500

---

17

10 Hull No. 8090

26,000

9.5

32.30

225

2,500

---

17

Board of Directors Report 2011

Main Route For General Cargo Fleet

CANADA

Livorno

Halifax

ITALY

US

New York

Dammam

Wilmington Baltimore

Shuwaikh

Savannah

INDIA Mundra

Houston

Tripoli

Mumbai

Singapore

Jeddah

Dubai

Mosaieed

Bahrain

Loading Unloading

The National Shipping Company of Saudi Arabia

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Owned and leased Containers as on 31 December 2011

Type

2011

2010

1 20ft standard container

3,118

2,835

2 20ft open-top container

328

332

3 40ft standard container

552

556

4 40ft high cube container

1,325

1340

5 40ft open-top container

146

146

6 20ft flat bed 

55

55

7 40ft flat bed

134

153

8 20ft trailers (chassis)

43

225

9 40ft trailers (chassis)

66

248

10 20ft Mafi – 30 tons

4

4

11 40ft Mafi – 60 tons

69

69

12 40ft Mafi – 80 tons

8

8

13 40ft Mafi – 100 tons

212

212

14 62ft Mafi – 80 tons

15

15

Board of Directors Report 2011

Container Yard

Bahri owns a spacious container yard in the Jeddah Islamic Port. This yard is used as a workshop to repair and store Bahri containers and related equipment. This also contributes to handle the containers to and from the vessels rapidly and speeds up the clearance of customers shipments. In line with the company’s policy to expand its activities in selected transportation segments, Bahri signed a JV agreement with the Arabian Company for Agricultural Services (ARASCO). This JV Company is specialized in transporting dry bulk cargo and has an initial capital of SAR 200 million. Bahri contributed 60% and ARASCO contributed the remaining 40% of the capital. The newly-formed JV Company is expected to start its operations of transporting wheat, corn and other dry bulk cargo during the year 2012 In 1997, Bahri established the Mideast Ship Management Co. Ltd. in partnership with a strategic specialized company in ship management services. Subsequently, Bahri acquired the share of the partner and the Company became wholly owned by Bahri. The main objective of this subsidiary company is to set-up a specialized technical management for Bahri’s vessels which applies all technical and operational standards and develops operational efficiencies. Mideast Ship Management Co. Ltd. is committed to adopt the highest quality standards, safety rules and protect the environment by following the directives issued by the International Maritime Organization (IMO) of the United Nations and the laws of different countries, wherein the Company’s vessels may call on their ports as these laws are getting stricter on an ongoing basis. This company operates in accordance with the requirements of international maritime organizations and standards of international oil companies and companies that produce and export chemicals, and other clients whose expectations continuously increases for a districted performance. Mideast Ship Management manages the company’s VLCCs, chemical tankers and general cargo vessels. Mideast Ship Management recruits the crew for the ships in accordance with the requirements of high efficiency, and seeks to train the crew

Dry Bulk Cargo Transport Segment

after obtaining the vessels of the appropriate size to the nature of this activity. The total initial investment in the newly established company amounts to SAR 656 million and is expected to increase to SAR 1,325 million during the next three years. Negotiations are currently underway with financial institutions to finance about 70% of the cost to build the first (5) vessels. Final specifications of the vessels have been approved and bids have been solicited from specialized shipyards. Negotiations are underway to award the building contracts of the requested vessels. on all new processes and devices adopted by the Company. Mideast Ship Management Company has a specialized team of dedicated captains, engineers and technicians with high technical expertise and extensive experience in the management as well as technical and administrative operation of the fleet. The total number of employees working for the Company’s vessels reached (1,182) members from (28) different nationalities, of whom (1,098) persons are employed on board the vessels and (84) employees working in the office of the Company. Those employees working in the office carry out diverse activities ranging from specialists in fleet management; engineers specializing in technical supervision; officials in procurement, recruitment and training, accountants and specialists in quality, safety and the environment. Mideast submits technical reports to Bahri on the performance and status of the vessels, fuel consumption, results of periodic inspections and recommendations in this regard. The Company also provides periodic financial reporting on operating expenses, budgeting and several other reports. Mideast is also responsible to train newcomers from Saudi sailors aboard the vessels and tankers of the Company.

Technical Ship Management

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Business Planning and Development

business segments and other support units of the Company; follow-up regarding the performance of these segments and units and to compare their performance in light of the stated goals as listed in the approved plans.

The Planning and Business Development Department of Bahri is responsible to prepare strategic plans and follow-up their implementation; do periodic planning of business development; coordinate with the Planning and Business Development Department Functions: Prepare and review the Company’s strategic plans. Monitor and implement approved initiatives. Assist in the development of new plans of implementation to ensure optimal utilization of corporate resources. Prepare action plans and key performance indicators. Follow-up on the measures of change, restructuring and exploring available opportunities in line with the approved initiatives. The Communications Department is the key link between the Company and various media, government offices and other institutions. The Communications Department has adopted several initiatives, including the project to rebrand and change company’s commercial identity, media relationship, advertising, social responsibility, corporate management events, information published by the Company’s management and other related responsibilities. The Company has set up a distinct and efficient Communications and Public Relations Department with a professional team, experienced in public relations, local and foreign media, and preparation of conferences, meetings and exhibitions locally and abroad. Monitor various corporate expansion projects to ensure their timely implementation, including coordination with partners, shipyards, marine engineers, consultants and consulting firms. Identify, explore and assess the suitability

of the proposed business in line with the strategic objectives of the Company. Assist in identifying investment opportunities and developing strategic partnerships. Communicate with all business units and assist in the implementation of the initiatives that are identified. Submit reports on financial business activities, operational costs, major competitors’ performance, forecasts and market trends in the shipping industry. Monitor performance measurement for all segments and business units prior to submittal of quarterly reports to senior management. Follow-up projects with the shipyards.

Communications and Public Relations

Memberships

Membership of the Islamic Ship Owners’ Conference.

Membership of the Saudi-American Business Council.

Achievements

Assembly meetings, management of the General Assembly activities and sorting the results of voting electronically. This is accomplished in coordination with Tadawul using “Tadwulati” software.

Implementation of a unified system for management and planning of the Company’s resources (Oracle ERP). The first Saudi joint stock company to apply the electronic remote voting system for all the items on the agenda of the General

Board of Directors Report 2011

Contributions and Participations

Participation in the preparation of the Special Report on the Public Investment Fund, which was published in “Al Eqtisadiah” newspaper.

Participation in the (Marine Money) Conference in March 2011.

Information Technology

The planning phase of the new IT system for the general cargo segment covering all general cargo activities was completed and will begin implementation early 2012. This system is expected to be finalized by the end of the year. Among the completed projects are the development of the Company’s website to keep pace with the requirements of customers, shareholders and visitors of the website and development of an intranet portal to enhance internal communications among Company employees. Special webpages were also set up for the Company on world-renowned social networking sites for the diversification and enhancement of the Company’s foreign channels for communication. Bahri’s website is considered one of the best Pan Arab websites in terms of content, design and friendly browsing.

During 2011, a study was embarked regarding the second phase of company’s Information Technology Department strategy (Manarah 2). This study covered a range of strategic projects and initiatives to provide the latest technologies and advanced applications software for achieving the desired objectives and to support all business segments of the Company. It will assist its various departments to cope with the growth and upgrade the level of services and competitive edge. Among the most important projects of that stage is the completion of the first phase of the unified system for management and planning of corporate resources (ERP) at the various levels of business segments of the Company; in addition to setting up a backup Information Center to ensure continuity of critical systems. At this stage, the information technology network of the Company has been linked to a standard international network in order to utilize consolidated common services and conduct a comprehensive update of the information technology infrastructure.

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Internal Audit and Control

The Internal Audit and Control Department has implemented several tools and programs in the control applications which led to the integration of the head office, subsidiaries and regional offices of the Company. The Department has also completed the internal audit functions for the year 2011, according to the approved audit plan. This included the review and examination of accounts and documents relating to the various offices, affiliates and branches. The Department has achieved its goals of completing those tasks, according to the audit plan, and submitted its recommendations to the Company’s Audit Committee which is directly in charge of the functions of this Department. The Internal Audit and Control Department has also implemented the Governance, Risk and Compliance Management System (GRCM), which is a component of the unified Enterprise Resource Planning (ERP) system. This systemhas contributed to the promotion and improvement of audit functions, enhanced transparency, risk control and overall control over the Company’s dealings and operations. The system also helped in converting the internal audit functions to an electronic operating system.

The Internal Audit and Control Department employs highly qualified professionals, in addition to competent and qualified technical marine personnel with experience in surveying the maintenance of vessels. The Department continues to develop the capacity of its staff and to refine their skills through the application of modern technology in the implementation of audit programs, training and access to new audit and risk analysis information. The Internal Audit and Control Department verifies that the business units and offices of the Company comply with the stated rules, standards, policies, procedures, controls, government laws and relevant legislation. The Department also develops relevant plans and projects related to risk management based on international audit standards. The Internal Audit and Control Department implemented applications for internal control systems of the Company and its affiliates. These systems aim to protect the assets of the Company, maintain and protect its accounting records against any unauthorized use, ensure the application of accounting policies, regulations and internal procedures of the Company in order to obtain reliable financial reporting.

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