Bahri Annual Report-2012

In the name of God, the Most Gracious, the Most Merciful

Contents

Board of Directors......................................................................................................................................................7 Chairman’s Message....................................................................................................................................................8 Chief Executive’s Message............................................................................................................................................10 Board of Directors’ Report...........................................................................................................................................13 Contact Details of Offices and Branches.........................................................................................................................103

Chapter I: Information about the Company and its Subsidiaries

Chapter III: Financial Statements and Operational Results

About the Company....................................................... 15 About the Subsidiaries................................................... 18 The Strategic Direction of the Company . ......................... 18 Merger of Vela Fleet and Operations with Bahri................. 19 Major Achievements in 2012........................................... 20 New Initiatives and Plans............................................... 21

Financial Results and Performance of the Company and its Subsidiaries.................................................................. 47 Financial Results for the Past Five Years........................... 48 Statement of Assets and Liabilities.................................. 49 Shareholders’ Equity...................................................... 50 Revenues of Company’s Key Business Sectors.................... 52 Distribution of the Company’s Assets and Liabilities........... 53 Subsidiaries’ Capital in 2011 and 2012............................. 54 Summary of the Subsidiaries Financial Results................... 54 Financing for the Company and its Subsidiaries................. 55 Regulatory Payments..................................................... 56 Dividends Distribution Policy.......................................... 57 Chapter IV: Disclosure and Transparency Shareholders’ Rights and Communication.......................... 61 Disclosure.................................................................... 62 Corporate Governance.................................................... 63 The Board of Directors................................................... 64 Board Committees......................................................... 67 Executive Management.................................................. 68 Conclusion................................................................... 69

Chapter II: Strategic Business Units and Support Departments

Strategic Business Units. ............................................... 25 Oil & Gas Transport Sector.............................................. 26 Liquefied Petroleum Gas (LPG)........................................ 29 Chemicals Transport Sector............................................ 30 General Cargo Transport Sector. ..................................... 34 Dry Bulk Transport Sector............................................... 38 Technical Ship Management. .......................................... 39 Planning and Business Development Department............... 39 Communication Department............................................ 39 Information Technology Department................................ 40 Internal Audit and Control Department............................ 40 Human Resource Management & Corporate Administration.. 41 Quality Assurance.......................................................... 41 Quality Policy............................................................... 42 Environment and Safety................................................. 42 Social Responsibility...................................................... 42 Finance Division........................................................... 42 Financing and Investment.............................................. 43 Risk Management.......................................................... 43 Insurance of Company’s Assets and Operational Risks......... 43

Chapter V: Financial Report

Independent Auditor’s Report......................................... 73 Consolidated Balance Sheet............................................ 74 Consolidated Statement of Income.................................. 76 Consolidated Statement of Cash Flows. ............................ 77 Consolidated Statement of Changes in Shareholders’ Equity.79 Notes to the Consolidated Financial Statements................ 80

Board of Directors

Abdullah Sulaiman Al-Rubaian Chairman

Mohammed Abdulaziz AlSarhan Vice Chairman

Saleh Abdullah AlDebasi Board Member

Nasser Mohammed Al-Kahtani Board Member

Esam Hamad Al-Mubarak Board Member

Abdullah Ali Al-Ajaji Board Member

Ghassan Abdulrahman Al-Shibl Board Member

Farraj Mansour Abothenain Board Member

Abdulkarim Ibrahim Al-Nafie Board Member

Chairman's Message

Implementation of several programs and projects by benefiting from the expertise, experience and great potential, which enhanced the company’s leading role locally, regionally and globally

On behalf of myself and my colleagues the Board Members of The National Shipping Company of Saudi Arabia (Bahri), I am pleased to present the Annual Report for the fiscal year 2012 which includes the Board of Directors’ Report containing the results of the Company’s programs, projects and various activities during 2012, and the consolidated financial statements for the year ended December 31, 2012 which shows the financial position of the Company. During 2012, the Company achieved a net profit of SAR 503,993,000, compared to SAR 287,768,000 last year, marking an increase of 75%. The year 2012 was an extension of previous years in terms of ongoing economic instability and low freight rates due to excess tonnage which is greater than demand in the global market, especially in the sector of crude oil transport. Nevertheless, thanks to God and the directives of the Company’s Board of Directors, and the efforts of its senior management and all its employees, the Company managed to confront these challenges and achieved substantial growth in profits compared to previous years. The Company has also diversified its activities which has had a significant positive impact on its financial results. Moreover, the Company has continued to distribute cash dividends among shareholders on an annual basis. In order to achieve the best returns for shareholders, the total cash dividends for the fiscal year 2012 have been set at SAR 315 million, with the approval of the General Assembly. Thanks to God, Bahri has continued to achieve many of its goals that have been planned and set by the Board of Directors in accordance with an ambitious strategy. The Company has implemented several programs and projects, benefiting from its expertise, experience and capabilities to meet its obligations efficiently. This has boosted its pioneering role locally, regionally and globally, in spite of the fierce competition and rapid changes in this field. During the fiscal year 2012, the Company has implemented many programs and projects based on its overall strategy which is focused on growth and expansion, including the following: • The Company has signed final and binding agreements with both Saudi Aramco and Vela International Marine Dear Shareholders May the peace, mercy and blessings of Allah be upon you.

(which is wholly owned by Saudi Aramco) to merge Vela’s fleet and operations with Bahri, with the approval of the Boards of Directors of Bahri, Saudi Aramco and Vela. This deal is expected to be a quantum shift in Bahri’s trajectory, enhancing its chances to continue to play its role in economic and human capital development in KSA, and to serve the customers of Bahri and Vela in an efficient and reliable manner. As such, Bahri will have the exclusive right to ship all VLCC sized crude oil cargoes produced in the Kingdom and sold by Saudi Aramco on a delivered basis pursuant to a long-term agreement. Bahri and Saudi Aramco have also concluded an agreement to explore more ways to expand their cooperation in the marine business sector. Operations are currently underway on a schedule to complete the necessary procedures to obtain the regulatory approvals in this regard. • In April 2012, the Company launched its trademark “Bahri” after three decades of accumulated experience and heavy investment in constructing a transport fleet in accordance with international standards. The Company’s new trademark reflects the creative and dynamic nature of Bahri. The business world has undergone fast and successive changes which necessitate continuous development on the part of the Company in order to keep up with the latest changes. Today, Bahri has achieved a powerful reach and capabilities which makes it one of the leading companies in its field, as well as providing integrated logistics solutions. It will be able — God willing — to meet the expectations of its shareholders and customers nationally, regionally and globally. • National Chemical Carriers Ltd. Co. (NCC) received four vessels during the year 2012, having previously contracted with ShinaSB Shipyard to build ships in South Korea. It should be noted that the Company has also contracted with Daewoo Shipbuilding and Marine Engineering (DSME) in South Korea to build a massive chemical vessel (75,000 DWT) with high specifications, valued at around SAR 247 million. This tanker is expected to start operating by the end of 2013. NCC currently owns a fleet of 23 chemical tankers.

• In August 2012, NCC signed time charter agreements for three chemical tankers with International Shipping and Transportation Co. Ltd. (a subsidiary of SABIC) for a period of five years, with an option for extension for another five year period. The DWT of the first two vessels is 45,000 while the third has a DWT of 75,000. The value of these time charter agreements for the first five years is approximately SAR 480 million. The first two vessels have been delivered to the International Shipping and Transportation Co. Ltd. while the third will be delivered upon its receipt from DSME in 2013. • During 2012, Bahri Dry Bulk Co. LLC (BDB) signed contracts with one of the world’s leading shipyards to build five Kamsarmax ships to transport dry bulk cargo. These modern ships, with a DWT of 82,000 and length of 229 meters, consume less fuel. In addition, these vessels are equipped with the latest technologies, and are designed pursuant to international regulations on environmental protection. These vessels will be received by the end of 2013 and the beginning of 2014, respectively. During this interim period, BDB has charted three vessels to transport bulk cargo in order to meet the needs of ARASCO, until the new ships are received. • In 2012, Bahri signed a Murabaha contract with the Public Investment Fund (PIF) to finance part of the cost of building two general cargo vessels, which are being built at Hyundai MIPO shipyard in South Korea. The value of the financing contract is equivalent to SAR 450 million to be repaid over 10 years from the date of receiving the vessels. It should be noted that these two vessels are part of a contract to build six general cargo vessels that

was signed in 2011. The vessels will be received in 2013 and 2014. • In March 2012, Bahri signed a contract with Qatalum for a year, with an option to renew it for another year. Pursuant to the contract, the Company shall transport large quantities of aluminum shipments from Qatar to the USA on every voyage of the Company vessels. • In 2012, a strategic cooperation agreement was signed between Bahri and Saudi Airlines Cargo Co. to transport urgent goods and equipment. This agreement shall last for three years. This collaboration will play an important role in helping to strengthen both companies in the area of air and sea freight. • During 2012, the Company attracted a significant number of qualified talented Saudi nationals to fill vacant positions at senior management levels. In conclusion, on behalf of myself and my colleagues the Board Members, I would like to express my deepest gratitude to the government of KSA, the Custodian of the Two Holy Mosques, and its institutions for their continued support. I would also like to thank the Company’s shareholders and customers for their trust and support, the Company’s executive management and all its employees for their efforts. We look forward to more success in the coming years. May the peace, mercy and blessings of Allah be upon you Abdullah Sulaiman Al-Rubaian Chairman

Chief Executive Officer’s Message

These remarkable achievements represent a great boost towards Bahri’s trajectory in achieving higher levels of excellence in the global logistic services sector. The Company is looking forward to achieve similar results in 2013 and the following years.

Dear Shareholders May the peace, mercy and blessings of Allah be upon you.

The strong growth of the National Shipping Company of Saudi Arabia (Bahri) in 2012 has been particularly significant as it has been achieved amidst a global economic slowdown as well as at a time of relatively low freight rates. This is further evidence of the Company’s successful strategy, designed to diversify its activities and meet the market’s needs. These economic impediments still persist in many economies which are influential in world trade. Nevertheless, there are some positive indicators that the global economic situation is likely to improve. In light of these changes, challenges, and opportunities, Bahri has managed to seize growth opportunities, after having deployed great efforts and thrived to become one of the largest and most diverse shipping companies in the world.

name; it rather represents a quantum leap that reflects Bahri’s achievements in terms of its development, innovation and adoption of the latest infrastructure and technologies. In this way the Company has achieved high standards in the services it offers to its customers, especially with regard to quality and safety, in order to achieve all the goals for which the Company was founded. With regard to deals and contracts signed during the year 2012, Bahri has contracted with Saudi Aramco and Vela International Marine Ltd. to merge Vela’s fleet and operations with those of Bahri. Furthermore, another agreement has been signed with Saudi Airlines Cargo Co. for three years to transport urgent equipment and goods by air. In addition to their positive impact on the Saudi economy in general, these agreements are an example of mutual cooperation between the national companies in KSA.

The Company successfully launched its new trademark in April 2012. This step goes considerably beyond a change in

In addition to the aforementioned contracts and agreements, the Company’s fleet has undergone major changes and development. Most importantly, National Chemical Carriers Co. Ltd. (NCC) has received four vessels that were built in South Korea, and another vessel with a capacity of 75,000 DWT is to be received in 2013. For its part, Bahri Dry Bulk Co. LLC (BDB) has concluded contracts to build five Kamsarmax ships equipped with the latest technologies, designed pursuant to international regulations on environmental protection. Regarding the general cargo sector, the Company is expecting to receive six new ships by the end of 2013 and the beginning of 2014 in accordance with construction contracts. The aim of this step is to replace the current fleet of four ships and achieve further expansion. These remarkable achievements represent a great boost towards Bahri’s trajectory in achieving higher levels of excellence in the international logistic services sector. The Company is looking forward to achieve similar results in 2013 and the following years.

In conclusion, I would like to express my deepest gratitude to all of the Board of Directors of the Company and my colleagues in Bahri for all their hard work as a team. I would also like to express my gratitude to the Company’s shareholders and customers for their continuous trust and support in every step we take. As I always say, “the journey continues.”

Saleh Nasser Al-Jasser Chief Executive Officer

Board of Directors' Report Chapter I Information about the Company and its Subsidiaries

About the Company

Bahri represents the advanced shipping industry in KSA. The Company’s services cover multiple markets around the world with modern ships and tankers, sailing different seas, and through multiple outlets, subsidiaries and a network of agents, which in turn helped to connect KSA with other economies. Bahri constantly seeks to develop its services and maintain high efficiency in meeting customer demands, by developing the investment strategies of the Company and its subsidiaries and thereby ensuring the best returns for shareholders.

Chapter I Information about the Company and Its Subsidiaries

Brief Historical Overview of Bahri

The National Shipping Company of Saudi Arabia (Bahri) was established as a Saudi joint stock company by virtue of Royal Decree No. M/5 on January 22, 1978. The Company’s headquarters is located in Riyadh, Saudi Arabia. Bahri is a leading company in global maritime transport. The Public Investment Fund (PIF) today holds 28.2% of the Company’s shares, whilst the remaining shares are owned by individuals and institutional investors. Bahri entered the world of maritime transport with chartered general cargo vessels. Soon after, between 1981 and 1983 the Company acquired six multi-purpose ships. The ships were used to transport general cargo, and represented the first fleet owned by the Company, which later expanded its activity by establishing NSCSA (America) Inc. in 1991. The America office serves as a general agent of Bahri and is responsible for transporting containerized, break-bulk and RoRo shipments from and to North America through the Company’s general cargo vessels. It is also responsible for managing several other tasks related to shipping services in North America. In 1985, the Company began transporting petrochemicals after acquiring two chemical tankers. The Company also established a joint venture with United Arab Shipping Company (UASC) under the name Arabian Chemical Carriers (ACC). ACC in turn acquired one of the two tankers and chartered it out to SABIC. The second tanker was also chartered to SABIC. In 1990, the Company expanded its chemical transport activity by establishing National Chemical Carriers (NCC), a joint venture with SABIC, which was dedicated to acquiring, chartering and operating chemical tankers. In 1992, the Company decided to further diversify its activities by entering the crude oil transport sector and built five VLCCs, which went into operation during 1996 and 1997. In 2001, the Company acquired four new VLCCs, expanding the fleet to nine carriers. Since then, the VLCC fleet has steadily increased and today the Company owns 17 VLCCs.

Due to the expansion of its fleet and its activities, in 1996 Bahri established Mideast Ship Management Ltd., a joint venture with Acomarit, a ship management company based in Scotland. This company provides ship management services for the vessels and tankers owned by Bahri and its subsidiaries. In 2005, Bahri took over Acomarit’s shares in the joint venture and became its sole owner. Mideast Ship Management Ltd. began providing ship management services for nine vessels and gradually expanded its operations in line with the expansion strategy of Bahri. It now manages 41 ships including chemical tankers, VLCCs, and RoRos. The fleet size is expected to increase to approximately 76 vessels by the end of 2014 which includes the Vela fleet. In 2005, the Company invested in the business of Liquefied Petroleum Gas (LPG) transportation by acquiring 30.3% of the shares of Petredec Ltd. In line with the Company’s strategy to diversify its business and increase its investments, in 2010 it announced its involvement in the new activity of the transportation of dry bulk cargo by establishing a joint venture under the name Bahri Dry Bulk Co. LLC (BDB), which is 60% owned by Bahri and 40% by ARASCO. BDB began operations in 2012; it specializes in dry bulk transportation. In 2012, Bahri was named the Best Managed Company in the Middle East in the transport and shipping sector by Euromoney. The Company is committed to full transparency in all aspects of its operations, especially with respect to the disclosure of the results of its operations. The Company adopts safety standards in all its operations, not to mention environmental protection standards. The Company is also committed to shouldering its social responsibilities, achieving constant growth, and fulfilling its mission and objectives through the implementation of successive strategic plans and the optimum exploitation of available resources.

The Company’s Vision

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

The Company’s Mission

By consistently focusing on our values and responsible business fundamentals, we shall be a leading service provider applying the best practices to run a world-class fleet, whilst building mutually beneficial relationships with all stakeholders.

Values

Driven, Relentless, Transparent, Considered.

All of the Company’s employees are committed to supporting and serving all its customers, and to fulfilling the Company’s mission to shareholders and society. Commitment

The Company’s efficiency lies in its work ethic, commitment to customers and operational credibility. Efficiency

Chapter I Information about the Company and Its Subsidiaries

List of Subsidiaries

The Company owns or holds shares in a group of companies in KSA and abroad, as shown in the following table:

Geographic Scope of Activity

Incorporation Date

Company Name

Main Activity Place of

Ownership %

Incorporation Headquarters

The Company's Agent Technical Ship Management

NSCSA (America)

USA

Global

1991

100%

Mideast Ship Management Ltd National Chemical Carriers Ltd. Co. (NCC) Bahri Dry Bulk Co. (BDB)

UAE

Global

1996

100%

Petrochemicals Transportation KSA Dry Bulk Cargo Transportation KSA

KSA

Global

1990

80%

KSA

Global

2010

60%

LPG Transportation and Trading Float Glass Manufacturing and Trading

Petredec Ltd.

Bermuda

Singapore

Global

1980

30.3%

Arabian United Float Glass Co.

KSA

Local

2006

10.9%

The Company’s Strategic Direction

The five-year strategic plan includes the following: • Receiving the remaining crude oil vessels, the number of which reached 17 VLCCs in 2009. • Optimal operation of crude oil vessels on the spot market. • Exploring markets in order to operate NCC’s fleet in an optimal manner. • Expanding general cargo operations. • Improving operational management across all sectors and units of the Bahri group. • Exploring investment opportunities for potential expansion.

During 2012, the Company has worked on enhancing its competitiveness in the global market by expanding its business, increasing its fleet and consolidating its financial and operational activities through diversifying its investments and management in an effective manner in accordance with its five-year strategic plan (2009-2013), which was approved by the Board of Directors at the end of 2008. Based on this strategy, the Company has worked on expanding its activities in the sectors of general cargo and dry bulk cargo transportation. It is also completing an expansion plan for the petrochemicals transportation sector.

Merger of Vela’s Fleet and Operation with Bahri

On June 27, 2012, Bahri and Saudi Aramco signed a non- binding memorandum of understanding to merge the fleet and operations of Vela (100% owned by Saudi Aramco) with Bahri, within the framework of a deal that would enhance Bahri’s activities and position. The Boards of Directors of Bahri, Saudi Aramco and Vela approved the merger on October 17, 2012 and the final binding agreements were signed on November 4, 2012, which required a number of regulatory approvals to enter into force. Pursuant to the agreements, Bahri will own Vela’s entire fleet, which includes 14 VLCCs, one floating storage VLCC and five product tankers. Moreover, all of Vela’s vessels and employees will be merged with Bahri in accordance with the Company’s new structure following the merger. Pursuant to the terms of the long-term shipping contract (minimum duration of 10 years), Bahri will become the exclusive provider of VLCC crude oil shipping services to Saudi Aramco for crude oil sold by Saudi Aramco on a delivered basis. Under this contract, Bahri will meet all Saudi Aramco’s future needs. To do so, the Company shall optimally operate its fleet, which will include 31 VLCCs after the merger, in addition to chartered VLCCs if needed. Saudi Aramco will continue to manage all crude oil marketing and sales directly with its customers, and Bahri will provide reliable transportation services to Saudi Aramco on competitive terms. Both companies plan to explore ways to expand their cooperation in the maritime sector. Pursuant to the agreements, Bahri will be protected in the event freight rates drop below the agreed minimum threshold. In the event freight rates increase beyond the agreed threshold (compensation limit), Bahri will compensate Saudi Aramco for the amounts it has paid when the freight rates drop below the minimum rate. Bahri and Vela have agreed to make interim arrangements to operate the VLCCs that are currently owned by

Bahri in accordance with Saudi Aramco’s program to transport crude oil through VLCCs. These interim arrangements will be enforced as of January 1, 2013, until the long-term contracts are effectuated in accordance with the merger terms. Pursuant to the agreements of the merger, Bahri will pay Vela a total consideration of approximately SAR 4,875,000,000 (equivalent to US$ 1.3 billion) in the form of a cash payment of SAR 3,122,812,500 (equivalent to US$ 832.75 million) and the issue of 78,750,000 new shares in Bahri at an agreed price of SAR 22.25 per share. Following the merger, Bahri’s total issued shares will number 393,750,000. The new shares, which will be issued to a fully-owned subsidiary of Saudi Aramco, will constitute 20% of Bahri’s capital and will be fairly represented on Bahri’s Board of Directors. Bahri also intends to finance cash payments through Sharia-compliant debt financing. The merger represents a qualitative leap for Bahri, which will substantially enhance its financial and commercial position, expand its business, and consolidate its leading role in the field of maritime transport. The merger will also achieve the aspirations of Bahri and Saudi Aramco to meet KSA’s growing needs, develop and boost the local maritime sector, localize industries and establish local supportive industrial and service sectors. The merger will be subject to several conditions, such as the approval of a Bahri extraordinary general meeting, achieving an increase in capital, and obtaining the approval of the Saudi Arabian Capital Market Authority and the Supreme Council for Petroleum and Mineral Affairs.

Chapter I Information about the Company and Its Subsidiaries

Major Achievements in 2012

• The Boards of Directors of Bahri, Saudi Aramco and Vela approved the merger of Vela’s fleet and operations with Bahri. The final agreement was signed on November 4, 2012. • Bahri signed a contract with Qatalum for one year period, with an option to renew it for another year, pursuant to which the Company shall transport significant quantities of aluminum from Qatar to the USA on every voyage made by the Company’s vessels. This contract also allows the Company to transport other aluminum shipments from Qatar to Turkey and Italy. • The National Shipping Company of Saudi Arabia revealed its new identity of “Bahri”. The project was awarded to an international consultant, specialized in branding identities and trademarks, which also determined the Company’s future strategy in this regard. • In July 2012, Bahri signed a Murabaha contract with the Public Investment Fund (PIF) to finance part of the cost of building two general cargo vessels. The financing contract is valued at SAR 450 million to be repaid over 10 years from the date of receiving the ships in equal quarterly installments. It should be noted that the vessels will be received in 2013. • The Company has sold its land located at Takasusi Street in Riyadh from which it made a net profit of SAR 10,684,412. • Bahri approved the decision of RWE Supply and Trading GmbH, which had chartered a VLCC from Bahri for three years ending on April 24, 2013, to terminate the charter agreement on April 12, 2012 and return the tanker. It was agreed that the charterer would pay Bahri a financial compensation of about USD 6,186,250 (equivalent to SAR 23,198,437) in return for its decision to terminate the contract before its expiry. This amount was paid full on April 2, 2012. • The State of Maryland, USA has granted the 16th Annual Maryland International Business Leadership Award for 2012 to NSCSA America Inc., a wholly owned subsidiary of Bahri. The Company was selected by the award review committee at the headquarters of the World Trade Institute as one of six leading companies from among 60 nominees in the State of Maryland. It should be noted there are 150,000 companies in this state. • In 2012, Bahri was named the Best Managed Company in the Middle East in the transport and shipping sectors by Euromoney. • National Chemical Carriers Ltd. Co (a subsidiary company owned 80% by Bahri and 20% by SABIC) has signed a renewable charter agreement for five years, renewable for another five years, with the International Shipping and Transportation Co. Ltd. (affiliated with SABIC) for three chemical tankers.

• NCC received four chemical tankers each with a DWT of 45,000 in May, August, September, and December 2012 from ShinaSB Shipyard, which are operated by NCC-Odfjell JV Co. based in Dubai. • NCC canceled a contract with ShinaSB Shipyard to build one chemical tanker (NCC Bader) due to a delay in the delivery of the tanker based on the rights granted to it pursuant to the contract. The contract also reserved NCC’s right for a refund of all paid installments amounting to USD 41.6 million (equivalent to SAR 156 million), guaranteed by the Export-Import Bank of Korea (KEXIM) in addition to compensation of approximately USD 7 million (equivalent to SAR 26.25 million). • Bahri Dry Bulk Co. LLC (BDB) (a subsidiary company 60% owned by Bahri and 40% by ARASCO) signed contracts to build five Kamsarmax ships with one of the world’s leading shipyards to transport dry bulk cargo. The first ship will be received by the end of 2013, and the rest shall be received during 2014. • BDB started operating to meet the demands of its customers to transport grains and other bulk cargo to KSA. This operation was carried out by chartering three ships from the global market with contracts ranging from 17 to 21 months. The company intends to charter a total of five ships and continue its operations until it receives its new ships, which are still under construction.

New Initiatives and Plans

The Company constantly seeks to improve the quality of services provided, through the modernization of its fleet, the continuous training of its employees, and enhancing its regulations and procedures. In the years 2013 and 2014, the Company expects to implement the following initiatives and plans: • To complete the merger of Vela’s operations and fleet with Bahri. • To cooperate with Saudi Aramco regarding chemicals and other fields through the aforementioned deal. • To support the oil and gas and chemicals sectors and the growing manufacturing industry in KSA, and to provide greater security in the field of maritime transport in KSA.

• To receive four general cargo vessels, one chemical tanker and one dry bulk carrier in 2013, and two general cargo and four dry bulk carries in 2014. • To continue the enhancement of the IT systems used in the Company. • To apply the ISO 9001:2008 standards in all the Company’s administrative systems.

Chapter II Strategic Business Units and Support Departments

Strategic Business Units

The strategic business units of the Company are divided according to their main activities, which are Oil & Gas Transportation, Chemicals Transportation, General Cargo Transportation, Dry Bulk Transportation and Ship Management. These divisions are operated by the company, its subsidiaries and regional offices. Oil & Gas and General Cargo divisions are managed by the Company. Bahri agent in North America, (NSCSA America Inc.) operates as an agent of the company in North America concerning general cargo transport, whereas the transportation of chemicals is managed by National Chemical Carriers (NCC). Ship management services are performed by Mideast Ship Management Ltd. Dry bulk Cargo transportation is managed by Bahri Dry Bulk. Support departments also provide necessary services to the strategic business units, as well as control and supervision in order to achieve the Company’s objectives.

Chapter two Strategic Business Units and Support Departments

The following is a breakdown of Bahri’s Business Units and its Support Departments:

Oil and Gas Transport Sector

There are indications that the demand for oil will increase, which in turn will affect the increasing demand for VLCCs. The Company expects higher demand for its vessels in light of the interim arrangements to operate the VLCCs currently owned by Bahri as part of Saudi Aramco’s oil transport program. These arrangements shall take effect starting January 1, 2013 and will continue until the long-term shipping contract comes into force in accordance with the terms of the merger agreements. The demand for the Company’s VLCCs is also expected to increase due to the limited quantity of new ships in the market and the phase-out of old ships owned by competitors. Sources indicate that the Indian, Chinese, and US markets in particular are the largest and the most important in terms of demand for VLCCs. There are other important factors not to be overlooked, such as bunker fuel prices, freight rates, new laws and legislations governing the oil shipping business, and natural and other unpredictable factors.

The oil and gas division contributes significantly to the Company’s profits. It is the largest division, and performs the transportation of crude oil through a fleet of 17 VLCCs owned by the Company, 15 of which are operated in the spot market and the other two on time charter. Each vessel has the capacity to carry approximately 2.2 million barrels, with a dead weight of about 300,000 tons. By owning this fleet, the Company is now ranked among the top eight VLCC owners in the world. During the first six months of 2012, VLCC markets benefited from higher freight rates due to the increase in demand for oil. This increased demand also resulted in long distance oil transportation, especially from West Africa and South America to East Asia, and therefore increased KSA’s oil exports. However, in the second half of 2012 the freight rates slipped due to the introduction of new tankers which increased the tonnage in the market. Given the instability of oil markets around the world, which affects time charter contracts, the Company has concentrated its business in the spot market and refrained from committing to too long or short time charter periods until the freight rates improve.

Number of voyages performed by the VLCCs during 2012 in comparison with 2011

2012

2011

Type of Operation

Number of Voyages Number of VLCCs

VLCCs operating in the spot market

VLCCs operating on time charter agreements

Total

100

107

Major Routes of the VLCCs Around the World

Shipping line trajectory

2012

2011

Arabian Gulf / Far East

23%

45%

Arabian Gulf / U.S.A.

41%

30%

South America / West Africa - East Asia

36%

25%

Crude Oil Transportation in 2012

During 2012, 174 million barrels of oil were transported by VLCCs operating in the spot market and 34 million barrels was transported by VLCCs operating on time charter agreements.

The number of crude oil barrels transported by VLCCs owned by the Company totaled 208 million, the details of which are shown below:

Crude Oil Transportation Voyages in 2012

30 Voyages to the United States to transport 62 Million barrels

6 Voyages to China to transport 11 Million barrels

24 Voyages to India to transport 48 Million barrels Total 100

40 Voyages to the rest of the world to transport 87 Million barrels

voyages to transport 208 Million barrels of Crude Oil

Chapter two Strategic Business Units and Support Departments

➢Technology Installed on the VLCCs fleet includes: • Energy-saving technology to reduce energy wastage and attain the main objective of maximizing returns. • Electronic control system in the main operational engine. • Silicon coating technology was used for parts of the ship submerged under seawater, which reduces friction and thus saves fuel consumption. During 2012, the number of VLCCs operating in the global market reached 612. It should be noted that 82 VLCCs are under construction, and 13 VLCCs were phased-out from the market. The Company ensures that its customers are highly satisfied with its oil and gas division through a credible, transparent, and diligent service evaluation. The Company seeks to be well-renowned in the global market, as well as to care for the

environment, its employees, and all parties related to the oil and gas transportation sector. The Company is always keen to develop its business in the oil and gas transportation sector, through the application of ISO 9001:2008 standards, and employing the best techniques in the oil and gas shipping industry.

Major VLCC Routes Around the World

Consumption Zone Production Zone

VLCC Fleet

Year Built

Length (m)

Breadth (m)

Weight (DWT)

Number of Tanks

Speed (knots)

No. VLCC Name

Type

1 Ramlah

1996

Double Hull

340

300,361

2 Ghawar

1996

Double Hull

340

300,361

3 Watban

1996

Double Hull

340

300,361

4 Hawtah

1996

Double Hull

340

300,361

5 Safaniyah

1997

Double Hull

340

300,361

6 Harad

2001

Double Hull

333

302,700

17.1

7 Marjan

2002

Double Hull

333

302,700

17.1

8 Safwa

2002

Double Hull

333

302,700

17.1

9 Abqaiq

2007

Double Hull

333

302,700

17.1

10 Wafrah

2007

Double Hull

333

318,000

16.7

11 Layla

2007

Double Hull

333

318,000

16.7

12 Jana

2008

Double Hull

333

318,000

16.7

13 Habari

2008

Double Hull

333

318,000

16.7

14 Kahla

2009

Double Hull

333

318,000

16.7

15 Dorra

2009

Double Hull

333

318,000

16.7

16 Ghazal

2009

Double Hull

333

318,000

16.7

17 Sahba

2009

Double Hull

333

318,000

16.7

Total Capacity (DWT)

5,256,605

Liquefied Petroleum Gas (LPG) Transportation

Entering the LPG transportation market can be considered one of the Company’s best investments. This investment was made by acquiring 30.3% of the capital of Petredec Ltd. Co. in 2005. Petredec Ltd. Co. is one of the leading companies in LPG transportation in the Asian and European markets, as well as in the Caribbean sea and the Middle East, as it operates a

fleet of 63 vessels of different sizes. The Company’s share in Petredec contributed considerably to its profits which reached SAR 143.87 million in 2012 compared to SAR 135.38 million in 2011, an increase of 6.27%. The Company has made significant profits from this investment over the past years.

Chapter two Strategic Business Units and Support Departments

Chemical Transportation Sector

data indicates that the Chinese and Indian markets in particular are the largest in terms of demand for petrochemicals. A 10% increase in demand for petrochemicals in China and a 9% increase in India are projected in the coming years. Other factors may also have an influence on the petrochemical transport trade, especially bunker fuel prices, freight rates, petrochemical prices, new laws and legislation governing shipping operations, supply and demand of petrochemical tankers, and natural and other unpredictable factors. National Chemical Carriers Ltd. Co. (NCC) is keen to employ the latest software and hardware on its tankers, and to use the latest ship management technology to ensure high levels of protection for transported cargo, tankers, the environment, its clients, and its employees. The Company also constantly seeks to improve its business in the petrochemical transport sector by applying global safety standards and employing the best techniques in the maritime petrochemical transport industry.

The chemical transportation sector has strengthened the Company’s financial position through the transport of petrochemicals by specially designed tankers operated by the National Chemical Carriers Ltd. Co. (NCC) which presently constitute a fleet of 23 chemical tankers, in addition to one tanker under construction, with a capacity of 75,000 DWT. The fleet is operated as follows: • Eleven tankers operate in a commercial pool shared between the companies (NCC–Odfjell Chemical Tankers JLT). • Eight vessels are chartered to International Shipping and Transportation Co. Ltd., a subsidiary of Saudi Basic Industries Corporation (SABIC). • Three tankers are chartered as bareboat charters pursuant to a capital lease contract with a Norwegian company named Odfjell. • One tanker is chartered to Saudi International Petrochemical Co. (Sipchem). The Company received four new petrochemical carriers in May, August, September, and December 2012 and extended its charter contract with Sipchem. The Company promoted its position in the global market, especially in the Arabian Gulf area, through the NCC–Odfjell Commercial Shipping Pool. The demand for chemicals increased in various countries around the world, which led to an increase in the demand for chemical transport. It should be noted that Asia, particularly China, played a key role in this increase in demand. This demand is expected to increase further during the coming years. Despite the uncertainty surrounding the global economy, the demand for petrochemicals is expected to grow in Asian and Middle Eastern markets. The Company therefore aims to raise its market share by increasing its focus on these regions, as

Voyages During 2012, tankers operating within the NCC–Odfjell pool, including the four tankers recently received by the Company, made 70 voyages. Tankers chartered to SABIC and Sipchem made an additional 57 voyages. In total, the NCC fleet made 127 voyages during 2012, in comparison with 100 voyages in 2011.

Number of Voyages in 2012

Number of Voyages in 2011

Type of Operation

Tankers operating within the NCC – Odfjell pool

Tankers operating under chartering contracts with SABIC and Sipchem

Total

127

100

Cargo Volume The cargo volume transported by the tankers operating within the NCC–Odfjell Commercial Shipping pool and discharged at multiple destinations around the world was approximately 2.52 million metric tons. Another 2.08 million metric tons were transported by the tankers operating under time charter contracts with SABIC and Sipchem. The total volume transported by the tankers of the chemical transport sector during 2012 was therefore 4.6 million metric tons, in comparison with 3.7 million metric tons in 2011.

Volume Transported in 2012 (million met- ric tons)

Volume Transported in 2011 (million metric tons)

Type of Operation

Tankers operating within the NCC – Odfjell pool

2.52

1.7

Tankers operating under time charter contracts with SABIC and Sipchem

2.08

Total

4.6

3.7

Chapter two Strategic Business Units and Support Departments

Major shipping routes of the petrochemical transport fleet

• USA – Far East • USA – South America • USA – Middle East • Europe – South America • South America – Far East

The company’s fleet operates in most of the world’s regions, most importantly in:

• Middle East – Far East • Middle East – Europe • Middle East – South Africa • Far East – Europe • Far East – USA

Major Ports for Petrochemical Tankers Around the World

Growth of Chemical Fleet

Description

Number of Tankers

Fleet Size (DWT)

Fleet at the beginning of the year 2012

844,500

Tankers received during 2012

180,000

Fleet at the end of year 2012

1,024,500

Tanker under construction to be received in 2013

75,000

Total

1,099,500

Chemical tanker fleet currently operating and under construction as on December 31, 2012

Length (m)

Breadth (m)

Weight (DWT)

Number of Tanks

Speed (knots)

No. Ship Name

Built Year

1 NCC Makkah *

1995

183.10 32.2

37,500

2 NCC Riyadh *

1995

183.10 32.2

37,500

3 NCC Jubail *

1996

183.10 32.2

37,500

2005

4 NCC Najd

183.02 32.2

46,200

2005

5 NCC Hijaz

183.02 32.2

46,200

2006

6 NCC Tihama

183.02 32.2

46,200

2006

7 NCC Abha

183.02 32.2

46,200

2006

8 NCC Tabuk

183.02 32.2

46,200

2006

9 NCC Qassim

183.02 32.2

46,200

2007

10 NCC Rabegh

183.02 32.2

46,200

2007

11 NCC Sudair

183.02 32.2

46,200

2008

12 NCC Dammam

183.02 32.2

46,200

2008

13 NCC Hail

183.02 32.2

46,200

2011

14 NCC Noor

183

32.2

45,000

2011

15 NCC Huda

183

32.2

45,000

2011

16 NCC Amal

183

32.2

45,000

2011

17 NCC Safa

183

32.2

45,000

2011

18 NCC Danah

183

32.2

45,000

2011

19 NCC Nesmah

183

32.2

45,000

2012

20 NCC Shams

183

32.2

45,000

2012

21 NCC Najm

183

32.2

45,000

2012

22 NCC Reem

183

32.2

45,000

2012

23 NCC Samaa

183

32.2

45,000

24 NCC Fajer

Expected in 2013 228

36.8

75,000

Total Capacity (DWT)

1,099,500

* Carriers NCC Makkah, NCC Riyadh, and NCC Jubail are chartered to Odfjell as bareboat charters for a period of ten years, under a charter party agreement which includes the right to purchase the tankers after the third year at specific prices. ** The construction contract for NCC Bader was canceled due to the delay by ShinaSB Shipyard in delivering the tanker.

Chapter two Strategic Business Units and Support Departments

General Cargo Transport Sector

The general cargo transport was the Company’s first activity; which the Company started using RoRo ships, which are best suited to transport general, break-bulk and project cargo. The Company currently operates a regular liner service from the US East Cost and Canada to ports in Jeddah, Dammam, Dubai, Mumbai and Livorno, in order to provide the best logistics services for large projects. The current four RoRo ships will be replaced by a fleet of six modern RoRo ships from the first quarter of 2013 to the middle of 2014. The new vessels have the latest technical specifications and are multi-purpose, designed to transport different types of cargoes and equipped with self- erecting cranes with a total capacity of 240 tons, designed for loading and unloading project equipment and material. These ships also have better cargo accommodation and can smoothly transport and deliver important and ultra-sensitive loads safely and easily. The Company’s business has expanded by concluding long-term contracts with important customers,

such as the contract with Saudi Ministry of Defense, and the Qatalum contract. The transportation of heavy cargo needs business specialization and a permanent presence in the market, with appropriate vessels and a specialized team which is well-trained in this field. After receiving its new ships, the Company seeks to intensify its efforts in the general cargo transport sector in order to expand its client base, enter new markets, and widen its stake in the transport of equipment for development projects in KSA, the Gulf countries, and other countries located within the geographical zone of the general cargo liner service routes.

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