Bahri Annual Report-2017

اﻟﺘﻘﺮﻳﺮ اﻟﺴﻨﻮي 2017 اﻟﺘﻘﺮﻳﺮ اﻟﺴﻨﻮي 2017 Annual Report 2017 A logistics gateway between three continents

IN NAME OF ALLAH, THE MOST GRACIOUS, THE MOST MERCIFUL

Annual Report 2017

Towards New Horizons

With the support of the government and the trust of its customers in the quality of the services it offers, Bahri is now an inspiring benchmark for other businesses to follow and a source of national pride. We are also the perfect example of what can be achieved in the Kingdom’s prosperous economy, given our roots as a small shipping firm operating multipurpose vessels.

Bahri is continuing its 40-years journey to develop into one of the world’s premier transporta- tion and logistics services companies occupying a prime position in the global maritime industry.

Yes.. we can say.. after 40 years of success: Bahri.. Towards New. Horizons

Table of contents Annual Report 2017

Section Page

Foreword by the Chairman

10 CEO Statement 12 Bahri’s Board of Directors 14 Executive summary 22 Chapter One

8 Page Foreword by the Chairman

14 Page CEO Statement

Bahri as a Company

38 Chapter Two Strategic partnerships 50 Chapter Three Results and achievements of Bahri’s Strategic Business Units 84 Chapter Four Reports from supporting departments 100 Chapter Five Disclosures and transparency 106 Chapter Six Disclosures from the Finance Department 118 Chapter Seven Assets and liabilities statement 122 Chapter Eight Members of the Board and its Committees 130 Chapter Nine Executive management 134 Chapter Ten Fleet information 140 Chapter Eleven Consolidated financial statements

Indicators and variables 18 Page Results and achievements 24 Page Our journey continues…

Financial results 32 Page

Annual Report 2017

Dear respected shareholders of Bahri,

Through the expertise of our human resources and proactive nature of our information technology infrastructure, we have achieved optimal management of Bahri’s fleet compared to our competitors. Bahri is also distinguished by its ability to optimize its carriers and ships’ route and destination planning; as a result, we managed to achieve our highest ever revenues per ship. Bahri’s success is not only reliant on leveraging the technology provided by predictive analytics applications. The company has also

We can say that Bahri’s success is a product of the collective efforts of our entire workforce and the support of our wise Saudi government, which wants to establish us as a national benchmark. We must also point to our stringent quality control system, which has become an international benchmark for the maritime transportation industry. This is because we consider quality a critical component of our corporate structure, which is supported by a team of experts. This integrated team has managed to develop Bahri’s services to new heights, culminating in an outstanding 2017 performance. In turn, this has formed the basis for radical among the biggest players in the maritime transportation sector in the medium and long term. Bahri is working towards becoming an integrated supplier of logistical services by utilizing its capabilities and developing innovative solutions that improve value for both customers and shareholders as well. We take pride in completing more than 38 consecutive years of continuous operations, and we are advancing towards further development and success by building a robust network of customers inside the Kingdom and abroad and achieving a positive Finally, I would like to thank the government of the Custodian of the Two Holy Mosques and his Crown Prince for their support. I would also like to thank Bahri’s Board of Directors for all their continued efforts in helping us achieve our objectives. Finally, I extend my gratitude to Bahri’s owners, partners and employees for their endeavors in helping the Company meet the aspirations and expectations of its shareholders and customers. We look forward to another year of success, new future prospects and further achievements. and global reputation built on quality, reliability and safety.

Foreword by the Chairman

Bahri has maintained its reputation as one of the world’s leading companies in logistics and transportation. It has contributed significantly to the development of the international transportation industry by focusing on innovation and sustained commitment to providing pioneering maritime, land and air-based services that utilizes state-of-the-art technology. Despite the substantial challenges we encountered in 2017 resulting from a volatile global market, Bahri has nevertheless followed through on its strategy of continuous expansion in line with our global competitors. Today, Bahri is the largest owner and operator of Very Large Crude Carriers (VLCCs) in the world, and is also the largest owner and operator of chemical tankers in the Middle East. The company currently owns 88 vessels, including 41 VLCCs, 36 chemical/product tankers, six multipurpose vessels and five dry bulk carriers. This is in addition to five VLCCs under construction that will be delivered through our partnership with Hyundai Heavy Industries Company (HHI). The total capacity of Bahri’s VLCCs is 1.6 million Dead Weight Tonnage (DWT), while Bahri’s chemical tankers can transport 1.3 million DWT. Our business aims to fulfill the aims and objectives of the Saudi Vision 2030, which emphasizes on the role of the private sector, investment in non-oil resources and provision of job opportunities to national talents by focusing on their skills and qualifications and encouraging them to take up high-profile executive roles in different sectors. Bahri has worked throughout the year on harnessing the power of technology and utilizing it to support our industry leadership and boost competition.The utilization of Big Data capabilities has contributed to Ongoing improvements to our Big Data capabilities,have in turn contributed to streamlined management of our fleet and more precise scheduling for our vessels.

depended on an integrated and advanced management platform that supports safety, quality and optimal structuring of cost. This is overseen by a qualified workforce equipped with the highest levels of technical knowledge, skill and management capabilities, who drive Bahri’s efforts to increase profitability and maximize return on equity. Furthermore, Bahri has implemented an integrated customer-centric plan focused on building long-term and flexible partnerships through which it can provide distinguished logistical solutions.

Abdulrahman Mohammed Al-Mofadhi Chairman

Annual Report 2017

The CEO’s message

Bahri has just completed a year characterized by prosperous leadership and success. We are a major Company that has grown to become a national symbol of pride and one of the world’s largest businesses in our sector. We are proud of the fact that we have hoisted the Saudi flag on 36 vessels that have been relaunched in line with Bahri’s objective of raising Saudi Arabia’s standing in the international maritime sector and increasing the volume and reputation of the Saudi shipping fleet and raising Saudi Arabia’s standing in the international maritime sector. We have added seven new vessels to our fleet including five VLCCs and two chemical tankers. The number of ships managed by Bahri has reached 88. In addition, we have operated 387 cargo flights and transported 785.5 million barrels of oil all over the world. To complement our business further, Bahri Logistics has launched six new and advanced multipurpose vessels and five dry bulk carriers. Bahri has increased its international presence and expanded all over the world by establishing new commercial representative offices in Europe and The importance of the maritime shipping industry is demonstrated by indicators and statistics that indicate 90 percent of commercial activity in the Kingdom occurs via the sea, especially as the country enjoys a 1,500-mile coastline. In fact, the Saudi Vision 2030 emphasizes the role of the Kingdom as a key player in the region and highlights the importance of the private sector’s role. The government is keen to reinforce Saudi Arabia’s leading position in the maritime shipping sector and issued a royal decree to offer management and operations contracts to the private sector through a public tender process. This significant shift in the way Saudi seaports operate has helped the government alleviate certain substantial costs by transferring operational control to the private sector while still increasing governmental returns to SAR4.5 billion. Bahri’s endeavors, which include forging many partnerships necessary to grow its business, have been recognized in the form of several awards this year. In 2017, the Company was honored with the Maritime Standard’s award for the USA. We plan to expand our international presence further by opening up similar offices in Asia throughout 2018.

Ship Owner/Operator of the Year and Ship Manager of the Year in addition to receiving The Lloyd’s List Ship Operator Award for South Asia, Middle East and Africa 2017. It also won the Lloyd’s List Intelligence Innovation Award for South Asia, Middle East and Africa 2017 as well as being named MEED’s 2017 Transport Company of the Year. Bahri’s list of 2017 accolades was capped off with the Indian Maritime 2017 Award for Best Shipping Line of the Year in the category of Breakbulk Heavy Lift Operator, and the Company qualified for the finals of the Environment and Safety Compliance Awards. Key partnerships established during 2017 include a joint venture with Saudi Aramco, Lamprell Plc and HHI to establish and operate an international maritime yard at the King Salman International Complex for Maritime Industries and Services; Bahri will contribute 19.9 percent of capital towards the venture, equivalent to SAR522.38 million. Bahri also signed an agreement with Bolloré Group to set up the Bahri Bolloré Logistics joint venture. Bahri owns a 60 percent stake while Bolloré owning the remaining 40 percent. The project aims to facilitate expansion in the logistics management market and tap into the fast-growing supply chain in the GCC. Additionally, Bahri inked an agreement with the Saudi Railway Company (SAR) under which Bahri Logistics will provide transportation and shipping from around the world to SAR’s hubs of operation in the Kingdom, as well as customs clearance services.

launch BahriBunge Dry Bulk Ltd. with $35 million of startup capital. Bahri will owns a 60 percent stake in the venture, while Bunge owning the remaining 40 percent. Moreover, Bahri has signed an agreement with the Lloyd’s Register’s human factors team to improve the Company’s culture of safety among our employees. This reflects Bahri’s commitment to implementing the highest standards of safety measures for workers both on board our ships and in our departments. Bahri has substantially improved its performance and operations in several areas as outlined below: - We improved our performance in the Ship Inspection Report (SIRE) Program by 12 percent. The Company concluded the year by recording the industry’s best global average of 30 percent at the Oil Companies International Marine Forum (OCIMF). - The Company became the main operator for key customers such as Saudi Aramco, S-Oil Corporation, UNIPEC, Reliance, Essar and Shell. - The Company’s performance in 2017 improved by13 percent on the Port State Control (PSC) indicator for ship inspections compared to 2016. Bahri also succeeded in committing no violations. - Bahri’s fleet has undergone 28 inspections by the US Coast Guard (USCG) throughout the year with zero negative observations recorded compared to a similar period in 2016, which saw 22 inspections resulting in three violations. We present to you Bahri’s 2017 annual report, which contains further details on all our lines of business as well as detailed statistical tables and infographics. This is to ensure we are meeting the highest transparency and governance standards which are integral components of our corporate activities. We are forging ahead by entering new areas of operations and examining fresh prospects to improve by identifying the finest technical solutions and highest safety and security standards upon which we can base our business. I would like to conclude by thanking everyone who has contributed to Bahri’s achievements, especially our government headed by the Custodian of the Two Holy Mosques and his Crown Prince together with all related organizations and their staff.

The company have entered into a joint venture with the Dutch firm Koninklijke Bunge B.V. (Bunge) to

Abdullah Aldubaikhi Chief Executive Officer

Annual Report 2017

Bahri’s Board of Directors

Bahri is committed to applying corporate governance principles as stipulated in Saudi trade and investment regulations. This includes electing a board consisting of nine members and a chairman. The responsibilities of the board are mainly of a directional and supervisory nature and involve developing the general strategies for the Company, managing risks, ensuring Company effectiveness and approving budgets and fiscal policies. The board of directors is responsible for representing the Company in the General Assembly of Shareholders in accordance with the appropriate statutes, laws and regulations in addition to monitoring the Company’s performance and the work of the executive management. It also formulates policies that gover stakeholder relations and protecting their interests.

Dr. Ghassan Abdulrahman Al-Shibl Board Member

Saleh Abdullah Al-Debasi Board Member

Ibrahim Qassim Al-Buainain Board Member

Ahmed Ali Al-Subaey Board Member

Dr. Abdulmalik Abdullah Al-Hogail Board Member

Khalid Mohammed Alaraifi Board Member

Khalifa Abdullatif Al-Mulhim Board Member

Abdulrahman Mohammed Al-Mofadhi Chairman

Mohammed Abdulaziz Al-Sarhan Vice Chairman

Annual Report 2017

Executive Summary

2017

Annual Report 2017

Executive Summary

Bahri Oil

Bahri Chemicals

Bahri Oil

Bahri Chemicals

41 VLCCs owned by Bahri 5 5 VLCCs from Hyundai Samho Heavy Industries (HSHI)

Bahri Chemicals’ fleet of ships increased in 2017 12 35

– – Bahri Chemicals achieved massive growth in 2017. The fleet that operates under its commercial department increased from 24 to 35 vessels. The increase in ship numbers, achieved via strong and long- term partnerships, resulted in a large rise increase in business and revenue volume over the year. – – Bahri Chemicals succeeded in delivering outstanding performance compared to its competitors. It focused on improving the volume and optimization of its fleet. Efficiency was improved by securing a firm foothold in certain operations such as transporting clean oil and vegetable oil products. This in turn enabled us to add new trade routes and ensure tankers were loaded on their return to loading terminals. – – Bahri Chemicals worked on increasing its international presence by establishing new commercial representative offices outside the Middle East, mainly in the US; the Company plans to establish a presence in Asia during 2018. – – Daily fuel savings of around five tons per ship were achieved through a wide range of initiatives that have been implemented over the last few years that aimed to reduce overall fuel consumption. – – The Company’s IMO2-type fleet has been developed while cargo growth has been boosted. The Company has also focused on diversifying the types of assets used – including stainless steel ships that will fulfill the various logistical needs of customers by being able to ship a wider range of products.

– – Bahri Oil succeeded in adding five recently built VLCCs to its fleet this year, increasing the number of ships we own to 41 that all feature advanced marine technology and the capacity to minimize fuel consumption. – – Bahri Oil’s fleet growth continued promisingly in 2018, when five new VLCCs that are being currently built by Hyundai Samho Heavy Industries (HSHI) and due for completion within the first half of the year will be added to the fleet, increasing the total number of ships to 46. – – The fleet expansion contributed to the implementation of the Company’s diversification strategy, which in turn has enabled the development of the customer base in 2017 and the introduction of new trade routes. – – The Arab Petroleum Investments Corporation (APICORP) Bahri Oil Shipping Fund has achieved considerable progress with regard to discussions it held with local, regional and international banks. The first investment fund is expected to be completed in 2018 and will help in the process of acquiring five VLCCs. – – The new quality standard ISO 9001:2015 has been approved and implemented in our business which constitutes an important transformation and key milestone in quality management. – – The world’s maritime transport industry has recognized the achievements of Bahri through two awards from the Maritime Standard and the Lloyd’s List for Best Ship Owner/Operator of the Year and Best Marine Transport Company of the Year. Other awards included MEED’s 2017 award for Transport Company of the Year. – – In coordination with the Saudi Public Transport Authority, Bahri has hoisted the Saudi flag on 31 of its VLCCs and five product carriers.

Secured a firm foothold in other areas of operations such as transporting clean oil and vegetable oil products

Established more commercial representative offices outside the Middle East; the Company aims to establish a presence in Asia over 2018.

APICORP Bahri Oil Shipping Fund

The new quality standard ISO 9001:2015

Focused on improving the volume and utilization of its fleet

has been approved

Annual Report 2017

Executive Summary

Bahri Logistics

Bahri Dry Bulk

Bahri Logistics

Bahri Dry Bulk

– – Bahri Dry Bulk worked towards improving its fleet capabilities by adding four new vessels designed according to the latest international technical specifications. These will be delivered by 2020 according to an agreement signed with Hyundai Mipo Dockyard (HMD) – – The Company completed an initiative launched in 2016 that aimed to acquire a greater market share in the region by attracting new customers and increasing the volume of bulk needed to be transported to 5 million tons – a 25 percent increase compared to last year. – – A joint-venture agreement was concluded with the Dutch firm Koninklijke Bunge B.V. (Bunge), with Bahri owning a 60 percent stake and Bunge owning the remaining 40 percent. As a result, BahriBunge Dry Bulk Ltd. is launched with $35 million in capital investment. – – BahriBunge Dry Bulk Ltd. is launched to serve all customers in the region.

– – The Company entered into a joint venture agreement with Bolloré Group under the name of BahriBolloré Logistics, with Bahri owning a 60 percent stake in the joint venture and Bolloré owning the remaining 40 percent. The project aims to facilitate expansion in the logistics management market and tap into the fast-growing supply chain in Saudi Arabia and the GCC. – – The Company also inked an agreement with the Saudi Railway Company (SAR) under which Bahri Logistics provides transportation and shipping along with customs clearance services from around the world to SAR’s hubs of operation in the Kingdom. – – Alexandria Port has been added to the Company’s portfolio of ports in Egypt and will act as a new direct port call. This will allow Bahri to offer breakbulk and roll-on/ roll-off transportation services on its North American schedule. – – The company has been restructured with new departments introduced that contribute to delivering high-quality logistical services in addition to the acquisition of the ISO 2015 certificate that will complement the ISO 2009 certificate. – – The Company acts as the exclusive carrier for the Saudi Ministry of Defense and the Ministry of Interior. – – The Company signed cooperative agreements with partner carriers including Höegh Autoliners, Liberty Global Logistics and Rickmers-Linie.

2020 The contract with HHI will provide new vessels designed according to the latest international specifications for Bahri Dry Bulk’s fleet 5 The Company acquired a new target market share and increased transported cargo volume to 5 million tons Million Tons

Signed a joint venture agreement with Bolloré Group under the name of “BahriBolloré Logistics”

Concluded an agreement with the “Saudi Railway Company (SAR)”

Bahri’s stake in the “BahriBolloré Logistics project” 60% Added Alexandria Port to the Company’s portfolio of seaports in Egypt

Bahri – Bunge

The Companyv has facilitated commercial management of dry bulk carriers and helped customers in transporting cargo around the world to and from the region.

Annual Report 2017

Executive Summary

Bahri Ship Management

Bahri Data

Bahri Ship Management

Bahri Data

BRISO The Company developed integrated system operations for its “BRISO” platform

36 vessels were relaunched and flew the Saudi flag 36 30% Performance on the ship inspection report (SIRE) program improved and a rating of 30 percent was achieved. The Company passed the DNV- GLISM checks and achieved an ISO merit in the new audit system. 13% on the Port State Control (PSC) indicator for ship inspections compared to the 2016 average

– – Work was completed on integrating system operations for Bahri Data’s BRISO (Bahri Resource Integrated Sea Operations) platform, which integrates various streams of information related to business shipping. – – In 2017, the Company worked with Bahri ship management and other stakeholders to conduct audits based on data about operations and reducing operational costs. This data analysis led to a decrease in costs in four key areas – warehouse management, cruise control, maintenance, and crew. – – The Company developed a new marine application named “Safe Seas” in cooperation with DNV GL, a global quality assurance and risk management Company. The application improves marine safety, security, quality and compliance with the industry’s global regulations. It was exhibited at Bahri’s Big Data Forum held in November 2017.

– – Seven ships have been added to Bahri Ship Management’s fleet including five VLCCs and two chemical tankers. The number of ships under Bahri’s technical management has increased to 85. – – Periodic maintenance of dockyards hosting nine VLCCs and six chemical tankers was carried out throughout the year; the Company carefully planned the docking and maintenance of ships to be completed within the shortest time possible without affecting quality or customer service. – – The Company relaunched 36 ships and hoisted the Saudi flag on them. This reflects our commitment to boosting the Kingdom’s position in the world’s maritime sector and increasing the capacity and international reputation of the Saudi fleet. – – 11 employees from the Saudi Public Transport Authority were trained at our offices in Dubai as well as 15 trainees from the Maritime Consulting Center in Dammam (affiliated to the Saudi Ports Authority) as part of the Company’s initiative for supporting the maritime industry in the Kingdom. – – The Company won the Maritime Standard’s award for Ship Manager of the Year in addition to the Lloyd’s List’s Ship Operator Award. It also qualified for the finals of the Environmental and Safety Compliance Awards. – – Performance in the Ship Inspection Report (SIRE) program increased by 12 percent. The Company concluded the year with a 30 percent rating that was better than the industry’s global average at the Oil Companies International Marine Forum (OCIMF). – – The Company recorded a performance increase of 13 percent on the Port State Control (PSC) indicator for ship inspections Compared to the 2016 average, with no violations recorded. Our fleet has also undergone 28 inspections by the US Coast Guard (USCG) throughout the year with no negative observations. – – The company has passed DNV-GLISM checks and achieved an ISO merit in the new audit system.

7 vessels were added to “Bahri Ship Management’s fleet”

+ 6 9

Periodic maintenance of nine VLCCs and six chemical tankers were carried out during the year Authority were trained at the Company’s Dubai offices 11 11 employees from the Saudi Public Transport

Audits based on data about operations and reducing

operational costs were conducted Safe Seas A new marine application named “Safe Seas” was developed in cooperation with DNV GL, a global quality assurance and risk management Company. Application

15 employees from the Maritime Consulting Center in Dammam were trained as part of an initiative to support the maritime sector. 15

Annual Report 2017

1 Chapter One

Bahri

Company Overview Vision, Mission and Values Main Services and Operations Awards and Honors

26 26 28 30

Annual Report 2017

Bahri

ENDLESS HORIZONS

Annual Report 2017

Bahri

Company Overview

Main Sectors

Bahri, the National Shipping Company of Saudi Arabia,was established by Royal Decree no. M/5 as a public shareholding Company listed on the Saudi Stock Exchange (Tadawul) on January 22, 1978 The Saudi Public Investment Fund (PIF) holds a 22 percent ownership stake and Saudi Aramco Development Company (SADCO) holds 20 percent.

Since its inception four decades ago, Bahri has grown from a small shipping firm operating multipurpose vessels to becoming one of the largest transportation providers in the world and today occupies a leading position in the global consecutive years of continuous operations and aim to facilitate further development and success as well as building a robust network of customers inside and outside the Kingdom. Our target is to achieve a far-reaching and unrivaled reputation for quality, reliability and safety that supports our status as one of the world’s largest owners and operators of VLCCs. maritime industry today. This year we take pride in completing more than 38

Through its commitment to innovation and applying best practices across all areas of its business, Bahri has been able to stay at the forefront of the maritime industry throughout its operational history while diversifying its business operations and expanding into new markets to support its position as a global transportation and logistics leader.

Bahri is one of the world’s foremost logistics and transportation companies. Established as the national shipping carrier of Saudi Arabia, Bahri has played a leading role in the transformation and growth of the global shipping industry through a special focus on innovation and commitment to delivering technology- driven and value-added onshore, offshore and aviation-based services. As one of the largest providers of maritime services globally,Bahri structures its operations around six key business units – Bahri Oil, Bahri Chemicals, Bahri Logistics, Bahri Dry Bulk, Bahri Ship Management, and Bahri Data.

Vision

Mission

Values

1 2 3 4 5 6

Connecting economies, share prosperity and drive excellence in global logistics services.

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

- Driven - Relentless - Transparent - Considerate

Oil

Chemicals

Logistics

Dry Bulk

Ship Management

Data

Annual Report 2017

Bahri

Economic Services and Activities

Destinations and Network of Agents

By focusing on its core values along with responsible business strategies, Bahri is committed to boosting the reputation of the Kingdom of Saudi Arabia as a gateway to three continents in the field of logistics. Bahri contributes effectively to the realization of the Saudi Vision 2030 by constantly delivering high-value services and expanding its presence around the world.

With its extensive network of agents, Bahri provides services across continents, reaching from the Middle East, Africa and Asia to Europe and the US. Bahri is the world’s largest owner and operator 11.6 Million DWT Bahri’s VLCC fleet capacity

of VLCCs with a total capacity of 11.6 million DWT, and is the largest owner and operator of chemical tankers in the Middle East with a fleet capacity of 1.3 million DWT.

Bahri provides a number of services that support local and global industries and investments including the transportation of crude oil, oil products, chemicals, dry-bulk, general and breakbulk cargo, and ship management.

In 2015, Bahri established the Bahri Data subsidiary as part of its efforts to diversify its business, further strengthening its position as a leading Company that makes informed decisions in the maritime sector based on accurate and reliable data. The Company tailors its services according to the needs of its customers, starting from generating the highest value for third party companies to building specially designed ships that provide integrated transportation services locally and globally.

1.3

Bahri’s Fleet and Carriers Around the World

Bahri’s chemical tankers fleet capacity Million DWT

Bahri is the largest owner and operator of VLCCs in the world and the largest owner of chemical tankers in the Middle East. The Company’s fleet currently comprises 88 vessels in different sectors – 41 VLCCs, 36 chemical and oil tankers, six multipurpose vessels and five dry bulk carriers. This is in addition to five VLCCs and four dry bulk carriers under construction and awaiting delivery.

88 vessels in different sectors

26 Thousand DWT Bahri Logistics’ fleet capacity

0.40 Bahri Dry Bulk’s fleet capacity Million DWT

41 VLCCs

36 Chemical and product tankers

6 Multipurpose vessels

5 Dry bulk carriers

5 VLCCs under construction and awaiting delivery

4 Dry bulk carriers under construction

Annual Report 2017

Bahri

Bahri’s Awards and Honors

– – Bahri, the global leader in transportation and logistics services, has received four prestigious awards in recognition of its exemplary business activities and perseverance in developing the maritime transportation sector over 2017. • The Lloyd’s List Ship Operator Award for South Asia, Middle East and Africa 2017. • The Lloyd’s List Intelligence Innovation Award for South Asia, Middle East and Africa 2017. • MEED’s 2017 Transport Company of the Year award. • The Maritime Standard award for Ship Owner / Operator of the Year. These awards reflect the Company’s success in fostering a positive workplace culture, its success in implementing innovative practices and achieving the highest standards of customer service. This is in accordance with the ambitious national visions and strategies developed by Bahri. These awards emphasizes the Company’s determination to be a leader in determining the future of the maritime sector with an informed vision and effective innovation. Moreover, Moreover, they justify Bahri’s dedication to attracting and continue developing and delivering exemplary services.

The Lloyd’s List Intelligence Innovation Award For 2017

Annual Report 2017

Bahri

Bahri’s Awards and Honors

The Maritime Standard TMS award for Ship Owner / Operator of the Year For 2017

Annual Report 2017

Bahri

Bahri’s Awards and Honors

The Maritime Standard TMS Award for Ship Manager of the Year For 2017

Annual Report 2017

Bahri

Bahri’s Awards and Honors

MEED’s Transport Company of the Year For 2017

Annual Report 2017

2 Chapter Two

Strategic Partnerships

Bahri’s Strategy and Saudi Vision 2030 Bahri’s Ras Al-Khair Partnership

42 46

Annual Report 2017

Strategic Partnerships

Sustained Growth Continuous Development

Annual Report 2017

Strategic Partnerships

Strategy

The National Shipping Company of Saudi Arabia, Bahri, works in accordance with a five-point strategy that shapes its investment and growth vision for the logistics and transportation services sectors, both in the local and global markets. This strategy can be outlined as follows:

Growing and developing businesses to increase revenues. Developing the Company into a global provider of logistics services. Achieving a leadership position in providing logistics services in the Kingdom. Diversifying Bahri’s revenue base through expansion in logistics operations. Creating added value for the Kingdom, shareholders and staff.

Annual Report 2017

Strategic Partnerships

Bahri’s Strategy and Saudi Vision 2030

Bahri developed its five-point strategy in 2017, in line with the Kingdom’s objectives. This strategy also aims to realize the Saudi Vision 2030 through participation in national efforts to develop the logistical services sector via effective partnerships with global logistics leaders. The Company also plans to partner with a group of investors in a project to develop the free industrial zone overlooking the Red Sea, in turn boosting the capability to drive further macroeconomic benefits for the Kingdom and enable optimal utilization of its geographic location. In turn, this will allow the country to secure a large share of the maritime transportation market. The Red Sea project is a strategic center for shipping and a promising industrial zone that can be a pillar for the marine transportation and shipbuilding industries, especially with the construction of the first shipyard in the Kingdom that will support the shipbuilding and heavy metals industry.

The Saudi Vision 2030 was announced by HRH Crown Prince Mohammed bin Salman, Minister of Defense, Chairman of the Council of Economic Affairs and Development, and Chairman of the Public Investment Fund (PIF); and approved by Custodian of the Two Holy Mosques King Salman bin Abdulaziz. It has laid the operational basis for the maritime industry while highlighting the Kingdom’s role as a key player in the region, especially with its coastline of more than 1,500 miles. Great importance has been placed on this sector, resulting in the development of many national strategies and plans. As the loads of commercial ships increase and global transportation traffic expanded, the Kingdom has started to increase its businesses in this vital sector by building modern ports supplied with the latest equipment and capacities to provide the best services to customers. The government had previously entirely financed the operations of Saudi ports. However, a royal decree was issued to procure the ports’ jetties, equipment, and operations and offer these assets to the private sector on a lease basis through a public tender process. This major transformation in the way Saudi ports operate led to a transfer of such costs from the government to the private sector and increased government’s returns on seaport operations to more than SAR4.5 billion.

A result of this restructuring is the establishment of the Red Sea Gateway Terminal, which acts as Saudi Arabia’s latest state-of-the-art container terminal. It was developed through a prosperous Saudi-Malaysian venture as well as local and global capital investments. It is the first private sector venture in transportation and is in line with the Saudi Vision 2030’s aim to engage the private sector in driving the Kingdom’s economy. As the Kingdom started adopting a new approach towards managing its economic affairs and facilitating sustainable development in accordance with the Saudi Vision 2030 and the National Transformation Program (NTP), attention again turned to Saudi seaports due to the important role they are expected to play in the country’s ongoing economic diversification. The Vision 2030 is based on certain key pillars, among which is Saudi Arabia’s strategic geographical location as a key global gateway and hub that connects three continents while being surrounded by the most important marine channels. Therefore, Saudi seaports will have many responsibilities and challenges ahead. They are succeeding especially as Saudi Arabia’s ranking in the Logistics Performance Index (LPI) increased from 49 to 25 globally and first regionally.

90% of the Kingdom’s imports and exports are delivered through maritime routes

Annual Report 2017

Strategic Partnerships

Bahri’s Strategic Partnership at Ras Al-Khair Industrial City

Bahri, has invested around SAR3 billion in the King Salman International Complex for Maritime Industries and Services and holds a stake of 19.9 percent worth SAR522.38 million. Its partners’ shares in the project are worth SAR2.625 billion, with Saudi Aramco holding 50.1 percent, Lamprell Plc 20 percent and HHI 10 percent. Partners’ Stakes In May 2017 Bahri concluded a joint venture with Saudi Aramco, Lamprell Plc and HHI for the establishment and operation of an international maritime yard in the King Salman International Complex for Maritime Industries and Services at Ras Al- Khair Industrial City, which is situated by the coastline of the Arabian Gulf in the northeast of Saudi Arabia. This cooperation is in line with Bahri’s commitment to realizing Saudi Vision 2030. It will contribute to economic diversification and increase the country’s gross domestic product over the long-term. It will also develop local industry and the services sector while supporting the transportation and logistical services sectors. Furthermore, it will create thousands of new and sustainable job opportunities and nationalize expertise related to the maritime industries. This strategic agreement aims to leverage increasing demand for services and maritime industry services in the region, by providing competitive and high-quality solutions designed in line with

international standards. Saudi Aramco has also signed other key partnerships including a preliminary agreement to build the first Saudi-built offshore drilling platform designed in line with world- class standards by 2019, as well as the first domestically-produced VLCC sailing around the world by 2021. Initial production of the complex is expected to start in November 2018. This will be followed by operation of the drilling equipment in February 2019, shipyard in 2020 and maintenance and renovation area in 2021. Total production capacity will be completed by 2022.

King Salman International Complex for Maritime Industries and Services - Ras Al-Khair

Bahri’s stake

19.9% SAR-522.38 Million

10%

20%

50.1%

The total cost of the project is SAR-3 billion Bahri’s partners’ financial contribution is SAR-2.625

Annual Report 2017

Strategic Partnerships

Project Goals

The King Salman International Complex for Maritime Industries and Services at Ras Al-Khair aims to: • Facilitate and benefit from rapidly growing maritime production in the Kingdom. • Diversify economic income sources. • Build local manufacturing and designing capabilities. • Develop global competitiveness and provide cutting edge products and services in the region.

Profile & Industrial Strategy

The King Salman International Complex for Maritime Industries and Services covers five square kilometers and runs for four kilometers along the eastern coastline of Ras Al-Khair. It is composed of four operational zones comprising seven dry docks and 17 berths.

The Fourth Zone

The First Zone

The Second Zone

The Third Zone

This zone is dedicated to marine works, and has an annual production capacity of 11 fixed offshore platforms and 4 more drilling platforms. The zone comprises a dry dock for building drilling equipment with a lifting capacity of up to 10,000 tons.

Responsible for repairing and maintaining ships and drills. It consists of three dry docks, 12 anchorages and fully equipped workshops for all maintenance and renovation works, with a capacity of over 15 drills and 130 ships a year, including VLCCs.

Responsible for repairing and developing marine support vessels. It has a production capacity of 25 vessels and can repair 115 marine support vessels a year. This zone will comprise nine anchorages in addition to fully equipped workshops for repairing ships.

The Complex’s largest zone handles commercial shipbuilding. It has the capacity to build all kinds of ships using the latest production methods, and comprises three dry docks and six fully equipped anchorages. The annual production capacity is three VLCCs and 15 commercial ships.

Annual Report 2017

3 Chapter Three

Results and Achievements of Strategic Business Units

Bahri Oil Bahri Chemicals

54 60 66 70 74 80

Bahri Logistics Bahri Dry Bulk Bahri Ship Management Bahri Data

Annual Report 2017

Strategic Business Units

This year has been characterized by many achievements, partnerships and new opportunities in regional and global maritime industries. Bahri’s six divisions worked on developing their respective businesses in line with Company’s strategy of expansion into new operational areas and delivering unparalleled services to its customers. The following pages offer insights on some of the key achievements of Bahri and its subsidiaries :

Annual Report 2017

1 3

Strategic Business Units

Bahri Oil

Annual Report 2017

Strategic Business Units

VLCC voyages based on itineraries for 2016 – 2017

Bahri Oil 1

150

Fleet expansion enhances efficiency, customer focus

120

Bahri Oil is the world’s largest crude oil transporter with an owned fleet of 41 vessels and annual dead weight tonnage (DWT) capacity of nearly 13 million tonnes as of December 31, 2017 and is still growing. The quality of our vessels and our services, along with our competitive pricing, make us the natural partner of choice for our customers, the top oil producers in the world. Though 2017 was a challenging year because of fluctuations and uncertainties in the Our fleet growth will continue well into 2018. HSHI will deliver five more newly built VLCCs during the first half of 2018, bringing the total number of our owned vessels to 46, strengthening Bahri’s position as the largest independent VLCC owner and operator in the world. These vessels will further improve Bahri’s fleet efficiency and financial performance by optimizing bunker consumption. The fleet expansion also serves our diversification strategy, enabling us to grow our customer base from 2017 and add new geographic routes to Bahir Oil’s fleet More growth in 2018

crude oil market, Bahri Oil continued to maintain its leadership position in the global VLCC market in terms of volume. The challenges of the year were primarily triggered by the cuts in oil production and the continued expansion of the global trading fleet. We added five newly built VLCCs to our fleet in 2017, taking the number of our owned vessels to 41. The new vessels boast state-of-the-art quality in terms of advanced marine technology and significant reduction in fuel consumption. Hyundai Samho our portfolio. We won two new and reputable customers in the Atlantic market during the year. Our existing customers also benefited from the availability of Bahri vessels in the US Gulf to take advantage of the US crude oil export program. Our vessels lifted 10 backhaul cargoes from the US Gulf during the year. Bahri performed a total of 387 voyages during the year, transporting 785.5 million barrels of oil around the world. Cargoes originating from the Arabian Gulf comprised 63

Heavy Industries (HSHI) built the ships at the company’s ship building base in South Korea. The introduction of additional new ships helped us to improve our fleet’s operations efficiency, delivering a lower average bunker consumption rate and offering a greater degree of optimization opportunities. An expanded fleet also enabled us to reduce our dependence on spot market tonnage, resulting in improved margins.

The Arabian Gulf The US

The Arabian Gulf Yanbu

The Arabian Gulf Ain Sukhna

Yanbu Ain Sukhna

Ain Sukhna Yanbu

The Arabian Gulf Okinawa

Sidi Kerir Rotterdam

The Arabian Gulf Rotterdam

The Arabian Gulf Onsan

Yanbu Onsan

The Caribbean India

The Caribbean Singapore

The Caribbean China

West Africa China

UKC Singapore

percent of the total voyages while the balance originated from the Red Sea, Mediterranean, West Africa, Brazil, US Gulf and Caribbean regions. We also continued our strategic efforts to increase our voyages to the East. Bahri undertook 39 voyages for Charter Ownership Agreement Customers (COA) during the year.

Comparison of the number and percentage of VLCC’s voyages in 2016 - 2017

Operation Type

2016

2017

No. of VLCCs

Ras Tanura to the USA Ras Tanura to Yanbu Ras Tanura to Ain Sukhna Yanbu to Ain Sukhna Ain Sukhna to Yanbu Ras Tanura to Okinawa, Japan Sidi Kerir to Rotterdam Ras Tanura to Rotterdam Ras Tanura to Onsan, South Korea Yanbu to Onsan, South Korea The Caribbean to India The Caribbean to Singapore The Caribbean to China

132

84 77 46 58

64 39 71

387 785.5 63% 37% 39% voyages undertaken during the year million oil barrels of voyages were from the following voyages were made from the

1 4

of voyages were oil shipments from Ras Tanura

27 10 27 20 11 6

transported around the world

regions: The Red Sea The Mediterranean Sea West Africa Brazil The American Gulf Coast The Caribbean

Arabian Gulf and the Red Sea to the Far East

17 10

West Africa to China

The North Sea (Rotterdam) to Singapore

Total Voyages

442

395

Annual Report 2017

Strategic Business Units

Bahri Oil 1

Backhaul voyages

NPS performance

We adopted the new ISO 9001:2015 quality standard in 2017. This transition is a significant quality management milestone for us as the new standard has a stronger focus on the customer – as was evident from our outstanding 2017 Net Promoter Score (NPS) results. Bahri Oil’s NPS survey for the year was split into

two sections, with different sets of questions addressed to customer executives and operations staff. The higher scores (see table below) show that Bahri’s success in providing high quality and cost-effective services to its customers are being acknowledged and rewarded.

The number of backhaul voyages carried out by Bahri vessels rose from 55 in 2016 to 60 in 2017. This was due to the increased utilization of Bahri vessels on the AG West route which meant greater availability of owned vessels in the backhaul market. In particular, the number of voyages serving Indian customers increased significantly, from 19 in 2016 to 26 in 2017.

This improvement in backhaul voyages had another positive impact on our overall fleet utilization because of the shorter return ballast voyage from India in comparison with Singapore or China. Bahri’s spot vessel requirement fell from 144 in 2016 to 84 in 2017, as our newly acquired VLCCs reduced spot market needs. The reduction in global oil volumes also contributed to the fall

in spot demand. Bahri negotiated three Charterg in Agreements with reputable VLCC owners and operators at agreed discounted rates.

2016 2017

Executives Operations

9.0 8.6

9.8 9.3

ABOSF

Other achievements

The APICORP Bahri Oil Shipping Fund (ABOSF) made considerable progress in 2017 in discussions with a number of local, regional and international banks to raise finances to invest in new VLCCs. The first investment fund under the agreement will be finalized in 2018, enabling us to acquire up to five VLCCs, which will be owned by the

ABOSF and managed and operated by Bahri. Bahri and the Arab Petroleum Investments Corporation (APICORP) signed the agreement to establish ABOSF in 2016.

At the annual Bahri Oil Transportation Forum held in Dubai during the Bahri Oil week in November 2017, we brought together industry leaders for a dicussion on “tanker market opportunities and challenges”. The event was a great success with a majority of the large tanker owners, operators and brokers getting together to exchange thoughts and views on our industry. Once again, the global industry recognized Bahri’s achievements in 2017 by bestowing the most prestigious Maritime Standards and Lloyds List awards. These included the Ship Owner/Operator of the Year, the Shipping Company of the Year and the Transport Company of the Year award from MEED. In coordination with the Public Transport Authority (PTA) of Saudi Arabia, Bahri raised the Saudi flag on 31 of its VLCCs and five product tankers. Bahri is committed to supporting Saudi Arabia’s drive

to strengthen its maritime fleet in partnership with the private sector, reinforcing the Kingdom’s established position in the oil industry in particular and the maritime transportation industry in general. This will contribute to the transformation of the Kingdom as the most important and largest logistics hub in the region, as envisioned in Saudi Vision 2030. The increase of the national flagged fleet will contribute to increasing the volume of bilateral maritime trade between the Kingdom and other global economies, in addition to creating a positive impact on the continued growth of the maritime transport sector in the Kingdom and the region.

Page 1 Page 2-3 Page 4-5 Page 6-7 Page 8-9 Page 10-11 Page 12-13 Page 14-15 Page 16-17 Page 18-19 Page 20-21 Page 22-23 Page 24-25 Page 26-27 Page 28-29 Page 30-31 Page 32-33 Page 34-35 Page 36-37 Page 38-39 Page 40-41 Page 42-43 Page 44-45 Page 46-47 Page 48-49 Page 50-51 Page 52-53 Page 54-55 Page 56-57 Page 58-59 Page 60-61 Page 62-63 Page 64-65 Page 66-67 Page 68-69 Page 70-71 Page 72-73 Page 74-75 Page 76-77 Page 78-79 Page 80-81 Page 82-83 Page 84-85 Page 86-87 Page 88-89 Page 90-91 Page 92-93 Page 94-95 Page 96-97 Page 98-99 Page 100-101 Page 102-103 Page 104-105 Page 106-107 Page 108-109 Page 110-111 Page 112-113 Page 114-115 Page 116-117 Page 118-119 Page 120-121 Page 122-123 Page 124-125 Page 126-127 Page 128-129 Page 130-131 Page 132-133 Page 134-135 Page 136-137 Page 138-139 Page 140-141 Page 142-143 Page 144-145 Page 146-147 Page 148-149 Page 150-151 Page 152-153 Page 154-155 Page 156-157 Page 158-159 Page 160-161 Page 162-163 Page 164-165 Page 166-167 Page 168-169 Page 170-171 Page 172-173 Page 174-175 Page 176-177 Page 178-179 Page 180-181 Page 182-183 Page 184-185 Page 186-187 Page 188-189 Page 190-191 Page 192-193 Page 194-195 Page 196-197 Page 198-199 Page 200-201 Page 202-203 Page 204-205 Page 206-207 Page 208