Bahri Annual Report-2013

Bahri Annual Report 2013

GENERAL CARGO TRANSPORTATION SECTOR YEAR OF ESTABLISHMENT: 1979 NUMBER OF VESSELS: 6 AVERAGE AGE: LESS THAN ONE YEAR AVERAGE CAPACITY OF A VESSEL: 26,000 DWT

CHEMICAL TRANSPORTATION SECTOR YEAR OF ESTABLISHMENT: 1985 NUMBER OF VESSELS: 24 AVERAGE AGE: SIX YEARS AVERAGE CAPACITY OF A TANKER: 46,000 DWT

CRUDE OIL TRANSPORTATION SECTOR YEAR OF ESTABLISHMENT: 1996 NUMBER OF VESSELS: 17 AVERAGE AGE: TEN YEARS AVERAGE CAPACITY OF A TANKER: 310,000 DWT

DRY-BULK TRANSPORTATION SECTOR YEAR OF ESTABLISHMENT: 2010 NUMBER OF VESSELS: 5 AVERAGE AGE: LESS THAN ONE YEAR AVERAGE CAPACITY OF A VESSEL: 82,000 DWT

www.bahri.sa

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

02/03

Contents

Chapter 3 Financial Statements and Business Results Financial Results and Business Performance of Bahri and its Subsidiaries

Board of Directors Chairman’s Message

04 08 10

CEO Message

44 45

Statement of Assets and Liabilities Revenue of the Company’s Core Sectors 47 Distribution of Assets and Liabilities as per Company’s Sectors 48 Subsidiaries Capital for 2012 and 2013 48 Summary of Financial Results of Subsidiaries in 2013 49 Murabaha Financing and Long-term Loans in 2013 49 Regulatory Payments 50 Dividend Distribution Policy 51

Chapter 1 Board of Directors’ Report Information about the Company and its Subsidiaries About the Company

16 18 18 19 19

Subsidiaries

Company Strategy

Merger of Vela’s Fleet and Operations with Bahri

Major Achievements in 2013

Chapter 2 Strategic Business Units and Support Departments Oil Transportation Sector

Chapter 4 Disclosure and Transparency Shareholders’ Rights and Communications

24 26 27 31 34 34 35 35 36 36 37 38 38 38 39 39 39

56 57 58 58 61 62 63

Gas and Offshore Business Unit Chemical Transportation Sector General Cargo Transportation Sector Dry Bulk Cargo Transportation Sector

Disclosure

Corporate Governance

Board of Directors Board Committees

Technical Ship Management

Executive Management

Planning and Business Development Division

Conclusion

Communications Department

Chapter 5 Consolidated Financial Statements and Auditor’s Report for the year ended 31 December 2013 Consolidated Balance Sheet

Information Technology Department

Internal Audit and Control

Human Resources Department

70 72 73 75 76 92

Quality

Consolidated Statement of Income Consolidated Statement of Cash Flows

Environment and Safety

Corporate Social Responsibility

Consolidated Statement of Changes in Shareholders’ Equity

Finance Division

Notes To The Consolidated Financial Statements

Financing and Investment Department

Offices & Subsidiaries

Operating Risk Management

Board of Directors 2011 – 2013

Abdullah Sulaiman Al-Rubaian Chairman

Mohammed Abdulaziz AlSarhan Vice Chairman

04/05

Esam Hamad Al-Mubarak Board Member

Farraj Mansour Abothenain Board Member

Saleh Abdullah AlDebasi Board Member

Abdulkarim Ibrahim Al-Nafie Board Member

Nasser Mohammed Al-Kahtani Board Member

Ghassan Abdulrahman Al-Shibl Board Member

Abdullah Ali Al-Ajaji Board Member

Board of Directors 2014 – 2016

Abdulrahman Mohammed AlMofadhi Chairman

Mohammed Abdulaziz AlSarhan Vice Chairman

06/07

Esam Hamad Al-Mubarak Board Member

Abdullah Ali Al-Ajaji Board Member

Saleh Abdullah AlDebasi Board Member

Abdulaziz Abdulrahman Al-Modaimigh Board Member

Farraj Mansour Abothenain Board Member

Chairman’s Message

Bahri will be the exclusive provider for transporting Saudi Aramco crude oil

Dear Shareholders,

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

The Board of Directors of Bahri, the National Shipping Company of Saudi Arabia are pleased to present the annual report on the Company’s business activities for the year ended 31 December, 2013. 2013 was the final year in the term of the former Board of Directors who began their first term in January 2011. I would therefore like to highlight the key achievements, strategic resolutions and expansions which have taken place over the past three years period. Key highlights are as follows:

08/09

14. Four old general cargo vessels were sold for scrap, and replaced with new ships, making a net gain of SAR 75.5 million from the sale of these vessels. 15. Bahri signed a Murabaha agreement with Public Investment Fund (PIF), under which a portion of the cost of building two general cargo vessels, whose building contracts were signed in 2011 were financed. The financing amount totaled approximately SAR 450 million and is to be paid through 10 years on delivery of the vessels. 16. Bahri participated in many specialized international exhibitions in the area of marine transportation, showcasing its services, and highlighting it’s corporate social responsibility activities through media coverage. 17. During the last three years, Bahri received many awards from well-known global entities with regards to its performance and global footprint. Finally, on behalf of myself and my colleagues on the Board of Directors, I would like to extend, my thanks and gratitude to the Government of Saudi Arabia, the Custodian of the Two Holy Mosques, the Crown Prince and the Second Deputy. I would like to thank the former members of the Board of Directors, our Shareholders and our clients for their continued support and efforts as well as the Executive Management and employees for their commitment to achieve the objectives of the Company’s shareholders and clients. Wishing you all success and may Allah help you. May the peace, mercy and blessings of Allah be upon you. Abdulrahman Mohammed AlMofadhi Chairman

6. BDB signed a Murabaha agreement with Bank AlBilad to finance a portion of the cost of building five dry bulk ships. The finance amount was SAR 420 million. 7. Bahri was awarded the contract with the Ministry of Defense (MOD) to ship military equipment for three years for a total amount of SAR 230 million. Throughout the previous contract period, the Company provided distinguished services to the Ministry of Defense; thus, the said contract was extended, for a period of five years until 2019 for a total of SAR 383 million. Under the new contract, Bahri will continue to act as the official provider of a full range of sea, air and land freight to the Divisions of the Armed Forces at the Ministry of Defense. 8. Bahri paid significant attention to information technology in line with its strategic plan by adopting and implementing a group of the latest technological solutions in accordance with the best international standards and procedures approved in this domain. 9. Bahri launched its new corporate brand focusing on its trade name “Bahri” in order to reflect the company’s new global identity. 10. Bahri realigned the salaries and bonuses of its staff based on key performance indicators (KPIs), motivating its employees to exert their efforts through the provision of internal and external training courses, and granting more incentives and compensations based on performance. 11. NCC signed a five year time charter agreement with a subsidiary of Saudi Basic Industries Corporation (SABIC) totaling SAR 480 million for three chemical tankers with the option of further extending the agreement for five years. 12. Bahri received seven chemical tankers built by NCC including Fajr, one of the largest and most highly sophisticated chemical tankers with a dead weight tonnage DWT of 75,000. 13. Bahri signed contracts to build six general cargo vessels with Hyundai Mipo Dockyard to be delivered during 2013 and 2014. Four carriers were delivered, and the remaining vessels will be delivered during the first half of 2014.

1. Signing conclusive and binding agreements with Saudi Arabian Oil Company (Saudi Aramco), under which the fleet and operations of Vela International Marine Limited, a wholly owned subsidiary of Saudi Aramco, were merged with Bahri’s fleet and operations. The agreement stipulated that the ownership of Vela’s fleet containing 14 very large crude oil carriers (VLCCs), one very large crude carrier used as a floating storage carrier and five product tankers, will be fully transferred to Bahri who will be the exclusive provider of VLCC crude oil shipping services to Saudi Aramco for the delivery of crude oil sold by Saudi Aramco on a delivered basis. The agreement included interim arrangements to protect freight rates throughout 2013 until the merger is finalized. Such interim arrangements are beneficial to the Company as they protect them against the decline in freight rates of crude oil. 2. Signing a memorandum of understanding (MoU) with Saudi Aramco and Singapore’s Sembcorp Marine Ltd. to develop a feasibility study to build a maritime yard in the Kingdom of Saudi Arabia (KSA). 3. Acquisition of the share of Norwegian Odfjell SE in NCC Odfjell Chemical Tankers (NOCT) by National Chemical Carriers Ltd. Co. (NCC) and the amicable dissolution of the partnership in the pool containing 18 chemical carriers. Under this acquisition, NCC became the sole owner of NOCT, previously owned by both companies and will fully manage its commercial operations. 4. Establishing a new business unit under the name “Gas and Offshore Services Sector” in order to penetrate offshore service business activities, a promising sector in the Middle East. 5. The commencement of new business activity in dry bulk cargo transportation through Bahri Dry Bulk Company LLC (BDB), a subsidiary which is owned 60% by Bahri and 40% by Arabian Agricultural Services Company (ARASCO). BDB time chartered five bulk carriers and re- chartered them to ARASCO, generating a rewarding profit. Moreover, BDB signed contracts with one of the world’s leading shipyards to build five Kamsarmax ships for dry bulk transportation to replace the chartered ships during 2013 and 2014. The first ship, named “Bahri ARASCO” was delivered, and the remaining ships will be delivered during the first half of 2014.

CEO Message

A solid foundation of the Company’s infrastructure was established reflecting the promising future of Bahri and enhancing its position as a leading global marine transportation company

10/11

In 2013, Bahri established a new division for investment in offshore services, activated the role of the dry bulk transportation sector, boosted operational performance in various divisions, intensified marketing activity, updated technologies to align with the latest developments in the shipping industry and enhanced workplace safety. Bahri implemented a new corporate social responsibility (CSR) strategy which focused on Humanitarian and Community programs, developed specialized training programs to further enhance the skills and competencies of employees and build new strategic objectives for the forthcoming five year plan. Finally, I would like to extend my appreciation to my colleagues in the Executive Management and to all employees throughout each division for their sincere efforts and contribution to the development and success of the Company.

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

On behalf of myself, the Executive Management and all the Company’s

employees, I am pleased to extend thanks and gratitude to the honorable Board of Directors and the Company’s customers for their endless support, which has resulted in a positive financial performance. In 2013, net profit amounted to SAR 752,262,000. This is the Company’s highest profit since its inception in 1978, despite the prolonged impacts of the global financial crisis during the last year which affected the freight rates of most of the Company’s operating activities. The overall success of the Company reflects Bahri’s commitment to continuous development and implementation of strategic plans consisting of diversification, growth, operating efficiency and raising planned investment in human resources. A solid foundation of the Company’s infrastructure was established during the last period, reflecting the promising future of Bahri and enhancing its position as a leading global marine transportation company.

“The Journey Continues” Saleh Nasser Al-Jasser Chief Executive Officer

Chapter 1 Board of Directors’ Report Information about the Company and its Subsidiaries

12/13

Introduction Bahri is the Kingdom’s leading shipping company, exerting distinguished efforts in various sectors of the shipping industry. Through multiple offices, subsidiaries and network of agents, the Company’s full range of services covers several markets worldwide with a diversified fleet of ships and VLCCs sailing around the world, which helped to link the KSA economy with other economies. Bahri constantly seeks to maintain its high efficiency in meeting customers’ demands, by developing the investment strategies of the Company and its subsidiaries, and thereby ensuring the best returns to its shareholders.

Chapter 1 Board of Directors’ Report Information about the Company and its Subsidiaries

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Chapter 1 Board of Directors’ Report Information about the Company and its Subsidiaries About the Company By consistently focusing on our values and responsible business fundamentals, we shall be a leading service provider

Established as a Saudi joint stock company pursuant to Royal Decree No. M/5 dated January 22, 1978, The National Shipping Company of Saudi Arabia (Bahri) is listed on Saudi Stock Exchange (Tadawul) and is head-quartered in Riyadh. Bahri is a leading worldwide marine transportation provider, in which Public Investment Fund (PIF) holds 28.2%, while the remaining shares are owned by individuals and institutional investors.

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Bahri has received many awards and certificates that reflect its progress and confidence. The Company is committed towards transparency in all aspects of its operations, especially with respect to the disclosure of its operational results. The Company implements safety standards in all its operations, as well as to protect the environment. The Company is also committed to adopt corporate social responsibility (CSR), achieving constant growth, and fulfilling its mission and objectives through the implementation of successive strategic plans and the optimum exploitation of available resources.

Due to the expansion of its activities and fleet, Bahri incorporated Mideast Ship Management Ltd. in 1996 to provide ship management services for the vessels and tankers owned by Bahri and its subsidiaries. It currently manages 52 ships, a number which is expected to reach 72 ships by the end of 2014, to include the additional fleet that will join as a result of the merger with Vela and the delivery of ships under construction. In 2005, the Company invested in the business of Liquefied Petroleum Gas (LPG) transport by acquiring 30.3% of the shares of Petredec Ltd. In line with the Company’s strategy to diversify its business activities and increase its investments, in 2010 the company added a new activity of dry bulk cargo transportation by incorporating Bahri Dry Bulk Co. LLC (BDB), a JV which is owned 60% by Bahri and 40% by ARASCO. BDB started its operations in 2012.

Bahri began its operations in the general cargo shipping industry as its prime business activity. Later, it expanded activity through incorporating a subsidiary in the United States of America in 1991 which serves as an agent to facilitate the general cargo operations in North America. In 1985, the Company began shipping petrochemicals after acquiring two chemical tankers, one owned by the company and time chartered to SABIC and the other owned through a joint venture (JV) incorporated with United Arab Shipping Company (UASC) under the name, Arabian Chemical Carriers Ltd. (ACC), also time chartered to SABIC. In 1990, the Company expanded its chemical transportation activity by incorporating National Chemical Carriers Ltd. Co. (NCC), a JV owned 80% by Bahri and 20% by SABIC, to purchase, charter and operate chemical tankers. In 1992, the Company entered into the crude oil transportation sector and built five VLCCs, which started trading during 1996 and 1997. In 2001, the Company acquired four new VLCCs, continuing the expansion in this business sector and by the end of 2013 the total VLCC fleet reached 17. Company Vision Connecting economies, sharing prosperity and driving excellence in global logistics services.

Values Driven, Relentless, Transparent, Considered.

Company Mission 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.

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

Chapter 1 Board of Directors’ Report Information about the Company and its Subsidiaries

Subsidiaries

The below table illustrates the companies which are wholly owned by Bahri or in which Bahri owns a stake:

Geographical Scope of Activity

Place of Incorporation

Incorporation Date

Ownership % (2013)

Name of the Company

Core Activity

NSCSA (America) Inc.

The Company’s Agent

USA

Global

1991

100%

Mideast Ship Management Ltd.

Technical Ship Management

UAE

Global

1996

100%

Petrochemicals Transportation

National Chemical Carriers Ltd. Co. (NCC) *

KSA

Global

1990

80%

Bahri Dry Bulk Co. (BDB)

Drybulk Cargo Transportation

KSA

Global

2010

60%

Petredec Ltd.

LPG Transport and Trading

Bermuda

Global

1980

30.3%

Float Glass Manufacturing and Trading

Arabian United Float Glass Co.

KSA

Local

2006

4.69%

* Owns a subsidiary in the UAE under the name of (National Chemicals Carriers JLT) in 2013 that manages spot operation of NCC fleet commercially

Company Strategy Bahri has been working on strengthening its competitiveness in global markets by expanding its business activities, increasing its fleet and consolidating its financial and operational position. This is achieved through diversification and management of its investments in an effective manner in accordance with its strategic plan.

The Company’s current strategic plan includes the following: • Receive the remaining ships under construction • Finalize the merger of Vela’s fleet and operations with Bahri • Explore investment opportunities within the scope of the Company’s activities and in promising markets • Improve operational performance across all business sectors and units within the Bahri Group • Prepare a new strategic plan for the next five years

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Merger of Vela’s Fleet and Operations with Bahri

will explore more viable opportunities to expand cooperation between them in the area of marine activities. The conclusion of the merger will reduce the impact of Bahri’s exposure to the fluctuations in crude oil freight rates and will enhance returns for its shareholders. The merger creates a new national champion in the global shipping industry, creating jobs and facilitating new business opportunities, certifying Bahri’s position as fourth largest company in the world in terms of VLCC fleet, equipping them with the assets to meet the demands of Saudi Aramco and other clients. The merger of employees, resources and fleets under one umbrella will boost the Company’s capability to face the increasing demands of global clients around the world both now and in future. It also provides enormous growth opportunity contributing to greater returns for Bahri’s shareholders. Bahri seeks to obtain some regulatory approvals before the submission of the merger transaction in its final form to its shareholders for final approval. All approval procedures are expected to be completed by 2014 upon which the first VLCC will be delivered and the preliminary stage of integrating commercial and technical teams will be finalized. Throughout 2013, both companies sought to resolve all issues concerning the merger, paving the way for the seamless transfer of employees, VLCCs and the operation of the shipping contracts.

Pursuant to this agreement, Bahri will become the exclusive provider of VLCC crude oil shipping services to Saudi Aramco for the delivery of crude oil sold by Saudi Aramco on a delivered basis in accordance with a long-term shipping contract protecting Bahri in the event freight rates drop below the agreed minimum rate. 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 minimum rate. Having concluded the merger, Bahri shall meet Saudi Aramco’s projected future needs estimated at nearly 50 VLCCs through the optimal operation of its fleet including 31 VLCCs and the charter of additional VLCCs as required. Further, Bahri and Vela have agreed to discuss interim arrangements to operate the VLCCs owned by Bahri within Saudi Aramco’s schedule to transport crude oil. These arrangements came to effect as of Safar 19, 1434, corresponding to January 1, 2013 until the long-term shipping contract becomes effective pursuant to the terms of the transaction agreements. Pursuant to the provisions of the merger agreements, Saudi Aramco will own 78,750,000 new shares in Bahri, representing 20% of Bahri’s total shares, and will be fairly represented in Bahri’s Board of Directors. Saudi Aramco will continue to directly manage all crude oil marketing and customer sales, while Bahri will provide reliable transportation services. Both parties

On November 4, 2012, Bahri signed the final binding agreements with Saudi Aramco and Vela, a wholly owned subsidiary of Saudi Aramco, to merge the fleet and operations of Vela with Bahri. In pursuant to the agreements Bahri will pay to Vela approximately SAR 4.9 billion to include SAR 3.12 billion in cash and the issuance of 78.75 million in new shares of Bahri. The merger is approved by the Board of Directors of Bahri, Saudi Aramco, and Vela. This merger is considered as a transformational step in the history of Saudi Arabia’s shipping industry and enables Bahri to become a strong company in the global maritime industry. This merger will result in a large combined fleet of 72 vessels and VLCCs in several domains so that Bahri becomes the world’s fourth largest company in terms of VLCC tonnage. Moreover, this merger will provide significant competitiveness in the global markets, and will contribute to an increased operational efficiency and lower overhead cost. This merger includes the transfer of Vela’s fleet containing 14 double- hull VLCCs, one floating storage carrier and five product tankers. All of Vela’s vessels crew and a number of official employees, and part of its working systems will be integrated with Bahri corporate structure.

Major Achievements in 2013

• Due to the outstanding services offered by the Company to the Ministry of Defense (MOD), His Excellency the Minister of Defense approved the renewal of the contract concluded with Bahri, prior to its expiry, for additional five years ending 2019 in consideration of a total of SAR 383 million. According to this contract, Bahri will continue to serve as the exclusive carrier of the Divisions of the Armed Forces at the Ministry of Defense and provide different types of shipping services abroad through sea, land and air during the term of this contract.

• NCC has amicably agreed with Norwegian Odfjell to dissolve their 18-ship pool. Pursuant to this agreement, NCC became the sole owner of NOCT, which was registered under the name “National Chemical Carriers JLT” following the dissolution in order that NCC independently runs its commercial operations.

• Introduction of a new business unit “Gas & Offshore Business Unit” in order to explore the offshore support services industry, which is a promising business in the Middle East. • Bahri and Saudi Aramco have signed a Memorandum of Understanding (MOU) with Sembcorp Marine Ltd., one of the leading international companies in marine and engineering services based in Singapore, to conduct a feasibility study for building a marine shipyard in the Kingdom of Saudi Arabia.

Chapter 2 Strategic Business Units and Support Departments

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Strategic Sectors The Company organizes its business activities internally through a number of strategic sectors including Oil Transportation, Gas & Offshore, Chemical Transportation, General Cargo Transportation, Dry Bulk Cargo Transportation and Ship Management. Operations related to Chemical Transportation are managed by NCC, Dry Bulk Cargo Transportation operations are handled by Bahri Dry Bulk, while Ship Management services are managed by Mideast Ship Management Ltd. Business units provide necessary support to achieve the Company’s objectives, in collaboration with Head Office and Support Departments.

Chapter 2 Strategic Business Units and Support Departments

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Chapter 2 Strategic Business Units and Support Departments

Oil Transportation Sector China surpassed the United States as the largest importer of crude oil in the world

the major demand driver for Suezmax tankers, these tankers were forced to compete on the same trade routes used by VLCCs in order to ensure continuity of operations. It is expected that upon the delivery and operation of 31 new VLCCs, and the addition of 16 new VLCCs to the fleet of Suezmax tankers which currently operate a fleet of 25 – 30 tankers, there will be a surplus of VLCCs in the shipping market. However, the growth rates of oil consumption in China and India is encouraging and this year, China surpassed the United States as the largest importer of crude oil in the world. Furthermore, China and India announced their plans to increase their strategic reserves of crude oil.

The Oil Transportation Sector is the Company’s largest sector which performs the transportation of crude oil through a fleet of 17 VLCCs that are operated in the spot market and through time charter agreements. According to analysts, the global demand of crude oil transportation across the Atlantic declined by 4-5% during the first half of 2013. The demand of VLCCs decreased 5-7% while demand for Suezmax vessels, with a capacity of 1 million barrels decreased 30%. This decline was experienced as a result of an increase in the daily production of nearly two million barrels by Shale oil in the United States. Due to the sharp decline in the demand for shipping from West Africa to the United States, which traditionally constitutes

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Number of voyages performed by VLCCs during 2013 compared to 2012

2013 2012 Number of Voyages Number of VLCCs Number of Voyages Number of VLCCs

Type of Operation

VLCCs operating in the spot market

VLCCs operating under time charter agreements

Total

100

Break-down of VLCCs Voyages by route during 2013 compared to 2012

Route

Total Voyages

2013

2012

Arabian Gulf – USA

47%

41%

Arabian Gulf – Far East

23%

The Caribbean / West Africa- Asia

45%

36%

Oil Transportation Voyages During 2013

In 2013, a total of 171.5 million oil barrels were transported by VLCCs operating in the spot market and time charter agreements.

Country

Number of Voyages during 2013

Volume shipped in million barrels

USA

86.4

India

51.9

China

20.7

Rest of the World

12.5

Total

171.5

Chapter 2 Strategic Business Units and Support Departments VLCC Fleet

Year of Building

Length (M)

Breadth (M)

Weight (DWT)

Number of Tanks

Speed (knots)

S.N.

VLCC Name

Type

Ramlah

1996

Double Hull

340

300,361

Ghawar

1996

Double Hull

340

300,361

Watban

1996

Double Hull

340

300,361

Hawtah

1996

Double Hull

340

300,361

Safaniyah

1997

Double Hull

340

300,361

Harad

2001

Double Hull

333

302,700

17.1

Marjan

2002

Double Hull

333

302,700

17.1

Safwa

2002

Double Hull

333

302,700

17.1

Abqaiq

2007

Double Hull

333

302,700

17.1

Wafrah

2007

Double Hull

333

318,000

16.7

Layla

2007

Double Hull

333

318,000

16.7

Jana

2008

Double Hull

333

318,000

16.7

Habari

2008

Double Hull

333

318,000

16.7

Kahla

2009

Double Hull

333

318,000

16.7

Dorra

2009

Double Hull

333

318,000

16.7

Ghazal

2009

Double Hull

333

318,000

16.7

Sahba

2009

Double Hull

333

318,000

16.7

Total Capacity (DWT)

5,256,605

Gas and Offshore Business Unit A new business unit, “Gas and Offshore Business Unit” was established in July 2013. This will focus on exploring the available investment opportunities in the offshore sector, in line with the overall strategic plan for expansion and business diversification. Investment opportunities will be developed after careful analysis considering economic feasibility in order to support the Company’s strategic objective of minimizing risk and enhancing profitability. In addition, the Gas and Offshore Sector will oversee the Company’s investments in the Liquefied Petroleum Gas (LPG) industry, represented through Bahri’s 30.3% stake in Petredec Ltd. Co., which operates a fleet of 63 vessels of different sizes. The Company’s share in the profits of Petredec grew by 102% to SAR 291 million during 2013, compared to SAR 144 million during 2012. 26/27

Chemical Transportation Sector Refined oil derivatives sector witnessed a boom amid higher demand in Asia, Latin America, Middle East and Africa

New Initiatives and Plans: NCC has launched a new initiative to design and implement an integrated management system across the company to enhance its performance and focus on constant development. The company aims that its offices in Riyadh and Dubai be ISO 9001 certified in 2014. The boom witnessed by the oil and gas industry has spread across North America, providing the growth prospects for new refineries and thermal cracking plants as well as increasing the demand for exports. The increase in refinement capacity marks a significant breakthrough, aligning it with oil production volumes in the Middle East and Asia. In some cases, for example the refineries in Europe that closed down due to weak economic performance, there is a higher demand for long distance shipping, motivating many shipping companies to order large chemical tankers to be built. A large portion of recovery for chemical carriers and oil derivatives tankers depends on the consideration of the owners to expand the fleet and place new orders.

An overview about Chemical Transportation Sector The business activities of the Chemical Transportation Sector are linked to and significantly depend on world economic growth. In this context, China, which is deemed the major driver of the world economy, posted growth of around 7% in Gross Domestic Product (GDP) in 2013. In mid-year, risk related to the reduction of Quantitative Easing in the United States was reported, and the negotiations on European debt levels led to a relative stagnation on markets and hedging against the risk of short-term industrial investment, amid positive sentiment on the long-term economic outlook by some markets. The Shipbuilding sector has witnessed fluctuations in prices during 2013 with some recovery being reported upon announcing the building of a number of (plated steel tank) chemical tankers and oil derivative carriers. The Chemical Transportation Sector is expected to take advantage of the increasing chemical exports from the Middle East and North America (due to lower prices of gas that is deemed a raw material in the manufacturing of chemicals) to achieve balance between the supply and demand in the short-term. Moreover, averages indicate that this Sector would benefit from the closing of non-economic refineries in Europe, which increases the shipped quantities.

The Chemical Transportation Sector attracted private equity, driven by the gradual improvement of price rates and the increased demand for shipbuilding in shipyards of Korea, China and Japan, as a result of the improved economic performance in 2013, compared to 2012. Refined oil derivatives sector witnessed a boom amid higher demand in Asia, Latin America, Middle East and Africa and an increasing refining capacity especially in the Middle East and Asia. Major Achievements in 2013 National Chemical Carriers (NCC) finalized the acquisition of the share of Norwegian Odfjell SE in NCC Odfjell Chemical Tankers (NOCT), and started its operations under the official name (National Chemicals Carriers JLT) which became a wholly owned subsidiary of NCC as of 1 June, 2013. NCC has received the tanker NCC Fajr with a DWT of 75,000 which has been built by South Korea’s Daewoo Shipbuilding & Marine Engineering Ltd. (DSME).

Chapter 2 Strategic Business Units and Support Departments

Voyages Performed by NCC carriers in 2013 Compared to 2012

Type of Tanker Operations

Voyages in 2013

Voyages in 2012

Tankers operating in spot market

Tankers operating under time charter agreements

Total

156

127

Volume of Cargo Transported by NCC Tankers during 2013 Compared to 2012

Volume of Cargo transported during 2013 (Million Metric Tons)

Volume of Cargo transported during 2012 (Million Metric Tons)

Type of Tanker Operations

Tankers operating in spot market

3.10

2.52

Tankers operating under time charter agreements

2.58

2.08

Total

5.68

4.6

Main routes of NCC Fleet Worldwide in 2013 1. Middle East – Far East 2. Middle East – Europe 3. Far East – Europe

4. Far East – USA 5. USA – Far East 6. USA – South America 7. Europe – Far East 8. Europe – South America 9. South America – Far East

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NCC Fleet Growth in 2013 Upon the delivery of NCC Fajr with DWT of 75,000 on 18 December, 2013, the fleet increased to 24 tankers including 9 tankers chartered with time charter agreements, 3 tankers chartered as bareboat charters, and 12 tankers that operate in the spot market. The total DWT of these tankers amounts to 1,105,500 tons.

At the end of November 2013, the number of tankers operating globally amounted to 3,384 with a total DWT of 38.4 million. Chemical tankers with DWT of more than 10,000 including specialized tankers totaled 1,510 with a total DWT of 32.6 million. Orders for building chemical tankers amounted to 107 tankers with a total DWT of 1.7 million at the end of November 2013, while orders for building specialized chemical tanker amounted to 62 tankers with a total DWT of 1.5 million.

Main Ports for Chemical Tankers Worldwide

Expansion in Chemical Tanker Fleet

Item

Fleet Size in DWT

No. of Tankers

Fleet as of January 1, 2013

1,030,500

Tanker delivered during 2013

75,000

Fleet as of December 31, 2013

1,105,500

Chapter 2 Strategic Business Units and Support Departments

NCC Fleet of Chemical Tankers as at December 31, 2013

Serial

Tanker

Year of Building Length (M)

Width (M) Weight (DWT) No. of Tanks Speed (Knots)

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

4 NCC Najd

2005

183.02

32.2

46,200

5 NCC Hijaz

2005

183.02

32.2

46,200

6 NCC Tihama

2006

183.02

32.2

46,200

7 NCC Abha

2006

183.02

32.2

46,200

8 NCC Tabuk

2006

183.02

32.2

46,200

9 NCC Qassim

2006

183.02

32.2

46,200

10 NCC Rabegh

2007

183.02

32.2

46,200

11 NCC Sudair

2007

183.02

32.2

46,200

12 NCC Dammam

2008

183.02

32.2

46,200

13 NCC Hail

2008

183.02

32.2

46,200

14 NCC Noor

2011

183

32.2

45,600

15 NCC Huda

2011

183

32.2

45,600

16 NCC Amal

2011

183

32.2

45,600

17 NCC Safa

2011

183

32.2

45,600

18 NCC Danah

2011

183

32.2

45,600

19 NCC Nesmah

2011

183

32.2

45,600

20 NCC Shams

2012

183

32.2

45,600

21 NCC Najm

2012

183

32.2

45,600

22 NCC Reem

2012

183

32.2

45,600

23 NCC Samaa

2012

183

32.2

45,600

24 NCC Fajr

2013

228

36.8

75,000

Total Weight (DWT)

1,105,500

* Tankers NCC Makkah, NCC Riyadh, and NCC Jubail are chartered to Odfjell as bareboat charters for a period of ten years under bareboat agreement which includes the right to purchase the tankers after the third year in consideration of specific prices.

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General Cargo Transportation Sector

Current Navigation Routes General Cargo transportation is deemed to be one of the Company’s strongest navigational activities as it contributes to maintaining a well-established footprint for the Company in several markets where significant sectors depend on it. These include the transportation of huge government development projects, tending to the demands of the divisions of the Armed Forces as well as importing and exporting cargo for Kingdom of Saudi Arabia. Cargo is transported through regular voyages from ports on the Eastern Coast of the United States of America and Canada to the Indian sub- continent through Italy’s Livorno port on the Mediterranean Sea, Jeddah Islamic Port on the Red Sea, King Abdulaziz Port in Dammam and Jebel Ali Port in Dubai. The Company operates to other ports on the basis of a complete voyage under shipping agreements to achieve the Company’s strategic objectives. Freight Forwarding Services using Third Party Vessels The General Cargo Transportation sector provides freight forwarding services for transporting cargo to all worldwide ports through air, sea and land using third party vessels and other transportation means, allowing this sector to provide integrated logistic services to its clients. Transportation of water desalination equipment, locomotives, rail wagons, military equipment, and the government subsidies provided by Saudi Arabian Government are some of the key projects undertaken by this sector. Container Terminal Services The Company runs a terminal for container storage and maintenance at Jeddah Islamic Port, which is considered as one of the most significant ports in the Middle East. The terminal focuses on providing exceptional customer service, fast and efficient handling

of containers to and from the port and the reduction of stevedoring costs related to imports and exports. In 2013, the terminal was restructured and the provision of storage services to containers was expanded in conjunction with container storage contracts for other shipping providers being awarded. The terminal was equipped with modern automatic handling equipment to increase its operational capacity. A feasibility study commenced on the provision of integrated services, including internal transportation, supervision of documents and customs clearance to recognize the way in which customs clearance services are advantageous to the terminal. • The Company, through the General Cargo Transportation Sector seeks to acquire shares in the following freight contracts involving transportation of equipment of mega industrial projects for the coming period. The 3-year contract for the Ministry of Defense (MOD) to transport military equipment was awarded to the Company in consideration of SAR 230 million. Throughout the previous contract period, the Company provided distinguished services to the Ministry of Defense; thus, the said contract was extended, for a period of five years until 2019 for a total of SAR 383 million. Under the new contract, Bahri will continue to act as the official provider of a full range of sea, air and land freight to the Divisions of the Armed Forces at the Ministry of Defense. • Four retired general cargo vessels were sold for scrap, and replaced with new ships, making a net gain of SAR 75.5 million from the sale of the vessels. The General Cargo Transportation Sector seeks to expand the client base, through attracting new clients on the local, regional and global levels.

In 2013, the Company successfully completed the renewal of its fleet operating in general cargo transportation, as the four old vessels serving for the last thirty years were sold, and four new general cargo vessels with DWT of 26,000 each were delivered in 2013. The new vessels were named Bahri Abha, Bahri Hofuf, Bahri Tabuk and Bahri Jazan. Another two general cargo vessels will be delivered in 2014. These vessels were built by South Korea’s Hyundai Mipo as the Company seeked to improve the services provided through fleet development of multipurpose vessels with high standards of technology. These vessels can transport various types of cargo and are equipped to load and unload specialized project cargo and equipment. The vessels are equipped with heavy-lift cranes with a total capacity of 240 tons, increasing cargo lifting capabilities and providing highly effective fuel saving characteristics. Expansion of General Cargo and Roll-on/ Roll-off Transport Operations After the delivery of the new vessels in 2013, the Company sought to enhance the operational activities of this sector by implementing its marketing plans to explore new markets to expand client base and acquire shares in the highly-profitable general cargo shipping market. • Unscheduled voyages were organized from ports in Jeddah / Dubai / Sohar / Muscat to ports in North Africa to serve inter-trading. • The Company was awarded shipping contracts from construction companies and suppliers in KSA, which involved shipping cargo of energy enterprises, equipment of way paving, air conditioners, industrial equipment and generators, equipment for construction of large projects and steam boilers for power companies from the United States to the Saudi Arabian ports.

Chapter 2 Strategic Business Units and Support Departments

Specifications of the Current General Cargo Transportation Fleet and Vessels under Construction as at December 31, 2013

Capacity (TEU container)

S. N.

Building Year and Delivery Date

Weight (DWT)

Draught (M)

Width (M)

Length (M)

Speed (Knots)

Ship

Horsepower

1 Bahri Abha

Delivered on February 5, 2013

26,000 9.5 32.30 225

2,500

8,901

2 Bahri Hofuf

Delivered on April 30, 2013

26,000 9.5 32.30 225

2,500

8,901

3 Bahri Tabuk Delivered on July 23, 2013

26,000 9.5 32.30 225

2,500

8,901

4 Bahri Jazan Delivered on October 29, 2013

26,000 9.5 32.30 225

2,500

8,901

5 Bahri Jeddah Delivered on January 9, 2014

26,000 9.5 32.30 225

2,500

8,901

Expected delivery in second quarter of 2014

6 Bahri Yanbu

26,000 9.5 32.30 225

2,500

8,901

Main Routes of General Cargo Transportation Carriers Between North America and Indian Subcontinent

Halifax

Liverno

New York

Baltimore Wilmington

Savannah Jacksonvilie

Dammam

Houston

Jebel Ali

Mundra

Jeddah

Mumbai

Mesaieed

East Bound

West Bound

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List of Containers owned and Chartered as at December 31, 2013

S. N.

Type

2013

2012

1 20 ft. standard container

2,955

3,283

2 20 ft. open-top container

157

3 40 ft. standard container

582

559

4 40 ft. high cube container

1,304

1,323

5 40 ft. open-top container

6 20 ft. flat bed

7 40 ft. flat bed

143

129

8 20 ft. trailer (chassis)

9 40 ft. trailer (chassis)

105

10 20 ft. mafi – 30 tons

11 20 ft. mafi – 60 tons

12 20 ft. mafi – 80 tons

13 20 ft. mafi – 100 tons

361

212

14 62 ft. mafi – 80 tons

Chapter 2 Strategic Business Units and Support Departments Dry Bulk Cargo Transportation Sector Dry Bulk Cargo Transportation Sector operates through Bahri Dry Bulk Company LLC (BDB), a joint venture which is owned 60% by Bahri and 40% by Arabian Agricultural Services Company (ARASCO). The company is competent in the transportation of grains, cereals and other dry bulk cargo. Project for Building Dry Bulk Transportation Vessels In April 2012, BDB signed contracts with one of the leading shipyards in the world to build 5 Kamsarmax bulk carrier vessels to ship dry bulk cargo. MV Bahri ARASCO was delivered on November 29, 2013, while Bahri Grain and Bahri Bulk were delivered on January 15 and 27, 2014 respectively. The remaining two vessels will be delivered during the first half of 2014.

Specifications of Dry Bulk Cargo Carriers Delivered and Under Construction as at December 31, 2013

S. N.

Weight (DWT)

Draught (M)

Width (M)

Length (M) Horsepower

Speed (Knots)

Ship

Building Year and Delivery Date

1 Bahri Arasco Delivered on November 29, 2013

81,800 14.45 32.26 224.5

9.840

14.5

2 Bahri Grain

Delivered on January 15, 2014

81,800 14.45 32.26 224.5

9.840

14.5

3 Bahri Bulk

Delivered on January 27, 2014

81,800 14.45 32.26 224.5

9.840

14.5

4 Bahri Wafi

Expected Delivery in first quarter of 2014

81,800 14.45 32.26 224.5

9.840

14.5

5 Bahri Trader

Expected Delivery in first quarter of 2014

81,800 14.45 32.26 224.5

9.840

14.5

Technical Ship Management Mideast Ship Management Ltd. is a wholly owned subsidiary of Bahri based in Dubai and manages the Company’s fleet, in addition to the fleet of its subsidiaries on a technical

• Percentage of employee turnover decreased from 8% in 2012 to 2% in 2013. • Job positions and titles were reassessed and job descriptions were developed in Mideast Ship Management Ltd. • Mideast Ship Management participated in an annual study prepared by Moore Stephens to measure and compare operating costs of ships with other peers.

Key highlights • Mideast Ship Management Ltd. is a member of the Vessels Human Resources Club which encompasses 60 major ship owners or ship management providers’ worldwide comparing salaries and wages of ship crews. • Qualified technical and administrative employees increased this year by 10% in line with the increasing number of ships managed by Mideast Ship Management Ltd.

basis. Mideast submits technical reports on vessel performance, operational status and results of periodic checks along with its recommendations to Bahri.

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