Financial Elements 1

Firm’s Main Objective is Value Creation for Shareholders and Other Stakeholders

Financial Management/Decision Shipping is Capital & Technology Intensive Return on Investment (ROI), Return on Capital (ROC) has to be competitive (Risk/Return) e.g Disposal of Container and Bulkers (70 vessels) vs Oil Terminal Tg. Bin Petronas/MISC/Vittol Holland – Financial and Management Decision?? Amortized over the life of the vessel Amortization & Financial Implication Amortization on Refurbishment/Modification MASB 20 (the Malaysian accounting standards board) 3

KEY VARIABLES Key to survival in the shipping business is “ How to manage the financial performance of your company” There are three (3) variables ship owner can work with: -Charter Revenue; -Vessel Operating Costs; -Financing Methods. 4

Financial Return  Charter Hire/Freight/Revenue/Income MUST be able to pay for the equity/debt financing, interest, voyage costs, (bunkers, port charges), fleet management costs(crew costs, catering and consumable stores, vessel maintenance, drydocking and refurbishment, survey & repairs, lubricants, insurance, communication, training, and other running costs)  Deficits or Surplus?....Profit or (Loss)?  Corporate Office Overhead?......Dividend?  Cash flow is critical 5

Direct Maintenance Costs Painting Chemicals Deck, engine, store supplies repairs and maintenance Dry docking Machinery spares Lubricants and grease Surveys 6

Global Ship Building 7

8  Expanded World Fleet as a result of increase global seaborne trade  Driven by robust China economic growth>8%  Shipbuilding market has increased drastically over the past 10 years  Korea (29), Japan (18), China (25) account > 75% (source: Lloyd Register)  A shift from traditional Europe to Asia….why?....factors?

9  Korea is No.1, developing new and high tech vessels (LNG, VLCC, Jumbo Container, Offshore) – Innovation & sophisticated Shipping Technology…….Daewoo HI, Hyundai HI, Samsung HI, Hanjin HI  China is fast growing & expanding its market share with aggressive plan & government support & lower labour costs.  China target No.1 in 2015, 35% market share, Japan No.2, but slowing down, shortage in manpower

10  Ship building prices increased substantially since 2003  Source of financing/capital a) Equity….shareholder injection/pump-in b) Bond e.g Islamic bond Sukuk c) Long Term Loan e.g Private, Government d) Suppliers’ Credit e) Internal Generated Fund f) Venture Capital  Size, Financial Standing, Reputation is critical  Look for High Quality Charterers/Long Term Contract ( e.g Petronas/MISC Bhd)

New Ship Building Process 11

Process 1) Contract signing 2) Production design - working on production schedules, drawing, molds are developed, all computerized -naval architects -final plan approved by Class 3) Material purchase - the steel for hull arrives at the factory from the iron mills by ship - volume/timing of delivery 4) Production plan - work volume, erection operations at the “building berth” 12

Process 5) Cutting of steel - cutting of steel of various sizes and shapes -prior to processing operation, the steel is surface- treated to prevent corrosion - 2 nd payment 6) Processing of steel - the shape of the hull is formed in this phase 7) Assembly - the steel parts assembly phase 7a) Block assembly - assemble the block, testing watertight for “tightness” 13

Process 8) Launching - the most thrilling moment fill the dock with water,….the ship float and slide into the sea - third payment 9) Finishing the vessel - pipes and equipment are installed in the blocks, fitting out, and installing the main and auxiliary machinery 10) Sea trial - ship’s performance is tested/confirmed by sea trial 14

Process 11) Naming and delivery ceremony - after the completion of all construction procedures, the naming and delivery ceremony is held for the ship, and the ship is delivered to the owner……a new ship is born…..maiden voyage - final payment is done 12) Warranty - warranty period is usually months depending on the contract 15