Abu Dhabi Ship Building Co. — Management Reports 2020

Apr 4, 2020

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Message from the Chairman

Dear Valued Shareholders,

I am very honoured to have assumed the Chairmanship in November 2019 of a strategic national asset for the United Arab Emirates, and would like to express my gratitude for the valuable contribution made by Mr. Omar Abdullah Al Faresi in what was a challenging time for Abu Dhabi Ship Building PJSC (“ ADSB or the Company ”).

Shipbuilding is a cyclical business and we hope 2019 will prove to be the low point of the cycle for ADSB, with turnover of AED 320 million being some 30% lower than 2018, and less than half of that reported in 2017 when the last of the Baynunah corvettes was delivered. It is likely that 2020 will determine whether the Company has a future as a builder of warships of this size; this is depending on the global effect of COVID-19 on shipbuilding which is yet to unravel.

On a positive note while ADSB remains a company listed on the Abu Dhabi Stock Exchange with approximately half its shares in private hands, the balance of the shares is now under the control of the EDGE Group umbrella, created in 2019. EDGE Group has brought together a large number of complementary businesses in the defence and technology sectors, and ADSB has already begun to benefit from the synergies this has created.

The mandate of ADSB as per its establishment (Emiri Decree No. 5 of 1995 as amended) is to create an industrial base to build various types of vessels, marine components and equipment, perform all associated maintenance and repair work, and develop local ability to deliver on the Company’s mandate.

Even in the absence of a new build order the Company has maintained the skill base and infrastructure needed to build larger vessels, and has continued to repair and maintain vessels for its key customers the UAE Navy and Critical Infrastructure and Coastal Protection Authority (“ CICPA ”), and commercial customers of which the most important is ADNOC.

In addition to thanking our customers for their invaluable support, on behalf of my fellow board members and the staff of ADSB I would like to express our sincere appreciation to His Highness Sheikh Khalifa Bin Zayed Al Nahyan, the President of the UAE, Supreme Commander of the UAE Armed Forces and His Highness Sheikh Mohamed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, Chairman of the Abu Dhabi Executive Council, for their vision, leadership and continued strong support.

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On meeting the board and the staff of ADSB I was impressed by the professionalism and dedication of all. In the future we will commit to developing our skill base in new build and repair and maintenance, but also expand our capabilities in design and combat systems integration.

We now have a board with a number of new members who can bring their experience and contacts to supporting the Company, but have also been able to retain some members of the previous board to provide continuity and a knowledge base. There have also been some senior management changes which we hope will now provide some stability for the Company’s operations.

ADSB’s external auditors noted during the course of their audit weaknesses in ADSB’s internal controls over the project accrual process (as their basis for a qualified opinion). We take note of the auditor’s concern and observe that historically project accruals were rather over-estimated than insufficient, following the principle of prudence. The new management is implementing a number of enhancements to the project accrual and cost estimation processes including changes to the approval of timesheets to ensure all labour costs are being reflected on a more timely basis, creation of a document control centre under the Finance department through which all direct invoices are recorded and accrued for, and more efficient project closure mechanisms. An enhancement to the ERP systems will be initiated in Q2. We are confident that these measures will prove to be effective and there will no qualification of the accounts in the current financial year.

I would like to thank the staff of ADSB for maintaining standards and morale during a difficult period which saw extensive changes of senior management and board members. I am confident we will continue to develop our ability to support our customers, and the nation, in the coming year.

______ _ Dr. Fahad Saif Harhara Al Yafei Chairman of the Board

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