Review of financial reporting Siem Shipping Inc.

The Board of Directors
c/o Star Reefers AS
Jerpefaret 12
0788 OSLO

Enquiries to: Håkon Stensrud
Dir. line. +47 22 93 96 87
 Our reference: 14/6476
Date: 29.10.2014

1. Introduction
Finanstilsynet has reviewed certain aspects of the 2013 consolidated financial statements of Siem Shipping Inc ("SSI"), cf. the Securities Trading Act section 15-1 (3).
Reference is made to previous correspondence in the matter, most recently SSI's response letter of 22 October 2014.

SSI is operating in the specialised reefer industry under the trading name Star Reefers. At year-end 2013 the company controlled a fleet of 32 reefer vessels, of which 19 vessels were owned by the company. The company's main focus is the banana transportation segment.

Below is a summary of the main topics addressed by the review. The review is hereby considered closed.

2. Topics covered in the review

2.1 Impairment of assets
The company reported in its 2013 financial statements that vessels had been subject to an impairment review in accordance to IAS 36 Impairment of Assets. The impairment review was based upon independent shipbrokers' appraisal values and the expected future cash flows of each vessel. No further information regarding the underlying assumptions for the different tests were disclosed.
 
2.1.1 Disclosure requirements
Finanstilsynet refers to IAS 36.132, which states that an entity is encouraged to disclose assumptions used to determine the recoverable amount of assets during the period. Finanstilsynet emphasises that an obligation to disclose information may also be present where no impairment loss is recognized. This follows from the provisions of IAS 1 Presentation of Financial Statements paragraph 125 concerning estimation uncertainty. Assumptions disclosed in accordance with IAS 1.125 relate to the estimates that require management's most difficult, subjective or complex judgments; see IAS 1.127. In Finanstilsynet's view, the assumptions used in the calculation of value in use are often of this nature.

SSI has acknowledged Finanstilsynet's reasoning as described above, and will disclose more information about assumptions used in the future. Finanstilsynet notes this for the record.

2.1.2 Impairment test
The company has supplied Finanstilsynet with additional information regarding the impairment review process. All vessels have been valued by two independent brokers. The valuation basis being current market value, assuming the vessels are in sound condition and free of charter. Based on these appraisals, SSI has estimated fair value less cost to sell. For all but two vessels, the estimated fair value less cost to sell supported the carrying amount. For the remaining two vessels the company has also calculated the recoverable amount on a value in use basis. Finanstilsynet has commented on some technical weaknesses of the value in use model, but the resulting effect on value is considered to be immaterial for the period in question. SSI has confirmed that these comments will be taken into consideration when performing future calculations.

Finanstilsynet has noted SSI's impairment test for the record, and have no further comments.

2.2 Segments
In the segment disclosure provided in the financial statements for 2013, it is stated that the group has one reportable segment. Finanstilsynet has pointed out that not all the entity-wide information required by IFRS 8 Operating Segments paragraph 31-34 has been included in the financial statements.

Finanstilsynet notes for the record that SSI with effect from second quarter 2014 reports a break- down of both the cargo carried and revenue types.

With regards to geographical information, it is the company's opinion that to present the specific location of the vessels would not add meaningful information, but information on customers loading ports across geographic regions will be included in future reporting. Finanstilsynet notes this for the record.

Required information according to IFRS 8.34 about the extent of reliance on major customers will according to the company be included in future annual financial statements.  Finanstilsynet notes this for the record.

2.3 Revenues
An entity's revenue disclosures are important to ensure that users of the entity's financial reporting gain a correct understanding of its business. The company's revenue comprises freight revenues from time charters and voyage charters. According to IFRS 8.32, an entity shall report the revenues for each product or service (see 2.2 above). Also according to IFRIC 4 Determining whether an Arrangement contains a Lease paragraph 12-15, it is required to separate lease payments from other payments for services included in a charter contract, eg. ship management, maintenance etc.
SSI will for future reporting periods specify in the accounting principles note that the time charter income consists of a lease element and a service element and the basis for which each element is accounted for.

Finanstilsynet assumes that SSI in future financial statements will report a split of t/c revenues according to IFRIC 4, unless the service element is considered immaterial compared to total t/c revenues, or that a split is impracticable, ref. IFRIC 4.15.

2.4 Leases
Finanstilsynet has requested the company's comment regarding disclosure requirements for lessors according to IAS 17 Leases paragraph 56 for the four vessels under conversion.

SSI informed that due to delays at the yard and late re-delivery, the vessels time charters did not commence until 2014, hence no income or other disclosures were included in the 2013 financial statements. SSI has acknowledged the point raised regarding disclosures under IAS 17.56 and will disclose these in future financial statements.

Finanstilsynet notes this for the record.

2.5 Other items
2.5.1 Presentation and structure
Finanstilsynet has advised SSI to review the structure and presentation in the annual report to ensure that the information is disclosed in a manner that promotes the users understanding of the financial statements. Clearly labelling whether the information is for an individual entity or a group of entities, and cross-reference each item in the statements of comprehensive income or the statement of financial position to related information in the notes would improve the readability of the report.

SSI has informed that in connection with the production of the 2014 annual accounts, the Company will revise the notes to improve the disclosure and assist the user to more easily understand the financial statements.

Finanstilsynet notes this for the record.

2.5.2 Minimum disclosure of related parties
Finanstilsynet is of the opinion that not all information required according to IAS 24 Related Party Disclosures paragraph 18 were disclosed in the annual report, specifically disclosure of terms and conditions for the loan provided to the company from Siem Industries Inc.

SSI has informed Finanstilsynet that information regarding terms and conditions will be included in future reporting. Finanstilsynet notes this for the record.

3. Closing
Finanstilsynet has not considered whether the above matters are subject to the securities legislation's provisions regarding the requirement to disclose inside information in accordance with the securities Trading Act section 5-2 subsection (1) and section 3-2. Finanstilsynet expects the undertaking to consider its requirement to disclose inside information on a continuous basis.

Finanstilsynet has forwarded a copy of this letter to the issuer's appointed auditor and to Oslo Børs.

On behalf of Finanstilsynet

Gaute Gravir
Head of Section

         Håkon Stensrud
         Senior Adviser