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TEXTAINER
Textainer Group Holdings Ltd, our 74% offshore subsidiary, is primarily
engaged in the business of owning and leasing-out standard and special
dry freight marine cargo containers to global transportation companies.
It achieved very satisfactory results for the period under review
and further strengthened its position as the world's largest lessor
of standard dry freight containers.
Textainer's administrative headquarters are based in San Francisco
and over 300 customers, including virtually all of the leading international
shipping lines, are served by Textainer's offices, agents and depots
located in strategic markets throughout the world. Its dedicated
team of specialists provides excellent service by ensuring high
quality containers with lower repair costs for customers. It remains
the only container leasing company to have received worldwide ISO
9002 multi-site certification. Textainer's carefully designed specifications,
in-house production quality control, unique depot selection and
audit programme and the industry's most comprehensive labour and
material repair tariffs, are all part of a quality system built
to reduce customer costs.
In addition to its own fleet, Textainer manages containers for
a number of other owners. These include six United States public
limited partnerships (which initially raised almost US$500 million
and own approximately 18% of the containers managed by Textainer),
as well as container owners associated with the Trencor group, such
as TAC and PrimeSource. Management fees and container sales commissions
resulting from a contract, awarded in 1999, for the management of
a fleet of 230 000 TEU (20-foot equivalent unit) owned by Xtra International,
a large transportation equipment rental company listed on the New
York Stock Exchange, are contributing significantly to operating
results. The success of this arrangement and the improvement in
performance of the large Xtra fleet proves that Textainer is an
excellent candidate to manage additional fleets for other owners.
An average of over 75 000 TEU of new production has been added
to the fleet annually over the last ten years and the total fleet
under management currently exceeds 940 000 TEU. The portion of the
fleet owned by the Textainer group itself is now 403 000 TEU of
which 68% is on long-term lease resulting in higher utilisation
and less volatile revenues.
The Equipment Resale Division which purchases second hand containers
across the globe and sells them in the world's major demand markets,
made a satisfactory profit and an important contribution to total
value realised by the owners of containers. Textainer is the sole
supplier to the Mobile Storage Group, a US-based international provider
of storage facilities.
The Logistics Division ensures that the repositioning of containers
from surplus locations to demand locations is completed in the most
cost efficient manner possible. This Division assists shipping lines,
container lessors and others with their repositioning needs.
During the period under review, Textainer Marine Containers Ltd
('TMCL') and Textainer Ltd ('TL'), the two financing arms of the
Textainer group, completed three separate financings totalling US$595
million. These achieved more effective and lower cost financing.
TMCL issued two series of notes using a master indenture structure
totalling US$550 million. These notes, guaranteed by MBIA Insurance
Corporation, received AAA and Aaa ratings by Standard & Poor's
Ratings Services and Moody's Investor Service Inc, respectively.
The notes were fully subscribed and were placed in a private offering
with various institutional investors. The proceeds were used primarily
to replace existing indebtedness. While the notes may be repaid
earlier, the expected final payment date is November 2011 and the
legal final payment date is November 2016. TMCL has also been provided
with interest rate swaps to mitigate the risk of fluctuations in
the floating rate index.
TMCL also re-issued certain notes. Drawdowns under these notes
will be used to purchase additional marine cargo containers over
the coming years. It is expected that these notes will be refinanced
within two years by issuing a new series of term notes under the
master indenture. Security for these notes consists primarily of
a fleet of intermodal marine cargo containers on lease to various
shipping lines and an interest in the associated leases.
TL entered into a US$45 million revolving credit facility which
will be used primarily for general corporate purposes.
Lower cargo volumes due to the general recession, at a time when
shipping lines added 13% in vessel capacity, placed pressure on
lessors. Textainer's fleet operated at 85% utilisation in August
2000, declining to 81,4% at the beginning of the year and 72,7%
by June 2001. It remained within a 1% range of this level until
year-end and averaged 73,9% for the calendar year.
Textainer's earnings amounted to US$14,8 million
for the 12 months to 31 December 2001. Its contribution
to Trencor's headline earnings for the eighteen months was R166
million. A summarised balance
sheet and income
statement for Textainer can be viewed.
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LONG-TERM RECEIVABLES
The aggregate amount of long-term receivables, now entirely denominated
in US dollars, was US$588 million at 31 December 2001 (30 June 2000:
US$659 million). At their net present values, discounted at 9,5%
per annum and after marking forward exchange contracts to market,
the value of these receivables totalled R5,15 billion. An exchange
rate of US$1=R12,06 was used to translate dollar amounts into rand
at 31 December 2001 (30 June 2000: US$1=R6,78). In compliance with
the requirements of Generally Accepted Accounting Practice, the
resulting translation gain, amounting to R2,1 billion at net present
value, has been included in income before tax.
The portion of the long-term receivables which is attributable
to our export partners is denominated in rand. During the period
under review, the rate at which these rand amounts were discounted
to their net present values was reduced from 15% per annum to 12%
per annum. This change in the discount rate resulted in an additional
charge against current income before tax amounting to R88 million.
The decline in the value of the rand also required an upward revaluation
in the net present value of the dollar-denominated provisions. At
the same time, it was considered prudent to increase the amount
of these provisions in dollar terms, to take account of the difficult
conditions in the container leasing industry at the present time
and the effect that this may have on the timing and collectibility
of the long-term receivables. The aggregate increase in the net
present value of the provision, net of amounts attributable to third
parties, was R1,1 billion, of which approximately R209 million is
attributable to the increase in the dollar provision and R866 million
to the decline in the exchange rate.
At 31 December 2001, the net present value of long-term
receivables after provisions amounted to R3,2 billion (30 June 2000:
R2,4 billion) and the net present value of the amount attributable
to third parties, after adjustments, was R471 million (30 June 2000:
R548 million).
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SUPPLY
CHAIN MANAGEMENT
TRENCOR SOLUTIONS
The business of the Trencor Solutions group is the provision of
returnable packaging solutions and services to various industries
in South Africa. This group offers financing, asset management,
information technology and technology integration for the mobile
assets in the supply chain. In addition to providing packaging assets/units
by means of short- and long-term leases, the software systems and
infrastructure made available by Trencor Solutions to its customer
base aim at improving the efficiency of the supply chain and to
add value to the use of returnable packaging.
Users of the systems and infrastructure increasingly find that
they are able to enhance their own supply chain efficiencies and
achieve substantial savings in the process. During the period under
review, Trencor Solutions was able to enhance its position in South
Africa as a leader in this field.
The results of Trencor Solutions were impacted negatively during
the 18-month period by substantial expenditure incurred in the process
of sourcing an international client base and further improving its
intellectual property. Considerable value was generated through
this expenditure in the form of Trencor Solutions' shareholding
in TrenStar, reported below. Ignoring these expenses, Trencor Solutions
achieved a more or less breakeven operating position, before finance
costs, a satisfactory result bearing in mind that its business was
still in a development phase during this period.
TRENSTAR
In our previous annual report we mentioned that, as the world moves
from expendable packaging to returnable/re-usable packaging, the
products of Trencor Solutions had attracted international attention
as a solution to managing returnable packaging. The steps we took
to exploit these opportunities internationally led to the merger
of our USA subsidiary, Trencor Solutions Inc (started in Atlanta,
USA in late 2000), and the intellectual property of Trencor Solutions
(excluding South Africa) with the operations of the MicroStar Group
of companies, operating out of Denver in the USA, to create TrenStar
Inc, 66% owned by Trencor. The operations of MicroStar consist of
the ownership, licensing of the use of, tracking and retrieval of
specialised containers.
In December 2001, TrenStar acquired, against the issue of shares,
100% of KTP Limited, a leading United Kingdom-based provider of
bar code and RFID (radio frequency identification) integration solutions
and, as a result, Trencor's interest in TrenStar was diluted to
61%. In this transaction, TrenStar was valued at US$45 million.
Thus, TrenStar is now a holding company directing and managing
business activities undertaken through wholly owned operating subsidiaries
located primarily in the USA, the United Kingdom and Australia.
They include (i) ownership and licensing of the use of beer kegs,
intermediate bulk containers and other high value portable assets
primarily for the beverage, food and chemical industrial sectors
and (ii) providing, implementing and managing information technologies
for data capture applications, including real-time asset positioning
and content information, and monitoring and controlling the movement
of information, goods and returnable packaging. The company now
offers asset-based financing, management services, information technology
and technology integration for the returnable packaging assets of
the supply chain.
TrenStar is currently in negotiations with a number of large
prospective new customers in the US and the UK. We believe this
business has excellent potential.
CENTRICITY AND THE DESCARTES SYSTEMS GROUP
We previously reported the acquisition of a 40% interest in Centricity
Inc, a recently established Internet-based transportation and logistics
business services provider and systems developer. In the course
of canvassing strategic investors, Centricity was identified by
the Descartes Systems Group Inc (a Canadian corporation listed on
NASDAQ and the Toronto Stock Exchanges) as an ideal addition to
their own products, services and people skills. Trencor believes
access to the skills at Centricity as well as those of Descartes
and its global information networks, would enhance the ability of
Trencor's operating companies to contract business globally and
offer a better value proposition. As a result, during June 2001,
the shareholders of Centricity (including Trencor) exchanged their
holdings in the company for shares in Descartes.
In the exchange, Trencor acquired 546 757 shares (just over 1%
of the total in issue) in Descartes valued at US$19,70 per share,
the weighted average listed price on NASDAQ over 20 days prior to
the conclusion of the contract. The transaction yielded a net gain
of R76 million which is included in abnormal items. In line with
the general drop in US equity markets, Descartes shares were trading
at US$7,45 per share at 31 December 2001. These shares were marked
to market at that date and written down to R49 million.
In a separate transaction Trencor, on behalf of
all its operating companies and associates, entered into a network
partner agreement with Descartes, in terms of which these operations
now have access to all of Descartes' existing and future logistics
information networks without having to pay up-front technology transfer
fees. With over 5 000 connected companies in over 60 countries,
these networks constitute some of the largest logistics information
networks in the world.
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CONTAINER MANUFACTURING
DRY FREIGHT CONTAINERS
The closure of our dry freight marine container factory at Isithebe,
KwaZulu-Natal, and the disposal of the production materials, plant
and equipment were completed during the period under review. The
production materials and components were sold to a Chinese container
manufacturer. Following lengthy investigations into various disposal
options for the plant and machinery, and negotiations with interested
parties, the plant and equipment were sold for US$5 million under
an instalment sale agreement and shipped to a container manufacturer
in China. We also provided the purchaser with technical assistance
in installing and commissioning the plant.
TANK CONTAINERS
The tank container manufacturing plant in Parow in the Western
Cape continued to operate at a low but steady level throughout the
18-month period to December 2001. Tank container prices came under
renewed pressure. Market conditions dictated a continuing move to
non-standard tank containers as operators sought new markets and
applications for their fleets. Over-capacity amongst tank manufacturers
in the industry continued to put competitive pressure on manufacturers
worldwide. Our emphasis on quality, on-time delivery and expansion
of our product range helped to expand our customer base. This was
partly offset by mergers and closures amongst operators and lessors
that reduced the number of potential customers in the market.
Marketing efforts have been intensified, both by increased customer
contacts and greatly stepped-up technical support services and quotations.
The lower levels of activity required a reduction in manpower during
the period. Rigorous attention to cost reduction continues. Low
production volumes continue to adversely affect costs per unit in
spite of some successes in reducing operating expenses. The plant
operated below breakeven during the period under review.
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