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Textainer's customers include virtually all of the leading international shipping lines. They are served by Textainer's own offices, agents and depots strategically located in markets throughout the world. Textainer's carefully designed specifications, in-house production quality control, depot selection and audit programme are all part of a system built to control customers' costs and provide a high-quality container service. In addition to its own fleet, Textainer manages containers for a number of other owners, including TAC, a container-owning company in which Trencor has a 44% shareholding. Management fees and sales commissions arising from these arrangements continue to make significant contributions to the company's operating results and also promote financial stability, even in cyclical downturns. The total fleet under management at 31 December 2004 numbered 1,14 million TEU (twenty-foot equivalent unit) of which some 67% were on long-term lease. Textainer itself owned 484 000 TEU of which almost 70% were on long-term lease. The average age of Textainer's owned fleet and the whole fleet is 6 years. During November 2004 Textainer purchased 79 000 units owned by Xtra International for US$85,3 million; these containers were being managed by Textainer so this transaction did not increase the size of the total fleet but did significantly change the balance of owned and managed containers. The company also procured the provisional sale of the remaining containers owned by the various public limited partnerships in the United States, with the effective date of this transaction to be 1 January 2005, subject to approval by a majority of the limited partners. Textainer will continue to manage the containers on behalf of the new owners. Once the transaction has been approved by the limited partners, the various partnerships will be terminated. The company's sophisticated IT systems are such that it is able to adapt to these changes without any interruption to the day-to-day operations of the business. 150 000 TEU of new containers were added to the fleet during 2004 with virtually all of them going into long-term leases. This makes an average of more than 104 000 TEU of new containers added to the fleet annually over the past four years. As at the end of 2004, the company had unutilised borrowing facilities of approximately US$149 million at its disposal. The ratio of interest-bearing debt to total equity was 269% (2003: 239%) which is conservative by industry standards. The equipment resale division enhances the returns to container-owners by maximising the value received at the end of the economic life of the equipment. It also purchases used containers around the world, sometimes repositions them and sells them in major demand markets. The strong leasing market made the sourcing of used containers for resale very difficult. The division nevertheless made a satisfactory contribution to net profit as a result of higher sale prices for used containers. The logistics division ensures that the repositioning of empty containers from surplus to demand locations is completed in the most cost-efficient manner possible. Textainer Services is a new division, responsible for assisting shippers in implementing the US Customs AMS 24 hour reporting requirements. This division will seek to expand to other countries and also to airfreight as well as seeking to convince smaller shipping lines to outsource their documentation function. It is in an early phase of its development, but the initial indications for growth are encouraging. A summarised balance sheet and income statement for Textainer appears on page 56 and page 57.
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During the year under review TrenStar continued to expand its activities, but market acceptance of its business model can be a lengthy process. The novelty of TrenStar's offering and the requirement that customers enter into long-term contracts for the outsourcing of strategic assets, often results in longer than anticipated lead times. On the other hand, recurring revenue and more predictable growth inherent in these larger contracts, in many cases with minimum usage guarantees from the customer, is an attractive feature of TrenStar's business model. As we achieve success and are able to build upon established relationships within selected industries, the closing of large contracts is likely to accelerate. To date, TrenStar has achieved its greatest success in the beer industry. It acquires the beer keg fleets of its beer brewer customers, buys additions to these fleets as required and fits the kegs with RFID transponders. TrenStar's software systems are used to provide customers with information based on data collected through this RFID technology, and to manage the kegs and make them available to the customers on a 'pay per use' basis. In May 2004, TrenStar concluded the third such major contract in the United Kingdom with Coors UK. TrenStar now owns and manages 60% of all beer kegs in the UK. In the US, it is achieving steady progress and now provides over 100 smaller customers with their keg requirements. TrenStar is engaged in discussions with several large brewers regarding similar transactions. In other industries, TrenStar is involved in initial contracts or pilot projects. Most prominent amongst these are the following:
The customer lists of TrenStar and TrenStar SA (Pty) Ltd include the likes of Scottish Courage Breweries, Carlsberg UK, Coors UK, Kraft, Goodyear, Burberry, Prada Stores, Lufthansa Air Cargo AG, ExxonMobil, Ford, Toyota, DaimlerChrysler and Dow Chemical. As mentioned last year, it was of course necessary to vest TrenStar with the manpower resources, technology, market presence and general ability to deliver on the business model promised to large international customers. The associated costs require a critical mass for the business to achieve acceptable and sustained profits. In 2004 we achieved good profits in the beer keg business. However, despite promising growth in revenue (see below), the delay in concluding large contracts and the costs to exit from non-core activities in TrenStar UK (previously KTP) after the earlier acquisition of that company, prevented the company as a whole from achieving profitability in 2004.
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At 31 December 2004 TrenStar Inc's total interest-bearing debt amounted to US$247,0 million. Of this, US$225,4 million or 91,3% was 'ring-fenced' in special purpose subsidiary companies, where the debt in each subsidiary is secured by the assets financed in that subsidiary, without recourse to TrenStar Inc itself. There is no recourse to Trencor in respect of any of the TrenStar Inc debt.
The increase in the value of the rand resulted in a gain of R162 million (2003: R335 million) on translation of the dollar-denominated valuation adjustment against the receivables. Furthermore, the favourable trading conditions currently being experienced in the container leasing industry and the improved outlook for the collectability of and timing of receipts from the long-term receivables has resulted in a reduction in the dollar amount of the net valuation adjustment. This reduction, translated into rand, had a positive effect on pre-tax profit amounting to R155 million in the year under review. At 31 December 2004, the net present value of long-term receivables after valuation adjustments amounted to R1,4 billion (2003: R1,6 billion). The board has decided that the discount rate applied to reduce the rand amounts attributable to third parties to their net present values should be reduced from 12% per annum applied last year to 10% per annum in recognition of the lower long-term rand interest rates currently prevailing. This change has been applied with effect from 1 January 2004 and the net adverse effect on pre-tax profit was R42 million. As noted elsewhere in this report, pursuant to the settlement of the protracted dispute with the South African Revenue Service over the tax treatment of our export partners' participation in the container export trade, payment of certain amounts attributable to our export partners will be accelerated. Taking this and the reduction in the discount rate into account, the net present value of the amounts attributable to third parties and after valuation adjustments, was R474 million (2003: R420 million).
Amounts owing by TAC for containers acquired in the past from South Africa on extended credit terms are included in long-term receivables.
Our aggregate exposure to these property interests is R20 million. The airport continues to provide satisfactory returns on our investment and the Midrand Town Centre is substantially let, producing a good positive cash flow.
As at 31 December 2004, the capital owing on the US dollar loan raised in 2002 and applied in repaying all of the company's rand borrowings was US$16,1 million which will be fully repaid by 20 October 2005. TrenStar Inc established fresh facilities during the year to finance the purchase of additional assets and for working capital. Capital expenditure during the year amounted to R2 206,5 million of which R1 662,0 million was incurred by Textainer in replacing and expanding its container fleet and R530,3 million by TrenStar, including R490,5 million by BLI in expanding its fleet of beer kegs in the UK. These amounts were all funded out of existing funding facilities and, in the case of TrenStar, also from the proceeds of fresh equity raised from shareholders. During the year, the group completed the disposal of its properties in Wadeville, Parow and Bloemfontein which were no longer required. Payment of R40 million was received in February 2005 against registration of transfer to the purchasers. The manufacturing equipment in the closed Parow container tank manufacturing factory was sold to foreign interests for US$3,5 million, payable over a period of five years. Top of page |
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Textainer