TEXTAINER

www.textainer.com
Textainer Group Holdings Ltd, our 73% offshore subsidiary is primarily engaged in owning and leasing standard and special dry freight marine cargo containers to global transportation companies. The company had an excellent year, with profit after tax of US$55,3 million, up from the previous record of US$46,4 million achieved in 2004. These amounts exclude the effects of the changes required to be made by Textainer in accounting for its derivative instruments, referred to below.

Textainer has determined that it may not use hedge accounting for certain interest rate swaps taken out to hedge economic risk, notwithstanding that the swaps had been economically effective. It is therefore required to account on the basis that the net result of the marked-to-market valuation of these instruments flows through the income statement. In the past, these adjustments have been charged or credited direct to equity in accordance with the principles of hedge accounting. The net result of this non-cash change is an increase in Textainer's 2005 earnings of US$4,9 million (2004: US$5,8 million).

Taking these changes into account, Textainer's reported earnings for 2005 were US$61,6 million (2004: US$52,2 million). Its contribution to Trencor's adjusted headline earnings for the same period was US$45,0 million or R284,8 million (US$38,0 million or R241,8 million in 2004).

Average fleet utilisation for the year was 91,9% (2004: 93,2%) and the actual utilisation at the end of March 2006 was 89,7%.

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 2005 numbered 1 155 000 TEUs (twenty-foot equivalent units) of which some 68,4% were on long-term lease. Textainer itself owned 481 000 TEUs of which almost 75% were on long-term lease. The average age of both Textainer's owned fleet and the whole fleet is six years.

New equipment purchases during the year amounted to 78 454 TEUs with virtually all of them going into long-term leases and finance lease contracts. As at the end of 2005, the company had unutilised borrowing facilities of approximately US$445 million at its disposal. The ratio of interest-bearing debt to total equity was 203% (2004: 269%) 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 an excellent 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.

A summarised balance sheet and income statement for Textainer appears on these aforementioned links.

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TRENSTAR INC

www.trenstar.com
TrenStar Inc, our 56% held subsidiary headquartered in Denver, Colorado, and its operating companies in various countries (collectively 'TrenStar') provide customers with returnable packaging and other mobile assets, and in many instances manage these for the customer to improve control and visibility of these assets and their contents, and to create greater efficiencies as they move through the supply chain. Mobile assets include beer kegs, air cargo containers, chemical containers, cages, various types of cargo and intermediate bulk containers and healthcare equipment. Our offering includes barcode and radio frequency identification (RFID) tracking technology and logistics/business analysis and information management. We also provide predominantly larger customers with advice on the design and sourcing of mobile assets. In appropriate circumstances, TrenStar owns the mobile assets and provides these, together with the tracking technology, to customers on a lease or 'pay per use' basis. In other instances, the customers will own the assets with TrenStar providing the technology and accompanying management services.

In our previous annual report we noted that market acceptance of TrenStar's business model can be a lengthy process. That remains the case, although a greater acceptance of the benefits of tracking and of outsourcing the management of the customer's returnable packaging could accelerate the pace in future years.

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The turnover growth of 9,8% includes second half revenue from the addition of UK£9 million worth of beer kegs for Scottish Courage Ltd and a transaction in June 2005 for the purchase and subsequent management of a fleet of cages for Bridgestone Firestone in the US (the latter being a ten-year contract with estimated annual revenue of US$4,5 million). It is disappointing that the company was unable to attain profitability, which is attributable to the slower than anticipated growth in revenue (limiting TrenStar's ability to spread the necessary central overhead expense structure over a larger income base), some setbacks from higher transportation and fuel costs as well as lower than expected draught beer sales by certain of our brewer customers in the UK (resulting in lower per fill fee income).

TrenStar Inc requires ongoing capital contributions to fund the above losses and to provide an equity base for debt funding of asset purchases. In respect of the latter, by end January 2006, US$21 million had been lodged in security accounts of TrenStar and its subsidiaries to serve as security for such borrowings. To meet these requirements, Trencor (US$7 million) and Carlyle Venture Partners (US$3 million) subscribed for additional shares in TrenStar Inc in December 2005 and March 2006. TrenStar is considering various alternatives to cater for future funding requirements and to implement less capital intensive funding mechanisms. In the process, it may seek to raise significant additional equity.

At 31 December 2005 TrenStar's total interest-bearing debt amounted to US$275 million, of which US$170 million or 62% was 'ring-fenced' in special purpose subsidiary companies, with the debt in each such subsidiary secured by the assets of that subsidiary, without recourse to TrenStar Inc itself.

Certain senior management changes were implemented during the second half of the year. In August 2005 Gregory Cronin was replaced as CEO by Alex Brown (a long-time senior executive and main board member of Trencor who retired in 2002). Mr Brown's appointment was on an interim basis and, during February 2006, the board appointed a new senior executive, Mr Ed Flaherty, as Chief Operating Officer and Chief Financial Officer.

TRENSTAR SA

TrenStar SA (Pty) Ltd, owned 100% by Trencor, operates in South Africa with a business model similar to that of TrenStar Inc. During the year under review, TrenStar SA made good progress in extending its business, mainly in the automotive and retail industries. The company improved on the slow growth of the past two years with turnover increasing 66% and made a positive contribution to group earnings.

It is expected that this trend will continue in 2006, as we find increasing acceptance by customers of the benefits of TrenStar SA's mobile asset and information management services. In March 2006 Toyota SA awarded its coveted Best Service Supplier of the Year award for 2005 to TrenStar SA, an excellent achievement against stiff competition from over 100 competitors.

LONG-TERM RECEIVABLES

The aggregate amount of outstanding long-term receivables at 31 December 2005 was US$380 million (2004: US$454 million). The discount rate applied in the valuation of the US$ denominated long-term receivables is unchanged from 2004 at 8,5% per annum and the net present value of these receivables, before any valuation adjustments, totalled R2,1 billion (2004: R2,2 billion). An exchange rate of US$1 = R6,31 was used to translate dollar amounts into rand at 31 December 2005 (2004: US$1 = R5,61). In compliance with the requirements of International Financial Reporting Standards, the resulting translation gain, amounting to R272 million at net present value (2004: loss of R394 million) has been included in profit before tax.

The decrease in the value of the rand resulted in a loss of R85 million (2004: gain of R162 million) on translation of the dollar-denominated valuation adjustment against the receivables. The trading conditions currently being experienced in the container leasing industry and the current outlook for the collectibility of, and timing of receipts from, the long-term receivables has resulted in a further 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 R67 million in the year under review. At 31 December 2005, the net present value of long-term receivables after valuation adjustments amounted to R1,5 billion (2004: R1,4 billion).

The discount rate applied to reduce the rand amounts attributable to third parties to their net present values is unchanged from 2004 at 10% per annum.

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TAC

The TAC group, in which Trencor has a 44% shareholding, owned 228 000 TEU of dry freight containers of various types and 2 488 stainless steel tank containers at 31 December 2005, which are managed by a number of equipment managers. Textainer continues to manage the largest portion of the dry freight container fleet and Exsif Worldwide Inc manages most of the stainless steel tank containers. The strong market conditions noted in last year's report were maintained until the fourth quarter of 2005 and average utilisation across the whole fleet remained at 91%. The market softened in the fourth quarter and is expected to show further weakness. New container prices also declined significantly during the year while the resale prices for used containers held up fairly well. During the year, TAC purchased 11 331 TEU of new equipment at a cost of US$22 million from manufacturers in China; these purchases were financed out of the company's existing facilities. All of the new equipment purchased is intended to be placed into long-term leases.

PROPERTY INTERESTS

During December 2005, agreement was reached for the sale of the group's 31% interest in a property development in Midrand known as Midrand Town Centre, which will result in the group recovering the cost of its investment.

Trencor has a 15% interest in the company that owns and operates Grand Central Airport. The airport continues to provide satisfactory returns. Our exposure to this investment is R3 million and is regarded as non-core and will be disposed of when a suitable opportunity arises.

FINANCE

The principal financial ratios at 31 December 2005 and the comparative figures for 2004 are reflected in the table below. In order to demonstrate the impact of the consolidation of Textainer and BLI, the wholly-owned subsidiary of TrenStar Inc which owns the beer keg fleets used by three major UK brewers, the ratios are also stated on the basis of notionally accounting for Trencor's interests in these companies using the equity accounting method.

Textainer completed a US$580 million ten-year bond issue in May 2005, refinancing existing debt and freeing up credit lines. Trencor debt at the centre at 31 December 2005 amounted to US$3,0 million (2004: US$19,4 million). This loan was repaid during February 2006.

Capital expenditure during the year amounted to R816 million of which R343 million was incurred by Textainer in replacing and expanding its container fleet and R457 million by TrenStar. 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.

 
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