Chairman's Statement

Trencor had another pleasing year. Trading profit, net of financing costs, increased in 2007 by 23% from R549 million to R675 million. This followed annual growth in trading profit of 12%, 31% and -1% in 2004, 2005 and 2006 respectively (34%, 31% and -5% in US dollar terms). These fine results are largely due to the excellent performance of our Bermuda-headquartered container business, Textainer, which operates worldwide with its administration taking place in San Francisco.

Adjusted headline earnings per share, which best reflects our sustainable earnings and includes, inter alia, net gains and losses arising from the ongoing disposals of containers from Textainer’s leasing fleet, were 214,0 cents per share. This is comparable to adjusted diluted headline earnings per share of 175,2 cents in 2006, an increase of 22%. Following the conversion of the debentures into shares on a one-for-one basis effective 1 January 2007, all per share comparatives in this statement are shown on a fully diluted basis.

Headline earnings per share were 212,9 cents (2006: 209,1 cents, diluted). These included net unrealised foreign exchange gains and losses as well as the following two adjustments:

Earnings were enhanced by 21,6 cents per share because TrenStar Inc was required to cease charging depreciation (of approximately US$10 million) on its UK beer keg fleet from 30 March 2007, the date the company resolved to exit this business, although it continued to earn revenue on these assets until the contracts were finally terminated later in 2007; and
Earnings were further enhanced by the creation of a deferred tax asset by TrenStar Inc of US$10,5 million which will be realised in 2008 pursuant to the implementation of the strategic decisions referred to below. The effect of this non-recurring item on Trencor’s earnings was 22,7 cents per share.

Net exchange gains and losses (realised and unrealised) arising on translation of net dollar receivables and the related provisions are not included in adjusted headline earnings. Losses were R29 million or 11,0 cents per share (2006: net gain of R135 million or 51,2 cents per share).

The effect of these adjustments on earnings per share are better seen in tabular form:

	2007	2006
		(diluted)
Headline earnings	212,9	209,1
Add/(Deduct):
Net gains on container sales	34,4	17,3
Foreign exchange translation losses/(gains)	11,0	(51,2)
TrenStar depreciation	(21,6)	–
TrenStar deferred tax credit	(22,7)	–
Adjusted headline earnings	214,0	175,2

The excellent operating performance and effective working capital management of Textainer, together with the ongoing collection of long-term receivables produced a further improvement in cash flow and the board declared a final dividend of 58 cents per share making a total of 80 cents for the year. This is higher than our policy guideline that dividends should be covered about three times by sustainable headline earnings, but we believe it appropriate in view of the low gearing, strong cash flow and a promising start to the new year.

During 2006 and 2007 structural changes were implemented that simplified the group’s structure and reduced the investment entry points into Trencor from five to two. This was followed by external reviews of our structure and strategic options, leading to a decision to list Textainer on the New York Stock Exchange (‘NYSE’).

Textainer

In October 2007, Textainer completed an initial public offering (‘IPO’) of common shares on the NYSE at US$16,50 per share. Halco Holdings Inc, a company in which Trencor has a 100% beneficial interest, subscribed for an additional US$34,6 million of shares in the IPO, leaving Trencor’s current interest in Textainer at 62,6%. Textainer used a portion of the net proceeds of the IPO of approximately US$138 million to repay debt raised for the Capital Lease transaction, and to purchase additional equity in Textainer Marine Containers Ltd (‘TMCL’) as described below.

A stated goal of Textainer’s IPO was to strengthen its ability to finance acquisitions. The plan for 2008 and beyond is to continue consolidation in the container leasing industry through acquiring other container fleets.

Textainer achieved several significant milestones in 2007:

In September, it began managing the 500 000 TEU (twenty-foot equivalent unit) container fleet of Capital Lease, an erstwhile competitor. Textainer purchased the management rights to this fleet of high quality and relatively young containers for US$56 million in July, and fully integrated it into Textainer’s existing 1,5 million TEU fleet in less than two months. This transaction highlighted two points important to our plans for future growth:

The excellent economies of scale achievable in the container leasing business. Despite growing the size of Textainer’s fleet by one-third, it did not require any increase in headcount. Even before this transaction Textainer was the first container lessor to operate a fleet of 1,5 million TEU, and this transaction made it the first container lessor with a fleet of over 2 million TEU. We now have a 20% market share of the container leasing industry on a TEU basis, but there nevertheless remains ample scope for further acquisitions and creating additional economies of scale. The Capital Lease transaction was accretive to earnings immediately.
The flexibility of our IT systems and the skill and experience of our staff allow quick and seamless integration of a large container fleet with virtually no disruption in customer service. Most container lessors, including Textainer and Capital Lease (before its acquisition by Textainer), utilise proprietary IT systems. We have become expert at transferring data from one system to another as a result of our experience in acquiring fleets.

TMCL is Textainer’s primary asset owning subsidiary and is a joint venture with Fortis Bank. In November, Textainer completed the purchase of 50% of Fortis Bank’s equity in TMCL for US$71 million. This transaction resulted in Textainer increasing the owned portion of its enlarged container fleet to 40% and was immediately accretive to earnings.

In addition to these milestones, in 2007 Textainer also:

Originated 161 000 TEU of long-term leases, a new record;
Achieved 93,9% average fleet utilisation, the fourth consecutive year of over 90% fleet utilisation;
Sourced 137 600 TEU of new containers for its owned and managed fleets for US$242 million; and
Successfully completed the fourth year of its contract as the exclusive supplier of leased containers to the US Military. Textainer has now earned four additional award years by achieving ‘excellent’ performance evaluations each year, enabling the contract to remain in effect through at least 2012.

TrenStar companies

Early in 2007 TrenStar Inc completed its exit from the beer keg business in the UK and Europe. Consistent with Trencor’s strategy of focusing on its marine container businesses (mainly Textainer) it was then determined that new owners should be found for the remaining TrenStar companies.

In February 2008 TrenStar Inc sold its three subsidiaries engaged in leasing and management of kegs and metal cages in the USA for US$72 million. After liabilities and repaying all debt, TrenStar Inc now has net cash of US$5 million, which should increase to around US$13 – US$15 million if that portion of the purchase consideration lodged in escrow, pending the outcome of warranties given in the sale, is released and certain performance targets are met by the sold businesses over the next two years. The remaining assets in TrenStar Inc are a one-third interest in Jettainer GmbH (a joint venture with Lufthansa Air Cargo) and a small Track and Trace activity.

During March 2008 we also disposed of our interest in TrenStar South Africa for a net consideration of R75 million, which included repayment of Trencor’s current shareholder loan.

All of the TrenStar companies’ assets and liabilities were classified as ‘held for sale’ and accounted for as discontinued operations in the results to December 2007, and accordingly the above disposals after the year-end have no effect on our results for the year under review.

Long-term receivables

Collection of the long-term receivables continues satisfactorily; US$37 million was received during the year. The net present value of the long-term receivables, after fair value adjustments, amounted to R1,25 billion. Given the current collections and the positive outlook for collectability, management considered a reduction of R61 million in the fair value adjustment appropriate. This amount was included in income in 2007.

Strategy and group structure

Trencor has, over the last few years, implemented various initiatives to bring greater focus to its business, including the listing of Textainer. Possible changes to the listed structure in South Africa will now receive attention.

Prospects

World economic conditions are volatile. Projections for 2008 and beyond vary, but there seems to be a general view that exports from China and specifically to the United States, if they do grow, will do so at a reduced rate. However, trading to date remains strong and we expect promising results in 2008.

Appreciation

Willem Jordaan was a respected and influential graphic designer in South Africa. Sadly he passed away in August 2007. For the last three decades he played a major role in presenting Trencor’s image in many ways, specifically in the design of various group logos, brochures and our annual reports. His creative and graphic flair will be sorely missed.

I extend my appreciation to my co-directors for their counsel and guidance in the affairs of the group, and, in particular, to the management and staff of Textainer whose outstanding efforts have been recognised in the listing of Textainer.

N I JOWELL
31 MARCH 2008

Ring the opening bell on the NYSE to mark Textainers's listing on 10 October 2007

L to R: Ernest Furtado (Textainer First Vice President, Senior Vice President, Chief Financial Officer & Secretary), Harold Gorvy (Trencor director), Isam Kabbani (Textainer director), David Nurek (Trencor/Textainer director), Rick Ketchum (CEO NYSE Regulation), John Maccarone (Textainer director, President and CEO),
Cecil Jowell (Trencor/Textainer director), Neil Jowell (Chairman Trencor/Textainer), Robert Pedersen (Textainer Executive Vice President), James Hoelter (Trencor/Textainer director), Philip Brewer (Textainer Executive Vice President)