Textainer

Textainer Group Holdings Ltd, listed on the New York Stock Exchange (NYSE: TGH) since 10 October 2007, is primarily engaged in owning, leasing, managing and reselling standard and special dry freight marine cargo containers to global transportation companies. Following the listing, Trencor now has a 62,6% (2006: 72,3%) interest in this company. Textainer produced excellent results in 2007 with net profit of US$66,6 million (2006: US$54,2 million).

Average fleet utilisation for the year calculated on a basis consistent with the past was 91,5% (2006: 91,1%). Beginning 1 January 2007, the basis of calculation was changed to conform to that used by most competitors; on this basis, average utilisation for 2007 was 93,9%.

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 manage 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% interest. Management fees and sales commissions arising from these arrangements continue to make significant contributions to the company’s operating results and also reduce volatility, even in cyclical downturns. Including finance leases, the total fleet under Textainer’s management at 31 December 2007 numbered 2 040 000 TEU (twenty-foot equivalent unit) of which some 65,8% (2006: 63,6%) were on long-term or finance lease. Textainer itself owned 877 000 TEU of which 69,2% (2006: 67,3%) were on long-term or finance lease. The average age of Textainer’s owned fleet was 6,0 years and of the whole fleet 6,4 years.

In September 2007, Textainer began managing the 500 000 TEU fleet of an erstwhile competitor, Capital Lease. The company 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 its then existing 1,5 million TEU fleet in less than two months. The Capital Lease transaction was accretive to earnings immediately.

Textainer Marine Containers Ltd (‘TMCL’) is Textainer’s primary asset-owning subsidiary and is a joint venture with Fortis Bank. In November 2007, Textainer completed the purchase of 50% of Fortis Bank’s equity in TMCL for US$71 million which resulted in an effective increase in the owned portion of the total container fleet; this transaction was also immediately accretive to earnings. Textainer’s effective interest in TMCL at 31 December 2007 was 86,7%.

Textainer used a portion of the net proceeds of the initial public offering of common shares on the NYSE of about US$138 million to repay approximately US$56 million that it had previously borrowed under its secured debt facility to fund the Capital Lease transaction, and to purchase additional equity in TMCL, as described above.

New owned and managed equipment purchases during the year amounted to 137 600 TEU valued at US$242 million with virtually all of these going into long-term leases and finance lease contracts. The ratio of interest-bearing debt to total equity was 134% (2006: 175%) which is conservative by industry standards.

Textainer also re-entered the refrigerated container market (which it had exited in the 1990s) and expects to purchase about US$30 million of new refrigerated containers, bringing total 2008 capital expenditure on new owned and managed equipment to approximately US$300 million, excluding any acquisitions it makes.

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, usually selling them in major demand markets. During the year 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. 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’s 2007 annual report can be accessed on its website http://www.textainer.com.

Textainer: Salient information

TrenStar Inc and TrenStar SA

In our previous annual report we advised that TrenStar Inc would seek to exit its beer keg business in the UK and Europe, after which the strategic alternatives for the future of the rest of TrenStar would be explored further. The exit from the UK and Europe was completed during 2007. Consistent with Trencor’s strategy to focus on its marine container businesses (mainly Textainer) as the core operations of the group, we determined, with the concurrence of the TrenStar Inc board, that new owners should be found for the TrenStar businesses.

During February 2008, TrenStar Inc concluded the sale of its three operating subsidiaries active in North America in the leasing and management of kegs and other types of metal cages used in the beer, synthetic rubber and food industries to a subsidiary of Macquarie Group Ltd. The provisional consideration is US$72 million, of which US$5 million will be placed in escrow for certain periods pending the outcome of warranties given in the sale. An additional payment of up to US$5 million may also be made to TrenStar Inc subject to the sold entities achieving certain revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) targets during 2008 and 2009. Out of this purchase consideration, all bank debt in the sold subsidiaries as well as at TrenStar Inc (head office) level were repaid, leaving the TrenStar Inc group free of bank debt and with net cash of approximately US$5 million after providing for all costs associated with the sale. If in due course the above amounts in escrow and those subject to achieving the revenue and EBITDA targets are received, this net cash figure will increase to US$15 million.

The remaining assets in TrenStar Inc comprise its 33% interest in Jettainer GmbH (the joint venture with Lufthansa Air Cargo for the leasing and management of air cargo containers) and its Track and Trace business. Plans for these businesses remain under strategic review.

During March 2008 we were also successful in disposing of Trencor’s interests in TrenStar SA (Pty) Ltd to a consortium comprising the management of that company and Investec Bank Ltd. Trencor received a net consideration of R75 million, which included repayment of Trencor’s current shareholder loan account of R72 million.

In view of the above focus strategy and in anticipation of the above transactions, both TrenStar Inc and TrenStar SA (Pty) Ltd (respectively 58% and 100% held by Trencor) were categorised as ‘held for sale’ at 31 December 2007 and accounted for as discontinued operations in our 2007 financial results. Thus the effects of the above transactions do not impact the results of Trencor’s continuing operations and headline earnings. However, the settlement of all bank debt in TrenStar Inc reported above would have reduced the Trencor group consolidated gearing ratio to 85% at 31 December 2007.

Long-term receivables

The aggregate amount of outstanding long-term receivables at 31 December 2007 was US$295 million (2006: US$332 million). The discount rate applied in the valuation of the US$ denominated long-term receivables is unchanged from 2006 at 8,5% per annum and the net present value of these receivables, before any fair value adjustments, totalled R1,8 billion (2006: R2,1 billion). An exchange rate of US$1 = R6,78 was used to translate dollar amounts into rand at 31 December 2007 (2006: US$1 = R6,98). In compliance with the requirements of International Financial Reporting Standards, the resulting translation loss, amounting to R46 million at net present value (2006: gain of R205 million) has been included in profit before tax.

The increase in the value of the rand resulted in a gain of R18 million (2006: loss of R69 million) on translation of the dollar-denominated fair value adjustment against the receivables. Furthermore, given the current collections and positive outlook for the collectability of, and timing of receipts from, the long-term receivables, management considered a further reduction in the dollar amount of the net fair value adjustment to be appropriate. This reduction, translated into rand, had a positive effect on pre-tax income amounting to R61 million (2006: R60 million) in the year under review. At 31 December 2007, the net present value of long-term receivables after fair value adjustments amounted to R1,25 billion (2006: R1,4 billion).

The discount rate applied to reduce the rand amounts attributable to third parties to their net present values is unchanged from 2006 at 10% per annum.

TAC

The TAC group, in which Trencor has a 44% interest, owned 212 000 TEU of dry freight containers of various types and 2 437 stainless steel tank containers at 31 December 2007, 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. Market conditions, which we noted in last year’s annual report had improved from March 2006, continued to be strong throughout 2007 and average utilisation across the whole fleet was 94% for the year compared with 91% for 2006. New container prices were fairly stable during the year while the resale prices for used containers have continued to hold up well. During the year, TAC purchased 17 414 TEU of new equipment at a cost of US$31 million from manufacturers in China; these purchases were financed out of the company’s own resources and existing facilities. All of the new equipment purchased is intended to be placed into long-term leases.

Property interests

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

Finance

The principal financial ratios at 31 December 2007 and the comparative figures for 2006 are reflected in the table below:

On 25 May 2007 the 6% unsecured automatically convertible subordinated debentures were converted into shares on a one-for-one basis, effective 1 January 2007, pursuant to the total dividend in respect of the year ended 31 December 2006 exceeding 54,6 cents per share. During 2007, TrenStar Inc exited the beer keg business in the UK and Europe and disposed of the underlying keg fleets and related borrowings, resulting in a significant reduction in the group’s gearing ratios.

Textainer completed an initial public offering of common shares on the New York Stock Exchange in the fourth quarter of 2007, raising a net amount of US$138 million in fresh capital, including US$34,6 million that was contributed by Halco Holdings Inc, a company in which Trencor has a 100% beneficial interest. The ratio of interest-bearing debt to total shareholders’ equity in Textainer declined from 175% at 31 December 2006 to 134% at the end of 2007.

There is no interest-bearing debt other than in Textainer and TrenStar Inc.

Total capital expenditure during the year amounted to R1,4 billion of which R1,3 billion was incurred by Textainer in replacing and expanding its container fleet and the remainder was mainly incurred by TrenStar on equipment purchases.

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