Textainer

Operating since 1979, Textainer is primarily engaged in owning, leasing, managing and reselling standard and special dry freight marine cargo containers to global transportation companies. Textainer Group Holdings Ltd listed on the New York Stock Exchange (NYSE: TGH) on 10 October 2007. At 31 December 2008, Trencor had a 62,6% (2007: 62,6%) interest in the company. Textainer produced excellent results in 2008 with net profit of US$87,7 million (2007: US$66,6 million). Textainer’s income tax expense of US$6,8 million in 2007 changed to an income tax benefit of US$0,9 million in 2008 mainly as a result of the company’s reduction of unrecognised tax benefits following the completion of an audit by the Internal Revenue Service.

Average fleet utilisation for the year was 94,8% (2007: 93,9%).

Textainer is the world’s largest lessor of intermodal containers based on fleet size, with a total fleet of more than 1,3 million containers, representing over 2 million TEU (twenty-foot equivalent unit). Textainer leases containers to more than 400 shipping lines and other lessees, including each of the world’s top 20 container lines, as measured by the total TEU capacity of their container vessels. The company has provided an average of more than 100 000 TEU of new containers each year for the past 10 years and has also been one of the largest purchasers of new containers among container lessors over the same period. Textainer is one of the largest sellers of used containers among container lessors, having sold more than 170 000 containers during the past two years to more than 1 000 customers.

Textainer provides its services worldwide via a network of 14 regional and area offices and over 330 independent depots in more than 150 locations. 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 April 2008, Textainer established a fresh revolving credit facility with its bankers with an aggregate commitment of up to US$205 million. This facility provides for payments of interest only during its term through to April 2013 when all borrowings are due in full. In July 2008, Textainer extended its secured debt facility and increased the commitment from US$300 million to US$475 million; this facility provides for payments of interest only during an initial two-year period, with a provision for the secured debt facility then to convert to a 10-year, but not to exceed 15-year, amortising note payable.

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. Excluding finance leases, the total fleet under Textainer’s management at 31 December 2008 numbered 1 980 000 TEU of which some 71,1% (2007: 64,9%) were on long-term lease. Textainer itself owned 868 000 TEU of which 72,8% (2007: 69,2%) were on long-term lease. The average age of Textainer’s owned fleet was 6,2 years and of the whole fleet 6,8 years.

Textainer re-entered the refrigerated container market (which it had exited in the 1990s) and purchased approximately US$48 million of new refrigerated containers in 2008. Aggregate new equipment purchases during the year amounted to 123 500 TEU valued at US$294 million with virtually all of the equipment going into long-term leases and finance lease contracts. The ratio of interest-bearing debt to total equity was 143% (2007: 128%) 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, usually selling them in major demand markets. During the year, the high utilisation made the sourcing of used containers for resale difficult. In spite of this, the division had the best year in its history with profit before tax of US$14,3 million which exceeded the record results of 2007 by US$4 million or 38%. 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 2008 annual report can be accessed on its website http://www.textainer.com.

Textainer: Salient information

Net investment in long-term receivables

The aggregate amount of outstanding long-term receivables denominated in United States dollars at 31 December 2008 was US$266 million (2007: US$295 million). The discount rate applied in the valuation of the long-term receivables is unchanged from 2007 at 8,5% per annum and the net present value of these receivables, before fair value adjustments, totalled R2,3 billion (2007: R1,8 billion). An exchange rate of US$1 = R9,27 was used to translate dollar amounts into SA rand at 31 December 2008 (2007: US$1 = R6,78). In compliance with the requirements of International Financial Reporting Standards, the resulting translation gain, amounting to R630 million at net present value (2007: loss of R46 million) has been included in profit before tax.

A fair value adjustment is made to take account of the estimated timing of receipt and the possible non-collectibility of the receivables, and the related effect on the amounts attributable to third parties. The net fair value adjustment at 31 December 2008 was R654 million (2007: R463 million). Approximately 90% (2007: 90%) of the net adjustment relates to the estimated timing of receipt and is in the nature of deferred income and approximately 10% (2007: 10%) relates to the possible non-collectibility of receivables.

The increase in the value of the rand resulted in a loss of R191 million (2007: gain of R18 million) on translation of the dollar-denominated fair value adjustment against the receivables. At 31 December 2008, the net present value of long-term receivables after fair value adjustments amounted to R1,54 billion (2007: R1,25 billion).

The discount rate applied to reduce the rand amounts attributable to third parties to their net present values is unchanged from 2007 at 10% per annum.

TAC

The TAC group, in which Trencor has a 44% interest, owned 205 000 TEU of dry freight containers of various types and 2 420 stainless steel tank containers at 31 December 2008, which are managed by a number of equipment managers who lease these containers to shipping lines. 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 were strong in the first half of 2008 but began slowing towards the end of the year as the shipping industry was impacted by the global economic downturn. Average utilisation across the whole fleet was 92% for the year compared with 91% for 2007. New container prices increased sharply earlier in 2008 while the resale prices for used containers held up well despite the weakening market in the latter part of the year. During the year, TAC purchased 14 633 TEU of new equipment at a cost of US$37 million from manufacturers in China; these purchases were financed out of the company’s own resources and its then existing facilities. All of the new equipment was purchased for the long-term lease fleet. TAC elected to convert its revolving credit facility to a six-year term loan in November 2008 because of the very onerous conditions proposed by lenders for an extension of the facility. TAC is now using more of its cash flow to pay down its bank loan and less to invest in new containers.

Property interest

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 2008 and the comparative figures for 2007 are reflected in the table below:

In April 2008, Textainer established a fresh revolving credit facility with its bankers with an aggregate commitment of up to US$205 million. This facility provides for payments of interest only during its term through to April 2013 when all borrowings are due in full. In July 2008, Textainer extended its secured debt facility and increased the commitment from US$300 million to US$475 million; this facility provides for payments of interest only during an initial two-year period, with a provision for the secured debt facility then to convert to a 10-year, but not to exceed 15-year, amortising note payable.

There is no interest-bearing debt in the group other than in Textainer.

Unrestricted cash at Trencor corporate level was enhanced by the ongoing collection of the long-term receivables and dividends from Textainer, and amounted to R782 million at 31 December 2008. The current world financial situation and tight credit markets, together with the stated policy of Trencor and Textainer to pursue appropriate acquisitions which may arise in the foreseeable future, make it advisable for Trencor to conserve cash.