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TRENCOR LIMITED - Reviewed Condensed Consolidated Financial Statements for the year ended 31 December 2018

Release Date: 01/04/2019 07:05
Code(s): TRE     PDF:  
 
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Reviewed Condensed Consolidated Financial Statements for the year ended 31 December 2018

Trencor Limited
(Incorporated in the Republic of South Africa)
Registration number 1955/002869/06 
Share code: TRE 
ISIN: ZAE000007506 
("Trencor" or "the company")

Reviewed Condensed Consolidated Financial Statements
for the year ended 31 December 2018

COMMENTARY

GROUP
     - Textainer Group Holdings Ltd ("Textainer") and Halco Holdings Inc ("Halco") entered into a Voting Limitation Deed
       ("VLD") on 1 January 2018, with Trencor assuming the rights and obligations of Halco under the VLD on the
       registration of transfer to Trencor of Halco's shareholding in Textainer in May 2018. The VLD has the effect for
       IFRS purposes of Trencor being regarded as neither in control of nor having significant influence over Textainer.
     - Accordingly, as from 1 January 2018, the financial results of Textainer, reporting under US GAAP, are no longer
       required to be converted into IFRS for inclusion in the results of Trencor. Textainer is now accounted for by
       Trencor as an investment measured at fair value through profit or loss. 
     - The deconsolidation of Textainer at 1 January 2018 resulted in a basic earnings gain of R2,6 billion and a
       recycling of the accumulated foreign currency translation gains of R3,2 billion from other comprehensive income to
       profit or loss. These gains have not impacted headline earnings or cash flows. 
     - It follows that the results of Trencor for the year ended 31 December 2018 are not comparable with its results for
       the corresponding year ended 31 December 2017.
     - Between 4 October and 6 December 2018 Trencor cumulatively repurchased from shareholders 3 390 178 ordinary shares
       for a consideration of R100 million.
     - The year-end SA rand to US dollar exchange rate was R14,39 (2017: R12,37). The average SA rand to US dollar
       exchange rate for the year was R13,11 (2017: R13,29).
     - Basic earnings for the year ended 31 December 2018 amounted to 1 610 cents per share (2017: basic loss 182 cents
       per share).
     - Headline loss for the year ended 31 December 2018 amounted to 1 818 cents per share (2017: headline earnings 149
       cents per share).
     - Based on the relevant spot exchange rate and the listed share price of Textainer, the net asset value ("NAV") of
       Trencor at the dates below were as follows:

                                         26 March 2019 31 December 2018 31 December 2017
Textainer share price                          US$9,72          US$9,96         US$21,50
Spot exchange rate US$1:                        R14,42           R14,39           R12,37

                                             R million        R million        R million
Textainer                                        3 824            3 910            7 255
TAC (US GAAP NAV)                                1 707            1 704            1 004
TAC (IFRS adjustments)                           (286)            (285)            (176)
Cash (excluding in Textainer and TAC)              903              914            1 095
Other net (liabilities)/assets                    (11)             (12)              449
Total NAV                                        6 137            6 231            9 627

                                        Rand per share   Rand per share   Rand per share
Textainer                                        22,01            22,51            40,97
TAC (US GAAP NAV)                                 9,83             9,81             5,67
TAC (IFRS adjustments)                          (1,65)           (1,64)           (0,99)
Cash (excluding in Textainer and TAC)             5,20             5,26             6,19
Other net (liabilities)/assets                  (0,06)           (0,07)             2,53
Total NAV                                        35,33            35,87            54,37

Notes:
(1.) The values at a reporting year-end are actual values converted at the applicable exchange rate. At 26 March 2019, other than for Textainer and the cash
     outside of Textainer and TAC which are recorded at actual as at 26 March 2019, all other components of the NAV are at the actual values prevailing at the end
     of the previous reporting date adjusted for the current exchange rate where applicable.
(2.) On 19 February 2018, TAC issued one million ordinary shares to Halco in exchange for the settlement of all outstanding Halco loans of US$36,8 million. This is
     the main reason for the significant increase in the NAV of TAC at 31 December 2018 when compared to 31 December 2017. An identical reduction in Other net
     (liabilities)/assets has been recorded.

TEXTAINER (NYSE: TGH): 47,52% interest at 31 December 2018 (2017: beneficiary interest 47,78%)

(Note: Trencor now owns the shares in Textainer, whereas previously it had a beneficiary interest in such shares)

US GAAP RESULTS

     - Net income attributable to common shareholders for the year ended 31 December 2018 was US$50,4 million (2017:
       US$19,4 million).
     - Average fleet utilisation for the year ended 31 December 2018 was 98,1% (2017: 96,4%).
     - New container investments of approximately US$830 million received into the owned and managed fleet during the
       year.
     - Total fleet under management at 31 December 2018 was 3 354 724 (2017: 3 279 892) twenty foot equivalent units
       ("TEU") of which Textainer itself owned 78,9% (2017: 74,6%).
     - No dividends declared (2017: nil). 
     - Textainer's detailed results may be viewed on its website: www.textainer.com 

TAC: 100% interest at 31 December 2018 (2017: beneficiary interest 100%)

(Note: Trencor now owns the shares in TAC, whereas previously it had a beneficiary interest in such shares)

US GAAP RESULTS

     - Net income attributable to Trencor for the year ended 31 December 2018 was US$0,6 million (2017: US$2,5 million).
     - Net income attributable to Trencor has been derived after an impairment to the reefer container fleet of
       US$3,7million (2017: nil).
     - Average fleet utilisation for the year ended 31 December 2018 was 98,6% (2017: 94,4%).
     - Fleet size at 31 December 2018 was 177 149 TEU (2017: 173 150 TEU).
     - Acquired US$30 million (2017: US$12 million) of new containers during the year ended 31 December 2018.

CONVERTING US GAAP RESULTS OF TAC TO IFRS 

The results of TAC, reporting under US GAAP, are converted to IFRS for inclusion in the results of Trencor, which is
required to report under IFRS. Differences in accounting treatment between US GAAP and IFRS, in the areas of impairment
testing and a revision of the residual values of the container fleets, cause significant differences in financial
results reported under the respective accounting conventions.

Reconciliation of TAC US GAAP results to IFRS for the year ended 31 December: 

                                                 2018         2017
                                          US$ million  US$ million
US GAAP profit attributable to Trencor            0,6          2,5
Adjustments:
Non-cash IFRS net impairment loss               (3,8)        (3,3)
IFRS reduction in depreciation                    8,2          2,1
IFRS tax effect of the above, and other           0,8          0,2
IFRS profit attributable to Trencor               5,8          1,5

DIVIDEND CONSIDERATION 

At Trencor's AGM in August 2018, the Chairman envisaged the potential unbundling of Trencor's shares in Textainer to
Trencor's shareholders, subject to Textainer inward listing on the JSE, in further simplification of Trencor's interests
following the distributions described in note 2 to the condensed consolidated financial statements. In considering any
distribution, such as the said unbundling or a dividend, the board would have to be satisfied that post distribution
Trencor will retain adequate assets and liquidity to cover the maximum potential exposure under the indemnity referred
to in the said note 2. The board's view is that Trencor should earmark mainly its cash resources for this purpose. This
would enable the envisaged unbundling of as many as possible of its Textainer shares to Trencor's shareholders.
Accordingly, the board resolved for the time being to preserve Trencor's cash resources in lieu of paying a dividend. 

REVIEW REPORT

The condensed consolidated financial statements, which comprise of the statement of financial position at 31 December
2018 and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of
cash flows for the year then ended and the notes to such financial statements, have been reviewed by KPMG Inc., who
expressed an unmodified review conclusion. The auditor's report does not necessarily report on all of the information
contained in these financial results. Shareholders are therefore advised that in order to obtain a full understanding of
the nature of the auditor's engagement, they should obtain a copy of the auditor's report together with the accompanying
financial information from the company's registered office.

PREPARATION OF FINANCIAL STATEMENTS

These condensed consolidated financial statements have been prepared by management under the supervision of the
financial director, Ric Sieni CA(SA). The directors take full responsibility for the preparation of the financial
statements.

On behalf of the board

Hennie van der Merwe
Chief Executive Officer

29 March 2019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2018

                                                                                                                               Reviewed             Audited
R million                                                                                                                          2018                2017
ASSETS
Property, plant and equipment                                                                                                     3 058              44 793
Intangible assets and goodwill                                                                                                        -                 282
Investment in equity accounted investee                                                                                               -                 114
Investment  (note 3)                                                                                                              3 910                   -
Net investment in finance leases                                                                                                      -                 496
Derivative financial instruments                                                                                                      9                 100
Deferred tax assets                                                                                                                   2                  19
Restricted cash                                                                                                                       -               1 105
Total non-current assets                                                                                                          6 979              46 909
Inventories                                                                                                                          19                 403
Trade and other receivables                                                                                                         127               1 440
Current portion of net investment in finance leases                                                                                   -                 427
Cash and cash equivalents                                                                                                         1 280               3 134
Total current assets                                                                                                              1 426               5 404
Total assets                                                                                                                      8 405              52 313
EQUITY
Share capital and premium                                                                                                             1                  44
Reserves                                                                                                                          6 230               7 004
Total equity attributable to equity holders of the company                                                                        6 231               7 048
Non-controlling interests                                                                                                             -               5 387
Total equity                                                                                                                      6 231              12 435

LIABILITIES
Interest-bearing borrowings  (note 9)                                                                                             1 622              35 008
Deferred revenue                                                                                                                      -                  25
Deferred tax liabilities                                                                                                              -                  28
Total non-current liabilities                                                                                                     1 622              35 061
Trade and other payables                                                                                                             29               2 080
Current tax liabilities                                                                                                              11                 123
Current portion of interest-bearing borrowings   (note 9)                                                                           512               2 611
Current portion of deferred revenue                                                                                                   -                   3
Total current liabilities                                                                                                           552               4 817
Total liabilities                                                                                                                 2 174              39 878
Total equity and liabilities                                                                                                      8 405              52 313
Capital expenditure incurred during the year                                                                                        400               5 750
Capital expenditure committed and authorised, but not yet incurred                                                                    -               3 030
Ratio to total equity:
Total liabilities (%)                                                                                                              34,9               320,7
Interest-bearing borrowings (%)                                                                                                    34,2               302,5


CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the year ended 31 December 2018 
                                                                                                                            Reviewed  Restated
R million                                                                                                                       2018      2017
Revenue (note 4 and 10)                                                                                                          619     9 625
Other operating income                                                                                                            18         2
Gain on deconsolidation of subsidiary (note 3)                                                                                 5 767         -
Accumulated foreign currency translation gains recycled to profit or loss on liquidation of subsidiaries                         526         -
Cost of containers sold                                                                                                        (151)   (1 489)
Direct leasing expenses                                                                                                            -     (794)
Distributions to managed fleet owners (note 10)                                                                                    -   (1 281)
Employee benefits expense                                                                                                       (23)     (369)
Depreciation                                                                                                                   (103)   (3 048)
Impairment of property, plant and equipment (note 5)                                                                           (108)   (1 222)
Impairment of goodwill                                                                                                         (137)         -
Other operating expenses                                                                                                       (184)     (407)
Net long-term receivables fair value adjustment                                                                                    -      (15)
Fair value adjustment of investment (note 3)                                                                                 (3 345)         -
Operating profit before net finance expenses                                                                                   2 879     1 002
Net finance expenses                                                                                                            (22)   (1 586)
Finance expenses: Interest expense                                                                                              (88)   (1 704)
Realised and unrealised gains on derivative financial instruments                                                                  4        50
Finance income:    Interest income                                                                                                62        68
Share of profit of equity accounted investee (net of tax)                                                                          -         4
Profit/(Loss) before tax                                                                                                       2 857     (580)
Income tax expense                                                                                                                 9        30
Profit/(Loss) for the year                                                                                                     2 848     (610)
Other comprehensive loss
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation gains/(losses)                                                                                      237   (1 239)
Accumulated foreign currency translation gains recycled from other comprehensive income on deconsolidation and               (3 714)         -
liquidation of subsidiaries
Total comprehensive loss for the year                                                                                          (629)   (1 849)
Total comprehensive loss for the year attributable to:
Equity holders of the company                                                                                                  (629)     (983)
Non-controlling interests                                                                                                          -     (866)
                                                                                                                               (629)   (1 849)
Profit/(Loss) for the year attributable to:
Equity holders of the company                                                                                                  2 848     (321)
Non-controlling interests                                                                                                          -     (289)
                                                                                                                               2 848     (610)
Basic earnings/(loss) per share (cents)                                                                                      1 610,2   (181,5)
Diluted earnings/(loss) per share (cents)                                                                                    1 610,2   (181,5)
Number of shares in issue (million)                                                                                            173,7     177,1
Weighted average number of shares in issue (million)                                                                           176,9     177,1
Year-end rate of exchange: SA rand to US dollar                                                                                14,39     12,37
Average rate of exchange for the year: SA rand to US dollar                                                                    13,11     13,29

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018

                                                                                                       Equity holders of the company

                                                                                                           Gain/(Loss) on
                                                                                 Foreign       Share-             changes
                                                                                currency        based        in ownership                                    Non-      
                                                 Share           Share       translation      payment        interests in    Retained                 controlling      Total
R million                                      capital         premium           reserve      reserve        subsidiaries      income     Total         interests     equity
Audited
Balance at 1 January 2017
Total comprehensive loss for the year                1              43             4 483          408                 504       2 760     8 199             6 218     14 417
Loss for the year                                    -               -                 -            -                   -       (321)     (321)             (289)      (610)
Other comprehensive loss for the year 
Foreign currency translation differences             -               -             (662)            -                   -           -     (662)             (577)    (1 239)
Total other comprehensive loss for the               -               -             (662)            -                   -           -     (662)             (577)    (1 239)
year 
Total comprehensive loss for the year                -               -             (662)            -                   -       (321)     (983)             (866)    (1 849)
Transactions with owners, recorded
directly in equity
Contributions by/(Distributions to)
owners
Share-based payments                                 -               -                 -           31                   -           -        31                34         65
Share options exercised                              -               -                 -            -                   -           -         -                13         13
Dividends paid                                       -               -                 -            -                   -       (177)     (177)              (34)      (211)
Total contributions by/(distributions to)            -               -                 -           31                   -       (177)     (146)                13      (133)
owners
Changes in ownership interests in                    -               -                 -            -                (22)           -      (22)                22          -
subsidiaries
Total transactions with owners                       -               -                 -           31                (22)       (177)     (168)                35      (133)
Balance at 31 December 2017                          1              43             3 821          439                 482       2 262     7 048             5 387     12 435
Reviewed
Total comprehensive loss for the year
Profit for the year                                  -               -                 -            -                   -       2 848     2 848                 -      2 848
Other comprehensive loss/(income) for the
year
Foreign currency translation differences             -               -               237            -                   -           -       237                 -        237
Foreign currency translation differences             -               -           (3 714)            -                   -           -   (3 714)                 -    (3 714)
recycled to profit or loss
Total other comprehensive loss for the               -               -           (3 477)            -                   -           -   (3 477)                 -    (3 477)
year      
Total comprehensive loss for the year                -               -           (3 477)            -                   -       2 848     (629)                 -      (629)
Transactions with owners, recorded
directly in equity
Distributions to owners
Shares bought back by the company                    -            (43)                 -            -                   -        (57)     (100)                 -      (100)
Dividends paid                                       -               -                 -            -                   -        (88)      (88)                 -       (88)
Total distributions to owners                        -            (43)                 -            -                   -       (145)     (188)                 -      (188)
Change due to deconsolidation of                     -               -                 -            -                   -           -         -           (5 387)    (5 387)
subsidiary (note 3) 
Total transactions with owners                       -            (43)                 -            -                   -       (145)     (188)           (5 387)    (5 575)
Transfer of reserves
Transfer to retained income                          -               -                 -        (439)               (482)         921         -                 -          -
Balance at 31 December 2018                          1               -               344            -                   -       5 886     6 231                 -      6 231


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2018
                                                                                                                               Reviewed   Audited
R million                                                                                                                          2018      2017
Cash flows from operating activities
Cash generated from operations                                                                                                      351     6 920
Increase in container leasing equipment                                                                                           (399)   (4 156)
Finance income received                                                                                                              62        68
Finance lease income received                                                                                                         -        94
Finance expenses paid                                                                                                              (79)   (1 430)
Decrease in finance leases                                                                                                            -       430
Payments to third parties in respect of long-term receivables                                                                         -      (36)
Dividends paid to equity holders of the company                                                                                    (88)     (177)
Dividends paid to non-controlling interests                                                                                           -      (34)
Income tax paid                                                                                                                    (12)      (62)
Net cash (outflow)/inflow from operating activities                                                                               (165)     1 617
Cash flows from investing activities
Acquisition of property, plant and equipment                                                                                          -      (14)
Proceeds on disposal of property, plant and equipment                                                                                26         -
Increase in restricted cash                                                                                                           -     (466)
Decrease in cash on deconsolidation of subsidiary (note 3)                                                                      (1 701)         -
Net cash outflow from investing activities                                                                                      (1 675)     (480)
Cash flows from financing activities
Interest-bearing borrowings repaid                                                                                                    -  (23 244)
Interest-bearing borrowings raised                                                                                                    -    22 988
Shares bought back by company                                                                                                     (100)         -
Debt issuance costs incurred                                                                                                          -     (393)
Proceeds on issue of shares by subsidiary                                                                                             -        13
Net cash outflow from financing activities                                                                                        (100)     (636)
Net (decrease)/increase in cash and cash equivalents before exchange rate                                                       (1 940)       501
fluctuations
Cash and cash equivalents at the beginning of the year                                                                            3 134     2 837
Effects of exchange rate fluctuations on cash and cash equivalents                                                                   86     (204)
Cash and cash equivalents at the end of the year                                                                                  1 280     3 134

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 
for the year ended 31 December 2018

1. The condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for provisional
   reports and the requirements of the Companies Act of South Africa. The Listings Requirements require provisional reports to be prepared in accordance with the
   framework concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") and the Financial Reporting Guides
   and Financial Pronouncements as issued by Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim
   Financial Reporting. The accounting policies applied in the preparation of the condensed consolidated financial statements are in terms of IFRS and are
   consistent with those applied in the previous consolidated annual financial statements except for the adoption of IFRS 9 Financial Instruments ("IFRS 9") and
   IFRS 15 Revenue from Contracts with Customers ("IFRS 15") (refer to note 12).

2. Comparability of financial years

   As a consequence of the events reported below, the results in the current year are not comparable with previous
   financial years.
   
   At 31 December 2017, Trencor had a 47,8% beneficiary interest in Textainer Group Holdings Limited ("Textainer") through
   Halco Holdings Inc ("Halco") under the Halco Trust ("Trust"). At Halco's request, Textainer and Halco entered into a
   Voting Limitation Deed ("VLD"), on 1 January 2018, whereby Halco agreed to limit or restrict its shareholder voting
   rights in Textainer, solely in respect of the appointment and/or removal of directors and then only to the extent
   necessary to ensure that Trencor would be regarded for purposes of IFRS as being neither in control of nor having
   significant influence over Textainer. All Halco's voting rights, save for the said limitation or restriction, were
   unaffected by the VLD.
   
   Following the entering into of the VLD, the financial results of Textainer, reporting under US GAAP, are no longer
   required to be converted into IFRS for inclusion in the results of Trencor. Textainer is now accounted for by Trencor as
   an investment measured at fair value through profit or loss (refer to note 3). The results of Textainer were previously
   included in the segment Containers - owning, leasing, management and trading (refer to note 7).
   
   On 20 February 2018, Trencor, as a nominated beneficiary of the Trust, received a vesting and distribution from the
   Trust of the entire issued share capital of Halco. At that date, Halco was the holder of 47,8% of the shares in
   Textainer and 100% of the shares in TAC Limited ("TAC"). This vesting and distribution have had no financial
   consequences on the consolidated financial statements of Trencor.
   
   Before the vesting and distribution were effected, as is customary in the Trust's jurisdiction, Trencor had to provide
   an indemnity to, inter alia, the trustee of the Trust. The indemnity terminates on 31 December 2024. The maximum
   exposure under such indemnity is US$62 million.
   
   On 11 May 2018, Halco declared to its sole shareholder, Trencor, three dividends, namely 47,8% of the shares in
   Textainer, 100% of the shares in TAC (these dividends constituting the entirety of Halco's shareholdings in Textainer
   and TAC) and a cash amount of US$8 million. As a result, Trencor then owned 47,8% of Textainer and 100% of TAC. Trencor
   assumed the same contractual rights and obligations vis-a-vis Textainer as Halco had under the VLD and Textainer
   continued to be accounted for by Trencor at fair value through profit or loss. These dividends have had no financial
   consequences on the consolidated financial statements of Trencor.

3. Investment

   Upon entering into the VLD (refer to note 2) a gain on deconsolidation of Textainer as at 1 January 2018 was recorded.
   At 31 December 2018 a fair value adjustment of the investment in Textainer was recorded. These recordals are detailed as
   follows:
   
   Gain on deconsolidation of subsidiary:
   
                                                                                                                       Reviewed
   R million                                                                                                               2018
   Property, plant and equipment                                                                                         42 237
   Intangible assets and goodwill                                                                                           145
   Investment in equity accounted investee                                                                                  114
   Net investment in finance leases                                                                                         481
   Derivative financial instruments                                                                                          93
   Deferred tax assets                                                                                                       19
   Restricted cash                                                                                                        1 104
   Current assets (including cash and cash equivalents R1 701 million)                                                    3 832
   Total assets                                                                                                          48 025
   Interest-bearing borrowings                                                                                         (33 180)
   Deferred tax liabilities                                                                                                (31)
   Deferred revenue                                                                                                        (25)
   Current liabilities                                                                                                  (4 726)
   Total liabilities                                                                                                   (37 962)
   Subsidiary net asset value                                                                                            10 063
   Non-controlling interests                                                                                            (5 387)
   Subsidiary net asset value attributable to Trencor's equity holders                                                    4 676
   Investment at fair value through profit or loss                                                                        7 255
   Gain on deconsolidation of subsidiary before recycling accumulated foreign currency translation gains                  2 579
   Accumulated foreign currency translation gains transferred from other comprehensive income to profit                   3 188
   or loss
   Gain on deconsolidation of subsidiary                                                                                  5 767
   
   Fair value adjustment of investment:
   
   Fair value at 1 January 2018                                                                                           7 255
   Fair value at 31 December 2018                                                                                         3 910
   Fair value adjustment of investment                                                                                  (3 345)

                                                                                                             Reviewed  Restated
   R million                                                                                                     2018      2017
4. Revenue
   Goods sold                                                                                                     184     2 303
   Distribution from fleet managers                                                                               435         -
   Leasing income                                                                                                   -     7 265
   Management fees                                                                                                  -        57
                                                                                                                  619     9 625

                                                                                                            Reviewed    Audited
   R million                                                                                                    2018       2017
5. Impairment of property, plant and equipment
   Container leasing
   equipment:
   Impairment                                                                                                    
   recognised at the
   end of the year                                                                                               107      1 209
  
   Impairment                               
   recognised in
   respect of
   containers on
   operating leases not
   recovered from
   defaulting customers                                                                                            4         33
  
   Reversal of                                                                                                        
   impairment provided
   on containers on
   operating leases
   with defaulting
   customers                                                                                                     (3)      (109)
   
   Impairment prior to                                                                                                
   reversal of
   compensation from
   third parties                                                                                                 108      1 133

   Reversal of                                                                                                                            
   compensation from third
   party in respect of
   additional containers
   recovered from
   defaulting customers                                                                                            -         89
                                                                                                                 108      1 222

A net impairment loss has been recognised for the year ended 31 December 2018 (2017: impairment loss), decreasing the
carrying value of container leasing equipment to its recoverable amount. For the purposes of calculating the impairment
loss, the container fleets were grouped by cash-generating units ("CGUs"). CGUs were defined as containers grouped by
container type, as cash flows for the same type of containers are independent of cash flows of different container
types, and are interchangeable with any other container of the same type within the container fleet. The recoverable
amount of a CGU has been calculated based on its value in use. The pre-tax discount rate used to discount the future
estimated cash flows of TAC was 7,44% (2017: 7,66%). 

Projected future cash flows were estimated using the assumptions that are part of the long-term planning forecasts for
TAC. These projected future cash flow assumptions are determined with reference to current market conditions. Some of
the significant estimates and assumptions used to determine future expected cash flows were: expected future lease
rates, expected utilisation, remaining useful lives, remaining on-hire periods for expired fixed-term leases, expected
future lease rates, direct container expenses and expected disposal prices of containers. In performing the impairment
analysis, assumptions used reflected the contractually stipulated per diem rates, with renewal based on current market
rates. 

The recoverable amounts and impairment amounts of the CGUs which were impaired are as follows:

                                                                                        Reviewed                                   Audited
                                                                                                      2018                           2017
R million                                                                 Recoverable  Impairment/(recovery)  Recoverable  Impairment/ (recovery)
                                                                               amount                              amount
Container type
Non-refrigerated containers other than open top and flatrack containers:
20' Dry freight                                                                 1 125                     44       14 189                      48
40' Dry freight                                                                     -                      -        1 902                    (14)
40' Hi cube                                                                     1 435                     63       17 613                      16
45' Hi cube                                                                        12                    (2)          240                      18
Refrigerated containers:
20' Refrigerated                                                                    -                      -          204                      23
40' Refrigerated                                                                  169                      1        8 390                   1 120
Open top and flatrack containers:
20' Flatrack                                                                       10                      1          177                     (2)
                                                                                2 751                    107       42 715                   1 209

                                                                                                                              Reviewed    Audited
   R million                                                                                                                      2018       2017
6. Headline (loss)/earnings
   Profit/(Loss) attributable to equity holders of the company                                                                   2 848      (321)
   Impairment of property, plant and equipment                                                                                     108      1 133
   Reversal of compensation from third party in respect of impairment of property, plant and equipment                               -         89
   Gain on deconsolidation of subsidiary (note 3)                                                                              (5 767)          -
   Accumulated foreign currency translation gains recycled to profit or loss on liquidation of subsidiaries                      (526)          -
   Impairment of goodwill                                                                                                          137          -
   Profit on sale of property, plant and equipment                                                                                (18)          -
   Total tax effects of adjustments                                                                                                  3       (19)
   Total non-controlling interests' share of adjustments                                                                             -      (617)
   Headline (loss)/earnings                                                                                                    (3 215)        265
   Weighted average number of shares in issue (million)                                                                          176,9      177,1
   Headline (loss)/earnings per share (cents)                                                                                (1 817,5)      149,4
   Diluted headline (loss)/earnings per share (cents)                                                                        (1 817,5)      149,4

                                                                                                                              Reviewed   Restated
     R million                                                                                                                    2018       2017
7.   Segmental reporting
     Revenue
     Reportable segments
     Containers - owning, leasing, management and trading                                                                          619      9 625

     Profit/(Loss) before tax 
     Reportable segments
     Containers - owning, leasing, management and trading                                                                           66      (451)
     Containers - finance                                                                                                            -       (23)
                                                                                                                                    66      (474)
     Gain on deconsolidation of subsidiary (note 3)                                                                              5 767          -
     Fair value adjustment of investment                                                                                       (3 345)          -
     Accumulated foreign currency translation gains recycled to profit
     or loss on liquidation of subsidiaries                                                                                        526          -
     Unallocated                                                                                                                 (157)      (106)
                                                                                                                                 2 857      (580)

     Assets
     Capital expenditure incurred by the container owning, leasing,
     management and trading segment                                                                                                400      5 750

                                                                                                        Reviewed                       Audited
                                                                                                          2018                          2017
                                                                                                 Carrying        Fair        Carrying        Fair
   R million                                                                                       amount       Value          amount       Value    
   The carrying amounts and fair values of
   financial assets and financial
   liabilities are as follows:
   Assets
   Financial assets carried at
   fair value through profit or
   loss:
   Investments (1)                                                                                  3 910       3 910               -           -
   Derivative financial                                                                                 9           9             100         100
   instruments (2)
   Financial assets carried at
   amortised cost:
   Restricted cash                                                                                      -           -           1 105       1 105
   Trade and other receivables                                                                        118         118           1 282       1 282
   Cash and cash                                                                                    1 280       1 280           3 134       3 134
   equivalents
   Net investment in finance leases                                                                     -           -             923         938
                                                                                                    5 317       5 317           6 544       6 559
   Liabilities
   Liabilities at amortised cost:
   Interest-bearing borrowings (excluding                                                                 
   debt issuance costs)                                                                             2 170       2 170          37 952      38 013
   Trade and other payables                                                                            29          29           2 080       2 080
                                                                                                    2 199       2 199          40 032      40 093

   (1) Level 1 or  
   (2) level 2 of the fair value hierarchy.

   The value of the interest rate swaps is based on a discounted cash flow analysis utilising forecasted interest rate
   yield curves. Reliance is placed on the valuations prepared by the banks providing the swaps. 

9. Interest-bearing borrowings
   At 31 December 2018, Leased Asset Pool Company Limited ("LAPCO"), a TAC subsidiary, breached the earnings before interest and tax ("EBIT") ratio as defined in
   the credit agreement it entered into with the banks providing it with funding. This triggered an early amortisation event which continues until remedied or
   waived by a majority of the banks. Accordingly, R512 million has been disclosed as the current portion of interest-bearing borrowings. The final maturity date
   is the sixth anniversary of the date on which the early amortisation event occurs and the revolving loans convert into term loans.
   
   LAPCO has requested a waiver of the EBIT ratio breach and is awaiting a response from the banks.

10. Restatement of the group's prior year condensed consolidated statement of profit or loss and other comprehensive income

Textainer has restated its financial statement presentation of the operating results from its container management
business as a result of re-evaluating the accounting treatment of its fleet management agreements for managed fleet
containers.  These agreements convey to Textainer the right to control the use of the managed fleet containers.  It was
determined by Textainer that these agreements, irrespective of legal ownership, should be deemed to be leases for
accounting purposes in terms of IAS 17 Leases. This has resulted in the restatement of a prior period error.

Lease management fee income, previously presented on a net basis, has been reclassified and is now presented on a gross
basis. Further to this restatement by Textainer, and in terms of IAS 16 Property, Plant and Equipment, the group
accordingly is also required to gross up the revenue in respect of the disposal of the managed fleet containers which
was previously presented on a net basis. The result is an increase in deemed lease rental income and sales income and a
corresponding increase in separately reported distribution expenses to managed fleet owners, with no effect on the
group's consolidated statement of financial position, consolidated statement of cash flows, loss for the year in the
consolidated statement of profit or loss and other comprehensive income, basic loss per share and headline earnings per
share. 

The impact of the required restatement of the financial statement presentation in the group's consolidated statement of
profit or loss and other comprehensive income for the prior year ended 31 December 2017 is as follows:

R million                                                Amount previously reported    Change   Restated amount
Revenue                                                                       8 344     1 281             9 625
Distributions to managed fleet owners                                             -   (1 281)           (1 281)
Other income and expenses                                                   (8 954)         -           (8 954)
Loss for the year                                                             (610)         -             (610)
Total comprehensive loss for the year                                       (1 849)         -           (1 849)
Total comprehensive loss for the year attributable to:
Equity holders of the company                                                 (983)         -             (983)
Non-controlling interests                                                     (866)         -             (866)
                                                                            (1 849)         -           (1 849)
Loss for the year attributable to:
Equity holders of the company                                                 (321)         -             (321)
Non-controlling interests                                                     (289)         -             (289)
                                                                              (610)         -             (610)
Basic loss per share (cents)                                                (181,5)         -           (181,5)
Diluted loss per share (cents)                                              (181,5)         -           (181,5)
Headline earnings per share (cents)                                           149,4         -             149,4
Diluted headline earnings per share (cents)                                   149,4         -             149,4

The restatement has no impact on the 2018 financial information due to the deconsolidation of Textainer.

11. Events after reporting period

The directors are not aware of any matter or circumstance arising since the end of the financial year, which will have a
material impact on the financial position as at 31 December 2018. 

12. Changes in significant accounting policies

The group has initially adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1
January 2018.  

IFRS 15 did not have a material impact on the group as services are delivered daily or monthly (i.e. time basis) and
consequently revenue has also been recognised on this basis in terms of IAS 18. This treatment is in line with IFRS 15
requirements. 

The impact of IFRS 9 on the financial statements is not material as the expected credit loss model did not result in a
significantly different provision when compared to the provision raised for the year ended 31 December 2017, this
assessment was based on the group's historical low levels of credit losses.

13. Standards and interpretations not yet effective

IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains
a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal
Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 introduces a
single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its
right to use the underlying asset and a lease liability representing its obligation to make lease payments.  There are
recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the
current standard.

The group has completed an initial assessment of the potential impact of IFRS 16 on its consolidated financial
statements, but has not yet completed its detailed assessment.  Thus far, the most significant impact identified is that
the group will recognise a new asset and liability in respect of the operating lease of Trencor's Cape Town Head Office
premises. As at 31 December 2018, the group's future minimum lease payments under non-cancellable operating leases
amounted to R4 million, on an undiscounted basis. In addition, the nature of expenses related to those leases will now
change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for the
right-of-use asset and interest expense on the lease liability. The group has no finance leases.


Directors: David Nurek (Chairman), Jimmy McQueen, Eddy Oblowitz, Ric Sieni* (Financial), Roddy Sparks, Hennie van der
Merwe* (CEO), Herman Wessels (*Executive)

Secretaries: Trencor Services Proprietary Limited

Registered Office: 13th Floor, The Towers South, Heerengracht, Cape Town 8001

Transfer Secretaries: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank
2196 (PO Box 61051, Marshalltown 2107)


Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)

www.trencor.net


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