Clearing the decks
Trencor, which holds a 48% stake in New York Stock Exchange-listed container leasing firm Textainer, has dealt smartly with a pesky (and costly) accounting headache. Readers may remember that at Trencor’s AGM in August, directors bemoaned the fact that the company incurred serious costs and suffered inordinate delays in converting the US’S generally accepted accounting principles to international financial reporting standards (IFRS).
It was at that sometimes stormy AGM that a livid independent analyst and hedge fund manager Nick Krige suggested not enough had been done at Trencor to expeditiously tackle the accounting challenges. “What do you guys do at Trencor? I’d like to send you my CV,” he famously remarked.
But Trencor does deserve some sympathy. The accounting process involved a mind-numbing individual audit of Textainer’s entire container fleet — about 3m 20-foot equivalent units, or TEUS. The process was such a slog that Trencor, unable to publish its audited results by the JSE’S stipulated deadline, suffered the ignominy of having its shares unceremoniously suspended.
At the AGM, Trencor chairman David Nurek, referring to the effort to finalise the depreciation of fleet and impairment numbers, said that it cost “tens of millions of rand” to produce “these two figures that no-one really looks at . . .”
However, Trencor, has grasped the accounting nettle. In a Sens announcement released on January 2, it detailed a voting limitation deed between its subsidiary Halco and Textainer. This means Trencor — via Halco, which holds the 48% stake in Textainer — will limit its shareholder voting rights in Textainer in terms of the appointment and removal of directors.
This might worry some shareholders, especially as Textainer has underperformed some of its container-industry peers. But the short-term sacrifice might be justified in ensuring that Trencor “will be regarded for purposes of IFRS as being neither in control of nor having significant influence over Textainer”. Halco’s other voting rights will not be affected, and the arrangement should have no material effect on the economic value of Trencor’s interest in Textainer.
What this means is that, from this month, the financial results of Textainer will no longer have to be consolidated and converted into IFRS in the results of Trencor. This removes the onerous audit process, and means the publishing of Trencor’s results will not suffer frustrating delays or run reputational risks. The interest in Textainer will be accounted for at fair value by Trencor, which will now ask the JSE to reclassify the company’s listing as that of an investment entity.
Trimming the sails
I suspect Trencor’s corporate life as an investment entity will be fairly short lived, as plans have been afoot for some time to simplify its interests. This would almost certainly entail the unbundling of Trencor’s Textainer stake and an inward listing of Textainer on the JSE. Trencor CEO Hennie van der Merwe confirms such plans are still on the table — but these processes will take some time to finalise. Meanwhile, Trencor shares have enjoyed an encouraging spurt since the AGM, increasing more than 30% in less than six months. Over a year, the gain in Trencor’s share price is a stunning 60% — not too shabby in a stronger rand environment.
The share-price appreciation is noteworthy, given that shareholder activist Chris Logan mischievously asked at last year’s AGM whether Trencor is not “like [underperforming retail giant] Pick n
Pay five years before [CEO] Richard Brasher got there?”
At that point Textainer had produced losses in six consecutive quarters, its performance worsened by a large exposure to bankrupt shipping line Hanjin.
I can now look forward to perusing Trencor’s year to end-december results without delay — if only to confirm the executives’ vigorous discounting of the Pick n Pay analogy.
Trencor’s accounting process involved a mindnumbing audit of Textainer’s 3m-unit container fleet