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Correspondence

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[copy typed of letter received from ProvencoCadmus Limited]

ProvencoCadmus Limited
 
25 College Hill
Ponsonby
PO Box 68 281
Newton
Auckland
 
 
 
June 17, 2009
 
NZ Shareholder Association Inc
PO Box 6310
Auckland City
 
Attention Bruce Sheppard
 
Dear Sir
 
Thank you for your correspondence of May 21 requesting comment on your analysis and issues raised in that letter. As you are aware we have been in the process of selling Vantex Group and further discussions with our bank regarding our current facilities. As such we thought it appropriate to conclude these matters before responding to your request.
 
As reported to the stock exchange on June 2 I can confirm the sale to Ingram Micro is complete and was settled on May 29.
 
At the time of the merger we advised shareholders that ProvencoCadmus’ debt position was uncomfortably high going into the merger and we have communicated our intention to reduce debt through the sale of non core business assets.
Following the sale of Vantex we still have total debt of $43.9m. This comprises $29.4m senior debt with the Bank and a total of $14.6m with capital note holders.
 
Of your ratios that you have calculated the two that relate to EBIT or EBITDA can not give a meaningful result when a company has negative numbers for both EBIT and EBITDA as is our case. We advise that the company made a loss in June 2008 and as such any “normal” covenant could not be applied.
 
Of the remaining two, the Debt to Equity ratio is close to what we calculated but we are unsure of how you have calculated the Tangible Assets plus Debt figure.
 
We are not in a position to disclose what our bank covenants are as this is sensitive information between the bank and us. We work closely with our bankers and they are fully informed as to the operations and performance of the company.
 
We can state that the bank remains supportive of the company and have extended the bank facilities till August 30 2009 to enable us to complete a recapitalisation of the company, and we also have the bank’s conditional support for a 3 year funding package following recapitalisation.
 
Having recently approved the three year plan and 2010 budget, the Board has confidence in the long term future for the restructured company. We have taken over $20m pa of expense out of the business by staff reductions, rationalisation of premises, and other cost savings. Our forward plans will see further cost reductions, but also some reinvestment in the strategic core of the business which is now focused on payments technology.
 
In relation to our covenants at June 2008 as stated in our Financial Statements note 17 we were not in compliance however the bank had agreed to waive the breaches. As at today’s date we are in compliance with the terms of our banking covenants as they relate to current facilities.
If you wish to discuss this further please do not hesitate to contact me.
 
 
 
Yours faithfully
 
 
 
 
Rick Christie
Chairman