Embattled property valuer Landmark White (ASX: LMW) is making all efforts to wrench itself free from the mire of a cybersecurity disaster that slashed earnings by at least $6 million in FY19.
Following two trading suspensions and the temporary withdrawal of major bank customers, the company has posted a $15.1 million loss that was heavily influenced by a $12.3 million impairment charge.
The impairment relates to reduced cash flow for its residential, commercial and government services businesses, predominantly as a result of suspended contracts.
"The financial results of the business were adversely impacted by the suspension from valuation panels operated by many of the LMW's clients following the data disclosure incidents detected on 4 February 2019 and on 29 May 2019," the company said in its results announcement.
"This has resulted in a reduction in revenues of $6-7M and a corresponding reduction in profits. Whilst LMW had insurance cover in place, this only covered a relatively small part of the losses incurred."
The response to this troublesome situation has been to drum up funds from shareholders, with Landmark White set to increase the amount of shares on offer by 80 per cent in a bid to raise up to $5.45 million.
This figure is just slightly higher than the company's increased borrowings over the year.
The group hopes to secure the funds through an entitlement offer whereby shareholders will be offered four shares for every five held at $0.08 per share. This compares to the $0.18 share price before LMW securities were suspended from trade in early June.
The entitlement offer has a minimum subscription of $3 million underwritten by Enrizen Capital, but any shares not taken up will form part of a separate shortfall offer for shareholders as well as sophisticated and professional investors.
Landmark White has slated $1.6 million of the offer will go towards staff restructuring, including redundancies, while $400,000 will be invested into IT infrastructure and $600,000 will be for increasing its share in a Western Australian joint venture.
"The staff restructuring will include the amendment of individual roles and responsibilities, remuneration structures and some redundancy payments, however a large portion of these payments relate to leave entitlements that have already been recognised in LMW's reported results," chairman Keith Perrett said in a statement given to Business News Australia.
The majority of what is raised above the $3 million will be for working capital and paying down debt.
The entitlement offer will close on 23 August with the company expecting to start trading again on 26 August.
When asked about the large difference between the $12.3 million impairment and $6-7 million in estimated losses from the suspended contracts, Perrett told Business News Australia the figure related to esimated future cash flows underlying the goodwill on its balance sheet.
"This involves numerous assumptions around how long the reduced revenues and cashflows will continue and then calculating the net present value of these cashflows," Perrett said.
"Accordingly, the impairment is not directly equal to the loss of revenue LMW has experienced to date."
Cyber security update
In its results, the company emphasised it had substantially enhanced its cyber security measures to limit the chance of recurrence for the types of problems that have beset LMW since February.
In a letter to shareholders, Perrett said security upgrades were implemented with workflows resuming, however these still remain below historic levels.
"Despite the benign nature of the majority of the data exposed to the breach, a significant number of LMW's financial institution clients suspended providing instructions to LMW in relation to mortgage based valuation services until more extensive security upgrades were put in place," Perrett said.
"Throughout both incidents, LMW's Statutory Services business unit and regional network of offices have continued to receive instructions and deliver returns for the Group.
"These business units have demonstrated resilience through trialling times for the Group and proven the significant strength of the Company in these areas."
He said the incidents had led the board and executive to re-evaluate the operating structure and performance of various units within the company.
"Through this process, the Board has developed a leaner, optimised business model, with the intention of realising cost synergies, advancing customer experience and increasing earnings margins for the Group," he said.
"During the period of disruption, LMW has been supported by its bankers and has utilised cash reserves, supplemented by proceeds from various insurance policies that addressed the impact on the business.
"Whilst LMW is now in an operating position to execute a restructuring of the business to rebuild value for shareholders, the Company requires additional capital in order to deliver the restructure, optimise the business and continue its operations. Accordingly, the Board has resolved to undertake this Offer in order to secure sufficient funds to enable the company to restructure."
A recent report from the Australian Cyber Security Centre (ACSC) highlights companies are vulnerable to cybersecurity problems when involved in merger and acquisition activity.
LMW completed its acquisition of Taylor Byrne in October 2018 just a couple of months before its data breach occurred, however Perrett told Business News Australia there was no connection between the company's breach and any vulnerability brought about by M&A activity.
"LMW has already provided comprehensive training to all staff around cyber security and data privacy which included a major section on payments, phishing and CXO impersonation," Perrett said.
"Additionally, we have robust segregation of duties with our business to ensure that all payments require two authorisations, and those authorising the payments are not those that deal with the suppliers from a business point of view.
"Finally, all bank account details provided by new payees are required to be verified by our accounts team."
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