Kangaroo Island Plantation Timbers Ltd (ASX:KPT) has adopted a new strategy to remove the treecrop and convert its land for more traditional agricultural use after being advised that its application to establish a seaport at Smith Bay on the island’s north coast has been declined.
The company was formally advised of this decision by South Australia’s Minister for Planning Vickie Chapman MP.
KIPT’s new strategy, which will begin immediately, will require significantly less capital and will revert its 18,696 hectares of high rainfall land to a productive agricultural estate over a shorter period of time.
"Major turning point"
Chairman Paul McKenzie said: “Today marks a major turning point for KPT. By undertaking this lower risk and well-trodden strategy, we will in turn develop our land into an institutional-grade, conventional agricultural estate.
"The company’s vast, high rainfall landholding is unique and is expected to command a premium valuation in due course.”
Further salvage harvest opportunities for fire-damaged timber on the KIPT land will be pursued, particularly for softwood plantations, if they present attractive risk-adjusted returns to shareholders.
The agricultural strategy does not require new port infrastructure on Kangaroo Island.
A proven process
Reverting timberland to a more traditional agricultural use is a proven process and since the failure of the MIS experiment, more than 100,000 hectares of former forestry plantations have been reverted to agriculture in Australia.
KIPT has commissioned Jones Lang LaSalle Advisory Services Pty Ltd (JLL) to conduct a valuation of its land under the new agricultural strategy.
JLL’s independent as-is valuation of $51.4 million at June 30, 2021, was derived after estimating a total reversion cost and the KIPT board has adopted this valuation in the 2021 accounts.
As a result of the new strategy, KPT’s 2021 results will include the following pre-tax adjustments:
- The wharf asset of $18.2 million will be revalued to net realisable value, resulting in a pre-tax loss of $12-$14 million;
- The biological assets previously valued at $5.9 million are deemed to have a fair value of nil, resulting in a pre-tax loss of $5.9 million; and
- The land has been revalued at $51.4 million, resulting in a reduction in the company’s revaluation reserve of $7.8 million before tax;
At June 30, 2021, the company had no debt and cash at bank of $32.7 million. In addition, KPT’s insurer has retained $4 million in respect of the insurance claim for the damage caused by wildfires against the potential for KPT to obtain a positive margin on salvage of timber.
As the new agriculture strategy has lower capital requirements, KIPT is in a position to return surplus capital to shareholders and take advantage of the market discount to NTA.
Accordingly, the board has announced an on-market buyback of up to a maximum of 5.65 million shares, representing 10% of ordinary shares on issue.
The reversion strategy has also resulted in KIPT changing the composition of its board and executive team.
Managing director Keith Lamb will retire from the company board as managing director effective from the company’s Annual General Meeting.
Lamb joined the company as a non-executive director in October 2018 and became managing director in June 2019.
Chairman Paul McKenzie said the board acknowledged Lamb’s leadership through the devastating wildfires in December 2019 and January 2020 “and since that time in guiding the company as it commenced its recovery program.
"Although we are reluctant to see Keith depart the company, we are pleased he has agreed to provide for a smooth transition and continuity into the future”.
In acknowledging the support of the board and shareholders through this challenging time, Lamb said: “I wish the company well in its next stage of growth.
"In particular I wish to acknowledge the dedication of the company employees, who showed tremendous courage through the fire campaign and in the period that has followed.”
The managing director position will not be replaced and immediately after the company’s AGM, James Davies will be appointed as executive chairman of the board while current chairman Paul McKenzie will remain as a non-executive director.
Davies said he was pleased to lead the company through its next chapter and into a new strategy.
“The landholding is unique and I look forward to developing an institutional-grade agricultural estate that will maximise value for all shareholders.”