Ag Growth International Inc. (AGI) has made substantial progress in determining its approach to the potential remediation of the commercial grain storage bin failures in British Columbia last September.
AGI announced at that time a commercial grain storage bin manufactured by it and located at a customer's export terminal in North Vancouver, BC, had collapsed.
The grain storage bin that collapsed is part of a new bin line that was developed and manufactured by AGI over the past two years in response to market demand.
It is a larger version of AGI’s standard hopper line. This new bin line is unique and distinct from the rest of AGI’s product lines, including its other grain storage bin products, and is not in place or being sold to any other customers.
In May 2019, a similar product in a substantially different application and installed at a different site for a different customer suffered a failure, the cause of which is unknown at this time.
Based on that event and out of an abundance of caution, AGI undertook an extensive engineering re-evaluation of the product prior to inclusion in two additional applications.
Fifteen of these bins (including the collapsed bin) are located at the facility where the incident occurred and an additional 20 have been manufactured and supplied to another customer but have not yet been commissioned.
The total sales value of these 35 bins is approximately CAD $19.1 million.
In the context of delivering the best possible solution for the affected customers, while also considering time to remediation, AGI has determined to proceed with replacing the entire hopper base of the grain bins as opposed to replacing components of the existing structure.
The grain bins involved are comprised of a cylinder top and a hopper base. While the cause of, and the responsibility for, the incident has not been determined, AGI continues to proceed on the basis of providing full remediation to the two affected customer sites.
The replacement of the hoppers results in a significantly expanded scope. The remediation is now comprised of an increased amount of steel and a more extensive level of decommissioning and construction. The recent increase in the price of steel also drives higher costs for the project noted AGI.
Taken together, these factors will result in a $30 million total increase in the expected cost of the remediation for the two customer sites combined. AGI continues to believe that this amount will be partially offset by insurance coverage and result in a lower net impact. AGI is working with insurance providers and external advisors to determine the extent of this cost offset.
"One hundred percent of our focus is on our customers as we deal with these product issues at the two industrial sites," says Tim Close, president and CEO of AGI. "We are committed to delivering a robust solution to mitigate this unfortunate incident while also minimizing the time to remediation and acknowledging that the cause of the incident is undetermined.
"In order to stand behind our commitment we are increasing the expected cost of the full remediation by $30 million," says Close.
Financial results
The company also provided an update to its expected Q4 2020 financial results. Having closed out FY 2020, it confirmed its prior guidance of annual sales and adjusted EBITDA results being in line with 2019.
International markets are very robust with record backlogs and very active pipelines. Brazil, EMEA, and India are all seeing a substantial increase in backlogs year-over-year, says AGI.
North American farm momentum is also strong driven by fundamental demand, rising crop prices, and favorable dealer positions inventory. North American backlogs overall are also up year-over-year with respect to FY 2019.
The AGI Food business is gaining significant traction with backlogs also up substantially year-over-year.
AGI SureTrack, its IoT driven, end-to-end technology platform, is positioned to continue to see robust growth in 2021.
There is a positive environment globally with crop prices increasing and active quoting across AGI. Overall, AGI expects 2021 results to exceed 2020 results in both sales and Adjusted EBITDA with strong performance in H1.
"AGI is better positioned for continued growth and success than at any time in our history," says Close. "Our global platform performed well through the extreme tests of 2020 and we sit today with record backlogs across the business. North American Farm, Brazil, EMEA, India and our Technology platform, AGI SureTrack, are all positioned for record performance as we move into 2021."
