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United Grain Growers

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Submitted By bharatsmilling
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United Grain Growers Limited

Bharat Gutta

1. UGC estimated that it would need C$150 million to carry out its strategic plans over the coming two years. Will its internal resources provide reliable funding for this program? How much external funding might it need? The company needs to spend C$150 million, which covers the installation of high-throughput elevators (7 or 8 more at $9 million each) and the upgrades of 15 elevators at $3 million each. The rest of the money is needed for the funding of the expansion of Crop Protection Services and Livestock services division.

If we look at the income statement of the company and also the balance sheet and cash flows, we notice that UGG has a negative cash flow for 1998. This means that UGC is not even able to assure resources for its own working capital. Willing to obtain internal resources for long-term investments seems impossible in this case. Also, company got cash by selling accounts receivables and reducing inventory, but for 1998 is not working due to the fact that is using more cash by increasing the working capital. Excluding the changes in working capital from secularisation, the cash from operations varied from -$74.7 million to +$96.4 million, which is very variable. Also, the $150 millions also represents over eight times its 1998 cash from operations, even though the cash from operations has varied from -$74.7 million to +$104.4 million over six years. In order for the company to raise the C$150 million to carry out its strategic plans over the coming two years, it must look for a long term loan, possibly over 10 years and the longer the better because the new elevators are expected to last at least 50 years. Also, in case that the company fixes the problem with the secularisation and their working capital, it could borrow only part of the difference between the C$150 million and the cash flow for the

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