United Grain Growers Limited
United Grain Growers Limited (UGG) was originally a Canadian grain distributor that was looking to expand its operations and services it offered to farmers, including the non-grain handling business. New technologies, distribution methods and regulations were the main catalysts for UGG’s recent growth and expansion projects. UGG had been forming alliances with other industry firms, which had been a solid form of financing, but they still had planned on an additional $150 million in projects, which needed to be funded.
In this industry there is significant risk involved, mainly with the size of the crop, which is completely dependant on the weather. UGG has recently been looking at ways to hedge against this risk as well as additional risks inherent in this industry. In this analysis, the risks associated with the industry, the implications of these respective risks, and what management is doing to combat these risks will be covered.
Financing for Future Projects
Based on the assumptions, included in exhibits 1 and 2, UGG will need external financing of $77.25 million in 1999 and $217.25 million in 2000. The case had no mention of additional alliances with other companies in the coming years, which has been a significant source of financing in the pervious years. Sales came down in 1999 due to the lower than expected Canadian Wheat Board shipments, but were expected to rebound in 2000. The assumption was made that UGG will continue to securitize their inventory and receivables; reducing the amount of financing needed to fund those balance sheet items. Nonetheless, UGG’s aggressive $150 million project of buying retail outlets and building new treatment facilities over the next two years contributed to a majority of the external funding needed.
Like many organizations, UGG faces a number of risks, varying by source, importance, and effect. From business interruption to competition to interest...