Long Read: growing with Haydock
15/07/2022
In this week’s Long Read, and following from our visit yesterday to one of Haydock’s informal and refreshing broker roadshows in Birmingham, we revisit our recent conversation with Jon Hercman, Head of Agriculture at Haydock Finance, to find out how this vital sector is handling 2022’s many challenges.
Is an undiversified farm considered a higher risk than a diversified farm?
What we see is that most farms have at least an element of diversification in them. This means that if one area of the business is impacted by something in the industry – which leads to a fall in the price of that given commodity – then the farm can be supported by other areas of the business. This might be a diversified farming related income stream such as beef or sheep production, or non-agriculture related such as glamping, holiday lets or a farm shop. For this reason, finance providers tend to prefer diversified farm businesses.
So agriculture has one foot over the line into the leisure sector?
Yes, definitely. A number of the businesses we’ve dealt with have diversified into the leisure sectors. Geography is key and where the farm is well located for the general public and in the right demographic things such as soft play, farm shops and cafes are all becoming popular.
Covid-19 has put the general public back in touch with farming and farmers got a lot of goodwill from the general public during the pandemic because while everyone was stuck at home they were aware farmers were still out in the fields rolling their sleeves up and keeping everything going.
Haydock as a business has funded a number of these diversification projects into the leisure sector. We are actively funding glamping pods to farmers who have seen a surge in demand for bookings. These represent relatively modest investments but can generate quite handsome returns and don’t require any significant prior experience in managing.
Is it right to say supply chain issues affect this sort of business?
Yes, because for example the just-in-time production model is much less viable in current trading conditions. We’ve done deals through rural brokers who might be working with, for example, temporary buildings there to house business’s demand for stock in sectors such as garden centres. Typically, a garden centre would order stock shortly before the Christmas spending starts, but now they need temporary storage because they’re placing orders much earlier, eg in September, to ensure that stock is available to meet the demand from their customers. So, they need temporary buildings to store that. And we’ve funded businesses who are renting out a temporary storage solution, renting it out to a business like a garden centre.
The kind of storage I’m talking about is sort of a premium marquee, a temporary building with a roller shutter door, steel sides, possibly a steel roof…something that can be put up in a day and dismantled within a day and typically doesn’t require planning permission.
Supply chain problems have also affected hard assets - tractors, combine harvesters, forklift trucks, pretty much anything that moves. We get a lot of funding requests for tractors, for example, but a tractor might not be delivered for nine to twelve months, because the tractors aren’t getting built, and in the end it all comes down to the shortage of silicon chips. For a new purchase we’ll have an agreed finance package that is simply waiting to be drawn because the asset hasn’t yet been supplied.
What about ESG, pressures on farmers to embrace Green tech?
The two areas most farmers are investing in are ground source heat pumps and roof-based solar panels that can be integrated with existing buildings. Historically there was interest in renewables on a standalone basis, such as fields of solar panels or wind turbines. But now proposals are often tailored to sit alongside existing farm operations and demands - so you might have energy production whose purpose is not to export to grid but instead power existing on-site energy demands — a chicken shed, a grain dryer etc. We’re seeing more small-scale projects, likely because the removal of earlier incentives. In the past you might get a £1 million deal for a wind turbine and now we don’t see so much of that because the Government’s economic incentives have died down or been removed altogether.
If two farms merge does that give you less growth opportunity?
There’s definitely an increase in average farm size, as big farms swallow up whatever they can swallow up. As a rule of thumb, a smaller farm is less economically viable, so when a family farm moves up a generation, the chances it will remain a family-run farm are reduced. If you’ve got a 200-acre farm or a 75-head dairy farm, your chances of remaining profitable long term are much smaller than for a bigger farm. And that trend towards farm consolidation is what’s driving up the average farm size, as families exit the industry. It’s a numbers game and about economies of scale - equipment is so expensive that you need the land holding to justify it.
How does Haydock set targets for a year like 2022?
There’s quite a lot that’s hard to predict in 2022.Our targets are based largely on our performance last year. We’re looking for growth and trying to differentiate ourselves through excellent service, and we believe the asset finance industry has a lot of room for growth. We believe we can attract a larger market share of a growing market. Year on year our growth has been extremely strong. In the most recent Asset Finance International Top 50 we were ranked the second fastest growing asset finance company.
Our targets bear in mind past performance, but they also have to account for the future pipeline that we’ve got coming through. We’ve got good visibility on what our pipeline is.
In 2021 we added a lot of new brokers and clients - growth was exceptional. Our book has grown hugely. With the recent addition & fast growth of our Stock Finance business our overall asset and stock book is circa £500 million. We think we’ve got an excellent offering and broker feedback and broker numbers seem to confirm that.
This is a shortened version of the full-length profile first appeared in Leasing World magazine issue 171, in April this year.
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