Managing cashflow and working capital requirements for an expanding business alongside crop and input price volatility is a challenge.

Adam Metcalfe’s business was restructured in April this year to help in that process. Splitting the business into three distinct arms (see AWSM Operations, below) helps protect personal assets while allowing the development of separate business interests which can be clearly costed, planned for and valued.

Previously the farming, contract farming and contracting had been operated as one sole trader business across 1,420ha (3,508 acres), with the recycling business run as a separate company from the outset.

A more secure operational and financial footing has been achieved through the restructure, says consultant Hamish Bichan of Active Business Partnerships.

“A strategic split into three makes sense for tax, risk management and operational reasons,” he says. “It allows more accurate identification of how each element is performing and long term will allow value to be built and identified in parts of the business.”

Identifying risk in the business was an important aspect of the review that led to the restructure. Over the last few years, the increasing use of by-products as alternatives to conventional fertilisers has helped reduce input price risk and enhanced soil structure on the farmed land.

At the same time, increasing the contract farming agreement acreage has reduced the exposure to the cut-throat agricultural contracting market, while the contracting business has also developed specialist services such as slurry injection and the recycling business has grown significantly.

“It’s primarily about putting together an accurate picture of what you want to do and the financial implications of that, especially with an expanding business – how much working capital will those operations need and how much of it should be on overdraft, how much on loans or other sources of finance?

“As the business expands, it obviously needs more working capital but that is compounded by the fact that inputs are all costing more as well and at a time when output prices are so much more volatile.

“It’s also about getting a management structure in place that doesn’t rely solely on Adam.

“One of the more complex issues in the restructure has been to get the accounts right and mould the software on-farm to make sure we end up with good management information that we can interrogate easily to identify issues such as machinery costs or information about work done for one customer.”

Splitting the business has demanded great attention to detail from bookkeeper Kim Usher.

In the meantime, expansion continues, with Adam always on the lookout for the right opportunity.

“We’re trying to expand both the contract farming side to develop that and the waste business so we’re looking for more waste products – as AD plants come on stream there will be more digestate to deal with and that is an area we will probably be involved in,” he says.

Harvest plans

The farm’s full-time staff will as usual be swelled by a good number of harvest helpers. An extra 15 staff will be taken on until late October, with three Irish lads – friends of others who have worked for the business in previous years –joining this week. The rest of the temporary staff are local.

The plan is to swath more rape than usual this year to try and manage harvest dates more closely, while one drill and one cultivator will be run round the clock for as long as necessary.

Adam is hopeful that the late season will not cause too many logistical problems – while most of the first-cut grassland contracting work took place about a month later than usual, a second cut is unlikely for many this season and the timing of second cut often coincides with the start of harvest.

“First-cut volumes were huge – about 50% more than usual in some cases,” says Adam. However, because the weather pushed the work back by four weeks or so, cashflow is not what it should have been at this point in the year, creating extra pressure.

Looking ahead to the 2013 crop, all seed is ordered and UK manufactured nitrogen was booked in May at £293/t delivered.

New offices

Planning permission has been granted for new offices, a workshop and staff facilities at Lanehead Farm, which at present has temporary office accommodation. When these will be built depends on the performance of the businesses.


AWSM OPERATIONS – THE NEW STRUCTURE

AWSM Farms – owned land, buildings and sheep – 148ha
AWSM Farming – contract farming and contracting operations trading as a company – provides contracting services to all land farmed by Mr Metcalfe and to other farmers. Arable and grassland contracting – large volume of work is baling, slurry injecting, muckspreading and spraying
AWSM Recycling, operates as a company with Solway Recycling collection contract York to Morpeth area, also handles wide range of mainly food by-products recycling these to agricultural land


CROP MARKETING AND STORAGE

Selling prices for wheat at AWSM illustrate the volatility of this season, with deals done at £145/t to £180/t ex-farm.

“The volatility makes it very difficult to gauge one merchant’s offer against another’s because by the time you’ve spoken to a couple of people, the market has moved so much in just a few hours,” says Adam Metcalfe.

  • Wheat – 85% sold at average £156.50/t against £150/t budget
  • Barley – 93% sold at average £162/t against £145/t budget
  • Oats – 96% sold at average £195/t against £135/t budget
  • Oilseed rape – 61% sold at average £365.68/t (before bonuses) against £380/t budget (including bonuses)

Adam uses ODA’s grain market information service and completed the company’s grain market training some time ago.

Grain has been sold mainly to GrainCo and Frontier, with an 80% advance being paid once the crop is in store to help with cashflow. The farm will be storing oilseed rape for Frontier this season which has meant getting TASCC approval for stores. The Trade Assurance Scheme for Combinable Crops is an industry scheme to maintain traceability of assured combinable crops after they have left the farm.