Simpkins Edwards ran a seminar for farmers and agricultural business owners with Lloyds TSB Agriculture and Stags on 20th February 2013 entitled 'Farm Business Expansion in Challenging Economic Times'. The presentation, given by Partner Mary Jane Campbell, Simpkins Edwards and David Fowller, Lloyds TBS Agriculture along with Mark Neason, Stags gave a practical guide to dealing with changing or expanding your business. Are you looking to expand an enterprise? Maybe specialise in your most profitable area? Are your children looking to join you in the business? If so, you are going to need some financial, tax and practical support and advice...... and this could give you the information you need. Making way for the next generation - What are the tax implications? Business Finance - How to secure borrowing to support your farm business now and in the coming months. Occupying land as a farmer - what are your options? Planning points - for agricultural dwellings, farm buildings etc Common Agricultural Policy Reform - what is the future for SFP? For further information please either call or e-mail Sharon on 01392 211233, sroberts@simpkinsedwards.co.uk. Simpkins Edwards can also provide speakers to host seminars on a variety of accounting, financial, tax and business issues. To book a speaker please e-mail sroberts@simpkinsedwards.co.uk or call 01392 211 233.

1. Farm Business Expansion in Challenging
Economic Times
Simpkins Edwards – Mary Jane Campbell
Lloyds TSB Agriculture – David Fowler
Stags – Mark Neason

2. Making way for the next
generation
Mary Jane Campbell

3. Including the Young Farmer
Three scenarios
- Within the existing business
- Expansion/ improvement of operations
- Starting a new enterprise

4. Existing Business
The existing business
- Typically start as an employee
- Comes a time to join parents business
Advantages
- Saves employment taxes
- YF more motivated
- Reduces tax burden

5. Existing Business
Disadvantages
- Responsibilities on YF
- Same income to spread further
- Loss of capital if YF leaves partnership

6. Existing Business
Rates and Allowances
 Personal Allowance 8105 (under 65)
10500 (65-74)
10660 (75 plus)
 NI Class 4 threshold 7605 ( up to 65)
 Married Couples Allowance for over 75s
 Age Allowance for over 65s £25,400

7. Existing Business
 Considerations for new partners
- Off farm income
- Tenancy succession
-Have a partnership agreement

8. Existing Business
Partnership agreement
 sets out basic parameters
 profit and capital shares
 holidays and working time
 actions if a partner wants to leave,
incapacitated or dies
 agreement for use of land owned by a
partner

9. Existing Business
Other tax considerations
IHT - Agricultural Property Relief
CGT – Entrepreneurs relief
Additional housing requirements
- local housing
- sharing farmhouse
- planning for agric tied dwelling

10. Expansion
Expansion
 Areas of expertise
 Which activities show best return?
 Assess limiting factors
 Improving efficiency

11. Expansion
 Pop-Up Economics – Tim Harford

12. Expansion
Think out side the box – nominate a Matt
Parker
If you do what you have always done don’t
be surprised when you get the result you
always get!
Use benchmarking data
Have a plan with actions and targets
Check progress against plan in words and
numbers

13. Expansion
 More profit
 Outputs - Yield/quality/price
 Costs – price/quantity
 Calving interval, drilling date, cell count,
LWG by feed or days
 System – more drastic

14. Expansion
Extra resources
- Land via FBT or purchase
- Marginal cost means attractive rent may
be tendered, or inflated price offered
- Financing again marginal cost important
- Cashflow critical
But
- ensure there are plans to monitor
performance so it does not slip with
growth

15. New Enterprise
 Business planning, financing etc.
 Trading structure
- Sole trader or partnership
- LLP or company
 Tax structure to suit
- investors
- workers/managers

16. New Enterprise
Example
Renewables project
- whose money will fund the project?
- what is income profile for investors and
managers?
- what is impact on existing business?

17. New Enterprise
Typical succession issues
- Control / insecurity
- Other family members
- Housing of families
- Tax (rental/investment asset)

18. New enterprise
Final thoughts –
To retire or not…………
 Liability to care home fees
 may help APR on farmhouse
 need the income?
If you only do one thing
Make a will!

19. New Enterprise
Wills
- clarify position for family
- estate simpler and cheaper to administer
- review every 10 years or so
- discuss with family
Good Luck

20. Mary Jane Campbell
Partner, Simpkins Edwards LLP
01392 211233
mjcampbell@simpkinsedwards.co.uk
www.simpkinsedwards.co.uk

21. Farm Business Expansion in
Challenging Economic Times
David Fowler
Regional Agricultural Manager
Devon
01392 424871
07802 655897

22. Certainties in life

23. Banking Issues
• World Economy
• Eurozone Crisis
• Effect on UK Banking System
• Borrowing consequences for farmers

24. Debt crisis – the underlying problems
• Greece – heading for default?
• Italy – highest total debt in eurozone, corrupt, not tackling
the issues
• Spain – property boom/bust, 26% unemployment - 6m
• France – huge sovereign/private exposure to Greek debt
• Germany – most of their neighbours are broke
• Ireland – UK has heavy exposure to Irish debt - £9Bn

25. Debt crisis – the effects
The Financial Markets
• Stability of banks – capital ratios increased
• Write offs & Credit Default Insurance costs
• Quality of lending book? – good debts/bad debts
• Availability of capital – QE, ECB funding
• Mis-selling – PPI & Derivatives / SWOPS
The Customers
• NO change – servicing ability, track record, full proposals
budgets / cash flows, gearing, security
Borrowing Terms
• Higher margins, due diligence, FSA Regulation

26. Bank Funding Costs lead to higher margins
9.00
8.00
UK Bank CDS spread
UK banks’ 5-yr term funding cost (%)
7.00 3mth Libor spread
UK Bank Rate
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2005 2006 2007 2008 2009 2010 2011
Source: Bloomberg/LBCM

27. UK Base Rate – 300 yr low…
UK Base Rate since Jan 1975
18
16
14
12
Base Rate
35yr Ave
10 30yr Ave
25yr Ave
35 Yr Ave = 8.05% 20yr Ave
8 15yr Ave
10yr Ave
30 Yr Ave = 7.25% 5yr Ave
6
25 Yr Ave =6.46%
4 20 Yr Ave = 5.11%
15 Yr Ave = 4.43%
10Yr Ave = 3.47%
2 5 Yr Ave = 2.82%
0
5
7
9
1
3
5
7
9
1
3
5
7
9
1
3
5
7
9
1
7
7
7
8
8
8
8
8
9
9
9
9
9
0
0
0
0
0
1
n-
n-
n-
n-
n-
n-
n-
n-
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n-
n-
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n-
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n-
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Ja
Ja
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Ja
Ja
Ja

28. Drivers affecting farming - 1. GBP/EUR
1.3 GBP/EUR
1.28
1.26
1.24
1.22
1.2
1.18
1.16
1.14
1.12
1.1
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
Source: Bloomberg, Lloyds Bank

29. Driver 2 - UK CP Inflation
6 % UK CPI YOY
5
4
3
2
1
0
Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
Source: Bloomberg, Lloyds Bank

30. Driver 3 - Crude Oil
120
Crude Oil ($)
110
100
90
80
70
60
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
Source: Bloomberg, Lloyds Bank

31. Driver 4 – Wheat
300 Generic 'European Union' Wheat Futures
(EUR/metric tonne)
250
200
150
100
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
Source: Bloomberg, Lloyds Bank

32. What does a good proposition look like?
•3 years up to date accounts
• Management information for the current year
• Budgets and cash flows – stress tested
• Business Plan
• Planning permission
• Tenders / quotes
• Capital budgets
• Consultancy advice

33. What funding products are available?
• Overdraft
• Loan – variable rate over base
• Loan – fixed rate over the cost of funds
• Commercial Finance – HP & Leasing
• Invoice discounting and factoring
• How do we assess the margin? Secured and unsecured
• Matrix rates based on customer risk profile – how can this
be improved?

34. Discounted loans currently available
1. Funding for Lending
• 1% discount for the whole term
• Variable & fixed rate loans
2. National Loan Guarantee Scheme (now finished)
• 1% discount for 1st 5 years of fixed loan over £250k
• Limited funds - £30m taken up in 1st 5 weeks 2013!

35. How we help farm businesses
Modern and efficient banking
facilities delivered with a focus on
great customer service
Flexible options including fixed,
variable, interest-only loans
Single Farm Payment (SFP) hedging Machinery and equipment finance
Interest risk management Investment in infrastructure
Business income protection

36. What does a good agricultural bank do?
• Understand the Industry
• Understand the market place
• Understand the enterprise
•The farmer
•The farm business
• Help Facilitate Change
• Help Manage Risk
• Deliver this knowledge locally

37. “The best thing about owning a farm …
…......is the tax breaks
…..the most important
of which is …………
……..Inheritance Tax”
Money Week 22.1.2010

38. Disclaimer
This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing
discussed herein is based on our view of current market conditions and is for discussion purposes only.
This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the
internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution
- in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.
The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this
Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers,
servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in
this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential
damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal
considerations are subject to change and in all cases independent professional advice should be sought in those areas.
This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue,
purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may
only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of
presentation and may therefore not be complete.
Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them.
Lloyds Bank Corporate Markets, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc, Lloyds TSB Scotland plc and Bank of Scotland plc. Lloyds TSB Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065.
Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC32700. Authorised and regulated by the Financial Services
Authority under registration numbers 119278, 191240 and 169628 respectively.
This document is confidential, for your information only and must not be distributed, in whole or in part, to any person not involved with the proposed transaction without the prior consent of Lloyds TSB Bank plc (“Lloyds TSB”). Whilst Lloyds TSB has exercised reasonable care in preparing this
document and any views or information expressed or presented are based on sources it believes to be accurate and reliable, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. In particular, whilst we have sought
to identify appropriate products and to provide guidance as to how those products might operate under various accounting standards we are not, and should not be considered to be, giving an accounting opinion or advice and you should conduct your own independent enquiries and seek your own
professional advice in this respect. Any transaction which you may enter into with us will be on the basis that you have made your own independent evaluations based on your own knowledge and experience and any professional advice which you may have sought in relation to all aspects of the
transaction including legal, regulatory, tax or accounting.
All terms contained herein, including pricing, are indicative only and subject to change without notice. This material has been prepared for information purposes only and Lloyds TSB, its directors, officers and employees are not responsible for any consequences arising from any reliance upon such
information. If you receive information from us which is inconsistent with other information which you have received from us, you should refer this to your Lloyds TSB Sales representative for clarification.
Lloyds Bank Corporate Markets, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc, Lloyds TSB Scotland plc and Bank of Scotland plc. Lloyds TSB Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065.
Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC32700. Authorised and regulated by the Financial Services
Authority under registration numbers 119278, 191240 and 169628 respectively.
This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing
discussed herein is based on our view of current market conditions and is for discussion purposes only.
This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the
internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution
- in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.
The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this
Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers,
servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in
this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential
damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal
considerations are subject to change and in all cases independent professional advice should be sought in those areas.
This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue,
purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may
only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of
presentation and may therefore not be complete.Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them.
Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions,
except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation.
Lloyds Bank Corporate Markets, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc, Lloyds TSB Scotland plc and Bank of Scotland plc. Lloyds TSB Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065.
Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC32700 .Authorised and regulated by the Financial Services
Authority under registration numbers 119278, 191240 and 169628 respectively.
38

39. David Fowler – Regional Agricultural Manager
Thank You

40. ‘Farming and Land’
Mark Neason
Stags
20 February 2013

41. "the world's climatologists are agreed" that we must "prepare for the next
ice age."
Science Digest – Feb. 1973
"Warning: Earth's Climate is Changing Faster Than Even Experts Expect"
The Christian Science Monitor - Aug. 27, 1974
"may mark the return to another ice age."
New York Times (Sept. 14, 1975)
"a major cooling of the climate is widely considered inevitable"
The Times - May 21, 1975
"many signs" that "Earth may be heading for another ice age."
The New York Times - Aug. 14, 1975

42. Case Study

43. Why be a farmer?
What has the Government ever done for me?
• Inheritance Tax relief
• Single Payment Scheme
• Capital funding for diversification
• Capital funding for cost saving measures
• Agri-environmental funding
• Favourable planning policies:
– Permitted development
– Agricultural dwellings
– Farm diversification

44. Ways of being a farmer
• ‘In hand’ farming
• Sale of grass keep
• Share farming
• Managing an agri-environmental agreement
• Contract farming (Employing a contractor)

45. Typical contract / share
farming arrangements
All costs and income budgeted on a ‘gross margin’ basis (excluding
fixed costs)
Contractors prior charge £100
Landowners prior charge £80
Margin calculated after Contractors and Landowners prior charge
removed (the divisible margin)
Divisible margin split: 70% Contractor
30% Farmer (Landowner)

46. Acquiring / Occupying Land as
a Farmer
Quasi farming:
Contractor, licensee.
Purchase
Rent:
Agricultural Holdings Act (AHA)
Farm Business Tenancy (FBT)

47. Tenancy - Agricultural
Holdings Act (AHA)
Land held prior to 1st September1995.
• Likely to be lower rent
• Security of tenure
• Potential for succession

48. Farm Business Tenancy (FBT)
• Market rent reviewed with reference to the
market (current tenders)
• Shorter length
• No security beyond the end of the agreement

49. Aller and Bridge Farms Williton
Lots 1 and 2: 220 acres no SFP

50. FBT Case Study
Lots 1 and 2: 220 acres no SFP
20 tenders ranging from £90 to £200 per acre
Average tender £150 to £160 per acre

51. Land Prices
30 £/m2: £300,000/ha £2.50/m2: £25,000/ha

52. Land near Hilldown Cross - 50 acres sold April at £5,500/acre

53. Land at Uplowman – 24.37 acres sold March 2012 for £11,694/acre

54. Westworthy Land and Buildings – 53 acres Sold August 2012 £6,500/acre

55. Buying v Renting
The business case
Assume a farming profit of say £300/acre before
interest/rent charge)

56. a) Purchase
Land purchased at say £7,000/acre
Cost of money 5% - £350 per annum
Cost of money 3% - £210 per annum
(Profit say £300 per acre before interest charges)
Borrow at 5% £50 loss per annum
Borrow at 3% £90 profit per annum
Capital repayment over 20 years - £350/acre pa

57. b) Rent
(Profit say £300 per acre before rent)
FBT rent say £150 per acre
Profit per acre £150 per annum
However
With land price inflation at 8% per annum
In first year purchased land will have increased
in value by £560
More capital but less cash

58. SPS Update
• Golden ticket / Retention of current entitlements
• National Reserve
• Active farmer
• Permanent grassland
• Crop diversification
• Greening

59. SUMMARY.
Mark Neason
Wellington 01823 662822
Exeter 01392 664496
Mobile 07970 089537
m.neason@stags.co.uk

60. ANY QUESTIONS?

61. Please complete a feedback
form and stay for a chat and
enjoy some light
refreshments.