Farm Business Expansion in Challenging Economic Times - 20 Feb 2013
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Farm Business Expansion in Challenging Economic Times - 20 Feb 2013

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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 ...

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.

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    Farm Business Expansion in Challenging Economic Times - 20 Feb 2013 Farm Business Expansion in Challenging Economic Times - 20 Feb 2013 Presentation Transcript

    • Farm Business Expansion in Challenging Economic Times Simpkins Edwards – Mary Jane Campbell Lloyds TSB Agriculture – David Fowler Stags – Mark Neason
    • Making way for the next generation Mary Jane Campbell
    • Including the Young FarmerThree scenarios- Within the existing business- Expansion/ improvement of operations- Starting a new enterprise
    • Existing BusinessThe existing business- Typically start as an employee- Comes a time to join parents businessAdvantages- Saves employment taxes- YF more motivated- Reduces tax burden
    • Existing BusinessDisadvantages- Responsibilities on YF- Same income to spread further- Loss of capital if YF leaves partnership
    • Existing BusinessRates 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
    • Existing Business Considerations for new partners- Off farm income- Tenancy succession-Have a partnership agreement
    • Existing BusinessPartnership 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
    • Existing BusinessOther tax considerationsIHT - Agricultural Property ReliefCGT – Entrepreneurs reliefAdditional housing requirements- local housing- sharing farmhouse- planning for agric tied dwelling
    • ExpansionExpansion Areas of expertise Which activities show best return? Assess limiting factors Improving efficiency
    • Expansion Pop-Up Economics – Tim Harford
    • ExpansionThink out side the box – nominate a MattParkerIf you do what you have always done don’tbe surprised when you get the result youalways get!Use benchmarking dataHave a plan with actions and targetsCheck progress against plan in words andnumbers
    • Expansion More profit  Outputs - Yield/quality/price  Costs – price/quantity  Calving interval, drilling date, cell count, LWG by feed or days  System – more drastic
    • ExpansionExtra resources- Land via FBT or purchase- Marginal cost means attractive rent may be tendered, or inflated price offered- Financing again marginal cost important- Cashflow criticalBut - ensure there are plans to monitor performance so it does not slip with growth
    • New Enterprise Business planning, financing etc. Trading structure - Sole trader or partnership - LLP or company Tax structure to suit - investors - workers/managers
    • New EnterpriseExample Renewables project - whose money will fund the project? - what is income profile for investors and managers?- what is impact on existing business?
    • New EnterpriseTypical succession issues- Control / insecurity- Other family members- Housing of families- Tax (rental/investment asset)
    • New enterpriseFinal thoughts –To retire or not…………  Liability to care home fees  may help APR on farmhouse  need the income?If you only do one thingMake a will!
    • New EnterpriseWills- clarify position for family- estate simpler and cheaper to administer- review every 10 years or so- discuss with familyGood Luck
    • Mary Jane Campbell Partner, Simpkins Edwards LLP 01392 211233mjcampbell@simpkinsedwards.co.uk www.simpkinsedwards.co.uk
    • Farm Business Expansion inChallenging Economic Times David Fowler Regional Agricultural Manager Devon 01392 424871 07802 655897
    • Certainties in life
    • Banking Issues• World Economy• Eurozone Crisis• Effect on UK Banking System• Borrowing consequences for farmers
    • 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
    • Debt crisis – the effectsThe 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 / SWOPSThe Customers• NO change – servicing ability, track record, full proposals budgets / cash flows, gearing, securityBorrowing Terms• Higher margins, due diligence, FSA Regulation
    • 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
    • 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- n- n- n- n- n- n- n- n- n- n- n-Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja
    • 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-13Source: Bloomberg, Lloyds Bank
    • 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-12Source: Bloomberg, Lloyds Bank
    • 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-13Source: Bloomberg, Lloyds Bank
    • 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-12Source: Bloomberg, Lloyds Bank
    • 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
    • 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 thisbe improved?
    • Discounted loans currently available1. Funding for Lending • 1% discount for the whole term • Variable & fixed rate loans2. 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!
    • 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 loansSingle Farm Payment (SFP) hedging Machinery and equipment financeInterest risk management Investment in infrastructureBusiness income protection
    • 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
    • “The best thing about owning a farm … …......is the tax breaks …..the most important of which is ………… ……..Inheritance Tax” Money Week 22.1.2010
    • DisclaimerThis 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 pricingdiscussed 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 theinternal 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 thisPresentation 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 inthis 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 consequentialdamages 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 legalconsiderations 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 mayonly 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 ofpresentation 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 ServicesAuthority 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 thisdocument 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 soughtto 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 ownprofessional 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 thetransaction 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 suchinformation. 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 ServicesAuthority 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 pricingdiscussed 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 theinternal 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 thisPresentation 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 inthis 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 consequentialdamages 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 legalconsiderations 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 mayonly 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 ofpresentation 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 ServicesAuthority under registration numbers 119278, 191240 and 169628 respectively. 38
    • David Fowler – Regional Agricultural Manager Thank You
    • ‘Farming and Land’ Mark Neason Stags 20 February 2013
    • "the worlds climatologists are agreed" that we must "prepare for the next ice age." Science Digest – Feb. 1973"Warning: Earths 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
    • Case Study
    • 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
    • Ways of being a farmer• ‘In hand’ farming• Sale of grass keep• Share farming• Managing an agri-environmental agreement• Contract farming (Employing a contractor)
    • Typical contract / share farming arrangementsAll costs and income budgeted on a ‘gross margin’ basis (excludingfixed costs)Contractors prior charge £100Landowners prior charge £80Margin calculated after Contractors and Landowners prior chargeremoved (the divisible margin)Divisible margin split: 70% Contractor 30% Farmer (Landowner)
    • Acquiring / Occupying Land as a FarmerQuasi farming:Contractor, licensee.PurchaseRent:Agricultural Holdings Act (AHA)Farm Business Tenancy (FBT)
    • Tenancy - Agricultural Holdings Act (AHA) Land held prior to 1st September1995.• Likely to be lower rent• Security of tenure• Potential for succession
    • Farm Business Tenancy (FBT)• Market rent reviewed with reference to the market (current tenders)• Shorter length• No security beyond the end of the agreement
    • Aller and Bridge Farms WillitonLots 1 and 2: 220 acres no SFP
    • FBT Case Study Lots 1 and 2: 220 acres no SFP20 tenders ranging from £90 to £200 per acre Average tender £150 to £160 per acre
    • Land Prices30 £/m2: £300,000/ha £2.50/m2: £25,000/ha
    • Land near Hilldown Cross - 50 acres sold April at £5,500/acre
    • Land at Uplowman – 24.37 acres sold March 2012 for £11,694/acre
    • Westworthy Land and Buildings – 53 acres Sold August 2012 £6,500/acre
    • Buying v Renting The business caseAssume a farming profit of say £300/acre beforeinterest/rent charge)
    • a) PurchaseLand purchased at say £7,000/acreCost of money 5% - £350 per annumCost of money 3% - £210 per annum(Profit say £300 per acre before interest charges)Borrow at 5% £50 loss per annumBorrow at 3% £90 profit per annumCapital repayment over 20 years - £350/acre pa
    • b) Rent(Profit say £300 per acre before rent)FBT rent say £150 per acreProfit per acre £150 per annumHoweverWith land price inflation at 8% per annumIn first year purchased land will have increasedin value by £560More capital but less cash
    • SPS Update• Golden ticket / Retention of current entitlements• National Reserve• Active farmer• Permanent grassland• Crop diversification• Greening
    • SUMMARY. Mark NeasonWellington 01823 662822 Exeter 01392 664496 Mobile 07970 089537 m.neason@stags.co.uk
    • ANY QUESTIONS?
    • Please complete a feedbackform and stay for a chat and enjoy some light refreshments.