Financing Farming the Scottish Way

Sandy Hay, Head of Agriculture, South & East Scotland

Content

• Introduction

• Understanding the sector – SWOT

• Key Risks and Managing them

• Access to Finance

• Working together to get the best from WFRS

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“Our goal is to be the best bank for our clients. We’ll invest time to truly understand your business, and commit to building a relationship focused on what you want to achieve.”

Adrian WhiteManaging Director of SMELloyds Banking Group.

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Backing your ambition in the agricultural sector.

“With a wealth of experience and specialist farming and agricultural knowledge, our managers can respond quickly to your needs. We are dedicated to being the very best bank in the UK for Agricultural and Farming businesses.”

Andrew NaylorHead of AgricultureLloyds Banking Group.

Our Farming Ambassador.

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“I wouldn’t want to say there’s only one way of running a farm, but I believe that it’s hard to beat a local, knowledgeable, experienced and accessible bank manager.

And if that manager works for a bank which has demonstrated, year in, year out, that it is committed to the agricultural sector and is open for business, then I think the combination is unbeatable.”

Adam HensonCotswold Farmer and TV Presenter

One of Britain’s best known farmers, Adam Henson, has joined forces with Bank of Scotland and Lloyds Bank as our farming ambassador.

Background.

25 years experience with Bank of Scotland, mostly directly involved in supporting farming clients across Scotland as a relationship manager, and now Head of Agriculture

Qualifications.

HND Agriculture, East of Scotland College of Agriculture.

Member of the Chartered Institute of Bankers in Scotland

Existing role.

Responsibility for a team of dedicated relationship managers providing a face to face Banking service to over 1,700 farming clients in South and East of Scotland.

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Your Bank of Scotland Head of Agriculture, South & East Scotland

Sandy Hay07769 648387 sandy_hay@bankofscotland.co.ukBroxden House,Lamberkine Drive,Perth, PH1 1RA

Barry WatsonRelationship Manager, Agriculture M: 077953 54802E: barry_watson@bankofscotland.co.uk:

Paul HealyRelationship Director, AgricultureM: 07736359431 E: paul.healy@bankofscotland.co.uk

Julie McLarenRelationship Manager, Agriculture M: 07900 678072E: Julie_McLaren@bankofscotland.co.uk

Stewart McNaughtonRelationship Manager, AgricultureM: 07900 678 002 E:Stewart_McNaughton@BankofScotland.co.uk

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Backing your ambition with a regional agricultural team in South & East Scotland

Andrew McPhail Relationship Manager, Agriculture M: 07785 314672E: AndrewMcphail@bankofscotland.co.uk

Gavin Hay Relationship Manager, Agriculture M: 07920 765 670E: gavinhay@BankofScotland.co.uk

Specialist agriculture teams.

Our specialist agriculture managers understand how the farming industry operates and focus only on this sector. Based locally, they get out on-farm to see our customers’ businesses first hand, whatever the weather.

Donald MacDonaldHead of AgricultureMob:07769 648355DA_Macdonald@bankofscotland.co.uk

David StrachanRelationship Director, AgricultureMob:07769 648335David.Strachan@bankofscotland.co.uk

Bill MurphyRelationship Manager, AgricultureMob:07900 980722Bill_Murphy@bankofscotland.co.uk

Steven McGrathRelationship Manager, AgricultureMob:07919 113234Steven_McGrath@bankofscotland.co.uk

Phil ReidRelationship Director, AgricultureMob:07879 604436Philip.Reid@lloydsbanking.com

Donald StewartRelationship Manager, AgricultureMob:07769 648485Donald_Stewart@bankofscotland.co.uk

Neil BoyleRelationship Manager, AgricultureMob:07717 714318Neil.Boyle@bankofscotland.co.uk

North and West Scotland

Reasons to believe.

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Why Bank of Scotland is the best bank for you.

Our agricultural managers only support farms, farm based renewables and rural businesses.

Our managers have agricultural knowledge and experience to support your farm businesses from day one.

We're open for business, ready to lend and keen to support businesses like yours.

We have proven our commitment to the agricultural sector with our continued support through challenging times.

We will pro-actively visit you and your farm to understand your business first hand.

Our locally based specialist managers are available at your farm gate and have support teams in nearby towns to assist with your day-to-day banking.

We publish contact details of all our Agricultural Relationship Managers, meaning no call centres for you to navigate.

Farmers value our service. More than 2500 farmers moved their business to us between 2011-14*.

* Lloyds Banking Group Agriculture switchers

Sector SWOT

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STRENGTHS WEAKNESSES

• Well capitalised industry

• Resilient Industry

• The people

• Meets a fundamental human need – to eat.

• Quality produce.

• Relatively easy access to finance.

• Land is a limited resource.

• Climate change and limited water?

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Agriculture – Strong Sector.

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Aggregate Balance Sheet for UK Agriculture

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Net Worth Liabilities Assets

STRENGTHS WEAKNESSES

• Well capitalised industry

• Resilient Industry

• Meets a fundamental human need – to eat.

• Relatively easy access to finance.

• Land is a limited resource.

• Climate change – and limited water – may have a more damaging impact on farm outputs in parts of the world.

• Price volatility and price takers

• Cost rises / volatility

• Weather / climate change outwith control of business

• Political / Regulatory changes- e.g. CAP reform

• A lot of issues outwith the farmers control.

• Management resource?

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THREATS OPPORTUNITIES

• Price and demand volatility

• Cost rises / volatility

• Weather / climate change -outwith control of business

• Political / Regulatory changes- e.g. CAP reform

• Strengthening £

• Increasing interest rates

• Capability of management?

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THREATS OPPORTUNITIES

• Price and demand volatility

• Cost rises / volatility

• Weather / climate change outwith control of business

• Political / Regulatory changes- e.g. CAP reform

• Strengthening £

• Increasing interest rates

• Supermarket sector changes

• Potential to improve core business performance.

• New income sources – e.g. renewable energy or other diversifications

• Food Security – population growth and Rising living standards in developing nations

• Non-food products will increasingly compete for land

• Climate change – and limited water – will cut farm outputs in parts of the world.

• Asset values14

The opportunity for Farming

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Population 500 to 2007 Population projections 2008 to 2050

Success Factors include

o Management

• Efficiency of production and cost management

• Market focused and price management

• Entrepreneurial / Developing new income streams / diversification

• Adaptability and resilience

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Risks in Farming

• Prices and costs

• Output / yields

• Political and Regulatory

• Financial

• People and management17

Prices and costs

• Price risk

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CEREALS VOLATILITY

Feed Wheat Futures Price – 1995 to 201419

95

1996

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2014

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Average

feed

wh

eat

futu

res

pri

ce -

£ p

er t

onn

e

Source: HGCA / Andersons

Prices and costs

• Managing price risk

• Cost risk and management

• Arable sector in cyclical downturn

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RANGE IN PERFORMANCE

Feed Wheat Range Cost of Production Harvest 2014

Bottom 20% Top 20%0

20

40

60

80

100

120

140

160

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£ p

er t

onn

e

• Differences due to - yield per hectare- category spend per hectare

• Gap between best and worst growing

• At forward prices range is difference between profit and loss

~ includes proprietor’s manual labour* depreciation and repairs

Rent and Finance

Other Power

Machinery*

Labour~

Fuel

Sprays

Fertiliser

Seed

Overheads

10.5 t/Ha7.7 t/Ha

Output / Yield

• Weather and climate change

• Technology / innovation – in crops and crop management

• Quality of land

• Diseases / pests

• Manage what you can manage

• Recognise where someone else’s skills benefit your business.

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Political / Regulatory

• Impact of current CAP reform

• Market intervention often intended to reduce or mitigate risks.

• Support can have a huge impact on investment.

• Uncertainty can damage investment.

• Potential to impact on asset values

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Finance

• Exchange rates

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THE IMPORTANCE OF CURRENCY

Farm Profit and € v £ Exchange Rate19

91

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-50

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0.95Loam Farm Business Surplus (Real Terms)Exchange Rate (Harvest Year Average)

Bu

sin

ess

Su

rplu

s -

£ p

er H

a

Exc

han

ge R

ate

- €1

= £

Source: ECB / Andersons

GBP:EUR Internal View

26Source: Lloyds Banking Group International Financial Outlook December 2014

Main Drivers• Extremely low inflation figures from

Eurozone has led to discussions around potential Eurozone Quantitative Easing

• Political concerns around Greece with snap elections at end of January

• Risk to UK growth outlook centres around general election

• UK continues to import more than it exports, putting pressure on GBP

Financial

• Exchange rates

• Interest rates

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UK Interest Rate Internal View

28Source: Lloyds Banking Group International Financial Outlook December 2014

Main Drivers• Strong UK Data although some sign of

softening• Two members of the Monetary Policy

committee voting for immediate interest rate rises

• Continuing improvement in the employment figures and signs of real wage growth

• Inflation remains below the Bank of England’s 2% target, is forecast to drop below 1% over next few months and MPC see ‘little prospect of material pick-up in inflation in next 3 years’

Financial

• Exchange rates

• Interest rates

• Lending

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Advances to Agriculture, Hunting, Forestry & FishingScotland (BBA Definition)

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Aug-04

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700

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Quarter ended

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Backing your ambition with lending and working capital solutions.

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Whatever you need funding for, we have a range of lending products to meet your needs.

1%discount to all SMEs for the life of their loans, commercial mortgages and hire purchase applications through the Funding for Lending Scheme (FLS).

Lending Product. Key Benefits.

OverdraftHelp ensure that extra funds are available when you need them.

Short-term borrowing to ease your cash flow. Only pay interest on the funds you use.

Fixed and Variable Rate Loans*Flexible rates and terms to suit your needs.

Terms of up to 25 years. Interest only repayment option available. Competitive rates and flexible terms. Options for maximum break costs on fixed rate loans*. Interest rate risk management support.

Hire Purchase and LeasingTo fund assets including robotic milking machine, farm equipment, tractors etc.

A cost effective alternative providing fast access to working capital.

Free up funds tied up in inventory, plant and machinery.

European Investment Bank term loansLoans provided to eligible clients at a discounted interest rate.

Minimum loan of £25,500. Loan terms from 2 to 25 years. Fixed or variable rate terms available. Loan must be used for the purchase, renovation or

extension of tangible assets other than land.

All lending is subject to a satisfactory credit assessment and we will need your permission to carry out a credit check on you and your business. You should not apply for an amount that you can not comfortably afford to repay now and in the future to avoid the possibility of legal action.*There is always a possibility that interest rates may go down leaving a fixed rate loan at a higher level compared to a variable rate loan. However, if interest rates rise, a fixed rate loan will remain at the same rate.

Any property given as security which may include your home, may be repossessed if you do not keep up repayments on your mortgage or other debts secured on it.

People and Management

• Protect your main asset

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Specialist services.Financial advice where required, to help

you manage and grow your personal and business wealth, and plan for you and

your business’ future. This includes Will writing and ensuring you have the correct

succession plans in place.

Supporting your personal financial wellbeing alongside your business finances.

Wealth & Private Banking.

Regulated advice.We provide a range of life, pensions and

investment solutions for personal and business financial planning. These are

aimed at supporting the long-term financial planning of you and your farming

business, and include utilising available tax allowances and estate planning.

Private Banking.We offer our clients a flexible way of banking. Private Banking and Advice Managers provide a combination of service and comprehensive solutions across banking, investment management, deposits, estate administration and tax services, to wealth eligible customers in the UK (at least £250,000 in savings and investments or sole annual income of at least £100,000).

Protect.Protect your family and business with

professional and personal service and advice.

Manage.Keep track of your personal finances alongside your business finances.

Personal.Service from a Private Banking and Advice Manager who works closely with your specialist Agricultural Relationship Manager to understand your needs and develop a personalised plan to help you meet your short and long-term financial goals.

33Our products and services have individual fees, charges, terms and conditions. As with all professional advice, there will be a charge for our services. We recognise that financial advice may not be for everyone so before you commit to any charges we will ensure you understand the basis of our advice and the level of charges that will apply.

People and Management

• Protect your main assets

• What are the medium and long-term objectives of the business?

• Understand costs, plan and budget.

• Does the business have the management resource to achieve its plans?

• Manage what you can manage and recognise when additional management resource and skills are needed.

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Manage what you can manage & think about what support you need

• Doing the same thing over and over again and expecting different results - Definition of insanity

• It is probably unlikely that you will improve 1 thing by 100%, but it is definitely possible to improve 100 things by 1%- Anon

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Working together to get the best from WFRS

• Recognition & Access - Identify customers requiring additional support

• Fact Finding - Gather information and Understand the Issues

• Decision - Identify potential solutions/ Agree a Solution

• Communication - Record and monitor progress

• Timeliness - Record and Monitor Progress

• Encouraging customers to engage your professional advisors as part of your successful business team

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Important information.

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bankofscotland.co.uk/business This presentation is for information purposes only. It is intended as a summary only and whilst it contains some information about the potential risks and benefits of various products and services it should not of itself form the basis for any investment decision. Whilst Bank of Scotland plc has exercised reasonable care in preparing this presentation 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. If you receive information from us which is inconsistent with other information which you have received from us, you should refer this to your Bank of Scotland relationship team for clarification.

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Bank of Scotland plc Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland, Registered number SC327000. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under Registration Number 169628.

We subscribe to The Lending Code; copies of the Code can be obtained from www.lendingstandardsboard.org.uk.

Bank of Scotland plc is covered by the Financial Services Compensation Scheme and the Financial Ombudsman Service. (Please note that due to the schemes' eligibility criteria not all Bank of Scotland business customers will be covered by these schemes.)

Asset Finance facilities are provided by Lloyds Bank Commercial Finance. Lloyds Bank Commercial Finance is a trading name of Lloyds Bank Commercial Finance Ltd. Registered office: No.1, Brookhill Way, Banbury OX16 3EL. Registered in England and Wales no.733011. Lloyds Bank Commercial Finance Limited is part of Lloyds Banking Group and is authorised and regulated by the Financial Conduct Authority for activities relating to certain types of consumer credit and consumer hire which are regulated under the Consumer Credit Act 1974 and by the Financial Services and Markets Act 2000 and are not deposit takers and are not regulated by the Prudential Regulation Authority.

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