TM Export Finance supplement 2014

EXPORT FINANCE ​Funding UK businesses looking further afield

EXPORT FINANCE 2014

What’s in this report?

P3 The far horizons You need funding, but what are your options? Ruari McCallin finds out.

P4 Exporting opportunity and strategy Peter Russell of RBS explains why now is the time for manufacturers to grab onto real growth opportunities.

P8 The money thing NatWest explains the need to reassess your financial toolbox to meet today’s diverse exporting needs.

P11 A helping hand into the world of exports The commercial benefits might be obvious when taking products abroad, however the challenges involved might not be so clear.

P14 Extending the new frontier UK Export and Finance opens its books to Ruari McCallion about helping exporters do business in the most unlikely of places, and extending its services to SMEs.

Editorial

This report was compiled for The Manufacturer magazine by: Callum Bentley, Editor c.bentley@sayonemedia.com Ruari McCallion, Contributing Editor r.j.mccallion@btinternet.com

Design

Optic Juice Ltd design@opticjuice.co.uk

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EXTENDING THE

REACH Welcome to The Manufacturer’s special supplement on Export Finance. Manufacturing has been – and continues to be – a tough road and is still an unusual career choice for schoolchildren but its importance is gradually being realised, once again.

O

ne of the most important outcomes of the government’s industrial strategy has been the rejuvenation of what was previously known as the Export Credit Guarantee Department (ECGD). Now rebranded as UK Export Finance (UKEF), it is moving back into areas that were either privatised or closed down completely. This is particularly relevant to SMEs, perhaps especially those companies in what the Germans call the ‘Mittelstandt’ – those with turnovers of £10-£100 million.

It is these ‘middle companies’ that seem to be looking most energetically for new markets and raising their sights beyond the UK and EU, for the first time, in many cases.

Paul Croucher of UKEF outlines in this supplement various ways that UKEF is working with others, the retail banks in particular, as well as providing own resources to help manufacturers to do business with the world.

RBS’ article highlights a compelling fact, drawn from a recent UKTI survey: companies that export become 34 per cent more productive in their first year alone and the majority report that exporting leads to growth that could not otherwise have been possible.

But that same UKTI survey found that nearly 63 per cent of exporters are put off from entering a new market because of risk – and working capital, payment guarantees and supply chain finance are among the major ones.

Luckily, the retail banks and UKEF, as well as alternative lenders, are keen to do export business. There really is a genuine choice of financing available, which we hope this supplement will highlight.

EXPORT FINANCE 2014 INTRODUCTION

There is increasing evidence that UK companies are actively seeking out new customers and markets in new – or at least unfamiliar – parts of the world.

That takes money: how easy is it to obtain?

Ruari McCallion has been doing some digging.

A

ccording to the CBI’s Industrial Trends Survey for June 2014, 23% of UK firms said their export order books were above normal and 25% said they were below, giving a rounded balance of -2%, which is well above the long-run average of -20%. A similar story is reported by Trade & Export Finance Ltd (TEFL), which is based in Birmingham. It reports that over 50% of companies with a turnover above £1m pa have developed an export strategy, which is well up on previous years.

How is this financed? The first port of call is the retail bank – and they are getting more involved, extending their services to smaller customer businesses. But there have been misunderstandings, on both sides.

“A strong relationship between a business and its bank is absolutely paramount to sustainable growth,” said David Atkinson, head of SME manufacturing at Lloyds Bank Commercial Banking. “For those with a solid track record of exporting, taking opportunities in emerging markets should not be a problem from

a funding perspective.

The business is likely to be fully aware of the risks and the return on investment that it is likely to make and how it will fund and operate the venture.” But what about smaller businesses looking to expand further afield? Lloyds recognises the need to look beyond traditional markets – and acknowledges that there are complications.

“Funding packages in the sector can be complex and multi-faceted involving banks and a range of other funders,” he said. It works with UK Export Finance to develop the right packages for customers.

The nature of the customer will be an influence as well, according to Arnab Dutt, of Texane. It makes specialised wheels for heavy duty applications in, for example, escalators, travelators, underground and metro systems, and airport baggage handling systems. Texane usually gets export insurance cover from Hermes, but he acknowledges that newer markets and smaller customers may not be so easy.

“The government’s export guarantee schemes have been allocated just £3bn – but that’s only one per cent of the UK’s total exports,” Dutt observed.

TEFL and similar organisations arrange finance in a number of ways and at various amounts, quite a few of which are relatively small, such as a £200,000 package that enabled a UK LED lighting manufacturer to fulfil a contract with the US Highways Authority for replacement highway lighting. The package comprised invoice discounting, letters of credit and credit insurance. Other solutions include asset finance; export credit guarantees; private-sector insurance; conventional bank lending; and pension-led funding. This is a method of asset-based finance that can leverage intangible assets, such as Intellectual Property (IP). It is aimed at small to medium manufacturers with accrued pension funds of more than £50,000.

In short, as the market grows and banks rebuild their balance sheets, the sources and types of finance become Arnab Dutt, Texane progressively wider and more available.

The government’s export guarantee schemes have been allocated just £3bn – but that’s only one per cent of the UK’s total exports

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EXPORT FINANCE 2014 RBS

E XPORTING OPPORTUNITY ANDSTRATEGY

Exporting offers an increasingly attractive range of growth opportunities for UK manufacturers of all sizes. Peter Russell, head of manufacturing and industrials at RBS explains that now is the time for British companies to step up and grab those opportunities.

B

ritish manufacturing is back in the headlines, but for once it’s good news. Figures released by Markit UK show that overseas demand for products bearing the label “Made in the UK” recently hit a three-year high and success stories in the automotive, aerospace and pharmaceutical sectors are regularly cropping-up in the broadsheets.

However, for this resurgence of British manufacturing to last it is vital that businesses of all sizes understand and seize the export opportunities currently available to them, creating a sustainable strategy to ensure their future prosperity.

International opportunities, not risks The UK may be the world’s eighth largest economy, but nearly 97 per cent of global GDP is still generated outside of the UK, so exporting offers businesses the chance to significantly develop their brand and grow. A wider geographical spread also helps reduce the risks associated with over-reliance on one single market.

While UK exports have grown in recent years, the rate of growth is still slower than the rest of the world. This reflects a variety of factors, including the UK’s product mix, the UK’s geographic focus, and weaker (price and non-price) competitiveness. A recent

4

UKTI study shows that nearly 63 per cent of exporters are still put off from entering a new market because of risk.

However, companies exposed to greater competition are often more willing to embrace innovation, new technology and best practices. Again UKTI reveals that companies that export become 34 per cent more productive in their first year alone and 85% of survey respondents say exporting led to a “level of growth not otherwise possible.”

And risk can be managed by identifying the most attractive export markets; market size and growth potential, compatibility of products and the ease of doing business.

RBS has a longstanding commitment to the UK’s manufacturing sector supporting UK businesses position for long-term growth

Strong levels of export support In 2012, Chancellor George Osborne set UK firms an ambitious export trade target of £1 trillion by 2020, which is double the current figure.

To achieve these targets, the UK is implementing a more joined-up approach to manufacturing following the recession. In 2012 the Department for Business, Innovation & Skills (BIS) launched an industrial strategy focusing on five pillars to boost manufacturing capability including sectors, skills, the Business Bank, technology and government procurement.

Other targeted initiatives have also been set up. The Advanced Manufacturing Supply Chain Initiative was created two years ago and has distributed £245 million by supporting projects where Britain is well placed to take the lead and boosting supplier capabilities to access global companies. High Value Manufacturing (HVM) Catapult hubs have been set up across the country to help companies transform ideas into new products, using innovative technology.

Trade bodies such as UK Trade & Investment (UKTI) and more sectorspecific organisations are also rising to the challenge. UKTI is aiming to assist 50,000 companies by 2015.

EXPORT FINANCE 2014 RBS

Innovation is the key to UK success on the global stage

*Source: The Future of UK High Value Engineering, RBS and the Future Laboratory, 2012

ONS data shows that the high value engineering segment of UK manufacturing contributed £151 billion to the UK balance of payments in 2010 and accounted for 35% of all UK exports. According to RBS Group Economics the high value engineering segment of UK manufacturing will grow at 2-3% per year over the next five years, which is faster than the current projected growth of the UK economy.

Nanotechnology, 3D printing, smart materials and new developments (such as the Nobel prize-winning graphene discovery by two UK-based scientists) will be a £805.8 billion global market by 2015* and these are technologies in which the UK is well placed to excel. Thanks to HVM Catapult centres, these technologies are increasingly accessible to smaller firms, too.

Scaling down barriers to global trade Global sales are no longer the preserve of multinationals, rather the importance of mid-sized companies and SMEs is being increasingly recognised. BIS is currently focusing on mid-sized companies (£10 million to £100 million turnover), using the German Mittelstand system as a blueprint for success. Although these firms at present only represent one per cent of businesses, they generate 22 per cent of total economic revenue.

According to BIS, a mere 17 per cent of mid-sized businesses in Britain generate revenues outside of the European Union, which compares poorly to the 25 per cent in Germany and 30 per cent in Italy. This underlines the huge growth potential in exports for these companies in

BRIC countries and other emerging economies.

Richard Hill, head of automotive at RBS explains that sector specific trade organisations complement the work of UKTI and help smaller businesses establish a foothold abroad. He says: “The Automotive Council takes its role as industry ambassador abroad very seriously and has been instrumental in achieving many successful trade bridges between the UK and foreign countries.”

UK automotive leading the charge According to a recent survey published by the Society of Motor Manufacturers and Traders (SMMT) 70% of all UK made vehicles and 62% of engines were exported to over 100 countries in 2013, confirming the UK’s ever increasing presence in the global auto market. “Sales of UK-built vehicles are booming,” says Hill. “The UK is making significant gains in the BRIC markets, especially in China where British products are particularly popular at the moment.”

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Data released by China’s government shows that imports from Britain rose 14 per cent to £11.6 billion in 2013, with more than 40 per cent of total sales coming from vehicles and transport goods. Nevertheless, to understand the real source of the British motoring industry’s resurgence you have to look closer to home.

Hill explains: “Britain’s open-door investment policy is the key to this boom in British automotive. The industry is now almost entirely foreign-owned but in a world of multinational shareholdings, the concept of national ownership seems rather dated.” Today more than 40 major companies manufacture vehicles in the UK - from volume producers such as Honda, Nissan, General Motors, Vauxhall, BMW-Mini and Toyota to premium brands including Aston Martin, Bentley, Jaguar Land Rover, McLaren and Rolls-Royce, and 19 of the top 20 auto parts makers have a manufacturing presence in the UK.

Jaguar Land Rover, an export role model “Less than 10 years ago, Jaguar Land Rover was more or less bankrupt,” states Hill. “But it was saved when India’s Tata family swooped in, bought the company and refinanced it.” Since then the manufacturer has seen its fortunes transformed and now is a beacon of British exporting success. Dr Ralf Speth, Chief Executive Office, Jaguar Land Rover comments “We have invested significantly in he product creation process and in our advanced manufacturing site. Future investment will see the company spend in the region of £2.75 billion on products, people and infrastructure.”

Jaguar Land Rover has skilfully built on the British heritage prestige that the Chinese are finding very appealing at the moment.

However Hill is eager to point out that there is more to Jaguar Land Rover’s success than a simple trend.

“Simply, the reason Jaguar Land Rover is so successful is because it is bringing world-leading products to Peter Russell market. By combining British Head of Manufacturing engineering excellence with & Industrials the global reach of its parent RBS T: (0)20 7672 1007 company, it has found a E: peter.russell@rbs.co.uk recipe for success that other companies should take heed of.”

Companies in their % that export first year re o m become roductive alone p Source: UKTI

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Richard Hill

Head of Automotive RBS T: 07789 616201 E: richard.hill@rbs.co.uk

FREE to attend for all manufacturers*

How to develop and grow your export market

EXPORT CONNECT 2014 9 September 2014 The Waldorf Hilton, London The trade deficit in the UK is a growing concern. A successful export strategy creates opportunities for growth, expansion and long term prospects for the company.

Research shows that businesses regularly struggle to overcome multiple barriers when attempting to create or enhance their export strategy such as: Logistical

Financial

Cultural

Legal

This conference will focus on exploring regional opportunities available to your company, guidance on overcoming barriers and present you with opportunities to network and build your trade links throughout the day.

Join us at the conference to open your company to the opportunities and growth that export can bring.

Hear Leading Experts Including:

Event Themes: Advice about the steps that have to be taken when qualifying entry into a new market; including market research local requirements and regulatory issues such as labelling, packaging, licenses and content.

Understanding how to research and build relationships to secure a local distributor for the product to build a strong partnership that will benefit both parties.

Overcoming cultural barriers to ensure that the product is suitable for the market.

HOW TO BOOK: Call: 020 7401 6033 Email: events@sayonemedia.com Web: themanufacturer.com/export2014

Cy Wilkinson Managing Director, Cressall

Adrian Maxwell Managing Director, Fracino’s

Researched and delivered by

#TMExport2014 @themanufacturer themanufacturer.com/export2014

*Manufacturing companies only. T&C apply. Solution providers/consultants rate is ÂŁ995 +VAT per delegate

Event Partners

EXPORT FINANCE 2014 NatWest

THE MONEY THING The changing economy – both local and across the world – has rendered a lot of the old solutions obsolete. It isn’t just large companies that do business overseas and smaller companies need innovative help with buying equipment, if they are to grow. NatWest’s Mark Eastwood and colleagues explained to Ruari McCallion how they are rethinking the financial toolbox to meet today’s needs.

M

oney is never a problem; it’s lack of money that causes misery. A business can have an order book bursting at the seams but if it does not have enough free cash it cannot service them.

On top of that, the sluggish recovery in the EU means that companies have to look further afield for business and may find themselves entering markets that they have never previously considered. Multinational companies have been doing business across the world for decades but how does an organisation that has never exported to, say, south east Asia get access to information and expertise to enable it to avoid the pitfalls it may not even know about? It may well come as a welcome surprise to learn that it is available just down the road.

“We are seeing an increasing number of customers in our UK manufacturing base looking overseas for growth

8

opportunities. They are looking beyond the EU, whose recovery is very slow,” said Mark Eastwood, head of manufacturing with NatWest, specialising in SMEs with turnovers from £5-£25 million. The bank works with UK Trade and Investment and within its own group to provide financial help, often in ways that have previously been unavailable to smaller businesses. It’s the kind of help that is absolutely crucial.

Asset-based lending, against debtors and stock, is new in the SME space Colin Muir, RBS Invoice Finance (RBSIF)

Maintaining cashflow “About 62% of the manufacturing customers we surveyed said that cashflow was an obstacle to growth,” said Eastwood. Solving those problems in the export market will often involve government and NatWest highlighted two particular cases where support schemes launched in 2011 helped it to provide vital finance to customers going down the export trail.

In 2013 FlexEJ Limited of Stourbridge, West Midlands, was introduced by the bank to the Government’s Bond Support Scheme, which enabled it to raise an Advance Payment Guarantee and provide performance bonds and €70,000 of working capital to fund sub-suppliers. It was crucial in enabling it to secure and complete a contract for the supply of large, engineered rubber expansion joints for a liquefied natural gas project in Qatar, through an international contractor based in Japan.

The company is looking to raise its export business from 15% of turnover to 25% and reports that it now feels more confident of going for larger contracts in future.

NatWest provided a £440,000 facility to Kempster Valves & Engineering Limited, the Rochdale, Lancashire, subsidiary of FJ Holdings Ltd with the help of two of UKEF’s export support

EXPORT FINANCE 2014 NatWest

been striving to keep their costs down during the recession and subsequent recovery, for reasons of survival as well as competitiveness.

Risk reduction

ABOUT

schemes - the Bond Support Scheme and the Export Working Capital Scheme. It enabled the company to complete a three-contract order worth a total of almost $1 million to supply knife gate and slide gate valves for a new state-of-the-art plastics refinery in Taiwan. Stretching the envelope a bit further, the expansion of Northamptonbased Matrix Polymers into a new plant in Malaysia was financed by a £6.5 million asset-based lending facility; the activity being financed was not even in the UK.

New ways of thinking What all these deals have in common is that they were not traditional, property-backed lending; they involved different agencies and different ways of thinking. Crucially, they all enabled the customers to maintain working capital and to expand their business. The case of Matrix Polymers is something else again: an example of a particular type of lending – asset-based finance – being extended to a smaller business than has traditionally been the norm.

“Asset-based lending, against debtors and stock, is new in the SME space,” said Colin Muir, head of structured business development , RBS Invoice Finance. It has also been used in a structured way for investment in new technology and much-needed assets, to ensure that manufacturers have the capacity and can support their drive into the export market. It frees up cash for day-to-day needs and can remove the need to even look at traditional types of security, such as residential or commercial property, which smaller businesses will doubtless be happy to hear about.

“These facilities can give manufacturers confidence that they can invest in the technology and techniques they need for competitiveness,” said Muir.

Factoring and invoice discounting is already reasonably well-known to smaller businesses and it is more than just a means of securing cash flow: it provides a credit control function as well. The bank will do the collection, which may be beyond the current resources of businesses that have

10

%

of the manufacturing customers we surveyed said that cashflow was an obstacle to growth Mark Eastwood, NatWest

What is a more recent and welcome development is the extension of this service into export fields. It is doubly attractive: the business does not have to tie up its own cashflow and working capital in funding informal credit facilities for customers and the bank itself will undertake thorough credit checks before agreeing to facilities – which reduces the risk to the exporting manufacturer.

“A client that has never exported before has fears that include regulations and currency risk. We use our network database to conduct due diligence and provide a view of creditworthiness,” said Eastwood. “We will fund in Europe, North America, SE Asia, China – though pretty much all of the world, with some exceptions.”

The exceptions are pretty obvious and tend to appear whenever newspapers report on areas of conflict or strong ideological difference.

“We are able to have a broad conversation and to ensure that clients have all the relevant information and that they understand the risks, such as currency,” he continued. “What we can then do is either directly provide or point them in the right direction to mitigate those risks.”

EXPORT FINANCE 2014 Santander Corporate & Commercial

A helping hand

INTO THE WORLD OF EXPORTS

It is great to see the manufacturing sector being recognised as a key driver of UK GDP and an important cornerstone of the UK economy.

R

ecent analysis by Santander Corporate & Commercial* showed the sector’s Gross Value Add (GVA) – a measure of the money made by businesses which is used to pay for wages, dividends, tax and further investment – increased by 13% over this three-year period, from £131.2 billion in 2009 to £148.5 billion.

The manufacturing sector continues to serve as a vital source of UK jobs – while just 6.4% of UK companies fall into this sector, it accounts for 15.7% of the GVA generated by UK businesses. It employs 2.5 million people, 11% of the total UK workforce.

Charles Garfit, head of manufacturing at Santander says: “The sector has undergone a strong recovery since the start of the financial crisis and we are seeing this confidence and growth story reflected in the expansion plans of our UK manufacturing customers, who are looking to grow both at home and overseas.”

However, while the commercial rewards that businesses can reap by successfully taking their products beyond domestic borders may be obvious, the challenges they face when seeking out international partners can seem more challenging.

Figures show that since the financial crisis, fewer UK businesses are now exporting. In today’s market, around twothirds of UK businesses are deterred from finding business partners abroad, typically because of the financial and regulatory obstacles they face.

But global domination has never been easy.

After all, even if a business

Using Santander’s Trade Portal, manufacturing businesses can quickly locate where the best international clients and trading partners are for their business. The platform is constantly updated and businesses can discover the top importers of the products they produce, as well as the fastest growing markets Charles Garfit, head of manufacturing, Santander

owner overcomes the initial challenge of pinpointing the regions they should be moving into, there are a plethora of other factors to address: who should they approach and how can they approach them? What red tape and regulations are in their way and even if they get this far, how do they make it work longer term?

*Based on Santander analysis of the 2012 Annual Business Survey (latest edition published in November 2013)

11

EXPORT FINANCE 2014 Santander Corporate & Commercial

John Carroll, head of international at Santander UK, says: “One of the biggest blocks to trading internationally is a lack of understanding about how it is done and where the opportunities lie. Luckily there are many cost-effective and efficient ways to overcome this initial fear.”

Santander has developed a strategy to support UK SMEs looking to expand abroad. “Great businesses always have the potential to stretch far beyond their domestic market, but expanding overseas can understandably appear to be a minefield,” Caroll says. “Businesses need to work out which countries they should be focusing on and with which partners.

They want to know how do they connect with them and ultimately how do they execute a deal and grow further?”

Santander’s support for UK companies helps business leaders with all the options and information they need to make this leap of faith to the next level.

Santandertrade.com** is a free portal for Santander customers***, which provides them with the information they need when looking to expand internationally; ranging from where the opportunity is; who to contact and how to connect.

It also contains guides for international trade producers, such as local laws and cultures, as well as calculators to help with charges, taxes and duties.

“If a business is looking to export to China, it will provide a business with valuable information it needs, including regulation costs, customs duty and of course who they could be potentially doing business with”, says Carroll.

With this service, businesses can identify the regions and countries where there is demand for their products. It also provides specific potential client and supplier details and guidance on how to connect with them, how to complete a secure transaction and finally, how to grow their presence in their chosen overseas market.

Garfit adds “Using Santander’s Trade Portal, manufacturing businesses can quickly locate where the best international clients and trading partners are for their business.

The platform is constantly updated and businesses can discover the top

12

Great businesses always have the potential to stretch far beyond their domestic market, but expanding overseas can understandably appear to be a minefield John Carroll, head of international, Santander UK

importers of the products they produce, as well as the fastest growing markets.

Most importantly, it also allows clients to access a contact list including the names, addresses and phone numbers of the key importers of their products in key territories.”

In addition to this, the service also contains specifics of any upcoming international trade fairs relevant to users’ markets, allowing businesses to contact potential clients then follow up at trade shows and exhibitions.

Beyond the portal itself, clients can also rely on the support of Santander Group via its global network of 14,000 branches – more than any other international bank in the world.

The business is also actively expanding its network of alliance partners with key UK trade corridors across the world. In the United Arab Emirates, for example, Santander has partnered up with Abu Dhabi Commercial Bank, the Corporate and SME banking expert of the region.

“Such associations allow us to facilitate trading transactions, helps our clients connect through a joint trade mission and provide a wealth of local expertise,” says Garfit.

But the service is not just about exporting, it is about importing too, and through the Santander Trade Club, the bank will be connecting Santander business clients too. As a major local player in 12 main markets, including Latin America, Spain and Poland, Santander will put together a community of businesses from across its markets to share their knowledge and expertise of entering new markets via virtual trade missions.

With a commitment to support such a vital sector of the UK economy Garfit and his team have a clear direction. “Our ambition is to lend an additional £500 million to manufacturing businesses in the UK over the next three years. We want to work closely with our clients to understand their needs and are excited to be able to provide UK manufacturers with the support they need to facilitate their international expansion.”

To find out more contact Charles Garfit, Head of Manufacturing Tel: 07809 493597 Email: manufacturing@santander.co.uk www.santandercb.co.uk/manufacturing ** Santander Trade Portal is provided and managed by Export Enterprises S.A.. Santander provides access to its client companies but is totally unrelated to the database contents which are the responsibility of Export Enterprises S.A *** You need to be an online banking customer of Santander Corporate & Commercial to gain full access to the trade portal. If you do not use our online banking service you can still use the trade portal, although some parts of the site will be restricted.

Helping UK businesses go further internationally Find out how far yours could go with our new Trade Portal.

Matt Gowar CEO, Equip

International trade can unlock significant growth but is often complex.

Whatever your sector, our new Trade Portal can help you identify the largest markets, understand local regulations and identify potential customers and suppliers on the ground.

Whether your company is already exporting or considering overseas trade for the first time, with the expertise that comes from having more branches internationally than any other bank, we could help your business go further.

Simple Personal Fair What a bank should be

We’re proud sponsors of the International Festival for Business.

Find out more at www.santandertrade.com

You need to be an online banking customer of Santander Corporate & Commercial to gain full access to the trade portal. Santander Trade Portal is provided and managed by Export Entreprises S.A. Santander provides access to its client companies but is totally unrelated to the database contents, which are the responsibility of Export Entreprises S.A. Source: Santander Group internal data

Whilst the portal is updated regularly elements are updated at different stages. Santander Trade Portal is provided and managed by Export Enterprises S.A. Santander provides access to its client companies but is totally unrelated to the database contents which are the responsibility of Export Enterprises S.A. Santander Corporate & Commercial is a brand name of Santander UK plc, Abbey National Treasury Services plc (which also uses the brand name Santander Global Banking and Markets) and Santander Asset Finance plc, all (with the exception of Santander Asset Finance plc) authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our Financial Services Register numbers are 106054 and 146003 respectively. In Jersey, Santander UK plc is regulated by the Jersey Financial Services Commission to carry on deposit-taking business under the Banking Business (Jersey) Law 1991. Registered office: 2 Triton Square, Regent’s Place, London NW1 3AN. Company numbers: 2294747, 2338548 and 1533123 respectively. Registered in England. Santander and the flame logo are registered trademarks. Santander UK plc is a participant in the Jersey Banking Depositor Compensation Scheme. The Scheme offers protection for eligible deposits of up to £50,000.

The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the States of Jersey website (www.gov.je) or on request.

CCBB0440 JUN 14 HT

THE NEW FRONTIER UK Export Finance, the rebranded and reborn Export Credits Guarantee Department, does somewhat more than it says on the tin. Paul Croucher talked to Ruari McCallion about helping exporters do business in the most unlikely of places, and extending its services to SMEs. 14

T

he sluggish recovery in the EU is leading UK enterprises into having to look further afield for business. New markets are a good thing in themselves but even the most optimistic and progressive organisations would raise an eyebrow when approached to help with an export order to Libya, whichever side of the ‘Arab Spring’ it was placed.

When Swansea-based Unit Superheater Engineering was approached by a state-owned Libyan oil and gas provider with a £212,000 order for a custom-made component for one of its heat exchangers, it wanted to do the business. It was familiar with its buyer and had a relationship that extended back over a number of years.

However, when Unit Superheater approached private-sector trade insurance companies for cover, it encountered a major problem: they had no risk appetite for the market. Fortunately, there was a solution, in the shape of an Export Insurance Policy (EXIP) from UK Export Finance (UKEF), the new trading name of the Export Credits Guarantee Department (ECGD). The EXIP covers exporters against the risk of non-payment by a specified buyer, or because of political risk. It can cover up to 95 per cent of a contract value and was exactly what Unit Superheater was looking for, which made for a group of very happy people – the exporting company, its buyer, the Libyan operation and employees at both ends of the deal.

Rebirth and Rejuvenation ECGD became UKEF in 2011. There were those who thought that ECGD had disappeared completely; its highest profile service, of providing export credit insurance, was privatised in 1991 and its short-term credit services for SMEs became the domain of the private sector. But the department itself continued and performed sterling work for an important section of the manufacturing base.

“Our business was focused on a very small number of very large exporters, such as Rolls-Royce and BAE Systems,” said Paul Croucher, ‎head of Trade Finance and Insurance Solutions (TFIS) Group at UKEF.

EXPORT FINANCE 2014

export contracts. Approaching two-thirds of that was for SMEs and Paul Croucher is adamant that, without UKEF’s support, these deals simply would not have happened.

When UKEF got back into the SME sector, take up was initially low. That could have been a lack of awareness but the retail banks are now lining up alongside it and it works in close partnership with UK Trade & Investment (UKTI) and it has improved marketing and communications generally. It has 22 export finance advisers around the country, who have banking and business backgrounds.

“They are there to advise and assist in transactions with banks, to provide help and guidance to get finance in place,” said Croucher. “We have improved our website (www.gov.uk/uk-export-finance) and are undertaking direct marketing to a database of companies likely to be exporting.”

A world view

“The government decided to bring us back into short-term financing in 2011; the decision was connected to the credit collapse in 2007-9. I was appointed in mid-2012 with the particular responsibility for developing support for SMEs and mid-market companies, with up to twoyear financial tools.” He describes this as “working capital support.”

“We come across situations where a customer’s bank is generally supportive but a particular deal might not be right; maybe there is not enough security, for example,” he explained. “We can provide guarantee support up to 80 per cent of a deal’s value. We also provide export credit insurance, especially to difficult markets, such as Libya.” It is stepping in when the conventional providers are backing away – if the deal is right: it will not provide support without checks.

Unbreakable bonds “We get involved in performance bonding, which is typically used in construction,” he continued. “In those circumstances the customer is asked to put up an initial bond, then a performance bond and warranty bond. The banks provide the bonds but they ask for cash commitments of, for example, £10 million for a £100

million bond.

We come in and cover up to 80 per cent of that requirement, which frees up money for the company.” Since March 2011 TFIS has supported a cumulative total of almost £1bn of

It is not just about SMEs. Lord Livingston, Minister of State for Trade and Investment, was appointed in early 2014 and has increased the focus on mid-market businesses – the £25-500 million turnover companies.

They are regarded as having different needs to SMEs; UKEF has appointed specialists to attend to that particular segment. Croucher is proud of the progress and the difference UKEF has made in the SME sector in a relatively short time.

“Our website showcases around a dozen case studies of SMEs we have helped,” he said. “Our support has helped to create jobs, boost business and make things happen that would not have taken off without us.” He highlights the support given to Graham & Brown, Britain’s biggest manufacturer of wallpaper, which was provided with bespoke cover under the Export Insurance Policy that covered against the risk of not receiving payments for goods exported to Russia.

Techflow Marine secured a turnoverdoubling contract with Chinese National Offshore Oil Corporation, thanks to a UKEF performance Bond guarantee that freed up working capital and secured cashflow, which provides an example of how businesses can operate in China. Most of UKEF’s support is in the form of guarantees or insurance policies but the last Autumn Statement provided it with £3bn for direct lending for overseas buyers.

“UKEF is not there to replace banks and the existing insurance companies; it is there to complement, extend and support their activities,” said Croucher. It is already making a difference.

UKEF is not there to replace banks and the existing insurance companies; it is there to complement, extend and support their activities

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Do you export goods or services?

Then we can help you.

UK Export Finance is the government department that helps exporters by providing: – impartial guidance – guarantees to banks – credit insurance in relation to managing the risks associated with UK export contracts.

Contact our national customer service helpline and request a consultation: +44 (0)20 7271 8010 customer.service@ukef.gsi.gov.uk

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