Shareholder Executive

Export Credits Guarantee Department (ECGD)

Purpose

The Export Credits Guarantee Department (ECGD) provides insurance and facilitates the provision of finance to support the sale of UK capital goods, such as aircraft or machinery, and of UK services, such as project management or design. It also helps UK companies to invest in overseas projects such as water treatment plants or power stations. ECGD's products complement the private sector by offering cover on long-term risks that the private sector is unable to bear.

Legal Status and Ownership

ECGD is a Ministerial Government Department operating under the Export and Investment Guarantees Act 1991 and reporting to the Secretary of State for Business, Enterprise and Regulatory Reform. The Export and Investment Guarantees Act 1991 establishes that the consent of HM Treasury must be provided for all ECGD operations. In practice, consent is delegated to ECGD so long as it meets its financial objectives.

Government's Objectives

For ECGD to:

• benefit the UK economy by helping exporters of UK goods and services win business, and UK firms to invest overseas
• set premium rates on new business so as to reflect the risk and comply with its financial objectives
• operate in accordance with its Business Principles so that its activities accord with other Government objectives,including those on sustainable development, human rights, good governance and trade
• complement, and not compete with private sector sources of finance or insurance
• promote an international framework that allows UK exporters to compete fairly by limiting or eliminating all subsidies and by the adoption of consistent practices for assessing projects and countries on a multilateral basis
• recover the maximum amount of debt in respect of claims paid by ECGD in a manner consistent with the Government's policy on debt forgiveness.

Financial Performance

£m	20081	2007	2006
Turnover	-	55	88
Portfolio related income	-	373	1,741
Admin costs	-	(26)	(28)
Operating Profit	-	402	1,801
Profit/(Loss) for the year	-	404	1,699
Net Cash from operating activites, capex and financial investment	-	2,024	2,212
Parliamentary supply drawn (prior year cash surplus repaid)2	-	(2,367)	(1,851)
Net Cash flow	-	(343)	360
Net Operating Assets	-	2,354	4,079
RONA	-	17.1%	44.2%
Shareholders' Funds3	-	1,231	2,494
Dividends	-	-	-

¹ Figures for 2008 had not been published at the date of publication of this report.
² This is not a true cash item and arises because of the requirement for the department to return surplus cash generated in the prior year to the UK Parliament.
³ Notional shareholders' funds since ECGD is a government department.

Commentary

During 2007-08, the value of guarantees and insurance policies issued by ECGD was £1.8bn¹, a small increase on the previous year. The total number of guarantees and policies issued was 96, an increase from 91 in 2006-07. A key driver behind this growth was Airbus aircraft financing – the value of guarantees represented by Airbus deliveries grew to 30% of business issued.

Additionally, claims have continued to fall: in 2007-08 ECGD faced the lowest level for three years.

A significant element of ECGD's income is the receipt of principal and interest payments associated with obligors making good on past defaults. The benign credit environment prevalent in the early part of 2007-08 enabled sovereign obligors with rescheduled obligations such as Jordan, Gabon and Peru to repay their balances early.

Looking forward, ECGD faces an uncertain business environment. Conditions in credit markets and concerns about possible instability in the international capital markets may lead to credit being less readily available from private sector sources than it has been in the last few years. This has led some buyers to re-focus on the value and reliability of support that is available from official export credit agencies.

Turning to governance matters, in June 2007 the Government took the decision to adapt and improve ECGD's prevailing financial framework, rather than to operate ECGD as a Government trading fund. The new framework, which came into effect on 1 April 2008, introduced revised financial performance targets. As part of the new financial framework, ECGD now has a Departmental Expenditure Limit as part of the 2007 Comprehensive Spending Review, bringing it into line with other Government departments.

Finally, after five years as a non-executive director and as Chair of the Audit Committee, John Wright left ECGD in March 2007. Katherine Letsinger has taken on the role of Chair of the Audit Committee.

¹ Financial data for 2007-08 are unaudited. Audited figures for 2007-08 are not available at the time of going to print.