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, Innovation and Skills. 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	2009	2008	20071
Premium income	38	60	55
Admin costs	(20)	(23)	(21)
Other Income and Expenditure	284	563	372
Operating Profit from Export Credit Guarantees & Insurance Activities	294	583	391
Net Cash from operating activites, capex and financial investment	448	1,075	2,024
Parliamentary supply drawn (prior year cash surplus repaid)2	(899)	(1,973)	(1,845)
Net Cash flow	(452)	(898)	(343)
Net Operating Assets	1,030	983	1,242
RONA3	28.5%	59.3%	31.5%
Shareholders' Funds4	868	952	1,222
Dividends	-	-	-

Dividend policy

All income in excess of the amount appropriated in aid is payable by ECGD to the Consolidated Fund.

Performance targets

Targets are based on ensuring that ECGD’s pricing covers its administration costs and expected losses, that its prices reflect risk, and that it has adequate reserves. As ECGD must price according to risk and cannot compete with private sector sources of finance or insurance, profit targets would be inappropriate.

Notes

¹ Figures for 2007 have been restated following the adoption of FRS 26, ‘Financial Instruments’, for the year ending Mar 2008.
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 UK Parliament.
³ The capital charging mechanism with HM Treasury doesn’t allow for net income to be recognised from the provision of Fixed Rate Export Finance support and therefore this activity has been excluded in the RONA calculation.
⁴ Notional shareholders’ funds, since ECGD is a Government department.

Commentary

During 2008-09, the value of guarantees and insurance policies issued by ECGD was £1.46bn, down from £1.83bn the previous year.The total number of guarantees and policies issued was 137, compared to 96 in 2007-08.This increase was due to greater ECGD support for the UK civil aerospace industry. ECGD guaranteed funding for more than 100 aircraft deliveries during the year.This represented the largest number of Airbus aircraft ever supported by ECGD in a single year.

Premium income was £38m compared to £60m in 2007-08.The reduction in premium income for the year was caused by a significant reduction in defence business.

Claims have continued to fall: in 2008-09 ECGD authorised payments on capital goods and project business of £44m – a lower level than in any of the previous ten years.

Looking forward, ECGD has seen a marked increase in new enquiries for its products as credit and insurance availability in the private market has contracted over the past year. It is important that ECGD has sufficient flexibility to address failures of the market in the provision of export finance.

In his budget report, the Chancellor of the Exchequer announced that the Government would look at the existing and potential support offered by ECGD, and ECGD’s operating framework, with the aim of ensuring the organisation can play a significant role in supporting UK exporters during the economic recovery.A medium term strategic review of ECGD is therefore being undertaken with input from ECGD, HM Treasury, Shareholder Executive, UKTI and the Business Environment Unit in BIS.