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TCP workshop 21/0514 - UK export finance

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  • Self introduction by Paul
    Q&A
  • So who are we? UK Export Finance, the UK’s Export Credit Agency, was formed in 1919 to help get UK exports on their feet post World War 1.
    UK Export Finance helps UK exporters by providing guarantees and insurance policies that complement those on offer in the private sector; and guidance on sources of export finance.
    We support exporters of all sizes and sectors
    A large part of our business is supporting major capital goods and project services, including aerospace – largely Airbus wings, Rolls Royce engines; civil projects - lines of credit to major players such as our £1bn line of credit to Petrobras and £700m for the Sadara petrochemical project financing deal in Saudi Arabia; and defence. This is all part of our Business Group.
    However, since 2011 we have been building up our support for smaller deals, through what has become Trade Finance and Insurance Solutions Group. This has grown from 3 to nearly 40 staff, cumulatively supporting around £1bn of contracts supported including over 100 SMEs. Within this we have established a regional network:– at 17 EFAs, increasing to 24, now have 3 senior EFAs covering north, midlands & wales and south.
    I’ll now hand over to our regional Export Finance Advisers who will run through some case studies and their support
  • Archana - self introduction - today I’ll focus on what we are doing for smaller exporters and medium sized exporters.

    I’ll start with a video explaining how a small manufacturing exporter used our Export Working Capital Scheme

  • What do you do if you want to take on an export contract but it could tie up your working capital? Eduteq came to us...
    Eduteq provides educational equipment and consultancy services to schools and vocational colleges in developing countries like Rwanda
    The company can turn an empty room into a training workshop or a GCSE-level science classroom and had a turnover of£3.5 million in 2012.
    In January 2013 Eduteq won a £3.4 million contract to provide schools and colleges in Eritrea with training equipment and consultancy services.
    The client, the African Development Bank, needed a 10% performance bond before work could begin and although Eduteq could secure the bond itself, the £340,000 bond would leave the company unable to take on other work.
    The contract was worth as much as their 2012 turnover, for each new contract they have to buy the equipment we need whilst looking for more work so they can grow. Eduteq said they’d have been taking too many risks by tying up our capital in this one bond.
    Their bank was unable to increase our working capital facility so they came to UK Export Finance for help.
    UKEF agreed to guarantee half of the performance bond through its Bond Support Scheme, with the company’s bank guaranteeing the other half. UKEF also agreed to guarantee half of the bank’s working capital facility through its Export Working Capital Scheme, which enabled the bank to double the amount available to Eduteq.
    As a result of this help, Eduteq had enough working capital spare to start the Eritrean contract and to accept two new contracts in two new markets. The 12-strong company tripled its turnover in 2013 and is now looking for more work elsewhere in Africa and also South East Asia.

    What are the restrictions under the Export Working Capital Schemes and Bond Support Schemes:-

    Export Working Capital Scheme
    Specific Contract
    80% guarantee of facility (max 75% of contract value)
    Maximum 2 year terms

    Bond Support Scheme
    Specific Contract
    80% Advance Payment Guarantee
    80% Performance bonds
  • What do you are trying to grow rapidly but you have to issue lots of tender bonds and that would tie up your working capital...AFL came to us

    AFL Architects started in 1997 and specialises in designing buildings for leisure, sports and healthcare facilities.
    The company designed the Peter Mokaba Stadium for the 2010 FIFA World Cup and is set to design FC Kuban’s new stadium in Russia. Around 25% of its business is international.
    The 140-strong company hopes to double its turnover to £10 million in 2014.
    When AFL Architects bid for the role as lead designer on a new ambulance centre in Doha, the company had to give the client, Qatar’s leading healthcare provider, a tender bond as proof of intent. - The £150,000 bond would have restricted the practice’s working capital, making it difficult for it to bid on any other jobs.
    UK Trade and Investment (UKTI) had supported AFL Architects in the past and referred it to UK Export Finance in August 2013.
    The company had already invested money in opening its Doha office, so it needed results. AFL could have covered this bond, but it would have stopped them growing at the rate they wanted.
    UKEF quickly agreed in principle to take on 50% of the £150,000 liability through its Bond Support Scheme. Once they had the agreement in principle from UKEF, AFL’s bank was confident enough to reduce theii cash cover requirement from £75,000 to £40,000.
    Since September 2013 AFL has submitted three more applications for design projects in the United Arab Emirates.

    What are the restrictions under the Bond Support Scheme:-

    Bond Support Scheme
    Specific Contract
    80% Advance Payment Guarantee
    80% Performance bonds
  • What do you do if you win an overseas contract but the advance payment guarantee needed threatens to restricted its working capitalWhat do you are trying to grow rapidly but you have to issue lots of tender bonds and that would tie up your working capital...AFL came to us

    - Micron Sprayers has been selling specialised agricultural spraying equipment to clients ranging from small independent farmers to multi-national companies since 1956. The company employs 50 people and exports to more than 100 countries worldwide, with 90% of sales coming from overseas.
    In February 2013 Micron Sprayers won a £1.2 million contract to supply French cotton producer Sodecoton with sprayers for its small-scale cotton farmers in Cameroon. The company had negotiated a 40% advance payment to fund the purchase of components, but needed its bank to issue an advance payment guarantee. Micron Sprayers had an existing £1 million working capital facility for overdraft and bonding with its bank, however the advance payment guarantee would have used most of it up. This would make bidding for and accepting other export contracts difficult. So the company approached UK Export Finance (UKEF) for help.
    Micron Sprayers could have covered this Cameroon bond from its existing line of credit with its bank. By doing so, the company wouldn’t have been able to take on any of the other work that it was looking at in Africa.
    UKEF worked with Micron Sprayers’ bank to open up another line of credit specifically for the Sodecoton bond. UKEF guaranteed 80% of the liability under its Bond Support Scheme (BSS) and the bank took on the remainder. As its £1 million facility with its bank was left untouched, Micron Sprayers was able to bid for new contracts in Africa, confident it could cover further bonds.
    UKEF’s support has enabled Micron Sprayers to bid for several new contracts in Africa.
    The company renewed its contract with Sodecoton in December 2013.

    What are the restrictions under the Bond Support Scheme:-

    Bond Support Scheme
    Specific Contract
    80% Advance Payment Guarantee
    80% Performance bonds
  • What do you do if you suddenly lose insurance cover against your buyer not paying due to market turbulence? Changing from open account to cash up front payment terms may not be the only answer. GR Lane came to us...
    In 1930 GR Lane started to make herbal remedies and dietary supplements. The company now supplies pharmacies, supermarkets and independent retailers in the UK and Europe, with 25% of its business being overseas, mainly Greece and Poland.
    It’s best-known products are the cold-relief mixture Olbas Oil and the herbal sleep aid Kalms.
    GR Lane had been selling its Greek buyer around £700,000 worth of herbal remedies and vitamins each year for around 20 years when its private insurance provider decided that the Greek economy had become too risky and declined further cover.
    Greece is an important and steady market for GR Lane. They had a £1 million policy for this contract, but this was reduced to £750,000 in 2011 and withdrawn in 2012. They secured a few orders in 2012, but on a cash up-front basis and only a quarter of the usual size. This affected their trade and their relationship with their buyer.
    They approached UK Export Finance for an Export Insurance Policy (EXIP), which insures an exporter against the risks of non-payment by the customer. An EXIP can cover up to 95% of these costs.
    In October 2012 UK Export Finance offered GR Lane an EXIP of up to £570,000 against the Greek buyer being unable to pay.
    EXIP cover started in December 2012 and GR Lane pays the premiums every time it sends an order to Greece. This arrangement will continue until private sector insurers consider Greece to be a good risk once more.

    What are the restrictions under the EXIP:-
    it has to relate to a specific export contract or series of export contracts
    Not for EU or OECD buyers (unless risk horizon > 2 years)
    95% contract value
    No minimum cover value, but a minimum premium of £250

  • I hope that gave you some idea how we help in a practical sense...

    David – self introduction
  • I hope this has given you a taste of where we fit in, if you have any questions please speak to me or one of our other regional export finance advisers where the exporter’s located.
  • Transcript

    • 1. 25th May 2014 Trade Challenge Partner workshop Paul Wills, Archana Singh, David Scott Trade Finance and Insurance Solutions Group
    • 2. 2 Who we are – UK Export Credit Agency established in 1919 – We complement, we don’t compete – We support exporters of all sizes and sectors
    • 3. 3 Some case studies
    • 4. 4 Bond Support and Export Working Capital Schemes “We’re able to look for more work than we could do before, because we know we have the finances to support it. We hope our turnover will grow to £14 million over the next three years.” Chris Foster, Operations Director, Eduteq
    • 5. 5 Bond Support Scheme “I’d advise companies to get UKEF involved. They have the knowledge about how to work in new regions because they get there ahead of everyone else.” Garry Rowlands, Director AFL Architect
    • 6. 6 Bond Support Scheme “UKEF really came in to help us. Without the BSS, we would have had to negotiate smaller bonds, which would have been too risky and may even have lost the contract for us. Sodecoton doesn’t accept letters of credit, so UKEF’s support was critical.” Haydn Beddows, Group Sales Director, Micron Sprayers
    • 7. 7 Export Insurance Policy “We wouldn’t have been able to continue trading under such restrictive terms. UKEF stepped into the breach with an alternative to the private sector insurance that had suddenly become unavailable.” Paul Whatley, Finance Director, GR Lane
    • 8. 8 In Summary – Export Insurance Policy – Bond Support Scheme – Bond Insurance Policy – Export Working Capital Scheme – Letter of Credit Guarantee Scheme
    • 9. 9 What can the Export Finance Adviser do for exporters? – Support exporter and bank/broker with UKEF schemes – Free and impartial guidance – Regional and county schemes – Single contact point for signposting
    • 10. 10 What you can do for us – Raise awareness that impartial export finance guidance exists – Refer exporters to us when they ─ are having trouble obtaining credit insurance or bank guarantees; or ─ turning export contracts down because they are considered too big – Invite us to speak to your members – Pick up the phone if you have a question
    • 11. 11 How to contact us – regional Export Finance Advisers contact details and map https://www.gov.uk/government/publication s/uk-regional-export-finance-advisors – gov.uk/uk-export-finance
    • 12. TAKE YOUR BUSINESS FURTHER.