After a career in finance that included a stint in the former battlegrounds of South East Asia, UK Export Finance chief executive Louis Taylor faces challenges on a new front: supporting UK exporters in an era of Brexit uncertainty. Colin Marrs meets him
It has been a busy year for Louis Taylor. His tenure at the helm of UK Export Finance (UKEF) began last September, since when he has overseen significant organisational reform.
The organisation – originally created in 1919 to help British firms re-establish their overseas trade after World War I – has also endured criticism over financial support for some foreign firms and, earlier this year, was forced to suspend some support for Airbus over allegations of fraud. If that wasn’t enough to deal with, Taylor is now grappling with the potential implications of Brexit for UK exporters.
Taylor came into the civil service as UKEF’s CEO following a career in the private sector, joining from Standard Chartered Bank, where he was chief operating officer and also spent a spell as the bank’s chief executive for Vietnam, Laos and Cambodia.
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UKEF’s purpose is to offer insurance to exporters and guarantees to banks in situations where the private insurance market is unwilling to step in. As the UK’s export credit agency, it can also make loans to overseas buyers of goods and services from the UK. “Our interest is in driving the volume of British exports, whether we’re actually providing tangible support or merely helping guide people to the support that they get from the private sector,” Taylor says.
As it approaches its centenary year, UKEF is playing a leading role in the government’s target of reaching 100,000 new exporters and £1tn of exports by 2020. Last year, it helped support £800m of new export contracts, issuing £1.8bn of export support. In 2014, it became the first credit agency outside China to offer guarantees on loans in China’s renminbi.
His interview with CSW takes place at the end of 10 brutal days in the currency markets which have seen the value of the pound drop from $1.29 to $1.23. So, as the head of a body dedicated to driving up the volume of UK exports, Taylor must be pleased?
"[UKEF’s mandate is] good in or out of the European Union” – Louis Taylor
Sadly, things aren’t that simple, he says. “For exporters, theoretically, exports are cheaper from the UK and more competitive – and that ought to be a positive. However, one of the consequences of globalisation is that if your supply chain has quite a lot of import of raw materials then it tends to neutralise the benefit of the fallen sterling. We should see some kind of an uptick but it won’t necessarily be huge.”
Taylor adds that UKEF’s mandate is “good in or out of the European Union” and that he is not looking at immediate changes to the way it does business. He does say, though, that he is looking to equivalent bodies in other countries for lessons UKEF could adopt in the longer term. “For example, at the moment there’s an accord within the EU that no export credit agency will offer short-term credit insurance within the EU because these are developed markets and private insurers should offer that cover. But maybe when we’re outside the EU that’s something we can look at doing differently,” he says.
The biggest change to UKEF’s operations resulting from the Brexit referendum is its transfer from the Treasury to the newly-created Department for International Trade. This puts the organisation in an ideal position to help inform talks with countries once the UK is outside of the EU, Taylor says.
“We have a credit risk position on 200 countries and we have a great understanding through our economists and risk analysts of those countries. We can help inform the Trade Policy Group of the DIT, responsible for negotiating our trade agreements in non-EU countries.”
In addition, the transfer to DIT will help UKEF’s business group align more closely with industry sector teams within its new parent department. “We will be able to identify opportunities where we can get involved earlier and help companies to win bids in far-off places with large contracts,” Taylor says.
"Nobody can predict the gaps that there will be in private market provision"
Unconnected to its move from the Treasury, UKEF is also restructuring its internal business operations. Up until now, internal teams known as “end-to-end groups” focused on one sector such as aerospace or infrastructure, but now staff will now be expected to shift between different areas.
“It is about running your business in a way that is flexible to the demand that your market is making of you,” Taylor says. “Nobody can predict the gaps that there will be in the private market provision of finance and insurance a year hence, so we need to be quite flexible in the resource to be able to shift it where it’s needed.”
Another knock-on effect, Taylor hopes, will be to attract staff to UKEF. “If you are a Grade Seven who was working in the aerospace department a year ago, now you will not only have aerospace projects but you’ll probably be working on project finance and you might work on a short-term export insurance policy as well, and you would have broadened your experience.
“You’ll get greater breadth on your CV, you’ll create more opportunities for yourself as you go through your career. If we’re giving a broad enough experience we will also be able to attract people and I think it will create a healthy turnover of staff who are qualified, motivated, and engaged.”
"Our new deal with the Treasury means we pay a permanent employee a bit more than we otherwise would, but get rid of contractors to whom we would pay disproportionally more”
As an organisation that requires specialist financial skills, recruitment is an area in which UKEF has struggled in the past. In March last year, before Taylor joined, it was fined £500,000 by the Treasury for breaching guidance – introduced three years earlier – to stop staff being paid through tax-efficient service companies. UKEF’s latest annual report identifies a key risk from its need to “attract and retain the right people where salary levels may lag behind financial services and other public sector comparators”.
However, Taylor reveals that UKEF has recently struck a deal with the Treasury on pay flexibility. “We pay a permanent employee a little bit more than we otherwise would but we get rid of contractors to whom we would pay disproportionally more, who are not loyal to the organisation or are less engaged, and who when they walk away take knowledge with them; there’s so many benefits to doing it this way,” he says. Implemented in April, the move will save millions of pounds over the Spending Review period, he adds.
Such initiatives should help the organisation achieve Taylor’s aim of increasing support for small and medium enterprises (SMEs). UKEF stepped back from this area in 1991, but “since the financial crisis, there has been a sense that it’s been more difficult for SMEs to access finance and insurance,” Taylor explains.
“Because of the changes in regulation it’s less attractive for banks to lend, it is more costly, relative to the size of the loan, and compliance costs are now higher than ever. So there is more of a need for us to be able to step in and help that area of the market.”
“It’s a call to arms to all people across government" - Louis Taylor
Although the number of SMEs directly supported by UKEF rose 23% last year to 280 firms, the new focus has not been without difficulties. “We’ve been trying to sell some products that we’ve developed, and to get banks to retail those products as well, and actually it hasn’t really worked because the bank relationship managers struggle to understand our products as well as they know their own, so getting them to sell ours is quite tricky,” Taylor says.
To address the issue, UKEF is simplifying the process. “If we can say to the bank, ‘Look, here’s a set of credit criteria within which we’ll allow you just to underwrite on our behalf where you don’t have the risk appetite’, then it makes it very much easier for the relationship manager,” Taylor says. He hopes the move will boost the number of SMEs being supported into four figures within three years.
Taylor is just as keen to raise awareness of UKEF among his colleagues in Whitehall. A new educational module has been created to help officials identify opportunities where export finance could help.
“It’s a call to arms to all people across government,” he says. “We have staff from across government meeting companies domestically [and] meeting purchasers of British exports abroad all the time – whether they’re ministers or whether they’re senior officials or trade envoys or business ambassadors.”
"We asked all the right questions"
Some might already be aware of UKEF after reports earlier this year that it has suspended all applications for UK export credits to assist the sale of Airbus jetliners pending a review of the company’s use of overseas agents. Due to the involvement of the Serious Fraud Office, Taylor is unwilling to be drawn too far into details of UKEF’s own investigations. But he says that the fact the issue was discovered shows that UKEF’s due diligence is working effectively.
“I think that we asked all the right questions and it reinforced to us that the process we have been operating, particularly relative to other export credit agencies, is a good one,” he says. “I’m sure standards will tighten up and there is always more than that we can do and we’re not perfect, but I think we can hold our heads up pretty high.”
Taylor is also keen to counter criticisms of an £82.8m deal to support Lebedinsky GOK, an iron ore mining company, which helped finance a contract with Midrex UK, a subsidiary of a US company that paid no corporation tax in the UK.
Taylor says: “The basic point is we’re here to support viable British exports where the private sector can’t help them and that’s for foreign companies operating in the UK and exporting out of the UK as much as UK-owned companies. The point was, there were tens of millions of pounds of contracts that went to UK entities that supported British jobs and they all came out of the UK and that otherwise wouldn’t have happened.”
Changes to banking regulations are set to increase the importance of UKEF in driving such procurement out of the UK in coming months and years.
“Sponsors of large, long projects used to carry out their procurement and then find the finance. These days they tend to want to find the finance and drive their procurement off the back of that,” Taylor says. “So we get sponsors coming to UK Export Finance saying, ‘We’d like to have a billion dollars for this project and we’re prepared to do UK procurement with that billion dollars if you can help us to find a sourcing of all of that procurement’.” A number of such deals will be announced soon, he promises.
Taylor’s ambition is to help the government lead with finances as much as other G7 countries do when promoting trade. “We are not a subsidy organisation,” he says, “but we have the ability to create an environment where export opportunities are seen as less risky by companies than they currently are and that will encourage more companies to seek export opportunities.”