Shareholder Executive

Royal Mint

Purpose

The Royal Mint's principal activity is the manufacture and issue of UK circulating coins. The Royal Mint also manufactures circulating coins and blanks for overseas countries and produces collector coins.

Legal Status and Ownership

The Royal Mint is a trading fund and an executive agency of HM Treasury. The Shareholder Executive, the Royal Mint and HM Treasury are currently assessing the case for vesting the Royal Mint as a 100% Government-owned company.

Government's Objectives

The government's objectives for the Royal Mint are to:

• deliver a commercial return on capital employed, while remaining within the constraints of these objectives more generally
• ensure a secure and timely supply of coins to the UK Clearing Banks and Post Office Limited
• provide expertise to the Government on coin and minting issues
• meet all relevant legislative requirements.

Only the first of these objectives is a commercial objective. The others provide HM Treasury with security of coin supply and expertise to manage the UK coin supply, and ensure that legislative and statutory obligations are properly discharged.

Financial Performance

£m	2008	2007	2006
Turnover	132	121	115
Operating Profit	10	9	1
Profit/(Loss) for the year	7	1	(2)
Net Cash flow	8	2	(0)
Net Operating Assets	56	68	71
RONA	17.3%	12.8%	1.5%
ROCE1	11.5%	3.0%	(1.7)%
Shareholders' Funds	58	56	50
Dividends	4	-	-

1 Described as 'average rate of return on net assets' in the Royal Mint accounts.

Commentary

The Royal Mint's financial performance improved for the second consecutive year in 2007-08, with a pre-exceptional operating profit of £9.6m. This compared to £8.7m and £1.1m in the two previous years. The significant increase in bottomline profit to £7.2m in 2007-08 will enable the Royal Mint to pay a dividend of £3.9m, the largest Royal Mint dividend since 1997-98. The return on capital employed of 11.5% was substantially above the financial ministerial target of 7.2%.

The Royal Mint successfully discharged its primary responsibility of supplying United Kingdom circulating coinage within its delivery ministerial target. However, UK coin demand at 1.3bn coins was lower than in 2006-07 (1.6bn), reflecting reduced demand in the high street. On 2 April 2008 the Royal Mint launched new designs for seven of the UK denominations, the first time such a significant change has taken place in 40 years.

Despite lower circulating coin volumes in the year overall circulating coin profitability grew slightly thanks to a strong performance in overseas markets. The Royal Mint maintained its share of around 15% of the available market worldwide, supplying 52 countries with circulating coins and ready-for-striking blanks. Highlights in 2007-08 included winning a major contract from the Egypt Mint Authority, as well as signifi cant orders from Trinidad & Tobago, Macau and Rwanda.

The collector coin business had a successful year, improving further on the strong profit performance achieved in 2006-07. In spite of the good performance, there are ongoing challenges for this part of the business including the degree of reliance on major themed events and margin pressures from rising precious metal prices. The Royal Mint is moving proactively in this area to develop a new vision and strategy.

During the year there were a number of changes within the Royal Mint Board. David Barrass' term as interim Chief Executive ended with the appointment of Andrew Stafford in October 2007. At the end of the financial year Jan Smith stepped down after nine years as Non-Executive Director, Colin Balmer was re-appointed and two new appointees were announced, Mary Chapman and David Harding. Among the Executives, Dave Knight was recruited as the interim Director of Marketing and Caroline Roberts as HR Director. She resigned soon after year end and Anne Jessopp has been appointed as her successor. Peter Allred remained as interim Director of Finance during the year, being replaced by Adam Lawrence, a permanent appointee, in June 2008.