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 manufactures and markets commemorative coins.

Legal Status and Ownership

The Royal Mint is a trading fund and an executive agency of HM Treasury. In the Budget 2009, the Chancellor announced the resumption of work to vest the Royal Mint as a Government owned company, with the intention of completing the process later this year.

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 UK circulating coins
• provide expertise to the Government on coin and minting issues; and
• meet all relevant legislative requirements.

Only the first of these 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	2009	2008	2007
Turnover	151	132	121
Operating Profit	8	10	9
Profit/(Loss) for the year	4	7	1
Net Cash flow	(0)	8	2
Net Operating Assets	53	56	68
RONA	15.4%	17.3%	12.8%
ROCE1	7.1%	9.2%	2.7%
Shareholders' Funds	56	58	56
Dividends	4	4	-

Dividend policy

To target a dividend to HM Treasury as shareholder of at least £4m per annum.

Performance targets

Targets are set to measure delivery of the objective to diversify the earnings base of the business into overseas circulating and commemorative markets, whilst continuously improving quality and productivity. Key measures of performance include sales pipeline, revenue growth, profit margins, working capital efficiency, return on capital employed, order fulfilment and coin quality.

Notes

¹ Prior to 2008-09 this was described as ‘average rate on return on net assets’ in the Royal Mint accounts; in 2008-09 it was calculated through a revised mechanism.The numbers shown here all use the revised calculation method, backdated for previous years.

Commentary

The Royal Mint’s financial performance continued to be strong in 2008-09 with a pre-exceptional operating profit of £8.2m, enabling it to pay a dividend of £4m, a slight increase on the previous year.The Return on Average Capital Employed of 7.1% was above the financial Ministerial target of 5.1%.

At the start of 2008-09, the Royal Mint launched new designs for seven UK denominations and these were successfully put into circulation. Despite a fire in the manufacturing plant and continued lower demand for UK circulating coins, circulating coin performance was helped by a strong performance in overseas markets, and the commemorative coin business also had another successful year generating a contribution of £7.8m before central overheads.The Royal Mint successfully discharged its primary responsibility of supplying United Kingdom circulating coinage within its Ministerial delivery target.

The Royal Mint is continuing to progress measures to enhance its operating model and productivity levels. This is expected to not only improve baseline operations and performance, but will also better position the business as it expands its production significantly over the next few years to meet commemorative coin demand for the London 2012 Olympic and Paralympic Games.

During the year, there were a number of changes within the Royal Mint Board.Two new Non-Executives, Mary Chapman and David Harding, commenced their roles. Among the Executives, Adam Lawrence was appointed Director of Finance (June 2008), Anne Jessopp as Director of Human Resources (July 2008), Dave Knight as Director of Commemorative Coin (November 2008), and, since the year end,Andrew Mills as Director of Circulating Coin (June 2009).

In June 2008, the Royal Mint established a new two-tier Board structure.The new Supervisory Board is a board of oversight and is comprised of the Non-Executive Chair, the Non-Executive Directors, the Chief Executive and the Director of Finance.The Executive Board, chaired by the Chief Executive, has primary responsibility for the day-to-day management of the business.

In April 2009, the Chancellor of the Exchequer announced the recommencement of work halted in 2006 to vest the Royal Mint into a Government owned company by the end of 2009.This announcement follows the Shareholder Executive-led Operational Efficiency Programme review of the Royal Mint’s operating model which also identified that there is now a strong case for the introduction of private capital into the Royal Mint.The Shareholder Executive will continue to work closely with the Royal Mint and HM Treasury over the coming period to complete the vesting process within the timetable set by the Chancellor.