6 THE ROYAL MINT
85. The activities of the Royal Mint consist of the
manufacture and supply of circulating and commemorative coins
in the UK and overseas, the manufacture and supply of official
medals, seals and dies, and the marketing of technical services
relating to the manufacturing of coins and blanks.
86. The Royal Mint has been operating as a Trading
Fund since 1 April 1975 and on 1 April 1990 became an Executive
Agency of HM Treasury. The Chancellor of the Exchequer is the
Master of the Mint, and on 21 April 2009 he announced that the
Royal Mint would be vested into a Government-owned company by
31 December 2009.
87. During 2008-09, as a trading fund, the Royal
Mint operated on commercial lines but was legally required to
manage its funded operations so that the revenue of the fund was
sufficient to meet its outgoings and that any operating loss in
one year was made good in subsequent years. In this section we
assess its performance during 2008-09, and the implications of
the vesting decision.
88. In 2008-09, Operating profit before exceptional
items and interest was £8.2 million based on sales of £159
million, compared to a higher profit of £9.6 million on lower
sales of £131.8 million in 2007-08. Profit after exceptional
items and interest was £4.3 million compared to £7.2
million for the previous year. The average rate of return, therefore,
dropped from 9.2% in 2007-08 to 7.1% in 2008-09. This measure
is used as a key ministerial target for the Royal Mint. The target
was set at 5.1% in 2008-09 and was therefore achieved. It is set
at a more challenging 10% in 2009-10.
89. As can be seen in the table below, the Royal
Mint has had a varied financial performance over recent years,
and following a period of losses returned to profitability in
Table 9: Royal Mint revenue and profit
90. During our evidence session with the Royal Mint,
we expressed concern that a drop in profit and rate of return
based on an increasing value of sales suggested that the Mint's
new management team was not fully sustaining recent improvements.
Chief Executive Andrew Stafford explained these figures by referring
to the changing nature of the Royal Mint's business mix, observing
the mix of our business did change quite substantially
year on year, particularly in the commemorative coin business
where a lot of the turnover in the last twelve months was from
bullion coin as people sought to buy more gold coins at a much
lower margin than our collector coins.
Consequently, he felt that, though his average rate
of return on capital employed had gone down, "it is still
a very healthy return for a manufacturing organisation."
He also did not see a declining average rate of return on capital
employed turning into a trend as "if I look at our current
strategy for this year we are increasing our circulating coin
business overseas and as a result we are now seeing a dramatic
91. We accept that Royal Mint rates of return
will be affected by changes in consumer demand for products of
varying margins of profitability, and note that the rate of return
remains relatively healthy at 7.1%. However, given that Royal
Mint only returned to profit in 2006-07, positive future
performance can not be taken for granted and we will monitor,
with interest, the level of profit the Royal Mint declares for
2009-10 and whether it succeeds in meeting its 10% average
rate of return target.
Change in accounting policy
92. In 2008-09 the Royal Mint transferred an exceptionally
large amount£8,004,000 from its revaluation
reserve to its profit and loss account. 
The revaluation reserve is a non-distributable reserve and records
the gains or losses on assets as they are revalued. By transferring
them to the profit and loss account, they were transferred to
a distributable reserve, which shareholders could use to extract
money in the form of dividends.
93. The following table, extracted from the relevant
years' "Movement in Capital and Reserves (Government Funds)"
tables, compares the figures transferred in previous years:
Table 10: Royal Mint Movement in Capital
||Revaluation Reserve £'000
||Profit and Loss Account £'000
|2007-08||Transfers relating to depreciation
|2005-06||Reclassification to distributable reserves
94. In a supplementary note,
the Royal Mint attributed the bulk of the transfer (£7,086,000)
to a change in accounting policy regarding the valuation of the
'Base Stock' of metals held by the Mint.
95. In previous years, the stock was measured on
a historical cost basis. This means that the value of the metal
in the accounts was the price at which it was purchased. An adjustment
would then be put through at the year end to reflect the fact
that metal prices may have moved from the purchase date. Royal
Mint stated that this method was inconsistent with UK Generally
Accepted Accounting Principles (UK GAAP), the principles to which
Government Departments and bodies must adhere in preparing accounts.
96. During 2008-09 the Royal Mint changed their stock
accounting policy to a First-In-First-Out (FIFO) basis, which
they felt was consistent with UK GAAP. Under the FIFO arrangement,
the Royal Mint works on the basis that the oldest metals brought
are recorded as sold first. This means that any remainder stock
left at the year end will be recent purchases closer to current
market value. This change was disclosed as part of Note 1 of the
accounts which states;
The Royal Mint has reviewed its method of accounting
for metal stocks. A standard costing system of valuing metal stocks
has been introduced and all metal stocks are valued on a FIFO
basis. The change in method has not had a material impact on the
97. The Committee is pleased that the Royal Mint
has changed its accounting policy to ensure consistency with UK
GAAP and we note the disclosure in the accounts. However, given
the size of the adjustment, we do not believe that the disclosure
is detailed enough for the reader of the accounts to understand
the reasons for the change in the reserves. We recommend that
any future changes in accounting policy of this nature are more
clearly explained, with the reasons behind such changes provided
in the accounts, especially where previous policies are found
to be non-compliant with UK GAAP.
98. Plans to vest the Royal Mint, turning it into
a Government owned company, were first announced in December 2004.
These were put on hold in 2006 pending the recruitment of a new
On 21 April 2009 the Chancellor of the Exchequer announced that
the Royal Mint would be vested into a company by the end of 2009.
99. The Government's rationale for vesting is that
it will allow the Royal Mint to take advantage of wider commercial
opportunities, including potentially the introduction of private
capital. We asked Andrew Stafford if he could elaborate on the
advantages of vesting as a Government owned company. He offered
two specific things:
one is the acquisition of other organisations
which would allow us to expand internationally, and secondly undertaking
joint ventures with overseas partners to enable us to penetrate
markets, for example Asia, where we have a presence but we would
need to have a greater level of presence for a manufacturing capability.
Both of those things, whether it is an acquisition or a joint
venture, would clearly require a capital injection into the business.
If the Treasury did not feel that that was a good use of public
money to make those investments, then clearly private capital
is an alternative way of pursuing both joint ventures and acquisitions.
He went on to clarify that he was "not necessarily"
looking solely at commercial opportunities overseas:
For example, one or two of the acquisitions that
could be undertaken in the business would be for UK operations,
which could be combined with the Llantrisant operation. So there
are specific opportunities in the UK as well as overseas.
100. We asked Andrew Stafford whether the timing
was right given the economic climate and that the Royal Mint had
only recently returned to profitability. He responded that:
We have demonstrated now for the third
consecutive year that this business is a successful business making
a good return for its shareholder. We have a long-term strategy
in place involving both growth in our UK commemorative coin business
and in our international circulating coin business. We have secured
long-term contracts in major overseas markets such as Russia.
We have secured a major capital investment programme for the business
to increase our manufacturing capability, so we believe that the
strategy and the capability are in place for long-term sustainable,
profitable growth. 
He would not be drawn on whether the long-term strategy
included privatisation. Exchequer Secretary Sarah McCarthy-Fry
MP was also coy on this point, simply asserting that "the
current view is that the purpose of vesting was not as a prelude
129 Q 80 Back
Q 81 Back
The Royal Mint, Annual Report and Accounts 2008-09,
June 2009, HC 570, p 41 Back
Ev 99 Back
The Royal Mint, Annual Report and Accounts 2008-09,
June 2009, HC 570, p 46 Back
The Royal Mint, Annual Report and Accounts 2007-08,
June 2008, HC 570, p 15 Back
Q 94 Back
Q 96 Back
Q 83 Back
Q 510 Back