Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents



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 2006-07:

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 that:

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."[129] 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 improvement again."[130]

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. [131] 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 and Reserves

Year Description
Revaluation Reserve £'000
Profit and Loss Account £'000
2007-08Transfers relating to depreciation
2005-06Reclassification to distributable reserves

94. In a supplementary note[132], 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 financial statements.[133]

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 Chief Executive.[134] 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.[135]

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.[136]

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. [137]

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 to privatisation."[138]

129   Q 80 Back

130   Q 81 Back

131   The Royal Mint, Annual Report and Accounts 2008-09, June 2009, HC 570, p 41 Back

132   Ev 99 Back

133   The Royal Mint, Annual Report and Accounts 2008-09, June 2009, HC 570, p 46 Back

134   The Royal Mint, Annual Report and Accounts 2007-08, June 2008, HC 570, p 15 Back

135   Q 94 Back

136   Q 96 Back

137   Q 83 Back

138   Q 510 Back

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