The 1,100-year-old Royal Mint is moving in a modern direction

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From the Telegraph

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/11218336/The-1100-year-old-Royal-Mint-is-moving-in-a-modern-direction.html

Adam Lawrence runs a national monopoly whose customers don't like to be named. That may seem a contradiction, but the company is the Royal Mint, which supplies half the world's nations with currency — as long as nobody talks about it.

"It's usually part of the deal in making currency," says Royal Mint chief executive and deputy master Lawrence. "Most countries don't want people to know who makes their currency for them. Some countries might want people to think they make it themselves.

"For others, it's a security issue. But we supply to the four corners of the globe and have customers on every continent.

"We're the largest exporting mint in the world. We supply about 100 countries in total, though it works out at about 40 or 50 a year as some of our customers don't buy every year. Last year was slightly lower."

Coinage is a secretive and protectionist market, with only Poland and Thailand going public with their Royal Mint connections.

That makes calculating global market share tricky, though the Mint reckons it makes about 15pc of the world's coins, with the sizeable exclusion of those made in China and the US, which make all coinage in-nation.

About two thirds of the Royal Mint's circulation coins volume is exported, making it one of the biggest exporters in Wales, where it has 850 staff at its mint and headquarters in Cardiff.

Despite this global footprint, circulation coins are not the Mint's largest business by revenues. That title goes to its commemorative coins and bullion operation, which reported revenues of £214m in 2013 – ahead of the £101m from producing circulation coins and blanks – coins without the head and tails.

At the operating profits level, circulation coins made £14m against £9.2m from commemorative, before central costs of £16.3m, giving underlying operating profits of £6.9m.

It is the commemorative coins and bullion business that is slated for the most growth and Australian-born Lawrence, 43, is particularly excited about the Mint's new online bullion programme.

"That's one of the key areas of our expansion," he says. "It's in our DNA. We first manufactured the gold sovereign hundreds of years ago when it was the chief coin of the realm.

"That business has been lying dormant for quite a while here at the Royal Mint. We were still doing it but we were not active in the marketplace. It was something we reacted to when customers rang up and asked us to supply something."

The revitalisation began two years ago when the Mint changed the specifications of its Britannia coins, launched 25 years ago, to make them more internationally acceptable.

Now, Lawrence sees the Mint's sovereigns competing head-on with South Africa's Krugerrand, Canada's Maple Leaf, the American Eagle and Austrian Philharmonic bullion coins.

"This is a market where we have an absolute right to be and an important role to play," he says. "Accessibility to the marketplace in the UK has been quite limited to consumers. The opportunity is to give people access to these products, probably for the first time in many cases. Now people who just want to buy gold and silver coins can do so at a far more effective rate than they have done in the past.

"This is about accessibility for anybody who wants it. If you asked people how they would buy gold and silver, most people wouldn't know how to do it in a small way."

Some observers have questioned the timing of the launch, with the gold price hovering around a four-year low but Lawrence's enthusiasm is unabated.

"The market for gold coins is quite flat at the moment," he concedes, "but we're not really trying to tap into the institutional market.

"We're a 1,100-year-old business. We're not necessarily trying to do this when the market is at its peak or at the bottom.

"We just think it's the right thing to do and we have the ability to do it so we're going for it. And we're not going for the same market everyone else is trying to go for.

"We think we can access new people with a product like this. There are no other mints doing this, as far as I am aware."

The Mint is still tiny in gold, selling just 177 ounces of the precious metal last year, up from 109 ounces in 2012. In silver, it sold 2m ounces in 2013, compared with 500,000 ounces in 2012.

Lawrence is confident. "Given our credibility in this marketplace and some of the things we're doing, it wouldn't be hard to think that we could be three to four times what we're doing at the moment," he says.

"We have a very strong product in a marketplace that's quite well developed and we think we can take quite a bit of that market share over time."

His five-year plan to grow the Royal Mint includes sovereign business in India, one of the world's biggest gold markets, where it has a licensing agreement with a local partner. Similarly, its core commemorative coins business has been trying to tap into the Chinese market by issuing coins celebrating the Chinese lunar cycle.

Then there is the core circulation coins business, where Lawrence still expects growth, despite all predictions about a "cashless society".

The mint has invested in recent years in moving away from homogenous copper, nickel, aluminium and bronze coins and towards plated steel.

It has also been adding forensic features to its coinage that Lawrence says will enable coins to go from "a relatively low security base to basically banknote-level security". "For countries, the integrity of their currency is critical," he says. "They need a way of countering counterfeiting and we've now got the best technology in the world, developed here in the UK, which we expect will be a big growth driver in the next few years. We know from our global reach that quite a few of our customers have been demanding more security and now we have the ability to be able to deliver that to them."

The technology will feature on the new £1 coin in an attempt to tackle the 3pc of current £1 coins believed to be forgeries.

"It's a 30-year-old coin and it's had a good life," says Lawrence. "With our new hi-tech security feature, the new £1 coin will be the most secure coin in the world. We need them to not only be counterfeit-proof today but also for the next 20 to 30 years because the typical life cycle of a coin is about 25 years."

Will we still have coins in the year 2039? Lawrence is used to such questions. "Yes, absolutely we will," he insists.

"I'm not a Luddite. I accept that there will be some people who will move towards that sort of new technology. But there are some things for which coins will remain more convenient.

"It will be a choice. I think we will see the introduction of more cashless technology but I don't think we will see the death of coins in my lifetime.

"We do hear people say there's been a reduction in the use of coins as a percentage of total transactions but, if you look at the volume of coins in the system, there are more coins in the system today than there ever has been and we are still seeing very strong demand for coins.

It's pretty certain then that cash will be accepted when the Mint's new visitor centre opens in Cardiff in early 2016 – a move that Lawrence says will allow a new generation to engage with the Royal Mint.

They may not get the chance to buy its shares, though. Still state-owned, the Mint was restructured in 2010 as a public limited company run by a board and independent non-executive chairman, with all the shares owned by HM Treasury. That prompted speculation about a potential stock market flotation or privatisation, but Lawrence doesn't see it happening any time soon.

"The Chancellor has been pretty clear in his statement that we're not on the agenda at all," he says.

Lawrence has an unusual background for a coinage boss, though he did train as a chartered accountant with Price Waterhouse. He joined the Mint as finance director in 2008 after 13 years working for US drugs group Catalent Pharmaceuticals, ending up as vice-president of the sterile technologies division.

"People say to me making pharmaceuticals must be really different from making coins," he says, "but actually it's really not. What you're trying to do is make sure you make something exactly the same millions of times over.

"With pharmaceuticals you need to be really confident that it's the right product and it's exactly the same with coins. It's about process and making sure you do the right thing and it's about long-term relationships. The core ingredients that you need are really similar."