October 8, 2013 – The Royal Mint is a state-owned mint that services the international coin market, operates at arm’s length from its government owners and runs its business along commercial lines that have much in common with its privately-owned contemporaries in the banknote sector. But the coin market does not operate in the same way as the banknote sector – dominated as it is almost entirely by state-owned providers and characterised by over-capacity, lack of invention and low prices. The Royal Mint is taking steps to overcome such challenges to ensure that, even if it can’t be the cheapest, it can – in the words of CEO Adam Lawrence, ‘be the best’, as he explains in this interview with Currency News.
CN: First of all, can you describe your background, how you came to join The Royal Mint and what it was about the job that attracted you?
AL: I began my professional career as a chartered accountant with Price Waterhouse and hold an MBA from Monash Mt Eliza Business School. From 1995-2008, I held a number of senior positions with Catalent Pharmaceuticals for businesses located across Asia Pacific, Europe and the US. I joined The Royal Mint as Director of Finance in 2008, and was appointed as Chief Operating Officer in May 2010, and then CEO in January 2011.
How could you not be attracted to a business like The Royal Mint? There was an enormous opportunity to move it into a more commercial space and really have an impact on such an iconic brand.
CN: You launched iSIS at the recent Currency Conference in Athens. Can you briefly describe the technology, and the rationale for its development?
AL: iSIS is based on covert and forensic features that are incorporated into coins during the plating process and provide the same level of security found in banknotes (it is based on exactly the same technology).
We developed it because we believe there is an inherent and unfulfilled need for high security in coins. Additionally, the raw materials for solid coins are becoming more and more expensive, as a result of which there is a growing move to plated coins. But the one drawback to plated coins is reduced security. This is a problem that needs a solution, particularly for higher value coins, so we have provided one with iSIS.
It wasn’t easy – the project took four years – but it overcomes not only the main issue with EMS, which is that you get variations in the signal over time, and also variations between production batches, but increases coin security levels to that of banknotes. ISIS is a simple yes/no technology – it’s either authentic or it’s a counterfeit.
CN: What has been the market response to iSIS, and what are the predictions for take-up of the feature?
AL: The response has been very positive. But it will take time to commercialise and deploy – developments like this are slow-burn, particularly in the coin industry where the redesign and replacement cycle is so slow.
I view iSIS like polymer for banknotes – an initial introduction, followed to begin with by a slow uptake. But, like polymer, it will be a game-changer in that it will help reverse the trend among coin suppliers to race to the bottom.
CN: Intellectual property is seen as vital in the banknote industry, as the driver for companies to innovate and create a competitive edge, leading in turn to more secure banknotes. How important is it in the coin industry?
AL: For us, it’s becoming increasingly important. It’s what separates us from the rest. Some customers will go for the cheapest option, but others will buy the best, and that is what we strive to be.
And there is demand. If the market was completely commoditised, then we wouldn’t have bothered developing iSIS. But it isn’t – the demand is there. And iSIS is just one step along a production development strategy path that we have mapped out for other equally significant innovations.
CN: Moving now to the publication recently of your results for 2012, which showed a marked decline in both sales and profit. You cited the adverse global economic climate and competitive pressures in overseas markets as the main reasons. Were there any other specific factors?
AL: Not really, this was the main challenge as coin demand in the UK was pretty stable. We also had a very good year in 2011 with the majority of our overseas demand for Olympic and Paralympic Games commemorative coins being seen during this year, so comparatives in this sector were always going to be a real challenge.
The positive thing about 2012 is we held our nerve, continued to invest in our R&D plans with regard to iSIS, added new business lines via our bullion expansion and, as a result, exited the year in much stronger fashion and with a more positive outlook on the future.
CN: Two of your principal competitors in the commercial market for export have also reported poor results, so market factors are clearly a major issue. Can you describe in more details some of these factors?
AL: One is that the coin industry is more affected by cyclical demand than banknotes because the product lasts longer. Coins can last 20-30 years, while banknotes last only 6-12 months, so there is a natural replacement cycle there. But it is much easier to simply turn off the tap for coins when times are hard, as they are at the moment, and ride it out with the stock of coins that countries have.
This in turn exacerbates the issue of over-capacity, and all the problems that this leads to. Hence the irrational behaviour that could not be sustained in a normal industry does sometimes come into play in our industry. I suppose there is a perception that state-owned coin producers will always be bailed out by their governments, so over-capacity continues and normal commercial rules don’t always apply.
CN: So if that is the nature of the market, how can you go about mitigating the effects to run a successful business?
AL: One of the obvious ways is to become more efficient in what we do. We know that our labour costs will be higher than many other places in the world and we can’t change that. But if we can’t be the cheapest, which we can’t, we can be the best and there are many steps we can take to achieve this within the business – lean manufacturing, efficient practices, training, deploying capital more effectively, buying appropriate equipment and flexibility with both our workforce and assets.
CN: Efficiencies aside, what else can you do?
AL: Given that the core business is so volatile (with tenders in particular, either you win it all, or you win nothing), then cushioning this volatility by diversifying and developing different revenue streams is an obvious answer.
CN: Such as? After all, you are a mint, and you produce coins and blanks, so there can’t be that many options for diversification.
AL: But there are. One, for example, is offering services. We help forecast and manage deficits and surpluses for the UK Treasury as part of our UK circulating coin business. We also run an Alloy Recovery Programme, particularly for the 5p and 10p coins that are now being taken out of circulation following the introduction of plated versions, and which are melted down in our foundry in Llantrisant, South Wales, for resale or reuse.
Some of the same services are already being provided to central banks and mints around the world. We can help them set up ARPs of their own, or help troubleshoot production issues. Since two thirds of our coins are exported, our overseas customers form a very large part of the business and there are many ways in which we can help them beyond just the supply of coins and/or blanks.
Another, completely different, example of a service we now provide is the vault we have opened where people can store their gold.
CN: So where’s that?
AL: Not telling you.
We are also growing our business in precious metals, as there is a large market for people out there who buy gold and silver for investment purposes.
An example of this is the project to reintroduce the gold sovereigns back into India. It is the largest market for gold in the world, and gold coins are engrained in the national culture, as gifts for weddings and festivals but also as stores of value. There are, however, a lot of fake coins in the country and a lot of demand for the original, and authentic, sovereigns. But we, as creators of the originals back in 1917, could not mint these and supply them to India since gold coins can’t be imported into the country. Instead, we formed a partnership earlier this year with MMTC-PAMP India which has enabled the gold sovereign coins to be struck in India again for the first time in nearly a century. They are being minted by our partners under licence using our tools and techniques, and will be uniquely available to the Indian market.
This is a big departure for us, to see production of our products take place elsewhere in the world. But it demonstrates a creative response to a need that we could not meet from the UK, but which provides us with a new revenue stream as well as helping to build The Royal Mint brand.
CN: We often think that producers and issuers of coins (and banknotes) are missing a trick, in that there is enormous, even iconic, brand value in these products that could itself be exploited. Do you agree?
AL: Yes. And we aim to build on this brand by building a new visitor centre at Llantrisant – not a museum, but an interactive centre that will help the public engage with us and also help educate the next generation. And we aim to make it truly ‘iconic’.
CN: Moving now to the inevitable question of the future of cash (notes and coins), what do you think this future holds?
AL: Cards may come to dominate, but it will take longer than people think. The real questions are, when and how? At the moment, there is a lot of noise about m-payments and e-payments. But these are simply substituting things that are already there – i.e. cards and cheques. And m-payments are simply debit cards in a phone – there is nothing particularly new or innovative about that.
Even now, with all the alternatives, cash still owns 50% of payment space. But even as other forms of payment start making inroads, this won’t mean the death of cash; it will simply have a smaller share of the payments scene (which will itself be larger) than it has at the moment.
CN: Cashless means of transaction have not, thus far, had much relevance for low value payments. But there is much talk now about these alternatives moving into the micro-payment space – whether these be contactless cards, MintChip or others – i.e. your turf. What is your view of this?
AL: Transactional costs for micro-payments can be higher than that cost of the transaction itself, so this is an issue that needs to be solved. Also as some of these systems take off (if they take off), they will attract the attention of the regulators, thereby losing the anonymity which is one of their attractions. The trick with m-payments and e-payments is to remove cash, they need to remove the final transaction, when I buy my newspaper in a train station for example. I think we are still some time off removing these small casual transactions but the day may in the future.
There are technologies out there which we need to keep abreast of – we can’t just stick our heads in the sand and ignore them. You ignore technology at your peril – just look at Kodak and what happened to it when digital cameras came along as an example, particularly when you consider they could have been the innovator in this market too if they had taken some bold decisions.
And I would say just the same if I was in the banknote business.
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More information on The Royal Mint offers the mint’s website.
If you are interested in security features and other topics of circulation currency you should consider attending the 2nd Coin Conference in Berlin later this autumn.