WHEN Vin Wijeratne was appointed to head the finances of the Royal Mint not only did he get every accountant’s dream gig as the man responsible for managing the UK’s money supply, he was also told the mint is in the business of making money, not in the business of chasing ” huge profits”.
His mandate was to “pass the baton on” and leave the business in a better shape than he found it, something he initially thought would be “a doddle”. But as the director of finance of a 1,100 year organisation that can trace its existence back through the history of Britain – through its wars and political upheavals, its social and economic progress, its technological and scientific advances – the role of finance as steward of the business was brought into stark relief.
“The longer I have stayed the more immense the weight of what they said has become,” he candidly tells Financial Director.
When appointed he was told they were “looking for an accountant who knew the manufacturing world”. As an FD who started his career at the NHS and spent 12 years at Orange, he didn’t at first appear to fit the bill. Wijeratne says they “took a risk” when they appointed him but, importantly, he had the relevant commercial skillset for the Mint’s future development.
“I come from a very commercial background,” Wijeratne says. At Orange he worked in its international division and UK business where he was the commercial finance director and then director of strategic planning, where he oversaw a division which accounted for £3bn in revenue.
Predominantly known for its UK circulation coin business, it is also the largest export mint in the world, has a commemorative coin business and is expanding its commercial offering through new ventures including new bullion-coin service for investors and the planned opening of an £8m visitor centre at its home in Llantrisant, South Wales in Spring 2016.
“We have become a lot more savvy about our intellectual property. We have got an amazing asset,” he says.
Execute to plan
Although not driven by the same commercial pressures as a listed business with the demands of investor returns and quarterly reporting, Wijeratne still has a number of financial KPIs to adhere to.
HM Treasury owns 100% of the mint’s shares and the coin maker has a ministerial target of a 10% return on average capital employed (ROACE). In the last financial year it delivered an operating profit of £11.4m, compared to £6.7m the previous year, and exceeded its ministerial target by delivering a 17% ROACE.
Demand in the overseas circulating coin market continued to grow after having already rebounded from “the disappointingly low levels” seen two years ago. And, according to Wijeratne, calling the market is an important role of finance given fluctuations in commodity and metal prices and exchange rates. Copper, nickel and zinc are all commodities traded on the London Metal Exchange and where possible, selling prices are determined on the basis of the market prices of metals at the date a contract or order is accepted.
“It a highly competitive market,” explains Wijeratne and adds that, during the economic crisis, a lot of countries postponed making a decision on whether to buy and produce more coinage. “Our strategy was to hold the principle in terms of manufacturing what the client wanted at a fair price.”
The difficulty for the mint was the pricing of contracts available on the market at that time. According to Wijeratne, there was some “questionable pricing” in the market.
“We need to make a margin, we are not a subsidised business,” he explains. “Many mints are government backed. We have to make a headline return.”
Nevertheless, the mint doesn’t “play markets” and takes out various commodity and currency hedging products for defensive purposes. “We try to denominate in sterling,” he explains. “However should this not be possible on significant contracts we take out hedges on euros and dollars to insulate against currency and commodity fluctuations. We don’t call market. We execute to plan.”
As Wijeratne explains, at the end of the day the Royal Mint is a manufacturer, it’s product just happens to be a currency. And one of the big investments for the business has been the development of its production process. Not just in terms of efficiency, but also in terms of returning money to the taxpayer.
UK coin issues reached a level not seen in 15 years with almost two billion coins issued, which itself was driven by the alloy recovery programme announced in the 2012 Autumn Statement which returned £15.7m to the Treasury and ultimately the UK tax payer.
As raw material costs increase, more and more countries are choosing plated coins and blanks which offer significant advantages over homogeneous products. Through aRMour, its plating process for coins and coin blanks, the Royal Mint can do the job for a fraction of the cost because of the materials.
“If people move to our aRMour plated products from their current homogeneous coins we have the ability to reclaim metal alloys and pay the customer a considerable amount for that alloy. It’s the difference between the market price of the alloy less our cost for making it happen. It could prove better value for money for the customer as a plated product typically costs less and they would be able to recognise the differential between face value and product as an asset,” he says.
A great focal point
Capital expenditure was £3.1m in the last financial year with the majority spent upgrading existing plants and developing one business system to replace current IT systems. “We had a lot of spreadsheets,” remembers Wijeratne in a refrain common to many finance directors. He says there were 20 legacy systems, which had to be moved to a single enterprise resource planning system, which goes live next year.
Wijeratne wants the world’s oldest mint to be recognised as the world’s best one. That meant finance had to “challenge ourselves internally”.
“It has been a great focal point internally. We spend less time being transaction focused, and instead we are able to better support the business through business partnering,” he says.
But how is ERP used within the Royal Mint? Wijeratne explains.”We want to understand where we are in the production process. Things go from step to step and if it isn’t performing as planned, we can fix problem at root cause.”
This is important because there is a degree of immediacy needed in terms of performance, Wijeratne says. “Five years ago it took nine weeks to put a circulation coin in hand. Now it takes nine days,” he says.
Speed is of the essence too in relation to the issuance of a new 12-sided £1 coin. After 34 years of loyal service the current coin is being replaced with the “most secure product in the marketplace” that is “reassuringly difficult” to counterfeit. Over the past few years, around two million counterfeit £1 coins have been removed from circulation each year and the Treasury hopes the new secure coins will reduce costs to businesses and taxpayers.
But to do the volume of production necessary, Wijeratne says he has to be “very mindful” of the capacity it will take out of the Mint’s ability to serve overseas markets. “As the world’s largest exporting mint we must deliver operational excellence in all we do to maintain our market share, especially over the next two years” he cautions.
It is only natural that Royal Mint director of finance Vin Wijeratne talks up health and safety; it is an ever-present issue for the boardrooms of manufacturers. But for Wijeratne this became a literal boardroom issue when a blaze broke out its base in Llantrisant, South Wales.
The building was evacuated after seven fire crews were called when the fire broke out in May, but not before a management meeting had been swamped by evacuees. “Our boardroom is one of the assembly point and we were having an executive meeting at time,” he remembers.
Regardless of that minor interruption, it was a case of keep calm and carry on for the finance team. “As a finance department we have business continuity plans, people can work remotely and we back up data daily,” explains Wijeratne. Post fire the finance teams job was predominantly to focus on getting the loss adjusters and insurers in.
IN BLACK & WHITE
November 2010 – present Finance director, The Royal Mint
September 2010 – November 2010 Director, Chief of Staff Office, Everything Everywhere
June 2009 – August 2010 Director of strategic planning, Orange UK
January 2005 – June 2009 Finance director, Orange