[The following is an excerpt from the Reserve Bank of Australia's 2009 Annual report.]

Note Printing Australia

Note Printing Australia is a wholly owned subsidiary of the Reserve Bank, located in Victoria, which produces Australian banknotes and operates the National Note Processing and Distribution Centre under contract to the Bank. NPA also produces Australian passports for the Department of Foreign Affairs and Trade, banknotes for a small number of other countries in the Asia-Pacific region and banknote security products for a number of overseas banknote producers.

NPA operates with a charter from the Reserve Bank, under which its primary focus is to produce Australian banknotes efficiently and to a high level of quality. NPA’s operations are overseen by a board of directors appointed by the Bank. The board at present comprises four Reserve Bank executives: Bob Rankin, Assistant Governor (Currency) as Chairman; Keith Hall, Assistant Governor (Banking and Payments); Darryl Ross, Chief Financial Officer; and Lindsay Boulton, Head of Risk Management. During the year, Les Austin and Richard Warburton AO retired from the Board. The company’s chief executive is Bernhard Imbach, who has occupied the position since early 2008.

In support of the company’s focus on quality and efficiency, a major investment program is under way. When completed in early 2010, this program will have ensured that key equipment and systems at NPA represent the best current practices in the banknote industry.

In 2008/09, NPA produced 403 million banknotes, comprising 275 million for Australia and 128 million for other countries, including Brunei, Malaysia and Papua New Guinea. NPA also produced 2.1 million passports during the year. Most passports produced this year were of the new series, launched by the Department of Foreign Affairs and Trade in May 2009.

NPA earned a profit after tax of $6.1 million in 2008/09, broadly in line with the previous year. The financial accounts for NPA are consolidated with those of the Reserve Bank.

Securency

Securency is a joint venture between the Reserve Bank and Innovia Films, a major manufacturer of polypropylene films based in the United Kingdom. Securency produces high-security substrate for banknotes and other security documents by applying proprietary coatings and features to specialised films manufactured by Innovia. The principal product of the company is Guardian®, the substrate for use in banknote printing.

Securency has a board comprising eight voting directors, four appointed by each of the Reserve Bank and Innovia, with the Managing Director, Myles Curtis, as a non-voting director. The directors appointed by the Bank are Bob Rankin (Chairman), John Akehurst (a member of the Reserve Bank Board), Les Austin and Darryl Ross. Securency’s headquarters are in Victoria.

Securency produces Guardian® substrate at plants in Victoria and in Queretaro, Mexico. The latter is owned by Securency Mexico, S.A. DE C.V., a joint venture between Securency and Banco de Mexico, the Mexican central bank. The Mexican plant commenced operations in December 2008, and provides capacity to supply the growing demand for Guardian® in Latin America as well as contingent support for the plant in Victoria.

During 2008/09, Securency produced Guardian® substrate for banknotes in the following countries: Australia, Brunei, Chile, Guatemala, Honduras, Hong Kong, Malaysia, Mexico, Nigeria, Papua New Guinea, Romania, Singapore and Vietnam. Several countries, including Chile, Guatemala, Honduras and Nigeria, have issued Guardian®-based banknotes for the first time or announced conversion of additional denominations to Guardian® during the year.

Securency has a strong commitment to research and development, ensuring that the company can continue to offer innovative and effective solutions to demands for security features in banknote substrate. In keeping with this commitment, the company has invested in a new centre for research and development (located in Victoria adjacent to the production plant) to accommodate the research staff and facilities. The new centre also provides a platform for future collaborative work with third parties to enhance research into banknote security in the future. The centre was opened in July 2009.

Securency earned a profit after tax of $7.9 million in 2008 on sales of $120 million, most of which were for export. The Reserve Bank equity accounts for its investment in Securency.

Late in the financial year, a series of media articles appeared in a Melbourne newspaper, The Age, alleging impropriety related to Securency’s international sales and marketing activities, in particular its use of agents as its representatives in developing countries.

The Board of Securency has measures in place designed to ensure the maintenance of high standards of integrity in the company’s operations and has ensured that the company has strict and unambiguous protocols in place governing the use of agents. The effectiveness of the company’s implementation of these measures has been regularly audited and these audits have found no evidence of non-compliance. The allegations were therefore treated very seriously, and when they were first raised the Board of Securency promptly requested an independent investigation by the AFP. This investigation began immediately and the Board has ensured that all possible assistance has been given to the AFP.

The Board of Securency also engaged an external accounting practice to undertake a thorough independent review of the company’s policies and practices in relation to the use of agents, to ensure that they remain at best practice. At the AFP’s request, Securency delayed the start of this review until the AFP had completed its initial assessment of the allegations. The review, which is now in progress, is expected to take several months to complete.

The Board of Securency has kept the Reserve Bank and its other shareholder informed of its actions and decisions. The measures it has taken have the full support of the Reserve Bank and the other shareholder.