Examination of Witnesses (Questions 20
TUESDAY 13 FEBRUARY 2001
20. As a proportion of turnover that is 0.4
per cent and in earlier years you were making around 10 per cent
(Mr Holmes) Yes. I think I have gone over the reasons
for that and the need for us to go through this painful period
of change. Our objective is to minimise the period during which
that impacts on our profit and loss account. Without it we felt
that the Mint would not have a good long-term future.
21. What puzzles me is that you have blamed
the competition but every business in Britain has competition
and most have overseas competition. However, unlike other businesses,
you enjoy a monopoly position in relation to the UK currency and
you have a monopoly position in relation to the UK collector coins
business, yet you are still losing money.
(Mr Holmes) I do not believe that the monopoly, as
you describe it, is a licence to print moneyan accidental
pun for which I apologise. As far as the UK circulating coins
business is concerned, that is sold to the Treasury on a five-year
contract and the price set by the Treasury is by no means a high
monopoly-type price because the Treasury is a monopoly customer
just as we are a monopoly supplier. In relation to the collector
coins business, yes, we have the sole right to produce and to
issue UK coins for collectors, but we are in a commercial market
there. Like any other gift or collectable product, we can charge
only as much as the customer is willing to pay. That is very much
a discretionary purchase as people do not need collector coins.
They have to be persuaded that they want them because they are
good value for money.
22. I see that, but can you think of any other
monopolies that lose money?
(Mr Holmes) I would not like to comment on that, although
I probably can, yes. As I said, "monopoly" is not perhaps
a complete description of the situation that we hold on UK coins.
23. On the overseas market which you referred
to as being more and more difficult, your overseas sales are the
lowest that they have been for 12 years. Is that right?
(Mr Holmes) I am sure that is right, yes.
24. How will you be a successful business if
you keep losing market share overseas?
(Mr Holmes) In the early to mid-1990s, and indeed
before that, we had a high world market share position. At one
time we were enjoying something like 50 per cent of the available
world coin market. When a lot of new people come in, as has been
the case with mints starting to compete overseas that were previously
satisfied with producing only their national coinage, you are
bound to lose some market share and prices are bound to come down,
as they do. We have to make the best of it. We cannot go back
to where we were. There is definitely more competition in the
market. I would also add that there are more overseas central
banks and monetary authorities that are going out to tender and
awarding the business purely on price. These days perhaps there
is less emphasis on reputation, quality and reliability in many
overseas markets. It is a tough market in which to compete. We
have to live with it. It is a fact of life. It means that the
margins that maybe were there in the past will never be there
in the future. It is a tough market in which to make a profit
and we can do so only by carrying on the process of generating
25. You are not living with it, are you? You
are losing market share, at least losing on volume of sales.
(Mr Holmes) The market in terms of overseas coins
as opposed to blanks, has been pretty static over the past two
years. Yes, we have lost market share because additional competitors
have come in. In order to compete in the future, our objective
is to improve our internal performance and to make sure that we
have the right level of efficiency to do the best that we can.
26. You said that, as a result of the large
investment that you had undertaken, productivity had gone up and
yet when we look at the figures over the past three years, the
number of employees has gone up by 13 per cent and sales have
gone down by 20 per cent. That does not seem to me to be an increase
(Mr Holmes) The sales figures are influenced by the
metal content. One should really look at the units produced. As
you will have seen from visiting the factory, there is an increasing
tendency towards plated-steel products as opposed to non-ferrous
metal. Therefore, the metal content in sales is falling and sales
values will tend to decline or not grow in line with the number
of units being produced. My reference to productivity related
to our performance in the current financial year, which was what
Mr Fallon asked me about, and we have generated an improvement
of over 15 per cent in our productivity in the current financial
year versus the previous year, based on a measurement of the unit
cost that we use in our productivity measurement.
27. The figures that I have for between 1998/99
and 1999/2000, which I suspect must be the latest figures, show
that employment has gone up from 1,084 to 1,160 and yet you have
had new machinery installed that was meant to raise productivity.
That does not square up.
(Mr Holmes) As I mentioned earlier, we have made changes
to our shift patterns and the number of crews that we need to
man the 168 hours of the week. We have moved from four crews to
five crews and, all other things being equal, that has meant that
in the blanks production areas that have the continuous process,
the numbers of people would increase by 25 per cent. However,
we moderated that by trying to reduce the manning levels per shift,
where possible, and we have an offsetting saving by reducing the
amount of overtime worked. Actual employee numbers rose mainly
due to that. Recently, the number of units that we are producing
has been running at 100 million coins and blanks per week. That
is well above the levels at which we were running before the investment
when it was more like 70 million a week.
28. You put down the loss of value entirely
to the change in the metal content, but you have increased the
number of coins?
(Mr Holmes) Yes, there has been a big increase in
the number of units.
29. The more you produce the less profitable
(Mr Holmes) There are two factors. One is the metal
content, which affects the sales value and not the profitability
and the other is the competitive effect on the overseas price
levels which means that we get less per coin or blank on average.
30. How long do you see the process of producing
more with more elaborate machinery with less money coming in going
(Mr Holmes) Essentially, our investment programme
has been completed. We never stop investing, of course. There
are still projects that are going on. At the peak of our investment
programme in 1998/99 we spent over £12.5 million, but in
the current financial year, 2000/01, the number will probably
be between £3 million and £4 million. We have passed
the peak of our investment programme and we are now concentrating
on making the equipment work in the most efficient way that we
31. The way in which it is working is that there
is less and less money coming in.
(Mr Holmes) That is the marketplace. Our strategy
is to try to focus our efforts on more profitable customers, to
improve our efficiency and, in terms of our product strategy,
to try to focus on higher valued-added products. We are developing
new types of products that will perhaps be of particular interest
to countries looking for higher denomination coins and so we hope
to preserve or to create new market niches where we have a more
32. Mr Holmes, how difficult is it for you to
negotiate your five-year contract with the Treasury for the UK
coinage when the Treasury is also your owner?
(Mr Holmes) These negotiations are lively, but since
the Government reviewed the Mint in 1998/99, the Treasury has
split its customer role and its shareholder role. The Debt and
Reserves Management Team of the Treasury look after the customer
role, whereas the Public Enterprise Partnership Team look after
the shareholder role. They try to conduct the negotiations more
at arm's length. Clearly, there are cross-overs and Treasury officials
naturally talk to each other, as one would expect.
33. How much influence do you feel that you
have in the negotiations if the two parts of the Treasury do a
(Mr Holmes) In the end we have to take whatever the
Minister ultimately decides. The Economic Secretary is responsible
at the end for reconciling the various interests that may be involved
in the negotiations of that type and the Minister's decision is
34. In the end it is imposed upon you?
(Mr Holmes) The Minister imposes her decision on all
the parties involved.
35. Did I read the memorandum correctly, that
in the 1995 contract you felt that you had had a bad deal?
(Mr Holmes) In that particular deal the Treasury reduced
the price levels effectively by a one-off amount of £3 million
per annum. There was a rationale for that. They said that because
of the success of our overseas business, that they should take
a lower proportion of our fixed costs on to the UK. It was a one-off
price reduction that went straight through to our bottom line.
Effectively, it was the Treasury saying that it would take that
as the lower cost of coinage rather than as a dividend.
36. The latest contract was negotiated last
(Mr Holmes) Yes, that is right.
37. When will that first show in your annual
returns, this financial year or the next one?
(Mr Holmes) It will first be shown in the current
financial year when we publish our results in July.
38. Do you expect that to contribute to a better
(Mr Holmes) The pricing structure has been slightly
improved. To be honest, it depends quite significantly on volume.
The prices depend on the volume issued, to an extent, and there
is a continuing efficiency factor in the contract. The Treasury
does not pay anything like cost plus. There are fixed prices for
coin denomination and each year the price falls by a certain amount
to give us an incentive to improve efficiency. If we aim to improve
efficiency by more than that we keep the balance in our pocket.
39. How is the volume looking since the last
contract was agreed?
(Mr Holmes) The volume of UK issues this year has
been more or less the same as the previous yearabout 2,000
million coins. We are not complaining about how that has turned
out from our point of view. Essentially the average price of the
contract goes down the higher the volume, as you would expect,
because they would argue that we are benefiting from longer production