APPENDIX 5
Memorandum from Mr Geoffrey Kitchen
PERSONAL BACKGROUND
My connection with the Royal Mint started in
1967 when, as a member of the Exchequer and Audit Department,
I was posted to the Mint as the resident external auditor. I then
joined the Royal Mint, and was a member of the Finance Department
for a period of three years before moving to the Marketing and
Sales Division which was established in 1971 following Decimalisation.
I resigned from the Civil Service in 1973, and
have spent the time since in the private sector always working
in coins. I worked for Spink and Son Ltd for more than 22 years
where I was Director of Modern Coins, and during that time I was
intimately involved with the creation of many special coins for
a large number of governments. During this period, the Royal Mint
struck many of the coins as a minting contractor, although one
of the very successful collections managed by Spink involved six
national mints as suppliers.
I established my own company in 1999, and continue
to devise, manage and finance special coin issues for a number
of countries without financial risk to the Governments concerned.
THE MINT'S
PRESENT ROLE
The Mint's primary role is to supply United
Kingdom coinage. It enjoys a monopoly, and its customer is also
its shareholder. It also manufactures and distributes UK collector
coins, again enjoying a monopoly position although it does sell
its products to third parties both in the UK and overseas.
The Mint also manufactures coins and blanks
for overseas Central Banks or similar Issuing Authorities and
other mints. It also manufactures and distributes collector coins
for its overseas government customers. In addition, it manufactures
collector coins for companies that act on behalf of some Issuing
Authorities.
THE MINT'S
PERFORMANCE
The only information about the Mint's activities
available to the general public, and therefore the taxpayer, is
to be found in their Annual Report, and the most recent for 1999-2000
again prompts many questions about its most appropriate role,
and its performance. The principal activities merit examination
under the following heading:
— Sales of UK circulating coins.
— Sales of UK collector coins with
a split between the Mint's own retail sales and those to third
parties.
— Sales of overseas circulating coins
and blanks.
— Sales of overseas collector coins
to Issuing Authorities or their agents' ie contract minting.
— Sales of overseas collector coins
with a split between the Mint's retail sales and those to third
parties.
Accepting that the division of some overheads
is necessarily arbitrary, gross profit contributions for each
of the above should be identified, including separation, where
for example the Mint acts as a wholesale supplier of UK and Overseas
collector issues.
The Mint pays royalties on the sale of UK collector
coins including those coins distributed through the UK Banks and
other similar outlets, but the annual accounts do not record the
amount paid to the Treasury. It also pays royalties, where it
sells overseas collector coins as principal for Central Banks;
again all sales are shown net of such payments.
The Annual Reports of the last several years
reveal that the Mint has substantially increased the size of its
mailing list, but the accounts do not identify the marketing expenditure.
Coupled with the absence of details of its retail sales, and the
attendant staff overheads associated with a sizeable customer
service and fulfilment staff, it is not possible to see whether
the taxpayer would be better served if coins were sold to third
parties who would take on these risks. This may be particularly
so for the overseas collector coins.
As mentioned above, it is impossible to see
the true profitability of the various areas of activity but in
those years when there were significant issues of UK circulating
coins, UK sales were automatically higher and often produced higher
profits.
Figures for production, and issues are not always
shown in the Annual Reports and there appear to have been instances
in the past when substantial quantities of coins were held in
stock at the end of the appropriate period, and sales made later.
The Mint has had a relationship with the Mint
Birmingham Ltd for many years, particularly in the export market.
MBL acts as a sub-contractor but the volume and value of the business
placed there cannot be identified. It has to be assumed that the
sub-contractor quotes lower manufacturing prices than the Royal
Mint otherwise no business would be possible.
The Reports record the Mint's performance against
Key Ministerial Targets. Two of these deal only with the outturn
to individual UK collectors, and there is no reference to sales
to Central Bank, and other trade customers. It is likely that
these represent by value, after setting aside UK circulation coin,
the bulk of the Mint's sales.
The sales figure for Overseas for 1999-2000
is the lowest for more than 12 years. The strength of sterling
has probably played a part, but the mix of sales particularly
where there have been substantial quantities of blanks, with relatively
little added value, must also have had an effect. It is also a
fact that many other mints, both private and National are quoting
keener prices.
Staff levels are now at the highest level, and
the costs increased from the year 1998-99 by almost 15 per cent.
A reduction in the level of absenteeism was also reported but
there was a fall in the level of production.
On a personal business level, my need is to
supply collector coins at competitive prices to trade customers
in various markets, including the United Kingdom. Prices quoted
by the Royal Mint for contract minting are now far too high and
I am able to source coins of an acceptable quality for the marketplace
at prices that are markedly lower than those quoted by the Royal
Mint. In addition, there is also a very major difference in the
costs for the master tools. The lead times are also much shorter.
It is a matter of some regret that, from the
middle of last year, I have placed manufacturing orders overseas
rather than with the Royal Mint.
The key question, or problem, for the Mint is
the need to change its work practices and improve its productivity,
leading to better prices and margins, quality, and delivery.
24 January 2001
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