Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-39)



  Q20  Mr Gauke: You mention in the annual report that there was a wide-ranging business review undertaken. What were the findings of this review and what has been done as a consequence?

  Mr Barrass: We have given it an umbrella heading of the business improvement programme and there are really three legs to it. One is a brand strategy review, which you can think of as an extension of our marketing strategy, what we want the Mint to look like, take an appraisal of what our customers think of us and how we can build on that and reinforce it. The second leg is how we manage ourselves internally, how we set accountabilities and responsibilities and internal reporting. We have made a lot of progress in the last six or eight months in pushing responsibilities and authorities down through the middle management to the junior management, so the guys actually take personal ownership and pretty much across the board they are quite excited about that and have really grasped the nettle with both hands. The third one, which is chronologically the most recent leg that we have put in place, is what we have termed the better working programme, which we announced on August 1, where we are looking at every process, every facet of the business really from top to bottom—and I mean from top to bottom; right up to board level—and examining why we carry out business that way rather than some other way, whether we need to carry out that facet of business at all. We think that is a 40-50 week programme. We are around about week 12 or 13 now, and last week I made an announcement, which I hope you have copies of, which said that we expect as a result of that programme to reduce our permanent headcount by somewhere between 60 and 99 people. That is our permanent headcount. You are probably aware that we carry quite a high level of casual workers as well. To date as part of that programme we have not renewed, ie we have released 46 casual employees so far, with very little pain, simply by changing some of the working practices that we have. So those productivity actions are absolutely coming through now as we speak.

  Q21  Mr Gauke: Can I turn to the subject of hedging for various risks involved in your business. Clearly, metal price is very important, as indeed is foreign exchange. The Mint's performance hedging against metal price risk is not declared in the same way as in respect of foreign currency risk as I understand it. Are there any particular reasons why that is the case?

  Mr Barrass: No. I am quite happy to share with you the process we have there. When we get an overseas order, we will have a finite window with deliveries in, so we know how much metal we need for that period. We will then hedge that on the LME market and, because that typically is based in dollars, we will also hedge currency at the same time, so we have effectively eliminated the risk on that. With regard to the UK currency on behalf of the Treasury we will hedge, again, both metal and currency for a quarter in advance so that we are at least insulated from metal price increases during that quarter, and we do that on behalf of the Treasury.

  Q22  Mr Gauke: Do you do any benchmarking as far as your hedging performance is concerned with competitors or other metal consumers, and if so, how does your performance compare?

  Mr Barrass: No, we do not. What we try to do is take the speculation out of the process, so that if we have an overseas customer, for instance, comes along and says, "I am looking at this sort of quantity of product in this window," the way that the industry prices its product is to pass the price of metal through to the customer and to negotiate the value-added on top. Clearly, at that early stage in negotiations, you cannot lock in either the metal price or the currency price but as soon as you get to the point where you are putting ink to paper, that is the time where you eliminate all of the risk as far as you can with the hedging. The price that you quote the customer is the price that you know you are going to be buying the metal at in sterling and therefore we can concentrate on what we really do, which is manufacturing coins. One of the things that we will not do is take risks on the market. We are not in the currency speculation game. We only take the currency and metal hedging for known orders that we have plus the UK forward quarterly demand.

  Q23  Mr Newmark: In 2002-03 the Mint reduced its work force by 20% yet we heard on 25 October that the Financial Secretary wrote to this Committee notifying us that there is a further reduction due in headcount. I am curious as to why three years on you are still restructuring.

  Mr Barrass: We have to hold our hands up here and say the first restructuring, although it did have an immediate impact, if you look at the financial results for that year, you can see why that action was taken: even without the £12 million that was provided in that year, we would have lost £6.5 million notwithstanding. There was an immediate headcount reduction, there was an immediate benefit to the P&L on that but over time, as we have failed to put some of our initiatives in place properly, some of that headcount has become backfilled by casual heads, which we are now in the process of removing, and now we have identified further opportunities to dig deeper into the full time work force.

  Q24  Mr Newmark: I thought part of the process of change was to shift from full time to having a more flexible work force, but you are saying even with that flexibility there, you have had to get rid of some . . .

  Mr Barrass: No. In fact, what we are holding our hands up there on is that we were unable to secure that flexible work time agreement with our work force, which was very disappointing for us and a great surprise for the unions involved, because the management and unions at that time were standing pretty much shoulder to shoulder in saying "This is a great deal", and somehow—and it is fairly inexplicable—the work force decided they did not want that deal. So we were not able to put that in place.

  Q25  Mr Newmark: How close are you to achieving a stable structure then?

  Mr Barrass: This 40-50 week programme that we instigated on 1 August, I think we will have most of the headcount reductions in place by probably January, February, March next year and that will be the stable structure which we will be taking the business forward.

  Q26  Mr Newmark: So you are confident that from 2007 you will be in a fairly stable structure?

  Mr Barrass: Yes, I am.

  Q27  Mr Newmark: In 2004 the Chancellor announced that the Government intended to transform the Royal Mint from a trading fund into a government-owned company. The Mint's 2004-05 annual report stated that incorporation was expected to be completed by the end of 2005 but your latest annual report states that the vesting process is now on hold "pending the appointment of a permanent chief executive and the completion of the strategic review". Why has it been necessary to put the vesting process on hold?

  Mr Barrass: The vesting process will take the Royal Mint from a trading fund status to a wholly owned government limited company status and, as any of us who are directors of limited companies or PLCs will know, to exist they have to be going concerns, they have to be financially viable and to have a financially viable future. Clearly, coming off the back of two years' losses and quite a lot of cash consumption, it would have been crazy to vest at that time until we have got the business on a sustainable, profitable basis, and so that is the first thing we need to put in place. I guess that is pretty much my job, and that is what the business improvement programme is there to do, and we are confident that will happen. We then have a very strong point of view that the team that should lead the vesting should be the same executive team who are actually going to live with vesting post the event, so I think it would be wrong for me and two of my executive directors, as interims, to take us through that vesting process and then effectively let someone else inherit the position that we had developed for them. So the process as we see it now is to get the business on a firm, stable, sustainable financial footing, so it is generating cash and is a genuine going concern and, in parallel with that, to recruit a new chief executive, and that individual should be the one that leads through what remains of the vesting process.

  Q28  Mr Newmark: What benefits would flow from the Mint operating as a government-owned company rather than a trading fund?

  Mr Barrass: You come back to the unique nature of it. As chief executive, I really have to wear two hats down in south Wales. On the one hand, I have to recognise that I am the head of a government department and everything that goes with that, all the scrutiny, all the decision-making, the whole governance that goes along with a government department. I willingly wear that hat. On the other hand, I wear a hat that says that I am in an aggressive commercial environment, I am a manufacturer of things for third parties, I have a sales organisation, a marketing organisation, and I need to be able to make very quick, very dynamic decisions, and sometimes you can get a conflict between the two. What vesting would give us as a limited company is, without adding in the way of risk, because we would have a different governance structure there, where we would have a fully accountable board as a limited company does have, but that should make the whole decision-making process very different.

  Q29  Mr Newmark: When you say different, does that mean you are going to become more competitive?

  Mr Barrass: I think so. It will allow us to react much more quickly to market forces, it will allow us to take much quicker commercial decisions, it will also enable us—and we do not have any of these in embryonic form today—to get into a commercial relationship with third parties, with commercial ventures, which is a little bit tricky for us at the moment because I then have to put my government department hat back on and say "Well, actually, I cannot get into a joint venture with ABC Ltd because it is inappropriate for a government department to do that." It would not necessarily be inappropriate for a limited company, albeit wholly owned by the government, to get involved in that sort of process.

  Q30  Mr Newmark: Assuming you have talked to some of your customers about this change, I am curious as to what the reaction is, particularly of your overseas government customers, to a potentially private sector Royal Mint?

  Mr Barrass: The overseas customers, especially on the circulating side, that I have seen, because they are the ones that I think you would have the biggest concern about, their concerns were totally allayed by the fact that we would be 100% government-owned, and really, this is the way we have explained it to them, that it is simply a governance issue; it does not change anything in terms of the protection of the heritage, connection with royalty, connection with government and our status in the UK. Clearly, there is a different legal status but that is all.

  Q31  Mr Mudie: Can I touch on the Western Mail article in October, which suggested that you were asking the Treasury for £10 million in severance pay? A Royal Mint spokesman said this document "was an early draft and bears little resemblance to our current better working programme." In what way? Have you asked the Treasury for £10 million?

  Mr Barrass: No, we have not.

  Q32  Mr Mudie: Are you going to ask for any money?

  Mr Barrass: We will certainly be asking for money. If I can cope with the article first, the article was taken from an internal draft document within the Mint where we were scoping where the ceiling might be, and at that stage we had no indication as to what the headcount movement might be at all and so we went back to the 2002 numbers and said if the 2002 numbers were any sort of guideline, and our gut feel as managers was that that was very much the most it could ever be, that really was a ceiling we would never get to, then something like £10 million might be the right sort of number as a scope number. Since then, as we have worked through the details, we have got to a more refined number. As I say, we think it is between 60 and 99, not as tight as I would like it but, because of the way we are driving towards that number, it has to be fairly vague at this time. We have had some discussions with the Treasury as to how much money that is likely to cost and we have a funding ceiling that would allow us to make those redundancies as they are identified over the remaining 30-40 weeks of the programme. The programme is a 40-50 week programme and we are approximately 12 weeks into the programme.

  Q33  Mr Mudie: Fifty weeks, so that's just over the year's programme.

  Mr Barrass: No, the whole programme will be 40-50 weeks. That is a year's programme. That is right.

  Q34  Mr Mudie: Those figures are not much out with Peter Allred's figures. The unions worked out that there would be 200 job losses over the period, including 100 during this financial year. You are well on your way to that are you not? When you mention 60-99, is that a target you are aiming for in terms of permanent employees?

  Mr Barrass: That is our total expectation on this programme. The 200 is not our number, the 200 was never our number, and I think I should clear up that 200 was never the union's number either. The way that we have approached this from August 1 is to work hand in glove with the unions. We have three unions that represent our employees at the Mint. On the very day I announced the programme we set up a consultation group which includes regional representatives of the unions. We have been working with them all the way through and they never had a number of 200 in mind either. This is pure speculation by the media, I am afraid.

  Q35  Mr Mudie: It is jut a calculation based on the amount of money you asked for.

  Mr Barrass: We did not ask for the £10 million.

  Q36  Mr Mudie: It was scoped, was it not?

  Mr Barrass: It is a number you can see is very slightly scaled down from the previous . . .

  Q37  Mr Mudie: Sixty to 90 permanent people, and you mentioned a figure of 46 casual. Did I hear you correctly that 46 have gone so far?

  Mr Barrass: Yes.

  Q38  Mr Mudie: What is your target for reductions in the casual force? You have got 170 on the production side, have you not?

  Mr Barrass: Not at the moment. We are down to something like 110-112.

  Q39  Mr Mudie: You have taken 46 off, have you not?

  Mr Barrass: Not only that but the way we will continue to use casuals at the end of this programme is to use the casual work force to hit our volume peaks. We always need some level of casuals at the Mint.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 7 February 2007