House of COMMONS
MINUTES OF EVIDENCE
Wednesday 10 October 2007
MR DAVID BARRASS and MR ANDREW STAFFORD
USE OF THE TRANSCRIPT
Taken before the Treasury Committee
on Wednesday 10 October 2007
Mr Michael Fallon, in the Chair
Mr Graham Brady
Mr Philip Dunne
Ms Sally Keeble
Mr George Mudie
Mr Mark Todd
Memorandum submitted by Royal Mint
Examination of Witnesses
Witnesses: Mr David Barrass, Deputy Master and Chief Executive (until 15 October), and Mr Andrew Stafford, Deputy Master and Chief Executive (from 15 October), Royal Mint, gave evidence.
Q1 Chairman: Mr Stafford, can I welcome you to the Sub-Committee. Can you introduce yourself and your colleague formally, please?
Mr Stafford: Yes, I am Andrew Stafford. I am the new Chief Executive of the Royal Mint, taking up my appointment with effect from next Monday, and David Barrass is the interim Chief Executive, still holding the post until I take over on Monday.
Q2 Chairman: I need to ask you what I asked the new Chief Executive of the OGC. Mr Barrass has been Interim Chief Executive for nearly two years now, I think. Why has it taken two years for you to arrive, Mr Stafford?
Mr Stafford: I think it is fair to say that the process has been a rigorous process. I was only originally approached about taking up the appointment three months ago, so I cannot comment on what went on in the process prior to that time, obviously. David has obviously been running the business very successfully on an interim basis and I accepted the appointment less than two months ago and take it up with effect from 15 October.
Q3 Chairman: Your recent experiences seem to involve managing quite a lot of businesses which were then sold to other companies. Should we read anything into that about the future of the Royal Mint?
Mr Stafford: I do not think it has any bearing on Royal Mint. What I would say is clearly any business I have run I have run for the best interests of the stakeholders concerned and in both private equity and plc environments I have been able to realise the excellent finance performance on behalf of the stakeholders. My role in coming to the Royal Mint is, obviously, to do a similar job on behalf of the Government.
Q4 Chairman: You have not been put in to sell it off?
Mr Stafford: Absolutely not.
Q5 Chairman: What do you see as your priorities from Monday?
Mr Stafford: Starting on Monday, my priorities will be to build on the outstanding performance that David has achieved in the last 12 months in improving the profitability of the business through changing working practices, building the business through its the domestic and international markets and improving the overall operating performance of the business, and my task is to build on the successful platform that David has built.
Q6 Chairman: As you are still the Chief Executive would you like to add to that?
Mr Barrass: I am. No, I wish Andrew the best of luck as of Monday. It is nice of him to recognise that he has a very strong platform, which I think he has. I think we have an organisation that is absolutely fit for purpose now.
Q7 Chairman: We understand that. Mr Barrass, I have to ask you about your own remuneration which, according to the annual report, appears to have been organised through a service provider. Is that right?
Mr Barrass: That is correct.
Q8 Chairman: What does that mean and what proportion of the remuneration that is listed here goes to the service provider?
Mr Barrass: What you have in the annual report is not actually remuneration, it is my total costs. That is the costs of all my expenses, basically, and the fee that is paid to an agency that provides my services to the Royal Mint.
Q9 Chairman: That is the bit I am trying to get to. It seems that, with respect to both you and the interim finance director, your remuneration was paid to a service provider?
Mr Barrass: That is correct.
Q10 Chairman: Why was that?
Mr Barrass: It is normal with interim managers, which is what the finance director and I both are, professional interim managers, to be approached for assignments through a third-party agency, and that agency then, in my case, handles the billing directly with the customer, in this case the Royal Mint, and then has a separate back-to-back agreement with myself.
Q11 Chairman: This is public money. What proportion of this remuneration ends up with a service provider rather than you?
Mr Barrass: I do not have the exact billing as regards the service provider, but I can find that out for you.
Q12 Chairman: Is it 10% or 20%?
Mr Barrass: Of the total amount.
Q13 Chairman: Yes?
Mr Barrass: Something in the region of 25%.
Q14 Chairman: Twenty-five per cent goes to the service provider?
Mr Barrass: Yes.
Q15 Chairman: These contracts with the service provider - I understand it was interim - are they profit-based? Was it dependent on you getting the Royal Mint back into profit?
Mr Barrass: Absolutely not, it is on a day by day basis. If you remember, last year I did describe myself as here today and gone tomorrow, and it was literally on that sort of basis. So I am charged on a daily basis. The meter runs, for example, five days a week.
Q16 Chairman: It does not seem a very efficient way of doing it, but that is because they could not find a new chief executive?
Mr Barrass: It was not just that they could not find a new chief executive, I think they were looking for specific characteristics to make an event happen at the Royal Mint in a fairly tight window and in private industry, and now, I think, we can demonstrate a good case study in the public industry, an effective way of doing that, is to bring a well-targeted interim manager in for a specific period, not on a results basis but with a clear objective in mind as to what that interim manager has to achieve during his time in post.
Q17 Chairman: But it all took a bit longer than you expected?
Mr Barrass: Very much so. My original contract was for five to seven months.
Q18 Mr Mudie: Could you tell us the name of your service provider?
Mr Barrass: EIM Interim Management.
Q19 Mr Mudie: Thank you. Where are we with this SLA agreement?
Mr Barrass: We now have an SLA agreement with the Treasury with effect from 1 April 2007.
Q20 Mr Mudie: So 1 April this year?
Mr Barrass: Yes.
Q21 Mr Mudie: Was it retrospective or last year were you paid on the previous year?
Mr Barrass: Last year we rolled over the previous years.
Q22 Mr Mudie: So you have now got one?
Mr Barrass: Yes.
Q23 Mr Mudie: According to the Treasury when they gave us evidence, they reckoned they had saved over one and a half million pounds renegotiating that service level agreement. Were they successful?
Mr Barrass: I think that is a question best placed at the Treasury.
Q24 Mr Mudie: But you are leaving!
Mr Barrass: I know and I am leaving on good terms with the Treasury, I hope. Even if I had the number comparable to that Treasury number, it would be wrong to give you it in isolation. The reason that the SLA negotiation has taken as long as it has is that it is not just about price. What I have tried to do (and it has taken a long time to get there) is bring all aspects of that contract in line with the way we do business with third party customers, and so it would be wrong to look at that contract as simply a price-driven contract.
Q25 Mr Mudie: What sort of proportion of increase did you get compared to the last SLA?
Mr Barrass: The last SLA contained a formula for annual price increases, which I believe was minus two. What we have for this year and for next year - it is a two-year SLA that we have in place - is a fixed price change but also some other terms and conditions that are changing as well.
Q26 Mr Mudie: I remember at some stage we had some difficulty getting the details and you gave it to us in writing because of the confidentiality. Was this what we were talking about then?
Mr Barrass: No, it was not.
Q27 Mr Mudie: This year you returned to profit. How did you manage that, apart from making 70-odd good workers retire?
Mr Barrass: If I can answer that by not falling into the mantrap. First, I did not make anyone retire, they were all volunteers, 100%, man and woman. How did we turn the Mint round? It has been very hard work, but what we have moved to is an organisation that now has a very clear commercial focus from the very top all the way down through the business. We have the top tiers of management, who all individually recognise the PNL impact, the balance sheet impact and cash impact of every decision that they make and we are now in a position where they get appropriate reporting in a timely fashion to inform them on their business decisions. So we have now got a very commercial, vibrant Royal Mint.
Q28 Mr Mudie: We noticed from the annual report that you have had a pretty serious turn-over of senior management. Could you tell us about the effect? How it has settled down.
Mr Barrass: The effect, as I predicted last year, was not so much a risk as a huge opportunity. I was unlucky enough to lose my finance director within weeks of joining and I replaced him with an interim, Mr Allred. Some of the others have resulted from retirement. We had one director retire, then we had another take early retirement under the restructuring, but what that has given me is an opportunity, and what I have done is bring in interim managers that bring in guys who are very talented, very skilled, to support me in the turn-around. The reason I have brought in interim managers rather than permanent guys is that, knowing that we were about to appoint a new CEO, Andrew, as it turns out, it now gives Andrew the opportunity of replacing those guys in a structured way over the next perhaps six or nine months and bring on board the team that he wants to work with. So, by the end of six or nine months, we should have Andrew's team of full-timers fully in place. I think it has been a huge opportunity for the Royal Mint.
Mr Mudie: One of my colleagues wants to ask a question on something I have asked.
Q29 Ms Keeble: It was about your efficiency savings programme, which was 2.9 million?
Mr Barrass: I am not sure what the 2.9 million would refer to.
Q30 Ms Keeble: According to the Treasury evidence, it expects to find most of the 2.9 million efficiency savings from the agreement with you. What figure would you put for your efficiency savings then?
Mr Barrass: I am not sure of the context in which the Treasury gave you the numbering. Certainly in terms of the benefits that we have got from the better working programme that we introduced, the savings are significantly higher than that, and I mean significantly higher.
Q31 Ms Keeble: What are they? Would you like to run through them? Presumably from the Treasury point of view they were putting what their targets were and you are putting what you can achieve through increased efficiency. So, if you can save more than the Treasury says you should, it would be very interesting to know what you think you can achieve and how you achieve it?
Mr Barrass: I am happy to do that but I would want to avoid any confusion that my savings were part of a Treasury pool of savings, because my savings end up coming through in terms of profit and then through dividends which end up in a different Treasury pocket, so to speak, but we are looking at significant savings in these three areas. The manpower area - the 72 good men who volunteered to leave us - in terms of purchase efficiencies, which are very significant for us, we have had some huge success with those and in terms of sales benefits in organising the sales area in a different way and we are getting a much bigger effect from those as well, and we have not got a final number yet. We are still implementing a lot of those changes, they are still coming through, and I would expect them to continue to come through over the next six months. Some of these are very long burn. Some of the purchasing statements, for instance, we want to have captured come Christmas, although we have a very good idea as to what they are.
Q32 Ms Keeble: Can you give us a percentage to the efficiency savings that you have achieved, just so that we can get some idea?
Mr Barrass: It is very difficult, because it is a volume driven business. I guess if you are looking for a straight percentage, it is probably easier to look at the number of heads that we started with and the number of heads that we finished with. It might not be an exact way of getting there, but when we started the better working programme at the beginning of August we had 924 heads at the Royal Mint, both casuals and permanents. That was at the beginning of August 2006. By the end of 2007, in September, we had 743 employees, but some of that will be volume-related because the volumes change in our business all the time.
Q33 Ms Keeble: How about in your procurement and working practices. You identified that there were savings there as well. How did you achieve those and how would those project on?
Mr Barrass: Basically we have taken every line of our purchasing spend and challenged it, even the areas where people told us we could never make any savings. Off the top of my head, we are probably looking at 15-20% savings on purchases.
Q34 Ms Keeble: That leads on to a couple of points. In terms of the staffing issue, in quite a short space of time it is very big reduction in workforce?
Mr Barrass: Yes.
Q35 Ms Keeble: It would be very interesting perhaps if we can have a note as to how you achieved that in terms of agreements and whether you had projections as to the number of staff you wanted to shed. You know, the kind of human resources strategies that you had put in place and the agreements and so on. Perhaps we could have that in a note.
Mr Barrass: I am happy to give you that now if now would be good for you.
Ms Keeble: It is really if the Chairman is happy in view of the time.
Q36 Chairman: Is this voluminous?
Mr Barrass: How voluminous would you like it to be?
Q37 Chairman: We have got a lot to get through; that is all.
Mr Barrass: I will give you a two minute version and if you need more after that I will be happy to provide it. Basically, we did not have a target headcount number, we approached from the bottom up and what we did was we opened up every department and every workforce team that we have got, both the industrial workers and the non industrial workers; and we looked at every process that goes on in the Royal Mint and we addressed each one individually and looked at how we could improve that process; and in some places we were able to cut out total workflows that had been there 20, 25 years and were no longer adding any value to the Royal Mint and eliminate them. As we went through that process, working with the workforce and with the trade unions, it was 50-week programme but we had the headcount sorted by round about week 35. We were then able to see how many heads we needed to run the processes that we were left with after we had cleaned them up.
Q38 Ms Keeble: Did you lose any days or time through industrial action?
Mr Barrass: No, we did not. The real good news from a social perspective is that there were no compulsory redundancies, we had the unions with us all the way through. I had regular monthly meetings with the trade unions, bringing them up to date with what was going on and the whole thing was really a copybook way of re-organising our workforce.
Q39 Ms Keeble: How do you expect this to go forward now? What do you expect to see? Will the savings continue or do you think you have got out of it what you can?
Mr Barrass: I think we have got two levels there. What we have done is we have taken the performance of the Mint up a real step-change, I mean a really big step-change. Because of the long burn nature of particularly some of the purchasing savings, we have got another step to make, albeit not as big as the step that we have gone through, and thereafter I would expect to see a slow incline in performance. One of the things we have done with the Better Working Programme team - that is the team that was made up of Royal Mint employees - is we have kept a core of those together in what we call the Continuous Improvement Team and even today they are chipping away and making incremental improvements to the programme.
Q40 Ms Keeble: One last thing so I can understand the nature of the purchasing. Could you give one example of the kind of change you made on the purchasing side?
Mr Barrass: Waste disposal is a big deal for me; it is quite a large ticket. We addressed what we actually needed in terms of waste disposal through a third-party, we defined it very tightly and we put it out to competitive tender and we came back with a vastly reduced bill simply by putting it out to blind competitive tender. I know you only asked for one example, but if I can give you another. We are now heavily using e-auctions for a lot of our purchases and we are finding that is an incredible way of getting good value, good and quality and at a really excellent price.
Q41 Mr Mudie: Can I go back to your staffing. You would expect this from me as an old trade union official, but the accounts seem to show that you just lost production staff. Your admin staff actually increased and your sales and marketing stayed the same; so all the sacrifices came from the industrial workers it seems to me.
Mr Barrass: I am pleased to be able to tell you that that is not the case.
Q42 Mr Mudie: The figures are here.
Mr Barrass: Yes, but there are two things going on behind there. One is, when I arrived in January, as you would expect, an interim manager coming into a troubled business, I put a headcount freeze on straightaway, and that headcount freeze always hits the admin people because you cannot headcount freeze the production people because you have got to produce volume. So, when we ended the programme, we had a significant number of vacancies that were unfilled and a lot of those jobs disappeared and there was no headcount damage to it. The other thing is that on the year end numbers that you have there, there were a lot of people in the finance area, for example, who we wanted to keep on through the year-end audit and finish the accounts off because we needed their corporate knowledge, who did not leave until May or June.
Q43 Mr Mudie: All right. The Chairman's statement mentions a profit of 2.3, which I can find. Your report quotes an operating profit of 8.7. The actual accounts say a profit of 1.2. Yours is the one I cannot find, the 8.7.
Mr Barrass: The 8.7 is operating profit before exceptional items and interest.
Q44 Mr Mudie: Which is the most useful that we will have young Andrew examined against when he comes next year.
Mr Barrass: Young Andrew, as you describe him, when he arrives next year, assuming you invite him---
Q45 Mr Mudie: Oh, he will be invited.
Mr Barrass: ---will still have a small number of exceptional items because they are carried over from the programme, but once you get on to an even keel and those exceptional items disappear, then really you are looking at an operating profit, less interest, and I think that is where you should be looking. Operating profit is how you run the business day to day, and that 8.7 million is absolutely my headline number, but I would also say that you have to look at interest because the interest line tells you how you are managing your balance sheet. So, when I talk to my top team, the hybrid number I talk to them about is actually the operating profit less interest, because they can affect the interest line.
Q46 Mr Mudie: We see that the collector coin business is increasing your proportion of profitability?
Mr Barrass: Yes.
Q47 Mr Mudie: And circulating coins seem to be left behind. Why? Also, looking at your accounts, you seem to be losing overseas business in a big way. Could you comment on that and, secondly, does that not mean that you are more dependent on the Treasury business than ever before?
Mr Barrass: If I take that one first, no, we are not. The nature of the circulating business is that it is a tender-driven operation and overseas monetary authorities will come into the worldwide market maybe for a six-month period, buy hundreds of millions of coins and then we will not see them for two years. So, if you look back over the years on our accounts, you will see that overseas UK mix going up and down depending on which tenders have come to the market. One of the things I have done to protect the profitability of the Mint is I have moved the philosophy of the Mint away from a volume-driven manufacturer to a profit-making manufacturer, and so there will be some elements of overseas business that I will no longer want to have because we were never making sufficient margins.
Q48 Mr Mudie: Thank you.
Mr Barrass: That is the first part of your question.
Q49 Mr Mudie: No. Who am I to stop you there!
Mr Barrass: I am on a roll; this is my farewell! The collector side has been a huge success. I am really proud of what the guys over there have done. We have got a great team on the collector side business, but one of the things that we did, we had a hard look at our product array there and you may have seen in previous years' accounts a product range referred to as "classics". That classics product-line no longer exists. We have eliminated that. In my mind it was not in line with our brand strategy, it was not profitable enough and we are a much healthier business for not having that. The other thing we have done is we have focused on profitability and added value on our collector side, and so, although the turnover does not seem to have risen too much, that is because we have got a huge mix change going on there. We are taking a lot of the low profit items out from the bottom and we are adding in a lot of high profit items at the other end, and so, for something like a 5% or 6% increase in turnover, you are getting something three figures improvement in contribution to the bottom line.
Q50 Mr Mudie: As your circulating coins has gone on, particularly in the UK, that must be the scenario. Have a look at your service level agreement. That agreement is just cutting costs, is it?
Mr Barrass: Yes, it is a more efficient operation.
Q51 Peter Viggers: Basically you are a manufacturer?
Mr Barrass: Yes.
Q52 Peter Viggers: With globalisation, with lower cost countries coming in and undercutting the market flows in higher cost countries, what is your percentage of the market at the moment to the main competitor and how do you see the situation evolving in the coming years?
Mr Barrass: We would estimate that we have about 15% of the worldwide available market. There are some areas of the world that are not available to us, like the US, who do all of their coin manufacturing in-house, but of the available market we believe we have something in the region of 15%. By the nature of circulating coin, it is very highly capital intensive and so where you get countries that have a very low wage rate they do not have anything like the leverage over us that we would have in amore manpower-driven business. It is really the fixed assets that drive the business, and we all pay the same price for the fixed assets. Where do I see the market going? I see it moving technologically. We are already seeing movement away from homogenous coins, i.e. just a solid lump of metal, to a plated steel coin. It is much cheaper to purchase. It is not cheaper to make - it costs me more to make it at the Royal Mint - but in terms of actual metal content, steel being significantly cheaper than nickel, copper and zinc, which tend to be the constituent parts of homogenous coins, I think there is a worldwide trend away from homogeneous into plated, and then within the plated I see a movement from copper-plated, like our one Ps and two Ps are, to nickel-plated which a lot of overseas countries are now moving to. They look more acceptable, they are shiny, they do not tarnish, they look like valuable coins, although really what you have is a nickel-plated steel coin. We are very well placed to do that in the UK. We would recognise ourselves as leaders in terms of nickel-plating of circulating coin in the world right now.
Q53 Mr Brady: As a trading fund, Royal Mint, I understand, is required to break even, including covering losses from previous years. What sort of profit figure do you need to make in 2007/2008 to achieve that?
Mr Barrass: I do not think we quite approach it in that way. I understand the premise of the question, and it is right, but we do not approach it that way. Being effectively a private sector man in upbringing, it is my intention to grow the profit as far as I can and not just level off when I have been paying for previous losses. One of the things that I think was a concern when our annual report was produced and people saw this wonderful profit that we made was: how sustainable is that? The answer is very sustainable. Because of the way that we have gone in and made the business much more fit for purpose than it was previously, we have addressed it on a fundamental basis, and certainly this year, and we are six months through the year now, we are in, let us say, better shape than we were a year ago at the six months stage, and I would expect in five years time, if Mr Mudie invites this young man to my right along to this Committee, on the bar chart we see in the accounts you actually see a consistent growth through there and not the higgledy-piggledy ups and downs that we have had over the last five or six years.
Q54 Mr Brady: We are halfway through the current year. What kind of profit outturn do you expect for the full year?
Mr Barrass: I do not want to hang Andrew on a specific number, but I expect to do better than last year.
Q55 Mr Brady: How long will it be, would you expect, before previous losses are recovered?
Mr Barrass: We are now making a profit that is such a multiple of the loss years that we will be there in a year two years' time. We really are cooking on gas down there.
Q56 Mr Brady: Originally the target average rate of return that was set by the Treasury was 11%.
Mr Barrass: Yes.
Q57 Mr Brady: Why was a much lower target rate set for the last year of only 2.9%?
Mr Barrass: I think if you go back to the turn of the century when the 11% target was given as a five-year target, it was an aspirational target, it was a medium-term target, and I think in any industry when you have got that end game what you need to do each year is lay the stepping stones down to take you to that, in this case, 11%. The problem is each year, as you set the next stepping stone, you have to recognise where you actually are, and if you look back over the first five years of this century you will see that sometimes we were actually further back than we had been the previous year. When it came to setting the 2.9% target the minister at the time and myself, who had only been in the job maybe six or eight weeks at the time, agreed a target that I thought was stretched but achievable. To have given me an 11% target would have been meaningless, because I would have known there was no way on this earth that I would have made it. That is the skill in target-setting, I think, and I think a target of 2.9 and an actual target of three, we did not do a bad job.
Q58 Mr Brady: I was not on the Committee at that point, but last year I think you said the 11% target was not an unrealistic target. Now you are saying it is an aspiration target.
Mr Barrass: No, I think it was an aspirational target back then. If you take the exceptional costs out of last year's performance - the redundancy costs and the other costs of running the better working programme - the number that we actually hit last year was 12.6%. So, I think the 11%, as I did say to this Committee last year, is not an unreasonable number at all.
Q59 Mr Brady: Next year your target rate will increase, I think, 7.2%. How much of a challenge will that present or are you confident it can be achieved?
Mr Barrass: At the time we put the plan together that looked like a good challenging target. I am very confident sitting here, and again I do not want to rain on Andrew's parade, but we are going to over achieve against that quite substantially.
Q60 Mr Brady: In the annual report it is noted that, due to the hedging policy of Royal Mint, the full impact of metal price rises is yet to be realised and that these rises will be likely to increase the Mint's working capital requirements by five million. What kind of pressure is this going to put on achieving 2007/2008 target?
Mr Barrass: The pressure that metal price gives us is a working capital and a balance sheet and cash flow pressure, it is not a PNL pressure, because the cost of the metal is passed straight through to the customer. What that note there is referring to, as metal prices go up, and at one point I think copper was ahead by 40%, it was up by 40% in price and nickel was up by 70% in price, and although that did not worry my PNL as such, because that gets passed through to the customer, having to hold thousands of tons of metal, that cash is all tied up. So what we were seeing was a real balance sheet pressure but no PNL or very little in the way of PNL pressure.
Q61 Mr Brady: Do you find customers delay orders, particularly overseas customers, if metal prices are high?
Mr Barrass: No, I think what it does is it drives them to look at different make-ups of coins and it will drive them away from the homogeneous into the plated-steel product.
Q62 Mr Todd: Presumably all your competitors have the same problem of purchasing inflated cost metals?
Mr Barrass: That is right.
Q63 Mr Todd: Your competitive advantage lies in your skill in doing that more effectively than they do?
Mr Barrass: Yes.
Q64 Mr Todd: Have you developed new systems for purchasing your core raw materials?
Mr Barrass: Yes, we have and we have even challenged the way that we buy nickel and copper, because everyone told us that LNE prices is where you have to go and the premiums associated with them, and we have actually found a way to get reductions on those prices too. We really have left no stone unturned in terms of looking for purchasing improvements.
Q65 Mr Todd: How powerful a brand is the market?
Mr Barrass: It is now an immensely powerful brand. It was almost a sleeping giant two years ago before we did the branding work that we have done. I was recently at an international show in Milwaukee which the great and the good of numerous magic industries attend and the impact our brand has had on the world has been quite remarkable.
Q66 Mr Todd: Arguably a neglected asset?
Mr Barrass: It had been, yes. I would not be too embarrassed to describe the Royal Mint as the pre-eminent mint in the world right now.
Q67 Mr Todd: I think you are right in that. There has been a brand strategy review recently, has there not?
Mr Barrass: Yes.
Q68 Mr Todd: What has emerged from that other than what we have just discussed, which is that you have not been playing to its strengths in the past?
Mr Barrass: I think whereas it did not give us any outright surprises, it has confirmed a lot of what we would think of instinctively. What do people want from the Royal Mint? They want quality, prestige, craftsmanship and heritage. Britishness came out very high in the review and is very important to some of our overseas customers. That is certainly the case when I go on overseas exhibitions. Just the fact that we are British has such cachet, to use a French word to describe Britishness, it really does carry a lot of clout
Q69 Mr Todd: Rather aligned to that, George has already questioned your rebalancing of your staff and, I must admit, I was rather encouraged to see your increase in headcount in sales and marketing because I would assume that is precisely aligned to the point I made, which is that we have not been selling what we do nearly powerfully enough. Is that what the analysis showed, that you needed more resources in selling what you do?
Mr Barrass: I think it showed us where to apply ourselves and it showed us what our customers' aspirations were for us and we were able to align with those. Also, from an internal point of view, I like to treat sales as a science, not some sort of art form or witchcraft. I like it measured, I like it structured, I like journey plans for customers and to implement all of that takes headcount. The result of that, what has it bought us? I have had several nice letters sent from competitors and customers from around the world in the last few weeks, but one of them hit the nail on the head when he said that in the last couple of years he had noticed a huge rise in self-esteem of the Royal Mint as a brand?
Q70 Mr Todd: Which happens when you sell a brand properly.
Mr Barrass: If that is high praise, I will take it.
Q71 Mr Todd: You have cut your production capacity in staffing terms, is there any difficulty about dealing with a rising volume of demand in production terms? You have presumably built that into your systems?
Mr Barrass: Very much so. We now have a much more flexible approach to manufacturing. We are much, much more efficient. There are lots and lots of anecdotes, which I will not have time to share with you this afternoon, from the Better Working Programme, but one of them was, there was a particular department where we actually reduced the headcount on a Monday and by the following Friday we found production had increased despite the fact that we had taken the headcount down. We are a very efficient and effective manufacturer now.
Q72 Mr Todd: You have spent some serious money on consultants, has that all been put through your P&L? Is there some more to come?
Mr Barrass: It had not all been put through the P&L by the annual report, there is some more to come this year. It is now finished, but you will not see it until the next annual report.
Q73 Mr Todd: Because I think the declared amount is about £1.5 million or something like that.
Mr Barrass: I think it was about £1.4.
Q74 Mr Todd: There is a bit more to come through?
Mr Barrass: There is, yes.
Q75 Mr Todd: How much roughly?
Mr Barrass: In total, you would still be shy of £2 million when we finish the whole thing.
Q76 Mr Todd: So about another £600,000-ish?
Mr Barrass: Perhaps something of that order.
Q77 Mr Todd: The movement to a government owned company status was put on hold by the uncertainties over ---
Mr Barrass: By me.
Q78 Mr Todd: Yes, by you but also by the financial performance of the Royal Mint at the time.
Mr Barrass: Very much so.
Q79 Mr Todd: What timetable are we now working to?
Mr Barrass: When you look at vesting, as you rightly say, the first gate you have to go through is have you got a going concern? Clearly we did not have. We are now in a position where we can drive straight through that gate. The next gate you need to get to is do you have a stable management team, especially at board level, and do they have a vision for taking the business forward? I think with Andrew's appointment on Monday we are at the first stage of that gate and we have now got to let Andrew put his management team in place and draw their own vision. He will inherit my five year plan, but he will need to develop his own vision for the business. When you have got a going concern, high levels of cash being generated, a vision and a stable management team, at that point, and not before that point, can you look at vesting the company.
Q80 Mr Todd: Can I ask Mr Stafford to comment on that because that is about the future orientation of Royal Mint in his timeframe? Where are you thinking you will be?
Mr Stafford: I think realistically we have to complete the current financial year, which will take us through to April next year. That coincides very much with David's timescale for me to review the management requirements of the business. I am inheriting a situation where there are a number of interim senior managers. They need to be either persuaded to stay on a long-term basis or if new management is required, I will have to bring them in and realistically that will take about six months to be completed, which will coincide with the financial year end. The timescale which is realistic is to envisage us starting at the beginning of the 08/09 financial year. Clearly that is not my decision, it is a decision for ministers as well as to the timetable for vesting, but I think that is a realistic timescale and one to which I aspire.
Q81 Mr Todd: Do you anticipate a position where the Royal Mint might face direct competition for the UK's coinage in your new status as essentially a company which must compete for its full range of products? Is that something which is in your vision for the future?
Mr Barrass: From the conversations we have had with the Treasury so far, there is a recognition that with the level of fixed assets which would be vested there would have to be a level of protection in terms of future service orders for a fairly lengthy period of time, otherwise there would be no attraction.
Q82 Mr Todd: You would think that some sort of deal in which the orders were guaranteed for a period would be a vital precondition of vesting?
Mr Barrass: It is the only way you would continue with a going concern at the point of vesting.
Q83 Mr Todd: The figures are in here, but what proportion of your turnover is ---
Mr Barrass: Something in the region of 25% of our circulating coin is UK coinage.
Q84 Mr Todd: What is your turnover as a business?
Mr Barrass: Something in excess of 25%.
Q85 John Thurso: You talked a moment ago about the board having a vision to take it forward, I note from the remuneration report that your non-executives appear to be paid about £9,000 a year and the Chairman seems to get about £20,000 odd a year. Is that sufficient remuneration for the sort of quality of non-executives you need?
Mr Barrass: One, I do not think it is and you are right to raise that as a concern. The report refers to last year's remuneration. We have changed the remuneration for this year because we will be looking for new NEDs and that remuneration is very different from last year's.
Q86 Mr Todd: Do I have to wait until next year to find out or can you tell me?
Mr Barrass: I am not going to share that with you now, but it is now at a level which absolutely gives us the opportunity to bring in the right talent at NED.
Chairman: Any further questions?
Q87 Peter Viggers: You were talking about buying procedures and I wonder the extent to which you are indebted to the Office of Government Commerce for improving your buying?
Mr Barrass: All of the purchasing and all of the savings we are driving through the Better Working Programme have all been driven from in-house initiatives. Some of it came from the consultants we were using to help us implement it, some of it has come from specific interims we have brought in at a period in time to have a very rigorous attack at our purchasing base.
Q88 Peter Viggers: I wonder if you feel the Office of Government Commerce has been valuable to you?
Mr Barrass: I am not throwing any stones at the OGC at all, but on this occasion we have pretty much cut our own furrow and I think the team back at Llantrisant have done a pretty super job at it.
Chairman: We are going to leave it there. Mr Stafford, can we wish you well in your appointment. We look forward to seeing you here next autumn to report on how you are getting on. Mr Barrass, we say farewell to you. We certainly also say thank you, you certainly seem to have made a very real difference to the performance of the Royal Mint. Thank you very much.