Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

Examination of Witnesses (Questions 80 - 99)



  Q80  Chairman: But your average rate of return on capital employed has gone down, is that not right?

  Mr Stafford: It has gone down, but it is still a very healthy return for a manufacturing organisation. As I said, the principal component of that is the change in mix of the business year on year, predominantly driven by a growth in demand for bullion coin products.

  Q81  Chairman: But what is the strategy now if your turnover keeps going up and you make less and less profit? Am I right?

  Mr Stafford: Our strategy is very clearly to achieve a better return on average capital employed and if you look at our trend over the last three years then clearly we have made tremendous strides in that area. In-year there was a reduction because of that very reason, but if I look at our current strategy for this year we are increasing our circulating coin business overseas and as a result we are now seeing a dramatic improvement again. You cannot turn off demand for bullion coin products from the consumer when clearly in the economic situation in the UK this year there has been a very strong interest in buying bullion coins.

  Q82  Chairman: I am sure my colleagues will follow up on that. The schedule is to turn you into a Government-owned company by December. Are you on track for that?

  Mr Stafford: Yes, we are on track. Everything is being done to complete the process by 31 December.

  Q83  Chairman: Is this not a risk, launching a new Government-owned company just as it has become profitable again?

  Mr Stafford: We believe that we have in place a strategy. We have demonstrated now for the third consecutive year that this business is a successful business making a good return for its shareholder. We have a long-term strategy in place involving both growth in our UK commemorative coin business and in our international circulating coin business. We have secured long-term contracts in major overseas markets such as Russia. We have secured a major capital investment programme for the business to increase our manufacturing capability, so we believe that the strategy and the capability are in place for long-term sustainable, profitable growth.

  Q84  Chairman: If you have got a long-term strategy, does it include full privatisation? Do you expect to be a trading company for ever?

  Mr Stafford: That is not a matter for management. The decision of whether or not the Royal Mint is privatised is a matter for the politicians, not for management.

  Q85  Chairman: You do not have a view on it?

  Mr Stafford: My view is irrelevant. My task is to make sure that I make the maximum return for the shareholder, regardless of who that shareholder is. The shareholder at the moment is the Government and the Government has tasked me with making the maximum return for the shareholder.

  Q86  Chairman: I understand that, but I asked you whether you had a view?

  Mr Stafford: And I can tell you that I might have a view but my view is irrelevant. That is a matter for the politicians.

  Q87  Chairman: So you had a view but—

  Mr Stafford: Whether or not I have a view—and I must be absolutely clear on this because my view is irrelevant. It is a matter for me as management to make the return for the shareholder. It is for the shareholder to determine whether or not they wish to privatise the business.

  Q88  Nick Ainger: Mr Stafford, Gerry Grimstone's review for the Operational Efficiency Programme made the recommendation that you move to the private sector?

  Mr Stafford: Yes.

  Q89  Nick Ainger: Did he visit Llantrisant?

  Mr Stafford: No, he has not visited Llantrisant.

  Q90  Nick Ainger: Did he talk to you?

  Mr Stafford: No, he did not.

  Q91  Nick Ainger: Do you not find that amazing that someone is suggesting a complete change of the operation of the company and never actually visits its only plant and its management?

  Mr Stafford: That is not—again, my task—

  Q92  Nick Ainger: Let me turn it around. If you were going to carry out a review of an organisation, would you normally visit that company and also talk to its management?

  Mr Stafford: Mr Grimstone is reviewing a number of organisations. It is not for me to comment on which of those organisations it is appropriate—

  Q93  Nick Ainger: But were you surprised that your organisation, the Royal Mint, is being reviewed and he did not visit and he did not speak to you?

  Mr Stafford: My task is to perform the duties that I am given to perform and I am not going to be drawn on that point because the review has been instructed by the Chancellor and we are performing what we have been asked to undertake in that review and we are complying fully with all the advisers that have been appointed to conduct that review process.

  Q94  Nick Ainger: Okay, let us move forward and look at the actual report, your annual report. You say in "Our Future" where you refer to the vesting that, "There is now a strong case for the introduction of private risk capital into the business. This will allow us to pursue new commercial opportunities, expand more rapidly, taking advantage of freedom, flexibility," et cetera. What commercial areas could you move into that you cannot move into now?

  Mr Stafford: Well, there are two very specific things. One is the acquisition of other organisations which would allow us to expand internationally, and secondly undertaking joint ventures with overseas partners to enable us to penetrate markets, for example Asia, where we have a presence but we would need to have a greater level of presence for a manufacturing capability. Both of those things, whether it is an acquisition or a joint venture, would clearly require a capital injection into the business. If the Treasury did not feel that that was a good use of public money to make those investments, then clearly private capital is an alternative way of pursuing both joint ventures and acquisitions.

  Q95  Nick Ainger: So let us get it right, you are talking about overseas adventures, not actually investment in the Llantrisant plant?

  Mr Stafford: Not necessarily. We have just, for example, already announced a major capital investment programme in the Llantrisant plant, £20 million will be spent over the next twelve months, doubling our capacity for nickel plating. So there is a huge investment within—

  Q96  Nick Ainger: But that is under the existing programme. What you have just told us is that the way to expand into new commercial opportunities is actually to have work going abroad?

  Mr Stafford: Not necessarily so. For example, one or two of the acquisitions that could be undertaken in the business would be for UK operations, which could be combined with the Llantrisant operation . So there are specific opportunities in the UK as well as overseas.

  Nick Ainger: Thank you.

  Q97  John Thurso: Following on from that, to what extent is your future success dependent on guaranteed business from the Treasury?

  Mr Stafford: The UK Treasury now accounts for less than a quarter of the Royal Mint's turnover and profitability. We have had a strategy to clearly reduce our dependence because there is no potential for growth by just remaining as the incumbent suppliers to Her Majesty's Treasury for UK circulating coin. So in answer to your question, less than a quarter of our turnover and profit is now dependent upon the UK Government.

  Q98  John Thurso: A quarter of the turnover?

  Mr Stafford: And profit.

  Q99  John Thurso: And profit. One of the comments which have been made to us by a private mint is that you have an unfair competitive advantage because of what you get from the Treasury and that if you were to enter into the private sector with that competitive advantage it would be a disadvantage to them and would not be truly competitive. What is your answer to that?

  Mr Stafford: Well, the answer is that we have to compete on an international basis with other mints and we win some tenders and we lose some tenders on a cost basis and there will be no difference to whether or not we are owned by Government or owned by the private sector in that regard. With regard to private mints, private mints predominantly make commemorative coins and there is very healthy competition in the market for commemorative coins. We have a very good business in the UK, but there are other UK privately owned mints that also supply commemorative coins.

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