Examination of Witnesses (Questions 80
- 99)
WEDNESDAY 21 OCTOBER 2009
MR ANDREW
STAFFORD AND
MR ADAM
LAWRENCE
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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