Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  20. As a proportion of turnover that is 0.4 per cent and in earlier years you were making around 10 per cent a year.
  (Mr Holmes) Yes. I think I have gone over the reasons for that and the need for us to go through this painful period of change. Our objective is to minimise the period during which that impacts on our profit and loss account. Without it we felt that the Mint would not have a good long-term future.

  21. What puzzles me is that you have blamed the competition but every business in Britain has competition and most have overseas competition. However, unlike other businesses, you enjoy a monopoly position in relation to the UK currency and you have a monopoly position in relation to the UK collector coins business, yet you are still losing money.
  (Mr Holmes) I do not believe that the monopoly, as you describe it, is a licence to print money—an accidental pun for which I apologise. As far as the UK circulating coins business is concerned, that is sold to the Treasury on a five-year contract and the price set by the Treasury is by no means a high monopoly-type price because the Treasury is a monopoly customer just as we are a monopoly supplier. In relation to the collector coins business, yes, we have the sole right to produce and to issue UK coins for collectors, but we are in a commercial market there. Like any other gift or collectable product, we can charge only as much as the customer is willing to pay. That is very much a discretionary purchase as people do not need collector coins. They have to be persuaded that they want them because they are good value for money.

  22. I see that, but can you think of any other monopolies that lose money?
  (Mr Holmes) I would not like to comment on that, although I probably can, yes. As I said, "monopoly" is not perhaps a complete description of the situation that we hold on UK coins.

  23. On the overseas market which you referred to as being more and more difficult, your overseas sales are the lowest that they have been for 12 years. Is that right?
  (Mr Holmes) I am sure that is right, yes.

  24. How will you be a successful business if you keep losing market share overseas?
  (Mr Holmes) In the early to mid-1990s, and indeed before that, we had a high world market share position. At one time we were enjoying something like 50 per cent of the available world coin market. When a lot of new people come in, as has been the case with mints starting to compete overseas that were previously satisfied with producing only their national coinage, you are bound to lose some market share and prices are bound to come down, as they do. We have to make the best of it. We cannot go back to where we were. There is definitely more competition in the market. I would also add that there are more overseas central banks and monetary authorities that are going out to tender and awarding the business purely on price. These days perhaps there is less emphasis on reputation, quality and reliability in many overseas markets. It is a tough market in which to compete. We have to live with it. It is a fact of life. It means that the margins that maybe were there in the past will never be there in the future. It is a tough market in which to make a profit and we can do so only by carrying on the process of generating efficiency improvements.

  25. You are not living with it, are you? You are losing market share, at least losing on volume of sales.
  (Mr Holmes) The market in terms of overseas coins as opposed to blanks, has been pretty static over the past two years. Yes, we have lost market share because additional competitors have come in. In order to compete in the future, our objective is to improve our internal performance and to make sure that we have the right level of efficiency to do the best that we can.


  26. You said that, as a result of the large investment that you had undertaken, productivity had gone up and yet when we look at the figures over the past three years, the number of employees has gone up by 13 per cent and sales have gone down by 20 per cent. That does not seem to me to be an increase in productivity.
  (Mr Holmes) The sales figures are influenced by the metal content. One should really look at the units produced. As you will have seen from visiting the factory, there is an increasing tendency towards plated-steel products as opposed to non-ferrous metal. Therefore, the metal content in sales is falling and sales values will tend to decline or not grow in line with the number of units being produced. My reference to productivity related to our performance in the current financial year, which was what Mr Fallon asked me about, and we have generated an improvement of over 15 per cent in our productivity in the current financial year versus the previous year, based on a measurement of the unit cost that we use in our productivity measurement.

  27. The figures that I have for between 1998/99 and 1999/2000, which I suspect must be the latest figures, show that employment has gone up from 1,084 to 1,160 and yet you have had new machinery installed that was meant to raise productivity. That does not square up.
  (Mr Holmes) As I mentioned earlier, we have made changes to our shift patterns and the number of crews that we need to man the 168 hours of the week. We have moved from four crews to five crews and, all other things being equal, that has meant that in the blanks production areas that have the continuous process, the numbers of people would increase by 25 per cent. However, we moderated that by trying to reduce the manning levels per shift, where possible, and we have an offsetting saving by reducing the amount of overtime worked. Actual employee numbers rose mainly due to that. Recently, the number of units that we are producing has been running at 100 million coins and blanks per week. That is well above the levels at which we were running before the investment when it was more like 70 million a week.

  28. You put down the loss of value entirely to the change in the metal content, but you have increased the number of coins?
  (Mr Holmes) Yes, there has been a big increase in the number of units.

  29. The more you produce the less profitable you become.
  (Mr Holmes) There are two factors. One is the metal content, which affects the sales value and not the profitability and the other is the competitive effect on the overseas price levels which means that we get less per coin or blank on average.

  30. How long do you see the process of producing more with more elaborate machinery with less money coming in going on?
  (Mr Holmes) Essentially, our investment programme has been completed. We never stop investing, of course. There are still projects that are going on. At the peak of our investment programme in 1998/99 we spent over £12.5 million, but in the current financial year, 2000/01, the number will probably be between £3 million and £4 million. We have passed the peak of our investment programme and we are now concentrating on making the equipment work in the most efficient way that we can.

  31. The way in which it is working is that there is less and less money coming in.
  (Mr Holmes) That is the marketplace. Our strategy is to try to focus our efforts on more profitable customers, to improve our efficiency and, in terms of our product strategy, to try to focus on higher valued-added products. We are developing new types of products that will perhaps be of particular interest to countries looking for higher denomination coins and so we hope to preserve or to create new market niches where we have a more profitable position.

Mr Kidney

  32. Mr Holmes, how difficult is it for you to negotiate your five-year contract with the Treasury for the UK coinage when the Treasury is also your owner?
  (Mr Holmes) These negotiations are lively, but since the Government reviewed the Mint in 1998/99, the Treasury has split its customer role and its shareholder role. The Debt and Reserves Management Team of the Treasury look after the customer role, whereas the Public Enterprise Partnership Team look after the shareholder role. They try to conduct the negotiations more at arm's length. Clearly, there are cross-overs and Treasury officials naturally talk to each other, as one would expect.

  33. How much influence do you feel that you have in the negotiations if the two parts of the Treasury do a "done deal"?
  (Mr Holmes) In the end we have to take whatever the Minister ultimately decides. The Economic Secretary is responsible at the end for reconciling the various interests that may be involved in the negotiations of that type and the Minister's decision is final.

  34. In the end it is imposed upon you?
  (Mr Holmes) The Minister imposes her decision on all the parties involved.

  35. Did I read the memorandum correctly, that in the 1995 contract you felt that you had had a bad deal?
  (Mr Holmes) In that particular deal the Treasury reduced the price levels effectively by a one-off amount of £3 million per annum. There was a rationale for that. They said that because of the success of our overseas business, that they should take a lower proportion of our fixed costs on to the UK. It was a one-off price reduction that went straight through to our bottom line. Effectively, it was the Treasury saying that it would take that as the lower cost of coinage rather than as a dividend.

  36. The latest contract was negotiated last year, 2000?
  (Mr Holmes) Yes, that is right.

  37. When will that first show in your annual returns, this financial year or the next one?
  (Mr Holmes) It will first be shown in the current financial year when we publish our results in July.

  38. Do you expect that to contribute to a better financial performance?
  (Mr Holmes) The pricing structure has been slightly improved. To be honest, it depends quite significantly on volume. The prices depend on the volume issued, to an extent, and there is a continuing efficiency factor in the contract. The Treasury does not pay anything like cost plus. There are fixed prices for coin denomination and each year the price falls by a certain amount to give us an incentive to improve efficiency. If we aim to improve efficiency by more than that we keep the balance in our pocket.

  39. How is the volume looking since the last contract was agreed?
  (Mr Holmes) The volume of UK issues this year has been more or less the same as the previous year—about 2,000 million coins. We are not complaining about how that has turned out from our point of view. Essentially the average price of the contract goes down the higher the volume, as you would expect, because they would argue that we are benefiting from longer production runs.

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