Government Operations Committee on Feb. 13th, 2007

[The Chair, Liberal, Diane Marleau]

I see we have most of our members, if not all of them.

I am going to welcome Mr. Bennett as the president of the Royal Canadian Mint. He has been there all of seven months, so he has vast experience. Mr. Bennett and I know each other from past lives, and I want to give him a good welcome to the committee.

As you know, we give you time to make a presentation. Before that, would you please introduce the people with you, Mr. Bennett?

[Ian E. Bennett, President and Chief Executive Officer, Royal Canadian Mint]

Thank you very much, Madam Chairman.

I have with me Richard Neville, who is our chief financial officer and known to a number of people on the committee as well, as well as Marguerite Nadeau, who is our vice-president and general counsel at the Royal Canadian Mint.

Welcome, everyone. Madam Chair, and Honourable Members, thank you for the opportunity to appear before you today. It is truly a privilege to be here and speak on behalf of a unique and world-class organization such as the Royal Canadian Mint.

Ladies and gentlemen, I am no stranger to parliamentary committees. However, this is a first for me since my appointment last June as President and CEO of the Royal Canadian Mint. It is an appointment that I welcomed and I can tell you that I have not had one second of regret or hesitation since taking on this important and challenging responsibility.

As a former Deputy Minister of Finance, I came to the Mint somewhat familiar with the role it plays in our country's finances. Allow me, if you will, to provide a brief overview of the Royal Canadian Mint.

The Mint, as many around the table know, is a commercial crown corporation mandated to make a profit for its shareholder, the Government of Canada. Its most significant business is the production and distribution of circulation coins for Canada. Over the years, the Mint has developed and patented various innovative technologies, which include the manufacturing of coins that are of high quality yet use minimal amounts of costly metals such as copper and nickel, significantly reducing the cost of manufacturing and allowing for a greater return to the Government of Canada.

We also operate three other business lines: foreign circulation, Canadian numismatics or collector coins, and bullion products and refinery. Although our mandate is primarily to produce coins for Canada, part of our revenues are generated outside the country from the production of foreign circulation coins for central banks and foreign governments. Our plated technology has opened doors for the Royal Canadian Mint on the international scene by offering central banks a cost-effective alternative to very expensive alloy coins. We have seen the shift occur with the recent decision by New Zealand to change all their coins to our technology and in the process save millions of dollars.

I visited some of our customers, and I can say with great confidence that we enjoy an outstanding reputation internationally. We also produce and sell collector coins in Canada and abroad. Our coin designs celebrate Canada's culture, history, achievements, and values. We enjoy a strong reputation for quality and craftsmanship.

Finally, the Mint produces and markets a family of gold, silver, and palladium investment-grade products and operates a refinery that offers processing, refining, assaying, and secure storage of gold and silver.

The past few months have been truly an eye opener for me as I was introduced to the Mint's operations and met the employees. My initial impressions have been overwhelmingly positive. I have been struck by the level of professionalism and collective purpose. There is a sense of pride in the Mint's accomplishments and a strong identification with an organization that is so fundamentally linked to some of our most powerful and evocative symbols, some would even say icons of our nation and its identity.

I've been fascinated by the intricacies and the nuances of the fiercely competitive international minting market. I've been impressed by the leadership and business acumen of those who maintain the Royal Canadian Mint's leading position within that market. Above all, I can assure you it is a well-disciplined, highly motivated, and successful team with a winning attitude.

So you may ask, what do I bring to this team? Perhaps I should share with you what I told employees at a series of town hall meetings held last summer.

My vision for the Mint come down to three things. First, we want to maintain profitable growth, returning a profit to our shareholder, the Government of Canada, by introducing initiatives designed to stimulate top-line revenues, manage costs and grow our profits. Second, we want to maintain our international reputation for leadership, innovation and quality. Third, we want to remain an employer of choice. I am extremely proud of the fact that we were listed as one of Canada's top 100 employers in 2006 by Maclean's Magazine and intend to keep us on that list.

When I first met with employees, many of them asked about my management style. I told them the following: that I value the experience, wisdom, and views of others; that I believe in being open, clear, and direct about shared expectations and goals; that I am not a change management guru. Put simply, I'm a graduate of the school that teaches the fundamental axiom of good management, which is, if it isn't broken, don't fix it. I expect transparency, and above all, accountability. I also told them that while I encourage open, lively debate on the issues, the ultimate responsibility for decisions is mine. These are the principles that will guide my actions and decisions and they are what I bring and offer to the people of the Mint.

Yet, that responsibility and duty is made more pleasant when one has good news to share.

Honourable Members, as guardians of the public purse, I know you will be pleased to hear that for the third year in a row, the Mint will be reporting double digit profits.

Madam Chair, I invite all members of this Committee to read the good news stories contained in our Annual Report, when tabled by our Minister later this spring.

So this is further testament to the outstanding team that I have the honour and privilege to lead.

However, I would be shirking in my duty if I did not address issues that have been of concern and perhaps speak to the mandate of this committee.

Accountability and responsibility are two principles and concepts that go to the very heart of our society, our government, and the basic notion of how we view ourselves. Needless to say, they have been quite topical of late, and continue to be an important element of the public agenda. To maintain the Mint's competitiveness and credibility, we must continue to improve ways through which we demonstrate accountability and embrace the responsibility to become even more efficient in our business practices. We are doing that.

Is there room for improvement? You bet there is--there always is. We will shortly receive an independent report that will recommend a number of ways through which the Mint can improve efficiencies and realize considerable savings. In regard to increased accountability and transparency, we are linking strategies to the corporate objectives and we are developing better performance indicators. Starting in 2007, we will post on our website the travel and hospitality expenses of our board and senior managers on a quarterly basis. Such actions will only serve to further solidify the Mint's reputation as an efficient, accountable, and successful enterprise, which is fully transparent to the ultimate shareholder, the Canadian taxpayer.

Through you, honourable members, I would like to assure Canadians that the Royal Canadian Mint has been built upon a proud past and is today a modern, sophisticated, and dynamic business that successfully combines art with technology. Its record, accomplishments, products, and, most important of all, its people should be a source of pride to Canadians.

On that note, I would like to take advantage of this occasion and put my marketing hat on and present to you the Mint's 2010 Olympic Coin Program which I had the honour to unveil late last month.

I know you will join me in acknowledging their beauty and the sheer artistry that has created them.

It is the most ambitious circulation coin program ever conceived and undertaken by the Mint. It will feature no less than 17 circulation coins and 36 beautifully crafted collector coins and products.

In closing, please accept a personal invitation to come and visit our operations and our team. Unfortunately, I must advise you, though, that unlike chocolate factories and brewery tours, there are no free samples.

Thank you. I'd be more than happy to answer any questions you may have.

Thank you, madam.

[The Chair, Liberal, Diane Marleau]

Mr. Wrzesnewskyj, for seven minutes.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Madam Chair.

Thank you, Mr. Bennett, for that report.

Mr. Bennett, I'm taking a look at some of your numbers, and I notice that between 2004 and 2005 there is a 37.5% drop in profitability as a percentage of revenues. Would you like to comment on that?

[Ian E. Bennett]

Thank you, sir.

I think it goes to a broader problem that we've identified at the Mint. It is true that our revenues are growing considerably, and we indeed expect them to continue to grow in 2007. The problem we have identified is that our costs are also growing, and they're growing faster. As a result, we find our profits are not growing nearly as rapidly as they should, as indicated by the revenue flows.

It is for that reason I referred in my remarks to the fact that we have engaged outside consultants. We also asked ourselves how we could go about better controlling our costs.

The work is under way. It's going to take a year, and we're going to go through this process for the whole year. We'll make some early changes to reduce costs and change the way in which we produce our product so as to better control costs.

But it's certainly an objective of ours to continue to have the corporation grow but have profitable growth.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

From that I can assume, at this present time, there are no numeric targets. We have a table here with estimates. Have you set targets for the crown corporation, or are you waiting for this outside report?

[Ian E. Bennett]

No, we've set targets for the crown corporation.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Could those be made available to us?

[Ian E. Bennett]

Yes. Every year we prepare a corporate plan that is mandated under the Financial Administration Act. Within that corporate plan, it provides for five-year forecasts. The credibility of the forecast diminishes with time, as all forecasts do, but it will have targets for 2007, 2008, and through to 2011.

The papers I distributed to the committee last night have a table that was extracted from last year's corporate plan, which had the corporate plan for five years, 2006 to 2010. Next month, in March, the minister will present to the House a summary of the corporate plan for 2007 to 2011.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

You referenced an announcement that's coming on profitability. It's in the double digits, in terms of millions, I assume. But when I look at the particular table for 2004, you had a bottom-line profitability of 3.2%, which dropped to 2%; a forecast to 2.1% for 2006, which was a pretty minimal improvement; and then in 2007, it dropped back down to 1.95%. Those are pretty tight margins, and they seem to be on a downward trend.

You've produced a pretty optimistic report here. Does it worry you somewhat that the trends are in the wrong direction?

[Ian E. Bennett]

It does. It's for that reason that at one of the first town hall meetings I had with employees, I heard praise on the growth that we had in our revenues, but there was a challenge to the corporation, me and the employees, to have more profitable growth.

I quite agree with you that we have to translate the growth in sales to a growth in the bottom line.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Once again, have you done analysis on these numbers we've been provided with? They're pretty thin.

In looking at this, you have a 48% increase in marketing and sales costs in 2005 or 2004 and a projected 60% increase in administrative costs for 2006 over 2005, which will go up to an 86% increase in 2007, if we compare it to 2004. All the costs seem to be a significant trend in the wrong direction.

I know you're relatively new at the Mint, but it's not a huge operation. Are there numeric breakdowns in those various departments you could provide us with so that we'd have a better handle on what is causing the trend lines to move in the wrong direction?

[Ian E. Bennett]

I'd be happy to do that. I'd be happy as well, once we have the corporate plan tabled in the House for the next five years, to come back to the committee and go over the projections as we now see them, plus the changes we are going to incorporate into our estimates of costs as a result of the changes we plan to make to reduce costs.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

I also notice there's a huge increase in inventories. Is there a particular reason for that? Is it due to Olympic coins being produced and inventorized?

[Ian E. Bennett]

The increase is largely explained by the big increase in the inventories of Canadian circulation coinage. There's been a very significant increase and demand for circulation coins in the Canadian economy—unexpected by most observers, but still it's there. To maintain supply to the economy as those coins are demanded by financial institutions, we've had to increase our inventory of them.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

I have a final question.

I also notice that your capital expenditures average around $5 million to $7 million in previous years, but jumped in 2005 to $35 million. It seems to me there were major capital expenditures or investments made. Could you tell us a little bit about those and what the decision-making process would have been on those significant capital expenditures?

[Ian E. Bennett]

I think the jump in 2005 and the continuing increase are largely a result of the expansion of the plating facility in Winnipeg. This is the process that allows us to make coins from steel blanks, using plating technology to produce coins at a relatively low cost. We expanded the production capacities in Winnipeg to plate coins, which turned out to be a good decision—even better than we thought at the time, because of the large increase in demand for Canadian circulation coinage and a very substantial run-up in the cost of base metals, such as copper, nickel, and so on, used in the production of coinage. That allowed us to participate in a much more competitive way in the foreign market for circulation coinage.

The capital expenditure numbers are also explained by the silver refinery that was built in the Ottawa facility and opened in early 2006.

[The Chair, Liberal, Diane Marleau]

Thank you.

Madame Thibault.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

As I told you earlier when I arrived, thank you for being here, Ms. Nadeau, Mr. Bennett and Mr. Neville. This meeting is further to, among other things, a previous meeting to which the committee — I say “the committee” on its behalf, because not all colleagues here present had the pleasure of being part of it at that time — had invited the former President and CEO to come and testify about certain situations prevailing at the time, and I will obviously only be talking about one.

I'm particularly interested in the entire governance issue. What attracted my attention at that time was the way in which the former President and CEO had, in that capacity, amended the administrative rules and policies. I think he may have done it in order to put himself and his teammates in a better position. In my view, it's not because a Crown corporation is managed for the purpose of making profits that it should be said it operates like in the private sector, that one shouldn't deprive oneself of taking a jet, travelling first class and putting on a banquet. No one is stupid. We understand that you have to do business, but doing business doesn't always mean saying that you should do it in the most costly manner possible. I think it's always the taxpayers who are the providers and the shareholders. That really struck me because that person's conditions of employment were set out in a proper signed contract and so on. I'm allergic to the idea of going so far as to pay for a car for him, or nearly so. I think we should be reasonable.

Since you took up your position, have you preserved the same policies or do you have administrative policies concerning, for example, travelling expenses, entertainment expenses, membership fees? It always fascinates me that people get reimbursed for golf club dues because, unless you're a pro... When I play golf, my ball is here and that of the company president is there. It's hard to talk to each other before supper or cocktail hour. I don't agree with the idea that you're necessarily doing business because you're together on a golf course or at a private club. Have you taken any governance initiatives to tighten policies so that as few expenses as possible are incurred in those areas? That's my first question.

[Ian E. Bennett]

Thank you, madam.

Following the controversy surrounding the expenses of the former President of the Royal Canadian Mint, the board of directors in place before my arrival decided to commission two studies, one by Price Waterhouse and the other by Osler, a Toronto law firm. The Osler report addresses processes and rules concerning expenses. In overall terms, the report found that the rules in effect during Mr. Dingwall's time at the Royal Canadian Mint were very strict relative to those in effect in the private sector. All of Mr. Dingwall's expenses had to be approved by the Vice-President for Finance.

However, since the Royal Canadian Mint is a public institution and it is very important that it enjoy public support, the board of directors decided to change the rules in order to increase control. Now, for the president to be able to travel outside the country, the chairman of the board himself must approve the request.

Second, all the President's expenses must be approved not by the Vice-President for Finance, although Mr. Neville is highly competent, but by the Chair of the Audit Committee.

Lastly, the board of directors decided that the President, all vice-presidents and all members of the board had to submit their reports and post them on the Internet.

I think you're right to be very attentive and prudent and to ask us to take very special measures in order to maintain public support.

And, in closing, I must tell you that I'm not a member of a golf club.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I wasn't talking about you personally, Mr. Bennett. I was wondering whether, before hiring the new President and CEO, in this case, you, the board of directors had examined the contract, the position requirements and set adequate conditions, saying to themselves that this time it would be different. Is this employment contract more restrictive than the previous ones?

[Ian E. Bennett]

I think the contract is stricter. Perhaps Marguerite Nadeau can give you more details on that subject.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

You've only seen your own, haven't you?

I had a question on the disclosure policy, but you answered it by pointing out that the information was available on the Internet. Like everyone in government, you first have to have that approved, then submit it within a given number of days, then it's posted on the Internet, which in itself is excellent.

Thank you.

[The Chair, Liberal, Diane Marleau]

Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Madam Chair.

I am quite pleased, as a Canadian taxpayer, if I shop around the rest of the world and I take a look at countries or nations that don't have their own capacity to manufacture their own product.

What percentage of your actual product is actually for domestic use, versus international sale?