Privatisation: Packing up Parcelforce for delivery to market: Post Office parcel service is polishing its image

FOR the moment, the Government has other things on its mind. But there is no doubt about its plans to continue the privatisation crusade. And an early candidate for the next stage is Parcelforce, the parcels business of the Post Office.

Although a fundamental review of the whole of the Post Office is planned, Parcelforce is the closest component to entering the private sector. Since the announcement in July of the intention to sell off the business, Price Waterhouse has been appointed to examine the options.

For the Parcelforce managing director, Malcolm Kitchener, the man at the sharp end, it must seem a long way from his anonymity just two years ago as financial controller of Fisons' pharmaceutical division.

But he professes to be unworried. 'The pressures are no different,' he says, adding that there are a lot more similarities than might be supposed between big companies, even in entirely different fields. And Parcelforce is a sizeable company, with turnover of more than pounds 500m, 13,000 staff, 165 depots and more than 9,000 vehicles.

Mr Kitchener joined as finance director in 1990, moving to his present role in August, when the then managing director, Peter Howarth, a 40-year postal service veteran, ascended to the equivalent post at the Post Office.

Mr Kitchener is now putting much effort into finding a finance director. This is partly because a management buyout is one being considered. But he says a well-balanced team is essential, no matter what form the flotation takes.

Among the key executives are two recruited from Federal Express, the US-based courier company that recently scaled back its European operations, and one who has worked for the Post Office for years. The successful candidate for the vacant post is likely to have a completely different background.

A key task facing this person will be producing a financial performance that makes privatisation a realistic possibility.

Unlike some other government sell-offs, such as the electricity companies, Parcelforce would not be anything like a private monopoly. The market that caused Fedex to retreat is still highly competitive. Although Parcelforce dominates the two-day 'non-urgent' delivery market, it is keen to move in on the potentially more lucrative next-day service, led by Securicor. 'It's the sector of the market that's growing and the one we'll concentrate on,' says Mr Kitchener.

To help in this, the business is investing heavily - to the tune of about pounds 250m - in technology that will build on the distribution network it has established over decades. But since it incurred a trading loss of pounds 24m last year - admittedly an improvement on the previous 12 months' pounds 131m deficit - this is not being achieved without cost.

The reduction of headquarters functions and the halving of the number of administrative districts has resulted in the loss of several hundred jobs.

This and other cost-controlling exercises have helped produce a turnaround, he says. Having traded profitably in the second half of last year, the business is aiming to break even this year.

But the effort is not only about cost-cutting. Parcelforce is also committed to a policy that can actually add to expenditure: customer service. It could be argued that in the present climate and with the competition that the business faces, Parcelforce has little choice but to take this issue seriously. But Mr Kitchener says that quality affects everything it does, and claims it is the only parcels business in Britain that publishes its quality record.

In addition, the business has taken great steps to distance itself from the Post Office and the nationalised image that it represents. The start was the change of name from Royal Mail Parcels to Parcelforce in 1989. This continued with the dropping of the 'Royal Mail' prefix a few weeks ago - an acknowledgement, Mr Kitchener says, of its success in establishing itself as a separate entity - while next year will see the separation from the Royal Mail.

Although these - and the future privatisation - seem momentous steps, Mr Kitchener is concerned to put them in a historical context. In 20 years the Post Office has been transformed from a government department into a separate corporation and has lost the telecommunications part, with the sale of British Telecom.

'This is another step in that evolution, but not one we should be frightened of,' says Mr Kitchener.

(Photographs omitted)