AN Post has reported a sharp increase in operating profits for last year, up almost £3 million to £11.8 million, compared to 1995, but its operating costs have also risen dramatically. The organisation warns that there is "no room for complacency" and that costs will have to be contained.

Last year was a record one for An Post as revenue in all its major businesses increased. Group turnover at £320.2 million rose by 7.8 per cent over 1995, but operating costs increased by 7 per cent to £308.4 million.

Operating profits amounted to £11.8 million, up from £8.9 million in 1995.

Overall pretax profits were £11.833 million, up from £11.5 million in 1995, but the earlier year's figures included a £2.5 million exceptional gain from the sale of the Central Sorting Office, so growth was stronger than the pretax figures indicated.

An Post chairman, Mr Stephen O'Connor said that, although the financial results represented a year of "solid achievement", it would be unwise to be complacent. "The realities of the marketplace, the effects of increased competition, the pace and extent of technological changes and the needs of customers must be addressed urgently and effectively."

The company's letter post business grew by 6.5 per cent and it handles two to three million items every working day. Revenues and volumes in the post office division grew by 5.8 per cent - a growth trend which has occurred every year since 1992. The business services over 1.5 million customers a week and in 1996, handled 70 million transactions which totalled more than £5.5 billion in value.

The SDS (special delivery service) division, which provides parcel and courier services in Ireland and abroad increased its revenue by 12 per cent in what Mr O'Connor described as a very competitive market.

Mr O'Connor said that operating costs had increased by 7 per cent to £308.4 million and staff and postmasters' costs, which account for 73 per cent of all costs, had increased by 6.4 per cent to £227 million. All other costs had increased by 8.9 per cent to £81.4 million.

He said wage and price inflation had contributed to the increases, as did additional spending arising from the growth in the volumes of business. He warned that the continuing increase in the cost base was not sustainable. "With liberalisation of the letter post service expected, cost containment will be essential if the business is to remain competitive and develop and if profitability is to be maintained."

An Post chief executive, Mr John Hynes, said current operating margins at 3.7 per cent were tight and were wholly inadequate to withstand future competition. He said a small downturn in volumes would have "immediate and adverse implications for the group's profitability".

Mr Hynes and Mr O'Connor said the company was currently drawing up plans to prepare for liberalisation of the post a market and for developing the company. However, neither would be specific, saying the plans had not been completed yet.

Last December, An Post bought Ireland On Line (IOL), Ireland's biggest Internet provider, for £500,0000, but this did not affect the group's finances. IOL employs 50 people and its debts were £1.6 million. Its tangible assets were valued at £127,000.

The company said the acquisition of IOL meant it could now provide a complete range of physical retail and electronic distribution networks nationwide.

Mr Hynes said the acquisition was a "win win" situation for everybody.

He said An Post saw that its business was moving - in areas such as messaging and mail order - and "we said we should be moving with it".