Pre-tax profits at An Post plunged by 40 per cent to £8.3 million (€10.54 million) last year due to rising costs and increasing competition.

The State-owned company has embarked on a restructuring programme the effect of which would be reflected in the results for next year, the chief executive, Mr John Hynes, said.

The company contended that the profit figure was satisfactory in the light of the 6 per cent reduction last April in the basic postal rate, from 32p to 30p.

But Mr Hynes said a pre-tax profit margin target of 10 per cent needed to be reached for reinvestment purposes and for competitive pricing.

The current pre-tax profit margin is 2.1 per cent, down from 3.8 per cent in 1997 due to the rise in operating costs from £355 million to £381 million.

An Post, however, increased its turnover by 6 per cent, from £368.7 million to a record high of £389.3 million, fuelled by "a buoyant economy".

Co-operation from staff would be needed to "embrace change" to a much greater extent than in the past, Mr Hynes said.

A consensus had to be built between the unions, the board and the Government on achieving higher productivity levels and more flexible work practices before full competition arrived from overseas operators, he added.

Since February, there has been competition on letters over 350 grams which cost a minimum of £1.50.

Competition has centred on parcel post delivery and express letter services, with An Post vulnerable to "cherry-picking" companies, targeting the lucrative urban centres and ignoring costly rural services.

Competition was increasing at a much greater rate than that at which State regulators were reducing monopolies, Mr Hynes said.

The current restructuring is based on a small voluntary redundancy programme and achieving cost savings across An Post's three divisions - Letter Post, Post Offices and SDS (parcel and courier services).

Letter Post had a £241.2 million turnover, post offices £81.7 million and SDS £46.9 million. Letter volume had an 8.2 per cent volume growth increase.

The chairman of An Post, Mr Stephen O'Connor, said there had been more change in 1998 than in the previous 50 years, and under current competition, revenues of £76 million were at stake.

"We are living in a rapidly changing environment," he said.

With the full loss of postal monopolies in the EU imminent, consolidation of the European parcels and distribution sector is being led by the German post office company, Deutsche Post, which, since December, has acquired the Swedish transport and logistics group, ASG, the Swiss logistics group, Danzas, and the road transport operations of the Dutch company, Nedlloyd.

Both Deutsche Post and Netherlands Post have shareholdings in TNT, DHL and Securicor, which compete with An Post's SDS.