announcement stock adjustment, page-10

re: a value buy. Agreed, the jury is out. API indicating that EBITDA will be stable this year, but profit and div in doubt. article;

"TROUBLED drug wholesaler and chemist retailer Australian Pharmaceutical Industries has slashed costs by $10 million and cut 40 head-office jobs in an attempt to restore profitability after plunging to a first-half loss of more than $17 million.

After the debacle of losing track of a similar sum in its year-end results for 2005-06 because of glitches in an old IT system, API incurred more one-off costs amounting to an extra $24 million for the six months to the end of October.

The write-offs in the first half cover previous poor management of obsolete stock and thefts from stores, with the result that the corresponding post-tax profit of $14 million just 12 months ago has been converted into a heavy loss. As a consequence, API has axed its interim dividend.

But yesterday's interim figures also revealed that earnings before interest and tax were already sliding, having been cut almost in half before the extra costs were written off, as the company's well-publicised financial troubles shook the confidence of customers and suppliers.

A detailed review of operations by new chief executive Stephen Roche, who replaced Jeff Sher in August after the disappearance of the first $17 million came to light, made a damning indictment of previous management practices and resulted in a complete shake-up of operations.

Mr Roche described the first-half performance as "terrible" but expressed confidence that there would no repeat of the IT problems or the first half write-offs to mar the second-half results. API's deepening problems ironically helped it to fight off the unwanted attentions of rival Sigma Pharmaceuticals, which tabled three informal takeover bids two months before finally withdrawing last week.

Measures taken by the new management team were already helping to turn the company around, Mr Roche said yesterday. He said he anticipated that earnings before tax and interest for the year would be equal to the $39 million recorded in the same period last year. But he was reluctant to predict whether that would result in a bottom line profit and was unable to say when the company might resume paying a dividend.

Analysts believe the next six months will be crucial for API; Mr Roche will need tangible proof that his new strategy is working if the company is to escape another takeover attempt. The company is now focused on three businesses: pharmacy wholesaling, retail chemist chains, and branded vitamins and supplements products.

Sigma, whose informal offers of between $2.20 and $2.50 were knocked back by API's board, is still believed to be interested in acquiring the company, as is the other major player in the industry, Symbion Health