Smaller Companies: API packs up its haphazard label

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WHEN Mike Smith became API's chief executive in June last year he found a directionless group, lacking in leadership and market awareness. Profits had slumped at the cigarette packet to whisky label business since 1988, but the company was unaware of how it was performing because of lack of managment information.

Remarkably, API's shareholders had stuck with it through a bitter bid battle with its rival NMC in 1991. But, as Mr Smith admits, had NMC been a more credible bidder API would no longer exist as an independent company.

Having risen through the more disciplined ranks of much bigger companies to become chief executive of Jefferson Smurfit's print, packaging and converting group, his first task was to impose order on API's haphazard operations.

That involved installing new managing directors in five of the company's seven subsidiaries and demanding weekly forecasts of sales, margins and profits. Monthly accounts are now ready within five days. Each product is measured for profitability, and so are customers.

On the shop floor, Mr Smith was horrified to discover that machine operators had no understanding of the bigger picture of where their products ended up. They were not told the consequences of making mistakes and cared less.

Now even at the humblest level of the business staff get to see how, for example, the card their machine creates is transformed into a Benson & Hedges packet. They have information about productivity and scrap rates and know how their activities compare with budget.

One customer has eliminated its own quality control staff because of the vast improvement over the past year in API's product.

Mr Smith admits that a lot of what he has done has been simple common sense. But the problems at the company were so deep that even these measures have had a dramatic impact on profits.

In the year to September 1992, which included four months of his measures, profits bounced from a small loss to a pounds 3.85m profit. In the half year to March this year they rose nearly 50 per cent to pounds 2m, and for the full year brokers have pencilled in a 25 per cent jump to pounds 5.1m.

Sales of pounds 100m are planned within three years, up from about pounds 70m this year, with margins of 15 per cent - demanding but achievable targets.

Shareholders have been handsomely rewarded for their loyalty during the NMC bid with the shares, at 325p, more than three times their March 1992 level. In the short term a p/e of nearly 20 takes into account the good news, but if targets are reached the shares will go further.