API, which makes packaging for industries ranging from food to cosmetics, blamed war in Iraq, economic weakness in many of its markets, as well as the SARS illness outbreak for lower sales of £176m (£180m) in the year to September. But the company made progress in many areas and expects an improved performance in 2004. Pre-tax losses widened to £7.1m (£4.3m) last financial year, after a bigger exceptional hit of £5.6m. But management, led by chief executive Derek Ashley, claims reorganisation will be mostly completed by the end of the year and should save the company at least £3m on an annualised basis. Furthermore, net borrowings were reduced by £5m to £9.8m, taking gearing to 18.6% (24.2%). And with costs taken out, API is a more competitive animal. Square mile analysts predict a return to profit and the resumption of the dividend in the current year, and a share buy-back programme is also a possibility. Paul Jones at house broker Numis has downgraded his estimates following a trading statement in October. He is leaving current year estimates unchanged - investors can expect £2.5m profit and earnings of 2.2p a share. The new forecast for September 2005 is £4.5m of profit, and EPS of 6.8p, giving an undemanding forward rating of 10.4. Buy for recovery.