Avonmore/Waterford expects to have its strategic review of the merger of the two organisations in place by the end of next month, but has stated that the review will involve "very significant rationalisation costs and asset write-downs".

Avonmore/Waterford managing director Mr Pat O'Neill would not be drawn on the scale of the rationalisation yesterday, but analysts in Dublin have based their 1998 forecasts on an assumption that cost savings of around £20 million would be implemented. Mr O'Neill said it was intended that the cost savings would be sufficient to allow Avonmore/Waterford to increase its earnings per share by 15 per cent a year - the level of earnings growth that Avonmore Foods had been generating prior to the merger.

Analysts in Dublin are cautious about making definitive forecasts for 1998 and 1999 until the size and shape of the rationalisation programme becomes known. But Goodbody analyst Mr Liam Igoe has tentatively forecast earnings of 23p per share in 1998 and around 28p on 1999, when the full benefits of the cost savings flow through.

"Our top management is in place and the rest will be in place by mid-October, right down to plant and depot level. We have eight study groups looking right across the organisation to see where the synergistic benefits lie. We also have drafts of a three-year plan. This is not just about rationalisation and cost-cutting, it's also about development," said Mr O'Neill.

He also stated that radical changes would be brought about by EU Commission President, Mr Jacques Santer's Agenda 2000 programme, which envisages major changes to the Common Agricultural Policy and reductions in agricultural price supports.

Finance director Mr Geoff Meagher said that the merged group was "leaning towards" adopting Avonmore's policy of writing off goodwill against reserves rather than Waterford's policy of writing off goodwill through the profit and loss account over a period of years.

Currently Waterford has £110 million in goodwill and Avonmore £20 million. Writing this off against Avonmore/Waterford reserves would increase gearing from 65 per cent to around 200 per cent. "The key is our cash-generating ability and we should be able to generate £30 million free cash from the combined group," he said.

Deputy managing director Mr Matt Walsh said there were no figures yet on the number of jobs that would be lost and where they would be lost. "As far as possible, job losses will be on a voluntary basis."