The rationalisation which will see 750 jobs in Ireland and 550 jobs in the UK disappear will cost Avonmore Waterford £159 million and means the group will report losses of more than £100 million for 1997.
AWG is to take the full cost of the rationalisation into its 1997 accounts, but the benefits of the restructuring will begin to show through in the 1998 accounts and will have a full impact in 1999. The group will make £20 million savings in 1998 and £40 million in 1999 and the following years.
The cost of the rationalisation and the scale of job losses is higher than analysts had thought - £145 million had been expected - and the shares closed 5p lower on 255p on the Dublin market yesterday. However, market sources believe the shares are unlikely to fall much further and that any fall below 250p would be seen as a buying opportunity.
The location of the various closures and rationalisations had been expected by the markets, but there was some disquiet that AWG has not yet decided where it will rationalise its operations in the UK, although 550 jobs are set to go there.
But taking the rationalisation costs up-front in 1997 in the first set of accounts from the merged company means that 1998 will show an absolute transformation in AWG's figures. From the expected losses of over £100 million, analysts with Dublin stockbroking firms believe the cost savings and improved trading will generate profits of over £90 million in 1998 and over £105 million in 1999.
That level of profit will allow AWG to quickly pay the £280 million debt in the merged company's balance sheet. The company's own broker, Davy, has estimated the level of earnings likely to be generated in 1999 make a share price of between 350p and 400p a feasible target.
While the merger will make AWG the fourth biggest dairy group in the world in terms of the size of its milk pool, the group is still a comparatively small player in the British dairy industry with about 15 per cent of the liquid milk market.
AWG's managing director, Mr Pat O'Neill, said yesterday the group is in the middle of a detailed review of its UK operations. "We're relatively well-positioned, and we have an inclination towards getting a regional dominance," he said. He added that AWG is in discussions with other dairy companies in the UK about possible swapping of assets which would allow AWG establish such a dominant position.
Analysts believe that AWG would aim for dominance in the midlands and south of England and that one possible outcome is that AWG might swap its Durham and Manchester plants with Northern Foods for some of Northern's assets in the south.
Mr O'Neill said that no decisions will be made on selling any assets until next year. But market sources believe the fruit juice business in the UK and the dairy business in the American midwest are likely to be sold within the next two years.