Silver Fern Farms expects to reduce its debt by $100 million by August 31 and says the proposed investment by PGG Wrightson would lower debt funding costs by $16 million a year.
In a trading update released on Friday, SFF forecast shareholders' equity to increase from 37% as at August 31 last year to 48% by August 31 this year, and the return on capital to lift from minus 18% to positive 10% over the same time frame.
The Dunedin meat industry co-operative expected total borrowings to fall from $330 million in August 2007 to $230 million, a decline of $150 million in 18 months.
Chief executive Keith Cooper said the trading update included further restructuring costs, which were not confirmed, so there was no profit forecast.
SFF reported a $26 million turn-around in its six-month result, from a $14.6 million loss to an $11.2 million profit on the back of positive cash flow, reduced working capital, lower inventory, the disposal of non-core assets and $5 million from issued shares.
Speaking at a shareholders' meeting in Balclutha, Mr Cooper said better inventory management would further benefit the company's end-of-year bottom line.
In response to a shareholder's question, Mr Cooper said SFF was not under any pressure from banks over its level of debt serving, which equated to about $1.25 a lamb equivalent.
All companies had to service debt and Mr Cooper believed SFF's level would be within 40c to 50c a lamb of other meat companies.
If 75% of rebate shareholders agreed to the $220 million merger with PGG Wrightson, Mr Cooper said SFF would principally use the cash injection to reduce debt, but also for working capital and capital expenditure.
In addition, SFF would have the resources and financial flexibility "to fast-track the change programme already under way".
