Wellington, Oct 23 NZPA - Farmer meat processing cooperative Silver Fern Farms was hurt by the impact of currency volatility on high prices and strong demand in export markets in the past year.

The company today reported a 16 percent rise in net profit to $43.6 million in the year to the end of August, boosted by a settlement with PGG Wrightson.

Removing the gain from the settlement and other one off items, left an operating profit of $5.1m, down from $75.7m the year before. Revenue rose 1 percent to $2.015 billion.

The settlement from PGG Wrightson came after that company defaulted on an offer to buy a 50 percent shareholding in Silver Fern Farms for $220m, with the global financial crisis affecting PGG Wrightson's ability to come up with a $145m first instalment.

Chief executive Keith Cooper said currency volatility was probably the major challenge the business had to face in the latest year.

"Managing export returns of $2b with currency volatility of upwards of 50 percent in a year has created challenges, and undoubtedly it has eroded margins within the business," Mr Cooper said.

Returns to farmers would be also be affected this year by the level of the New Zealand dollar.

"We fully accept that there are not going to be satisfactory returns for the pastoral sector in the coming season."

That said, Silver Fern's farmer suppliers would benefit from any fall in the currency, Mr Cooper said.

All markets were "very positive to stable" for meat, with some improvements in non-meat items such as wool, pelts, hides and other byproducts.

From an average price in the past season for lamb of around $89 per head, the price looked to be coming down to just under $70 in the coming season.

A two-year process of restructuring infrastructure and the balance sheet had culminated in reduced debt and a lift in shareholder equity, with profitability now the focus of the business.

Silver Fern Farms, which has its head office in Dunedin and is owned by about 20,000 farmer suppliers, said its debt was cut by $57.7m to $184.5m during the past financial year.

No shareholder distributions would be paid for the year "in view of the economic environment and the company's recent focus on recapitalisation of the business".

In July, Silver Fern Farms' shareholders voted in favour of constitutional changes, enabling the company to introduce a modern capital structure, chairman Eoin Garden said.

Subsequently, 5787 shareholders, holding 42.9m shares and representing 75 percent of the total shares eligible for exchange, had participated in an offer which closed earlier this month.

Shareholders subscribed for a further 22.2m shares under the associated rights offer.

Chief financial officer Kevin Winders said shareholder equity rose to 52 percent in the latest year from 41 percent a year earlier. The capital raising would lift that to 54 percent and something above 60 percent was being forecast for 2010.

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