Wellington, Dec 30 NZPA - The country's largest meat company Silver Fern Farms returned to profitability in the year to the end of August.

International market conditions, a more favourable exchange rate, increased throughputs attributed to drought, and cost containment all combined to deliver the significantly improved financial result, chairman Eoin Garden and chief executive Keith Cooper said.

Profit before member distributions, non-recurring items and tax was $75.7 million, compared to a loss of $36.9 million a year earlier.

The result was achieved on total income of $1.99 billion, up from $1.85 billion in the August 2007 year.

Net profit was $37.6m, compared to a loss of $79.1m.

During the year the cooperative laid off staff and closed operations as it completed its so-called Project Rightsize.

Under the project, the number of fully operational sites was reduced by six, with lamb capacity reduced by five chains. A debt reduction plan of $150m over 18 months was achieved, the company said.

The annual report, published this month, put the cost of termination payments at $22.7m.

During the year, Silver Fern and PGG Wrightson also announced a proposal under which Wrightson was to buy a 50 percent shareholding in Silver Fern for $220m.

After the end of the financial year, Silver Fern's shareholders voted to back the deal, but Wrightson then defaulted and Silver Fern terminated the agreement in early November.

In the annual report, the Silver Fern chairman and chief executive said that while the merits of the transaction were unchallengeable, Silver Fern was not reliant on the outcome.

While directors and management considered the result in the latest year to be positive, they recognised that Silver Fern's ultimate goal of delivering sustainable returns to suppliers was far from being achieved, the two bosses said.

In the 2009 financial year results were expected to return to a more normalised level following the poor 2007 and strong 2008 performances.

Procurement volumes would be lower in the current year. Coupled with firm international market returns, prices paid for stock would increase, but company margins would be reduced.

NZPA WGT mjd mgr