BRF SA (BRFS) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. If you should require assistance during the call, please press the star key followed by zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Thomas Carson of Thomson Financial. Please go ahead.

Thank you. Good morning ladies and gentlemen, good afternoon, I should say and welcome to Sadia's conference call to discuss the second quarter results for 2004. I would like to mention that a slide presentation has also been made available on the Company's website at www.sadia.com under the Financial Reports section. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macro economic conditions, market risks and other factors. With us this afternoon in Sao Paulo is Mr. Luiz Murat, the Chief Financial Officer of Sadia. First Mr. Murat will comment on the Company's second quarter results and afterwards he will be available for a question and answer session. It is now my pleasure to turn the call over to him. Mr. Murat, you may now begin.

Thank you and welcome and good afternoon to everyone. Sadia is very happy to present its results for second quarter and first semester 2004. We are having double-fold feelings at this time. While we are very happy with our operational results, we are happy with the financial results obtained in first semester. As you can see by chart number two, revenues earned to be 2.4b Riyals in the semester against 2.7b Riyals in the previous one, growing 27% semester against semester. Next chart which is number 3, we can compare quarter against quarter. You can see that in the second quarter of this year, exports represented 51% of total sales and continuous growth started back in 1997 when we had implemented the policy to expand our revenues generated on exports. Back from 18% in 1998 we have reached 51% nowadays. Quarter against quarter, revenues increased 36% from 1.3b to 1.8b Riyals.

On chart number 4, there is a revenue -- there is a resume of revenues and profitability indexes. Again gross operational revenue quarter against quarter increased 37%, while semester against semester increase reached 27%. Gross margin in the second quarter reached 32% against 25% on the same quarter last year and in the whole semester it is 33% against 26%. Sorry for this technical problem in the telephone company. Again I'm talking about highlights on slide number four. I was mentioning the gross operational revenue is growing 36% quarter against quarter, that gross margin is up 32% quarter against quarter and some of the reasons for the best -- better gross margin are: First better operational results our plants are each time more productive, our product mix is each time better, we are exporting greater part of our sales, export prices have been good during the first semester. All those factors combined brought gross margin for the -- good 32.4% margin on second quarter. Debt margin. I will reiterate it, which is an operational result, was very good during the year-end in the quarter. We had to reach BRL400m of EBIT, which represents a 166% more than the same profit on last year, same pattern also maintained in the second quarter with a 179, which is a 160% more than 72m of the previous year. And as I mentioned before, Sadia had decided to take some financial managers to reduce its risks. We will touch on that a little later but the net results of such thing are our financial expenses, which reduced the gross profit into a net income of 198m on the semester, which is 8.6% bigger than the same number last year. As a consequence, net margin for the semester raised 6.6% and 4.4% in the quarter. EBITDA cash generation had been very strong so much to 215 less semester or that this semester now we have reached for BRL165m while representing an increase of 160%. As a consequence, EBITDA margin had reached 15.5%, which is a very high number for considering the type of business we are in. Not too many companies worldwide in our sector have such EBITDA margin. Our recognition that exports are representing roughly 50% of sales and we did prophecy on a reduction of our net debt. As a consequence by June 30th, net debt to equity was only 16% I guess almost 47% the previous year. Also consequence of better EBITDA and smaller net debt to EBITDA now is 0.3, I guess 1.3 the previous year. So, reluctant to our operational numbers, our bottom line numbers are very good. Chart number 5 shows the break down of our revenues showing that fur process products, it's the less important item of our sales totaled by poultry cuts. Adding processed products, 0poultry cuts nowadays represent 72% of total sales against 70% in previous year. Through this consequence of very quick inspection of poultry products exports as you are going to see next.

Chart number 6 please, notice that in the internal market 82% of our sales is already done by processed products where branding and quality are very important. On exports, which is on chart number 7, please note that the most important item of our exports dips the poultry cuts. Last year poultry cuts represented 39% of total sales, now that it is 48%. Also, note that pork had reduced it's percentage in a total as consequence of the protest established by the Russian which halted a lot of our exports which we have done last year to that region. By the other token the reduction percentage wise of 14% from processed products of last year I guess 8% now is mostly resulting from a very big increase on chicken exports plus change on the product mix, which I'm going to explore next. So please note, look at table number 8. Last year, most important destination of our exports was Europe. This year Europe maintains 34% of our total exports go to such region. We have made very impressive growth on exports to Asia, while last year only 13% of total sales was going to Asia, now it's 20%. The most important destination here is Japan buying poultry cuts. Also note that Russia while as last year was buying heavily from Brazil -- pork, bologna, chicken and those brought us as a consequence, Russia today represents only 8% of our total exports. Sadia have been able to obtain very good success on expanding exports to America. We're increasing our exports to Uruguay, Chile, and Venezuela. Years ago, we were not exporting to Venezuela; today Venezuela is already a big market for us. And this is specific market Venezuela we're exporting bologna, chicken, and margarine. Margarine and bologna, they have a very much smaller value than the average processed products that we export. As a consequence average export prices are of processed products dropped as a consequence of this very big change on product mix. Chart number 9 please. Note that quarter against quarter Sadia was able to grow 26% in sales. 42% was the growth in volumes of daily need exports, and 15.5% was the growth obtained in selling in the domestic market. In the domestic market such growth is very impressive considering the very slow pace of Brazilian economy. Very likely we're presenting a grow, which is something like 4% larger than the present GDP growth. Processed products growth of 12.6% is very impressive on a market, with very slow economical activity. Look, also the good results that we've obtained with pork, we developed something special cuts that we're selling

market and as a consequence our sales increased 22% in this segment. In exports, we've fantastic results was done in exports of process products from 8.8 to 17,000 pounds. Again as a result of larger exports of Bologna and margarine mainly to Venezuela. The reduction on chicken sales in the domestic market was very much compensated by a large increase in those exports, 44% increase quarter against quarter. In any case bottom line again a 26% increase in volumes, generated that you can see by chart number 10, generated a 36% increase in revenues. Again if you go and you move to shot no.11, you have the resume of the previous two charts. By Chart number 11, you are going to see that while we increased 26% in volumes, we increased 36% money wise. Exports 42% in quantity to

in revenues, Domestic Market 11% and 18%. Please note that the Processed Products, as I mentioned before our

generated at 94% larger exports in volume. The revenue money wise was only 11%, it is a 7% smaller and they were to

last year. Please move to chart number 12; it is the same pattern for the semester. For physical sales, chart number 13, same thing for money. Chart 14, same thing and same pattern for comparing volume in revenues for the whole semester. Exactly the same pattern, the thing that happened in the second quarter, is exactly what has happened in the whole semester, so 18% increase in volumes with a 27% increase in revenues. Please move to Chart number 15, over there you're going to see that average price in domestic market, went up year-against-year, second quarter-against-second quarter, 4.9% for Processed Products, 12% for Poultry, and around 10% for Pork. Please note that some very important costs had a much higher increase than the average price increase we were able to obtain in domestic market. For example, most of our packaging which is Kraft papers, Cardboard, and Plastic Resins, we went up from 7% to 10%. The most important range, which are Soya and Corn, they went in excess of 10% each. And therefore the increase obtained in average price of Processed Products in domestic market, is something like half the increase that we had obtained in costs to produce such products. But,

market was not friendly enough for us to pass a loan, the needed decrease in prices to compensate the cost increases, very lightly into second semester. Much better demand

made it possible for us to increase our prices to reconstruct our margins due to this price cost increases obtained until now. So, as of Poultry and Pork in the domestic market raised more number, so let's go the next chart, which is, number 16. In the international market as I mentioned to you

Processed Products average prices went down due to the different mix, obtained by exports to Venezuela. In terms of Poultry and Pork, prices went up 21% and 36% respectively in realized terms. Chicken prices, during the first twelve months, we suffered a very big decrease as a result of the flu -- the Asian Flu. But lately prices went down and they already returned to the same level as they were back in December 2003. Prices went up too quickly, demand suffered as a consequence price dropped again. So, we are today expecting same prices, almost the same prices that we had in December 2003. The Asian Flu remains -- most of the Asian producers are still away from the market in selling raw meat, we are allowed only to export cooked or processed chicken meat, by the way such possibility had increased exports of Asian producers to Europe. And as a consequence, price for cooked chicken,

chicken sold only in Europe, very weak. As consequence of this extra supply generated by the Asians, in the European market. Chart number 17 please, shows what is going on with the grain prices, which are the most important costs to produce birds and pork. Inn both grains generated -- the increase in prices were roughly 11% year-against-year. But the prices are starting to go down. In June, for example, price of corn that was around 18, today, it is below 17 Riyals per bag. Soya, that was 41, today it is around 38. In any case, we forecast that soya prices are going to go down faster than corn prices. There is a reason for it, you can see in the next chart, which is no. 18. When you take a price for a bag of corn and soya in the Brazilian domestic market and convert it into dollars, the result is the chart shown in chart no.18. By that chart you can see that today's corn price is almost in line with average price since 1998, $5.9 per bag. Meanwhile, in corn, there is still room for the price to go down. On an average, prices are $11.2, prices were at $13.2. We agree with this -- they have this forecast saying that prices of soya will go down and very likely they're going to reach average historical very soon. Other information we're receiving is that crop positions in the states are moving okay; you're going to have a harvest record -- corn and soya harvests. For that reason, we're not forecasting any increase in the grain prices, but in the opposite, prices are going to start to go down.

Please go to chart no. 19 and then you will see that Sadia remains the first one in market share, the first one in all the segments that we do operate. In frozen processed products, we hold 45% market share in revenues. In refrigerated it is almost 30%. In margarine, we consolidated the first position as the most important producer of margarine in Brazil with 33% market share. The three other segments, the chicken, turkey, and pork, we are going to keep losing share again. Each time more -- we are buying more parts and components --

parts from third parties. Sadia today, does not count only on its -- its only -- the animal production --- of animals to produce final products. We are increasingly buying parts and components from third parties to produce final products.

Please go to chart number 20, and then you see that we keep launching new products, not in the same pace as we did in the past. From 1998 to 2003, we had launched more than one product per week, 61 products a year. This present year, we launched already 16 new products adopting the lower demand to our lower pace of new launches. Those 16 new products can be seen in chart no. 21. Three are for the Risotto's ready-to-eat. Two are sweets, Miss Daisy; three are different kinds of bolognas. Three are different types of hot dogs, one type of sausage, two kinds of hams, one brand of steak and one hamburger. Important to say that Sadia is launching further in average for every range of consumers. We are trying to launch products, which can meet the monetary needs of our customers. So, for example, we get entered into selling products by bulk, something that we were not doing before. For example, I bought chicken hot dog and burgers, something that we were not doing before. And in the same line, we are producing some products specifically for nutritional buyers. For example, in one meter long ham, shoulder ham for the --- additional buyers to produce their own sandwiches. Please move to chart no. 22 and then you will see that although our capital expenditures in the last four years had reached around 120 meter rise a year, which is roughly depreciation in those years. This year, we are forecasting to invest a 150 meter rise of which 100 was already this semester. Most important items of investment this year are some new

production. Some new lines for cutting chicken porks for exports, may be Japan. And we are our ERP, which is Germany. All that requires new investments and that's what is counted for this year, 150 meter fully.

Please go to next chart, no. 23. in that you are going to that which is 400m, sorry which operational profit which is 165% higher than the same

in the last June. Net income on that quarter, which is chart no 24. Net income on the quarter reach 69%. So below last year's $97m but when old

we are above 8.6%. So in chart no. 25 net income on reached a $199m against the $183m the previous year. Please note that for several planning’s we have been saying that 2001 was a fantastic year never to forget. Remember it was a year when grain prices were very low when demand was very high. Prices were very strong due to mad cow and foot and mouth diseases. For the first semester this year alone we generated almost the same amount that we had generated during the whole year 2001, we generated 199 net income this year, I guess to 103 to whole year 2001. Same thing relates to EBITDA. We keep generating strong EBITDAs during the quarter. We generated 212 which is almost the same numbers that we had retained the whole year 2000. In chart no. 27, please note that in the first semester year alone we generated the same amount of EBITDA that we have generated the whole year 2002. So our cash position in Sadia is very liquid as a consequence we have kept being able to get lower term lines of financing and we are also able to receive a credit enhancement by the rating agencies extended ----. Both enhanced they gave an upgrade to our risk region. Please refer to table 28, please. Such table we compare quarter against quarter, revenues going near 36%, net operational revenue going near up 34, gross profit going up 70%. During this period same expenses went up 52%. The biggest result for expenses are great. We are exporting much more and due to a record petroleum prices freight costs are up mostly in the second quarter when we compare is not so bad. In any case

expenses quarter-again-quarter is up 22% lower than the revenue, and employees profit sharing is up 77, as a consequence of broader profitability. We are accounting more reserves to pay profit sharing at the end of the year. And the consequence of all that operational results was a bit 179 against 71 last year. Well, let's talk about financial results now. During the last 10 years Sadia was able to do financial arbitrage, we are getting loans from financial institutions mainly trade related lines in semi

long term lines. And, we've been bought Brazilian sovereign debts, and during those years -- the last ten years we generated very good profits or financial gains every single year. Well, last year we also accounted big profit, while selling part of our

. At the end of the year our auditors at that time required that we accounted our financials investments at market price. Well, for the first time Sadia is doing that. Please note that, if we come back to year 2000 for example, at time in October previous to election, Brazil risk was very high and as a consequence if we at that time would have to sell our financial assets we would generate an $110m of net loss. But, nothing happened because at that time the titles were accounted in the

not by the market. And, so the potential loss was not accounted, although such information was written in the notes of the balance sheet. Well, since December last year we were accounting our financials at market price. Well, you all recollect that some of the political crisis that we had happened during the first semester. As a consequence as per the first quarter, we had generated a financial loss. Well, our shareholders have asked us then to reduce the risk and to stop losses. So, we sold our governmental securities during April and May this year and as consequence we will generate under 110m Riyals of losses. This is one-time losses. Now, our financial assets will not be suffering the market changes in prices as before. We are now investing in titles, which do not suffer the same consequence of price variation as before. Well, as a whole sequence of that our value at risk is down. If you move to chart number 29, please note that while back in '98 all our financial assets were at a risk of 8.4% of our net worth. In 2002, previous to election this number exploded to almost 36%. Well, that was very unprofitable and then during the year 2003, we started moving such things so we realized a lot of our investments during the year 2003, which by the way generated a big profit which in was accounted and, which was already generated a dividend and so on. Well, this first quarter again we generated some losses and as a consequence our shareholders asked us to sell and recognize the price at

standards. And, so we sold most of our governmental portfolio. And, as consequence today what we do have are mostly banks and companies papers, which do not suffer the market price variation as the previous once that we had. Today we are investing most of our money into CDs or credit link notes towards which we do not suffer a volatility on the course of the principle, and we have fixed income on all of our financial assets. As a consequence today our value at risk is back to at a 8.4% level. Just in line with this issue a lot of years, almost ten years financial

was a very important item for Sadia, in some years financial

generated profit and left to be distributed and to be otherwise some years we are likely - we will not be able to have dividends. But in any case we were successful force so many years, in this year on the other side as we moved to another part of profitability in the company, and as operationally we are already generating a very good result, it is in the spending of our shareholders that we need to start reducing the financial

in Sadia. Reducing the financial

we reduced the gains in the future, but on the other talking we reduced the risk of losing or having financial expenses as you have had in the previous quarters.

Situations are already done is one time it is no more have to repeat. Well same numbers you can see in chart number 30, please also note that while gross operational revenue went up 27% in the same asset, so expenses went up only 26

of spaces, 26 again. In points profit sharing has increased as a result of better profitability on the company we are waiting for reasons of higher number than last year. Let me touch on that, by the way last year Sadia distributed a record benefit profit share to our employees, the last month got this point right away, Sadia's human research policy, in salary policy is the following: For Sadia to be competitive our people need to reach operational targets to receive bonus and as receiving bonus they are going to reach the third quarter of the market. If they do not obtain the budgets and therefore they do not receive their bonus, the total revenue in the year would be much smaller than our peers and so salary will be not competitive. Well for last year our shareholders had established a target of very high return into economic value added. After lot of years this joint value, last year Sadia was able to generate heavily values, because generated value Sadia GVS internally marked the economic value added as their most known name in the market. Well as opposed

of such establishment of policies last year, that gives 1000 employees of Sadia supervisors, normally using directors did receive a record profit sharing. For this year that these base load is the following: Full directive to receive the targets bonus, they have to perform an EVA 6% higher than last year, I am going to repeat that last year EVA was already record, well target for this year for all the after debt, the management will receive bonus is repeat last year EVA or GVS plus 6%, which is, yes, we're very good if results are fantastic, profitability is a miss, profit sharing will increase, but in any case, profit sharing will never be higher than 50% of the dividends paid in an year. This is a new rule already in place for year 2004. Well, returning again statement

, so, we had reached a record for 100 meter raise of a

and then after results of financials as I mentioned, income before taxation of 265. Please note, that we are provisioning a much higher percentage of income tax, a social contribution, this year than last year. What else, now, lets move to chart number 31. The page only suggests financials today, the year-to-date is clearing 3.2b Riyals of total debt, against 2.7 the previous year. We are carrying 3b Riyals of financial assets, against 2.1the previous year. So right now, we have a net debt of 258m Riyals, against 650m the previous year, and as a consequence net debt to equity is much as more today as 16%, than the 46% last year. Same thing related to net debt to EBITDA which 0.3 against 1.3. All Sadia net debt today is rise on the determinate, Sadia is my policy that we are not running any

, FX risk anymore. Chart number 32 shows the evolution of net debt to equity reaching the 15.8, please chart number 33 shows the same thing on EBITDA, then you have the quotes of Sadia, showing that as of today, as of June, Sadia had 4.5% against the 2.4% a book-value. Sadia, was traded at a 169, against in May last year when it was up 58% of book and against, again 118 in January 2000. Well, we keep being the most active traded share in

in the food business, with 54% of the total shares traded in the food business are Sadia shares. Well, what we are seeing for a second semester is the following. We believe that Brazil, is getting each time better, demand is much better today, than it was before. In June, we are ready noticed -- like much better improvement of sales in the big seas, gone in a previous months before Sadia

the domestic market, was basically grounded into small series in a country side in food service. Starting June the biggest cities demand started to come back. And there less unemployment and are there is some increase in economic, that gives you some -- therefore, there is more incomes to be expanded in the -- people are buying more food. For -- in the International scenario. We do believe that we are going to start exploiting till they send -- resolution that we have done in the past. We are not forecasting the price increases at all, but maintenance of our previous of the present prices, which already give a good margin. That's the-- those are the information's and before I forget, as a result of the investment that we are doing this year into the new ERP. We are going to be shutting down our computer during three days at the end of the quarter. As a consequence, please be aware that there as more chance or better chance that we are not going to be making our meeting next quarter so soon as this time. Very likely, it's going take longer for us to do the meeting, because we're going to be, it is going to take longer to us to close our accounting. That is going to be one time only, only in the third quarter again a result of this change in our computer system. I also thank you very much, all the analysts that had recognized our --change in our policy regarding information's. Since this previous quarter, we are not giving any more information to the public, from the closing of the quarter until the publishing of the information to the whole public. We are not receiving any more for interviews and so on because we think such method could give indirectly some hints or some information, which is not there, and we think information should be given at the same time for everybody. For that reason, from the closing of each quarter and until our release of information, we are not going to give public information of our numbers. While though that's the information right now please I'm ready for a question. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star key, followed by the one key on your touchtone phone now. If at any time, you would like to remove yourself from the questioning queue, press the star then two key. I would like to mention that today's conference is held exclusively for financial analysts and investors, we kindly ask reporters, who may have been participating in the conference call, to please direct any and all questions to the Company's press relations department. Please restrict your questions to two at a time. Again, press star then one to ask a question. Our first question comes from the line of Daniella

from Assistant

Bank.

Good afternoon, Murat. Congratulations again for a very strong operating results. I was wondering if you could provide us some guidance, on how do you see the performance of your product, that they put the market channel for, how do you see in general sales trends since June. The perception has restricted the retailer, is that -- there has been a hiccup in sales and in consumption trend, since June. So, I was wondering if you also share with us, if that have been the case for Sadia, that's my first question.

Thank you. You are very correct Daniella. While June 2003, was the worst June in 10 years, June 2004, is the best June, is the best month of the year in the internal market. Really, we had noticed a change on the pattern of consumption. Customers are returning to the big super markets. In the remission before, and I don't like what had happened before, Sadia's growth that was very much with the profits only in the small countryside cities. And it's additional buyers, now we are able to grow again in big cities because demand is coming back to the big cities. You are correct; we are having the perception of the big super markets.

And that is -- just a follow-up on that and also through for you sales meet, meaning your spending more value-added products, as well?

You are correct. As you could see in our product, in our launches, Sadia believes that we need to try to sell our products to every and in each class of consumer, trying to put in their hands what they have in their pockets. For that reason, we are not only launching Class A products, but Class A, B, C, D products. Even products by both. Something that we're not do in the past we're doing today, because that's something of the characteristics of our public, and they require that and we are doing so. We are, you are correct; we are making special products to try to meet the demand on the wallet quotation of our customers.

The second question is with regards to margins guidance for the rest of the year. You are at roughly 33% -- 33.5% of gross margin for the year and EBIT margins of 13.5%. You expect to maintain this level of stability for the rest of the year or can it be even higher than that?

No. What was

to be higher. What had happened, we were very helped this quarter with very high prices on the Asian market. For you to understand, during December, we were exporting chicken legs at roughly 1,800 per ton. In the beginning of the second quarter, we were able to -- in the end of the first and beginning of the second, price had reached 2,500 pounds today it is 1,800 again. So, we had very good international prices. We don't think that we are going to have the same standard of average international price as we had before. The second thing, the international competitors are focusing very much on producing value-added products. As I mentioned, the Asian produces they cannot sell raw chicken, therefore they are progressing a lot of cooked, baked, and processed products and try to export everywhere. As a consequence, international prices for processed products are soft. Let me put it differently, the only way for us to maintain high gross margin as one of the things - - or some method is if we are going to be able to pass along some price increases, which will enable to pass during the first

. As you saw, some of our costs went up from 7% to 10% in our processed products prices went up much less than that during the first semester.

To me if demand picks up as you expect then there could be room for price increase and therefore there is a chance that you would maintain the 33.5 gross margin or at least --

Yes, that's a good bet. To be on the conservative side, I would say that we are going to be in-between the 2003 and 2004 number. Very unlikely, it's going to be below 2003 and very unlikely it's going to be higher than the 2004 numbers up to date. I would put them in-between I think I would be a good bet.

Okay. Thank you Murat.

Okay. Thank you for the questions.

Thank you Miss. Ben Harper. Our next question comes from Juliana

of

.

Hi Murat. I have some questions the financial losses, you showed us this graph that the value of risk for the company over time. Did you have this graph and it's control

is being placed in the past or that's something you were just seeing it now? And what kind of risk do you think it's a

that you are comfortable with going forward?

Okay. Thanks for the question. In fact, only last year we implemented a risk management system in Sadia. We had hired professional people to work on that. We had hired software specific for that and we are looking forward in a day-by-day manner different than that we had before. We do believe that this level of around 8% of value at risk from the network is a good number. And that's the perception for our shareholders for the moment and that's the number we are going to try to follow from that down, not from that up. Okay.

Okay. Great. One more thing, in terms that you was de-leveraging now and should leverage again in the future. Is it fair to assume that the volatility in the financial results will be considerably lower from now on?

That's perfect, Juliana. Let me reinforce what you've just said. For several years, financial arbitrage was a must in Sadia. Only for the fact that an alternative was there and operationally we were not generating enough. Nowadays we are in a different word. Operations were running very well and there's no more need for us to run such risks. So, we're going to be reducing financial arbitrage in the next future for Sadia, each day more. As of today, the financial instruments that we have, they do not run the risk that we're having today, but even though we're going to start reducing each time more financial arbitrage.

Okay. Great. One more thing, is the improvement in receivables turnover a variety of function of the increase of the funds directed to the receivable funds over. So, can we expect more of that or a stable liable in terms of the receivable base in the future?

Good question. As you are aware, the receivables fund that we've done last year for $55m was due in June. So, it ended, and then we started a new one. Our new one, it's going to be something like $80m, part of it is already in-house, we're just finishing the operation with some banks. By the way, we're very out - oversubscribed on the -- for funding for such funds. But you're correct, there's a few room for more money to get -- to be cashed from the receivables front, in both, in the domestic market, and international market. As a consequence, net that, they have - the trend is to grow even lower, and it will go lower until we have a new investment scenario, in that we're going to start using that again, before that is going down. You know that our clientele cycle went down - went from 25 to 14 days.

So, it goes to 14 days?

It is at 14 days, it is now. It was 25 before and it's at 14, and we're going to

paying the way we are now.

Okay. As you just mentioned, what are the plans in terms of Capex sense, capacity increase for the next, let's say two years.

Our effort at time being we are still -- we have those to approve last year investment of 150m Riyals for the year. But, very likely -- just remember we'll do a review in the next quarter. There are some alternatives, some opportunities are starting to show in, very likely in the next quarter, we're going to be able to represent a better forecast. For the time being, Capex for 2004 is 150, but it will be reviewed in the third quarter.

It will obviously be an upward vision and you would be talking about this making an acquisition or will be on your plans, what kind of scenario to foresee?

There are several alternatives on the table, but most of them are investments in increasing our line, so we're not forecasting any greenfield for the moment and we're not forecasting any major acquisition for the time being.

Okay. I think that's it. Thank you.

You're welcome.

Thank you for your question Ms. Rosennbaumb. Our next question comes from Dulhama

of Bank of

.

Hello, Murat. Your selling expenses related to net revenues this quarter came in very high at 19.4, you already mentioned that as a cost of freights were very high. Do you expect that to be maintained over the next few quarters?

Our expectation is that we had also a higher concentration of freight payments on that movement, but the increase of sales and the increase of logistic system will start to dilute some of our costs in such a way that we expect that we're going to bring this number down again. I can't give you too many details about it. It's about the member, we will go down. That's what I can tell you for the moment.

Okay. Thank you.

Thank you.

Thank you for your question Mr. Aluda. Our next question comes from Daniela Ben Harper of

Bank.

I am going to ask you a follow-up question. One is regarding the drain outlook for the rest of the year from you. Please give us your estimates for the performance of soybean and corm for the second half for 2005, if you have it?

Okay, our crystal balls sales following varying prices, the corn prices in the second semester will be in the 16 Riyals to 18 Riyals per bag and soya price will be in the 35 Riyals to 38 Riyals per bag. That's our forecast for the rest of the year. You know, we keep our policy of not to maintain inventories. We are always short as a result of our vision of prices going down.

Okay. And with regards to the SG&A, do you expect them to stay, I mean, as you mentioned there was a pressure or trade, but do you expect that to come down for the second half with the continuous level that we saw for the first half?

We expect that it will be maintained as they wonder, we having the first semester in north end of quarter. The number will be maintained as they wonder we have in the whole semester.

Okay, thank you.

But, the percent is rising.

Correct.

Thank you for the question, Ms. Ben Harper. As a reminder, if you would like to post a question, please press the star then one key on your touch-tone phone now. This concludes today's question and answer session. Mr. Murat, at this time, you may proceed with your closing statement.

Once again, Sadia is very proud of a very strong operational results. We do believe that we have turned Sadia into a much better Company than some years ago. We are ready to maintain such stability and proceeding that these financial laws was one-time only, we forecast you that you are going to have some blue skies in the next future. We thank everyone for your attention and please feel free to contact us at anytime. Good afternoon to everyone. Bye.

That does conclude our Sadia's second quarter results 2004 conference for today. Thank you very much for your participation. You may now disconnect.