BRF SA (BRFS) 2005 Q2 法說會逐字稿

[OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Ricardo Garcia of Financial Investor Relations Brazil. Which as a reminder is the successor of FIRB Financial Investor Relations Brazil. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to Sadia's conference call to discuss second quarter 2005 results. I would like to mention that a slide presentation has also been made available on the Company Website at www.sadia.com under Financial Reports section during this call. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of market economic conditions, market risks and other factors. We are both today in San Paulo this afternoon is Mr. Murat, Chief Financial Officer. First Mr. Murat will comment on Company's second quarter 2005 results. Afterwards, will be available for question and answer session. It is now my pleasure to return the call over to him. Mr. Murat, you may now begin.

Good morning. My name is Luiz Murat, I'm CFO and Investor Relations Director. We are happy to present our results for the second quarter. As you are going to see in the first slide, our sales are up 15.6% when comparing first semester 2005 with first semester '04. With 50% of our sales coming from exports and 50% from sales in the domestic market.

On the next chart, please, note that gross operation revenue second quarter this year against first quarter of this year is up 7.5% with a gross profit going up 13.4%. EBIT is 26.1% higher, and net income, 43.7. Now, somebody can say, well, why he's always talking about second quarter related to the first and not second to second? Well, think the best way for us to compare the big change that we're making in the Company is to talk on a shorter-term than a too long vision. Well, we must not - - we must remember that last year there were two very different situations than as of today, or three most important reasons. First, we have the bird flu impact on the first semester last year that made all prices jumped to sky, which are very good margins on the first months of the year. Second, dollar was much better related to Rial than today. Third, on the second quarter, we had suffered a major impact while realizing our Brady's(ph) investments. Therefore we had very large financial expense. For all these reasons, we suggest that I'm going to be making all my presentations comparing second quarter '05 to first quarter '05.

Coming back again, net income on second quarter this year of 144 - - is 44% higher than the first quarter. Net margin is now at 8%, again, 6.1 on the first one. EBITDA also is going up 20.6%, reaching 193 million, again 160. As a consequence EBIT margin is also going up from 9.8 to 10.5. We are in a continuous process of getting our profitability back. We had been at the bottom of our profits at the fourth quarter 2004. Several measures have been taken and I'm going to explore all these later on. I just mention that exports are 52% of gross revenue. Net debt to equity is at 32.7%, still very convenient, still very low, but no doubt is higher than the past due to fact the are making major investments. We are going to touch on that later, and same thing for net debt to EBITDA, very close to 1 and it was 0.8 last quarter.

Please go to next chart. You all know that Sadia looking into exporting or selling each time more processed products. On first quarter '05, 45% of our total sales was done off processed products. Poultry cuts was 23 and whole poultry 18%. Please note that pork sales, as such, represent 10% of the total, while it was representing 5% some years ago back in '98.

If you please, look at next chart, is export prices, is for you to have good measure of what is value-added. We start - - most, roughly 70% off our exports are for chicken, and the price for chicken is $1.2 per kilogram on exports. And you are seeing the value added on all the curve, from $2 for a leg, $2.40 for chicken breast boneless, reaching $3.60 per kilogram on a breaded chicken breast. As much as we can, we are expanding sales of processed products internationally as the same thing we are doing in the domestic market.

Please look at chart - - our next chart is gross operational revenue. Over there you see that out of the total sales, again, 45% is processed, is now 10% of pork, and it was 8% of pork on the first - - of last year. Don't forget last year Sadia hadn't taken important decision, which we regret today but that's the way it is. At that time, we were expecting that Russian exports were going to be halted, therefore we reduced our production of pork. As a consequence, we had very bad results due to the fact that we maintain our fixed cost structure. We don't producing the same amount of pork as before. The next stage is that we were forced to buy pork in a market, carcasses, live animals, piglets or even pork legs, paying much more than the cost of such products produced in-house.

Please move to next chart. We compare first semester '05 against '04, not too much change on the breakdown of sales. Again, roughly 80% of sales in domestic market is done out of processed products. Please refer to the next chart and you are going to see exports. On first semester this year, again, we had maintained our precitation 11% on processed products exports. The reduction percentagewise of poultry cuts was reduced - - was due to the increase on pork exports from 12% to 15% of total.

Please go to next chart, exports per region. Back in '98, almost half of our exports was going to the Middle East. As of today, Europe and EurAsia, mainly Russia are head to head as leaders of our export destinations. The good sign of this table is that our risk is very well distributed in different regions of the world with very different products and product mix to each of them.

Next, chart please. Goes exports by region, semester against semester. The biggest change here is due to the revamp of the Russian exports. First semester last year, only 18% of exports was going to EurAsia and now 24% as a result of the exports to Russia. Also important, is it continues our growth on exports to Americas. It was representing 90% of exports last year and now is 11%. Please go to next chart. It shows growth of our sales volumes. Biggest growth since '98 is in processed products, which on average 11.8% annual average growth in such products. Followed by pork and poultry. Again, note that pork production in 2002 and 2003 has reached 151 million tons. Sorry, thousand tons. And with a drop to 128 in 2004 resulting from the decision I just mentioned some minutes ago due to the Russian limits.

Next chart, please, shows that employment in Sadia has been growing at 9% average since '98 from in 22,000 that year reaching 44,000 employees in June of 2005. Next chart, please, shows that chicken producers worldwide, the most important remains USA, China and Brazil is the third one followed by Europe and Mexico. Biggest growth since '99 has been Brazil with 44 - - 54% growth in that period. Next chart, please, as exports, biggest exporter today is Brazil, which to 114% growth during that period. We can see that U.S. had reduced participation in the market and Thailand and China, natural result from the virus crisis and Europe with a very small growth of only 5% during the same period.

Please refer to next chart. You already know that nobody can beat Brazil in live bird costs. Brazil is by far the best cost, competitive producer of chicken, and we are going to have the same situation for pork. So in the years to come, we forecasted Brazil will be turned into a major exporter of pork, as repeating the same job that we have done for chicken.

Please let's move straight to chart on pork producers, please. Over there you can see that pork is the highest produced protein worldwide. Total production of pork worldwide is 93 million tons per year, while for chicken is 55 and for cattle is 50. The biggest producer is China followed by Europe, States and Brazil. But is very impressive the latest growth on this segment for Brazil. I repeat again, and Brazil is only supplying Russia internationally in good volumes. So imagine what is going to happen, when we are going to start supporting to Japan that buys roughly 30% of all pork traded worldwide and some other country worldwide. It's going to be a fantastic opportunity to be explored.

Then let me move to -- wait a second. One second, please. World producers. Exporters. I'm sorry. The next chart is main world exporters, which shows that Europe is down 28%, Canada is up 76. This is main world exporters and not producers. We're sorry about it. I repeat, although Brazil is not exporting to Europe, nor U.S., not Japan, we're able to grow 464% of exports during the that period. And very likely what is going to happen in the future is that Europe will be reducing their participation each time more due to their less competitiveness related to Brazil.

Next chart shows total production, or consumption of meats where you can see that pork is by far the largest. But very interesting is the next chart, please, that shows meat consumption in the world and Brazil. There are two types of meats that were - - the trend is the same as related to Brazil. If you'll see the growth in consumption for pork and for beef, the curves are almost the same, the same shape. But when we look into chicken, we can see there is still fantastic opportunity to be taken internationally. The growth of consumption for chicken in Brazil was much faster than what had happened worldwide. And that's another very good opportunity to be explored.

Meat consumption per capita, in Brazil, biggest one is beef, different than in the rest of the world, followed by chicken and pork. Bear in mind that while Brazil, pork consumption is only 12 kilograms per capita. It is around 43 in Europe. So it's - - there's also a fantastic opportunity to be explored also in the Brazilian market if we're able to double up some changes in eating habits of the population, the same fashion that we have done with chicken.

Next chart, please shows annual average growth of Sadia's production and we compare everything we have done with world GDP and Brazil GDP. Please, from year '90 to 2004, Brazil GDP was growing at an average 2.5% per year. During this same period, world GDP was growing at 3.5%. But Sadia's production was growing at 8.4% and reaching 10.7 in the growth for processed products. So we are growing much faster than the total market, and we forecast to be maintaining such pace in the next years.

Please go to sales volume thousand tons comparing second quarter 2005 with first quarter 2005. The last line you see that we were able to grow 6% of our sales - - total sales reaching 450,000 tons in the second quarter '05. Of which 13% was growth obtained on exports and we reduced our tonnage sold in Brazil something like 2%. But we need also to qualify this drop. Most of this drop is related to poultry where we reduced 5,000 tons. sales in the domestic market. But by the other token, we exported more than 20,000 of the same product. So it was a tactical decision to export even more poultry.

Important to name that in the first quarter, most of this 34,000 tons sold was chicken produced by So Frango, a company that we acquired in December. And during this latest months, all its production is already part of the total production for Sadia and is part of our portfolio. So it's giving a different destination than it had before. Also, bear in mind that this 6% growth during the period is much higher than GDP of both Brazil and worldwide.

Next chart, please. You'll see that revenues went up 7.5% while we had 6% increase in volumes. If you look one more time, we can see the resume of it. So then we compare 6% growth in volume with a 7.5 increase in revenues, 13% in volumes exported, 17% in revenues. Here it's also very important to mention that is different breakdown of products and is different in that we were able to compensate part of the devaluation of the dollar with some increase in dollar terms for sales.

Next chart, please, domestic market prices, second quarter against second quarter, prices went up only 1.2%. Important to mention that during the same period, prices in Brazil went much faster. EPCA in Brazil was up 7.3% during the same period. So, price increases on the sale of processed products were way below inflation of EPCA during the same period. Also important to remember that 80% of our sales in the domestic market is done out of such products, processed products.

Please let's move to export market. On export market, the most important export is poultry. We are doing also the same corporation during the latest year, prices, average prices for poultry went down almost 11%, while dollar drop was kind of 15%, so what had happened? Although we're able to grow 4%, our average prices for poultry on exports, the drop of 15% in the exchange rate brought average prices in Reals down 11. So all of our commercial effort on increasing average prices were beaten by larger than expected drop on the exchange rate for dollars.

Please move to next chart on market share. Again, Sadia is the first one in all segments that we operate, had very good gain is the margarine with the 36% market share up now. Please go to next chart. Sadia is continually launching new products. We launched 60 products average '98 to 2004 per year. During the first semester we launched 25 new products, of which - - please go to next chart, some of them are listed there. We had launched some new ice creams, some new desserts like gateau, some sliced chicken.

Next chart, please, some new salted tarts and 12 new special beef cuts under the brand name Sadlar, Sadia's brand. Also we launched new flavors for hot pockets and Vita Soja line, which are products, 100% meat-free which are made out of soy most of them. So we have nuggets, we have pastas, we have hamburgers out of soy. Next chart, please, we resume first semester this year against last year. Again, on first line, we see that gross operational profit is up - - sorry. Gross operational sales was up 15%. Net operational profit was up 16%. Unfortunately, cost of goods sales on the period was 27% higher. So, again, a very big fact of the higher cost of acquiring pigs. But if we click - - let me keep going on this one. Then we have gross profit was 32% first semester last year against 26 now.

EBIT was 13% against 7.3, but then you look at income before taxation that was 9% last year and 8.3 now. But when you get net income, we have 245 million Reals net income, which is 23% higher than the same number of last year. As a result, EBIT is 10.3%, also coming up from low level of the first quarter and for the fourth quarter last year. What is very different this semester against the previous one is the financial effect. Let me also mention that please note that on first semester '05 we had a net effect of 133 million of financial result against now in the first semester we have financial gain of 32 million. Why so? Again, last year we had - - we sold our Brady's and we also were effected by some dollar changes, but most of it is the effect of sales of the Brady's.

First semester this year, most of the fact is done by financial gains on the financial arbitrage, which is historic on Sadia. With a very good help made from hedge. We have a policy today, I have already mentioned to you before, that nowadays, Sadia is its hedging is payments and receivables in dollars during the next three months in a way to reduce the volatility of the exchange rate. The gains on this hedge is accounted here in the financial result. So, part of the dollar that we are losing on gross sales of gross revenue is compensated in financial income.

If we move to the next chart, please, when we compare second quarter to first quarter, it's important to see that net operational profit is going up. Now, gross profit is 26.5% against 25.6. We are able to increase revenues at 9.8% while cost of goods sold went up only 8.5%. We are sorry that this charts all had this problem of translation, is net operation revenues of 9.8 with cost of goods sold of 8.5. We're able to maintain, save expenses in line with net operational revenue, obviously expenses went down. Total amount in percentagewise, employee's profit sharing is related to their record profit. EBIT is, again, 26% higher than last quarter, 140 against 110 million Reals.

Again, financial expenses that we had of 4 million in first quarter was compensated by very good results on the hedging, as I mentioned before. Financial results are down 36. Results of all this net income is 44% higher this quarter against the previous one reaching 144 million against 100. EBIT is also - - EBITDA is also better, almost 21%, reaching 193 million against 160.

Next chart is going to be quick, is gross margin. We are bringing profitability back. There's a lot of work done by all employees of Sadia. We are very focused on enhancing profitability, reviewing our production lines, reviewing our product portfolio, discussing prices internationally, maintaining costs down in such a way that gross margin is going up. We do not forecast major impacts on costs on the next months, including rains, we forecast them to be very stable in the next months for the next semester.

The expenses are down from too high levels of last year. What was wrong was that levels of last year were wrong as I already mentioned, we had very high fixed costs not compensated by the right volumes of sales. Sales are picking up, percentages going down. We forecasted this percentage of 17.5% is going to be the ceiling for the next months, very likely percentage of serious expenses are going to be below this number on the next months. EBIT margin had reached a record low 4.1% for quarter '04, but is coming back to 6.8 and now 7.8. So, second quarter '05 against first quarter '05, we are up 26% on the chart of EBIT.

Next chart, please, is net income. Same history. Net income now is 44% higher than the previous quarter, reaching 8% against 6.1. So is the best net income percentage same for the second quarter last year. EBITDA, that's the reversing of the curve, after fantastic fourth quarter '04, the number was going down until reaching 7.7 bottom in fourth quarter '04. Then second quarter '05 against first quarter is up 20% reaching 193 million.

Please look at next chart. We keep making our investments after investing something like 110 million Reals during year 2001, 2 and 3, we invested more than 240 last year. First semester alone, we invested 288 million Reals out of the 500 forecasted. Very likely we are going to be investing a little bit more than 500 with some of the finishes to be made in next months. All the investment done by Sadia is in our twelve cities not investing any greenfield at the moment and none of this investment is for acquiring anybody. We are - - all the investment is done in-house, taking the bottleneck off production in different factories, as I mentioned before.

Total debt, next chart, financial indebtedness, total debt for Sadia was 4.3 billion in 2004 June. And June 2005 is 2.7 billion. Financial investments that were 3 before is 2 billion now. So net financial debt, which was 240 million in June last year now is 640. Most of this increase is related to the financial level of investment we are having today. As a consequence, we have the net debt to equity and net debt to EBITDA levels higher than before, but it's still very, very convenient and very low.

Next chart, net debt to equity shows that we had reached 32.7% in second quarter '05. Next chart is net debt to EBITDA shows that is almost 1 EBITDA to pay net debt, also very low for our segment.

Sadia, next chart, please, Sadia was just communicated this week by BOVESPA that next month we will be part of the BOVESPA index. There are 65 shares in the BOVESPA index for 47 companies and Sadia will be among them. If it would be today, we would be in position 35 in all the index considered, which are presence on the trading days, volumes and liquidity. As of today, 95% of trading for Sadia's shares are done in BOVESPA with an average 11 million Reals average per day. Almost 4.5% of trading is done in ADR's in New York Stock Exchange. Roughly $580,000 per day. And 0.5% of the volumes is traded in Euros and Madrid.

Sadia remains - - next chart, please. In breakdown for investor, Sadia remains as one of the companies with the largest percentage of Brazilian individuals holding our shares with 34.6%. Followed by international investor holding 33% of our shares. In the food sector, Sadia remains as the most traded share in the market in excess of 57% of trading.

Next chart's recommendations, we just list a lot of banks and trading houses, which give their opinion on Sadia. Some of them are not updated, but in any case, all of them are neutral or hold or buying. There is no selling and average target price was 60% over the present price. Last semester, Sadia retained very important prices, less we were considered the most valuable brand in Brazilian food sector. Our brand values $189 million.

This study done by Interbrand, a British consulting firm. And it was among the Brazilian companies the one that has the biggest valuation - - growth of value this year. We also received from Reader's Digest the number one most trusted brand in the category of ready-to-eat service interests. We also received premium - - most admired supplier among bakery owners and managers according to VCI Newspaper. And our - - FREAS(ph) swine sustainable program, Sadia received wiener prize as - - environmental award from the Ancham, American Chamber of Commerce in Rio.

We are confident that all the management of Sadia is very in line which making profitability go up. We know that our results are still very below what is able to be done in our Company. We are all - - we all, 44,000 employees are working to bring back profitability to a much higher level than it is today. This is information that have I for the moment. I'm ready for questions. Thank you for your time.

Thank you, ladies and gentlemen. We will now begin the question and answer session. [OPERATOR INSTRUCTIONS] Our first question comes from Victor Eliano of HSBC. Please go ahead.

Hello. Just two questions. First, on the earnings, below the EBIT line, the equity pickup was a very big negative for the quarter, 139.5 negative. If you could please explain to us what that is all about? And if you could give us in terms of the CapEx, which you projected around 500 million Reals for this year, if you could give us a sort of divisional breakdown as to where that CapEx is going and maybe what percentage of that is maintenance? So, what is new CapEx relative to maintenance CapEx and also overall, what is the breakdown by division? Thank you.

Okay. Let me ask again, you are comparing semester against semester or quarter against quarter for me to give an explanation on the equity pickup, please?

On the equity pickup, it was actually quarter on quarter because the first quarter, if you look at slide 34, the first quarter was a 4.1 million Real gain and you are then looking at a 139.5 Real million loss.

Okay. What is - - let me explain what is financial results is financial expenses less financial income. Pure financial is relating to banks and how much I pay, how much invest in banks. Equity pickup is, most of it, is the result of operations offshore. But the fact is most of operations offshore is resulting from financial gains and losses, plus exchange rate variations in our investment in our offshore companies. Okay. That's the reason why when we present, we present financial results plus equity pickup, which the sum of numbers.

I see.

Because most of equity pickup is financial results, but what comes into equity pickup is also a lot of the exchange rate variation in between currencies. If I sell - - because you know I sell 70% of our sales is done in dollars. 20% in Euros and 10% in pounds roughly.

This is of your exports, of your total exports?

Yes, of our total exports. So not only that we need to take care of exchange rate in between-- dollars, but also in between the order of changes and dollars.

Okay.

And all of this is done in our offshore companies, not done in Brazil because unfortunately we do that because the Brazil law is kind of crazy on this business.

Yes.

Gains on exchange rate are taxable right away here.

Right.

While if you maintained them outside, are you only going pay tax when you really bring the money in. For that reason, we do all the financial hedge and so on as much as we can, everything offshore Brazil.

Okay.

That's the reason. Does that explain the first one?

Yes, no, that's - -

That's the point?

That's fine. Thank you.

All right.

Our next question comes from [Bernard Carnillo from Bank Santonere]

Hi, Murat, how are you doing?

Fine, thanks.

I have two questions. One, I would like to see details on the CapEx program from 2006, 2007. And also - - I mean next four years it seems that you have something around 400 million Reals per year or 500 million. And what are you doing with the investments, like if it's pork slaughtering, if it's poultry, if it's all the bottlenecking or a greenfield? And the other question, if there would be for the accounting changes and the reconciliations as did you in the first quarter, and on the second quarter as well? Thank you.

Well, most of the investment that we are doing right now, the breakdown is 500 this year. 400 is in products being chicken, pork or processed. 53 is marketing. 27 is IT and 9 is all the remaining. On the 400, roughly 60% is in birds and 40% are in pork and processed products altogether. That's the breakdown for investments this year. You are correct, we are investing much more than we had in the past, again from an average 110 in 2001 to 2003, we did 240 last year, 500 now. It very likely is going to overpass a little bit this 500. We don't have the final numbers yet, but for next year roll off term 500 plus is a good number for investments in 2006.

And which number can I work with for 2007 and '8?

We are not there yet. I don't have it. Our tri-annual is not yet for 2007. So the only number I have is for 2004, 240; '5, 500; and '6, 500. For 2007, I only going to have it by November. Okay? Every November I do three annual thing and that's the reason.

Yes, and how about the accounting change, do you expect further changes for - -?

What, what, what?

The accounting change on the depreciation?

Well, this - - the accounting change was, is an upgrade. We forecast, the whole Brazilian companies are going to be following us on this. This was a recommendation by, done by the auditors in USA. They understand that's the right way to do, is to maintain the annuals an asset that needs to be depreciated with the time being. And that's the way we are doing today. So, we believe that today it is in the right place that should be. No doubt, as reflect of this restatement, we recalculated all the levels for the previous years also for you to compare apples to apples. Okay.

Do you expect further changes for the third quarter?

No, we don't expect. Unless any new auditor gives any other new hint. We just presented our 20-F done by new auditor and no other change was done, unless this that was made.

As a final question, can you give us some color on cost cutting initiatives you are doing and details on savings?

The biggest effect on cost of goods sold year against year is that during a whole year 2004 and part of the 2005, we are going to have a very bad impact of we forced to buy live pigs, carcasses, pig legs, or pig cuts to further process and to export into supply for our customers. That's the biggest impact in our cost of goods sold. The good sign is that as I mentioned on one quarter before, is that we were reaccelerating our process of producing pork. During the second semester, things are going to be okay as they were in 2003 and '4. So, we are not going to be suffering all the impacts of having to buy such products in the market.

Besides that, for the second semester, we are not forecasting any major change on raw materials in general. We forecast that grains are being kind of stable. We not forecast major changes on packaging. So most of our costs, productivity is going to be done towards getting better production at the factories, reviewing our product mix, and reviewing where to produce each product instead of we produce one product in four plants, we're producing as few plants as possible. So we don't have to stop and go several times a line and that's the reorganization that we are doing. So a lot of this investment are going, we're doing right now, this 500 million, is related to this. We are specializing some plants and some products in such a way that fewer products will be produced in each plant individually. As to enhance productivity, to have more pounds produced per unit.

All right. Thank you very much.

You're welcome.

Our next question comes from Ms. [Jenna Hausenbaum] with Deutsche Banc.

Hi everyone. Murat can you please discuss the prospects for the export market? I would like to know, in which markets and products you have had higher price increases in dollar terms? And also regarding volumes, the main increases have been in your existing markets or volumes sold to new markets?

The highest increase looking backwards was in poultry. We were still able to get increases mainly in the raw chicken, taking advantage of the fact that we are not having a lot of offer made - - we have no offer made by the Asian countries on such products. On the other token, the least price increases were done in processed products, and cooked, baked and so-on chicken meats. For the fact that now the Asian countries are concentrating on producing for import such products. So our ability to increase price of such products is much smaller than the first case. On pork, it's - - we had an accident, as I mentioned to you before, the fact that we - - let me address this point again. Out of the ten largest producers of pork in Brazil, five had taken the same decision that Sadia had taken last year. We reduced production. Five others didn't.

Now we noticed that we had taken the wrong decision. As taking that wrong decision in that it was less pork, so pork pricing international went up higher than expected. And most of it was due to this lack of enough supply for a while. We do not expect that pork prices will keep going up as they went last year. So these are the premises I have. Looking ahead, we are forcing each time more exports of food processed. We are making a lot of effort into exporting processed products to Arabia and to Russia. And we are counting very much on the opening of China and Korea to be a much higher importer than it is today. Besides that, we have done a good job on Bulgaria and countries of the western - - sorry eastern Europe. And we believe that we are going to start harvesting good results on volumes on that region.

And if you could discuss in regards to volumes in existing markets or in new markets, which was the main increase?

We - - hold a second, please. During the last year, the biggest growth percentagewise was exports to Russia. We believe that we are going to be maintaining our growth in that region. We are - - we have a full line of products. We're exporting chicken, pork and processed products. If you go to supermarket Russia today, you can buy Sadia's pizza and Sadia's pasta over there, plus nuggets and so on and so forth. And we are exporting processed products also to some world chains like McDonald's. We are supplying McDonald's with our products, even to export to Japan, for example. That's it.

Okay, and if I can make another question. Can you discuss the rules behind the management profit sharing compensation, just maybe the guidelines for that?

Yes, every year the Board is going to establish a certain volume of profit sharing to be distributed against employees of the Company. For the first year, which is 2005, only directors of the Company will be entitled for receiving these profit sharing - - shares. As a result we made our buying back process to have the shares yet to be delivered for the employees if they want - - if they realize their right to have them a certain time. The problem is where each Director will have X amount and he is going to be entitled, have the right to buy the shares for a certain price in a certain period. If he leaves the Company before, he is not going to have the right. If the price goes up, he is going to have the same price as established before. So we have - - everything is very well explained, if you will. We have a vesting period for two years. We have all that very well explained in our note 18 in our document to the 8A4(ph). Okay.

Okay, but how about the departing cash?

Yes, okay. So Sadia has a aggressive bonus system. As I have mentioned to you before, boat us in paid to 44,000 employees is part of the payment structure for the Company. Out of the 44, I'm rounding up numbers. Out of the 44,000 employees, 43,000 will receive 5% of net profit, which is going to be distributed among them, percentagewise to their salaries depending on their personal valuation done by their boss. 1000 employees received a bonus only based on parameters established each year by the Board. Some years ago was resulting from net profit plus market share. Another year was net profit plus cost reduction. Another year was EVA, or economic value-added, which is economic value Sadia in our case. This year profit sharing for these 1,000 guys is related to EBITDA margin. The bottom is the following. If we do not reach the minimum EBITDA as of 2003 and 2004, all this 1,000 are going to receive 0 bonus. After they overpass the 2003, there's a scale gaining, but in no case bonuses distributed by the Company can be higher than 50% of the dividend paid to our shareholders. That's the policy today. Is that clear?

Well, yes, but if you do consider it part of the payment of the total compensation of your employees, why take it out of EBITDA?

Normally we believe that a very good measure to compensate is EVA. That's what we had used in 2003, which are tremendous assess. Some other competitors established the same pattern to reward the employees. If in 2004, our EBITDA was too low, we - - the Board had decided forgive this year only, and again, only this year the bonus is going to be based for these 1,000 guys on the EBITDA margin because that is what needed to be changed. And how you change EBITDA margin, in the sales, costs of goods sold, SG&A. There is no relation to what happens with the financials. So we are giving thoughts to bring profitability to operational profit that was the target and that's what was hired by the Board with the managers of the Company.

Okay. So you are actually provisioned every quarter, this management profit sharing and if you don't get the 12% margin, then you're going to revert in fourth quarter?

Perfect. But also it's important that a provision adds not only this part of the bonus giving to the 1,000, but also provision of the 5%, which of the net profit, which is going to be paid for the 43,000. So the provision is a sum of all those things.

Yes. And would you give us kind of a breakdown so that more or less we know? I mean how much is - - how - - percentage terms, how much is for the 43,000 and how much is for the - -?

I don't have it. You can do upside down. As I told you, for 43,000 is 5% of net profit. You take 5% there and the remaining is the rest of the program.

Okay. Thank you.

All right. Thank you.

Our next question comes from [Isterna Stenfasa] with [Unibon].

Hi, everybody. I just wanted to have, if possible, some more detail on margins by product type, especially for pork and chicken, given the different movements of prices since last year to this year. I mean pork prices have been going up. For chicken they went down, then they came back and costs have not followed the same movement. So, could you give us some sensitivity on how - - what is the, your difference in profitability, especially for, between pork and chicken and if pork exports continue to pick up as they have in the first semester, what would be the impact of a higher participation of pork products in your mix on the margins?

Well, fortunately, I cannot give you the precise numbers for Sadia competitiveness reasons. But I can give you some strategy points for your understand.

Okay.

First, we believe it's mandatory for Sadia to lean in one product alone. It's mandatory for the Company to have a portfolio that can mitigate the risk among the portfolio. If we were only a chicken Company and if there is a bird flue, the Company is going to be in a severe problem. If you are in a pork Company alone and if you have a foot and mouth, you are in a severe problem. So on and so forth. Therefore, Sadia strategically is making all the effort as to have the same weight in the future or how much chicken is going to be in the total production, how much is going to be processed products, how much is going to be pork, and so on. In such a way that are going to be hedged against a short-term crisis.

Second, there is no fantastic market forever. There is no fantastic profit forever. Everything compensates. The one thing that is good today is not good tomorrow, so on and so forth. Sadia is able during their latest six years to be growing different products. Each time, or every season, one product is better than the other one. What I can tell you is that until 2001, profitability on the Company was coming only from internal sales. Exports were not generating profit for Sadia until 2001. After - - prices of exports, prices, before 2001, before having the mad cow in Europe, for the Brazilians to compete with international players, we had to compete in price only.

Today, that's different. We have a good standard of quality and we are increasing our margins. But, again, on exports, you cannot think on short-term only. Sometimes doesn't matter if you are losing or making a lot of money. You need to keep serving your clients because there is no profit forever and no losses forever. What we need to do is keep adjusting the portfolio in such a way as to get the best combination in a certain moment. We didn't want to reduce profitability.

Back in 2003, we were not forecasting to reduce our pork production at all. We all know that in our Company, which higher - - with our high investments on successes, with our high investment into working capital, you need to run your business as fast as possible because profitability per unit is very small, so you need to have a very big turnover. Well, but we were forced by strategic decision in the first quarter of 2004 to reduce our pork production in such a way not to have our biggest loss afterwards that we were forecasting. It didn't happen but it could have happened. So, what I'm telling you finally is that Sadia has strategic made today as to have as much processed products possible, having raw material come from different sources in terms of not only chicken, not only turkey, not only pork, not only beef, but all of them, plus pasta. Not only - - also salted sweets, but by on the other token not losing site sight of our too wide portfolio, because the one that does everything doesn't do anything good.

We are focusing on frozen and processed proteins. looking ahead maintaining 50% of our sales in internal market and 50 offshore. No doubt, latest months have been very difficult for us to maintain this percentage. Our people here are sweating their shirts because the internal market is not consuming the way we wanted. So we need to make a fantastic effort to maintain this 50/50. So that's what I can tell you for the moment. Sorry not to give you numbers, but I think to give you at least the strategy and the trend is important at this moment.

Okay, thanks. I mean you cannot give us numbers, but under the current scenario, let's say, it that possible, I mean can you not give us, like only a comparison between the product groups in terms of margins, that's not possible?

No. By sure the - -.

Not numbers. I mean- -?

By sure the best profitability as much as value-added is the product, as better as the profit, no doubt. We'll have a much better profit in breaded breasts than in whole chicken for the fact there is only ten guys producing breaded breasts in Brazil and there's a 100 guys producing chicken. That's the logical process. okay? But I - - it's impossible for me to give you the way you want it because profitability and profit on products is is very, very different. And by the way, there are some products, which we must produce, doesn't matter if we want it or not. For example, we need to produce bologna. We need to produce hot dogs because we have a lot of leftovers from the cooking process to produce value-added. So then say well, why don't you stop producing hot dogs if you're not making money? So what to do with all that protein that is left from the product - - from the process. So again, different from a cow manufacturer that buys components and do or not do the core. Buys or not buy the core, or the parts, depending on the profitability of such model, sometimes we don't have this choice. We need to do a certain product because part of the disassembling process of killing animals. Is that clear?

Yes, thank you. And one last question. So on the pricing on international markets, what are your expectations for the next semester in terms of price movement for pork and chicken? Do you see already in July any different trend? Or can we expect as in the first semester to, because Brazil's such an important player in this market to be able, depending on the assets movements to pass along losses and negotiate terms that minimize losses and maximize margins in terms of pricing strategy?

Well, we expect that second quarter prices are going to be much better than the first one. Not only the market for food normally is much better in the second semester than the first, and also the product portfolio, our, Sadia's product portfolio in the second semester is richer than it is in the first one. So, we do expect to have better prices in the internal market, yes, on the second semester in internal markets. Offshore, we are not forecasting major changes, but we still keep making a lot of pressure on our buyers to get small increases in dollars. Again, we did fantastic work. We increased 4% average pricing dollars year against year but all this 4% effort was eaten by devaluation of 15% in the dollar.

Yes.

So it's very difficult to operate in international markets. Notice, go to Swiss guys tell them that you are going to increase price 4% in a year. They say you're crazy. There's no such number here. So that's our sin. Okay.

Okay. Just to confirm, do you expect the total depreciation now after this change to stay at this level 45 Reals million per quarter?

Now for your model, don't forget to start adding the new investments and start depreciating it. But, yes, take the last depreciation of second quarter and plus add what you know is going to be our investment cycle and take the percentage of that. That's the base - - that's easier to calculate.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from [Varina Laschnid] of T. Rowe Price.

Hi, good morning. I just want to ask you if you could provide me more detail regarding the outlook for pork exports? You seem very optimistic during the call. Are key markets of Japan opening up on, or what are your expectations in terms of timing also?

Thank you very much for your question. We are very optimistic, mainly based on our Russian exports. Brazilian authorities are in good negotiation with the Russians. And we are able to grow the latest months. And we have received graded orders each time that we talk with them. The Russians, they do appreciate our products, the type of product, the amount of fat that we have, the cost of our products. And that's the most important market for pork today. And the Brazilian authorities, I'm going to repeat that, we are presently in good negotiations. There's trading discussions among several other products in between Russia and Brazil in pork. We'll receive some extra advantages. We're very likely going to have a reduction in some of the tax that we pay to get the product into Russia. Some of those import taxes are going go down. That's our forecast. That's why we are bullish the way I told you.

On the other token, we are not, although we pray for it every day, we are not seeing when and if Europe is going to open for pork imports. But we are forecasting pork imports to be able to be done for Korea very soon and longer-term also to China. China, we will be obliged to buy pork from us. Why so? They don't have enough capacity to supply their growing demand resulting from a 10% GDP growth average of the latest years, which will remain a little bit lower, but, anyway, big numbers. And so we understand they are going to be forced to buy from us.

Okay, great. Thank you.

You're welcome.

Our next question comes from Juliana Hsu with CFSB.

Hi, Murat. Good morning.

Good morning.

I have two questions, one regarding the CapEx program. First question comes from like why are you not investing or looking for the greenfield operation? And if the higher CapEx changes anything in your estimates on increasing capacity off the production in your plan?

Well, thank you for the question. First one, everything has its time. We have done greenfield plants before. But right now, we look for several opportunities inside our existing plants, investments which are very quick, responsive. The bottleneck, no doubt, is the best return investment a Company can do. Because you don't have to invest in all the things, even the items that are ancillary items. That's why we are putting so much effort on these bottleneck investments. Again, we have nothing against greenfield, but the fact is that - - the fact that we have the opportunity to make investment to the bottleneck production rate right now with quicker return is, make us very optimistic. That's first response. Can you repeat again your second question?

It's - - if the higher CapEx changes anything on the increasing utilization capacity, like what's current position in CapEx that Sadia is running at? And what's your estimate for next year in terms of - -?

No doubt in some lines we are at full capacity. That's why we're expanding and, for example, margarine we were - - we are in full speed. That's why we are doing a whole new plant, in an older site, but a whole new plant. That's why we're investing in all segments. We're investing in chicken, pork, turkey, everything. The only thing we're investing less is the pasta business because that's - - those are the lines we still have a lot of spare capacity. In the sweets - -.

For in the pork - - I'm sorry.

I'm sorry. Pork, chicken, processed products, and turkey and margarine, we are almost at the top on all of them. We only have still capacity to be fulfilled in the pastas and in the sweets. That's all.

But you expect how much increase in your capacity for 2005 and '06 with the CapEx program?

20%.

20%, in all - -?

In all segments. Rule of thumb is 20%.

Can I ask you a further question regarding the export market?

Go ahead.

It's what's your view on the current impact that might happen on an Asian, Asian food impact on the Russia? And what's your expect in terms of the Brazilian positioning for the market?

Well, all the sanitary crisis has been changing the market very much. As I told you, the Asian countries, they had a very intense trading among themselves after the Asian flu. The Asians today are only trading cooked chicken and opened all the chicken, raw chicken market for the Brazilians. In Russia, we are already big exporter. USA is also major exporter of chicken legs, very cheap, by the way, because there's left over from their products, from their process that they don't eat. Almost don't eat dark meats in USA. But if it's confirmed by sure there's going to be buying even - - if there's confirmation of crisis in any country, it opens new opportunity for us. Unfortunately, this is a thing that is happening very much and that's why we understand that having a wider portfolio, not counting on only one raw material is absolutely critical as a cost reduction factor for our industry.

Does Brazil have any restriction to export poultry to Russia? I read in the newspapers essentially of the overtax, above the quote and actually we are currently importing - - we're seeing the poul tax. So if Russia decides to increase its imports on Brazilian poultry, we would have to use extra quotas and tariffs?

Yes, you are absolutely correct. The Russian government had established quotas for pork and chicken. They gave the biggest priority to Europe and the States, leaving all the world, including Brazil, with a very small percentage. What we have been seeing in the latest 15 months is that although that's the law, the supplier is not able to fulfill their U.S. and Europeans are not able to fulfill the needs with the competitive prices, so the quotas are not used. Therefore, the Russian authorities, they make a special auction on their news quotas. So we buy - - so as part of our price is the price we have to pay for the quotas. But you are correct. There's fantastic opportunity there because the Russians are looking at it, they are looking. They are in the hands of Europeans, anyway, forcing for a price much higher than the Brazilians. And that's why the Brazilians are negotiating today to bring those taxes down. If the taxes go down, as I said, we are going to have even better return exporting to Russia.

Thank you.

You're welcome.

Our next question comes from with Mr. [Mazu Kawasaki with Satokohetori.]

Hi, Murat, how are you?

Fine, thanks.

I have one question regarding your equity pickup results for the second quarter. Can you give us a breakdown of it?

Hold a second. We don't have that open and that's something that we're not supplying to the market yet.

Okay. If so, can I have your total offshore assets regarding to the March 31?

We have that on the notes, but I don't have it right away. If you don't mind, you can email me and I can answer that. Because it is on the notes on our balance sheet, but there's so many pages, I'm not able to get it right now, but it's over there. Hold a second.

Is that dollar denominated or another currency?

They are, they are in the note, they are Real denominated. They were translated from the regional currencies, whatever the currency is, but here everything is in Reals.

Okay.

It's note number four on page eight of our ITR.

Okay.

Okay?

In your exploratory moves, number nine, there's a company named Wellux(ph) Food Logistics. Can you clarify, what is this company?

Wellux, unfortunately we cannot use the name Sadia Trading in Portugal, so that's - - fortunately, that's the name for our trading Company over there. It's our trading Company. We invoice through there and they reinvoice to our final customer. That's why we maintain a lot of cash internationally. Most of our cash internationally is in the name of Wellux. With 100% subsidiary of Sadia.

Okay, because loss for this Company includes of the loss of this quarter on quarter?

That's what I'm saying. Most of the equity pickup result is resulting from what happens in Wellux, which is Sadia International. It's the new name for Sadia International. We used to have Sadia International in Cayman Island. We don't have that anymore. Today we have Wellux, which is Sadia's operation in Madid(ph) Island Portugal. And all the reinvoicing of our products is done over there. All of our hedge in currencies among dollars, Euros and LIBOR is over there. All the prepayment of exports is higher over there. That's why we have such a high movement on equity pickup resulting from Wellux. All right?

And talking about your agreement with Isle de Heli(ph) can you give the guidance of much you expect to reduce your expense or your selling expense after agreement?

Well, thank you for the question, but we are bullish on the prospects, but we don't have the final number yet. We - - first of all, we had made some trials, operational trials. We sold the operational problems, but we are not harvesting any economic results from these yet. Don't forget, that no doubt we're going to have advantages on the transport itself. But the other token, we are going to have a disadvantage on working capital. Transporting railroad requires a lead time for transport much higher than road transport. So the amount of merchandise in place of transferring is much higher, and all those things are still in study. The first prospects are good but we can't give you a number for the moment because we don't have it yet. There's still some technical problems to be solved but the prospects are good. Okay, and my last question is what would have been your EBITDA margin without the change in depreciation, can you give us this number?

If what?

Without this changes in the depreciation?

Oh, 1 point. 1 point. So it would be 9.7?

Right. Same thing in December '04, for fourth quarter, we already are just averaging 1 point up for everything. So when you compare December today of fourth quarter was 1 point down, now is 1 point up and so on and so forth. Everything is 1 point.

So the less guidance that we've got for this year would be 12% in lifted margin so - -?

13 now.

I can work at 13?

Right. You got it.

Okay. Thank you very much.

You're welcome.

Our next question comes from Mrs. [Lilian Soza with Gavian Gistamanza]

Good morning, everyone. I'd like to know what are your expectations regarding prices in the Brazilian market? And I'd like to know if you're planning any price increases or pass-throughs going forward?

As I mentioned before, second quarter, second semester, is always better than the first one. We understand that we'll be able for Sadia to receive some price increases on our products, plus we have better average price due to the better product portfolio. On the second semester, our portfolio is much richer than it is on the first one. Therefore, we do expect margins to keep going up on the second semester related to the first one. We don't have a precise number yet. You know that the latest months, it was impossible to obtain any price increases. But we do expect that on second semester this will be able to be done.

And it will be higher than inflation? Do you expect it to be higher than inflation?

We would love to, but we doubt it. Very unlikely we'll be higher than inflation.

Okay. Thank you.

Next question, please?

Our next question comes from Benjamin [Avrima of Lucent Research]. Please go ahead.

Hi, guys. My question is in regards to the domestic pricing environment. Why is it so difficult for you guys to raise prices? And the second one is in regards to overall margins, where do you see margins going in this year and then the next year? Thank you.

It's easy to understand. Live bird negotiated last month was down 12% as it related to the same period last year. Food was the product that gave the biggest help with the drop of inflation. So what is happening, is that for some reason we can't understand, we - - the economic movement of Brazil in the last few months was preparation to buy long-term assets and not to buy consumer goods - - long-term consumer goods and not daily consumer goods. At a certain moment it, will reverse. It has been like that always, but the latest months, the demand for food had been very weak. You're going to see the results from the supermarkets, which are public traded and you're going to see that same number of stores. They are selling less food than they have done in the previous quarter. So that's what the population wants, that's what we're doing. So I can give you the other side. We believe that Sadia doing almost a miracle being able to increase volumes of sale in a market which is not growing as a whole. I'm talking about food. The price that you have to pay is that we're unable to get price increases in such an variable market. And repeating the previous question, but we do believe that we are at the end of this phase and that in the second semester, things are going to be much better.

Follow-up on that, how do you guys determine how and when to increase prices? Do you look at competitors, or do you look at the supermarket trends and what they are saying?

Luckily for us, supermarkets represent a very small percentage of our sales. Represent half of what have presented ten years ago. We're selling each time more to small sales points, small supermarkets, to small chains, to convenience stores, neighborhood stores, institutional buyers and we are trying as much as possible to increase our sales in those channels. For the fact that income on big cities is still very low, or is not demand for food in the big cities is not having the same kind of behavior is having in the smaller cities, mainly in the countryside where the agri business is being very active. So, we do believe that we are going to be able to get price increases as much as close to in inflation as possible. But we were not able to do this during the first semester.

Do you guys generally increase prices with other producers, both in the chicken parts and in the processed foods section, or are you guys generally the leaders in price increases?

We normally were the leaders in the processed products line. But we are followers in the rest. As I mentioned, also, the second largest producer of chicken in Brazil produces only 45%. So there are 55% of produced by somebody who never heard about it. And so that's the reason why you can't find whole Sadia chicken in supermarket anymore because the cost, which is, or the price that is traded in the internal market doesn't renumerate the quality standards, tax and the labor rights that we pay.

Thank you, and the other question was in regard to gross margins. Where do you see them going this year and next year?

We do expect that normal numbers for Sadia in blue sky market are levels as of 2003. Debt to 2003 percentage, you have a good example of what we think is a good flying altitude.

Thank you very much.

Welcome.

Our next question with [Aleshandro Halco with Bongoitou]

Hi, good morning, everyone. Actually I would like to know if you're still maintaining your guidance for margin at now 13%, how do you guys plan to increase that much in the second half of the year? Because if you take into consideration the revenues being a little bit higher than they were on the first half, you do have to report margins, I don't know, some 15% level, how do you plan to size that?

Thank you for the question. I think it is this question is the one that resumes all our presentation today and let me address this again. 44,000 people receive bonus. 43,000 are going to receive 5% of net profit. It net profit is immense or not, it doesn't interfere with bonus - - it's really directly. But not with the bonus for our 1,000 guys. 1,000 white collars are only going to receive their bonus if EBITDA margin is going to overpass the margins as of 2003 and 2004. So the margins on such years will be the floor now. If obtain 13.3 none of the managers of the 1,000 are going to receive bonus. Therefore I think that it explains for itself. If margins are still below EBITDA margin at roughly 11% in the second quarter, with only 10% in the first, to get a 13.3 minimum for the year, you can't imagine how much we all are working to bring a much higher EBITDA margin for the next two quarters. Otherwise average is not going to be over 13.3. And to obtain such margin is not the financial area. The equity margin, equity pickup is going to help. What is going to help, that's why is EBITDA margin, is everything that is done on the revenue side, cost of goods, and SG&A, those three things. And actions on those three areas will generate enough profitability to then bring EBITDA margin to higher than 13.3 in such a way that those 1,000 guys are going to receive their bonus. Otherwise, no bonus for those guys.

Okay. Thank you for the answer. I'm sure you guys are very motivated on that, but one thing, I would like you to give some color, what are the initiatives on the cost side or on revenue increase that you guys already have? Or you guys are planning for the second half that you guys have not implemented in the first half?

Well, there are thousand actions, but I'm going to give you just one, which is very easy for you to see, that's just a hint. If you look to our inventories and you compared our levels of inventories with some of our competitors, you are going to see that historically are much higher. Therefore, there is a fantastic opportunity there. I'm just going to just give you one example because it's so clear because it's there, just open your book and you're going to see it. As soon as you reduce a lot of inventories, you increase your turnover. You use less working capital, et cetera. You increase profitability. As such an example, there are, I repeat, a thousand different things. There's somebody take care of freight, somebody is taking care of packaging, somebody is taking care of how to use less plastic and more paper or whatever or vice versa. Why I'm going to have three different, why I'm going to have 200, 400 and 600 packaging for hot dogs? Why not have 350? And so the actions then everywhere in the Company and we are convinced that all these actions will bring profitability to a level which will enable us to overpass this 13.3 target.

Okay, thank you.

All right.

Our next question comes from [Razidio Beda with Unibonquasis]

Good morning. Actually this is Razidio. My question is related to cost reduction specialty to packaging costs. Do you think that you will be able to get some price reduction in plastic costs in the NO price revision this first quarter?

Thank you for the question. We were able to get some price negotiations, but it will lean a lot on the behavior of the petroleum. If petroleum goes down, it's going to be much better. If it goes up, it's going to be much more difficult. But we have been able to get some price reductions lately in some of our packaging materials. I'm not going to specify which. But we are able to get some discounts on prices as on costs, as of it was before.

This will happen at once in the third quarter as it was in last year, or are you already having this cost reduction during last side - -?

No, we are spreading much more than last year. Last year, again, we have decided to do - - not have changes for certain months and then, boom, have one. And as you very saw Razidio, that was counted against us. After that we are doing now in a much smaller period, so prices gains and losses are going to be reflected faster in our results than it was before.

So we will not see any huge impact in the fourth quarter to explain - -?

No.

the impact in gross margin?

No, no, no. We are not expecting that.

Okay, and my last question is related to more specific ones related to export specific product export processed products. I note that average price in dollar terms are at least 33% higher than in the first quarter and I noticed that this was the highest price, average price since 4Q 2003. Is this related to meats ex-meats or new countries or what is, what explains these huge increase in average processed price?

Well, let me understand that. What I have here is that processed price in the internal market - -

No, export market.

Export market. No, it went down. First quarter against second quarter- - oh sorry. Now I got you. Product mix, unfortunately in the second quarter very big carload of certain products, which were very low price were not exported, were not shipped. Therefore, the average price went up due to product mix. It will go down on the next quarter.

Oh, okay. So this is not a sustainable average - -?

No, no, no, not sustainable, no. It is that we have a huge export of low price processed products, which were not loaded in June, but now is going to be now done in the third quarter. Therefore, average price is going to be between 4.14 and 5.14. Okay. It's going go down.

Okay.

All right?

Okay. And ,y last question is a guidance, or how do you see sustainable EBITDA margin for let's say for the long-term? I'm not talking about the next year, but in long-term, how do you see your EBITDA margin, sustainable EBITDA margin?

We are not satisfied with the present levels. We believe that Sadia's business has the possibility of having EBITDA margin long-term stable around 17% and that what we're looking for. We're not looking for 25 in the long-term range, but we're not looking for 10. So on a long-term range, we do believe analyzing our competitors worldwide that 17% EBITDA margin is feasible and sustainable long-term percentage.

Okay. Thank you very much.

Welcome.

This concludes today's question and answer session. Mr. Murat, at this time, you may proceed with your closing statements.

Well, thank you very much for your attention. I repeat again that we invite all investors to please, and analysts, to please come and visit us. Now I'm turning my phone down. But I'll be moving to the next meeting with all investors here in Sadia. So anybody here in Sao Paulo that can come, it's a pressure and we are here to answer all of your questions. Thank you very much for your attention. Good afternoon.

That does conclude our Sadia second quarter 2005 results conference for today. Thank you very much for your participation. You may now disconnect.