U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o        REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)

OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 TO 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-15184

SADIA S.A.

(Exact Name of Registrant as specified in its Charter)

N/A

(Translation of Registrant’s Name into English)

Federative Republic of Brazil

(Jurisdiction of Incorporation or Organization)

Rua Fortunato Ferraz, 659

Vila Anastácio, São Paulo, SP

05093-901, Brazil

(Address of Principal Executive Offices) (Zip Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Preferred Shares, no par value per share, represented by American Depositary Shares

Name of each exchange on which registered: The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The total number of outstanding shares by Sadia S.A., by class, as of December 31, 2004, was as follows:

257,000,000 common shares, no par value per share

425,695,712 preferred shares, no par value per share

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or during a shorter period, during which the Registrant was required to file such report, and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark, which item of the financial Statements the Registrant has elected to follow:

Please send copies of notices and communications from the Securities and Exchange Commission to:

Ross Kaufman

Greenberg Traurig, LLP

200 Park Avenue

New York, New York 10166

CONTENTS

GENERAL

Unless otherwise indicated, all references contained herein, to the “Company”, to “Sadia”, or to “Sadia Group” are references to Sadia S.A., a corporation organized under the laws of the Federative Republic of Brazil (“Brazil”), and its consolidated subsidiaries: Sadia International Ltd.; Sadia GmbH; Rezende Marketing e Comunicação Ltda., Rezende Óleo Ltda., and Concórdia S.A. Corretora de Valores Mobiliários, Câmbio e Commodities.

Presentation of Certain Financial Information

References to “preferred shares” and “common shares” refer to the Company’s authorized and outstanding preferred stock and common stock, designated as “ações preferenciais” and “ações ordinárias”, respectively, each without par value. All references herein to the “real,” “reais” or “R$” are to the real, the official currency of Brazil since July 1, 1994. All references to (i) “U.S. dollars”, “dollars” or “US$” refer to United States dollars, (ii) “km” to kilometers, and (iii) “tons” to metric tons.

Forward-Looking Statements

This annual report contains certain forward-looking statements as defined in Section 21E of the U.S. Securities Exchange Act of 1934 with respect to the financial condition, results of operations and business achievements/ performance of Sadia and certain of the plans and objectives of management of the Company with respect thereto. These statements may generally, but not always, be identified by the use of words such as “should”, “expects”, “estimates”, “believes” or similar expressions. Such statements include, but are not limited to, statements under the following headings: (i) Item 4. Information on the Company; and (ii) Item 5. Operating and Financial Review and Prospects. This annual report also contains forward-looking statements attributed to certain third parties relating to their estimates regarding the growth of markets and demand for products. By their nature, forward-looking statements involve risk and uncertainty because they reflect the Company’s current expectations and assumptions as to future events and circumstances that may not prove accurate: the factors discussed in Item 3. Key Information — Risk Factors, among others, could cause the Company’s actual financial condition, results of operations and business achievements/ performance to differ materially from the estimates made or implied in such forward-looking statements.

PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

U.S. GAAP Presentation

The selected financial information for the Company included in the following table should be read in conjunction with, and is qualified in its entirety by reference to, the U.S. GAAP financial statements of the Company and “Operating and Financial Review and Prospects” appearing elsewhere herein. The consolidated financial data for the Company as of December 31, 2004, 2003, 2002, 2001 and 2000 are derived from the audited U.S. GAAP financial statements, which differ in certain respects from accounting practices adopted in Brazil (defined as Brazilian GAAP). Brazilian GAAP is determined by the requirements of Law No. 6,404, dated December 15, 1976, as amended (Brazilian corporate law), and the rules and regulations of the Comissão de Valores Imobiliários, or CVM, the Brazilian Securities Commission.

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SADIA S.A.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2004, 2003, 2002, 2001 and 2000

(In thousands of reais - R$, except numbers of shares and per share amounts)

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SADIA S.A.

CONSOLIDATED BALANCE SHEET

Years ended December 31, 2004, 2003, 2002, 2001 and 2000

(In thousands of reais - R$)

The exchange rates of real amounts into U.S. dollars for the years ended December 31, 1999, 2000, 2001, 2002, 2003, 2004 and December 2004 through May 2005 are shown in the table below:

Source: Brazilian Central Bank

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the offer and use of proceeds

Not Applicable.

D. Risk Factors

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions have a direct impact on the company’s business and the market price of the preferred shares.

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The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes drastic changes in policy. The government’s actions to control inflation and affect other policies have often involved wage and price controls, currency devaluations, capital controls, and limits on imports, among other things. The Company’s business, financial condition and results of operations may be adversely affected by changes in policy including tariffs, exchange controls and other matters, as well as factors such as currency fluctuations, inflation, price instability, interest rates, tax policy, and other political, diplomatic, social and economic developments in or affecting Brazil.

Prior to 1995, Brazil experienced extremely high rates of inflation (2,567.46% in 1993). Inflation, along with governmental measures to combat inflation, has had significant negative effects on the Brazilian economy in general. Beginning in December 1993, the Brazilian government introduced an economic stabilization plan called the Real Plan. The primary objectives of the Real Plan were to reduce inflation and develop an environment for sustainable economic growth.

On July 1, 1994, the Brazilian government introduced the new currency, the real. Since the introduction of the real, Brazil’s inflation rate has been substantially lower than in previous periods. The annual rates of inflation, as measured by the general price index (IGP-M) of Fundação Getúlio Vargas, were:

Source: Bloomberg

There can be no assurance that the lower levels of inflation of the last years will continue. Brazil may experience high levels of inflation in the future. Future governmental actions, including actions to adjust the value of the real, may trigger increases in inflation. Accordingly, periods of substantial inflation may in the future have material adverse effects on the Brazilian economy, the Brazilian financial markets and on the Company’s business, financial condition and results of operations.

Fluctuations in the value of Brazil’s currency against the value of the U.S. dollar may result in uncertainty in the Brazilian economy and the Brazilian securities market, which may adversely affect the Company’s financial condition and results of operations and, consequently, the market value of the preferred shares and ADSs.

Because of inflationary pressures, the Brazilian currency has been devalued periodically during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and has taken several exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods, devaluations of the Brazilian currency generally have correlated with the rate of inflation in Brazil, devaluations over shorter periods have resulted in significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies.

In addition, fluctuations in the value of the real relative to the U.S. dollar can affect the market value of the ADSs. Devaluation of the real may reduce the U.S. dollar value of distributions and dividends on the ADSs and may also reduce the market value of the preferred shares and the ADSs.

Restrictions on the movement of capital out of Brazil may hinder investors’ ability to receive dividends and other distributions as well as the proceeds of any sale of preferred shares.

The Brazilian government may impose temporary restrictions on the conversion of Brazilian currency into foreign currencies and on the remittance to foreign investors, of proceeds from investments in Brazil. Brazilian law permits the government to impose these restrictions whenever there is a serious imbalance in Brazil’s balance of payments or reasons to foresee a serious imbalance.

Government restrictions on capital outflow may hinder or prevent the custodian in Brazil, or if investors have exchanged ADSs for the underlying preferred shares, from converting the proceeds relating to the preferred shares into U.S. dollars and remitting those proceeds abroad. Investors could be adversely affected by delays in obtaining any

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required governmental approval for conversion of Brazilian currency payments and remittances abroad in respect of the preferred shares underlying the ADSs. In addition, the Brazilian government may institute a more restrictive exchange control policy in the future.

Currently, in order to remit the proceeds of distributions on, and gains with respect to, the preferred shares to the U.S., the depositary must register with the Central Bank the amount invested by non-Brazilians in the preferred shares underlying the ADSs. The depositary will register its interest in the preferred shares as a foreign investment with the Central Bank. The Central Bank will issue a certificate of foreign capital registration in the name of the depositary, under which the custodian will, assuming the continued availability of foreign exchange, be able to convert dividends and other Brazilian currency-denominated distributions from the Company into U.S. dollars and remit such U.S. dollars abroad to the depositary for distribution to the foreign investor.

Developments in other emerging markets may adversely affect the market price of the preferred shares and ADSs

The market price or the preferred shares and ADSs may be adversely affected by declines in the international financial markets and world economic conditions. The Brazilian securities market is, to varying degrees, influenced by economic and market conditions in other emerging market countries, especially those in Latin America. Although economic conditions may differ in each country, investors’ reaction to developments in one country can have an effect on the securities markets and the securities of issuers in other countries, including Brazil.

Accordingly, adverse developments in emerging market countries could lead to a reduction in both demand and the market price for the preferred shares and ADSs. These events may discourage international investment in Brazil and, more directly, may hurt the market price of the Company’s preferred shares and ADSs.

Enforcement of civil liabilities may be difficult

The Company is organized under the laws of Brazil. All of the Company’s directors and officers and many of its advisors reside in Brazil and substantially all of the assets of these persons and of the Company are located in Brazil. As a result, it may not be possible to effect service of process upon these persons within the United States or other jurisdictions outside of Brazil. Similarly, it may not be possible to enforce, judgments of non-Brazilian courts, including judgments predicated on civil liability under the U.S. securities laws against the Company or its directors and officers.

Brazilian counsel has advised the Company that Brazilian courts will enforce judgments of U.S. courts for civil liabilities predicated on the U.S. securities laws only if the judgment satisfies certain requirements imposed by the Brazilian federal supreme court. The foreign judgment will be enforceable in Brazil if:

•      It fulfills all formalities required for its enforceability under the laws of the country that granted the foreign judgment;

•      It is for the payment of a certain sum of money;

•      It was issued by a competent court after service of process was properly made on the Company in the jurisdiction where the judgment was awarded;

•      It is not subject to appeal;

•      It is authenticated by a Brazilian consular office in the country where it was issued and is accompanied by a sworn translation into Portuguese; and

•      It is not contrary to Brazilian national sovereignty, public policy or good morals, and does not contain any provision that for any reason would not be upheld by the courts of Brazil.

Brazilian counsel has also advised the Company that:

•      As a plaintiff, a holder may bring an original action predicated on the U.S. securities laws in Brazilian courts and that Brazilian courts may enforce liabilities in such actions against the Company, its directors, and certain of its officers and advisors;

•      If a holder resides outside Brazil and owns no real property in Brazil, such holder must provide a bond to guarantee court costs and legal fees in connection with litigation in Brazil; and

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•      Brazilian law limits the ability of a judgment creditor of the Company to satisfy a judgment against the Company by attaching certain of our assets.

Political uncertainty during elections can influence volatility in capital markets and generate political instability in the short run

Due to democratic diversity in Brazil, during election periods, political debates among the candidates and election pools generate uncertainty. This affects the volatility of interest rates, exchange rates and stock market quotes, which may influence the Company’s results. Despite this negative situation, the unstable environment generated by elections tends to be short-term.

Risks Relating to the Company’s Business

The business involves breeding of animals and meat processing

The Company’s operations involve raising animals, which is subject to a variety of risks, including disease, contamination, consumer health concerns and adverse weather conditions. Meat is subject to contamination during processing and distribution. Contamination during processing could affect a large number of the Company’s products and therefore could have a significant impact on its operations. The Company’s sales are dependent on consumer preferences, and the loss of consumer confidence in the products sold by Brazilian producers because of disease or contamination could affect the Company’s results of operations.

Grains are the most representative isolated component of COGS and are exposed to the volatility of the commodity markets

The Brazilian foodstuffs industry, like the processed feed industry in other countries, has been characterized by cyclical periods of higher prices and profitability, followed by overproduction, leading to periods of lower prices and lower profitability. The Company believes that domestic prices and export prices for its product line are likely to remain volatile and subject to cyclical variation. There can be no assurance that the Company’s results will not be adversely affected by future downturns in market prices. The largest single component of the Company’s cost of sales is the cost of ingredients used in the preparation of feed. The price of most of the Company’s food ingredients is subject to significant volatility resulting from weather, the size of harvests, transportation and storage costs, governmental agricultural policies, currency exchange rates and other factors.

Environmental issues and new regulation requirements can affect costs

Brazilian food producers, including the Company, are subject to stringent federal, state and local environmental laws and regulations concerning, among other things, human health, the handling and disposal of wastes and discharges of pollutants to the air and water. In view of the possibility of unanticipated regulatory or other developments, particularly as environmental laws become more stringent both in Brazil and worldwide, the amount and timing of future expenditures required to maintain compliance could vary substantially from their current levels and could adversely affect the availability of funds for other capital expenditures and other purposes.

Competition in both domestic and foreign livestock and food processing sector is very strong

The Company faces significant competition from other Brazilian producers in the domestic markets in which it sells its products, and from other world producers as well in the export markets in which it sells its products. Other major vertically integrated Brazilian producers compete with the Company. To varying degrees, these companies have substantial financial resources and strengths in particular product lines and regions. The Company expects that it will continue to face strong competition in every market and that existing or new competitors are likely to broaden their product lines and to extend their geographic scope. Accordingly, there can be no assurance that the Company’s performance will not be adversely affected by increased competition.

Increasing protectionist measures among Brazil’s trade partners’ countries can restrict exports of livestock and meat processing companies

Due to the growing share of the Brazilian livestock, pork and poultry sector in the international market, companies are increasingly being affected by measures taken by importing countries in order to protect local producers. Because of the competitiveness of Brazilian companies, certain countries have raised several restrictions to prevent the entrance of Brazilian livestock products. Outcomes such as quota restrictions or import suspensions in a certain country or region, can affect substantially the sector’s export volumes and consequently the Company’s export performance as

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well as the results of its operations.

FMD Cases in Brazil can indirectly affect pork sales and adversely impact the results of the Company

Although the detected Foot and Mouth Disease (FMD) cases in the northeast region of Brazil in the past have affected only cattle, hogs can be contaminated. The Company’s animal breeding facilities are located in Santa Catarina and Minas Gerais States, internationally recognized FMD free regions. No assurance can be given, however, that the Company will not be affected by FMD, directly, or through limitations on exports.

Avian Influenza

In 2003, by a joint effort of the Ministry of Agriculture, the Ministry of Health and the Ministry of the Environment, Brazil implemented a program to monitor and test birds with potential to carry the Avian Influenza virus (AI) from the South Pole.

Moreover, in addition to the animal health requirements, which are part of the National Poultry Health Program, the following preventive measures have been already adopted: tightening controls at ports and airports for tourists and visitors arriving from Asia, prohibition to import paddy rice from Asian countries, prohibitions for visitors from Asia to visit Brazilian poultry farms, and new restrictive import requirements for imported poultry genetics.

No assurance can be given, that the Company will not be affected by AI, directly, or through limitations on exports.

Risks relating to Sadia S.A.

The Company is controlled by a Group of Shareholders and the interests of the controlling group may conflict with those of other shareholders

The Company is controlled by a group of shareholders under the Company’s shareholders’ agreement. The preferred shares and the ADSs are not entitled to vote at meetings of shareholders, except in limited circumstances. This means, among other things, that preferred shareholders are not entitled to vote on corporate transactions, including mergers or consolidations of the Company with other companies. In addition, the controlling shareholders have the ability to determine the outcome of any action requiring shareholder approval, including transactions such as corporate reorganizations, change of control transactions and the timing and payment of future dividends. For more information, see Item 7 – “Major shareholders and related party transactions”.

If the Company loses any of its largest clients, or if they significantly reduce the amount they purchase from the Company, its revenue and operating income could be materially adversely affected

The Company’s ten largest customers in 2004 accounted for approximately 20% of the Company’s total domestic sales and approximately 10% of its total gross sales. As a result, if the Company loses any of its ten largest customers or they reduce significantly the amount they purchase from the Company, the Company’s revenue and operating income could be materially adversely affected. The Company has been developing new client oriented policies to reduce the concentration of revenues with a small number of clients and to spread the related concentration risk.

The Company’s ability to export could be adversely affected by port labor disputes and disruptions and by import restrictions

The Company’s ability to export is dependent, in part, on factors beyond its control, including the lack of transport facilities due to strikes or other causes, or the enactment of Brazilian laws or regulations restricting exports in general or its products in particular. In addition, regulatory authorities in various countries have in the past imposed, and in the future may impose, import restrictions on Brazil’s exports, based on health and sanitary standards. Any of these could affect the Company’s revenue and operating income.

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ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Sadia’s activities are concentrated in the agro industrial and food processing segments. The Company’s central administrative headquarters is located at Rua Fortunato Ferraz, 659, Vila Anastácio, São Paulo, State of São Paulo, Zip Code 05093-901, Brazil, telephone number (55 11) 3649-3552, and the Company’s website is www.sadia.com.br or www.sadia.com and e-mail address is grm@sadia.com.br. Materials posted on the website are not deemed incorporated by reference into this annual report nor made a part hereof.

The Company is the leader in all of the markets in which it operates within Brazil (see “Market Share”). Sadia is the largest slaughterer and distributor of poultry and pork products, as well as the largest domestic exporter of poultry, according to the Brazilian Chicken Exports Association (ABEF). Sadia Group is also the largest distributor of frozen and refrigerated meat-based products (according to AC Nielsen). Sadia Group has 40,600 employees (December 31, 2004).

The level of verticalization adopted by Sadia ensures control at all stages of production and distribution of products. The Company’s operations include breeding farms for poultry and hog grandparent and parent stock, hatcheries, pork breeding centers, slaughterhouses, processing units, animal feed production plants, representative offices and distribution centers. Sadia introduced the vertical integration of poultry and hog breeding, which was initially adopted in the west of Santa Catarina State. This system is still utilized by the Company. It consists of a partnership between the company and the rural producers, with a view to obtaining animals for slaughter, raised in highly productive breeding conditions and controlled hygienic-sanitary conditions. Sadia produces one-day chicks and piglets and supplies them to out-growers, along with feed, transport, technical and veterinary assistance.

The Company has 11 plants within Brazil, and distributes its product line of approximately 1,000 items through distribution and sales centers spreaded throughout Brazil, Latin America, the Middle East, Asia and Europe. The table below shows the Company’s production capacity:

Company Overview

Sadia S.A. began in 1944, with the acquisition by Attilio Fontana of the meatpacker Concórdia Ltda., located in the municipality of the same name, in the Western part of the state of Santa Catarina, Brazil. At the time, the Company consisted of a wheat mill and an unfinished slaughterhouse for hogs.

Over the course of its 60-year history, the Company evolved based on two key strategies: the diversification of its portfolio of food products, and investment in quality.

At the end of the 1980s and the beginning of the 1990s, the Company’s policy of expansion gave way to rationalization of management and cost structures through reduction by merger of a number of companies in the Sadia Group. Sadia began the 1990s having the controlling ownership in 21 companies, and began to concentrate its operations in the production of processed meat products.

From 1997 forward, management has continued the reorganization of the Sadia Group and has implemented the strategy of concentrating on higher value-added processed products.

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In 1997, the Company sold its cattle slaughterhouse in Barra do Garças, state of Mato Grosso, four soybean processing facilities (crushing and refining), 12 purchasing and warehousing centers (for grains), and also transformed its Várzea Grande slaughterhouse, state of Mato Grosso, into a plant for the production of processed meat products. In addition, the transport of the products, which had been made by a fleet of owned vehicles, was outsourced to specialized transportation companies.

In July 1998, Sadia was merged with two of its subsidiaries, Sadia Frigobrás S.A. and Sadia Concórdia S.A., so that all of the activities of the Sadia Group were concentrated in a single listed company, Sadia S.A. This resulted from a gradual process of reorganization with a view to simplifying the Sadia Group structure, increasing visibility to capital markets, and achieving gains in scale through the reduction of general and administrative expenses and tax costs.

In December 1999, Sadia acquired the capital stock of Granja Rezende S.A. (primarily a producer and distributor of poultry and pork products) and its wholly owned subsidiaries Rezende Alimentos Ltda., Rezende Óleo Ltda. and Rezende Marketing Comunicações Ltda.

Immediately following the acquisition of Granja Rezende, the Company decided to sell Granja Rezende’s soybean crushing and oil manufacturing plant and administrative complex.

During 2000, the subsidiary Rezende Alimentos Ltda. was converted from a limited liability company into a corporation and the subsidiary’s name was changed to Sadia Alimentos S.A. On December 29, 2000, the then parent was merged into Sadia Alimentos S.A., whose name was then changed to Sadia S.A. The purpose of the merger was to permit an operational and administrative rationalization, and the utilization of tax loss carry forwards. In August 2002, Granja Rezende S.A. was merged into Sadia, aiming at cost reduction both through standardization and through rationalization of the administrative and operational activities as well as by resulting reflections of financial and fiscal nature.

In April 2001, the Company listed its American Depositary Receipts (ADRs) program on the New York Stock Exchange, providing investors an alternate channel to buy its stocks. In June 2001, the Company adhered to the level one corporate governance with Bovespa certifying its commitment to transparency and fair disclosure of information.

In the second half of 2001, Sadia and Sun Valley, U.K. based subsidiary of Cargill Foods, formed a partnership. This partnership gave rise to Concordia Foods Ltd., Worcester, UK. In January 2005 the partnership between Sadia and Sun Valley was discontinued, the legal entity is being phased out. Sadia U.K. Ltd., assumed the operations once performed by Concordia Foods Ltd.

In August 2001, Sadia opened a distribution center (DC) in Jundiaí, São Paulo, to supply the São Paulo state region, considered the largest market in Brazil. The Jundiaí DC, is a technological milestone for the Company with 20,000 square meters of area. The Company invested R$ 23 million in facilities and IT structure.

In May 2002, Sadia GmbH and its subsidiary, Laxness F.C.P.A. Lda. (Laxness) were created, aiming to leverage exports to the European market. In February 2005 Laxness changed its name to Wellax Food Logistics C.P.A.S.U. Ltd (Wellax).

In November 2004, the Company opened a distribution center in Ponta Grossa, state of Paraná, giving the Company greater capacity and efficiency in its export processes.

In January 2005, Sadia acquired 100% of the ownership interest of Só Frango Produtos Alimenticios Ltda. (Só Frango), a company based in Brasilia with a total capacity for slaughtering 150,000 chickens per day (at the time of the acquisition). In April 2005, Só Frango was merged into Sadia.

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GROUP STRUCTURE – December 2004

The Sadia Group is currently composed of sixteen companies, as shown in the chart above.

Sadia concentrates all production, slaughtering, distribution and product sales activities within Brazil. Sadia International Ltd. is one of the Company’s smaller vehicles for sales outside Brazil, and is a shareholder of the ‘Churrascaria Beijing’ steakhouse, which was established in Beijing in partnership with Sky Dragon, a company linked to the Chinese Ministry of Agriculture. Rezende Óleo and Rezende Mkt. e Comunicações Ltda. are non-operational. Sadia GmbH. is a holding that controls Wellax Food Logistics C.P.A.S.U. Lda., an offshore company responsible for the largest part of Sadia’s export operations. Sadia Alimentos is a subsidiary of Sadia International, established in 2003 aiming to develop commercial operations in the Argentine market. Sadia Uruguay and Sadia Chile are each responsible for the distribution and sales of Sadia’s products in their respective countries. Nordfin Holding Limited owns 40% of Sadia Chile. Concórdia CVMCC is a brokerage firm authorized to operate in accordance with current Brazilian legislation.

B. Business Overview

Business Strategy

Sadia’s strategy for maintaining its leadership in the Brazilian food market and gaining share in the international market is to capitalize on the Company’s competitive advantages in its principal segments of operation.

The Company believes that in order to continue its accelerated growth, it will have to expand its activities, either by acquisition or by expansion in its current facilities. Sadia has a well developed expansion plan that is being put in practice that will generate long-term results.

Só Frango

In January 3, 2005 Sadia acquired 100% of Só Frango Produtos Alimentícios Ltda (“Só Frango”), for US$26.5 million, to be paid in full with the Company’s own resources. Só Frango is active in poultry slaughtering and processing as well as in the production of animal feed meal. Its product line ranges from whole chicken, special frozen and chilled cuts to sausages and cold cut meats.

With 1,700 employees, Só Frango generated R$ 220 million in gross revenues in 2004 and has a slaughtering capacity of 150 thousand chickens/day. Sadia intends to expand this capacity over the next five years to 400 thousand chickens/day, which should generate two thousand new direct jobs in the acquired company and around twelve

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thousand indirect jobs. All operations with out growers and suppliers, as well as Só Frango’s job positions, will be maintained. Sadia expects that half of Só Frango’s production will be sold to the domestic market and the rest will be exported, similar to Sadia’s operations’ model in the poultry segment.

Through this acquisition, Sadia strengthens its presence in the central region of Brazil close to raw material producers and to Brazil’s main centers of consumption. Sadia now represents 14% of Brazilian chicken production, broadening its market leadership.

Uberlandia Complex

Uberlândia complex will receive investments of over R$ 400 million aiming to increase the capacity of all of its production lines. Sadia will invest R$ 185 million, the integrated out growers will invest R$ 180 million, and R$ 36 million will invested in logistics.

The R$ 185 million is distributed as follows: R$ 44 million will be directed to pork production, increasing the slaughter capacity form 700 thousand heads to 1.6 million heads. Chicken production will receive R$ 46 million to increase the slaughter capacity from 43 million heads to 88 million heads. The turkey line will receive R$ 35 million to increase its currently capacity of 7 million heads to 11 million heads. Sadia will also invest R$ 44 million in the construction of a new feed plant, R$ 7.5 million to expand the production of processed products and R$ 8 million in the storage of grains.

The Uberlândia complex will also receive Sadia´s second margarine plant. An investment of R$ 60 million that will be operational in the second semester of 2006.

Paraná State Complex

In March 2005, Sadia inaugurated the Ponta Grossa Distribution Center. An investment of R$ 30 million directed towards the storing of export products. This investment is in line with the Company´s strategy of concentrating the major export lines in the state of Paraná.

The Company’s Operation

The Company’s operations are organized into three segments: “processed products” (frozen and refrigerated products and margarines), “poultry” (chickens and turkeys) and “pork”.

Of the Company’s total gross operating revenue in 2004, 47% was derived from the processed products segment, poultry 41%, pork 8%, and 4% from other activities, such as the grain and by-products segment, hog and poultry breeding, boiled beef parts and resale of products.

The activities related to the grains and by-products currently consist of the crushing of soy to obtain the meal used as a raw material in the production of feed for the Company’s stock and that of the integrated producers.

The Company exports around 1,000 different products to approximately 100 countries. Sadia currently produces a range of products that includes: frozen, refrigerated, salted and smoked pork cuts, lard, bacon, ingredients for “feijoada” (a Brazilian pork and bean stew); frozen and refrigerated pork and chicken giblets; whole frozen and seasoned chickens; frozen and refrigerated poultry cuts and parts; marinated and partially cooked chicken parts; whole frozen and seasoned turkeys; frozen and seasoned turkey cuts and parts; breaded chicken parts; raw, cooked and smoked hams; “tender” gammons, hams, cold cuts and related products; “Parma-type” hams; smoked chickens and turkeys; cooked and smoked turkey hams and turkey-based cold cuts; partially cooked and frozen products, such as beef, turkey and chicken meatballs; beef, turkey and chicken-based hamburgers; pork, turkey and chicken based frankfurters; sausages; bolognas; salamis; coppa; turkey-based hams; cold cuts in general; chicken, meat and pork-based patés; beef, poultry and fish-based frozen ready-made dishes and pasta; frozen ready-made foods for heating and serving as meals and snacks, such as breaded poultry, fish and appetizers, frozen pizzas and refrigerated fresh pasta; margarine and refrigerated desserts.

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The following tables present sales volumes and gross operating revenue (prepared and presented in accordance with U.S. GAAP) for the years ended December 31, 2004, 2003 and 2002.

(*) Other: Grains and by-products, boiled beef parts, pig and chicken breeding and resale of products

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The following table presents the breakdown of gross operating revenue in percentage terms by segment, for the years ended December 31, 2004, 2003, and 2002:

(*) Other: Grains and by-products, boiled beef parts, pig and chicken breeding and resale of products

Processed Products

As a result of the Company’s strategy of concentrating on higher value-added, higher margin products, the processed products segment results increased significantly as from the second half of the 1990s. Production rose from 239 thousand tons in 1994 to 665 thousand tons in 2004. Sales of processed products accounted for 47% of the Company’s gross operating revenues in 2004.

Sadia operates eight plants that manufacture processed products, seven of which are dedicated to meat processing and one to margarine production. These plants are located close to their suppliers of raw materials or to the main domestic centers of consumption.

Sadia’s processed products segment comprises a wide range of products, including: frozen products (hamburgers, breaded products, ready-made dishes and pizzas), refrigerated products (hams, sausages, frankfurters, bolognas, salamis, cold cuts, product portions and refrigerated pasta) and margarine the majority of which are sold under the Sadia brand.

Processed products in the domestic market, accounted for 87,9% of the total sales of this segment, with the remaining 12.1% directed towards exports. The segment has grown 19% as compared to 2003.

Most of the raw materials used by Sadia derive from meats and soy oil produced by the Company. By contrast, selected suppliers, who are subject to inspection by the Federal Agriculture Ministry, produce all beef that is processed by the Company.

Sadia believes that its use of chicken meat as a raw material for processed products should grow substantially for two reasons: (i) the increase in the range of chicken-based products such as breaded products, and (ii) an increasing share for this kind of meat in the composition of other processed products, such as sausages, frankfurters and bolognas. The development of specialized products (boiled and roasted products) for the institutional and foreign markets should also contribute to the increase in chicken production.

The following table presents gross operating revenue from sales of processed products for the years ended December 31, 2004, 2003, and 2002.

Poultry and Pork

In 2004, Sadia’s sales of non-processed products reached R$ 3,488.7 million, and accounted for 49% of the Company’s total gross operating revenue. Among such products, chicken is the most significant, accounting for 68% of total sales of the non-processed products in 2004, followed by pork and turkey, which accounted for 17% and 15% of

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sales, respectively. The Company exports significant amounts of fresh meat, which in 2004, accounted for approximately 86% of total export revenue.

Sadia operates seven chicken slaughterhouses. Three are located in the State of Paraná, two in the State of Santa Catarina, one in the State of Minas Gerais, and one in the State of Mato Grosso. The Company also operates three turkey slaughterhouses, one in Santa Catarina State, one in Minas Gerais State and one in Parana State, and five slaughterhouses for hogs, two in Parana State, one in Santa Catarina State, one in Minas Gerais State and one in Rio Grande do Sul State. The table below shows slaughtering volumes of the Company for the years ended December 31, 2004, 2003, and 2002 in millions of units:

The following table shows gross operating revenue from non-processed products, for the years ended December 31, 2004, 2003, and 2002.

Production Process

Processed Products

The Company uses special cuts of pork, chicken and turkey, as well as selected and shaped fragments for the production of hams, sausages, frankfurters, bologna, hamburgers, pressed ham and related products. Seasonings and secondary raw materials are applied to each product type or line, according to established formulas, in order to ensure consistency, color, texture and flavor. The presentation of final products is achieved by shaping, casing, cooking and freezing in special machines. Products are then subjected to quality controls and distributed to the consumer market after having been packaged, labeled and boxed.

The raw material for margarine is crude soybean oil, which is subjected to refining and bleaching processes. Fats are obtained by hydrogenating bleached oil. Both of these materials are deodorized in order to prepare the “blend”. The process is completed by the preparation of an emulsion, the cooling and crystallization of the product, placing into containers, and the packing of these into boxes.

Poultry

The production process for poultry consists of four stages. The first two entail direct investment by the Company in grandparent and parent stock. The third relates to the commercial stock of birds, and involves the direct participation of integrated farmers, and the last is the slaughtering process.

The Company imports grandparent stock from the United States in the form of eggs that are hatched in Sadia’s hatcheries and then raised on Company owned farms. These birds produce parent stock that are also raised on Company owned farms, and that in turn produce eggs. The operation involves nine hatchery centers, six of which produce “one-day-chicks” and three “one-day-turkeys”. The “one-day-chicks” are supplied to third-party out growers. Sadia operates a similar system for turkeys, importing eggs to produce grandparent stock that in turn produces parent stock that are raised on Company owned farms. The Company is not dependent on any foreign supplier for its genetic resources, nor does it face any barriers to their development.

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The “one-day-chicks” produced by parent stock are supplied to integrated out growers who are responsible for raising the birds. The Company has contracts with approximately 6,600 out growers, to which it provides feed, technical and veterinary assistance to allow such out growers the outgrowing process up to the time the birds reach slaughtering age, which for chickens is normally 36 days (at a weight of 2.0 kg). There are no employment agreements between Sadia and the out growers, who generally carry out this activity in order to supplement their income. Most out growers farm on a small scale and raise six flocks per year (each flock consists of approximately 14,000 chickens). The Company remains the owner of the birds, and at the end of each production cycle, pays an outgrowing commission fee based on a performance index that is calculated as a function of indicators such as bird mortality, feed to meat conversion ratio and average weight. The fee paid to the integrated farmers covers the outgrowing costs, raw materials, labor and their net profit.

Poultry are slaughtered through a process by which they are electrically stunned. They are then bled by puncturing of major blood vessels. After heating to a temperature of 55/60^oC, they are plucked and gutted by automatic machines. The gutting process is subject to health control and inspection. The carcasses are then moved for cooling or freezing at respective temperatures of 6^oC and –12/-18^oC, and are then packaged according to the required standards of the Serviço de Inspeção de Produtos Animais (SIPA – Animal based Product Inspection Agency). At this stage, the whole birds are either distributed to the consumer market as fresh meat or used as raw material in processed products.

Pork

The Company produces grandparent, parent and piglet stock on its own farms. Ninety percent of the parent stock produced by Sadia is supplied to integrated out growers who receive feed, medicine and technical assistance by way of support. These parent animals produce hogs that are sold to Sadia for slaughter, after the fattening process is completed. The remaining of the parent stock produced by the Company is sold to piglet producers, who also receive feed, medicine and technical assistance. Sadia repurchases the piglets at market prices and distributes them to integrated out growers, who after the fattening process sell such pigs to Sadia for slaughtering.

The hogs are slaughtered through a process in which they are bled after being stunned electrically. After heating to a temperature of 60/64^oC, their bristles are removed by automatic machines. The animals are then dried, flamed, brushed and gutted, which process is subject to health inspection. After cooling to a temperature of 5^oC, the carcasses are cut up and processed.

Seasonal Nature of Business

Chicken and Pork

Not seasonal in nature.

Turkeys

Turkey production activities are seasonal in nature with respect to “whole turkeys”, whose production is concentrated in the second half of the year, with a higher volume of sales in the fourth quarter because of Christmas holidays.

Processed products

Processed products are seasonal only in the celebration products, with a higher volume of sales in the fourth quarter.

Raw Materials

The Company owns ten animal feed plants with an installed capacity of 4.5 million tons per year, a volume sufficient to supply all the animal feed requirements of its breeding operations. The basic raw materials used in animal feed production are corn and soybeans, in a mix that contains preservatives and micronutrients. Sadia supplies the basic animal feed to its out growers and sells the remainder on the spot market.

Sadia purchases corn and soybeans from rural producers, small merchants, cooperatives, large scale traders and through auctions organized by the Brazilian government, as well as occasionally from Argentina. Most of the production of these raw materials is concentrated in the States of Santa Catarina, Paraná, Rio Grande do Sul, Goiás and Mato Grosso. Grains are received in sacks or in bulk, and are then weighed. A sample is taken to measure humidity and impurities in the grain. After approval, the grain is unloaded into a hopper for cleaning and drying. Grain is then sieved

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in order to eliminate the residues that accompany it. After selection and cleaning, the grain is milled and mixed with the other ingredients of the feed.

The Company acquires beef for its production of frozen and refrigerated processed products, and boiled beef parts. Other inputs, such as prepared animal intestines (for casing), seasonings and other ingredients, cardboard boxes, plastic bags (for packaging and labels), and veterinary medicines (for poultry and hog breeding), are acquired from many different sources, both at home and abroad.

Costs and Operating Expenses

The Company’s principal costs of production are incurred in reais and consist of grains, corn and soybeans, packaging, and labor. While input costs are reais denominated, the international commodity prices (grains and packaging) tend to follow international prices and are influenced by exchange rate fluctuations. The Company operates with an average idle capacity of 20% in processed product lines but can be at full capacity depending on the market demand. Due to the flexibility in production lines and to the diversity of the equipment present in the Company’s twelve plants, production can be adapted and reformulated, depending on the Company’s needs to face a determined segment demand, night and weekend shifts as well as supply partnerships are broadly used to reduce bottlenecks during the production process.

Corn

During several years, Brazil’s corn prices used to be determined only by domestic supply. Production was mainly on relatively small properties and had a low level of mechanization. However, during 2002, due to the real currency depreciation and the improvement of several local producers, part of their crop was shifted to the international market. Therefore, Brazilian corn prices went up to adjust to international prices.

In Brazil, there are around 20 different regions where buyers can bid for the product. Corn prices tend to be influenced by local supply, but international prices also influence local quotes, according to crop expectations among the main world producers (U.S.A., China and Argentina) and the level of international storage in the main consuming countries (Europe and Japan).

The following chart sets forth Sadia’s average monthly buying price of corn for the period between January, 1994 and January 31, 2005:

According to CONAB’s February 2005 Report, it is expected that the 2004/05 Brazilian corn crop production will decrease in 7.5% compared to last year’s, mainly due to a 4.1% reduction in the planted area. This reduction is the consequence of the delay in harvesting the first crop which led to a reduction in price, and the higher profitability of soy at the moment of planting, thus leading to the substitution of area planted from corn to soy.

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Differently than corn, the soy crop is expected to grow 14.6% compared to last year’s. This would represent an increase of 6.7% in productivity reversing the inefficiency of the 2003/04 crop.

The western region of the southern states of Brazil continues to suffer the results of the drought that has been reducing the production of grains in this region. It is expected that these states will have a reduction of 24% of their soy harvest.

Soybean

Soybean producers in Brazil have been increasing their productivity during the last several years and Brazil has become the second largest producer in the world. Soybean production is substantially mechanized and grains are cultivated on large properties. Producers are well organized and production is oriented to the export market. Production is also spread over several regions among the southern, southeastern and central region of the country, and prices are regionally given by local supply. However, international prices tend to influence local prices when foreign demand and supply are unbalanced.

The following chart sets forth Sadia’s average monthly buying price of soybeans for the period between January, 1994 and January 31, 2005:

Marketing

Sadia’s brand name is considered one of the Company’s most valuable assets. The Company maintains an active marketing program using both electronic and printed media.

The Company incurred advertising expenses of R$121,435, R$96,845, and R$82,154, during the years ended December 31, 2004, 2003, and 2002, respectively.

Marketing expenses are related to investments in advertising of specific campaigns for the launch of higher value-added products and for the reinforcement of Sadia’s brand name.

Logistics

Sadia’s logistics system and distribution channels are two of the Company’s main competitive advantages. The Company has taken many initiatives to keep sustaining its leadership, which includes partnerships, information technology investments and the development of new processes.

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Distribution

Sadia maintains sales representation offices in Germany, England, Russia, Japan, China, the United Arab Emirates, Argentina, Uruguay, Chile, Venezuela and Turkey.

Within the Brazilian market, Sadia sells its finished products to wholesale and retail outlets, as well as to institutional clients. For the year ended December 31, 2004, the Company sold through approximately 300,000 points of sale throughout Brazil.

Sadia’s distribution strategy is supported by direct sales to customers, thereby avoiding concentration among a few large customers.

In 2004, 54% of exports were sold to approximately 10 long-standing customers. All of these customers have imported increasing quantities of the Company’s products over the last ten years. European countries corresponded to 29% of export sales in 2004 against 38.4% in 2003. Exports to emerging markets, such as Russia and other former Soviet Union countries, have also been growing consistently, mainly due to pork and chicken exports. The America region, which comprises North, Central and South America, represented 11% in 2004 against 5% in 2003, mainly due to the expansion of exports to Andean countries.

Transport

Sadia uses trucks as the primary method of distributing its products in Brazil. The Company’s distribution system is handled by a network of approximately 1,600 refrigerated hired vehicles, which service customers directly throughout Brazil.

Distribution by truck is made by refrigerated vehicles, given the perishable nature of the food products, whose shelf life is approximately 30 days. In the case of stoppage of transport by virtue of a general strike, the result would be a complete loss of the products in transit and lack of supply for the points of sale if the period of interruption is greater than 30 days, an outcome the Company considers remote. As an alternative to highway transport, supply could be effected by air, although this would increase the freight cost by more than 20 times. In the case of a sector strike, the impact would be minimized because the Company has manufacturing units producing the same products located in different regions of the country.

Shipment of Exports

The Company ships 45% of its exports through the port of Paranaguá, in the State of Paraná, and 35%through the ports of São Francisco do Sul and Itajaí, both in the State of Santa Catarina.

In the port of Paranaguá, the Company has two refrigerated warehouses with a storage capacity of approximately nine thousand tons. These warehouses have a “drive in” storage system and only operate with palleted cargoes. This system allows the warehouses to receive two thousand tons of products per day per warehouse and to load two thousand tons per day onto pallets.

Since one of the warehouses is located in the wharf area, the Company has priority in the mooring of ships arriving at the port of Paranaguá, thereby avoiding possible cost increases due to delays in loading cargo.

The Company ships its cargoes in “full container” or conventional “reefer” vessels for palleted cargo.

Sales

The Company adapted its sales structure and commercial policies to the large chain, wholesale (cash and carry), regional mid-size clients, traditional retail (small retail), institutional and distributor channels. The sales force was unified in a single management group, making it possible for the big retail chains to be serviced by an account manager, with the support of coordinators, promoters and re-stockers.

For medium and small retailers, the Company instituted a telemarketing service, which complements the market work of the sales force and also counts on local distributors.

Sustainability and Environment

Brazilian environmental regulations have their principles established in the Federal Constitution, with concurrent jurisdiction among the Brazilian federal government, the states and the municipalities to regulate the subject.

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The public administration at each such level of government is responsible for the supervision and control of pollution in any form, as well as for the preservation of forests, hydraulic resources and the fauna and flora. The integration of all of the federal, state and municipal agencies responsible for the protection and improvement of environmental quality is undertaken by the National Environmental System (SISNAMA).

Sadia, as a producer of foodstuffs using a wide range of industrial processes, especially its meat product lines which require slaughter of animals, is therefore subject to compliance with all of the legal requirements, covering environmental risks that are customary in these processes, such as rules governing treatment of liquid effluents, solid organic waste, particulate suspension and odors. The Company is careful to respect the environment at all stages of the production chain, including its activities in the field, the design of packaging (developed with a view to reducing the quantity of raw materials used) and adapting the same to recycling processes. In addition to simply treating residues, Sadia invests in minimizing the generation of these by optimizing processes and adopting stringent procedures for controlling the emission of wastes and effluents. Sadia’s expenditures related to meeting environmental requirements and in process optimization amounted to R$ 13.3 million in 2004, R$ 15.8 million in 2003 and R$ 3.7 million in 2002.

The Chapecó industrial facility is certified by ISO-14001 certification, recognized by the Bureau Veritas Qualité Internationale (BVQI) since 1999. The conclusion of the process to adjust the Paranaguá plant to the ISO 14001 regulations by the end of 2003 resulted in its certification by the BVQI. This certification, attests the conformity of environmental management systems to the ecosystem in which it operates and assures a world recognized certification that acts as a guarantee of environmental quality, which is required by many countries as a prerequisite for trade relations.

Other achievements in 2003 comprise the New Effluent Treatment Technologies Project. Studies are being conducted in partnership with the Federal University of Santa Catarina (UFSC) and the Hannover University in Germany. Their purpose is to adopt the use of new techniques for purifying water during the final phase of treatment.

During 2003, Sadia Paranaguá won the first place in the state of Paraná in the national prize for Conservation and Rational Use of Energy 2002-2003, run by the Ministry of Mines and Energy and the National Confederation of Industry (CNI), in the manufacturing category, electric energy division. The unit was also classified in second place in the national contest.

The Toledo plant also placed in the state stage of the contest, in the environmental education category. In August, the Chapecó unit received the Fritz Müller trophy from the Santa Catarina Environmental Foundation in recognition of its work in favor of sustainable development. The Riparian Buffer Zone Reforestation Project recovered and repopulated riverside fauna in the region near the Francisco Beltrão facility. Some 250 thousand seedlings were planted and more than 2 million hatchery fish were introduced.

In December 2004, Sadia created the Sadia Sustainability Institute. The Institute is a non-profit organization that focuses on promoting sustainable development as well as projects that involve the preservation of natural resources, technological research and dissemination and environmental education for local communities. Another objective of the Institute is to implement the Sadia Sustainable Swine Production Program (3S Program), which consists in selling Carbon Certified Emission Reductions under the Clean Development Mechanism signed at the Kyoto Treaty. These bio-digesters will be used in swine waste management and treatment and will also reduce Greenhouse Gas (GHG) emissions. The revenue from carbon assets will be used to enhance environmental and social conditions at outsourced swine farms.

Human Resources

The Company ended 2004 with 40,600 employees compared with 34,432 employees in 2003. Gross operating revenue per employee was R$ 175,300 in 2004, an increase of 6% as compared to 2003.

In 2003, the Sadia Corporate University (UniS) project was implemented. It is a way for the Company to conduct and systematize a process of education and learning that is in line with its strategic and long-term objectives. During 2004, UniS offered MBA programs for 136 employees compared to 35 in 2003. UniS maintained the partnership Sadia already had with the State University of Campinas and signed agreements with professors from the University of São Paulo and the Getúlio Vargas Foundation. Besides the UniS’ MBA programs, the Company has an agreement with the Dom Cabral Foundation for training executives. Through UniS, Sadia believes the understanding of the business will be more efficiently disseminated and better employed through concrete action designed to generate value.

The Company distributes 5% of its operating earnings to eligible employees with at least one year of service, excluding equity accounting adjustments, income tax and social contributions. In 2004, the amount corresponded to R$

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24.8 million, with premiums of a minimum of 1.19 times the salary of each employee, for profit sharing bonus for good departmental performance.

The Company believes it maintains satisfactory relations with its employees, and there have been no strikes or significant labor disputes in recent years. Current collective bargaining agreements have a term of one year, and are negotiated between the Company and workers’ unions, with such agreements negotiated separately for each industrial unit. The agreement reached with the local or regional union applies to the employees of a given unit, whether they are members of the union or not.

Employee Benefits

Sadia contributes 0.75% of its payroll to the Attílio Fontana Foundation (FAF), a private pension fund. Employees contribute 1.5% of their payroll. As of January 2003 the Company began to adopt new supplementary social security plans under the defined contribution modality for all employees hired by Sadia and its subsidiaries. Under the terms of the regulations, plans are funded on an equitable basis so that the portion paid by the Company is equal to the payment made by the employee in accordance with a contribution scale based on salary bands that vary between 1.5% and 6% of the employees’ remuneration, observing a contribution limit that is updated annually.

One of the ten largest employers in Brazil, the Company spent R$ 53.2 million on benefits during 2004, consisting of meals served, medical assistance, maintenance of day care centers, life insurance and transportation expenses.

Total Quality Program

The Company maintains a quality control program, called “Total Quality Management” (TQM). The TQM program’s objectives are: (i) to ensure high standards of quality by implementing a rigorous inspection program of raw materials and finished products; (ii) to ensure that Company executives stay informed of product and service performance; and (iii) to achieve the highest possible level of customer satisfaction.

Sadia’s central laboratory is responsible for inspecting the Company’s products, and develops and implements new methods for examining food materials for chemical and biological contamination. It also examines raw materials used in developing products. The Laboratory also controls the environment of plants, as well as water and wastewater treatment facilities.

The Company has a series of toll-free lines, and encourages customers to use these in order to provide feedback on its products and services, which is passed to the Company’s commercial area. This procedure provides Sadia with the information that it requires in order to correct or improve its quality control process.

Investments

In 2004, Sadia invested R$246 million in operations. Of this amount, 37.8% was allocated to processed products, 37% to poultry, 4% to pork, 11.8% in logistics, and 9.4% in information technology. These resources allowed the Company to launch 57 products. In 2003, Sadia invested R$ 110.2 million in operations.

Investment Plans

The Company’s investment plans for the year 2005 totals R$ 500 million. Of this amount, the processed products segment will receive R$ 411.7 million, directed towards improvements on processing equipment; marketing, logistics and distribution will receive R$ 52.9 million; information technology R$ 26.8 million and other corporate departments will receive R$ 8.6 million in investments.

The Company expects to fund its investment plan with available cash flow generated from operations.

Principal markets where the Company competes

In 2004 Sadia had an average of 48% of its gross operating revenues provided from exports. This ratio was 44% and 41% for 2003 and 2002, respectively. The table set forth below presents the main regions of the world where the Company has commercial relations and the discussion that follows describes the main trends and expectations for its markets. This information has been prepared and presented in accordance with Brazilian GAAP that is adjusted for U.S.

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GAAP presentation. Refer to Note 19 of the consolidated financial statements for details on the primary differences between Brazilian GAAP and U.S. GAAP.

Europe is a large purchaser of poultry cuts and processed products and received 29% of Sadia’s exports. The Company maintains a traditional presence in the Middle East, with market leadership and a strong brand recognition. Arabic countries primarily consume whole birds of low weight (up to 1.4 kilograms) and processed products. With respect to Eurasia, which comprises the Caucasus region and Russia, Sadia exports mainly pork and poultry cuts. The main exports to Asia are special poultry cuts, pork carcasses and cuts. In the Americas, sales are concentrated primarily in processed products, poultry parts and whole birds. Secondary markets include regions with great potential for growth in the medium term.

Market Share

Sadia is the Brazilian leader in frozen and refrigerated processed products according to AC Nielsen’s surveys. Its market position is supported by significant investments in its brand, its distribution channels and in quality control.

Source: AC Nielsen

In order to maintain its market share, the Company will continue to concentrate on launchings of higher value-added products. In 2004, Sadia launched 57 products, against 53 products in 2003 and 56 products in 2002.

Processed Products

Sadia is the domestic leader in processed products, according to AC Nielsen, with a 44.6% market share of frozen products and a 29.5% share of refrigerated products.

Sadia has also assumed the leadership in the domestic margarine market, according to AC Nielsen, with a market share of 32.9% in 2004.

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Poultry

In 2004, the Company had a 13.6% share of domestic chicken production, and a 27.9% share of the Brazilian poultry export market. Sadia introduced turkey production to the Brazilian market in 1973, when its consumption was virtually non-existent. Today the market is shared with other competitors, but Sadia is still in the leadership, with 66.2% of total sales in 2004.

Pork

Approximately 70% of Sadia’s pork production is used in its processed products segment. The remainder is sold as fresh meat cuts in the domestic and international markets. According to the Brazilian Pork Producers Association, in 2004, the Company had a 10.4 % share of domestic pork production, and a 19.7% share of the Brazilian pork export market according to ABIPECS.

Brazilian Food Sector Regulation

The Brazilian Ministry of Agriculture regulates Sadia’s activities, more specifically, by the Secretaria de Defesa Agropecuária (SDA), Agricultural and Cattle Breeding Defense Secretary, under the Animal Products Inspection Department (DIPOA). The latter is responsible for the issuance of regulations, conduct of inspections and legal support in respect to the livestock, animal breeding, food processing and any other activity involving animal related affairs in the Brazilian territory.

Market Overview – Domestic and International Markets

The growth potential of the Brazilian market, and its low input costs are attractive to international entrants. The main barrier to such companies has nevertheless been the need to build a wide ranging refrigerated distribution chain, and a network of integrated producers. The prices of the sector’s principal raw materials, corn and soybeans, are strongly influenced mainly by climate conditions.

The following analysis was prepared based on information mainly gathered from: USDA (United States Department of Agriculture), CONAB (Brazilian National Supply Company), ABEF (Brazilian Poultry Exporters Association) and ABIPECS (Brazilian Pork Meat Exporters Association) and AC Nielsen reports.

Processed Products

Consumption of processed products is influenced by several factors, including the increase in consumer income, and efforts related to the development of products, with a view to meeting consumer demand for more sophisticated products.

The processed products segment is divided into three categories: frozen products, refrigerated products and margarines.

Frozen Processed Products

In 2004, the Brazilian market for frozen processed products accounted for sales of US$ 374.8 million. Approximately 80% of this total is attributable to the two largest companies, Sadia and Perdigão.

Consumption of frozen products is less sensitive to variations in income among the population. This is explained by the fact that higher income groups consume a large proportion of the total volume of the segment.

Source: AC Nielsen

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Due to the characteristics of frozen processed products with production concentrated among a small number of companies, and supply aimed at a more restricted group of consumers the Company believes that volume sales of frozen processed products will maintain their growth trend, although at rates below the 10.6% annual average registered between 2000 and 2004. In any case, since the market for frozen processed products is still far from mature in Brazil, the Company believes that its medium and long-term prospects are highly positive based on the trend over the preceding years.

Refrigerated Processed Products

In 2004, the Brazilian market for refrigerated processed products accounted for sales of US$ 1,503 million. The two largest companies in this market together accounted for approximately 55% of net sales, according to AC Nielsen, with the remaining share being split among a large number of small companies.

Source: AC Nielsen

Margarine

In 2004, the Brazilian market for Margarine accounted for sales of US$ 511.2 million. The three largest producers accounted for 83% of the market.