Sadia Financial Analysis

1. BACKGROUND

1.1. Business Overview

Sadia is one of the world's leading producers of chilled and frozen foods. Established in Brazil in 1944, it is today the market leader in all segments in which it is present, and it is also Brazil's main exporter of meat-based products.

Sadia's brand name has been voted the most important and valuable brand among all Brazil's food brands. In Portuguese the word Sadia means "healthy". In addition, Sadia has much more to offer. Their products are highly nutritious, practical, safe to eat and very tasty.

Sadia is proud to have nothing less than 12 industrial plants in Brazil that together produce over 1.3 million tons of protein-based products coming from chicken, turkey, pork and beef, not to mention the pasta, margarines and desserts.

Sadia's great variety of food products has conquered an ever-greater preference of consumers around the world. The secret of such success lies in the distinctive quality of the products, the great know-how at their disposal, marketing creativity, competence in the establishment of the brand in specific markets and in dedication to service that the company manages to provide to over 70 thousand direct points of sale in Brazil and around 200 foreign clients in the four corners of the globe.

Only through tasting one of Sadia's food products, one will be able to evaluate the reasons for such a success. The line of products comprises over 2,500 different products to choose, taste and enjoy: varied cuts of poultry and pork meat, cooked meats, cold cuts in general, sausages, hamburgers, lasagna, ravioli and other types of pasta, pre-cooked meat based meals, creamy margarines, pizzas, soups, desserts and much more.

Sadia has not only amassed over 60 years of experience and state-of-the-art technology, but it also utilizes carefully selected ingredients and raw materials for the development of delicious food products. Adapted to a wide range of customs and tastes, every product Sadia produces is of the best quality and with enough variety to provide a tasty meal at any time of the day, anywhere around the world.

Sadia exported for the first time in 1967, and since then the company has grown and has acquired the capacity to supply clients throughout the world. It currently exports quality to over 65 different markets, mainly in Europe, the Middle East, Russia, Japan, Southeastern Asia and the Americas.

Sadia has 14 distribution centers in Brazil and also runs commercial offices in England, Italy, the United Arab Emirates, Japan, China, Argentina, Chile and Uruguay, which means speedy in loco services and readiness to deal with the clients' various demands. In this way, Sadia guarantees that their products will always be delicious and fresh when delivered to consumers all over the world.

1.2. MARKET DATA

Last Close 13-Jun-2006 $26.16 Price/Sales Ratio 0.58

52-Week High $35.00 Price/Book Ratio 1.85

52-Week Low $16.85 Price/Earnings Ratio 6.87

60-Month Beta 1.9 Price/Cash Flow Ratio 5.54

Market Cap (mil.) $1,780.2 Return on Assets 9.6%

Shares Outstanding (mil.) 68.0 Return on Equity 27.4%

Dividend Rate 1.58 Current Ratio 1.84

Dividend Yield 6.0% Long-Term Debt/Equity --

# of Institutional Holders 21 % Owned by Institutions 6.4%

Latest Short Interest Ratio 6.80 Latest Net Insider Transactions 0.00

Growth Rates 12 Month 36 Month 60 Month

Revenue Growth 28.5% 26.5% 17.2%

EPS Growth (12.8%) (11.5%) --

Dividend Growth (53.3%) 86.0% --

1.3. GROSS OPERATING REVENUE

The chart above shows the Gross Operating Revenue (GOR) for the year of 2005. It shows that the GOR doubled from 2001 to 2005. Below are the charts for the GOR comparing the first quarter of 2005 and the first quarter of 2006.

The total GOR has decreased in R$ 0.1 billion (5%) can be explained by the depreciation of the dollar in the same period. The currency in the first quarter of 2005 was between R$ 2.77 and 2.59 while in the same period of 2006 it was between R$ 2.23 and 2.05. The mean for each period (1Q05 - R$ 2.68; 1Q06 - R$ 2.14) the dollar currency will have a difference of 20%. This difference can also explain why the GOR for the export market has decreased by almost 20%, as shown below:

The GOR for the domestic market is practically the same for both periods:

1.4. REVENUE BREAKDOWN

1.5. STOCK ACTIVITY

Sadia's stocks are sold both in Brazil and in the USA. In Brazil, the average daily trading volume doubled when compared to 2004, reaching the R$ 12.1 million mark, versus R$ 6.1 million in 2004. These figures show that Sadia continues to account for the largest volume of trading of stock in the Brazilian food industry, with a 57.8% share. The Company's preferred shares continued to be distributed evenly among various categories of Bovespa investors - with special attention to foreign investors, which helped to increase liquidity.

In 2005, Sadia's level II ADR's [SDA] appreciated 33.1% in US dollar-terms, while the Dow Jones index fell 0.6% during the period. Average daily trading volume tripled, reaching US$ 686.9 thousand (US$ 268.6 thousand in 2004), which corresponds to 4.1% of all Sadia preferred shares traded in December 2005.

The 2005 results enabled Sadia to distribute interest on equity