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Contents
SADIA S.A. A BRAZILIAN FOOD PRODUCER ................................................................................................ 2
Introduction: ............................................................................................................................................. 2
Company Profile: ....................................................................................................................................... 3Corporate Structure: ................................................................................................................................. 3
Acquisitions and Investments: .................................................................................................................. 4
Financial Position: ..................................................................................................................................... 6
Currency Derivative Contract:................................................................................................................... 9
Loss in the Derivative Market: .................................................................................................................. 9
Consequences: .......................................................................................................................................... 9
Allegations against Sadia: ....................................................................................................................... 10
Substantive Allegations: .......................................................................................................................... 10
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SADIA S.A. A BRAZILIAN FOOD PRODUCER
Introduction:
This Food Company was created in Concordia, Santa Catharina, Brazil. Its headquarters are located in
the same city. Sadia S.A. is one of the greatest Brazilian food producers. It is ranked among the worlds
leading producers of frozen foods, and is the main exporter of meat-based products. In 2008, Sadia had
about 20 industrial plants that together produce over 2.3 million tons of food which included chicken,
turkey, pork and beef, as well as pasta, margarines, desserts, and other products. The company provides
to over 70,000 direct points of sale in Brazil and exports to almost 100 countries in the world. Sadia'sformer chairman Lus Fernando appointed Minister of Industry and Foreign Trade by President Luiz
Incio in 2003. In 2008, the company faced huge losses on the derivative market. In 2009 the company
announced its merger with its major competitor Perdigo, forming BRF - Brazil Foods (technically a
takeover of Sadia by Perdigo, which changed its corporate name to BRF - Brazil Foods S.A.). The merger
was approved by the boards and shareholders of both companies but the regulatory approval is still yet
to be received.
http://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Foodhttp://en.wikipedia.org/w/index.php?title=Lu%C3%ADs_Fernando_Furlan&action=edit&redlink=1http://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/wiki/Perdig%C3%A3ohttp://en.wikipedia.org/wiki/Brasil_Foodshttp://en.wikipedia.org/wiki/Brasil_Foodshttp://en.wikipedia.org/wiki/Perdig%C3%A3ohttp://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/w/index.php?title=Lu%C3%ADs_Fernando_Furlan&action=edit&redlink=1http://en.wikipedia.org/wiki/Foodhttp://en.wikipedia.org/wiki/Brazil7/29/2019 SADIA S.A 8979
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Company Profile:
The word Sadia in Portuguese means healthy, which seems appropriate for a Brazilian producer, settled
in the aisles of chilled and frozen foods. Sadia -- one of Brazil's largest pork, poultry (both chicken and
turkey), and beef makers --provide supplies to some 70,000 domestic customers and 200 export
customers. It also provides 1.3 million tons of protein-based offerings, including processed foods like
frankfurters and sausages, as well as convenience foods which include hamburger patties, pizzas, and
ready-to-eat meals. Other products include frozen desserts, pasta, and margarine.
Corporate Structure:
The corporate structure of the company Sadia S.A is shown below and it is necessary to note that the
company has its operating subsidiaries.
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Acquisitions and Investments:
Since 2006, the Company has experienced significant changes guided by its growth plan, which is based
on several acquisitions and entry into new businesses. As result of these acquisitions, the Company has
grown and diversified its business, increasing its share in the chicken and pork products markets and
entering into the milk, margarine and beef markets. Within this process of growth, the Company hasundergone a comprehensive corporate reorganization, aimed at maintaining the sustainability of the
Companys business by simplifying its corporate structure and reducing costs of operation, tax and
financing, and those related to the reorganization of its operational activities.
Sino dos Alpes
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On March 30, 2007, we acquired Sino dos Alpes Alimentos Ltda. in Bom Retiro do Sul in the State of Rio
Grande do Sul, a subsidiary ofGrandi Salumifici Italiani (GSI), a leading group in the Italian specialty
meats industry. The acquisition was valued at approximately R$0.4 million, and we assumed liabilities of
R$5.0 million. The plant manufactures high quality specialty items, such as bologna sausage, frankfurters
and sausage made from selected meats. The products, sold under the Senfter and Sinosul brand names,
are prepared from special recipes with the flavor of homemade seasoning typical of the state of Rio
Grande do Sul. With this acquisition, Perdigo intends to reduce bottlenecks at its plants in the south of
the country, centralizing the production of small-scale lines for specific market niches at the new unit.
Pet Food
In April 2007, we made our debut in the pet food market, launching dog food under the Balanceand
Supper brands. These products are the first in the Essential Pet Care portfolio, a division specifically
created for the pet food market with an eye toward identifying opportunities in sectors with growth
potential. We have invested approximately R$4 million in the assembly of a modern dog food
production line in the animal feed plant at Francisco Beltro in the State of Paran. The productionvolume may be adjusted according to market demand.
Plusfood
On January 2, 2008, we acquired the Dutch company Plusfood Groep B.V. (Plusfood) for a purchase
price of R$43.0 million. Plusfood manufactures poultry and beef-based processed and convenience food
products and owns two important brands in the European market: Fribo for hamburgers, which was
acquired by Perdigo, and Friki for poultry products, a brand that we have the right to use for up to five
years under an assignment of use agreement. Plusfood has the capacity to manufacture approximately
20,000 tons per year of finished products. The main items in its product mix are chicken nuggets and
other breaded products, boiled and grilled chicken, and several hamburger varieties. The main markets
for Plusfood products are the United Kingdom, Italy, the Netherlands, Spain, Germany and France. This
acquisitions principal objectives are to advance our European sales and focus on the retail and food
service segments. We also expect to improve our efficiency and timing for developing new products for
European customers, improve our time to market and increase control over the marketing and
distribution services in these channels.
Valore
On June 19, 2007, we announced the approximately R$110.0 million acquisition of the assets of the
beef plant of Valore Participaes e Empreendimentos Ltda. and its partners, currently operated byUnifrigo in Mirassol DOeste in the State of Mato Grosso. This acquisition meets our goal of expanding
our beef operations by 2011 as set out in our strategic plan. The Valore beef plants capacity has been
expanded to 2,000 heads per day. Expansion work followed international animal health and food safety
standards in addition to environmental protection requirements. Once concluded, the plant began to
operate with two shifts, and as it gradually reaches full production capacity, we expect to hire an
additional 1,500 employees from the region.
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Paraso Agroindustrial
On July 31, 2007, we acquired Paraso Agroindustrial, a company based in Jata, in the State of Gois,
which operates a poultry slaughtering unit and an animal feed plant. We acquired the company from theGale group at a price of R$28.7 million, generating goodwill ofR$22.3 million. This acquisition is the final
stage of a transaction that began in November 2005, when we acquired a hatchery and poultry farm
from the Gale group. The slaughter capacity of this unit is equivalent to 65,000 heads of poultry per day.
On August 1, 2007, this company was merged into Perdigo Agroindustrial S.A.
Unilever Margarine Business
On August 1, 2007, we acquired Unilever N.V.s margarine business, including 100% of the shares in the
capital stock of Ava Comrcio e Representaes Ltda., a company that held the Delicata and Claybom
margarine brands. We also acquired the Doriana brand from Unilever and the assets (machinery and
equipment) used in manufacturing these products in the city of Valinhos, State of So Paulo. The total
acquisition price was R$74.8 million, generating goodwill of R$65.8 million. These margarine products
supplement our range of refrigerated and frozen products, and growth in this market is one of the
priorities we have established in our expansion plan. We also formed a joint venture with Unilever to
manage the Becel and Becel ProActiv branded margarine products and to identify other business
opportunities. This strategic alliance was formed to introduce in the Brazilian market products intended
for health-conscious consumers. The joint venture is intended to combine our track record in
manufacturing, selling and distributing food products in Brazil with the advanced technology, marketing,
innovation and internationally recognized brands belonging to Unilever. On August 1, 2007, we merged
Ava Comrcio e Representaes Ltda. into Perdigo Agroindustrial S.A.
Financial Position:
The financial position can be determined by the following income statements and balance sheets which
were basically not exposed in 2008 when the loss in derivative market occurred.
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Currency Derivative Contract:
Sadia entered into currency derivative contracts to hedge against the US dollar exposure. The amounts
of these contracts were characterized as nominal. The contract also violated the company policy in that
they were far larger than necessary. The contracts covered forward exposure for 12 months when the
companys policy contained the covering of forward exposure for 6 months worth of coverage.
Loss in the Derivative Market:
On 25
th
September, 2008, the companys shareholders were deeply shocked and saddened by the newswhich stated the loss it had incurred in the derivatives market. The loss was due to its involvement in
the currency derivative contracts hedging against US dollars exposure. The loss was of R$760 million
(U.S. $410 million). It was also alleged that the loss was however greater than their earnings in 2008. It
was due to this that the companys Chief Financial Officer was fired.
Consequences:
Due to this particular loss, the companys share fell $5.77 per share to $9.50 per share. It continued to
fall in the marketplace, declining an additional $1.91 per share, as the news of this particular loss got
leaked in the entire marketplace. On 6th October, 2008, the chairman and vice chairman resigned from
their respective jobs. Due to this, the price per share declined to $7.75 and $6.75 on 6 th and 7th October,
2008 respectively.
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Allegations against Sadia:
The purchasers of Sadias American Depository Receipts alleged that the currency derivative contract
was unnecessary and was against the companys policy i.e. clear violation of companys hedging policy.
Other allegations included:
1. The companys exposure to currency contracts was not nominal but large and speculative.2. The company lacked appropriate financial control.3. The company lacked sufficient internal control.4. The Financial statements were false.5.
The companys statements about it financial position and future business prospects weremisleading.
All these misleading statement were issued to SEC by Sadia which are as under while the true facts are
mentioned above.
Substantive Allegations:
During the class period, the company issued a press release and filed a form 6-K with SEC which stated:
"The results of the first quarter of 2008 confirmed our expectations. Gross revenues rose 20.3%,
to R$ 2.6 billion, and exports accounted for 46.7% of the revenues generated by the Company. The
Company will proceed with its internationalization process, aware of the sales growth potential in the
international market, having opened its first plant abroad, in Russia, and investing in the
construction of its second unit overseas, in the Arab Emirates. The segment of processed food increased
15.8% in volume and 21.2% in revenues in relation to the same quarter in the prior year. The growth in
this segment is consistent with the Company's goals of improving the product mix, minimizing sanitary
risks and ensuring a better profitability. The goal for the domestic market is to achieve penetration in all income
levels of the Brazilian population. Investments of R$ 427.1 million were made in the quarter, out of a planned
total of R$ 1.6 billion for the year, the highest amount in the history of Sadia. In the quarter, the Company had a
growth of 3.9% in operating profit and 123.4% in net income, as compared with the 1Q07. The focus on the
improvement of the operating cash generation (EBITDA) resulted in R$ 276.9 million and a margin of
12.1%, close to that obtained in the same period of the past year, in spite of the pressure due to the increase
in the cost of grains. In view of the apprehension in relation to the cost of grains in 2008, the Company
has concentrated its efforts in passing on costs, both in the domestic and in the foreign market, and in
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achieving productivity gains. We continue to be confident in our goal of doubling revenues within five
years, based on the internationalization of our operations and on the growth in the domestic market,
taking advantage of the competitive conditions of Brazil as a producer of animal protein. Certain that Sadia shall
continue its path of success in the year that has just started, by ensuring the quality of its products, the
sustainability of its initiatives and the maintenance of its credibility with investors, we wish to thank our
associates for their dedication and talent, which contributed to the development of another important quarterin the history of this Company."
Gilberto TomazoniCEO, Managing Director
On 30th April, 2008, the company once again created a misleading statement and filed it to SEC on form
6-K which included:
The Companys operations that are exposed to market risks, mainly with respect to foreign currency
variations, credit risks and variations in the prices of agricultural commodities - corn, soyabean and
derivatives. These risks are managed by the Risk Management area, through identification of exposures
and correlations between the different risk factors, using the specific calculation method, VAR - Value at
Risk and simulations of scenarios, and are permanently monitored by the Financial Committee and by
the Commodities and Risk Management Committee, consisting of members of the Board of Directors, who
are responsible for defining managements strategy for administering these risks, determining the limits
for positions, exposure and authority for decision making. At March 31, 2008, the VAR-Value at Risk for
the operational assets and liabilities and financial instruments exposed to exchange rate variations for
one year with 95% confidence, amounted to R$187,711, representing 6.10% of shareholders equity
On 30
th
July, 2008, the company filed to SEC:
"The rise in the international price of oil and the growth of the world economy drove the prices of
agricultural commodities up in the first half of the year. The prices of corn and soybean, the main inputs in our
industry, are approximately 33% and 50%, respectively, higher than those of the first half of 2007.
The commodities price rise has caused food inflation worldwide. In spite of the threat of a slowdown in the
world economy, the business trend is favorable to Brazil and to Sadias businesses.Even with this scenario
of cost pressure, the results of the second quarter of 2008 were in line with Company expectations. Gross
revenues in the period reached R$ 2.9 billion, an increase of 26.5%, when compared to those of the
2Q07. EBITDA reached R$ 271.5 million, 18.4% higher, with a margin of 10.5%.Sadias sales in the foreign
market continue to be driven by strong demands and firm prices. An upturn may be observed in the mix sold
in this market, such as the increase in the revenue brought by poultry cuts, of 72.1% in the 2Q08. In the domestic
market, the segment of processed products, which accounted for around 80% of the revenues, exceeded the
2Q07 figures by 24.9%. To maintain a continued growth aligned with its strategy, Sadia invested R$ 952.7
million in the first half of this year, out of an estimated total of R$ 1.6 billion for the year, in actions geared
to strengthen its expansion in the domestic market and the strategies for the globalization of its
operations, in view of the competitive conditions of Brazil as a producer of animal protein. The Concrdia
Banco operation has been approved and its purpose is to take advantage of the business opportunities and
synergies provided by the value chain of the Sadia group. The Company acknowledges the competence of
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its associates, who ensure the strength of its brand and the high quality of its products, contributing to
enhance the credibility of the Company with customers, shareholders, investors and suppliers. Gilberto
TomazoniCEO
On 25th September, 2008, the company filed once again with SEC on the form 6-K which stated:
The Finance Office implemented certain transactions in the financial market, which transactions were
related to the variation of U.S. Dollar against Real (Brazilian currency) in amounts above the purpose of
protecting the activities of the Company exposed to exchange variation. Given the severity of the international
crisis, which worsened last week and due to the high volatility of the quote of the U.S. currency, which
occurred very quickly, the Board of Directors, having become aware of the implementation of such
transactions, determined the adjustment of the exposure of the Company to standards of risks and limits
established as part of its financial and exchange rate policies. Accordingly, the Company decided to liquidate
in advance certain financial transactions, which resulted in losses of approximately R$ 760,000,000.00.
On 26th September, 2008, an article written by Associated Press notified that Sadia had incurred a big
loss in the derivative market. But Sadias officials reported that they can cover the loss having short term
line of credit. The fluctuations and volatility in the exchange market led to the loss. Analysts were of the
view that $406 million loss was more than the companys earnings in 2008 which led to the firing of
Chief Financial Officer.
Sources:
http://en.wikipedia.org
http://www.brasilfoods.com/ri/siteri/web/arquivos
http://ktmc.com/
http://www.bestgore.com/tag/drugs/
http://www.fim-africa.com/apps/blog/show/30582595-fim-africa-stand-2013-amid-show
http://www.slc.co.uk/links.aspx
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