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Transcription

1 Annual Report 2004

2 Summary 01 Corporate Profile 30 Our Shares as an Investment 02 Mission / Vision / Values 03 Message from the Management 06 Sector Aspects 34 Intangible Assets 40 Corporate Governance 46 Risk Management 10 Economic and Financial Performance 50 Strategies and Outlook 16 Operating Performance 54 Human Resources 22 Sales Performance 60 Social Actions 28 Internationalization 68 Corporate Information Highlights

3 Operational and Financial Indicators 2004 In millions of Brazilian Reais Gross Sales 5,567 4,371 3,342 2,789 2,066 Domestic Market 2,840 2,533 2,136 1,754 1,554 Exports 2,727 1,838 1,206 1, Net Sales 4,883 3,825 2,917 2,434 1,764 Gross Profit 1,351 1, Gross Margin (%) Operating Income Operating Margin (%) EBITDA EBITDA Margin (%) Net Income Net Margin (%) Market Value 2,559 1, Total Assets 2,525 2,779 3,007 2,424 2,234 Shareholders Equity Net Debt Net Debt/EBITDA Earnings per Share* (R$) Net Sales per Employee/year - In R$ thousand Productivity per Employee (tons/year) Shares 44,652,384 44,652,384 44,652,384 44,652,384 44,652,384 Theasury Share 143, , , , ,440 * Consolidated excluding treasury shares Productive/Commercial Structure Meat Industrial Units 13 Soybean Industrial Units 2 Feed Plants 6 Hatcheries 12 Poultry Outgrowers 4,176 Hog Outgrowers 1,501 Employees 31,406 Distribution Centers 16 Outsourced Distributors 13 Activities Abroad 4 Active Domestic Customers 83,500 Active International Customers 744 Grain Purchasing Branches 27 NUMBER OF EMPLOYEES CAGR = 9.9% 27,951 31,406 12, , , , , , ,291 22,377 24,

4 EBITDA In millions of Brazilian Reais Net Income In millions of Brazilian Reais CAGR = 35.3% CAGR = 37.8% EBITDA Margin (%) EBITDA Gross Sales In millions of Brazilian Reais Shareholders Equity In millions of Brazilian Reais CAGR = 28.0% CAGR = 15.1% ,017 1,268 1,415 1,801 2,066 2,789 3,342 4,371 5, , , , , , , , , , , , Exports Domestic Market Meats Sold In thousand tons Shareholders Payout In millions of Brazilian Reais CAGR = 13.6% CAGR = 29.0% , Exports Domestic Market Net Income (%) Shareholders Payout

5 Corporate Profile The result of ten years of work Perdigão is one of Latin America s largest food companies, in 2004 posting the best year s earnings in its entire history. In its untiring quest for excellence, the Company has a track record of achievements, reciprocating consumer trust with innovative products of the highest standards of quality and variety. Just as an expanding business and growing profitability in Brazil and overseas is the fruit of its dynamism, so this same dynamism has driven Perdigão s social initiatives, particularly those involving environmental preservation. In a year when it commemorated seventy years since its foundation (in 1934 in Videira, state of Santa Catarina by Italian immigrants) and ten years of professionalized management, Perdigão posted a 28% increase in net sales revenues to R$ 4.9 billion. The number of employees also increased 12% year on year reaching 31.4 thousand while the Company also surpassed the milestone of a 100 countries to which its products are exported. Crowning this year of successes, Perdigão recorded an increase in net income of 139% to R$ 296 million, the highest in its history. Perdigão s business involves the raising and slaughtering of poultry and hogs, and the processing of industrialized, elaborated and frozen meats in addition to ready-to-eat pastas, pies, pizzas, flaky pastries and frozen vegetables. The number of Perdigão s products is an extensive one: more than a thousand different items principally frozen and chilled are sold in Brazil and overseas under the Perdigão, Perdix, Chester, Batavo, Borella, Turma da Mônica, Confiança, Fazenda, Escolha Saudável, Light & Elegant, Toque de Sabor, Apreciatta, Halal, Unef, Sulina, Alnoor, Confidence and BFF brands. Perdigão meets customer demand through an integrated production structure based on advanced industrial technology, together with its accumulated competencies and skills in developing high quality products. In Brazil, it competes for market leadership in all its product lines and operates 13 meat-processing units in the states of Rio Grande do Sul, Paraná, Santa Catarina and Goiás. The Company has one of the largest frozen and refrigerated product distribution networks in Brazil, covering 95% of the country, supported by 16 proprietary distribution centers and a further 13 run on an outsourced basis. Perdigão serves its customers through a variety of different channels: supermarkets, institutional, retail and wholesale outlets. Overseas, the Company supplies the markets through its commercial offices in England, the Netherlands, United Arab Emirates and Singapore, in addition to a distribution center in the Netherlands. Perdigão s shareholding control is shared jointly by seven pension funds. The Company s shares have been traded on the São Paulo Stock Exchange since 1980 (BOVESPA - Level I), and the New York Stock Exchange (Level II ADRs) since Today, the Company has 11,000 shareholders, all of which are treated on an egalitarian basis with tag along rights. Of the common shares, 79.7% are held by the Pension Funds representing a 48.1% stake in the Company s total capital. The remaining capital is divided between domestic (35.7%) and foreign shareholders (16.2%).

6 Mission Always to be a leading provider of high quality, affordably priced food products to fast-changing tastes and lifestyles, and constituting the best premium food merchant for its customers, the premium investment for its shareholders and the employer of choice of its employees, working in harmony with the community and the environment. P E R D I G Ã O A N N U A L R E P O R T Vision Values To be the best Latin American food company, with a strong worldwide presence. T H E C U S T O M E R A L W A Y S C O M E S F I R S T His/her problems are our problems. We must always serve our customers in such a way as to exceed their expectations. H U M A N D E V E L O P M E N T We encourage the development of our employees, creating opportunities for both personal and professional growth. P R O F E S S I O N A L R E S P O N S I B I L I T Y The Company s professional actions are characterized by high standards of performance and dedication. E T H I C A L R E L A T I O N S We conduct all internal and external relationships in an ethical and coherent manner. R E S P O N S I V E N E S S I N R E A C T I N G T O C H A N G E S We are always ready to accept change and to respond rapidly to the opportunities that arise from it. T E A M W O R K Collective interests take precedence over individual interests and all contribute to the success of the team. C O N S U M E R S A T I S F A C T I O N Our products always offer satisfaction to the consumers and guarantee consumer health. E F F I C I E N T M A N A G E M E N T Our profits are the result of efficient management, adequate rewards to our shareholders and respect for the Company s other values.

7 Message From The Management Further advances in International Expansion and Creation of Value Valores The year 2004 was a particularly important one for Perdigão. In commemorating its seventieth year, the Company consolidated its international expansion and posted one of the most significant growth rates ever recorded. The Company is well structured to continue on this upward trend. Additionally, such external factors as GDP growth, controlled inflation, record trade surplus and exports, greater international credibility, falling unemployment and declining social disparities, all contributed to the sustainability of the Company s business in the domestic and international markets. Perdigão will continue to build on the achievements of 2004 driven by its confidence and enhanced determination in meeting the challenges of the future. Among these achievements are the Company s expanded overseas presence in more than 100 countries, improved distribution channels and increased sales to new customers in Europe, the Far East, Middle East, Eurasia and Africa, among others. The Company s internationalization has become a reality and is part of an overall trend in our organization: today more than half of our development teams are focused on launching products for the external market. M E S S A G E F R O M T H E M A P N E A R G D E I M G E Ã N O T 3 Other important highlights during the year were the expansion of the Rio Verde Agroindustrial Complex in the state of Goiás, and the level of financial soundness that the Company reached the result of reducing debt and concentrating on higher value added products. Among our plans for 2005, is the start of the Araguaia Project for installing an agroindustrial complex in Mineiros in the southwest region of the state of Goiás. In 2004, the Company posted an increase of 15% in frozen and chilled product sales volume, 6% of which in the domestic market and 24% in the external market. Buoyant sales resulted in a 27% increase in gross sales to R$ 5.6 billion, with a jump of 48% in export revenues alone. Ten years of professionalized management were crowned by an EBITDA of R$ 594 million a 55% improvement on 2003 and a net income of R$ 296 million a year on year increase of 139% and the highest ever recorded in the Company s 70-year history. Perdigão created a further 3,500 jobs to support this additional growth - an increase of 12% in the Company s headcount, which now totals 31,406. We continued our philosophy of working on a decentralized basis in the social area, and focused on the communities where we are present as a form of reciprocating the trust and receptiveness the local populations have shown in the Company. It is one of our principal aims to expand Perdigão s role as a company that, besides being profit-driven, seeks to develop social inclusion by supporting social, cultural and environmental projects. We are proud to be among the ten top companies considered to be a model in the social responsibility field, according to the ranking in the 2004 edition of Exame magazine s Guide to Good Corporate Citizenship.

8 P E R D I G Ã O A N N U A L R E P O R T We are continually seeking to expand our product mix and consequently, the wellbeing of our customers. During the year, we surpassed a thousand items on offer to the market representing an annual average of 30 new product launches. All those who believed in the Company s potential from the outset, have since reaped the rewards. Our partners and suppliers have successfully kept pace with our growth and are adapting their processes to meet our production and quality control standards. Meanwhile, our shareholders saw their investments gain 132% in 2004 and representing a 39% annual average appreciation on the Bovespa over the past decade. Our ADRs registered gains of 155% during the year, the best performance of all Brazilian securities trading on the NYSE. Our forecast for 2005 is for a 9% increase in frozen and chilled product sales volume in the domestic and international markets. We also expect to face reduced grain costs due to falling international prices and crop forecasts. We remain alert to the impact of macroeconomic and industry factors on our business, both at the national and international level. We shall continue to invest in both increased productivity as well as in expanding our installed capacity. 4 In 2005, capital expenditures are to total approximately R$ 150 million for the initial construction work at the Mineiros-GO site and the continued expansion of our Rio Verde-GO unit. We shall also be dedicating part of the year s investment to projects for upgrading logistics, infrastructure, expansion and optimization of production lines, all to be implemented at our units in southern Brazil. Our strategy is to maintain the Company s ongoing internationalization with growth in export volumes principally of higher value added items and to strive for even higher returns from these operations. At the same time, we intend to consolidate our domestic market presence by supplying products that constantly attend to customer needs. It is with much pride that we conclude a decade of good earnings, with a constant generation of value and growth, offering innovative products of the highest quality and variety to our consumers. The We have ensured the Company s sustainability thanks to our principal competitive advantages, which incorporate focus on the business and results, products which meet consumer expectations, the prioritizing of the brand and intangible assets, and managing the risks of the business. Nildemar Secches Chief Executive Officer

9 Our systems, industrial assets and state-ofthe-art food safety methods make us one of the most advanced companies in the food segment. Eggon João da Silva Chairman of the Board of Directors period was also marked by the implementation of professional management and the joint shareholder control of the Company. In short, the decade was one of achievements and awards, hard work and dedication on the part of all. Commitment and competence have been critical to reaching our objectives. However, Perdigão has gone far beyond simply meeting targets. Social and environmental responsibility has become an inseparable part of its business. We wish to thank all our stakeholders for their confidence in the Company and for making possible the progress that has been achieved. Today, our commitment is still greater, since we are now responsible for one of the largest meat processors in the world. Nevertheless, we are convinced of our continued success in the future. This success is based on a management model that is business and results-oriented, the launching of products that satisfy consumer expectations, the priority given to the brand name and the intangible assets, and the management of the business risks. All these guarantee our sustainability and are virtues that give us our competitive edge. M E S S A G E F R O M T H E M A N A G E M E N T 5

10 Perdigão supplies food products to industrial and commercial kitchens throughout Brazil. In 2004, it expanded its food-service business activities, creating, producing and delivering products to fast food chains, hotels and restaurants.

11 Sector Aspects

12 Brazil is already the largest poultry exporter in the world Poultry P E R D I G Ã O A N N U A L R E P O R T The uninterrupted growth of Perdigão over the last decade and its internationalization are aligned with the developments in Brazil as a whole, a country that is already the largest poultry meat exporter and the third largest producer in the world. Last year, Brazil exported 2.4 million tons of poultry meat, 26% more than 2003, taking over the number one position as world exporter, followed by the United States and Europe. According to USDA data, the outlook is for Brazilian poultry production to grow more than 6% in 2005 and exports an increase at around 10%. MAIN PRODUCERS 1 (In thousands of tons - ready to cook equivalent) COUNTRIES USA 17,726 18,303 China 9,700 9,990 Brazil 8,325 8,870 EU ,725 9,765 Mexico 2,417 2,537 India 1,650 1,800 Thailand Others 9,622 10,083 Total 60,085 62,298 MAIN CONSUMERS 1 (In thousands of tons - ready to cook equivalent) COUNTRIES USA 15,562 16,029 China 9,670 9,990 EU ,125 9,205 Brazil 5,942 6,235 Mexico 2,938 3,072 Russia 1,669 1,682 Japan 1,645 1,660 Others 11,279 11,901 Total 57,830 59,774 8 MAIN EXPORTERS 1 (In thousands of tons - ready to cook equivalent) COUNTRIES Brazil 2,383 2,635 USA 2,146 2,242 EU , Thailand China Others Total 6,313 6,767 MAIN IMPORTERS 1 (In thousands of tons - ready to cook equivalent) COUNTRIES Russia 1, Japan Saudi Arabia EU China Others 1,622 1,590 Total 4,152 4,183 Source: USDA (Oct/04) 1 Includes chicken, special poultry and turkey / 2 Preliminary data/ 3 Estimated CORN: WHOLESALE PRICE EVOLUTION (R$/sack - Paraná state) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: FNP

13 Pork Brazil is the fourth largest producer and exporter of pork meat in the world. Export volume is close to more than 500,000 tons to a market of only 25 countries. Growth in production and overseas sales in 2005 is estimated at 2%. MAIN PRODUCERS (In thousands of tons - weight in equivalent carcass) COUNTRIES China 47,170 47,500 EU ,001 21,108 USA 9,332 9,512 Brazil 2,585 2,640 Canada 1,900 1,935 Russia 1,740 1,790 Others 7,130 7,134 Total 90,858 91,619 MAIN EXPORTERS (In thousands of tons - weight in equivalent carcass) COUNTRIES EU ,250 1,166 Canada USA Brazil China Others Total 4,182 4,223 Source: USDA (Oct/04) 1 Preliminary data/ 2 Estimated MAIN CONSUMERS (In thousands of tons - weight in equivalent carcass) COUNTRIES China 46,928 47,188 EU ,801 19,959 USA 8,950 9,041 Japan 2,493 2,548 Russia 2,239 2,289 Brazil 2,015 2,060 Others 8,077 8,112 Total 90,503 91,197 MAIN IMPORTERS (In thousands of tons - weight in equivalent carcass) COUNTRIES Japan 1,225 1,250 USA Russia Mexico Hong Kong South Korea Others Total 3,700 3,779 S E C T O R A S P E C T S 9 SOYBEAN: WHOLESALE PRICE EVOLUTION (R$/sack - Paraná state) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: FNP Last year, the country exported 2.4 million tons of poultry meat and is already the largest exporter in the world.

14 A leading Perdigão export to Japan is special chicken cuts. Yakitori is very popular among Asians. (yaki = grilled; tori = chicken).

15 Economic c and Financial al Per formance

16 Net income reached R$ 296 million, a 139% growth Gross Sales The Company s total gross sales were R$ 5.6 billion, an increase of 27%. This performance was mainly the result of an increase of 15% in sales volume, principally exports, which grew 24%. P E R D I G Ã O A N N U A L R E P O R T Net Sales The increase in Perdigão s net sales in 2004 is largely the reflection of the excellent performance in overseas markets and the improved sales mix to the domestic market. The Company reported net sales of R$ 4.9 billion for the year, 28% more than in Elaborated/processed products grew 14% in revenue terms and 9% by volume. However, the relative share of these products as a percentage of total net sales declined to 46% against 53% in 2003, a reflection of the greater focus of in-natura products to the external market. On the other hand, sales deductions rose more than revenues due to increases in PIS/COFINS charges. Cost of Sales 12 The cost of sales increased 26%, directly impacted by the cost of inputs, such as grains, industrial meats including a significant increase in hog prices. The cost of packaging an 11% increase and taxes and public utility tariffs also increased. Payroll costs rose following collective wage agreements while more labor was hired to meet stronger demand in the external market. Gross Profit and Gross Margin Perdigão reported a gross profit of R$ 1.4 billion, 32% more than in The gross margin improved to 27.7% against 26.7% in the preceding year. This reflected an excellent sales performance in spite of export revenue losses from the appreciation of the Real together with cost pressures. Operating Expenses In 2004, operating expenses fell by 170 basis points, representing 17.5% of the net sales revenue for the year. This achievement was made possible through the implementation of Optimization of Logistics Processes and was in spite of investments in marketing campaigns and the Company s international infrastructure as well as increases in electricity, freight and port service charges. A further R$ 6.8 million was classified under other operating results and relating to the employee profit sharing scheme, based on previously negotiated performance parameters, including value creation criteria (MVP More Value Perdigão) for management personnel.

17 Operating Income and Operating Margin As a result of the Company s excellent sales revenues, volume and better product mix, operating income before financial expenses totaled R$ 498 million, a year on year growth of 73%. The operating margin was 10.2% against 7.5% in EBITDA EBITDA (earnings before interest, taxes, depreciation and amortization) were R$ 594 million, 55% more than 2003 (R$ 383 million). EBITDA margin was 12.2%, against 10% in Financial Expenses Net financial expenses plus equity pick-up declined 14.6% in relation to This decline could have been even more significant had it not been for the appreciation of the Real against the US dollar, which generated an expense in the overseas subsidiaries assets, particularly inventory. Net Income and Net Margin Net income reached R$ million, the highest ever recorded in the Company s history and an increase of 139% over Net margin increased from 3.2% to 6.1%. These results reflect Perdigão s dynamism, ongoing investment program and export opportunities. E C O N O M I C A N D F I N A N C I A L P E R F O R M A N C E 13 Shareholders Equity In 2004, Shareholders Equity grew 27% compared with 2003, totaling R$ 970 million and registering a return of 39%. Earnings per Consolidated Share, excluding treasury stock, was R$ 6.64 against R$ 2.78 in 2003 an excellent gain of 139% for investors. On June , the Board of Directors approved the distribution of Interest on Equity Capital of R$ 50 million, which was paid out to shareholders on August On December , the Board of Directors approved a further distribution of more than R$ 26 million in Interest on Equity Capital. On February , the Board announced a dividend payment of R$ 12.7 million - paid on February Total shareholder remuneration amounted to R$ 88.7 million, equivalent to 30% of net income or a gross payout of R$ per share. The Company has R$ 169 million in recoverable and deferred taxes that have been accumulated in its normal course of business. These will be offset against future taxes and contributions payable. Debt The Company also reported excellent results in relation to its net debt in Net debt which in 2003, was equivalent to nearly twice EBITDA was cut to only 0.8 times EBITDA. Good cash generation during the year and steps taken to reduce working capital requirements were instrumental in achieving a 34% reduction in net accounting debt, which amounted to R$ 489 million on December This was in spite of the need to fund investments and the increased costs of some raw materials. Not only did debt decline, but also its maturity profile improved with a reduction in the level of advances on export contracts, and consequently cash investments. The Company hedges its financial operations indexed to the foreign exchange rate.

18 D E B T P R O F I L E In millions of Brazilian Reais 12/31/04 12/31/03 Short Term Long Term Total Total % Ch. P E R D I G Ã O A N N U A L R E P O R T Debt in foreign currency (45.2) ACC (88.2) Advances on exports (41.6) Import. financ I.F.C (53.9) Others (55.3) Debt in local currency (22.2) Working capital loans POC/FINEM (BNDES) (30.2) EXIM BNDES (12.2) Debentures (BNDES) (18.7) Others (43.3) Gross Debt ,396.5 (35.8) Cash Investments (37.8) Cash investiments in foreign currency Cash investments in local currency (65.5) Net accounting debt (34.1) Exchange rate exposure US$ Million 14.4 (11.8) Added Value Added value in 2004 was R$ 1.7 billion against R$ 1.1 billion or 45.1% more than in ADDED VALUE DISTRIBUTION % 43.2% 4.3% 5.4% 12.5% 1.6% 34.4% 43.5% 10.3% 3.2% 7.7% 0.9% Human Resources Taxes Interest Dividends Retention Management/Employees Profit Sharing

19 Cash Flow Cash generated from operations grew 141%, totaling R$ 468 million against R$ 194 million for the preceding year. C A S H F L O W In millions of Brazilian Reais Operating activities Net Income for the Fiscal Year Depreciation, Amortization and Depletion Long-term Net Financial Expenses Changes in Operating Turnover Accounts 43.6 (51.3) Others Flow from Investment Activities Cash Investments Investments in Permanent Assets (129.9) (87.3) Others Flow from Financing Activities (576.6) (402.9) Loans, Financing and Debentures (494.1) (402.9) Interest on Equity Capital (82.5) Net Increase (Decrease) in Cash 1.4 (40.0) E C O N O M I C A N D F I N A N C I A L P E R F O R M A N C E 15 Outlook for 2005 We believe that Perdigão s presence in the domestic and external markets can be still further enhanced by the recovery in disposable incomes in Brazil and the opening up of new markets for Brazilian goods. We consider that the Company can continue to generate value on the back of forecasted 2005 sustained growth of 9% and reduced grain costs, this in spite of a decline in average export prices and the possible effects of foreign exchange rate variations. BREAKDOWN OF NET SALES % Pork Pork Process. DM Cuts DM Poultry Poultry Process. DM Cuts DM Whole Chiken DM Pork Cuts EM Poultry Poultry Process. EM Cuts EM Whole Chiken EM Other Process. Soybean/ Others DM Domestic Market EM Export Market

20 16 Chicken breast is one of the products exported to England. This is a top-of-the-market product of rigorously selected cuts with a low fat content and pre-seasoned and/or cooked.

21 Operating Per formance O P E R A T I N G P E R F O R M A N C E

22 Investments and production flexibility to satisfy demand Production P E R D I G Ã O A N N U A L R E P O R T Perdigão increased hog slaughter by up to 16% in Slaughtered volume amounted to 3.2 million head to meet demand generated principally by exports. In the poultry segment, there was a 10% increase, reaching 487 million poultry heads. Meat processing product output was 1.1 million tons an increase of 13%, once more due to the booming export market. Other processed products increased by 20% during the year. The Company used one of its major competitive advantages to keep pace with this growth without sacrificing quality production flexibility. The adaptations made to some of the industrial units in 2003, facilitated the Company s ability to satisfy overseas demand for higher value added products during the year. An example of the positive impact of this policy was the significant increase in output of deboned chicken and leg cuts. This strategic vision of adding value to products and enhancing customer satisfaction has been instrumental in Perdigão achieving a competitive edge in relation to its peers, as well as spearheading the internationalization of the Brazilian food sector. The Company has invested heavily in the production chain to achieve this progress, always focusing on identifying technological innovations and more advanced production processes. Also critical has been the training of technical teams for implementing new practices at the integrated outgrowers given that it is these partners that generate the biggest production line costs. By developing an increasingly close relationship with its producers, Perdigão has successfully improved the technical indicators for poultry breeding and productivity in terms of employee/year. Perdigão s Operations area also increased efforts to preserve the environment. Despite more stringent requirements from the environmental protection agencies, the Company s indicators in this field once more broke new records. Among the principal projects in this area are energy production using industrial waste and recycling industrial water for non-drinking purposes. Yet a further important event during the year in the production area was the consolidation of the Rio Verde Agroindustrial Complex, responsible for 25% of the Company s installed capacity and, since April 2004, undergoing further expansion. The Complex s location, close to the expanding Brazilian agricultural frontier, has contributed to production cost savings as well as the Company s greater competitiveness in the poultry, hog and processed/elaborated segments. The success of the Rio Verde project and strong cash generation have led to the announcement of further investments. These include the construction of the new Mineiros agroindustrial complex also in the state of Goiás, with its focus to be on special poultry items turkey and Chester. The area for reforestation and for the integration of outgrowers has already been acquired and construction work is scheduled to begin in the first half of Start-up of operations at the Mineiros unit is slated for June Full capacity of 81,000 tons of processed products will be reached in December 2008.

23 PRODUCTION OF MEATS In thousands of tons CAGR = 13.4% , ANNUAL GRAIN CONSUMPTION In thousands of tons Pork Poultry O P E R A T I N G P E R F O R M A N C E CAGR = 13.7% ,062 1,255 1,453 1,806 2,106 2,378 2,442 1,637 1,646 1,485 1,287 1, Corn Soybean 19 Meat production was 1.1 million tons, an increase of 13% compared to the preceding year.

24 Capital Expenditures P E R D I G Ã O A N N U A L R E P O R T INVESTMENTS Capital expenditures in 2004 totaled R$ 110 million, 59% more than in Investments went mainly to expanding the Rio Verde unit, for increasing turkey slaughter at Carambeí (PR), for new production lines, including special cuts to the external market, and logistics and infrastructure modernization projects. In the light of strong cash generation, the Company decided to bring forward R$ 20 million of investments in This was used to purchase the new Mineiros (GO) complex site and structure the Distribution Centers in Videira (SC), and Marau-RS, as well as upgrade hatchery capacity. The new industrial unit at Mineiros (GO), the construction of which was announced in August, will be used for the slaughter and processing of special poultry. It will involve investments in fixed assets of R$ 165 million between 2005 and 2007 and additional working capital of R$ 75 million. Over the same period, the unit s integrated outgrowers are to invest R$ 270 million in the construction of 200 production modules. In December 2008, the complex will be operating at its planned capacity, namely 140,000 head of poultry/day turkey and Chester and 81,000 tons/year of processed meats. Once the project is up and running at its installed capacity, it will generate an additional R$ 550 million in sales and create two thousand direct and six thousand indirect jobs. The Company plans to invest about R$ 150 million in permanent assets to support the growth planned for In millions of Brazilian Reais Optimization Project - R$ 272 million New Projects - R$ 580 million Agroindustrial Complex - R$ 411 million (Rio Verde GO) Frigorífico Batávia S.A. - R$ 57 million Araguaia Project (Mineiros - GO) - R$ 40 million Total - R$ 1,360 million * * Estimated Supply Chain Set up in 2003, the new Supply Chain Division focused its activities during 2004 on the implementation of the Perdigão Total Service Project (ATP) for developing service excellence along the Company s entire distribution chain. The project, developed in 2003, has its roots in a strategic decision: to analyze the Company s service from the customer point of view, with the key elements for its implementation and development being the level and cost of service. ATP s strategic objective is to review Company processes, analyze where there is room for improvements, implement those suggested and also make changes. A key part of the project is to raise the organization s awareness as to the importance of these changes always driven by a need for higher levels of customer satisfaction. One of ATP s success stories has been in the maritime shipment of Perdigão s products to the external market. Based on a clearer picture of the distribution chain, the Company has improved its relationship with the shipping companies, shortened loading times, introduced new routes and increased the number of voyages. The results are already apparent in the benefits to customers as well as in tighter inventories and the guaranteed anticipation of revenues.

25 To adjust the organization s structure to the ATP Project, the Supply Chain area has undergone a restructuring with the creation of four new departments: Integrated Sales and Operations Planning; Inventory Management; Order Book Management and Demand Management. This restructuring is the bedrock for the introduction of new processes and for a new business model, the focus of which is exclusively on customer service. In addition, a program for training the personnel responsible for implementing the changes has been introduced. Five members of Perdigão s staff already have CPIM (Certified in Production and Inventory Management) certification awarded by APICS an international benchmark in the managerial development of production and inventory. Additional staff members are being trained to receive this certification during Perdigão has one of the largest frozen and chilled product distribution networks in Brazil with a capacity to service all medium-sized and major municipalities in the country. The challenge of the Supply Chain Division is now to optimize this structure. Today, the Company operates 16 proprietary Distribution Centers and a further 13 run on an outsourced basis, 15 cross-docking points (location where large trucks can transfer goods to smaller vehicles for final distribution), an outsourced fleet of approximately 500 vehicles exclusively for transportation of Perdigão products, and 34,000 pallet bins with a storage capacity equivalent to 20,000 tons. Among the Division s priorities are the rationalization of the Distribution Centers and outsourcing to logistics operators. This will ensure a more comprehensive market penetration and provide a more tailor-made service to an increased customer base, principally smaller businesses. Based on these objectives, the Supply Chain Division s principal goals in 2005 are: the reduction in the number of inventory holding points with the closure of small warehouses, mainly in the states of Paraná, Santa Catarina, Rio Grande do Sul and in São Paulo. There are plans to centralize factory-held inventory in Videira-SC, a distribution center that consolidates the product mix from all the units in the south of the country, allowing cargoes to be optimized and deliveries to be concentrated on a smaller vehicle fleet. Perdigão is also seeking to expand its relationship with the long-haul shipping companies by increasing the number of shipments, opening up new maritime routes to markets where the Company operates, and increasing inventory turnover and revenues. The Logistics Project for next year provides for the consolidation of outsourced operations at the Distribution Center in Curitiba (PR), with an initial module for 5,000 pallet bins and a capacity of 10,000 tons per month of frozen and chilled products. The Videira (SC) and Marau (RS) Distribution Centers will also be part of this project. The Division is also planning to implement a system on the Internet, through which all customers can track the status of their orders. O P E R A T I N G P E R F O R M A N C E 21 CHANNELS OF DISTRIBUTION In volumes % 19.5% 8.6% 10.5% % 18.6% 8.1% 10.1% Supermarket Small Stores Institutional Wholesale

26 Singapore, a country with an exotic cuisine of different Asian flavors, imports various products from Perdigão, including chicken frankfurters.

27 Sales Per formance

28 Sales Revenue Growth and Improved Margins Perdigão reported a year of excellent results in sales, with an increase in volume and revenues for almost all its product lines, both in the domestic and external markets. The Company delivered various launch products to Brazilian supermarket shelves and the marketing campaigns, including the 70 years campaign, consolidated Perdigão s positive brand image in the domestic market. P E R D I G Ã O A N N U A L R E P O R T Domestic market Perdigão s sales to the domestic market amounted to R$ 2.8 billion, a year on year growth of 12%. Frozen and chilled products reached 532,200 tons a 6% increase. Elaborated/processed products totaled 486,100 tons, an 8% increase in volume and 14% in sales revenues. Prices were on average 8% higher in 2004, helped by the increase in the average price of in-natura pork meat. This was due to the tight supply-demand situation for this protein as well as increased sales of higher value added products, allowing average costs to grow proportionally less about 1%. On the back of these results, Perdigão was able to report a significant growth in market share. The market share for specialty meats increased by 60 basis points, the Company as a result taking the leadership in this segment with 24.7% of the market. In ready-to-eat pasta, Perdigão increased its position by an additional 360 basis points to a 38.4% market share. In the frozen meat segment, Perdigão repeated its 34.2% share of The Company successfully boosted its share of the frozen pizza market by a further 210 basis points to 30.6%. Perdigão s strategy in the domestic market can be defined by three important factors: improvements in the product portfolio; control of prices and costs with an increase in returns; improvement in distribution channels, especially the institutional and retail markets. During the first half of 2004, the Company experienced weak demand due to depressed domestic purchasing power. The Company sought to offset these effects by concentrating on the sale of higher value added products, prioritizing an improvement in margins. In addition to product quality, the gains in market share in such varied segments were driven by another important ingredient: marketing. Investments in communication and advertising were R$ 40.4 million against R$ 31.4 million in Among other initiatives, investments were applied in other marketing activities, notably Perdigão s seventieth year commemorations in August, helping to further consolidate the distinctive slogan Perdigão. Our biggest secret is you. For 70 years which received a Brazilian Association of Marketing and Business (ABMN) award. In 2004, 29 new products were launched on the market. Among these, the highlights were different flavors for pies, pizzas, flakey pastries, oven-cooked pastries and specialty meats (sausage and smoked turkey breast), as well as the new and unique Chicken Popcorn breaded chicken products, which can be prepared for eating in the oven, microwave oven or fried, and the Franget s product. The portfolio also includes products for the important segment of consumers seeking to keep in shape with a balanced diet. Perdigão has invested in Escolha Saudável, a line launched in 2003 made up of low-calories soy-based products. In 2005, the Company is expecting to make another 25 new products available to Brazilian shoppers. As part of the strategy to further enhance the brand name in the consumer s mind, an additional R$ 46 million in investments in marketing are planned during the year. Perdigão estimates sales volume will increase by approximately 9% over the year. The Company has been monitoring the fast growth of the food service market which already represents between 8% and 9% of sales revenues. This segment is made up of fast food chains, hotels, restaurants, and industrial and hospital kitchens, among others. The Company is particularly alert to the opportunities in this

29 segment in the light of the growth in away-from-home eating habits, principally in the major cities. This has become a reality in Brazil as well as an international tendency. In Brazil, 25% of the inhabitants of the mainly metropolitan centers already adopt this life style. In the United States, the percentage stands at 55% and in Europe it is even higher at 70%. Perdigão is watching closely the increasing role the food service segment plays in the business of the leading world food conglomerates. Since 2001, it has had a specific department to monitor developments in the area. The Company has segmented the food service market by organizing specific teams that offer specialized services such as consultancy and nutritional guidance. Demand from industrial kitchens still accounts for a large part of Perdigão s market in this segment, although it is also gearing up production as business with the fast food chains grows. In 2004, Perdigão began supplying chicken products to the Brazilian outlets of the Burger King chain one of the largest in the United States - that began operations in the domestic market last year. Similarly, the Company has contracts with other leading fast food chains in Brazil, such as Habib s, Giraffa s, Pizza Hut and China in Box. The institutional market is likewise reporting growth, especially in the case of the public school network meal service. Perdigão provides catering services to airlines and shipping companies, particularly the latter given the increasingly large number of foreign vessels that now call at Brazilian ports. This eclectic portfolio is supported by the Company s Technology Center (Cetec), which responds rapidly to the specific requirements of each new customer by developing tailor-made formulas and packaging. In the small retail segment, Perdigão operates on a direct and personalized basis along the Rio-São Paulo axis, seeking to provide an efficient, high quality service to small and mid-sized businesses. This not only stimulates sales growth at these enterprises but also acts as a catalyst for brand loyalty given the differentiated nature of the services offered by the Company. S A L E S P E R F O R M A N C E MARKET SHARE % Last two months Specialty Meats Frozen Meats Ready-to-Eat Pastas Frozen Pizza ELABORATED/PROCESSED PRODUCTS SOLD In thousands of tons CAGR = 14.1% Including Meat and other Processed Products

30 Export market P E R D I G Ã O A N N U A L R E P O R T Perdigão recorded an increase of 48% in exports over 2003, totaling R$ 2.7 billion. The result represented 56% of net sales revenues. Export volume was extremely positive with an increase of 24%. This growth was driven in large part by higher value-added products such as ready-seasoned or cooked dishes, which saw a growth of 18% in volume and 15% in sales. The Company s exports went to Europe, some areas of the Far East, Middle East, Eurasia and the Americas. The growth in revenues from exports of cooked products was less vigorous due a surplus of Thai imports on the European market as well as the inclusion in this sales segment of more industrialized items with lower unit prices. Perdigão s performance on the international market was particularly positive this year thanks to the successful implementation of the strategy to develop this area of the business. The good results achieved were due to the Company s capacity to serve overseas customers and to sell products to a wide range of different countries. Similarly, Perdigão benefited from strong demand for Brazilian meat products, resulting in larger volumes and higher prices. Perdigão posted the following results in its leading overseas markets during the year: in Europe, a growth of 26% in sales revenues and 7% in volume, in spite of weaker demand in this market; the Far East, a 77% increase in revenues and 24% in volume. The main market in this region was Japan where demand jumped by 149%, principally in the first half when prices were improved by the avian influenza outbreak; in the Middle East, exports increased 33% and volumes by 40%. Remaining markets such as Eurasia and Africa were up 74% and 100% in revenues respectively, despite Russian trade barriers and import quotas. Perdigão s processed pork meat products gained popularity internationally, especially in Eurasia, Hong Kong and Singapore, overall sales increasing by 42% in volume and 89% in sales revenues. In order to interact more effectively with consumer profiles as diverse as European, Russian and Asian, Perdigão has consolidated its international brands. For example, the Company sells under the Perdix name to the European market. Fazenda branded processed products are sold from 200 points of sale in Moscow and 50 in St. Petersburg. In addition, the Company uses other brand names to launch its products into targeted markets. The Company has intensified the work of its representative offices in the Netherlands, United Kingdom and the United Arab Emirates to spearhead the process. A sales office has been opened in Singapore to support the sales drive to the Far East. Average prices eased back to historical levels in the second half of the year, following the increases in the first half in the wake of the avian influenza outbreak in the Far East. The average appreciation of 5% in the Real against the US dollar further reduced export revenues in local currency. For the year as a whole, prices rose on average 21% against average cost increases of 13%. This was in spite of the second half squeeze on margins due to the Real s appreciation which had a direct impact on export revenues without generating benefits in production costs, over the same period due to the productive cycle. Yet another factor contributing to EXPORTS BY REGION In revenues % 27.8% 31.3% 16.9% 5.2% 21.2% 23.3% 36.8% 14.5% 4.2% Middle East Far East Europe Eurasia Other Countries

31 pressure on margins was higher live hog prices due to the adjusted supply. In dollar terms, average export prices were 25% higher. The Company is forecasting a 9% growth in the export of refrigerated and chilled products assuming no changes in the current overseas scenario. In line with the continued strategy of internationalization, the aim is to further ramp up exports to markets where Perdigão s products already have a bridgehead as well as expand into such countries as China, South Korea and Malaysia over the course of the year. S A L E S A N D V O L U M E S In thousands of tons In millions of Brazilian Reais Domestic Market % Ch % Ch. In-natura (6.5) Poultry (5.9) Pork/beef (8.2) Elaborated/processed (meat) Other processed Total frozen and chilled , , Soybean products Others (1.6) Total , , Total Elaborated/processed , , Exports % Ch % Ch. In-natura Poultry Pork/beef Elaborated/processed (meat) Total frozen and chilled , , Total , , Total Elaborated/processed Total Sales % Ch % Ch. Meats 1, , , Other processed Total frozen and chilled 1, , , Soybean/others Total 1, , , , Total Elaborated/processed , , S A L E S P E R F O R M A N C E 27

32 P E R D I G Ã O A N N U A L R E P O R T Countries to where Perdigão Exports Offices Abroad Albania Angola Argentina Armenia Aruba Austria Azerbaijan Bahamas Bahrain Belarus Belgium Benin Bermuda Islands British Virgin Islands Bulgaria Cameroon Canada Cape Verde Cayman Islands Channel Islands China Congo Croatia Cuba Cyprus Czech Republic Dem. Republic of Congo Denmark Egypt England Equatorial Guinea Finland France Gabon Gambia Georgia Germany Ghana Gibraltar Granada Greece Haiti Hong Kong Hungary Iraq Ireland Italy Ivory Coast Japan Jordan Kazakhstan Kuwait Latvia Lebanon Liberia Lithuania Macedonia Maldives Malta Marshall Islands Mauritania Mauritius Mayotte Islands Moldova Morocco Mozambique Netherlands Netherlands Antilles New Caledonia Oman Panama Paraguay Philippines Poland Portugal

33 Distribution Centers Belo Horizonte (MG) Brasília (DF) Campinas (SP) Cubatão (SP) Florianópolis (SC) Fortaleza (CE) Manaus (AM) São José dos Pinhais (PR) Outsourced Distributors Apucarana (PR) Belém (PA) Campos dos Goytacazes (RJ) Cascavel (PR) Chapecó (SC) Cuiabá (MT) Foz do Iguaçú (PR) Juiz de Fora (MG) Nova Friburgo (RJ) Porto Velho (RO) Presidente Epitácio (SP) Rio Branco (AC) Vilhena (RO) Porto Alegre (RS) Recife (PE) Rio de Janeiro (RJ) Rio Verde (GO) Salvador (BA) São Paulo (SP) Videira (SC) Vitória (ES) Industrial Units Capinzal (SC) 2 Carambeí (PR) 1 Herval D Oeste (SC) 1 Lages (SC) 1 Marau (RS) 3 Mineiros (GO)* 1 Rio Verde (GO) 1 Salto Veloso (SC) 1 Serafina Corrêa (RS) 1 Videira (SC) 2 * under construction I N T E R N A T I O N A L I Z A T I O N 29 Qatar Romania Russia Saudi Arabia Scotland Senegal Serbia and Montenegro Sierra Leona Singapore Slovakia South Africa South Korea Spain Suriname Sweden Switzerland Taiwan Tajikistan Trinidad Turkey Ukraine United Arab Emirates Uruguay Uzbekistan Venezuela Wallis and Futuna Yemen

34 Perdigão has competitive brands, specific to each international market. Borella is the Company s flagship brand in Saudi Arabia where the chicken griller is the highlight.

35 Our Shares as an Investment nt

36 An increase of 132% on the Bovespa and the best performance among Brazilian ADRs on the NYSE Perception of the Company in the Market P E R D I G Ã O A N N U A L R E P O R T Perdigão became a listed company in 1980 and has adhered since its inception in 2001 to the Level I São Paulo Stock Exchange Corporate Governance criteria. The Company adopts national and international accounting standards (USGAAP). In the Brazilian food sector, it pioneered the launching of Level II American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE) with a listing in October Capital Markets The Company s shares posted an excellent performance much above the share indexes for the Brazilian and New York stock exchanges. Thanks to an average daily financial volume of US$ 2.0 million, Perdigão s preferred shares have become a component of the Bovespa s IBrX50 which is made up of the Exchange s most liquid stocks. Perdigão s shares posted an appreciation of 132% for the year, while trading volume increased 34%. During the year, the Company recorded the best return of all Brazilian ADRs negotiated on the NYSE with an appreciation of 155% and a trading volume 150% higher than in The Company s market capitalization at the end of 2004 was R$ 2.6 billion, 2.64 times book value. 32 Dividends Perdigão s Board of Directors approved the distribution of a total of R$ 88.7 million to its shareholders, equivalent to a gross payout of R$ per share. The amount represents 30% of the net income reported for the year. Shareholders Composition Perdigão s capital stock of R$ 490 million is made up of 44,652,384 shares, of which 15,471,957 are common shares (ON) and 29,180,427 preferred shares (PN). The Company has a free float of 23,021,143 shares or 52.56% of the total, 3,137,396 common shares and 19,883,747 preferred shares, representing 20.28% and 68.14%, respectively of each class of share. A further 143,495 shares 7,900 common and 135,595 preferred are held as treasury stock. SHAREHOLDERS' VALUE In millions of Brazilian Reais 3,000 2,500 2,559 2,000 1,500 1, Dec 94 Jun 95 Dec 95 Jun 96 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Market Capitalization Book Value

37 SHARES PERFORMANCE COMPARED WITH BOVESPA INDEX (Dec-99 = 100) 5 years series Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 ADR PERFORMANCE COMPARED WITH DOW JONES INDEX Since 2000 (beginning of trading) Oct-00 = 100 Perdigão PN Ibovespa OUR SHARES AS AN INVESTMENT Oct 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 PDA Dow Jones 33 MONTHLY TRADED VOLUME Volume (US$ million) Average 2004: US$ 2.0 million/daily Price (US$) Dec/99 Mar/00 Jun/00 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 Dec/01 Mar/02 Jun/02 Sep/02 Dec/02 Mar/03 Jun/03 Sep/03 Dec/03 Mar/04 Jun/04 Sep/04 Dec/04 PDA PRGA4 Price PRGA (Average Ptax) PRGA Share Price* - R$ Traded Shares (volume) 33.6 million 25.0 million Performance 132.0% 102.5% BOVESPA Index 17.8% 97,3% IGC - Brazil Corp. Gov. Index. 37.9% 79.7% *Closing Price PDA Share Price* - US$ Traded ADRs (volume) 2.5 million 1.0 million Performance 154.8% 147.9% Dow Jones Index 3.1% 25.3% *Closing Price

38 The Germans call large pieces of breaded chicken breast, Schnitzel. Perdigão exports this product to the German market under the Perdix brand name.

39 Intangible Assets

40 Perdigão s competitive advantages The Perdigão brand name is considered to be one of Brazil s most valuable brands and is among the Company s most treasured assets. Other important competitive and distinguishing advantages contribute to the Company s ability to improve results and create stakeholder value: human capital; management tools and policies; technological and environmental methods, as well as competence and innovation. All have made Perdigão one of the leading food processors in the world, with exports to a wide range of countries. P E R D I G Ã O A N N U A L R E P O R T Management The Company s management methods are based on targets for growth, quality, innovation and technology. All of them are designed to continually enhance managerial results as a mean of satisfying the demands of both domestic and international markets. Management methods are one of the key elements in the continual investment in upgrading one of Perdigão s most important assets: the people in its labor force a professionalized, dynamic, highly skilled and dedicated team, constantly being trained and improved. Perdigão is accelerating the implementation of those projects which ensure sustained growth, reduction in costs and expenses, as well as return on investments. Among these are the following: M O R E V A L U E P E R D I G Ã O ( M V P ) In 2004, the Company implemented the concept of More Value Perdigão (MVP) among its labor force. MVP is a management tool based on the international EVA (Economic Value Added) concept and designed to rationalize the Company s use of capital. The dissemination of this project is resulting in lower financial costs, creating shareholder value and enhancing the competitive edge in the market. T O T A L S E R V I C E P E R D I G Ã O ( A T P ) This project is designed to implement a competitive differential in serving the markets, enabling the Company to view returns based on market and product mix over the medium term; ensure a balance between supply and demand through the management of the order book, inventory, demand and integrated planning; and control the performance of operational processes and planning of the Supply Chain through the implementation of Performance Indicators. S H A R E D S E R V I C E S C E N T E R ( C S P ) This is designed to ensure maximum responsiveness, reduce costs and provide greater data security through the centralization of some administrative activities from the areas of Human Resources, Controller s Office, Finance, Information Technology and Sales Assistance. T O T A L Q U A L I T Y P E R D I G Ã O This program was established in 1995 for sharing the responsibilities and involving all employees in meeting the Company s objectives. Tecnology Central to this project is the improvement in processes and in the constant focus on the optimization of investments and the reduction in agricultural production costs. During the year, the Company invested in new partnerships, in the provision of additional support to existing ones and the improved qualification of technical and field support teams. In addition to cost savings, a further objective was the increase in productivity and improvement in industrial efficiency, a process already in place at the Company. Perdigão also upgraded production line technology to improve quality and processes, reduce costs and optimize the use of raw materials. Investment in technology has been fundamental in meeting growing overseas demand for the Company s products.

41 T E C H N O L O G Y A S S O C I A T I O N S ITAL Institute - In 2004, Perdigão began a partnership with Unicamp s (University of Campinas) Campinas Institute of Food Technology (ITAL). This joint effort has been instrumental in the holding of courses focused on quality guarantee for company Research and Development personnel. The two-year course, currently in progress, already has 20 participants from R&D and will contribute to providing the technological support necessary to help Perdigão s growth in the coming years. FINEP Project - Perdigão continued its partnership with the Federal University of Santa Catarina under the Finep Project with resources from the Green-Yellow Fund. Based on the revaluation of industrial processes, technological development projects are selected for increasing productivity and competitiveness, as well as the reduction of costs. Federal University of Viçosa - The partnership agreement to be signed with the Federal University of Viçosa is designed to carry out agricultural research into heating systems for the new Mineiros Unit for application during the construction phase of the complex. T E C H N I C A L S C I E N T I F I C C O M M I T T E E The Committee, comprising Brazilian and foreign research workers, was set up in 2003 for monitoring the most modern tendencies in product elaboration and manufacture. S E N S O R Y A N A L Y S I S The sensory analysis of products, performed on a daily basis at each industrial unit, has been extended to suitably profiled consumers through home-based testing. This provides the Company with the most efficient way of identifying consumer requirements, putting them into practice and thus improving the product elaboration process. C O N S U M E R S E R V I C E S C E N T E R ( S A C ) The Perdigão Consumer Services Center (SAC) was implemented in 1984 and runs an Experimental Kitchen, responsible for training Consumer Service Assistance (SAC) personnel in the preparation of the Company s food products (to deal with consumer questions) and a Cooking Center, which holds courses for both adults and children. It is up to the SAC to monitor before and after-sales opinion and to understand consumer requirements and satisfy their expectations. In 2004, the Center recorded 150,000 customer contacts mostly requesting recipes but also information on how to prepare and conserve products, and on product ingredients. All consumer data is fed into the Consumer Relationship Management (CRM) system, which in 2004 incorporated about 200,000 names. This system provides a database for improving production processes, identifying and anticipating consumer tendencies and behavior, and thus strengthening the direct relationship with the Company s customers. By contacting the Services Center, the consumer provides the Company with the opportunity to constantly improve, and fine-tune its product portfolio to identified needs. I N T A N G I B L E A S S E T S 37 T E C H N O L O G Y C E N T E R The Company uses the Technology Center to develop products and processes on a pilot project basis before eventual manufacture at the factory level, thus allowing more flexibility in the use of raw materials and differentiated processes. The Perdigão Technology Center in Videira (SC) is responsible for research into product development and quality, in addition to the analysis of microbiological contamination and waste, among other activities. T R A C E A B I L I T Y Perdigão continues to have the most complete product traceability process in the world. The food-packaging label allows identification of a product from its origin on the farm with details of the entire production process in the space of 24 hours. Environmental Management In 2004, Perdigão intensified its activities in research and actions for improving environmental management. Key activities during the year were: a project in conjunction with Finep for the reuse of feathers

42 in the production of a unique component similar to a plastic material; burning of fat effluent in boilers for generating energy; development of systems for poultry and hog integrated production (with outgrowers) for assisting in the issue and renewal of environmental licenses as a result Perdigão now has the largest number of outgrowers with environmental licenses of any company; a six-year joint project with Embrapa in the Mid West region for validating the use of waste in Rio Verde; measurement and monitoring activities to avoid soil saturation with waste; beginning of work on generating carbon credits from rural properties with benefits in the reduction of odors and greenhouse gases P E R D I G Ã O A N N U A L R E P O R T NON-POTABLE WATER RECYCLING Perdigão recycles enough water to supply a city with a population of 60,000. In 2004, the reuse of water in the external areas of industrial units, begun at the Serafina Corrêa-RS unit, was extended to almost all Perdigão s industrial installations in Brazil. W A S T E T R E A T M E N T Perdigão advises its producers and integrated outgrowers to use organic fertilizing techniques for soil improvement. The Company has partnerships with teaching institutions for the development of economically viable technologies for recycling hog manure and chicken bedding for use as organic fertilizers. R E F O R E S T A T I O N A N D E M I S S I O N S C O N T R O L Perdigão believes environmental management is an inherent part of its activities in the food sector since it cannot conceive a successful future for the Company in a world where Nature is constantly under attack. Consequently, the Company continues its ongoing investments in operational systems and emissions control equipment. Since 1997, it has ceased to use the native forests as a source of energy and has contributed to a reduction in atmospheric pollution through reforestation projects. Perdigão has a total forest area of 2,320 hectares, of which 1,650 hectares are wholly owned while a further 670 hectares are run on a partnership program basis. The outlook is that by 2005, the Company will control a total forest area of 3,180 hectares, thus becoming self-sufficient in energy requirements. S O L I D W A S T E During 2004, Perdigão expanded its solid waste control program begun in The industrial units are being adapted to reduce raw material losses, minimize solid waste and ensure the correct disposal of any waste that may eventually be generated. E N E R G Y C O N S E R V A T I O N All industrial units are now achieving a reduction in the use of steam, water, electricity as well as the discharge of effluent under the Perdigão Energy Conservation Program (Procep). During the year as an additional incentive in this direction, the Company began making consumption figures and indicators available online to management.

43 A W A R D S R E C E I V E D I N Award Presented by Reason Our People Edition 2004 Perishable Products Category AMIS State of Minas Gerais Supermarkets Association Belo Horizonte (MG) Best perishable products supplier of the year V Top of Mind Common Market Successful Brands of the 20th Century Minas Gerais Ham, Bologna Sausage, Specialty Meats Category Gazeta Mercantil The most remembered brand in the specialty meats category Outstanding Supplier of Perishable Products Trophy Chilled Products ASBRA City of Brasilia Supermarkets Association Best supplier of chilled products Supplier of the Year Perishable Products AMAPS State of Amapá Supermarkets Association Best perishable products supplier of the year Top Category 2004 Perishable and Frozen Products Batavo Cold Cuts APRAS/MERCOSUPER State of Paraná Supermarkets Association Best perishable and frozen products supplier in the state of Paraná Top Category 2004 Perishable and Cold Cuts Products Supplier of cold cuts of the year Supplier of the year of ready-to-eat, semi-ready chilled, and frozen dishes Sales professional of the year perishable products line APRAS/MERCOSUPER State of Paraná Supermarkets Association ACATS State of Santa Catarina Supermarkets Association ACATS State of Santa Catarina Supermarkets Association ACATS State of Santa Catarina Supermarkets Association Best supplier in the state of Paraná in the perishable and frozen products category Best supplier of cold cuts of 2004 in the state of Santa Catarina Supplier of the year of ready-to-eat, semi-ready chilled and frozen dishes in the state of Santa Catarina Sales professional of the year, perishable products line in the state of Santa Catarina I N T A N G I B L E A S S E T S Best Frozen Foods Supplier AGAS State of Rio Grande do Sul Supermarkets Association Best frozen foods supplier customer survey by AC Nielsen in the state of Rio Grande do Sul 39 Fritz Müller FATMA Government of the state of Santa Catarina Environment Foundation For outstanding environmental initiatives implemented at the Herval D Oeste unit Entrepreneur José Paschoal Baggio Award Lages City Government (SC) Outstanding contribution to the economic development of the municipality Entrepreneurial Highlight 2004 ACIM Marau Commercial and Industrial Association (RS) Entrepreneurial highlight Expressão de Ecologia Expressão Magazine Outstanding contribution with study Integral Environmental Management System Questions of Quality, Health and Safety, Marau (RS) Max Premium Empresarial ACIRV - Rio Verde (GO) Industrial and Commercial Association The Most Remembered Company in the Animal Byproducts Industry 3 rd place in Environmental Management Award Goiás Environmental Protection Agency Environmental initiatives for preserving the natural resources 2004 Agroindustry Award FUNDEPEC GO State of Goiás Agricultural Development Fund Contribution to the development of poultry and hog farming in the state of Goiás Legislative Diploma of Social Merit Videira City Government For 70 years of good services rendered to the community Professional Life Award Sodexho PASS Finalist in the Other Benefits Category (PROHAB project) Exame Guide of Good Corporate Citizenship 2004 Annual Report Annual Report on-line 2003 Global Outstanding Company in Marketing in 2004 Exame Magazine, Ethos Institute, and GIFE - Group of Institutions, Foundations and Companies ABRASCA (Brazilian Association of Listed Companies) MZ Consult ABMN- Brazilian Association of Marketing and Business Model company in Social Responsibility for the programs it has implemented 5 th place as the best annual report nd place in the food and beverage segment Outstanding company in marketing for the campaign Perdigão. Our biggest secret is you. For 70 years

44 Perdigão has one of the largest refrigerated distribution networks in Brazil, delivering its frozen and chilled products across 95% of the country s geographical spread.

45 Corporate Governance

46 A transparent and efficient management model now in place ten years P E R D I G Ã O A N N U A L R E P O R T In 2004, Perdigão commemorated ten years of professionalized management and during this period has become one of the most modern and transparent companies in the Brazilian market. The Company s maximum score for transparency in the 2004 Exame Guide to Good Citizenship leaves this in no doubt. Perdigão pursues best Corporate Governance practices relentlessly through maximum transparency and accuracy in the disclosure of corporate information with a strict Code of Ethics, and a Policy for the Negotiation of Securities and the Disclosure of Relevant Information. Perdigão is adapting its routines and processes to the requirements of the Sarbanes-Oxley Act. In addition, its wholly owned subsidiaries are totally consolidated into the Holding Company and audited by an outside independent auditor, Ernst & Young Brasil, which is also responsible for auditing the Company s accounts. The Company is jointly controlled by seven pension funds, all of which are parties to a shareholders agreement. B O A R D O F D I R E C T O R S The Board of Directors is made up of seven members, elected for a two-year term of office. The Board meets monthly and its chairman is a representative of the minority shareholders. The controlling shareholders, which jointly control the Company, appoint market professionals as members to occupy those board positions for which they are eligible. F I S C A L C O U N C I L The Council is installed on a permanent basis and routinely meets monthly. When required by the legislation, Council members take part in the deliberations of the Board of Directors. The Council is made up of five members representing Perdigão s controlling, minority and preferred shareholders. E X E C U T I V E B O A R D The executive officers are professionals selected from the market, report to the Board of Directors and comprise a Chief Executive Officer, two vice-presidents and four directors. The Executive Board is directly responsible for the management of the Company s business and operates within the strategic guidelines established by the executive officers themselves and approved by the Board of Directors. S A R B A N E S - O X L E Y As part of an ongoing process of upgrading good Corporate Governance practices, Perdigão is refining its internal controls to comply with the Sarbanes-Oxley Act. With the support of KPMG s consultancy services, procedures for disclosing information on the Company and its subsidiaries are being adapted according to the new legislation. In line with the Act s requirements, Perdigão has set up a Disclosure Committee, modernized and improved the Code of Ethics and filed document certification. It is also consolidating in-house controls, while the 2005 Ordinary and Extraordinary General Shareholders Meeting is expected to approve the creation of an Audit Committee together with the appropriate alterations in the bylaws. S H A R E H O L D E R S R I G H T S Perdigão s relationship with its shareholders is the equitable treatment provided to preferred shares with the tag along mechanism giving the right to be included in a public offering for the transfer of the Company s control. This right guarantees a minimum price of 80% paid for each voting share in the hands of the controlling shareholders. Shareholders meetings have an average attendance of representatives of 70% of the total capital and 90% of the voting capital.

47 I N V E S T O R R E L A T I O N S A personalized service to investors and analysts is a key benchmark of transparency in Perdigão s relationship with the market. The Company supplies transparent, accurate, comprehensive and consistent information at their meetings with the capital markets, on the occasion of the conference calls for discussing quarterly earnings, one-on-one meetings and contacts with financial institutions. The overriding objective is to serve investors in the best possible manner. Last year, contacts with the capital markets increased by 69%, an indication of the level of interest in the Company both from buy and sell side analysts and investors. Perdigão also sponsors investor visits to distribution centers, the Company store and to the industrial complexes. All company information is kept updated and is available on the IR website ( S H A R E H O L D E R S B R E A K D O W N 1 2 / 3 1 / 0 4 Perdigão S.A. Common Preferred Total Capital Controlling Shareholders 79.67% 31.39% 48.12% Domestic Investors 20.04% 43.42% 35.32% Foreign Investors 0.23% 19.24% 12.66% ADRs (NYSE) 0.00% 5.48% 3.58% Treasury Shares 0.05% 0.46% 0.32% TOTAL % % % C O R P O R A T E G O V E R N A N C E 43 SHAREHOLDERS COMPOSITION % 11.1% 6.5% 6.0% 7.5% 4.1% 3.5% 1.5% 23.1% 0.3% 12.7% 3.6% 4.7% Previ-BB Petros Sistel BNDES-Fapes Weg Valia Real Grandeza Previ-Banerj Domestic Investors Treasury Shares Foreign Investors ADR's (NYSE) Bradesco Companies Equal treatment to shareholders, with tag-along rights.

48 Management B O A R D O F D I R E C T O R S P E R D I G Ã O A N N U A L R E P O R T E G G O N J O Ã O D A S I L V A Chairman of the Board of Directors Founder and ex-chairman of the Board of Directors of Weg S.A, an electric motors manufacturer, he was Perdigão s CEO from 1993 to He is chairman of the Board of the company Oxford and sits on the boards of Tigre Participações S.A and Tigre Tubos e Conexões S.A as well as Marisol S.A Ind. Vestuário. F R A N C I S C O F E R R E I R A A L E X A N D R E Vice-Chairman of the Board of Directors An engineer and bank employee, he represents Caixa de Previdência dos Funcionários do Banco do Brasil (Previ) the pension fund of which he is Administrative Director. A D É Z I O D E A L M E I D A L I M A Board member An economist, he represents the pension fund Caixa de Previdência dos Funcionários do Banco do Brasil (Previ). He is vice-president for Credit, Controller s Office and Global Risk areas of Banco do Brasil S.A. F R A N C I S C O D E O L I V E I R A F I L H O Board member An advertising executive, he represents the pension fund Real Grandeza Fundação de Assistência e Previdência Social. He is a director of the National Terrestrial Transportation Agency (ANTT). J A I M E H U G O P A T A L A N O Board member An economist, he represents the pension fund, Fundação de Assistência e Previdência Social of the National Economic and Social Development Bank - BNDES (Fapes), being President of the Board of Trustees. L U I S C A R L O S F E R N A N D E S A F O N S O Board member An economist, he has a master s degree in Economics and represents the pension fund, Fundação Petrobras de Seguridade Social (Petros). He was Finance Secretary for the cities of São Paulo, Campinas and Santo André. W I L S O N C A R L O S D U A R T E D E L F I N O Board member An engineer, he represents the pension fund, Fundação Telebrás de Seguridade Social (Sistel), of which he is president. F I S C A L C O U N C I L A L M I R D E S O U Z A C A R V A L H O Member of the Fiscal Council Member of the Board of Trustees of Valia and alternate member on the Fiscal Council of Companhia Vale do Rio Doce. He is an Accounting Sciences graduate and was a professor at the Federal University of Rio de Janeiro and Finance Director and Managing Director of Valia. G E R D E D G A R B A U M E R Member of the Fiscal Council He represents the minority shareholders. A business administrator, he is also vice-chairman of the Board of Directors of Weg S.A.. L U C I A N O C A R V A L H O V E N T U R A Member of the Fiscal Council An economist, he represents preferred shareholders. He is a member of the Fiscal Council of Randon Participações S.A. and sits on the boards of Santher and Tavares de Melo Group. M A R C O S A N T O N I O C A R V A L H O G O M E S Member of the Fiscal Council Representative of Fundação Real Grandeza, of which he is President. He is an Accounting Sciences graduate, and has worked in the information technology area since V A N D E R L E I M A R T I N S Member of the Fiscal Council He is an Accounting and Economic Sciences graduate and currently provides consultancy services to various companies.

49 E X E C U T I V E O F F I C E R S N I L D E M A R S E C C H E S Chief Executive Officer He is Chairman of the Board of Directors of Weg S.A and sits on the boards of Ultrapar Participações S.A. and Iochpe- Maxion. He was a director of BNDES, Corporate Director General for Iochpe- Maxion Group and President of the Brazilian Association of Chicken Exporters (ABEF). A mechanical engineering graduate, he has a postgraduate degree in Finance and PhD course in Economics. W A N G W E I C H A N G Chief Financial Officer He is member of the Executive Board and Director of Abrasca, as well as member of the College of Voting Directors of IBEF-SP. He was Controller for Banco Chase Manhattan N.A in Brazil; Financial Director of Chase Manhattan S.A Bank N.A in Santiago, Chile; and vice-president at Citibank N.A in Brazil and in Hong Kong. An engineer, he has a master s degree in industrial engineering. P A U L O E R N A N I D E O L I V E I R A Chief Operating Officer He was Supplies Director at Perdigão and Member of the Fiscal Council of the Poultry Farming Association of Santa Catarina (ACAV). He has worked for Perdigão since He has a degree in Agronomy. C O R P O R A T E G O V E R N A N C E 45 N E L S O N V A S H A C K L A U E R Business Development Director At Perdigão, he has held positions as Financial and Investor Relations Director, Administrative Director and Commercial Director. He is a Business Administration graduate. A R E A D I R E C T O R S W L A D E M I R P A R A V I S I Supply Chain Director He joined Perdigão in 1978 and was previously a regional director at the Company. He has a degree in Accounting and MBA in Business Administration and Agribusiness. ANTONIO ZAMBELLI Marketing Director (1) He held the position of Commercial Director of Visagis S.A, an Italian food products company and also worked at Swift Armour S.A.. He is a Chemical Sciences graduate, with specialization in Marketing and Communication, Advanced Marketing and holds a MBA in Business Administration. L U I Z A D A L B E R T O S T Á B I L E B E N Í C I O Technology Director (1) He has worked at Perdigão since He is an Animal Sciences graduate, with a Master s Degree and PhD in Animal Sciences from the Federal University of Viçosa. He has a MBA in Business Administration. Institutional Relations Director R I C A R D O R O B E R T M E N E Z E S Exports Director A N T O N I O A U G U S T O D E T O N I D o m e s t i c S a l e s D i r e c t o r L U I Z C A R L O S C A M P A G N O L A R e g i o n a l D i r e c t o r s E U C L I D E S C O S T E N A R O, F L Á V I O C A R L O S K A I B E R, G I L B E R T O A N T O N I O O R S A T O, L U I S A L B E R T O M A C H A D O D E B R I T T O, N I L V O M I T T A N C K (1) Elected Executive Directors on March 28, 2005.

50 In Russia, Perdigão s products are sold under the Fazenda trade name. The Company serves 200 points of sale in Moscow and another 50 in St Petersburg. Ham and champignon pizza is proving a success in the country.

51 Risk Management

52 Safety and support in Company development Management PERDIGÃO ANNUAL REPORT Risk management practices are based on the evaluation of the controlled administration of the capital and the analysis of the economic and political scenarios. Since the Company s activities are vertically integrated from the agricultural production phase, through processing, packaging to the sale of the final product, the use of risk management tools and processes are considered essential for the success of corporate strategy in both domestic and external markets. RISK ANALYSIS Perdigão analyzes the tendencies in the external and internal markets for constantly evaluating agroindustrial production as well as advances in the sanitary risk field. The Company thus becomes more responsive to the adjustments to changing customer demands and scenarios. Wherever possible, Perdigão always seeks to anticipate new trends. GRAINS The Company manages the grain market on a daily basis and hedges its future purchases when analysis indicates a high price volatility. Perdigão seeks to minimize this type of risk by constructing agroindustrial complexes along Brazil s expanding agricultural frontiers where better prices can be negotiated. Perdigão cushions the impact of price spikes in raw materials such as corn and soybeans, used as animal feed in the manufacturing costs of its mid west agroindustrial complex by building up buffer stocks of grain. Other risk management mechanisms are the continual quest for operating excellence and for a competitive cost structure through negotiations with suppliers to conclude more advantageous contracts. FINANCIAL Perdigão monitors the financial markets on a daily basis as well as analyzing its exposure risks to the US dollar and other currencies as well as interest rates. This data is provided to an Advisory Committee, which in conjunction with the Executive Board, evaluates the risks and makes the decisions for managing the positions within established limits, thus minimizing risk. The Company has also implemented the Financial Management Project. This uses SAP s Corporate Finance Management (CFM) software to ensure a more rigorous control and refined analysis of operating risks. FOOD SAFETY Perdigão uses a printed code system on its packages allowing the comprehensive tracking of its products in the Brazilian and international markets. A reading of the bar coding on the packaging provides information within 24 hours on each production stage (producer, breed stock, animal feed and medication, quality control testing, temperature levels during transportation, among others). This data is stored in the SAP/R3 system. Besides guaranteeing greater food safety to the consumer, the Company gains in response time for implementing the necessary actions or remedial measures, as the case may be. INVESTMENTS To minimize the impact of capital expenditures on debt and to optimize the use of own and third party capital, the Company has implemented its More Value Perdigão (MVP) project. This project uses such internationally known concepts as EVA (Economic Value Added), for rationalizing the use of company capital.

53 FOREIGN EXCHANGE RATE The Company enjoys the natural protection of its export revenues proportional to its financial liabilities denominated in foreign currency. Perdigão also adopts a policy of managing its foreign currency exposure by using financial hedge instruments within previously established limits. CREDIT Perdigão operates a sophisticated customer credit control system for both domestic and international markets to keep its level of non-performing receivables to a minimum. The system allows the complete control of the information flow continually updated in real time. OPERATIONAL All the Company s industrial units and equipment are insured against material damage and loss of profits. Freight is insured against road and sea transportation risks, while products and operations are also covered for civil liability risks. ENVIRONMENTAL As part of its integrated management structure, Perdigão maintains a team of professionals trained in risk, waste and residue management that can be called upon in emergency situations. In parallel, all industrial units have been constructed in compliance with the legislation, which sets standards for the discharge of effluent into the environment. RISK MANAGEMENT INTERNAL CONTROLS This project is to adapt the Company s internal controls to comply with the Sarbanes-Oxley Act (Sections 302 and 404), through the implementation of a risk management model incorporating a survey of the appropriate processes and their respective regulations. 49 The More Value Perdigão (MVP) project was implemented to minimize the impact of capital expenditures on debt and to optimize the use of own and third party capital.

54 South Africa is very similar to some regions in Brazil, whether in terms of local temperature or gastronomy with pepper being widely used. The South Africans enjoy several items in our portfolio, among them our breaded chicken products.

55 Strategies and Outlook

56 Sustainable Growth with creation of value and social responsibility Outlook P E R D I G Ã O A N N U A L R E P O R T In the 70 years since Perdigão s foundation, the last decade deserves a special mention for the excellent results that have been achieved. These ten years of continuous success coincide with the Company s use of professionalized management and joint shareholder control. Looking ahead, we project the sustainability of this project backed by the business plan and based on the analysis of changing macroeconomic and industry factors. We are conscious that in addition to financial results, we also have to be able to show achievements on the social and environmental fronts as well. We have committed investments of about R$ 150 million in 2005, mainly directed to the ongoing expansion of production capacity at the Rio Verde Agroindustrial Complex, the start on construction work at the new industrial unit in Mineiros (GO), expansion and optimization of production lines at units located in the states of Santa Catarina, Rio Grande do Sul and Paraná, as well as logistics and infrastructure projects. All these initiatives have an impact on the international market, where Perdigão has made significant progress. In 2005, Perdigão estimates a growth in sales volume of approximately 9% in frozen and chilled products to be distributed proportionally across domestic and international markets. In the domestic market, the Company forecasts an increase in disposable income and employment with the improvement in value added products. On the international front, Perdigão expects to expand its presence in existing markets in Europe, the Far East, the Middle East, Eurasia, Africa and the Americas, with the possibility of expanding exports to the new markets of China, South Korea and Malaysia. % Ch. % Ch. Capacity / * 2005/04 Poultry Slaughter (thousand heads/week) 2,715 9, , Hog Slaughter (thousand heads/week) Poultry Meats (thousand tons/year) Pork Meats (thousand tons/year) Total Meats (thousand tons/year) 321 1, , Other Processed Products (thousand tons/year) Total Frozen and Chilled Products (thousand tons/year) - 1,135-1, * Estimated

57 Strategy The Company has fixed the following targets for 2004, based on the policy of creating shareholder value and sustained growth: F I N A N C I A L To maintain the emphasis on optimizing investments, continual debt reduction and increased earnings, the Company has no plans for new types of financial operations. Should our risk management systems indicate excessive volatility in grain prices, interest rates and Real/US dollar rates, currency hedge operations may be considered as a defensive measure. D O M E S T I C M A R K E T The launch of 25 new products, creating additional value for the customer. Perdigão forecasts a 9% increase in sales volume based on the outlook for rising purchasing power in the domestic market. E X P O R T S As export flows continue increasing, other international offices may be opened. Exports are expected to increase by approximately 9%, driven by incremental sales to principal markets as well as the result of developing new markets such as China, South Korea and Malaysia. O P E R A T I O N S Among the area s priorities are the expansion of the Rio Verde Agroindustrial Complex to support expected growth, and the construction of the new Mineiros unit. Rio Verde will also be expanding its pork meat production capacity with the introduction of a second dedicated shift. S T R A T E G I E S A N D O U T L O O K 53 B U S I N E S S D E V E L O P M E N T Perdigão s growth strategy is centered on boosting its principal business: animal protein-based food products which are distributed using refrigerated transportation methods. This strategy rests on the fact that Brazil has the ideal conditions for becoming one of the world s main suppliers of animal protein. An industry trend in developed countries is the tendency for production to migrate to more competitive locations. Perdigão will remain alert to new growth opportunities, which provide a sustainable competitive base in order to meet demand from both the domestic and international markets. A good example is the Araguaia Project in Mineiros. This new unit will have the capacity to meet additional demand on a more competitive basis thanks to the conditions in the southeast region of the state of Goiás where the structure and growth potential for agriculture are ideal. The decision to begin operations in Mineiros follows the success of the Rio Verde unit in the same state. Growth in sales volume is estimated at approximately 9% in frozen and chilled products based on an expansion in the domestic and international markets in the same proportion.

58 A special bird which Perdigão introduced into Brazil in the eighties, gave origin to Chester brand name. It has become widely accepted as a traditional dish during the year-end holidays as well as on other special occasions, thanks to its tender and succulent meat. Only Perdigão has Chester.

59 Human Resources

60 Commitment to quality of life P E R D I G Ã O A N N U A L R E P O R T The human relations policy focuses on the Company s continuous growth and that of its employees, through the promotion of their recognition as professionals, providing an appropriate organizational climate, stimulating individual development and formation and promoting the quality of life. In this context, incentives and availability of opportunities for professional development are a constant feature of the Company. Perdigão s growth is reflected in a large number of ways including the number of new job openings created during the year. The Company ended the year with a payroll of 31,406 compared with 27,951 in 2003, representing 3,455 new jobs and further consolidating its position as one of the largest private sector employers in the country. Over the past decade, Perdigão has provided an average of two thousand new openings every year. To sustain this growth, investments are made in human relations by prioritizing the qualification of the work force through vocational training and skills upgrading on an ongoing basis. One of the crucial elements in Perdigão s success is maximizing the potential of its people and their satisfaction in the work place. The Company seeks to build on the competitive differential through the integrated management of human relations initiatives. This encourages a close relationship between employee and Company through an improved working environment, more leisure opportunities, better technical preparation of supervisory personnel, suitable instruments for evaluating performance, and career progression and succession plans, among others. Training 56 Learning to do, doing: on-the-job training facilitates employees learning More than just creating new jobs, stimulating growth and opportunity for all is also important. Training is a Company priority. In 2004, Perdigão offered 212,000 in-house opportunities to employees for internal development, an average of 107 hours of training per executive and 32 hours for other employees. The training was slanted towards the maintenance of technical and behavioral competences. These indicators corroborate the interest the Company has in the vocational training of its labor force, and especially its formation. During the year, emphasis was also on technical training for improving the processes and development of new products. A good example was the Specialization in Meats course run by the Campinas Institute of Food Technology ITAL, a benchmark in the sector for studies and work focused on processes, best practices and processing technologies. Another important event during the year was executive training programs designed to instill a more integrated form of leadership with a holistic vision. The programs are organized by Amana-key, a specialized consultancy for preparing corporate leaders. However, the Company s efforts in the human relations area went much further than merely running courses and programs: it has also consolidated solutions which can be used to disseminate the training culture and policy. One of these initiatives is On the Job Training (TLT). Although simple, the idea has a major impact as well as the involvement of all since it provides quality on-the-job training to all employees in the industrial areas as well as giving supervisory personnel a multiplier role. TLT uses a methodology, in which new employees in the production area are trained by their own colleagues who have longer service time and experience at the Company.

61 Opportunities Perdigão has an effective Career Advancement Plan reflecting the importance with which it views professional development and in line with its policies of offering an opportunity for all to grow in the Company. In 2004, 3,372 employees were promoted to a higher position or a change in function more than 10% of the payroll. Perdigão also invests in new talents through its Internship Program, last year offering 638 vacancies in various sectors, both technical and administrative, with 31% of this total being made permanent hires. Recognizing the Value of People A constant theme in Perdigão s human resource policy is the recognition of all and every employee whether new or a veteran to the organization. Among the major events and campaigns, we would particularly mention the Our People, Our History Program which pays tribute to employees for their dedication, commitment and time of service with the Company. Employees with 10, 15, 20, 25, 30, 35, 40, 45 and 50 years service receive special awards and distinctions. In 2004, 1,744 employees were so honored, and since 1989, the numbers total 14,530. Perdigão also recognizes the importance of people through the Retiree Program, under which 1,117 ex-employees are offered a package of special benefits as well as being eligible to take part in events and lectures, visits to the industrial areas and entertainment activities. The Company distributes gifts to its retirees at the end of the year and all have the option of joining the life insurance and healthcare assistance plans. The Outstanding Employee Program selects and pays tribute to employees who particularly shine in their commitment, companionship in the work place and in activities in their community. Selection takes place in a fair and transparent manner based on predetermined criteria. Those chosen are honored accordingly and receive awards. During the year, the employee Recognition Program received an overall investment of approximately R$ 2.4 million. H U M A N R E S O U R C E S 57 Benefits The bedrock of Perdigão s personnel management that sets it apart from the others, rests on prioritizing personal and professional training and development opportunities combined with an appropriate package of fringe benefits. The Company offers a series of benefits which are aligned to the needs and expectations of its employees. In relation to benefits, Perdigão believes that it must take a multi-focus approach to cover identified family circumstances ranging from nutrition to housing. The following benefits are most prized by the employees: P R O H A B The Company has been offering the Perdigão Housing Program (Prohab) since Prohab operates in partnership with the Perdigão Mutual Savings and Credit Cooperative (Crediperdigão) and the Federal Savings and Loan Bank (CEF) with FGTS (Employee Severance Indemnity Fund) funding. Since its inception, 605 houses have been constructed and delivered to employees at a total investment of about R$ 12.5 million, benefiting some three thousand people. The Company develops the projects, prepares the construction sites and infrastructure at below market prices, always seeking to satisfy the needs and conditions of its employees. The program is perfectly aligned to one of Perdigão s most important aims which is the commitment to constantly upgrade employee quality of life. C O O P E R A T I V E H O U S I N G F U N D In 1997, the Credit Cooperative implemented the Housing Cooperative Fund with the purpose of assisting its members in the construction, conclusion, refurbishing, extension and the purchase of a home for his/her own use and respective family. Under this program, members are able to raise a home mortgage loan in a simple manner, without bureaucracy and at below market interest rates. During 2004, 229 employee loans were concluded, amounting to R$ 1.7 million. To date, 1,047 members have obtained home loans under this scheme totaling R$ 5.8 million.

62 P R I V A T E P E N S I O N P L A N In 1997, the Company implemented a private pension plan (Perdigão Private Pension Plan PSPP) for providing employees with greater security and wellbeing following their retirement. The pension fund currently has 19,686 members and total assets of R$ 65.4 million. PSPP is a defined contribution plan whereby the employee makes a monthly contribution while the Company contributes proportionately on a sliding scale with the greatest benefits going to those nearest retirement. Currently, a large group of ex-employees are receiving lifetime benefits. The prospect for a better future is an important incentive to maintaining and increasing plan membership. P E R D I G Ã O A N N U A L R E P O R T H E A L T H C A R E M A N A G E M E N T M E D I C A L A N D D E N T A L S E R V I C E S Healthcare Plans and Medical Assistance - The importance and return on any benefit maintained, structured or implemented is measured by its degree of acceptance and in the way it is perceived by the employees. In this context, the Company runs and adapts its healthcare management plans and programs according to employee needs. Perdigão operates three types of healthcare plan Self-Managed, Health Insurance and Medical Cooperative. It uses both pre and post-payment systems and on average subsidizes 60% of cost according to tables designed to ensure healthcare is accessible to all. In 2004, Perdigão Healthcare Plan benefited 72,700 including employees and family members, equivalent to a total investment on the part of the Company of R$ 12.8 million. Healthcare Medicine / Outpatient Treatment / Dental - The Company offers first class onsite medical and dental installations at almost all its industrial and administrative units, providing comprehensive free service to employees. The Company is determined that its health management should cover the entire workforce through periodical medical checkups when employees are given healthcare guidance in accordance with the profile, risks and characteristics of each one. In 2004, Perdigão s healthcare service registered the following results: 85,816 medical consultations, 570,398 clinical attendances, and 19,362 dental treatments. Preventive Health Campaigns - In a global healthcare management process, employee preventive health and wellbeing campaigns are another variable of the utmost importance, demanding permanent vigilance. Perdigão includes in its annual calendar of events, campaigns for promoting dental health, cancer prevention, an anti-smoking campaign (Putting Out the Cigarette Together), free influenza vaccinations annually to all interested employees, guidance on such themes as self-medication, high blood pressure, road safety campaigns, healthcare during the Carnival festivities, through campaigns to say no to alcohol and to drugs, among others. N U T R I T I O N A L P R O G R A M At several units, the Company offers a varied and balanced diet through services specialized in providing nutrition at its restaurants, the purpose being to provide employees with convenience and wellbeing. On average, the employees are offered two meals a day at extremely accessible prices the employee contribution being around 20% of cost. Perdigão invested R$ 7 million in basic food baskets and food vouchers and a further R$ 21.9 million in meals during the year. Numbers for the Nutrition Program: In quantities % Ch. Basic Food Basket 207 thousand 193 thousand 7.3 Food vouchers 106 thousand 85 thousand 24.7 Meal vouchers 25 thousand 24 thousand 4.2 Number of meals 6.5 million 5.6 million 16.1 Breakfast 3.6 million 3.5 million 2.9 T R A N S P O R T A T I O N In a company with more than 31,000 employees, with a diversity of working hours and work schedules in communities throughout Brazil, employee transportation logistics require planning, organization and investments in various areas. Perdigão invested R$ 11.7 million in this benefit during the year.

63 P R O F I T S / R E S U L T S S H A R I N G P R O G R A M Introduced in 1997, this program regulates the participation of employees in the Company s profits and results, stimulating better performance, the meeting of objectives and serving as a mean of recognizing individual and collective effort. In 2004, R$ 19 million was distributed under the Program a growth of 154% over the previous year and corresponding to a part of the earnings for the fiscal year. Participation in profits and results is contingent on reaching previously set targets and indicators. Occupational Safety on Show The occupational safety and wellbeing of the employees in the workplace is a key strategic priority based on the quality of life that cannot exist without caring for the entire working environment while the employee is on the Company s property. The philosophy of occupational safety extends to all levels of the organization, and covers outsourced service providers as well. Such policy is supported by broad and specific organizational norms which lay down rules that are already part of corporate culture and the daily lives of each employee. The Company does not restrict itself merely to complying with the legal requirements for Occupational Safety and Medicine. Rather, it is implementing and developing innovative programs, which rate it as a model Company in the manner in which the working environment is being optimized. The management of initiatives directed towards occupational safety and medicine evolved from prevention of work-related illnesses and accidents to an all encompassing and synergetic concept denominated quality of life, which dictates that there should be a constant improvement in working environments. Important programs based on this concept are the Quality of Life at Work Program (PQVT) and the Perdigão Accident Prevention Program (PERPAT). These programs are similar in the way they seek to instill positive habits of prevention and preservation of a range of healthy forms of life style (occupational, intellectual, spiritual, emotional and physical). They contribute to the improvement of the working environment (the ergonomic vision) and to the improvement in corporate management (the integrated vision). Initiatives such as onsite workouts, physical fitness centers, job rotation, postural guidance and correction, surveys and consequent ergonomic adjustments in working conditions and others, are all symptomatic of the commitment to employee quality of life. The level of recognition that these programs have achieved can be gauged from the awards received from labor organizations and feedback from bodies subordinated to the Ministry of Labor and Employment. Gymnastics and relaxing: Perdigão s quality of life program is a benchmark for other companies H U M A N R E S O U R C E S 59

64 In Brazil, Perdigão contributes to the running of various social programs in the cities where it carries on business, notably daycare centers, senior citizens homes, hospitals and centers for encouraging the practice of sport.

65 Social Actions

66 Perdigão is recognized as a Company with a far-reaching social program P E R D I G Ã O A N N U A L R E P O R T For the third time in its history and for the second consecutive year Perdigão was listed by Exame magazine s Guide to Good Corporate Citizenship among the top ten model companies in social responsibility. This recognition in a year when Perdigão commemorated the seventieth anniversary of its foundation is the climax to the work it has been doing in conjunction with the employees and the communities in which it operates. At all times the Company seeks to fulfill its role as a socially responsible company, concerned with the welfare of the population. Just as important as being recognized for its initiatives, is to be cited not only in relation to the Company s social project as a whole, but also for a set of programs which have been implemented in several different areas in the various regions where the industrial units are located. The Company invests in running and creating diversified projects in the areas of education, health, sport, culture, the environment and volunteer work. In employee benefits and social programs alone, the Perdigão invested R$ 71 million an increase of 24.7% compared with The increase in investment in environmental programs was even more 69.8% totaling R$ 6.9 million. The Company develops innumerable programs and projects in different areas with the purpose of contributing to the social development of the communities in which it operates: Social Inclusion and Support Project - Perdigão s activities cover social inclusion programs for drug addicts and the handicapped, disseminating culture in up-country areas and improving the social infrastructure in regions where it operates. All with well-defined objectives and long-term plans. Encouraging the employees to get involved with volunteer work is a further ongoing practice. This is seen as a key factor in inculcating a socially responsible culture in major corporations. AMIS Project - This involves visits by employees from the ADM/Control department to the Marauense Association for Social Integration (AMIS). AMIS is a civil entity for the welfare of children and adolescents with no criminal record in the city of Marau and surroundings. Employees make twice-monthly visits and provide assistance in the areas of additional schooling, psychological support, leisure, religion and personal hygiene. Educational Incentives - A good example in this area is With a pencil and notebook, Perdigão gives a helping hand to the public schools, a campaign involving all the employees from all units together with the integrated producers as well as company transporters. More than 12,000 students from low-income families at public schools in the South, Southeast and Mid West regions have been the recipients of donations of more than 100,000 items ranging from notebooks, pencils, books, dictionaries and other materials. Atende Project - Started in 2000, the purpose of this project is to provide the municipality of Rio Verde (GO) with the necessary infrastructure to meet the demand arising from the consolidation of the agroindustrial complex in the region. The project currently consists of nine centers combining a healthcare and public safety function. These centers are available to the population for covering general clinical requirements, pediatrics, gynecology, curatives, vaccinations, dental treatment, etc. Perdigão runs this initiative in partnership with the BNDES, which offsets the Company s investments in the Atende project against interest on the financing for the construction of the complex. Combating Drug Addiction and Supporting Drug Addicts - Run by the Comunidade Terapêutica Ministério Jovens Livres Casa Gênesis in Rio Verde (GO), currently has 50 inmates being treated for drug addiction. Inmates are put to work on restoring wooden pallets and plastic cages for poultry transportation as part of their therapeutic treatment. The Company remunerates the institution for these services in addition to making a monthly food donation. Perdigão is conscious of the need to fulfill its role in reducing social inequality and the creation of an awareness of the need for sustainable development in Brazil. Another concern is to avoid excessive dependence by not allowing the Company s actions to be seen simply as welfare handouts. Symptomatic of this concern is the policy involving Perdigão s relationship with approximately six thousand integrated outgrowers, its poultry and hog suppliers. In addition to providing technical support, Perdigão also encourages them to diversify their production and invest in complementary activities. The idea is always to help, but at the same time creating favorable conditions for economic and social development.

67 Total Quality Perdigão -QTP The Perdigão Total Quality Program (QTP) was implemented ten years ago and has contributed above all to encouraging teamwork, the customer/integrated supplier relationship, delegation and human development. Among the various program s tools, the operating committees are an example of teamwork, employing a methodology which stimulates improvements in production process quality, the working environment and occupational safety. In 2004, the Perdigão Total Quality Program installed 456 operating committees, mobilizing 3,200 employees. Since the program s inception in 1996, 3,290 committees have been installed. The Program s guidelines also cover the Company s partners: Donation of toys to children from low-income families Q T P - R U R A L Perdigão also disseminates total quality to its integrated partners through the philosophy of the 5S Program a tried and tested series of concepts for changing the working environment and the way routine activities are conducted. These concepts are: selection, order, cleanliness, wellbeing and self-discipline, for upgrading the organization of properties and the improvement in technical and economic indicators of poultry and hog breeding. This initiative contributes to the quality of life of the rural entrepreneur and his family. Currently, 3,788 properties are registered under the program. S O C I A L A C T I O N S Q T P - T R A N S P O R T A T I O N This is aimed at drivers working in all segments in the Company and is to provide a knowledge of the basic concepts of the 5S program and defensive driving skills, increasing the awareness of new personal quality habits, quality of life and occupational safety, and further strengthening the partnership with Perdigão. Some 1,145 transporters took part in the Program in Education - a Commitment of All An organization such as Perdigão only successfully stays in business for 70 years if it can count on people that begin each working day as if it were their first. The renewal and building of a knowledge has to be an ongoing process through education and work in which different generations are committed to the formation of the younger members of society. Coexistence between the generations and the formation of youngsters future and potential employees allows the Company to grow without losing the essence of a culture based on discipline, commitment, respect and confidence. It is in this context that Perdigão develops and supports the following programs: S E M E A R P R O J E C T There are two main objectives underlying the Semear (to sow) Project: to provide a quality education to the children of the Company s integrated outgrowers to ensure they stay on the land, and to stimulate opportunities through investment in innovative experiments and ideas for improving the administration of rural properties. The entire planning of the project was prepared in 2004 with implementation expected for the second half of 2005 through the foundation of the Eggon João da Silva Agribusiness School. The School will develop and run three-year high school professionalization courses, the student receiving basic instruction on agribusiness from the first year. In addition, the project is designed to contribute to the consolidation of the viability of outgrower s properties, enhance local sustainable development and stimulate agricultural productivity, offering courses for up to 35 students annually.

68 P E R D I G Ã O R E L A T Ó R I O A N U A L Learning and social inclusion: Citizen of the Future program, Carambeí (PR) unit, encourages reading from an early age E D U C A T I O N P R O G R A M F O R Y O U N G S T E R S A N D A D U L T S Begun in 1996, this program had the limited aim of improving the educational standards of the Company s employees. The idea became a success story and was subsequently expanded to benefit the communities as a whole, such that nowadays more than 70% of the participants have no direct link with Perdigão. The target public is those more than 16 years old who for whatever reason left school before obtaining their diploma, and through the program are given the opportunity to conclude their primary education as well as obtain a high school qualification on the basis of a supplementary education course. The Company subsidizes the operating costs of the program that has been implemented in Videira, Salto Veloso, Lages, Herval D Oeste and Capinzal, all in the state of Santa Catarina; Marau-RS; Rio Verde-GO and São Paulo-SP. More than 5,000 students have already graduated under this program. In 2004, 3,528 Company employees were enrolled in the program. Of this total, 787 received their primary and high school diplomas. O F I C I N A V E R D E This project was set up to expand the services already provided by the Sociedade Pestalozzi for children and adolescents with special needs in Rio Verde-GO. In 2004, the Company assisted in the construction of two greenhouses for ornamental plants, a vase-making factory, a flower shop, an artesian well and a storage facility. Perdigão s employees help run this welfare scheme on a volunteer basis. Donations of 220 kilos of food are made to Sociedade Pestalozzi every month. T H E 5 S S C H O O L P R O G R A M This program s aim to disseminate the concepts of total quality among primary and high school students in the states of Santa Catarina and Rio Grande do Sul for application at both school and home. Approximately 40 volunteers from the Company taught the 5S program in 2004 at 18 schools with a total of 6,400 students. C I T I Z E N O F T H E F U T U R E The program was set up in 2001 to encourage the newspaper reading habit among students from six schools in Carambeí-PR. The Citizen of the Future program also includes the teachers who are given guidance on the use of the publications in the classroom. In 2004, approximately 700 fourth and fifth grade students took part in the project. Sport and Culture T H E P E R D I G Ã O O L Y M P I C S Perdigão believes that integration is also a way of focusing the importance of teamwork. With this in mind, it organizes such programs as the Perdigão Olympics, held biannually and recognized as the most important cultural and sporting event in the Brazilian business sector. The idea behind the Olympics is to encourage the meeting, interrelation and strengthening of friendship between employees who, although from different parts of the country, work with the same purpose in mind: the growth of the Company, the improvement of our processes and products and the satisfaction of our customers, in addition to promoting and cultivating the practice of sport. By holding the games, Perdigão is aware that among the principal roles of a modern organization is the one of corporate citizen and responsibility for the welfare of all those that contribute to the Company s success as well as the inhabitants of the surrounding community. This major sporting event was held for the first time in 1989 in Videira-SC, the city in which Perdigão was founded. The venue for the 2004 games was Marau-RS in November with 1,800 athletes present and representing all the operations from throughout the country as well as the Company s corporate and commercial

69 areas. The city of Marau and region had the opportunity of participating in a major event of company integration and watch an admission-free show by country music singer, Daniel. V I P S P A C E Two VIP Spaces (Important Perdigão Visitor) have already been installed: in Videira (SC) and Rio Verde (GO). These centers have been opened to preserve the corporate history for posterity and to show how the cities have evolved since the Company set up its operations. The VIP Spaces also seek to promote regional and national art. In 2004, the VIP Spaces received 13,926 visitors and were the venue for 34 in-house and 7 outside events. Looking to the Future Advances and Targets for 2005 In business, growth is nearly always critical although it requires the maintenance of a healthy organizational climate for one of the most important assets of the Company: the employees who work in it. One of the major challenges for the Human Relations area in 2005 will be to support the demands of Company growth, with the increasing need for vocational training of the workforce. Included in this has been the need to attract skilled labor to the locations where the Company s industrial units are located. This challenge has already been met through the completion of the stage where actions are integrated, decisions are made rapidly in alignment to the outside environment, the communication process is open and bilateral, and people are seen and recognized for their performance. Environment Perdigão continues its actions in the field of preserving the environment. Not only does the Company comply with all the environmental precautions required in the way it conducts its industrial operations, it also takes part in initiatives for conserving the natural habitat and running a waste recycling system in conjunction with the integrated outgrowers. Using this system, about 1.4 million cubic meters of liquid hog manure and 95,000 tons of chicken bedding are transformed into organic fertilizer, enough to fertilize 60,000 hectares annually, or 10% of the cultivated area of the Rio Verde-GO region. Among the principal initiatives, of particular importance are: Maintenance of the joint research program with the Rio Verde Advanced Teaching Faculty and Embrapa Milho e Sorgo for monitoring the consequences on the environment of the use of waste; Integrating the Hydrographic Basin Committees and non-governmental organizations which promote actions in the environmental area; Continued research into solutions for problems detected in green areas in conjunction with universities and institutions; Investments in environmental projects for adolescents and children in the state of Santa Catarina and along the coastal strip of the state of São Paulo; Events held at the Company s facilities for disseminating important information on the environment, including musical presentations, dances, stage plays, exhibitions of artistic wall panels, sculptures, movie shows, group dynamics on measures for saving water, selective garbage collection and the dissemination on the use of organic garbage for the production of humus. Employees were also given tree seedlings. During two events in May and June, the Company organized ecological hikes for public school students and employees during the course of which, they were able to learn about effluent treatment at the Serafina Corrêa industrial unit; Re-forestation S O C I A L A C T I O N S 65