ELEKEIROZ S.A.

NOTES TO THE FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003.

(in thousands of Reais)

1. OPERATIONS

Elekeiroz, a company controlled by Itausa – Investmentos Itaú S.A., has three industrial units, one in Camaçari, BA, where it is headquartered, and two in Várzea Paulista and Taubaté, in the state of São Paulo.

The Company’s activities comprise the production, import and export of chemicals and petrochemicals, the marketing, of chemicals and petrochemicals produced by third parties, and participation in other companies.

2. FINANCIAL STATEMENTS PRESENTATION

The financial statements were prepared in conformity with the corporate law and “CVM – Comissão de Valores Mobiliários” (Brazilian Securities Commission) standards and tax legislation.

3. SUMMARY OF THE MAIN ACCOUNTING PRACTICES

a) Income Determination

Revenues and expenses are recognized on the accrual basis. The provision for income tax includes the portion relating to fiscal incentives, the reduction resulting therefrom being credited to a specific capital reserve.

b) Short-Term Investments in the Money Market

These investments are stated at cost plus the related earnings up to the balance sheet date, which is lower than market value.

c) Allowance for Doubtful Accounts

This is set up based on an analysis of credit risk, in an amount deemed sufficient to cover possible losses on any such accounts.

d) Inventories

Inventories are stated at the average acquisition or production cost, which does not exceed market value. There are no obsolete inventories.

e) Investments

Investments in controlled companies are evaluated on the equity method, whereas the other investments are shown at the acquisition cost plus monetary correction (recognition of the effects of inflation) up to December 31, 1995 and adjusted to market value, where applicable.

f) Property, plant and equipment/Depreciation

The Property, Plant and Equipment items are stated at the acquisition or construction cost plus monetary correction (recognition of the effects of inflation) up to December 31, 1995, including interest accrued during the construction.

Depreciation is calculated on the straight-line method at rates that take into account the useful life of assets. For equipment and facilities directly used in the production process this method is supplemented by that based on the number of units produced.

g) Deferred charges

These comprise the industrial units’ deferred organization and expansion costs, as well as expenses incurred on improvement plans and development of corporate management systems, all amortized at 10% and 20% p.a.

h) Unamortized Premium

This refers to premium on the acquisition of controlled companies, which is amortized in accordance with projected results of the premium-originating businesses.

i) Receivables and Payables

All receivables and payables are restated based on exchange rates and financial charges under contracts in force, so they reflect amounts incurred up to the balance sheet date.

j) Income Tax and Social Contribution

Income tax is calculated at 15% on taxable income plus a 10% surtax, whereas Social Contribution rate is 9% on income book value, duly adjusted. The Company benefits from a partial reduction of Income Tax due on the operating income of its Camaçari – BA production unit, at the following rates: 25% until December 31, 2008 and 12.5% through the end of fiscal 2013.

Deferred Income Tax and Social Contribution are shown under Long-Term Assets (Note 13).

4. CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements, which include the controlled company Castletown Trading S.A., were prepared in accordance with CVM Instruction 247/96 requiring elimination of:

a) Intercompany assets and liabilities;

b) Shareholding, reserves and retained earnings of controlled companies; and

c) Revenues, expenses and unrealized earnings arising from intercompany transactions.

The financial statements of the controlled company can be summarized as follows:

CASTLETOWN TRADING S.A.	Dec/2004	Dec/2003
ASSETS
Current Assets	1.873	2.291
Total Assets	1.873	2.291
LIABILITIES
Current Liabilities	75	279
Shareholders’ Equity	1.798	2.012
Total Liabilities	1.873	2.291
STATEMENT OF INCOME
Financial Income	-	(1)
Net Operating Revenues (Expenses)	(50)	30
Income (Loss) for the Period	(50)	29

5. CASH AND CASH EQUIVALENTS

	PARENT COMPANY		CONSOLIDATED
	Dec/2004	Dec/2003	Dec/2004	Dec/2003
Cash	54	16	54	16
Bank Accounts	566	2.531	612	2.655
Readily Realizable Investments	20.113	37.002	20.113	37.002
in the Money Market
Total	20.733	39.549	20.779	39.673

6. CLIENTS – TRADE RECEIVABLES

	PARENT COMPANY		CONSOLIDATED
	Dec/2004	Dec/2003	Dec/2004	Dec/2003
Local Clients	65.102	41.201	65.102	41.201
Foreign Clients	33.655	28.196	33.656	28.375
Bills of Exchange Discounted	-	(7.076)	-	(7.076)
Allowance for Doutbful Accounts	(1.180)	(2.280)	(1.180)	(2.280)
Total	97.577	60.041	97.578	60.220

7. INVENTORIES

	PARENT COMPANY/CONSOLIDATED
	Dec/2004	Dec/2003
Finished Products	33.463	20.567
Raw, Auxiliary and Packaging Materials	36.656	20.749
Miscellaneous Materials	12.341	9.868
Total	82.460	51.184

8. INVESTMENTS

Major information on the controlled and affiliated companies as of December 31:

	Dec/2004			Dec/2003
	SANSUY Particip. Rep. Serv. Ltda. (a)	CASTLETOWN Trading S.A.(b)	Total	Total
Shareholders’ Equity	18.718	1.798	20.516	18.484
Quantity of Shares/Quotas Held (1000-Share/Quota Lot)	136	7.350
Participation (%)	10	100
Results of Equity Accounting	224	(213)	11	(245)
Investment as of 12/31/04 and 12/31/03	1.872	1.798	3.670	3.659

(a) Balance sheet as of 11/30/2004.

(b) Balance sheet as of 12/31/2004.

9. PROPERTY, PLANT AND EQUIPMENT

	PARENT COMPANY /CONSOLIDATED
	Dec/2004	Dec/2003
In Operation
Plots of Land and Buildings	11.141	12.585
Equipment and Facilities	276.653	274.042
Other	11.397	10.186
	299.191	296.813
Accumulated Depreciation	(168.826)	(154.857)
	130.365	141.956
Construction Work in Progress	31.857	10.846
Total	162.222	152.802

10. DEFERRED CHARGES AND UNAMORTIZED PREMIUM

	PARENT COMPANY/CONSOLIDATED
	Dec/2004	Dec/2003
DEFERRED CHARGES
Preoperating expenses :
Operative Projects	80.291	80.105
Projects Under Way	8.327	4.323
Amortization	(70.970)	(69.024)
Total	17.648	15.404
UNAMORTIZED PREMIUM
Premium/Discount – Investment Acquisition	53.072	53.072
Premium/Discount Amortization	(13.713)	(8.418)
Total	39.359	44.654

11. FINANCING

The long-term financing, which is used for funding investment in facilities expansion/modernization and in meeting working capital requirements, can be summarized as follows:

	Interest Rate %	Index	(*)	Frequency	Maturity Date	Dec/2004	Dec/2003
FINAME – BNDES Miscellaneous Agents	3,50 - 6,50 p.a.	TJLP	1	Monthly	06/16/06	625	1.133
POC - BNDES Miscellaneous Agents	3,35 - 4,00 p.a.	TJLP	1	Monthly	05/15/09	11.067	8.722
BNDES Direct Operations	2,625 - 3,85 p.a.	TJLP	2,3	Monthly and Half-Yearly	01/15/10	29.447	32.274
EXIM – BNDES	5,20 p.a.	TJLP	1	Monthly	02/15/06	5.081
EXIM – FOREIGN CURRENCIES BNDES	13,74 p.a.	US$	1	Monthly	02/15/06	2.901
FOREIGN CURRENCIES Miscellaneous Agents	3,35 p.a. + Libor	US$ e EURO	4	Half-Yearly and Lump-Sum	07/26/04		6.758
WORKING CAPITAL Miscellaneous Agents	0,10 p.m.	CDI	1	Automatic Settlement		10.936	6.731
Total Parent Company and Consolidated						60.057	55.618
Current Portions						(28.672)	(30.052)
Long-Term Portions						31.385	25.566

(*) Guarantees:

(1) Promissory Note / Collateral Signature, (2) Surety, (3) Collateral Signature, (4) Escrow.

The long-term financing agreements mature as follows::

	PARENT COMPANY/CONSOLIDATED
	Dec/2004	Dec/2003
2005		15.910
2006	17.098	8.583
2007	4.289	1.073
From 2008 onwards	9.998
Total	31.385	25.566

12. FINANCIAL INSTRUMENTS

In compliance with “CVM” Instruction no. 235/95, the Company evaluated its assets and liabilities’ book value against the related market value, having found them adquate, for the following reasons:

Short- and Long-Term Financing – The book value was determined based on the interest rate contracted with financial institutions, which reflect market value, and considering the nature and conditions of these operations as well as the size of the Company.

Below, a summary of the main market risks involving the business:

Credit Risk – the Company’s sales are not highly concentrated, there being no clients accounting for over 10% of net sales. Under the Company’s credit policy, limits and terms are established according to liquidity levels, which in turn are determined by rating instruments. Besides the diversification in the domestic market, a substantial portion of products is intended for foreign markets.

Exchange Risk – Because exports represent a substantial part of its revenues, the Company’s working capital requirements are met by export-linked credit lines, with more attractive rates and conditions than those prevailing in the domestic money market.

Price Risk – The Brazilian chemical sector is highly influenced by the globalized market, with prices heavily affected by international demand and supply conditions. As a consequence, the peaks of both selling prices and raw material purchase prices in this sector occur almost simultaneously, which in turn enables maintenance of an average margin capable of sustaining the business;

Interest Rate Risk – Funding is at fixed interest rates under regular market conditions, with restatement and recording at the amount of settlement at the balance sheet date.

13. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION

As stipulated by “CVM” Deliberation no.273 and Instruction no.371, the Company recorded temporary differences of R$ 9,676 thousand as deferred tax assets, under “Long-Term Assets”. The deferred consolidated tax and credits and obligations (Income Tax and Social Contribution) as of December 31, 2004 can be summarized as follows:

	Current Consolidated Balance (Dec/2004)
Temporary Differences represented by:
Allowance for Doubtful Accounts	401
Provision for Labor Contingencies	302
Provision for Tax Contingencies	5;790
Amortized Premium	1.301
Other Provisions	1.882
Total	9.676

Tax Credit Realization – A forecast
2005	491
2006	4.843
2007	2.101
2008	965
From 2009 onwards	1.276
Total	9.676

No tax credits have been recognized in connection with tax loss carryforwards in the amount of R$ 103,035 thousand.

14. TAXES AND CONTRIBUTIONS AND PROVISION FOR CONTINGENCIES

The Company is challenging the levying of state and federal taxes at both legal and administrative levels, and accordingly, has recorded and updated provisions for the related contingencies, under Long-Term Liabilities.

The Company offset credits granted after winning a legal action that questioned the constitutionality of the decrees-laws 2445 and 2449 of 1988 that modified the “PIS” determination method. The respective provision, in the amount of R$ 24,810 thousand, was maintained and restated under “Long-Term Liabilities”.

Until the end of December 2004, the Company had made judicial deposits in the amount of R$ 16,096 thousand, fully provided for under “Long-Term Liabilities”. These deposits were made in connection with the questioning of a 1% difference in the “COFINS” tax rate and Education Allowances.

Upon acquisition of Ciquine Companhia Petroquímica by Elekeiroz S.A., in May 2002, the new management set up provisions for tax, environmental and labor risks, in an amount deemed sufficient to cover possible losses thereon.

15. CAPITAL AND INTEREST ON OWN CAPITAL

a) Capital

The authorized capital at December 31, 2004 comprises 2,100,000,000 book-entry shares, of which 700,000,000 common and 1,400,000,000 preferred.

Capital, subscribed and paid up in the amount of R$ 175,000 thousand comprises 603,293,965 book-entry shares without nominal value, of which 290,638,065 are common and 339,655,900 are preferred.

b) Treasury Stock

The Company’s 590,556 treasury stocks are the equivalent to 0.09% of total shares issued, because in the stock unification and merger processes, the shareholders exercised their withdrawal rights.

c) Dividends

Below, the rights inherent in preferred, non-voting shares:

a) priority over common shares in statutory dividend distribution;

b) right to dividends always higher than those attributed to common shares;

c) participation in capital increase through reserve and profit capitalization ;

d) priority over common shares in capital reimbursement without premium, in case of liquidation.

e) in the event of disposal of majority shareholding, inclusion in public offer that ensures unit price of 80% of amount paid per voting share included in the majority group;

f) minimum priority dividend of R$ 0.10 per thousand shares, an an annual, non-cumulative basis, subject to adjustment in case of split or unification.

All shareholders are entitled to statutory, minimum dividends in the equivalent to twenty five percent (25%) of the income for the year, adjusted in accordance with Law 6.404/76 art. . 202, I “a” and “b” ; II and III

Dividends were calculated as follows:

	R$ thousand
Net Income for the Year	70.839
(-) Legal Reserve (5%)	3.542
(=)Basis of calculation	67.297
Minimum Statutory Dividend (25%)	16.824
Dividends Declared in the Year:
Interest on Own Capital	20.414
(-) Income Tax	3.062
(=) Net Remuneration in the Year	17.352

As legally permitted and provided under the Company’s articles of association, the Interest on Own Capital, net of income tax, is being included in the statutory dividends. The gross interest on own capital equals R$ 32.42 per thousand-share lot.

16. STOCK OPTION PLAN AND PENSION PLAN

With a view to integrating managers and employees into the Company’s growth process in the middle- the and long-run, at the Extraordinary General Shareholders’ Meeting of July 31, 2003 it was deliberated to institute a stock option plan to enable these managers and employees to enjoy any benefits from share appreciation that may result from their work and dedication. The stock option plan will be administered by the Elekeiroz Options Committee, to be formed by members elected by the Administrative Council, every year. By the time these financial statements were completed, this plan had had no effects to be reflected therein.

All the Company’s employees are entitled to participate in a definite-contribution plan (“PAI-CD Plan) administered by Fundação Itausa Industrial, a private pension, not-for-profit entity, which is sponsored by Elekeiroz S.A., among others. Given the nature of the plan, there are no actuarial risks, any existing investment risks lying with the participants. Under current regulations, the sponsor is responsible for 50% of the amount contributed by the participantes, or R$ 111 thousand in fiscal 2004.

17. PROFORMA STATEMENTS

As a result of the merger of Elekeiroz S.A . into its subsidiary Ciquine Companhia Petroquímica on July 31, 2003 and the subsequent change in the name of the merging company to Elekeiroz S.A., a proforma statement of income was prepared showing the both the merging company´s and the merged company´s income for the pre-merger months, for comparative purposes:

PROFORMA STATEMENT OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 2004 AND 2003
(Expressed in Thousands of Reais )
	2004	2003
GROSS SALES REVENUE	886.328	652.480
NET SALES REVENUE	703.971	541.579
GROSS INCOME	178.593	117.322
OPERATING INCOME BEFORE FINANCIAL INCOME, EQUITY ACCOUNTING AND PREMIUM AMORTIZATION	109.417	67.980
OPERATING INCOME	93.009	46.783
NET INCOME FOR THE YEAR	70.839	37.188

18. STATEMENT OF EBITDA CALCULATION

	Parent Company		Consolidated
	2004	2003	2004	2003
Operating Income Before Financial Income, Equity Accounting and Premium Amortization	109.467	51.755	109.417	51.784
(+) Depreciation and Amortization	16.264	10.443	16.264	10.443
(=) EBITDA	125.731	62.198	125.681	62.227