MANAGEMENT REPORT

YEAR 2007

 

 

SCENARIO

 

The Brazilian industrial production and that of chemicals for industrial use grew by 6% and 6.1% respectively, in 2007.

 

The increasing domestic demand for chemicals (the domestic consumption rose by 8.7%) was met by imports, too, with what this specific industry´s balance of trade deficit rose significantly to US$ 13,3 billion em 2.007.

 

With its steady, high economic growth China maintained the demand for basic materials, including oil and petrochemicals, at high level in the international market. At the end of the year the oil quotation reached a US$100-per-barrel record, taking along with it the prices of naphta and petrochemicals, the contribution margins of which were maintained.

 

 

OPERATIONS

 

The domestic shipments (465 thousand t) increased by 12%, exports (55 thousand t) by 4%, and the Company´s total shipments (520 thousand t) by 11%.

 

The growth rates of inorganic products - 266 thousand t – and organic products - 254 thousand t (199 thousand t in the domestic market plus 55 thousand t of exports) were 14% and 8%, respectively.

 

 

 

 

 

 

 

 

 

 

STRATEGIC MANAGEMENT

 

The investments of R$ 31 million in the Camaçari – BA and Várzea Paulista – SP units were intended to increase productivity, reduce operating costs, improve control on industrial operations, expand installed capacities and replace obsolete equipment pieces.

Proceeding with the logistic cost savings actions, the remainder of Taubaté industrial complex facilities disposed of in 2006, were sold this year

 

And the strategy focused on higher value-added and return businesses also proceeded with the withdrawal from the carbon bisulphite business and the rental to an Argentinian company, of the facilities previously used for storage, loading and unloading of this product in Várzea Paulista.

 

A long-term credit line of R$ 116 million was obtained from BNDES, for financing investments forecast for the three-year period from 2008 to 2010.   These investments are intended to enable automation and expansion of the Oxo-alcohol, Phtalic and Maleic Anhydrides, Plasticizers and Insaturated Polyester Resins..

 

Also, studies began to be conducted for resuming use of technology available at the Company for Ethanol utilization as a raw material for Green n-Butanol production.

 

 

PERFORMANCE IN THE PERIOD

 

In 2007, both gross and net revenues were 21% higher than the previous year´s, amounting to R$ 1.083 million and R$ 871 million, respectively.   Worth noting is that for the first time in the Company´s history, sales exceeded R$ 1 billion.   , Te value of exports - R$ 163 million - rose by 15% .

 

The substantial growth of shipments and revenue led to important improvements in the use of installed capacity and business profitability, with net income rising to as much as R$ 71million, the returno n the shareholders´ equity to 19,8% p.a. and the  R$ 129 million EBITDA to 14.8% of net revenues.

 

The table below shows the changes in revenue, income and EBITDA and the pie chart on the following page, the distribution of net revenues by product lines and economic sectors serviced.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HUMAN RESOURCES

 

At the end of the year, Elekeiroz had 767 employees

 

On these employees´ compensation, payroll taxes, meals, staples, transportation allowance, medical care, insurance and supplementary pension/retirement plan the Company spent R$ 54,2 million.

 

An additional R$ 285 thousand was used in 36 partial scholarships for technical courses in chemistry, college, postgraduate and language courses, as well as in 70,000 hours of training.

 

 

 

ENVIRONMENTAL MANAGEMENT

 

With a well-defined, disclosed Environmental Policy, Elekeiroz participates in the “Programa de Atuação Responsável” (Responsible Operation Program), administered in Brazil by ABIQUIM (Brazilian Chemical Industry Association) and is this Association´s representative at FIESP´s “Grupo de Trabalho de Recursos Hídricos” (Water Resources Task Force), in the belief that correctly handling environmental and operating security matters (including those relating to transportation of hazardous products and work itsef), recycling of materials and reduction of consumption of scant resources such as water, electric power and fossile fuels are essential for sustainability purposes.

 

The specific programs conducted by the “Comissões Internas de Economia de Água (CIEA), Energia (CIEE)” (Internal Water and Energy Savings Commissions) and recycling of materials proceeded in this period.

 

 

DIVIDEND DISTRIBUTION

 

On 12.26.2007 subject to ratification at the General Shareholders´ Meeting, the Administrative Council decided to distribute dividends by way of interest on equity capital, in the amount of R$ 0.43 per share, totaling R$ 13,5 million.   This amount plus the advance paid in August 2007 adds up to R$ 0.67 per share, or 3.8 times as much the amount distributed in the previous year.   The total R$ 21,1 million of dividends are the equivalent to 30% of the net income for the period.   The dividends proposed in the year, net of withholding income tax totaled R$ 0,57 per share.

 

 

CVM INSTRUCTION 381

 

In compliance with CVM Instruction 308/99 that stipulated rotation of independent auditors, at the beginning of the period the Company engaged new independent auditors - BDO Trevisan – who worked solely in the auditing of its financial statements.

 

 

ACKNOWLEDGEMENTS

 

The Management thanks the shareholders for their trust and its co-workers, clients, suppliers and financial institutions for their support in attaining the results reported herein.