MANAGEMENT REPORT – 2008

SCENARIO

The year 2008 was positively atypical. Until the 3rd quarter, the Brazilian industrial production had grown by 6.4% in relation to the same period in 2007, prices were reasonable and on the rise, with a shortage of a few end-products making itself felt in the domestic market, all this pointing to a good year for the Brazilian economy. All of a sudden, however, early in the 4th quarter the USA´s financial crisis spread all over the world, Brazil included of course, bringing about restrictions on credit and narrowing consumption of high-value-added end-products, with the attendant effects on demand and prices of raw materials such as oil and petrochemicals.

In Brazil, the production of chemicals for industrial use, which up until the 3rd quarter 2008 had fallen by 4.5%, due to Petrochemical Centers´ programmed maintenance stoppages, was accompanied by lower demand, as the option for consumption of stocks prevailed.

The 37% exchange devaluation seen in the 4th quarter, which would serve as an export incentive for the Brazilian chemical companies, was counteracted by the decline in prices, margins and volume of demand. The price of petrochemical naphtha fell from US$ 996/t in the 3rd quarter to US$ 275/t by the end of 2008, showing high volatility. This process eliminated the references of local and international prices, increased risks and paralyzed businesses.

THE COMPANY´S OPERATIONS

The physical volume of shipments in 2008 – 451.3 thousand t - was 13.3% lower than that of 2007, this fall having occurred in the 4th quarter. Until September 2008, the domestic shipments were identical with the same period in 2007 (only 0.1% less), but in the 4th quarter, there was a 40.1% reduction over the same quarter in 2007.

Exports were reduced during the year, due to the difficulty in taking ICMS credits generated by acquisition of raw materials in the state of Bahia. At the end of December, after the negotiations, a Term of Commitment was signed with the Governor of Bahia for fully returning accumulated credits month by month.

Of the total 451.3 thousand t shipped, organic products accounted for 232.3 thousand t, or 51%, with the remaining 49% being represented by inorganic products – 219.0 thousand t.

PERFORMANCE IN THE PERIOD

Despite the international financial crisis that struck in the 4th quarter, the results attained in 2008 were good, in line with those of 2007.

In preparing the financial statements for 2008, the Company complied with the provisions of Law 11,638/07, having also summarized in the explanatory notes the results as reflected in the financial statements for 2007, prepared in accordance with Law 6,404/76.

The R$ 1.1 billion Gross Revenues were 2% higher than in 2007. Operating Income – R$ 100.4 million – and Net Income R$ 81.2 million rose by 11.8% and 13.7% respectively over 2007 (R$ 110.2 million and R$ 80.2 million before the Law 11,638).

The ROE (return on shareholders´ equity) was 19.1% against 19.8% in 2007. The EBITDA of R$ 126.2 million (R$ 138.3 million before the Law 11,638) fell by 2.1% over that of 2007, with an EBITDA MARGIN of 14.4% on Net Revenues (15.8% before the Law 11,638) against 14.8% in 2007.

STRATEGIC MANAGEMENT

The solution for the ICMS credit balance negotiated and contracted with the Government of Bahia at the end of 2008 will enable resumption of investments in that state and exports, as soon as the international markets function normally again.

In 2008, R$ 44.5 million was invested in continuing modernization, rationalization, automation and expansion programs at the various units, the result being higher capacity production at the Oxo-Alcohols (+10%), Plasticizers (+13%) e Phthalic Anhydride (+5%).

HUMAN RESOURCES

In 2008 R$ 68.5 million was spent on salaries, payroll taxes, meals at work site, staples, transportation, medical care, insurance, supplementary pension/retirement plan, training (56,700 hours) and scholarships (37) for technical, college and postgraduate and language courses for 756 employees.

SUSTAINABILITY AND ENVIRONMENTAL MANAGEMENT

Our investments in environmental protection and social-oriented actions in the communities where we operate amounted to R$ 13.0 million.

Special programs were conducted by internal employees´ commissions throughout 2008, aiming at reducing water and energy consumption and effluent generation, as well as systematically recycling.

The Company has adhered to the Programa de Atuação Responsável (Responsible Operation Program) created by the International Council of Chemical Associations and administered by the ABIQUIM – Associação Brasileira da Indústria Química (Brazilian Chemical Industry Association) in Brazil.

DIVIDEND DISTRIBUTION

Subject to ratification at the General Shareholders´ Meeting, on December 23, 2008 the Administrative Council decided to distribute supplementary dividends by way of interest on own capital in the amount of R$ 0.285 per share, which together with the advances given in September and December 2008 add up to R$ 0.635 per share.

Also, at that date, given the effective results attained in fiscal 2008, and subject to ratification at the General Shareholders´ Meeting, the Administrative Council decided to add supplementary dividends in the amount of R$ 0.0204 per share to those already declared, also by way of interest on own capital.

As a consequence, the total dividends distributed on the income for the year 2008, by way of interest on own capital, grossed to R$ 0.659 per share or R$ 20.7 million. The net income tax withheld at source on the total dividends declared – R$ 0.560 per share – corresponds to 25% of the net income, which is the basis of calculation (Note 19).

CVM INSTRUCTION 381

The BDO Trevisan´s independent auditors rendered only auditing services to the Company.

LAW 11,638

In preparing its financial statements this year the Company complied with the provisions of Law 11,638.

TRIBUTE

We are deeply sorry to remember the death on August 27, 2008 of Dr. Olavo Egydio Setubal, the Chairman of the Administrative Council of Elekeiroz S.A. and all companies controlled by Itaúsa – Investimentos Itaú S.A.

Dr. Olavo Setubal was a successful business man, whose legacy for Itaúsa and its industrial (Duratex, Itautec and Elekeiroz) and financial subsidiaries (Itaú and Itaú – BBA) is the ethical principles that guide all of them. In his career as a public man, he was a member of the Brazilian Monetary Council, Mayor of the City of São Paulo and Minister of Foreign Relations.

ACKNOWLEDGEMENTS

The Management thanks the shareholders for their trust in its work, and co-workers, clients, suppliers and financial institutions for their joint efforts towards attainment of the results reported herein.

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