[Digite texto] Annual Report Respected Shareholders,

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1 Respected Shareholders, The management of Celulose Irani S.A. submits to your appreciation the Management Report and the Company's Financial Statements with the respective opinion of the Independent Auditors relating to the fiscal year ended on December 31, The Financial Statements are elaborated pursuant to the Law of Incorporation by Shares and its amendments are based upon standards set by the Brazilian Securities and Exchange Commission - also known as CVM. MESSAGES TO SHAREHOLDERS Celulose Irani S.A. is an integrated Packaging and Paper plant with its own robust forest base. The core of its business is the optimal usage of the pinewood planted forest (long fiber) through multiuse, seeking to add value to each stage of the productive process, as well as to each forest-sourced product: wood pulp, paper, package, furniture, wood, resins and biomass for energy. HIGHLIGHTS OF YEAR 2008 The year 2008 was marked, in the foreign scenario, by the strong financial and economic crisis which began in September, and in the Company s domestic scenario, by the conclusion of Overcoming Challenges Project to which was invested R$ million in the improvement of paper and packaging factories. IRANI's consolidated Gross Revenue grew 10.2%. This growth recorded by the Company is mainly due to productivity and sales increase in its two packaging factories: one in Indaiatuba (SP), where the new plant was implanted during 2008 and the other in Vargem Bonita (SC), where investments in technological update and in capacity increase where finalized this year. Paper plant decreased its relative participation in this year Company s gross revenue, increasing the paper supply for packaging plants. Dollar floated between fall in the first half of 2008 and high in second half, ending year with an appreciation of 32% over Brazilian real devaluation had a strong impact in Company s results, because of dollar and euro-denominated loans and financing. Due to Company s policy to keep levels of payment in strong currency equivalent to receivables, there is a cash flow protection, and it does not generate significant or not expected cash losses because of these sudden changes. In this way, Company did not have loss with derivative transactions, since it does not operate with these instruments. Company ended 2008 with a Net Result of R$ 54,223 thousand negative, of which R$ 61.8 million are net exchange variation. Adjusted EBITDA, on the other hand, had an increase of 12.4%. Operating Result was harmed because of investments for Overcoming Challenges Project, which caused several non-recurring costs, like labor compensation for those employees replaced when Santana do Parnaíba (SP) plant was transferred to Indaiatuba (SP), simultaneous operation of these 1

2 two plants for a two month period, maintenance shut down of Paper Machine #5 for more than 30 days for technological update, and a project learning-curve. Also, in 2008, Company adapted its financial statements to new Law /07 and MP 449/08, being its effects duly informed in the explanatory notes and which reflected a small increase in shareholders equity. However, it should be noted, the Company has in its assets land and forests recorded at their historical cost and are under appraised in an amount exceeding R$ 200 million in relation to the market value, according to reports from enterprises, not reflected therefore, in its Fixed Assets and Net Worth. This assets update will be more evident in the presentation of financial statements according to IFRS standards, which are being prepared by the Company. ECONOMICAL FINANCIAL PERFORMANCE MAIN FINANCIAL INDICATORS (R$ thousand) 2008 Parent Company 2008 Consolidated 2007 Parent Company 2007 Consolidated Gross Operating Income 475, , , ,347 Net Operating Income 378, , , ,400 Gross Profit 84,826 90,497 86,217 89,763 Gross Margin 22.4% 23.3% 25.2% 25.6% Result before Income Tax (82,015) (81,530) 21,777 22,066 Net profit (loss) (54,102) (54,223) 14,718 14,595 Adjusted EBITDA 55,278 58,519 49,377 52,055 EBITDA Margin 14.6% 15.1% 14.5% 14.9% EBITDA - EARNING BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (*) (R$ thousand) 2008 Parent Company 2008 Consolidated 2007 Parent Company 2007 Consolidated Result before Income Tax (82,015) (81,530) 21,777 22,066 Depreciation, Depletion and Amortization 33,896 36,306 25,633 27,911 Financial Result 91,098 91,189 (1,994) (1,883) EBITDA 42,979 45,965 45,416 48,094 Provisions (IPI and Contingencies) 9,983 10,238 3,961 3,961 PDD(Provision for doubtful clients) - Clients maturing before ,316 2, Ajusted EBITDA 55,278 58,519 49,377 52,055 EBITDA Variation 12.0% 12.4% (*)Note: EBITDA is the added operating income from net financial expenses (income) and depreciations, depletions and amortizations. EBITDA is not a measure used in accounting practices adopted in Brazil, not representing the cash flow for the periods presented and should not be considered as an alternative to net profit as an indicator of our operating performance or as an alternative to cash flow for an indicator of liquidity. EBITDA does not have a standard meaning and our definition of EBITDA may not be comparable to EBITDA or adjusted EBITDA as defined by other companies. Although EBITDA does not provide, in accordance with the accounting practices used in Brazil, a measure for operating cash flow, our government uses it to measure our operational performance. Additionally, we believe that certain investors and financial analysts use EBITDA as an indicator of a company's operational performance and/or its cash flow. 2

3 Gross Revenue The Gross Revenue was 10.2% higher in 2008, reaching a total of R$ 485,632 thousand as compared to R$ 440,347 thousand in In dollars the Gross Revenue was 19.0% higher in 2008, adding US$ 270,641 thousand, as compared to US$ 227,619 thousand in Net Operating Income The Net Operating Revenue was 10.8% higher in year 2008, over The Gross Profit in 2008 was R$ 90,497 thousand, as compared to R$ 89,763 thousand in 2007, a growth of 0.8%. The Gross Margin decreased in 2008, impacted by non-recurring costs and machines shut down for improvement of Overcoming Challenges Projects, staying at 23.3%. In 2008, the Result before Income Tax, in turn, was R$ 81,530 thousand negative as compared to R$ 22,066 thousand recorded in the previous year, mainly impacted by the exchange rate variation in this period. EBITDA The absolute value of the adjusted consolidated EBITDA was established in R$ 58,519 thousand, as compared to R$ 52,055 thousand of year 2007, representing 12.4% increment. The margin of the adjusted consolidated EBITDA had a growth from 14.9% in 2007 to 15.1% in year Financial Income The Financial Income was negative by R$ 91,189 thousand, as compared to R$ 1,883 thousand in Of the R$ 91,189 thousand negative of 2008, R$ 34,131 thousand represent foreign exchange variation in assets, R$ 2,615 thousand of financial revenue and R$ 31,963 correspond to financial expenses (interest, bank charges and discounts granted). Net Income/Loss In 2008, the Operating Net Income, in turn, was R$ 54,233 thousand negative as compared to R$ 14,595 thousand recorded in the previous year. Additionally, portion was realized of assets revalued at R$ 483 thousand in 2008 (R$ 1,460 thousand in 2007), not transferred as revenue in the Income Statement of the Fiscal Year (DRE) (Deliberation 183/95 of CVM), but it will be used to compensate the net loss of the period. The Company's income(loss), in 2008, was partially absorbed by profit reserves from previous fiscal years. 3

4 The participation of Consolidated Gross Operating Revenue in 2008 was as follows: Sharing of Gross Operating Rev. per Company Subsidiaries 2% Celulose Irani S.A. 98% Sales Sales distribution in the parent company has the following participation, in year 2008: Share of Sales per Business Division Furniture and Resins 16% Paper 36% Packaging 48% Share of Sales per Business Unit Packaging SC 22% Furniture 13% Resins 3% Paper 36% Packaging SP 26% 4

5 The composition of the Consolidated Gross Revenue per market is distributed as follows in 2008: Share of Domestic and Foreign Sales (in R$ thousand and %) 19% Foreign Market 93,265 Domestic Market 392,367 81% The distribution of Dollar Sales had the following participation, in 2007 and 2008: Share of Domestic and Foreign Sales (in US$ thousand) 177, ,460 45,680 52,181 Domestic Market Foreign Market PERFORMANCE OF BUSINESS Celulose Irani S.A. is comprised of three Divisions. These Divisions are organized according to the market segment they work in, are independent in their operations and smoothly incorporated, seeking to optimize the use of pinewood forests planted through multiuse and the vertical integration of its business. Paper Division, located in Vargem Bonita - SC, aims at the production of kraft paper of low and high grammages and recycled paper for the domestic, foreign markets, and for the Packaging Division. 5

6 Packaging Division produces boxes and sheets of corrugated cardboard, light and heavy, and counts on two production plants, one in Vargem Bonita - SC and another in Indaiatuba - SP. The plant of Indaiatuba - SP was inaugurated on June 02 nd, 2008 and the resources used were from Overcoming Challenges Project. Furniture and Resins Division industrializes forest-based products, seeking to optimize the exploitation of forests, through multiuse. This division currently relies on two production units, one being a reforest wood furniture factory in Rio Negrinho- SC and a business unit named Resins, located in the Resort of Pinhal - RS, which produces pitch and turpentine, from natural resin provided by the subsidiary Habitasul Forest S.A. Besides these three Divisions, Celulose Irani S.A. relies on the subsidiaries Irani Trading S.A. which handles all the export operations of the company, Habitasul Florestal S.A., with a forest base of 8.4 thousand hectares of pine forests, provider of resin for the Resins plant of Celulose Irani S.A. and also the timber supplier for the sawmills in the region and Brastilo Inc. that sells forestry wood furniture for the American market. Also in early 2008 a new subsidiary's operations initiated under the name of Meu Móvel de Madeira Comércio de Móveis e Decorações Ltda., which sells directly to end-customer through the website Paper Division Celulose Irani S.A. kept a share of about 3.7% of the national production of Paper Packaging in 2008, according to preliminary data from Bracelpa - Brazilian Association of Paper and Wood pulp. The Paper Division relies on four machines, whereas one of them uses trimmings as the basis for its production. The other machines, in turn, use mainly Kraft pulp of its own production. This year 168,210 tonnes were dispatched against 173,090 tonnes in The paper production had a 3.9% decrease, going from 175,629 tonnes to 168,766 tonnes, mainly due to schedule maintenance for the Overcoming Challenges Project performed in the first half of 2008 for technological update. The production and distribution of paper produced at its own plants had the following composition in 2008: 6

7 Production of Paper in 2007 and 2008 (in ton) 175, , Dispatch/Sales of Paper - Year 2008 (in ton) Transfer to Packaging 53% Domestic Market 34% Foreign Market 13% 88,624 ton 22,414 ton 57,232 ton In business activity, efforts were made in maintaining the added value of products, aiming at better profitability. During the last quarter of 2008 there was a retraction in domestic market which pressured margins. In the foreign market, the prices in foreign currency where also negatively impacted, but compensated by dollar and euro appreciation against Brazilian real. In the forested area, reforestation investments continue which could ensure future supply of wood for processing and biomass, from the paper and wood pulp mill. In year 2008 there was a 4% increment in the reforested area of the company on behalf of reforestation in partnerships established with land owners in the region. This year 1,254 ha of Pine Forests were planted for use as wood for processing, of these 673 ha in own land and 581 ha in third party properties in forestry and leasing partnership arrangements. This year 135 ha of Eucalyptus Forests were planted for use as wood for biomass, of these 89 ha in own land. In year 2008, 70,700 mts of pine logs were sold to the market against 35,539 mts in year

8 Packaging Division The Packaging Division had an increase in its participation in the domestic market of packaging from 3.53% of the market in 2007 to 4.07% of the market in 2008, according to the sales data from ABPO - Brazilian Association of Corrugated Cardboard. The production of packaging in its two plants grew 17.4% in 2008, as compared to the previous year, which results from the implementation of the new factory at Indaiatuba and the technological update of Vargem Bonita plant. Production and Sales of Packaging Division in 2007 and 2008 (in ton) 94,021 91,578 80,055 79, Production Sales Trading of sheets and corrugated cardboard boxes followed the parameters of the national market. At the end of 2008, average prices net of corrugated cardboard boxes were 2.6% R$/ton above volume exercised in December 2007 and the sheet prices showed an increase of 7.0% R$/ton as compared to the prices of This increase was achieved due to gains of quality provided by Overcoming Challenges Project. Furniture and Resins Division The Furniture and Resins Division sells virtually all of its production to foreign markets. In 2008, the furniture factory had an 11.3% increase in the production at its own facilities, as compared to In 2008, the plant produced in the factories of industrial partners 19,630 m³ of furniture, which, added to 6,028 m³ of the production itself, the total sales reached 26,073 m³, optimizing production costs, against 20,347 m³ in In the business activities, efforts are being focused on restructuring of sales teams, and in the quest for new foreign markets, looking for spraying sales. Consolidating its participation in the most important international fairs, not only in Brazil but also in other countries and by doing that the 8

9 Company where able to show its own designed furniture, allowing clients to realize the added value of its products and achieving a better profitability of sales. The resins plant produced 6,806 tonnes of resins and turpentine pitch in year 2008 and placed 6,898 tonnes on the foreign market. The evolution of production and sales of the Furniture and Resins Division are shown as follows: Production and Sales of Furniture Division in 2007 and 2008 (in m3) 25,658 26,073 20,192 20, Production Sales *considering own and outsourced production Production and Sales of Resin Division - rosin and turpentine - in 2007 e 2008 (in ton) 6,806 6,898 5,969 5, Production Sales SUSTAINABILITY Balancing economical, social and environmental aspects, so as not to jeopardize the development of future generations, with transparency and involvement of all the stakeholders in the company. This is the concept of Sustainability whereby the Company goalposts its activities and develops their projects. 9

10 Envisage contributing to building a more developed society, support the communities with which they relate directly, and establishing partnerships with solid entities that act on the development of infants and teenagers, in addition to seeking the sustainability of your business by investing heavily in technology and projects that benefit the environment. Celulose Irani, committed to sustainable development, yearly issues a voluntary form of the Sustainability Report. This is a document through which the company measures, informs and reports to stakeholders about the organizational performance. Transparency on the economical, environmental and social impacts becomes a key component in the relations with stakeholders and the market in general. The methodology adopted follows the guidelines of GRI - Global Reporting Initiative. The 2007 Report, which comprised the Sustainability and Financial Report was classified between the 10 better in Brazil, according to Brazilian Foundation for Sustainable Development (FBDS) and SustainAbility. The 2008 Report, as 2007 s Report, were submitted to external evaluation and BSD Consulting issued its Declaration of Warranty aiming to evaluate the equilibrium and materiality of the information. Acknowledgments in 2008 The Company enjoyed several social and environmental acknowledgments from the market and human resources, reflecting the actions and projects developed throughout the year. Among the main ones, we could highlight: Most Remember Supplier Realized Magazine Indústria da Alimentação Fritz Müller Award Honored by FATMA Green Profile Award Realized Editora L Green Profile Yearbook. Year s Personality in Social Environmental Management Award Honored by Anave Export Merit prize Granted by Revista da Madeira Brazilian Environmental Benchmarking Award Realized Mais Projetos Citizen Company Award ADVB/SC Categorias Preservação Ambiental Award Highlight of the year Industrial Wood Sector 10

11 500 Best and Biggest Exame Magazine 400 Biggest Agribusiness Companies Exame Yearbook The Best of Dinheiro Magazine Isto È Dinheiro 100 southern companies awarded by Responsabilidade Social Empresarial - Realização Anuário de Gestão Sustentável 2008 Top 10 Sustainability Report Ranking Realized FBDS (Brazilian Foundation for Sustainable Development and SustainAbility Anuary Value 1000 (Biggest Companies) Magazine Valor Econômico Green Profile prize Pack highlight Preference subcategory Corrugated Cardboard Packaging - Magazine Pack Environmental Performance Management The environmental management at IRANI is based on the attending of environmental laws, reduction of environmental risks, the continuous seek for reduction of environmental impacts minimizing water and atmospheric emissions, generation and destination of solid waste and practicing the sustainable use of the ground and natural resources. The Company develops several projects that combine technology and the conscious use of natural resources contributing to sustainable development. The Company also develops innovation projects, like the Clean Development Mechanism projects that were approved by the United Nations Organization (UNO) and which allowed IRANI to have approved reduction of gases emissions causing the greenhouse effect. Besides that, the Company was considered a case of national environmental benchmarking for two consecutive years, in 2007 and 2008 and also received several national and regional awards. Indicators of Environmental Performance The reductions of greenhouse effect emissions came true through the development of Clean Development Mechanism (CDM) projects of small scale. The Company installed, in 2006, the Cogeneration energy plant and updated the Waste Water Treatment and in 2008 both projects allowed generation of carbon credits. These projects are reducing about 200 thousand tonnes of carbon dioxide emission per year. The Company accounted in 2008 revenues with the sales of carbon credits the approximated amount of R$ 5.1 million. CDM Co-generation Energy Plant This project is registered at the United Nations Organization (UNO) as Irani Biomass Electricity Generation Project and was approved on July 07 th, This project is available for consultation at: < under number

12 Inputs used to generate energy come from forestry base waste and substitute non renewable natural resources. Therefore, it is possible to reduce gas emissions like carbon dioxide and methane generated in a higher volume when burning fossil fuels. With the implementation of the Co-Generation Electricity Plant there was a certificate reduction in gas emissions. The certificate reductions (CER) from 2005 to 2008, totaled 567,214 tonnes of CO2e. Considering the average carbon dioxide reduction in the last two years it is expect an amount of 3,321,885 tonnes of CO2e reduction for the next 21 years. Certified emissions reductions 600, , , , , , , , , , , Total CO2e tons CDM Improvement of waste water treatment This project is registered at United Nations Organization (UNO) as Irani Wastewater Methane Avoidance Project and was approved on January 19 th, This project is available for consultation at: < under number The improvement was performed aiming at replacing anaerobic digestion (without oxygenation) by aerobic digestion (with oxygenation) of organic waste, avoiding methane emission, a greenhouse effect gas responsible for global warming. The new treatment system is referred as secondary or biologic treatment through the use of highly aerated activated sludge, one of the most efficient biologic methods that avoid the sludge keeping at the bottom of the lagoons generating methane. This CDM project was the first waste treatment project in the world totally aerobic approved by UNO. With the improvement of the Waste Water Treatment there was a certificate reduction in gas emissions. The certificate reductions (CER) from 2007 to 2008, totaled 71,090 tonnes of CO2e. Considering the average carbon dioxide reduction in 2008 it is expect an amount of 848,043 tonnes of CO2e reduction for the next 21 years. Before registered in the UNO, this project also 12

13 generated tons of VERs - Verified Emission Reduction carbon credits in the voluntary market. Certified emissions reductions 80,000 74,117 60,000 40,000 20,000 30,707 43, Total CO2e tons In April 2008, IRANI received the certification from FSC (Forest Stewardship Council): FSC Certification for forest stewardship of own forests of Santa Catarina. FSC Certification for the chain of custody of Paper, Packaging SC plants at Vargem Bonita (SC) and Furniture plant at Rio Negrinho (SC). This certification guarantees that the wood produced and used by the Company come from forests properly exploited according to ecological, social and environmental aspects. It works like an origin certificate and attests that the Company acquires forestry products which respect socioenvironmental aspects, besides allowing the continuing of business in the long term. The principles and criteria of FSC are rules and valid in the entire world and take into consideration the responsible forestry handling, biodiversity conservation, employees rights and the population who lives in the local community. Certification of forest stewardship: valid only for forests, this certification recognizes that such producer or company perform the forestry activity in the correct way, respecting the rules of FSC, the local communities and employees, without harming the environment. Certification of the chain of custody: the company can use FSC seal in their final products, ensuring the customer that the product was manufactured using raw materials from certified forest, which means that the entire manufacturing process follows a high standard, from forest to end customer. 13

14 In clean technologies and projects that benefit the environment, the Company invested the amount of $ 3.3 million in SOCIAL PERFORMANCE INDICATORS Human Resources Year 2008 ended with an effective staff of 1,839 collaborators. Committed with the improvement of internal organizational climate, the Company invests in training of employees, benefits, health, safety and life quality, besides prioritizing direct communication between leaders and teams, always envisaging Participatory Management and valuation of diversity among its collaborators. In 2008, R$ 7,824 thousand was invested in benefits for food, transportation, insurance, life and health plan, R$ 1,116 thousand in training and development and R$ 1,333 thousand in the profitsharing program - PPR. Society The Company is concerned about the welfare of the residents of communities where it operates, and contributes to the reduction of social inequalities. As part of its shares to the benefit of society, the company encourages and sponsors educational, cultural and sports projects, always seeking the continuity of actions and self-development of the target public. Among the projects developed are the following: Young Overcomes, Junior Achievement, Investment and Revitalization of the Community around the Factory Facilities Campina da Alegria in Vargem Bonita/ SC, Open Talk Journal - Company's Communications Channel with the Community (Campina da Alegria), the Toy Toll Campaign, Cloth Campaign, Christmas Campaign IRANI Employability Program, Young Apprentice Program, in partnership with APAE of Joaçaba, Junior Environmental Protectors, Association of the Handicapped of Concordia, Laramara, Social Toast, donations and sponsorships. In 2008, the amount of R$ 544 thousand was allocated for these projects and other social donations and sponsorships. 14

15 INVESTMENTS The Company continues its strategy of investing in the modernization and automation of its production processes. Investments in 2008 totaled R$127.1 million (R$128.4 million consolidated), thus distributed: Buildings and Constructions R$ 26,746 thousand Equipment and Facilities R$ 68,969 thousand Commercial leasing R$ 26,385 thousand Foresting and Re-foresting R$ 6,321 thousand Total R$ 128,421 thousand This year, the main investments were made towards Overcoming Challenges Project at Paper Unit in Vargem Bonita SC and Packaging Units in Indaiatuba SP and Vargem Bonita SC. Overcoming Challenges Project, which had an initial estimate of R$ million including working capital need, was finalized this year and the total amount invested were R$ million, without working capital need. From this amount, the approximate R$ 3.4 million weren t yet performed. In this amount, there were not added the commercial lease which amount to R$ 15.6 million, contracted in the period and that refers to investments made in the Project. Since 2008 these values have to be recorded in the fixed assets of the Company due to changes in Brazilian accounting laws. Disbursements of investments for Project are as follows: R$ million Investment Place Disbursement Disbursement To be Total disbursement Paper Unit, SC R$ 31.6 R$ 58.4 R$ 3.4 R$ 93.4 Packaging Unit, SP R$ 27.3 R$ R$ 51.5 Packaging Unit, SC R$ 0.1 R$ R$ 15.9 Total R$ 59.0 R$ 98.4 R$ 3.4 R$ STOCK MARKET IRANI's corporate capital is represented by 8,104,500 shares, being 7,463,987 common shares and 640,513 preferred shares. 15

16 Dividends and Interest over Own Capital Due to the Company s result (loss) in 2008 there wasn t distribution of dividends and interest over own capital to shareholders. AUDITING SERVICES In 2008, there were services of consultancy for diagnosis of implantation of IFRS - International Financial Reporting Standards, performed by our Independent Auditors. OUTLOOKS Year 2009 should see a retraction in Brazilian and world economy. Expectations are for GDP growth of about 2% or less, a lower level compared to previous years, but it indicates that Brazil will be one of the fewer countries with growth. Even if in a scene of global crisis, Company expects increases in paper and packaging operations with the consolidation of investments under Overcoming Challenges Project, which allowed Company to be more competitive. ACKNOWLEDGMENT We would like to thank each one of our collaborators for the effort shown on this period, to our shareholders, for the trust and to our clients, suppliers and financial institutions, for their support, indispensable to the growth and development of Celulose Irani S.A during the year of Porto Alegre, March, MANAGEMENT 16