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Financial Information 2004

Analysis of Results

The average list pulp price was $531/ton, compared to $510/ton in 2003.

Net operating revenues were $1,167.1 million, $164.0 million higher than last year, mainly as a result of higher pulp sales volume ($136.4 million), higher pulp prices ($10.6 million) and higher paper sales ($17.6 million).

The total cost of pulp, paper and sawn wood sales totalled $700.3 million, compared to $592.6 million in 2003.

The cost of pulp sales in 2004 was $666.3 million, compared to $569.2 million in the previous year. The production cost per ton in 2004 was $228, compared to $226 in the previous year. The cash production cost in 2004 was $151 per ton, against $144/ton in the previous year (see table below).

The cost of pulp sales in 2004 was $666.3 million, compared to $569.2 million in the previous year. The production cost per ton in 2004 was $228, compared to $226 in the previous year. The cash production cost in 2004 was $151 per ton, against $144/ton in the previous year (see table below).

Sales and distribution expenses were $53.8 million, $15.2 million higher than in the previous year, mainly due to a 14% higher sales volume, changes in the geographical sales mix, and higher terminal expenses.

Administrative expenses were $31.1 million, $8.3 million higher than in 2003, mainly due to greater services expenses, such as consulting services and legal fees, and the local currency’s appreciation against the dollar.

Other operating expenses came to $25.2 million, $16.8 million lower than in the previous year, mainly due to a lower provision for fines relating to tax contingencies, of $9.0 million; a lower allowance for doubtful accounts, of $1.8 million; smaller losses on the sale of obsolete spare parts, of $1.5 million; lower fixed asset write-offs, of $1.5 million; and $6.4 million of tax credits for PIS/Cofins on depreciation, partially offset by the non-cash impact of a $ 5.1 million accounting loss from the sale of 2/3 ownership in Aracruz Produtos de Madeira S.A. (APM).

The Financial and Currency remeasurement results amounted to $47.7 million,$24.5 million higher than in the previous year,mainly due to increased financial expenses and a lower currency remeasurement gain, partially offset by increased financial income (see chart below).

The increase in interest on financing was mainly due to a 16% increase in the average balance of gross debt in 2004, compared to 2003. The increased financial income was mainly due to gains on hedging transactions against the local currency (R$), which also covered the 50% hedging needs of Veracel's balance sheet exposure (Aracruz's equity interest).

In 2004, the Brazilian currency (R$) appreciated 8.1% against the US dollar, compared to an appreciation of 18.2% in the previous year. The closing exchange rate on December 31, 2004 was R$2.6544 per US dollar.

Income tax and social contribution amounted to an expense of $70.3 million, against $129.1 million in the previous year.

Tax charges are calculated based on the Brazilian GAAP results, and consequently influenced by the exchange rate variation’s effect on monetary assets and liabilities denominated in US dollars. The positive impact of the exchange rate variation for 2004 on the Brazilian GAAP results was lower than in the previous year. The taxes were also reduced by the initial use of Interest on Shareholders' Equity payments, which are deductible for tax purposes.

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