Executive Summary

The year 2008 was a very challenging one for Aracruz, marked by the strong volatility in the global financial system and the worldwide downturn in demand for commodities. Until the middle of the year, market conditions remained tight, with global chemical market pulp shipments increasing by 5%, compared to the first half of 2007. In the same period, Eucalyptus pulp shipments increased in almost all regions, up 20% on the same period of 2007, with the main focus on Chinese demand (up 55% on 2007). As a result, the company announced two price increases for the North American and European markets and three price increases for the Asian market. The Eucalyptus pulp price in the European market reached $840/t in April, the highest level since 2001.

The increasing defaults in sub-prime mortgages led to the deterioration of several U.S. credit institutions. The global financial system changed, mainly due to a lack of confidence, leading to very limited access to credit lines and severely affecting the market's liquidity. The increased perception of risk in the financial markets was intensified as from the 3Q08, especially after Lehman Brothers filed for bankruptcy, with signs of reduced global growth, reflected in declining demand for commodities, including market pulp. Indicators for the third quarter of 2008 revealed a slowing of economic activity, with negative GDP figures for the U.S. (-0.1%), the European Union (-0.2%) and Japan (-0.1%), in comparison with those of the second quarter. As a result of the reduced market pulp demand, eucalyptus pulp prices to the European market slipped from $840/t to $600/t - See the "Global Pulp Market Update" section on page 4.

As from September, amid the effects of international systemic crisis, the Brazilian currency saw a sharp devaluation against the dollar, strongly affecting the financial results through derivatives. In early November 2008, the company announced that it had eliminated 97% of its exposure to derivatives, resulting in a financial loss of $ 2.13 billion ("fair value").

The group of banking creditors showed their express agreement to the minimal terms put forward by Aracruz for the restructuring of the derivatives debt. Accordingly, the $2.13 billion (“fair value”) derivative losses and approximately US$ 500 million, representing the company's pre-existing debt towards certain of the banks, were included in the negotiations and transformed into a long-term debt with nine-year repayment term.

Based on Aracruz's distinct operational fundamentals and the opportunities of synergies, on January 20^th, Votorantim Group, through Votorantim Celulose e Papel (VCP), reported it has concluded negotiations with members of the Lorentzen, Moreira Salles and Almeida Braga families (Arapar Group) to acquire approximately 28% of the voting stock of Aracruz Celulose for R$ 2.71 billion. Safra family exercised its tag along rights, on March 5^th, selling their voting stake at Aracruz of 28%. Upon such closing VCP will own, directly or indirectly, 84% of Aracruz’s voting capital.

Regarding the Company’s operational performance, total pulp production of 3.1 million MT was in line with 2007 levels. Despite having an increased nominal capacity in 2008, following completion of the Barra do Riacho unit’s optimization project, pulp production was affected by some production losses in the 1Q08 and 2Q08, as well as the market-related downtimes taken in the second half of 2008. The production target for 2009 is 3.2 million MT, 3% below the current nominal capacity of 3.3 million MT, due to the lower demand expectations for this year. Veracel ran at 22% above its original nominal capacity, producing 1.1million MT in 2008 (Aracruz is entitled to 50% of Veracel’s production), at the world's historically lowest cash production cost (4Q08: $171/t; 2008: $200/t).

Pulp sales in 2008 amounted to 2.9 million MT, 6% lower than in the previous year. The pulp sales volume in the fourth quarter, of 735,000 tons, was 13% lower than that of the same period of 2007 and 8% higher than that of the 3Q08. The commitments in relation to the company’s long-term customer base, along with the higher proportion of dealings with the tissue segment, which represents 60% of Aracruz's total pulp sales, helped to better overcome the lower demand observed in all markets, since the tissue business is less sensitive to economic cycles than other pulp consumers.

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The average annual net pulp price in 2008 was 7% higher than that of the previous year. Pulp prices started to decline in September, following a consistently upward trend since 2002. In the 4Q08, the average net pulp price decreased by 22%, or $152/ton, in relation to the 3Q08.

The appreciation of the average exchange rate and the increased cost of raw materials led to a higher cash production cost in 2008, which was the main reason for the 19% increase in the cost of sales per ton in relation to 2007. The cash production cost in R$ was 6% higher than in the previous year, excluding the exchange rate effect, which was in line with Brazilian inflation, despite the well above average increase in the cost of certain raw materials.

Looking ahead, the cash production cost will tend to benefit from the depreciation of the real, since about 75% of Aracruz's cash production cost is linked to the local currency. The cash production cost for the 4Q08, at $227/ton, was 21% lower ($60/t) than that of the previous quarter, mainly due to the Brazilian currency’s devaluation against the US$ and the cost reduction program, which included the downtime taken at Fiberlines "A" and "C".

The company has managed to revise some of its freight contracts, due to the lower demand for commodities worldwide. The decrease in oil prices and the renegotiating of some of the company's freight contracts has reduced the freight cost per ton by 10%, on a quarterly basis.

The adjusted EBITDA in 2008 was $763 million (a 40% margin), $124 million below the figure for 2007, mainly due to the negative impact of the increased cost of raw materials on the cost of goods sold, on a per ton basis, the higher freight costs, and the lower sales volume, which is largely explained by the demand slowdown, partially offset by the higher net pulp price. In the 4Q08, the adjusted EBITDA totaled $133 million, equivalent to a 33% margin (3Q08: 39%), mainly due to the lower average net pulp prices (-22%) and the impact of the cash production cost of the 3Q08 in the cost of goods sold (COGS) of the 4Q08 (inventories turnover effect).

The company's cash position as at December 31, 2008 was $432 million, of which 85% was in local currency instruments. The total debt, including the 50% share in Veracel, was $4.147 million, with an average debt maturity profile on that same date of 55 months.

Due to the factors described above, the net income for the year showed a loss of $1,239 million, or $12.0/ADR.

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Global pulp market update

The global economy is facing its worst crisis in 60 years. The loss of confidence that has spread through the market and frozen credit availability has left global economic activity stalled, thus hurting investors, companies and consumers. With reduced demand across the board, the pulp & paper industry has suffered along with all other commodity sectors.

Paper consumption and production in the developed nations saw a bigger drop during the 4Q08 than in any other peace-time quarter in history. The declines are particularly drastic in newsprint and printing & writing papers.

World printing & writing demand fell by 12% in December, when compared to the same period of 2007. US shipments of printing & writing papers were down by more than 20%, while in Europe the decline was over 3%. In packaging, the demand during the early part of 2008 was still firm, but the 2nd half has been increasingly difficult. December containerboard production was down by nearly 20% from the previous year in the US, while in China it is the worst downturn in the past decade, with nearly 70,000 small and medium-sized companies going out of business, according to government data. With demand falling at this pace and inventories accumulating, maintenance downtime and more permanent closures will be necessary on the paper side.

In tissue papers, the volume losses were less critical. This segment has shown itself to be historically less elastic in regard to economic volatility, largely due to consistent growth in the consumption of toilet paper. That is not to say that the demand will not feel any impact from the crisis. It is expected that the figures will show growth between 3.2 and 3.4% in 2008, in relation to the previous year, which is lower than the recent historical average of 4% a year. In 2009, despite the falling demand for commodities and competition over lower quality products, the growth in this segment should be just slightly under 3%, according to estimates by RISI.

With major volume losses in paper and paperboard production, reaching nearly 9 million tons in Europe and North America, it is no surprise that market pulp shipments plummeted in the 4Q08. These shipments were already weak through the 3rd quarter, but during the 4Q08 the situation worsened further. The respective 9.5% and 12% declines in shipments in October and November, in comparison with the same period of last year, reported earlier by the PPPC, were followed by a smaller 4.7% loss in December. On a year-to-date basis, the cumulative market pulp shipments registered only a fairly modest 0.9% loss, thanks to the good volume growth through most of the first half of the year.

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Even more significantly, pulp shipments have been negatively affected by the inability of some sellers to obtain credit insurance for certain accounts, thereby causing them sales losses. Financing is very restricted, and several companies are unable to access the credit markets.

Pulp producers have tried to curtail production, in order to better match demand, but even the market related downtime introduced by World-20 producers and others did not prevent stocks from expanding in 2008. World producers’ inventories closed December at the level of 46 days of supply, compared to 29 days in the same period of 2007.

As the world economy continues to slow down, pulp suppliers will have to take even more downtime than that already announced. Market analysis suggests that this downtime will have to occur through market related idle capacity or permanent closures, in order to restore equilibrium to the market. With diminishing shipment volumes and rising producer inventories, the price structure has continued to be affected, falling by more than US$ 300/t in some regions during the 4Q08.

Even if China continues to grow, the decline in its growth rate will be greater than that of most other countries, meaning that the paper industry will suffer, since China has generated most of the world’s paper consumption growth in recent years.

The pulp & paper industry performance reflects the economy in general. The most common perception is that the US, with the most sizeable stimulus package, will get out of the recession by mid/late 2009, thus contributing to stabilization and growth in other regions. This scenario, coupled with further cuts in existing capacity and the postponement/cancellation of new capacity, should halt the deterioration of the supply/demand balance and could even trigger a better outlook still in 2009.

Production and Sales

Aracruz pulp production, without the 50% of Veracel, totaled 570,000 tons in the fourth quarter of 2008, compared to 670,000 tons in the 3Q08 and 651,000 tons in the 4Q07. This reduction was mainly due to the maintenance downtime taken at Fiberlines "A" and "C" at the Barra do Riacho unit.

During the fourth quarter, Veracel Celulose S.A. (50% owned by Aracruz) produced 288,000 tons of pulp, of which 170,000 tons were sold to Aracruz. In 2008, Veracel’s pulp production totaled 1,099,000 tons, respectively 5% and 22% above the 2007 production level and the plant's original nominal capacity.

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At the  Guaíba  unit,  paper  production  in  the  quarter  totaled  16,000  tons,  consuming approximately  13,000  tons of the  pulp produced. Paper inventories were at 1,000 tons at the end of December 2008, while paper sales in the fourth quarter of 2008 totaled 16,000 tons.

Aracruz pulp sales totaled 735,000 tons in the fourth quarter, with 581,000 tons of the pulp being produced internally, at the Barra  do  Riacho and  Guaíba units,  and 154,000 tons being supplied by Veracel and resold in the market by Aracruz.

At the end of December, inventories at Aracruz stood at 525,000 tons, representing 61 days of production, compared to 533,000 tons at the end of September 2008. The inventory level at Veracel, at the end of December 2008, represented one additional day of production for Aracruz. The total of 62 days of supply was in line with the inventory level at the end of the 3Q08.

Aracruz brought its general maintenance downtime forward to early March, due to market conditions. The total volume to be removed from the market over the first quarter of the year will have been around 100,000 tons, most of it for market reasons.

Income Statement 4Q08

Total net operating revenue reached $407.8 million, $130.9 million lower than in the 4Q07 and $73.1 million lower than in the 3Q08.

Net paper operating revenue in the quarter totaled $14.6 million, $2.2 million lower than in the same period of 2007 and $0.1 million higher than in the 3Q08.

Net pulp operating revenue during the quarter amounted to $386.9 million, $130.8 million lower than in the same period of last year, mainly due to 14% lower net pulp prices and 13% lower sales volume. When compared to the 3Q08, the $73.4 million decrease was the result of 22% lower net pulp prices, partially offset by the 8% higher sales volume.

The total cost of sales in the fourth quarter of 2008 was $348.6 million, compared to $346.7 million in the same period of the previous year, mainly due to more pulp purchased from Veracel (see table below) and the higher cost of raw materials, partially offset by a 13% lower pulp sales volume. When compared to the total of $322.2 million in the third quarter of 2008, the increase was mainly due to the higher volumes of pulp purchases from Veracel and higher sales volume (8%), partially offset by the lower cash cost of pulp produced and a 100% lower freight expenses per ton.

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"Pulp purchased" refers to pulp produced by Veracel, transferred to Aracruz and subsequently resold by Aracruz to the final customer. The higher cost with pulp purchases from Veracel in the 4Q08, compared to the previous quarters, was compensated by the higher contribution of Veracel’s EBITDA

The consolidated cash production cost of the 4Q08 was $227/t, 8% lower ($19/t) compared to the same period of 2007. When compared to the 3Q08, the cash production cost of $287/t was 21% ($60/t) lower. In both periods, the devaluation of the average exchange rate of the real against the dollar was the main reason for the decrease. A detailed analysis of the consolidated cash production cost is provided below:

Sales and distribution expenses came to $21.2 million, $0.4 million and $0.2 higher than in the 4Q07 and 3Q08 respectively, mainly due to the geographical sales mix.

Administrative expenses came to $12.5 million, compared to $18.5 million and $20.3 million in the 4Q07 and 3Q08, respectively. When compared to the 4Q07, there was the positive impact of the 27% devaluation of the real, lower bonus provision and reduced spending on advertising, which were partially offset by the higher third-party expenses. Compared to the 3Q08, there were the positive impacts of the 36% devaluation of the real and lower bonus provision, offset against higher third-party expenses.

The other net operating expenses (income) result showed an expense of $11.2 million in the 4Q08, compared to a net expense of $52.6 million in the 3Q08 and a net income of $25.7 million in the 4Q07. In the 4Q07 there was a partial reversal (US$ 40.1 million) of the provision for losses on ICMS tax credits that were expected to be recovered in the short-term. In the 3Q08, the reversal was restored, which is the main reason for the differences between the quarters.

The net financial result in the quarter showed an expense of $1,102.3 million, compared to a net expense of $46.0 million in the same period of last year and a net expense of $1,111.0 million in the third quarter of 2008. The "Financial expenses" in the 4Q08 registered a net expense of $45.4 million, compared to a net expense of $27.3 million in the 3Q08, mainly due to higher interest expenses related to the higher level of gross debt. The net expense of $61.8 million in the 4Q07 was due to the rebuilt of part of a provision for Pis/Cofins contingencies and interest thereon, amounting to US$ 38 million, that had been reversed in the 3Q07.

The "Financial income" in the quarter registered a net expense of $1,125.8 million, mainly due to the loss on derivative transactions, which amounted to $1,140.1 million in the 4Q08 (3Q08: loss of $1,116.5 million / 4Q07: gain of $3.5 million). - See details under “Derivative transactions”

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The equity result showed a gain of $44.6 million, mainly from Veracel (see the Veracel Information section for more details).

Income tax and social contribution accruals in the fourth quarter amounted to a credit of $158.2 million, which was $305.8 million lower than the credit in the 3Q08, mainly due to the impact of the 36% devaluation of the real against the dollar (average exchange rate), since most of the income tax and all the social contribution are denominated in local currency. When compared to the expense of $31.1 million in the 4Q07, the difference was mainly due to the impact of the derivative losses in the 4Q08.

A statement of the deferred income tax, broken down to show the Brazilian GAAP currency variation impact, and current taxes, is provided below.

At the end of the fourth quarter, the net balance of deferred taxes payable, deriving from the BR GAAP exchange rate impact, amounted to a credit of $59 million (3Q08: $106 million - payable). These should become deductible in accordance with foreign debt repayments, if not reversed by future BR GAAP foreign exchange variations.

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The net income for the period showed a loss of $881.0 million, compared to a loss of $545.9 million in the 3Q08 and a net income of $94.7 million in the 4Q07.

Net Income chart (4Q08 vs. 3Q08):

Derivative Transactions

As announced in a material fact released on November 3 2008, the company reached an agreement with several banks that were counterparties in derivative transactions, to unwind 97% of the company’s derivative exposure. As a result, Aracruz has recorded a related total loss of approximately US$2.13 billion ("fair value").

Immediately afterwards, the company, with the banks, began negotiating the terms and conditions for the restructuring of the amounts due as a result of those derivative transactions, and reached an agreement on Jan. 19^th. The main terms and conditions are the following:

In addition to the figures relating to the derivatives, the sum of approximately $500 million will be added to the total amount of this transaction, in relation to existing pre-payments of export debt.

The documentation for the abovementioned agreement is now being worked out, for the signing of the final version of the Loan Agreement. Also, the company is finalizing negotiations with other creditors to review existing financial covenants. The final documents should be signed in the coming weeks.

The only derivative transaction that we have not terminated is a swap with strike verifications, with total notional value of US$ 300 million, or a monthly of US$ 50 million per month from April to

ARACRUZ RESULTS - FOURTH QUARTER 2008 10

September 2009. This transaction involves monthly strike price verifications between April and September 2009, with a cap of R$2.50/US$, and no leverage.

The positions of other swap contracts were maintained by the company, in order to exchange its exposure from the cost of its debt in local currency (TJLP and CDI) to US$, since 98% of the company’s revenues come from exports denominated in US$.

The amounts shown in the table below reflect the position of the company’s outstanding derivatives at the end of the fourth quarter of 2008 (notional and "fair value").

The Company's Strategy:

Since the global financial crisis took a turn for the worse, leading to a slowing down of the world’s leading economies, Aracruz has taken a series of measures with emphasis in its operational efficiency and preserving its liquidity in this adverse market scenario.

The company’s strategic focus in the coming years will be striving for operational excellence, to grant a better cash generation. The steps taken to date to reduce expenses are already starting to produce positive results, in terms of the company’s operational performance, as shown in the analysis of the cash cost of production (see page 7). At the same time, the company will have to administer a higher level of indebtedness in an environment of restricted credit.

The company’s growth plan has been revised, leading to the postponement of expansion projects, and therefore reducing the level of forecast capital investment over the next few years. Among the principal measures adopted by the company, we highlight:

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Corporate Governance                  

With the aim of strengthening its corporate governance, on November 17, 2008, the company announced the creation of a new Control and Risk Management Area, independent of the existing Financial Area, which will monitor the overall activities of the company that involves financial and operational risks.

Furthermore, at the end of 2008, the company retained PricewaterhouseCoopers, that is working on the suggestion of best internal control practices and analyzing its corporate risk management and self-assessment models.

Based on the results of this work, the company is revising its internal controls, so as to continue following the best practices in its operations and to introduce improvements in its corporate risk management and internal control practices. This revision involves a number of different stages, under the following main themes:

As a result, there are changes in place in part of the company’s functional structure, that will lead to a strengthening mainly in the monitoring of financial and operational risk.

As for the review of its processes, a detailed plan is in the final stage of preparation, before being put into practice, with recommendations regarding: Controls (approval, reconciliation), Automation, Optimization and Changes in the flowcharts, control charts and description of activities, which should lead to new reports and workflow suggestions. The structuring of reporting has been determined according to the information needs of the senior management, the committees and the Board of Directors.

It should be pointed out that until now the company have already achieved some results, as the revision of workflows, definition of a risk management model and the new corporate governance model for the treasury area.

The company also engaged the services of a consultant specializing in risk management, to assist in the analysis of financial risk, calculation of Value at Risk, the marking to market of financial assets and liabilities and stress testing, among other methodologies that reflect best market practices. Aracruz expects to attain, in the short-term, a high standard of corporate risk management.

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Debt and Cash Structure

The company's total debt, including 50% of Veracel, amounted to $4,147.2 million at the end of December 2008, $1,877.6 million higher than at the end of September 2008 and $2,399.2 million higher than at the end of December 2007.

The average debt maturity profile, not including Veracel's figures, was at 57 months at the end of 2008.

Cash, cash equivalents and short-term investments, at the end of the quarter, totaled $431.6 million, of which $365.3 million (85%) were invested in Brazilian currency instruments and $66.3 million (15%) were invested in foreign currency.

Net debt (total debt less cash holdings) amounted to $3,481.4 million at the end of the quarter, $2,083.1 million and $2,565.6 million higher than in the 3Q08 and 4Q07, respectively, mainly due to the derivative losses.
    

EBITDA Analysis

The fourth quarter 2008 adjusted EBITDA, including 50% of Veracel, totaled $132.6 million (33% margin), compared to $250.4 million for the same period of last year, mainly as a consequence of the 14% lower average net pulp prices, lower pulp sales volume (-13%) and the increased cost of raw materials, partially offset by the lower administrative expenses.

When compared to the 3Q08, it was $56.5 million lower, mainly due to the lower average net pulp prices (-22%) and the impact of the cash production cost per ton of the 3Q08 in the cost of goods sold (COGS) of the 4Q08. The cash production cost for each quarter influences the COGS of the following quarter, due to the inventory turnover effect during the period. Since the average exchange rate of the 3Q08 was at R$1,6674/US$, it negatively influenced the pulp cash production cost for the 3Q08, then affecting the cash COGS of the 4Q08.

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Capital Expenditure - Forecast

Stock
Performance

From December 31, 2007 to December 31, 2008, Aracruz's ADR price decreased by 85%, from $74.35 to $11.28. Over the same period, the Dow Jones Industrial Average index declined by 32% and the S&P Paper and Forest index fell by 61%.

Results According to Brazilian GAAP

The local currency consolidated result, according to Brazilian GAAP - the accounting principles adopted in Brazil, was a loss of R$2,981.9 million for the quarter. Aracruz has publicly released the unconsolidated financial results in Brazil, which under Brazilian GAAP serve as the basis for the calculation of minimum dividends and income taxes. In the fourth quarter of 2008, Aracruz Celulose S.A. reported an unconsolidated loss of R$3,128.8 million (loss of R$1,743.0 million, excluding equity results).

Dividends/ Interest on Stockholders' Equity

Up to the end of the fourth quarter of 2008, a total amount of R$155 million had been declared as Interest on Stockholders’ Equity (ISE), in anticipation of the annual dividend for the fiscal year 2008, with R$70 million having been declared on March 18^th and R$85 million on June 20^th.

In the light of the net loss recorded in 2008 and the facts already reported, the management has not proposed the payment of any dividends in addition to the ISE declared and paid in 2008, which is subject to the approval of the General Shareholders Meeting until April 30, 2009.

Additional Information

New Officers

Aiming to improve its corporate governance, on November 17^th, 2008, the company announced the appointment, of Marcos Grodetzky and Evandro Coura, respectively, as the company’s Chief Financial and Investor Relations Officer and Director of Control and Risk Management.

These changes are part of the process of reorganizing the company’s financial area. Despite the difficulties imposed by the adverse international scenario, which is indistinctly affecting the country’s economy, the company retains its strong fundamentals and competitive advantages, as well as its leadership in the eucalyptus pulp market.

VCP increased its voting stake in Aracruz

Based on Aracruz's distinct operational fundamentals and the opportunities of synergies, on January 20th, Votorantim Group, through Votorantim Celulose e Papel (VCP), reported it has concluded negotiations with members of the Lorentzen, Moreira Salles and Almeida Braga families (Arapar Group) to acquire approximately 28% of the voting stock of Aracruz Celulose for R$ 2.71 billion.

Safra family exercised its tag along rights, selling their voting stake at Aracruz of 28%. Upon such closing VCP will own, directly or indirectly, 84% of Aracruz’s voting capital, opening up the way for the creation of a Brazilian global leader of the pulp and paper sector.

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Decision to put off the planned expansion of Veracel

Aracruz announced on March 18^th, together with its partner Stora Enso, that the Company has decided to put off the planned expansion of Veracel (Veracel II project) for at least a year. Consequently, the corresponding investments scheduled for 2009, amounting to R$ 75 million (Aracruz’s stake) and involving land purchases, forest development and a feasibility study, will now be cancelled. The partners believe that this is a prudent step, in view of the present market scenario.

Note: In the main body of the text (p.1 - 17), amounts are in US$ unless otherwise specified.

ARACRUZ CELULOSE S.A. – CONSOLIDATED BALANCE SHEETS (in thousands of US dollars)

Veracel Information

Veracel pulp production totaled 288,000 tons in the fourth quarter of 2008. At the end of December, inventory stood at 39,000 tons of pulp.

Veracel pulp sales totaled 330,000 tons in the fourth quarter, of which 170,000 tons went to Aracruz, and 160,000 tons went to the other controlling shareholder.