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ANNUAL REPORT OO7

Iochpe-Maxion - Annual Report 2007

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Page 1: Iochpe-Maxion - Annual Report 2007

ANNUAL REPORTOO7

Page 2: Iochpe-Maxion - Annual Report 2007

O1

STRAIGHT TO THE POINT:EXECUTIVE SUMMARY

Iochpe-Maxion S.A. is the biggest Brazilian manufacturer of wheels and chassis for commercial vehicles and also of railway freight cars, boasting a large market share in these segments. It’s a public company since 1984, its control being shared between the Ioschpe Family and BNDESPAR. With its central offices headquartered in São Paulo, it acts in the market through two controlled companies

that operate six manufacturing plants. Together, they offer over 6.5 thousand direct work positions. The Iochpe-Maxion products are sold to more than 40 countries from all continents. The chart below displays the shareholding composition of the Company in March 2008, the conversion of its preferential shares into common shares already considered.

This material was prepared with

the aim of providing a general,

concise and objective overview of

the 2007 ANNUAL REPORT of

Iochpe-Maxion. Details concerning

the performance in the fiscal year

and comments can be found in the

complete version.

2007

1,2481,289

2006

Shareholder ON % Total %

Iochpe Family 14,046,813 29.61% 14,046,813 29.61%

BNDESPAR 11,593,401 24.44% 11,593,401 24.44%

Controllers Subtotal 25,640,214 54.06% 25,640,214 54.06%

Others 21,791,472 45.94% 21,791,472 45.94%

Total 47,431,686 100.00% 47,431,686 100.00%

90

730

427

115

896

279

The chart beside shows the consolidated net operating revenue of each unit in years 2006 and 2007.

IOCHPE-MAXION: PROFILE

AMSTED MAXION

WHEELS AND CHASSIS

AUTOMOTIVE COMPS

P. 1 ANNuAL REPORt 2007

Page 3: Iochpe-Maxion - Annual Report 2007

O1 STRAIGHT TO THE POINT:EXECUTIVE SUMMARY

Has two divisions:•��Wheels�and�Chassis�Division� Dedicated to the manufacturing and commercialization of steel wheels for trucks, buses and agricultural machines, complete chassis, longerons, railway ties for trucks, buses and light commercial vehicles; and structural stamped parts for passenger cars. Its industrial plants are located in the towns of Cruzeiro, in São Paulo, and in Resende, in Rio de Janeiro.

•� Automotive Components Division Works in the car parts segment for passenger cars, with a highlight to the production of welded structural stamped parts, braking levers, pedal sets, fasteners and keylocks, as well as cylinders and keys. Its productive unit is located in the city of Contagem, state of Minas Gerais.

MAXION SIStEMASAutOMOtIvOS LtdA.

A joint venture with Amsted Industries, it produces railway freight cars, railway and industrial castings, in addition to railway wheels. Its production units are in Cruzeiro, Osasco and Hortolândia, all in the state of São Paulo.

ECONOMICAL ANd FINANCIAL PERFORMANCE

In 2007, the consolidated net operating revenue reached R$1,289.3 million, with a 3.3% increase as compared to the previous year. The gross cash flow generation (EBITDA) reached R$164.5 million – with a 1.1% increase – while the net profit reached R$72.3 million (a R$1.3599 per share profit), a 25.1% growth against the R$57.8 million result achieved in 2006 (R$1.085 per share profit.) Our main indicators are the following:

Consolidated dRE – R$ thousands 2007 2006 Var.

Net Operating Revenue 1,289,282 1,247,574 3.3%

Cost of the Sold Products (1,053,576) (1,028,339) 2.5%

Gross Profit 235,706 219,235 7.5%

% 18.3% 17.6%

Net Operational Expenses (101,057) (82,839) 22.0%

Operational Profit 134,649 136,396 -1.3%

EBITDA 164,527 162,688 1.1%

12.8% 13.0%

Financial Result (9,606) (21,393) -55.1%

Profit Before Taxes 116,415 92,845 25.4%

Net Profit 72,391 57,844 25.1%

% 5.6% 4.6%

AMStEd MAXION FuNdIçãO E EquIPAMENtOS FERROvIáRIOS S.A.

P. 2 ANNuAL REPORt 2007

Page 4: Iochpe-Maxion - Annual Report 2007

O1 STRAIGHT TO THE POINT:EXECUTIVE SUMMARYStRAtEGY

Iochpe-Maxion’s strategic planning is based on a search for growth with financial discipline, constant refinement of the business portfolio and maintenance of the operational margins. In this strategy, the main guidelines are: •�Expansion�of�the�production�capacity,�so�as�to keep it adequate to the growth of the local demand;

•�Maintenance�of�an�adequate�level�of�exportations, especially of wheels for commercial vehicles and of railway and industrial castings, so as to reduce the impacts of possible volatilities that may occur in the domestic market;

•�New�products�and�markets,�as�for�instance,�

the production of wheels for commercial vehicles in China and structural stamped pieces for passenger cars;

•�New�businesses�featuring�synergies�with�the current activities.

OuR MARKEtS IN 2007

domestic market The automotive sector showed a strong

expansion in 2007, as shown by the growth of the volumes produced by Brazil’s vehicle assemblers.

The chart below details the Brazilian production in vehicle and agricultural machine units in the mentioned periods:

Segment 2007 2006 Var.

Cars 2,389,409 2,092,003 14.2%

Light Commercial Cars 407,912 379,221 7.6%

Trucks 136,760 106,001 29.0%

Buses 38,741 33,809 14.6%

Total Vehicles 2,972,822 2,611,034 13.9%

Agricultural Machines 64,954 46,065 41.0%

Source: Anfavea.

The railway segment showed a strong recession in 2007, slowly minimized by a recovery from the fourth semester onwards.

The chart below details the domestic demand in the railway segment in the indicated periods, according to Amsted Maxion’s estimates:

Segment 2007 2006 Var.

Railway Freight Cars (units.) 1,249 3,668 -65.9%

Railway Wheels (units.)* 48,010 50,830 -5.5%

Railway Castings (t)* 5,673 3,270 73.5%

* Replacement market only. Does not include Wheels and Railway Castings used in the assemblage of railway freight cars.

P. 3 ANNuAL REPORt 2007

Page 5: Iochpe-Maxion - Annual Report 2007

O1 STRAIGHT TO THE POINT:EXECUTIVE SUMMARY

ExportationsIn 2007, exports grossed US$ 120.2 million

– or R$232.8 million – figures representing an increase in USD of 1.4% and a 9.4% reduction in Reais (Brazilian currency) against 2006. The exports responded for 18.1% of the 2007 consolidated net operating revenue, as compared to 20.6% in 2006. The image below shows the main destinations of the Iochpe-Maxion exports in 2007:

EUA

LATIN AMERICA

EUROPE

AFRICA AND MIDDLE EAST

CANADA/MEXICO

dEStINAtION – 2007 (%)

49.7%

4.7%16.2%

9.4%

23.1%

COMPEtItItvE dIFFERENtIALSIochpe-Maxion boasts competitive advantages that contribute to the search and achievement of improved results. Amongst them, can be highlighted:•�Financial�discipline�in�the�investments;•�Brand�Recognition;•�Valuation�of�the�long-term�commercial�relationships;•�Market�leadership;•�Operation�in�market�segments�with�a�growth potential;•�Partnership�and�technology;•�Competitive�cost;•�Quality/Certifications;•�Qualified�and�experienced�management.

RISK MANAGEMENtIochpe-Maxion periodically monitors

the most relevant risk factors. The main hazards are:

Financial risks: Amount of net indebtedness as compared to gross cash flow generation (EBITDA), mean time for bank debt maturing, exchange rate exposure and Economic Conjuncture.

Operational risks: Global cost competitiveness of the main raw-materials, ratio between payroll and net sales, inventory volume and concentration on the client/customer�portfolio.

P. 4 ANNuAL REPORt 2007

Page 6: Iochpe-Maxion - Annual Report 2007

Iochpe-Maxion shares (Bovespa: MYPK4) concluded 2007 with an accrued valuation of 111.4%, quoted at R$37.40. The common shares, on their turn, (Bovespa: MYPK3) reached the end of the year priced at R$43,00,

O1 STRAIGHT TO THE POINT:EXECUTIVE SUMMARY

with an accrued valuation of 184.2%. Iochpe-Maxion reached by the end of 2007 a market cap of R$2,094.1 million, with the net equity value per share reaching as much as R$6.34.

MYPk3

MYPk4

PRICE – LASt 2 MONtHS*

jAN/07 DEC/07NOV/07OCT/07SEPT/07AUG/07jUL/07jUN/07MAY/07APR/07MAR/07FEB/07

17.00

20.8021.91 22.30

24.80

29.89 29.0030.85

36.40 35.5037.40

30.10

16.11

23.9922.70 24.00

26.49

30.00

33.01 32.9935.00

37.00 37.00

43.00

FEB/

07

jAN

/07

APR

/07

MA

R/0

7

MAY

/07

jUN

/07

jUL/

07

AU

G/0

7

SEPT

/07

OC

T/0

7

DEC

/07

NO

V/0

7

VOLUME

BUSINESS

dAILY MEAN vOLuME – R$ tHOuSANd

2,857 8,354 3,4662,747 2,948

7,0487,738

3,723 4,114 5,577 2,9522,598

86

182

84

99

69 7086 91 89

110

5655

PERFORMANCE OF SHARES

* Price at closure in the last day of the month.

P. 5 ANNuAL REPORt 2007

Page 7: Iochpe-Maxion - Annual Report 2007

O1 STRAIGHT TO THE POINT:EXECUTIVE SUMMARYGOvERNANCE ANd tRANSPARENCE

The governance parameters adopted by Iochpe-Maxion aim at the observance and strengthening of its commitment with transparence and equity in the treatment of shareholders, justification of accounts before shareholders, and corporate responsibility. To that end, 2007’s main event was Iochpe-Maxion’s migration into the New Market segment of São Paulo’s Stock Exchange (Bovespa), concluded with its effective listing on March 24, 2008, which involved the conversion of all the preferential shares into common shares and the adaptation of the Company’s�Bylaws/Articles�of�Incorporation.�In addition to this event, the following management aspects and tools should be pointed out:•��Participation�for�three�years�now�in�

Bovespa’s Enterprenerial Index (Índice de Sustentabilidade Empresarial – ISE);

•��Code�of�Ethics,�conduct�reference�for�the�relationship�with�clients/customers,�suppliers, collaborators and shareholders, amongst other audiences;

•��Board�of�Directors�(Conselho�de�Administração) with less than 20% of independent members;

•��Variable�Audit�and�Remuneration�Committees (Comitês de Auditoria e de�Remuneração�Variável)�for�providing�guidance to the Board of Directors;

•��Financial�Board�(Conselho�Fiscal)�implemented and elected by the General Meeting�(Assembléia�Geral�Ordinária);

•��Procedure�for�pronouncements,�allowing�the sending of confidential messages related to accounting and control aspects;

•��Website�creating�relationships�with�investors�(www.iochpe-maxion.com.br), providing information on corporate governance, strategy, social responsibility, markets and financial sections, in addition to the Annual and Social Reports, presentations, teleconferences and news.

Iochpe-Maxion believes that corporate citizenship principles are an important component for sustainability in the long-term. This understanding unfolds in a series of events, as exemplified by the initiatives and projects intent on stimulating development in the cities where its industrial units are installed. The relationship between Iochpe-Maxion and sustainability is also evidenced in the establishment of a constructive dialogue with employees and the community and the adoption of productive processes that align improvement of operational efficiency with respect to the environment. The Company contributes to the dissemination of social solutions through its support to the Iochpe Foundation, an entity in charge of initiatives that turn education into a means of improving the quality of life and the reduction of inequalities.

PERSPECtIvESFor 2008, the prospects hint at a

growth trend for Iochpe-Maxion’s two main areas of activity.

In the car parts and components for commercial vehicles (trucks, buses, light commercial vehicles and agricultural machines), another year of impressive growth is forecast, due to the expectations of expansion in Brazil’s Gross Domestic Product of about 5%, in addition to a domestic scenario of macro-economical stability. Also worthy of note are the excellent prospects of the agricultural sector, a highly influential one concerning commercial vehicle purchasing decisions, especially trucks and agricultural machinery, stressed by the signals of a good harvest and of higher prices for agricultural commodities.

SuStAINAbILItY

P. 6 ANNuAL REPORt 2007

Page 8: Iochpe-Maxion - Annual Report 2007

O1 STRAIGHT TO THE POINT:EXECUTIVE SUMMARY

In the railway equipment segment, expectations are very favorable, if for no other reason than the low levels of domestic demand for such equipment from the second half of 2006 onwards and into the third quarter of 2007. The national concessionaires in railway freight services are planning relevant investments for the years to come, on account of the strong growth in iron ore volumes, iron metallurgy products and grains to be transported, which should lead not only to a more favorable scenario, but also to a more stable one than in previous years. The external market, however, reveals two prospects: in the area of export from Brazil, the scenario may be one of difficulties in keeping within volumes and margins, due to the constant

strengthening of the Real. On the other hand, the start up of the new road wheels factory in Nantong, China, commencing in the second quarter of 2008 onwards, is to promote the recovery of competitiveness in the external market. The possibilities of recession caused by the real estate crisis in the North-American market should also be pointed out, since the latter accounted for 49.7% of Iochpe-Maxion’s consolidated exports in 2007.

Finally, 2008 will mark Iochpe-Maxion’s entrance into São Paulo’s Stock Exchange’s New Market, maximum level of Governance in Brazil’s capitals market.

P. 7 ANNuAL REPORt 2007

Page 9: Iochpe-Maxion - Annual Report 2007

O2

IOCHPE-MAXION:CORPORATE PROFILE

In Brazil, Iochpe-Maxion is the biggest

wheel and chassis manufacturer for

commercial vehicles, railway freight cars

and railway castings.

Iochpe-Maxion originated from the Iochpe Group, which started its activities in 1918, in Rio Grande do Sul, initially in the area of timber. The diversification of business that for many years characterized the strategy of the operation gave way to an activity focused on the sectors of vehicle parts and railway equipment. Brazil’s largest manufacturer of wheels and chassis for commercial vehicles and of railway freight cars and railway castings, Iochpe-Maxion – whose central administration is located in São Paulo – operates in the market via two controlled companies. It generates over 6,500 direct work positions in six industrial units distributed across the states of São Paulo, Minas Gerais and Rio de Janeiro.

In 2007, the consolidated net operating revenue reached R$1,289.3 million, – that is a 3.3% increase as compared to the previous year. The EBITDA reached R$164.5 million – with a 1.1% increase – while the net profit hit R$72.3 million (a R$1,3599 per share profit), a 25.1% growth against the R$57.8 million result achieved in 2006 (a R$1,085 per share profit.)

Iochpe-Maxion’s growth strategy is based on a constant refinement of its business portfolio, as well as on expansion, internationalization of its production capability and on the development of new markets and products creating synergies with current activities.

2007

1,248 1,289

2006

AMSTED MAXION

WHEELS AND CHASSIS

AUTOMOTIVE COMPS

90

730

427

115

896

279

P. 8 ANNuAL REPORt 2007

Page 10: Iochpe-Maxion - Annual Report 2007

In its six industrial units, it generates over 6,500 direct work positions.

It works through two divisions:•���Wheels�and�Chassis�Division� Is dedicated to the manufacture and commercialization of steel wheels for trucks, buses and agricultural machines, as well as complete chassis, railway castings and railway ties for trucks, buses and light commercial vehicles; including structural stamped parts

O2 IOCHPE-MAXION: CORPORATE PROFILE

for passenger cars. It concluded the 2007 fiscal year maintaining its lead in the national wheel and chassis market, with an approximate 61% and 67% market share, respectively. Its industrial plants are located in the cities of Cruzeiro, in the state of São Paulo, and in Resende, state of Rio de Janeiro. That division, which generates about 3,900 direct work positions, corresponded in 2007 for 69.5% of the consolidated net operating revenue.

•���Automotive�Components�Division���Acts in the segment of car parts for passenger cars, with an emphasis on the production of stamped units, brake levers, pedal sets, fastenings and keylocks, as well as cylinders and keys. Its productive unit is located in the city of Contagem, state of Minas Gerais, and has 700 employees. In 2007, it responded for 8.9% of the consolidated net operating revenue.

AMStEd MAXION FuNdIçãO E EquIPAMENtOS FERROvIáRIOS S.A.

This joint venture between Iochpe-Maxion and Amsted Industries – a North-American company that is the leading reference across the world for the development and application of technologies in the railway castings sector – produces railway freight cars, railway wheels, as well as railway and industrial castings. In 2007, it maintained the leading position in Brazil’s market of railway freight cars and railway castings, with a share of approximately 89% and 80% in these markets, respectively. Its productive units, in the cities of Cruzeiro, Osasco and Hortolândia, in the state of São Paulo, employ about 1,900 people. In 2007, Amsted Maxion was responsible for 21.6% of the consolidated net operating revenue.

MAXION SIStEMAS AutOMOtIvOS LtdA.

P. 9 ANNuAL REPORt 2007

Page 11: Iochpe-Maxion - Annual Report 2007

O2 IOCHPE-MAXION: CORPORATE PROFILE

The products manufactured by Iochpe-Maxion’s subsidiary companies are sold to over 40 countries inter-continentally. The United States and Latin America are the company’s main operations markets. The exports totaled US$120 million in 2007, the equivalent of 18% of the net operation income. This performance shows a growth of 1.4% in USD and a 9.4% reduction in the Real, as compared to 2006, when the foreign sales reached a total of US$118.8 million and represented 20.6% of the net operating revenue.

GLObAL REACH

A public company (capital aberto) since 1984, the control of Iochpe-Maxion is shared between the Ioschpe Family and BNDESPAR – both of which are represented on the Board of Directors. Between January and December 2007, the Company’s common shares (Bovespa: MYPK3) enjoyed a 184.2% high, while preferential shares (Bovespa: MYPK4) boasted an 111.4% increase. By the end of 2007, Iochpe-Maxion reached a R$2,094.1 million market cap. Please refer to the chart that follows for the Company’s shareholding composition for March 2008, which has already taken into account the conversion of all its preferential shares into common shares.

Shareholder ON % Total %

Ioschpe Family 14,046,813 29.61% 14,046,813 29.61%

BNDESPAR 11,593,401 24.44% 11,593,401 24.44%

Controllers’ Subtotal 25,640,214 54.06% 25,640,214 54.06%

Others 21,791,472 45.94% 21,791,472 45.94%

Total 47,431,686 100.00% 47,431,686 100.00%

Iochpe-Maxion S.A.

Components DivisionAutomotives

Wheels and Chassis Division

Amsted Maxion Fundição e Equipamentos�Ferroviários�S.A.

Maxion Sistemas Automotivos Ltda.

SIMPLIFIEd PARtNERSHIP StRuCtuRE

SHAREHOLdING COMPOSItION

50% 100%

P. 10 ANNuAL REPORt 2007

Page 12: Iochpe-Maxion - Annual Report 2007

2007 Result: consolidated net operating revenue of R$1.2893 billion, R$164.5 million EBITDA and a R$72.3 million net profit.

HIGHLIGHtS

O2 IOCHPE-MAXION:CORPORATE PROFILE

2004

2003

2006

2005

2007

NEt OPERAtIONAL INCOME –

R$ tHOuSANd

676

1,0991,248

1,4941,289

CAGR 03 - 07 = 18%

2004

2003

2006

2005

2007

EXPORtS – uS$ MILLIONS

3347

119

96

120CAGR 03 - 07 = 38%

NEt OPERAtIONAL INCOME PER CLIENtS/

CuStOMERS – (%)

DAIMLER

SCANIA

VOLVO

VOLkSWAGEN

GMB

FORD

FIAT

13.6%

5.7%2.0%

16.8%

5.8%3.9%4.5%

18.1%

13.1%

6.9%

3.0%

1.5%0.7%

4.4%

EXPORT

TRACTORS

CVRD

MRS

ALL

CATERPILLAR

OTHERS

USA

LATIN AMERICA

EUROPE

AFRICA AND MIDDLE EAST

CANADA AND MEXICO

EXPORtS PER dEStINAtION – (%)

49.7%

4.7%16.2%

9.4%

23.1%

P. 11 ANNuAL REPORt 2007

Page 13: Iochpe-Maxion - Annual Report 2007

O2 IOCHPE-MAXION:CORPORATE PROFILE

GROSS PROFIT

% NET OPERATING REVENUE

GROSS PROFIt – R$ MILLIONS

2004

2003

2006

2005

2007

137

228 219

289

236

20%21%

19% 18% 18%

EBIT

% ROL

OPERAtIONAL PROFIt– EbIt – R$ MILLIONS

2004

2003

2006

2005

2007

58

127136

178 1359%

12% 12% 11%10%

EBITDA

% ROL

EbItdA* – R$ MILLIONS

2004

2003

2006

2005

2007

89

156163

205 165

13%14%

14%13% 13%

(*)EBITDA means: net profit plus income tax and social charges, plus non-operational result, plus net financial expenses, plus depreciation and mortgaging, plus spread mortgage.

FINANCIAL EXPENSES

% ROL

NEt FINANCIAL EXPENSE –

R$ MILLIONS

2004

2003

2006

2005

2007

3833

21

37

10

6%

3%2% 2%

1%

NET PROFIT

% ROL

NEt PROFIt – R$ MILLIONS

2004

2003

2006

2005

2007

(5)

58

72 72

5% 5% 5% 6%

-1%

NET DEBT

EBITDA

NEt dEbt tO bANKS

– R$ MILLIONS

2003

2002

2005

2004

2006

106115

125

102

1321.5%1.3%

0.6% 0.6%

0.8%

2007

128

0.8%

P. 12 ANNuAL REPORt 2007

Page 14: Iochpe-Maxion - Annual Report 2007

MAIN INdICAtORS

O2 IOCHPE-MAXION:CORPORATE PROFILE

Main Indicators 2003 2004 2005 2006 2007

Net Income – R$ MILLIONS

Net Operational Income 676 1,099 1,494 1,248 1,289

Internal Market 575 955 1,263 991 1,056

External Market 101 144 231 257 233

Railway Equipment 164 323 593 427 279

Wheels 192 301 346 323 374

Chassis 205 325 463 407 521

Automotive Components 114 150 92 90 115

Result – R$ MILLIONS

Gross Profit 137 228 289 219 236

Operational Result – EBIT 58 127 178 136 135

EBITDA 89 156 205 163 165

Liquidity Result (5) 51 72 58 72

Margins

Gross Margin 20.2% 20.7% 19.3% 17.6% 18.3%

EBIT Margin 8.5% 11.5% 11.9% 10.9% 10.4%

EBIT Margin DA 13.2% 14.2% 13.7% 13.0% 12.8%

Net Margin -0.8% 4.6% 4.8% 4.6% 5.6%

Debt and Liquidity – R$ MILLIONS

Gross Bank Debt 131 176 177 221 280

Net Bank Debt 115 102 125 132 128

Cash and Financial Applications 16 74 52 88 152

Total Assets 431 631 675 700 867

Net Equity 152 186 230 265 337

Net�Debt/EBITDA�(x) 1.3 0.6 0.6 0.8 0.8

Investments 41 54 84 68 68

Shares

R$/share�–�adjusted�for�2005�grouping (0.10) 0.95 1.36 1.09 1.36

Market�Value�(R$�millions) 201 744 901 874 2,094

Volume�of�Negotiated�Shares�(R$�thousands/day) 47 416 443 3,456 4,557

Dividends (R$ millions) - 16 28 23 27

Dividends per preferencial share (R$ per preferencial share – adjusted for grouping) - 0.28 0.55 0.44 0.56

Consolidated Data

Consolidated number of employees 4,267 6,069 6,310 5,870 6,503

Income�per�employee�(R$�thousands/employee) 158 181 237 213 198

Exports (US$ million) 33 47 96 119 120

Taxes, Excises and Contributions (R$ millions) 71 150 101 121 101

Salaries, Benefits and Charges (R$ millions) 105 165 193 213 225

Volumes�of�Sold�Products

Road vehicle wheels (thousand units) 1,173 1,468 1,486 1,532 1,753

Railway Wheels (thousand units) 27 25 19 48 53

Railway Cars (units) 2,028 4,225 6,455 3,007 1,163

Castings (thousand tons) 13 24 49 67 48

P. 13 ANNuAL REPORt 2007

Page 15: Iochpe-Maxion - Annual Report 2007

OPENING MESSAGE

The 2007 net profit was R$72.4

million; favorably impacted by the

growth in Brazilian production of

vehicles and agricultural machines;

and, negatively impacted, by the

reduction of the domestic demand

for railway freight cars.

Iochpe-Maxion concluded 2007 with a net profit of R$72.4 million, a 25% increase as compared to the previous year, in a year favorably marked by the intensive growth of the Brazilian production of vehicles and agricultural machines, but also by the strengthening of the Brazilian currency, which affected the profitability of the exports, and by the substantial drop of the domestic demand for railway freight cars. This showed a substantial improvement already by the end of the year.

A proper response was sought for that context, through the management, on one side, of the growth of the businesses linked to the automotive sector, and, on the other, the fall in the demand in the railway sector and the loss of competitiveness in the exports, while an endeavor was made, at the same time, to find growth opportunities, with a highlight to the installation of a new road wheels factory in China.

In the railway business, for the first nine months of the year, Amsted-Maxion focused on the management of the substantial reduction in domestic demand for railway

freight cars by adapting costs and minimizing losses. This was aggravated by the loss of competitiveness of exports and by the drop in the North-American market – the main destination of railway casting exports.

Already from the fourth quarter onwards, with the resurgence of domestic demand for railway freight cars, the main challenge became one of seizing market opportunities and quickly satisfying the needs of our clients, without losing sight at any moment of cost structures.

In the automotive businesses, the Wheels and Chassis Division and the Automotive Components Division concentrated on the satisfaction of domestic demand, which, from the second quarter onwards, showed intense growth. Still within the scope of these two Divisions, the year was marked by the success in the launch of welded structural sets for Punto, a car launched by Fiat in 2007, which marked the first joint industrial initiative between the two Divisions, and, more importantly, paved the way for the development of similar businesses in the area of structural components for passenger cars.

O3

P. 14 ANNuAL REPORt 2007

Page 16: Iochpe-Maxion - Annual Report 2007

O3 OPENING MESSAGE

Installation of a new plant for road wheels in China. Migration process into Bovespa’s New Market, with the conversion of the preferential shares into common shares.

In the specific case of the Wheels and Chassis Division, which boasts a considerable export volume, the year was also marked by the challenge of maintaining competitiveness in the face of a constant strengthening of Brazil’s currency. To that end, the progress in the project for the implementation of a new road wheels factory in China should be pointed

out, in the city of Nantong, which should be operational by the second quarter of 2008.

In the overall progress of 2007, the launching of the migration process of Iochpe-Maxion into Bovespa’s New Market, involving the conversion of the preferential shares into common shares, is to be highlighted. As subsequent events, in January 17, 2008, Iochpe-Maxion’s shareholders took the resolution for the said conversion, and on March 24, Iochpe-Maxion was included in the New Market, which elevated its level of governance and opened the way for the attraction of new institutional investors.

For 2008, our planning aims at (i) the expansion of our capacity, especially, in the Wheels and Chassis Division and in the Automotive Components Division, on account of the continued growth of the domestic demand for vehicles and agricultural machines; (ii) the conclusion of a the new road wheels plant in China, allowing for the recovery of the competitiveness in the international market and generating an additional capacity in Brazil for the satisfaction of the growth of the domestic demand; (iii) the enabling of Amsted-Maxion to satisfy the upturn of domestic demand for railway equipment, which already started by the end of 2007; and (iv) the extension of our product and service lines, always seeking synergies with existing businesses.

Dan IoschpeCEO and Chairman

P. 15 ANNuAL REPORt 2007

Page 17: Iochpe-Maxion - Annual Report 2007

STRATEGY

Growth with financial discipline,

ongoing refinement of the business

portfolio and maintenance of the

operational margins: the basis for

strategic planning.

Iochpe-Maxion remains committed to a strategic planning based on the search for growth with financial discipline, permanent refining of the business portfolio and the maintenance of operational margins that can add value for its shareholders.

In this strategy, the main guidelines are:•��Expansion�of�the�production�capacity:�The Company shall keep expanding its manufacturing facilities and increasing its production capacity so as to place itself ahead of the demand growth. It will also keep updating products and productive processes as well, so as to fully and distinctively�satisfy�its�clients/customers.�Thereby, it aims to strengthen its leadership in the domestic market and to extend its presence in the international one. The chart shows the investments performed by the Company in the last five years:

O420

04

2003

2006

2005

2007

54

7368

84

68

P. 16 ANNuAL REPORt 2007

Page 18: Iochpe-Maxion - Annual Report 2007

O4 STRATEGY

The main guidelines are the expansion of production capacity, the maintenance of adequate level of exportations and the development of new products, markets and businesses.

•��Maintenance�of�an�adequate�level�of exports: Iochpe-Maxion intends to increase its participation in the international market, but, in the case of exports, the strategy is subject to the maintenance of an adequate level, especially of wheels for commercial vehicles and railway and industrial castings,

so as to reduce the hazards of fluctuation of demand in the domestic market. The chart that follows displays the volume of exports in the last five years:

2004

2003

2006

2005

2007

3347

119

96

120

•�New�products�and�markets:�Iochpe-Maxion intends to keep expanding its product lines via its inclusion into market niches featuring a synergy with the current portfolio or with the customer portfolio, such as, for instance, the project for welded structural sets for passenger cars. In addition to this, it will keep looking for new markets for its current products, as exemplified by the road wheels manufacture project in China for export to neighboring countries.•�New�businesses:�The Company is continuously assessing opportunities for growth through acquisitions featuring a synergy with the current business portfolio or with the customer portfolio.

P. 17 ANNuAL REPORt 2007

Page 19: Iochpe-Maxion - Annual Report 2007

MARkETS

The automotive sector had shown a

strong expansion in 2007, as proven

by the growth in the volumes

produced by vehicle assemblers.

Iochpe-Maxion markets of operation showed diverse realities throughout 2007. The automotive sector has boasted quite a positive performance, the volumes of production of car assemblers having surpassed the forecasts ventured in the beginning of that year. The main factors that contributed to this scenario were the pronounced growth of Brazil’s Gross Domestic Product – above the growth average of the previous years – the growth of the credit offer to consumers, the reduction of interest rates as compared to the average of the previous years. In addition to such factors, and in spite of

O5the intensive strengthening of the Real, vehicle assemblers maintained their export volumes, against the general expectations. With this, the car segment enjoyed a production volume growth of 14.2% as compared to the previous year, the light commercial vehicles segment enjoyed a 7.6% growth, the bus segment showed a 14.6% increase and the truck segment one of 29.0%, whereas that of agricultural machines expanded by 41%.

The below chart details the Brazilian production of agricultural vehicles and machines, in units, according to the indicated periods:

Segment 2007 2006 Var.

Cars 2,389,409 2,092,003 14.2%

Light Commercial Cars 407,912 379,221 7.6%

Trucks 136,760 106,001 29.0%

Buses 38,741 33,809 14.6%

Total Vehicles 2,972,822 2,611,034 13.9%

Agricultural Machines 64,954 46,065 41.0%

Source: Anfavea.

P. 18 ANNuAL REPORt 2007

Page 20: Iochpe-Maxion - Annual Report 2007

O5 MARkETS

The railway segment suffered a strong drop in 2007, which was minimized by an upturn from the fourth quarter onwards.

In 2006, the railway equipment sector had already shown substantial shrinking as compared to 2005 volumes, and again underwent a strong drop in 2007, presenting volumes inferior to the ones forecast for the period. The positive reaction of the domestic demand for railway freight cars from the fourth quarter of 2007 on suggests

the recovery of this market and possibly the start of a new cycle of volumes half as much as those verified in the period between 2005 and 2007. This shows a more stable cycle than that of the previous period, which would mean a favorable combination from the point of view of mid and long-term planning.

The chart below details the domestic demand in the railway segment in the indicated periods, according to Amsted-Maxion’s estimates:

Segment 2007 2006 Var.

Railway Freight Cars (units) 1,249 3,668 -65.9%

Railway Wheels (units)* 48,010 50,830 -5.5%

Railway Castings (t)* 5,673 3,270 73.5%

* Replacement market only. Does not include Wheels and Railway castings used in the assembly of railway freight cars.

P. 19 ANNuAL REPORt 2007

Page 21: Iochpe-Maxion - Annual Report 2007

EXPORtAtIONS

O5 MARkETS

In 2007, Iochpe-Maxion sought to keep exports at an adequate level, as a means for reducing the possible effects of an unexpected reduction of the internal market’s demand. As a result, overseas sales reached a total of US$120.2 millions – or R$232.8 millions – a figure that represents an increase in USD to the order of 1.4% and a 9.4%

reduction in Reais as compared to 2006. Thus, the exports ended up respresenting 18% of the Net Operating Revenue consolidated (21% in 2006).

That performance was favored by the increase in the industrial castings and longeron sales (chassis component). The negative impact, on the other hand, came from three factors: the reduction of the North-American market for railway equipment, which resulted in the reduction of sales of railway castings, the strengthening of the Real against the USD, the reduction of wheels sales (road, vehicles) – which was a necessary move to satisfy the strong increase of demand in the domestic market.

The United States and Latin America remain the main destinations of Iochpe-Maxion’s consolidated exportation:

Maintenance of an adequate level of exports: reduction of dependence on domestic market fluctuations.Overseas sales reached US$120.2 million in 2007.

USA

LATIN AMERICA

EUROPE

AFRICA AND MIDDLE EAST

CANADA/MEXICO

EXPORt PER dEStINAtION – (%)

49.7%

4.7%16.2%

9.4%

23.1%

P. 20 ANNuAL REPORt 2007

Page 22: Iochpe-Maxion - Annual Report 2007

SUBSIDIARY AND jOINT VENTURE

In 2007, the Division assessed a net

operating revenue of R$896 million,

with a 22.6% increase as compared

to the previous year.

Maxion Sistemas Automotivos operates through its two divisions: the Wheels and Chassis Division (Wheels and Chassis Division) and the Automotive Components Division�(Components�Division/Automotive�Components Division).

WHEELS ANd CHASSIS dIvISION

In 2007, Maxion’s Wheels and Chassis Division showed a 22.6% increase in its net operating revenue as compared to the previous year, totaling R$896 million. With this, its participation in the consolidated net operating revenue, which used to be of 59% in 2006 and went up to 69.5% in 2007. That increase was positively impacted by the strong growth verified in the national production of trucks, buses and agricultural machines and by the results obtained in partnership with the Division of Automotive Components for manufacture of welded structural sets for Punto, a passenger car launched by Fiat in 2007. The negative reflex, on the other hand, came with the reduction of road wheels exports, under the influence

O6of the Real’s strengthening against the USD and by the opportunities that came up due to the growth of the internal demand. The chassis segment – which, in addition to complete chassis, also includes longerons, railway ties and stamped pieces – showed in 2007 a net operating revenue of R$521 million, with a 28.0% expansion as compared to 2006. Due to this result, the Company has maintained its lead in 2007 of this segment of the national market, with an approximate 67% participation. From the point of view of technology applied to the productive routine, one of the fiscal year’s progress was the consolidation of new system of chassis conformation, which in addition to featuring an alternative solution to certain market demands, will favor an increase in the production capacity.

The wheels segment – which includes road, agricultural and non-road vehicles – reached in 2007 a R$374 million net operating revenue, which means a 15.8% growth as compared to 2006. In this context of good results, the Company extended its leadership in the national market, to

MAXION SIStEMAS AutOMOtIvOS

P. 21 ANNuAL REPORt 2007

Page 23: Iochpe-Maxion - Annual Report 2007

O6 SUBSIDIARY ANDjOINT VENTURE

an approximate 61% participation. Two important activities marked that Division’s work throughout 2007: investments in the expansion of the capacity for production of stamped items, represented by the implementation of a new line of pressing frames, moulds and the construction of a new production unit of road wheels in

In the chassis segment, the increase of the net operating revenue was to the order of 28.0%, totaling R$521 million. In the wheels segment, the operational income increased by 15.8%, totaling R$374 million.The new production unit of railway wheels in China should become operational in the second quarter of 2008.

China, in the city of Nantong – a US$15 million investment. All the production of this new unit, with its startup of operations forecast for the second semester of 2008, is to be dedicated to export to markets geographically close to China. Following the period of acceleration in the production of the new unit and the reaching of a 600,000 wheels per year production capacity – projected for 2009 – Iochpe-Maxion forecasts an additional US$30 million per year net revenue.

In 2007, the Division kept investing in technology as a tool for the development of new products, improvement of productive process, improvement of quality, and increase of the capacity and competitiveness of its products. In this area, the main innovation was the conclusion of a new development and wheel testing center, incorporating equipment and technologies so far unavailable in South America.

For 2008, the main projects are in new investments in the capacity for stamped pieces production, anticipating the probable growth of the domestic demand for these products, and the conclusion of the new wheel production unit in China.

P. 22 ANNuAL REPORt 2007

Page 24: Iochpe-Maxion - Annual Report 2007

AutOMOtIvE COMPONENtS dIvISION

O6 SUBSIDIARY ANDjOINT VENTURE

The Automotive Components Division concluded 2007 with a R$115 million net operating revenue, which represents a 27.0% net operating revenue as compared to the 2006 development. Thus, its participation in Iochpe-Maxion’s net operating revenue went from 7% up to 8.9%. This progress shows, on one hand, the seizing of the opportunities

linked to the 14.2% increase in Brazil’s car production, and on the other, the results caused by the start of the production of Punto’s welded structural sets, one of Fiat’s main launches.

The experience acquired with this work – carried out in partnership with the Wheels and Chassis Division, with an acknowledged know-how in stamped pieces – signals the ability of the Company to keep progressing in this area, adding new skills to its portfolio. From a strategic point of view, the results reinforce the correctness of the decision to discontinue the production of non-value-adding products and those which are removed from Iochpe-Maxion’s essential skills, to focus on the development of new products related to the said essential areas of expertise.

For 2008, the main projects are those of new investments in production capacity, anticipating the probable growth of domestic demand.

In 2007, the Division presented a net operating revenue of R$115 million, a 27% growth as compared to 2006. Start of the production of stamped structural sets for Fiat’s Punto.

P. 23 ANNuAL REPORt 2007

Page 25: Iochpe-Maxion - Annual Report 2007

AMStEd MAXION FuNdIçãO EEquIPAMENtOS FERROvIáRIOS S.A.

O6 SUBSIDIARY ANDjOINT VENTURE

Amsted Maxion – a joint venture between Iochpe-Maxion and North-American Amsted Industries, main international reference in the development and application of technologies in the railway castings segment – assessed in 2007 a net operating revenue of R$279 million, a 34.6% drop as compared to the

R$427 million registered in 2006. With this, its participation in the consolidated net operating revenue also decreased, going from 34% in 2006 to 21.6% in 2007. This performance was directly influenced by the strong reduction of the domestic demand for railway freight cars. In spite of the income, Amsted-Maxion maintained its distinctive and unrivalled leading position in its areas of operation, being responsible for 89% of the domestic market of railway freight cars and 80% of the railway castings market, according to estimates by Amsted-Maxion itself.

So as to minimize the effects of the strong reduction of the domestic demand for railway freight cars, Amsted-Maxion has made several adjustments in its cost structure and has aimed a larger portion of its production at the overseas market, especially to the North-American market.

From this point of view, two factors countered this strategy, established at the beginning of the year : the Real’s continued strengthening and the North-American market’s rapid slowdown. On the other hand, the strong growth of North-American demand for industrial castings minimized the negative impacts of the two previously mentioned factors.

In 2007, the net operating revenue reached R$279.0 million, a 34.6% reduction compared to 2006.

P. 24 ANNuAL REPORt 2007

Page 26: Iochpe-Maxion - Annual Report 2007

O6 SUBSIDIARY ANDjOINT VENTURE

In addition to this, the Hortolândia unit, in São Paulo, previously dedicated only to the assembly of railway freight cars, extended its line of operation and started producing also buckets for non-road trucks, especially for the mining sector, which keeps showing signs of a good expansion

potential. Among the produced items is the bucket with a 252 ton capacity, the largest used in Brazil.

The prospects as compared to 2008 indicate the recovery of the domestic demand for railway freight cars, already started in the fourth quarter of 2007, the recovery of the North-American market and the continuity of the boom for industrial castings in the North-American market, although the exports should remain affected by the continued valuation of the Real.

The performance was directly influenced by the strong shrinkage of the domestic demand for railway freight cars.

P. 25 ANNuAL REPORt 2007

Page 27: Iochpe-Maxion - Annual Report 2007

PRODUCTIVE PROCESS

O7

Man

ufac

turi

ng P

roce

ss o

f C

hass

is, S

ider

ails

, Cro

ssm

emb

ers

an

d S

tam

ped

par

ts

Ass

embl

y

Raw

mat

eria

l rec

eptio

n

Ste

el h

ot ro

lled

coils

Pre

para

tion

Pic

klin

g an

d se

ctio

ning

of

pla

tes

Sha

ping

Ligh

t, m

ediu

m a

nd h

eavy

pr

essi

ng (s

hape

and

pe

rfora

tion)

Sid

erai

ls, c

ross

mem

bers

and

ot

her

stam

ped

com

pone

nts

Par

ts a

ssem

bly

by w

eldi

ng

and/

or r

ivet

sA

ssem

bled

fram

es

Pow

der

pain

ting

Del

iver

y

Sid

erai

ls, c

ross

mem

bers

an

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ampe

d pa

rts

Pre

-tre

atm

ent,

pain

ting

and

finis

hing

E-c

oat p

aint

ing

(a

nti-c

orro

sion

trea

tmen

t)

P. 26 ANNuAL REPORt 2007

Page 28: Iochpe-Maxion - Annual Report 2007

Pai

ntin

g

Oil/

pain

ting

prot

ectio

nR

ailw

ay a

nd in

dust

rial c

astin

gs

Rai

lway

and

Ind

ustr

ial C

astin

g M

anuf

actu

ring

Pro

cess

Mel

ting

Ele

ctric

furn

aces

Pou

ring

(Mol

ten

stee

l)

Mol

ten

stee

l pou

ring

in th

e m

olds

Hea

t tre

atm

ent

Adj

ustm

ent o

f ste

el m

icro

stru

ctur

e

Raw

mat

eria

l rec

eptio

n

Met

al m

ater

ial c

ente

r

(Scr

ap s

teel

and

oth

ers)

Mac

hini

ng

Red

imen

sion

ing

as

per

spec

ifica

tions

Page 29: Iochpe-Maxion - Annual Report 2007

Mol

ten

stee

l pou

ring

in th

e m

olds

- G

raph

ite m

olds

Hea

t tre

atm

ent

Adj

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f ste

el m

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Insp

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n

Ultr

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tic p

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test

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ong

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rs

Mac

hini

ng

Red

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ing

as p

er

spec

ifica

tions

Rai

lway

whe

els

Coo

ling

Whe

el c

oolin

g

Mel

ting

Ele

ctric

furn

aces

Raw

mat

eria

l rec

eptio

n

Met

al m

ater

ial c

ente

r

(Scr

ap s

teel

and

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ers)

Rai

lway

Whe

el M

anuf

actu

ring

Pro

cess

Con

trol

led

pres

sure

pou

ring

Page 30: Iochpe-Maxion - Annual Report 2007

Rai

lway

whe

els

Par

ts p

urch

ased

from

third

-par

ties

Bra

ke s

yste

m, s

teel

pla

tes,

etc

Rai

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and

indu

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tings

Frei

ght c

ar a

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cas

tings

and

third

-par

ty p

arts

ass

embl

y

Fre

ight

Car

Man

ufac

turi

ng P

roce

ss

Page 31: Iochpe-Maxion - Annual Report 2007

Vehi

cle

Whe

el M

anuf

actu

ring

Pro

cess

Ste

el p

late

s

Dis

ksD

isks

Raw

mat

eria

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thin

g

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k M

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actu

ring

1

Page 32: Iochpe-Maxion - Annual Report 2007

Ste

el h

ot ro

lled

coil

Cut

ting

coil

Rin

g“B

lank

Raw

mat

eria

l rec

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and

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, rol

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and

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ve p

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Vehi

cle

Whe

el M

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actu

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Pro

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Rin

g

Man

ufac

turin

g

2

Page 33: Iochpe-Maxion - Annual Report 2007

Ass

embl

yQ

ualit

y co

ntro

l

Ass

embl

ing

(ring

+ d

isk)

, wel

ding

and

m

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(e-c

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nd D

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cle

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el M

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actu

ring

Pro

cess

Page 34: Iochpe-Maxion - Annual Report 2007

COMPETITIVE DIFFERENTIALS

O8

Financial discipline in the investments:

adequate return, without

compromising the capital structure.

Over time and throughout the improvement of products and processes, Iochpe-Maxion has been building competitive advantages that contribute to better results, creating values that are noticed in the market and by all those who, directly or indirectly, take part in its business routine.

Some of the competitive advantages can be highlighted:•��Financial�discipline�in�investments:

Iochpe-Maxion criteriously analyses the new investment projects, prioritizing the opportunities that will entail an adequate return, without compromising the capital structure. This principle, an essential part of the Company’s culture, is also the basis for the development of ideas, projects and solutions.

•��A�recognized�brand:�The name Maxion is a reference in the sectors were it operates,�and�a�brand/trademark�that�the�market associated with attributes such as competitiveness, quality, punctuality, efficiency and reliability.

•��Long-term�contractual�relationships:�Iochpe-Maxion values long-term commercial relationships. In actual terms, this principle is reflected in the involvement and interaction the Company maintains with almost all of its customer portfolio, in Brazil and abroad.

•��Leadership:�Iochpe-Maxion is a distinguished leader in the sectors responsible for the largest portion of its net operating revenue, as exemplified by wheels and chassis for commercial vehicles, railway freight cars and railway castings. This acknowledged leadership, increasingly consolidated, allows the achievement of scale economies, which is a relevant competitive differential.

•��Operation�in�market�segments�with�growth potential: Iochpe-Maxion functions in market segments that represent a growth potential that’s superior to Brazil’s GDP. This favorable scenario is explained by the expansion and improvement of projects for railway and road networks, in addition to the need for renewing the

P. 33 ANNuAL REPORt 2007

Page 35: Iochpe-Maxion - Annual Report 2007

Maxion, with Amsted Industries, the main manufacturer of railway castings in the US and world leader in the development of the sector’s technologies and products. With this partnership, the Company has access to new production techniques, and to differentiated projects and markets. Amsted Maxion, it should be pointed out, has a complete digital mapping of Brazil’s railway network, a progress that allows virtual simulations that imply efficiency and safety gains, cost optimization and the reduction of the development time of new projects.

•��Competitive�cost:�The focus of technology and the priority for the structuring of a modern continuously extended and an updated set of manufacturing plants, allow Iochpe-Maxion to promptly satisfy the demands of the national market, and also to export with efficiency and competitiveness. Competitive productive costs are a result from the verticalization of some sectors, of the specialization in processes and of the utilization of certain materials, such as steel. Differentiated manufacturing techniques and the use of updated equipment provide the Company with the flexibility to offer its clients production processes that will satisfy the specific demands with flexibility, speed and competitive prices.

•��Quality:�The products and processes used by Iochpe-Maxion have a recognized quality and an international certification assigned by governmental bodies and independent institutions. The Company is also a certified supplier for this country’s main vehicle assemblers and railway operators, a differential that turns into an opportunity for satisfying new demands in the domestic and international markets.

O8 COMPETITVE DIFFERENTIALS

fleets and to make the adequate to the expectation of increase in the volume of loads to be transported.

•��Partnership�and�technology: Iochpe-Maxion entertains partnerships with world technology leaders in key-sectors of its activity. The best example of this differential is the partnership, through Amsted

Recognition:The name Maxion is a reference in the segments where it operates. Iochpe-Maxion values long-term commercial relationships. A modern and updated set of manufacturing plants. Priority in the use of the best technologies.

P. 34 ANNuAL REPORt 2007

Page 36: Iochpe-Maxion - Annual Report 2007

•��Amsted�Maxion:�ISO 9001 certified by the Lloyd’s Register and AAR – American Association of Railway; M1003 certified by IQC�Inc.

•��Qualification:�The Iochpe-Maxion team of managers has broad experience in the Company’s segments of operation, which has been contributing to the growth of its main performance parameters. In 2007, R$1,8 million was invested in initiatives for the empowerment and training of collaborators.

•��Wheels�and�Chassis�Division�of�Maxion�Sistemas Automotivos:�ISO/TS�16949,�ISO�14001 e OHSAS 18000, certified by the Bureau�Veritas�Quality�International�(BQVI).

O8 COMPETITVE DIFFERENTIALS

•��Automotive�Components�Division�of�Maxion Sistemas Automotivos: ISO/TS�16949,�certified�by�Bureau�Veritas�Quality�International�(BQVI).

Products and processes recognized and certified internationally.

MAIN CERtIFICAtIONS

P. 35 ANNuAL REPORt 2007

Page 37: Iochpe-Maxion - Annual Report 2007

O8 COMPETITVE DIFFERENTIALS

FISCAL YEARS ENdING IN dECEMbER 2007 ANd 2006

(IN tHOuSANdS OF REAIS)

dEMONStRAtION OF vALuE AddEd

Consolidated

2007 2006

Incomes (expenses)

Sale of products and performed services 1,570,287 1,610,863

Write-offs for doubtful debtors and contingencies 2,113 11,563

Non-operational result (8,628) (22,158)

1,563,772 1,591,268

Input acquired from third-parties

Raw materials consumed 815,159 890,668

Costs of sold products and services performed 177,696 122,661

Materials, energy, services by third-parties and others 128,468 133,972

1,121,323 1,147,301

Gross value added 442,449 443,967

Source-Excised Taxes

Depreciation and mortgaging (31,008) (26,292)

Produced (reduced) net value added (consumed) by the Company and its controllers 411,441 417,3675

Value added received in transfer

Result of the net equity equivalent - -

Financial incomes 35,291 6,914

35,291 6,914

Total value added to be distributed 446,732 424,589

Distribution of the value added

Employees

Personnel and social charges 209,530 200,728

Employee participation 15,127 11,842

Taxes

Federal 76,291 99,100

State 24,546 21,331

Municipal 94 369

Financers

Interest 44,897 28,307

Leases 3,856 5,119

Shareholders

Dividends 26,785 22,789

Retained/Withheld profits 45,606 32,114

P. 36 ANNuAL REPORt 2007

Page 38: Iochpe-Maxion - Annual Report 2007

O8 COMPETITIVE DIFFERENTIALS

FISCAL YEARS ENdING IN dECEMbER 2007 ANd 2008

(IN tHOuSANdS OF REAIS)

dEMONStRAtION OF CASH FLOWS – INdIRECt MEtHOd

Consolidated

2007 2006

Cash flow of operational activities

Net Profit of the fiscal year 72,391 57,780

Adjustment for reconciling the net profit to the availabilities generated by the operational activities

Depreciation and mortgaging 31,008 26,292

Defered�taxes�of�liquid/working�and�non�liquid/non-working�capital 10,186 5,761

Residual cost of fixed assets settlement 742 483

Capital gains in invesments - -

Result of the net equity - -

Allocation for contingency (additions plus updatings) 7,503 10,407

Write-off of allocation provision (1,600) (8,609)

Interest on own capital and dividends of controled companies

Current fiscal year’s receipts - -

To be received - -

Variation in assets and liabilities

(Increase) reduction in accounts receivable (18,763) 31,236

(Increase) reduction in inventories (50,424) 19,737

Increase (reduction) in suppliers 15,493 (19,957)

(Increase) reduction in other accounts receivable, taxes to recover and other accounts (6,082) (3,982)

Increase (reduction) in other accounts payable, allocations and further accounts 35,259 (29,312)

(Reduction) increase in the income tax and social charges (458) (944)

Net availabilities generated by the operational activities 95,255 88,842

Cash flows of investment activities

Acquisition of investment assets - -

Acquisition of immobilized assets (68,385) (67,751)

Acquistion of defered assets - (117)

Net availabilities applied to the investment activities (68,385) (67,868)

Cashflows of the financing activities

Loans taken 267,898 275,506

Payments�of�Loans/debts (208,548) (231,880)

Dividend payment (22,878) (28,385)

Net availabilities originated by the (invested in) financing activities 36,472 15,241

Demonstration of the increase (reduction) in availabilities

At the beginning of the fiscal year 88,177 51,962

At the end of the fiscal year 151,519 88,177

P. 37 ANNuAL REPORt 2007

Page 39: Iochpe-Maxion - Annual Report 2007

FINANCIAL DEVELOPMENT

O9SEGMENtAtION OF tHE NEt OPERAtING REvENuE

NEt OPERAtIONAL INCOME PER COMPANY, dIvISION ANd SEGMENt –

R$ MILLIONS, EXCEPt FOR vARIAtION

2007 2006 Var. 07/06 (%)

Market Market Market

Internal External Total Internal External Total Internal External Total

Maxion Sistemas Automotivos

Wheels And Chassis Division 788 107 895 610 121 731 29 -11 23

Chassis/Longerons/Pressed�Pieces 486 35 521 382 26 408 27 35 28

Wheels, Agricultural and Non-Road Wheels 302 72 374 228 95 323 32 -21 16

Components Division 114 1 115 89 1 90 27 8 27

Amsted Maxion Fund. e Equip. Rail 309 249 558 583 271 854 -47 -8 -35

Railway Railway freight cars 166 63 229 453 22 475 -63 186 -52

Railway Wheels 35 32 67 36 31 67 -3 3 -1

Railway/Industrial�Castings 108 154 262 94 218 312 14 -29 -16

(-) Consolidation adjustments (155) (124) (279) (291) (136) (427)

Iochpe-Maxion – Consolidated 1,056 233 1,289 990 257 1,247 7 -9 3

P. 38 ANNuAL REPORt 2007

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O9 FINANCIAL DEVELOPMENT

NEt OPERAtIONAL INCOME PER SECtOR OF OPERAtION –

R$ MILLIONS, EXCEPt FOR vARIAtION

Sector 2007 2006

Assemblers Installed in the Country 902 700

Buses, trucks, utilitarian vehicles and agricultural machines 788 611

Cars 114 89

Brazilian railway operators 155 291

Export 232 257

Iochpe-Maxion Consolidated 1,289 1,248

SOLd vOLuMES ANd PROduCtS

Segment 2007 2006 Var.

Road Wheels (thousand units) 1,753 1,533 14.4%

Railway Wheels (units)* 52,885 47,915 10.4%

Rail Railway freight cars (units) 1,163 3,007 -61.3%

Castings (t) 48,369 66,994 -27.8%

PARtICIPAtION IN tHE NAtIONAL MARKEt

CompaniesInternal Market

2007 2006

Maxion Sistemas Automotivos

Chassis, longerons and stamped pieces 67% 66%

Road, agricultural and wheels for irregular terrains 61% 57%

Amsted Maxion Fund. e Equip. Ferrov.

Rail Railway freight cars 89% 81%

Railway wheels 16% 16%

Railway castings 80% 80%

Industrial castings 50% 45%

* Only replacement market, does not include wheels and castings used in the assembly of new railway freight cars.

P. 39 ANNuAL REPORt 2007

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O9 FINANCIAL PERFORMANCECOMPARISON OF RESuLtS OF 2007 ANd 2006

Net operational incomeConsolidated

In 2007, the consolidated net operating revenue reached R$1,289.3 million, a result that represents a 3.3% increase in comparison to 2006. This performance reflects, on one hand, the strong growth of Brazil’s production of vehicles and agricultural machines and, on the other, the shrinking of the domestic demand for railway freight cars and the Brazilian Real’s strengthening, which resulted in the reduction of the value of the exports.

Cost of the sold ProductsThe cost of the sold products reached

1,054 million, representing 81.7% of the net operating revenue and a 2.5% increase compared to 2006, when the cost represented 82.4% of the net operating revenue. The chart below presents the participation of the main items in the composition of the cost of the products sold in the indicated periods.

In 2007, the net operating revenue reached R$1,289.3 millions, a 3.3% increase in comparison to 2006. This performance reflects the strong growth of the Brazilian production of vehicles and agricultural machines, the decrease of the domestic demand for railway freight cars and the impact of Real’s valuation on Exports.

Cost of the Sold Products 2007 2006

Raw materials and inputs 63% 65%

Salaries/Others 34% 32%

Depreciation/mortgaging 3% 3%

P. 40 ANNuAL REPORt 2007

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O9 FINANCIAL PERFORMANCE

Gross ProfitThe gross profit reached R$235.7

million in 2007, representing a gross margin of 18.3% and a 7.5% increase compared to 2006, when the gross product totaled R$219.2 millions, with a 17.6% gross margin.

Operational expenses 2007 2006

Freights 34% 30%

Salaries 25% 24%

Commissions 7% 9%

Royalties 4% 6%

Others 30% 31%

Net Operational ExpensesThe net operating revenue in

2007 totaled R$101.1 million, a 22.0% increase compared to 2006, when the operational expenses hit R$82.8 million. The operational expenses represented 7.8% of the net operating revenue in 2007, against 6.6% in the previous financial year. The increase in operational expenses in comparison to the net operating revenue reflects, above all, the impact of the wage increases concerning collective framework agreements in the fourth quarters of 2006 and 2007, and the gain achieved in the second quarter of 2006 concerns a legal decision favoring the Company in a lawsuit contesting the basis for the COFINS application in the parent controller and which generated a R$12.8 million result in that period.

The chart below displays the main items composing the operational expenses in the indicated periods:

Operational Profit (EbIt)In 2007, EBIT reached R$134.7 million,

or 10.4% of the net operating revenue, against R$136.4 million in 2006, or 10.9% of the net operating revenue.

Gross Cashflow Generation – EbItdAIn 2007, EBITDA was of R$164.5 million,

a 1.1% as compared to the previous year’s result. The participation compared to the net operating revenue has fallen from 13.0% in 2006 to 12.8% in 2007.

R$164.5 million EBITDA, a 1.1% increase as compared to the previous year.

P. 41 ANNuAL REPORt 2007

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O9 FINANCIAL DEVELOPMENT

The chart below presents the evolution of the EBITDA in the indicated periods:

In 2007, the net profit reached R$72.3 million, a 25.1% high as compared to 2006.

Reconciliation EbItdA – R$ thousands 2007 2006 Var.

Net Profit 72.391 57.844 25.1%

Income Tax and Social Contribution (44,024) (35,001) 25.8%

Non-operational Result (8,628) (22,158) -61.1%

Financial Result (9,606) (21,393) -55.1%

Depreciation/Mortgaging* (29,878) (26,292) 13.6%

EBITDA 164,527 162,688 1.1%

* Does not include the amount allocated in the inventorys.

Financial ResultThe Financial Result in 2007 was

negative by R$9.6 million, which represents 55.1% reduction compared to 2006. This result was favored in R$12.1 million by the effect of Real’s valuation (a R$5.3 million favoring in 2006), as well as by the lower mean cost of the indebtedness as compared to the previous year, and by the gain in operations related to the future USD establishment (NDFs).

Net ProfitThe net profit reached R$72.3 million

in 2007 (R$1.3599 per share profit), a 25.1% of the result achieved in 2006 (a R$1.0866 per share profit).

InvestmentsThe investments in the development of

new products and in the modernization of the industrial plants totaled R$68.4 million in 2007, against R$68.4 million in 2006.

P. 42 ANNuAL REPORt 2007

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O9 FINANCIAL DEVELOPMENT

Net operational incomeThe consolidated net operating revenue

reached R$1,247.6 million in 2006, a 16.5% reduction when compared to the same period in the previous year. This performance is a result of the reduction of the national production of commercial

A performance market by a fall in the main markets: Net Profit reached R$57.8 million, a reduction of 19.9% and the EBITDA hit R$162.7 million, with a 20.5% reduction.

COMPARISON OF tHE 2006 ANd 2005 RESuLtS

vehicles, of the expressive retraction of the domestic demand for railway freight cars, whose effect was minimized by the growth of the export of road wheels, and railway wheels and castings.

Cost of the sold Products

Cost of the sold Products 2006 2005

Raw materials and inputs 65% 78%

Salaries/Others 32% 16%

Depreciation/mortgaging 3% 6%

The cost of the sold products, which represented 82.4% of the consolidated net operating revenue was R$1,028.3 million in 2006, with a 14.7% reduction from the R$1,205.3 million displayed in 2005 and which, in turn, represented 80.7% of the consolidated net operating revenue in that year. The cost of the sold products was negatively affected by the structural adaptation costs, by the lesser dilution of the overhead costs of manufacturing and by the impact of salary increases resulting from the fourth quarter collective framework agreements of 2005 and 2006.

Gross ProfitThe gross profit reached R$219.2

million in 2006, or 17.6% of the net operating revenue, a 24.0% reduction as compared to the previous year, when the gross profit totaled R$288.7 million, or 19.3% of net operating revenue. This reduction of the gross margin results from the effects described in the section Cost of the Sold Products, and also in the reduction of the margin of export, due to the Real’s valuation against the USD (mean exchange rate of R$2.167 in 2006, against R$2.410 in the same period of 2005).

P. 43 ANNuAL REPORt 2007

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O9 FINANCIAL PERFORMANCE

Net Operational Income The chart below presents the main items

composing the operational expenses in the indicated periods:

Operational Expenses 2006 2005

Freights 30% 29%

Salaries 24% 23%

Commissions 9% 12%

Royalties 6% 5%

Others 31% 31%

The operational expenses reached R$82.8 million in 2006, a 25.4% reduction as compared to 2005, when the operational expenses totaled R$111.1 million. The operational expenses represented 6.6% of the net operating revenue in 2006, against 7.4% in 2005. The main factors for this performance were the favorable legal decisions in cases moved by the Parent

The EBITDA presented in 2006 a reduction of 20.5% as compared to the value obtained in 2005, reaching R$162.7 million. With the participation of the consolidated net operating revenue, the EBITDA was of 13.0% – a performance inferior to the 13.7% of 2005 (the Gross Profit and operational expenses detail the reasons for such variation.)

2006 2005 Var. (%)

Net profit before the participation of minority shareholders 57,844 72,191 (19.9%)

Income tax and social contribution 35,001 48,024 (27.1%)

Non-operational result 22,158 20,272 9.3%

Net financial expenses 21,393 37,118 (42.4%)

Depreciation and mortgage 26,292 27,119 (3.0%)

EBITDA 162,688 204,724 (20.5%)

Controller that contested the basis for the application of PIS and COFINS, which generated a R$12.8 result, the constitution of an allocation for tax contingencies to the value of R$7.2 million and lower expenditures with freights, commissions and royalties and on account of the reduction of the net operating revenue.

Operational Profit (EbIt)The EBIT reached R$136.4 million in

2006, or 10.9% of consolidated net operating revenue, against R$177.6 million in 2005, or 11.9% of the consolidated net operating revenue (please refer to the Gross Profit and Operational Expenses sections).

Gross Cashflow Generation – EbItdAThe chart below displays the evolution

of the EBITDA in the indicated periods, in thousands of R$:

P. 44 ANNuAL REPORt 2007

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O9 FINANCIAL DEVELOPMENT

Financial Net ExpenditureThe net financial expenses reached

R$21.4 million in 2006 against R$37.1 million in 2005. This reduction was due to the effect of Real’s valuation, which caused a drop of R$5.3 million (a R$2.8 million reduction in 2005), and to the lower mean cost of the indebtedness as compared to 2005.

Non-Operational ResultIn 2006, the Non-Operational Result was

dropped by R$22.2 million (1.8% of the net operating revenue), due to expenses and allocations originating from discontinued businesses, against a negative result of R$20.3 million in 2005 (1.4% of the net operating revenue).

Net ProfitThe net profit reached R$57.8 million

in 2006 (R$1.085 per share), a 19.9% reduction as compared to the R$72.1 million profit in 2005 (R$1.355 per share).

InvestmentsThe expenses concerning investment

activities reached R$67.8 million in 2006 (R$84.0 million in 2005) and involved the acquisition of machines, equipment and facilities for the modernization and extension of the productive capacity.

P. 45 ANNuAL REPORt 2007

Page 47: Iochpe-Maxion - Annual Report 2007

LIQUIDITY� AND DEBT

10

In December 2007, the consolidated

net indebtedness to banks reached

R$128.3 million. The relationship

between this value and the EBITDA

was of 08x, the same position of

December 2006.

By the end of 2007, the consolidated availability of finance reached R$151.5 million, as a whole, a short-term one. The financial investments represented 33.1% of the total availability on that date. It should be pointed out that certain values received and those available by the end of the year were not invested due to the end of the CPMF levy [a source-excised federal tax] on December 31, 2007.

On the same date, the gross indebtedness to banks reached R$279.9 million, which represents a 26.9% increase as compared to December 2006. The total indebtedness, R$131.8 millions – corresponding to 47.1% – are short-term liabilities and the other R$148.0 million – corresponding to 52.9% – are long-term.

The main indicators of this indebtedness are TJLP with 79.0% of the total gross value, followed by the USD with 18.5% and IGP-M, with 2.5%.

The consolidated net indebtedness to banks reached R$128.3 million by the end of 2007, which represents a reduction of 3% as compared to December of 2006. The ratio between this value and the EBITDA of the last 12 months was of 0.8 times that December of 2007, therefore the same as that of December 2006. The position of the consolidated net indebtedness with banks by the end of 2007 was favored by R$42.5 million of advancements due to railway freight cars sale contracts. By the end of 2006, such advancements were grossing R$3.2 million.

P. 46 ANNuAL REPORt 2007

Page 48: Iochpe-Maxion - Annual Report 2007

11

RISk MANAGEMENT

Iochpe-Maxion prepares periodic

reports with a detailed appraisal of

the situation of the most relevant

risk factors for the Company. The

Risk Management routine involves

two distinct areas: financial risks and

commercial risks.

Iochpe-Maxion prepares periodic reports with metrics referring to the most relevant risk factors, so as to perform a management that’s able to minimize possible impact upon its productive, operational and financial structure. The reports are good as a reference, so that the Board of Directors may proceed with adjustments and corrections in order to conduct the operation within the preset risk parameters.

FINANCIAL RISKS•��Level�of�Indebtedness:�Monthly, Iochpe-

Maxion monitors of its total indebtedness. It sets parameters to confront and minimize risks in stress market situations and to adjust the amount of debt (financial debt) to the cash generation capacity (EBITDA).

•��Mean�maturing�term�of�bank�debt:�Also on a monthly basis, the Company monitors the mean term for the maturing of its bank debt. In order to reduce risks and the impact upon its financial structure, it defines parameters for the maturing profile, always in search of a more adequate ratio between the debt and the maturing deadline.

•��Exchange�rate�exposure:�Iochpe-Maxion seeks to reduce the exposure to the foreign currency through the predominance of Real in its businesses. The indebtedness in foreign currency is followed, where possible, by hedge operations. When the contracting of such protection is not possible, the generated debts are backed up by the exports. For the monitoring of the exchange exposure, the Company uses as a parameter the maximum indebtedness in USD, equivalent to six months of the balance represented by the exports deducted from the imports. Such monitoring is carried out every month.

•��Ratio�between�payroll�and�net�sale:�The transfer of the increase in costs resulting from salary raises – especially those related to the collective framework agreements – into the final prices of the manufactured products remain a difficult operation.

In order to deal with this scenario, Iochpe-Maxion monitors the ratio between the payroll and the net sales on a monthly basis.

P. 47 ANNuAL REPORt 2007

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11 RISk MANAGEMENT

Along with this, it implements actions for the increase of productivity. In this regard, it should be highlighted:•�Management�Tools;•��Incentive�programs�for�improvement�

suggestions with awards to employees;•��Process�improvement�and�elimination�of�

productive bottlenecks;•�Investments�in�automation;•��Absorption�of�fixed�costs�and�scale�gains�

through the increase of the productive volume.

•��Economic�conjuncture: The demand for the items produced by Iochpe-Maxion are also linked to the general perception of the economic environment experienced by the country. The variation of the Gross Internal Product, for instance, has an influence on the need for freight displacement, and directly affects the railway equipment and railway and chassis for trucks and utility vehicles, as well as the pace of the renewal of the light commercial cars and bus fleets.

COMMERCIAL RISKS•����Competition�and�compression�of�prices:�

The policy of continued investments adopted aims at keeping the Company technologically updated and adjusted to the markets’ level of demand, as well as to the need to produce with better quality, more efficiency and adequate costs. This practice, always revised and renewed, has proved to be fit for the challenge of positioning Iochpe-Maxion in an environment of intense competition for markets, preserving its capacity for business expansion and for facing competitive pressures.

•��Concentration�of�the�portfolio:�Iochpe-Maxion implements efforts for diversifying its�portfolio�of�clients/customers,�for�searching business opportunities in new markets and minimizing the impact of a reduction of volumes due to variations that may occur of the demand by relevant�clients/customers.�This�works�happens through a dedicated planning for identifying opportunities that may be used in case of a sudden interruption of contracts, thus preserving the Company’s financial and operational parameters.

P. 48 ANNuAL REPORt 2007

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12

OUR SHARES AS INVESTMENT

Iochpe-Maxion’s preferential shares

at the end of 2007 were quoted at

R$37.40, which represents an accrued

valuation throughout the year of

111.4%. The common shares closed

the financial year at R$43.00 – an

increase of 184.2%.

Iochpe-Maxion preferential shares (Bovespa: MYPK4) ended 2007 at R$37.40, an accrued valuation of 111.4% throughout the year. The common shares (Bovespa: MTPK3) closed the fiscal year at R$43.00, an increase of 184.2%. In the same period, Ibovespa accumulated a 43.65% high, while the Index of the one hundred most negotiated shares in the São Paulo Stock Exchange (IBX-100) presented a 47.83% variation. By the end of 2007, Iochpe-Maxion’s market cap totaled R$2,094.1 million and the net equity per share reached R$6.34.

In 2007, Iochpe-Maxion kept its important presence in Bovespa’s business routine. Its shares presented a daily mean negotiation volume of R$4.6 million (R$3.5 million in 2006), with a daily mean number of 90 deals (134 in 2006).

As a result, on January 17, 2008, the shareholders holding Iochpe-Maxion preferential shares approved, at a Special Meeting to discuss the conversion of all the preferential shares of the Company into common shares. By the end of

February 2008, following the period of the withdrawal right for shareholders disagreeing from that resolution (there were none), the preferential shares were converted into common shares. Next, on March 24, 2008, Iochpe-Maxion joined the New Market segment of the São Paulo Stock Exchange, the essential aim of this incorporation restructuring.

The Administration made a proposal to the General Meeting (Assembléia Geral) for the distribution of R$27 million worth of dividends, R$0.56 per common share, which meant a 2% yield, with a basis on the share’s price by the end of February 2008. In accordance with the Company’s Bylaws, the basis for the calculation of the dividends corresponds to 37% of the Net Profit, with possible losses from previous fiscal years discounted.

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12 OUR SHARES AS INVESTMENT

2004

2006

2005

2007

EvOLutION/5 YEARS –

dECLAREd dIvIdENdS

16.1

22.8

28.026.8

2004

2006

2005

2007

EvOLutION /5 YEARS –

dIvIdENdS PER COMMON SHARE

0.28

0.40

0.500.56

2004

2006

2005

EvOLutION/5 YEARS –

dIvIdENdS PER PREFERENtIAL SHARE

0.31

0.44

0.55

2004

2006

2005

2007

EvOLutION/5 YEARS –

vOLuME OF NEGOtIAtEd SHARES

416

3,456

443

4,557

2003

47

2004

2006

2005

2007

EvOLutION/5 YEARS –

NuMbER OF buSINESSES

23

134

18

90

2003

5

2004

2006

2005

2007

EvOLutION/5 YEARS –

vARIAtION OF PREFERENtIAL SHARES X

IbX-100

2003

1.30 2.431.783.59

11

3.59

4.58 4.26

9.01

MYPk4

IBX-100

P. 50 ANNuAL REPORt 2007

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12 OUR SHARES AS INVESTMENT

EvOLutION/5 YEARS –

vARIAtION OF ORdINARY SHARES X IbX-50

2004

2006

2005

2007

EvOLutION/5 YEARS –

IOCHPE-MAXION – MARKEt vALuE

744895900

2,094

2003

201

2004

2006

2005

2007

EvOLutION/5 YEARS –

IOCHPE-MAXION – PAtRIMONIAL vALuE

186

267230

337

2003

151

2004

2006

2005

2007

EvOLutION/5 YEARS –

PRICE/PROFIt

14.716.7

12.5

27.5

2004

2006

2005

2007

EvOLutION/5 YEARS –

COMPANY vALuE/EbItdA

5.4 6.15.0

13.5

2003

3.5

2004

2006

2005

2007

2003

1.27 2.341.753.54

11

4.024.26

4.96

14.10

MYPk3

IBX-50

P. 51 ANNuAL REPORt 2007

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13

CORPORATE GOVERNANCE

Iochpe-Maxion adopts Corporate

Governance parameters that

comply with the best Brazilian and

international practices.

Iochpe-Maxion adopts governance parameters aligned with the best Brazilian and international practices, a reference put into practice by the use of clear conduct guidelines and by the observation of standards that are superior to those demanded by the legislation or by the market’s regulating bodies. Always renewed and enhanced, this vision has the purpose of strengthening the engagement of the Company and its administrators with transparency, equality in the treatment of shareholders, account rendering before all shareholders, and corporate responsibility.

In this scenario, the main progress concerning the 2007 financial year concerned the measures towards adapting Iochpe-Maxion to the requirements of the São Paulo Stock Exchange. As a result, on January 17 2008, the Special Meeting of Shareholders holding preferential shares approved the conversion of the preferential shares into common shares. On the same

date, a Special Meeting (Assembléia Geral Extraordinária),�in�addition�to�discussing�the conversion of the shares, approved the reformulation of the Company’s Bylaws and the composition of the new Board of shareholders, which went from 9 to 13 members, with a minimum of 20% being independent members. Later on, by the end of February 2008, following the period for the exertion of the right of withdrawal for shareholders disagreeing with the conversion resolution (there were none), the preferential shares were converted into common shares. Next, on March 24, 2008, Iochpe-Maxion joined the New Market segment of the São Paulo Stock Exchange, the essential aim of this company restructuring.

This important step stresses the respect for the best practices of governance and equity in the relationship with the market in general, and particularly with its shareholders, and happens two years after

P. 52 ANNuAL REPORt 2007

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13 CORPORATE GOVERNANCE

the adherence of the Company to the ‘Level I of Corporate Governance of São Paulo Stock Exchange’.

Another important sign of the respect for the Corporate Governance proviso is the presence of Iochpe-Maxion (MYPK4-PN) in Bovespa’s Enterprenerial Sustainability Index (Índice

As a subsequent fact, in March 2008, Iochpe-Maxion joined Bovespa’s New Market.

de Susteinabilidade Empresarial, ISE), for three consecutive years. ISE highlights the companies recognized as socially responsible, sustainable and profitable, able to generate value for their shareholders in the long-run horizon due to their greater capacity to face economic, social and environmental hazards. Also a part of Iochpe-Maxion’s commitment to good governance rules are the following:•��Code�of�Ethics,�a�document�that�bases�

the Company’s principles of conduct upon the relationship with clients, suppliers, collaborators and shareholders, among other audiences;

•��Audit�and�Variable�Remuneration�Committees (Comitês de Auditoria e de Remuneração�Variável)�an�advisory�body�to the Company’s Board of Directors;

•��Procedure�for�demonstrations�concerning accounting and control aspects, which allows any person to forward suggestions, criticisms and complaints directly to the Audit Committee of the Board of Directors, in a confidential and anonymous way.

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13 CORPORATE GOVERNANCE

Iochpe-Maxion follows a ‘Disclosure Policy” of all the information that may have an influence directly or indirectly upon the quotation or the fluctuation of its security assets or upon the investors’ decision to buy, sell or keep the Company shares. Through this practice, it seeks at every step to guarantee and consolidate

Through its ‘Disclosure Policy’, Iochpe-Maxion seeks to increasingly guarantee and consolidate reliability, speed and horizontality of the data concerning the Company.The aim is to build a relationship with the market that is always transparent and positive.

increased reliability, speed and horizontality of the available data, thus building an ever transparent and positive relationship with the market.

Therefore, in addition to the information in the form of ‘Relevant Facts’ or ‘Communications to the Market’ published in large circulation newspapers, the Company has been using the internet, especially through its Relations with Investors website (www.iochpe-maxion.com.br).

Along with the information concerning the areas of Corporate Governance, strategy and social responsibility, the website features detailed sections with the analysts’ coverage, Annual and Social Reports, presentations, teleconferences and news. The relationship of the Company with the market is also handled through direct contact in meetings with analysts and investors. In 2007, 32 interactions of this kind were promoted, in four conferences held upon invitation by banks and brokers – in Brazil and abroad – and in another four teleconferences for dealing with the quarterly results and other issues, in addition to a meeting with the representatives of the Association of the Investment Analysts and Professionals of Capital Markets. Held for the eighth consecutive years, the meeting ensured the awarding of the ‘Gold Seal’ (Selo Ouro) to Iochpe-Maxion, a prize for assiduity traditionally conceded by Apimec.

In 2007, the Company received the award “Brazil’s Best Executives and Shareholder-Friendly Companies” in the category ‘Small Cap’ from the Institutional Investor magazine. On this occasion, Mr. Dan Ioschpe won ‘Best CEO’, and the ‘Relations with Investors’ area, were awarded as the most available for shareholders.

dISCLOSuRE POLICY

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13 CORPORATE GOVERNANCE

According to the rules defined by new bylaws – and in line with the requirements of the New Market of the São Paulo’s Stock Exchange – Iochpe-Maxion’ Board of Directors increased from nine to thirteen members, with at least 20% of them independent members. They are all assigned a two-year mandate, with the possibility of re-election.

The Board of Directors, a collegiate resolution body, is responsible for the general policies and guidelines of the businesses, including the long-term strategy.

A collegiate resolution body, the Board is responsible for the establishment of the policies and general rules for the businesses, in addition to the Company’s long-term strategy. It holds ten common meetings a year, as well as special meetings under a convocation by its Chairman or, in his�absence,�by�the�Vice-Chairman,�or�by�two directors jointly. Also in accordance with the definition of the bylaws, the meetings are held subject to an attendance by most of the active members. The resolutions depend on the approval of the majority of members present.

Iochpe-Maxion’ Board of Directors is currently made up of the following members:

MEMbERSIvoncy brochmann Ioschpe

Chairman of the Counsel, 68, with a degree in Economic Sciences from the Federal University of Rio Grande do Sul. He was Chairman and a member of Instituto para Estudos e Desenvolvimento Industrial (IEDI – Institute for Studies in Industrial Development), in addition to being a member of the Business and Commerce Board of Development of the Ministry of Foreign Relations of Brazil. He has been a Director of Iochpe-Maxion since 1984. He is a Permanent Member, and has Dan Ioschpe as a Substitute.

Salomão IoschpeIs 44 years old and has a degree in

Economy, Finance and Political Studies from the Institute of Political Studies in Paris and an MBA from Case Western Reserve University. He’s the CEO of BMA Automotive, a consulting company based in Cleveland, Ohio. He was Iochpe-Maxion’s Operations Officer for North-America between 1994 and 1999. He is a Permanent Member of the Board.

bOARd OF dIRECtORS

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13 CORPORATE GOVERNANCE

Gustavo berg IoschpeIs 30 years old and has a degree in

Strategic Management and Political Science from the University of Pennsylvania and a Master’s Degree in Economic Development and International Economy from Yale University. He is the author and co-author of several books in the area of Education, a contributor to several nationwide magazines and newspapers, a projects consultant for the World Bank in the area of education and founder and Chairman of G7 Cinema. He is a Member of the Board of the Iochpe Foundation Counsel (Conselho da Fundação Iochpe), of the All for Education Committment (Compromisso Todos pela Educação), Ecofuturo Institute, Fundação Padre Anchieta and an advisor for Fundação Victor�Civita.�He�has�been�a�Permanent�Member of Iochpe-Maxion’s Board of Directors since 2007. His Substitute is Debora Berg Ioschpe Russowski.

Mauro KnijnikIs 67 years old and graduated in Economy

from the Federal University of Rio Grande do Sul – UFRGS. He was Secretary of Finance of the state of Rio Grande do Sul, President of the Board of Directors of the Banco do Estado do Rio Grande do Sul (Banrisul – State Bank of Rio Grande do Sul).

President of the Junta de Coordenação Financeira do Estado do Rio Grande do Sul (Financial Coordination Board of Rio Grande do�Sul)�and�Vice-President�of�Iochpe-Maxion�S.A. Since 1984, he has been a Member of Iochpe-Maxion’s Board of Directors. He is a Permanent Member.

Iboty brochmann IoschpeIs 58 years old and graduated in Economic

Sciences from the Federal University of Rio Grande do Sul – UFRGS. He has been a Director of Iochpe-Maxion since 1984. A Permanent�Member,�he�has�Cláudia�Ioschpe� as a Substitute.

Mauro Litwin IochpeIs 58 years old and has a degree in

Business Administration from Pontifícia Universidade Católica de Porto Alegre-RS. He has been a Director of Iochpe-Maxion since 1992. He is a Permanent Member, and has Leandro Kolodny as a Substitute.

Nildemar SecchesIs 57 years old and studied Mechanical

Engineer at the Universtiy of São Paulo; has a post-graduate degree in Finance from Rio de Janeiro’s PUC; and, attained a doctorate in Economy at Unicamp-Campinas. CEO and President of Empresas Perdigão since 1995, he is also Chairman of Weg’s Board of Directors, Board of Directors of Ultrapar since 2002. He has been a Member of Iochpe-Maxion’s Board since 2004. He is a Permanent Member, and has Ronald Aldworth as a Substitute.

Roberto Mangabeira ungerIs 61 years old, and Brazil’s Extraordinary

Minister for Strategic Issues (Ministro Extraordinário�de�Assuntos�Estratégicos).�He graduated in Law from the Federal University of Rio de Janeiro and furthered his studies in the USA. He is a Permanent Member, and has José Wellington Marques de Araújo as a Substitute.

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Jorge Eduardo Martins MoraesIs 51 years old and trained as an

Engineer at the Federal University of Rio de Janeiro, with a master’s degree in Business�Management�from�Coppead/UFRJ.�Since 1982 at BNDESPAR, he is currently a manager at the Department of Follow-Up in the Capitals Market Area. He was the Economic Advisor of the Ministry of Planning, Budget and Management between January 2004 and May 2005, acting in the Public-Private Unit. He was a Member of the Board of Directors of several companies, having been a Member of Iochpe-Maxion’s Board of Directors between August 2000 and April 2003, and since 2006. He is a Permanent Member, and has Rodrigo Caldas Nunes as Substitute.

thomas bier HerrmannIs 57 years old and has a degree in

Business Management from the Federal University of Rio Grande do Sul and in Juridical and Social Sciences from PUC-RS. He is Renner Herrmann’s Chairman and has been Market Relations Officer since 1997, having started his career in that company in 1973. He is a Permanent Member.

Israel vanboinIs 63 years old, has a degree in

Mechanical Engineering from the Federal University of Rio de Janeiro (UFRJ) and an MBA from Stanford University. He is Chairman of the Unibanco Holdings Board of Directors, being a member of its Board since 1994. He joined Unibanco in 1969 and has been a member of its Board of Directors since 1988. He is an Independent Member.

Luiz Antonio Correa Nunes viana de Oliveira

Is a Mechanical Engineer who graduated from the Federal University of Rio de Janeiro with a post-graduate degree from PUC-RJ and the London Business School. He was the CEO of Makro Atacadista, Net Serviços de Comunicação, Petrobras Distribuidora and the Pão de Açúcar Group.�Was�the�Director/CEO�of�Grupo�Ultra, Senior Investment Officer of IFC and the Director of BNDES and Banco Denasa de Investimentos. He is a member of TAM, MAM-SP, Renctas and of the Board of Directors of the Academia Brasileira de Cinema (Brazilian Academy of Cinema), of which he was founder and the first President. He was a Member of the Aracruz, Arafertil, Copesul, Riocell, Perdigão and Pão de Açúcar Boards of Directors. He is an Independent Member.

décio SilvaIs 51 and a Mechanical Engineer who

graduated from the Federal University of Santa Catarina, with a post-graduate degree in Business Management from the Escola Superior de Administração e Gerência (ESAG – College of Administration and Management). He started his career at WEG in 1979, being its CEO and President since 1989. He is a member of Perdigão’s Board of Directors. He is an Independent Member.

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With four members, all of whom with a two-year mandate with the possibility of re-election, the Officers of the Board of Executive (Diretoria Executiva) is responsible for the running of Iochpe-Maxion’ business routine and for the execution of the strategies indicated by the Counsel of Administration. The members of the Board of Executive officers do not have a seat in the Counsel of Administration.

The Board of Executive Officers has the responsibility of running the businesses and of implementing the Board of Directors resolutions.

The current members are:

dan IoschpeIs 43 years old. Graduated in 1986 from

the Federal University of Rio Grande do Sul, and attained a post-graduate degree in 1988 from ESPM-SP. Has a master’s degree in Business Management (MBA) from the Amos Tuck School of the Dartmouth College (EUA), which he finished in 1991.

He joined the Iochpe Company in 1986, and occupied several positions until June 1996, when he left the company to take up the presidency of AGCO in Brazil. He returned in 1998, and assumed the Presidency of Iochpe-Maxion in the same year. He has been a Director of Profarma Distribuidora de Produtos Farmacêuticos since 2006.

Armando ulbricht JúniorIs 62 years old and graduated in

Mechanical Engineering from the University of São Paulo (USP). He worked for Engesa – Engenheiros Associados S.A. between 1975 and 1985. He joined the Company in 1986. Since 1990, he has held the position of Superintendent Officer in the Wheels and Chassis Division of the Subsidiary of Maxion Automotive Systems.

Oscar Antônio Fontoura beckerIs 56 years old and graduated in

Business Management from Faculdade São Judas Tadeu. He joined the Company in 1983. He acted as main executive of Iochpe Seguradora between 1989 and 1994. He has occupied the position of Officer of Corporate, Financial and Investors Relations of Iochpe-Maxion since 1994.

bOARd OF EXECutIvE dIRECtORS

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Marcos LucheseIs 49 years old and has a degree in

Mechanical Engineering from the Pontifícia Universidade Católica (PUC) of Rio Grande. He joined the Company in 1981, initially as a trainee. Since 1997 he has held the position of Superintendent Officer of the Division of Automotive Components in the subsidiary company of Maxion Automotive Systems.

In addition to these members of the Board of Executive Officers (Diretoria Executiva), the Superintendent Officer of Amsted Maxion, a joint venture between Iochpe-Maxion and Amsted Industries, in the United States: José Antônio Correa Rodrigues.

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The Financial Board (Conselho Fiscal) is a body that acts independently of the administration of auditors appointed by the Board of Directors. It consists of three members elected at the General Meeting. They all have a one-year mandate, and may be re-elected. Among the main responsibilities of the Financial Board are

Among the responsibilities of the Financial Board are the analysis of financial statements and the communication of their advice to the Company’s shareholders.

the analysis of financial statements and the communication of the corresponding expert analyses to the Company’s shareholders.

Iochpe-Maxion’s Fiscal Counsel is constituted as follows:

Ademar Rui bratzIs 61 years old. Has a degree in

Business Management (MBA) from the Universidade Federal do Rio Grande do Sul and a master’s degree in Business Management from the University of Syracuse, in the USA. In addition to being a Member of Iochpe-Maxion’s Financial Board, he also acts as a consultant for Olvebra�Industrial�S/A.

bernardo Augusto Lobão dos SantosAppointed by the minor shareholders,

he is 26 years old and has a degree in Economics from Rio de Janeiro’s IBMEC. Since 2001 he has been an analyst of securtities for ARX Capital Management Ltd.

Maurício diácoliIs 48 years old, and has a degree in

Accounting from the FMUSP, with a professional extension in the areas of Finance and Accounting (with a specialization in National and International Accounting (US GAAP). He has over 15-years’ professional experience in an international auditing and consulting company.

FINANCIAL bOARd

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Since 2005, Iochpe-Maxion’s Board of Directors has had two ‘Advisory Committees’, with the aim of raising its standards of Corporate Governance and evolving in terms of commitment to the market’s best practices.

The Auditing and Variable Remuneration Committees were implemented in order to elevate the standards of governance.

The two Committees are:•��The�Auditing�Committee:�Formed by three members with a one-year mandate, and chosen by the Board of Directors. At least one of its members has to be a Director also. The Auditing Committee’s responsibilities are:

•��To�assess�and�recommend�to�the�Board�of Directors the companies that can be contracted as External Auditors;

•��To�issue�opinions�on�the�choice�or�change�of the senior executive of the internal audit or general accountant;

•��To�assess�the�results�of�the�external�audits�and include reservations, should the case arise;

•�To�review�the�quarterly�balances;•��To�review�the�internal�processes�and�

controls;•��To�assess�the�notification�systems�for�

effective or potential risks, as well as the risk management policy;

•��To�assess�policies�and�practices�in�such�a�way as to guarantee the integrity of the financial reports;

•��To�assess�changes�that�may�be�proposed�concerning accounting principles and practices; and

•��To�assess�the�performance�of�both�of�the�internal and external financial and auditing teams.

Currently, the Auditing Committee is made up as follows:

•��Mauro knijnik, Member of the Board of Directors.

•��Mauro Litwin Iochpe, Member of the Board of Directors

•��Pedro Ozires Predeus, 63, is an accountant and became a partner of PricewaterhouseCoopers, where he worked for 30 years.

AdvISORY COMMIttEES

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•��Variable Remuneration Committee Has three members, all with a one-year mandate and chosen by the Board of Directors. According to the bylaws, there is no obligation for the members to also be Directors of Iochpe-Maxion.

The Committee is responsible for the following:•�To�review�and�recommend�to�the�Board of Directors the salaries, bonuses, options for the purchase of shares and other possible benefits for the Company’s executives;•�To�periodicaly�review�and�recommend�the necessary changes in the policies and programs of the remuneration of executives, so as to stay in touch with market standards and the expected performance; and•�To�periodically�review�and�assess�the�changes in the Company’s program of granting of options and to issue recommendatons to the Board of Directors.

The�Variable�Remuneration�Committee�is constituted as follows:•��Jorge�Eduardo�Martins�Moraes, Member

of the Board of Directors.•��Nildemar�Secches,�Member of Iochpe-

Maxion’s Board of Directors.•��Luiz�Antonio�Correa�Nunes�Viana�

de Oliveira, Member of the Board of Directors.

EXtERNAL AudItS

In compliance with Instrução No. 381 of�the�Comissão�de�Valores�Mobiliários,�we�hereby inform you that, for the financial year of 2007, Iochpe-Maxion and its subsidiary companies contracted services unrelated to the external auditing – including advice on the assessment of risks in tax and partnership matters, in addition to training in partnership legislation – the consolidated amount of R$26,000, which is 7.0% of the value of the fees contracted for the services of financial statement audits. Iochpe-Maxion, after a discussion with its independent auditors, has concluded that such performed services did not affect the independence and objectivity, due to the definition of the scope and of the procedures carried out. Iochpe-Maxion adopts as a policy to comply with the regulations that define the restrictions on independent auditors’ services.

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PROSPECTS

Growth of the main areas of

operation. The new road railway

production unit in China should be

operational by the second quarter.

The entry of Iochpe-Maxion in the

New Market of the São Paulo Stock

Exchange.

For 2008, the prospects signal a year of growth in the two main areas where Iochpe-Maxion operates.

In the vehicle parts and components for commercial vehicles (trucks, buses, light commercial vehicles and agricultural machines) another growth year is expected, given the expectations for a growth rate of 5% in Brazil’s Gross Domestic Product, in addition to a domestic scenario of macroeconomic stability. The excellent prospects for the agricultural sector should also be pointed out, which has a strong influence upon the decisions to purchase commercial vehicles, as well as the prospects of a good harvest and the high prices for the agricultural commodities.

In the area of railway equipment, the expectations are also reasonbably favorable, if for no other reason than the low levels of the domestic demand for such equipment evidenced from the second half of 2006 until the third quarter of 2007. The national concessionaires of the railway freight service are projecting relevant investments for the next years, with an eye on strong growth of the iron

ore volumes, iron-based metallurgy products and grains to be transported, which will lead not only to a more favorable scenario, but especially to a more stable one than in the previous years.

In the overseas market, the prospects divide into two trends: in the field of exports from Brazil, the scenario should be of difficulties for the maintenance of volumes and margins, due to the Real’s constant valuation. On the other hand, the start of operations of the new factory of road railway, located in Nantong, China, from the second quarter of 2008 on, should lead to the recovery of the competitiveness in the external market. The possibility of recession in the North-American market, due to the real estate crisis, should also be pointed out, since that market was responsible for 49.7% of the consolidated exports in 2007.

Finally, the year of 2008 should be marked by the appearance of Iochpe-Maxion on the São Paulo Stock Exchange’s New Market – the highest level in Brazil’s capital market.

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CORPORATE INFORMATION

RELAtIONS WItH INvEStORSIochpe-Maxion S.A.Rua Luigi Galvani, 146 – 13º andar04575-020 – São Paulo-SPPhone: (11) 5508-3800 – Fax: (11) 5506-7353Luis Fernando Abreu E-mail: [email protected]: www.iochpe-maxion.com.br

ASSIStANCE tO SHAREHOLdERS ANd ACCOuNtING SHARESBanco Bradesco S.A.Shares and Custody DepartmentCidade de Deus – Prédio Amarelo – 2º andar06029-900 – Osasco-SPAll Banco Bradesco S.A. are able to provide assistance to Shareholders of the Company.Site: www.bradescocustodia.com.br

bANK ISSuING AdRS, LEvEL I– SYMbOL: IOCJY101 Braclay Street – 22nd WestNew York, NY 10286Estados Unidos da AméricaSite: www.adrbny.com

NEGOtIAtIONS IN StOCK EXCHANGESIochpe-Maxion’s shares are negotiated in all of Brazil’s Stock Exchanges, the volume, however, being negotiated at Bovespa –�Bolsa�de�Valores�de�São�Paulo�(Ticker�MYPK3).

bOARd OF dIRECtORSIvoncy Brochmann Ioschpe – President Décio Silva – DirectorGustavo Ioschpe – DirectorIboty Brochmann Ioschpe – DirectorIsrael Vainboim – Directorjorge Eduardo Martins Moraes – DirectorLuiz Antonio Correa Nunes Viana de Oliveira – DirectorMauro Litwin Iochpe – DirectorMauro knijnik – DirectorNildemar Secches – DirectorRoberto Mangabeira Unger – DirectorSalomão Ioschpe – DirectorThomas Bier Herrmann – Director

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FINANCIAL bOARdAdemar Rui BratzBernardo LobãoMaurício�Diácoli

bOARd OF EXECutIvE OFFICERS Dan Ioschpe – Chief Executive Officer Oscar A. Fontoura Becker – Financial and Relations with Investors Officer Armando Ulbricht jr. – Officer Marcos Luchese – Officer

SuPERINtENdENt OFFICERS – SubSIdIARY ANd JOINt vENtuREAmsted Maxion Fundição e Equipamentos Ferroviários�S.A.�–�José�Antônio�Correia�Rodrigues

Maxion Automotive Systems •�Wheels�and�Chassis�Division� – Armando Ulbricht jr.•��Automotive�Components�Division��– Marcos Luchese

Advisory Committees •��Advisory�Committee�� •�Mauro�Knijnik •�Mauro�Litwin�Iochpe •�Pedro�Ozires�Predeus

•��Variable�Remuneration�Committee� •�Jorge�Eduardo�Martins�Moraes •��Luiz�Antonio�Correa�Nunes�Viana�de�

Oliveira•�Nildemar�Secches�

EXtERNAL AudItOR KPMG Auditores IndependentesCRC�2SP014428/O-6

AddRESSESIochpe-Maxion S.A.Rua Luigi Galvani, 146 – 13º andar04575-020 – São Paulo-SP – BrasilPhone: (11) 5508-3800 – Fax: (11) 5506-7353E-mail: [email protected]: www.iochpe-maxion.com.br

Amsted Maxion Fundição e Equipamentos Ferroviários S.A.Rua Dr. Othon Barcellos, 7712700-000 – Cruzeiro-SP – BrasilPhone: (12) 3184-1400 – Fax: (12) 3144-4018E-mail: [email protected]: www.amsted-maxion.com.br Wheels and Chassis divisionRua Dr. Othon Barcellos, 8312700-000 – Cruzeiro-SP – BrasilPhone: (12) 3184-1000 – Fax: (12) 540-1185E-mail: [email protected]: www.maxioncr.com.br

Automotive Components division of Maxion Sistemas AutomotivosRua Haeckel Ben Hur Salvador, 10032341-000 – Contagem-MG – BrasilPhone: (31) 2191-1500 – Fax: (31) 2191-1690E-mail: [email protected]: www.maxion.ind.br

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