Masisa living room Melamine Teca Limo architect: viviana melamed casa foa 2015
ANNUAL REPORT
2015
∑
Contents
03
Scope
56 - Gross Earnings
07
President’s Statement
57 - Net Change in Biological Assets 57 - Administration and
chapter i
Distribution Expense
THE COMPANY AND ITS CONTEXT
58 - EBITDA
10
MASISA’s Presence in Latin America
59 - Financial Costs Net of Financial Income
11
Corporate Governance
59 - Exchange Rate Difference
24
Triple Bottom Line Model
27
Principal Shareholders
59 - Profits Attributable to the
28
Operating Environment
Controller’s Owners
29
Opportunities
30
Risks
and Monetary Correction
60 - Balance Sheet
62 Model for Creating Sustainable Value chapter ii BUSINESS STRATEGY
63 Social Performance
35
Vision and Mission
63 - MASISA Employee Profile
40
Corporate Objectives and Strategy
64 - Health and Safety Management
40
- Focus on the Final Customer
66 - Employees and Engagement Management
43
- Innovation to Create Value
67 - Community Engagement
45
- Living the Brand
68 - Supplier Development
46
- Operational Efficiency
49
Strategic Long-term Commitments
70 Environmental Performance 71 - Energy and Air Emissions
chapter iii
72 - Water Consumption and Efficiency
ANNUAL PERFORMANCE
72 - Waste Management
51
Financial Performance
73 - Wood Fiber Origin Control
51
- Markets
73 - Forestry Environmental Stewardship
52
- Sales
55
- Cost of Sales
76 Previous commitments 2014 Annual Report
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Scope The 2015 Annual Report contains consolidated information on the financial, social and environmental performance of all MASISA-controlled companies from January 1 to December 31, 2015. The report also contains information about the management focus on relations where MASISA exercises significant influence but is not the controller, as well as those in which it does not have major influence but which pose important challenges for the company. This goal of this document is to meet the expectations and respond to questions from the company’s main stakeholders. It addresses topics of interest to investors, financial analysts and other stakeholders who may have a specific interest in MASISA’s financial, social and environmental performance.
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Content ∑∑ MASISA’s Editorial Committee, led by the company’s CEO, identifies the content and defines a strategy for collecting and reporting information. The committee then works with each of the countries where MASISA has industrial, forestry and business operations to gather the information. The task of identifying topics and prioritizing the most important ones included a survey of a sample of 33 investors conducted in December 2015. This information revealed that investors use the MASISA Annual Report as an information and reference tool. The topics they expect to find in the Annual Report are mainly related to financial performance, the business strategy and the business model. When it comes to social and environmental topics, they are most interested in forest management, energy consumption and supplier management. Based on this information, we created a content matrix that identifies the most important topics and influences the approach and depth of the content; these can be found in the two upper quadrants of the matrix.
+ Importance/Impact on the business
Operational Health and Safety
-
Development of furniture-makers
Employee commitment Waste Management
Biodiversity
CO2 emissions Energy & NCRE
Forest management Supplier management Water use Communities
Importance to stakeholders (investors)
+
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Focus ∑∑ This Annual Report has been prepared in accordance with the guidelines of the Framework of the International Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI 4), prioritizing the most important content for the business that reflects value generation, in line with the triple bottom line approach that sets MASISA apart. ∑∑ This Annual Report also constitutes and declares the Communication on Progress of the United Nations Global Compact, confirming MASISA’s commitment since 2003 to report on its achievements and efforts to comply with the Global Compact’s Ten Principles. ∑∑ Details of the GRI and Global Compact Communication on Progress indicators are available at www.masisa.com. ∑∑ In that sense, based on this report we have decided to also link MASISA’s performance to the United Nations Sustainable Development Goals.
United Nations Sustainable Development Goals WORK AND ECONOMIC 8 DECENT GROWTH
12
RESPONSIBLE CONSUMPTION AND PRODUCTION
INNOVATION AND 9 INDUSTRY, INFRASTRUCTURE
15
LIFE ON LAND
How do we validate the information we publish? To determine the data and calculations presented in this report, we use regulated procedures aligned with MASISA’s internal measurement models, which are in line with international standards such as ISO 9001, OHSAS 18001, ISO 14001 and FSC®. Therefore, we have decided not to seek external verification of the social and environmental topics addressed in this document. To complement the information gathering exercise, in 2015 MASISA and VIGEO, a global company with expertise in measuring responsible performance, carried out an exhaustive analysis of the company’s actions and risks in the areas of corporate social responsibility with a focus on the investor segment. The financial figures presented in this Annual Report were audited by KPMG and prepared in accordance with International Financial Reporting Standards (IFRS), except where regulated otherwise by the Chilean Superintendency of Securities and Insurance in Order No. 856, dated October 17, 2014. This order requires that starting with the 2014 fiscal year, companies report deferred tax asset and liability differences in shareholders’ equity due to the increase in the first bracket tax rate introduced by Law 20,870.
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Contact As in previous years, we have published a summary of the full document to make it more accessible to readers and reduce our environmental footprint. The complete version may be found at www.masisa.com Please contact us for more information about the 2015 Annual Report or MASISA’s performance.
Eugenio Arteaga I. Chief Financial Officer Francisca Tondreau S. CSR Manager Ignacio GonzĂĄlez G. Corporate Communications Manager
Address: Av. Apoquindo 3650 piso 10. Las Condes. Santiago. Chile Phone: (56 2) 2 707 88 00 (56 2) 2 350 60 00 Email: info@masisa.com
www.masisa.com
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President’s Statement
T
he year 2015 will be remembered as a very challenging one for the business world, especially in emerging economies, including Latin America. Although the winds of change and drastic adjustments in almost all of the economies in our region were already apparent, the initial projections underestimated the impacts.
In this adverse scenario, our response was to proactively meet these challenges by anticipating situations and implementing mitigation measures, putting the competencies and capacity of our risk management and decision-making processes to the test.
The decrease in oil prices reached unexpected levels and the strength of the dollar surpassed what could justifiably be expected in the first months of the year.
MASISA’s ability to adapt to the new and volatile macroeconomic environment, marked by both political and social uncertainty, has been the company’s priority. Decisions were made to protect the company’s financial health, carry out a consistent internal reorganization, achieve important improvements in cost efficiencies, and focus our growth based on strengths and better opportunities.
The impacts of these two factors, in addition to other political and social imbalances within each country, resulted in poor economic performance in Latin American countries, particularly Venezuela, Brazil and Argentina.
In the financial arena, we implemented strict controls over investments and working capital, and also decided to execute a plan to reduce company debt by US$100 million, through the divestment of assets that were not well aligned with our long-term strategy.
There were strong recessions in these three countries and significant deceleration in the others, almost without exception. This had repercussions in the form of capital flight, lower investment and consumption levels and substantial decreases in securities exchange indexes.
At year’s end, 80% of this plan had been carried out and we expect to exceed our goal in the second quarter of 2016, as predicted. As part of this process, in February 2016 we conducted a successful bond repurchase program for US$100 million, reducing part of the company’s highest-cost debt. In addition, in September we decided to implement a market maker program to strengthen share liquidity.
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Starting in July, we adjusted our numbers in Venezuela to the SIMADI exchange rate, at that time considered the best alternative for representing our financial statements. This adjustment had important impacts on equity and profits but was considered timely and necessary. The company’s internal reorganization not only simplified country operations but also corporate operations, and even the work of the Board of Directors. The board’s composition changed with the incorporation of two executives from the parent company. This decision, as has been explained, was based on its interest in increasing direct and active participation in this new era, in order to streamline decisions and promote efficiencies at the highest level. In addition, the Board defined the importance of corporate management focused on operating results, and a Board President who, through an Executive Committee, directly manages important long-term matters. In regard to cost efficiency, the plan presented to the market involving US$40 million in reductions was easily met, supported by measures with one-time impacts as well as ongoing efforts such as implementation of the LEAN program, which represented US$6 million. Sources of growth for the company were mainly focused on the forestry business, exports to the United States, the performance of Mexican operations, and improvement of the product mix resulting from the MASISA innovation program that is steadily advancing. On the other hand, the situation in Brazil was difficult, in part because of macroeconomic problems and also due to internal weaknesses in the local wood board industry, which has resulted in a strong decline in industry margins and company margins overall. On a consolidated basis, wood board sales volume fell by 1.9% from the previous year. Total net sales revenue, recurring except for Venezuela, decreased 11.3% and operating profits were down 6.3%. The company’s recurring EBITDA excluding Venezuela fell by 1.3% and net income was US$2.3 million, an increase of US$41.1 million compared to 2014. This is fundamentally due to revaluation of forests.
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The value of MASISA’s assets was affected by devaluations, mainly in Venezuela, falling 36.1% from US$1.179 billion to US$754 million at the end of 2015. The company received some important recognition during the year. MASISA was named among the 10 most innovative companies in Latin America, according to the “Innovación made in Latam” study conducted by the School of Economics and Business at the University of Chile. It was recognized as a leader in terms of information transparency in the “Corporate Transparency Index” created by the consulting firm Inteligencia de Negocios and Universidad del Desarrollo, KPMG and Chile Transparente. MASISA was recognized as a Sustainability Leader, one of the top companies for investor relations, and awarded third place in corporate governance by Alas 20, Agenda Líderes Sustentables 2020. In 2015 we strengthened the health, environment and safety (HES) standards contained in the HES Excellence Manual. This manual is a fundamental tool for establishing best practices and achieving a safe and healthy workplace, as well as conducting our activities in an environmentally appropriate way, in line with MASISA’s triple bottom line management. There will also be many challenges in 2016. Based on what we’ve learned and the deepening of the proactive strategies we’re committed to, we will strengthen our capacity and opportunities for the long term. This Annual Report reflects new transparency standards and continued integration of our financial, social and environmental results. In addition, we are reporting all of our actions in compliance with the Global Compact requirements, renewing our commitment to the proposed principles. I would like to express our sincere thanks to our employees, customers, investors, suppliers and other partners for their trust in the company and our competencies. Because of this trust, we are even more committed to ensuring a prosperous future.
Roberto Salas G.
chapter ________ one
The Company and its Context
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MASISA’s Presence in Latin America ∑∑ MASISA’s core business is to produce and market wood boards for furniture and interior architecture in Latin America. ∑∑ The strategic forestry unit also has a very important role in guaranteeing the success of our core business.
Important Aspects of MASISA’s Operations in the Region México
4
78
TOTAL
Industrial Placacentro facilities stores
198.021 Hectares of forest
Venezuela
93.333* Hectares of forest
36
Placacentro stores
1
Diversified manufacturing base and final markets in the region.
•
Competitive, differentiated strategy: final customer orientation, effective innovation, brand and operational efficiency.
•
Largest specialized distribution network in Latin America: MASISA Placacentro.
•
198,000 hectares of forest plantations.
•
Industry leader in health, safety and the environment.
•
Leadership and commitment to sustainable development (triple bottom line approach).
•
Favorable growth outlook: low product penetration and a significant housing deficit in Latin America.
•
Corporate governance that has been widely recognized.
50
Brazil
7.741
32
Hectares of forest
Placacentro stores
2
Industrial facilities
Perú
20
Placacentro stores
Uruguay
Bolivia
1
6
Placacentro stores
Placacentro stores
Argentina
Chile
2
•
Industrial Placacentro facility stores
Ecuador
Hectares of forest
Producer of wood board (PB-MDP-MDF) for furniture in Latin America, with a special focus on design and value added.
10 332 Industrial Placacentro facilities stores
Colombia
49.308
•
51
Industrial Placacentro facilities stores
47.639 Hectares of forest
1
58
Industrial Placacentro facilities stores
* MASISA owns100% of the easement and rental rights, but only 27% of the land is Company property. The remaining 73% is owned by the Venezuelan government.
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Corporate Governance ∑∑ MASISA’s corporate governance is a key element of its sustainable, long-term business strategy. This governance promotes effective and efficient management of the company’s resources, creating an environment of healthy internal control and creating value for better decision-making on behalf of shareholders and stakeholders.
Corporate Governance Model
SH
AR
ER OLD EH
S AND STAK EHO LDE
RS
B Pri usi n
T Lin riple eS t
k en
es ur & es
Ris g a an M
em
Who are accountable? The Board of Directors and its Committees, along with management comprising the management levels, and each and every one of MASISA’s employees.
i ci P ol ce d Pro
t
EMP
AG E M E N T
Value Creation
MAN
ss ne ples ci
m t to Bo tegy ra
C OMM I T T E E S
THE BOARD
For whom do we govern? For our shareholders and stakeholders, who benefit from our practice of transparency, ethics and honesty in the way we do and manage business.
L OYEE S Our Governance strategy Our governance strategy is underpinned by four core pillars, which as a whole define and regulate the company’s operations, whose objective is to create value.
Directors
Standing: Ramiro Urenda Morgan Independent Director 1 Degree in Business Administration, Adolfo Ibáñez University, Chile. I.D. No. (RUT): 6,150,586-5 Director since 04/29/15.
Roberto Salas Guzmán President Degree in Economics, Catholic University of Guayaquil, Ecuador. MBA, Esade / Adolfo Ibáñez Business School. Executive Development Program, Kellogg Business School, United States. Advanced Management Program, Wharton Business School, United States. I.D. No. (RUT): 22,660,992-K Director since 04/29/152.
Roberto Artavia Loría VicePresidente Vice-President Degree in Naval Engineering, U.S. Merchant Marine Academy. Doctorate in Business Management, Harvard Business School, United States. MBA, INCAE, Costa Rica. Costa Rica Passport No.: 105210914 Director since 04/29/15.
Andreas Eggenberg Director Director Degree in Economics and Political Science, University of Lausanne. Swiss ID No.: X2652698 Director since 04/29/15.
Seated: Miguel Héctor Vargas Icaza Director Certified Public Accountant, Economic Specialist and Finance Professor, National Autonomous University of Mexico. I.D. No. (RUT): 24,074,431-7 Director since 04/25/12. Reelected to the board on 04/29/15.
1 2
Rosangela Mac Cord de Faría Directora Degree in Accounting, University of Rio de Janeiro, Brazil. Boards & Audit Committee Executive Program, Harvard Business School, United States. MBA, Fundación Getulio Vargas, Brazil. I.D. No. (RUT): 21,713,586-9 Director since 03/25/09. Reelected to the board on 04/29/15.
Jorge Carey Tagle Director Law Degree, Catholic University of Chile. Master’s Degree in Law, New York University, United States. I.D. No. (RUT): 4,103,027-5 Director since 04/22/04. Reelected to the board on 04/29/15.
In the 2014 fiscal year, Salvador Correa Reymond served as the independent director. Previously, in 2008 and until March 2009, he also served as President of the Board of Directors.
Directors until April 28, 2015, when the Board of Directors was completely replaced and the following were not reelected:
– Enrique Cibié Bluth. Degree in Business Administration. Catholic University of Chile. MBA, Stanford University, U.S.A. ID No. (RUT): 6,027,149-6 – Enrique Seguel Morel. General, Chilean Army. MBA, ESADE, Barcelona, Spain. I.D. No. (RUT): 3,116,588-1 – Salvador Correa Reymond. Degree in Industrial Engineering, University of Chile M.S. in Management, Stanford University, U.S.A., I.D. No. (RUT): 5,606,742-6 – Gerardo Larraín Kimber. Degree in Business Administration, Complutense University of Madrid. Law Degree, Complutense University of Madrid., I.D. No. (RUT): 6285350-6 (Served as Director until March 31, 2015, when he resigned from the board).
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Board of Directors ∑∑ The current Board of Directors was elected on April 29, 2015 for a period of three years. The Board is the highest governing body of the company and represents the interests of all shareholders, regardless of who elected its members. Its mission is to protect and enhance the value of company equity.
T
he Board of Directors is a decision-making body made up of seven members elected at the Ordinary Shareholders Meeting*. Six of the directors, including the President and Vice President, were elected with votes from controlling shareholder Grupo Nueva, while the seventh director (Mr. Ramiro Urenda Morgan) was elected with votes from minority shareholders, mainly Chilean pension management funds. Mr. Urenda Morgan also serves as an independent director in accordance with the provisions of Law 18,046 on corporations.
Four directors have served for less than three years; one has served between three and six years; one has served between six and nine years; and one director has served on the board between nine and 12 years. One of MASISA’s directors is between 41 and 50 years old; three are between 51 and 60 years old; one director is between 61 and 70 years old; and two are more than 70 years old.
In a Board of Directors meeting held immediately after the 2015 Ordinary Shareholders Meeting, Mr. Roberto Salas Guzmán was designated President of the Board and Mr. Roberto Artavia Loría was named Vice President.
On June 8, 2015, the Chilean Superintendency of Securities and Insurance (SVS) issued General Regulation No. 385 (repealing Regulation No. 341), on reporting information about corporate governance standards adopted by corporations.
The chief executive officer of MASISA is appointed by the Board of Directors.
Following Regulation No. 385, the company’s Board of Directors submitted to the SVS and published the information requested on time. The extent to which the Company has adhered to governance practices for 2015, based on the SVS form, is available at www.masisa.com.
diversity of the board of directors
general regulation n° 385
The MASISA Board is made up of seven directors, of which six are male and one of which is female. Of these, two directors are Chilean and five are from other countries.
* MASISA shareholders did not formulate any comments or proposals during the meeting held on April 29, 2015 or during the 2015 fiscal year.
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board’s performance self-evaluation process The company’s Board of Directors conducts an annual self-evaluation. This self-evaluation is supported by a formal process aimed at continuously improving its operation as a decision-making body, fulfilling its role in providing strategic guidance, effectively controlling executive management and being responsible to all shareholders and stakeholders.
Among the strengths highlighted by the self-evaluation are the following: •
Compliance with the agenda, provision of sufficient, timely and quality information about the key businesses and issues for the company.
This self-evaluation involves all members of the Board and is coordinated by the Board’s President. Finally, the results of the self-evaluation are discussed in a Board of Directors session with a presentation of the main conclusions and actions for improvement, if necessary.
•
Effective monitoring of company risk management.
•
Follow-up of online management with the company’s principles and values.
During February and March 2016, the President led the Board through the performance self-evaluation process. All Board members participated in the process, which involve the following:
In addition, the following opportunities were identified: •
Formalization of a training plan on risk and sustainability topics.
•
A questionnaire with direct questions (19) grouped into five areas of Director activity, plus one with the conclusion.
•
Closer oversight of the execution of the Company’s priority plans through the recently created Strategy Committee.
•
A web-based, anonymous and automated self-evaluation process.
•
Supervision of a talent succession plan for MASISA.
•
A review of the process by consulting firm Ernst & Young (E&Y), as an independent party.
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Board Committees ∑∑ The Board has a committee structure whose main objective is to ensure that governance and transparency practices are applied on behalf of all MASISA shareholders.
directors’ committee
risk and audit committee
Created in April 2001, this committee reviews the financial statements and external auditors’ reports; proposes to the Board the names of external auditors and risk rating agencies chosen at the respective Ordinary Shareholders Meeting; analyzes information on transactions with related parties under Title XVI of Law 18,046, issues a report to the Board to support decision-making with respect to the same; examines the remuneration systems and compensation plans for MASISA managers, senior executives and employees; prepares an annual report on management; and makes recommendations to the Board regarding hiring of the external audit firm to provide services other than audits.
Established in June 2005, the Risk and Audit Committee’s central purpose is to assist the Board with strategies adopted to manage key risks inherent to the business and provide continuous monitoring of the internal control environment of its operations. MASISA’s Internal Audit Division and the Whistle-blower Channel fall under the committee’s administration and guidance.
strategy committee The Strategy Committee was created in October 2015 with the aim of ensuring long-term strategic management and closer oversight of its execution.
Directors’ Committee Ramiro Urenda (Committee Chair) Rosangela Faria Andreas Eggenberg
Audit Committee
Board of Directors
Rosangela Faria (Committee Chair) Roberto Artavia Héctor Vargas
Strategy Committee Roberto Salas (Committee Chair) Roberto Artavia Ramiro Urenda
Management Committees executive committee
disclosure committee
Created in April 2015. Through this committee the President of the Board received the mandate to exercise certain executive roles for managing the strategy and other important long-term matters, enabling Corporate Management to focus primarily on operating results. In addition to the President, this committee’s members include the Chief Executive Officer, the Chief Financial Officer, the Legal Counsel and the Strategic Planning and Development Officer.
Made up of MASISA executives, this committee is responsible for providing support to the Board of Directors and upper management with respect to the reliability of information that the Company releases to the market and stakeholders.
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attendance at board meetings The Company’s Board of Directors met 17 times in 2015, including 12 ordinary sessions and 5 extraordinary sessions. Attendance at said meetings was as follows: director
attendance
Jorge Carey Tagle
17 / 17
Rosangela Mc Cord de Faría
17 / 17
Salvador Correa Reymond ***
04 / 04
Enrique Seguel Morel ***
* 04 / 04
Miguel Héctor Vargas Icaza
17 / 17
Gerardo Larraín Kimber*
04 / 04
Enrique Cibié Bluth ***
04 / 04
Roberto Salas Guzmán **
12 / 12
Ramiro Urenda Morgan **
12 / 12
Roberto Artavia Loría **
11 / 12
Andreas Eggenberg **
11 / 12
* Served as Director until March 31, 2015, when he submitted his resignation from the Board. ** Directors since April 29, when they were elected in the Ordinary Shareholders Meeting. *** Directors until April 29, 2015, when the entire Board was replaced and they were not reelected.
Delegation of Authority
Management
The level of authority exercised by management is formally delegated by the Board through the Authority Delegation Policy (which was last updated in June 2015), available to MASISA employees through the company’s internal communications channels.
Management is responsible for the design, dissemination, follow-up, effectiveness and updating of the Corporate Governance Strategy. Assisted by corporate and operations functions, it provides leadership and establishes the necessary parameters to ensure an appropriate and effective environment of execution and control at all levels and is directly involved in achieving planned objectives. These roles are carried out through internal management processes which include regular meetings with key teams, as well as visits to countries and units where MASISA has operations.
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Senior Executives
Board of Directors
President Roberto Salas G. Roberto Salas G.
Executive Committee
Directors’ Committee
Strategy Committee
Corporate Chief Executive Officer and Chief Executive Officer of Masisa Andina* Marcos C. Bicudo
Comité de Riesgo y Auditoría
Internal Audit Marcelo Villalón T.
Country Managers Masisa Venezuela Arturo Arizaleta P.
Masisa Argentina Luciano Tiburzi Y.
Masisa Brasil Armando Shibata
Masisa México Ramiro De León S.
Function Managers Chief Financial Officer Eugenio Arteaga I. Corporate Counsel Patricio Reyes U. Strategic Planning and Development Renato Daziano M.
Manufacturing, HES and Corporate Supply Iván Rubio H.
Corporate and Andina Forest Jorge Echeverría V.
Corporate and Andina Human Capital Wladimiro Woyno Q.
Corporate Communications Ignacio González G Corporate Social Responsibility Francisca Tondreau S.
* Masisa Andina: Chile, Colombia, Ecuador, Peru
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Business Principles
Financial Results
∑∑ The Business Principles are a set of values and standards that guide the actions of all MASISA employees and serve as a reference framework for decisionmaking in the different business areas.
Corporate Conduct
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We consistently strive to create sustainable value.
Our company is committed to ethical and transparent conduct with high levels of governance.
Individual Conduct
We demand honest, honorable and transparent personal conduct.
Customer Relations
We promote long-term, trust-based relationships with our customers, offering quality, innovative and sustainable products as well as service excellence.
Employee Relations
We develop high-performance work teams in a healthy and safe working environment based on respect for human rights.
Relations with the Community, Suppliers, Society and the Environment
We are committed to engaging with our neighbors, communities, suppliers, society and the environment on the basis of mutual respect and cooperation.
Every new employee is instructed in the Business Principles Statement and signs it each year to indicate their commitment to complying with it. All employee orientation processes include a workshop on the Business Principles and all employees are invited to these workshops to ensure they are familiar with them. The Business Principles are contained in the contracts the company signs with suppliers.
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MASISA’s Business Principles and the Global Compact
Business Principle Whistleblowing Facility
Since 2002 MASISA has adhered to the Global Compact’s Ten Principles, which are aligned with its Business Principles.
MASISA provides communications channels for direct or anonymously whistle-blowing related to the observance of its business principles, standards for ethical conduct, conflicts of interest and any other issue concerning possible breaches of the regulations of its internal control environment, financial statements and situations or events that require the attention of management and/or the Board of Directors.
In 2015, the company actively participated in the local chapters of the Global Compact and its executive committees in Chile and Argentina, promoting the organization’s principles both internally and externally. For more information about the Communication on Progress for the United Nations Global Compact, visit www.masisa.com
Annual Declaration of Business Principles and Conflicts of Interest Every year the company conducts a Business Principles survey of all employees at levels 5 through 13. The goal of this survey is to validate knowledge of our principles at all levels of the company. Each employee who completes the survey confirms their commitment to adhering to the principles. This tool is designed for early detection of potential conflicts of interest and invites our employees to report any situation in order to ensure the transparency of employee relations with suppliers, customers and others, as established by law.
A timely, independent and confidential analysis is guaranteed for all complaints made, without any repercussions for the reporting party, through a structured process monitored by the Board’s Risk and Audit Committee and independently of company management. Complaints may be submitted in writing in a confidential envelope to the Secretary of the Risk and Audit Committee at Av. Apoquindo 3650 piso 10. Las Condes, Santiago, Chile, or to principios@masisa.com The main lessons learned from the different reports and communications received through this channel are published each quarter in internal newsletters, always maintaining the proper degree of confidentiality and data protection, that is, focusing on the facts and lessons learned rather than people and countries involved.
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Business Principles
Corporate Conduct
15
Individual Conduct
4
Employee Relations
1
Communications received during 2015
Received
Ongoing
Resolved
20
0
20
In 2015, the Business Principles channel received 20 complaints, all of which have been resolved as of the date of publication of this Annual Report. One complaint contained some information that enabled us to improve processes and interaction among stakeholders or was valid in terms of total or partial breach of our principles. Nineteen of the complaints were invalid. All reports received were ensured appropriate treatment in terms of identification of the facts, due process and application of internal improvements in situations warranting them. None of the complaints received through this channel in 2015 involved crimes of bribery, terrorism financing or asset laundering, as described in Law 20,393. MASISA promotes responsible use of this whistleblowing facility, always striving to safeguard the integrity of our employees and the company’s reputation.
Legislation and regulations of each country in which MASISA has operations
Formalizes governance and transparency practices, which underpin value creation at all MASISA’s operations.
Law Business Principles Corporate Governance Code Delegation of Authority Policy
Guidelines issued by the corporate management teams that regulate MASISA’s operations.
Corporate Policies & Procedures Local Policies & Procedures
Values and standards that are a guideline for employees, and a reference framework for decision-making in the different business areas.
This sets out the responsibilities regarding the functions and authority of all MASISA’s officers and levels.
Framework of action that employees must follow to achieve MASISA’s objectives.
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Governance and Transparency Practices and Policies corporate governance code MASISA has a Corporate Governance Code. This document contains and incorporates the recommendations of the Organization for Economic Cooperation and Development (OECD) and disseminates our world-class practices internally, to the market and other stakeholders. These recommendations underpin value creation in all of our operations in a sustainable way and are aligned with our Business Principles.
handling of conflicts of interest and use of insider information MASISA has a formal process to handle situations that may involve a possible conflict between the interests of our employees and/or Board of Directors and the company’s interests. Possible conflicts of interest are channeled to the legal department for suitable treatment, in accordance with the company’s internal guidelines and current legislation. To guarantee adequate understanding and management of matters that could result in conflicts of interest, directors and employees report yearly, or whenever there is a change in what was previously reported, on their business, activities or principal investments, either directly or through any related persons. In addition, MASISA has policies and formal procedures for handling and disclosing information that could affect the price of company shares or other securities. It also prohibits directors and executives from undertaking transactions of company shares or other securities with insider information. Pursuant to the provisions of General Regulation No. 211 of the Superintendency of Securities and Insurance, in May 2008 the company’s Board of Directors approved the Manual on Handling Confidential Information. The manual was updated in accordance with General Regulation No. 270, dated January 27, 2010 and published on the MASISA web site (www.masisa.com), as well as the web site of the Superintendency of Securities and Insurance (www.svs.cl).
investor relations The company is committed to delivering all relevant information to investors in the quickest and most transparent way possible, always making sure the company maintains the highest levels of integrity and complies with corporate governance goals. Therefore, MASISA’s Investor Relations team manages relations and communications with investors and other stakeholders in a systematic and transparent way. The company holds quarterly conference calls on its results and issues quarterly press releases on earnings and general press releases.
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Risk Management: By identifying, evaluating and managing risks and internal controls, MASISA protects and increases value for its shareholders and stakeholders. Risk management is the responsibility of management and its regularly monitored by the Board of Directors, supported by the Risk and Audit Committee. MASISA has a formal and systematic process through which it supports risk management for its businesses. Among the components of this process are: •
Annual evaluation of key risks, conducted by management and reported to the Board of Directors.
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Independent evaluations performed by the internal audit unit of the company’s internal control structure.
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Certification assessments (ISO, OHSAS, FSC®, etc.) undertaken by external companies.
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Review of the company’s financial statements by external and internal auditors.
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Inspection of risks in MASISA operations carried out by insurance companies.
The result of internal and external evaluations and the status of compliance with action plans that management has committed to are regularly monitored by the Risk and Audit Committee.
Risk Model Conceptual Framework Definition
Board/Management Management meetings and Oversight of Action Plans
Management Key Risk Assessment
IDENTIFY
ASSESS
MONITOR
MANAGE Link Strategic Objectives Definition of Management Strategy
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law on corporate criminal liability MASISA has designed a risk prevention model to comply with Law 20,393 on Corporate Criminal Responsibility (the “Law”), based on a governance framework comprised of policies and procedures for processes that may be related to bribery, asset laundering and terrorism financing.
GOVERNANCE ENVIRONMENT Business Principles
Principles Channel
Corporate Governance Code
Governance Policies (PDA)
RISK MANAGEMENT Prevention Activities: - Publicity and training - Risk identification and analysis - Implementation of preventive controls.
Detection Activities: - Audits / Tests - Review of Litigation - Review of Complaints
Reports Response Activities: - Coordinate disciplinary sanctions - Communication and disclosure of any cases observed 3
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3 Management & Finance
Human Capital
CSR Operations
Commercial
OVERSIGHT Risk & audit Committee
Directors’ Committee
Reports to the Risk & Audit Committee / Board
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Support Areas Legal
Reports to Local and Corporate Management
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Crime Prevention Officer: Internal audit manager.
2
Definition of the means and faculties available to the Crime Prevention Officer.
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Setting up of a crime prevention system.
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Oversight and certification of the crime prevention system.
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To comply with the provisions of the law, MASISA designated the internal audit manager as the person responsible for supporting and strengthening processes to prevent these crimes. This designation was renewed in a session of the Risk and Audit Committee on July 28, 2015 for a period of three years. Following are the activities carried out in 2015: •
Training campaign for employees.
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Notification sent to senior executives with lessons learned from prominent cases related to the law.
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Tests of the risk matrix in processes involving permits, donations, customs agencies and rendering of accounts. No findings.
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Confirmation by internal legal counsel that there are no lawsuits or trials that are related to the law. There were no complaints associated with the crimes described in the law during 2015.
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Triple Bottom Line Model ∑∑ MASISA undertakes its business based on the triple bottom line model, which involves comprehensively and simultaneously obtaining the highest ratings for its financial, social and environmental performance. This strategy is regularly monitored using the Sustainability Scorecard, an expanded version of the Balanced Scorecard. The Sustainability Scorecard includes ongoing monitoring of the strategic objectives in the areas of finance, customers, processes and technology, social and environmental responsibility and learning and development.
MASISA’s Sustainability Policy MASISA has a sustainable development policy governing all MASISA-controlled companies and/or investments. This policy, approved by the Board of Directors, encompasses aspects such as triple bottom line management, impacts on operations (environmental, social and economic), social license, stakeholders, the Sustainability Scorecard, the responsibilities of each part of the organization, values and the Business Principles declaration. According to this policy, MASISA is committed to managing its business in a sustainable way, seeking to maximize financial, social and environmental returns. That entails incorporating social and environmental variables as an integral part of its business strategy, which is presented in its Sustainability Scorecard and its governance indicators, operating through triple bottom line management. In this context, social responsibility is viewed as responsible and ethical interaction with our neighboring communities and diverse stakeholders.
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MASISA’s Sustainability Strategy
The sustainability strategy is aligned to the business and gives it a return.
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Strategic focus on global warming.
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Maximum commitment management, and primary and secondary education level.
E m pl o y e e s
Safe, healthy operations.
t Glo ba l en viro n m e n a n d s o ciety
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C o m m u nitie s
We offer certified wood products and boards with low formaldehyde emissions.
Engagement with all our suppliers using environmental and social criteria. Critical supplier development.
Strategic focus on the development of small- and mid-sized furniture makers. Management of operating impacts. Knowledge and permanent dialogue. Contribution to the local development of critical communities.
Sustainable Development Council The Sustainable Development Council, made up of country and division managers, proposes MASISA’s medium- and long-term sustainability policy; defines policies, programs and leadership goals to ensure that MASISA achieves world-class standards for financial, social and environmental management; identifies and reports on emerging issues; and supports the executives of MASISA and its subsidiaries in meeting their goals. Management for each country proposes environmental and social goals for approval at the corporate level and implements the programs and actions to meet them. Those responsible for these tasks have a functional relationship with MASISA’s Sustainable Development Council. To ensure that goals, actions and programs are executed, they must be included in independent review processes carried out regularly by the internal audit unit. The Sustainable Development Council meets twice each year and invites civil society experts to participate and provide external views on MASISA’s strategy.
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Recognition in 2015
∑∑ Corporate Transparency – Chile
∑∑ Top 10 in Innovation – Latin America
Once again, MASISA was among the Chilean companies recognized for being most open with information, obtaining fourth place among the 93 companies analyzed in the sixth version of the “Corporate Transparency Index,” developed by consulting firm Inteligencia de Negocios (IdN) with Universidad del Desarrollo, KPMG and Chile Transparente.
More than 500 companies in six Latin American countries were analyzed as part of the “Innovation made in Latam” study led by researcher Juan Pablo Torres of the University of Chile, who ranked MASISA among the 10 most innovative companies in the region, in eighth place.
This result places the company among those companies that have reached international standards for corporate transparency.
∑∑ Most Sustainable Company – Brazil MASISA Brazil was chosen by Guia Exame de Sustentabilidade as the most sustainable construction materials company in the country.
∑∑ Most Sustainable Company – Argentina The American Chamber of Commerce in Argentina (AMCHAM) awarded the prize for “Corporate Citizenship”, recognizing sustainable company management, choosing MASISA Argentina as one of the 10 leading companies in the country in the area of sustainability.
∑∑ DuPont Safety Reference – Brazil To highlight successful cases of the use of personal protective equipment, as well as excellent health and safety management, DuPont ranked MASISA in second place in the chemical protection category in Brazil, from 90 cases presented.
∑∑ Sustainability Leader – Chile MASISA earned first place as a Sustainability Leader in the ALAS20 - 2020 Sustainable Leadership Agenda awards for 2015. MASISA was also a finalist in the Investor Relations Leader category ALAS20 is an initiative of GfK Adimark and GovernArt, which seeks to promote sustainable development in Latin America through corporate management and investment decisions, as an effective way to achieve a more sustainable, equitable and inclusive world.
∑∑ Corporate Governance Leader – Chile MASISA earned third place in the Corporate Governance Leader category, part of the Sustainable Leaders Agenda 2020, ALAS20 Chile, in its 2015 version. This recognition was based on the continuous strengthening of the governance strategy in order to achieve a sustainable, long-term business that promotes effective and efficient management of resources, creating a healthy internal control environment and contribution to value creation for shareholders and other stakeholders.
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Principal Shareholders MASISA shares are traded on the Santiago Stock Exchange, the Valparaíso Stock Exchange and the Chilean Electronic Stock Exchange. As of December 31, 2015, MASISA’s share capital was divided into 7,839,105,291 subscribed and paid-in shares. The main shareholders are Grupo Nueva, pension fund administrators, foreign investors via Chapter XIV (direct foreign investment in the local market) and investment funds. MASISA’s controlling shareholder, Grupo Nueva, exercises control directly through the Chilean companies GN Inversiones Limitada and Inversiones Forestales Los Andes Limitada, which together own 67.00% of MASISA’s share capital. Grupo Nueva’s main asset is its majority ownership of MASISA, a company through which it exercises its role as an investor specialized in the forestry sector. No shareholders hold 10% or more of the capital or voting capital other than the controller. The 12 main shareholders of subscribed and paid-in voting capital as of December 31, 2015, are the following:
name *
# shares
% share
gn inversiones limitada
3,639,886,299
46.43%
inv forestales los andes limitada
1,612,485,819
20.57%
afp habitat s.a.
516,773,707
6.59%
banco de chile por cuenta de terceros no residentes
348,570,391
4.45%
btg pactual small cap chile fondo de inversion
205,013,723
2.62%
afp cuprum s.a.
167,900,292
2.14%
afp capital s.a.
154,598,847
1.97%
banchile c. de b. s.a.
115,580,722
1.47%
credicorp capital s.a. corredores de bolsa
101,654,358
1.30%
chile fondo de inversion small cap
80,761,587
1.03%
bolsa de comercio de santiago bolsa de valores
80,457,835
1.03%
mbi corredores de bolsa s.a.
69,600,592
0.89%
(*) Pension Funds (AFP) shareholdings include the A, B, C & D funds.
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masisa shareholders by type gruponueva
67.00%
capítulo xiv
5.01%
pension funds (afp)
11.06%
others
16.93%
The controlling shareholder of 100% of the shares of GN Inversiones Limitada and Inversiones Forestales Los Andes Limitada, through a series of companies, is the foreign company Nueva Holding Inc. The owner and final proprietor of 100% of the shares of Nueva Holding Inc., through a company, is the Bamont Trust Company Limited (Bamont), which acts as a trustee representing the interests of the trust incorporated according to the laws of the Bahamas called Viva Trust. Pursuant to the trust structure, Mr. Mark Thomas Bridges, a British national, and Frank Gulich, a Swiss national, are jointly the protectors of Viva Trust, who in turn have the power to appoint and remove the members of the Advisory Committee, a body that administers the Viva Trust and is in charge of implementing and controlling the strategy of the mentioned trust.
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Operating Environment ∑∑ The United Nations Development Programme (UNDP) describes Latin America as a middle-income region: the majority of the 42 countries and territories in the region belong to that category. The diversity of the region includes the only low-income country in the Western Hemisphere, Haiti, as well as some emerging world powers that are among the members of the OECD–Chile and Mexico–which along with Argentina and Brazil are members of the G20. In addition, Brazil is the seventh largest economy in the world.
A
ccording to the UNDP, from 2000 to 2010 the region experienced its greatest economic growth in the last four decades. This economic bonanza, along with the creation of jobs and some of the most innovative social policies, elevated more than one-third to the middle class (70% of these are located in Brazil, Mexico and Argentina). The region is on its way to reaching the Sustainable Development Objectives. Poverty has been reduced and today is at its lowest levels in three decades. Infant mortality has fallen and progress is being made to overcome disease. However, maternal mortality rates continue to be high and there is still much to be done to promote gender equality in the labor market and in legislatures, as well as access to education and reproductive health services. Sanitation services also require significant improvements and there is a great need to revert the loss of forests, according to a recent joint evaluation conducted by the Economic Commission for Latin America and the Caribbean, the UNDP and other UN organisms4.
4
www.latinamerica.undp.org/content/rblac/es/home/regioninfo/
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Opportunities Wood board consumption growth in the region The growing use of wood board and other wood products in furniture and interior architecture in Latin America, along with unmet demand for housing in the region’s countries, will be a source of future growth for MASISA. The number of housing units needed in Latin America is estimated to be 51.4 million. To meet this need, 19.5 million cubic meters of wood board will be needed. That represents 1.9 times current consumption in the region. We estimate that annual wood board consumption per inhabitant in Latin America is four times lower than more developed countries. In this context, there are large growth opportunities in countries of great importance due to their size such as Brazil, Mexico and other markets in Latin America. In Mexico, in addition to being an underdeveloped housing market, wood board and other wood products exhibit low penetration in the industry and are increasingly being used instead of plywood and solid wood to build furniture and interior architecture. To capture these opportunities, the company is building an MDF plant in Durango that will begin operations in the first quarter of 2016.
Exports and Growth We focus our export growth efforts from our production units in Latin America to diverse countries in the region as well as North America, Asia and Europe. Based on this growth outlook, we are constantly evaluating and seeking opportunities to build or acquire industrial plants and/or enter into new partnerships with existing market participants.
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Risks Financial and exchange rate risks MASISA is exposed to volatility in the financial markets such as exchange rate and interest rate variations that arise in the countries where MASISA operates. These risks may result in both gains and losses when valuing cash flows or balance sheet positions. MASISA’s Board of Directors and Management are responsible for establishing risk management and control policies. They also determine strategies and actions on the basis of the evolution in markets around the world but particularly in Latin America where the company focuses its operations. The company faces exposure, both in terms of financial results and assets and liabilities, to variations in the value of currencies other than the functional currencies in the countries where the company operates. With respect to earnings exposure, most of the company’s sales are in or are indexed to the respective local currencies of each country, while costs and expenses are a combination of local currency and foreign currency, generating an unfavorable net exposure to devaluation to local currencies versus the U.S. dollar. In general terms, when Latin American currencies are devalued, the operating income of wood boards declines, and vice versa. The aforementioned effects are partially compensated by export sales, which in 2015 represented 17.6% of consolidated sales; by the forestry business, which is strongly indexed to the U.S. dollar and represented approximately 11% of consolidated sales and 34% of consolidated recurring EBITDA in 2015; and by the capacity to implement price increases in the different local markets in order to make up for the deterioration of operational margins that would occur as a result of devaluation of local currencies. These price increases differ in each market, depending on the degree of openness of each local economy and the competitive situation. With respect to balance sheet items, the key items with exposure are local bonds in UF (unidad de fomento, an inflation-indexed reference currency used in the Chilean economy), which the company seeks to hedge with derivatives. The company’s policy in relation to currency risk is to hedge its cash flows by maintaining debt obligations in each operation’s functional currency and match significant obligations or payment decisions in currencies other than the U.S. dollar. Accordingly, the company assesses the convenience of undertaking hedging derivative instruments in the market for cases where achieving hedge through own business cash flows or debt is not possible or advantageous. The company currently maintains derivative instruments in the following categories: •
Cross Currency Swaps (CCS): These derivatives are used to hedge debt denominated in UF, which comes mainly from bonds placed in Chile. Such derivatives offset the effects of fluctuations in the UF/US$ exchange rate.
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Currency forwards: The company uses currency forwards to ensure exchange rate levels for future scheduled and significant transactions, such as investments, fund transfers, payments to suppliers and other major cash flows. These instruments are used to eliminate the exchange rate risk from fluctuations in the relative value of the different currencies.
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Interest rate risk To finance its assets, MASISA has financial debt with banks and other financial institutions and with the public (bonds). Local bonds have a fixed interest rate denominated in UF, while international bonds have a fixed rate in US$. Part of the bank debt is subject to interest rates with a variable component, generally expressed by the London Interbank Offering Rate (LIBOR). As of December 31, 2015, the Company held no variable interest rate hedges.
Currency Purchasing Risks in Venezuela and Argentina Venezuela has an exchange rate control system that regulates access to U.S. dollars. This exchange rate control system has been under constant review in the last few years. Some recent important changes are described below. In January 2014 the government created a new institution, the Foreign Trade Center (CENCOEX), governing exchange rate control. This entity took over the attributions and responsibilities of the Currency Administration Commission (CADIVI). On February 10, 2015, the government announced changes to the exchange system, essentially merging the SICAD and SICAD 2 currency systems into one system known as SICAD. As of December 31, 2015 the rate in this system was B$13.5:US$ 1. In addition, a new market mechanism known as the Marginal Currency System or SIMADI was set up for purchase and sale of cash and securities in foreign currencies. This mechanism enables individuals and companies to buy and sell foreign currency in the financial market through regular auctions whose allocation criteria are not only based on price. SIMADI has gradually become more important in meeting the market’s need for dollars, despite being a market with very low liquidity. The merging of the SICAD and SICAD 2 systems and establishment of SIMADI means that there are three official exchange rate systems: CENCOEX, SICAD and SIMADI. Therefore, during 2015, dollars could be obtained through these three mechanisms and also by retaining part of the revenue from export sales, as detailed here: (a) The first mechanism for obtaining US dollars is the CENCOEX, which had a rate of B$6.3:US$1 for all of 2015. This system is focused primarily on food and medications. In 2014 the company was able to obtain US dollars through this system for a significant portion of its supplies and parts importation needs, but in 2015, it did not have access to dollars through this mechanism. (b) The second method for obtaining U.S. dollars is the Supplementary Currency Management System (SICAD), which operates through regular auctions and is part of the Central Bank of Venezuela. The SICAD auctions operate through tenders aimed at specific economic sectors and allocation of US dollars is based on other criteria in addition to the price offered. Additionally, Exchange Rate Agreement No. 25 of January 23, 2014 established that capital payments, dividends, consultancies abroad, travel and payments of intangible assets will be conducted at a similar exchange rate to that established in the latest SICAD allocation. As a reference, the latest allocation through this mechanism as of December 31, 2014 was at a rate of B$11.3/US$1 and the latest allocation as of December 31, 2015 was at a rate of B$13.5/US$1. The company was able to obtain US dollars in 2014 through this system for a portion of its imported supplies and parts, but in 2015 it did not have access to dollars through this method in the auctions that were held. This system lost much of its importance in the market during 2015. (c) The third method for obtaining US dollars is the recently created SIMADI, a market system designed for currency purchases and sales not covered by the two other exchange rate systems. This market operates through regular auctions that are based on other criteria in addition to price. Relative to the other two official mechanisms, the SIMADI has been gradually gaining importance in the market, although transac-
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tions continue to be for small amounts and this remains a shallow market. The SIMADI exchange rate as of December 31, 2015 was B$198.7/US$1. Since the SIMADI’s creation, the company has neither bought nor sold dollars through this mechanism. (d) A fourth method for obtaining U.S. dollars is from export revenue. Exchange Rate Agreement No. 27 of March 10, 2014 established that 60% export revenue may be retained abroad. The remaining 40% of export revenue must be converted in the Venezuelan market at a rate equal to the latest SICAD 2 prior to its elimination in February 2015, which was B$52.1/US$1. This provision changed recently, as is explained below. In 2014 the company used this mechanism to cover most of its needs in terms of importing supplies and parts. Meanwhile, in 2015 the company covered all of these needs. Starting in the middle of the second quarter of 2015, the SIMADI exchange rate system gained importance in meeting the needs of the Venezuelan private sector, as the CENCOEX and SICAD focused on specific, limited economic sectors and became less relevant. Different government entities incorporated the SIMADI exchange rate into the issuance of official documents and to calculate items such as customs duties or taxes. Meanwhile, the SIMADI exchange rate is used to convert payments in bolivars to foreign currency for operations such as international credit card payments. Likewise, the prices in bolivars of imported goods other than food products or medications have increased as a result either of the SIMADI or the parallel exchange rate. Bearing in mind the situation and current trends, and despite the fact that Exchange Rate Agreement No. 25 of January 23, 2014 mentioned in letter (b) gives the company the right to repatriate dividends and capital at the SICAD exchange rate, the company concluded that under the current conditions, the SIMADI method is the reference exchange rate that best reflects the reality of operations in Venezuela for issuing its financial statements. Therefore, starting with the financial statements for the period ended June 2015, the SIMADI exchange rate has been applied to record foreign currency items and operations and to convert the financial statements for consolidation purposes. And because Venezuela is a hyper-inflationary economy according to the International Financial Reporting Standards (IFRS), the operating results for the period January 1, 2015 to December 31, 2015 have been converted using the SIMADI rate in effect on December 31, 2015, which was B$198.7/US$1. On February 18, 2016, the Venezuelan government published Exchange Agreement No. 34, which introduced the following amendments to the exchange rate system and the mechanisms for obtaining foreign currency, taking effect immediately: (1) The CENCOEX system will continue to be focused basically on food and medications and the exchange rate for this system will be changed from B$6.3/US$1 to B$10.3/US$1. This exchange rate, known as Dipro since March 2016, had an initial level of B$10.0/US$1. (2) The Supplementary Currency Management System (SICAD) has been eliminated. (3) Rather than using the latest SICAD 2 exchange rate of B$52.1/US$1 to convert the mandatory 40% of export income into bolivars (as described in letter d), the SIMADI rate at the time of conversion will be used. In addition, companies that export can also opt to convert the other 60% of export revenue in the market at the SIMADI rate or retain this amount abroad. Furthermore, in March 2016 the SIMADI exchange rate became known as Dicom. In Argentina, on December 16, 2015, that country’s Treasury Ministry announced that as of December 17, 2015, it would lift restrictions on access to the Single Free Foreign Exchange Market (Mercado Único y Libre de Cambios, MULC) for buying and selling currencies for portfolio investment abroad (accumulation) or for paying dividends. Therefore, any individual or entity can now buy up to US$2.0 million per month in foreign currency for these purposes, gradually opening up the market. Meanwhile, the maximum monthly
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amount for import purchases is US$2.0 million until February 29, 2016. This amount increases to US$4.0 million from February 29 through May and then, starting in June, there will be no limit on the amounts that can be purchased. In recent years, the company’s Argentine subsidiaries have been able to pay dividends to the parent company in Chile as scheduled, mainly through the official foreign exchange market. In 2015 the company did not have access to the official exchange rate for distributing dividends and thus resorted to the market known as “cash with liquidation” to pay US$20.4 million.
Market exposure risk The possible emergence of new players or intensified competition in the markets in which the company operates always represent latent risks. The company has therefore focused on improving quality and innovative product offerings, broader brand recognition, greater cost efficiency and the development of distribution channels and business strategies that bring MASISA closer to its final customers. MASISA has implemented a strategy to expand its production and business operations in other countries in the region, especially where it can gain competitive advantages or where there is significant development potential. The company believes that it is solidly positioned in the markets in which it participates, thus enabling it to maintain profitable operations that offer opportunities for achieving sustained growth.
Operating risk In the normal course of its operations, the company faces supply risks in terms of raw materials, especially chemical resins and wood, which are essential elements for manufacturing its products. To minimize these risks, it has long-term agreements with chemical resin suppliers and in some countries such as Mexico and Venezuela, it has begun to manufacture its own resins. In regard to wood supply, MASISA has forest plantations in Chile, Brazil, Argentina and Venezuela. In addition, the company’s policy is to diversify its sources of supply of third-party wood residue, reducing its dependency on individual suppliers. MASISA also faces the risk of damage to its mills and forests, the risk of losses at its warehouses, third-party damages, legal contingencies, and commercial and other risks. Management tries to identify these risks in order to prevent their occurrence to the extent possible, minimize the potential adverse effects, and cover, via insurance policies held with international insurance companies, any possible losses due to such events. In regard to fiber supply in Chile, both the original agreements with Hancock, as well as the recent transaction in which MASISA sold the 19% of shares it held in Hancock Chilean Plantation, have established the necessary safeguards to ensure that MASISA has a long-term supply of fiber or forestry sub-products. In addition, MASISA maintains its repurchase options related to forest assets involved in the transactions.
capitulo ________ two
Business —strategy
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MISSION / PURPOSE To bring design, quality and sustainability to every item of furniture and interior space, improving people's lives. VISION To be the No. 1 company in Latin America in bringing added value and solutions for furniture and interior spaces and the most attractive company to customers, investors, employees and communities. STRATEGIC PILLARS Focus on the final customer
Most valued brand
Innovation
Competitiveness in costs and expenses
FOUNDATIONS Superior Quality Product / Safety / Sustainability / Corporate Governance / Committed Organization
•
Updated in December 2015
∑∑ Masisa’s corporate strategy defines its main business as the production and sale of wood boards for furniture and interior architecture (MDF and MDP/PB) in Latin America, and it is the second largest company in this segment in the region in terms of production capacity. MASISA’s value proposition is to be a reliable brand, close to its stakeholders, that anticipates market needs through innovation in products with attractive designs and services, and that operates responsibly towards society and the environment. MASISA has 10 wood board industrial complexes spread across Chile, Argentina, Brazil, Venezuela and Mexico. They have earned ISO 9001, ISO 14001 and OHSAS 18001 certifications, with the exception of the recently acquired Rexcel plants in Mexico. MASISA Industrial has an installed industrial capacity of 3,327,000 cubic meters per year for the production of boards, in addition to 1,798,000 cubic meters per year for melamine and film-coated boards. Likewise, it has total production capacity of 721,000 cubic meters per year for sawn lumber and MDF moldings.
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∑∑ MASISA has an extensive product mix for the furniture and interior architecture industries, which are produced following strict quality controls and high social and environmental standards. The company’s main products are:
∑∑ MDF boards
∑∑ PB boards
Medium density fiberboard, which is characterized by its excellent finish, reduced wear and tear on tools and the significant savings on paint it offers compared with other types of wood boards. MASISA manufactures MDF boards of different characteristics, formats and thicknesses, which are marketed as raw or film-, melamine- or paint-coated boards.
Medium density fiberboard, which is characterized for being resistant and lightweight. PB is used in the manufacture of furniture, mainly in applications where a flat finish is required. MASISA produces particle boards of different characteristics, formats and thicknesses, which are marketed as raw, or film- or melamine-coated or plated boards.
∑∑ MDP boards
∑∑ Melamine boards
Medium density particle board is ideal for making furniture with straight lines or organic shapes. It is notable for its homogeneousness, resistance, dimensional stability and density, which makes it ideal for new uses in printing, painting and coating processes.
Melamine boards are PB, MDP or MDF coated on both sides with decorated sheets impregnated with melamine resins, which give them a totally closed pore-free surface, which is hard and resistant to surface wear and tear. These boards come in a wide range of colors and textures and offer the best variety of designs, woods and colors.
∑∑ MDF moldings
∑∑ Sawn lumber
MDF moldings are sold in different profiles and thicknesses. They are mainly used for finishes in wall-floor, wall-ceiling joins and in door and window frames.
MASISA produces dry sawn lumber, which is marketed in various thicknesses and lengths. It is mainly used to manufacture packaging or pallets, furniture and in construction.
∑∑ Interior cladding Decorative modular solutions for cladding walls and interior spaces in a quick, simple and clean manner using different forms and designs, available in paneling, grooved, melamine, plated and painted formats.
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Investment plans
m as i s a 3 7
WORK AND ECONOMIC 8 DECENT GROWTH
INNOVATION AND 9 INDUSTRY, INFRASTRUCTURE
MDF (Medium Density Fiberboard) plant – Mexico
12
RESPONSIBLE On July 4, 2013, MASISA’s Board of Directors approved the construction of an MDF plant in the industrial CONSUMPTION PRODUCTION complex located in Durango, Mexico. This plant will have an MDF board production capacity of AND 220,000 cubic meters per year, plus a melamine or board coating line with a production capacity of 110,000 cubic meters per year.
During 2015, the project developed as planned, reaching 95% completion, with all the main equipment installed and in the dry run testing period. The production test phase is planned for the first half of 2016. The extension of the chemical plant is progressing as planned and is also expected to become operative in the first half of 2016.
EVOjet project – Brazil During 2013 and 2014, US$18 million was invested to improve the gluing process of the MDF line in Ponta Grossa, Brazil. The new process is based on dry bonding technology using the EVOjet system resin blending system, thereby avoiding the pre-curing and degradation of the resin. This process is expected to reduce current resin consumption by 35%. The new process began operating in the first half of 2015 and is in the start-up phase: adjustments are being made to the processes while we look for a stable operation to achieve the promised efficiency level.
Forestry Development Project – Brazil During 2015, MASISA invested US$1.6 million in its strategic forestry development program in the states of Paraná and Rio Grande do Sul, Brazil. This project consists of providing technical and financial help to the owners of land apt for forestation so as to establish high productivity plantations on these third party lands with the commitment that MASISA will at the time of harvest get a portion of the forest and the first option to buy the other part of it. The model guarantees MASISA a secure, sustainable supply of a high percentage of fiber for its industrial operations in the medium- and long-term. Investment amounting to US$1.5 million is anticipated in 2016.
Lean Regional program During 2015, MASISA strengthened its culture of operational excellence under the “Lean Manufacturing” model with a strong focus on the final client, all within a non-negotiable framework of quality and safety. Thus in 2015, the lean methodology implementation was completed in MASISA’s Argentine and Mexican operations, in addition to the implementation in Chile. Interesting synergies were developed between the different teams and countries. The operations’ work vastly exceeded the company’s expectations, generating direct cost savings in excess of US$5.5 million. Challenging targets have been set for 2016, not only seeking new savings but also improvements in the culture of safety, excellence in our processes and the incorporation of the lean methodology in MASISA’s operations in Venezuela and Brazil.
15 LIFEON LAND
an n u al r ep o r t 2015 ::
m as i s a 3 8
Industrial Business ∑∑ MASISA is an integrated company whose main business is producing wood boards and other wood products for use in the furniture and interior architecture industries of Latin America.
T
he Company also harvested wood from its forestry plantations in Chile, Brazil, Argentina and Venezuela, totaling 198,021 hectares of planted forest and 124,372 hectares of other land as of December 31, 2015.
MASISA sells more than 40% of its products through its Placacentro stores, the biggest network of specialist carpentry and furniture-making stores in Latin America, both in terms of number of stores and geographical coverage. The network had 332 stores (30 of them own stores) in 9 Latin American countries as of December 31, 2015. This integration enables MASISA to offer furniture-makers a differentiated range of products and services and to learn first-hand the behaviors and trends in the market so as to improve our value proposition and innovation processes.
masisa facilities’ nominal capacity (m3) 2015 country chile brazil
facility
pb
mdf
mdp
melamine
sawmill
137
150
0
260
0
0
0
340
280
228
337
130
ponta grossa
0
280
0
360
0
0
montenegro
0
0
650
300
0
0
mapal cabrero
mdf moldings
venezuela
macapaima
0
310
120
60
150
0
argentina
concordia
165
280
0
274
0
104
mexico
duranco
155
0
0
96
0
0
chihuahua
276
0
0
117
0
0
zitácuaro
184
0
0
86
0
0
0
0
0
17
0
0
917
1,360
1,050
1,798
487
234
lerma total 3 Capacity in thousands of m /year.
masisa land (m2) 2015 country chile brazil
facility
terrenos
mapal
225
cabrero
532
ponta grossa
842
montenegro
799
venezuela
macapaima
1,080
argentina
concordia
350
duranco
396
chihuahua
209
zitácuaro
130
mexico
lerma total
25 4,588
an n u al r ep o r t 2015 ::
m as i s a 3 9
Forestry Business ∑∑ The forestry business meets the strategic role of supporting MASISA’s development and growth in its quest to gain leadership of the boards industry in Latin America. When it comes to the forestry business, MASISA is looking to develop the synergies necessary to supply industrial plants by generating forestry products directly from the forest, as well as through recovering byproducts from the sawmill industry and third party clients that supply our forestry unit. To this end, it is promoting the development of an active market in its areas of influence with the objective of maximizing the economic value of the investments made and developing new forestry hubs that offer attractive returns for the Company, mainly through supplying a competitive source of fiber for board manufacture. Plantations are managed under a diversification strategy. MASISA has generated forestry mass with premium quality genetic material whose products are focused on different industries and markets. As of December 31, 2015 MASISA’s forestry equity amounted to 322,393 hectares of land, including 198,021 hectares of forestry plantations spread across Chile, Brazil, Argentina and Venezuela. Most of MASISA’s plantations have Forest Stewardship Council® (FSC®) certification. The financial results for the Forestry business are detailed in the chapter Annual Performance.
Forest equity as of December 31, 2015
Brazil
Chile
Type of plantation* Pine plantations
Argentina
Venezuela**
Total
48,843
6,314
29,446
88,176
172,779
Eucalyptus plantations
293
1,427
18,193
-
19,913
Plantations of other species
172
-
-
5,157
5,329
Land to be forested
7,269
3,172
6,448
42,789
59,678
22,864
7,807
8,941
2,065
41,677
Other land
4,003
504
9,356
9,154
23,017
TOTAL
83,444
19,224
72,384
147,341
322,393
Native forest and reserves
* Forest equity is measured and valued annually. ** The Company owns only 27% of all the hectares of land in Venezuela. The remaining 73% is owned by the Venezuelan government. However, MASISA owns100% of the easement and rental rights.
Forest equity average age as of December 2015 (thousands of hectares) ■ Pine | ■ Eucalyptus 57,069 48,431 31,388 19,269
16,621
12,206 2,242
0-5 years
5-10 years
4,098
10-15 years
1,144
15-20 years
223
20 y + years
an n u al r ep o r t 2015 ::
m as i s a 4 0
Objectives and Corporate Strategy ∑∑ To successfully meet our objectives and fulfill MASISA’s vision, we focus on strategic pillars that guide our activities and are underpinned by our principles and values, essential foundations for our Company.
Focus on the final customer ∑∑ We are in constant contact with customers that process boards so as to understand their behavior and be aware of trends that should guide our proposal and development of new products and services. In this way, we secure their custom and ensure sustained growth in the long term. Meanwhile we reach them with a renovated, strong and constantly revitalized brand. The final customers for our products are carpenters, furniture makers and industry, who buy wood boards and other complementary products to turn them into furniture and/or environments, both in the remodeling and building markets. MASISA has a multichannel marketing strategy, mainly comprising retail chains, MASISA’s Placacentro network, distributors and large surface areas, besides furniture wholesalers and industries. In this way we achieve wide geographical coverage and meet the needs of different market segments. We therefore generate differentiated value propositions with an appropriate mix of products based on a profound knowledge of our customers and their buying behavior in the different channels.
∑∑ MASISA Placacentro network MASISA Placacentro maintains its position in 2015 as the largest network of specialist stores in products and services for the manufacture of custom furniture in Latin America. Network MASISA, present in Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela, plays an essential role in the business strategy of MASISA: facilitates the trade of MASISA products, diversifies product sales in a broad group of customers, and it contributes to the positioning of the MASISA brand in the region. Network ended 2015 with 332 local and US $ 287 million purchase MASISA, representing 42% of sales and 44% of the total gross margin of MASISA in countries where it is present.
an n u al r ep o r t 2015 ::
m as i s a 4 1
Red M, Furniture Maker Engagement Program During 2015, the Red M program continued to be consolidated in the main markets. At year-end, the program was present in 234 Placacentro outlets and over 66,000 furniture makers were registered. Of these, 33,800 were active (had made more than one purchase in the last 12 months) and more than 17,000 received training from MASISA. In Chile, Academia MASISA was implemented, a training program to enhance the technical and management skills of furniture makers through 15 courses provided at Placacentro stores. The MASISA certification program was also implemented, enabling a group of furniture makers to earn certification which is backed up by Universidad de Chile. During 2015, a series of actions was undertaken to increase activity among furniture makers. They included setting up customer segmentation models according to buyer behavior, enabling us to implement commercial actions focused on improving the performance of the Placacentro stores and of MASISA. Our guide to furniture makers GuĂa del Mueblista was therefore relaunched on MASISA’s new website, enabling people who need to furnish and renovate their homes to get into contact with furniture makers. This platform has had a positive impact on the furniture makers, generating new sources of business for them. Asked about the impact of Red M on their business, 77% of furniture makers evaluated it positively, (this figure was 72% in 2014).
WORK AND ECONOMIC 8 DECENT GROWTH
CONSUMPTION 12 RESPONSIBLE AND PRODUCTION
an n u al r ep o r t 2015 ::
m as i s a 4 2
Purchase Center The Purchase Center is MASISA’s business unit that supplies its customers with a broad complementary product mix for furniture making and construction. 2015 saw the completion of the implementation of the new online trading platform which enables Placacentro owners to purchase products from the Purchase Center. Besides offering a better service, this platform is expected to drive the sales increase planned for the next few years. The commercial partnership with Häfele, a leading German manufacturer of door fittings, was also consolidated in 2015. This partnership enables us to offer more products and is contributing to the differentiation of the Purchase Center. The first step in this partnership was made in Chile with the implementation of the Häfele area in the first four Placacentro stores and the introduction of the model to Placacentro partners.
∑∑ Customer Satisfaction As part of its Customer Focus pillar, MASISA periodically measures customer satisfaction, in the different channels where it directly serves customers and in markets where it operates. Its objectives are to identify opportunities and establish the best standards in important variables, such as product quality, service provision and customer care. In 2015, MASISA achieved a high average level of satisfaction, maintaining an upwards trend in most markets. Among the aspects regarded by customers as the most important are the attention received from sales executives, customer care, as well as the timely shipping and delivery of products. MASISA scored well on each of these aspects and continues to identify opportunities for improving its management.
an n u al r ep o r t 2015 ::
Innovation to create value
m as i s a 4 3
WORK AND ECONOMIC 8 DECENT GROWTH
INNOVATION AND 9 INDUSTRY, INFRASTRUCTURE
∑∑ Buscamos ser reconocidos como la empresa más innovadora de nuestra industria, a través de la generación de nuevos negocios y productos de valor agregado que se anticipen a las necesidades de nuestros clientes y contribuyan al crecimiento de resultados.
12 RESPONSIBLE
We seek to be renowned as the most innovative company in our industry by generating new businesses CONSUMPTION AND PRODUCTION and value-added products that anticipate our customers’ needs and help to increase operating income. During 2015, MASISA consolidated its open innovation process - a leader in the industry - through its MASISA LAB platform. This captures and incubates high-impact startups in the fields of design and architecture with the goal of accelerating them and giving them an outlet through the Latin American business platform associated with the Company. MASISA Lab is present in Mexico City and Santiago and branches will open in Sao Paulo, Buenos Aires, Concepción and Caracas in 2016, thereby consolidating the regional network. 2015 also saw the third version of LeanPlay, MASISA’s agile innovation program. There was an open, public call for applications from startups external to MASISA in Caracas, Mexico City and Santiago. Applications were received for 58 projects, of which 24 were selected for pre-incubation sessions. A total of 145 people attended the Leanplay sessions, which were held at Impact Hub in Caracas, at StartUp México in Mexico City and at Espacio IF in Santiago, all key places within the Latin American innovation ecosystem. During the course of 4 sessions, the participants tested their projects to validate their value propositions and business models.
Leanplay Caracas
Leanplay Santiago
Leanplay Mexico City
15 LIFEON LAND
an n u al r ep o r t 2015 ::
m as i s a 4 4
Of the 24 preincubated projects, seed capital has been invested in 5, in addition to the 18 which made up the MASISA Lab project portfolio for 2015. Out of the 23 projects managed by MASISA Lab, 14 were external startups and 9 were intra-startups. Total seed capital investment amounted to US$520,000. The MASISA Lab project portfolio represents the Company’s vision, in line with the following trends: Design and digital construction The technological revolution enables the correct connection between some of its components and the creation of the correct user interfaces so that someone can design and produce an item of furniture from a computer and that product can be received at the customer’s door. Supermaterials and nanotechnology Advances in research into new materials has led science to develop materials that are extraordinarily efficient in attributes that traditional materials are unable to offer. They look set to revolutionize the modern commodities market. Social super collaboration The large-scale adoption of digital media has enabled people to become connected and made aware of global social problems and for them to take coordinated actions to resolve them. The following are some of the projects incubated at MASISA Lab that capture these trends: •
Leaf Panel Systems: Manufacture of more sustainable exterior facades and architectural cladding based on modified wood.
•
SPK Automatización: Mexican technological and digital innovation company. Specialists in numerical control, design and production in the cloud.
•
Optimiza Online: Online board service, cut and direct to the workshop or home.
MASISA’s rate of innovation –the percentage of revenue coming from products launched in the last 36 months– totaled 14% in 2015, 2% higher than in 2014. The main impact was greater dynamism in the sale of new boards for use as cladding and for light construction. Our goal is to reach a rate of 20% from 2017 onwards.
Leanplay session at Masisa Lab Santiago
an n u al r ep o r t 2015 ::
m as i s a 4 5
Living the brand ∑∑ We seek to generate brand value and preference for our products by means of the unique and visible positioning of MASISA’s main differentiating features. MASISA has significant brand asset in the main markets in Latin America, which has contributed to retaining customer loyalty for our products and leadership within the main customer segments and influencers in the region. MASISA is reflecting an evolution of recent years, succeeding in being the brand with high awareness at regional level. In Chile, Argentina, Ecuador, Venezuela, Peru and Mexico, MASISA is the top of mind brand. This customer awareness is reflected in the main brand and purchase intention indicators. In 2015 we continued to consolidate our new brand positioning “tu mundo, tu estilo” (your world, your style) through the different points of contact with customers and strengthening the digital platforms (websites and social networks) to further increase our reach and generate a positive and useful experience for different audiences who follow us through these platforms. Throughout the year, we also put special focus on mass media to reach end consumers and offer them solutions to meet their needs, connecting them with furniture makers, architects and designers.
Masisa at Santiago Diseño 2015
an n u al r ep o r t 2015 ::
m as i s a 4 6
Operating efficiency ∑∑ We enhance programs to improve processes, costs and the efficient supply of raw materials, thereby ensuring the competitiveness we need for our long-term business development. Our operating efficiency goes hand-in-hand with the quality of our products and the search for eco-efficiency. LEAN During 2015, MASISA strengthened its culture of operational excellence under the “Lean Manufacturing” model with a strong focus on the final client, all within a non-negotiable framework of quality and safety. In 2015, the Lean methodology was implemented in MASISA’s operations in Argentina and Mexico. This was coupled with its existing implementation in Chile, which led to interesting synergies being developed between the different teams and countries.. The operations’ work vastly exceeded the company’s expectations, generating direct cost savings in excess of US$5.5 million. A significant part of this saving is due to the quality levels achieved on the melamine lines in Argentina and Chile, as well as the Cabrero MDP and Ponta Grossa MDF lines, which presented qualities in excess of 98%, with a positive impact on Overall Equipment Effectiveness (OEE). Challenging targets have been set for 2016, not only seeking new savings but also improving the culture of safety, excellence in our processes and the incorporation of the lean methodology in MASISA’s operations in Venezuela and Brazil, as well as the forestry unit in Argentina. Other savings focus In addition to the Lean program, during 2015 a number of savings initiatives continued to be implemented associated with operating efficiencies that support continuous process improvement and lead to cost reductions, contributing to operational efficiency. These savings initiatives focused mainly on reducing the consumption of resin, emulsion and wood, as well as reducing fixed costs and improving processes and negotiations for obtaining better conditions with suppliers. In consolidated terms and excluding the Lean program, MASISA achieved savings in excess of budget totaling US$32.2 million during the year. Of these 62% were achieved in Chile (US$20 million) and 18% in Mexico, where total annual savings of US$5.7 million were achieved. The program to implement technologies to save resin on the MDF lines at Mapal (Chile) and Concordia (Argentina), which began in 2013, was completed. Another important area of efficiency was in managing the procurement of goods and services across all of MASISA’s operations based on a methodological approach that emphasizes the contribution to the business and alignment with the Company’s strategy. One of the main achievements in 2015 was a global saving in the procurement of goods and services worth close to US$16 million, which includes raw materials, production materials and technological services. Replacement of goods imported into Venezuela An important aspect in operating efficiency is the replacement of imported goods with local supplies in Venezuela. Also notable in terms of operating efficiency is the change of the hot plates for the MDP press at Cabrero, which has generated savings and enabled increases in production capacity.
WORK AND ECONOMIC 8 DECENT GROWTH
CONSUMPTION 12 RESPONSIBLE AND PRODUCTION
an n u al r ep o r t 2015 ::
m as i s a 4 7
Progress on the MDF Plant in Mexico During 2015, the construction work on the MDF plant in Durango, Mexico was on schedule and within budget, achieving the Safety and Environmental targets set. At the close of 2015, the work was 95% complete, with all the main equipment installed and the dry run testing stage underway. The production test phase is expected to be on schedule, in the first half of 2016. The extension of the chemical plant at the complex also progressed as planned and is expected to become operative in the first half of 2016. This project has guaranteed efficient and sustainable supply of forestry raw materials. It is worth highlighting that on March 19, 2016 the first board was produced in the new plant, marking the start of the operational startup phase.
Process safety With regard to process safety, the fire risk prevention program is ongoing, with the installation of cutting edge equipment to protect the presses as well as thermal transfer and material transportation equipment. This program has been developed with the participation of companies that specialize in this area, so we have world-class standards.
Quality MASISA regards fulfilment of the quality standards agreed with customers as a matter of principle. Therefore, in addition to holding product certifications and implementing management systems, we have incorporated together with the Lean methodology new tools for controlling deviation. For the second consecutive year our complaint levels were below 0.05% (complaint volume/sales volume). In 2015 all productive units recertified for the Management and Product Quality standards. The Lean program has therefore enabled the quality of board production to be improved. The Melamine 3 line at the Mapal plant in Chile is notable, as it recorded a sustained increase throughout the year, achieving in excess of 99% quality (without production defects) as of the end of 2015.
99.5 99.14
99
98.73
%
98.5
98.84
98.72 98.28
98.36
98.63
98.74
98.80
99.07 98.86
98.48
98.26
98 97.5
97.54
97 96.5 2014
2015 jan-15 feb-15 mar-15 apr-15 may-15 jun-15 jul-15 aug -15 set-15 oct-15 nov-15 dec-15
an n u al r ep o r t 2015 ::
m as i s a 4 8
ISO 9001 certification All MASISA’s subsidiaries have quality management system certification in accordance with the ISO 9001:2000 standard, thereby ensuring the same level of management quality across all the company’s operations The Chihuahua, Zitácuaro and Lerma plants in Mexico began the certification process as planned, but will obtain the formal certification in the first half of 2016, according to the calendar for external audits, which begins in March. These systems favor the communication and engagement aspects of MASISA’s quality policy. They also help align objectives, identify and manage key processes and the organization and reliability of documentation. Finally they help the Company to generate confidence about the compliance of the products sold and to improve the efficiency of its processes.
Product Certification European E-1 Standard MASISA produces boards with low formaldehyde emissions in all its operations and with E-1 class certification in accordance with the European standard, given by the German GMBH–EPH institute. In the specific case of Brazil, owing to the new regulations in process to reduce the maximum level of formaldehyde emissions, MASISA took the decision to adopt that standard for raw MDP, voluntarily adopting the superior standard. In recent years MASISA has promoted a range of initiatives to increase the standard of emissions in the markets. In Chile, the sector worked together in 2015 to generate a new Chilean standard on board formaldehyde emissions. In December 2015 standard NCh03391 was published, along with Standard NCh3391 with the method of measurement. MASISA is also promoting the development of a mandatory standard in Mexico with the ANAFATA Chamber and IMEXFOR to regulate the emission limits and formaldehyde content in particulate and fiber boards. This standard is expected to enter into effect in the second half of 2016. It should be mentioned that urea-formaldehyde resins are used as adhesives in fiberboard, which enables consistency to be given to the board. Compliance with this standard is externally audited every six months. CARB 2 Certification MASISA produces boards with low formaldehyde emissions for the North American market in accordance with the CARB Phase 2 standard, as required by the state of California. This standard is in the process of being made applicable to all similar products sold in the United States. FSC® Chain-of-Custody MASISA has FSC® chain-of-custody certification in the markets of Venezuela, Brazil and Argentina for the pine-based wood board and MDF molding lines. In Chile it has this certification for sawmill products, MDF moldings, MDP/PB and melamine. SCS Recycled Content Certification MASISA has Scientific Certification System (SCS) certification for all its MDF products and MDF moldings at its mills in Argentina and Chile. This international certification guarantees that a certain percentage of the product content, which varies among different countries, comes from wood recycled in industrial processes. This certification enables a quality and environmentally responsible product to be offered, as its process encourages the use of recycled material or byproducts. MASISA has also voluntarily adopted certification guaranteeing that the quality control systems ensure compliance with the physical and mechanical properties of products, confirming what customers are informed.
an n u al r ep o r t 2015 ::
m as i s a 4 9
Strategic long-term commitments ∑∑ MASISA analyzes future scenarios to design its business plans, based on the perspective of an economy in transformation.
In the economic area, MASISA hopes to raise the company’s financial profitability and the shareholder return, so it will work on the four strategic pillars already mentioned. With regard to future environmental and social goals, MASISA is focusing on three areas proposed in the 2050 vision of The World Business Council for Sustainable Development (WBCSD), where it can generate an impact with its business model. These areas are human development, materials and forests, for which it has defined six objectives and targets to be achieved by 2025. The table shows MASISA’s six sustainability strategy targets to be achieved by 2025. The situation as of 2015 is established, targets are set for the period 2017 to 2020 as well as for 2025. The company has programs and action plans with people responsible for each of these six targets and monitors them twice a year (within the Sustainability Council) to oversee and support their implementation.
Human Development Business makes a contribution to wellbeing, reducing poverty and the quality of life.
Benchmark on safety throughout the value chain.
5% of board production is NAF (formaldehyde-free)
Network of 100,000 furniture maker businesses impacted.
Forests
Materials
Business helps to end deforestation, and duplicate carbon sumps.
The energy efficiency of resources and materials has been multiplied by four and ten times as of 2002.
2050 (WBCSD target)
10% increase in productivity/ ha. of plantations managed in accordance with new generation concepts.
5% fossil fuel Zero energy industrial consumption waste (down from 18%).
2025 (MASISA target)
11% fossil fuel 7 kg of energy waste / m3 consumption. (38% reduction).
2017 2020
SYSO excellence level (> 90%)
MASISA’s NAF product is present in niche markets.
Inclusive community of 75,000 furniture makers (70% recognizing impacts).
5% increase in productivity of plantations.
Level of HES maturity (62%)
Sale of the first NAF board (MASISA Tricoya XB).
66,000 furniture makers registered. (77% recognize the positive impact)
Forestry practices have mainly improved the quality and survival of the eucalyptus and pine plantations.
12.6% fossil Waste fuel energy decreased consumption. by 35%, mainly due to a biomass project in Argentina.
2015
capitulo ________ three
Annual —Performance
an n u al r ep o r t 2015 ::
m as i s a 5 1
Financial Performance Markets ∑∑ MASISA’s commercial operations are focused on Latin America, which accounted for 82.4% of the consolidated sales in 2015, with diverse export markets taking the remaining 17.6% of sales. Chile and its export markets in the region, along with Mexico, are countries with high growth potential and are therefore the markets on which the company has focused investment. Since 2014, growth has slowed in several economies in the Latin American region, causing a decline in the growth of demand for boards. However, due to the continuing consumer trend of buying fiberboard instead of solid wood boards in Latin America, it is estimated that regional demand for wood boards is expected to continue to increase at a rate higher than medium-term economic growth. Among the markets where MASISA operates, North America showed a notable increase in sales volumes of MDF moldings and boards due to the revival of the economy and the construction sector in United States. Furthermore, Latin American currencies suffered significant devaluations relative to the dollar in 2015. These effects were offset by increases in sales volumes in exports and by cost and expense reduction initiatives, which resulted in a stable recurring EBITDA compared to the previous year (excluding Venezuela).
an n u al r ep o r t 2015 ::
summarized income statement (us$)
2014
2015
revenue
1,544,623
1,052,555
costs
-1,243,746
-825,536
gross profit
300,877
227,019
administration and distribution expense
-213,542
-145,185
ebitda
338,021
200,359
net financial costs
-55,613
-49,844
profit attributable to the controller’s owners
11,292
52,342
Profit (Loss)
-178
45,610
m as i s a 5 2
* EBITDA = (gross profit) - (administrative expenses and distribution costs) + (use of own raw materials) + (depreciation and amortization). Note: The comparisons in this section are between cumulative income as of December 31, 2014 and cumulative income as of December 31, 2015.
Sales Consolidated sales revenue for 2015 reached US$1,052.6 million, a decrease of US$492.1 million (-31.9%) due to the application of the SIMADI exchange rate in Venezuela (in 2014, the SICAD rate was applied) and decreased non-recurring forestry sales in Chile due to the significant sale in April 2014. Recurring sales income for 2015, excluding Venezuela, was US$873.1 million, a reduction of US$111.8 million (-11.3%) over the previous year. This decrease is primarily the result of devaluation of the Brazilian real, lower sales and product prices and economic deceleration in Brazil. Sales volumes of MDF and MDP boards, including MDF moldings, which represent the primary business of the Company, registered a slight reduction of 1.9%, primarily due to lower board sales in Brazil (-10.6%), due to a decrease in demand resulting from the recession, and a decrease in sales volumes in the local market in Venezuela (-12.9%), partially offset by an increase in export sales. In Chile, sales volumes of boards dropped because of a decrease in demand, but they were more than offset by the increase in exports from Chile to the United States, resulting in a total increase in sales volume of 11.9%. In other export markets, volumes decreased. Volumes increased by 11.6% in Argentina because of a revival of demand in the second half and by 3.2% in Mexico, despite the strong competition posed by imported MDF.
Industrial Business Sales revenues for the industrial business unit amounted to US$942.4 million, a decrease of US$374.4 million (-28.4%). This decrease is primarily the result of reduced sales revenues in Venezuela due to the application of the SIMADI exchange rate (in 2014, the SICAD exchange rate was used) and decreased sales income in Brazil due to the effects of devaluation. Exports to the United States and sales in Argentina increased.
an n u al r ep o r t 2015 ::
m as i s a 5 3
MDP/PB Boards Consolidated sales of MDP/PB boards remained stable with a slight decrease of 0.3%. Consolidated sales revenue was down US$80.8 million (-22.9%), primarily due to decreases in Venezuela, Brazil, Mexico, Chile, Colombia and Peru. These decreases were partially offset by increases in Argentina, the United States and other export markets. Sales revenue in Venezuela decreased by US$41.1 million (-77.9%), mainly because of the effects of the application of the SIMADI exchange rate. Sales revenue in Brazil decreased by US$29.2 million (-40.2%), due to the effects of devaluation, as well as lower volumes. Sales revenue in Mexico decreased by US$8.3 million (-8.6%), due to the effects of devaluation, despite increased sales volumes. Sales revenue in Chile decreased by US$6.6 million (-13.5%), despite stable sales volumes, due mainly to the devaluation of the Chilean peso. Sales revenue in Colombia and Peru decreased by US$3.3 million (-37,8%) and US$2.5 million (-18,9%) respectively. Sales revenue from these products to the United States increased by US$4.0 million (+162.2%) because of increased volumes, reflecting a revival of the US economy. Sales revenue in Argentina increased by US$5.9 million (+13.0%), due to increased demand and higher prices. Finally, sales revenue to other export markets increased by US$0.9 million (+12.1%). MDF Boards The consolidated sales volumes for MDF boards, including MDF moldings, dropped by 3.4%, while sales income fell by US$177.2 million (-30.5%) mainly as a result of decreases in Venezuela, Brazil, Chile, Mexico, Ecuador, Colombia, Peru and other export markets. These decreases were partially offset by increased sales in the United States and Argentina. Sales revenue in Venezuela decreased by US$140.2 million (-83.4%), due to the effects of the application of the SIMADI exchange rate. Sales revenue in Brazil decreased by US$43.2 million (-33.1%), due to the effects of devaluation and lower demand. In Chile, it dropped US$10.9 million (-25,6%) due to lower sales volumes and the devaluation of the Chilean peso. Sales revenue in Mexico decreased by US$4.0 million (-9.8%), primarily due to currency devaluation. Sales revenue in Ecuador, Colombia and Peru decreased by US$2.9 million (-31,5%), US$1.6 million (-12.7%) and US$1.2 million (-16,9%), respectively. Sales to others export markets dropped by US$12.7 million (-22.0%). This was partially offset by increased sales revenue for exports to the United States, where sales revenue increased by US$21.6 million (+54.0%) as a result of a revival in the real estate sector and in Argentina, where it increased by US$17.9 million (+25,0%) due to an increased demand and higher prices. Sales revenue from other products, primarily sawn lumber and resin, dropped by US$116.6 million, a decrease of 30.4%, mainly due to the application of the SIMADI exchange rate in Venezuela.
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Forestry Business Revenue from total forestry sales amounted to US$154.1 million, a decrease of US$162.2 million (-51.3%). This decrease comes primarily from a significant non-recurring forestry sale in Chile in April 2014. Third-party sales (excluding inter-company sales, which are eliminated in the consolidation process) totaled US$110.2 million, a decrease of US$117.6 million (-106.8%), also due to the non-recurring sale of forestry assets in Chile in 2014. On a country level, Argentina registered an increase of US$1.9 million due to higher prices. Sales revenue in Chile decreased by US$114.8 million, primarily due to the aforementioned sale of forestry assets in 2014. It also decreased in Brazil by US$0.5 million due to the effects of the exchange rate devaluation. Venezuela also saw a US$4.3 million drop, due to the effects of the application of the SIMADI exchange rate.
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Cost of Sales ∑∑ The total consolidated cost of sales reached US$825.5 million, which represents a decrease of US$418.2 million (-33.6%), explained by the effects of the application of the SIMADI exchange rate in Venezuela, and lower costs due to the non-recurring forestry sale made in the first half of 2014 (US$145.6 million). ∑∑ The cumulative recurring cost of sales excluding Venezuela reached US$700.5 million, which represents a reduction of US$87.0 million (-11.0%), resulting from efficiency initiatives implemented this year and exchange rate effects. This compensated for a proportional drop in sales revenue resulting from exchange rate devaluations.
Industrial Business The industrial business unit’s cost of sales totaled US$747.3 million, a 27.1% decrease that was mainly due to decreased costs in Venezuela as a result of the application of the SIMADI exchange rate, partially offset by an increase in Argentina due to inflation. Costs were also lower in Brazil, Chile and Mexico as a result of cost efficiency initiatives, lower energy costs in Chile and exchange rate effects.
Forestry Business Forestry sales costs dropped by 179.1%, reaching US$78.3 million, mainly due to a lower level of sales as a result of the aforementioned non-recurring forestry sale in Chile in 2014.
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Gross Earnings Gross earnings reached US$227.0 million, 24.5% less than the previous year, mainly due to the effects of the application of the SIMADI exchange rate in Venezuela (the SICAD rate was applied in 2014). Recurring gross earnings excluding Venezuela totaled US$172.6 million, US$24.8 million (-12.6%) lower than last year. This decrease is the result of currency devaluations in the countries where the Company operates, which were partially offset by cost efficiencies and increases in prices in the local currencies. Whilst it was not possible to avoid a decrease in gross earnings in dollars, the gross sales margin was increased from 19.5% to 21.6%. Analyzed by country, there was a decrease of US$21.5 million in Brazil due to the effects of devaluation of the Brazilian real and the economic downturn, a US$6.5 million decrease in Chile caused by the devaluation of the Chilean peso, and a US$4.6 million drop in Colombia and Peru as a result of the effects of currency devaluation. These negative effects were partially offset by an increase of US$6.8 million in Argentina, while gross earnings remained stable in Mexico, because cost savings compensated for the effects of the currency devaluation.
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Net change in Biological Assets Cumulative growth in biological assets was US$118.6 million (US$79.2 million the previous year) and plant production costs were US$23.4 million (US$35.3 million the previous year). The increase in value of biological assets is mainly due to decreased costs in Chile as a result of the exchange rate devaluation. The decrease in plantation costs is primarily a result of the application of the SIMADI exchange rate in Venezuela. In accordance with IFRS standards, biological assets are recorded at fair value. Fair value is determined by projecting the present value of future cash flows from the sale of the plantations, future harvesting costs and costs of transportation to the point of sale. Changes in fair value, calculated as described above, less the plantation production costs incurred during the year (planting, pruning, thinning, weeding, insurance, etc.), are recorded in the statement of income under “Other income, by function�.
Administration and Distribution Expense
(previously called administration and sales expense) This expense amounted to US$145.2 million, a decrease of US$68.4 million (-32.0%), primarily due to the effects of the application of the SIMADI exchange rate in Venezuela and transversal savings initiatives implemented in all countries. This decrease is primarily explained by the following: A reduction of US$22.1 million was achieved in sales-related distribution expenses, primarily as a result of the effects of applying the SIMADI exchange rate in Venezuela, and in Chile, Brazil and Mexico as a result of savings initiatives and currency devaluation. Meanwhile, administrative expenses dropped by US$46.3 million, mainly due to a decrease in expenses as a result of the application of the SIMADI exchange rate in Venezuela, and in Chile, Brazil and Mexico, as a result of savings initiatives and currency devaluation. Thus, excluding Venezuela, administrative and distribution expenses reached US$124.9 million, 15.6% lower than the same period in 2014, as a result of various savings initiatives and exchange rate effects. Consolidated administration and distribution expenses represented 13.8% of sales, the same as the previous year.
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EBITDA Consolidated EBITDA reached US$200.4 million, representing a fall of 40.7% over the US$338.0 million from 2014, provoked mainly by the application of the SIMADI exchange rate in Venezuela with effects throughout 2015 and the non-recurring EBITDA of US$143.8 million generated in Chile from the significant non-recurring sale of forestry assets in April 2014. Recurring EBITDA excluding Venezuela reached US$133.1 million, a decrease of US$1.8 million (-1.3%) over the previous year primarily explained by a lower recurring EBITDA in Brazil, which reduced by US$53.0% due to the exchange rate devaluation. Recurring EBITDA in Mexico increased by 38.9%, mainly due to savings in administration and sales costs and expenses. In Argentina, recurring EBITDA increased by 13.2% due to higher prices and increased board volumes, and in Chile it increased by 1.6% as a result of higher export sales, mainly of MDF moldings, and cost efficiencies. The EBITDA of the industrial business decreased in Venezuela and Brazil, whereas it increased in Argentina, Mexico and Chile, resulting in an overall decrease of US$38.9 million (-27.5%). On the other hand, the forestry business unit’s EBITDA decreased by US$98.7 million (-50.2%), primarily as a result of the one-off positive effect generated by the non-recurring sale of forestry assets in Chile in 2014. Recurring forestry EBITDA decreased US$8.1 million (-12.6%). Overall, in 2015 operations in the Andean region, led by Chile, concentrated 45.7% of the EBITDA, Argentina 27.2%, Venezuela 11.3%, Mexico 8.2% and Brazil 7.6%. Considering just recurring overall EBIDTA, operations in the Andean region, led by Chile, represented 34.0% of the EBITDA, Argentina 34.4, Venezuela 14.3%, Mexico 10.4% and Brazil 6.9%.
Other expenses, by function The Company recorded US$30.3 million in other expenses during the period, a US$14.7 million increase. This increase is primarily due to losses generated in the repatriation of dividends from Argentina and a deterioration in Mexican assets.
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Financial Costs Net of Financial Income Financial costs net of financial income reached US$49.8 million, down 10.4% relative to the previous year. This is primarily due to increased financial income from investments in Argentina, lower interest rates in short-term credits and lower financial expenses due to the amortization of the activated expenses on pre-paid loans in 2014.
Exchange Rate Difference and Monetary Correction Foreign currency exchange differences generated income of US$40.9 million, whereas they generated a loss of US$21.7 million the previous year. The difference is mainly due to the application of the SIMADI exchange rate in Venezuela (-US$10.7 million) and the devaluation of 52.5% in the Argentine peso, 46.6% in the Brazilian real, 17.7% in the Mexican peso and 17.0% in the Chilean peso. Meanwhile, the Company recorded losses of US$15.7 million from transactions in inflation-adjusted units as a result of the consideration of the effects of inflation in Venezuela. This figure is US$28.6 million higher than the previous period, as a result of a greater difference between devaluation and inflation in Venezuela.
Profit Attributable to the Controller’s Owners The profit (loss) attributable to the controller’s owners (previously called net income in the year) totaled US$52.3 million, a US$41.1 million (+363.5%) increase. Recurring gross profit alone, excluding Venezuela, totaled US$40.7 million, an increase of US$10.5 (+34.8%). In operating terms, despite the fact that gross margin increased from 19.5% to 21.6%, gross profit fell by US$73.8 million (-24.5%), mainly due to the effects of the currency devaluation in the countries in which MASISA operates, especially the application of the SIMADI exchange rate in Venezuela (the SICAD exchange rate was used in 2014). This was partially offset by increased profit and margins in Argentina and Mexico. In operating terms, administrative expenses decreased by US$46.3 million and distribution expenses decreased by US$22.1 million, due mainly to the currency devaluations, especially the application of the SIMADI exchange rate in Venezuela and also because of savings in expenses in most operations. The operating result (gross profit less administration expenses and distribution expenses) dropped US$5.5 million, a decrease of 6.3%, mainly due to currency devaluations, which were not fully offset by cost savings. The items ‘Other income, by function’ and ‘Other expenses, by function’ showed a higher net revenue of US$36.3 million, mainly because of increase revenue from growth in biological assets. The non-operational items ‘Foreign Currency Exchange Differences’ and ‘Gain (loss) from transactions in inflation-adjusted units’ recorded a positive difference of US$9.4 million, primarily because of a positive difference between devaluation and inflation in Venezuela. Net financial costs presented a positive difference of US$5.8 million, mainly as a result of increased financial income from investment in Argentina and lower financial costs due to lower interest rates in short-term loans. Meanwhile, a negative result associated with deferred tax assets and a negative impact on minority interest generated an unfavorable difference of US$6.3 million in these items.
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Balance Sheet Assets MASISA’s total assets decreased by US$514.7 million (-21.2%), mainly due to the application of the SIMADI exchange rate in Venezuela. Current assets totaled US$516.5 million, a 28.4% decrease. This variation is mainly explained by a decrease in trade receivables and other current accounts receivable (US$109.5 million) and a decrease in inventories (US$64.3 million), primarily in Venezuela, due to the effects of the application of the SIMADI exchange rate. Noncurrent assets totaled US$1.394 billion, an 18.2% decrease. This variation is mostly explained by a reduction in property, plant and equipment (US$213.5 million) primarily in Venezuela, attributable to the effects of the application of the SIMADI exchange rate. Cash and cash equivalents (the sum of the cash and cash equivalents account and other current financial assets) reached US$110.7 million. Of this cash, US$1.4 million was held in bolívars in Venezuela and US$10.0 million was in pesos in Argentina. It is worth highlighting that during 2015, the Argentine subsidies paid dividends of US$20.4 million. The Company’s main assets consist of its production plants and forests in Chile, Argentina, Brazil, Venezuela and Mexico. These assets are valued in accordance with International Financial Reporting Standards (IFRS). According to IFRS, assets can generally be valued at fair value or historic cost. For fixed industrial assets, the Company has adopted the IFRS exception that allows a one-time valuation of these assets at their fair value and assignment of that value as the historic cost (as of January 1, 2008). In regard to forest landholdings, the periodically revaluated cost methodology was adopted, and in the case of forests (forest crowns), it was decided to apply the fair value criterion by means of the discounted future flow methodology. For non-monetary assets, the Company makes provisions or recognizes impairment when there is evidence that the book value of the assets exceeds their fair value.
Liabilities MASISA’s total financial debt increased by US$48.5 million relative to December 31, 2014, reaching US$816.7 million. This increase is fundamentally the result of taking on a new debt to fund the construction of a new MDF plant in Durango, Mexico. The net financial debt increased to US$706.0 million (US$653.1 million in December of the previous year) due to this investment in Mexico.
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The Company maintains hedging for 88.3% of these bonds in UF and loans in Chilean pesos to make them to US dollar adjustable by means of derivative instruments, the valuation of which offsets increases and decreases in the balance of bonds in UF due to exchange rate fluctuations. However, the effect of these derivatives is not presented in the accounts under “financial debt,” but under “other current and non-current financial assets”, if it is favorable, or “other current or non-current financial liabilities”, if it is not. At the close of December 2015, net liabilities for these hedging derivatives amounted to US$71.1 million in negative market value (which offsets an equivalent decrease of bonds in UF). As of December 31, 2015, the Company had met all its loan agreements and bond issuance agreements, including financial covenants. The net financial debt to EBITDA ratio was 3.5 times for the year ended December 31, 2015, compared to 1.9 times as of December 31, 2014. This increase is explained by the lower EBITDA presented in 2015 compared to the previous year, where a one-off effect was recorded for the divestment of forestry assets in Chile (additional EBITDA of US$143 million). The indebtedness index (total liabilities / shareholders’ equity) increased to 1.32 for the year ended December 31, 2015, largely due to the devaluation in Venezuela as a result of the SIMADI application. Current liquidity, defined as the ratio of current assets to current liabilities, reached 1.6 times. The figure was lower than the previous year due to a reduction of current assets primarily as a result of the devaluation effect in Venezuela of applying the SIMADI exchange rate.
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Model for creating sustainable value ∑∑ We have identified that for our productive processes, MASISA needs certain elements from the planet and from society in order to operate but it also provides services and products to the world. In this process, MASISA respects the environment’s capacity to regenerate and society’s expectations. What we need from society and from the planet, as well as our contribution to them is detailed in the following diagram.
Economic contribution Non-timber forestry products
Certified products
Waste
Biodiversity
Furniture maker network
Co2 emission & capture
we contribute
we need Water
Employees
Environmental culture
Social license
Fiber
Suppliers Energy
we contribute
indicators
Furniture maker network
- Training - Members of Red M - Impacts on their business
Non-timber forestry products
we need
indicadores
41
Water
- m3 of water 3
- m of water/m3 of production
73
- Number of startups supported
67
Fiber
- % of fiber from a controlled source
74
Certified products
- Number of finished products certified
47
Energy
- KWh - KWh/m3 - Sources of energy (origin)
72
Biodiversity
- Hectares restored - River basins monitored
76
Suppliers
- Number of suppliers on development programs
68
Waste
- Tons - Tons /m3 of production
73
Employees
- Engagement management - Safety indicators
66
Co2emission & capture
- Tons of carbon stock - Tons of CO2/m3 emissions from production
72
Social license
- Progress made with collaborative plans with the community
67
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Social Performance
MASISA Employee Profile As of December 31, 2015, MASISA had a workforce of 9,278 direct and indirect employees at all its operations in Latin America, of whom 5,164 are direct employees and 4,114 are indirect employees. 42.5% of the total direct employees are 30-40 years old, 19.9% are up to 30 years old, 26.8% are 41 to 50 years old, 9.5% are between 51 and 60 years old and 1.3% are over 61 years old. All MASISA’s employees have the right to freedom of association, and at the close of 2015, 3,148 direct employees (61%) belonged to unions. Women accounted for 17.4% of the company’s direct workforce and 7.7% of management.
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Health and Safety Management In 2015, MASISA consolidated its health, environmental and safety (HES) standards defined in the HES Excellence Manual, an essential tool for establishing good practices and achieving a safer and healthier workplace, and developing environmentally correct activities aligned with MASISA’s triple bottom line management system. To identify opportunities for improvement and measure the degree of progress with health, environmental and safety management, the company evaluated the Excellence Manual at all MASISA’s industrial and forestry business units, with a focus on the 8 pillars that are the basis for a robust management system. To reinforce the implementation of these pillars, each business unit in each country launched projects managed using MASISA’s project office methodology (PMO). This enabled the unification of the method used to control the corporate HES Program and also allowed best practice to be implemented from one country to another and this in turn resulted in optimizing the process in terms of costs and efficiency. The main conclusions that came out of the evaluations in 2015 are the achievement of the objective of promoting new health, environmental and safety (HES) standards across all units, as there is evidence of a positive evolution in management in all countries and greater management involvement in HES management. Level of HES Excellence ■ 2015 | ■ 2014 | /■ 2013 /|
■ 2012
Excellence Good practices
4.0%
12.9%
7.4%
11%
9.5%
9.4% 52% 0.0%
6.9% 0.8%
6.1% 44%
40%
9.6% 9.8%
4.9%
Maturity
8.5%
7.0%
8.4%
47%
5.9% 39%
25%
Development
Initial
11% Argentina
Brazil
Chile
Mexico
Venezuela
Masisa
2016 will see a continuation of the standardized management of improvement projects associated with the pillars. Improvements will also be made to the corporate methodology for rating best practice, in order to incorporate learning from the latest evaluation cycles so as to define a simpler and more objective assessment tool.
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Training will be provided to a group of internal evaluators so that the next evaluations will be carried out by MASISA staff. The governance of the corporate HES system was reinforced through committees who ensure the flow of information to all levels of the organization, including management and employee representatives, managing to get 100% of the employees represented. During 2015, the Company intensified its management of preventive indicators, like the HES remarks and incidents reported All incidents are reported to the managers and unit managers so they can analyze them and take actions to prevent similar incidents occurring in future. The forestry units particularly strengthened this analysis. They set up a corporate group which meets monthly to discuss lessons learned and process improvements arising from real or potential incidents. This good practice is to be rolled out to the industrial area. In addition to formal training on occupational health and safety, awareness-raising campaigns were carried out related to ergonomics, safety in the home and safe driving. It should be highlighted that all MASISA’s operations have a health and safety management system in accordance with the OHSAS 18001 standard, except Forestal Argentina and the new units in Mexico, which are currently in the certification process.
∑∑ 2015 HES Excellence Award All MASISA’s forestry and industrial units in Latin America participated in the 2015 HES Excellence Competition. In this, its second edition, the winning unit was Ponta Grossa (Brazil), which attained the highest scores in the seven criteria assessed during the year: incidents, safety incidents, management of risks and behaviors, accident frequency and severity, waste, CO2 emissions and health. The next best ranked units were Montenegro (Brazil) and the Mapal plant (Chile).
accident frequency / severity rate indicators for 200,000 man-hours of exposure year
accident frequency indicator
2012
0.65
accident severity indicator 365.7
2013
1.06
20.2
2014
0.62
12.4
2015
0.64
21.14
2015 saw a 3% increase in the accident frequency rate and a 70% increase in the severity rate, because of accidents that affected the hands of two employees, one at the Mapal plant and the other at Cabrero Maderas, both in Chile. The Forestal Argentina units and Mexican plants at Chihuahua, Lerma and Masnova had zero accidents resulting in downtime in 2015.
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Employees and Engagement Management ∑∑ In 2015, the company conducted a new version of the engagement survey, in which 4,317 employees took part, attaining a result of 80% commitment, the highest since MASISA started to carry out this survey in 2004. We are delighted with this result. ∑∑ This outcome ranks us amongst the highest performing companies according to the study by external consultant Aon Hewitt, generating value for our employees and the organization.
2014
2015
2013 2012 2011
73% 72% 73%
2004
58%
77%
80%
2013
2014
2015
LATAM Norm
Argentina
72%
73%
65%
56%
Brazil
60%
62%
68%
68%
Andina
71%
76%
78%
67%
Corporate
67%
69%
75%
67%
Mexico
87%
88%
87%
73%
Venezuela
83%
90%
96%
70%
Forestry*
80%
75%
84%
80%
Masisa Global
73%
77%
80%
73%
Latam standard 69% Best Employers: 80% *Global result for forestry operations in Chile, Brazil, Venezuela and Argentina.
We highlight the significant improvement in satisfaction in the majority of the areas covered, especially performance management, direct boss and recognition.
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Community Engagement ∑∑ Given the wide distribution of the Company’s industrial and forestry equity, there are many human groups who are neighbors to our operations. Each community has special characteristics and engagement plans are developed with them, based on open and systematic communication. In those communities closest to MASISA’s operations, local needs have been identified and we are working together with the communities to develop collaborative plans with a long-term vision to improve their quality of life. In 2015 MASISA’s Board of Directors approved a new community engagement strategy for neighboring indigenous communities, which has required reinforcing our engagement with those communities as well as strengthening our internal social management skills.
Mexico In Zitácuaro a collaborative reforestation program in a public area (2,500 people benefitted). In Lerma 1,000 personas took part in reforestation activities in 4 areas. A collaborative environmental quality plan was developed by companies to protect the river Lerma. In Durango support was given to 40 suppliers and entrepreneurs. The program will continue in 2016 with at least 15 new local entrepreneurs in Durango and 40 in Zitácuaro. The new MDF plant employed 120 people from the local community. In Zitácuaro a community computer training room was set up (140 students). In Chihuahua support was given to a youth social rehabilitation center. 500 people were reached with sports activities. In 2016, a carpentry program will be set up.
Venezuela 70% progress made with two new collaborative development programs. In 2016, two plans will be completed and a new one started.
Brazil Support for the legal compliance with the forestry development program with third parties. An inclusion program for disabled people prepared. 2016: Legal compliance and employment for 13 disabled people.
Chile Training provided to 60 local furniture makers. In 2016, this training will continue for at least 40 people. 430 adults attended a remedial education program. 2016: the program will continue with around 500 new students. In Cabrero measurements of the social progress index began.
Argentina Elimination of sources of contamination from communal water supplies in the Salto Grande lake, financed by businesses and the government. 22 local entrepreneurs of non-timber forestry products. 500 students on environmental education programs.
50 local startups (3 from indigenous communities), related to non-timber forestry products. 19 rural schools (1,500 beneficiaries) received environmental education programs. 79 adults began remedial education programs. In 2016 at least 90 will be incorporated.
Collaborative development plans
2 technical training schools provided with new furniture infrastructure; 15 graduates and 1,200 students benefitted.
Creation of local employment
Local entrepreneurship
Boosting local furniture makers
Education programs
Environmental Quality
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an n u al r ep o r t 2015 ::
Supplier development ∑∑ MASISA continues to be committed to supporting the growth of its suppliers and service providers to make them more competitive for the markets of today. We consider these companies to be strategic partners that provide value with their experience and specialization and contribute to the greater productivity and flexibility of our business processes. The main supplier categories are: • Raw material suppliers (mainly fiber and resin) • Spare parts and materials suppliers • Transport service (wood and products) suppliers, others • Manpower service suppliers (forestry stewardship, security guards, cleaning, engine maintenance, etc.) The company’s policy considers that the Business Principles are an integral part of the contracts the company signs with its main suppliers. There are selection requirements for new suppliers that include environmental and social matters.
Supplier evaluation Each year the small- and medium-sized suppliers that are critical to MASISA are evaluated and this includes quality, environmental and health and safety criteria. The main results for 2015 were:
country
total assessed
Chile
181
Argentina Brazil
grade a
grade b
grade c
grade d
38
96
39
8
110
59
48
3
-
157
126
31
-
-
Mexico
206
140
52
14
Venezuela
48
31
16
1
-
Total
702
394
243
57
8
There was a 17% increase in the total number of suppliers evaluated compared to 2014, reaching 702 suppliers. This was basically because of the growth in operations in Mexico. The number of suppliers who attained the highest grade (A) increased by 50%. However, the number of suppliers in Chile with the lowest scores (C and D) doubled because of deficiencies in their commercial and employment areas. 80% of them were transport companies. The suppliers that obtained the lowest grades have been informed and asked to develop an action plan. In some cases, the Company has decided to cease working with them.
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Supplier development plans MASISA has development plans with small- and medium-sized suppliers that are critical to its operations. The following actions were taken in 2015. Suppliers with active development plans
Actions in 2014
Argentina (14%)
One group of suppliers finished and a development plan was started with 14% of the suppliers.
Chile (17%)
Assessment and monitoring of the development plan ended in 2014. Training continued for suppliers of fiber and transport.
Brazil
This program did not develop because of budgetary restrictions.
Mexico (65%)
Plan in its second year of implementation with results in terms of a reduction in CO2 emissions, waste generation and safety.
Venezuela
It was decided to implement the plan in 2016.
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WORK AND ECONOMIC 8 DECENT GROWTH
CONSUMPTION 12 RESPONSIBLE AND PRODUCTION
Environmental Performance ∑∑ In 2015, various operational efforts were undertaken, seeking to minimize the environmental footprint of our productive units through the sustainable use and consumption of resources and energies. MASISA has revalidated all its ISO 14001 certifications and has enhanced its environmental management system by incorporating good operating practice and management actions defined in the corporate programs and manuals. It has thus succeeded in mitigating and controlling its environmental risks and committing to continuous improvement targets. Furthermore, during 2015, the Durango Plant (Mexico) received Clean Industry certification from the State authorities. The corporate environmental work group with representatives from all countries continued to operate in 2015. This group developed strategies for the transversal implementation of the regional waste and energy management program, among other actions. In general terms, in 2015, we surpassed our targets in waste management (35% reduction compared to the previous year), energy consumption and CO2 emissions (reductions of 5% and 12.6% compared to the previous year). However we did not meet our water consumption target, recording an increase of 1.6% (the ratio of consumption per m3 manufactured) compared to 2014. This was due to lower production and plant stoppages in Brazil, Venezuela and Argentina. With regard to control over the origin of fiberboard, MASISA recorded 92.25% of fiber from a controlled source. 100% in Brazil, Venezuela and Chile. 83% in Argentina and 77% in Mexico. This indicator is expected to increase in 2016 because of the FSC® chain-of-custody certification in Zitácuaro.
investments and environmental expenses (us$m) 2012
12,259
2013
7,780
2014
11,052
2015
5,047
Energy and Air Emissions Evolution of energy consumption and efficiency 3 | ■ Mwh | ● Mwh/m m3 production A ■high percentage of MASISA’s energy comes from renewable energy and we have systematically improved our energy efficiency per wood board 12,900,879 since 2006, with this remaining stable over the last four years. 2,690,952 2,661,090 2,784,406 2,632,931 2,491,926 2,515,157 2,543,223 2012 2013 2014 2015
63
4
Fossil
13
12
14
12,6%
Electric
24
24
23
24,4%
64
63
63%
Biomass
1.08
63
1.04
1.08
1.04
In 2015 the Concordia mill in Argentina began operating a biomass thermal oil boiler, thereby replacing a boiler which used natural gas as its main fuel. This equipment will save some 1.2 million m3 of natural gas per year. 2012 2013 2014 2015
water efficiency
692,540
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Evolution of CO2 emissions and efficiency ■ m3 production | ■ Tons CO2 Eq, | ● Kg, CO2 Eq/m3
2,661,090
12,900,879
2,690,952
2,543,223
2,491,926
Evolution of energy consumption and efficiency ■ m3 production | ■ Mwh | ● Mwh/m3
2,661,090
2,491,926 2,515,157 2,543,223
2,661,090 2,784,406
2,632,931 2,690,952
1,943,924
24.0
22.5
27.7
24.23
1.08
1.04
1.08
1.04
2012
2013
2014
2015
0,64 59,926 2015
ency
2012
57,346 2013
74,566 2014
65,895 2015
Evolution of CO2 emissions and efficiency
The operation of Cabrero Tableros in Chile is worth highlighting as it exceeded its2 Eq, target achieving | ■ Tons CO | ●-Kg, CO2 Eq/m3 146%, ■ m3 production thanks to improvements implemented in the dust systems, increasing the availability of dust as a fuel in 2,690,952to the dryer burner winter. Similarly, the Chihuahua plant in Mexico (125% of target), made adjustments 2,661,090 2,543,223 2,491,926 and implemented a project to improve the screening system, increasing the availability of dust and reducing natural gas consumption.
3
2,661,090
56
5.58
23,044
15,372
24.0
22.5
27.7
24.23
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Water Consumption and Efficiency The water sources used to supply MASISA’s mills mainly come from groundwater in Chile, Mexico, Venezuela and Argentina. The industrial process in Brazil is supplied with rainwater.
Evolution of total water consumption and water efficiency ■ m3 production | ■ m3 | ● m3/m3
1,782,956
1,821,141
0,72
0,72
2012
2,661,090
2,690,952
2,543,223
2,491,926
1,943,924
1,692,540
2013
0,63
0,64
2014
2015
Evolution of total water consumption and water efficiency ■ m3 production | ■ m3 | ● m3/m3
Waste Management Each country has its own legislation on the hazardousness of waste, which we treat and dispose of in accordance with current local legislation. It should be highlighted that most waste is non-hazardous, and largely comprises slag and ash from burning the biomass, industrial waste that cannot be used (melamine paper, settled resin sludge), waste that can be incorporated to domestic waste (from the employee cafeterias of the mills). MASISA’s waste management gives priority to reducing, reusing and recycling waste whenever possible. When none of these options are applicable, waste is dispatched for final disposal in accordance with the legislation of each country. Hazardous waste, like that from maintenance impregnated with hydrocarbons and batteries, is classified, managed and disposed of in accordance with environmental legislation. Specialized and authorized service companies transport and dispose of the waste, guaranteeing a controlled impact on the environment.
Evolution of final waste disposal and efficiency 2,690,952 Tons | ● Kg/m3 ■ / m3 production | ■ 2,543,223
2,661,090
2,491,926
2,690,952 2,661,090 2,543,223 2,491,926 1,821,141 1,782,956 MASISA has systematically reduced the1,692,540 volume of waste for final disposal per wood board produced. Since 2006, it has reduced waste disposal by 72% and the 0,72 with 2014 0,72 was 35%. decrease compared 11.1 11 0,63
27,7002012 2012
28,4142013 2013
1,943,924
0,64
8.56
5.58
23,0442014
15,3722015
2014
2015
Evolution of final waste disposal and efficiency ■ / m3 production | ■ Tons | ● Kg/m3
2,690,952
2,543,223
2,491,926
11
27,700 2012
2,661,090
11.1
28,414 2013
8.56
5.58
23,044
15,372
2014
2015
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Wood Fiber Origin Control MASISA mostly uses wood from pine and eucalyptus plantations to make its products. Operations in Brazil, Venezuela and Chile have FSC® chain-of-custody certification, as do the Chihuahua and Durango plants in Mexico, which means that 100% of the wood entering these operations is certified or controlled according to the FSC® criteria. 83% of the wood used in Argentina meets these criteria and 77% in Mexico. At consolidated level, in 2015 92.5% of the fiber used by MASISA came from a known origin. To attain this, MASISA has systematically worked with wood suppliers to have thorough knowledge of the fiber entering the company’s mills, using a methodology to segregate our suppliers. Suppliers of fiber that is not from FSC-certified forests are surveyed to find out where the fiber is from and how it was obtained, and this process is validated with subsequent audits.
Forestry Environmental Stewardship MASISA bases its forestry stewardship strategy on having plantations with high productivity in the right places for this. It is also based on having FSC® certification, which assures sustainable stewardship of plantations. Lastly, it implements new technologies to produce more fiber with fewer resources. Altogether, MASISA increases the efficiency of the use of soil, water and carbon capture. Transversally, MASISA has the responsibility of assuring the implementation of environmental, industrial safety and community relations issues, for which it has management policies and systems that aim to: • Minimize the negative impacts of forestry operations. • Control compliance with current legislation. • Protect forests with a high level of conservation, establish protected areas and restore native forests. All MASISA’s plantations have Forest Stewardship Council® (FSC®) certification, except the Loma Alta plot (Argentina). They are also certified in accordance with the ISO 14001 standard (except Forestal Argentina) to manage material environmental aspects and comply with applicable legal requirements.
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Carbon Stock The carbon stock captured by MASISA’s forest plantations has dropped in the last six years, due to sales of standing forests. The balance of carbon stock in 2015 was 11.3 million tons of CO2 stored.
Miles Ton CO2 ■ Chile | ■ Argentina | ■ Brazil | ■ Venezuela
20000 15000 10000 5000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015
Plague and Forest Fire Control Action is taken in all countries in which MASISA has forestry operations to control the presence of plagues and keep destructive agents at tolerable levels by means of the planned use of preventive, suppressing or regulating tactics and strategies, which do not cause a major environmental impact and are economically viable and socially acceptable. MASISA has permanent forest fire prevention and fighting programs, which are intensified in critical periods, for which the company has a forest fire prevention and control system to minimize the damage caused by fires. A territorial organization was established for this to efficiently access the largest quantity of resources to prevent forest fires.
New Generation Plantations (NGP) In 2015, the company continued with the New Generation Plantations project, managed by the World Wildlife Fund (WWF). MASISA is involved along with important forestry companies worldwide, which are characterized by seeking sustainable management and are promoting a new way of designing and managing plantations. Besides generating economic growth and employment, these companies can maintain the integrity of ecosystems and conserve the biodiversity. In the first two stages, technical documents and reports were developed together, which show the shared vision of the WWF, the forestry companies and government departments involved in biodiversity, social and climate change issues, such as ecosystem integrity, high conservation value forests, commitment to communities and stakeholders, bioenergy and coal. In 2015 there was a technical round tour in Santiago, Chile, attended by all the companies around this world that make up this platform.
WORK AND ECONOMIC 8 DECENT GROWTH
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CONSUMPTION ON LAND 12 RESPONSIBLE 15 LIFE AND PRODUCTION
Biodiversity
MASISA has entered into arrangements, agreements and commitments to preserve and protect its native forest equity in Latin America. Monitored river basins 16 are being16conserved and 16 researched 16 in MASISA has 8,941 hectares of natural reserves in Argentina, which an agreement with Fundación Hábitat y Desarrollo. In Chile, the vision of incorporating native forest resources into economic activity in an innovative way and meeting sustainability requirements led to the secondary forest management project. There is now a surface area of some 1,500 hectares managed in accordance with FSC® standards. 2012 2013 2014 2015 in MASISA has 9,829 hectares under conservation in Brazil and around 2,065 hectares of forest equity Venezuela.
Hectares Restored (hectares per year)
Monitored river basins
16
16
16
16
135
150 125 82
2012
2013
INNOVATION AND 9 INDUSTRY, INFRASTRUCTURE
2014
2015
2012
2013
2014
2015
High Conservation Value Forests (HCVF) Hectares Restored (hectares per year)
HCVF are those 150forests considered to be of notable and critical importance due to their high environ135 mental and socio-economic value, their125 contribution to biodiversity and the natural surroundings (FSC® terminology). 82 MASISA’s natural reserves in Argentina are identified as sites with high conservation value according to FSC® principle 9 and the criteria defined by Proforest, according to the analysis and interpretation of Fundación Hábitat y Desarrollo. 2012 has identified 2013 2015 Predio Caratuva (49 hectares) and Predio Santo Antonio (467 MASISA two2014 areas in Brazil: hectares) with protection areas and native forest. A new area was identified in 2014 in the Agua Santa (1.14 hectares) area. In Chile, the conservation areas are identified as high conservation value sites according to the FSC® and the criteria defined by the Proforest Handbook validated by the WWF. Of particular note is the Los Queules National Reserve on the Trehualemu plot given in a gratuitous loan for use by Chile’s National Forestry Corporation (CONAF).
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Previous commitments 2014 Annual Report ∑∑ The following are the commitments outlined in the Annual Report for 2014 and the level of progress achieved in 2015, indicated in the following colors: green (fulfilled), yellow (partially fulfilled) and red (not fulfilled).
In 2015 we expect to reap the results of the cost and expense reduction initiatives implemented in all markets and to take the maximum advantage of the opportunities offered by export markets, especially the United States. The investment in the assets of Rexcel has enabled improvements to be made in security, the environment, product quality, a reduction in production costs and improvements in continuity and maintenance. It is expected that this investment plan will be complete by the end of the first quarter of 2015.
During 2013 and 2014, US$15.1 million was invested to improve the gluing process of the MDF line in Ponta Grossa, Brazil. The new process is based on dry bonding technology using the EVOjet system resin blending system. This process is expected to reduce current resin consumption by 35%. It will become operational in the first half of 2015.
In 2014 MASISA invested US$2 million in its forestry development program in Brazil, which consists of providing guidance and finance to producers for the plantation and maintenance of forests. During 2014 the implementation stage began in Chile, Argentina and Mexico. It is expected that the LEAN project will reduce costs by US$3 million in 2015.
17,000 furniture makers trained in 2015 as part of the Red M program.
37,000 furniture makers active members of the Red M program in 2015. (33,800 were active members in 2016). In 2015 we will continue growing and deepening our relationship with furniture makers, strengthening the best with the launch of our new guide to furniture makers “guía del mueblista”, enabling those furniture makers who are part of our network to expand and promote their work more quickly. The company’s digital strategy was updated in line with the new positioning, so we evolved our digital platforms (websites and social networks) with a development that was launched in 2015. The challenges for 2015 include finishing the launches in Argentina and Mexico, integrating Venezuela into the lean program, strengthening people’s commitment to this change and maximizing synergies between the different countries. The Chihuahua, Zitácuaro and Lerma plants in Mexico will achieve ISO 9001 certification in 2015. (These plants began the certification process as planned and will obtain the formal certification in 2016).
In 2015 a new version of the HES excellence award will be held. This is designed to create a culture, motivate employees and align them with Masisa’s standards.
Accident frequency indicator target: 0.55. (In 2015 an AFIT of 0.64 was registered). Accident severity indicator target: 12. (In 2015 an ASIT of 21.14 was registered).
Foyer Masisa Melamine Roble Americano julio oropel & jose luis zacarĂas otiĂąano casa foa 2015
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