Masisa 2016 eng

KITCHEN White High gloss thermo fused melamine and Wall Panels, Maple.

Sien Estudio Casa Foa 2016. Chile

Annual Report

2016

1

Integrated Report MASISA 2016

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 2016 Annual Report or MASISA’s financial, social or environmental performance.

Eugenio Arteaga I. Chief Financial Officer Regina Massai C. CSR Manager Ignacio GonzĂĄlez G. Corporate Communications Manager

Address: Av. Apoquindo 3650 piso 10.

Las Condes. Santiago.Chile Telephone: (56 2) 2 707 88 00

(56 2) 2 350 60 00 EMail: info@masisa.com

www.masisa.com

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Integrated Report MASISA 2016

Contents

03

Scope

06

Message from the Chairman

07

Message from the Chief Executive Officer

10

Chapter 1 THE COMPANY AND ITS CONTEXT Corporate Governance Triple Bottom Line Model Principal Shareholders Operating Environment Opportunities and Risks

11 16 24 25 26 32 33 33 36 38 38 41 41 42

44 46 45 46 46 47 47 48 48 49

Chapter 2 BUSINESS STRATEGY Vision and Mission Core Business Forestry Business Objectives and Corporate Strategy – Customer Focus – Innovation – Most valued brand – Competitiveness in costs and expenses

52 54 55

Social Performance – MASISA Employee Profile – Employees and Engagement Management – Health and Safety Management – Community Relations – Supplier Development

57 58 59 59 59 60 61

Environmental Performance – Sources of Energy – Waste Management – Water Consumption and Efficiency – Air Emissions – Wood Fiber Origin Control – Forest Environmental Management

63

MASISA’s Sustainable Development Goals Strategic long-term commitments Terms of Use

50 51 51

65 66

Chapter 3 ANNUAL PERFORMANCE Financial Performance - Markets - Sales - Sales Cost - Gross Profits – Other income and expenses by function - EBITDA - Profits Attributable to the Controller’s Owners - Balance Sheet

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Integrated Report MASISA 2016

Scope The 2016 Annual Report contains consolidated information on the financial, social and environmental performance of all MASISAcontrolled companies from January 1 to December 31, 2016.

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.

In this way, this document seeks to meet the expectations and respond to questions from the company’s main stakeholders.

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Integrated Report MASISA 2016

Scope This report has been prepared following the guidelines in the Framework of the International Integrated Reporting Council (IIRC) and the Global Reporting Initiative, 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.

Furthermore, for the second consecutive year, we are linking MASISA’s performance to the United Nations Sustainable Development Goals.

In this version we are publishing a more in-depth analysis of how the company is progressing with concrete objectives throughout its value chain with mediumand long-term goals.

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®. We have therefore decided not to seek external verification of the social and environmental topics addressed in this document.

The financial figures presented in this Annual Report were audited by KPMG and prepared in accordance with International Financial Reporting Standards (IFRS).

FSC® C022892 FSC® C000954

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Integrated Report MASISA 2016

Materiality

According to the International Integrated Reporting Council, materiality is the process by which an organization discloses information about matters that significantly affect its capacity to create value in the short-, medium- or long-term.

Political / Economic Instability Economic slowdown in Latin America with some markets in recession, which is accompanied by political instability in some countries. To address this situation, the company has developed in-depth knowledge of the region that enables it to take early decisions and establish a clear and differentiating business strategy.

Competitive Environment

Financial and exchange rate risks

Recovery of international markets

Greater levels of competition and over-supply have impacted prices and margins.

The Company has implemented important projects in the areas of cost savings and efficiency in resource use and maintains a strategy of differentiation through design, quality and open innovation.

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. This can result in gains or losses when valuing cash flows or balance sheet positions.

The economic situation of international markets has a significant influence on Latin America, so their recovery has a direct impact on our business. The company therefore has an export platform to take advantage of opportunities in markets such as North America, Asia and Europe.

(See page 33)

(See page 27)

Access to technology Access to cheaper and more efficient technologies is improving the company’s productive processes, increasing its competitiveness and making new business models possible. This is why innovation is one of MASISA’s strategic pillars.

(See page 41)

(See page 46) (See page 33)

At MASISA we understand and manage the most important matters that could positively or negatively impact the Company in its value creation process.

In identifying material matters, we consider internal and external factors and global trends that impact our industry.

The material matters for MASISA that are detailed throughout the 2016 Annual Report are as follows.

Operational Management

Climate Change

In its operational management MASISA places special emphasis on strengthening the environmental, health and safety management processes, developing critical suppliers and effective engagement with the community and contributing to its development, all of which are important aspects for the Company.

Climate change threatens natural ecosystems and their biodiversity. MASISA is a positive agent in the fight against climate change because of the CO2 capture by its forestry equity. The Company has also been reducing its environmental footprint through by making its processes ever more efficient and cleaner and also migrating its energy grid towards renewable energy sources.

(See page 51)

(See page 58)

Wood board consumption growth in the region

Urbanization and new lifestyles

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, is a source of growth for MASISA. We estimate that annual wood board consumption per inhabitant in Latin America is four times lower than that of more developed countries.

Growing urbanization in the cities is generating new housing demand. Meanwhile, new lifestyles emphasize personalizing and renovating environments. These trends are creating an opportunity for MASISA and its strategy of differentiation focused on design and added value.

(See page 35)

MASISA has a solid, focused strategy in Latin America, where it has actively promoted market development through the incorporation of products and marketing actions.

(See page 35)

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Informe Integrado MASISA 2016

Message from the Chairman

Dear shareholders, I am delighted to write to you for the first time as Chairman of the Board of Directors of MASISA. I would like to take this opportunity to reinforce some messages that reveal the priorities that we have defined so that our Company can continue progressing with our process of creating value.

Firstly, I would like to emphasize that MASISA’s model has been developed in order to maximize economic, social and environmental value. We feel it is our responsibility to have a business that is sustainable over time so that it can continue growing and contributing to society. In this sense, our long-term goal is to progress in looking for new business models that are in harmony with the needs of future clients and the expectations of our stakeholders. Thus our vision is to be the No. 1 company in bringing added value and solutions for furniture and interior spaces in the markets where we operate and to be the most attractive company to customers, investors, employees and communities.

Among the current priorities, we have placed special emphasis on maintaining financial prudence, which has enabled us to address the complex scenario of economic slowdown that has affected Latin America in recent years. In fact, since 2015 MASISA has implemented a process of divestment of non-strategic assets to reduce debt and has maintained discipline in all operations to achieve greater cost efficiencies, decreased expenses and reasonable levels of capex. We are confident that these have been good decisions and that they will enable us to develop a more flexible structure to address the increased volatility that is characterizing today’s world.

We are implementing processes that are well structured and favor the company’s financial sustainability. They will enable us to make better decisions in function of the interests of all the shareholders, focusing on the implementation of strategies and preserving and increasing value creation.

Finally, I’d like to take this opportunity to thank all our employees, customers and suppliers, as well as each member of the Board of Directors for their ongoing support and our shareholders for placing their trust in the Company.

As a company that forms part of society, we cannot ignore the dynamic environments and profound changes that are being generated by different sources in terms of greater ethics, transparency and responsibility towards people and the planet. At MASISA we feel proud of the path we have taken in this matter. We are convinced that companies have a fundamental role in building trust.

Andreas Eggenberg Chairman of the Board of Directors MASISA 6

Integrated Report MASISA 2016

Message from the Chief Executive Officer

Dear shareholders,

2016 was an especially challenging year for the business world and for MASISA both in Latin America and globally. In my opinion, it has been one of the marked economic crises of recent decades because four economies went into deep recession at the same time: Venezuela, Brazil and Argentina and, to a lesser degree, Ecuador. This impacted the behavior of the Latin American economy and had repercussions on our operations.

MASISA mitigated this impact by taking proactive measures with an emphasis on expense control and greater cost efficiency in order to address this scenario without abandoning our long-term pillars: Customer focus, innovation, brand and competitiveness.

During this period, MASISA achieved consolidated sales revenue of US$959.8 million; cumulative EBITDA of US$161.2 million; and profits of 19.9 million.

A notable milestone for MASISA in 2016 was the inauguration of the new MDF plant in Durango, Mexico in June. This investment will enable us to consolidate our position in that market.

In 2016, we also boosted the culture of operational excellence under the “Lean Manufacturing” model in the framework of improving our competitiveness, protecting the quality of our products and the safety of our processes. This program achieved savings of around US$6 million.

MASISA also restructured its operational areas, principally in Chile and Brazil so as to address its productive processes in a more competitive and efficient manner, as well as to adapt to the current levels of demand in the markets.

Meanwhile, we have continued to promote innovation, one of the Company’s strategic pillars. We are seeking to use innovation to generate a differentiated portfolio of products and new business models that generate value for the Company and our customers.

A notable aspect of this is the consolidation of MASISA Lab, which is MASISA’s open innovation platform. In 2016, we inaugurated a new center in Concepción in Chile, from which we intend to offer the creative, scientific and entrepreneurial community of the Bío Bío region a unique workspace where contacts, training and access to finance flow. This new MASISA Lab joins those already in existence in Santiago, Mexico City, Sao Paulo and Buenos Aires.

One of our key decisions during the year was to strengthen the financial profile of the Company and to this end the Company’s

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Integrated Report MASISA 2016

indebtedness was reduced. To achieve this we have continued to implement our sales plan for US$100 million of non-strategic assets. As of the close of 2016, this had achieved the figure of US$120.8 million. Funds from these sales have been used to pay the financial debt, in particular the repurchase of US$100 million in international bonds that took place in February 2016.

This improved the Company’s debt maturity profile, decreasing the need for refinancing in 2019 and reducing financial costs.

of showing how our actions are coherent with the sustainable development goals of the United Nations.

MASISA also successfully signed a 5-year amortizing term loan for US$100 million with the banks Cooperative Rabobank U.A., the Bank of Nova Scotia, Banco de Credito del Peru and Export Development Canada. These funds also had the objective of refinancing the Company’s financial liabilities.

2017 will undoubtedly be a challenging year. Uncertainty is now the one constant in the markets. Nonetheless, we are ready, having built our capacities to address the recurring change in our region and to take advantage of opportunities that will enable us to continue strengthening our leadership position.

To finish, I would like to express my sincere thanks to our shareholders, employees, customers, investors, suppliers and other partners for their trust in the Company and our abilities.

Because of this trust, we are even more committed to ensuring a prosperous future.

Furthermore, MASISA reduced Capex in 2016 from US$128 million in 2015 to US$70 million, achieving the Company’s objective of managing cashflow at a level appropriate to the challenging times of recession.

With regard to environmental, social and corporate governance (ESG) matters, I must first emphasize the excellent results in terms of occupational safety. In 2016 we had the lowest accident frequency ever experienced at MASISA and a much lower level of severity than the previous year.

Another highlight was the implementation of the social progress index for the first time in a municipality of Chile, alongside academic and government institutions. In environmental matters, we exceeded our targets for all indicators, such as water and energy consumption, CO2 emissions and waste management.

This enabled us to continue decreasing our environmental footprint, generating ever more efficient and responsible processes.

ESG matters can be reviewed in-depth in this Annual Report, where we have added new transparency standards and continued the 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 and establishing ways

Roberto Salas Guzmán Chief Executive Officer MASISA

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Integrated Report MASISA 2016

MASISA in summary

82. 2

%

5 branches

MASISA’s sales in Latin America.

MASISA Lab innovation centers, in Latin America

959.8 US$ 161.2 US$

Million in annual sales

188,000 hectares of forestry plantations

317

MASISA Placacentro stores, the largest specialized distribution network in Latin America

95,000 registered with Red M

Million in consolidated EBITDA

81

%

the level of engagement achieved across the group in 2016

5,150

direct employees in MASISA’s Latin American operations

7.8

11.5

4.6

9.7

%*

reduction in water consumption in industrial operations

%*

reduction in energy consumption

%*

reduction in CO2 emissions

%*

reduction in waste

* Figures compared to 2015

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Informe Integrado MASISA 2016

Chapter 1 > The company and its context

MASISA’s presence in Latin America

Mexico

4

Industrial Facilities

MASISA’s core business is to produce and market wood boards for furniture and interior architecture in Latin America.

92,700* Hectares of Forest

1

Industrial Facility

47

Placacentro Stores

32

Placacentro Stores

Ecuador

188,500 Hectares of Forest

29

Brazil

Placacentro Stores

2

Industrial Facilities

Perú

21

Placacentro Stores

Diversified manufacturing base and final markets in the region.

Industry leader in occupational health and safety and the environment.

Placacentro Stores

Colombia

Totales

One of the leading companies in Latin America in the production of boards for furniture, with a focus on design and added value.

Venezuela

77

Bolivia Uruguay

6

Placacentro Stores

10

1

Placacentro Store

Industrial Facilities

Argentina

Leadership and commitment to sustainable development.

Corporate governance that has been widely recognized

Chile

317

48,800 Hectares of Forest

2

Industrial Facilities

47,000 49

Placacentro Stores

Hectares of Forest

1

Industrial Facility

55

Placacentro Stores

Placacentro 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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Informe Integrado MASISA 2016

Corporate Governance MASISA’s corporate governance is a key element of its sustainable, longterm 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

S

R HA

OL EH

DERS AND STAKEH

OL

DE

RS

Pr Bus in i

Tr Lin iple eS t

ie re s & s

Ri g a an M

sk em en

t

EMP

AG E M E N T

Value Creation

MAN

ss ne les p i c

m tto gy Bo rate

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.

Who are accountable?

The Board of Directors and its Committees, along with management levels, and each and every one of MASISA´s employees.

li c Po du e c Pro

L OY EE 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.

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Integrated Report MASISA 2016

Board of Directors

Standing: Ramiro Urenda Morgan Independent Director Degree in Business,Universidad Adolfo Ibáñez.

Chile.

I.D. No. (RUT): 6,150,586-5 Director since 04/29/2015.

Claudio Cabezas Corral Director Degree in Forestry Engineering, Universidad Austral de Chile I.D. No. (RUT): 11,961,465-1 Director since 11/30/2016.

Andreas Eggenberg Chairman Degree in Economics and Political Science, University of Lausanne.

I.D. No. (RUT): 25,452,448-4 Director since 04/29/2015.

Seated: Alejandro Carrillo Escobar Director Degree in Public Accountancy, Ibero-American University in Mexico.

MBA, University of Victoria in Canada. Postgraduate qualification in Business Management, IPADE in Mexico.

I.D. No. (RUT): 22,792,502-7 Director since 11/30/2016.

Roberto Salas Guzmán Chief Executive Officer Degree in economics, Universidad Católica de Guayaquil, Ecuador.

MBA from Esade and Universidad Adolfo Ibáñez.

The Kellogg Executive Development Program, Kellogg Business School, United States. Advanced Management Program, Wharton Business School, United States.

I.D. No. (RUT): 22.660.992-K

Jorge Carey Tagle Director Law Degree, Pontificia Universidad Católica de Chile.

Master’s degree in Law, New York University, United States.

I.D. No. (RUT): 4,103,027-5 Director since 04/22/2004.

Reelected to the board on 04/29/2015.

Rosangela Mac Cord de Faría Vice Chairman Degree in Accounting, the Federal 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 03/25/2009.

Reelected to the board on 04/29/2015.

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 04/25/2012.

Reelected to the board on 04/29/2015.

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Integrated Report MASISA 2016

Board of Directors 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.

The most recent election of directors took place at the Ordinary Shareholders’ Meeting on April 29, 2015; 7 Directors were elected to the MASISA Board of Directors for a three-year term.

Board of Directors Diversity The MASISA Board is made up of seven directors, of whom six are male and one is female. Of these, three directors are Chilean and four are from other countries.

At the board meeting on November 30, 2016, the directors Mr. Roberto Salas Guzmán and Mr. Roberto Artavia Loría presented their resignation to the Board.

They were replaced by Mr. Claudio Cabezas Corral and Mr. Alejandro Carrillo Escobar, who assumed their functions on that date.

At the same meeting, Mr. Andreas Eggenberg was appointed Chair of the Board and the Director Rosangela Mac Cord de Faría as Deputy Chair.

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 13 years.

As a result of these replacements, the Company must completely renew the Board at its annual shareholders’ meeting during the first quarter of 2017.

General Regulation No. 385 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.

Three of MASISA’s directors are between 41 and 50 years old; one is between 51 and 60 years old; one director is between 61 and 70 years old; and two are more than 70 years old.

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.

This self-evaluation involves all members of the Board and is coordinated by the Chairman of the Board. 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.

The Board’s self-evaluation process took place during February and March 2017 and all Board members participated in the process

On March 29, 2017, the Company reported to the SVS and the market in general the level of compliance with the regulation in 2016. In that year, the company achieved 79% compliance with the standards established in the regulation.

The extent to which the Company has adhered to governance practices is available at www.masisa.com

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Integrated Report MASISA 2016

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 & Audit Committee

Strategy 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 Whistleblower Channel fall under the committee’s administration

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 (President Committee) Rosangela Mac Cord de Faría Claudio Cabezas

BOARD OF DIRECTORS Strategy Committee Endreas Eggenberg (President Committee) Jorge Carey Ramiro Urenda Roberto Salas

Audit Committee Rosangela Mac Cord de Faría (President Committee) Alejandro Carrillo Héctor Vargas

Internal Audit Division Marcelo Villalón

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Integrated Report MASISA 2016

Attendance at Board meetings The Company’s Board of Directors met 17 times in 2016, including 12 ordinary sessions and 5 extraordinary sessions. Attendance at said meetings was as follows:

—— Attendance at Board meetings Director

Asistencia

Roberto Salas Guzmán*

16/16

Roberto Artavia Loría*

16/16

Andreas Eggenberg

16/17

Jorge Carey Tagle

15/17

Rosángela Mac Cord de Faría

17/17

Miguel Héctor Vargas Icaza

17/17

Ramiro Urenda Morgan

17/17

Claudio Cabezas Corral**

2/2

Alejandro Carrillo Escobar**

2/2

* Served as Director until November 30, 2016, when he submitted his resignation from the Board. ** Directors since November 30, the date of the board meeting when they were appointed as replacement directors.

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 December 2016), 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.

Disclosure Committee 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.

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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Integrated Report MASISA 2016

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.

Business Principles 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 decision-making in the different business areas.

Financial Results We consistently strive to create sustainable value.

Corporate Conduct 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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Integrated Report MASISA 2016

Business Principles and the Global Compact Since 2002 MASISA has adhered to the Global Compact’s Ten Principles, which are aligned with its Business Principles.

In 2016, 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.ggggggggg.com

Annual Declaration of Business Principles and Conflicts of Interest Every year the company conducts a Business Principles and declaration of interests survey of all employees.

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.

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Integrated Report MASISA 2016

Business Principle Whistleblowing Facility

5

Individual Conduct

Corporate Conduct

4

Communications received during 2016 Received

Ongoing

Resolved

9

0

9

Business Principle Whistleblowing Facility MASISA provides communications channels for direct or anonymously whistleblowing 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.

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.

In 2016, the Business Principles channel received 9 complaints, all of which had been resolved and closed as of the date of publication of this Annual Report.

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 2016 involved crimes of bribery, terrorism financing or asset laundering, as described in Law 20,393.

MASISA promotes responsible use of this whistleblowing channel, always striving to safeguard the integrity of our employees and the company’s reputation.

Two complaints 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.

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Integrated Report MASISA 2016

Governance and Transparency Practices and Policies

Corporate Governance Code MASISA has a Corporate Governance Code that contains and incorporates the recommendations of the Organisation for Economic Co-operation 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

well as the website 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.

Law Business Principles Corporate Governance Code

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.

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 website (www.masisa.com), as

The company holds meetings and quarterly conference calls on its results and issues quarterly press releases on earnings and general press releases.

Therefore, MASISA’s Investor Relations team manages relations and communica-

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.

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.

tions with investors and other stakeholders in a systematic and transparent way.

Delegation of Authority Policy Corporate Policies & Procedures Local Policies & Procedures

Law: Legislation and regulations of each country in which MASISA has operations.

Corporate Governance Code: Formalizes governance and transparency practices, which underpin value creation at all MASISA’s operations.

Corporate Policies & Procedures: Guidelines issued by the corporate management teams that regulate MASISA’s operations.

Business Principles: Values and standards that are a guideline for employees, and a reference framework for decision-making in the different business areas.

Delegation of Authority Policy: This sets out the responsibilities regarding the functions and authority of all MASISA’s officers and levels.

Local Policies & Procedures: Framework of action that employees must follow to achieve MASISA’s objectives.

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Integrated Report MASISA 2016

Risk Management: By identifying, assessing 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 assessment of key risks, conducted by management and reported to the Board of Directors.

• Independent assessments performed by the internal audit unit of the company’s internal control structure.

• Certification assessments (ISO, OHSAS, FSC®, etc.) undertaken by external companies.

• Review of the company’s financial statements by external and internal auditors.

• 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.

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 2016: • Training campaign for employees.

• Tests of the risk matrix in processes involving permits, donations, customs agencies and rendering of accounts.

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.

• 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

Governance Environment Business Principles

Principles Channel

Corporate Governance Code

Governance Policies (PDA)

Reporting:

Risk Management Detection Activities:

- Publicity and training - Risk identification and analysis - Implementation of preventive controls

Response Activities:

- Audits / Tests - Review of Litigation - Review of Complaints

3

- Coordinate disciplinary sanctions - Communication and disclosure of any cases observed

3

3

Output

Prevention Activities:

· Reports to Local and Corporate Management

· Reports to the Risk & Audit Committee / Board

2

4 Reference Law N° 20.393, 14 article:

Legal

Management & Finance

Human Capital

CSR Operations

Commercial

1

Crime Prevention Officer: Internal audit manager.

2

Definition of the means and faculties available to the Crime Prevention Officer.

3

Setting up of a crime prevention system.

4

Oversight and certification of the crime prevention system.

Oversight Risk & Audit Committee

1

Directors´Committee

20

Integrated Report MASISA 2016

Senior Executives

Board of Directors

CEO

Roberto Salas

Chief Financial Officer

Corporate Counsel Patricio Reyes

Eugenio Arteaga

Corporate Communications

Human Capital Zoraida Cabrera

Ignacio González

Corporate Social Responsibility

Forest Jorge Echeverría

Regina Massai

Industrial Business Manager Marcos Bicudo

PMO

Danilo Sverzut

Manufacturing, HES and Corporate Supply

Innovation José Catalán

Iván Rubio

Forest Argentina

Forest Chile

Venezuela Colombia

Argentina

Brazil

Andina: Chile, Peru & Ecuador

Mexico

Juan Morales

Jorge Echeverría

Arturo Arizaleta

Luciano Tiburzi

Marcos Bicudo

Alfredo Gili

Ramiro de León

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Integrated Report MASISA 2016

MASISA’s Sustainability Management System SDC (Sustainable Development Council)

Board of Directors

Partners WBCSD GLOBAL COMPACT WEF IIRC / GRI AVINA FUNDES WWF FSC® IPS

Chief Executive Officer

CSR Management Management Country

Environmental, Social and Corporate Governance (ESG) Strategy and Culture 2025 Goals

Business Principles

Corporate Governance Code

Corporate Policies

Processes and Programs

SSC Indicators Sustainability Self

COMMUNICATIONS AND REPORTS / INTERNAL – EXTERNAL

LEGAL LICENSE

•

The Sustainable Development Council Made up of country and division managers, this Council advises the Board of Directors on the definition and monitoring of the Company’s sustainability policy and long-term goals. The Board of Directors decides its scope and orientation.

The Strategy is implemented through the CEO and the team of country and CSR managers.

Business Principles MASISA’s sustainability strategy and management are supported by the Company’s Principles and Values, a commitment that operates at the highest level of the company and permeates the whole organization. They are put into practice in our operations and value chain.

Corporate Governance Code This considers global best practice and is aligned with our Business Principles.

It defines a framework for responsible and ethical action that permeates through our strategy and management.

Corporate Policies Policies and procedures related to the Sustainability Strategy that regulate and guide MASISA’s Sustainability Management in different areas of action, such as Human Capital, SMS, Sustainable Development, Management of Contractors, Procurement, Investments and Communications. The policies are mandatory and have a local orientation in each of the countries in which we operate.

Processes and Programs Policies are put into practice through different MASISA processes, programs and projects, which are followed-up and monitored. These are related to stakeholders on key topics such as commitment, quality of working life, customer relations, social management, HES, as well as procurement and investment management.

2025 Goals The long-term vision of the Sustainability Strategy is measured through six goals to be achieved by 2025.

These were defined in 2012 and were inspired by the WBCSD’s Vision 2050. Our 2025 Goals are consistent with the United Nations’ Sustainable Development Goals (SDGs) of 2015.

Sustainability Indicators Social and environmental indicators with annual fulfilment targets are defined to ensure the continuous monitoring, follow-up and improvement of the commitments related to our sustainability strategy. The most strategic are integrated into MASISA’s SSC, such as commitment to our employees, energy consumption, positive impact on furniture-makers.

Sustainability Self-declaration This is a tool that brings together the most important commitments associated with MASISA’s Sustainability Strategy, including legal compliance. Each year the CEOs in each country declare the level of compliance with the commitments in our Sustainability Strategy. This helps consolidate the ESG culture in the company. The self-declarations are internally audited.

Sustainability Scorecard (SSC) Our sustainability management is regularly monitored using the Sustainability Scorecard (SSC), 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 developmen.

Reports In our continuous efforts to make our management transparent to our various stakeholders, MASISA reports on its actions through internal and external reports, such as this Integrated Report (Annual Report).

SOCIAL LICENSE

LICENSE TO LEAD

22

Informe Integrado MASISA 2016

Recognition in 2016

— Chile First place for Corporate Reputation in the Forestry Industry MASISA was ranked first in the forestry industry for corporate reputation in 2016.

This ranking was developed by the Monitor Empresarial de Reputación Corporativa (MERCO – Corporate Reputation Monitor), which since 2000 has analyzed the corporate reputation of companies in eleven countries, including Chile.

— Chile Corporate Governance Leader MASISA earned third place in the Corporate Governance Leader category, part of the Sustainable Leaders Agenda 2020, ALAS20 Chile. 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 contributing to creating value for shareholders and other stakeholders.

— Chile Including women in industrial operations MASISA received the sustainable initiatives prize for 2016 in the category diversity and inclusion, because of its contribution to including women in industrial operations. This award was presented by the Pulso newspaper’s HUB Sustentabilidad platform which creates a space for analysis, debate and diffusion of topics related to the development of sustainable business.

— Chile Corporate Transparency Once again, MASISA was among the Chilean companies recognized for being most open with information, obtaining an outstanding score among the 95 companies analyzed in the 2016 version of the “Corporate Transparency Index,” developed by consulting firm Inteligencia de Negocios (IdN). In this, the seventh version, MASISA ranked fourth amongst private companies with 85 points, reaching an international standard of corporate transparency.

— Chile Labor Relations, Carlos Vial Espantoso Prize MASISA was among the finalists for the Carlos Vial Espantoso prize, which each year highlights companies that build participative labor relationships based on respect and openness, impacting positively on the company’s sustainability and productivity, the integral development of its workers and the country’s progress.

— Argentina Leaders in Sustainability-Focused Management MASISA was one of the 10 companies recognized for the way in which sustainability is integrated into its business by the American Chamber of Commerce in Argentina (AMCHAM) through their traditional award of the prize for “Corporate Citizenship”.

— Argentina Entrerriano Exporter Prize MASISA came first in the timber industry in this, the 29th edition of this Argentine Exporter’s Prize. The prizes are organized by the economics and business magazine Prensa Económica, and are assigned based on the results of a “Ranking of the 1000 Companies that Export the Most”.

— Brazil One of the most sustainable companies in the country MASISA Brazil was chosen by Guia Exame de Sustentabilidade as one of the most sustainable construction materials companies in the country.

— Brazil DuPont Safety Reference To highlight successful cases of the use of personal protective equipment, as well as excellent health and safety management, DuPont ranked MASISA in sixth place in the chemical protection category in Brazil.

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Integrated Report MASISA 2016

Main Shareholders MASISA shares are traded on the Santiago Stock Exchange, the Valparaíso Stock Exchange and the Chilean Electronic Stock Exchange.

As of December 31, 2016, MASISA’s share capital was divided into 7,839,105,291 subscribed and paid-in shares. The main shareholders are the holding company Inversiones Grupo Nueva, pension fund administrators, foreign investors via Chapter XIV (direct foreign investment in the local market) and investment funds.

No shareholders hold 10% or more of the capital or voting capital other than the controllers. As of December 31, 2016, there were 7,807 shareholders (considering each pension fund administrator with its total funds).

The majority shareholder of Masisa S.A. controls the Company through the Chilean companies GN Inversiones SpA.1 and GN Holding S.A.2, joint owners of 67.00% of MASISA’s 3 share capital.

Name *

N° of shares

% Share

GN Inversiones SpA

3,639,886,299

46.43%

GN Holding S.A.

1,612,485,819

20.57%

AFP Habitat S.A.

523,684,281

6.68%

BTG Pactual Small Cap Chile Investment Fund (new account)

292,381,886

3.73%

Banco de Chile through non-resident third party account

231,510,486

2.95%

AFP Cuprum S.A.

157,773,613

2.01%

AFP Capital S.A.

154,598,847

1.97%

Siglo XXI Investment Fund

145,963,245

1.86%

Banchile C De B S.A.

126,407,022

1.61%

Chile Small Cap Investment Fund

110,470,872

1.41%

Santander small cap investment fund

108,235,446

1.38%

Santander Corredores de Bolsa Limitada

48,681,541

0.62%

The main asset of GN Inversiones SpA. and GN Holding S.A. is their majority ownership of MASISA, a company through which they exercise their role as an investor specialized in the forestry sector.

The 12 main shareholders of subscribed and paid-in voting capital as of December 31, 2016, are the following:

MASISA Shareholders 18.44% Others 11.02% Pension Funds (AFP) 3.54% Foreing Investor

67.00% Grupo Nueva

(*) Pension Funds (AFP) shareholdings include the A, B, C & D funds.

1 GN Inversiones SpA is the legal successor of GN Inversiones Ltda. This company changed its name from GN Inversiones Ltda to GN Inversiones SpA on July 29, 2016.

2 GN Holding S.A. is the legal successor of Grupo Nueva S.A., which in turn is the legal successor of Inversiones Forestales Los Andes Ltda., former shareholder of Masisa S.A. In effect, on September 1, 2016, Inversiones Forestales Los Andes Ltda. was absorbed by Grupo Nueva S.A., which was itself absorbed by GN Holding S.A. on October 4, 2016.

3 The majority shareholder and owner of 100% of the shares of GN Inversiones SpA and GN Holding S.A. through several companies is the foreign company Nueva Holding Inc. Bamont Trust Company Limited (Bamont), acting as a trust representing the interest of the trust incorporated and organized under the laws of the Bahamas, the Viva Trust, is the ultimate owner of 100% of the shares of Nueva Holding, Inc. Mr. Mark Thomas Bridges, a British national, and Mr. 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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Integrated Report MASISA 2016

Operating Environment

The Latin American region is at a decisive moment in its history. The extraordinary earnings from the international boom in raw materials are diminishing while governments are facing greater social expectations from a more connected and involved middle class that is demanding more.

After two years of recession, regional growth in 2017 is forecast to grow by 1.8% and continue growing in 2018, although this depends to a large measure on the strength of external markets and the capacity to address macroeconomic challenges.

Domestic markets and internal demand are insufficient to contribute to growth now that the extraordinary benefits of the raw materials have disappeared. What is needed is external demand and a switching of resources towards an exporting economy.

Many countries in Latin America are already doing this and seeing the international economic links as a potential source of stable growth. Complementing regional integration with an effort at integration at a global level will be crucial to this transformation.

Recovering economic growth and investing in people will be crucial at the moment of preserving and continuing to push forward the profound economic and social transformations that Latin America has experienced over the last ten years.

Latin America in figures

595 67.2 74.7 13.5 Million people

Meeting the growing demands of the middle class is becoming ever more difficult as governments adjust to the new post-boom situation. The transformation was so fast that governments are finding it difficult to get up to date and respond to these demands. Transparency and accountability are fundamental for maintaining the credibility of governments and respond the people and markets.

%

Employment-to-population ratio

years

Life expectancy

Investing in a quality education will play an important role when it comes to enabling the more vulnerable people in society to contribute towards and benefit from future economic growth. Greater emphasis is needed on capacity building and generating the stimuli for boosting economic activity.

years

average schooling

Source: Economic and Social Panorama of the Community of Latin American and Caribbean States, 2016

Source: World Bank

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Integrated Report MASISA 2016

Opportunities

Wood board consumption growth 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 demand, 19.5 million cubic meters of wood board will be needed. That represents 1.9 times current consumption in the region.

Furthermore, we estimate that annual wood board consumption per inhabitant in Latin America is four times lower than that of more developed countries.

We therefore forecast increases in the use of boards and other wood products for the construction of new homes in the medium- to long-term, especially in Latin America.

Exports and Growth For instance, in Mexico, in addition to being an underdeveloped housing market, wood board and other wood products exhibit low penetration in the industry so we predict great potential for growth in this market.

Boards –especially PB/MDP and MDF– are increasingly being used instead of plywood and solid wood to build furniture and interior architecture.

We focus our export growth efforts from our production units in Latin America on 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.

To capture these opportunities, MASISA has built a new MDF plant in Durango, Mexico, which was inaugurated during the first half of 2016.

The high demand for homes in Brazil, given the size of the population and the significant housing deficit, also creates a need for our products and a gradual recovery in demand can be expected.

26

Integrated Report MASISA 2016

Risks

Risks related to business and the market During the ordinary course of business and financing activities, the Company is exposed to different risks that could have an impact on its profit or loss. Risk management policies are approved and reviewed regularly by MASISA’s Board of Directors and Management.

The Company defines strategies and actions on the basis of the evolution in global markets, but specifically in Latin America, where the Company focuses its operations.

The main risks to which the Company is exposed, as well as actions currently applied for mitigation purposes are recorded below.

Market and economic trend risk Market trends around the world and in Latin America may have an adverse effect on demand for and pricing of the Company’s products, financial condition and income.

Housing construction and remodeling is the main driver of demand for wood boards and other wood products. In recent years, MASISA has expanded its production capacity for MDF, PB, MDP boards and MDF moldings in response to growing demand in Latin and North America. Due to the cyclical nature of demand for the Company’s products, a deterioration of global economic conditions could negatively affect Latin America (our largest market), affecting the sales price of our products and resulting in adverse effects on our business, financial situation and income.

The Company believes that it has a solid position in the markets in which it partic-

ipates, thus enabling it to maintain profitable operations that offer opportunities for achieving sustained growth.

Competition risk We face competition in our markets and product lines in Latin America. The wood boards industry is sensitive to changes in installed capacity and cyclical changes in the economy, which can significantly affect our sale prices and market shares, and therefore our profitability. 2015 and 2016 witnessed an intensification of market competition in Mexico through the increase in imports from Brazil as a result of excess capacity and economic crisis in the Brazilian market.

To mitigate these risks, MASISA concentrates its efforts on actions that differentiate it as industry leader in sustainability, with a focus on end customers and an innovative range of high-quality products and solutions.

Risk related to political, regulatory and economic trends in the Latin American countries where the Company operates.

Our business strategies, financial position, and operating income may be adversely affected by changes in government policies in the Latin American countries where we operate, as well as by political events that affect these countries, and the regulatory and legal changes or administrative practices of their government authorities, over which we have no control. As a mitigation

measure, MASISA diversifies its risk by not centralizing its production and commercial operations. Thus, the Company currently has production plants and commercial operations in Chile, Brazil, Mexico, Argentina and Venezuela, and commercial operations in Peru, Ecuador and Colombia.

The risk perception of Argentina significantly improved in 2016 as a result of initial measures implemented by the new government. These include elimination of exchange rate control, conflict resolution with international creditors, a return to international debt markets, price liberation on certain basic goods and fiscal austerity measures to reduce inflation.

Political tension in Venezuela rose during this period as a result of the confrontation between the government and the National Assembly with a majority opposition. In addition, the economic crisis heightened due to a significant rise in overall shortages, exacerbated by inflation, and brought many companies’ productive activities to a halt due to lack of materials and parts.

On the other hand, during the year, the government instigated a 239% devaluation in the DICOM exchange rate. In this scenario, the company was able to maintain operations and increased its exports by 43% over the previous year, partially offsetting the reduced local demand and increasing access to foreign currency to keep the operation going.

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Integrated Report MASISA 2016

Risks associated with price controls In January 2010, the government of Venezuela modified the Law for the Defense of People’s Access to Goods and Services.

Any violation of this law by a company that produces, distributes and sells goods and services may result in fines, sanctions or the confiscation of assets used to produce, distribute and sell these goods, without right to compensation. In July 2011, the Venezuelan government passed the Fair Costs and Prices Law, creating the Superintendency of Fair Costs and Prices (Superintendencia Nacional de Costos y Precios, SUNDECOP), whose main role is to oversee prices and margins.

To mitigate this risk, MASISA strictly complies with regulatory frameworks and has a business policy of managing prices and its mix of products in accordance with local regulations.

closures. Management identifies 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 material losses due to such events.

Also, approximately 100%, 70% 48%, 69% and 66% of our employees in Brazil, Chile, Mexico, Argentina and Venezuela, respectively, are covered by trade union collective bargaining agreements. Our employees in Peru, Ecuador and Colombia are not unionized. The Company’s operations could be affected by strikes as a consequence of collective bargaining processes. To avoid this, MASISA has employee relations and engagement programs for all of its employees, and is recognized in the industry for its human capital and social responsibility programs.

Raw material price risk

Risks related to operations Interruptions at any of our plants or other facilities.

UAn interruption of operations of any of the Company’s plants or other facilities could prevent us from meeting demand for our products, fulfilling our production objectives, and may even require unplanned capital investments, which could result in lower sales. For example, in September 2012 our MDP plant in Montenegro, Brazil was affected by a fire that halted MDP production until early February 2013; another example was the 2010 earthquake in Chile, which caused a few weeks of manufacturing plant

Resins These chemicals, which are used in manufacturing wood boards, are made using methanol and urea, both natural gas by-products whose prices are related to that of oil. Fluctuations in crude oil or natural gas prices in international markets may partially impact resin costs and this has a similar impact on the whole board industry.

Additionally, in Venezuela and Mexico, MASISA owns chemical plants that provide resins for industrial board operations in those countries. In the other countries, MASISA has long-term agreements with chemical resin suppliers.

As of December 31, 2016, chemicals represented 24.3% of the cost of wood boards.

Wood MASISA uses wood fiber as one of the main supplies for its wood boards. Therefore, it has forestry plantations in Chile, Argentina, Brazil and Venezuela, with the purpose of ensuring the supply of wood fiber at competitive prices in the long-term.

The Company also obtains wood fiber supplies from other sources located in areas where it has industrial plants. In addition, the Company’s policy is to diversify its sources of third-party wood waste, reducing its dependency on individual suppliers.

The Company has ceased to have forestry land in Brazil. Fiber for making boards in Brazil will come mainly from two sources available on the markets of Paraná and Rio Grande do Sul, where the Company’s industrial plants are located. The first relates to property rights on a section of certain forestry plantations developed in association with the owners of forestry land through a contractual form called “Forestry Development”. Through this forestry development contract, MASISA, besides owning a portion of the plantations, will get the first option to buy the portion of the plantations that belong to the land owner. The second option is to buy through the spot market and long-term contracts with third parties, as there are various forest owners in both states who are willing to sell wood.

As of December 31, 2016, wood represented 26.5% of the cost of boards.

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Integrated Report MASISA 2016

Financial risk management and Coverage definition Currency risk 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 2016 represented 18.2% of consolidated sales; by the forestry business, which is strongly indexed to the U.S. dollar and represented approximately 10.0% of consolidated sales and 48.6% of consolidated recurring EBITDA in 2016; 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 a 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. MASISA 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 convenient.

• 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.

The company currently maintains derivative instruments in the following categories: • Cross Currency Swaps (CCS): These derivatives are used to hedge debt denominated in UF (“Unidad de Fomento”, (an indexed monetary unit widely used in business in Chile), especially from bonds placed in Chile.

Such derivatives offset the effects of fluctuations in the UF:US$ exchange rate.

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Integrated Report MASISA 2016

Risk of purchase of foreign currencies in Venezuela and the elimination of restrictions in Argentina Venezuela has an exchange rate control system that regulates access to foreign currencies. 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 February 18, 2016, this system was eliminated.

In February 2015, a new market mechanism known as the Marginal Currency System or SIMADI was set up, which was renamed DICOM in March 2016. This mechanism enables the purchase and sale of cash and securities in foreign currency in the financial market through regular auctions whose allocation criteria are not only based on price. This mechanism has continued to have very low liquidity.

As of the date of publication of this Annual Report, only the DIPRO and DICOM (previously known as SIMADI) systems are in force.

Therefore, it has lately only been possible to access foreign currencies through these three mechanisms and also by retaining

overseas part of the revenue from export sales, as detailed here: a) DIPRO (previously called CENCOEX), which is focused primarily on food and medications. This had a rate of B$6.3:US$1 for all of 2015 and increased to B$10.0:US$1 as of February 18, 2016. In 2015 and 2016, the Company did not have access to US dollars through this system. b) The SICAD (Supplementary Currency Management System), which operated through regular auctions and was part of the Central Bank of Venezuela. The SICAD auctions operated through tenders aimed at specific economic sectors and the allocation of US dollars was based on other criteria in addition to the price offered.

Additionally, Exchange Rate Agreement No. 25 of January 23, 2014 established that capital payments and dividends, among other transactions, will be conducted at a similar exchange rate to that established in the latest SICAD allocation. By way of reference, the last allocation through this mechanism as of December 31, 2015, was at a rate of B$13.5:US$1, which was maintained until the last allocation before the mechanism was eliminated on February 18, 2016. In 2015 and 2016 until the date of elimination, the Company did not have access to US dollars through this system. c) DICOM (previously known as SIMADI), which was set up in early 2015 as a market system designed to meet currency buying and selling needs not covered by the two other exchange systems. This market operates through regular auctions that

are based on other criteria in addition to the price offered. Relative to the other two official mechanisms, the DICOM has been gradually gaining importance in the market, although transactions continue to be for small amounts and this remains a shallow market. The SIMADI exchange rate as of December 31, 2015 was B$198.70:US$1.

In March 2016 this system was renamed DICOM (Divisas Complementarias or Complementary Currencies) and began to follow a trend of significant devaluation, reaching a rate of B$$673.76:US$1 by December 31, 2016. Since its creation, the company has not bought significant amounts of dollars through this mechanism. d) A fourth method for accessing U.S. dollars comes from exports. Exchange Agreement No 27 of March 10, 2014 set at 60% the percentage of revenue from exports that can be retained abroad. The remaining 40% of export income must be converted on the Venezuelan market.

Until February 18, 2016, this income had to be converted at a rate equal to the last SICAD 2 exchange prior to its elimination, namely B$52.1:US$1. Since that date, the conversion must be done at the DICOM (previously known as SIMADi) exchange rate applicable at the time of conversion. As of February 23, 2017 the percentage of unrestricted funds that can be retained abroad increased from 60% to 80%. This change has enabled the exports from Venezuela to become significantly more profitable, which has resulted in an increase in export volumes in 2016 of around 25% compared to 2015. This mechanism has effectively created sufficient currency availability to

30

Integrated Report MASISA 2016

cover the Company’s supplies and parts importation needs.

Bearing in mind that the DICOM (formerly known as SIMADI) exchange mechanism has been gaining importance in terms of covering the needs of the Venezuelan private sector, because the DIPRO (previously known as CENCOEX and SICAD - the latter having been eliminated on February 18, 2016) mechanisms have focused on limited and specific sectors of the economy, 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 has concluded that under the current conditions, the DICOM (previously known as 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, this exchange rate has been applied to record foreign currency items and operations and to convert the financial statements for consolidation purposes.

Other financial risks MASISA is also exposed to other financial risks that are normal for businesses that manufacture and sell products internationally. These include interest rate risk, credit risk, investment management risk and liquidity risk, which are described in the notes to the Financial Statements that are part of this Annual Report.

In the case of Argentina, during 2016, the government gradually eliminated the exchange market access restrictions.

There are currently no restrictions or limits on buying and selling currencies for any purpose, including paying dividends. It is important to emphasize that even during the period when restrictions applied to the currency market, the company’s Argentine subsidiaries paid dividends to the parent company in Chile as scheduled, mainly because the Company had a trade surplus because it exported a significant proportion of its production.

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Integrated Report MASISA 2016

Chapter 2 > Business Strategy

Network with over Stores

317

95,000

furniture makers registered

MASISA Placacentro, the largest specialized distribution network in Latin America.

188,000 Hectares of forest plantations

Customer

Innovation

Brand

Competitiveness

Innovation:

5 branches of MASISA Lab, innovation centers in Latin America 32

Informe Integrado MASISA 2016

Core Business 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 has an installed industrial capacity of 3,546,000 cubic meters per year for the production of boards, in addition to 1,908,000 cubic meters per year for melamine and film-coated boards. Likewise, it has total production capacity of 691,000 cubic meters per year for sawn lumber and MDF moldings.

MISSION 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 Customer Focus

Most valued brand

Innovation

Competitiveness in costs and expenses

FOUNDATIONS Superior Quality Product / Safety / Sustainability / Corporate Governance / Committed Organization

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Integrated Report MASISA 2016

Solutions for furniture and interior spaces 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, film-covered, melamine, plated and painted formats.

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.

MDP boards Medium density particle board is ideal for making furniture with straight lines or organic shapes.

It is notable for its homogeneity, resistance, dimensional stability and density, which makes it ideal for new uses in printing, painting and coating processes.

MDF 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.

Melamine boards 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.

Edge Banding MASISA sells edge banding in different materials to cover the edges of boards and give a perfect finish to furniture and other projects. We offer edging strips in the same designs and textures as the melamine boards.

PB 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.

Furniture Fittings MASISA offers a wide range of products to complement, decorate and add value to furniture and interior projects, such as door fittings, rails, hinges and other accessories.

Sawn lumber 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.

MDF moldings MDF moldings are sold in different profiles and thicknesses. They are mainly used for finishes in wall-floor and wall-ceiling joins and in door and window frames.

34

Informe Integrado MASISA 2016

MASISA Facilities nominal capacity (m3) 2016 PB

MDF

MDP

Melamine

Sawmill

Moldings MDF

Energy

Resins

Formaldehyde

137

150

0

260

0

0

0

0

0

Cabrero

0

340

280

228

337

130

8 MwH

0

0

Ponta Grossa

0

300

0

360

0

0

0

0

0

Montenegro

0

0

650

300

0

0

0

0

0

Macapaima

0

310

120

60

150

0

0

99,000 tons.

0

Concordia

144

280

0

274

0

74

0

0

0

Durango

155

220

0

206

0

0

0

64,000 tons.

63,000 tons.

Chihuahua

276

0

0

117

0

0

0

0

0

Zitรกcuaro

184

0

0

103

0

0

0

0

0

0

0

0

0

0

0

0

24,000 tons.

28,000 tons.

896

1.600

1.050

1.908

487

204

8

187

91

Planta Mapal

Lerma TOTAL

MASISA Land (m2) 2016 Country

Plant

Land

Mapal

215

Chile Cabrero

1,189

Ponta Grossa

842

Montenegro

799

Venezuela

Macapaima

1,080

Argentina

Concordia

305

Durango

396

Chihuahua

209

Zitรกcuaro

130

Brazil

Mexico*

Total

5,165

Land in thousands of m2 This does not include the land at the Lerma plant as it is rented

35

Integrated Report MASISA 2016

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 its 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.

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.

As of December 31, 2016, MASISA’s forestry equity amounted to 302,906 hectares of land, including 188,588 hectares of forestry

—— Forest equity as of December 31, 2016 Type of plantation*

Argentina

Venezuela

48,285

28,785

86,394

163,464

Eucalyptus plantations

376

18,272

–

18,648

Plantations of other species

139

–

6,337

6,476

7,572

7,071

43,391

58,033

22,869

8,941

2,082

33,892

3,942

9,314

9,137

22,393

83,182

72,384

147,340

302,906

Pine plantations

Chile

Land to be forested Native forest and reserves Other land TOTAL

total

* 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.

Average age of forestry assets as of December 2016 Edad

Chile

Argentina

Venezuela

0-5

2.17

2.21

2.01

05 -10

6.8

7.01

6.7

10 -15

11.48

11.77

11.25

15 - 20

17.43

16.45

16.81

20 - 25

21.05

20.58

22.53

25 + years

26.08

36.71

27.79

36

Integrated Report MASISA 2016

Investment and divestment plans for 2016 Investment plans In 2016, MASISA invested a total of US$70 million, mainly to complete the new MDF plant in Mexico. Some investments were to optimize processes, in safety and protection of the industrial plants and also recurring investments in the forestry area.

Plan to divest non-strategic assets In 2016 MASISA implemented the second part of its divestment of non-strategic company assets that had begun in 2015.

They mainly consisted of the sale of forestry assets in Brazil for US$39.0 million.

This plan to sell non-strategic assets had achieved US$120.8 million by December 31, 2016

CAPEX Governance Program MASISA began a new stage in the management of its portfolio of capital investment initiatives, generating a CAPEX governance system designed to optimize the use of the resources available for investment, aligning their use with the implementation of the Company’s strategy. This was achieved by creating a single platform to bring together all of the initiatives from the five countries with industrial and forestry operations. This has been designed so that, with support from specialists in different areas, the costs and benefits of implementing or not implementing a particular initiative can be

assessed and prioritized in a standardized manner. With this analysis and after drawing up a list prioritizing the initiatives, the investment corporate governance team can take investment decisions based on impacts and risks.

37

Integrated Report MASISA 2016

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.

Customer Focus We are in constant contact with customers that process boards so as to understand their behavior and be aware of trends that should guide what we offer and the 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 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. We have also identified architects, designers and decorators as clients and influencers.

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.

In 2016, MASISA finished the implementation of a complete program in Chile, Peru, Ecuador and Colombia to provide excellent service levels to customers, mainly by enhancing our competitive differences, implementing excellence at sales points and fulfilling commercial promises efficiently.

Recently, MASISA has implemented similar programs in other markets, like Brazil and Mexico.

Customer Satisfaction CAs part of its Customer Focus pillar, MASISA measures customer satisfaction in the different channels where it directly serves customers, both in Latin America and the main export markets. Its objectives are to identify opportunities and establish the best standards in important variables, such as product quality, service provision and customer care.

In 2016, MASISA again achieved a high average level of satisfaction, maintaining an upwards trend in most markets.

Among the aspects most valued by customers are product quality, the attention received from sales executives, customer care, as well as the timely shipping and delivery of products. MASISA scores well on each of these aspects and continues focusing its management to achieve levels of excellence in all markets

38

Integrated Report MASISA 2016

MASISA Placacentro network In 2016 Placacentro MASISA retained its position as the biggest network of specialist stores delivering products and services to furniture-makers in Latin America.

The Placacentro network, which is present in Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela, plays an essential role in MASISA’s commercial strategy. It facilitates the marketing of MASISA products, diversifies the sale of products to a wide group of customers and contributes towards positioning the MASISA brand in the region.

During 2016 the Placacentro network implemented an ongoing program to enhance store performance within the framework of its value proposition: Specialist mix of products that are always available; Specialist attention that is customer-focused; Response within the promised timeframe; Production and Customer Care Services.

and will be rolled out in the other countries where the network is present during 2017.

With the goal of enhancing service quality and customer care, the Network went through a period of alignment and in some countries the decision was taken to reduce the number of stores that were not meeting the desired standard.

Thus the network ended with 317 stores and US$143 million in purchases from MASISA, accounting for 27% of MASISA sales in terms of volume and 33% in terms of value in the countries where it is present.

Red M, Furniture Maker Engagement Program During 2016 Red M program continued its consolidation program in the markets where it is present: Chile, Argentina, Peru, Colombia, Mexico and Venezuela.

At year-end, the program was present in 239 Placacentro outlets and over 95,000

furniture-makers were registered. Of these, 36,500 were active (had made more than one purchase in the last 12 months) and more than 17,000 received training from MASISA. It is worth highlighting that when asked about the impact of Red M on their business, 84% of furniture-makers evaluated it positively, up from 77% in 2015.

Among the milestones of 2016 was the progress with the Certification Program in Chile, which began in 2015. This has enabled more than 120 furniture-makers throughout the country to gain certification that is backed by the Universidad de Chile.

This program has been implemented in Chile, Colombia, Peru, Ecuador and Bolivia

39

Integrated Report MASISA 2016

Innovation We seek to be the most innovative company in our industry by generating new business and value-added products that anticipate our customers’ needs and help to increase operating income.

MASISA Lab milestones in 2016 • 3 new branches: Sao Paulo, Buenos Aires and Concepción, in addition to Santiago and Mexico City.

In 2016, MASISA set itself the target of searching for innovative solutions based on social, technological and digital resources that could be applied to the architecture, design and construction industry and exported from Latin America to the world.

The MASISA Lab platform is designed for this end, in order to generate new business and value-added products that anticipate the needs of our customers and contribute to the growth of the business.

that entered the MASISA Lab portfolio in 2016 were “Tecsus Innovation” and “Échale a tus muebles”. The details of the whole portfolio of projects can be viewed at www. masisalab.com.

MASISA Lab has, in fact, become an undisputed regional benchmark for creating an ecosystem for entrepreneurship, innovation and technological development for Latin American industry. It brings together and incubates a portfolio of products with a high impact on the design and architecture market with the objective of transforming them into business opportunities for the Company.

Through this initiative, the mentors accompanied the entrepreneurs in the development and scaling up of their business in Latin America, prior to a complete training process with the Newfield consulting firm.

• 5 Lean Play: Santiago and Concepción in Chile; Mexico, Argentina and Brazil.

• 498 projects entered the Lean Play contest.

• 26 active projects in the MASISA Lab portfolio.

In 2016 we also formalized the MASISA Lab network of mentors, comprising 21 Company employees from different areas in 3 different cities (Santiago, Concepción, Mexico City).

Investment in Innovation

2016 was a year marked by open competitions, in which 500 start-ups from different Latin American countries took part in the fourth edition of “LeanPlay” in Chile (Santiago and Concepción), Mexico, Argentina and Brazil. Among the projects

• 21 mentors, who have invested 12 hours in training and 6 hours directly mentoring the entrepreneurs.

Another milestone achieved by MASISA Lab in 2016 was the creation of the first virtual reality showroom, where people can visit a space with different environments and exchange the different products, thereby gaining an impression of the boards they could possibly use in future projects.

• US$750,000 in seed capital.

• US$850,000 for maintaining the process.

• US$350,000 in public funds (Corfo, World Bank etc.).

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Integrated Report MASISA 2016

Most valued 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´s Top of Mind by Country

0

20

40

60

80

100 120

Chile*

Perú*

Colombia*

Argentina

México* Ecuador

Venezuela

Brazil

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, achieving high brand 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 when consulting distributors, furniture-makers, architects and designers.

the first time measured brand awareness among end consumers and, in the case of Chile, revealed surprising levels of positive awareness, with 41% top of mind and 57% cognitive presence.

MASISA Main Competitor * Last study in 2016

In 2016 we continued to consolidate our new brand positioning “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.

We updated our research in 2016 in Mexico, Chile, Peru and Colombia, verifying the results obtained in previous years. It is worth highlighting that this study for

41

Integrated Report MASISA 2016

Competitiveness in costs and expenses We are enhancing 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 projected improvements, the quality of our products and our goal of eco-efficiency.

Operational Excellence Program During 2016, MASISA consolidated its culture of operational excellence under the “Lean Manufacturing” model with a strong focus on customers, all within a non-negotiable framework of quality and safety.

Thus operations in Chile, Argentina and Mexico gained important achievements related to adding value to the customer and improving quality, safety and reliability standards in the processes.

Globally, savings of US$5.9 million were achieved in 2016, up from US$5.5 million in 2015.

In 2017, our objectives are to complete rolling out the Lean methodology in our operations in Brazil and Venezuela, to consolidate the best practice synergies system in Chile, Argentina and Mexico, and to continue improving our production processes with a view to adding value for customers.

During 2016 we also continued developing different savings initiatives associated with operational efficiency to support the continuous improvement of our processes, thereby contributing to reducing costs, and operational efficiency. These achievements reveal the maturity that our operations have achieved in the implementation of the Lean methodology.

Optimization of procurement and tenders

Quality An important optimization was also achieved in a tender of maritime transport companies in which we achieved savings of 30% compared to 2015. This resulted in an improvement in excess of 25% in the competitiveness of MASISA’s exports from Chile to over 130 markets around the world.

Restructuring of Operations MASISA restructured its operational areas so as to address its production processes in a more competitive and efficient manner, as well as to adapt to current levels of demand in the markets.

In 2016 this restructuring was mainly applied to the industrial operations in Chile and Brazil.

MDF plant, Mexico In June 2016 the new MASISA MDF plant in Mexico officially started operating This project, which began in 2014, entailed investment of US$123 million. It has the capacity to produce 220,000 m³ of MDF boards each year, in addition to a melamine or board coating line with a production capacity of 110,000 m³. The project also included the expansion of the resin plant located in the same complex.

This is the first MDF production plant in Mexico and it has achieved the anticipated levels of production and quality, something very much appreciated by our customers.

The Lean program’s results come mainly from the increase in the quality factors on MASISA’s industrial lines due to the implementation of tools for controlling deviation.

This, together with our strict compliance with the quality standards promised to customers has consolidated MASISA’s levels of excellence and complaints are below 5 units for every million sold.

It is worth highlighting that in 2016 all production units earned recertification for the following Management and Product Quality standards 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.

In 2016, the Chihuahua, Zitácuaro and Lerma plants in Mexico underwent a certification pre-audit and they are currently working with the ISO systems while awaiting certification.

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.

The optimization and homologation in the process of procuring melamine papers at regional level has continued to generate important synergies between countries and savings in excess of US$4.7 million in 2016.

42

Integrated Report MASISA 2016

Product Certification Low formaldehyde emissions

FSCÂŽ Chain-of-Custody

Recycled Content Certification

MASISA produces boards with low formaldehyde emissions in all its operations and has E-1 class certification in accordance with the European standard, and the CARB Phase 2 standard, as required by the state of California in the United States, as well as other certifications required by specific markets.

MASISA has FSCÂŽ 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.

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.

In recent years MASISA has promoted a range of initiatives to increase the standard of emissions in the markets.

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.

MASISA has also voluntarily adopted certification guaranteeing that its quality control systems ensure compliance with the physical and mechanical properties of products, confirming what customers are informed.

43

Integrated Report MASISA 2016

Panoramic view of Durango Industrial Complex, MĂŠxico.

Chapter 3 > Annual Performance / Financial

82.2% of MASISA sales concentrated in Latin America.

US$959.8

Million annual sales

US$161.2

US$199.0

Million consolidated EBITDA

Million gross profits

44

Integrated Report MASISA 2016

Financial Performance

Markets MASISA’s commercial operations are focused on Latin America, which accounted for 82.2% of consolidated sales in 2016, with diverse export markets taking the remaining 17.8% 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 rate of demand for wood boards. However, due to the continuing trend of replacing consumption of solid wood boards with fiberboard 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.

three of our main markets were in recession and most Latin American currencies were devalued. However, there were some important positive changes during the year, establishing the foundations for economic recovery in Argentina and Brazil. Taken together with the new installed MDF capacity in Mexico and the dynamism of the Mexican market, we forecast a recovery in results in 2017.

Among the markets where MASISA operates, the United States stood out with a notable increase in sales volumes of MDF moldings and wood boards due to the dynamism in the construction sector, and Mexico stood out with increased board sales. Together with cost and expense reduction initiatives, these effects partially offset the reduced demand in the Argentine, Venezuelan and Brazilian markets, and the effects of currency devaluations.

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 the United States.

Furthermore 2016 was a challenging year both for MASISA and other companies in the region because the economies of 45

Integrated Report MASISA 2016

Sales Consolidated sales revenue as of December 31, 2016, reached US$959.8 million, which represents a drop of US$92.7 million (-8.8%) compared to the previous year, primarily due to lower sales revenue in Argentina (US$-46.5 million), as a result of the economic adjustment process and devaluation, in Chile (US$-31.9 million) as a result of lower forest sales following non-recurring sales the prior year, and in Colombia (US$-7.8 million), due to lower sales volumes. Lower sales revenue was also registered in other export markets (US$-16.5 million) in MDF moldings and sawn lumber, primarily due to lower prices.

Higher sales volumes in the US (US$+15.5 million) due to increased demand for MDF moldings, in Venezuela (US$+8.4 million) as a result of inflation, in Brazil (US$+5.1 million) due to sales of forestry assets and in Mexico (US$+3.7 million) as a result of increased production in the new MDF plant. Sales revenue as of December 31, 2016, excluding Venezuela was US$829.4 million, a decrease of US$87.4 million (-9.5%) over the previous year.

Sales volumes for MDP and MDF boards, including MDF moldings, which together represent the Company’s main business line, remained relatively stable (decrease of 0.6%). This slight decrease was mainly due to lower sales in the local Venezuelan market (-44.4%), partially offset by an increase in export sales, and due to a drop in board sales in Argentina (-9.6%), and a drop in PB board sales in Brazil (-2.7%).

Meanwhile, volumes increased 30.0% in the US, primarily due to MDF moldings, and 18.9% in Mexico due to an intensive growth plan. In Chile and other export markets, sales volumes remained stable.

Industrial Business Sales revenues for the industrial business unit amounted to US$864.2 million, a US$78.2 million drop (-8.3%) compared to the prior year. This decrease is mainly due to devaluation and lower revenue from board sales in Argentina (US$-46.5 million), as well as lower sales income from board sales in Brazil (US$-11.2 million).

Meanwhile, lower board sales were registered in Colombia (US$-3.3 million) and in Ecuador (US$-2.3 million), lower sawn lumber sales were registered in export markets (US$-10.1 million) and MDF moldings, mainly to Canada (US$-6.4 million).

These were partially offset by higher sales in the US (US$15.5 million), primarily MDF moldings, and in Mexico, where business efforts leveraged by the new MDF plant resulted in an increase of US$15.1 million in sales revenue. Meanwhile, sales revenue increased in Venezuela (US$8.4 million), due to prices increases resulting from the high inflation.

Cost of Sales The cost of sales as of December 31, 2016, reached US$760.8 million, a decrease of US$64.7 million (-7.8%) compared to the prior year, primarily explained by cost reduction efforts and the effects of currency devaluation. Lower industrial costs were observed in Chile, Argentina and Mexico as a result of efficiency and savings initiatives.

Forestry Business Revenue from total forestry sales amounted to US$140.0 million, a decrease of US$14.1 million (-9.2%) compared to the prior year.

Forest sales to third parties, excluding inter-company sales (which are eliminated in the consolidation process), totaled US$95.6 million, a decrease of US$14.5 million (-15.2%). This decrease is mainly due to lower forest sales in Chile after non-recurring sales the previous year and lower sales revenue from Argentina, due to effects of the exchange rate devaluation, effects that were partially offset by the sale of forestry assets in Brazil.

46

Integrated Report MASISA 2016

Gross earnings Gross earnings totaled US$199.0 million, 12.3% lower than the previous year. This drop is mainly due to the changing situation in Argentina, where gross earnings fell US$14.9 million, the devaluation in Venezuela (-3.7 million), lower margins in Chile (US$-1.7 million) resulting from non-recurring forest sales in 2015. Meanwhile gross earnings in Brazil also dropped US$3.1 million due to a fall in demand resulting from the economic crisis, and due to the devaluation of all currencies.

All of the preceding was partially offset by cost efficiencies. Gross earnings excluding Venezuela totaled US$161.4 million, US$24.2 (-13.1%) lower than the previous year.

Foreign currency exchange differences and gain (loss) from transactions in inflation-adjusted units Foreign currency exchange differences generated income of US$12.8 million, whereas they generated a loss of US$40.9 million the previous year. The exchange difference stems primarily from the devaluations of 239.1% in the Venezuelan bolivar, 19.1% in the Mexican peso and 21.9% in the Argentine peso.

Other income and expenses by function Income, by function, net of expenses, by function, reached US$47.0 million, which represents a drop of US$31.9 million (-40.5%) compared to the prior year, explained primarily by a drop of US$32.1 million in income by function (-29.4%), due to a lower profit due to valuation of biological assets

On the other hand, the Company recorded losses of US$20.2 million from transactions in inflation-adjusted units as a result of the consideration of the effects of inflation in Venezuela. This figure is US$4.5 million worse than the previous period, as a result of an increased gap between devaluation and inflation in Venezuela.

47

Integrated Report MASISA 2016

EBITDA Consolidated EBITDA reached US$161.2 million, an 19.6% decrease over the US$200.4 million registered in 2015, as a result of lower EBITDA in Chile, Argentina and Venezuela.

Excluding Venezuela, EBITDA dropped US$32.8 million (-18.5%) over the preceding year. This is primarily explained by lower EBITDA in Chile (-31.2%) due to lower forestry EBITDA resulting from non-recurring forest sales in 2015, a lower EBITDA in Argentina (-28.9%) due to the economic adjustment process and currency devaluation, and a lower EBITDA in Venezuela (-27.2%) due to the effects of devaluation and economic imbalance.

EBITDA in Mexico rose 23.4%, due to higher sales volumes, and EBITDA in Brazil rose 76.5%, due to non-recurring forest sales (recurring EBITDA in Brazil dropped US$4.7 million).

Profit attributable to the controller’s owners tion. Forestry EBITDA increased in Brazil, due to the non-recurring positive effect of forest sales.

Overall, in 2016, operations in the Andean region, led by Chile, concentrated 37.3% of the EBITDA, Argentina 23.8%, Brazil 16.4%, Mexico 12.4% and Venezuela 10.1%. Considering only recurring overall EBITDA, operations in the Andean region, led by Chile, represented 36.8% of EBITDA, Argentina 29.9%, Mexico 15.6%, Venezuela 12.7% and Brazil 5.0%.

Profits attributable to the owners of the parent totaled US$19.9 million, which represents a drop of US$32.4 million compared to the prior year. This is mainly caused by lower income in Chile due to the expenses involved in closing production lines and restructuring expenses for plant staff for future operational efficiencies, as well as by the effects of recession and currency devaluation in Venezuela. Other factors were the impairment of production lines in Brazil because of their lower level of utilization and the economic downtrend in Argentina resulting from the short-term impact of measures implemented by the new government.

The industrial EBITDA dropped US$21.7 million (-19.8%), primarily due to drops in Argentina, Venezuela and Brazil. Chile and the Andean region remained stable, while Mexico was on the rise.The forestry EBITDA dropped US$16.7 million (-16.8%), due to non-recurring sales the previous year in Chile and to a lesser degree in Argentina due to exchange rate devalua-

48

Integrated Report MASISA 2016

Balance Sheet Assets MASISA’s total assets decreased US$36.4 million (-2.0%) compared to the prior year, mainly due to a cash reduction of US$45.5 million, which comes straight from the long-term financial debt repayment made during the first half of the year and a US$15.5 million drop in inventory, primarily in Chile, due to an inventory reduction plan implemented during the year. These were partially offset by an increase of US$13.9 million in non-current assets classified as held for sale, primarily for assets related to the electrical energy cogeneration plant in Chile, currently for sale, US$9.7 million in trade receivables and other current accounts receivable and US$ 6.7 million in non-current biological assets.

Current assets totaled US$469.5 million, a 9.1% decrease compared to the prior year. This variation is mainly explained by a cash reduction (US$-45.5 million).

Non-current assets were slightly higher than the prior year (0.8%), reaching US$1,329.7 million.

Cash and cash equivalents reached US$64.4 million. Of this cash, only US$0.4 million was held in bolivars in Venezuela.

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 was down by US$85.3 million relative to December 31, 2015, reaching US$731.4 million. The net financial debt dropped by US$39.1 million at the close of September 2016, reaching US$667.0 million. The reduction of the net financial debt is related to the funds received as part of the plan to sell non-vital assets that were used to pay the debt. In August 2016, the Company secured bank financing in the amount of US$100 million over a 5-year term, of which, by the end of 2016, disbursements had been made in the amount of US$35 million. These loan funds ensure the refinancing of the financial debt that expires in 2017.

The Company maintains hedging for 64.2% of the portfolio of bonds in UF to make them US dollar adjustable by means of derivative instruments (cross currency swaps), the valuation of which offsets variations in the balance of bonds in UF due to exchange rate fluctuations. If the balance of the portfolio of these hedging derivatives is positive, their value is registered in the accounts under “other current and non-current financial assets”; on the other hand, if the balance is negative its value is registered together with the other financial liabilities in “other current or non-current financial liabilities.” At the close of December, net liabilities for these hedging derivatives amounted to US$23.9 million in negative market value (which offsets an equivalent favorable decrease in the appraisal of UF bonds).

Main Financial Indicators The net financial debt to EBITDA ratio was 4.14 times as of December 31, 2016, compared to 3.52 times as of December 31, 2015. The main reason for this difference is the lower non-recurring EBITDA recorded in 2016 compared to the previous year.

The indebtedness index (total net liabilities / shareholders’ equity) decreased from 1.32 for the year ended December 31, 2015 to 1.21 times as of December 31, 2016, because of the reduction in total liabilities during the year.

Current liquidity, defined as the ratio of current assets to current liabilities, reached 1.37 times, lower than the 1.63 times registered the previous year. On the assets side, this was mainly due to a decrease in cash and cash equivalents that were used to cover the financial debt. Meanwhile the increase in current liabilities was due to the reclassification of the local M-series bond (UF 1,000,000) from other non-current financial liabilities to other current financial liabilities because of its maturity date of August 2017.

As of December 31, 2016, the Company had met all its requirements arising from its loan and bond agreements, including financial covenants.

49

Integrated Report MASISA 2016

Chapter 3 > Annual Performance / Social

Employee of MDF Moulding process in Cabrero Industrial Complex, Chile.

16.2%

Women’s participation in the direct workforce

5,150

direct employees in MASISA’s Latin American operations

Engagement

81%

The level of engagement achieved across the group in 2016.

69%

Compliance rating for health and safety and the environment (HES)

MASISA Employee Profile As of December 31, 2016, MASISA had a workforce of 8,988 direct and indirect employees at all its operations in Latin America, of whom 5,150 are direct employees and 3,838 are indirect employees.

59.5% 5,150

Direct employees

39.4% of the total direct employees are 30-40 years old, 20.8% are up to 30 years old, 27.9% are 41 to 50 years old, 10.5% are between 51 and 60 years old and 1.4% are over 61 years old.

All MASISA’s employees have the right to freedom of association, and at the close of 2016, 3,065 direct employees (59.5%) belonged to unions. Women accounted for 16.2% of the company’s direct workforce and 15.4% of management.

belonged to unions

16.2%

39.4%

Women direct workforce

Direct employees between 30 - 40 years old

Employees and Engagement Management

2013

2014

2015

2016

Latam Standard

In 2016, the company conducted a new version of the engagement survey, in which 4,038 employees took part, attaining a result of 81% commitment, the highest since MASISA started to carry out this survey in 2004. We are delighted with this result.

Argentina

72%

73%

65%

74%

59%

Brazil

60%

62%

68%

76%

69%

Andean

71%

76%

78%

81%

68%

Mexico

87%

88%

87%

88%

74%

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. We highlight the significant improvement in satisfaction in the majority of the areas covered, especially direct boss, communications, learning and development and collaboration.

Venezuela

83%

90%

96%

89%

69%

Corporate

67%

69%

75%

73%

Forestry*

80%

75%

84%

78%

MASISA Global

73%

77%

80%

81%

71%

(*) Global result for forestry operations in Chile, Brazil, Venezuela and Argentina.

51

Integrated Report MASISA 2016

Health and Safety Management In 2016 MASISA consolidated its health, environmental and safety (HES) standards with the goal of achieving a safe and healthy 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 continued to evaluate the HES rating at all 17 of MASISA’s industrial and forestry business units, with a focus on the pillars that are the basis for a robust management system.

The results show global progress of 7% in 2016, taking us to 69% compliance with the HES rating and consolidating MASISA in the area of maturity and close to the good practice level.

The main conclusions following the evaluations for 2016 indicate a significant improvement in the reporting of safety incidents, particularly those of high potential, as well as a positive evolution in management in all countries and greater involvement by people at all levels in HES management.

Preventive Indicators During 2016, the Company intensified its management of preventive indicators, like the HES remarks and incidents reported This has enabled us to evolve towards a culture of prevention, seen in the reporting of incidents, reaching the maximum level in five years.

As the next step, MASISA has defined other preventive indicators related to high potential incidents and leadership, which will consolidate the improvements achieved to date.

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.

It is worth highlighting that all MASISA have a health and safety management system under standard OHSAS 18001.

In 2016, we also continued to implement the fire risk prevention program, 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 worldclass standards.

Preventive Indicators Reported Observations

Incidents

39.790

11.007

28.704

7.329

33.808

23.767

5.513 2.317 0

2012

0

2013

2014

2015

2016

2012

2013

52

2014

2015

2016

Integrated Report MASISA 2016

Reactive Indicators 2016 MASISA recorded its lowest ever accident frequency level, as well as a level of severity considerably below that recorded the previous year.

The Lerma and Zitácuro plants in Mexico stood out for having zero accidents with time lost in 2016. The performance by all units in Chile for both indicators was also notable, as well as the sustained improvement in accident severity in Argentina and the good performance at the new MDF plant in Mexico which began operations, exceeding the established indicators for accident severity and frequency.

—— Accident frequency / severity rate indicators for 200,000 man hours of exposure Year

Accident frequency indicator

Accident severity indicator

2012

0.65

365.7

2013

1.06

20.2

2014

0.62

12.4

2015

0.64

21.14

2016

0.61

13.6

2016 HES Excellence Award All MASISA’s forestry and industrial units in Latin America participated in the 2015 HES Excellence Competition. In this, its third edition, the winning unit was Montenegro (Brazil), which attained the highest scores in the criteria assessed during the year: incidents, investigation of safety incidents, management of risks and behaviors, accident frequency and severity, waste and CO2 emissions.

It is worth highlighting that in 2015 the Ponta Grossa plant came first, while in 2014, the prize went to Montenegro, both in Brazil.

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Integrated Report MASISA 2016

— Venezuela

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.

28 people earned the Diploma in Leadership and Social Management for Community Development. (120 since 2013).

— México

Zitácuaro: Collaborative reforestation of public areas continues (2,500 people benefitted). In the industrial area of Lerma a new public space recovery plan 2016-2018 is being implemented.

Durango: Collaborative reforestation of public areas continues (1,200 people benefitted).

Durango: To date 100 local suppliers and businesspeople supported (4 new fiber supply centers), as well as 50 new direct jobs and 1,200 indirect jobs (more than 500 families benefitted). For 2017, we expect to have at least 30 new local suppliers in Durango and Chihuahua.

5 communities positively impacted (2 forestry and 3 industrial) through the implementation of two community development plans that ended in 2016 and three previous plans that are being updated 2016-2020.

A 2017-2021 plan will begin in a new community (forestry area).

18 carpentry apprentices graduated from the social and education project "Jugando en Verde" (playing in green).

(160 since 2012).

— Brazil

Strengthening of legal compliance by forestry partners in the framework of the forestry development program with third parties.

En Chihuahua, the second year of academic liaison with the Universidad Autónoma de Chihuahua is underway to support postgraduate students in corporate responsibility management (40 students benefit each year).

We achieved legal compliance in the program to include disabled people.

31 disabled employees work at Masisa

— Argentina

Elimination of sources of contamination from communal water supplies in the Salto Grande lake. This initiative will continue in 2017, funded by companies and government.

— Chile

Training provided to 19 local furniture makers. In 2017 this training will continue for at least 50 carpenters.

We also provided support for 13 basic carpentry courses in the Municipality of Cabrero (150 beneficiaries).

345 adults completed schooling through MASISA's remedial program.

In Cabrero the Social Progress Index was implemented. In 2017 MASISA'S CSR program will be updated in line with these findings.

Collaborative Development Plans Support local Carpenters

25 local business entrepreneurs of non-timber forestry products 54 local business entrepreneurs and non-timber forestry activities (2 from indigenous communities).

5 new local initiatives are boosting Masisa's participation in its rural communities (104 people benefitted).

705 students on environmental education programs.

Support Job Creation

Development of a new cooperation initiative with Fundación Hábitat to create a conservation corridor in Corrientes.

Support Education

11 rural schools given environmental education (1,716 beneficiaries). 48 adults in rural areas completed their schooling. In 2017 all of these programs will continue.

Support local Entrepreneurship

1 local technical school with new furnishings. 12 graduates and at least 112 students benefitted.

Support Environmental Quality

54

Informe Integrado MASISA 2016

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: • R aw material suppliers (mainly fiber and resin) • Spare parts and materials suppliers • T ransport service (wood and products) suppliers, others

Supplier evaluation

• M anpower service suppliers (forestry stewardship, security guards, cleaning, engine maintenance, etc.)

Each year the suppliers that are critical to MASISA are evaluated and this includes quality, environmental and health and safety criteria. The main results for 2016 were:

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

Country

Total Assessed

Grade A

Grade B

Grade C

Grade D

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

Chile

181

187

38

99

96

62

39

22

8

4

Argentina

110

79

59

57

48

22

3

-

-

Brazil

157

75

126

21

31

40

-

-

-

Mexico

206

43

140

31

52

12

14

-

-

-

Venezuela

48

37

31

30

16

7

1

-

-

-

Total

702

421

394

238

243

143

57

8

4

Compared to 2015, there was a 40% decrease in the total number of suppliers evaluated, with a total of 421 suppliers.

This was basically because of the reclassification of critical suppliers.

14

36

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.

55

Integrated Report MASISA 2016

Supplier development plans MASISA has development plans with smalland medium-sized suppliers that are critical to its operations. The following actions were taken in 2016.

Country Argentina

Suppliers with active development plans 14% small- and mediumsized companies

Brazil

Chile

Actions in 2016 A new workshop plan was started with 8 new companies to develop topics relating to the Environmental Management System and the Occupational Health and Safety Management System (100% implemented) Due to budget restrictions, the supplier development program has been stopped. However the monitoring of critical suppliers is ongoing (legal aspects, occupational health and safety and environment) and actions are taken with regard to those companies who have not performed well.

100% forestry companies

The psychosocial program has been extended to all of MASISA's forestry companies (80% implemented) To contribute with the development of an effective workplace health program with a defined strategy and long-term projection (94% implemented) To boost the strategies for recognizing employees and companies (100% implemented) To strengthen security based on behavior (67% implemented)

To provide advice on matters related to the prevention of psychosocial risks (100% implemented) Mexico

In 2016, the supplier development plan did not continue and instead the resources were focused on the construction of the MDF plant. It is hoped to continue with the plan in 2017

Venezuela

Aspects of the Venezuelan market and legislation have made it difficult to implement a supplier development system

56

Integrated Report MASISA 2016

Chapter 3 > Annual Performance / Environment

11.5% Reduction in CO2 emissions

4.6%

7.8%

Reduction in water consumption at FSC® industrial operations

Reduction in energy consumption

9.7%

Reduction in waste management

FSC®

Certification of responsible forestry management held by most of MASISA’s equity

57

Informe Integrado MASISA 2016

Environmental Performance During 2016, all the environmental indicator targets that the company monitors exceeded those for 2015.

Chile and Brazil had noteworthy results for all indicators, as did the Argentine operations, particularly for waste reduction.

At the consolidated level, MASISA has been reducing its carbon footprint, generating ever more efficient and responsible processes.

Sources of energy A high percentage of MASISA’s energy comes from renewable sources and we have systematically improved our energy efficiency per wood board.

Year

Investments and environmental expenses (US$M)

2012

12,259

2013

17,780

2014

11,052

2015

5,047

2016

4,949

2012

2013

2014

2015

2016

Fossil

13

12

14

13

11

Electric

24

24

23

24

24

Biomass

63

64

64

63

65

In 2016 our consumption of energy from non-renewable sources decreased by 4.6% compared to the year before, reaching 360 kWh/m3 of production.

In 2016 the Ponta Grossa plant achieved outstanding savings in the gas consumed by an impregnator amounting to 17% per m² of impregnated paper, as well as a reduction of 19% in the consumption of resin.

58

Integrated Report MASISA 2016

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.

Evolution of final waste disposal and efficiency ■ m3 production | ■ Tons | ● Kg/m3

It should be highlighted that most waste is non-hazardous, and largely comprises slag and ash from burning the biomass. To a lesser degree, there is also industrial waste that cannot be used (melamine paper, settled resin sludge) and waste that can be incorporated to domestic waste (from the staff restaurants).

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.

2.690.952

2.543.223

2.491.926

2.661.090 2.523.840

11,1

11

8,56 28.414

27.700 2012

2013

5,58

5,04

15.372

12.719

23.044 2014

2015

2016

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.

Water consumption 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 Meanwhile, Mexico has achieved a noteworthy reduction of 13.6% in water consumption, especially due to savings plans at the Zitácuaro and Lerma plants.

0,72

2012

Air Emissions In 2016 all units developed energy efficiency plans. The Montenegro plant in Brazil had especially noteworthy results, as they reviewed all the equipment with higher energy consumption, looking for opportunities for reductions and generated 20 kWh/ m³ of savings. MASISA Mexico also stood out by decreasing the waste generated during 2016 through a “Zero Waste” program with a view to 2025. The country achieved a decrease in waste of 15% compared to the previous year.

2.661.090

2.690.952

2.543.223

2.491.926

1.821.141

1.943.924

1.692.540

1.495.274

0,72

2013

2.523.840

0,63

0,64

0,59

2014

2015

2016

Evolution of CO2 emissions and efficiency ■ m3 producción | ■ Tons. CO2 Eq. | ● Kg. CO2 Eq/m3

2.690.952

2.543.223

2.491.926

24,0

59.926 2012

2.661.090

27,7

22,5

57.346 2013

74.566 2014

59

2.523.840

24,23

21,45

65.895

54.134

2015

2016

Integrated Report MASISA 2016

Eco-innovation In 2016 all MASISA’s industrial and forestry units were incentivized to reveal their eco-innovation processes, that is to share those initiatives that generate improvements in the environmental indicators and associated cost savings, while entailing low investment and considering associations with external stakeholders such as communities, experts, suppliers etc.

One notable eco-innovation initiative in 2016 was the reduction in the generation of industrial waste at the Montenegro plant in Brazil, which achieved a 70% reduction compared to 2015 and savings of US$230,000 per year.

Wood Fiber Origin Control MASISA mostly uses wood from pine and eucalyptus plantations to make its products.

economic situation in that country, which impact the availability of certified wood.

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.

At consolidated level, in 2016 93% of the fiber used by MASISA came from a known origin.

Mexico achieved 87.6% compliance with this indicator and Argentina 70.2%, because of the adverse climatic conditions and the

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.

To attain this, MASISA has systematically worked with wood suppliers to have thorough knowledge of the fiber entering the Company’s mills, using a risk analysis methodology in the areas where we buy wood and to segregate our suppliers.

Carbon stocks

Thousand Tons. CO2

20.000 15.000 10.000 5.000 0 2002

2003 Chile

2004

2005 Argentina

2006

2007 Brazil

2008

2009

2010

2011

2012

2013

2014

2015

2016

Venezuela

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Integrated Report MASISA 2016

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.

Carbon Stock

Transversally, MASISA has the responsibility of assuring the implementation of environmental, health and safety and community engagement issues, for which it has management policies and systems that aim to:

Plague and Forest Fire Control

The carbon stock captured by MASISA’s forest plantations has dropped in the last seven years, due to stumpage sales and the sale of forest equity in Brazil in 2016.

In January and February 2017, Chile suffered its worst ever forest fires, which consumed some 400.000 hectares across the country.

The balance of carbon stock in 2016 was 9.65 million tons of CO2 stored.

MASISA was affected by 19 outbreaks, affecting a surface area of 770 hectares of its equity. This situation did not, however, affect the Company’s industrial operations.

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 measures, suppressing or regulating tactics and strategies, which do not cause a major environmental impact and are economically viable and socially acceptable.

• Minimize the negative impacts of forestry operations.

• Control compliance with current legislation.

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.

• Protect forests with a high level of conservation, establish protected areas and restore native forests.

All of MASISA’s plantations are certified in accordance with the ISO 14001 standard (except Forestal Argentina) to manage material environmental aspects and comply with applicable legal requirements. Our plantations in Chile and most of those in Argentina and Venezuela also comply with Forest Stewardship Council® (FSC®) certification.

Monitored river Monitored basinsriver basins 16

1616

1616

During this period, MASISA activated an emergency plan and provided support at other points of fire that affected the homes and land of third parties.

Hectares restored Hectares (hectares restoredper (hectares year) per year) 1616

16 14

135

150 135

150 125

14 82

125

82

50

2012

2013 2012

2013 2014

20142015

2015 2016

2016

2012

2013 2012

2013 2014

61

20142015

2015 2016

Integrated Report MASISA 2016

50

2016

New Generation Plantations (NGP) In 2016, 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 2016 we began to work together to formalize, strengthen and monitor MASISA’s commitment to implement in its operations the principles of New Generation Plantations (NGP) by formalizing a joint Work Plan Agreement with WWF. Criteria have been defined for prioritizing the scale restoration of a landscape on a

“model” plot of land between MASISA, WWF Chile and other companies participating in the NGP platform. This will be validated with local stakeholders.

Biodiversity In the framework of MASISA’s biodiversity strategy, the Company has established a range of conservation and protection agreements and commitments relating to its native forest equity in Latin America.

MASISA has 8,941 hectares of natural reserves in Argentina, which are being conserved and researched in an agreement with Fundación Hábitat y Desarrollo. Meanwhile, in Chile it has 22,983 hectares of native and protected forests concentrated in the Maule, Bio Bio, Araucanía and Los Lagos regions.

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.

The second intervention in renewables is currently under way.

High Conservation Value Forests (HCVF) HCVF are those forests considered to be of notable and critical importance due to their high environmental and socio-economic value, their contribution to biodiversity and the natural surroundings (FSC® terminology).

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.

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. A total of 4,427 hectares meet these criteria in districts such as Pelluhue, Cobquecura and Ancud, where there are sites protected because of the presence of biological attributes (endemic and endangered species). There are also sites that are protected because of the presence of cultural attributes of local and indigenous communities and attributes of ecosystem services, like the protection of river basins.

It should be noted that we carry out continuous reviews to assess the existence or absence of high conservation value attributes.

62

Integrated Report MASISA 2016

MASISA’s Sustainable Development Goals Continuing with the analysis of the Sustainable Development Goals (SDG), in 2016 MASISA further integrated these global goals with the Company’s sustainability strategy in the following stages.

Understand: The SDGs were presented at the Sustainable Development Council and subsequently studied by the country CEOs and their direct teams, as well as the Company’s CSR and sustainability teams in MASISA’s different operations.

MASISA’s principal focus areas for contributing The Excellence in Health, Environment and Safety (HES) program seeks to achieve the highest standards in our industrial and forestry operations in the region and to become a role model for the industry, offering wellbeing to our employees, communities and suppliers.

As part of its commitment to strengthen entrepreneurship in the furniture-making sector of Latin America, MASISA’s network of furniture-makers (Red M) continues to grow, achieving ever greater scope and impact on the businesses of the more than 77,000 furniture-makers who are registered.

(See page 40).

We seek to guarantee sustainable methods of consumption and production. We have decreased industrial water consumption by 42% in 8 years and minimized final waste by more than 74% in the same period and our goal is to achieve zero industrial waste by 2025.

We aim to offer the most sustainable products in the industry and through the FSC® chain-of-custody certification we offer products with the highest standards of responsible forestry management. We have currently achieved 93% control over the origin of the wood fiber used in our products (See page 44).

Prioritize: The SDGs were studied in the framework of MASISA’s Sustainability Strategy and their coherence with our 2025 sustainability goals. We identified 5 objectives and 15 goals where MASISA is making a significant contribution. We also made progress with analyzing the social environment in order to identify opportunities for increasing our contribution to the SDGs.

We are a key participant in the fight against climate change.

In addition to the CO2 capture of our forestry equity, we are converting the energy grid for our industrial operations to renewable and less carbon-intensive sources of energy.

Similarly, an Energy Efficiency program is being developed in all our operations to reduce energy consumption and CO2 emissions. This includes both annual and long-term goals.

(See page 5).

Establish objectives: Based on this prioritization, we aligned the SDGs with MASISA’s main sustainability indicators and goals, identifying opportunities for deepening our contribution.

MASISA sustainably manages its plantations and conserves the biodiversity in its forestry equity through a strategy that includes monitoring river basins, conserving high-value forests and restoring native forest. We have established partnerships with national and international organizations and academia to gain technical support and to define the best strategies for ecosystem conservation. (See page 62).

Integrate: The prioritized SDGs were integrated into MASISA’s Sustainability Management System.

Report and communicate: MASISA’s commitment to the SDGs was publicized both internally and externally on various different communication occasions and Company reports. For example, for the second consecutive year we are presenting our progress in the Company’s Annual Report.

We promote fair, peaceful and inclusive societies with ethical and responsible institutions. At MASISA we practice Business Principles that apply to everyone in the Company and extend to indirect employees. We also have a corporate governance code that includes best practice from around the world and defines a framework for responsible and ethical action that permeates our Strategy and management.(See page 16).

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Integrated Report MASISA 2016

MASISA’s opportunities for contributing Through initiatives and good sustainability practices, mainly directed towards the communities where we operate, we have identified opportunities for strengthening our contribution to the following SDGs:

NO POVERTY

GOOD HEALTH

QUALITY EDUCATION

What are the Sustainable Development Goals?

The Sustainable Development Goals were launched by the United Nations in late 2015 to officially kick off the audacious and transformational 2030 Agenda for Sustainable Development that had been adopted by world leaders.

GENDER EQUALITY

CLEAN WATER AND SANITATION

RENEWABLE ENERGY

This new Agenda urges countries and companies to begin efforts to achieve 17 Sustainable Development Goals (SDG) over the next 15 years.

More information at http: //www.un.org/

INNOVATION AND INFRASTRUCTURE

PARTNERSHIP FOR THE GOALS

REDUCED INEQUALITIES

SUSTAINABLE CITIES AND COMMUNITIES

Maximize the positive impact and contribution to Sustainable development poses challenges of collaboration and alliances. MASISA has international allies and national actors that play a key role in the development of its sustainability strategy.

In this line, highlight the implementation of the Social Progress Index at the community level for the first time in Chile in 2016, in conjunction with the Municipality Of Cabrero, Avina and Universidad de Concepción.

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Integrated Report MASISA 2016

Strategic long-term commitments

Human Development

Forests

Business makes a contribution to wellbeing, reducing poverty and improving the quality of life.

Materials

Business makes a contribution to ending deforestation, doubling the carbon sinks.

The energy efficiency of resources quadruples and that of materials increases ten times from 2002.

Network of 100,000 furniture-makers 80% of those who are active 1recognize positive impacts.

10% increase in productivity / ha of plantations managed under the New Generation concept.

5% of energy consumption from fossil fuel sources (down from 16%).

Zero Industrial waste.

2050

(WBCSD target)

Safety Role Model within the industry.

HES level of excellence +90%

5% of board production is NAF (formaldehyde-free).

Level of good HES practice 70 — 80%

MASISA’s NAF product present in market niches.

Network of 75,000 furniture-makers.

70% of active members recognize positive impacts.

5% increase in plantation productivity.

10% of energy consumption from fossil fuels.

4 Kg of waste per m3 (64% reduction compared to 2012).

Level of HES maturity 69%

Second year of marketing the NAF boards (Tricoya XB). 5 research lines into NAF boards came to an end with positive results.

Experiments with ULEF2 resins and market research are ongoing.

Network of 77,000 furniture-makers. 84% of active members recognize positive impacts.

Improvements in forestry practices and plant quality.

Research into new species.

Improvements in plant mortality and plantation homogeneity.

11% fossil fuel energy consumption.

5 Kg of waste per m3(reduction of 55% compared to 2012).

Programs operating at all production plants.

2025

(MASISA target)

2020 2017

2016

1) Active furniture-makers are members of Red M who buy during the year 2) Ultra Low Emission Formaldehyde.

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Informe Integrado MASISA 2016

Terms of Use The undersigned declare under oath that the information contained in this Report is a faithful expression of the truth, a statement by which we assume the corresponding legal responsibility.

Andreas Eggenberg Chairman I.D. No. (RUT): 25.452.448-4

Rosangela Mac Cord de FarĂ­a Vice Chairman I.D. No. (RUT): 21.713.586-9

Miguel HĂŠctor Vargas Icaza Director I.D. No. (RUT): 24.074.431-7

Ramiro Urenda Morgan Director I.D. No. (RUT): 6.150.586-5

Jorge Carey Tagle Director I.D. No. (RUT): 4.103.027-5

Claudio Cabezas Corral Director I.D. No. (RUT): 11.961.465-1

Alejandro Carrillo Escobar Director I.D. No. (RUT): 22.792.502-7

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Integrated Report MASISA 2016

design: www.negro.cl

www.masisa.com

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Integrated Report MASISA 2016