REPORT ON THE EFFECTS OF CHANGES TO THE EXCHANGE RATE SYSTEM IN VENEZUELA AND ARGENTINA

On January 23, 2014, the government of Venezuela announced the creation of a new institution governing exchange rate control called the Foreign Trade Center (CENCOEX) and which started to operate on that same date. This new body will gradually take over all the attributes and responsibilities the Currency Administration Commission (CADIVI) had up to such date. Based on announcements made by the vice-president of the economic area of the Venezuelan government, there will only be access to US dollars at a rate of B$/US$ 6.3 for the food, pharmaceutical and others industries deemed a priority, which as of today have not been fully defined. On the other hand, Exchange Rate Compact Nº25 of January 23, 2014, lays down that capital payments, dividends, foreign consultancy, travel and payments of intangible assets will be made at the exchange rate of the last allocation of the Complementary Currency Administration System (SICAD). For reference, the last allocation of this body was a rate of B$/US$11.3. CENCOEX will review currency applications from companies and will determine the exchange allocation. In Argentina, there was sharp devaluation of the Argentine peso as of January 22, 2014, and on January 24, 2014, the government of Argentina announced certain changes to the exchange rate system. This led to the exchange rate in Argentina increasing to a rate of A$/US$8.1. Regarding this, we can report that the measures announced in both countries, according to our preliminary analysis based on the consolidated financial statements of Masisa S.A. (hereinafter referred to as “Masisa” or the “Corporation” or the “Company”) as of September 30, 2013, would have had the following main effects: A.

EFFECTS OF CHANGES IN VENEZUELA

1.

Impact on the consolidated balance sheet from changes in Venezuela

The company’s assets in Venezuela are affected by devaluation due to the conversion process to consolidate the financial statements. Considering the SICAD exchange rate system with a rate of B$/US$11.3, management deems that total consolidated assets as of September 2013 would have dropped by about US$223.8 million, including a drop in cash and cash equivalents of US$50.8 million. Acknowledging this effect, assets from investments in Venezuela would account for 14.9% of the total consolidated assets. Considering the impact that the devaluation also has on liabilities in local currency, the consolidated drop in net worth, including the direct investment and net investment in Venezuela from applying the last SICAD exchange rate of B$/US$11.3, would have been about US$182.7 million as of September 30, 2013.

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2.

Impact on consolidated income from changes in Venezuela

As of September 30, 2013, the exchange rate loss that would have affected income just once from applying the last SICAD exchange rate of B$/US$11.3 on monetary items in US dollars is estimated to be around US$16.3 million. Considering consolidated sales of US$1,165.8 million as of September 30, 2013 as a basis, the usage of the last SICAD exchange rate of B$/US$11.3 throughout the 9-month period would have led to a US$191.3 million drop in consolidated sales for the same period. On the other hand, considering the consolidated EBITDA as of September 30, 2013 as a basis, amounting to US$232.6 million, applying the last SICAD exchange rate of B$/US$11.3 throughout the 9-month period would have led to a US$50.9 million drop in consolidated EBITDA for the same period, reaching toUS$181.7 million. This consolidated EBITDA would account for a 10.2% increase on September 2012 when it was US$164.8 million. 3.

Access to buying foreign currency in Venezuela

Besides the CENCOEX system mentioned above, there are three ways of gaining access to foreign currencies: (a) SICAD, a body in charge of maintaining the price band for access to currency by means of weekly auctions, will continue to depend on the Central Bank of Venezuela. Up to now, the SICAD auctions were managed like tenders for specific sectors of the economy. (b) Currency exchange by means of financial instruments issued in bolivars. Based on the current exchange rate system, it is still possible to purchase bonds or other financial instruments issued by government bodies in Venezuela, mainly the PDVSA and the government, denominated in US dollars but sold in bolivars by the issuer, which allows for easy currency exchange. The company could therefore purchase financial instruments in bolivars and then exchange them for US dollars. This system is expected to feed the SICAD. (c) Exports. The legal framework for the exchange rate system maintains the option of gaining access to currency from revenue from exports, mainly to drive a flow of currency into the country. An export company can hold up to 40% of its export revenue abroad in currencies other than the bolivar. MASISA’s subsidiaries in Venezuela currently export products mainly to Colombia and Mexico.

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B.

EFFECTS OF CHANGES IN ARGENTINA

1.

Impact on consolidated income from changes in Argentina

The company’s assets in Argentina are affected by devaluation due to the conversion process to consolidate the financial statements. Considering the new exchange rate of A$/US$8.1, management deems that total consolidated assets as of September 2013 would have dropped by about US$94.8 million, including a drop in cash and cash equivalents of US$11.0 million. Acknowledging this effect, assets from investments in Argentina would account for 9.5% of MASISA’s total consolidated assets. Considering the impact that the devaluation also has on liabilities in local currency, the consolidated drop in net worth, including the direct investment and net investment in Argentina from applying the new exchange rate of A$/US$8.1, would have been about US$72.8 million as of September 30, 2013.

2.

Expected impact on consolidated income from changes in Argentina

At the end of September 2013, the exchange rate loss that would have affected income just once from applying the new exchange rate of A$/US$8.1 on monetary items in US dollars is estimated to be around US$2.2 million. Considering consolidated sales as of September 30, 2013 as a basis, amounting to US$1,165.8 million, the usage of the new exchange rate of A$/US$8.1 throughout the 9month period would have led to a US$71.3 million drop in consolidated sales for the same period. On the other hand, considering the consolidated EBITDA as of September 30, 2013 as a basis, amounting to US$232.6 million, applying the new exchange rate of A$/US$8.1 throughout the 9-month period would have led to a US$15.3 million drop in consolidated EBITDA for the same period, reaching to US$217.3 million. This consolidated EBITDA would account for a 31.9% increase on September 2012 when it was US$164.8 million. Such effect is before considering the above mentioned effect in Venezuela.

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C.

EFFECTS OF CHANGES IN BOTH VENEZUELA AND ARGENTINA

1.

Impact on consolidated income from changes in Venezuela and Argentina

Considering the effects in both countries, the total consolidated assets as of September 2013 would have dropped by about US$318.6 million, including a drop in cash and cash equivalents of US$61.8 million. Considering the impact that the devaluation in both countries also has on liabilities in local currency, the consolidated drop in net worth, including the direct investment and net investment in both countries, would have been about US$255.5 million as of September 30, 2013.

2.

Expected impact on consolidated income from changes in Venezuela and Argentina

At the end of September 2013, the exchange rate loss that would have affected income just once from applying the new exchange rates in Venezuela and Argentina on monetary items in US dollars is estimated to be around US$18.5 million. Considering consolidated sales as of September 30, 2013 as a basis, equivalent to US$1,165.8 million, applying the new exchange rates in Venezuela and Argentina throughout the 9-month period would have led to a US$262.6 million drop in consolidated sales for the same period, amounting to US$903.2 million. These sales would be a 10.5% drop compared to September 2012, when they were US$1,008.7 million. On the other hand, considering the consolidated EBITDA as of September 30, 2013 as a basis, amounting to US$232.6 million, applying the new exchange rates in Venezuela and Argentina throughout the 9-month period would have led to a US$66.2 million drop in consolidated EBITDA for the same period, reachingto US$166.4 million. This consolidated EBITDA would be 1.0% increase on September 2012 when it was US$164.8 million.

D.

FINANCIAL COVENANTS

In the light of possible devaluation and future changes to the exchange rate regulations on currency access, in December 2013 the company successfully negotiated with its creditors to modify some financial covenants for bond and bank loan contracts. Due to this, MASISA will comply with its financial covenants once the exchange rate measures announced in both countries have been applied, considering current exchange rates.

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E.

OPERATING FACTORS

From an operating standpoint, in Venezuela the Company has had currency access, mainly by means of the CADIVI system. This has been sufficient to keep up its production rates, sustain local and export sales and maintain its competitive advantages in the market in Venezuela. As of September 30, 2013, the wood board sales volume (in cubic meters) in Venezuela increased 30.6% year-on-year, with a favorable evolution of the market in which the company continued to meet its customer needs. In the case of Argentina, in 2013 the company had currency access to keep up production and sales levels in the domestic and export markets, maintaining a strong presence in the market. Moreover, as Masisa Argentina has a trade balance surplus, it has so far managed to gain access to US dollars for imports and dividends according to its needs, mainly at the official exchange rate.

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