02

CAP


AND ITS STRATEGY

SUSTAINABILITY IN
THE DEVELOPMENT
STRATEGY

From the very start, CAP Group has been actively engaged in the sustainable development of the country. This commitment is reflected in every project and operation the company has developed in almost 70 years of history.

In 2017, CAP Group businesses returned good results, in general, in the face of iron and steel price increases experienced by international markets, the progressive strengthening of the US economy, the stabilization of China’s growth at rates close to 6.5% and a persistent business and investment contraction, at domestic level. Under this scenario, the different company operations behaved as follows:

CAP Minería: Iron ore price increases caused a soaring effect on this affiliate’s results, which represents 86% of CAP Group income. This circumstance was further enhanced by the increase of premiums paid for iron ore quality. This considerably benefited CMP production, recognized for the excellence of its products.

CAP Acero: Its performance was determined by iron ore and coal price increases, main raw materials required by steelmaking, which made its sales costs rise importantly. This factor added up to the stubborn activity contraction experienced by the country, main destination of CAP Acero products, and to the price distortions occurring at national level, only marginally corrected by the antidumping measures enacted by the authority on our request.

Steel Processing: This affiliate yielded higher results than in 2016, mainly coming from the average price increase of the products sold and tonnages shipped by this affiliate. This remarkable performance has done nothing but to corroborate how successful its strategy has been, in terms of prioritizing the manufacture of higher value-added products.

New Businesses: Its net profits returned a significant increase in the last period, mainly as a result of the greater activity exhibited by Las Losas port, starting the third quarter of 2017.

OPINION

PIECE

María Elena Sanz I.

“Intangibles: Their Relevance and Reputation are Here to Stay”

Back in the 70s, 80% of a company’s worth lied in the value of its tangible assets; that is, its factories, products, etc. whereas today, 80% of its intangible resources and assets represents the total value of that organization, among which the reputation, brand and social license can be mentioned. These are the main conclusions drawn by the Global Intangible Finance Tracker (GIFT) 2017, an annual report that shows how the value of intangible assets has evolved in stock markets around the globe.

The intangible economy came into the business world around ten years ago, as a result of the economic downturn started by 2008-2009, which triggered the collapse of large corporations and a climate of widespread distrust of companies and institutions, in general.

In this new economy, organizations were pushed into upgrading the market economy system and correcting its deficiencies and malpractices to step into a new economic model that, driven by business leaders, is capable of retrieving the once-lost trust and support from the global community.

However, the importance of reputation and the economy of intangible should be understood beyond a short-termed and immediate crisis context. The lessons learned from the most recent business scandals proves how relevant this new way of doing business is for the future and for the sustainability of corporations and institutions, in an effort not only to safeguard their value in the face of a reputational crisis but also to sustainably increase such value over time.

Everything seems to indicate that reputation and the relevance of intangibles have come to stay. A clear sign of it is how in recent years institutional investors, fund managers and credit entities have started to cast their eyes on the sustainability of the companies in which they invest. The concern for environmental, social and good governance criteria, also known as ESG, represents an increasing trend, as illustrated in the document “Approaching the future: informe de tendencias en gestión de intangibles” issued by the Corporate Excellence Center for Reputation Leadership and the IE Business School.

Different studies show that a comprehensive management, one that embraces responsible corporate governance to preserve their shareholders’ interests, demands accountability for their environmental and social impacts, in line with long-term value and risk management.

One example is the survey conducted by the MIT Sloan Management Review and The Boston Consulting where +3000 managers and investors from over 100 countries were polled. The research showed that 75% of the main investment entity leaders recognize that a company’s sustainability is a key factor to determine and investment decision.

Investor activism demanding firms for a more gravitational role in the resolution of social challenges (social security, health, education, safety, energy, environment, etc.), an example of which we find in The sense of purpose, a letter written by Blackrock CEO Larry Fink, the world's largest asset manager, stating that governments are no longer capable of solving these problems and it is the business sector that owns the resources and management tools to address such issues. BTG PACTUAL provides another example with their decision to launch the first ESG fund in Chile with the purpose of investing in socially responsible and environmentally sensitive companies, with robust corporate governance policies.

All the above leads us to conclude that our stakeholders (investors, employees and the society as a whole) raise their voices to press the need for a new way of doing business.

And this is no minor challenge: it calls for leadership, management and focus in, at least, three actions I consider of key importance for success:

First: Manage the commitment of our stakeholders. More than ever, today’s management should be an overarching practice within our organizations in order to secure commitment and engagement from our internal and external stakeholders. Such management should go hand-in-hand with professionals and leaders capable of reading the social context, actively listen their main needs and act accordingly.

Second: Generate non-financial indicators. Financial metrics have ruled the world economy in the past decades with short, medium and long-term and business related indicators. The new intangible economy must demonstrate it is capable of creating value in the long term with equally efficient indicators. Before making decisions and being certain of what variables to tap, reputation must be translated into value in order to constructively respond to the needs of our stakeholders and demonstrate the value of ESG assets to directors and investors.

Third: Communicate with transparency. Build consistent narratives on the basis of our identity, purpose, vision, culture and values as an institution. The more a company is organized, aligned and certain about its vision and values, the easier will be to communicate these concepts to its stakeholders, generating positive perceptions.

The pressure put by society on companies to make them assume more active roles in improving the market economy system by owning up to global issues, becomes an even more urgent imperative for new generations as this will be their starting point. Thus, strengthening reputation, intangibles and the ESG variables, eventually, will turn out to be even more decisive for new consumers where those firms unresponsive to society will be left out of the game.

Only those firms that properly manage their intangibles and reputation –that is, their actions are consistent with their words- and are capable of demonstrating, in the long-term, their ESG management value will be the best positioned with respect to other political and social actors to pursue success and drive the recovery of trust that will allow them to compete in global markets in perfect alignment with their employees, community, shareholders and value chain.

María Elena Sanz I.

Executive Vice President Sustainability & People Management, CAP Group

In 2016, and with the purpose of disengaging the company’s performance from raw material price fluctuations and adjust its activity to the new demands from the economy and thus better guarantee the future growth and sustainability all across its operations, CAP designed a new corporate strategy intended to diversify not only the products and business areas but also to further progress in operational innovation, productivity and optimization.

This strategic transformation program is known as “We Create Future” and was originally conceived with the idea of enabling CAP to anticipate new scenarios in its activities in order to secure growth continuity while continuing to contribute to the development of our country.

WE CREATE FUTURE

We are immersed in an atmosphere full of challenges, with complex and urgent decisions. This has urged us into working in the construction of CAP IN THE FUTURE: more agile, more insightful, flexible enough to adapt to new realities, constantly growing and evolving, on the basis of our expertise, strengths, people and talents.

Under this scenario, “We Create Future” is aimed to put in place strategic and collaborative innovation among CAP Group units, generating a portfolio of new business opportunities containing the exact proportion of innovation projects in order to maximize the portfolio’s value, diversify risks, distribute the portfolio among different dimensions, find solutions to problems faced by the company’s main activities and help put in place the strategy of each CAP Group company. The program operates with the aid of cross-functional and cross-company teams brought together under a specific challenge and objective and are fully dependent on CAP General Management. These teams are tasked with the mission to develop new business ideas up to the pre-feasibility stage in order to transform the culture and work methods, creating a vision of what is to be represented, collaborating as a group of people and interacting with the environment where creativity and commitment stand as key factors. Together with a consultant team led by Horacio Viana, a common language associated to innovation concepts has been established and tools developed throughout the years, coming from different academic excellence centers, have been applied in order to identify high-impact opportunities, such as innovation lenses, types of innovation and business model patterns.

Under the scope of this discovery and learning process, those projects created in 2017 by CAP Minería, Cintac and People and Sustainability Management were introduced at the same time that other teams presented their progresses and challenges for the future ahead. Challenges on innovation matters are social innovation, incremental innovation, exponential innovation, digital transformation and open innovation.

An evolving organization

In 2017, and within the CAP-driven evolution process framework, the company materialized two highly relevant changes for the future of the organization:

  • By early 2017, Fernando Reitich took over the CAP Group presidency from Roberto de Andraca who occupied the position for over 30 years. The main challenge Reitich will have to deal with is the strengthening of sustainability and creativity as sources of long-lasting and differentiating competitive advantages for the company in the future.

  • The Development and New Businesses Management was created. This unit represents a new way of planning innovation in the company. It will be tasked with leading the upcoming innovation-related challenges to be addressed by CAP on the basis of the company's strategic plan whose execution is scheduled to start in 2018 and will be in place until 2022.

  • A strategic planning process was conducted that, during 2018, will give rise to the 2019-2023 Corporate Strategic Plan (PEC).

For CAP creativity is the only sustainable competitive advantage. And it is this conviction that has prompted the company to mobilize efforts in an articulate and overarching way to make innovation a fundamental pillar of the new corporate culture.

In 2017, all CAP Group businesses made significant progress in innovation matters, in line with their goals of product portfolio diversification, expansion of business areas and explore further into the solutions capable of improving productivity indices and optimizing operational processes. These achievements find their basis on a transformation model seeking to expand operations towards homotopic activities that can meet the new needs of the markets where CAP operates. Among these achievements are:

CAP Minería: Its innovation and future growth targets are focused, apart from maintenance and sustainability investments of ongoing operations, on expanding its capacities and ensuring its projection in time. In this context, priorities are placed on applying operational and technological improvements capable of driving competitiveness and on the production of even higher value-added products. Another important target will be focused on exploring and developing procedures devoted to production and process diversification. In order to lead these tasks, CAP Minería is equipped with an area exclusively dedicated to innovation whose three main work topics are cost reduction and operational efficiency, development of new technologies and social innovation with neighboring communities.

CAP Acero: In 2017, this business unit continued to move forward in its operational excellence, cost reduction and efficiency plan, as part of the first stage of its development program. Thus, under this framework based on a continuous improvement methodology, this unit put in place some measures aimed to cut down on electrode consumption at the plant and reduced overtime indices in some processes. As part of the strategy’s second stage, designed to generate value-added solutions, it continued to explore on the making of special steel for the manufacturing of axes and nuts, a product offering competitive advantages and likely to open up new markets for CAP Acero in Latin America. Likewise, highly corrosion-resistant concrete reinforcement rods (MMFX), weldable concrete reinforcement rods (CAPSol) and concrete reinforcement rods of higher strength (grades 75/80) were some of the innovative products the company continued to promote.

Steel Processing: In 2016, this unit migrated to a service-based business model. At internal level, this process is developed through three specialized teams whose responsibility is opening up new commercial opportunities in agricultural, construction and energy markets. In this sense, the design of creative house construction solutions stands out as the main novelty for 2017. In external terms, the new model involves the acquisition of new companies dealing with related activities that enable CAP to take a “vertical leap toward the customer’’. In this regards, the target has been mainly focused on organizations from Peru where CAP launched two new plants in 2017: a galvanizing plant and an insulated board plant.

In an environment of ever-increasing social, economic and environmental demands imposed on companies, CAP has managed to stand out for its high operative standards and the best business practices in the country. in this scenario, CAP is determined to start a new development stage, marked by value creation and a permanent willingness to be a contribution to our country.

TIMELINE OF SUSTAINABILITY COMMITMENT

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SUSTAINABILITY STRATEGY

CAP Group sustainability strategy is a company-wide model where the priority issues for each of its three main action lines are established.

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The CAP Group sustainability strategy is inspired in the guidelines contained in the company’s Corporate People and Sustainability Policies.

These guidelines were approved by the CAP Board in 2016 and are company-wide applicable. They are aimed to work as a reference in the design and implementation of corporate people and sustainability management practices and as tools on whose basis specific management processes can be established.

The above corporate people and sustainability policies include the following topics:

  • Corporate people policies: Recruitment and selection management, learning management, recognition management, performance management, development management, social relationship management and diversity and quality life management.
  • Corporate sustainability policies: Occupational health and safety management, social management and environmental management.

INTERNATIONAL GUIDELINES

Since 2008, CAP participates in the Chilean chapter of the UN Global Compact under which it pledges to adopt ten universal principles related to Human Rights, labor standards, environment and anticorruption initiatives.

In addition, CAP Group has subscribed the Sustainable Development Goals (SDG) promoted by United Nations since late 2015 and has included gender equality among the objectives in its diversity and quality life policy.

CAP commitments with the ODS

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Source / ‬www.un.org‭ ‬“Nueva alianza busca erradicar el hambre y la malnutrición en América Latina y el Caribe”