Itaúsa

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Profile of the holding company

Itaúsa is a publicly-held holding company in the strict sense with shares listed in Level 1 on BM&FBovespa (São Paulo Stock Exchange), and controls a conglomerate of companies operating in the financial and industrial segments. Itaúsa was established to centralize the strategic decisions of the Conglomerate, providing a favorable environment for subsidiaries to concentrate their efforts on their main activities on an autonomous basis and to determine the vision for business development and management. G4-3 | G4-4 | G4-7

Of the total Itaúsa’s investments, 95.6% are allocated to the financial segment through the interest in the capital of Itaú Unibanco. Other 3.8% makes up the portfolio of investees in the industrial sector – Duratex, Elekeiroz and Itautec.

These four companies operate in more than 20 countries and have approximately 106,000 employees, out of which 86% in Brazil. In addition, other 56 employees are dedicated to Itaúsa’s activities, responsible for the management and running of administrative activities. G4-6 |G4-10

Through its operational model, Itaúsa shares the assumptions and good corporate governance and management practices with its subsidiaries, ensuring the alignment to assumptions of ethics, transparency, valuation of human capital and compliance to rules and legislations. At the same time, it ensures operational and strategic autonomy for companies to operate in their sectors and create value for stockholders. G4-42

COMPOSITION OF INVESTMENTS OF ITAÚSA (R$ MILLION)

Highlights

PRESENCE OF ITAÚSA

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HISTORY OF THE CONGLOMERATE

1966

Formation of the Banco Federal Itaú de Investimentos S.A., first investment bank incorporated in Brazil.

1973

Under the new name Banco Itaú Português de Investimento S.A., it expanded its investment banking operations.

1974

The bank stopped operating as an investment bank, changed its name to Investimentos Itaú S.A. and became the holding company of a conglomerate of more than 50 companies.

1991

The corporate name was changed to Itaúsa – Investimentos Itaú S.A. and the acronym Itaúsa was adopted, which is the name by which the holding company is recognized in the market.

2001

It joined the Level 1 Corporate Governance of the São Paulo Stock Exchange – BM&FBOVESPA, assuming the commitment to increase liquidity of shares and supply information to help investors to make decisions.

2011

The Code of Ethics of the Itaúsa Conglomerate was approved, which details the holding company’s commitments and the guidelines for the management of the investee business.

2014

Itaúsa made its Code of Conduct of Investor Relations available to the market.

2016

For the 10th year, Itaúsa was selected to compose the Corporate Sustainability Index (ISE), and for the 13th year, to be part of the Dow Jones Sustainability World Index (DJSI).

Sustainability management


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Itaúsa and the companies of the Conglomerate have policies and mechanisms to incorporate sustainability into its business strategies and manage the main economic, social and environmental risks that impact their activities. In line with the best market practices, since 2009, the holding company has been adopting the GRI (Global Reporting Initiative) guidelines for reporting economic, social and environmental performance to its stakeholders.

This structured management set has been systematically recognized by the market and global entities that assess the companies’ performance in terms of corporate responsibility.

Itaúsa and Itaú Unibanco were selected once again to compose the Dow Jones Sustainability World Index (ISE) in its 2016/2017 edition. The portfolio is comprised of 316 companies from 28 countries in the Americas, Europe, Asia, Africa and Oceania of which only seven Brazilian companies were selected. Itaúsa is part of the index for the 13th year and obtained the highest score in the sector for the following categories: “Anti-crime Policy/Measure”, “Financial Stability and Systemic Risk”, “Business Risks and Opportunities” and “Financial Inclusion”.

In Brazil, Itaúsa, Itaú Unibanco and Duratex made up the portfolio of the Business Sustainability Index (ISE) of BM&FBOVESPA 2016/2017, a tool that allows a comparative performance analysis of companies listed on the stock exchange based on economic efficiency, environmental balance, social justice and corporate governance aspects. The new portfolio is effective from January 2, 2017 to January 5, 2018.

Created in 2005, ISE is annually reviewed and Itaúsa was selected in ten editions. Itaú Unibanco has been composing the index for 12 consecutive years and Duratex for nine consecutive years.

GOVERNANCE EVOLUTION

In 2016, sustainability governance was revised and improved in the subsidiaries. Based on internal discussions, Itaú Unibanco decided that areas having complementary topics and challenges, such as the Sustainability Committee, the Ethics and Integrity Committee and the Foundations and Institutions Committee, should work closer to each other. Duratex revised its sustainability strategy, determining pillars and relevant topics to establish its strategic objectives.

Itaúsa was recognized by CDP Latin America as a Leading Company in Transparency in the Climate Change program

Itaúsa and Itaú Unibanco were also recognized in 2016 by CDP Latin America as Leading Companies in Transparency in the Climate Change program, and Duratex received the same recognition from global CDP. The leading companies are those whose answers to the questionnaires are scored A and A-. G4-EC2

CDP is a non-profit organization which provides a tool for investors around the world to guide their investment decisions taking environmental impacts and management mechanisms adopted by the companies into account. The voluntary participation in the CDP questionnaires is one of the fronts that demonstrate the commitment of Itaúsa and its subsidiaries to transparency and their responsibility for the integrated management of the economic, social and environmental aspects of their business. G4-EC2

Additionally, Itaúsa and Itaú Unibanco participate in the ICO2 (Efficient Carbon Index), of BM&FBovespa, the purpose of which is to encourage companies to measure, disclose and monitor emissions of greenhouse gases (GHG). The portfolio is composed of companies whose shares are among the 50 most traded and that are highly efficient in terms of management of emissions. Since 2009, the year when it helped develop the ICO2, Duratex voluntarily participates in the index methodology, in spite of not being eligible to compose its portfolio.

In 2016, Duratex carried out a revision of its sustainability strategy, engaging areas and managers of the company in thematic workshops. Based on this work, the company determined pillars and strategic topics for which performance targets to be achieved by 2025 were established.

LEARN MORE ON SUSTAINABILITY MANAGEMENT OF THE SUBSIDIARIES

Relationship with stakeholders

Itaúsa and its subsidiaries adopt assumptions and guidelines for building long-term relationships with their stakeholders. Over its history, the Conglomerate’s culture has been permeated with four fundamental values: Ethics, Transparency, Social Function and Sustainability. These values are expressed in the Codes of Ethics and Conduct, internal policies and regulations of the holding company and the companies.

Itaúsa’s Code of Ethics establishes the commitments assumed in two fronts – Corporate Citizenship and Management, Transparency and Accountability – and the guidelines for the relationship with stakeholders. These guidelines are mirrored in the governance codes and systems of the subsidiaries.

STOCKHOLDERS

The Investor Relations Code of Conduct guides the conduct of Itaúsa’s Investor Relations professionals with the market and its stockholders. The document is complementary to the Policies for the Disclosure of Material Information, and for the Trading of Marketable Securities. Itaúsa made all the information related to the governance and performance of the holding company, announcements and material facts available to the stockholders through direct contact channels.

In 2016, Itaúsa website was adapted with accessibility features, allowing the navigation and interaction of disabled people. The features incorporated meet the main accessibility recommendations and, especially, the World Content Accessibility Guide WCAG) of the World Wide Web Consortium (W3C) and, in the Brazilian case, the Electronic Government Accessibility Model (e-MAG).

As part of the commitment to transparency and accountability, since 2001, Itaúsa annually holds a public meeting in partnership with the Association of Capital Market Investment Analysts and Professionals (APIMEC). In these meetings, the leaders of Itaúsa and its subsidiaries discuss results, strategies and prospects for the future.

Itaúsa’s meeting held on November 17, 2016 was elected one of the 10 best meetings of the year, according to an evaluation by a qualified APIMEC jury. This evaluation was based on the opinions of investment professionals collected from a specific questionnaire made available by the entity in the end of the events promoted by the publicly-held companies.

In 2016, Itaúsa’s IR area held approximately 140 meetings with investors, in which the main topics and issues addressed were related to strategy, investments, capital increase, impact of economic scenario on business and stockholders’ remuneration. G4-49 | G4-50

EMPLOYEES


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The companies of the Itaúsa Conglomerate have approximately 106,000 employees, 14,500 of which working in units abroad*. In addition, a team with 56 employees is dedicated to the activities of the holding company itself. The operations strategy for the relationship with this audience is based on engaging people to the corporate culture and ethical values and on promoting a work environment that provides and encourages professional development.

In 2016, Itaú Unibanco was elected for the eighth consecutive year one of the Best Companies to Work for, in accordance with a survey carried out by the Great Place to Work Institute in partnership with Época magazine. The company was also the only financial institution to make up the “The Most Attractive Companies” ranking, promoted by professional social network LinkedIn, which elected the 25 companies that most attract applicants in the network.

In the industrial segment, investments made in the year were also focused on the improvement of technical expertise and training of the professionals. In 2016, Duratex revised its people management strategy and updated the guidelines to turn priorities into concrete objectives, which will be achieved through action plans to be carried out in 2017 and subsequent years. The company also concentrated its efforts in improving occupational safety, supported by developments of the Duraseg management system.

Elekeiroz carried out several internal training programs to enhance employees understanding on the scheduled maintenance shut-offs, and increase productivity through suggestions for improving processes and operations.

*Data on units abroad was not included in the assurance process.

PROFILE OF THE EMPLOYEES OF ITAÚSA CONGLOMERATE

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SOCIAL INVESTMENTS


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In line with strategy guidelines for Itaúsa’s operations, the companies of the Conglomerate invest in social projects and actions that aim at contributing to society transformation and development, especially in communities where the companies operate. This operating model uses contributions from own funds and those arising from tax incentive laws.

This model is strengthened in Itaú Unibanco by institutions recognized by their contribution to developing education, arts and culture.

Fundação Itaú Social (Itaú Social Foundation):operates in all Brazilian territory, in partnership with the three levels of government, private sector entities and civil society organizations, for supporting education improvement.

Instituto Unibanco (Unibanco Institute): manages Itaú Unibanco’s private social investments focused on improving the quality of public education offered to youngsters and adolescents.

Itaú Cultural: an institute focused on research and production of content, as well as on mapping, encouraging and disseminating artistic and intellectual manifestations.

Espaço Itaú de Cinema: with theaters in six Brazilian cities, it fosters the democratization of culture, screening films that rarely make it onto the mainstream circuit.

At Duratex, social investments benefit the communities that are close to the company’s industrial units, located in the South, Southeast and Northeast regions of Brazil. In 2016, at the Botucatu unit (State of São Paulo), the first group of the Formare Aprendiz (Training Apprentices) program was launched, a new operational model aimed to benefit young people in socially vulnerable situation, who may be hired after ten months duration practical and theoretical classes. The Formare program was already carried out by Duratex in partnership with Fundação Iochpe.

Itaúsa’s companies


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Itaú Unibanco

Itaú Unibanco was the largest private bank in Brazil based on total assets and on market value in the end of 2016, according to Bloomberg. It has operations in Brazil and 18 other countries, providing services to a diversified client base, including individuals and companies.

In the Retail Banking segment, Itaú Unibanco carries out financing and lending activities and offering of credit. The Wholesale Banking segment provides services to private banking clients and to medium and large-sized companies, including banking and investment banking services, which include financing offered by means of fixed and variable-income instruments, in addition to the business in Latin America.

CORPORATE EVENTS

In the next Annual General Stockholders’ Meeting, to be held on April 19, the reelection of Roberto Setubal and Pedro Moreira Salles, and the election of Marco Bonomi for the Board of Directors will be proposed. Roberto Setubal, together with Pedro Moreira Salles, will act as co-chairman of the Board of Directors of the company. Roberto Setubal will remain as the company’s CEO until the Meeting is held. Subsequently, Candido Bracher will be elected Chief Executive Officer of Itaú Unibanco Holding, replacing Roberto Setubal.

Also in 2016, after the regulatory approvals, the bank cancelled 100 million own preferred shares held as treasury stock without changing the capital. This increased the percentage of stockholders’ ownership interest in the company’s capital, providing for a higher return in dividends and interest on capital to the remaining stockholders.

Itaúsa’s ownership interest in Itaú Unibanco’s capital stock was 37.36% in the end of 2016.

MERGERS AND ACQUISITIONS

In 2016, Itaú Unibanco completed the merger of operations between Banco Itaú Chile and CorpBanca and became the holder of the control of the resulting entity – Itaú CorpBanca – with 35.71% ownership interest in its capital (read more on page 27). In the period, the bank also entered into an agreement with Citibank for the acquisition of its retail business in Brazil. The completion of this transaction is subject to compliance with some conditions precedent, including obtaining approvals from the Central Bank of Brazil (BACEN) and the Brazilian antitrust authority (CADE).

The company also completed the operation for the acquisition of 89.08% interest in the capital stock of Recovery do Brasil Consultoria S.A., specialized in providing services for the recovery of overdue loans. Of the acquired ownership interest, 81.94% were from Banco BTG Pactual S.A. (BTG) and 7.14% from other stockholders.

In the end 2016, Itaú Unibanco acquired the 40% interest of Banco BMG in Banco Itaú BMG Consignado, and became the holder of 100% of the institution’s capital. The amount paid in the operation was R$1.46 billion.

Itaú Unibanco continued its succession process selecting the new CEO and restructuring the Executive Committee

ITAÚ UNIBANCO’S FIGURES

R$ 1,353 BI IN TOTAL ASSETS
R$ 219.3 BI IN MARKET VALUE
R$ 23.5 BI IN RECURRING NET INCOME IN 2016
5,100 BRANCHES AND BANKING SERVICE CENTERS
46,100 ATMs IN BRAZIL AND ABROAD
AVERAGE RECURRING ROE OF20.3%

Duratex

Duratex produces wood panels, electric showers and bathroom fixtures and fittings. It is the leading company in the Brazilian market regarding its main business. With a 65-year long history completed in 2016, the company has 15 units in the domestic market and three in Colombia, where its panel production subsidiary Tablemac is located. The company also has 286 thousand hectares of forest areas in Brazil and abroad.

In 2016, due to the activity slowdown in the furniture and civil construction sectors in Brazil, Duratex stepped up its efforts to increase its efficiency and improve processes, achieving reductions of R$100 million in fixed costs and administrative expenses. Additionally, the company increased exports to offset the lower consumption in the domestic market. In the last year, revenues from the foreign market (including exports and direct sales of Tablemac) grew 24.5%.

Duratex’s investments totaled R$474 million in the last year. Of this amount, approximately R$93 million was used to increase the ownership interest in Tablemac to 99%. In addition, mainly in the third and fourth quarters, the company sold land that is far away from its plants and considered very good for other economic activities and for eucalyptus forests (read more on page 28). These sales are strategic to the company and do not compromise the wood supply capacity for panel manufacturing.

DURATEX’S FIGURES

R$ 9,341 MILLION IN TOTAL ASSETS
R$ 3,909,8 MILLION IN NET REVENUES
R$ 26 MILLION IN NET INCOME IN 2016
15 INDUSTRIAL UNITS IN BRAZIL
3 INDUSTRIAL UNITS IN COLOMBIA
286 THOUSAND hectares of FOREST AREA
ROE OF0,6%

Elekeiroz

Founded in 1894, Elekeiroz produces chemical intermediates that are used by industries in segments such as civil construction, footwear and clothing, paints and varnishes, automotive, agro-industrial and food, among others. The company is the largest producer of plastificizers in Brazil, but it also produces, on an integrated basis, oxo-alcohols (octane, butane, isobutane), phthalic and maleic anhydride among other products.

In 2016, Elekeiroz’s investments reached R$33 million. Part of this amount was used for the acquisition of 50% interest in the capital of Nexoleum Bioderivados, creating a joint venture in the market of plasticizers based on materials from renewable sources, by producing and providing products of vegetable origin in Brazil and other relevant regions, such as the United States and Europe.

This investment is targeted at consolidating the company’s leading position in the Brazilian plasticizers market, especially due to the increased demand for products from renewable sources.

As disclosed to the stockholders through a material fact, Elekeiroz recognized impairment of certain assets, asset write-offs and other adjustments that negatively impacted the company’s financial statements by R$276.9 million. The impact on Itaúsa’s income and stockholders’ equity was R$267 million (read more here).

In spite of the negative impacts of the adjustments, the fourth quarter was the best one in 2016, displaying slow but continuous upturn in the activities of our customers, evolution of Elekeiroz’s portfolio of solutions for organic products, the first results from the actions carried out to improve competitiveness over the year and recovery of the volumes of inorganic products.

ELEKEIROZ’S FIGURES

R$ 434 MILLION IN TOTAL ASSETS
R$ 770.8 MILLION IN NET REVENUES
R$ 40 MILLION IN GROSS PROFIT IN 2016

Itautec

On January 11, 2017, Itautec exercised the put option of 763,740 shares in Oki Brasil for the amount of R$53,350 thousand, and became the holder of 11.2% interest in the company’s capital. Itautec continues to honor the warranty and maintenance agreements related to the Itautec/Infoway brand, without causing any inconvenience to its customers.