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Spain’s Equity Story Strengths and forecasts of the Spanish economy Madrid, July 2011 1 Situation 2 Spain’s GDP Year-on-year variation rate (%) 4 3 Quarterly 2 Year-on-year 1 0 -1 Year-on-year variation Annual variation -2 % -3 -4 % 20092009 -3.7 -3.7 20102010 -0.1 -0.1 20112011 (p) (p) 0.8 0.8 (p) Projection Source: CEC based on INE 2011TIV 2011TIII 2011TII 2011TI 2010TIV 2010TIII 2010TII 2010TI 2009TIV 2009TIII 2009TII 2009TI 2008TIV 2008TIII 2008TII 2008TI -5 3 Spain, well positioned to face the new era 4 Spain has tripled its weight in EU15 Share of Nominal GDP 1960 Share of Nominal GDP 2010 Spain Spain 3,7% 9,4% France Rest of EU15 Rest of EU15 France 18,7% 17,5% 65,4% 59,2% 12,2% Italy Italy 13,9% 5 Source: European Comission and CEC Population has grown over 50% in the last 50 years Variations in Population in the Last 50 Years 450.000 400.000 +33,0% 350.000 +71,5% 300.000 Germany 250.000 Spain 200.000 EU15 150.000 +36,5% +47,2% + 52,7% 100.000 50.000 USA Japan 1950 1960 1970 1980 1990 2000 2010 2020 In the last 10 years, the labour force has increased 27%, 5 times higher than the European average. Since 1994 Spain represents 1/3 of the total growth on labour force in the EU. Source: Eurostat 6 In the last years we have won international respect… even excluding the building industry GDP 1994-2014 Since 1994, Spain’s GDP has increased over 60%, 2.3 times higher than in European core countries… (Based on Euroconstants; 1993=100) 160 SPAIN 140 SPAIN excl. building industry 120 European Core* 100 1993 1995 1997 1999 2001 2003 *European core countries: France, Germany, Italy, Austria and The Netherlands Source: IMF forecasts 2011-2015 2005 2007 2009 … this sets Spain as 4th economy regarding per capita income and 5th in size… … with the highest investment rate excl. housing (infrastructure & capital goods). 7 Fourth largest GDP per capita among the foremost EU15 countries % GDP per Capita 2010 107,3 104,8 96,9 92,4 Germany Source: Eurostat United Kingdom France Spain 91,3 Italy 90,5 EU27 8 Spain’s Strenghts 9 Attractive country to Institutional Investment thanks to high profitability for the shareholder Total Shareholder Return % 45 Before the crisis, profitability was 3 times higher than the rest of European countries. 35 During the crisis, it was twice as high. 25 15 5 -5 Pre-crisis yearly average (1995-2006) Ibex-35 CAC-40 Crisis yearly average (2007-2009) FTSE-100 DAX-30 DJIA 10 Source: Wharton Business School Spanish companies account for 12.1% of the European EuroStoxx 300 index EuroStoxx 300 (Securities Exchange Index for the Euro Area): share by listed company nationality Factors: Spain’s main markets include 1,100 million people (Europe and Latin America) and the country has high productivity levels compared to its competitors. Source: Factset 11 Labour Productivity by Company Size 140 Nr. of workers 11 a to 99 10 a 19 10 to 19 20 a 49 20 to 49 50 a 249 50 to 249 más > 250250 120 100 80 60 40 20 0 Spain España Germany Alemania ReinoUK Unido base 100 = average productivity of firms in USA 12 Source: OECD Compendium of Productivity. Formulated by CEC Invariant share of world export market Share of World Export Market 2000-2009 The exporting rate is still very high and in the last term it has increased 23% since 2010. Source: CEC based on WTO data. 13 Spanish companies’ leadership 14 It has leading companies in key industries: sucessful diversification into non-tourist services Spanish Service Exports by Industry (% total, 2000) Spanish Service Exports by Industry (% total, 2010) To business To business Tourism Tourism Other services Other services Non-tourist services world exports grew by 40% in the last decade (yearly expansion average was 7%). 15 … advancing in high added value sectors, such as in SERVICES… Distribution and apparel: the world ready-to-wear leader company is Spanish, and three Spanish firms are among the top 50 retailers worldwide. Biotechnology: 3rd place world-wide in agrobiotechnology, and 5th place world-wide in biochemistry and molecular biology. Hotel and restaurant trade: with the recent trend toward innovation in restaurant services, Spain has taken 5th place in the number of Michelin stars. Finance and insurance: 4 Spanish financial institutions are among the 50 most reliable in the world, and 2 Spanish insurers rank among the largest in the world. E-Health, e-government: significant advances place Spain 9th on the list of the world’s most highly developed countries 16 … or in CONSTRUCTION, ENERGY and MANUFACTURING industries… Infrastructure: 7 Spanish companies manage and/or build nearly 40% of the major transport franchises in the world, mainly airports, ports and motorways. Renewable energies: 2 of the 10 major companies are Spanish. Environment, water treatment and desalination: Spain produces more desalinated water than any other country in the world. Automobile and automobile components industry: Spain is the number one manufacturer of automobile cladding world-wide and the eighth largest vehicle manufacturer world-wide. Aerospace: Spain has Europe’s 5th highest turnover and very high investment in R&D. 17 … and also on the new information and communication technologies (ICT) 3 of every 5 flights world-wide would be controlled using Spanish air navigation systems Spain is a world leader and a European benchmark in mobile telephone and broadband coverage 9.1% ICT market growth in Spain in the last 5 years. Investment in innovation (R&D+I) in ICT has almost doubled (x1.9) in the period between 2003-09. One of the 5 largest telecommunications companies is Spanish. 18 Maintaining its leadership in TOURISM, Tourist Industry Contribution to GDP (% in 2006) Tourist Industry Revenues in 2009 (billion euros) 100 12 90 10 80 70 8 60 6 50 40 4 30 20 2 10 SA U al ia us tr ly A Ita Sp ai n M ex ic o A us tr ia Fr an ce Tu rk ey ia us tr ey A Tu rk al ia K us tr U A hi n er a m an y G C Ita ly 0 Sp ai Fr n an ce U SA 0 5 firms are among the 30 most important hotel companies in the world Source: AFI, World Tourism Organisation and Tourism in OECD countries 2008. 19 Imbalances under correction 20 Private sector deleveraging, banking sector consolidation, and labour market flexibility Foreign indebtedness by the private sector Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded. 21 Investment Rate (% GDP) Broken Down by Components (Mean 2000-07) Tasa Inversión (% PIB): desglose entre componentes (Promedio 2000-07) Housing Residencial No residencial Non-housing 20 13 14 17 14 8 Spain España 6 6 5 3 Germany Alemania France Francia Italy Italia UKUnido Reino Fuente: Oficinas Estadística Nacionales Source: National Treasuries 22 ... also with one of the best infrastructure networks and its position as strategic enclave Km of Motorway per Million Inhabitants 276 Spain 241 Protugal 203 197 193 Austria Denmark Sweden 172 168 France Belgium 152 133 Germany Finland 112 Italy UK 61 Source: Eurostat, Adif (Spanish railway and infrastruture agency), McKinsey andCEC. 23 Adjustment in housing investment is complete, having reached pre-boom levels Housing investment (% GDP) 9.0% 7.5% 6.0% 4.5% 3.0% mar95 Source: WTO formulated by CEC. jun96 sep97 dec98 mar00 jun01 sep02 dec03 mar05 jun06 sep07 dec08 mar10 24 Adjustment in housing Unsold Housing Stock (thousand units) Source: Ministry of Internal Development and CEC. 25 Private sector deleveraging, banking sector consolidation, and labour market flexibility Foreign indebtedness by the private sector Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded. Labour market flexibility Reform on September 2010 and current collective bargaining. 26 Compared adjustment of cycle and unemployment between Spain and the average of France and Germany p.p. 12 10 8 Differential Unemployment Rate (Spain vs. France-Germany Avg.) Differential Growth France-Germany Avg. vs. Spain) 6 4 2 0 -2 2007 2008 2009 2010 27 Employment Active employment rate yearly variation % Source: CEC baded on INE data and own projections. Unemployment rate workforce % 28 Private sector deleveraging, banking sector consolidation, and labour market flexibility Foreign indebtedness by the private sector Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded. Labour market flexibility Reform on September 2010 and current collective bargaining. Banks solvency Restructuring, recapitalisation and a change in savings bank governance underway. 29 Adjustment plan: reduction of the excess of installed capacity Spain: Operational Branches Financing system: mortages approved perHipotecas office and year Sistema Financiero: (Mar-1990=100) España: Oficinas operativas (mar-1990=100) (units) concedidas por oficina y año (unidades) 32 200 Bancos Banks 180 28 Savings banks Cajas 160 24 140 20 120 100 16 80 1990 1992 1994 1996 1998 2000 Fuente : Banco de España, septiembre 2010 Source: Bank of Spain and INE, sep 2010 2002 2004 2006 2008 2010 12 mar-04 mar-05 mar-06 mar-07 mar-08 Fuente: Banco e INE, julio Source: BankdeofEspaña Spain and INE, july2011 2011 mar-09 mar-10 30 mar-11 Adjustment plan: advanced process of losses and capitalization recognition Provisions of the financial institutions constituted since 2008 Core capital in financial institutions % GDP Solvencia %APR de los grupos consolidados de entidades de crédito (% APR) 1 13 0,9 0,8 12 0,7 11 0,6 10 Generic reductions 1,5 Specific provisions with bank reserves 2,1 0,5 0,4 9 0,3 8 Ratio capital de so lvencia Core Basic core Ratio de socapital lvencia básico Specific provisions with profit 5,5 0,2 0,1 7 2007 2008 Fuente: Banco de España, julio 2011 Source: Bank of Spain, july 2011 2009 2010 Source: Bank of Spain, may 2011 31 Reforms with an impact in the short term: pension system and public finance solvency Market concerns Pension system sustainability Public finance sustainability Reform Directed toward reducing midterm pension spending (-2/4 pp GDP) Ambitious fiscal consolidation plan underway: towards 3% budgetary deficit by 2013. …although there is a higher risk for autonomous communities. 32 Budget balance and public debt Budget Balance Public Debt (% GDP) (% GDP) España: Saldo Público Structural Estructural (% del PIB) Total To tal 90 3.0 80 0.0 70 -3.0 60 -6.0 50 -9.0 40 -12.0 30 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Eurozona Euro Area Germany Alemania Spain España 2000 2002 2004 2006 2008 2010 2012 Fuent e : Comisión Europea Fuent e: Minist erio de Economí a y Hacienda, julio 20111 Source: Ministry of Economy, july 2011 Source: European Comission 33 Diversification of maturity dates on sovereign debt: long mean term Treasure Debt Average Maturity (years) 7,5 7 6,5 6 5,5 5 France Source: AFI, AMECO and Bloomerg Italy Spain Germany Portugal The Belgium Netherlands 34 Conclusion 35 …with a big impact on growth on the long term Spain-Euro Area Differential – YoY Growth Rates Source: FMI & OECD 36 The challenge is to increase the growth potential The Spanish economy is undergoing a change in its growth patterns; facing the new era: Spain has good international position and reputation, especially its large-scale companies, leading in key sectors and more productive than their European equals. It has a high potential talent (it is placed 11th in the world ranking according to “Mapping Global Talent”) The imbalances accumulated in the past are undergoing an advanced adjustment. The reforms underway are directed at enhancing the growth potential in the mid-long term. In order to culminate the process, the reforms must conclude successfully and the adjusments plans underway must be 37 followed rigorously. Spain’s Equity Story Strengths and forecasts of the Spanish economy Madrid, July 2011 38