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
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
Source: Wharton Business School
CAC-40
Crisis yearly average (2007-2009) FTSE-100
DAX-30
DJIA 10
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.
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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 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.
SA U
al ia
us tr
ly 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 U
us tr
A
G
A
hi n er a m an y
ly
C
Ita
Sp ai Fr n an ce
U
SA
0
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
8
Spain España
14
17 14
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 Protugal
203 197 193
Austria Denmark Sweden
172 168
France Belgium Germany Finland
112
Italy UK
241
152 133
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)
Espa単a: Oficinas operativas (mar-1990=100)
(units) concedidas por oficina y a単o (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 Espa単a, sept iembre 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
mar-09
mar-10
Fuente: Banco de Espa単a e INE, julio 2011 Source: Bank of Spain and INE, july 2011
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
Ratiocapital de so lvencia Core Basic Ratio core de socapital lvencia básico
7
Specific provisions with profit 5,5
0,2 0,1
2007 2008 Fuente: Banc o d e Es p aña, julio 2 0 11 Source: Bank of Spain, july 2011
2009
2010 Source: Bank of Spain, may 2011
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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
Fue nt e : Minist e rio d e Ec o no m í a y Ha c ie nd a , julio 2 0 111
Source: Ministry of Economy, july 2011
10
11
12
13
14
Eurozona Euro Area Germany Alemania Spain España
2000
2002
2004
2006
2008
2010
2012
Fue nt e : C o m isió n Euro p e a
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
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