/Presentacion_Equity_Story_EN

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.

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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.

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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.

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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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