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