1

Spain’s Equity StoryStrengths and forecastsof the Spanish economy

Madrid, July 2011

2

Situation

3

Spain’s GDP Year-on-year variation rate (%)

(p) Projection

Source: CEC based on INE

Annual variation

%

2009 -3.7

2010 -0.1

2011 (p) 0.8-5

-4

-3

-2

-1

0

1

2

3

4

2008

TI

2008

TII

2008

TIII

2008

TIV

2009

TI

2009

TII

2009

TIII

2009

TIV

2010

TI

2010

TII

2010

TIII

2010

TIV

2011

TI

2011

TII

2011

TIII

2011

TIV

Quarterly

Year-on-year

Year-on-year variation

%

2009 -3.7

2010 -0.1

2011 (p) 0.8

4

Spain, well positioned to face the new era

5

65,4%

12,2%

18,7%

Spain3,7%

France

Italy

Rest of EU15

59,2%

13,9%

17,5%

Spain9,4%

France

Italy

Rest of EU15

Share of Nominal GDP 1960 Share of Nominal GDP 2010

Source: European Comission and CEC

Spain has tripled its weight in EU15

6

Variations in Population in the Last 50 Years

Source: Eurostat

Population has grown over 50% 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.

77

In the last years we have won international respect… even excluding the building industry

*European core countries: France, Germany, Italy, Austria and The Netherlands Source: IMF forecasts 2011-2015

GDP 1994-2014(Based on Euroconstants; 1993=100)

100

120

140

160

1993 1995 1997 1999 2001 2003 2005 2007 2009

European Core*

SPAIN

Since 1994, Spain’s GDP has increased over 60%, 2.3 times higher than in European core

countries…

… this sets Spain as 4th economy

regarding per capita income and

5th in size…

… with the highest investment rate excl. housing

(infrastructure & capital goods).

SPAIN excl. building

industry

8Source: Eurostat

% GDP per Capita 2010

Fourth largest GDP per capita among the foremost EU15 countries

107,3104,8

96,9

92,4 91,3 90,5

Germany UnitedKingdom

France Spain Italy EU27

9

Spain’s Strenghts

10

Attractive country to Institutional Investmentthanks to high profitability for the shareholder

Source: Wharton Business School

Total Shareholder Return

-5

5

15

25

35

45

Pre-crisis yearly average(1995-2006)

Crisis yearly average(2007-2009)

Ibex-35 CAC-40 FTSE-100 DAX-30 DJIA

%

Before the crisis, profitability was 3 times higher than the rest of European countries.

During the crisis, it was twice as high.

11

EuroStoxx 300 (Securities Exchange Index for the Euro Area): share by listed company nationality

Source: Factset

Spanish companies account for 12.1% of the European EuroStoxx 300 index

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.

12Source: OECD Compendium of Productivity. Formulated by CEC

Labour Productivity by Company Size

0

20

40

60

80

100

120

140

España Alemania Reino Unido

1 a 910 a 1920 a 4950 a 249más 250

base 100 = average productivity of firms in USA

Spain Germany UK

1 to 910 to 1920 to 4950 to 249> 250

Nr. of workers

13Source: CEC based on WTO data.

Invariant share of world export market

Share of World Export Market2000-2009

The exporting rate is still very high and in the last term it has increased 23% since 2010.

14

Spanish companies’ leadership

15

Non-tourist services world exports grew by 40% in the last decade

(yearly expansion average was 7%).

Other services

To business

Tourism

Spanish Service Exports by Industry(% total, 2000)

Other services

To business

Tourism

Spanish Service Exports by Industry(% total, 2010)

It has leading companies in key industries: sucessful diversification into non-tourist services

16

… 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 world-wide.

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

17

… 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.

18

… 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.

19Source: AFI, World Tourism Organisation and Tourism in OECD countries 2008.

Maintaining its leadership in TOURISM,

5 firms are among the 30 most important hotel companies in the world

Tourist Industry Revenues in 2009(billion euros)

Tourist Industry Contribution to GDP(% in 2006)

0

2

4

6

8

10

12

0

10

20

30

40

50

60

70

80

90

100

20

Imbalances under correction

21

Foreign indebtednessby the private sector

Adjustments underway: after 2nd year, a surplus (or financing capacity) of over 4% of GDP was recorded.

Private sector deleveraging, banking sector consolidation, and labour market flexibility

22

Tasa Inversión (% PIB): desglose entre componentes (Promedio 2000-07)

86 6 5 3

20

1314 17

14

España Alemania Francia Italia Reino Unido

Residencial No residencial

Fuente: Oficinas Estadística Nacionales

Source: National Treasuries

Spain Germany France Italy UK

Investment Rate (% GDP) Broken Down by Components(Mean 2000-07)

Housing Non-housing

23

... also with one of the best infrastructure networks and its position as strategic enclave

Km of Motorway per Million Inhabitants

Source: Eurostat, Adif (Spanish railway and infrastruture agency), McKinsey andCEC.

61

112133

152168172

193197

203241

276

UK

Italy

Finland

Germany

Belgium

France

Sweden

Denmark

Austria

Protugal

Spain

24

Adjustment in housing investment is complete, having reached pre-boom levels

Housing investment(% GDP)

3.0%

4.5%

6.0%

7.5%

9.0%

mar-95

jun-96

sep-97

dec-98

mar-00

jun-01

sep-02

dec-03

mar-05

jun-06

sep-07

dec-08

mar-10

Source: WTO formulated by CEC.

25

Adjustment in housing

Unsold Housing Stock(thousand units)

Source: Ministry of Internal Development and CEC.

26

Foreign indebtednessby 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.

Private sector deleveraging, banking sector consolidation, and labour market flexibility

27

-2

0

2

4

6

8

10

12

2007 2008 2009 2010

Differential Unemployment Rate(Spain vs. France-Germany Avg.)

Differential Growth France-GermanyAvg. vs. Spain)

p.p.

Compared adjustment of cycle and unemploymentbetween Spain and the average of France and Germany

28

Active employment rate yearly variation %

Unemployment rateworkforce %

Source: CEC baded on INE data and own projections.

Employment

29

Foreign indebtednessby 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.

Private sector deleveraging, banking sector consolidation, and labour market flexibility

3030

Sistema Financiero: Hipotecas concedidas por oficina y año (unidades)

12

16

20

24

28

32

mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 mar-10 mar-11

Fuente: Banco de España e INE, julio 2011

Adjustment plan:reduction of the excess of installed capacity

España: Oficinas operativas(mar-1990=100)

80

100

120

140

160

180

200

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Fuente : Banco de España, septiembre 2010

Bancos

Cajas

Financing system: mortages approved per office and year(units)

Source: Bank of Spain and INE, july 2011Source: Bank of Spain and INE, sep 2010

BanksSavings banks

Spain: Operational Branches(Mar-1990=100)

3131

Solvencia de los grupos consolidados de entidades de crédito (% APR)

7

8

9

10

11

12

13

2007 2008 2009 2010Fuente: Banco de España, julio 2011

Ratio de solvencia

Ratio de solvencia básico

Adjustment plan: advanced process of losses and capitalization recognition

Source: Bank of Spain, july 2011 Source: Bank of Spain, may 2011

Generic reductions

1,5

Specific provisions with profit

5,5

Specific provisions with bank reserves

2,1

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

Provisions of the financial institutions constituted since 2008% GDP

Core capital in financial institutions%APR

Core capitalBasic core capital

32

Pension system sustainability

Directed toward reducing mid-term pension spending (-2/4 pp GDP)

Public finance sustainability

Ambitious fiscal consolidation plan underway: towards 3% budgetary deficit by 2013.

…although there is a higher risk for autonomous communities.

Reforms with an impact in the short term: pension system and public finance solvency

Market concerns Reform

33

Budget balance and public debt

Budget Balance(% GDP)

Public Debt(% GDP)

-12.0

-9.0

-6.0

-3.0

0.0

3.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Estructural

Total

España: Saldo Público (% del PIB)

30

40

50

60

70

80

90

2000 2002 2004 2006 2008 2010 2012

Fuente : Comisión Europea

EurozonaAlemaniaEspaña

Source: Ministry of Economy, july 2011 Source: European Comission

Structural

Total

Euro AreaGermanySpain

34Source: AFI, AMECO and Bloomerg

Diversification of maturity dates on sovereign debt: long mean term

Treasure Debt Average Maturity(years)

5

5,5

6

6,5

7

7,5

France Italy Spain Germany Portugal TheNetherlands

Belgium

35

Conclusion

36Source: FMI & OECD

…with a big impact on growth on the long term

Spain-Euro Area Differential – YoY Growth Rates

37

The challenge is to increase the growth potential

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.

The Spanish economy is undergoing a change in its growth patterns; facing the new era:

In order to culminate the process, the reforms must conclude successfully and the adjusments plans underway must be followed rigorously.

38

Spain’s Equity StoryStrengths and forecastsof the Spanish economy

Madrid, July 2011