Central America Food and Drink Report Q1 2013

While we do not believe the Central American region will regain its mid-2000s pre-crisis dynamism overthe next decade, we do see potential for growth to begin to accelerate toward the end of our forecastperiod on the back of a more favourable demographic picture, efforts at greater regional infrastructureand transport convergence, and the region's geographic proximity to a rising Latin American middleclass. However, the regional two-speed growth story looks set to remain in play. Underperformers -namely Nicaragua, Guatemala, Honduras and El Salvador - are highly dependent on remittance inflowsfrom the US and external demand for their low value-add manufactured goods, and as such are the mostexposed to a US economic slowdown. Meanwhile, outperforming economies - those of Panama andCosta Rica - have managed to move up the value chain and expand their services sectors, boostingexports and investment.

Headline Industry Data (regional averages)

2013 per capita food consumption (US$) = +4.68%; forecast compound annual growth rate (CAGR) to 2017 = +4.92

% 2013 alcoholic drink sales (litres) = +5.71%; forecast CAGR to 2017 = +5.46

% 2013 soft drink sales (litres) = +5.88% ; forecast CAGR to 2017 = +5.60

% 2013 MGR sales (US$) = +5.70%; forecast CAGR to 2017 = +6.04

%Key Company Trends

Florida Ice And Farm Building North American Exposure: In October 2012, Costa Rica-based drinksproducer Florida Ice and Farm agreed a deal worth US$388mn to acquire North AmericanBreweries from its private equity owners KP Capital Partners. The business includes the brands Labattand Genesee, and operates across the US and Canada. It was previously owned by Belgium's InBev butwas sold to its current owners as part of the conditions of InBev's acquisition of Anheuser-Busch. Dutchbrewer Heineken has a 25% stake in Florida Ice and Farm, and the move has been tied to Heineken'sregional ambitions as it looks to build its business across the Americas.

Key Risks To Outlook

Elevated Political And Economic Risks: Political stability will remain elusive for much of CentralAmerica over the next decade. Indeed, given the limited resources of most Central American economies,the elevated violence, corruption and social unrest that currently define the region's political riskprofile are likely to remain continued obstacles to growth. Similarly, Central America's economic links tothe US, through trade, remittance inflows and investment, leave it vulnerable to a structurally weaker USgrowth story. Combined with strong competition from Asia, the region's poor business environment anddiminished macroeconomic buffers in the wake of the financial crisis suggest that it will remain stuck onthe wrong side of the global rebalancing for much of the next decade.