Spain Food and Drink Report Q1 2013

An economic contraction and a deflating housing bubble mean that consumer confidence in Spain hasfallen sharply. This has had a significant impact on mass grocery retail, with sales from hypermarkets,supermarkets and convenience stores all falling sharply over the past few years. However, this economicenvironment has created ideal conditions for private labels to thrive and has also provided a sales boostat discount stores. One company that managed to do well in 2012 has been the discount food retailer Dia- a Carrefour spin-off. We believe that Dia is one of a select few Western Europe-based food retailerswith good near-term growth prospects in the region.

Headline Industry Data (local currency)

2013 per capita food consumption = +1.29%; forecast compound annual growth rate (CAGR) to 2017 = +1.89.

2013 alcoholic drink value sales = +0.83%; forecast CAGR to 2017 = +1.48%.

2013 soft drink value sales = +1.05%; forecast CAGR to 2017 = +2.14%.

2013 mass grocery retail sales = +1.73%; forecast CAGR to 2017 = +2.58%.

Key Company Trends & Developments

Nestlé Boosting Its Condensed Milk Export Capacity: In June 2012, Switzerland-based food and nutritioncompany Nestlé invested US$7.46mn in its condensed milk plant in Pontecesures, Spain. The plant'sproduction capacity has increased by 50% as a result of the expansion, with almost half of the milkproducts manufactured there being exported to Europe, Asia and Africa.

Fairtrade Rising in Popularity in Spain: A report by the Fairtrade industry found that sales of Fairtradeproduce in Spain grew to EUR26mn (US$33.6mn) in 2011, an increase of 16.8% year-on-year (y-o-y).Fairtrade coffee led sales, with confectionery following. The report highlighted, however, that the rest ofEurope saw higher sales of Fairtrade produce than Spain during the year.

Key Risk to Outlook

Combination of Economic and Political Risks: We continue to see major downside risks to our forecasts.The position of the already embattled Spanish consumer would be exacerbated by a worse-than-expectedperformance of the country's economy, predicated on the wider eurozone economic trends, and/or thefurther tightening of the fiscal measures. Moreover, the fiscal and economic crisis has opened up a riftbetween the central government and the 17 regions that have autonomous control over local budgets,which could heighten political and social tensions.