H.CaleroConsulting Group, Inc.

Puerto Rico 2014 - 2016

Consumers:

A Moving Target

ADJUNTAS

AGUADA

AGUASBUENAS

AIBONITO

AÑASCO

ARECIBO

BARRANQUITAS

CABOROJO

CAGUAS

CAYEY

CEIBACIALES

CIDRA

COAMO

COMERIO

FLORIDA

GUANICA

GUAYAMA

GURABO

JAYUYA

JUANA

DIAZ

JUNCOS

LAJAS

LARES

LAS MARIAS

MANATI

MARICAO

MAYAGÜEZ

MOCA

NAGUABO

OROCOVIS

PONCE

RIOGRANDE

SALINAS

SANGERMAN

SANJUAN

SANLORENZO

SANSEBASTIAN

SANTAISABEL

TOAALTA

TOABAJA

UTUADO

VEGAALTA

VEGABAJA

VILLALBA

YABUCOAYAUCO

Where is Puerto Rico today

Gross Domestic Product 13 $103b

Gross National Product 13 $71b

Population 13 3.6m

Share of Manufacturing in GDP 47%

Income Per Capita 13 $17,413

Total Employment 7/14 0.99m

Inflation 7/14 1.3%

Unemployment rate 7/14 13.9%

Participation rate 7/14 39.6%

2hcalero.comSource: PR Planning Board, US Census Bureau, PR Department of Labor.

It is the worst recessionBase year = 100 (year prior start of recession)

2006-13

82-84

01-02

1975

Years 3hcalero.comSource: PR Planning Board & index by HCCG

Less people, fewer jobs

Total employment (Peak before recession=100)

Months

78 78.4

Investment went down

Investment as % of GNP

Recession

5hcalero.comSource: PR Planning Board

PR exports slowing down

$Billion

6hcalero.com

Trend

Banking performance

Total assets down Total loans fall

Profitability is lowBank delinquency

-38% -22%

$ B

$ M

$ B

The public debt challenge

PR total public debt, $ billion

As of March, 2014 $73.5b

$14 b

$47 b

$24 b $49.2 b

$15 b

$4.1 b

8hcalero.comSource: PR Government Development Bank

$5.0 b

The economy relies on consumption

Consumption as % of GNP, 2013

Excludes mortgage debt

Risk of personal debt as % of

personal income, 2013

Bullet proof real consumptionBase year = 100 (year prior start of recession)

2006-14

82-83

01-02

1975

Years11hcalero.comSource: PR Planning Board & index by HCCG

Current recession & real

consumption2006 = 100

ServicesDurable

Total

Non

durable

Years12hcalero.comSource: PR Planning Board & index by HCCG

PR consumption & disposable

income2006 = 100

Disposable

Income

Consumption

Years13hcalero.comSource: PR Planning Board & index by HCCG

Consumers’ debt

$ million

Families’ financial assets plunged

$ million

15hcalero.com

Falling homeowner’s equity

PR house price index

Total growth = -13%

PRSI continues in recession

Monthly PRSI

Sep 12, 2014

2,190

Loss of $14

billion in wealth

20,208

2014

PR posts mixed results

HCCG quarterly economic Indices, 2Q 2014

Since 2005, PR’s population

began shrinking

Less population while seniors

explodePR population, million

The gates are open in PR

Net migration (emigrants – inmigrants), 000s

Est

’13–’19

-432

’11–’12

-108

-540

Young people are leaving PR

Population by age group 2012, %

Emigrant PR population

Men Women Men Women

Gen Y – those born between 1976 and 2000

Middle class leaving PR

Median income, $000s

Emigrants

Total

population

Years23hcalero.comSource: PR Institute of Statistics

Women are winning

PR population by sex, %

Source: US Census Bureau

Maturing Population

Median Age

Years

Millennials still prevail in 2013

Population by Age Group

Who are the biggest spenders?

US Consumption Expenditures Survey 2013

27hcalero.com

Which groups exhibit most growth

US Consumption Expenditures Survey 2003/2013

% growth

28hcalero.com

Spending Patterns: <25

– They spend more on Housing, Transportation,

and Food

– Compared to other age groups, they spend

more on eating out

– Most growth from 2003 to 2013 has been in

Housing and Insurance

– Least growth has been on Transportation

• This group spends the most

• It includes baby boomers who also

spend the most on Housing,

Transportation, and Food

• Compared to other age groups, they

spend more on entertainment

• Most growth is in Healthcare

• Least growth is in Transportation

Spending Patterns: 45-54

Spending Patterns: 65+

• This group spends mostly on

Housing, Transportation, Food, &

Healthcare.

• Most growth is in insurance and

pensions

• Least growth is on Food

Full recovery will take time…Forecast of US and PR real GNP growth

FY

Forecast

32hcalero.comSource: PR Planning Board & HCCG PR Macroeconomic Model

Years to return to 2005 GNP

Real GNP, $ million

13 years

33hcalero.comSource: PR Planning Board & HCCG estimates

Years to return to 2005 GNP

Real GNP, $ million

4 years

13 years

34hcalero.comSource: PR Planning Board & HCCG estimates

Consumption & Income

History Projected

% change, real 2011 2012 2013 2014 2015 2016

Consumption 1.5% 2.3% 2.4% 2.2% 1.1% 1.6%

Dispos.

Income

1.9% -0.2% 1.6% -0.5% -0.8% -0.4%

Baseline

35hcalero.comSource: PR Planning Board & HCCG PR Macroeconomic Model

Growth of Internet users in PR

Annual Growth = 14%

000s

Source: World Bank, US Census estimates of population

Cell phones enhance mobility

Mobile cellular subscriptions (per 100 people)

Source: World Bank

PR 7% annual growth

2012

Ecommerce continued growth

Ecommerce as % of total sales

38hcalero.comSource: EPA

The rise of social network

US social network users, million

39hcalero.comSource: Facebook & Twitter

How knowledge speeds decisions

Without effective knowledge platform

40

Time

Data gatheringAnalysis

Response

With effective knowledge platform

Time

Data gathering

AnalysisResponse