2004 First Half Results

Transcription

1 2004 First Half Results Profit & Loss Account (Million Euros) Jun Jun 2003 % Revenue % Expenses (ex Op. leases) (353.4) (336.9) 4.9% EBITDAR % Rental expenses (32.5) (29.5) 10.2% EBITDA % Depreciation and amortisation (55.3) (52.6) 5.1% EBIT % Total financial profit/(loss) (30.0) (28.4) 5.8% Profit/(loss) from equity 1.1 (1.4)177.8% Goodwill amortisation (1.1) (1.3) -15.2% Ordinary EBT % Extraordinary items % PBT % Net Profit % Net Income % Operational Ratios Jun Jun 2003 % RevPAR ( 1 ) % Ebitdar margin 27.7% 26.3% bp Ebitda margin 21.0% 19.8% bp Ordinary profit margin 3.5% 1.5% bp Net profit margin 3.9% 1.0% bp ( 1 ) On a comparable basis RevPAR increases by 2.8% Financial Ratios Jun Jun 2003 % NET DEBT ( 2 ) ,7% NET DEBT / TOTAL EQUITY ( 2 ) 116% 111% 520,2 bp EBIT / NET INTEREST 1,6 1,6 (0,0 ) Stock Performance 01/01/04 28/07/ /01/ /01/ /02/ /02/ /03/ /03/ /03/ /04/ /04/2004 Average Daily Volume ( ) 1,945,354 Period High, March 8 th Period Low, Jan. 5 th Historical High, Jun 9 th Marketcap July 28 th 04 ( 6.80) 1,256 million 12/05/ /05/2004 SOL.MC 09/06/ /06/2004.IBEX 07/07/ /07/ Highlights EBITDA and Ordinary EBT increases by 13.2% and 148% respectively The ordinary performance is largely explained by the strong evolution of the Caribbean together with the European urban properties outside Spain and the launching of the Sol Meliá Vacacion Club. The geographical and urban/resort business diversification has enable Sol Meliá to report such increases. Sluggish performance of the Spanish urban segment in Q2 The 11-M terrorist attacks and the change of the Spanish government have negatively affected the performance of the Spanish urban segment throughout Q2, where RevPar has decreased by 8.2%. This slowdown has specially affected Q2 due to the bias of this quarter towards the urban segment (some 55% of the EBITDA).Nevertheless, the Company has monitored signs of recovery in July while the ongoing trend for the full service Meliá hotels remain positive as opposite to Tryp hotels, more likely to suffer from increase in supply. Promising prospects for summer season Expectations for summer remain positive. Our good performance in Spain, will largely be explained by our positioning in the domestic market and the solmelia.com s increase in sales. Destinations like the Balearics and Alicante will likely continue the positive trend seen throughout the year while some other like the Canary islands are recuperating from a below-than-expected performance seen in 1H04. The quality of Sol Meliá s product is also likely to take advantage of the good momentum of the Caribbean. New Asset Management Division Sol Meliá will emphasize the double vision of its business: hotel and Real Estate, maximizing total worth of Assets through a more pro-active portfolio management while maximizing the existing square metres capacity. New Hard Rock opening in Times Square, NY City Lifestar (50:50 JV with Rank Group) signed an agreement to develop and manage the Paramount hotel in Times Square, New York City, acquired by Becker Ventures. The hotel will undergo a refurbishment process and then be rebranded the Hard Rock Hotel New York (541). ( 2 ) The temporary excess of cash due to the exchangeable has been included in the calculation of the Net Debt "The Hard Rock Hotel name and logo are registered trademarks of Hard Rock Holdings Ltd., and are used by Sol Meliá SA under the terms of a license agreement" investors.relations@solmelia.com SOL MELIA Gremio Toneleros, Palma de Mallorca Tel.:

2 INDEX Page 1. Letter from the E.V.P. Communications 1 2. Information on Operations 4 3. Consolidated Income Statement 9 4. Consolidated Balance Sheet Expansion 15

3 1. Letter from the E. V. P. Communications Dear friend, Sol Meliá is pleased to announce its first half results, reporting a 13.2% EBITDA increase. The growth is largely explained by a good performance in the Caribbean, the European cities outside Spain together wit the launching of the Sol Meliá Vacation Club. The geographic and urban/resort business diversification has enable Sol Meliá to report such increases when our overseas operations largely offset the decrease seen in the Spanish urban segment in Q2. LatAm continues to perform well Spanish urban segment hit in Q2 As seen in Q1 Mexico, the Dominican Republic and Cuba are still benefiting from the economic recovery in the US, the increasing flow of American travellers and the positive trends in travel by European clientele with increased purchasing power thanks to the Euro appreciation. Continuing improvement throughout 2004 in main European destinations is pushing RevPar up in our recently refurbished properties in London and Paris by 48% and 14% respectively for the semester. The Spanish urban segment, although a good performance in Q1, has been hit in Q2 by the terrorist attacks in Madrid and the change of the Spanish government following the 14-M general elections. Contrarily to Company s first impression, the impact of terrorist attacks has gone beyond March, hitting the whole quarter as reflected in the RevPar decrease in Q2 (Meliá: -4.8%, Tryp: -10.7%). Nevertheless, the forecast of the Company for the next quarters, follows the pattern of what was seen in Q1, i.e. the positive performance of the Meliá hotels whose segmentation is biased towards Business Groups and incentives, air crews and international travellers as opposed to the more limited-service Tryp hotels, more dependant on individual business travellers. good prospects for summer season Our summer season prospects remain positive in Spain. The evolution of the domestic market is largely behind the improvement in the Balearics, Alicante and the Canary islands where, in this latest destination, the Company has seen a clear upward trend in July from a sluggish first half, likely to continue in August. Additionally, the trend seen in the Caribbean is likely to go on in Q3 in destinations like Cancun, Puerto Vallarta, Riviera Maya, Cuba and the Dominican Republic where the quality of the Sol Melia s all-inclusive product and the focus on Business Groups, will enable the company to enjoy robust occupancy levels. The strategic alliances signed last year which include timesharing and distribution with Cendant, online distribution with lastminute.com, development of Hard Rock hotels and Flintstones theme hotels with the Rank Group and Warner Bros., respectively are crystallising during the course of 2004 and allow us to outperform the market. Additionally, the Company has redesigned its organisational structure in order to allow the focus on F&B, Timeshare and, more recently, Real Estate business. 1

4 2004 new Asset Management Division During second quarter 2004, Sol Meliá has provided the required human and financial resources to the new Asset Management Division in order to emphasize Company s double approach of business: hotel management, on one side, and Real Estate management maximizing the 4 billion Euros of Gross Asset Value. On the Micro Asset Management standpoint, the Company will run its owned portfolio on a return per square metre basis through new concepts of F&B as well as streamlining other revenues business (Spa, Health and Beauty, merchandising products, etc.). On the macro site, the Asset Management Division will more proactively manage the portfolio as well as leveraging alternative uses of capacity (Time-Share, etc.). The rotation of assets included in the activity of the new Division will be benefited from the existing 340 million Euros of fiscal credits as of June In July 2004, the new team carried out the sale of the Tryp Caballo Blanco (controlled in a 75% through the company Moteles Andaluces S.A.) in Puerto de Santamaría (Cádiz, Spain) by million Euros at 20x EBITDA 03 multiple. The transaction generates 4.9 million Euros of capital gains in Q3 while Sol Meliá maintains the management contract of the 94 rooms urban establishment focused on F&B measures and Time Share come to fruition As previously reported, the new F&B Division is being focused on the standardisation of service levels by brand, the definition of optimal staffing levels in each point of sale as well as an analysis of alternatives for loss making units with the full involvement of the hotel general manager. These actions have resulted in a Food and Beverage margin increase from 30% to 32%. Partly derived from the measures taken, the Spanish urban hotels have reported a 1.6 million Euros increase (+25.7%) at the F&B profit level in comparison with the same period last year. Timeshare revenues have increased by 148% up to June in USD, thanks to the projects launched along with Cendant in Cancun, Puerto Vallarta (Mexico) and Punta Cana (Dominican Republic), taking advantage of the existing resorts. During the course of 2004 and 2005, additional Timeshare projects in Puerto Rico and Punta Cana will be launched by the facilities of our existing properties. solmelia.com sales increases by 101% On the distribution side, solmelia.com represents 22% of central reservation system sales (12% up to June 2003) and a 94% of total Internet sales after a 101% sales increase as of June The increase is largely explained by different measures that include search engine optimisation, expansion of solmelia.com customer base (currently newsletters subscribers), personalised marketing campaigns, an easy booking process (tested by customer s usability analysis) and the launching of different programmes such us Wednesday Web Weekend, Early Bird Uniform Rate Plan, 2x1, Descubra etc. The translation of solmelia.com into five different languages has also paid off while we have recently launched the Brazilian site and the Mexican one will be available in short. Solmelia.com sales team has also a worked on improving the appearance of our site in searchers either streamlining the web or through sponsored links. Sales made through Google have increased exponentially to 2.35 million Euros up to June Additionally, the joint venture signed with lasminute.com has uplifted by 19% the sale of Sol Meliá s establishments through the European leading on line distributor (25% market share of all travel sold online through intermediaries within Europe ). 2

5 Hard Rock New York opening increases due to Sol Flintstones hotels Lifestar (50:50 JV between Sol Meliá and Rank Group) signed an agreement to develop and manage an establishment in Times Square, New York City which Becker Ventures acquired for million US dollars. The hotel will undergo a refurbishment process and then be re-branded the Hard Rock Hotel New York (541). This establishment represents the third Hark Rock hotel managed by Sol Meliá in the US following the opening of the H.R. Chicago (381) in late 2003 and the H.R. San Diego (250) scheduled in Additional Hard Rock hotels are foreseen in America and Europe. In 2003, five Sol brand hotels which represent 3,265 rooms in Spain, were included in the agreement signed between Sol Meliá and Warner Bros. Consumer Product to offer theme hotel facilities featuring characters from the Flintstones cartoons. Up to June, these establishments have reported an 5.1% RevPar increase. Other revenues have gone up by 14% thanks to Flintstones merchandising product sales increase in the establishments stores. The concept has proven to be successful and the hotels involved are likely to deliver a good performance in summer To conclude, the Company is monitoring the evolution of summer season with relative optimism both in Spain and the Caribbean. Although the Spanish urban segment is likely to be at some extent impacted by the increase of supply, this effect is quite limited to the Tryp hotels as opposite to Meliá. The newest Divisions (F&B, Asset Management) are going to reinforce the hotel/real estate vision of our business while the strategic alliances signed in 2003 already represent a competitive advantage which will become more evident in the medium term. Jaime Puig de la Bellacasa E.V.P. of Communication & Institutional Relations 3

6 2. Information on Operations 2.1. PROPERTY BUSINESS During the first half 2004, RevPar for owned and leased hotels has decreased by 0.6%. The positive evolution of the European cities and the resorts in Spain has been offset with the decrease of the Spanish cities and, more importantly, the US dollar depreciation which has affected the Americas Division. On a constant exchange rate basis, total RevPar of comparable hotels increased by 2.8%. In the European Resort Division practically explained by the Spanish resorts once the disaffiliation process in Tunisia has been finalised RevPar has gone up by 1.1%, primarily derived from an average rate increase of 6.3%. The good performance of the UK and Spanish market in the Balearics and Alicante together with the refurbishment of the Gran Meliá Don Pepe in the Costa del Sol offset the worse than expected performance in the Canary Islands. The competition of the Caribbean in the upscale market is largely behind the lost of European clientele in the Canary islands. The domestic clientele has partially offset this effect. For Q3, the Company is monitoring an important recovery of the region which traditionally depend on Spanish clientele in the summer season. RevPar in the European City Division changed by -1.6% (+0.8% in Q1) due negative second quarter in Spain seriously affected by the 11-M terrorist attacks, the change in the Spanish government and, to a lesser extent, the Royal Wedding. Spanish urban RevPar in Q2 has decreased by 8.2% while the whole European City Division has decreased by 3.5% due to the positive performance, already seen in Q1 in major European cities such as London and Paris which RevPar has increased by 48% and 12% respectively for the semester. The latest RevPar figures of the HotelBenchmark survey (up to May) for London and Paris show a +20.0% and 5.0% respectively. The better-than-the average performance is related to the refurbishment processes carried out in these properties and the repositioning of the same towards a more high standard clientele. Going into the evolution of the Spanish market by brand, Meliá 50% of total Revenues / 70% of total EBITDA on a yearly basis decreased its RevPar by 1.9% for the semester (Q1:+2.1%; Q2: -4.8%). Although the slowdown seen in Q2 due to specific one-off factors which have impacted the industry as a whole, the Company believes that full service Meliá hotels are less affected by the increase in capacity seen over recent years in Spain due to their high brand recognition, location, tradition and prestige, specially in the Spanish market. Additionally the diversity in segment that cater these properties, i.e. air crews, international traveller, congresses and conventions, business groups, etc. make those more resilient to the difficult environment, i.e. sluggish individual business travel and increase in supply. 4

7 The Tryp brand properties have reported a 7.4% RevPar decrease for the semester (Q1: -3.4%; Q2: -10.7%). These limited service hotels within the room factory business with little differentiation and biased to individual business travel are suffering more from the recent increase in supply seen in the Spanish cities. On comparable hotel basis, Spanish urban RevPar decreased by 2.5% for the semester. By brand, Meliá and Tryp decreased by 1.9% and 3.1% respectively. The decrease is explained by prices. Occupancy level for the Spanish urban segment increased by 0.7% (Meliá: +1.0%; Tryp: +0.5%). By city, Company s RevPar of Madrid and Barcelona have gone down by 5.2% and 1.1% in the semester. These figures compares with the overall decrease in Madrid and Barcelona according to the Hotelbenchmark survey (May 04) by 9.1% and 6.1% respectively. Going forward, the Company believes that the trend seen in Q1 is likely to go on, i.e. positive performance of the Meliá hotels while the strategy of the Tryp hotels will be more defensive based on capture of volume, disintermediation and cost reduction. Regarding Americas Division, as occurred in Q1, RevPAR and A.D.R. figures have been negatively affected by the depreciation of the US dollar. On the same hotel basis, RevPAR, Occupancy and A.D.R. increased by 12%, 7% and 5% respectively in USD. Performance in Latin America and the Caribbean follows the pattern seen in Q1: strong evolution favoured by economic recovery in the US with an increase in the number of North American travellers. The Company has had high occupancy levels in the Easter holidays and the Spring Break in the US. Additionally, the rise in value of the Euro makes European destinations more expensive in comparison with the Caribbean, which has also benefited by the increased purchasing power of European tourist. The Company is taking advantage of the tourist boom in Punta Cana, Dominican Republic as a tourist destination and the effects mentioned above together with Mexico, specially Cancun. RevPar of Sol Meliá s resorts in Punta Cana and Mexico have increased by 7% and 13%. Regarding the urban hotels, although lead time for bookings has been reduced, Group and Convention activity in the Gran Meliá Mexico Reforma continues to perform satisfactorily in the domestic market. The situation in Venezuela remains difficult and although the hotel has reported a 59% revenue increase on a US dollar basis, occupancy levels remain low (40.4%). The below-than-expected of the newly opened GM Mofarrej is likely to improve in the second semester given better market conditions. Going forward, there are good prospects for summer season in the Caribbean resort destinations for the European (primarily Germany, Spain, UK and Italy) and the domestic feeder markets (Mexico and the Dominican Republic) 5

8 Table 1: Hotel statistics 04/03 (RevPAR & A.D.R. in Euros) OWNED&LEASED HOTELS Jun 04/03 Occupancy RevPAR A.D.R. EUROPEAN RESORT ,3% 29,5 44,6 % o/ ,9% 1,1% 6,3% ,7% 29,2 41,9 EUROPEAN CITY ,1% 53,0 85,4 % o/ ,7% -1,6% -2,3% ,7% 53,9 87,4 AMERICA (*) ,1% 39,5 59,7 % o/ ,9% -5,3% -4,5% ,7% 41,7 62,5 TOTAL ,3% 42,2 65,7 % o/ ,9% -0,6% 1,3% ,5% 42,5 64,9 (*) RevPAR and A.D.R. without currency effects would have changed by +5.2% and +6.2% respectively. Please find below a breakdown of the components of growth in room revenues at the hotel level for owned and leased hotels taking into account the company as a whole. The 3.6% increase in available rooms in the European City Division is largely explained by the newest leased hotels in Spain under the Tryp brand, i.e. Tryp San Lázaro (Santiago de Compostela), Tryp León, Tryp Índalo (Almería) Tryp Oceanic and Tryp Almussafes (Valencia) and. In Switzerland, the increase in available rooms is explained by the opening of two leased hotels: the Meliá Rex Boutique Hotel and the Tryp De Berne, both in Geneva. Available rooms also increases due to the lease agreement at the Tryp Frankfurt. In the European Resort Division, the decrease in available rooms is explained by the disposal of the Sol Aloha Playa and Sol Patos in the Costa del Sol and the disaffiliation of the Sol Brisamar in Fuerteventura (Canary Islands) together with three lease contracts in Tunisia during the disaffiliation process occurred in In the Americas Division, the increase of available rooms is explained by the opening of the Paradisus Puerto Rico, Gran Meliá Mofarrej in Sao Paulo (Brazil) under lease contract together with the fully consolidation of the Meliá Panamá hotel. Sol Meliá increased the participation in Detur Panamá S.A. owner of the hotel from 49.78% to 51.25%. The establishment has reported as of June and 0.2 million Euros at the Revenue and EBITDA level respectively. 6

9 Table 2: Breakdown of total room revenues owned/leased hotels 04/03 % Increase Jun 04 /03 EUROPEAN RESORT EUROPEAN CITY AMERICAS TOTAL RevPAR 1,1% -1,6% -5,3% -0,6% Available Rooms -4,3% 3,6% 18,7% 2,6% Room Revenues -3,3% 2,0% 12,4% 2,0% As table 3 shows, the first half 2004 indicates a positive trend on revenues, with an increase with respect to the same period in In the European City Division, the 6.1% increase in F&B is explained by the standardisation of service levels by brand, the definition of optimal staffing levels in each point of sale carried out the F&B Division. The 10.2% increase in Other Revenues is explained basically by the increase in meeting room rental to business groups. The increase basically took place in the Meliá branded hotels in Madrid, Barcelona, Seville and Palma in the first quarter. The recent commercialisation of the Meliá White House apartments also contributes to the increase. The Americas Division hotels the increase in Food & Beverage due to the progressive commercialisation of all inclusive packages in our Mexican properties throughout Table 3: Hotel revenues split 04/03 for owned/leased hotels Jun 04/03 E.RESORT E.CIT Y AMERICA TOTAL (Million Euro) 04 %o/ %o/ %o/ %o/03 03 ROOMS % % % % 244 F&B % % % % 135 OTHER REVENUES 5-5.2% % % % 26 TOTAL REVENUES % % % % 405 In the Americas, Room Revenues, Food & Beverage, Other Revenues and Total Revenues changed by 25%, 33%, 18% and 28%, respectively, when excluding the currency effect. 7

10 2.2. MANAGEMENT BUSINESS Management fees increased by 16% mainly explained by the positive results obtained in the Latin-American and Caribbean resorts. The occupancy increased by 6.1% in the managed hotels ( 34.5% in the Asia-Pacific Division and 4% in Americas Division). In the European resort hotels the increase in the fees revenues of 8% is mainly explained by the newest incorporation of the Meliá Olbia in Corcega (Italy), the maturity of the Gran Melia Volcan Lanzarote in the Canary Islands, together with the positive performance in Egypt and Croatia. The European City hotels total fees decreased by 16% mainly explained by the slowdown seen in Madrid derived from the Terrorists Attacks, General Elections, and the Royal Wedding, which has had an important effect on key establishments, i.e. Meliá Castilla (Madrid, 900 rooms). In the Americas the total increase in fees reached +25%. A continuing recovery economic situation in US feeder market largely explained this increase. The improvement in fees from Brazil, Costa Rica and some new properties like Paradisus Riviera Cancún together with the Hard Rock Chicago opening are behind such increase. The Cuban Division increase in total fees by +34% thanks to the increase occupancy 12.2% derived from a good performance of the Canadian and British markets. According to the latest figures up to May 2004, Cuba had grown by 12.3% compared to the same period last year while Sol Meliá s visitors increased by 12.5%. The Company enjoys a market share of the Cuban market of 33.9% in arrivals. The total management fees of the Asia-Pacific Division increased by 45% explained by the fast recuperation of the Asian Economy, as reflected in the occuopancy increase in Indonesia, Malaysia and Vietnam. Table 4: Management fee of hotels managed for third parties FEE REVENUES Million Jun-04 Incr. 04/03 Jun-03 EUROPEAN RESORT Basic 2.7 1% 2.7 Incentive % % 3.6 EUROPEAN CITY Basic % 3.0 Incentive % % 3.9 AMERICAS Basic % 1.9 Incentive 1.3 0% % 3.3 ASIA-PACIFIC Basic % 0.4 Incentive % % 0.7 CUBA Basic 5.6 8% 5.2 Incentive % % 6.0 Total Basic % 13.3 Total Incentive % 4.2 TOTAL %

11 2. Income Statement Revenues Total Revenues have increased by 6.9% explained by the improvement at the operating level of Sol Meliá s hotel network mainly in the Caribbean, and European cities outside Spain, together with the contribution of the most recent hotel additions. Hotel Revenues increased by 3% while on the same hotel basis, this item increased by 1.6%. The increase in the Other Revenues item is partly explained by the positive evolution of the Timeshare business and the full consolidation of Sol Meliá Travel, a travel agency focused on corporate travel. Total Revenues and EBITDA of Sol Meliá Travel represent 8.2 and million Euros respectively. This company was first fully consolidated in September 2003, therefore no substantial impact is likely to occur in the following quarters. Operating Expenses The 14.6% increase of the Raw Materials as the Other Revenues item is explained by the full consolidation of Sol Meliá Travel. Excluding this effect, the item increases by 1.6% The actions taken in the purchasing of perishable products, negotiations with suppliers to which the SAP Materials Management program has improved centralised purchasing and a more rigorous adaptation of food and beverage services to brand standards, including the standardisation of products, the review of restaurant menus and the composition of breakfasts. These actions have been reinforced in our urban hotels in light of the decrease in the occupancy levels in Q2. Personnel Expenses of comparable hotels decreased by 0.21% thanks to increases in productivity through the rationalization of functions and working hours adapted to service needs. The increase in Rental Expenses by 10.2% is due to the newest incorporations under lease agreements in the European City Division and the opening of the Gran Meliá Mofarrej, the first leased hotel in the Americas. The European Resort Division decreased its rental expenses by 5.8% due to the disaffiliations carried out in Tunisia in The Other operating expenses item increased by 4.2% due to the incorporation of new properties in the portfolio. On a same hotel basis, the item decreases by 0.9%. At the cost operating level, the Company keeps on working on the externalization of some services such as laundry and entertainment. These actions, similar to the pre-cooked meals programme implemented in the past, represent not only a success in terms of operating efficiency and a shift of some of the fixed costs into variable costs, but also savings for hotel accounts. 9

12 EBITDA / R EBITDA and EBITDAR have increased by 13.2% and 12.4% respectively. EBITDA margin has gone up to 21.0% as of June 2004 from 19.8% last year. The fully consolidation of Sol Melia Travel has slightly affected margins. Excluding this effect, EBITDA margin would have gone up to 21.4% The different actions carried out by Sol Meliá in terms of a) the disaffiliation of loss making hotels included in the Tryp transaction (2000), b) the signing of new management/lease contracts, c) the cost reduction programme carried out in 2002 and 2003 at the hotel and corporate level together with d) the refurbishment process that has meant that 4 out of every 5 hotels are in prime condition, have enabled the company to take full benefit from the recovery at the revenue level, once the industry has moved on after the difficulties of the last two years. Net Profit Profit from Equity investments represent 1.1 million Euros versus last year s losses of 1.4 million due to the fully consolidation of Sol Meliá Travel which reported 1.9 million losses as of June Extraordinary Profits of 12.2 million Euros include capital gains generated by the disposal of the Sol Aloha Playa, the 19% stake in the Spanish Tour operator Viva Tours together with the reinstatement of the Treasury Stock. The 17.5% tax rate is likely to remain at this level going forward. 10

13 Table 5 : Sol Meliá Consolidated Income Statement Million Euros Jun 2004 Jun 2003 % Hotel Revenues Management Fees Other revenues Total revenues % Raw Materials (61.2) (52.3) Personnel expenses (162.1) (161.0) Change in operating provisions (2.7) (1.5) Rental expenses (32.5) (29.5) Other operating expenses (127.4) (122.1) Total operating expenses (385.9) (366.4) 5.1% EBITDAR % EBITDA % Profit/(loss) from equity investments 1.1 (1.4) Net Interest Expense (30.0) (29.3) Exchange Rate Differences Total financial profit/(loss) (30.0) (28.4) 5.4% Depreciation and amortisation (55.3) (52.6) Consolidation Goodwill amortisation (1.1) (1.3) Profit/(loss) from ordinary activities % Extraordinary profit/(loss) Profit before taxes and minorities % Taxes (5.2) (2.3) Group net profit/(loss) % Minorities (P)/L (5.1) (5.8) Profit/(loss) of the parent company % 11

14 3. Balance Sheet Assets Short term deposits and Short Term Securities Portfolio include a temporary excess in cash generated by the recent 150 million Euros exchangeable bond issue. The funds are temporarily dedicated to risk free investments and will be used to refinance the 224 million Euros exchangeable bond issue due in September There has been a switch between the Other fixed assets and Land and Building items derived from the finalisation of the Paradisus Puerto Rico. The decrease in the account Long term loans due from affiliates is largely explained by the society Detur Panama stocks acquisition by which this society is globally consolidated instead of consolidated by equity method. Liabilities & Shareholder s Equity Total Net Debt amounts to 1,114 million Euros. Short term Debenture Bonds Payable include the 224 million Euros convertible bond issue due in September The increase of Debenture Bonds Payable in the long term is explained by the recent 150 million Euros exchangeable issue. The decrease experimented in the Distributable Reserves item is explained by the full year 2003 dividend paid. This dividend represent 8.6 million Euros and was paid last 1 st July

15 Table 6: Consolidated Balance Sheet (million Euros) ASSETS Mar 04 Jun 04 % Incr. Cash on hand and banks C/A with equity affiliates Inventory Trade receivable Other receivable Allowance for doubtful accounts (34.4) (34.1) S/T securities portfolio Loans due from affiliates Short term deposits Prepaid expenses Treasury Stock TOTAL CURRENT ASSETS % Goodwill from co. Fully consolidated Goodwill from co. equity participated Intangible assets and rights Intangible assets provisions and amortisation (82.4) (86.1) Net intangible fixed assets % Land and buildings 1, Technical installations and machinery Other fixed assets Tangible assets provision and depreciation (626.6) (645.2) Net tangible fixed assets 1, , % Equity Affiliates L/T loans due from affiliates L/T securities portfolio Holding of own shares Other loans Provisions (3.0) (4.2) Financial investments % FIXED ASSETS 2, , % Deferred expenses Start-up expenses TOTAL ASSETS 2, , % 13

16 Table 6 : Consolidated Balance Sheet (continued) LIABILITIES AND S/H'S EQUITY Mar 04 Jun 04 % Incr. Debenture Bonds Payable S/T loans S/T loans due to affiliated companies Trade accounts payable Other payable Prepaid income Operating provisions TOTAL CURRENT LIABILITIES % Debenture Bonds Payable L/T loans L/T loans due to affiliated companies Other L/T Liabilities TOTAL L/T LIABILITIES 1, , % Share capital Share premium Distributable reserves Reserves in companies fully consolidated Reserves in companies equity participated Revaluation reserves Non-distributable reserves Profit/(loss) previous year (330.1) (330.1) Differences in conv. of co. fully consolidated (210.2) (214.2) Differences in con. of co. equity participated (3.5) (3.6) Consolidated profit/(loss) Profit/(loss) attributable to external shareholders (3.2) (5.1) Interim dividend TOTAL SHAREHOLDERS' EQUITY % First consol. Reserves from co. fully consolidated First consol. Reserves from co. equity participated Deferred income Provisions for risks and expenses Minority interests TOTAL S/HS' FUNDS AND LIABILITIES 2, , % 14

17 4. Expansion The table below shows a description of the progress in the Sol Meliá hotel portfolio during the first half 2004: Table 8. Expansion plan. Owned & Leased 01/01/04 ADDITIONS LOSSES CHANGES 30/06/04 SIGNED TOTAL GROUP H R H R H R H R H R H R H R EUROPEAN CITY Owned Hotels Leased hotels EUROPEAN RES Owned Hotels Leased hotels AMERICA Owned Hotels Leased hotels OWNED HOTELS LEASED HOTELS TOTAL Management & 01/01/04 ADDITIONS LOSSES CHANGES 30/06/04 SIGNED TOTAL GROUP Franchise H R H R H R H R H R H R H R EUR. CITY M F EUR. RESORT M F AMERICA M F ASIA-PACIFIC M F CUBA M SUBTOTAL M F TOTAL TOTAL GROUP M= Management; F= Franchise 15

18 During the second quarter of 2004, Sol Meliá added 1 new hotel to its portfolio under lease contract in the European City Division, the Tryp Almussafes (133 rooms) in Valencia (Spain). The addition of 287 rooms in the Americas Division is related to the increase in the participation of Detur Panamá S.A. from 49.78% to 51.25%. Detur Panamá S.A. is the owner company of the Meliá Panama Canal hotel. The establishment has reported as of June and 0.2 million Euros at the Revenue and EBITDA level respectively. In the first quarter of 2004, the owned hotel Paradisus Puerto Rico opened its doors and increased the Sol Meliá s Owned Hotel Portfolio in the American Division. The hotel is an All Inclusive 490 suite luxury resort located in Coco Beach. Also in the first quarter of 2004, Sol Meliá added 3 new hotels to its portfolio under lease contracts in the European City Division: the Tryp San Lázaro in Santiago de Compostela, Spain (132 rooms), the Tryp Indalo in Almeria (186 rooms), and the Meliá Boutique Rex in Geneva, Switzerland (75 rooms). The losses of the lease contract in the second quarter of 2004 corresponds to the Sol Brisamar (110 rooms) in Fuerteventura, Spain (European Resort Division). Under management contract, Sol Meliá added 2 new hotels to its portfolio: The Meliá Gaia Porto (299 rooms) in Portugal, and The Tryp Naçoes Unidas (400 rooms) in Sao Paulo (Brasil). The Meliá Gaia Porto Hotel is the first Meliá hotel in Portugal and the finest hotel in its category in the city of Porto. The opening of the Meliá Gaia Porto hotel has been timed to coincided with the most important European national football tournament, Euro 2004, held in Portugal. This major international event has had a very positive impact on the establishment. Under management contract losses of the European Resort in Q2 correspond to the Hotel Sol Suncrest (458 rooms) in Malta. In the American Division Melia Los Cabos (104 rooms), in Mexico and the Melia ITC Nova Faria Lima (287 rooms) in Sao Paulo (Brasil). Table 9. Signed projects of owned and leased hotels TOTAL Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms EUROPEAN CITY PROPERTY LEASE Spain Italy Germany TOTAL The signed leased project for the current year is the 4 star Tryp Oviedo in Spain with 115 rooms. Within the next two years, the Company will incorporate 4 hotels to its portfolio: in Germany, the Meliá Dusseldorf (250 rooms), the Tryp Kaiserslautern (125 rooms) and the Meliá Berlin ( 364 room). In Italy, the Gran Meliá Roma, a new Deluxe 5 star 140 rooms hotel. 16