REPORT ON LIMITED REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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1 This version of our report is a free translation from the original, which was prepared in Spanish. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation. REPORT ON LIMITED REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS To the shareholders of Meliá Hotels International, S.A. at the request of the Audit Commission: Report on the Condensed Interim Consolidated Financial Statements Introduction We have performed a limited review of the accompanying condensed interim consolidated financial statements (hereinafter, the interim financial statements) of Meliá Hotels International, S.A. (hereinafter, the parent company ) and its subsidiaries (hereinafter, the group ), which comprise the balance sheet as at June 30, 2016, and the income statement, statement of other comprehensive income, statement of changes in equity, cash flow statement and related notes, all condensed and consolidated, for the six months period then ended. The parent company s directors are responsible for the preparation of these interim financial statements in accordance with the requirements of International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union, for the preparation of condensed interim financial information, as provided in Article 12 of Royal Decree 1362/2007. Our responsibility is to express a conclusion on these interim financial statements based on our limited review. Scope of Review We conducted our limited review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A limited review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A limited review is substantially less in scope than an audit conducted in accordance with legislation governing the audit practice in Spain and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on these interim financial statements. Conclusion Based on our limited review, that cannot be considered as an audit, nothing has come to our attention that causes us to believe that the accompanying interim financial statements for the six months period ended June 30, 2016 have not been prepared, in all material respects, in accordance with the requirements of International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union, for the preparation of condensed interim financial statements, as provided in Article 12 of Royal Decree 1362/2007. PricewaterhouseCoopers Auditores, S.L., Calle Conquistador, 18, Palma de Mallorca, España T: F: , R. M. Madrid, hoja , folio 75, tomo 9.267, libro 8.054, sección 3ª. Inscrita en el R.O.A.C. con el número S CIF: B

2 Emphasis of Matter We draw attention to Note 2, in which it is mentioned that these interim financial statements do not include all the information required of complete consolidated financial statements prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, therefore the accompanying interim financial statements should be read together with the consolidated annual accounts of the group for the year ended December 31, This matter does not modify our conclusion. Report on Other Legal and Regulatory Requirements The accompanying interim consolidated directors Report for the six months period ended June 30, 2016 contains the explanations which the parent company s directors consider appropriate regarding the principal events of this period and their impact on the interim financial statements presented, of which it does not form part, as well as the information required under the provisions of Article 15 of Royal Decree 1362/2007. We have verified that the accounting information contained in this directors Report is in agreement with that of the interim financial statements for the six months period ended June 30, Our work is limited to checking the interim consolidated directors Report in accordance with the scope mentioned in this paragraph and does not include a review of information other than that obtained from Meliá Hotels International, S.A. and its subsidiaries accounting records Other Matter This report has been prepared at the request of the Audit Commission in relation to the publication of the half-yearly financial report required by Article 119 of Royal Legislative Decree 4/2015, of 23 October, approving the Consolidated Securities Market Law, developed by the Royal Decree 1362/2007, of 19 October. PricewaterhouseCoopers Auditores, S.L. Original signed in Spanish Mireia Oranías 29 de julio de

3 CONSOLIDATED ABRIDGED INTERIM FINANCIAL STATEMENTS AND CONSOLIDATED ABRIDGED INTERIM MANAGEMENT REPORT FOR THE FIRST HALF OF YEAR 2016

4 CONSOLIDATED BALANCE SHEET ASSETS (Thousand ) Note 30/06/ /12/2015 NON-CURRENT ASSETS Goodwill 8 60,826 61,036 Other intangible assets 8 92,270 97,725 Property, Plant and Equipment 8 1,564,916 1,578,997 Investment property 138, ,091 Investments measured using the equity method 9 152, ,381 Other non-current financial assets , ,270 Deferred tax assets 118, ,186 TOTAL NON-CURRENT ASSETS 2,372,600 2,419,685 CURRENT ASSETS Inventories 59,334 81,460 Trade and other receivables 273, ,488 Current tax assets 25,924 28,560 Other current financial assets ,895 30,218 Cash and other cash equivalents 369, ,617 TOTAL CURRENT ASSETS 776, ,344 TOTAL GENERAL ASSETS 3,148,813 3,163,029 2

5 CONSOLIDATED BALANCE SHEET NET EQUITY AND LIABILITIES (Thousand ) Note 30/06/ /12/2015 EQUITY Share capital 11 45,940 39,811 Share premium 1,122, ,318 Reserves 341, ,796 Treasury shares 11 (13,026) (39,863) Retained earnings 323, ,380 Other equity instruments 0 108,730 Translation differences (424,740) (353,765) Other measurement adjustments (3,611) (2,779) Profit/(loss) for the year attributed to parent company 45,239 35,975 NET INCOME ATTRIBUTED TO THE PARENT COMPANY 1,436,483 1,263,602 Non-controlling shareholdings 64,041 50,947 TOTAL NET EQUITY 1,500,524 1,314,549 NON-CURRENT LIABILITIES Preference shares & Bonds and other negotiable securities ,129 Bank loans , ,859 Other non-current financial liabilities ,092 16,378 Capital grants and other deferred income 30,375 29,134 Provisions ,664 49,469 Deferred tax liabilities 159, ,715 TOTAL NON-CURRENT LIABILITIES 854, ,684 CURRENT LIABILITIES , ,012 Bonds and other negotiable securities , ,412 Bank loans 389, ,344 Trade creditors and other payables 22,744 26,075 Current tax liabilities ,568 50,953 Other current liabilities TOTAL CURRENT LIABILITIES 793, ,796 TOTAL GENERAL LIABILITIES AND NET EQUITY 3,148,813 3,163,029 3

6 CONSOLIDATED PROFIT AND LOSS ACCOUNT (Thousand ) Note 30/06/ /06/2015 Operating income 6 856, ,097 Supplies (112,535) (106,630) Staff costs (234,110) (225,748) Other expenses (304,097) (300,979) EBITDAR (*) 205, ,739 Leases (68,857) (60,986) EBITDA (*) 136, ,753 Amortisation and depreciation 8 (57,690) (83,362) EBIT (*) 79,046 82,391 Exchange differences 2,591 2,747 Borrowings (24,625) (38,465) Other financial income 6,739 3,759 Net financial income (expense) (15,295) (31,959) Profit /(Loss) of associates and joint ventures 9 (4,048) (4,866) NET INCOME BEFORE TAX 59,703 45,566 Income Tax 13 (14,836) (24,782) NET INCOME 44,867 20,783 a) Attributed to parent company 45,239 20,312 b) Attributed to minority interests (372) 471 BASIC EARNINGS PER SHARE IN EUROS DILUTED EARNINGS PER SHARE IN EUROS (*) See definitions in Note 2.2 4

7 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Thousand ) 30/06/ /06/2015 Net consolidated income 44,867 20,783 Actuarial gains and losses in post-employment plans (472) 201 Equity consolidated companies (2,794) (624) Other results attributed to equity 5,086 2,912 Items that will not be transferred/reclassified to results 1,819 2,488 Cash flow hedges (1,126) 911 Translation differences (70,377) 26,798 Equity consolidated companies (1,077) 959 Tax effect Items that may be subsequently transferred to results (72,407) 28,752 Total Other comprehensive results (70,587) 31,240 TOTAL COMPREHENSIVE INCOME (25,721) 52,023 a) Attributed to the parent company (26,021) 50,407 b) Attributed to minority interests 300 1,616 5

8 CONSOLIDATED STATEMENT OF CHANGES IN NET EQUITY (Thousand ) Capital Share premium Other reserves Treasury shares Retained earnings Translation differences Net income of parent company Total Minority interest Total NET EQUITY BALANCE AT 31/12/ , , ,526 (39,863) 301,380 (356,544) 35,975 1,263,603 50,947 1,314,550 Total recognised income and expenses 0 0 (385) (71,864) 45,239 (26,021) 300 (25,721) Distribution of dividends (9,126) (9,126) (822) (9,948) Conversion of financial liabilities into net equity (28,101) (28,101) 0 (28,101) Increase share capital 6, , , ,274 Operations with treasury shares 26,837 (26,837) 26,837 26,837 26,837 Other operations with shareholders/owners (13,948) (13,948) 13,628 (320) Operations with shareholders or owners 6, ,982 (64,064) 26,837 (13,948) ,936 12, ,742 Transfers between net equity items 12 (12) 0 12 Distribution 2015 net income 35,975 (35,975) 0 0 Other variations (1,104) 58 (1,046) (1,046) Other variations in net equity , (35,975) (1,034) (12) (1,046) BALANCE AT 30/06/ ,940 1,122, ,077 (13,026) 323,305 (428,351) 45,239 1,436,484 64,041 1,500,524 BALANCE AT 31/12/ , , ,755 (51,968) 259,764 (354,727) 30,406 1,213,255 54,729 1,267,985 Total recognised income and expenses ,551 26,354 20,312 50,407 1,616 52,023 Distribution of dividends (5,964) (5,964) (657) (6,622) Operations with treasury shares 14,518 (8,414) 14,518 20,622 20,622 Operaciones con socios o propietarios 0 14,518 (14,378) 14, ,658 (657) 14,000 Distribution 2014 net income (7,160) 30,406 7,160 (30,406) 0 0 Other variations (16) Other variations in net equity 0 0 (7,177) 0 31,238 7,160 (30,406) BALANCE AT 30/06/ , , ,391 (37,450) 294,553 (321,213) 20,312 1,279,135 55,719 1,334,855 6

9 CONSOLIDATED CASH FLOW STATEMENT (Thousand ) 30/06/ /06/2015 OPERATING ACTIVITIES Operating receipts 1,142,532 1,093,074 Payments to suppliers and staff for operating expenses (996,877) (935,401) Receipts /(Payments) for income tax (33,252) (12,721) CASH FLOWS FROM OPERATIONS 112, ,952 FINANCING ACTIVITIES Receipts and (payments) for equity instruments: (2,684) 0 Amortisation (2,684) 0 Acquisition Receipts and (payments) for financial liability instruments: 30,071 (158,657) Issue 260, ,086 Redemption and repayment (230,322) (307,743) Payments for dividends and remuneration of other equity instruments (2,510) (656) Other cash flows from financing (22,202) (35,458) Interest paid (22,051) (34,368) Other receipts /(payments) for cash flows from financing (151) (1,090) CASH FLOWS FROM FINANCING 2,675 (194,771) INVESTMENTS ACTIVITIES Payments on investments: (90,378) (120,416) Group companies, associates and business units (19,516) (98,160) Property, plant and equipment, intangible assets and investment property (41,895) (21,369) Other financial assets (28,967) (887) Receipts for divestments: 3, ,779 Group companies, associates and business units 1,953 10,223 Property, plant and equipment, intangible assets and investment property 1, ,156 Other financial assets Other cash flows from investment: 1,370 1,121 Dividends received 1,370 1,121 CASH FLOWS FROM INVESTMENT (85,684) 29,485 Variation in the exchange rate in cash and cash equivalents (8,146) 51 NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 21,248 (20,285) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 348, ,277 CASH AND CASH EQUIVALENTS AT THE YEAR END 369, ,993 7

10 EXPLANATORY NOTES TO THE CONSOLIDATED ABRIDGED INTERIM FINANCIAL STATEMENTS 1) GROUP CORPORATE INFORMATION The Parent Company, Meliá Hotels International, S.A., was formed in Madrid on June 24, 1986 under the registered name of Investman, S.A. On 1 June 2011 the General Shareholders' Meeting approved the current name, Meliá Hotels International, S.A. It is entered in the Mercantile Registry of the Balearic Islands, Corporate volume 1,335, sheet PM 22603, entry third. In 1998 the Company moved its registered address to Calle Gremio Toneleros, 24, Palma de Mallorca, Baleares, Spain. Meliá Hotels International, S.A. and its subsidiaries and associates (hereinafter the Group or the Company ) form a Group made up of companies that are mainly engaged in general tourist activities and more specifically in the management and operation of hotels under ownership, rental, management or franchise arrangements, and in vacation club operations. The Group is engaged in the promotion of all types of businesses related to tourism and hotel and leisure and recreational activities, as well as participation in the creation, development and operation of new operations, establishments or companies, in the tourist, hotel or any other recreational or leisure business. Some of the companies in the Group also carry out real estate activities by taking advantage of the synergies obtained in hotel development as a result of the major expansion process undertaken. In any case, those activities, reserved under special laws for companies which fulfil certain requirements that are not met by the Group, are expressly excluded from its corporate purpose; in particular, those activities reserved by Law for Collective Investment Institutions or security brokers are excluded. The Company's various activities are carried out in 41 countries throughout the world, with a notable presence in South America, the Caribbean and Continental Europe, and it is the absolute leader in Spain. The strategic focus of international expansion has led it to become the leading Spanish hotel chain with a presence in China, the United States and the United Arab Emirates. 8

11 2) PRESENTATION GUIDELINES These consolidated abridged interim financial statements for the six months to June 30, 2016 were prepared in accordance with IAS 34, "Interim Financial Reporting" and should be read in conjunction with the consolidated annual financial statements to December 31, The Meliá Hotels International Group s consolidated annual accounts are prepared in accordance with the International Financial Reporting Standards (IFRS) and their interpretations (IFRIC) in force at June 30, 2016, published by the International Accounting Standards Board (IASB) and adopted by the European Union. These consolidated abridged interim financial statements were prepared by the Board of Directors of Meliá Hotels International, SA and approved at its meeting on July 28, Additionally, the financial statements were subject to limited audit review. The figures on the balance sheet, income statement, statement of comprehensive income, statement of changes in equity, cash flow statement, and the accompanying explanatory notes to the accounts, are stated in thousands of Euro, except where otherwise indicated. The consolidated abridged interim financial statements of the Group were prepared in accordance with the historical cost, except for items in the investment property and derivative financial instruments sections, which were valued at fair value. It should be mentioned that the balances of the Venezuelan companies of the Group have been re-expressed at current cost, in accordance with IAS 29 on the basis that this country is a hyper-inflationary economy. The Group has adopted this year the standards approved by the European Union whose application was not obligatory in 2015: Improvement Project Cycle: Amendment of IFRS 2: Payments based on shares Amendment of IFRS 3: Business combinations Amendment of IFRS 8: Operation segments Amendment of IAS 16: Tangible fixed assets Amendment of IAS 24: Disclosure of related parties IAS 19 (Amendment) Defined benefit plans: Contributions to employees IFRS 11 (Amendment) Accounting for joint venture shareholding acquisitions IAS 16 (Amendment) and IAS 38 (Amendment) Clarification of acceptable methods for depreciation and amortisation IAS 16 (Amendment) and IAS 41 (Amendment) Agriculture: bearer plants IAS 27 (Amendment) Equity method in separate financial statements Improvement Project Cycle: Amendment of IFRS 5: Non-current assets held for sale and discontinued operations Amendment of IFRS 7: Financial Instruments: Information to be disclosed Amendment of IAS 19: Benefits for employees Amendment of IAS 34: Interim Financial Reporting IAS 1 (Amendment), "Presentation of financial statements The accounting policies applied are consistent with those of the previous year, taking into account the adoption of the standards and interpretations mentioned in the previous paragraph, as they have no significant effect on the consolidated financial statements or the financial situation of the Group. The standards issued prior to the formulation date of these consolidated abridged interim financial statements and which will come into force in subsequent dates are the following: IAS 7 (Amendment) Disclosure Initiative 9

12 IAS 12 (Amendment) Recognition of deferred tax assets arising from unused tax losses IFRS 2 (Amendment) Classification and evaluation of transactions with share-based payments IFRS 9 Financial instruments IFRS 16 Leases IFRS 15 Ordinary income from client contracts IFRS 10 (amendment) and IFRS 28 (amendment) "Sale or contribution of assets between an investor and their associates or joint businesses IFRS 10 (amendment), IFRS 12 (amendment) and IAS 28 (amendment) Investment entities: Applying the exception to consolidation In January 2016, the IASB issued a new set of regulations on leases (IFRS 16) which will mean major changes in the composition of the Group's assets and liabilities and in the structure of the consolidated income statement. The Group does not plan to implement them in advance; hence the said changes will affect the consolidated annual accounts for fiscal year 2019 and beyond True Image The consolidated abridged interim financial statements have been prepared on the basis of the internal accounting records of the Parent Company, Meliá Hotels International, S.A., and the accounting records of the other companies included in the consolidation on 30 June 2016 and duly adjusted according to the accounting principles established in IFRS, and fairly present the equity, financial position and the results of operations of the Company. 2.2 Alternative performance measures In accordance with the guidelines issued by European Securities and Markets Authority (ESMA) on October 5, 2015 (ESMA//2015/1415es), the main alternative performance measures used by the Company are disclosed below, as well as their calculation basis, defined as those measures of the past or future financial performance, financial position or cash flows. EBITDAR (Earnings Before Interest, Tax, Depreciation, Amortization, & Rent): Earnings Before Interest, Tax, Depreciation, Amortization, & Rent EBITDA (Earnings Before Interest, Tax, Depreciation & Amortization): Earnings Before Interest, Tax, Depreciation & Amortization EBIT (Earnings Before Interest & Tax): Earnings Before Interest & Tax / Operating profit Net Debt: Calculated as the difference between bank debt and short and long term issuances, less cash and cash equivalents. % Occupancy: The ratio obtained by dividing the occupied rooms (excluding gratuities) by the available rooms. Available rooms are understood to be the physical number of rooms multiplied by the number of days the room has been ready to be occupied. Additionally, the occupied rooms are calculated as the number of days the physical rooms have been effectively occupied during the period. RevPar (Revenue Per available room): Income per available room, calculated by dividing the total room revenue by the number of rooms available. ARR (Average room rate): The average price per room, calculated by dividing the total income from the rooms by the occupied rooms (excluding gratuities). 10

13 GOP (Gross Operating Profit): The amount calculated as the difference between revenues and operating costs, as defined in the Uniform System of Accounts for the Lodging Industry (USALI). account structure. 2.3 Comparability The comparison of the interim financial statements refers to six-month periods to June 30, 2016 and 2015, except for the consolidated balance sheet, which compares the period to 30 June 2016 with that of December 31, As discussed in the 2015 consolidated financial statements, the Company reclassified the balance sheet figures and the consolidated income statement of subsidiaries domiciled in Puerto Rico as part of income from continuing operations. In accordance with the reasoning above, the comparative figures for June 30, 2015 of the interim condensed consolidated profit and loss account were reclassified as follows: (Thousand ) 30/06/2015 Operating Income 21,321 Expenses (18,305) EBITDA 3,015 Amortisation and depreciation (107) EBIT 2,908 Net financial income 434 Net income before tax 3,342 Income Tax (15) Net income 3,327 Losses in restatement of assets (28,648) Result attributed to continued operations (25,321) 2.4. Seasonal nature of operations Historically, most of the turnover of the Company occurs during the third quarter. This is because the months of July, August and September are high season for the Company resort hotels, which account for 59% of the rooms of the Group. Hotel EBITDA for the third quarter represents approximately 35% of the annual hotel EBITDA Accounting valuations and estimates The directors have prepared the consolidated abridged interim financial statements using judgements, estimates and assumptions which have an effect on the application of the accounting policies as well as on assets, liabilities, income and expenses and the breakdown of contingent assets and liabilities at the issuance date of the present consolidated abridged interim financial statements. The significant judgments made by management in applying the Group's accounting policies and key sources of uncertainty in the estimation were the same as those applied in the consolidated annual financial statements to December 31, 2015, except for: 11

14 Income tax expense Taxes accrued on the results of the interim period are calculated based on the best estimate of the weighted average tax rate expected to be applicable at the end of the financial year. The estimated amounts for tax expense on earnings for the interim period may vary in subsequent periods provided the annual rate estimates change in the same way. Exchange rate to be applied to the consolidation of Venezuelan subsidiaries On 9 March 2016, the Venezuelan government announced a further modification of its currency exchange system, replacing the SIMADI with DICOM (Complementary Currency Exchange). This new system of floating exchange rates was based on a rate of 206 bolivars per dollar; however, the currency had devalued by 202% at the end of the first half of the year, reaching 625 bolivars per dollar. This variation led to negative exchange differences of 25.3 million euros during the period, with the greatest impact recorded in Tangible assets of 13.3 million euros (see Note 8). The Company will continue to evaluate the political and economic situation in the country in order to make any modification to the exchange rate that may apply for the consolidation of its associated entities in Venezuela. 12

15 3) ACCOUNTING POLICIES Except as indicated below, the accounting policies applied are consistent with those applied in the previous financial year. The exceptional items are presented and described separately in the corresponding notes to the consolidated abridged interim financial statements when necessary to provide a better understanding of the results of the Group. Significant items of income or expense are presented separately because of the importance of their nature or amount. 13

16 4) FINANCIAL RISK MANAGEMENT POLICIES The Group s activities are exposed to diverse financial risks: market risk (foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Meliá Hotels International Group tries to manage any adverse effects on its consolidated financial statements in order to minimise them. The consolidated abridged interim financial statements do not include all information and disclosures about the management of mandatory financial risk for annual financial statements and should therefore be read in conjunction with the annual financial statements of the Group for the year to December 31, There were no changes in the risk management department or any risk management policy since the end of the previous year. 14

17 5) CONSOLIDATION SCOPE Significant changes in the scope of consolidation of the Group during the first half of 2016 are indicated below. 5.1 Business combinations At June 30, 2016, the company Idiso Hotel Distribution, SA, owned by the Group with a 75% stake, had acquired an additional 50% of the company Innwise Management, SL, a technological consulting company, for 56,000 euros and now holds 100% of it. As a result of this transaction, it acquired control of one of the companies forming part of the technology services business line in the Company. We now show the estimated fair value in the posting of the assets and liabilities acquired in the business combination: Total ASSETS Non-current Assets Net Fair Value Property, Plant and Equipment 4 Current Assets Total LIABILITIES Trade and other receivables 216 Current tax assets 4 Cash and other cash equivalents 157 Non-current Liabilities 380 Bank loans 3 Other non-current financial liabilities 105 Current Liabilities (Thousand ) TOTAL ASSETS Bank loans 9 Trade creditors and other payables 163 Other current liabilities 89 TOTAL LIABILITIES 371 This transaction has not represented a significant impact on the Group's interim financial statements. For comparison purposes, those occurring in the first half of 2015 are as follows: During the first half of 2015, the Group's parent company acquired an additional 58.5% holding in the company Inmotel Inversiones Italia S.R.L.; in this way, the Group's holding increased to 100%, giving it full control of the company. This company owns the Meliá Milano hotel, operated by the company of the Sol Meliá Italia, S.R.L. Group through a variable rental agreement. The purchase price was 68.5 million Euros, of which 47.9 million was paid in cash and 20.6 million by payment in the form of treasury stock (see Note 11.2). The value of the hotel, namely 96.1 million Euros, was determined by an appraisal conducted by the independent consultant Jones Lang LaSalle dated June Due to the difference between the book value arising in the business combination and the fiscal value of the building, a deferred tax return was filed in the amount of 25.7 million Euros. 15

18 To complete the posting of this business combination, the Company requested, during the first half of 2015, an additional study to be able to support the distribution of the cost of the combination. In accordance with the said study, 32 million Euros has been allocated to the land on which the hotel is built. We now show the estimated fair value in the definitive posting of the assets and liabilities acquired in the business combination: Total ASSETS Non- current Assets 28/04/2015 Net Fair Value Goodwill 25,711 Property, Plant and Equipment 96,170 Deferred tax assets 5,005 Current Assets Total LIABILITIES Current assets 51 Non- current Liabilities 126,937 Other non-current financial liabilities 4,676 Deferred tax liabilities 25,711 Current Liabilities (Thousand ) TOTAL ASSETS Trade creditors and other payables 2,634 Other current liabilities 373 TOTAL LIABILITIES 33, Other scope changes During the first half of 2016, the following changes in the scope of consolidation occurred: Write-offs In the first half of the year, the companies Sol Melia Finance Ltd, Melia Brasil Administraçao (Uruguay branch) and Sol Melia Commercial, all 100% subsidiaries of the Group, were written off with no significant impact on the consolidated accounts. Acquisition of minority interests During the first half of the year, the Group parent company acquired an additional 50% of the company Colón Verona, SA, owner and operator of Gran Meliá Colon hotel, for 0.3 million euros. The difference of 13.9 million euros, between the book value of the shareholding acquired and the amount paid, was recognized directly in the equity of the Group. Additionally, the Group increased its stake in the company, Apartotel SA, by 0.06%, without a significant impact on the interim consolidated financial statements. The Group acquired an additional stake through the purchase of apartments in the Condominium of the Hotel Meliá Costa del Sol, increasing its share by 0.7% without significant impact on the interim consolidated financial statements. 16

19 The following changes in the scope of consolidation occurred during the first half of 2015: Acquisitions In the course of the first half of 2015, Meliá Group entered into an agreement with Starwood Capital Group whereby Meliá Group acquired 20% of the company Starmel Hoteles JV, S.L., while Starwood Group held 80% of the same. This company in turn holds a 100% stake in seven other companies, which purchased 6 hotels from Meliá Group for a total amount of million Euro (including the working capital adjustment), for which bank loans were taken out for 93.4 million Euros, in addition to capital contributions made by the partners in proportion to their stakes (see Note 8). In addition, the company Jamaica Devco S.L. was set up, with no significant impacts on the Group and which to date is inactive. Write-offs In March, the Dutch company Melsol Management B.V., wholly owned by Meliá Hotels International, S.A., was liquidated. This dissolution was not resulted in significant changes to the Group's consolidated accounts. Acquisition of minority interests The Group acquired an additional apartment in the homeowners association Meliá Sol y Nieve. This purchase did not involve a significant impact on the interim consolidated financial statements. 5.3 Name changes The company, Kabegico Inversiones, SL, was renamed Hotelpoint, SL in the first half of Also, the following Starmel Group companies, owned 20% by Meliá and 80% by the Starwood Capital Group changed their corporate names: Advanced Inversiones 2014, S.L. has been renamed Starmel Hoteles JV, S.L. Leader Inversiones 2014, S.L. has been renamed Starmel Hoteles OP, S.L. Prompt Inversiones 2014, S.L. has been renamed Torremolinos Beach Property, S.L. Counsel Inversiones 2014, S.L. has been renamed Fuerteventura Beach Property, S.L. Abridge Inversiones 2014, S.L. has been renamed Santa Eulalia Beach Property, S.L. Entity Inversiones 2014, S.L. has been renamed Palmanova Beach Property, S.L. Additional Inversiones 2014, S.L. has been renamed Puerto del Carmen Beach Property, S.L. Framework Inversiones 2014, S.L. has been renamed San Antonio Beach Property, S.L. 17

20 6) FINANCIAL INFORMATION BY SEGMENTS The identified business segments, which are same as those reported in the consolidated financial statements for 2015, constitute the organisational structure of the company and their results are reviewed by the highest decision-making authority in the entity. 6.1 Information by operating segments The following table has information about the segments relating to the volume of revenue and earnings for the first half of 2016: Hotel Hotel Hotel Other business assoc Real Vacation (Thousand ) Management Business with hotel management Estate Club Corporate Eliminations 30/06/2016 Operating income 129, ,202 44,057 7,081 46,100 58,092 (135,529) 856,334 EBIT 31,843 62,109 3,120 3,097 1,401 (22,523) 79,046 Within the operating income of the asset management or real estate segment is the sale of the company, Lavandería La Pajarita, SLU, for 2.2 million euros of gross gains. Within the hotel management segment, there were 74.6 million euros in management fees. This segment also included 7.4 million euros of services rendered to associate companies. The main inter-segment transactions were within the hotel management activity, including 88.4 million euros basically billed to the hotel business segment for management fees and reserve commissions. The corporate segment also included income from inter-segment transactions for a total amount of 36.7 million euros. The changes in the scope for the first half of 2015 are shown below for comparison purposes: Hotel Hotel Hotel Other business assoc Real Vacation (Thousand ) Management Business with hotel management Estate Club Corporate Eliminations 30/06/2015 Operating income 109, ,287 37,886 55,340 54,890 58,003 (126,237) 860,097 EBIT 23,942 21,432 2,936 43,711 9,218 (18,849) 82,391 Operating income for the asset management or real estate segment relate mainly to the sale of six hotels owned by the Starwood Capital Group (see Note 5), whose contribution to this section was 48.6 million euros. There were 63.7 million euros in management fees recorded within the hotel management segment, which also included 4.6 million euros of services rendered to associates. The main inter-segment transactions were for hotel management activity, including 80.5 million euros basically billed to the hotel business segment for management fees and reservation commissions. Additionally, the corporate segment included income from inter-segment transactions for a total amount of 34.5 million euros. 18

21 6.2 Information by geographical regions The following table shows the segmentation by geographical areas for the volume of revenue realised during the first half of 2016 and 2015: (Thousand ) 30/06/ /06/2015 Spain 396, ,108 EMEA (*) 166, ,946 América 360, ,375 Asia 1,322 1,578 Eliminations (68,530) (65,911) 0 0 Total operating income 856, ,097 (*) EMEA (Europe, Middle East, Africa) : Includes regions of Africa, Middle East and rest of Europe, excluding Spain 19

22 7) DIVIDENDS PAID The parent company paid no dividends during the first half of On June 23, 2016, the General Shareholders' Meeting agreed to the distribution of a gross dividend per share, excluding treasury shares, of 0.04 euros, for which there will be a maximum of 9.1 million euros reserves available in the parent company. This distribution became effective on July 19, 2016 (see note 16). In the first half of 2015, the General Shareholders Meeting approved a gross dividend, excluding treasury shares, of 0.03 Euros per share. An amount of 5.96 million in unrestricted reserves in the Parent Company, Meliá Hotels International, S.A. was drawn down for this purpose. 20

23 8) TANGIBLE AND INTANGIBLE FIXED ASSETS The changes recorded during the first half of 2016 are broken down as follows: (Thousand ) Goodwill Other intangible assets Property, Plant and Equipment Balance at a 01/01/ ,036 97,725 1,578,997 Additions 8,223 73,420 Disposals (2,210) (4,248) Depreciation (7,780) (49,910) Scope variation 4 Exchange differences (209) (3,688) (33,347) Balance at 30/06/ ,826 92,270 1,564,916 The section of Acquisitions of Other intangible assets includes the item of IT applications for 5.8 million euros within the Be more Digital project, through which the company aims to improve the technological services offered to its customers. Within the acquisitions of tangible fixed assets are 27.8 million euros for the renovation of hotels in Spain. Also during the first half of the year, there was a release of business units from the club, transferring 21.8 million euros from Inventories and returning them to the corresponding Fixed asset accounts. This operation involved an additional 4.5 million euros from Provision to amortisation. This was because, during the time they had been affected by the business of the club, these stocks were not amortised; thus reflecting the accumulated amortisation of the entire period. Moreover, a significant part of the disposals section was the sale of fixed assets associated with a laundry. This asset sale, not strategic for the Group, led to a decrease of 1.2 million euros net book value, with the selling price of 3.4 million euros. The net capital gain was 2 million euros and is registered in the Real Estate segment (see Note 6.1). The exchange differences arising in the period relate mainly to the devaluation of the bolivar, the Mexican peso and pound for amounts of 13.3, 17.2 and 6.2 million euros, respectively. The appreciation of the Brazilian real partially offset these impacts, with a positive contribution of 4.1 million euros. For comparison purposes, the changes for the first half of 2015 were as follows: (Thousand ) Goodwill Other intangible assets Property, Plant and Equipment Balance at a 01/01/ , ,117 1,665,047 Additions 2,736 46,138 Disposals (318) (139) (134,473) Depreciation (6,876) (76,486) Scope variation 25,711 96,170 Exchange differences 182 3,705 9,749 Balance at 30/06/ , ,543 1,606,145 The main changes included in tangible assets corresponded to the sale of six hotels, totalling million euros of net book value, and generating a net capital gain of 40.1 million euros. As indicated in Note 5.2, these hotels were sold to the companies in which Meliá Group held a 20% stake included in the sub-group of Starmel Hoteles JV, S.L. 21

24 The Company applies the approach of recognizing the residual interest retained in those hotel businesses at fair value and taking any change in the carrying value to the income statement. The capital gains recognized therefore fully related to the capital gains obtained. In addition, 23.2 million euros were recorded for the renovation of several hotels in Spain. The section Provision for amortisation included 28.6 million euros relating to the impairment of assets located in Puerto Rico (see Note 2.3). Changes in the scope included assets of the company, Inmotel Inversiones Italia S.R.L., as it was integrated globally after an additional 58.5% of the company was acquired (see Note 5). There was a decrease in exchange differences from the previous year of 19.2 million euros in Venezuelan companies due to the application of the SIMADI exchange rate. This decrease was offset for the most part by the revaluation of assets in Dominican companies for 13 million euros and Mexican companies for 5.4 million euros. In addition, positive differences were found for assets held by the Group in companies whose local money was the pound. 22

25 9) INVESTMENTS MEASURED USING THE EQUITY METHOD The financial investments representing shareholdings in associate companies and joint ventures have been valued according to the equity method. Changes in these shares during the first half of 2016 and 2015 are shown in the following table: (Thousand ) Balance at a 01/01/ , ,737 Profit /(Loss) os associates and joint ventures (4,048) (4,866) Additions 1,457 17,680 Disposals (4,051) (25,387) Exchange differences (20,505) 3,603 Balance at 30/06/ , ,767 The decrease in the balance for this section is explained mainly by the negative conversion differences due to devaluations of the pound, the Mexican peso and the Venezuelan bolivar amounting to 11.3, 4.6 and 4.7 million euros, respectively. Included in the assets of the first half of 2015, were 14.7 million euros for the inclusion of new companies in the corporate scope, resulting from the agreement with the Starwood Capital Group Group, as discussed in Note 5. Moreover, transfers included 25 million euros for the company, Inmotel Inversiones Italia S.R.L., which was integrated by the global integration method. 23

26 10) OTHER FINANCIAL INSTRUMENTS 10.1 Financial Assets The following table shows a breakdown by category of the financial instruments included in Other financial assets under current and non-current assets in the balance sheets as of 30 June 2016 and 31 December 2015: (Thousand ) Long term 30/06/ /12/2015 Short term Total Long term Short term Total 1. Financial instruments at fair value through the income statement: - Trading portfolio Loans and receivables: - Loans to associates 127,027 2, , ,081 7, ,189 - Financing for properties 21,177 19,178 40,355 21,976 19,513 41,489 - Other loans 79,988 25, ,969 80,783 3,331 84, Available for-sale financial assets: - Unlisted equity instruments 16,430 16,430 16,430 16,430 Total assets 244,623 47, , ,270 30, ,488 Under the Other receivables section was an increase in time deposits with maturities exceeding three months Financial liabilities The following table shows a breakdown by category of the financial instruments included in the items Debentures and other marketable securities, Bank borrowings and Other financial liabilities under current and non-current liabilities in the balance sheets as of 30 June 2016 and 31 December 2015: (Thousand ) Long term 30/06/ /12/2015 Short Long Short Total term term term Total 1.Financial instruments at fair value through other comprehensive income: - Cash flow hedges 5,077 1,525 6,603 3,227 2,277 5,504 2.Financial instruments at fair value with changes in profit or loss: - Trading portfolio derivatives 5,008 1,868 6,876 5,090 1,810 6, Other financial liabilities at amortised cost: - Debentures and other marketable securities 0 143, , , , ,141 - Bank borrowings 607, , , , , ,271 - Other financial liabilities 10,007 59,174 69,181 8,061 46,866 54,926 Total debts 627, ,600 1,008, , ,377 1,184,743 On 25 March 2016, the Company notified the shareholders and the Spanish National Securities Market Commission (CNMV) of its exercising of the right of early cancellation of the convertible bond issued in 2013 (see Note 22 consolidated annual accounts 13.2). The group attended to the requests for the conversion of 2,499 bonds, representing million nominal value at issue. 24

27 The conversion to shares requested by the bondholders has been implemented through the issue of new shares and the handover of existing shares which the parent company held as treasury shares, with the approximate percentages of 89.75% and 10.25%, respectively. The new shares were issued by an increase in capital, as detailed in Note The difference between the bond swap price ( Euro) and the nominal value of the shares issued constitutes the issue premium, which came to million Euro. The value of the existing shares used to make this swop, as explained above, has meant a reduction in treasury shares in the amount of 29.5 million Euro, which corresponds to 3.5 million shares (see Note 11.2). The early conversion of this compound financial instrument led to the transfer in the consolidated accounts of liabilities valued at an amortised cost of million euros, as well as its corresponding balance in consolidated equity amounting to million euros; this is reflected in the Other equity instruments item of the interim condensed consolidated balance sheet. The difference between the face value and the value of the liabilities at amortised cost at conversion is reflected in the section, Conversion of financial liabilities into equity in the Statement of changes in equity. Additionally, an increase in the issue of debt instruments (the Euro Commercial Paper Programme) of 28.6 million euros was reflected in the item, Short-term bonds and other securities. 25

28 11) EQUITY 11.1 Share capital The share capital of Meliá Hotels International, SA at December 31, 2015 consisted of 199,053,048 bearer shares of 0.2 euros nominal value each, fully subscribed and paid. On 25 April, 2016, Meliá Hotels International, S.A carried out a capital increase by conversion of bonds in the amount of 6,129, Euro by the issuance of 30,646,952 ordinary shares of new issue, with a nominal par value of 0.2 Euro, all of the same class and series as the shares of the parent company currently in circulation. As a result of the said increase, the equity is now 45,940,000 Euro represented by 229,700,000 shares with a nominal par value of 0.2 Euro. The shares are fully subscribed and paid-up, and constitute a single class and series. All shares carry the same rights and are listed on the stock exchange (Spain), with the exception of treasury shares. The voting rights held by the major shareholders with a direct or indirect shareholding in Meliá Hotels International, SA at June 30, 2016 compared with the end of 2015 are as follows: 30/06/ /12/2015 Shareholder Shareholding % Shareholding % Hoteles Mallorquines Consolidados, S.A Hoteles Mallorquines Asociados, S.L Hoteles Mallorquines Agrupados, S.L Majorcan Hotels Luxembourg, S.A.R.L Other (less than 5% individual) Treasury shares Total The breakdown items and movements in treasury shares are as follows: (Thousand ) Shares Average Price Balance Balance 31/12/2015 4,785, ,863 Additions 261, ,684 Bonds conversion (3,501,686) 8.43 (29,521) Balance 30/06/2016 1,545, ,026 During the first half of the year, the parent company redeemed the convertible bond issued in 2013 early (see Note 10.2). The conversion to shares requested by the bondholders was implemented through the issue of new shares and the existing shares which the parent company held as treasury shares. In the Statement of changes in equity, the item Conversion of financial liabilities into equity showed the difference between the value of the shares at the conversion price, discussed above, and the average price the transfer of treasury shares was accounted for, at a value of 3.9 million euros. The value of existing shares delivered to address this exchange meant a drop in the own shares section of 29.5 million euros, corresponding to 3.5 million shares. 26

29 There are no securities loaned to banks at 30 June The number of shares held by the Company at June 30, 2016 was 1.5 million, which is 0.673% of the share capital. The price of Meliá Hotels International, S.A. s shares at the first half year end of 2016 is 9,665. At the 2015 year end the share price was For comparison purposes, the changes from January 1 to June 30, 2015 were as follows: (Thousand ) Shares Average Price Balance Balance 31/12/2014 6,363, ,968 Additions Disposals (1,777,758) 8.17 (14,518) Balance 30/06/2015 4,585, ,450 Own shares disposed of during the first half of the year corresponded to those used as payment in the business combination purchase of 58.5% of the company, Inmotel Inversiones Italia, SRL (see Note 5.1). The heading of Own shares transactions in the Statement of changes in consolidated equity includes 6.1 million euros as the difference between the book value of these shares and their trading value on the day of the transaction. The treasury shares balance on 30 June 2015 did not include 9.4 million shares that the Company has been loaned by the controlling shareholder. The number of securities loaned to various banks as of 30 June 2015 was 7.7 million shares. Taking the above into account the number of shares in the Company s possession as of 30 June 2015 was 243,116 representing 0.122% of the share capital. 27

30 12) EVOLUTION OF AVERAGE STAFF NUMBERS The average number of Group employees during the first half of 2016 and 2015 is shown in the following table: Men 11,624 11,655 Women 8,256 8, Total 19,880 19,702 28

31 13) CORPORATE INCOME TAX Income tax expense is recognized on the basis of estimating the direction of the weighted average tax rate expected for the full financial year. The estimated average annual tax rate for the year to 31 December 2016 is 24.8%. The estimate for the six months to June 30, 2015 was 54.4%, after incorporating the result of companies located in Puerto Rico into continuous operations (see Note 2.3). As commented in Note 18 of the 2015 consolidated annual accounts, an inspection of corporation tax payments for 2009 to 2012 and value added tax withholdings and prepayments from July 2010 to December 2012 had begun during the tax year According to the certificate of compliance of April 11, 2016, the final settlement resulting from this examination of the parent company fiscal group was made. At the end of 2015, a provision of 12.5 million euros had been made in anticipation of the outcome of these tax audits and was applied to the payment in the aforementioned certificate of compliance (see Note 15). 29

32 14) RELATED PARTY INFORMATION The following are deemed to be related parties: Associated entities and joint ventures accounted for using the equity method. Significant shareholders of the parent company. Executives and Board of Directors. All transactions with related parties are realized in conditions of market and mutual independence Transactions with associates and jointly-controlled entities Commercial transactions Commercial transactions with associates and jointly-controlled entities relate mainly to hotel management activities and related services. During the first half of 2016, the Group continued its business operations regarding associated entities and joint ventures, as had been done in Financing operations Among the main changes in the balances held by the Group with associated entities at June 30, 2016 compared to the end of 2015 was an increase in long-term loans to the companies, Adprotel Strand,SL and Melia Hotels USA, LLC of 5.9 and 1.9 million, respectively. Guarantees and security deposits There were no significant changes in the surety bonds the Group had with respect to the liabilities recorded in associated companies or joint ventures Transactions with significant shareholders Balances by type of transaction effected during the first half of the year with significant shareholders of the Group are as follows: (Thousand ) Transaction type 30/06/ /06/2015 Hoteles Mallorquines Asociados, S.L. Goods purchase 2,724 4,888 Hoteles Mallorquines Asociados, S.L. Services provision Hoteles Mallorquines Asociados, S.L. Lease Total 2,964 5,136 The main supplier inventories Group is Carma Siglo XXI, S.A., a company incorporated in Palma which engages in meat industry activities, including the production of sausages and cold meat products, meat wholesaling and quartering, sale of frozen perishable and non-perishable products, and production and sale of pre-cooked dishes. This company is a related party as it is an investee of Hoteles Mallorquines Asociados, S.L. and Hoteles Mallorquines Agrupados, S. L. Payables outstanding to the company, Carma Siglo XXI, SA, from Group entities was 0.2 million euros at June 30, 2016 and 0.4 million euros at June 30,