2009 Results. Highlights Revenues, Ebitda & Net Profit down by -10.2%, -21.3% and -25.6% Profit & Loss Account. Operational Ratios

Transcription

1 2009 Results Profit & Loss Account (million Euros) RevPAR % EBITDAR MARGIN 24.5% 26.1% -160 bp EBITDA MARGIN 17.6% 20.1% -248 bp EBITDA MARGIN (ex-asset rotation) 12.6% 19.8% -714 bp EBT MARGIN 4.7% 4.8% -7 bp NET PROFIT MARGIN 3.3% 4.0% -69 bp Interest Cover Ratios EBITDA / Net Interest Expense 7.3x 3.6x 101.5% EBIT / Net Interest Expense 3.8x 2.2x 69.0% EBITDA / Net Int. (ex - asset rotation) 5.2x 3.6x 46.8% EBIT / Net Int. (ex - asset rotation) 1.7x 2.2x -20.8% Stock Performance /12/ /01/ /01/ /01/ /01/ /01/ /01/ /02/ /02/2010 SOL VOLUME SOL LAST IBEX LAST Dec 09 Dec 08 % REVENUES 1, , % EXPENSES ( ex - Operating leases) % EBITDAR % Rental expenses % EBITDA % Depreciation and amortisation % EBIT % Total financial profit / (loss) (38.5) (91.8) 58.1% Profit/(loss) from equity investments (12.8) (6.6) -94.5% Continuing EBT % Discontinuing Operations Profit before taxes and minorities % Net Profit % Net Profit attributable % Operational Ratios 14/02/ /02/2010 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Average Daily Volume 2010 ( ) 3,045, Week High, Oct 21 st Week Low, March 9 th Market cap Feb 25 th ( 5.130) mn Bloomberg: SOL SM; Reuters: SOL.MC 0 Highlights Revenues, Ebitda & Net Profit down by -10.2%, -21.3% and -25.6% Results are explained by the -15.2% decrease in Hotel Revenues, primarily in the Tryp and Sol brands (-20.5% and -17.2% respectively), driven primarily by the Spanish City and Spanish Resort segments, where Total Revenues have gone down by % and % respectively. European Cities and LatAm have also fallen by -9.7% and -8.7% respectively. The impact of the hotel occupancy downturn and drop in consumer confidence in the Vacation Club business is also behind the 2009 results. Nevertheless, Sol Meliá has witnessed a recovery on a quarterly basis since the trough of the cycle in Q2, i.e. Hotel Revenues (Q2: -19.0%, Q3: -16.2%, Q4: -12.8%) and Occupancies (Q2: %, Q3: -6.6%, Q4: -5.4%). Recovery also occurred in the Vacation Club regarding the number of weeks sold (Q2: -23.3%, Q3: -19.3%, Q4: +37.3%). On the positive side, the Company has leveraged on 1) capital gains of 56.6 mn derived from the sale of 2 hotels in Madrid, 2) the improvement of Financial Results by 58.1% resulting from the management of debt and the reduction of 3-month Euribor plus 3) 80.5 mn in savings due to the implementation of the Contingency Plan. Slow pace of recovery in 2010 despite slight RevPAR decrease expected in Q1 Sol Meliá expects RevPAR 10 to remain slightly positive, primarily explained by higher occupancies. The main challenge is the performance of the Spanish cities where although the current booking positions point to year-on-year occupancy stabilization, the market is still suffering from pricing pressures due to the corporate traveller segment. In Spanish resorts bookings for the summer from European tour operators point to a progressive improvement indicating a Q3 trend moderately ahead of last year s. The overall summer season will depend on reservations to be made by the Spanish feeder market whose brochures will be released between late March and April. In European cities, RevPAR trend in Q1 already indicates an improvement in London, Paris, Rome and the German cities. A positive underlying evolution expected in LatAm on the back of the evolution of the US feeder market to the Dominican Republic, Puerto Rico and Mexico. Nevertheless, the Haiti earthquakes have had some impact on the Dominican Republic resorts in Q1. Recovery of the Vacation Club is on track on the back of the improvement of the resort business in the Caribbean. Additional cost-cutting of 8.1 mn is expected, mainly at the corporate and centralized services level of the Company. Asset Rotation: Sale of Tryp Alondras for 12.0 Mn Euros On December 4 th, the Company reached an agreement for the sale of the Tryp Alondras hotel (72) in Madrid for 12.0 mn Euros, generating 8.0 million of capital gains at a 2009 Ebitda multiple of 35.3x (5-year average Ebitda multiple: 18.4x). Sol Meliá will retain management of the hotel over the next 15 years under a rental contract. Sol Melia meets covenants, reduces debt & increases liquidity The Company accomplished with its bank covenants and reduced debt by mm. Additionally Sol Meliá has increased its fixed debt weighting from 26% (Dec 08) to 56% (Dec 09). For 2010, Capex will be limited to 44 mn Euros, all in product maintenance. From a liquidity standpoint as of December 31st, liquidity levels rose to mn Euros which compare with 2010 and 2011 debt maturities of mn Euros ( ). Report released on February 26, 2010

2 Table of contents 1. Letter from the C.E.O. and Vice-Chairman Information on Operations Hotels Sol Meliá Vacation Club Leisure Real Estate Energy consumption Emission savings Income Statement Balance Sheet Cash Flow Statement Development

3 1. Letter from the C.E.O. and Vice-Chairman Dear friends, Sol Meliá is releasing its 2009 results in an economic environment in which - following one of the deepest downturns ever - a gradual global recovery is cautiously expected. Since our last 9M results, the International Monetary Fund has again increased its forecasts for 2010 GDP growth in our major feeder markets, especially in the United States - our main feeder market in LatAm - as well as in Germany, the United Kingdom and, although marginal, in Spain, where GDP growth is not expected until In Spain the package of measures expected to be implemented by the government will be important to witness, and particularly its impact on our industry. We believe that these measures should help to improve the current perception of country risk, and the analogies regarding the instability of Greece recently directed at our markets. It will also be important to monitor the evolution of interest rates and unemployment levels and their impact on the tourism sector. According to recent data, during the last quarter of 2009 the tourism industry witnessed a progressive improvement in some indicators. According to the World Tourism Organization, international tourism arrivals increased by +2%, compared with declines in previous quarters (Q3: -2%, Q2: -7%), while the International Air Transport Association (IATA) has recently revised upwards its revenue estimates for In Spain, in January 2010 the number of foreign tourists increased by 1.1% year on year, representing the first increase after 18 consecutive months of decline. improvement in RevPAR evolution: 4Q %; 3Q -17.7%, 2Q -20.7% As far as our company is concerned, this improvement in Q4 has been reflected in the operating performance, showing a lesser deterioration when comparing year-on-year quarterly RevPAR evolution, i.e. Q2: -20.7%, Q3: -17.7%, Q4: -12.6%, for a cumulative decrease of -16.7% in Our overall view is that 2010 will fundamentally be a transition year, moderately better than The Contingency Plan based on 1) Revenues, 2) Cost Optimization, 3) Risk Management and 4) Cash Management and Financial equilibrium will be maintained throughout Performance in the first quarter 2010 is expected to show a continuation of the recent quarters, where we forecast a RevPAR decrease between -5% and -3%. Looking at 2010 overall by geographical areas, the Spanish cities continue to see the gradual stabilization of Occupancy levels, although prices remain under pressure. On the positive side, the Presidency of the European Union will support large cities during the first half of the year. Nevertheless we do not expect RevPAR increases here at least until September this year. To compensate decreases in the corporate business segment, the Company is rebalancing its customer segmentation and reinforcing alternative segments such as leisure sales through solmelia.com / Online Travel Agencies (OTA s) and Small and Medium Enterprises (SME). In European cities (ex-spain), the trend is clearly positive already in Q1. new supply not expected to be an issue In both areas, supply is not expected to be an issue. According to STR Global in its report of December 2009, supply in Spain is expected to grow by 1.0% in terms of rooms for the period and beyond. Of total future supply in the Spanish hotel sector, 36% is under construction (ground has been broken or the owner is finalizing bids), 31% is in final planning (the project is going out for bids or construction will start within 4 months) and the remaining 33% is in the planning phase. Regarding Madrid and Barcelona, supply is expected to grow by 2.7% in Madrid and 2.6% in Barcelona in the coming fouryear period if everything comes to fruition. In Europe, estimates point to 3.0% growth within the same period, with 47% of the supply already under construction. It is worth mentioning that of total European new supply, 40% is unaffiliated or encompassed within the Midscale without F&B or Economy segments, and therefore out of our market segment. For the Spanish Resorts, although it is still early to project the summer season, a slightly better performance is expected, even in the Spanish feeder market, based on a closer relationship with key partners. By geographical area, a good season is expected in mainland Spain, Menorca and Mallorca that will improve on a like for like basis, due to Online Travel Agencies (OTA s) - with a similar performance to 2009 in Ibiza. The Canary Islands remain a question mark. 3

4 In LatAm and the Caribbean, we are slightly more optimistic on the back of the advances of the US feeder market. Overall improvement is expected throughout the year in our main destinations with the exception of Cancun (Mexico) in the first half of the year, where the impact of the H1N1 flu virus on average rates makes comparison of the first six months difficult. The devaluation of the Venezuelan currency will also have an impact on the Gran Meliá Caracas results this year. In the short term, Sol Meliá is closely monitoring the impact of the earthquakes in Haiti on our properties in Punta Cana, Dominican Republic. At this moment, the situation is returning to normality and we expect to come back to growth from April onwards. In addition, the properties in the Dominican Republic have added programs to increase monetary aid by donating a fixed amount for each night booked to the Clinton-Bush Haiti Fund. This program is also available at all European Sol Meliá properties, being added to an already existing worldwide program benefiting UNICEF, with the aim of maximising fundraising efforts for Haiti. All in all, we expect Sol Meliá s RevPAR in 2010 to slightly outperform The following is a summary of the quarterly information we have provided to you in previous reports on how the Company has tackled this crisis through the Contingency Plan, involving 1) Revenues, 2) Cost Optimization, 3) Risk Management and 4) Cash Flow management and Financial Equilibrium: additional revenues by 54.7 mn due to actions taken As far as 1) Revenues are concerned, the Brand Unique Selling Proposals (USPs) implemented at each brand was well received by customers and provided a response to their needs with a total impact at the revenue level of 5.0 million Euros. All in all, total measures implemented apart from the USPs led to an increase in revenues of additional 54.7 million Euros. According to STR Global Survey, the Company has performed better than its compset in major world cities such as Madrid, Barcelona, Seville, Berlin, Milan, Paris, Buenos Aires and Mexico DF. Although the current higher resistance in overall consumption, it is our goal to keep on growing Sol Meliá s RevPAR penetration index in its core markets. Contingency Plan above expectations: 80.5 Mn Euros in savings, some 45% - 50% considered to be permanent. Quality maintained As of December 09, the implementation of the 2) Cost Optimization Programme has allowed Sol Meliá to save 80.5 million Euros, clearly ahead of the 64 million Euros objective in savings at the end of the year. Of total savings, 29.1 million Euros (36%) was generated in corporate costs and centralized services while 51.4 million Euros (64%) came at the Business Unit level, both without affecting the brand quality standards in any way. In this sense, the overall guest satisfaction indices has not varied year on year (2009: 79.7% vs. 2008: 79.8%) according to Marketmetrix Llc. Roughly 45% to 50% of total savings is considered to be permanent and therefore not expected to recur when business picks back up. Cost per stay in hotels has been reduced by 1.9 % on 2008, including the absorption of any CPI impact across the Group. Although the Company has made a great effort as far as cost reduction is concerned, we believe that there is still some room for further reduction. Looking forward to 2010, Sol Meliá expects to obtain year on year cost reductions of 8.1 million Euros, derived from certain additional savings from optimisations of centralised services and corporate office overheads, along with some renegotiations with suppliers at both Corporate and Business Units levels, and also from obtaining the full year impact of the cost cuts made progressively during no significant impact from bankruptcies Regarding 3) Risk Management, Sol Meliá s risk map has been updated, identifying the most relevant risks, while defining and programming appropriate action steps. In hotels, the average collection period has not changed significantly since last September 09, being currently at 62.3 days, while no significant impact from bankruptcies from any company has been registered. The Company has worked on the diversification and risk control and reduction in credit threshold. In this sense, we hold a customer base with more than 4,500 customers and 2,023 credit accounts, with more than 5,000 solvency investigations conducted. 4

5 diversification in fundraising, makes liquidity and financial situation more comfortable liquidity rises to 578 mn vs mn debt maturities in 2010 and 2011 fixed rate debt moved from 25% to 56% debt covenants accomplished physical condition of properties allows decrease in FF&E 20 hotels signed in 2009, 81% under management & franchise At the 4) Cash Flow and Financial Equilibrium level, in 2009 Sol Meliá has been able to maintain its financial and liquidity strength. In an environment where access to regular banking financing is difficult, Sol Meliá has obtained alternative sources of funding. Within this episode we would include a) a Convertible Bond Issue (200 mn euros) b) Preferred Stock (50 million dollars) c) Factoring agreement (30 million dollars), d) asset disposal (100 million euros) and e) public financing through the Instituto de Credito Oficial - an entity dependant on the Ministry of the Economy of the Spanish Government - 27 million euros. Considering these issues, the current liquidity level increased to million Euros, guaranteeing short and medium term debt repayments million Euros in 2010, million Euros in In December 2010, 81.2 million Euros of the Equity Linked Swap related to 5 million Sol Meliá s shares will also mature. During 2009, considering the renewed and the additional credit facilities signed, total credit facilities have increased by 16%, risen up to million Euros in total 20 credit facilities - of which 154 million Euros are undrawn. Considering the latest financial deals signed, average interest cost of debt has reached 3.84 %. Exploiting the current market situation - in which interest rates are particularly low - Sol Meliá has worked to increase the weight of the fixed rate debt, moving it from 26% to 56%, in addition to extending the average maturity period. During this year, Net Debt level has decreased by million Euros down to million Euros. The sale of the Tryp Alondras and Meliá Madrid Princesa properties, the Equity component of the Convertible Bond and the preferred shares issued in Puerto Rico along with the sharp reduction in capex explain this decrease. Sol Meliá has been able to achieve its bank covenants - Net Debt / Ebitda: 3.45x vs. target: < 3.5x and Ebitda / Net Interest: 10.93x vs. target > that currently involves 572 million Euros. The Company also remains confident in meeting its covenants in In this regard, it will be necessary to generate extraordinary profits other than ordinary business. To this end, it is our aim to use Company s asset base via plain vanilla asset disposals, or through a more complex structured deal. Historically, Sol Meliá has had a focus on its product renewal, shown by the 600 million Euros invested in the Major Refurbishment Program. More recently, the Company has invested 395 million Euros in the 2006 / 2009 period, - approximately 4,200 Euros per room per annum -, allowing the Company to maintain its 75 owned hotels (23,287 rooms) in prime condition. In 2010 total investment will be limited to 44 million Euros, all in Furniture, Fixtures and Equipment (FF&E) replacement Capex, well below the 71.3 mn Euros in We would like to point out also that the hotels normally include in their P&L accounts an average of 3% in repair and maintenance. As regards technology investment, the Company is maintaining a reasonable pace of investment, primarily dedicated to improving the quality of customer information, and to the implementation of process reengineering projects, which will provide medium term cost savings under the Shared Service Centre model. Since no expansionary Capex has been budgeted, development will be focused on low capital intensive structures without ignoring the capacity of new projects to add value from a Brand Equity standpoint as well as maximizing growth and development opportunities. In 2009, 4,482 rooms have been signed, 81% under management & franchise contracts and 19% under lease contracts. Additionally, 4 lease contracts (552 rooms) that were to expire in 2009 were extended at a lower rental charge. Currently the pipeline represents 7,767 rooms, 88% under management & franchise and 12% under lease contracts. 88% of the pipeline will be incorporated outside Spain, while 95% of rooms currently being negotiated also corresponds to projects outside Spain, reinforcing the focus on global expansion of the Company. 5

6 Sol Meliá, historically committed with the Internationalization of the Company, and the decrease of the exposure to Spain This openness towards further international growth along with a good part of the measures implemented in the Contingency Plan has reinforced the diversification and flexibility of the Company hence reducing our exposure to our home country. Among those measures, it is worth mentioning the following: Diversification and equilibrium of feeder markets through global agreements with major tour operators and key players both in Europe and America (including also Eastern Europe and LatAm), and through an expansion strategy based on strengthening the presence in countries with greater outbound / inbound potential (Spanish clientele represented 34 % of bednights in 2009). Reduction of the sales structure in countries with low marginal benefit and reallocation of resources in areas with higher growth, i.e. North America, Europe (non Spain) and in most potential segments, i.e. Meetings, Incentives Congresses and Events (MICE), Small and Medium Enterprises (SME), etc. Divestments in Spain represented an 84% of total asset disposal in the period (500 million euros at a combined 20.0 x Ebitda multiple). Flexibility in labour costs as well as renegotiation of rental contracts increasing the variable component. Control and monitoring through the risk map. The top 20 focal points are related to cycle and country risk. Adaptation of development strategy increasing presence in new markets especially those with already existing structures and where the integration and the learning curve allow us to generate more synergies. Reinforcing the potential of Sol Meliá Vacation Club in our main markets. Regarding this latter point, in February 2010 Sol Meliá Vacation Club has received the prestigious Gold Crown award from the RCI Group, the world s leading Timeshare Company, representing all of the major hotel companies in the world. The award recognises the excellent guest experience provided by the superior quality facilities at the Sol Meliá Vacation Club in hotels in Punta Cana. first Hotel Company in the Biosphere, granted with the Principe Felipe award Last December, Sol Meliá - after assuming environmental, social and cultural commitments and completing a rigorous verification process - was became the first Hotel Company in the world to be certified by the prestigious Responsible Tourism Institute, supported by UNESCO, as a Biosphere Hotel Company. Through this certification, Sol Meliá ratifies its policy of implementing a responsible tourism model, one of the strategic goals defined by the WTO to guide the recovery of tourist destinations after the crisis. Sol Meliá has over 30 hotels with environmental management certification, and also became the first company to sign the Voluntary Commitments of Reduction of Greenhouse Gas Emissions, and the only hotel company included in the selective index for Responsible Investment "FTSE4Good Ibex". In this context, last January 10 Sol Meliá received the Principe Felipe award for excellence in tourism, rewarding the Company for its innovation, internationalism and business excellence. To end this letter, we would like to point out that we do not expect any further deterioration in our businesses this year, we are seeing some signs of improvement, but we remain cautious about the pace of recovery in the Spanish city market. The 4 measures included within the Contingency Plan will therefore continue to remain in force in Due to the fact that we reacted correctly by implementing timely and appropriate measures, still under way, we are well prepared to take full advantage whenever the top line recovery is more evident. Moreover, in the current environment the homework done along with the comparatively better situation of the Company will enable us to expand the portfolio, increasing our size at all levels and come out of the crisis stronger than ever without altering the vision of Sol Meliá s strategic priorities: 1) Brand Equity, 2) Customer Knowledge, 3) Vacation Club transformation model, 4) People s Talent & Empowerment and 5) Sustainability. Best regards, Gabriel Escarrer Vice Chairman & CEO 6

7 2. Information on Operations 2.1. Hotels RevPAR for owned and leased hotels has decreased by -16.7% in During the last quarter of 2009, RevPAR decreased by -12.6% due to decreases in both Occupancy and ARR by -5.4% and -7.7% respectively. During the last quarter of the year, RevPAR of Sol Brand (100% resort, 100% Spain) decreased by %, due to both decreases in Occupancy and ARR by -11.1% and -7.1% respectively. The performance of the Canary Islands, where RevPAR decreased by -18.2% is behind these figures. In 2009, RevPAR decreased by -15.8%, mainly due to a decrease in Occupancy by -11.0%. The results in mainland Spain hotels, where RevPAR decreased by -9.2%, partially offset the performance of the Canary Islands (RevPAR: -17.8%) and the Balearic Islands (RevPAR: -19.9%), with the latter also being affected by the terrorist attacks that sharply impacted pick ups in bookings during the first fortnight of August. By segment, tour operation decreased by -22.7% in 2009, affected by the decrease in the number of room nights in the main feeder markets, especially to the Balearic Islands. The drop in room nights that affected the Sol brand were related to the decrease in its main feeder markets: UK -21%, (representing 36% of total room nights), Germany -12% (representing 8.5% of total room nights) and Spain -3% (representing 36% of total room nights). These decreases would have been even higher if operational measures had not been implemented, such as adapting the opening and closing of hotels to the occupancy levels. Additionally, given the deterioration of business, the Company implemented a set of compensatory measures in order to optimize revenues, among which is the implementation of the Sol Brand Unique Selling Message and Strategy through the Family Fun Programme, including all-inclusive services. These measures have had a positive impact at the revenues level, resulting in an increase of 2.9 million Euros, exceeding the budget for During 2009, corrective measures implemented within the Sol brand have led to a decrease in Operating Expenses (excluding rental expenses) of -13.2% - in line with the decrease in the number of stays (-13%) which is remarkable considering the volume of fixed costs. The rationalization of personnel management according to the opening periods of seasonal hotels and overall occupancy levels, renegotiation with raw material suppliers along with the adaptation of menus have also allowed the brand to decrease its Food and Beverage cost per stay by -3%. In terms of Available Rooms, the decrease is related to the late opening of 3 seasonal hotels: Sol Costa Blanca (Alicante), Sol Antillas-Barbados and Sol Falco, both in the Balearic Islands. 7 ME Madrid ME Madrid

8 ME Barcelona In 2009, RevPAR for the Tryp brand (100% city; 77% Spain) has decreased by -18.9% due to both decreases in Occupancy and ARR by -8.2% and -11.6% respectively. During Q4, RevPAR decreased by -15.7% due to decreases in the ARR by -9.4% and to a lesser extent in Occupancy by -7.0%. This brand has showed a lesser deterioration in terms of RevPAR when compared with previous periods (RevPAR Q3 2009: %, RevPAR H1 2009: -21.4%), mainly due to the good performance of the hotels in Germany (RevPAR Q4: -0.7%) and to a lesser extent hotels in France (RevPAR Q4: -8.8%). In Q4, when compared with the first 9 months, there has been a moderate improvement in both 1) Business Individuals segment (that represents some 45% of room revenues in Spain) and in the 2) Individual Leisure segment (representing some 25% of Tryp s room revenues in Spain) partially due to measures launched to capture business demand, which has suffered greatly over 2009 from the cost saving measures implemented by companies. Corrective measures implemented since June 09 within the Tryp brand, which include Tryp s Brand Unique Selling Message and Strategy trough the launch of City Business Plan and City Weekend Plan, have been well received, representing revenues of more than 0.6 million Euros. Operating expenses (excluding rental expenses) decreased in 2009 by -14%, while total cost per stay decreased by -3%. Measures implemented in order to renegotiate with raw material suppliers and commissions as well as the flexibility in personnel management are behind these figures. Decrease in the Available Rooms item is explained by the sale of the hotel Tryp Los Bracos (Spain) during 4Q08 and the termination of 2 hotel lease contracts, the Tryp Langenselbold and the Tryp Potsdam Michendorf, both in Germany. 8

9 In 2009, RevPAR for the Meliá brand (46% Spain, 21% LatAm, 33% EMEA) decreased by -15.5%, due to a decrease in ARR of -10.9% and to a lesser extent in Occupancy by -5.2%. This brand has shown a lesser deterioration in RevPAR during Q4, (-7.8%) when compared with previous periods (RevPAR Q3 2009: %, RevPAR H1 2009: -18.3%). City hotels have shown a better performance during Q4 (RevPAR: -10.9%) when compared with Q3 (RevPAR: -16.4%), on the back of a better performance in all markets, such as 1) Spanish City hotels (RevPAR Q4: -8.7% vs. Q3: -14.7%), 2) German City hotels (RevPAR Q4: -5.8% vs. Q3: -10.3%), 3) UK (RevPAR Q4: -0.1% vs. RevPAR Q3: -9.5% in Sterling pounds) and to a lesser extent 4) Paris hotels (RevPAR Q4: -13.3% vs. Q3-14.5%). Spanish Individual leisure segment has had a better performance when compared with the first 9 months of 2009, due to promotions carried out to stimulate demand. The tour operation business decline have been compensated by Online Travel Agencies and solmelia.com Regarding Meliá Resorts, Q4 RevPAR has shown a better performance than Q3 (RevPAR: -11.7% vs %), on the back of a better performance of the resorts in Tunisia (RevPAR Q4: 9.9% vs. RevPAR Q3: -25.4%), Spain (RevPAR Q4: -13.7% vs. RevPAR Q3: -14.4%) and Mexico (RevPAR Q4: -22.5% vs. RevPAR Q3: -23.2%). The Meliá Brand Unique Selling Message and Strategy through the All in One programmes have been successfully implemented, representing revenues of more than 0.9 million Euros. In 2009, Operational Expenses (excluding rental expenses) have decreased by -8.1%, while total cost per stay decreased by -4%. The rationalization of personnel management, through the implementation of actions such as the promotion of early retirement, reduction in overtime, and encouraging staff holidays without carrying out substitutions during this period has led to a total reduction in cost of personnel per stay of -10%. Measures implemented regarding the renegotiation of contracts with raw material suppliers - achieving a reduction of -10% at F&B cost per stay - as well as the outsourcing of other services are behind these figures. In terms of Available Rooms, the increase is explained by 1) the incorporation of the Meliá Athens (Greece June 08), Meliá Luxembourg (May 09), Innside Düsseldorf Derendorf, Meliá Valencia (October 09) and Meliá Bilbao (September 09)., 2) the reopening of some floors at the Meliá Madrid Princesa (Madrid Spain) and 3) the disaffiliation of the Meliá Trujillo (Caceres Spain) in July Meliá Istrian Croatia

10 Premium hotels have seen RevPAR go down by -18.8% in 2009, due to decreases in both Occupancy and ARR by -10.0% and -9.9% respectively. This decrease is explained by the evolution of the Gran Meliá brand, where RevPAR decreased by -19.4%, on the back of the performance of the Spanish city hotels. In Q4, RevPAR decreased by -21.3%. ME by Meliá and Gran Meliá hotels located in Mexico where RevPAR decreased by -39.7% - have been affected by the Influenza A (H1N1) virus. F&B and Other revenues have decreased by only -3.0% in 2009, mainly explained by the performance of the Gran Meliá Caracas, where revenues from Food and Beverage activity increased by 22.5% on the back of the price increases in banqueting programs, without compromising the existing level of demand. Since their implementation last September 09, the corrective measures implemented under the Premium brands Luxe-clusive offers have been well received, representing revenues of almost 0.5 million Euros. In 2009, Operational Expenses (excluding rental expenses) have decreased by -9.4%, while total cost per stay decreased by -4%. The reduction of energy costs, as well as the outsourcing of other services allowing the reduction of other costs is behind this figure. Total cost per stay is partially affected by the high inflation level in Venezuela. Excluding this country, total cost per stay decreases by -9%, due to reductions in Personnel and F&B cost per stay by -8% and -6% respectively. In terms of Available Rooms, the decrease is explained by the disaffiliation of the hotel Gran Meliá Mofarreij (Brazil) in July Meliá Sevilla - Spain

11 Table 1: Hotel statistics Owned and Leased hotels 09 / 08 (RevPAR & A.R.R. in Euros) % Occupancy RevPAR A.R.R. Available rooms ( 000 units) SOL 2, % ,145 % o/ % -15.8% -5.3% -3.1% 2, % ,246 TRYP 2, % ,898 % o/ % -18.9% -11.6% -4.2% 2, % ,026 MELIÁ 2, % ,810 % o/ % -15.5% -10.9% -0.8% 2, % ,839 PREMIUM 2, % ,698 % o/ % -18.8% -9.9% -0.3% 2, % ,703 TOTAL 2, % ,551 % o/ % -16.7% -9.3% -2.2% 2, % ,814 Table 2: Hotel revenues split 09 / 08 for owned/leased hotels Room Revenues F&B and Other Total Revenues Total Expenses (*) Ebitda SOL 2, % o/ % -15.2% -17.2% -12.7% -30.8% 2, TRYP 2, % o/ % -15.8% -20.5% -11.0% -84.9% 2, MELIÁ 2, % o/ % -11.0% -14.1% -5.8% -35.4% 2, PREMIUM 2, % o/ % -3.0% -11.1% -9.7% -16.2% 2, TOTAL 2, (*) Includes rental expenses % o/ % -10.1% -15.2% -9.1% -35.8% 2, ,

12 Table 3: Third parties management fees (included in Other Businesses and Overheads ) Management fees have decreased by -11.8%. The Sol brand has seen its management fees decrease by -14.1% due to the performance of the Cuban and Spanish resorts, where management fees went down by -31.2% and -29.6% respectively. Management fees for the Meliá brand have decreased by -12.7%, derived from the performance of the Spanish City hotels, where management fees decreased by -31.9%. This fact could not be offset by the performance of the hotels in Brazil, where management fees increased by 29.0%, and the incorporation of 2 hotels to the brand, the Meliá la Reconquista in Oviedo (Spain) and the Meliá Sharm in Egypt. The Tryp brand decreased its management fees by -17.8%, due to the performance of Spanish hotels, where management fees decreased by -38.3%. This performance could not be offset by 1) the relatively better performance of the hotels in Brazil, where management fees decreased by -4.8% and 2) the incorporation of a hotel in Brazil, the Tryp Convention Brazil in Brasilia. Management fees for the Premium brands decreased by -1.0% in 2009 due to two opposite effects: 1) the incorporation of 2 hotels (ME Barcelona and Gran Meliá Palacio de Isora in Tenerife - Spain) and the reopening due to refurbishment of the Gran Meliá Colon in Seville - Spain, as well as the good performance of Costa Rica (+12.3%), and 2) the results achieved by Cuban hotels, where management fees decreased by -21.2%. MANAGEMENT FEES REVENUES (million Euros) Dec 09 Var. 09 / 08 Dec 08 SOL Basic % 4.6 Incentive % % 8.5 MELIÁ Basic % 16.2 Incentive % % 21.5 TRYP Basic % 4.4 Incentive % % 7.3 PREMIUM Basic % 5.3 Incentive % % 7.8 TOTAL BASIC % 30.4 TOTAL INCENTIVE % 14.7 TOTAL %

13 2.2 Sol Meliá Vacation Club In 2009, total Vacation Club Revenues decreased by -31.7% (-30.9 million Euros). This figure includes not only Vacation Club unit sales but also revenues derived from Interest Income, Maintenance, Management fees and Network fees. The total number of weeks sold dropped by -15.5%. However, during 4Q09, the total number of weeks sold increased by 37.3%, on the back of the performance of hotels in LatAm, especially in the Meliá Caribe Tropical hotel in the Dominican Republic. The launch of in-house marketing programmes in order to maintain the flow of customers - along with an increased rate of closing efficiency explains these figures. The Vacation Club business has been positively affected by the sales in the Gran Meliá Palacio de Isora hotel (Tenerife Canary Islands). In this latter destination, the company is aiming to generate new prospects from mainland Spain through programmes in airports, mini-holiday packages and corporate alliances. Table 4: Sol Meliá Vacation Club 09 / 08 NUMBER OF WEEKS SOLD NUMBER OF EQUIVALENT CLUB UNITS VACATION CLUB SALES (IN 000 ) 2009 %o/ %o/ %o/ Premium 1, % 2, % 44 39, % 44,006 Meliá 1, % 1, % 24 12, % 15,672 Total 2, % 3, % 68 52, % 59, Leisure Real Estate 56.6 million Euros capital gains were generated in 2009 from the sale of the hotel Meliá Madrid Princesa (Spain) and Tryp Alondras (Madrid Spain), versus the 3.8 million Euros generated in 2008 from the sale of the hotel Tryp Los Bracos (Logroño Spain). Regarding the other real estate businesses, by country: In the Dominican Republic revenues decreased by -21.6% due to the decrease in the sale of plots of land in the Desarrollos Sol complex. Excluding this issue, total revenues increased by 5.5% derived from: 1) Revenues from managing the golf courses and the administration of the villages located in the Desarrollos Sol complex, which increased by 3.8% and 13.8% respectively due to the increased demand derived from the villas sold in ) The Sierra Parima shopping centre has also increased its revenue by 2.5% derived from the rental of further shopping premises and offices. In Venezuela, rentals of shopping areas in the basement of the hotel Gran Meliá Caracas increased by 49.9%, representing revenues of 2.9 million Euros

14 Meliá Valencia - Spain Meliá Valencia - Spain 3. Energy consumption Emission savings Table 5: Environment and Energy Average % / Average Environmental Metrics CO2 Emissions ( Kg) 102,474, % 107,548,575 per stay (1) % Water Consumption ( m3 ) 3,012, % 3,295,331 per stay (1) % Energy metrics Diesel (litres) 3,896, % 5,090,444 per stay (1) % 0.75 Gas ( m3 ) 3,336, % 3,277,420 per stay (1) % 1.00 Electricity (Kwh) 162,180, % 166,556,501 per stay (1) % (1) Note: To compare the efficiency at the same levels of Occupancy, the metrics per stay corrected per Occupancy are: CO2 Emissions per stay: Kg (-3.3%), Water Consumption per stay: m3 (-7.3%), Diesel per stay: 0.66 l (-12.2%), Gas per stay: 1.00 m3 (0.5%), Electricity per stay: Kwh (-1.2%) The consumption and emission data come from a comparison between the average values (in total and per customer) for the period and the same average values for the period The objective of this comparison over a number of years is to ensure that it is as rigorous as possible, avoiding any distortion caused by climate factors and any other bias that may occur in any comparison of energy values from one year to the next. This methodology for measuring consumption and emission is supported and certified by the company Bureau Veritas, and has allowed Sol Meliá to be recognised by the Ministry of the Environment, Rural and Maritime Affairs given that the Sol Meliá SAVE project has been included in the voluntary emission reduction system ( - es.org / Observatorio + Sostenibilidad / esp / acercade / quienes / Who+Are+We.htm) The methodology was created in 2007 for the company Strategic Plan and is based on the principles and recommendations contained in Annex 1 of European Directive 2006/32 on energy efficiency and services. The sample includes 94 hotels running the SAVE project, an energy saving and efficiency programme which formed part of the mentioned Strategic Plan There are currently 154 hotels included in the project and which will serve as the comparable basis for future measurements. The data shows a reduction in both energy and water consumption and in the emission of CO2. To avoid the bias caused by occupancy increases or decreases on per customer ratios, the per customer values for are adjusted to allow comparison with the occupancy levels over the period as explained in the foot note of Table 5. The percentage reductions in consumption per stay allow a more accurate appreciation at comparable occupancy levels and eliminate climatic factors, thus showing the true improvements in energy and water consumption and efficiency. 14

15 The analysis of previous data adjusted by occupation confirms the 3.3% reduction in emissions per customer, 10% above the target set in the Company s Strategic Plan, with annual savings of more than 3 million tons of CO2. Regarding water consumption, the reduction per customer rises to 7.3%, 20% above the target and translating into annual savings of more than 220,000 cubic meters per year. These reductions will result in recurring annual savings of about 830,000 Euros, then becoming permanent and so remaining in years to come. The savings have been based on the implementation of four action areas in the SAVE programme (Sol Meliá energy saving and efficiency programme) a. Awareness and training b. Standardisation of products and systems c. Investments to create savings and energy efficiency d. Measurement and monitoring of energy ratios The greatest reductions have been achieved in the consumption of water and diesel oil. Water consumption has been reduced by the use of flow regulation systems which do not affect guest comfort but which save important amounts of water and the fuels used to heat water (diesel oil and gas). The reductions in diesel oil consumption derive from the renovation of certain facilities and performance improvements thanks to the use of additives in boilers. Part of this improvement comes from the switch from diesel oil to gas in some facilities which has generated a reduction in emissions. That is why the value of gas is penalized and thus increasing their level of absolute consumption, but in a much smaller percentage than the reduction of diesel consumption, reflecting efficiency improvements. In the area of electricity use, hotels have sought to optimise the times and conditions under which energy is used while also improving energy efficiency and the performance of obsolete facilities, in addition to the standardisation of the use of efficient lighting in hotels, switching from conventional and incandescent lighting to low-energy lighting. In the fourth quarter the company started a process of technical standardization of lighting equipment. This process aims to eliminate inefficient lighting (halogen and incandescent) and replace it with more efficient light sources with longer life while reducing energy consumption. Other actions which have improved on previous consumption figures are: - Creation of a website on the company Intranet describing operational and technical measures and best practises - publication of weekly banners to announce and reinforce measures - Adjustment of reports to base-level staff transformation of emissions into "tree equivalents" to give a more practical idea of the impact of the measures implemented. - Definition of objectives for reductions in energy consumption per hotel and monthly monitoring. - Training and agreements with leading companies in the field of energy efficiency. - Investments in energy efficiency in new and renovated hotels with measures such as temperature control via geothermal systems, room and facility controls activated by human presence detectors, use of LED technology in new hotels, desalination and the recycling of waste water

16 4. Income Statement Revenues Total Revenues have decreased by -10.2% ( million Euros). Revenues from Hotels and Sol Meliá Vacation Club decreased by -15.2% ( million Euros) and -31.7% ( million Euros) respectively, while Revenues from the Leisure Real Estate division increased by 354.8% (60.5 million Euros) derived from the sale of the hotel Meliá Madrid Princesa and the Tryp Alondras both in Madrid.. Operating Expenses Raw material expenses decreased by -11.4% (-17.8 million Euros), due to the decline of the hotel business activity and as a result of the renegotiations with raw material suppliers and the adaptation of menus, as reflects the decrease in Food & Beverage cost per stay in almost all brands (Sol: -3%, Tryp: - 12%, Meliá: -10%, Premium: 1%). F&B cost per stay at Premium brand is affected by the inflation in Venezuela. Excluding this country, F&B cost per stay in Premium brands decreased by -6%. Personnel expenses decreased by -5.7% (-23.6 million Euros), resulting from the implementation of the Operational Contingency Plan, through measures such as the optimization of schedules, the versatility of positions and the adaptation of time-limited permanent workers to occupancy levels. At the Hotel level, personnel expenses decreased by -6.9% (-22.1 million Euros), while at Central Headquarters this figure decreased by -1.4% (-1.5 million Euros). Other Operating Expenses have decreased by -9.7% (-36.6 million Euros) due to the measures implemented in all brands through the Cost Optimization Programme. Among the measures include the renegotiation of third parties services (including energy costs), the centralization of processes, the creation of a Global Marketing Fund and the renegotiation of commissions. Rental expenses have increased by 2.8% (2.2 million Euros). This figure is affected by some changes in the perimeter: 1) the disaffiliation of the hotel Gran Meliá Mofarrej (Brazil), 2) the incorporation of 5 hotels: an Innside hotel in Düsseldorf (Germany) within the Meliá brand in March 08, the Meliá Athens (Greece) in June 08, the Meliá Luxembourg in May 09 and the Meliá Valencia and Meliá Bilbao in October 09, and 3) the incorporation of the Meliá Madrid Princesa (Spain) under a lease contract last July 09. Excluding changes in the perimeter, rental expenses have decreased by -4.2% (-3.0 million Euros), derived from negotiations being carried out with hotel owners and the decline in hotel performance, since some of the lease contracts have a variable part linked to the result obtained by the hotel. Ordinary Profit / Net Profit Financial results increased by 58.1% (53 million Euros). This is explained by the decrease of the Net Interest Expense by -61.0% (-43.3 million Euros) due to 1) the management of the overall Company debt and the decrease of the 3 month Euribor average by 343 basis points, 2) the increase of Other financial revenues in 12.3 million Euros, as a result of applying IFRS in establishing Venezuela as a hyperinflationary economy during 2009 and its effect on the P&L account and 3) the decrease of the Exchange Rate Differences by million Euros, on the back of a more favourable exchange rate. Tax rate has increased from 10.3% to 19.3% due to 1) the fact that in some countries, such as Mexico and the Dominican Republic taxes are paid not only according to the profit generated but also in terms of the asset value of the subsidiary, 2) the effect of lower profits in subsidiaries with low tax rates or special treaties, and 3) the Group s continued conservative policy with regards to the capitalisation of tax losses generated in the holding company. 16

17 Table 6: Sol Meliá Consolidated Income Statement Million Euros Dec 09 Dec 08 % Hotels Leisure Real Estate Vacation Club Other Revenues Total revenues 1, , % Raw Materials (138.0) (155.8) Personnel expenses (390.8) (414.3) Other operating expenses (338.4) (375.0) Total operating expenses (867.2) (945.1) -8.2% EBITDAR % Rental expenses (79.4) (77.2) EBITDA % Depreciation and amortisation (96.9) (97.5) EBIT % Net Interest Expense (27.7) (71.0) Exchange Rate Differences 1.1 (9.1) Other Interest Expense (11.8) (11.7) Total financial profit/(loss) (38.5) (91.8) 58.1% Profit/(loss) from equity investments (12.8) (6.6) Continuing Earnings Before Taxes 53.9 (98.3) % Discontinuing Operations Profit before taxes and minorities % Taxes (10.4) (6.3) Group net profit/(loss) % Minorities (P)/L (5.4) (3.4) Profit/(loss) of the parent company % 17

18 Table 7: Business Segmentation of Sol Meliá s Consolidated Income Statement Mn euros HOTEL BUSINESS SOL TRYP MELIÁ PREMIUM TOTAL HOTELS LEISURE REAL ESTATE SOL MELIA VACATION CLUB OTHER BUSINESS & OVERHEAD EXPENSES 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % 12M09 12M08 % REVENUES % % % % % % % % % % EXPENSES % % % % % % % % % % EBITDAR % % % % % % % % % % RENTALS % % % % % % % EBITDA % % % % % % % % % % D&A % % % % % % % % % % EBIT % % % % % % % % % % AGGREGATED CONSOLIDATED 18 18

19 5. Balance Sheet Assets The decrease of Prepayments and assets in progress is related to the completion of construction and exploitation of 196 Vacation Club units in Paradisus Palma Real (Dominican Republic) and 193 Vacation Club units in Paradisus Punta Cana. Constructions have not increased in the same proportion since, after the sale of the hotels Meliá Madrid Princesa and Tryp Alondras in July 09 and December 09 respectively, these have been excluded from the balance sheet. Receivables for associates has increased by 9.4 million Euros due to loans made to the associates Inversiones Hoteleras la Jaquita, Colon Verona S.A. and Nyesa Meliá Zaragoza S.A. owners of the hotels Gran Meliá Palacio de Isora (Tenerife Spain), Gran Meliá Colon (Seville Spain) and Meliá Zaragoza (Zaragoza Spain) respectively.] Liabilities & Shareholder s Equity Net Debt decreased by million Euros from December 09 to December 10 up to million Euros. This is primarily explained by 1) 33.9 million Euros of the convertible bond that have been considered as Equity, in terms of the probability of conversion contemplated by the auditors, 2) the 50 million dollars of Preference Shares issued in Puerto Rico and 3) the difference between investments (70 million Euros) and divestments (99.8 million Euros from the sale of Meliá Madrid Princesa and Tryp Alondras). 19

20 Table 8: Consolidated Balance Sheet (million Euros) ASSETS Million of Units Dec 2008 ( audited ) Dec 2009 % i INTANGIBLE FIXED ASSETS % Software Goodwill Other Intangibles ii PROPERTY. PLANT AND EQUIPMENT 2, , % Land Constructions 1, ,144.4 Technical plant and machinery Other assets Prepayments and assets in progress iii INVESTMENT PROPERTIES % iv OTHER NON-CURRENT ASSETS % Available-for-sale investments Investments in associates Loans to associates Deferred tax assets Other non-current financial assets TOTAL NON-CURRENT ASSETS 2, , % v NON-CURRENT ASSETS FOR SALE vi CURRENT ASSETS % Inventories Trade and other receivables Receivables for associates Other current assets Other current financial assets Cash and short-term deposits TOTAL CURRENT ASSETS % TOTAL ASSETS 2, , % 20