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CONSOLIDATED DIRECTORS' REPORT
During 2003 the NH Hoteles Group has continued to develop its strategy aimed at creating a strong European brand. Thus,
this year, the process for divesting out of non-strategic hotels has been successfully completed. Worthy of note is the sale
of the Hotel Princesa Sofia in Barcelona and the sale of the Hotel Crowne Plaza in Brussels. The Hotel NH Pedralbes and
the Hotel NH Sant Angelo have also been sold and at the beginning of 2004 the sale of the Hotel NH Krystal Cancun has
been signed.
In order to reorganise the activities of Sotogrande, S.A. and AHORA, S.L. and to avoid the likely overlapping of new projects
that could arise between the two companies and after NH Hoteles acquired, at the end of 2002, 49% of the holding held by
the Caja Madrid Group in AHORA, S.L., in the course of the same operation in January 2003 the Caja Madrid Group
acquired a 17.3% holding in Sotogrande, S.A. Sotogrande, S.A. then acquired from AHORA, S.L. the assets relating to the
golf and luxury hotel business.
At the end of 2003, the Group is present in 16 countries, with a total of 34,329 rooms, 80% of its establishments are in Spain,
Germany, the Netherlands and Belgium.
INTEGRATION
Given the kind of business the Group is engaged in, no capital expenditures have been incurred in Research and
Development.
In 2003 the process to internationalise the company was completed with the change in the corporate image, which means
that all the brands are integrated so that NH has a new worldwide corporate image.
Significant progress has also been made on introducing the back-office system in Spain and the Netherlands, where it has
been practically completed. It has now begun to be introduced in all the other business units where it is expected to be
operational by the end of 2004.
RESULTS
The net earnings of NH Hoteles fell by 40.6% in 2003 to 50.85 million euros, compared to 85.7 million euros in 2002. With
regard to the Operating Results, as can be seen in the Consolidated Operating Accounts on the next page, it was 30,5%
down compared to the previous year, totalling 155.33 million euros.
In 2003 the group's revenues have remained steady and further worsening of operating margins has been prevented by
strictly holding down costs at the hotels and in Central Services. It should be borne in mind that in 2003, NH Hoteles has
been restructured internally. There have therefore been increased costs of Central Services. The most significant have been
those arising from the expansion of the international offices, the realocation of employees from hotels to central offices and
the costs of the new information systems developed.
Sales in the hotels in Europe were down by 7% and operating income was down by 22%. This trend has been partially
compensated as operational expenses have been held down and fell by 2.7% This downtrend is the result of the
unfavourable economic environment and a higher level of competition.
The Latin American business contributed 12.4% to Operating Results. This is mainly due to the new hotels integrated in NH
Mexico, but above all to an improvement in operational performance in occupancy rates, prices in local currency and to the
efforts made to control operating costs which were down by 9.7% compared to 2002.
At Sotogrande, revenues from the property business were down by 10.3% to 56.88 million euros, and the Operating
Result stands at 31.6 million euros. The sales margin has improved to 55.5% compared to 52.8% in 2002. Sotogrande
contributed 10.3 million euros to the Group's net profits. Furthermore, as at 31 December, sales where commitments had
been made which had yet to be recorded in the accounts still amounted to 70.22 million euros, twice the 34.83 million
euros at the end of 2002.
