8 1. ACTIVITY OF THE CONTROLLING COMPANY NH  HOTELES,  S.A.  (hereinafter  the  Controlling  Company)  was  set  up  as  a  Spanish  public  limited  company  ("sociedad anonima")  in  Spain  on  23  December  1881  under  the  name  "Material  para  Ferrocarriles  y  Construcciones,  S.A.",  which subsequently changed its name to "Material y Construcciones, S.A." (MACOSA) and later to "Corporación Arco, S.A." During 1992, Corporación Arco, S.A. absorbed Corporación Financiera Reunida, S.A. (COFIR) and at the same time took the corporate  name  of  the  absorbed  company  and  adapted  the  corporate  object  to  the  new  activity  of  the  Controlling Company, focused on managing its share portfolio. In 1996, as a result of the fact that the De Benedetti Group sold its shareholding in the Company, Corporación Financiera Reunida, S.A. has made significant changes in its strategy. The basis of the new strategy was for COFIR to focus on the activities relating to its main subsidiary companies, and to sell of its non-strategic assets. This process was completed in 1999 when it sold Arco Bodegas Unidas, S.A. During 1998 Corporación Financiera Reunida, S.A. (COFIR) merged with Grupo Catalán, S.L. and subsidiaries and Gestión NH, S.A. in mergers where these companies were absorbed by COFIR. Corporación Financiera Reunida, S.A. (COFIR) later absorbed NH Hoteles, S.A. and took the corporate name of the absorbed company and extended its corporate object to allow it to carry out hotel activities directly, activities it was already carrying on indirectly through its subsidiary companies. The information relating to these mergers is set out in the Annual Accounts for the years in which these transactions took place. The concentration strategy has continued to be pursued during 2000 and 2001. In 2000, NH Hoteles, S.A. and the Dutch hotel  company  "Krasnapolsky  Hotels  and  Restaurants,  N.V."  were  integrated,  and  in  June  2001  a  majority  holding  was acquired in the Mexican company "Nacional Hispana Hoteles, S.R.L. de C.V." In May 2002, an 80% holding was taken in the German company Astron Hotels. 2. BASIS OF PRESENTATION OF THE CONSOLIDATED ANNUAL ACCOUNTS A) TRUE AND FAIR VIEW The accompanying Consolidated Annual Accounts have been obtained from the accounting records and the individual Annual  Accounts  of  NH  Hoteles,  S.A.  and  from  the  accounting  records  and  Annual  Accounts  of  each  of  its  investee companies  as  at  31  December  2003  and  2002.  The  Annual  Accounts  of  every  one  of  the  companies  included  in  the consolidated group have been drawn up by their Administrators, and are expected to be approved unchanged by their respective General Meetings of Shareholders.   The accompanying Consolidated Annual Accounts are presented in accordance with the General Accounting Plan. They therefore provide a true and fair view of the net worth, financial position and results of its consolidated Group. These Consolidated Annual Accounts, which have been prepared by the Directors of the Controlling Company, shall be submitted to the Annual General Meeting of Shareholders of the NH Hoteles, S.A. for approval. The Board of Directors expects  them  to  be  approved  unchanged.  The  Consolidated  Annual  Accounts  for  2002  were  approved  by  the  Annual General Meeting held on 28 April 2003. B) METHOD OF CONSOLIDATION Companies have been fully consolidated when they are effectively controlled by a majority of votes in their representative and decision-making bodies using the proportional method whenever they are managed jointly or, whenever appropriate, they have been consolidated using the equity method, where there is a significant influence without having a majority of the votes and they are not managed jointly with third parties (except for holdings where, by virtue of their size and the fact that the volume of activity is low or zero, their being included does not have a significant effect on these Consolidated Annual Accounts). The value of the interest of minority shareholders in the equity and in the profit and loss of the fully consolidated companies is stated under "Outside shareholders" on the liabilities side of the Consolidated Balance Sheet and "Profit and loss attributed to outside shareholders" on the Consolidated Profit and Loss Account, respectively. NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS NH HOTELES, S.A. AND DEPENDENT COMPANIES NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2003 AND 2002

9 The Argentinean companies, in accordance with their accounting rules, restated their Balance Sheets and Profit and Loss Accounts for 2002 to adjust for inflation. No further restatement of Balance Sheets has been made during 2003. The effect of this restatement on net worth has been included in the chapter "Provision for charges and liabilities". All the major accounts and transactions between consolidated companies have been eliminated during the consolidation process. Set out in Appendix I hereto is an analysis of the companies that make up the Consolidated Group, together with the most significant corporate and financial information about them. Set out below are the companies that have been included as consolidated companies during the years 2003 and 2002: METHOD OF CONSOLIDATION 2003 2002 Astron Hotels GmbH (now NH Hoteles Deutschland GmbH) – Full Astron Hotelbetr. u. Beteiligungs.GmbH (now NH Hoteles Austria GmbH) – Full Palacio de la Merced, S.A. – Equity method Chartwell de Méjico, S.A. de C.V. – Full Chartwell de Nuevo Laredo, S.A. de C.V. – Full Chartwell inmobiliaria de Juarez, S.A. de C.V. – Full Chartwell inmobiliaria de Monterrey, S.A. de C.V. – Full Nuevos Espacios Hoteleros, S.A. Full – Club Deportivo Sotogrande, S.A. Full – Hoteles y Gestión Sotogrande, S.L. Full – Resco Sotogrande, S.L. Equity method – PROFORMA CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR 2003 AND 2002 (thousand euros) 2003 2002 Income 937,423.00 994,370.99 Staff costs (304,667.69) (302,292.80) Other operating charges (556,062.59) (548,661.81) OPERATING PROFIT 76,692.72 143,416.38 During the year the company Hotel Princesa Sofía, S.L. has been taken out of the scope of consolidation as a result of its private company shares being sold (see note 26c). On 25 February 2002, the Controlling Company reached an agreement to buy the hotel chain Astron Hotels, by buying the two companies Astron Hotels GmbH (Germany) and Astron Hotelbetr. u. Beteiligungs. GmbH. (Austria).  The operation was structured in two stages. On 30 April 2002, an 80% holding was acquired in the two companies for a total amount of 142 million euros. Part of this amount was paid in own shares held by NH Hoteles, S.A. The Group must acquire the remaining 20% in a system of options at seven years, depending on the future results of the Group. The minimum set for this 20% is 31 million euros if the call option is exercised by the minority shareholder during the first three years, and a minimum of 45 million euros if it is executed by NH Hoteles, S.A.    After the third year, the minimum shall be 45 million euros regardless of who exercises the option. C) COMPARISON OF INFORMATION As a result of bringing the companies Astron Hotels, GmbH (now NH Hoteles Deutschland, GmbH) and Astron Hotlbetr. u. Beteilingungs GmbH (now NH Hoteles Austria, GmbH) into the scope of consolidation on 1 May 2002, and as consequence of taking the Company Hotel Princesa Sofía, S.L. out of the scope of consolidation in October 2003, the accompanying Consolidated Profit and Loss Accounts for 2003 and 2002 are not fully comparable. For the sake of a better year-on-year comparison, set out below are the proforma Consolidated Profit and Loss Accounts for 2003 and 2002, covering the twelve months of business of the aforementioned companies.

10 DISTRIBUTION OF PROFIT RESERVES OF THE CONTROLLING COMPANY Legal Reserve 10,607.01 Voluntary Reserve 65,579.85 Dividends 29,883.22 PROFIT OF THE CONTROLLING COMPANY 106,070.08 CONSOLIDATION RESERVES Of fully consolidated companies (55,893.96) Of companies consolidated using the equity method 682.72 PROFIT OF CONSOLIDATED GROUP 50,858.84 3. CAPITAL INCREASE OF SOTOGRANDE, S.A. On  31  January  2003,  an  Extraordinary  General  Meeting  of  Shareholders  of  the  subsidiary  company  Sotogrande,  S.A. approved a capital increase involving cash contributions and preferential subscription rights for an amount of 4,339,359 euros, by issuing 7,232,265 new shares, each with a par value of  0.60, and a share premium of 9.112628 euros per share of the same class and series and with the same rights as the shares that were outstanding.  The Controlling Company did not take part in said capital increase. The capital raise was subscribed by the Sociedad de Promoción y Participación Empresarial Caja Madrid, S.A., which has enabled it to bring its aggregate holding in Sotogrande, S.A. up to 17.3%. After the capital increase has been paid in, Sotogrande, S.A. acquired from Actividades de Hostelería, Ocio, Restauración y Afines, S.L. (AHORA, S.L.) all AHORA, S.L.'s assets relating to its golf and luxury hotel business. These include inter alia the companies Gran Circulo de Madrid, S.A., Casino Club de Golf, S.L. and Aymerich Golf  Management, S.L. All the operations described above are the result of the necessary reorganisation of the activities carried on by Sotogrande, S.A. and AHORA, S.L. in order to prevent any overlapping of new projects that could appear between the two companies, in particular with regard to golf-related business. The  valuations  of  Sotogrande,  S.A.  and  of  the  assets  of  AHORA,  S.L.  used  in  the  transactions  described  above  were subordinated to the issue of a fairness opinion by two internationally reputed independent companies.  The two companies issued  their  reports  at  the  end  of  November  2002,  stating  that  the  valuations  for  the  two  companies  in  question, Sotogrande, S.A. and AHORA, S.L., were impartial. On 24 November 2003, as a result of a logical process to simplify the Group's structure, the sole shareholder of the company, NH Hoteles, S.A., decided to dissolve AHORA, S.L., single shareholder company, without liquidating its activities and to assign its assets and liabilities to its sole shareholder as from 1 january 2003 for accounting purposes. On 29 December 2003 the deed of dissolution without liquidation was executed and was duly entered in the Mercantile Register of Madrid on 12 January 2004. As a result of the process of dissolution described, no changes have appeared in the book value of the assets contributed by the dissolved company. The information required by law regarding this process of dissolution has been set out in the Notes to the Accounts of NH Hoteles, S.A. as at 31 December 2003. 4. DISTRIBUTION OF PROFIT Set out below is the distribution of 2003 profit proposed by the Board of Directors of the Controlling Company (thousand euros): The distribution of 2002 profit is shown, together with an analysis of movements in Equity, in note 16.