10 CONSOLIDATED FINANCIAL STATEMENTS 2004 1. ACTIVITY OF THE CONTROLLING COMPANY NH HOTELES, S.A. (hereinafter the Controlling Company) was set up as a Spanish public limited company in Spain on 23^th 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 off 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 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 in 2004 and a move was made into the Italian market by opening a hotel in the city of Mestre. 2. BASIS OF PRESENTATION OF THE CONSOLIDATED ANNUAL ACCOUNTS a) TRUE AND FAIR VIEW The 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^st December 2004 and 2003.  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 or Partners. The attached 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 the consolidated Group. NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS NH HOTELES, S.A. AND DEPENDENT COMPANIES NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2004 AND 2003

11 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 2003 were approved by the Annual General Meeting held on 29 April 2004. 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  attributed  to  outside  shareholders"  on  the Consolidated Profit and Loss Account, respectively. The Argentinean companies, in accordance with their accounting rules, restated their Balance Sheet and Profit and Loss Account for 2002 to adjust for inflation. No further restatement of Balance Sheets has been made for later years. 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 2004 and 2003: Method of Consolidation 2004 2003 Nuevos Espacios Hoteleros, S.A. - Full Club Deportivo Sotogrande, S.A. - Full Hoteles y Gestión Sotogrande, S.L. - Full Resco Sotogrande, S.L. - Proportional NH Italia, S.p.A. Full - Residencial Marlin, S.L. Proportional - During 2004, the companies Hotelera Chicome, S.A. de C.V. and Servicios Corporativos Krystal Cancún, S.A. de C.V., the companies that own the Hotel NH Krystal Cancún, which was sold on 4^th February 2004 have left the consolidated group (see note 7). CONSOLIDATED FINANCIAL STATEMENTS 2004

c) COMPARISON OF THE INFORMATION As  a  result of Hotel Princesa Sofía, S.L. leaving the Consolidated Group in 2003, the accompanying Consolidated Profit and Loss Accounts for 2004 and 2003 are not fully comparable. Although in actual fact neither additions nor retirements in 2004 have been significant. For the sake of a better year-on-year comparison, set out below are the proforma Consolidated Profit and Loss Accounts for 2004 and 2003, not including the ten months of business of the aforementioned Company. Thousand Euros 2004 2003 Proforma Income 956,901.48 906,658.59 Staff costs (286,985.13) (294,200.51) Other operating charges (558,832.09) (538,909.58) Operating profit 111,084.26 73,548.50 3. CAPITAL INCREASE OF SOTOGRANDE, S.A. On  31^st  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  increase  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  was  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  were   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 fairness opinions 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^th November 2003, as a result of a logical process to simply 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 for its assets  and  liabilities  to  be  assigned  to  its  sole  shareholder  as  from  1^st  January  2003  for  accounting  purposes.  On  29^th December 2003 the deed of dissolution without liquidation was executed and was duly entered in the Mercantile Register of Madrid on 12^th January 2004. As a result of the process of dissolution described, no changes appeared in the book value of the assets contributed by the dissolved company. The  information  required  by  law  regarding  this  process  of  dissolution  were  set  out  in  the  Notes  to  the  Accounts  of  NH Hoteles, S.A. as at 31^st December 2003 12 CONSOLIDATED FINANCIAL STATEMENTS 2004