2003ANNUALREPORT

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We are fully committed to meeting your company's needs. At NH Hoteles, we excel at responding to the needs of a great company.Our efficiency and capacity for service has made us Spain's top business hotel chain. See for yourself in the 240 NH hotels in 16 countries.

902 115 116 / www.nh-hotels.com

End-to-end commitment to your satisfaction.

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Introduction 4Letter from the President 6

DEVELOPMENTS IN 2003 9

New Ownership Structure 10Shareholders and Financial Information 102003 Results 112003-2004 Strategic Plan 13

A MULTINATIONAL COMPANY 15

New Openings | New Signings 16Our Hotels 17NH Hoteles and its Employees 18

STYLE, INNOVATION AND QUALITY 21

Agua de la tierra 22New Global Technology System 23Other New Features 23New Products 24International Tourism Fairs 25NH Short Story Award 26NH Stock Art 27Community Development 28

INNOVATIVE GASTRONOMY 31

Fast Good 32Gastronomy Scholarships 34nhube 35

SOTOGRANDE 37

The Estate 38I. La Reserva 38II. Other Developments 38

New NH Sotogrande Hotel 39NH Almenara Declared Europe's Best Spa Hotel 39Reorganization of Sotogrande 39Earnings 40

BOARD OF DIRECTORS AND MANAGEMENT COMMITTEE 41

CORPORATE GOVERNANCE 43

Annual Report on Corporate Governance 44Audit Committee Report 56

Inside back cover2003 CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

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The NH Hoteles Group (www.nh-hotels.com) now ranks third

among Europe's business hotel groups. At the end of March

2004, NH Hoteles had 239 hotels in operation, with 34,458

rooms, in 16 countries in Europe, Latin America and Africa,

and 25 hotels under construction, which will add 3,598 new

rooms.

Following a phase of major acquisitions, NH Hoteles focused

firmly on assimilating and adapting to its new position in 2003;

considerable operating savings were identified and achieved,

and the hotel portfolio was streamlined, divesting

establishments that did not conform to NH Hoteles' concept

and service.

The company culminated the process of unifying the brand in

all the countries where it operates.

NH hotels stand out because of the quality of their services

and facilities, which are decorated to a uniform high standard

to appeal to all tastes and make customers feel at home. They

have the most advanced technology to enable customers to

communicate, work and relax. During the year, the company

implemented a combined back/front office system to enable

it to manage and consolidate results much more efficiently,

optimize sales force efforts and offer a better customer

service.

Early in March 2003, NH Hoteles inaugurated its first "nhube",

a pioneering experience in the hotel industry which was

conceived for the NH chain by prestigious restaurateur Ferran

Adriá, founder of El Bulli. In March 2004, the second nhube

was inaugurated in the recently-opened NH Cartagena hotel.

A further 25 nhube facilities are under construction.

INTRODUCTION

NH Palacio de Ferrera | Avilés (Spain)

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NH Hoteles also opened its first "FastGood" facility, another

pioneering initiative of Ferran Adrià that will revolutionize the

concept of fast yet healthy food.

NH Hoteles' ownership structure has varied considerably in

recent months: Amancio Ortega, through his investment

company Pontegadea, increased his stake from 5% to 10%,

and Caixanova and Caja Murcia created the 50:50 joint

venture Hoteles Participados, which acquired 5% in NH

Hoteles.

In 2003, NH Hoteles was the target of a tender offer for part

of the capital, which was rejected by the majority of

shareholders.

Following the restructuring of the Sotogrande business at the

end of 2002, which included the acquisition of a 17.3% stake

by Caja Madrid, NH Hoteles now owns 79% of Sotogrande.

Sotogrande's real estate business is performing well: after the

launch of La Reserva, Sotogrande achieved record pre-sales

of more than 70 million euros.

NH Hoteles also owns 21% of the Jolly Hotels chain (Italy) and

5% of the Warner Bros. theme park in Madrid.

NH Hoteles is listed on the Stock Exchanges of Madrid (it is

included in the Ibex-35 index) and Amsterdam (Euronext). NH

Hoteles is also one of the EuroStoxx 600 companies, which

includes Europe's leading companies, and it forms part of the

prestigious Morgan Stanley Capital International (MSCI)

indexes. The company is also traded on the New York Stock

Exchange in the form of level 1 American Depository Receipts

(ADR).

On 31 March 2004, the NH Hoteles Group had over 12,500

employees of 99 different nationalities.

NH Frankfurt-City | Frankfurt (Germany)

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Dear shareholders,

We had a bittersweet year in 2003.

On the positive side, I would like to highlight the excellent

progress of the Latin American business, the very successful

cost-cutting plan, the amortisation of the bulk of goodwill

from the acquisition of Astron, the sale of the Princesa Sofía

hotel, which generated sizeable capital gains, the

considerable effort to reduce the cost of debt in Mexico, plus

the record level of committed sales in Sotogrande.

On the negative side, RevPAR remained stubbornly low in

Germany (with the consequent negative contribution to

EBITDA), there was a sharp increase in the supply of hotel

accommodation in Spain, and the restructuring and

rebranding process proved to be costly.

Thanks to our shareholders, our more than 12,000 employees

and our business partners, we are now more unified, leaner

and better-prepared for the future. We have always known

that the most complicated aspect of mergers and acquisitions

is not the operation itself but the subsequent integration

process. Accordingly, now that we have achieved our growth

target outside Spain and attained a healthy size, we have

dedicated, and will continue to dedicate, a large part of our

efforts to consolidating our company, now a veritable

multinational.

I would also like to add my special thanks to all of you for your

support last summer following the failed takeover bid

launched against the company.

In the last twelve months, we have worked very hard in the

face of difficult market situations in the countries where we

operate, particularly in Germany, where we have reorganised

and reinforced the management and sales teams, and

practically completed the integration of the Astron hotel

chain, which we acquired in May 2002.

In addition to implementing a major plan to cut operating costs

in 2003, we have reorganised our hotel portfolio to obtain a

more homogenous product which meets NH Hoteles' high

standards. Specifically, we have sold a total of fourteen hotels

and two restaurants, generating proceeds of more than 200

million euros.

Under our strategic plan, no major acquisitions were made in

2003 in order to concentrate on digesting previous years'

acquisitions.

The Sotogrande real estate business received a healthy

boost, with a record number of committed sales, worth more

than 70 million euros, yet to be booked.

LETTER FROM THE PRESIDENT

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These combined efforts have enabled us to reduce debt by

28%, as well as remunerate shareholders.

In 2004, we are committed to standardising our product,

continuing expansion in countries where we already operate,

such as Spain and Mexico, and preparing for entry into new

markets, such as Italy. Moreover, we will continue to reinforce

our Group sales strategy following reorganisation of the

German business last summer.

We want to continue offering innovative, homogenous and

personalised products and services in line with our customer's

preferences. Accordingly, we will continue to develop unique

products such as the “nhube” and “Fast Good” gastronomic

concepts and the new “Agua de la Tierra” toiletry kit.

We are convinced that we have a unique product and team,

which will enable us to maintain profitable growth.

Many thanks,

Gabriele Burgio

President and CEO of NH Hoteles

NH Palacio de Oriol | Santurce - Bilbao (Spain)

NH Nacional | Madrid (Spain) NH Palacio del Duero | Zamora (Spain)

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902 115 116 / www.nh-hotels.com

Innovation & NHExcellence in every field. Innovation in every service.That is our philosophy. We go the extra mile.

0011

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DEVELOPMENTS IN 2003

NEW OWNERSHIP STRUCTURE 10

SHAREHOLDERS AND FINANCIAL INFORMATION 10

2003 RESULTS 11

2003-2004 STRATEGIC PLAN 13

01 DEVELOPMENTS IN 2003

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PONTEGADEA INCREASES

ITS HOLDING

In July 2003, through his holding company Pontegadea,

Amancio Ortega increased his stake from 5% to 10%. This

evidences his strong support for NH Hoteles and he is now

the largest shareholder.

CAIXANOVA AND CAJAMURCIA ACQUIRE STAKES

IN NH HOTELES

In November 2003, Hoteles Participados S.L, 50/50 owned by

credit institutions Caixanova and Cajamurcia, acquired a 5%

stake in NH Hoteles.

Accordingly, Hoteles Participados is now a core shareholder.

The Investor Relations Department provides information for

shareholders on NH Hoteles' strategy and gives feedback to

the company on shareholder preferences. Shareholders can

contact NH Hoteles by calling the shareholder hotline (+34 91

451 9724) or by e-mailing investor.relations@nh-hotels.com.

Shareholders can also access all relevant information via the

corporate website (www.nh-hotels.com).

In addition to serving shareholders, the department is also

responsible for:

• Maintaining a stable shareholder base

• Contributing to the correct valuation of the share

• Generating market trust, by making the Company the

primary source of information

• Informing NH Hoteles management of investors' views

The Investor Relations Department stepped up its activity in

2003 and worked closely with the management team, not just

to explain to shareholders the company's strategy and

managers' stance with regard to the takeover bid but also to

listen to and incorporate shareholder suggestions. This effort

to communicate with and listen to shareholders involved 5

road shows in Europe and the US, more than 179 meetings

with fund managers, 41 with analysts, 3 conference calls to the

financial market and 27 presentations. The company also

participated in seven conferences.

There are currently 32 financial analysts providing ongoing

coverage on the company and NH Hoteles is included in the

most-widely distributed sectoral reports in the financial

market.

Hoteles Participados 5%

Pontegadea 10%

Free Float 65%

NH HOTELES OWNERSHIP STRUCTURE

(March 2004)

C.F. Caja Madrid 5%

FINAF 92 5%

Management team 5%

Bancaja 5%

NEW OWNERSHIPSTRUCTURE

SHAREHOLDERS ANDFINANCIAL INFORMATION

NH Inglaterra | Granada (Spain) NH Amsterdam Centre | Amsterdam (The Netherlands)

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NH Hoteles earned a total of 50.86 million euros in 2003, after

registering sales levels similar to 2002 (927.34 million euros).

The company decided to use a large part of the extraordinary

gains from property sales to accelerate amortisation of the

goodwill (40 million euros) generated on the acquisition of

Astron.

EBITDA stood at 155.3 million euros, confirming the upward

trend in 4Q03, since EBITDA fell 30.5% in 2003 as a whole,

compared to a drop of 33.2% in the first nine months of the

year.

The achievement of these objectives has enabled NH Hoteles

to reduce debt by 28%, from 667 million euros to 478 million

euros, placing it among the most financially solid companies

in the sector worldwide.

The company made a considerable effort to reduce costs,

leading to a 6.1% reduction in operating costs per available

room.

Considerable progress was made in cost-cutting, another

strategic objective. While the average number of rooms rose

14.3% on 2002, the average number of employees rose by just

6.9%.

The hotel business contributed revenues of 870.5 million

euros, up 0.4% on 2002. Sales in Europe increased by 0.9% to

805 million euros. The German business registered the

poorest performance: like-for-like sales fell 12.4%.

In Latin America, the hotel business performed very positively.

Revenues in local currency rose 64% in Argentina, 46% in

Brazil and 12.7% in Chile. Revenues in Mexico grew 0.8% in

local currency terms.

The decline in EBITDA was due mainly to the reduction in the

average price per room. EBITDA fell 22.3% in comparable

hotels in Europe but grew 8.7% in Latin America.

Sotogrande also performed well: 56.88 million euros in

revenues from booked property sales and a record number of

committed sales yet to be booked worth 70.2 million euros,

with a margin of 42.2 million euros. On 31 December 2002,

sales not yet booked amounted to 34.8 million euros, with a

margin of 15.9 million euros.

The contribution to group EBITDA from the Sotogrande real

estate business amounted to 31.56 million euros.

2003 RESULTS

NH Ciudad de Almería | Almería (Spain)

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FY 2003 FY 2002 03/02NH HOTELES GROUP (millions of euros) (millions of euros) Change

Room revenues 515.74 510.11 1.1%

Food service revenues 270.33 266.97 1.3%

Other revenues 84.39 89.59 (5.8%)

Property sales and other revenues 56.88 63.44 (10.3%)

TOTAL REVENUES 927.34 930.11 (0.3%)

Real estate costs (15.39) (20.22) (23.9%)

Direct management expenses (602.37) (564.98) 6.2%

MANAGEMENT PROFIT 309.57 344.91 (10.2%)

Leases and property taxes (154.24) (121.32) 27.1%

EBITDA 155.33 223.59 (30.5%)

Amortisation and depreciation (79.44) (75.04) 5.9%

Write-down of Sotogrande consolidation difference (2.60) (3.43) (24.2%)

EBIT 73.30 145.12 (49.5%)

Financial result (29.94) (35.06) (14.6%)

Equity-accounted affiliates 0.83 (2.90) (128.7%)

Extraordinary results 28.36 27.93 1.6%

EBT 72.55 135.09 (46.3%)

Corporate income tax (16.92) (28.32) (40.3%)

PROFIT before minority interests 55.63 106.77 (47.9%)

Minority interests (4.78) (21.11) (77.4%)

NET PROFIT 50.86 85.66 (40.6%)

Average number of shares 119,532,898 119,532,898

NH HOTELES 2003 RESULTS:KEY FIGURES

Source: Morgan Stanley and NH Hoteles

FINANCIAL STRUCTURE - DEC. 2003

0.0

10

40

80

90

70

60

50

30

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* Financial leverage defined as NetDebt/Market Capitalisation (%)

84.7

45.2 42

36.233.7

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NET BANK DEBT/EQUITY

02000 2001 2002 2003

0.5

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1.25

0,75

0,25

1.031.09

0.81

0.56

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NH Príncipe de la Paz | Aranjuez - Madrid (Spain)

NH Hoteles' 2003-2004 strategic plan involves a number of

actions aimed at further consolidating the company's financial

situation and remunerating shareholders. Specifically, NH

Hoteles projects cost savings totalling 30 million euros from

2005 onwards. The company already achieved significant

savings in 2003, increasing the average number of rooms by

14.3% while the average number of employees rose just 6.9%.

Accordingly, the employee/room ratio fell by 6.4% in the year

to 0.36.

Another of NH Hoteles' commitments in 2003 was to freeze

large development projects, like those undertaken in recent

years, instead limiting investment to developing and opening

hotels for which it already had signed contracts.

Thirdly, one of the most important strategic decisions taken in

2002 and 2003 was to optimise the chain's hotel portfolio. In

2003, NH Hoteles proposed the sale of assets worth 182

million euros which no longer conformed to the company's

high standards. This figure was amply exceeded as NH

Hoteles obtained more than 200 million euros in 2003 and

2004 (to date).

NH Hoteles also decided to accelerate the sales process at

Sotogrande; as a result, it considerably increasing committed

sales.

Following the successful implementation of these actions, the

company's net debt fell 28% to 478 million euros.

Furthermore, NH Hoteles has decided to propose a dividend

of 0.25 euros/share to the Shareholders' Meeting, breaking

the trend of recent years. The amount of the dividend is in line

with that offered by the majority of companies in the Ibex-35

and, if approved, it will be paid following the Shareholders'

Meeting.

In 2004, the company will continue to focus on cost-cutting

and on optimisation of the hotel portfolio through the sale of

some additional assets.

NH Hoteles is keeping a close eye on the Italian market in order

to seize any profitable opportunities which may arise. Italy offers

great potential to a company like NH Hoteles as its hotel sector

is highly fragmented. NH Hoteles also plans to continue

expansion in Mexico and it is currently studying various

opportunities there in addition to the management contracts

signed with three hotels (two in Mexico City and one in Puebla)

in recent months.

2003-2004 STRATEGIC PLAN

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That's what makes NH Hoteles employees stand out from the rest. Efficient service and a friendly atmosphere. That's how we are and how we work.Find out for yourself at any of the 240 NH hotels in 16 countries.

902 115 116 / www.nh-hotels.com

We make our mark as people.We make our mark as professionals.

0022

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02 A MULTINATIONAL COMPANY

A MULTINATIONAL

COMPANY

NEW OPENINGS | NEW SIGNINGS 16

OUR HOTELS 17

NH HOTELES AND ITS EMPLOYEES 18

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NEW OPENINGS | NEW SIGNINGS

NH Palacio de la Merced | Burgos (Spain)

NH Tropen | Amsterdam (The Netherlands) NH Jousten | Buenos Aires (Argentina)

HOTELS OPENED IN 2003

Spain Mexico Germany Hungary Total

Hotels 7 1 2 1 11

Rooms 821 132 583 160 1,696

HOTELS OPENED IN 2004

Spain Total

Hotels 2 2

Rooms 192 192

HOTELS SIGNED IN SPAIN IN 2003

Madrid Cádiz León Cáceres Total

Hotels 1 1 1 1 4

Rooms 224 106 51 50 431

HOTELS SIGNED IN REST OFWORLD IN 2003

Mexico Total

Hotels 3 3

Rooms 336 336

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OUR HOTELS

Germany 26%

Other 2%

The Netherlands 16%

Switzerland 2%

Spain 34%

BREAKDOWN OF ROOMS BY COUNTRYMARCH 2004

• A total of 80% of rooms are located in Spain,Germany and Benelux

Austria 2%

Mercosur 5%

Mexico 9%Belgium 4%

BREAKDOWN BY ROOMMARCH 2004

YEAR-ON-YEAR ORGANIC GROWTH VS.

DECEMBER 2003MARCH 2004

2003

1,696

2004E

1,717

2005E

1,849

2006E

224821

132

160

583

1,184

348

185

1,051

592

224

1,000

0

2,000

Spain

Germany

Austria

Mexico

The Netherlands

206

EUROPE TOTAL LEASED OWNED MANAGED

NH HOTELS Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms

Spain 105 11,831 68 7,858 19 2,623 18 1,350Germany 53 9,085 51 8,718 1 223 1 144The Netherlands 28 5,350 9 1,279 18 3,991 1 80Belgium 12 1,434 1 241 10 1,153 1 40Switzerland 5 668 2 329 3 339 0 0Austria 6 797 6 797 0 0 0 0Hungary 1 160 1 160 0 0 0 0Portugal 1 83 1 83 0 0 0 0

TOTAL EUROPE 211 29,408 139 19,465 51 8,329 21 1,614

LATIN AMERICA TOTAL LEASED OWNED MANAGED

NH HOTELS Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms

Mexico 14 2,955 3 381 6 1,244 5 1,330Argentina 7 952 0 0 7 952 0 0Cuba 1 277 0 0 0 0 1 277Uruguay 1 136 0 0 1 136 0 0Brazil 1 135 0 0 1 135 0 0Chile 1 122 0 0 1 122 0 0

TOTAL LATIN AMERICA 25 4,577 3 381 16 2,558 6 1,607

OTHER COUNTRIES TOTAL LEASED OWNED MANAGED

NH HOTELS Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms

South Africa 2 239 1 197 1 42 0 0Ghana 1 234 0 0 0 0 1 234

TOTAL OTHER COUNTRIES 3 473 1 197 1 42 1 234

NH TOTAL TOTAL LEASED OWNED MANAGED

Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms

NH TOTAL 239 34,458 143 20,043 68 10,929 28 3,455

PROJECTS SIGNED TOTAL LEASED OWNED MANAGED

NH HOTELS Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms

EUROPE 22 3.250 14 2.531 4 366 4 353LATIN AMERICA 3 348 2 224 0 0 1 124

TOTAL PROJECTS 25 3.598 16 2.755 4 366 5 477

Managed 10%

Leased 58.2%

Owned 31.8%

NH Hoteles portfolio as at 31 March 2004

Projects signed by NH Hoteles as at 31 March 2004

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NH HOTELES AND ITS EMPLOYEES

NH Hoteles' professionals are our key asset. This makes us

one of the most admired companies and a preferred

employer among hotel professionals. NH Hoteles' capacity to

attract, develop and retain the best talent gives it a major

advantage over its competitors.

NH Hoteles currently has over 12,500 employees of 99

nationalities, which illustrates the multicultural global nature

of the chain. Our professionals are equipped to face present

and future challenges since they have a strong sense of

belonging to the chain.

In June 2003, an employee satisfaction survey was carried out

in every business unit, which identified a high degree of

commitment to the chain and a high level of employee

motivation. Nevertheless, NH Hoteles has developed action

plans for 2004 at hotel, business unit and corporate

department level in order to maintain and increase the high

level of motivation and satisfaction which the survey detected.

Dutch 17.70%German 15.15%

Spanish 35.57%

NATIONALITIES

99 Nationalities in NH World

Argentinean 2.19%

Mexican 14.03%

Austrian 1.47%

Other 11.44%

Belgian 2.45%

NH Apartments München | Munich (Germany)

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OUR PROFESSIONALS ARE OUR BRAND

The Human Resources Department's ongoing actions

include:

• Identifying potential through internal development

programs.

• Continuous employee training to cover current needs and

anticipate future training requirements.

• Internal rotation of personnel among the various business

units to enhance integration.

• Standardization of HR management and information

systems.

• Standardization of worldwide HR practices, policies and

procedures to promote the effective management of the

chain's workforce.

• Continuous training in occupational health and safety.

• Improving employee satisfaction through dialogue and

consensus with labour representatives.

• Guaranteeing equal opportunities in recruitment.

• Developing social policies to promote the integration of

disadvantaged groups into the labour market by signing

and implementing alliances.

The Human Resources Department plays a major role in the

integration process. As a services department, it should be

viewed as a human department creating value at all levels.

NH UNIVERSITY

NH University was created in 1996 as a solution to the need

to continue improving service within NH Hoteles and to

integrate and develop NH Hoteles' corporate culture as an

additional means of brand integration.

NH University has grown even faster than the company itself.

NH Hoteles believes that it is essential to involve and train its

employees to make them aware of customer needs and the

services on offer, so that our professionals are our best

ambassadors.

NH University's mission is to collaborate in achieving NH

Hoteles' corporate objectives, by translating the company's

mission and values into concrete actions. NH University also

expedites and facilitates change management and the

introduction of new systems, procedures and products at

corporate and local level.

In 2003, 200,000 training hours were given, involving all

employees in every business unit in the various countries in

which NH Hoteles operates.

NH University is an instrument to promote and transmit the

corporate values and culture and to establish excellence as one

of the principal measures of service quality. Accordingly,

common corporate training programs have been designed for

all business areas, as well as tailor-made programs intended to

meet each business unit's specific training requirements.

The corporate programs common to every business area

include:

• NH's Spirit of Hospitality.

• NH Management and Supervision with Passion.

• Building the future as NH.

The programs delivered to specific groups at local level

include:

• Internal Development Program (PDI) for employees with

potential.

• Cross-selling products in hotels.

• Training the trainer.

• Leadership.

• The art of selling NH.

NH Marbella | Marbella (Spain)

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Try getting away from it all. Try relaxing. Try resting. Try our service. Try our facilities. Try our breakfasts.Try enjoying a weekend in an NH Hotel. 240 hotels in 16 countries.

902 115 116 / www.nh-hotels.com

NH weekend.Try it and you'll come back.

0033

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STYLE, INNOVATION AND QUALITY

AGUA DE LA TIERRA 22

NEW GLOBAL TECHNOLOGY SYSTEM 23

OTHER NEW FEATURES 23

NEW PRODUCTS 24

INTERNATIONAL TOURISM FAIRS 25

NH SHORT STORY AWARD 26

NH STOCK ART 27

COMMUNITY DEVELOPMENT 28

03 STYLE, INNOVATION AND QUALITY

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“AGUA DE LA TIERRA”

New toiletry kit

For the first time, NH Hoteles has developed its own toiletry

kit under the brand name Agua de la Tierra, which is available

in all hotels throughout the chain. This modern kit is geared

towards customer needs.

Early in 2003, the Product Quality and Marketing team

developed a new toiletry kit for the chain in collaboration with

the Sales and Purchasing departments. After many months of

work and several market and customer surveys, a high quality

product has been produced, with a better image and more

competitive price than the previous kit.

Additionally, as an in-house product, it will provide significant

cost savings.

The Agua de la Tierra range takes its inspiration from Spain

and the Mediterranean. The new products have a refreshing

citrus aroma.

The products are packaged in high-quality 40ml bottles and

the Company has chosen first-rate, natural products such as

glycerine soaps and body lotion with orange extract, all

specially-designed to care for the skin.

The content of the new toiletry kit varies according to the

category of the hotel. At Collection hotels, the kit consists of

shower gel, shampoo, a bar of soap, a comb, shaving cream

and a razor, body lotion, a dental kit and a hairbrush. The NH

Hoteles line offers a different kit consisting of shower gel,

shampoo, a bar of soap, a comb, shaving cream and a razor,

body lotion and a dental kit, and the chain's economy line kit

includes shower gel, shampoo, a bar of soap and a comb. In

addition, customers can obtain a number of extra products,

such as a sewing kit, shower cap or sponge, at the hotel

reception desk.

NH Hoteles also offers customers the Agua de la Tierra

Woman Style kit, exclusive to the chain, which is designed

specifically for women and consists of special products such

as makeup remover and body lotion, among others.

The aim of these initiatives is to improve our day-to-day

services, making each customer's stay as pleasant and as

comfortable as possible.

Due to the success of these new products, NH Hoteles has

decided to make them available for purchase in a 200ml size

gift set.

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NEW GLOBAL TECHNOLOGY SYSTEM

Prior to 2003, all of NH Hoteles' business units used different,

standalone IT systems for administrative, retail and

management processes, as well as internal and external

communication.

This made it difficult to standardise processes and compare

results and management ratios, and also led to greater costs.

As part of the “21st Century Project”, NH Hoteles has

radically modernised all IT systems and services. The project

led to:

• The creation of a single IT system for the business units, for

both front and back office applications.

• The integration of management applications.

• A unified corporate communication network.

• New integration tools.

• More secure data storage and access.

• Guaranteed scalability of IT systems, enabling ongoing, cost-

effective expansion, in line with the company's growth strategy.

• Redundancy within the IT platform and communications

network, providing a failsafe backup.

The modernisation process began in 2002 with the

implementation of the Human Resources, Administrative /

Financial and Procurement systems in Spain and The

Netherlands. A single e-mail domain has gradually been

introduced for all NH Hoteles employees.

The employee web portal (Intranhet), the NH Hoteles group

internal communication system, has proved to be an effective

means of providing relevant information on the company and

is also a standard access point to corporate applications.

The integration of the customer relationship management

(CRM) and front office systems has led to greater knowledge

of our customers and guests, including their preferences and

comments.

By 2003 year-end, all business units had a specific integrated

IT system, regardless of their geographic location and scope

of action.

OTHER NEW FEATURES IN THE LAST 12 MONTHS

• WI-FI: Wireless high-speed internet access is now available

in almost all NH Hoteles establishments in Europe.

• WEB SITE IN CHINESE: In order to access new markets, NH

Hoteles has launched a version of its web site in simplified

Chinese (used in continental China and Singapore). The site

will also be available shortly in traditional Chinese (used in

Hong Kong and Taiwan).

• ELYSIUM, THE SPA AT NH HOTELES: NH Hoteles has

opened two new Elysium Spa centres at the NH Marbella

and the NH Eurobuilding hotel in Madrid. These new

centres, which offer the latest health and beauty treatments,

are in addition to the NH Almenara Golf, Hotel & Spa in

Sotogrande.

• AGREEMENT WITH THISTLE HOTELS: NH Hoteles has

reached an agreement with Thistle Hotels to jointly develop

sales, marketing and communications in the markets in

which they operate, i.e. the UK, Continental Europe, Latin

America, Asia and Africa.

• CLIENT PAGE: NH Hoteles has developed a new online

service which offers customers an exclusive, personalised

web page, providing a more efficient booking service.

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NEW PRODUCTS

NH Hoteles has designed a number of new products with the

aim of becoming a benchmark company within the urban

leisure range. The intention is to offer the customer unique,

original products and activities that cannot be found

elsewhere in the market, by proposing a leisure alternative

that differs from the rest of the hotel sector.

Two examples of NH Hoteles' new proposals are "Content

Weekends" and the "Collection Pack":

• "Content Weekends" are special weekend packages which,

in addition to the opportunity to enjoy the chain's

establishments, offer a number of activities relating to

culture, art, sports, music, literature, nature, cinema, etc.

This initiative offers customers the chance to discover

aspects of Spanish culture, sport and art through renowned

individuals or institutions.

These initiatives are intended to promote a distinct,

innovative form of tourism that is cultural and intelligent,

covering a vast range of options: courses, debates, lectures,

master classes on various leisure, cultural and sporting

activities, etc.

A Content Weekend package includes accommodation,

breakfast, lunch on Saturdays (in most options) and

participation in all the activities featured in the program.

Prices vary according to the type of activity. Reservations

can be made through our information and reservation line

(902 115 200) or the web site (www.nh-hotels.com).

• NH Hoteles now sells the "NH Collection, a dream gift"

pack—a special, innovative way to give someone a night in

city hotels with special cultural charm in Spain.

NH Collection includes one night's accommodation (Friday,

Saturday or Sunday) in a double room or single occupancy

in double, including breakfast, for a total of 99 euros. The

pack is on sale at NH hotels in Spain and can be used until

31 December 2004.

Collection hotels are a superior category of NH hotels, in

beautiful privileged locations and emblematic buildings.

The hotels included in this original promotion are:

NH Príncipe de la Paz in Aranjuez, NH Palacio de la Ferrera

in Avilés (Asturias), NH Podium in Barcelona, NH Palacio de

la Merced in Burgos, NH Amistad in Córdoba, NH Abascal

in Madrid, NH Alanda in Marbella, NH Palacio de

Castellanos in Salamanca, NH Palacio de Oriol in Bilbao,

NH Palacio in Vigo (Pontevedra), NH Palacio del Duero in

Zamora and NH Gran Hotel in Zaragoza.

The Collection hotels in the rest of Europe will be added to

this selection.

Some of these hotels are former palaces that have been

fully restored while respecting the original structures to

preserve the buildings' history.

Gastronomy is usually an additional attraction. The

Collection hotels include the following restaurants:

Muserola (NH Príncipe de la Paz, Aranjuez), headed by

Jesús del Cerro, holder of one Michelin star; La Vinícola (NH

Palacio del Duero, Zamora), which offers local market

cuisine in an incomparable architectural setting; La Ontina

(NH Gran Hotel, Zaragoza), which has become a

gastronomical benchmark in Spain under the management

of Enrique Martínez, prestigious restaurateur and

gastronomical advisor to the chain; and Rincón de la

Merced (NH Palacio de la Merced, Burgos) where, advised

by Enrique Martínez, the two young chefs, Aitor Olabegoya

and Agustí Gebellí, offer seasonal local dishes with a

modern twist.

All Collection hotels boast NH Hoteles' standard details

and services: Wi-Fi wireless internet, the brand-new "Agua

de la Tierra" toiletry kit, a selection of pillows, hairdryer,

minibar, air conditioning, room service, etc.

This promotion is intended to offer a new way of presenting

hotel stays as a gift in cities with special charm and a wide

range of cultural and gastronomic delights.

Collection Pack NH Abascal | Madrid (Spain)

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INTERNATIONAL TOURISM FAIRS

Madrid International Tourism Fair (FITUR) 2004

Madrid International Tourism Fair (FITUR) 2004

NH Hoteles once again participated in the Madrid

International Tourism Fair (FITUR) 2004 and the Berlin

International Tourism Fair (ITB) 2004.

NH Hoteles celebrates its 25th anniversary this year, and it

presented its new services and developments to visitors to

FITUR 2004. NH Hoteles focuses on constant evolution in

order to offer an improved service to meet customers' needs.

This year, NH Hoteles presented two new cutting-edge

gastronomical concepts—"nhube" and "FastGood"—co-

designed by restaurateur Ferran Adriá and NH Hoteles. The

chain also presented distinct innovative services, including Wi-

Fi wireless internet, the new "Agua de la Tierra" toiletry kit, the

NH Collection Pack and the Street Children project.

The stand was visited by Spain's Secretary for Trade, Tourism

and SMEs, Francisco Utrera, and the gastronomical advisor to

NH Hoteles, Ferran Adriá.

NH Hoteles was awarded the prize for the best hotel stand in

the Berlin International Tourism Fair (ITB) 2004 on 12-16

March. A total of nine thousand exhibitors participated in ITB

2004.

NH Hoteles came fifth in the "Tourism Company" category.

The chain's stand covered a total of 112 square meters over

two floors, and featured superb foodservice from NH Berlin

Mitte hotel.

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NH STORY AWARDSINTERNATIONALISATION OF THE NH SHORT STORY AWARDS: OVER 2 MILLION BOOKS PRINTED SINCE 1996

Winners of the VIII NH Short Story Awards with Pilardel Castillo, Spain’s Culture Minister, and ManuelHerrando, Director of NH Hoteles and Chairman ofSotogrande

In August 2003, NH Hoteles presented the VIII NH Short Story

Awards, which included a category in English for the first time.

This literary competition, the only one to be organised by a

hotel chain, awards the largest prize in Spanish language

(60,000 euros) and this edition reflected the company’s

international nature.

Over 400,000 copies of the last three issues containing the

award-winning stories from the previous edition were

distributed in Spain, Argentina, Chile and Mexico. This year,

the new edition was backed by Spain’s Culture Ministry, which

included the NH Short Story Awards in its Reading

Encouragement Plan. This Plan is aimed at reaching all levels

of society through initiatives to encourage reading.

Our hotels in The Netherlands and Belgium also provide our

customers with a copy in English in their rooms so that they

are aware of the award and can enjoy one of the chain’s most

popular products.

The awards cover different aspects of literary creation. In the

last edition, 18,500 euros were awarded for the best

unpublished book of short stories in Spanish (plus subsequent

publication), 9,500 euros for the best unpublished short story

in Spain, and 1,445 euros each to nine runners-up. A new

category in English was introduced, with a prize of 9,500 euros

and subsequent publication for the best unpublished short

story. Also, an award was created for the best book of short

stories published in Spanish in 2003.

The NH Hoteles Short Story Awards are aimed at supporting

short story writers and at encouraging and giving

opportunities to young writers. Focusing on culture, this

competition is intended to stimulate literary creation and

reading as a leisure activity.

THE VIII AWARDS CEREMONY

The awards ceremony was held in the Casino de Madrid in

January 2004. The jury was chaired by Gabriele Burgio and

comprised Luis Landero, Elvira Lindo, Fernando Sánchez

Dragó, Francisco Gutiérrez Carbajo and José Luis Martín

Nogales. The English jury was formed by English Literature

professors Ángeles de la Concha and Teresa Gibert. The

awards were given by Pilar del Castillo, Spain’s Culture

Minister, and Manuel Herrando, Chairman of Sotogrande and

Director of NH Hoteles.

Juan Eduardo Zúñiga won 9,500 euros in the category of best

book of short stories published in 2003 for “Capital de la

gloria”. Emilio Gavilanes won 18,500 euros in the category of

the best unpublished book of short stories for “La tabla del

dos”.

Mexican writer Ignacio Padilla won 9,500 euros in the category

of best short story for “Las furias de Menlo Park”.

Australian-born Gloria Montero won 9,500 euros in the first

edition of the award for best short story in English for

“Mènage á trois”.

The following short stories were finalists: “Las manos de

Akiburo” by Ángel Cabrera (from Granada); “Mentiras sobre

Ondarreta” by Juan Pimentel (Madrid); “Igual que entonces”

by Eloy Cebrián (Albacete); “El vampiro en la baldosa” by

Francisco Javier Sagarna (Madrid); “Ucronía” by Arcadio García

(Barcelona); “Adviento” by Juana Salabert (Madrid); “La

mirada del zimmermann” by Manuel Lozano Leyva (Sevilla);

“Han matado a la señorita Oteiza, mamá” by Javier Izcue

(Pamplona); “Doscientos años no es nada” by Lola Beccaria

(Madrid); and “Doy mi nombre” by José Manuel Abad

(Granada).

NH Hoteles has published over 2 million copies of its books since 1996

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Above, presentation of Stock Art in Berlin (Germany).Gabriele Burgio in the centre | Below, presentationof Stock Art in Amsterdam (The Netherlands)

NH STOCK ART GOES ABROAD

NH Hoteles presented the 50 works of art comprising the NH

Stock Art collection outside Spain for the first time. NH is the

only hotel chain that provides this innovative proposition,

which supports young painters and has reflected creative

trends since the 1980s.

NH Stock Art, which was created in 1998, is a collection of 50

works of art selected from among the over 3,000 pieces

comprising the chain’s private collection and it is aimed at

decorating the common areas of our hotels for our clients'

enjoyment.

NH Stock Art is a travelling exhibition open to the public which

is shown at the chain’s hotels. So far, the collection has travelled

to many Spanish cities such as A Coruña and Valladolid and in

2003, for the first time, it was presented in The Netherlands. The

exhibition opened in Berlin in March 2004 and will visit several

European cities between now and year-end.

THE NETHERLANDS

In 2004, there were exhibitions in Amsterdam, Maastricht and

Rotterdam as part of the NH Hoteles commitment to take its

works of art to all the countries in which it is present.

For the exhibition in The Netherlands, at the NH Amsterdam

Centre NH Hoteles acquired six new works by Dutch painters,

which enrich the collection and considerably enhance its

international dimension.

Specifically, NH Hoteles bought paintings by Lita Cabellut,

Nan Groot Antink, Eric Knoote, Jan Van den Berg, Warffemius

and Harry Wolfkamp.

GERMANY

NH Stock Art was presented at NH Berlin-Mitte hotel in

Germany on 17 March 2004. Gabriele Burgio presided over

the ceremony, which was attended by important German art

critics and cultural celebrities.

The collection will then travel to Frankfurt and Hamburg, for

which the chain has selected six new works by German

painters: Kurt Ebbers, Martin Gerwers, Harald Gnade, Thomas

Hartmann, Andre Martus and Wolfgang Sahlmann.

After the presentation in Germany, the collection will travel to

other countries in which NH Hoteles operates, such as

Hungary and Switzerland. The company is also studying the

possibility of exhibiting the NH Stock Art collection in Latin

America, in the NH hotels in Mexico and Mercosur.

Presentation of Stock Art in Berlin (Germany)

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CORPORATE SOCIAL RESPONSIBILITY

“STREET CHILDREN” PROJECT

NH Hoteles and Fundación Codespa signed an agreement

for the “Street Children” project in August 2003. This is the

first social programme in which NH Hoteles has involved all

the company and the only one of this type implemented by a

Spanish company in Mexico.

The project provides young people living in Mexico City’s

streets with opportunities for professional development and

social reintegration through training in the hospitality

business. During the course subsidised by NH Hoteles, the

chain offers the students the possibility of work experience.

The real spirit of the project is to insert young people into the

labour market, for which NH Hoteles proposes various actions

during the course in order to achieve all-round success. This

is a long-term initiative, a project for the future, a Company-

wide commitment.

Brochure of the “Street Children” project, in collaboration with Fundación Codespa

Presentation of the “Street Children” project in Mexico, with Gabriele Burgio, Chairman of NH Hoteles.

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COLLABORATION INITIATIVES

In 2003 and 2004, NH Hoteles collaborated with the following

institutions:

FUNDACIÓN CAROLINA (SPAIN)

MESSENGERS OF PEACE (ARGENTINA)

WAR CHILD FOUNDATION (THE NETHERLANDS)

COOPERADORA DE ACCIÓN SOCIAL (ARGENTINA)

SOLIDARIOS PARA EL DESARROLLO (SPAIN)

AMEX (SPAIN)

PRINCE CLAUS FOUNDATION (THE NETHERLANDS)

MADRID ROTARY CLUB (SPAIN)

MOTHER TERESA’S HOMES (ÁFRICA)

AFANIC (SPAIN)

UNICEF AWARDS (SPAIN)

SPANISH CANCER ASSOCIATION (SPAIN)

FUNDACIÓN IUVE (SPAIN)

FUNDACIÓN ESTEBAN G. VIGIL (SPAIN)

FUNDACIÓN PRESTIGE (SPAIN)

FUNDACIÓN CESAL (SPAIN)

MANOS UNIDAS (SPAIN)

CÁRITAS (SPAIN)

INTERMON (SPAIN)

SAVE THE CHILDREN (SPAIN)

SPONSORSHIP OF THE DALAI LAMA’S VISIT (SPAIN)

NUEVO FUTURO (SPAIN)

FUNDACIÓN MADRINA (SPAIN)

VILLA-PAZ HOMELESS HOSTEL (SPAIN)

SPANISH RED CROSS (SPAIN)

FUNDACIÓN MENUDOS CORAZONES (SPAIN)

FUNDACIÓN PEQUEÑO DESEO (SPAIN)

“UNA CASA PARA LOS POBRES” ASSOCIATION (SPAIN)

FUNDACIÓN SURT (SPAIN)

FUNDACIÓN SEMILLA (SPAIN)

FUNDACIÓN ADECCO AND SOCIAL AFFAIRS

MINISTRY (SPAIN)

FUNDACIÓN VALORA (SPAIN)

NH Hoteles’ mission in Ethiopia, where it shipped material last summer

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902 115 116 / www.nh-hotels.com

Gastronomy & NHDiscover our cuisine. Discover new sensations.Discover our service. Discover a unique gastronomic experience.Discover it for yourself at one of NH's 240 hotels worldwide.

0044

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INNOVATIVE GASTRONOMY

FAST GOOD 32

GASTRONOMY SCHOLARSHIPS 34

NHUBE 35

04 INNOVATIVE GASTRONOMY

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“FAST GOOD”

Fast Good |Eurobuilding | Madrid (Spain)

In March 2004, NH Hoteles inaugurated its first Fast Good

area at NH Eurobuilding in Madrid. This new gastronomic

concept, the result of research undertaken by Ferran Adrià

and his team, is an innovation destined to revolutionise the

current gastronomic offering in hotels. Fast Good combines

fast food and high quality with the added guarantee of Ferran

Adrià's hallmark excellence.

The new Fast Good area is situated on the corner of the NH

Eurobuilding in Madrid, one of the chain's flagship hotels.

Prestigious restaurateur Ferran Adrià and NH Hoteles are

convinced that the Fast Good concept will be highly

successful, not just in Spain but throughout Europe, where it

will be launched shortly. This is the second initiative to be

developed by Ferran Adrià and NH Hoteles, following the

success of nhube.

Ferran Adrià explained that “we arrived at the Fast Good

concept after researching the different country markets.

Business customers often have little time to eat but they are

interested in looking after themselves and eating well.

Therefore, we are convinced that this new concept is going to

be a success."

Fast Good offers a first-rate menu, in terms of both content

and preparation. Customers can choose from a wide range of

bottled drinks, such as mandarin & mango juice or yoghurt

with a hint of lime, among others. There is also a variety of

sandwiches, salads and homemade soups, such as autumn

broth or cream of sweetcorn with vanilla. For those with large

appetites, we recommend the panini or the fine selection of

hamburgers. Fast Good also serves a range of coffees, hot

chocolates and drinks to cater to all tastes.

As its name suggests, Fast Good combines supposedly

mutually-exclusive concepts in a natural, attractive and

appealing way.

The general atmosphere is informal, thanks to the strong

colours used: apple green for the windows, fuchsia pink

behind the counter and bright blue for the hanging lamps.

These three colours are used throughout the restaurant: the

tags identifying each dish, the seats and chairs, the logo on

packaging, the place mats and take-away cartons.

The elegant, sophisticated ambience is created by the dark-

wood tables, dark grey flooring and pearl grey walls, which

serve as a neutral backdrop to the explosion of bright colours.

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Ferran Adrià featured on the cover of The New York Times and Le Monde supplements

The restaurant fixtures include a vast selection of washable

materials, from the tiled floor, the vinyl wallpaper, the

polythene and methacrylate seating, the stainless steel stools

and the ubiquitous shiny aluminium, to the laminated wood

tables and counters. No fabrics have been used in order to

avoid grime and odours but the ambience is nevertheless

warm and welcoming.

The high-tech kitchen area, in full view of the customers, is

entirely fitted out in steel to ensure easy maintenance and

impeccable hygiene.

The bathrooms are decorated in a combination of round

white stoneware tiles and grey stucco in keeping with the laid-

back, elegant style.

Various seating areas give an overall air of comfort and

liveliness, with high counters for the individual customer in a

hurry, tables for one, two or more which can be pulled

together, and easy chairs for more relaxed, informal dining.

Television screens showing travel, sports and fashion

programmes, visible from all areas, make waiting brief and the

stay pleasant.

A select menu which changes each week, a revolutionary

flexible prepayment system, and quick, specialist service

make Fast Good both traditional and innovative.

Rodrigo Rato, Ferran Adrià, Rafael Ansón and Gabriele Burgio at the tribute to Spanish cuisine

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GASTRONOMIC SCHOLARSHIPS

Gastronomic scholarships. The President of NH Hoteles and Ferran Adrià

In 2003, NH Hoteles launched the “1st NH Hoteles

Gastronomic Encounter” as part of the chain's new

gastronomic approach. Six young chefs from Europe and

Latin America were chosen from 700 hopefuls to receive a

years' training at the highest level, with accommodation and

a monthly allowance provided.

The NH Hoteles scholarships began on 1 July 2003 at four

internationally-renowned restaurants with a total of nine

Michelin stars between them. These scholarships once again

highlight the importance NH Hoteles places on fine food and

its commitment to haute-cuisine.

The four restaurants included in the scholarship programme,

where each student will spend three months, are: El Bulli in

Gerona, under the management of Ferran Adrià (3 stars, chief

advisor to the group); Martín Berasategui in Lasarte, managed

by Martín Berasategui (3 stars); Vermeer in The Netherlands,

managed by Pascal Jalhaij (2 stars), and Schlossrestaurant in

Germany, managed by Christian Scharrer (1 star).

The six scholarship students will receive a years' extensive

training under the tutelage of renowned restaurateurs before

being hired by the company.

NH Hoteles is committed to gastronomic excellence, in terms

of both customer satisfaction and staff training.

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“NHUBE”

Nhube at NH Balboa, a pioneering hotel concept created by Ferrán Adrià and NH Hoteles

In early March 2003, NH Hoteles opened its first nhube space,

a pioneering concept designed by Ferrán Adrià that

combines the lounge, bar/cafeteria and restaurant areas at

NH Balboa in Madrid. It provides a multi-functional space

where customers can watch television, surf the Internet, listen

to music, eat, drink, read or simply relax.

The concept aims to combine dining, leisure and relaxation,

for guests and non-guests alike. The first nhube space was run

as a pilot project to further refine the new gastronomic

offering according to customer needs and suggestions.

Given the positive results of the initiative and its superb

reception, NH Hoteles has decided to open new multi-

functional nhube spaces in various hotels. In 2004, five new

spaces will be opened in Spain in Cartagena (opened in

February 2004), Madrid and Seville. The company also plans

to expand the concept abroad. Nhube is scheduled to be

inaugurated at NH's hotel in the Hague (The Netherlands) in

2004, offering both international and Dutch customers an

innovative gastronomic concept. Another nhube space will

shortly be opened at the NH Vienna Airport hotel (Austria).

These nhube concepts will be similar to those launched at NH

Balboa (Madrid) and NH Cartagena, but adapted to cater to

each hotel's individual requirements.

The nhube decor is characterized by neutral colours and

natural materials and the specially-designed furniture helps

to define the different areas. The lighting combines fixed

halogen spotlights with indirect light, standard lamps and

uplighters, as well as built-in floor lighting, to create a magical

atmosphere. These features create a welcoming space which

is highly suitable for NH Hoteles business clientele and is in

keeping with the style of the chain.

The nhube menu, designed by Ferrán Adrià, is based on

simple, high-quality meals, where first-rate ingredients and

original presentation are key elements. Nhube will continue

to provide home-cooked quality to its guests..

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902 115 116 / www.nh-hotels.com

The World & NH240 hotels in 16 countries.

Over 35,000 rooms.Welcome to the NH World.

0055

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SOTOGRANDE

THE ESTATE 38

I. LA RESERVA 38

II. OTHER DEVELOPMENTS 38

NEW NH SOTOGRANDE HOTEL 39

NH ALMENARA DECLARED

EUROPE'S BEST SPA HOTEL 39

REORGANIZATION OF SOTOGRANDE 39

EARNINGS 40

BOARD OF DIRECTORS AND MANAGEMENT COMMITTEE 41

05 SOTOGRANDE

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SOTOGRANDE "A WAY OF LIFE"

La Reserva Golf Club | Sotogrande - Cádiz (Spain)

THE ESTATE

Sotogrande is considered to be the most prestigious

residential development on the Costa del Sol and one of the

most exclusive in Southern Europe. NH Hoteles currently

controls 78.7% of Sotogrande S.A. and completes the real

estate offering with projects related to exclusive leisure and

hospitality.

I. LA RESERVA

"La Reserva" is an area dedicated to golf, with views over the

finest courses, equipped with the best infrastructure and

services to offer year-round luxury.

In August 2003, NH Hoteles opened La Reserva's first golf

course. The 18-hole golf course, designed by Cabell

Robinson on a 72-hectare site, has been well received in the

few months following its recent inauguration, and it reflects

the major efforts made by La Reserva de Sotogrande. The

complex's first 6,950-meter golf course has four lakes and

impressive greens designed by Tom Lamb. Sotogrande plans

to build a second signature 18-hole golf course at La Reserva.

The spectacular La Reserva Club House is expected to open in

the summer of 2004 and will serve the complex's two golf courses.

At 2003 year-end, 270 of a total of 450 plots, most of which

have views of the golf course, went on sale. These plots are

among the best that Sotogrande has launched since its

creation 40 years ago.

"Los Cortijos de La Reserva", a development consisting of

homes overlooking the golf course, is also for sale. The 76

luxury villas and homes along the avenue leading to La

Reserva Club House will be delivered in the second half of

2006; 18 of them were sold before construction commenced.

II. OTHER DEVELOPMENTS

La Marina de Sotogrande offers a wide range of properties.

La Ribera del Obispo is a 29-apartment complex with direct

views of the marina. The location is ideal, at the very entrance

of La Marina golf course and a mere stone's throw from the

shops, bars and restaurants and from the beach and the main

entrance to the marina.

La Ribera del Guramí is a development of 33 luxury

apartments under construction between Ribera del Obispo

and Ribera del Arlequín, with panoramic sea views. The

apartments will be delivered in 2004, and only one apartment

remains unsold.

Ribera del Marlín, a combined 33,000 m2 residential and

commercial complex, is expected to be launched in late

2004.

Phase two of Las Cimas, a 21-home complex using cutting-

edge architecture overlooking the NH Almenara hotel golf

course, will be launched in summer 2004 through RESCO-

Sotogrande (50%-owned by Sotogrande).

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Map of Sotogrande

NEW NH SOTOGRANDE HOTEL

Every year, more visitors come in search of the Sotogrande

lifestyle. Therefore, in order to establish a symbol for the

development, NH Hoteles decided to renovate the historical

Sotogrande hotel. It is currently being refurbished and will

open in the third quarter of 2004. The new four-star hotel will

boast 112 spacious rooms, a swimming pool, an open-air

restaurant and multi-purpose rooms, and will be located

opposite La Cabaña restaurant.

NH ALMENARA DECLARED EUROPE'S

BEST SPA HOTEL

In November 2003, NH Almenara Golf Hotel & Spa won the

Most Excellent European Spa Hotel award in the 2003 Condé

Nast Johansens award ceremony. This is one of the most

prestigious distinctions worldwide. The Condé Nast

Johansens Awards for Excellence are presented annually to

those establishments that represent the finest standards and

best value for money in luxury and independent travel.

The award certifies the good work by the NH Almenara Golf

& Spa hotel team. The hotel is very representative of the NH

chain and has gradually established itself as a European

benchmark in golf and health and beauty services.

The 27-hole golf course designed by Dave Thomas surrounds

the NH Almenara hotel, and its top-level golf academy has

been recognized officially as a high-performance sports

training center.

Sotogrande participated actively in the Volvo Masters

Andalucia 2003 (part of the EPGA tour), which was held in the

Valderrama Golf Club. The Volvo Masters Amateur took place

in the NH Almenara golf complex.

REORGANIZATION OF SOTOGRANDE

Sotogrande performed a rights issue in 2003—which entailed

the issuance of 7,232,265 new shares and the entry of Caja

Madrid into Sotogrande's ownership structure with a 17.3%

stake—thus concluding the series of transactions approved

by the Boards of Directors of NH Hoteles and Sotogrande in

December 2002. The objective was to streamline the Group's

structure by grouping together all the business hotels under

the NH Hoteles parent company and the golf and tourist

hospitality activities under Sotogrande. As a result of the

capital increase, NH Hoteles now owns 78.7% of Sotogrande,

S.A. The transaction involved the following measures:

1. In December 2002, NH Hoteles purchased 49% of AHORA,

a company which owns Casino de Madrid, Los Retamares

Golf Club, Aymerich Golf Management and seven NH

hotels, from Caja Madrid. AHORA is now wholly owned by

NH Hoteles.

2. The Sotogrande Special Shareholders' Meeting in January

2003 approved the issuance of 7,232,265 new shares for a

total of 70.24 million euros including an issue premium. NH

Hoteles did not subscribe to the rights issue, and the Caja

Madrid Group subscribed and paid for the 7,227,642 shares

that were not taken up by the market. The Caja Madrid

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La Reserva | Sotogrande - Cádiz (Spain) La Marina | Sotogrande - Cádiz (Spain)

Group also purchased 4,623 old shares of Sotogrande from

NH Hoteles in order to achieve the agreed stake in

Sotogrande.

3. All of AHORA's assets relating to tourist hotels, golf, leisure

and hospitality (i.e. Casino de Madrid, Los Retamares Golf

Club, Aymerich Golf Management and the hotels in

Marbella) were transferred to Sotogrande.

4. The rest of AHORA's assets (i.e. seven urban hotels)

remained in AHORA's portfolio (100%-owned by NH

Hoteles), namely: NH Ciudad de Santander, NH Avenida de

Jerez, NH Palacio de Castellanos, NH Ciutat de Reus, NH

Luz Huelva , NH El Toro and NH La Perdiz.

In October 2003, NH Hoteles' Management Committee

approved the appointment of Gustavo Gabarda Durán as the

new Chief Executive Officer of Sotogrande, S.A.

Gustavo Gabarda, who worked for over ten years with

JPMorgan before restructuring Portugal's largest steel group,

has been a member of Sotogrande's Board of Directors since

1996. Gustavo Garbarda Durán is now in charge of the

Sotogrande Business Unit, enabling Ignacio Aranguren,

Sotogrande's former CEO, to dedicate more time to

designing the strategy and supervising the management of

the NH Hoteles Group.

EARNINGS

Sotogrande performed well in 2003: booked property sales

amounted to 56.88 million euros and committed sales yet to

be booked reached a record 70.2 million euros, with 42.2

million euros in profit. This compares very favorably with the

situation on 31 December 2002, when committed sales

pending booking amounted to 34.8 million euros, with 15.9

million in profit (i.e. less than half the present figure).

Sotogrande's contribution to Group EBITDA totalled 31.56

million euros.

Between January 2003 and March 2004, Sotogrande's share

appreciated by 14%. Geopolitical uncertainties triggered a

slump in the stock markets in 2003, causing Sotogrande's

share price to fall 38%; however, the stock has gained 57%

since then. Sotogrande's market capitalization totals 335.1

million euros and free float amounts to 4% of capital.

9.0

8.5

8.0

7.5

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0Apr May Jun Jul Aug Sep Oct Nov Dec 03 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 04 Feb Mar

SOTOGRANDE MARKET PERFORMANCE

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BOARD OF DIRECTORS - NH HOTELES, S.A.

President and Chief Executive Officer:

GABRIELE BURGIO

Directors:

RAMON BLANCO BALÍN

JOSÉ DE NADAL CAPARÁ

RODRIGO ECHENIQUE GORDILLO

ALFREDO FERNÁNDEZ DURÁN

Mª ELENA GIL GARCÍA

MANUEL HERRANDO Y PRAT DE LA RIBA

AURELIO IZQUIERDO GOMEZ

BERNARD s’JACOB

ALFONSO MERRY DEL VAL GRACIE

MIGUEL RODRÍGUEZ DOMÍNGUEZ

LUIS F. ROMERO GARCIA

Secretary to the Board:

JOSE MARÍA MAS MILLET

Vice-Secretary to the Board:

J. IGNACIO ARANGUREN GONZÁLEZ-TARRÍO

Gabriele Burgio

Executive Chairman

Isabel Aguilera

Chief Operating Officer

Ignacio Aranguren

General Manager of CorporateInvestment and Strategy

Roberto Chollet

Chief Financial Officer

Gustavo Gabarda

Sotogrande ChiefExecutive Officer

Juan Mora

Human Resources Manager

MANAGEMENT COMMITTEE - NH HOTELES, S.A.

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Spain, Germany, The Netherlands, Belgium, Portugal, Austria, Switzerland, Hungary, Argentina, Mexico, Cuba, Uruguay, Chile, Brazil, South Africa and Ghana.240 hotels in 16 countries. 35,000 rooms on three continents. The NH philosophy goes farther every day.

902 115 116 / www.nh-hotels.com

Our brand reaches around the globe.

0066

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CORPORATE GOVERNANCE

NH HOTELES ANNUAL CORPORATE

GOVERNANCE REPORT 44

AUDIT COMMITTEE REPORT 56

06 CORPORATE GOVERNANCE

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INTRODUCTION

This Annual Corporate Governance Report complies with the

provisions of article 116 of Spain’s Securities Market Law and

its content conforms to the provisions of Economy Ministry

Order 3722/2003, dated 26 December.

This Report is structured as follows:

1. Ownership structure.

2. Board of Directors structure.

3. Related-party transactions and intragroup transactions.

4. Risk control systems.

5. Operation and action of the Shareholders’ Meeting.

6. Degree of compliance with corporate governance

recommendations.

I. OWNERSHIP STRUCTURE

• Share capital:

NH HOTELES, S.A.’s share capital amounts to 239,065,796

euros, comprising 119,532,898 subscribed and fully-paid

shares of the same class each with a nominal value of 2 euros,

represented by the book-entry system.

NH HOTELES, S.A. is listed on the Madrid, Barcelona, Bilbao,

Valencia and Amsterdam stock exchanges and forms part of

Spain’s blue-chip index, the IBEX-35.

• Most significant stakes, in accordance with the information

available to the Company:

Based on Company information, the following shareholders

own over 5% of the total paid-up share capital:

• Board of Directors stakes:

Based on Company information, the following Directors of NH

HOTELES, S.A. own the following shares of NH HOTELES, S.A.

at the date of this report:

• Family, commercial, contractual or corporate relationships

between owners of significant stakes and the Company or

among owners of significant stakes:

The Company is not aware of any family, commercial,

contractual or corporate relationships between owners of

significant stakes and the Company or among owners of

significant stakes other than those stated in section III:

RELATED-PARTY TRANSACTIONS AND INTRAGROUP

TRANSACTIONS.

• Shareholder agreements.

The Company is not aware of any shareholder agreements

that relate to voting at Shareholders’ Meetings or that

condition or restrict the free transferability of shares.

• Percentage of own shares.

At 2003 year-end, Grupo NH HOTELES, S.A. owned 204,712

own shares, representing 0.17% of capital, at a total cost of

1.54 million euros. Own shares are valued at book value, i.e.

5.14 euros per share.

In 2003, there were significant changes in own shares:

- Acquisition of 1,314,782 shares on various days during

the year.

- Sale of 2,100,000 shares (to hedge the stock option plan

for employees of Grupo NH HOTELES, S.A.).

NH HOTELES, S.A. ANNUAL CORPORATEGOVERNANCE REPORT

% DIRECT % INDIRECTSHAREHOLDER STAKE STAKE % TOTAL

ALAZAN INVERSIONES 2001,

SIMCAV, S.A. 5.080 0.000 5.080

ANGELINI, FRANCESCO 0.000 5.240 5.240

CAJA DE AHORROS Y

MONTE DE PIEDAD DE MADRID 0.000 5.000 5.000

CORPORACION FINANCIERA

CAJA DE MADRID, S.A. 5.000 0.000 5.000

FINAF 92, S.A. 5.240 0.000 5.240

HOTELES PARTICIPADOS, S.L. 5.001 0.000 5.001

KEBLAR DE INVERSIONES,

SIMCAVF, S.A. 5.190 0.000 5.190

ORTEGA GAONA, AMANCIO 0.000 10.270 10.270

CAJA DE AHORROS DE VALENCIA,

CASTELLON Y ALICANTE, BANCAJA 5.000 0.000 5.000

% DIRECT % INDIRECTSHAREHOLDER STAKE STAKE % TOTAL

BLANCO BALIN, JOSE RAMON 0.020 0.011 0.031

BURGIO, GABRIELE 1.260 0.000 1.260

CAJA DE AHORROS DE VALENCIA,

CASTELLON Y ALICANTE, BANCAJA 5.000 0.000 5.000

DE NADAL CAPARA, JOSE 0.000 0.000 0.000

ECHENIQUE GORDILLO, RODRIGO 0.007 0.000 0.007

GIL GARCIA, ELENA 0.000 0.000 0.000

HERRANDO PRAT DE LA RIBA, MANUEL 0.003 0.000 0.003

MERRY DEL VAL GRACIE, ALFONSO 0.000 0.000 0.000

RODRIGUEZ DOMINGUEZ, MIGUEL 0.003 0.000 0.003

ROMERO GARCIA, LUIS FERNANDO 0.000 0.000 0.000

SJACOB, BERNARD 0.000 0.000 0.000

FERNANDEZ DURAN, ALFREDO 0.000 0.000 0.000

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Additionally, the Company hedged, with a financial

institution, the stock option plan (4,400,000 shares) for group

employees, which was approved by the Shareholders’

Meeting. That transaction is detailed in the Company’s

financial statements.

By virtue of the resolution adopted by the Shareholders’

Meeting on 28 April 2003, the Company is authorised to

pledge and/or acquire own shares, directly or indirectly, via

an official secondary market and for a price not lower than

their nominal value or higher than the share price at the time

of acquisition, where the nominal value of the shares acquired

and pledged cannot at any time exceed 5% of the total share

capital.

II. BOARD OF DIRECTORS STRUCTURE

The Board of Directors Regulation, which was approved by a

Board of Directors resolution on 20 December 1999 and

subsequently amended on 28 April 2003, determines the

Board of Directors’ principles of action, regulates its

organisation and operation, and lays down the code of

conduct for its members, the overall aim being to maximise

efficiency and optimise management.

The Board of Directors intends to revise the content of that

Regulation so as to adapt it to Transparency Law 26/2003,

dated 17 July, and to submit the final wording to the

forthcoming Shareholders’ Meeting.

All shareholders can read the full text of the current

Regulation on the Company’s web site or request the delivery,

free of charge, of an updated copy since it is the Company’s

desire to make significant information such as Corporate

Governance rules available to investors at all times.

The Board of Directors Regulation defines the Board of

Directors' role as supervising and overseeing the Company's

activities, while delegating day-to-day management to the

executive bodies and management team.

Notwithstanding the above, and to ensure better and more

diligent performance in its general supervisory role, the Board

is committed to exercising directly the following

responsibilities, in addition to the powers given exclusively to

it by law or the Bylaws:

a) Approval of the Company's general strategies;

b) Appointment and, if necessary, dismissal of senior

executives of the Company and other companies

within the consolidated group;

c) Appointment and, if necessary, dismissal of Directors

in the various subsidiaries;

d) Identification of the Company’s principal risks and

implementation and monitoring of appropriate

internal control and information systems;

e) Definition of information and communication policies

concerning shareholders, markets and public opinion;

f) Definition of the own share policy within the framework

defined by the Shareholders' Meeting;

g) Authorisation of transactions between the Company

and Directors or core shareholders which may present

a conflict of interests; and

h) In general, performance of business or financial

operations of particular significance for the Company.

Furthermore, the Board of Directors Regulation establishes

that the Board's actions must be guided at all times by the

aims of maximising the company's value and the consequent

creation of shareholder value, strictly in accordance with

generally accepted ethical values and principles.

• Composition of the Board of Directors.

The Board of Directors of NH HOTELES, S.A. currently

consists of 12 Directors. In accordance with the Regulation, a

distinction is made between executive and external Directors,

the latter being divided into two categories: proprietary and

independent.

The President/CEO and remaining Directors with

management duties, in whatever form, within the Company

or its subsidiaries (provided that these duties are discharged

on an exclusive basis) are considered to be executive

Directors.

Proprietary Directors are those nominated by shareholders

with a significant stable stake in the Company's capital.

Independent Directors must be well-known prestigious

professional or business figures who are not linked to the

management team or the core shareholders. In appointing

these Directors, the incompatibility rules within the Board of

Directors Regulation (substantially similar to the Aldama Report)

are taken into account.

In line with the aforementioned criteria, the names and year

of appointment of the Directors are as follows:

Executive Directors:

Gabriele Burgio. (1993).

Proprietary Directors:

José de Nadal Capará. (1997).

Mª Elena Gil García (2003).

Caja de Ahorros de Valencia, Castellón y Alicante –Bancaja,

represented by Aurelio Izquierdo Gómez (2001).

Alfredo Fernández Durán (2002).

Independent Directors, prestigious professionals or

entrepreneurs who are not linked to the management team

or the core shareholders:

Manuel Herrando y Prat de la Riba. (1992).

Luis F. Romero García. (1996).

Ramón Blanco Balin. (1997).

Rodrigo Echenique Gordillo. (1997).

Alfonso Merry del Val Gracie. (1997).

Bernard s´Jacob. (2000).

Miguel Rodríguez Domínguez. (2003).

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The Board Secretary—whose fundamental role is to supervise

the good operation of the Board and the formal and material

legality of its actions, to ensure that procedures and

governance rules are respected, and to ensure that the

minutes contain the proceedings of Board sessions and to

certify any resolutions adopted—is José María Mas Millet,

with J. Ignacio Aranguren González-Tarrío acting as Vice-

secretary.

Therefore, the composition of the NH HOTELES, S.A. Board

of Directors complies with the recommendations of the Code

of Good Governance, as external Directors (both proprietary

and independent) greatly outnumber executive Directors (11

to 1), and independent Directors outnumber proprietary

Directors (7 to 4), on account of the fact that, in the current

ownership structure, free float is substantially greater than the

sum of the significant stable stakes represented by the

proprietary Directors.

• Rules of organisation and operation of the Board of

Directors:

- Board selection procedures

The Directors are appointed by the Shareholders’ Meeting or,

provisionally, by the Board of Directors, in accordance with

the provisions of the Spanish Corporations Law and the

Company Bylaws.

The proposed Director appointments submitted by the Board

of Directors to the Shareholders’ Meeting and the

appointment resolutions adopted by the Board by virtue of

the legally attributed co-option powers must respect the

provisions of the Board of Directors Regulation and be

preceded by the corresponding report by the Appointments

and Remuneration Committee, which is not binding.

- Appointment of external Directors

The Board of Directors Regulation makes special reference to

the appointment of external Directors because of their unique

features with respect to executive Directors. The basic

characteristics of the appointment of external Directors are as

follows:

1. Proprietary Directors

Proprietary Directors must be appointed by owners of

significant stable stakes, and the other Directors must

vote so that such appointments or proposed

appointments are approved by the Board of Directors.

2. Independent Directors

Within their respective powers, the Board of Directors

and the Appointments and Remuneration Committee

must strive to ensure that the candidates for

independent Directors are persons of acknowledged

probity, ability and experience who are willing to

dedicate sufficient time to the Company.

For the post of independent Director, the Board of

Directors cannot propose or appoint a person who has,

or has had in the previous two years, stable significant

relations with Company management, has family,

professional or commercial relations with any executive

Director or other Senior Managers of the Company, or

has stable relations with proprietary Directors or the

companies or business groups which they represent.

In particular, the following persons cannot be proposed

or appointed as independent Directors:

a) persons who hold or have held senior executive

positions at the Company in the previous two years;

b) relatives (up to the fourth degree of kinship) of persons

who are or have been executive Directors or senior

managers at the Company in the previous two years;

c) persons who, directly or indirectly, have made or

received significant payments to or from the Company

that might jeopardise their independence;

d) persons who have or have had other relations with the

Company which, in accordance with the Appointments

and Remuneration Committee, might jeopardise their

independence.

- Re-election of Directors

The proposal for re-election of Directors that the Board of

Directors submits to the Shareholders’ Meeting must be

subject to a formal drafting process, necessarily involving a

report by the Appointments and Remuneration Committee in

which it assesses the quality of their work and the dedication

of the proposed Directors during their mandate.

- Term of office

Directors have a three-year term.

Directors appointed by co-option will hold office until the

date of the next Shareholders’ Meeting.

Directors who terminate their mandate or who, for any other

reason, leave their position cannot, in the following two years,

provide services to another company with a similar or analogous

corporate purpose to that of the Company or any of the

companies comprising its Group.

If the Board of Directors sees fit, it can exempt the outgoing

Director from that obligation or shorten the two-year period.

- Removal of Directors

Directors will be removed when the period for which they

were appointed has expired or when so resolved by the

Shareholders’ Meeting by virtue of its legal powers.

The Directors must offer their resignation to the Board of

Directors and resign in the following cases:

a) Upon reaching the age of 70. Directors with executive

functions must retire as executives upon reaching the age

of 65 although they may continue as Directors, if the Board

so determines.

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In this case, Directors will be removed at the first Board

meeting after the Shareholders’ Meeting that approved

the financial statements of the year in which the Director

reached the age limit.

b) When they cease to hold the executive positions

associated with their appointment as Directors or when the

reasons for which they were appointed cease to hold; this

is understood to occur to a proprietary Director when the

Company or business Group which he/she represents

ceases to hold a significant stake in the share capital of the

Company or to an independent Director when he/she

becomes a member of the executive team of the Company

or any of its subsidiaries.

c) In the event of infringement of any of the incompatibility

regulations or prohibitions established by law.

d) When the Appointments and Remuneration Committee

gives them a serious reprimand for failing to comply with

any of their obligations as Directors.

e) When their permanence on the Board jeopardises the

Company’s credit or reputation in the market or any other

Company interests.

• Committees within the Board of Directors.

- Delegate Committee.

The creation of a Delegate Committee is envisaged both in

the Company's Bylaws and in the Board of Directors

Regulation. This committee has a general decision-making

capacity and, consequently, all powers which correspond to

the Board of Directors can be expressly delegated to it,

except those which cannot, by law, be delegated.

However, the small size of the Board of Directors has made it

unnecessary to date to establish this committee and delegate

power to it.

- Other Committees.

The Regulation empowers the Board of Directors to create

one or more committees to take charge of examination and

ongoing oversight of any area of particular relevance to the

good governance of the Company or the monographic

analysis of a particular aspect or matter of particular

significance or importance.

The committees in existence at this time are the Audit and

Control Committee and the Appointments and Remuneration

Committee.

- Audit and Control Committee

The main function of Audit and Control Committee, created

on 30 June 2000, is to support the Board of Directors in its

supervisory and oversight duties, the most important of these

being to ensure the correct application of generally-accepted

accounting principles and to monitor the suitability and

integrity of the internal control systems followed in the

preparation of individual and consolidated accounts.

Specifically, the basic functions of the Audit and Control

Committee are as follows:

1) To designate the Auditor, the conditions of his/her

engagement, the scope of his/her professional mandate

and, if necessary, the revocation or extension of that

mandate.

2) To review the Company's financial statements, to ensure

compliance with legal requirements and the correct

application of generally-accepted accounting principles,

and to advise on amendments proposed by management

to the accounting principles and criteria suggested.

3) To serve as a communication channel between the Board

of Directors and the Auditor, to evaluate the results of each

audit and the management team's response to any

recommendations, to act as mediator in the event of any

dispute between the former and the latter regarding the

accounting principles and criteria used to prepare the

financial statements.

4) To monitor the suitability and integrity of the internal

control systems followed in the preparation of individual

and consolidated accounts

5) To oversee compliance with the auditing contract, ensuring

that the opinion regarding the financial statements and the

principal content of the Auditors' Report are written in a

clear and concise manner.

6) To review the prospectuses and periodic financial

information supplied by the Company to the financial

markets and their supervisory bodies.

7) To ensure compliance with the Internal Code of Conduct

regarding the Securities Market, the Board of Directors'

Regulation and, in general, with the Company’s governance

rules, and to make any necessary proposals to improve

compliance. It is the particular responsibility of the Audit

and Control Committee to gather information and, if

necessary, issue a report regarding any disciplinary

measures against members of the Company's management

team.

The regulations governing the Audit and Control Committee

can be found on the Company's web site.

The current composition of the Audit and Control Committee

is as follows:

Chairman:

José de Nadal Capará.

Members:

Bernard s´Jacob.

Luis F. Romero García.

The committee held four meetings in 2003.

In accordance with Law 44/2002 of 22 December, the

Shareholders' Meeting held on 28 April 2003 approved the

Board's proposal to make the appropriate amendments to

the company's Bylaws to confer Bylaw status on the above

committee.

- Appointments and Remuneration Committee

The basic functions of the Appointments and Remuneration

Committee, created on 30 June 2002, are to advise on

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appointments of Directors, members of the Board

committees and the senior management of the company and

its subsidiaries, to approve standard contracts and

remuneration scales for senior management, to define the

Director remuneration scheme, to advise on incentive plans

and to create and keep a register of the status of Directors

and senior management.

The regulations governing the Appointments and

Remuneration Committee can be found on the Company's

web site.

The current composition of the Appointments and

Remuneration Committee is as follows:

Chairman:

Manuel Herrando y Prat de la Riba.

Members:

Ramón Blanco Balín.

Aurelio Izquierdo Gómez.

The committee held five meetings in 2003.

• Directors' remuneration

In accordance with the Board of Directors Regulation, the

Appointments and Remuneration Committee is responsible

for defining the Directors’ remuneration scheme, and it must

endeavour to ensure that Director's payments are in keeping

with market rates for similar-sized companies in the sector.

This responsibility is expressly delegated to the

Appointments and Remuneration Committee within the

framework of the Bylaws, in particular in article 20, which reads

as follows:

“Director's remuneration will consist of a fixed annual

allowance and per diems for attending meetings of the

Board and of any advisory and delegate committees. The

overall amount paid to Directors by the company will be

equivalent to three percent of the consolidated group's

net income for the preceding year. The Board of

Directors is responsible for defining the exact amount to

be paid within that limit and its distribution among the

Directors.

Additionally, and independently of the payments

envisaged in the preceding paragraph, provision may be

made for Director remuneration schemes linked to the

share price or which involve shares or stock options. The

application of such remuneration schemes must be

approved by the Shareholder's Meeting, which will

determine the share price to be used as a reference, the

number of options, the strike price of the options, the

period the scheme will operate and any other conditions

deemed appropriate.

Also, subject to compliance with the legal requirements,

similar payments schemes may be established for other

company employees (whether or not they are

executives).

The remuneration envisaged in the preceding

paragraphs deriving from the status of Director will be

compatible with other professional and salary payments

to which the Directors are entitled by virtue of any

executive or advisory functions performed for the

company other than the supervision and collegiate

decision functions pertaining to their status as Directors,

which will be subject to the applicable legislation.”

In 2003, the remuneration paid to Directors was in accordance

with the criteria established by the Appointments and

Remuneration Committee.

The individual payments to each Director were as follows:

Audit AppointmentsBoard and Control and Remuneration

Allowance Committee Committee Total

GABRIELE BURGIO 36,060.60 36,060.60

MANUEL HERRANDO Y PRAT DE LA RIBA 36,060.60 11,095.56 47,156.16

RAMON BLANCO BALÍN 36,060.60 9,246.30 45,306.90

LUIS FERNANDO ROMERO GARCIA 36,060.60 4,760.48 40,821.08

JOSE DE NADAL CAPARÁ 36,060.60 7,397.04 43,457.64

RODRIGO ECHENIQUE GORDILLO 36,060.60 36,060.60

ALFONSO MERRY DEL VAL Y GRACIE 36,060.60 36,060.60

ELENA GIL GARCÍA (incoming) 24,205.06 24,205.06

JOSE Mª GARCIA (outgoing) 11,855.54 11,855.54

BERNARD S' JACOB 36,060.60 6,410.76 42,471.36

AURELIO IZQUIERDO GOMEZ 36,060.60 11,095.56 47,156.16

ALFREDO FERNANDEZ DURAN 36,060.60 36,060.60

MIGUEL RODRÍGUEZ DOMINGUEZ (incoming) 6,915.73 6,915.73

ANTHONY RUYS (outgoing) 29,144.87 29,144.87

TOTAL 432,727.20 18,568.28 31,437.42 482,732.90

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The total payment to Directors of NH Hoteles, S.A. who are

also Directors of other companies in the group (Sotogrande,

S.A., Krasnapolsky Hotels and Restaurants N.V.) was

111,367.69 euros.

The total payment to non-executive Directors for consulting

services was 72,121.45 euros.

The company complies with the recommendations given in

the Aldama Report regarding payments in the form of stock

or stock options as this type of payment is made only to the

President/CEO in his capacity as an employee of the

Company. The President is a beneficiary of the two stock

options plans approved by the Shareholders' Meeting. The

content of these plans has been registered with the Spanish

National Securities Market Commission (CNMV) since their

approval. In accordance with said plans, the President

received a total of 616,189 stock options.

The following payments were made to the eight executives

who make up the Company's Senior Management: 2,043,723

euros as salary, 847,750 euros as incentives for achievement

of objectives, and 494,800 euros as compensation in kind.

The composition of the Company's Senior Management is as

follows:

Gabriele Burgio President and CEO

Isabel Aguilera Navarro Chief Operating Officer

Jesús Ignacio Aranguren

González-Tarrío Chief Strategy Officer

Roberto Chollet Ibarra Chief Financial Officer

Gustavo Gabarda Durán Sotogrande CEO

Juan Mora Narváez Corporate Head of

Human Resources

Fernanda Matoses Corporate Legal Counsel

García-Valdés

María Cortina Aurrecochea Corporate Head of

Communication

& Institutional Relations

• Directors representing significant holdings or whose

appointment was as a result of such holdings:

• Directors who are members of the Board of Directors of

companies which hold significant stakes in NH HOTELES, S.A.

According to Company information, the only Directors of NH

HOTELES, S.A. who are also members of the Board of

Directors of companies which hold significant stakes in NH

HOTELES, S.A. are as follows:

José de Nadal currently represents Finaf 92, S.A. on the Board

of Directors of NH HOTELES, S.A. and is also President of the

former.

Elena Gil García currently represents Corporación Financiera

Caja de Madrid on the Board of Directors of NH HOTELES,

S.A. and is also a Director of the former.

• Directors of NH HOTELES, S.A. who hold office as

Directors or executives of other listed companies in the

NH Group.

Gabriele Burgio and Manuel Herrando Prat de la Riba, both

Directors of NH HOTELES, S.A., are also members of the

Board of Directors of Sotogrande, S.A.

III. RELATED-PARTY TRANSACTIONS AND INTRAGROUP

TRANSACTIONS

• Transactions involving significant shareholders.

The Board of Directors' Regulation establishes control

measures regarding this type of transaction and the Board of

Directors formally reserves for itself the knowledge and

authorisation of any transaction between the Company and

one of its significant shareholders, always following a report

by the Audit and Control Committee analysing the

transaction from the standpoint of equal treatment of

shareholders and the market conditions. Furthermore, any

Directors connected with said shareholder are obliged to

abstain from voting on such matters.

The only contractual relationship known to the Company is

between NH HOTELES, S.A. and PONTE GADEA, S.L. (which

belongs to the group of companies owned by Amancio

Ortega), and consists of leases signed on 6 February 2002

relating to the Abascal (Madrid), Pirineos (Lérida) Iruña Park

(Pamplona) and Villa de Bilbao (Bilbao) hotels, owned by

PONTE GADEA, S.L., and the lease signed 1 November 2003

with Proherre Internacional Sociedade Inmobiliaria, L.D.A. (in

which Amancio Ortega holds a stake), regarding the

Liberdade Hotel in Portugal. The general conditions of these

contracts are similar to those of other leases which the

Company has with third parties.

Transactions with companies which are significant

shareholders or which are represented on the Board of

Directors, either directly or indirectly, are as follows:

DIRECTOR(SHAREHOLDER SIGNIFICANT HOLDING (%)HE/SHE REPRESENTS)

JOSÉ DE NADAL (representing de Finaf 92, S.A.) 5.240%

ELENA GIL (representing CORPORACION FINANCIERA CAJA DE MADRID, S.A.) 5.000%

AURELIO IZQUIERDO (representing CAJA DE AHORROS DEVALENCIA, CASTELLON Y ALICANTE, BANCAJA) 5.000%

D. ALFREDO FERNÁNDEZ DURÁN (representing ALAZAN INVERSIONES 2001, SIMCAV, S.A. and KEBLAR DE INVERSIONES, SIMCAVF, S.A.) 10.270%

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All operations were performed under market conditions and

at market prices.

Another operation of this type was performed between the

companies Actividades de Hostelería Ocio Restauración y

Afines, S.L. (AHORA S.L.), Corporación Financiera Caja de

Madrid (through Sociedad de Promoción y Participación

Empresarial Caja Madrid, S.A.) and NH HOTELES, S.A. As a

result, Corporación Financiera Caja de Madrid, S.A. acquired

a 17.3% stake in Sotogrande, S.A. The transaction involved

three phases:

1. In December 2002, NH Hoteles purchased 49% of

AHORA, S.L. from Sociedad de Promoción y

Participación Empresarial Caja Madrid, S.A. AHORA,

S.L. is now wholly owned by NH Hoteles.

2. Sotogrande, S.A.'s Shareholders' Meeting in January

2003 approved the issuance of 7,232,265 new shares

for a total of 70.24 million euros, giving a nominal value

of 0.60 euros and an issue premium of 9.112628 euros,

with a final price of 9.712628 euros. A total of 94.98%

of Sotogrande, S.A.'s capital stock did not subscribe

to the rights issue, and Sociedad de Promoción y

Participación Empresarial Caja Madrid, S.A. subscribed

and paid for the 7,227,642 shares that were not taken

up by the market. Sociedad de Promoción y

Participación Empresarial Caja Madrid, S.A. purchased

4,623 shares of Sotogrande, S.A. from NH HOTELES,

S.A. in order to achieve the agreed stake; accordingly,

the NH Hoteles Group's stake reached 78.51%.

3. All of AHORA, S.L.'s assets relating to tourist hotels, golf,

leisure and hospitality were sold to Sotogrande, S.A.

The operation was duly communicated to the CNMV and was

made public via its Official Registers.

• Transactions performed by Directors and executives of the

Company and the group of companies of which the

Company forms part.

It should be noted that, in accordance with the Board of

Directors Regulation, Directors must not intervene in the

deliberation and votes concerning matters in which they have

a direct or indirect interest. Nor may Directors perform, either

directly or indirectly, professional or commercial transactions

with NH HOTELES, S.A., unless the transaction is approved

by the Board of Directors with the favourable vote of at least

80% of the Directors in attendance (excluding the Director in

question), and following consideration of a report from the

Appointments and Remuneration Committee.

No transactions were performed in 2003, other than those

indicated below, involving member of the Board of Directors,

Company executives, and other members of senior

management or any person or entity related to those persons.

Commercial relationships with companies that are indirectly

represented on the Board of Directors are as follows:

The aforementioned operations were performed at market

prices and under market conditions.

The most noteworthy transactions performed by the

Company with members of the Board of Directors of

subsidiaries or affiliates of NH HOTELES, S.A. are the

contracts totalling 335,000 euros signed with Baribal

Consultores, S.L. (in which Heraclio López Sevillano, a director

of Latinoamericana de Gestión Hotelera, S.A., has a stake) for

professional assistance in sporadic operations.

Finally, as a result of the remuneration system implemented

for the Company's senior management in 1996, executives

have a 14,319,666 euro loan with the Company due to expire

in 2004, whose expiry date may be extended annually until

2006, with adequate guarantees of payment. This loan has

been duly reflected in the Company's Annual Accounts since

1997 (when it was arranged).

• Significant operations performed with other companies

belonging to the same group.

No significant transactions took place in 2003 between NH

HOTELES, S.A. companies, where such transactions are

understood as those which have not been eliminated in the

process of drafting the consolidated financial statements and

which do not form part of the Company's habitual dealings in

terms of their objectives and conditions.

IV. RISK CONTROL SYSTEMS

The NH HOTELES, S.A. Group's Risk Control Systems may be

classified as follows:

• Financial risk control

• Strategic development risk control

• Business, operating and environmental risk control

• Other preventive measures

LENDER TYPE OF OPERATION AMOUNT

CAJA DE AHORROS CREDIT FACILITY (euros) 18,000,000

Y MONTE DE PIEDAD MORTGAGE (euros) 180,809

DE MADRID MORTGAGE (USD) 8,880,000

TREASURY PLACEMENT 6,00,000

GUARANTEE LINE 12,020,000

OTHERS 2,273,870

CAJA DE AHORROS CREDIT FACILITY (euros) 6,000,000

DE VALENCIA MORTGAGE (USD) 5,150,400

CASTELLON Y ALICANTE GUARANTEE LINE 12,000,000

LENDER TYPE OF OPERATION AMOUNT

BANCO SANTANDER CREDIT FACILITY (euros) 9,000,000

CENTRAL HISPANO MORTGAGE (euros) 17,647,938

MORTGAGE (USD) 10,656,000

TREASURY PLACEMENT 3,600,000

GUARANTEE LINE 10,948,434

OTHERS 1,626,686

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• Financial risk control systems.

The Group controls financial risks via the following

mechanisms:

1. Procedure Manual: Significant transactions performed by

the NH Hoteles Group are standardized via an internal

procedure manual that covers procurements, asset

management, treasury, monthly close, etc. Accounting

standards applicable to Spanish and foreign Group

companies have also been established.

2. Internal auditing: The internal auditing department's

ongoing work is focused largely on identifying risk

situations and assessing risk management. An annual

auditing plan has been drafted whose objectives include

ensuring the correct application of established standards

and procedures at the level of both corporate departments

and individual hotels.

3. Audit Committee: The Audit Committee reports directly to

the Board of Directors and is responsible for overseeing the

correct functioning of all of the Group's Internal Control

Systems. It also periodically analyses the businesses'

principal risks and the systems established to manage and

control those risks, and it is responsible for relationships

with the Group's external auditors.

4. Centralized Management: Finance, interest rate and

exchange rate policies are centralized under the office of

the CFO, applying a non-speculative approach.

• Strategic Risk Control Systems.

1. The NH Hoteles Group has a team of professionals who

analyse various types of strategic opportunities. The team

selects the opportunities that are most in line with the

Group's global strategy and submits them to the

Management Committee and, subsequently, to the Board

of Directors.

2. The Group identifies a number of professionals who form

an Integration Committee for each acquisition with a view

to standardizing policies and procedures in the various

critical areas (human resources, IT systems, marketing, etc).

• Business, operational and environmental risk control

systems.

1. The Management Committee meets on a weekly basis to

analyse the information contained in the scorecards drafted

by the Corporate Management Control Department with a

view to assessing the performance of operations, and to

better monitor commercial assessments obtained through

the IT system, basically via the CRM application.

It also monitors human resources policy and performance.

2. The policy of the Group in general, and its golf activities in

particular, is oriented towards the maximum respect for the

environment and, therefore, it has contracted the services

of an environmental consultation company to assess the

Group's actions and provide advice.

• Other preventive measures.

1) Occupational health and safety

The field of occupational health and safety involves

planning regarding the processes that may give rise to risks

and establishing the appropriate safety measures.

The Company delivers a number of training courses to its

own workforce and to subcontractors.

2) Insurance

The NH Hoteles Group pursues a policy of ample coverage

by signing insurance policies to cover any risks that could

affect the Group. It also pursues an ongoing policy of

revising risk coverage.

3) Risk Map

The NH Hoteles Group, through the Audit Committee, is

currently drafting a risk map that covers 14 classes of risk,

ranging from future rent commitments to the status of

hotels' operating licenses, and compliance with loan

covenants.

The plan will foreseeably be updated every six months in

order to identify possible threats to the Group that could

affect its operations.

V. FUNCTIONING OF THE SHAREHOLDERS’ MEETING

• Shareholders’ Meeting Regulation.

The Shareholders’ Meeting is the highest decision-making

body and the one through which the corporate will is

manifested. In that sense, shareholders, when legally and

validly convened at the Shareholders’ Meeting, decide by

majority vote on the matters within the powers of the Meeting

itself that are attributed to it by law or the Bylaws.

• Existence and description of the Shareholders’ Meeting

Regulation.

The Board of Directors of NH HOTELES, S.A. plans to submit

to the next Ordinary Shareholders’ Meeting, for consideration

and approval, a Shareholders’ Meeting Regulation which

establishes the rules and principles for the Meeting’s

organisation and functioning, thus complying with the

provisions of Law 26/2003, dated 17 July. Until then, the

organisation, functioning and conduct of the Shareholders’

Meeting is governed solely by the provisions of the current

mercantile legislation and the Company’s Bylaws. This text will

be posted on the Company’s web site so that shareholders

can access it from the date of publication of the notice of

Meeting.

The Shareholders’ Meeting is convened by the Board of

Directors, which approves the Meeting notice, the agenda,

the proposed resolutions submitted for approval and any

mandatory reports on specific proposals.

The Shareholders’ Meeting notice and agenda are made

available to shareholders and the public in general through

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announcements in the Spanish Official Mercantile Registry

Gazette and in several national newspapers published in the

city where the Company is headquartered (Madrid) and on

the Company’s web site.

• Shareholders’ rights regarding Shareholders’ Meetings

Each and every shareholder’s rights regarding Shareholders’

Meetings are scrupulously respected by the Company, under

the terms and conditions established in the current applicable

legislation and Bylaws.

Apart from the right to challenge corporate resolutions

adopted by the Meeting in accordance with the requirements

established by law, such rights are the right to be informed,

the right to attend and the right to vote.

To enable shareholders to be informed, the proposed

resolutions that are submitted for approval by the Meeting

and their associated documents and reports are made

available to shareholders, in the terms and conditions

established in the Spanish Corporations Law, from when the

Meeting notice is published.

The Company also does everything in its power to respond

to any shareholder’s request for information regarding the

items on the Shareholders’ Meeting agenda, either in the

days immediately preceding the Meeting or during the

Meeting itself, and the agenda expressly includes an

opportunity for shareholder questions so that all the

shareholders at the Meeting can participate if they wish; the

Chairman or another Company Director to whom he

delegates will always respond to the shareholders.

Regarding the right to attend and vote at the Shareholders’

Meeting, the Company, within the framework established by

the current applicable legislation and the Bylaws, does its

utmost to enable shareholders to exercise those rights,

especially the right to be represented at the Shareholders’

Meeting, which can be granted to any person even though

he/she is not a shareholder.

As evidence of the Company’s respect for and protection of

shareholders’ rights in relation to Shareholders’ Meetings, the

attendance list and quorum required for a validly-convened

Meeting are controlled by a prestigious company in its field

whose actions conform to accredited professional practices,

and the Board of Directors arranges the presence of a notary

public to take the minutes of the Shareholders’ Meeting.

VI. ANALYSIS OF THE DEGREE OF COMPLIANCE WITH

CORPORATE GOVERNANCE RECOMMENDATIONS

Since 2000, NH HOTELES, S.A. has included a chapter on

Corporate Governance in its Annual Report with extensive

information on the Company’s Board of Directors and

Management.

The Company respects the Corporate Governance

recommendations contained in the Olivencia and Aldama

Reports. The degree of compliance with the

recommendations of those reports is analysed below.

• Functions of the Board of Directors

Apart from the matters reserved for the Shareholders’

Meeting, the Board of Directors is the Company’s highest

decision-making body since, in accordance with law and the

Bylaws, it is responsible for the Company’s administration and

representation and assumes the general power to supervise,

as recommended by the Olivencia Report.

Specifically, the Board has the undelegable obligation to

exercise the following responsibilities:

a) approve the Company’s general strategies;

b) appoint and, if appropriate, dismiss the most senior

managers of the Company and other companies

comprising the consolidated Group;

c) appoint and, if appropriate, dismiss Directors of the

various subsidiaries;

d) identify the Company’s main risks and implement and

monitor appropriate internal control and information

systems;

e) determine the policies regarding information and

communication with shareholders, markets and public

opinion;

f) establish a policy on own shares within the framework

determined by the Shareholders’ Meeting;

g) authorise transactions between the Company and

Directors and core shareholders that may present

conflicts of interest; and

h) in general, make decisions about significant business

and financial transactions for the Company.

• Independence and composition of the Board of Directors

Complying with the recommendations of the Olivencia and

Aldama Reports, the Board of Directors of NH HOTELES, S.A.

has a large majority of external Directors and, among them, a

large number of independent Directors, taking account of the

ownership structure and the capital represented at the Board.

The Board Regulation includes an article stating that:

“To exercise the rights to co-opt and to propose

appointments to the Shareholders’ Meeting, the Board of

Directors shall strive to ensure that external or non-executive

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Directors considerably outnumber executive Directors in the

composition of the Board.

For those purposes, it is understood that executive Directors

are the CEO and the other Directors who, under any other

heading, exercise management responsibilities within the

Company or at any of its subsidiaries.

The Board shall also strive to ensure that the majority group

of external Directors includes Directors proposed by owners

of significant stable stakes in the Company (proprietary

Directors) as well as prestigious professionals who are not

related to the executive team or to core shareholders

(independent Directors).

To establish a reasonable balance between both types of

external Directors, the Board shall strive to ensure that

independent Directors outnumber proprietary Directors given

the Company’s current ownership structure, where the free

float is considerably higher than the sum of the significant

stable stakes represented by the proprietary Directors.

The provisions of this article are understood to be without

prejudice to shareholders’ legal right to proportional

representation.”

The Company’s Board currently comprises twelve Directors:

one executive and eleven external (four proprietary and seven

independent).

• Dimension of the Board of Directors

To comply with the recommendation regarding the reasonable

number of Board members to ensure each Director’s efficiency

and performance, the Board Regulation states that the Board

shall propose to the Shareholders’ Meeting the number of

Directors which, in accordance with the circumstances at any

given time, is most appropriate for the Board’s representation

and efficiency; the maximum number is fifteen.

• Decentralisation of power

The Chairman of the Board of Directors is the Company’s

chief executive although, in accordance with the provisions of

the Board of Directors Regulation, his actions must conform

at all times to the criteria and guidelines set by the

Shareholders’ Meeting, by the Board of Directors and by the

Board’s Committees. All the Company’s resolutions and

significant decisions must also be submitted beforehand for

approval by the Board of Directors or the corresponding

Control Committee. The reports and proposals from the

Board’s Committees are also required for the adoption of

certain decisions.

• Regulatory compliance

The Olivencia Report states the need to give greater

importance to the Board Secretary, reinforcing his/her

independence and stability, and highlighting his/her function of

ensuring the formal and material legality of the Board’s actions.

The Board Secretary’s functions are performed by a

prestigious attorney who is fully backed by the Board to

exercise the functions with complete independence, thereby

enhancing the transaction of business at meetings.

• Board of Directors Committees

- Delegate Committee

Because of the small number of Directors, the Company does

not have an Executive or Delegate Committee. Nevertheless,

the Board Regulation envisages the possibility of creating one

at any time when the Board sees fit and establishes, if it is

created, its composition and functioning, with the obligation

to punctually inform the Board of Directors of the business

transacted and the decisions adopted at the meetings.

- Other Committees

NH HOTELES, S.A. has the following Committees:

Audit and Control Committee

Appointments and Remuneration Committee

Both Committees comprise a minimum of three and a

maximum of five external Directors and their rules of

functioning are included as individual sections in the Board

Regulation.

• Information to the Board

The Directors have access to specific, punctual information

about the items on the agenda of the Board meetings.

Depending on its content, that information is received as

soon as possible so that the Directors can prepare their

participation in the meetings. Other information that cannot

be sent beforehand either because of its confidentiality or

because it has to be updated at the last minute is delivered

at the start of the meeting.

• Frequency and functioning of Board meetings

In accordance with the Board Regulation, the Board of

Directors holds an ordinary meeting once every two months

and, at the Chairman’s initiative, as many times as he sees fit

for the good functioning of the Company. In 2003, 10 ordinary

meetings and 2 extraordinary meetings were held.

At those meetings, the Chairman organised the debates,

encouraging all the Directors to participate.

• Directors’ appointment

Complying with the recommendations of the Olivencia

Report, the Appointments and Remuneration Committee’s

functions are to advise on the proposed appointments of

Directors and to establish a Directors’ remuneration system

and review it periodically to ensure that it is in line with the

functions they perform; its functions are subject to utmost

transparency.

The proposed re-election of Directors that the Board of

Directors submits to the Shareholders’ Meeting is also subject

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to a formal drafting process, which necessarily includes a

report issued by the Appointments and Remuneration

Committee assessing the quality of the work and the

dedication of the proposed Directors during their mandate.

All the Board’s appointments in 2003 were made in strict

compliance with the aforementioned regulations.

• Term of external Directors

Directors hold office for three years and are removed when

the period for which they were appointed expires or when the

Shareholders’ Meeting, using the power legally granted to it,

resolves to do so.

In line with good corporate governance practices, unless

there are exceptional circumstances, the Board does not

propose the early removal of external Directors.

In 2003, two Directors resigned for personal reasons: Anthony

Ruys and José María García Alonso.

• Resignation

In accordance with the Board Regulation, the Directors must

tender their resignation to the Board of Directors and resign

when they are in breach of any of the incompatibility or

prohibition clauses, when they receive a serious reprimand

from the Audit and Control Committee for failing to comply

with any of their obligations as Directors or, above all, when

their permanence on the Board affects the Company’s

creditworthiness or reputation in the market or jeopardises its

interests in any other way.

None of the aforementioned circumstances arose in 2003.

• Age of Directors

In line with the Olivencia Report’s recommendation, the Board

Regulation clearly establishes an age limit policy for Directors

which consists of the Director’s obligation to resign upon

reaching the age of 70. Directors with executive functions

must resign as executives upon reaching the age of 65

although they may continue as Directors if the Board so

determines.

In 2003, no Director reached the aforementioned age limits.

• Directors’ information

All Directors are entitled and obliged to collect as much

information as they see fit at any time in order to perform their

work well.

For that purpose, Directors have the broadest powers to be

informed of any aspect of the Company and to examine its

books, records, documents and other background

information on corporate transactions that are necessary or

appropriate for the diligent exercise of their duty.

That right to be informed extends to the various subsidiaries

comprising the consolidated Group, which right must be

exercised in good faith.

In line with the recommendations of the Olivencia and

Aldama Reports, and so as not to disturb the Company’s day-

to-day management, the exercise of the right to be informed

is channelled through the Chairman or Secretary of the Board

of Directors, who will respond to the Director’s request,

directly providing him/her with information or liasing with the

appropriate organisational bodies.

• Directors’ remuneration

In accordance with the Board Regulation, the Appointments

and Remuneration Committee is responsible for proposing,

assessing and reviewing Directors’ remuneration and for

ensuring that the remuneration is in line with market rates for

similar-sized companies in the sector.

Regarding remuneration comprising the delivery of shares,

stock options and remuneration pegged to the share price,

the Company complies with the Aldama recommendations

since only the Executive Director benefits from such

remuneration.

The remuneration received by each member of the Board of

Directors is disclosed annually in the Notes to financial

statements, broken down and itemised.

The Notes to financial statements also include the

remuneration and total cost of senior management, duly

itemised.

• Directors’ duty of loyalty

The Board Regulation has a specific section amply defining

Directors’ main rights and duties, giving detailed coverage of

conflicts of interest, the use of corporate assets, the use of

confidential information and the use for personal gain of

knowledge of business opportunities gained in the course of

their duties.

None of those situations arose in 2003.

• Duty of loyalty of core shareholders and senior

management

The Board Regulation also extends the director’s duty of

loyalty to the Company to the core shareholders and formally

reserves the knowledge and approval of any transaction

between the company and core shareholders to the Board of

Directors, following consideration of a report from the

Appointments and Remuneration Committee which analyses

and assesses the transaction from the point of view of equal

treatment of shareholders and considers whether it is being

conducted on an arm’s-length basis.

The Internal Code of Conduct also establishes the general

duties and obligations of loyalty imposed upon Directors and

Senior Management, generally regulating conflicts of interest,

the use of inside information, dissemination of price-sensitive

information and transactions with securities.

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• Shareholders’ Meetings

To enable shareholders to be informed, the proposed

resolutions that are submitted for approval by the Meeting

and their associated documents and reports are made

available to shareholders, in the terms and conditions

established in the Spanish Corporations Law, when the

Meeting notice is published.

The Company also does everything in its power to respond to

any shareholder’s request for information regarding the items on

the Shareholders’ Meeting agenda, either in the days

immediately preceding the Meeting or during the Meeting itself,

and the agenda expressly includes an opportunity for

shareholder questions so that all the shareholders at the Meeting

can participate if they wish; the Chairman or another Company

Director to whom he delegates will always respond to the

shareholders.

Regarding the right to attend and vote at the Shareholders’

Meeting, the Company, within the framework established by

the current applicable legislation and the Bylaws, does its

utmost to enable shareholders to exercise those rights,

especially the right to be represented at the Shareholders’

Meeting, which can be granted to any person even if he/she

is not a shareholder.

In line with the requirements of Spain’s mercantile legislation,

the documents relating to the items on the agenda are

available at the Company’s registered address and can be

sent free of charge to shareholders upon request. This

information has also been made available to all shareholders

via the Company’s web site.

In accordance with the latest legislative amendments, the

Board of Directors will submit a Shareholders’ Meeting

Regulation for approval by the Shareholders’ Meeting that is

to approve the 2003 financial statements.

• Transparency

Several articles of the Board Regulation govern the channels

for relations between the Board of Directors and the

Company’s shareholders to ensure the greatest transparency

in those relations.

Beyond the requirements of the legislation in force, the Board

of Directors of NH HOTELES, S.A. has undertaken to provide

markets with accurate, reliable, timely information. In

particular, the Company’s periodic financial reporting, as

stated expressly in the Board Regulation, is prepared in line

with the same principles and professional methods used for

the financial statements and, before dissemination, it is

analysed by the Audit and Control Committee, in line with the

functions attributed to same.

Furthermore, in line with the recommendations of the Aldama

Report, the Company sends the market all the information it

deems to be significant to investors, symmetrically and

equitably. In accordance with the obligations established by

the new Finance Law, the Company will file significant

information with the Comisión Nacional del Mercado de

Valores before disseminating it by other means as soon as the

event becomes known or as soon as the decision is adopted

or the agreement or contract with third parties is signed. The

Company strives to ensure that the significant information it

discloses is truthful, clear and complete at all times.

• Corporate governance information

Every year, NH HOTELES, S.A. includes a Corporate

Governance Report in its Annual Report and in the Company’s

web site, to inform shareholders and investors in general.

• Periodic financial reporting

All the periodic financial information, including annual

reporting, is prepared under the same principles and

methods applied in the financial statements and is analysed

by the Audit and Control Committee before it is released.

• Information via the Internet

To comply with its reporting obligations, NH HOTELES, S.A.

posts its most significant events on its web site to inform

shareholders and investors in general. The corporate web site

includes information and significant documents relating to

corporate governance and aims to become a vehicle of

communications with shareholders, providing them with

updated information about all aspects that may be significant.

Any person who accesses the corporate web site can view,

among other information, current and past share prices,

financial information, the Board of Directors Regulation, the

Shareholders’ Meeting Regulation, the Company Bylaws, the

resolutions adopted at the last Shareholders’ Meeting and

other information of interest to shareholders and investors.

• Independence of the external auditor

Through the Audit and Control Committee, the Board of

Directors has stable, professional relations with the

Company’s auditor, strictly respecting the latter’s

independence, in compliance with the recommendations for

that purpose in the Olivencia Code. Accordingly, the Audit

and Control Committee monitors situations that may

jeopardise the independence of the Company’s external

auditors and, specifically, it supervises the percentage of fees

paid to the auditor out of the total revenues of the audit firm.

In accordance with the legal requirements in force, the

Company’s annual report also discloses the fees paid to the

external auditor, including those relating to services other

than auditing.

• Accounting quality

The Board of Directors of NH HOTELES, S.A. makes every

effort to ensure that the financial statements drafted by it are

submitted to the Shareholders’ Meeting with a clean auditors’

report.

This Annual Corporate Governance Report was approved by

the Company’s Board of Directors on 31 March 2004.

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1) FUNCTIONS, COMPETENCIES AND OPERATION

OF THE AUDIT COMMITTEE

The main function of Audit and Control Committee is to

support the Board of Directors in its supervisory and oversight

duties, the most important of these being to ensure the

correct application of generally-accepted accounting

principles and to monitor the suitability and integrity of the

internal control systems followed in the preparation of

individual and consolidated accounts.

As a result of the entry into effect of the new regulations on

transparency and corporate governance, the Committee's

regulation is now part of the Bylaws. Accordingly, Article 25

of the Bylaws, whose introduction was approved by the

Shareholders' Meeting on 28 April 2003, reads as follows:

1. "Within the framework of the Board of Directors, in

accordance with the requirements established in Article 141

of the Spanish Corporations Law (Ley de Sociedades

Anónimas), an Audit and Control Committee shall be

established, consisting of a minimum of three and a

maximum of five Directors appointed by the Board of

Directors. The majority of the members of that Committee

must be non-executive Directors.

2. The Chairman of the Audit and Control Committee shall be

appointed by the Committee itself from among its non-

executive Directors and must be replaced every four years,

with the possibility of re-election after a period of one year.

3. The Audit and Control Committee shall have, at least, the

following competencies:

a) To inform the Shareholders' Meeting, via its Chairman,

on questions raised in the Meeting by shareholders on

matters that fall under the Committee's scope of

competence;

b) To propose to the Board of Directors, to be submitted

to the Shareholders' Meeting, the appointment of the

Auditor referred to in Article 204 of the Spanish

Corporations Law and, where appropriate, the

conditions of his engagement, the scope of his

professional mandate and the revocation or renewal of

the appointment;

c) To supervise the internal auditing units;

d) To have knowledge of the financial reporting process

and the internal control systems;

e) To liaise with the Auditor in order to receive

information regarding those matters that may

jeopardize the independence of the Auditor and of

any other persons or entities connected to the auditing

process, and to receive information and maintain

communications with the Auditor as envisaged in

auditing legislation and auditing standards.

4. The Committee shall meet at least once per quarter and as

often as is deemed appropriate, if convened by the

Chairman, upon the latter's own decision or in response to

a request by two members of the Committee or by the

Board of Directors.

5. The Audit and Control Committee shall be validly

constituted provided that at least half of its members are

present or represented, and its resolutions shall be

adopted by the majority of members present or

represented, the Chairman having a casting vote.

6. The Board of Directors may elaborate upon and complete

the above regulations in the Board of Directors Regulation,

in accordance with provisions of the Bylaws and the Law."

2) COMPOSITION OF THE AUDIT COMMITTEE

The Audit and Control Committee is composed of the

following Directors:

Chairman José de Nadal Capará Proprietary

Director Bernard s’Jacob Independent

Director Luis F. Romero García Independent

3) RELATIONSHIPS WITH EXTERNAL AUDITORS

The parent company of the NH Hoteles Group has been

audited since 1988. The principal auditors since then are as

follows:

YEAR AUDITOR

1986 Peat Marwick

1987 Peat Marwick

1988 Peat Marwick

1989 Peat Marwick

1990 Peat Marwick

1991 Peat Marwick

1992 Peat Marwick

1993 Arhur Andersen

1994 Arthur Andersen

1995 Arthur Andersen

1996 Arthur Andersen

1997 Arthur Andersen

1998 Arthur Andersen

1999 Arthur Andersen

2000 Andersen

2001 Andersen

2002 Deloitte & Touche

2003 Deloitte & Touche

The 2003 Consolidated Financial Statements were audited by

two prestigious independent firms:

• Deloitte & Touche is the principal auditor and, as such,

it issued the audit opinion on the Consolidated

Financial Statements and verified those of the

companies integrated into the Spain/Portugal, Mexico,

Mercosur and Sotogrande Business Units, which

represent 72% of assets and 53% of revenues.

• PriceWaterhouseCoopers audited The Netherlands /

Belgium, Germany and Austria/Switzerland Business

Units, which account for 28% of assets and 47% of total

revenues.

Deloitte & Touche (D&T) was appointed as the Group's

principal auditor for one year at the Shareholders' Meeting of

NH Hoteles held on 28 April 2003, and as auditor of the

aforementioned Business Units at their respective

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Shareholders' Meetings held in the first half of 2003. Deloitte

& Touche has been the Group's principal auditor since 2002,

even though the partner in charge of the audit has changed.

The total fees received by the firm for its professional auditing

services in 2003 amounted to 657,514 euros.

PriceWaterhouseCoopers (PWC) was also appointed as

auditor of the aforementioned Business Units for one year at

their respective Shareholders' Meetings during the first half

of 2003. PriceWaterhouseCoopers has been the auditor for

the Group's Dutch, Belgian and Swiss companies since 1998

and the for German and Austrian companies since 2002. Its

total fees for auditing services in 2003 amounted to 636,014

euros.

4) CONTENT AND RESULTS OF THE AUDIT

COMMITTEE'S WORK

The Audit Committee held four meetings in 2003 plus an

additional three meetings in the first quarter of 2004. The

business transacted by the Committee was as follows:

a) Analyzing and assessing, together with the external

auditors, the 2002 and 2003 Financial Statements, and

confirming that the auditors' opinion was issued under

conditions of absolute independence.

b) Reviewing the public financial information on a periodical

basis prior to its analysis and approval by the Board of

Directors in order to ensure that the information is reliable

and transparent and has been prepared by applying

standardized accounting principles and criteria.

c) Monitoring the Internal Audit Plan for 2003, examining its

conclusions and implementing any corrective measures

required.

d) Identifying and analyzing the various types of risk to which

NH Hoteles' activities are subject. At the date of preparing

this report, considerable progress had been made in the

classification of those risks and the establishment of various

procedures to reduce their impact.

e) Monitoring the project to implement a new IT system

common to all business units, which has enabled the

following:

• Integration of the customer database

• Unification of the Group's human resources

management

• Introduction of unique budgetary models and

periodical management reporting forms

• Implementation of a front-office program common to

all hotels

• Creation of shared purchasing platforms

• Centralization of the Group's financial management

f) Periodically assessing the extent of compliance with the

saving plan designed by management and its impact on NH

Hoteles' earnings. Savings amounted to 9.3 million euros

(i.e. 23.8 million annualized), exceeding the target of 8

million.

g) Supervising the changes made to the Company's web site

to adapt to amendments in legislation regarding

transparency and corporate governance.

h) Examining the Annual Report on Corporate Governance

prior to submitting it to the Board of Directors for

examination and approval, with particular emphasis on

analyzing the register of the status of Directors and

executives.

In this connection, the Committee assessed the integrity of

transactions where there might be any possibility of conflict

of interest with any of the Group’s Directors or executives,

and extended this analysis to transactions where, though

technically not constituting a conflict of interest, the

Committee considered that such analysis was advisable.

This is the case of the transactions with the Cathnier, S.L.

firm of architects which is managed by the architect Mrs.

Grenier, who is Mr. Gabriele Burgio’s wife, for the design,

planning and works management on certain projects,

mainly nhube and Fast Good.

The Committee observed that the contracts were arranged

on an arm’s-length basis and that they had also been

analysed by the Appointments and Remuneration

Committee.

i) Valuing the goodwill resulting from acquisitions of other

companies, especially the goodwill booked following the

purchase of German group Astron GmbH. As a result, a

special provision was booked for almost 40 million euros to

cover the potential risks derived from NH Hoteles' activity

in Germany and Austria.

j) Identifying, in collaboration with the Group's external

auditors, the principal changes that the introduction of

International Accounting Standards (IAS) may imply in NH

Hoteles' financial statements. In this respect, the Audit

Committee has performed a preliminary assessment of

those effects and proposed a plan of action which, in

accordance with the criteria of maximum prudence applied

in the Group's financial management, has been approved

by the Board of Directors.

The approved proposal means that, again in accordance with

the criteria of maximum prudence, only part (still to be

defined) of the appreciation of fixed assets (excluding

Sotogrande's plots intended for sale) will be booked. The

market valuation assigned to each fixed asset was determined

by a prestigious independent appraiser.

The first financial statements to be prepared under

International Accounting Standards will be those for 2005;

therefore, on 31 December 2004, NH Hoteles will have available

a set of financial statements prepared in accordance with the

IAS with the aim of providing a baseline for comparison with the

financial statements as at 31 December 2005.

5) PRIORITIES FOR 2004

The Audit Committee's priorities for 2004 focus on assessing

the risks referred to in paragraph d) above, monitoring the

plans to implement new IT systems and cost control and

saving plans, and performing the definitive analysis of the

impact on NH Hoteles' financial statements of the

implementation of International Accounting Standards on 1

January 2005.

In conclusion, it should be highlighted that, in performing the

above-mentioned functions, the Committee has had access,

wherever it was considered useful, to all the external

professionals (auditors, appraisers and advisers) and

members of financial management, internal auditing and

management control that it deemed necessary.

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Design: Álvaro Reyero

Production: see the change

Translation: Versalia Traducción

Printing: Novatesa, S. L.

D.L.: B-18897-2004

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