Sol Meliá Financial Report

2EARNINGS PER SHAREBasic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders bythe weighted average number of ordinary shares outstanding during the year.Diluted earnings per share amounts are calculated by dividing net profit attributable to ordinary equity by the weighted average number of ordinary shares outstanding during the year, adjusted by the dilutive effects inherent topotential ordinary shares.The table below reflects the income and share data used in the earnings per share computations:(unidades de euro)BASIC EARNINGS31/12/0631/12/05Result attributed to the Parent CompanyCorrection of resultsAdjusted resultNumber of ordinary sharesWeighted average number of sharesNumber of potential ordinary sharesTotal number of sharesEARNINGS PER 480.76DILUTED 5,340,992)12,605,042192,040,8270.500.730.49At the General Shareholders’ Meeting, the Board of Directors will propose the distribution of a gross dividend,excluding treasury shares, of 0.149 per share (net dividend of 0.122 ). An amount of 10.5 million euros of saiddistribution will be charged to income for the year of the Parent Company, Sol Meliá, S.A. and an amount of 16.7million euros against voluntary reserves.3CORPORATE INFORMATIONThe Parent Company, Sol Meliá, S.A. was formed in Madrid on June 24, 1986 with the name Investman, S.A. InFebruary 1996, the Company modified its official name, becoming Sol Meliá, S.A., inscribed in the MercantileRegistry of the Balearic Islands Corporate volume 1335, folio nº PM 22603, third inscription, with its registeredaddress in Calle Gremio Toneleros, 24 of Palma de Mallorca, Balearic Islands, Spain.The activities of Sol Meliá, S.A and its subsidiary and associated companies (hereinafter “SOL MELIA” or the“Group”) basically consist of tourism in general and, specifically, of the management and operation of owned orrented hotels under management or franchise agreements, as well as in vacation club operations. The Group’s activities also consist of the promotion of any type of business related to the tourist and hotel trade or related to leisure, recreation or amusement as well as in the participation in the creation, development and operation of newbusinesses, establishments or entities within the tourism and hotel trade and in any leisure, recreation or amuse-14SOL MELIÁ ANNUAL REPORT 06 · FINANCIAL REPORT

ment activity. Certain Group companies also carry out real estate activities, taking advantage of the synergiesobtained from hotel developments due to the significant expansion process.In any case, those activities, reserved under special laws for companies which fulfill certain requirements that arenot fulfilled by the Group, are expressly excluded from its corporate purpose; in particular, those activities reservedby the laws for Collective Investment Institutions or money market dealers are excluded.The Group’s activities are carried out in Germany, Argentina, Belgium, Brazil, Colombia, Costa Rica, Croatia, Cuba,Egypt, Spain, the United States, France, Indonesia, Italy, Malaysia, Mexico, Panama, Peru, Portugal, Puerto Rico,United Kingdom, Dominican Republic, Switzerland, Tunisia, Uruguay, Venezuela and Vietnam.4CONSOLIDATION SCOPEThe companies which comprise the Group present individual financial statements in accordance with the regulations applicable in the country in which they operate.The breakdown of the participated companies at December 31, 2006, is presented in Appendices 1 and 2, classified in the following categories:·Subsidiaries: Those companies controlled, directly or indirectly, by the Parent Company, in such a way that thelatter can direct financial and operating policies with an aim to obtain profit for the company.·Joint ventures: Those companies which are jointly controlled through contractual agreements with a third partyin order to share control over the company’s activity. Financial and operating strategic decisions relating to theactivity require the unanimous consent of all controlling parties.·Associates: Those companies, excluded from the other two categories, in which the Group has a significantinfluence and maintains a lasting relationship which promotes influence on their activity.Meliá Brasil Administraçao, whose corporate purpose is that of hotel management, operates one hotel on a leasingbasis and the rest on a management basis. Since the hotels under management are of joint ownership and are notlegally authorized to carry out operating activities, in view of the local requirements, Meliá Brasil Administraçao hasassumed the operations of the hotels in Brazil on behalf of the joint owners. Since all risks and revenues will bereturned to the joint owners, the consolidated profit and loss account only reflects the remuneration from the management of the hotels received by the Group and does not include income and expenses relating to their operation.The company, Tryp Mediterranee, of which Sol Meliá, S.A. owns 85.4%, is in dissolution and is excluded from theconsolidation scope since, at present, the Group has no control or significant influence in the abovementioned company during said process.The Group’s participation in Comunidad de Propietarios Meliá Costa del Sol, through its subsidiary, Apartotel, S.A.is of 19.02%. As Apartotel, S.A. acts as Administrator and Secretary of the Comunity and as the participations arehighly dispersed, the Group has a significant influence. For this reason, the company is included in the consolidation scope applying the participation method, despite the participation held being less than 20%.The Group has a 49.84% holding in Casino Paradisus, S.A. corresponding to a 50% holding through the subsidiaryMeliá Inversiones Americanas, N.V. Due to the Group holding the majority of the voting rights, said company isconsidered to be controlled.FINANCIAL REPORT · SOL MELIÁ ANNUAL REPORT 0615

4.1Changes in the consolidation scopeADDITIONS IN 2006DISPOSALS IN 2006Colón Verona, S.A.Dominios Compartidos, S.A.Guarajuba, S.A.Guarajuba Empreendimientos, S.A.Havana Sol Restauración XXI, S.A.Hogares Batle, S.A.Inversiones Hoteleras La Jaquita, S.A.Sol Meliá Italia Srl.Desarrollos Turísticos del Caribe, S.A.Meliá Tour, S.L.Mogan Promociones, S.A. de C.V.Operadora San Juan, S.E.Youth Journey, Ltd.The company Colón Verona has been formed on December 5, 2006 for undertaking the integral renovation and lateroperation of a hotel in Seville, for which the Group has made a contribution of 30,000 euros.On December 2006, the Group has acquired 100% in the capital of Hogares Batle, S.A., for an amount of 2.4 millioneuros. The said company and its subsidiary Dominios Compartidos, S.A, are the owners of various assets whichhave been incorporated to the Group’s activity. These assets are basically a building adjacent to the present corporate headquarters, and 122 parking places close to various hotels located in Palma de Mallorca and other minorassets, the value of which amounts to 5.9 million euros.The company Guarajuba, S.A., acquired on December 29, 2006 for 6.1 million euros, and its subsidiary GuarajubaEmpreendimientos, S.A. are the owners of 475 hectares of land in Salvador de Bahía, Brazil, the value of which is6.1 million euros.On October 19, 2006 the company Havana Sol Restauración XXI, S.A. has been formed, with a contribution of61,000 euros made by the Group, for operating a restaurant in Madrid.Inversiones Hoteleras La Jaquita, S.A., formed on February 28, 2006, to which the Group has made a contributionof 16.3 million euros and in which it has a participation of 50% is the owner of a future hotel complex located inthe south of Tenerife. At year-end the value of the assets amounts to 50 million euros, with a debt of 18.6 millioneuros. These assets were acquired from other Group companies. This company is integrated by the equity method.Since the Group does not hold the majority of the voting rights, said company is considered to be an associate.On May 15, 2006, with a contribution of 20 million euros, the company Sol Meliá Italia Srl. has been constituted.This company links the three hotels operated by Sol Meliá in Italy.On February 2, 2006, the Group has formalised the acquisition of a participation of 70% corresponding to minorityinterests in Alcajan XXI, S.L., which is the owner of a hotel in the Dominican Republic, for an amount of 10.2 millioneuros. For this reason, the consolidation scope includes a 100% participation in this company. The Group exercised effective control of this company since the prior year, as explained in the consolidation scope movement tablefor the year 2005.On September 12, 2006 the Group’s participation in the company Meliá Mérida, S.L. has been increased from41.76% to 82.52%. This participation in these consolidated financial statements has been changed from being integrated by the equity method, as in previous years, to being recorded by the full integration method. This acquisitionthe cost of which amounts to 2 million euros, has implied an increase in the Group’s assets of 11.6 million eurosand in long-term debt of 6 million euros.In addition, upon the termination of the strategic alliance held with the Rank Group constituted for the joint development of the Hard Rock hotels, from August 1, 2006, the 100% participation held in Lifestar Hoteles España, S.L.,the long-term debt of which is 13 million euros, is integrated by the full consolidation method.In September 2006, the Group has acquired from the minority interests of Convento de Extremadura, S.A., for anamount of 0.8 million euros, a participation of 26.71%. At year-end, the percentage of participation in said companyis 77.63%.16SOL MELIÁ ANNUAL REPORT 06 · FINANCIAL REPORT

In June 2006, the Group has acquired from the minority interests of Hotel Bellver, S.A. a participation of33.42%., for an amount of 3.2 million euros. At year-end, the percentage of participation held by the Group insaid company is 100%.Further to the 33% participation held by the Group in Promociones Playa Blanca, S.A. de C.V., which defines itsinfluence on the said company, the Group has acquired in 2006, for an amount of 4.9 million euros, 16.5% of theeconomic rights. For this reason, a percentage of 49.5% of the economic rights of this company has been integrated by the equity method in the consolidation perimeter.On December 29, 2006 the Company sold its 50% participation held in the tour operator Melia Tour, S.L., for anamount of 1.7 million euros.During November 2006, the participation of 33.33% held by the Group in the company Mogan Promociones, S.A.de C.V., owner of land plots in Mexico, has been exchanged for other land plots valued at 2 million euros.The disposals of Desarrollos Turísticos del Caribe, S.A., Operadora San Juan, S.E. and Youth Journey Ltd., which aredormant, relate to the dissolution of the said companies, undertaken in October and November, 2006.The impact of the new business combinations carried out during the year on the Income Statement is detailed inAppendix 6. It should be highlighted that effects arising from the acquisition of said companies at the beginning ofthe period would have been immaterial.For purposes of comparison, the additions and disposals in 2005 are detailed below:ADDITIONS IN 2005DISPOSALS IN 2005Boscarla, S.L.Calimarest, S.A.Hantisol Resorts, S.A.LH Miami LLCLuxury Lifestyle H&RNyesa Meliá Zaragoza, S.L.PT Sol Meliá IndonesiaSM ComercialSMVC España, S.L.SMVC Panamá, S.A.Sol Meliá Fribourg, S.A.(*) Akuntra XII, S.L.(*) Azafata, S.A.(*) Consorcio Europeo, S.A.Controladora Turística Cozumel, S.A. de C.V.(*) Darcuo, XXI, S.L.(**) Hoteles Turísticos, S.A.(**) Industrias Turísticas, S.A.(*) Inmobiliaria Bulmes, S.A.(*) Inversiones Latinoamérica 2000, S.L.Inversiones Turísticas Casas Bellas, S.A.(*) Lavanderías Compartidas, S.A.(*) Meliá Catering, S.A.MIH UK, Ltd(**) Moteles Grandes Rutas de España, S.A.(*) Parking Internacional, S.A.(*) Secade XXI, S.L.(*) Inversiones Inmobiliarias Silverbay, S.L.(**) Urme Real, S.A.(*) Companies absorbed by Sol Meliá, S.A. (fair merger)(**) Companies absorbed by Realizaciones Turísticas, S.A. (unfair merger)Controladora Turística Cozumel, S.A. de C.V. was absorbed in 2005 by Caribotels de México, S.A. de C.V., a company in which the Group owns a 50.91% participation and which is integrated by the full method. The companyMIH UK Ltd, which was dormant, was dissolved at year-end.During 2005, the Group reduced its participation in Inversiones Turísticas Casas Bellas, S.A., and was recordedunder the “Available-for-sale Investments” caption at its carrying value.The operation relating to the Hotel Paradisus Palma Real, property of Alcajan XXI, S.L. began on December 22,2005. Sol Meliá, S.A. owned a 30% participation in the latter, with an acquisition cost of 4 million euros. OnFebruary 2, 2006, the Group has formalised the acquisition of the remaining 70% participation in Alcajan XXI, S.L.,FINANCIAL REPORT · SOL MELIÁ ANNUAL REPORT 0617

for an amount of 10.2 million euros, in virtue of an agreement reached in December 2005. As a result, the company changed, in the 2005 consolidated balance sheet, to being recorded using the full integration method, as itwas considered to be a controlled company at year-end. The total assets and liabilities of the company and its subsidiaries were recorded in the consolidated balance sheet, as were the economic rights of the minority shareholders for 70% of the participation corresponding to the abovementioned operation. 30% of the participation in the2005 results was recognised in the income statement as “Profit in associates”. The balance sheet included noncurrent assets amounting to 88.3 million euros and 5.8 million euros of working capital, as well as non-current liabilities amounting to 74 million euros and current liabilities amounting to 7.3 million euros.The company Nyesa Meliá Zaragoza, S.L. was constituted on October 27, 2005, with a Group participation of 50%and was included in the balance sheet by the full integration method, since the Company had control through possession of the majority of the voting rights. The company acquired a property owned by Sol Meliá, S.A. in order topartially develop the building, as well as continuing with the hotel operation activity. The latent surpluses, amounting to 17.4 million euros, derived from the sale of assets between Group companies, were not recorded.During 2005, the Group acquired participations from the minority shareholders of Tenerife Sol, S.A (48.40%)and Moteles Andaluces, S.A (20.17%). At year-end, the participation in these companies was of 98.40% and98.7%, respectively.5PRESENTATION BASIS OF THE CONSOLIDATED FINANCIAL STATEMENTSThe Sol Meliá Group’s financial statements are prepared in accordance with the International Financial ReportingStandards (IFRS) and its prevailing interpretations published by the International Accounting Standard Board (IASB)at December 31, 2006.These consolidated financial statements have been formulated by the Board of Directors of the ParentCompany and are pending approval at the Annual Shareholders’ meeting. It is expected that they will be approved without changes.The consolidated financial statements have been prepared on a historical cost basis, except for investment properties, land and buildings and derivative financial instruments, which have been measured at fair value.The accounting policies applied are consistent with those of the previous year, since the modifications to the existing standards and the new interpretations applicable since January 1, 2006 have no effect on the consolidatedfinancial statements nor on the financial position and disclosures.The Group has not adopted in advance the standards approved by the European Union, whose application is notcompulsory during 2006. These standards will be applied once they are compulsory. With the exceptions detailedbelow, which imply additional disclosures, these standards will have no effect on the Group’s financial position.IFRS 7 – Financial Instruments: Disclosures. Its purpose is to require entities to provide disclosures that allowusers to evaluate the importance of the Group’s financial instruments and the nature and extent of risks arisingfrom the said instruments.Modifications to IAS 1 – Presentation of Financ

MELIÁ · ME · TRYP · SOL · PARADISUS · SOL MELIA VACATION CLUB · LUXURY LIFESTYLE. CONTENTS . Receipt of investment incentives 0 1,347 TOTAL CASH FLOW FROM INVESTING ACTIVITIES (144,443) (81,621) . rate changes in cash and cash equivalents (5,419) 6,492 NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 74 29,458 CASH AND CASH .